AZIZ-UR-REHMAN, J.---The plaintiff has filed the above suit for recovery of money under the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 [Act XV of 1997], with following prayers:-- "(a) A money decree in favour of the plaintiff against the defendants for Rs.75,511,314 along with markup at the rate of 20% per annum from the date offiling of this suit until realization;
(b) A money decree in favour of the plaintiff against the defendants for US$17, 490 plus markup thereon at the rate 54 paisas per 1000 per day (19.71% per annum) from 22nd December, 2000 until realization;
(c) A money decree for Rs.4,192,890 and US$987 being the amount payable by the defendants to the plaintiff as liquidated damages;
(d) Award the cost;
(e) Grant such other better/further relief that this Hon'ble Court may deem fit in the circumstances of the case.
2. Succinctly the relevant facts in the background are:-
3. The plaintiff is a banking company as defined in section 2(a) of the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 (XV of 1997). The defendant No.1 and defendant No.2, are the customer(s) of the plaintiff Bank as defined in section 2(d), of the Act, 1997 (XV of 1997). The defendant No.1 is the person who had obtained finances and defendant No.2, besides the 'real beneficiary' of such finances granted to and availed by defendant No.1, is a 'surety' and indemnifier'.
4. Per SBP's letter dated 23rd June, 2000, the Pakistan Branches of Bank of America N.A. [In short 'BOA'], stood amalgamated with the plaintiff Bank pursuant to the Scheme of Amalgamation duly approved/sanctioned by the State Bank of Pakistan under subsection (4) of section 48 of the Banking Companies Ordinance, 1962 (LVII of 1962). Since then all rights, titles and interests of BOA have stood transferred to and vested in the Union Bank Limited.
5. By virtue of Paragraph 4(b) of the Scheme of Amalgamation dated 30th June, 2000, all rights, benefits and powers arising from or relating to any and all agreements, contracts, security and financing documents, guarantees, security interests; including charges, promissory notes, hypothecations and other security etc. For payment or discharge of any liability executed by or in favour of Bank of America Pakistan Branches stood transferred to and vested in the plaintiff. Under the Scheme of Amalgamation the three Pakistan Branches of the Bank of America i.e. At Karachi, Lahore and Islamabad stood amalgamated with the Union Bank Ltd. Vide SBP's order 30th June, 2000.
6. Pursuant to and in the process of provision of finances by the plaintiff Bank to the defendant No.1, the latter while, executing a finance agreement on mark-up basis dated 1st July, 2000 inter alia undertook to pay the mutually agreed 'purchase price' of Rs.86,341,438 to the plaintiff on or before 30th September, 2000. The 'sale price' under the aforesaid agreement was settled at Rs.75,000,000.
Such payment of 'purchase price' as agreed was not paid by the defendant No.1 to the plaintiff Bank. Nonetheless, at the request of defendant No.1 on 1st October, 2000, the defendant No.1 again signed and executed another agreement of finance on mark up basis with plaintiff Bank whereby, the defendant No.1 agreed to make payment in the sum of Rs.86,341,438 [purchase prices] to the plaintiff on or before 31st December, 2000. Under the 2nd Finance Agreement of 1st October, 2000 the 'sale price' also remained the same i.e. Rs.75,000,000.
7. For the aforesaid financial facilities, the following documents were duly signed and executed by the defendant No.1:--
(a) Finance Agreement dated 1st July, 2000 with 'sale price' of Rs.75,000,000 and 'purchase price' of Rs.86,341,438.
(b) Promissory Note dated 6th July, 2000 for Rs.86,341,438.
(c) Letter of Continuity dated 6th July, 2000.
(d) Finance Agreement dated 1st October, 2000 with 'sale price' of Rs.75,000,000 and 'purchase price' of Rs.86,341,438.
(e) Promissory Note dated 1st October, 2000 for Rs.86,341,438.
(f) Letter of Continuity dated 1st October, 2000.
8. Besides, defendant No.1 also availed additional finance facility in the sum of Rs.50,000,000 [Rupees Fifty Million only] from the plaintiff Bank. Regarding this additional finance facility a Finance Agreement of 5th July, 2000 on mark up basis was duly signed and executed by defendant No.1. Under this Finance Agreement, a mutually agreed sum of Rs.57,047,945 [purchase price] was payable to the plaintiff on or before 3rd October, 2000. The 'sale price' as settled under this agreement is Rs.50,000,000.
9. Regarding this financial facility the defendant No.1 duly signed and executed the following documents:--
(a) Finance Agreement dated 5th July, 2000 with 'sale price' of Rs.50,000,000 and 'purchase price' of Rs.57,047,945.
(b) Promissory Note dated 5th July, 2000 for Rs.57,047,945.
(c) Letter of Continuity dated 5th July, 2000.
10. Apart from the above, on 16th August, 2000, the defendant No.1 also applied to the plaintiff bank for provision of a Letter of Credit Facility. Upon acceptance, the plaintiff Bank drew a Bill of Exchange on defendant No.1 The same was duly accepted for payment by defendant No.1 in the amount of US$ 174900. The Bill of Exchange for US$ 174900 nonetheless remained unpaid.
Regarding this facility the 'application for Letter of Credit' and 'Bill of Exchange' both dated 16th November, 2000 having been duly signed and accepted by defendant No.1 are annexed with the plaint'.
11. The defendant No.1, per averments, was a subsidiary of defendant No.2 as the latter company owned/held 60% shares in it. The defendant No.2, besides being a multinational company, has worldwide credibility. The plaintiff Bank contrary to its' normal practice, however, did not obtain any personal guarantees from the directors of the defendant No.1 Instead, a 'Letter of Comfort' dated 22-9-1998 was issued in favour of the plaintiff. In terms of 'Letters of Comfort' the plaintiff was assured that defendant No.1 shall meet its' obligations in respect of the financial facilities granted to the defendant No.1. The defendant No.2 also reiterated its' commitment through another 'Letter of Comfort' dated 1-8-1999.
12. Per plaintiffs stand, the defendant No.2 is the 'real beneficiary' of the finances provided to the defendant No.1 the defendant No.1, is doing the business of 'import' of electronic items from defendant No.2, its' associated companies and sale thereof in local Pakistani markets. Per plaintiffs version, such items were imported by defendant No.1 allegedly with the help of funds, made available to the defendant No.1 by the plaintiff Bank. The terms agreed regarding availment of the financial facilities besides extremely beneficial are also favourable to the defendant No.2.
13. The finances provided to and availed by defendant No.1, per assertions, were based on the explicit undertaking that defendant No.2 [as the majority shareholder of defendant No.1], would inject funds by way of equity into defendant No.1 The defendant No.1 thus would become viable and financially sound entity to meet its' liabilities and obligations. In view of such undertaking/representation, the plaintiff did not need it necessary to obtain any personal guarantees from the Directors of defendant No.1. Further, the plaintiff also given its' no objection' to defendant No.2 regarding sale of its' shareholding in defendant No.1 partly.
