' SHAMS MEHMOOD MIRZA, J.---The plaintiff bank has filed the present suit under section 9 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (the "Ordinance") for recovery of Rs, 194,248,526.82 as per the terms of the prayer made in the plaint. The said liability is stated to have arisen under the Cash Finance (Pledge) facility ("CF facility") and Finance against Imported Merchandize facility ("FIM facility").
2. Brief facts as narrated in the plaint are that in terms of plaintiff bank's offer letter dated 9-1-2012, the defendant company was granted CF facility and a letter of credit facility both in the sum of Rs,100.000 Million. Detailed terms and conditions of the said facilities together with their underlying securities are mentioned in the said offer letter, which is stated to have been accepted by the defendant company. According to the plaint, the defendant company executed, finance Agreement, letter of pledge, Demand Promissory note, facility letter and debit authority letter all dated 12-1-2012 in favour of the plaintiff bank. Stocks were pledged by the defendant company whereafter amounts under the CF facility were disbursed by the plaintiff bank. It is also stated that the defendant company also sent stock reports to the plaintiff bank.
3. It is further stated in the plaint that the plaintiff bank at the asking of the defendant company established the following five Inland letters of credit with 10% cash margin.
(a) LC No, 2-1-2012 for Rs, 10,000,000
(b) LC No, 2-2-2012 for Rs,20,000,000
(c) LC No, 2-3-2012 for Rs,20,000,000
(d) LC No, 2-4-2012 for Rs,20,000,000
(e) LC No, 2-5-2012 for Rs,20,000,000
4. The LC agreements executed on 10-4-2012 and 27-4-2012 by the defendant company in respect of the above mentioned letters of credits are also relied upon by the plaintiff bank as well as the documents underlying the five letters of credit including the commercial invoices, packing lists, shipment advices, truck receipts by Goods Forwarding Agency etc. It is the case of the plaintiff bank that the after the receipt of the documents under the five letters of credit, the defendant company, instead of making payment of the said letters of credit, approached it through letters dated 18-4-2012, 26-4-2012 and 27-6-2012 and requested it to make the payment of the said letters of credit and also to grant a FIM facility to the defendant company in lieu of the payments made to the beneficiary of the letters of credit. The plaintiff bank's competent authority, it is stated, granted approval to the said requests vide its decisions dated 19-4-2012 and 15-5-2012. The plaintiff bank accordingly made payments to the beneficiary's bank (Bank Alfalah Limited) through five Demand Drafts through its covering letters, copies whereof are available on the record. The defendant company executed five finance agreements in respect of FIM facility as also the Demand Promissory notes, facility letters and letters of pledge on 18-5-2012 and 28-5-2012.
5. The computer generated statements of accounts have also been appended with the plaint by the plaintiff bank in respect of the CF facility and the FIM facility. In terms of section 9 of the Ordinance, the details of the disbursements and repayments have been supplied in paragraph 17 of the plaint. The total amounts claimed by the plaintiff bank to be payable by the defendant company under the CF and FIM facilities comes to Rs, 194,248,526.82.
6. The defendant company has filed its application for leave to defend the suit ("PLA") controverting the stance taken by the plaintiff bank. .The learned counsel for the defendant company argued that sections 9 and 10 of the Ordinance are contrary to the fundamental rights enshrined by the Constitution of the 1slamic Republic of Pakistan (the Constitution) more particularly Article 10-A of the Constitution. It was further argued that under the CF facility the disbursement of amounts took place on 3-2-2012 whereas the stocks are shown to have been pledged on 31-1-2012 meaning thereby that the stocks were pledged prior to the date of disbursement. It was also stated that the CF facility was secured against the facility of hypothecation of stocks and not against the pledge of stocks. Similarly, it was stated that letters of pledge dated 11-1-2012 and 18-5-2012 do not corroborate with the other documents appended with the suit. If the pledgor cannot account for the goods, it was argued, it cannot ask for return of money. It was argued that the defendant company filed a suit (C.O.S. No, 128 of 2012) against the plaintiff bank which was dismissed. In the appeal filed by the defendant company bearing R.F.A. No, 1259 of 2013, an order has been passed on 27-11-2013 whereby the assets of the defendant company have been ordered not be liquidated.
It was also submitted that it would require a factual inquiry to determine whether goods allegedly pledged with the plaintiff bank in fact constituted security of pledge or not. The suit, according to the counsel for the defendant company, was premature as the expiry under the finance Agreement was 31-12-2012 but the plaintiff bank filed the suit in September 2012.
