Shahid Karim, J:- This suit is for the recovery of Rs.111,030,677.85 along with costs of funds and cost of the suit.
2. The suit was filed on 17.2.2006. A synoptical resumption given in the plaint forming the basis of the suit is that the defendant No.1- Company was inter alia granted a combined Export Refinance Facility (ERF-I) or Own Source LCY or FCY (pre and post shipment limit) to the tune of Rs.68.75 million vide offer letter dated 28.8.2003. An agreement of finance dated 01.09.2003 for ERF-I for Rs.68.75 million was executed. ERF-I facility was continued and increased to Rs.80 million through an offer letter dated 02.08.2004 and an agreement for finance followed this offer letter and which was dated 02.08.2004. The ERF-I limit was further enhanced to Rs.100.00 million under an agreement for finance dated 01.10.2005. These facilities were availed by the defendant No.1- Company and in evidence thereof a statement of account has been appended as Annex =D, D/1, D/2, D/3 and D/4'. The amounts which are alleged to be outstanding and payable under ERF-I facility is Rs.94,037,435.65.
3. The second facility which has been combined in this suit and which was granted to the defendant No.1 was a limit for establishment of Letter of Credit (LC) for import or inland for aggregate amount equivalent to US$. 173,500. It is alleged that on receipt of shipping documents for 9 LCs by the plaintiff, the defendant-Company failed to make payments to accept and obtain from the plaintiff-Bank trust receipts which were the documents of the title of the goods that were procured against the LCs. Since no payments were made by the defendant No.1 to the plaintiff- Bank, in fulfillment of its obligations, the plaintiff-Bank had to make payments to the beneficiaries of the 9 LCs. The details of the overdue LCs and the documents executed by the defendant No.1 in support of and to secure the discharge of its obligations have been brought forth in paragraphs 7 and 13 of the plaint. The amount outstanding in respect of the 9 LCs is Rs.16,993,241.20. Separate statement of account has been appended with the plaint in support thereof. The defendants No.2 and 3 executed personal guarantee in favour of the plaintiff-Bank and which are dated 14.10.2004.
The case of the plaintiff-Bank in simple terms is that the defendants No.1, 2 and 3 have failed to discharge and liquidate their obligation under the ERF-I as also under the LCs which were established by the plaintiff-Bank.
4. The learned counsel for the defendants at the outset submitted that vide order dated 4.5.2010 leave was granted in COS No.8 of 2006, which suit bears similarity of facts with the present suit and therefore leave must also be granted as of right to the defendants in this suit. This submission of the learned counsel is nuanced to say the least. It is admitted on all hands that the financial institutions in both the suits are different and the documents of the facility granted to the defendants does not also bear any commonality. The basic document, according to the learned counsel, is the facility offer letter dated 28.8.2003 which encapsulates the tenor of the facility granted to the defendants. According to this document, it is a short term credit facilities and the facility No.1 has been described as State Bank of Pakistan (SBP) Export Refinance Part-1. The purpose has been delineated as working capital facility to finance exports and the funding will be against LCs and contracts. The transaction tenor has been mentioned not to exceed 180 days. The emphasis of the learned counsel for the defendants is on the term of this facility offer letter that the funding will be against LCs and contract. The learned counsel further referred to agreements executed between the parties and mentioned in the plaint and reiterated the fact that in each facility offer letter executed prior to the formal execution of the agreement, the term viz. "funding will be against LCs and contract" is a common thread running through the facility offer letters and according to the learned counsel is of paramount significance. Learned counsel submits that the primary facility which comprises the cause of action in the instant suit is ERF-I and there is a clear methodology under which this facility must be given and is to be governed. No documents have been filed with the plaint which would evidence and support the plaint with regard to the condition mentioned that the funding will be against LCs and contract. (The contracts in this respect were filed with the replication which will be alluded to in the latter part of this judgment). An important plank of the arguments of the learned counsel for the defendants is that he does not deny the availment of the facilities and the amounts mentioned in the agreements of finance executed between the parties. However, it is the case of the defendants that the amounts have been repaid and there is no proof attached with the plaint bringing on record the necessary documents to establish the default by the defendants.
5. In the first instance, the learned counsel for the defendants has attacked the format in which the statement of account has been filed. However, this was merely a flanking rather than frontal attack on the statement of account and the learned counsel has not pointed out to any circular of the SBP nor has he relied upon any law which was offended while preparing the statement of account. The learned counsel has also not challenged specific entries in the statement of account nor has any counter statement of account or audited accounts of the Company been annexed with the application for leave to defend in order to off set or rebut the entries of the statement of account.
The learned counsel has relied upon a cluster of judgments which bring forth the exact nature of the statement of account as also the definitions relied upon from authentic dictionaries as to the meaning attached to the document, yet while relying upon these judgments the learned counsel for the defendants has not laid a specific challenge to the precise discrepancy which has crept in the statement of account relied upon in support of the plaint.
6. The learned counsel for the defendants next contended that additional documents have been filed with the replication and this cannot be permitted to be done and on this basis the defendants are entitled to the grant of leave to defend per se. The precise manner and the parameters of filing documents with the replication have recently been dealt with in COS No.169 of 2011 and the following observations are relevant in order to understand as to which documents can be filed with the replication by the plaintiff.
14. The proposition that the plaintiff-Bank cannot file any documents or support the replication with further documents is a question which is not free from difficulties. The scheme of Financial Institutions (Recovery of Finances) Ordinance, 2001 is that a suit for recovery is filed and the defendants are then required to file an application for leave to defend in the form of a written statement containing a summary of the substantial questions of law as well as facts in respect of which, in the opinion of the defendants, evidence needs to be recorded. The application for leave to defend shall be accompanied by all the documents which, in the opinion of the defendant, support the substantial questions of the law and fact raised by him. The plaintiff then is given an opportunity of filing a reply to the application for leave to defend in the form of a replication. It will, therefore, be seen that the plaint is required to be supported by all relevant documents relating to the grant of finance as also that the application for leave to defend shall also be accompanied by all the documents to support the substantial questions of law and fact raised by the defendant.
Therefore, it would be otiose to assert that no documents can be filed with the replication nor can the plaintiff rely upon any documents in this regard. Keeping in view the policy of the law as also the purpose of the legislature, we are dealing with a summary determination of questions of law and fact which does not entail a regular long-drawn trial of issues. Therefore, the intention and purpose is that all those documents may be filed at the pre trial stage of the determination on an application for leave to defend that the Court must have before it and which documents are necessary for it to adjudicate the claim at that stage. Therefore, the simple rule which could be followed in such cases is that all documents which merely relate to the grant of finance and had not set up a new case may be filed with the replication. It would not serve the purpose of the law if merely because some of the documents relating to the grant of finance were omitted to be filed with the plaint were not permitted to be filed with the replication. Nor would the Court consider them at that stage and this could be taken as a substantial question of law and fact so as to entitle the defendant to the grant of leave to defend. This will not mean that lacunae in the case being filled or that a new case is being set up. At the heart of this issue is the summary jurisdiction which is being exercised by this Court. It is one thing to say that no documents can at all be filed and relied upon with the replication and another to say that the cogency and sufficiency in law of these documents is in doubt.
