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Petitioner: ALLIED BANK LIMITED through Attorneys VS Respondent: BANKERS EQUITY LTD. through JUDGMENT
Court Name: Lahore High Court Judge(s): Shahid Karim Title:ALLIED BANK LIMITED through Attorneys vs BANKERS EQUITY LTD. through
JUDGMENT
Reported As: 2017 CLD 663 Result: Order accordingly Judgment JUDGMENT SHAHID KARIM, J.---This is a suit for recovery of Rs,263.982 Million along with mark up and cost of funds. Facts: 2. The plaint alleges that the defendant Bankers Equity Ltd. (BEL) executed and submitted a redemption guarantee No: BE/GR/052 dated 11.12.1998 to the tune of Rs,254.941 M (Rs,94.546 M as principal and Rs,160.395 M as mark up) in favour of the plaintiff-Bank (ABL). The purpose of the execution of the redemption guarantee was to indemnify and discharge Zahur Textile Mills Ltd. (Zahur) from its liabilities towards ABL and in its stead, took over the liabilities of Zahur as the principal debtor. The principal amount of the guarantee of Rs,94.546 was to be repaid by BEL in 10 half-yearly installments of Rs,9.455 M each commencing from. 1.7.2002 and was to last till 01.01.2007. Thereafter, the mark up amount of Rs,160.395 M was to be repaid in 10 half-yearly installments of Rs,16.040 M each starting from 01.01.2007 till 01.07.2011. BEL defaulted in its liabilities and in the payment of the very first installment due on 01.07.2002, despite a notice by ABL on 16.7.2002. Upon default by BEL in the repayment of the amount due under the first installment, ABL filed a suit COS No,33 of 2002 before this Court. On receipt of notice, the official assignee of High Court of Sindh filed a reply wherein it was stated that he was appointed as the Official Liquidator of BEL vide order dated 25.4.2002 passed by the Supreme Court of Pakistan pending before the High Court of Sindh at Karachi. The recovery suit was withdrawn by plaintiff on 8.4.2003 with permission of this Court to file a fresh one after seeking permission under section 316 of the Companies Ordinance, 1984 from the Company Bench of the High Court of Sindh at Karachi.
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C.M.A. No,784/2003 was filed under section 316 of the Ordinance, 1984 before the High Court of Sindh and permission was granted vide order dated 15.12.2003. The instant suit was filed subsequent to the grant of permission to ABL to file a suit for recovery against BEL. 3. BEL filed P.L.A. No,27-B of 2004 by way of leave to defend in response to notices issued in the instant suit. The application for leave to defend was accepted vide order dated 16.6.2005 and BEL was directed to file a written statement which was duly filed on 24.6.1005. Issues were framed with the consent of both the parties vide order dated 20.01.2005. In the written statement filed by BEL, the stance taken in the application for leave to defend was diametrically opposed, in that, certain material admissions made in the application for leave to defend were withdrawn in the written statement. C.M. No,228 of 2006 under section 151, C.P.C. Was filed by ABL on 26.6.2006 for striking off the written statement filed by BEL and to treat the application for leave to defend as the written statement. BEL too filed C.M. No,364-B of 2006 on 01.11.2006 under Order VI, Rule 17, C.P.C. Seeking an amendment in the written statement. Vide order dated 01.07.2009, this Court rectified its earlier order dated 16.6.2005 and directed that an application for leave to defend ought to be treated as the written statement in terms of section 10 of the Financial Institutions (Recovery of Finances) Ordinance, 2001. C.M. No,364-B of 2006 was allowed vide order dated 13.11.2009 and BEL was permitted to amend the written statement. It is pertinent to mention that BEL had sought an amendment in the written statement on the pretext that the entire record was not available with the Official Liquidator at the time of the filing of the application for leave to defend and hence, it necessitated the amendment to be allowed. On 7.12.2009, the amended P.L.A. No,226-B of 2009 was filed and which necessitated the striking off an additional issue on 18.2.2015 which was to the following effect: "Whether an amount of Rs,70.000 M has been deposited as security-by Zahur Textile Mills Ltd. With the defendant?" 4. On 22.4.2015, a local commission was appointed to take down the evidence of both the parties and submit a report. The report was submitted by local commission on 16.7.2015. 