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Petitioner: INDUSTRIAL DEVELOPMENT BANK OF PAKISTAN VS Respondent: MESSRS WILLIAM SON & CO. JUDGMENT
Court Name: Sindh High Court Judge(s): Ajmal Mian Title:INDUSTRIAL DEVELOPMENT BANK OF PAKISTAN vs MESSRS WILLIAM SON & CO.
JUDGMENT
Reported As: PLD 1980 Karachi 576 Result: Order accordingly Judgment JUDGMENT ' This judgment will dispose of Suits Nos, 261/74, 287/74 and 460/74, inter alia as a common important point of law is involved. It may be pertinent to state the brief facts of the above suits. 2. Suit No, 201174.-(a) This is a suit filed by the I. D. B. P. Under Order XXXIV, C. P. C. For the recovery of Rs, 7,93,820.87. The facts leading to the filing of the above suit briefly are, that on or about 29-6- 1963 the plaintiff at the request of the defendants granted to defendant No, 1 foreign currency loan/credit in the sum of D. M. 225812 which was equivalent to U. S. $56,500 on the terms and conditions contained in the credit agreement dated 31-7-1963. It has been averred that as a secuity against the above loan the defendant executed demand promissory note, agreement hypothecation as further additional security and memorandum of deposit of title deeds creating an equitable mortgage in respect of the property mentioned in para. 9-D of the plaint. It has been further averred that defendants 2 and 3 personally guaranteed repayment of the plaintiff's dues by defendant No, 1. It has also been averred that as per terms of the agreement the entire dues should have been fully paid by the defendant by 31-12-1973 but defendants have neglected/failed/refused to pay the same and, therefore, a sum of Rs, 7,93,820.87 as on 30-4-1974 is due and payable by the defendant to the plaintiff. On the basis of the above averment the plaintiff has prayed for a declaration that the above sum is due and for a decree in Form 5-A in Appendix D in the 1st Schedule to the C. P. C. And in the alternative money decree for the aforesaid sum. (b) The defendant No, 1 in its written statement inter alia has denied that the sum of Rs, 7,93,820.87 is due. It has been averred that it is verily believed that in any event without admitting any liability a sum of Rs, 7,93,820.87 has been arrived at by using the conversion rate of Rs, 3,65 for one D. M. While
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in fact the conversion rate of Rs, 1.37 per D. M. Should have been used. It, has also been averred that the suit is barred under Limitation Act. On the basis of the above averment the defendant No, 1 has denied its liability. (c) Defendant No, 2 has also filed a written statement, wherein it has been averred that the answering defendant at the material time when the loan was taken by defendant No, 1 was a paid employee of Faqir Spinning Mills Ltd. a sister concern of defendant No, 1 and was ostensibly shown as director of the defendant No, I although he had made no investment in the said company and that the defendant No, 1 being a paid employee was forced to sign the letter of guarantee and promissory note that he shall be responsible for all the liabilities. It has been averred that the answering defendant is not aware of the terms and conditions of the loan agreement and that he is also not aware of the failure of the defendant No, 1 in payment of the loan amount, and that the liability, if any, is of defendant No, 1. Accordingly the aforesaid defendant No, 2 has denied his liability. (d) Defendant No, 3 has also filed a separate written statement Wherein he has raised identical pleas which have been raised by the defendant No, 1 including about the rate of conversion of Pakistani rupees into D. M. (e) On the basis of the above averments the following issues were framed in the above suit on 18- 4-1978 (1) At what rate of exchange is tile debt payable ? (2) Relief. 3, Suit No, 287/74.-(a) This is a suit for account filed by the plaintiff company against I. D. B. P. On 11- 6-1974. The facts leading to the filing of the above suit shortly are .That on or about i6-5-1963 the defendant sanctioned foreign exchange loan of U. S. $3,90,000, equivalent to Pak. Rs, 18,78,000 approximately for the import of Calcium Carbide manufacturing plant equipment under the first yen credit on the terms and conditions inter alia mentioned in para 3 of the plaint and contained in defendant's letter dated 16-5-1963 which were as follows :- "Interest, etc.-(i) 7-1/2% per annum payable half-yearly. (ii) 1/4% per annum to cover the exchange rate risk after expiry of the loan period. (iii) Bank's other usual charges. Repayment Sehedule.-16 equal half-yearly instalments commencing from 1st July 1964 and in accordance with the I. D. B. P's terms and conditions for the 1st Yen Credit. Other conditions.