Judgment Sheet

IN THE HIGH COURT OF SINDH CIRCUIT COURT HYDERABAD

I^st Appeal No. D – 31 of 2013

Before :

Mr. Justice Nadeem Akhtar

Mr. Justice Adnan-ul-Karim Memon

Appellants             :  (1) Government of Sindh, through Secretary Education 

Department, (2) Director of Colleges Hyderabad Region,

(3) City College Hyderabad, through its principal, and

(4) Qavi Ahmed, Ex-principal, City College Hyderabad,

through Mr. Allah Bachayo Soomro, Addl. A.G. Sindh.

Respondent         :  United Bank Limited,

                                    through Mr. Gulab Khan Kaim Khani, Advocate.

            Date of hearing     :  12.12.2019.

J U D G M E N T

NADEEM AKHTAR, J. – Through this appeal under Section 22 of the Financial Institutions (Recovery of Finances) Ordinance, 2001, the appellants have impugned judgment and decree dated 20.03.2013 passed by learned Banking Court-I Hyderabad in Suit No.6055/2000, whereby the said Suit filed by the respondent against them for recovery of Rs.331,801.00 was decreed with costs, cost of funds and other expenses.

2.         Relevant facts of the case, as averred by the respondent in its plaint, are that at the request of ‘Renaissance Educational Society’ (‘the Society’) the overdraft facilities already availed by the Society from the respondent were consolidated as a single facility in the name of ‘City College Hyderabad Buildings Fund’ (‘the Fund’), and the amount of their fixed deposit was appropriated towards the said overdrafts / facility ; thereafter at the request of City College Hyderabad / appellant No.3, an overdraft facility of Rs.221,000.00 was sanctioned in the name of the Fund in the year 1971 ; in order to secure repayment of the above facility, a promissory note in the sum of Rs.220,000.00 was executed on 15.06.1972 by Qavi Ahmed / appellant No.4, who was the General Secretary of the Society at the relevant time ; in order to further secure repayment of the subject facility, the appellant No.3-college mortgaged the college building in favour of the respondent ; the appellant No.3-college was required to pay interest on the above mentioned amount at the rate of 11% per annum ; on 01.01.1978, an amount of Rs.330,796.00, including interest, was outstanding against the appellant No.3-college ; the facility was utilized by the Society for construction of the college building of the appellant No.3-college ; the Society had undertaken to adjust the facility out of the income of the appellant No.3-college, but failed to do so ; all educational institutions were nationalized in the year 1972 by appellant No.1 / Government of Sindh whereafter the Society handed over all its assets and the liabilities of the appellant No.3-college to the Government ; and, despite repeated requests and demands by the respondent, appellant No.1 / Government of Sindh failed to settle the subject facility. In this background, the above Suit was instituted by the respondent against the appellants on 31.05.2000. 

3.         In the above Suit, the appellants filed a joint application for leave to defend wherein the respondent’s claim was specifically denied by stating, inter alia, that a notification had been issued by the Government whereby the liabilities of privately managed educational institutions ceased to be the responsibility of the Government. Vide order dated 05.03.2002, leave to defend the Suit was granted to the appellants and three issues were settled by the learned Banking Court, whereafter the matter was posted for evidence. However, the respondent / plaintiff did not lead any evidence, but evidence was led by appellant No.1 / defendant No.1 Government of Sindh. After examining the material available on record and hearing the respective submissions made on behalf of the parties, the respondent’s Suit was decreed in the above terms by the learned Banking Court.

4.         It was vehemently argued by learned Additional Advocate General Sindh that none of the appellants was liable to pay the amount claimed in the Suit ; learned Banking Court had no jurisdiction to pass the impugned decree against them ; and, in any event the Suit was hopelessly barred by limitation. On the other hand, learned counsel strongly supported the impugned judgment and decree by insisting that the Suit was not barred by limitation, it was maintainable and the learned Banking Court had the exclusive jurisdiction to entertain and adjudicate the same. He prayed for dismissal of the present appeal.

