ABID HUSSAIN CHATTHA, J: This suit is instituted by the Plaintiff Bank for recovery of Rs.
118,998,622.14/- as on 30.04.2014 with markup, costs and cost of funds from the date of default till realization of the decretal amount under Section 9 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (the "Ordinance") against the Defendants.
C. M. No. 1431-C / 2017
2. This is an Application under Order VI, Rule 17 of the Code of Civil Procedure, 1908 (the "CPC") seeking amendments in the application for leave to defend (the "PLA") on behalf of Applicant / Defendant No. 4.
3. It is submitted that the Applicant has been wrongly impleaded as the Defendant / customer of the Plaintiff Bank as an alleged guarantor for enforcement of liability of Defendant No. 1. In fact, Defendant No. 1 is a partnership firm consisting of Defendants No. 2 and 3 and as such, Defendant No. 4 is not a partner of Defendant No. 1. He has also not mortgaged any property in favor of the Plaintiff Bank. The Applicant after hectic efforts has traced letters dated 28.12.2010 and 02.02.2011 in which the Plaintiff Bank has waived off the special condition of Facility Offer Letter of Defendant No. 1 dated 25.10.2010 which reads as under:- "Collateral held / mortgaged against one group constituent to form security against other groups constituents through equitable mortgages (or undertakings) and PG of owners and partners of respective concerns."
4. It is submitted that the said letters could not be placed with the PLA at the time of its submission and as such, the same are liable to be placed on record to be read as part of the PLA in order to resolve the controversy qua validity of the guarantee of the Applicant claimed by the Plaintiff Bank.
Accordingly, the Applicant seeks to amend paragraph No. FF of the PLA to the extent that he has not executed any personal guarantee in favor of the Plaintiff Bank in view of the special condition in renewal Facility Offer Letter dated 25.10.2010 as the same was waived off by the Plaintiff Bank vide letter dated 02.02.2011 in response to letter dated 28.12.2010, therefore, the Applicant has not offered his personal properties as security for repayment of Finance Facilities extended to Defendant No. 1.
Hence, the alleged guarantees appended with the Plaint are fake and fictitious and signatures upon the same are fabricated by the Plaintiff Bank which are inoperative upon the rights of the Applicant.
5. The Plaintiff Bank filed reply to this Application and submitted that the Application under the provisions of the Ordinance is not maintainable for the reason that the Ordinance is a special law and as such, no miscellaneous application can be filed and entertained before the decision of PLA.
The Application is an attempt to develop a new defense by taking contradictory stance as originally taken by the Applicant in his PLA. Therefore, the plea being an afterthought cannot be permitted at belated stage. The Applicant has been a partner of Defendant No. 1 and executed various finance and charge documents in the year 2006 and onwards, therefore, he is jointly and severally liable to adjust the Finance Facilities of Defendant No. 1. The Applicant also executed his personal guarantees and as beneficiary of the Finance Facilities to Defendant No. 1, he is liable for repayments of the Facilities defaulted by Defendant No. 1. The special condition was waived off subject to replacement of deficient expired stock of pesticides with fresh live stock of pesticides but the Defendants instead of doing the needful committed forgery and fraud and planted new stickers with new expiry date on the same old stock, therefore, the Applicant is liable to criminal prosecution and is jointly and severally responsible with other Defendants to pay the defaulted amount of Defendant No. 1.
6. The question of maintainability of an Application under Order VI, Rule 17 of the CPC with respect to amendment in the PLA under the provisions of the Ordinance was thoroughly examined in case titled, "Messrs Habib Bank Ltd. v. Messrs Bela Automotives Ltd. and 7 others" (2010 CLD 1243), wherein, it was concluded that where amendments sought for are supplementary and not destructive, the same can be allowed to be raised and even the limitation would not come in its way. The only consideration should be that pleas should not be inconsistent or divergent to the pleas raised earlier and there is no bar to move such an application. Similar view was also expressed by the Supreme Court of Pakistan in case titled, "Messrs Maroof Knitwear (Pvt.) Limited through Chief Executive and 8 others v. Allied Bank of Pakistan Limited" (2003 CLD 1610). Hence, it is held that principle of amendment in pleadings enshrined in Order VI, Rule 17 of the CPC can be pressed with respect to amendment in the PLA.
7. The Applicant in his original joint PLA with other Defendants raised the plea that he is not the partner of Defendant No. 1 since 2006 and is also not a mortgagor or guarantor qua the alleged Financial Facilities granted to Defendant No. 1 by the Plaintiff Bank. As such, the guarantees appended with the Plaint contain fake and fictitious signatures of the Applicant. Through this Application, the Applicant while placing reliance upon two letters dated 28.12.2010 and 02.02.2011 has taken an additional plea that on account of waiver of special condition contained in the last Facility Offer Letter dated 25.10.2010, the Applicant neither tendered any guarantee nor can be held liable for repayments of the defaulted amount of Defendant No. 1.
