' IRFAN SAADAT KHAN, J.---This first appeal under section 21 of the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997, is directed against the judgment and decree dated 28.10.1999 and 11.11.1999 respectively whereby the learned Banking Court No,II at Karachi decreed Suit No,37 of 1996 new No,428 of 1997 filed by the respondent Bank for recovery of Rs,24,959,375/- against the appellants.
2. Succinctly the respondent Bank filed the aforementioned suit against the appellants, which was proceeded before the learned Banking Court No,II, Karachi, wherein following issues were framed for determination:
1. What amount, if any, is due from the defendants to the plaintiff?
2. What is the liability of defendants Nos.2, 3 and 4 and to what extent?
3 What should the decree be?
' The learned Banking Court, after hearing the parties at length, vide judgment and decree mentioned above, decreed the suit in the sum of Rs,1,85,00,000/- against the appellants jointly and severally with mark-up at the rate of 15% from the date of filing of the suit till its realization. It is against this judgment and decree that the instant first appeal has been filed.
3. Mr. Asim Mansoor Khan Advocate has appeared on behalf of the appellants and submitted that the impugned judgment and decree is bad in law and facts as certain facts going to the roots of the case have not been considered hence the same is liable to be set aside. While elaborating his viewpoint, the learned counsel submitted that the learned trial Court has failed to take into consideration the various arguments advanced before it. He further submitted that the learned trial Court has erred in treating the appellants Nos.2 to 4 as guarantors and has also failed to consider the various payments made by the appellants and has not in this behalf considered the cross-examination and the deposition of the various witnesses. He submitted that no doubt the loan was taken by the appellant company but the liability fixed by the learned Judge amounting to Rs,1,85,00,000/ was highly exorbitant. The learned counsel submitted that even the learned trial Court failed to consider the different rates of interest/mark-up, hence, the impugned judgment and decree suffers with legal and factual infirmities and thus is liable to be set aside. The learned counsel further submitted that the learned Judge has failed to consider that the statement of accounts furnished by the respondent was not on oath, as required under the law, and thus ignorance of this important legal aspect had rendered the order passed by the learned Judge to be a nullity in the eyes of law.
4. The learned counsel further submitted that the main question involved in the case was whether the "Sponsor's Undertaking" given by the appellants Nos.2 to 4 could be considered as a guarantee or not and the findings of the learned trial Judge treating the Sponsor's Undertaking to be a guarantee is without any legal and lawful basis. He further submitted that the learned Judge has also failed to examine any witness to verify that whether the appellants Nos.2 to 4 have executed any "guarantee" in favour of the respondent, which clearly show that the order has been passed in a slipshod manner. He further submitted that contents of a document are always to be read as a whole and the reading of the clauses 6 and 7 only of the undertaking by ignoring other clauses by the learned Judge is not in accordance with law. The learned counsel in the end submitted that since the order passed by the learned Judge suffers with a number of illegalities and irregularities hence the same is liable to be set aside. In support of his above contentions, the learned counsel has relied upon the following decisions:
1. E.N.E. KOS 1 Limited v. Petroleo Brasileiro S.A (2012 SCMR 1881)
2. Montage Design Build through Partner v. The Republic of Tajikistan through The Embassy of Tajikistan and 2 others (2015 CLD 8)
3. Echo West International (Pvt.) Ltd. v. Pakland Cement Ltd. (2008 YLR 206)
4. Haji Naimatullah v. Federation of Pakistan through Secretary Ministry of Defence (PLD 2013 Sindh 406)
5. Mst. Ishrat Bano v. Noor Hussain and 2 others (2010 YLR 2452)
6. Ghulam Murtaza v. Abdul Salam Shah and others (2007 SCMR 1062)
7. Raja Ali Shan v. Messrs Essem Hotel Limited and others (2007 SCMR 741)
8. Aurangzeb through L. Rs, and others v. Muhammad Jaffar and another (2007 SCMR 236)
9. Rasheedur Rehman Khan v. Mian lqbal Hussain (PLD 2006 SC 418)
10. Saudi-Pak Industrial and Agricultural Investment Company (Pvt.) Ltd., Islamabad v. Allied Bank of Pakistan (2003 CLD 596)
11. Anwarul Hag v. Federation of Pakistan through Secretary, Establishment Division, Islamabad and 13 others (1995 SCMR 1505)
12. Abdur Razzaq and 8 others v. Shah Jehan and 5 others (1995 SCMR 1489)
5. Mr. Muhammad Masood Khan Advocate has appeared on behalf of the respondent who while vehemently refuting the arguments of the learned counsel for the appellants has submitted that the appellant company has already been wound up vide order dated 07.02.2003 passed in Judicial Miscellaneous and it is now the Official Liquidator who was to proceed with the appeal. The learned counsel further submitted that the appellants Nos.2 to 4 have no locus standi to appear in this matter since after the winding up of the company it is for the official Liquidator to make appearance on behalf of the appellant No,1 and not the present counsel representing the appellants Nos.2 to 4. He, therefore, submitted that on this ground alone the instant first appeal is liable to be dismissed on account of non-prosecution as no representation has been made on behalf of the appellant No,1 through Official Liquidator.
