ORDER SHEET

IN THE HIGH COURT OF SINDH AT KARACHI

 

Suit No. B-04 of 2017

 

Habib Metropolitan Bank

Versus

M/s. Dagra Textile (Pvt.) Ltd. & others

 

 

Date

Order with signature of Judge

 

1.    For hearing of CMA No.3472/17

2.    For hearing of CMA No.1838/17

                  

 

Date of Hearing:

02.03.2017 and 27.03.2017.

 

Plaintiff:

Through Mr. Bahzad Haider Advocate

 

Defendants:                        Through Mr. Salman Akram Butt along with  M/s Shoaib Raashid and Shahid Iqbal Rana Advocates.

 

 

O R D E R

 

Muhammad Shafi Siddiqui, J.-  The application bearing CMA No.1838/17 is filed for attachment of the subject property claimed to have been gifted to the applicant namely Mohib Ahmed Dagra son of defendants No.3 and 4 while the other applications bearing CMA No.3471 and 3472 of 2017 are filed respectively for impleading proposed defendant and to restrain the defendants including proposed defendant who is son of defendant Nos.3 & 4 from transferring, selling, alienating the subject property mentioned in the application. The subject matter of the two applications is one property bearing bungalow No.36-A situated at 29th Street, Khayaban-e-Mujahid, Phase-V Extension, DHA, measuring 900 square yards.

 

          The plaintiff has filed this suit for recovery of outstanding loan in the sum of Rs.2.34 billion. The relationship claimed to have started in the year 2004 vide sanction letter dated 12.8.2004 which involved Running Finance-I, Running Finance-II, Term Finance etc. As security, it is urged that the defendants have pledged cotton, hypothecated other raw cotton, created equitable mortgage over the factory bearing Plot No. B-80, SITE Nooriababd, District Dadu and personal guarantees of all directors i.e. defendants No.3 and 4. While the suit along with leave application was pending the plaintiff moved the above referred applications with the prayer that the subject property which was owned by defendant No.4 and was gifted to proposed defendant/applicant may not be allowed to be transferred in terms of provisions of Section 16(2) of the FIO. It is urged that the property was owned by defendant No.4 and the subject transfer by way of a gift could only be deemed to be a benami transfer or a benami gift and that the defendant No.4 shall be considered as real owner in respect of the property questioned in the two applications. He submits that the order of nature as required to be passed under section 16(1) may also be passed by this Court under section 16(2) in respect of the property held benami, whether it was acquired before or after granting of finance by the financial institution.

 

Learned Counsel for the plaintiff submitted that this is a fraudulent transaction and is only meant to deprive the plaintiff from the fruits of decree that is likely to be passed in the instant proceedings. Learned Counsel while relying on the two evaluation reports of an evaluator submitted that the evaluation of the plant and machinery is depreciating along with the value of building and construction though the value of the land remained same since last evaluation i.e. in June, 2014. He further relied upon section 53 of the Transfer of Property Act and Section 23 of the FIO.

Learned Counsel for the proposed defendant/transferee who also represents defendants, in reply to the contention of plaintiff submitted that the application is not maintainable under the law. He further submitted that it is misconceived and the principles as available under section  16(1) could not be applied to a transaction involving offer and acceptance of a gift which is a bonafide transaction and could not be equated with other regular transactions of sale and purchase where the principle of benami and ostensible ownership could be pressed and where a purchaser purchases a property in the name of ostensible owner who could exercise all such rights in relation to the property in question to retrieve it back. Learned Counsel for the defendant has relied upon para-4 of the application bearing CMA No.3472 that the finance was last rescheduled on 10.6.2015 and that the property has already been gifted through an oral gift in April 2015 which was reduced into writing on 15.6.2015. It is thus on 10.6.2015 when the loan was rescheduled the property was not available with the defendant No.4 as he has already gifted it to the applicant on 18.4.2015 and he was never defaulter as alleged.

