IN THE HIGH COURT OF SINDH AT KARACHI

IN THE HIGH COURT OF SINDH AT KARACHI

Suit No. B-65 of 2008

Plaintiff:- NIB Bank Ltd (Successor in interest of PICIC),

through Mr. Yawar Farooqui,

Advocate for the plaintiff.

Defendants:- Taha Spinning Mills Ltd and others,

Through Mr. Raja Qasit Nawaz Khan,

Advocate for the defendants

Date of hearing 30.03.2010

Date of Judgment 28.05.2010

J U D G M E N T

SYED HASAN AZHAR RIZVI, J The present suit has been filed by the plaintiff against the defendants for the recovery of Rs.161,774,484/- under Section 9 of Ordinance XLVI of 2001. Brief facts of the case are that the plaintiff is a banking company incorporated under the Companies Ordinance, 1984 and duly licensed in terms of Banking Companies Ordinance, 1962. That in terms of sanction order dated December 31, 2007 by the Governor State Bank of Pakistan and the Notification of the effective date of merger dated 31^st December, 2007 issued by the State Bank of Pakistan "Pakistan Industrial Credit & Investment Corporation Limited" (PICIC) was merged and amalgamated with and into the plaintiff with all assets and liabilities and accordingly the plaintiff is now successor in interest of PICIC. The defendant No.1 is a private limited company as the principal borrower and also the mortgagor. Defendants Nos.2 to 8 are the Directors of the defendant No.1 and the defendants Nos.2 to 10 are the guarantor of the facilities extended to defendant No.1 by the plaintiff. All the defendants are customers within the definition of Section 2(c) of Ordinance XLVI of 2001
(The "Ordinance"). The plaintiff had from time to time extended financial facilities to defendant No.1 on account of long terms loans and working capital facilities for its day to day running of business activities at its principal place of business located at 406, Commerce Centre, Hasrat Mohani Road, Karachi and its factory premises situated at Kot Shah Muhammad, Tehsil Nankana, District Sheikhupura, Punjab. The plaintiff at the request of the defendant No.1 on November 01, 2004 sanctioned a financial assistance of Rs.106.70 million (for permanent working capital of Rs.47.82 Million, BMR/expansion of Rs.30.00 million and debt swapping of Rs.28.88 million). The aforesaid facilities were initially sanctioned by way of club facilities and subsequently separate documentations were executed and delivered by the defendants in respect of each facility to the plaintiff.

2. The details of the financial facilities availed by defendant No.1 from time to time from the plaintiff in terms of the above referred sanctioned advise are as under :-

"Facility 1: The plaintiff in terms of sanctioned allowed Debit Swapping facility to the defendant No.1 to avail the financial assistance of Rs.28,880,000/- (Rupees twenty eight million eight hundred eighty through only) repayable at purchase price of Rs.45,757,752.09 (Rupees forty five million seven hundred fifty seven thousand seven hundred fifty two and paisas nine only) on account of defendant's settlement with Habib Bank Limited and National Bank of Pakistan (Ex-NDFC Unit). The purchase price referred hereinabove was payable by the defendant No.1 in 20 (twenty) quarterly equal installments in terms of Terms Finance Agreement dated 24.12.2004. That out of the sanctioned facilities of Rs.28,880,000/-, the defendant No.1 availed an amount of Rs.24,018,341/- and was required to repay the same in terms of the agreement.

Facility 2: The plaintiff in terms of sanctioned allowed Permanent Working Capital facility to the defendant No.1 the financial assistance Rs.47,820,000/- (Rupees forty seven million eight hundred twenty thousand only) repayable at purchase price of Rs.75,766,471.78 (Rupees seventy five million seven hundred sixty six thousand four hundred seventy one and paisas seventy eight only) to enable it to meet its profitability & cash flow position through induction of permanent working capital for its project at Kot Shah Muhammad, Tehsil Nankana, District Sheikhupura (the "project"). The purchase price referred hereinabove was payable by the defendant No.1 in 20 (twenty) quarterly equal installments in terms of Term Finance Agreement dated 12.3.2005.

Facility 3: The plaintiff in terms of sanctioned allowed BMR facility to the defendant No.1, the financial assistance of Rs.30.00 million (Rupees thirty million only) repayable at purchase price of Rs.47,532,290.95 (Rupees forty seven million five hundred thirty two thousand two hundred ninety and paisas ninety five only) on account of defendant's No.1 for expansion of its spinning facilities through addition of imported machinery and some civil work costing at Kot Shah Muhammad, Tehsil, Nankana, District Sheikhupura, brief detail of the same is mentioned in Schedule-I and II of Agreement dated 28.3.2005. The purchase price referred hereinabove was payable by the defendant No.1 in 20 (twenty) quarterly equal installments in terms of Agreement dated 28.3.2005. That out of the sanctioned facilities of Rs.30.00 million, the defendant No.1 availed an amount of Rs.29,820,405/- and was required to repay the same in terms of the Agreement.

