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Petitioner: UNION BANK LIMITED VS Respondent: REFRIGERATORS MANUFACTURING COMPANY JUDGMENT
Court Name: Sindh High Court Judge(s): Aziz-ur-Rehman Title:UNION BANK LIMITED vs REFRIGERATORS MANUFACTURING COMPANY
JUDGMENT
Reported As: 2015 CLD 269 Result: Order accordingly Judgment JUDGMENT AZIZ-UR-REHMAN, J.---The plaintiff has filed the above suit for recovery of money under the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 [Act XV of 1997], with following prayers:-- "(a) A money decree in favour of the plaintiff against the defendants for Rs.75,511,314 along with markup at the rate of 20% per annum from the date offiling of this suit until realization; (b) A money decree in favour of the plaintiff against the defendants for US$17, 490 plus markup thereon at the rate 54 paisas per 1000 per day (19.71% per annum) from 22nd December, 2000 until realization; (c) A money decree for Rs.4,192,890 and US$987 being the amount payable by the defendants to the plaintiff as liquidated damages; (d) Award the cost; (e) Grant such other better/further relief that this Hon'ble Court may deem fit in the circumstances of the case. 2. Succinctly the relevant facts in the background are:- 3. The plaintiff is a banking company as defined in section 2(a) of the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 (XV of 1997). The defendant No.1 and defendant No.2, are the customer(s) of the plaintiff Bank as defined in section 2(d), of the Act, 1997 (XV of 1997). The defendant No.1 is the person who had obtained finances and defendant No.2, besides the 'real beneficiary' of such finances granted to and availed by defendant No.1, is a 'surety' and indemnifier'.
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4. Per SBP's letter dated 23rd June, 2000, the Pakistan Branches of Bank of America N.A. [In short 'BOA'], stood amalgamated with the plaintiff Bank pursuant to the Scheme of Amalgamation duly approved/sanctioned by the State Bank of Pakistan under subsection (4) of section 48 of the Banking Companies Ordinance, 1962 (LVII of 1962). Since then all rights, titles and interests of BOA have stood transferred to and vested in the Union Bank Limited. 5. By virtue of Paragraph 4(b) of the Scheme of Amalgamation dated 30th June, 2000, all rights, benefits and powers arising from or relating to any and all agreements, contracts, security and financing documents, guarantees, security interests; including charges, promissory notes, hypothecations and other security etc. For payment or discharge of any liability executed by or in favour of Bank of America Pakistan Branches stood transferred to and vested in the plaintiff. Under the Scheme of Amalgamation the three Pakistan Branches of the Bank of America i.e. At Karachi, Lahore and Islamabad stood amalgamated with the Union Bank Ltd. Vide SBP's order 30th June, 2000. 6. Pursuant to and in the process of provision of finances by the plaintiff Bank to the defendant No.1, the latter while, executing a finance agreement on mark-up basis dated 1st July, 2000 inter alia undertook to pay the mutually agreed 'purchase price' of Rs.86,341,438 to the plaintiff on or before 30th September, 2000. The 'sale price' under the aforesaid agreement was settled at Rs.75,000,000. Such payment of 'purchase price' as agreed was not paid by the defendant No.1 to the plaintiff Bank. Nonetheless, at the request of defendant No.1 on 1st October, 2000, the defendant No.1 again signed and executed another agreement of finance on mark up basis with plaintiff Bank whereby, the defendant No.1 agreed to make payment in the sum of Rs.86,341,438 [purchase prices] to the plaintiff on or before 31st December, 2000. Under the 2nd Finance Agreement of 1st October, 2000 the 'sale price' also remained the same i.e. Rs.75,000,000. 7. For the aforesaid financial facilities, the following documents were duly signed and executed by the defendant No.1:-- (a) Finance Agreement dated 1st July, 2000 with 'sale price' of Rs.75,000,000 and 'purchase price' of Rs.86,341,438. (b) Promissory Note dated 6th July, 2000 for Rs.86,341,438. (c) Letter of Continuity dated 6th July, 2000. (d) Finance Agreement dated 1st October, 2000 with 'sale price' of Rs.75,000,000 and 'purchase price' of Rs.86,341,438. (e) Promissory Note dated 1st October, 2000 for Rs.86,341,438. (f) Letter of Continuity dated 1st October, 2000. 