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Petitioner: MASHREQ BANK VS Respondent: Messrs NAZIR COTTON MILLS and others
Court Name: Lahore High Court Judge(s): Muhammad Ghani Title: MASHREQ BANK vs Messrs NAZIR COTTON MILLS and others Case No.: Execution Petition No,24-B of 2003 Date of Judgment:2004-02-26 Reported As: 2004 CLC 713 Result: Petition dismissed
JUDGMENT
JUDGMENT ' Mashreq Bank, PSC, a banking company within the meaning and scope of the Banking Companies Ordinance, 1984, having succeeded to the Bank of Oman, filed on the 26th of November 1996, a suit for recovery of Rs,73,034,466.00 against Messrs Nazir Cotton Mills Limited and others. During the pendency of the suit, the parties entered into a Compromise on the 21st of October, 1997 and a consent decree was accordingly passed on the 14th of November, 1997. Clauses (2) and (3) of the Compromise, being relevant for the present purpose, are reproduced for facility of reference:- "(2). NCML and the Guarantors hereby agree to pay Rs,41,000,000 (Pak. Rupee forty-one million only) to the Bank (hereinafter referred to as "the Indebtedness" of NCML and the Guarantors), as the full and final settlement of NCML's liabilities to the Bank. NCML and the Guarantors further agree that in case of default as, referred in clause (3) hereinafter, NCML and/or the Guarantors undertake and shall pay Rs,49,200,000 (Pak. Rupees forty-nine million and two hundred thousand only) less the payments (other than compensation as defined under (c) below made of the indebtedness on or after the date of this Settlement Memorandum. ' NCML and the Guarantors hereby further agree to repay the Indebtedness as follows:- (a) Rs,10,000,000 (Pak Rupees Ten million only) at the time of signing of this Memorandum. (b) Balance Rs31,000,000 (Pak. Rupees thirty-one million ply) in 12 equal instalments of Rs,2,583,333.33 (Pak Rupees two million, five hundred eighty-three thousands three hundred thirty- three, and thirty-three paisas only) each payable at the end of each quarter, 1st instalment commencing from March 31, 1998, last instalment ending on December 31, 2000. (c) in case of delay in payment of instalment on due dates, the Bank shall be entitled to recover and NCML and/or the Guarantors shall be bound to pay compensation @ 43.84 paisas per
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thousand per day for the delayed period in settling the overdue instalment, if any. 3. It is agreed by NCML and the Guarantors that: (a) Time shall be the essence of this Memorandum and the tenor of repayment schedule as described in clause 2(b) above shall not exceed beyond December 31, 2000, and (b) In the event NCML and/or the Guarantors fail to perform any of its obligations under this Memorandum including without limitations and in particular if any of the two (2) consecutive instalments referred to in clause 2(b) above are not paid on their respective due dates for any reason whatsoever, the Bank shall be entitled to recover and NCML and/or the Guarantors shall be bound to pay the amount Rs,49,200,000 (Pak. Rupees forty-nine million and two hundred thousand only) less the payments made (exclusive of compensation) of the indebtedness as referred in clause (2) above, which shall then be due and payable forthwith, whereupon such amount shall become immediately due and payable by NCML and/or the Guarantors to the Bank, including the compensation @ 43.84 paisas per thousand per day till full realization, in case of any delay and, (c) in the event of default as referred above, without prejudice to any other rights of the Bank against NCML and/or the Guarantors including without limitation the right to liquidate any or all of the fixed or current assets under mortgaged/ hypothecated, without the consent of any Court of law, the Bank can take any other steps and measures as may be deemed appropriate in order to enforce the recovery." 2. The case of the decree-holder/applicant-Bank is that the judgment-debtors had not adhered to time in the matter of payment of instalments and had committed delays as will be seen from the following table filed by the learned counsel for the Bank:- Date Instal. Due Instal No. Delayed days From To 31-3-1998 1 0 1st July. 98 30th September, 199830-6-1998 2 91 1st October, 1998. 31st December, 1998.30-9-1998 3 91 1st January, 1999. 4th October, 1999. 3 276 1st January, 1999. 16th November, 1999.31-12-1998 4 319 16th November, 199916th November, 1999 4 0 1st April, 1999. 16th November, 199931-3-1999 5 229 1st July, 1999. 4th January, 2000 30-6-1999 6 187 4th January, 2000. 1st February, 2000 6 28 1st October, 1999 28th February, 200030-9-1999 7 150 28th February, 20004th April, 2000 7 36 1st January, 2000 29th April, 2000 31-12-1999 8 118 29th April, 2000. 26th May, 2000 8 27 1st April, 2000. 8th July, 2000 31-3-2000 9 98 8th July, 2000 3rd August, 2000. 9 26 1st July, 2000. 1st September, 2000.30-6-200010 62
