IN THE HIGH COURT OF SINDH, KARACHI

Ist Appeal No.01 of 2026

[ Pak Leather Crafts Limited & others v. Habib Bank Limited ]

PRESENT:

  Mr. Justice Arshad Hussain Khan

                           Mr. Justice Amjad Ali Sahito        

***

Appellants	Through Mr. M. Hassan Arif, Advocate.
Respondent Date of Hearing:	Through Syed Aijaz Hussain Shirazi, Advocate 04.09.2026
Date of Decision:	11.09.2026

JUDGMENT

ARSHAD HUSSAIN KHAN, J: This First Appeal has been preferred under Section 22 of the Financial Institutions (Recovery of Finances) Ordinance, 2001, by the Appellants against the order dated 20.12.2025 (“Impugned Order”) passed by the learned Banking Court No.V at Karachi, whereby an application filed by the Appellants under Section 12(2) read with Section 151, CPC, seeking to set aside the Judgment and Decree dated 04.11.2020 passed in Banking Suit No.218 of 2017, was dismissed.

2. Record transpires that the Respondent-Bank instituted Suit No.58 of 2014 before this Court on 07.11.2014, which was subsequently transferred to the Banking Court No.V, Karachi, and renumbered as Suit No.218 of 2017. The Suit was filed for recovery of Rs.55,051,499.87, together with cost of funds, arising out of a Demand Finance Facility of Rs.33,000,000/- extended to Appellant No.1 under an Agreement for Finance dated 28.04.2009. The facility was secured, inter alia, by a Demand Promissory Note dated 28.04.2009 and a Joint First Pari Passu Supplemental Letter of Hypothecation dated 04.07.2005, besides personal guarantees furnished by Appellants No.2 to 4.

3.         Upon service, the Appellants filed applications for leave to defend the Suit. By order dated 04.11.2020, the learned Banking Court dismissed the application of Appellant No.1 for want of a valid Board Resolution authorizing it to defend the proceedings, whereas the applications filed by Appellants No.2 to 4 were dismissed for non-compliance with the mandatory requirements of Section 10(3), (4), (5) and (6) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (“the Ordinance of 2001”). Admittedly, the said order dismissing the applications for leave to defend was not independently challenged by any of the Appellants.

4.         On the same date, i.e. 04.11.2020, the learned Banking Court proceeded to pass the final Judgment and Decree, whereby the Suit was decreed in favour of the Respondent-Bank for the principal amount of Rs.33,000,000/-, along with cost of funds, at the rate certified by the State Bank of Pakistan from time to time, from the date of default until realization, as well as costs of the Suit. The learned Banking Court further observed that, in terms of Section 19 of the Ordinance of 2001, upon expiry of the period prescribed for filing an appeal, the Suit would stand converted into execution proceedings, whereafter particulars of the mortgaged, pledged or hypothecated properties and other assets of the judgment-debtors could be furnished by the decree-holder for execution of the decree.

5.         Aggrieved by the aforesaid Judgment and Decree, the Appellants preferred First Appeal No.64 of 2020 before this Court. The decree was assailed, inter alia, on the grounds that the Suit had been instituted by unauthorized persons; that the Statement of Accounts had not been validly certified in accordance with the Bankers’ Books Evidence Act, 1891; that the claim was barred by limitation; and that certain repayments allegedly made by the Appellants had not been accounted for. A Division Bench of this Court, by Judgment dated 18.03.2024, examined these contentions on merits, found them devoid of substance, and consequently dismissed First Appeal No.64 of 2020, thereby maintaining the Judgment and Decree dated 04.11.2020.

6.         Thereafter, the Appellants invoked Section 12(2), read with Section 151, CPC before the learned Banking Court, seeking to set aside the same Judgment and Decree dated 04.11.2020, this time on a plea which had not been raised either at the stage of seeking leave to defend or in First Appeal No.64 of 2020. The case now set up was that the relationship of financial institution and customer between the parties had ceased to exist as far back as in the year 2010, as all outstanding financial obligations had allegedly been discharged out of the sale proceeds of mortgaged Plot No.15, Sector 7-A, Korangi Industrial Area, Karachi. On that basis, it was asserted that institution of the recovery Suit itself was baseless and unjustified. The Appellants further alleged that the Respondent-Bank had suppressed and concealed material correspondence, particularly a notice dated 23.09.2010 and subsequent letters dated 28.02.2011, and had thereby procured the Judgment and Decree through fraud and misrepresentation.

