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Petitioner: REHMAN FEEDS (PVT.) LTD. VS Respondent: AGRICULTURE DEVELOPMENT BANK OF PAKISTAN
Court Name: Sindh High Court Judge(s): Anwar Mansoor Khan Title: REHMAN FEEDS (PVT.) LTD. vs AGRICULTURE DEVELOPMENT BANK OF PAKISTAN Case No.: Suit No,358 of 1994 Date of Judgment:2001-04-19 Reported As: 2001 YLR 2240 Result: Suit decreed with costs
JUDGMENT
JUDGMENT ' The present suit has been filed for damages to the extent of Rs,44,706 million. It is the case of the plaintiff that as a private limited company carrying on business of export of marine fish, fish meal and fish preparation in the beginning of 1984 the plaintiff initiated a project under the name and style of Rehman Feeds (Pvt.) Limited, with parry object to produce high protein value fishmeal product to meet increasing domestic demand. It is the case of the plaintiff that the total proposed project cost was Rs,19,323 million, as against that the plaintiff had applied for financial assistance to the extent of Rs,10,950 million, out of which the defendant agreed to finance the plaintiffs in a sum of Rs,6.699 million, which constituted a foreign currency element being US$ 0.290 million equivalent to Rs,4.650 million and a local currency finance in the sum of Rs,2.049 million. The debt equity ratio being 72 : 28. Such has been stated by the plaintiff in para. 4 of their plaint. In having allowed financial assistance, as security for the repayment, when due, the defendant required the plaintiff to provide collateral security by mortgaging the project land against the finance assistance. The Plot of land bearing Nos.B-146, 147, 158 and 159, Sector B, Industrial Trading Estate in Tehsil Hub District Lasbella, Balochistan measuring 7500 Sq. Meter was duly allotted to the plaintiff. The said property being allotted but, according to the plaintiff, till such time production is commenced, and thereafter, payment is made to the Lasbella Industrial Estate Development Authority, the lease could not be granted in respect of the said property, and in consequence, could not be mortgaged. Such was a condition precedent. Notwithstanding the fact that it could not be mortgaged, the said LIDA gave an undertaking to the defendant, that no sooner is the lease executed in accordance with the policy of the authority, the same would be deposited with the defendant on behalf of the plaintiff for the purpose of creating an equitable mortgage thereon.
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' It is the case of the plaintiff that tender inquiries from the international market of plant and machinery were to be obtained which were sought and opened. Thereafter, on 25-7-1985 the import licence was also obtained. However, it is the case of the plaintiff that due to exchange rate fluctuation the letter of credit could not be established by the defendant resulting in the expiry of the import licence and it remained unutilized. It is the case of the plaintiff that unnecessary delay had been caused wherefore the entire project cost was increased and upon being required by the defendant, a fresh feasibility report on the increased project costs and sums was prepared by the plaintiff and was duly approved by defendants. According to the plaintiff the cost increased from 10-456 million to 14.284 million, an increase of 36.61% which was due to the currency fluctuation and the increase in the prices of site, plant and machinery in the international market from US$ 0.242 million to US$ 0.489 million (an increase of 102%). These increased rates were also reflected upon the fresh tenders, which opened on 16-14987 on the basis ocinternational market. The tenders were not finalized wherefore the two import licences bearing Nos.B-47823 and B-478824 also expired. Another licence bearing No,278087 was against obtained and the letter of credit, therefore, was established on August 13, 1988, however, the qualified commitment letter to confirm the letter of credit from the Asian Development Bank was issued by the defendant after the delay of eight months in April, 1989. Finally, the imported plant arrived at Karachi Port on 19-1-1990. It is stated by Mr. Muhammad Sharif that during the time taken for the arrival of the machinery the plaintiff completed their factory by inducting from their own resources a sum of Rs,6.961 million which was duly verified by the officer of the defendant. In view of the delay caused, the project overrun and its cost came to Rs,1.856 million that is, from 14.284 to 16.140 million in which the equity of the plaintiff came to 43.13% as against 36% which was the requirement of the defendant. In view of the declining position of the liquidity on account of additional investment, which according to the plaintiff was due to default and failure on the part of the defendant, the working capital and or other monies required which had been held by them were utilized, and could not be utilized for the purpose it was kept. Upon deterioration of liquidity position, the plaintiff applied for enhancement of local currency loan so that they may be able to pay customs duty. The application was given to the defendant on 4th March, 1990 for enhancement of 3.375 million. Despite the fact that the customs duty had to be paid forthwith, the defendant bank took 15 months to process and sanction the same amount which was so done in 17th April, 1991. For this amount