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Petitioner: ALLIED BANK OF PAKISTAN VS Respondent: MESSRS FAIZ AHMADMANZOOR AHMAD AND JUDGMENT
Court Name: Lahore High Court Judge(s): Mian Mahboob Ahmad Title:ALLIED BANK OF PAKISTAN vs MESSRS FAIZ AHMADMANZOOR AHMAD AND
JUDGMENT
Reported As: PLD 1985 Lahore 188 Result: Suit decreed Judgment JUDGMENT ' This suit for recovery of Rs, 21,26,560 has been instituted on 21-2-1984 by Allied Bank of Pakistan Ltd., Bahawalpur, with its registered office at Karachi, against the Firm Messrs Faiz Ahmad Manzoor Ahmad, Mubarikpur, District Bahawalpur and its four partners. Defendants Nos. 2 to 5, under the Banking Companies (Recovery of Loans) Ordinance, 1979. 2. It has been asserted in the plaint that on the security of pledge of goods (raw and ginned cotton) and a registered mortgage of their Factory, the defendants obtained from the plaintiff- Bank a cash credit limit up to Rs, 20,00,000 (rupees twenty lakhs) on 18-10-1978. The mortgage of the property was by way of a collateral security. At the time of obtaining the cash credit facility the defendants executed the following documents :- (1) Demand Pro1nissory Note dated 18-10-1978 (2) Letter of Continuity dated 18-10-1978 (3) Letter of Pledge of Goods dated 18-10-1978 (4) Agreement for Cash Credit dated 18-10-1978 (5) Security for all Advances and Loans (general form) dated 18-104978 (6) Letter in form No, 89 dated 18-10-1978 (7) Letter in form No, 90 dated 18-10-1978 (8) Undertaking for repayment dated 18-10-1978 (9) Registered Deed of simple Mortgage (10) Mortgage dated 18-10-1978 registered on 19-10-1978 regarding the land measuring 29 Kanals 10 Marlas with building thereon and machinery installed therein.
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' The above documents as also the power-of-attorney executed by defendants Nos. 3 to 5 in favour of defendant No, 2 have been filed with the plaint. ' According to the further averments in the plaint, the defendants availed of the above-mentioned cash credit facility but could not liquidate their liability by 30-4-1979 as had been undertaken by them and as at 31-10-1979 a sum of Rs, 10,90,966.19 remained outstanding against them. 3. However, on 30-10-1979, the defendants made a request to the plaintiff-Bank to allow them further cash credit facility for the ensuing year. They also made a request subsequently on 16-12- 1979 for transfer of the amount outstanding against them in their liquidated Cash Credit Facility account which, on that date, had accumulated to Rs, 11,34,000 approximately to a Fixed Loan account. Both these letters dated 30-10-1979 and 16-12-1979 have also been annexed with the plaint. 4. The plaintiff-Bank acceded to the above requests of the defendants and accordingly a sum of Rs, 11,31,947.19 was converted into a Fixed Loan on 16-12-1979. They were also allowed the Cash Credit Facility for the year 1979-80. 5. The defendants, on 16-12-1979, again executed the following documents in respect of the. Fixed Loan account aforementioned : (1) Demand Processor Note dated 16-12-1979 signed by all the defendants in the sum of Rs, 11,31,947.19' whereby the defendants undertook to re-pay the amount with interest at the minimum rate of 14% P. A. With quarterly rests. (2) Demand Promissory Note Delivery Letter dated 16-12-1979 signed by all the defendants. (3) Letter of Waiver dated 16-12-1979. (4) Letter of Partnership dated 16-12-1979. (5) Security for all advances and loans (general form) dated 16-12-1979. (6) Letter of Guarantee dated 16-12-1979 executed by defendant No, 2. (7) Letter of Guarantee dated 16-12-1979 executed by defendant No, 3. (8) Undertaking for re-payment of the total amount up to 31-5-1980. (9) Contract form dated 16-12-1979. ' All the above-mentioned documents have also been annexed with the plaint. 6. Defendant No, 2 also mortgaged his property viz. Bungalow No, 16, Model Town A, Bahawalpar to secure the above loan. The original mortgage-deed dated 12-1-1980 registered on the same date has also been filed with the plaint. The title deed by which the plot of land on which the mortgaged bungalow had been constructed by defendant No, 2 has also been filed by the plaintiff which was deposited with it by defendant . No, 2. 7. It has been further alleged if the plaint that the defendants did not liquidate their liability against the above loan as was undertaken by them although they acknowledged the same from time to time vide confirmation slips dated 31-10-1979, 16-12-1979, 31-12-1980, .31-12-1982 and 31-12-1983 as also by their other communications dated 31-10-1979, 16-12-1979, 3-8-1980, 20-9-1981 and 26-9- 1983.. It has been asserted that the amount due from the defendants to the plaintiff-Bank as at 15- 2-1984 accumulated to Rs, 21,26,650 in view of the interest and penal interest charged on the principal amount of loan. Prayer has been made for the recovery of the 'above amount with interest at the contracted rate w. e. f. 16-2-1984 till realization, and Costs of the suit have also been prayed for. 8. The defendants were issued Summonses in form No, 4 of Appendix B of the Code of Civil Procedure in the ordinary course, by registered post acknowledgment due and through publication of the summons in the daily "Nawa-i-Waqt", Multan. 9. The defendants made an application (C. M. No, 1447/C-84) on 22-3-1984 for leave'to appear and defend the suit. They claimed that they had been served through proclamation in the daily "Nawa- i-Waqt" dated 14-3-1984.
