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Petitioner: Citi Bank N.A VS Respondent: Needle Point (Pvt.) Ltd & others
Court Name: Lahore High Court Judge(s): Shahid Karim Title: Citi Bank N.A vs Needle Point (Pvt.) Ltd & others Case No.: C.O.S No.7 of 2006 Date of Judgment:2016-04-11 Reported As: 2016 LHC 1063 Result: N/A
Judgment Shahid Karim, J:- This suit is for the recovery of Rs.111,030,677.85 along with costs of funds and cost of the suit. 2. The suit was filed on 17.2.2006. A synoptical resumption given in the plaint forming the basis of the suit is that the defendant No.1- Company was inter alia granted a combined Export Refinance Facility (ERF-I) or Own Source LCY or FCY (pre and post shipment limit) to the tune of Rs.68.75 million vide offer letter dated 28.8.2003. An agreement of finance dated 01.09.2003 for ERF-I for Rs.68.75 million was executed. ERF-I facility was continued and increased to Rs.80 million through an offer letter dated 02.08.2004 and an agreement for finance followed this offer letter and which was dated 02.08.2004. The ERF-I limit was further enhanced to Rs.100.00 million under an agreement for finance dated 01.10.2005. These facilities were availed by the defendant No.1- Company and in evidence thereof a statement of account has been appended as Annex =D, D/1, D/2, D/3 and D/4'. The amounts which are alleged to be outstanding and payable under ERF-I facility is Rs.94,037,435.65. 3. The second facility which has been combined in this suit and which was granted to the defendant No.1 was a limit for establishment of Letter of Credit (LC) for import or inland for aggregate amount equivalent to US$. 173,500. It is alleged that on receipt of shipping documents for 9 LCs by the plaintiff, the defendant-Company failed to make payments to accept and obtain from the plaintiff-Bank trust receipts which were the documents of the title of the goods that were procured against the LCs. Since no payments were made by the defendant No.1 to the plaintiff-
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Bank, in fulfillment of its obligations, the plaintiff-Bank had to make payments to the beneficiaries of the 9 LCs. The details of the overdue LCs and the documents executed by the defendant No.1 in support of and to secure the discharge of its obligations have been brought forth in paragraphs 7 and 13 of the plaint. The amount outstanding in respect of the 9 LCs is Rs.16,993,241.20. Separate statement of account has been appended with the plaint in support thereof. The defendants No.2 and 3 executed personal guarantee in favour of the plaintiff-Bank and which are dated 14.10.2004. The case of the plaintiff-Bank in simple terms is that the defendants No.1, 2 and 3 have failed to discharge and liquidate their obligation under the ERF-I as also under the LCs which were established by the plaintiff-Bank. 4. The learned counsel for the defendants at the outset submitted that vide order dated 4.5.2010 leave was granted in COS No.8 of 2006, which suit bears similarity of facts with the present suit and therefore leave must also be granted as of right to the defendants in this suit. This submission of the learned counsel is nuanced to say the least. It is admitted on all hands that the financial institutions in both the suits are different and the documents of the facility granted to the defendants does not also bear any commonality. The basic document, according to the learned counsel, is the facility offer letter dated 28.8.2003 which encapsulates the tenor of the facility granted to the defendants. According to this document, it is a short term credit facilities and the facility No.1 has been described as State Bank of Pakistan (SBP) Export Refinance Part-1. The purpose has been delineated as working capital facility to finance exports and the funding will be against LCs and contracts. The transaction tenor has been mentioned not to exceed 180 days. The emphasis of the learned counsel for the defendants is on the term of this facility offer letter that the funding will be against LCs and contract. The learned counsel further referred to agreements executed between the parties and mentioned in the plaint and reiterated the fact that in each facility offer letter executed prior to the formal execution of the agreement, the term viz. "funding will be against LCs and contract" is a common thread running through the facility offer letters and according to the learned counsel is of paramount significance. Learned counsel submits that the primary facility which comprises the cause of action in the instant suit is ERF-I and there is a clear methodology under which this facility must be given and is to be governed. No documents have been filed with the plaint which would evidence and support the plaint with regard to the condition mentioned that the funding will be against LCs and contract. (The contracts in this respect were filed with the replication which will be alluded to in the latter part of this judgment). An important plank of the arguments of the learned counsel for the defendants is that he does not deny the availment of the facilities and the amounts mentioned in the agreements of finance executed between the parties. However, it is the case of the defendants that the amounts have been repaid and there is no proof attached with the plaint bringing on record the necessary documents to establish the default by the defendants. 