-(d) The exchange rate risk will be borne by the borrowers during the subsistence of the loan. (e) The loan shall further be governed by all the other general terms and conditions of the Bank." ' It has been averred that the aforesaid terms and conditions contained in defendant's aforesaid letter dated 16-5-1963 were accepted by the plaintiff and that subsequent to the conclusion of the loan agreement a formal printed credit agreement was executed by the defendant, copy of which is allegedly not available with the plaintiff. It has been further averred that it is the case of the plaintiff that the terms of the printed credit agreement are binding on the parties to the extent they are consistent with the terms and conditions set out in the aforesaid letter dated 16-5-1963 (Annexure A to the plaint). It has also been averred that in respect of the aforesaid foreign currency loan equivalent to Rs, 18,78,000 the defendant maintained account bearing A. C. No, 10'255/002 and that the relationship between the plaintiff and the defendant has been that of a constituent and a banker, a mortgagor and a mortgagee and it has also been averred that the plaintiff reposed trust and confidence in the defendant with regard to the making of correct and accurate entries in the said account and that the plaintiff did not consider it necessary nor has the plaintiff kept the account. It has been further averred that it has transpired that the defendant has debited in the said account principal amounts grossly in excess of the amounts due from the plaintiff and that
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the defendant has the wrongfully and illegally debited in the said account penal interest which is unwarranted in terms of the aforesaid loan agreement and that the defendant has also debited interest in excess of the agreed rate of interest at 72 % per annum. It has further been averred that the defendant has been debiting and claiming compound interest, on every false and/or incorrect entry in the account (either by way of principal, interest, penal interest or any other charges) has resulted in making of subsequent debit entries and that it is not possible for the plaintiff to ascertain the amounts that have been wrongly debited by the defendant in the said account. It has also been averred that on or about 16-5-1963 the plaintiff was granted by the defendants aforesaid foreign currency loan equivalent to Rs, 18,78,000 which was payable in 16 equal half- yearly instalments commencing from 1-7-1964 and that almost Rs, 24 lacs have been paid by the plaintiff to the defendant in the said account. It has also been averred that in fact Rs, 9,50,000 have been paid by the plaintiff to the defendant out of the local currency loan granted by the defendant to the plaintiff by making false/frivolous/fraudulent entries in the said account and that the defendant is purporting to claim that the sum of Rs, 42,25',030.47 wasjis outstanding as on 31-12- 1973 from the plaintiff. It has been further averred that at the request of the plaintiff the defendant sanctioned local currency loan of Rs, 5 lacs in July August 1970 on the existing security on the terms and conditions contained in para. 8 of the plaint and a further local currency loan of Rs, 9,50,000 in June/July, 1971, on the terms and conditions inter alia contained in defendant's letter dated 27-7- 1971. It has been averred that the aforesaid local currency loans were adjusted towards the payment of the foreign currency loan in the manner mentioned in para 13 and 14. It has also been averred that on 15-4-1972 the defendant ads sed the plaintiff that a total sum of Rs, 33,338.59 only was due by the plaintiff to the defendant in the said account and that on 7-9-1972, i. e. After the devaluation of Pak. Currency on 11-5-1972 the defendant purported to send the confirmation of the outstanding balance as under :- "Foreign exchange credit Amount due ' It has been further averred that by letter dated 7-9-1972 the defendant purported to cancel the balance advice in its aforesaid letter dated 7-9-1972 and requested the plaintiff to confirm the balances mentioned in para. 17 of the plaint and that the defendant purported to show for the first time the over dues in Yen as on 12-9-1972 and that the defendant also purported to claim the dues on the basis of post-devaluation exchange rate even in respect of those instalments which were adjusted and paid prior to devaluation of Pak. Rupees. It has been averred that on the above basis the dues against plaintiff in the said account went from Rs, 33,228.59 on 15-4-1972 to nearly Rs, 32 lacs on 12-9-1972. It has also been averred that it is the case of the plaintiff that neither the ordinary law nor the I. D. B. P. Ordinance permits the defendant to make such unjust, unconscious and windfall gains at the cost of its constituent to cause unjust enrichment for itself. In the alternative it has been averred that it was not within the contemplation of the parties that when the said agreement was entered into that the defendant could claim so grossly excessive and that the defendant was/is not entitled to realise an amount more than the amount received by the plaintiff from the defendant and that the aforesaid loan agreement was entered into on the fundamental premise of the existing rate being Rs, 4.81 for one U. S. Dollar, subject to day to day fluctuation but by purporting to convert the repayment of the loan at the post-devaluation exchange rate i. e. Rs, 11,04.68 to one U. S. $ the very foundation of the loan agreement would be taken away and that in the circumstances the said loan agreement itself would be frustrated. It has also been averred that so far as the plaintiff can estimate the defendant owes the plaintiff around Rs, 50,000 in the said account instead of being entitled to recover any amount from the plaintiff. On the basis of the above averments the plaintiff has prayed for preliminary decree and thereafter final decree after taking of the accounts.
