1. FAISAL ARAB, J.---In the present execution application, the decree-holder seeks recovery of Rs.21,925,002 along with Rs.479,444.48 as mark-up accrued thereon uptill 30-4-2003. This amount of Rs.21,925,002 remained unpaid from the decretal amount of Rs.34,525,000. The decree-holder has also sought further mark-up at the rate of 20% per annum on the outstanding amount of Rs.21,925,002 with effect from 1-5-2003.
2. Clause 2 of the compromise agreement which was embodied in the compromise decree, provides that in case the decretal amount or any part thereof remained unpaid beyond the period stipulated under the compromise, the judgment-debtors shall be liable to pay mark-up at the rate of 20% per annum. The judgment-debtors have questioned the legality of Clause 2 of the compromise agreement. It is their case that mark-up at the rate of 20% per annum is highly exorbitant, violative of the banking laws and therefore it is either not to be enforced at all or at best it is unreasonable and liable to be revised downward as envisaged under section 74 of the Contract Act.
3. In order to examine the legality of Clause (2) of the compromise agreement it is necessary to examine the entire background of the transaction of finance entered into between the parties. In 1994 Judgment-debtor No.1 availed a financial facility of Rs.30,000,000 from the decree-holder on mark-up basis. The buyback price was settled at Rs.52,582,869. The remaining judgment-debtors stood guarantors. The financial facility was availed by the judgment-debtor No.1 on 9-1-1995. The repayments were to be made in 9 quarterly instalments cbmmencing from 1-10-1995 and ending on 1-10-1997. Within the stipulated period, the judgment-debtor No.1 made one payment of Rs.5,000,000 only and that too as late as 1-9-1997 i.e. When the time for repayments was about to expire. Thereafter, over a period of next two years i.e. Upto 24-10-1999, the judgment-debtor No.1 paid a further sum of Rs.3,000,000 in various instalments. In all, a total sum of Rs.8,000,000 only was repaid by judgment-debtor No.1 uptill 24-10-1999 as 'against the contractual liability of Rs.52,582,869. As the judgment-debtor No.1 failed to honour its contractual obligations under the agreement of finance, the decree-holder filed Suit No.1376 of 1999 on 16-9- 1999 in this Court seeking recovery of Rs.55,709,942.
4. During the pendency of the suit, parties settled their dispute amicably. The decree-holder gave up its claim raised in the suit and agreed to settle for Rs.34,525,000. On 17-12 2002 the suit was decreed in terms of the compromise. The compromise agreement, which was embodied in the decree, provided for repayment of Rs.34,525,000 in 6 instalments payable uptill 30-4-20Q3. In terms of Clause 2 of the compromise agreement, failure to repay any instalments in time entailed payment of mark-up at the rate of 20% per annum on the defaulted sum. Uptill 30-4-2003, when the time for repaymeht of the decretal amount expired, the judgment-debtor No.1 had paid a sum of Rs.12,599,998 only leaving a balance of Rs.21,925,002. The repayment schedule as per compromise agreement was not adhered ,to. On 29-5-2003, the decree-holder filed the present execution application seeking recovery of the outstanding amount of Rs.21,925,002 along with accrued mark- up at the rate of 20% per annum through sale of mortgaged properties. During the pendency of the present execution proceedings, the judgment-debtor No.1 paid' a further sum of Rs.11,447,401 in 31 instalments of Rs.369,271 each beginning from August, 2003 and ending on 17-1-2006. Under the directions of this Court dated 18-5-2006 a further sum of Rs.9,247,947 was deposited by Judgment- debtor No.1 with the Nazir of this Court on 16-9-2006.