Section 23 of the FIO provides that after publication of summons under subsection (5) of section 9, no customer shall, without the prior permission of the Banking Court transfer, alienate, encumber, remove or part with possession of any of his asset or property furnished to the financial institution as security by way of mortgage, pledge, hypothecation, charge, lien or otherwise, pending final decision of the suit filed by the financial institution under this Ordinance, and any such transfer, alienation, encumbrance or other disposition by the customer in violation of this sub-section shall be void and of no legal effect. While relying on Subsection (2) of Section 23 of the FIO he submitted that after pronouncement of judgment and decree by the Banking Court, including an interim decree under section 11, the Judgment Debtor is not obliged to transfer, alienate, encumber or part with possession any assets or properties and any such transfer, alienation, encumbrance or other disposition in violation of this subsection shall be void and of no legal effect unless permission is sought from the Court. This subsection does not only relate to furnished and charged property but it also relates to the properties owned by the Judgment Debtor. The distinction between subsections (1) and (2) of Section 23 of the FIO is that a person was restrained from alienating and transferring the furnished property once the publication is effected whereas subsection (2) provides that after the judgment and decree the Judgment Debtor cannot deal with its assets and properties which include but not limited to the furnished and/or charged assets. The defendants are yet to be declared as defaulter and the suit was filed on 12.1.2017. Since subject property was not furnished as security nor any judgment/decree is passed, the provisions of Section 23 of the FIO would not apply. Likewise the provisions of Section 16(2) of the FIO are in respect of benami properties, which is not the case here. He further submitted that there could not be any fraudulent intent in the transaction in the sense that as against the total alleged outstanding of approximately Rs.2.95 Billion including claim in the connected suit, the plaintiff is enjoying the pledged, hypothecated and mortgaged assets of the defendants to the extent of more than Rs.12 Billion approximately which is 4 ½ times more than the claimed amount hence it cannot be conceived that despite providing the additional security at the time of rescheduling the intent of the defendant No.4 is to have a fraudulent transaction in relation to the subject property mentioned in the application. Had it been so, as alleged, they would not have provided additional properties as mentioned in evaluation report in column No.2 though it relates to the finances in connection with suit bearing No.B-05/2017. In both the suits as against their respective claims of Rs.2.34 Million and Rs.630 Million a substantial security in the shape of 12.24 Billion and 1.3 Billion is provided hence there is no iota of evidence that this transaction could have been a fraudulent transaction under section 53 of the Transfer of Property Act to defeat the fruits of the decree that may be passed in the matter.

Learned Counsel for the defendant has relied upon the cases of (i) Moinuddin Paracha & others v. Sirajuddin Paracha & others (1993 CLC 1606), (ii) Mt. Bhjagabai v. Ghanshamdas {AIR (35) 1948 Nagpur 328},  (iii) Muhammad Nawaz Minhas & others v. Mst. Surriya Sabir Minhas & others ( 2009 SCMR 124), (iv) Zohair Zakaria v. National Bank of Pakistan (2009 CLD 915), (v) Saudi Pak Commercial Bank Ltd. V. A.H. International (Pvt.) Ltd. (2007 CLD 175), (vi) MCB Bank Limited vs. Messrs Atlas Rubber and Plastic Industries Pvt. Ltd. & others (2011 CLD 1550) and (vii) Ch. Muhammad Ishaque v. Cantonment Executive Officer, Chunain District Kasur & another (PLD 2009 Lahore 240).

 

Heard the learned Counsels and perused the record.

 

          Let us first assess the domain and extent of Section 16(1) and 16(2) of Financial Institutions (Recovery of Finances) Ordinance, 2001. Section 16(1) deals with the attachment of the property before judgment, injunction and appointment of Receiver. 16(1) relates to mortgaged, pledged, hypothecated assigned or otherwise charged property, which could be subjected to any four situations i.e. (a) to (d) in favour of Financial Institutions which is not the case here. Section 16(2) of ibid law talks about an order of a similar nature, as could have been passed under section 16(1) in respect of a property which is held as Benami in the name of an ostensible owner, whether acquired before or after grant of finances by financial institution.