Facility 4: The plaintiff sanctioned at the request of defendant No.1 a financial assistance of Rs.100.00 million (Rupees one hundred million only) repayable at purchase price of Rs.133,153,082/- (Rupees one hundred thirty three million one hundred fifty three thousand and eighty two only) by way of revolving finance/running finance for its day to day business requirement. The purchase price referred hereinabove was payable by the defendant No.1 on or before September 30, 2007 in terms of Agreement for Finance for Short/Medium/Long Terms Loan on Mark up basis dated 15.12.2006. That due to the fire incident as reported by defendant No.1 to the plaintiff, the pledge stocks were burnt and a claim was lodged with Adamjee Insurance Company Limited. That a sum of Rs.6.50 million was paid by Adamjee Insurance Company to the plaintiff as interim payment against the claim lodged by the defendant No.1 with them. The remaining amounts of Rs.58,526,155/- (as on 8.8.2008) in respect of the above referred financial assistance is due and payable by the defendant No.1"

3. Simultaneously upon execution of the Agreement by defendant No.1 as security for the grant of the facility through its authorized Directors also executed Demand Promissory Notes and Letter of Continuity in favour of the plaintiff

4. The defendant No.1 in order to further secure the extended financial facilities executed the Letter of Hypothecations in respect of the Machinery and Equipments and mentioned in Annexure "I" with the plaint to the relevant letter of Hypothecations. Under the terms of said Letter of Hypothecations, the defendant No.1 created charged over machinery and equipment in terms of relevant Agreements in respect of the financial facilities. The defendant No.1 also executed and delivered Deeds of Flouting Charge in favour of the plaintiff in respect of the financial facilities availed by them. Under the terms and conditions of said Deeds of Flouting Charge, defendant No.1 created a first floating charge on all its movable assets and other assets of the company as well as the undertakings and goodwill of defendant No.1 and its machinery (other then those already mortgaged/hypothecated to plaintiff) all assets and rights whatsoever and where-so-ever both present and future so that the defendant No.1 shall not be at liberty without the consent of plaintiff to create any mortgage or charge in priority to the pari-passu or any kind other charges without the consent of the plaintiff in advance.

