Present
Mr. Justice Mushir Alam.
Mr. Justice Aqeel Ahmed Abbasi.
Date of hearing : 05.11.2010
Date of order : 05.11.2010
Appellant : Sajjad Gondal through Mr. Kashif Paracha, Advocate
Versus
Respondent No.1 : Orix Leasing Pakistan Limited through Mr. Bashir Ahmed, Advocate
Respondents No.2&3 : Muhammad Ashraf Gondal
& another through Mr.
Mushtaq Ahmed Chaudhary,
Advocate.
O R D E R
Aqeel Ahmed Abbasi, J. This First Appeal is directed against the Judgment dated 20,05,2009 and Decree dated 18.6.2009 of learned Banking Court No.IV, Karachi, whereby the suit filed by the plaintiff is decreed against the defendants jointly and severally for an amount of Rs.1,978,680/- with costs and cost of funds at the prevailing rate as determined by the State Bank of Pakistan from the date of expiry of lease period till realization of decretal amount and the prayer of the plaintiff for repossession of Leased Assets was also allowed.
2. Briefly the facts for the purposes of disposal of the instant First Appeal are that the Respondent No.1/Plaintiff is a Public Limited Company engaged in the business of leasing equipments, machinery and various movable items as may be required by the customers.
3. The appellant/defendant No.1 approached the respondent No.1/plaintiff to take on lease certain equipments viz (1) Two units-Mayer-Cie Circular Knitting-Type Inovit, Gauge-18 Needles Per inch, No of Feeders # 48, No of Neddle # 2 x 1680, Make Western Germany, Serial No. 16383 & 17701 (i) Two units-Mayer-Cie Circular Knitting Type Invot, Gauge-18 Needles Per Inch, No of Feeders # 48, No of Neddle # 2 x 1680, Make Western Germany, Serial No.805 & 20200 and (ii) Two units-Terrot-RIB Circular Knitting Machine-Type BP 184, Gauge-18 Needles per INCH No of Feeders # 48, No of Needles # 3744m Making Terrot, Germany, Serial No.10814368 & 0566 & 0598 8204. The appellant/defendants made appropriate applications to that effect which applications were duly accepted by the respondent/plaintiff whereafter the appellant/defendants entered into Vehicle Lease Agreement No.2005/M/402253 dated 24.02.2003. Under concept of leasing and the contract executed under the aforesaid agreement, the property given on lease remains the property of leasing company and the Lessee’s only right is to use the said property on the payment of lease rentals. It is clearly contemplated that upon expiry of the contractual period the property has to be returned to the Leasing Company in the event of loss/damage/default to the property, the lessee is liable to pay the agreed loss value of the respective items in accordance with the schedule attached to the contract/agreement.
4. The appellant/defendant duly executed the aforesaid lease agreement dated 24.02.2005 and accepted the terms of the lease agreements, as well as the schedules attached to the said agreement. The appellant/defendant deposited Rs.450,000/- being security deposits in terms of the above mentioned lease agreements and the schedule attached to the agreements.
5. As security for repayment of the lease rentals and for the return of the assets, the appellant/defendant executed and delivered Demand Promissory Note in respect of the aforementioned agreements for an amount of Rs.3,418,020/- with additional lease rentals thereon 0.1% per day to the respondent/plaintiff’s. The appellant/defendant stood as surety for repayment of dues under the agreements, signed, executed and delivered to the respondent/plaintiff an Undertaking Letter of Guarantee/Indemnify. The present lease is in the nature of a financial lease in that by the exclusive contractual agreement, the appellant/defendants by signing the agreement dated 24.02.2005 agreed to the terms thereof, and that the stipulations contained in the said agreement and each part was binding on the parties thereto.
6. The appellant/defendant fully availed and utilized the above facility but failed to repay outstanding rentals despite repeated requests. In response to respondent/plaintiff’s notice appellant/defendant through letter dated 13.05.2008 and 19.6.2008 stated that he wants to return leased assets as his business has been collapsed and he is not able to pay monthly rentals. The respondent/plaintiff went to take repossession of leased assets and came to know that the leased assets lying at Plot No.F-280 were not in possession of appellant/defendant and current owner of the said premises resisted to hand over leased assets to respondent/plaintiff. The appellant/defendant vide letter dated 21.08.2088 informed that respondent No.2/defendant No.2 i.e. his father-in-law has sold the two leased machines to respondent No.3/defendant No.3. The appellant/defendant with collusion of respondent No.2 deliberately sold the leased assets to respondent No.3 and appellant/defendant also failed to provide any copy of FIR to the respondent/plaintiff.