6. The learned counsel submitted that the main crux of the arguments of the learned counsel for the appellants Nos.2 to 4 being that Sponsor's Undertaking could not be considered to be a guarantee, whereas a perusal of the said Sponsor's Undertaking would clearly show that for all practical purposes it is to be considered as a guarantee. The learned counsel then read out the various clauses of the said Undertaking. He submitted that the assertion of the appellants Nos.2 to 4 being that no liability could be attributed to them is also misconceived as Perusal of the various clauses of the Sponsor's Undertaking would clearly show that the said Undertaking is a guarantee.
He submitted that the present stance taken by the appellants Nos.2 to 4 is nothing but an attempt to wriggle out of the situation and not to pay the liabilities already determined against them. The learned counsel further submitted that a perusal of the Sponsor's Undertaking would also show that the said agreement contains the indemnifying clause which could not be ignored. He further submitted that the learned trial Judge has discussed each and every issue and thereafter he has rightly come to the conclusion that the Sponsor's Undertaking was a guarantee.
7. The learned counsel further submitted that section 126 of the Contract Act, 1872 (the Act) clearly defines the term "Contract of "Guarantee" "Surety", "Principal debtor" and "Creditor". The learned counsel then thereafter read out sections 126 and 128 of the said Act and submitted that if these two Sections are read in conjunction with Sponsor's Undertaking everything would become clear.
The learned counsel in the end submitted that this first appeal is wholly misconceived and is liable to be dismissed. In support of his above contentions, the learned counsel has placed reliance on the following decisions:
1. United Bank Limited v. Pakistan Industrial Credit and Investment Corporation Ltd. (2002 CLD 1781)
2 Messrs State Engineering Corporation Ltd. V. National Development Finance Corporation and others (2000 SCMR 619)
3. Rafique Hazquel Masih v. Bank Alfalah Ltd. And others (2005 SCMR 72)
4. Maharashtra State Electricity Board, Bombay v. The Official Liquidator, High Court, Ernakulam and another (AIR 1982 SC 1497)
8. We have heard both the learned counsel at considerable length and have also perused the record 'and the decisions relied upon by them.
9. The counsel for the respondent has raised an issue that since the Official Liquidator has not appeared hence the matter is liable to be dismissed on account of non-prosecution. Suffice it to say that even if the Official Liquidator has not appeared in this case as pointed by the counsel for the respondent but since the matter was admitted for regular hearing to consider a question of law we deemed it appropriate to proceed with the matter and to decide the question of law admitted an 23.4.2004 on the basis of the arguments advanced by the respective counsel of the parties and on the basis of the available record and the case law relied upon by them in support of their arguments.
10. In order to appreciate the contentions of learned counsel for the parties, we deem it appropriate to reproduce here in below the relevant provisions of the law and the various clauses of the agreement dated 23.2.1988 and the Sponsor's Undertaking made thereafter between the Appellants Nos.2 to 4 and the respondent:- ' Contract Act, 1872 "126. "Contract of guarantee", "surety", "principal debtor" and "creditor"; A "contract of guarantee" is a contract to perform the promise, or discharge the liability; of a third person in case of his default. The person who gives the guarantee is called the "surety" the person in respect of whose default the guarantee is given is called the "principal debtor", and the person to whom the guarantee is given 'is called the "creditor". A guarantee may be either oral or written."
"128. Surety's liability. The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract."
' AGREEMENT "THIS INVESTMENT AGREEMENT is made at Karachi this the 23rd day of FEBRUARY 1988.
' BETWEEN ' ADAMJEE POLYCRAFTS LIMITED having its registered office at Adamjee House, 1.1. Chundrigar Road, Karachi (herein called the "Company") of the One Part.
' AND ii) NATIONAL INVESTMENT TRUST LIMITED ("NIT") having its head office at 6th Floor, National Bank Building, 1.1. Chundrigar Road, Karachi (herein referred to as the "NIT') of the Other Part.
"AND WHEREAS at the request of the Company the NIT has agreed to take the aforesaid redeemable capital (NIT TFC) of Rs,22.500 million."
' ARTICLE-I ' (Definitions)
"F) "NIT Investment" shall mean the amount which the NIT has under this Agreement agreed to invest in the Company and shall include the purchase price or the Term Finance Certificates issued in lieu thereof.
"Sponsors" shall mean all persons subscribing to the Company's Memorandum of Association and all others who may be directors of the Company on the date of this Agreement, excluding the directors representing Financial Institutions."
