ORDER SHEET
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Date Order with signature of Judge
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DATE OF HEARING 26.11.2014
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Mr. Azizuddin Advocate for
the Appellant.
Mr. Ghulam Rasool Korai
Advocate for the Respondent.
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Syed Hasan Azhar
Rizvi J; This First Appeal has
been preferred against the judgment dated 12.02.2013 and decree dated
21.02.2013 passed by learned Presiding Officer Banking Court No.II, Karachi in
Banking Suit No.433 of 2011 whereby the suit filed by the Respondent/Bank was
decreed against the Appellants jointly and severally in the sum of Rs.802,716.12
alongwith cost of funds from the date of default and cost of suit, till
realization of the entire decretal amount. However, prayer of the respondent
for sale of mortgaged property was also allowed but the suit against defendant
No.3 stood dismissed as withdrawn.
Brief facts of the case are
that the Appellant No.1 was allowed a running finance of Rs.2.00 Million and non-fund
based facility (by way of Guarantee) in favour of Turism Department for a sum
of Rs.2.00 Million. Said facility was lastly renewed on 21.07.2007 and the
expiry date of facility was 30.06.2008. After availing the running finance
facility the Appellant No.1 utilized the same however, on commission of default
in repayment of the loan amount Respondent filed suit for recovery of
Rs.802,716.12 in the Banking Court. After service of notice the appellants
filed Application for leave to defend the suit in the Banking Court, which was
dismissed by order dated 10.10.2012. After dismissal of the application for
leave to defend the suit of the Respondent was decreed against the defendants
except defendant No.3, who was expired and on Respondent’s application suit was
dismissed as withdrawn.
Learned Counsel for the Appellants
contended that no documents evidencing the liability of the Appellants Nos.2 to
5 had been filed alongwith the plaint before the trial court and in absence of
documentary evidence the Appellants Nos.2 to 5 are not liable for payment of
finance to the Respondent. Learned Banking Court has miserably failed to properly
construe and apply the relevant law applicable for recovery of the Finance from
Appellants Nos.2 to 5. Learned Counsel for Appellant further argued that
Respondent had failed to produce any document and/or statement of account reflecting
the debit and credit entries in respect of the running finance so much so that
the amount deposited by the Appellants during period from 22.10.2008 to
07.04.2009 by the Appellants was not taking into account, which is evident by
incomplete statement of account enclosed with the memo of statement, which has
been filed on 12.04.2013 in compliance of order dated 05.04.2013 passed by this
Court alongwith statement as Annexure “C”. It is apparent from record that the
Appellant No.1 had paid an amount of Rs.1,560,000/- to the Respondent back.
Learned Counsel for the Appellants during arguments has referred to Annexure
“E” at page-39 with memo of Appeal a letter of Respondent dated 11.06.2009
addressed to Appellant No.4 whereby Respondent/Bank informed that:-
“mark-up due on your RF
stands 125,230 (includes accounts as on 11.06.2009) & principal amount is
466.522 without any waiver been extended by our higher authorities”.
Learned Counsel for
the Appellants had deposited to the Respondent
through deposit slips viz. on 22.10.2008 Rs.35,00/- and Rs.33,880/-, on
19.01.2009 Rs.32770/-, on 07.04.2009 Rs.33,462 and Rs.178,900/- total amounting
to Rs.2,82,512/-. Photocopies of deposit slips are enclosed as Annexures “E/2
to E/6 with the memo of Appeal. As per learned Counsel this amount was
deposited between period from 22.10.2008 to 07.04.2009 whereas limit of finance
facility was expired on 30.06.2008. As per learned for the Appellants, the
Respondent despite repeated demands of the Appellant No.1 failed to supply
statement of account showing debit and credit entries towards principle and
mark-up amounts to the Appellant No.1. Learned Counsel for the Appellants has
referred to following case laws:-
1. 2013 CLD 1280 (Sultan-ul-Arfeen and 6
others versus District Officer (Revenue), City District, Government, Karachi
and 5 others).