8. The Plaintiff Bank in its reply has not disowned the said letters relied upon by the Applicant, rather, have stated that on account of breach of commitments regarding replacement of fresh live stock of pesticides, the waiver of special condition was never acted upon and thus remained intact. In this context, the Applicant primarily pleads that the letters dated 28.12.2010 and 02.02.2011 be paced on record and their effect be considered while deciding the PLA. Since the Plaintiff Bank has not disowned the said letters, therefore, this Application is allowed in the manner that letters dated 28.12.2010, 02.02.2011 and Partnership Deed dated 25.03.2006 are made part of record and the same will be considered while deciding the PLA in the light of respective stances of the Applicant and the Plaintiff Bank.
Main Case
9. By way of background, it is submitted in the Plaint that Defendant No. 1 is a partnership firm consisting of Defendants No. 2-3 as its partners. Defendant No. 1 is closely associated to other partnership firms i.e. M/s Agri Farm Service, M/s Sitara Seeds, M/s Agri Top and M/s Aziz Fertilizer since the said partnership firms are part of Aziz Group which are run and controlled by Defendants No. 2 to 5 who have executed security documents for the benefit of each other to secure various Finance Facilities obtained by Group entities. Importantly, partners of these firms provided their continuing personal guarantees to secure the liability of various Group accounts consisting of Defendant No. 1, M/s Agri Farm Services and M/s Sitara Seeds making each of them liable to the Plaintiff Bank for repayment of the liability of each account. With reference to the Financial Facilities subject matter of this suit, Defendant No. 1 is the principal borrower, whereas, Defendants No. 2 to 6 are arrayed in the capacity as mortgagers or guarantors having secured the Financial Facilities obtained by Defendant No. 1.
10. The relationship between the Plaintiff Bank and the Defendants started in the year 2006. Running Finance Facility of Rs. 5 million; Letter of Credit (L/C) Sight of Rs. 50 million; and FIM / Cash Finance Facility (Sub-limit of L/C Sight) of Rs. 40 million were sanctioned, availed and utilized by Defendant No. 1 against the execution of finance documents. The Facilities were secured through security arrangement as per Facility Offer Letter including mortgage, pledge, hypothecation and continuing personal guarantees of Defendants No. 2 to 5 dated 11.05.2006. The Financial Facilities were renewed and enhanced from time to time till the year 2010.
11. Lastly, the Defendant No. 1 received Letter of Credit (L/C Sight) of Rs. 88 million; FIM (Sublimit of L/C Sight) for Rs. 88 million; Cash Finance Facility (Sublimit of L/C Sight) of Rs. 88 million; and Running Finance Facility of Rs. 5 million. The said Facilities were granted pursuant to Facility Offer Letter dated 25.10.2010 against execution of finance and security documents listed in and appended with the plaint. All the said Facilities had an expiry date of 31.07.2011. The mortgaged and charged assets are fully described in paragraph No. 17 of the plaint. Defendants No. 2 to 4 also executed fresh continuing personal guarantees dated 02.08.2010, whereas, Defendant No. 6 executed its corporate guarantee in favor of the Plaintiff Bank securing an amount of Rs.
1155,100,000/-. Finally, it is alleged that the Defendant No. 1 as well as other group entities failed to repay the Financial Facilities obtained by them and committed default towards the Plaintiff Bank. In the process, the pledged stock was also misappropriated inasmuch as fresh stock was not replaced in lieu of expired stock in violation of the terms and conditions of the Letter of Pledge.
Accordingly, the Plaintiff Bank claimed that it is entitled to recover the defaulted amount with reference to Cash Finance and Running Finance Facilities as per details mentioned in the Plaint in compliance with Section 9(3) of the Ordinance and evidenced from the statement of accounts appended with the plaint.
