AZIZ-UR-REHMAN, J.---The plaintiffs have filed the instant suit against the defendant for Declaration, Permanent Injunction, Rendition of Accounts, Redemption of the Mortgaged Property, Cancellation of Cheques, Documents, Deletion of the name of plaintiffs from CIB of SBP, Set-off of Counter claim in the sum of PKR 392,353 plus award of Damages in the sum of PKR 60 Million[s] and other Consequential Relief[s] under section 9 of the Financial Institutions [Recovery of Finances] Ordinance, 2001 [In short F.I.O., 2001] with following prayers:- "(i) Declaration[s] that the defendant is not entitled to increase the amount of monthly instalment[s] on subject suit's property bearing House No. 7/11, 22nd Street, Off Khayaban-e- Tanzeem, Phase V, DHA, Karachi admeasuring 500 square yards and/or that the plaintiff's property is liable to be released/redeemed upon payment of schedule amount.
(ii) Declaration that the increased monthly instalment's amount of a sum of PKR 86,601 only per month as demanded by the defendant/bank towards alleged liability is illegal exaggerated, exorbitant un-warranted, hence not liable to be paid by the plaintiffs.
(iii) Declaration[s] that Suit's Financing is based on 'Marked-up Price' [or 'Buy Back Price or 'Repurchased Price] as per Article 4.1 of the Agreement which cannot be changed/enhanced as per law.
(iv) Declaration[s] that according to the Demand Promissory Notes and Personal Guarantees and other documents in which the amount mentioned is blank, the liability arising from the instant Documents is 'Nil' or 'Blank' or 'Zero' under the law.
(v) Declaration[s] that the defendant/Bank has violated the SBP's BPD's Circular No.1 of 2004 and section 18 subsections (1) and (2) of F.1.0., 2001.
(vi) Declaration[s] that the plaintiffs have paid excess amount of PKR 392,353 in addition to the amount of monthly instalments to the defendant bank which should be adjusted towards the future instalments of August, September, October, November and December 2008 and January 2009. Hence the Cheque Nos.5677494, 5677495, 5677496, 5677497, 5677498 and 5677499 dated 15th of every above months have been stopped and/or cancelled with immediate effect as the excess payment[s] has already been made.
(vii) Award a decree of accounts with the direction[s] to the defendant/bank to render the proper accounts and/or statement of accounts to determine 'Outstanding Mortgaged Money' with documentary evidence, and other statement including all related documents.
(viii) To direct the defendant to the plaintiff to settle the account accordingly to the repayment schedule of finance agreement dated 12-3-2005 and allow the plaintiff to deposit remaining instalment from February, 2009 in the court and in view of above decree of cancellation of cheques, which are the subject matter of the suit be awarded especially the cheque Nos.5677494, 5677495, 5677496, 5677497, 5677498 and 5677499 in view of Para VI of the Prayers.
(ix) Grant 'Permanent Injunction[s] to restrain the defendant, their Agents, Representatives, Attorneys, Workers, Managements, Officers, acting for and on their behalf; from charging increased amount of monthly instalment on the subject mortgaged property bearing House No.7/II, 22nd Street, Off Khayaban-e-Tanzeem, Phase V, DHA, Karachi, admeasuring 500 square yards and/or restrain them from harassing, torturing and humiliating the plaintiffs permanently, and at the first instance interim orderN are solicited.
(x) Award decree of accounts.
(xi) A decree for damages [s] in favour of the plaintiffs against the defendant/bank of PKR 60 Million[s] only on account of damages and/or compensation as per the break-up stated in the instant plaint.
(xii) Decree of redemption of Names of the plaintiffs from the SBP's CIB as defaulters.
(xiv) Award cost of the suit to the plaintiffs.
(xv) Any other further relief[s] and/or order[s] and/or decree[s] and/or declaration[s] as may be just and appropriate in the facts of the instant case in favour of the plaintiffs.
2. The relevant brief facts in the background are as follows:-
3. The plaintiffs Nos.1 and 2 besides brothers are Doctors and running their clinic. Both in terms of section 2[d] of F.I.O., 2001, are also customers of the defendant Financial Institution, as they have availed financial facility from the defendant Financial Institution as defined under section 2[a] of F.I.O., 2001.
4. The defendant, is a Holding Company [Pvt.] Ltd. Incorporated under the laws of Pakistan and falls within the meaning of section 2[a] of F.I.O., 2001 and having its' principal place of business at 5th Floor, Block 'C', Finance and Trade Centre, Shahrah-e-Faisal, Karachi.
5. The plaintiff No.1, as averred, is the sole owner of the 'mortgaged property', bearing House No.7/11, 22nd Street, Off Khayaban-e-Tanzeem, Phase V [G +1], measuring 500 sq.Yds, DHA, Karachi [hereinafter means 'mortgaged property'].
6. Per averments, the plaintiffs entered into a 'PROPERTY FINANCING AGREEMENT ON MARK-UP BASIS' dated 12th March, 2005 with the defendant Holding Company [Pvt.] Ltd. For availing a finance facility in the sum of Rs.7 Million only for the purchase of house costing to PKR 16.4 Millions with the 'debt equity ratio' of 49/51%.
7. The financial facility so availed was/is payable within 15 years and 2 months comprising of 182 equal monthly instalments in the sum of Rs.58,551 plus Mortgage Insurance Premium of Rs.2,100 and Property Insurance Premium of PKR 875 which on summing up comes to Rs.61,526 for the first year. The 2nd last instalment per the 'REPAYMENT SCHEDULE' to the property financing agreement on mark-up basis of 12th March, 2005 comes to Rs.58,576 and the last one comes to Rs.25,184 on account of gradual decrease in the insurance premium.
8. Under Article 4.1 of the Property Finance Agreement on markup basis dated 12-3-2005, the plaintiffs were/are bound to pay the 'mark-up price to defendant company viz. PAK Libya in monthly instalments in accordance with the 're-payment schedule' as contained in Schedule 'B' of the aforesaid agreement. According to the plaintiff's assertions, the monthly instalments are being regularly paid through post-dated cheques quite in accordance with the 'REPAYMENT SCHEDULE' along with 'BALLOON PAYMENTS' of Rs.50,000 [Rupees Fifty Thousand only] every 6. Months [i.e. In March and September every year] till date. The plaintiffs, per averments, did not commit any default in payment of any monthly instalment. Rather, the plaintiffs have paid Rs.392,353 in addition to the amount of monthly instalments which amount nonetheless, is adjustable against and towards the future instalments. The six cheques [i.e. Cheque Nos.5677494, 5677495, 5677496, 5677497, 5677498 and 5677499, already handed over to the defendant towards monthly instalments of August, September, October, November, December, 2008 and January, 2009], in view of the already excess payment of Rs.392,353, need not be encashed by the defendant financial institution.
9. Towards and for securing the financial facility, the defendant No.1 also mortgaged his immovable property bearing No.7/II, 22nd Street, Phase V, [G+1], admeasuring 500 sq.Yds [per layout map] with defendant Company/Financial Institution.
10. In consideration of the aforesaid facility, the documents executed by the plaintiffs either jointly and/or severally in favour of the defendant are as follows:-
(a) Property Financing Agreement on Mark-up Basis.
(b) Memorandum of Deposit of Title Deeds
(c) Irrevocable General Power of Attorney
(d) Guarantee,
(e) Personal Guarantee, (0 Undertaking
(g) Affidavit
(h) Promissory Notes [undated] All the aforesaid documents are dated 12-3-2005.
11. Per assertion, some of the documents were got signed in blank in clear cut violation of the section 18[1] of the Financial Institutions [Recovery of Finances] Ordinance, 2001 [Ordinance No.XLVI of 2001]. According to the plaintiff's version, the sanction Letter dated 12-3-2005 is not only contradictory to the Schedule 'B' [Repayment Schedule] of the 'PROPERTY FINANCING AGREEMENT ON MARK-UP BASIS' dated 12-3-2005 but also inter alia is in violation of the State Bank's Circulars i.e.:-
(a) BPD Circular No.1 dated 21st January, 2004,
(b) Circular No.13 dated 20-8-1984
(c) Circular No.32 dated 26-11-1984.
12. The 'Marked-up Price', per plaintiffs stand, once settled cannot be varied/modified much-less unilaterally and without execution of fresh agreement[s] between the parties. The same otherwise would be against the very concept of Islamic Banking 'buy back' system. Under law, no mark-up over mark-up can be charged. In the plaint, it was also averred that the letter dated 7-3-2007 for increasing the monthly instalment[s] from Rs.61,526 to Rs.86,601 by linking the same to KIBOR is not only contrary to the Article 22.1 of the Finance Agreement dated 12-3-2005 but as well of the circulars issued by the State Bank of Pakistan from time to time. Moreover, the defendant also failed to consider and/or properly reply, the plaintiffs protest regarding and against the increase of monthly instalments from Rs.61,526 Pak Rs.86,601. In response of letter dated 7th March, 2001, the plaintiffs beside raising several objections had also requested for the provision of the following documents:-
(i) Account statement for the year [2005, 2006 and 2007 to date].
(ii) Letter of outstanding balance [pay-off].
13. The plaintiffs, per their commitments were/are no doubt, paying the monthly instalments regularly. Rather to say, the defendant Company received 'EXCESS AMOUNT' under the-garb of un- warranted increase of the monthly instalment[s]. The defendant in its' own wisdom is continuously demanding increased amount of monthly instalments from violation of 'REPAYMENT SCHEDULE' dated 12-3-2005. The defendant FINANCIAL INSTITUTION has also failed and/or ignored to render proper accounts to the plaintiffs. On account of the defendant's failure to honour its' contractual obligations/commitments, the plaintiffs, have thus suffered heavy losses and damages.
14. The defendant, indeed, with mala fide intention has not only reported the plaintiffs' names to State Bank of Pakistan as 'defaulters' but also became source of placing their names on the defaulters list of SBP [CIB]. On account of such illegality, the plaintiffs could not avail any finance facility from other banks to increase their business. As such, on this ground as well, the plaintiffs suffered huge losses and damages, which, no doubt, the defendant is liable to pay the same to the plaintiffs. On account of illegal demand of the increased amount of monthly instalments [i.e. In clear violation of the 'FINANCE AGREEMENT' AND 'REPAYMENT SCHEDULE'], the plaintiffs have not only suffered mental torture but also lost their physical health and reputation.
