UMAR ATA BANDIAL,This suit has, been filed by the ADBP now Za_ri Tarakiati Bank of Pakistan against the defendants Nos. 1 to 10 for the recovery of Rs.66.129 million along with interest and mark-up. The plaintiff bank alleges that on 26-3-1992 it sanctioned a loan containing foreign currency ("FCY") and local currency ("LCY") components in the total amount of Rs.22.3 million in favour of the defendant No.1 ("defendant company"). To settle terms of and secure this loan, the plaintiff bank entered two successive finance agreements, dated 3-5-1994 and 17-6-1996 with the defendant company. As security for the loan, the defendant company mortgaged a number of its properties to the plaintiff bank. These properties are enumerated in paragraph No.7 of the plaint. To assure additional collateral the defendant company also executed an agreement for mortgage of future assets. Defendant Nos.2 to 10 being controllers/directors of the defendant company, inter alia, gave their personal guarantees drawn on various dates to the plaintiff bank also as security for the said loan.
2. The finance facility concluded between the parties was disbursed by the plaintiff bank through L.C. No.004317, the details and particulars of which instrument are not provided in the plaint.
However, disbursement of the said loan is stated to be recorded in two loan cases of the plaintiff bank, one bearing GL-Head 9922 for the LCY component and the other bearing GL Head No. 5583 reflecting the FCY component of the loan. These loan cases record the loan disbursements made, repayments thereof received by the plaintiff bank and the accretions of interest/mark-up on the loan. After adjusting repayments made by the defendant company, the plaintiff has in the instant suit claimed outstanding liability of the defendants as on 4-10-20C)2 to be Rs.66.19 million. Decree for the said amount with interest/mark-up thereon is sought with cost of funds under the provisions of the Financial Institutions (Recovery of Finances) Ordinance, 2001 ("Ordinance").
3. The defendant company and defendants Nos. 2, 3, 5 and 9 have filed PLA No.48-B-2003 and defendants Nos. 4, 6, 7, 8 and 10 have filed PLA No. 42-B/2003 seeking leave to defend the suit.
Learned counsel for the defendant company submits that under section 9(2) of the Ordinance, a statement of account attached to a plaint is a foundational document for maintaining a plaintiffs claim under the Ordinance. He has then invited our attention to the two statements of account attached to the plaint. The first entry in both statements respectively is a debit entry dated 9-3- 1999 captioned as: "To transfer from H.O."
4. In the statement of account for the interest bearing FCY loan component the aforesaid first entry shows a transfer debit of Rs.38.932 million on 9-3-1999, whilst the first entry of the same date in the statement of account for the LCY loan component shows a transfer debit of Rs.1.752 million. It is contended that both opening entries in the account statements do not record the disbursement of any finance but merely, the transfers of certain outstanding amounts from other head office accounts, the particulars and contents of which are not reported. Therefore, these statements of account are incomplete in their particulars about the pre-transfer transactions in the loan accounts of the defendant company and thereby fail the standard of disclosure required by S.9(2) of the Ordinance.
5. For the said deficiency, the contents of the statement of account are alleged also to contradict the other documents on record. For example, these transfer entries of 9-3-1999 in the statements are described as disbursement entries in subparas. (i) and (ii) of paragraph 12 of the plaint and to be of an amount that does not correspond the amount given in the sanction advice or the finance agreements. Clearly, one of these descriptions is wrong. This conflict between the plaint and the statements of account, inter alia, about the amount and date of disbursement of the finance is allegedly also visible in the contents of the charge documents. Thus, it is argued that the figures for the purchase and the buy bank prices given in the charge documents are not borne out from the contents of the statements of account. In answer, the learned counsel for the plaintiff bank has explained that the accounts of the loan transaction with the defendant company were originally maintained at the plaintiffs Islamabad head office.
Subsequently, the same were transferred to the Model Branch, Shahrah-e-Quaid-e-Azam, Lahore which is the plaintiff in the suit. Therefore, the statement of account filed with the plaint contains merely the entries of the plaintiff bank's record at Lahore.
