IN THE HIGH COURT OF SINDH, KARACHI
Spl. H.C.A. No. 250 of 2001
[ National Bank of Pakistan Vs. Shahyar Textile Mills Ltd. & others ]
PRESENT:
Mr. Justice Arshad Hussain Khan
Mr. Justice Amjad Ali Sahito
Appellant : Through Mr. Mukhtar Ahmed Khobhar, advocate.
Respondents : Nemo
Date of hearing : 12.10.2026
Date of Decision : 20.10.2026.
JUDGMENT
Arshad Hussain Khan, J. Through the instant Special High Court Appeal, preferred under Section 21 of the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997, the Appellant, National Bank of Pakistan, has called in question the judgment and decree dated 25.05.2001 passed by the learned Single Judge of this Court in Suit No.959 of 1990, whereby the suit instituted by the Appellant for recovery of Rs.53,020,491.20 was dismissed and special compensatory costs under Section 35-A CPC in the sum of Rs.25,000/- were imposed upon the Appellant to pay to each defendant.
2. Briefly stated, the facts giving rise to the present appeal are that Respondent No.1, Shahyar Textile Mills Limited, discounted fourteen foreign bills of exchange with the Appellant Bank during December 1987 against two letters of credit purportedly opened by M/s Fazal Sons Company (Osaka) Ltd., Japan. Against these bills, the Appellant Bank credited an aggregate amount of Rs.37,494,511.60 to the account of Respondent No.1. The bills, payable 120 days after the dates of the respective bills of lading, were forwarded, along with the relevant shipping documents, through Habibsons Trust and Finance Limited, London, for acceptance and payment. According to the Appellant, the bills were initially not accepted by the foreign drawee, and subsequent inquiries revealed that the accompanying bills of lading were allegedly forged. Although the bills were subsequently accepted by the drawee in November 1989, the amounts payable thereunder were allegedly not fully realized. The Appellant further claimed that Respondent No.1 had acknowledged its outstanding liability and furnished post-dated cheques aggregating Rs.70,000,000/- towards its settlement. Consequently, the Appellant instituted Suit No.959 of 1990 for recovery of Rs.53,020,491.20 against Respondents Nos.1 to 6. The suit was contested by the Respondents through their respective written statements. Respondents Nos.1 to 3 denied the allegations of fraud and maintained that the bills had been negotiated in the ordinary course of banking business and that, following their acceptance, payment was recoverable from the foreign drawee. Respondents Nos.5 and 6, being employees of the Appellant Bank, also denied any wrongdoing and asserted that the transactions had been processed in accordance with the applicable banking procedures. Upon completion of the pleadings, the learned Single Judge framed issues and recorded the evidence produced by the Appellant. The Respondents, however, did not lead any evidence, whereafter their side was closed. Ultimately, upon consideration of the pleadings and evidence available on record, the learned Single Judge dismissed the suit through the impugned Judgment dated 25.05.2001.
3. Learned counsel for the Appellant, while assailing the impugned judgment, submits that the learned Single Judge failed to appreciate that Respondent No.1 had admittedly discounted fourteen foreign bills of exchange with the Appellant Bank and received the proceeds thereof, and that their subsequent acceptance by the foreign drawee did not discharge Respondent No.1 from liability, particularly when the amounts remained unpaid. He contends that the learned Single Judge overlooked the acknowledgment of liability, furnishing of post-dated cheques aggregating Rs.70,000,000/-, partial payments and relevant correspondence, which, according to him, attracted Section 98 of the Negotiable Instruments Act, 1881, dispensing with formal notice of dishonour. He further submits that undue emphasis was placed upon the non-production of the original bills and absence of formal protest, without considering the indemnity-cum-guarantee executed by Respondent No.1, which created an independent contractual obligation. He also disputes the treatment of certain foreign exchange remittances and adjustments as payments against the disputed bills, maintaining that the outstanding liability remained undischarged. Lastly, he challenges the award of special compensatory costs as unjustified and prays that the impugned judgment and decree be set aside and the Appellant's suit be decreed.
