ABID AZIZ SHEIKH, J. This suit has been filed under section 9 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (Ordinance), seeking recovery of Rs.114,160,414.67 along with cost and cost of funds against the defendants. Prayer is also made to sell the pledged stock for the satisfaction of the suit amount. The defendant No.1 is the principal debtor, whereas defendants Nos.2 and 3 are the partners/guarantors (hereinafter refer to as the defendants).
2. Brief facts as per averments of the plaint are that plaintiff bank, allowed various finance facilities to defendants i.e. 'Letter of Credit' (LC) limit of Rs.200 Million, 'Finance Against Imported Merchandise' (FIM) limit of Rs.180 Million, 'Finance Against Trust Receipt' (FATR) limit of Rs.50 Million, 'Cash Finance' (CF) limit of Rs.50 Million, 'Running Finance' (RF) limit of Rs.40 Million and 'Term Finance' (TF) limit of Rs.18 Million vide facility offer letter dated 07.03.2014. However, in respect of 8 LCs (mentioned in Para 10 of the plaint), documents under the LCs were retired through payment from FIM facility and by crediting 'Payment against Documents' (PAD). The defendants failed to repay the amounts against FIM and PAD, hence this suit. As per the plaint, the outstanding amount against FIM facility is Rs.88,381,009.79 and against PAD facility is Rs.25,779,404.88, total Rs.114,160,414.67. In order to avail FIM facility, the defendant No. 1 also pledged the imported goods/stocks of each LC with the plaintiff bank.
3. In response to notices, defendants entered appearance to file their joint Application for Leave to Defend the Suit i.e. 'PLA No.74/2015' (PLA).
4. Learned counsel for the defendants while arguing PLA, submits that no amount against LC of Rs.200 Million was disbursed. He further submits that no finance agreement in respect of LC of Rs.200 Million is in field and there is also no such LC placed on record. He further submits that PAD was not backed by any sanction letter and in any case, the amount claimed under the PAD was already adjusted under the facility of FIM. He referred to the entries dated 14.10.2014 and 06.11.2014 at page 202 of the Loan Account and page 226 of the Current Account. He further submits that the PAD entries against LCs are not adjusted against the LCs mentioned in the PAD statement. He submits that even the FIM is not properly created as no goods in respect of LC No.006 and 0067 were received, hence the amount could not be recovered under the aforesaid two LCs. He adds that amount of Rs.67 Million (ground T of the PLA) was adjusted against the FIM facility, however, Same is not reflected in the Loan Account. He further submits that there are pledge stocks and the question regarding misappropriation of pledge stocks also needs deliberation. Finally submits that the markup claim of PAD and FIM is not covered under the contract appended and also beyond the contract period.
5. Learned counsel for the plaintiff in response submits that Rs.200 Million was over all approved limit of LCs and multiple LCs were established by the defendant No.1 from time to time. He submits that Finance Agreement dated 15.04.2014 was duly executed in respect of loan facilities. He adds that in respect of each LC, there were two bills and one bill was retired through FIM and other through PAD. He submits that amounts reflected in 'ground T' of the PLA are not the subject matter of the instant suit, rather these amounts relate to the LCs, which were already retired by the defendants through their own sources. He finally submits that prior to filing of the suit, the defendants partially lifted pledged stock forcibly and plaintiff is pursuing different Criminal Complaints before the learned Banking Court and Federal Investigation Authority (FIA). He however, does not dispute that the expiry date of the Finance Agreement dated 15.04.2014 is 13.12.2014 and therefore, markup could only be charged till the expiry period.
6. Arguments heard. Record perused. The first argument of learned counsel for the defendants is that no amount against LC of Rs.200 Million was disbursed and there is no finance agreement in respect of said LC. This ground has no substance, as according to the facility letter dated 27.03.2014, the LC was sanctioned for amount of Rs.200 Million, which was duly signed by the defendants. Amount of Rs.200 Million mentioned in the said sanction letter was the limit of LCs for import of raw material. The record shows that defendants opened various LCs from time to time including 8 LCs mentioned in Para 10 of the plaint and documents in respect of those LCs including 'Application and Agreement for Irrevocable Documentary Credit freely negotiable in beneficiary's Country', 'Proforma Invoice', 'Commercial Invoice', 'Bill of Lading' were duly executed by the defendants and are also available on record. The finance agreement dated 15.04.2014 was also executed for an amount of Rs.220 Million, which covers the FIM amount of Rs.180 Million and RF amount of Rs.40 Million. No doubt RF facility was not availed by the defendants, however, the FIM facility was duly availed to pay against LC facilities, therefore, the said finance agreement covers the amount outstanding against LCs adjusted through FIM.
