1. ' This judgment will dispose of Suits Nos, 261/74, 287/74 and 460/74, inter alia as a common important point of law is involved. It may be pertinent to state the brief facts of the above suits.
2. Suit No, 201174.-(a) This is a suit filed by the I. D. B. P. Under Order XXXIV, C. P. C. For the recovery of Rs, 7,93,820.87. The facts leading to the filing of the above suit briefly are, that on or about 29-6- 1963 the plaintiff at the request of the defendants granted to defendant No, 1 foreign currency loan/credit in the sum of D. M. 225812 which was equivalent to U. S. $56,500 on the terms and conditions contained in the credit agreement dated 31-7-1963. It has been averred that as a secuity against the above loan the defendant executed demand promissory note, agreement hypothecation as further additional security and memorandum of deposit of title deeds creating an equitable mortgage in respect of the property mentioned in para. 9-D of the plaint. It has been further averred that defendants 2 and 3 personally guaranteed repayment of the plaintiff's dues by defendant No,
1. It has also been averred that as per terms of the agreement the entire dues should have been fully paid by the defendant by 31-12-1973 but defendants have neglected/failed/refused to pay the same and, therefore, a sum of Rs, 7,93,820.87 as on 30-4-1974 is due and payable by the defendant to the plaintiff. On the basis of the above averment the plaintiff has prayed for a declaration that the above sum is due and for a decree in Form 5-A in Appendix D in the 1st Schedule to the C. P. C. And in the alternative money decree for the aforesaid sum.
(b) The defendant No, 1 in its written statement inter alia has denied that the sum of Rs, 7,93,820.87 is due. It has been averred that it is verily believed that in any event without admitting any liability a sum of Rs, 7,93,820.87 has been arrived at by using the conversion rate of Rs, 3,65 for one D. M. While in fact the conversion rate of Rs, 1.37 per D. M. Should have been used. It, has also been averred that the suit is barred under Limitation Act. On the basis of the above averment the defendant No, 1 has denied its liability.
(c) Defendant No, 2 has also filed a written statement, wherein it has been averred that the answering defendant at the material time when the loan was taken by defendant No, 1 was a paid employee of Faqir Spinning Mills Ltd. a sister concern of defendant No, 1 and was ostensibly shown as director of the defendant No, I although he had made no investment in the said company and that the defendant No, 1 being a paid employee was forced to sign the letter of guarantee and promissory note that he shall be responsible for all the liabilities. It has been averred that the answering defendant is not aware of the terms and conditions of the loan agreement and that he is also not aware of the failure of the defendant No, 1 in payment of the loan amount, and that the liability, if any, is of defendant No,
1. Accordingly the aforesaid defendant No, 2 has denied his liability.
(d) Defendant No, 3 has also filed a separate written statement Wherein he has raised identical pleas which have been raised by the defendant No, 1 including about the rate of conversion of Pakistani rupees into D. M.
(e) On the basis of the above averments the following issues were framed in the above suit on 18- 4-1978
(1) At what rate of exchange is tile debt payable ?
(2) Relief.
2. 3, Suit No, 287/74.-(a) This is a suit for account filed by the plaintiff company against I. D. B. P. On 11- 6-1974. The facts leading to the filing of the above suit shortly are .That on or about i6-5-1963 the defendant sanctioned foreign exchange loan of U. S. $3,90,000, equivalent to Pak. Rs, 18,78,000 approximately for the import of Calcium Carbide manufacturing plant equipment under the first yen credit on the terms and conditions inter alia mentioned in para 3 of the plaint and contained in defendant's letter dated 16-5-1963 which were as follows :- "Interest, etc.-(i) 7-1/2% per annum payable half-yearly.
(ii) 1/4% per annum to cover the exchange rate risk after expiry of the loan period.
(iii) Bank's other usual charges. Repayment Sehedule.-16 equal half-yearly instalments commencing from 1st July 1964 and in accordance with the I. D. B. P's terms and conditions for the 1st Yen Credit.
3. Other conditions.-(d) The exchange rate risk will be borne by the borrowers during the subsistence of the loan.
(e) The loan shall further be governed by all the other general terms and conditions of the Bank."
4. ' It has been averred that the aforesaid terms and conditions contained in defendant's aforesaid letter dated 16-5-1963 were accepted by the plaintiff and that subsequent to the conclusion of the loan agreement a formal printed credit agreement was executed by the defendant, copy of which is allegedly not available with the plaintiff. It has been further averred that it is the case of the plaintiff that the terms of the printed credit agreement are binding on the parties to the extent they are consistent with the terms and conditions set out in the aforesaid letter dated 16-5-1963 (Annexure A to the plaint). It has also been averred that in respect of the aforesaid foreign currency loan equivalent to Rs, 18,78,000 the defendant maintained account bearing A. C. No, 10'255/002 and that the relationship between the plaintiff and the defendant has been that of a constituent and a banker, a mortgagor and a mortgagee and it has also been averred that the plaintiff reposed trust and confidence in the defendant with regard to the making of correct and accurate entries in the said account and that the plaintiff did not consider it necessary nor has the plaintiff kept the account. It has been further averred that it has transpired that the defendant has debited in the said account principal amounts grossly in excess of the amounts due from the plaintiff and that the defendant has the wrongfully and illegally debited in the said account penal interest which is unwarranted in terms of the aforesaid loan agreement and that the defendant has also debited interest in excess of the agreed rate of interest at 72 % per annum. It has further been averred that the defendant has been debiting and claiming compound interest, on every false and/or incorrect entry in the account (either by way of principal, interest, penal interest or any other charges) has resulted in making of subsequent debit entries and that it is not possible for the plaintiff to ascertain the amounts that have been wrongly debited by the defendant in the said account. It has also been averred that on or about 16-5-1963 the plaintiff was granted by the defendants aforesaid foreign currency loan equivalent to Rs, 18,78,000 which was payable in 16 equal half- yearly instalments commencing from 1-7-1964 and that almost Rs, 24 lacs have been paid by the plaintiff to the defendant in the said account. It has also been averred that in fact Rs, 9,50,000 have been paid by the plaintiff to the defendant out of the local currency loan granted by the defendant to the plaintiff by making false/frivolous/fraudulent entries in the said account and that the defendant is purporting to claim that the sum of Rs, 42,25',030.47 wasjis outstanding as on 31-12- 1973 from the plaintiff. It has been further averred that at the request of the plaintiff the defendant sanctioned local currency loan of Rs, 5 lacs in July August 1970 on the existing security on the terms and conditions contained in para. 8 of the plaint and a further local currency loan of Rs, 9,50,000 in June/July, 1971, on the terms and conditions inter alia contained in defendant's letter dated 27-7- 1971. It has been averred that the aforesaid local currency loans were adjusted towards the payment of the foreign currency loan in the manner mentioned in para 13 and 14. It has also been averred that on 15-4-1972 the defendant ads sed the plaintiff that a total sum of Rs, 33,338.59 only was due by the plaintiff to the defendant in the said account and that on 7-9-1972, i. e. After the devaluation of Pak. Currency on 11-5-1972 the defendant purported to send the confirmation of the outstanding balance as under :- "Foreign exchange credit Amount due ' It has been further averred that by letter dated 7-9-1972 the defendant purported to cancel the balance advice in its aforesaid letter dated 7-9-1972 and requested the plaintiff to confirm the balances mentioned in para. 17 of the plaint and that the defendant purported to show for the first time the over dues in Yen as on 12-9-1972 and that the defendant also purported to claim the dues on the basis of post-devaluation exchange rate even in respect of those instalments which were adjusted and paid prior to devaluation of Pak. Rupees. It has been averred that on the above basis the dues against plaintiff in the said account went from Rs, 33,228.59 on 15-4-1972 to nearly Rs, 32 lacs on 12-9-1972. It has also been averred that it is the case of the plaintiff that neither the ordinary law nor the I. D. B. P. Ordinance permits the defendant to make such unjust, unconscious and windfall gains at the cost of its constituent to cause unjust enrichment for itself. In the alternative it has been averred that it was not within the contemplation of the parties that when the said agreement was entered into that the defendant could claim so grossly excessive and that the defendant was/is not entitled to realise an amount more than the amount received by the plaintiff from the defendant and that the aforesaid loan agreement was entered into on the fundamental premise of the existing rate being Rs, 4.81 for one U. S. Dollar, subject to day to day fluctuation but by purporting to convert the repayment of the loan at the post-devaluation exchange rate i. e. Rs, 11,04.68 to one U. S. $ the very foundation of the loan agreement would be taken away and that in the circumstances the said loan agreement itself would be frustrated. It has also been averred that so far as the plaintiff can estimate the defendant owes the plaintiff around Rs, 50,000 in the said account instead of being entitled to recover any amount from the plaintiff. On the basis of the above averments the plaintiff has prayed for preliminary decree and thereafter final decree after taking of the accounts.
