' MUNIB AKHTAR, J.---By means of the present five applications, the defendants Nos. 1 to 5 seek leave to defend the instant suit, which has been filed by the plaintiff under the Financial Institutions (Recovery of Finances) Ordinance, 2001 ("2001 Ordinance").
2. The plaintiff is one of Pakistan's largest banks. It carries, on the business of banking both within and outside the country, and the present suit is concerned with certain facilities provided to the defendant No,1 at the Deira branch of the plaintiff, which is located at Dubai in the United Arab Emirates. It is stated in the plaint that the defendant No,1 is a limited liability company, incorporated in Dubai and having its, offices there. The said defendant was provided three facilities by the plaintiff at the Deira branch, the details of which are given in para 3 of the plaint: The defendants Nos. 2 to 5, have been sued as guarantors for the facilities provided to the defendant No,
1. It is averred that both the defendant No, 1 and the guarantors have failed to meet their respective obligations. It appears that a settlement agreement dated 16-8-2000 was entered into between the parties, but the plaintiff claims that the terms of even this agreement were not fulfilled, with the result that the defendant No,1 (and hence the guarantors) were indebted to the plaintiff in the sum of AED, 2,577,695.01 as on 31-10-2001. An additional sum of AED 283,041 became due and payable by way of interest from 1-11-2001 to 30-9-2002, bringing the total amount to AED 3,432,763 and this is the amount (along with further interest) for which the defendants have been sued.
3. Learned counsel for the defendants submitted that the suit was not maintainable under the 2001 Ordinance. He referred to the definition of "financial institution" given in section 2(a)(i) to contend that since admittedly the facilities sued upon had been provided and availed outside Pakistan, the plaintiff was not a "financial institution" as defined in respect of the facts and circumstances of the present case. While an ordinary suit could, in appropriate circumstances, be filed in Pakistan even on a foreign cause of action, no proceedings lay under the 2001 Ordinance. This was the main issue raised by learned counsel, and he submitted that the defendants were entitled to leave to defend on this basis alone. Learned counsel further submitted that the document sued upon, including in particular a promissory note, some (at least) of the guarantees and the aforementioned settlement agreement had not been duly stamped and this was another reason why the defendants were entitled to leave to defend. As regards the guarantors, it was contended that the defendants Nos. 2 to 4, whose guarantees were appended to the plaint, had denied having executed the same. Finally, in relation to defendant No,5, it was submitted that although this defendant had been sued as a guarantor, no document evidencing any such obligation had been filed. This defendant was thus entitled to leave to defend for this reason as well.
4. Learned counsel for the plaintiff denied the various grounds taken by learned counsel for the defendants. In particular, he submitted that on its true and proper interpretation, section 2(a)(i) did allow a financial institution to file a suit under the 2001 Ordinance even in respect of facilities and finances provided and availed abroad. Learned counsel further submitted that the fact that the documents sued upon were not stamped was not relevant by reason of section 18 of the 2001 .Ordinance. However, nothing as such was submitted to rebut the specific plea taken in relation to the defendant No, 5 and learned counsel was content to rest his case against this defendant 'on the record as available.
5. Both learned counsel relied on case-law that is considered below.
6. I have heard learned counsel as above and examined the record with assistance and considered the case-law relied upon. I first take up the point specific to the defendant No, 5.
Learned counsel for the defendants is correct in contending that nothing has been placed on record that could establish any liability of this defendant as a guarantor for the debts of defendant No, 1 . Although this defendant is shown as a party to the aforementioned settlement agreement, the document describes him as a "personal guarantor" and it is clear that he is party to the agreement only in that capacity. I also note that the copy of the settlement agreement, as filed along with the plaint, is not even signed by the plaintiff itself, nor is it witnessed although two witnesses are mentioned by name therein. In my view, this defendant would be entitled to unconditional leave to defend the suit. As regards the documents not being duly stamped, in my view learned counsel for the plaintiff is correct in relying on section 18(4) and prima facie, provision seems to answer the objection. However, on account of view that I take in the paras herein below, I expressly leave open the question of the correct interpretation of this provision to be considered in some other case, where it necessarily forms the lis of the dispute.
