M. SOHAIL IQBAL BHATTI, J.---Through this appeal, the appellants have challenged the order and decree dated 25-9-2013 passed by learned Single Judge/Banking Court in C.O.S. No,62 of 2011.
2. The facts of the case are that respondent-bank filed a Suit for Recovery of Rs,7,61,31,085 along with profit, cost of fund and expenses under section 9 of the Financial Institutions (Recovery of Finances) Ordinance, 2001. The appellants/defendants in response to the summons issued under section 9(5) filed an application for leave to appear and defend the suit. The learned Single Judge/Banking Court through impugned order dated 25-9-2013 dismissed the application for leave to defend the suit and passed a decree for recovery of Rs,6,86,29,408, hence this appeal.
3. The learned counsel for the appellants argued that it is correct that the appellants had entered into a "Diminishing Musharika Agreement" with the respondent-bank but the same does not fall within the definition of "finance" as provided in section 2(d) of the Financial Institutions (Recovery of Finances) Ordinance, 2001, therefore, the Banking Court did not have jurisdiction under section 9 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 and the impugned order and decree being passed without jurisdiction are nullity; the learned counsel further argued that without prejudice to the argument that Banking Court did not have jurisdiction, it has to be determined as to whether any default had been committed in terms of clause 12.1 of the Musharika Agreement executed between the parties and what would be the consequences of the default in terms of clause 12.2 of the Musharika Agreement.
4. On the other hand, the learned counsel for the respondent-bank argued that Askari Home Musharika Purchase Facility amounting to Rs,50.00 Million was allowed to the appellants through Facility Offer Letter dated 21-5-2008 for purchase of residential house measuring 2 Kanal 78 sq. Ft.
Situated at Plot No,12, Block-A, New Muslim Town, Lahore. In consideration thereof, the appellants/defendants executed all the relevant charge documents. The learned counsel argued that since the default was committed by the appellants/defendants regarding fulfillment of the terms and conditions of the Musharika Agreement as well as Undertaking to purchase the "Musharika Units" and also monthly payments agreement; it has been further argued that even otherwise a default was committed by the appellants/defendants in terms of clause 12.1(f) of the Musharaka Agreement and therefore the bank was left with no other option but to file a Suit for Recovery on 9-4-2011 but the appellants/defendants in their application for grant of leave to appear and defend the suit completely denied the availing of Musharika Finance Facility while drawing our attention to application for grant of leave to appear and defend the suit filed by the appellants/defendants on 17-5-2011 (which is available at Pages 173 to 197 of the Paper Book). The learned counsel further argued that on one hand, the appellants/ defendants in their application for grant of leave to appear and defend the suit have refused the availing of finance facility and now in this appeal, the appellants are taking a diametrically opposite stance and are trying to take benefit of different clauses of the Musharika Agreement the execution of which has been denied by the appellants in application for leave to defend the suit.
5. We have considered the arguments advanced by the learned counsel for parties and have also perused the record.
6. Firstly, we would decide the objection regarding jurisdiction of the Banking Court as the learned counsel for the appellants has argued that the Diminishing Musharika Agreement does not fall within the definition of finance. It would be useful to reproduced section 2(d) of the Financial Institutions (Recovery of Finances) Ordinance, 2001; "2(d). "finance includes:-
(i) An accommodation or facility provided on the basis of participation in profit and loss, mark-up or mark-down in price, hire purchase, equity support, lease, rent sharing licensing charge or fee of any kind, purchase and sale of any property including commodities, patents, designs, trade- marks and copyrights, bills of exchange, promissory notes or other instruments with or without buy-back arrangement by a seller, participation term certificate, musharika, morabaha, musawama, istisnah or modaraba certificate, term finance certificate;
(ii) .........................
(iii) .........................
(iv) ........................
(v) ....................
(vi) ..........................
The perusal of the above said definition makes it abundantly clear that Musharika falls within the definition of finance. Thus, the question to be resolved would be as to whether "Diminishing Musharika" is distinct from Musharika to roust the jurisdiction of the Banking Court.
7. The literal meaning of Musharika is sharing under Islamic jurisprudence, Musharika means a joint enterprise formed for conducting some business in which all partners shared the profit according to a specific ratio while the loss is shared according to the ratio of contribution. The Musharika in generality has been divided into two kinds;
(i) Shirkat-ul-Milk (partnership by joint ownership).
(ii) Shirkat-ul-Aqd (partnership by contract).