(b) The defendant has filed written statement, wherein biter ilia it has been averred that the suit is not maintainable and that under the loan agreement the repayment was initially such that the first instalment out of the 16 equal half-yearly instalments was to be paid by the plaintiff to the defendant on 1-7-1964. But later on the re-payment schedule was amended so that the first instalment became payable by the plaintiff on 1-1-1966 and that the remaining instalments became payable 18 months after the original contractual dates for the payment of the instalmants.
5. It has been averred that atter the issuance of the sanction letter dated 16-5-1963 the plaintiff and the defendant entered into a credit agreement dated 16-5-1963 and that the said credit agreement is not to be read alongwith the sanction letter. It has been further averred that no relationship between the plaintiff and the defendant as spelt out in para. 6 of the plaint existed or over existed between the parties. It has been averred that in the statement of account no entries were made by the defendant in excess of the amount due from the plaintiff from time to time and that the penal interest was agreed to by the plaintiff in the credit agreement dated 16-6-1963 and that the interest in excess of the amount fallen due under the heading of interest has not been debited to the account. It has also been averred that the defendant has supplied statement of account to the plaintiff on different occasions often at the request of the plaintiff and that the accounts may be treated as settled accounts by this Court. It has been averred that the interest was chargeable on six months rests basis and, therefore, compound interest was justified. It has been averred that the total amount received from the plaintiff so far in the said account is approximately Rs, 14 lacs and not Rs, 24 lacs as alleged and that as to Rs, 9,50,000 this sum was rep raplased vide sanction letter dated : 27-7-1971 (Annexure C to the plaint) and that as required by the said sanction letter under which rephasement was allowed the plaintiff was required to adjust the then existing overdues as on 30-6-1971 and on this basis legal documents were to be executed by the plaintiff to the satisfaction of the defendant's legal advisor, which was not done and, therefore, credit entry of Rs, 2,50,000 was reversed after 11-5-1972 and that the defendant's claim as on 30-7-1974 was Rs, 43,42,373.71 and that the same is justified subject to further increase on account of further debits such as interest, penal interest, and other charges and fluctuations due to the changes in the rate of exchange. It has been further averred that the defendant's sanction and rephasement regarding over dues amounting to Rs, 5 lacs through its letter dated 29-6-1970 and that this was part of Rs, 9,50,000 rephased on 27-7-1971. It has been also averred that as the plaintiff did not execute the required document as mentioned in defendant's letter dated 27-7-1971 the entry relating to the rephasement of Rs, 9,50,000 was reversed by the defendant on 11-5-1972 and as the above entry was reversed, it may be assumed that no payment had been made by the plaintiff to the extent of the above amount. It has been averred that from 11-5-1972 the defendant has been maintaining accounts in Japanese Yen as a matter of convenience and that the defendant correctly claimed and still claims the overdues as on 11-5-1972 and the subsequent dues and overdues on the basis of devaluation rates. It has also been averred that Pakistani rupee was devalued on 11-5-1972 by 131%. It has been averred that whenever dues or overdues were received after 11-5-1972 from the defendant in rupees, the entries in the statement of account and that in this statement of account from 11-5-1972 onwards, there were claims in which the equivalent amounts in Pak. Currency were entered whenever dues or over dues were received by the defendant and that from time to time, the statements of account were forwarded to the plaintiff. It has also been averred that the defendant sent the statement of account after 11-5-1972 and, therefore, the plaintiff has been very much aware for more than 2 years that the statements of account were being maintained in foreign currency by the defendant and that no objection was raised by the plaintiff and that the amount due had also was up by 131% after 11-5-1972 which the plaintiff did not object. It has been averred that clause 6 of the credit agreement provides that the plaintiff will pay the defendant at B. G. Rates of exchange prevalent on the actual dates of payment and that it may be presumed without any hesitation that the parties contemplated that in the event of fluctuation in the rates of exchange, whether small or large the loan agreement will still remain binding between the parties. It has also been averred that 14% per annum charge known as exchange rate risk resulting from fluctuations in the exchange rate for the period between the date of the expiry and the period for which loan had been advanced by the defendant to the plaintiff and the date of the expiry of the period for which Japanese Government had advanced the first Yen credit to the Government Pakistan as the first Yen credit agreement was to take much longer period of time than the contracted repayment by the plaintiff to the defendant. It has been averred that the penal interest is valid as per clause 5 of the argeement. It has been denied that the defendant is liable to pay Rs, 50,000 to the plaintiff. It has been averred that the defendant has filed Suit No, 460/74 on 30-9-1974 against the plaintiff for the recovery of Rs, 43,42,375/71 as on 10-6-1974 along with the other reliefs. On the basis of the above averment the defendant has denied that the plaintiff is entitled to any relief.
(e) The following 6 issues were framed by the Court on 19-5-1976 :- "(1) Whether the defendant made incorrect entries in the said account ? If so, whether all subsequent debit entries made in the said account are rendered false or incorrect ?
(2) Whether the defendant has wrongly and illegally debited penal interest in the said account ? If so, to what effect?
(3) What amount, if any, is due and payable and by whom ?
(4) Whether after 11-5-1972 the defendant was/is entitled to reverse debit entry of Rs, 9,50,000 granted as loan in the local currency ?
(5) Whether the said loan agreement is frustrated and has become impossible of performance?
(6) Whether the defendant realised quarter per cent exchange risk from the plaintiff ? If so, can the defendant claim repayment of instalments `' on the basis of post-devaluation exchange rate ?"
4. Suit No, 460/74.-(a) This is a counter suit filed by the I. D. B. P. Against the plaintiff in suit No, 287/74 for the recovery of Rs, 43,42,373.71 under Order XXXIV, C. P. C. In the above suit the L D. B. P.
6. Has reiterated more or less the averments made by it in the written statement filed by it in the aforesaid suit No, 287/74 and has claimed a preliminary mortgage decree and in the alternative money decree for the above amount.
(b) The defendants have filed an application under sections 10 and 151, C. P. C. (C. M. A. 282/75) for staying of the above suit on the ground that their suit was earlier in time between the same parties iri respect of the same subject mattet. By an order dated 24-4-1974 it was ordered that the above application would be taken up along with the aforesaid Suit No 287/74. After that by a consent order dated 1-6-1977, it was ordered that the above suit may be fixed for issues in August 1977 and that the above suit be fixed along with many other cases involving common point of law in respect of conversion of rupees into foreign currency in which loan was granted. Thereafter by an order dated 17-10-1978 it was ordered that in view of the judgment dated 20-2-1976 passed by the Supreme Court of Pakistan in C. P. No, K. 172/75 this suit had to be ,consolidated with Suit No, 287/74 and with the consent of the learned counsel for the parties issues framed in Suit No, 287/74 were adopted for the above suit as well. Since then the above cases have been coming up for hearing together and the common evidence has been recorded in the above two suits.
5. (a) The basic question in the above three cases is the interpretation of clauses 1 and 6 of the credit agreement which read as follows :- "(1) The Bank will provide/give to the Borrower(s). On terms and conditions herein set forth and in the Schedule II hereto annexed accommodation by way of loan of $390,000 equivalent to Pak. Rs, 18,78,000 (approx) in the manner stated in Schedule II and the Borrower(s) shall repay the loan/credit in accordance with the provisions of Schedule 11 annexed hereto.
(6) If the loan/credit agreed to be given/provided by the Bank to the Borrower(s) under this agreement, or any portion thereof, is foreign currency all the obligations of the Borrower(s) to make payment or repayment of the principal and of interest in respect of the loan/credit or such portion thereof as is in foreign currency shall be computed and stated in U. S. Dollar and :aich obligations of the Borrower(s) will be discharged by paying to the Bank in legal tender currency of Pakistan of an amount equivalent to the amount of U. S. $ being the foreign currency obligation of the Borrower(s) calculated at the highest effective selling rate of U. S. $ (highest amount of rupees for U. S. $) quoted by authorised dealers in foreign exchange in Pakistan on the date of payment or re- payment. The Borrower(s) shall bear the risk of fluctuations in the exchange rate of rupee and U. S. Dollar."
(b) According to the learned counsel for I. D. B. P. Mr. Chundrigar the words "on the date of the payment or repayment" used in the above-quoted clause 6 of the agreement mean actual date of payment and not but. Date of payment. In other words his contention was that the I. D. B. P was entitled to recover an instalment on the basis of the foreign exchange rate of the currency involved in the credit agreement on the date of the actual payment of the instalment by the borrower and not at the rate obtaining on the date when a particular instalment becomes payable as per terms of the agreement. Whereas, the learned counsel for the borrowers in Suit No, 261/74 Messrs Abdul Matin, and Naimur Rehman have urged that if the above-quoted clause 6 is to be read with clause 1 of the argument and Schedule II referred to in the aforesaid clause 1, it will become clear that the I.
