' MUHAMMAD TASNIM, J.---This is an application under section 10 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (hereinafter called "Ordinance 2001") filed by defendant seeking leave to defend the suit unconditionally.
2. Brief facts leading to this case, as per plaint, are that defendant No,1 is customer of the bank and is carrying on business under name and style of Messrs Sumnani Trading Corporation being a sole proprietorship concern. Defendant No,2 has been cited as Mucaddam (Custodian) appointed by plaintiff vide agreement dated 18-5-2009 to keep the pledged goods under lock and key of defendant No,2 as indemnifier. At the request of defendant No,1 the plaintiff-bank extended several finance facilities on 22-9-2007. Against the aforesaid finance facility, numbers of documents were executed by defendant No,1 in favour of plaintiff-bank i.e. Agreement of finance, promissory note, letter of continuity, letter of arrangement, letter of disbursement, letter of pledge and trust receipt. It further appear that in November, 2008 vide letter dated 1-11-2008 the plaintiff-bank renewed the aforesaid finance facilities to defendant No,1 and in consideration of such fresh finance facility defendant No,1 again executed fresh agreement of finance, promissory note, letter of continuity, letter of arrangement, letter of disbursement, letter of pledge and trust receipt. In addition to the above, stock reports of pledged goods were also executed by defendants Nos.1 and 2, which appears at page 115, 117, 119 and 121 of the record. The renewed finance facility by plaintiff-bank to defendant No,1 is as under:-- "1 For opening Sight Documentary Letter of Credit SLC for the purpose33.500 (M) of import of Pulses and Grains 1(a) For the opening Usance Documentary Letter of Credit SLC for the purpose of import of Pulses and Grains25.500 (M)
1(b) For Finance Against Pledge of Imported Merchandise(FIM) for the purpose of retirement of documents under SLC/Contract/CollectionRs.30.000 (M)
1(c)
For Finance Against Trust Receipts (FATR) for the Purpose of retirement of documents under SLC/Contract/CollectionRs.7.000 (M)
1(d) Excess Limit on account of payment against documents (PAD), for non- compliance of Import documentRs.40800 (M)"
3. Defendant No,1 by way of security executed letter of pledge dated 7-11-2008 in favour of plaintiff.
Defendant No,1 after import of goods and after getting clearance from customs kept the same as pledged under the custody, lock and keep of defendant No,2. That on 5-11-2009 plaintiffs representative visited the site and on physical surprise visit it was informed by defendant No,2 that pledged goods have been illegally removed by defendant No,1, which were under the custody of defendant No,2. Since defendant No,1 in clear breach and in violation of terms and conditions of the said pledge and trust receipt dated 7-11-2008 has illegally removed the pledged goods/stock from Gowdown causing wrongful loss to the plaintiff-bank depriving the plaintiff-bank from its valuable security by dishonestly misappropriating or converting illegally and wrongfully the same to his own advantage. It is the case of plaintiff that on the one hand the defendant No,1 had removed pledged goods/stock illegally from the custody of defendant No,2 and on the other hand defendant No,1 has failed to discharge his liability and to liquidate his indebtness/liability to the plaintiff-bank. The defendant No,2 has also failed to indemnify the plaintiff all the loss of value of the said pledged goods. In the circumstances, present suit was filed.
4. The service was effected upon the defendants in accordance with the provisions of the Ordinance, 2001. Defendant No,1 neither appeared nor filed leave to defend application. Defendant No,2 came forward and filed leave to defend application being C.M.A. No,8265 of 2010, which is under disposal.
5. Mr. Raza Hashmi, learned counsel for defendant No,2 in support of leave to defend application submitted that suit is not maintainable against defendant No,2 as neither defendant No,2 is borrower nor title holder of property nor he is beneficiary hence suit against defendant No,2 be dismissed. He has invited my attention to agreement for appointment of Muccadam (Custodian) dated 11-5-2009, particularly clause 5(x) which reads as under:-- "That if there is any misappropriation of stocks by the customer the Muccadam will promptly report the same to concerned police station and lodge F.I.R. With the police and inform the Bank accordingly."
6. He further submitted that after the removal of pledged goods by defendant No,1 from the custody of defendant No,2, the defendant No,2 has taken all steps as provided under clause 5(x) of Agreement referred above, hence no decree can be passed against defendant No,2. He has further argued that defendant No,2 had not removed any article from the Godown hence he is not liable to pay any amount to the plaintiff-bank. In the end learned counsel for defendant No,2 prayed that leave to defend be granted to defendant No,2 unconditionally.
