AQEEL AHM ED ABBASI, J. Instant Appeal has been filed against the impugned judgment dated 26.04.2007 and decree dated 11.05.2007 passed by the learned Banking Court No. V, at Karachi in Suit No.2131 of 1993 filed by the respondent No.1 Bank for recovery of an amount of Rs.12,954,135.25 with markup at Rs.0.43 per thousand on daily product basis from the date of filing of the suit till the recovery of the entire decreetal amount, which has been decreed for a sum of Rs.8,180,211.29 with cost, against all the defendants jointly and severally, whereas, cost of fund has also been allowed to the respondent No.1 Bank at the latest rate prescribed by the State Bank of Pakistan from the date of default till realization.
2. Learned counsel appearing for the appellant has vehemently argued that the learned Banking Court, while passing impugned judgment and decree and holding the appellant liable to pay the decreetal amount along with cost of fund jointly and severally, has failed to appreciate that neither the appellant was extended any short term finance facility by the respondent No.1 Bank nor stood as guarantor in respect of such finance facility, which was granted by the respondent No.1 Bank to the respondent No.2 i.e. Bela Chemical Industries Ltd. and inspite of such admitted fact, has been pleased to pass the impugned judgment and decree against the appellant as well, instead of directing recovery of such amount from the respondent No.2 [judgment-debtor] to whom short term finance facility was extended. It has been further contended by the learned counsel for appellant that the learned Banking Court has seriously erred in law and facts while having misconstrued a letter dated 08.12.1986, wherein the appellant has clearly stated to the respondent No.1 Bank that an amount of Rs.10 Million, which the respondent No.2 has sought, from the respondent No.1 Bank by way of short term finance facility, shall be liable to pay to the respondent No.1 Bank out of disbursement of the finance of Rs.104.478 Million sanctioned by the appellant through letter dated 08.12.1986 written in pursuance to the earlier letter dated 09.10.1986, wherein, the appellant has clearly informed the respondent No.1 Bank that finance facility in question would be repaid by the respondent No.2 i.e. Bela Chemical Industries Ltd. out of the fund released by the appellant from the aforesaid finance of Rs.104.478 Million, whereas, there was no guarantee or undertaking to the effect that appellant will be responsible for making payment of any liability of respondent No. 1. Therefore, according to learned counsel, the learned Banking Court has erred by holding that the appellant is also liable for making payment of short term finance facility allegedly accepted by the respondent No.2. It has been further contended by the learned counsel that the appellant never executed any guarantee or given any undertaking in respect of the aforesaid short term finance facility, which was granted by the respondent No.1 Bank to the respondent No.2, nor through aforesaid letters and correspondences exchanged between the appellant and the respondents, any such intention has been expressed. According to learned counsel for the appellant, the learned Banking Court has seriously erred in law and facts while holding that the appellant is liable to make payment of the decreetal amount along with cost of fund jointly and severally. Learned counsel for the appellant, after having read out the impugned judgment and correspondences/ensued between the appellant, the respondent Bank and respondent No.2 in the shape of letters dated 11.08.1986. 09.12.1986, 14.12.1986, 24.07.1991 and 31.08.1991, has vehemently argued that respondent Bank has miserably failed to make out a case for recovery of an amount in respect of short term finance facility against the appellant, as the finance facility was admittedly granted by the respondent Bank to the respondent No.2, whereas, the appellant neither availed any finance facility nor executed any guarantee, therefore, cannot be held liable on account of default, if any, on the part of the respondent No.2. Without prejudice to hereinabove submissions, learned counsel for the appellant has submitted that even perusal of the aforesaid letters, on which the learned Banking Court has placed reliance while holding that the appellant is equally liable to make payment of the decreetal amount, reflects that the appellant never stood as guarantor for respondent No.2 in respect of short term finance facility, as referred to hereinabove, nor the appellant has admitted to be treated as a guarantor of respondent No.2 for repayment of the finance facility so extended to the respondent No.2 by the respondent Bank. It has, therefore, been prayed that the impugned judgment and decree against the appellant and liable to be set aside.