7. D. B. P. Is entitled to recover each instalment on the basis of the foreign exchange prevalent on the due date of a particular instalment and not on the date of actual payment, and whereas Mr. Hyder Mota the learned counsel for the borrower company in the remaining two suits has urged that the I.
8. D. B. P. Was entitled to recover all the instalments of the loan amount at the rate of the foreign exchange obtaining on the date of the loan agreement.
(c) Learned counsel for the parties have referred to an unreported judgment pronounced on 12 8- 1975 by my learned brother Naimuddin, J. In Suit No, 312/71 wherein identical point was involved in relation to the interpretation of a corresponding clause in the PICIC credit agreement. In order to appreciate the ratio decidendi of the above unreported judgment it may be advantageous to reproduce hereinbelow clause 8 of the PICIC credit agreement which corresponds to clause 6 of the instant cases, which reads as follows : "(8). (a) Except as Borrower and PICIC shall otherwise agree, the Borrower shall repay the Loan in eight years by sixteen approximately equal semi -annual instalments commencing from the first day of July 1965 and ending on the first day of January 1973. The repayment instalments as determined by PICIC and communicated to the Borrower shall be binding on the Borrower.
(b) All obligations of the Borrower to make repayments of principal and payments of interest in respect of the Loan shall be computed and stated in Deutche Marks and such obligation of the borrower shall be discharged by paying to PICIC in legal tender currency of Pakistan of an amount equivalent to the amount of Deutche Marks calculated at the highest effective selling rate of Deutchs Marks (highest amount of rupees for Deutche Marks) quoted by authorised dealers for foreign exchange in Pakistan on the date of repayment."
9. ' A perusal of the above-quoted clause shows that it is couched in the same terms as the clause in question, namely, clause 6 of the I. D. B. P. Loan agreement, and, therefore, the above judgment is applicable on all fours to the intant cases. Before analysing the above judgment, it may be avdantageous to refer to prepartition days' Indian's Court's view, and the view found favour with Pakistani and English courts.
(6) (a) Reverting to pre-partition Indian Courts' view, it may be pertinent to refer to the case of Param Sukh and others v. Ram Dayal (1), the case of Dakhina Mohan Roy Choudltry v. Sarola Mohan Roy Choudhry and others (2), the case of Abdul Hayee v. Gajral Sahai (3), the case of Madhavji Visram Thacker and others v. Ramniklal Vadilal and others (4), the case of Y. A. Shakoor & Co. v.
10. Finlay Fleming & Co. (5) and the case of Ottoman Bank Nicosia v. Dasealopoules (6).
(1) I L R 8 All. 650 (2) I L R 23 Cal. 357
(3) I L R 1 Cal. 283 (4) AIR 1923 Born. 437
(5) AIR 1923 Rang. 265 (6) AIR 1935 P C 39
(b) Reverting to 1886 IR-8 Allahabad case, it may be observed that the facts of the above case were that the decree holders under a decree passed on 12-12-86 by her Majesty-in-Council having taken out execution for a sum of 119.11 under section 610 of the C. P. C. Applied for execution on 6-1- 1886 to the High Court. His application was granted and the decree was transmitted accordingly to the subordinate Judge of Aligarh. The decree-holder in his application for execution estimated the sum of 119.11 at the rate of exchange on the date of the application and had also claimed pleader's fee in respect of the application and also in respect of the application to the High Court. The Judgment-debtor objected of the above method of calculation which objection was upheld by the Civil Judge. Being aggrieved by the above order of the executing Court the decree-holder filed an appeal in the Allahabad High Court. Ordfield, J. While intrepreting the last paragraph of section 610 of the then C. P. C. Held that the words "the amount payable must be estimated at the rate of exchange for the time being fixed by the Secretary of Estate for India-in-Council" mean the year in which the amount is realised or paid or execution taken out and not the year in which the decree was passed, and that the rate of exchange being fixed yearly by the Secretary of State for India in Council, the rate of exchange on the date of the application for execution was the proper rate of exchange, the decree-holders were entitled to.
(c) Referring to 1896 Calcutta case, it may be stated that again the question before a Division Bench of the Calcutta High Court was the interpretation of section 610 of the C. P. C.
11. 1882. The facts of the above case were that a decree was passed in favour of the plaintiff/appellant by their Lordships of the Privy Council restoring the decree and judgment of the subordinate Judge which was reversed by the High Court and directing the respondent to pay to the appellant as cost of the appeal to the High Court and as cost incurred in England a sum of 193.17 and further a sum of 300 deposited by the appellant as security. In execution of the above decree the Subordinate Judge refused the decree-holder the rate of exchange current at the time of the application, but he allowed him execution calculated at the exchange rate at the time of the passing of the order by their Lordships of the Privy Council. He also refused to allow the decree-holder interest on the costs stated in the order. While dissenting from the above-quoted Allahabad case of 1836 their Lordships of the Calcutta High Court held that the words, "for the time being on which the Judges of the Allahabad High Court relied seems to have reference only to the time by which the order of the Privy Council was passed. It would be contrary to the usual rule in such matters if the amount due under a decree were to be left uncertain, and, indeed, if it were left to the option of the decree- holder to determine by a rate of exchange favourable to him to obtain a larger amount of rupees than would be due under the order as originally passed."
(d) Reverting to the 1897 Calcutta case, it may be stated that the question before a Division Bench of the Calcutta High Court was at what rate of exchange the cost awarded in sterling, in the order of Her Majesty-is Council should be calculated. It was held that in converting into Indian currency the amount of costs expressed in Sterling in an order of Her Majesty-in-Council, the rate of exchange is the rate which prevailed at the time when the order was made.
(e) With reference to 1923 Bombay, it may be observed that the facts of the case were that the plaintiff sued to recover the equivalent in rupees etc., of the sum of 138-4-1 and 21-17-5 decree ex parte against the defendant by the High Court of Justice, King's Bench Division in England, on February 23, 1921, as converted at the rate of exchange ruling upon the said February 23, 1921 with costs and interest. While noticing that the Allahabad and Bombay High Courts held in some cases that where payment was made after execution was issued in India the rate must be that at the time of issuance of writ and whereas the view favoured with the Court was that the rate of exchange should be that previling at a date of Privy Council Order. It was painted out in the above case that the above diversity of opinion had been settled in favour of the Calcutta view by the insertion of the word "at he date of the making of the order" after the words "for the time being fixed" in the corresponding provision contained in Order XLV, rule 15(3) of the present C. P. C. And, therefore, it was held that the rate of exchange prevailing at the date of the foreign judgment sued was one to be taken.
(f) Reverting to 1923 Rargoon, it may be stated that the facts of the above case were that the defendant bought two lots Sateen. The agreement was that the price was 1.o be paid as per home invoice plus 5% commission and usual charges of the payment was to be made within 83 days after the date of the invoice ; interest to be paid by the buyer at the rate of 8% per annum from the date of the invoice. The question before the Division Bench of the Rangoon High Court was that in case of breach of the contract which was the relevant date for the purpose of computing the amount of the damages under the contract. Robinson, C. J. Held that date on which de damages for breach of contract were to be calculated was the date of the breach and the date on which the rate of exchange was to be taken for the purpose of coverting the amount in England currency into rupees was the date on which, under the agreement the money was to be paid and on which the breach occurred by its not being paid.
(g) With reference to 1935 Privy Council, it may be stated that the facts of the above case were that 'D' was employed by '0' bank in 1905 in Turkey. He was taken on the pensionable staff and was entitled on retirement to a pension based upon his salary in the year previous to the retirement. At the time of the employment D's salary was in Turkish pounds of specified gold content. However, paper currency made legal tender in Turkey in 1915. D was transferred to the Bank's branch in Cyprus where he retired in 1931. In Cyprus D's salary was paid in Cyprus pounds at the rate of exchange of 100 Cyprus pounds to 110 Turkish pounds. Cyprus currency subsequently depreciated in terms of gold. It was held by the Privy Council (Lord Blanesburgh) that D's pension was to be calculated on the basis of Turkish gold pound as he was entitled to under the terms of his employment and, therefore, he was entitled to a mandatory pension in Cyprus currency of a sum real equivalent at the amount of Turkish gold pound, to which he would be entitled and that the Cyprus currency was to be calculated according to the rate of exchange prevailing at the date when each instalment of the pension became due.
(7) (a) As regards Pakistan's Court's view, it may be pertinent to refer to the case of Mst. Kiturshid Jamal V. Mohd. Asghar Qureshi (1), the case of Dr. Mohd. Rafiquddin and another v. Federation of Pakistan (2), the case of
(1) PLD 1956 Sind 47 (2) PLD 1960 Kar. 506 Henry Stanley Ramaden and 2 others v. S. M. Fazail & Co. (1), in the matter of Income-tax Assessm ent of the Khanewal Oil Mills Ltd. Khanewal (2), the case of Central Bank of India Ltd. v.