7. On the other hand Mr. Syed Mamnoon Hasan, Advocate for plaintiff submitted that leave to defend application filed on behalf of defendant No,2 by one Muhammad Shamsher is not competently filed by defendant No,2 as no power of attorney is annexed with such application. He further submits that on this ground alone leave to defend application is liable to be dismissed. He further submitted that perusal of letter of authority dated 14-7-2010 annexed with the application clearly shows that through said authority letter Muhammad Shamsher was authorized to act as attorney of defendant No,2, but such power of attorney is not in accordance with provisions of section 35 of Stamp Act, hence cannot be treated as power of attorney. He further submitted that application filed on behalf of defendant No,2 is liable to be dismissed having been filed by an incompetent person. He further submitted that leave to defend application is not in conformity with the mandatory provisions of section 10(3) of the Ordinance, 2001 and on this ground as well, this application is liable to be dismissed. Learned counsel for plaintiff-bank has invited my attention to the clauses of agreement for appointment of Muccadam Custodian dated 11-5-2009 executed by the parties more particularly clauses 5(W) and 5(Y), which are quoted hereunder:-- "5(W) That the Muccadam shall be liable for all losses, theft, damages, pilferage, Claim, demands, expenses, charges, rents, actions and suits etc, which the Bank shall suffer due to shortage, loss and destruction of the goods for any reason whatsoever."
"5(Y) That the Muccadam shall indemnify and keep indemnified the Bank against all losses, damages, payments, demands, dues, claims, expenses, charges."
8. Learned counsel for plaintiff-bank has further invited my attention to the stock reports appearing on pages Nos.115, 117, 119 and 121 of the record and submitted that such stock reports are duly signed by defendants Nos.1 and 2.
9. Learned counsel for plaintiff has also invited my attention to paragraph 17 of the plaint, which reads as under:- "17. That the defendant No,2 as per clauses (w) and (y) of the said agreement for appointment of Muccadam dated 18-5-2008 was/is liable for all losses, theft, damages, pilferage, claim, demands, expenses, charges, rents, actions and suits etc. Which the plaintiff-bank shall suffer due to shortage, loss and destruction of the pledged Goods/Stocks for any reasons whatsoever and that the defendant No,2 shall indemnify and keep indemnified the plaintiff-bank against all losses, damages, payments, demands, dues, claims, expenses and charges, as such, the defendant No,2 as Indemnifier is liable to indemnify the plaintiff to the extent of Rs,35,739,530 the value of the Pledged Goods/Stocks removed by the defendant No,1 from the said Godown of defendant No,2."
10. Learned counsel for plaintiff has invited my attention to page 2 of leave to defend application, perusal whereof shows that paras No,1 to 23 of the plaint except para 17 have been denied by defendant No,2, but he has not replied or denied para 17 quoted hereinabove. He submitted that since the contents of plaint are on oath and para 17 whereof has not been rebutted by defendant No,2, it shall be deemed to be accepted by the defendant No,2. In support of his contentions learned counsel has placed reliance on the following case-law:--
(1) Bank of Khyber v. Messrs Spencer Distribution Ltd. And 14 others 2003 CLD 1406
(2) Zeeshan Energy Ltd. And 2 others v. Faisal Bank Ltd. 2004 CLD 1741
(3) Muhammad Ramzan and 4 others v. Agricultural Development Bank of Pakistan through Manager 2004 CLD 1376
(4) Habib Bank Limited v. Messrs Sabcos (Pvt.) 2006 CLD 244
(5) Muhammad Farooq M. Memon Advocate v. Government of Sindh through its Chief Secretary, Karachi 1986 CLC 1408
(6) Muhammad Akhtar v. Mst. Manna and 3 others 2001 SCMR 1700
(7) Daulat Ali through Legal Heirs and 2 others v. Ahmad through Legal heirs and 2 others PLD 2000 SC 792
(8) Saleem Akhtar v. Nisar Ahmad PLD 2000 Lah. 385
(9) Mst. Baswa r Sultan v. Mst. Adeeba Alvi 2002 SCMR 326
11. While exercising the right of rebuttal, learned counsel for defendant No,2 has submitted that judgments cited by learned counsel for plaintiff are distinguishable on facts and do not apply to the circumstances of the case. He further submitted that after removal of the pledged goods, the matter was reported to the bank and further action in terms of agreement dated 11-5-2009 for appointment of Muccadam (Custodian) was taken by the defendant No,2 hence no relief can be granted to plaintiff-bank against defendant No,2.
12. I have heard learned counsel for the parties and have perused the record with their assistance and have gone through the judgments cited by learned counsel for plaintiff.