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1st September, 200029th September, 2000 10 28 1st October, 2000 27th October, 2000.30-9-200011 26 27th October, 2000.3rd December, 2000 11 37 31-12-200012 0 Total: 1052 ' The decree-holder Bank has, therefore, filed this execution petition wherein it is mentioned that Rs,10 million had been paid at the time of signing of. The Compromise/ Agreement; that the remaining amount of Rs,31 million had been paid during the period from the 31st March, 1998 to the 31st December, 2000, though the instalments had been delayed as afore-mentioned; that in view of the delayed payments of instalments, the applicant-Bank is entitled to compensation/mark-up at the rate of Rs,43.84 per thousand per day, plus mark-up. Besides, Rs,34,012 have been claimed towards the costs awarded. As per Column No,10 of the execution petition, the total amount claimed by the Bank comes to Rs,98,05,771.69 (Rs,16,05,771.69 as mark-up and Rs,82,00,000 as remission amount in the agreement). The recovery of the said amount has been claimed through sale of the mortgaged land, attachment and sale of machinery stocks etc. Hypothecated assets of judgment-debtors 1 to 9, and by arrest and detention of judgment-debtors 2 to 9. When the execution petition came up for preliminary hearing on the 31st of October, 2003, I raised question of limitation as well as the right of the applicant-Bank to invoke penalty clause after having recovered the entire agreed amount in instalments, without any objection. Subject to the said objections, notices were issued to the judgment-debtors. 3. I have heard learned counsel for the parties and have gone through the available record. 4. Khawaja Aamer Farooq, learned counsel for the Bank contends that the Bank had the option to wait till the 31st of December 2000 when the last instalment became due and the period-of limitation of three years is to be reckoned from the said date; that the Bank was entitled to claim the pre-determined amount of damages and that the judgment-debtors were not entitled to press into service the principle of waiver or estoppel in view of the fact that they were in breach of the contract. In support of his submissions, he has relied on Chunilal v. Shivram AIR 1950 Born. 188 F.B., Ganeshlal v. Ramgopal AIR 1955 Raj. 17, Federation of Pakistan v. Bibi Shaidae Fatima PLD 1968 Kar. 31 and Bank of Credit & Commerce v. Messrs Global Produce 1998 M LD 1759. 5. Conversely, Mr. Nomaan Air= Raja, learned counsel for the respondents/judgment-debtors argued that as per Bank's own case, founded on the Compromise Deed, the right to take out execution accrued to it on failure of the respondents/judgment-debtors to pay two' consecutive instalments; that as per the Bank itself, default had occurred when the two consecutive instalments, which were due on the 30th of June and the 30th of September, 1998 were allegedly delayed, each by 91 days; that the right to invoke the penalty clause accrued to the Bank on the 30th of September, 1998; that the instant execution petition, having been filed on the 24th of May, 2003, more than three years after the accrual of the right to enforce the default clause, is barred under Article 181 of the Limitation Act; that even though there was a clause in the Deed of Compromise that in case of delay in payment of instalments on due dates, the Bank could claim damages at the stipulated rate but,. In law, no such damages were recoverable unless evidence was adduced to prove loss; that in the absence of any averment in the execution petition itself about any loss suffered by the Bank, no evidence could be led; and that since the applicant-Bank had been receiving the delayed instalments, without objection or expressly reserving its right to invoke the penalty clause, it is deemed to have waived its right, and was estopped to invoke the penalty clause. In support of his submissions, learned counsel for the judgment-debtors relied on Jwala Ram v. Mathra Das AIR 1931 Lah. 696 D.B., Burjorji v. Madhavlal. AIR 1934 Born. 370 D.B., Narayan
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Chandra v. Nath Bank Ltd. AIR 1967 Pat. 124 D.B., Muslim Commercial Bank Ltd. v. Perwani Export and Import Trading Co. 1999 YLR 975, and Agricultural Development Bank of Pakistan v. Jasarat Hussain 2002 CLD 93. 6. So far as the case-law relied upon by the learned counsel for the applicant-Bank is concerned, the decision of Full Bench of the Bombay High Court reported as Chunilal v. Shivram is not applicable to the facts of the present case. In that case, the decree provided for payment of annual instalments with interest, the first of such instalments was made payable in March and April, 1932 and each subsequent instalment on the succeeding March and April of every year. It was also provided that in default of payment of any two instalments the plaintiff might recover the whole balance that would remain over after deduction of payments received in one lump sum by sale of the mortgaged property. Certain payments were made by the judgment-debtors between the period from the 24th November, 1931 to the 17th April, 1933. However, on the 5th October, 1936, the