Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: PAKISTAN KUWAIT INVESTMENT COMPANY (PVT.) LIMITED through Authorized Representative VS Respondent: Messrs ACTIVE APPARELS INTERNATIONAL and 6 others
Court Name: Sindh High Court Judge(s): Munib Akhtar Title:PAKISTAN KUWAIT INVESTMENT COMPANY (PVT.) LIMITED through Authorized
Representative vs Messrs ACTIVE APPARELS INTERNATIONAL and 6 others Case No.:Suit No, B-50 and C.M.A. No, 5295 of 2009 R.F.A. No,24 of 2007 C.M.A. No, 5295 of 2009 M.A. No, 5295 of 2009 Date of Judgment:2012-01-10 Reported As: 2012 CLD 1036 Result: Leave granted Judgment ORDER ' MUNIB AKHTAR, J.---By means of the present application, the defendants Nos. 1 to 6 seek leave to defend the instant suit, which has been filed by the plaintiff, a financial institution, under the Financial Institutions (Recovery of Finances) Ordinance, 2001 ("2001 Ordinance"). 2. Briefly stated, the plaintiffs case is that it has provided two term finance facilities to the defendant No,1, one for Rs, 60 million, and the other for Rs, 70 million. The first facility was provided by means of a markup agreement dated 18-5-2005 and required the defendant No, 1 to repay a sum of Rs,109.7 million, while the second was provided by means of an agreement dated 30-11- 2006, and required the said defendant to repay a sum of Rs,133.5 million. These agreements were executed at Lahore. The plaintiff contends that the defendant No,1 availed both facilities, and made partial repayments in terms thereof, such that a sum of Rs,57,148,025 is due and payable on the first facility and a sum of Rs,110,663,475 is repayable in respect of the second. In addition, the plaintiff has also claimed certain amounts by way of liquidated damages in respect of each facility. 3. By way of security, the defendant No,1 created a mortgage on its immoveable property by way of deposit of title deeds. Likewise, the defendants Nos.2 and 5 also created a mortgage on certain immoveable properties owned by them to secure the amounts due and payable to the plaintiff by the defendant No,1. Memorandums of deposit of title deeds were duly executed by the said defendants in respect of the mortgages. Although the immoveable properties are situated in the Punjab the memoranda record that the title deeds were deposited at Karachi with the plaintiff. The
---
## Page 2
defendants Nos.2 to 5 have also given personal guarantees in respect of the amounts due and payable to the plaintiff. The defendant No,6, which appears to be a sister concern of the defehdant No,1, has given corporate guarantees in respect of the amounts due and payable to the plaintiff. All of the guarantees expressly note that they have been executed at Lahore. Finally, and for purposes of completeness, it may be noted that the Bank of Punjab, the defendant No,7, holds a ranking charge on the fixed assets of the defendant No,1 mortgaged to the plaintiff, but without prejudice to the priority of the security created in favour of the latter. 4. Learned counsel for the defendants Nos.1 to 6 (herein after "the contesting defendants") raised a number of points in support of their leave to defend application. Firstly, learned counsel contended that this Court lacked the territorial jurisdiction to hear the suit. He contended that all of the defendants, even as per the title of the plaint itself, were either ordinarily resident or carried on their business (as the case may be) outside Karachi. All the relevant documents, including the financing agreements and security documents were executed outside Karachi. The plaint therefore had to be returned for presentation before a court of competent jurisdiction. Secondly, learned counsel contended that the statement of account filed by the plaintiff in support of its claim was materially defective. He drew attention to section 9(2) of the 2001 Ordinance, which requires that the plaint filed by a financial institution must be supported by a statement of account duly certified under the Bankers Books Evidence Act, 1891 ("the 1891 Act"). Learned counsel referred to the various sections of the latter enactment to contend that the presumption that arose in terms of section 4 thereof could only arise in the case of a banking company, since the 1891 Act applied (by virtue of section 2(2)) only to banks. The plaintiff however, was admittedly not a bank. Since only a bank could certify a statement of account under the 1891 Act, the requirement imposed by section 9(2) of the 2001 Ordinance could only be fulfilled by a banking company. As the plaintiff could not comply with the foregoing requirement, no presumption arose in favour of its statement of account, and therefore the entries therein had to be proved at the trial. Hence, the contesting defendants were entitled to leave to defend. 