7. With these matters out of the way, I now turn to consider the main point in issue to which learned counsel gave their primary attention, namely whether the instant suit is maintainable under the 2001 Ordinance. The basic facts of course are not in dispute. The finances and facilities sued upon were provided by the plaintiff outside Pakistan by and its Deira branch in Dubai and availed there. It is also not in dispute that, in appropriate circumstances, an ordinary suit can be filed against a defendant on a foreign cause of action. The question however is whether the present suit, instituted under the 2001 Ordinance, is maintainable as such. As noted above, the defendant No, 1, which of course is the principal debtor, is an entity created, by and under the laws of Dubai. However, in my view, this is merely incidental, and of itself would not bar a suit under the 2001 Ordinance. The key point in issue is establishing the correct meaning of "financial institution".
8. In order to properly understand the definition of this term, it will be necessary to first consider the corresponding definition in the predecessor legislation, the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 ("1997 Act"). This is so both because many of the cases cited by learned counsel were decided under the 1997 Act and, as will presently become clear; for the reason that the definition in the 2001 Ordinance can be regarded as an organic development of the definition in the said Act. The term used therein was "banking company" and section 2(a)(i) thereof (as presently relevant) stated as follows:-- "banking company's means--
(i) any company whether incorporated within or beyond Pakistan which transacts the business of banking or any associated or ancillary business in Pakistan..."
' This definition can be regarded as having two elements. Firstly, it applied equally to companies incorporated within as well as beyond Pakistan. Secondly, it required the company to transact the business of banking (or, let it be said once and for all, any associated or ancillary business) in Pakistan. It is the second element that is crucial for present purposes. What did it mean? As presently relevant, there were two possible interpretations. One was that as long as the company transacted banking business in Pakistan that was enough, and such a company was a "banking company" within the meaning of the 1997 Act. It followed from this interpretation that a banking company could sue a defendant under the 1997 Act even in respect of a matter arising out of or relating to banking business outside Pakistan. The second possible interpretation was that the second element, in effect, limited the scope of the definition to a matter arising out of or relating to banking business carried on within Pakistan. From this interpretation it followed that for purposes of the 1997 Act even a bank incorporated in Pakistan was not a "banking company" in relation to any banking business transacted outside Pakistan. In effect, the second possible interpretation applied the definition as though its last part read as follows: "... In relation to the business of banking or any associated or ancillary business transacted by it within Pakistan".
9. It was the second possible interpretation that, in effect, found favour with a learned single Judge of this Court in Nadeem Ghani v. United Bank Ltd. And others 2001 CLC 1904 a decision relied upon by learned counsel for the defendants. In that case, the plaintiff did business as a sole proprietor in England, and availed facilities and finances from the London branch of the defendant bank.
Certain disputes arose, and the plaintiff filed suit under the 1997 Act, seeking (along with damages) certain declaratory and injunctive relief. An application for interim relief was also filed. The defendant bank applied for leave to defend the suit, which was granted by consent, and the decision as reported is on the application for interim relief. One question that arose was whether the suit was maintainable under the 1997 Act. After making certain general observations regarding the Act (in para 21), the learned single Judge observed as follows:-- "22. It is universally accepted that according to the comity of nations all legislation of a country is territorial, all exercise of jurisdiction is territorial in nature and the laws of a country apply to all its subjects, things and acts within its territory. Section 1(2) of the Banking Act, 1997, clearly states that its provisions extend to Pakistani territory and, prima facie, the Act does not envisage extra- territorial application. Therefore, the provisions of the Act would not apply to banking transactions conducted beyond the territories of Pakistan in another country under the laws of that country where the branches of a banking company incorporated or operating in Pakistan may be doing business. To understand it properly, let us take an example. Suppose A.B.C. Bank which is incorporated in New York also has a branch among others in Karachi and Tokyo. It enters into a loan transaction in New York or Tokyo with its customers who commits a default in payment of the debt, leaves New York or Tokyo and settles in Karachi, A.B.C. Bank can file the suit against its customer in Karachi because the defendant resides in Karachi as permitted by section 20, C.P.C.