2. 2007 CLD 320 (Mashreq Bank PSC versus Farooq
Habib Textile Mills Ltd.).
3. 2006 CLD 842 (Habib Bank Limited versus
Karachi Pipe Mills Ltd.)
4. 2013 CLD 1291 (Emirates Global Islamic
Bank Limited versus Muhammad Abdul Salam Khan)
Learned Counsel for
the Respondent referred to Annexure “B” enclosed with the memo of Appeal, the
approval of finances dated 21.08.2007 and states that grant of running finance
facility is admitted and further states that in para-3 of the leave to defend
application at page-63 appellants had admitted that he availed and utilized running finance
facility of Rs.2.00 Million. He further argued that the Appellants have
admitted in their leave to defend application that they continued paying
mark-up amount to the bank after expiry of limit of the finance facility.
Learned Counsel for the Respondent has referred to letter dated 24.04.2009 of
the Appellants wherein the Appellant No.1 did not dispute their liability and
promised to make arrangement for full payment of the outstanding amount.
However, he further referred to letter dated 22.08.2009 of the Respondent No.1
whereby the Appellants promised to pay their liability.
We have heard learned
Counsel for the respective parties and perused the material available on record
with their assistance.
It is admitted
position that initially Respondent/Bank sanctioned the running finance limit to
the Appellant No.1 in the year 1996, which was renewed from time to time and
was lastly renewed on 21.07.2007 upto 20.06.2008 as mentioned in Annexure “B”
at page-21 with the memo of Appeal. By application for finance dated 28.06.2008
Appellant No.1 applied to the Respondent/Bank for extension of running finance
upto 30.06.2009 by reducing running finance limit from Rs.2.00 Million to
Rs.1.00 Million, said request letter was received to the Respondent/Bank on 28.06.2008, which
bears the seal of the Bank and signature of concerned officer of the Bank as
per Annexure “C” with the memo of Appeal. Though in the pleadings submitted
before the Trial Court by the Respondent/Bank we have not found any approval
for extension of running finance limit from the Respondent/Bank after
20.06.2008. No sanction advice or Agreement for Finance executed between the
parties beyond20.06.2008 has been produced by the Respondent/Bank either before
the Trial Court or before us in the instant Appeal. In their letter dated
06.10.2008 the Respondent/Bank demanded the sum of Rs.33,880/- as mark-up for
the quarter ended on 30.09.3008 and by another letter dated 05.01.2009 the
Respondent/Bank again demanded mark-up of Rs.32,770/- for the quarter ended on
31.12.2008. The Appellant No.1 in response to the letter of the Respondent/Bank
paid such amounts on 22.10.2008 and 19.01.2009 through deposits slips enclosed
as Annexures “E-3 and E-4. In the letter dated 24.4.2009 enclosed as Annexure
“D/1” with Leave to Defend Application available on record it was stated by the
Appellant as under:-
“We wish
to submit that our Limit expired about a year back, which despite repeated
demands has not been renewed for the reasons not known to us. Markup is being
charged after expiry of the Limit period, is utter violation of decisions of
the superior Courts. Statement of Account has not been sent to us for last
about 3 quarters.
On
telephone calls, received from the Branch for payment of markup, a sum of
Rs.32,770/- was deposited on 05.01.2009 and thereafter a further sum of
Rs.33,462/- on 07.04.2009. Both these deposits made, were not adjusted towards
markup. It is worth mentioning that charging of markup is not permitted after
the expiry of Limit. However, to maintain and continue our cordial
relationships, we constantly continued to pay/deposit the same. On 17.04.2009,
being dissatisfied with the quality of services, we wrote a letter to the
Branch Manager requesting him that due to Global Economic Recession coupled
with so many other factors including Visa restrictions, law and other situations,
the Hotel. Travel and Tourism Industry have also been badly affected. In such
circumstances, it is not possible to pay markup, consequently, the Branch was
requested to waive the accrued markup and convey to us Principal liability so
that we may arrange full adjustment within 30 days by arranging funds from our
relatives and friends. Copy of the said letter was also endorsed to the Deputy
Covernor, State Bank of Pakistan for information, highlighting the poor quality
of services. Copy of the said letter is sent herewith for your reference.
