Judgment Sheet
IN THE HIGH COURT OF SINDH KARACHI
Suit No. B – 19 of 2011
Before :
Mr. Justice Nadeem Akhtar
Plaintiff : The Bank of Punjab,
through Mr. K. K. Agha Advocate
along with Ms. Afsheen Aman Advocate.
Defendant : Dewan Salman Fibre Limited,
through Mr. Adnan I. Chaudhry Advocate.
Dates of hearing : 17.09.2015, 29.09.2015, 09.10.2015 and 30.05.2016.
J U D G M E N T
NADEEM AKHTAR, J. – CMA No.4540/2011 has been filed by the defendant-company under Section 10 of the Financial Institutions (Recovery of Finances) Ordinance XLVI of 2001 (‘the Ordinance’), praying for unconditional leave to defend this Suit. The Suit has been filed by the plaintiff / financial institution against the defendant / customer under Section 9 of the Ordinance for recovery of Rs.1,293,300,799.38 with cost of funds thereon from the date of default till realization, as well as for sale of the movable assets hypothecated by the defendant in consideration of the finance facilities which are the subject matter of this Suit.
2. The case of the plaintiff, as averred in the plaint, is that the defendant, who is a customer of the plaintiff, availed various finance facilities from the plaintiff from time to time which were renewed by the plaintiff. An Import / Inland Documentary Letter of Credit (Sight / DA) facility of Rs.1,000,000,000.00 was granted to the defendant on the terms and conditions stated in the plaintiff’s letter dated 29.09.2007. In order to secure repayment under this facility, the defendant executed in favour of and delivered to the plaintiff several applications and Agreements for Irrevocable Documentary Credit, Accepted Bills of Exchange and Trust Receipts, and also hypothecated in favour of the plaintiff all its present and future assets by executing several letters of hypothecation. A running finance facility of Rs.100,000,000.00 was also granted to the defendant on the terms and conditions stated in the plaintiff’s offer letter dated 10.10.2005, which was secured by the defendant by executing Agreement For Financing For Short / Medium / Long Term On Mark Up Basis dated 06.01.2005, letter of hypothecation dated 24.02.2005, demand promissory note and letter of continuity dated 06.01.2005, letter of authority and letter of arrangement. The above running finance facility was renewed twice on 06.09.2006 and 27.09.2007 in terms of the plaintiff’s offer letters dated 06.09.2006 and 29.09.2007, respectively, and in consideration of such renewals, the defendant executed on 06.09.2006 and 29.09.2007 agreements of financing, demand promissory notes, letters of continuity, letters of authority and letters of arrangement. In addition to the above mentioned two facilities, a Bridge Finance facility of Rs.201,000,000.00 was also granted to the defendant. It is alleged that all the above three facilities were fully availed and utilized by the defendant, but it committed breach in fulfilment of its obligations and did not settle the same. As per the statement made in the plaint, the defendant is liable to pay to the plaintiff an amount of Rs.1,293,300,799.38 as at 30.11.2010.
3. Mr. Adnan I. Chaudhry, learned counsel for the defendant, raised several objections to the plaintiff’s claim in respect of each of the three facilities. Regarding the nine letters of credit pertaining to Import / Inland Documentary Letter of Credit (Sight / DA) facility, he submitted that the claim in respect of first eight letters of credit is barred by time as the amount alleged thereunder became due and payable admittedly between 03.10.2007 to 12.11.2007, but the Suit was filed on 17.02.2011 after the prescribed period of limitation of three years. Regarding the ninth letter of credit, he submitted that the principal amount thereof has been repaid and as such the plaintiff is not entitled to the amount claimed in respect thereof. In addition to the above, he submitted that markup and service charges claimed by the plaintiff on the amounts of all the letters of credit cannot be granted as there was no agreement between the parties in this behalf nor was/is there any prudential regulation permitting markup or service charges on such transactions ; and, at best the plaintiff could claim only commission which too cannot be granted as the claim itself is barred by time in respect of eight letters of credit. He argued that if this Court comes to the conclusion that the said claim is not barred by time, even then leave to defend should be granted to the defendant to examine whether or not any amount under the letters of credit is due and payable. He strongly disputed the chart available on page 309 filed by the plaintiff as statement of account in respect of letters of credit, by submitting that the same is not a proper statement of account in terms of Section 9(2) of the Ordinance. By pointing out that an amount of Rs.109,726,958.12 has been illegally recovered by the plaintiff from the defendant on account of markup on letters of credit, he submitted that the plaintiff is liable to refund the entire said amount to the defendant, and leave to defend should be granted to the defendant on this ground also.
