' JAWWAD S. KHAWAJA, J.---We heard this appeal at length yesterday and today. The appeal arises from a suit for recovery of Rs,203.019 million (C.O.S. No, 60 of 2001) filed by the respondent-Bank against the appellants under the Financial Institutions (Recovery of Finances) Ordinance, 2001 (the Ordinance). The appellants-defendants filed an application under section 10 of the said Ordinance seeking leave to defend the suit but leave was denied to the appellants and a decree dated 13-5- 2003 was passed by a learned Single Bench against the appellants for a sum of Rs,189.618 million.
Feeling aggrieved the appellants preferred an appeal (R.F.A. No, 281 of 2003) which was heard by a learned Division Bench of the Lahore High Court. This appeal was partially allowed on 6-9-2004 and as a consequence the decretal amount was reduced to Rs,143.237 million.
2. At this juncture, it may be mentioned that prior to the suit filed by the Bank, the appellant- Company had filed a suit (C.O.S. No,49 of 2001) against the respondent-Bank. The Bank filed an application seeking leave to defend. The said application was allowed and as a consequence unconditional leave to defend was granted to it. The said suit is still pending adjudication before a learned Bench of the High Court though an application (considered below) has been filed by the Bank seeking rejection of the plaint. The filing of the said suit, its pendency and the implications thereof will be commented upon shortly.
3. Learned counsel for the appellants took us through the impugned judgment and the documents on record. It is not in dispute that the Bank had granted a letter of credit facility to appellant No,1 namely Zeeshan Energy Ltd. Pursuant to this facility, a sight letter of credit dated 8-12-1994 was issued by the respondent-Bank. The date of expiry of the letter of credit was 31-5-1995. The contents of paragraphs 7 and 8 of the plaint allege that the Bank made payment to the beneficiary of the LC namely, Nigata Engineering Company Ltd. Of Japan. It is also stated in the plaint that no liability is outstanding under the LC facility as payments were received from two leasing companies to retire the LC documents under leasing facilities respectively dated 17-8-1995 and 21- 9-1995 granted to the appellant-Company by National Development Leasing Company (NDLC) and Orix Leasing Pakistan Ltd. The amount claimed by the Bank is on the basis of guarantees which it asserts were issued by it in favour of the two leasing companies to secure the lease finances.
4. Learned counsel for the appellants also took us through various documents including letter dated 23-8-1994, a notification of the Bank dated 18-7-1994 and two letters dated 29-9-1994. The relevant portions of these documents are respectively reproduced as under:-- "Faysal Islamic Bank of Bahrain E.C.
' August 23, 1994 ' ZEESHAN ENERGY LIMITED, ' J.K. House, ' 16-C Peoples Colony, ' Faisalabad.
' Dear Sir, ' Re: POWER GENERATION PLANT ' Kindly refer to your request for Pre-IPO Investment in the subject proposed project. We hereby confirm that Faysal Islamic Bank of Bahrain E.C., shall invest in the equity of the company by way of Pre-IPO Foreign Placement to the extent of 25% of the Paid-up Capital at a premium of Rs,20 per Share of Face Value Rs,10 each.
' Best Regards.
(Sd/-)
Sarfraz A. Sheikh Senior Vice-President"
"Faysal Islamic Bank of Bahrain E.C.
July 18, 1994 ' TO WHOM IT MAY CONCERN ' This is to certify that the Letter of Credit being established by us on account of ZEESHAN ENERGY LIMITED for import of Power Generation Plant shall be on the basis of 100% equity without any banking finance.
(Sd/-)
Sarfraz A. Sheikh Senior Vice-President"
"Faysal Islamic Bank of Bahrain E.C.
' September 29, 1994 ' The Chief Executive, ' ZEESHAN ENERGY LIMITED, Peoples Colony, ' Faisalabad.
' Dear Sir, ' Re: LETTER OF INTENT FOR UNDERWRITING.
' Please refer your request for Underwriting the Public Issue of your company.
' We are pleased to convey you of our intent to underwrite the public subscription , upto. Rs,40.000 mio (Rupees: FORTY MILLION .ONLY) as approved by our Head Office Management Committee.