6. Quite obviously, the plaintiff bank admits that incomplete accounts of the subject matter loan have been produced before the Court. This shortcoming clearly fails to meet the object of the Ordinance as interpreted in Messrs United Dairies Farms (Pvt.) Ltd. And 4 others v. United Bank Ltd.
2005 CLD 569, wherein it is observed as follows:- "In a recovery suit the statement of account is a basic document that is filed by a financial institution in discharge of its statutory duty under section 9(2) of the. Financial Institutions (Recovery of Finances) Ordinance, 2001 hereinafter referred as 'Ordinance'. The filing of such a document is not a formality alone but the performance of a mandatory obligation to support the claim made in the plaint as held by a learned Division Bench of this Court in Messrs C.M. Textile Mills (Pvt.) Limited v. I.C.P. 2004 CLD 587. Clearly this document should be laid out in a format that is comprehensible to any reasonable person reading it in the ordinary course. It must be set out in a mode that clearly describes the nature of the account entries and arranges them in a manner that distinguishes the various categories of amounts, for example credits, debits or amounts outstanding. The clarity of the format in a statement of account is now also necessitated by the provisions of section 9(3) of the Ordinance. That provision requires the plaint to specifically state the particulars namely amount of finance availed, amount repaid, dates of payment, and outstanding amounts of finance and other amounts payable by a customer. It appears to be the statutory scheme that the foregoing contents of the table under section 9(3) of the Ordinance that are derived from the accounts of the Bank must be verifiable with reference to its statement of account furnished under section 9(2) of the Ordinance. The presentation of a fully integrated picture of the transactional history in a customer's account is meant to enable a Banking Court to transparently determine the correct financial liability of a customer who, as in the present case, had admitted having availed financial facilities but denied their aggregation as presented by the respondent-Bank."
7. On the touchstone of the criteria expressed in the foregoing dicta the plaintiff bank was ordered on 5-5-2005 to submit in Court documents removing or explaining the apparent inconsistency about the date and -amount of loan disbursement in its documents on record. The plaintiff bank complied this order through C.M. No.215- B of 2005 that furnished a complete account between the parties with respect to both the FCY and LCY components of the loan disbursed to the defendant company.
8. The new "supplement" statement of account filed by the plaintiff bank shows a debit entry on 5- 2-1995 stating the disbursement of Rs.23.145 million in the account for the FCY component account of the loan; and a debit entry of 26-9-1996 showing disbursement of Rs.1.52 million in the account for the LCY component of the loan. As new disclosures were made in the supplemental statements of account, the defendants were therefore, granted an opportunity to raise further objections, if any, to the same and otherwise to the case of the plaintiff bank as presented with the aid of the new document submitted in Court.
9. The learned counsel for the defendants Nos. 4,6, 7, 8 and 10 chose not to file further objections based on the supplemental statement of account filed by the plaintiff bank. He relied on his PLA No.42-B of 2003 to dispute accrual of interest and mark-up liability against the said defendants/ applicants by the plaintiff bank after 1-7-1999. It is contended that a petition bearing C.O. No.62 of 2001 for winding up the defendant company was filed by the applicants in 2001 on grounds of insolvency of the company and its mismanagement by the defendant No.2, its Chief Executive. In reply to the said petition the plaintiff bank opposed the winding up of the defendant company and supported its financial viability to repay its liabilities. This stand was taken notwithstanding that previously the plaintiff bank had twice taken over the project assets of the defendant company and even gotten its chief executive arrested. Accordingly, the learned counsel has asserted that the plaintiff bank encouraged occurrence of default by and accumulation of over dues of the defendant company and is thereby estopped froth claiming from the defendants/applicants, who are guarantors to the plaintiff bank, an amount larger than what was due from the defendants on 1-7-1999, where after by notice the said defendants had disassociated from their obligation to the plaintiff bank.
