IN THE HIGH COURT OF SINDH AT KARACHI
Spl. H.C.A. No.25 OF 2026
[Dubai Islamic Bank Pakistan Limited v. M/s. HSJ Construction & others]
PRESENT:
Mr. Justice Arshad Hussain Khan
Mr. Justice Amjad Ali Sahito
Appellant : Through M/s. Arshad M. Tayebaly and Talha
Javed, Advocates.
Respondent No.1 : Through M/s. Rehan Kiyani and Shariq A.
Razzaq, Advocates.
Respondent No.6 : Through Mr. Khalid Jawed Khan, Advocate.
Respondents 2 to 5 : Nemo
Date of hearing : 14.09.2026 and 29.09.2026
Date of Judgment : 09.10.2026
JUDGMENT
ARSHAD HUSSAIN KHAN J; This appeal, filed under Section 22 of the Financial Institutions (Recovery of Finances) Ordinance, 2001, read with Section 96 and Order XLI Rule 1 of the Code of Civil Procedure, 1908 (“CPC”), is directed against the order dated 30.07.2026 passed by the learned Single Judge in J.M. No.30 of 2025 along with Suit No.B-34 of 2023 (“Impugned Order”).
By the Impugned Order, the learned Single Judge dismissed J.M. No.30 of 2025, filed by the Appellant under Section 12(2) CPC seeking to set aside the Consolidated Order dated 24.05.2023 and the consent decrees dated 14.10.2023 passed in Suit No.B-34 of 2022 and Suit No.B-49 of 2022, together with all pending applications therein, including CMA No.9937 of 2023, with costs. By the same order, CMA No.15753 of 2023, filed by Respondent No.6 seeking leave to defend Suit No.B-34 of 2023, was allowed, whereas CMA No.10838 of 2023, filed by the Appellant under Order XXXIX Rules 1 and 2 CPC in the said suit, was dismissed. The present appeal, however, is confined to the Impugned Order to the extent whereby J.M. No.30 of 2025 and CMA No.9937 of 2023 were dismissed.
2. Concisely stated, the relevant facts necessary for the decision of the present appeal are that Respondents Nos.1 to 5 had availed financial facilities from Respondent No.6, JS Bank Limited (“JS Bank”), secured by a Deed of Mortgage dated 25.01.2019 and successive Memoranda of Deposit of Title Deeds in respect of Survey No.17, Sheet No.CL-09, Civil Lines, Karachi, admeasuring 4,044 square yards (“Subject Property”). The Appellant subsequently extended financial facilities to Respondents Nos.1 to 5 and their affiliates and claims a secured interest in the Subject Property, against facilities of approximately PKR 1,361,803,863/-, on the basis of a Memorandum Confirming Constructive Deposit of Title Deeds dated 07.10.2022 and an Anomalous Mortgage Deed dated 17.10.2022, the former contemplating procurement of an NOC/Letter of Holding from JS Bank and the latter acknowledging JS Bank's existing mortgage while describing the Appellant's security as a “ranking mortgage”. Meanwhile, disputes between Respondents Nos.1 to 5 and JS Bank concerning their outstanding liability resulted in cross-suits, being Suits Nos.B-34 and B-49 of 2022, which were settled through a Settlement Agreement dated 17.05.2023 providing, inter alia, for transfer to JS Bank of Showrooms Nos.1, 2 and 4 in the project known as “HSJ Icon”, together with thirteen designated parking spaces, on a Debt Property Swap basis for an aggregate agreed value of Rs.637,500,000/-. Pursuant thereto, compromise applications under Order XXIII Rule 3 CPC were filed and, by Consolidated Order dated 24.05.2023, the suits were disposed of in terms of the settlement and consent decrees followed. The Appellant, which was not a party to those proceedings, thereafter instituted J.M. No.30 of 2025 under Section 12(2) CPC, along with C.M.A. No.9937 of 2023 for interim relief, alleging that its claimed interest in the Subject Property had not been disclosed and that the Consolidated Order and consent decrees had consequently been obtained through fraud and misrepresentation practiced upon the Court. The Appellant also instituted Suit No.B-34 of 2023 under Section 9 of the Ordinance for recovery of PKR 1,488,483,847.85 together with cost of funds. The learned Single Judge heard learned counsel for the parties on CMA No.15753 of 2023, filed by Respondent No.6 seeking leave to defend Suit No.B-34 of 2023; CMA No.10838 of 2023, filed by the Appellant seeking interim injunctive relief in the said suit; and J.M. No.30 of 2025, instituted by the Appellant under Section 12(2) CPC along with CMA No.9937 of 2023 seeking interim relief, and disposed of all three matters by the order Impugned herein.