12. The Defendants submitted their joint PLA contending therein, inter alia, that Defendant No. 1 is a partnership firm consisting of Defendants No. 2 and 3 as its partners, however, Defendants No. 4 and 5 do not have any concern with Defendant No. 1 as they are neither its partners nor mortgagors or guarantors regarding the alleged Facilities; Subsequently, through C. M. No. 1431-C / 2017 allowed in the manner stated above, it was claimed that the Plaintiff Bank waived special condition incorporated in the last Facility Offer Letter dated 25.10.2010 as depicted from letters dated 28.12.2010 and 02.02.2011; Defendant No. 1 pledged its stock of pesticide products equivalent to the amount of Rs. 111.186 million through Letters of Pledge executed from time to time but in the year 2010, the said stock in the custody of the Plaintiff Bank got expired due to its negligence as the latter did not inform Defendant No. 1 firm qua their timely replacement and as such, caused huge monetary loss in violation of the terms and conditions of the Letter of Pledge. Defendant No. 1 wrote various letters seeking to replace the stock about to expire but the said letters were not responded to by the Plaintiff Bank; Rather, the Plaintiff Bank in order to camouflage its negligence initiated criminal proceeding by lodging FIR No. 135 / 14 dated 08.03.2014 regarding the pledged stock against the Defendants; Despite good track record of the Defendants and having knowledge of genuine financial crisis in the year 2011-12, the Plaintiff Bank refused to renew the Facilities already extended to Defendant No. 1, thus, deliberately engineered default of Defendant No. 1; Even a separate house building Facility was fully paid by the Defendants, however, the Plaintiff Bank refused to redeem the collateral on the ground that the same will not be redeemed until all the associated accounts of the Defendants are fully adjusted; the Plaintiff Bank has not appended the original documents with the plaint; the requirements of Section 9(3) of the Ordinance have not been complied with; the statement of accounts annexed with the Plaint carries certain illegal entries of markup beyond the date of expiry of the Facilities which do not correspond with the terms and conditions of Financing Agreements; Defendants No. 4 and 5 are not necessary parties to the suit and as such, are required to be deleted from the array of Defendants; and therefore, the Defendants should be granted unconditional PLA as they have raised substantial issues of law and fact which cannot be determined without recording of evidence.
13. It is evident from the bare perusal of the PLA that the Defendants have accepted and admitted the sanctioning and availing of the Facilities from the Plaintiff Bank. As such, the grant and utilization of Finance Facilities in terms of financing documents appended with the Plaint is fully established. The stance of the Defendants that Plaintiff Bank is responsible for expired pledged stock is not tenable for the reason that the Defendants in their PLA have not identified any particular clause in the Letter of Pledge which was breached by the Plaintiff Bank. On the contrary, it is trite law that in a pledge transaction, a financial institution only maintains constructive possession over the pledged stock through the Muqadam but practically, the customer maintains its physical custody over the pledged stock and operates it in concert with the creditor in accordance with the terms and conditions of the Letter of Pledge. For all intents and purposes, the customer is responsible to undertake its business and the Plaintiff Bank has no concern with the running of the business of the customer. In this context, the Plaintiff Bank rightly maintains in its Replication that the Defendants defrauded the Plaintiff Bank by not replacing the expired stock of the pledged goods after default, thereby, eroding and diminishing its value despite instance of the Plaintiff Bank to replace the same which compelled the Plaintiff Bank to initiate criminal proceedings against the Defendants. For reference see cases titled, "Messrs World Trans Logistics and Others v. Silk Bank Limited and others" (2016 SCMR 800); and "Habib Metropolitan Bank Limited v. Nazir Rice Mills (Pvt.) Limited through Chief Executive Officer and others" (2020 CLD 796).
14. The Plaintiff Bank was not obliged to renew the Facilities of Defendant No. 1 as the latter had defaulted in the repayment of the Facilities. Hence, the Plaintiff Bank cannot be held responsible for engineering default of Defendant No. 1. The incidence of default was fully narrated in the Plaint in compliance with the requirements of Section 9(3) of the Ordinance. Rather, it is importantly noted that the Defendants did not fulfill the mandatory requirements of Section 10(4)(5) and (7) of the Ordinance and as such, the PLA merits to be dismissed on this single score alone.