As to the
sum of Rs.6,78,891/-, since Statement of Account has not been sent to us but we
do not dispute our liability and will make arrangements for its full payment
within 30 days, provided the markup charged and debited after the expiry of
Limit is waived.
On 11.06.2009 the
Respondent/Bank in their reply to the Appellant No.1’s letter dated 09.06.2009
with regard to the final settlement of Running Finance Facility availed by the
Appellant No.1 against the collateral informed that as per their record markup
due on that facility upto 11.06.2009 was Rs.125,230/-, an amount of
Rs.466,522/- in respect of the principle amount without any waiver. Appellant
No.1 was requested to adjust the principle amount alongwith mark-up in order to
declassify their amount from State Bank of Pakistan Reporting System. Said
letter is enclosed as Annexure “E” with the memo of Appeal. In response to that
letter appellant No.1 informed the Bank by their letter dated 22.08.2009 that
the principle liability of the Running Finance Limit has been reduced by making
payment from time to time and was stood at Rs.4,66,522/- as admitted in letter
by Respondent/Bank and that will be paid on receipt of statement of account
after the reconciliation of the accounts. It was also stated in that letter that
by letter dated 09.06.2009 appellant requested to send them statement of
accounts showing all deposit and credit entries including markup charged by the
Bank to enable them to ascertain as to how much markup had been charged after
25.08.2007, photocopy of the said letter is enclosed as Annexure “E-1” with the
memo of Appeal. On demand of the Respondent/Bank the Appellant No.1 had also paid
Rs.35,00/- on 22.10.2008 and Rs.33,462/- oin 07.04.2009 to the Respondent/Bank
towards markup. Bank deposit slips are enclosed as Annexures “E-2 to E-5” with
the memo of Appeal. Appellant No.1 had paid Rs.178,900/- on 07.04.2009 the bank
deposit slip is enclosed as Annexure “E-6” with the memo of Appeal as such from
October, 2008 to April, 2009 Appellant No.1 repaid Rs.282,512/- to the
Respondent/Bank against running finance facility under the law.
We have also observed
from the available record that since no copy of statement of account was filed
by the Respondent/Bank alongwith memo of plaint. By order dated 05.04.2013
passed in the instant Appeal Appellant’s Counsel was directed to place on
record copy of statement of accounts filed by the Bank before the learned
Banking Court alongwith an statement. Pursuant to that Counsel for the
Appellant on 12.04.2013 filed such statement and enclosed copy of statement of
accounts submitted before the trial Court by the Respondent/Bank as Annexure
“C” which is ditto copy of all the entries mentioned in the part of para-4 of
the memo of Plaint. We have found that this statement of accounts is not in
conformity with the Section 9(2) and 10(4) of FIO, 2001. Details of all
payments made by the Appellant No.1 and the details of mark-up charged by the
bank from time to time from the Appellant No.1 have not been mentioned in said
statement of accounts.
In the case of Bankers
Equity Limited versus Messrs Bentonite Pakistan Limited and others reported in
2003 CLD 931 it has been observed that:-
“Non-submission
of the mandatory accounts, as provided for in subsection (4) of section 10
ibid, attract the penal consequences set out in subsection (6) of section 10
Ibid and the amended PLA becomes rejectable”
As per settled
'Banking Practices', every amount/ sum advanced or paid to a customer or sum
expended/ incurred for and on behalf of a customer by a banking company is
entered as 'debit' in the books of the Bank and the money received from or on
behalf of the customer is entered in these books as customers 'credit' to
arrive at a credit or debit balance. On the basis of the entries in these
books, a statement of Accounts truly, faithfully and duly reflecting the
entries, is prepared by the Bank for each account for all practical purposes.
