Ist APPEAL No. 114 of 2011
Present:
Mr. Justice Aqeel Ahmed Abbasi.
Mr. Justice Muhammad Junaid Ghaffar.
Muhammad Ismail ------------------------------------------------------ Appellant
Versus
Dubai Islamic Bank Pakistan Ltd. --------------------------------- Respondent
Date of hearing: 15.12.2014
Date of order: 15.12.2014
Appellant: Through Khaleeq Ahmed Advocate.
Respondent: Through Mr. Khalid Mehmood Siddiqui Advocate.
J U D G M E N T
Muhammad Junaid Ghaffar, J. Through instant appeal the appellant has impugned orders dated 22.10.2011 and 25.2.2010 passed by the learned Banking Court No. 1 at Karachi, whereby the learned Banking Court has issued writ of possession in respect of the mortgaged property, auctioned by the respondent Bank in terms of Section 15 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 hereinafter referred to as the "(Ordinance 2001)".
2. Briefly the facts as stated in the aforesaid appeal are that the appellant had mortgaged its property bearing House No. A-80, Block 13-D, Gulshan-e-Iqbal, Karachi, admeasuring 290 square yards with the respondent bank and had availed a Finance Facility under the Home Finance Scheme. Thereafter the appellant purportedly defaulted and the respondent in terms of the procedure as contemplated under Section 15 of the Ordinance, 2001, auctioned the property of the appellant. After auctioning the property, the respondent approached the learned Banking Court for issuance of writ of possession and filed applications under subsections (6) and (10) of Section 15 of the Ordinance, 2001, which have been allowed by the learned Banking Court, whereas, writ of possession has been issued with further directions to the Nazir of the Banking Court to take peaceful possession of the mortgaged property.
3. Mr. Khaleeq Ahmed learned Counsel for the appellant contended that no proper Notice was ever served on the appellant as required under Section 15(2) of the Ordinance, 2001, nor proper accounts of the sale proceeds in terms of Section 15(10) of the Ordinance, 2001, were filed by the respondent before the learned Banking Court, therefore, the proceedings of auction carried out in terms of Section 15 of the Ordinance, 2001, are void and liable to be set aside. Learned Counsel further contended that without prejudice to the above, in view of the judgment of a larger Bench of the Lahore High Court in the case of Muhammad Umer Rathore Vs. Federation of Pakistan (2009 CLD 257) and the judgment of the Hon'ble Supreme Court in the case of National Bank of Pakistan and 117 others Vs. Saf Textile Mills Ltd. and another (PLD 2014 SC 283,) whereby, the provisions of Section 15 of the Ordinance, 2001, have been declared to be ultra vires, the entire process of auction carried out by the respondent bank in terms of Section 15 of the Ordinance, 2001, is a nullity in law and is liable to be declared as void. Learned Counsel further contended that since the proceedings of auction in the instant matter were pending and not finalized, the case of the appellant is not of a past and closed transaction, as according to the learned Counsel the larger Bench of the Lahore High Court in the case of Muhammad Umar Rathore supra had observed that the only such cases would be treated as past and closed transactions and would not be affected by the judgment, whereby section 15 of the Ordinance, 2001 was declared to be ultra vires, wherein the possession of mortgaged properties has already been delivered and the sale proceeds stood adjusted towards the outstanding amount and sale deeds have been registered, whereas, in the instant matter, neither the possession of the mortgaged property has been delivered nor any sale deed has been registered, therefore, per learned Counsel, the judgment of the Hon'ble Supreme Court in the case of National Bank supra as well as the judgment of the Lahore High Court in the case of Muhammad Umer Rathore supra is fully applicable to the case of the appellant.
4. Conversely Mr. Khalid Mehmood Siddiqui learned Counsel appearing on behalf of the respondent bank contended that Notice(s) as required under Section 15(2) of the Ordinance, 2001 were duly sent to the appellant for which appropriate courier receipts are on record, whereafter, auction Notice was published in ENGLISH and URDU Newspapers and all the codal formalities as required under law were fulfilled by the respondent. Learned Counsel further contended that the respondent had also complied with the provisions of Section 15(10) of the Ordinance, 2001 whereby the respondent was required to furnish proper accounts before the learned Banking Court. It is further contended that the learned Banking Court vide order dated 25.2.2010 had disposed of both the applications filed by the respondent under Section 15(6) and 15(10) of the Ordinance, 2001, and the appellant instead of challenging the said order, approached the learned Banking Court for rehearing of the matter and the learned Banking Court once again passed orders on the same applications on 22.10.2011 for which the learned Banking Court had no authority in law, therefore, instant appeal which was required to be filed against the order dated 25.2.2010 is hopelessly time barred and liable to be dismissed in limine.