12. Mohd Islam Khan (3), the case of S- M. Hanif v. Central Bank of India Ltd. (4), the case of Karachi Electric Corpn. Ltd. v. Messrs American Export Isbrandtser Lines Inc., Karachi and an other (5), and the case of P. I. C. I. C, v. Messrs Mehboob industrial Ltd., i,e, unreported judgment dated 12-8-1979 of my learned brother Naimuddin, J., in Suit No, 312/71.
(b) Referring to 1956 Sind, it may be stated that a wife brought a suit for dower amount of Rs, 10,000 against her husband who had married to her in Saharanpur District in U. P. On 29th February 1944, at a dower of Rs, 10,00 Indian rupees but later on she was divorced on 22-2-1948. It was canvassed before the Court that the rate of exchange applicable to the dower should be that prevailing at the time of suit, but it was held that the rate of exchange applicable was that prevailing on the date the debt became due i,e, at the time of divorce pronounced on 21-2-1948 and not at the rate prevailing on the date of judgment. Reliance was placed in the above case on the aforesaid 1935 Privy Council case and also upon the case of Madhvji Vishram v. Ramniklan (6).
(c) With reference to 1980 Kar., it may be stated that the facts of the above case were that in 1948 A was deputed for higher studies in U. K. On the condition that on his return to Pakistan he would have to refund all money paid to him on his behalf by the Central Government. As a guarantor, he furnished a bond duly signed by the appellant. On return from U.K. A failed to join the Department in which he was posted by the Central Government. Thereupon, the Government of Pakistan called upon A and the appellant to pay the sums spent by the Central Government on A's training abroad.
13. On their failure to pay the Government filed a suit in the Court of 4th Civil Judge, 1st Class Karachi.
14. The learned Civil Judge took the view that the Government of Pakistan was entitled to recover the amount on the basis of the foreign exchange rate prevalent at the time when it incurred the expenses, namely, at Rs, 13-5.4 equivalent to one sterling pound. Thereupon, A filed an appeal against the said judgment and urged that on the day of the breach of the bond the rate of foreign exchange was Rs, 9-4-3, equivalent to 1 and, therefore, the amount was to be converted on the basis of the latter rate of exchange. A Division Bench comprising of Inamullah and S. A. Hach JJ., (as their Lordships then were) held after reviewing the case-law that the cause of action arose to the plaintiff because of the fact that the condition of the bond was broken by one of the defendants and that it was on that date the debt because due to the plaintiff and, therefore, the payment was to be made in national currency calculated at the rate of exchange prevailing on the date the debt had become due.
(d) With reference to 1964 Karachi, it may be observed that it was an appeal against the judgment of Qadeeruddin Ahmad, J. (as his Lordship then was) dismissing the suit for the recovery of damages. The facts were that the three plaintiffs/appellants who were partners in a firm at Edenburg, Scotland, and were importers of raw wool contracted to purchase certain
(1) PLD 1964 Kar. 290 (2) PLD 1962 Lah. 821
(3) PLD 1962 SC 251 (4) PLD 1962 SC 376
(5) PLD 1976 Kar. 23 (6) 47 Born. 487 quantity of wool from the defendants. The defendants failed to deliver 200 bales and, therefore, the plaintiff's firm brought an action for the recovery of damages and had claimed 4,333-6-8 and converted the same into Rs, 40,039-6-4 at the rate of Rs, 9-4-3 to a sterling. However, in the amended plaint they claimed Rs, 57,958-5-4. The appeal was accepted and it was held by the Division Bench comprising of A. S. Farooqui and Feroze Nana Ghulamally, JJ., that the damages for the breach were to be assessed on the basis of the difference between the sale price and the market price on the date of the breach at the rate of exchange prevailing on the date of the breach and not at the rate prevailing on the date of the suit.
(e) Reverting to 1962 Lahore, it may be observed that the assesseeCompany having its office in Pakistan under the Mercantile System of accountancy observed by the assessee, the sale price was entered in the books although no payment was received. On 19th September, 1949 the Indian Government devalued its currency and inconsequence of it, the assessee claimed loss by reducing the debit entry. This loss was disallowed by the Income-tax Authorities, but allowed by the Income- tax Tribunal. The reference made to the High Court was on the interpretation of section 10(2) of the Income-tax Act, 1922. It was held by the High Court after reviewing the rules of Private International Law that the devaluation of Indian currency did not result in trading loss as the buyers of the assessee's goods in Indian were under legal obligation which they incurred in Pakistan to pay full amount of sale price to the assessee in Pakistan units of currency regularised by the Municipal Law of. Pakistan and which was legal tender at the time when the payment became due. It was further held in the above case that Rs, 33,693.12 became payable to the assesssee as soon as the goods were supplied to the firm Uttamchand Omprakash & J. L. Rattan & Co. Of Delhi when the rate of exchange in both the countries was the same and, therefore the devaluation of the Indian currency at the close of the year did not result in any trading loss to the assessee because the buyers were under the legal obligation to pay the full amount of the sale price to them in units of accounts i,e, currency which was legal tender at the time when the payment became due.
15. ' CO Referring to PLD 1962 SC 251, it may be stated that the facts of the case were that the appellant bank carried on banking business at Chittagong. At the request of the respondent, the appellant opened Letter of Credit to import 100 bales of American Yarn from Messrs Nicolene Ltd.
16. London. The respondent deposited Rs, 28,998 by way of margin and commission with the appellant and as the respondent had an account with the bank the account was debited to the necessary extent by the appellant. The value of the goods to be imported amounted to Rs, 10,700 and this amount was to be recovered by drawing a bill of exchange at sight. A letter of guarantee was executed by the respondent in favour of the appellant bank granting the appellant sole option to claim; payments of any bill drawn in pursuance of the above arrangement at the rate of exchange ruling at debts due date or at rate ruling at the time of the payment or in the event of any legal proceeding being taken in respect of such bill at the rate ruling at the date of the decree in such proceeding. On the date of execution of the above guarantee letter i,e, 7-2-49, the appellant instructed Messrs Barclays Bank Ltd. London that the appellant was establishing a confirmed credit on account of the respondent to the extent of 10,700 C. I. F. Chittagong in favour of Messrs Nicolene Ltd. For the import of the goods intended for Their bills of exchange, payable on sight were received by the appellant bank along with the relevant invoices of goods dated 26-5-49. The first two bills were sighted by the respondent on 5-6-49 and the third on 11-6-49 by regular endorsement on the bill. It was an admitted position between the parties that the demand was made for payment of these bills on the date of their maturity. However, at the request of the respondent, the appellant postponed the recovery till the ship arrived at the Port with the goods for which the respondent offered to pay interest on the due amount. The question before their Lordships was as to whether for the purpose of converting sterling pound (in which the aforesaid bills were ), to Indian rupees, the rate of exchange prevalent on the date of maturity was to be taken or the rate obtaining on the extended date for the payment of the amount S. A. Rehman, J. (as his Lordship then was) after reviewing the entire case-law was pleased to draw the following conclusions: "On this principle, the English Courts have engrafted another one of procedure, according to which an English Court cannot order payment of a sum of money expressed in Foreign currency. Dicey's Book discusses this at p. 723 et seq. Claims for payment of debts or of damages have to be translated into sterling for the purpose of proceedings in an English Court, by virtue of this rule. The rate of conversion which has to be used is, in the case of damages for breach of contract, that prevailing on the day when the breach occurred, and in the case of damages for tort, the rate of exchange prevailing when the loss or expenditure was incurred, for which the Plaintiff claims compensation. In the case of liquidated debts, the rate of exchange of the day when the debt was payable, would be applied."
(g) With reference to 1962 SC 376, it may be observed that this was also a case of bill of exchange.
17. While interpreting section 63 of the Negotiable Instruments Act, it was held that the rate of exchange as regards the payment of bills, the relevant date is the date "when bills matured" and that the bills "at sight" presented for payment before the date of devaluation of Pakistani currency in relation to India payable on pre-devaluation rate. It may be pertinent to mention that the above judgment was also written by S. A. Rehman, J. (as his Lordship then was) and his Lordship followed the earlier case. The American view taken in the case of Die Deutsche Bank Pliable Nurberg v.
18. Charles Franklin Hamphery (1) was dissented. It may be pertinent to mention that in the above American case majority of 5 Judges against 4 dissentient opinions, held in an action in the United States to recover damages for failure of a German bank to return on demand a deposit payable in Marks, the relevant amount in Marks must be translated into dollars as at the time the suit was brought and not when the demand-was made. It may be noticed that the above view of the U. S. A.'s Court has not been subscribed to by Indian, Pakistani and English Courts. It is also not certain as to whether the aforesaid view was followed by the U. S. A. Courts in subsequent cases.
