SYED HAMID ALI SHAH, J.---The case of plaintiff as set out in the plaint, is that defendant No.9 requested Head Office of the plaintiff (at Dubai) for financial assistance and in response thereto two letters of credit were established; that Letter of Credit bearing No.170440-002 (Exh.PW-2/2) was opened on 12-7-1995 of the value of US$ 11,85,000, the beneficiary thereof was defendant No.1; that second letter of credit (Exh.PW-2/3) was opened on 18-2-1996 for US $ 5,79,080.00 and the beneficiary was defendant No.1; that amounts of L.C. Were allowed to be drawn against the pledge of cotton yarn to the extent of 90% of pledge value; that defendants executed letters of pledge dated 20-7-1995 (Exh.P.W.2/12), dated 18-3-1996 (Exh., P.W.2/13), dated 29-3-1997 (Exh.P.W.2/14); that earlier letters of pledge were consolidated resultantly consolidated letter of pledge was executed on 29-3-1997; that defendants Nos.2 and 3 were authorized vide resolutions of the company (Exh.P.W.2/15 and Exh.P.W.2/16) to negotiate financial arrangements and sign the documents; that defendants Nos.2 to 8 signed letters of personal guarantee on 7-5-1995 (Exh.P.W.2/5 to Exh.P.W.2/10), the executants were thus liable severally and jointly, for the liabilities of defendant No.1; that stocks were lying in the godown of Golden Juice and reports in this respect were submitted periodically until 31-3-1998 which reflected that 8625 cotton bales and 255 cotton yarn bags of pledged stocks were lying in the godown; that Muccadams namely Harvest Services (Pvt.) Ltd. Informed on 8-5-1998 that defendants have declined to sign the stock report; plaintiff while responding instructed Muccadams to stop removal of stock, if any. It was subsequently found that no stocks existed: that defendant No.1 illegally denied the existence of any loan facility; that defendant No.1 being borrower is liable to pay the liability as per terms of letter of credit; that outstanding liability as per books and accounts of the plaintiff is Rs.75,857,816.31.
2. Defendants contested the suit, sought the leave to defend the suit, through filing the P.L.As.
Nos.110, 111 and 112 of 1998. Leave was granted on 17-11-2000. Defendant No. 1 to 6 and 8 have submitted joint written statement while defendants Nos.7 and 9 submitted written statements separately. The averments of the plaint were controverted and various preliminary objections were raised. It was asserted in the written statements that defendant No.1 is only beneficiary in letters of credit and in case of any liability, the recourse is only against defendant No.9, on whose request the letters of credit were opened. Banker-borrower relationship was denied. It was asserted that the letter of pledge was signed for the benefit of importer abroad and goods subject-matter of letters of credit were dispatched as per terms of letter of credit, which were received by defendant No.1, under "red clause" letter of credit.
3. Nine (9) issues were framed out of divergent pleadings of the parties, on 7-2-2001, which are reproduced as under:--
(1) Does the Court has jurisdiction over defendant No.9? OP Parties.
(2) Has the plaint been instituted and verified authorized person? OP Parties.
(3) Does Mashreq Bank PSC, Dubai qualify as a "Banking Company" as defined in the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997? OP Parties.
(4) Did the plaintiff extend any loan facility and, it yes, to whom? OPP
(5) Are defendants Nos.1 to 8 guarantors of the loan claimed to have been advanced by the plaintiff? OPP
(6) Did defendant No.1 authorize obtaining of the loan, subject-matter of the suit? OPD.
(7) Could the plaintiff have advanced any interest be ring loan to any of the defendants? OPP.
(8) Is defendant No.1 holding company of defendant No.9, and if yes, then what is the legal effect thereof? OPP.
(9) Relief.
Evidence of the parties was recorded, plaintiff examined four witnesses and produced (Exh.P.W.1/1 to Exh.P.W.1/139 and Exh.P.W.2/1 to Exh.P.W.2/22). Defendants examined four (4) witnesses, their documentary evidence comprises of Exh.D.W.1/1, Exh.D.W.2/1, Exh.D.W. 1/3 to Exh.D.W. 1/12 (under objection) besides Exh.D.W. 1/1-1 and Exh.D.W. 4/A were produced.