The subject property was purchased by defendant No.4 on 16.01.1997 vide registered conveyance deed available on record. Though it is claimed to have been orally gifted to applicant/proposed defendant on 18.04.2015 (to which I do not rely for deciding this issue) but registration of such gift was effected on 15.06.2015. The finances of the defendants were rescheduled prima facie on 10.06.2015 and hence on the strength of this subsequent registration of oral gift, it is claimed that it ought to have been attached or an injunctive order of the nature, as required under section 16(1), could have been passed.

          At the time of rescheduling the finances on 10.06.2015 no shortfall in the security was pointed out. Before such property could be subjected to Section 16(2) of Financial Institutions (Recovery of Finances) Ordinance, 2001 it is to be determined that it is a Benami property and the proposed defendant is an ostensible owner and the intent is to save this property from the claim of Bank. Questions such as declaration of this property being held as Benami cannot be determined in the present proceedings in view of relief claimed in the suit. The title of the subject property was passed on to the proposed defendant on 15.06.2015 whereas the application under consideration has been filed on 14.02.2017. Defendant No.1 was not claimed to be a real owner. In fact it is guarantor and mortgagor who is claimed to be the real owner and the proposed defendant as being an ostensible owner.

          Before deciding the controversy purely on the strength of the language of Section 16(1) and 16(2) of Financial Institutions (Recovery of Finances) Ordinance, 2001, provisions of Section 53 of Transfer of Property Act read with Section 23 of Financial Institutions (Recovery of Finances) Ordinance, 2001 are also to be seen and considered. Section 53 of the Transfer of Property Act relates to transfer of an immovable property with an intent to defeat or delay the creditors of the transferor which shall be voidable at the option of the creditors so defeated or delayed and all such transfers made in good faith for consideration were protected. Similarly, Section 23 of Financial Institutions (Recovery of Finances) Ordinance, 2001 restricts the transfer of assets and properties which were charged, after publication of summons whereas after announcement of judgment and decree by the Banking Court including the interim decree, no judgment debtor shall with prior permission of the Banking Court transfer, alienate, encumber or part with possession any assets or properties. Section 23(2) does not find its applicability under the present facts and circumstances of the case as neither judgment nor decree of the final nature or of interim nature is passed. Only an issue that requires consideration is whether such transfer by way of a gift is immune from a challenge under section 16(2) of Financial Institutions (Recovery of Finances) Ordinance, 2001 read with Section 53 of Transfer of Property Act. The loan was rescheduled on 10.06.2015 leaving apart the subject property from being considered as a security and prima facie it cannot be considered as a mala fide exercise of the right. In fact it was not considered by the Bank to form part of any security for repayment of the finances extended to the defendants. This determination as to whether the subject property is held as Benami by the proposed defendant is otherwise an independent exercise which cannot form part of the present proceedings, being governed by special law where the relationship is governed by Financial Institutions (Recovery of Finances) Ordinance, 2001 which could be extended to the financial institutions and customers and the borrower and/or customer, as defined therein. The proposed defendant does not come in any of the definitions provided by the Financial Institutions (Recovery of Finances) Ordinance, 2001.

In the case of Moinuddin Paracha (Supra) while considering the gift it was held as under:-

“The concept of benami transactions is peculiar to Pakistani and Indian law. It is confined to sale. and purchase; when sale is affected in the name of a person other than the real and actual purchaser. Neither any law was pointed out, nor there is any law or principle of law that may warrant application of the said concept to gifts. A gift cannot be benami in nature. The concept of gift essentially pertains to the domain of Islamic Law. Once a donor has divested himself of his rights in the property by Hiba, it cannot be retrieved. If defendant No.1 was in fact real owner of the said share and had directed plaintiff No.1 to gift the property to plaintiff No.2, the donee became the owner and the title of defendant No.1 vanished, even if there was any.”