Thanks.
(Sd/-) ARIF MAHMOOD CHAUDHRY (Assistant Vice-President) CREDIT AND MARKETING"
"Faysal Islamic Bank of Bahrain E.C.
' September 29, 1994 ' WHOM IT MAY CONCERN ' This is to certify that we have appraised the project financing of Zeeshan Energy Limited, a proposed 100% Equity based Energy Generation Plant of 6.9 MW for opening of Sight L/C of Rs,120.000 mio (Rupees: ONE HUNDRED TWENTY MILLION ONLY).
(Sd!-)
ARIF MAHMOOD CHAUDHRY (Assistant Vice-President)"
5. Additionally, permission granted by the Controller of Capital Issues dated 25-10-1994 was also brought to our attention by learned counsel for the appellants. This permission prima facie sets out that the project was equity-based as the respondent-Bank was to contribute 25% of the appellant- Company's paid-up capital. The relevant portion of the said letter is reproduced as under:-- {{TABLE}} "(a) Local Sponsors Rs, 32, 730,000 at par
(b) Messrs Faysal Islamic Bank of Rs,20,455,000 at a premium Bahrain E.C. Of Rs,20/share
(c) General Public Rs,24,875,000 -do-
(d) NIT Rs,2,760,000 -do-
(e) Employees of Zeeshan Group Rs,1,000,000 -do- Total: Rs,81,820,000" {{TABLE}}
6. Based on all these documents, it was submitted on behalf of the appellants that the power generation project of the appellant-company was agreed to be 100% equity based "without any banking finance". When questioned, learned counsel for the Bank initially stated that the project was to be entirely equity based; however, he thereafter retracted. This statement and asserted that the appellant-Company had been granted banking finance facilities at its own request which it was liable to repay. The documents referred to above do prima facie show that the power generation project of the company had been conceived as based entirely on equity. It is for this reason that we asked learned counsel for the Bank A to explain the nature and circumstances in which the involvement of the Bank in the Project was altered from 100% equity to that of banking finance. Without answering the Court's query, he simply kept repeating that the Bank's claim was based on finance facilities requested by the appellants. Bearing in mind the aforesaid documents and the terms of the letter of credit, we are prima facie, of the view that there were significant aspects of the dealings between the appellant-Company and B the respondent-Bank which needed determination on the basis of evidence at a regular trial. This is particularly so in view of lack of a satisfactory response from the Bank to our queries.
7. We then repeatedly asked learned counsel for the respondent-Bank to refer to documents/correspondence and inform us of the dates on which the respondent-Bank made payments under the above referred letter of credit. We considered this to be important in view of the fact that the LC imposed a primary obligation on the Bank in terms of the Uniform Customs and Practice, to make payment to the beneficiary. Thus if indeed the appellant-Company was given an opportunity to prove the above referred documents and the nature of the relationship between it and the respondent-Bank, it would be in accordance with the provisions of the Ordinance to grant leave to defend to the appellant Company as substantial questions of law and fact required adjudication. Learned counsel for the respondent-Bank again kept insisting that the Bank was not making any claim under the letter of credit facility but was basing its claim primarily on the guarantees furnished by it in favour of NDLC and Orix Leasing Pakistan Ltd. The answers sought by us were not forthcoming. It is, however, important to note that being a sight LC payment thereunder had to be made immediately upon presentment of requisite documents to the respondent-Bank. Learned counsel for the Bank admitted that the relevant documents/correspondence between end May, 1995 i,e, expiry of LC and August/September, 1995 (date of lease finance agreement) which could shed light on what had transpired in this period were not on the record. He was given time even today to get hold of the documents and the hearing was adjourned till after the break but he could not produce the same.