7. The appellant/defendants fully utilized and availed the above facilities but the appellant/defendants failed/neglected to repay the outstanding amount, despite repeated requests and demands hence the suit was filed against appellant/defendants jointly and severally seeking following relief:
(i) a judgment decree against the defendants in a sum of Rs.824,500/- upto 25.11.2006 and future rentals @ Rs.82,445/- on account of lease rentals till the repossession of leased asset.
(ii) a judgment and decree against the defendants in the sum of Rs.136,692/- on account of Additional Lease Rentals alongwith future Additional Lease Rentals @ 0.1% per day.
(iii) a judgment and decree against the defendants for a sum of Rs.2,323,850/- on account of Agreed Loss Value/Residual Value.
IN THE ALTERNATIVE
A judgment and decree for repossession of the leased assets;
(iv) Costs of the suit;
(v) Grant cost of the funds;
(vi) Grant such other/further/additional decree or decrees, order or orders. Relief or Relief’s that this Hon’ble Court may deem fit and proper in the facts and circumstances of the case.
8. Summons were issued through all modes against the appellant/defendants at the address given by the respondent/plaintiff in the plaint. In response to summons, respondents/defendants No.2 and 3 appeared through their counsel and their names were deleted, vide order dated 19.08.2088. The appellant/defendant also appeared through his counsel and filed application for leave to defend which was dismissed, vide orders dated 26.09.2008 and the respondent/plaintiff and appellant/defendants were directed to file their break-up. Both the parties filed breakups. The appellant/defendant in his breakup admitted his liability to the extent of agreed lease rentals as shown in breakup of the respondent/plaintiff, which is reproduced hereunder for the sake of ready reference and convenience:-
BREAKUP OF THE STATEMENT OF ACCOUNTS
Contract No.2005/M/402253
Dated 24.2.2005
Terms of lease 3 years (36 months)
Total rental to 36 months @ 82,445/- p.m. Rs.2,968,020/-
Defendant paid 12 months rent @ Rs.82,445/- p.m. Rs.989,340/-
Total outstanding liabilities in terms of Agreement Rs.1,978,680/-
Lease Rentals due w.e.f 25.02.2006 to 25.11.2006 Rs.82,445/-
@ Rs.82,445/- per month
Lease Rentals due w.e.f. 25.12.06 to 25.01.08 Rs.1,154,230/-
Agreed Loss Value Rs.2,323,850/-
Additional Lease Rentals Rs.13,692/-
Total Outstanding Rs.3,284,992/-
The learned Banking Court on 26.09.2008 dismissed the application for leave to defend filed by the appellant and through impugned judgment dated 20th May 2009 and decree dated 18th June 2009, the suit was decreed in favour of the respondent.
9. Learned counsel for the appellant has contended that the Banking Court has erred in law by granting the application under Order 1 Rule 10 CPC for deletion of the names of respondents No.2 and 3 without hearing the application for leave to defend which was withdrawn by the respondents No.2 and 3. Per learned counsel vide letter dated 13th May 2008, the appellant informed the respondent No.1/plaintiff about his financial position and to arrange for repossession of the leased assets form Plot No.F-280, S.I.T.E, Karachi at the factory of the respondent No.2, which were fixed/installed after survey by the surveyor of the respondent No.1 and the leased assets cannot be removed which the respondent No.1 admitted in their letter that the respondent No.2 has refused to let them take possession of the leased assets. Per learned counsel, learned Banking Court has wrongly decreed the suit against the appellant for the so-called outstanding and for repossession of the leased assets. Per learned counsel, from 25.2.2005 to 25.01.2006, there was no over due payable by the appellant, which clearly shows the bona fides of the appellant and also proves the veracity of the factual dispute with the respondent No.2/his father in law. It is contended that the respondent No.1 is only entitled in law to claim the balance lease rental without asking for possession of the leased assets as the residual value of the leased assets has already been paid by the lessee to the respondent No.1 or in alternative since the lease rental for the first year have been paid by the appellant, the respondent No.1 is only entitled for recovery of agreed loss value without asking for further rentals or for repossession of the leased assets and to dispose of the same at the best possible price to recover the balance rental and in such case the amount of residual value which has already been collected/received shall also be adjusted towards the outstanding lease rentals. Learned counsel for the appellant prays that the impugned judgment and decree is liable to be set aside. In support of his contention, he has placed reliance on the following judgments:
1. Messrs Waheed Corporation v. Allied Bank of Pakistan 2003 CLD 245
2. Industrial Development Bank of Pakistan v. Blue Star Hotel (Pvt) Ltd., and others 2006 CLD 1568
3. Ms Afshan Ahmed v. Habib Bank Limited 2002 CLD 137
4. Techno Powergen (Pvt) Ltd. & others v. Al-Zamin Leasing Modaraba Management (Pvt) Ltd. & another 2003 SBLR (Sindh) 869
