IST APPEAL NO. 12 / 2011
Present:
Mr. Justice Syed Hassan Azhar Rizvi.
Mr. Justice Muhammad Junaid Ghaffar.
M/S U.I.G.(Pvt) Ltd. & others -------------------------------------- Appellants
Versus
Bank Al-Falah Limited ----------------------------------------------- Respondent
Date of hearing: 12.03.2014
Date of Judgment; 23.07.2014
Petitioner: Through Mr. Khawaja Shamsul Islam Advocate.
Respondent: Through Mr. Abdul Sattar Lakhani.
J U D G M E N T
Muhammad Junaid Ghaffar, J. Through instant Appeal filed under Section 22 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (“2001 Ordinance”), the appellants have impugned judgment dated 22.12.2010 and decree dated 15.1.2011 respectively, passed by the learned Banking Court-IV, at Karachi (“Banking Court”) in Suit No. 469 of 2009, whereby the Suit filed by the Respondent Bank has been decreed against all the appellants jointly and severally in the sum of Rs. 16,097,092.49 with cost of funds and suit from the date of default till realization of the entire decretal amount.
2. Briefly, the facts as stated are that the Respondent Bank had filed a Suit under Section 9 of the “2001 Ordinance” against the appellants for recovery of an amount of Rs. 16,097,034.40 along with agreed markup and cost of funds from the date of default till realization of the outstanding amount which was availed by the appellants as a Running Finance Facility. It is further stated that the appellant No. 1 vide letter dated 23.4.2007 had requested the Respondent Bank for grant of a Running Finance Facility of Rs. 25 Million for their Hotel Project which was facing shortage of working capital. Thereafter, the Running Finance Facility of Rs. 15 million was granted to the appellants and an agreement for such financing dated 7.6.2007 was signed and executed by the appellants. For availing such Running Finance Facility, the appellants also executed a demand promissory note for an amount of Rs. 18.65 million, letter of continuity dated 7.6.2007 and letter of undertaking dated 12.6.2007. In addition to the above, as a collateral security, the appellant No. 1 also created a hypothecation charge over all its present and future fixed assets (excluding land and building) in favor of the respondent Bank vide letter of hypothecation dated 8.6.2007 to the extent of Rs. 26 million. The appellants’ No. 2 to 7 being Directors of appellant No. 1 also executed and provided their personal guarantees to the extent of Rs. 18.65 million each. The said Finance Facility was supposed to expire on 31.5.2008, however the appellant No. 1 vide its letter dated 16.5.2008 requested renewal of the Running Finance Facility for a further period of one year; consequently the respondent Bank renewed the said Finance Facility upon mutually agreed terms and conditions for a further period of one year up to 31.5.2009. However, it is pertinent to note that appellant No. 1 did not sign any further agreement for such Finance Facility. Thereafter, the appellant No. 1 defaulted in fulfilling its Re-payment obligations from March 2009 onwards, whereafter a legal notice dated 29.6.2009 was sent to the appellant No. 1 which was not responded by the appellant No. 1, compelling the respondent Bank to file Suit for Recovery as aforesaid, before the learned Banking Court. The appellants filed leave to defend application under Section 10 of the “2001 Ordinance” raising objection and questions of law and facts, however, the leave to defend application was dismissed by the learned Banking Court vide order dated 20.05.2010 and consequently the Suit filed by the respondent has been decreed as aforesaid. The appellants have challenged the said judgment and decree through the instant appeal.