4. The claim made by the plaintiff in respect of the running finance facility was also disputed by the learned counsel for the defendant. He contended that admittedly only one running finance facility was availed by the defendant under the agreement dated 06.01.2005 which was renewed twice on 06.09.2006 and 29.09.2007, and the sanction letters issued by the plaintiff in respect of both the renewals clearly stated that only the earlier facility was being renewed. He further contended that the statement filed and relied upon by the plaintiff in respect of this facility showing a debit entry of Rs.99,000,000.00 on 15.04.2005 in the account of the defendant, is not a proper statement of account as contemplated by Section 9(2) of the Ordinance as it reflects only the principal amount disbursed on 15.04.2005 when the facility was originally availed ; the same amount of Rs.99,000,000.00 was shown on the same date as credit in the current account of the defendant, and positive balance was shown in the said account on 31.12.2005 ; and in view of the above, the claim of the plaintiff has become doubtful and suspicious. Learned counsel argued that since no fresh or further disbursement was made in favour of the defendant in consideration of any of the two subsequent purported agreements / renewals, both the said subsequent agreements / renewals and the plaintiff’s claim thereunder are void in view of Mushtaq Ahmed Vohra V/S Crescent Investment Bank Limited, 2005 CLD 444, Habib Bank Limited V/S M/S Qayyum Spinning Limited and others, PLJ 2001 Karachi 189 = 2001 MLD 1351, and HBL V/S Al-Jalal Textile Mills Ltd., SBLR 2003 Sindh 103.
5. Regarding the third facility of Bridge Finance claimed by the plaintiff, Mr. Adnan I. Chaudhry contended that except for a bare and vague statement in the plaint, no document or statement of account has been filed by the plaintiff in support of this claim. He submitted that this claim is liable to be rejected being clearly barred under Sub-Sections (2) and (3) of Section 9 of the Ordinance. Without prejudice to his above submission, he submitted that the Bridge Finance facility granted by the plaintiff has been fully settled by the defendant. In the end, it was urged that in view of the substantial questions of law and fact raised by the defendant, the claim made by the plaintiff in this Suit cannot be decided without evidence, and as such unconditional leave to defend be granted to the defendant.
6. On the other hand, Mr. K. K. Agha, learned counsel for the plaintiff, contended that the objection raised on behalf of the defendant that the plaintiff’s claim in respect of eight letters of credit is barred by time, cannot be considered and is liable to be rejected straightaway as no such objection has been taken in the application for leave to defend. He further contended that the legitimate claim of the plaintiff cannot be rejected on such technical ground. He submitted that in any event the plaintiff’s claim is not barred by time in respect of any letter of credit as (i) the same were granted to the defendant against continuing security, (ii) time for computing the period of limitation in respect thereof was to commence from the date when demand was made by the plaintiff and not from the date when the said facilities became due and payable, (iii) the amounts over due under the letters of credit availed by the defendant are the same as mentioned in the bills of exchange executed by the defendant, and this Suit to the extent of this facility has been filed on the basis of letters of credit as well as bills of exchange, (iv) the defendant acknowledged its liability in respect of this facility vide letters dated 16.10.2006 and 15.12.2008, and (v) the defendant has not disputed the service charges claimed by the plaintiff in respect of this facility. In support of the above submissions, he relied upon Muhammad Habibullah Siddiqui V/S Haji Habib Jafferali and 2 others, 1993 MLD 1050, Shaikh Mehboob Ahmed V/S Mst. Zahida Begum and 6 others, 2006 YLR 711, United Bank Limited V/S Kurnool Muhammad Muneer, 1991 CLC 1758, and United Bank Ltd. V/S Messrs Sartaj Industries through Qaisar Iqbal, Managing Partner and 6 others, PLD 1990 Lahore 99.
