2004 PLP 1741 (CLD)

Rs.164.098 M (ii) Forced Morabaha Finance Rs. 18.642 M (iii) Guarantee favouring Leasing Companies Rs. 6.878 M (iv) Guarantee favouring Custom Authorities Rs. 13.401 M Total Rs.203.019 M It is this amount, which has been claimed in the suit, along with the liquidated damages and the costs of funds.

10. In order to contest the matter as stated earlier, the appellants/defendants, moved the leave application and in a paragraph, preceding the preliminary submissions, it is mentioned that prior to the filing of the suit by the respondent/plaintiff, the defendants had already filed a suit for the redemption of mortgaged property and for the compensation and consequential relief, which is pending adjudication before the same Banking Court. Anyhow, according to the defence set out in the preliminary submissions, which is the key defence of the appellant, it is their case that the appellants had planned to set up an energy generation plant of 6.9 MW and approached the Bank for financing the project, which was agreed to be in the nature of equity participation. The entire basis of the financial planning for establishing the project had been that it shall be 100% equity based project The bank has given a commitment, that it shall invest in the equity of the company to the extent of 25% of the paid‑up capital at a premium of Rs.20 per shore of face value of Rs.10. The appellants required the generating units for its project and the bank had undertaken that the letter of credit shall be established for import of the power generation plant, on the basis of 100% equity. The bank had also undertake to underwrite 40% of the public subscription of the company. It is stated that the above commitment of the Bank is not only clear from the sanctioned letter dated 27‑9‑94 but also through certain correspondence, between the parties, if stands proved that the bank had agreed to be the equity partner, of the project, but subsequently, the bank backed out. In paragraph No.6 of the preliminary submissions, it is stated that "Sadly enough the Bank deliberately destroyed this financial plan. Not only that the Bank by creating illegal liabilities on the company has crippled its financial standing". It is further mentioned in paragraph 11 "However, after having entered into its commitments, the bank started acting in a manner which was totally contrary to its commitments. When the power generation units had been‑ imported under the LC, the bank rather than retiring the documents itself and then settling the amount through its equity contribution on its own negotiated two lease one with the National Development Finance Corporation and the other with Orix Leasing company for a total sum of Rs.90 million. Not only that, the bank also went ahead without concurrence of the applicant, with providing guarantees to these leasing companies for payment of the rentals The applicants company was also constrained to enter into a third lease, since the bank had failed to provide equity contribution. These leases were forced on the applicants".

11. As regards the creation of the Morabahas are concerned, it is averred that "For making payment of the lease rentals the Bank has been having recourse to fictitious Morabahas. No sale or purchase of any goods whatsoever has taken place under the Morabahas. In addition to fictitious Morabahas aimed at providing a Fictitious basis for illegal profits, the Bank has also created, what it has chosen to call "forced Morabahas". In the most of these morabahas, it does not even have any fictitious documentation". In paragraph No. 14, it is the case of the appellant/defendants, "The bank's failure to provide equity financing also resulted in creation of artificial Bank loans on which the Bank has claimed mark up". In nutshell, the entire case of the defendants is that the bank has failed to stand by its contractual obligations to provide equity to the project and has in fact itself created the illegal finance facilities, which the appellants are not liable to pay, because such transactions/agreements are hit by the provisions of section 23 of the Contract Act.

12. It may be significant to mention here that on merits, in paragraphs 6 to 13 and other relevant para. of the leave application, the appellants/defendants have not denied the execution of the documents, on the basis of which, the bank has propounded its claim, however, it is mentioned that these do not create any liability of the defendants, for the facts and reasons stated in the preliminary submissions of the PLA.

13. The PLA was replied by the respondent‑Bank and the learned Judge Banking Court vide impugned judgment and decree, dated 13‑5‑2003, by refusing the leave application of the appellants/defendants, has decreed the suit to the extent of Rs.1,89.618 Million, with costs. The plaintiff has also been found entitled to the costs of the funds to be determined under section 3(2) of the Ordinance No. XLVI of 2001. Hence this appeal.