10. The learned counsel for the defendant company did, however, choose to file further objections based on the fresh disclosures made in the supplemental statement of account. Such objections are couched in a new PLA No.60-B of 2006. This PLA was objected by the plaintiff bank for being filed without permission or order of the Court. By consent order dated 12-9-2006 the Court determined that the said PLA would not be read except to the extent of objections based upon disclosures made in the supplemental statement of account. The contentions made by the learned counsel representing the defendant company and defendants.
Nos.2, 3, 5 and 9 are succinctly noted as follows:--
(a) The supplemental statemept of account shows disbursement of the FCY loan amount of Rs.23.145 million on 5-2-1995 whereas neither the sanction advice dated 26-3-1992,. Finance agreements dated 3-5-1994 and 17-6-1996, nor the plaint reflect and corroborate the afore-noted contents. This statement of account is, accordingly, alleged to contain false entries that are unsupported by 'the charge documents on record for which the plaint is liable to rejection and in any event, therefore, its contents cannot be attached a presumption of truth.
(b). The plaintiff bank, is estopped from filing the present claim because it disregards the recommendation for settlement made by the Federal Committee for Revival of Sick Industrial Units (CRSIU); also because reference of the defendant company's case to the CRSIU had been made by the plaintiff bank itself.
(c) The supplemental statement of account has established the falsity of the stand taken by the plaintiff bank in para 12 of the plaint that disbursement of loan to the defendant company was made on 9-3-1999. This admittedly incorrect stand is the basis for the plaintiff bank's refusal by its letter dated 3-4-2004 to disqualify the defendant company from settlement under the State Bank's BPD Circular 29 dated 15-10-2002. The SBP Committee also endorsed this stand by its letter dated 31-3-2004. As the defendant . Company's obligation under the finance agreement, dated 17-6-1996 to repay the loan commenced on 1-7-1998 which obligation was not honoured then or thereafter, therefore, on the relevant date under BPD Circular 29, namely, 15-10-1999, the applicant/defendant company was a defaulter falling in the loss category and was therefore, eligible to relief under BPD Circular 29 which has been denied unlawfully by the plaintiff bank.
(d) The suit is filed in derogation of the plaintiff bank's duty under BPD Circular 29 to settle with a customer satisfying the criteria fixed in the said circular. The supplemental statement of account has established that the defendant company was in default prior to the target date under the said circular and therefore, prima facie, its case fell in the loss category and qualified for relief under the said circular. As such the plaintiff bank was under a duty to consider and decide on merits the defendant company's case under BPD Circular 29 which is of binding effect. The present suit filed in breach of that duty is not maintainable for unilaterally defeating the over-riding right of the defendant company to a decision of its case for settlement under the aforesaid circular.
(e) The defendant company has a bona fide claim under BPD Circular 29. It has filed a counter suit bearing COS "17 of 2004 against the plaintiff bank seeking injunction and rendition of accounts based upon BPD Circular 29 which is pending. It also filed Writ Petition No.5976 of 2005 for relief under BPD Circular 29 which was dismissed in limine because dispute on "date of default" involved question of fact which was resolvable in the suits between the parties.
11. The learned counsel for the plaintiff bank has answered the pleas taken by the learned counsel for the defendants. He submits that the stand taken by the defendants Nos.4, 6, 7, 8 and 10 is inconsequential because they abandoned the proceedings of C.O. 62 of 2001 by withdrawing the said petition as recorded in the order of the learned Company Judge dated 19-2-2003.
Furthermore, the said defendants provided irrevocable and continuing personal guarantees to the plaintiff bank: these cannot be discharged unilaterally by the said defendants and remain valid and effective till date. In answer to the objections taken by the learned counsel for the defendant company and defendants Nos.2,3, 5 and 9, he submits that the sanction, disbursement and utilization of the finance facility claimed in the suit is admitted by the said defendants. He has exemplified his assertion by referring to supportive correspondence of the defendant company' as well as its own version of the account submitted in Court confirming the claimed disbursements by the plaintiff bank and the claimed re payments tendered by the defendant company. Consequently, it is urged that the discrepancy in the amount and date of loan disbursement contained on the one hand in the supplemental statement of account and on the other hand in the charge documents and the plaint; is, therefore, immaterial. The reliance by the defendants on the supplemental statement of account to establish their case for eligibility under BPD Circular 29 is resisted on the ground that the date of disbursement of the loan to the defendant company has no nexus with the effective date of default under BPD Circular 29 which prompts the classification of a case in the loss category for eligibility to settlement thereunder. The defendant company was making part re-payments of its dues until the year 2000 and was, therefore, rightly excluded from the loss category under BPD Circular 29.