' ARTICLE-II ' (Investment) "b) The Company has agreed to sell the investment Property, when required, to the NIT for a sum of Rs,22,500,000 (hereinafter referred to as "Sale Price") which sum shall be released by the NIT "on account payments" in accordance with a Schedule to be prepared by NIT subject nevertheless to Article II.
2.02. The Company has agreed to purchase the Investment Property from the NIT FOR A SUM OF Rs,33,843,750 (hereinafter referred to as the "Purchase Price", which amount shall be paid by the Company to the NIT in the installments as specified in Schedule 'B' annexed hereto."
' ARTICLE-V ' (Issue of Terms Finance Certificates and Terms thereof)
"5.01 As acknowledgement of the Company's Liability for payment of purchase price and for its repayment on due dates the Company shall issue in favour of NIT or their nominees Term Finance Certificates of the amount of purchase price payable to NIT in accordance with the repayment Schedule (Schedule 'B' annexed hereto or as the NIT may require."
' ARTICLE-VI ' (Events of Default)
"6.01 In the event of the Company. a) not fulfilling any of the covenants on its part to be performed under any of the provisions of this agreement; b) .......... c) failing to pay any amount payable by the Company to the NIT under this agreement." "the NIT shall be entitled to demand immediate payment of the purchase price from the Company and redemption of all the Term Finance Certificates outstanding on the date of such default." "y) Furnish to the NIT an undertaking from the sponsors not to sell or transfer their share-holding in the Company or any part of it to any one without the prior written approval of the NIT as the case may be; ' Furnish to the NIT an undertaking from all the Directors of the Company; i) to provide funds required for any overruns in the cost of the Project; ii) not to resign from their directorship or in any way transfer management of the Company or the Project to any other person or group; in) To ensure that the NIT Investment shall be used exclusively for the Project and shall not be diverted to any other use; iv) that none of them has received directly or indirectly from the supplier of the Investment Property or any other person any commission, brokerage or kickback in any other form. "
"The amount due from the Company under this clause shall be recoverable by the NIT as a debt secured under the mortgage created under Article 5.09 of this agreement."
"8.04 This agreement shall continue in force until all moneys payable hereunder shall have been fully repaid in accordance with the terms hereof "
"This agreement shall bind and inure to the benefit of the respective successors-in-interest of the parties hereto."
"SPONSORS' UNDERTAKING ' We (1) Abdul Gaffar Adamjee son of Late Zakaria Adamjee, residing at 9, Fatima Jinnah Road, Karachi (2) Mrs. Salma Adamjee wife of Abdul Gaffar Adamjee, residing at 9, Fatima Jinnah Road, Karachi and (3) Akbar Adamjee son of Abdul Gaffar Adamjee residing at 9, Fatima Jinnah Road, Karachi are sponsoring Directors of ADAMJEE POLYCRAFTS LIMITED, having its registered office at Adamjee House, I.I.Chundrigar Road, Karachi (hereinafter referred to as the "Company"); ' AND WHEREAS you have, on terms and conditions contained in the Investment Agreement dated 23.03.1988 made between yourselves and the Company, agreed to invest a sum of Rs,22.5 million (Rs, Twenty two point Five million)
' AND WHEREAS you have agreed to make the above investment on the condition, inter alia, that we furnish you this guarantee.
' NOW, THEREFORE, WE DO hereby agree, undertake and guarantee as follows: ' Any breach of this undertaking shall be deemed to be an event of default under the aforesaid Agreement and we shall be personally liable to all the monetary obligations, detriments, losses that may be sustained by you due to any breach of the covenants herein.
' We shall indemnify and keep you always safe, harmless and indemnified.
' Our obligations hereunder are joint and several and the same shall be binding on us until the investment made by you in the Company is fully satisfied and you notify the same to us.
' Yours faithfully ' Sd/- ' (Abdul Gaffar Adamjee)
' Sd/- ' (Mrs. Salma Adamjee)
' Sd/- ' (Akbar Adamjee)
' Sponsor Directors of ' Adamjee Polycrafts Limited."
' (Underlinings are ours)
11. A perusal of the above referred clauses and provisions of law clearly envisage that in the instant case by way of furnishing Sponsors Undertaking the Appellants Nos.2 to 4 have become the sureties, the Company principal debtor and the respondent a creditor. In a contract of guarantee the parties entering the same have to be identified. Moreover, the terms of the agreement should be unambiguous and should be in categorical terms duly identifying the liabilities on the guarantor/surety. The rights and guaranties of the parties entering into an agreement have to be determined with reference to the terms and conditions of the guarantee and in case of identifiable/ascertained liabilities, which the principal debtor had failed to pay to the creditor, the guarantors/sureties were obliged under the law to payout the same to the creditor. The surety is a person who gives guarantee on behalf of the principal debtor that in case of default by the principal debtor, the surety will discharge the liability of the principal debtor, he is the person who indemnifies the principal debtor that in case of default he would step into the shoes of the principal debtor and would meet the liabilities enforceable by law against the principal debtor. However, while fixing the responsibility upon a guarantor he could only be burdened to the extent of the liability fixed upon him through the said agreement, which has to be construed strictly and a liability could only be fixed upon the guarantor when the wordings of the agreement are specific, unambiguous and clear.
