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Petitioner: National Bank Of Pakistan VS Respondent: Messrs Kohinoor Spinning Mills and others
Court Name: Lahore High Court Judge(s): Jawad Hassan Title: National Bank Of Pakistan vs Messrs Kohinoor Spinning Mills and others Case No.: Civil Original Suit No. 103757 of 2017 Date of Judgment:2021-04-29 Reported As: 2021 CLD 1112, 2022 PCTLR 1410 Result: Suit decreed
JUDGMENT
JUDGMENT "The relationship of banker to customer is one of contract. It consists of genera l contract, which is basic to all transactions, together with special contracts which arise only as they are brought into being in relation to specific transactions or banking services. The essential distinction is between obligations which come into existence upon the creation of the banker -customer relationship and obligations which are subsequently assumed by specific agreement; or, from the standpoint of the customer , between services which a bank is obliged to provide if asked, and services which many bankers habitually do, but are not bound to, provide". Libyan Arab Foreign Bank v. Bankers Trust Co [1989] QB 728 at 749E, [1989] 3 All ER 252 at 269b. Reprinted in Paget's Law of Banking, Fourteenth Edition JAWAD HASSAN, J.---Through this suit, the National Bank of Pakistan (the "Plaintiff "), a financial institution in terms of section 2(a) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (the "Ordinance ") has sought recovery of Rs. 318,629,445.68/- (the "suit amount ") along with mark-up, cost of funds, charges and costs of suit from the Messrs Kohinoor Spinning Mills (the "Defendant Company ") and its directors, guarantors and mortgagors the Defendants No.2 to 9, (the "Defendants "). The Standard Chartered Bank was impleaded as a pro- forma Defendant No.10 (the " Proforma Defendant "). A. BRIEF F ACTS OF THE SUIT 2. Succinct facts necessary for determination of this lis are that the Defendant Com pany is running its business by obtaining finance facility from the Plaintif f since 2012; initially , the Defendants mortgaged their properties with the Plaintif f as a security for repayment of said finance facilities availed by the Defen dant Company; the said finance facilities, on the request of the Defendants, had been renewed/enhanced/sanctioned from time to time; On 04.12.2015, the Board of Directors of the Defendant Company passed a resolution for making a request to the Plaintif f Bank through an application dated 04.12.2015 for sanctioning/renewing of the finance facilities i.e. Cash
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Finance (P) of Rs.250 million and Finance against Packing Credit ("FAPC") amounting to Rs.50 million respectively , already being availed by it, for another term; the Plaintif f acceded to this request, vide Head Office letter dated 10.03.2016 and issued sanction/renewal letter dated 16.03.2016 mentioning the date of expiry as 31.12.2016; the Defendant Company in acknowledgment of 'renewal of finance facilities' signed/tendered/ delivered and executed a short term finance agreement for Rs.250 million and a demand Promissory Note for, Rs.300 million along with certain guarantees, each amounting to Rs.360 million besides a letter of pledge, in favour of the Plaintif f, all of even date i.e. 16.03.2016; the breakup under section 9(2) of the Ordinance, in respect of the outstanding liability of the defendants as mentioned in plaint was claimed to be as Rs.265,075,538.68/- The Plaintif f Bank claimed to recover the total amount of Rs. 318,629,445.68/- in respect of finance facility due towards the Defendant Company . B. LEAVE T O DEFEND 3. To refute the claim of the Plaintif f, the Defendants Nos.1 to 9 filed a petition (PLA No.125326 of 2017) under section 10 of the Ordinance for the grant of unconditional leave to defend ("PLA") the suit. The Defendants denied the liabilities alleged by the Plaintif f by asserting that there were a number of questions of law and facts involved which could not be resolved without recording of evidence of the Defendants; i.e. the Plaintif f had failed to produce the requisite/mandatory certified statem ent of accounts and that the signatories of the same were not even authorized to do so. Another PLA No.209698 of 2018 was filed by Defendant No.10 alleging that a settlement was arrived at between the parties in the year 2011 hence there was nothing outstanding against the defendant- company to the extent of the said Defendant. C. SUBMISSIONS OF LEARNED COUNSEL FOR THE PLAINTIFF 4. Syed Moazzam Ali Shah, ASC counsel for the Plaintif f stated that the Defendant Company and its Directors seeking renewal of Capital Finance Facility filed a Loan Application form on 04.12.2015 along with Borrower Basic Fact Sheet ("BBFS"). The Plaintif f approved their renewal working Capital Finance on 16.03.2016 with the conditions that drawing against yarn shall not exceed 15% of the limit; stocks will be released on First-in, First-out basis; stocks will be rotated in a way that no stocks will remain in pledge