ANWAR ZAHEER JAMALI, C.J.---This civil appeal with leave of the Court as per order dated 11.3.2010 is directed against the judgment dated 18.1.2007 passed by the Division Bench of Peshawar High Court, Peshawar in FAB No.35 of 2005 whereby it was disposed of with the observation that the sale proceeds of the mortgaged property shall be proportionately distributed amongst the Appellant- IDBP and Respondent-UBL, as detailed in it.
2. In brief, the facts leading to this litigation are that in the year 1982 Respondent No. 2 M/s. Shah Industries (Pvt.) Limited had approached Appellant Industrial Development Bank of Pakistan (IDBP) for grant of some finance facility to establish their unit at G.T. Road Nowshera. Such request was acceded to and accordingly some assets of Respondent No.2 were mortgaged with first charge to secure the finance facility of Rs.1.230 million, which was granted to them. Upon commission of default in the payment of installments, Petition under Article 39 of the Industrial Development Bank Ordinance, 1961 was instituted by the Appellant for recovery of Rs.2,433,926.93. During such proceedings the mortgaged assets were attached through an ad interim order dated 07.2.1991, which after notice was confirmed on 02.12.1993, as under:- ".... In the circumstances, the ad interim order of attachment passed by this Court on 7.2.1991 is hereby made absolute and it is ordered that the properties detailed in Para-13 of the original petition as well as mentioned in the application dated 21.10.1991 filed by the petitioner, be sold/auctioned to satisfy the dues of the petitioner while the surplus amount, if any, be paid to the respondents. No order as to costs."
3. On the other hand, Respondent No.1/UBL, who had mortgaged same assets of Respondent No.2 subsequently by creating second charge over it upon failure of Respondent No.2 to reimburse their finance facility, also filed a suit for recovery of Rs.3,806,038.07, wherein, on 31.5.1997, a decree was accordingly passed in their favour.
4. Later on, in the execution proceedings before the Banking Court the mortgaged assets were put to auction which fetched total sale proceeds of. Rs. 1,40,00,00/-. It is pertinent to mention here that in these proceedings initiated by Respondent No.1, they had not arrayed the Appellant as party despite having full knowledge of the fact that they had first charge over the mortgaged assets of Respondent No.2.
5. During the execution proceedings before the Banking Court, the Appellant moved an application for satisfaction of their first charge from the sale proceeds of mortgaged assets of Respondent No.2, but their application was dismissed in default. However, the learned Division Bench accepted their appeal against such order and the case was remanded to the Banking Court vide order dated 14.11.1996. After the remand, the Banking Court through its order dated 30.3.1998 confirmed the auction of mortgaged assets of Respondent No.2, which were also mortgaged with the Appellant with the directions that right of Appellant and Respondent No.1 over the sale proceeds will be determined after recording the evidence.
6. The Appellant, being aggrieved by such order preferred FAB No.05 of 1998, which was accepted by the Peshawar High Court and the case was again remanded to the executing Court for ratable distribution of the sale proceeds of auction between the Appellant and Respondent No.1 in terms of section 73 of C.P.C. After the second order of remand the Banking/executing Court accepted the objection petition vide order dated 04.1.2005 to the extent that Appellant and Respondent No.1 were held entitled for the distribution of sale proceeds of auction of mortgaged assets in equal share. The above order of the Banking Court Peshawar was further challenged in FBA No.35 of 2005 wherein the impugned judgment has been passed by the Peshawar High. Court on 18.1.2007.
7. We have heard the arguments of the learned ASCs of both the parties while Respondent No.2 has remained unrepresented, being declared ex parte.
8. The learned ASC for the Appellant vehemently contended that on the basis of undisputed facts that the mortgaged assets of Respondent No.2 auctioned by the Banking Court for a total sum of Rs.1.4 million, were earlier mortgaged with the Appellant as first charge, who holds a valid decree of recovery of Rs.24,33,926.93 as on 31.12.1990 against. them were sufficient to show that unless such decree was fully satisfied and discharged by Respondent No.2, other decree in the sum of Rs.3,806,038.07 in favour of Respondent No.1 being outcome of second charge would have no performance or legal force for its implementation, therefore, the impugned order of the Peshawar High Court following the principle of "pari passu" and directing ratable distribution of the sale proceeds between the two Decree Holders is unwarranted by law and contrary to the facts of the case.
9. Conversely, the learned ASC for Respondent No.1 did not dispute the admitted facts of the case, as briefly recorded above, but contended that since creation of second charge in respect of mortgaged properties of Respondent No.2 in favour of Respondent No.1 was with the consent of the Appellant, therefore, ratable distribution of sale proceeds was the only fair and equitable mode for execution of such decrees.
10.We have considered the submissions made before us by the learned ASCs and perused the material placed on record. As per admitted facts of the case the Appellant held a decree in the sum of Rs.24,33,926.93/- in their favour passed by competent Court of law as first charge over the mortgaged assets of Respondent No.2, whereas the Respondent No.1 also held a decree in the sum of Rs.3,806,038.07 in their favour from the competent Court of law against Respondent No.2.
However, the assets of Respondent No.2 mortgaged with them were common, which were auctioned in the sum of Rs.1.4 million.
11. In our opinion, the law in this regard is clear that where two mortgages have been lawfully created in respect of same assets of the judgment debtor, if no other terms are specified between the parties to the contrary, as in the instant case, unless the decree of first charge was fully satisfied by its sale proceeds, the decree from second charge, even if created with the consent of first mortgagor, will not be executable as it will be only subject to the satisfaction of the first decree/charge. If any case law is needed, reference can be made in the cases of The State v.
Rajah Ram Varu [AIR 1966 Andhra Pradesh 233], Union Leasing Ltd. v. Pakistan Industrial Credit and Investment Corpn. Ltd. [2005 CLD 958] and Industrial Development Bank of Pakistan v. Muhammad Ayub Stone Crushers [2009 SCM R 611].
12. Thus, on the basis of admitted facts of the case, the impugned judgment of the Peshawar High Court is contrary to the settled principle of law, more so, when the special law i.e. Companies Ordinance, 1984 is to be given preference over the general provisions of section 73; C.P.C. for the satisfaction of the decrees under execution.
13. This being the position, the appeal is allowed and impugned judgment is set aside with the observations that the total sale proceeds of the auctioned assets of Respondent No.2 shall be first utilized for satisfaction of the decree passed in favour of the Appellant. If there remains any residuary, the same may be utilized for the satisfaction of other decree in favour of Respondent No. 1.