3. Learned Counsel for the appellant contended that the agreement on the basis of which the Running Finance Facility was availed by the appellants, stood expired on 31.5.2008, whereafter no further agreement had been signed or renewed on behalf of the appellants; hence the amount of mark up being charged beyond such date i.e. 31.5.2008 is unlawful and cannot be justified. Leaned Counsel further contended that the plaint filed by the respondent Bank was defective in law, as it did not fulfilled the mandatory requirements of law as contemplated in the “2001 Ordinance”; hence the suit was liable to be dismissed without any further proceedings. Learned Counsel further contended that the respondent Bank had admittedly disbursed an amount of Rs. 15 million as per its own averments in the plaint, whereas, in Para 10 of the plaint the respondent Bank had stated that an amount of Rs. 81,746,406.63 had been availed by the appellants as the principal amount, whereas, an amount of Rs. 66,899,594.87 had been repaid by the appellants against the said principal amount. Per learned Counsel such stance of the Respondent Bank was contradictory in itself and reflects that the claim of the respondent Bank was based on juggling of figures, as it is not possible to disburse such huge amounts when the Finance Facility was admittedly for an amount of Rs. 15 million only. Learned Counsel further contended that though a request dated 16.05.2008 for renewal of the Finance Facility was made by the appellants, however no further agreements and or any other documents were signed or executed by the appellants, therefore the Finance Facility stood expired and all such claims by the respondent Bank beyond 31.5.2008, in respect of of mark up are illegal and unlawful. Learned Counsel further contended that the statement of accounts filed along with the plaint was in violation of the Bankers Book Evidence Act 1891; hence the suit was not maintainable before the learned Banking Court and was liable to be dismissed summarily by the Banking Court on this ground. Learned Counsel also contended that the respondent Bank has charged mark up over mark up and no separate account has been maintained for the repayment of the principal and the mark up amount and such irregularity has to be decided in favor of the appellants. Learned Counsel next contended that the impugned judgment and decree is also liable to be set aside on the ground that under the law, as soon as the leave to defend application is dismissed, the learned Banking Court is required to pass judgment and decree and not to ask to any further breakup of the account, either by the Bank or by the borrower, whereas in the instant matter the learned Banking Court, after dismissal of the leave to defend application on 20.05.2010 issued direction to the parties to file detailed breakup of the account which according to the learned Counsel is not permissible under the 2001 Ordinance. In support of his contention the learned Counsel has relied upon the case of United Bank Limited Karachi Vs. M/S Gravure Packing Pvt. Limited and 4 others (2001 YLR 1549), M/S Soneri Bank Limited Vs. M/S Compass Trading Corporation Pvt. Limited through Director / Chief Executive & 3 others (2012 CLD 1302), Mst. Robina Bibi Vs. State Life Insurance and others (2013 CLD 477), Soneri Bank Limited Vs. Classic Demin Mills Pvt. Limited & 3 others (2011 CLD 408), M/S Shaz Packages and 3 others Vs. M/S Bank Al-Falah Limited (2011 CLD 790), Habib Bank Limited Vs. M/S Doaba Corporation through Proprietor and another (2009 CLD 845).
4. Conversely, the learned Counsel for respondent bank contended that there is no illegality in the impugned order which must be sustained. Learned Counsel further contended that the appellants had requested for a Running Finance Facility of Rs. 15 million and it is not in dispute that they had executed all requisite documents, including the agreements as referred to in the Memo of Plaint. In this regard the learned Counsel referred to the leave to defend application filed by the appellants before the Banking Court, wherein it has been admitted that a Running Finance Facility of Rs. 15 Million was availed by the appellants, but, is now being disputed merely on the ground that no further agreement was signed by them. Learned Counsel further contended that before expiry of the finance agreement dated 09.06.2007 and on the request of appellant No.1 dated 16.05.2008, a fresh agreement along with other requisite documents was forwarded to the appellants, who due to some typographical error refused to sign such documents; however they admittedly availed the renewed Finance Facility and withdrew amounts from the said account as reflected in the statement of account even after expiry of the Finance Agreement dated 31.05.2008. Learned Counsel further contended that in so far as the allegations of juggling of figures of the amounts as stated in Para 10 of the plaint is concerned, the same is misconceived inasmuch as the instant Finance was a Running Finance Facility of Rs. 15 Million which was