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Official Citation: 2026 LHC 4010
Court / Jurisdiction: Lahore High Court (Honorable Mr. Justice Hassan Nawaz Makhdoom)
Parties: Habib Bank Limited through Muhammad Ajmal Senior Manager LHR vs MS Taunsa Gypsum Pvt Ltd etc
Ruling Summary: This decision was rendered by the Lahore High Court (Honorable Mr. Justice Hassan Nawaz Makhdoom), officially reported as 2026 LHC 4010. In this matter between Habib Bank Limited through Muhammad Ajmal Senior Manager LHR and MS Taunsa Gypsum Pvt Ltd etc, 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 Hassan Nawaz Makhdoom) DECISION DATE: 29-06-2026 TAGLINE: Financial Institutions (Recovery of Finances) g Ordinance, 2001?Section 22?Contract Act, 1872?Sections 171 & 176?Regular First Appeal?Foreign Currency Deposit?Banker's Lien?Collateral Security?Joint Account?Either or Survivor Mandate?Unilateral Encashment?Appropriation of Deposit?Due Process?Demand Notice?Judicial Determination of Liability?Scope of Banker's Rights?Restitution. A banker's lien is fundamentally a right of retention and, in the absence of an express statutory provision or an unequivocal contractual stipulation, does not by itself confer authority to unilaterally encash, realize or appropriate a customer's deposit towards an alleged outstanding liability. Where a financial institution seeks to deprive a customer of proprietary rights in funds held as collateral security, the burden lies upon it to establish clear contractual authority, effective service of demand notice, compliance with due process and lawful determination of liability. Internal statements of account, unilateral calculations or self-assessment of default cannot substitute judicial adjudication nor authorize the bank to simultaneously assume the roles of claimant, adjudicator and executing authority. The expression "either or survivor" merely regulates the operational mandate of a joint account and cannot be construed as empowering one account holder to create a security interest binding upon the proprietary rights of the other, nor does it authorize a financial institution to appropriate the entire joint deposit in satisfaction of the liability of one account holder or of a third-party borrower without the express consent of the co-holder. Failure to prove effective service of demand notice deprives the customer of the opportunity to redeem the security, dispute the alleged liability or seek protection from a competent judicial forum, thereby rendering any unilateral realization of the security inconsistent with the principles of natural justice, fairness and due process. A financial institution is undoubtedly entitled to recover amounts lawfully due and enforce valid securities; however, recovery must always be pursued through lawful means. Banking convenience, contractual expediency or commercial necessity cannot override the rule of law or justify unilateral deprivation of proprietary rights. Liability must first attain the character of a due, certain and legally determined obligation before any right of set-off, adjustment or realization can lawfully be exercised. Where a bank, without prior judicial determination of liability, without effective demand notice, and without lawful authorization from all persons having proprietary interest in the secured asset, unilaterally encashes and appropriates a foreign currency deposit held as collateral security, such action is legally unsustainable and liable to be reversed through restitution. Restoration of the amount wrongfully appropriated, together with consequential profit, constitutes an equitable and restorative remedy designed to place the parties in the position they would have occupied had the unlawful appropriation not occurred. Held: A banker cannot convert a disputed claim into an enforceable liability through its own internal determination, nor can it exercise the powers of claimant, judge and execution Court simultaneously. A lien remains a right of retention unless enlarged by clear contractual authority and exercised strictly in accordance with law, due process and prior lawful determination of liability. CASE DETAILS: Regular First Appeal (R.F.A) (Final Decree) 7759/22 ============================================================ Stereo. H C J D A 38. JUDGMENT SHEET THE LAHORE HIGH COURT, LAHORE JUDICIAL DEPARTMENT RFA No.7759 of 2022 Habib Bank Limited etc. Vs. M/s Taunsa Gypsum (Pvt.) Limited etc.