15. The break-up/quantum of damages as claimed in the suit is as under:-
(a) Loss/damages on account of Mental torture/agony suffered by the plaintiffs'PKR 24 Millions
(b) Loss of reputation due to defendant/bankPKR 10 Millions
(c) Financial losses due to non- professional attitude of bankPKR 25 Millions
(d) Cost accrued on litigation paid by the plaintiffs'PKR 01 Millions Total damages PKR 60 Million
16. The cause[s] of action, per averments, has/have been arisen against the defendant on various dates as stated in paras 24 to 26 of the plaint. Hence this suit.
17. Upon filing of the suit on 27-3-2008, process under section 9[5] of the F.I.O., 2001 was issued to the defendant by all modes. In response, the defendant filed their 'Leave to Defend Application- cumwritten statement' [C.M.A. No.9275 of 2008] on 1-9-2008 under section 10 of the Financial Institutions [Recovery of Finances] Ordinance, 2001 [XLVI of 2001], wherein the contents of the plaint were denied to some extent categorically.
18. On 10-10-2008, the Additional Registrar [O.S.], issued notice on Leave to Defend Application bearing C.M.A. No.9275 of 2008 to the plaintiffs, who on service, filed their replication to Leave to Defend Application. Inter alia in the Leave to Defend Application [C.M.A. No.9275 of 2008], the following objections were also raised:-
(a) The suit is not maintainable.
(b) The plaintiffs have no cause of action against the defendant.
(c) The suit is barred under section 9 of the Financial Institutions [Recovery of Finances] Ordinance, 2001.
(d) The prayers for declaration and injunction are not tenable and legally hit by the provisions of sections 48 and 56 of the Specific Relief Act.
(e) The plaintiffs have not come to the court with clean hands. It has suppressed true facts and made misrepresentation with mala fide intentions.
(f) The suit is not maintainable as the plaintiffs have not alleged any default by the defendant in- fulfillment of any obligation with regard to the finance.
(g) The suit is deliberately false, frivolous and vexatious. The plaintiffs have not provided an iota of evidence for the damages or any damages whatsoever. As such, the suit is liable to be dismissed with compensatory costs.
(h) The plaintiffs themselves are defaulters and have filed this mala fide suit to avoid payment and pre-empt recovery proceedings.
19. In the Leave to Defend Application [C.M.A. No.9275 of 2008] regarding paras 5, 6 and 7 it was averred, that the plaintiffs in fact, have accepted the execution of mortgage of immovable property bearing No.House No.7/11, 22nd Street, Off Khayaban-e-Tanzeem, Phase V, DHA, Karachi as security against the FINANCIAL FACILITY availed by the plaintiffs from the defendant. Per defendant's stand, the documents were, no doubt, got executed by the plaintiffs voluntarily. The allegation of forcing the plaintiff to sign in blanks is nothing but a blatant lie. All the documents were properly filled-in and witnessed as well. The SANCTION LETTER [Annex 'D' to the plaint] and terms and conditions thereof, are binding on the plaintiffs as the SANCTION LETTER is/was a part of CONTRACTUAL ARRANGEMENT between the parties.
20. The defendant has not violated any circular[s] of SBP as alleged or otherwise. The plaintiffs are 'wilful defaulter' and want to shield their 'default' by way of filing the present frivolous suit. The plaintiffs are not required to pay mark-up at the rate as being linked with KIBOR.
The statement of account, no doubt, was provided to the plaintiff as per prevailing procedure.
21. Per averments, the defendant immediately reported the matter of 'OVER-DUES' to CIB in accordance with law and directions/guidelines issued by the State Bank of Pakistan. The defendant, has thus acted in accordance with law and procedure. The plaintiffs have not provided any evidence regarding damages as claimed. It was denied that the plaintiffs have suffered any damages in the sum of Rs.60 Million or otherwise. It is preposterous to claim damages particularly when the plaintiffs are themselves 'willful defaulters'. The plaintiffs, under the Finance Agreement, beside bound are liable to pay monthly instalments at the greed rate of mark-up. It is denied that any 'cause of action' as alleged or otherwise, has been arisen in favour of the plaintiffs. The plaintiffs besides having wasted money on 'court fee' have also abused the 'due process' of court.
The suit besides being false and frivolous has been filed with a mala fide intention to avoid repayment of just legal dues payable by the plaintiffs to defendant Financial Institution.
22. In the Leave to Defend Application [C.M.A. No.9275 of 2008], it was denied that the plaintiffs are entitled to any of relief[s] as claimed. The declaration sought is legally barred. The prayers for accounts is only a camouflage to preempt the recovery suit. The plaintiffs are liable to be proceeded in the Banking Court for payment of loan and issuing of the cheques dishonestly. The plaintiffs are not entitled to seek any cancellation of the cheques having been given against the payment of the 'FINANCIAL FACILITY'.
Regarding redemption of the mortgage property, it was asserted that the plaintiffs in the first place are required to deposit the outstanding amounts. The prayers for permanent injunction and deletion of the plaintiffs' names from the defaulters' list of State Bank of Pakistan [CIB] being not tenable in law as such cannot be granted.
23. Finally, the defendant has prayed for rejection 'of the plaint under Order VII, Rule 11, C.P.C. With cost/compensatory cost. According to the defendant, the suit as framed and filed is without any 'cause of actions' and also barred under the provisions of the Financial Institutions [Recovery of Finances] Ordinance, 2001 [Ordinance No.XLVI of 2001], Banking Companies Ordinance, 1962 as well as under sections 42 and 56 of the Specific Relief Act, 1877 [I of 1877].
24. On 20-10-2008 when the aforesaid Leave to Defend Application [C.M.A. No.9275 of 2008] came- up before the court then, the following order was passed:- "20-10-2008 The learned counsel for the plaintiff states that this application for grant of leave to defend is barred by eight days. The learned counsel for the defendant on the other hand states that he has calculated time from the date of publication and according to him the application is within time.
In fact there are four different dates upon which the defendant was served and the period in between do not run in months, but in days therefore this issue can also be framed because the plaintiff' either could not lay hands on any judgment in either way except the judgment of Hon'ble Supreme Court reported in 2002 SCMR Page 476 relevant at Page 478-A. Additionally in the suit, damages have been claimed, which are required to be quantified by leading evidence. There are other questions, which are raised in the leave to defend application. Since the parties have to lead evidence on the question inclusive of the issue of buy back price I therefore, allow this application for the aforesaid reasons. Matter is pasted for issues. [Emphasis and underlining are mine].
25. Subsequently, on 6-2-2008, when again the case came-up before the Court then, upon hearing the following issues were settled:-
(1) Whether the instant suit is maintainable?
(2) Whether the Application for Leave to Defend/Written Statement filed by the defendant is time barred and/or whether defence taken by the defendant in application for Leave to Defend/Written Statement can be taken into consideration in view of time barred Written Statement/Application for Leave to Defend?
(3) Whether the plaintiffs have duly paid the outstanding dues of the defendant upto date in accordance with the agreement of the finance?
(4) Whether the plaintiffs have filed the suit mala fide to shield their own default?
(5) Whether the plaintiffs were not bound to pay markup at KIBOR+ 350 basic points revisable every year in accordance with the sanction letter annexure 'D' to the plaint duly accepted by them?
(6) Whether the 'Buy Back Price' or 'Marked-up Price' or Repurchase Price' can be enhanced?
(7) What damages the plaintiffs' have suffered at the hands of defendant?
(8) Whether the defendant bank is responsible or the State Bank of Pakistan for circulation of the CIB list of defaulters?
(9) What should the decree be?
26. On 8-4-2009 at the joint request, Mr. Asghar N. Faruqui, Advocate was appointed as commissioner for recording evidence of the parties. Order dated 8-4-2009 being relevant reads as follows:- "At joint request Mr. Asghar Farooqui, advocate is appointed commissioner for recoding evidence of the respective parties. Both the counsel are allowed to lead evidence by filing affidavitin- evidence with the right to cross-examine and to file documents before the commissioner.
Commissioner is expected to conclude recording of evidence within 4 months from today. Fee of the commissioner in the sum of Rs. 10,000 per witness shall be borne by the parties who produce such witnesses. Office is directed to issue notice to Mr. Farooqui. Mr. Lakhani undertakes to inform the Commissioner."
27. In 'pro' and 'contra' of the aforesaid issues, the plaintiffs and defendant led their evidence. DR. BULAND IQBAL SIDDIQUI SON OF H. A. SIDDIQUI [plaintiff No.2] in support of the plaintiffs' contentions 'examined' himself. The said witness ['P.W.1'] besides producing his 'affidavit-in-evidence' as Exh.'P/1' also produced in his 'examination-in-chief ' other documents as Exh.'P/1' to Exh.'P/17'. The said witness [P.W.1] was duly 'cross-examined' by Mr. Abdul Sattar Lakhani, learned counsel for defendant Company.
28. On behalf of defendant, Mr. Minhaj Farooqui son of Muhammad Jamil-ur-Rehman Farooqui, ['D.W.1'] filed his affidavit-in-evidence' before the learned Commissioner. The same was produced in his 'examination-in-chief as Exh. 'D'. Besides, other documents produced in his 'examination-in- chief ' are as Exh. 'D/1' to 'D-7/1'. The said witness ['P.W.1'] was also 'cross-examined' by Mr. Saalim Salam Ansari, learned counsel for the plaintiffs on two occasions.
29. Upon conclusion of evidence, the learned commissioner [viz. Mr. Asghar Faruqui] submitted his 'REPORT' dated 6-8-2010, which thereafter was taken on record vide order dated 6-12-2010.
30. On 14-5-2014 and 30-5-2014 I heard Mr. Zeeshan Abdullah along with Mr. Saalim Salam Ansari, learned counsel for the plaintiffs and Mr. Abdul Sattar Lakhani, learned counsel for the defendant and with their valuable assistance also gone through the record of the case minutely. My finding on the issues are as follows:-
31. ISSUE NO.1: Whether the instant suit is maintainable? The burden of proof of this issue is on the plaintiffs. Mr. Zeeshan Abdullah, learned Counsel for the plaintiffs argued that admittedly the plaintiffs are 'customers' and defendant is a 'financial institution' as such falls within the meanings of clauses (c) and (a) of section (2) of F.I.O., 2001 respectively. The facility granted to and availed by the plaintiffs under the 'PROPERTY FINANCING AGREEMENT ON MARKUP BASIS' [Exh. `P)/1] is also a 'finance' within the meaning of section 2[d] of F.I.O., 2001 [XLVI of 2001]. Per learned counsel, in view of this position the relationship between the parties is that of 'customers' and 'financial institution'.