the defendant again demanded mortgage of the project land, despite the fact that the issue had already been settled when the undertaking was given by the LIDA. According to them, numerous meetings for disbursement of the loan were held and written requests were given from time to time but the amount was not disbursed despite approval through delayed. It is the case of the plaintiff that due to the above delay of disbursement of local currency loan the plant and machinery that had arrived at from abroad and paid for from the finances obtained from the defendant lay at the port unclaimed for one year causing heavy damages by way of demurrages. In view of the machinery and equipment being at the port for one year, the Customs Authorities sought to sell the same for which an advertisement was published in daily Jang dated 17-1-1991. It is the case of Mr. Muhammad Sharif that the demurrages on that the date were Rs,1.800 million. The plaintiff, therefore, approached the defendant immediately drawing attention to the announcement and requesting for release of fund by letter, dated 27-2-1991. Despite the above, the funds were not released. A second show-cause notice for auction was received by the plaintiff from the Customs Authorities which was also transmitted to the defendant on 6-8-1991 as again requesting for disbursement of the funds. In response the bank again insisted to mortgage the project land which according to the plaintiff LIDA had indicated. As a result of the refusal to pay the customs duty the plant and machinery were auctioned on 2-2-1993. The bank by a letter dated 8-2-1993 requested the Customs Authorities to stop auction when the Customs Authorities granted two days time for
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paying the required dues. Despite the time given by the customs authorities and in view of already granted finance which could have been paid for settlement of the customs dues, the defendant refused to pay the same where after, the plant and machinery were delivered to the purchase in auction. ' It is on account of non-disbursement of the additional enhanced finance/loan amount, that on 11- 2-1993 the plaintiff requested the defendant to return all the documents which were submitted to the defendant on 1-8-1991 but the same was also refused. ' The plaintiff stated that their project profits in accordance with the feasibility report were that in 1990 they would earn Rs,3.460 million, which would increase in 1991 to Rs,4.705 million and in 1992 to Rs,6.266 million and in 1993 to Rs,7.972 million. The calculation of the profits were based on the basis of demand of fish meal product which were 125,000 tons as against the domestic production capacity of 60,000 tons that Rs,200 per ton prevailing at the time when the feasibility report was prepared in 1990 whereby payback period for two years and ten and a half months was agreed. According to him, from 1990 to 1993 the demand of fish meal products increased from 80 to 100% as against the domestic production capacity of 40 to 50%. According to him, therefore, if the inflation rate which was about 12.5% would be considered the accumulated profit would have been Rs,22.403 million which would increase to Rs,25,204 million reducing the payback period by four months. It is the case of the plaintiff that the amount of investment made by the plaintiff himself was Rs,6.961 million invested in the project in fixed and current assets as their equity in August, 1988. According to him, there is a loss of liquidity position and thus, a loss of mark-up also. In view of the above, the plaintiff have calculated their claims as follows:-- (a) Principal amount invested Rs,6.961 million. (b) Loss of project profits Rs,25.204 million. (c) Loss of mark-up Rs,7 .541 million. (d) Mental and physical torture Rs,2 million. (e) Los of reputation in the Rs.3 million Local and International Market. Rs. 44.706 million ' The defendants have filed their written statement denying the entire position stating that it was not obligatory upon the bank to sanction Additional loans, however, rescue to project the bank sanctioned additional loan with the condition that the plaintiff would mortgage the project land which the plaintiff failed to fulfil. The defendants have denied the fact that the undertaking was given. It is stated by the defendants that the plaintiff were defaulter of LIEDA and were unable to pay the amount payable to LIEDA. The date of payment was extended by LIEDA upto 30-9-1992 and despite the above the plaintiff failed to clear the dues of LIEDA. ' It is asserted that the bank was not duty bound to sanction loan and give additional money or enhance the loan. According to them, release of machinery was the responsibility of the plaintiff and was not their duty. As such the defendants have denied that as they were not bound to give additional loan, non-payment of customs duty could not be taken to be their fault in the disposal of the machinery by the Customs Authorities. The defendants have also denied the fact that they are liable to any amount payable. ' The following issues were settled:- (1) Whether the plaintiff has suffered damages and losses on account of unlawful' acts of the defendants.? (2) Whether the plaintiff is entitled to the relief claimed in the suit? (3) What should the decree be? ' I shall deal with all the issues simultaneously as they are interrelated.