12. It is also a settled principle of law that on account of failure of the principal debtor, it is the surety who becomes the principal debtor and, thus, is liable to payout and clear the liabilities of the principal debtor, as determined in accordance with law. It is also a settled principle of law that a creditor is only required to establish that the principal debtor has since failed to payout his liability hence it is for the surety/guarantor to payout the outstanding liabilities as determined against the principal debtor in accordance with law. The liability of the surety is always considered to be co- extensive with that of the principal debtor and guarantors are jointly and severally liable to pay the outstanding amount to the creditor unless the contents of contract provides otherwise. The liability of the surety immediately arises after the failure on the part of principal debtor to payout the legally due liability against him and the creditor in this regard is legally entitled to proceed in case of default of the principal debtor against the surety/guarantor, as per the terms of the contract and while determining the liabilities of the guarantors/sureties technicalities unless insurmountable are not to be taken into consideration.
13. Now coming to the facts of the instant appeal it is an undeniable fact that the Sponsor's Agreement is a part and parcel of the Investment Agreement dated 23.2.1988 since it was a mandatory condition as per the agreement entered between the Appellant No,1 and the respondent that the company has to furnish an undertaking from all the directors of the company with regard to providing of the funds in the project and for other necessary formalities. It is also an undeniable fact that the respondent would be at liberty to recover the payable amount from the Appellant No,1 as per the various clauses enumerated above. In the agreement of 23.2.1988 entered between the Appellant No,1 and the respondent the sponsors shall mean "all persons subscribing to the company's memorandum and article of association and all others who may be the directors of the company, on the date of this agreement". It has nowhere been pleaded by the counsel for the appellants that the Appellants Nos.2 to 4, who have signed the Sponsor's Undertaking, were not the directors of the company on the date of signing of the agreement, hence, the Appellants Nos.2 to 4 being the directors and the guarantors of the company have a co-extensive liability to pay off the liabilities of the companies in case of default by the company.
14. A perusal of the Sponsor Undertaking clearly stipulates that the investment by the respondent would only become effective when the sponsors furnishes guarantee to the company in the shape of Sponsors Undertaking. In the said agreement it has also been provided that the said sponsors/guarantors in view of the specific condition imposed by the respondent with regard to the investment made by them have agreed, undertaken and thereafter given the guarantee with regard to the various clauses of the Sponsors Undertaking. Now if the company has defaulted a question would arise who will bear the liability of the respondent to clear out the same? In our view, in case of default made by the company which was the principal debtor definitely the sponsors/guarantors becoming sureties due to the implication of the agreement have to payout those liabilities of the principal debtor in accordance with the terms of the contract entered between them and the respondent. We are fully conscious of the fact that in determining the liability, so far as sponsors/guarantors are concerned, the terms of the contract entered between the parties is of prime importance and each case is to be adjudged by looking to the peculiar facts and circumstances of the agreement entered between the parties. In the present case, as noted above, in our view since the Sponsor Undertaking being an integral part of the main agreement could not be read in isolation or it could be said that the terms of the Sponsor Undertaking entered between the parties is limited to the extent of the clauses of the said undertaking only. In view of the facts and circumstances of the case and after reading the agreement and the sponsor agreement this argument is not found to be plausible.
15. In our view the Sponsor Undertaking, being an integral part of the agreement, has to be read in conjunction with the agreement entered between the Appellant No,1 and the respondent and the Appellants Nos.2 to 4 cannot absolve themselves from the liability accruing and arising on the Appellant No,1 to be the liability of Appellant No,1 only as the Appellants Nos.2 to 4 in our view are co-extensively liable to payout the liability of the Appellant No,1. Reference in this regard may be made to the decisions given by the Hon'ble apex Court in the cases of Rafique Hazquel Masih and State Engineering Corporation Limited (Supra). The cases relied upon by the learned counsel for the appellants mostly talk about the legal proposition that a contract is to be read as a whole.
Suffice it to say that there is no cavil to the proposition of law, these decisions, thus, are found to have no relevancy with the facts of the instant appeal since we have observed that the terms of the sponsor's agreement signed by the Appellants Nos.2 to 4 have to be read in conjunction with the main agreement entered between Appellant No,1 and the respondent.
16. We, therefore, in view of what has been stated above find, no legal infirmity in the judgment and decree passed by the learned trial Court and uphold the same with the result that the instant appeal stands dismissed along with the listed application.