1986 PLP 1086 (CLC)

5. During the course of their arguments, learned counsel for the parties had referred to various reported decisions in connection with the principles to be kept in mind while deciding applications for grant of leave to defend suits under Order XXXVII, rule 3, C.P.C. Mr. A. Majid Khan referred to the following reported judgments:‑ (i) Fine Textile Mills Ltd. v. Haji Umar P L D 1963 S C 163. (ii) Muslim Commercial Bank Ltd. v. Tayab Sharif 1975 S C M R 393. (iii) Shahzad Ice Factory v. Special Judge (Banking) P L D 1982 Lah. 92. (iv) Dur Muhammad Pracha v. Judge Special Court Banking 1982 CLC 1625. (v) Azamat Wali v. Hassan A1‑Adawi 1983 C L C

546. Mr. Muhammad Anis, Advocate cited 1975 S C M R 393 and the judgment of a learned Single Judge of the Lahore High Court reported in 1982 CLC 1625. He also relied upon:‑‑ Mr. R.H. Faruqui, Advocate referred to the following judgment of a learned Single Judge of this Court:‑ (vii) Habib Bank Ltd. v. Karachi Properties Investment Co. Ltd. PLD 1984 Kar.

257. Mr. Ibrahim Pishori for the plaintiff‑Bank cited the following judgments:‑ (viii) Zahid Press Ltd. v. National Bank of Pakistan 1980 C L C 1279. (ix) Allied Bank of Pakistan v. Faiz Ahmad, Manzoor Ahmad P L D 1985 Leh. 188. (x) National Bank of Pakistan v . Ch. Ilam Din & Co. P L 1) 1985 Lah. 117. (xi) National Bank of Pakistan v. Master Rubber & Tyre Co. Ltd. 1984 C L C 3497. (xii) Iftikhar Ahmad v. Muhammad Yunus Khan 1982 C L C 2114.

6. I may here refer to the case of Azmat Ali v. Hassan Ali Adawi reported in 1983 C L C 546 para. 7 of the judgment delivered by me in that case may be reproduced here:‑ , "(7) On a review of the case‑law, the following general principles can be enunciated in regard to the grant or refusal of leave to defend a suit filed under Order XXXVII of the Code of Civil Procedure:‑ (a) If no defence is spelt out, on facts or in law, in the application for leave to defend or documents filed by the defendant, leave is to be refused. Result will be that the suit shall be decreed; (b) If any kind of defence is made out, be it plausible or even illusory, the defendant is to be granted leave to defend the suit; (c) If leave is to be granted to the defendant to defend the suit; it can be unconditional leave or conditional, depending on the strength of the defence put up by the defendant. If a plausible defence, whether on facts or in law, is made out, unconditional leave is, as a general principle, granted; (d) Even if the defence is plausible leave may not be granted unconditionally if the conduct of the defendant is mala fide or is not free from suspicion; (e) If a defence is set up which is not plausible, leave to defend should not be refused but should be granted on condition of furnishing security or deposit of amount. Such cases will be where, to adopt the words employed by the Supreme Court of Pakistan in P L D 1963 S C 163, "the defence set up be vague or unsatisfactory or there be a doubt as to its genuiness"; (f) Whether conditions are imposed or unconditional leave to defend is granted, the appellate Court generally does not interfere as this is the discretion to be exercised by the trial Court. If, however, the discretion is exercised arbitrarily, the appellate Court will interfere; (g) A suit can be filed under Order XXXVII, C.P.C. on the basis of a promissory note even if it was given as collateral security for repayment of a loan. Mere argument that it was a collateral security will not entitle the defendant the right to defend the suit." To the above principles, the following further principles may be added:‑ (h) Even in a mortgage suit filed under the Banking Companies (Recovery of Loans) Ordinance, 1979, where the loan is secured by mortgage of immovable property, the defendant is required to obtain leave from the Court to defend the suit and such leave is not granted as a matter of right on the defendant merely establishing that the loan is secured by mortgage of immovable property but he had to make out a case for grant of leave. (i) If conditional leave is granted to the defendant in a mortgage suit, it is not necessary that in all cases the mortgage security will be considered as the requisite security. Depending on the facts and circumstances of the case, the Court may or may not require the defendant to furnish another security. However, the existance of the mortgage security is a relevant factor for consideration by the Court where conditional leave is being granted. Reference has already been made to the judgment in the case of Dur Muhammad v. Judge Special Court Banking 1982 C L C 1625 of a learned Single Judge of the Lahore High Court. This judgment was relied upon by the learned counsel for the defendants for the proposition that in case the loan is secured by mortgage, unconditional leave is to be granted to the defendant to defend the suit. Reliance has been placed on the following observation of the learned Single Judge of Lahore High Court in 1982 C L C 1625:‑ "If the loan is secured or the defendant has good prima facie case the Court should grant unconditional leave and if the defendant has only an arguable case the Court may grant leave subject to furnishing security." As regards the principle that where the defendant has made out a good prima facie case, the Court should grant unconditional leave, in my view, 'good prima facie case' amounts to saying that the defendant has made out a plausible defence and to this extent, I am in respectful agreement with the learned Single Judge of the Lahore High Court. However, in regard to the observation that if the loan is secured the Court should grant undconditional leave, with respect I say that I am unable to agree to this proposition. As observed earlier, even in a case where a loan is secured by mortgage or other security, the defendant must make out a case for grant of leave. If no defence is made out, whether plausible or even illusory, in view of the provisions of the Banking Companies (Recovery of Loans) Ordinance, 1979, read with Order XXXVII of the Code of Civil Procedure, the defendant will not be entitled to defend the suit and the plaintiff will be entitled to decree. Reference is made to P L D 1985 Lah. 117 and PLD 1985 Lah. 188, both decisions of another learned Single Judge of the Lahore High Court. I am in entire agreement with the propositions of law enunciated in these two decisions on the question of grant of leave to defend mortgage suits filed under the provisions of the Banking Companies (Recovery of Loans) Ordinance, 1979.