14. Due to defendant No.2's worldwide reputation and credibility, the plaintiff also agreed to keep continue the facilities to defendant No.1 i.e. To say on the basis of an explicit understanding of defendant No.2 to the effect that its' shareholding would be sold to an entity as being capable to understand the underlying dynamics of the business of defendant No.1 and also be able to implement a viable operational and financial restructuring plan of defendant No.1. The defendant No.2, nevertheless, sold its' shareholding in defendant No.1 to an entity which according to the plaintiff, had no viable plan at all.
15. The defendant No.1, per plaintiffs version, used to import goods at high prices from the defendant No.2 and its' associated companies. The funds of defendant No.1 were thus got repatriated by the defendant No.2 to itself as well as to its other associated companies abroad.
Moreover, defendant No.2 divested its' shareholding in defendant No.1, for no consideration and/or nominal consideration. The defendant No.1 as such became unable to pay its' outstanding dues or discharge its' liabilities. Under the aforesaid scenario, the defendant No.2, is the 'real beneficiary' of the financial facilities availed by the defendant No.1 from the plaintiff Bank. The plaintiff if, would have known of the defendants' true intention, its divestment strategy and/or their clandestine arrangements, then it would have not agreed to the provision of financial facilities to defendant No.1. The plaintiff provided the financial facilities to the defendant No.1 on the inducement of defendant No.2. The defendant No.2, if had no interest or concern in the provision of financial facilities to defendant No.1 then, of course, it would have not issued the 'Letters of Comforts' in favour of the plaintiff Bank.
16. Each and every financial facilities provided to defendant No.1, was actually based upon the representation, undertakings and assurances of defendant No.2. Both the defendants, beside responsible, are liable to pay the outstanding dues to the plaintiff Bank. The defendants, despite repeated requests/reminders, nevertheless, failed and/or avoided to liquidate the plaintiff's outstanding dues. Hence the instant suit.
17. Upon filing of the suit on 14-4-2001, process under section 9 of the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 (Act XV of 1997), was issued to the defendants by all four modes. In response, both the defendants filed their Leave to Defend Applications under section 10 of Act XV of 1997 i.e. C.M.As. Nos.3807 of 2001 and 3808 of 2001 respectively. Thereafter, on 1-6-2001, notice on the aforesaid applications [C.M.A. No.3807 of 2001 and C.M.A. No.3808 of 2001] was issued to the plaintiff. Two 'Counter Affidavits' [one each] in reply to the Leave to Defend Applications were also filed by the plaintiff Bank.
18. On 20-8-2001 when the aforesaid Leave to Defend Applications came-up before the court then, the following order was passed:-- "20-08-2001 Mr. Qazi Faiz Isa, Advocate for plaintiff Mr. Neel Keshav, Advocate for defendant No.1 Mr. Khawaja Mansoor, Advocate for defendant No.2
(1) The only dispute in regards to the claim made by the plaintiff against defendant No.1 is, that mark-up on mark-up amounting to 'Riba' has been charged. It is stated that the plaintiff cannot charge the same under the various agreements. This is a question which can be determined from the accounts that is presented by both the parties. All the documents are admitted. In view of the above, by no stretch of imagination can this be a genuine or bona fide dispute. The application is, therefore, dismissed. The defendant No.1 shall, however, continue to contest as regards the settlement of accounts. Let both the parties, namely, the plaintiff and defendant No.1 file their breakup/summary of accounts. This case shall come up for final disposal on the next date of hearing as far as defendant No.1 is concerned. Let the statement/break-up be filed within two weeks. To come up on 5-9-2001.
(2) This application has been made by defendant No.2. The contention of the plaintiff is that by the amendment in the definition of 'Customer', contained in section 2(d) of the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997, the words "real beneficiary of such finance" has been introduced, which brings the defendant No.2 within the ambit of a 'customer' wherefor he becomes liable to finance. Evidently, such cannot be determined and is otherwise also denied by the defendant No.2, without taking proper evidence.
This is a genuine and bona fide dispute. The application, therefore, in the circumstances is granted. Mr. Khawaja Mansoor seeks time to file written statement which may be filed within 15 days hereof.
19. Subsequently, on 5-9-2001 while, treating the Leave to Defend. Application [C.M.A. No.3808 of 2001] filed by defendant No.2 as 'written statement', defendant No.2 was also permitted to seek amendment if, needed. Nonetheless, on the same day, issues were also settled. Being relevant, order dated 5-9-2001 is reproduced herein below:-- "5-9-2001 Mr. Qazi Faez Isa, Advocate for plaintiff Mr. Neel Keshav, Advocate for defendant No.1 Mr. Khawaja Mansoor, Advocate for defendant No.2 Leave to defend application filed by defendant No.2 is treated as written statement. However, if any amendment needs to be made in the leave to defend application, Mr. Khawaja Mansoor may, within two weeks from date, file, an application seeking amendment in the written statement.
In the meanwhile and on the basis of the application which is deemed to be the written, the following Issues are framed:-
(1) Whether this Court has jurisdiction to proceed with the matter in respect of defendant No.2?
(2) Whether the defendant No.2 is the real beneficiary, if so, its effect?
What is the amount due and payable by the defendant No.1 and if the defendant No.2 is held to be the real beneficiary what amount shall be due and payable by the defendant No.2? what should the decree be?
Affidavit in evidence shall be filed within one week after the application for amending written statement is filed by the defendant No.2. The plaintiff shall after going through their record cause a certified statement of account filed in accordance with the Bankers Book of Evidence Act."
20. Thereafter, on 25-10-2001, the suit against defendant No.1 was decreed. The operative part of the judgment dated 25-10-2001 reads as follows:-- "(7) While considering the statement of account, it is found that the markup from 1-4-2001 to 30- 6-2001 and from 1-7-2001 to 4-92001 buy-back agreement i.e. Beyond the expiry date and therefore, this mark-up is not being allowed by the Courts. The case of Muhammad Aslam Khaki v.
Syed Muhammad Hashim (PLD 2000 SC 225) is referred. In view of the above the aforesaid mark- up is disallowed likewise no evidence has been brought on record to establish liquidated damages, which is disallowed as well. For the rest of the amount i.e. Rs.75,571,341.65 and US$ 17490 the suit is decreed as against defendant No. 1."
21. From the record, it appears that the application under, section 152, C.P.C. [C.M.A. No.9409 of 2001] filed by the plaintiff for substitution of the figure of Rs. 75,571,341.65 [as mentioned in the last sentence of the judgment] with the figure of Rs.75,511,314.65, was also granted on 14-1-2002.
Moreover, on the same day, the 'written statement' filed by defendant No.2 on 17-11-2001, was taken on record.
22. On 21-3-2002, when again [i.e. After filing of the 'written statement' by defendant No.2 on 17-11- 2001], the matter came-up before the court then, the following order was passed:-- "21-3-2002 Mr. Qazi Faez Isa for plaintiff Mr. Khawaja Mansoor for defendant None present for defendant No.1 Both the learned counsel submit that issues framed in this suit on 5-9-2001 cover all the points in controversy and no additional issue is required to be framed. ."
