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Petitioner: INVEST CAPITAL INVESTMENT BANK LIMITED and anothers VS Respondent: Messrs HOUSE JUDGMENT
Court Name: Sindh High Court Judge(s): Aqeel Ahmed Abbasi, Muhammad Junaid Ghaffar Title:INVEST CAPITAL INVESTMENT BANK LIMITED and anothers vs Messrs HOUSE
JUDGMENT
Reported As: 2015 CLD 1828 Result: Appeal dismissed Judgment JUDGMENT ' MUHAMMAD JUNAID GHAFFAR, J.---Through instant First Appeal filed under section 22 of the Financial Institutions (Recovery of Finances) Ordinance, 2001, ("2001 Ordinance") the appellant has impugned Judgment dated 12-11-2009 in Suit No.138 of 2001 passed by the learned Banking Court No. IV, at Karachi, whereby, the Suit filed by the respondent has been decreed in the sum of Rs.4,278,430 in respect of mark up for the period from 22-9-1996 to 20-5-1999 along with cost of fund from the date of filing of the Suit till realization of the payment. 2. Briefly stated, facts in the instant matter are that the respondent had filed Suit bearing No.138 of 2001 on or about 29-11-2001 before the learned Banking Court No. IV, at. Karachi against the appellant for recovery of Rs.4,278,430 along with 20% markup w.e.f. 1-7-2001 till the payment of the decretal amount and cost throughout. It has been further stated that the respondent had deposited an amount of Rs.10,000,000 (Rupees Ten Million) with the appellant for a period of one year from 22-9-1996 to 22-9-1997 upon the request of the appellant in terms of letter dated 5-9- 1996 and on deposit of such amount, the appellant had issued a Certificate of Investment bearing No.AIBL/96/0498 dated 22-9-1996. Thereafter, on expiry of one year period, the appellant failed to pay the promised/agreed markup to the respondent and thereafter without consent of the respondent paid/returned the principal amount of Rs.10,000,000 (Rupees Ten Million) in installments on various dates without any markup accrued for the period from 22-9-1995 to 22-9- 1997 and onwards. It has been further stated that on such failure and despite reminders by the respondent, a legal notice dated 3-8-2001 was issued to the appellant for payment of Rs.4,278,430 along with 20% markup and on failure of such payment, the respondent filed a Suit before the
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learned Banking Court No. IV, Karachi, which has been decreed against the appellant as referred to hereinabove. 3. Learned counsel for the appellant has referred to the Certificate of deposit dated 22-9-1996 and contended that the deposit was only for a period of one year and was subject to deposit Certificate Scheme and the Rules applicable thereto, on the basis of which the appellant had promised to pay PLS profits @ 15% per annum, whereas, the appellant had suffered losses during such period and since the agreement in between the parties was on the basis of profit and loss sharing, the appellant was not under obligation to pay any profit/ markup to the respondent. Learned counsel also referred to letter dated 25-5-1999 issued by the appellant to the respondent, wherein, such position was explained and owing to and having incurred such losses, the Chairman of respondent was apprised that in so far as the principal amount is concerned, the same stood settled, whereas, profit/markup already paid be considered as full and final settlement. Learned Counsel also referred to the cross-examination of respondent's witness (P.W. Naeem Akhtar Qureshi) and contended that the said witness in response to a question has admitted that in the offer letter no markup was offered by the appellant to the respondent. Learned Counsel further submitted that the Suit filed by the respondent was not maintainable before the learned Banking Court as the respondent is not a Customer in terms of section 3 of the 2001 Ordinance, therefore, entire exercise which has been carried out by the learned Banking Court is without jurisdiction. Learned Counsel further submitted that without prejudice to the above legal objections, the learned Banking Court has also erred in law by granting cost of fund in terms of section 3(2) of the 2001 Ordinance, as the same cannot be granted to a customer but only to a Financial Institution. In support of his contention learned counsel has relied upon the case of Muhammad Ashraf v. United Bank Limited through President and others (2009 CLD 1250) and Sh. Anayat Ali v. National Bank of Pakistan (2006 CLD 679). 