for more than 180 days; healthy turnover to be maintained in the account during the currency of limit; letters of awareness shall be issued to other pledge holding banks of the Defendant Company in order to ensure that NBP's security against this facility is unassailable; import of spare parts shall be capped at PKR 15.00 Million, retirement of which shall be through Company's own sources and that overall exposure on CF (Pledge) line and its sub-limit of imports L/C(sight) will not exceed PKR 250.00 Million at any point of time. And thereafter , their terms finance agreement was executed with promissory note, bank guarantees and other instructions. Learned counsel for the Plaintif f argued that Defendant Company charged their properties and securities, and the financial facilities were duly disbursed to the Defendant Company's account, which was utilized by it. Adds that the Defendant Company defaulted in payment of finance facility/liability availed, however , though few payments were made yet not discharged the entire liabilities despite repeated requests made by the Plaintif f. Further adds that the total amount due from the Defendant Company qua amount of finance facilities, at the time of renewal; i.e. the amount of finance facility availed and repaid comes to Rs.318,629,445.68. On its default, of the Defendants, the Plaintif f has filed the suit strictly as per requirement under section 9 of the Ordinance by meeting all the procedural formalities. Lastly prays for passing of a decree in favour of the Plaintif f Bank and against the Defendant Company ordering recovery of Rs.318,629,445.68 with markup, cost of funds, charges, costs of the suit from the date of default and in case of default in fulfilling the decree by the Defendant Company to allow the Plaintif f Bank to sell the pledged properties of Defendant Company . D. SUBMISSIONS OF LEARNED COUNSEL FOR THE DEFENDANTS NO.1 T O 9 5. Mr. Muhammad Imran Malik, ASC submitted that the total amount of finance availed by the Defendant Company is Rs.77,800,000.00 while aggregation of repaid amounts is Rs.93,0702,005.00, hence, no liability remains to be fulfilled on their part. Further contended that the Plaintif f had illegally adjusted/deducted an amount of Rs.15,272,005.00 and same be refunded by passing a decree against Plaintif f; he further denied and disputed the claim of Rs.249,325,944.87 allegedly lodged by the Plaintif f on the basis of undated, undefined and vague entry , which was mentioned only as Brought Forward; he further argued that the statement of accounts is silent qua transactional history of the disputed debit head as, neither it mentioned any date nor mode of disbursement and on
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this score alone, this statement of accounts is a nullity and be declared as void document; that the Plaintif f, without making disbursement of full sanctioned amount, charged and claimed markup for whole amount while the defendants were never allowed to utilize the amounts under CF(P) facility to its full extent; that the Plaintif f was illegally retaining possession of stock of cotton bales, fiber and yarn etc; that the amounts of the debit shown against the entries dated 09.05.2016 and 30.12.2016 qua "FAPC" facility are neither availed by the defendants nor their withdrawal was proved from the record; the disputed debit entries regarding "FAPC" export related facility had no corroboration with other documents as no documents regarding export contract etc. had been produced by the Plaintif f along with the plaint; the amount of Rs.3,553,907.00 added in the suit amount under the head of mark up for "FAPC" facility is unlawful; the Board resolution, sanction letter , BBFS and stock report annexed with the plaint contradicted the contents of loan application dated 04.12.2015; the alleged letter of guarantees had been engineered by the Plaintif f; the Plaintif f had no right to claim that the defendants' properties be mortgaged with it to secure the suit amount and that the properties were offered as security for Rs.67.00 million only while the bank has already received an excessive amount of Rs.93,072,005.00, thus in this view of the matter , the Plaintif f could not claim itself to be a mortgagee in respec t of subject properties; the documents relied upon by the Plaintif f were unilateral and unenforceable under the law and that the original documents which are the spirit and basis of the alleged transaction, had not been filed deliberately along with the present suit; these documents had not been executed in presence of witnesses in accordance with Article 17 of the Qanun-e-Shahadat Order , 1984; so these documents could not be considered at this stage to constitute any liability; the suit had not been filed by the authorized attorney of the Plaintif f because the power of attorney does not bear the stamp/seal of the Plaintif f; there is no privity of contract between the Plaintif f and the Defendant Company; hence the Plaintif f had no locus standi to institute this suit: the Defendant Company had already filed a suit against the Plaintif f seeking cancellation of subject finance documents, release of securities; the defendants prayed for a decision on both suits through a consolidated trial and lastly prayed for the dismissal of this suit with the direction to the Plaintif f to return the pledged stock of the Defendant Company . E. REPL Y BY LEARNED COUNSEL FOR THE PLAINTIFF 6. Learned counsel for the Plaintif f replying to the allegations, claims and assertions of the Defendant Company submitted that the suit for recovery of Rs.318,629,445.68 as on 30.6.2017, with mark up, cost of funds, cost of suit etc, filed against the Defendant Company , the defendants and the proforma defendant through Mr. Abid Umer Farooq, Chief Manager/VP and ?'Ir. Irfan Hassan, Officer, Attorney holders, authorized through Power of Attorneys, placed on file as Annexures-B and B/1; that the Defendant Company was a private limited company and the defendants were its directors, mortgagors and guarantors. Copy of Certificate of Incorporation and Form-29 is Annexures-A and A/1; that the relationship of the Defendant Company and the defendants, as of customers started in the year-2012 when the defendants initially availed finance facilities from the Plaintif f and got mortgaged properties of the Defendant Company; the said finance facilities had been renewe d/rescheduled from time to time and lastly in the year 2016, vide loan application and Board's Resolution dated 04.12.2015; that two finance facilities, i.e., Cash Finance (P) of Rs.250 million and "FAPC" sub-limit of FBPN Rs.50 million were sanctioned/renewed, vide sanction/renewal letter dated 16.3.2016 with the expiry dated 31.12.2016; the defendants in consideration of renewal, vide letter dated 16.3.2016, executed the documents mentioned in paras 8 and 9 of the plaint; the break up under section 9(2) of Ordinance, the outstanding liability of the defendants is as under:- i. Cash Finance (Pledge) Limit Rs.250 million renewed on 16.03.2016 i) Amount of Finance Facility outstanding at the time of renewalRs.249,325,944.87 ii) Amount of Finance Facility availed Rs. 93,285,030.00 iii) Amount of Finance repaid Rs. 95,172,000.00 iv) Principal outstanding as on 30.06.17 Rs.247,438,974.87 v) Markup outstanding till 30.06.2017 Rs.17,636,563.81
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Further submitted that the above facilitie s availed by the Defendant Company were in the nature of a revolving facility whereunder they could utilize amounts up to a maximum limit of the sanctioned amount; in a revolving facility once the principal outstanding amount reaches the ceiling/limit of the sanctioned amount, the borrower can make payments towards the principal outstanding amount and then utilize these amounts again and again subject to maximum ceiling/limit. ii. FAPC Finance Facility Rs.50.000 million i) Amount of Finance availed Rs.50,000,000.00 ii) Amount of Finance repaid Nil iii) Principal outstanding till 30.12.2016Rs.50,000,000.00 iv) Markup outstanding till 30.06.2017Rs.3,553,907.00 7. Learned counsel for the Plaintif f further submitted that the claim of Plaintif f is genuine, supported by the documents executed by the defendants and Statement of Accounts had been duly signed and certified by the competent persons; all the entries relating to availing of the finance facility and repayments had been duly reflected in the statement of accounts and outstanding balance had also been shown in the said statement; that no excessive amount had been paid by the defendants; regarding the entry of B/F relating to the claim of Rs.249,325,944.87 and mode of disbursement, the learned ASC elaborated that the entry of B/F in respect of Rs.249,325,944.87 relates to previous outstanding liability of the defendants, which they accepted while seeking renewal,. vide their Loan Application dated 4.12.2015, BBFS dated 28.01.2016 and Credit Request Form dated 28.01.2016; replying to the debit entries dated 02.09.2016 and 30.09.2016 of Rs.2, 800,000/- and Rs.3,150,000/-; in fact these entries relate to markup of previous quarter and same have been adjusted, therefore, these were not claimed in the statement of accounts of markup. Regarding the query that an amount of Rs. 17,635,563.81/- allegedly added under the head of markup for CF(P) is neither legal, nor justifiable and markup over markup has been charged, it is submitted by the learned ASC that this amount relates to markup payable by the defendants and, therefore, no markup over markup had been charged. He maintained that ,the assertion of the defendants that the Plaintif f did not allow them to avail full CF (P) and the Plaintif f is illegally claiming possession over pledged goods or cotton bales, fiber yarn etc., therefore, value of goods at Rs 285,615,240/41 is being claimed as set off is incorrect, as under the terms and conditions of Letter of Pledge dated 16.3.2016, the defendants enjoyed possession of goods and no question of set off arises. The Defendants are liable to adjust