It is the normal principle of Musharika that the capital investment is quantified; and the basic rule of distribution of profit is that the ratio of profit for each partner must be determined in proportion to the actual profit accrued to the business and not in proportion to the capital invested by the partner. However, the loss is distributed exactly according to the ratio of investment. But, in the near past, another form of Musharika has developed which is "Diminishing Musharika". According to this concept a financier and his client participate either in the joint ownership of a property or an equipment, or in a joint commercial enterprise. The share of financier is further divided into a number of units and it is understood that the client will purchase the units of the share of the financier one by one periodically, thus increasing his own share until all the units of the financier are purchased by him so as to make him the sole ownership of the property.
8. In case of house financing, the proposed arrangement is composed of the following transactions;
(i) To create joint ownership in the property.
(ii) Giving the share of financier to the client on rent.
(iii) Promise from the client to purchase the units of share of the financier.
(iv) Actual purchase of the units at different stages.
(v) Adjustment of rental according to the remaining share.
Thus, the Diminishing Musharika cannot be taken out of the pale of the term "Musharika" which has been specifically termed as finance in section 2(d) of the Financial Institutions (Recovery of Finances) Ordinance, 2001, therefore, in case of default by the client to fulfill the terms and conditions of the finance, the financial institution can institute a suit in the Banking Court.
9. From the documents, it appears that the appellants committed default and indulged in cheating and breach of trust. We would like to reproduce a Hadees-e-Qudsi to quantify the sanctity attached to Musharika as under:- "Allah Subhan-o-Tallah has declared that He will become a partner in a business between two Mushariks until they indulge in cheating or breach of trust (Khayanah)".
We have observed that Musharika Agreement was entered into between the parties and according to the Appendix-B attached to the Musharika Agreement; "Respondent banks' musharika share is Rs,5,00,00,000 i,e, 81% of the banks' share. Appellants' musharika share is Rs,1,20,82,130 i,e, 19% of the share in musharika."
Number of Banks' Musharika Units are 192 and value of each musharika unit is Rs,2,60,417. Similarly, according to the monthly payment agreement, the appellants are required to pay monthly payment amount starting from Rs,7,52,500 when total number of musharika units outstanding are 192 and in case the musharika units are purchased in accordance with the agreement, the monthly payment amount is reduced.
Upon the query made by this Court, it has been frankly conceded by the learned counsel for the appellants that till the time of filing of the suit on 9-4-2011, the appellants had neither purchased the musharika units as agreed nor paid the monthly payments (which is basically the profit). Thus, it is an admitted fact that the appellants being shariks had breached the terms and conditions of musharika and the suit had been rightly filed upon commission of default by the appellants.
11. We have observed that the appellants had executed following documents; "(i) Askari Home Musharaka Agreement dated 25-6-2008.
(ii) Mortgage Deed dated 12-11-2008 registered with Sub-Registrar Samnabad Town, Lahore as Document No,262 Book No,1, Volume No,270 on 29-1-2009.
(iii) Memorandum of Deposit of Title Deeds dated 25-6-2008.
(iv) Undertaking to Purchase Musharakah Units dated 25-6-2008.
(v) Undertaking to Sell Musharakah Units dated 25-6-2008.
(vi) Undertaking cum indemnity dated 25-6-2008.
(vii) Monthly Payments Agreement dated 25-6-2008.
(viii) Demand Promissory Note dated 25-6-2008 for Rs,50 Million.
(ix) Demand Promissory Note for Rs, 72.616 Million.
(x) Personal Guarantee of defendant No,1 /appellant No,1 dated 16-12-2009.
(xi) Personal Guarantee of defendant No,2/appellant No,2 dated 16-12-2009."
Further appellant No,2/defendant No,2 mortgaged the following Property in favour of the respondent-bank in order to secure the facility:- "All that piece and parcel of bungalow measuring 2 Kanals 78 Sq., Ft. (double storey building situated at Plot No,12, Block A, New Muslim Town, Lahore together with land, building, structures of all sorts, amenities, easements etc. Constructed or to be constructed thereon, air conditioners/air- conditioning plants, equipments, fittings and fixtures, appurtenances whatsoever, installed or to be installed therein/thereon".
Appellant No,2/defendant No,2 also executed and deposited the following original documents with the respondent-bank.
"(i) Sale Deed dated 16-6-2008.
(ii) Copy of Assessm ent Form PT-1.
(iii) Transfer Letter from Lahore Development Authority (in favour of Mst. Farhat Kausar dated 9-7- 2010).