14. Mr. Muhammad Akram Sheikh, the learned counsel for the appellants, has argued that the suit brought by the bank is a counter‑blast to the suit earlier filed by the appellants, seeking the redemption of the mortgaged property and also for the compensation and damages. It is also stated that as both the suits are regarding the same subject‑matter, resultantly, the appellants should have been granted the leave to appear and defend the suit subsequently filed by the respondent‑Bank otherwise, their suit which as mentioned above, is earlier in time, shall be seriously prejudiced. By relying upon the letter dates 18‑7‑1994, it is argued that the respondent‑Bank had made a firm commitment with the defendants and had promised that the bank shall invest in the equity of company by way of Pre‑IPO Foreign Exchange to the extent of 25% of the paid up capital at a premium of Rs.20 per share of face value Rs.10 each. This was reaffirmed by the bank vide letter dated 23‑8‑1994. Moreover, through the letter dated 21‑7‑1994, the bank had committed and conveyed to underwrite the public subscription up to Rs.40.000 Million for which, approval was granted by the respondent‑Bank Head Officer; further, through another letter dated 21‑7‑1994, the bank had confirmed to participate in equity of the company in Foreign Exchange to the extent of 25% of the Paid Up Capital at a premium of 100%. This was followed by a letter dated 29‑9‑1994.

15. Therefore, inter alia, on the strength of the above, it is submitted by Mr. Akram Sheikh, that in such a situation, the bank could not have left the appellants lurching in the difficulties, when the appellants were about to accomplish the project, by backing out and forcing illegal transactions upon them such as entering into the leasing agreements, with the two leasing company mentioned above and itself providing the guarantees and also coercing the appellant to give the counter guarantee.

16. Likewise, the bank had violated its commitment in providing the equity participation and also the clearance of the goods and the power plant from the custom department and payment of the custom and other duties, therefore, the creation of forced Morabahas by the bank is absolutely illegal and unlawful. Mr. Akram, has submitted that under the law, Morabahas can only be entered on account of the sale/purchase of the goods, but this essential element is absolutely lacking in the present case, resultantly, the entire transaction being fictitious; illusionary in nature and against the instructions of the State Bank of Pakistan, for the Islamic system of banking; therefore, such transactions, should altogether be ignored and the suit of the bank be dismissed. It is further submitted that the bank throughout has been exploiting the vulnerable conditions of the appellants; in fact it exercised financial coercion upon the appellants, and deviated in its commitment of the equity participation, and compelled the appellants to execute certain d6cumentation, which has no legal sanctity and value.

17. Replying to the above, Mr. Ali Zafar, Advocate, has taken us through the agreements, which were admittedly executed by the appellant, the sanction letter, the vouchers through which the payments have been made to the leasing company by the bank and other large number of documents to show, that it is on account of the free‑will and mutual understanding of the parties that subsequently the project, which initially was based upon the equity participation, of the bank, was changed in the manner that the plant and equipment, etc. which the appellant No. 1, had imported through their own arrangement,, was brought into the net of leasing for which, the appellants undertook to make the payment of instalments and the respondent‑Bank stood as a guarantor thereof. Mr. Ali Zafar, therefore, submitted that the entire case now set out by the appellants, is the result of an afterthought and against the documents admittedly and duly executed by them. He argued, that the said agreements had been duly acted upon and appellants had been making certain re‑payments on the basis of such agreements as well. But when they defaulted and anticipating that the Bank shall initiate a legal action against them, for the recovery of the finance, they in order to abortively forestall and pre‑empt such action, brought the suit, which shall have no bearing upon the question of leave, to be obtained by the appellants, for which an independent case within the purview of Section 10 of the Ordinance No.XLVI of 2001, has to be necessarily made out by the appellants, but the appellants have miserably failed in this behalf. Therefore, irrespective whether the two suits covers the same subject‑matter, itself shall be no ground for granting the leave to the appellants. It is also submitted, that the appellants have failed to fulfil the mandatory requirements of section 10 of the Ordinance, mentioned above, inasmuch as the appellants have failed to give the details and the particulars, as have been mentioned in section 10(4)(a) to (d). Moreover, the leave application in terms of sub‑section (3) does not contain the summary of the substantial questions of law and facts, on which, in the opinion of the appellants/defendants evidence needs to be recorded, therefore, the leave application, which does not correspond to the requirement of law, is liable to be rejected, under subsection (6) of the section ibid.