decree-holder filed an application claiming that in view of default in payment of instalments the whole decretal amount had become payable and, therefore, claimed that amount. The application was dismissed for non-prosecution. A further application was filed on 15th November, 1938 and the executing Court held that the application was barred by limitation. The decree-holder filed an appeal. The matter was referred to a Full Bench of three learned Judges. The precise question referred to the Full Bench was whether in case of an instalment decree providing that on failure of payment of certain instalments the whole amount due may be recovered, and the decree-holder was entitled to exercise' his option to recover the whole amount then recoverable, and notwithstanding that the first default had occurred more than three years before the filing of the execution application. The question was answered in the negative; by observing inter alia as follows:- ' "Mr. Patwardhan's contention before us has been that it was on 5th October, 1936, that the decree- holder exercised his option to enforce the decree by claiming the whole amount due under the decree and therefore limitation did not begin to run till that date. Mr. Patwardhan says that although the default took place in March-April, 1933, it was open to the decree-holder not to exercise his right given to him under the decree, and till he exercised the right no question of limitation could arise. It is perfectly true and the decree-holder exercised his right on 5th October, 1936. But the question that we have to consider is whether when he exercised his right that right was subsisting or whether the remedy for that right had been barred by the statute of limitation. If a right accrued to the decree-holder in March April, 1933, he may not be bound to exercise that right, but as far as the statute of limitation is concerned, limitation would begin to run and he would not be able to exercise that right after limitation had run out under the Limitation Act. The mere fact that the decree-holder has an option to exercise a right does not mean that the right does not accrue to him so long as he does not exercise the option. The right is there, it has accrued to him, but he may choose not to exercise it at the moment when it accrues to him. He may exercise it at a later date or he may not exercise it at all. It also cannot be disputed as a principle underlying the Limitation Act that limitation begins to run when the right accrues for the first time and once limitation begins to run, limitation cannot be stopped. It would be fallacious to argue that in case of each default there is a separate right which accrues to the decree-holder. There may be subsequent defaults, but the right having once accrued to the decree-holder, limitation would run notwithstanding the subsequent default and subsequent defaults would not give him further rights, the right having already accrued to him when the first default took place." ' "The decree-holder treated the first default made by non-payment of two instalments as a default under the decree and it was on the basis of that default that he filed his Darkhast of 1936 claiming the whole amount due under the decree. There is no direct authority of this Court on the question that we have to consider and answer, and therefore, judging the question as a matter of
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first impression, it seems to us that when the judgment-debtor committed a default in March-April, 1933 and when the decree-holder became entitled to claim the full amount due under the decree, his right to apply within the meaning of Article 181 accrued and limitation began to run from that date, and as three years had expired before he preferred the Darkhast of 1938, that Darkhast was clearly out of time." ' "Article 181 itself provides the time when limitation begins to run and that time is when the right to apply accrues. It is clear that limitation would begin to run when the right first accrues, and limitation once having begun to run it could not run again when a second or subsequent default took place, nor would another right or a different right accrues to the decree-holder by reason of a fresh or subsequent default." ' Chagla, C.J., speaking for the Full Bench, further held as follows:-- ' "It is not disputed that the default in payment of two instalments did take place in March-April, 1933 because the two sums which were paid of Rs,1,195 and Rs,1,260 were not the full amounts of the instalment and interest payable under the decree. It cannot be seriously disputed that the Article under the Indian Limitation Act which applies is Article 181 and the period of limitation laid down under that Article is three years and limitation begins to run from the time when the right to apply accrues. If the right to apply accrued to the decree-holder in March-April, 1933, then clearly the Darkhast which was filed on 5th October, 1936, was not within time, and really the very narrow question that we have to consider is