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Official Citation: 2026 LHC 3307
Court / Jurisdiction: Lahore High Court (Honorable Mr. Justice Asim Hafeez)
Parties: THE BANK OF KHAYBER vs SHUJABAD OIL AND FEED MILLS
Ruling Summary: This decision was rendered by the Lahore High Court (Honorable Mr. Justice Asim Hafeez), officially reported as 2026 LHC 3307. In this matter between THE BANK OF KHAYBER and SHUJABAD OIL AND FEED MILLS, the court adjudicated key questions of statutory construction, procedural regularity, and legal precedent under Pakistani law.
Core Holding: The honorable bench evaluated governing statutory provisions and judicial authorities to establish the rights of the parties, delivering the binding reasoning set out below.
COURT: Lahore High Court (Honorable Mr. Justice Asim Hafeez) DECISION DATE: 20-05-2026 TAGLINE: The intent of parties and terms of contract determines the nature of bailment, if it was a pledge or hypothecation. CASE DETAILS: PLA 15-20 ============================================================ Stereo. HCJDA 38. Judgment Sheet IN THE LAHORE HIGH COURT MULTAN BENCH, MULTAN (JUDICIAL DEPARTMENT) ……………….
Civil Original Suit No.24 of 2020 and PLA No.15 of 2020
The Bank of Khyber
Versus
Shujabad Oil & Feed Mills (Pvt.) Limited, etc.
JUDGMENT
Date of hearing: 20.05.2026. Plaintiff by: Mian Muhammad Ashraf, Advocate. Defendants by: Mr. Hassan Ismail, Advocate.
ASIM HAFEEZ, J. Recovery of Rs.217,189,234/ - is sought under Section 9 of Financial Institutions (Recovery of Finances) Ordinance, 2001 (“the Ordinance, 2001”) with costs and costs of funds. Plaintiff is a Financial Institution in terms of section 2(a) of the Ordinance, 2001. Defendant No.1, a private limited company and accordingly incorporated, is a principal debtor. Defendants N o.2 to 4 are impleaded as co -debtors, who have executed personal guarantees to secure repayment of the liabilities of respondent No.1 and defendants No.1 to 4 are collectively referred to as “ Customers”. Pursuant to notices issued in all prescribed modes, under Section 9(5) of the COS No.24/2020 2 Ordinance, 2001, defendants No.1 to 4 [the „contesting defendants‟] appeared and submitted application seeking leave to defend the suit, which is numbered as PLA No.15/2020 and to which replication was submitted by the Plaintiff. Claim’s profile is as follows. 2. For the purposes of present suit, plaintiff‟s claim is based on Cash Finance Facility [CF facility], having sanctioned and utilized limit of Rs.200.000 Million. Pursuant to the request submitted vide letter dated 27.08.20 19, whereby, besides seeking renewal/enhancement of other facilities, contesting defendants had requested for renewal and enhancement of CF facility – as on said date CF facility of Rs.200.000 Million was availed and outstanding and increase therein to Rs. 300.000 Million was sought. Plaintiff allowed renewal of CF facility in terms of approval letter dated 16.12.2019, terms and conditions whereof were duly acknowledged and accepted by the contesting defendants. Pursuant to the acceptance of approval letter, agreements, finance and security documents – inter alia comprising of promissory note, letter of pledge, personal guarantees and charge documents were signed and executed. Repayment of CF facility was extended till 30.11.2020. Markup has been charged till 15.08.2020. Statement in terms of section 9(3) of the Ordinance, 2001 is provided in the plaint, where details of entries were provided, which details were supported COS No.24/2020 3 through the statements of accounts, comprising of loan/finance and running/current account maintained with the plaintiff. 3. Learned counsel for defendants contends that suit was not instituted by duly authorized person; plaintiff Bank failed to comply with requirements of Section 9 (3) of the Ordinance, 2001; claim is not sustainable on the basis of incomplete statement(s) of accounts which reflected debit / credit entries till November 2019 only and beyond that no details were provided. Adds that upon loss of the goods pledged, undwer lock and key of the plaintiff, no recovery could be effected from guarantors under section 141 of the Contract Act 1872. It is evident from the application seeking leave to defend that the contesting defendants claimed that illegal adjustments were made by the plaintiff and in this behalf various entries were highlighted claiming alleged adjustments and objections regarding unexplained debit entries. Objections for the sake of objections, without any substantiation, needs no reproduction. 4. Learned counsel for plaintiff contends that request letter dated 27.08 .2019, supported by resolution of the Board, constitutes an absolute acknowledgment of overdue liability with respect to CF facility. Adds that approval letter contained acknowledgement of outstanding CF facility and terms of renewal thereof were followed by execution of bulk of agreements, finance and security. Adds that renewal of facility constitutes an obligation under the Ordinance, 2001 and the COS No.24/2020 4 contesting defendants are estopped from questioning factum of overdue CF facility, entries in accounts before effect of renewal and beneficial utilization thereof. Adds that dispute qua entries before renewal of CF facility is misconceived. Further explains that entries reproduced in application for leave to defend are identifiable in statement(s) of accounts, b oth finance and current account(s). Submits that markup charged is within the contractual period and in accordance with the terms of finance agreement. On the issue of pledged goods, it is alleged that pledge goods were stored within the premises of the co ntesting defendants and same were lifted and utilized in the course of commercial activity by defendants. Adds that in view of the terms of letter of pledge and circumstances no negligence could be attributed to the plaintiff. Determination of the claim. 