Furthermore, he has strongly objected to a claim under BPD Circular 29 being entertained presently as the same is not advanced in PLA No.48-B of 2003 filed by the said defendants in the suit. A defence going outside the terms of a PLA filed by the defendants is inadmissible for the purpose of grant of leave to defend. Accordingly, he seeks judgment and decree in the terms prayed in the suit.
12. The grant of leave to defend prayed in these PLAs hinges on the determination of two questions.
These are whether the errors noted in the statement of account filed with the suit entitle the defendants to file additional defences? And if so, in the circumstances of the case whether a defence under BPD Circular 29 to the progress and maintainability of the suit can be raised by the defendants? The foregoing narrative of facts clearly shows that the original statement of account filed with the suit was incomplete in material particulars both with regard to the amount and the date of disbursement of loan to the defendant company. The correct version of the account filed later by the plaintiff Bank conflicted with the contents of paragraph 12(i) and (ii) of the plaint. In an ordinary case the date of disbursement of finance may be significant, inter alia, for ascertaining the effective date for applying or calculating the quantum of mark-up. However, in the facts of the present case, the date of disbursement of loan assumes greater importance because under the agreed terms contained in the sanction advice that date determines the date of repayment of the loan and consequently the date of commission of default, if any, by the defendant company.
Continuing default committed prior to 15-10-1999, qualifies the case of a defaulting customer for classification and relief under BPD Circular 29.
13. To elaborate the point, clause (9) of the sanction advice dated 26-3-1992 specifies clearly that the "loan will be recovered in instalments commencing three years after disbursement of the first loan instalment". Reference to the supplemental statement of account filed by the plaintiff shows that the entire FCY component of the loan was disbursed on or about 5-2-1995. Resultantly, repayment of the FCY component of the loan was to commence on 5- 2-1998. The subsequent and therefore, operative finance agreement between the parties dated 17- 6-1996 starts the repayment schedule of the FCY component of the loan on 7-7-1998 with equal instalments of Rs.3.059 million and completes the same with the 18th instalment being paid on 7-1- 2007. Perusal of the supplemental statement of account shows that the defendant company has not paid even a single instalment of Rs.3.059 million. In fact, this is a case of initial default wherein a couple of small payments were made by the defendant company in August 1999 and May 2000.
Prima facie, these cannot cure the persistent . Default of the defendant company under the repayment schedule from the outset. The position is likewise in the LCY component of the loan.
14. In the context of their foregoing deplorable performance, the defendants have advanced a plea for relief being granted in terms of the State Bank's BPD Circular 29. By this dispensation the State Bank issued fresh guidelines under section 33-B of the Banking Companies Ordinance, 1962 for settlement of nonperforming loans that are classified as loss for three years or more. Such loans by financial institutions are advised to be settled on the basis of the forced sale value of the properties/ stocks held as security for such loans by the creditor institutions. The settlement amount so arrived is liable to be repaid over a period of three years without accrual of mark-up or interest thereon. A dispute about entitlement to or quantum of settlement is liable to resolution through a dispute resolution committee of the State Bank. The defendant company opted for settlement under the BPD Circular 29 but the plaintiff bank through its letter dated 3-4-2004 declined that relief in the following terms:-- "You were not defaulter of the Bank as on 7-1-1998, therefore, you are not eligible to avail the SBP relief package as per clause-2 of the ZTBL, Circular No.1 dated 28-2-2003."
The SBP Committee endorsed the foregoing ground of refusal in the following terms:- "The Committee decided that your case is not eligible for settlement of liabilities under SPB Circular 29 as your account has not been classified for the last 3 years as Loss with ZTBL."