(h) With reference to 1971 Karachi case, it may be stated that the Plaintiff KESC had brought a suit against foreign shipping lines and their Agents in Karachi to recover Rs, 2,25,740.13 on account of import cost of bonus voucher charges in respect of 6 meg of copper wire short landed at Karachi port out of total consignment of 88 reels. Mushtaq Kazi, J., on the basis of rule 160 given in Dicey's Conflict of Laws (6th Edition), on the basis of a passage from Dr. Cheshire's Private International Law (4th Edition), p. 663 and upon relying on certain English cases concluded that the rate of con-.
19. Version which has to be used is in the case of damages for breach of contract, that prevailing on the date when the breach occurred, and that in the case of damages for breach of contract, that prevailing on the date when the breach occurred, and that in case of damages for tort the rate of exchange prevailing when the loss or expenditure was incurred for which the plaintiff claims compensation. It was held that the dollars were to be converted into Pakistani rupee on the basis of the rate of exchange prevailing at the time cause of action arose for the loss actually occurred and on the date of filing of the suit.
(i) Referring to the aforesaid unreported judgment of Suit No, 312/71 given by my learned brother Naimuddin, J. It may again be stated that the question before his Lordship was the interpretation of clause 8 of the P. I. C. I. C.'s agreement and the question for consideration was as to whether the material rate of exchange for conversion of D. M. Into Pakistani rupees would be the rate of exchange obtaining when each instalment fell due or the material rate would be the rate prevalent on the actual date of payment. His Lordship after reviewing Indian, Pakistan, English and American case-law and also referring to Dicey's conflict of Law and Dr. Cheshire's book on Private International Law concluded as follows :- "On the basis of the opinion expressed by the jurists and the cases noticed hereinabove it seems clear that in an action in whatever form in Courts in this country for the recovery of a debt payable in foreign currency, the amount of judgment and order must be expressed in Pakistani rupees, and that unless the relative values of the respective currencies are fixed by statute or some authority binding on the Pakistani Court or by the agreement of the litigants, then amount of the judgment or, order of Court in this Court must be based on the quantity of Pakistani rupees which would have to pay here to obtain the market the amount of the debt payable in foreign currency delivered at the appointed place of payment, i,e, the amount payable according to the rate of exchange. It seems plain that this mode of computing the value of foreign currency in Pakistani rupee, and thus converting the one currency into the other is based upon damages for the breach of contract to deliver the commodity bargained for at the appointed time and place and if this is so it follows that the date as of which that value must be ascertained is the date of the breach, and not the date of the judgment."
8. (a) Adverting to the English view, it may be observed that in the aforesaid Pakistani rulings reliance has been placed, inter alia upon the case of Cash v. Kennion (1), the case of Celia v.
20. Volturno (2), the case of Di Ferdinanco v. Simo Smits & Co. (3), the case of Reunited Railways of Nawama and Regla Warehouse Ltd. (4), the case of In re-Russain Commercial and Industrial Bank (5), the case of Teh Nu (6), and the case of Societe Dee Notels Le Touquet-Place v. Cumming (7). It will suffice to observe that in all the above English cases the view found favour with the Courts was in consonance with the view accepted by the Indian and Pakistani Courts In the above cases cited and discussed hereinabove and, therefore, I do not wish to deal with the above English cases separately.
(b) However, I may refer to certain English cases which have been relied upon by the learned counsel for I. D. B. P. Mr. Chundrigar, namely, the case
(1) (1805) 2 Ves 3!4 (2) (1921) 2 A C 544
(3) (1920) 3 K B 409 (4) (1961) A C 1007
(5) (1955) I All E R 75 (6) (1970) Prob. 106
(7) (1920) 1 K B 451 of Aruna Mills Ltd. V. Dhanrajmal Govindram (1) in the case of - Barclays Bank International Ltd. v.
21. Levan Brother (Bradford) Ltd. (2), the case of Re Dynamics Corporation of America (3), the case of Milanges v. George Frank (Taxtiles) Ltd. (4), the case of Owners of the M. V. Elefthererai v. Owners of the M. V. Despina R. The Despina R. (5) and the case of George Veflings Rederi A/S. v. President of India The Bel-lam! (6).
(c) Reverting to (1968) 1 All E R it may be observed that the _ facts of the case were that by a CIF contract made in Bombay between the Indian nationals the sellers agreed to ship cotton by May 31, 1966 for a price mentioned in rupees the contract providing for the buyers to hear any difference in the rate of exchange prevailing on the date of the contract and the date of payment. In breach of the terms of the contract the sellers failed to ship the goods until June 27th, in the meantime the rupee was revalued on June 6, the buyer having accepted the delivery and paid the price increased in accordance to the revaluation, claimed the amount of the increase as damages for the breach of the contract. The contract was subject to the bye-laws of Liverpool Cotton Association Ltd., and, therefore, the dispute was referred to the arbitration. The award was stated by the Directors of the Association on an appeal against the award in an arbitration conducted under the Association Rules. Donaldson, J. After answering the question stated by the Directors of the Association remitted the Award back to the Directors in order that they may give their finding, if necessary, after hearing further evidence on the question whether the buyers could in the ordinary course of events have avoided the payment of the enhanced price if the goods had been shipped on or before 31-5-1966. The above case is not directly on the point in issue, but relates to question as to how the damages are to be assessed in a case of breach of contract relating to the sale of goods committed by a vendor. It is well-settled that an aggrieved party is entitled to be compensated in terms of money as if the contract would have been performed, which rule, would cover the right of a buyer to claim refund of the excess amount paid by him on account of the delay in the despatch of the goods.
(d) Reverting to (1976) 3 All E L R, it may be stated that the facts of the case were that in 1976 G.
22. Company a New York Corporation sold cloth to the defendant who carried on business in Bradford.
23. On 25th April 1975, vendor drew 4 bills of exchange on the defendants each for U. S. Dollars 23,000 which was payable on 21st June, 5th July, 19th July, and 2nd August, 1975. The bills were accepted payable at Barclay's Bank Ltd., in Bradford and endorsed by the vendor to the plaintiff for value. On presentation the bills were dishonoured by the defendant on the ground that the cloth was defective. The exchange rates on the maturity dates were dollors 2.2725, 2.1720 and 1395 to a pound sterling. The plaintiff in January 1976 claimed, inter alia $92,000 i,e,, the value of the four bills. The plaintiff applied for summary judgment under RSC order 14 in which the Master of the Queen's Bench held that the amount should be calculated according to the rate of exchange for sight drafts at the place of payment on the date the bills were payable under section 72(4) of the Bills of
(1) (1968) 1 All E L R 113 (2) (1976) 3 All E L R 200
(3) (1976) 2 All E L R 669 (4) (1975) 3 All E L R 801
(5) (1977) 3 All L R 874 (6) (1978) 3 E R. 638 ' Exchange Act, (1882). He accordingly gave a judgment for sterling pound 45,000 having converted each bill into sterling on its maturity date. Upon appeal filed by the plaintiff the defendant urged that the plaintiffs were not entitled to judgment in foreign exhange since the proper law of the contract was English Law Momatta, while accepting the appeal observed that :- "The decision of the House of Lords in Milliongos v. George Frank (Textile) Ltd. Has revolutionalised the position and has disposed of the once common assumption that foreign currency must be treated by our Courts as if a commodity e.g. a foreign cow"
24. ' The appeal was allowed and a judgment for U. S. $92,548/70 or the equivalent in sterling at the date of payment or enforcement of judgment was granted. The above case has followed the aforesaid House of Lords decision of Millianges case and departed from the old English view that in England the Courts could grant a decree in sterling pound and not in any foreign currency. In the above case it was also held that the plaintiff were entitled to a judgment in dollars or the equivalent in sterling at the date of payment or enforcement of the judgment. The above case is distinguishable inasmuch as the judgment was given in U. S. Dollars the plaintiff was entitled to receive sterling pound equivalent to U. S. Dollars either on the date of the payment, if paid voluntarily by the judgment-debtor before the initiation of the execution proceedings, or on date of the enforcement of the judgment.
(e) Referring to (1976) 2 All E L R it may be observed that the question before the Chancery Division was that in case of compulsory winding up of a company whether the liability of debt to be ascertained at the date of presentation of the winding up petition or at the date of winding up order, it was held that the relevant date for ascertainment of a debt in foreign currency arising under a foreign contract was notional date of discharge of the debt and that the date had to be the same for all the creditors and was, therefore, the date of winding up order when all the claims fell to be ascertained. In my view the above ruling does not support the contention urged by the learned counsel for the I. D. B. B. Inasmuch as upon the passing of the winding up order the creditors are entitled to rateable distribution in the assets vested in the official liquidator and, therefore, the relevant date is the date of the winding up, order and there could not have been numerous dates for ascertainment of the liability for the various creditors.