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(b) The defendant has filed written statement, wherein biter ilia it has been averred that the suit is not maintainable and that under the loan agreement the repayment was initially such that the first instalment out of the 16 equal half-yearly instalments was to be paid by the plaintiff to the defendant on 1-7-1964. But later on the re-payment schedule was amended so that the first instalment became payable by the plaintiff on 1-1-1966 and that the remaining instalments became payable 18 months after the original contractual dates for the payment of the instalmants. It has been averred that atter the issuance of the sanction letter dated 16-5-1963 the plaintiff and the defendant entered into a credit agreement dated 16-5-1963 and that the said credit agreement is not to be read alongwith the sanction letter. It has been further averred that no relationship between the plaintiff and the defendant as spelt out in para. 6 of the plaint existed or over existed between the parties. It has been averred that in the statement of account no entries were made by the defendant in excess of the amount due from the plaintiff from time to time and that the penal interest was agreed to by the plaintiff in the credit agreement dated 16-6-1963 and that the interest in excess of the amount fallen due under the heading of interest has not been debited to the account. It has also been averred that the defendant has supplied statement of account to the plaintiff on different occasions often at the request of the plaintiff and that the accounts may be treated as settled accounts by this Court. It has been averred that the interest was chargeable on six months rests basis and, therefore, compound interest was justified. It has been averred that the total amount received from the plaintiff so far in the said account is approximately Rs, 14 lacs and not Rs, 24 lacs as alleged and that as to Rs, 9,50,000 this sum was rep raplased vide sanction letter dated : 27-7-1971 (Annexure C to the plaint) and that as required by the said sanction letter under which rephasement was allowed the plaintiff was required to adjust the then existing overdues as on 30-6-1971 and on this basis legal documents were to be executed by the plaintiff to the satisfaction of the defendant's legal advisor, which was not done and, therefore, credit entry of Rs, 2,50,000 was reversed after 11-5-1972 and that the defendant's claim as on 30-7-1974 was Rs, 43,42,373.71 and that the same is justified subject to further increase on account of further debits such as interest, penal interest, and other charges and fluctuations due to the changes in the rate of exchange. It has been further averred that the defendant's sanction and rephasement regarding over dues amounting to Rs, 5 lacs through its letter dated 29-6-1970 and that this was part of Rs, 9,50,000 rephased on 27-7-1971. It has been also averred that as the plaintiff did not execute the required document as mentioned in defendant's letter dated 27-7-1971 the entry relating to the rephasement of Rs, 9,50,000 was reversed by the defendant on 11-5-1972 and as the above entry was reversed, it may be assumed that no payment had been made by the plaintiff to the extent of the above amount. It has been averred that from 11-5-1972 the defendant has been maintaining accounts in Japanese Yen as a matter of convenience and that the defendant correctly claimed and still claims the overdues as on 11-5-1972 and the subsequent dues and overdues on the basis of devaluation rates. It has also been averred that Pakistani rupee was devalued on 11-5-1972 by 131%. It has been averred that whenever dues or overdues were received after 11-5-1972 from the defendant in rupees, the entries in the statement of account and that in this statement of account from 11-5-1972 onwards, there were claims in which the equivalent amounts in Pak. Currency were entered whenever dues or over dues were received by the defendant and that from time to time, the statements of account were forwarded to the plaintiff. It has also been averred that the defendant sent the statement of account after 11-5-1972 and, therefore, the plaintiff has been very much aware for more than 2 years that the statements of account were being maintained in foreign currency by the defendant and that no objection was raised by the plaintiff and that the amount due had also was up by 131% after 11-5-1972 which the plaintiff did not object. It has been averred that clause 6 of the credit agreement provides that the plaintiff will pay the defendant at B. G. Rates of exchange prevalent on the actual dates of payment