7. I have heard the arguments .Of the counsel for both the parties and with their help have gone through the record. An amount of Rs,100,000,000 was disbursed in lump sum under the CF facility and credited in the current account of the defendant company on 3-2-2012. In respect of the pledged stocks, the defendant company delivered a letter of access dated 9-1-2012 wherein the sites were mentioned where the stocks were lying. In addition thereto, the defendant company vide letter dated 9-1-2012 addressed to the plaintiff bank nominated Azwar Zia and Maqsood Ahmed to singly sign the delivery orders and stock reports. In the said letter, the specimen signatures of the afore-mentioned persons were also given. The stocks in respect of the CF facility were pledged on 31-1-2012 as is apparent from stock report of the said date appended with the plaint. The contention of the counsel for the defendant company that the pledge of stocks predates the disbursement of funds under the CF facility is of no consequence when the time line of events, as stated above, is taken into account.
8. The counsel for the defendant company during the course of his arguments laid much emphasis that the pledge is a possessory security and pledged stocks in the present case are not available.
The material fact to be considered, therefore, is whether stocks were pledged with the plaintiff bank as a security for the CF facility. In this regard, it is noted that the defendant company itself identified the sites where the stocks to be pledged were located, granted unfettered access to the plaintiff bank and provided the specimen signatures of its officials who would sign the stocks reports/delivery orders. The plaintiff bank is relying upon stock reports dated 31-1-2012, 29-2-2012 and 16-3-2012, which were countersigned by one of the designated persons named by the defendant company in its letter dated 9-1-2012.
9. Furthermore, all the above stated facts were pleaded by the plaintiff bank in its plaint more particularly in paragraphs 7 and 10 of the plaint wherein the details about the pledged stocks were also mentioned. These averments in paragraphs 7 and 10 have not been specifically denied by the defendant company in its PLA. The counsel for the defendant company took the plea that the security of pledge was in fact never created for the CF facility rather the said facility was secured through the security of hypothecation. These oral assertions have no force in view of the documents available on the record, which remained uncontroverted in the PLA. The defendant company did not rely upon any of its internal documents including its stock registers to take a position contrary to the stance of the plaintiff bank. In this view of the matter, it is clear that the stocks mentioned in the afore-mentioned stock reports were duly pledged by the defendant company with the plaintiff bank.
10. In regard to the letter of credit facility for Rs,100,000,0000 not much has been stated in the PLA by the defendant company. It was, however, argued that the documents underlying the letters of credit have not been appended with the suit. This assertion of the counsel for the defendant company is without force as the plaintiff bank has duly appended the commercial invoices, packing lists, shipment advices, truck receipts by Goods Forwarding Agency etc under all the letters of credit. In paragraphs 11 to 13 of the plaint, the plaintiff bank has pleaded that the defendant company failed to retire the documents under the letters of credit and made requests through letters dated 18-4-2012, 26-4-2012 and 27-4-2012 for payment by the plaintiff bank to the beneficiary of the letters of credit. It has also been pleaded in the afore-mentioned paragraphs of the plaint that the plaintiff bank granted approval for the creation of FIM facilities for the aforementioned five letters of credit and that the plaintiff bank paid the amounts under the five letters of credits to the beneficiary's bank (Bank Alfalah Limited) through Demand Drafts on 20-4- 2012 and 27-4-2012. The details of the finance agreements, demand promissory notes, facility letters, letters of pledge etc. Executed on 18-5-2012 and 28-5-2012 as well as the stocks pledged under the FIM facilities with the plaintiff bank are also referred to in the aforementioned paragraphs.
11. The afore-mentioned documents including letters 18-4-2012, 26-4-2012 and 27-4-2012 have been appended with the plaint and a perusal of the same shows that the defendant company requested for the creation of FIM facility for payment of the five letters of credit against the security of pledge of cotton. In the said letters, the amounts to be paid to the beneficiary of the letters of credit are also precisely mentioned. The bills for collection submitted by Bank Alfalah Limited (beneficiary's bank) under the letters of credit and the demand drafts through which the amounts were paid by the plaintiff bank are also available on the record and details thereof were duly pleaded by the plaintiff bank in the plaint. The defendant company has not specifically or even generally denied the said averments in its PLA.
