Shahid Karim, J:- This judgment shall decide the applications for leave to defend filed by the defendants.
2. A suit for the recovery of Rs.805,291,089.53 has been filed by the plaintiff-Bank and against the defendants on 26.4.2014. PLA No.64-B of 2014 has been filed on behalf of the defendant No.1, Chenab Limited (Chenab) while PLA No.65-B of 2014 has been filed on behalf of the defendants No.2 to 10.
Chenab is the principal debtor while the defendants No.2 to 10 are the guarantors. The defendants No.11 to 21 are pro forma defendants and hold pari passu charges on the current and fixed assets of Chenab.
3. The present suit combines five finance facilities. An amount of Rs.219,018,803.5 is outstanding against Finance Against Packing Credit (FAPC-I/II)/ (FCEF-Pre-Shipment & Post-Shipment), Rs.142,647,227.6 in respect of FAFEB-SBP , Rs.178,341,959.5 in respect of Syndicate Term Finance Facility (STFF), Rs.145,760,333.6 on account of Demand Finance-II (DF-II) and lastly Rs.46,210,375.8 is outstanding with regard to Long Term Finance (SBP- LTFF-SBP)/EOP .
4. The relationship between the parties dates back to the year 2005 when vide Board Resolution dated 23.9.2005 Chenab applied to the plaintif f-Bank to obtain certain finance facilities. It is not necessary to divulge the details of these finance facilities since these have been brought forth in the facility offer letter dated 29.11.2005 annexed with the plaint at page 91. The request was for the provision of facility of DF-II for Rs.250 M and FAPC-I & II Own Source/SBP/FCEP Pre Shipment/FAFEB for Rs.200 M. In the year 2006, through a Board Resolution of Chenab dated 13.10.2006 (at page 115 of the plaint) a request was made for conversion of Rs.82 M out of 250 M of DF-II to be used for import of machinery through SBP-LTFF-EOP. A facility offer letter was issued on 16.11.2006, which is at page 108 of the plaint and the renewal was accordingly approved by which the conversion of Rs.80 M of DF-II was made into SBP-LTFF EOP. It is pertinent to mention that in the facility offer letter, Chenab admitted to the disbursement of Rs.250 M under DF-II. Through a Board Resolution dated 23.9.2006 the sanction of a new finance facility was requested for and a Syndicate Term Finance Agreement was executed on 30.6.2009 for Rs.350 M and the expiry of the said agreement was 30.9.2011. Vide Board Resolution dated 01.08.2007 (page 195) a fresh facility of FAFEB/DDOCs for export business was made and through facility offer letter dated 15.9.2007 the facility so sanctioned was Rs.75 M. In the meantime temporary sanction of short term agreement from 31.10.2007 to 31.12.2007 took place vide extension letters dated 01.11.2007, which were duly accepted and signed by the defendants (page 211). In this regard, finance agreement dated 01.11.2007 was executed and another temporary extension of the short term agreement was made from 01.01.2008 to 20.02.2008 in pursuance of request dated 27.12.2007 and the letter in this regard was issued on 01.01.2008 for extension of the facilities.
Subsequently finance agreement dated 01.01.2008 was executed between the parties. Chenab made a request on 24.10.2007 for renewal of the facilities ending on 31.10.2007 and vide facility offer letter dated 15.2.2008 (page 220 of the plaint) the renewal of the short term facilities was approved by the plaintif f-Bank. An agreement in this regard was executed on 22.2.2008. On 20.06.2008, Chenab through a Board Resolution requested for the temporary/fresh enhancement of Rs.15 M which was duly done vide facility offer letter dated 26.6.2008 (at page 256 of the plaint). Another annual renewal of the short term facilities was approved vide facility offer letter dated 13.10.2008 in pursuance of a Board Resolution passed by Chenab on 20.09.2008 . In the facility offer letter dated 13.10.2008 (at page 304 of the plaint) the admission of the liability and outstanding amounts was clearly made by Chenab. By the last facility offer letter , renewal of short term facilities was made up to 31.10.2009. Simultaneously , rescheduling/ extension in DF-II and STFF facility was made up to 31.10.2014 payable in 60 monthly installments commencing from 01.10.2009. Vide facility offer letter dated 29.4.2009, FAFEB/DD OCs was enhanced from 15 M to Rs.75 M. Through a Board Resolution dated 17.9.2009, Chenab applied for the renewal of facilities due to expire on 31.10.2009 which request was acceded to vide facility offer letter dated 14.12.2009 which is at page 348 of the plaint. This was the last facility offer letter by which the renewal of the facilities took place and which was extended to 31.10.2010.
