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Petitioner: HABIB BANK LTD. (FOREIGN EXCHANGE BRANCH) VS Respondent: DOST MUHAMMAD COTTON MILLS LTD. and others
Court Name: Sindh High Court Judge(s): Syed Deedar Hussain Shah Title:HABIB BANK LTD. (FOREIGN EXCHANGE BRANCH) vs DOST MUHAMMAD
COTTON MILLS LTD. and others Case No.: Suit No,332, Civil Miscellaneous Applications Nos.1274, 1275 and 1184 of 1993 Date of Judgment:1997-03-18 Reported As: PLD 1997 Karachi 331 Result: Leave granted Judgment ORDER Plaintiff has filed this suit for recovery of Rs,26,05,46,345.69 and for sale of mortgaged property. Case of the plaintiff is that defendant No,1 executed and delivered to the plaintiff various promissory notes in respect of various credit facilities granted to them viz. Promissory note seven in numbers marked Annexures A-1 to A-7. Defendant No,1 had earlier deposited title deeds in respect of its immovable property bearing Plot No,A-15, measuring 9.80 acres situated in S.I.T.E., Lyari Quarters, Karachi together with building, sheds, structures, plants, spare-parts and appurtenances, fixed, constructed or attached therein and also executed registered mortgage-deed dated 31-5- 1995, a further registered mortgage-deed dated 21-5-1978 and memorandum of deposit of title deeds dated 11-5-1981 and after execution of recited 7 D.P. Notes defendants 2(i) to 2(iv), 3, 4 and 7 also executed letter of guarantee dated 4-3-1982 and guaranteed the repayment of plaintiff's dues to the tune of Rs,60,00,000 exclusive of interest, charges and costs. Letter of guarantee dated 4-3- 1982 is Annexure 'D'. Similarly defendant Nos. 2(i) 2(ii), 2(iv), 3 and 4 executed and delivered to the plaintiff a letter of guarantee dated 26-4-1982 guaranteeing the repayment of a sum of Rs,75,15,000 exclusive of interest, charges and costs which is marked as Annexure 'E' same defendants guaranteed the repayment of Rs,33,00,000 as above vide guarantee dated 25-11-1982 marked as 'F' so also defendants 2(i) to 2(iv), 3 and 4 guaranteed the repayment of Rs,197,53,323 exclusive of interest charges and costs, executed letter of guarantee dated 28-12-1982 marked as Annexure 'G'. Likewise defendants executed guarantees for repayment of Rs,17,00,000 as Annexure 'H', Rs,6,31,00,000 Annexure 'I' and Rs,16,700,000 marked as 'J.. For an amount of Rs,75,15,000 created a registered collateral mortgage of their factory property situated at Tehsil and District Faisalabad
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marked as 'K'. Defendant Nos.2(i) to 2(iv) as partnership of defendant No,2 guaranteed the repayment of Rs,75,15,000 inclusive of interest, charges and costs and executed guarantee as marked 'L-1 to L-4' dated 11-1-1982. Defendants 5 and 6 created mortgage of their 2 properties bearing No,23-A/II, Khyaban-e-Tanzeem, Defence Housing Authority, Karachi, and Property No,A- 299, Block I, Gulshan-e-Iqbal, Karachi. The mortgage was created through a registered mortgage deed registered by the Sub-Registrar, 'T' Division IV, Karachi on 6-4-1982 which is marked 'M and N'. That for further security for the repayment of plaintiff's dues defendant No,2(iv) by way of registered Collateral Mortgage Deed dated 26-8-1982 created mortgage of the property bearing No,11/1 Khyaban-e-Hafiz, Defence Housing Authority, Karachi for an amount of Rs,15,00,000 which is marked '0'. That defendants failed/neglected/refused to pay the outstanding balance of plaintiff's dues in respect of the said facilities in spite of repeated requests and demands made, final notices dated 10-11-1991, 11-11-1991, 12-11-1991 and 13-11-1991 were sent to the defendants demanding payment of plaintiff's dues which are marked 'Q-1 to Q-11'. According to the plaintiff defendant No,1 is a pro forma defendant and plaintiff has already filed petition bearing No,Judicial Miscellaneous No,39 of 1991 as such company in the suit has been described as defendant No,1 in the title of the suit. After registration of the suit process through three modes viz. Through registered post A/D, by bailiff and also by way of publication in daily Dawn were effected. According to the report defendants stood served through the three modes of service as required under the law. Applications under Order 37, Rule 3, C.P.C. Have been filed with a prayer to grant unconditional leave to defend the suit on merits. Mr.Tasawar Ali Hashmi, the learned counsel has contended that defendants were served through bailiff on 31-7-1993, that the suit is time-barred and plaintiff has suppressed material facts disentitling them to claim any relief. That plaintiff has already chosen to file proceedings for the recovery of the loan and has filed winding up petition against defendant No,1 being Judicial Miscellaneous No,39 of 1991 as such any subsequent proceedings on the identical issue against the defendants is barred under Order 2, Rules 2(2) and (3), C.P.C. The subject-matter in issue in the instant proceeding is directly and substantially in issue before the Company Judge. That various promissory notes shown as Annexures