 

          The learned Single Judge has explained the rationale between a Banami property purchased and the execution of a gift. In the earlier transaction i.e. purchasing a property, the rationale and the reasoning in retrieving the property back is totally dependent upon few questions such as the source of finances, availability of documents and possession whereas in case of gift, which transaction is being challenged, the questions of it retrieving back is not dependent upon aforesaid principles. It may have been financed by the transferor but it (finance) cannot become basis of retrieving such property back hence it is an absolute transaction which cannot be subjected to the principles as highlighted and discussed in case of a Benami property, being purchased in the name of an ostensible owner though it can be challenged on other grounds unless the intent is obvious. Such transfer by way of gift in pursuance of Sections 122 and 123 of Transfer of Property Act may include love and affection as a consideration. The effect of such registered instrument is that the title legally passes from a donor to the donee and any hidden intention on the part of the donor is ineffective in case subsequently the donor intends to prevent the passing of the title in pursuance of such instrument. Reliance can be placed on the case of Mt. Bhagabi w/o Dalpat (Supra).

          Insofar as determining such intention of sale/purchase transaction is concerned, the Hon’ble Supreme Court in the case of Muhammad Nawaz Minhas (Supra) has laid down the principle as under:-

“9. It is well-settled by the superior Courts that the onus of the particular sale/purchase if "Benami" and the apparent purchaser is not the real owner, always rests on the person asserting it to be so. This burden has to be strictly discharged by adducing legal evidence of a definite character which would either directly prove the fact of "Benami" or establish circumstances reasonably raising an inference of that fact. The essence of a Benami is the intention of the party or parties concerned; and not unoften such intention is shrouded in a thick 'veil', which cannot be easily pierced through. Despite that such difficulties do not relieve the person taking the plea of "Benami" 'transaction to be Benami of any part of the serious onus that rests on him. The question, whether a particular sale is `Benami' or, not, is largely one of fact, and for determining this question, no absolute formulae or acid test, uniformally applicable in all situations, can be laid down, yet in determining the probabilities and for gathering the relevant indicia, the courts have usually laid down the criteria to determine the `Benami' transaction. Determining factors to be taken into consideration are enumerated as under:-

(i) Source of construction;

(ii) from whose custody the original title, bill and other documents came in evidence;

(iii) who is in possession of the suit property; and

(iv) motive for Benami transaction.”

         

In somehow identical facts and circumstances, learned Division Bench of this Court in case of Zohair Zakaria (Supra) observed as under:-

“Learned Advocate for the appellant, Mr. Arshad Tayebaly, argued that the loan was granted to Messrs Al-Noor Fertilizer in the year, 1999 and the donor Ismail H. Zakaria who was one of the guarantors in the matter gifted the property in question in favour of the appellant, and the appellant is exclusively in possession of the property in question enjoying the same without any hindrance…..

….

We have taken in consideration respective arguments advanced by the learned Advocate for the parties and perused the record. From perusal of the record it appears that the donor had given his personal guarantee for adjustment of the liability of the company to whom the respondent-Bank granted loan. The donor had neither mortgage his property nor created any charge on the property owned by him at the time when loan was granted. By a registered gift deed dated 16-6-1999 the judgment debtor/donor gifted the property in question in favour of the appellant. Title documents and all other documents pertaining to the property in question are in possession of the appellant.

The question, which requires consideration is, whether the gift of property by a guarantor can be declared illegal, unlawful and void merely because same was gifted after the loan was granted by the Financial Institutions in the absence of evidence that such transaction was made with the intent to defraud the creditors and to delay and obstruct the execution of decree that may be passed.