5. Heard. 6. Whether the contesting defendants are entitled to grant of leave to defend the suit upon appraisal of the grounds pleaded, primarily regarding accounting dispute, before effecting of renewal, and effect of alleged loss of pledged goods, being security for repayment of overdue liability. Before determination of the plausibility of application for leave to defend, certain acknowledged facts need reiteration. Instant claim is confined to CF facility, evidently renewed vide COS No.24/2020 5 approval letter of 16.12 .2019, pursuant to request made, terms whereof were accepted without any objection. At the time of renewal, a sum of Rs.200.000 Million was outstanding against CF facility, and repayment thereof was extended. It is pertinent to mention that withdrawals fro m the finance account could be made once cushion [difference in the sanctioned limit and overdue amounts] is available upon deposits made – since no deposits were made to reduce outstanding CF facility therefore no effective / fresh withdrawals details req uire reflection in accounts. CF facility account showed outstanding / overdue liability of Rs.200.000 Millon on 29.11.2019. 7. I have examined the debit and credit entries and same correspond with the details in the statement(s) of accounts, finance and c urrent accounts – comparison depicts that the contesting defendants lifted selective entries from the statement(s) of accounts instead of appending copy of current account [CD 00333 -00-2] with the application, wherein adequate explanation / details were av ailable to cross -match corresponding entries in finance account – which is FFC 00333- 01-6. Markup charged is within the term of the agreement, which correspond with expiry of facility reflected in the approval letter – which is 30.11.2020. Mere reproductio n of entries in PLA, without supporting documents / statement, hardly constitutes a ground to call for evidence, when statement(s) of accounts otherwise extends plausible clarity qua COS No.24/2020 6 the amounts availed, repaid and overdue liabilities regarding CF facility. 8. After hearing learned counsel, examining contents of plaint, PLA and replication, it is evident that defence pleaded is feeble and no substantial questions of law and facts, with respect to accounts, have been raised, requiring recording of evidence. Agreements, finance and security documents, including promissory -note, personal guarantees and charge/mortgage documents are found to be duly executed. No triable question otherwise arises. Branch Manager has instituted suit, which meets requirements of law. Statement(s) of accounts are certified and found in accordance with the mandate of law. Markup claimed is within expiry period. 9. Now I take up the issue of alleged loss of pledge goods, as claimed by the contesting defendants. Bailment of go ods as security for payment of a debt or performance of a promise is classified as pledge. Delivery of goods, physical or constructive, besides the rights and obligations of pawnor or pawnee contained in the Contract Act 1872 are bedrock ingredients of transaction of pledge. There is no cavil that statutorily defined rights and obligations of pawnor and pawnee are enforceable, unabated by contractual limitations, be it the care required to be taken by the bailee or the obligations of the bailor, but parties are free to agree to the nature of the bailment, is it a pledge or hypothecation. And terms of the contract manifest the intention COS No.24/2020 7 of the parties. Question requiring determination is whether, upon review of the terms and conditions of letter of pledge, transaction intended is a pledge or hypothecation and this determination is dependent upon construction of the letter of pledge, which is examined and following clauses thereof are determinative of the intent of the parties. Relevant clauses of letter of pledge, which are 7 & 11 and reproduced hereunder, 7. I/We shall keep or cause to be kept a register of the goods for the time being and from time to time pledge with you and particulars of insurance thereon . I/We shall duly and punctually enter or cause to be entered particulars of all pledged goods and of all goods and merchandise consumed therefrom and I/we shall, weekly or as often as you may require, furnish to you a certified statement or copy of all entries which shall have been made in the said register since the last statement or copy was furnished and shall, as often as may be required, produce to you, your nominees or agents, the said register all account and other books, invoices, bills, vouchers, instruments and papers in any way relating to the pledged goods or any part thereof and shall permit you, your nominees and agents inspect and take copies or extracts from the same and shall furnish to you, your nominees and agents all such other particulars of or information concerning the pledged goods as you may require.
