ABID HUSSAIN CHA TTHA, J.---This appeal under section 22 of the Finan cial Institutions (Recovery of Finances)
Ordinance, 2001 (the "Ordinance ") is directed against the impugned Judgment dated 11.01.2016 (the "Impugned Judgment ") passed by the Banking Court No. II, Gujranwala (the "Banking Cour t"), whereby , the suit of the Appellant was dismissed and determination of date of default and recovery of cost of funds as prayed for in the plaint was declined.
2. The brief facts of the case are that the Appellant filed a suit for recovery of Rs. 4,988,852/- along with chargeable mark-up and cost of funds against the Respondents, alleging therein, that the Appellant sanctioned a finance facility in favour of the Respondents which was renewed on their request on 23.04.2009 with respect to running finance of Rs. 3.80 Million which the Respondents availed after execution of finance and security documents as required by the Facility Offer Letter and that Respondents failed to pay the outstanding dues till expiry date of finance facility , hence Decree may be passed in favour of the Appellant-Bank along with cost of the suit and cost of funds under Section 3 read with section 17 of the Ordinance from the date of default till the realization of the amount due jointly and severally from the Respondents.
3. The Respondents were summoned under Section 9(5) of the Ordinance to defend the suit by filing an application for leave to defend (the "PLA"). During, the pendency of the PLA, certa in amounts were paid by the Respondents and some amount was deposited in the Court. When the PLA was taken up for decision by the Banking Court, the Respondents contended that they have paid back their entire liability and have also deposited an amount of Rs.
260,000/- in the Banking Court on 07.01.2016. Hence, the suit of the Appellant-Bank was liable to be dismissed.
4. The Appellant contended that the Respondents in the PLA with respect to mandatory requirements under section 10 of the Ordinance had shown an amount of Rs. 4,456,640/- recoverable out of which they have paid Rs.
1,819,983/- and an amount of Rs. 2,636,657/- was outstanding. It was further submitted that as per the latest statement of accounts filed on the last date of hearing before the Banking Court an amount of Rs. 77,150/- is the only recoverable amount against the Respondents on 28.10.2015 but the Appellant Bank was entitled to recover cost of suit and cost of funds from the date of default which was alleged to be 24.06.2010 under Section 3 read with Section 17 of the Ordinance. Hence, the Appellant prayed that the PLA be dismissed and the suit be decreed for the remaining amount along with cost of the suit and cost of funds from the date of default.
5. The Banking Court after hearing the aforesaid arguments held that as per the statement of accounts submitted before it on the last date of hearing an amount of Rs. 77,150/- was the only recoverable amount from the Respondents as on 28.10.2015. However , since the Respondents have deposited Rs. 260,000/- on 07.01.2016, therefore, the Respondents have paid their entire liability and nothing is outstanding against them. The Banking Court further observed that the suit of the Appellant was instituted on 15.09.201 1 but now when the PLA of the Appellant is being decided nothing is recoverable regarding which amount of the suit can be decreed and the Banking Court cannot pass a Decree of NIL amount along with costs of suit and cost of funds. The Banking Court further held that cost of suit and cost of funds could only be awarded if a Decree of some amount already outstanding was to be passed, thereafter , the Banking Court straightaway dismissed the suit of the Appellant and consigned the file to record without rejecting or accepting the PLA as required under Section 10 of the Ordinance.
6. The moot question for determination before this Court is whether the Banking Court was justified to dismiss the suit without first accepting or rejecting the PLA and whether the refusal to pass the Decree with reference to cost of funds under section 3 read with section 17 of the Ordinance was in accordance with law .
7. The Ordinance is a special law and its provisions ought to be given their due effect and the special procedure envisaged in the Ordinance must be adhered to as stipulated in the Ordinance. Section 4 of the Ordinance in unequivocal terms provides that the provisions of the Ordinance shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Section 7(1)(a) stipulates that subject to the provisions of the Ordinance, the Banking Court in the exercise of civil jurisdiction have all the powers vested in a Civil Court under the Code of Civil Procedure, 1908 (the "C.P.C."). Further , section 7(2) provides that a Banking Court in all matters where the procedure has not been provided for in the Ordinanc e shall follow the procedure laid down in the C.P.C. It follows that the Ordinance being a special statute requires that where a particular procedure has been prescribed, it is obligatory and mandatory for the Banking Court to adhere to such special procedure. It is only where the special procedure is not provided for that the Banking Court can follow the procedure in the C.P.C.
