1. By this order I intend to dispose off an application under Section 10 of the Financial Institutions (Recovery of Finances) Ordinance 2001 (hereinafter referred as the Ordinance 2001) filed on behalf of the defendants upon having summons of the above suit filed under Section 9 of the Ordinance 2001 for recovery of Rs 5,691,759.62/= by the plaintif f above-named.
2. In the application for leave to defend the suit jointly filed by the defendants had categorically denied the contention of the plaint on various grounds by raisin g legal and factual issues with the prayer that their application may be granted unconditionally so also allow them to adduce their evidence to resolve factual controversy by showing plausible defense under the law .
3. In reply to that application instead of filing replication under Section 10(8) of the Ordinance 2001 , the plaintif f/bank prepared to file a counter-af fidavit through attorney wherein the contents of the said application had been controverted.
4. In first round matter was heard on 24.06.2015 by the learned predecessor of this Court. The suit was decreed in favor of the plaintif f and against the defen dants vide Judgment, dated 02.07.2015 and Decree , dated 06.07.2015.
5. Being aggrieved and dissatisfied with the Judgment and decree; the defendants preferred to file First Appeal No.68 of 2015 before the Hon'ble High Court of Sindh at Karachi Upon hearing of the both parties vide Worthy Order , dated 29.01 2019 the said judgment and decree were pleased to set aside and the matter was remanded to this Court to decide the application for leave to defend the suit afresh in accordance with law .
6. At very outset it is contended on behalf of the defendants firstly the plaint had been filed by an unauthorized person as no Power of Attorney , dated 08 09.2010 is placed on record according to Annexure 'E' to the plaint under which the principle has delegated its power further . He pointed out that even no resolution of Board of Directors. articles or Memorandum of Association of Incor porating Banking Company/plaintif f authorizing the person is attached, therefore, the instant suit is not maintainable. In support of his contention; he relied upon 1985 CLC 973 and PLD 1997 Karachi 62. Secondly , the learned counsel vehemently emphasized that finance facility was granted under the Agreement of Diminishing Musharaka, dated 31.08.2006 that is a Islamic finan ce, the instant suit is based on the said Agreement that cannot be linked with KIBOR as mentioned at Appendix 'B' of the Agreement. He further contended that both the parties were entered into agreement within the Diminishing Musharaka means ''Shirkatul Manaqisa/reduction of units", which does not provide for charging of any markup but according to share the bank has to receive only rental of the property , on the contrary , the plaintif f/bank have illegally and unauthorizedly adjusted the payment of Rs.3.802,139 28/= only towards markup that took over markup. which otherwise not admissible under the law. Thirdly , he contended that according to the State Bank of Pakistan Circular No.01 of 2004; the Home Consumer Financing shall not link with KIBOR., which has binding force under the law. In support of his contention he relief upon Case Law 2015 CLD 845. Fourthly , he contended that though it is alleged by the plaintif f that the defendants customers have agreed on the rate of KIBOR but under Section 83 of the Contract Act, 1872 any agreement against the law and or public policy is void. The subject agreements apparently executed under the economic and fiscal duress. therefore. it is void in circumstances, so much so the agreement was executed under Diminishing Musharaka for home finance loan that was disbursed in favor of the defendants to purchase a property against 228 units equivalent to nineteen (19) years and it was agreed that the defendants would pay rentals and as soon number of units reduced the share of the bank also reduced. therefore, question of markup under KIBOR is illegal. Fifthly , the learned counsel vehemently contended that the Home Finance has not been denied out of total loan amount of Rs.5,252,000.00i-; the defendants have already paid Rs.3,802,139.28/= however , claim of the plaintif f for an amou nt of Rs.6,743,71 1.54/= is not admitted hence, disputed. So the claim of liquidated damages @ 20% per annum is also uncalled and tantamount to economic coercion. He further contended that since of serious questions of law and facts have been raised in the application for leave to defend the suit, therefore, the defendants may be allowed to adduce their evidence as without recording the evidence, the issues of facts and law cannot be resolve d. In support of his contention; he relied upon case laws reported in PLD Supreme Court 760, PLD 2015 CLD 845, PLD 1997 Supreme Court 315, PLD 1999 Supreme Court 1026, 2001 YLR 1549 , PLD 1997 Karachi 62, 2015 CLD 848, 2012 CLD 337, 2004 CLD 587, 2014 CLD 1367 , 2014 CID 985, 2012 CLD 1036 , PLD 1998 Supreme Court 1445, PLD 2012 Supreme Court 553 and PLD 2000 Supreme Court
760. He lastly prayed that under Article 10-A of the Constitution of 1973 a opportunity for fair trial may be provided to the defendants, the application under Section 10 of the Ordinance 2001 may be allowed unconditionally in the larger interest of justice and equity .