18. We have heard the learned counsel for the parties. Before proceeding to examine the case on merits, we would like to dilate upon the questions raised by Mr. Ali Zafar, about the non‑compliance of section 10 and also decided against the appellants by the learned Banking Court. Subsection (6) of section 10, provides the rejection of the plaint for the failure of the defendant of a case to meet with the requirement of subsections (3) & (4), where applicable. This command of the law has made the provisions mandatory. However, a cushion is available to the defendant, who fails in this behalf to disclose "sufficient cause" for his inability to meet the requirements. We have carefully perused the PLA filed by the appellants and find that the summary of the substantial questions of law and fact, which in the opinion of the appellants/defendants needs evidence to be recorded have not been stated/propounded. Likewise, the appellants have failed to meet the requirement of subsection (4), inasmuch as, have omitted to state as the amount of finance availed by the appellants and the amounts, if any, paid to the bank and the dates thereof. The leave application also lacks mentioning, as to what amount relating to the respective finances, is yet payable by the defendants, up to the date of the institution of the suit; furthermore, the amount, which the appellants disputes as payable and the facts in support thereof. To meet the above omissions, Sheikh Muhammad Akram learned counsel for the appellants has made endeavoured hard to read before us various paragraphs of the leave application, but unfortunately he has not been able to satisfy, if the requirements of law, at all have been met with. Confronted with the above situation, Mr. Sheikh has argued that in fact the amounts claimed by the bank are not the "finance". Because according to him, as mentioned in the preliminary submissions of the PLA, the bank had agreed to enter into a partnership, with the appellants for the purpose of the said project, on the basis of the equity and such contribution towards the equity participation is not the finance. We are afraid, that the plea is contradictory, because, it is the case of the appellants that the bank did not provide the equity as committed, rather compelled the appellants for other nature of the transactions, which admittedly are covered by the definition of the finance given in the law. Therefore, how could a "equity" which is not given, now can be pressed to avoid the consequences of failure to meet the conditions of section 10 ibid. We are also not inclined to hold that because certain transactions were allegedly forced upon the appellants and they were compelled to enter into the transactions by the exercise of undue influence and financial coercion, by the bank, therefore, these cannot be termed to be the finance, rather the original understanding of equity participation between the parties would prevail. Therefore, we are constrained to hold that the PLA does not meet the requirement of section 10 and therefore, on this score also, is liable to be rejected.

19. Attending to the merits of the case, the argument of Mr. Akram Sheikh that the respondent had agreed to equity participation and subsequently, resiled from its firm commitment and the promise; and the subsequent changed nature of transactions and the documentation in this behalf is the result of economic duress, coercion, exercise of under influence, lack of free‑will and consent on part of the appellants, suffice it to say that initially the understanding for the equity participation was given by the bank to the appellants in the year 1994. But no formal contract, in this behalf was ever entered into between the parties. Rather subsequently, as was permissible by the terms of the sanction letter dated 27‑9‑1994, the bank on the express request of appellant No.1; vide letter dated 21‑8‑1995, issued the guarantees to the leasing companies and the said defendants entered into leasing agreements with the companies. This clearly proves that subsequent to initial understanding, both the parties thought to change the nature of their dealings and accordingly executed all the necessary documents in this behalf. It may be pertinent to state here that there was no legal or contractual bar upon the parties to agree otherwise then the equity participation. It may also be advantage to state here that the "finance agreements" and all other documents, which are referred to in the plaint and attached thereto, have not been denied by the appellants and the transactions envisaged by these, strictly corresponds to those, which have been finally accomplished and acted upon by the parties. There has never been any complaint of any undue influence, coercion, fraud, misrepresentation, financial duress at any point of time by the appellants, rather the appellant No.1, made certain payments to the leasing companies in discharge of its obligation under the executed transactions, but thereafter, failed, thus compelling the bank to honour its guarantees furnished to the leasing companies. However, anticipating the legal action to recover such amount and the other dues, the suit was brought by the appellants, in the year 2001. Though large number of judgments from the foreign jurisdiction such as Howes v. Bishop (1909) 2 K.B. 390; Bank of Credit and Commerce International S.A. v. Aboody (1990) I. Q. B. 923; Goldsworthy v. Brickell (1987) Ch. 338,

401. Bullock v. Lloyd's Bank [1954] 3 All ER 726; William v. Johnson [1937] 4 All ER 34; Wright v. Carter [1903] 1 Ch. 27; Re Brocklehurst (deceased Hall and another v. Roberts. [1978] 1 All ER 768; Credit Lyonnais Bank Nederland N.V. v. Burch [1997] 1 All ER 144; TSB Bank PLC v. Camfield [1995] 1 All ER 951; National Westminster Bank v. Morgan [1985] AC 686; The Commercial Bank of Australia v. Amadio [1983] 151 CLC 447; Multiservice Bookbinding Ltd. v. Marden [1979] Ch. 84; BCCI v. Aboody [1990] QB 923, 965; Westminster Bank PLC v. Morgan [1985] AC 486, 704; Credit Lyonnais Bank Nederland NV. v. Burch [1997] 1 II ER 144, 154; Barclays Bank PLC v. Coleman [2000] 1 ALL ER 385; Royal Bank of Scotland PLC v. Etridge (No.2) [2001] 4 All ER 449; and Cornish v. Midland Bank PLC (Humes, third party) [1985] 3 All ER 513, have been cited by the counsel for the appellants, to argue that the relationship between the parties was of unequal bargain status, thus the bank was in a position of exercising its undue influence upon the appellant and therefore, the subsequent transaction should not be given much sanctity in law as these are the result of the above mentioned vices.

