Judgment Sheet
IN THE HIGH COURT OF SINDH AT KARACHI
Suit No. B–181 of 2009
Present :
Mr. Justice Nadeem Akhtar
Date of hearing : 10.12.2012.
Plaintiff : Emirates Global Islamic Bank Limited
through Mr. Taimur Mirza, Advocate.
Defendants : Muhammad Abdul Salam Khan
through Mr. Khaleeq Ahmed, Advocate.
J U D G M E N T
NADEEM AKHTAR, J.- This Suit has been filed by the plaintiff against the defendant under the Financial Institutions (Recovery of Finances) Ordinance XLVI of 2001 (the Ordinance) for recovery of Rs.101,224,142.00.
2. The plaintiff is a financial institution within the meaning of Section 2(a) of the Ordinance. The defendant is engaged in the business of procurement of raw material, including chromite ore, for sale and export in the name and style of ‘M/S Oasis International’. In view of the finance facility availed by the defendant from the plaintiff as discussed in the subsequent paragraphs, the defendant is the customer of the plaintiff in terms of Section 2(c) of the Ordinance. The defendant is also the mortgagor of an immovable property that was mortgaged by him in favour of the plaintiff in consideration of, and as a security for, repayment of the finance facility availed by him.
3. At the request of the defendant, the plaintiff, vide its offer letter dated 24.04.2008, offered a Murabaha facility of Rs.75.00 million to the defendant. All the terms and conditions of the offer were mentioned in the said letter, which were duly accepted by the defendant by signing the same. It was specifically mentioned in the said letter that the facility will be provided to the defendant for a period of 180 days, and that the rate of profit would be 6 month KIBOR plus 4.00% per annum. After acceptance of the terms and conditions of the offer by the defendant, the parties entered into a Master Murabaha Financing Agreement on 29.09.2008 (the Agreement). It was specifically agreed vide Clause 1.1 of the Agreement that the terms and conditions contained in the offer letter dated 24.04.2008 shall be deemed to be an integral part of the Agreement. The Agreement was for the Murabaha facility of Rs.75.00 million for a period of 180 days. Vide Clause 4.1 of the Agreement, the defendant undertook to pay to the plaintiff the Murabaha price on the payment date(s) specified in the payment schedule.
4. In consideration of the Murabaha facility and as a security for the repayment thereof, the defendant mortgaged in favour of the plaintiff his immovable property ; namely, Plot of old Survey No.160, new Survey No.553, measuring 0-18 ghuntas, situated at Deh Gujro, Tappo Songal, Karachi (the mortgaged property). The defendant executed a Memorandum of Deposit of Title Deed dated 29.09.2008 in favour of the plaintiff, and deposited with the plaintiff all the original title documents of the mortgaged property.
5. In order to further secure the repayment of the Murabaha facility to the plaintiff, the defendant executed in favour of the plaintiff a Letter of Pledge dated 29.09.2008, whereby he pledged with the plaintiff all his imported merchandise to be stored under the supervision of the Muccaddum approved by the plaintiff ; a Demand Promissory Note dated 29.09.2008 in the sum of Rs.75.00 million ; an Undertaking dated 08.08.2008, whereby he undertook inter alia to arrange a Letter of Credit for the export of 3600 metric tons of chromite ore within 90 days of disbursement ; and a Debit Authority Letter dated 12.04.2008, authorizing the plaintiff to debit his account in order to recover the payments due from him.
6. The plaintiff has stated that an Agency Agreement dated 29.09.2008 was executed by the plaintiff at the request of the defendant authorizing the defendant to receive the goods directly from the suppliers on behalf of the plaintiff under the Murabaha facility arrangement. It has been alleged by the plaintiff that the defendant failed to store the goods, which were pledged with the plaintiff, and he made false representations to the plaintiff that the goods will be pledged under the approved Muccaddum. This breach of obligation has been alleged by the plaintiff against the defendant.