15. The purpose of the law in giving an opportunity of filing a reply to the application for leave to defend has also to be kept in mind. If a defence has been set up in the application for leave to defend, the plaintiff has been granted an opportunity to file a reply to that defence and to respond suitably not only by specifically replying to that defence in the replication but also to bring on record documents which will nullify and stunt the effect of that defence. It would be for the Court to judge in each case if the documents could have been filed or relied upon by the plaintiff. And in case these are documents which cannot be so relied upon, this can only be considered as a stance which raises a substantial question of law and fact and no more.
7. The learned counsel for the plaintiff-Bank submits that this ground does not entitle the defendants to the grant of leave to defend. From the paragraph of the judgment, reproduced above, it is evident that the documents which merely advance the initial case set up by the plaintiff in the plaint can very well be brought forth and filed along with the replication. It is not the case of the defendants that they do not admit these documents. Also these documents are merely contracts executed between the defendants as the exporters and the foreign buyer and which copies were submitted to the plaintiff-Bank in terms of the mandate of the facility offer letter as also the agreement executed between the parties. These documents do not form the basis of the case set up in the plaint by the plaintiff-Bank and has merely been filed in order to demonstrate the transaction complied with the circulars of SBP and the terms of the facility offer letter as well as the agreement executed between the parties. Therefore, these documents can be taken into consideration at this stage and do not come within the realm of a new case set up by the plaintiff.
8. The learned counsel for the defendants has referred to a period to exist between various agreements for which no agreement was in field between the parties. By this, the learned counsel contends that the entries with regard to this period cannot be accepted and must be discarded.
Firstly, the learned counsel for the defendants does not categorically deny the fact that the amounts were not availed during that period by the defendants and in case these amounts were availed while there was no formal written agreement between the parties, it does not discharge the defendants from repayment of those amounts which were availed by the defendants. There is no law which does not oblige a person to have availed a loan to assert that he is not liable for repayment of that loan since there was no written agreement during that period. This assertion would be against public policy. Secondly and more importantly, this is clearly an afterthought as this defence has not been taken in the application for leave to defend and accordingly must be discarded. An inference can clearly be drawn that the relationship between the parties was a continuing relationship and the defendants availed facilities from the plaintiff-Bank on different occasions and a gap in the execution of the formal agreement does not detract from the fact that the facility continued for that period as well since it is not the case of the defendants that the earlier facility was liquidated or repaid in full, and thus there was nothing outstanding from the defendants.
9. The main plank of the defence set up by the defendants during the course of the arguments is that the entire reliance of the plaint is on a sale-purchase agreement (IB-6) whereas the facility is an ERF facility which is governed by the instructions issued by the SBP and is a distinct facility not covered by the sale-purchase agreement. Hence, according to the learned counsel, the basis of the suit is knocked out as along with the replication the contracts have been filed which make it evident that the basis is the BSD Circular No.35 (Circular 35) issued by the SBP on 28.9.2001. The Circular 35 defines the contours and the modalities of the export finance scheme. The underlying agreement in the export finance scheme, so argued the learned counsel, is not a sale-purchase agreement which has been annexed with the plaint and forms the foundation of the suit.
Scheme of ERF-I.
10. The primary attack of the learned counsel for the defendants has been brought forth in the preceding paragraph. The arguments raised by the learned counsel for the defendants on the basis of this challenge will be adverted to and dealt with during the course of this judgment. As a prefatory, it may be stated that the defendants admit that an ERF-I facility was availed but merely assert that IB-6 agreement has no relation with the claim under the ERF-I facility. Circular 35 dated 28.9.2001 is the governing law and it has to be read with the Foreign Exchange Manual 2002. It is issued under the Foreign Exchange Regulation Act, 1947. Thus, the scheme of ERF-I is based on Circular 35 and it is contended by the learned counsel that no word is mentioned in the plaint that the defendants breached the terms of Circular 35 or that the goods were not exported as also that no documents have been brought on record which will bring home that no exports were made and so the presumption is that the breach did not occur. According to the learned counsel, the ERF-I facility is a self-liquidating facility and in case of breach in any of its stages, SBP will be called in action and will impose penalties in terms of Circular 35.
11. In order to properly dissect the case set up in the application for leave to defend, it will be useful to refer to the different paragraphs which encapsulate the case of the defendants. In paragraph 6, it has been mentioned that in order to meet the business obligations and working capital requirements of the defendant No.1, certain facilities were sanctioned by the plaintiff-Bank. Thus, the sanctioning and availment of the facilities is not denied. It is further brought forth in paragraph 6 that it was also agreed between the parties that all financial needs of the defendant No.1 as and when they arise shall be catered for by the plaintiff-Bank. Paragraphs 7, 8, 9 and 10 bring forth certain facts which, according to the defendants, impacted on the knitwear industry which was left with huge unutilized capacity and "too few an orders" which resulted in sharp drop in prices. The application for leave to defend then goes on to make a reference to the purported obligations of the plaintiff-Bank to provide additional finance to the defendant No.1 which were necessary at that crucial juncture for the defendant No.1 and which obligations, according to the contents of the application, were not fulfilled. In paragraph 11 is mentioned the consequences which allegedly flowed out of the non-fulfillment of the obligations and, therefore, "the cash flow of the defendant No.1 stood destroyed?. Further circumstances have been narrated in the following paragraphs which merely indicate and refer to the circumstances which contributed to a loss of business and commercial activity for the defendant No.1 and for which the defendant No.1 required additional financial assistance. Paragraph 14 spells out the alleged losses suffered by the defendants on account of the acts of the plaintiff-Bank in inter alia not disbursing the requisite financial assistance to the defendants. It is pertinent to mention that on the basis of these submissions, a counter claim has been set up against the plaintiff-Bank. However, during the course of the arguments, the learned counsel for the defendants did not advert to these allegations nor did he make any reference to the counter claim set up in the application for leave to defend. The precise defence of the defendants has been brought forth in paragraph 6 and 8 of the replies on merit in the application for leave to defend. These paragraphs read as under:
6. That the contents of this paragraph as laid out are denied. It is specifically averred that the alleged documents pertaining to the Export Refinance Facility and the Foreign Currency Export Finance (?FCF?) do not corroborate with the statement of account filed with the Plaint. Furthermore, during the relevant period the said facilities were duly discharged. Hence the Plaintiff is not entitled to claim any amount on account of the facilities alleged in this paragraph. Additionally it may be noted that the pre/post shipment facilities are not corroborated with the requisite documents with respect to the said facilities. Thus, the mandatory requirements of section 9 of the Ordinance have not been fulfilled. Thus, the suit of the Plaintiff is liable to be dismissed and decree in favour of the Defendants in terms of the prayer is liable to be granted. Furthermore, without prejudice to the above, if any amount is found to be payable, the same may be set-off from the amount of the counter-claim.
8. That the contents of this paragraph as laid out are denied and the contents of foregoing paragraphs are reiterated. It is pertinent to mention here that all the modes of financing as well as the amounts which may be charged by the Plaintiff Bank under the same must be in accordance with the modes of financing prescribed under BCD - 13 & 32. Thus, it is evident that the Defendant No.1, in accordance with the said circular of the SBP and submissions made above, paid the entire amounts made available through the said facilities. With respect to the securities allegedly provided by the Defendant No.1 to the Plaintiff Bank, it is submitted that in view of the fact that the Defendant No.1 paid the entire amounts due and payable by the Defendant No.1 to the Plaintiff, the same are liable to be released/discharged.?