Section 9 and section 10 of the Ordinance undoubtedly prescribe a special procedure with reference to the institution of suit and its defence. In order to interpret the law it is beneficial to reproduce sections 9 and 10 of the Ordinance as under:- "9. Procedure of Banking Courts.---(1) Where a customer or a financial institution commits a default in fulfillment of any obligation with regard to any finance, the financial institution or, as the case may be, the customer , may institute a suit in the Banking Court by presenting a plaint which shall be verified on oath, in the case of a financial institution by the Branch. Manager or such other officer of the financial institution as may be duly authorized in this behalf by power-of-attorney or otherwise.
(2) The plaint shall be supported by a statement of account which in the case of a financial institution shall be duly certified under the Banker's Books Evidence Act, 1891 (XVII of 1891), and all other relevant documents relating to the grant of finance. Copies of the plaint, statement of account and other relevant documents shall be filed with the Banking Court in suf ficient numbers so that there is one set of copies for each defendant and one extra copy .
(3) The plaint, in the case of a suit for recovery instituted by a financial institution, shall specifically state--
(a) the amount of finance availed by the defendant from the financial institution;
(b) the amounts paid by the defendant to the financial institution and the dates of payment; and
(c) the amount of finance and other amounts relating to the finance payable by the defendant to the financial institution upto the date of institution of the suit.
(4) The provisions of Section 10 of the Code of Civil Procedure, 1908 (Act V of 1908), shall have no application for and in relation to suits filed hereunder .
(5) On a plaint being presented to the Banking Court, a summons in Form No. 4 in Appendix 'B' to the Code of Civil Procedure, 1908 (Act V of 1908) or in such form as may, from time to time, be prescribed by rules, shall be served on the defendant through the bailiff or process-server of the Banking Court, by registered post acknowledgement due, by courier and by publication in one English language and one Urdu language daily newspaper , and service duly effected in any one of the aforesaid modes shall be deemed to be valid service for purposes of this Ordinance.
In the case of service of the summons through the bailiff or process-server , a copy of the plaint shall be attached therewith and in all other cases the defendant shall be entitled to obtain a copy of the plaint from the office of the Banking Court without making a written application but against due acknowledge ment. The Banking Court shall ensure that the publication of summons takes place in newspapers with a wide circulation within its territorial limits.
10. Leave to defend. -(1) In any case in which the summons has been served on the defendant as provided for in subsection (5) of section 9, the defendant shall not be entitled to defend the suit unless he obtains leave from the Banking Court as hereinafter provided to defend the same; and, in default of his doing so, the allegation of fact in the plaint shall be deemed to be admitted and the Banking Court may pass a decree in favour of the plaintif f on the basis thereof or such other material as the Banking Court may require in the interests of justice.
(2) The defendant shall file the application for leave to defend within thirty days of the date of first service by any one of the modes laid down in subsection (5) of section 9: Provided that where service has been validly effected only through publication in the newspapers, the Banking Court may extend the time for filing an application for leave to defend if satisfied that the defendant did not have knowledge thereof.
(3) The application for leave to defend shall be in the form of a written statement, and shall contain a summary of the substantial questions of law as well as fact in respect of which, in the opinion of the defendant, evidence needs to be recorded.
(4) In the case of a suit for recovery instituted by a financial institution the application for leave to defend shall also specifically state the following--
(a) the amount of finance availed by the defendant from the financial institution; the amounts paid by the defendant to the financial institution and the dates of payments;
(b) the amount of finance and other amounts relating to the finance payable by the defendant to the financial institution upto the date of institution of the suit;
(c) the amounts of finance and other amounts relating to the finance payable by the defendant to the financial institution upto the date of institution of the suit;
(d) the amount if any which the defendant disputes as payable to the financial institution and facts in support thereof.
(5) where application for leave to defend submitted under the preceding subsection is found to be materially incorrect at any stage of the proceedings, the defendant shall lose the right to defence and shall also be liable to pay penalty of not less than five percen t of the amount of the claim, unless the defendant can establish that incorrect information was submitted as a result of a bona fide mistake.
(6) 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 law or fact raised by him.
(7) An application for leave to defend which does not comply with the requirements of sub-sections (3), (4) where applicable and (5) shall be rejected, unless the defendant discloses therein sufficient cause for his inability to comply with any such requirement.
(8) the plaintif f shall be given an opportun ity of filing a reply to the application for leave to defend, in the form of a replication.