7.         The Respondent-Bank contested the application through a counter-affidavit and statement, categorically denying any fraud, misrepresentation or concealment. Its case was that the Demand Finance Facility of Rs.33,000,000/-, disbursed on 28.04.2009 and forming the subject-matter of the Suit, was separate and distinct from the four earlier finance facilities referred to in the correspondence relied upon by the Appellants. According to the Respondent-Bank, those earlier facilities had been separately settled and bore no nexus whatsoever with the outstanding finance liability for which the Suit had been instituted. It was further maintained that the plea of prior settlement, if available at all, was within the knowledge of the Appellants throughout the proceedings and ought to have been raised in their applications for leave to defend or, at the latest, in First Appeal No.64 of 2020; hence, its omission at both stages precluded the Appellants from reopening the concluded controversy through proceedings under Section 12(2), CPC.

8.         By the Impugned Order dated 20.12.2025, the learned Banking Court dismissed the application under Section 12(2), CPC. It found that the Appellants had failed to establish any nexus between the Demand Finance Facility of Rs.33,000,000/- forming the subject-matter of the decree and the earlier facilities or settlement referred to in the notice dated 23.09.2010 and subsequent correspondence. The learned Banking Court further held that the allegations of fraud and misrepresentation lacked specific and definite particulars and did not disclose the requisite element of intentional deception necessary to attract Section 12(2), CPC. It also took note of the Appellants’ own explanation that they had simply “forgotten” about the alleged settlement during the earlier proceedings and found such explanation neither plausible nor legally sufficient. Finally, the learned Banking Court held that a plea admittedly available to the Appellants at the earlier stages, but not raised either while seeking leave to defend or in the ensuing appeal, could not subsequently be invoked to reopen a matter that had already attained finality, and accordingly found the plea barred by the principles of waiver under Article 114 of the Qanun-e-Shahadat Order, 1984, as well as constructive res judicata.

9. Learned counsel for the Appellants assailed the Impugned Order as being contrary to law and the material available on record. He contended that the learned Banking Court failed to properly consider the Appellants’ submissions and documentary evidence, particularly the Respondent-Bank’s correspondence dated 23.09.2010, 16.11.2010 and 28.02.2011, which, according to him, demonstrated that the outstanding financial liabilities, including the Demand Finance Facility, had been adjusted from the sale proceeds of the mortgaged property and that the financial relationship between the parties had consequently come to an end. He argued that the Respondent-Bank deliberately suppressed this material correspondence while instituting the recovery Suit and thereby obtained the Judgment and Decree dated 04.11.2020 through fraud and misrepresentation. Learned counsel further submitted that the learned Banking Court erred in holding that the ingredients of fraud were not established and in invoking the principles of waiver and constructive res judicata merely because the plea had not been raised in the earlier proceedings. According to him, fraud vitiates all solemn proceedings and, once established, overrides considerations of waiver or finality. He accordingly prayed that the Impugned Order be set aside and the Appellants’ application under Section 12(2), CPC be allowed, and the Judgment and Decree dated 04.11.2020 be recalled/set aside. He has relied upon the case of Dubai Islamic Bank v. Mohammad Bux Shaikh / Najamul Hassan [unreported judgment dated 12.01.2026 passed in First appeal No.38 of 2025 and 108 of 2025], Shamim Ahmed and another v. Syed Mousa Raza Mashadi and 2 others [2023 MLD 1], Muhammad Arshad Anjum v. Mst. Khurshid Begum and others [2021 SCMR 1145], The Chief Settlement Commissioner, Lahore v. Raja Mohammad Fazil Khan and others [PLD 1975 Supreme Court 331], Fazal Ellahi (deceased) through his Legal Heirs v. Mst. Zainab Bi [2019 SCMR 1930], Trading Corporation of Pakistan (Pvt) Ltd., v. Agri Impex Trading Company Ltd., [unreported judgment dated 23.12.2025 in High Court Appeal No.434 of 2003].