4. Learned counsel for the plaintiff has contended that two letters of credit were established on the request of Golden Gulf/defendant No.9, on 2-7-1995 and 18-2-1996 by the Head Office of the plaintiff bank, whereby the defendant No.1 was beneficiary. The amount of the letter of credit was to be withdrawn against pledge of raw cotton or cotton yarn, as per condition No.4 of the letter of credit. Letters of pledge dated 20-7-1995, 18-3-1996 (Exh. D.W. 4) and 24-3-1999 (Exh.R) were executed to comply with aforementioned condition No.4. According to letter of pledge dated 24-3- 1999, 8625 raw cotton bales and 255 cotton yarn bags were pledged, which according to stock report dated 28-2-1998 (Exh.P.1/136 and Exh.P.W.1/137) remained at the godown of defendant No.
1. Defendants Nos.2 to 8, further secured the amount of pledge finance, through two sets of letters of personal guarantee dated 7-5-1995 and 29-3-1997. Execution of letter of pledge and furnishing of letter of guarantee by defendants Nos.2 to 8, make defendants liable for the payment of outstanding amount. Learned counsel has submitted that defendant No.9 is the holding company and defendant No.1, is its subsidiary which fact is evident from perusal of Exh.P/4 (the list of directors of defendant No.9). Learned counsel then referred to the resolution of the board of directors of company/defendant No.1 whereby it was resolved that stocks will be pledged with the plaintiff. He added that finance against pledge was an independent transaction, which stands proved through these documents. Learned counsel has referred to a document statedly a statement of account, which shows an amount of Rs.75,857,816.31 being outstanding amount, in respect of letter of pledge. Learned counsel has submitted that claim of the plaintiff based upon cogent evidence e.g. Letters of pledge, letters of personal guarantee and the statement of account.
Plaintiff is thus entitled to a decree.
5. Learned counsel for defendants Nos.1 to 8, on the other hand, has explained about transactions between the parties, which according to him, is based on two letters of credit, opened by defendant No.9. The amounts disbursed to the defendant No.1 were, on the request of opener of letter of credit. The importer abroad/defendant No.9 in order to ensure dispatch of goods, made the letter of credit conditional. He added that the correspondence as well as agreement between defendant No.1 and defendant No.9 reveals that pledge was created at the desire of defendant No.9. Learned counsel has submitted that three statements of accounts are annexec with the plaint and each shows a "NIL" balance. This suf iciently proves that no amount was outstanding against the defendant. Learned counsel states that admittedly, the amounts disbursed are subject matter of Red Clause letter of credit, therefore, a beneficiary in such transaction is not personally liable. Learned counsel has submitted that export proceeds have been realized by consignee/defendant No.9. It was contended that letters of personal guarantee relate to agreements dated 7-5-1995 and 29-3-1997. These agreements have not been produced deliberately, as they do not relate to the instant transaction. Learned counsel has contended that balance sheets of defendant No.1 Exh. D.W. 1/7 to D.W.1/12 do not reflect the existence of any loan. It was submitted by the learned counsel that suit has not been instituted, in accordance with law, Only one power of attorney has been produced, while power of attorney available on record, provides that the attorney jointly with another attorney can act on behalf of the bank. Learned counsel vehemently contended that all the outstanding amounts were adjusted and there is no proof on record that defendant No.9, is holding company of defendant No.1. Learned counsel for defendant No.9 has submitted that nothing is outstanding against the plaintiff. D.W. 2 in his affidavit has asserted that all amounts subject matter of LC have been adjusted. The witness was not cross-examined in this respect. Failure of plaintiff to cross-examine, on particular assertion proves the stance of defendant No.9 that amounts of LC stood adjusted. Learned counsel has submitted that defendant No.1 and defendant No.9 are not sister concerns.