(9) Subject to Section 11, the Banking Court shall grant the defendant leave to defend the suit if on consideration of the contents of the plaint, the application for leave to defend and the reply thereto it is of the view that substantial questions of law or fact have been raised in respect of which evidence needs to be recorded.
(10) In granting leave under subsection (8), the Banking Court may impose such conditions as it may deem appropriate in the Constitution of the case, including conditions as to deposit of cash or furnishing of security .
(11) Where the application for leave to defend is accepted , the Banking Court shall treat the applica tion as a written statement, and in its order granting leave shall frame issues relating to the substantial questions of law or fact, and, subject to fulfillment of any conditions attached to grant of leave, fix a date for recording of evidence thereon and disposal of the suit.
(12) Where the application for leave to defend is rejected or where a defendant fails to fulfill the conditions attached to the grant of leave to defend, the banking Court shall forthwith proceed to pass judgment and decree in favour of the plaintif f against the defendant.
(13) Where an application for leave to defend has been filed before the coming into force of this Ordinance, the defendant shall be allowed a period of twenty-one days from the date of coming into force of this Ordinance, or from the date of first hearing thereafter , whichever is later, for filing an amended application for leave to defend in accordance with the provisions of this Ordinance.'
An examination of section 9 of the Ordin ance envisages that it is a prerequisite that there must be a default in fulfillment of any obligation with respect to 'Finance' to invoke Section 9 by presenting a plaint. In case of a financial institution, the plaint is required to be filed by a Branch Manager or by such other officer as may be duly authorized in this behalf by power of attorney or otherwise. The reason for the same is that a financial institution has multiple layers of employees and merely in order to ensure that the financial institution has authorized the institution of the suit, it has been prescribed as such. Similarly, since the essence of the Ordinance is to determine the existence or otherwise of the Finance and the calculation of the amount due under the 'Finan ce', a mandatory requirement is listed to attach a statement of accounts and all other relevant documents relating to the grant of 'Finance' which can enable the Banking Court to examine the plaint in order to determine the breac h of obligation with reference to 'Finance'. In a suit for recovery , the spec ific requirements have also been prescribed for a financial institution to narrow down the point of determination regarding the amount due. Last but not the least, special procedure for service of the defendant is also stated in section 9(5) of the Ordinance with the objective to expeditiously dispose of the suit.
8. The plain and bare reading of the Section 10 of the Ordinance makes it unequivocally clear that a defendant does not have any right to defend the suit unless he obtains leave from the Banking Court to defend the suit. If the defendant is unable to obtain the leave, the allegations of fact in the plaint are deemed to be admitted and the Banking Court may proceed to pass a Decree in favour of the plaintif f to the satisfaction of the Court. The PLA is required to be in the form of written statement listing substantial questions of law and facts in respect of which the defendant opines that evidence is required to be recorded. Section 10(4) of the Ordinance also mandates that the PLA must contain specific statement with respect to the amount of 'Finance' availed, the amount paid by the defendant with the dates of payments, the amount of `Finance' and other amounts payable by the defendant up to the date of institution of the suit and the amount which the defendant disputes to be payable to the financial institution. Importantly , the amount so disputed must be supported with tangible facts and should not be vague, general and superficial without any suppo rting facts and documents. If the PLA is found to be materially incorrect at any stage of the proceedings, the defendant losses the right to defend the suit and is also liable to pay penalty of not less than 5% of the claim, unless the defendant is able to establish that incorrect information was submitted as a result of a bona fide mistake. Further , the PLA must be accompanied by all the documents which in the opinion of the defendant, support the substantial questions of law or fact raised by the defendant. The Banking Court is empowered to reject the PLA where it does not comply with the requirements of sections 10(3), 10(4) (where applicable) and 10(5) of the Ordinance. Under section 10(9) of the Ordinance the Banking Court is empowered to grant leave to defend if in its opinion substantial law and fact have been raised in respect of which evidence is required to be recorded and in this behalf the Banking Court has to consider the plaint, the PLA and the reply along with the documents annexed thereto. While granting the leave to defend, the Banking Court has a discretion to impose such conditions keeping in view the facts and circumstances of the case which includes but are not limited to the deposit of cash or furnishing of security . Under section 10(11) of the Ordinance, the PLA can be accepted and in that case the PLA is by operation of law considered as a written statement and the Banking Court is empowered to straightaway frame issues relating to the question of law and facts and subject to fulfillment of conditions attached to the grant of leave and proceed to fix a date for recording of evidence. Similarly under section 10(12) of the Ordinance, the PLA can be rejected or accepted conditionally under section 10(9) of the Ordinance but if the defendant fails to fulfill any condition attached to the grant of the PLA, the Banking Court is fully authorized to forthwith proceed to pass a Judgment and Decree in favour of the plaintif f and against the defendant.