12. It is evident from a reading of these paragraphs that the defence set up by the defendants is not clearly mapped out. On the one hand, it has been stated that the documents pertaining to Export Refinance Facility and Foreign Currency Export Finance do not corroborate with the statement of account filed with the plaint. In the same breath, the defendants claim that the said facilities were duly discharged. Moreover, it is stated that pre/post shipment facilities are not corroborated by the requisite documents with respect to the said facilities and therefore the mandatory requirements of section 9 have not been fulfilled. However, in paragraph 8, reproduced above, once again the reliance is upon the circulars issued by the SBP and that the modus operandi of the facility must conform to those circulars. There is a general allegation that the terms of the circulars have not been fulfilled in the disbursement of the facility to the defendants. Once again in paragraph 8 it is stated by the defendants that they have "paid the entire amounts made available through the said facilities?.
The contents of these paragraphs have to be read with the contents of paragraph 17 of preliminary submissions which is purportedly in compliance of the provisions of section 10(4) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (Ordinance, 2001) and according to which nothing is due from the defendants in respect of both the facilities which are subject matter of this suit.
13. At first blush, it may be stated that the defendants claim to have discharged the entire liability in respect of the financial facilities which are subject matter of this suit. Clearly the onus, therefore, shifted to the defendants in order to show that the liability had been discharged. No documents have been attached with the application for leave to defend in order to demonstrate and bring home the discharge of liability. It will have to be borne in mind that a banking suit is a suit on the basis of the accounts and it is established by respectable authority by now that the onus is a shifting onus and it is not enough for the defendants to simply assert that the liability has been discharged without more. Necessary documents, statements of accounts, ledgers, audited accounts have to be produced by the defendants in order to show bona fide and in order to support its claim that the liability has been discharged. The entire reading of the application for leave to defend would ineluctably show that no clear stance has been brought forth in order to lay claim to the grant of leave to defend or the raising of substantial questions of law and fact. A counter claim has been set up and the basis for that counter claim is that the plaintiff-Bank was under an obligation to fulfill the financial requirements of the defendants in case the defendant No.1 faced financial crunch and was in need of a loan or a finance facility. No such agreement or a missive has been produced between the parties which will cast that obligation on the plaintiff- Bank nor has the learned counsel for the defendants laid emphasis on the counter claim set up during the course of the arguments. One inference would be that the defendants have admitted that there existed circumstances which forced the defendants into default of its financial obligations and for which it was in dire need of further lending from the plaintiff-Bank which was not forthcoming. On the other hand and contrary to this stance, the defendants have stated that the entire finance facility availed by the defendants had been repaid. This is in stark contrast to the earlier stance taken by the defendants which portrays a picture of extreme financial hardship for the defendant No.1 and circumstances to compel the defendant No.1 to require further financing from the plaintiff-Bank. Also time and again the defendants have not denied the availment of the facility. Whether a counter-claim could be set up in an application for leave to defend was the subject of discussion in a recent case of Bank Alfalah Ltd v. Mukhtar Hussain Chishti (COS 19/2010. It was held that:
7. The submissions made by the learned counsel for the defendant are nuanced and do not have any legal legs to stand upon. Firstly, a set off cannot be claimed in an application for leave to defend and can only be claimed in a written statement filed under a regular suit filed before court under section 9 of the Code of Civil Procedure (CPC). There is no basis for the arguments of the learned counsel for the defendant that simply because a set off has been claimed in the application for leave to defend, the defendant is entitled to the grant of leave. The application for leave to defend has to be seen on its own merits and the substantial questions of law raised therein have to be weighed without recourse to any claim of set off set up by the defendant. We must bear in mind that this Court is exercising jurisdiction under a special law and a special procedure has been prescribed regulating the suits filed under that law. The normal and recognized mode of trial is not applicable to the suits filed under the special jurisdiction of this Court. Be that as it may, notwithstanding the claim of set off which would require evidence to be taken down and proved, at best, the plea raised could be urged as a substantial question of law for the grant of leave to defend and no more. This would be independent of the plea of set off. Whether the plaintiff bank acted prudently and with good commercial sense could legitimately be put forth as a ground for the grant of leave to defend.
14. The entire reliance of the learned counsel for the defendants on the non-fulfillment of the terms of the Circular 35 in the disbursement of the facility has no legal legs to stand upon. It is not clear as to which portion of the Circular 35 has the defendants relied upon in support of the submission.
It has not been mentioned in the application for leave to defend that there ought to have been a bill of exchange as the negotiable instrument underlying the Export Refinance Facility and which bill of exchange was presented for discounting and which was not discounted by the plaintiff-Bank.
The learned counsel for the plaintiff-Bank has tried to hammer in the precise nature of the suit.
According to him, the basis of the suit is the sale-purchase agreement commonly known an IB-6 agreement and the liability of the defendants arises out of that agreement and no other agreement. That agreement was executed between the parties and is admitted to be so executed in the application for leave to defend and, therefore, the defendants cannot turn around and deny any liability in terms of the sale-purchase agreement. In case, the defendants rely upon the refinance scheme and the discounting of the bill of exchange as the basis of the transaction, necessary documents ought to have been brought forth on the part of the defendants in order to show that bill of exchange was presented to the plaintiff-Bank and was discounted and thus no liability now arises against the defendants. The learned counsel for the plaintiff-Bank has rightly pointed out that the contracts which have been brought on record along with replication is not the basis of the claim set up in the plaint. It merely goes to show that the terms of the facility offer letter were complied with and no cavil can be taken to it. These contracts, it is reiterated, were executed between the defendants as an exporter and the foreign buyer and the plaintiff-Bank is not a party to these agreements. It has also been correctly stated by the learned counsel for the plaintiff-Bank that irrespective of whether the terms of Circular 35 have been breached, the liability under IB-6 agreement still remains and any shortfall in that liability will have to be reimbursed by the defendants. At worst, the failure to follow the scheme of Circular 35 will be visited by penalties on the plaintiff-Bank and which issue is an issue between the SBP and the plaintiff-Bank and cannot be used to their support by the defendants. Moreover, there is nothing in the application for leave to defend which will bring forth clearly the various steps in the transaction with regard to the export finance scheme by which it can be shown that bills of exchange were presented to the plaintiff- Bank and were discounted and, therefore, the application suffers from absence of any proof that the plaintiff-Bank presented those bills of exchange to the foreign bank and which were dishonoured. The route that a discounting of bills of exchange takes is by the opening of a letter of credit which is accompanied by a bill of exchange which has to be accepted by a foreign bank and the fact is mentioned on the bill of exchange that it is issued against letter of credit. That bill of exchange will be presented to the plaintiff-Bank for the purposes of discounting and if discounted, recovery was to be had by the plaintiff-Bank from the foreign bank (issuing bank). There is nothing in the application for leave to defend which would demonstrate that the bills of exchange presented to the plaintiff-Bank were discounted and, thus, it was essential for the plaintiff-Bank to bring forth evidence to show that recovery could not be had from the foreign bank against the discounted bills. Simply put, in case there were discounted bills of exchange, a copy of those bills ought to be in possession of the defendants which could have been produced with the application for leave to defend in order to support the stance that nothing is due from the defendants and the finance facilities availed by it have either been repaid or have been reimbursed to the plaintiff- Bank by presenting the discounted bills of exchange and the amounts have been made over by the foreign banks. If the basis of the claim of the defendants was on the basis of discounted bills of exchange, then the necessary documents ought to have been in the possession of the defendants as it is always the case that the seller/exporter (defendant No.1 in this case) draws the bills and has them accepted by a foreign seller/foreign bank before presenting them to a local bank for discounting. The minimum that was required of the defendants was to bring forth a clear statement indicating the identity of the bills, the amounts received by the defendants on account of discounting of the bills and the dates of the discounting in order to entitle it to the grant of leave to defend. Be that as it may, the case of the plaintiff-Bank is simply premised on the sale-purchase agreement (IB-6) and not on the basis of discounting of tendered bills of exchange. It is the case set up by the defendants in the application for leave to defend that the export finance facility is based on Circular 35 and on the discounting of bills of exchange. If this were the case of the defendants, the bare essential documents ought to have been produced in order to substantiate that defence. None has been produced by the defendants with the application for leave to defend.