their liability under CF (P) finance facility as shown in the state ment of accounts. Regarding ' disputed entries totaling Rs.50,000,000/- under , "FAPC" finance facility , it is submitted that the entries mentioned in this para pertained to the disbursement of finance facility to the defendants which they had duly availed of. Answering to allegation that an amount of Rs. 3,553,907/- under "FAPC" facility markup was neither justified, nor was legal, the learned counsel stated that this amount related to markup accrued on "FAPC" finance facility and each entry had been described. Learned counsel rebutted the claim of the defendants that the entries in the statement of accounts were exaggerated and had been manipulated by the official of the Plaintif f. With regard to the documents relied upon by the Plaintif f and entries made in the statement of accounts, Syed Moazzam Ali Shah, ASC stated that every entry was justified and corroborated by the record. All the documents attached with the plaint by the Plaintif f had been duly executed by the defendants and in their Loan Application, they had admitted their previous liability . Further submitted that all the guarantee letters had been executed and signed by the defendants/guarantors with free will and no question arose of their being void. To the query that the Plaintif f had no right to claim subject matter properties as mortgaged because the defendants had paid in excess and the suit was incompetent, the learned counsel stated that still a huge amount is outstanding against the defendants, therefore, the suit is competent. Further submitted that all the documents have been legally executed by the defendants with their free will and consent in order to avail finance facilities and were valid documents enforc eable by law; the suit had been filed by authorized persons. Lastly , it was prayed that the execution of charge and finance documents had been admitted by the defendants, but just to avoid their liability , the defendants had alleged repayment in excess, whereas, statement of accounts reflected their huge
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liability; the defendants had not annexed with their PLA any documents in support of their assertion of non-liability; the grounds taken by the defendants were contradictory and self-destruct ive and thus in view of the submissions/clarification made above, petition for leave to appear and defend the suit failed to raise any substantial question of law and facts, hence, the same may be dismissed with costs. Further that the suit may be decreed as prayed for in favour of the Plaintif f and against the defendants jointly and severally with costs and cost of funds till realization of the decretal amount. 8. I have heard the arguments of the learned counsel for the parties and perused the record. F. ANAL YSIS OF THE COURT 9. Before examining the facts of the instan t suit and analyzing the legitimacy and merits of the claim and defense of the parties, it is deemed pertinent to take a precise note on the purpose and object of the "Ordinance" and the mechanism provided thereunder to settle the financial disputes between the financial institutions and customers who availed finance facilities therefrom. The Ordinance was promulgated with an aim to streamline and expedite financial disputes between a financial institution and its customers and separate independent forum of Banking Court was also established under the Ordinance to achieve the goal of speedy decisions and a mechanism was devised wherein traditional extensive course of litigation was curtailed to a composite summary procedure to make sure adjudication in expeditious manner but at the same time safeguarding and securing rights of the parties and that is why Banking Courts defined under section 2(b) and established under section 5 of the Ordinance is simultaneously vested with powers of a Civil Court under the Code of Civil Procedu re, 1908 and powers of a Court of Session under the Code of Criminal Procedure, 1898 as per section 7 of the Ordinance. 10. The perusal of record reflects that the relationship between the Plaintif f and the Defendants was of a financial institution and a customer as defined under sections 2(a) and 2(c) of the Ordinance and the course of their relationship was regulated based on the facility of finance availed by the Defendants and extended by the Plaintif f Bank and squarely comes within the purview of definition provided under section 2(d) of the Ordinance. The Defendants as such are not allowed to defend this suit unless leave to defend the same is granted to them by this Court/Banking Court. The PLA can succe ed only if substantial questions of law and fact are raised and the court is convinced that questions of law and fact cannot be decided summarily without leading detailed documentary and/or oral evidence of the parties. Therefore, to resolve the controversy completely and effectually , following points have been made for determination by this Court: - I. Whether the Plaintiff bank, through record, has established that the defendants have committed default in fulfillment of their obligation regarding the finance facility availed by them? II. Whether there are some substantial question of law and fact in respect of which evidence of the defendants needs to be recorded? III. Whether the refusal of leave to defend the suit amounts to violation of Article 10-A and Due process clause of the Constitution? 