But the question is whether A.B.C. Bank can file a claim in the Banking Court established under section 4 of the Banking Act, 1997, which provides a speedy remedy or would it have to file the claim in the ordinary Court of civil jurisdiction. The answer is simple; even though A.B.C. Bank has a branch in Karachi, it cannot file the above-referred claim in the Banking Court because the transaction did not take place under the terms and conditions enforced by the State Bank of Pakistan for the business of banking in Pakistan but under the laws of New York or Tokyo and does not come within the definition of finance as defined in the Banking Act, 1997. However, it can file the claim in the ordinary Court exercising civil jurisdiction in accordance with the provisions of C.P.C. In the present case, the transaction between the parties took place beyond the territories of Pakistan i,e, in England, where it was subject to English Law and not subject to Pakistan Law or the present banking system enforced by the State Bank of Pakistan. It is, therefore, apparent that the transaction between the parties cannot be said to be covered under the provisions of the Banking Act, 1997." (pp. 1920-21; emphasis supplied)
' Since the defendant bank had its principal office at Karachi, the learned single Judge directed that the suit be treated "as an ordinary suit filed in the original civil jurisdiction of the High Court".
10. The alternative view on the other hand, had earlier found favour with another learned Single Judge in Value Gold Ltd. And others u. United Bank Ltd. PLD 1999 Karachi 1. This decision, relied upon by learned counsel for the plaintiff, was also in respect of a suit under the 1997 Act. The dispute arose out of banking business done with the defendant bank at its London branch, and a number of reliefs were sought, including .By way of declaration and injunction. Four applications were dealt with in the reported decision, one of which was by the defendant seeking rejection of the plaint.
One of the grounds taken in this regard was that the 1997 Act did not apply to "transactions of foreign branches of a banking company based in Pakistan" (pg. 19). The learned single Judge referred to various provisions of the 1997 Act, including section 2(a)(i). It was noted that the 1997 Act did not have extra-territorial effect; but then it was observed as follows:-- "However, a particular transaction or party being amenable to jurisdiction of more than one Court is neither impossible nor an unknown phenomenon. In the present case, all and various banking transactions between the parties and the alleged illegalities committed or threatened to be committed by the defendant-bank had taken place abroad on a foreign soil. However, the head of the office of defendant-bank is situated in Pakistan and it has been carrying on business within the jurisdiction of this Court. The claim for damages on the basis of fraudulent and mala fide actions alleged against the officers of defendant-Bank is an action in personam which clearly falls within the exceptions to the doctrine of lex situs expounded by the various notable authors of treatises on Conflict of Laws. For such reason, I am of the view that an action for damages can lawfully be maintained by the plaintiffs against the defendant-Bank here in Pakistan. Indeed, the defendant- bank is vicariously liable for the acts of its officers or its nominees and cannot evade responsibility for damages if otherwise proved by the plaintiffs. The London Branch of defendant-bank, an agency of the defendant bank, can claim distinct entity only for limited purposes. However, the right to sue of an actionable wrong at the place of residence of defendant has its own logic.
Indeed, a plaintiff can more conveniently enforce decree passed by the Court within whose jurisdiction the defendant resides or carries on businesses. The ordinary law of Civil Procedure which applies to this Court in the absence of any provision to the contrary in Act XV of 1997, too, permits institution of such proceedings against the defendant-bank who has its head office within the jurisdiction of this Court. The claim for damages cannot be termed as localized liability enforceable through the English Courts alone. The plaintiffs had the choice of forum in the matter of claim for damages which having lawfully been exercised cannot be denied. The mere fact that no part of the transaction of the cause of action for the suit, had arisen within the jurisdiction of this Court cannot divest the plaintiffs of their privilege to choose between the two for a and sue the defendant-bank for damages here." (pp. 20-21)
11. After having considered the two judgments, I find myself in agreement with the observations in Nadeem Ghani which, in my respectfully view, are to be preferred over those in Value Gold. The observations in the latter case would, in effect, deprive the last part of the definition of "banking company" (the second element identified in para. 8 above) of any relevance. If a cause of action arising out of banking business transacted abroad could have been sued on under the 1997 Act, then what was the need of the second element at all? It is to be noted that the second element applied equally to both Pakistani and foreign companies. Now, it is hardly likely (though perhaps theoretically conceivable) that a Pakistani company would exclusively engage in banking business outside Pakistan, and not in the country. The reverse situation is of course eminently possible, as is the case of a Pakistani company engaged in banking business both within and outside the country.
