IN THE HIGH COURT OF SINDH AT KARACHI

Spl. H.C.A. No.303 OF 2001

[National Bank of Pakistan v. M/s. Grip & Hold Industries Limited & others]

PRESENT:

            Mr. Justice Arshad Hussain Khan

                                      Mr. Justice Amjad Ali Sahito       

Appellant                   :           Through Mr. Khalid Mahmood Siddiqui,

Advocate.

Respondent               :           Nemo

Date of hearing         :           23.09.2026

Date of Judgment     :           06.10.2026

JUDGMENT

ARSHAD HUSSAIN KHAN J; This Special High Court Appeal, filed under Section 3 of the Law Reforms Ordinance, 1972, is directed against the judgment and decree dated 16.08.2001 passed by the learned Single Judge of this Court in Judicial Miscellaneous (J.M.) Application No.10 of 1995. By the impugned judgment, the learned Single Judge decreed the recovery application filed under Section 39 of the Industrial Development Bank of Pakistan Ordinance, 1961, in the sum of Rs.31,930,902/- with costs and also granted a mortgage decree in favour of the Appellant Bank. However, the claims towards foreign currency interest, mark-up, penal interest, commitment charges, and pendente lite and future mark-up were disallowed on the ground that they attracted the prohibition against Riba and were beyond the permissible parameters of the relevant State Bank of Pakistan BCD Circulars. Aggrieved to the extent of such disallowance, the Appellant preferred the instant Appeal. During the pendency of the Appeal, the title of the Appellant was amended by substituting National Bank of Pakistan as successor to the Industrial Development Bank of Pakistan/CIRC.

2.         Briefly stated, Respondent No.1, a public limited company, was a borrower and customer of the Appellant Bank, whereas Respondents Nos.2 to 9 were its directors and had also furnished personal guarantees for repayment of the finance facilities extended to Respondent No.1. The Appellant extended three facilities: firstly, a foreign currency loan initially sanctioned on 19.06.1988 for an amount equivalent to Rs.16.423 million, subsequently enhanced to Rs.20.567 million, and governed by the Finance/Loan Agreement dated 10.01.1990, which stipulated interest at 14% per annum with half-yearly rests, besides commitment charges and penal interest; secondly, local currency financing for purchase of machinery on a purchase-and-resale/mark-up basis, ultimately enhanced to Rs.8.210 million under the Financing Agreement dated 07.01.1991, with a stipulated resale price and provision for fine upon default; and thirdly, a running finance facility of Rs.4.6 million sanctioned on 30.06.1991 for one year, carrying an agreed buy-back price and mark-up. Upon default by the Respondents, the Appellant recalled the outstanding liability under Section 38 of the Industrial Development Bank of Pakistan Ordinance, 1961, through legal notices dated 11.10.1994 and, upon failure to make payment, instituted proceedings under Section 39 thereof. The Appellant claimed Rs.38,420,325.91 against the foreign currency loan, Rs.22,088,177.90 against the local currency finance facility and Rs.5,914,297.47 against the running finance facility, besides further mark-up and contractual charges. The learned Single Judge, however, determined the aggregate amount disbursed and payable under the three facilities at Rs.38,125,292/- and, after giving credit for repayments amounting to Rs.6,194,390/-, decreed a sum of Rs.31,930,902/- in favour of the Appellant, while declining the additional claims referred to hereinabove.

3.         Despite due service of notice upon the Respondents, including through publication, none has entered appearance on their behalf. On the previous date of hearing, i.e., 18.08.2026, the matter was adjourned by way of a last opportunity, with a clear note of caution that, in the event of continued non-appearance, the matter would be proceeded with in their absence. Notwithstanding the said caution, none has appeared on behalf of the Respondents today (23.09.2026). Considering that the Appeal pertains to the year 2001 and has remained pending for a considerable period, we found no justification for any further adjournment and, accordingly, proceeded to hear the matter finally in the absence of the Respondents.