8. Learned counsel for the respondent-Bank, however, submitted that the first payment under the LC for Yen 353 million was made on 15-8-1995 while the second payment of Yen 29 million was made on 5-9-1995 and the third payment of Yen 2 million was made on 13-9-1995. The absence of documents which potentially could be crucial for adjudicating the dispute between the parties and the other two factors i,e, dates of payment under the LC and the assertion prima facie supported by documentary evidence, to show that the appellant Company may, if provided the opportunity, be able to establish that the project was conceived by it and the respondent-Bank as equity based but there was an actionable violation of such arrangement by the Bank. Furthermore, the dates of payment under the LC which have been given by learned counsel for the Bank are prima fade, inconsistent with the pea that it was through lease finance that payments under the LC were made.
9. The judgment of the learned Single Bench did not take into account the aforesaid circumstances or the question of whether the project was meant to be equity-based or was mere conventional debt financing creating a simple liability to repay. Considering the facts which appear from the record the arrangement between the appellant! Company and the Bank was prima facie, based on reciprocal promises other than routine/conventional finance. The judgment of the learned Division Bench in para 10 noted the contention of'the appellants that, 'the entire basis of the financial planning for the project had been that it shall be 100% equity participation." However, at para 21 the learned Division Bench held that this was an "unsubstantiated assertion which is not supported by any contra document as required by section 10(5), that the bank backed out from the equity participation and in the circumstances compelled the appellants to enter into the leasing arrangement, cannot be considered the "substantial questions of fact" to prove; which some undisclosed and unspecified oral evidence should be permitted to the appellants."
10. We say with great respect, the above quoted extract from the impugned judgment of the Division Bench is not correct. Far from being based on "un-disclosed and un-specified oral evidence", the allegations levelled by the appellant-Company against the respondent-Bank are inter alia, based on the documents specified in paras 4 and 5 above. Section 10(8) of the Ordinance stipulates that leave to defend the suit should be granted where "substantial questions of law or fact have been raised in respect of which evidence needs to be recorded". As noted above, the present case does not appear merely to involve ordinary banking transactions. There are aspects of the case which have been considered above, which require explanations, answers and evidence from the Bank also. We, however, do not intend, to record evidence or to comment on the documents referred to by the learned counsel or even to decide if the project of the appellant-Company was indeed 100% equity based; we only need to see if there are grounds on which leave to defend should have been granted in the light of section 10(8) of the Ordinance.
11. Here it is appropriate to reiterate that the appellants themselves filed C.O.S. 49/2001 in which various allegations have been made against the Bank. This suit was filed prior to the suit of the Bank out of which this appeal has arisen. Learned counsel for the Bank advanced an unsubstantiated argument that it was "standard practice" for borrowers to file suits against financial institutions to avoid obligations for repayment of finance availed by them. He also stated that the pendency of C.O.S. 49 of 2001 could not be made the basis of granting leave to defend to the appellants. We may agree that mere filing of a suit by a borrower will not be sufficient as a general rule, for grant of leave to defend to a customer in a case filed by a Bank or financial institution. We, however, cannot give any weight or credence to the submission (whether correct or not) that customers routinely file suits against financial institutions. As a Court exercising jurisdiction in a specific case we have to examine the particular facts of the case. It is for this reason we were constrained to ask the learned counsel for the Bank to confine his submissions to the present case.
12. We were also informed by learned counsel representing the appellants that the Bank had filed an application under Order VII, Rule 11 read with sections 10 and 151 of the C.P.C. Praying for rejection of the appellant's plaint in C.O.S. 49 of 2001 on the ground that the said suit had become barred by res judicata because of the decree passed in favour of the Bank in the present case. We have no intent to adjudicate the question as to whether or not this application is to be allowed because it is a matter which is pending before the learned Bench hearing C.O.S. 49 of 2001. We have been informed that on account of the said application the proceedings in C.O.S. 49 of 2001 have been stayed even though the issues were framed by the Court as far back as 7-3-2001 and evidence has also been partly recorded. We may, however, comment that it would be quite extraordinary to seek rejection of the plaint in C.O.S. 49 of 2001 on the ground of res judicata when the appellants have not even had an opportunity of proving their allegations against the Bank. We have already noted that the learned Division Bench fell in error in observing that the substantial questions of fact which we find quite specific were either un-disclosed or unspecified. Denial of leave to defend to the appellants would in the facts and circumstances of this case, amount to denial of the legal right available to the appellants/defendants under section 10(8) of the Ordinance.