7. Mr. S.H. Zafar, Advocate, raised the following contentions in support of the applications made by the defendants Nos. 1, 2, 3, 6 to 13 in Suit No. 352/83 and defendants Nos.l, 2, 3, 8 to 15 in Suit No.369/83 for leave to defend:‑ (a) The plaintiffs have filed suits under Order XXXIV, rule 4, C . P. C . based on mortgage of immovable properties but the mortgage is defective as parties to the mortgage deed include persons who are not mortgagors; (b) The mortgage deed was executed on 31‑3‑1979 and the terms of the mortgage show that further credit of Rs.50,00,000 had to be given by the defendants but this amount was not advanced; (c) No money was advanced to the defendants under the registered mortgage on which the suit has been based; (d) Under section 16 of the Code of Civil Procedure, this mortgage suit could only have been filed at Rahimyar Khan where the properties are, located and where the mortgage deed was registered; (e) On merits the following submissions were made:‑ (i) In the statement of account filed alongwith the plaint by the Bank, there are several debit entries which are in fact payments made to the Muqaddam of the Bank. According to the learned counsel, the payments made to the Muqaddam amount to about 1/3rd of the total value of the exports made by defendant No.l. It is alleged that the Muqaddam was in league with the Manager of the concerned branch of the plaintiff‑Bank and on account of this unholy alliance, huge losses were caused to the defendants and if a proper account was taken it will be found that most of the amounts paid to the Muqaddam were not due to him; (ii) the concerned defendants were forced to execute the mortgage deed which in fact was a device to give support to the Manager of the plaintiff‑Bank who was in league with Muqaddam Anwar Asghar; (iii) The Bank held sufficient stocks and also held original documents of title of the mortgaged properties but in spite of this the defendants were forced to execute the registered mortgage deed. According to the learned counsel, the huge amount spent towards the stamp and registration charges of the mortgage deed was debited to the defendants for which there was no justification; (iv) Several payments were made to third parties and the amounts were debited to the account of defendant No.l; (v) Defendant No.3 A. Khaliq Rehmani was forced to take personal insurance on his life and a premium of Rs.1,00,000 was paid to the Insurance Company and the amount debited to the account; and (vi) Substantial stocks are lying pledged with the Bank for which no credit or account has been given by the Bank.

8. In my view, in the applications of the defendants represented by. Mr. S.H. Zafar and the affidavits filed by them in support of their applications, no plausible defence has been made out. Prima facie, inclusion of names of certain borrowers in the mortgage Deed as parties without such borrowers' property being mortgaged does not invalidate the mortgage deed. In support of the contention that under the mortgage deed executed on 31‑3‑1979, the Bank had undertaken to advance a further amount of Rs.50,00,

000. Learned counsel for the defendant had referred to the third sub‑para. of Recital No.14 of the mortgage deed, which reads as follows: "And whereas at the request of the mortgagors and against their guarantee the Bank has agreed to allow to the Borrowers accommodation by way of loan/over draft/letter of credit/cash credit /guarantee or other banking facilities to the extent of Rs.50,00,000 (Rupees fifty lacs only) on the condition that the Mortgagors shall create a first legal charge by way of registered mortgage on the mortgaged property being this mortgage." However, as pointed out by Mr. Ibrahim Pishori, learned counsel for the plaintiff‑Bank, in clause (2) of the mortgage deed, the mortgage was being created in consideration of the Bank "having allowed or agreeing to allow" to the borrowers facility not exceeding Rs.50,00,