7. It is the case of the plaintiff that the defendant issued three cheques, totalling to Rs.35.00 million, in favour of the plaintiff towards partial repayment of his outstanding liability, but all the said three cheques were dishonoured upon presentation. It is also the case of the plaintiff that no payment has been made at all by the defendant since April 2009 when the agreed period of 180 days expired and the entire amount under the Agreement became due and payable. The defendant was called upon by the plaintiff through a legal notice dated 25.08.2009 to settle his outstanding liabilities, but he failed to fulfil his obligation. In the above background, this Suit has been filed by the plaintiff for recovery of the following amounts :-
Rs. 75,000,000.00 outstanding principal amount
Rs. 7,163,013.00 agreed profit for 180 days
Rs. 19,061,129.00 charity
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Rs.101,224,142.00
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8. The summons were issued through all modes, and the defendant was duly served. However, he did not file the application for leave to defend within the statutory period of 30 days. The application for leave to defend (C.M.A. No. 2828 of 2010) filed by him was barred by limitation, therefore, he also filed an application (C.M.A. No. 2827 of 2010) for condonation of the delay in filing the application for leave to defend. Both these applications were dismissed for non-prosecution on 15.09.2010. Thereafter, the defendant filed an application (C.M.A. No. 10601 of 2010) for recalling of the Order dated 15.09.2010. This application was dismissed on 26.04.2012 on merits and after hearing both the sides. After dismissal of the aforementioned applications, the matter has now come up for final disposal.
9. Mr. Taimur Mirza, the learned counsel for the plaintiff submitted that the defendant committed a deliberate and wilful breach of his obligations inter alia by not storing and securing the pledged goods under the supervision of the Muccaddum approved by the plaintiff ; by not repaying the Murabaha facility within the agreed time period ; and by issuing cheques which were dishonoured upon presentation. He further submitted that, after dismissal of his application for leave to defend, the defendant has no right to object to the claim of the plaintiff. He prayed that a decree be passed for the entire amount claimed in this Suit.
10. Mr. Khaleeq Ahmed, the learned counsel for the defendant, frankly conceded not only that the defendant has not paid to the plaintiff any amount either towards the principal amount or towards the agreed profit / markup, but also that the cheques issued by the defendant were dishonoured upon presentation. The learned counsel vehemently opposed the claim of markup on the grounds that the same is illegal and unjustified as it includes markup over markup, and also as the plaintiff has claimed markup beyond the agreed period. He also objected to the amount claimed by the plaintiff as charity on the grounds that the defendant never agreed to any such arrangement, and also as no amount on account of charity can be claimed under the Ordinance. In view of the submissions made by the learned counsel for the defendant, the entire principal amount of Rs.75,000,000.00 claimed by the plaintiff stands admitted by the defendant. Therefore, the plaintiff’s claim will have to be examined only to the extent of markup and charity.
11. Under Section 10(11) of the Ordinance, the Banking Court has to pass judgment and decree in favour of the plaintiff against the defendant forthwith upon dismissal of the defendant’s application for leave to defend. This view is fortified by the reported cases of Apollo Textile Mills Ltd. & others V/S Soneri Bank Ltd, 2012 CLD 337 (Supreme Court), Messrs United Bank Ltd. V/S Banking Court No.II and 2 others, 2012 CLD 1556, Mrs. Jawahar Afzal V/S United Bank Ltd., 2003 CLD 119, Khawaja Muhammad Bilal V/S Union Bank Ltd., 2004 CLD 1555, and Habib Bank Ltd. V/S Messrs SABCOS (Pvt.) Ltd., 2006 CLD 244.
12. The dismissal of the application for leave to defend does not mean that the entire claim of the plaintiff in a Suit under the Ordinance should be decreed as prayed by the plaintiff without examining the claim of the plaintiff. In such an event, no doubt the plaintiff becomes entitled to a decree, but only to the extent of such amount which is permissible in law. 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. The Court must examine the claim of the financial institution in the light of the above before passing the decree.
13. I have examined the statement of account filed by the plaintiff, which shows that the principal amount of Rs.75,000,000.00 was disbursed by the plaintiff to the defendant in three instalments of Rs.25,000,000.00 each. As per the said statement, one instalment was disbursed on 13.10.2008, whereas the other two were disbursed on 25.10.2008. The said statement shows the dates of maturity, that is, the agreed period of 180 days, as 11.04.2009 for the first instalment, and 23.04.2009 for the other two instalments. The rate of profit / markup is shown as Rs.2,330,137.00 for the first instalment calculated at 18.90%, and as Rs.2,416,438.00 each for the other two calculated at 19.60%. Moreover, the defendant had executed ‘Customer’s Acceptance’ whereby he specifically undertook to pay profit of Rs.2,330,137.00 for the first instalment, and profit of Rs.2,416,438.00 each for the other two instalments, the total whereof comes to Rs.7,163,013.00. The amounts of profit agreed by the defendant are the same as those shown / claimed by the plaintiff in its statement of account. The statement clearly shows that the profit / markup has been calculated and charged by the plaintiff only for the agreed period of 180 days and at the rate specifically agreed by the defendant. Therefore, the plaintiff is entitled to the entire amount of Rs.7,163,013.00 claimed towards the agreed profit.