11. I/We agree that you shall not be responsible/liable in respect of the pledged goods nor for counting, measurement, quality and quantity of the same . You, your agents, nominees, contractors, licensees and your and their servants shall not b e liable for and I/We hold you, your agents, nominees, contractors, licensees and your and their servants harmless and indemnified against any and all loss or injury, damage, destruction, depreciation or deterioration that may be caused to the pledged good s as a consequence or result, however, remote, or any cause whatever, including fire, storm, tempest, earthquake, rains, floods riots, civil commotion, rebellion insurrection and acts of God or the enemies of the State, strikes, lockouts, political or labor disturbances, theft, misappropriation or embezzlement, notwithstanding the fact of your possession of the same or otherwise howsoever and at any time caused or arising including by your fault or the fault or negligence of your agents, nominees, COS No.24/2020 8 contractors, licensees or your or their servants. If the pledged goods shall at any time suffer any reduction or diminution in their market value as a consequence or result of any such causes as aforesaid, I/We shall forthwith, upon demand made by you deposit with you further securities in the manner and to the extent of shortfall in the value of the same. [Emphasis supplied] 10. Authority to consume goods or merchandise therefrom, explicitly suggested the pledge stocks is critical for determining the character of bailment, which in this case is akin to hypothecation – where notwithstanding the possession the discretion to consume is extended. Additionally, promise to indemnify plaintiff against theft and misappropriation of stocks alters the essential character of pledge. The intent of the parties is evident and mere nomenclature of the transaction would not inundate such right. Permission to consume and commitment to indemnify plaintiff upon theft / misappropriation of goods had the effect of compromising Pawnee‟s right to sell pledged stocks – a feature salient to the transaction of alleged pledge. In wake of such peculiar clauses of letter of pledge question of application of section 151 of the Contract Act 1872 does not arise – no insurance policy in this behalf is produced. In view of peculiarity of terms of letter of pledge, no obligation of the plaintiff is established qua alleged consumption / loss of pledged goods. Analysis and observations recorded in the case of Messrs World Trans Logistics and others V. Si lk Bank Limited and others (2016 SCMR 800 ) have persuasive effect COS No.24/2020 9 and is cited for referral purposes – since leave to appeal was refused against impugned judgments. This hybrid bailment is not a pledge but a symbolic one, which has proximity to hypothecation. 11. In these circumstances, PLA No.15/2020 is found devoid of raising any material controversy and / or substantial question(s) of law and facts warranting recording of evidence, hence, same is dismissed. 12. Plaintiff‟s claim is found substantiated. In terms of statement of accounts view of above, a sum of Rs.217,189,234/- [Principal liability of Rs.200,000,000 and overdue markup of Rs.17,189,234/- as on 15.08.2020] is due and payable. 13. In view of the above, suit of plaintiff is decreed for Rs.217,189,234/- with cost of the suit and cost of funds in terms of Sections 3 and 17 of the Ordinance, 2001, against the defendants No.1 to 4, jointly and severally. The decree sheet be prepared accordingly. 14. The decree shall stand converted into execut ion proceedings in terms of Section 19(1) of the Ordinance, 2001 and case shall be fixed for hearing after expiry of 30 days from the date of this judgment and decree, on a date to be fixed by the office.
(ASIM HAFEEZ) JUDGE Approved for reporting.
JUDGE Imran/*