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' Both Mr. Muhammad Sharif, Advocate for the plaintiff and Mr. Rizwan Ahmed Siddiqui, Advocate for the defendants have concluded their arguments after having filed their written arguments. The written arguments are on record. Both the counsel have reiterated their contentions as contained in the plaint as also in the written statement. ' The aforesaid case of the plaintiff and the fact contained and stated in the plaint have been reiterated in the evidence and the same has also been argued. The defendants have relied upon the fact they had acceded to the request of the plaintiff initially for payment of a total sum of Rs,8.478 million in foreign currency for import of machinery and Rs,0.700 million in local currency for locally fabricated machinery totalling to Rs,9.178 million were sanctioned in accordance with Exhs.5/3, 5/5, 5/8 and 5/11. The conditions of which were: "(4) Security: A. Existing Assets. (i) Project Land: Plot Nos. B-146, B-147, B-158, B-159 measuring 7500 Sq. Meters situated in Lasbela Industrial Estate Development Authority Area, Karachi valuation of the said plot shall be accepted to the extent of 20% for premium paid by you. ". ' You will submit title documents in original as required by Manager, A.D.B.P, Karachi Branch and legal advisor. Any clause in the title documents derogatory to the interest of A.D.B.P. Shall not be acceptable. (ii) Building.---constructed from your own equity worth Rs,1.336 million. You will submit approved maps building from LIEDA. (B) Future Assets. ' Imported/ locally fabricated machinery purchased out of bank loan. ' You will submit pro forma invoices of machinery to be imported and invoices of machinery locally purchased. ' Valuation of all the above fixed asses both present and future shall be determined and maximum credit limit fixed by Karachi Branch as per Bank's Standing Instructions. In case of any shortfall you will be required to offer additional security duly transferred in the name of company to cover unsecured loan. 6 Disbursement Schedule. ---You will invest your equity for the construction of building first, thereafter legal documents shall be executed after checking utilization of your equity by our Deputy Director (PLD) A.D.B.P., Karachi, Loan for Machinery shall be released as under:-- (i) Foreign Currency Loan. ---The loan shall be disbursed under Asian Development Bank's Agro Industries Credit Line 617-Pak (SF) through International shopping after calling three international quotations of Suppliers. The loan shall be released against letter of credit to the established by You at A.D.B.P., Head Office Branch, Islamabad. (ii) Local Currency Loan.---Loan for locally fabricated machinery shall be released against the supply order on submission of quotations of reputed and genuine suppliers by you as per Bank's Standing Instructions. 60% payment shall be released to the Supplier at the time of placing supply order. 25% at the time of delivery and the remaining 15% after successful Wal of machinery of site (part payment with part delivery is allowed). Final utilization of loan shall be accepted by our project credit officer. (7) Recovery Schedule.---The loan shall be recovered in 14 equal half yearly instalments commencing after 1-1/2 years of the disbursement of 1st loan instalment. (11) you will:-- (h) meet any shortfall in the cost of the project from their own resources." ' According to the defendant, the plaintiff failed to mortgage the property situate at Lasbella but, have not denied the undertaking of LIEDA Exh.5/6 and Exh.5/7. It has not been denied by the plaintiff that the loan was allowed to the plaintiff. In fact it has been stated that the plaintiff have availed off finance totalling to Rs, 9.178 million as contained in Exh.5/26. It has been stated that the plaintiff
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have appreciated the assistance rendered by the defendants requesting for enhancement of the financial facility. Admittedly, the bank in terms of Exh.5/36 sanctioned an additional loan of Rs,3.375 million for payment of import duty/sales tax, surcharge,- lqra, welfare, demurrage, customs clearance and octroi etc., but such was again subject to fulfilment of the following conditions: "(b) That any due amount/charges will be cleared by you before availing disbursement. 5. Security.