Mr. Zeeshan Abdullah, learned Counsel for the plaintiffs while, continuing his arguments next contended that if, a 'customer' or a 'financial institution' commits default in fulfilment of any obligation with regard to the ' finance' then in such eventuality any of them, as the case may be, of course, can competently institute a suit under section 9 of F.I.O., 2001 in a Banking Court as defined under section 2[b] of F.I.O., 2001 [XLVI of 2001]. The defendant as far as the case in hand is concerned, is demanding/has charged mark-up over mark-up which, per learned counsel, besides being illegal, tantamounts to default of legal and contractual OBLIGATIONS as such has been competently challenged through the present suit.
32. Conversely, Mr. Abdul Sattar Lakhani, learned counsel for the defendant without disputing the existence of the relationship of a 'customer', 'financial institution' and 'finance', contended that since the plaintiffs inter alia are seeking enforceability or violation of the SBP's Circulars and Prudential Regulation but the State Bank of Pakistan as being necessary party has not been joined in the suit. As such the instant suit, in the present form, is not maintainable. He further contended that the present suit besides incompetent in law, is without any 'cause of action'. Moreover, the prayers for declaration and injunction, as sought, are not permissible/tenable under the provisions of sections 48 and 56 of the Specific Relief Act, 1877 [I of 1877]. Mr. Lakhani next contended that the suit as framed and filed is also barred under section 9 of F.I.O., 2001 [XLVI of 2001].
33. For proper appreciation of the contentions of the learned counsel for the parties, I would like to reproduce herein section 9[1] of the Ordinance, 2001 which reads as follows:- "9. Procedure of Banking Courts. (1) Where a customer or a financial institution commits a default in fulfilment of any obligation with regard to any finance, the financial institution or, as the case may be, the customer, may institute a suit in the Banking Court by presenting a plaint which shall be verified on oath in the case of a financial institution by the Branch Manager or such other officer of the financial institution as may be duly authorized in this behalf by power of attorney or otherwise." [Underlining is mine].
34. From the bare reading of section 9[1] of F.I.O., 2001, it transpires that for filing of a suit in Banking Court under section 9 of F.I.O., 2001 the foremost necessary ingredients are; [i] customer [ii] financial institution [iii] default in fulfilment of any obligation [iv] with regard to any finance.
35. The words 'financial institution', 'customer', 'default', 'obligation' and 'finance' and the 'Banking Courts' have been defined in section 2 of F.I.O., 2001 [XLVI of 2001]. For ready and convenience purposes section 2 of F.I.O., 2001 [XLVI of 2001] is reproduced herein below:- (2). Definitions.--In this Ordinance, unless there is anything repugnant in the subject or context---
(a) "financial institution" means and, includes--.-
(i) any company whether incorporated within or outside Pakistan which transacts the business of banking or any associated or ancillary business in Pakistan through its brandies within or outside Pakistan and includes a Government savings bank, but excludes the State Bank of Pakistan;
(ii) a modaraba or modaraba management company, leasing company, investment bank, venture capital company, financing company, unit trust or mutual fund of any kind and credit or investment institution, corporation or company, and
(iii) any company authorised by law to carry on any similar business, as the Federal Government may by notification in the official Gazette, specify;
(b) "Banking Court" means--
(i) in respect of a case in which the claim does not exceed fifty million rupees or for the trial of offences under this Ordinance, the Court established under section 5; and
(ii) in respect, of any other case, the High Court.
(c) "customer" means a person to whom finance has been extended by a financial institution and includes a person on whose behalf a guarantee or letter of credit has been issued by a financial institution as well as a surety or an indemnifier;
(d) "finance" includes--
(i) any accommodation or facility provided on the basis of participation in profit and loss, mark-up or markdown 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 arrangement by a seller participation term, musharika, morabaha, musawama, istisnah or certificate, term finance certificate;
(ii) facility of credit or charge cards;
(iii) facility of guarantees, indemnities, letters of credit or any other financial engagement which a financial institution may give, issue or undertake on behalf of a customer, with a corresponding obligation by the customer to the financial institution;
(iv) a loan, advance, cash credit, overdraft, packing credit, a bill discounted and purchased or any other financial accommodation provided by a financial institution to a customer;
(v) a benami loan or facility that is, a loan or facility the real beneficiary or recipient whereof is a person other than the person in whose name the loan or facility is advanced or granted;
(vi) any amount due from a customer to a financial institution under a decree passed by a civil Court or an award given by an arbitrator; any amount due from a customer to a financial institution which is the subject-matter of any pending suit, appeal or revision before any Court; any other facility availed by a customer from a financial institution.
(e) "obligation" includes--
(i) any agreement for the repayment or extension of time in repayment of a finance or for its restructuring or renewal or for payment or extension of time in payment of any other amounts relating to a finance or liquidated damages; and
(ii) any and all representations, warranties and covenants made by or on behalf of the customer to a financial institution at any stage, including representations, warranties and covenants with regard to the ownership, mortgage, pledge, hypothecation or assignment of, or other charge on assets or properties or repayment of a finance or payment of any other amounts relating to a finance or performance of an undertaking or fulfillment of a promise; and
(iii) all duties imposed on the customer under this Ordinance; and
(f) "rules" means rules made under this Ordinance. [Emphasis and Underlining are mine].
36. As is evident, the word 'Obligation' is followed by word 'includes' which means that the definition of the word 'obligation' is not confined to what has been mentioned in the definition clauses i.e. 2[e(i)(ii)(iii)] of F.I.O., 2001. By using the word 'includes' instead of word 'means' has in fact enlarged the scope of the word 'obligation'. The use of word 'means' otherwise, would have made the scope of the word 'obligation' exhaustive to the extent of what has been defined in the definition clauses i.e. Section 2[e(i)(ii)(iii)] of F.I.O., 2001. In the case of Soneri Travel and Tours Ltd.
Through Chief Executive/Director/Secretary v. Soneri Bank Limited [2011 CLD 193] while, dilating upon the use of words 'means' and 'includes', it was observed as follows:- "28. ...Definition clauses usually use either the word "means" or the word "includes". When the former is used, the definition is exhaustive and is confined to what is stated in the statute. When the latter is used, the definition is expansive; the word bears not merely its ordinary, dictionary meaning but also carries the extended meaning given in the statute. If the definition clause uses both "means" and "includes", the definition is exhaustive as to what follows the word "means", but this exhaustive definition also incorporates what follows the word "includes".
37. Likewise, from the case of Mayzone Pak International v. Additional Secretary, Government of Pakistan [2002 CLC 388], the relevant observation reads as follows:- "2Z ...We would only like to add that it is admitted principle of the interpretation of statutes that whenever a definition is given using the expression "means", it is exhaustive and wherever, the expression used is "included" or "including" or "means and includes", the definition is not exhaustive but it is inclusive which is always supposed to extend the meanings/items/ things/acts of similar nature and can be legitimately included in the definition, if the circumstances so warrant''.
38. In the 6th Edition of Black's Law Dictionary the word 'obligation' has been defined as follows:- "A generic word, derived from the latin substantive 'obligation' having many, wide, and varied meanings, according to the context in which it is used. That which a person is bound to do or forbear; any duty imposed by law, promise, contract, relations of society etc."
39. The phrase 'any obligation with regard to finance', as used in section 9[1] of F.I.O., 2001, no doubt, enlarges the scope, wide enough to include in its ambit; [i] Legal obligations [ii] Contractual obligations [iii] Absolute obligations. Keeping in view this position now if, a 'Customer' or 'Financial Institution' commits default in fulfillment of any obligation [i.e. By not following or violating the law(s), rules, regulations and/or SBP's instructions/circulars etc.] with regard to finance [i.e. Legal obligation and contractual obligations], then, of course, in such eventuality any of the aggrieved parties, may competently institute a suit inter alia for declaration, injunction, damages and specific performance of contract under section 9 of F.I.O., 2001 [XLVI of 2001]. Moreover, under Article 4 of the Constitution of Islamic Republic of Pakistan, 1973, it is also significant to note, that every individual is to be treated in accordance with law and shall not be compelled to do that, which the law does not require him to do that thing. In the case in hand, the defendant is demanding excess mark-up in violation of legal and contractual obligations. Under the aforesaid scenario, the suit as framed and filed is maintainable. I am also fortified in this view by the case of Tri-Star Industries (Pvt.) Ltd. v.
State Bank of Pakistan and another 2004 CLD 257 wherein it was held as follows:- ....Admittedly the petitioner and respondent No.2 have a Banker and Customer relationship and petitioner had availed financial facilities from respondent No.2. Law regulating the relationship between customer and financial institution is contained in Financial Institutions [Recovery of Finances] Ordinance, 2001 [In short F.1.0., 2001], section 9(1) whereof provides: "Where a customer or a financial institution commits a default in fulfillment of any obligation with regard to any finance, the financial institution or, as the case may be, the customer, may institute a suit in the Banking Court by presenting a plaint which shall be verified on oath in the case of a financial institution by the Branch Manager or such other officer of the financial institution as may be duly authorized in this behalf by power of attorney or otherwise."
Definition of 'finance' and 'obligation' as provided for under section 2(d) and (3) respectively of the Ordinance ibid are wide enough to cover the dispute urged in this petition. In case either customer or financial institution commits default in fulfilment of any obligation with regard to any finance, the financial institution or, as the case may be, the customer, may institute a suit in the Banking Court by filing a plaint. The obligations in terms of State Bank of Pakistan Circular and Instructions of HBL sought to be enforced through this petition come within the purview of 'Obligation' envisaged under section 9 of the Ordinance, 2001 as discussed above. Even otherwise, whether the petitioner fulfils the criteria and conditions to avail the benefit of the scheme are disputed questions on fact. Therefore, we are of the opinion that the enforcement of the scheme as sought by the petitioner comes within the definition of 'Obligation' which controversy raised in this petitioner could only be thrashed out by adducing evidence. Such exercise as observed above, is not undertaken in exercise of extraordinary writ jurisdiction by this court. The petition may avail of the remedy as may be provided under the law. [Underlining is mine].
40. The arguments of Mr. Lakhani regarding non-joining of State Bank of Pakistan in the suit besides mis-conceived is mis-leading inter alia in view of section 2(a)(i) of F.I.O., 2001 whereby the State Bank of Pakistan has been excluded from the definition of a Financial Institution.