Before we discuss section 23 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 and its effect, we would like to discuss section 53 of the Transfer of the Property Act. From bare reading of the section 53 of the Transfer of the Property Act, it appears that transfer of immovable property made with intent to defeat or delay creditors of transferor is not void transaction but is voidable at the option of the creditor. The proviso of section 53 of the Transfer of Property Act protects right of bona fide transferee in good faith against valuable consideration. The creditor has to exercise his right of option to declare transfer of the property with intent to defeat and delay its recovery by filing of suit or manifest his intention to avoid transaction such as by attachment of property transferred. Onus of proving that the deed of transfer was fraudulent is on the person alleging it.

…

How the intention under section 53 of the Transfer of Property Act is to be proved, that the transfer of the properties was with the intent to defeat or delay creditor would be a matter, which would largely, depend on the facts and circumstances of each case.

In the instant case predecessor-in-interest held more than one property and in execution proceedings apart from the property in question respondent has disclosed other eight properties one of which is owned by the transferor who executed letter of guarantee in favour of the respondent-Bank. If the intention of the predecessor-in-interest of appellant was to defraud and defeat the claim of the creditors then he ought to have transferred all of his properties and not only one.

The intention of Legislature must be found in the words used by the Legislature itself. The intention of Legislature is manifest from the words "Creditors of the Transferor", that section 53 of the Transfer of Property Act will be' applied to the debtor, who transfer his property with intent to defeat or delay the creditor. The guarantee necessarily supposed three parties and two obligations (i) the creditor or the person with whom the principal obligation is entered into; (ii) the principal debtor, or person who enters into an obligation with creditor; (iii) the surety or guarantor, who enters into a secondary obligation with the creditor that the principal debtor shall per-form his obligations.

Having said so, now, we would like to examine the matter with reference to section 23 of the Ordinance, 2001.

….. We would not deal with the question whether section 23 of Ordinance, 2001 over-rides the section 53 of the Transfer of the Property Act, and not applicable to matters relating to issue for which Banking Court has exclusive jurisdiction and confine ourselves only to the effect of section 23 of the Ordinance, 2001, to decide the same in some other matter.

Subsection (1) of section 23 put restriction on the customer to transfer etc. remove or part with possession of assets or properties furnished to the Financial Institutions as security by way of mortgage, pledge, hypothecation, charge, lien or otherwise without prior written permission of Banking Court after publication of summons under subsection (5) of section 9. Proviso to subsection (1) of section 23 gives exceptions to restriction on the right of customer to deal with assets or properties furnished as security to Financial Institutions that customer may sell any such assets or property which has been retained by him or entrusted to him for the purpose of dealing with the same in the ordinary course of business.

Subsection (2) of section 23 however put restriction on transfer, alienate, encumbrance or part with possession of any assets or property irrespective whether such property was furnished to Financial Institutions as security or not after pronouncement of judgment and decree by the Banking Court and any such transfer, lien, encumbrance or otherwise disposition by a judgment-debtor shall be void and of no legal effect.

….

In the instant case property in question was initially owned by the guarantor but admittedly said property was not furnished to respondent Bank as security by way of mortgage or by creating charge on it, in respect of loan facilities granted to judgment debtor company. It is also evident from the record that the property in question was transferred much before the publication of summons under subsection (5) of section, 9 of the Ordinance, 2001 and even much before filing of the suit.

We can look into the matter from another angles. The predecessor- in-interest of the appellant had given his .personal guarantee for the loan facility granted to a company, and as not debtor himself. The liability of the surety in terms of section 128 of Contract Act is co-extensive with that of the principal debtor, unless it is otherwise agreed by an agreement. The word 'guarantee' is a technical terms and the essence of a guarantee is that a guarantor agrees to discharge his liability only when the principal debtor fails to discharge the same. The letter of guarantee in question itself provided that the guarantors were liable to pay loan on demand, in other words on failure of the principal debtor to adjust the liability when Bank called upon them to pay the guaranteed amount. The guarantor unlike debtor become liable for the guaranteed amount from the date of demand or for the date when he came to know that creditor has filed suit for recovery against him.

