Shahid Karim, J:-This is a suit for recovery of Rs.263.982 Million along with mark up and cost of funds.
Facts:
2. The plaint alleges that the defendant Bankers Equity Ltd (BEL) executed and submitted a redemption guarantee No: BE/GR/052 dated 11.12.1998 to the tune of Rs.254.941 M (Rs.94.546 M as principal and Rs.160.395 M as mark up) in favour of the plaintif f-Bank (ABL). The purpose of the execution of the redemption guarantee was to indemnify and discharge Zahur Textile Mills Ltd. (Zahur ) from its liabilities towards ABL and in its stead, took over the liabilities of Zahur as the principal debtor. The principal amount of the guarantee of Rs.94.546 was to be repaid by BEL in 10 half-yearly installments of Rs.9.455 M each commencing from 1.7.2002 and was to last till 01.01.2007. Thereafter, the mark up amount of Rs.160.395 M was to be repaid in 10 half-yearly installments of Rs.16.040 M each starting from 01.01.2007 till 01.07.2011. BEL defaulted in its liabilities and in the payment of the very first installment due on 01.07.2002, despite a notice by ABL on16.7.2002.Upon default by BEL in the repayment of the amount due under the first installment, ABL filed a suit COS No.33 of 2002 before this Court. On receipt of notice, the official assignee of High Court of Sindh filed a reply wherein it was stated that he was appointed as the Official Liquidator of BEL vide order dated 25.4.2002 passed by the Supreme Court of Pakistan pending before the High Court of Sindh at Karachi. The recovery suit was withdrawn by plaintif f on 8.4.2003 with permission of thisCourt to file a fresh one after seeking permission under section 316 of the Companies Ordinance, 1984 from the Company Bench of the High Court of Sindh at Karachi. CMA No.784/2003 was filed under section 316 of the Ordinance, 1984 before the High Court of Sindh and permission was granted vide order dated 15.12.2003. The instant suit was filed subsequent to the grant of permission to ABL to file a suit for recovery against BEL.
3. BEL filed PLA No.27-B of 2004 by way of leave to defend in response to notices issued in the instant suit. The application for leave to defend was accepted vide order dated 16.6.2005 and BEL was directed to file a written statement which was duly filed on 24.6.2005. Issues were framed with the consent of both the parties vide order dated 20.07.2005. In the written statement filed by BEL, the stance taken in the application for leave to defend was diametrically opposed, in that, certain material admissions made in the applica tion for leave to defend were withdrawn in the written statement. CM No.228 of 2006 under section 151 CPC was filed by ABL on 26.6.2006 for striking off the written statement filed by BEL and to treat the application for leave to defend as the written statement. BEL too filed CM No.364-B of 2006 on 01.11.2006 under Order VI, Rule 17 CPC seeking an amendment in the written statement. Vide order dated 01.07.2009, this Court rectified its earlier order dated 16.6.2005 and directed that an application for leave to defend ought to be treated as the written statement in terms of section 10 of the Financial Institutions (Recovery of Finances) Ordinance, 2001. CM No.364-B of 2006 was allowed vide order dated 13.11.2009 and BEL was permitted to amend the written statement. It is pertinent to mention that BEL had sought an amendment in the written statement on the prete xt that the entire record was not available with the Official Liquidator at the time of the filing of the application for leave to defend and hence, it necessitated the amendment to be allowed. On 7.12.2009, the amended PLA No.226-B of 2009 was filed and which necessitated the striking of f an additional issue on 18.2.2015 which was to the following ef fect: "Whether an amount of Rs.70.000 M has been deposited as security by Zahur Textile Mills Ltd. with the defendant?"
4. On 22.4.2015, a local commission was appointed to take down the evidence of both the parties and submit a report. The report was submitted by local commission on 16.7.2015.
5. ABL filed CM No.616-B of 2015 to recall the witness Shahid Mehboob DW.1 for the purposes of cross examining the said witness with regard to PLA No.27-B of 2004. The application was allowed vide order dated 28.10.2015 and the local commission was directed to record the evidence of the witness Shahid Mehboob.
