SHAMS MEHMOOD MIRZA, J.---This regular first appeal is filed under section 22 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (the Ordinance ) for calling into question the judgment and decree passed by the banking court on 27.01.2015 in a suit filed by the respondent bank against the appellants and respondents Nos.2 and 3.
2. The facts of the case in brief are that respondent bank instituted a suit (suit No.2042/1 of 2009) against the appellant and respondents Nos.2 and 3 seeking recovery of Rs.12,674,408.21. The appellant was arrayed as defendant No.2 in the suit in his capacity as mortgager/guarantor for the finance facility availed by respondents Nos.2 and 3. The appellant contested the suit by, filing his application for leave to defend in which it was alleged that his signatures on the finance documents were fake and forged and that he had no, concern with the finance facility obtained by respondents Nos.2 and 3. The defense raised by the appellant was not deemed substantial in nature by the banking court and consequently his application for leave to defend along with that of respondents Nos.2 and 3 was dismissed and the judgment and decree was passed against them in the sum of Rs.9,999,002.15.
3. Learned counsel for the appellant reiterated the grounds of defense taken in the application for leave to defend by contending that since the execution of the finance documents was denied and the allegation of forgery was levelled, the banking court ought to have granted leave to defend to the appellant.
4. Respondents Nos.2 and 3 have already been proceeded against ex-parte.
5. Learned counsel for the respondent bank, on the other hand, supported the judgment and decree passed by the banking court.
6. Arguments heard, record perused.
7. This appeal is being decided along with R.F.A. No.336 of 2015 which the appellant has filed against judgment and decree dated 27.01.2015 passed by the banking court in suit No.2041/1 of 2009 filed by the respondent bank.
In both the suits, the appellant and Qaisar Iqbal Bhatti were common defendants. The facts of both the suits are common and the appellant also raised identical defense in both the suits. The appellant has also filed two other appeals bearing R.F.As. Nos.335 and 337 of 2015 against judgments and decree through which his suits for declaration, injunction and damages were dismissed on 27.01.2015.
8. The appellant alleges that he was an American National who had business dealings with respondent No.3, a property dealer . In the course of their business relation, respondent No.3 through forgery executed the finance documents in the name of the appellant including the mortgage of his property .
9. The contents of the application for leave to defend filed by the appellant makes it apparent that he was a business partner of respondent No.3 and that the ailment of the finance facility was not only in his knowledge, but he was a consenting party to the said arrangement. The following averments mentioned in the application for leave to defend filed by the appellant would testify to the aforementioned facts.
5. The petitioner also came across to know the defendant No.3, who is a property dealer at Defence Housing Authority Lahore After the said introduction, the petitioner started selling and purchasing the properties at various places through the defendant No.3 has his property dealer hence due to the said business relationships, the defendant No.3 had earned the blind faith of the petitioner . In order to achieve his nefarious designs, the defendant No.3 put a rosey picture to the petitioner of obtaining loans from the banks and for utilizing the same in the sale and purchase of the properties, the petitioner resisted to the said idea but the defendant No.3 persuaded the petitioner in this regard.
6. The petitioner never advanced any request for creation of the mortgage upon his personally owned and possessed referred property for the provis ion of the finance facility and luxury to the defendants Nos. 1 and 3. It is further submitted that the matter in hand is not of an ordinary and routine nature of obtaining finance facilities from the bank and the denial to pay it back to the bank; but it is a classic example of betrayal of friendship, the misuse of trust, the criminal breach of trust and hoodwinking the procedure and connivance and active participation of the plaintif f and the defendants Nos.1 and 3 with each other just in order to make instant and wrongful gain for themselves and for causing wrongful loss to the petitioner by way of advancing and creating imminent threat of depriving him from his valuable properties for no gain at all.