4.         Learned counsel for the Appellant Bank submitted that the learned Single Judge, having found the finance facilities, disbursements and default duly established, erred in restricting the decree to the principal amount and declining the contractual claims towards interest/mark-up, penal interest, commitment charges and pendente lite and future mark-up on the ground that such claims constituted Riba or were impermissible under BCD Circulars Nos.13 and 32 of 1984. He contended that the foreign currency loan and re-lending of foreign credit lines fell outside the domestic non-interest regime contemplated by the said Circulars, particularly in view of Condition No.2 of BCD Circular No.13 of 1984, which excludes “on-lending of foreign loans”, and Section 33 of the Industrial Development Bank of Pakistan Ordinance, 1961, which provides for repayment of foreign currency loans in accordance with the terms thereof. He further argued that interest/mark-up, commitment charges and penal interest were expressly stipulated under Article 2.03(b), (g) and (h) of the Finance Agreement and could not have been declined merely by treating them as Riba. According to him, the BCD Circulars, being subordinate legislation, could not override the provisions of the governing statute or the contractual obligations undertaken by the parties. Learned counsel further submitted that the Appellant was entitled to pendente lite and future financial return and, following promulgation of the Financial Institutions (Recovery of Finances) Ordinance, 2001, to cost of funds under Section 3 thereof until realization. He also assailed the vacation of attachment in respect of six properties belonging to the personal guarantors/Respondents Nos.2 to 9, contending that Section 39(1)(a) of the IDBP Ordinance, 1961, empowered the Appellant to proceed against the properties of the guarantors for satisfaction of the outstanding liability. It was, therefore, urged that the impugned judgment and decree be modified to the extent of the amounts and contractual charges disallowed and the vacation of attachment, and that the Appellant's claim be decreed accordingly. In support of his submissions, learned counsel relied upon Azam Wazir Khan v. Industrial Development Bank of Pakistan (2013 CLD 974), Habib Bank Limited v. Balochistan Gum Industries (Pvt.) Ltd. (2001 YLR 81), Muhammad Farooq Azam v. Bank Alfalah Ltd. etc. (2014 LHC 6510), Allied Bank Limited v. M/s Nasar Rice Mills and others (2016 CLD 324), National Bank of Pakistan v. M/s Brite Chemicals and others (2024 CLD 148), M/s G.A. Traders (Sole Proprietorship) v. Allied Bank of Pakistan (E.F.A. No.22133 of 2023), SME Bank Limited v. M/s Punjab Store and another (R.F.A. No.40272 of 2021) and National Bank of Pakistan v. Tuwairqi Steel Mills Limited and another (Suit No.B-58 of 2015, decided on 10.02.2021).

5.         We have carefully examined the record, considered the submissions advanced on behalf of the Appellant, and scrutinized the impugned judgment in the light of the applicable legal framework. The non-appearance of the Respondents, notwithstanding due service, does not by itself entitle the Appellant to the relief sought. The Appellant must nevertheless demonstrate, on the basis of the record and the applicable law that the findings recorded by the learned Single Judge suffer from an error of law or fact warranting interference in appellate jurisdiction.

6. The principal controversy before us is not with regard to the existence of the finance facilities or the default committed by the Respondents, both of which stand established on the record, but with regard to the extent of the Appellant's entitlement under the respective finance agreements. The learned Single Judge declined substantial components of the claim essentially on the premise that interest, penal interest and pendente lite/future mark-up constituted Riba and were, therefore, impermissible under BCD Circulars Nos.13 and 32 of 1984. Since the impugned judgment was rendered on 16.08.2001, the legal position underlying that reasoning has subsequently received authoritative consideration by the Honourable Supreme Court and the matter must, therefore, be examined in the light of the law as ultimately declared.

7. In Azam Wazir Khan v. Industrial Development Bank of Pakistan (2013 SCMR 678 = 2013 CLD 974), which itself arose out of proceedings instituted by IDBP under Section 39 of the Industrial Development Bank of Pakistan Ordinance, 1961, the Honourable Supreme Court examined the effect of BCD Circulars Nos.13 and 32 of 1984. While recognizing the regulatory force of the Circulars and the transition to non-interest modes of financing, the Supreme Court did not accept that such Circulars could be employed so as to override or render ineffective the governing statutory framework. At the same time, the Court expressly noticed that BCD Circular No.32 prohibited overdue/penal interest and mark-up on mark-up after the prescribed cut-off date. The two aspects must, therefore, be kept distinct: a contractual or statutory financial return otherwise permissible in law cannot be declined merely by characterizing it as Riba, whereas a charge specifically prohibited by the governing regulatory framework cannot be recovered merely because it finds mention in the agreement.

8. As regards the foreign currency facility, the learned Single Judge proceeded on the premise that the facility did not qualify as “on-lending of foreign loans” within paragraph 2 of BCD Circular No.13 because the Appellant had failed to establish that the funds emanated from an identified foreign lender and had been made available for the specified project. The mere description of a facility as a “foreign currency loan” does not, by itself, establish that it constitutes “on-lending of foreign loans”. Indeed, the decision in Habib Bank Limited v. Balochistan Gum Industries (Pvt.) Limited (2001 YLR 81), upon which reliance has been placed, involved an identifiable IBRD loan made available through the Government of Pakistan and thereafter on-lent to the borrower. The present record, as noticed by the learned Single Judge, did not disclose comparable material establishing the foreign source and onward transmission of the particular funds. We are, therefore, not persuaded to disturb the finding of the learned Single Judge merely on the assertion that foreign currency credit lines were available to the Appellant. Section 33 of the IDBP Ordinance, which regulates the manner in which a loan granted in foreign currency is to be repaid, does not dispense with the necessity of proving that a particular transaction falls within the exception relating to “on-lending of foreign loans”.