J U D G M E N T Date of Hearing 20.05.2026 For Appellants Mr. Ashar Elahi, Advocate For Respondents: Ch. Jamshaid Sadiq, Advocate Hassan Nawaz Makhdoom, J.- Through the instant Regular First Appeal, preferred under Section 22 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (the “Ordinance”), the appellants have called in question the legality and propriety of the judgment and decree dated 22.12.2021 rendered by the learned Judge, Banking Court No.1, Lahore, in Suit No.130/01/2020 , whereby the suit instituted by the respondents was decreed and the appellants were directed to reverse the debit and adjustment of US$353,640.49 effected from the foreign currency account jointly maintained by respondent Nos.2 and 3, and further to restore the said amount together with profit calculated at the prevailing bank rate from the date of adjustment until its actual realization. 2. The facts necessary for adjudication of the present appeal are that in the year 1992 respondent No.2, Muhammad Khan Malik, submitted a bid for purchase of assets of Gypsum Corporation L imited, then under liquidation before the Hon’ble Sindh High Court, Karachi. The bid was accepted for Rs.15.9 million and the purchaser was required to deposit the purchase price within the stipulated time. For arranging the remaining amount, respondent No.2 approached the appellant-Bank for issuance of a bank guarantee. The Bank declined to issue the guarantee and advised that foreign currency deposit be placed under lien for obtaining running finance. Consequently, finance facility of Rs.8.4 million was a rranged in favour of respondent No.1 -company, whereas R.F.A. No.7759 of 2022 -:2:-
foreign currency account No.40655-9, jointly maintained by respondent Nos.2 and 3, was treated by the Bank as security. 3. The respondents instituted the suit seeking declaratory relief, mandatory injun ction and, in the alternative, recovery of compensation/damages. The crux of their case was that the appellant - Bank, acting unilaterally and without lawful justification, appropriated funds lying in the foreign currency account jointly maintained by respondent Nos.2 and 3. According to the respondents, the Bank neither served any effective demand notice nor established the alleged liability before any competent forum, and further lacked authority from respondent No.3, who was admittedly a joint account hold er. It was pleaded that, despite these legal deficiencies, the appellant-Bank debited and encashed US$353,004.08 on 08.07.1993 and a further sum of US$636.41 on 12.07.1993 under the head “TRF/MISC”, thereby appropriating an aggregate amount of US$353,640.4 9 from the said foreign currency account. 4. The respondents further asserted that the foreign currency deposit had merely been placed under lien as collateral security and that neither ownership nor dominion over the deposit had ever been transferred to the Bank. It was their categorical stance that the arrangement did not amount to a pledge, assignment or any other security mechanism conferring an express right of sale, realization or appropriation upon the Bank. Consequently, while the Bank might have po ssessed a limited right to retain the security in accordance with law, it was not legally entitled to convert, encash or appropriate the deposit on the basis of its own unilateral determination of liability. The respondents, therefore, maintained that any realization of the deposit could only be effected through lawful process and after compliance with the requirements of due process, including proper demand, notice and determination of the alleged liability by a competent forum. 5. The appellants resisted the suit by maintaining that respondent No.2 had voluntarily and consciously created a lien over the foreign R.F.A. No.7759 of 2022 -:3:-
currency deposit as collateral security and had further executed an unequivocal guarantee securing repayment of the finance facility extended in favour of respondent No.1. According to the appellants, the finance facility was duly availed and, upon respondent No.1’s failure to discharge its repayment obligations, a default occurred, thereby entitling the Bank to enforce the security in accordance wit h the contractual arrangement governing the transaction. It was their specific case that the lien, guarantee and other finance documents conferred lawful authority upon the Bank to realize and encash the foreign currency deposit and to appropriate the proceeds towards liquidation of the outstanding liability. The appellants further asserted that the impugned adjustment was neither arbitrary nor unauthorized but was effected strictly in exercise of contractual rights flowing from the security documents execu ted by the parties. In addition to contesting the claim on merits, the Bank also raised various preliminary objections, inter alia, that the suit was barred by limitation, that a suit for declaration and mandatory injunction was not maintainable in the cir cumstances of the case, that the plaint disclosed no valid cause of action against the Bank, and that the proceedings had not been instituted by a duly authorized and competent person on behalf of the plaintiffs. Thus, dismissal of the suit was sought in its entirety. 6. Out of divergent pleadings of the parties, t he learned Banking Court framed the following issues: 1. Whether the suit is within time? OPP 2. Whether the suit is not maintainable having not been filed by an appropriate person? OPD 3. Whether the suit has not been filed by a duly authorized person? OPD 4. Whether the plaintiff is entitled to a decree for recovery of the amount claimed against the defendants? OPP 5. Relief. 7. To discharge the burden of proof cast upon them under the aforesaid issues, both parties produced oral as well as documentary evidence. The respondents/plaintiffs examined Muhammad Khan Malik as PW -1, who reiterated the assertions contained in the plaint and R.F.A. No.7759 of 2022 -:4:-