41. With regard to the next contention of Mr. Abdul Sattar Lakhani, that the prayer sought for declaration and injunction is not tenable or otherwise, hit by the provisions of sections 48 and 56 of the Specific Relief Act, 1877 [I of 1877], Mr. Zeeshan Abdullah, learned Counsel, in response, forcefully argued that this court, no doubt, under law can grant inter alia the relief for declaration and injunction. The relief sought by the plaintiffs, per learned counsel, is not barred under sections 48 and 56 of the Specific Relief Act, 1877. According to Mr. Zeeshan, the contention of Mr. Lakhani to this extent is also mis-conceived. In support of his contentions, Mr. Zeeshan, placed reliance on the case of Mst. Jan Ara and others v. Muhammad Zubair and others [2012 CLC 1630] wherein it was held as under:- "11.... As far as the claim of negative declaration is concerned, the objection is not tenable for the reason that the rule is not of universal application, however, where in a plaint the relief sought for in negative form of declaration, its refusal has not been justified. As there is no absolute bar contained anywhere in law, because in order to overcome, the various complexities of law and procedure, the Courts are bestowed with the unbridled authority to do away with all those impediments, hampering with the fair dispensation of justice. In this respect, the observation made in case Abdur Rahman Mobashir and 3 others v. Syed Amir Ali Shah Bokhari and 4 others (PLD 1978 Lahore 113), can be relied upon:--- "Negative declaration can be granted on principle that what can be done directly can also be justified if is done indirectly. Such declaration must, however, also be one affecting Home threatened injury or infringement of plaintiffs right." [Underlining is mine].
42. Likewise, in the case of U Arzeina v. M a Kijni Shave and another [1987 AIR 1940 Rangoon 298] the court while, dilating upon and dealing with an identical situation held as follows:- "The learned Judge went on to hold that the plaintiff was seeking for bare declaration as to his status of paternity or non-paternity, and that declaration would not affect either the plaintiffs legal character or his right to any property. The plain answer to that of course is that the declaration affects the plaintiff's liability to pay .the amount of maintenance in question, which is property, and, as remained in 55. All 7202 at page 703, the provision of law under which the declaration is used for properly covers not only a declaration to assert a positive right but a declaration to negative the right asserted by the defendant against the plaintiff which affect the plaintiff's property that is to say the liabilities to the plaintiffs estate. Two Burma cases on the subject have not been referred to by the learned Assistant District Judge. In 4 UBR 120, which was a case exactly on all fours with the present one, it was held that such a suit would lie, and indeed we do not know that it has ever been questioned in this province that such a suit would lie any more. than the common form of suit by a husband against a woman claiming to be his wife for a declaration that she is not his legal wife in both cases not merely a legal character but a right to property or earnings, is involved." [Underlining is mine].
43. In further rebuttal of Mr. Lakhani's contention, Mr. Zeeshan "The learned Judge went on to hold that the plaintiff was seeking for bare declaration as to his status of paternity or non-paternity, and that declaration would not affect either the plaintiffs legal character or his right to any property.
The plain answer to that of course is that the declaration affects the plaintiff's liability to pay The amount of maintenance in question, which is property, and, as remained in 55. All 7202 at page 703, the provision of law under which the declaration is used for properly covers not only a declaration to assert a positive right but a declaration to negative the right asserted by the defendant against the plaintiff which affect the plaintiff's property that is to say the liabilities to the plaintiffs estate. Two Burma cases on the subject have not been referred to by the learned Assistant District Judge. In 4 UBR 120, which was a case exactly on all fours with the present one, it was held that such a suit would lie, and indeed we do not know that it has ever been questioned in this province that such a suit would lie any more. Than the common form of suit by a husband against a woman claiming to be his wife for a declaration that she is not his legal wife in both cases not merely a legal character but a right to property or earnings, is involved." [Underlining is mine].
Abdullah also placed reliance on the case of Dr. Mohomed Aqeel Khan and others v. Mst. Dr. Shaharyar and 2 others [1987 M LD 2809] wherein it was observed as follows:- "...I am of the view that even if I agree with the learned 1st Appellate Court that the declaration sought by the applicant was not permissible under the law in the circumstances of the case, the learned 1st appellate court clearly overlooked the fact that in the suit the applicant/plaintiff in addition to the relief of declaration had also sought the relief of permanent injunction which was quite independent of the relief of declaration claimed in the suit. The learned counsel or the respondents were unable to satisfy me that the relief of injunction claimed by the applicant/plaintiff in his suit could not be granted without granting relief of declaration claimed in the suit. As the relief of injunction claimed by the applicant/plaintiff was distinct, separate and independent relief the learned first appellate court could not throw out the whole suit on the consideration that the relief of declaration could not be granted in favour of applicant under the law. As this important aspect of the case was completely overlooked by the learned 1st appellate court while allowing the appeal of respondent No.1, it amounted to an order in excess of jurisdiction. 1 accordingly accept this revision application set aside the judgment and decree"...
[Underlining is mine].
44. Mr. Zeeshan Abdullah while, repelling the arguments of Mr. Lakhani regarding his contention vis- a-vis non-tenability of prayers of the plaintiffs for grant of declaration and injunction strenuously argued that prayers sought by the plaintiffs are not only proper but also justified in circumstances of the case. Besides the same deserve to be granted in view of the fact that the defendant in violation of Finance Agreement [Exh. 'P/7.] and SBP's Circulars are charging/demanding mark-up over mark-up which act of the defendant is absolutely illegal. On grant of permanent injunction and declaration Mr. Zeeshan Abdullah placed reliance on the case of Investment Corporation of Pakistan v. S. Ahmed Sarwana, Advocate [1987 M LD 2442], wherein it was observed as follows:- ... That the relief for permanent injunction flows from the declaration and unless it is granted permanent injunction cannot be granted. Grant of permanent injunction is governed by sections 54 and 56 of the Specific Relief Act if there is an application, even under a contract, arising between the parties and if a breach is committed or apprehended the aggrieved party is entitled to seek a permanent injunction. In the present case, as the appellant has filed an application under Order VII, Rule 11, C.P.C., one has to restrict to the averments made in the plaint which for the purposes of this application would be taken to be correct. The averments made in the plaint have been set out alleging breach of agreement in respect of amount deposited or advanced. The appellant is debating certain amounts which it is not authorized under the contract or under the law." [Underlining is mine].
45. The case-laws cited by Mr. Lalchani i.e. [i] PLD 1968 Kar. 222 [ii] PLD 1982 Kar. 313 [iii] 1999 CLC 1719 [iv] PLD 1997 Kar. 88 besides distinguishable are not applicable to the facts and circumstances of the present case which has been filed under a special statute i.e. F.I.O., 2001 [XLVI of 2001].
46. Moreover, there is another aspect of the matter which can properly be appreciated in the light and upon consideration of section 7 of F.1.0., 2001. Section 7 of F.I.O., 2001 reads as follows:- "7. Powers of Banking Courts.---(1) Subject to the provisions of this Ordinance, a Banking Court shall---
(a) in the exercise of its civil jurisdiction have all the powers vested in a Civil Court under the Code of Civil Procedure, 1908 (Act V of 1908,.
(b) in the exercise of its criminal jurisdiction, try offences punishable under this Ordinance and shall, for this purpose, have the same powers as are vested in a Court of Session under the Code of Criminal Procedure, 1898 (Act V of 1898): Provided that a Banking Court shall not take cognizance of any offence punishable under this Ordinance except upon a complaint in writing made by a person authorised in this behalf by the Financial Institution in respect of which the offence was committed.
(4) Subject to subsection (5) no Court other than a Banking Court shall have or exercise any jurisdiction with respect to any matter to which the jurisdiction of a Banking Court extends under this Act, including a decision as to the existence or otherwise of a loan or finance and the execution of a decree passed by a Banking Court [Underlining is mine].
47. From the bare perusal and reading of section 7[4] of the Financial Institutions [Recovery of Finances] Ordinance, 2001 [XLVI of 2001], it reveals that no court other than a banking court shall have or exercise any jurisdiction with regard to any matter to which the jurisdiction of a Banking Court extends under F.I.O., 2001. Even, a decision as to the 'existence' or 'otherwise' of a 'loan' or 'finance' and the execution of a decree passed by the Banking Court comes/falls within the jurisdiction of the Banking Court as defined in section 2 [b(i) and (ii)] of the F.I.O., 2001. Subsection
4. of section 7 of F.I.O., 2001, no doubt, is subject to subsection [5] of section 7 but in no manner it affects the jurisdiction of Banking Court as far as the case in hand is concerned. Subsection (5) of section 7 of F.I.O., 2001 [XLVI of 2001] reads as follows:- "(5) Nothing in subsection [4] shall be deemed to affect--
(a) the right of a banking company to seek any remedy before any Court or otherwise that may be available to it under the law by which the banking company may have been established; or
(b) the power of the banking company or jurisdiction of any Court such as is referred to in clause (a); or require the transfer to a Banking Court of any proceedings pending before any banking company or such Court immediately before coming into force of this Act."
48. The words, a decision as to the 'existence' or 'otherwise' of a loan or finance as implied in subsection [4] of section 7 of F.I.O., 2001 need not to be given restricted meanings. The word used 'otherwise' in my view, not only extends to the question of 'existence', 'non-existence', of a 'loan' and/or 'finance' but also embraces within its' ambit a 'decision' vis-a-vis all other relevant issues. In the case of Lalchand and 2 others v. Officer on Special Duty, Federal Land Commission and 3 others [1984 CLC 2396], the court while, dilating upon the word 'otherwise', made the following observations:- "3 ...In our view, also the word "otherwise" in the proviso in question embraces not only transactions in the nature of gifts but also any other transaction whereby right or interest in land is transferred or created. A transfer of land through exchange will also be covered by the word "otherwise The Federal Land Commission, Islamabad [PLD 1979 Lahore 375] the word 'otherwise' has been defined in the following words:-
49. Fruther in the case of Sardar Abdul Ghafoor Khan and 3 others "3 ...The word "otherwise" according to its dictionary meaning connotes "in any other way" or "any other ways". Its plain ordinary meaning has therefore the effect of enlarging the category of the transactions described by the preceding word or phrase. It is a word of the widest amplitude.
50. Moreover, F.I.O., 2001 is a special law which overrides all other laws in terms of section 4 of F.I.O., 2001 which reads as follows:- "4. Ordinance to override other laws. ---The provisions of this Ordinance shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force."
1. Upon due consideration of the above, I have come to the conclusion that the plaintiffs' prayer for reliefs of declaration and injunction, under the facts and circumstances of the case, are not prohibited/barred under any of the provisions of Section 48 and/or 56 of the Specific Relief Act, 1877 [I of 1877]. In view of the above discussion, I am of the considered opinion that the plaintiffs' suit against the defendant is maintainable. Accordingly, Issue No.1 is answered in 'POSITIVE'.