13. We may also note for the record that learned counsel for the respondent-Bank insisted that he had not been heard fully in respect of the five financial facilities set out in the Bank's plaint. This contention is misconceived. Once we have come to the conclusion that substantial questions of law and fact have been raised but have 'remained unanswered and that there is sufficient documentary as well as circumstantial evidence prima facie, to show that the allegations made by the appellants against the respondent-Bank are neither frivolous nor un- I substantiated, leave to defend should be available to the appellants in C.O.S. 60 of 2001. We may add that the right of the respondent-Bank to prove its case is not being denied to it. Thus, it would have full opportunity of proving its case or disproving the allegations made against it by the appellants. Grant of leave to defend merely ensures that a right which is ordinarily available to all defendants as of right in all civil suits is not denied to defendants in Banking suits under the Ordinance if there are substantial questions of law and fact which have been raised by a defendant.
14. Considering the facts and circumstances of the case and in order not to cause any prejudice to either side we are clear that the two suits should have been dealt with together. Mr. Khalid Anwar, learned Senior Advocate Supreme Court for the appellants, cited a judgment of a Division Bench of the Lahore High Court reported as Muhammad Khalid Butt v. United Bank Ltd. (2003 CLD 911) where leave had been granted to the respondents therein in a suit that they filed but not to the appellants in their suit on the same subject-matter. In particular it is pertinent to note that the learned Division Bench held, "if the suit of the appellant is decreed, the respondent's suits are bound to fail and vice K versa, therefore, when leave is granted to the respondent in the first suit, on the principle of consistency and comity and for the due administration of justice, the appellant was also entitled to the leave to appear and/K defend, which should have been granted by the Court". We may, however, state that this is not an absolute rule to be followed in all cases regardless of the specific facts of the case. The Court also held that "the cases should have been conducted and proceeded simultaneously and decided together in order to avoid any conflicting judgment". This principle is squarely attracted in the facts of the present case. It needs to be emphasized that if this rule is not followed here and the application under Order VII, Rule 11, C.P.C.
Is allowed by the Bench seized of the same, the plaint filed by the appellants would stand rejected as prayed for by the respondent-bank, even though the appellants (plaintiffs in Suit No,49 of 2001) would have had no opportunity of leading evidence to establish the contents, of their plaint.
15. We are consciously not commenting on the submissions made by learned counsel for the appellants that the documents filed by the bank with its plaint are accompanied by statements of account which are false. These allegations, as well as other allegations and counter allegations needless to say, will be decided on the basis of evidence which may be led by both sides.
16. At this point we may also note that there are distinctive features of the two suits the first (C.O.S. No,49 of 2001) filed by the appellants against the respondent-bank and the second (C.O.S. No,60 of 2001) filed by the respondent-bank against the appellants. These distinctive features have also not been taken into account in the judgments impugned before us. It was contended by the learned counsel for the bank that under section 10 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 the application for leave to defend was required to be rejected for non- compliance with the mandatory provisions of section 10(4) of the said Ordinance. However, considering the specifics of this case relating firstly to the allegation relating to equity financing and secondly, to the unexplained gaps in the period between 31-5-1995 and August/September 1995, the parties will proceed to lead evidence to further their respective contentions before the learned trial Bench. Since these are old cases in which suits were filed as far back as 2001 it is our expectation that the same will be dealt with expeditiously by the learned Bench seized of the matter.
17. As a consequence of the foregoing discussion, the impugned judgments and decrees dated 13-5-2003 and 6-9-2004 respectively passed by the learned Single Bench and learned Division Bench of the High Court are set aside. Leave to defend is granted the appellants while holding that the two suits i,e, C.O.S. No,49 of 2001 filed by the appellants against the bank and C.O.S. No,60 of 2001 filed by the bank against the appellants shall be heard together as the bank has already been granted unconditional leave to defend in C.O.S. No,49 of 2001 vide order dated 21-1-2001. The security by way of mortgage etc. In favour of the Bank shall be kept intact until the decision of the cases. The appellants shall also be entitled to their costs.