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10. The application for leave to defend has been resisted by the plaintiff-Bank. 11. The learned counsel for the applicants-defendants raised the following contentions in support of the application for leave to defend the suit : (i)that property valuing more than rupees sixty-five lakhs having been mortgaged with the plaintiff-Bank which mortgage stil subsists, no damage or loss would be caused to the plaintiff- Bank if leave to defend the suit is granted. In support of this contention the learned counsel placed reliance on Habib Bank Ltd. And 2 others v. Karachi Properties Investment Co. Ltd. And 4 others PLD 1984 Kar. 257 ; Abid-ur-Rehman Khan v. Razi Ghazali 1983 CLC 1434 ; Messrs S. M. Ayub & Co. And others v. National Bank of Pakistan and others 1983 CLC 2828 ; Azmat Wali v. Hassan Al-Adawi and 2 others 1983 CLC 546 ; and Muslim Commercial Bank Ltd. v. Tayab Sharif 1975 SCM R 393 ; (ii) that a sum of 11,31,947 only was the principal amount outstanding against the applicants- defendants as on 16-12-1979 which was transferred to a Fixed Loan Account by the plaintiff without authority from the defendants and as such the claim of interest on the above Fixed Loan is unjustified ; (iii) that insurance charges have been wrongly debited to the account of the applicants- defendants by the plaintiff-Bank which for the year 1977-78 were Rs, 58,897 and for the year 1978- 79 Rs, 80,598. Elaborating his submission the learned counsel pointed out that the above amounts debited to the account of the defendants were not justified debits as no insurance covers were obtained by the plaintiff ; (iv) that on account of non-co-operation of the plaintiff-Bank 4,000 Maunds of cotton of the defendants had to be sold by them at half the rate than it could fetch if the plaintiff-Bank had co- operated. It was urged that the defendants are therefore not liable for the amount claimed ; and (v) that the applicants-defendants having already filed a suit for rendition of accounts which is earlier in time the suit of the plaintiff-Bank is liable to be stayed and in any case leave merits to be granted to the applicants-defendants to defend the suit. 12. On the contrary, the learned counsel for the plaintiff-Bank con-contended, ' Firstly, that a perusal of the application for leave to defend would show that four points have in essence been raised for seeking leave to defend which have absolutely no basis whatsoever. Referring to para. 3 of the application, the learned counsel for the plaintiff-Bank submitted that it has been alleged that the zonal head deprived the defendants of a sum of Rs, 60,000 but there are neither any particulars given of the amounts nor the particulars of the zonal head. ' It was also urged that although a complete 'statement of accounts has been filed with the plaint no specific entry therefrom has been referred to in the above context. ' The learned counsel submitted that from the contents of the plaint of the suit of the defendants the plaintiff-Bank has found that the reference presumably is to four cheques of Rs, 15,000 each but the allegation is wholly baseless inasmuch as those cheques were en cashed by defendant No, 2. Himself which is apparent from the photstats of the cheques which are being placed on record today. ' With reference to para. 4 of the application the learned counsel for the plaintiff-Bank submitted that it contains a bald allegation only that the amounts were drawn unauthorizedly and paid to a favourite party of the Bank Management but neither any party has been named nor particulars or dates on which the alleged unauthorized withdrawal was made has been given. ' The learned counsel with reference to para. 6 of the application submitted that insurance charges in a consolidated form amounting to Rs, 1,21,000 have been claimed as wrongly debited, whereas today at the bar, while making submissions the amounts given under this head of insurance totalled Rs, 1,39,495 which by itself shows the hollowness of the claim, especially when there is neither any debit entry in the account of the defendants amounting to Rs, 1,21,000 nor of Rs, 1,39,495.
