ORDER SHEET

IN THE HIGH COURT OF SINDH AT KARACHI

Suit B-78 of 2010

Haji Abdul Razzak

Versus

Faisal Bank Limited

Date

Order with signature of Judge

For hearing of CMA 7798 of 2010 (Leave to Defend Application)

For hearing of CMA 14242 of 2016 (u/o 38 Rule 5 CPC)

For hearing of CMA 11182 of 2010 (u/s 16 of FIO)

Dates of hearing: 25.03.2016, 08.04.2016, 20.04.2016 and 08.09.2016, 04.11.2016

Mr. Asim Mansoor for plaintiff.

Mr. Raashid Anwar for defendant.

-.-.-

Muhammad Shafi Siddiqu, J.- Plaintiff has filed this suit under section 9 of Financial Institutions (Recovery of Finances) Ordinance, 2001 for the recovery of moneys, release of securities, rendition of accounts and damages. On service of notices and summons Faisal Bank/defendant filed application for leave to defend bearing CMA No.7798 of 2010 raising a number of questions of law and facts. An application under order XXXVIII rule 5 read with section 151 CPC is also pending adjudication for the attachment of the amount, shares of MCB, bonus shares of MCB and cash dividend received by the defendant.

Brief facts of the case, as stated by plaintiff, are that the plaintiff provided personal guarantee and placed shares of MCB to the tune of Rs.3.8 Million shares to secure the finance granted to M/s Concordia Securities (Pvt.) Limited. The plaintiff claimed to have made entire payment outstanding against M/s Concordia Securities by cheque dated 23.07.1997 for Rs.72.5 Million towards full and final settlement and in pursuance thereof requested for release of 3 million shares to one Mr. Muhammad Ali and indicated to release 0.8 Million shares on instructions of the plaintiff. It is stated in the plaint that 0.8 Million shares were never released to the nominee of the plaintiff, which is in violation of the understanding in terms of Annexure P/1.

This fact came to their (plaintiff’s) knowledge in the year 2007 and the defendant was accordingly inquired about the details of particular as to the shares, bonus shares, right shares, and cash dividend, which claimed to have been replied in terms of Annexure P/4. Apart from the clarification the defendant further informed that it was under banker’s lien. It seems that at the request of the plaintiff the said shares were sold in the market and the sale proceed was deposited in some profit bearing scheme however it seems that there were some disputes as to the claim of markup since it was allegedly kept in the margin account against the facility availed by ARY.

The defendant presented a defence that ARY i.e. Abdul Razzak Yaqoob requested the bank to furnish bank guarantee on 06.03.1998 for Rs.394,434,000/- plus 16% markup and hence shares are being held as security against the aforesaid guarantee. The defendants have attached copies of guarantee as well as request of the plaintiff along with leave application. The defendants have also attached copy of the letter Annexure ‘S’ to establish that the shares are being kept as collateral. The background of this guarantee, which is claimed to have been issued on behalf of the plaintiff, was that the plaintiff entered into an agreement with the government in the year 1994 in terms whereof plaintiff agreed to sell $.26 Million to the government at the then prevailing rate i.e. Rs.32 and was accordingly allowed to buy these dollars back well after three years irrespective of the rate at the relevant time when the dollars are likely to be purchased back. This right to buy dollars at the same rate i.e. Rs.32 was used as collateral in relation to certain finances obtained from Faisal Finance of Switzerland, which is a sister concern of the defendant bank, and in terms of tripartite agreement between Faisal Finance, Faisal Bank and the plaintiff it was agreed that the bank/defendant would be custodian of these dollars receipts.