(iv) Letter from LDA in favour of Askari Bank Limited regarding placement of mortgage."
12. The respondent/plaintiff-bank alleged in its plaint that the appellants/defendants breached the terms and conditions of the Musharika Agreement and thus committed default and claimed an amount of Rs,7,61,31,085 as on 21-3-2011. The details of which were given as under:- PrincipalRupees Principal amount disbursed on June 25, 20085,00,00,000 Principal repaid amount by the customer. 1,302,085 Principal outstanding 4,86,97,915 Profit Rupees Total profit due as of 31-3-2011 2,40,72,715 Profit repaid by the customer uptil 31-3- 2011.41,23,307 Profit due as on 31-3-2011 1,99,49,408
13. We have observed that the appellants in their application for grant of leave to appear and defend the suit have out-rightly denied that any facility was availed by them and have mentioned in Para No,9 of heir para wise reply that the respondent-bank is complete stranger to the appellants/defendants and no agreement had been executed by the appellants/defendants in favour of the respondent/plaintiff-bank.
We have further observed that after filing of the application for grant of leave to appear and defend the suit, the learned counsel for the appellants/defendants upon instruction stated that the appellants/ defendants admit the availing of the facility and were willing to pay the principal amount. The statement made by the learned counsel was specifically confirmed by the appellant No,1 which was recorded in the order of trial Court on 19-2-2013 and the appellant No,1 also offered to pay the outstanding liability in the installment of Rs,5,00,000 per month till the amount of principal and profit was completely repaid.
We have, during the proceedings of this appeal, enquired from the appellant No,1 regarding his admission of the liability; upon which the appellant No,1 out-rightly stated that he made no such statement before the learned Single Judge/Banking Court.
14. We have observed that in their application for grant of leave to appear and defend the suit, the appellants had totally denied the liability and furthermore the application for grant of leave to appear and defend the suit had not been drafted in accordance with section 10(4) of the Financial Institutions (Recovery of Finances) Ordinance, 2001. Which is reproduced as under:- "(4) In case of a suit for recovery instituted by a financial institution the application for leave to defend shall also specifically state the following ---
(a) The amount of finance availed by the defendant from the financial institution; the amounts paid by the defendant to the financial institution and the dates of payments;
(b) The amount of finance and other amounts relating to the finance payable by the defendant to the financial institution upto the date of institution of the suit;
(c) The amounts of finance and other amounts relating to the finance payable by defendant to the financial institution upto the date of institution of the suit;
(d) The amount if any which the defendant disputes as payable to the financial institution and the facts in support thereof. Explanation. ---For the purposes of clause (b) any payment made to the financial institution by a customer in respect of a finance shall be appropriated first against other amounts relating to finance and the balance, if any, against the principal, amount of the finance".
The consequences of non-compliance with the requirements of subsection (4) of section 10 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 have been given in subsection (6) which stipulates that an application for leave to defend in such cases shall be rejected unless the defendant discloses sufficient cause for his inability to comply with any such requirement.
We are fortified in this view by the judgment reported in Apollo Textile Mills Ltd. v. Soneri Bank Limited (2012 CLD 337) [Supreme Court of Pakistan] where in Para No,19, the Hon'ble Supreme Court has observed as under:- "19. In this case, the application for leave to defend the suit filed by the petitioners did not fulfill the requirements of section 10(3), (4) and (5) of the Financial Institutions (Recovery of Finances)
Ordinance, XLVI of 2001. It was admittedly not in conformity with the said mandatory provisions. No cause or the reason for inability to comply with said requirements was shown. Instead it was expressly admitted by the learned Senior Advocate Supreme Court for the- petitioners before the High Court and also before us that the petitioners failed to fulfill the mandates of the said provisions and did not plead the required Accounts. The petitioners/defendants thus attracted the prescribed legal consequences of:--
(i) rejection of their leave petition under section 10(6);
(ii) non-entitlement under section 10(1) to defend the suit for not obtaining leave to defend the suit in terms provided for in section 10;
(iii) the allegations of fact in the plaint were deemed under section 10(1) to have been admitted by them; and
(iv) A judgment and decree against them and in favour of the plaintiff bank under section 10(1) and (11) ibid."