23. The defendant No.2 in its' Leave to Defend Application [C.M.A. No.3808 of 2001] as well as in its' 'written statement' has seriously opposed any liability inter alia on the ground that defendant No.2 being a Foreign incorporated Company carries on its' business abroad and has no place of business within the jurisdiction of this court. Further no 'cause of action' as alleged in para 26 of the plaint has ever arisen in favour of the plaintiff and against defendant No.2.
24. The defendant No.2 has neither obtained any 'loan' or 'finance' from the plaintiff Bank nor otherwise, stood as 'surety' or an 'indemnifier' in respect of the such finances granted to and availed by the defendant No.1. As such, the defendant No.2 is neither a 'borrower' nor a 'customer' within the meaning of clauses (c) and (d) of section 2 of Act, XV of 1997. Besides, the defendant No.2, in 'no sense, is the 'real beneficiary', as alleged by the plaintiff Bank, of the finance facility(ies) availed by the defendant No.l.
25. Moreover, the defendant No.2 has never received any payment for any goods allegedly purchased by defendant No.1 from the defendant No.2. As such, the defendant No.2 is neither obliged to pay any amount to the plaintiff or otherwise, has committed any 'default' in fulfilling of any alleged obligation with regard to any finance facility[ies] availed by the defendant No.1 from the plaintiff Bank. No any documents including 'letter of guarantee' or 'letter of indemnity' was ever executed by defendant No.2. Allegations to the effect were also seriously denied. Any request, on the part of the defendant No.2, for providing finances to defendant No.1, was also forcefully denied.
26. The defendant No.2 initially, no doubt, was holding 60% shares of defendant No.1 Public Listed Company. However, since 30th August, 2000 defendant No.1 ceased to be a subsidiary company of defendant No.2 [i.e. Upon transfer of 40% shares of defendant No.1 to a third party viz. Portmarnock International Limited]. Per defendant No.2's stand, the 'Letter of Comforts' dated 22nd September, 1998 and 1st August, 1999 do nothing with the plaintiff or its' three amalgamated branches of Bank of American [In short BOA] with the Union Bank Ltd. [i.e. The Pakistan Branches of Bank of America, at Karachi, Lahore and Islamabad]. Moreover, these 'Letters of Comforts' have already been expired on 31st July, 1999 and 31st July, 2000 respectively. In any event, the aforesaid 'Letters of Comforts' have neither created any legal obligations or liability as alleged vis-a-vis the plaintiff or its' 3 Pakistan Branches of Bank of America. Even these 'Letters of Comforts' are not addressed to the plaintiff or otherwise, pertain to the subject 'finance facilities'. The alleged liability on the basis of the aforesaid 'Letters of Comfort' besides mis-conceived, mis-leading is false.
27. Not only this, the plaintiff is also well aware re transfer of defendant' No.2's 40% shares in defendant No.1 to 3rd party namely Portmarnock International Limited. The contents of letter dated 24th August, 2000 written by Senior Vice-President and Chief Financial Officer, Philips Electronics Asia Pacific Pte. Ltd. And plaintiffs letter dated 25th August, 2000 are not only self-explanatory but also belie the plaintiff in its' assertions. The lack of knowledge regarding transfer of shares or any sort of assurance on the part of defendant No.2 for maintaining and/or of continuing the ownership of the majority shareholdings of defendant No.2 in defendant No.1 company, was seriously denied by defendant No.2.
28. Per assertions, the defendant No.2 is not responsible for the financial conditions of defendant No.1 and/or its' inability to pay the outstanding dues: The plaintiff was neither induced for granting the financial facilities on false pretext or 'otherwise'. The defendant No.2 is not the 'real beneficiary' of the finances availed by defendant No.1 under the terms and conditions agreed between the plaintiff and defendant No.1. Finally, defendant No.2 have prayed for dismissal of the suit.
29. Out of the pleadings, 'issues' were settled on 5-9-2001. In 'pro' and 'contra' of the issues, the plaintiff and defendant No.2 led their evidence. The plaintiff in support of his contentions examined Ghulam Sarwar Khan son of Ghulam Rasool Khan. The said witness [P.W.1] besides, producing his 'affidavit-in-evidence' as Exh. 5/1' also produced in his 'examination-in-chief' other documents as Exh.'5/2' to Exh.'5/29'. The said witness was duly 'cross-examined' by Mr. Khawaja Mansoor, learned counsel for defendant No.2.
30. On behalf of defendant No.2, Mr. Suhail Akhtar son of Akhtar Hussain Khan filed his affidavit-in- evidence' which was produced in his 'examination-in-chief' as Exh.'6'. The original Power of Attorney in his favour was also produced as Exh. 16/1. The said witness was also 'cross-examined' by Mr. Shakeel Pervaiz, learned counsel for the plaintiff.
31. Upon conclusion of the evidence, when the above case came-up before me for arguments, I heard Mr. Umer Soomro, learned counsel for the plaintiff and Mr. Khawaja Mansoor, learned counsel for the defendant No.2 and with their valuable assistance also gone through the available record.
32. ISSUE NO.1: Whether this Court has jurisdiction to proceed with the matter in respect of defendant No.2? The onus of proof of this issue is on the plaintiff Bank. Mr. Umer Soomro, learned counsel for the plaintiff Bank forcefully argued that defendant No.2 is also 'customer' of the plaintiff Bank as defined in section 2(d) of the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 (Act XV of 1997). Per learned counsel, defendant No.1, no doubt, obtained/availed finances from the plaintiff Bank but the 'real beneficiary' thereof is the defendant No.2.
33. Moreover, defendant No.2 is also a 'surety' and 'indemnifier'. This court, under circumstances, has jurisdiction to decide the 'lis'/'dispute' involved in the case in hand. Mr. Umer Soomro, learned counsel for the plaintiff next contended that all disputes pertaining to and arising out of the banking transaction, indeed, fall within the scope of Banking Act, 1997 [Act XV of 1997]. Learned counsel for the plaintiff while, arguing the case submitted in vehemence that even the question regarding 'existence' and/or 'non-existence' of the loan/finance facility(ies) needs to be decided by the Banking Court. So also, the issue whether defendant No.2 is 'real beneficiary' or not of the financial facilities granted to defendant No.1 also falls within the jurisdiction of Banking Court as defined under section 2 of the Act XV of 1997. [Now Financial Institutions (Recovery of Finances)
Ordinance, 2001 - In short F.I.O., 2001].
34. Conversely, Mr. Khawaja Mansoor, learned counsel for the defendant No.2 emphatically argued that defendant No.2 is a Company incorporated outside Pakistan and knowingly has no 'place of business' within the jurisdiction of this court. According to the learned counsel, defendant No.2, is neither a 'borrower' nor a 'customer' as such does not fall within the meaning of clauses (c) and (d) of Section 2 of Act XV of 1997. Per learned counsel, defendant No.2, in no sense is the 'real beneficiary' of any financial facility[ies] granted to and availed by defendant No.1.