Circular 35
15. The foundational basis of the defence of the defendants is the Export Finance Scheme (Scheme) which finds expression in Circular 35. It would therefore be imperative that a schematic analysis of the Scheme be undertaken in order to understand what the Scheme actually conveys and whether reliance can be placed by the defendants in order to skirt their liability in the instant suit. The Scheme was promulgated on 28.9.2001. In the first instance, it must be borne in mind that the Scheme is directed as instructions to banks with a view to simplifying the procedure and to eliminate excessive documentation being submitted by the exporters to their banks. By para 1.3 of the Scheme, it has been provided that the financing facilities under the Scheme will be available for eligible commodities for a period of 180 days to Direct Exporters. By para 4.1, it has been provided that: "The State Bank of Pakistan will make refinance available to banks in the form of either purchase / rediscount of such bills of exchange / promissory notes as are eligible for purchase / rediscount by the State Bank of Pakistan under section 17(2) (a) of the State Bank of Pakistan Act, 1956 or as loans against such bills under section 17(4)(c) of the Act for a maximum period not exceeding 180 days.
16. Thus, it is evident that the SBP will make refinance available to banks in the form of either purchase/ rediscount of such bills of exchange/ promissory notes as are eligible for purchase/ rediscount. Thus, the facility is about obtaining a refinance from SBP in return for the facilities provided by banks to the exporters whether Director Exports or Indirect Exporters. By para 5.1, the following has been provided: Finance from banks under Part-1 of the Scheme will be available to Director Exporters to the extent of 100% of the value of a firm export order / contract / letter of credit both at pre-shipment and post-shipment stages."
17. It can be culled out from a reading of para 5.1 that finance shall be available to Direct Exporters under the Scheme from the banks. This has to be read with paras 5.3, 5.4 and 5.5, which read as under: 5.3 Commercial bank, after providing finance to the Direct / Indirect Exporters shall become eligible to avail refinance from the State Bank of Pakistan as per procedure mentioned in para 6 below.
5.4 The Director or Indirect Exporter, as the case may be, shall approach his bank for availing facilities under EFS indicating his financial needs as per prescribed form "B" or "C" respectively upon establishment of a letter of credit or on receipt of a firm export order, in case of a Director Exporter...."
5.5 After the finance has been disbursed by banks, they may make an application to the concerned officer of the State Bank of Pakistan indicating particulars of Direct/ Indirect Exporters to whom the bank has granted finance and against which now it intends to avail refinance as per Form "D". Each request for reimbursement for refinance will be accompanied by a Demand Promissory Note duly executed by the exporter concerned in favour of the bank and endorsed in favour of State Bank of Pakistan as per specimen attached."
18. It becomes conspicuous upon a reading of the paras, reproduced above, that the scheme of Export Finance Scheme is that the commercial banks shall provide finance to the Direct Exporters and upon providing the finance shall become eligible to avail refinance from SBP in terms of the Scheme and as spelt out in para 6. For the purpose, the Direct or Indirect Exporter shall approach the bank for availing facilities and after the finance has been disbursed by the banks, the banks may make an application to the concerned office of SBP indicting the particulars of Direct/ Indirect Exporters to whom the bank has granted finance and against which it now intends to avail refinance. The words "after the finance has been disbursed by banks" used in para 5.5 are significant. They indicate that the finance is firstly to be disbursed by the banks and an application is thereafter made to the SBP for availing the refinance from SBP. Therefore, the pivotal point is that for the provision of finance to the exporters, no form of agreement or the modalities have been prescribed and the banks may provide the finance in any manner that it deems appropriate and considering the commercial exigencies and its relationship with the exporter/ seller. Thus, no specimen agreement for finance to be disbursed to the exporter has been prescribed and as a necessary corollary it can well be by a sale-purchase agreement. Thus, the finance provided to the exporter on the basis of a sale-purchase agreement (IB-6) does not run counter to the Scheme.
Another aspect which stands out is that the matter of claiming refinance in the Scheme is between commercial bank and the SBP and the liability cannot be avoided on the ground that any of these conditionalities laid down in Circular 35 has been contravened. The commercial bank will apply to the SBP through an application in Form "B" along with an undertaking for finance which would confirm that a finance has been allowed under Part-I of the Scheme. However, it is settled that the finance is to be provided by the bank under a separate agreement. It will be seen that in the facility offer letter, the facility has clearly been described as ERF-I and this is what the parties agreed to.
The defendants do not deny that the facility disbursed to them was an ERF-I facility and thus, the defendants ought to be concerned with the disbursement of the facility and not the underlying agreement which formed its basis. Moreover, the defendants have not alleged nor have they instituted a suit to have the IB-6 agreement declared as void and seeking its cancellation. It follows indubitably that the modalities whether on discounting of bills of exchange or by negotiation has been left to be settled between the bank and the exporter. Thus, in the underlying transaction, there may not be a discount of bill of exchange at all which seems to be the case here. In the entire Circular 35, no mention regarding the discounting of bills or any such mode of bankers documentary credits has been specified by the SBP.
19. By para 5.7 of the Scheme, it has been stated that the bank shall extend the financing facility under Export Finance Scheme to Direct/ Indirect Exporters for pre-shipment and post-shipment on the production of certain documents by the exporter which include firm export order / contract / letter of credit. The only condition by para 6.1 for the applying of refinance from SBP is the receipt of an application from the commercial bank as per Form =D' and D.P note executed by the exporter concerned and no other document is required as evidence for claiming refinance from SBP.
20. Much emphasis was laid by the learned counsel for the defendants on paras 7.1 and 7.3, which relate to the obligation of the exporter to submit the shipping document as proof of shipment to the banks concerned against the loan. However, the submission of documents is required as proof of shipment only and as evidencing that the shipment was duly made against relevant firm export order. These paras relate to the shipment of goods but the question here is regarding availing of the facilities and their nonpayment by the defendants. Thus, the analysis of Circular 35 would bring forth that the form of agreement for disbursement of finance between the bank and the exporter has not been specified and inferentially, therefore, the transaction could take any form even the form of an agreement for sale and purchase.