5. In the first instance, the learned counsel for the defendants has attacked the format in which the statement of account has been filed. However, this was merely a flanking rather than frontal attack on the statement of account and the learned counsel has not pointed out to any circular of the SBP nor has he relied upon any law which was offended while preparing the statement of account. The learned counsel has also not challenged specific entries in the statement of account nor has any counter statement of account or audited accounts of the Company been annexed with the application for leave to defend in order to off set or rebut the entries of the statement of account. The learned counsel has relied upon a cluster of judgments which bring forth the exact nature of the statement of account as also the definitions relied upon from authentic dictionaries as to the meaning attached to the document, yet while relying upon these judgments the learned counsel
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for the defendants has not laid a specific challenge to the precise discrepancy which has crept in the statement of account relied upon in support of the plaint. 6. The learned counsel for the defendants next contended that additional documents have been filed with the replication and this cannot be permitted to be done and on this basis the defendants are entitled to the grant of leave to defend per se. The precise manner and the parameters of filing documents with the replication have recently been dealt with in COS No.169 of 2011 and the following observations are relevant in order to understand as to which documents can be filed with the replication by the plaintiff. 14. The proposition that the plaintiff-Bank cannot file any documents or support the replication with further documents is a question which is not free from difficulties. The scheme of Financial Institutions (Recovery of Finances) Ordinance, 2001 is that a suit for recovery is filed and the defendants are then required to file an application for leave to defend in the form of a written statement containing a summary of the substantial questions of law as well as facts in respect of which, in the opinion of the defendants, evidence needs to be recorded. The application for leave to defend shall be accompanied by all the documents which, in the opinion of the defendant, support the substantial questions of the law and fact raised by him. The plaintiff then is given an opportunity of filing a reply to the application for leave to defend in the form of a replication. It will, therefore, be seen that the plaint is required to be supported by all relevant documents relating to the grant of finance as also that the application for leave to defend shall also be accompanied by all the documents to support the substantial questions of law and fact raised by the defendant. Therefore, it would be otiose to assert that no documents can be filed with the replication nor can the plaintiff rely upon any documents in this regard. Keeping in view the policy of the law as also the purpose of the legislature, we are dealing with a summary determination of questions of law and fact which does not entail a regular long-drawn trial of issues. Therefore, the intention and purpose is that all those documents may be filed at the pre trial stage of the determination on an application for leave to defend that the Court must have before it and which documents are necessary for it to adjudicate the claim at that stage. Therefore, the simple rule which could be followed in such cases is that all documents which merely relate to the grant of finance and had not set up a new case may be filed with the replication. It would not serve the purpose of the law if merely because some of the documents relating to the grant of finance were omitted to be filed with the plaint were not permitted to be filed with the replication. Nor would the Court consider them at that stage and this could be taken as a substantial question of law and fact so as to entitle the defendant to the grant of leave to defend. This will not mean that lacunae in the case being filled or that a new case is being set up. At the heart of this issue is the summary jurisdiction which is being exercised by this Court. It is one thing to say that no documents can at all be filed and relied upon with the replication and another to say that the cogency and sufficiency in law of these documents is in doubt. 15. The purpose of the law in giving an opportunity of filing a reply to the application for leave to defend has also to be kept in mind. If a defence has been set up in the application for leave to defend, the plaintiff has been granted an opportunity to file a reply to that defence and to respond suitably not only by specifically replying to that defence in the replication but also to bring on record documents which will nullify and stunt the effect of that defence. It would be for the Court to judge in each case if the documents could have been filed or relied upon by the plaintiff. And in case these are documents which cannot be so relied upon, this can only be considered as a stance which raises a substantial question of law and fact and no more.