credited to the account of the appellants, who thereafter withdrew the said amount as and when required and made deposits in the same account at their own freewill and choice as deemed convenient by them. Per learned Counsel the amounts as reflected in Para 10 of the plaint, is in fact an aggregate sum of the total withdrawals as well as deposits made by the appellants during the said period and the amount of Running Finance Facility did not exceed Rs. 15 Million at any one point of time during the entire period in question. Learned Counsel further contended that the learned Banking Court after dismissal of the leave to defend application had just asked for filing of breakup of the amount and not the statement of account as alleged by the appellants and there was no irregularity under the law in asking any such breakup. Learned Counsel further contended that though no further agreement was executed after 31.5.2008, but through implied acts of the appellants, the agreement continued to subsists, which amounts to an implied agreement by conduct, as the appellants continued to avail the Finance Facility and operated the account as was being done prior to 31.5.2008. Learned Counsel further contended that the appellants by their own conduct had accepted the terms and conditions of the Finance Facility and now at this stage of the proceedings they do not have any right to object with regard to non signing of any such agreement beyond 31.5.2008. In support of his contention learned Counsel for respondent relied upon the case of Apollo Textile Mills Ltd. and others Vs. Soneri Bank Ltd. (2012 CLD 337), Messrs International Traders through Proprietorship and 3 others VS. Union Bank Limited (2003 CLD 1464), Amir Javed and another Vs. Al-Baraka Islamic Investment Bank and others (2006 CLD 178), Ch. Muhammad Ashraf and another Vs. Muslim Commercial Bank Limited through its Manager (2005 CLD 1685) and Imam Din Vs. Bank of Khyber, D.I. Khan through Manager (2012 CLD 447).
5. We have heard both the learned Counsel and perused the record as well as the case law with their assistance. Vide order dated 25.5.2011 by consent it was agreed that the matter will be disposed of finally at Katcha peshi stage.
6. It appears that the appellant No.1 vide its letter dated 23.04.2007 informed the respondent that in order to meet the shortage of working capital for the expansion project of their Hotel, they need to have a Finance Facility of Rs 25 Million from the Respondent Bank and also offered various assets as collateral for this Finance Facility. Thereafter, the respondent Bank approved the Finance Facility and issued an advice dated 04.06.2007 whereby a Running Finance Facility amounting to Rs. 15 million was sanctioned to the appellants. The grant and sanction of this facility is not in dispute between the parties. It is also not in dispute that for availing such Finance Facility the appellants had executed agreement dated 09.06.2007 and other required documents for availing such Finance Facility. Thereafter when this Finance Facility was about to expire, the appellant No. 1 once again vide its letter dated 16.05.2008, requested the Respondent Bank to continue and extend the same for another period. This again is also not in dispute. However, what the appellant’s dispute is, that after expiry of the agreement on 31.5.2008, since no further agreement was signed nor any other documents were executed, therefore the respondent Bank cannot claim any markup beyond 31.5.2008. However, the appellants have not been able to show or dispute, that even though there being no formal signing of a fresh agreement for the Running Finance Facility, the appellants continued to avail the said Running Finance Facility even after 31.5.2008 and thereafter defaulted in making repayment. The other point of dispute between the parties is with regard to the total amount disbursed by the Respondent Bank and the appellants contention in this regard is that the principal amount disbursed according to the respondent Bank and as reflected in para 10 of the plaint, exceeds much beyond the amount of Finance Facility of Rs. 15 Million agreed upon between the parties. According to the appellants the figures as claimed by the respondent Bank in the Memo of Plaint before the learned Banking Court, are not correct; hence the respondent’s claim is maneuvered in so far as the amount of disbursement is concerned. The other objection raised by the learned Counsel is with regard to the statement of account filed along with the memo of plaint filed before the Banking Court, not being in conformity with the requirement of section 2(8) of the Bankers Books Evidence Act 1891. It has also been agitated by the learned Counsel for the appellants that the Banking Court was required to decree the suit as soon as the leave to defend application was dismissed and not to call the parties to file the breakup of account; hence this irregularity renders the judgment and decree of no effect. These are precisely the issues which require adjudication by us in the instant appeal.