8. Besides, defendant No.1 also availed additional finance facility in the sum of Rs.50,000,000 [Rupees Fifty Million only] from the plaintiff Bank. Regarding this additional finance facility a Finance Agreement of 5th July, 2000 on mark up basis was duly signed and executed by defendant No.1. Under this Finance Agreement, a mutually agreed sum of Rs.57,047,945 [purchase price] was payable to the plaintiff on or before 3rd October, 2000. The 'sale price' as settled under this agreement is Rs.50,000,000. 9. Regarding this financial facility the defendant No.1 duly signed and executed the following documents:-- (a) Finance Agreement dated 5th July, 2000 with 'sale price' of Rs.50,000,000 and 'purchase price' of Rs.57,047,945. (b) Promissory Note dated 5th July, 2000 for Rs.57,047,945. (c) Letter of Continuity dated 5th July, 2000. 10. Apart from the above, on 16th August, 2000, the defendant No.1 also applied to the plaintiff bank for provision of a Letter of Credit Facility. Upon acceptance, the plaintiff Bank drew a Bill of Exchange on defendant No.1 The same was duly accepted for payment by defendant No.1 in the
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amount of US$ 174900. The Bill of Exchange for US$ 174900 nonetheless remained unpaid. Regarding this facility the 'application for Letter of Credit' and 'Bill of Exchange' both dated 16th November, 2000 having been duly signed and accepted by defendant No.1 are annexed with the plaint'. 11. The defendant No.1, per averments, was a subsidiary of defendant No.2 as the latter company owned/held 60% shares in it. The defendant No.2, besides being a multinational company, has worldwide credibility. The plaintiff Bank contrary to its' normal practice, however, did not obtain any personal guarantees from the directors of the defendant No.1 Instead, a 'Letter of Comfort' dated 22-9-1998 was issued in favour of the plaintiff. In terms of 'Letters of Comfort' the plaintiff was assured that defendant No.1 shall meet its' obligations in respect of the financial facilities granted to the defendant No.1. The defendant No.2 also reiterated its' commitment through another 'Letter of Comfort' dated 1-8-1999. 12. Per plaintiffs stand, the defendant No.2 is the 'real beneficiary' of the finances provided to the defendant No.1 the defendant No.1, is doing the business of 'import' of electronic items from defendant No.2, its' associated companies and sale thereof in local Pakistani markets. Per plaintiffs version, such items were imported by defendant No.1 allegedly with the help of funds, made available to the defendant No.1 by the plaintiff Bank. The terms agreed regarding availment of the financial facilities besides extremely beneficial are also favourable to the defendant No.2. 13. The finances provided to and availed by defendant No.1, per assertions, were based on the explicit undertaking that defendant No.2 [as the majority shareholder of defendant No.1], would inject funds by way of equity into defendant No.1 The defendant No.1 thus would become viable and financially sound entity to meet its' liabilities and obligations. In view of such undertaking/representation, the plaintiff did not need it necessary to obtain any personal guarantees from the Directors of defendant No.1. Further, the plaintiff also given its' no objection' to defendant No.2 regarding sale of its' shareholding in defendant No.1 partly. 14. Due to defendant No.2's worldwide reputation and credibility, the plaintiff also agreed to keep continue the facilities to defendant No.1 i.e. To say on the basis of an explicit understanding of defendant No.2 to the effect that its' shareholding would be sold to an entity as being capable to understand the underlying dynamics of the business of defendant No.1 and also be able to implement a viable operational and financial restructuring plan of defendant No.1. The defendant No.2, nevertheless, sold its' shareholding in defendant No.1 to an entity which according to the plaintiff, had no viable plan at all. 15. The defendant No.1, per plaintiffs version, used to import goods at high prices from the defendant No.2 and its' associated companies. The funds of defendant No.1 were thus got repatriated by the defendant No.2 to itself as well as to its other associated companies abroad. Moreover, defendant No.2 divested its' shareholding in defendant No.1, for no consideration and/or nominal consideration. The defendant No.1 as such became unable to pay its' outstanding dues or discharge its' liabilities. Under the aforesaid scenario, the defendant No.2, is the 'real beneficiary' of the financial facilities availed by the defendant No.1 