5. The personal guarantees were executed by defendant Nos.2 to 10 in order to further secure the allowed facilities to the defendant No.1 by the plaintiff to fulfill the terms and conditions of the Sanction Advice/Letter in respect of each and every facility availed. By Sanction Facility Letters duly approved by the competent authorities of the plaintiff, the plaintiff provided/allowed credit facilities to defendant No.1 for its requirement as stated in the respective Sanction Facility Letters and Agreement of Finances to manage the day to day business affairs and as per requirements in expansion of its existing spinning project facilities and some other civil work costing its project situated at Kot Shah Muhammad, Tehsil Nankana, District Sheikhupura details whereof are mentioned in the respective Schedule-I to the respective Agreements of Finance for each facility. (Together, the "Facilities"). Under the terms of the Sanctioned Letters, the plaintiff made the respective Facilities available to the defendant No.1 as per terms and conditions of the respective Agreement of Finance and to the terms of the Schedules of repayments annexed with the respective Agreements. Repayments towards each facilities was required to be made in terms of the respective repayment Schedules to the Finance Agreement. The defendant No.1 provided securities for repayment of the sanctioned Financial Facilities in terms of the above referred respective Sanctioned Facilities Letters executed in Irrevocable General Power of Attorney dated 2.2.2005 and the Memorandum of Deposit of Title Deeds in the addition to the execution of the Personal Guarantee of Defendant No.2 and 10. The Defendant No.1 by registration of Irrevocable General Power of Attorney and upon execution of Memorandum of Deposit of Title Deeds created Equitable Mortgage by depositing the original Sale Deed dated 8.5.1991 executed between Mst:Saira Begum daughter of Allah Tawakal Wirak and Taha Spinning Mills Liited (the defendant No.1 duly registered at No.516, of Book-I, with Sub-Registrar Nankana Sahib for the area of land 134 Kanals 10 Marlas situated at Kot Shah Muhammad, Tehsil Nankana. The ownership of the property upon which the Equitable Mortgage was created belongs to Defendant No.1 is a piece and parcel of land containing by admeasurements 134 Kanal 10 Marlas or thereabouts together with buildings, factory, workshop and superstructures thereon situated at Kot Shah Muhammad, Tehsil Nankana, District Sheikhupura together with access to and the right of use of any gas, water, electric main and/or cables and any drains, channels or sewers whereby the said premises are drained and all the plant, machinery, spare accessories, electrical equipments (the "Equitable Mortgage Properties"). As such the above referred property is mortgaged with the plaintiff by depositing the original title documents in respect of the Mortgaged Properties in order to secure the original title documents in respect of the Mortgaged Properties in order to secure the facilities availed by defendant No.1 and the plaintiff was given a right to sell the same in case of default to recovery the entire outstanding facilities due and payable by the defendants jointly and severally in terms of the Agreement. The defendant No.1 also executed Letter of Pledge to secure the facility of Rs.133,153,082/- by pledging stocks of raw cotton bales, polyesters and cotton yarn. The defendants fully availed and utilized the facilities but failed/neglected to pay the outstanding amounts in terms of the repayment schedules annexed with the Agreements and committed default and failed to act in accordance with the terms and conditions of the Agreement. That upon failure of the defendants to make the payments in terms of the Agreement, the plaintiff advised them for adjustment of the outstanding amounts and payment of agreed mark up. That due to non-payment of the installments in terms of the schedule of repayments attached with the Agreement, the plaintiff time and again demanded the outstanding amounts of the each facilities from the defendants. No serious efforts were made by the defendants to repay the outstanding installments/amounts in terms of the Agreement. By letters dated 12.6.2008 (Annexure "I-1" and "1-2" with the plaint), defendants were informed about the termination of the Financial Facilities in case of non-payment of outstanding installments as per the terms and conditions of the Agreement and thus the account is classified as overdue in the plaintiff's record. The defendant No.1 through its counsel on 27.6.2008 sent his reply in response to notice issued by the plaintiff to the defendant on 12.6.2008. In the said reply, the defendants submitted the outstanding amount of Rs.105,860,224/- but only raised objection with regard to alleged charging of penal mark up. In the reply, the defendants' counsel also requested for waiver of mark up and agreed in principle for repayment of the outstanding demanded vide letter dated June 12, 2008, In fact, the defendants through their counsel have made an unequivocal, clear, unconditional and unambiguous admission towards the repayment of financial facilities availed by defendant No.1. However, there was no efforts on the part of the defendants to comply with contractual obligations with regard to payment of admitted outstanding financial facilities duly availed by them from the plaintiff.

That the plaintiff by letters dated 12.6.2008 (Annexure "I-1" and "I-2") called upon the defendants No.2 to 10 for enforcement of personal guarantees requiring them to make payment of overdue liabilities of Rs.105,860,224/- within seven working days from the date of issuance of such letters. The defendants Nos.2 to 10 failed to fulfill the terms and conditions of the Letters of Guarantees executed by them in favour of the plaintiff. However, the said defendants through their counsel sent the reply of the Demand Notices issued to them by the plaintiff for enforcement of their Personal Guarantees executed by them to secure the financial facilities but failed to repay the admitted outstanding amounts. Thus, upon failure of the said defendants to fulfill the terms and conditions of their Personal Guarantees, they are liable to pay the amount of the Guarantee executed by them in order to fulfill the terms and conditions of the Agreements. That due to the defendants deliberate, utter negligence and default in liquidation of the said outstanding finance facilities with profit/mark up after the due dates of the adjustment and in pursuance to a Statement of Account dated 30.6.2008.

According to the plaintiff, by virtue of the provisions of Section 3(2) of the Ordinance XLVI, 2001 the plaintiff is entitled to recover from the defendants the amounts of cost of funds as certified by State Bank of Pakistan. On failure of the defendants to fulfill the contractual obligations towards repayment of financial facilities in terms of the respective agreements the plaintiff has filed the present suit for recovery of Rs.161,774,484/- under Section 9 of the Ordinance XLVI, 2001 in this Court with the following prayer:-

(a) "For recovery of amounts from the defendants in the sum of Rs.161,774,484/- ( as on 30.6.2008) alongwith contractual mark up as per respective agreements of the facilities as well as costs of funds from the date of default till the realization.

(b) Mortgage Decree by attachment and sale of the mortgaged immovable properties belonging to defendant No.1 and referred to in para No.8 above and described in schedule-II of Annexure G-3 to G-5 hereof for recovery of Rs.161,774,484/-as on 30.6.2008 alongwith contractual mark up as per respective agreements of the facilities as well as costs of funds from the date of default till the realization.

(c) Attachment and sale of hypothecated properties as mentioned in Annexure "D-1 to D-3 and D-5" of the letter of Hypothecations dated 24.2.2005, 16.3.2005 and 5.4.2005 (Annexure "D-1, D-3 and D-5".)