3. Learned counsel for the Appellant assailed the Impugned Order principally on the ground that J.M. No.30 of 2025 had been summarily rejected despite substantial disputed questions concerning the Appellant’s security interest in the Subject Property. He submitted that the Memorandum dated 07.10.2022 and the Anomalous Mortgage Deed dated 17.10.2022 preceded the Settlement Agreement and consent decrees and created, at the least, a subsisting subsequent security interest in favour of the Appellant which, though subject to determination of its nature and priority vis-à-vis JS Bank’s earlier mortgage, could not be extinguished or prejudiced through a compromise between Respondents Nos.1 to 5 and JS Bank without disclosure to, or participation of, the Appellant. According to him, non-disclosure of the Appellant’s security instruments when the compromise was presented to the Court constituted fraud and/or misrepresentation requiring adjudication under Section 12(2) CPC, particularly when the learned Single Judge had, in Suit No.B-34 of 2023, granted JS Bank leave to defend and framed issues concerning the existence, nature and priority of the very competing security interests. He further contended that the requirement for procurement of an NOC/Letter of Holding from JS Bank was erroneously treated as a condition precedent to the existence of the Appellant’s security, whereas its legal effect, as also the effect of the original title documents remaining in JS Bank’s custody, involved questions of construction and evidence which could not be conclusively determined at that stage. He maintained that the Appellant did not seek automatic priority over JS Bank’s earlier mortgage, but protection of its subsequent claimed interest from being defeated by conversion of JS Bank’s mortgage interest into ownership through the Debt Property Swap before the competing rights were adjudicated. He accordingly prayed that the Impugned Order, to the extent challenged, be set aside, J.M. No.30 of 2025 be restored for adjudication after recording evidence, and appropriate interim protection of the Subject Property be continued in the meantime. In support of his submissions, learned counsel for the Appellant relied upon Misbah Khanum v. Kamran Yasin Khan and another (2022 SCMR 1629), Munawar Ali Malik and others v. Habib Bank Limited and others (judgment dated 30.01.2019 in First Appeals Nos.D-22 and D-23 of 2017), Nisar Ahmed Afzal v. Muslim Commercial Bank (2014 CLD 390), Mrs. Anis Haider and others v. S. Amir Haider and others (2008 SCMR 236), Khairpur Textile Mills Ltd. and 7 others v. National Bank of Pakistan (2003 CLD 326), Muhammad Sadiq and others v. Muhammad Mansha and others (PLD 2018 SC 692), Industrial Development Bank of Pakistan v. Muhammad Ayub Stone Crushers (2009 CLD 756), National Bank of Pakistan and another v. Paradise Trading Company and others (2015 SCMR 319), Mst. Khursheed Begum and others v. NIB Bank Limited and others (PLD 2024 Sindh 276 / 2024 CLD 888), and Askari Bank Limited v. A.H. International (Pvt.) Ltd. and others (2024 CLD 360).