15. We have observed that although the appellants have totally denied the liability and have also not complied with the provisions of section 10(4) of the Financial Institutions (Recovery of Finances)
Ordinance, 2001 but despite this fact the learned Single Judge/Banking Court has dealt with all the legal objections raised by the appellants regarding non filing of the suit by an authorized person (Para No,8 of the impugned order and decree); we have further observed that the learned Single Judge/Banking Court had repeatedly asked the learned counsel for the appellants/defendants as observed in Para No,11 of the impugned order and decree to point out any error in the account statement and to identify the entry which reflect mark up on mark up but no such entry had been identified or pointed out by the learned counsel which could have been termed as erroneous or incorrect. Since it was a case of outright denial by the appellants, the learned Single Judge/Banking Court had rightly relied upon the documents attached with the plaint and the statement of accounts while observing that all the documents as well as statement of accounts are in harmony with each other and the defendants had not been able to raise any substantial question of law and fact in respect of which evidence was needed to be recorded.
16. The learned Single Judge/Banking Court while passing the impugned order and decree has disallowed the amount of Rs,7.400 Million on account of charity claimed by the respondent-bank while observing that this amount has been waived of by the respondent/plaintiff-bank. Even otherwise we are unable to convince ourselves as to under what provision of law the charity is claimed by the respondent/plaintiff-bank. There are various types of finance facilities that can be granted by the financial institution to the customer and all type of finance facilities have been defined in section 2(d) of the Financial Institutions (Recovery of Finances) Ordinance, 2001. Any facility or accommodation which is not covered by or defined in section 2(d) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 shall not be deemed to be or called as "finance" and as such the same cannot be claimed under the Ordinance, 2001. Charity also does not fall within the definition of "obligation" contained in section 2(e) of the Financial Institutions (Recovery of Finances) Ordinance, 2001.
We have observed that in terms of Clause 7.4 of the Musharika Agreement, the respondent/plaintiff-bank had demanded from the appellants/defendants an amount at a fixed rate in the name of charity in case of delay in payment or default, therefore, Clause 7.4 of the agreement is nothing but a penal clause and the amount claimed thereunder is a penalty and not charity. It is now a settled law that penalty or penal charges in any form cannot be claimed by the financial institution. The charity amount charged/claimed on the contract price is nothing but mark up under the guise of charity. According to Clause 7.4, the respondent/plaintiff-bank would use the amount so charged for charitable and religious purposes at its sole discretion. We are of the considered view that charity or gift is something, a donor gives/grants with his free will, at his own discretion and according to his own choice, and not under compulsion or under the dictates of other. We, therefore, hold that the respondent/plaintiff-bank in any eventuality is not entitled to claim any amount on account of charity. It is further declared that the clause in the Musharika Agreement relating to charity is void and is in conflict with the Financial Institutions (Recovery of Finances) Ordinance, 2001.
17. At this stage, it would be appropriate to refer to the argument advanced by learned counsel for the appellants that no notice had been served in terms of Clause 12.2 of the Musharika Agreement.
We have observed that the notice was served upon the appellants/defendants on 28-9-2010 for violating Clause 12.1(f) which is substantiated by the Rent Deed executed between appellant No,1 in respect of the Musharika Property. Even otherwise, the filing of suit in itself was a notice served upon the appellants which showed the intention of the respondent-bank to terminate the Musharika Agreement and the option was available with the appellants to appear before the Banking Court and state that the appellants want to purchase 81% share of the respondent/plaintiff-bank but the appellants completely denied the availing of the finance facility from the respondent/plaintiff- bank and thus missed the train for purchasing the Musharika property. Even otherwise, as soon as the recovery suit was filed by the respondent-bank, the Musharika stood terminated. We would also like to observe that when an appeal is filed, the matter in original become sub judice before the appellate Court and is reheard; and thus the original and appellate proceedings are steps in one proceeding.
The appellants in their application for grant of leave to appear and defend the suit had completely/out-rightly denied the availing of finance facility but we are afraid that no arguments can be advanced which have not been mentioned in the application for grant of leave to appear and defend the suit. We are of the considered opinion that the requirement of fair and reasonable hearing stands negated if new and additional pleas are allowed to be raised during the arguments. The requirement of reasonable hearing means a fair opportunity to meet the case set up by the other side and the desire to administer justice and equity cannot be enforced in a manner to ignore the technicalities altogether. On this principle, even evidence which comes on record and is found contrary to or beyond the pleadings is required to be discarded out of consideration. We are, therefore, afraid that C.M. No,2 of 2014 filed by the appellants for permission to raise additional grounds and C.M. No,3 of 2014 for placement of additional documents are misconceived.
18. For what has been discussed above, this appeal is dismissed. Resultantly C.M. No,2 of 2014 and C.M. No,3 of 2014 are also dismissed.