7. Insofar as the first objection with regard to juggling or maneuvering of figures and disbursement in excess of Rs 15.0 Million and the repayments made by the appellants is concerned, in our humble view the same is not correct and is misconceived. It must be kept in mind that this is a case of Running Finance Facility and has its own peculiar mechanism unlike any other Finance Facility. In this type of facility, the borrower is allotted a cash limit, as agreed upon between the parties, whereafter the borrower is at liberty to withdraw the amount from the account as required by him and the Mark-up is charged when the amount is withdrawn from the limit on the utilized amount. The amount of Mark up is then calculated on a daily basis, allowing the borrower to make payments towards the utilized principal as well, thereby reducing the mark-up burden. The borrower withdraws the amount at his own sweat will from time to time and is liable to pay the agreed markup on the amount which he has withdrawn from the amount disbursed or credited by the Bank. The borrower also makes deposits in the same account and such deposits are credited in the said account and accordingly the amount of markup is charged on the outstanding amount. This is in fact a revolving credit, having a debit and credit entry in the statement of account as and when the same is operated, either by withdrawal or deposit. In the instant matter it is simpliciter, operating an account in which the Bank has credited an amount of Rs. 15.0 Million at the disposal of the appellants and nothing else. The more the appellant withdraws, the higher the mark-up would be. On a careful examination of the statement of account, it is reflected that on various dates, the appellants have withdrawn money, either through cash or payees account cheques, and similarly have made deposits, either in cash or through crossed cheques. This operation of account is spread over a period of almost 2 years starting from 13.06.2007 to 17.06.2009. Therefore, the amounts reflected in Para 10 of the Plaint are a total aggregate of the withdrawals, as well as the deposits by the appellants and is not in fact the total principal amount reimbursed at one point of time. The manner it has been stated in Para 10 of the pliant is in fact to fulfill the requirement of the 2001 Ordinance and the appellants contention is this regard is not based on any sound reasoning. On further perusal of the record and specially the statement of account, it is noticed that at no point of time, the total withdrawal from the said account ever exceeded Rs. 15 million. In view of such position the objection raised by the learned Counsel for appellants with regard to juggling and or maneuvering of figures and the claim of any excess payment or repayment of the principal amount is misconceived and is hereby repelled.
8. Next objection raised on behalf of the appellants is with regard to the charging of mark up after the expiry of agreement dated 31.05.2008. The appellants have not disputed that in fact an agreement was signed for availing the Running Finance Facility by them, but according to them the same stood expired on 31.05.2008; hence no further mark-up can be charged by the respondent bank beyond this period i.e. 31.05.2008. However, from the perusal of the record it appears that the appellants continued to avail the Finance Facility even after the expiry of the agreement on 31.5.2008 and such fact is not in dispute and is also supported from the perusal of the statement of account which reflects that the appellants continued to operate the said account as was being done before 31.5.2008. The appellants have made withdrawals as well as deposits in the said account after 31.05.2008 and such withdrawals reflects debit entries which establishes that Finance Facility was being availed by the appellants. It is also not disputed by the appellants that appellant No.1 vide its letter dated 16.05.2008 had requested for renewal of the Finance Facility and on such request, the respondent Bank had forwarded the renewal agreement as well as other documents to the appellants for signatures, but were not signed by the appellants, and thereafter an objection was raised as there was some typographical errors in the said renewal agreement wherein names of some other parties were mentioned. It appears that this objection which is now being raised by the appellants is an afterthought. As soon as the agreement expired on 31.05.2008 and if the appellants intention was to discontinue with any such finance facility or agreement, then it was incumbent upon the appellants to settle the account of Running Finance Facility, and the outstanding amount of Finance Facility as on 31.5.2008 was required to be paid in full and final by the appellants. If not, then any other legal course was required to be adopted by the appellants, either by filing any legal proceedings before a competent Court of law or any other correspondence in the form of legal notice or a letter. We have not been assisted in this regard by any such supportive documents. On the contrary, it is reflected from the record that the appellants had themselves requested the respondent bank to extend the finance facility for further period and continue with the arrangement. It is also reflected from the record and perusal of the statement of account, that the appellants even after 31.05.2008 had in fact also made transfer of funds from some other accounts into the account in which the Running Finance Facility was being operated, thereby considerably reducing liability in the said account and also for making provision for the Respondent Bank to debit the quarterly mark up and other agreed charges. This conduct of the appellants shows that despite of the fact that no formal agreement was signed by them for continuing the previous agreement, their intention was to continue with the arrangement of the Running Finance Facility on the same terms and conditions. In view of such position, we are of the view that the conduct of the appellants would fall in the implied renewal of the agreement of Finance Facility as the appellants continued to avail the said Finance Facility much after 31.5.2008 without raising any objection with regard to non-signing of any agreement to this effect. Moreover, the Finance Facility was also utilized by the appellants, which shows the intention to continue with such renewal of the Finance Facility which was extended by the Respondent Bank at the request of the appellants dated 16.05.2008. In our humble view, such renewal request would fall in the category of “obligation” of the customer as defined in Section 2(e)(ii) of the 2001 Ordinance wherein it has been defined that obligation includes, any and all representations, warranties and covenants made by or on behalf of the customer to a financial institution at any stage, including representations, warranties and covenants with regard to the ownership, mortgage, pledge, hypothecation or assignment of, or other charge on, assets or properties or repayment of a finance or payment of any other amounts relating to a finance or performance of an undertaking or fulfillment of a promise; (emphasis supplied) hence this objection is also misconceived and not tenable under the law.