21. Two judgments in this regard have been relied upon by both the learned counsels for the parties as dealing with a facility of the nature which is in question in the instant suit. The first is a Karachi High Court judgment reported as U.B.L v. Azmat Trading Company (Pvt.) Ltd. (2001 CLC 1172) (Azmat Trading). The first observation with regard to this judgment is that this was based upon BCD Circular No.13 issued by the SBP and the Circular 35 which has been relied upon by the defendants in the instant suit was not dilated upon nor considered by the learned Judge. The contexture and contours of the Scheme under BCD Circular No.13 was materially different from that spelt out in Circular 35 and thus, Azmat Trading cannot be considered as an authority for the facts of the instant case. The basis of Azmat Trading was that the plaint in the suit did not seek to recover money against any bill of exchange but had been filed to seek to enforce the payment against an agreement of financing which admittedly had not been acted upon. This, in my opinion, is the distinguishing feature of Azmat Trading and the instant case. In the instant case, the agreement of financing has admittedly been acted upon and disbursements have been made under that agreement to the defendants. Also the case of the financial institution in Azmat Trading was premised on the refusal by the consignees to honour the bills of exchange. However, the original bills had not been produced which led the learned Judge to hold that the customer was liable as against the amounts paid for the bills. In other words, there was a discounting of the bill of exchange by the financial institution in Azmat Trading and, therefore, the learned Judge was compelled to hold that the bills of exchange had been negotiated and, therefore, the amount mentioned on the face of the bill is deemed to have been received. In the instant suit, the plaintiff- Bank does not rely upon discounted bills of exchange nor it is the case that the bills of exchange were negotiated or that the consignee refused to pay upon presentation of the bills of exchange.
22. The second precedent which has primarily been relied upon by the learned counsel for plaintiff- Bank is Habib Bank Limited v. Mahmood Ahmed and 9 others (2004 CLD 1703) (Mehmood Ahmed).
This is a Lahore High Court judgment and the following observations may be reproduced as laying down the ratio decidendi of the case:
8. Syed Hamid Ali Shah, the learned counsel for the defendants has laid great emphasis, that the export refinancing by any Bank could only be on the basis of the confirmed orders; valid L/Cs; and other necessary commercial documents. And for such purpose, the State Bank has issued the instructions in the form of Circular-13, as to how the finance is to be disbursed and recovered; this does not cover the buy-back agreements. Moreover, such transaction is necessarily based upon the bills of exchange, which when accepted by the bank, would discharge the principal debtor (defendant No.1), and the bank as the holder in due course, is obliged to recover the amount from the drawee of the bill. However, in the present case, the bank has failed in its duty in this regard, and there is no proof on the record if these bills were ever presented; those were dishonored, any protest was made by the bank; moreover no notice was ever given to the defendant about the so- called dishonour, so as to render the said defendant liable, that to as a surety under the law and not otherwise.
9. The edifice of the above submission is founded upon the assumption that the export refinancing can only be achieved in the above manner. But in my view, this is not the correct legal position.
Because, where the parties have agreed otherwise, and specially when it is not shown that the bank had ever agreed for the discounting of the bill of exchange, the bank does not lose its right to recover the amount in the specific manner as has been agreed between the parties at the time of financing. In this case, it may be mentioned that out of their freewill and consent, the parties on the basis of the buy-back agreements had agreed for a particular mode of transaction and repayment, and no violation of any law or the instructions of the State Bank in this behalf is shown.
Therefore, it is unfounded to argue, that the amount cannot be recovered by the bank in the present manner. It may be pertinent to state here that, there is no prohibition in any law for the time being in force or the instructions of the State Bank that export refinancing cannot be made by the parties through the buy-back agreement. Therefore, such agreements/ transaction shall be protected on the principle that what is not prohibited by law, shall be permissible.
23. The above statement and ratio in the case of Mehmood Ahmed, with all due deference lays down the correct proposition of law. This is also supported by the foregoing analysis of Circular 35.
Simply put, what has to be seen is the underlying intention of the parties and if the parties have chosen to base the underlying transaction on a sale-purchase agreement, so be it. What has to be seen is the intention of the parties and this is the basic rule of contractual obligations. If the intention of the parties is evident from the agreement executed by the parties, then it must be given effect to and none of the parties can turn around and say that the agreement is not required to be complied with as it does not conform to the procedural requirements of a certain scheme of SBP. In this case as well the plaintiff-Bank has not alleged that it agreed for the discounting of the bill of exchange and the simple plea is that an export finance facility was provided for which disbursement was made in terms of a sale-purchase agreement to which the defendants are bound. Even if certain procedural formalities were lacking in providing the export finance facility, this does not detract from the fact that a valid agreement was executed between the parties and the terms of which ought to be fulfilled. This is the basis of the plaintiff-Bank as spelt out in the plaint.
24. In order to fully grasp the sense and the actuality of the transaction, it will have to be borne in mind that the defendant who availed the finance was a manufacturer first and an exporter later.
The defendant No.1 had foreign export orders which required to be manufactured and supplied. For the purpose, it required finance which was sought and provided by the sale-purchase agreement (IB-6). Thus the IB-6 was meant to facilitate and enable the customer to manufacture the goods to be supplied. The IB-6 was executed to formalise the arrangement to procure raw material for manufacture of goods meant to be supplied and no more. It relates to the first tier of the transaction. The suit clearly focuses on this aspect as the core of the transaction ie the sums advanced were meant for and were utilized for manufacturing of goods to be exported. Indeed, it is nobody's case that an IB-6 agreement cannot be used lawfully for this purpose. This is the basis of the suit.
25. The other tier on which the learned counsel for defendants has sought to predicate his case relates to documentary credits where a bill of exchange is drawn in one country and is negotiated, accepted or payable in another: In case of international bills, the bill of exchange is called a foreign bill. As a prefatory it may be mentioned that a bill of exchange is a piece of paper which is used to transfer money from one person to another instead of using the actual money itself. The system of accepting bills and their discounting and presentment for payment is a highly sophisticated part of financial and banking scene today. As to how a bill of exchange really works out can be demonstrated by an illustration in the book titled =Bills of Exchange and Bankers' Documentary Credits, fourth edition, by William Hadley and Richard Hadley: ...Thus, bills of exchange (apart from cheques) are more commonly employed in commercial transactions where the person who is paying for the goods does not wish, for one reason or another, to make immediate settlement of his account. This, if on 1 April Y buys 10,000 tons of coal from Z in Poland to be shipped to Liverpool to arrive on 1 July, Y can pay for the goods with a three months' bill. By this method, Y gets a fixed period of credit, and in the meanwhile Z has a document which he can use immediately.
1.2 What usually happens is that Y (the buyer of the coal) makes arrangements with a finance house that they will provide the money for the purchase. Y then draws the bill on the finance house, and they accept it to show that they have agreed to pay it in three months' time. Y then sends the bill to Z in exchange for the documents of title to the coal. Z now has a bill which he knows will be paid by the finance house on 1 July. Z is then in a position, if he wishes, to take the bill to another finance house, perhaps in Poland or Switzerland or London for that matter, and get them to discount the bill: that is, pay him immediately (less whatever commission or interest they may charge) and then they will take the bill from Z by negotiation, and, as the new owners of it, will present it for payment to the original finance house in London on 1 July. This way, Y gets his coal and three months' credit. Z gets paid immediately and the two finance houses assist by carrying out their specialist function. Everything does, of course, depend on the standing of the finance house in London who "accept" the bill. Unless the acceptor is unimpeachable the transaction never really can get under way.
26. The defendants, as sellers, and exporters, were surely keen on recovering the price of the goods from the buyer in the foreign country. This was a subsequent step for which established methods of payment employed in international financial transactions were to be made use of. As an elaboration of the principle, it is stated in =Bills of Exchange and Bankers' Documentary Credits, fourth edition, by William Hadley and Richard Hadley that: "16.2 As we have seen earlier, sellers of goods are, understandably, wary of shipping to buyers they do not know, in some far off country; payment might never be made. Equally, buyers are wary, as they do not want to pay for goods which might never arrive. Lengthy litigation, which could well be abortive, might then ensue in the case of either party. So, businessmen have introduced a method of payment between the buyer's and the seller's banks which in most cases, removes the risks and complications.
