SH. AZMAT SAEED, J.---The plaintiff which is the banking company instituted a suit for recovery of Rs.54,908,228.97 along with cost of funds and cost of suit alleging in the plaint that plaintiff is a financial institution while defendant No.1 is a partnership concern constituted through partnership deed dated 2-4-2003 with defendants Nos.2 to 7 as its partners. It is the case of the plaintiff that in the year 2003 defendant No.1 through its partners applied for, was granted and availed of four separate finance facilities which were renewed subsequently in 2004. Details of facilities allegedly granted by plaintiff and availed of by defendant No.1 partnership through its partners viz. Defendants 2 to 7 are as follows:-
(A) Morabah pledege of Rs.45 million.
(B) Export Refinance II of Rs.7.5 million.
(C) Export Refinance I of R.75 million.
(D) Export Refinance (Post) Rs.15 million.
2. It is contended that said facilities were secured by pledge of basmati rice, hypothecation of stock of paddy, lien on export bills and personal guarantees of defendants Nos.2 to 7 and mortgage of property of defendants Nos.2 to 22. It is contended on behalf of plaintiff that defendant No.1 purportedly pledged 22040 bags of basmati rice weighing 100 Kg each, 600 bags of paddy super purportedly containing 65 Kg each and 900 bags of basmati rice, 386 purportedly weighing 100 Kg each as was evidenced by letter of pledge executed by defendants in favour of plaintiff-Bank. Details of 16 separate properties allegedly mortgaged in favour of plaintiff-Bank by defendants 2 to 22 are set out in para.4 of the plaint.
3. It is further alleged in the plaint that a part of pledged stock was stolen by defendant No.1 through its partners and an F.I.R. In this behalf has been got registered with the local police station.
It was also the case of the plaintiff that on failure of the defendants to fulfil their obligation and repay the loan, the plaintiff-Bank sold 10507 bags out of the pledged stock of rice for an amount of Rs.24,714,125 and further also realized a sum of Rs.4,62,5458 through the sale of Naku and in this behalf a total sum of Rs.25,176983 was received and adjusted against the liability of the defendants. It is also the case of the plaintiff that at the time of the aforesaid sale, it was discovered that each of the bags contained 35% less rice, and also was not of the quality as vouched for by the defendants. Thus in this context, the plaintiff has raised a claim of Rs.54,908, 228.97, break-up whereof has been set out in para 5 of the plaint. Along with the plaint, statements of account as well as finance agreements, promissory notes, letters of pledge, guarantees, copies of the title deeds of the properties allegedly mortgaged in favour of the plaintiff-Bank and the copies of the Revenue Record evidencing such mortgage have been appended.
4. Pursuant to notice issued by this Court, the defendants entered appearance and filed application for leave to defend the suit, i.e., PLA 62-B of 2006. In the PLA defendants have admitted the grant of facilities as alleged by the plaintiff in its suit. However, it was contended that defendant No.1 had first obtained finance facilities from the plaintiff-Bank with effect from 6-9-2000 which were renewed from time to time. However, it was alleged that said facilities were not renewed after 31-9-2004. It was also admitted that defendants could not pay its outstanding liability which as per the case of the defendants fell due on 31-9-2004. It was also admitted that the plaintiff-Bank had sold part of the pledged stock as alleged in the plaint and the amount as alleged by the plaintiff was received from such sale and stands adjusted against the liability as is clear from the statement of accounts.
5. Defendants took up the plea that after the aforesaid sale a balance of '10780 bags of basmati 386 each weighing 100 Kg ought to be in the custody of plaintiff-Bank, but in fact, said pledged goods are not available, as they have been taken away by the officers of the National Bank of Pakistan and an F.I.R. In this behalf had been lodged by the Muqadam entrusted with the pledged stock by the plaintiff- Bank itself.
6. It is also contended that mortgaged documents on the basis whereof, the present suit has been filed are blank, therefore, ineffective in law. Furthermore, in view of the alleged disputed renewal vide the finance agreement dated 27-11-2004, guarantors and mortgagors stand discharged.
7. It is also the case of the defendants as disclosed in the PLA that in fact only amount of Rs.43,447,583.89 is due from the defendants and the value of the pledged goods which the plaintiff-Bank held and lost is Rs.3,10,49000 which amount is liable to be adjusted from the claim and consequently a net outstanding admittedly due from the defendants to the plaintiff-Bank is Rs.
1,23,98,584.
