' JAWWAD S. KHAWAJA, J.--This judgment will dispose of RFA No,479 of 1998 filed by S.A. Hameed and RFA Nd.484 of 1998 filed by four appellants, namely, Sheikh Muhammad Ashraf, Dilawar Mahmood, Nabeel Ashraf and Khurshid A. Khan. Both appeals impugn the same judgment and decree dated 24-9-1998 passed by a learned Single Bench.
2. The facts necessary for the disposal of these appeals are relatively straightforward. The Allied Bank of Pakistan Limited (respondent No,1) filed a suit against Messrs Sunpak Fibres Limited, the five appellants and others for the recovery of Rs.691,591,20. In its plaint, the respondent-Bank had averred that banking facilities were sanctioned favouring Messrs Sunpak Fibres Limited, by way of Demand Finance amounting to Rs.20,180,000 and LMM Finance of Rs.9,530,000, while a Letter of Credit for US dollars 2,250,000 was established to secure a Supplier's Credit. Applications filed by the appellants seeking leave to appear and defend the suit were dismissed by the learned Single Bench, resulting in the impugned decree.
3. It is the case of the appellants that Sunpak Fibres Limited (hereinafter referred to as "Sunpak") was originally incorporated under the Companies Ordinance, 1984 as a private limited company but was subsequently converted into a public company on 5-1-1995. According to learned counsel for the appellants, the company had two groups of share-holders/directors. The appellants constituted the group which, for convenience, is referred to as the local group, while the respondents Nos.3, 4 and 5, namely, Tauseef Khawar, Shakil Aamir and Sheikh Muhammad Waris, who are stated to be US citizens, constituted the other group which, for convenience, is referred to as the foreign group. The fact that the share-holders/directors of Sunpak were comprised of two groups is, however, disputed by the respondent-Bank. This aspect of the case and its relevance in the present appeals is discussed below.
4. Sunpak was incorporated with the object of setting up a plaint for the manufacture of polyester filament yarn. An agreement dated 20-12-1993 revised on 11-11-1994, was entered into between Sunpak and Polyken Technologies Inc., a company incorporated in the USA. Under this agreement, Sunpak was to import machinery and technology from Polyken. Technologies Inc. The total of the project was estimated at US dollars 3,900,000. Initially, this amount was to be raised through injection of foreign equity of US dollars 1,650,000, a cash amount of US dollars 250,000 to secure a Letter of Credit for the said amount in favour of Polyken Technologies and a loan of US dollars 2,000,000. Subsequently, however, the US dollar loan was substituted by a Supplier's Credit to be secured by a Letter of Credit favouring the supplier viz Polyken Technologies.
5. A letter of Credit for US dollars 237,500 was opened by the respondent-Bank on 14-4-1994 in favour of Polyken Technologies. The amount of the L.C. Was subsequently raised to US dollars 250,000 on 24-4-1994. However, due to the Supplier's Credit mentioned above Sunpak later on applied to the respondent-Bank to further increase the amount of the Letter of Credit by US dollars 2,000,000 to secure Polyken Technologies for the supply of machinery and technology for the project mentioned above. This was done by the respondent-Bank on 30-3-1995.
6. The fact that the respondent-Bank established and enhanced the amount of the Letter of Credit as requested by Sunpak as well as the terms of the Letter of Credit are not disputed. It is evident from the said terms that it was a documentary credit established subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision) International Chamber of Commerce Publication 500. The letter of credit was established in favour of Polyken Technologies and the amount of the credit was payable against drafts accompanied by documents such as original invoices etc, complying with the terms of the Letter of Credit being presented to the respondent- Bank. It is also not disputed that the requisite documents accompanied by drafts, complying with the terms of the Letter of Credit, were presented to and were negotiated by the respondent-Bank within the period stipulated in the Letter of Credit as amended.
7. Thereafter, according to learned counsel for the appellants partial shipments of machinery were made by Polyken Technologies through consignments which arrived in Pakistan in January, 1996 and August, 1996. However, it is the case of the appellants that no technology was transferred to Sunpak by Polyken Technologies as envisaged by the agreement dated 20-12-1993 referred to above. It is in these circumstances that on 13-8-1996 Sunpak filed a civil suit at Gujranwala in which Polyken Technologies as also the respondent-Bank were arrayed as defendants. An application was moved in the said suit to restrain the respondent-Bank from remitting any amount to Polyken Technologies pursuant to the above mentioned Letter of Credit. An interim injunction statedly, was granted by the learned Civil Court on such application which injunction, according to learned counsel for the appellants, is still in force. We have, however, seen an order dated 8-10-1997 passed by the learned Additional District Judge, Gujranwala, whereby the respondent-Bank was allowed to remit amounts under the said Letter of Credit subject, however, to its own risk and costs. The admitted position is that the respondent-Bank has made all payments due under the aforesaid Letter of Credit. The claim of the Bank in its suit is also primarily based on the payments so made.