9. The appellants have also challenged the veracity of the statement of account annexed with the plaint by the Respondent Bank at the time of filing the suit before the Banking Court and have contended that the same was not in accordance with the requirement of the Bankers Book Evidence Act 1891; hence the Suit was liable to be dismissed summarily by the Banking Court. We have perused the record and examined the statement of account and are of the view that the same reflects each and every entry of withdrawal and deposit starting from 12.6.2007 till 17.6.2009 and substantial compliance as required under the Bankers Book Evidence Act 1891 has been made as the statement of account has been duly certified by the Branch Manager as well as by the Credit Manager of the Respondent Bank with their names and title, certifying that the entries herein are true copies that are contained in the ordinary books and were made in the ordinary course of business of the bank and that the said Books are still in the possession of the bank. It is also pertinent to state that the appellants had not taken any specific plea in this regard while filing the leave to defend application, hence, even otherwise, the appellants are precluded from raising any such objection/plea at the appeal stage, which they have failed to raise specifically before the learned Banking Court at the time of filing of the leave to defend application. Therefore, the objection in this respect is also not tenable and is hereby repelled.
10. The appellants have also raised an objection that the learned Banking Court had fallen in error, by asking the parties to file the breakup of the account instead of decreeing the suit after dismissal of the leave to defend application, in view of the specific provision of sub-section (11) of section 10 of the 2001 Ordinance, which provides that where the application for leave to defend is rejected or where a defendant fails to fulfill the conditions attached to the grant of leave to defend, the Banking Court shall forthwith proceed to pass judgment and decree in favor of the plaintiff against the defendant. However, it must not be lost sight of the fact that similarly sub-section (1) of section 10 of the 2001 Ordinance also provides that the defendant shall not be entitled to defend the suit unless he obtains from the Banking Court as hereinafter provided (leave) to defend the same; and, in default of his doing so, the allegations of fact in the plaint shall be deemed to be admitted and the Banking Court may pass a decree in favor of the plaintiff on the basis thereof or such other material as the Banking Court may require in the interest of justice. Here sub-section (1) of section 10 of the 2001 Ordinance allows the Banking Court, in the interest of justice, to seek any other clarification or assistance from the parties in the shape of such other material, despite dismissing the leave to defend application of the defendant, for arriving at a just and fair conclusion as to the actual amount for which the decree could be passed. This act on the part of the Banking Court is in fact in the interest of the defendant (appellant here) for providing a further chance to put up a breakup of the actual amount payable to the Plaintiff (respondent here) instead of the one which has been disclosed or stated in the plaint. It is also pertinent to note that in the instant matter, after filing of the breakup of the amount by the respondent bank, the appellants have filed their cross objections to the said breakup of the amount and have availed the remedy in respect thereof. In our humble view, after availing such remedy, it does not lie in the mouth of the appellants to come before this Court and raise any such objection with regard to the procedure being adopted by the learned Banking Court, which otherwise in our view was in favor of the appellant and not the respondent bank. It must also be noted that in fact the learned Banking Court had not agreed with the breakup of the amount filed by the respondent bank for Rs. 16,571,775.49 as it was in excess of the amount claimed in Para 10 of the plaint, and had decreed the suit only after correction of the amount to Rs. 16,097,092.49 as disclosed in the plaint. This is what sub-section (1) of section 10 of the 2001 Ordinance in fact provides for. Therefore we are of the view that this objection raised by the appellants is also devoid of any merits and is hereby repelled.
