1997 PLP 1495 (CLC)

Date of hearing: 19th February, 1997 By this petition under section 39 of the Industrial Development Bank of Pakistan Ordinance, 1961 (hereinafter called the Ordinance) petitioner Bank seeks the recovery of Japanese Yen 1,078,888,363.14 and Rs.271,722 due on 31‑12‑1993 against the respondent No.,1., company represented through respondents Nos.2 to I 1 as its Directors.

2. Petitioner vide sanction letter dated 16‑12‑1991 as amended by letters dated 26‑1‑1992 and 27‑2‑1992,‑sanctioned a foreign currency loan equivalent to Rs.119,771 million being 90% of the cost and freight of the imported machinery plus interest and exchange cover thereof and local currency financial assistance of Rs.10 million. On the request of respondent No. 1, petitioner and the said respondent executed an agreement regarding deferred Letters of Credit so that instead of the petitioner issuing a Bank guarantee to the supplier abroad, would open two Letters of Credit for 90% of the project amount. In terms of para. 1 of the agreement, first instalment out of 12 half yearly instalments payable with interest was to become payable 18 months after the date of the last major shipment. By way of security, respondent No. l deposited with the petitioner title deeds of immovable property mentioned in the petition together with factory thereon, with structure, fixtures, fittings, machineries and equipment which was got registered with the Deputy Registrar, Joint Stock Companies. Two Letters of Credit were established by the petitioner for the import of the machinery whereas respondents Nos.2 to 11 executed a joint letter of guarantee dated 29‑2‑1992 in respect of the foreign currency loan as well as local currency assistance. As per letters of sanction, petitioner was to make available local currency financial assistance to the respondent No. l by disbursing an amount of Rs.10 million to the local machinery supplier directly which in fact was not purchased. Although the machinery was imported from abroad and import documents were delivered to respondent No. l after necessary endorsement, the said respondent did not get the machinery cleared with the consequence that a huge amount of demurrage and other charges became payable on clearance of machinery lying in the custody of Customs and K.P.T. Legal notices were issued to the respondent for clearance of the imported machinery but without any response. A further notice was issued to the respondent recalling the sanction of advance alongwith interest due thereon though the same was not due for payment. As the respondent ‑No.l and its Directors paid no heed to repeated demands, petitioner brought this petition for attachment and sale of movable and immovable properties belonging to the respondent No. 1, particulars whereof are given in the petition.

3. Collector of Customs, Assistant Collector of Customs (auction) and KPT were also joined as parties, as injunction was prayed against these respondents restraining them from auctioning the imported machinery to third party and also prohibiting them from giving deliveries to respondent No. l or its Directors. Besides a direction was ought against respondents Nos. 12 to 14 to permit the petitioner to get all the imported machineries cleared so that the same may be transported to the project site of respondent No. l company.

4. Respondents Nos. l to 11 filed a counter‑affidavit under the signature of respondent No.9 as one of the Directors of the respondent company not disputing the sanction of foreign currency facility as well as the local currency loan but they stated that due to adverse financial implications they were short of cash flow thus there was extraordinary delay in the release of the imported machinery from Customs. It was further stated that petitioner Bank did not release the local currency loan as stipulated and agreed upon between the parties. In para. 31 of .the counter‑affidavit, it was suggested that the respondents had now after suffering losses arranged for finance and were now ready and willing to get the machinery released. It was urged that the project was to be completed within 22 months but it was linked with locally manufactured machinery finance which was mala fide withheld and refused by the petitioner thereby causing huge loss to the respondent company. With the aforesaid explanation respondents disputed their liability to repay the finance and interest thereon.

5. An affidavit‑in‑rejoinder to the above said counter‑affidavit was filed on behalf of the petitioner Bank refuting the pleas raised in the counter‑affidavit reiterating that the respondents took no steps for clearance of the imported machinery from Customs despite a number of letters and notices sent to them. It was pointed out that local currency assistance was payable directly to the supplier and not to the respondent No. l as a part of their working capital because none was undertaken. It was further maintained that it was provided in the sanction letters that within six months from the date of establishment of Letter of Credit respondent No. l will produce a letter of sanction from an institution acceptable to the petitioner' Bank for issuance of Participation Term Certificates worth Rs.37.5 million to meet required funds during the construction to bridge the gap between required funds and floatation of shares. Although Letters of Credit were established on two occasions in March, 1992 but the respondent No. l did not arrange the bridge finance and their sponsors did not contribute Rs.37.5 million in the alternative. According to the petitioner Bank period of 22 months for completion of the project was not linked with locally manufactured machinery finance. Essentially it was urged that since the respondent No. l could not clear the imported machinery from Customs, the occasion for purchase of locally manufactured machinery did not arise for which payment was to be made directly to the supplier and not to the respondent company.