5. Learned counsel assailed the statement of account on other grounds as well. He submitted that the said statement was not certified by an officer holding any of the designations required by the 1891 Act. Indeed, his case was that the person who had certified the statement of account was the same individual who had verified the plaint, and he was not properly authorized to do either att. He also contended that the statement of account was incomplete and thus, not a statement as contemplated by law. In this context, he submitted that the plaintiff itself had filed another statement of account along with its replication, and there were material differences between the two statements. This was itself sufficient to entitle the defendants to leave to defend. Indeed, this submission formed the crux of the third basis of his case, which was that if the plaintiff filed additional documents or material along with its replication (including a statement of account), the defendant was entitled to leave to defend. This was so for the reason that the defendant could not file a reply to the plaintiffs replication. If the latter had either improved its case by the additional filings, or sought thereby to overcome any lacuna or defects in the case as made out in the plaint, the defendant had no opportunity to rebut the additional material and the plaintiffs case would go unanswered. The defendants having been put in an untenable position were entitled to leave to defend. Fourthly, and with specific reference to the defendant No, 2, learned counsel submitted that the documents filed by the plaintiff itself showed that the said defendant was not even in Pakistan on the day on which he was supposed to have executed the personal guarantee. Fifthly, learned counsel submitted that the financing agreements were neither duly stamped nor registered, and hence could not be relied upon. In this context, he submitted that section 18(4) of the 2001 Ordinance only protected security documents and not the finance agreements.
---
## Page 3
6. Learned counsel for the plaintiff submitted that the contesting defendants had made out no case for the grant of leave to defend. Learned counsel submitted that the title deeds had been deposited at Karachi with intent to create a mortgage to secure the sums payable to the plaintiff, and the relevant agreements, including the financing agreements, expressly provided that it was the courts at Karachi that would have exclusive jurisdiction in respect of any disputes between the parties. She submitted that the sums were repayable to the plaintiff at Karachi, and thus on any view of the matter, this Court had territorial jurisdiction to entertain the suit. Learned counsel further submitted that the statement of account filed by the plaintiff was proper and in accord with the requirements of law. She submitted that the finances provided to the defendant No, 1 were term finances, which had been completely availed and it was for this reason that the statement contained (in respect of each facility) only one debit entry showing the amount disbursed. Thereafter, there were partial repayments, which were duly reflected in the statement. Learned counsel also submitted that the statement did show a claim by way of liquidated damages, but her case was that the plaintiff was ready to give up this amount. As regards the authorization of the person who had verified the plaint, learned counsel submitted that para 2 thereof clearly stated that he was duly authorized and that the relevant document had been annexed to the replication. She submitted that the application merited dismissal. 7. Both learned counsel referred to certain case-law, which I will consider in the paras herein below. 8. I have heard learned counsel as above, examined the record with their assistance, and considered the case-law relied upon by them. It will be seen that at least some of the points raised by learned counsel for the contesting -.1141 defendants are 'pure' questions of law, i,e,, questions that can be decided without recording evidence. The first matter that must be examined is how such questions are to be dealt with in the context of a leave to defend application under the 2001 Ordinance. At first sight, it may seem somewhat surprising that this question should arise at all. If a defendant raises a (substantial) 'pure' question of law, it ought surely to be the case that he is entitled to leave to defend. However, the question does arise, because of section 10(3) of the 2001 Ordinance, which provides as follows:-- "The application for leave to defend shall be in the form of a written statement, and shall contain a summary of the substantial questions of law as well as fact in respect of which, in the opinion of the defendant, evidence needs to be recorded." ' Reference must also be made to subsection (8), which insofar as is presently relevant, provides as follows:- the Banking Court shall grant the defendant leave to defend the suit if ... It is of the view that substantial questions of law or fact have been raised in respect of which evidence needs to be recorded." 