10.       Conversely, learned counsel for the Respondent-Bank controverted the submissions advanced on behalf of the Appellants and supported the Impugned Order. He contended that the Appellants were attempting to reopen a decree which had already attained finality, as the order dismissing their applications for leave to defend was never independently challenged and First Appeal No.64 of 2020 against the Judgment and Decree dated 04.11.2020 had also been dismissed on merits. He argued that Section 12(2), C.P.C. could not be used as a substitute for an appeal or to raise pleas which were available but omitted at the appropriate stage. Learned counsel further submitted that the Demand Finance Facility of Rs.33,000,000/- forming the subject-matter of the Suit was separate and distinct from the earlier facilities referred to in the correspondence relied upon by the Appellants, and that no documentary or accounting nexus had been established between the alleged settlement of 2010 and the liability decreed against them. He maintained that mere reliance upon such correspondence could not establish fraud or misrepresentation. Lastly, he submitted that the principles of waiver and constructive res judicata were rightly invoked, as the alleged settlement and correspondence were admittedly within the Appellants’ knowledge and could have been raised either at the leave to defend stage or in the earlier appeal. He accordingly prayed for dismissal of the appeal.

11.       Learned counsel for the parties have been heard at considerable length, and the record made available before us, including the pleadings, orders and judgments passed at the preceding stages of the litigation, has been carefully examined with their able assistance.

12.       Before examining the controversy on merits, we consider it appropriate to first address the very maintainability of the application under Section 12(2), C.P.C. before the learned Banking Court. It is an admitted position that the Judgment and Decree dated 04.11.2020 passed by the learned Banking Court were assailed by the Appellants before this Court through First Appeal No.64 of 2020. The appeal was heard and decided on merits and, by Judgment dated 18.03.2024, this Court affirmed the Judgment and Decree of the learned Banking Court and dismissed the appeal. It was only thereafter that the Appellants approached the learned Banking Court with an application under Section 12(2), C.P.C., seeking to set aside the very Judgment and Decree which had already been affirmed by this Court.

13.       In this context, learned counsel for the Appellants was confronted with the doctrine of merger and was called upon to explain how, after affirmance of the Judgment and Decree by this Court in First Appeal No.64 of 2020, the learned Banking Court could still be regarded as the competent forum to entertain an application under Section 12(2), C.P.C. seeking annulment of the same decree. Learned counsel, however, could not furnish any plausible legal justification for having invoked the jurisdiction of the learned Banking Court instead of approaching this Court, being the last forum which had adjudicated upon and affirmed the decree.

14.       The legal position in this regard is well settled. In Nasrullah Khan and others v. Mukhtar-ul-Hassan and others [2014 PSC 837], the Honourable Supreme Court, while explaining the doctrine of merger, held, inter alia, that once a judgment and decree of a subordinate forum is assailed before a higher forum and affirmed, the former merges into the judgment and decree of the higher forum and, for all legal intents and purposes, becomes the judgment and decree of the latter.

15.       The principle was further authoritatively explained in Sahabzadi Maharunisa v. Mst. Ghulam Sughran [PLD 2016 SC 358], wherein the Honourable Supreme Court held that where an appellate, revisional or constitutional forum considers questions of law and/or fact and decides the matter through a reasoned order, the judgment of the subordinate forum merges into the decision of the superior forum, irrespective of whether it is affirmed, varied or reversed. As a necessary consequence, an application under Section 12(2), C.P.C. is to be presented before the appellate, revisional or constitutional forum whose decision ultimately governs the matter.

16.       Applying the above settled principle, once the Judgment and Decree dated 04.11.2020 were subjected to appellate scrutiny and affirmed by this Court through the reasoned Judgment dated 18.03.2024, they stood merged into the appellate judgment of this Court. Thereafter, the learned Banking Court ceased to be the competent forum for entertaining an application under Section 12(2), CPC seeking to annul that decree. The proper forum for seeking such relief, if otherwise available in law, was this Court. The Appellants nevertheless approached the learned Banking Court and, even when specifically confronted before us, failed to offer any plausible legal justification for adopting such course. We are, therefore, of the considered view that the application under Section 12(2), CPC was itself not maintainable before the learned Banking Court and was liable to be dismissed on this ground alone.

17.       In any event, on merits, the Appellants have failed to make out a case for interference under Section 12(2), CPC. The jurisdiction conferred by the said provision is exceptional in nature and is confined to cases where a judgment, decree or order has been obtained through fraud, misrepresentation or want of jurisdiction. It neither provides an additional avenue of appeal nor permits a party to reopen concluded proceedings by raising grounds which were available to it but remained unagitated at the appropriate stage. Where fraud or misrepresentation is alleged, the burden lies upon the party asserting it to plead specific and definite particulars and substantiate the same through cogent material. Mere allegations, however emphatically made, are insufficient to dislodge a judgment or decree which has attained finality.