11. Now I proceed to discuss and decide the above points of determination respectively . POINT NO.1 (whether default was committed or not) 12. It is for the Plaintif f Bank to establish that the defendants have committed default in fulfilment of their obligation regarding the finance facility availed by them, as envisages under section 3 of the Ordinance. Moreover , the primary ingredients to file a suit and to establish liability of the defendants are laid down under section 9 the Ordinance which read as under: - "9. Procedure of Banking Courts.- (1) Where a customer or a financial institution commits a default in fulfilment of any obligation with regard to any finance, the financial institution or, as the case may be, the customer , may institute a suit in the Banking Court by presenting a plaint which shall be verified on oath, in the case of a financial institution by the Branch Manager or such other officer of the financial institution as may be duly authorized in this behalf by power of attorney or otherwise. ----------" 13. In order to examine whether the customer has committed default or the words used together in section 9 of the Ordinance have to be examined before any conclusion is reached and while doing so, the words mentioned under
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section 9 of the Ordinance have to be looked into first and then to ascertain whether they are intertwined in order to decide a banking suit. Perusal of the above referred provision highlights the significance of specific terms as the scope and mandate of the provision is directly linked to the meaning and interpretation of these terms, which includes 'default', 'fulfilment' and 'obligation' and it is imperative to have literal as well as interpretive definition of these terms in order to comprehend the true meaning, extent and scope of the above referred provision and to determine whether liability against the defendant is established in light thereof or not. (i) DEFAULT 14. The term default is of utmost significance and therefore requires comprehensive literal interpretation to unearth its true dimensions and scope. Accordin g to Stroud's Judicial Dictionary of Words and Phrases, Eighth Edition, Volume 1 Page 71 1, term default and default in payment has been defined as under:- i. "Default" has been described as a large and loose word and in the most general sense means failing and is a relative term, like negligence, and means not doing what is reasonable under the circumstances having regard to the relations which you occupy towards the other persons interested in the transaction. ii. "Default in payment" means failure to pay at the due date. According to Advance Law Lexicon, 4th Edition, Volume-2, Page-1307, the term default has been defined as follows:- i. Failure to perform some legal requirement or obligation; want; absence; to commit a default; defect. ii. "Default" means non-payment of any principal debt or interest thereon or any other amount payable by a borrower to any secured creditor consequent upon which the account of such borrower is classified an non performing asset in the books of account of the secured creditor in accordance with the directions or guidelines issued by the Reserve Bank. . iii. Breach of the terms of contract, especially with regard to payment, in a credit transaction. iv. 'Default' means omission of that which a man ought to do. It is synonymous term of the term 'failure'. v. 'Default' means, default in the performance of a present or future duty , whether contractual or otherwise. (ii) FULFILMENT 15. According to Advanced Law Lexicon 4th Edition, V olume 2, Page 1996 the term fulfillment is defined as:- "Accomplishment; performance; completion" The term has also been defined in Black's Law Dictionary , Ninth Edition, Page-480 in the following manner:- The omission or failure to perform a legal or contractual duty; esp., the failure to pay a debt when due. (iii) OBLIGA TION 16. Under section 2(d) of the Ordinance, the term 'obligation' includes: (i) any agreement for the repayment or extension of time in repayment of a finance or for its restructuring or renewal or for payment or extension of time in payment of any other amounts relating to a finance or liquidated damages; and (ii) any and all representations, warranti es and covenants made by or on behalf of the customer to a financial institution at any stage, including repre sentations, warranties and covenants with regard to the ownership, mortgage, pledge, hypothecation or assignment of, or other amounts relating to a…
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