13. Execution of agreement for appointment of Muccadam (Custodian) is not denied by defendant No,2. From the perusal of such agreement, it appears that clause 5(w) of the said agreement clearly demonstrates that the Muccadam shall be liable for all 'losses, theft, damages, pilferage, claim, demand, expenses, charges, rents, actions and suits etc., which the bank shall suffer due to shortage, loss and destruct on of the goods for any reason whatsoever. Clause 5(y) of said agreement provides that Muccadam shall indemnify and keep indemnified the Bank against all losses, damages, payments, demands, dues claims, expenses, charges.
14. The examination of the section 2(c) of the Ordinance, 2001 shows that customer means a person to whom finance has been extended by financial institution and includes person on whose behalf a guarantee or letter of credit has been issued by financial institution as well as surety or indemnifier. If clause 5(y) of the above agreement is read, it will be seen that at the time of execution of such agreement, defendant No,2 had undertaken to indemnify the bank against all losses, damages, payments, dues, claims, expenses and charges. It is admitted position that pledged goods were delivered to defendant No,2, which were under exclusive control of defendant No,2 under lock and key. In confirmation thereof defendant No,2 along with defendant No,1 had executed stock reports of pledged goods, which appears on pages 115, 117, 119,
121. It is also an admitted position that all such goods were removed, which has caused loss to the bank. It is also an admitted position that defendant No,2 had not indemnified the plaintiff-bank. Even if leave to defend application is to be considered as competently filed, no substantial question of law and facts have been raised in respect of which any evidence is to be recorded. The removal of pledged goods from the custody of defendant No,2 is admitted by defendant No,2 has he himself had lodged F.I.R. Against defendant No,1 in respect of above removed pledged goods but plaintiff-bank has not been indemnified. On this ground alone the leave to defend application merits no consideration and liable to be dismissed.
15. On merits as well, the plaintiff has stated his claim against defendant No,2 in paragraph 17 of the plaint, such statement of facts is verified on oath. The defendant No,2 in this leave to defend application had denied all other assertions made by the plaintiff in the plaint, but neither paragraph 17 of the plaint has been referred to nor the same has been denied. It is settled law that where fact asserted by one party on oath remains unchallenged or unrebutted, the same amounts to admission on the part of other party. In this view of the matter, defendant No,2 does not have any case on merits.
16. Even otherwise leave to defend application is not in conformity with the provisions of section 10(3) of the Ordinance, 2001 which requires that application for leave to defend shall be in the form of a written statement and shall contain summary of substantial question of law as well as facts in respect of which any evidence is needed to be recorded. Neither the present application is in form of written statement, nor any substantial question of law or facts has been raised, which requires any evidence to be recorded. On this ground as well, application for leave to defend is liable to be dismissed. The above findings are supported by following case-law.
17. This aspect of the matter has come up for consideration in the case of Habib Bank Limited v.
Messrs Sabcos (Pvt.) Ltd. 2006 CLD 244, wherein learned Single Judge of the court while dealing with the issue has held as under:-- "13. Keeping in view of above principle of law I have examined the application for leave to defend and found that it is in the form of written statement. It contains 9 preliminary legal objections. On further perusal it reveals that the defendant did not specifically state the information or facts required to have been supplied under subsection (4). The learned Advocate for the defendants has frankly conceded that the application does not fulfil the mandatory requirements of subsection (4).
However, he has stated that the summary of substantial questions of law as required under subsection (3) has been mentioned but further conceded that the summary of the facts as required under subsection (3) has not been mentioned in the application. Even if we take the 9 preliminary legal objections as substantial questions of law then again the second requirement of subsection (3) has not been complied with the present case; On further perusal it reveals that facts and figures as required under subsection (4) have also not been mentioned nor only explanation has been furnished for non-compliance. The learned Advocate for the defendants has also frankly conceded that provisions of subsection (4) have not been complied with nor the defendants have furnished any explanation in the application for non-compliance of the said provisions. As such, the defendants have disobeyed the directions of law and mandatory provisions as provided under subsections (3) and (4), therefore, their application for leave to defend is liable to be dismissed.
Consequently invoking the provisions of subsection (6) I dismiss the said application."