5. We have heard both the learned Counsel for the parties, perused the record and the case law as referred to hereinabove. Since a short controversy is involved in the instant case, by consent of both the learned Counsel, instant appeal is being heard and disposed of finally at Katcha peshi stage.
6. On perusal of the record placed before us, it appears that insofar as availing of the Finance Facility is concerned, the same is not in dispute, whereas, the learned Counsel for the appellant has also not agitated the merits of the case and the alleged default in respect of repayment of the Finance Facility on the part of the appellant, whereas, no suit for recovery has so far been filed by the respondent under the Ordinance, 2001, hence, even otherwise, we are not required to give any finding on merits of the case. The precise controversy before us in the instant appeal is to examine the application and the effect of the judgment of the Hon'ble Supreme Court in the case of National Bank supra to the present case, whereby, the provisions of Section 15 of the Ordinance, 2001 have been declared to be ultra vires, and to further examine as to whether the case of the appellant could be held to be a past and closed transaction or otherwise. We may also examine as to whether, the respondent Bank had complied with the mandatory requirements of Section 15 of the Ordinance, 2001, and as to whether proper Notices as required under Section 15(2) of the Ordinance, 2001 had been issued and served on the appellant or not.
7. It appears that the vires of Sections 15 of the Ordinance, 2001 were challenged before the Lahore High Court as well as before the Baluchistan High Court by various customers of Financial Institutions being aggrieved by the private sale of their mortgaged properties by the Banks directly, without recourse to the remedy of filing of suit for recovery as provided under the Ordinance, 2001. The Balouchistan High Court in the case of Shaikh Abdul Sattar Lasi Vs. Federation of Pakistan through Secretary, Ministry of Law, Justice and Parliamentary Affairs, Islamabad and 6 other (2006 CLD 18) had dismissed the petitions by holding that the provisions of Section 15 of the Ordinance, 2001 are neither aimed to militate Article 4 and 175 of the Constitution, nor the same could be termed to be discriminated and despotize provisions, whereas, a full bench of the Lahore High Court, in the case of Muhammad Umar Rathore supra has held that the provisions of Section 15 of the Ordinance, 2001 are ultra vires to the Constitution of Islamic Republic of Pakistan 1973. Both the aforesaid judgments of the learned Baluchistan High Court and the learned Lahore High Court were assailed by the aggrieved parties before the Hon’ble Supreme Court. The Hon'ble Supreme Court in the case of National Bank supra has explicitly and in detail has dealt with the entire provision of Section 15 of the Ordinance, 2001, and the conduct of the Banks viz a viz its customers and the effect of insertion of Article 10A in the Constitution of Pakistan 1973 through 18th Amendment, and has reached to a conclusion that the entire provision of Section 15 of the Ordinance, 2001, is ultra vires to the Constitution. The relevant findings of the Hon'ble Supreme Court are in Para 32 & 33 of the judgment which reads as under:
"32. In order to ascertain the real import and effect of section 15 of the Ordinance of 2001, it is necessary to contextualize the said provisions. A functional banking sector is an integral and essential component of any modern economy. In the normal course of business, loans and finance are advanced by the banks and utilized by their customers. However, some of such customers will be unable or unwilling to meet their obligations. Defaults by customers whether willful or commercial are a fact of life. The banks too may occasionally act unfairly by raising inflated and exaggerated claims and engineer defaults as they may cover the assets of their customers. Banks also default necessitating huge bailouts with tax payer’s money. A utopian world where all customers fulfill their obligations and all bankers are saints does not exist. A large number of private banks and financial institutions now populate the financial sector and therefore more often than not the provisions of law under scrutiny would be pressed into service with regard to a dispute between private parties in respect of commercial transactions. No doubt the Banking Sector is vital to any country and may need some protection and preservation yet bestowing of an unfair advantage at the cost of customers may not be necessary or permissible.
33. The matters pertaining to the financial claims secured by mortgagors as in the instant case, generally involves a two stage process, firstly the determination of the liability through due process and after a fair trial inclusive of a right of hearing and opportunity of show cause. Such determination under the general law is evidenced by a decree of a Court of competent jurisdiction. And secondly, the recovery of the determined amount by way of the satisfaction or execution of such decree including through the sale of mortgaged property. Even if a liability has been determined by a decree of the Court, the mortgagor/debtor is not deluded of all his civil rights including with regards to the modes and methods of such recovery through the sale of the mortgaged property. The right of such debtor to ensure that the mortgaged property is sold in a free, fair and transparent manner so as to fetch the best possible price is now a well recognized principle of law, which finds its manifestation both in various statutory provisions, more particularly, Code of Civil Procedure (including order XXI of C.P.C) as well as the law, as laid down by this Court, including the case reported as Mir Wali Khan v. Agricultural Development Bank of Pakistan, Muzaffargah and another [PLD 2003 SC 500), wherein it has been held as follows:-
“Crux of what has been discussed above is that clever maneuvering forcing way for disposal of a property in execution of a decree for a paltry sum has to be guarded against and jealously so with all the care and circumspection so that it may go for a sum it deserves.”