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and that it may be presumed without any hesitation that the parties contemplated that in the event of fluctuation in the rates of exchange, whether small or large the loan agreement will still remain binding between the parties. It has also been averred that 14% per annum charge known as exchange rate risk resulting from fluctuations in the exchange rate for the period between the date of the expiry and the period for which loan had been advanced by the defendant to the plaintiff and the date of the expiry of the period for which Japanese Government had advanced the first Yen credit to the Government Pakistan as the first Yen credit agreement was to take much longer period of time than the contracted repayment by the plaintiff to the defendant. It has been averred that the penal interest is valid as per clause 5 of the argeement. It has been denied that the defendant is liable to pay Rs, 50,000 to the plaintiff. It has been averred that the defendant has filed Suit No, 460/74 on 30-9-1974 against the plaintiff for the recovery of Rs, 43,42,375/71 as on 10-6-1974 along with the other reliefs. On the basis of the above averment the defendant has denied that the plaintiff is entitled to any relief. (e) The following 6 issues were framed by the Court on 19-5-1976 :- "(1) Whether the defendant made incorrect entries in the said account ? If so, whether all subsequent debit entries made in the said account are rendered false or incorrect ? (2) Whether the defendant has wrongly and illegally debited penal interest in the said account ? If so, to what effect? (3) What amount, if any, is due and payable and by whom ? (4) Whether after 11-5-1972 the defendant was/is entitled to reverse debit entry of Rs, 9,50,000 granted as loan in the local currency ? (5) Whether the said loan agreement is frustrated and has become impossible of performance? (6) Whether the defendant realised quarter per cent exchange risk from the plaintiff ? If so, can the defendant claim repayment of instalments `' on the basis of post-devaluation exchange rate ?" 4. Suit No, 460/74.-(a) This is a counter suit filed by the I. D. B. P. Against the plaintiff in suit No, 287/74 for the recovery of Rs, 43,42,373.71 under Order XXXIV, C. P. C. In the above suit the L D. B. P. Has reiterated more or less the averments made by it in the written statement filed by it in the aforesaid suit No, 287/74 and has claimed a preliminary mortgage decree and in the alternative money decree for the above amount. (b) The defendants have filed an application under sections 10 and 151, C. P. C. (C. M. A. 282/75) for staying of the above suit on the ground that their suit was earlier in time between the same parties iri respect of the same subject mattet. By an order dated 24-4-1974 it was ordered that the above application would be taken up along with the aforesaid Suit No 287/74. After that by a consent order dated 1-6-1977, it was ordered that the above suit may be fixed for issues in August 1977 and that the above suit be fixed along with many other cases involving common point of law in respect of conversion of rupees into foreign currency in which loan was granted. Thereafter by an order dated 17-10-1978 it was ordered that in view of the judgment dated 20-2-1976 passed by the Supreme Court of Pakistan in C. P. No, K. 172/75 this suit had to be ,consolidated with Suit No, 287/74 and with the consent of the learned counsel for the parties issues framed in Suit No, 287/74 were adopted for the above suit as well. Since then the above cases have been coming up for hearing together and the common evidence has been recorded in the above two suits. 5. (a) The basic question in the above three cases is the interpretation of clauses 1 and 6 of the credit agreement which read as follows :- "(1) The Bank will provide/give to the Borrower(s). On terms and conditions herein set forth and in the Schedule II hereto annexed accommodation by way of loan of $390,000 equivalent to Pak. Rs, 18,78,000 (approx) in the manner stated in Schedule II and the Borrower(s) shall repay the loan/credit in accordance with the provisions of Schedule 11 annexed hereto.