(f) Referring to the case of (1975) 3 All E L R, it may be observed that it was a case decided by the House of Lords. The facts of the case were that by an agreement made in May 1971 the plaintiff national of Switzerland, agreed to sell to the defendant, as English Company a quantity of polyster yarn, the proper law of the contract was the Swiss Law and the money on account and payment was Swiss Francs. The yarn was produced by the plaintiff in Switzerland and delivered to the defendant in 1971 under five different invoices, each of which stated the price in Swiss Francs, the payment of which was to be made within 30 days to a Swiss bank. The defendant did not pay any part of the price. Thereupon, on 20th April, 1972, the plaintiff issued a writ claiming the payment of the sterling equivalent to the contract price at the rate when the payment .Should have been made. Between that date and the date of hearing of the action sterling fell in value against the Swiss franc with the result that at the date of the hearing the contract price in Swiss Franc was equivalent to a much larger sterling sum than it had been in 1971. At the hearing of the case the plaintiff obtained leave to amend the statement of claim so as to claim the amount due to him in Swiss Franc. The defendants did not dispute their liability but urged that the plaintiff was not entitled to a judgment of a sum of money expressed in foreign currency. The majority view of the House of Lords was that the plaintiff was entitled to a decree in Swiss Francs of the sterling at the time when leave was given to enforce the judgment. It was urged by Mr. Chundrigar that from the above judgment it is clear that in England the recent trend is to depart from the well-established principle on account of changed situation. It was further urged by him that though in England the consistent view of the courts, barring a few cases, till the above decision of the House of Lords, was that an English Court could' not pass a decree in foreign currency, but this was departed inter alia, in the aforesaid House of Lords case. On the above analogy it was canvassed at the Bar that this Court should also depart from the aforesaid view found favour with the Indian and Pakistani Courts in the above-cited and discussed cases referred to hereinabove in paragraphs 6 and 7. I do not see any compelling reason to depart from the well-established principle for the reasons hereinafter mentioned, but for the purpose of the above-cited case, it will suffice to observe that the above case is not directly on the point in issue.
(g) Referring to (1977) 3 All E L R, it may be observed that the above case was decided by the Court of Appeal arising out of an admirality action and the question before the Court was as to whether an English Court could pass a decree in a foreign currency for damages for tort; it was held that the Court had the power to award damages from negligence in foreign currency and would give judgment in the currency which would more fairly compensate the plaintiff for the loss or damages which he had suffered. Accordingly, the judgment of the Queen's Bench Division was upheld and a decree granted in U. S. Dollars was maintained. A perusal of the above judgment will indicate the above view found favour with the Court for the reason that the contrary view would have caused hardship and injustice to the plaintiff. In the instant cases the I. D. B .P. Cannot press into service the aforesaid reason. Furthermore, the above case is distinguishable inasmuch as that the I. D. B. P. Has not claimed a decree in foreign currency in the instant cases, which it could not have claimed as the loans were repayable in Pakistani rupees under the terms of the loan agreements.
(h) Referring to the case reported in (1978) 2 All E L R, it may be observed that it was a special case stated by the Arbitration Tribunal for the Court. The facts of the case were that by a charter party dated 28-2-1975 the owner agreed to charterer the vessel named therein to the defendant. Under the charter party the charterer agreed to pay the freight in London in British external accounts sterling calculated at a rate expressed in U. S. Dollars. On 7-11-1975 demurrage of U. S. Dollars 1,53,348.95 became payable by the charterer who on 3-12-1975 paid a sum of 63,334.62 to the owner in London alleging that to be equivalent of the demurrage owing on the basis that the relevant date for calculating the rate of exchange was when the bills of lading were issued, i,e, March 1975. The owner claimed a further sum of U. S. $24,870/32 contending that the proper date for calculating the rate of exchange was the date of payment and on that date 63,334/62 was U. S. $ 24,870/32 short of U. S. $ 1,53,348/95. Donaldson, J., on the basis of the facts of the above case held that the plaintiff was entitled at the rate of exchange ruling at the date of payment and not at the rate ruling at the date of the default or date of the judgment or the award. It is true that the view taken in the above case appears to be contrary to old view found favour with the English Courts, inter alia, in the cases referred to hereinabove in paragraph (8)(a). But the learned Judge was persuaded to take the above view for the reason that the application of the aforesaid old rule would result into hardship. It is too early to say as to whether the above judgment of a learned Single Judge would be accepted by the Court of Appeal of England and the House of Lords.
25. (9)(a) Be that as it may in the instant cases the learned counsel for the I. D. B. P. Was unable to show that if I were to accept the aforesaid Indian & Pakistani view referred to in the cases discussed hereinabove in paragraphs 6 and 7, it would result into any hardships to the I. D. B. P. On the contrary, the I.D.B.P's. Witness Mr. Muhammad Alimuddin P. W. 1 in Suit No, 460/74 Exh. 72 has deposed that, "when the loan was granted the equivalent amount of it in Pakistani rupees was Rs, 18,78,000. When the instalments fell due the dues were debited in Pakistani rupees and the borrower company was advised regarding the dues in terms of Pakistani rupees. This was done after each instalment fell due and the equivalent yen currency was also mentioned. In order to show what amount has been converted into Pakistan rupee. That was the amount which the defendant was called upon to pay in rupees . . . . . This is true of each instalment from the beginning to the end." The above witness has further deposed that the plaintiff bank never defaulted in making payment to the government on due dates. He goes on to say that prior to the devaluation the IDBP was claiming on the basis of exchange rate prevalent on the due dates of the payment by the borrower and that the amount claimed in suit was converted at the exchange, i,e, yen into rupees on 30-6-1974.
26. ' The aforesaid witness has also appeared as a witness in Suit No, 261/74 and has deposed that the plaintiff deposited with the State Bank of Pakistan the payment for each instalment due for remittance to the German Credit Agency as and when it became due from their own resources and that the plaintiff made the last payment to the State Bank of Pakistan in this connection for remittance abroad on 31-12-1973.
27. ' From the above statement of the I. D. B. P's above witness, it is clear that prior to the devaluation of Pakistan rupee the I. D. B. P. Bank was itself interpreting the term "the date of payment" used in clause 6 of the agreement in question for the purpose of converting the foreign currency into Pakistani rupees on the basis of the rate of exchange obtaining on the due date of payment of each instalment and not at the payment.
(b) Mr. Hyder Mota the learned counsel for Nishat Chemical Industries Ltd. Has also invited my attention to Exhs. 72/4 to 72/9 in Suit No, 287/74, wherein the I. D. B. P. Itself has demanded payment on the basis of the rate of exchange prevalent on the due date and not on the basis of the actual date of payment. Mr. Hyder Mota has also drawn my attention to the 1. D. B. P.'s letter dated 15-4-72 Exh. 47, wherein the bank had stated that on 15-11-72 a sum f Rs, 33,221.59 was payable by Messrs Nishat Chemical Industries Ltd. Towards the Bank's dues relating to the foreign curreik, loan account under 1st Yen credit. However, after the expiry of nearly 5 months and after the devaluation of Pakistani rupee in May, 1972 the I. D. B. P. Bank purported to undo its admission contained in its aforesaid letter dated 15-4-72 Exh. 37 through its letter dated 7-9-72 Exh. 36 asking for confirmation of the balance vs on 30-6-72 by showing 1,75,49,588/50 Japanese Yen as outstanding on the above date. The above figure was repeated by the I. D. B. P. In its letter dated 12-9-79 Exh. 39, bnt Messrs Nishat Chemical Industries Ltd. Did not confirm the aforesaid alleged outstanding balance of Japanese Yen. 'The I. D.B.P. Bank has now claimed in the suit a sum of Rs, 43,42,373/71 being the alleged amount of the balance of the loan as on 30-9-74. My attention was also ir vited to Exhs. 69, 70 and 7t which are annual reports of I. D. B. P. For the years 71-72, 72-73 and 73-74 respectively wherein in Exh. 69 at page 7 the following statement appears : "On the devaluation of the rupee there was an exchange gain of Rs, 20,59,47,690 which has been credited to contingency provision."
28. ' In Exh. 70 this contingency amount of gain as shown at page 37 as Rs, 30,28,63,843 whereas, in Ex'h. 71 at page 42 the contingency amount is shown as Rs, 28,01,33,451. It has been urged by Mr. Hyder Mota that as a matter of fact the I. D. B. P. Is attempting to make profit out of the devaluation which is not permitted under the I.D.B.P. Ordinance, 1961. Reliance has been placed in this regard upon as 27 & 30 of the said Ordinance. Section 27 defines the scope of business which the I. D. B. P.
29. Can transact. The business defined therein does not contain any authority to transact in foreign exchange for gain and whereas section 30 expressly provides that the Bank shall not undertake or transact any kind of business other than those authorised by or under the Ordinance. The above contention appears to be not without any force. It is evident that if I were to follow the well- established principle, namely, that for the purpose of converting foreign currency into Pakistani rupee or Pakistani rupee into foreign currency the rate of exchange for the purpose of such conversion should be the rate prevalent on the due date and not the rate of exchange obtaining on the actual date of payment, no hardship .Would be caused to the I. D. B. P. And, therefore, even the aforesaid English case reported in (1978) 2 All E R 489 cannot be pressed into service. Even otherwise, the above English case is contrary to the view found favour with their Lordships of the Supreme Court of Pakistan and, therefore, I cannot follow the above English case. In my view the cases relied upon by Mr. Chundrigar and discussed hereinabove are not applicable to the instant cases.