These Statements of Accounts, bearing true account profile, are to be regularly
conveyed to the customers to apprise them of their 'obligation' towards the
Bank or vice versa. These 'Statements of Accounts' containing copies of entries
in the books of a. bank, when certified as per section 2(8) of the Bankers'
Books Evidence Act, 1891 (Act No.XVIII of 1891), attain the status of prima
facie evidence of the existence of such entries in the banker's books under
section 4 ibid and become admissible in evidence, in all legal proceedings, of
the matters, transactions and accounts therein recorded like the original
entry.
In view of the
above, subsection (2) of section 9 of the Financial Institutions (Recovery of
Finances) Ordinance, 2001 makes it mandatory for a Banking institution to
support its plaint in a suit against the customer by a Statement of Account
duly certified under the Bankers' Books Evidence Act, 1891 and also by all `
other relevant documents relating to grant of finance. Without such a
'Statement of Account' filed alongwith the plaint, a customer will obviously
remain totally unaware of the amount advanced, mark-up charged and the basis,
break-up, premise, mode of calculation of account, nature of default and the
actual amount of Bank's claim against the defendant-customer. He will thus be
unable to frame his defence within the limited period prescribed by law, to
show reasonable, serious and plausible grounds of contest to be able to seek
and obtain leave to defend the suit. Absence of filing the requisite Statements
of Account alongwith the plaint, will essentially amount to absence of providing
adequate, proper and reasonable opportunity of defence to the defending
customer. Being thus unable to file a proper leave petition within thirty days
under section 10(2) of the Ordinance of 2001 or within twenty one days under
section 10(12) ibid, such a customer may or may not later be able to amend his
leave petition. His defence shall, thus be rendered illusory, hence denied.
Upon the compliance a Banking Company with the provisions of section 9(2) of
the Ordinance of 2001, depends the right of defence of a defendant in the
summary suits as visualized under the Ordinance, wherefor, the filing of duly
certified Statements of Account by a Banking company alongwith its plaint,
cannot be taken to be a mere formality or a technicality. This provision can
only be held to be mandatory. Without strict compliance wherewith, the plaint
is incomplete and cannot become basis of a suit under this law.
On examination
of the above‑said Certificates or Schedules of Account Balances; the
learned counsel for the plaintiff was thrice confronted with the fact that a
plaint unsupported by a duly certified Statements of Accounts cannot become
basis of trial of a civil suit filed by a bank and is liable to be rejected
under Order VII, rule 11, C.P.C. read with section 151, C.P.C. The learned
counsel every time very candidly and frankly stated that the above Certificates
of Balances are Statements of Accounts because they have been "provided by
the Banks and if there is any fault in the same, the Banks must suffer".
Since the
Certificates or Schedules of Accounts filed by the plaintiff‑Banks
purportedly to support the plaint, containing entries, which cannot and do not
truly reflect the entries in the Bankers' Books of Accounts, therefore, the
same cannot be held to be Statements of Accounts. Furthermore, plaintiff‑Banks
did not produce any Books of Accounts to support the contents of the above‑stated
Certificates of Balances or the amounts of claim pleaded in the plaint, I,
therefore, have no option but to hold that the plaintiff‑Banks have
failed to comply with the strict provisions of section 9(1) and (2) of the
Finance Institutions (Recovery of Finances) Ordinance, 2001 to support the
plaint with Statements of Accounts duly certified per the provisions of
Bankers' Books Evidence Act. Such a plaint cannot initiate a civil suit in
terms of section 9 ibid to be legally proceeded with. As such the suit so filed
is not only barred by law but also fails to disclose a cause of action in terms
of subsection (2) of section 9 ibid. The plaint, therefore, is rejectable under
the provisions of Order VII, Rule 11. C. P. C. read with section 151, C. P. C.
In view of the
above, the plaint in COS. No.44‑2000 titled "Bankers Equity Limited
and 5 others v. Messrs Bentonite Pakistan Limited and 7 others" is
rejected. There shall, however, be no order as to costs. Consigned to record.