35. According to Mr. Khawaja Mansoor, learned counsel for the defendant No.2, the words "...a person who...Is the 'real beneficiary' of such finance" used under section 2(e) of Act XV of 1997, have reference to the 'actual customer' of the bank to whom finance has been extended/made available under a system not based on interest. The defendant No.2 has never obtained any financial facility[ies] from the plaintiff Bank or otherwise, received any payment for the 'goods' mentioned in the 'subject agreements for financing' from the defendant No.l. Be that as it may, the defendant No.2 is not liable to pay anything to the plaintiff Bank. The defendant No.2 did not commit any 'default' in fulfilling of so-called obligation in respect of the finance facility[ies] availed by defendant No.1 during July, 2000 to October, 2000.
36. For proper appreciation of the contentions raised by the learned counsel for the plaintiff and defendant No.2 respectively vis-a-vis. The Issue No.1, I would like to reproduce herein, the relevant clauses [i.e. a(i),(ii),(iii)], [b(i)(ii)], [c], [d] and [e] of section 2 of the Act of 1997 [Act XV of 1997] under which law the instant suit has been filed, as under:-- "(2) Definitions.---In this Act unless there is anything repugnant in the subject or context--
(a) "banking company" means--
(i) any company whether incorporated within or beyond Pakistan which transacts the business of banking or any associated or ancillary business in Pakistan and includes a Government savings bank;
(ii) a modaraba or modaraba management company, leasing company, investment bank, financing company, unit trust or mutual fund of any kind and credit or investment institution, corporation or company whether industrial, agricultural or development; and
(iii) any company authorised by law to carry on any similar business specified in the Schedule to this Act: and
(b) "Banking Court" means---
(i) in respect of a case in which the outstanding amount of claim based on a loan or finance does not exceed thirty million rupees or the trial of offences under this Act the Court established under section 4: and
(ii) in respect of any other case, the High Court;'
(c) "borrower" means a person who has obtained a loan under a system based on interest from a banking company and includes a surety or an indemnifier;
(d) "customer" means a person who has obtained finance under a system which is not based on interest from a banking company or is the real beneficiary of such finance and includes, a surety or an indemnifier;
(e) "finance" includes an accommodation or facility under a system which is not based on interest but provided on the basis of participation in profit and loss, mark-up or mark-down in price, hire- purchase, equity support, lease, rent sharing, licensing, charge or fee of any kind, purchase and sale of any property, including commodities, patents, designs, trade marks and copyrights, bills of exchange, promissory notes or other instruments with or without buyback arrangement by a seller, participation term certificate, musharika or modaraba certificate, term finance certificate or any other mode other than an accommodation or facility based on interest and also includes credit or charge cards, guarantees, indemnities, letters of credits and any other obligation, whether fund based or non-fund based, and any accommodation or facility the real beneficiary whereof is a person other than the person to whom or in whose name it was provided; "
[Underlining is mine].
37. Besides, subsections [1(a) and (b)], (4) and (5) of section 7 of the Act XV of 1997 (Act XV of 1997) being relevant are reproduced as follows:- "(7) Powers of Banking Courts---(1) Subject to the provisions of this Act, 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 Act 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 Act except upon a complaint in writing made by a person authorised in this behalf by the banking company in respect of which the offence was committed. 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].
38. From the bare perusal of section 7(4) of the Act XV of 1997 it transpires 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 the Act of 1997 [Now 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 would fall within the jurisdiction of the Banking Court as defined in section 2(b)(i) and (ii) of the Act XV of 1997. No doubt, subsection (4) of section 7 of Act XV of 1997, is subject to subsection (5) of section 7 which 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."
39. The words, a decision as to the 'existence' or 'otherwise' of loan or finance -as implied in subsection (4) of section 7 of Act, 1997 [Now para materia of subsection (4) of section 7 of F.I.O., 2001], need not to be given restricted meanings. The issue, whether defendant No.2 is the 'real beneficiary' or not' of the finances granted to and availed by the defendant No.1, in my view also falls within the meaning of subsection (4) of section 7 of Act, 1997 (Act XV of 1997). The word used 'otherwise' not only extends to the 'existence', 'non-existence', of a 'loan' or 'finance' but also embraces within its' ambit a 'decision' vis-a-vis the question in hand i.e. Whether the defendant No.2 is the 'real beneficiary' of finances granted to and availed by defendant No.1 or not. 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 observation:-- "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". "
40. The meaning of the word 'otherwise' as dilated upon in the case of Sardar Abdul Ghafoor Khan and 3 others v. The Federal Land Commission, Islamabad [PLD 1979 Lahore 375] reads as under:- "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."
41. Moreover, in para 8 of the 'written statement' filed by the defendant No.2, it has been specifically averred as under:-- "8....The defendant No.2 informed the plaintiff by a letter dated 24th August, 2000 regarding the transfer of its shareholding of 40% in the defendant No.1 to the third party. A copy of the said letter is annexed hereto and marked Annexure 'A'. It is denied that the defendant No.2 promised support to or retention of any interest in the defendant No.1 or with a view to inducing the plaintiff to provide finance to the defendant No.1 or that the plaintiff relied on any assurances of the defendant No.2 in that regard. Annexed as hereto and marked Annexure 'B' is a copy of the letter dated 25th August, 2000 written by the plaintiff to an affiliate of the defendant No. 2, which clearly shows that the defendant No.2 had neither given nor had been requested to give any assurances whatsoever to the plaintiff in regard to the finance provided by the plaintiff to the defendant No.1 or in regard to the continued ownership of a majority of the shares of the defendant No.1 by the defendant No.2." [Underlining is mine].
42. Apart from the above, Ghulam Sarwar Khan son of Ghulam Rasool Khan [P.W.1] in para 11 of his 'affidavit-in-evidence' [Exh.5/1] has deposed as under:-- "11. That the defendant No.2 had conveyed to the plaintiff that it would sell part of its shareholding in the defendant No.1 to any entity which understood the underlying dynamics of the business of the defendant No.1 and would be able to implement a viable operational and financial restructuring plan. The plaintiff was, however, shocked to discover that the defendant No.2 had in total disregard of its commitment to the plaintiff sold its shareholding in the defendant No.1 to an entity which clearly had no viable plan, thereby shattering the confidence that the plaintiff had placed upon the, defendant No.2." [Underlining is mine].
43. From perusal of the above, it appears that against defendant No.2 'cause of action' somehow has arisen in favour of the plaintiff Bank. In view of this position and inter alia upon reading of section 2(b)(ii), (d) and (e) in conjunction with section 7(4) of the Act XV of 1997 [Now para materia of section 7[4] of Section 7 of F.1.0., 2001], I have reached the conclusion that this court has jurisdiction over the 'lis' to proceed with the matter in respect of defendant No.2 and also to decide the question arising whether defendant No.2 is the 'real beneficiary' of finances availed by the defendant No.1 or not. Resultantly, Issue No.1 is answered in 'AFFIRMATIVE'.