(c) Mr. Naimur Rehman, the learned counsel for the defendants Nos, 1 and 3 in Suit No, 261/74 has invited my attention to Exh. 20/1/2 which is a statement of account as on 11-5-72, which shows the outstanding amount against the defendant in the aforesaid suit as Rs, 1,59,282. However, in Exh.
30. 20/1/1, which is a summary of account as on 30-4-74 the outstanding amount was shown in D. M., namely, D. M. 1,94,245/21 and interest thereon for the period from 31-2-73 to 30-4-74 D. M. 5,795..42 and that the same were converted into rupees, namely, Rs, 8,15,251.19. After giving adjustments of certain amounts, the balance shown in the above Exh. Is Rs, 7,93,820.87. It has been urged that the above figure work in the above Exh. 20/1/1 is imaginary. It seems that the 1. D. B. P. In order to claim the balance on the basis of the foreign exchange rate obtaining on the actual date of payment worked out the Exh. 20/1/1, which is apparently in breach of the terms of the contract. It has also been urged by Mr. Naimur Rehman that in clause 6 of the agreement the word 'payment' connotes the payment towards the interest amount and whereas the word `repayment' refers to the payment towards the principal amount. In my view no such inference can be drawn as the amount of interest merges into the principal amount, for claiming compound interest. Mr. Naimur Rehman has also drawn my attention to pages 342-43 of the well-known book on the Law of Contract by Pollock and Mulla (10th Edition) wherein the law relating to the conversion of foreign currency into the local currency has been analysed succinctly which is in consonance with the view found favour with the English, Indian and Pakistani Courts.
10. (a) From the above quoted and discussed Indian and Pakistani cases referred to hereinabove in paras. 6 and 7 the following principles are deducible :
(i) In an execution application for the recovery of costs awarded by the Privy Council in sterling during the pre-partition days, the Indian Courts on the basis of the provisions of the C. P. C.
31. Permitted conversion of sterling into Indian rupee on the. Basis of the rate o exchange prevalent on the date of the order and not at the rate obtaining on the date of filing of the execution application or the date of payment.
(ii) In a case for enforcing a foreign judgment in foreign currency, the rate of exchange would be the rate prevalent on the date when the foreign judgment is sued in Pakistan and not the rate prevalent on the date of the foreign judgment.
(iii) In a case of winding up of a company, the rate of exchange for it converting foreign currency into local currency or vice versa would b the rate of exchange prevalent on the date of order of the winding up.
(iv) In a case of a breach of a contract, the material rate of exchange for the purpose of converting foreign currency into Pakistani rupe or vice versa, would be the rate of prevalent on the date of the breach of the contract and not at the rate of exchange obtaining on the date of the suit for the date of the decree.
(v) In a. Case for the recovery of an amount due under a contract, the material rate of exchange for converting foreign currency into Pakistani rupee, or a Pakistani rupee into foreign currency, would be the rate of exchange prevalent on the due date and not the rate obtaining on the date of the filing of the suit or the date of the decree, as default in payment on the due date would constitute a breach of the contract.
(vi) In a case for the recovery of damages for the commission of a toil the rate of exchange for the purpose of computing the amount into foreign currency or vice versa would be the rate of exchange prevalent on the date of the commission of the tort and not the rate obtaining on the date of the filing of the suit or the date of the decree.
32. ' WO In a case of the recovery of an amount under a foreign exchange bill the material rate of exchange for the purpose of converting foreign currency into Pakistani rupee would be the rate prevalent on the date when the bill of exchange was matured date for the payment or the date of the suit or the date of the decree.
(b) On the basis of the above principles, it can safely be concluded that , in the instant cases the material rate of foreign exchange for the purposes of convering foreign currency into Pakistani rupee is the rate of exchange revalent on the due date of each instalment and not the rate obtaining on the date of the actual payment of each instalment.
(c) It was urged by Mr. Chundrigar, that the use of the word "the" before the words "date of payment or repayment" means the actual date of payment. In my view no such inference can be drawn from the language used in clause 6 of the agreement. If the words "on the date of payment or repayment" are to be read with clause 1 of the agreement and Schedule 11 thereto, it becomes clear that it refers to the due date and not the date of actual payment.
(d) It was also urged by Mr. Chundrigar that according to the view found favour with my learned brother, Naimuddin, J. The aforesaid principle is subject to an express agreement between the parties and that in the instant cases there is an express agreement contrary to the above principles and, therefore, neither the aforesaid judgment dated 12-8-1979 given by my learned brother Naimuddin, J. In Suit No, 312/71 nor the aforesaid cited English, Indian and Pakistani cases are applicable to the present cases. In my view there is no provision in the loans agreements in question from which a contrary agreement to the above well-established principle can be inferred.
33. However, I am not inclined to subscribe to Mr. Hyder Mota's contention that the material rate of exchange for the purpose of converting foreign currency into Pakistani rupee should be the rate of exchange prevalent on the date of the loan agreement. The above contention of Mr. Hyder Mota is not only in conflict with the above well-established principle, but it is also contrary to clauses 1 and 6 of the agreement read with Schedule II thereto. Mr. Hyder Mota has also relied upon section 4 (2) of the Foreign Exchange Regulation Act, 1947 (Act VII of 1947), in support of his above contention which reads as follows- "except with the previous general or special permission of (the State Bank), no person whether an authorised dealer or otherwise, shall enter into any transaction which provides for the conversion of (Pakistan) currency into foreign currency or foreign currency into (Pakistan) currency at rates of exchange other than the rates for the time being authorised by (the State Bank)."
34. ' In my view the interpretation which I am inclined to place upon, clauses 1 and 6 of the agreement read with Schedule II whereto, does not involve any violation of the above-quoted section as the rate of exchange for each instalment shall be the rate prevalent on the due date of payment, which would be in conformity with the aforesaid section.
(e) Mr. Hyder Mota has also urged that if the contention of Mr. Chundrigar will be accepted, the doctrines of frustration and of unjust enrichment would be attracted to. Since I am not inclined to accept Mr. Chundrigar's contention, it is not necessary to examine the above pleas in detail.
(ii) (a) After having dealt with the basic question I wish to take up the issues of the suits separately :
(b) Suit No, 261/74 ' Issue No, 1.-My finding on this issue is that the rate of exchange prevalent on the due dates of the payment of instalments are the material rate of exchange for converting foreign currency into Pakistani rupee.
35. ' Issue No, 2.-Mr. Chundrigar has filed a statement showing a sum of Rs, 4,52,002.88 outstanding as on 31-4-1974 on the basis of my finding on the aforesaid issue No, 1, but this is without prejudice to his contention that the I.D.B.P. Is entitled to claim on the basis of the actual dates of the payment. At the request of Mr. Naim-ur-Rehman the time was granted to enable the defendant to check up the above statement. On 20-1-1980, Mr. Naim-urRehman stated that he had no instructions contrary to the above statement. I accordingly pass a preliminary decree against the defendant No, 1 in form 5-A in Appendix D to the 1st Schedule and declare that Rs, 4,52,002.88 is due and payable to the plaintiff with 10 % simple interest thereon from 1-5-1974 till payment and cost to be paid within six months.
(12) Suits Nas. 287/74 and 460/74
(a) Issue No, 1.-Since the I. D. B. P. Has claimed the amount on the basis of the foreign exchange rate obtaining on the date of actual payment of each instalment instead of at the rate of foreign exchange prevalent on the due dates and as it has converted the alleged outstanding foreign currency amount of Japanese Yen into rupees on the basis of foreign exchange rate prevalent on 30-6-1974 and by doing so they ha se made various incorrect entries in the accounts. Further more, the I.D.B.P. Has also reversed the entries relating to the granting of local currency loan of Rs, 9,50,000, which amount was already adjusted towards the payment of certain instalments in respect of the foreign currency loan which in my view for the reasons discussed hereinafter under Issue No, 4, the I. D. B. P. Could not have done. Accordingly no finding on the above issue is in the affirmative.
(b) Issue No, 2.-In order to appreciate the above issue, it will be advantageous to refer to clause 5(iii) of the loan agreement Exh. 44 which reads as follows : "interest by way of liquidated damages at the rate of 2 % in the event of the borrowers(s) failing to pay, when due, "any instalment of the-principal of the loan/credit, interest, commission, or any other costs, charges and expenses which the borrower(s) is/are liable to pay under the agreement.
36. The interest payable under this sub-clause shall be computed for the period of default on the basis stated in sub-clause (ii) hereinabove."
37. ' It may be noticed that under clause 5(ii), the borrower is liable to pay 7-1/2% interest per annum on the loan amount which is on the low side and, therefore, the above provision for the payment of 2% penal interest as the amount of liquidated damages on the amount which is not paid in time as per agreement in my view is reasonable and no exception can be taken to it. However, the I. D. B. P.