A-1 to A-7 in para. 4 of the plaint are patently time-barred and promissory note dated 26-4-1982 is without consideration. The defendant No,1 was never advanced Rs,75,15,000. The statement of current account does not show any credit entry of alleged loan of Rs,75,15,000. That in regard to promissory note dated 25-11-1982 although the loan account has been shown for sum of Rs,33,00,000 but in the statement of Current Account filed by the plaintiff the alleged loan has not been credited. There is no entry of the alleged loan amount of Rs,33,00,000 on 25-11-1982 in the Current Account which is sufficient to belie the claim of the plaintiff. Likewise for the alleged amount of Rs,1,05,00,000 and Rs,7,00,000 no loan was given to defendant No, 1. That in regard to promissory note dated 10-8-1983 of Rs,60,00,000 it was pledge limit and loan of Rs,60,00,000 was not given by the plaintiff to defendant No,1 and promissory note dated 12-3-1984 for Rs,6,31,00,000 was also without consideration. The promissory note dated 30-8- 1984 for the sum of Rs,1,67,00,000 is also without consideration. The alleged loan has not been given to the defendant. That blank promissory notes were obtained by the bank for already settled accounts, have been attempted to be used by the plaintiff in the suit in order to give credence to the unjustified claim, such unauthorised use, filling up the blanks without authority, renders the promissory notes of no legal value. That on 31-5-1975 the present management was not incharge of the respondent No,1 Company. That Annexures 'D' to 'J' and 'L-1' to 1-4' the subject letters of guarantees have lived their lives and in view of new arrangement whereby present management of defendant No,1 took over the charge of the Mill, all the earlier guarantees stood discharged and guarantors stood absolved of their liabilities sought to be enforced on the basis of outlived guarantees, even otherwise, subsequent to the signing of the said guarantees, bilateral
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arrangements between the plaintiff and the present management has absolved the guarantors of the alleged liabilities and that claims of the plaintiff are denied. That charging of interest compound interest or any usuary has been prohibited and any claim on that account after 2-3- 1985 is illegal, unconstitutional and against the Injunction of Islam. That defendant No,2(ii) has expired in the year 1991, the necessary parties for just and proper adjudication of the points in issue are not before the Court as such no effective dicision could be given in the suit. Mr. Musheer Alam learned counsel has contended that defendant No,4 received the summons on 5-8-1993 from defendant No,2(i) who was served through bailiff of the Court on 31-7-1993, that plaintiff has suppressed material facts and claim in the suit is time-barred. That promissory notes as Annexures A-1 to A-7 are time-barred as the same have neither been signed nor delivered by the defendants. The Annexure 'B' to the plaint is mortgage which is invalid and unenforceable under the law, likewise Annexures 'C' and 'N' to the plaint and 'B', 'K', 'M' and '0' to the plaint on the basis of which alleged charges have been created are themselves invalid and time-barred, the same is the case of Annexures 'D' to 'J' and L-1 to L-4. That Annexures 'K', 'M', '0' the mortgage deeds are without consideration, the amounts guaranteed under the mortgage deeds were never disbursed. The statement of the Current Account annexed with the place does not show any credit entry corresponding to the amount shown in the mortgage deeds. That Annexures P-1 to P-3 of the plaint, the statement contained therein would not bind the guarantors, more particularly when the documents on the basis of which claim in suit is rested are time-barred. Mr. A. Rauf learned counsel has contended that defendant No,7 had signed the guarantees not in personal capacity but in official capacity which plea can be proved by referring to the rules of the Bank, documents filed and can further be substantiated by oral evidence. That the plaintiffs have signed a notice Annexure Q-7, Sohail Nasim, Director M/s. Dost Muhammad Cotton Mills A-15 Fakhurddin Valika Road, Karachi when the bank has received defendant's letter dated 29-1-1984 informing about his resignation and requesting that all guarantees signed by him in connection with the liabilities of the company may be treated as cancelled because he has resigned as member of the Board of Directors of the Company which is Annexure 'D' to the application. In support of the application affidavit of Farooq Sheikh son of late Sharif Ahmed, Sohail Naseem son of Naseem Firoz and Rafiq Ahmed son of Bashir Ahmed has been filed. Mr. A.I. Chundrigar learned counsel for the plaintiff has contended that publication took place in daily 'Dawn' on 15-7-1993 as such application for leave to defend the suit filed on 7-8-1993 is time- barred. That service in any one of three modes provided in Banking Companies (Recovery of Loans) Rules, 1980 is