At this point it is important to note that drafts drawn under the Letter of Credit, were duly accepted by the respondent-Bank as well as Sunpak. The said drafts had been negotiated by Polyken Technologies after acceptance and were presented to the respondent-Bank for payment by the holders in due course.
8. The case set up by the appellants by way of defence to the suit filed by the respondent-Bank is two fold. It has, firstly, been argued on their behalf that Polyken Technologies had failed to provide technology to Sunpak as envisaged in the agreement dated 20-12-1993 as revised. Learned counsel for the appellants placed a great deal of stress on this fact. It was argued by him that the respondent-Bank was not supposed to make payment under the Letter of Credit without first ensuring that the terms of the aforesaid agreement had been complied with by Polyken Technologies. This contention is wholly misconceived and, to say the least, betrays a lack of understanding of the law relating to documentary credits.
9. It is by now well-settled that a Bank establishing a documentary Letter of Credit deals only with documents and not with the underlying goods or services which may be subject-matter of any agreement between a foreign supplier and a local importer of such goods or services. The L/C.
Opening Bank is only required to see that documents conforming to the Letter of Credit, are presented to it within the period stipulated. If any authority is required to support this legal proposition, reference need only be made to the case titled Haral Textiles Limited v. Banque Indosuez Belgium, S.A. And others 1999 SCM R 591.
10. In the present appeal it is not the case of the appellants that the documents required under the Letter of Credit and presented to the respondent-Bank were discrepant in any manner. In fact, learned counsel for the respondent-Bank has shown to us a letter dated 6-10-1995 addressed by Sunpak to American Express Bank Limited in which it has been expressly stated that every discrepancy in the documents, specified in the Letter of Credit, has been removed. The arguments advanced before us on behalf of the appellants and the contents of their applications seeking leave to defend show that the appellants and Sunpak have never had any dispute with the respondent-Bank as to the validity of the documents presented to the respondent-Bank in compliance with the above referred Letter of Credit.
11. In the foregoing circumstances, following the established law and the dictum of the Honourable Supreme Court in the case of Haral Textiles Ltd., supra, we are not in any doubt whatsoever that payments due and payable by the respondent-Bank under the aforesaid letter of credit were rightly made by the said Bank. It, therefore, follows that Sunpak is also liable to make payment to the respondent-Bank, and as a consequence, the appellants having executed personal guarantees in favour of the Bank to secure the liabilities of Sunpak, are also legally obliged to discharge the liability owed by Sunpak to the respondent-Bank.
12. The fact that personal guarantees were executed by the appellants to secure the aforesaid liabilities of Sunpak towards the respondent-Bank, is not denied. It is, however, the case set up by S.A. Hameed (appellant in R.F.A. No,479 of 1998) that he resigned as a director of Sunpak on 18-4- 1995. The resignation, according to his counsel, was intimated to the Corporate Law Authority through filing of a return in Form 29 and to the respondent-Bank also. Dilawar Mahmood, one of the appellants in RFA No,484 of 1998, who is the brother of S.A. Hameed, was submitted as a director of Sunpak and he also executed a personal guarantee to secure the facilities granted by the respondent-Bank to Sunpak.
13. It was argued on behalf of S.A. Hameed that because of his resignation from the Board of Directors of Sunpak and the substitution of his brother Dilawar Mehmood as a Director in his place, S. A. Hameed stood discharged of his liability under the personal guarantee executed by him. This argument is wholly untenable in law. The fact that S.A. Hameed had resigned from the Board of Directors of Sunpak, does not absolve him of the personal liability assumed by him as guarantor of the debts owed by Sunpak to the respondent. Furthermore, even the fact that Dilawar Mehmood had given a personal guarantee in favour of the respondent-Bank to secure the liabilities of Sunpak has no relevance as regards the liability of S.A. Hameed. The aforesaid acts of Sunpak or S.A. Hameed cannot, by mere implication, result in discharging S.A. Hameed from his liability under the personal guarantee executed by him.