6. Heard learned counsel for parties and perused the record.
7. The parties are not at variance so far as the question of establishment of two letters of credit Exh.P.W.2/2 and Exh.P.W.3/3 are concerned and the contents thereof; the letter of credit being red clause letter of credit, execution of letters of pledge and the letters of guarantee; availability of pledged up to 31-3-1998, disbursement of amount under letters of credit and the rights and obligations of parties arising out of letter of credit. Main dispute between the parties pertains to existence or otherwise of any loan facility between plaintiff and defendant No.1. Issue No.4 was framed in this respect, which I will take up first. Issue No.4.
Plaintiff claims that letters of credit contain condition No.4, which provides for drawing of letter of credit by the beneficiary against pledge of raw cotton or cotton yarn. Defendant No.1, accepted the condition and executed letters of pledge and to secure the said amounts defendants Nos.2 to 8 have furnished their personal guarantees (P W.2/5 to P.W.2/10). Defendant No.1 being company, approved the availing of finance on basis of pledge of stock, through resolution of its board of Directors. But the assertions of the plaintiff are not supported by any documentary evidence. P.W.2 Muzaffar Abbas, Operations Manager in the course of cross-examination, has admitted that there is no sanction letter on A record about the disbursement of loan, against pledge of stocks and letters of personal guarantee of the Directors. He has also admitted that there is no finance agreement between the plaintiff and defendant No.1 nor a promissory note. Crossexamination of P.W.2 shows that all the material documents are not in existence. Letters of pledge i.e. Exh.P.W.2/11 to Exh.2/ 13 are executed on the basis of agreements dated 20-7-1995, 18-3-1996 and 29-3-1999.
Letters of pledge, are thus not independent agreements. Letters of pledge dated 20-7-1995 start with following words:-- "In consideration of your having at my/our request entered into an agreement dated 20-7-1995 with me/ us/Messrs Farooq Habib Textile Mills Ltd. (hereinafter referred to as "the customer"), I/we do hereby pledge....... "
When a specific question in this regard was put to witness/P.W.2, he admitted that agreements mentioned in the letters of pledge were not filed with the plaint. These agreements were not even subsequently produced in evidence. Similarly, letters of personal guarantee are also based on agreements dated 7-5-1995 and 29-3-1997. These agreements have also not been produced.
Three statements of account have been filed with the plaint, namely (Special Deposit Account)
Exh.P.W.2/17, (Current Account) Exh.P.W.2/18 and Cash Finance) Exh.P.W.2/ 19, each shows a NIL balance. Plaintiff in order to prove the outstanding amount i.e. Suit amount, heavily relied upon letter dated 11-6-1995 by defendants Nos.2 to 6 (Exh.P.W.2/20) as well as, an undated statement on letterhead of the bank, showing outstanding amount of Rs.78,758,816.13 . In respect of two letters of credit wherein defendant No.9 has been shown customer, and defendant No.1 as beneficiary/ surety. The letter of pledge was statedly executed to comply with condition No.4 of the letter of credit. The condition of pledge on stock also exists in agreement of supply of yarn (Exh.D.W. 1/3), which was conveyed to defendant No.1 through letter dated 28-6-1995 (Exh.D.W.1/5). Agreement regarding pledge of stock and personal guarantee, are not supported by a statement of account.
No statement of account is available on record, showing amount in respect of pledge is outstanding. Statements of account filed with the plaint do not reflect the true picture. Contractual obligations of the defendants, in respect of pledge of stocks and personal guarantees, can be fixed only on the basis of agreements, which are mentioned in letters of pledge/guarantee. The agreements C are not available and surprisingly were not, produced by plaintiff. In the absence of these crucial documents defendants cannot be burdened with any responsibility. The statements of D.W.1, in this regard are unrebutted.
8. Adverting to the contradictory stance of the parties regarding the existence of loan facility. The creditor bank, can establish the existence of a valid loan facility, by bringing on record, the application for loan facility, sanction letter, agreement of finance and statement of account showing the entries of debit and credit and disbursement of amount of finance. All the relevant factors in the instant case are missing. P.W.2 has admitted the fact that loan application, sanction advice and agreements of finance have neither been filed with plaint, nor produced in evidence.