000. Prima facie, therefore, this mortgage was also security for the Bank having allowed facilities prior to the execution of the mortgage deed. As regards the contention of the learned counsel for the defendants that no money at all had been advanced to the defendants under/after the creation of the registered mortgage, Mr. Ibrahim Pishori, learned counsel for the plaintiff‑Bank referred to the statements of accounts of both Pazhong Traders and Jasmine International. These statements show that substantial credits were given to the two concerns after 31‑3‑1979, the date of the execution of the legal mortgage. These entries could not be denied /challenged by the learned counsel for the defendants. It, therefore, follows that even after the creation of the mortgage deed substantial amount had been advanced by the bank to the defendants. The contention raised on the basis of section 16 of the Code of Civil Procedure about the non‑maintainability of the present suit in this Court is also without force. Section 16, C. P. C. , reads as follows: "

16. Suits to be instituted where subject‑matter situate.‑‑‑ Subject to the pecuniary or other limitations prescribed by any law, suits‑‑ (a) for the recovery of immovable property with or without rent or profits; (b) for the partition of immovable property; (c) for foreclosure, sale or redemption in the case of a mortgage of or charge upon immovable property; (d) for the determination of any other right to or any interest in immovable property; (e) for compensation for wrong to immovable property; (f) for the recovery of movable property actually under distraint or attachment; shall be instituted in the Court within the local limits of whose jurisdiction the property is situate, or in the case of suits referred to in clause (c) at the place where the cause of action has wholly or partly arisen: Provided that a suit to obtain relief respecting or compensation for wrong to, immovable property held by or on behalf of the defendant may, where the relief sought can be entirely obtained through his personal obedience, be instituted either in the Court within the local limits of whose jurisdiction the property is situate, or, in case of suits referred to in clause (c) at the place where the cause of action has wholly or partly arisen, or in the Court within the local limits of whose jurisdiction the defendant actually and voluntarily resides, or carries on business, or personally works for gain. Explanation.‑‑In this section "property" means property situate in Pakistan." The present suit, according to the learned counsel for the defendants, would fall under section 16(c), C.P.C., that is, a suit for sale in the case of a mortgage upon immovable property. According to section 16, such suits "shall be instituted in the Court within the local limits of whose jurisdiction the property is situate or in the case of suits referred to in clause (c) at the place where the cause of action has wholly or partly arisen". According to this provision, therefore, a suit for sale of mortgaged property can be filed either in the Court within the local limits of whose jurisdiction the mortgaged property is situated or at the place where the cause of action has wholly or partly arisen. In this case the defendants had opened their accounts in the Branch of the plaintiff Bank at Karachi and the facilities were also granted to the defendants in these accounts. Repayment was also to be made in such accounts, and as such, in respect of the present suit, the cause of action for the plaintiff‑Bank against the defendants had arisen at Karachi, and according to section 16(c), C.P.C.., the suit had been competently filed in this Court. It may be mentioned here that prior to 1962 perhaps such suit could only have been filed at Rahimyar Khan, where the mortgaged property is situated, but by the Code of Civil Procedure (Amendment) Ordinance, 1962' the following clause was added to section 16(c):‑‑ "Or in the case of suit referred to in clause (c) at the place where the cause of action had wholly or partly arisen." On merits, the first submission of the learned counsel for the defendants was that huge payments had been made to the bank's Muqaddam. Learned counsel for the defendants had also referred to certain entries in the statements of accounts, which, according to his instructions, were payments made to the Muqaddam. On a question from the Court, however, learned counsel for the defendants, after seeking instructions, submitted that all such debit entries were made on the basis of bearer cheques issued by the defendants. Prima facie, therefore, it shows that amounts had been drawn by the defendants. The drawing of the cheques, signatures on the cheques and the fact that the cheques were made bearer is not denied in respect of these debit entries. The contention of the learned counsel that the defendants were forced to execute the registered mortgage is also prima facie without any substance. The defendants have already admitted that the documents of title of mortgage property were lying at the Bank as security for repayment of the loan. If that is so, the property was already equitably mortgaged and the Bank apparently did not commit any illegality or irregularity in asking the defendants to execute a legal mortgage of these properties. The argument that several payments were made to third parties and the amounts were debited to the account of defendant No. 1 has also not impressed me. It is not the case of the defendants that there were any debit entries in the account, which were not supported by proper supporting documents. The argument that defendant No. 3 A. Khaliq Rehmani was forced to take personal insurance on his life and a premium of Rs.1,00,000 was paid to his insurance company on this account and the amount was debited to the account of defendant No. 1 has also not impressed me. An argument had also been raised that substantial stocks were still lying pledged with the Bank for which no credit has been given and no reference has been made out about it in the plaint. When this point has been raised I had asked Mr. Ibrahim Pishori to take instructions from the bank. Mr. Ibrahim Pishori made enquiries and then made a statement that whatever stocks were lying pledged with the bank had beer, sold with the consent of the defendants as far back as 1979 and since then no stocks of the defendants are pledged with the bank. Stand of these defendants that stocks of the value of Rs.22 lacs are lying pledged with the Bank is not supported at this stage by the documents on record. On the other hand Mr. Ibrahim Pishori, learned counsel for the plaintiff invited the attention of the Court to the letter, dated 11‑12‑1979 written jointly by Pazhong Traders and Jasmine International to the plaintiff‑Bank (at page 237 of the file of Suit No. 352/83). Second para. of this letter reads‑‑ "We have already fulfilled our part of the arrangement by having arranged sale of entire stock. The entire sale proceeds amounting to Rs.18.07 lacs have also been credited to our bank account with your Burns Garden Branch". This prima facie shows that entire pledged stocks were sold and sale proceeds adjusted against the loans of Pazhong Traders and Jasmine International. The documents on record at this stage do not give any indication that any stocks are still lying pledged with the Bank. Then no letter was pointed out by Mr. S.H. Zafar, learned counsel for these defendants, whereby these defendants had made any grievance or complaint that any of their stocks were still lying pledged with the Bank and the Bank had neither given any account nor any credit for the same. It may also be observed here that in no letter addressed to the Bank any grievance has been made on behalf of Pazhong Traders and/or Jasmine international that the statement of accounts sent by the Bank from time to time contain any unauthorized entries or that any fraud had been practised by the Bank staff upon these two firms. Reference may also be made to Suit No. 254/81 filed by defendant No. 3 Abdul Khaliq Rehmani as plaintiff against the other partners in the two firms as defendants Nos. 1 to 7 and Habib Bank Ltd. as defendant No.