Over the years the system has become quite sophisticated but, stripped of its trappings, it works like this: 1) The buyer (who has to pay for the goods) makes an application (the application is on a standard printed form) to his bank (called "the issuing ban") to issue a letter of credit in favour of the seller.
2) The seller (who is called "the beneficiary" under the credit) instructs his bank to receive the funds in payment of the goods.
3) The issuing bank then arranges with a bank (called "the advising bank") in the seller's country to "advise" the seller that the credit is open and on what terms.
4) The advising bank may do no more than "advise" the existence of the credit, and if so, it has no further responsibility in the transaction than to take reasonable care to check the apparent authenticity of the credit. If, however, the advising bank cannot establish the apparent authenticity, it must so inform the issuing bank without delay.
5) It may be, however, that the advising bank has been asked (?nominated" is the word used) by the issuing bank, not only to advise the existence of the credit, but also to effect payment to the seller's bank. In which case the advising bank will also become "the nominated bank", and if it accepts the responsibility to pay, the advising/ nominated bank will also become "the paying bank".
6) What frequently happens in practice is that the seller asks the issuing bank to arrange with a bank in the seller's country to confirm the letter of credit, thus enabling the seller to have confirmation from a bank in his own country that payment will be forthcoming, rather than relying on the standing of the issuing bank in the buyer's country.
7) It often happens that the advising/nominated bank will also be invited to confirm the credit, and if it accepts, it will also become "the confirming bank, 8) Sometime another bank in the seller's country is invited to confirm, and, in such a case, it will become the confirming bank. If a credit is "confirmed?, the confirming bank will be the bank which effects payment, and, hence, the paying bank also.
9) All payments under letters of credit are effected either by a straightforward transfer of funds between the banks, once the goods are shipped; or by the drawing of a bill of exchange either to be accepted by the paying bank (thereby becoming the accepting bank as well); or by that bank negotiating the bill (it would then be the negotiating bank?) on behalf of the seller. In either case, the seller -using a bill of exchange--will get his money without waiting for the goods to arrive.
10) The paying bank will not, of course, pay until it is satisfied that it has in its possession the various documents of title to the goods (bill of lading, insurance policy and so forth), as agreed between the buyer and the seller as being the trigger mechanism for payment, since these will, ultimately, be sent to the issuing bank as its security while the goods are in transit.
11) When the documents are received by the issuing bank, it will reimburse the paying bank for the money paid out to the seller. The documents give title to the goods so that the buyer can receive delivery of them; and, at the same time, the documents also give the issuing bank security for any money or finance it has extended to its customer, the buyer.
27. Further discussion on the nature of documentary bills and documentary credits, it is to be found at pages 848 and 849 of Commercial Law, Text, Cases, And Materials, by LS Sealy and RJA Hooley (Fourth Edition) as laying down the principles gleaned from leading text books on the subject such as R Jack, A Malek and D Quest, Documentary Credits; R King Gutteridge and Megrah's Law of Bankers' Commercial Credits. It is explained that: To avoid the risk of a fraudulent buyer passing title to the goods to a third party, the seller may instruct his own bank (the `remitting bank') to deliver the bill of lading, and other shipping documents, to the buyer in his own country and, as a precondition to the release of those documents, collect the price from him, ie by acceptance or payment of the bill of exchange. If the remitting bank does not have an office in the buyer's country, it may instruct a local bank (the `collecting bank') to perform his task as its agent. In this situation, according to general principles of agency law, there is privity of contract between the seller and the remitting bank, and also between the remitting bank and the collecting bank, but not between the seller and the collecting bank, unless the seller contemplates that a sub-agent will be employed and authorises the remitting bank to create privity of contract between himself and the collecting bank (Calico Printers' Association Ltd v Barclays Bank Ltd (1931) 145 LT 51 (above, p 227), affd on appeal without reference to this point: at 58). Relations between the seller and the remitting bank, and between the remitting bank and the collecting bank, will usually be governed by the International Chamber of Commerce's Uniform Rules for Collections (the latest revision is URC 522, published in 1995). The seller is a party to a collection governed by URC 522, but the Rules do not create privity of contract between seller and collecting bank (Grosvenor Casinos Ltd v National Bank of Abu Dhabi [2008] EWHC 511 (Comm); cf (Bastone & Firminger Ltd v Nasima Enterprises (Nigeria) Ltd [1996] CLC 1902 at 1908, per Rix J, who saw the point as fully arguable). The Rules only apply if incorporated into the contracts by the parties, whether expressly or by course of dealings or simply by the international custom and practice of bankers (Harlow & Jones Ltd v American Express Bank Ltd [1990] 2 Lloyd's Rep 343 at 349, per Gatehouse J; Minories Finance Ltd v Afribank Nigeria Ltd [1995] 1 Lloyd's Rep 134 at 139, per Longmore J.
In most cases the remitting bank will discount the bill of exchange before acceptance or payment by the buyer. A bill of exchange is discounted when the bank credits the seller's account with the full amount of the bill (less banking charges) or when the bank agrees to advance to the seller a percentage of the face value of the bill but withholds the balance until the bill is paid by the buyer.
This has the advantage of releasing funds to the seller at an earlier date than if he waited for the bill of exchange to mature. But the remitting bank will usually retain a right to recourse against the seller: if the buyer dishonors the bill of exchange by non-acceptance or non-payment, the bank can sue the seller on the bill. This highlights the real disadvantage, from the seller's point of view, of payment under a documentary bill which is collected by, or discounted to, a bank: the buyer may accept the bill of exchange so that the bill of lading will be released to him, yet the seller has no assurance that the buyer will pay when the bill matures. Documentary credits provide a solution to this problem.
A documentary credit represents a bank's assurance of payment against presentation of specified documents. It is the most common method of payment in international sales. The seller stipulates in the contract of sale that payment is to be by documentary credit. The buyer then gets his bank to issue the credit in favour of the seller, so that the seller has the bank's independent payment undertaking. This has two advantages from the seller's point of view. First, subject to the solvency of the bank, the seller is certain of payment under the credit provided he can present conforming documents to the bank and comply with any other terms of the credit. Secondly, where the credit is transferable, the seller can use it to finance his own acquisition of the goods
28. Thus the transaction on the bill of exchange and documentary credit is a separate one and the plaintiff-Bank does not press its case on such a relationship nor it claims under it. It is for the defendants to bring home that the bill of exchange was discounted to the plaintiff-Bank and was not dishonored by buyer and was paid when it matured.
29. The above resume of the system and the route that it takes is concerned with the seller (defendants herein) taking steps to secure payment of its goods. The cause of action in the plaint is not that the plaintiff-Bank was the nominated or the paying bank in the transaction between the buyer and the seller or that it confirmed the letter of credit. Or that it confirmed the credit and thus became the confirming bank. In such a transaction, there is a trigger mechanism for payment and had the plaintiff-Bank been acting as the paying bank, it would be in possession of various documents of title to the goods to be sent to the issuing bank. Had the issuing bank reimbursed the paying bank, the defendants would certainly know and could bring on record those documents in evidence. Had the bill of exchange been brought to the plaintiff-Bank to get it to discount the bill (that is, pay immediately, less whatever commission or interest that they may charge) the defendants could have raised that specific plea and brought on record the discounted bills. The entire gemut of documentation is conspicuously missing from the case set up by the defendants.