15. Much emphasis has been laid that Defendants No. 4 and 5 have not executed their guarantees and as such, they are impleaded as unnecessary parties to the suit. It is manifest from record that by virtue of Partnership Deed dated 27.09.2004, Defendants No. 2 and 4 were its partners. On 20.11.2004, the number of partners soar to four but the same were reduced to two i.e. Defendants No. 2 and 3 through Partnership Deed dated 25.03.2006. As such, Defendants No. 4 and 5 did not remain the partners of Defendant No. 1 thereafter, however, as third party, they provided personal continuing guarantees having stakes in Group entities. Record depicts that Defendants No. 4 and 5 executed their continuing personal guarantees dated 15.05.2006 which are appended with the Plaint with respect to each Facility obtained by Defendant No. 1. Similarly, continuing personal guarantees dated 01.03.2007 are also on record. Defendants No. 2 to 4 also executed their fresh personal guarantees dated 02.08.2010 along with Defendant No. 6 which executed its corporate guarantee in favor of the Plaintiff Bank. Defendants No. 4 and 5 in their original PLA claimed that their personal guarantees are fake and forged. Later through an amendment, it was stressed that guarantees are invalid as the special condition of Facility Offer Letter dated 25.10.2025 mandating them to tender their personal guarantees was waived by the Plaintiff Bank. The argument is self- defeating in as much as by resorting to subsequent plea, it was unequivocally accepted that prior to the claimed waiver, personal guarantees on record had indeed been furnished as maintained by the Plaintiff Bank. The Letter dated 02.02.2011 relied upon in this behalf simply states that the competent authority of the Plaintiff Bank has approved to waive off the special condition pursuant to request dated 28.12.2010 as contained in Facility Offer Letter dated 25.10.2010. However, there is no evidence on record that the said approval was acted upon by discharging the personal guarantees of Defendants No. 4 and 5 on record, which in their terms, were continuing in nature, unequivocally guaranteeing the repayment of the Facilities of Defendant No. 1 in the event of default. This is particularly so when the Plaintiff Bank maintains that the Letter dated 02.02.2011 was never acted upon on account of failure of Defendant No. 1 to replace expired pledged stock and subsequent default, whereafter, the Facilities were not renewed. The Supreme Court of Pakistan in case titled, "Industrial Development Bank of Pakistan v. Hyderabad Beverage Company (Private) Limited and others" (2016 SCMR 451) held that "any abortive or attempted variation in terms of contract, which does not become effective, will not absolve the guarantor / surety of original contracted liability." For reference, also see case titled, "Mian Aftab A. Sheikh and two others v. Messrs Trust Leasing Corporation Limited and another" (2003 CLD 702). As such, Defendants No. 4 and 5 have failed to demonstrate that they were unnecessarily arrayed as the Defendants since they had executed guarantees to secure the Facilities extended to Defendant No. 1.
16. Hence, in the wake of admission qua availing of the Facilities by the Defendants and having failed to raise any substantial question of law and fact which requires recording of evidence, the PLA of the Defendants is, hereby, rejected.
17. The next question is the determination of liability. The Plaintiff Bank in terms of paragraph No. 21 of the Plaint has claimed default with respect to Cash Finance and Running Finance Facilities amounting to Rs. 118,998,622.14/-. Nevertheless, minute perusal of the statement of accounts appended with the Plaint reveals that the Plaintiff Bank has claimed mark-up beyond the period of expiry of the Facilities which cannot be granted to the Plaintiff Bank. As such, the latter is only entitled to recover the following amounts with respect to the date of expiry of the Facilities i.e. 31.07.2011:- Cash Finance Facility Outstanding principal on expiry Rs. 87,181,426.00/- Recovery of principal following expiry Rs. 0.00/- Total outstanding principal Rs. 87,181,426.00/- Outstanding markup on expiry Rs. 5,085,780/- Recovery of markup following expiry Rs. 14,384,528/- Total outstanding markup Rs. -9,298,747/- After deducting excess paid markup from principal amount, total recoverable amount for Cash Finance Facility comes to Rs.
77,882,678/-.
Running Finance Facility Outstanding principal on expiry Rs. 4,945,296.21/- Recovery of principal following expiry Rs. 0.00/- Total outstanding principal Rs. 4,945,296.21/- Outstanding markup on expiry Rs. 283,977/- Recovery of markup following expiry Rs. 1,023,575/- Total outstanding markup Rs. -739,598/- After deducting excess paid markup from principal amount, total recoverable amount for Running Finance Facility comes to Rs. 4,205,698/-.
Hence, the Plaintiff Bank is entitled to recover an aggregate amount of Rs. 82,088,376/- as on 31.07.2011 regarding both the Facilities.
18. It is also noted that the Plaintiff Bank has filed an application C. M. No. 3271-C / 2015 for attachment of the properties listed therein before passing of the Judgment, however, no order has been passed thereon since restraining order dated 18.06.2014 passed in C. M. No. 1-C / 2014 remained in the field. In this context, an applicant also filed C. M. Nos. 3051 / 2021 and 641 / 2025 asserting his right with respect to his property claiming that he has been adversely affected by the said restraining order but no order was passed thereon. As the case is being finally decided, suffice is to state that the Plaintiff Bank as well as the objector can raise their respective concerns afresh before the Executing Court. Nevertheless, the statutory protection ordained in Section 23 of the Ordinance shall apply to safeguard the legitimate rights and interests of the Plaintiff Bank.
Accordingly, C. M. Nos. 3271-C / 2015, 3051 / 2021 and 641 / 2025 are disposed of, accordingly.
19. In view of the above, suit of the Plaintiff Bank is decreed for Rs. 82,088,376/- against the Defendants, jointly and severally, with costs of the suit and cost of funds from the date of default i.e. 31.07.2011 till realization of the decretal amount. Decree sheet be prepared accordingly. In the event of non-payment of decreed amount within thirty days from the date of this Judgment, the Decree shall automatically stand converted into execution proceedings under Section 19(1) of the Ordinance and shall be listed for hearing on a date to be fixed by office. Order, accordingly.