(d) In the event that the Hypothecated/Mortgaged Property/Pledge Goods have been sold/alienated/ transferred, in addition to a decree prayed for in
(a) above, a further decree for their original value may be passed against all the defendants.

(e) Grant cost of funds under Section 3(2) of the Ordinance XLVI 2001.

(f) Cost of the suit; and

(g) Any other and/or further relief."

The plaint in the present suit has been signed and verified by Mr.Tahsin A. Mahmudi Officer/Attorney of the bank being the holder of General Power of Attorney having fully authorized to institute the present suit and verify the pleadings.

Process under Section 9(5) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 issued by this Court to the defendants Nos.1 to 10 by all four modes. The plaintiff has produced the receipts of courier service, registered post A.D. and publication in newspaper daily Dawn English dated 9.10.2008 and daily Jang Karachi dated 10.10.2008. On 28.11.2008 the defendants filed application for leave to defend the suit on behalf of defendants Nos.1 to 10 being CMA No.11316/2008. Copy of the CMA No.11316/2008 was received and notice was waived on 28.11.2008. On 29.1.2010 by the order of this Court the leave to defend application being CMA No.11316/2008 was dismissed due to non-compliance of mandatory requirement of Section 10 of subsections 3 and 4 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 and further due to admission on behalf of defendants towards utilizing the finance facilities and owning the liabilities. Both the Advocates for the parties at the directions of this Court filed their respective break-up statement.

The plaintiff in compliance of the order of this Court on 2.3.2010 filed break-up as per actual disbursement made by the plaintiff to the defendant, according to which the defendants after deducting the entire repayments made by them towards all four facilities as briefly mentioned in the break-up and also by deducting the amount of the pre-payment premium claimed by the plaintiff towards all four facilities. According to the break-up filed by the plaintiff the defendants are still liable to pay an amount of Rs.120,586,098/- with cost of funds from the date of default till realization as provided under the provision of Sections 3(2)of the Ordinance XLVI, 2001. The matter came up for hearing on 30.3.2010 before this Court on which date the Court reserved the matter for judgment and later on the same day Mr. Raja Qasit Nawaz Khan, Advocate filed Vakalatnama and the break-up statement on behalf of the defendants. The matter was reserved for judgment, Later on an application being CMA No.3153/2010 under Section 151 CPC was filed by the defendants' counsel seeking recall of the order dated 30.3.2010 with the prayer to place their break-up before the Court. On 13.4.2010 the defendants filed fresh break up alongwith the application was taken on record as the learned counsel for the plaintiff has no objection for consideration of the break-up statement filed by the learned counsel for the defendants.

The defendants' counsel main submission was that under the fourth facility referred to above an understanding had been reached for clearing the dues but the defendants were unable to make the payments as per agreed terms, hence according to the plaintiff the full amount originally due has become payable. While the matter remained reserved for judgment the defendant's counsel again filed an statement on 22.4.2010 alongwith Photostat copies of post dated cheques on future installments basis to the plaintiff and not on the original amount which has become due and payable under the fourth facility on account of the defendants default. That statement has no endorsement of acceptance from the plaintiff or from the plaintiff's counsel hence cannot be considered at this stage. It is further urged by the plaintiff's counsel that as per actual disbursement made by the plaintiff to the defendant according to which the defendants after deducting the entire repayments made by them towards of four facilities as mentioned above as well as in the break up filed by the plaintiff's counsel and further by deducting the amount of the pre-payment premium claimed by the plaintiff towards all four facilities, the defendants are still liable to pay an amount of Rs.120,586,098/- with cost of funds from the date of default till realization as provided under the provision of Section 3(2) of the Ordinance XLVI, 2001.

After examining the whole record of the present suit and hearing of both the learned counsels for the parties, the application for leave to defend bearing CMA No.11316/2008 has already been dismissed by this Court on 29.1.2009. Both the learned counsels for the parties have filed their respective break up statement before this Court for adjudicating the actual amount due and payable by the defendants to the plaintiffs. Under Section 10(11) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 where the application for leave to defend is rejected, the Banking Court shall forthwith proceed to pass judgment and decree in favour of the plaintiff and against the defendants. After examining and perusal of the break up statement filed by the learned counsels of both the parties.

I hereby pass judgment and decree of Rs.120,586, 098/- with cost of funds as prescribed by the State Bank of Pakistan from the date of default in favour of the plaintiff and against the defendants till realization as provided under Section 3(2) of the Ordinance XLVI of 2001

Decree by attachment and sale of the mortgaged immovable properties and hypothecated goods belonging to the defendants and referred to in para 8 of the memo of plaint and described in Schedule-II of annexure G-3 to G-5.

Cost of the suit.

JUDGE