Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: MESSRS UNITED BANK LTD. VS Respondent: MESSRS TEXTILE ACCESSORIES (PAKISTAN) LTD. JUDGMENT
Court Name: Sindh High Court Judge(s): Ajmal Mian Title:MESSRS UNITED BANK LTD. vs MESSRS TEXTILE ACCESSORIES (PAKISTAN) LTD.
JUDGMENT
Reported As: 1984 CLC 3189 Result: Suit decreed Judgment JUDGMENT ' By this common Judgment, I intend to dispose of I. Miscellaneous 8/72, Suit No, 210/72 and Suit No, 104/73. ' The brief facts leading to the filing of the above cases are as follows :- 2. J. Miscellaneous, 8 of 1972.-(a) Industrial Development Bank of Pakistan (hereinafter referred to as the financial institution) under credit agreement, dated 14th December, 1964, Exh. 1/1 (in J. Miscellaneous 8/72) agreed to grant a foreign currency loan namely D. M. 4,03,200 then equivalent to Rs, 4,80,000 to Messrs Textile Accessories (Pakistan) Ltd. (hereinafter referred to as the borrower). It seems that in order to ensure the re-payment of the above loan, Messrs Commerce Bank Limited (which has now been substituted by United Bank Ltd. After the enactment of (Banks Nationalization Act, 1974) (hereinafter referred to as the guarantor bank) executed a bank guarantee, dated 30th October, 1964, Exh. 7 (in Suit No, 104/73). It further seems that defendants Nos. 2 and 3 in Suit No, 104/73 namely, Syed Hasan Mahmud son of Makhdumulmulk and Begum Azra Hasan Mahmud wife of Syed Mahmud executed Letter of Guarantee, dated 14th December, 1964, Exh. 8 (in Suit No, 104/73) (hereinafter referred to as the guarantors). It further seems that 11 instalments were paid against the total 17 instalments specified inter alia in the above credit agreement and the bank guarantee. It further seems that the borrower also executed an agreement of hypothecation, dated 14th December, 1964 in favour of the financial institution Exh. 1/11 (in J. Miscellaneous 8/72). It also seems that Custom Department had filed some recovery proceedings against the borrowers and forwarded a certificate of recovery to the City Deputy Commissioner for execution. Thereupon, the
---
## Page 2
financial institution filed J. Miscellaneous 8/72 on 10th January, 1972 in which the following prayer was made :- "It is, therefore, respectfully prayed : (1) The management of the concern and the project assets may be transferred to the petitioner so that the petitioner may find a proper person to run the project who may pay off Customs dues, dues of the petitioner and the dues of respondent No, 6 or in the alternative an order for the attachment and sale of the property pledged, mortgaged or hypothecated with the petitioner may be passed for the recovery of the loan amount of the Bank amounting to Rs, 2,45,536 and cost of these proceedings and interest at 9% per annum and an injunction ad interim may be passed that the machinery and plaint installed at Units 1 and 2 of S. I. T. E., may be attached until transfer of the management of the project to the petitioner or until the sale of the project as may be considered proper by the Court." (b) After that the amended application was filed on 21st August, 1973, in which on account of devaluation the original amount of Rs, 2,45,536 was substituted by Rs, 6,59,062.35. It further seems that the third amended application was filed on 17th January, 1984 after the promulgation of the Foreign Currency Loans (Rate of Exchange) Order, 1982, President's Order No, III of 1982 (hereinafter referred to as the Order) in which the following prayer was substituted : "It is, therefore, respectfully prayed : (1) The management of the concern and the project assets may be transferred to the petitioner so that the petitioner may find a proper person to run the project who may pay off customs dues, dues of the petitioner and the dues of respondent No, 6, or in the alternative an order for the attachments and sale of the property pledged, mortgaged by hypothecated with the petitioner may be passed for the recovery of the loan amount of Bank amounting to D. M. 1,79,220.35 and net Rupees charges of Rs, 13,869.09 and cost of these proceedings and interest at 9% per annum and an injunction ad interim may be passed. That the machinery and plaint installed at units 1 and 2 of S. T. E. May be attached until transfer of the management of the project to the petitioner or until the sale of the project as may be considered proper by the Court." (c) It may be observed that originally in the above application 7 parties were arraigned as respondents. However, on 8th May, 1972 then respondents Nos. 4 and 5, namely, Syed Badruduja Raja son of Syed Nazirul Haq and Begum Isar Badar wife of Syed Badruduja were dropped, whereas then respondent No, 6 Commerce Bank Limited were dropped on 18th January, 1974. Furthermore, then respondents 2 and 3 Syed Hasan Mahmood son of Makhdoomulmulk and Begum Azra Hasan Mahmood were dropped, with the result that there remained only two respondents i. e. Respondent No, 1 Messrs Textile