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' With reference to the same para. Of the application the learned counsel for the plaintiff submitted that a sum of Rs, 40,000 has been claimed as "wrongly debited", but again no particulars and details have been given. ' The learned counsel next submitted that in para. 9 of the application it has been alleged that a sum of Rs, 1,00,090 has been debited.To the account of the defendants whilst this amount was paid to some other party but again neither any particulars of the party nor the date when this amount was drawn and reversed have been given. ' The learned counsel in the context of the above submissions argued that as against the claim of the plaintiff-Bank amounting to Rs, 21,25,560 the applicants-defendants have only baldly denied their liability for an amount of Rs, 4,21,000 and this denial being without any valid basis would obviously not give rise to any triable issue ; ' Secondly, that the contentions raised by the learned counsel for the applicants-defendants today are also not tenable. ' The learned counsel for the plaintiff-Bank submitted that it has been alleged that on account' of non-co-operation of the plaintiff-Bank loss was caused to the defendants in the sale of stocks of cotton but no particulars of such loss have been given. He urged that no loss whatsoever was caused to the defendants by the plaintiff-Bank on account of the stoppage of the limit facility which was clamped with justification and could be lawfully done as provided by clause (ii) of the Agreement of Cash Credit ; ' Thirdly, that it has been wrongly contended that the suit for rendition of accounts had been filed by the applicants-defendants before the institution of the suit by the plaintiff-Bank. It was urged that the position is vice versa in that the suit of the plaintiff-Bank is earlier in time than the suit of the defendants ; ' Fourthly, that without conceding the contention of the applicants-defendants about the value of the mortgaged property it was submitted that the mere factum of the property having been mortgaged with the plaintiff-Bank would not entitle the applicants-defendants to claim leave to defend the suit inasmuch as the mortgaged property is in possession of the applicants- defendants and the plaintiff-Bank is getting no benefit out of the mortgage whilst, on the contrary, the amount of loan would be continuously increasing and if leave is granted may result in non- realization of some amount as the recoverable amount would then go on accumulating and is likely to become more than the value of the mortgaged property ; ' Fifthly, that insurance charges have been correctly debited to the account of the applicants- defendants as due insurance of the stocks had been obtained by the plaintiff and only such amounts have been debited which were paid as premium from time to time as is apparent from the statement of accounts submitted with due certification under the Bankers Books Evidence Act. ' The learned counsel referred to para. 4 of the Pledge of Goods Agreement which gives power to the plaintiff-Bank to obtain insurance of the stocks against which facility of loan was allowed ; ' Sixthly, that the applicants-defendants having not at all denied the execution of the documents, all of which have been filed in original with the plaint, nor the factum of obtaining loan facility cannot be granted leave to defend the suit as the kiwi stands established against them ; ' Seventhly, that in para. 7 of the application it has been asserted by the defendants that whole of the loan amount has been adjusted and clearance certificate was issued by the plaintiff but not only this ground has not been urged today at the bar but neither any certificate has been filed with the application nor with the suit of the plaintiff which shows the falsity of the assertion. ' In the same context the learned counsel for the plaintiff submitted that para. 12 of the application itself contradicts the above assertion as it has been stated therein that re-payment could not be made on account of non-co-operation of the plaintiff-Bank. The fact emerging from para. 12 being
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that payment has not been made admittedly, the assertion in para. 7 of the application about the clearance of the loan stands belied ; and ' Lastly; that the limit of Cash Credit allowed to the applicants in 1978-79 was required to be cleared by 30-4-1979 but it was not so done by the defendants up to the end of 1979 when on their request the amount outstanding as on 1r-12-1979 was transferred to a Fixed Loan Account but then even after this transfer no payment was made. ' The learned counsel also submitted that the defendants have been confirming the balances from time to time and their confirmation together with the Letter of Request for transferring the amount as on 16-12-1979 to a Fixed Loan Account have been filed along with the plaint and that execution and issuance of none of these documents has been denied by the defendants. ' The learned counsel further contended that the authorities cited by the learned counsel for the applicants-defendants have no bearing on or relevance to the facts of the present case and that the application of the defendants is liable to be rejected since it does not disclose any defence whatsoever. 