4. Learned counsel for Respondent No.6, JS Bank Limited (“JS Bank”), supported the Impugned Order and submitted that JS Bank’s mortgage over the Subject Property, created in 2019 and subsequently extended through successive Memoranda of Deposit of Title Deeds, admittedly preceded the Appellant’s purported security created in October 2022, which itself expressly acknowledged JS Bank’s existing mortgage and contemplated procurement of an NOC/Letter of Holding from JS Bank that was admittedly never obtained. He contended that the Appellant’s claimed security was, therefore, conditional and contingent and never crystallized into an enforceable interest in the Subject Property; consequently, JS Bank was under no obligation to disclose such subsequent arrangement to the Court or obtain the Appellant’s consent before settling its disputes with Respondents Nos.1 to 5 and enforcing its prior security through the Settlement Agreement and Debt Property Swap. He further submitted that, even assuming that some interest had been created in favour of the Appellant, it necessarily remained subordinate to JS Bank’s prior mortgage and could not entitle the Appellant to dictate the manner in which JS Bank enforced its security. It was further contended that no specific false representation, deliberate concealment, fraud or misrepresentation attracting Section 12(2) CPC had been established and that the Appellant’s grievance, if any, arising from the failure of Respondents Nos.1 to 5 to procure the stipulated NOC could be pursued in its substantive recovery proceedings. Lastly, he submitted that the grant of leave to defend and framing of issues in Suit No.B-34 of 2023 merely preserved disputed questions for trial and did not establish the existence or priority of the Appellant’s alleged security or furnish any ground for setting aside the consent decrees; hence, no case for interference with the dismissal of J.M. No.30 of 2025 was made out. In support of his submissions, learned counsel relied upon Industrial Development Bank of Pakistan v. Muhammad Ayub Stone Crushers (2009 SCMR 611), Muhammad Latif Khan (deceased) through legal heirs v. Barkatullah (2021 CLC 657), Talaat Inayatullah Khan v. Dr. Anis Ahmed Sheikh (PLD 2015 Sindh 134), Happy Family Associates v. Pakistan International Trading Company (PLD 2006 SC 226), and Messrs Dadabhoy Cement Industries Limited v. Messrs National Development Finance Corporation (2002 CLC 166).
5. Learned counsel for Respondent No.1, while adopting the submissions advanced on behalf of Respondent No.6, supported the Impugned Order and further submitted that the Appellant had never acquired any perfected or enforceable security interest in the Subject Property. Per learned counsel, the Appellant's own documents acknowledged JS Bank's pre-existing mortgage and custody of the original title documents, while the contemplated security was expressly dependent upon procurement of an NOC/Letter of Holding from JS Bank, which was admittedly never obtained; consequently, neither a mortgage by deposit of title deeds under Section 58(f) of the Transfer of Property Act, 1882 nor any security capable of displacing JS Bank's prior rights came into existence. He further submitted that, even if the Appellant's instruments were treated as creating an anomalous mortgage or charge, such interest remained contractually and statutorily subordinate to JS Bank's earlier mortgage under Sections 48 and 98 of the Transfer of Property Act. It was contended that the Appellant had failed to identify any specific fraud, misrepresentation or concealment practised upon the Court so as to attract Section 12(2) CPC, and that the compromise between Respondents Nos.1 to 5 and JS Bank could not be invalidated merely because it adversely affected an alleged subsequent and subordinate interest of the Appellant. Lastly, he submitted that there was no inconsistency between granting JS Bank leave to defend Suit No.B-34 of 2023 and dismissing J.M. No.30 of 2025, since the former merely preserved disputed questions for trial, whereas the latter required the Appellant to establish the statutory grounds of fraud or misrepresentation for setting aside the consent decrees, which it had failed to do. He accordingly prayed that the appeal be dismissed and the Impugned Order maintained. He has relied upon the case of Industrial Development Bank of Pakistan v. Muhammad Ayub Stone Crushers (2009 SCMR 611).
6. We have heard learned counsel for the parties at considerable length, examined the material available on record and carefully considered the reasoning recorded by the learned Single Judge in the Impugned Order. The controversy before us lies within a narrow compass. The principal question is not whether the Appellant may ultimately establish some security interest in the Subject Property under the Memorandum Confirming Constructive Deposit of Title Deeds dated 07.10.2022 or the Anomalous Mortgage Deed dated 17.10.2022, nor whether such interest, if established, is enforceable against Respondents Nos.1 to 5. Those questions arise for determination in Suit No.B-34 of 2023. The question presently before us is whether the Consolidated Order dated 24.05.2023 and the consent decrees founded upon the Settlement Agreement were shown to have been obtained through fraud, misrepresentation or want of jurisdiction so as to attract Section 12(2) CPC.
7. In terms of Section 48 of the Transfer of Property Act, 1882, where rights over the same immovable property are created at different times and cannot all be exercised to their full extent together, the later-created right remains subject to the right previously created. The principle has also been reiterated by the Honourable Supreme Court in Industrial Development Bank of Pakistan v. Muhammad Ayub Stone Crushers (2009 SCMR 611). Thus, even if it is assumed, without deciding, that the instruments of October 2022 created some legally cognizable subsequent interest in favour of the Appellant, such interest was necessarily subject to JS Bank's pre-existing mortgage, unless the Appellant could bring its case within any recognized exception to the ordinary rule of priority.
