1. KHILJI ARIF HUSSAIN, J. ---The appellant preferred appeal against the dismissal of two applications of objector filed under Section 19(7) of the Financial Institutions (Recovery of Finances)
2. Ordinance, 2001 and application under Order 21, Rule 26 r/w Section 151, C.P.C.
3. Brief facts relevant for the purpose of deciding appeal are that the Respondent Bank filed Suit No. B-2007 of 2000 against principal borrower and guarantor which was disposed of in terms of compromise between the parties and a compromise decree was passed. The respondent then filed execution application being No. 38/05. Vide order dated. 9.5.2007 an office^ of the Court was appointed as Commissioner to take over possession of immovable properties mentioned in Column 11 of the Execution Application. In respect of one of the property mentioned in Column-11 of the Execution Application, the Appellant filed application under Section 19(7) of Ordinance, 2001 that the said property was not liable to be attached under decree. The appellant claimed that he is an exclusive owner of the immovable property bearing No. 2-A, 11 South Street, Phase-Ill, measuring 2000 sq. Yds. Situated in Clifton Cantonment, Karachi. The property originally belonged to one Ismail Hakim Zakaria son of Zakaria Usman father of the appellant who had gifted the same by registered gift deed dated 16.6.1999 in favour of the appellant. The said Ismail Hakim gave guarantee in respect of loan granted to principal borrower a Limited Company.
4. Heard Mr. Arshad Tayebaly learned Advocate for the appellant and Mr. Atimed Hassan Rana learned Advocate for the respondent.
5. Learned Advocate for the appellant, Mr. Arshad Tayebaly, argued that the loan was granted to M/s. Al-Noor Fertilizer in the year 1999 and the donor Ismail H. Zakaria who was one of the guarantors in the matter gifted the. Property in question in favour of appellant, and the appellant is exclusively in possession of the property in question enjoying the same without any hindrance. It was argued by the learned Advocate for the appellant that the donor had not mortgaged the property in question nor executed any Promissory Note and the property in question was not under any encumbrance as security for the loan facilities granted to the company. The donor was only guarantor and not principal borrower, gifted the property much before the filing of the suit in favour of the appellant and suit property was not available for attachment in respect of the decree passed against donor as guarantor, It was argued by the learned counsel that the principal borrower mortgaged 750 acres of land as security in respect of loan granted by the respondent Bank market value of which is more than Rs. Two billion. It was further argued by the learned Advocate that apart from the mortgaged property the donor out of properties owned by him gifted only one property in favour c the appellant, much before filing of the suit. It was argued that the learned Single Judge committed error of law in dismissing the application by which the appellant requested to recall the order of attachment. In support of his contention learned counsel relied upon Textile Management (Pvt.) Limited v. N.I.T., 2002 CLD 490, Industrial Development Bank of Pakistan AOKI (Pvt.) Ltd. And others, 2008 CLD 158, M/s. Habib Bank Limited, Karachi and others v. Ghulam Haider and others, PLD 1975 Lah. 489, Muhammad Imran Shaikh v. Habib Bank Limited through Authorized Attorneys and others, 2006 CLD 1437 and 2002 CLD 819.
6. On the other hand, Mr. Ahmed Hassan Rana, learned Advocate for the respondent vehemently argued that vital date in the matter, is the date when loan was granted and not the date when suit was filed or when the same was decreed. The gift deed was executed after the loan was granted by the respondent to avoid the liability of the respondent Bank. In support of his contention learned Advocate relied upon the case of Mst. Kanwal Shri v. Babu Lai plaintiff and another, AIR. 1937 Lah. 819 and Lai Chand V. Raman Shah A\R 1937 Lah. 820, 819.
7. We have taken in consideration respective arguments advanced by the learned Advocate for the parties and perused the record. From perusal of the record it appears that the donor had given his personal guarantee for adjustment of the liability of the Company to whom the respondent Bank granted loan. The donor had neither mortgage his property nor create any charge on the property owned by him at the time when loan was granted. By a registered gift deed dated ' 16.6.1999 the judgment- debtor/donor gifted the property in question in favour of the appellant. Title documents and all other documents pertaining to the property in question are in possession of the appellant.
8. The question, which requires consideration is, whether the gift property by a guarantor can be.
9. Declared illegal, unlawful and void merely because same was gifted after the loan was granted by the Financial Institutions in the absence of evidence that such transaction was made with the intent to defraud the creditors and to delay and obstruct the execution of decree that may be passed.
10. Before we discuss Section 23 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 and its effect, we would like to discuss Section 53 of the Transfer of the Property Act. From bare reading of the Section 53 of the Transfer of the Property Act, it appears that transfer of immovably property made with intent to defeat or delay creditors of transferor is not void transaction but is voidable at the option of the creditor. The proviso of Section 53 of the Transfer of Property Act protect right of bona fide transferee in good faith against valuable consideration. The Creditor has to exercise his right of option to declare transfer of the property with intent to defeat and delay its recovery by filing of suit or manifest his intention to avoid transaction such as by attachment of property transferred. Onus of proving that the deed of transfer was fraudulent is on the person alleging it.
11. In the case of Chogmal Bhandari and others v. Deputy Commercial Tax Officer, AIR 1976 SC 652, it was held that a person who challenged validity of a transaction must prove two. Facts (i) that documents was executed by settler and (2) that the said document was executed with, clear intention to defraud or delay creditors.