14. The plaintiff has claimed an amount of Rs.19,061,129.00 from the defendant as charity. The learned counsel contended that the defendant is liable to pay to the plaintiff the charity amount in view of Clause 6.5 of the Agreement, which reads as under :
“Where any amount is required to be paid by the customer under the Principal Documents on a specified date and is not paid by that date, or an extension thereof, permitted by the EGIBL without any increase in the Contract Price, the customer hereby undertakes to pay directly to the Charity Fund , constituted by the EGIBL, a sum calculated @ 0.1% per day for the entire period of default, calculated on the total amount of the obligations remaining un-discharged. The Charity Fund shall be used at the absolute discretion of the EGIBL, exclusively for the purposes of approved charity ”.
Except for the above, the learned counsel for the plaintiff was not able to refer to any other document, Circular, Notification, Rule, Regulation or any provision of law, justifying the plaintiff’s claim of charity.
15. For many reasons, I am unable to convince myself to agree with the learned counsel for the plaintiff. There are various types of finance facilities that can be granted by a financial institution to the customer, and all types of finance facilities have been defined in Section 2(d) of the Ordinance. Any facility or accommodation which is not covered by or defined in Section 2(d) shall not be deemed to be or called as “finance”, and as such the same cannot be claimed under the Ordinance. The cause of action for filing a suit under the Ordinance accrues only upon breach or non-fulfilment of an obligation by any of the parties in relation to a “finance” which is defined under the Ordinance as “finance”. Charity has neither been defined as “finance” in Section 2(d) or elsewhere in the Ordinance. Charity also does not fall within the definition of “obligation” contained in Section 2(e) of the Ordinance. Moreover, the essential feature of “finance” is that some amount or facility is granted by the financial institution to the customer in any of the forms defined in Section 2(d). In the present case, instead of granting any amount or facility, the plaintiff is claiming / demanding from the defendant an amount at a fixed rate in the name of charity in case of delay in repayment or default by him. Therefore, Clause 6.5 of the Agreement is nothing, but a penal clause, and the amount claimed thereunder is a penalty and not charity. It has now become a settled law that penalty or penal charges in any form cannot be claimed by the financial institution. In the case of Dawood Islamic Bank Limited V/S Admore Gas (Pvt.) Limited and 6 others, 2012 CLD 263, it was held by this Court that the charity amount charged on the contract price was nothing, but markup under the guise of charity. The amount claimed as charity was declined in the said case.
16. It would not be out of place to mention here that under the Zakat and Ushr Ordinance, 1980, every sahib-e-nisab Muslim was liable to pay zakat, irrespective of his faith or fiqah. Subsequently, it was held by the Hon’ble Supreme Court that such Muslims who do not wish that zakat should be deducted from their bank accounts or investments compulsorily, they may file a declaration seeking exemption from zakat on the ground of their faith or fiqah. The basic idea was to allow the Muslims to pay zakat to deserving people or institutions according to their own choice and discretion. On the same principle, charity cannot be claimed or charged compulsorily, or under compulsion.
17. As per Clause 6.5 of the Agreement, the Charity Fund is admittedly constituted by the plaintiff and is used by it at its sole discretion. In legal parlance, charity is a gift. Charity or gift is something a donor gives / grants with his own free will, at his own discretion and according to his own choice, and not under compulsion or under the dictates of others. Even charitable institutions do not compel people to give charity. I, therefore, hold that the plaintiff is not entitled to any amount on account of charity. Accordingly, the claim of charity is rejected. It is further held that the Clause in the Agreement relating to charity is void and is in conflict with the Ordinance and the banking practice.
18. The defendant has admitted that the entire principal amount of Rs.75,000,000.00 is still outstanding. I have already held that the plaintiff is entitled to the amount of Rs.7,163,013.00 claimed towards the agreed profit. The Suit is, therefore, decreed against the defendant in the sum of Rs.82,163,013.00 (Rupees eighty two million one hundred sixty three thousand and thirteen only) with cost of funds thereon with effect from the date of default (April 2009) till the realization of the entire amount, as well as for the sale of the mortgaged property and the pledged merchandise / goods. The costs of the Suit are also awarded to the plaintiff.
J U D G E
*Suit No. B-181 of 2010 Banking /Judgment Single/Court Work/Desktop/ARK*