7. Regarding the objection raised on behalf of the defendant in relation to the plaintiff’s claim under the subsequent renewals of running finance facility, learned counsel for the plaintiff contended that similar objection was raised by Dewan Farooque Motors Limited, a sister concern and group-company of the defendant, in Suit No.B-164 of 2010 filed by the present plaintiff, which was rejected by a learned single Judge of this Court vide order dated 14.05.2015 and the said Suit was decreed. He relied heavily on the aforesaid order. As to the Bridge Finance facility, he referred to the defendant’s statement under Section 10(4) of the Ordinance in sub-paragraphs (a) to (d) of paragraph ‘C’ of the application for leave to defend.
8. It was further contended by the learned counsel for the plaintiff that the statements of account filed by the defendant along with the application for leave to defend are not signed, certified or verified, and as such the same cannot be relied upon especially when the plaintiff has filed duly certified statements of account. He also contended that no proof has been filed by the defendant to substantiate the payments and deposits alleged in the application for leave to defend, and the amounts allegedly deposited by the defendant were not deposited in the loan account. It was urged that the application for leave to defend is liable to be dismissed and the plaintiff is entitled to a decree as prayed for in this Suit as the defendant has miserably failed in raising any substantial question of law or fact.
9. Exercising his right of rebuttal, learned counsel for the defendant contended that the defence of limitation was not required to be set up in the application for leave to defend in view of Section 3 of the Limitation Act, 1908 ; service charges on letters of credit are also barred by time ; the limitation in the instant case was three years as no immovable property had been mortgaged by the defendant ; there was no acknowledgment of liability or admission by the defendant as the letters relied upon by the plaintiff were issued prior to the opening of letters of credit ; the facilities mentioned in the defendant’s letter dated 15.12.2008 do not pertain to letters of credit ; if there was any admission as alleged by the plaintiff, it is still inconsequential and of no legal effect as wrong admission or admission made under mistake of fact is not binding and can be recalled at any stage, as held in Ahmed Khan V/S Rasul Shah and others, PLD 1975 SC 311, Muhammad Zahoor and another V/S Lal Muhammad and 2 others, 1988 SCMR 322 and Barkhurdar V/S Muhammad Razzaq, PLD 1989 SC 749 ; repayments were made by the defendant through its current account as all facilities were granted by the plaintiff through the said current account ; the order passed in Suit No.B-164 of 2010 relied upon by the plaintiff cannot be followed as the case of Mushtaq Ahmed Vohra (supra) was not cited or discussed therein ; and, the cases relied upon by the learned counsel for the plaintiff are not applicable.
10. I have heard the learned counsel for the parties at length and with their valuable assistance have also examined the material available on record and the law cited at the bar. Under Sub-Section (4) of Section 10 of the Ordinance, the defendant was obliged to specifically disclose in the application for leave to defend (a) the amount of finance availed from the plaintiff, (b) the amounts paid to the plaintiff and the dates of payments, (c) the amount of finance and other amounts relating to the finance payable to the plaintiff up to the date of institution of the Suit, and (d) the amount, if any, which the defendant disputes as payable to the plaintiff, and the facts in support thereof. Perusal of the application for leave to defend reveals that the defendant has stated that no amount was disbursed by the plaintiff in relation to the facility of letters of credit and the entire amount claimed by the plaintiff under this facility is disputed. This statement is contrary to the case set up by the defendant as it was argued that the plaintiff’s claim under this facility is barred by time, and in paragraph 4 of the summary of the purported substantial questions of law and fact, it was pleaded whether the amount outstanding under this facility could be converted into funded forced PAD facility without the defendant’s consent. In relation to the Bridge Finance facility, the defendant has asserted that no amount was availed under facility letter dated 01.01.2008, and it is claimed that an amount of Rupees 100 million was availed in the year 2005, the dates of payment whereof are mentioned in annexure ‘A’. However, annexure ‘A’ to the application for leave to defend is the list of receipts and statements of account (A-1 to A-10). Needless to say that the defendant was required to specifically state the above particulars in the application for leave to defend, but it has not complied with the mandatory requirement of Sub-Section (4) ibid as provided therein. The implications for not complying with the mandatory requirement of Sub-Section (4) ibid are specifically provided in Sub-Section (6) of Section 10 of the Ordinance, which provides that an application for leave to defend which does not comply with the requirements of any of Sub-Sections (3), (4) and/or (5) of Section 10 ibid, shall be rejected unless the defendant discloses therein sufficient cause for his inability to comply with any such requirement. The defendant has not only failed in fulfilling the mandatory requirement of Sub-Section (4) ibid, but has also failed to disclose any sufficient cause for its inability in complying with the same.