In the case reported
in 2013 CLD 1280 (Sultan-ul-Arfeen and 6 others versus District Officer
(Revenue), City District, Government, Karachi and 5 others, it has been
observed that:-
“From
the above discussed case-laws, it is abundantly clear that the liability of the
Company cannot be treated or foisted as the liability of the directors and or
its share holders merely because any contract is signed by any of the
directors/shareholder and or any other person authorized by the company, for
and on behalf of the company, unless of course in situation where directors or
persons other than the company could also be held personally liable firstly;
where the director/any other person has executed some documents acknowledging
and or assuming the liability of the company upon himself in his personal
capacity as surety, guarantor or indemnifier for the company as per provisions
of Contract Act, 1872 (such is normal and usual in banking and commercial
transition). Secondly; where the creditor or regulator as the case may be
before extending any financial benefit, licence, permit, or concession in any
form, which carries recurring financial liability or obligation seek from the
director and or member who proposes a person for election or appointment to the
office of director, shall add to the proposal a statement that the liability of
the person holding that office will be unlimited and the officers of the
company or any of them shall before that person accepts the office or act
therein, give him notice in writing that his liability will be unlimited (See
section 111 of the Companies Ordinance 1984). Thirdly; by securing a special
resolution in terms of section 112 of the Companies Ordinance, 1984 thereby
liability of director/s could be made unlimited, provided the memorandum so
permits and in case memorandum does not so permit, memorandum could be amended
to achieve such objectives. And fourthly; is a situation that makes the liability
of director/s unlimited, is where the business of the company is being
consciously carried on with less than minimum statutory strength of directors
that is to say less than three in case of public or in case of private company
less than two members (except in case of single member company) for more than
six months, in such an eventuality, such directors are severally liable for the
payment of whole debts of the company contracted during that period (See
Section 47 of the Code of Civil Procedure 1908). Learned Counsel for the
respondents were not able to show that the petitioners are covered by any of
the four situations discussed herein or for that matter personally liable under
any other law for the liability of the Pakcom Limited.
In the case reported
in 2007 CLD 320 (Mashreq Bank PSC versus Farooq Habib Textile Mills Ltd.), it
has been observed that:-
“A suit without
a statement of account is not competent and plaint, which is not supported by a
statement of account merits rejection, according to section 9 of Financial
Institutions (Recovery of Finances) Ordinance, 2001.
In another case
reported in 2006 CLD 842 (Habib Bank Limited versus Karachi Pipe Mills Ltd.),
it was observed that:-
“Financial
Institutions (Recovery of Finances) Ordinance, 2001, took away power of Courts
to grant mark-up beyond contracted period and replaced it with power to award
only ‘Cost of Funds’. Position which emerged after promulgation of Financial
Institutions (Recovery of Finances) Ordinance, 200, is that in addition to
contractually chargeable mark-up, a financial institution cannot now claim from
Court any additional mark-up”.
In the case reported
in 2013 CLD 1291 (Emirates Global Islamic Bank Limited versus Muhammad Abdul
Salam Khan), it has been observed that:-
“It
has now been well settled that markup more than the agreed rate and/or beyond the
agreed period cannot be granted to the financial institution. Similarly, no
other charges or amounts can be allowed to the financial institution to which
the customer had not agreed”.
In the case of United
Bank Limited versus Presiding Officer, Banking Court No.2, Karachi and others
reported in 2011 CLD 931 decided by a Division Bench of this Court of which one
of us (Syed Hasan Azhar Rizvi J;) was a member observed as under:-
“Where
the dispute between the parties does not extend to the whole of the claim, or
that part of the claim is either the principal amount of the finance or to any
other amounts relating to the finance, it shall, while granting leave and
farming issues with respect to the disputed amounts pass an interim decree in
respect of that part of the claim, which appears to be payable by the
defendants to the Plaintiff.”
The
amount claimed by the Respondent/Bank in the Plaint is exaggerated, contains
unauthorized and unlawful markup which is prima facie evident from the annexure
enclosed with the plaint i.e. the sanction advice, finance agreement and the
statement of account.
J U D G E
J U D G E
Karachi
Dated __________