IN THE HIGH COURT OF SINDH, KARACHI

First Appeal No.84 of 2002

[United Bank Limited v. M/s. Conforce Limited & others]

PRESENT:

Mr. Justice Arshad Hussain Khan

Mr. Justice Amjad Ali Sahito

***

Appellant

Through Mr. Muhammad Siraj, Advocate.

Respondents No.2&3

Date of Hearing:

Through Mr. Zeeshan Bashir Khan, Advocate

29.09.2026

Date of Decision:

29.09.2026

JUDGMENT

ARSHAD HUSSAIN KHAN J; This appeal under Section 22 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 ("the Ordinance") is directed against the judgment and decree dated 04.02.2002 passed by the learned Judge, Banking Court No. I, Karachi, in Suit No. 51 of 1995, whereby the appellant's suit for recovery of Rs.2,611,271/- was dismissed.

2. Briefly stated, the Appellant, United Bank Limited, entered into a Credit Agreement dated 13.12.1983 with Respondent No.1, whereby the latter undertook to repay Rs.9.085 million with interest at 4% above the bank rate, subject to a minimum of 14% per annum, with quarterly rests. Respondents Nos.2 and 3 furnished personal guarantees dated 14.12.1983 to the extent of Rs.1 million each. Subsequently, a fresh agreement dated 04.01.1992 was executed with Respondent No.1, acknowledging an outstanding liability of Rs.1.728 million as on 30.06.1991. Upon failure to pay the guaranteed amount despite notice dated 28.06.1992, the Appellant instituted the suit. Respondents Nos.2 and 3, after obtaining leave to defend, contested the claim, inter alia, on the grounds of limitation, non-disbursement of the finance, discharge of their guarantees by reason of the subsequent agreement executed without their consent, and payment in excess of the amount claimed. The learned Banking Judge framed five issues. Issue No.1 was decided as “not proved”, while Issues Nos.2 and 4 were answered in the negative. Although Issue No.3 specifically related to limitation, the impugned judgment contains no discussion or finding thereon. The suit was, however, ultimately dismissed while deciding Issue No.5, relating to the relief/decree to which the Appellant was entitled, on the ground that the contractual stipulation for charging interest with quarterly rests was un-Islamic and, therefore, the Appellant was not entitled to a decree on the basis thereof.

3. Learned counsel for the Appellant assailed the impugned judgment as being contrary to law and the evidence on record. He contended that, with effect from 31.08.2001, all proceedings pending before the Banking Court were required to be governed by the Financial Institutions (Recovery of Finances) Ordinance, 2001 (“Ordinance”), which aspect was not appreciated by the learned Banking Judge. He further argued that the finding that interest stood abolished in 1985 is legally misconceived. According to him, the agreement dated 04.01.1992 not only created a contractual obligation but also constituted an acknowledgment/admission of the outstanding liability, on the basis whereof the suit ought to have been decreed. In this regard, he referred to Section 2(e) of the Ordinance, which defines an “obligation” to include an agreement for repayment, extension of time, restructuring or renewal of a finance, and submitted that this statutory provision was altogether overlooked. He further contended that the impugned judgment does not properly address the issues framed for determination and, in particular, contains no finding on limitation or jurisdiction. He also questioned the observation that mark-up on the decretal amount would be levied once at 11%, contending that the same has no legal or factual basis. He, therefore, prayed that the impugned judgment be set aside and the suit decreed as prayed. In support of his submissions, learned counsel relied upon Azam Wazir Khan v. Messrs Industrial Development Bank of Pakistan and others [2013 SCMR 678], Dr. M. Aslam Khaki v. Syed Muhammad Hashim and 02 others [PLD 2000 SC 225], as well as BCD Circulars Nos.13 and 32 issued by the State Bank of Pakistan.

4. Conversely, learned counsel for Respondents Nos.2 and 3 supported the impugned judgment and submitted that their liability, being that of guarantors, was expressly limited to Rs.1 million each under the respective Personal Guarantees dated 14.12.1983. He contended that the guarantees had been furnished with reference to the original Credit Agreement dated 13.12.1983, whereas Respondents Nos.2 and 3 were neither parties nor signatories to the subsequent agreement dated 04.01.1992. According to him, by entering into the latter agreement, the Appellant and Respondent No.1 substituted or materially altered the original financial arrangement, including the terms governing the outstanding liability, without the consent of the guarantors. The subsequent agreement, therefore, constituted a novation of the original contract and had the effect of discharging Respondents Nos.2 and 3 from their obligations under the guarantees. He further submitted that no relief had been claimed against Respondent No.1 and that, in any event, Respondents Nos.2 and 3 had already paid amounts exceeding their respective liabilities under the guarantees. He, therefore, prayed that the appeal be dismissed.

5. We have heard learned counsel for the parties, considered their respective submissions, and examined the material available on record.”