8. Though the Hon’ble Supreme Court has not dealt with or given any definite finding on the issue of past and closed transactions or as to what would be the effect of declaring the provision of section 15 of the Ordinance, 2001, as ultra vires, on cases which had not been finalized and were pending, or in which the entire process of auction, its sale, transfer and possession of the property had not been finalized as it was not the dispute before the Hon’ble Supreme Court. However, the learned full bench of the Lahore High Court in the case of Muhammad Umer Rathore supra has dealt with the issue of past and closed transactions, as by that time, the Banks had acted upon the provisions of Section 15 of the Ordinance, 2001, in various cases by auctioning the properties of the customers. The learned full bench of the Lahore High Court came to the conclusion that only such cases could be said to be of past and closed transactions, and would not be effected by the judgment, which had attained finality, whereby possession of the mortgaged properties had already been delivered, sale proceeds stood adjusted towards outstanding amounts and sale deeds have been registered. It would be advantageous to refer to the relevant finding of the learned full bench of the Lahore High Court in this regard which reads as under:-
"The cases, which have attained finality i.e. where the possession of the mortgage properties have already been delivered, sale proceeds stood adjusted towards outstanding amounts and sale deeds have been registered, under the impugned provision, are past and closed transactions and this Judgment will not affect such sales. The other sales under the impugned provision, which have not attained finality are declared illegal and are set aside. The auction price received by the Financial Institutions in respect of the sales, which have not attained finality, shall be refunded to the auction purchasers within a period of one month from the date when he approaches the Financial Institution. In view of the above, all such petitions, which fall within the parameters discussed above, are accepted. However, in view of intricacies involved, parties will bear their own costs".
9. From perusal of hereinabove findings as recorded by the learned full bench of the Lahore High Court, and keeping in view the facts of instant appeal, we are of the view that without prejudice to any other objection as raised by the learned Counsel for the appellant, the case of the appellant is not of a past and closed transaction, as in the instant matter, neither the possession has been delivered to the Bank, nor any sale deed has been executed, whereas, only proceedings of auction have taken place in terms of Section 15 of the Ordinance, 2001, wherein, in fact the Bank itself has purportedly purchased the mortgaged property after carrying out auction on its own. Therefore, in our view, the case of the appellant is fully covered by the decision of the learned full bench of the Lahore High Court in the aforesaid terms. As observed earlier, this judgment of the learned full bench of the Lahore High Court, was also assailed by the Banks / Financial Institutions, before Hon'ble Supreme Court and the Hon'ble Supreme Court while hearing the appeals against the aforesaid judgments, along with other cases in the case of National Bank supra has already approved the decision of the learned full bench of the Lahore High Court, therefore, the findings with regard to applicability and impact of declaring Section 15 of the Ordinance, 2001, as ultra vires on pending cases and cases covered under past and closed transaction, has been duly approved by the Hon'ble Supreme Court as well.
10. In view of herein above, whereby the provision of Section 15 of the Ordinance, 2001, has been declared to be ultra vires by the Hon'ble Supreme Court, there is no substance in the contention of learned Counsel for the respondent bank, whereby an objection has been raised on behalf of the respondent that since the auction proceedings had been completed, the judgment of the Hon'ble Supreme Court would not be applicable in the instant matter, as the auction was carried out before pronouncement of judgment of the Hon'ble Supreme Court. We have already observed that instant matter is not a past and closed transaction, therefore, the observations of the learned full bench of the Lahore High Court in the case of Muhammad Umer Rathore supra which has been duly approved by the Hon'ble Supreme Court as referred to hereinabove, are fully attracted in the instant matter. In view of such settled position, in our opinion, the auction proceedings carried out by the Respondent Bank in the instant matter, without issuance and proper service of mandatory Notice(s) in terms of section 15 of the Ordinance, 2001, cannot be sustained and the same is liable to be set-aside.