8. In the above perspective, defendants seek leave to defend the suit with respect to the balance amount. Mr. Mushtaq Mehdi Akhtar Advocate in support of the contentions raised on behalf of defendants says that it is the plaintiff who is liable for the loss of the pledged goods and the value thereof must necessarily be adjusted against the claim as raised by plaintiff-Bank. In support of his contentions relies on 2003 CLD 94 Mst. Talat Nasreen v. UBL and others.
9. In rebuttal learned counsel for the plaintiff-Bank has vehemently contended that the facilities in question were in fact renewed on 27-11-2004. He has seriously disputed the quality and quantity of the rice as pledged with the plaintiff-Bank by contending that defendants in fact had deceived the plaintiff-Bank by pledging goods of poor quality and each individual bag did not contain the quantity as represented, which fact was established when part, of the pledged goods was sold and the amount realized therefrom adjusted against the liability of the defendants.
10. Learned counsel further adds that even otherwise there are other claimants with regard to the pledged goods i.e., the National Bank of Pakistan which claims charge thereupon affected by a third party. In these circumstances it is contended that the matter of the pledged goods can best be decided by the executing Court and the plaintiff-Bank is entitled to an immediate decree for the amount claimed in the plaint.
11. It is further contended that the mortgage has been legally effected in terms of section 58(f) of the Transfer of Property Act, and no exception can be taken thereto, especially, as entries in this behalf have been duly recorded in the Revenue Record. Learned counsel adds that the execution of the documents is not disputed or denied by defendants nor any specific entry in the statements of accounts appended with the plaint has been questioned. To substantiate his contentions, learned counsel for the plaintiff relies on PLD 2001 Lahore 224 Habib Bank Ltd. v. Kashif Steel Industry and others, 2002 CLD 868 Messrs Crystal Enterprises and 6 others v. Platinum Commercial Bank Ltd. And 2 others, 2003 CLD 94 Mst. Talat Nasreen v. Untied Bank Ltd. And others, 2003 CLD 702 Mian Aftab A. Sheikh and 2 others v. Messrs Trust Leasing Corporation Ltd. And another, 2005 CLD 1689 Bashir Ahmed Mughal v. S.M.E. Bank Ltd. Through General Manager and 2 others, 2006 CLD 127 (Lahore) Messrs Fybron Pvt. Ltd. Through Managing Director and others v.
National Bank of Pakistan through Zonal Chief PLD 1966 (W.P.) Lahore 1 A.M. Burq and another v.
Central Exchange Bank Ltd. And others, PLD 1996 SC 684 Messrs Muhammad Siddique Muhammad Umar and another v. The Australasia Bank Ltd. And 1999 CLC 671 (Lahore) Central Bank of India v.
Syed Muhammad Abdul Jalil Shah and others.
12. During the course of the proceedings of the suit, in order to explore the possibility of the sale of the allegedly pledged goods, with the consent of the parties, a Local Commission was appointed to make an inventory of the pledged goods, and to make available samples thereof to the prospective bidders. In pursuance of this Court's order, the local commission visited the mill of defendant No.1 on 15-2-2007 and was informed by defendants 6 to 13 that the pledged goods were in fact stored at the godown of Messrs Fysal Rice Mills. Local Commission as is mentioned in his report went to Fysal Rice Mills, however, was not permitted to make inventory of the rice allegedly stored thereat by the representatives of Fysal Rice Mills as allegedly the keys of the godown were with the National Bank of Pakistan.
13. In the meanwhile, National Bank of Pakistan also joined the fray by filing an objection petition to the proposed sale of alleged pledged goods, and in this behalf C.M. No.920-B of 2007 was filed alleging therein that Messrs Asjad Traders had obtained a facility from the National Bank of Pakistan and secured the same through the (sic) and stored in the godown of Zamindar Rice Mills defendant No.l. And in this behalf letter of disclaimer was allegedly issued by Messrs Zimindar Rice Mills i.e. Defendant No.1 in favour of the National Bank of Pakistan. Upon failure of Messrs Asjad Traders, the National Bank of Pakistan filed a suit for recovery before the Banking Court No.2 at Gujranwala which was decreed, in which, the said pledged goods allegedly belonging to Messrs Asjad Traders and stored at the premises of Zimindar Rice Mills defendant No.1 were attached. Subsequently, the Court auctioneers were also appointed. Plaintiff filed an objection petition on 24-10-2005 before the Banking Court No.2, Gujranwala, claiming that the rice in question belonged to Zimindar Rice Mills and had been pledged in favour of plaintiff-Bank. The Banking Court No.2 Gujranwala seized of the matter appointed a local commission for determination of the controversy regarding title of the goods in question. Said local commission submitted its report allegedly to the effect that the godown in which rice was stored at Zimindar Rice Mills had a separate lock and key which was in the possession of Messrs Asjad Traders and not Messrs Zimindar Rice Mills or the plaintiff-Bank.