11. Insofar as the cases relied upon by the learned Counsel for the appellants are concerned, in our view, all these cases are of no help to the case of the appellants being distinguishable on fact. The case of Soneri Bank Vs Compass Trading (Supra) has been relied upon by the learned Counsel for the appellants to support its contention that the statement of account filed along with the plaint was not in accordance with the provisions of the Banker Books Evidence Act 1891 and this Court (through a learned Single Judge) has held that since the statement of account was signed by a person who was not an authorized officer within the meaning of section 2(8) of the Bankers Books Evidence Act 1891, the defendant’s application for leave to defend was liable to granted, whereas in the instant matter, as already discussed, the statement of account has been signed and verified by the authorized officers, as such this judgment is of no help to the case of the appellants. The Case of Robina Bai (Supra) is in relation to an Insurance Claim and has no relevance to the instant matter; hence not applicable. The facts of the case reported as Soneri Bank Vs Classic Denim (Supra) are materially different as in that case the statement of account was brought on record of the Banking Court after filing of the leave to defend application through replication which is not the case here. Lastly the case of Habib Bank Limited (Supra) is in fact in favor of the respondent bank and has also been relied upon by them as it relates to the method in which the markup is to be charged in a case of Running Finance Facility. Whereas in the case of Shaz Packages (Supra), a division bench of this Court has held that if substantial questions of law and facts have been raised in the leave to defend application, then the Banking Court is required to discuss and decide all such questions specifically and shall not brush aside such questions in a slipshod manner. However, it must be kept in mind that subsequently the Hon’ble Supreme Court in the case of Appollo Textile Mills Ltd. and others Vs Soneri Bank Limited (PLD 2012 SC 268) has settled certain principles with regard to entertaining and deciding the leave to defend application filed on behalf of the defendant in a Banking Suit and so also the responsibilities and obligations of a borrower or a defendant in a Banking Suit. It has been held therein that the defendant/borrower has also equal and identical statutory responsibilities like the Plaintiff/Bank under section 10(4) of the 2001 Ordinance, to file and state at the time of filing of leave to defend application, the amount of finance availed and paid by the defendant to the Bank along with the dates of such payments. Similarly the defendant is also required to detail the amount of finance and other amounts relating to the finance payable by the defendant to the Bank up to the institution of the Suit. In addition to this the defendant is also required to state the amount if any which the defendant disputes as payable to the Bank and facts in support thereto. It has been finally held that if all these mandatory requirement of section 10(4) of the 2001 Ordinance are not satisfied, the application for leave to defend is liable to be rejected. Therefore in view of the dicta laid down by the Hon’ble Supreme Court in the case of Appollo Textile (Supra) no leave to defend application can be granted by the Banking Court, if the above information is not brought on record by the defendant, and merely stating and raising substantial questions of law would not suffice in absence of the fulfillment of the mandatory requirements of the 2001 Ordinance as stated above and the principles settled by the Hon’ble Supreme Court. In view of such position, we are of the view that the law settled in the case of Shaz Packages (Supra) will only be applicable, once the other requirements and obligations as settled by the Hon’ble Suprme Court in the case of Appollo Textile (Supra) are fulfilled.
12. In view of hereinabove discussion, and for the fact that the appellants have admitted that they had availed the Running Finance Facility of Rs. 15 Million and have only made an attempt to dispute the markup charged for the period subsequent to 31.05.2008, which we have already held to be payable in view of the peculiar facts and circumstances of the instant case as discussed above, the instant appeal fails and is hereby dismissed with all pending application(s).
Dated 23.07.2014
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