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7. The learned counsel for the plaintiff-Bank submits that this ground does not entitle the defendants to the grant of leave to defend. From the paragraph of the judgment, reproduced above, it is evident that the documents which merely advance the initial case set up by the plaintiff in the plaint can very well be brought forth and filed along with the replication. It is not the case of the defendants that they do not admit these documents. Also these documents are merely contracts executed between the defendants as the exporters and the foreign buyer and which copies were submitted to the plaintiff-Bank in terms of the mandate of the facility offer letter as also the agreement executed between the parties. These documents do not form the basis of the case set up in the plaint by the plaintiff-Bank and has merely been filed in order to demonstrate the transaction complied with the circulars of SBP and the terms of the facility offer letter as well as the agreement executed between the parties. Therefore, these documents can be taken into consideration at this stage and do not come within the realm of a new case set up by the plaintiff. 8. The learned counsel for the defendants has referred to a period to exist between various agreements for which no agreement was in field between the parties. By this, the learned counsel contends that the entries with regard to this period cannot be accepted and must be discarded. Firstly, the learned counsel for the defendants does not categorically deny the fact that the amounts were not availed during that period by the defendants and in case these amounts were availed while there was no formal written agreement between the parties, it does not discharge the defendants from repayment of those amounts which were availed by the defendants. There is no law which does not oblige a person to have availed a loan to assert that he is not liable for repayment of that loan since there was no written agreement during that period. This assertion would be against public policy. Secondly and more importantly, this is clearly an afterthought as this defence has not been taken in the application for leave to defend and accordingly must be discarded. An inference can clearly be drawn that the relationship between the parties was a continuing relationship and the defendants availed facilities from the plaintiff-Bank on different occasions and a gap in the execution of the formal agreement does not detract from the fact that the facility continued for that period as well since it is not the case of the defendants that the earlier facility was liquidated or repaid in full, and thus there was nothing outstanding from the defendants. 9. The main plank of the defence set up by the defendants during the course of the arguments is that the entire reliance of the plaint is on a sale-purchase agreement (IB-6) whereas the facility is an ERF facility which is governed by the instructions issued by the SBP and is a distinct facility not covered by the sale-purchase agreement. Hence, according to the learned counsel, the basis of the suit is knocked out as along with the replication the contracts have been filed which make it evident that the basis is the BSD Circular No.35 (Circular 35) issued by the SBP on 28.9.2001. The Circular 35 defines the contours and the modalities of the export finance scheme. The underlying agreement in the export finance scheme, so argued the learned counsel, is not a sale-purchase agreement which has been annexed with the plaint and forms the foundation of the suit. Scheme of ERF-I. 10. The primary attack of the learned counsel for the defendants has been brought forth in the preceding paragraph. The arguments raised by the learned counsel for the defendants on the basis of this challenge will be adverted to and dealt with during the course of this judgment. As a prefatory, it may be stated that the defendants admit that an ERF-I facility was availed but merely
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assert that IB-6 agreement has no relation with the claim under the ERF-I facility. Circular 35 dated 28.9.2001 is the governing law and it has to be read with the Foreign Exchange Manual 2002. It is issued under the Foreign Exchange Regulation Act, 1947. Thus, the scheme of ERF-I is based on Circular 35 and it is contended by the learned counsel that no word is mentioned in the plaint that the defendants breached the terms of Circular 35 or that the goods were not exported as also that no documents have been brought on record which will bring home that no exports were made and so the presumption is that the breach did not occur. According to the learned counsel, the ERF-I facility is a self-liquidating facility and in case of breach in any of its stages, SBP will be called in action and will impose penalties in terms of Circular 35. 11. In order to properly dissect the case set up in the application for leave to defend, it will be useful to refer to the different paragraphs which encapsulate the case of the defendants. In paragraph 6, it has been mentioned that in order to meet the business obligations and working capital requirements of the defendant No.1, certain facilities were sanctioned by the plaintiff-Bank. Thus, the sanctioning and availment of the facilities is not denied. It is further brought forth in paragraph 6 that it was also agreed between the parties that all financial needs of the defendant No.1 as and when they arise shall be catered for by the plaintiff-Bank. Paragraphs 7, 8, 9 and 10 bring forth certain facts which, according to the defendants, impacted on the knitwear industry which was left with huge unutilized capacity and "too few an orders" which resulted in sharp drop in prices. The application for leave to defend then goes on to make a reference to the purported obligations of the plaintiff-Bank to provide additional finance to the defendant No.1 which were necessary at that crucial juncture for the defendant No.1 and which obligations, according to the contents of the application, were not fulfilled. In paragraph 11 is mentioned the consequences which allegedly flowed out of the non-fulfillment of the obligations and, therefore, "the cash flow of the defendant No.1 stood destroyed?. Further circumstances have been narrated in the following paragraphs which merely indicate and refer to the circumstances which contributed to a loss of business and commercial activity for the defendant No.1 and for which the defendant No.1 required additional financial assistance. Paragraph 14 spells out the alleged losses suffered by the defendants on account of the acts of the plaintiff-Bank in inter alia not disbursing the requisite financial assistance to the defendants. It is pertinent to mention that on the basis of these submissions, a counter claim has been set up against the plaintiff-Bank. However, during the course of the arguments, the learned counsel for the defendants did not advert to these allegations nor did he make any reference to the counter claim set up in the application for leave to defend. The precise defence of the defendants has been brought forth in paragraph 6 and 8 of the replies on merit in the application for leave to defend. These paragraphs read as under: 6. That the contents of this paragraph as laid out are denied. It is specifically averred that the alleged documents pertaining to the Export Refinance Facility and the Foreign Currency Export Finance (?FCF?) do not corroborate with the statement of account filed with the Plaint. Furthermore, during the relevant period the said facilities were duly discharged. Hence the Plaintiff is not entitled to claim any amount on account of the facilities alleged in this paragraph. Additionally it may be noted that the pre/post shipment facilities are not corroborated with the requisite documents with respect to the said facilities. Thus, the mandatory requirements of section 9 of the Ordinance have not been fulfilled. Thus, the suit of the Plaintiff is liable to be dismissed and decree in favour of the Defendants in terms of the prayer is liable to be granted. Furthermore, without prejudice to the above, if any amount is found to be payable, the same may be set-off from the amount of the counter-claim.
