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Official Citation: 2024 IHC 74
Court / Jurisdiction: Islamabad High Court
Year of Decision: 2023
Decision Date: 2023-12-13
Parties: Ali Waqar Azeem vs Standard Chartered Bank Pakistan Limited
Ruling Summary: This decision was rendered by the Islamabad High Court on 2023-12-13, officially reported as 2024 IHC 74. In this matter between Ali Waqar Azeem and Standard Chartered Bank Pakistan Limited, 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.
Case cited as 2024IHC74
Court Name: Islamabad High Court Judge(s): Miangul Hassan Aurangzeb, Saman Rafat Imtiaz Title: Ali Waqar Azeem vs Standard Chartered Bank Pakistan Limited Case No.: R.F.A. NO.224 OF 2023 Date of Judgment:2023-12-13 Reported As: 2024 IHC 74, 2024 CLD 397, PLJ 2024 Islamabad 100 Result: Appeal Allowed
JUDGMENT
JUDGMENT SAMAN RAFAT IMTIAZ, J.:- 1. Through the instant Regular First Appeal, the Appellant [Ali Waqar Azeem] impugns the Judgment and Decree dated 08.02.2023 ("Impugned Judgment and Decree") passed by the learned Judge Banking Court ("Banking Court") whereby the suit for recovery of Rs.1,128,429.24 filed by the Respondent [Standard Chartered Bank Pakistan] was decreed. 2. The facts of the case as per the Memo of Appeal briefly stated are that the Respondent/Plaintiff filed a Suit for Recovery of Rs.1,128,429.24 along with cost of funds, etc. till realization of the amount ("Subject Suit") in respect of a loan facility was availed by the Appellant. On 21-09-2022, the Appellant filed a petition for leave to appear and defend the Subject Suit but the same was dismissed for non-prosecution and the Subject Suit was decreed against the Appellant vide the Impugned Judgment and Decree. Being aggrieved of the Impugned Judgment and Decree the Appellant preferred the instant appeal. 3. The learned counsel for the Appellant/Defendant submitted that the learned Banking Court has no jurisdiction to dismiss a petition for leave to appear and defend the suit for non-prosecution; that even if the petition for leave to appear and defend the suit is dismissed the learned Banking Court has to proceed for recording of evidence as the Respondent/Plaintiff has to prove its case; that dismissal for non-prosecution is a penal action and before taking any penal action the learned Banking Court was bound to comply with the pre-requisite which are missing in this case; and that the word forthwith' appearing in Section 10(12) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 ("FIO, 2001") means to forthwith proceed with the case without any adjournment not forthwith decree the suit. The learned counsel relied upon Messrs Bahawalpur
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Cotton Company Vs. United Bank Limited, 2023 CLD 1116, Oil and Gas Development Company Limited Vs. Muhammad Ilyas Mian, 2018 CLC 1666, Pakistan Telecommunication Company Limited (PTCL) Vs. Mst. Naima Ayub, 2013 CLC 1191, Abid Aziz Khan Vs. Bank of Punjab, 2007 CLD 997, Syed Asad Abbas Vs. Allied Bank of Pakistan, 2006 CLD 79, and Syed Rashid Hussain Vs. Bank of Punjab, 2005 CLD 1823. 4. On the other hand, the learned counsel for the Respondent/Plaintiff submitted that the Impugned Judgment and Decree is as per the law and do not suffer from any illegality or infirmity and as such the instant appeal is liable to be dismissed and that even otherwise the application for leave to defend filed by the Appellant/Defendant was hopelessly time barred. 5. Arguments advanced by the learned counsel for the parties have been heard and record examined with their assistance. 6. According to the Impugned Judgment despite opportunities granted to the Appellant/Defendant none appeared to argue the petition for leave to appear and defend the Subject Suit and as such the learned Banking court dismissed the Appellant/Defendant's petition for leave to appear and defend for non-prosecution. Vide the same Impugned Judgment and Decree the learned Banking Court proceeded to decree the Subject Suit without discussing the merits of the leave application filed by the Appellant/Defendant and without recording the Respondent/Plaintiff's evidence. Section 10 of the FIO, 2001 7. Before going further it is important to reproduce Section 10 of the FIO, 2001 as it exists today given that it has undergone certain amendments since the initial promulgation of the FIO, 2001: "10. Leave to defend.