5. Mr. Khawaja Shams-ul-Islam; learned counsel for the judgment-debtor argued that Clause 2 of the compromise application which provides for charging mark-up at the rate of 20% per annum is nullity under the provisions of the b in king laws. Mr. Khawaja Shams-ul-Islam elaborated his argument by submitting that as the decretal amount itself compiise of contractual mark-up therefore, award of mark-up on the decretal amount tantamount to granting mark-up upon markup and hence nullity under the banking laws. He therefore, submitted that Clause 2 of the compromise may not be given effect to and instead cost of funds as envisaged under section 3 CID of the Financial Institutions (Recovery of Finances) Ordinance, 2001 be awarded. He submitted that it is within the legal competence of an executing Court not to give effect to that part of the compromise decree which awards mark-up on decretal amount as the same is violative of the banking laws. In support of his argument, Mr. Khawaja Shams-ul-Islam has relied upon the judgment delivered by me in another execution proceedings (Habib Bank Limited v. Karachi Pipe Mills Limited) reported in 2006 CLD 842. In the said judgment, relying on cases reported in AIR 1927 Lahore 659; AIR 1933 Allah. 252; AIR 1938 Sind 185; AIR 1943 Sind 247: AIR 1943 Peshawar 33; AIR 1946 Sind 150; AIR 1977 MP 112 and AIR 1985 Punjab and Haryana 143, I had held that where any part of compromise decree is , a nullity in law, the executing Court shall not give effect to it. I shall now proceed to examine whether award of markup un der clause 2 of the compromise ,agreement is in violation of any applicable provision of law and therefore, unenforceable even by the executing.
6. Court. '
7. The mark-up awarded by a Banking Court on decretal amount under the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 should not be confused with -the mark-up chargeable under a buyback agreement. The award of mark-up by Banking Court in cases filed under 1997 Act on the decretal is a legal obligation independent of the contractual mark-up which a financial institution is entitled to charge its customer under a buyback agreement. Therefore, the award of mark-up by Banking Court on a decretal amount cannot be avoided on the ground that the decretal amount already contains the element of mark-up charged under a buyback agreement. No doubt BCD Circulars Nos.13 and 32 issued by State Bank of Pakikan in 1984 prohibit financial institutions from charging mark-up upon mark-up but such restrictions are in relation to the contractual obligations created under an agreement of finance.
8. Where recovery suit is filed under the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 then section 15 thereof empowers the Banking Court to award mark-up to a financial institution on the decretal amount from the date of the filing of the suit till the recovery of the- entire decretal amount. In this manner, in addition to the contractual obligation to pay mark-up that is determined when decree is passed, a legal obligation was-created upon a customer of financial institution to pay mark-up on the decretal amount from the date of filing of the suit till its recovery.
9. In the case of Habib Bank Limited v. Karachi Pipe Mills Limited cited by Mr. Khawaja Shums-ul-Islam, I have clearly laid down this distinction between the two kinds of mark-ups i.e. Contractual and legal and have held that award of mark-up by a Banking Court on the decretal amount has nothing to do with the mark-up payable under a buyback agreement. At pages. 1488-1489 of the judgment delivered in the case of Habib Bank Limited v. Karachi Pipe Mills Limited I held as follows:- - "Conscious of the restrictions imposed by BCD Circulars on the contracts executed by the financial institutions and its customers, the legislature on its part empowered the Courts to grant mark-up to the financial institutions over and above the contractual obligation of its customer. Under the provisions of Banking Tribunal Ordinance, 1984 the Court started awarding 210 days mark-up, an assumed period likely to be consumed towards conclusion of recovery proceedings as envisaged under section 6(6) of the 1984 Ordinance. The Banking Tribunal Ordinance, 1984 thus created a 'legal obligation' whereby the Court started awarding 210 days mark-up to the financial institutions along with the decretal amount. Thus on the one hand, BCD Circulars Nos.13 and 32 regulated contracts executed between a financial institutions and its customer by circumscribing the period beyond which mark-up could not be charged and on the other hand, the Banking Tribunal Ordinance 1984 empowered the Courts to impose-a legal obligation to pay 210 days mark-up over and above the contractual obligation: In this manner the financial institutions were compensated to certain extent for the delays caused in recovery of it's struck up finance.
10. When this new system of financing functioned for about 13 years, the Legislature in 1997 took note of the fact that 210 days mark-up was not sufficient to compensate for the period consumed in the recovery proceedings as in most cases recovery proceedings used to Lake considerable period of time. Thus in 1997 Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 was enacted which empowered the Courts to grant mark-up beyond the 210 days limit. The 1997 Act allowed the Courts to award mark-up for the entire period that was consumed in the recovery proceedings. Section 15(1)(b) of the 1997 Act allowed the Banking_ Courts to grant mark-up from the date of institution of the suit till the entire decretal amount was recovered."