38. Is not entitled to claim any penal interest in respect of those instalments which were paid in time, nor any penal interest can be claimed by wrongly converting foreign currency into Pakistani rupee on the basis of the rate of exchange prevalent on the actual dates of payment instead of at the rate of exchange obtaining on the due dates. My finding on this issue is that the I. D. B. P. Is entitled to claim penal interest only in respect of the instalments which were not paid in time.
(c) ' Issue No, 4.-It may be observed that in order to adjust the payment towards certain due instalments of foreign currency loan, the I. D. B. P. Had granted local currency loan to the borrower for Rs, 5 lacs on 29-f-1970 and,. This amount of the local currency loan was increased to Rs, 9,50,000 on 30-6-1971. It may be pertinent to mention that the above loan amount was credited in the account of the borrower and a debit entry in respect thereof was shown in the local currency loan account against the borrower. The above sum of Rs, 9,50,000 was adjusted towards the payment of the due instalments under the foreign currency loan agreement. This position was reflected in the I.D.B.P.'s letter dated 15-4-1972 Exh. 37 in which only a sum of Rs, 33,228.59 was shown as outstanding against the borrower in respect of the aforesaid foreign currency loan.
39. However, after the expiry of several months from the date of the devaluation of Pakistani rupee apparently an attempt was made by the I.D.B.P. To reverse the above adjustments by sending its letters dated 7-9-1972 and dated 12-9-1972 showing the outstanding amount in Japanese Yen as on 30-9-1972 and asking for confirmation of the above amount from the borrower. It has been urged by Mr. Chundrigar that the I.D.B.P. Was justified in reversing the above entries of adjustments for the reason that the borrower in question had failed and neglected to execute the required documents. On the other hand, Mr. Hyder Mota has invited my attention to Exh. 8 which is the borrower's letter dated 23-7-1971 forwarding 5 documents mentioned therein only executed. Mr. Chundrigar was unable to point out any other document on record to indicate that the I.D.B.P. And asked the borrower to execute any other document. It may be observed that there was a separate local currency account in respect of which separate slips showing local currency outstanding loan were issued. In my view the above reversal of the entries was not warranted by law inasmuch as the sole object in doing so seems to be to claim the outstanding amounts on the basis of post devaluation foreign exchange rate even in respect of those instalments which were due prior to the devaluation and against which adjustment from the local currency loan was made. My finding on this issue accordingly is in the negative.
(d) Issue No, 5.-Since I have held that the I. D. B. P. Is entitled to recover foreign currency loan amount on the basis of the foreign exchange rate prevalent on the due date of each instalment and not at the foreign exchange rate obtaining on the actual date of payment of each instalment in my view the above leave to sue has become redundant and there is no question of any frustration of the contract. My finding accordingly on the above issue is in the negative.
(e) Issue No, 6.-In order to appreciate the above issue, it will be necessary to refer to clause 6(111-A) of the agreement Exh. 43 which reads as follows "1/4% per annum to cover exchange rate risk after expiry of the loan period."
40. ' It may be noticed that the above meagre sum was provided to catch for the foreign exchange risk after the expiry of the loan period but it was not to cater for the variation in the rate of foreign exchange during the loan period. As I have held that the I. D. B. P. Is entitled to recover on the basis of the foreign exchange rate prevalent on the due date of each instalment the above clause 5(111- A) does not affect my finding for the aforesaid reason. My finding on this is that the I. D. B. P. Is entitled to recover the loan amount on the basis of the foreign exchange rate on the due date of each instalment.
41. ( f) Issue No, 3.-Before recording any finding on the question of quantum of amount payable by the borrower to the I. D. B. P. It may be observed that the I. D. B. P. Has filed its suit for the recovery of Rs, 43,42,373.71 on the assumption that no amount was outstanding in respect of the local currency loan as credit and debit entries in respect of the above local currency loan were reversed by the I.
42. D. B. P. After the devaluation of Pakistan rupee. It was submitted by Mr. Hyder Mota that as the foreign exchange loan account and local currency loan account were separate, the I.D.B.P. Cannot be awarded any amount in respect of the local currency loan account as no claim has been made in respect thereof in Suit No, 460/74: However, when it was pointed out to Mr. Hyder Mota that the above plea of the borrower was a technical plea and was intended to defeat a genuine claim, he did not press the above objection. Even otherwise, in my view the above objection was untenable inasmuch as the borrower itself has filed Suit No, 287/74 for accounts, and, therefore, the above suit will cover all the transactions between the I. D. B. P. And the borrower and since both the suits are being tried together, the above objection loses its significance. It may be observed that in a suit for accounts each party is plaintiff as well as defendants.
43. ' It was also urged by Mr. Hyder Mota that the mortgage in question only covers a sum of Rs, 18,78,000, but whereas I. D. B. P.'s suit's claim is much more than the above amount and, therefore, a suit under Order XXXIV on mortgage for the entire amount is not competent. In my view the above objection has also no merit as the equitable mortgage in question was created with the object to provide a security in respect of the outstanding loan amount whatsoever irrespective or its quantum. The local currency loan was also sanctioned inter alia on the condition that the existing security would also be the security for the above local currency loan.
44. ' As regards the quantum of the amount if any, payable by Messrs Nishat Chemical Industries to the I. D. B. P, it may be observed that there was a controversy on the question as to whether the rupee amount was to be calculated with reference to the foreign exchange rate of Japanese Yen or with referenee to U S $. The I. D. B. P. Had calculated the rupee amount with reference to the rate of exchange of Janse Yen, whereas the coextension of Mr. Hyder Mota was that the amount should have been calculated with reference to the rate of exchange of U. S. f. The answer of the above controversy is provided in the above-quoted clause 6 of loan agreement Exh. 44, which provides that the rupee amount is to be calculated with reference to U S $ Mr. Chundrigar, the learned counsel for I.D.B.P. Has filed a statement of account on 13-2-1980 indicating the rupee amount payable on 3 different basis, including on the basis of the foreign exchange'rate of U S $ obtaining on the due date of each instalment, which basis I am inclined to adopt for the reasons discussed hereinabove. According to the above statement a sum of Rs, 22.14,900.86 was due and payable as on 30-6-74. Mr. Hyder Mota has stated that he has no instruction to contradict the correctness of the above statement, though he had received the copy of the above statement in advance before it was filed in the Court on 13-2-80. I, therefofe, pass a preliminary decree in Suit No, 460/74 in Form 5-A in Appendix D to the 1st Schedule of the C. P. C. And declare that a sum of Rs, 22,14,900 86 is due and payable to the I. D. B. P. i,e,, the plaintiff in the above suit with 10% simple interest thereon from 30-6-74 till the payment and costs to be paid within six months since accounts have settled between the parties. Suit No, 987174 also stands disposed of and it is held that the plaintiff in the aforesaid suit is liable to pay to the defendant the aforesaid sum of Rs, 22,14,900.86.
(13) Before parting with the above discussion, it may be observed that Mr. Chundrigar had filed C.
45. M. A. 4353/79 on 23rd October, 1979, in Suit No, 460/74 for permission to tender additional evidence by sung some witnesses from the Karachi Stock Exchange and/or from the office of the Assistant Registrar, Joint Stock Companies, Karachi, in order to produce the copies of annual reports of the account of Messrs Nishat Chemical Industries. It may be mentioned that the evidence in the above case was concluded as far bask as on 18-10-78 and before the filing of the present application Mr. Chundrignar had filed an application on 23-8-79 C.M.A. 3105/79 for tendering additional evidence and for a direction to Messrs Nishat Chemical Industries Ltd., to produce the audited balance- sheets for the years of 1974 to 1979. I had disposed of the above application by an order dated 4-9- 1979, whereby I permitted the IDBP to bring on the record a loan agreement between the Government of Pakistan and the Japanese Creditor as Exh.
3. As regards the second prayer Mr. Hyder Mota had stated that the defendant-Company was not operating for quite some time and if the balance-sheets in question would be available, he would produce the same. However, after making efforts Mr. Hyder Mota stated that he was not in a position to file the above balance-sheets as he could not contact his client on account of the fact that the defendant-Company was not operating for quite some time. After that I. D. B. P. Has filed the present application.
46. ' In my view I cannot re-open the evidence at this stage after more than 1 years from the date of the conclusion of the evidence as no case has been made out. Furthermore, the I. D. B. P. Has not taken any plea in the plaint to the effect that the defendant-Company admitted/acknowledged its liability in the balance-sheets on the basis of the interpretation of the loan agreement which the I.
47. D. B. P. Intends to place upon it. Even otherwise the point in issue is the interpretation of the relevant clause of the loan agreement, which can be done without referring to any balance-sheet. I am therefore, not I nclined to grant the above application and hence the same is dismissed.