8. The principal grievance of the Appellant is that, its asserted subsequent security interest was not disclosed when Respondents Nos.1 to 5 and JS Bank placed the Settlement Agreement before the Court and obtained the consent decrees. In our view, however, mere non-disclosure of an asserted subsequent interest does not, without establishing something further, constitute fraud or misrepresentation within the contemplation of Section 12(2) CPC. For invocation of that jurisdiction, it was incumbent upon the Appellant to specifically plead and prima facie demonstrate that a material fact, which the parties were under an obligation to disclose, was deliberately withheld from the Court and that such concealment or misrepresentation was instrumental in procuring the judgment, decree or order sought to be recalled. The jurisdiction under Section 12(2) CPC is directed against the manner in which the judicial order was procured; it is not attracted merely because the consequence of that order may adversely affect a right asserted by a third person.
9. Tested on the above principle, the Appellant's case does not cross the threshold required for interference under Section 12(2) CPC. JS Bank was admittedly the prior mortgagee; its security had been created several years before the Appellant entered into its transaction with Respondents Nos.1 to 5; the original title documents remained in the custody of JS Bank; and, more importantly, the Appellant's own instruments expressly acknowledged JS Bank's existing mortgage. The Memorandum dated 07.10.2022 further contemplated procurement of an NOC/Letter of Holding from JS Bank, which was admittedly never obtained. Thus, whatever may ultimately be the legal character and effect of the Appellant's subsequent instruments, the Appellant entered into the transaction with knowledge that the Subject Property was already encumbered in favour of JS Bank.
10. Conversely, no material has been shown to us from which it could prima facie be concluded that JS Bank, when entering into the Settlement Agreement and presenting the compromise before the Court, made any affirmative representation that no subsequent interest whatsoever existed in the Subject Property, or deliberately suppressed a fact which it was legally bound to disclose for the purpose of obtaining the consent decrees. Nor has it been demonstrated that the Court was induced, by any false representation attributable to JS Bank or Respondents Nos.1 to 5, to exercise a jurisdiction which it did not possess. The compromise settled disputes already pending between the borrowers/mortgagors and their prior secured creditor. The mere fact that its implementation may have consequences for an asserted subsequent security does not, by itself, establish that the judicial order approving the compromise was procured through fraud or misrepresentation.
11. This distinction is important. There is a material difference between an act which may affect or even prejudice an asserted civil or proprietary right and an act which vitiates a judicial order within the meaning of Section 12(2) CPC. The former may furnish a cause of action for enforcement or protection of the underlying right; the latter requires the judgment, decree or order itself to have been obtained through fraud, misrepresentation or want of jurisdiction. Unless that distinction is maintained, virtually every person claiming an interest affected by a consent decree between other parties could seek reopening of the decree under Section 12(2) CPC merely by asserting that his interest had not been brought to the notice of the Court. Such an interpretation would enlarge the limited jurisdiction under Section 12(2) beyond its statutory purpose.
12. The judgment in Messrs Dadabhoy Cement Industries Limited v. Messrs National Development Finance Corporation (2002 CLC 166), subsequently considered by the Honourable Supreme Court in Messrs Dadabhoy Cement Industries Ltd. v. National Development Finance Corporation (PLD 2002 SC 500), lends support to this approach. It was held that a mere allegation of fraud, misrepresentation or concealment does not invariably require the Court to frame issues and record evidence; whether such inquiry is called for depends upon the facts and material placed before the Court. The Honourable Supreme Court further emphasized that where fraud is alleged, its particulars must be specified and supported by material. Section 12(2) CPC, therefore, does not confer an automatic right to a full-fledged trial merely upon use of the expressions “fraud”, “misrepresentation” or “concealment”. The Court must first be satisfied that the pleaded facts and supporting material disclose a case falling within the statutory grounds contemplated by that provision.