Accessories (Pakistan) Ltd. And City Deputy Commissioner, Karachi. It may be observed that in the above J. Miscellaneous no relief was prayed for against respondents Nos. 2 to 7. ' It may be pointed out that no written statement has been filed by any of the respondents in above J. Miscellaneous. One Rana Muhammad Yousuf son of Chaudhry Alamgir had filed objections in affidavit-form on 7th February, 1972, showing himself as Perokar of respondent No, 2, the Chairman of respondent No, 1, whereas respondent No, 6 the guarantor Bank filed objections on 7th February, 1972. In the above affidavit and objections it was denied that the above respondents were liable to pay any sum. The guarantor Bank had pleaded that on account of variation in the terms of loan made by the financial institution without their consent, their obligation stood discharged by virtue of section 133 of the Contract Act. In support of the above J. Miscellaneous application the financial institution examined P. W. 1 Mr. M. Aleemuddin. He has produced a number of documents namely Exhs. 1/1 to 1/21. 3. Suit No, 210 of 1972.-(a) This suit was filed on 18th May, 1972 by the guarantor Bank against the borrower and the financial institution for the decree of Rs, 3,75,615.04 against the borrower and a
---
## Page 3
decree for s. 4,68,384.39 against the financial institution, in the alternative a decree for entire amount of Rs, 8,43,999.43 against the borrower with 9% per annum interest with quarterly rests with effect from 1st April, 1972. In the above suit it was averred that the financial institution is liable as they failed to obtain first charge on the property of the borrower. It was also averred that the guarantor Bank stood discharged from their liability under the above bank guarantee. It was further averred that the financial institution was liable to refund the amount paid by the guarantor Bank under the above guarantee. Against the borrower, it was averred that they were liable to pay under the arrangement entered into between the guarantor -Bank and the borrower under Exhs. 6/2, 6/3, 6/7, 6/9 and 6/10 of suit file No, 210/72. The borrower was declared ex parte by order, dated 31st May, 1973. However, the financial institution filed a detailed written statement, in which it was inter alia averred that the bank guarantee remained intact as the full loan amount was not repaid. It was also denied that the financial institution committed any breach of the understanding with the guarantor Bank as to the obtaining of the first charge on the borrower's property. (b) On the basis of the pleadings of the parties by, consent of the plaintiff and defendant No, 2, following 9 issues were adopted on 8th October, 1973 :- (1) Did plaintiffs at the request of defendant No, 1 issue Bank guarantee No, CBL/149, dated 30th October, 1964 for Rs, 4,80,000 in favour of defendant No, I, on the basis of counter guarantee, dated 30th October, 1980, given by defendant No, 1 ? (2) Did plaintiffs grant cash credit limit of Rs, 1,00,000 initially for a period of one year upto 9th . June, 1967 to defendant No, 1 in their Current Account No, 704 as mentioned in para. 3 of the plaint ? (3) Did defendant No, 1 in consideration of the abovementioned cash credit limit execute documents as mentioned in paragraph 4 of the plaint ? (4) Did defendant No, 1 fail to adjust his cash credit facility which was granted by way of overdrafts in their Current Account No, 704 and also failed to pay their instalments to I.D.B.P. As mentioned in para. 5 of the plaint ? (5) Did defendant No, 1 execute a demand promissory note for Rs, 4,60,000, dated 31st July, 1969 as mentioned in para. 7 of the plaint as well as the other documents as mentioned in the said para. ? (6) Are plaintiffs entitled to subrogation to all the securities which are held by defendant No, 2 as a result of various payments made by plaintiffs to defendant No, 2 under Bank Guarantee No, CBL/149, dated 30th April, 1964 as mentioned in para. 8 of the plaint ? (7) Did plaintiffs issue Guarantee No, CBL/149, dated 30th October, 1964 on clear understanding to the knowledge of defendant No, 2, that defendant No, 2 would take the registered mortgage of all the assets and properties of defendant No, 1 as security for their advance for which the plaintiffs issued guarantee in question as mentioned in para. 9 of the plaint ? (8) Did defendant No, 2 without the consent of the plaintiffs change the terms of their contract with defendant No, 1 as mentioned in para. 9 of the plaint ? If yes, did plaintiffs' liability under the said guarantee stand discharged by virtue of section 133 of the Contract Act ? If yes, is defendant No, 2 liable to refund a sum of Rs, 4,68,384.39 with interest thereon paid to them by the plaintiffs under the said guarantee as mentioned in para. 9 of the plaint ? ' To what relief or reliefs are plaintiffs entitled against the defendants ? (c) The guarantor Bank examined Munir A. S. Siddiqui Exh. 6 (in Suit No, 210/72) who produced the copy of bank guarantee Exh. 6/1, undertaking, dated 30th October, 1964 executed by the borrower in favour of the guarantor Bank Exh. 6/2, agreement for cash credit, dated 5th January, 1967 Exh. 6/3, agreement for cash credit, dated 5th January, 1967 Exh. 6/4. Letter of undertaking executed by the borrower dated 5th January, 1967 Exh. 6/5, certificate of registration of mortgage under section 114 of the Companies Act, 1913 Exh. 6/6, certified copy of the statement of account Exh. 6/7, copy of borrower's Secretary's letter, dated 28th August, 1968 Exh. 6/8, promissory note, dated 31st July, 1969 executed by the borrower in favour of the guarantor bank for Rs, 4,60.,96c.47 Exh. 6/9, D. P. Note