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(6) If the loan/credit agreed to be given/provided by the Bank to the Borrower(s) under this agreement, or any portion thereof, is foreign currency all the obligations of the Borrower(s) to make payment or repayment of the principal and of interest in respect of the loan/credit or such portion thereof as is in foreign currency shall be computed and stated in U. S. Dollar and :aich obligations of the Borrower(s) will be discharged by paying to the Bank in legal tender currency of Pakistan of an amount equivalent to the amount of U. S. $ being the foreign currency obligation of the Borrower(s) calculated at the highest effective selling rate of U. S. $ (highest amount of rupees for U. S. $) quoted by authorised dealers in foreign exchange in Pakistan on the date of payment or re- payment. The Borrower(s) shall bear the risk of fluctuations in the exchange rate of rupee and U. S. Dollar." (b) According to the learned counsel for I. D. B. P. Mr. Chundrigar the words "on the date of the payment or repayment" used in the above-quoted clause 6 of the agreement mean actual date of payment and not but. Date of payment. In other words his contention was that the I. D. B. P was entitled to recover an instalment on the basis of the foreign exchange rate of the currency involved in the credit agreement on the date of the actual payment of the instalment by the borrower and not at the rate obtaining on the date when a particular instalment becomes payable as per terms of the agreement. Whereas, the learned counsel for the borrowers in Suit No, 261/74 Messrs Abdul Matin, and Naimur Rehman have urged that if the above-quoted clause 6 is to be read with clause 1 of the argument and Schedule II referred to in the aforesaid clause 1, it will become clear that the I. D. B. P. Is entitled to recover each instalment on the basis of the foreign exchange prevalent on the due date of a particular instalment and not on the date of actual payment, and whereas Mr. Hyder Mota the learned counsel for the borrower company in the remaining two suits has urged that the I. D. B. P. Was entitled to recover all the instalments of the loan amount at the rate of the foreign exchange obtaining on the date of the loan agreement. (c) Learned counsel for the parties have referred to an unreported judgment pronounced on 12 8- 1975 by my learned brother Naimuddin, J. In Suit No, 312/71 wherein identical point was involved in relation to the interpretation of a corresponding clause in the PICIC credit agreement. In order to appreciate the ratio decidendi of the above unreported judgment it may be advantageous to reproduce hereinbelow clause 8 of the PICIC credit agreement which corresponds to clause 6 of the instant cases, which reads as follows : "(8). (a) Except as Borrower and PICIC shall otherwise agree, the Borrower shall repay the Loan in eight years by sixteen approximately equal semi -annual instalments commencing from the first day of July 1965 and ending on the first day of January 1973. The repayment instalments as determined by PICIC and communicated to the Borrower shall be binding on the Borrower. (b) All obligations of the Borrower to make repayments of principal and payments of interest in respect of the Loan shall be computed and stated in Deutche Marks and such obligation of the borrower shall be discharged by paying to PICIC in legal tender currency of Pakistan of an amount equivalent to the amount of Deutche Marks calculated at the highest effective selling rate of Deutchs Marks (highest amount of rupees for Deutche Marks) quoted by authorised dealers for foreign exchange in Pakistan on the date of repayment." ' A perusal of the above-quoted clause shows that it is couched in the same terms as the clause in question, namely, clause 6 of the I. D. B. P. Loan agreement, and, therefore, the above judgment is applicable on all fours to the intant cases. Before analysing the above judgment, it may be avdantageous to refer to prepartition days' Indian's Court's view, and the view found favour with Pakistani and English courts. (6) (a) Reverting to pre-partition Indian Courts' view, it may be pertinent to refer to the case of Param Sukh and others v. Ram Dayal (1), the case of Dakhina Mohan Roy Choudltry v. Sarola Mohan Roy Choudhry and others (2), the case of Abdul Hayee v. Gajral Sahai (3), the case of Madhavji
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Visram Thacker and others v. Ramniklal Vadilal and others (4), the case of Y. A. Shakoor & Co. v. Finlay Fleming & Co. (5) and the case of Ottoman Bank Nicosia v. Dasealopoules (6). (1) I L R 8 All. 650 (2) I L R 23 Cal. 357 (3) I L R 1 Cal. 283 (4) AIR 1923 Born. 437 (5) AIR 1923 Rang. 265 (6) AIR 1935 P C 39 (b) Reverting to 1886 IR-8 Allahabad case, it may be observed that the facts of the above case were that the decree holders under a decree passed on 12-12-86 by her Majesty-in-Council having taken out execution for a sum of 119.11 under section 610 of the C. P. C. Applied for execution on 6-1- 1886 to the High Court. His application was granted and the decree was transmitted accordingly to the subordinate Judge of Aligarh. The decree-holder in his application for execution estimated the sum of 119.11 at the rate of exchange on the date of the application and had also claimed pleader's fee in respect of the application and also in respect of the application to the High Court. The Judgment-debtor objected of the above method of calculation which objection was upheld by the Civil Judge. Being aggrieved by the above order of the executing Court the…
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