20. We are afraid, this stance was not taken by the appellants at the relevant point of time, rather they made an express request for furnishing the guarantees to the leasing companies by the bank; they duly executed the lease agreements with the companies and also made the repayment of the lease amount by various instalments. The above, coupled with the execution of other relevant documents, is enough to infer that the pleas of coercion, etc. now taken are the result of an afterthought. Furthermore, it may be emphatically stated, that even these pleas of economic duress, coercion, undue influence, lack of free‑will, in relation to the leasing agreements and the execution of the documents connected thereto, are not specifically set out as the grounds for the leave, but it is vaguely stated that "these leases were forced on the applicants." Why did the appellants not resist or even agitated or wrote few words to the bank, that its commitment of equity participation is being breached and that the new arrangement is not acceptable. All these omissions sufficiently established that both the parties mutually agreed the way, it has finally culminated and has been so propounded by the bank in the plaint. In the light of above, the argument of the appellants' side about the invalidity of the transactions has no force.

21. Examining the question that when the appellant had filed the suit for redemption, etc: in which the leave has been granted to the respondent‑Bank, as the questions involved in the earlier suit, are substantially and directly in issue in the subsequent suit, brought by the bank, therefore the leave should necessarily have been granted in the present case. The answer is duly provided by section 9 of the Ordinance, by virtue whereof, the provisions of section 10, C. P. C. have been made inapplicable to the proceedings under the Special Law. Thus the intention of the legislature is very clear that if there being a situation, where two suits are filed, one filed by the customer against the bank and the other by the bank against the customer relating to the same finance, both suits, should be tried independently. The leave in either case, as a matter of course, should not be granted, only for the reason of the institution, pendency, or the grant of leave in other case. Rather for the leave purpose, the particular case should specifically be adjudged on its own merits and on the yardstick of the law stated in the Ordinance. If in both the matters, the Court independently finds the case fit for leave, the matters can then be tried together for avoiding the conflicting decision. But if in one case, no case for leave is made out, the application can be refused to follow the consequences and the other case shall proceed on its own merits. Resultantly, it was the duty of the appellants to have set out a case by not simply alleging the "substantial questions of law and facts" but also establishing that the questions cannot be determined without the recording of the evidence, obviously indicating the evidence needed in this behalf. But this condition as a whole has not been satisfied by the appellants. On the contrary, the entire financial facility on the basis of which, the bank has brought its claim against the appellants, are duly documented and there are admissions by the appellants qua the execution of these documents. The unsubstantiated assertion of the appellants, which is not supported by any contra‑document as required by section 10(5), that the bank backed out from the equity participation and in the circumstances compelled the appellants to enter into the leasing arrangement, cannot be considered the "substantial questions of facts" to prove, which some undisclosed and unspecified oral evidence should be permitted to the appellants. 'We are thus constrained, to hold that in the light of the large number of documents admittedly executed by the appellants and when there is not even a single piece of paper or a word in writing that the appellants ever at the relevant time, complained of any kind of undue influence, coercion or illegality on part of the bank, how on the basis of uncorroborated averments made in the application, the case of leave can be said to have been made out.

22. As regards the submission of counsel for the appellants that the transactions of Morabahas are invalid, as no physical sale/purchase of goods, which is an essential condition for such transaction, took place, and therefore, it is hit by the provisions of section 23 of the Contract Act, suffice it to say that the parties have entered into the Morabahas agreements, in which the sale purchase of specific good is mentioned. The appellants are party to such agreements; it is not their case that these agreements are interpolated, fabricated or procured through fraud and misrepresentation, therefore, they cannot in law, be allowed to take‑up a plea, which is disproved by the documents executed by themselves.

23. Before parting, it may be stated that when questioned, Mr. Ali Zafar, has not been able to satisfy us, if the bank could charge the mark‑up on the various facilities beyond the period of the agreements. Therefore, the amount of Rs.38.638 Million has been illegally and un authorizedly claimed by the respondent‑Bank, which should not have been allowed by the learned Banking Court, resultantly, to the extent of such amount, the decree stands modified and the above amount is excluded and therefore, the decree to the tune of Rs.143.237 Million along with costs of funds, in favour of the respondent passed by the learned Banking Court, is sustained and upheld. In the light of what has been stated above, this appeal has no merit, which is hereby dismissed with costs throughout. M.H./Z‑48/L Order accordingly.