whether on 5th October, 1936, when the decree-holder applied for the execution of the decree for the whole amount, he had a subsisting right which he could enforce by the Darkhast. It is well-settled that the right which is given to a decree-holder under a decree to enforce the payment of the full decretal amount in default of payment of any instalment is a right given to the decree-holder for his benefit. He may or he may not enforce it. Although a default may take place, he may treat the decree as still a decree for instalments and he may pursue in execution his right to obtain the instalments as and when they fall due..." ' Moreover, the following observations are also worth special notice in the context of the facts of the present case:-- ' "The only exception to this proposition is a question of waiver or condonation on the part of the decree-holder. It would be open to the decree-holder not to treat the non-payment of the instalment on the due date as a default at all. He may waive or condone the default, in which case limitation would not run from the default which was condoned or waived, but from the default which the decree-holder treated as a default under the decree . " ' "Where the parties agree not to treat failure to pay an instalment on the due date as a default, then in the eye of the law there is no default at all and limitation does not begin to run and the parties would be estopped from contending that there was a default when they did not in fact treat it as such." ' The Full Bench did not agree with the view taken by a learned Single Judge of Madras High Court in Gopal v. Alagirisami AIR 1942 Mad. 581 to the effect that a decree payable by instalments, limitation does not run from the date of the first default, and that limitation only runs when the decree-holder makes up his mind to enforce his rights under the decree. On the other hand, the view taken in Joti Prasad v. Sri Chand AIR 1928 All. 629 F.B. And Ram Prasad Ram v. Jadunandan Upadhia AIR 1934 All. 534 was held to be correct view. Consequently, the question submitted to the Full Bench was answered in the negative. In Ganeshlal v. Ramgopal, a compromise decree was passed. The decree, among other terms, provided for payment by five instalments of the entire decretal amount. It was also provided that in case of default of even one instalment, the decree- holders would be entitled to `realize the entire decretal amount with interest. There was also a provision creating a charge on the share of Ganeshlal in a house in the City of Udaipur. The first instalment was due on the 31st of July, 1952, but nothing was paid. In view of this default, the
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decree-holders applied for execution on the 2nd of September, 1952, and prayed for sale of immovable property of Ganeshlal and other judgment-debtors. Ganeshlal appeared and objected to the execution application on the 7th of February, 1953. In the meantime, he had paid certain amounts to the decree-holders after the execution application had been filed. The objection raised by Ganeshlal, relevant to the present controversy, was that as the judgment-debtors had paid something more than the first instalment after the execution application had been filed, the Court should not proceed to enforce the penal clause and execute the entire decree at once. The executing Court having decided against the judgment-debtors, they filed appeal, which was heard and dismissed by a Division Bench of Rajasthan High Court, by observing as follows:- ' "The first instalment was not paid by the date fixed for it, namely the 31st of July, 1952. It was not even paid up to the date of the execution application. The payment was made after the execution application had been filed, and that also by two or three instalments to make up the entire amount of the first instalment. Under these circumstances, the trial Court was right in holding that the execution could be taken out of the entire decretal amount, and that there was no waiver by the decree-holders. We do not see why we should relieve the judgment-debtors of the penalty incurred by them ' It will thus be seen that the decree-holders in the cited case had immediately upon default by the judgment-debtors approached the executing Court with an execution application and the plea of the judgment-debtors about waiver founded upon having received the amount of first instalment after filing of execution application was rightly not entertained, because there was no question of waiver, the decree-holders having invoked penalty clause before any amount was paid toward liquidation of the first instalment. The precedent case relied upon by the learned counsel for the applicant-Bank, has thus no bearing on the facts of the present case and instead of rendering any support to the contention being convassed by him causes heavy dent to the same. 7. The next decision cited by the learned counsel for the applicant, and reported as Federation of Pakistan v. Bibi Shaidae Fatima is by a learned Single Judge of