3. Conversely, learned counsel for the respondent Bank has opposed the contention of learned counsel for the appellant and supported the impugned judgment and decree passed by the learned Banking Court in the instant case, which according to learned counsel for the respondent No.1, is based on correct appraisal of facts and proper application of law. According to learned counsel for the respondent No.1, there has been no dispute with regard to the disbursement of short term finance facility by the respondent Bank to the respondent No.2 and execution of several documents by the appellant in the shape of letters, as detailed in the impugned judgment, wherein, the appellant has undertaken to make payment of the outstanding liability of the respondent Bank in case of default by respondent No.2, out of the funds released by the appellant, from the amount of finance of Rs.104.478 Million. According to learned counsel for the respondent No.1, the appellant cannot wriggle out of its commitment and the undertaking given in respect of the short term finance facility granted by the respondent Bank to the respondent No.2 as the appellant stood guarantor for respondent No.2. It has been prayed that instant appeal may be dismissed.
4. We have heard the learned counsel for the parties, perused the record and the impugned judgment and decree passed by the learned Banking Court No. V, at Karachi in Suit No.2131/1993 with their assistance.
5. The facts as recorded by the learned Banking Court in the impugned judgment are that the plaintiff/respondent No.1 i.e. Bank Al Falah Limited, legal successor-in-interest of Bank of Credit and Commerce International (Overseas) Limited (BCCI), a duly incorporated Public Company and a Development Finance Institution sanctioned additional finance of Rs.104.478 Million to the respondent No.2 i.e. Bela Chemical Industries Limited. on 08.12.1986 and requested the plaintiff/respondent No.1 to provide bridge finance to the respondent No.2 in a sum of Rs.10 Million and the appellant/defendant No.1 would reimburse the amount advanced by the plaintiff/respondent. No.1 to the respondent No.2 out of disbursement of the finance sanctioned to the respondent No.2 company after completing all legal formalities and standard requirement of the appellant/defendant No.1. The appellant/defendant No.1 guaranteed the repayment of all amounts due by the respondent No.2 to the plaintiff/respondent No.1 vide letter No.MD- 3/13/2201/88, dated 09.12.1986 and letter No.MD-3/14/86, dated 14.12.1986, whereas, the appellant requested the respondent No.1 to approve short term finance facility of Rs.10 Million to the respondent No.2. The respondent No.1 approved short term finance facility of Rs.10 Million on the basis of markup in price specifically and the respondent No.2 signed, executed and delivered following documents to the respondent No.1; (a) promissory note by the defendant No.1 for Rs.11,380,300.00 dated 11.12.1986, (b) letter of arrangements, (c) agreement for financing; and (d) letter of hypothecation. Whereas, defendants Nos.4 to 6 in the suit have guaranteed the repayment of the liabilities of the defendant No.2 to the plaintiff and executed and delivered personal guarantees to this effect, the short term finance facility was due for full and final repayment on 31.03.1987, however, the only response received from the defendant No.1 was a letter dated 22.03.1987, wherein, respondent No.1 was informed that the formalities were likely to be completed shortly. However, the plaintiff/respondent No.1 was received a letter dated 24.07.1991 from the appellant informing the respondent No.1 that respondent No.2 has been placed on the list of defaulters, therefore, all transactions with the respondent No.2 should be routed through an escrow account with United Bank Limited, thereafter, the respondent No. 1 lodged its protest and objection to the appellant by a letter dated 31.08.1991, but no response was received either a letter or legal notice issued to the remaining defendants, therefore, the respondent No.1 filed the subject Suit No.2131/1993 before the learned Banking Court No. V, at Karachi for recovery of Rs.12,954,135.25 and prayed for judgment and decree in the following, terms:-
(a) Decree jointly and severally against defendants Nos.1 to 6 inclusive in the sum of Rs.