It is further submitted that for the facts mentioned above, the defendant No.3 was successful in obtaining a loan of Rs.10,000,000/- (Rupees Ten Million only) in the name of the defendant No.1 from the plaintif f by way of committing fraud and criminal breach of trust through the use of documents of the property owned by the petitioner . The said property was, therefore, mortgaged with the plaintif f bank without any consent and knowledge of the petitioner for the purpose of securing the referred loan amount; since the loan, if at all to be approved, sanctioned and disbursed, it was absolutely understood, decided and trusted to be done in the name and for the exclusive use and benefit of the petitioner only. The defendant No.3 was only required to facilitate the petitioner as his agent and become and bridge between him and the plaintif f bank for obtaining the finance facility from the bank but the defendant No.3 became greedy and he managed to obtain the finance facility for himself by misusing ,the properties of the petitioner also associatin g the officials of the plaintif f bank in the said transaction. The properties of the petitioner were mortgaged with the plaintif f bank for so-called securing the referred finance facility and that too without his consent, knowledge and information for securing the finance facilities advanced by the plaintif f bank to defendants Nos.1 and 3.
The petitioner was only informed that a loan will be applied to the bank in the name of the petitioner and for the petitioner's sole use and benefit but thereafter he was told by the defendant No.3 that the bank has refused to allow the said facility and he will try to get the same on the basis of another property measuring 4-Kanals bearing Khasra No.273, Khewat No.83 and khatouni No.309; situated at Mouza Jallo, Lahore.
10. In identical circumstances, the property of the appellant was also mortgaged to secure a finance facility granted to VIP Corporation, which was shown to be a proprietorship concern of respondent No.3 against whom the respondent bank Dfiled a recovery suit (Suit No.2041/1 of 2009). As stated above, the appellant also filed two suits for declaration, rendition of accounts and damages in respect of the two finance facilities which were subject matter of Suits Nos. 2041/1 of 2009 and 2042/1 of 2009. All the suits were heard together , and the banking court passed separate judgment and decree in the suits on 27.01.2015 filed by the respondent bank and dismissed the suits filed by the appellant.
11. It may relevant be pointed out that the respondent bank in its replication to the application for leave to defend asserted that cheque No.0187836 dated 25.06.2008 in the sum of Rs.329,890.76 was deposited by the appellant from his proprietorship concern (T ec-Line Industry) account for adjustment of the markup of the finance facility .
12. Section 10(8) of the Ordinance provides the standard for grant of leave. It stipulates that "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."
13. A learned Division Bench of this Court in judgment reported as Messrs Visiontex Partnership Firm through Partner and others v. Habib Bank Limited 2016 CLD 62 while expounding the scope of section 10(8) of the Ordinance held as follows: To our mind the expression "substantial question of law or fact" as employed in section 10(8) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 does not mean the denial of availing of finance facility or non- execution of the documents. The concept of grant of leave to defend the suit requires that the defendant should come up with a positive defence of a particular fact which must be supported by certain documentary evidence.
The term "substantial" means of real worth and importance as opposed to imaginary or illusory . The defendant has to raise a serious question which needs to be important, grave and entails consequences giving cause of concern and must be worthy of consideration.
14. The standard that guides the banking court for grant of leave under the Ordinance is much more stringent than the one provided under Order XXXVII, C.P.C. The best exposition of the test for grant of leave in suits under Order XXXVII, C.P.C. is laid down by the Indian Supreme Court in the case of Milkhiram (India) Pvt. Ltd. v. Chamanlal Brothers AIR 1965 SC 1698 as follows: It is indeed not easy to say in many cases whether the defence is a genuine one or not and, therefore, it should be left to the discretion of the trial Judge who has experience of such matters both at the bar and the bench to form his own tentative conclusion about the quality or nature of the defence and determine the conditions upon which leave to defend may be granted. If the Judge is of opinion that the case raises a triable issue, then leave should ordinarily be granted unconditionally . On the other hand, if he is of opinion that the defence raised is frivolous, or false, or sham, he should refuse leave to defend altogether . Unfortunately , however , the majority of cases cannot be dealt with in a clear-cut way like this and the Judge may entertain a genuine doubt on the question as to whether the defence is genuine or sham or in other words whether it raises a triable issue or not. It is to meet such cases that the amendment to Order XXXVII, Rule 2 made by the Bombay High Court contemplates that even in cases where an apparently triable issue is raised the Judge may impos e conditions in granting leave to defend.