9. The position of the local currency facilities is, however, materially different. The learned Single Judge himself found that the local currency machinery finance was structured on a purchase-and-resale basis and determined the amount payable by reference to the agreed repurchase/resale price of Rs.11,232,000/-. Similarly, in respect of the running finance facility, the agreed repurchase price of Rs.5,870,000/- was noticed. Having recognized and enforced these agreed non-interest financing arrangements, there was no legal basis for treating every contractual financial return, irrespective of its nature and the mode of financing adopted, as prohibited Riba. The legality and recoverability of each component had to be determined by reference to the governing agreement, the applicable statutory provisions and the BCD Circulars, rather than through a general prohibition against financial return as such.

10. We are, however, unable to accept the Appellant's claim for penal interest. BCD Circular No.32 specifically prohibited overdue/penal interest and mark-up on mark-up, a prohibition subsequently noticed and affirmed in Azam Wazir Khan (supra). A contractual stipulation cannot sustain a charge which the governing regulatory regime expressly prohibits. The learned Single Judge was, therefore, justified in declining penal interest, though the conclusion is sustained for the foregoing legal reason rather than merely on the characterization of such charge as Riba.

11. The claim for commitment charges also does not call for interference. The learned Single Judge recorded that commitment charges were payable, if at all, in respect of amounts committed but remaining undisbursed and that the Appellant had failed to establish any such undisbursed amount. Learned counsel has not been able to point out from the record any material demonstrating that a specified portion of the sanctioned facility remained committed and undisbursed so as to attract the contractual commitment charge. The mere existence of a clause providing for commitment charges does not establish the factual basis for their recovery. The finding in this regard is, accordingly, maintained.

12. The reasoning of the learned Single Judge concerning pendente lite and future financial return, however, cannot be sustained in its entirety. Such relief was declined principally because the learned Single Judge considered interest/mark-up to be Riba and observed that, but for an express statutory command, it could not be awarded. The subsequent pronouncement of the Honourable Supreme Court in Azam Wazir Khan (supra) demonstrates that the matter cannot be determined merely on such characterization. The entitlement to financial return after institution of proceedings has to be determined in accordance with the governing statutory regime and the legally enforceable terms of the finance transaction, subject always to the prohibition against penal interest, mark-up on mark-up or other impermissible compounding.

13. We may also observe that reliance upon Section 3 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 requires some qualification. The impugned judgment was pronounced on 16.08.2001, whereas the Ordinance of 2001 was promulgated thereafter. The legality of the impugned judgment must ordinarily be examined with reference to the law applicable when it was rendered, unless the subsequent enactment expressly or by necessary implication governs the pending appellate proceedings. The Appellant's entitlement cannot, therefore, rest merely upon a retrospective application of Section 3. Nevertheless, the subsequent statutory framework reinforces the legislative recognition that a defaulting customer may remain liable for financial return/cost of funds until realization, subject to the governing law and the nature of the underlying finance.

14. As regards the properties of Respondents Nos.2 to 9, the impugned judgment itself decreed the liability jointly and severally and directed that the attached and/or mortgaged properties could be sold for recovery of the decretal amount in terms of Section 39 of the IDBP Ordinance. To the extent that any attachment was vacated in respect of properties belonging to the guarantors notwithstanding subsisting personal guarantees, the matter necessarily depends upon whether those properties were legally liable to attachment and sale for satisfaction of the decretal liability. Section 39 does not dispense with proof of the guarantee or ownership of the property sought to be proceeded against. No blanket or “unfettered” right to attach every disclosed or undisclosed property can, therefore, be recognized; execution must proceed against such property as is legally liable to attachment and sale in accordance with the decree and applicable law.

15. For the foregoing reasons, the Appeal is partly allowed. The impugned judgment and decree dated 16.08.2001 are maintained insofar as they determine the principal/decretal liability of the Respondents, disallow penal interest and commitment charges, and decree the liability jointly and severally. However, the finding that pendente lite and future financial return could not be granted merely because it constituted Riba is set aside. The Appellant shall be entitled to such post-suit financial return as is permissible under the governing statutory framework and the legally enforceable terms of the respective finance facilities, without compounding, penal interest or mark-up on mark-up, until realization. The decree shall stand modified to that extent. The Appellant shall also be at liberty to proceed, in accordance with law, against the mortgaged properties and such properties of the guarantors as are legally liable to attachment and sale for satisfaction of the decree. The Appeal, along with all pending applications, stands disposed of in the above terms.

JUDGE

JUDGE

Naveed PA