11. We may also observe that in terms of the then Section 15(2) of the Ordinance, 2001, in case of default in payment by a customer, the Financial Institution was required to sent a Notice to the mortgagor, demanding payment of the mortgaged money outstanding, within fourteen days from service of the Notice, and failing payment of the amount within due date, it was further required to sent a second Notice for payment of the amount within fourteen days. Further, in case the customer on the due date given in the second Notice, continues to default in payment, Financial Institution was required to Serve a Final Notice (third) on the mortgager, demanding payment of the mortgage money outstanding, within thirty days from service of the Final Notice on the customer. Whereas, in the instant matter, it appears that the first Notice was purportedly sent by the respondent on 2.5.2008 for which a courier receipt dated 5.6.2008 has been placed on record. The second Notice was purportedly issued by the respondent on 16.6.2008 again for which a courier receipt dated 17.6.2008 has been placed on record. Though courier receipts in respect of these two Notices have been placed on record, but no report regarding service or otherwise, including the tracking report of the courier company has been placed on record by the respondent bank. Thereafter, the third Notice dated 2.7.2008 was purportedly issued by the respondent bank for which surprisingly, no receipt of courier or any other mode of sending the Notice to the appellant has been placed on record. It appears that after this third Notice the respondent bank has proceeded further, by publication of the auction Notice in the Newspaper and has conducted the auction on 9.10.2008, wherein, purportedly four bids were received including the bid of the respondent bank, and the bid of the bank being highest, has been declared to be a successful bid, whereafter, the bank settled the account of the customer and placed the same before the learned Banking Court and filed two applications under Section 15(6) and 15(10) of the Ordinance, 2001. From perusal of the provisions of Section 15(2) of the Ordinance, 2001 and the material placed before us, we are of the view that since in the instant matter the mortgaged property of the appellant was being auctioned privately by the bank itself, without any indulgence from the Banking Court, therefore, proper service of Notice is a vital and important ingredient in conducting auction of the mortgaged property. We are of the opinion that the learned Banking Court, before issuing writ of possession, was required under law, to examine and ascertain with a higher degree of caution, that as to whether, proper Notice(s) as required under Section 15(2) of the Ordinance, 2001 have been duly served or not. The record placed before us, does not support that as to whether, the third Notice was ever sent to the appellant and even mere sending of the third Notice, in our opinion, is not sufficient as the law requires that the Notice has to be served upon the customer, whereas, the learned Banking Court did not bother to ascertain and examine such crucial fact regarding service of the third Notice, whereas, insofar as first and second Notices are concerned, merely the receipt issued by the courier company, in absence of any delivery report, is not a sufficient proof to reach to a definite conclusion that the Notice had been served or not. Therefore, in our view, the learned Banking Court ought not to have issued writ of possession merely, on the basis of receipt of Courier Company regarding dispatch of Notice, instead of a proper acknowledgment of Notice or service of the same or otherwise, on the appellant.
12. Reliance in this regard may be placed on the case of Irfan Nawab Vs. Soneri Bank Limited (2013 CLD 1922). In this case a learned Single Judge of this Court after examining the provisions of Section 15(2) of the Ordinance, 2001 had come to the conclusion that though the bank had placed on record acknowledgment / postal receipt in respect of two Notices, whereas, no acknowledgment / postal receipt in respect of third Notice was available on record, the presumption would be, that the third Notice must also have been issued by the bank as there was no reason why the bank would go through the exercise of taking recourse to Section 15 of the Ordinance, 2001 and skip issuance of one, out of the three required Notices. In appeal a learned Division Bench of this Court in the aforesaid case did not agree with the findings of the learned Single Judge, and set aside the impugned order, by holding that no presumption could be attached to issuance of such Notice, particularly when the law which is under discussion is a Special law and the wording of sub-Section (2) of Section 15 of the Ordinance, 2001, requires issuance of Notice and its service on the mortgager. It would be advantageous to refer to the relevant findings of the learned Division Bench in this regard which reads as under:-
"31. It is difficult to accept such presumption particularly when the law which is under discussion is a special law and the wordings of sub-Section (2) of Section 15 of the Ordinance, 2001 is such that Notice and its service is inevitable before the financial institution could assume powers to sell the mortgaged property under subsection (4) of Section 15 of the Ordinance, 2001. The assumption of powers under subsection (4) of Section 15 of the Ordinance, 2001 are of such nature that it takes away certain valuable rights of the borrower / mortgagor and hence the compliance of the provisions of subsection (2) of Section 15 of the Ordinance, 2001 becomes mandatory. The articulation and the purpose behind the scheme of subsection subsection (2) of Section 15 of the Ordinance, 2001 appears to be unambiguous and nothing was left in doubt.