4. Conversely, learned counsel for the respondent has contended that the respondent was requested by the appellant to lend money out of its surplus funds, for which the appellant had agreed to pay mark-up @ 15% per annum, whereas, the principal amount was refunded by the appellant after a lapse of 3-1/2 years without payment of agreed profits/markup, in several installments and the respondent is entitled for markup/profits accrued during this period on the said amount. Learned Counsel further contended that the money/amount was itself sought by the appellant vide its letter dated 5-9-1996 through which terms and conditions for the investment were offered and it was provided that if the amount is retained for a period of one year, 15% per annum profit would be paid. Learned counsel also referred to letter dated 18-9-1996 issued by the respondent, whereby, the offer contained in letter dated 5-9-1996 was confirmed, however, the same was subject to payment of PLS rate for one year @ 15% per annum. Learned Counsel also referred to letter dated 17-11-1997 issued by the appellant and contended that while asking for renewal of the balance amount lying with the appellant, PLS profits at the enhanced rate of 16% per annum was offered by the appellant. Learned counsel also referred to letter dated 25-3-1997 and contended that the appellant had paid an amount of Rs.669,452 as markup @ 15% per annum from 22-9-1996 to 21-3-1997. Per learned counsel, the appellant has admittedly utilized the money given by the respondent and has failed to pay the accrued profits to the Respondent, therefore, contention of the appellant that they had suffered losses is an afterthought, whereas, no evidence has been led by them in this regard. ' In support of her contention, learned Counsel has relied upon the following case-law. (1) PLD 2002 Supreme Court 208 [Pakistan through Ministry of Finance Economic Affairs and another v. Fecto Belarus Tractors Limited]. (2) PLD 1991 Supreme Court 546 [Pakistan through Secretary, Ministry of Commerce and 2 others v. Salahuddin and 3 others].
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(3) 1991 SCMR 1652 (SC) [Messrs Army Welfare Sugar Mills Ltd. And others v. Federation of Pakistan and others]. (4) 1986 SCMR 1917 [Al-Samrez Enterprise v. The Federation of Pakistan]. (5) 2005 CLD 898 [Brig (Retd.) Hamiduddin v. Askari Leasing Limited and others]. (6) PLD 1994 Karachi 194 [Karachi Catholic Cooperative Housing Society Ltd. v. Mirza Jawad Baig]. (7) PLD 1966 (W. P) Karachi 219 [Muhammad Hanif v. Hyderabad Municipality and others]. (8) PLD 2002 Supreme Court 500 [Messrs Dadabhoy Cement Industries Ltd. And 6 others v. National Development Finance Corporation, Karachi]. (9) PLD 1997 Supreme Court 304 [Khiali Khan v. Haji Nazir and 4 others]. (10) AIR 1983 SC 452 [Satyanarayana v. Koganti Ramaiah and others]. (11) 1991 MLD 1447 [International Industries Ltd. v. Collector of Customs (Appraisement) Customs House, Karachi]. (12) 2009 CLD 1143 [Habib Bank Ltd. v. Taj Textile Mills Ltd. Through Chief Executive and 5 others]. (13) PLD 1990 Lahore 99 [Messrs Sartaj Industries through Qaisar lqbal Managing Partner and 6 others]. (14) 1992 CLC 1906 [Haji Ali Khan and Company, Abbottabad through Managing Director and 8 others v. Messrs Allied Bank of Pakistan Limited]. (15) PLD 1980 Lahore 86 [Mirza Munawar Ahmed and another v. Official Liquidator and 3 others]. (16) PLD 1998 Lahore 20 [Raja Nasir Khan v. Abdul Sattar A. Khan and another]. (17) 2009 CLD 1250 [Muhammad Ashraf v. United Bank Limited through President and 3 others]. 5. We have heard both the learned counsel, perused the record and the R & P summoned from the Trial Court as well as the case-law relied upon by the learned counsel. By consent of both the learned Counsel, instant appeal is being disposed of finally at Katcha Peshi stage. It appears that the respondent, at the request of the appellant had invested an amount of Rs.10,000,000 (Rupees Ten Million) with the appellant and on such lending of money, the appellant had issued Certificate of Investment, on which, the appellant had promised to pay profit @ 15% per annum. Perusal of record reflects that such fact is not in dispute. It further appears from the record that thereafter, the principal amount of Rs. 10,000,000 (Rupees Ten Million) was Re-paid in installments over a period of 3 and 1/2 years to the respondent, whereas, the amount of accrued profits/markup was not paid, and on such failure on the part of the appellant, the respondent had filed Suit bearing No. 138 of 2001, under the 2001 Ordinance, before the learned Banking Court No.IV at Karachi for recovery of Rs.4,278,430 being the amount of profit/markup on the principal amount of Rs.10,000,000 (Rupees Ten Million). Appellant was served with summons/notices of the Suit and filed an application for leave to defend, which was allowed vide order dated 24-10-2002 and on 26-3-2003 the following issues were framed by the learned Banking Court:- (1) Whether the Suit has been filed in accordance to section 9(1), (2) and (3) of the Financial Institutions (Recovery of Finances) Ordinance, 2001, if no, what is the effect? (2) Whether the statement of account has not been verified on oath in terms of the requirement of section 9 of subsection (2) of the Financial Institutions (Recovery of Finances) Ordinance, 2001, if not, what is the effect? (3) Whether any payment has been made by the plaintiff to the defendants under the so called finance agreement, if not, what is the effect? (4) Whether the deposits made by the plaintiff are on the basis of profit and loss sharing account, if so, what is the effect? (5) Whether the defendant has paid back deposits to the plaintiff, therefore is not liable to pay any amount as alleged claim by the defendant, if so, what is the effect? (6) Whether the plaintiff can lawfully claim markup on markup, if not what is the effect?