52. ISSUE NO.2: Whether the Application for Leave to Defend/Written Statement filed by the defendant is time barred and/or whether defence taken by the defendant in application for Leave to Defend/Written Statement can be taken into consideration in view of time barred Written Statement/Application for Leave to Defend? As far as this issue is concerned, the burden of proof is partly on the plaintiffs and partly on the defendant. Mr. Zeeshan Abdullah, learned counsel for the plaintiffs and Mr. Abdul Sattar Lakhani, learned counsel for the defendant jointly submitted that since the defendant's Leave to Defend Application [C.M.A. No.9275 of 2008] has already been granted vide order dated 20-10-2008 and parties thereafter have also led their evidence in 'pro' and 'contra' of the issues settled by the court on 6-2-2008 as such they do not wish to advance any argument as far as the point of limitation regarding filing of the Leave to Defend Application [C.M.A. No.9275 of 2008] is concerned. Both the learned counsel further submitted that the fate of the instant suit be decided on merits. Under these circumstances, no specific finding is required to be given on Issue No.
2. Consequen4y, I proceeded to decide the suit on its' own merits upon due consideration of the 'pro' and 'contra' pleas raised by the parties and the evidence led by both the parties in support thereof. In view of this position, issue No.2 stands answered accordingly.
53. ISSUES NOS.3 and 4: Whether the plaintiffs have duly paid the outstanding dues of the defendant upto date in accordance with the agreement of the finance - Whether the plaintiffs have filed the suit mala fide to shield their own default? Both these issues are interconnected and the answer of Issue No.3 in positive renders the answer of Issue No.4 in negative. Therefore, I proceeded to decide these issues jointly. The 'onus of proof of issue No.3 lies on the plaintiffs shoulders while the 'burden of proof of issue No.4 is on the defendant. Mr. Zeeshan Abdullah, learned Counsel for the plaintiffs while, advancing his arguments on these issues forcefully contended that admittedly the plaintiffs have availed the 'subject financial facility' under the 'PROPERTY PURCHASE AGREEMENT ON MARK-UP BASIS' dated 12th March, 2005 [Exh. 'P/1'] The purchase price, per the aforesaid agreement, was fixed at Rs.7,000,000 [Seven Million only]. The 'Marked-up price' calculated in advance is payable in accordance with the 'REPAYMENT SCHEDULE'
[Exh.'P/2'] and debt equity ratio is 49/51% per. [See Page 2 of Exh; TM.
54. The 'Marked-up price' calculated in advance, per Mr. Zeeshan is/was payable in 182 monthly instalments [i.e. 15 years and 2 months] in accordance with the 'REPAYMENT SCHEDULE' [Exh. 'P/2'].
For the first year, as is evident from the 'REPAYMENT SCHEDULE', the monthly instalment was in the sum of Rs.61,526 [i.e. Monthly instalment of Rs.58,551 + mortgaged insurance premium of Rs.21,00 + property insurance premium of Rs.875]. For subsequent years, per Mr. Zeeshan Abdullah, the INSURANCE PREMIUM was gradually decreased. The last instalment thus stands decreased to Rs.25,182. Besides, 'BALLOON PAYMENT' of Rs.50,000 being payable every six months [i.e. In March and September of each year] was paid/being paid without any failure on the part of the plaintiffs.
55. From the record, it is evident that the plaintiffs have already handed over 182 cheques in respect of the monthly instalments of 'Marked-up price' etc. To the Defendant Financial Institution.
None of the cheques was ever dis-honoured. Apart from the above cheques the defendant has also received Rs.3,221,410, admittedly on account of the 'disputed excess mark-up' illegally charged by the defendant over and above of 182 monthly instalments] in violation of the 'REPAYMENT SCHEDULE' [Exh. '1)121. Neither any suit nor any criminal complaint under section 9 or 20 of F.1.0., 2001 has ever been filed against the plaintiffs as there was/is no default in repayment of monthly instalments. Rather on account of illegal demand and/or charging markup over mark-up in violation of 'REPAYMENT SCHEDULE' [Exh. 'P/2'] the plaintiffs were compelled/constrained to file the instant suit for declaration etc. Against the illegal charging of excess mark-up over and above 182 mutually agreed monthly instalments which were/are being paid regularly in terms of the 'REPAYMENT SCHEDULE' [Exh. 'P/2].
56. Conversely, Mr. Lakhani, learned counsel for the defendant is very much entitled to charge mark-up over mark-up [excess mark-up] on the strength of LETTER OF SANCTION dated 12th March, 2005 [Exh. `P/11']. As far as the default is concerned, Mr. Lakhani found himself unable to pin- point/establish that either the suit has been filed with mala fide intention or otherwise, with an aim, as alleged, to shield the so-called 'default'. Resultantly, Issues Nos.3 and 4 stand answered in 'YES' and 'NO' respectively.
57. ISSUE NO.5: Whether the plaintiffs were not bound to pay markup at KIBOR+350 basic points revisable every year in accordance with the sanction letter annexure 'D' to the plaint duly accepted by them? The burden of proof of this core issue is on the plaintiffs. Mr. Zeeshan Abdullah, learned Counsel for the plaintiffs strenuously argued that under the 'MARKED-UP PRICE SYSTEM'/'PURCHASE PRICE SYSTEM' OF FINANCING, THE 'MARKED-UP PRICE'/ 'PURCHASE PRICE', cannot be changed and/or enhanced much-less unilaterally. In support of this argument, Mr. Zeeshan Abdullah, learned counsel for the plaintiffs placed reliance on BCD Circular No.13 dated 20-6-1984 and BCD Circular 32 of 26-11-1984. Being relevant the same are reproduced herein below:- "STATE BANK OF PAKISTAN Banking Control Department Central Directorate Karachi. BCD Circular No.13 20th June; 1984.
All Banks, Dear Sirs, Elimination of 'RIBA' from the Banking System.
As has been announced by the Finance Minister, it is the intention of Government that the Banking System should shift over to Islamic modes of financing during the course of the next financial year.
These modes of financing have been described in Annexure 1. This shift will take place according to the following programme.
(i) As from the 1st July, 1984, all banking companies will be free to make finance available in any of the modes of financing listed in Annexure 1. However, as a transitional arrangement, they will also be free to lend on the basis of interest, provided that no accommodation for working capital will be provided or renewed on interest basis for a period of more than six months.
(ii) As from the 1st January, 1985, all finances provided by a banking company to the Federal Government, Provincial Governments, public sector corporations and public or private joint stock companies shall be only in any one of the modes indicated in Annexure 1 [Emphasis and Underlining are mine].
(iii) As from the 1st April, 1985, all finances provided by a banking company to all entities, including individuals, shall be on the same basis as mentioned in (ii) above.
(iv) The appropriate mode of financing to be adopted in any particular case will be settled by agreement between the Banking company and the client. Some possible modes of financing for various transactions have been shown in Annexure
(v) As from the 1st July, 1985, no banking company shall accept any interest-bearing deposits. As from that date, all deposits accepted by a banking company shall be on the basis of participation in profit and loss of the banking company, except deposits received in Current Account on which no interest or profit shall be given by the banking company.
(2) The instructions contained in items (i), (ii) and (iii) above shall, however, not apply to on- lending of foreign loans which will continue to be governed by the terms of the loans. Likewise, the instructions contained in item (v) above shall not apply to foreign currency deposits.
(3) The above instructions are being issued under the Banking Companies Ordinance, 1962.
Further instructions, where necessary, will follow. Please acknowledge receipt. Yours faithfully, (SIBGHATULLAH)
Director"
ANNEXURE - I Permissible Modes of Financing
(A) Financing by lending:--
(i) Loans not carrying any interest on which the banks may recover a service charge not exceeding the proportionate cost of the operation, excluding the cost of funds and provision for bad and doubtful debts. The maximum service charge permissible to each bank will be determined by the State Bank from time to time.
(ii) Qard-e-Hasana loans given on compassionate ground free of any interest or service charge and repayable if and when the borrower is able to pay.
4(B) Trade-related modes of financing including the following.-
(i) Purchase of goods by banks and their sale to clients at appropriate mark-up in price on deferred payment basis. In case of default, there should be no mark-up on mark-up.
(ii) Purchase of trade bills
(iii) Purchase of movable or immoveable property by the banks from their clients with Buy-Back Agreement or otherwise. [Underlining is mine].
(iv) Leasing.
(v) Hire-purchase.
(vi) Financing for development of property on the basis of a development charge.
The maximum and the minimum rates of return to be derived by the Banks from these modes of financing will be as may be determined by the State Bank from time to time.
(C) Trade-related modes of financing including; the following;:--
(i) Musharika or profit and loss sharing.
(ii) Equity participation and purchase of shares.
(iii) Purchase of participation term certificates and Modaraba Certificates.
(iv) Rent-sharing. The maximum and minimum rates of profit to be derived by the banks from such transactions will be as may be prescribed by the. State Bank from time to time. However, should any losses occur, they will have to be proportionately shared among all the financiers.
ANNEXURE-II Permissible modes of financing; for Various Transactions.
Nature of business Basis of Financing I. Trade and Commerce Fixed Investment
(a) Commodity operations of the Federal and Provincial Governments and their agenciesMark-up in price
(b) Export Bills purchased/negotiated under Letters of Credit (other than those under reserve).(i) Exchange Rate differential in the case of foreign currency bills.
(ii) Commission on mark-down in the case of Rupee Bills.
(c) Documentary Inland Bills drawn against Letters of Credit Purchased/discountedMark-down in price
(d) Import Bills drawn under Letters of Credit.Mark up in Price
(e) Financing of exports under the State Bank's Export Finance Charge. Scheme and The Scheme for Financing Locally Manufactured Machinery.Service charge/Concessional Service
(f) Other item of trade and commerce Fixed Investment Equity participation P.T.Cs Leasing or hire purchase Working Capital Profit and loss sharing or mark-up.
II- Industry Fixed Investment Equity participation P.T.Cs. Modarba Certificates, leasing, Hire Purchase or mark-up.
Working Capital III. Agricultural and Fisheries
(a) Short term Finance. Mark-up. In the case of small farmers and small fishermen who are at present eligible for interest free loans finances for the specified inputs etc., upto the prescribed amount may be on mark-up basis. The mark-up amount may however, be waived in the case of those who re-pay the finance within the stipulated period and payment of the mark-up made by the State Bank to banks by debit to Federal Government Account.
(b) Medium and long-term Finance.
(i) Tubewells and Other wells.Leasing or hire-purchase. In addition to ownership of machinery banks wells may create charge on the land in their favour as in the case of other loan to the farmers under the Passbook System.
(ii) Tractors trailors and other farm machinery and transport (including fishing boats, solar energy plants etc.)Hire-purchase or leasing
(iii) plough-cattle, Milch Cattle and other LivestockMark-up
(iv) Fairy and poultry. PLS/Mark-up/hire-purchase/leasing.
