This is a suit filed under Section 9 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (the Ordinance) seeking recovery of Rs. 65,217,51 1/- from the defendants on account of Long Term and Short Term finance facilities granted to Defendant No. 1 and default by it of its payment obligations.
2. According to the contents of the plaint, Defendant No. 1 availed a Long Term finance facility in the sum of Rs. 45 Million and a Short Term finance facility in the sum of Rs. 25 Million from the plaintif f through sanction letter dated 09.06.2006. Defendants No. 1 to 6 executed finance agreements and other documents including the personal guarantees which are mentioned in the plaint. Defendants No. 1 and 2 also mortgaged their properties in favour of the plaintif f as security for the repayment of amounts under the finance facilities. On account of the defaults committed by the defendants, the plaintif f was constrained to file the present suit.
3. In pursuance of the summons issued by this Court, Defendants No. 1 to 6 entered appearance and filed their joint application for leave to defend bearing PLA No. 1 14-B of 2010 (the PLA).
4. The learned counsel appearing on behalf of Defendants No. 1 to 6, in support of the PLA, raised the following contentions.
(i) The defendants are not the customers of the plaintif f (Saudi Pak Industrial & Agricultural Investment Company Limited), which is a public limited company , as the finance facilities in question were obtained from Saudi Pak Industrial & Agricultural Investment company (Pvt.) Limited, which was a private limited company . Saudi Pak Industrial & Agricultural Investment Company Limited upon its conversion into a public limited company has become defunct and as such it cannot seek enforcement of contracts executed with third parties.
(ii) Saudi Pak Industrial & Agricultural Investment Company (Pvt.) Limited in terms of Section 3-A of the Banking Companies Ordinance, 1962 was not a financial institution at the time when the finance facilities were granted to the defendants.
(iii) The suit has not been instituted by a duly authorized person. It was stated that the general power of attorney available on the record authorized Muhammad Rasheed Zahir to institute suits on behalf of the plaintif f. It was further provided therein that the power of attorney will automatically stand revoked once Muhammad Rasheed Zahir ceases to hold the office of Gene ral Manager/Chief Executive. In regard to the power of attorney , it was stated that company's seal was not affixed thereon and that the board resolution dated 12.02.1992 in pursuance whereof the said power of attorney was executed was not appended with the suit.
(iv) Muhammad Rasheed Zahir the attorn ey holder further delegated his authority to Arshad Ahmad Khan Senior , Vice President, vide Letter of Authority dated 15.03.2010. It was stated that the Letter of Authority did not come within the purview of Order III Rule 2 of the Code of Civil Procedure (the, CPC), therefore, the suit was not validly instituted.
(v) The mark up on the Long Term and Short Term finance facilities was charged at enhanced rates.
(vi) The certificate at the foot of the statement of account was not in in conformity with the provision of Section 2(8) of Banker's Books Evidence Act, 1891.
5. This Court shall take up the defences in the order they have been argued by the learned counsel for Defendants No. 1 to 6. The major defence of the defendants in the PLA pertained to the fact that the finance facilities were obtained from the plaintif f when it was a private limited company . This point was, however , not elucidated in any meaningful way by quoting any law or authority as to how the contracts entered into by a private limited company upon its conversion into a public limited company cease to be enforceable. There is nothing in Companies Ordinance, 1984 to support the contention of the learned counsel for the defendants. There also does not appear to be any reason as to why a private limited company on its conversion should not be able to enforce the contracts executed by it with third parties particularly when the personality of the company does not undergo any change except for certain procedural changes that are brought about in terms of Sections 44 and 45 of the Companies Ordinance, 1984. There should be no doubt that when under Section 45 of the Companies Ordinance, 1984, a private Limited Company is converted into a public Limited Company , the Company's identity is not changed, but only its nature. A private Limited Company can be converted into a public Limited Company by altering a couple of Articles of the Articles of Association. The rest of the Articles of Association continue to be operative and accordingly such an alteration does not affect the identity of the company . The closest that any section comes to dealing with the issue is Section 40 of the Companies Ordinance, 1984 which pertains to the change of name of the companies and its effect on the legal proceedings instituted by and against the company . Section 40 reads as under: Where a company changes its name, the registrar shall enter the new name on the register in place of the former name, and shall issue a certificate of incorporation altered to meet the circumstances of the case; and, on the issue of such a certificate, the change of name shall be complete.