9. From the above analysis of the law, it is clear that the Banking Court is empowered to examine the plaint to determine the breach of obligation by a financial institution or a borrower before it fixes a date of hearing to decide the PLA. The Banking Court is well within its legal right to reject or return a plaint by invoking any provision under the C.P.C. before summoning the defendant under section 9(5) of the Ordinance or before fixing a specific date of hearing of the PLA. However , once the Banking Court has examined the plaint, is satisfied that the same is in order as per the requirements of Section 9 and has proceeded to issue summons to the defendant under section 9(5) of the Ordinance, pursuant to which a defendant has filed the PLA and a date of hearing of the PLA has been fixed, it ceases to take any further step under the provisions of the C.P.C. without first deciding the PLA in accordance with the requirements of Section 10 of the Ordinance. The Banking Court is duty bound to first grant or reject the PLA in terms of section 10(9), 10(11) or 10(12) of the Ordinance before taking any other step towards the progress and continuation of the suit. After doing so, the provisions of the C.P.C. are again available to the Banking Court as the facts and circumstances of the case may warrant.
10. In support of the analysis and view given by us reliance is placed on the following reported cases:-
(i) Anees-Ur-Rehman v . Faysal Bank Limited through Manager 2019 CLD 1031 : "Undoubtedly" after the grant of leave to defend and treating the leave application as written statement the respondents are within their right to have filed an application under Order VII, Rule 11, C.P.C. and if the Court reaches the conclusion that the case falls under any of the clauses of Order VII, Rule 11, C.P.C., the plaint could have been rejected but in no way before the grant of leave to defend the suit.
(ii) Amanullah Khan v . Habib Bank Limited, 2014 CLD 1 181: The banking court was under obligation to decide the application for leave to defend first in order to determine the locus standi of defendant, and in case the defendants failed to establish locus standi to defend the suit then he had no right to file any other application including under Order VII, rule 1 1, C. P . C.
(iii) Sh. Nazir Ahmed v . House Building Finance Corporation, 2002 CLD 1634 : It was held inter alia by a learned Division Bench of the Lahore High Court that rejection of plaint without deciding leave application was against the provisio ns of law; and, defendant as a matter of right could not defend the Suit unless leave is granted upon filing of proper leave application.
(iv) Waheed Corporation v . Allied Bank Limited, 2003 CLD 245 : It was held inter alia by a learned Division Bench of the Lahore High Court that the Banking Court had to first decide the leave application on merits in either way .
(v) Sheikh Muhammad Kashif v . Askari Leasing Ltd., 2004 CLD 1645 : It was held inter alia by a learned Division Bench of the Lahore High Court that the defendants, after grant of leave, were within their right to file application under Order VII, Rule 11, C.P.C. for rejection of plaint, and if the Court reached the conclusion that the case fell under any of the clauses of Order VII, Rule 11, C. P. C., only then the plaint could have been rejected; and, rejection of the plaint prior to the grant of leave was in conflict with the provisions of Ordinance.
(vi) Habib Bank Limited v . The English Engineering Co. and others, 2005 CLD 292 : The Banking Court rejected the plaint without deciding the leave application, for the reason that the plaintiff did not produce written finance agreement with the plaint. The order of rejection of the plaint was set aside by the learned Division Bench of the Lahore High Court.
(vii) Falcon V entures (Pvt.) Ltd. v . Punjab Banking Court-II , 2004 CLD 726 : It was held by a learned single Judge of the Lahore High Court that the defendant could not even file interlocutory application in order to raise point of jurisd iction of Court till such time leave to defend was granted; and, defendant could not file application under Order VII, Rule 1 1, C.P .C., without securing leave to defend suit.
(viii) PASSCO v . Omer Bilal T raders (Pvt.) Limited, 2007 CLD 492 : The impugned order was set aside by observing that the learned Judge Banking Court only received the leave petition and kept it pending. It was neithe r considered nor decided. But through the impugned order the plaint was returned.
(ix) National Bank of Pakistan through Zonal Head and Constituted Attorney v. Messrs Suraj Ghee Industries Limited through Executive Director and 5 others, 2005 CLD 1201 : To our mind, at that point of time, the learned Banking Court, without deciding the leave application, was not empowered to reject the plaint or dismiss the suit.
