UMAR ATA BANDIAL, J.---This is a suit for recovery of Rs.57.924 million arising out of export finance provided by way of FAPC extended by the plaintiff bank to the defendant No.1 ("defendant/company") under an agreement of finance dated 6-1-2003 when the underlying security documents were executed including, inter alia, demand promissory note, facility agreements, letter of hypothecation, continuing corporate guarantee by the defendant company and joint personal guarantee of the defendants Nos..2 to 5. The plaintiff bank was also given registered and equitable mortgages on four properties belonging to the defendants Nos.6 to.
9. The FAPC facility was renewed on 6-1-2004 and thereafter again on 6-1-2005 when corresponding agreements of finance were duly executed along with other security documents of the type referred above.
Additional security documents by way of cross-corporate guarantee by the defendant No.9 was taken on 6-1-2004 and again on 6-1-2005. The defendant company failed to repay the said facility wherefor, according to the statement of account filed with the suit its outstanding liability on the principal account as on 23-2-2006 is Rs.50.0 million and on the mark-up account is Rs.7.924 million.
2. Learned counsel for the defendants submits that his PLA is filed on behalf of all 9 defendants. He objects that the security documents filed by the plaintiff bank have been executed without authority of the defendant company and that the defendants Nos.5, 7 and 8 have been roped into the suit unlawfully and fraudulently. For this purpose he relies on the commitment letter dated 4- 12-2003 by the plaintiff bank wherein the properties of the aforesaid defendants are not listed as securities. He adds that according to the statement of account the principal amount of the facility was fully adjusted by the defendants as reflected by credit entry therein of Rs.50.0 million on 10-1- 2005. Consequently, there is nothing outstanding against the defendant on the principal account.
With reference to accretion of mark-up liability, learned counsel refers to a calculation sheet dated 6-4-2006 prepared by his Chartered Accountant and attached to the PLA showing that rather than the claimed accrual of Rs.9.772 million as mark-up on the facility availed, the actual liability of the defendants in respect of mark-up is Rs.8.547 million. Consequently, an amount of Rs.1.224 million is alleged to have been charged as excess mark-up in the statement of account. Therefore, it is prayed that the liability of the defendant company on account of mark-up be reduced to that extent.
3. The pleas taken by the learned counsel for the defendants admit the sanction and availment of the facility claimed in the suit. The first objection is that securities outside the scope of the bank commitment letter dated 4-12-2002 have been wrongly alleged in the suit. That objection fails to account for two things. First, that the respective security creating instruments are executed by the defendants and no substantial ground to dislodge the said documents has been given in the PLA.
Secondly, that the commitment letter relied cannot operate to prevent a creditor bank from improving its security position. The other objection by the learned counsel for the defendants about entries in the statement of account seems somewhat more credible. He asserts that the bank's claim has been settled to the extent of the entire principal amount as reflected in the bank's statement of account. Learned counsel for the plaintiff-Bank was asked to explain these contents, in particular the last two entries, which record as follows:-- Debit Credit Balance 10-1- 2005Loan adjusted against FAPC-1 own Source50,000,000.000.00 10-1- 2005Loan allowed against FAPC-I own source50,000,000.00 50,000,000.00
4. The learned counsel for the bank was asked to explain the expression "Loan adjusted against FAPC-Own Source" used in the first of the foregoing entries because it seemed ambiguous. He submits that the defendants entered the third agreement of finance on 6-1-2005 pursuant to which Rs.50 million were credited to the account of defendant company by the first of the foregoing entries. As a result, the outstanding balance was cleared resulting in nil liability as shown in the last column of that entry. However, because of the said fictional adjustment, simultaneously a corresponding debit entry of Rs.50.0 million was also entered in the account statement on 6-1- 2005, to offset the new facility. This has caused the renewed outstanding liability of Rs.50.0 million in the principal account. In essence the two back to back entries of Rs.50.0 million are book entries that do not reflect actual transactions or receipts, by the bank. Accordingly, the defendants have not adjusted their principal account liability, which remains outstanding as before. The plea taken by learned counsel for the defendants in this behalf is therefore, a non-starter.
5. There are other 'important consequences of the said entries in the statement of account. It shows that the finance agreement dated 6-1-2005 is meant only to prolong the repayment period of finance extended under the previous finance. Agreement dated 6-1-2004. The statement of account makes plain that the finance agreement dated 6-1-2005, does not reflect an actual financial transaction. However, its effect is to extend accrual of mark-up upon a transaction done under an earlier agreement by making resort to a book entry in the statement of account rather than upon performing a transaction in goods. Now the mark-up accruing under the finance agreement dated 6-1-2005 is claimed to be Rs.6.7 million, which has accrued during the default period of the defendant company during which the bank exercised forbearance to sue. Such accrual of mark- up is therefore, for a period past and beyond the bona fide facility period. The same constitutes mark-up on mark-up; it is contrary to law and must be struck down. After making the foregoing deletion in the plaintiff bank's claim, there is nothing in the PLA disclosing a substantial question of law or fact. Accordingly, this PLA by the defendants is dismissed.
6. As already noted above the principal amount of Rs.50.0 million remains outstanding against the defendant company and defendants Nos.2 to 9, its sureties and encumbrancers, for payment.
However, the said defendants owe Rs.7.924 million less Rs.6.7 million, that is Rs.1.224 million as their modified liability on account of outstanding mark-up. Accordingly, judgment and decree in, the amount of Rs.51.224 million along with cost of funds and costs is passed against the defendants jointly and severally.