11. Thus under the previous two repealed laws there were two stages at which mark-up was lawfully charged. First, the contractual mark-up termed as contractual obligation charged for the contractual period and , the other termed as legal obligation chargeable on the decretal amount.
12. Both cannot be confused with each other as the right to claim each of these arises independently under separate provisions of banking laws. In the present case when Suit No.1376 of 1999 was filed from which the present execution proceedings have arisen, the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 was in operation. However, when the compromise decree was passed on 17-12-2002 the Financial Institutions (Recovery of Finances) Ordinance, 2001 was in operation. Therefore, the next question which needs to be examined is whether in the present proceedings the legality of charging mark-up on decretal amount is to be examined on the basis of the law that was in force on the date of filing of the suit or the law that was in force at the time of passing of the compromise decree. New laws are generally prospective, not retrospective in their operation and do not affect pending cases so as to impose new duties or attach new disabilities. Of course the matters of procedure are different, as laws affecting procedure are always retrospective. However, where new law intends to take away vested rights or intends to creates new disabilities or obligations, it has to be in language which expressly or through clear intendment takes away or affects such rights, obligations and disabilities. Maxwell in his book 'Interpretation of Statutes' (12th Edition) at page 220 has discussed the effect of new law to pending proceedings which alter the existing duties or alter the existing disabilities in respect of past transactions in the following terms:-- "In general, when the substantive law is altered during the pendency of an action, the rights of the parties are decided according to the law as it existed when the action was begun, unless the new statute shows clear intention to vary such rights."
13. I would now examine whether Financial Institutions (Recovery of Finances) Ordinance, 2001 has taken away the right to charge mark-up in terms of section 15 of the repealed Act of 1997 in cases which were instituted when the repealed 1997 Act was in operation and were still pending. When Financial Institutions (Recovery of Finance) Ordinance, 2001 was promulgated. Section 3(2) of Financial Institutions (Recovery of Finances) Ordinance, 2001, clearly makes a customer of a financial institution liable for any civil or criminal liabilities that he may have incurred under the contract or rules or any other law for the time being in force. Thus section 3(2) of the present law clearly preserves the rights of a litigant that already existed at the time of promulgation of Financial Institutions (Recovery of Finances) Ordinance, 2001. In the present case the recovery suit, from which the present execution application has arisen, was admittedly filed in 1999 when the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 was in force.
14. Section 15 of the said Act provides, for grant of mark-up on the decretal amount from the date of the filing of the suit till the recovery. That being so, the right to claim markup remained enforceable in the present case. Therefore, award of mark-up in the present case on the decretal amount within the scope of section 15 of the repealed Act of 1997 cannot be termed as a nullity in the eyes of the law. In view of the above discussion it has become ev lent that in a cases like present one, the prime consideration is to see what was the law that was in force at the time of filing the suit and notwithstanding its repeal during the pendency of the suit, such provisions of the repealed enactment which create rights, obligations and disabilities have to be given effect to. The right to claim mark-up arises when decree is passed. Therefore, it is to be next examined whether such right still remains enforceable though the law which permits charging of mark-up on decretal amount stood repealed at the time when the decree was passed in the present case. There are certain legal rights or legal obligations created under a statute that become enforceable only at the time when decision is given in a suit or proceedings. An example of such type of legal right is the right of appeal that accrues to a party only when a decision is given in a case. Similarly, an example of such legal obligation is the obligation to pay mark-up on the decretal amount that arises only when a decree is passed in a banking suit. If such legal rights and legal obligations existed under a law at the time of filing of the suit or proceedings, then notwithstanding the repeal of the law during the pendency of the suit or proceedings, they continue to remain enforceable even though a new law has come into operation. In PLD 1961 Supreme Court 523 it was held that by virtue of section 6 of the General Clauses Act, the proceedings which were filed and continued under a repealed law carried their own law with them i.e. They are to be decided under the law that was in force at the "time of their institution notwithstanding the repeal. In AIR 1957 SC 540 at page 553 paragraph 23, while discussing preservation of rights of a litigant in a pending matter it was held that right which has accrued to a litigant and exists as on and from the date when lis commenced, though it may be actually exercised when the judgment is pronounced, such right is to be governed by the law prevailing at the date of the institution' of the suit or proceedings and not by the law that prevails at the date of its decision. Even in the case of Habib Bank Limited v. Karachi Pipe Mills reported in 2006 CLD 842 on which much reliance is placed by Mr. Khawaja Shams-ul- Islam, at page 850 of the decision I refused to grant relief to the judgment-debtor after holding that notwithstanding the harshness of the repealed Act of 1997 which permitted award of mark-up in addition to contractual mark-up, the executing Court cannot extent the benefit of the new law by replacing the mark-up awarded by the Court under 1997 Act with the award of 'Cost of Funds' permitted under the Financial Institutions (Recovery of Finances) Ordinance, 2001 as this would amount to empower the executing Court to amend the decree. I held so because the award of mark-up by Banking Court on the decretal amount was lawful under section 15 of the repealed Act of 1997.