---The additional loan shall be secured against the available credit margin, if any. Entire tengible project assets of the project both present and future will be mortgaged\hypothecated with A.D.B.P. To cover the shortfall of Rs,0.577 million in securities through project assets, you arc required to provide additional tangible security outside the project assets acceptable to the Bank. The MCL is worked out as under:--(emphasis is mine) {{TABLE}} Assets Value Percentage MCL Land 0.791 70% 0.554 Building 2.473 70% 1.731 Machinery including Importation cost and Erection and Installation charges 16.779 70% 11.745 Total 20.043 14.030 Total liability Outstanding as on 25-4-1991 11.232 Additional loan 3.375 Total liabilities 14.607 MCL available 14.030 Shortfall 0.577 {{TABLE}} ' Additional security outside project assets having value equivalent to Igo of the loan-amount will be covered through outside securities already offered by you. 6. Documentation.---To secure the additional loan you will be required to execute the legal document wherever necessary on the proforma available with A.D.B., main Branch, Karachi. The documents shall be executed in consultation with the Legal Advisor, A.D. B.P., Karachi, and vetted by him on completion. 7. Disbursement Schedule.---After execution of legal documents and provision of necessary securities, the additional loan of Rs,3.375 million will be disbursed on re-imbursement basis/direct to the concerned authorities." ' The validity of sanction was for a period of one year from the date of issuance of the letter. According to the defendants, the plaintiff did not comply with the terms contained in the sanction, the project land was not mortgaged. There was no lease of the project land. According to them, as the conditions of the sanction were not met the loan was not disbursed. The defendant's witness Mr. Nasim _laved admitted the fact that the terms under the additional loan that was grnated have been mentioned in the sanction letter Exh. 5/36 and the plaintiff did not fulfil the conditions prescribed as such the additional facility was not disbursed on account of non-fulfilment of the terms and conditions by the plaintiff arid that the plaintiff has not suffered on account of negligence on the part of the defendant Bank. The witness in cross-examination denied that all the facilities and formalties were fulfilled by the plaintiff. ' The defendants have in the written . Arguments stated that the suit is liable to be dismissed on account of the fact that evidence was not led through the authorized person and the said Mr.
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Allauddin was not empowered to lead the evidence. ' The plaintiff on the other hand, having filed written arguments reiterating all the contentions stated in the plaint stated that the said manager who was examined Mr. Nasim Javed in the examination-in-chief stated that: "Thereafter additional facility to the extent of Rs,3.375 million was sanctioned which was not disbursed.---The loan was granted for import of machinery which had arrived. The additional facility was granted at the request of the plaintiff for payment of import duty, as well as sales tax etc. In relation to the imported machinery." (emphasis is mine). ' It has also been admitted by the said witnesses of the defendant that: "The first facility was disbursed notwithstanding the failure of the plaintiff to create mortgage of the property in (LIDA) on the basis of undertaking furnished by the plaintiff." (emphasis is mine) ' The said witness also accepted the fact that the project cost had increased from Rs,10.456 million" to Rs,14.284 million. Accordingly, it has been argued by Mr. Muhammad Sharif and stated in the written arguments that the plaintiff had duly complied with the terms and conditions in the original sanction letter, clause 4 was waived in terms of Exh.5 13 dated 30-3-1988 whereby the plaintiff were not required to execute any mortgaged deed. Such has been admitted by the witness. The witness has also admitted in cross-examination that the amount of additional facility had to be paid directly to the Customs Authorities towards payment of customs and sales tax and according to him:-- "initially agreed arrangement was for payment of the duty directly." ' In Exh.5/42 the Agriculture Development Bank of Pakistan has stated that the request regarding disbursement of the importation costs directly to the Clearing Agent has not been accepted by the competent authority and stressed that the disbursement will be made direct to the concerned authority as mentioned in the sanction letter. By this letter in fact; on 100 November, 1991 the bank had admitted the fact that the customs duty etc., had to be paid by them. No doubt, the claim was for payment to the plaintiff directly but such could have also been made to secure the interest directly to the Customs Authorities, which was not done. There are on record numerous letters. Few of them being Exhs.5/48, 5/49-A, 5/49-B and 5/50 requesting for disbursement of the enhanced amount, but such disbursement, has admittedly not been made. ' It is clear from the above that there are admitted positions that the additional finance was granted for the purpose of payment of customs duty