12. In respect to the stocks that were pledged by the defendant company with the plaintiff bank under the FIM facility, - the defendant company countersigned the stock reports dated 31-5-2012, 30-6-2012 and 31-7-2012 through one of its designated persons mentioned in its letter dated 9-1- 2012. In the PLA , it is stated that letter of pledge dated 18-5-2012 does not corroborate with other documents appended with the plaint. This assertion is also not tenable as the agreements in respect of FIM facility were executed on 18-5-2012 and on 28-5-2012 as were the letters of pledge. It is, therefore, clear that the defendant company pledged the stocks mentioned in the afore- mentioned stock reports with the plaintiff bank.
13. It is further stated in the PLA that requirements of section 9 of the Ordinance have not been met in the plaint by the plaintiff bank. This assertion is negated by a perusal of paragraph 17 of the plaint wherein the amounts disbursed and dates thereof have been clearly mentioned. In fact, it is the defendant company that has failed to fulfill the requirements of section 10(4) and (5) of the Ordinance. The defendant company has failed to impugn a single entry in the computer generated statements of accounts under the CF and FIM facilities. In paragraph 19 of the Preliminary Submissions in the PLA, the defendant company has simply stated no amount has been disbursed under the finance facilities and no amounts, are payable by it. These averments by the defendant company do not constitute a valid denial of liability under the provisions of the Ordinance as also under the Code of Civil Procedure. The statements . Of accounts tally with the finance agreements and other documents executed by the defendant company in respect of the CF and FIM facilities.
The amounts of CF facility were duly disbursed in the current account of the defendant company.
The amounts of five letters of credit, at the specific 'request of the defendant company, were also adjusted by the plaintiff bank through demand drafts and FIM facility was granted in lieu thereof.
The defendant company has, therefore, failed to raise any dispute with regard to the amounts stated to be due by it in the plaint under the CF and FIM facilities, which would require recording of evidence.
14. Lastly, it was argued that section 10 of the Ordinance is against the provisions of the Constitution more particularly Article 10-A in that it offends the principles of fair trial. It will be seen that the defendant company has been granted full opportunity to meet the case set up against it by the plaintiff bank. The defendant company has failed to raise any dispute whatsoever in regard to its liability or the securities underlying the CF and FIM facilities in its PLA. Section 10 of the Ordinance does not foreclose the right of a defendant to lead evidence rather it makes it dependent upon his raising a dispute which, in the opinion of the Court, requires recording of evidence. Pre-trial proceedings are meant to filter out sham and frivolous disputes raised by the defendants. For this purpose, the legislature has introduced in the Ordinance certain requirements to be fulfilled qua the pleadings as also the documents to be appended with the plaint and the PLA by both the plaintiff and the defendant. The object, appears to be to minimize the area of controversy between the parties. In the present case, in the face of plethora of admitted documents, all that was agitated before the Court was bald assertions. The defendant company , as stated above, has failed to meet the requirements of section 10(4) and (5) of the Ordinance. The right to a fair trial does not hold anything more than an independent and impartial Tribunal notice of the case set up against the respondent, right of a public hearing, adequate time for preparation of defence, right to engage a counsel and the post-trial right of appeal against the judgment. The Ordinance does not offend any of the above standards.
15. The report of the local commission stated that the name of the plaintiff bank was not displayed on the godown at various sites. Relying upon the said report and a judgment reported as Askari Bank Limited v. Waleed Junaid Industries etc| 2012 CLD 1681 the learned counsel for the defendant company argued that the question of availability of the pledged stocks has to be determined in the suit as the bailor is liable to return the goods to the bailee and if the bailor is not in position to do so, he has to give adjustment in lieu of the pledged goods. The facts of the aforementioned case are distinguishable from the present case. In the case relied upon by the counsel for the defendant company, the allegation of the financial institution was that the defendants had mis- appropriated the pledged stocks and it reserved its right to file a criminal complaint against the defendants. In this regard, therefore, it was stated in the afore-mentioned precedent case "It is not understandable why the plaintiff remains silent about the alleged theft of pledged goods when the thief was known to them". It was accordingly held that the fact of removal of goods by either of the parties can only be determined by recording of evidence.
16. However, there is a chain of authority to the effect that security of pledged stocks can be traced and accounted for in the execution proceedings and that in a recovery suit the availability or otherwise of pledged stocks is no ground for grant of leave to defend the suit particularly when the plaintiff/bailor is treating the pledged goods as security in terms of section 176 of the Contract Act.