(x) Gulistan T extile Mills Ltd. v . Askari Bank Ltd. and others, 2013 CLD 2005 : Inherent power of the Banking Court under 0. VII, R. 11, C.P.C. preceded the statutory' obligation of the Banking Court under section 10(8) of the Ordinance. Banking Court had a primary obligation to examine the plaint and reject it, inter alia, if the same did not disclose a cause of action and such power could be exercised at any stage of the suit and it did not matter if an application for leave to defend, or written statement had been filed by the Defendant. and cases titled, Sheikh Nazir Ahmed v. House Building Finance Corporation through Genera l Manager and 4 others , 2002 CLD 1634 ; Messrs Waheed Corporation through Proprietor and another v. Allied Bank of Pakistan through Manager , 2003 CLD 245; Habib Bank Limited v. Messrs The English Engineering Company and 2 others , 2005 CLD 292; Muhammad Hussain v. SME Bank Limited and another , 2005 CLD 323; Messrs Malik Israr Salim and Brothers through Proprietor v. Allied Bank of Pakistan Ltd. and 2 others, 2005 CLD 1083 ; Muhammad Azwar Siddiqui v. Chief Executive Union Leasing Ltd. and 21 others, 2006 CLD 946; Messrs Sui Northern Gas Pipelines Ltd. through Deputy Chief (Legal) v. Muslim Commercial Bank Ltd., Avari Hotel Branch, Lahore through Manager and another , 2006 CLD 816 and Tharparkar Sugar Mills v.
Masood Aziz Chaudhary , 2010 MLD 198 .
11. The next question is that in case no amount or even excess amount has been paid by a borrower to a financial institution, does it preclude the Banking Court to determine cost of funds under section 3 of the Ordinance and to pass a Decree under section 11 of the Ordinance to this effect. Cost of funds is basically the cost that a financial institution is entitled to recover from the borrower on account of funds which as per the terms of the 'Finance' or the law ought to have been in the custody of a financial institution but happened to be in the custody of the customer after default on the rationale that the finan cial institution has been deprived from placing the funds somewhere else for its financial benefit which is the core business of a financial institution. Section 3(2) of the Ordinance stipulates that where a customer defaults in the discharge of his obligation he is liable to pay for the period from the date of his default till realization of that cost of funds of the financial institution as certified by the State Bank of Pakistan from time to time. Section 3(3) of the Ordinance further states that a Judgment against the customer under this Ordinance shall mean that he is in default of his duty to fulfill his obligation and the ensuing Decree shall provide for payment of the cost of funds. Since cost of funds is attached to the provisions of funds, therefore, cost of funds are not awarded to a customer even where a customer establishes a breach of obligation on the part of the financial institution. But cost of funds is granted only to a financial institution under section 3 of the Ordinance on the principle that funds are only provided by a financial institution and not by a customer . Section 17 of the Ordinance provides that the final Decree shall be passed with respect to payment from the date of default of the amounts determined to be payable by the Banking Court on account of default in fulfillment of the obligation and for costs including in the case of a suit filed by a financial institution cost of funds determined under section 3 of the Ordinance. It, therefore, follows that the Banking Court has committed gross illegality in refusing to determine the date of default and grant of cost of funds from the date of default with reference to 'Finance'. The case titled, Habib Bank AG Zurich through Manager v. Mustafa Shamsuddin Ghatilla and 2 others , 2003 CLD 658, relied upon by learned counsel for the Respondents is differentiable since the claim of cost of funds was denied on the ground that no Judgment was passed in terms of section 3(3) of the Ordinance. The said case does not specifically bar the passing of Judgment with respect to determination of date of default and grant of the cost of funds on merits through passing of Judgment and Decree by the Banking Court, if the same was otherwise made out. We, therefore, hold that where no amount is payable by the borrower or even excess amount has been paid by the borrower , the Banking Court can and should pass a Decree regarding the cost of funds subject to offsetting the excess amount, if any , which can be determined at the stage of execution.
12. For the reasons stated above, the Impugned Judgment dated 11.01.2016, passed by the learned Judge Banking Court-II, Gujranwala, is set aside. Consequently , both the suit of the Appellant and the PLA of the Respondents shall be deemed pending before the Banking Court which shall be decided afresh on merits, in accordance with law, through a well-reasoned and speaking Judgment after hearing the parties without being prejudiced by the observations contained herein, within a period of six months from the date of receipt of certified copy of this order . Appeal is accepted in the above terms with no order as to costs.