from the plaintiff Bank. The plaintiff if, would have known of the defendants' true intention, its divestment strategy and/or their clandestine arrangements, then it would have not agreed to the provision of financial facilities to defendant No.1. The plaintiff provided the financial facilities to the defendant No.1 on the inducement of defendant No.2. The defendant No.2, if had no interest or concern in the provision of financial facilities to defendant No.1 then, of course, it would have not issued the 'Letters of Comforts' in favour of the plaintiff Bank. 16. Each and every financial facilities provided to defendant No.1, was actually based upon the representation, undertakings and assurances of defendant No.2. Both the defendants, beside responsible, are liable to pay the outstanding dues to the plaintiff Bank. The defendants, despite
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repeated requests/reminders, nevertheless, failed and/or avoided to liquidate the plaintiff's outstanding dues. Hence the instant suit. 17. Upon filing of the suit on 14-4-2001, process under section 9 of the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 (Act XV of 1997), was issued to the defendants by all four modes. In response, both the defendants filed their Leave to Defend Applications under section 10 of Act XV of 1997 i.e. C.M.As. Nos.3807 of 2001 and 3808 of 2001 respectively. Thereafter, on 1-6-2001, notice on the aforesaid applications [C.M.A. No.3807 of 2001 and C.M.A. No.3808 of 2001] was issued to the plaintiff. Two 'Counter Affidavits' [one each] in reply to the Leave to Defend Applications were also filed by the plaintiff Bank. 18. On 20-8-2001 when the aforesaid Leave to Defend Applications came-up before the court then, the following order was passed:-- "20-08-2001 Mr. Qazi Faiz Isa, Advocate for plaintiff Mr. Neel Keshav, Advocate for defendant No.1 Mr. Khawaja Mansoor, Advocate for defendant No.2 (1) The only dispute in regards to the claim made by the plaintiff against defendant No.1 is, that mark-up on mark-up amounting to 'Riba' has been charged. It is stated that the plaintiff cannot charge the same under the various agreements. This is a question which can be determined from the accounts that is presented by both the parties. All the documents are admitted. In view of the above, by no stretch of imagination can this be a genuine or bona fide dispute. The application is, therefore, dismissed. The defendant No.1 shall, however, continue to contest as regards the settlement of accounts. Let both the parties, namely, the plaintiff and defendant No.1 file their breakup/summary of accounts. This case shall come up for final disposal on the next date of hearing as far as defendant No.1 is concerned. Let the statement/break-up be filed within two weeks. To come up on 5-9-2001. (2) This application has been made by defendant No.2. The contention of the plaintiff is that by the amendment in the definition of 'Customer', contained in section 2(d) of the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997, the words "real beneficiary of such finance" has been introduced, which brings the defendant No.2 within the ambit of a 'customer' wherefor he becomes liable to finance. Evidently, such cannot be determined and is otherwise also denied by the defendant No.2, without taking proper evidence. This is a genuine and bona fide dispute. The application, therefore, in the circumstances is granted. Mr. Khawaja Mansoor seeks time to file written statement which may be filed within 15 days hereof. 19. Subsequently, on 5-9-2001 while, treating the Leave to Defend. Application [C.M.A. No.3808 of 2001] filed by defendant No.2 as 'written statement', defendant No.2 was also permitted to seek amendment if, needed. Nonetheless, on the same day, issues were also settled. Being relevant, order dated 5-9-2001 is reproduced herein below:-- "5-9-2001 Mr. Qazi Faez Isa, Advocate for plaintiff Mr. Neel Keshav, Advocate for defendant No.1 Mr. Khawaja Mansoor, Advocate for defendant No.2 Leave to defend application filed by defendant No.2 is treated as written statement. However, if any amendment needs to be made in the leave to defend application, Mr. Khawaja Mansoor may, within two weeks from date, file, an application seeking amendment in the written statement. In the meanwhile and on the basis of the application which is deemed to be the written, the following Issues are framed:- (1) Whether this Court has jurisdiction to proceed with the matter in respect of defendant No.2?