5. ABL filed C.M. No,616-B of 2015 to recall the witness Shahid Mehboob. DW.1 for the purposes of cross-examining the said witness with regard to P.L.A. No,27-B of 2004. The application was allowed vide order dated 28.10.2015 and the local commission was directed to record the evidence of the witness Shahid Mehboob. Evidence of the parties: 6. ABL produced Mazhar Imam Zaidi as PW.1 and Tahir Hussain Bakhtiari as PW.2. The following documentary evidence was produced by the witnesses in support of their evidence on behalf of ABL; List of documents Exhibited by Mr. Mazhar Imam Zaidi (PW1) Letter No, WH/FIN/AMQ/98 dated 11.12.1998 written by ABL to BEL for confirmation the issuance of redemption guarantee as (Mark-1) Reply by president of BEL dated 16.12.1998 (original) as (Mark-2) Order dated 08.04.2003 in C.O.S. No,33/2002 (withdrawal of C.O.S. No,33/2002 filed by ABL as (Mark- 3) Application C.M.A. No,784/2003 in J.M. No,15/2000 filed by ABL for seeking permission to prosecute the suit against BEL (Exhibited as P-2) Application C.M.A. No,1563/2003 in J.M. No,15/2000 under section 316 of Companies Ordinance 1984 filed by ABLS, (Exhibited as P-3) Certified copy of order dated 12.04.2004 passed by Honorable Sindh High Court Karachi (permission for filing suit) (Exhibited as P-4) Guarantee dated 11.12.1998 in favour of ABL executed by BEL (Exhibited as P-5) Statement of account (original) (Exhibited as P-6)
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7. The oral evidence on behalf of BEL consisted of two witnesses viz. Shahid Mehboob as DW.2 and Muhammad Yasin as DW.2. The following documentary evidence was produced by the witnesses of BEL: "List of documents Exhibited by Mr. Shahid Mehboob (DW1) Affidavit of Shahid Mehboob DWI Exhibited as (D-1) Affidavit of Muhammad Yasin DW2 Exhibited as (D-2) Authority letter by official assignee in favour of witnesses Exhibited as (D-3) Certified copy of winding up order of BEL dated 18-04-2001 in J.M No,15/2000 Exhibited as (D-4) Certified copy of order dated 17-05-2004 passed in J.M No,15/2000 by Sindh High Court Exhibited as (D-5) Certified copy of reference No,158/2004 filed in J.M No,15/2000 Exhibited as (D-6) Original agreement dated 10-12-1998 Exhibited as (D-7) Original agreement dated 26-07-1999 Exhibited as (D-8) 8. The following issues were framed on 20.07.2005: 1. Whether this court being a special court has no jurisdiction to entertain the present suit and as the result, the present suit is liable to be rejected? OPD 2. Whether the defendant is a customer as defined in Financial Institutions (Recovery of Finances) Ordinance, 2001. OPP 3. Whether the transaction under the present suit covers the definition of Finance under Financial Institutions (Recovery of Finances) Ordinance, 2001 F.1.0., 2001. OPP 4. Whether the plaint is liable to be rejected as the transaction under the present suit does not come within the definition of Finance as stated in Financial Institutions (Recovery of Finances) Ordinance, 2001. OPD 5. Whether the redemption guarantee dated 11.12.1998 executed by ex officers of defendant in favour of plaintiff is not a legally valid document in the eyes of law. OPD 6. Whether the guarantee dated 11.12.1998 is a valid legal document in the absence of any consideration. OPP 7. Whether the guarantee dated 11.12.1998 is issued in violation of State Bank's Prudential Regulations which envisages that the guarantees to be issued against 100% realizable securities if so what are its effects. OP Parties 8. Whether the present suit for recovery of money is not maintainable against the defendant company who has already been wound up. OPD 9. Whether the present suit cannot proceed in its present form and is liable to be stayed under section 10 of C.P.C. Since the guarantee is also directly and substantially in issue before the Company Judge of Sindh High Court Karachi. OPD 10. Whether M/s. Zahur Textile Mills Limited is necessary party to the proceeding, if so the present suit is liable to be rejected for non joinder of parties. OP Parties 11. Whether this court has territorial jurisdiction to entertain the present suit.? OPD 12. Whether the plaintiff can claim the suit amount from defendant in advance as penalty as the plaintiff has no right to claim Rs,94.546 (M) before 01.07.2007 and Rs,160.395 (M) as markup before 01.07.2011. 13. Relief: Additional issue was framed after filing of amended PLA. 14. Whether the amount of Rs,70.000 (M) was deposited by ZTML for repayment of its loan to BEL. OPD Determination: (Issues Nos. 5, 7, 9, 13 and 14) 9. Both the learned counsel agreed that the issues Nos.5, 7, 9, 13 and 14 were of pivotal importance in the determination of the controversy involved in this suit. These are interrelated and are being
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decided together. 10. To lend actuality to analysis, it may be reiterated that the case of ABL is that BEL executed and submitted a guarantee dated 11.12.1998 in favour of ABL by which Zahur was indemnified and fully discharged of its liabilities towards ABL for the amounts mentioned in the guarantee. By the terms of redemption guarantee the defendants took over the principal debtors and made themselves liable to payment of all debts and outstanding liabilities of ABL. It has also been brought forth in paragraph 10 of the plaint that on 10.12.1998 Zahur deposited an amount of Rs,70.000 M with BEL as security against the redemption guarantee which was issued by BEL in favour of ABL and the initial deposit of Rs,70.000 M was to grow at the rate of 99% under the ordinary term as funds under management scheme. This