14. It was contended by the National Bank of Pakistan that plaintiff-Bank had failed to disclose the aforesaid facts, that the rice allegedly pledged by respondent No.1 in favour of plaintiff-Bank was in fact the property of Messrs Asjad Traders and was under lien with the National Bank of Pakistan.
15. Counsel for the parties have been heard and the record appended perused. With reference to the defence to be offered by principal debtor(s) it has been noticed that grant and availing of the facilities in question has not been disputed. There is also no dispute inter se the plaintiff and defendants with regard to payments made by said defendants nor is it alleged that such payments are not reflected in the statement of accounts. In fact, for all intents and purposes, liability to the extent of Rs.43,447,583.89 has been admitted in the PLA, and it has merely been claimed that value of the allegedly pledged goods be adjusted therefrom.
16. In terms of section 172 of the Contract Act, a pledge is defined as the bailment of goods as security for payment of debt or the performance of a promise.
17. Section 148 of the Contract Act defines bailment as the delivery of goods by one person to another for some purpose upon the contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.
18. From the perusal of the aforesaid two statutory provisions it is clear that pledge is a sub-specie of bailment and the purposes for the delivery of goods by way of bailment as envisaged by section 148 of the Contract Act is the security for payment as has been mentioned in section 172 of the Contract Act. Thus, the rights inter se the parties are primarily governed by Chapter 9 of the Contract Act i.e., from sections 148 to 181 thereof.
19. Section 160 of the Contract Act cast a duty for the return of the goods to the pledger when the purpose for which the goods were delivered is accomplished (in case of pledge, repayment of the debt).
20. In case of default by pledger in making payment of the debit secured by pledge, rights of the pledgee are enumerated in section 176 of the Contract Act, which include the right to sue for recovery of the debt due retaining the pledged goods as collateral security or he may sell the goods pledged after giving pledgor reasonable notice of such sale.
21. In pith and substance, the case of the defendants is that the value of the rice i.e., the pledged goods in the facts and circumstances of the case are liable to be adjusted against the claim of the plaintiff-Bank, as allegedly the pledged goods are no longer available. While it is the case of the plaintiff that it is entitled to recover its debt in its entirety. Similar issue came up for consideration before a Full 'Bench of this Court which by means of its celebrated judgment reported as PLD 1966 (W.P.) Lahore 1, supra, observed as under:-- "It is, therefore, clear that the right to proceed against the property is not merely accessory to the right to proceed against the debtor personally. Thus, a pledger cannot compel the pledgee to exercise thepower of sale or its adjustment as a means of discharging or satisfying the amount due to him. The pledger therefore is 1 competent in law to sue for his debt without selling the pledged property and adjusting its price towards the payment of the debt. He has, however, to keep the property pledged intact so that he may be able to hand over the security to the pledge on payment of the debt by him" .... The principle in equity is that the creditor is not entitled to recover the amount of his secured debt when he cannot return the security. In Ellis E and Company's Trustees v. Dixon -Johnson (1925) AC 489 p.493)
22. The following observations of Lord Cave of the House of Lords were also reproduced in the aforesaid judgment in the following manner:-- "Lord Cave had observed " I have always understood the rule in equity to be that if a creditor holding security sues for his debt, he is under an obligation on payment of the debt to hand over the security; and if having improperly made away with the security, he is unable to return it to his debtor, he cannot have judgment for the debt. If that rule had been strictly applied on the hearing of the action, the action must have been then and there dismissed."
23. In the above context, the value of the pledged goods admittedly lost were adjusted against the claim of the plaintiff in the said case.
24. In the case reported as PLD 1996 SC 684 Messrs Muhammad Siddique Muhammad Umar and another v. The Australasia Bank Ltd., it was observed as under:-- "Even assuming that some goods were pledged with the bank as security for the advance, this does not, in our opinion, absolve the defendant from his liability to clear his dues. The banker only acquires a lien over such pledged goods for the recovery of his dues and has a right after notice to the debtor to sell those goods to reimburse himself. But it is only where such a sale is actually held that the debtor can claim an adjustment of the sale proceeds of the goods against the amount claimed by the bank. There is no evidence in the present case that any goods were in fact sold by the bank or that the bank still retains any goods as such security."
25. In the case reported as 1999 CLC 671 (Lahore) Central Bank of India v. Syed Muhammad Abdul Jalil Shah and others, it was held as under:-- "21. From the foregoing it is quite clear that the findings of the learned first Court on this point cannot be sustained. We are therefore of considered opinion that the appellant was competent to institute the suit without returning/rendering the amount of pledged goods to respondent No.