5. A reference to a synoptical resumption of the historical facts which form the cause of action for the instant suit have been brought forth above. It is pertinent to mention that the present suit and the claim in it is based upon the facility offer letter dated 14.12.2009 which had an expiry date as 31.10.2010. The agreement with regard thereto is attached at page 350 of the plaint. The facility offer letter dated 14.12.2009 which is the foundation of the present suit has been countersigned by Chenab and is not denied by the defendants in their application for leave to defend.
The facility offer letter encompasses the entire nature of facilities which were outstanding on the date of the issuance of the facility offer letter and more importantly Chenab acknowledged the liabilities to stand against it at the relevant date of the issuance of the facility offer letter . Clearly , Chenab cannot now turn around to assert otherwise having acknowledged and agreed to the nature of the finance facilities of the outstanding amounts against each finance facility in the facility offer letter . By the facility offer letter of 14.12.2009, it has been mentioned that the plaintif f-Bank had placed certain credit facilities payable Pak Rs.601.250 M at the disposal of Chenab on the terms and conditions mentioned in the said facility offer letter . These facilities included the facilities which are the subject matter of the instant suit and with regard to which the claim has been filed by the plaintif f-Bank.
Therefore, any determination on the application for leave to defend will have to be made in the peculiar context of the underlying notion that Chenab does not deny the execution of the last facility offer letter dated 14.12.2009 and the affixation of signatures by its duly authorized director on the said facility offer letter. The fact that the facility offer letter was duly executed and acknowledged on behalf of Chenab will impact on the arguments raised by the learned counsel for the defendants and those arguments will have to be weighed in the background of this facility offer letter .
LTFF-EOP:
6. The learned counsel for the defendants does not deny the initial disbursement under this facility. The learned counsel for Chenab and other defendants states that the substantial amounts were paid in respect of this facility and which have been brought forth in the application for leave to defend and which amounts have not been properly accounted for. In the statement of account with regard to this facility at page 847 of the plaint, certain entries have been shown as mark up and reverse entries yet they are debit entries in the current account statement. By this the learned counsel draws the conclusion that the current account statement shows the payments to have been made at page 72 of the plaint as debit entries in the said statement of account but these have been credited in the statement of account of mark up which is at page 847 of the plaint. The learned counsel invites this Court to hold that the case set up in the plaint is in contradiction of the statement of account which has been annexed with the plaint. By way of illustration, the learned counsel draws the attention of this Court to page 71 which is the mark up statement of account and to a debit entry of Rs.260,690.00 whereas there is no corresponding entry in the current account statement maintained with regard to Chenab. In this manner , the entry has been unaccounted for. He has given a chart in the application for leave to defend in order to show that substantial amounts of mark up have not been accounted for by the plaintif f-Bank.
7. The learned counsel for the plaintif f-Bank, on the other hand, refers to the original facility offer letter dated 29.11.2005. He has referred to the history of this facility to contend that the facility was originally a DF-II facility and was to retire the letter of credit facility of HBL. A request was made by Chenab for conversion of certain portion of the said facility to be used for import of machinery through LTF-EOP. A facility offer letter dated 16.11.2006 was duly issued and Rs.80 M of DF-II facility was converted into LTF-EOP. It is evident, therefore, that the facility had already been disbursed to the defendants by way of DF-II facility and an agreement to this effect has been attached at page 125 of the plaint. Upon conversion, the State Bank of Pakistan also wrote a letter to the plaintiff-Bank which is at page 132 and which shows the valuation conversion of the facility as per request of Chenab. The statement of account with regard to this facility is at page 41 and no objection has been taken to any of the entries in the said statement of account. This facility has also been accepted to be due in facility offer letter dated 14.12.2009.
FAFEB:
8. The facts regarding the above facility have been brought forth in pages 27 and 28 of the plaint. Two agreements with regard to this facility were executed and there is no dispute regarding the execution of these agreements. The last renewal agreement was dated 14.12.2009 which is at page 376. The learned counsel for the defendants takes serious exception to the agreement dated 26.9.2008 which was the first agreement with regard to this facility and travels to page 278 with the plaint to refer to the contents of the agreement.