It is stated in the leave application that the MCB claimed to have filed some litigation including civil and criminal against the plaintiff and in one of those i.e. Suit No.1674 of 1997 the State Bank of Pakistan was restrained from supplying dollars as per agreement. It is claimed that it was on this account that plaintiff requested the bank to execute/issue above referred bank guarantee to the High Court in order to get the remaining dollars released. At one occasion Nazir refused to accept Faisal Bank’s own guarantee and the matter went up to Hon’ble Supreme Court through petition filed jointly by plaintiff and Faisal Bank wherein the Faisal Bank was directed to submit its own guarantee. Although it is claimed that the plaintiff has refused that he has made any request to issue guarantee on his behalf however in this regard it is claimed that the evidence is required to be led. Furthermore, it is argued that the plaintiff was unable to explain as to why he was a co-petitioner before the Hon’ble Supreme Court if he had not signed it or requested it to issue guarantee.

Apart from these questions of facts and law, defendant has raised three additional points i.e. the plaintiff has wrongly invoked jurisdiction of this Court by filing a banking suit as it is simply for damages on the basis of tortious wrongs. The second contention in this regard is applicability of Section 171 of the Contract Act in terms whereof the Bank has legal right to retain any goods left with it as security. Thirdly and lastly that the plaintiff has claimed damages against the defendants and to establish such claim evidence is inevitable.

Learned counsel in addition to the above grounds has also contended that an application under Section 16 of the Financial Institutions (Recovery of Finances) Ordinance, 2001, which has been separately filed, is liable to be dismissed. Counsel submitted that this provision of section 16 only confers right of attachment to banks and not to customer/borrower, which in fact was conceded as an application under order XXXVIII rule 5 CPC was separately filed. He submitted that when the legislature itself barred such remedy for the customers it cannot otherwise be invoked by filing an independent application under order XXXVIII rule 5 since present proceedings are governed by special statute.

Without prejudice to the above, learned counsel for defendant submitted that the requirement of Order XXXVIII rule 5 CPC is not met as it could only be invoked if there is a real danger that the defendant intends to dispose of subject property to delay, defeat or otherwise frustrate any decree that may be passed in the suit. Learned counsel further argued that though the amount retained by them is more than the amount of guarantee furnished however it is yet to be decided as to whether in terms of the guarantee the defendant is liable to a one time markup of 16% or otherwise. Such questions are to be decided in Suit No.1674 of 1997 and in case Court decides the payment of markup at 16% per annum then the amount that is retained may not be sufficient.

Plaintiff’s counsel in response to this margin account submitted that share statement, as provided by the defendant during earlier period of negotiation, provides that a sum of Rs.1,289,738,901/- is available with them as against purported guarantee of Rs.457,543,440/- and hence there is no shortfall in the margin account since there is no question of payment of any markup in terms of the order. He contended that a sum of Rs.832,195,461/- is in excess of margin account at the relevant time when the negotiation took place. However, despite negotiation as to the return of aforesaid amount, the propositions were not materialized in view of pendency of Suit No.1674 of 1997 and other connected matters. The plaintiff has denied to have executed/written the letter available as Annexure ‘B’, page 91, Part-II, with the leave application, and without prejudice submitted that at the most the liability under the guarantee is limited to Rs.457 Million approximately and the security, as claimed to have been held by them, is far more in excess.

It is further argued that without prejudice to the above, the guarantee was given by the bank for their own interest in order release US $.26 Million attached by this Court in pending suit wherein the defendant did not mention anything about these shares and amounts being held by them as security. Learned counsel submitted that in response to application of the MCB in Suit No.1674 of 1997 concerning attachment of the rights under RIPO arrangement between Stat Bank of Pakistan and defendant this Court was pleased to pass orders for attachment of such rights and restrained State Bank of Pakistan from making any payment to any person. M/s Al-Faisal Investment Bank then intervened as intervener and claimed to have owned such rights under RIPO arrangement which was also responded by plaintiff by filing a counter-affidavit.