15. 1 would now examine Mr. Khawaja Shams-ul- second argument that award of 20% mark-up per annum under Clause 2 of the compromise agreement is penal in nature within the meaning of section 74 of the Contract Act and therefore, could be revised downward to a reasonable extent.
16. Section 74 of the Contract Act applies even to compromise decrees as the Court while decreeing a suit on the basis of a compromise, only records the compromise if its terms are lawful. A sum may have been named in a compromise agreement, which a party is required to pay in case it commits its breach. Such stipulation is not unlawful. However, the right to claim such named amount on account of breach of a contract is circumscribed by section 74 of the Contract Act. Section 74 provides that it is for the Court to determine what shall be the reasonable compensation not exceeding the amount named in the contract to be awarded for breach of a contract. Thus a judgment-debtor can raise an objection in an execution proceedings as to the extent any sum named in a compromise decree is to be paid on account of his committing breach of a term of the compromise. Such objection is well, within the purview of section 47 of Civil Procedure Code. In support of this opinion, I in the case of Habib Bank Limited v. Karachi Pipe Mills Limited relied upon the cases reported in AIR 1927 Lahore 659; AIR 1933 Allahabad 252; AIR 1938 Sind 185; AIR 1943 Sind 247: AIR 1943 Peshawar 33; AIR 1946 Sind 150; AIR 1977 MP 112 and AIR 1985 Punjab and Haryana 143. In one of these cases i.e. AIR 1933 Allahabad 252 Naimatullah, J. Of the Allahabad High Court while writing his separate opinion has articulated the application of section 74 of the Contract Act to compromise decrees as 'follows:- "Parties to every contract containing a stipulation by way of penalty have rights and are subject to obligations mentioned in section 74, which are part and parcel of every such contract which should be deemed to include a proviso, imported by S. 74, to the effect that the party complaining of the breach is entitled to' reasonable compensation not exceeding the penalty but is not entitled to enforce the penalty stipulated for' in the contract. Where such a contract is embodied in a compromise which recorded under Order XXIII,' rule 3, C.P.C., the, decree should be deemed to be giving effect to the compromise with the legal incident arising from section 74, namely, that the party complaining of the breach is not entitled to enforce the penal clause but is entitled only to reasonable compensation not exceeding the penalty stipulated for."
17. "What is reasonable compensation is to be determined whenever a dispute arises and the contract is sought to be enforced. The Court executing the compromise decree can only enforce covenants either expressly mentioned in the promise or therein implied from the legal incident attaching to the compromise on which the decree is based. In determining the compensation to which the party complaining of the breach of the contract is entitled the Court executing the decree is not going behind the decree. Its action may seemingly appear to amount to interference with the apparent tenor of the -decree. In reality however far from interfering with the 'decree the Court is giving effect to it in accordance with its real legal import."
18. To invoke section 74 of the Contract Act in the present case, it is necessary to first find what should be the rate of mark-up that ought to have been regarded as reasonable in the present case. To examine this is it necessary to find out what was the rate of mark-up which was originaly agreed between the parties as in terms of section 15(1) (b) of the 1997 Act markup on decretal amount could be legally granted to the extent it was originally chargeable under the agreement of finance.
19. In the circumstances I called for the suit file from which the present execution proceedings have arisen to examine this. The recovery suit was based on the agreement of finance dated 4-12-1994.