30. Circular 35 is merely a scheme introduced by the SBP to facilitate exporters and to reimburse the banks with refinance for the finance provided by them to the exporters. It is not concerned with the second tier as adumbrated which may constitute part of the transaction yet not necessarily.
Statement of Account:
31. The learned counsel for the defendants has attacked the statement of account filed by the plaintiff-Bank in support of the plaint. It is submitted that the statement of account does not conform to the generally accepted definition of statement of account and as propounded in the various judgments of the superior courts. In this regard, the learned counsel has relied upon Bankers Equity Limited through Principal Law Officer and 5 others v. Messrs Bentonite Pakistan Limited and 7 others (2003 CLD 931), Messrs C.M Textile Mills (Pvt.) Limited through Chairman and 5 others v. Investment Corporation of Pakistan (2004 CLD 587), Messrs United Dairies Farms (Pvt.)
Limited and 4 others v. United Bank Limited (2005 CLD 569) and Messrs ICEPAC Limited and 2 others v. Messrs Pakistan Industrial Leasing Corporation Ltd. (2005 CLD 1186).
32. In C.M Textile Mills (Pvt.) Limited case, the following observations were made with regard to the true import of the term statement of account": As per settled "Banking practices", every amount/ sum advanced or paid to a customer or sum expended/ incurred for and on behalf of a customer by a Banking Company is entered as =debit' in the ledger of the bank. Simultaneously the money received from or on behalf of customer is entered as a customer's "credit". The net result so arrived at is shown in the ledger as a credit or debit balance. On the basis of these entries in the ledger a Statement of Account truly, faithfully and duly reflecting date wise entries is prepared by the bank for each account for all practical purposes. Such Statement of Account bearing true and complete account profile is required to be regularly conveyed to the customers informing them of their account position and obligations towards the bank or vice versa. Such "Statement of Account" containing true copies of entries in the books of a bank, when certified as per section 2 of the Bankers'books per section 4 ibid. The Statement of Account so certified becomes admissible in evidence of the matters, transactions and accounts therein recorded like the original entry unless otherwise disputed.
In Encyclopedia of Banking and Finance, Ninth Edition revised and expanded by Glemn G. Maunn, F.L. Garcia and Charles J. Woelfel, Bankers Publishing Company, Statement of Account has been defined as under:-- A continuous daily posted record showing in detail all debits and credits and balance as of the close of the period, usually one month. The statement of account is rendered by a Commercial Bank, Broker, or other business to its customers. These accounts give dates and descriptions and permit the customers to verify the Bank's record with his own. If differences occur, they can then be investigated when the customer reports back through the reconcilement blank usually enclosed with the statement.
33. In Messrs United Dairies Farms (Pvt.) Limited case, the following observations are pertinent: "11. If the statement of account is presented in a disorganized and incomprehensible manner then it becomes necessary that its contents should have strong corroboration before the account may receive judicial acceptance. The forgoing view has been followed consistently by the Courts in the country. Couples with the statutory provisions of sections 9(2) and 9(3) of the Ordinance it is now the clear legislative intent that the statement of account constitutes a fundamental document to sustain a bank's financial claim. To fulfill this role the contents of a statement must possess clarity, detail and completeness. These attributes would also serve the evidentiary presumption given by the Bankers Books Evidence Act, 1891. Needless to say, the forgoing emphasis is necessary to facilitate expeditious and transparent determinations by the Banking Courts on the important question of quantum of liability that invariably arises in cases where liability as claimed in a suit is disputed by the customers."
34. In subsequent judgments, the rules laid down in C.M Textile Mills (Pvt.) Ltd. case and United Dairies Farms (Pvt.) Ltd. case were followed. It can be seen from reading of the portions of the precedents, cited above, that reliance has been placed upon "banking practices" in order to hold that there should be debit and credit entries and the net result is shown in the ledger as a credit or debit balance. It was also held that the statement of account is required to be regularly conveyed to the customers informing them of their account position and obligations towards the bank. A further holding of the courts is that a statement of account is to be a comprehensible document and its contents must convey clarity, detail and completeness.
35. It may be emphasized that the term "statement of account" has not been defined in the Ordinance, 2001. The Bankers' Book Evidence Act, 1891 also does not define the term "statement of account" and merely refers to the term "bankers' book" which includes ledgers, day-books, cash- books, accounts-books and all other books used in the ordinary business of banking. It is with regard to the Bankers' Books that a certified copy of any entry together with a certificate is considered to be a true copy of such entry and that such entry is contained in one of the ordinary books of the bank and was made in the usual and ordinary course of business. Therefore, the statement of account which is to be filed in support of the plaint has to be understood in the ordinary parlance of commercial transactions and the banking business conducted worldwide. It can further be demonstrated that the term =statement of account' has been variously defined in different treaties and dictionaries. Thus, for example, in Encyclopedic Dictionary of Business, Prepared by The Editorial Staff of Prentice-hall, INC., it has been defined as: "Statement of account. A summary of a customer's account sent by the creditor to the customer usually at regular monthly intervals, or when required, showing the balance due or owing.
Most of the mechanical accounts receivable systems result in the preparation of such a statement for every customer as a matter of routine. It shows all of the transactions for the period covered.
Some forms of statements show the age of each item in addition to the date, invoice number or type of entry, and the amount. In that case the columns may be labeled "current month,31 to 60 days. When the statements must be prepared as a separate operation, the items listed are usually only the unpaid items, and often only the past due items.
It is questionable in some instances whether it is worth while to mail to commercial customers statements of account that list items that are not past due where there is reasonable expectation that they will be paid in accordance with the specified terms as a matter of routine. This question is particularly important when the statement is not available as a by-product of the accounts receivable record and must be prepared each month as a separate operation.
In order to stagger the clerical work needed to balance receivable ledgers against Controlling Accounts and mail statements to customers more evenly throughout each month, one technique often used is to establish separate cut-off dates during each month for sections of the accounts receivable records. Most industrial customers, however, prefer to receive a statement terminating as of the end of each month to aid them in checking their accounts payable operation. (See Cycle Billing)."
36. In Pitman's Businessm an Guide, Twelfth Edition, the term has been expounded as: "Statement of Account. (Fr. Releve de compte, Ger. Rechnungsauzug, Sp. Extracto de cuenta, It.
Resoconti periodici, estratto contto.)
This is an account rendered periodically, showing the amounts due by one person or firm to another. Generally such statements contain the dates and amounts of all the invoices sent in since the last settlement, with any payments therefore."
37. Thus the term is susceptible to a wide range of meanings and cannot be restricted to merely accounts of debits and credits, though this would normally be the general form of a statement of account.