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(7) Whether any cause of action accrues to the plaintiff against the answering defendant, if not, what is the effect? (8) What should the decree be? 6. Evidence was recorded in the matter, whereas, respondent examined P.W. Naeem Akhtar Qureshi, who had filed his affidavit-inevidence, various certificates and documents from Exh.P/2 to P/15, whereas, appellant examined D.W. Aijaz Hussain, who also filed his affidavit in evidence and documents were exhibited vide Exh.D/2 to Exh.D/7. The learned Banking Court after recording of the evidence and hearing arguments of both the parties, in response to Issue No.8 has observed that in view of the findings with regard of Issues Nos.3 and 4, the Suit of the respondent is decreed in the sum of Rs.4,278,430 for the period from 22-9-1996 to 20-5-1999 along with cost of fund from the date of filing of the Suit till payment and cost of the Suit as well. On perusal of the record as well as evidence led by the parties, it appears that the only ground, which has been urged upon by the learned counsel for the appellant is with regard to the intent and purpose of use of the words "Profit and Loss sharing" in the offer of the appellant, which per learned counsel had been promised @ 15% per annum vide letter dated 5-9-1996. The precise contention of the learned counsel for the appellant is that since the appellant had suffered losses and since the agreement was on profit and loss sharing basis, and after having incurred losses, the appellant was not required to pay any markup/profit to the respondent. The other ground which has been urged upon by the learned counsel is in respect of maintainability of the Suit before the Banking Court in terms of the 2001 Ordinance, as according to the learned Counsel there was no relationship of Customer and Financial Institution between the parties within the contemplation of the 2001 Ordinance. However, while confronted in respect of the first proposition with regard to sustaining losses, that as to whether the appellant had led any evidence in this regard, from which it could be examined and/or ascertained that the appellant had suffered any losses during such period, and hence was not in a position to pay the profit/markup to the respondent, the learned counsel for the appellant, in response, candidly admitted that no such evidence was led by the appellant. Though admittedly no evidence was led by the appellant in this regard, however, even otherwise, we are of the view that even if any evidence would have been led in this regard, the contention of the learned Counsel for the appellant does not appear to be correct, as the appellant had categorically offered profit/return @ 15% per annum initially through letter dated 5-9-1996 and subsequently through letter dated 17-11-1997, @16% per annum on the balance amount. In this offer of the appellant and acceptance by the respondent, there is no such mention whereby any inference could be drawn that the respondent knew and had also agreed to share the losses, if any, suffered by the appellant and in such a situation no profit would be receivable by the respondent. We are of the view that such conduct on the part of the appellant, whereby the respondent was induced to invest/lend certain amount, confirms that the investment, which was sought from the respondent was based on a promised payment of profit, whereas, even otherwise, the investment made by the respondent was not in respect of any business or commitment, whereby, the respondent could be burdened for sharing the losses as well so accrued to the appellant. It has been further observed that throughout, the appellant had acknowledged the liability of making payment of profit as well as the principal amount and its own conduct during this entire period had never reflected that any losses were being suffered by the appellant. In this regard, it would be advantageous to refer to the letter dated 25-9-1999 issued by the appellant and addressed to the Chairman of the respondent, wherein, the following request of the appellant is required to be examined, which read as under:- "Though there are divergences of opinions regarding calculation of profit/markup between House Building Finance Corporation and to set aside this aspect and the matter be left in your hands in granting Asset Bank the maximum concession that you may be gracious enough to allow. It may kindly not be taken as our endeavor to exercise any pressure upon yourself. For the position as