Evidence of the parties: 6.ABL produced Mazhar Imam Zaidi as PW.1 and Tahir Hussain Bakhtiari as PW.2. The following documentary evidence was produced by the witnesses in support of their evidence on behalf of ABL: List of documents Exhibited by Mr . Mazhar Imam Zaidi (PW1) Letter No. WH/FIN/AMQ/98 dated11.12.1998 written by ABL to BEL for confirmation the issuance of redemption guarantee as (Mark-1) Reply by president of BEL dated 16.12.1998 (original) as ( Mark-2) Order dated 08.04.2003 in COS No.33/2002 (withdrawal of COS No.33/2002 filed by ABL as (Mark-3) Application CMA No.784/2003 in J.M No.15/2000 filed by ABL for seeking permission to prosecute the suit against BEL (Exhibited as P-2) Application CMA No.1563/2003 in J.M No.15/2000 u/s. 316 of companies Ordinance 1984 filed by ABLS, (Exhibited as P-3) Certified copy of order dated 12.04.2004 passed by Honorable Sindh High Court Karachi (permission for filing suit)(Exhibited as P-4) Guarantee dated 11.12.1998 in favour of ABL executed by BEL(Exhibited as P-5) Statement of account (original) (Exhibited as P-6)
7.The oral evidence on behalf of BELconsisted of two witnesses viz. Shahid Mehboob as DW.2 and Muhammad Yasin as DW .2. The following documentary evidence was produced by the witnesses of BEL: "List of documents Exhibited by Mr . Shahid Mehboob (DW1) Affidavit of Shahid Mehboob DW1Exhibited as ( D-1) Affidavit of Muhammad Yasin DW2Exhibited as ( D-2) Authority letter by official assignee infavour of witnesses Exhibited as ( D-3) Certified copy of winding up order ofBEL dated 18-04-2001 in J.MNo.15/2000 Exhibited as (D- 4)
Certified copy of order dated 17-05-2004 passed in J.M No.15/2000 by Sindh High Court Exhibited as ( D-5) Certified copy of reference No.158/2004 filed in J.M No.15/2000 Exhibited as ( D 6) Original agreement dated 10-12-1998 Exhibited as ( D-7)
Original agreement dated 26-07-1999 Exhibited as ( D-8)
8. The following issues were framed on 20.07.2005:
1. whether this court being a special court has no jurisdiction to entertain the present suit and as the result, the present suit is liable to be rejected? OPD
2. Whether the defendant is a customer as defined in Financial Institutions (Recovery of Finance) Ordinance, 2001. OPP
3. Whether the transaction under the present suit covers the definition of Finance under Financial Institutions (Recovery of Finance) Ordinance, 2001 FIO, 2001.OPP
4. Whether the plaint is liable to be rejected as the transaction under the present suit does not come within the definition of Finance as stated in Financial Institutions (Recovery of Finance) Ordinance, 2001. OPD
5. Whether the redemption guarantee dated 11.12.1998 executed by ex officers of defendant in favour of plaintiff is not a legally valid document in the eyes of law .OPD
6. Whether the guarantee dated 11.12.1998 is a valid legal document in the absence of any consideration.OPP
7. whether the guarantee dated 11.12.1998 is issued in violation of State Bank's prudential Regulations which envisages that he guarantees to be issued against 100% realizable securities if so what are its effects. OP Parties
8. Whether the present suit for recovery of money is no maintainable against the defendant company who has already been wound up. OPD
9. Whether the present suit cannot proceed in its present form and is liable to be stayed under section 10 of CPC since the guarantee is also directly and substantially in issue before the Company Judge of Sindh High court Karachi. OPD 10.Whether M/s. Zahur Textile Mills Limited is necessary party to the proceeding, if so the present suit is liable to be rejected for non joinder of parties. OPParties 11.Whether this court has territorial jurisdiction to entertain the present suit.? OPD 12.Whether the plaintiff can claim the suit amount from defendant in advance as penalty as the plaintiff has no right to claim Rs.94.546 (M) before 01.07.2007 and Rs.160.395 (M) as markup before 01.07.201 1.
13. Relief Additional issue was framed after filing of amended PLA 14.Whether the amount of Rs.70.000 (M) was deposited by ZTML for repayment of its loan to BEL OPD Determination: (Issues No.5, 7, 9, 13 & 14)
9. Both the learned counsel agreed that the issues No.5, 7, 9, 13 and 14 were of pivotal importance in the determination of the controversy involved in this suit. These are interrelated and are being decided together .
10. To lend actuality to analysis, it may be reiterated that the case of ABL is that BEL executed and submitted a guarantee dated 11.12.1998 in favour of ABL by which Zahur was indemnified and fully discharged of its liabilities towards ABL for the amounts mentioned in the guarantee. By the terms of redemption guarantee the defendants took over the principal debtors and made themselves liable to payment of all debts and outstanding liabilities of ABL. It has also been brought forth in paragraph 10 of the plaint that on 10.12.1998 Zahur deposited an amount of Rs.70.000 M with BEL as security against the redemption guarantee which was issued by BEL in favour of ABL and the initial deposit of Rs.70.000 M was to grow at the rate of 99% under the ordinary term as funds under management scheme. This issue was later incorporated as issue No.14 and the onus of which was on BEL. The document which encapsulated the clause relating to the deposit of Rs.70.000M was an investment agreement dated 10.12.1998 (also referred to in Ex.D.7) and wherein the following clause has been agreed between BEL and Zahur: "BB. Against cash deposit received. BEL willissue redemption guarantee ("Guarantee") infavour of Allied Bank of Pakistan (ABL) for 94,546,000/- (Rupees ninety four million five hundred forty six thousands only and Rs.160,395,000/- (Rupees one hundred sixty million three ninety five). the Guara ntee will be paid by BEL as per payment schedule attached as Annexure-"A" to this investment agreement andBE L will not have any recourse on Zahur Textile Mills Ltd against this guarantee liability except for balance of Rs.7,867,000/- (Rupees seven million eight hundred sixty seven thousandsonly) as per payment stated in CC below ."
11. However, the said document has not beenproduced in evidence, therefore, no useful purpose would be served to make a reference to the said document. However , the onus to prove the said issue was on BEL.
12. BEL take exception to the redemption guarantee which has formed the foundational sinew of ABL?s case. BEL contends that the guarantee is in conflict of prudential Regulations of SBP. In this regard, BEL relies upon the prudential Regulations for corporate/ commercial banking issued by the SBP and updated on January 31, 2011.
Regulation No.R.7 concerned with the guarantees issued by the banks and reads as under:- "R-7 All guarantees issued by the banks/ DFIs shall be fully secured, except in the cases mentioned at Annexure-III where it may be waived up to 50% by the banks/ DFIs at their own discretion, provided that banks/ DFIs hold at least 20% of the guaranteed amount in the form of liquid assets as security ."
13. Further , under the head "Responsibili ties of the Board of Directors" in the same Regulations, clauses 4 and 5 have been relied upon by the learned counsel and which read as follows: "4. The Board shall clearly define the authorities and key responsibilities of both the Directors and the Senior Management without delegating its policy-making powers to the Management and shall ensure that theManagement is in the hands of qualified personnel.