38. The plaintiff-Bank is an international banking organization and is one of the biggest and largest banks in the world. It is, therefore, inconceivable that it would file a statement of accounts which does not conform with the general conception of the term as is understood in the commercial and banking jargon. In the instant case, not only that the statement of accounts conforms to the general definition of the term as brought forth in the precedents relied upon by the learned counsel, the statement of accounts is clear, concise and comprehensible. It also contains debit and credit entries which clearly bring forth the debit balance. These entries in the statement of accounts mention the detail of the contracts, the dates and the rate of markup as also the balance debit. It also mentions the value of the amounts which are disbursed against each contract. In my opinion, the statement of account satisfied the criteria of a valid statement of account. Moreover, these statements of accounts will be deemed to be regularly remitted and sent to the defendants during the course of their business and relationship with the plaintiff-Bank and no document is on record raising any dispute regarding any of the entries. It does not lie in the mouth of the defendants to do so now. It bears repetition that the suits under Ordinance, 2001 are based on amounts and burden at the stage of the determination of an application for leave to defend keeps shifting from one party to the other. Therefore, the allocation of burden of proof is on both the parties and the proof on the balance of probabilities is to be brought forth by both the parties to the suit at this stage. In particular, the burden is heavier to be discharged on the defendants to bring forth evidence in order to satisfy the degree of cogency required to discharge a burden in a civil case.
39. Since there is no statutory definition of statement of account, we must do the best we can to find out the usual characteristics which go to make up the term =statement of account'. These characteristics can be culled out from the normal business of banking and the paradigm change which has been brought about with the march of time and as it stands today. In United Dominions Trust Ltd v Kirkwood [1966] 2 QB 431, (Court of Appeal), Lord Denning MR made the following observations: "Thus far the evidence adduced by UDT would not suffice to show that it has the usual characteristics of a banker. But it must be remembered that a recital of usual characteristics is not equivalent to a definition. The usual characteristics are not the sole characteristics. There are other characteristics which go to make a banker. In particular stability, soundness and probity...
40. In Commercial Law, Text, Cases, And Materials, by LS Sealy and RJA Hooley (Fourth Edition), the authors dilated upon and discussed the changes that have been brought about in the usual or essential characteristics of banking and the need to understand the concept of banking and all related concepts with the advent of electronic means and the maintenance of statements of accounts electronic devices in the following words: "2. The `usual' or `essential' characteristics of banking accepted by all three members of the Court of Appeal in Kirkwood ties the common law definition of banking to the collection of cheques, the honouring of cheques and the entry of credits and debits in bank ledgers. This was how banks operated when Kirkwood was decided back in 1966. Yet in Kirkwood itself Lord Denning said `[t]he march of time has taken us far beyond those cases of 50 years ago' and his observation remains as true today as it was then. We now live in the age of the microchip where cheques are used less and less (the annual volume of personal cheques is less than half of what it was ten years ago) and money is frequently transferred into and out of accounts using electronic means (eg by ATMs and EFTPOS: see below, Chapter 20), with the accounts themselves no longer recorded in ledgers but on a computer database. The Kirkwood definition of `bank' and `banking' could usefully be reviewed in the light of these modern practices. In any event, it would be better to release the terms =bank' and =banking' from the shackles of an overly restrictive common law definition which concentrates too much on the precise mechanisms by which money is paid into and out of bank accounts."
41. The second facility is the LC facility and there is no specific denial with regard to that facility nor has any substantial question of law and fact been raised. The defendants do not deny the availment of LC facilities nor have any documents or audited accounts been produced which would reflect that these facilities have been repaid by the defendants.
42. As an epilogue, in Hare v. Henty (1861) 10 CBNS 65, Willis J clearly stated that "man who employs banker is bound by the usage of bankers". Whatever challenges may have been laid to the claim filed by the bank on the basis of non compliance of the terms of Circular 35, the defendants have argued that the IB-6 agreement could not form the basis of the ERF-I facility extended to the defendants. At worst, the plaintiff-Bank was guilty of deviation from the scheme of Circular 35.
However, it is not denied that the bank was following its usual practice and the defendant- Company as a customer was obliged to repay the value received and which it received with open eyes and full disclosures. In Emerald Meats (London) Ltd v AIB Group (UK) Ltd [2002] EWCA Civ 460, (Court of Appeal), it was observed that: "In my view, when a customer, particularly a business customer, enters into a business relationship with a bank, they must be accepted as doing so on the basis of the bank's standard terms, practices and conditions. If they are not prepared to do so, they can make enquiries as to the position, and they can, if they want to, negotiate different terms or decline to form any relationship with the bank.
I find that when the parties entered into a relationship, they did so on the basis that, in so far as the terms and conditions were not expressly spelt out in the facility letters, they were on the bank's usual terms, conditions and practices, and one of those was the operation of the three day clearance cycle'.
43. More pertinent are the general observations of Lord Denning MR in United Dominions Trust Ltd v Kirkwood [1966] 2 QB 431, (Court of Appeal), which are of general application and which capture the essence of the relationship between banker and a customer: "Reputation may exclude a person from being a banker: so also it may make him one. Our commercial law has been founded on the opinion of merchants. Lord Mansfield himself used to have his own special jurymen of the City of London who sat regularly with him. He took their opinion as to what was the practice: and laid down the law accordingly--see, for instance, Lewis v Rucker 97 ER 769, (1791) 2 Burr 1167 and Campbell, Lives of the Chief Justices, ii p 407. I would follow his example. In such a matter as this, when Parliament has given no guidance, we cannot do better than look at the reputation of the concern amongst intelligent men of commerce.
This reputation has, moreover, formed the basis of practice which we should not disturb. When merchants have established a course of business which is running smoothly and well with no inconvenience or injustice, it is not for the judges to put a spoke in the wheel and bring it to a halt.
Even if some one is able to point to a flaw, the courts should not seize on it so as to invalidate past transactions or produce confusion. So you will find it said from the time of Lord Coke that the law so favours the public good that it will in some cases permit a common error to pass for right: see the 4th Institute, p 240. Communis error facit jus. That is to say, when business has been regulated on the faith of it and the position of parties altered in consequence (Lord Blackburn on several occasions so said): see R v Sussex Justices ((1862) 2 B & S 664 at 680); Davidson v Sinclair ((1878) 3 App Cas 765 at 788); Dalton v Angus ((1881) 6 App Cas 740 at 812). This applies with especial force to commercial practice. When it has grown up and become established, the courts will overlook suggested defects and support it rather than throw it down. Thus it will enforce commercial credits rather than hold them bad for want of consideration. It is a maxim of English law to give effect to everything which appears to have been established for a considerable course of time and to presume that what has been done was done of right, and not in wrong: see Gibson v Doeg ((1857) 2 H & N 615 at 623). This maxim is of particular force here where innumerable transactions have been effected on the faith of UDT being a banker, UDT has itself made loans of millions of pounds which are recoverable if its claim to be a banker is correct; but irrecoverable if it is not. Are we to throw all these over" It has described itself on all its documents and cheques as =bankers' and continuous so to do. But if it is not a banker, it is guilty of a criminal offence for each document it so issues. Are we to suggest that it should be prosecuted now" Thousands of its customers have claimed repayment of tax on form R.62on the basis that it was a banker and the revenue have paid. Has all this been unlawful" Are all its transactions to be thrown into confusion by the suggestion now made for the first time that it is an unregistered moneylender" Rather than come to any such conclusion, we should presume that it has done whatever is necessary to constitute it a banker.
44. In view of what has been adumbrated, the application for leave to defend does not disclose any substantial questions of law and fact and is, therefore, dismissed.
Main Case
45. In view of the dismissal of the application for leave to defend, the suit is decreed in favour of the plaintiff-Bank and against the defendants No.1 to 3 jointly and severally for a sum of Rs.111,030,677.85 along with costs of funds in terms of section 3 of the Financial Institutions (Recovery of Finances) Ordinance, 2001. The costs of the suit are also granted.