produced the relevant banking record, correspondence, ac count statements and other documents relied upon in support of the claim. Through his testimony, the respondents sought to establish that the foreign currency deposit standing in the joint names of respondent Nos.2 and 3 had merely been placed under lien a s collateral security and that the appellant -Bank lacked lawful authority to unilaterally encash and appropriate the same without prior demand, effective notice and determination of liability by a competent forum. In support of their case, the respondents also relied upon the account opening documents, correspondence exchanged between the parties and other documentary material relating to the disputed encashment and adjustment. In rebuttal, the appellants/defendants produced Mr. Muhammad Akram Malik, Branch Manager, as DW-1, who appeared on behalf of the appellant-Bank and brought on record the finance documents, Letter of Lien (Ex.D -2), guarantees, finance agreement, account statements, alleged notices of demand and other banking documents. Through the said evidence, the appellant -Bank endeavoured to establish that respondent No.2 had voluntarily furnished an unequivocal guarantee and created a lien over the foreign currency deposit as security for repayment of the finance facility extended in favour of respondent No.1; that default had occurred in repayment of the finance facility; and that the Bank was contractually authorized to realize, encash and adjust the security towards liquidation of the outstanding liability. However, instead of examining the controversy on merits, the suit was initially dismissed solely on the ground that it was barred by limitation. The said finding was challenged by the respondents through R.F.A. No.338 of 2009 before this Court. Upon a comprehensive examination of the record and the applicable law, this Court, vide judgment dated 02.03.2020, reversed the finding of the learned Banking Court on the question of limitation and held that the suit had been instituted within the prescribed period of limitation. Consequently, the appeal was allowed and the matter was remanded to the learned Banking Court for adjudication of the remaining R.F.A. No.7759 of 2022 -:5:-
issues on merits. Since the entire evidence of the parties had already been recorded prior to the dismissal of th e suit, no further evidence was required, and the learned Banking Court was directed to decide the outstanding issues on the basis of the evidence already available on record. Thus, the question of limitation stood conclusively determined in favour of the respondents and attained finality between the parties, leaving the learned Banking Court to undertake an adjudication of the substantive controversy arising from the pleadings, evidence and documentary record. 8. After remand, the learned Banking Court decided issues No.2 and 3 against the Bank, holding that the Bank had failed to prove that the suit was not filed by an appropriate person or was not instituted by a duly authorized person. While deciding the pivotal issue No.4 regarding entitlement of the respondents, the learned Banking Court held that due service of an effective notice of demand had not been proved; that notices were sent at an incomplete address; that the documents were admittedly signed in blank and filled in later; that respondent No.3 h ad n either created lien nor consented to adjustment of the joint account; and that the Bank had acted both as a claimant and judge in its own cause without prior adjudication of liability. Consequently, the learned Banking Court answered the material issue s in favour of the respondents and, through the impugned judgment and decree dated 22.12.2021, decreed the suit to the effect of directing reversal and restoration of US$353,640.49 to the foreign currency account of respondent Nos.2 and 3 together with profit accrued thereon at the applicable bank rate. The appellants, being dissatisfied with the findings and conclusions recorded by the learned Banking Court, have invoked the appellate jurisdiction of this Court seeking reversal of the impugned judgment and decree. 9. Learned counsel for the appellants vehemently contended that the impugned judgment and decree cannot be sustained in law as the same are founded upon a misreading and non-reading of the material evidence available on record. According to the learned counsel, the learned R.F.A. No.7759 of 2022 -:6:-