6. Vide order dated 8‑9‑1994 on Civil Miscellaneous Application No.3 of 1994, at the instance of petitioner Bank, an order of attachment ad interim was passed in respect of the property mortgaged with the petitioner, all the machineries imported from abroad and lying with Customs Authorities as well as the property of the respondents Nos.3 to 6 and 9 as mentioned in para. 22 of the petition.

6. Subsection (7) of section 39 of the Ordinance stipulates that if no cause is shown, the Court shall forthwith make the order ad interim absolute and direct the sale of the attached property or transfer the management of the concern to the Bank or confirm the injunction. Subsection (8) of this section lays down that if cause is shown, the Court shall proceed to investigate the claim of the Bank and provisions of Code of Civil Procedure, 1908 shall as far practicable apply to such proceedings. It may be observed that the respondents of course filed a counter‑affidavit but in the strict sense of the term, it does not spell out a cause against attachment for the purpose of further investigation, formulation of issue or recording of evidence in relation to the claim.

7. What is contended before me on behalf of the respondents is that the petitioner Bank failed and neglected to advance locally manufactured machinery loan which handicapped the respondents in the establishment and commencement of the project. As pointed out earlier. local currency component of the finance 8 has nothing to do with the commencement of the project as in the first instance it was for the respondents to import the machinery which having been imported has not been cleared by them from the Customs despite a lapse of almost four years. This circumstance clearly tends to show that the respondents were short of funds and despite their alleged assertion that they had arranged for the requisite funds, it is not demonstrated by them as to why the imported machinery could not be cleared from the Customs.

8. On my query as to what amount is due and payable by way of Customs duties and demurrage charges, Mr. A.I. Chundrigar, Advocate for petitioner Bank has placed on record and statement indicating that demurrage payable to K.P.T. up to 30‑6‑1996 comes to Rs.176.392 million. with regard to Customs duties, it is stated that in February, 1993 a sum of Rs.10 million was due and payable on clearance besides wharfage as per tariff in the year 1993 was 0.115 million and Octroi amounting to Rs.4.5 million is due and payable to the Municipal authorities. The total amount thus payable on the release of the goods, comes to Rs.191.007 million. Obviously respondents have not been in a position to pay up this amount for clearance of machinery. In the circumstances, I am convinced that no plausible cause is shown for non‑payment of the claim advanced by the petitioner Bank.

9. With reference to the provisions contained in section 38 of the Ordinance, it was contended that the petitioner Bank has failed to show that it has become entitled to require immediate payment of the loan or recall the sanction, but in the circumstances, I am of the view that clauses (f) and (i) of section 38 govern the present situation. According to clause (f), a Bank may by: notice require any industrial concern to which it has granted any loan or any person liable for payment of loan forth with to repay the loan in full, if for any other reason, it is necessary in the opinion of the Board of Directors of the Bank to protect the interest of the Bank while clause (i) authorises the Bank to recall the sanction of loan in full if in the opinion of the Board of Directors of the Bank the management of the business of the industrial concern is not being conducted in a satisfactory manner or its share capital is being impaired. These provisions by themselves are adequate enough to justify the petitioner Bank to recall the sanction of finance and no useful purpose shall be served by investigating further into the cause shown by the respondents for lack of commencement of the project.

10. In the circumstances, ad interim order of attachment is made absolute and the attached properties are directed to be sold. Claim of the petitioner is decreed with interest at 7.6 % per annum from the date of petition against respondents Nos. l to

11. Official Assignee is appointed as Commissioner to take over possession of the properties attached in pursuance of the order of this Court and effect sale thereof for realization of the petitioner's dues. Petitioner shall also be entitled to costs of this petition. A.A./I‑14/K Order accordingly