the Karachi Bench of the then West Pakistan High Court. The question which arose in that case was whether the decree-holder was entitled to file an execution application in January, 1963, in spite of the fact that the first default was committed on the 1st of April, 1959. Referring to a Full Bench judgment of Calcutta High Court reported as Ranglal v. Syamlal AIR 1946 Cal. 500, relied upon by the learned executing Court, it was held that the decree-holder could wait till the period up to the 15th of October, 1962, when the last instalment became due, had expired and then apply for execution within three years of it. Besides the fact that this decision of the learned Single Judge did not receive approval in the subsequent decision of a Division Bench of the same High Court, as will be shown presently, the moot question that arises here was not involved in that case, where the judgment-debtors had not only delayed the payment of the two instalments which had been paid, but no payment thereafter was made at all. In the present case, the judgment-debtors have paid, and the applicant-Bank has received, the entire amount agreed to be payable by instalments, and it is after having recovered the entire agreed amount, without any demur or objection at the relevant time, that the applicant-Bank now seeks to invoke the penalty clause. In Muhammad Ali v China Silk House 1985 CLC 679 a Division Bench of High Court of Sind at Karachi held as follows:-- ' "So far as the case of Federation of Pakistan, Department of Supply and Development, Cottage Industries v. Bibi Shaidae Fatima, Founder and Manager of Dilnashin Industrial Home and 2 others PLD 1968 Kar. 31 is concerned the learned Judge has placed reliance on the Full Bench case of Culcutta High Court cited above, and observed that the decree-holder who is entitled to recover the decretal amount by instalment is not bound to proceed to recover the whole amount even if it becomes due by default and can wait until the period within which the instalments are payable expires. It is necessary to state certain facts of the case under discussion. In this case a consent
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decree for Rs,5,098 was granted with a provision that the amount was payable by instalment of Rs,100 per month beginning from 15-8-1958. Thus, the total amount was to be paid in 51 instalments, last of which was to be paid on 15-10-1962. The judgment-debtor paid the first instalment of Rs,100 on 14-3-1959 then he paid Rs,296.25 on 8-8-1959, the decree-holder, therefore, filed the execution application on 16-1-1962, for recovery of the entire balance with interest in the amount of Rs,7,660.96. On these facts following Calcutta case it was held that the decree-holder in that case could wait till the period up to 1540-1962, expired and then apply for execution within 3 years of it and accordingly the first execution application made on 16-1-1962, was within time. With utmost respect we may state that the judgment of Calcutta High Court has not been correctly appreciated for in that case the following question was referred which was answered in the affirmative:-- ' "Where a decree directs payment of the decretal amount by instalments on particular dates and provides that in case the defendant fails to pay any instalment at the stipulated period, the entire decretal amount would be due, whether any application, made more than three years after the first default, but relating only to instalments which fell within three years of the date of the application, is within time and is governed by Article 182(7), Limitation Act." ' In that case the learned Judges nowhere laid down that the decree could be executed even in respect of instalments which had become barred by time and they have also nowhere laid down that time for execution of the whole decree would run from the date when the last instalment under the decree was payable." ' It was further held by the learned Judges of the Division Bench that where decretal amount was payable by instalments but it was provided that in case of default whole decretal amount would become due and payable, on any default, time would run from the date of such default. The precise observations appear in paragraph 15 of the judgment and are as follows:-- "(15) As regards second contention that since the decrees were for payment of the amount by instalments the time would run from the date when last instalment became due and payable. The proposition cannot be accepted as stated for in a case where the decretal amount is payable by instalments but it is provided that in case of default the whole decretal amount becomes due and payable on any default the time would run from the date of such default unless there is waiver or condonation of default in which case time for each instalment would run from the date of each default and therefore, to recover the instalments under the decree the application must be filed within the time provided under the law from the date…
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