5. The Board shall approve and ensure implementation of policies, including but not limited to, in areas of Risk Management, Credit, Treasury & Investment, Internal Control System and Audit, IT Security, Human Resource, Expenditure, Accounting Management may deem appropriate from time to time. The Board shall also be responsible to review and update existing policies periodically and whenever circumstances justify."
14. Regulation R-7 merely enjoins that all guarantees issued by the banks/DFIs shall be fully secured, provided that banks/DFIs hold at least 20% of the guaranteed amount in the form of liquid assets as security . Regulation R-7 lays down the minimum requirement to be observed by the banks/DFIs with regard to securing of the guarantees.
However , it does not say that the guaran tee shall be invalid in case it is not secured by the bank or DFIs as the case may be. The validity and sanctity of the guarantee shall be covered by the statutory provisions in this regard and merely because the guarantee has not been fully secured in terms of Regulation R-7 does not detract from the competence and lawfulness of the guarantee as also does not affect adversely the rights in favour of the person for whom the guarantee has been issued. Therefore, nothing turns on the basis of the Regulations which have been relied upon by BEL.
15. The case of BEL must be clearly spelt out at this juncture. BEL does not deny the execution of the guarantee neither in its pleadings nor in its evidenc e. The only objection with regard to the guarantee is that the officers of BEL who purportedly executed the guarantee were not authorized to do so by the Board of Directors ofBEL.Therefore, the only question for determination is whether the guarantee was issued under a valid authority in favour of the officers executing the guarantee. It is also not in dispute that the officers issuing the guarantee have not been produced in evidence by BEL, however, ABL relies upon the doctrine of indoor management to assert that the internal matters of BEL was not the concern of ABL which was given the understanding that the officer who had issued the guarantee had valid authority in their favour for executing the same. The guarantee has been produced in evidence as Ex.P.5. To reiterate, theexecution of the guarantee has not been challenged but the mere fact that the officers who executed the guarantee did not have the authority from the Board of Directors of BEL to execute such a guarantee on behalf of BEL.
16. Two documents which will have an important bearing on this issue were produced by PW.1 and PW.2 and were produced in evidence as Mark 1 and Mark 2. It has been contended by the learne d counsel for BEL that the mere fact that the documents have not been exhibited but have been shown as Mark 1 and Mark 2, would show that the documents have not been validly produced in evidence and thus cannot be read in evidence. This, in my opinion, is a fallacy , for the question regarding the production of these documents properly in evidence will be determined by this Court as a trial court. The judgments relied upon by BEL in this regard relate to the cases rendered in appeal where the stage had come to an end and thus the question arose whether the documents were validly produced in evidence or not. That stage has not come to pass in the present suit and the mere fact that the documents have been labeled as Mark 1 and Mark 2 does not detract from the fact that they have been validly produced in evidence without any objection on the part of BEL. They shall be read as Ex.P7 and Ex.P8 respectively. Ex.P7 is a letter dated December 11, 1998 written by Mazhar Imam Zaidi to the then Chairman BEL and is couched in the following terms: GENUINENESS CONFIRMA TION OF REDEMPTION GUARANTEE NO. BE/GR /052 DATED 11.12.1998 FOR RS.254,941,000/- FVC: ALLIED BANK OF PAKIST AN L TD.
Please find enclosed herewith photocopy of above mentioned redemption guarantee issued by your institution in favour of our Bank for Rs.254,941,000/- (Say: two Hundred Fifty four Million Nine Hundred Forty One Thousand Only).
In this connection you are therefore requested to please confirm the genuineness of captioned guarantee and also confirm the authorization of the signatories of the guarantee.
An early response in this regard will be appreciated."
17. This letter has been produced by PW.1 who was the signatory and the executant of the letter and thus no cavil can be taken to its production in evidence. Ex.P8 has also been produced by PW.1 who is the recipient of the letter written by Inaam ul Haq who was the then President of BEL and it states that: "This refers to your letter No. Ref: WH/FIN/AMQ/98 dated December 1 1, 1998.
We are pleased to confirm the issuance of our guarantee No.BE/GR/052 for Rs. 254,941,000/= dated 1 1-12-1998.
The said guarantee has been signed by the authorised signatories."
18. No exception can be taken to Ex.P8 which is a document produced by PW.1 in whose custody the said document was and who was the addressee of the said document as well. These documents which have been produced in evidence are correspondence exchanged between PW.1 who was the manager of ABL at that time and a response by no less a person that the President of BEL Inaam ul Haq. The contents relate to the genuineness/ confirmation of redemption guarantee which is the subject matter of the instant suit. By Ex.P7, a request has been made to the Chairman BEL to confirm the genuineness of the guarantee and to confirm the authorization of the signatory of the guarantee as well.This was done vide Ex.P8 by the President of BEL and it was categorically brought forth in response to the letter that the guarantee had been signed by the authorized signatories of BEL.This clearly takes the case beyond the doctrine of indoor management and expresses without equivocation the authority to vest in the signatories of the guarantee on behalf of BEL. These documents have to be read in conjunction with the guarantee executed by BEL and as contemporaneous events whose evidence has been led by ABL in order to bring home the assertion that the guarantee is genuine and authenticity is attached to it.