1. However, respondent No.1 was entitled to claim set off with regard to his pledged stock with the bank."
26. In the case reported as 2003 CLD 94 Mst. Talat Nasreen v. United Bank Ltd. And others, it was observed as follows:- "Where the pledged goods are wrongfully sold the pledger remedy is to sue pledgee for having converted pledged goods for his own use and claim recovery of its realizable value"
27. In the above case, value of the pledged goods (DSCs) wrongfully encashed were set off against claim of the plaintiff-Bank.
28. In the case reported as 1980 CLC 1170 National Bank of Pakistan v. Messrs Bright Leather Works and 3 others, the value of the lost pledged goods were also adjusted against the claim of the plaintiff-Bank.
29. In the case reported as PLD 1982 Karachi 902 Messrs Taj Sea Food Industries and 2 others v.
Messrs United Bank Ltd. And 2 others it was held as under:-- "We are therefore of the view that the recourse to section 176 could not be had by the respondent- Bank which had defaulted in the first instance and which was itself responsible for the distribution of the pledged goods."
30. A Division Bench of this Court in the case reported as 2002 CLD 868 (Lahore) Messrs Crystal Enterprises and 6 others v. Platinum Commercial Bank Ltd. And 2 others through general attorney, held as under:- "4. Learned counsel for the appellant next argued that the respondent-Bank is under law required to account for the imported goods in its custody. This may be so. However, this is a matter, which can only arise in the execution proceedings, when the collateral security is realized in such proceedings through the same."
31. A single Bench of this Court in the case reported as PLD 2001 Lahore 224 Habib Bank Ltd. v. Kashif Steel Industry and others observed as under:- As such, if there is any shortfall at the time of realization of such security, the defendant company would be entitled to make a claim against the plaintiff-Bank subject to law and any defences which might be available to the plaintiff-Bank against any such action. However, for the time being, the question does not arise."
32. In the case reported as 2006 CLD 127 (Lahore) Messrs Fybron Pvt. Ltd. Through MD and 2 others v.
National Bank of Pakistan through Zonal Chief set aside the judgment and decree and remanded the case to the Banking Court with direction to immediately sell the pledged goods.
33. An examination of the statutory provision applicable and the judgment referred to hereinabove reveals that in case the pledgee sues for recovery of the original debt, he is required to keep the pledged goods intact to be returned to the pledger, who always has right to redeem the same. In the eventuality of sale after reasonable notice, the amount realized therefrom is to be adjusted against the debt due. The question of such adjustment only arises when and if the goods are actually sold.
34. However, where the pledged goods are lost, damaged or otherwise not available for delivery to the pledgor, in equity, the pledgee cannot seek recovery of the debt secured thereby and pledger is entitled to an equitable set off by way of adjustment of the value of the lost pledged goods and can always sue the pledgee for damages for the loss suffered on account of the damaged or lost pledged goods.
35. To deprive the pledger of such right of equitable set off and adjustment can result in grave hardship and inequity as the pledgee may obtain a decree for the debt due for an amount which may. Be equal to or less than the value of the goods pledged and in execution seek recovery thereof against the person and other properties of the pledger leaving him to seek his remedy at a later date. Thus, inequity is more likely in suits instituted under the (Recovery of Finances Ordinance, 2001) where the pledgee financial institution may obtain a decree for recovery through dismissal of a leave application filed by the pledger customer who is then left to seek his remedy through a long cause sue in the same Court as he would be required to prove his claim through evidence. Thus, ordinarily where the pledged goods are lost or damaged, the value thereof must be set off and adjusted against the claim of the plaintiff financial institution.
36. However, merely because the pledged goods are lost or the pledgee is unable to return the same does not in every eventuality confer upon the pledger a right to an equitable set off nor is always a complete defence to a suit for recovery of the debt secured by said pledge.
37. Liability of the pledgee in such eventuality is circumscribed by sections 151 and 152 of the Contract Act which reads as under:-
151. "Care to be taken by bailee.--In all cases of bailment the bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances take of his own goods of the same bulk, quality and value as the goods bailed.
152. Bailee when not liable for loss etc. Of thing bailed. The bailee, in the absence of any special contract is not responsible for the loss, destruction or deterioration of the thing bailed if he has taken the amount of care of it described in section 151.
38. Section 152 of the Contract Act requires the pledgee to take care of the goods pledged as a man of ordinary prudence would under similar circumstances take care of his own goods of the same bulk, quality and value as the goods pledged. No other duty in this behalf is cast upon the pledgee except as may be agreed upon between the parties by such contract.