14. We also note that S.A. Hameed did not, at any time, apply to the respondent-Bank for the cancellation and return of his personal guarantee nor did he seek any release or confirmation showing discharge of his personal liability towards the respondent-Bank. In these circumstances, we find that S.A. Hameed remained liable under his personal guarantee to repay the amounts owed by Sunpak to the respondent-Bank. We find it useful to note that there was nothing to prevent S.A. Hameed from applying to the respondent-Bank for the substitution of his personal guarantee by the personal guarantee executed by Dilawar Mehmood. This was never done, nor does the record even remotely suggest that the respondent-Bank or even S.A. Hameed ever contemplated the release of the latter from the obligations assumed by him under his personal guarantee.
15. We now refer to the contention of learned counsel for the appellants that Sunpak had been incorporated by two groups viz. The local group and the foreign group. Learned counsel for the respondent-Bank pointed out that members of the so called groups were related to each other and had earlier jointly set up an industrial unit under the name of Abaseen Coloured Polyester Limited. In this company members of the so called local and foreign groups and their close relatives were directors and share-holders. In 1991 Abaseen Coloured Polyester Ltd., had obtained facilities from the respondent-Bank which have since been. Repaid. These facts were not controverted by the appellants. In any event, the mere fact that the appellants constituted the local group and the respondents Nos.3 to 9 constituted the foreign group has no relevance on the question of the liability incurred by Sunpak and the appellants towards the respondent-Bank.
16. Reference to the two groups was only made by learned counsel for the appellants to argue that the foreign group had, in fact, defrauded the local group by inducing the latter to incorporate Sunpak and to set up the project for the manufacture of polyester filament yarn. It was not denied by learned counsel for the appellants that the so called foreign group were share-holders in Polyken Technologies. It is, therefore, difficult to believe that the appellants, as major share-holders of Sunpak, would have agreed to set up a project worth US dollars 3,900,000 and to acquire a plant and technology from Polyken Technologies without being aware that the respondents Nos.3 to 9 were among the share-holders of Polyken Technologies. In any event this circumstance also has no relevance in the present case because the Bank was approached by Sunpak for banking facilities including the L/C to secure the Supplier's Credit. The Bank was not, in any manner, required or even expected to make any probe into the shareholding of Polyken Technologies or the latter's ability to fulfil the conditions of the agreement dated 20-12-1993, before establishing the above referred Letter of Credit.
17. The reference made by learned counsel for the appellants to the two groups of share-holders, was also made with the object of showing that disputes had arisen between the said groups. In this respect he drew our attention to litigation including the civil suit mentioned above which was filed at Gujranwala and two petitions being C.O. 59/96 and C.O. 36/98 in re: "Sunpak" which were filed in the High Court under Sections 290/292 and section 305 of the Companies Ordinance, 1984. We are afraid these legal proceedings also have no bearing on the claim asserted by the respondent- Bank in its suit.
18. Finally, learned counsel for the appellants referred to a tested telex dated 26-11-1995 addressed by the respondent-Bank to SAL OPENHEIM COLOGNE. In the said telex the Bank confirmed that the bills of exchange drawn under its above noted Letter of Credit, will be paid to the bona-fide holders thereof on the maturity of each Bill of Exchange. Learned counsel for the appellants took exception to and placed a great deal of stress on the following words which appear in the tested telex: "The above mentioned bills of exchange are guaranteed to be paid on the maturity dates and are not dependent on the sales contract."
19. It was argued on behalf of the appellants that the assurance of the Bank to pay the Bills of Exchange without such payment being dependent on the sales contract constituted a deviation from the terms of the Letter of Credit. This contention has no merit. It is, firstly, to be noted that the Bank had already incurred a liability under the Letter of Credit by accepting and negotiating the Bills of Exchange presented to it thereunder. The tested telex, referred to above, did not, in any manner, alter the terms of the Letter of Credit or enhance the liability of the Bank thereunder.
20. Secondly, the wording of the telex reproduced above, which has been found objectionable by the appellants, is merely a statement of the obvious and reflects the well established principles of law relating to documentary Letters of Credit which have been discussed in paragraphs 9 to 11 above. The, telex, in our opinion, gives no cause of grievance to the appellants and, as such, does not provide to them any defence to the suit filed by the respondent-Bank.
21. For the foregoing reasons we are of the opinion that the appellants had not raised any serious or bona fide dispute in respect of the claim asserted against them by the respondent-Bank. As such, the applications filed by the appellants seeking leave to appear and defend the suit, were dismissed in accordance with law and the suit of the respondent-Bank was rightly decreed as prayed for in the plaint.