Banking Court failed to accord due weight and legal effect to the documentary evidence produced by the appellant-Bank, particularly the Letter of Lien (Ex.D-2), the finance agreement, the guarantees executed by respondent No.2 and the joint account opening documents, all of which, according to him, formed an integral part of a single financial arrangement between the parties. It was argued that the grant of the finance facility to respondent No.1 and the creation of lien over the foreign currency deposit by respondent No.2 were admitted and undisputed facts. Therefore, once default in repayment of the fi nance facility had occurred, the appellant -Bank became legally and contractually entitled to realize the collateral security and appropriate the proceeds towards liquidation of the outstanding liability. 10. Learned counsel submitted that the learned Banking Court erroneously ignored the contractual terms governing the transaction and failed to appreciate that the Bank's action was taken in exercise of rights expressly conferred through the security documents executed by the parties. Placing reliance u pon Section 176 of the Contract Act, 1872, learned counsel argued that the Bank, in its capacity of a secured creditor, was lawfully authorized to realize the security upon default and that no separate recovery proceedings were required before exercising s uch contractual rights. It was further contended that the subject foreign currency account was maintained on an “either or survivor ” basis, thereby authorizing either of the account holders to operate the account independently. Hence, the objection regardi ng the absence of separate consent or authorization from respondent No.3 was legally untenable and misconceived. Learned counsel further maintained that the respondents had incorrectly invoked the jurisdiction of the Banking Court through a suit for declar ation and mandatory injunction. Per learned counsel, the relationship between the parties was purely contractual in nature and, even if any grievance regarding the Bank's action existed, the respondents' remedy, if any, l ies in seeking compensation or dama ges and not in obtaining declaratory or restorative relief. On the strength of R.F.A. No.7759 of 2022 -:7:-
these submissions, it was urged that the impugned judgment and decree suffer from serious legal and factual infirmities, warranting interference by this Court in exercise of its appellate jurisdiction. 11. Conversely, learned counsel appearing on behalf of the respondents supported the impugned judgment and decree in its entirety, contending that the same is firmly grounded in the evidence available on record and is fully consistent with the settled principl es governing banking transactions and enforcement of securities. It is argued that a lien, in its ordinary legal connotation, is merely a right of retention and does not, per se, confer any authority upon the holder thereof to sell, convert, encash or appropriate the secured property unless such power is expressly and lawfully conferred through a valid contractual arrangement. Contended that the appellant -Bank has failed to demonstrate the existence of any clear and unambiguous authorization entitling it to unilaterally encash and appropriate the foreign currency deposit without first resorting to lawful proceedings. Learned counsel further emphasized that the Bank never instituted any recovery proceedings against the respondents, nor did it file any counter claim, seek any set -off before a competent forum, or secure any judicial determination of the liability allegedly outstanding against respondent No.1. Instead, the Bank proceeded on the basis of its own unilateral assessment of the amount claimed to be due and appropriated the deposit without any adjudication from a Court of competent jurisdiction. Thus, such a course of action was inconsistent with the requirements of due process and fair adjudication recognized by law. It was further argued that the respondents' case found substantial support from the admissions made by the Bank ’s own witness during cross -examination. Particular reliance was placed upon the admission that certain finance and security documents had been signed in blank and were subsequently filled in by the Bank ; Equally significant, was the Bank ’s failure to establish effective service of the alleged demand notices through reliable documentary evidence. The witness produced by the Bank was unable to R.F.A. No.7759 of 2022 -:8:-
satisfactorily prove the mode, dispatch or delivery of the notices, thereby lending credence to the respondents’ assertion that no lawful demand was ever communicated prior to the impugned encashment. Learned counsel submitted that, in these circumstances, the learned Banking Court rightly concluded that the appellant-Bank had assumed unto itself the dual role of claimant and adjudicator by determining the alleged liability on its own and thereafter proceeding to realize the security without recourse to a competent forum. He maintained that the le arned Banking Court correctly appreciated both the oral and documentary evidence and rightly applied the principles of law enunciated by the Hon’ble Supreme Court of Pakistan in Messrs Summit Bank Limited through Manager v. Messrs Qasim & Company through M uhammad Alam and another (2015 SCMR 1341 ), wherein it was held that a financial institution cannot arrogate to itself judicial authority for determining disputed liability and thereafter enforce recovery on the basis of its own unilateral determination. In view of the above submissions, learned counsel urged that the appeal, being devoid of merit, deserves dismissal, while the impugned judgment and decree merit affirmation, as the findings recorded by the learned Banking Court are based upon a proper appreciation of the oral and documentary evidence and are in complete accord with the law declared by the superior Courts. 