(2) Where a company changes its name it shall, for a period of one year from the date of issue of a certificate by the registrar under sub-section (1), contin ue to mention its former name along with its new name on the outside of every office or place in which its business is carried on and in every document or notice referred to in clauses (a) and (c) of Section 143: Provided that the addition or deletion, as the case may be, of the parenthesis and word "(Private)" from the name of a company consequent on the conversion in accordance with the provisions of this Ordinance of a public company into a private company or of a private company into a public company shall not be deemed to be a change of name for the purpose of this sub-section.
(3) The change of name shall not affect any rights or obligations of the company , or render defeTtive any legal proceedings by or against the company; and any legal proceedings that might have been continued or commenced against the company by its former name may be continued by or commenced against the company by its new name.
' If the change in name of a company does not affect its legal rights/obligations and legal proceedings qua the third parties, there does not appear to be any good reason why a private limited company upon its conversion into a public limited company should loose its rights of enforcement over the contracts executed by it with the third parties. The plaintif f has appended the certificate issued by the Joint Registrar of the Companies for conversion of the plaintif f from a private limited company to a public limited company . Upon the analogy of Section 40 of the Companies Ordinance, 1984, therefore, the contractual obligations the defendants had with the plaintif f did not alter or underwent any change on account of the plaintif f subsequently becoming a public limited company .
6. The learned counsel for the plaintif f also relied upon State Bank of Pakistan's BPD Circular Letter No. 6 of 2003 which pertains to the list of scheduled bank/DFIs operating in Pakistan which included the name of Saudi Pak Industrial and Agricultural Pak (Pvt.) Limited at Sr. No. 46. Similarly the State Bank of Pakistan also issued PBD Circular Letter No. 33 of 2004 on account of change of ownership and name of Bank wherein the name of Saudi Pak Industrial and Agricultural Investment Company Limited was mentioned at Sr. No. 44. The aforementioned Circulars of the State Bank of Pakistan clearly establish the status of the plaintif f as a financial institution and as such there is no force in the argument of the learned counsel for the defendants.
7. The non-af fixing of the seal of the plaintif f also did not in any meaningful way change the efficacy of the power of attorney relied upon by the plaintif f. Article 78 of the Articles of Association of the plaintif f deals with affixing the seal on the documents and reads as under: The Company shall have a common deal and the directors shall provide for the safe custody of the seal and subject to the conditions hereinbefore contained, as for the signature to certificate of title to shares in the Company , the seal shall never be used except by the authority of the Directors, previously given, and subject as afore-said.
The Chairman or the Deputy . Chairman or one Director at least shall sign every instrument to which the seal is affixed and every such instrument shall be countersigned by the Secretary .
' No rule of law applicable to companies in general, or to the plaintif f in particular , has been shown to this Court requiring compulsory affixation of the seal on the power of attorney to be execut ed on behalf of the plaintif f. If a document under seal is not necessary then a mere defect in the manner of affixing the seal will not render the document invalid. This was the view taken by the Calcutta High Court in Praboth Chandra Mitra v. Road Oils (India)
Limited A.I.R. 1930 Cal. 782 wherein it was held that a mere defect in respect of the seal does not make the document for all purposes bad even if it was intended to be under seal. Even otherwise, Regulation 78 simply states that seal of the company shall not be affixed to any instrument except by the authority of the directors. In the present case, the power of attorney does not have the seal of the company affixed thereon which simply means that the directors did not approve of af fixing the seal on the power of attorney .