19. Although the signatory of the document Ex.P.8 has not been produced, this Court has compared the signatures of Mr. Inaam ul Haq in this document with those of the same person in Ex.D.8 and they seem to have been made by the same person. Also Ex.P8 is on the official letter head of BEL and a stamp of ABL was affixed on it while it was received by the officer to whom it was addressed. It was held inQamrul Hasan and another v. United Bank Ltd. and another (1990 MLD 276 ) that: "14. Article 2(4) of the Qanun-e-Shahadat,1984, envisages "a fact to be proved" when, after considering the matter before it, the Court either believes it to exist, or considers its existence so probable that a prudent man ought, under the circumstances of the particular, case, to act upon the supposition that it exists. This provision, in the context of proof of documents, is, inter alia, to be read with Article 78 of the Quanun-e-Shahadat, which requires signatures or handwritings to be proved, without laying down any specific manner of proof. For such purpose several modes of proof have come to be judicially recognised the best mode being the examination of the person who signed or wrote the document. Such modes of proof also include presumptive or circumstantial evidence. Thus, in the case reported as Abdool Ali v. Abdoor Rehman 21 Suther-Lands Weekly Reporter 429 a Division Bench of the Culcutta High Court consisting of Couch CJ. and Birch, J., observed that there was no provision in the Evidence Act, which required the writer of a document to be examined as a witness. Likewise, in the case of Karali Prosad Dutta v. E.I. Railway Company AIR 1928 Cal. 498 Mukerji, J., speaking for a Division Bench consisting of Curving, J., and himself, said that sections 00 and 67 of the Evidence Act (corresponding to Articles 71 and 78 of the Qanun-e-Shahadat) were somewhat ambiguous but it was neverth intended by section 67 that direct evidence of handwriting was always necessary and that the section merely stated with reference to deeds what was the universal rule in all cases that the person who makes an allegation must prove it and lays down no new rule as to the kind of proof to be given. It was observed that section 60 was never intended to exclude circumstantial evidence of a thing which could be seen, heard and felt though at first sight the section might appear to have that meaning. The case of Govardhandas v. Ahmedi Begum AIR 1953 Hyderabad 181 also is to the effect that handwriting may, in addition to the usual methods, be proved on circumstantial evidence as section 67 of the Evidence Act prescribes no particular kind of proof.Zakiuddin Pal, J., in the case of Gammon Pakistan Ltd. v. Pir Khan PLD 1979 Note 113 p. 84 also affirms this rule declaring that under section 68 (Article 79 of the Qanun-e-Shahadat) of the Evidence Act where a document was not duly proved by the person signing the same, but circumstances proved its execution, reliance may be placed on such a document. In the circumstances of this case, where the letter from Janata Bank, dated 9-1-1973, Exhibit P/3, has been transcribed on the official letter pad of that Bank and addressed to the plaintiff No.2, who has produced the same and objection in that behalf has not been pressed in arguments such document, alongwith oral testimony in support, constitutes strong evidence and must he held to be proved in terms of Articles 2 and 78 of the Qanun-e-Shahadat, 1984, since, taking all the circumstances into consideration, it seems, uncontrovertedly, to have been written and addressed in manner it purports to have been written and addressed."
20. Also inMuhammad Tariq v. Mirza Rashid Akhtar and others (1991 CLC 1697 ), the following statement of law was stated: "...While coming to this conclusion the Additional District Judge completely ignored that at the time these documents were exhibited, no objection as to the mode of proof was taken and once exhibited the same could not be excluded in the appeal by the appellate Court. This principle is well-settled and need no authority but reference may be made with advantage to Gulzar Hussain v . Abdur Rehman and another (1985 SCAR 301)."
21. Let me now revert to some of the portions of the cross examination of the witnesses which will be relevant for the resolution of the controversy and for the decision of the instant suit: "PW.1 Mazhar Imam Zaidi: "Question: Do you know the pre-requisites of the corporate bodies for executing such type of Guarantees?
Answer: For me it was not essential to ensure thepre-requisites as the entire arrangement/settlement was approved by the competent authority. I am aware of the pre requisites for issuance of such guarantees but in case scheduled banks it is their purview to ensure the pre-requisites for execution of guarantees. M/s. BEL was scheduled Bank. Pre-requisites were completed before issuance of bank guarantee. The first pre-requisite is as to whether that particular institution is authorized for issuance of such guarantees and this was supposed to be fulfilled by M/s. BEL not ABL.
Question: Is this correct that Board Resolution of a corporate body like M/s. BEL for issuance of guarantee and authorization in favour of signatories of the guarantee are the pre-requisites for issuance of such guarantees?
Answer: It should be, if deemed necessary by the bank for any specific transaction during normal course of their business. It is incorrect that my stance is not correct and without ensuring availability of the pre-requisites of question before, no valid guarantee can be executed. There is no such instruction of the State Bank of Pakistan for acceptance of guarantees being issued by authorized/scheduled banks.
Question: Whether the executants fulfilled the pre-requisites for issuing such guarantee?
Answer:It was their purview. It is not compulsory to ensure hundred percent (100%) cash margin for issuing of guarantees. It is not correct, that as per prudential regulations of SBP, no guarantee can be executed by DFI in favour of Bank. It is incorrect that in issuance of guarantee the prudential regulations of SBP were violated.
The Guarantee was issued to make repayments of the liability of M/s. Zahoor Textile Mills Limited by taking over the same as principal debtor and to make subsequent repayments to Allied Bank as per agreed arrangement. No, I cannot present any agreement between M/s. Zahoor Textile and M/s. BEL regarding this Guarantee. There are no signatures on bank guarantee on behalf of M/s. Zahoor Textile Mills Limited. Voluntarily said,that there was no such requirement as the guarantee was exclus ively issued by M/s. BEL on behalf of ZTML. There is no such regulation for signature of the party on the bank guarantee. It could be termed as SWAP arrangement for executing this bank Guarantee. It was M/s. BEL'sinternal arrangement to arrange collateral from the party against the said Bank Guarantee.