12. Arguments heard and the record perused. 13. It is evident that the controversy requiring determination in the present appeal lies within a narrow compass. The existence of the finance facility extended in favour of respondent No.1 is not seriously disputed. Likewise, the fact that certain security arrangements were entered into by the parties, including the creation of a lien over th e foreign currency deposit, also stands admitted. The dispute, therefore, does not revolve around the grant of finance or the existence of security as such. The real and determinative question requiring adjudication is whether the appellant-Bank, solely on the strength of the lien, guarantee and allied security documents, was authorized and legally entitled to unilaterally R.F.A. No.7759 of 2022 -:9:-
encash and appropriate the foreign currency deposit , jointly held by respondent Nos.2 and 3, towards satisfaction of the alleged outstanding liability of respondent No.1. A further question arising for consideration is whether the appellant -Bank could lawfully appropriate the foreign currency deposit without first establishing effective service of demand notice and without affording the respondents a reasonable opportunity to discharge, explain or contest the alleged liability. Another significant aspect requiring examination is whether the appellant -Bank could lawfully proceed with appropriation of the deposit in the absence of any prior adjudication or lawful determination of the amount allegedly due and payable from the respondents . In other words, the principal controversy is not qua the existence of the debt or the security, but the legality, validity and enforceability of the mechanism adopted by the appellant-Bank for realization of the alleged liability and the extent of authority conferred upon it under the governing contractual documents and the applicable law. 14. Before proceeding further, it would be advantageous to examine the true nature and character of the suit instituted by the respondents. The preliminary objection raised by the appellants regarding non - maintainability of the suit on the premise that it was merely a declaratory action, does not withstand scrutiny when tested against the pleadings and reliefs claimed in the amended plaint. A careful reading of the amended plaint reveals that the respondents primarily sought a declaration that the encashment and appropriation of the foreign currency deposit by the appellant-Bank were unlawful, unauthorized and of no legal effect. However, such declaration was not sought in isolation. As a consequential and substantive relief, the respondents prayed for reversal of the impugned debit entries and restoration of the appropriated amount to the foreign currency account from which it had been withdrawn. The claim for damages amounting to Rs.76,651,804/- was pleaded only as an alternative relief to be considered in the event the primary restorative relief could not be granted. It is no teworthy that the learned Banking R.F.A. No.7759 of 2022 -:10:-
Court did not decree the alternative claim for damages, nor did it award compensation. Rather, the learned Banking Court confined the relief strictly to reversal/restoration of the amount which had been debited and appropriated by the appellant -Bank, together with the consequential profit accruing thereon. The decree, therefore, was essentially restorative in nature and was aimed at undoing the consequences of what the Court found to be an unlawful appropriation of the resp ondents’ funds. The relief granted by the learned Banking Court is, in substance, one of mandatory injunction coupled with restitution of an amount allegedly appropriated without lawful authority. The decree restored the parties to the position in which they stood prior to the impugned encashment and to undo the consequences of the disputed debit entry by directing reversal/restoration of the amount to the respondents ’ foreign currency account. Such relief falls squarely within the recognized domain of civil remedies and cannot be characterized as a mere declaratory decree devoid of enforceable consequences. The objection regarding maintainability is, therefore, bereft of substance and is liable to be repelled. 15. The distinction between the existence of a lien and the authority to encash or appropriate the subject matter of that lien is both fundamental and legally significant. A lien, in its ordinary legal sense, merely confers upon the holder a right of retention over the property or asset concerned as security for satisfaction of an obligation. By itself, it neither divests the owner of his proprietary interest nor…
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