8. As regards the letter of authority dated 15.03.2010 whereby Arshad Ahmad Khan, Senior Vice President was delegated the powers by Muhammad Rasheed Zahir , it was explained by the learned counsel for plaintif f that Arshad Ahmad Khan was appointed as a substituted agent and not as a sub-agent. In this regard he referred to the Section 194 of the Contract Act, 1872, which reads as under: Where an agent, holding an express or implied authority to name another person to act for the principal in the business of the agency , has named another person accordingly , such person is not a sub-agent, but an agent of the principal for such part of the business of the agency as is entrusted to him.
For a better understanding of the issue involved, Clause 16 of the general power of attorney is reproduced here- under: To appoint/nominate pleader , agent, trustee, attorney or any representative for the performance of any of the functions given by virtue of this GENERAL POWER OF ATTORNEY : Similarly , the following clause of Letter of Authority reads as under: Whereas clauses 16 and 17 of the Power of Attorney of the Company has enabled me, for the better doing performing and execution of the matters and things contained in "the Power" to appoint in my place and attorney to exercise for the Company any or all the powers and authorities conferred by the Power and to revoke any such appointment from time to time.
The combined reading of clause 16 of the General Power of Attorney together with the contents of Letter of Authority makes it clear that Arshad Ahmad Khan was the substituted agent for the plaintif f and as such would fall in the list of persons mentioned in Order III Rule 2, CPC who are authorized to file the suit.
9. From the record it is apparent that funds were disbursed by the plaintif f to Defendant No. 1 through Saudi Pak Commercial Bank Limited. The letters instructing Saudi Pak Commercial Bank Limited to transfer funds in the account of Defendant No. 1 under the finance facilities are available on the record. The learned counsel for the defendants did not impugn the principal liability of the finance facilities rather objection on the mark up levied was taken by stating that the plaintif f has charged the same at excessive rates. In the PLA, two charts were given showing the extra rate of mark up charged by the plaintif f. In terms of the said charts in the PLA, the plaintif f has charged an excess amount of Rs. 497,534/- under the Short Term facility and an amount of Rs. 159,207/- under the Long Term facility . The learned counsel for the plaintif f did not accept the stance of the defendants that the plaintif f had applied excess rate of mark up on the ground that variabte rate of mark up was applicable in terms of the sanction letter and the finance agreemen ts. He, however , stated he shall have no objection if the amounts of mark up as per the charts in the PLA are excluded from the claim in the suit. Notwithstanding the concession of the, learned counsel for the plaintif f, it is noted that as per the terms of the finance agreement dated 21.06.2006 for the Short Term facility , the purchase price had a built-in component of Rs. 3,760,000/- as mark up. As per the statement of account, the defendants have paid a sum of Rs. 2,209,842/- on accou nt of mark up. After deduction of this amount, the claim of mark up under the Short Term facility will be reduced to Rs. 1,550,158/-. Similarly , the plaintif f has also claimed an amount of Rs. 3,401,520/- under the Long Term facility under the head "overdue profit". This amount is nothing but liquidated damages and as such cannot be granted at the leave stage. After deducting this amount as well as Rs. 159,207/- from the claim of the plaintif f, the total claim of the plaintif f under the Long Term facility comes to Rs. 35,771,902/-
10. From the contents of the PLA and the submissions made in support thereof, it is clear that the defendants did not deny availing the finance facilities from the plaintif f or the amounts due there under . The objection regarding charging of mark up at excessive rate only encompasses a meager amount. The only challenge made by Defendants No. 1 to 6 was with regard to the form of the statements of accounts. More particularly , it was stated that the certificate at the foot of the statements of accounts did not comply with the requirements of Section 2(8) of the Bankers' Books Evidence Act, 1891 (the Act) in that it was not signed by the principal accountant or the manager of the plaintif f. Now Section 2(8) of the Act defines a certified copy to mean a copy of an entry in the books of a bank together with a certificat e written at the foot of such copy that it is a true copy of such entry , that such entry is contained in one of the ordinary books of the bank made in the usual and ordinary course of business and that such book is still in the custody of the bank, such certificate being dated and subscribed by the principal accountant or manager of the bank. Section 4 of the Act clearly states that such certified copy shall, in all legal proceedings, be received as prima facie evidence of the existence of such entry and shall be admitted as evidence as the matters, transactions and accounts therein recorded in every case where and to the same extent as the original entry itself is now by law admissi ble. From the perusal of its various provi sions, it is clear that the Act is a remedial legislation intended to remove the difficulty or, in some instances, impossibility of proving banking document/accounts by admitting certified copies thereof in evidence. Accordingly , the provisions of the Act have to be construed liberally and not strictly . In other words, its provisions should be interpreted in favour of banks/financial institutions for whose benefit the statute was enacted.