--(1) In any case in which the summons has been served on the defendant as provided for in subsection (5) of section 9, the defendant shall not be entitled to defend the suit unless he obtains leave from the Banking Court as hereinafter provided to defend the same; and in default of his doing so, the allegations of fact in the plaint shall be deemed to be admitted and the Banking Court may pass a decree in favour of the plaintiff on the basis thereof or such other material as the Banking Court may require in the interests of justice. (2) The defendant shall file the application for leave to defend within thirty days of the date of first service by any one of the modes laid down in subsection (5) of Section 9: Provided that where service has been validly effected only through publication in the newspapers, the Banking Court may extend the time for filing an application for leave to defend if satisfied that the defendant did not have knowledge thereof. (3) The application for leave to defend shall be in the form of a written statement, and shall contain a summary of the substantial, questions of law as well as fact in respect of which, in the opinion of the defendant, evidence needs to be recorded. (4) In the case of a suit for recovery instituted by financial institution the application for leave to defend shall also specifically state the following:-'"',N\-- (a) the amount of finance availed by the defendant from the financial institution; the amount paid by the defendant to the financial institution and the dates of payments; (b) the amount of finance and other amounts relating to the finance payable by the defendant to the financial institution up to the date of institution of the suit; (c) the amounts of finance and other amount crediting to the finance payable by the defendant to the financial institution up to the date of institution of the suit; (d) the amount if any which the defendant disputes as payable to the financial institution and facts in support thereof. Explanation:--For the purposes of clause (b) any payment made to a financial institution by a customer in respect of a finance shall be appropriated first against other amounts relating to the finance. and the balance, if any, against the principal amount of the finance.
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(5) Where application for leave to defend submitted under the preceding subsection is found to be materially incorrect at any stage of the proceedings, the defendant shall lose the right to defence and shall also be liable to pay penalty of not less than five percent of the amount of the claim, unless the defendant can establish that incorrect information was submitted as a result of a bona fide (6) 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 law or fact raised by him, (7) An application for leave to defend which does not comply with the requirements of subsections (3), (4) where applicable and (5) shall be rejected, unless the defendant discloses therein sufficient cause for his inability to comply with any such requirement. (8) The plaintiff shall be given an opportunity of filing a reply to the application for leave to defend, in the form of a replication. (9) Subject to Section 11, the Banking Court shall grant the defendant leave to defend the suit if on consideration of the contents of the plaint, the application for leave to defend and the reply thereto it is of the view that substantial questions of law or fact have been raised in respect of which evidence needs to be recorded. (10) In granting leave under subsection (8), the Banking Court may impose such conditions as it may deem appropriate in the circumstances of the case, including conditions as to deposit of cash or furnishing of security. (11) Where the application for leave to defend is accepted, the Banking Court shall treat the application as a written statement, and in its order granting leave shall frame issues relating to the substantial questions of law or fact, and subject to fulfillment of any conditions, attached to grant of leave fix a date for recording of evidence thereon and disposal of the suit. (12) Where the applications leave to defend is rejected or where a defendant fails to fulfill the conditions attached to the grant of leave to defend, the Banking Court shall forthwith proceed to pass judgment and decree in favour of the plaintiff against the defendant. (13) Where an application for leave to defend has been filed before the coming into force of this Ordinance, the defendant shall be allowed a period of twenty-one days from the date of coming into force of this Ordinance, or from the date of first hearing thereafter, whichever is later, for filing an amended application for leave to defend in accordance with the provisions of this Ordinance." [Emphasis added]. 8. In a nutshell, where summons have been duly served, the defendant is not entitled to defend the suit under sub-section (1) of Section 10 of the FIO, 2001 unless he obtains leave from the Banking Court in the manner provided in the subsequent sub-sections of Section 10. Where he defaults in obtaining leave as such, the allegations of fact in the plaint are deemed admitted. Moreover, in such eventuality, the Banking Court is empowered to pass a decree in favour of the plaintiff on the basis of the plaint or such other material as the Banking Court may require in the interest of justice however it is not mandatory to do so. For the purpose of obtaining leave to defend the defendant is required to file an application within the limitation period as stipulated in Section 2 of the FIO, 2001. The requirements that an application for leave to defend must comply with are provided in sub- sections (3), (4), (5) and (6). The consequence of failure to comply with sub-sections (3), (4), and (5) is given in sub-section (7). The circumstances in which leave to defend may be granted to the defendant is given in sub-section (9) and the procedure to follow in case the application leave to defend is accepted is provided in sub-section (11) whereas the procedure to follow in case it is rejected is provided in sub-section (12). The remaining sub-sections are not relevant for our discussion. Banking Court power to decree suit under Section 10 of the FIO, 2001