44. ISSUE NO.2: Whether the defendant No.2 is the real beneficiary, if so, its effect? The burden of proof of this issue is also on the shoulders of the plaintiff. Mr. Umer Soomro, learned counsel for the plaintiff argued that financial' facilities, indeed, were provided to the defendant No.1 and all the relevant documents therefor were also signed and executed by the defendant No.1 [i.e. During July, 2000 to October 2000], but despite such position the 'real beneficiary' of the financial facilities is defendant No.2 company in view of section 2(d) of Act XV of 1997. In support of his contentions, learned counsel also referred to the various documents brought on record i.e. Exh.5/5, Exh.5/7, Exh.5/9, Exh.5/11, Exh.5/12, Exh.5/13, Exh.5/14, Exh.5/15, Exh.5/16, Exh.5/17, Exh.5/18, Exh.5/19, Exh.5/20, Exh.5/21 and Exh.5/22. At the time of availing financial facilities since defendant No.2 was holding 60% shares in defendant No.1 company as such the defendant No.2 on this score as well be deemed as the 'real beneficiary' of financial facilities availed by defendant No.l. Mr. Umer Soomro, while, continuing his arguments also forcefully submitted that on account of such 60% shareholdings, the plaintiff did not obtain any personal guarantees from the Directors of defendant No.1 company.
45. Per learned counsel, since the funds made available by the plaintiff to the defendant No.1 has been utilized for the importing of the electronic items etc. From the defendant No.2 and/or its' associated companies abroad, as such on this ground as well, the defendant No.2 may be held the 'real beneficiary' of the financial facilities. According to Mr. Soomro the defendant No.2 is also a 'surety' and 'indemnifier' much-less in view and on the basis of the 'letter of comforts' (i.e. Exh.'5/23' and Exh. '5/24']. Mr. Soomro lastly in support of his contentions placed reliance on the case of Banque Brussels Lambert SA v. Australian National Industries Ltd. (1989 21 NSWLR 502), wherein it was observed as follows:-- "What by no means follows is the conclusion the defendant seeks to draw from this material. First, there are the considerations I have already mentioned, in relation to letters of comfort generally, which explain why, consistently with intending to make a legally binding commitment, a company may wish it not to have the character of a guarantee. Secondly, the letter makes clear that the defendant is not assuming secondary liability for the debts of the principal debtor. It is not suggested that the letter makes the defendant liable for the debt of Spedley conditioned merely on non-payment by Spedley. The statements made in the letter are more remote from the liability of Spedley to repay the facility. By reason of this. a failure to adhere to the statements made will, at best, give rise merely to a claim for damages and threw-up considerable questions of causation. Nonetheless, the promises, had they been fulfilled, were calculated to put the plaintiff in a position to receive payment from Spedley. It is these features which, both distinguish the letter from a guarantee but make the defendant's argument based on that undoubted fact in irrelevance." [Underlining is mine].
46. In rebuttal, Mr. Khawaja Mansoor, learned counsel for the defendant No.2, argued in vehemence that neither defendant No.2 has availed any facility[ies] from the plaintiff Bank nor the defendant No.2 as alleged is a 'surety' or 'indemnifier' of the facilities availed by the defendant No.1. . Neither defendant No.2 as alleged is the 'real beneficiary' of the financial facilities nor any 'letter of guarantee' or 'indemnity ' has been executed in favour of the plaintiff Bank. Defendant No.2, as such does not fall within the .Scope of sections 2(d) and 2(e) of Act XV of 1997. Mr. Khawaja Mansoor, learned counsel for the defendant No.2 forcefully contended that neither any goods were purchased or imported by defendant No.1 from the defendant No.2. The plaintiff Bank, has also failed to lead any evidence in support of the contentions as raised.
47. With regard to the 'Letters of Comfort' Mr. Khawaja Mansoor forcefully contended that the same besides irrelevant are also not binding on the defendant No.2 company. The facilities availed by defendant No.1, no doubt, are secured through stocks described under the schedule of 'finance agreements' and 'letters of hypothecation' duly signed and executed by the defendant No.1. The charge on the hypothecated goods, as evident from the record, is also registered under section 127 of the Companies Ordinance, 1984 (XLVII of 1984). The relevant 'letters of hypothecation' and 'charge certificates' produced in evidence are Exh.5/5, Exh.5/6, Exh.5/7, Exh.5/8, Exh.5/9 and Exh.5/10. Per documents produced by the plaintiff the defendant No.1 only is the 'customer' of the plaintiff Bank.
48. Mr. Khawaja Mansoor, learned counsel for the defendant No.2 in support of his contention, has placed reliance on the case of BANQU E BRUSSELS LAMBERT SA v. AUSTRALIAN NATIONAL INDUSTRIES LTD. (1989) 21 NSWLRs 502. The relevant part from the aforesaid judgment reads as under:-- "A letter of comfort from a parent company to a lender stating that it was the policy of the parent company to ensure that its subsidiary was 'at all times in a position to meet its liabilities' in respect of a loan made by the lender to the subsidiary did not have contractual effect if it was merely a statement of present fact regarding the parent company's intentions and was not a contractual promise as to the parent company's future conduct. On the facts, para 3 of the letters of comfort was in terms a statement of present fact and not a promise as to future conduct and in the context in which the letters were written was not intended to be anything other than a representation of fact giving rise to no more than a moral responsibility on the part of the defendants to meet M's debt." [Underlining is mine].
49. Heard.
50. No doubt; section 2(d) of Act XV of 1997 defines the 'customer' which means a person who has obtained finances under a system which is not based on interest from a banking company or is the 'real beneficiary' of such finances and includes a surety or indemnifier but under the facts and circumstances of the present case, defendant No.2, as argued by Mr. Umer Soomro, under section 2(d) of the Act XV of 1997 is the 'real beneficiary' of the financial facilities is mis-conceived. Firstly on the ground that financial facilities availed by defendant No.1 is not a Benami facility. Nowhere, in the pleadings it has been averred or otherwise has been established through evidence that the financial facility[ies] granted by the plaintiff to defendant No.1 is 'Benaini facility' and the 'real beneficiary' thereof was/is defendant No.2. Besides, it is not the case of the plaintiff Bank that defendant No.1 has availed any 'non-fund' based financial facility[ies] such as Guarantee or Letter of Credit [i.e. The person on whose behalf a letter of credit or letter of guarantee has been issued] in favour of defendant No.2. Secondly, the plaintiff has also failed to lead any evidence in support of their assertions that the goods allegedly imported by the defendant No.1 were either from defendant No.2 and/or its' associated companies or with the funds made available by the plaintiff to the defendant No.l. Thirdly, the defendant No.2 company on account of its' majority shareholding as well cannot be held liable for the debts having been incurred by a subsidiary company [defendant No.1 herein] because under law, a subsidiary company is entirely a separate legal entity and its' acts' or defaults' in no event are the 'acts' or 'defaults' of the parent company [herein defendant No.2).. On this aspect of the matter, reliance can be placed on the case of PAK AMERICAN FERTILIZERS LTD. MIANWALI v. AMIR ABDULLAH KHAN AND ANOTHER [1984 CLC 2170] PARA 11 wherein it was observed as follows:-- "11. No doubt, both the appellant-company as well as the National Fertilizer Marketing Ltd. Are entirely owned by the Central Government, but that would not make them so indistinguishable from each other that the liability of one could be treated as liability of the other. Admittedly both were separately incorporated and the mere fact that shareholders of the one 'were also the shareholders of the other, did not suffice to treat them as one person. Reliance was placed on Re: Ebbw' Vale U.D.C v. South Wales Traffic Area Licensing Authority (1) which laid down the rule:- "...That a subsidiary company is not the agent of the parent company, but is an entirely separate entity. Its acts are not the acts of the parent company, and the parent company is not responsible for its acts or defaults...".