issue was later incorporated as issue No,14 and the onus of which was on BEL. The document which encapsulated the clause relating to the deposit of Rs,70.000 M was an investment agreement dated 10.12.1998 (also referred to in Ex.D.7) and wherein the following clause has been agreed between BEL and Zahur: "BB. Against cash deposit received. BEL will issue redemption guarantee ("Guarantee") in favour of Allied Bank of Pakistan (ABL) for 94,546,000/- (Rupees ninety four million five hundred forty six thousands only and Rs,160,395,000/- (Rupees one hundred sixty million three ninety five). The Guarantee will be paid by BEL as per payment schedule attached as Annexure-"A" to this investment agreement and BEL will not have any recourse on Zahur Textile Mills Ltd against this guarantee liability except for balance of Rs,7,867,000/- (Rupees seven million eight hundred sixty seven thousands only) as per payment stated in CC below." 11. However, the said document has not been produced in evidence, therefore, no useful purpose would be served to make a reference to the said document. However, the onus to prove the said issue was on BEL. 12. BEL take exception to the redemption guarantee which has formed the foundational sinew of ABL's case. BEL contends that the guarantee is in conflict of prudential Regulations of SBP. In this regard, BEL relies upon the prudential Regulations for corporate/commercial banking issued by the SBP and updated on January 31, 2011. Regulation No,R.7 concerned with the guarantees issued by the banks and reads as under:- "R-7 All guarantees issued by the banks/DFIs shall be fully secured, except in the cases mentioned at Annexure-Ill where it may be waived up to 50% by the banks/DFIs at their own discretion, provided that banks/DFIs hold at least 20% of the guaranteed amount in the form of liquid assets as security." 13. Further, under the head "Responsibilities of the Board of Directors" in the same Regulations, clauses 4 and 5 have been relied upon by the learned counsel and which read as follows: "4. The Board shall clearly define the authorities and key responsibilities of both the Directors and the Senior Management without delegating its policy-making powers to the Management and shall ensure that the Management is in the hands of qualified personnel. 5. The Board shall approve and ensure implementation of policies, including but not limited to, in areas of Risk Management, Credit, Treasury and Investment, Internal Control System and Audit, IT Security, Human Resource, Expenditure, Accounting Management may deem appropriate from time to time. The Board shall also be responsible to review and update existing policies periodically and whenever circumstances justify." 14. Regulation R-7 merely enjoins that all guarantees issued by the banks/DFIs shall be fully secured, provided that banks/DFIs hold at least 20% of the guaranteed amount in the form of liquid assets as security. Regulation R-7 lays down the minimum requirement to be observed by the banks/DFIs with regard to securing of the guarantees. However, it does not say that the guarantee shall be invalid in case it is not secured by the bank or DFIs as the case may be. The validity and sanctity of the guarantee shall be covered by the statutory provisions in this regard and merely
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because the guarantee has not been fully secured in terms of Regulation. R-7 does not detract from the competence and lawfulness of the guarantee as also does not affect adversely the rights in favour of the person for whom the guarantee has been issued. Therefore, nothing turns -on the basis of the Regulations which have been relied upon by BEL. 15. The case of BEL must be clearly spelt out at this juncture. BEL does not deny the execution of the guarantee neither in its pleadings nor in its evidence. The only objection with regard to the guarantee is that the officers of BEL who purportedly executed the guarantee were not authorized to do so by the Board of Directors of BEL. Therefore, the only question for determination is whether the guarantee was issued under a valid authority in favour of the officers executing the guarantee. It is also not in dispute that the officers issuing the guarantee have not been produced in evidence by BEL, however, ABL relies upon the doctrine of indoor management to assert that the internal matters of BEL was not the concern of ABL which was given the understanding that the officer who had issued the guarantee had valid authority in their favour for executing the same. The guarantee has been produced in evidence as Ex.P.5. To reiterate, the execution of the guarantee has not been challenged but the mere fact that the officers who executed the guarantee did not have the authority from the Board of Directors of BEL to execute such a guarantee on behalf of BEL. 16. Two documents which will have an important bearing on this issue were produced by PW.1 and PW.2 and were produced in evidence as Mark 1 and Mark 2. It has been contended by the learned counsel