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stated above and also as explained to you during our meeting, we beg to submit a plea for the waiver of profit/markup and the principal amount already paid be kindly considered as in full and final settlement, advising also FIA, SBC that Asset Bank's account with House Building Finance Corporation stands fully settled. In case, however, in your judgment you find it extremely difficult to accede to our request as stated above, we submit a maximum of Rs.1 million may be accepted from Asset Bank as payment towards Profit/Mark-up. 7. From perusal of the aforesaid letter, it is crystal clear that the appellant had acknowledged its liability with regard to payment of profit/markup, however, as a special request, the appellant had sought waiver/relief from payment of the entire amount of markup/profit and in- the alternative, had agreed to pay an amount of Rs.1 million in lump-sum to settle such account. After having gone through the above letter as well as the record placed before us, we are of the view that the appellant had acknowledged its liability with regard to payment of markup/profit to the respondent throughout, whereas, the appellant failed to lead any evidence with regard to sustaining any losses during such period. Therefore, no exception can be taken in respect of grant of markup/profit through the impugned judgment, which appears to have been passed on the basis of evidence and the material which was placed before the learned Banking Court, whereas, the appellant has not been able to point-out any infirmity or illegality in the impugned judgment, whereby, this Court can exercise any discretion to upset such findings of the learned trial Court. The appellant had obtained/borrowed money from the respondent and had promised to pay mark-up at a certain rate, and thereafter, had admittedly defaulted, whereas, the appellant had not denied disbursement of money by the respondent nor has denied the relationship with the respondent, at least to the extent of taking money from the respondent, and instead had been pursuing settlement with regard to payment of markup, hence in our opinion, the objection of sustaining losses does not appear to be sustainable and is rather misconceived and an afterthought. 8. Insofar as the legal objection, as raised by the learned counsel for the appellant with regard to the relationship of the respondent as a Customer in terms of section 2(c) of the 2001 Ordinance is concerned, we may observe that no such objection/plea was raised before the learned Banking Court, whereas no issue was framed in this regard, however, even otherwise, we are of the view that the appellant which itself is an Investment Bank had sought funds/finance from the respondent and had issued a Certificate of Investment as a promissory note. It will not be out of place to mention that for a Suit to be maintainable before a Banking Court in terms of the 2001 Ordinance, there must exists a relationship of Customer and Financial Institution between the parties, whereas there must have been a finance facility, which must have been availed by the Customer and the dispute must have arisen between the Customer and the Financial Institution with regard to violation or breach of any obligation required to be performed or honored by any of them as defined in section 2(e) of the 2001 Ordinance, which again must be in respect of the Finance as defined in section 2(d) of the 2001 Ordinance. Though the learned counsel for the appellant has only raised the objection with regard to the extent that the respondent does not fall within the definition of Customer, hence, cannot file a Suit under the 2001 Ordinance before Banking Court and can neither claim markup or cost of funds. However, the matter is not that simple and in our view requires a deeper appreciation and understanding of the definition of Customer, Financial Institution and Finance as spelt out in section 2(a), (c) and (d) of the 2001 Ordinance and it would be advantageous to refer to the said B provisions which read as under:- (a) "Financial Institution" means and includes:- (i) any company whether incorporated within our outside Pakistan which transacts the business of banking or any associated or ancillary business in Pakistan through its branches within or outside Pakistan and includes a Government savings bank, but exclude State Bank of Pakistan;
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(ii) a modaraba or modaraba management company, leasing company, investment bank, venture capital company, financing company, unit trust or mutual fund of any kind and credit or investment institution, corporation or company; and (iii) any company authorized by law to carry on any similar business, as the Federal Government may by Notification in the official gazette, specify; "(c) Customer means a person to whom finance has been extended by a financial institution and includes a person on whose behalf a guarantee or letter of credit has been issued by a financial institution as well as a surety or an indemnifier." (d) "Finance" includes:- (i) an accommodation or facility provided on the basis of participation in profit and loss, mark-up or mark-down in price, hire-purchase, equity support, lease, rent-sharing licensing charge or fee of any kind, purchase and sale of any property including