38. One thing which is significant in all aforesaid cases is that the court was obliged to presume service of Notice on the fact that the official registry receipt and A/D of this case a private courier was engaged to serve the Notice and the presumption was drawn by the learned single Judge even without availability of such receipt of private courier. This suit was filed in the month of July 2011 after the receipt of 1st Notice under section 15(2) of the FIO 2001 whereas the 2nd and 3rd Notices were allegedly issued subsequent to the filing of the suit and prior to the filing of leave to defend application by the respondent. Despite the fact that the leave to defend application is devoid and does not make any assertion of issuance of 2nd and 3rd Notices and that the appellants have challenged the recovery process which was taken up by the respondent without intervention of the Court, yet the bank / respondent was not vigilant in retaining the disputed receipt of such courier company. In such circumstances, the respondent should have been more, vigilant in retaining the receipt of such courier company through which 2nd disputed Notice was sent, more particularly when assumption of powers under section 15 of the FIO 2001 depended on fulfilment of subsection (2) of Section 15 ibid. the loss f such receipts in the above circumstances could only yield to establish a presumption which is contrary to the presumption drawn by the learned Single Judge.
39. In addition to this subsection (2) of Section 15 of the Ordinance, 2001 the service of 3rd Notice on appellant is also unambiguous and even under the plain dictionary meaning the word "sent" and "serve" are not interchangeable. This word serve in the entire scheme of Financial Institutions (Recovery of Finances) Ordinance, 2001 issued in subsection (2) of Section 15 and in subsection (5) of Section 9. Thus the legislative intent was on service which is quite different and distinct from the meaning of the word "sent". In our view whee the statute has provided an act to be done in a particular manner, it ought to have been done in the same manner and any departure from such scheme would render the subsequent proceedings as null and void. Particularly when in a special statute a manner has been prescribed for issuance and service of Notice then the room of law of presumptions very restricted in such circumstances.
40. In terms of Article 129 illustration 'f' as referred to by the learned Single Judge, is subject to a letter put into a post office. Once such fact is established, the presumption could be drawn that prima facie, of course until contrary is proved, the letter is sent and served. Here the situation is different. The respondent has not presented the postal receipt or courier receipt to enable the court to apply Article 129 of Qanun-e-Shahadat Order, 1984 to presume that such letter was posted, therefore, the presumption drawn on assumption and hypothesis and that too in respect of special law i.e. Financial Institutions (Recovery of Finances) Ordinance, 2001, the provisions of which are mandatory and any departure from such mode would render all subsequent event a nullity as observed by Hon'ble Supreme Court.
41. In this special statute the legislature is taking away certain substantial rights from some individuals, therefore, the compliance of subsection (2) of Section 15 ibid is since qua non to exercise and assume jurisdiction by the Bank to sell mortgaged property in terms of subsection (4) of Section 15 ibid procedure required to acquire such rights under special law must be adhered to in its letter and spirit. If presumption are to be drawn in such a situation when general and special provisions are in consideration before the Court then the general provisions must yield place to the presumption arising under the special provisions."
13. On the other hand, insofar as the placing of record / account of sale proceeds is concerned, the respondent has merely submitted the account of the customer with it, including the details of finance availed and repayments, the balance outstanding and settlement of the account after crediting the sale proceeds. Whereas section 15(10) requires the respondent to submit account of sales proceeds, which in our view, includes the details pertaining to the entire sale / auction of the mortgaged property, the names and identification of the bidders, their offers along with details of earnest money deposited through bank drafts and or pay orders etc., so that it could be ascertained by the Banking Court that the auction has been carried out in a transparent manner and the same is not dubious on the face of it. In cases, wherein, the Bank itself has participated in the auction and has also been declared as the highest bidder, the exercise of auction has to be carried out in a more lucid and transparent manner, for the reason that otherwise, it may deprive the customer, the full benefit and the maximum sale price of its property which is being sold by the Bank. In the instant matter, in our view, whereby the bank had participated in the auction proceedings which had been conducted by the Bank itself, does not appear to be transparent as required under the law, and creates doubts on the credibility of the entire process of biding / auction of the mortgaged property. In view of hereinabove facts, in our opinion, even on merits, the impugned orders cannot be sustained and are liable to be set aside being totally against the mandatory requirements of the provision of Section 15 of the Ordinance, 2001.
14. Accordingly, on 15.12.2014 we had allowed instant appeal by a short order, whereby the impugned orders dated 22.10.2011 and 25.2.2010 as well as the auction proceedings in respect of the mortgaged property undertaken by the respondent bank were set aside. The above are the reasons for such short order.
J U D G E
J U D G E
ARSHAD/