The position, though is converse, is the same with regard to a foreign company. It is quite unlikely that a foreign company would engage in banking business only within Pakistan, but not outside the country. On the other hand, the reverse situation is readily conceivable, as is the case of a foreign company engaged in banking business both within and outside Pakistan. It would seen therefore that the application of the second element of the definition equally to both Pakistani and foreign companies was intended to limit suits by (or against) such companies under the 1997 Act only to causes of action arising out of or relating to banking business transacted in Pakistan. Thus, in my view, as rightly concluded in Nadeem Ghani, even a bank incorporated in Pakistan would not have been able to sue a defendant domiciled in Pakistan under the 1997 Act in respect of a claim in relation to or arising out of banking business transacted outside Pakistan.
12. Before proceeding further, I may note that learned counsel for the defendants relied on another single Bench decision of this Court reported as Habib Bank Ltd. v. 11/1 Muhammad 2005 CLC 409. It is not clear from the report whether this was an ordinary suit, or a suit under the 2001 Ordinance.
However, with the utmost respect, I am unable to agree with either the reasoning of or the conclusion arrived at by the learned single Judge, which appear to me to be contrary to well settled principles. This is so because the learned single Judge has (as I understand the decision) in effect held that even an ordinary suit cannot be filed in Pakistan on a foreign cause of action against a defendant resident here. I would respectfully suggest that this decision ought not to be regarded as good law.
13. This brings the discussion to the 2001 Ordinance, and the definition of "financial institution". As presently relevant, section 2(a)(i) is as follows:-- "financial institution' means and includes-
(1) any company whether incorporated within or outside Pakistan which transacts the business of banking or any associated or ancillary business in Pakistan through its branches within or outside Pakistan..." (emphasis supplied)
' The first point to note is that the use of the expression "means and includes" rather than merely "means", which was used in the 1997 Act, has clearly broadened the scope of the definition.
However, in my view this is not relevant for present purposes since the plaintiff is licensed as a bank. Therefore, whether or not it is a "financial institution" in relation to the facts and circumstances of the present case turns entirely on the correct meaning of what is contained in sub-clause (i).14. It will be seen that the definition is identical with that of "banking company" save and except that certain words, emphasized for case of reference, have been added. The crucial question is whether, and if so what, difference has been made by these words. Has the law been changed sufficiently so that the plaintiff, which would not have been regarded as a "banking company" under the 1997 Act in relation to the present facts and circumstances, can be regarded as a "financial institution" under the 2001 Ordinance? Learned counsel for the plaintiff would answer this question in the affirmative, and. 1 begin: by considering the other cases relied upon by him.
Learned counsel referred to two division Bench judgments of the Lahore High Court `reported as Hi Lite Industries and others v. Muslim Commercial Bank Ltd. 2004 CLD 1266 and Aaha Samiullah Khan v. Regional Development Finance Corporation and another 2004 CLD 1465. Both were appeals decided under the 1997 Act. However, in both, the finances and facilities were provided and availed in Pakistan. These decisions are therefore not relevant for present purposes, since the crucial fact here is that the finances and facilities were provided and availed outside Pakistan. The next decision is T. Zubair Ltd. v. Judge Banking Court III Lahore 2000 CLC 1405. In this case, the suit was filed under the 1997 Act in respect of facilities and finances provided and availed in England.