for BEL that the mere fact that the documents have not been exhibited but have been shown as Mark 1 and Mark 2, would show that the documents have not been validly produced in evidence and thus cannot be read in evidence. This, in my opinion, is a fallacy, for the question regarding the production of these documents properly in evidence will be determined by this Court as a trial court. The judgments relied upon by BEL in this regard relate to the cases rendered in appeal where the stage had come to an end and thus the question arose whether the documents were validly produced in evidence or not. That stage has not come to pass in the present suit and the mere fact that the documents have been labeled as Mark 1 and Mark 2 does not detract from the fact that they have been validly produced in evidence without any objection on the part of BEL. They shall be read as Ex.P7 and Ex.P8 respectively. Ex.P7 is a letter dated December 11, 1998 written by Mazhar Imam Zaidi to the then Chairman BEL and is couched in the following terms: GENUINENESS CONFIRMATION OF REDEMPTION GUARANTEE NO. BE/GR/052 DATED 11.12.1998 FOR 'RS.254,941,00Q/- FVC: ALLIED BANK OF PAKISTAN LTD. Please find enclosed herewith photocopy of above motioned redemption guarantee issued by your institution in favour of our Bank for Rs,254,941,000/-. (Say: Two Hundred Fifty Four Million Nine. Hundred Forty. One Thousand Only). In this connection you are therefore requested to please confirm the genuineness of captioned guarantee and also confirm the authorization of the signatories of the guarantee. An early response in this regard will be appreciated." 17.This letter has been produced by PW.1 who was the signatory and the executant of the letter and thus no cavil can be taken to its production in evidence. Ex.P8 has also been produced by PW.1 who is the recipient of the letter written by Inaam ul Haq who was the then President of BEL and it states that: "This refers to your letter No, Ref. WH/FIN/AMQ/98 dated December 11th, 1998. We are pleased to confirm the issuance of our guarantee No,BE/GR/052 for Rs, 254,941,000/- dated 11-12-1998. The said guarantee has been signed by the authorised signatories." 18.No exception can be taken to Ex.P8 which is a document produced by PW.1 in whose custody the said document was and who was the addressee of the said document as well. These documents which have been produced in evidence are correspondence exchanged between PW.1
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who was the manager of ABL at that time and a response by no less a person that the President of BEL Inaam ul Haq. The contents relate to the genuineness/confirmation of redemption guarantee which is the subject matter of the instant suit. By Ex.P7, a request has been made to the Chairman BEL to confirm the genuineness of the guarantee and to confirm the authorization of the signatory of the guarantee as well. This was done vide Ex.P8 by the President of BEL and it was categorically brought forth in response to the letter that the guarantee had been signed by the authorized signatories of BEL. This clearly takes the case beyond the doctrine of indoor management and expresses without equivocation the authority to vest in the signatories of the guarantee on behalf of BEL. These documents have to be read in conjunction with the guarantee executed by BEL and as contemporaneous events whose evidence has been led by ABL in order to bring home the assertion that the guarantee is genuine and authenticity is attached to it. 19.Although the signatory of the document Ex.P.8 has not been produced, this Court has compared the signatures of Mr. Inaam ul Haq in this document with those of the same person in Ex.D.8 and they seem to have been made by the same person. Also Ex.P8 is on the official letterhead of BEL and a stamp of ABL was affixed on it while it was received by the officer to whom it was addressed. It was held in Qamrul Hasan and another v. United Bank Ltd. and another (1990 MLD 276) that: "14. Article 2(4) of the Qanun-e-Shahadat, 1984, envisages "a fact to be proved" when, after considering the matter before it, the Court either believes it to exist, or considers its existence so probable that a prudent man ought, under the circumstances of the particular, case, to act upon the supposition that it exists. This provision, in the context of proof of documents, is, inter alia, to be read with Article 78 of the Qanun-e-Shahadat, which requires signatures or handwritings to be proved, without laying down any specific manner of proof. For such purpose several modes of proof have come to be judicially recognised the best mode being the examination of the person who signed or wrote the document. Such modes of proof also include presumptive or circumstantial evidence. Thus, in the case reported as Abdool Ali v. Abdoor Rehman 21 Suther- Lands Weekly Reporter 429 a Division Bench of the Culcutta High Court consisting of Couch CJ. and Birch, J . , observed that there was no provision in the Evidence Act, which required the writer of