7. The learned counsel for the plaintif f vehemently contended that there is no denial that loan had been disbursed in favor of the defendants, who before availing such finance facility had fully agreed on entire, terms and conditions of Agreement, dated 31.08.2006. He further contended that on the basis of the admission on the point of the defendants; the judgment and decree have been passed earlier in favor of the plaintif f. However , the same has been set aside on certain technical grounds. He further contended that according to the agreement markup was linked with the KIBOR and the entire terms and conditions of the agreement are binding upon both the parties, therefore, the defendants in view of the admission for availing the finance facility are under the obligation to fulfill the terms and conditions, as they have admittedly committed default in repayment of the monthly units. The learned counsel categorically drawn the attention of this Court towards Appendix 'B' i.e. calculation of rental at 'Page '51', Undertaking to Purchase at Page '55' and Page '57' (part of the agreem ent, dated 31.08.2006) annexed to the plaint and contended that base rate i.e. one year Karachi Inter Bank Offered Rate (KIBOR) was agreed by the defendants @ 3.90%. Similarly , an undertaking to purchase was executed and per Clause 2.01; the purchase price was agreed @ Rs.5,250,000/- within a period of 228 months. All documents have been signed by both the defendants and at this stage they cannot deny such facts and according to the admission on the parts of the defendants the application for leave to defend the suit may kindly be dismissed straight away as admitted facts not required to be proved. He further contended that apart from the above the mandatory requirement under Section 10 of the Ordinance 2001 has not been fulfilled in view of case Appollo Textile Mills 2012 CLD 337 and prayed that application in hand may be dismissed in circumstances.
8. In rebuttal; the learned counsel for the defendants categorically submitted that the principle has been laid down by the Hon'ble High Court of Sindh at Karac hi in case reported in 2015 CLD 848, wherein Circular No.01 of 2000 is discussed and held that the said circular does not applicable on static finance does not link with the KIBOR, therefore, the markup claimed by the plaintif f linked with the KIBOR is inadmissible under the law as the aforesaid case law still holds field and till today no one challenged the same before the higher forum. He further contended that the suit has been filed in the year 2012 whereas, plaintif f received rental till 2014, in such circumstances suit is not maintainable, therefore, in view of many legal issues raised is required to be thrashed out during the evidence.
9. Heard the learned counsel for their respective parties at length and perused the available record with the assistance of the learned counsel. No doubt the transaction between the plaintif f and the defendants for availing of House Finance Facility under the Diminishing Musharaka is there. The word Diminishing means 'reduction' 'of units. According to the Agreement, dated 31.08.2006; the agreement was set out the terms and conditions upon and subject to which the bank has agree d to participate in the property on the basis of Diminishing Musharaka of customers/defendants. According to the Clause '4.02'; the rental value of the property shall be distributed between the parties on pro-rata basis in accordance with their respective shares. However , it was agreed by the defendants that they can make partial or full payment only at the base rate that is defined in Appendix 'B'. It is a matter of fact that the State Bank of Pakistan's Circular No.01 of 2004, dated 21.01.2004 was come in force on January 2004 that specifically enumerated the consumer financing on the applicability of the KIBOR. Whereas, the Agreement between the parties under the Diminishing Musharaka was executed in the year 2016, therefore, terms and conditions of the aforesaid circular is binding upon the banks.
10. The learned counsel for the defendants has relied upon PLD 2000 Supreme Court 760 and so also relied upon 'Fatwa' sought by Bank Islami, particularly , in respect of Diminishing Musharaka. Under the Diminishing Musharaka; both the parties were agreed on rental sharing 288 units as such on payment of the each unit the share of the bank/financial institution would gradually be reduced. However , it yet to be determined that whether any finance under the Islamic law; the KIBOR is applicable or not? Whether the State Bank of Pakistan Circular No. 01 of 2004 was binding force on the bank, which is disbursing loan under Musharaka.
11. Since the basic dispute between the parties is over the markup @ KIBOR and the determination of the agreement executed under Diminishing Musharaka hence, I am fully persuaded with the contention raised by the learned counsel for the defendants that requires consideration under the circumstances. The application for leave to defend the suit is allowed unconditionally and frame the following issues:- i. Whether the suit is filed by unauthorized person (s), if so? What is its effect? ii. Whether the plaintiff/bank is entitled to recover markup @ KIBOR rate in view of Circular No.01 of 2004? iii. Whether the Diminishing Musharaka based on rental ceiling/house financing (Shirkatul Munasika) can be linked with KIBOR, if so? What is its effect? iv. Whether the defendants had paid monthly units from August 2006 to 30.09.2014 if there will be no default, what is its effect? v. What should the decree be?