7. The next argument of learned counsel for the defendants that PAD is not backed by any sanction letter and the amount under PAD was already adjusted under the facility of FIM is also misconceived. In this regard, suffice it to note that some of the LCs were retired through FIM, however those LC amounts, which were neither adjusted through own source or by creating FIM, were adjusted through PAD, hence there was no need for any separate sanction letter for PAD.
8. The argument of the defendants that in respect of three LCs, PAD was already adjusted through FIM has no legs to stand. The record shows that in case of LCs No.TF 1420600005, TF 1424100034, TF1423900131, there were two bills against each LC and one of the bill was retired through FIM arrangement and other through PAD, hence it cannot be said that PAD was already adjusted under the facility of FIM. However, the Finance Agreement dated 15.04.2014 only cover the amount of FIM and Running Finance and not the amount paid through PAD, therefore, the markup against PAD being not backed by any Finance Agreement, cannot be charged.
9. The next argument of learned counsel for the defendants is that amount of LCs No.TF1420000005, TF1424100034, TF1423900131 and TF1423300011 is shown in the FIM statement as well as in PAD statement. This ground is also misconceived as Performance Invoice, Application and Agreement of LC in respect of all those LCs are available on record. The Commercial Invoice for part of quantity of those LCs was adjusted through FIM whereas the commercial invoice of remaining quantity of goods was adjusted through PAD. The statement of account of FIM, PAD and current account corresponds with the above payments.
10. The learned counsel for the defendants also argued that FIM is not properly created as no goods in respect of LC No.006 and LC No.0067 were received. In this regard, it is noted that FIM was created on 07.07.2014 and 23.07.2014 under LC No.0067 and FIM was created on 10.07.2014 and 13.08.2014 under LC No.006. The date of the stock report is 31.04.2015, therefore, it cannot be argued that FIM is not properly crated for above two LCs.
11. Learned counsel for the defendants vehemently argued that amount of Rs.67 Million mentioned in 'ground T' of the PLA was adjusted against the FIM facility, however, the same is not reflected in the loan account. Learned counsel for the plaintiff explained that the amounts reflected in 'ground T' are not the subject matter of the instant suit, rather relates to the LCs, which were retired by the defendants through their own sources, Further the FIM payments, markup payment and. LC numbers in 'ground T' are also different from the LCs amount outstanding in the suit. The above explanation is supported by record and has substance.
12. The argument of the defendant that markup claim of FIM is beyond the contract period, has substance, as according to the Finance Agreement dated 15.04.2014, the expiry date is 31.12.2014, therefore, markup against FIM can only be charged up till 31.12.2014 and thereafter only cost of fund can be claimed.
13. Regarding the pledged stocks, it is the claim of the plaintiff that defendants have misappropriated the pledged stock for which the plaintiff has already initiated criminal proceedings. On the other hand, the defendants are claiming that pledged stock was in the custody of the plaintiff bank and therefore, bank cannot seek recovery from the defendants unless pledged stock be returned. This issue has already been discussed by this Court in National Bank of Pakistan v. Ali Akbar Spinning Mills Limited and others (C.O.S. No.126 of 2011) where while relying upon various judgments of august Supreme Court as well as by this Court, it was held that the matter relating to the shortfall in the pledge stocks will be determined in the execution proceedings, when the collateral securities are required to be sold, hence it is not a ground of defence for grant of leave to defend. The relevant part of the Judgment is reproduced below:- "availability or otherwise of the pledge stock is a question that can be determined in execution proceedings at the time when collateral security be required to be accounted for and brought to sale. Therefore, it alone does not furnish a ground of defence to the defendants for grant of leave.
