MUHAMMAD FARRUKH IRFAN KHAN, J.---This execution appeal is filed against the order passed by the learned Single Judge on 26-11-2008 whereby C.M. No.420/B of 2005 filed by the respondents judgment debtors was allowed and the decree holder-appellant was directed to refund an amount of Rs.
26.073 million recovered in excess of its entitlement to the respondents-judgment debtors within a period of 90 days.
2. Precisely the facts essential for the disposal of the appeal in hand are that Industrial Development Bank of Pakistan (hereinafter IDBP/appellant-Bank) filed a suit (C.O.S. No.66 of 2000) for recovery of Rs.408.653 million against the respondent who were granted leave to defend, vide order dated 6-6-2003. The parties however, arrived at a settlement on 29-3-2004 reflected in a compromise agreement for the amount of Rs.174 million subject to the terms of BPD Circular 29 dated 15-10-2002. The said circular contemplates the settlement of liabilities exceeding Rs.2.5 million with reference to the Forced Sale Value ("FSV") of the security available with the creditor bank. Paragraph-9(iii) category (c) which is germane to the present facts is reproduced below:--
(iii) Category C: Where the outstanding amount exceeds Rs.2,500,000.
Criteria Amount to be recovered Forced Sale Value of the security is more than the outstanding amount75% or more of the outstanding should be recovered in cash Forced Sale Value of the security is less than the outstanding amountA sum equal to Forced Sale Value should be recovered in cash Where no tangible security is availableEfforts should be made to recover maximum possible amount Forced Sale Value should be determined by an independent professional valuer who should be listed on the panel of valuers maintained by the Pakistan Banks' Association (PBA)
3. In the present case, second scenario of the FSV of the security being less than the outstanding amount was applicable. On the basis of aforesaid compromise agreement between the parties, a consent decree was passed by the Court on 30-3-2004. The relevant provision of the compromise agreement contained in paragraph-8 thereof reads as under:-- "H. That out of the agreed liability the Bank has determined its share at the rate of 86% of the FSV of the project assets being held under the joint charge of the Bank and ICP. In case where the Bank and ICP were to resolve their shares different to 86:14 any differential will be settled by the Bank without any liability on the Borrowers/Customers."
4. Thereafter, a dispute arose between the parties as to whether the appellant was entitled to 54.6% of the FSV of the joint security shared with Investment Corporation of Pakistan (hereinafter "ICP") or to larger share in that security which was settled subsequently between the two creditors pursuant to clause-H of the compromise deed. For resolution of this dispute the respondents-judgment debtors filed C.M. No.420-B of 2005 wherein the learned Single Judge concluded that the original parri passu agreement giving the appellant 54.6% share in the joint security is final and binding and therefore the total amount recoverable by the appellant is equal to the value of such share in the security.
5. Before us, it is argued that the compromise deed specifically allows the IDBP to settle its shares in the joint security with ICP "without any liability on the borrowers/customers". Consequently, the judgment debtors are bound to allow realization of the joint security by the appellant to the extent of its share settled with ICP, namely, 77.47% vis-a-vis 22.53% for ICP. In the matter of settlement under BPD Circular-29 a customer does not have a right to deprive its creditor of the benefit of the value of the security, in the present case 75% thereof on the basis of which the settlement is arrived.
6. On the other hand, the learned counsel for the respondents judgment debtor has derived support from the findings given in the impugned order and explained that if the preponderance of Clause-H of the settlement canvassed by the learned counsel for the appellant is accepted then it would render clause-3 of the compromise deed to be a nullity. Under the said Clause the respondents-customers have a right to settle with their other creditors including the ICP. The ambit of the settlement provides that every creditor is to be regulated by the quantum of security lying in favour of each creditor. After the compromise deed with IDBP had been approved by the Court, IDBP was not allowed to modify its share without the consent or knowledge of the judgment debtor.
He submits that only workable basis for clause-3 of the compromise deed to operate is for the IDBP to respect the limits on shared security imposed by the parri passu arrangement between the two creditors. Therefore, on that basis the respondents judgment debtors approached ICP for settlement and also for that reason the respondents judgment debtors had with the permission of the Court promptly paid to the appellant-Bank the full amount of Rs.62.44 million under the parri passu ratio agreed by the appellant/decree holder in Court according to order dated 9-7-2004 passed in C.M. No.231 of 2004. Finally it was argued that once it is admitted by the parties that the appellant paid the full amount due under the parri passu sharing ratio then in terms of Clause 3 of the settlement under BPD Circular 29 the decree holder bank was bound by law not to increase its sharing ratio of joint security with another creditor without the consent of the judgment debtors.
Accordingly, it was pleaded that clause-H of the compromise deed is liable to be interpreted in the light of the consent of parties to the terms of C.M. No.231 of 2004 and on that basis when the respondents judgment debtors have acted upon that consented arrangement thereafter a different sharing ratio by the appellant decree holder unilaterally without hearing the respondent, without its consent and without determination of further share is ineffective. The appellant is bound by the terms of parri passu arrangement to recover only upto the extent of 54.6% of the joint security.
7. We have heard the learned counsel for the parties. The dispute between the parties is in relation to Rs.26.073 million which was claimed by IDBP on the basis of a fresh sharing ratio agreed with ICP behind the back of the respondents at the rate of 77.47% (IDBP) and 22.53% (ICP) respectively. The facts of the case show that IDBP renegotiated its sharing ratio with ICP after the respondents had deposited Rs.62.244 million with IDBP on 23-7-2004 (inclusive of discount for prompt payment @ 6%). The said deposit was made pursuant to the order of the learned Single Judge dated 9-7-2004 which was passed with the consent of the parties. The contents of the application bearing C.M.