6. A perusal of the impugned judgment reveals that it does not contain clear and reasoned findings on the issues framed for determination. Issues Nos.1, 2 and 4 were taken up together, and the learned Banking Judge observed that the guarantors were liable to the extent of the amounts specified in their respective guarantees and that their liability was not affected by the subsequent agreement executed between the Appellant and Respondent No.1. Having so observed, however, the learned Banking Judge proceeded to decide Issue No.1 as “not proved” and Issues Nos.2 and 4 in the negative, without explaining how those conclusions followed from the preceding observations. The findings are thus not only unsupported by reasons but also appear inconsistent with the reasoning recorded immediately before them. Moreover, the impugned judgment does not undertake any meaningful examination of the Personal Guarantees (Exhibits P-3 and P-4), the statement of account, the subsequent agreement dated 04.01.1992, the payments allegedly made by Respondents Nos.2 and 3, or their specific plea that amounts exceeding their respective liabilities had already been paid. These were material questions arising from the pleadings and evidence and required specific findings.

7. Similarly, Issue No.3, relating to limitation and jurisdiction, was separately framed and went to the very maintainability of the proceedings, yet the impugned judgment contains no discussion or finding thereon. Once an issue has been framed on a material proposition of fact or law, it is required to be determined by a reasoned finding, unless its determination becomes unnecessary in consequence of a finding on another issue, in which event the judgment must indicate the same and record reasons therefor. No such exercise was undertaken in the present case.

8. The suit appears to have been dismissed principally on the ground that the contractual stipulation for charging interest with quarterly rests was un-Islamic. Even if the learned Banking Judge considered any component of interest or mark-up to be legally unrecoverable, it was nevertheless necessary to determine, on the basis of the agreements, guarantees, statement of account and payments proved on record, the extent of the principal liability, if any, and the amount already discharged by the respondents. The impugned judgment also does not examine the effect of the Financial Institutions (Recovery of Finances) Ordinance, 2001 upon the pending proceedings or the legal effect of the subsequent agreement dated 04.01.1992. In particular, the plea of novation required determination whether the subsequent agreement substituted or superseded the original contractual arrangement so as to affect the obligations undertaken by Respondents Nos.2 and 3 under their Personal Guarantees, or whether it merely acknowledged, restructured or rescheduled the outstanding liability while leaving the original obligation and the securities furnished thereunder unaffected. This material question was not examined by the learned Banking Judge. Nor the relevant State Bank of Pakistan circulars relied upon by the Appellant considered. Since these matters require determination upon proper appraisal of the record, we refrain from expressing any opinion on their merits, lest it prejudice either party before the learned Banking Court.

9. In these circumstances, the impugned judgment and decree cannot be sustained. The appeal is accordingly allowed, with no order as to costs, and the judgment and decree dated 04.02.2002 are set aside. The matter is remanded to the learned Banking Court concerned for decision afresh, on the basis of material / evidence already available on record, after affording an opportunity of hearing to the parties, in accordance with law and subject to the following directions:

(i) The learned Banking Court shall record clear, consistent and reasoned findings on each of the issues already framed, including a specific finding on Issue No.3 concerning limitation and jurisdiction.

(ii) The learned Banking Court shall reappraise the evidence available on record, including the Credit Agreement dated 13.12.1983, the Personal Guarantees (Exhibits P-3 and P-4), the subsequent agreement dated 04.01.1992 and the statement of account, and shall determine the extent of the liability, if any, of the respective respondents, after giving due effect to the payments proved to have been made.

(iii) The learned Banking Court shall specifically determine the legal effect of the subsequent agreement dated 04.01.1992 upon the original Credit Agreement and the Personal Guarantees dated 14.12.1983, including whether the subsequent agreement substituted or superseded the original contractual arrangement so as to discharge Respondents Nos.2 and 3 from their obligations as guarantors, or merely acknowledged, restructured or rescheduled the outstanding liability without affecting the subsisting guarantees.

(iv) The learned Banking Court shall also consider the applicability and effect of the Financial Institutions (Recovery of Finances) Ordinance, 2001, and the relevant State Bank of Pakistan circulars relied upon by the parties, while determining the amount, if any, recoverable by the Appellant in accordance with law.

(v) Since the suit pertains to the year 1995 and has remained pending for a considerable period, the learned Banking Court shall proceed with the matter expeditiously and make every endeavor to decide the same, preferably within three (03) months from the date of receipt of a copy of this judgment. Unnecessary adjournments shall be avoided, and the parties shall extend full cooperation for expeditious disposal of the proceedings.

The Office is directed to return the Record and Proceedings (R&Ps) of Suit No. 51 of 1995 received by this Court to the learned Banking Court, forthwith, along with a copy of this judgment, for compliance.

JUDGE

Naveed PA