However, as is clear from para 2 of the judgment, the questions that were raised before the Lahore High Court were different from the issue involved in the present matter. Indeed, the main point raised and decided was of forum non conveniens, which of course is not an issue here. Learned counsel also relied on another decision of the Lahore High Court, International Finance Corporation v. Sarah Textiles Ltd. And others 2009 CLD 761 (SB). As is well known, the plaintiff (IFC) is a member of the World Bank group and, as noted by the learned Judge, in Pakistan is the subject of special legislation, being the International Finance Corporation Act 1956. It was contended that the plaintiff was not a "financial institution". This contention was repelled and reference was made to the fact that the definition used the expression "means and includes" rather than merely using "means". In any case, it would seem that the facility in question was provided and/or availed in Pakistan. Thus, this decision also does not shed any light on the issue at hand.
15. After having considered the matter, it appears to me that the crucial point is that the definition in the 2001 Ordinance uses the definition in the 1997 Act in is entirety and merely adds certain words to it. In particular, the specific limiting words "in Pakistan" have not been omitted and the new words, "through its branches within or outside Pakistan" have simply been added at the end. In my view, these words are clarificatory in nature. They give recognition to the fact that the bank concerned may be transacting banking business in Pakistan not merely through branches located here, but also abroad. In other words, it is clarified that while the cause of action sued upon must relate to or arise out of banking business transacted in Pakistan, it is immaterial whether such business originates from within or outside Pakistan. In either case, a suit under the 2001 Ordinance would be maintainable. This point was not clear in the 1997 Act. It could plausibly have been concluded on the basis of the definition therein contained that the limiting words "in Pakistan" localized both the substance of the banking business as well as its origination. In other words, the banking business had to both arise and be transacted in Pakistan. The additional words used in the 2001 Ordinance now make clear that this is not so. The banking business may originate anywhere, i,e, either from a branch inside the country or abroad; all that is required that the business be transacted in Pakistan. Project financing can provide an illustration of what the additional words seek to achieve. A foreign bank (and even, though perhaps less realistically, a Pakistani bank) may provide financing for a project in Pakistan either though its local branch or from a branch outside Pakistan. Under the 1997 Act, it could plausibly have been argued that any financing provided through a foreign branch would not be within the definition and therefore a suit to recover such financing would not lie under that Act. Any such ambiguity or doubt has now been laid to rest and the additional words used in the 2001 Ordinance clarify the matter by making the explicit.
16. In passing, one point may be made obiter, in relation to the "transaction" of banking business.
How can such business be said to be transacted for purposes of the definition? To use the illustration just given, suppose a foreign bank provides project financing from its foreign branch.
The project is in Pakistan. However, suppose that all the documentation in respect of the financing is executed abroad and (as is not unusual) the drawdowns of the loan also take place outside Pakistan. Can it be said in such a case that the banking business has been transacted outside Pakistan and hence a suit would not lie under the 2001 Ordinance? It would appear that what has to be considered is the effect of the banking business that has been transacted, i,e,, the purpose or object sought to be achieved by it. If that is in Pakistan, then a suit would lie under the 2001 Ordinance. This is of course not to say that the converse situation would be outside the purview of the 2001 Ordinance. In other words, suppose a Pakistani bank provides financing for a project situated outside the country, but the documentation in respect of the loan is executed here ,and the drawdowns also take place in Pakistan. Clearly, a suit would lie under the 2001 Ordinance in respect of such a loan.
17. Reverting to the actual controversy before me, the finances and facilities sued upon were provided and availed outside Pakistan and the banking business was not transacted here. In view of the foregoing discussion, I am of the view that in relation to, and for, the facts and circumstances of the present case, the plaintiff bank is not a "financial institution" within the meaning of section 2(a)(i). The suit is therefore not maintainable under the 2001 Ordinance. Accordingly, the office is directed to number and register the suit as an ordinary suit on the original side. Since an ordinary suit may be defended as of right, the defendants are entitled to file their written statements, which may be done within six weeks from today. The leave applications stand disposed of in the foregoing terms.