---
## Page 4
Delivery letter dated 31st July, 1969 Exh. 6/10, copy of guarantor bank's letter, dated 19th January, 1972 addressed to the financial institution Exh. 6/11. ' Financial institution examined D. W. 1 Muhammad Aleemuddin Exh. 7 who produced a copy of letter, dated 14th November, 1964 containing the terms of loan Exh. 71 and copy of guarantor bank's letter, dated 24th October, 1968 addressed to the financial institution Exh. 7/2. ' It may be pertinent to observe here that by a consent order, dated 3rd April, 1978, it was ordered that the evidence in the above three cases are to be read into each other. 4. Suit No, 104 of 1973.-(a) This suit was filed by the financial institution on 31st January, 1973 for the recovery of Rs, 6,59,62.35 against the guarantor Bank and the two guarantors namely. Syed Hasan Manmood and Begum Azra Hasan Mahmood. It seems that after the enforcement of the Order an amended plaint was filed on 17th January, 1984, in which following prayer was made :- "13. That the plaintiff prays for judgment and decree in the following terms :- (i) for D. M. 1,79,220.35 and net rupee charges of Rs, 13,869.09 against the defendants singly and jointly with interest at 10% per annum from the date of the suit till realisation. In any case, in view of the Foreign Currency Loans (Rate of Exchange) Order, 1982, the claim of the plaintiff as to foreign currency amount be decreed in foreign currency i. e. D. M. 1.79,220.35 alongwith interest @ 10% per annum with six monthly rests in the foreign currency upto the date of payment, to be paid by the defendants in Pakistani Currency to the plaintiff at the rate of exchange prevalent on the actual dates of payment or payments of the decretal amount of parts thereof by the defendants. (ii) Costs of this suit. (iii) any other further/additional relief(s) this Hon'ble Court may deem fit to grant regard being had to the nature of this case.- (b) The above suit was resisted. Defendant No, 1 filed written statement on 25th October, 1973, Exh. 3, in which the stand taken by them in their above Suit No, 210/72 was reiterated. It was again pleaded that in view of the variation in the terms of the loan, the bank guarantee stood discharged and that factually the financial institution was liable to pay the amount claimed by the guarantor Bank in their above suit. ' Defendants Nos. 2 and 3 filed joint written statement on 16th October, 1973 Exh. 6, in which inter alia it was pleaded that the suit was not maintainable, suit was bad for misjoinder of parties and non- joinder of necessary parties, that the suit was time-barred. Without prejudice to the above pleas, it was averred that a loan of Rs, 4,80,000 was sanctioned by the financial institution in favour of the borrower. It was further averred that letter of guarantee was not only executed by the guarantors but also by Syed Badruduja and Begum Isar Badrudduja. It was also pleaded that the financial institution had already filed a case being No, 5. Miscellaneous 8/72 in this Court and, therefore, the above suit was res judicata and was not maintainable against the above defendants. (c) On the basis of the pleadings of the parties, the following issues were framed by this Court on 9th September, 1974 :- (1) Is the suit as framed not maintainable under law ? (2) Is the suit bad for misjoinder of parties and not maintainable as the necessary parties have not been joined and implied ? (3) Is the suit time-barred ? (4) Is suit liable to be stayed in view of provisions of section 10 C. P. C. Till Miscellaneous Application 8/72 and Suit No, 210/72 filed by defendant No, 1 against plaintiffs and Messrs Textile Accessories (Pakistan) Ltd. And others arising out of this very guarantee in question which is pending before this Hon'ble Court is disposed off ? (5) Did defendant No, 2 stand discharged from its liability under the bank guarantee No, CBL/149, dated 30th October, 1964 w. e. f. 24th October, 1968 under section 133 of the Contract Act as
---
