ANWAR ZAHEER JAMALI, J.---This appeal under section 22(1) of the Financial Institutions (Recovery of Finances) Ordinance, 2001, is directed against the judgment dated 28-2-2006 and decree dated 2-3-2006, in Suit No.1027 of 2000, passed by the Banking Court No.V, at Karachi.
2. Facts leading to this litigation are that on 2-9-2000 appellant-Banks' predecessor National Development Finance Corporation had instituted a suit for recovery of Rs. 19,244,858.78 against the respondents. This suit was based on an agreement of finance executed between the appellant and the respondent No.1 on 29-1-1991, whereby the respondent No.1, based on other terms, had agreed to pay the marked-up price of Rs.62,137,000 in lump sum on or before 21-1-1994. Further case of the appellant, as per contents of the plaint, was that due to the financial difficulties faced by respondent No.1, at their request, the maturity date of such finance facility was extended for two years i.e. Upto 21-1-1996 and such supplementary agreement was executed on 28-2-1994, along with demand promissory note of the same date. Simultaneously respondent No.2-Bank, which had earlier furnished Bank guarantee to secure the finance facility extended to the respondent No.1, had also extended the validity of its Bank guarantee up to 21-1-1996. However, in violation of the terms of the finance facility the respondent No.1 paid only a sum of Rs.5,901,102 towards mark-up, administration fee, CED and commitment charges, but failed to pay a sum of Rs.718,174.44 in spite of repeated requests and demands.
3. The appellant due to default committed by respondent No.1 invoked the Bank guarantee issued by the respondent No.2, upon which respondent No.2 made partial payment of Rs.32.683 millions; which was adjusted as per details given in Para.9 of the plaint. In this manner a sum of Rs.33,829,442 was still outstanding againsi. The respondent No.1 as on 31-10-1997. According to the further case of the appellant after all adjustments of payments made by the respondents. a sum of Rs. 16,037,382.32 was outstanding against them as on 31-5-2000 and consequently suit for the recovery of such sum was instituted with additional claim of Rs.3,207,476.46 towards liquidated damages at 20% of the total outstanding dues.
4. After service of summons in the suit, an application under section 10 of the Banking Companies (Recovery of Loans, Advances, Credits and Finances)
Act, 1997 was submitted by respondent No.1 on 29-1-2001 before the Banking Court No.II at Karachi, seized of the matter. In this application the respondent No.1 had not denied availing of finance facility from the appellant-Bank as stated in the plaint, but had seriously questioned the rate of mark-up being charged by the appellant-Bank, which was in violation of the State Bank of Pakistan Circular No.2 dated 3-5-1987. The respondent No.1 had further averred that it was due to heavy financial losses suffered by them, and general slump in the textile market that extension in the period of finance facility availed by the respondent No.1 was sought, which was accordingly extended. Further case of the respondent No.1 was that the actual finance facility, with the approved mark-up price was Rs.46,256,954 and not Rs.62,137,000, as claimed by the appellant and the differential amount was in the nature of penalty, which was unlawful and impermissible.
Disputing the claim of the appellant-Bank, inter alia, on above noted ground leave to defend was sought by the respondent No.
1. Subsequently an amended application for leave to defend under section 10(12) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 was also filed by the respondent No.1 on 25-9- 2001, reiterating, more or less, same facts as averred in the earlier application.
5. In the counter-affidavit to such application dated 21-2-2002, submitted by the Officer of appellant-Bank they had given details/break-up of the finance advanced and the payments received from the respondents Nos.1 and 2, showing the net sum due against the respondents at Rs.16.037 millions and liquidated damages of Rs.3.207 millions totalling RS.19.244 millions.
6. Respondent No.2 had also filed a separate application for leave to defend on 2-2-2001 under the old Act of 1997, and subsequently amended application for leave to defend dated 25-9-2001 under section 10(12) of the Financial Institutions (Recovery of Finances) Ordinance, 2001, disputing the claim of appellant. Respondent No.2 in their application had also disputed the exaggerated mark- up charged by the appellant and also explained their position as guarantor, which had compelled them for payment of Rs.20,000,000 on 13-5-1996, Rs.12,683,000 on 18-9-1996 and Rs.17,502,431 on 4- 5-1998. In order to substantiate their case respondent No.2 had also placed on record bunch of documents relating to the transaction of finance between the appellant and respondent No.1 and their role as guarantor in such transaction.