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9. It may be noted that there are two provisions that empower the Banking Court to decree the suit against a defendant under Section 10 i.e., sub-section (1) and sub-section (12) thereof. It bears mention that the power of the Banking Court to decree the suit in favour of the plaintiff upon the defendant's default in obtaining leave to defend in sub-section (1) is discretionary given the use of the word "may" therein. Whereas, under sub-section (12) it is mandatory upon the Banking Court to forthwith proceed to pass decree in favour of the plaintiff against the defendant in the circumstances stipulated thereunder by the use of the word shall' therein. It is therefore important for us to understand the circumstances in which it is discretionary for the Banking Court to decree the suit in the plaintiff's favour and when it is mandatory to do so under Section 10 of the FIO, 2001. To this end, we will first consider sub-section (12) as it explicitly provides the conditions in which it is attracted. When must the Banking Court decree suit under Sub-section (12) of Section 10 of the FIO, 2001 10. Sub-section (12) of Section 10 of the FIO, 2001 expressly provides that it is applicable where the application for leave to defend has been rejected or where the defendant fails to fulfill the conditions attached to the grant of leave to defend. Thus, it is mandatory upon the Banking Court to forthwith proceed to pass judgment in favour of the plaintiff pursuant to sub-section (12) ibid: (a) in case of rejection of the leave to defend application under sub-section (7) for non- compliance of sub-sections (3), (4) and (5); or (b) in case of rejection of the application for leave to defend where the Banking Court is of the view that no substantial question of law or fact has been raised which requires recording to evidence pursuant to sub-section (9); or (c) where the conditions attached to the grant of leave to defend under sub-section (10) have not been fulfilled. When may the Banking Court decree suit under sub-section (1) of Section 10 of the FIO, 2001 11. The case of default in obtaining leave to defend on account of failure to file an application for leave to defend or to file it within the time stipulated in sub-section (2) of Section 10 of the FIO, 2001 falls within the ambit of sub-section (1). 12. The reason why it is not mandatory for the Banking Court to decree the suit in favour of the plaintiff upon such default of the defendant is because even if the defendant fails to file an application for leave to defend or fails to file it in a timely manner leading to its dismissal unless delay is condoned, it is the Banking Court's bounden duty to apply its mind to see if the plaintiff has made out a case for decree of the matter. 13. Notwithstanding the defendant's default in obtaining leave for the aforesaid reasons, it is not mandatory upon the Banking Court in such case to decree the suit in favour of the plaintiff as the Banking Court retains the power to return or to reject the plaint/dismiss the suit for want of jurisdiction or for failure to disclose cause of action or as time barred or on account of non- compliance of the provisions of Section 9 of the FIO, 2001, etc. We are fortified in our view by the judgment of the Honorable Sindh High Court at Karachi in National Bank of Pakistan Vs. Messrs ARK Messrs Ark Garments Industry (Pvt.) Ltd. through Managing Director, 2015 CLD 179: "11. Subsection (1) of section 10 of the Ordinance provides that in the event of the defendant's default in obtaining leave from the Banking Court to defend the Suit in which summons has been served on him, the allegations of fact in the plaint shall be deemed to be admitted, and the Banking Court may pass a decree in favour of the plaintiff on the basis thereof, or such other material as the Banking Court may require in the interest of justice. The consequences mentioned in subsection (1) ibid are penal in nature, therefore, it must be construed strictly. The words underlined by me for emphasis, appearing in subsection (1) ibid, are of great importance. The said words undoubtedly indicate that, if the defendant fails in obtaining leave to defend the Suit, his admission shall be deemed only to the extent of the allegations of fact in the plaint, and a decree