## Page 5
mentioned in para. 4 of the written statement of defendant No, 1 ? (6) To what relief or reliefs are plaintiffs entitled and against which of the defendants ? (d) The financial institution examined P. W. 1 Muhammad Aleemuddin Exh. 23, who produced original bank guarantee executed by the guarantor Bank, dated 30th October, 1964 Exh. 7, letter of guarantee, dated 14th December, 1964 inter alia executed by the guarantor Exh. 8, copy of financial institution's letter, dated 13th June, 1968 to the guarantor Bank Exh. 9, the guarantor Bank's letter, dated 20th August, 1968 addressed to the financial institution Exh. 10, copy of financial institution's letter, dated 4th October, 1968 addressed to the guarantor Bank, Exh. 11, guarantor Bank's letter addressed to the financial institution, dated 24th October, 1968, Exh. 12, guarantor Bank's letter, dated 23rd July, 1971 addressed to the financial institution Exh. 13, D. 0. Of the guarantor Bank's Managing Director, dated 20th October, 1971 addressed to the Deputy Managing Director of the financial institution Exh. 14, copy of letter of Deputy Managing Director of financial institution, dated 4th November, 1971 addressed to the Managing Director of the guarantor Bank, Exh. 15, guarantor Bank's letter addressed to the Deputy Managing Director of the financial institution, dated 8th November, 1971 Exh. 16, copy of financial institution's letter, dated 26th November, 1971 addressed to the guarantor Bank Exh. 17 and other documents Exhs. 18, 19, 20, 21, 22, 23/1 to 23/12 24, 25 and 26. None of the defendants examined any witness in the above suit nor produced any documents. 5. (a) I intend to take up first the issues of Suit No, 210/72 and my findings on the above issues are as follows :- ' Issue No, I.-The copy of the guarantee executed by the guarantor Bank is Exh. 6/1 and the counter guarantee executed by the borrower in favour of the guarantor Bank is Exh. 6/2, in the above suit. My finding on issue No, 1 is, therefore, in the affirmative. (b) Issues Nos. 2 to 5.- These issues are interlinked and, therefore, can be disposed of conveniently together. Exh. 6/3 is agreement for cash credit, dated 5th January, 1967 executed by the borrower for availing of continued advances to the extent of Rs, one lac, Exh. 6/5 is the letter of undertaking, dated 5th January, 1967 executed by the borrower in favour of the guarantor Bank, Exh. 6/7 is the certified copy of the statement of account showing debit balance of Rs, 8,43,999.43, Exh. 6/9 is promissory note executed by the borrower on 31st June, 1969 of Rs, 4,63,960.47, Exh. 6/10 is D. P. Note delivery letter, dated 31st. July, 1969. The above evidence remained unrebutted by the borrower. The borrower has not filed any written statement in the above suit nor produced any witness. Factually the borrower was declared ex parte by the Court by order, dated 21st May, 1973. In this view of the matter, my findings on the above issues are in the affirmative. (c) Issue No, 6. -In support of the issue Mr. Salim Karamally, learned counsel for the guarantor Bank has referred to section 140 of the Contract Act whereas Mr. A.I. Chaundrigar has relied upon section 141 of the Contract Act. It may be advantageous to reproduce hereinbelow the above two sections, which read as follows :- "140, Where a guaranteed debt has become due, or default of the principal debtor to perform a guaranteed duty has taken place, the surety, upon payment or performance of all that he is liable for, is invested with all the rights which the creditor has against the principal debtor." "141. A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship is entered into, whether the surety knows of the existence of such security or not ; and, if the creditor loses, or, without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security." ' It may be noticed that under the abovequoted section 140, it has been provided that where a guaranteed debt has become due or default of the principal debtor to perform a guaranteed duty has taken place, the surety upon payment or performance of all that he is liable for, is invested with all the rights which the creditor had against the principal debtor. It may further be noticed that
---
## Page 6
whereas section 141 provides that a surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of surety ship is entered into whether the surety knows of the existence of such surety or not and if the creditor loses or without the consent of the surety parts with such security is discharged to the extent of the value of security. ' In the instant case it is an admitted position that under the bank guarantee the guarantor Bank had to pay 17 instalments as mentioned in the guarantee itself which corresponded with the instalments provided in the credit agreement executed by the borrower in favour of the financial institution. According to Mr. Karamally learned counsel for the guarantor Bank, 12 instalments were paid, whereas according to the documentary evidence on record factually 11 instalments were paid. Reference may be made in this regard to Exh. 1/17 (in J. Miscellaneous 8/72). In any case, admittedly all the instalments were not paid and, therefore, the guarantor Bank has not performed all that they were liable to do. In this view of the matter abovequoted section 140 is not attracted to. I am also inclined to hold that section 141 has no relevancy to the issue under discussion. My finding on the above issue is that since the guarantor Bank has not discharged their full obligation by not making payment of all the 17 instatments, they cannot press into service the right of subrogation in terms of section 140 of the Contract Act. However, in case they discharge the liability of the borrower even after the passing of the decree by this Court they shall be entitled to press into section 140 of the Contract Act a that stage. (d) Issue No, 7.