sufficient. Defendants were already served through publication dated 15-7- 1993 while applications under Order 37, Rule 3, C.P.C. Were submitted in Court on 7-8-1993. That defendants have not described any instance of suppression of material facts, that actually defendants executed the promissory notes dated 26-4-1982, 25-11-1982, 28-12-1982, 26-3-1983, 10- 8-1983, 12-3-1984 and 30-8-1984 and the certificate of registration of charge was issued on 22-1- 1985, deposits were made on 28-1-1985 and on 30-6-1987, various mortgages were created by different defendants in the years 1975, 1978 and 1981 and defendants sought information from the plaintiff vide their letter dated 15-10-1991 for issuance of statements of accounts which were promptly supplied to them which are filed with the plaint as R-3 to R-7. That besides above letters defendants also got issued annual reports containing balance sheets for the years 1987, 1988, 1991 on 30-9-1983, 30-9-1988 and 30-9-1991 respectively which constitute acknowledgement of loan, as such suit is not time-barred and is well within time. That Judicial Miscellanous 39 of 1991 was filed against defendant No,1 only who has been cited as pro forma defendant in the suit. That the gamut is different in this suit when compared with Judicial Miscellaneous 39 of 1991 as such provisions of Order II, Rule 2(2) & (3) and section 10, C.P.C. Are not attracted. The matters of Judicial Miscellaneous 39 of 1991 and this suit are different, Judicial Miscellaneous 39 of 1991 is not suit
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although these two proceedings are not between the same parties. That reliefs claimed in the two proceedings are different inasmuch as in Judicial Miscellaneous 39 of 1991 only winding up of the limited company has been sought. The promissory notes in question are within time. The defendants have been acknowledging loan from time to time as such promissory note cannot be termed as time-barred. That in promissory note dated 26-4-1982, it is clearly mentioned in the promissory note 'value received with interest'. The execution of the promissory note is not denied. The statement of account marked R-3 justified the amount of demand promissory note dated 26- 4-1982. That the D.P. Notes and the connected statements of accounts of the Annexures with the plaint are as follows: D.P. Notes Statements of Account A - 6 R - 1 A - 5 R - 2 A - 1 R - 3 A - 2 R - 4 A - 3 R - 5 A - 4 R - 6 A - 7 R - 7 That the amount of Rs,33,00,000 was obtained by the defendant in general loan Account No,192249.75 entry whereof is shown in the statement of account which is R-4.That the defendants have been receiving amounts by way of disbursements from the plaintiff on various dates which is evident from the statement of account filed as Annexures R-1 to R-7 with the plaint for which the defendants have executed 7 promissory notes for various amounts. The statements of account do not show only one transaction but they show all the transactions denoting withdrawals and deposits by the customers on various dates. Similarly the contention that amount of Rs,1,05,00,000 is not mentioned in the statement of account is irrelevant as the value of the said promissory notes has already been received by the defendants on various dates. That as regards the entry of Rs,1,95,57,891.38 is concerned it has been clearly mentioned against that entry, that it is the loan transferred from Central Branch, Karachi. That first page of statement of account marked R-6 to the plaint shows defendant No,1 did avail Rs,17,00,000 on two dates i,e, 2-3-1983 and 26-3-1983 and defendant deposited Rs,5,00,000 on 7-11-1983, Rs,2,00,000 on 1-12-1983, Rs,1,00,000 on 15-1-1984 and Rs,1,00,000 on 3-3-1984. Thin the defendants received the amounts mentioned in the promissory notes on various dates which is evident from the statement of account already filed. That defendants received this amount and utilized it fully. That plaintiff had not obtained blank promissory notes from the defendants. That the change of management never absolved a limited company regarding its liabilities and all D.P. Notes and charge documents including mortgages created by defendant No,1 continued to be valid and binding. That in the annual balance sheets (for various years) including 1987 to 1990 prepared in respect of defendant No,1 the liabilities regarding the first mortgage/charge in favour of the consortium have been acknowledged. That the mortgages mentioned in the plaint are absolutely valid documents and claims based on the same have not become time-barred on account of acknowledgement of loan by defendant No,1 and others from time to time as mentioned in Annexures 'P-1' to 'P-3', that mortgages are not barred till 12 years and any acknowledgement of liability gives a further period of 12 years as section 19, Limitation Act speaks of a fresh period of limitation. The mortgages Annexures (sic), M and 0 were created on 11-1-1982, 30-3-1982 and on 26-8-1982 and the suit was filed on 4-5-1993 which is within 12 years. Under clause 12 of the guarantees, acknowledgements of liability by principal debtor (defendant No,1) are binding on the guarantors. That Annexures D to J and L-1 to L-