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in favour of the plaintiff may be passed only because of such admission of the allegations of fact in the plaint, or such other material as the Banking Court may require in the interest of justice. The reason for highlighting the above aspect is that before passing a decree in favour of the plaintiff in a blindfolded fashion because of the defendant's failure in obtaining leave to defend the Suit, allegations of fact in the plaint must be examined critically and minutely by the Banking Court so as to corroborate as to whether or not the same constitute a cause of action in favour of the plaintiff. In such a situation, it must be kept in mind by the Banking Court that cause of action arises only and only out of the facts pleaded/alleged in the plaint. Another significant aspect in subsection (1) ibid is that, it is directory and not mandatory in nature because of the use of the word "may" therein. 12. Subsection (11) of section 10 of the Ordinance provides that where the application for leave to defend is rejected, or where the defendant fails to fulfill the conditions attached to the grant of leave to defend, the Banking Court shall forthwith proceed to pass judgment and decree in favour of the plaintiff against the defendant. However, this does not mean that a Suit, which does not disclose a cause of action or is otherwise not maintainable being barred by any law, and which ought to be dismissed or the plaint ought to be rejected, should be decreed simply because the defendant did not file the application for leave to defend, or' he was unable to obtain leave to defend the Suit on account of dismissal of his application for leave to defend, or he failed in fulfilling the conditions attached to the grant of leave to defend. For instance, if a Suit is barred by limitation, or is based on illegal or void claim, the Banking Court is certainly not expected to decree the same either under subsection (1) or under subsection (11) of section 10 of the Ordinance. I can say with conviction that this surely must not have been the intention of the lawmakers. It is, therefore, held that the Banking Court can exercise jurisdiction under subsection (1) or under subsection (11) of section 10 ibid and pass a decree thereunder in favour of the plaintiff, only when summons in the prescribed form are issued and served on the defendant as provided in subsection (5) of section 9 of the Ordinance; the plaint is compliant of the mandatory requirements of subsection (3) of section 9 of the Ordinance; the allegations of fact in the plaint disclose a cause of action against the defendant; the Suit is maintainable by all standards; and, the plaintiff is able to show that he is entitled to the relief prayed for against the defendant. If any one of the above conditions precedent for a competent Suit are lacking, the plaintiff shall not be entitled to a decree either under subsection (1) or under subsection (11) of section 10 of the Ordinance. It is also held that irrespective of the defense set up by the defendants, and in Suits filed under the Ordinance, whether or not the defendant files the application for leave to defend, or whether his application for leave to defend is maintainable or not, or even if his application for leave to defend is dismissed, the Banking Court is duty-bound to first apply its mind and confirm as to whether or not the plaint discloses a cause of action against the defendant; whether the Suit, as framed, is maintainable or not; and, whether or not the plaintiff is entitled to the relief prayed for, whether the defendant is before the Court or not." [Emphasis added]. Consideration of application for leave to defend prior to rejection 14. On the other hand, suit is liable to be decreed in favour of the plaintiff under sub-section (12) of the FIO, 2001 only after the application for leave to defend has either been rejected pursuant to sub-section (7) or because it does not merit acceptance under sub-section (9) or where the defendant has failed to fulfill the conditions upon which such leave was granted. In any case, consideration of the application for leave to defend precedes rejection. 15. Moreover, consideration of the plaint and reply to the leave to defend is also necessary under sub-section (9). Although sub-section (7) of the Section 10 does not expressly require consideration of the plaint, the effect of failure of the plaint to comply with mandatory provisions of
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the law is to be examined independently of the defense set up[1] as well as whether it discloses a cause of action or is barred by any other law or whether the suit has been filed before a court of competent jurisdiction etc. 16. Therefore, the scheme that emerges is that upon filing of the application for leave to defend, the Banking Court considers such application along with the plaint and reply to the leave to defend application. If upon such consideration it appears that the plaint merits return/rejection, the Banking Court can do so in exercise of its powers under Order VII, Rules 10 and/or 11, C.P.C., either suo moto or on application by the defendant even before filing of the leave to defend application as held in the celebrated judgment reported as Ghulistan Textile Mills Limited Vs. Askari Bank Ltd., 2013 CLD 2005. Alternatively leave to defend may be granted to the defendant where questions regarding the maintainability of the suit have been raised. 