11. The objection of the learned counsel, however , fails on two grounds. Firstly , the plaintif f is not a commercial bank but is a Development Financial Institution and as such cannot directly disburse amounts to its customers. In the present case too, the amounts were disbursed by the plaintif f to Defendant No. 1 through Saudi Pak Commercial Bank Limited. The debit advices from the plaintif f to Saudi Pak Commercial bank Limited for disbursal of amount in the account of Defendant No. 1 are available on the record.
FAs such the rigors of Section 2(8) of the Act will not apply to the statements of accounts of the plaintif f filed with the plaint. Second, the v perusal of the certificates at the foot of the statements of accounts shows that the requirements of Section 2(8) of the Act have substantially been complied with, The certificates at the foot of the statements have been signed by Khawar Ishfaque, Vice President (Finance). It was argued that the requirement of the Act that the statement of account be verified by the principal accountant is not satisfied in the present case.
This contention has no force. The nomenclatures of the posts in banking industry have undergone considerable changes since the promulgation of the Act and the desigiation "principal accountant", and in some cases, even "Manager", is no longer relevant in the case of the financial institutions. In a judgment reported as NIB Bank Limited v . Highnoon Textile Limited 2014 CLD 763 , it was held as follow: The title of the persons maintaining the books of accounts may vary from bank to bank and may also change over time. The intent is to ensure that a responsible officer whose work relates to accounts or management sign the certificate. Hence in this case the certification has been issued by the Senior Vice President, Accounts Department which is certification by the principal accountant and the signatures of the Senior Vice President and Assistant Vice- President of the bank is a certification by the manager of the bank. The certification through the responsible officer means the bank owns the SOA and certif ies that the SOA represent the true and correct statement, maintained in its book of accounts. The certification enables the Court to consider the copies of the statement of accounts as admissible evidence in the suit. In this regard it has been held in the case title Tartheis and Luders Gmbil v. M.V.
Dominique' (AIR 1988 Bombay 380) that the requirements of Section 2(8) of the Act of 1891 are not mandatory but directory and that sufficient compliance would depend upon the facts and circumstances of each case. The Court was of the view that where the accounts were duly signed by the agent of the bank, it implied that it was a true copy maintained by the bank in its ordinary course of business and that such book was in the custody of the bank.
In the case titled 'Barker v. Wilson' 1980 (2 All ER 81) at page 83 it has been held that for the purposes of Banker's Books Evidence Act, 1879, the Bankers' Book would include a micro film. Lordship Bridge LJ held that 'I agree that the Banker's Books Evidence Act, 1879 was enacted with the practice of Bankers in 1879 in mind. It must be construed in 1980 in relation to the practice of Bankers as we now understand it. So construing practice of Bankers Books and the phrase an entry in the Bankers Books it seems to be that clearly both phrases are apt to include any form of permanent record kept by the Bank of transactions relating to Banker's business made by any of the methods which modern technology makes available including in particulars micro film. (emphasis supplied)
Respectfully following the dictum laid down in the above judgment as also the apt observations of Lord Bridges, this Court holds that the statements of accounts signed by the Vice President (Finance) of the plaintif f have been validly certified and are in compliance with the provisions of the Act.