commodities, patents, designs, trademarks and copyright, bills of exchange, promissory notes or other instruments with or without buy-back arrangement by a seller, participation term certificate, musharika, morabaha, musawama, istannah or modaraba certificate, term finance certificate; (ii) Facility of credit or change cards; (iii) facility of guarantees, indemnities, letters of credit or any other financial engagement which a financial institution may give, issue or undertake on behalf of a customer, with a corresponding obligation by the customer to the financial institution. (iv) a loan, advance, cash credit, overdraft, packing credit, a bill discounted and purchased or any other financial accommodation provided by a financial institution to a customer. (v) a benami loan or facility that is, a loan or facility the real beneficiary or recipient whereof is a person other than the person in whose name the loan or facility is advanced or granted; (vi) any amount due from a customer to a financial institution under a decree passed by Civil Court or an award given by an arbitrator, any amount due from a customer to a financial institution which is the subject matter of any pending suit, appeal or revision before any Court, any other facility availed by a customer from a financial institution. 9. Perusal of the aforesaid definition of section 2(c) of the 2001 Ordinance reflects that a Customer includes a person to whom finance has been extended by a Financial Institution and also includes a person on whose behalf a guarantee or letter of credit has been issued by a financial institution, as well as a surety or an indemnifier. From the aforesaid definition it emanates that there are in fact three categories of persons who can be called or termed as a Customer within the contemplation of the 2001 Ordinance. First, a person to whom finance is extended by a financial institution; second a person who avails non-fund based financial facility such as letter of credit; third and last a person who stands surety or indemnifier before a financial institution on behalf of a direct customer of the institution and in fact is somewhat different from a Customer of first two categories. These three categories of Customer as defined in Section 2 (c) of the 2001 Ordinance, have been elaborately explained by a learned Single Judge of this Court in the case of Procter and Gamble Pakistan (Pvt.) Limited, Karachi v. Bank AL-Falah Limited, Karachi and 2 others (2007 CLD 1532). 10. In the instant matter money has been borrowed by the appellant on a promise to pay markup and though it has been termed as deposit, however, it may be appreciated that the respondent from whom the money is being asked for or borrowed is not an ordinary account holder, whereas the appellant is also not a commercial bank but an Investment Bank who needs to borrow and generate money/funds to carry out its operations. Moreover, the respondent itself is a finance company having surplus funds/money to lend it to others, therefore, it could be safely said that the respondent in the instant matter is not a Customer, rather the appellant who has asked for a loan or deposit from the respondent on a certain rate of markup, is a Customer. Therefore, we are of the
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humble opinion that in the given situation, the case of the appellant on the touch stone of the aforesaid definition and the discussion in the case of Procter & Gamble (Supra) would fall in the first category i.e. The person to whom finance has been extended by a financial institution. We have also no doubt in our minds that in the given situation the money given by the respondent to the appellant would amount to "Finance" within the contemplation of section 2(c) of the 2001 Ordinance. Now adverting to the second leg of this definition that as to whether finance in question was provided by a financial institution or not so as to bring the transaction within the purview of the provisions of the 2001, Ordinance, breach of which permits filing of a Suit before and under the Banking Jurisdiction of the Court as provided under section 9 of the Ordinance ibid. For this we need to examine the definition of Financial Institution as referred to hereinabove. From perusal of the aforesaid definition, it reflects that financial institution means and includes, any company whether incorporated within our outside Pakistan which transacts the business of banking or any associated or ancillary business in Pakistan through its branches within or outside Pakistan and includes a Government savings bank, (but excluding State Bank of Pakistan), a modaraba or modaraba management company, leasing company, investment bank, venture capital company, financing company, unit trust or mutual fund of any kind and credit or investment institution, corporation or company; and any company authorized by law to carry on any similar business, as the Federal Government may by Notification in the official gazette, specify. Here…
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