17. In any event, rejection or grant of the application for leave to defend presupposes consideration of the said application as well as the plaint. Therefore, if the application for leave to defend is rejected for non-compliance of mandatory provisions or for failure to raise any substantial question of law or fact or failure to fulfill the conditions attached with the grant of leave the underlying premise is that the Banking Court is satisfied that the plaint does not merit return or rejection nor is the suit otherwise liable to be dismissed. In such case, the only course of action available would be to decree the suit in favour of the plaintiff. Reference may be made to Messrs United Bank Limited Vs. Banking Court No.II,, 2012 CLD 1556 whereby it has been held: "11. After carefully examining the entire section 10 of the Ordinance and particularly its subsection (11), we have come to the conclusion that the word "forthwith" specifically mentioned in section 10(11) of the Ordinance was introduced by the legislature for the first time with a clear and specific object, that is, for expeditious disposal of a banking Suit whether filed by a financial institution or by a customer. The word "forthwith" is not meaningless and it cannot be ignored or interpreted casually. The word "forthwith" along with the word "shall" used in section 10(11) casts a duty upon the Banking Court to decree the Suit in favour of the plaintiff against the defendant immediately when defendant's application for leave to defend is rejected or where a defendant fails to fulfill the conditions attached to the grant of leave to defend. In our opinion the object of inserting this new provision was not to cause prejudice to any party, but was to provide an expeditious and equitable relief in banking Suits to the plaintiff after dismissal of defendant's application for leave to defend. We have said so because of the reason that if a defendant successfully makes out a case for grant of leave to defend by raising substantial question(s) of law or fact, leave would be granted to him and the suit will proceed further. In such an. event, obviously the implications of section 10(11) shall not follow. On the other hand, if defendant's application for leave to defend is rejected for where a defendant fails to fulfill the conditions attached to the grant of leave to defend, the plaintiff should not be compelled to wait any longer or to suffer further, and the decree must follow forthwith in his favour." [Emphasis added] Case law on whether or not an application for leave to defend a banking suit may be dismissed for non-prosecution 18. The above discussion regarding the difference between the powers of the Banking Court under sub-section (1) and (12) of Section 10 of the FIO, 2001 highlights the importance and indeed necessity of consideration of inter alia the application for leave to defend before rejection thereof and proceeding forthwith to decree the suit under sub-section (12) ibid. This brings us back to the question raised in the instant case i.e., as to whether or not an application for leave to defend a banking suit may be dismissed for non-prosecution. 19. This question has been the subject of debate in a number of cases before the Honorable Lahore High Court and the Honorable Sindh High Court. A learned Division Bench of the Honourable Lahore
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High Court in Abid Aziz Khan (Supra) after considering various provisions of Section 10 of the FIO, 2001 held as follows: "8. The position, therefore, which emerges from reading section 10(ibid) is clear and unambiguous, the defendant is required to file PLA, in accordance with the conditions enumerated in section 10 of the Ordinance, the Banking Court is required to examine it and if it fulfills the requirements set there to place it on record. But once PLA is part of record, it is the cardinal duty of the Banking Court, to consider the plaint, the PLA and the replication filed, and thereafter proceed to grant leave conditional or unconditional or reject the application under section 10(11) of the Ordinance. The Banking Court, therefore, is required to consider and decide the application on merits, it has been left with no other choice in this context. The Ordinance does not visualize the dismissal of application for non-prosecution, no such powers have been conferred upon the Banking Court, proceeding otherwise, amounts to defeating the legislative intent, thus, the dismissal for non-prosecution of the appellants PLA, was without jurisdiction and patently illegal." [Emphasis added]. 20. This view was adopted by a learned Single Bench of the Honourable Sindh High Court at Karachi in United Bank Limited Vs. Mehmood Ilyas Khan, 2012 CLD 1372 as follows: "10. After having considered the matter, I find myself in respectful agreement with the reasoning of, and conclusion arrived at, by the Lahore High Court. It appears to me that the provisions of subsection (8) of…
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