11. In the recent authoritative pronouncement of the Hon'ble Supreme Court in the case of Apollo Textile Mills Ltd. and others V/S Soneri Bank Ltd., PLD 2012 Supreme Court 268 = 2012 CLD 337, it has been held that the plaintiff institution and the defending customer have identical statutory responsibility respectively under Sections 9(3) and 10(4) of the Ordinance, to plead and state clearly and particularly the finances availed by a defendant, repayments made by him, the dates thereof, and the amounts of finance repayable by such defendant, who is saddled with an additional responsibility to also specify the amounts disputed by him. It has been further held that a defending customer is obliged to put in a definite response to the bank’s accounting and has under Sub-Sections (3) and (4) of Section 10 ibid to compulsorily plead and answer in the application for leave to defend his accounts as well as the facts and amounts disputed by him as repayable to the plaintiff. It has also been held that a banking Suit is normally a Suit on accounts which are duly ledgered and maintained compulsorily in the books of accounts under the prescribed principles / standards of Accounting in terms of the laws, rules and banking practices ; as such instead of leaving it to the option of the parties to make general assertions on accounts, the Ordinance binds both the sides to be absolutely specific on accounts ; and the parties to a Suit have been obligated equally to definitely plead and to specifically state their respective accounts. It has been specifically held that non-impleadment of accounts under Sub-Sections (3) and (4) of Section 10 ibid and Sub-Section (3) of Section 9 of the Ordinance in terms thereof, entails legal consequences under Sub-Sections (1), (6) and (11) of Section 10 ibid. It has been further held that because of the Ordinance being a special law, the provisions thereof override all other laws in view of Section 4 thereof ; the provisions contained in the said Sections require strict compliance ; and, non-compliance therewith attract consequences of rejection of the application for leave to defend along with decree. At the time of filing the application for leave to defend, the defendant had the full opportunity to comply with the mandatory requirement of Sub-Section (4) of Section 10 ibid, but as it failed in availing such opportunity, it is bound to face the consequence of its non-compliance as held by the Hon’ble Supreme Court in Apollo Textile Mills Ltd. (supra). The application for leave to defend is liable to be dismissed on this ground alone, however, since several grounds have been urged by the defendant, I deem it necessary to give my findings in respect thereof.
12. The details of the facility pertaining to letters of credit including their “due date of acceptance” have been disclosed by the plaintiff in paragraphs 3 and 4 of the plaint. Out of nine letters of credit, the due dates of acceptance of eight letters of credit were admittedly from 03.10.2007 to 12.11.2007, and such date for the ninth letter of credit was 09.06.2008. Thus from the plaintiff’s own statement in the plaint, the objection raised on behalf of the defendant that the Suit is barred by limitation to the extent of eight letters of credit, appears to be correct as the prescribed period of limitation of three years from the admitted due dates of acceptance expired in October and November 2010 ; whereas, this Suit was instituted on 17.02.2011. Since admittedly no immovable property was mortgaged in favour of the plaintiff, the cases relied upon by the learned counsel for the plaintiff are not relevant as immovable property was mortgaged therein. His contention that the defendant had admitted its liability on 16.10.2006 and on 15.12.2008 does not appear to be correct as the letter dated 16.10.2006 in respect of letters of credit was issued prior to the admitted due dates of acceptance, and the letter dated 15.12.2008 was not in relation to letters of credit. The other contention of the learned counsel for the plaintiff that limitation would start from the date of demand and not from the due dates of acceptance mentioned in the plaint, cannot be accepted ; firstly, as no date of any such alleged demand is stated anywhere in the plaint, and secondly, due dates of acceptance between 03.10.2007 to 12.11.2007 have been specifically disclosed in the plaint. With profound respect to him, I do not agree that the question of limitation cannot be considered as no such ground has been urged in the application for leave to defend. Section 3 of the Limitation Act, 1908, specifically provides that even if limitation has not been set up as a defence, every Suit instituted, appeal preferred and application made after the period of limitation prescribed therefor by the First Schedule to the said Act, shall be dismissed. Because of the word “shall” used in Section 3 ibid, it is mandatory for the Court to dismiss every Suit instituted, appeal preferred and application made after the prescribed period of limitation. It may be observed that the question of limitation is not a mere technicality, but in fact the Court is duty-bound to look into and decide the question of limitation at the earliest stage suo moto or if pointed out by the opposite party. The claim in respect of the said eight letters of credit is, therefore, liable to be rejected being barred by limitation. Regarding the facility of Rs.13,960,960.20 in respect of the ninth letter of credit mentioned in paragraph 4 of the plaint, I have observed that there is no specific denial or reply thereof in the application for leave to defend.