4. A perusal of the impugned judgment reveals that the learned Single Judge principally dismissed the suit on the ground that the Appellant failed to establish dishonour of the foreign bills of exchange by non-payment in accordance with the applicable provisions of the Negotiable Instruments Act, 1881, and the Bills of Exchange Act, 1882. The learned Single Judge observed that although the bills had subsequently been accepted by the foreign drawee, the Appellant had neither produced the original instruments nor satisfactorily established their dishonour by non-payment through the requisite documentary evidence. It was further observed that the Appellant had failed to establish compliance with the requirements relating to notice of dishonour, noting and protest. The learned Single Judge also considered the payments and foreign exchange remittances referred to in the evidence of the Appellant's witnesses and concluded that the outstanding liability had not been satisfactorily established. The suit was accordingly dismissed, with the further finding that Respondents Nos.2 to 6 could not be held personally liable in the absence of an enforceable contractual obligation or proof of actionable wrongdoing.
5. We have considered the submissions advanced on behalf of the Appellant and examined the impugned judgment in the light of the pleadings, evidence available on record and the grounds urged in the memorandum of appeal.
6. The principal question arising for determination is whether the learned Single Judge, upon proper appreciation of the evidence and the applicable law, was justified in dismissing the Appellant Bank's suit for recovery. The controversy arising in the present appeal essentially concerns the Appellant Bank's entitlement to recover the amount claimed against the foreign bills of exchange discounted by Respondent No.1. Although the fact that Respondent No.1 negotiated the relevant documents and received credit against their discounted value is not seriously disputed, the Appellant was nevertheless required to establish that the amounts claimed remained unpaid and were legally recoverable from the Respondents. The subsequent acceptance of the bills by the foreign drawee, upon which considerable emphasis has been placed, does not dispense with the necessity of establishing the outstanding liability through legally admissible evidence. It is, therefore, necessary to examine whether the Appellant discharged the burden of proving its claim.
7. Examining the matter in the light of the above, we find that the learned Single Judge recorded that the original bills of exchange were not produced by the Appellant despite opportunity having been afforded for that purpose. The evidence of the Appellant's witnesses, as discussed in the impugned judgment, also did not satisfactorily establish the dishonour of each of the fourteen bills by non-payment. Although the Appellant maintained that the foreign drawee had failed to discharge its obligations, the evidence did not satisfactorily establish the amounts remaining unpaid against the respective bills. The mere fact that the proceeds of the bills had initially been credited to Respondent No.1 could not, by itself, establish the entire amount subsequently claimed in the suit. The Appellant was required to prove not only the original transactions but also the circumstances giving rise to an enforceable right of recovery and the precise amount remaining outstanding.
8. The next contention requiring consideration concerns the alleged acknowledgment of liability by Respondent No.1 and the furnishing of post-dated cheques aggregating Rs.70,000,000/-. Learned counsel for the Appellant has relied upon these circumstances to contend that the requirement of formal notice of dishonour stood dispensed with under Section 98 of the Negotiable Instruments Act, 1881. It is true that the said provision recognizes circumstances in which notice of dishonour is unnecessary, including where the party entitled to notice, knowing the facts, unconditionally promises to pay the amount due on the instrument. However, an acknowledgment of liability or an offer of settlement does not, in every case, constitute an unconditional promise to pay within the meaning of the said provision. Its legal effect depends upon the language employed, the circumstances in which it was made and the extent to which it relates to an existing and ascertainable liability. In the present case, the post-dated cheques relied upon by the Appellant were not presented for encashment, and the proposed settlement arrangement was not finalized. In these circumstances, the mere furnishing of such cheques, without establishing an unconditional and definite acknowledgment of the amount claimed, could not be treated as sufficient proof of the entire liability asserted in the suit. Even otherwise, waiver of notice of dishonour is distinct from proof of the underlying liability. Dispensation with notice does not, by itself, establish that the entire amount claimed under the bills remained unpaid or that the drawer was liable for the sum demanded.
9. The Appellant has also relied upon an indemnity-cum-guarantee allegedly executed by Respondent No.1 at the time of discounting the bills. An indemnity may, depending upon its terms, create obligations independent of those arising under a negotiable instrument. However, the nature and extent of such obligations must necessarily be determined from the operative terms of the undertaking. The party seeking enforcement must establish the contractual obligation, the circumstances attracting its operation and the loss or liability falling within its scope. The mere existence of an indemnity-cum-guarantee, without establishing that the amount claimed was recoverable thereunder, cannot substitute for proof of the essential ingredients of the claim. The Appellant has not demonstrated, on the material relied upon in support of the appeal, that the indemnity independently established its entitlement to a decree for the amount claimed.