Volunteered that, however , as said earlier there was some collateral arrangement between M/s. BEL and ZTML.
These arrangements were some deposits reportedly placed by ZTML with BELwith certain rate of profit. Right now I don't haveany documents regarding this arrangement. It is incorrect that such arrangement/documents do not exist.
"PW.2Tahir Hussain Bakhtiari: I was posted as Officer Advances at ABL, WAPDA House Branch. Yes this guarantee was signed in front of me. I could not remember the signatures of signatories on the guarantee. As I mentioned earlier that I was posted as Officer Advances at ABL, WAPD House Branch at that time, therefore, I accompanied my Manager and Zonal Chief.
Question:Can a guarantee by a corporate body can be executed without any authorization in writing? This is the prerogative of that corporate body to complete the required formalities. It was executed at Lahore. Its office is on Davis Road.Question:Have you got any Board Resolution on behalf of BEL for execution of this guarantee? No it was notrequired by ABL, it was BEL's prerogative tocomplete internal policy requirements.Question:Is it correct that as per prudential regulations of SBP 100% cash margin is necessary for issuance of a guarantee? It is incorrect to suggest that the prerequisites for such guarantees were not observed by ABL for the issuance of guarantee. It isincorrect to suggest that SBP's prudential regulations were violated by ABL in acceptance of this guarantee.
"DW.1 Shahid Mehboob Confronted with Exhibit D8.Question: do you recognize signatures on Exhibit D8?Answer: I recognize the signatures of Mr. Inam ul Haq, who was the President of BEL at that time. Question: Can you recognize the two signatures of witnesses underneath those of Mr. Inam ul Haq, the Present BEL?Answer:I do recognize both the signatures, the first one is of Mr. Abdul Rasheed, SEVP BEL and the second one is Mr. Rauf Bakhsh Qadri, signatures who was the Chairman.Question:Do you recognize the signatures on the right side of page 2 of agreement exhibited as D8?Answer:I do not recognize any of the signatures on the right side.Question:Do you have any board approval of this agreement.Answer:No, I did not bring it today.Question:Do you recognize the signatureson the top of left and bottom left of the page 3of the agreement exhibited as D7?Answer: Yes, I do recognize the signatures on the left side, first signature is of Abdul Rasheed, SEVP BEL and in witness is of Mr. Ijaz ul Haq, who I think was AVP at that time and second witness is Mr . Asif Jamil, EVP at that time.
Question: Did you file the second PLA as second thought because you had admitted the existence and execution of guarantee dated 11.12.1998 and investment agreement dated 10.12.1998. Answer: No, this is not in my knowledge. Question: Was the investment agreement dated 10.12.1998 for the benefit of ABL and for the fulfillment of liabilities of Zahoor Textiles towards ABL? Answer: It was a fraud committed by three parties and does not require settlement of any liability . No, the investment agreement at page 51 of the first PLA was not regarding some outstanding liability of Zahoor T extiles towards BEL.
Answer:It is a legal question, therefore, I am unable to answer this question.Question:In Para 10 of the suit it has been asserted that ZTML deposited an amount of Rs. 70.00 Million with BEL as security against their redemption Guarantee of Rs.254.941 Million issued in favour of ABL and the initial deposit of Rs. 70.00 Million was to grow at the rate of 19% under the arrangement termed as Funds under Management Scheme and it has been admitted by BEL in the first PLA in Para 9, is it true or not?Answer:Whatever as per PLA is written is correct.Question:In paragraph 4 of the 1PLA and Paras 4 and 5 of the Suit have been admitted wherein, it has been averred that a guarantee dated 11.12.1998 was executed in favour of ABL whereby the defaulter ZTML was indemnified and fully discharged of the liabilities of ABL to the tune of Rs. 94.546 Million, the principalamount and Rs. 160.395 Million Mark-up. According to the terms of the afore-mentioned guarantee BEL took over as principal debtors and made themselves liable to pay off all the debts and outstanding of ABL? Answer: The reply to this question has already been given in my earlier cross-examination.st
22. It can be seen from the cross examination in respect of PW.1 that the witness produced by ABL remained wholly unshaken in their cross examination. Ex.P/7 and Ex.P/8, which were the letters in his possession and which were necessary for ABL to form an opinion that the guarantee was validly issued and the officers issuing the guarantee had valid authority . The entire cross examination of PW.1 and PW.2 revolve around the fact that there was no Board Resolution authorizing the officers to execute the guarantee and that it wassine qua nonfor a corporate body like BEL to have made such a decision by its Board of Directors and not otherwise. However , while doing so the learned counsel for BEL lost sight of the fact that the onus to prove issue No.5 was on the defendants (i.e BEL) and not on ABL. It was, therefore, the obligation of BEL to prove that the guarantee relied upon by ABL was not a legally valid document. For the purpose, no evidence has been produced to show that the Board of Directors of BEL at any time denounced the fact that the guarantee had been issue d with the Board's authority . No document even otherwise has been produ ced apart from any decision of the Board of Directors which will prove the issue No.S and bring home the fact that either the President of BEL or any other official duly authorized by BEL disapproved the guarantee and its execution by unauthorized officers. In this regard, Ex.P6 is the statement of account with regard to the guarantee which was issued by BEL and was due to ABL. It has been certified in terms of Bankers' Book of Evidence Act and authenticity is attached to the statement of account which has remained unrebutted in the evidence produced by BEL. It was, therefore, correct on the part of PW.1 to assert that it was for BEL to prove that the prerequisites for the issuance for such a guarantee had been fulfilled or not.