18.       In the present case, the allegation of fraud is essentially founded upon the plea that the Respondent-Bank concealed certain correspondence relating to an alleged settlement of liabilities in the year 2010. However, the Appellants have been unable to demonstrate, through any reconciliation of accounts or other reliable material, that the settlement reflected in such correspondence related to, or resulted in the discharge of, the Demand Finance Facility of Rs.33,000,000/- forming the subject-matter of the decree. The mere existence of correspondence concerning adjustment or settlement of certain financial facilities, without establishing its nexus with the particular liability decreed in the Suit, cannot constitute proof that the decree was procured through fraud or misrepresentation. The learned Banking Court, therefore, correctly concluded that the foundational requirements of Section 12(2), CPC had not been satisfied. The reliance placed by learned counsel for the Appellants upon the principle that fraud vitiates even the most solemn proceedings does not advance their case. There can be no cavil with that proposition; however, its application necessarily depends upon fraud being established, or at least being pleaded with such specific particulars and supported by such material as would justify an inquiry. The principle cannot be invoked merely by describing an omitted or previously unraised defence as fraud, nor can it be used to circumvent the finality attached to conclude judicial proceedings.

19.       Significantly, the alleged settlement and the correspondence now relied upon were admittedly within the knowledge and possession of the Appellants throughout the earlier proceedings. Yet, no plea founded thereon was raised in their applications for leave to defend or subsequently in First Appeal No.64 of 2020. The order dated 04.11.2020 declining leave to defend was not independently challenged, while the Judgment dated 18.03.2024 dismissing First Appeal No.64 of 2020 has admittedly attained finality. In these circumstances, the learned Banking Court rightly applied the principles of waiver and constructive res judicata. A party cannot consciously or negligently omit an available defence, allow the proceedings to culminate against it, and thereafter seek to revive that defence under Section 12(2), C.P.C. by attributing fraud or concealment to the opposite party.

20.       The explanation furnished by the Appellants for their failure to raise the alleged settlement earlier is equally unconvincing. The omission to raise the alleged settlement at the earlier stages is difficult to reconcile with the Appellants’ own case that they had actively negotiated with the Respondent-Bank for adjustment of liabilities, release of the mortgage charge and issuance of a No Objection Certificate to facilitate the sale of the mortgaged property. A transaction of such nature and financial magnitude, allegedly resulting in discharge of the very liability subsequently decreed against them, could hardly have escaped their attention throughout the proceedings for leave to defend and the ensuing appeal. In the absence of any plausible explanation for such prolonged omission, the learned Banking Court was justified in declining to accept this plea. Indeed, the circumstances surrounding its belated introduction tend to weaken, rather than reinforce, the allegation of fraud against the Respondent-Bank.

21.       Moreover, the contention regarding adjustment of the sale proceeds of the mortgaged property is not an issue which remained wholly unexplored in the earlier proceedings. In First Appeal No.64 of 2020, while examining the question of repayment, the Division Bench recorded the categorical concession of learned counsel for the Appellants that no payment, other than the amounts already credited in the Statement of Accounts, had been made. That determination, having been rendered in appellate proceedings and having attained finality inter partes, cannot now be reopened collaterally under Section 12(2), C.P.C. merely by presenting substantially the same factual controversy under the rubric of fraud, suppression or concealment.

22.       Viewed from any angle, therefore, the material relied upon by the Appellants neither establishes fraud or misrepresentation on the part of the Respondent-Bank nor demonstrates that the Judgment and Decree dated 04.11.2020 were procured by any means contemplated under Section 12(2), CPC.

23.       The case law relied upon by learned counsel for the Appellants has also been examined; however, the same is distinguishable on facts and circumstances from the present case and, therefore, does not advance the Appellants’ case.

24.       We are, therefore, satisfied that, quite apart from the question of maintainability discussed hereinabove, the Appellants have also failed on merits to establish any fraud, misrepresentation or other circumstance falling within the ambit of Section 12(2), CPC, so as to warrant interference with the Judgment and Decree dated 04.11.2020. The learned Banking Court was thus justified in declining to reopen the concluded proceedings. Consequently, the Impugned Order dated 20.12.2025 passed by the learned Banking Court No.V, Karachi, in Banking Suit No.218 of 2017 / Execution No.04 of 2021 is hereby upheld, and the instant First Appeal, along with all pending application(s), is dismissed, with no order as to costs.

JUDGE

JUDGE

Naveed PA