Relevant finding of this Court in judgment referred supra is reproduced as under: - "Learned counsel for the defendants submitted that pledged stocks were in the custody of the plaintiff bank and therefore, the plaintiff bank cannot seek recovery from defendant No. 1 unless it is in the position to return the pledged stock. This aspect has already been exhaustively dealt with by a judgment reported as Habib Bank Limited v. Orient Rice Mills and others (2004 CLD 1289) wherein it was held that 'Section 176 of the Contract Act empowers the plaintiff-Bank to file its suit without selling the pledged rice and to treat the pledge as a collateral security only. Clearly this option has been exercised by the plaintiff-Bank. The matter relating to any short fall in the pledged stock of rice and the responsibility therefore can be determined in execution proceedings at the time the collateral security is required to be accounted for and brought to sale. The rights and obligations of the plaintiff-Bank as pledge and those of the defendant-Company under sections 151 and 152 of the Contract Act, which were referred to by the learned counsel for the defendant-Company, can also be determined at the time of realization of the collateral security."
Furthermore, in Messrs Muhammad Siddique Muhammad Umar v. The Australasia Bank Limited (PLD 1966 SC 684), it was held that, loss of pledged goods does not absolve the debtor from his liability and that a debtor can only claim an adjustment once the sale of the pledged goods is actually held. Along similar lines is the judgment reported as Siddique Wollen Mills and others v.
Allied Bank of Pakistan (2003 CLD 1033), wherein the Hon'ble Supreme Court held that in a suit filed by the bank only the liability of the debtor has to be adjudicated and the dispute regarding pledged goods does not constitute a bona fide dispute. This position has recently been reinforced and accepted by a learned Division Bench of this Court in a judgment passed in R.F.A. No.274 of 2010 titled Messrs Ibrahim Oil Mills and others v. MCB Bank Limited. It is thus clear that availability or otherwise of the pledged stock is a question that can very well be determined in the execution proceedings and that it does not furnish any ground of defense to the defendants for grant of leave to defend the suit. This objection even otherwise has no merit as the entire Principal amount of cash finance (Pledge) facility has been adjusted by the defendants and the plaintiff is only claiming markup thereunder".
The above view was also express by this Court in following judgments.
In Messrs Crystal Enterprises v. Platinum Commercial Bank Ltd. (2002 CLD 868) held that "Learned counsel for the appellant next argued that the respondent-bank is under law required to account for the imported goods in its custody. This may be so. However, this is a matter, which can only arise in the execution proceedings, when the collateral security is realised in such proceedings through sale of the same", In Faisal Bank v. Zamindara Rice Mills (2007 CLD 1164) it was held that "merely because the pledged goods are lost or the pledge is unable to return the same does not in every eventuality confer upon the pledger a right to an equitable set off nor is always a complete defence to a suit for recovery of the debt secured by said pledge. Liability of the pledge in such eventuality is circumscribed by section 151 and 152 of the Contract Act " .
In Messrs Khalid Oil Mills. v. Muslim Commercial Bank Ltd. (2005 CLD 1565) it was held by the Division Bench of this Court that "the only ground vehemently, urged by the learned counsel is to the effect that stock of the appellants pledged with the respondent-bank lying in the godown was stolen/misappropriated at the instant of the Manager of the respondent-Bank. On a court question, it is conceded that a criminal case has been registered qua the said occurrence wherein the appellants have been nominated as accused and they are on bail. This plea with reference to the institution of criminal case cannot be advantageously used by the appellants with reference to the recovery of the amount in question through the suit of the respondent-Bank".
12. The above legal position has also been candidly conceded by learned counsel for the plaintiff bank, who submits that matter relating to short fall in the pledge stocks will be determined in execution proceedings when the collateral securities are required to be sold."
14. In view of above discussion, subject to deletion of amount of markup against PAD and markup recovered after expiry dated i.e. 31.12.2014 in respect of FIM, the plaintiff claim in the suit is substantiated by documents and statement of accounts and the defendants have not been able to raise any substantial question of law or fact requiring recording of evidence for its resolution.
15. Consequently, the PLA is dismissed and the suit of the plaintiff bank is decreed in favour of the plaintiff against the defendants jointly and severally for amount of Rs.106,346,325/- together with cost and cost of funds as contemplated by section 3 of the Ordinance. The decree is now converted into execution proceedings under section 19 of the Ordinance. The decree holder will submit Fard Taleeqa/list of assets of the judgment debtors.