23. PW.2 is a witness of the execution of the guarantee. He stated in his cross examination that the guarantee was signed in his presence. The question put to PW.2 whether he was in possession of a Board Resolution on the part of BEL for the execution of the guarantee was clearly inapt, in that, the Board Resolution or its absence thereof was to be proved by BEL as the onus was on BEL and not on ABL.
24. DW.1 admitted in his cross examination the contents of PLA 27-B of 2004 as correct. The said witness also recognized the signatures of the exec utants of investment agreement dated 10.12.1998 (Ex.D.7) executed between BEL and Zahur for issuance of the guarantee. The said witness recognized the signatures of the officers of BEL who executed Ex.D.7 and the signatories of these documents are the same as ones who have signed the redemption guarantee i.e. Abdul Rasheed SEVP BEL and Asif Jamil EVP BEL. Interestingly , in answer to a question whether the investment agreement dated 10.12.1998 was for the benefit of ABL and for the fulfillment of liabilities of Zahur towards BEL, DW.1 termed the entire transaction as fraud committed by three parties and was not meant for the settlement of any liability . In the same vein, he denies that the investment agreement was regarding some outstanding liabilities of Zahur towards BEL.
25. From the contents of the evidence produced by BEL, it is clear that BEL has failed to prove the issue No.5 to discharge the onus with regard thereto. The said issue is decided against BEL and in favour of ABL.
26. BEL places reliance on Articles 78 and 79 of Qanun-e-Shahadat Order , 1984 in order to support the proposition that if a document is required by law to be attested it shall not be used as evidence until two attesting witnesses at least have been called for the purpose of proving its execution. This has been alleged in the context of the guarantee which is the basis of the present suit. However , reliance on Articles 78 and 79 and the case law in support cited by BEL is not relevant for the determination of the controversy , in that, the execution of the guarantee is not in question and the defence put forth by BEL is with regard to the lack of authority on the part of the officers executing that guarantee. This is altogether a different question and is not covered by Articles 78 and 79 of the Order , 1984.
27. The issue No.14 was to be discharged by BEL. The issue has been reproduced above and related to the deposit of Rs.70 M as cash guarantee against the issuance of the redemption guarantee by BEL. The onus was on BEL to bring home this issue. Ex.D.7 and Ex.D.8 were the documents produced by BEL in order to show that the amount of Rs.70 M was with regard to another facility which was extended by BEL to Zahur and had no nexus with the guarantee in question. Ex.D.7 is an agreement dated 10.12.1998 and brings about amendments in the memorandum of understanding signed between BEL and Zahur previously. Although, it has not been mentioned in the agreement as to the purpose of the deposit of Rs.70 M by Zahur with BEL, nothing in my opinion turns on this issue. Whether it is proved that Rs.70 M was deposited by Zahur as cash guarantee for the execution of the redemption guarantee by BEL does not necessarily impact the validity and sufficiency in law of the redemption guarantee as a separate transaction between BEL and ABL. Taken in the context of the prudential Regulations, referred to above, at worst it merely shows that there was a violation of the prudential Regulations and that too on the part of BEL and not ABL. BEL must suffer on that account if at all under those prudential Regulations.
However, nothing has been brought on record to show that SBP has ever taken any action against BEL for the non compliance of those Regulations.
28. BEL also took exception to the production of Mark 1 and Mark 2 (Ex.P/7 and P/8) on the ground that this documentary evidence was not relied upon in the plaint and has been produced at a belated stage. Suffice to say that permission was granted to ABL to produce these documents and which have now been produced in evidence by PW.1. What remains to be seen is the evidentiary value of these documents and no exception can be taken to their production once the documents have been allowed to be produced in evidence. It has been vouched by respectable authority that courts will not be shackled by technicalities in the production of evidence and if the court considers that a particular evidence is necessary for the just decision of the cause, liberal rules will be employed to enable the documents to be produced in evidence. This approach advances the cause of justice and is also in comport with Article 10-A of the Constitution of Islamic Republic of Pakistan, 1973, which enshrines right of fair trial.
The judgment cited by BEL titled State Life Insurance Corporation of Pakistan and another v. Javed Iqbal (2011 CLD (SC) 860) was with regard to the issue of production of a document which was only " marked" on which the Supreme Court of Pakistan held that the said document could not be taken into account by the courts as a legal piece of evidence of a fact.Sher Baz Khan v. The State (PLD 2003 SC 849) was a judgment in which the question was regarding production of additional evidence and it was in this context that it was held that an unsuccessful party in a suit could not be granted opportunity to fill up the weaker part of its case by producing additional evidence to the prejudice of the other party .
Claim before Of ficial Liquidator .
29. Much emphasis was laid by BEL on the issue that the claim of ABL had been filed before the official assignee who was the Official Liquidator of BEL. Therefore, on the touchstone of section 10, it was urged that the proceedings in the instant suit must be stayed. This submission is nuanced and has no legal legs to stand upon.
The permission for proceeding with the instant suit was granted by the Company Bench of the High Court of Sindh and there is no bar on the proceedings being taken for the filing of the suit in the special jurisdiction conferred by Financial Institutions (Recovery of Finances) Ordinance, 2001. The Official Liquidator of a company under liquidation is not empowered to decide matters of complex nature which require evidence to be taken down. In all such matters the provisions of Companies Ordinance, 1984 as well require adjudication of claims to be done through suits to be filed by parties in order to establish their claims.
30. The learned counsel for BEL and ABL did not address arguments on the other issues and mainly confined their focus on issues No.S and 14.