7. The replication to the leave to defend application moved by respondent No.2 was filed on behalf of the appellant on 15-1-2003 wherein they had attempted to justify their claim of Rs.62,137,000 against the appellant and the equal liability of respondent No.2 on the basis of documents of guarantee executed by them in favour of the appellant.
8. Banking Court after hearing the arguments of the parties' counsel, on the two applications for leave to defend, by impugned order dated 28-2-2006, dismissed both the applications on the short ground of violation of section 10(4) of the Financial Institutions (Recovery of Finances) Ordinance, 2001, and simultaneously placing its reliance on the letters dated 15-1-1994 and 22-1-1991 also dismissed the suit of the appellant
9. Mr. Qutubuddin Saim learned counsel for the appellant vehemently contended that after dismissal of two applications for leave .To defend moved by the respondents the Banking Court had no option but to pass a decree in favour of the appellant-Bank as provided under section 10(11) of Ordinance, 2001. He further made detail reference to the break-up statement filed by the appellant-Bank before the Banking'Court to show the genuineness of their claim against the respondents. He strongly criticized the impugned judgment/order of the Banking Court on the ground that the actual finance agreement executed between the appellant-Bank and respondent No.1 borrower, which was undisputed, rather admitted document, was conveniently overlooked by the Banking Court and by placing reliance upon the letter dated 22-1-1994 it conveniently found a short cut for dismissing the suit of the appellant for whimsical reasons. He further contended that if the Banking Court had bothered to go through the finance agreement executed between the parties on 29-1-1991 and the subsequent supplementary agreement dated 28-2-1994, which was Annexure `G` to the plaint and also the promissory note dated 28-2-1994 executed by respondent No.2 in their capacity as guarantor, which was Annexure 'H' to the plaint, the claim of the appellant- Bank in the tune of Rs.16,037,382.32 was crystal clear. Learned counsel also made reference of figures shown in the break-up statement submitted by the appellant-Bank before the Banking Court to further elucidate the total outstanding claim of the appellant-Bank against the respondents jointly and severally. He, therefore, contended that the suit of the appellant may be decreed as prayed, except the claim of liquidated damages in terms of prayer clauses (b) and (f) of the plaint or in the alternative, for just, equitable and proper adjudication of the claim of the appellant the impugned judgment and decree may be set aside and case may be remanded to the Banking Court for passing of fresh judgment in the' case.
10. Mr. Salahuddin Ahmed learned counsel for the respondent No.1 in his reply arguments made detailed reference to the contents of leave to defend application submitted by respondent No.1 before the Banking Court to show the genuineness of the defence set up by Bank, thereby showing excess payment of over Rs.98,29,939 to them. He, however, did not dispute the authenticity and genuineness of the documents of finance facility executed between the parties and other figures of payment received by the appellant-Bank as per the break-up statement submitted by them before the Banking Court, showing the payment of total sum of Rs.56,086,533. Making further reference to the impugned judgment of the Banking Court dated 28-2-2006, learned counsel contended that though this judgment' cannot be termed as a well discussed and speaking one, and reference of the two letters dated 15-1-1994 and 22-1-1991 also seems to be not much relevant, but in substance looking to the calculations made by the Banking Court in its impugned judgment, the conclusion recorded by it, showing excess payment of Rs.9,829,939 made by the respondents to the appellant-Bank is legal and factually correct conclusion. Mr. Salahuddin Ahmed also made reference to the statement of account placed on record by the appellant-Bank before the Banking Court to show that in the account of, and for the benefit of respondent No.1-Company, at the rate of 11% per annum, the appellant-Bank had received a total sum of Rs.13,079,524 from the. State Bank of Pakistan during the period 30-6-1992 to 16-5-1996, but nowhere adjustment of this amount, towards the sum claimed due in the suit by the appellant, was made. He contended that if this sum is deducted from the suit amount of Rs.16.037 millions, then according to the appellant's own case hardly a sum of less than Rs.3 minions remains due against the respondent No.