5.         Perusal of the plaint shows that it was the respondent’s own case that the overdraft facilities already availed by the Society from the respondent were consolidated as a single facility in the name of the Fund and the amount of their fixed deposit was appropriated towards the said overdrafts ; this entire exercise was done at the request of the Society ; at the request of the appellant No.3-college an overdraft facility of Rs.221,000.00 was sanctioned in the name of the Fund in the year 1971 ; the facility was utilized by the Society for construction of the college building of the appellant No.3-college ; the Society had undertaken to adjust the facility out of the income of the appellant No.3-college ; and, in consideration of the above facility, a demand promissory note was executed by the then General Secretary of the Society, and the college building was mortgaged by the appellant No.3-college. From the above, it was clear that originally the Society was the principal borrower / customer of the respondent, but subsequently at the request of the Society and the appellant No.3-college, the facility was sanctioned in the name of the Fund. Thus by virtue of this arrangement, the Fund became the customer of the respondent ; and, the Society and the appellant No.3-college became the guarantor and mortgagor, respectively, as the Society had undertaken to adjust the facility out of the income of the appellant No.3-college, and the college building was mortgaged by the appellant No.3-college in favour of the respondent.

6.         Under the law, agreements / contracts, including those for grant of finance facilities containing terms and conditions for repayment thereof, can be entered into by and be enforced against only legal entities. In this context, it may be observed that the legal status of the Society, the Fund and the appellant No.3-college was not disclosed or clarified by the respondent in its plaint, that is, whether they were legal entities or not. Moreover, the nexus between the Society, the Fund and the appellant No.3-college was also not explained in the plaint. It may be observed that the Suit was filed by the respondent under the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997, and was decided under the Financial Institutions (Recovery of Finances) Ordinance, 2001. The aforesaid Act of 1997 was repealed by the present Ordinance of 2001. It may be noted that the above mentioned repealed Act was and the present Ordinance is a special law and the Banking Courts established thereunder were/are Special Courts having exclusive jurisdiction only in respect of disputes between a financial institution and a customer arising out of obligations in respect of a finance facility. Thus, in order to invoke the jurisdiction of a Banking Court, it was/is necessary that the parties inter se must have the relationship of banking company / financial institution and customer, and the dispute must relate to breach of an obligation arising out of an agreement / contract in respect of a finance facility. In the present case, admittedly there was neither any privity of contract between the respondent and any of the appellants in relation to the subject facility nor was there the relationship of financial institution and customer between them. In the absence of the above condition precedent for invoking the jurisdiction of Banking Court, the learned Banking Court had no jurisdiction to entertain or adjudicate the Suit filed by the respondent, and as such the impugned judgment and decree, being coram non judice, are void abinitio.

7.         In addition to the above, there are two other important aspects of this case viz. the burden to prove its case by the respondent and appreciation of evidence in this context by the learned Banking Court, and the limitation for filing the Suit.

8.         The only justification disclosed in the plaint for filing the Suit against the present appellants was that all educational institutions were nationalized in the year 1972 by appellant No.1 / Government of Sindh whereafter the Society handed over all its assets and the liabilities of the appellant No.3-college to the Government. This assertion was specifically denied by appellant No.1 / defendant No.1 Government of Sindh in its application for leave to defend and also in its evidence wherein its witness had categorically stated that by virtue of provision / section 3(2) of Regulation No.118 of the Martial Law Regulations promulgated on 01.04.1972 all contracts or agreements made or entered into at any time on or after 15.03.1972 relating to the alienation, sale or transfer otherwise of any privately managed college or school, and any alienation, sale or transfer otherwise of such college or school effected on or after that date, shall be void. The above Regulation was produced as Exhibit 1/A by the witness of Government of Sindh who was not cross-examined by the respondent nor was any evidence produced in rebuttal thereto by the respondent. It is significant to note that a statement was filed before the learned Banking Court that evidence will not be led by the respondent / plaintiff. Thus, despite full opportunity the respondent chose not to lead any evidence in support of its case or in rebuttal to the evidence led by the appellants. Therefore, the stance and evidence of the appellants remained unchallenged and un-rebutted.

9.         The Suit was instituted by the respondent in respect of a facility purportedly sanctioned in the name of the Fund in the year 1971, in consideration whereof promissory notes were executed on 15.06.1972 and 30.12.1974 and the school building was mortgaged in favour of the respondent around the same time. It was argued on behalf of the respondent that because of the said mortgage, the period of limitation for filing the Suit was twelve years. If this contention is accepted, even then the Suit instituted on 31.05.2000 was miserably barred by limitation.

10.       None of the above important and elementary aspects of the case regarding jurisdiction, limitation, non-production of evidence by the respondent and the evidence produced by the appellants having been remained unchallenged and un-rebutted, have been appreciated and/or discussed at all by the learned Banking Court in the impugned judgment and decree. In such circumstances, the impugned judgment and decree, being not sustainable in law, are liable to be set aside.

11.         Foregoing are the reasons of the short order announced by us on 12.12.2019, whereby this appeal was allowed with costs and the impugned judgment and decree were set aside.

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