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4 are the guarantees executed by the Directors of the defendants in their personal capacity as such they are binding on them. The letters of the guarantees are still effective and binding on the persons who have executed these guarantees irrespective of change in management. These guarantees have not been discharged and the guarantors do not stand absolved of the liability even if management of defendant No,1 had changed the legal entity of defendant No,1 is intact. The amounts were advanced by the plaintiff and guarantees are for the consideration and that plaintiffs had fully disbursed the amounts shown in the mortgage documents to the defendant No, 1 . The annual reports Annexures P-1 to P-3 for the years 1987, 1988 and 1991 also contained the balance sheets which were certified by the Chartered Accountant and the guarantors who were also Directors of defendant No,1 are bound by the statements of account as shown in the balance sheet for these years. That acknowledgement of liability even if not addressed directly to the creditor is binding as between the creditor and the debtor. That the amounts mentioned in the seven statements of accounts marked as R-1 to R-7 to the plaint are correct. That the defendants had agreed to pay the interest and they are bound to pay the same. That the death of defendant No,2(ii) in the year 1991 does not affect the proceedings and there is no need to bring legal representatives of the deceased defendants on record. That even if defendant No,7 has resigned as Director on 21-12-1983 or any other date the personal liability undertaken by him and letter of guarantee copies of which are marked 'D', 'F' and 'H'. That it is immaterial that even if defendant No,7 obtained the certificate from the Registrar Joint Stock Companies, that after resignation he was not reappointed as Director of defendant No,1 the Company. That publication of news of resignation of defendant No,7 as Director in daily 'Business Recorder' does not change the legal position and he remained liable under the personal guarantees executed by him. That by sending letter to all major banks including the plaintiff by defendant No,7 that does not result in getting release from personal liability under the three guarantees. That the balance sheet of defendant No,1 for period ending 30-8-1983, stating that he resigned from Directorship of defendant No,1 on 12-12-1983 is not relevant and the guarantee letters are still binding on defendant No,7. That defendant No,7 had signed the guarantee in his capacity as Director and that guarantee is still valid. That the resignation of defendant No,7 as Director of defendant No, 1 and his sending intimation to the Registrar, Joint Stock Companies regarding the resignation do not have the effect of revoking the three guarantees. I would like to discuss the case-law referred by the learned counsel for the parties. Mr. Tasawar Ali Hashmi, learned counsel has referred (1) Ram Narain v. Lt.-Col. Hari Singh and another AIR 1964 Rajasthan 76. In this case a joint Hindu family of Asaram Kedarmal instituted a suit in the Court of the Civil Judge, Suratgarh for the recovery of a sum of Rs,6,400-8-6 as principal and Rs,2,657-7-6 as interest against Harisingh Sikh and Lt.-Col. Harsingh. The plaintiff started money dealings with Harisingh who was a tenant of the Lt.-Col. Harisingh. The latter undertook the responsibility of paying if any of the dues of Harisingh remained unpaid. The transactions between the plaintiff and Harisingh were settled and cleared off and Harisingh executed an entry in the account book of the plaintiff for having received a sum of Rs,7,500 in cash on 18-12-1953. The Lt.-Col. Signed this entry stating that he was responsible for the repayment of this amount of money. Other items consisting of the sum of Rs,175 and Rs,21 which remained due on the basis of the previous accounts together with another sum of Rs,3 were also claimed, A credit was given in this Khata for Rs,1298-7-6 from some separate account of the Lt.-Col. And thus the total claim made by the plaintiff came to Rs,9.058 inclusive of interest at the rate of Rs,1-4-0 per cent. Per mensem. The case in hand is a different one because matter does not pertain to the Joint Hundu Family firm in any case. (2) Fine Textile Mills Ltd., Karachi v. Haji Umar PLD 1963 SC 163. In this case the Hon'ble Supreme Court has observed that:
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"In a suit of this nature where the defendant discloses upon his affidavit facts which may constitute a plausible defence or even show that here is some substantial question of fact or law which needs to be tried or investigated into, then he is entitled to leave to defend. What is more is that even if the defence set up be vague or unsatisfactory or there be a doubt as to its genuineness, leave should not be refused altogether but the defendant should be put on terms either to furnish security or to deposit the amount claimed in Court." (3) The Punjab Pulp and Paper Mills Limited AIR 1932 Lahore 475: In this case petition under section 171, Companies Act, was presented by (1) the Lloyds Bank Limited (2) Alfredh Ernest Mitchell, and (3) George Callender G. Gooding for leave to bring a suit against the Punjab Pulp and Paper Mills Limited in liquidation which was being wound up by order of the Court dated 8th July, 1930. A learned D.B. Of Lahore High Court observed that "it has been laid down in a series of cases, both in England and India, that a person claiming to be secured creditor cannot be endorsed to prove his debt in liquidation, but he can stand outside the winding up proceedings and rely upon his security for whatever it is worth. In my humble view this citation is not favourable to the case of the defendants because liquidation proceedings against defendant No,1 has, already been filed by the plaintiffs whereas this suit has been filed against the defendants who in their capacity as directors and guarantors have obtained loans from the plaintiffs. (4) National Construction Ltd. v. Standard Insurance Co. Ltd. 1984 CLC 286: Ibadatyar Khan Judge (as his Lordship then was) has held if there is an admitted default either in performance or in payment, a right would accrue to the plaintiff to sue the principal debtor/defaulter, But if he so chooses, he may bypass the principal debtor and right away pursue his remedy against the surety. Here in this case also the defendants as Directors and guarantors have obtained loans from the plaintiffs. In my humble opinion this authority on the face of it is not supporting the case of the defendants. (5) Capt. Muhammad Aqeel Siddiqui and 2 others PLD 1988 Kar. 72: An application under section 316 of the Companies Ordinance, 1984, praying for leave to proceed with the suit filed by Pakistan- Kuwait Investment Company Limited against the Company in liquidation and its guarantors for recovery of loan amount of Rs,27,93,984 and sale of security given by the applicants to the company. His Lordship Naimuddin, C.J. Was pleased to allow the application. Admittedly winding up petition against defendant No,1 has been filed and this suit under Chapter proceedings have been filed against the defendants as Directors and guarantors as such in my humble view this authority is not helpful to the case of the defendants. (6) Baghpatee (Pvt.) Ltd. And others v. M/s. Pak-Libya Holding Company (Pvt.) Ltd. 1991 SCMR 33: In this case leave to appeal was sought from an order passed by a Single Judge of this Court while acting as a Special Court under the Banking Companies (Recovery of Loans) Ordinance, 1979 filed by the respondent against the petitioners for the recovery of Rs,88,01,033, under the Ordinance granting conditional leave to the petitioners to defend the suit on furnishing security of Rs,88,00,000 by petitioner No,1 and security of Rs,20,00,000 each by petitioners Nos. 2 and 3. The Hon'ble Supreme Court converted the above petition into an appeal with the order that learned Single Judge acting as a Special Court, after determining the approximate value of the mortgaged property and after hearing the parties, would give adjustment of the value so determined against the security amount fixed for petitioner No,l. With the above modification, the impugned order was maintained. In my humble view conditional leave was granted to the party for contesting the suit and some modification was allowed by the Hon'ble Supreme Court for determining the approximate value of the mortgaged property. In my humble opinion this authority in any case is not applicable to the facts of the present case. (7) In the matter of Shaafi Woollen Industries Limited PLD 1993 Lahore 452: In this case three identical applications were filed under section 316 of the Companies Ordinance, 1984 seeking leave
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of the Court to proceed with the money suits brought by the applicants against M/s. Shaafi Woollen Industries Ltd., the company under liquidation which suits were pending before the Banking Tribunals at Lahore and Peshawar and the learned Lahore High Court was pleased to allow the applications with three conditions. The facts of this case are different and distinguishable from the facts of the case in hand because winding up petition has already been filed by the plaintiff against defendant No,1 and the defendants he in this suit have been impleaded in their capacity as Directors and guarantors who have furnished guarantees for repayment of the loan. Mr. Abdul Rauf, learned counsel has cited: (1) Messrs Badruddin H. Mavani v. Government of Pakistan, Ministry of Food and another 1981 CLC 339: Learned D.B. Of this Court held that award cannot be set aside unless arbitrator shown to have misconducted himself or award improperly procured or otherwise invalid and findings of arbitrator wrongly accepted. Here in this case…
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