9. The trouble is caused by the words at the end of these subsections, emphasized for convenience. The question is whether, as appears to be the case, these words are a necessary ingredient of the leave to defend application. If so, then defendant must show (a) one or more substantial questions of law or fact, which (b) require evidence to be recorded. In one sense, the second requirement is both superfluous and limiting.. As is well known, issues or questions that arise in a suit can be of three types: (i) 'pure' questions of law; (ii) mixed questions of law and fact; and (iii) questions of fact. Now, a question of fact is, by definition, a question that can only be resolved by evidence. In respect of such questions therefore, it is superfluous to require that leave will only be granted if evidence needs to be recorded. As regards questions of law, the requirement is unnecessarily limiting. This is so because no evidence needs to be recorded in respect of a 'pure' question of law. Such a requirement therefore seems to imply that if the application raises only 'pure' questions of law leave cannot be granted even though the questions may be substantial. In other words, the requirement seems to have the effect that leave can only be granted if either questions of fact or
---
## Page 4
mixed questions of law and fact (or some combination of these) are raised because evidence needs to be recorded only for such questions. 10. Such a conclusion is intuitively unattractive, and the question therefore is how to resolve the conundrum caused by the subsections (3) and (8) of section 10. The position under the present law can be contrasted with that which had obtained under the precedent legislation, the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 ("1997 Act"). Section 10 of the 1997 Act had simply required that a "substantial and bona fide dispute" be raised in the leave to defend application. This formulation readily covered all the three types of questions that could arise and was also, on the face of it, of broader scope than the corresponding requirements of the 2001 Ordinance. However, it surely cannot be the case that the 2001 Ordinance, by introducing the requirement of evidence B having to be recorded, intended to whittle down the scope of a leave to defend application to the extent of altogether eliminating 'pure' questions of law from consideration. Now, it must also be kept in mind that while considering a leave to defend application, the court is not as such deciding the questions raised thereby. That is a matter for the trial if leave is granted. Rather, the court only requires to be satisfied, that the threshold imposed by the applicable legislation has been successfully crossed by the defendant. Under the 1997 Act, a uniform threshold, that of a substantial and bona fide dispute, was imposed in relation to all three types of questions. Of course, the actual determination of the substantial and bona fide dispute was a matter for the trial. 11. In my view, the position under the 2001 Ordinance must be regarded as having been altered. The present law of course imposes its own threshold: that of (a) substantiality, and (b) evidence having to be recorded. If the leave to defend application crosses this threshold in relation to mixed questions of law and fact and questions of fact, then the court must grant leave to defend, without as such deciding the questions. In relation to these questions therefore, the position parallels that which had obtained under the 1997 Act. The situation as regards 'pure' questions of law however is now different. In my view, these questions have not been eliminated from consideration. Rather, by imposing the condition of evidence having to be recorded, which is inapt for, and cannot be met in relation to, such questions, the 2001 Ordinance requires that such questions be actually decided at the leave granting stage itself. In other words, the court is no longer limited to only considering whether such questions are substantial, and if so, granting leave to defend while deferring the actual decision thereon for the ,trial. Rather, the court ought to decide such questions, as it were, there and then. What the effect will be on the suit of such determination will of course depend on the nature of the question and how it is decided. The situation in each suit will have to be considered on its own terms. With the foregoing points in mind, I now turn to consider the various grounds taken by learned counsel for the contesting defendants. 12. The first point raised relates to the territorial jurisdiction of this Court. As noted above, learned counsel submitted that the relevant documents had been executed at Lahore, the defendants were all ordinarily resident and/or carried on business or worked for gain outside Karachi, and nothing had been shown in the plaint as would indicate that the cause of action had accrued in whole or in part at Karachi. Learned counsel relied on Bank of Credit and Commerce and others v. Asrar Hassan and others 2007 SCM R 852 to contend that a question regarding territorial jurisdiction was a mixed question of law and fact, which required the recording of evidence. He relied on Askari Leasing Ltd. v. Judge Banking Court No,1, Multan 2008 CLD 708 (LHC; DB) and Highnoon Textile Ltd. v. Saudi Pak Industries, etc. W.P. 24148 of 2009 decided on 11-2-2010 (LHC; SB; unreported) in support of his submission that even if there is a choice of forum clause in an agreement, that does not itself confer jurisdiction on the courts of the chosen foruni unless that jurisdiction otherwise vests in those courts. Learned counsel for the plaintiff on the other hand submitted that the title deeds had been deposited at Karachi with intent to create the mortgage in favour of the plaintiff, there was an