(v) Storage and other farm construction (viz. sheds forLeasing or rent sharing basis with flexible weightage to the bank's funds.
(vi) land Development Development charge.
(vii) Orchards, including nurseries Mark-up Development charge or PLS.
(ix) Watercourse Improvement Development charge IV. Housing Rent sharing with flexible weightage to bank's funds or buy-back cum mark-up. v. Personal Advances (other than those for business purposes and housing
(a) Consumer durables (cars, motorcycles, scooters and households goods)Hire-purchase
(b) For consumption purposes Against tangible security with buy back arrangement "STATE BANK OF PAKISTAN Banking Control Department Central Directorate Karachi.
BCD Circular No. 32 26th November, 1984.
All Banks and Development Finance Institutions.
Dear Sirs, Elimination of 'RIBA' from the Banking System Bank Charges.
Please refer to BCD Circular No. 13, dated the 20th June, 1984.
(2) Vide BCD Circular No.7, dated the 28th March, 1984 bank charges except charges for home remittances, have been deregulated. The schedules of bank charges received from the banks show that the following items of bank charges are based on interest:--
(i) Mark-up in the case of import bills under import letters of credit.
(ii) Mark-down in the case of documentary bills drawn against inland letters of credit.
(3) The schedules also provide for levy of overdue/penal interest in case of non-retirement/non- payment of inland cheques, bills etc. Purchased.
(4) In exercise of the powers vested in it under the Banking Companies Ordinance, 1962, the State Bank of Pakistan is pleased to direct that as from the 1st January, 1985, interest, wherever charged by a banking company/development finance institution in any of the, items of bank charges, shall be replaced by a non-interest mode considered appropriate by it. Moreover, overdue/penal interest or mark-up on mark-up shall not be charged by a banking company/DFI as from that date. Instead, it may take legal steps for recovery of the overdue finance. [Underlining is mine].
(5) Please acknowledge receipt. Yours faithfully, (SIBGHATULLAH)
Directors"
58. Significantly, the purpose behind the aforesaid circulars, it appears, was to shift over the interest based banking system to the Islamic modes of financing. Annexure 'A' to BCD Circular No.13 dated 20-6-1984 mentions/describes the various Islamic modes of financing. In terms of the aforesaid circulars interest based financing was somehow replaced with the non-interest based financing [i.e. Islamic modes of financing]. Besides, 'PENAL INTEREST'/'MARK-UP OVER MARKUP' as being charged by Banking Companies/DFIs by then was absolutely also prohibited with effect from 1st July, 1984.
59. Mr. Zeeshan Abdullah, learned Counsel for the plaintiffs next submitted that the 'SUBJECT FINANCE' of the present suit, is based on sub-clause (iii) of clause 4(B) of ANNEXURE-I of BPD Circular No.13 of 30th June, 1982, which reads as under:- "Purchase of movable or immovable property by the banks from their clients with the Buy-Back Agreement or otherwise."
60. Mr. Zeeshan Abdullah, next urged that the 'subject finance' since is based on Islamic mode of financing, thus the defendant cannot charge markup upon mark-up [excess mark-up] in violation of BPD Circular 32 of 1984. Needless to say that SBP's Circulars are binding on Banks/DFI' s.
61. Plus BPD Circular No.1 of 2004, specifically exempts the consumer financing from the applicability of KIBOR [Karachi Interbank Offered Rate] as benchmark rate. In view of this position as well the subject finance cannot be linked with KIBOR. The demand of excess mark-up i.e. Mark- up over mark-up is nothing but a crystal clear violation of the legal as well as contractual obligations. It is needless to say that no one could alter or amend the law or its' effects even by a mutual agreement. Indeed this amounts to an act of default in fulfillment of the obligations by the defendant financial institution with regard to the finance. Under circumstances, the proper and appropriate remedy under the law is the filing of the suit as defendant in no event can be permitted to charge/demand excess mark-up under the garb of KIBOR.
62. The Consumer Financing, it is worth to note, has been defined in the PRUDENTIAL REGULATION FOR CONSUMER FINANCING [UPDATED ON JANUARY 31, 2011] in the following words:-
(3) Consumer Financing means any financing allowed to individuals for meeting their personal, family or household needs. The facilities categorized as Consumer Financing are given as under:
(i) Credit Cards mean cards which allow a customer to make payments on credit. Supplementary credit cards shall be considered part of the principal borrower for the purposes of these regulations. Corporate Cards will not fall under this category and shall be regulated by Prudential Regulations for Corporate/Commercial Banking or Prudential Regulations for SMEs Financing as the case may be. The regulations for credit cards shall also be applicable on charge cards, debit cards, stored value cards and BTF (Balance Transfer Facility).
(ii) Auto Loans mean the loans to purchase the vehicle for personal use
(iii) Housing Finance means loan provided to individuals for the purchase of residential house/apartment/land. The loans availed. For the purpose of making improvements in house/apartment/land shall also fall under this category. [Underlining is mine].
(iv) Personal Loans mean the loans to individuals for the payment of goods, services and expenses and include Running Finance/Revolving Credit to individuals.
63. As far as the exemption of consumer financing is concerned, I would like to reproduce BPD Circular No.1 of 21st January, 2004 hereinunder:- "Circulars/Notifications January 21, 2004 BPD Circular No. 1 The Presidents/Country Heads All Scheduled Banks and DFIs.
Dear Sir, BENCHMARKING CORPORATE LENDING PRODUCTS TO KIBOR With a view to encourage transparency, promote consistency in market based pricing and improve management of the market risks undertaken by the banks, it has been decided that after 31-1-2004, the Karachi Interbank Offered Rate (KIBOR) of one, three and six-month tenor, and other longer tenors as made available, shall be used as a benchmark rate for determining pricing of all Rupee Corporate/Commercial banking lending, of banks and DFIs in terms of the Prudential Regulations for Corporate and Commercial Banking. In this regard, following instructions are issued for strict adherence by the banks:-
(1) The benchmarking will be applicable to: All Floating and Fixed Rate Time Loans/TFCs/Commercial Papers with reset dates (where applicable) within the available KIBOR tenors upto 6 months which is to be increased to 12 months by March 31, 2004 and thereafter to 3 years by December 31, 2004.
Overdraft and Running Finance obtained/renewed after 31 January 2004.
(2) Following methodology will be used for using KIBOR as the benchmark rate: KIBOR is defined as the Average rate, Ask Side, for the relevant tenor, as published on Reuters page KIBOR or as published by the Financial Markets Association of Pakistan in case the Reuters page is unavailable.
Banks and the borrowers are free to decide on the relevant tenor of KIBOR and the spread over KIBOR at their discretion.
KIBOR will be set for the lending facility On the date of draw-down or on the markup-reset date.
Offer Letter to the client should clearly indicate the KIBOR's tenor plus agreed spread, frequency of revision etc.
(3) Following Exemptions will be available from the requirement of using KIBOR as benchmark rate: Financing under Export Finance Scheme of the State Bank of Pakistan, rates of which shall continue to be determined as per instructions issued by the Banking Policy Department of State Bank of Pakistan.
Lending provided by the banks in terms of the Prudential Regulations relating to Consumer financing and SME Financing.
The Overdraft and Running Finance facilities extended upto 31 January, 2004. (These shall, however, be benchmarked to KIBOR at the time of renewal of the facility or when the same is due for repricing.)
All TFCs/CPs approved by SECP and/or submitted to any stock exchange, provided the requests for necessary approval are submitted upto January 31, 2004.
All time loans with agreements executed upto January 31, 2004. However, if the pricing is renegotiated, these loans will be benchmarked to KIBOR.
The banks are advised to comply with the said instructions and procedure of benchmarking to KIBOR. All concerned are encouraged to report the instances where the lending facilities are not extended by the banks in the light of foregoing instructions for appropriate regulatory actions by the State Bank. Yours faithfully (MUHAMMAD KAMRAN SHEHZAD)
DIRECTOR"
64. Manifestly, the 'subject finance' as being 'consumer finance' has not been disputed by the defendant. This factum is also evident from the 'cross-examination' of the defendant witness viz. MINHAJ FAROOQUI son of MUHAMMAD JALIL-UR-REHMAN FAROOQUI [D.W.1]. The said witness [D.W.1] in his 'cross-examination' has categorically admitted the nature of 'subject finance' as 'Consumer Finance'. The relevant portion of 'deposition' from the 'cross-examination' of aforesaid witness ['D.W.1'] reads as follows:- "It is correct to suggest that the loan which is subject matter of this suit is a consumer finance. It is correct that defendant company follows the regulations and circulars as laid down by State Bank of Pakistan. It is correct that the default as alleged by defendant company against the plaintiff is due to the fact that they have linked the markup with Kibor as bench mark rate." [Underlining is mine] .
65. Conversely, Mr. Abdul Sattar Lakhani, learned counsel for defendant argued that defendant is within its rights not only link the charging of markup with KIBOR but also can charge the same in terms of the sanction letter dated 12th March, 2005 [Exh. '5/111. Moreover, the instant suit is against the financial institution as such merits no consideration and liable to be dismissed with cost.
66. BEFORE ANSWERING ISSUE NO.5, I WOULD LIKE TO REPRODUCE HEREIN SOME OF THE RELEVANT DEFINITIONS/CLAUSES FROM 'PROPERTY FINANCING AGREEMENT ON MARK-UP BASIS' DATED 12TH MARCH, 2005 [EXH. 'PP 1] AS FOLLOWS:- "Marked-up Price" means the aggregate of the amounts set out in the schedule-"B", hereto, as modified or substituted from time to time, payable by the customer to the Pak-Libya on the payment dates and as more particularly describe in Article 21.1, hereinbelow.
"Purchase Price" means the sum of Rs.7,000,000 (Rupees Seven Million Only) being the price at which PAK LIBYA has agreed to purchase the Assets and Property form the Customer in accordance with the terms and conditions of this Agreement.
"Special Conditions" shall mean special conditions, if any, attached to this Agreement, before Schedules A and B which shall be integral part of this Agreement.
2.1 The Customer confirms having sold the Assets of PAK LIBYA for the Purchase Price to be disbursed by PAK LIBYA to the Customer of his/her nominee upon satisfaction of the conditions of disbursements hereinafter contained. Having sold the Assets to PAK LIBYA, the Customer confirms having immediately repurchased the Assets from PAK LIBYA at the Marked-up Price.
4.1 The Marked-up Price shall be paid by the. Customer to PAK LIBYA in monthly instalments in accordance with the payment schedule contained in Schedule B hereto (the "Payment Schedule").