Firstly , according to him, this is a gross case of overwriting and cutting on the agreement and this fact alone disentitles the agreement to be considered. Secondly , according to the learned counsel debts in the agreement do not fall in the debts mentioned in paragraph 16 (II) of the plaint. The second agree ment is of Rs.75 M and is dated 14.12.2009. According to the learned counsel, admittedly no disbursement has been made under the agreement dated 14.12.2009 as the last disburseme nt has been shown at page 28 of the plaint to be on 3.11.2009. The first agreement under this facility was executed on 22.2.2008 and the commencing date was 1.11.2007 and was to expire on 21.10.2008. This was referred to in order to show that the claim encap sulated in paragraph 16 of the plaint, is not supported by the agreements and the claim made at page 31 of the plaint. He has referred to page 83 which is a statement of account to show that the amounts paid have not been reflec ted in the plaint and which were paid after the period of disbursement. At page 85 are the debit entries showing adjustments which too have not been accounted for. The learned counsel then refers to the renewal mark up at page 331 and which has commencing date of 24.9.2009 and ending dated 31.10.2009 which according to the learned counsel is also prior in time. From these facts the learned counsel attempted to show that in fact no disbursement took place upon renewal of the said facility . The learned counsel referred to the statement of account and in particular the current account statement at pages 84 and 85 and referred to six entries totaling Rs.55 M. He also refers to certain entries in the mark up statement of account according to which substantial amounts of mark up were adjusted yet the plaint states that no mark up was paid by Chenab under these facilities.
9. Firstly , the last facility offer letter dated 14.12.2009 makes a clear mention of this facility to have been extended to Chenab. It is otiose on the part of the learned counsel for the defendants to say that in the said facility offer letter, nothing is shown to be outstanding in respect of this facility. It does not matter whether the facility offer letter shows a certain amount to be outstanding on the said date of the facility offer letter . What is important for our purposes, is that a facility of this nature was extended to the defendants and was duly acknowledged by Chenab in the facility offer letter of 14.12.2009. The facility was sanctioned vide facility offer letter dated 29.4.2009 and was enhanced to 75 M from the original amount of Rs.15 M.The disbursement of this facility has been duly shown in the statement of account annexed with the plaint. By facility offer letter dated 14.12.2009 a renewal of the said facility took place and as stated above it was duly acknowledged by the signatures put on the said facility offer letter on behalf of Chenab which execution has not been denied by the defendants. The entries in the statement of account to which a reference has been made by the learned counsel for the defendants relates to a period prior to the renewal which took place on 14.12.2009 and no reliance can be placed with regard thereto.
With regard to overwriting on the agreement, suffice to say that said agreement was the first agreement between the parties with regard to said facility and was subsequently replaced by another agreement which was executed upon the renewal of the facilities on 14.12.2009. The agreement with regard to which allegation of overwriting has been made is dated 26.9.2008 whereas the acknowledgement of the said facility has been made by the defendants in the last facility offer letter dated 14.12.2 009 and, therefore, nothing turns on the aspect of the overwriting pointed out by the learned counsel.
DF Facility :
10. The details with regard to this facility have been mentioned at page 28 of the plaint. A disbursal of Rs.250 M has been claimed with regard to this facility . The learned counsel refers to the statement of account which is the current account statement at page 53 of the plaint where an entry dated 23.12.2005 is not reflected in the statement of account and which has been claimed in the plaint. The learned counsel also draws the attention of this Court to the replication at page 6 to allege a change of stance by the plaintif f-Ban k with regard to this facility. He also raised a legal objection to the issuance and the procedural formality observed with regard to this facility so as to establish that the entire process offends the SBP Circulars in this regard. Lastly, the learned counsel alleges that the mark up was being paid with regard to this facility and it has not been duly reflected in the statement of account.
11. The last submission of the learned counsel for the defendants belies and contradicts the earlier argument raised on account of this facility. Once again, it is reiterated that the defendants do not deny the availing of this facility. This facility has been mentioned in the last facility offer letter dated 14.12.2009 where it has categorically been mentioned that the facility stands "already disbursed." The original facility offer letter with regard to this facility is dated 29.11.2005 and it was originally a DF-II facility. At page 133 onwards of the plaint are attached the documents which show that the facility was meant to retire the letter of credit facility of HBL.
Another facility LTF SBP was carved out of this facility and a request was made by Chenab by Board Resolution dated 13.10.2006. The conversion was allowed vide facility offer letter dated 16.11.2006 and Rs.80 M out of DF-II facility was converted into LTF-EOP facility. The agreement with SBP was executed on 13.12.2006. At page 132, is attached a letter written by SBP acknowledging the facility to have been disbursed and the advice of SBP by which it was informed that the current account of the plaintiff-Bank had been credited on 28.12.2006. The statement of account has been attached at page 841 of the plaint and no discrepancy was pointed out in the said statement of account.