13. Before dealing with the case on merits it appears appropriate to examine the nature of proceedings in suits under Order XXXVII, C. P. C., especially in relation to suits arising under the Banking Companie (Recovery of Loans) Ordinance, 1979. Order XXXVII of the Code of A Civil Procedure provides a summary procedure for disposal of suits on negotiable instruments such as bills of exchange, hundis or promissory notes. When a suit is filed under Order XXXVII, C. P. C. The defendant, as provided by sub-rule (2) of rule 2 of the Order aforesaid,-shall not appear or defend the suit unless he obtains leave from the Court as provided in the following rule 3 to appear and defend.- It may also be observed that in case the defendant does not apply within the period provided for filing an application for leave to defend, the allegations in the plaint shall be deemed to have been admitted and a decree shall follow. 14. Rule 3 of Order XXXVII, C. P. C. Gives power to the Court to grant leave to appear and defend the suit upon affidavits of the defendant which disclose such facts as would make it incumbent on the holder to prove consideration or such other facts as the Court may deem sufficient to support the application. The Court may grant leave to defend unconditionally or subject to such terms as to payment into Court, giving security, framing and mording of issues or otherwise as the Court may think fit. If leave is grantecL to defend the suit then as provided by rule 7 the procedure in suits shall be the same as the procedure in suits instituted in the ordinary manner. 15. From the above provisions it emerges that the grant of leave to defend a suit filed under Order XXXVII, C. P. C. Is not a matter of course or a matter of right. In order to be eligible for this benefit the defendant will have to show such facts which may warrant the proving of the consideration by the plaintiff or disclose a plausible defence which may give rise to triable issues. This necessarily implies that granting of permission to defend the suit or refusal thereof shall be dependent on the attendant circumstances of each case and as such no 'hard and fast rule could be laid for the purpose. However, some broad principles which could be a guideline for the Courts while considering an application for leave to defend can be and have, in fact, been laid down in judicial precedents and lie scattered therein. In this judgment I propose to succinctly bring out those guidelines in the light of the aforementioned provisions and the judgment of the Supreme Court on the subject. 16. Before so doing, it also seems proper that the provisions of the Banking Companies (Recovery of Loans) Ordinance, 1979 and the history and purpose of this legislation be gone into and kept in view. The first legislation on this subject is the Banking Companies (Recovery of Loans) Ordinance (XXIII of 1978). The preamble of this Ordinance reads as under :-- "Whereas it is expedient to provide for a summary procedure for recovery of loans of Banking companies and for matters connected therewith or incidental thereto ;
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' And whereas the President is satisfied that circumstances exist which render it necessary to take immediate action ; ' Now, therefore the President is pleased to make and promulgate the following Ordinance." 17. This Ordinance was repealed and re-enacted, with certain modifications, by the Banking Companies (Recovery of Loans) Ordinance, 1979. The further amendment in this legislation was made by the Banking Companies (Recovery of Loans) (Amendment) Ordinance, 1983 (Order II of 1983) which essentially was meant to create two types of Special Courts-in the first place Courts which may deal with cases involving disputes of the value of less than rupees one million, and in the second category come the High Court in exercise of original civil jurisdiction as the Special Court in respect of other cases. 18. Section 6 (1) (a) of the Banking Companies (Recovery of Loans Ordinance, 1979 reads as under : "A Special Court shall. (a) in exercise of its civil jurisdiction, have in respect of a claim file by a Banking company against a borrower or by a borrower against a Banking company in respect of, or arising out of a loan, all the powers vested in a civil Court under the Code of Civil Procedure, 1908." 19. Again section 7 provides the procedure of the Special Court an is to the effect that suits before the Special Court shall come up for regular hearing 'as expeditiously as possible and except in extraordinary circumstances and on the grounds to be recorded a Special Court shall in all suit before it, including suits based on mortgages of all kinds on statements o accounts for recovery of money paid to or to the order of the defendant, follow the summary procedure provided for in Order XXXVII in the Firs Schedule to the Code of Civil Procedure, 1908. 