No.231 of 2004 were neither commented nor objected to by the IDBP. The contents of the said application that are presently relevant are as under:-- "C.M. No.231 of 2004 APPLICATION UNDER SECTION 151, C.P.C. FOR PERMISSION TO PAY IDBP ITS UNDISPUTED SHARE OUT OF THE FORCED SALE VALUE OF ASSETS UNDER JOINT CHARGE OF IDBP AND ICP, ON BEHALF OF THE DEFENDANTS Respectfully Sheweth:
(1) That the above titled suit was decreed by consent in terms of Compromise Deed dated 29-3- 2004 entered into between the parties, by this honourable Court vide order dated 30-3-2004.
(2) That Clause "H" of the Compromise Deed provides: That out of the agreed liability the Bank has determined its share at the rate of 86% of the FSV of the project assets being held under the joint charge of the Bank and ICP. In case where the Bank and ICP were to resolve their shares different to 86:14 any differential will be settled by the Bank without any liability on the Borrowers/Customers."
(3) That the current position is that the petitioner has already made a payment of Rs.76 million to the IDBP on 29-3-2004 in terms of the Consent Decree, however, IDBP and ICP, have been unable to resolve their respective shares of the Forced Sale Value (FSV) of the Company's assets under their joint charge. Letters dated 27-4-2004 and 18-5-2004, which confirm this fact are annexed herewith as Annex "A" and Annex "B". C.M. No.356 of 2004 dated 26-4-2004 filed by the ICP in this regard is annexed herewith as Annex "C".
(4) That in the meantime the clock continues to tick in terms of the Consent Decree and the four month time period for payment of the remaining amount in lumpsum hereunder expires on 29-7- 2004. This is to avail the benefit of 6% discount.
(5) That the petitioners have urged the IDBP to resolve its dispute with ICP, so that the petitioners may make the immediate payment. However, finding that it may not be possible, within the given time frame, IDBP has requested the petitioners to make the payment of the undisputed amount of their share on the receipt of which payment IDBP will allow the agreed discount of 6% on all the payment made to it.
(6) That as per ICP, IDBP is entitled to receive 54.6% share of the Forced Sale Value of the assets. ICP contends that the first charge which exists in favour of IDBP is only to the extent of Rs.25 million while ICP has a pari passu charge registered in its favour in the sum of Rs.20.787 million. A copy of a search report from the office of the Securities and Exchange Commission of Pakistan is annexed as Annex-D. ICP further contends that IDBP did not obtain an NOG from ICP for any subsequent charge that it had gotten registered for any additional amounts that it lent to the petitioners.
(7) That as per clause 3 of the Consent Decree; "That the Borrower/Customers shall be entirely responsible for the adjustment/settlement of its any other financial liability towards other Bank/DFI/Creditor."
Therefore, rather than settlement under clause "H" the petitioners, for smooth and effective settlement of its liabilities would like to settle with ICP independent of IDBP in terms of clause 3 of the Compromise Deed.
PRAYER In the circumstances, it is most respectfully prayed that the petitioners may be allowed to pay and IDBP be directed to accept a payment of 54.6% of the FSV of the Company's assets under joint charge of IDBP and ICP subject to a discount of 6% on all the amounts paid to it i.e. On the sum of Rs.58.590 million paid on 29-3-2004 and Rs.62.244 million to be paid now. In addition, as agreed by IDBP, if any further payment is found due against the petitioners and the same is made within 30 days of its so being found, IDBP will allow the discount of 6% on the such payment if made in lumpsum. Further, the petitioners may graciously be allowed to settle independently with the ICP, in accordance with clause 3 of the Consent Decree."
8. It is clear from un-objected contents of the application that IDBP allowed the respondents to proceed with the settlement with ICP on an understanding regarding the aforementioned sharing ratio of 54.6% and 45.4%. According to the prayer in the application IDBP was permitted to claim higher amount provided less amount is duly determined. The point of importance is whether consented application bearing C.M. No.231 of 2004 and the consent order dated 9-7-2004 does place IDBP under embargo to either change sharing ratio or the amount claimed against mortgaged security without determination involving notice and hearing the respondents. In the present case, the sharing ratio was changed unilaterally without notice to the respondents although pursuant to the order dated 9-7-2004 IDBP had collected 62.244 million from the respondent. To our minds IDBP cannot enlarge its share in the security having recourse to provisions of law, namely, section 58 of the Transfer of Property Act, 1882 or for that matter contents of BPD Circular 29 issued by the State Bank of Pakistan on 15-10-2002. This is because the legal rights for settlement of over-dues is over-ridden by the conduct of the parties inter se following the compromise dated 29-3-2004. That compromise took into account by provisions of law and the contents of Circular. However, that compromise created a mechanism for modifying the rights of the parties. The parties decided to modify their rights on the basis of certain existing contents.
These modified rights are enumerated in C.M. No.231 of 2004 as sanctioned by the Court with the consent of the parties on 9-7-2004. Recourse to the provisions of the law and the BPD Circular-29 have been superseded by the arrangement made between the parties. To our minds payment of Rs,62.244 million by the respondent customer to the IDBP in pursuance of C.M. No.231 of 2004 and the order of the Court dated 9-7-2004 created rights in the parties including the respondents in relation to sharing ratio in the security. Any modification of such sharing ratio ought to have occurred by consent of the parties and not unilaterally. For the aforesaid reasons we find that enhancement of share of IDBP of the sharing ratio of ICP was illegal and against the respondent customer. The findings recorded by the learned Single Judge for the aforesaid reasons are upheld.
Appeal dismissed. revisions by the competent authorities. Therefore, it is advisable to consult the official sources or legal professionals for the most up-to-date and accurate information.