FAPC :
12. Once again this facility finds mention in the facility offer letter of 14.12.2009. The agreement has been attached at page 355 with the plaint. The necessary details have been brought forth at page 27 of the plaint. According to the learned counsel for the defendants, Rs.60 M was disbursed before the execution of the agreement and this is reflected in the debit entries of the current account statement at pages 85 and 86 with the plaint. The defendants admit the availing of Rs.60 M against this facility to contend that the entire amoun t has been repaid and this has been stated on the basis of the entries in the statement of account at pages 85 and 86. In a nub, the defendants invite this Court to hold that no disbursem ents were made after the execution of the agreement relied upon by the plaintif f-Bank on account of this facility . The learned counsel also refers to the entries of 6.10.2009 to try to bring home that these entries relate to the mark up of the FAPC facility and submits that the entire mark up has been repaid and nothing is outstanding from the defendants.
13. The arguments of the defendants though attractive at first blush, do not have any legal legs to stand upon. The nature of the facility is that of a roll-over facility and the period of the facility is 180 days. It is of essence for this facility to be rolled-over that the previous amount of mark up has to be repaid in its entirety before permission is granted for the roll-over of the facility . This is evident from a perusal of page 86 which is a statement of account by which the previous FAPC was adjusted and rolled-over. It is also important to note that each FAPC facility has distinct account and Rs.60 M has been reflected as 3rd entry from the top of page 84 of the statement of account.
The simple explanation as to why the disbursement was made before the date of agreement is that expiry of the previous facility offer letter was 31.10.2009 and was to last for 180 days. It was imperative therefore that the facility was disbursed before that date for seeking a roll-over otherwise Chenab would have had to repay the entire amount. In order to cater for this contingency, the facility was rolled-over upon payment of mark up by Chenab and this explains as to why the statement of account reflects the payments to have been made before the formal execution of the agreement.
14. The learned counsel for the defendants tried to take refuge in the facility offer letter of 14.12.2009 to contend that it does not mention that there was anything outstanding in respect of this facility. The simple answer to this is that at the time of the issuance of the facility offer letter , in fact, nothing was outstanding in respect of this facility as the facility had already been rolled-over upon the payment of mark up by the defendants.
15. The learned counsel for the defendants raised legal submission that in terms of section 18 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 the banks are prohibited from retaining blank documents from the customers. The precise submission was that the plaintiff-Bank had retained certain documents as blank documents and the defendants were forced to submit those documents which was ultra vires the powers of the plaintiff-Bank. A reference was made to a document at page 252 with the application for leave to defend which is a blank document and by comparing it to a document at page 278 of the plaint, it has been sought to bring home that the same document was later on filled in and relied upon by the plaintiff-Bank. I am not convinced by the argument raised by the defendants in this regard. This is clearly an afterthought and contradiction in terms. The entire liabilities due from the defendants have been brought forth in the last facility offer letter of 14.12.2009 and the defendants cannot now turn around and say that the basis of the suit is certain blank document and obtained by the plaintif f-Bank. Moreover , the defendants have alleged that they have made the entire payment of the liabilities under the finance facilities disbursed to Chenab and, therefore, the defendants cannot blow hot and cold by stating on the one hand that they have repaid the finance facilities availed from the plaintif f-Bank while on the other hand challenging the very documents on which the finance facilities were predicated.
16. There is an aspect of financial estoppel which arises in this case and to which I shall allude to. The nub of the challenge by Chenab (and other defendants) is to entries in bank statements which tend to arise in two situations (as stated by counsel for Chenab). In the first, Chenab challenges the accuracy of an entry and disputes that any payment was in fact made such as to justify a particular debit entry. In the second situation, Chenab states in respect of a few entries that ABL was not entitled to debit the account at all. The question arises whether there is an account stated.
"In the strict sense of the term, an account stated describes the position where an account contains items both of credit and debit, and the figures are adjusted between the parties and a balance struck." [Camillo T ank Steamship Co Ltd. v . Alexandria Engineering Works (1921) 38 TLR 134 per V iscount Cave at 143]
17. There is a duty on the bank to send periodic bank statements to its customers giving details of the state of the account in the light of the transactions since the last statement. The bank's obligations in this regard have been set down in the Circulars issued by the State Bank of Pakistan from time to time. It has not been set up as a defence by Chenab that it was not given access to the bank statement by ABL and it is inconceivable, in any case, that Chenab did not check its monthly or periodic bank statements given the sweep and extent of the finance facilities being availed by it. By any stretch of imagination, the ABL's lending to Chenab was quite substantial and it is a foregone conclusion that Chenab' s team of accountants and auditors must have pored over the accounts and bank statements before agreeing to renewals and restructuring of liabilities. This may not be expected of an ordinary customer but Chenab, by no means, is an ordinary customer and is a corporate customer of immense financial muscle and thus is aided by the ablest and the most efficient of professio nals in their respective fields. It would thus be legitimate to invoke the doctrine of estoppel when Chenab raises the challenge to accuracy of entries in bank statements.