10. Another material aspect concerns the payments and foreign exchange remittances referred to in the evidence of the Appellant's witnesses. The learned Single Judge noticed that the Appellant's witness had acknowledged receipt of approximately Rs.5.5 million from the Respondents and foreign exchange remittances amounting to approximately Rs.20 million during the relevant period. However, the witness was unable to satisfactorily identify the particular bills against which such payments or remittances had been received or adjusted. The Appellant has contended that certain adjustments permitted by the State Bank of Pakistan related to other transactions and did not constitute actual payment of the disputed bills. Even if such adjustments did not, by themselves, establish discharge of the Appellant's claim, it remained incumbent upon the Appellant to prove, through reliable documentary evidence, the precise amount outstanding against the transactions forming the subject matter of the suit. It is significant that the original amount discounted was Rs.37,494,511.60, whereas the suit was instituted for recovery of Rs.53,020,491.20. The Appellant was, therefore, required to establish not only the amount originally advanced but also the contractual basis of the additional sum claimed, together with a proper reconciliation of payments, remittances and adjustments. In the absence of satisfactory proof of the outstanding balance, the Court could not decree the claim merely because the initial discounting transactions were established. The burden of proving the amount legally recoverable rested upon the Appellant, and that burden could not be shifted to the Respondents merely because they did not lead evidence in support of their defence.
11. As regards the allegations concerning forged bills of lading and collusion, it may be observed that such allegations were required to be established through legally admissible evidence. The question whether the shipping documents were genuine or forged is distinct from the question whether the bills of exchange were duly accepted and subsequently paid. An allegation of fraud, however serious, cannot substitute for proof of the essential elements of a monetary claim. Similarly, the mere fact that Respondents Nos.5 and 6 were employees of the Appellant Bank and had participated in processing the transactions could not establish their personal liability in the absence of proof of fraud, misconduct or an independent enforceable obligation. We also find no sufficient basis for fastening personal liability upon Respondents Nos.2 to 4 merely on account of their association with Respondent No.1. A company possesses a legal personality distinct from that of its directors and officers, and its contractual obligations cannot ordinarily be enforced against them personally unless a separate legal basis for such liability is established. No material has been identified which would justify reversing the learned Single Judge's conclusion regarding the absence of personal liability of the said Respondents.
12. Having examined the foregoing aspects, we find that the Appellant has failed to establish sufficient grounds warranting interference with the ultimate conclusion reached by the learned Single Judge. The Appellant was required to prove an enforceable and ascertainable outstanding liability against the Respondents. However, the evidence, as examined by the learned Single Judge, suffered from material deficiencies concerning the production of the original instruments, proof of their dishonour by non-payment, the effect of payments and remittances received, and determination of the amount legally recoverable. The Appellant has not demonstrated that these deficiencies were satisfactorily overcome by the evidence produced at trial. It is pertinent to observe that the burden of establishing the claim rested upon the Appellant, and the mere fact that the underlying discounting transactions had taken place could not, without satisfactory proof of the outstanding liability, entitle the Appellant to a decree. We, therefore, find no sufficient ground warranting interference with the judgment and decree dismissing the suit.
13. Before parting with the matter, we may also examine the direction imposing compensatory costs upon the Appellant. Section 35-A CPC contemplates the award of compensatory costs where the Court finds that a claim or defence was false or vexatious to the knowledge of the party raising it, subject to the conditions prescribed therein. The mere failure of a party to establish its claim does not necessarily render the proceedings false or vexatious. In the present case, the dispute arose out of actual banking transactions involving substantial amounts, and the Appellant's failure to establish its entitlement to a decree cannot, without specific findings satisfying the statutory requirements, justify an award of compensatory costs. We, therefore, find that the direction imposing special compensatory costs cannot be sustained. This conclusion, however, does not affect the ordinary costs awarded in accordance with law.
14. In view of the foregoing discussion, the question framed for determination is answered in the affirmative. We hold that the learned Single Judge was justified in dismissing the Appellant's suit, as the Appellant failed to establish an enforceable and ascertainable outstanding liability against the Respondents. Consequently, no ground has been made out warranting interference with the impugned judgment and decree insofar as they relate to dismissal of the suit.
15. Consequently, the instant Special High Court Appeal is dismissed, and the judgment and decree dated 25.05.2001 passed by the learned Single Judge in Suit No.959 of 1990 are maintained insofar as they dismiss the Appellant's suit, subject to the observations recorded hereinabove. However, the direction awarding special compensatory costs under Section 35-A CPC is set aside. The parties shall bear their own costs of the present appeal. All pending applications, if any, stand disposed of accordingly.
JUDGE
JUDGE