---
## Page 5
express choice of forum clause in the relevant agreements whereby the courts of Karachi had been selected, and that in any case, the finances were payable at Karachi. The cause of action had therefore arisen at least in part here, and hence this Court had jurisdiction. Learned counsel submitted that the plaintiff in fact, had only one office, which was in Karachi, and hence all finances had necessarily to be repaid here. Learned counsel relied on orders dated 29-9-2011 and 5-5-2010 made by learned single Judges of this Court in Suit B-52 of 2009 and Suit B-53 of 2009 respectively. Both these suits had been brought by the present plaintiff. Learned counsel referred in particular to the following passage from the latter Order:-- "It is clear that even a fraction of cause of action gives territorial jurisdiction to decide the case. In the present case, it is an admitted position that sanction letter was issued from Karachi, funds disbursed from Karachi and repayments were being made at Karachi. In the leave to defend application, the defendants have mentioned 70 entries whereby they have shown the amount paid to the plaintiff at Karachi against different dates of repayments which starts from 26-1-2004 to 26- 3-2006 which is another proof that payments were being made at Karachi and discontinuation/default in repayment gives much more than a fraction of cause of action to the plaintiff at Karachi.... It is clear that defendant has committed default at Karachi within the territorial jurisdiction of this Court." ' Leave to defend was refused. 13. There can be no cavil with the proposition that mere choice of parties cannot confer jurisdiction on the courts of the forum unless such jurisdiction otherwise vests in them. To hold otherwise would violate the principle that jurisdiction cannot be conferred by agreement of the parties. The mere fact therefore that the relevant agreements show that the parties have chosen Karachi as the forum is not, as such, conclusive. As regards repayments having been made at Karachi, in the two decisions relied upon by learned counsel for the plaintiff, it was either admitted or found as a fact that that was the position. In the present case, his point is controverted and there appears to be nothing in the record that would resolve the issue one way or the other. Along with the replication, the plaintiff has filed copies of a number of cheques, deposit slips and its own inter-office memos. If anything, this material seems to suggest that all the cheques in question were issued outside Karachi and handed over to the representative of the plaintiff (it would seem, at Lahore or (perhaps) Multan), which then itself deposited them in its bank accounts in Karachi. Prima facie, this would seem to indicate that the payments were made by the defendants outside Karachi. If this therefore were the only material at hand, then it would seem that the contesting defendants have raised a substantial question of law and fact, which would require evidence to be recorded. However, learned counsel for the plaintiff also relies on the fact, which is expressly recorded and is not denied, that the title deeds were deposited at Karachi with intent to create the mortgage, and it is this aspect which must be considered. 14. Section 16, C.P.C. Provides in material part as follows:-- " 16. Suits to be instituted where subject-matter situate.---Subject to the pecuniary or other limitations prescribed by any law, suits-- (c) for foreclosure, sale or redemption in the case of a mortgage of or charge upon immovable property, shall be instituted in the Court within the local limits of whose jurisdiction the property is situated, or in the case of suits referred to in clause (c) at the place where the cause of action has wholly or partly arisen...." The words emphasized were added in 1962. Now, in the present case, the defendants Nos.1, 2 and 5 have created mortgages on their immoveable properties by deposit of title deeds at Karachi and the plaintiff has expressly prayed for sale of the mortgaged properties; Thus, the present suit is one to which clause (c) of section 16 applies, and such a suit can be brought either where the immoveable properties are located or the place where the cause of action has arisen in whole or in
---