15. The refusal letter by the plaintiff bank shows that the case of the defendant company was never considered On merits for relief under BPD Circular 29 because the defendant company was considered ineligible under the said circular. Although the relevant date for loss classification under BPD Circular 29 is 15-10-1999 the alleged ground of ineligibility of the defendant company is that it was not a defaulter on 1-7-1998, which excluded it from the 3 years loss category under BPD Circular 29, therefore, the said circular was not attracted to case. On the other hand, a perusal of the supplemental statement of account shows that the defendant company never paid any instalment under the loan either on 7-1-1998 as claimed by the plaintiff bank in its aforesaid letter dated 3-4-2004 or thereafter. Prima facie, the supplemental statement of account contradicts the foregoing ground of refusal expressed by the plaintiff bank. Possibly the plaintiff bank's rejection letter dated 3-4-2004 proceeds on the same, albeit incorrect, assumption that is expressed in para 12(i) and (ii) of the plaint, whereby the date of disbursement of the loan is wrongly treated to be 9- 3-1999 on the basis of transfer entries. Indeed, if that date were correct then the case of the defendant company would not meet the requirement of loss classification of three years prior to the date of BPD Circular 29. However, the supplemental statement of account filed by the plaintiff bank has falsified that view. The plea that in the circumstances of the case, the defendant company had a legal right to be considered on merits for relief under Circular 29 is clearly strengthened thereby. This outcome raises questions having direct bearing on the claim brought in the suit.
16. It is obvious from the foregoing discussion that the supplemental statement of account has furnished the basis for the defendant company to advance its plea under BPD Circular 29. It is also plain that a settlement amount worked out under that circular, bearing reference to the forced sale value of the security available to discharge the loan, is likely to be much less than the contractual obligation of the defendant company as customer under its loan documents that constitute the basis of the present suit. In the foregoing scenario, the defence under BPD Circular 29 can have substance but only if terms of the said circular over-ride the contractual terms of the present loan.
The State Bank of Pakistan framed BPD Circular 29 in exercise of its powers under section 33-B of the Banking Companies Ordinance, 1962, ("BCO"). That provision D is to the following effect:-- 33-B. Guidelines by the State Bank.--The State Bank may at any time either on the request of any one or more banking companies or the Federal Government or suo motu, lay down general guidelines for facilitating recovery of bad or doubtful loans, advances or finance by giving incentives tb borrowers or customers to make repayments within a specified time frame by making adjustments or remissions in relation to interest or mark-up or part of the principal amount in cases in which all full recovery is not possible by reason of inadequacy of security or as part of a general scheme for the rehabilitation of sick units."
17. Regarding the legal effect of circular guidelines given by the State Bank under section 33-B ibid, the Honourable Sindh High Court has in the case of United Bank Ltd. v. Messrs Azmat Textile Mills Ltd.
2002 CLD 542 observed that:-- "Learned counsel argued and rightly so that Circular No.19, dated 5-6-1997 and all subsequent Circulars have been issued under authority conferred by statute and must, therefore, be treated as having the force of law. In this context learned counsel also referred to the judgment of the Honourable Supreme Court in Hashwani Hotels v. Federation of Pakistan and others, wherein similar Circulars have been held to have the force of law even without reference to the above-quoted section 33-B of the Banking Companies Ordinance."
18. In the Hashwani Hotels Limited v. Federation of Pakistan and others PLD 1997 SC 315 relied in the quoted dicta, the Honourable Supreme Court also observed that directive circulars issued by the State Bank (in that case under section 25 of the BCO) are binding. In the light of the foregoing legal position, the right of a customer of a financial institution, in the present case the defendant company, to be considered for settlement under BPD Circular 29, is backed by law. Prima facie, such a right of the defendant company over-rides its contractual obligation and hence the claim of the plaintiff bank as framed in the instant suit.