8. This suit was filed for declaration, dissolution of the two firms and for rendition of accounts. No relief has been claimed in this suit against Habib Bank Limited although it is stated in para. 13 of the plaint in that suit that on account of actions of Habib Bank Ltd., the firm of A.K. Rehmani had suffered irreparable losses for which a separate suit was being filed against Habib Bank Ltd. This was stated in 1981. Admittedly no such suit for recovery of damages has been filed against Habib Bank Ltd..

9. Some defences have been raised by the defendants represented by Mr. S. H . Zafar Advocate but the discussion in paras. 7 and 8 of I this order shows that none of the defences raised by these defendants) is plausible. I am accordingly granting them conditional leave.

10. Mr. Muhammad Anis, Advocate, appeared for defendant No. 5 in l Suit No. 352/83, namely, Ehsanur Rab. He has been impleaded as a defendant in this suit by the plaintiff‑Bank as a partner of Pazhong; Traders. In support of the application for leave to defend filed by defendant No. 5 in Suit No. 352/83 (C.M.A. No. 2036/84), this defendant has taken up the stand that there was no partnership in existence, in which defendant No. 5 was a partner on 24‑7‑1978, when this defendant is alleged to have signed the documents, on the basis of which he has been impleaded as a defendant in Suit No. 352./83. He has denied his liability to the bank and states that he had signed certain blank documents. He has also taken up a stand that the plaintiff has not filed any copy of the partnership deed to show that he was a partner of Pazhong Traders. No counter‑affidavit has been filed to controvert the averments made in the affidavit in support of the leave application. In the circumstances, I am of the view that defendant No. 5 in Suit No. 352/83 has made out a case for grant of unconditional leave.

11. Mr. Rahanul Hasan Farc‑oqui, Advocate, appeared on behalf of defendant No. 4 in Suit No. 352/83, namely, Aleemuzzafar, who has also been impleaded as a defendant in this suit as a partner of Pazhong Treders by the plaintiff‑Bank. C.M.A. No. 2023/84 is the application under Order XXXVII, rule 3, C.P.C., filed on behalf of defendant No.

4. In his affidavit in support of this application, defendant No. 4 has stated that defendant No. 3 Abdul Khaliq Rehmani has signed the mortgage deed misrepresenting himself to be the attorney of defendant No.