On CMA No.18 of 1998 this Court on 07.01.1998 was pleased to direct the intervener to furnish bank guarantee in the sum of Rs.394,434,000/- with 16% markup to secure the interest of the plaintiff therein i.e. Suit No.1674 of 1997. Such personal guarantee of Al-Faisal Investment Bank was objected to by the Nazir and the matter went up to Hon’ble Supreme Court for considering the objections of the Nazir in response to such guarantee furnished by Al-Faisal Investment Bank. Such objections were held in favour of Muslim Commercial Bank on 13.01.1998 and Al-Faisal Investment was directed to furnish surety in terms of order dated 07.01.1998 to the satisfaction of the Nazir of this Court. The matter went up to Hon’ble Supreme Court and the Hon’ble Supreme Court then observed that case was within the category of exception and the order of this Court was modified and the petitioner No.2 i.e. Al-Faisal Investment Bank was directed to furnish own guarantee and indemnity bond.

Mr. Asim Mansoor relied upon pleadings of this petition, which was converted into appeal, that M/s Al-Faisal Investment Bank Limited claimed to be the sole interested party in respect of the subject bearer repayment from State Bank of Pakistan and it was for this reason that they intervened and submitted their own guarantee. It is contended that once the guarantee was executed they received entire amount of US $.26 Million and now trying to foist that guarantee on the plaintiff by misinterpreting the orders for their own benefit. Mr. Asim Mansoor further submitted that it is on account of this misinterpretation that plaintiff filed yet another suit bearing No.B-51 of 1998 for unpaid commission in the sum of Rs.21 Million and shortfall in security in the sum of Rs.82 Million. Learned counsel has also relied upon certain payments which were made at the crucial time which in terms of such interpretation of the defendant could have exposed the defendant to a greater risk.

Relying on the claim/defence of plaintiff in Suit No.B-51 of 2001 learned counsel Mr. Asim Mansoor submitted that unconditional leave was granted on 29.03.2006.

Without prejudice, learned counsel submitted that even if it is presumed that the guarantee was given by the defendant on behalf of the plaintiff (which facts are otherwise seriously denied on the assumption of the fact that a sum of Rs.236 Million and a sum of Rs.136 Million apart from 3,47,100 shares of Lucky Cement plus 26,000 shares of Lucky Cement the right/bonus shares are held by them as security for the said finances), the total value of such shares along with dividend received from time to time plus amount allegedly held by them as security would come to Rs.502,899,064/- with the defendant against total exposure of Rs.457,543,440/-. The said amount towards security of Rs.457 Million should have been sufficient hence on this score alone the plea of the defendants fails. The plaintiff has also provided the current holdings as under:-

Market value of 877,756	Rs.247,527,192
Value of 2,041,200 shares sold by Bank	Rs.845,045,379
Cash Dividend on MCB Bank Ltd. shares 2,586,223 before sale of shares	Rs. 62,571,388
Cash Dividend on balance shares of MCB Bank Ltd.	Rs. 42,616,594
Total	Rs.1,197,760,553/-

As to the preliminary objections regarding the jurisdiction of this Court it is contended that the plaintiff as guarantor/surety for finances availed by M/s Concordia the defendant having not returned shares of the plaintiff along with accrued bonus and right shares and dividend, claimed to have acted contrary to the provisions of Financial Institutions (Recovery of Finances) Ordinance, 2001 and fulfillment of their duties hence the suit is rightly instituted under Financial Institutions (Recovery of Finances) Ordinance, 2001.

In addition to the above the subject shares, which were held by them, is a security which ought to have been released in view of above submission. Hence, in both the situations it is urged that it is an admission of finances either in the form of finances advanced to M/s Concordia or the guarantee allegedly issued on behalf of the plaintiff.

I have heard the learned counsel and perused the material available on record.