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(2) Whether the defendant No.2 is the real beneficiary, if so, its effect? What is the amount due and payable by the defendant No.1 and if the defendant No.2 is held to be the real beneficiary what amount shall be due and payable by the defendant No.2? what should the decree be? Affidavit in evidence shall be filed within one week after the application for amending written statement is filed by the defendant No.2. The plaintiff shall after going through their record cause a certified statement of account filed in accordance with the Bankers Book of Evidence Act." 20. Thereafter, on 25-10-2001, the suit against defendant No.1 was decreed. The operative part of the judgment dated 25-10-2001 reads as follows:-- "(7) While considering the statement of account, it is found that the markup from 1-4-2001 to 30- 6-2001 and from 1-7-2001 to 4-92001 buy-back agreement i.e. Beyond the expiry date and therefore, this mark-up is not being allowed by the Courts. The case of Muhammad Aslam Khaki v. Syed Muhammad Hashim (PLD 2000 SC 225) is referred. In view of the above the aforesaid mark- up is disallowed likewise no evidence has been brought on record to establish liquidated damages, which is disallowed as well. For the rest of the amount i.e. Rs.75,571,341.65 and US$ 17490 the suit is decreed as against defendant No. 1." 21. From the record, it appears that the application under, section 152, C.P.C. [C.M.A. No.9409 of 2001] filed by the plaintiff for substitution of the figure of Rs. 75,571,341.65 [as mentioned in the last sentence of the judgment] with the figure of Rs.75,511,314.65, was also granted on 14-1-2002. Moreover, on the same day, the 'written statement' filed by defendant No.2 on 17-11-2001, was taken on record. 22. On 21-3-2002, when again [i.e. After filing of the 'written statement' by defendant No.2 on 17-11- 2001], the matter came-up before the court then, the following order was passed:-- "21-3-2002 Mr. Qazi Faez Isa for plaintiff Mr. Khawaja Mansoor for defendant None present for defendant No.1 Both the learned counsel submit that issues framed in this suit on 5-9-2001 cover all the points in controversy and no additional issue is required to be framed. ." 23. The defendant No.2 in its' Leave to Defend Application [C.M.A. No.3808 of 2001] as well as in its' 'written statement' has seriously opposed any liability inter alia on the ground that defendant No.2 being a Foreign incorporated Company carries on its' business abroad and has no place of business within the jurisdiction of this court. Further no 'cause of action' as alleged in para 26 of the plaint has ever arisen in favour of the plaintiff and against defendant No.2. 24. The defendant No.2 has neither obtained any 'loan' or 'finance' from the plaintiff Bank nor otherwise, stood as 'surety' or an 'indemnifier' in respect of the such finances granted to and availed by the defendant No.1. As such, the defendant No.2 is neither a 'borrower' nor a 'customer' within the meaning of clauses (c) and (d) of section 2 of Act, XV of 1997. Besides, the defendant No.2, in 'no sense, is the 'real beneficiary', as alleged by the plaintiff Bank, of the finance facility(ies) availed by the defendant No.l. 25. Moreover, the defendant No.2 has never received any payment for any goods allegedly purchased by defendant No.1 from the defendant No.2. As such, the defendant No.2 is neither obliged to pay any amount to the plaintiff or otherwise, has committed any 'default' in fulfilling of any alleged obligation with regard to any finance facility[ies] availed by the defendant No.1 from the plaintiff Bank. No any documents including 'letter of guarantee' or 'letter of indemnity' was ever executed by defendant No.2. Allegations to the effect were also seriously denied. Any request, on the part of the defendant No.2, for providing finances to defendant No.1, was also forcefully denied. 26. The defendant No.2 initially, no doubt, was holding 60% shares of defendant No.1 Public Listed Company. However, since 30th August, 2000 defendant No.1 ceased to be a subsidiary company of