On this account as well the defendant No.2 cannot be made liable for the liability incurred by the defendant No.1 company.
51. Moreover, under the finance agreements and the other documents produced in evidence, the defendant No.1 has been shown as 'customer' of the plaintiff Bank. The financial facilities granted by the plaintiff Bank to defendant No.1 are also duly secured through stocks/goods. The common 'clause 8' of the finance agreements duly signed and executed by customer [i.e. Defendant No.1] reads as under:-- "(8) As security for payment of all amounts due under this agreement, the Customer UNDER-TAKES to give the following security(ies), the terms and conditions of which shall be such as the Bank may determine:
(a) Hypothecation OVER STOCKS AND BOOK DEBTS AND GOODS - PRODUCTS ETC. OUTSTANDING AND RECEIVABLES AS LAID DOWN IN THE JONIT HYPOTHECATION UNDER THE UMBRELLA OF ANZ GRINDLAYS BANK LIMITED, KARACHI and such other securities as mentioned as the bank may require.
52. Further the plaintiff Bank in support of its' assertions made in para 2 of the plaint has also failed to bring on record any letter of guarantee and/or letter of indemnity whereby it is established that the defendant No.2 is a guarantor and as being so is liable to pay the liability of defendant No.1 company. It is worth to note, that the instant suit has already been decreed against the defendant No.1 in his capacity as a principal, customer of the plaintiff Bank. The passing of decree against principal customer [defendant No.1 herein] also belies the plaintiff in its stand taken against the defendant No.2 company.
53. Being relevant at this stage, I would like to reproduce herein the 'Letters of Comforts' dated 22- 9-1998 [Exh.5/23] and 1-8-1999 [Exh.5/24] respectively as under:-- A. Bank of America NT & SA Mr. Sunder lyer Vice-President Bank of America House 1 Alie Street London El 8DE UNITED KINGDOM Ref: 98.02 Date: 1998-09-22 LETTER OF COMFORT Dear sirs, 'We are aware of the credit facility amounting to PKR 150,000,000 (Pakistan Rupee One Hundred Fifty Million) pursuant to the agreement dated July 31, 1998 thereinafter referred to as the "Facility") that you (hereinafter referred to as the "Bank') have granted to Refrigerator Manufacturing Company Pakistan Limited (hereinafter referred to as the "Company"), in which Company we have a direct or indirect shareholding of 60% (Sixty Percent).
Should we significantly reduce our shareholding in the Company, we shall promptly inform you thereof.
Whilst this letter shall not be construed as a guarantee nor as legally binding upon us in any way, we confirm to you that it is the Company's policy to meet at all times its liabilities towards the Bank under the Facility.
This Letter of Comfort shall be valid until and shall automatically terminate or expire as per the date falling 12 months after the signing of the concerned Facility. [Underlining is mine].
Yours faithfully, ROYAL PHIPIPS ELECTRONICS Sd/- J.M.L.M. IngenHousz Sd/- P.J. Willers B. Bank of America NT & SA Mr. Sunder Iyer Vice-President Bank of America House 1 Alie Street London El 8DE UNITED KINGDOM. Ref: 99.116 Date: 1999-08-01 Dear sirs, We are aware of the credit facility amounting to 1,50,000,000 [Pakistan Rupee One Hundred Fifty Million) pursuant to the agreement dated July 31, 1998 thereinafter referred to as the "Facility") that you (hereinafter referred to as the "Bank") have granted to Refrigerator Manufacturing Company Pakistan Limited (hereinafter referred to as the "Company"), in which Company we have a direct/indirect shareholding of 60% (Sixty Percent).
As of the date of this letter, we intend to increase or maintain our existing shareholding in the Company. However, should we significantly reduce our shareholding in the Company, we shall promptly inform you thereof.
Whilst this letter shall not be construed as a guarantee nor as legally binding upon us in any way.
We are confident that the Company will meet its liabilities towards its creditors.
This Letter has to be interpreted in accordance with the laws of the Netherlands and shall be valid until and shall automatically terminate or expire as per July 21, 2000, irrespective of whether or not the original of this letter has been returned to us. [Underlining is mine].
Upon expiry, you are kindly requested to return the original copy of this letter to us by courier or registered mail.
Yours faithfully, KONINKLIJKE PHILIPS ELECTRONICS N. V.
Sd/ J.M.L.M Ingen Housi Sd/ P.J. Willers
54. From bare perusal of the above, it is crystal clear that the aforesaid so-called 'Letters of Comfort' [Exh.5/23 and Exh.5/24], are not addressed to the plaintiff Bank. Further, these letters speak about finance agreement of July 31, 1998 [Not produced] and not the 'subject finance agreements' [Exh.'5/11`, Exh. '5/13' and Exh.15/17] signed and executed by the defendant No.1 in respect of the financial facilities availed in the year 2000, [i.e. During July, 2000 to October,' 2000].
Moreover, these Letters of Comfort [Exh.'5/23' and Exh.'5/24] I stood expired in their own terms much before the filing of the present suit on 14-4-2001. During the lifetime of these 'letters of comfort' [Exh.'5/23' and Exh.'5/24'] significantly no suit for 'specific performance' and/or damages on the basis thereof was filed by the plaintiff Bank against defendant No.2 company. Besides, Exh.'5/30' and Exh.'5/31' also belie the plaintiff Bank about lack of knowledge viz-a-viz Transfer of Shares. A 'Letter of Comfort' has been defined in 'HAND BOOK OF BANKING TERMS by Fazul Suleiman Kazi' in the following words:- "Letter of Comfort A written instrument issued by A, where A agrees to make every effort to assure B's compliance with the terms of the contract but without committing A to perform B's obligation in the event that B is unable to fulfill his obligation; usually issued by a parent company on behalf of a subsidiary in another country. It takes many possible forms. From Lenders point of view it is weaker than a guarantee." P.K. Nevitt --- Project Financing.
At July, 1974 meeting of the Bank of International Settlements--- (BIS) the club of leading central bankers---persuaded countries to agree in the doctrine of parental responsibility - that any branch or subsidiary of a foreign bank which encountered difficulties would be its parent banks responsibility. The Bank followed this up by requiring "Letters of comfort", from the foreign parents."