Insofar as preliminary objections raised by the defendants’ counsel in the instant suit are concerned, apart from claim of damages the relief also include claim for the recovery/release of securities, rendition of accounts and discharge of guarantee, as claimed to have been executed by the defendant on behalf of the plaintiff. The pleadings of both the plaintiff and defendants are that an issue also arises as far as guarantee claimed to have been furnished. The claim of damages based on tortious liability may attract the concession as far as the grant of leave to defend is concerned however the same yardstick cannot be applied as far as other claim based on the relationship arising out of the Financial Institutions (Recovery of Finances) Ordinance, 2001 is concerned. The parameter and yardstick is different in such a situation while dealing with other claims. The pleadings as raised by the plaintiff shows that the two claims are different and distinct and my tentative conclusion is that the suit is rightly filed and to be tried under special jurisdiction under Financial Institutions (Recovery of Finances) Ordinance, 2001. Once any claim comes within the domain of Financial Institutions (Recovery of Finances) Ordinance, 2001 then any additional/ancillary claim either arising out of some other Statue or tortious wrong can also form part of common claim. The cause to initiate such proceedings in terms of the provisions of Financial Institutions (Recovery of Finances) Ordinance, 2001 or in terms of any other Statute or tortuous wrong is same. It can be brought through one independent suit by invoking this Court’s jurisdiction.

No doubt the contentions of both the plaintiff and defendants involve some intricate questions of law and fact however the insistence of Mr. Asim Mansoor was that it ought to be granted conditionally in view of peculiar facts and circumstances of the case. Hence I would consider the application on merit only to such an extent whether leave is to be granted conditionally or unconditionally.

The crucial issues, as emerging out of the contentions and pleadings, are:

(i) Whether the defendant has banker’s lien over 0.8 Million shares of MCB and/or their sale proceed?

(ii) Whether the defendants provided bank guarantee in Suit No.1674 of 1997 at the request of plaintiff for the release of US $.26 Million in favour of defendant?

(iii) Whether suit for declaration is maintainable under section 9 of Financial Institutions (Recovery of Finances) Ordinance, 2001?

(iv) Whether the suit is barred by limitation?

One of the crucial letters, which is vehemently denied by the plaintiff, is available at page 177. This letter is claimed to have been issued by the plaintiff Abdul Razzak (ARY) dated 27.02.2008. In this letter it is claimed by the defendant that the plaintiff to a certain extent has admitted the issue of holding of such shares as security/ collateral.

Nothing at this interim stage is clear from the language of this letter. Suit No.1674 of 1997 was filed by Muslim Commercial Bank Limited and the defendant intervened for this alleged right. Both have relied upon pleadings of such suit and I have carefully gone through it. It seems that the defendant got the amount of US $.26 Million released from the State Bank of Pakistani on the basis of subject guarantee. Defendant prima facie had not intervened at the request of plaintiff.

In the pleadings of Suit No.1674 of 1997 plaintiff has conceded that they have transferred all rights, interest and title in US $.26 Million to and in the name of M/s Al-Faisal Investment Bank Limited which was duly intimated and registered by State Bank of Pakistan in the name of Al-Faisal Investment Bank Limited and by its letter dated 17.05.1999 conveyed due registration in transferees name and 73 tranches of the subject amount were also conveyed hence they have taken a categorical stance insofar US $.26 Million is concerned. It is in pursuance of these facts that the representative of Al-Faisal Bank Limited on 09.01.1998 through two authorized attorneys appeared to furnish its own guarantee for the defendant. In view of some objections and Nazir’s reference dated 13.01.1998 the matter was taken up by this Court and the MCB’s objections were upheld and the intervener i.e. defendant was directed to furnish bank guarantee to the satisfaction of the Nazir of this Court. The matter went up to Hon’ble Supreme Court as M/s Al-Faisal Investment Bank filed petition along with plaintiff as petitioner No.1 stating that petitioner No.1 i.e. plaintiff had no interest in the matter. The Hon’ble Supreme Court directed as under:-

“9. We have heard the learned counsel for the parties at some length and perused the material on record. In our view without disposing of the objection petition filed by the interveners, the impugned order directing them to furnish bank guarantee in the above amount, was not just and fair in the circumstances of the case. This case falls within the category of exceptions laid down in the case of Muhammad Zaman Khan (supra). We, therefore, convert this petition into appeal and with a view to safeguard the rights of both the parties modify the impugned order by directing petitioner No.2 to furnish its own guarantee/ indemnity bond which shall hold the field subject to the final disposal of the objection petition filed by them before the High Court on merits and in accordance with law.”