Letters of pledge are not independent agreement but have been executed on basis of certain agreements, which are specifically mentioned in the letters of pledge. These agreements, are not available. The witnesses of the plaintiff have deposed nothing about these agreements and plaint is also silent in this respect. All the three statements of account, which have been produced in evidence, show Nil balance.
9. A detail of accounts, on the letterhead of the plaintiff bank, has been filed with the suit, which reflects that defendant No.9 is customer and defendant No.1 is beneficiary/ surety. Relevant part of this statement is reproduced hereunder:-- Balance Balance LC Number Dated Amount in Amount in US Dollars Pak Rupees 170440-002 12-7-1995 1,152,456.71 50,823,340.91 170440-003 14-02-1996 635,702.39 28,034,475.40 Total 1,788,159.10 78,857,816.31 The above statement has no evidentiary value for various reasons: Firstly the above statement has not been produced in evidence and secondly it cannot be termed as statement of account as it lacks the element of debit and credit entries; account profile; levy of mark-up periodically and the balance in the relevant column. Such statement/showing entries of debit balance, has been held by a learned Division Bench of this Court, in case of "C.M. Textile (Pvt.) Ltd. And 5 others v.
Investment Corporation of Pakistan" 2004 CLD 587, merely a Banking Company's certificate of balance, it was held by the learned Division Bench that such certificate cannot be termed as statement of account. It was held by a learned Division Bench of this Court in the case of " Messrs United Dairies Farms (Pvt.) Ltd. And others v. Untied Bank Ltd." that to charge a person with liability, the entries in the statement of H account must have corroboration.. Statement by all means should possess the clarity, details and completeness. A decree by the Banking Court was set aside in the case of "ICEPAC Limited and 2 others v. Pakistan Industrial Leasing Corporation Limited" 2005 CLD 1186, where the learned Banking Court ignored that the statement of account was sketchy, brief, devoid of details, contrary to law and not indicating disbursement of amount. The certificate pertains to the balance of amount of letter of credit and pot of finance on the basis of pledge. A suit without a statement of account is not competent and plaint, which is not supported by a statement of account merits rejection, according to section 9 of Financial Institutions (Recovery of Finances) Ordinance, 2001, Cases of "Bankers' Equity Ltd. And others v. Messrs Bentonite Pakistan Ltd. And others" 2003 CLD 931; "Yousaf v.
A.D:B.P. 2002 CLD 1270) and "Messrs C.M. Textile Mills Ltd. And others v. Invest Corporation of Pakistan" 2004 CLD 587 can be referred, in this respect.
10. The emphasis of the plaintiff to prove existence of finance was, on letter dated 11-6-1995 (Exh. P.W.2/20) wherein the Chief Executive of defendant No.1 has admitted drawing of sum of Rs.5,553,579. Defendant No.1 has, in this letter, acknowledged that amount of Rs.83,744,495 was drawn. The letter does not show the admission, on the part of defendant No.1, about its liability towards plaintiff. It is stated in the letter that amounts received, are against red clause L.C. The letter has no value. The opening Bank in the letter of credit, containing red clause, advises the advising bank to grant advance payment to the exporter to enable him to produce the goods or raw material for preparation of exportable items for shipment.
The advising bank then reimburses itself by negotiating the documents by the exporter. If beneficiary fails to ship the goods or fails to present documents or otherwise fails to repay the funds advance, the advising/confirming bank will write to issuing bank for reimbursement of the amounts advanced. Documentary credit according to Article 2 of Uniform Customs and Practice for Documentary Credits Letter (UCP 500) is an offer whereby issuing bank on the request of applicant authorizes another bank to effect payment, accept and pay bills of exchange or negotiate document, provided the terms and conditions of credit are complied with. In other words the buyer (the applicant of credit) applies to a bank in his country (the issuing bank) to open and issue in favour of seller (the beneficiary) a letter of credit to pay the beneficiary such amount on his fulfilment of the terms and conditions specified in the letter of credit. The banks involved in the transaction, are agents of the parties and charge their commission for the services they render. It is settled principle that in the documentary letter of credit, the banks deal in documents and parties deal in goods. Guttridge in his book "The Law of Bankers Commercial Credits (1962 Edition)" has expressed "the normal transaction of documentary credit is fundamentally a contract by which a payment is to be made in exchange for documents. It embodies three . Agreements to which parties are:--
(a) The buyer and issuing bank.