12. There is yet another aspect of the matter and that is to deal with the mandatory requirement the Ordinance places on both the plaintif f and the defendant to fulfill in their pleadings in terms of Sections 9 and 10(4) and (5) of the Ordinance. Under Section 9 of the Ordinance, a financial institution has to plead in the plaint the amounts availed by the defendant, the amounts paid by the defendant together with dates thereof, and the amounts of finance (with other amounts relating to finance) payable by the defendant up to the date of institution of the suit.
This information is necessarily to be gathered from the statement of account which is required to be appended with the suit. In this manner , the entries of the statement of account get pleaded in the plaint and in response thereto, the defendant is required to aver in its application for leave to defend the amounts of finance availed, the amounts repaid together with dates and the amount which the defendant disputes as payable to the financial institution and facts in support thereof. In a famous statement made in Thorp v. Holdsworth 1876 3 Ch. D. 637, the object of the pleadings was stated thus "The whole object of the pleadings is to bring the parties to an issue, and the meaning of the rules .Was to prevent either party from knowing when the cause came on trial, what the real point to be discussed and decided was. In fact, the whole meaning of the system is to narrow the parties to definite issues and thereby to diminish expense and delay , especially as regards the amount of testimony required on either side of the hearing." The pleadings are, therefore, meant to help the Court in narrowing the controversy involved and to inform the parties concerned to the question in issue so that the parties may adduce appropriate evidence on the said issue. In other words, the object and purpose of pleadings and issues is to ensu re that the dispute between the parties is clearly defined so as to preve nt the parties from shifting the grounds during the course of trial. The importance of the pleadings can be gauged from the settled position of law that in the absence of facts stated in the pleading, evidence, if any, produced by the parties in respect to the said fact cannot be considered and that no party can be permitted to travel beyond its pleading. Through Sections 9 and 10 of the Ordinance, the rules of pleadings have been changed only to the,extent so as to make it mandatory for , the plaintif f and the defendant to make precise allegations ,qua the amounts disbursed, amounts repaid with dates thereof and the amounts payable and the dispute in respect of amount payable. These bereavements in the plaint need to be supported and corroborated by the statement of account and other necessary documents relating to the finance. Similarly , Section 10 of the Ordinance commands that the bereavements in the PLA are to be substantiated by the necessary documents particularly the facts supporting the disputed amounts.
13. Notwithstanding the special requirements the Ordinance stipulates the plaintif f and the defendant need to fulfill in their pleadings, the general law on the subject is also not materially different. Order VIII Rules 3, 4 and 5, CPC deal with the manner in which allegations of fact in the plaint should be traversed in the written statement and also the legal consequences that flow from its non-compliance (see Badat & Co. v. East India Trading Co. 1964 AIR 1964 SC 538). It is clearly stipulated in the said Rules that it shall not be sufficient for a defendant to deny generally the grounds alleged by the plaintif f but he must be specific with each allegation of fact. When the defendant denies any fact stated in the plaint, Rule 4 stipulates that he must not evasively answer the point of substance. Similarly , if it is alleged in the plaint that the defendant has received a certain sum of money , it shall not be sufficient for the defendant to deny that he received that particular amount, but he must deny that he received that sum or any part thereof, or else set out how much he received, and that if an allegation is made with diverse circumstances, it shall not be sufficient to deny it along with those circumstances. It can thus be seen that Rule 4 lays down requirements that are not very different from those that are stipulated in Section 10(4) of the Ordinance. Rule 5 deals with specific denial and clearly lay down that every allegation of fact in the plaint, if not denied specifically or by necessary implication, or stated to be not admitted in the pleading of the defendan t, shall be taken to be admitted against him.