20. A perusal of section 7 Mid shows that apart from suits ordinarily trible under Order XXXVII, C. P. C. Viz. Suits on bills of exchange, hundi and promissory notes, suits in relation to Bans loans even on mortgages of all kinds or on statements of accounts have been made triable under the procedure provided for by Order XXXVII, C. P. C. 21. The aforementioned provisions and the background of enacting the Banking Companies (Recovery of Loans) Ordinance, 1979 shows that the Legislature intended to have expeditious and summary disposal of suits arising out of loans by Banks. The inclusion of suits for recovery of loans on mortgages of all kinds in the category of suits triable in a summary manner shows the real intention of the legislator to ensure a very expeditious recovery of loans by the Banks. In view of the presumption of correctness attached to the statements of accounts maintained and prepared by the Banks when certified under the Bankers Books Evidence Act, 1981 which, of course, is a rebuttable presumption it follows that in a case instituted under the Banking Companies (Recovery of Loans) Ordinance, 1979 The defendant for seeking leave to defend and showing his entitlement thereto shall have to show at least a plausible defence which could give rise to triable issues and not merely illusory or misconceived or imaginary defence without any basis advanced merely as a dilatory tactic. 22. In this connection reference may usefully be made to Fine Textile Mills Ltd. Karachi v. Haji Omar (1) in which the question of entitlement or (1) PLD 1963 5 C 163 otherwise of a dafendant to obtain permission to appear and defend a suit filed under Order XXXVII, C. P. C. Fell for consideration. Although the cited case relates to the period prior to promulgation of the Banking Companies (Recovery of Loans) Ordinance, 1979, the principles laid down therein are fully applicable to a case under the said Ordinance since Order XXXVII is expressly extended to proceedings thereunder. Having regard to the said principles and the dicta contained in Kodak v. Alpha Film Corporation (1), Pow Szchny Bank Zwia Zkowy W. Poisce v. Paros (2) and Millard v. Baddeley (3), the following broad principles may be enunciated for determining the
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controversy regarding grant or refusal of leave to defend suits under Order XXXVII, C. P. C. And more particularly in cases under the Banking Companies (Recovery of Loans) Ordinance, 1979. (a) Leave shall be refused if no defence worth the name is made out on facts or in law in the application for leave to defend, (b) leave shall also be refused if the defence disclosed on affidavits is sham or colurable or illusory/imaginary and may not give rise to triable issues. Needless to add that in both the above events, a decree shall follow in the suit, (c) if a defence is disclosed on affidavits which may warrant putting the plaintiff to prove consideration, leave shall be granted, (d) where the defendant discloses upon his affidavits a case which may constitute a plausible defence or shows that there is some substantial question of fact or law which needs to be tried or investigated into, then also the defendant shall be entitled to leave to defend. ' The permission to appear and defend a suit in any of the cases falling under sub-paras. (c) and (d) above may be unconditional or subject to such conditions terms as may be imposed by the Court. (e) If the defence set up is found to be vague or unsatisfactory or ingenuine on cursory perusal, leave may not be refused altogether, and if it be felt that there may be prima facie triable issues arising out of the defence disclosed, leave may be granted but on terms as may be considered necessary by the Court. ' It may also be pertinently observed that the mere fact that loan is secured by a mortgage would also not entitle a defendant to obtain leave to defend the suit inasmuch as a contrary view would defeat the very purpose underlying section 7 of the Banking Companies (Recovery of Loans) Ordinance, 1979 making suits based on all kinds of mortgages triable under Order XXXVII, C. P. C. ' The existence of a mortgage as security for re-payment of loan may become relevant when in the attendant circumstances of a case the Court comes to a conclusion that a case for leave to defend has been made out by the defendants and the next question of terms if any to be imposed for such grant falls for determination. 23. Applying the above principles to the facts of the case in hand it would be seen that no case is made out by the applicants-defendants for grant of leave to defend the suit. (1) (1930) 2 K B 340 (2) (1932) 2 K B 353 (3) 1884 W N 96 24. The availing of the loan facility and its non-liquidation has no at all been denied by the applicants-defendants. It therefore establishes the consideration. They have also not denied any of the documents filed by the plaintiff-Bank with the plaint nor have they specifically objected to any entry in the statement of accounts annexed with the plaint. Now the documents filed in original by the plaintiff-Bank with the plaint, inter alia, are :-- (i) Statement of accounts giving details of each entry, (ii) original letter of request dated 16-12-1979 by the defendant for transferring the loan outstanding against…
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