13. Regarding the running finance facility, the only ground urged on behalf of the defendant was that since the said facility was twice renewed without any fresh or further disbursement, the plaintiff’s claim in respect thereof is void in view of 2005 CLD 444, PLJ 2001 Karachi 189, 2001 MLD 1351 and SBLR 2003 Sindh 103 (supra). Indeed it was held in the above cases cited by the learned counsel for the defendant that no extension, roll over or renewal was allowed by law without actual disbursement and without any consideration such extension, roll over or renewal is void. However, this controversy has been finally set at rest by the Hon’ble Supreme Court in the case of Messrs Dadabhoy Cement Industries Ltd. and 6 others V/S National Development Finance Corporation, Karachi, PLD 2002 SC 500, which was filed against the order passed by a learned Division Bench of this Court in the case reported as Messrs Dadabhoy Cement Industries Ltd. and others V/S Messrs National Development Finance Corporation, 2002 CLC 166. In its order, the relevant portion of BCD Circular No.36 was reproduced by the learned Division Bench under the heading “Definition of Principal”, wherein para (C) pertains to “Loans / Financing under Rescheduled / Restructured Agreements”. According to the said para (C), in cases where rescheduling arrangements have been made, the capitalized unpaid markup and charges, if any, shall form part of principal on the basis of rescheduling / restructuring agreements. After examining BCD Circular No.36, it was held by the learned Division Bench that principal amount includes certain charges / amounts / expenses including the accrued markup / interest. The order of the learned Division Bench was upheld by the Hon’ble Supreme Court in PLD 2002 SC 500 (supra) by holding as under :
“ ………… The argument that the respondent by adding further interest / markup on the amount on which interest / markup had already been paid, played fraud, has no substance, for, this fact was already in the knowledge of the petitioners and they had agreed to pay the same on rescheduling of the outstanding amount, which has been admitted by the petitioners in their Suit No.416 of 1996, as such, they being privy to the rescheduling of the loan, can not turn around to say that further markup was fraudulently charged ……………….”
14. In the above context, I may refer to the definition of “obligation” contained in Section 2(e) of the Ordinance, which inter alia includes “any agreement for the repayment or extension of time in repayment of a finance or for its restructuring or renewal or for payment or extension of time in payment of any other amounts relating to a finance or liquidated damages”. The effect of this definition cannot be ignored in view Section 4 of the Ordinance which specifically provides that the provisions of the Ordinance shall override all other laws as held by the Hon’ble Supreme Court in Apollo Textile Mills Ltd. (supra). In my humble opinion, after the authoritative pronouncement by the Hon’ble Supreme Court in Messrs Dadabhoy Cement Industries Ltd. (supra) discussed in the preceding paragraph, and also as held by a learned Division Bench of Lahore High Court in the case of Citibank N.A. through Branch Manager V/S Ameer Alam, 2015 CLD 429, the objection / ground that renewal / rescheduling / restructuring of earlier finance facility without fresh or further disbursement is void, is not available to a customer anymore. Therefore, this objection raised on behalf of the defendant is not sustainable.
