IN THE HIGH COURT OF SINDH, KARACHI

Ist Appeal No.11 of 2004

[S. Intizar Ahmed v. M/s. National Bank of Pakistan & another]

PRESENT:

Mr. Justice Arshad Hussain Khan

Mr. Justice Amjad Ali Sahito

Appellant Through Mr. Haris Rashid Khan, Advocate.

Respondents Through Mr. Suleman Hudda, Advocate.

Date of hearing 22.10.2026

Date of Decision 02.11.2026

JUDGMENT

ARSHAD HUSSAIN KHAN, J: Through the instant First Appeal, preferred under Section 22 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (hereinafter referred to as the “Ordinance, 2001”), the Appellant has assailed the judgment dated 24.12.2003 and decree dated 22.01.2004 passed by the learned Banking Court No.I at Karachi in Suit No.974 of 2000, whereby the recovery suit instituted by Respondent No.1 (Bank) was decreed jointly and severally against Respondent No.2 (borrower) and the Appellant (guarantor) for Rs.615,000/-, together with costs of Rs.32,979/- and cost of funds at the rate of 8% per annum from the date of institution of the suit until realization.

2. Briefly, the relevant facts are that Respondent No.1 instituted the aforesaid suit for recovery of Rs.713,554/- on the premise that a finance facility of Rs.300,000/- had been sanctioned in favour of Respondent No.2 under the Prime Minister's Self-Employment Scheme vide Sanction Advice dated 04.05.1993, carrying mark-up at the rate of 15% per annum. According to the Bank, Respondent No.2 executed the requisite finance documents, whereas the Appellant stood as guarantor for repayment of the facility. Upon alleged default, the Bank claimed Rs.615,000/-, comprising principal of Rs.300,000/- and accrued mark-up of Rs.315,000/- up to 31.12.1999. Upon service through publication, the Appellant filed an application for leave to defend, supported by an affidavit, disputing the disbursement of finance, questioning the authenticity of the documents relied upon by the Bank and alleging misappropriation of funds by its former Branch Manager. The learned Banking Court, vide order dated 18.06.2003, dismissed the applications for leave to defend filed by both defendants on the ground of non-compliance with Section 10(3) of the Ordinance, 2001, and subsequently decreed the suit through the impugned judgment and decree.

3. Learned counsel for the Appellant contends that the learned Banking Court erred in dismissing the applications for leave to defend without examining the specific grounds raised therein and the supporting affidavit. He submits that the Appellant had disputed the disbursement of finance to the principal borrower, questioned the authenticity of the documents relied upon by the Bank and alleged non-compliance with the conditions governing disbursement. According to learned counsel, these assertions raised substantial questions requiring adjudication, which could not have been disregarded merely on account of the form in which the application was presented. In support of his submissions, he relies upon Balochistan Glass Limited and others v. Bank Alfalah Limited [2015 CLD 52] and Umer Shariq v. Messrs SME Bank Limited [2016 CLD 1821].

4. Conversely, learned counsel for Respondent No.1 (Bank), while supporting the impugned judgment and decree, submits that the requirements prescribed under Section 10(3) and (4) of the Ordinance, 2001, are mandatory and that the Appellant failed to furnish the requisite particulars concerning the finance facility and disputed liability. He maintains that the Bank's claim was supported by the finance documents and statement of account and that the learned Banking Court rightly dismissed the application for leave to defend. In support of his submissions, he relies upon Apollo Textile Mills Ltd. and others v. Soneri Bank Ltd. (PLD 2012 SC 268 = 2012 CLD 337) and Messrs Fiqas (Pvt.) Limited v. Habib Metropolitan Bank Limited (2020 CLD 415).

5. We have heard learned counsel for the parties and examined the material available on record. The question requiring determination is whether the learned Banking Court was justified in dismissing the Appellant's application for leave to defend in the manner reflected in its order dated 18.06.2003 and thereafter decreeing the suit.

6. Section 10 of the Ordinance, 2001, prescribes a special procedure governing applications for leave to defend. Subsections (3) and (4) require the defendant to disclose substantial questions of law or fact requiring evidence and furnish the prescribed particulars concerning the finance transaction, repayments and disputed liability. In Apollo Textile Mills (supra), the Hon'ble Supreme Court held that the requirements of Sections 9(3) and 10(3), (4) and (5) are mandatory, non-compliance wherewith attracts the consequences prescribed under Section 10(6). Similarly, in Fiqas (supra), the Lahore High Court upheld rejection of an application for leave to defend where the defendants, despite admitting availing of the finance facility, failed to furnish the requisite particulars and supporting material. There can be no dispute with the principles laid down in these judgments. However, the mandatory nature of the statutory requirements does not dispense with the Banking Court's obligation to examine the application and its supporting material and determine, through a reasoned order, whether those requirements have been satisfied.

7. In the present case, the Appellant, in his supporting affidavit to the leave to defend application, specifically disputed the disbursement of finance to Respondent No.2, questioned the documents relied upon by the Bank and alleged misappropriation by its former Branch Manager. Although the Appellant acknowledged having stood as guarantor and executed a guarantee in favour of the Bank, he also disputed the signatures appearing on the documents annexed to the plaint. The apparent inconsistency between these assertions, as well as the sufficiency of the particulars furnished in support of the defence, required consideration in accordance with Section 10 of the Ordinance, 2001. However, the learned Banking Court, through its order dated 18.06.2003, dismissed the applications filed by both defendants by merely observing that they were in violation of Section 10(3), without identifying the particular deficiencies or examining the grounds raised in the supporting affidavits.