…..

We have gone through the impugned order and noted that while dismissing the application learned Judge did not record any finding that the transfer of the property in question in favour of the appellant was with intent to defeat or delay creditors to the transferor. Neither section 53 of the Transfer of Property Act nor section 23 of the Financial Ordinance, 2001 put any restriction on the right of borrower/customer to deal with its property in normal course bonafidely on which charge has not been credited.”

 

          Defendant No.4 claimed to have mortgaged four personal properties and the subject property was never questioned to have been made part and parcel of the securities. The rationale behind an order to be passed under section 16(1) of Financial Institutions (Recovery of Finances) Ordinance, 2001 is that the property is being alienated, encumbered, wasted or otherwise dealt with in a manner which is likely to impair or prejudice the ‘security’ in favour of financial institutions or otherwise in the interest of justice. The valuation report provides that the property charged is much more than the amount being claimed, even if the claim of both the suits are considered. Hence this view will not come into play that the charged property is being impaired or is subjected to impairment. Insofar as the interest of justice is concerned, which is other limb of Section 16(1), it rests upon four ingredients, none of them have been satisfied by the plaintiff. Indeed had it been a mala fide and hostile/ill- motivated transaction, it can be subjected to a challenge of being a Benami transaction even in case of a gift based on fraudulent intent but such transaction, as alleged, does not born out of the pleadings and record, nor such declaration could be passed in present proceedings. Section 16(2) of Financial Institutions (Recovery of Finances) Ordinance, 2001 thus cannot be extended to a bona fide transaction which is apparent in the peculiar facts and circumstances, as discussed above. It was not a hidden property of defendant No.4, which is discovered and that the plaintiffs are short of securities and/or sureties are subjected to impairment as required for an order to be passed under section 16(1) of Financial Institutions (Recovery of Finances) Ordinance, 2001 and inclined to have the subject property attached for the satisfaction of the decree that may be passed. The propositions, as argued by the plaintiff’s counsel and as required in terms of Section 16(2) of Financial Institutions (Recovery of Finances) Ordinance, 2001, are also different and distinguishable besides above. It relates to those Benami properties which were purchased by the defendants in the name of an ostensible owner. The defendant No.4 admittedly owned this property which title was passed on to proposed defendant.

          Section 23(1) of Financial Institutions (Recovery of Finances) Ordinance, 2001 only prohibits a customer from transferring/alienating any of its assets which have been given as security to a financial institution after publication of summons under section 9(5) of FIO. The said provision is totally inapplicable and reliance thereon is totally misconceived as the property was never given as security to the plaintiff to restrict the defendant from alienating the property. Similarly Section 23(2) of FIO is only applicable after passing of a decree.

          Order XXXVIII Rule 5 CPC is only applicable in a situation where during pendency of a suit a defendant intends to dispose of or remove whole or any part of its property with an intent to obstruct or delay the execution of any decree that may be passed against him and hence do not apply in the instant matter. Even otherwise bald allegations cannot be made basis of passing any such order since the charged assets and securities are already available with plaintiff to the extent of their satisfaction.

          In view of the above, I am of the view that the plaintiff has not been able to make out a case for impleading proposed defendant and so also failed to make out case for injunction and for attachment as prayed for in the two applications under section 16 of Financial Institutions (Recovery of Finances) Ordinance, 2001 and under order XXXVIII Rule 5 CPC in respect of the subject property. Accordingly, the applications bearing CMA No.3471, 3472 and 1838 of 2017 are dismissed while application filed by proposed defendant bearing CMA No.3369/2017 has become infructuous and is disposed of.           The application bearing CMA No.3377/2017 is filed on behalf of defendant No.3 seeking recall of order dated 02.02.2017 as to his personal appearance. Since contempt application on which he was directed to be present in person has already been dismissed as not pressed, this application has served its purpose and is accordingly disposed of.

Dated:                                                                                       Judge