ABID AZIZ SHEIKH, J. This Regular First Appeal under section 22 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (Ordinance) has been filed against the impugned judgment and decree dated 25.8.2020 passed by learned Judge Banking Court-III, Multan whereby suit for recovery filed by respondent (financial institution) has been decreed against the appellant for an amount of 47,87,617/- with costs and cost of fund w.e.f. 01.3.2019 till date of realization.
2. Relevant facts are that appellant availed house finance facility under "Ghar Asan Flexi Scheme"
(House Finance) for construction of house. The appellant mortgaged his property to secure the said house finance facility. On request of appellant, the said house finance facility for an amount of Rs.35,00,000/- was sanctioned on 05.12.2014 and amount was disbursed to the appellant through four cheques. The house finance facility amount was repayable in a period of 12 years by way of 144 monthly installments. Initial monthly installment was of Rs.50322/- which was to be increased in rate after one year and date of expiry of said house finance facility was fixed as 04.12.2026. The appellant defaulted in payment of installments, resultantly, the suit was filed on 01.3.2019, which was eventually decreed for an amount of Rs.47,87,617/- with costs and cost of fund from 01.3.2019 till the date of realization. The appellant being aggrieved has filed this appeal.
3. Learned counsel for the appellant submits that as per para 8 of the plaint, admittedly the last installment of Rs.100000/- was paid by appellant on 13.7.2016 and therefore, the date of default for the purpose of cost of fund under section 3 of the Ordinance is 13.7.2016 and not when the suit was filed on 01.3.2019, hence the impugned judgment and decree is not Sustainable to that extent.
4. Learned counsel for the respondent on the other hand submits that last installment of house finance facility was payable on 04.12.2026, however, as several installments were not paid despite repeated notices, the suit was filed on 01.3.2019. He therefore, submits that the date of default is from the institution of suit for the purpose of cost of fund under section 3 of the Ordinance.
5. Arguments heard. Record perused. The availing of house finance facility and execution of documents are not in dispute, however, the only contention of the appellant is that date of default for the purpose of cost of fund under section 3 of the Ordinance is 13.7.2016 and not 01.3.2019 when the suit was filed. In order to determine this legal question, it is expedient to reproduce sections 3, 9(1) and section 17 of the Ordinance as under:- "Section 3. Duty of a customer.:- (1) It shall be the duty of a customer to fulfill his obligations to the financial institution.
(2) where the customer defaults in the discharge of his obligation, he shall be liable to pay for the period from the date of his default till realization of the cost of funds of the financial institution as certified by the State Bank of Pakistan from time to time, apart from such other civil and criminal liabilities that he may incur under the contract or rules or any other law for the time being in force.
(3) For purpose of this section a judgment against a customer under this Ordinance shall mean that he is in default of his duty under subsection (1) and the ensuing decree shall provide for payment of the cost of funds as determined under subsection (2).
Section 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 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.
Section 17. Final decrees:- (1) The final decree passed by a Banking Court shall provide for payment from the date of default of the amounts found to be payable on account of the 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.
(2) The Banking Court may, at the time of passing a final decree, also pass an order of the nature contemplated by subsection (1) of section 16 to the extent of the decretal amount"
(emphasis supplied)
6. From the plain reading of subsection (3) of section 3 of the Ordinance, it is evident that a judgment against a customer under the Ordinance would tantamount to declaration that he is in default of his duties under subsection (1) of section 3 of the Ordinance and decree obtained against customer shall provide for payment of cost of fund as determined under subsection (2) of section 3 of the Ordinance. Consequently, the customer who defaulted in discharge of his obligation under subsection (2) of section 3 of the Ordinance shall be liable to pay cost of fund from the date of default till the realization of amount. Similarly, the perusal of section 9 of the Ordinance shows that "default" in discharge of obligations not only incurs cost of fund under section 3(2) of the Ordinance but same is also actionable for filing of suit under section 9 of the Ordinance. Resultantly, the final decree passed under section 17 of the Ordinance, shall inter-alia provide for cost of fund from the date of default of the amount to be payable by the customer.
From the above provisions, there is no manner of doubt that cost of fund under section 3 of the Ordinance, is to be determined from the "date of default" in the discharge of customer's obligation till realization of the decretal amount.
7. However, the moot question is that what is the "date of default" in various situations for the purpose of cost of fund under section 3 of the Ordinance. Whether the date of default is the date when the finance facility and due date of payment has expired or the date of default is the date when the suit has been filed or the date of default is the date when last installment was paid. No precise definition of "date of default" has been provided in the Ordinance, however, from the conjunctive and holistic reading of provisions of sections 3, 9 and 17 of the Ordinance, it is manifest that when the finance facility is for specified period and not only the finance facility but also due date of payment has expired, than the "date of default" will be the date when the said facility and due date of payment has expired. This is also for the reason that as per settled law, no mark up can be allowed after expiry of finance period and at best only cost of fund can be allowed. However, when the finance facility and due date of payment of installments is still in field, than the "date of default" shall be the date when the financial institution triggered the incident of default and filed the suit under section 9 of the Ordinance for customer "default" in fulfillment of financial obligations, provided the suit is decreed and not found to be premature. However, the last payment of installment in year 2016 against payment schedule valid till 2026, (like in present case), cannot be treated as "date of default" for the purpose of cost of fund under section 3 of the Ordinance.
8. The following case law on the subject also supported the above interpretation of law. In United Bank Limited v. Nothern Polyethylene Limited and others (2008 CLD 688), there was a default in payment of installment but cost of fund was provided from the date of institution of the suit.
Similarly, in Crescent Commercial Bank Now Samba Bank Ltd v. Genertech Pakistan Ltd. (2011 CLD 37), the installments were payable till 26.11.2010 but not a single installment was paid and the cost of fund was allowed from the date of institution of the suit. In Allied Bank of Pakistan Limited v.
Nothern Polyethylene Limited and others (2006 CLC 565), the amount was payable from 01.1.1995 to 01.7.2011 and the decree for mark up was granted till last installment payable and cost of fund thereafter. In Industrial Development Bank of Pakistan v. Pakistan Belting (Pvt.) Limited and others (2006 CLD 808), the facility was expired in 1992 but suit was filed in 2003 and learned Court granted cost of fund not from the expiry of facility but from the date of institution of suit, in order to protect the interest of customer.
9. Even otherwise, the impugned decree for cost of fund from institution of suit, is not entirely adverse to the appellant. In the present case, when admittedly the finance facility was valid for period of 12 years till 04.12.2026, the respondent financial institution had the option to wait till expiry of said period and recover the entire outstanding amount along with agreed mark up but instead it filed suit on 01.3.2019, hence surrendered its claim of mark up from 01.3.2019 till expiry of finance facility i.e. 04.12.2026 and has only claimed cost of funds as contemplated under section 3 of the Ordinance, which is admittedly much less than the rate of mark up in the house finance facility agreement.
10. In view of above discussion, this appeal being merit-less is dismissed with no order as to cost.