19. The plaint does not contain any ground to exclude the availability of BPD Circular 29 to the defendant company nor does the reply filed by the plaintiff bank to PLA 60 B of 2006 give any reason for denying availability of the said settlement scheme to the defendant company. There was suggestion by learned counsel for the defendants Nos.4, 6, 7, 8 and 10 that the liabilities of the defendant company had been re-scheduled by the plaintiff bank. There is no statement or evidence of such concession having been granted either in the pleadings of the plaintiff bank or the documents attached thereto. In any event, whether an un- performed re-schedulment can oust a defaulting customer from qualifying for relief under Circular 29 is a question that, if raised, would also require consideration.
20. Finally, the Court may now consider the objection by the learned counsel for the plaintiff bank that a plea taken by the defendant company outside the terms of its PLA No.48-B of 2003 cannot be entertained for purposes of grant of leave to defend to the defendant company. It is established on record that the original statement of account was wrong in material particulars. Such a statement of account forms a foundational 'document to sustain a claim for recovery made by a financial institution. In the present case, the plaintiff bank was allowed to cure the defect contained in the original statements of account filed with the suit. Had the cured defect been superficial or of a technical nature, the present objection taken by the plaintiff bank may have deserved indulgence. The plaintiff bank is indeed seeking to recover public money advanced to its customer.
Therefore, technical and superficial objections cannot be allowed to arrest the progress of suits as contemplated by law. However, in the present case the defect in the plaint affects the progress of the suit and the PLAs on their merits. In such circumstances, the suit as a banking claim is not enough to sanctify the basis given or the quantum claimed in such a suit. One view expressed in Bankers Equity Ltd. v. Bentonite Pakistan Ltd. 2003 CLD 931 is that a suit filed with an un-supporting statement of account merits the rejection of its plaint. The practical effect of such an order would be to postpone the consideration of the points for leave to defend until a fresh suit containing requisite and complete documents is filed. In such cases, it seems appropriate that a suit should not progress on account of a defective document attached to it, but prima facie, such a defective document cannot bar a suit that has otherwise been filed within time. Therefore, the Court allowed the plaintiff bank to clarify its position about the errors in its statement of account. The clarification rendered has confirmed inconsistency between the plaint, the charge documents and the supplemental statement of account with regard to the amount of loan disbursed and the date of its disbursement. In the context of the present case and as already discussed, this information has material bearing on the right of the defendant company to oppose the claim filed in the present suit. That right is derived from BPD Circular 29 which has both substantive content and also effect. This defence was eclipsed by the irregularity in a suit document for failing to meet the statutory mandate under sections 9(1), (2) and (3) of the Ordinance. The removal of the said defect has exposed the incorrectness of the plaint. Clearly, the new situation presents a different claim of the plaintiff bank apart from fortifying a new defence plea under BPD Circular 29. The change in the claim justifies the grant of a right to the defendants to present their defence afresh. Hence, their new plea is admissible.
21. Accordingly, the plea that the defendant company ought in the circumstances of the case have been considered for relief under BPD Circular 29 is therefore, a matter that requires consideration by the Court. Leave is granted to the defendants, inter alia, to show that the defendant company qualifies for relief under BPD Circular 29 and therefore, the suit cannot proceed unless the case of the defendant company is first considered and disposed of on merits under the said Circular 29 by the plaintiff bank,
22. The Honourable Supreme Court in Messrs Qureshi Salt and Spices Laboratories v. MCB 1999 SCM R 2353 has cast a duty on the Court to decide all claims filed before it strictly in accordance with law, even though these may be undefended. In discharge of the said duty the plaintiff bank is directed to also justify its position for claiming interest as part of marked up price under its Islamic finance agreement dated 17-6-1996, and in any event for claiming a decree for an amount exceeding the marked-up price agreed in that finance agreement.
23. Leave granted herein is on the condition that the defendant company shall furnish security in the amount of the marked-up price of Rs.61.66. Million under the finance agreement dated 17-6- 1996 through a surety bond to the satisfaction of the Deputy Registrar (J) of the Court. Such security shall be furnished within four weeks from the date of issuance of a certified copy of this order. PLA 48-B of 2003, PLA 42-B of 2003 are partly allowed in the foregoing terms and PLA 60-B of 2006 is disposed of in accordance therewith.