20. Admittedly under this agreement, the judgment-debtor .No.1 availed financial facility to the extent of Rs.30,000,000 and the buyback price was settled by the parties at Rs.52,582,869. The finance was availed on 9-1-1995. The buyback price was to be repaid in 9 quarterly instalments commencing from 9-10-1995 and ending on 1-10-1997. Thus the contractual period for utilizing the finance was about 33 months commencing from 9-1-1995 when Rs.30,000,000 were disbursed and ending on 1- 10-1997 when the last instalment of the buyback price was required to be repaid under the agreement of finance dated 4-12-1994. The component of mark-up for about 33 months duration under the agreement of 'finance was thus, Rs .22, 582, 869 (Rs .52, 582,869 minus Rs. 30, 000, 000 = Rs.22,582,869). The rate of mark-up under the agreement of finance works out to be more than 20% per annum which has been agreed under Clause 2 of the compromise agreement. In view of the fact that original rate of mark-up under the agreement of finance was even more than the mark- up settled under the compromise, there is no legal justification to treat mark-up rate of 20% to be contrary to the provisions of section 15(1)(b) of the. 1997 Act or penal in nature or even unreasonable. Thus I am constrained to hold that in the circumstances narrated above, the rate of mark-up settled under Clause 2 of the compromise agreement, being not more than what was provided originally under the agreement of finance dated 4-12-1994 cannot be termed as unreasonable so as to reduce it to any extent within the meaning and scope of section 74 of the Contract Act.
21. Now I shall proceed to determine the outstanding amount that is still due and payable against the judgment-debtor No.1. Out of Rs.34,525,000 agreed to be paid by 30-4-2003 under the compromise decree, the judgment-debtor No.1 with the stipulated period paid a sum of Rs.12,599,998, leaving a balance of Rs.21,925,002 as outstanding Nonpayment of this balance amount led to filing of the present execution application.
22. From August, 2003 to December 2006, the judgment-debtor No.1 paid 31 instalments of Rs.369,271 each. In all Rs.11,447,401 were paid in 31 instalments. This amount covers the entire mark-up on the outstand ig of Rs.21,925,002 calculated at the agreed rate of 20% per annum up to 31-12-2006. Thus on 1-1-2006 Rs.21,925,002 which was originally outstanding on the date of filing of the execution application continued to remain outstand: On 14-1-2006 the judgment-debtor paid a further sum of Rs.10,477,601. When this payment of Rs.10,477,601 is deducted from the outstanding amount of Rs.21,925,002, the outstanding balance as of 14-1-2006 is reduced to Rs.11,447,401. Then on 16-9-2006 a further sum of Rs.9,247,500 was deposited by judgment-debtor No.1 with the Nazir of this Court. At the same time mark-up on Rs.11,447,401 at the agreed rate from 1-1-2006 to 16-9-2006 works out to be Rs.1,526,320. Thus on 16- 9-2006 the total amount that was due stood at Rs.12,973,721 and after deducting Rs.9,247,500 that were deposited with Nazir on 16-9-2006 a sum of Rs.3,726,221 remained outstanding. On this outstanding amount of Rs.3,726,221 mark-up at the agreed rate upto 15-1-2007 i.e. The date of disposing of the present execution application works out to be Rs.248,415 making together a sum of Rs.3,974,636 as final outstanding amount as on 15-1-2007.
23. I therefore, hold that a sum of Rs.3,974,636 is still recoverable from judgment-debtor Nol. The judgment-debtor No.1 is directed to. Deposit Rs.3,974,636 with the Nazir of this Court within 15 days from today: In case this amount is not paid then the judgment-debtor No.1 shall be further liable to pay mark-up at the rate of Rs.2,070 per day for each day's delay until the entire outstanding amount of Rs.3,974,636 is recovered from the judgment-debtors. In case the outstanding amount is not paid within 15 days from today, Nazir shall immediately take steps to sell the mortgaged properties to effect recovery. Considering the quantum of the liability recoveries have' to be first made from the sale of assets belonging to judgment-debtor No.1 and only in case it is not sufficient to cover the outstanding amount that properties of the guarantors shall be sold. Nazir is also directed to immediately release to the. Decree-holder Rs.9,247,500 deposited by Judgment-debtor "No.1 in this Court on 16-9-2006.
24. This execution application stands disposed of along with listed-applications in the above terms.