etc. It is also an admitted position that an undertaking dated 5-8-1985, Exh.5/6 was given by the Lasbella Industrial Estate Development Authority (LIEDA). It is also an admitted position that the Government of Balouchistan and Industry, Commerce and Mineral Resources Department had issued a no objection certificate for allotment of land for setting up of a fish meal, and fish oil production industry for which a plot of 7500 Sq. Meters for a total consideration of Rs,1,81,500.000 was granted being 20% down payment. It is also an admitted position that the machinery for which the said finance had been granted had arrived at in Pakistan. It is also an admitted position that the additional loan/finance was granted, as aforesaid for the payment of various taxes, dues etc. In fact, the witness of the bank has admitted the same but had stated that it is only due to the failure on the part of the plaintiff to create a mortgage of the project property. ' When the said financing was granted by an enhancement of the local currency component no doubt there was a specified position that the project property would be mortgaged for the enhanced portion. Upon the grant of enhancement it is not denied that the undertaking of the LIEDA had not been seen. Exh.5/6, the undertaking of LIEDA is, absolutely clear. The relevant portion is reproduced hereunder for convenience sake. "And whereas among others the condition precedent for granting the lease to the various allottees of the plots in the area of 1-1.1.T.E. Is that the allottees have first to raise and/or construct the
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buildings factories and start production where under they can claim, The execution of lease deed for 99 years, after payment of full premium and other dues of Flub Industrial Trading Estate. And whereas Messrs Rehman Feeds Ltd., having their registered Office at 27 Garden West, Karachi- 3 have been allotted a Plot of land bearing Nos.B-146, 147, B-158 and 159 in Sector 'B' measuring about 7,500 Sq. Meters setting up fish meal and fish oil production industry for which the A.D.B.P. Has sanctioned to them for import of machinery Rs,4,650 million (in Foreign currency) and Local currency of Rs,2.049 million for locally fabricated machinery against the security of the said project land. ' And whereas in the absence of the marketable title and the grant of the proposed lease deed to them, Messrs Rehman Feeds Limited are not in a position to furnish the said security by way of execution or mortgage or otherwise. ' And whereas Messrs Rehman Feeds Limited have approached Hub Industrial Trading Estate with the request to give an undertaking to the Agricultural Development Bank of Pakistan that as and when the proposed lease deed in respect of Plot No,146, 147, 158, 159 in Sector "B" within Hub Industrial Trading Estate is executed between the Lasbela Industrial Estates Development Authority as the lessor and Messrs Rehman Feeds LTD. As the lessee, such an instrument shall not be delivered by ' Lasbela Industrial Estate Development Authority to the Lessees but the same shall be handed over to the Agricultural Development Bank of Pakistan on behalf of the lessees so as to create in equitable mortgage against the said plot of land." (Emphasis is mine). It will be seen that the Lasbella Industrial Estate Development Authority (LIEDA) has stated that the condition precedent for granting the lease to the various allottees of plots in Hub Industrial Trading Estate is that the construction is raised in and production is commenced, it is only then can a lease be granted. The lease is a transfer of property in favour of the lessee. It is also clearly mentioned that in the absence of a marketable title and grant of lease, the plaintiff cannot create mortgage on the property. No one can transfer the title better than what he has. Such is the well-settled law. The undertaking further states that allotment has been made in respect of the plot of land measuring 7500 Sq. Meters and relates to the sanction by the plaintiff of the various amounts. The undertaking further goes on to say that the defendants have approached the Hub Industrial Trading Estate with a request to give an undertaking to the plaintiff that as and when the proposed lease deed in respect of the project land in HITE is executed between LIEDA as the lessor and Rehman Feeds Ltd., as the lessee. The said instrument would, not be delivered to the defendant but would be handed over directly to the plaintiff" so as to create an equitable mortgage against the said plot of land." In granting the additional amount of Rs,3,375 million for the payment of import duty etc. The undertaking was within the knowledge of the plaintiff. It is also an admitted position that…
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