1. Fie further made reference to the terms of finance agreement executed between the appellant and the respondent No.1 to show that the agreed rate of mark-up was 14% per annum and not 22% per annum, as applied, calculated and charged by the appellant-Bank, which fact is further verified from the contents of loan sanction advice dated 22-6-1991, and the difference in the two rates of mark-up was simply a form of penalty under the cover of rebate, which could not have been levied or charged by the appellant from the respondent No.1 under any circumstances. Moreso, as subject to encashment of Bank guarantee of respondent No.2, in time, no default in the repayment was committed by the respondent No.
1. Learned counsel concluded his submissions by giving the figure of Rs.13,073,200 being illegally charged sum of mark-up for a period of five years at the rate of 8%, by the appellant in the account of respondent No.
1. In support of his submissions that recovery of any extra amount of interest or mark-up in any other form is in the nature of penalty, which is illegal and un-warranted by law, he placed reliance upon the cases PICIC v. Sultan Mehmood and 3 others 2001 CLC 1551 and City Bank v. Tariq Mohsin Sadiqui and others PLD 1999 Karachi 196. In the first case it was held that concept of rebate on a prompt payment or payment within due date assumes that it has already been included for the purposes of arriving at the purchase price and in the event of delay in the payment of said amount it shall be charged, but if the payments are made within due dates the interest amount will be reduced. Such contemplation in the finance agreement is nothing but mark-up on the mark-up price, which is not permissible. In the other case reference to section 73 of the Contract Act, 1872 was made and it was held that imposition of penalty or damages at a fixed rate is opposed to such provision of Contract Act. It was further held that Islamic System of Banking, in the event of grant of finance, allows the parties to settle between themselves a reasonable amount of profit. Impositions of penalty by any name or form is therefore, impermissible.
11. Mr. Qutubuddin Saim learned counsel for the appellant in his reply arguments candidly conceded that for no valid reason the sum of Rs.13,079,524 being 11% subsidy for three years, received by the appellant-Bank from the. State Bank of Pakistan was not adjusted in the account of respondent No.
1. What to speak of its timely adjustment as per the details of receipt shown in the statement filed by the appellant-Bank. He also could not controvert other submission of the learned counsel that in case the appellant had calculated and charged the figure of mark-up at the rate of 14% per annum instead of 22%, then in that account too the respondent No.1 might not have been burdened with the payment of surplus sum of Rs.13,073,200.
12. We have carefully considered the submissions of the learned counsel and perused the material placed on record of this appeal as well as the material available in the R and P's of the suit file, and seen that admittedly the appellant-Bank, for no valid reason, had not adjusted the subsidy amount of Rs.13,079,524 received from the State Bank of Pakistan in the account of respondent No.1, and if this sum had been deducted from the suit amount then hardly a sum of less than Rs.3 millions would have remained due and outstanding against the respondent No.
1. Not only this, but looking to the terms and conditions of the finance sanctioned advice dated 22- 1-1991 and the finance agreement dated 29-1-1991 it is evident that the charging of mark-up by the appellant-Bank at the rate of 22% per annum instead of 14% was illegal, and nothing but in the nature of penal interest, which is not permissible under law as the agreed rate of mark-up was only 14% per annum for the whole period of finance as agreed between . The parties from time to time.
Thus, if the amount so charged in excess by the appellant-Bank amounting to Rs.13,073,200 is also deducted from the remaining sum due then the submission of the respondent No.1 regarding excess payment of approximately Rs.98,29,939 is found correct.
13. Confronted with the above position, we have inquired from learned counsel for respondent No.1 that what could be the reason for respondent No.1, not to agitate such counter-claim against the appellant. He replied that due to certain unavoidable circumstances faced by the respondent No.1 and considering the fact that now their claim against the appellant has become barred by time, they are not interested in pursuing such claim of excess payment and they will be satisfied in case this appeal is dismissed, so as to bring the litigation between the parties to an end.
14. Considering the above discussed facts of the case and the ratio of two judgments referred above, we find no substance in this appeal, which is accordingly dismissed with costs.
15. Foregoing are the reasons for our short order dated 3-10-2007.