If at all in terms of the pleadings of the defendant it is the sole interested party in respect of the said bearer repayments why would this guarantee in Suit No.B-1674 of 1997 be issued on behalf of the plaintiff in the said suit. The defendant may have concerns about such security and ultimate decision of such suit, but the question here is of a guarantee and my tentative analysis in terms of above facts are that it could not have been issued at the request of plaintiff.

Prima facie it seems that the MCB has filed Suit No.1674 of 1997 only for recovery of US $.51,066,208/-. Both counsel have also relied upon pleadings of Suit No.1674 of 1997 As far as this particular amount i.e. US $.26 Million is concerned, for which all rights claimed to have been transferred to M/s Al-Faisal Investment Bank Limited, MCB from its pleadings has shown no interest and it is only in pursuit of its claim of recovery that this amount was sought to be attached and it is on consideration of above facts and circumstances that this amount of US dollars was ordered to be released subject to execution of guarantee in terms as stated in the order of the Hon’ble Supreme Court. After execution of the guarantee Al-Faisal Investment Bank got payments of US $.21 Million on 09.03.1998 and of US $.5 Million on 11.03.1998.

Prima facie it seems that even if it is presumed that the guarantee was given by the defendant on behalf of the plaintiff, which though is seriously denied by the plaintiff, the record reveals that there is a sum of Rs.236,867,044/- and sum of Rs.136,606,325/- in addition to 347,100 plus 26,032 shares of Lucky Cement held with the defendant as security and the amount allegedly held by them as security would come to a total of Rs.502,899,064/- against total exposure of Rs.457,543,440/- apart from MCB shares.

Even if the exposed amount is taken out of the above calculation the defendant is holding an exorbitant amount under the garb of banker’s lien.

There are two heads of securities (in shape of Lucky Cement shares, US dollars and PRS Margin Account of AFIBL, and/or cash in relation thereto) and MCB shares and sale proceeds lying with the bank. Following is the details of the same:-

Securities	Units	Rate	Amount	Security value
Shares of Lucky Cement	347,100	7.35	2,551,185	2,551,185
USD remitted abroad	3,739,022	63.35	236,867,044	236,867,044
PRS in Margin A/c-AFIBL			136,606,325	136,606,325
Total value of securities				375,024,654

Market value of 877,756 MCB shares	Rs.247,527,192
Value of 2,041,200 shares sold by Bank	Rs.845,045,379
Cash Dividend on MCB Bank Ltd. shares 2,586,223 before sale of shares	Rs. 62,571,388
Cash Dividend on balance shares of MCB Bank Ltd.	Rs. 42,616,594
Total	Rs.1,197,760,553/-

These holdings are against exposure of Rs.457,543,440/- plus 16% markup regarding which the guarantee was issued by the defendants. Whether it is a one-time markup or to be accrued annually is the subject matter of another suit.

In view of above the defendant is entitled for a leave but that shall be subject to securing the differential amount, if any, between guarantee amount plus 16% markup per annum and the quantum of holding of above two heads of securities either by executing their own guarantee or by depositing the differential amount with the Nazir of this Court. Order accordingly.

Insofar as application under section 16(1) of Financial Institutions (Recovery of Finances) Ordinance, 2001 is concerned, its language is apparently clear that it is meant for the benefit of financial institution who may opt to file such application to prevent such property from being transferred, alienated, encumbered, wasted or otherwise dealt with in a manner which is likely to impair or prejudice the security in favour of financial institution. Similarly, insofar the requirement of Order XXXVIII rule 5 CPC is concerned, the plaintiff has failed to meet the same. Accordingly, both the applications are dismissed.

The findings hereinabove are only tentative and shall not influence the trial and ultimate decision of the suit.

Dated: 02.02.2017 Judge