4.3. If at any time when any part of the Purchase Price is outstanding hereunder the State Bank of Pakistan Discount Rate is discontinued by the State Bank of Pakistan or such rate exceeds 8% per annum, then PAK LIBYA shall serve a notice upon the Customer and the parties hereto agree to negotiate in good faith an alternate pricing structure. In the event that no agreement is reached between the parties hereto within fifteen (15) days of the receipt of notice by the Customer from PAK LIBYA, the Customer shall prepay the outstanding Purchase Price.
19.1 This A reement shall be binding u on and inure to the benefit each party hereto and its or any subsequent successors.
21.1 This Agreement represents the entire agreement and understanding between parties in relation to the subject matter hereof and supersedes all previous agreements and/or understandings between the parties in relation hereto.
Provided that the Pak - Libya, in its sole discretion and without assigning any reason, shall have the right to modify or substitute the marked up price, the repayments and its dates set in schedule "B" on annual basis or at any time or from time to time, by a written notice to the customer to that effect.
Further provided that the marked up price so modified and or substituted shall be calculated on the basis of yield of selected financial instrument, offered by State Bank of Pakistan, from time to time and in the sole discretion of Pak-Libya.
22.1 No amendment, modification or waiver in respect of this Agreement will be effective unless in writing (and writing shall include a facsimile transmission) and executed by each of the parties or confirmed by an exchange of telexes or electronic messages on an electronic messaging system.
[Underlining is mine].
67. In terms of clause 4.3, the State Bank of Pakistan [In short SBP], somehow, if, discontinue the DISCOUNT RATE or such rate EXCEEDS 8% per annum, then in such eventuality, the defendant [PAK LIBYA] was/is required to SERVE NOTICE upon the customer [plaintiff] for negotiating the alternate structure in good faith. Thereupon if, no agreement is reached between the parties to FINANCE AGREEMENT [i.e. Exh. 'P/1' herein] within fifteen (15) days of the receipt of notice by the Customer from PAK LIBYA, the Customer shall consequently PREPAY THE OUTSTANDING PURCHASE PRICE.
Manifestly, the only consequences under the aforesaid clause 4.3 of Exh.'P/1' is PRE-PAYMENT of the outstanding 'PURCHASE PRICE' and nothing else. The 'PURCHASE PRICE' under Exh. 'P/1' is Rs.7,000,000 [Rupees Seven Million only].
68. So also from perusal and reading of clause 4.1, it appears that 'marked-up price' is payable by the plaintiff to the defendant in monthly instalments in accordance with the 'REPAYMENT SCHEDULE' contained in Schedule 'B' hereto [The 'Payment Schedule']. The word 'hereto' only refers to the 'REPAYMENT SCHEDULE' [i.e. Exh.'P/2'] and none of any other documents. The Finance Agreement [Exh. Besides being binding upon the parties hereto [i.e. Plaintiffs and defendant] is also runs for the benefit of both the parties means thereby that none of the terms and conditions of the finance can be changed/varied malafidely unilaterally and without service of Written Notice on the Customer [plaintiffs herein].
69. Upon reading the definition of 'Consumer Financing' in juxtaposition of BPD Circular No.1 of 21st January, 2004, I am of the considered opinion that the 'Consumer Financing' remains exempted/excluded from the applicability of KIBOR [Karachi Interbank Offered Rate].
70. Needless to say, that the instructions issued by the State Bank of Pakistan [SBP] in the shape of Circulars and Regulations are binding upon all the commercial BANKS and DFIs' as they are having the force of law. Regarding this aspect of the matter reliance can be placed on the case of Federation of Pakistan and others v. Shoukat Ali Mian and others [PLD 1999 SC 1026] wherein it was observed as follows:- "(19) Mr. Salman Akram Raja has candidly conceded that notwithstanding the above solemn commitment given by the Parliament in Act XII of 1992, the Parliament was competent to enact section 2 of the Act imposing temporary restrictions on the withdrawal of the amounts from the foreign currency accounts. However, his submission was that the State Bank of Pakistan had no power under section 25 or 41 of the Ordinance of 1962 to direct the foreign currency account holders whose foreign currency deposits were accepted as a collateral security against the local loans by the various banks to provide fresh security in place of foreign currency deposit or to liquidate the liability. The above contention seems to be correct. In this behalf, it may be pertinent to refer to section 25 of the Ordinance of 1962 which reads as under "25. Power of State Bank to control advances by banking companies.-(1) Whenever the State Bank is satisfied that it is necessary or expedient in the public interest so to do, it may determine the policy in relation to advances to be followed by banking companies generally or by any banking company in particular, and, when the policy has been so determined, all banking companies or the banking company concerned, as the case may be, shall be bound to follow the policy, as so determined.
(2) Without prejudice to the generality of the power conferred by subsection (1), the State Bank may give directions to banking companies either generally or to any banking company or group of banking companies in particular, -
(a) as to the credit ceiling to be maintained, credit targets to be achieved or different purposes, sectors and regions, the purposes for which advances may or may not be made, the margins to be maintained in respect of advances, the rates of interest, charges or mark-up to be applied on advances and the maximum or minimum profit sharing ratios; and
(b) prohibiting the giving of loans, advances and credit to any borrower or group of borrowers. On the basis of interest, either for a specific purpose or for any purpose whatsoever; and each banking company shall be bound to comply with any direction so given.
(3) If any default is made by a banking company in complying with the policy determined under subsection (1) or direction given under subsection (2), every director and other officer of the banking company and every other person who is knowingly a party to such default shall, by order of the State Bank, be liable to a penalty of any amount which may extend to twenty thousand rupees and, where the default is a continuing one, of a further amount which may extend to one thousand rupees for every day after the first during which the default continues.
(4) Without prejudice to the provisions of subsection (3), the State Bank may, for the purposes of securing implementation of any special credit schemes or monetary policy or observance of credit ceilings by a banking company, by order in writing require banking companies generally, or any banking company in particular, to make special deposits with it for such amount and on such terms and conditions as may be laid down by the State Bank in this behalf
(5) The amount deposited with the State Bank under subsection (4) or any part thereof may, at the discretion of the State Bank, be released by it to the banking company which deposited it as and when the State Bank deems fit either unconditionally or on such terms and subject to such conditions as the State Bank may, by order in writing, determining from time to time.
(6) Any penalty imposed under subsection (3) shall be payable on demand made by the State Bank and, in the event of refusal or failure by the Director, officer or other person concerned to pay on such demand, shall be recoverable as arrear of land revenue."
The perusal of the above quoted section indicates that the above section empowers the State Bank of Pakistan to control advances by banking companies by laying down the policy in respect of matters referred to in its subsection (2) i.e. As to the credit ceiling, credit targets, the purposes for which advances may or may not be made, the margins to be maintained in respect of advances, the rates of interest, charges or mark-up to be applied on advances and the maximum or minimum profit sharing ratios, and prohibiting the giving of loans, advances and credit to any borrower or group of borrowers on the basis of interest, either for a specific purpose or for any purpose whatsoever, but had no power to alter the terms and conditions of an agreement of loan already entered into and acted upon between a bank and its customers through a circular. It may be stated that it is a well-settled proposition of law that a notification or an executive order which may adversely affect the rights of any person cannot be given retrospective effect. In this regard reference may be made to the case of Hashwani Hotels Limited v. Federation of Pakistan and others PLD 1997 SC 315, in which this Court while construing the State Bank Circular held as under: "16. Reverting to the question, whether such a direction can affect the loan agreement which were already concluded prior to such direction, it may be observed that it is a well-settled principle of interpretation of a notification and/or an executive-order that the same can operate prospectively and not retrospectively. This principle is equally applicable to a statute in the absence of any express or implied intendment contrary to it."
71. Likewise, in the case of United Bank. Ltd. v. Kashmir Textile Mills Ltd. [2013 CLD 1325 LAH] it was held that after 20th June, 1984 no Financial Institution in Pakistan can transact banking business on interest based system or MARK-UPON MARK-UP basis. The relevant observation made in the aforementioned case reads as follows:- "25. After 20-6-1984, no Financial Institution in Pakistan can transact banking business on interest based system or mark up on mark up basis, the Financial Institutions in Pakistan after 1st Jul 1984 are bound to transact banking business on Non-Interest based banking except where the foreign loan is involved. Under NIB system the financing is based on sale and purchase of commodity on deferred payment basis, Lender Institution is entitled to recover the buy back price only within the agreed period. The State Bank of Pakistan has issued Circulars Nos.13 and 32 on 20-6-1984 and 26-11-1984 for regulating Non-interest based financing, the circulars are having the force of law and are binding on all financial institutions, thus plaintiff is not entitled to recover any mark up after the agreed period, the said eventuality is protected under section 3(2) of F.I.O. Which provides that customer is bound to pay the costs of funds from the date of default till realization.
[Underlining is mine].
72. Upon going through the various clauses of the PROPERTY FINANCE AGREEMENT ON MARK UP BASIS dated 12th March, 1985 [Exh.P/1], BPD Circulars referred to and reproduced hereinabove and definition of the CONSUMER FINANCING REPAYMENT SCHEDULE [Exh. 'P/2'], I have reached the conclusion that the 'financial facility' granted to and availed by the plaintiffs is also exempted/excluded from the applicability of KIBOR. The plaintiffs as such, are not bound and/or liable to pay mark-up at KIBOR + 350 basic points or otherwise, revise the same every year as claimed per LETTER OF SANCTION dated 12th March, 2005 [Exh. 'P/11']. The stand taken by the defendant is not only mis-conceived but also misleading under the facts and circumstances of the case thus cannot be accepted.
73. The contention of Mr. Lakhani, that the defendant is not only within its' rights to link the 'subject finance' with KIBOR but also can charge markup over mark-up [excess mark-up] over and above the already fixed instalments amounts having been mentioned/detailed in the 'REPAYMENT SCHEDULE' .[Exh. 'P/2'] on the strength of LETTER OF SANCTION [Exh. `P/11'] is without any substance and force thus repelled. In support of this aspect of the matter, from the case of United Bank Ltd. v.
Messrs Gravure Packging (Pvt.) Ltd. And 4 others [2001 YLR 1549 KAR.] the following important and relevant portions are reproduced herein below:-
(77) ... The only document shown is a Sanction Advice, which is an internal document of the bank.
The document could be seen only to what was approved by the bank. The agreement overrides all arrangements. The sanction advice, in the presence of the agreement, vis-a-vis the customer cannot be construed to be adverse disadvantage to the customer. The agreement is the document signed by both, the contents of which have to be seen. The question whether where a law categorically disallows markup on mark-up, can an agreement cause it to be charged, or could any act be done by the parties to the agreement by which mark-up is added, or mark-up on mark-up is included to a marked-up price." ...