## Page 6
part. In my view, the cause of action in respect of a mortgage arises, inter alia, where the mortgage is created, or where the money sought to be secured is advanced. Since a mortgage by deposit of title deeds is necessarily created where the title deeds are deposited, it follows that the cause of action accrued in part at Karachi. Thus, the suit against the defendants Nos.1, 2 and 5 has been properly brought in this Court. 15. What of the other contesting defendants, i,e,, defendants Nos.3, 4 and 6? It will be recalled that these defendants are guarantors (i,e,, sureties) for the finances provided to the defendant No, 1. The mortgage-debt is of course nothing other than the aforesaid finances. Now, Order XXXIV, Rule 1. C.P.C. Provides that all persons having an interest either in the mortgage-security or in the right of redemption shall be joined as parties in any suit relating to the mortgage. The intent behind this provision is clear: it is to avoid multiplicity of litigation by bringing all concerned persons within the ambit of a single suit. Section 91 of the Transfer of Property Act, 1882 lists the persons who may redeem the mortgaged property or sue for its redemption, and sureties for the payment of the mortgage-debt or any part thereof are expressly covered by this section. It is also settled that all of the persons listed in section 91 have an interest in the equity of redemption. Thus, in terms of Order XXXIV, the sureties of a mortgage-debt are persons who must (or at least can) be joined in a suit seeking sale of the mortgaged property. In the present case this would mean and include all the guarantors of the defendant No,1, including in particular the defendants Nos.3, 4 and 6. These persons have also rightly been joined as defendants in the present suit. , 16. In my view therefore, in the present case it follows as a matter of law from the undisputed fact that the title deeds were deposited at Karachi that the present suit could have been instituted here against all the contesting defendants, and this is so notwithstanding that the question of whether repayments were to be made here or elsewhere may not be resolvable from the record as it stands at present. The question of territorial jurisdiction is, in the present. Case, a 'pure' question of law, which therefore can be decided at the leave granting stage. In view of the foregoing discussion, the question must be answered against the contesting defendants. 17. The next grounds taken by learned counsel for the contesting defendants relate to the statement of account with which the plaint must be supported. Section 9(2) of the 2001' Ordinance requires that in the case of a financial institution, the statement of account "shall be duly certified under the [1891 Act)". Learned counsel submitted that section 2(8) of the latter statute defined what was meant by a "certified copy" of an entry in the books of account, and it was.Only to a copy so defined that section 4 applied. The latter section allowed entries in the books of account to be proved by means of a certified copy. However, the definition of certified copy was only in relation to a "bank", which was itself defined in terms of section 2(2). Thus, the combined effect of these provisions was that it was only a statement of account filed by a bank which could be certified pursuant to the 1891 Act and to which the presumption made therein could apply. Since the plaintiff was admittedly not a bank, the statement of account filed by it was neither certified under the 1891 Act nor could any presumption attach thereto. In such circumstances, the defendants were entitled to leave to defend. 18. The foregoing ground taken by learned counsel is of course, a 'pure' question of law, since it turns entirely on a proper interpretation of the relevant provisions of the 2001 Ordinance and the 1891 Act. Though prima facie intriguing, on a closer examination the ground must, with respect, be regarded as misconceived. This is so . Because if learned counsel is correct, it necessarily means that the 2001 Ofdinance has, in section 9(2), imposed on financial institutions other than banks a mandatory obligation that is impossible for them to comply with. The reason why it is impossible is of course because (according to learned counsel) by definition it is banks alone which can comply with the obligation. In my view, this cannot be regarded as a correct interpretation of section 9(2). A reading of a statutory provision which mandatorily obligates a person to do an act which is
---
## Page 7
impossible for that person to perform must be regarded as absurd, and absurdity cannot readily be imputed to the law-maker. Looking at the matter from a slightly different perspective, the ground taken also means that in every case in which the plaintiff is a non-banking financial institution, leave would have to be granted since such a plaintiff would, by definition, be in default of the obligation imposed by section 9(2). In other words, the 2001 Ordinance…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.