12,954,135.25 with mark up at Rs.0.43 per thousand on daily product basis from the date of filing of this suit till the recovery of the entire decreetal amount;
(b) Cost of the suit
(c) Such further and other reliefs which this Hon'ble Tribunal may deem fit and proper in the circumstances.
6. The subject suit was admitted and the summons were issued to the defendants, whereas, defendants Nos.1 and 6 filed their written-statement and the remaining defendants were declared ex-parte vide order dated 14.04.1999. The appellant/defendant No.1 in his written-statement denied that the letter issued by the appellant/defendant No.1 to the respondent No.1 is a guarantee or surety or indemnity for the repayment of any amount due payable by the defendant No.2, as no such document of guarantee were executed in the prescribed form, whereas, defendant No.6 in his written-statement has stated that he was only serving with the defendant No.2 and was neither a sponsor or shareholder nor signed any guarantee in respect of outstanding against the respondent No.2, if any. Learned Banking Court was pleased to formulate following issues:-
1. Whether the defendants are jointly and severally liable to pay a sum of Rs.12,954,135/25 or any other amount?
2. Whether the defendant No.1 was under obligation to make payment to the plaintiff from the additional financing advanced to defendant No.2, as per Annexure-B to the plaint and guaranteed the repayment?
3. Whether the defendants Nos. 4, 5 and 6 have executed letters of guarantee and, thereby guaranteed repayment of loan/finance, advances to the defendant No.2 by the plaintiff?
4. Whether the defendant No.1 is a guarantor for the loan/finances advanced to defendant No.2?
5. What should the decree/order be?
7. After formulation of the aforesaid issues and hearing the learned counsel for the parties, learned Banking Court has been pleased to pass the impugned judgment and decree against all the defendants, including the appellant, jointly and severally while deciding the Issues Nos.1 to 4 in affirmative. Since instant appeal has been preferred by the appellant, who was defendant No.1 in the subject suit, and has raised objection only to the extent of its liability, therefore, we would address only such aspect of the matter as agitated through instant appeal instead of dilating upon the merits, and would, therefore, determine the relationship of the appellant with respondent No.1, if any, and examine the documents executed by the appellant in favour of the respondent No.1 in respect of short term finance facility granted by the respondent No.1 to the respondent No.2. We may further examine, as to whether the letter(s) issued by the appellant to the respondent No.1 relating to the subject short term finance facility can be treated as a guarantee, and as to whether, the appellant pursuant to such documents can be treated as customer in terms of section 2(c) of the Financial Institutions (Recovery of Finances) Ordinance, 2001. Since there seems no factual dispute with regard to the grant of short term finance facility by the respondent. No.1 to the respondent No.2, nor remaining defendants except appellant have impugned judgment and decree passed by the learned Banking Court in the aforesaid suit, therefore, we would 'refrain from dilating upon the merits of the judgment and decree against the remaining respondents, who have either availed short term finance facility in the sum of Rs..104.478 Million or stood as a guarantor.
However, as record, the appellant in the instant appeal was impleaded as defendant No.1 in the subject suit for the recovery of an amount in respect of finance facility extended to respondent No.2 by respondent Bank, whereas, the appellant was neither granted any finance facility nor executed any guarantee in a prescribed manner in its capacity as a customer in terms of section 2(c) of the Financial Institutions (Recovery of Finances) Ordinance, 2001. It is pertinent to note that the scope of a recovery suit filed before a Banking Court under section 9 of the Financial Institutions (Recovery of Finances) Ordinance, 2001, is different and distinct from an ordinary money suit for recovery of an amount filed under the provisions of Civil Procedure Code. A suit under the Banking jurisdiction is competent only if there exists relationship of Financial Institution and the Customer between the parties, which may include a guarantor/mortgagor as well. However, in the banking suit, a party which neither availed any finance facility from the financial institution nor executed any guarantee or mortgage 'deed in respect of such finance facility/loan, cannot, in the normal course, merely on the strength of some correspondences to facilitate the process of sanction and grant of finance facility by the financial institution to its customer(s) without executing any guarantee or mortgage in favour of the financial institution, can be held liable for repayment of any outstanding liability against a customer/borrower/mortgagor. In the instant case, it has come on record that the appellant was neither borrower nor a mortgagor/guarantor in respect of short term finance facility, which was admittedly granted by the respondent No.1 to the respondent No.2.