5. Rehman Feeds (Pvt) Ltd. v. Agriculture Development Bank of Pakistan 2001 Y.L.R 2240.
10 Conversely, learned counsel for the respondent No.1 has vehemently opposed the maintainability of the instant First Appeal and supported the impugned judgment and decree passed by the learned Judge of Banking Court on the ground that respondent in respect of each lease facility has produced several documents viz Vehicle Lease Agreement, Demand Promissory Notes, Letter of Guarantee, Supplementary Agreements and Statement of Account. There is nothing on record to rebut the documents produced and claim put forth by the respondent No.1/plaintiff, hence there is no reason to disbelieve the respondent/plaintiff’s version. Learned counsel for respondent No.1 further argued that in terms of Section 16 (3) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 and as per the terms of Equipment Lease Agreement Contract No.2005/M/402253 executed between the respondent No.1 and the appellant, it has been provided that the financial institution has the authority to recover the property without filing a suit. It has been further submitted that the appellant has no defence whatsoever, whereas an attempt has been made to create a false defence by shifting the burden upon the respondent No.2 and 3, with whom the respondent No.1 had no privity of contract. While concluding the arguments, the learned counsel for respondent No.1 has submitted that since the execution of documents, availing of the finance facilities and non-payment of lease rentals has not been denied by the appellant whereas the outstanding amount, as reflected through breakup statement, has also not been denied by the appellant, therefore, claim of the respondent company, under the facts and circumstances of the case, has rightly been allowed by the learned Banking Court.
11. Learned counsel for respondents No.2 and 3 submitted that respondents No.2 and 3 have been wrongly impleaded as a party, as they were struck of vide order dated 19.6.2008 and they were neither necessary nor the proper party in the instant appeal.
12. We have heard the learned counsel for the parties and perused the record as well as impugned judgment and decree passed by the learned Banking Court. From perusal of the plaint filed by the respondent No.1 seeking recovery of Rs.3,284,992/- alongwith cost of suit under Financial Institution (Recovery of Finances) Ordinance, 2001, it appears that the respondent has spelt out the entire chronology of the events and has submitted all the relevant documents including the contracts/agreements, acceptance receipt, guarantees and indemnity bond executed by the appellant and the statement of accounts reflecting the true picture of the transaction whereas delivery of the leased machines to the appellant is not in dispute. The appellant filed application under Section 10 of the Financial Institution (Recovery of Finances) Ordinance, 2001 read with Section 151 CPC seeking leave to defend the suit, filed by the respondent. From perusal of leave to defend application filed by the appellant, it appears that the financial transaction, execution of the entire documents, delivery of the leased machines by the respondents to the appellants, and the default in payment of lease rentals by the appellant has not been denied. However, the appellant has attempted to highlight a dispute with respondent No.2 and 3, who according to the appellant, disposed of the leased machinery during pendency of the case. From perusal of record, it appears that the Equipment Lease Agreement was executed between the appellant namely Sajjad Gondal and respondent No.1 i.e. Orix Leasing Pakistan Limited, whereas respondents No.2 and 3 were not the party to the said contract. The appellant, by impleading the respondents No.2 and 3 as a party to the instant proceedings, whose names were earlier deleted by the learned Banking Court, has attempted to create a false defence, which under the facts and circumstances of the case is not available to him. No substantial ground, which could justify filing of leave to defend application was raised by the appellant, hence the same was rightly dismissed by the learned Banking Court.