12. How the intention under Section 53 of the Transfer of Property Act is to be proved, that the transfer of the properties was with the intent to defeat or delay creditor would be a matter, which would largely, depend on the facts and circumstances of each case.
13. In the instant case predecessor-in-interest held more than one property and in execution proceedings apart from the property in question respondent has disclosed other eight properties one of which is owned by the transferor who executed letter of guarantee in favour of the respondent Bank. If the intention of the predecessor-in-interest of appellant was to defraud and defeat the claim of the creditors then he ought to have transferred all of his properties and not only one.
14. The intention" of Legislature must be found in the words used by the Legislature itself. The intention of Legislature manifest from the words "Creditors of the Transferor", that Section 53 cf the Transfer of Property Act will be applied to the debtor, who transfer his property with intent to defeat or delay in creditor. The Guarantee necessarily supposed three parties and two obligations (i) the creditor or the person with whom the principal obligation is entered into; (ii) the principal debtor, or person who enters into an obligation with creditor; (iii) surety or guarantor, who enters into a secondary obligation with the creditor that the principal debtor shall perform his obligations.
15. Having said so, now, we would like to examine the matter with reference to Section 23 of the Ordinance, 2001.
16. Before we examine Section 23 of Ordinance, 2001, we would like to observe that provision of Banking Companies (Recovery of Loans, Advances, Credits & Finances) Act, 1997 was in addition to and save to the extent expressly provided in the Act was not in derogation of any other law for the time being enforce whereas Section 4, Financial Institutions (Recovery of Finances) Ordinance, 2001 provided that provisions of Ordinance, 2001 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being enforce. We would not deal with the question whether Section 23 of Ordinance, 2001 over-ride Section 53 of the Transfer of the Property Act, and not applicable to matters relating to issue for which Banking Court has exclusive jurisdiction and confine ourselves only to the effect of Section 23 of the Ordinance, 2001, to decide the same in some other matter.
17. Sub-section (-1) of Section 23 put restriction on the customer to transfer etc. Remove or part with possession of assets or properties furnished to the Financial Institutions as security by way of mortgage, pledge, hypothecation, charge, lien or otherwise without prior written permission of Banking Court after publication of summons under sub-section (5) of Section 9. Proviso to sub- section (1) of Section 23 give exceptions to restriction on the right of customer to deal With assets or properties furnished as security to Financial Institutions that customer may sell any such assets or property which has been retained by him or entrusted to him for the purpose of dealing with the same in the ordinary course of business.
18. Sub-section (2) of Section 23 however put restriction on transfer, alienate, encumbrance or part with possession of any. Assets or property irrespective whether such property was furnished to Financial Institutions as security or not after pronouncement of judgment and decree by the Banking Court and any such transfer, lien, encumbrance or otherwise disposition by a judgment- debtor shall be void and of no legal effect.
19. The restriction put by sub-section (1) of Section 23 on customer, relates only to the assets or properties furnished to the Financial Institutions as a security by way of mortgage, lien, etc. Whereas under sub-section (2) of Section 23 transfer of alienation of any property by the judgment debtor is void transfer and of no legal effect.
20. In the instant case property in question was initially owned by the guarantor but admittedly said property was not furnished to respondent Bank as security by way of mortgage or by creating charge on it, in respect of loan facilities granted to judgment-debtor Company. It is also evident from the record that the property in question was transferred much before the publication of summons under sub-section (5) of Section 9 of the Ordinance 2001 and even much before filing of the suit.
21. We can look into the matter from another angle. The predecessor-in-interest of the appellant had given his personal guarantee for the loan facility granted to a Company, and as not debtor himself.
22. The liability of the surety in terms of Section 128 of Contract Act is coextensive with that of the principal debtor, unless it is otherwise agreed by an agreement. The word 'guarantee' is a technical terms and the essence of a guarantee is that a guarantor agrees to discharge his liability only when the principal debtor fails to discharge the same. The letter of guarantee in question itself provided that the guarantors were liable to pay loan on demand, in other words on failure of the principal debtor to adjust the liability when Bank called upon them to pay the guaranteed amount.
23. The guarantor unlike debtor become liable for the guaranteed amount from the date of demand or for the date when he came to know that creditor has filed suit for recovery against him.
24. The Suit filed by the respondent Bank was decreed in terms of compromise between the parties to Suit. In terms of application under Order XXIII, Rule 3, C.P.C. (C.M.A. No. 4080/07) filed on 24.5.2001 on the basis of which compromise decree was passed, the guarantor, including the predecessor-in- interest of the appellant was required to execute personal guarantee. On execution of fresh guarantee, one can say, would discharge the appellant predecessor-in-interest of his obligation under guarantee earlier executed in the year 1999.
25. We have gone through the impugned order and noted that while dismissing the application learned Judge did not record any finding that the transfer of the property in question in favour of the appellant was with intent to defeat or delay creditors to the transferor. Neither Section 53 of the Transfer of Property Act nor Section 23 of the Financial Ordinance, 2001 put any restriction on the right of borrower/customer to deal with its property in normal course bona fidley on which charge has not been credited.
26. For the foregoing reasons, the impugned order is set aside and application under Section,19 of the Financial Institutions Ordinance, 2001 alongwith application (under Order XXI, Rule 26) filed by the appellant are granted as prayed, however, with no order as to costs.