4. He has denied that he gave any power to A . K . Rehmani to act as his attorney and specially for the purpose:: of obtaining any Iota! from the plaintiff bank or to get such loan secured against the mortgaged properties. It was contended by Mr. R.H. Farooqui that none of the props vies of defendant No. 4 is subject‑matter of legal mortgage decd, dated 31‑3‑1979. It was submitted in the alternative that even if A.K. Rehmani had any authority to act on behalf of defendant No. 4, defendant No. 4 is not a mortgagor, as none of his properties has been mortgaged through the mortgage deed, dated 31‑3‑1979. It was also contented that in any case no relief was sought at this stage against defendant K No. 4 and what was being asked by the plaintiff through this mortgage suit 'was the sale of the mortgaged properties. A counter‑afficavit had been filed by the Manager of Burns Garden Branch of Fabib Bank Limit‑t denying the avernments contained in the affidavit of defendant No.

4. However, I am of the view that in these circumstances, the defendant No. 4 has also made out a case for grant of unconditional leave.

12. Mr. Abdul Majid Ehan, Advocate, appeared for defendants Nos. 4, 5 and 6 in Suit No. 369/83, namely, Rais Khan, Sarwar Islam and Manzar Alam. These three defendants have been impleaded in Suit No. 369/83 as partners of Jasmine International by the plaintiff Bank. C.M.A. No. 2440/84 is the application filed by defendant No. 4 and C.M.A. No. 2433/84 is the application filed by defendants No. 5 and 6 in Suit No. 369/83 for grant of leave to defined the suit. In support of these applications, Mr. A. Majid Khan, learned counsel for defendants No. 4, 5 and 6 in Suit No. 369/83 submitted that none of these three defendants has signed any promissory note, letter of guarantee, mortgage deed or balance‑confirmation letters. It was submitted that in the account‑opening‑form for opening the account in the Bank, the names of these defendants had been given and as such the plaintiff‑Bank wanted these defendants also to sign guarantee documents but these defendants did not sign any guarantee documents. It is further the case of these three defendants that they had retired from the partnership of Jasmine International w.e.f. 2‑2‑1979 and it was after their retirement from the partnership that the mortgage deed, dated 31‑3‑1979 had been executed in favour of the plaintiff bank, whereby the property of defendant No. 3, A. K. Rehmani and his other family members, who are defendants Nos. 8 to

15. It was submitted that on the basis of the said mortgage deed executed on 31‑3‑1979, to which none of these three defendants is party, this suit has been filed on the basis of the said mortgage deed. In my view, these three defendants in Suit No. 369/83 have also made out a case for grant of unconditional leave, as the defences raised by them in their applications for leave to defend are plausible defences.

13. The next question, which requires determination, is whether the mortgage of various properties through the mortgage deed, dated 31‑3‑1979 should be treated or accepted as adequate security in relation to those defendants to whom conditional leave is being granted or they should be asked to furnish other security. The mortgage deed, dated 31‑3‑1979 has itself been challenged by the defendants in the two suits, who are being represented by Mr. S.H. Zafar, Advocate. There are also allegations that A.K. Rehmani in both the suits had signed the mortgage deed, dated 31‑3‑1979 without proper authority from some of the defendants. In the circumstances, these defendants are being' required to furnish other security for the suit amounts as a condition for grant of leave to them to defend these two suits.

14. Defendants Nos. 4 and 5 in Suit No. 352/83, namely, Alimuz Zafar and Ehsanur Rab and defendants Nos. 4, 5 and 6 in Suit No. 369/83, namely, Rais Khan, Sarwar Islam and Manzar Alam are granted unconditional leave to defend the suits. These defendants shall file their written statements within four weeks from today. Defendants Nos. 1, 2, 3 and 6 to 13 in Suit No. 352/83 and defendants Nos. 1, 2, 3 and 8 to 15 in .Suit No. 369/83 are granted leave to defend the suits subject to furnishing security to the satisfaction of the Nazir of this Court in the suit amounts. Security shall be .furnished within four weeks from today and written statements shall be filed within four weeks of furnishing security. Defendant No. 7 in Suit No. 369/83, namely, Aslam Motiwala, has not filed any application for leave to defend. No appearance has been made by him or on his behalf. He will remain ex parte and final orders will be passed at the time of the regular hearing/final disposal of Suit No. 369/83. C.M.A's Nos. 2022, 2023, 2024, 2025, 2027, 2028, 2029, 2036 and 2041 of 1984 in Suit Nos. 352/83 and C.M.A:s No. 2432, 2433, 2435, 2436, 2440 and 2441 of 1984 and C.M.A. No. 4408 of 1985 in Suit No. 369/83, stand disposed of. A. A. Order accordingly.