13. The learned Banking Court after examining the entire evidence produced by both the parties, decreed the suit against the appellant in the sum of Rs.1,978,680/- with costs and cost of funds at the prevailing rate as determined by the State Bank of Pakistan from the date of expiry of lease period till realization of decretal amount, whereas prayer for repossession of leased assets was also allowed, however, relief regarding additional lease rentals was declined for want of evidence. From perusal of the contents of the Equipment Lease Agreement executed between the appellant and respondent No.1 and the provisions of Section 16(3) of the Financial Institutions (Recovery of Finances) Ordinance, 2001, it appears that the respondent company has the authority to recover and repossess the leased machinery in case of default. It will be advantageous to reproduce the provision of Section 16(3) of the Ordinance 2001, which reads as follows:
“(3) In cases where a customer has obtained property or financing through a finance lease, or has executed an agreement in connection with a mortgage, charge or pledge in terms whereof the financial institution is authorized to recover or take over possession of the property without filing a suit, the financial institution may, at its option:
(a) directly recover the same if the property is movable; or
(b) file a suit hereunder and the Banking Court may pass an order at any time, either authorizing the financial institution to recover the property directly or with the assistance of the Court;
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In view of hereinabove, we are of the opinion that the appellant cannot be allowed to introduce his personal dispute with the respondent No.2 and 3 in the instant proceedings, which arise from an agreement executed between the respondent No.1 and the appellant, as the same are governed by the provisions of Financial Institutions (Recovery of Finances) Ordinance, 2001.
14. We are of the view that above finding of the learned Single Judge under the facts and circumstances of this case, does not suffer from any error or illegality, appears to be reasonable and hence does not require any interference by this Court. We, therefore, hold that the suit for recovery of the amount and repossession of leased machines was competently filed by the respondent No.1, after complying with the requirements of Section 9 of the Recovery of Finances Ordinance, 2001, whereas the appellant could not comply with the requirements of Section 10 of Recovery of Finances Ordinance, 2001.
15. Section 10 of subsection (6) of the Ordinance, 2001 provides that an application for the grant of leave which does not comply with the requirements of subsections (3), (4) and (5) of section 10 of Ordinance (XLVI of 2001), the same shall be rejected unless the defendants are able to show sufficient cause for their inability to comply with any such requirements. In the instant case neither appellant complied with the requirements of section 10 nor any plausible explanation or sufficient cause has been shown.
16. In the case of NIB Bank Ltd. v. Muhamad Yasir and another 2011 CLD 243, while considering the provision of Section 10 (6) of the Ordinance, 2001, the leave to defend application was dismissed for the reason that the same was not in conformity with the provision of subsection (3), (4) and (5) of Section 10 of Ordinance, 2001. Further reliance in this regard can also be placed to another reported case of Habib Bank Limited v. Messrs Sabcos (Pvt) 2006 CLD 244. This bench also in the case of Apollo Textile Mills Ltd. v. Soneri Bank Limited, while deciding a Special H.C.A No.40 of 2010 has recently held that compliance of the provisions of subsection (3), (4) and (5) of Section 10 is mandatory and the non-compliance whereof would follow the penal consequences as provided in terms of Section 10(6). Further reliance can also be placed in the case of Niaz Muhammad v. Fazal Raqib PLD 1974 Sc 134, wherein it has been held as under:-
“As a general rule however, a statue is understood to be directory when it contains matter merely of direction, but not when those directions are followed up by an express provision that, in default of following them, the facts shall be null and void. To put it differently, if the Act is directory, its disobedience does not entail any invalidity; if the Act is mandatory disobedience entails serious legal consequences amounting to the invalidity of the act done in disobedience to the provision.”
17. The case-laws relied upon by the learned counsel for the appellant under the circumstances, are of no assistance to the appellant as the same are based on distinguishable facts, moreover none of the cited case laws relates to the controversy involved in the instant case.
18. In the circumstances, we find no substance in this appeal, which was dismissed alongwith listed applications with cost against the respondent No.1 and with special cost against the respondents No.2 and 3 by a short order dated 05.11.2010 and these are the reasons for the said short order. While dismissing the appeal by a short order, the counsel for the respondents No.2 and 3 was directed to file certificate of professional fee and the cost who appears to have filed the certificate dated 15.11.2010, wherein it has been stated that an amount of Rs.50,000/- from each of the respondents has been charged as professional fee. Accordingly, in addition to cost of the petition against the respondent No.1, we impose an amount of Rs.25,000/- as special cost to be paid by the petitioner to the respondents No.2 and 3.
JUDGE
JUDGE
Karachi
Dated: -08-2011