Reliance in this regard may be made to a judgment of a Division Bench of this Court reported as Messrs Crystal Enterprises etc v. Platinum Commercial Bank Limited etc. 2002 CLD 868 and also to another judgment of this Court reported as Habib Bank Limited v. Orient Rice Mills Limited etc. 2004 CLD 1289. In the precedent case cited by the learned counsel for the defendant company, both the afore-mentioned cases were not discussed. In Orient Rice Mills case (supra), it was held that "Section 176 of the Contract Act empowers the plaintiff-Bank to file its suit without selling the pledged rice and to treat the pledge as a collateral security only. Clearly this option has been exercised by the plaintiff-Bank. The matter relating to any shortfall in the pledged stock of rice and the responsibility therefore can be determined in execution proceedings at the time the collateral security is required to be accounted for and brought to sale. The rights and obligations of the plaintiff-Bank as pledge and those of the defendant-Company under sections 151 and 152 of the Contract Act, which were referred to by the learned counsel for the defendant-Company, can also be determined at the time of realization of the collateral security."
17. In terms of section 176 of the Contract Act, 1872, the bailor has a right either to sell the pledged goods and sue for the balance, if any, or he may treat the pledged goods as security and file the recovery suit. If the bailor adopts the latter course, the question then arises as at what stage should the security be accounted for? The answer on the touchstone of Orient Rice Mills case (supra) is that it is when the execution process is set in motion by the bailor/decree holder and money under the decree is demanded from the bailee. It is only when the bailor has been granted a decree and he is enforcing the same in execution that the question can be asked whether the bailor is in a position to return the security of pledged goods to the bailee or not. This would of course be subject to the terms and conditions settled between the parties in the pledge instrument. It is, therefore, clear that where the Financial Institution is treating the pledge of goods as collateral security, leave to defend the suit cannot be granted on the basis of status, condition and availability or otherwise of the pledged goods.
18. In this regard, it is useful to reproduce the following passage from a case reported as Messrs Muhammad Siddique Muhammad Umar v. The Australasia Bank Limited PLD 1966 SC 684 (recently cited with approval by the Hon'ble Supreme Court in a case reported as Apollo Textile Mills Limited v. Soneri Bank Limited 2012 CLD 337) which further reinforces the proposition stated above:-- "|Even assuming that some goods were pledged with the bank as security for the advance this does not, in our opinion, absolve the defendant from his liability to clear his dues. The banker only acquires a lien over such pledged goods for the recovery of his dues and has a right, after notice to the debtor, to sell those goods to reimburse himself. But it is only where such a sale is actually held that the debtor can claim an adjustment of the sale proceeds of the goods against the amount claimed by the bank. There is no evidence in the present case that any goods were, in fact, sold by the bank or that the bank still retains any goods as such security."
19. Finally, in the case reported as Siddique Wollen Mills etc. v. Allied Bank of Pakistan 2003 CLD 1033, the Hon'ble Supreme Court held that the " |liability towards the outstanding amount of the respondent-Bank was not denied except raising the plea that the bank has retained the goods of the petitioners unauthorisedly. In our opinion it does not constitute a defence in favour of the petitioners independently nor it give rise to a bona fide dispute between the parties because in such-like cases the -Court is required to examine the liability and its acceptance by the borrower.
As far as the question of sustaining losses by the borrower on account of conduct of the bank is concerned it can be sorted out in some other forum instead of claim relief on such basis from the Banking Court."
20. The provisions of section 47 of the Code of Civil Procedure, 1908 again lend support to the above proposition as under the said provision the executing Court is fully empowered and competent to decide all questions regarding execution, discharge or satisfaction of the decree. It is, therefore, held that all objections by the defendant regarding the security of pledge can be adjudicated at the time of execution of the decree by the executing Court. Similarly, the questions of accounting for and tracing of the security of pledged stocks can also take place before the executing Court.
21. In the present case, the plaintiff bank states that its security of pledged stocks are still lying in the mills of the defendant company and in order to sell the same an application was filed with the suit whereupon this Court vide order dated 24-9-2012 appointed a local commission to prepare the inventory of the pledged stocks. The local commission has since prepared his report wherein it has, inter alia, been stated that the godowns where the pledged stocks were stored do not contain the names of the plaintiff bank. The defendant company in its PLA has nowhere specifically asserted that the plaintiff bank has misappropriated the pledged stocks or that it failed to take care of the pledged stocks as was required by it in terms of section 151 of the Contract Act.
Accordingly, the ratio |Walid Junaid's case| supra cited by the learned counsel for the defendant company is not applicable to the facts of the present case.
22. In view of what has been stated above, the PLA is dismissed and the suit of the plaintiff is decreed in the sum of Rs,194,248,526.82 against the defendant company together with costs of suit and costs of funds in terms of section 3 of the Ordinance.