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8. That the contents of this paragraph as laid out are denied and the contents of foregoing paragraphs are reiterated. It is pertinent to mention here that all the modes of financing as well as the amounts which may be charged by the Plaintiff Bank under the same must be in accordance with the modes of financing prescribed under BCD - 13 & 32. Thus, it is evident that the Defendant No.1, in accordance with the said circular of the SBP and submissions made above, paid the entire amounts made available through the said facilities. With respect to the securities allegedly provided by the Defendant No.1 to the Plaintiff Bank, it is submitted that in view of the fact that the Defendant No.1 paid the entire amounts due and payable by the Defendant No.1 to the Plaintiff, the same are liable to be released/discharged.? 12. It is evident from a reading of these paragraphs that the defence set up by the defendants is not clearly mapped out. On the one hand, it has been stated that the documents pertaining to Export Refinance Facility and Foreign Currency Export Finance do not corroborate with the statement of account filed with the plaint. In the same breath, the defendants claim that the said facilities were duly discharged. Moreover, it is stated that pre/post shipment facilities are not corroborated by the requisite documents with respect to the said facilities and therefore the mandatory requirements of section 9 have not been fulfilled. However, in paragraph 8, reproduced above, once again the reliance is upon the circulars issued by the SBP and that the modus operandi of the facility must conform to those circulars. There is a general allegation that the terms of the circulars have not been fulfilled in the disbursement of the facility to the defendants. Once again in paragraph 8 it is stated by the defendants that they have "paid the entire amounts made available through the said facilities?. The contents of these paragraphs have to be read with the contents of paragraph 17 of preliminary submissions which is purportedly in compliance of the provisions of section 10(4) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (Ordinance, 2001) and according to which nothing is due from the defendants in respect of both the facilities which are subject matter of this suit. 13. At first blush, it may be stated that the defendants claim to have discharged the entire liability in respect of the financial facilities which are subject matter of this suit. Clearly the onus, therefore, shifted to the defendants in order to show that the liability had been discharged. No documents have been attached with the application for leave to defend in order to demonstrate and bring home the discharge of liability. It will have to be borne in mind that a banking suit is a suit on the basis of the accounts and it is established by respectable authority by now that the onus is a shifting onus and it is not enough for the defendants to simply assert that the liability has been discharged without more. Necessary documents, statements of accounts, ledgers, audited accounts have to be produced by the defendants in order to show bona fide and in order to support its claim that the liability has been discharged. The entire reading of the application for leave to defend would ineluctably show that no clear stance has been brought forth in order to lay claim to the grant of leave to defend or the raising of substantial questions of law and fact. A counter claim has been set up and the basis for that counter claim is that the plaintiff-Bank was under an obligation to fulfill the financial requirements of the defendants in case the defendant No.1 faced financial crunch and was in need of a loan or a finance facility. No such agreement or a missive has been produced between the parties which will cast that obligation on the plaintiff- Bank nor has the learned counsel for the defendants laid emphasis on the counter claim set up during the course of the arguments. One inference would be that the defendants have admitted that there existed circumstances which forced the defendants into default of its financial
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obligations and for which it was in dire need of further lending from the plaintiff-Bank which was not forthcoming. On the other hand and contrary to this stance, the defendants have stated that the entire finance facility availed by the defendants had been repaid. This is in stark contrast to the earlier stance taken by the defendants which portrays a picture of extreme financial hardship for the defendant No.1 and circumstances to compel the defendant No.1 to require further financing from the plaintiff-Bank. Also time and again the defendants have not denied the availment of the facility. Whether a counter-claim could be set up in an application for leave to defend was the subject of discussion in a recent case of Bank Alfalah Ltd v. Mukhtar Hussain Chishti (COS 19/2010. It was held that: 7. The submissions made by the learned counsel for the defendant are nuanced and do not have any legal legs to stand upon. Firstly, a set off cannot be claimed in an application for leave to defend and can only be claimed in a written statement filed under a regular suit filed before court under section 9 of the Code of Civil Procedure (CPC). There is no basis for the arguments of the learned counsel for the defendant that simply because a set off has been claimed in the application for leave to defend, the defendant is entitled to the grant of leave. The application for leave to defend has to be seen on its own merits and the substantial questions of law raised therein have to be weighed without recourse to any claim of set off set up by the defendant. We must bear in mind that this Court is exercising jurisdiction under a special law and a special procedure has been prescribed regulating the suits filed under that law. The normal and recognized mode of trial is not applicable to the suits filed under the special jurisdiction of this Court. Be that as it may, notwithstanding the claim of set off which would require evidence to be taken down and proved, at best, the plea raised could be urged as a substantial…
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