However, the learned Banking Court in the instant case, while extensively relying upon a letter dated 08.12.1986 written by the appellant to the respondent No.1, whereby, the appellant merely intimated its no objection for advancing finance facility of Rs.10 Million to the respondent No.2 for the purposes of its bridge finance accommodation. In such letter, though the appellant also intimated the respondent No.1 that amount so advanced by the respondent No.1 will be paid out of disbursement of the sanctioned finance, however, there seems no undertaking by the appellant to the effect that in case of default in repayments by the borrower i.e. respondent No.2 the appellant would pay such amount as a guarantor. It appears that in the year 1991, respondent No.1 issued letters to the respondent No.2 as well as letter to the appellant intimating default on the part of the respondent No.2 and also required the appellant to comply with its purported commitment that the amount advanced by the appellant to the respondent No.2 will be reimbursed to the respondent No.1 out of disbursement of the finance sanctioned in this regard. However, perusal of the correspondences ensued between the appellant and the respondents, particularly letter dated 08.12.1986 issued by the appellants, shows that legal requirements of a document to constitute a guarantee are not fully met, as there is no specific undertaking by the appellant to make payment of any liability of the borrower in case of default, nor any property seems to have been mortgaged to secure the finance facility advanced by respondent bank to its customer. There seems no relationship between the appellant and respondent bank as of customer, and the financial institution, nor the appellant executed any guarantee or stood as a mortgagor against the short term finance facility granted by the respondent No.1 to the respondent No.2. The appellant through exchange of some letters, appears to have given no objections though not required in law, for the grant of short term finance facility by the respondent No.1 to the respondent No.2, - however, without any undertaking to make repayments in case of default by customer/ borrower. It further appears that after grant of short term finance facility, there has been default in making repayment by the respondent No.2, who was subsequently declared as defaulter. The respondent No.1 having failed to recover such defaulting amount from its customer i.e. respondent No.2, filed the subject suit while adding the appellant as a party while treating the appellant as guarantor on the basis of letters exchanged between the appellant and respondents, and sought judgment and decree against all the defendants jointly and severally. The learned banking Court, without realizing that there was no relationship between the appellant and respondent bank as of a customer and financial institution under the Financial Institutions (Recovery of Finances) Ordinance, 2001, nor the appellant executed any guarantee or stood as a mortgager in respect of such finance facility, passed the judgment and decree jointly and severally against the appellant as well, which is contrary to factual and legal position as emerged in the instant case. We may observe that the respondent bank while extending the short term finance facility to its customer did not take due care to secure the amount and its repayment by getting the necessary legal documents, including a "guarantee" and instead of recovering the defaulting amount from its customer (borrower) roped the appellant bank in the Suit while treating the appellant as customer (guarantor) on the basis of some letters and correspondence ensued between the parties.
8. In view of hereinabove facts and circumstances of the case, we are of the considered view that the learned Banking Court has erred in law and facts while passing the impugned judgment and decree against the present appellant, while wrongfully treating the appellant as a customer (guarantor) in terms of section 2(c) of the Financial Institutions (Recovery of Finances) Ordinance, 2001. Accordingly, instant appeal was allowed and the impugned judgment dated 26.04.2007 and decree dated 11.05.2007 passed in the subject suit to the extent of appellant was set aside vide our short order dated 04.11.2021 and these are the reasons of such short order.