The aforementioned criteria for grant of leave in suits filed under Order XXXVII, C.P.C. became much more lenient through the judgments pronounced subsequently with the result that even defense which was not considered bona fide or where it was considered plausible but improbable or where execution of negotiable instrument was denied, leave was granted unconditionally or subject to attachment of condition.
15. The provisions of section 10 of the Ordinance and Order XXXVII, C.P.C. are, however , materially different and as such the criteria laid down by judgments rendered under Order XXXVII, C.P.C. for grant of leave is of no relevance to adjudication of application for leave to defend filed in a suit under the Ordinance. Under section 10(8) of the Ordinance, the opinion formed by the banking court A for grant of leave is dependent on the contents of the plaint, the application for leave to defend and the reply thereto.
16. Section 9 requires that the plaint shall be supported by a statement of account and all other relevant documents relating to the grant of finance. Furthermore, the plaint in the case of 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 financ e and other amounts relating to the finance payable by the defendant to the financial institution.
17. Correspondingly , section 10 (3) (4) & (5) stipulate that the application for leave to defend shall contain a summary of the substantial questions of law as well as fact on which evidence needs to be recorded in the opinion of the defendant. It furthermore requires the application for leave to defend to state (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 relatin g to the finance payable by the defendant to the financial institution; and (c) the amount if any which the defendant disputes and facts in support thereof. The defendant is required to append all the documents which in his opinion support the substantial questions of law or fact raised by him. Subsection (6) of section 10 imposes penal consequence of dismissal of the application for leave to defend in case of failure by the defendant to show complian ce to the conditions attached by sections 10(3)(4) and (5) of the Ordinance.
18. The Ordinance thus ordains that the parties shall put forward their best case and that the record contains all the evidence the parties would present at the trial, if the case moves to that stage.
19. The banking court at the leave stage is not obliged to only look at the defence of the defendant for making up its mind rather it is required to consider the entire pleadings of the parties including the replication to the application for leave to defend and by extension the finance documents and the statement of account. In short, the banking court is bound to consider in totality the case set up by the plaintif f and the defence of the defendant in making a determination that a substantial and genu ine question of fact has been raised on the basis of the available record requiring trial for its decision thereby denying a summary judgment in favour of the plaintif f.. The quality of defence must be of such a nature as to carry some plausible degree of conviction. In other words, the defence raised by the defendant must be more than an arguable case. Obviously , the facts of each case would vastly differ, and the banking court is required to evaluate the same in its decision to grant or refuse leave to the defendant. We may also state that it is not the function of the banking court at the leave stage to be concerned about the evidence for determining the truth of the defence, but its task is to decide whether there is a genuine issue for trial. There can of course be instances where the banking court while refusing leave to the defendant for its failure to present a genuine, bona fide and substantial defence may still require the plaintif f to establish its case by evidence, oral as well as documentary .
20. It is in the context of the standards mentioned above that the facts of the present case are required to be assessed.