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defendant No.2 [i.e. Upon transfer of 40% shares of defendant No.1 to a third party viz. Portmarnock International Limited]. Per defendant No.2's stand, the 'Letter of Comforts' dated 22nd September, 1998 and 1st August, 1999 do nothing with the plaintiff or its' three amalgamated branches of Bank of American [In short BOA] with the Union Bank Ltd. [i.e. The Pakistan Branches of Bank of America, at Karachi, Lahore and Islamabad]. Moreover, these 'Letters of Comforts' have already been expired on 31st July, 1999 and 31st July, 2000 respectively. In any event, the aforesaid 'Letters of Comforts' have neither created any legal obligations or liability as alleged vis-a-vis the plaintiff or its' 3 Pakistan Branches of Bank of America. Even these 'Letters of Comforts' are not addressed to the plaintiff or otherwise, pertain to the subject 'finance facilities'. The alleged liability on the basis of the aforesaid 'Letters of Comfort' besides mis-conceived, mis-leading is false. 27. Not only this, the plaintiff is also well aware re transfer of defendant' No.2's 40% shares in defendant No.1 to 3rd party namely Portmarnock International Limited. The contents of letter dated 24th August, 2000 written by Senior Vice-President and Chief Financial Officer, Philips Electronics Asia Pacific Pte. Ltd. And plaintiffs letter dated 25th August, 2000 are not only self-explanatory but also belie the plaintiff in its' assertions. The lack of knowledge regarding transfer of shares or any sort of assurance on the part of defendant No.2 for maintaining and/or of continuing the ownership of the majority shareholdings of defendant No.2 in defendant No.1 company, was seriously denied by defendant No.2. 28. Per assertions, the defendant No.2 is not responsible for the financial conditions of defendant No.1 and/or its' inability to pay the outstanding dues: The plaintiff was neither induced for granting the financial facilities on false pretext or 'otherwise'. The defendant No.2 is not the 'real beneficiary' of the finances availed by defendant No.1 under the terms and conditions agreed between the plaintiff and defendant No.1. Finally, defendant No.2 have prayed for dismissal of the suit. 29. Out of the pleadings, 'issues' were settled on 5-9-2001. In 'pro' and 'contra' of the issues, the plaintiff and defendant No.2 led their evidence. The plaintiff in support of his contentions examined Ghulam Sarwar Khan son of Ghulam Rasool Khan. The said witness [P.W.1] besides, producing his 'affidavit-in-evidence' as Exh. 5/1' also produced in his 'examination-in-chief' other documents as Exh.'5/2' to Exh.'5/29'. The said witness was duly 'cross-examined' by Mr. Khawaja Mansoor, learned counsel for defendant No.2. 30. On behalf of defendant No.2, Mr. Suhail Akhtar son of Akhtar Hussain Khan filed his affidavit-in- evidence' which was produced in his 'examination-in-chief' as Exh.'6'. The original Power of Attorney in his favour was also produced as Exh. 16/1. The said witness was also 'cross-examined' by Mr. Shakeel Pervaiz, learned counsel for the plaintiff. 31. Upon conclusion of the evidence, when the above case came-up before me for arguments, I heard Mr. Umer Soomro, learned counsel for the plaintiff and Mr. Khawaja Mansoor, learned counsel for the defendant No.2 and with their valuable assistance also gone through the available record. 