55. Nevertheless the statement made in the Letters of Comfort [Exh.'5/23' and Exh.'5/24] merely shows a statement of present fact regarding defendant No.2's intentions of its future conduct but in no event it amounts to a contractual promise legally enforceable under the law. Evidently the terms and conditions of subject Letters of Comfort [i.e. Exh.5/23' and Exh.5/24] reproduced hereinabove do not create any legal relationship of binding and/or of enforceable nature. Rather it seems merely a moral statement. The violation of such moral statement/repudiation, if any, cannot be enforced through court of law much-less in proceedings simply filed for recovery.
56. Besides, these Letters of Comfort [Exh.'5/23' and Exh. '5/24'] in terms thereof could not be construed as 'Letters of Guarantee' or `Letters of Indemnity'. In view of this position, defendant No.2 is neither a 'guarantor' or 'indemnifier' as referred to under section 2(d) of Act, 1997 [Act XV of 1997].
The defendant No.2, it is worth to mention, has not pledged or otherwise, intended to pledge its shares with the plaintiff Bank. As such not be treated as 'surety'. In the case of MERICAN EXPRESS BANK LTD v. ADAMJEE INDUSTRIES LIMITED [1995 CLC 8801, while, dilating upon this aspect of the matter it was observed as under:-- ...The term , "borrower" has been defined by section 2(d) of the Ordinance as to include "a surety or an indemnifier". "Surety" is defined by section 126 of the Contract Act as a person who gives a guarantee. And "a contract of guarantee" means, as provided by the same section, "a contract to perform the promise, or discharge the liability, of a third person in case of his default". In view of these provisions, Mr. Arfin submitted that since the word "surety" in section 126 of the Contract Act does not include a pledgor, these defendants are not sureties and cannot be sued under the Ordinance. Mr. Vellani, on the other hand, submitted that the word "surely" in section 2(d) of the Banking Companies (Recovery of Loans) Ordinance, 1979, has a meaning different from the one given to it by section 126 of the Contract Act; and that, for the purposes of the Ordinance "surety" includes a pledgor and mortgagor. He referred to Mokal's Law Terms and Phrases wherein "surety" is stated to mean "one that gives security for another"; and the word "security" is stated mean "anything that makes the money more assured in its payment or more readily recoverable" and "all mortgages, charges, debentures, etc. Whereby repayment of money is assured or secured". Mr. Vellani also relied on Halsbury's Laws of England, 4th edition, volume 20, P. 52; on (1938) 2 AER 127 and on the case of Central Exchange Bank Ltd. v. Mst. Zaitoon Begum and others (PLD 1968 SC 83).
It is stated in Halsbury's Laws of England (Supra), on the authority of (1938) 2 AER 127 (Supra), that -- "The assumption of personal liability is not necessary element in suretyship. A person who provides a pledge or security for perfornzance of another's obligation is making himself by means of that pledge or security, a surety for that other, just as much as if he pledges his personal credit:"
57. The Letters of Comfort [Exh.'5/23' and Exh.'5/24'] otherwise, also could not be made a subject matter of a banking suit simply filed for recovery of money as they do not amount to guarantee the financial facilities availed [herein by defendant No.1]. On this aspect reliance can be placed on the case of NATIONAL BANK OF PAKISTAN v. S.G. FIBRE LTD. And others [2004 CLD 689], wherein it was held as follows:-- "8. Similarly, the undertaking executed by defendants Nos.2 to 8 does not amount to guarantee or create any relationship of financial institution and customer between the parties, nor breach of such undertaking could be termed as default in fulfillment of any obligation with regard to any finance, which are the preconditions under section 9 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 for giving jurisdiction to the Banking Court to entertain a suit....
58. Likewise, in the case of PROCTER AND GAMBLE PAKISTAN (PVT.) LTD., KARACHI v. BANK AL-FALAH LIMITED, KARACHI AND 2 others [2007 CLD 1532], the court while, dilating upon the maintainability of the suit under the banking jurisdiction filed under Financial Institutions [Recovery of Finances] Ordinance, 2001 [Ordinance XLVI of 2001], it was observed as follows:--
12. ...Section 9 of the Ordinance, 2001 states that "Where a customer or a financial institution commits a default in the 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...- ....".
Financial Institutions (Recovery of Finances) Ordinance, 2001, being a special law, its scope is to be confined to the parties, which are entitled to invoke its jurisdiction and section 9 clearly mentions that they are only two i.e. a financial institution and its customer. Other than these two if a person is connected in some way to a transaction falling under the definition of "finance", that person not being a customer of the financial institution could not invoke the Jurisdiction provided under section 9 of the Ordinance. 2001 as section 9 of the Ordinance, 2001 does not authorize such person to invoke banking jurisdiction. The real test is not that a dispute has arisen in relation to a transaction defined as "finance" under section 2(d) of the Ordinance, 2001, but the real test is that dispute should have arisen between a "financial institution" and its "customer". There is no denying the fact that such dispute must relate to a financial facility defined under the term "finance" but it is also necessary that dispute should have arisen between a financial institution and its customer and no one else. A dispute relating to any of the transactions covered by the definition of "finance", if not between a financial institution and its customer, then this is not sufficient to give jurisdiction to the Banking Court to try such dispute. A party other than a financial institution or a customer can neither sue nor be sued under section 9 of the Ordinance, 2001 as there is no such room for them in section 9 of the Ordinance 2001. Hence a person not being a customer, if has to sue a financial institution, he is to do so under the provisions of general law and not under section 9 of the Financial Institutions (Recovery of Finances) Ordinance, 2001.
(13) Having come to the conclusion that only a financial institution and its customer can invoke the jurisdiction of the Banking. Court under the Financial Institutions (Recovery of Finances)
Ordinance, 2001, it is necessary to examine what persons could come within the definition of 'customer' as provided in section 2(c) of the Ordinance, 2001. Section 2(c) of the Ordinance, 2001 defines 'customer' as follows:-- 2(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.
(14) The above definition of 'customer' as provided in the Financial Institutions (Recovery of Finances) Ordinance, 2001 includes three categories of persons. First category is of the person to whom finance is extended by a financial institution, I shall say that this category means persons who avails find based financial facility from a financial institution,
(15) The second category of persons who come within the definition of "customer" are the persons, who avails non fund based financial facility such as Guarantee or Letter of Credit i.e. The persons on whose behalf a Guarantee or a Letter of Credit has been issued by a financial institution. The persons for whose benefit such instruments are opened i.e. The beneficiary of such instruments are not included within the definition of section 2(c) of the Ordinance, 2001 as it, includes within its ambit as "customer" only such person on whose behalf a Guarantee or a Letter of Credit has been issued. The persons who are entitled to receive finance from a Financial Institution without any obligation to repay such as a beneficiary of a Guarantee or better of Credit or a person who is entitled to receive payment from a financial institution in order to make supplies to a customer of a financial institution cannot be treated as a 'customer' of the financial' institution. There is no room for including the beneficiary of the non fund based facility to be included in the definition of "customer". A beneficiary cannot be treated a customer of a financial institution as financial institution is not concerned as to who is the beneficiary of its Guarantee or Letter of Credit. It may not even come in contact with the beneficiary of a Guarantee or a Letter of Credit. The beneficiary has merely figured in at the instance of the person on whose behalf the financial institution has issued a Guarantee or a Letter of Credit Extending the meaning of the word "customer" to the beneficiary of an instrument would amount to doing violence to the provisions of section 2(c) and section 9 of the Ordinance, 2001.