18. Similarly in case of Bank of Khyber 2003 CLD 1406 the learned Single Judge of Lahore High Court while dealing with the point in issue has held as Under:-- "Upon the examination of the instant leave application, I find that the said defendants failed to give amount of finance availed by the defendants; the amount paid by them; the dates of payments; amount of finance and other amounts relating to the finance payable by the defendants to the financial institutions; the amount of finance and other amounts, which the defendants dispute as payable to the financial institutions, thus, the said defendants have comprehensively failed to adhere to the provisions of section 10(4) of Ordinance of 2001 in the above backdrop, now the pivotal question, which has arisen for determination by this court is as to whether the instant leave application, filed by the said set of defendants, is liable to be rejected summarily. Provisions of sections 10(3), (4) and (5) of Ordinance XLVI of 2001, inter alia, provide that the application for leave to defend shall be in the form of a written statement, containing summary of substantial questions of law and facts, and also giving certain particulars to be furnished by the defendants regarding the finance, i.e. Finance availed, amount paid by the defendants etc. And that such an application must be accompanied by all the documents in support of substantial question of law and facts raised by the defendants. If the afore-noted provisions of law are placed in juxtaposition with the contents of the application, filed by the aforementioned set of defendants, the only irresistible conclusions, which can be drawn is that the said defendants did not comply with the aforesaid provisions of law. In the above perspective, I am constrained to hold that the said defendants have comprehensively failed to file leave application, as required under the law, and they have not complied with the requirements of sections 19(4) and (5) of Ordinance XLVI of 2001, thus, the defendants failed to file leave application in accordance with the provisions of the said Ordinance.
(7) Section 10(6) of Ordinance (XLVI of 2001) provides that an application for the grant of leave, which does not comply with the requirements of subsections (3), (4) and (5) of section 10 of Ordinance (XLVI of 2001), the same shall be rejected, unless the defendants able to show sufficient cause for their inability to comply with any such requirements, in this case, as noted above, the application filed by these defendants does not fulfil the requirements of section 10(4) and (5) of Ordinance XLVI of 2001. Additionally, they have not been able to show in their application, any cause, what to talk of sufficient cause for their inability to comply with said requirements.
(8) Now the question, which arises is as to whether the provisions of section 10(6) of Ordinance XLVI of 2001 is mandatory or directory. Basic principle for the interpretation of statute is that when a provision of law has been couched with the penal consequences, the said provisions of law would be considered as a mandatory provision of law and where no penal consequences entail to the non-compliance of a provision of law, in that case, the said provision of law would be taken as directory. Having gone through the provisions of section 10(6) of Ordinance XLVI of 2001 as noted above, I am of the considered view that this provision of law is mandatory in nature, as the non- compliance of said provision of law entails the penal consequences of rejection of leave application, as provided in the afore-noted provision of law. In the present case, as the defendants did not comply with the afore-noted provisions of law, therefore, the presumption would be that no application for grant of leave to defend a suit is deemed to be pending and the present application for leave to defend is liable to be rejected per force of section 10(6) of Ordinance XLVI of 2001."
19. In the case of Habib Bank Limited 2006 CLD 244 Learned Single Judge of this Court has held as under:-- "11. It is well-settled that non-compliance of plain requirement of a statutory enactment, which prescribes how something is to be done, will invalidate the thing being done in some other manner if the enactment is absolute but not if it is merely directory. The test for judging a provision whether it is a directory or mandatory, is that, if the non-compliance of the provision entails a penal consequence then it is mandatory, otherwise it is directory. The honourable Supreme Court of Pakistan in the case of Niaz Muhammad v. Fazal Raqib PLD 1974 SC 134 has observed as under:-- "As a general rule however, a statute is understood to be directory when it contains matter merely of direction, but not when those directions are followed up by an express provision that, in default of following them, the facts shall be null and void. To put it differently, if the Act is directory, its disobedience does not entail any invalidity; if the Act is mandatory disobedience entails serious legal consequences amounting to the invalidity of the act done in disobedience to the provision."
(12) If the above rule is applied to subsections (3), (4) and (5) then it is clear that the said provisions are mandatory as penal consequence of non-compliance of the said provisions has been given in subsection (6) which provides rejection of application for leave to defend in case of non-compliance of such provisions."
20. Defendant No,1 neither appeared nor filed any application for leave to defend the suit. Since no leave to defend application has been filed by the defendant No,1 and the plaint of plaintiff is on oath, there is no rebuttal available on record on behalf of the defendant No,1, the court is left with no option but to decree the suit against the defendant No,1 in the sum of Rs,50,824,777.68 with costs along with costs of funds as certified and determined by the State Bank of Pakistan under subsection (2) of section (3) of the Financial Institutions (Recovery of Finance) Ordinance, 2001 from the date of default till realization.
21. Since leave to defend application filed by defendant No,2 has been dismissed for the reasons mentioned hereinabove. Consequently the suit of the plaintiff is decreed against defendant No,2 in the sum of Rs,35,739,530 being the value of the pledged goods with costs along with costs of funds from the date of default till realization.