32. ISSUE NO.1: Whether this Court has jurisdiction to proceed with the matter in respect of defendant No.2? The onus of proof of this issue is on the plaintiff Bank. Mr. Umer Soomro, learned counsel for the plaintiff Bank forcefully argued that defendant No.2 is also 'customer' of the plaintiff Bank as defined in section 2(d) of the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 (Act XV of 1997). Per learned counsel, defendant No.1, no doubt, obtained/availed finances from the plaintiff Bank but the 'real beneficiary' thereof is the defendant No.2. 33. Moreover, defendant No.2 is also a 'surety' and 'indemnifier'. This court, under circumstances, has jurisdiction to decide the 'lis'/'dispute' involved in the case in hand. Mr. Umer Soomro, learned counsel for the plaintiff next contended that all disputes pertaining to and arising out of the banking transaction, indeed, fall within the scope of Banking Act, 1997 [Act XV of 1997]. Learned counsel for the plaintiff while, arguing the case submitted in vehemence that even the question
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regarding 'existence' and/or 'non-existence' of the loan/finance facility(ies) needs to be decided by the Banking Court. So also, the issue whether defendant No.2 is 'real beneficiary' or not of the financial facilities granted to defendant No.1 also falls within the jurisdiction of Banking Court as defined under section 2 of the Act XV of 1997. [Now Financial Institutions (Recovery of Finances) Ordinance, 2001 - In short F.I.O., 2001]. 34. Conversely, Mr. Khawaja Mansoor, learned counsel for the defendant No.2 emphatically argued that defendant No.2 is a Company incorporated outside Pakistan and knowingly has no 'place of business' within the jurisdiction of this court. According to the learned counsel, defendant No.2, is neither a 'borrower' nor a 'customer' as such does not fall within the meaning of clauses (c) and (d) of Section 2 of Act XV of 1997. Per learned counsel, defendant No.2, in no sense is the 'real beneficiary' of any financial facility[ies] granted to and availed by defendant No.1. 35. According to Mr. Khawaja Mansoor, learned counsel for the defendant No.2, the words "...a person who...Is the 'real beneficiary' of such finance" used under section 2(e) of Act XV of 1997, have reference to the 'actual customer' of the bank to whom finance has been extended/made available under a system not based on interest. The defendant No.2 has never obtained any financial facility[ies] from the plaintiff Bank or otherwise, received any payment for the 'goods' mentioned in the 'subject agreements for financing' from the defendant No.l. Be that as it may, the defendant No.2 is not liable to pay anything to the plaintiff Bank. The defendant No.2 did not commit any 'default' in fulfilling of so-called obligation in respect of the finance facility[ies] availed by defendant No.1 during July, 2000 to October, 2000. 36. For proper appreciation of the contentions raised by the learned counsel for the plaintiff and defendant No.2 respectively vis-a-vis. The Issue No.1, I would like to reproduce herein, the relevant clauses [i.e. a(i),(ii),(iii)], [b(i)(ii)], [c], [d] and [e] of section 2 of the Act of 1997 [Act XV of 1997] under which law the instant suit has been filed, as under:-- "(2) Definitions.---In this Act unless there is anything repugnant in the subject or context-- (a) "banking company" means-- (i) any company whether incorporated within or beyond Pakistan which transacts the business of banking or any associated or ancillary business in Pakistan and includes a Government savings bank; (ii) a modaraba or modaraba management company, leasing company, investment bank, financing company, unit trust or mutual fund of any kind and credit or investment institution, corporation or company whether industrial, agricultural or development; and (iii) any company authorised by law to carry on any similar business specified in the Schedule to this Act: and (b) "Banking…
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