a document to be examined as a witness. Likewise, in the case of Karali Prosad Dutta v. E.I. Railway Company AIR 1928 Cal. 498 Mukerji, J., speaking for a Division Bench consisting of Curving, J., and himself, said that sections 60 and 67 of the Evidence Act (corresponding to Articles 71 and 78 of the Qanun-e-Shahadat) were somewhat ambiguous but it was never intended by section 67 that direct evidence of handwriting was always necessary and that the section merely stated with reference to deeds what was the universal rule in all cases that the person who makes an allegation must prove it and lays down no new rule as to the kind of proof to be given. It was observed that section 60 was never intended to exclude circumstantial evidence of a thing which could be seen, heard and felt though at first sight the section might appear to have that meaning. The case of Govardhandas v. Ahmedi Begum AIR 1953 Hyderabad 181 also is to the effect that handwriting may, in addition to the usual methods, be proved on circumstantial evidence as section 67 of the Evidence Act prescribes no particular kind of proof Zakiuddin Pal, J., in the case of Gammon Pakistan Ltd. v. Pir Khan PLD 1979 Note 113 p. 84 also affirms this rule declaring that under section 68 (Article 79 of the Qanun-e-Shahadat) of the Evidence Act where a document was not duly proved by the person signing the same, but circumstances proved its execution, reliance may be placed on such a document. In the circumstances of this case, where the letter from Janata Bank, dated 9-1-1973, Exhibit P/3, has been transcribed on the official letter pad of that Bank and addressed to the plaintiff No,2, who has produced the same a objection in that behalf has not been pressed in arguments such document, along with oral testimony in support, constitutes strong evidence and must he held to be proved in terms of Articles 2 and 78 of the
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Qanun-e-Shahadat, 1984, since, taking all the circumstances into consideration, it seems, uncontrovertibly, to have been written and addressed in manner it purports to have been written and addressed." 20.Also in Muhammad Tariq v. Mirza Rashid Akhtar and others (1991 CLC 1697), the following statement of law was stated: "...While coming to this conclusion the Additional District Judge completely ignored that at the time these documents were exhibited, no objection as to the mode of proof was taken and once exhibited the same could not be excluded in the appeal by the appellate Court. This principle is well-settled and need no authority but reference may be made with advantage to Gulzar Hussain v. Abdur Rehman and another (1985 SCMR 301)." 21.Let me now revert to some of the portions of the cross-examination of the witnesses which will be relevant for the resolution of the controversy and for the decision of the instant suit: "PW.1 Mazhar Imam Zaidi: "Question: Do you know the pre-requisites of the corporate bodies for executing such type of Guarantees? Answer: For' me it was not essential to ensure the pre-requisites as the entire arrangement/settlement was approved by the competent authority. I am aware of the prerequisites for issuance of such guarantees but in case scheduled banks it is their purview to ensure the pre-requisites for execution of guarantees. M/s. BEL was scheduled Bank. Pre-requisites were completed before issuance of bank guarantee. The first pre-requisite is as to whether that particular institution is authorized for issuance of such guarantees and this was supposed to be fulfilled by M/s. BEL not ABL. Question: Is this correct that Board Resolution of a corporate body like M/s. BEL for issuance of guarantee and authorization in favour of signatories of the guarantee are the pre-requisites for issuance of such guarantees? Answer: It should be, if deemed necessary by the bank for any specific transaction during normal course of their business. It is incorrect that my stance is not correct and without ensuring availability of the pre-requisites of question before, no valid guarantee can be executed. There is no such instruction of the State Bank of Pakistan for acceptance of guarantees being issued by authorized/scheduled banks. Question: Whether the executants fulfilled the pre-requisites for issuing such guarantee? Answer: It was their purview. It is not compulsory to ensure hundred percent (100%) cash margin for issuing of guarantees. It is not correct, that as per prudential regulations of SBP, no guarantee can be executed by DFI in favour of Bank. It is incorrect that in issuance of guarantee the prudential regulations of SBP were violated. The Guarantee was issued to make repayments of the liability of M/s. Zahoor Textile Mills Limited by taking over the same as principal debtor and to make subsequent repayments to Allied Bank as per agreed arrangement. No, I cannot present any agreement between M/s. Zahoor Textile and M/s. BEL regarding this Guarantee. There are no signatures on bank guarantee on…
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