18. However, whether there is a corresponding duty, either in contact (by way of implied term) or in tort, owed by a customer to check his monthly (or other periodic) bank statements so as to notify the bank of any items which were not, authorized by him. Since Tai Hing Cotton Mill Ltd. v Liu Chong Hing Bank Ltd., [1986] AC Committee 80; [1985] 2 All ER 947, PC, it is well-settled that the relationship of banker and customer does not give rise to such a duty to exist. The Privy Council held against the bank on the alleged duty to check bank statements, so that there was no liability of the customer available for set-off against the liability of the banks. It was further held that it was not possible to establish an estoppel from the customer's mere silence and failure to act.
19. The conclusive evidence clause in an agreement is an exception to the rule vouched by Tai Hing. This has been explained in Paget's Law of Banking, fourteenth edition, in the following words: "5.8 There being no duty on the part of the customer to check his statements, the continued payment in and withdrawal of monies from a current account after the receipt of a bank statement does not constitute the customer 's agreement, express or implied, to the balance shown on the statement. In no sense can it be said that a balance is struck between the parties.
It is, of course, always open to a bank to refuse to do business save upon express terms which incorporate an account stated provision. Such provisions have come to be called conclusive evidence clauses.
Although reliance on a conclusive evidence clause can be forensically unattractive, there is a clear authority that, as a matter of principle, such a provision is binding according to its terms: see Bache & Co (London) Ltd v Banque Vernes et Commerciale de Paris SA, applying a decision of the High Court of Australia, Dobbs v National Bank of Australasia Ltd. In both cases, a conclusive evidence clause was claimed to be contrary to public policy as tending to oust the jurisdiction of the court and in both, the submission was rejected. However, both cases involved claims against guarantors, and as was observed by all three members of the Court of Appeal in the Bache case, the decision did not lead to any injustice because if the figure certified to be due was erroneous, it was always open to the principal debtor to have it corrected by instituting proceedings against the creditor.
Support for the validity of conclusive evidence clauses can also be found in Tai Hing (above) where the defendant banks relied upon printed terms and conditions pursuant to which the company's current accounts were operated."
20. Further that: "5.10 A Similarly restrictive construction of such clauses was taken by the Privy Council in Financial Institutions Services Ltd. v Negril Negril Holdings Ltd. However , bank can achieve the effect of conclusive evidence by appropriately worded clauses. Such clauses have been held effective in Canada and Singapore. "
21. The Canadian cases referred to are: Stewart v Royal Bank of Canada [1930] 4 DLR 694 and B and G Construction Co Ltd. v Bank of Montreal [1954] 2 DLR 753 whereas the case from Singapore was titled Pertamina Energy T rading Ltd. v Credit Suisse [2006] SG CA 27.
22. It is clear therefore that a properly worded clause can serve the purpose of a conclusive evidence clause and establish an estoppel in respect of a customer notwithstanding that there is no implied duty to check bank statements by a customer .
23. Such a provision is part of the agreement between ABL and Chenab and we may only refer to the last agreement dated 14 December , 2009. Clause 6(i) reads as under: "THE sums owing from the Customer to the Bank shall be such as may be certified by a duly authorized officer of the Bank and the Customer agrees to accept the same as conclusive and waives his right to challenge the same."
24. Thus the right of Chenab to challenge the entries has been excluded by an express agreement. This clause is a conclusive evidence clause between the parties. It imposes on Chenab an express obligation to examine its bank statements and to make those statements unchallengeable. Clear and unambigu ous provision has been agreed upon to introduce into the contract a binding obligation to accept the statement as accurately setting out the debit items in the accounts. No material has been brought forth to establish that Chenab queried its bank statements and thus there is now an estoppel against it to challenge those items.
25. In view of the above, the defendants have failed to raise substantial questions of law and fact to entitle them to the grant of leave to defend. The applications for leave to defend are, therefore, dismissed .
Main Case
26. In view of the dismissal of the applications for leave to defend, the suit is decreed in favour of the plaintif f- Bank and against the defendants jointly and severally for a sum of Rs.731,978,700.2 along with costs of funds in terms of section 3 of the Financial Institu tions (Recovery of Finances) Ordinance, 2001. The costs of the suit are also granted.
27. 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.