-On this issue, it was urged by Mr. Salim Karamally that the plaintiff had agreed to furnish the bank guarantee on the express understanding that the financial institution would obtain first charge over the borrower's property. In this regard it may be pertinent to observe that under the terms of the loan, it was agreed to by the borrower to create mortgage. In this regard reference may be made to Exh. 1/1 (of J. Miscellaneous 8/72) particularly sub-para. 1 of para. 4 of Schedule II, which provides that the borrower shall execute a mortgage. There is also a letter, dated 29th October, 1964 form the Secretary of Sind Industrial Trading Estate stating no objection to the creation of the mortgage Exh. 1/3 (in J. Miscellaneous 8/72). In addition to that there are other documents namely, Exhs. 9, 10, 11, 12, 13, 16 and 21 (Suit No, 104/73) which indicate that the financial institution by its letter, dated 13th June, 1968 addressed to the guarantor Bank sought their concurrence for acceptance of first charge by way of hypothecation of the plant and machinery instead of mortgage of the said plaint and machinery, which was declined by the gurrantor Bank by its letter, dated 20th August, 1968. The other letters also indicate that a mortgage deed was to be executed by the borrower in terms of the credit agreement, However, the question in issue is, as to whether there was any express understanding/agreement between the guarantor Bank and the financial institution as to the obtaining of mortgage by the financial institution as a condition precedent to the furnishing of the bank guarantee. It may be observed that under the credit agreement the bank guarantee, which was to be furnished by the borrower was to be an unconditional bank guarantee. The bank guarantee itself Exh. 7 (of Suit No, 104/73) indicates that it is an unconditional bank guarantee. Nothing has been brought on record by the guarantor Bank to indicate that this was an express understanding/agreement between the financial institution and them that the financial institution would obtain the mortgage and that they were furnishing the bank guarantee on the above understanding/agreement. In this view of the matter, my finding on the above issue is that though under the credit agreement the borrower was to execute a mortgage in respect of the plant and machinery and the factory but there was no express undeastanding or agreement between the financial institution and the guarantor Bank as a condition precedent for furnishing the above bank guarantee by the guarantor Bank. (e) Issue No, 8.-On this issue, it may be pertinent to refer to para. 9 of the plaint, in which the guarantor Bank has averred that : "plaintiffs came to know that in spite of plaintiffs letter, dated
---
## Page 7
24th October, 1968, the defendant No, 2 changed the terms of their contract with the defendant without the consent of the plaintiffs who were guarantors by virtue of their bank guarantee dated 30th October, 1964, by their failure to obtain registered mortgage of the properties belonging to defendant No, 1 in their favour and instead of that at the request of defendant No, I agreed and accepted hypothecation of their properties only by way of security and as such, plaintiffs contended that their liability under the said guarantee stood discharged by virtue of section 1.33 of the Contract, Act". This averment has also been made in other part of the body of the plaint. However, this was denied by the financial institution in its written statement in para. 9 in which it was averred that : "The plaintiff when issuing Guarantee No, CBL/149 of 30th October, 1964 had not been assured by defendant No, 2 . That the latter would obtain from defendant No, 1 a registered mortgage of all the assets and properties of defendant No, 1 by way of security for the loan of Rs, 4,80,000 sanctioned and/or given by defendant No, 2 to defendant No, 1. Merely because letter, dated 14th June, 1968 (Annexure 'R' to the plaint) was written by defendant No, 2 to the plaintiff does not mean that any indulgence granted by defendant No, 2 to defendant No, 1 was subjected to agreement of the plaintiff. The guarantee, dated 30th October, 1964 is very clear when it provides that any time…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.