8. Significantly, while dismissing the applications, the learned Banking Court simultaneously directed the Bank to produce the loan application submitted by Respondent No.2 and the document whereby payment to the supplier had allegedly been requested. These documents were directly relevant to the disputed disbursement of finance. However, the subsequent diary sheet does not reflect compliance with the said direction, nor does the impugned judgment disclose that the documents were produced or considered before decreeing the suit. In National Bank of Pakistan v. M/s ARK Garments Industry (Pvt.) Ltd. [2015 CLD 179], this Court held that even where leave to defend has not been obtained, the Banking Court remains obliged to examine whether the Bank has established the foundational requirements for a decree. The learned Banking Court was, therefore, required to satisfy itself regarding the legal basis of the claim, particularly when it had itself called for documents concerning the transaction.

9. In Balochistan Glass Limited (supra) and Umer Shariq (supra), this Court emphasized the necessity of deciding applications for leave to defend in accordance with the statutory procedure through proper judicial consideration. Applying the principles emerging from the aforesaid authorities, we are of the view that although the requirements of Section 10 are mandatory, the learned Banking Court was required to examine the Appellant's application and supporting affidavit to determine whether those requirements had been satisfied or whether sufficient cause for any non-compliance had been disclosed. The dismissal of the applications without such examination, followed by a decree which does not reflect consideration of the documents specifically called for by the Court, cannot be sustained. However, the question whether the Appellant has established a defence warranting leave is not being determined by us and must be considered by the learned Banking Court in accordance with law.

10. We are conscious that the special procedure prescribed under the Ordinance, 2001, is intended to ensure expeditious recovery of finances and that a defendant cannot claim leave to defend merely by raising general allegations of fraud, forgery or non-disbursement. Equally, however, where an application is supported by an affidavit containing specific factual assertions, the Banking Court is required to examine whether those assertions, read with the other material available on record, satisfy the statutory threshold. The object of the summary procedure is not to dispense with judicial scrutiny but to ensure that only such defences as meet the prescribed statutory requirements proceed to trial. In the present case, the learned Banking Court failed to undertake the necessary examination of the application and its supporting affidavit in the light of these principles.

11. Another circumstance requiring consideration is the Appellant's assertion that the suit had been adjourned to 06.01.2004 for submission of a break-up statement, whereas the impugned judgment was pronounced on 24.12.2003. This assertion reinforces the necessity of examining whether the proceedings culminating in the impugned decree were conducted in accordance with the prescribed procedure. However, in view of our conclusion regarding the disposal of the application for leave to defend, it is unnecessary to record any final finding on this aspect.

12. In view of the foregoing discussion, we are of the considered opinion that the learned Banking Court was not justified in dismissing the Appellant's application for leave to defend solely on the ground of its not having been drawn up in the prescribed form, without examining its contents and supporting affidavit in the light of the mandatory requirements of Section 10 of the Ordinance, 2001. The impugned order dated 18.06.2003, therefore, cannot be sustained insofar as it concerns the Appellant. Since the impugned judgment and decree proceeded upon the said dismissal, they are also liable to be interfered with to the extent necessary to restore the Appellant's opportunity to have his application determined in accordance with law. However, considering the mandatory statutory requirements and the disputed factual assertions, we do not consider it appropriate to grant unconditional leave to defend at the appellate stage. The proper course would be to remit the matter for fresh determination of the application through a reasoned order.

13. Accordingly, the instant First Appeal is partly allowed, with no order as to costs. The order dated 18.06.2003, insofar as it concerns the Appellant, is set aside. The impugned judgment dated 24.12.2003 and decree dated 22.01.2004 are also set aside to the extent of the liability fastened upon the Appellant, without disturbing their operation against Respondent No.2, who has not preferred the present appeal. The matter is remanded to the learned Banking Court for fresh determination of the Appellant's application for leave to defend, together with its supporting affidavit and the Bank's reply, if any, strictly in accordance with Section 10 of the Ordinance, 2001. The learned Banking Court shall determine whether the statutory requirements have been satisfied, whether sufficient cause exists for any non-compliance, and whether the defence raised discloses substantial questions of law or fact requiring evidence. It shall also ascertain the status and relevance of the documents called for through its order dated 18.06.2003. In the event leave is granted, the learned Banking Court shall proceed to determine the claim against the Appellant, including the questions concerning disbursement of finance and the extent of his liability as guarantor, without reopening or affecting the decree against Respondent No.2. Any findings recorded in the remanded proceedings shall be confined to the determination of the Appellant's liability and shall not operate to vary or nullify the decree against the non-appealing borrower. The learned Banking Court shall endeavour to conclude the proceedings expeditiously, preferably within six months from the date of grant of leave, after affording the parties an opportunity to lead evidence. It is clarified that no observation made herein shall prejudice the merits of the Bank's claim or the Appellant's defence, which shall be determined independently in accordance with law.

14. Office is directed to return the Record and Proceedings (R&Ps) received from the learned Banking Court No.I at Karachi in Suit No.974 of 2000, along with a certified copy of this judgment, forthwith, for information and compliance.

JUDGE

Naveed PA