13. Viewed in this perspective, the grant of leave to defend to JS Bank in Suit No.B-34 of 2023 does not advance the Appellant's case under Section 12(2) CPC. The two proceedings involve materially different inquiries. In the recovery suit, the questions whether the Memorandum dated 07.10.2022 or the Anomalous Mortgage Deed dated 17.10.2022 created any mortgage, charge or other enforceable interest in favour of the Appellant; whether procurement of the NOC/Letter of Holding was a condition precedent; and what priority such interest may enjoy vis-à-vis JS Bank are substantive questions concerning the competing rights of the parties. The grant of leave merely recognizes that those questions require adjudication. It neither establishes the Appellant's asserted security nor supplies the separate ingredient of fraud, misrepresentation or want of jurisdiction necessary for relief under Section 12(2) CPC.
14. Indeed, even if we assume, solely for the purpose of examining the present appeal and without deciding the issue, that the instruments executed in October 2022 created a legally cognizable subsequent interest in favour of the Appellant, the result under Section 12(2) CPC would remain unchanged. The existence of such an interest would establish, at the highest, that the Appellant possessed a right requiring protection or adjudication; it would not, without proof of the requisite vitiating conduct, establish that the compromise and the consequent consent decrees were obtained through fraud or misrepresentation. The validity and enforceability of the Appellant's substantive security and the validity of the judicial process by which the consent decrees were obtained are distinct questions and must not be conflated.
15. This also answers the Appellant's contention that its asserted security could not be extinguished through a compromise to which it was not a party. If the consent decrees do not bind or lawfully extinguish an independent right belonging to the Appellant, that right may be asserted and determined in the proceedings available to it, including Suit No.B-34 of 2023. Conversely, if the Appellant ultimately fails to establish an enforceable interest in the Subject Property, no question of its extinguishment would arise. In neither situation does it necessarily follow that the compromise between JS Bank and Respondents Nos.1 to 5 must itself be recalled under Section 12(2) CPC. The Appellant cannot obtain the setting aside of a consent decree between other parties merely as a means of preserving a substantive claim which remains independently capable of adjudication.
16. We are conscious of the authorities relied upon by the Appellant for the proposition that serious allegations of fraud requiring determination of disputed facts ought ordinarily not to be summarily rejected. There can be no quarrel with that proposition in an appropriate case. However, the requirement of evidence arises where the pleaded facts, if proved, are capable of constituting fraud or misrepresentation within Section 12(2) CPC. It does not follow that every disputed assertion concerning an underlying proprietary or contractual right necessitates a trial in proceedings under Section 12(2). In the present case, the dispute concerning the existence, nature and priority of the Appellant's alleged security can be fully adjudicated in Suit No.B-34 of 2023; what is lacking in J.M. No.30 of 2025 is sufficient material connecting the alleged non-disclosure with fraud or misrepresentation practiced upon the Court in procuring the consent decrees.
17. We would, therefore, refrain from endorsing, as final, any observation in the Impugned Order to the effect that the Appellant's security never came into existence merely because the NOC/Letter of Holding was not obtained, or that the Anomalous Mortgage Deed was incapable of creating any interest whatsoever. Those matters are already the subject of issues framed in Suit No.B-34 of 2023 and ought to be determined therein upon the evidence of the parties. The dismissal of J.M. No.30 of 2025 can nevertheless be sustained on the narrower and independent ground that, even assuming the existence of the Appellant's asserted subsequent interest, the material placed before the Court does not disclose that the Consolidated Order dated 24.05.2023 or the consequent consent decrees were obtained through fraud, misrepresentation or want of jurisdiction within the meaning of Section 12(2) CPC.
18. For the foregoing reasons, we find no ground warranting interference with the Impugned Order. The appeal is, accordingly, dismissed along with pending application(s), with no order as to costs. It is, however, clarified that the dismissal of the present appeal shall not be construed as a determination against the Appellant of the validity, nature, enforceability or priority of the security asserted by it under the Memorandum dated 07.10.2022 and the Anomalous Mortgage Deed dated 17.10.2022, nor shall it, by itself, operate to extinguish or prejudice any right or remedy which the Appellant may otherwise establish in accordance with law in Suit No.B-34 of 2023. Any observations contained in the Impugned Order, or herein, touching upon those questions shall be treated as tentative and confined to the proceedings under Section 12(2) CPC. The issues already framed in Suit No.B-34 of 2023 shall be determined independently, on the basis of the pleadings and evidence of the parties, in accordance with law, without being influenced by such observations.
JUDGE
JUDGE
Naveed PA