(80)...In fact, BCD Circular No. 13, the preamble also states that the banking system was to shift over to- the Islamic Modes of Financing, such is the public policy. After the law has been brought in conformity with the Holy Qur'an and Sunnah, way and methods are being employed by the Bank to continue the previous usurious Banking Practice, despite the fact that the law has been Islamised in accordance with the Constitution of the Islamic Republic of Pakistan. Such a practice that is 'sought to be developed by the banks is a fraud on the Islamic provisions. No one can be allowed to play a fraud on the existing law by trying to avert the existence of such law that prescribes that mark-up on mark-up cannot be charged. The act of entering into a future transaction admittedly is in respect of renewal of financing and does not contain any aspect of actual disbursement or payment. Such contracts are contracts that are against the public policy."
(81)...A perusal of section 23 of the Contract Act categorically, states that consideration or object of an agreement is lawful unless it is of such a nature that if permitted, would defeat to provision of any law. A subsequent agreement whereby, there is a settlement of previous debt or is renewal thereof shall in fact amount to defeating the provision of the specific law available. Such will not be novation but an independent agreement contemplating an actual sale and purchase. Such an agreement entered into only for renewing the previous debt shall be a void agreement. The position in law is absolutely clear. I had also referred to the clear instructions of the State Bank in Regulation XVI above. Such renewal will only be Window Dressing and that all profits shown will be nothing but added mark-up. Mark-up cannot be allowed to be added on an 'existing debt, as there can be no agreement between the parties in respect of that 'specific debt' except that there could be enlargement of time, and that too without increase in the debt payable."
(84) ...It is well-settled principle of law that parties cannot contract out of the provisions of the Act.
See in the case of Woman Shriniwas Kini v. Ratilal Bhagwandas & Co. AIR 1959 SC 689 it has been held that an agreement to waive an illegality is void on the ground of public policy. Similar views have been taken in the case of Anayat Ali Shah v. Anwar Hussain 1995 MLD 1714.
(85) We now come to another question, i.e. Whether an agreement without consideration is a valid agreement. Section 25 of Contract Act reads as under: -- "25. An agreement made without consideration is void unless:--
(1) it is expressed in writing and registered under the law for the time being in force for the registration of documents and is made on account of natural love and affection between parties standing in a near relation to each other, or unless
(2) it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do, or unless
(3) it is a promise made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorised in that behalf to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits.
In any of these cases such an agreement is a contract."
The subsequent agreements of finance are not covered by the exception to the general principle, that an agreement without consideration is void. Section 24 of the Contract Act reads as under:-- "24. If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void."
It will be seen that if any part of a single consideration is unlawful the agreement is void.
(90) The position is that BCD Circulars Nos.13 and 32 are the consequences of the reports of the Council of Islamic Ideology provided for the furtherance of Islamic financing where mark-up on mark-up has been stated to be un-Islamic and usurious. Riba was disallowed and that because of such disallowance it was in the line with the arguments put forward for the purposes of Islamic financing.
(95) In view of the above, I am of the considered opinion that once the agreement has been entered into and the re-purchase price determined there can be no renewals by increasing the debt. If there is a renewal or re-structuring nothing can be added to arrive at extended figure.
74. In view of the aforesaid discussion/legal position and case-laws cited at bar, I have reached the conclusion that subject finance is not only exempted from the applicability of KIBOR but otherwise also the plaintiffs are not bound to pay any excess mark-up/mark-up at KIBOR to the defendant. Resultantly, issue No.5 is answered in 'NEGATIVE'.
75. ISSUE NO.6: Whether the 'Buy Back Price' or 'Marked-up Price' or 'Repurchase Price' can be enhanced? The burden of proof of this issue is on the defendant. In the present case admittedly the plaintiffs were extended finance facility under the 'PROPERTY FINANCING AGREEMENT ON MARKUP BASIS dated 12-3-2005 [Exh. 'PM by the defendant on markup basis. The total financed amount was in the sum of Rs.7,000,000 [Seven Million] which as evident from the record, was payable in 182 instalments in accordance with the 'Repayment Schedule' [Exh.'P/21 [attached as Annexure 'B' to the aforesaid agreement of 12-3-2005]. The defendant admittedly had also obtained POST-DATED CHEQUES for all the agreed monthly instalments of the financial facility in accordance with the repayment schedule [Exh. 'P/2']. The defendant however, from time to time in their own wisdom increased/tried to increase the monthly instalments and that too without serving of any NOTICE on the plaintiffs. From the evidence, the defendant has failed to justify the charging of the mark-up at the increased rate ranging between 12.84% to 24% per annum. In view of detailed discussion on Issue No.5 'Marked-up Price/Buy Back Price' cannot be enhanced. It is established principles of law that mark-up once fixed cannot be changed. The Marked-up Price as the case in hand cannot be enhanced/altered much-less unilaterally and in violation of SBP's Circulars and/or Finance Agreement. Issue No.6 thus answered in NEGATIVE.
76. ISSUE NO.7: What damages the plaintiffs have suffered at the hands of defendant? The onus of proof of this issue is on the plaintiffs. According to the plaintiffs' version they have suffered huge losses and damages on account of the illegal demand of the defendant to pay increased amount of monthly instalments. The break-up of quantum of damages as given/detailed in the plaint is as under:-
(a) Loss/damages on account of Mental tortue/agony suffered by the plaintiffsPKR 24 Millions
(b) Loss of reputation due to defendant/bankPKR 10 Millions
(c) Financial losses due to non- professional attitude of bankPKR 25 Millions
(d) Cost accrued on litigation paid by the plaintiffsPKR 01 Millions Total Damages PKR 60 Millions
77. In support of the aforesaid claimed amount of damages, however, the plaintiffs have failed to lead any trustworthy evidence. Damages, it is established principle of law cannot be granted in absence of positive evidence. Indeed, for grant of damages cogent evidence is required about details of losses actually suffered which is not available in the instant case. Even a fixed amount of damages under law of contract cannot be granted unless the same is proved through sufficient evidence. The damages/losses even otherwise sought are also remote in view of section 73 of the Contract Act. A party claiming damages is required under law to establish the contract, the breach thereof and quantum/extent of damages claimed as having been suffered due to breach of contract. A party claiming damages under law, firstly have to plead and thereafter to prove the same by leading cogent evidence. Needless to say, regarding damages and quantum of damages the burden of proof lies on the claimant thereof. In the present case, the plaintiffs nonetheless, have failed to discharge the onus of proof satisfactorily. In the case of Ahmed Nadeem Kirmani v. Messrs Muslim Commercial Bank Ltd., Islamabad [1993 SCM R 4411 on this aspect of the matter, it was observed as under:- "...A party claiming damages suffered due to breach of contract must establish the contract, the breach thereof and the extent of damages. The onus is on the plaintiff and without discharging it he cannot succeed. Section 73 of the Contract Act prescribes the rule for assessing the damages suffered due to breach of contract. Only such damages can be recovered which naturally arise in the usual course of things from such breach or the parties at the time of making the contract knew that loss or damage in likely to result from the breach. Another principle which is to be kept in mind while assessing damages is that whether the plaintiff was in a position to mitigate the damages and has neglected to avail of it. As discussed above the appellant has failed to prove the agreement with the Egyptian Embassy, the rate of rent and the date of occupation....
78. In the case in hand, the plaintiffs have failed to discharge the onus of proof properly and satisfactorily vis-a-vis the claim of damages having been suffered due to breach of contract through evidence. Under circumstances issue No.7 is answered in NEGATIVE.
79. ISSUE NO.8: Whether the defendant bank is responsible or the State Bank of Pakistan for circulation of the CIE list of defaulters? Regarding this issue, Mr. Zeeshan Abdullah submitted in vehemence that the 'Credit Information Bureau' is an organization that collects information from its members financing institutions and collates credit exit date on borrowers. Per learned counsel, those financial institutions who report to SBP on overdue 90 days. Mr. Zeeshan Abdullah, learned Counsel argued that the defendant Bank reported 90 days over-due of the plaintiff alleged default obviously due to non-payment of the increased/excess amount of mark-up. The so-called default based on the illegal demand of bank besides being unlawful, unsatisfied, in fact was/is, an attempt to harass the plaintiffs. The defendant in their own wisdom/in a calculated manner reported the so-called over-due 90 days of the plaintiff alleged default. Such reporting, indeed, became the source of circulating the plaintiffs names in CIB as defaulters. Per Mr. Zeeshan Abdullah, the post- dated cheques issued by the plaintiffs are being regularly encashed by the defendant. In view of this position, the alleged default and its' reporting over due 90 days besides being illegal. Void ab initio is the outcome of defendants' bias and antagonized attitude towards the plaintiffs.
80. In response, Mr. Lakhani did not dispute the reporting, by the defendant, however, he contended that the plaintiffs are/were defaulters in respect of the increased/excess amount of mark-up. As such their names were reported to State Bank of Pakistan [CIB]. Being relevant para 15 of /LD-cum- Written Statement of the defendant is reproduced herein below:- "15. That the contents of para 20 are denied as farmed The defendants are required to report the matter of overdues to CIB which they did in accordance with requirements of law and directions/guidelines given by the State Bank of Pakistan."
81. From the above, it is clear that, on the defendant's reporting the names of the plaintiffs were placed on the defaulters list of SBP [CIB). Accordingly, Issue No.8 stands 'answered'.
82. ISSUE NO.9: What should the decree be? In view of above discussion, arguments, advanced by learned counsel for the parties at bar and my issues-wise findings as above, the plaintiffs suit is decreed in the following terms:-
(i) The defendant under the facts and circumstances of the case is not entitled to increase the amount[s] of 182 monthly instalment[s] or any of them in respect of the subject finance facility granted to and availed by the plaintiffs. Rather the defendant is only entitled to receive the instalment amounts in accordance with the RE-PAYMENT SCHEDULE [Exh.P/22].
(ii) The excess amount of Rs.3,92,352 already paid to and received by the defendant is declared as refundable to the plaintiffs. The defendant, however, if wish so, may adjust the same against the future instalment[s].
(iii) The defendant in the event of adjustment if, made is restrained from encashing the cheque[s] lying with the defendant to the extent of Rs.3,52,352 only.
(iv) The defendant is also permanently restrained from charging any increased amount over and above of the monthly instalment as given/detailed in the initially prepared REPAYMENT SCHEDULE [i.e. Exh.P/2].
(v) Besides, the defendant is directed to take necessary and appropriate steps for the removal of the names of the plaintiffs from the list of defaulters of State Bank of Pakistan [CIB] promptly.
83. The suit stand decreed in the above terms with costs.