14. While objecting to the levy of mark up on higher rates, the defendants stated as under the particulars to be given in terms of Section 10 of the Ordinance. a. Finance availed from plaintif f = Nil b. Finance paid to plaintif f = Nil c. Finance payable to plaintif f bank = Nil Paradoxically , in answer to Paragraphs 9.5' and 12.5 of the plaint wherein amounts were stated to have been disbursed to Defendant No. 1, it was alleged in the PLA that "It is important to mention here that the funds were made available to the answering defend ant by Saudi Pak Bank Limited and not by the plaintif f." This Court has referred to the aforesaid rules of pleading only to highlight that in the PLA there was absolute evasive denial of liability even by the standards of ordinary pleadings. The issue with regard to the disbursement of funds by the plaintif f from Saudi Pak Commercial Bank Limited has already been dealt with in the earlier part of this judgment.
Based on what has been held, the reply to Paragraphs 9.5 and 12.5 of the plaint amounts to admission of the disbursement of amounts under the finance facilities. Once it is held that the state ments made in paragraphs 9.5 and 12.5 of the plaint have not been specifically denied or disputed in the PLA, the allegations made therein would be deemed to have been admitted and the judgment would follow . In Asha Kapoor v. Hari Om Sharda (2010) 171 DLT 743, the Delhi High Court explained the principle contained in Order VIII, CPC in the following terms:
17. The effect of Order VIII Rule 3 read along with Rr. 4 and 5 of the Code is that, defendant is bound to deal specifically with each allegation of fact not admitted by him; he must either deny or state definitely that the substance of each allegation is not admitted. The main allegations which form the foundation of the suit should be dealt with in that way and expressly denied. Facts not specifically dealt with will be taken to be admitted under Order VIII Rule 5 of the Code.
18. Order VIII Rule 5 of the Code is known as doctrine of non-traverse which means that where a material averment is passed over without specific denial, it is taken to be admitted. The rule says that any allegation of fact must either be denied specifically or by necessary implication or there should be a statement that the fact is not admitted. If the plea is not taken in that manner , then the allegation should taken to be admitted.
15. It is further clear that the PLA filed by the defendants failed to fulfill the requirements of Section 10 of the Ordinance. Such a failure results in rejection of the PLA in terms of Section 10 (6) of the Ordinance. The consequence of such rejection are also spelt out in Section 10 (11) of the Ordinan ce, which clearly states that on such rejection the banking Court shall forthwith pass judgment and decree in favour of the plaintif f.
16. It may be noted that Defendants No. 1 to 6 have not impugned any entry in the statement of account in their PLA. It is alleged that the plaintif f has charged enhanced rate of mark up that was never agreed to. No objection whatsoever has been taken by the defendants with regard to the principal amount under the finance facility . As no challenge was made to the amounts due under the finance facilities, which were pleaded in the plaint, the objection regarding the form of the statement of account will not constitute a substantial question of fact warranting an inquiry by this Court. A judgment can be passe d on the basis of admission of liability by the defendants based on the presumption arising out of the absence of specific denial of liability in the PLA. It is a settled position of law that admitted facts need not be proved in terms of Article 113 of the Qanun-e-Shahdat, 1984. Article 113 reads as under:--
113. Facts admitted need not be proved. No fact need to be proved in any proceeding which the parties thereto or their agents agree to admit at the hearing, or which, before the hearing, they agree to admit by any writing under their hands, or which by any rule of pleading in force at the time they are deemed to have admitted by their pleadings: Provided that the Court may, in its discretion, require the facts admitted to be proved otherwise than by such admissions.
The defendants have not denied the availing of the finance facilities and the execution of the documents. They have also not disputed the amounts due under the finance facilities save for a meager amount on account of alleged charging of excessive mark up which the plaintif f's counsel readily concede d can be deleted from the claim made in the suit. Defendants No. 1 to 6 have thus failed to make out any case for the grant of leave to defend the suit.
17. In the circumstances, the PLA filed by the Defendants No. 1 to 6 is hereby dismissed. The suit filed by the plaintif f is accordingly decreed in its favour and against Defendants No. 1 to 6, jointly and severely , for an amount of Rs. 57,322,060/- together with costs of funds as contemplated by Section 3 of the Ordinance. Costs of the suit are also granted.