39. In the eventuality that a loss has been occasioned to the E goods and the pledgee has taken care of the same as a man of ordinary prudence would look after his own property and no obligation under a contract if any has been violated, then perhaps the liability for such loss may not visit the pledgee nor would the pledger be entitled to any claim of set off against recovery of the debt secured. In short there must be dereliction of duty either statutory or contractual by the pledgee before he could be held liable under the law. In this behalf reference may be made to the following judgments. The Sindh High Court in the case reported as 1999 MLD 1694 Prudential Commercial Bank Ltd. v. Hydari Ghee Industries Ltd. And 9 others held as "The seal put by the Customs Authorities, likewise, can always be removed upon payment of the customs dues. The underlying fact however remains that the pledged goods are available and can be returned unless proved otherwise. I must record here that except: for oral assertion, nothing is shown to presume pilferage of loss of the subject palm oil. Thing brings me to the issue if the plaintiff is to be called upon in the circumstances of the case to prove that it had acted diligently and had taken as much care of the goods entrusted to it as a man of ordinary prudence, would take of his own goods of similar quality and value. The law regulating the subject is contained in sections 151 and 152 of the Contract Act which are as follows:- 151....
152. ...
The above referred provisions require the bailee to show that reasonable care was taken by it in the handling the goods"
40. In the case reported as PLD 1983 CLC 1559 Messrs United Bank Ltd. v. Messrs Amin Corporation Ltd. And others it was held as follows:-- "... The stocks were damaged but the damage was on account of the self heating and there was no responsibility of the plaintiff-Bank in respect of such loss"
41. However, in case of loss of or damage to the pledged goods, it is always for the pledgee to show that it has fulfilled his obligations both statutory and contractual which is an onerous burden and may require the recording of evidence.
42. Learned counsel for the defendants has attempted to set up the defence that the admitted liability be set off against the balance pledged goods which may not be available. Unfortunately, the facts of this case which are self-evident on record, do not support the premises on the basis whereof, the learned counsel attempted to build his case. It is self-evident from the record that there is a serious dispute as to whether the pledged goods were the property of defendant No.1 i.e. Zimindar Rice Mills or the property of Messrs Asjad Traders. There is an equally serious dispute as to whether the rice in question was in fact pledged with the plaintiff-Bank or is under lien with the National Bank of Pakistan. However, the title of the same rice is claimed by two separate entities i.e., defendant No.1 and Messrs Asjad Traders. It is also equally evident that same rice is under charge of two separate banks i.e., the plaintiff-Bank and the National Bank of Pakistan. The possibility that deception bordering on fraud may have been exercised in this case is not remote. The possibility of connivance or incompetence of bank officials (employed by defendant No.1 and the National Bank of Pakistan) cannot be ruled out. Similarly, the quantity and quality of rice already pledged is also subject to serious doubt. A part of the pledged rice had admittedly. Been sold by the plaintiff-Bank was found to be short in weight by 35%. This fact has been' clearly averred in the plaint (para.5) and not specifically denied by the defendants in the corresponding paragraph of the PLA. Thus, as to what quantity of rice was in fact and in law pledged with the bank will require determination, through detailed evidence and only thereafter the said rite may or may not be available for sale to adjust the liability of the defendants, The equities of the case do not appear to be in favour of the defendants who are therefore disentitled from seeking the relief of equitable set off, particularly, in view of their own acts and omissions.
43. Adverting now to the question of mortgage suffice it to say that admittedly the financial facilities were granted and availed of by the defendants. It is evident from the record that said facilities were to be secured by mortgage of the said properties. Original title deeds of the said properties are admittedly with the plaintiff-Bank. The factum of the mortgage is duly borne out from the Revenue Record. In this view of the matter, this Court has no hesitation in holding that properties in dispute have been duly mortgaged with the plaintiff-Bank.
44. The upshot of the above discussion is that no defence whatsoever has been set up with respect to the amount of Rs.1,23,98,584 for which the plaintiff is entitled to an immediate interim decree.
With reference to the equitable set off the pledged goods, the claim in this behalf of the defendants does not appear to be well-founded in fact, in law or in equity and the defence taken is at best illusory. Consequently, it would be appropriate for the defendants to furnish the bank guarantee for the amount claimed as set off if they seek leave to defend the suit.
45. Resultantly, interim decree for Rs.1,23,98,584 is passed in favour of the plaintiff-Bank and against the defendants jointly and severally. Leave to defend the suit is granted with reference to the .Balance amount of the claim subject to defendants' furnishing the bank guarantee for Rs.3,10,49000 within 30 days from today, viz., 25-4-2007. , To come up for further proceedings on 25th of May 2007.