Rule of Indoor Management : 31.Obviously a situation may arise where a company contracts through an agent acting on its behalf. It goes without saying that it would be highly inconvenient for companies and their counterparties if all contracts required board or shareholder approval. The board will typically appoint the company's senior managers with wide managerial powers, which will explicitly or implicitly include powers to contract with third parties on the company's behalf. The result is a highly flexible system for the distribution of contracting powers across the company . In most cases, contracting authority is widely dispersed.
32.Agency principles and the rules of attribution in relation to contracts have been used to protect third party interests while dealing withcompanies and their agents acting within the apparent or ostensible scope of their authority. Here a distinction has to be drawn as to actual authority and apparent authority. This distinction has been brought out inGower, Principles of Modern Company Law, Tenth Edition, Paul L. Davies and Sarah Worthingtonin the following manner: "As far as (b) is concerned, this is the crucial concept which agency law uses to hold P liableeven in the absence of A?s actual authority , inorder to protect the legitimate interests of T. Apparent authority consists of (i) the authoritywhich a person in A?s position and in the typeof business concerned can reasonably be expected by T to have; and (ii) the authority which the particular A has been held out to T by P as having. The line between apparent authority and implied actual authority may thus seem a fine one, but the establishment of actual authority focuses on the relationship between the P and A, whilst apparent authority focuses on the relationship between the P and T .
The doctrine of ostensible or apparent authority attempts to hold a balance between the interest of the company and of the third party. On the one hand, a company should not normally be liable for the acts of persons whom it has not authorized to act on its behalf. As a qualification to that starting point, however, it will be reasonable to hold the company to the acts of an unauthorized agent if the company has in some way misled the third party into thinking the person is so authorized. It follows from this that A cannot confer ostensible authority on himself by representing that he has actual authority. That can be conferred only by conduct of the company, acting through a primary decision-making body or an agent of the company, such as a managing director, withactual authority to make representations as to the extent of the authority of the company's officers or agents. The position rather is that, if the company has made such representations on which the third party has acted in good faith, the company will be estopped from setting up the truth of the relationship between the company and the agent as a ground of non- liability."
33. InLovett v. Carson Country Homes Ltd. [2000] 2 B.C.L.C. 196andUxbridge Building Society v. Pickard [1939] 2 K.B. 248, the courts went to the extent of holding that this was so even if the officer or agent had forged what purported to be a document signed or sealed on behalf of the company . The vario us nuances of the concept were further elaborated in Gower , footnote 53 at page 165 thus: "Suppose a person has just been appointed to a position within a company, to which certain powers are normally attached, but the powers granted in the particular case have been unusually restricted by the appointer and that restriction has not been communicated to third parties. The person appointed would not have implied actual authority to act within the restricted area, but might well have apparent authority to do so. Se Hopkins v T L Dallas Groups Ltd [2005] 1 B.C.L.C. 543--fraud of agent took his actions outside the scope of his implied actual authority but not his apparent authority. Equally, where A has been permitted by P to act in excess of formal authority in the past, A might acquire implied actual authority, even though persons in A's position do not normally have that authority and P had not signaled the extension to T."
34. Thus the underlying theme is the focus on the relationship between the third party and the company and the doctrine attempts to strike a balance between the interests of the company and of the third parties.
35. In the United Kingdom, there is now a statutory protection for third parties dealing with the board in section 40 of the Companies Act, 2006. The subject has been dealt with in Gower by explaining that: "In modern times the policy view has been taken that commerce will be promoted by relieving third parties from the need to checkthe company's constitutional documents beforeengaging with the company's board. Thecompany is free to limit the authority of the board, but the constitution is no longer seen as an obviously appropriate way to communicate such limitations to third parties. Other and more direct methods must be employed. In line with this policy, the legislature moved to enact statutory provisions which extended the protection afforded to third parties by the indoor management rule. The reforms were introduced in 1972, revised in 1989, and the current version is s.40 of the 2006 Act."
36. There is little doubt that the application of these principles to establish an actual or apparent authority is a fact- dependent exercise. Courts have now reached a paint where it is recognized that a third party may deal with an officer or employee below the level of a director . For example it was held inArmagas Ltd. v. Mundogas SA [1986] A.C 717 HL. that a manager , even if actual authority is lacking, will generally have ostensible authority to undertake everyday transactions relating to the branch of business which he is managing. InFirst Energy (UK) Ltd. v.
Hungarian International Bank Ltd. [1993] B.C.L.C. 1409 C.A, a senior manger was held to have ostensible authority to communicate to a third party head office approval of a loan application, even though he did not have authority to contract on the bank?s behalf, and the head office had not in fact approved the loan. The representations made by the manager were held against the bank and bound on the basis of such a representation.
37. The rule of Indoor Management, invoked by ABL, is of the same genre as the rule of law of agency as to actual or apparent authority vesting in an officer of a company to bind that company. The rule has its provenance inRoyal British Bank v. Turquand (1856) 6 E. & B 327 Exch. Ch. By this rule, the third part could assume that thedirectors had authority to act, even if fair reading of the articles might lead a third party to make further enquiries. InMahony v. East Holyford Mining Co. (1875) L.R. 7 H.L 869, the Turquanddoctrine was approved and applied by the House of Lords.
38. In our jurisdiction, the position has been summed up inMuhammad Azim v. Pakistan Employees Co-operative Housing Society Ltd. Karachi and 4 others (PLD 1985 Kar . 481 ) as follows:
52. Summing up, therefore, the concept of indoor management, the law is fairly well-established that a third party may in all reason rely on the assertion of an agent of the Company in respect of the contracts entered on behalf of the Company. His rights could be defeated only if it could be shown that the third party knew of circumstances tending to defeat his! rights or the transaction was fraudulent. Every corporation in law is equal to a natural person and does have an independent legal entity of its own.