(16) The third and the last category of persons who fall under the definition of "customer" are those who stand surety or indemnifier before a financial institution on behalf of direct customers of financial institutions. This last category of persons though not the direct customers of a financial institution, as is the case with the first two categories of persons, but through a deeming provision of section 2(c) of the Ordinance, 2001 they too have been made customers of the financial institutions as they have taken upon themselves the obligation to discharge the liability of a customer, who availed the financial facility from a financial institution.
(17) The above analysis of the meaning of the word "customs" as defined in section 2(c) of the Ordinance clearly leads to the conclusion that the word "customer" means and includes (a) a person to whom finance has been extended directly by a financial institution; (b) a person on whose behalf a financial "institution undertakes to make payment to a third party e.g. Under a Guarantee or a Letter of Credit: and (c) a person who has taken upon himself the obligation to repay to the financial institution the defaulted sum in his capacity as surety or indemnifier.
Therefore, only these three categories of persons come within the definition of "customer" and only they can sue or be sued under section 9 of the Financial Institutions (Recovery of Finances)
Ordinance, 2001. No person, no matter in what other capacity he is connected with a financial facility, if he does not fall within the definition of a "customer" as defined under section 2(c) of the Ordinance, 2001, he can neither sue nor be sued under section 9 of the Ordinance, 2001 and the legal remedy for and against, him lies before ordinary Civil Court.
(18) From the above discussion it is also evident that the definition of "customer" as provided under section 2(e) of Financial Institutions (Recovery of Finances) Ordinance, 2001 includes within its ambit only such persons against whom a Financial Institution has recourse in the Event of default in repayment of finance provided by it i.e. The persons, upon whom obligation is created to repay in case of default in repayment and no one else and it is for this reason that section 9 of the Ordinance envisages only a financial institution and its customer as party to a banking suit. Thus, the persons who ultimately become liable to make payment to a financial institution in case of a default in the repayment of finance are the persons who fall under the definition of "customer" and none else." [Underlining is mine].
59. As far as the contention of Mr. Umer Soomro that the defendant No.2 is also a guarantor in view of its Letters of Comfort [i.e. Exh.'5/23' and Exh.'5/24] herein, is concerned the same besides misconceived is mis-leading. In terms of section 126 of the Contract Act, 1872 [Act IX of 1872] a "Contract of Guarantee" is a contract to perform the promise, or discharge the liability of a third person in case of his default. The person who gives the guarantee is called the "surety"; the persons in respect of whose default the guarantee is given is called the "principal debtor" and the person to whom the guarantee is given is called the "creditor". A guarantee may be either oral or written. The contract of guarantee ex facie is a trilateral contract, comprising the surety, creditor and debtor.
The necessary contractual requirements of a 'guarantee' or. 'indemnity', per Law of Guarantees by Geraldine Andrews, (Longman Publication) are as follows:-- "a contract of guarantee or indemnity governed by English law must be formed, like any other contract, by offer and acceptance, with the intention of creating legal relations and must be supported by-consideration if it is not given under seal. Its terms must also be sufficiently certain and complete to enable the Court to give effect to them."
60. Keeping in view the definitions of 'contract of guarantee' and 'letter of comfort' in juxtaposition of the contents thereof, the defendant No.2 is not liable to pay any payment to the Bank. Besides, as held hereinabove, the defendant No.2 is also not a 'beneficiary' of the financial facilities granted to and availed by the defendant No.l. The defendant No.2 as such cannot be held liable for the outstanding dues of the plaintiff Bank. Admittedly, it is worth to mention that the plaintiff Bank has not obtained any guarantees from the Directors of the defendant No.1 company which omission nonetheless calls for the wisdom of the plaintiff Bank.
61. In the case-law cited by Mr. Umer Soomro, learned counsel for-the plaintiff inter alia it was held that in the event of any breach of statement made in the Letter of Comfort, the aggrieved party merely at the best can file a 'suit for damages'. The plaintiff herein, however, it is significant to note, has not filed any suit for 'damages' and/or 'specific performance' of the 'Letters of Comfort'
[Exh.'5/23' and Exh.'5/24] during their lifetime. In view of this position, the case law cited by Mr. Umer Soomro besides, distinguishable is not applicable to the facts and circumstances of the present case.
62. In view of the above discussion, 'Issue No.2' is answered in 'NEGATIVE' as well as 'OF NO EFFECT'.
63. ISSUE NO.3: What is the amount due and payable by the defendant No.1 and if the defendant No.2 is held to be the real beneficiary what amount shall be due and payable by the defendant No.2? As far as the first part of this issue [i.e. 'What is the amount due and payable by the defendant No.1], is concerned, admittedly the instant suit against defendant No.1 has already been decreed by this court on 25-10-2001. The relevant and operative part of the judgment reads as follows:- "7. While considering the statement of account, it is found that the markup from 1-4-2001 to 30-6- 2001 and from 1-7-2001 to 4-9-2001 buy-back agreement i.e. Beyond the expiry date and therefore, this mark-up is not being allowed by the Courts. The case of Muhammad Aslam Khaki v. Syed Muhammad Hashim (PLD 2000 SC 225) is referred. In view of the above the aforesaid mark-up is disallowed likewise no evidence has been brought on record to establish liquidated damages, which is disallowed as well. For the rest of the amount i.e. Rs.75,571,341.65 and US$ 17490 the suit is decreed as against defendant No. 1."
64. The figure of Rs.75,571,341.65, however, was subsequently, substituted with figure of Rs.75.511,314.65 vide order dated 14-1-2002, passed on C.M.A. No.9409 of 2001 i.e. Application under section 151, C.P.C., filed by the plaintiff Bank]. In this view of the matter the liability of defendant No.1 under the decree passed on 6-2-2002 is B Rs.75,511,314.65. The first part of the issue No.3 is answered accordingly.
65. As far as second part of the Issue No.3 i.e. 'and if the defendant No.2 is held to be the real beneficiary what amount shall be due and payable by the defendant No.2? is concerned since Issue No.2 has already been answered in 'NEGATIVE' as well as 'OF NO EFFECT' as such the defendant No.2 is not liable to pay anything to the plaintiff Bank. The plaintiff Bank has badly failed to establish the alleged liability of defendant No.2 as such nothing is due and payable by defendant No.2 to the plaintiff Bank. Resultantly the second part of issue No.3 is also answered in 'NEGATIVE'.
66. ISSUE NO.4: What should the decree be? In view of the foregoing discussions and findings I have come to the conclusion that the defendant No.2 is not liable to pay any amount to the plaintiff Bank. Consequently, the plaintiffs suit against defendant No.2 is dismissed, however, with no order as to costs.