(b) The issuing bank and intermediary bank.
(c) Intermediary bank and beneficiary. The evidence available on record shows that transaction between the parties is disbursement of amounts on the basis of two letters of credit. The nature of letter of credit is "Red Clause". Defendant No.9 is buyer, on whose request the issuing bank has established letters of credits in favour of beneficiary. CLD Plaintiff being corresponding bank, instead of approaching the advising bank/issuing bank, has instituted the instant suit, basing its claim on finance against pledge of stock.
11. The letter of pledge being executed as condition precedent for the establishment of letter of credit, on the desire of applicant (importer abroad) to secure the shipment of goods purchased.
The pledge is not an independent agreement nor a security for loan facility of the plaintiff.
Defendant No.1 has proved this fact through Exh. D.W.1/1 to Exh.D.W.1/12 and additionally through un- rebutted statements of the witnesses. The goods subject matter of L.C., were exported to foreign buyer which fact stands proved through export proceeds realization vouchers i.e. Exh. P.W.2/D-2 and Exh. P.W.2/D-3. The plaintiff on the contrary has failed to produce agreement of finance, other agreements which were made basis of letters of pledge and letters of personal guarantee. The plaint is not supported by the statement of account. There is no statement of account, showing disbursement of finance, on the basis of letter of pledge. Plaintiff has failed to prove this issue, which is accordingly decided against it. I, therefore, conclude that the plaintiff has not extended any loan facility to the defendant No.1 on the basis of pledge of stock. The real transaction is payment under two letters of credit, of which plaintiff is corresponding bank and defendant No.1 is beneficiary. In such transaction, if any amount remains to be recovered, it is recoverable from advising' bank.
12. Now I will take up Issue No.5. Plaintiff claims that defendants Nos.1 to 8 have executed letters of personal guarantee to secure the loan advance to defendant No.1, on the basis of pledge of goods.
Letters of personal guarantee are Exh.P.W.2/5 to Exh.P.W.2/11. The letters of personal guarantee show that on the basis of agreement dated 7-5-1995 a sum of Rs.62,649,315 was secured through personal guarantee and another sum of Rs.62,154,400 was secured on the basis of agreement dated 29-3-1997. Both the agreements (i.e. Agreement dated 7-5-1995 and 29-3-1997) have neither been filed, nor the witnesses of the plaintiff have stated anything at all about these agreements. Plaint is also silent in this respect. P.W.2 has admitted that these agreements have not been filed by the plaintiff. Section 134 of the Contract Act, 1872 envisages that the liability of guarantor is co-extensive with that of the liability of principal borrower. The guarantor is liable, as long as the claim against the principle debtor survives. The amount of Rs.6,649,315 is guaranteed qua the Q agreement dated 7-5-1995. Plaintiff has neither filed the agreement nor the statement of account in this regaru. The plaintiff has failed to prove that amounts subject matter of agreements mentioned in the letters of guarantee, are still outstanding.
Conversely there is no proof on record to show that letters of guarantee are furnished to secure the loan subject-matter of the suit. Plaintiff has failed to prove the issue. The issue is decided in favour of defendants and against the plaintiff.
12. I will now proceed to decide Issues Nos.1, 6, 7 and 8. In view of my findings on Issue No.4, these issues have become redundant and decision in this respect would only be of academic discussion.
13. Coming to Issue No.2, the plaint has been signed by two officers of the plaintiff bank and power of attorney on behalf of these officers of the bank, are already on file. The suit is properly instituted.
Resultantly issue is decided in favour of the plaintiff.
14. Relief. In view of my findings on Issues Nos.4 and 5, the plaintiff has failed to prove its case.
Resultantly the suit merits dismissal, which is hereby dismissed, with no orders as to costs. revisions by the competent authorities. Therefore, it is advisable to consult the official sources or legal professionals for the most up-to-date and accurate information.