15. In order to show that there are discrepancies in the accounts filed and relied upon by the plaintiff and the same are not reliable, it was argued that there is a debit entry of Rs.99,000,000.00 on 15.04.2005 in the defendant’s account and the same amount has also been shown on the same date as credit in the current account of the defendant, and positive balance was shown in the said account on 31.12.2005. This contention has no force as it was conceded by the learned counsel for the defendant in his rebuttal that repayments were made by the defendant through its current account as all facilities were granted by the plaintiff through the said current account. In view of the above discussion, I am of the considered view that the defendant has failed in raising any substantial question of law or fact and has also not complied with the mandatory requirement of Section 10(4) of the Ordinance. Accordingly, the application bearing CMA No.4540 of 2011 filed by the defendant seeking leave to defend the Suit is dismissed.
16. Upon dismissal of the defendant’s application, I have proceeded to examine the plaintiff’s claim in this Suit. Sub-Section (2) of Section 9 of the Ordinance specifically provides that in case the Suit is filed by a financial institution, the plaint shall be supported not only by a statement of account duly certified under the Bankers’ Books Evidence Act, 1891, but also by all other relevant documents relating to the grant of finance. In Apollo Textile Mills Ltd. (supra), the case of Bankers Equity Limited and 5 others V/S Messrs Bentonite Pakistan Limited through Chief Executive and 7 others, 2010 CLD 651, was examined and approved by the Hon’ble Supreme Court, wherein it was held inter alia that Sub-Section (2) of Section 9 of the Ordinance makes it mandatory for a financial institution to support its plaint in a Suit against its customer by a statement of account duly certified under the Bankers’ Books Evidence Act, 1891, and also by all other relevant documents relating to the grant of finance ; the right of defence of a defendant in summary Suits, as visualised under the Ordinance, depends upon the compliance by the financial institution with the provisions of Section 9(2) ibid ; and, without strict compliance of the above, the plaint is incomplete and cannot become the basis of a Suit under the Ordinance. After approving the above-cited case, it was held by the Hon’ble Supreme Court in Apollo Textile Mills Ltd. (supra) that in the absence of the statement of account and documents, Suit of the plaintiff-institution was liable to be rejected. In the instant Suit, I have noticed that the plaintiff has not filed with the plaint any agreement or other document pertaining to the Bridge Finance facility claimed in this Suit. Not only this, no specific agreement, document or terms and conditions of this alleged facility have been pleaded in the plaint, and only a bare and vague statement has been made in paragraph 6, that in addition to the facilities of letters of credit and running finance the defendant had also availed this facility from the plaintiff. In such circumstances, the alleged Bridge Finance facility claimed by the plaintiff cannot be allowed in view of Apollo Textile Mills Ltd. (supra) and Bankers Equity Limited (supra).
17. I have already held that the claim of the plaintiff in respect of eight letters of credit is liable to be rejected being barred by limitation. Since there is no specific denial or reply in the application for leave to defend regarding the facility of Rs.13,960,960.20 in respect of the ninth letter of credit, the plaintiff is entitled to the said amount. As observed above, the defendant in its application for leave to defend has admitted having availed the running finance facility of Rs.99,000,000.00, and has further admitted that no repayments have been made in respect thereof. The renewal of this facility on two occasions and execution of agreements and other documents in respect thereof, has also been admitted by the defendant. The objection raised by the defendant, that the said renewals were void, has already been rejected. The agreed purchase price under the last agreement / renewal dated 29.09.2007 was Rs.115,710,000.00, which was payable by the defendant by 31.08.2008. The plaintiff is, therefore, entitled to this amount. It is now well-settled that purchase price includes markup, and no amount over and above the purchase price can be granted by the Banking Court. It is for this reason that cost of funds from the date of default at the rate prescribed by the State Bank of Pakistan has been allowed for the first time under the Ordinance as compensation to the financial institution for the finance blocked / stuck up due to breach in the fulfilment of obligation by the customer.
18. As a result of the above discussion, the Suit of the plaintiff is dismissed to the extent of the first eight (08) letters of credit described in paragraph 4 of the plaint and the Bridge Finance facility mentioned in paragraph 6 of the plaint, and is hereby decreed against the defendant in the sum of Rs.129,670,960.20 (Rupees one hundred twenty nine million six hundred seventy thousand nine hundred sixty and Paisas twenty only), being the aggregate amount of the above mentioned ninth letter of credit and running finance facility, with cost of funds thereon from their respective dates of default. A decree for sale of the hypothecated assets is also passed, and costs of the Suit are also awarded to the plaintiff.
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JUDGE