39. The facts and the evidence brought forth on record by both the parties lent credence to the view that there was an ostensible and apparent authority vesting in the officers who executed the redemption guarantee. To reiterate, the onus to prove issue No.5 which was the pivotal issue wason BEL. The only evidence which was produced was the oral evidence of DW.1 and DW.2 as also documents brought on record by DW.1 which were certain affidavits, authority letter by official assignee (Ex.D.3), certified copy of winding up order of BEL dated 18.4.2001 (Ex.D.4) and the oral agreement dated 10.12.1998 (Ex.D.7) and the original agreement dated 26.7.99 (Ex.D8). None of these documents brings home the issue No.5 so as to prove that the redemption guarantee dated 11.12.1998 was executed by officers of BEL who had no authority on behalf of BEL or its Board of Directors to execute the said guarantee. During the cross examination of DW.1 Shahid Mahboob, the said witness admitted that the signatures on the redemption guarant ee were those of Rasheed and Asif senior managers (SEVP of BEL) and who had also executed the agreement dated 10.12.1998 between BEL and Zahur . It is clear , therefore, and a valid inference can be drawn therefrom that the officers not only had apparent and ostensible authority to execute contracts on behalf of BEL but also had actual authority to do so. For, BEL cannot accept one document executed by the same officers and renege on another document executed by those officers at its whim and choosing. This cannot be countenanced. Also PW.2 produced by ABL has stated in the cross examination that the redemption guarantee Ex.P.S was executed in his presence and so he was a witness to the signatures put by the officers of BEL on the redemption guarantee.
40. More importantly , BEL has not produced any documents in order to show a later renunciation of the redemption guarantee by the Board of Directors of BEL or denunciation in any manner the authority of the officers signing that guarantee. It is not the case of BEL that the document of guarantee was a secret document and has been produced out of the blue by ABL and hastaken BEL by surprise. The circumstance regarding the change of stance by BEL will also have an important bearing on the fact-dependent exercise regarding the actual and apparent authority to vest in the officers of BEL. It will be recalled that in the first application for leave to defend (PLA No.27- B of 2004) filed on behalf of BEL, through Ch. Muhammad Hussain, Manager law department BEL (which was later converted to written statement) the execution of the guarantee was admitted. Also was the fact regarding the deposit of Rs.70 M by Zahur a consideration for the guarantee admitted in the first application for leave to defend.
This has been admitted in the cross examination of DW.1 Shahid Mahboob. Later on, in the written statement filed by Official Liquidator of BEL (PLA No.226-B of 2009) on 7.12.2009 avolte-facewas made by BEL on the pretext that the entire documents were not in possession of the officers filing the application for leave to defend and, therefore, the earlier stance taken was under a mistake of fact. Be that as it may, this circumstance can be taken note of by this Court as blowing hot and cold by taking a stance at a later stage which was in complete contradiction to the earlier stance. An adverse inference can validly be drawn in respect of BEL by the contradictory and mutually destructive stance taken by BEL although the stance was takenafter seeking permission through this Court. This will however not detract from the fact that there was no plausible reason for BEL to have turned around and completely denounce its earlier stance.
41. The doctrine of Indoor Management was also brought forth inWest Pakistan Paint Mills (Pvt.) Ltd. v.
Muhammad Ashraf Shagufta, Addl. District Judge, Lahore (1998 SCMR 380 ) in the following words: "In the facts and circumstances of the case, the High Court rightly referred to the doctrine of indoor management by holding that the petitioners could not challenge the authority of respondent No.2 making aforesaid consenting statement."
42. Further elaboration of the doctrine has been brought out inThe Pakistan Employees Co-Operative Housing Society Ltd. Karachi v . Mst. Anwar Sultana and others (PLD 1969 Karachi 474 ).
43. BEL relied upon Islam ud Din through L.Rs and others v. Mst. Noor Jahan through L.Rs and others (2016 SCMR 986) for the proposition that a document has to meet the test prescribed in Article 79 of the Qanun-e-Shahadat Order , 1984 and unless it does so, it remains unproved. There is no cavil with this proposition. However, the proposition is not attracted in the facts and circumstances of the present case.Messrs H & B General Trading Company through Director v. Messrs International Marketing Company through Proprietor and 2 others(2009 CLD 354) was relied upon in respect of the mandate of section 10 CPC. However, this precedent too is not attracted in the instant matter as section 10 CPC is sought to be invoked with regard to certain proceedings pending before the Company Bench of High Court of Sindh and the claimed filed with the Official Liquidator. This should receive a short shrift. The claim before the Official Liquidator does not take away the right of ABL to file the instant suit and the pendency of such a claim does not attract the mischief of section 10 CPC. Moreover, the instant suit was filed with the permission of the Company Bench of the High Court of Sindh.State Life Insurance Corporation of Pakistan and another v. Javaid Iqbal(2011 CLD 860) was relied upon to urge that a document which was "marked" cannot be takeninto account as legal evidence of fact. Since the two letters which were produced in evidence were marked by local commission have now been exhibited as Ex.P/7 and Ex.P/8, this contention also loses its force.
Relief:
44. In view of the findings on issues No.5, 7, 9, 13 and 14 the suit is decreed in favour of ABL and against the defendant/BEL for an amount of Rs.263.9 82 Million along with cost of funds in terms of section 3 of the Financial Institutions (Recovery of Finances) Ordinance, 2001. The costs of the suit are also granted.
45.The decree having been passed, the suit stands converted into execution proceedings. The particulars of the mortgaged, pledged or hypothecated property shall be filed by the decree-holder . Adjourned to 16.02.2017.