21. The appellant did not mention in the application for leave to defend the time, date and place when the title documents were handed over to respon dent No.3 or the circumstances which led him to do so barring a bald allegation that he had business relations with him. Similarly , the finance facility was obtained in the year 2007 and the respondent bank instituted the suit on 25.07.2009. The length of time for which the title documents remained in possession of respondent No.3 has not been clarified by the appellant. It is beyon d comprehension that a person would leave the title documents of his properties with a property dealer for more than two years. Similarly , in the suit for declaration, injunction etc. filed by the appellant, it was stated that the respondent bank served upon him notices under section 15 of the Ordinance for sale of the mortgaged property and yet it was only when the respondent bank filed its recovery suit that he woke from his slumber and filed a' counter suit, which was clearly a counter blast to the action taken by the respondent bank. Till date, the appellant has not taken any criminal action against respondent No.3 who allegedly perpetrated fraud against him. The properties of the appellant were mortgaged as security for the finance facilities availed by two entities of respondent No.3 and he paid mark up from his personal account in the present case as per the allegation of the respondent bank in its replication. We inquired from the learned counsel in regard to payment made by the appellant, which is duly reflected in the statement of account, but he could not give any satisfactory answer .
22. In the facts of the case advanced by the appellant, any ordinary , prudent person would have immediately taken remedial measures in relation to the fraud perpetrated against him. The appellan t, however , remained silent and waited till such time the respondent bank filed the recovery suit whereafter he filed the suit for declaration, rendition of accounts and damages. Taking into account the extra ordinary facts mentione d in the application for leave to defend in totality , it is evident that the appellant and respondent No.3 were business partners in availing the finance facility from the respondent bank for which the property of the appellant was mortgaged as security . A person who makes payment of mark up under a finan ce facility and at the same time denies having no connection with it is not setting forth a genuine defence. We, therefore, cannot accept the appellant's version of facts when the record contradicts it. In our considered opinion, the appellant did not raise any substantial. genuine defence on facts necessitating recording of evidence as the involvement of the petitioner in the transaction of finance is substantiated by the payment made by him for adjustment of mark up. It is apparent that there cannot be a genuine dispute of facts if the record could not support a finding in favor of the defendant. Having regard to the pleadings of the parties, in our opinion the defence raised by the appellant was neither genuine nor bona fide .
23. The mortgage in question was admittedly in the nature of equitable mortgage through deposit of title deeds.
The memorandum of deposit of title deed dated 28.09.2007 simply recorded the transaction of equitable mortgage that had already taken place through deposit of title deeds. In the circumstances, the defense of the appellant that the said instrument was not executed by him has no relevance to the validity of the mortgage which stood completed through deposit of title deeds. It may be pointed out that in the case of Nityananda Ghose v. Rajpur Chhaya Bani Cinema Limited AIR 1953 Cal 208, an equitable mortgage was held to be a mortgage where the mortgagor binds himself personally to pay the mortgage money on the combined reading of sections 96 and 58(b) of the Transfer of Property Act, 1882. The relevant excerpt reads as under: An equitable mortgage by deposit of title deeds is by the Indian law placed on a similar footing as a simple mortgage. The rights and liabilities of a mortgagor and a mortgagee under such an equitable mortgage are the same as far as may be as those under the simple mortgage. That is plain from the clear provision made in section 96, T. P. Act. The necessary consequence is that a mortgagor under an equitable mortgage must be regarded as having personal liability to pay the mortgage-money . If it is necessary for me to be more explicit on this point will put my reasons in this way, without referr ing to the cases cited at the bar to establish mortgagor's personal liability in an equitable mortgage. I consider it quite unnecessary to refer to such cases because in my view section 58(b), T. P. Act in defining a simple mortgage expressly says that in a simple mortgag e the mortgagor binds himself personally to pay the mortgage-money . Therefore, by the combined operation of sections 96 and 58(b), T. P. Act an equitable mortgage must be held to be a mortgage where the mortgagor binds himself personally to pay the mortgage-money .
The appellant is thus liable towards the respondent in his personal capacity by virtue of the equitable mortgage.
When the person and property of the appellant are liable to satisfy the claim of the respondent bank, we do not think there is any need to enter into the issue of the alleged non-execution of the personal guarantee.
24. In view of what has been stated above, the appellant has failed to make out any case for interference in the judgment and decree passed by the banking court. This appeal being devoid of any merit is accordingly dismissed .