ABID HUSSAIN CHATTHA, J: This suit is instituted by the Plaintiff Bank for recovery of Rs.
276,196,889/- with markup, costs and cost of funds from the date of default till realization of the claimed amount under Section 9 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (the "Ordinance") against Defendants No. 1 to 4 and Proforma Defendants No. 5 to 9.
2. By way of background, it is submitted in the plaint that Defendant No. 1 is a Public Limited Company who established its banking relationship with the Plaintiff Bank in the year 2007 and availed various Finance Facilities from time to time by executing necessary finance documents as per applicable Facility Offer Letters against creation of various securities in the nature of mortgages and charges. Defendants No. 2 to 4 furnished their personal continuing guarantees as security for repayment of the obtained Finance Facilities. The Finance Facilities initially obtained in the year 2007 continued with amplifications / renewals / modifications and finally culminated in restructuring of the same. In the year 2019, Defendant No. 1 vide letter dated 26.09.2019 requested for restructuring of short term Facilities and outstanding Lease Finance on the terms and conditions mentioned in the said letter, thereby, acknowledging and admitting disbursement, availment and utilization of existing Finance Facilities sanctioned by the Plaintiff Bank from time to time and showed its resolve to pay back outstanding dues seeking support of the Plaintiff Bank.
Acting upon the same, the Plaintiff Bank issued Offer letter dated 30.10.2019 through which the existing Facilities at the relevant time were amalgamated. Consequently, existing aggregate principal amount of Rs. 229,453,080/- (Net of down payment of Rs. 2,500,000/-) was converted into long term Demand Finance DF-1 (serviceable) payable in 20 equal installments of Rs. 11.473 Million each starting from 31.12.2021 to 30.09.2026 with markup in the nature of cost of funds to be payable on quarterly basis starting from 1st quarter of 2020. However, the outstanding accrued markup / cost of funds of Rs. 18.496 Million at the time of restructuring was converted into long term Demand Finance-II (unserviceable) payable in four equal quarterly installments of Rs. 4.624 Million each to be commenced after complete adjustment of DF-1 from 31.12.2026 to 30.09.2027 on the terms and conditions as stipulated in the Offer Letter dated 30.10.2019. The restructuring arrangement was secured through already created and registered charges with fixed and current assets of Defendant No. 1 already registered with SECP and fresh personal guarantees of Defendants No. 2 to
4. The Offer Letter dated 30.10.2019 was accepted by the Defendants and in furtherance thereof, the Plaintiff Bank and Defendant No. 1 executed Restructuring Agreement dated 08.01.2020. The said Restructuring Agreement establishes unconditional admission of Defendant No. 1 of its outstanding liability of Rs. 250.450 Million as on 30.09.2019. The ancillary finance and security documents were executed by Defendants No. 1 to 4 including personal guarantees. The Restructuring Agreement was supplemented by an Addendum dated 05.03.2020. The finance and security documents narrated in the plaint are appended thereto.
3. The slight variations to the Offer Letter dated 30.10.2019 and Restructuring Agreement dated 08.01.2020 were carried out by the parties vide Offer Letter dated 16.06.2020 read with second Addendum dated 13.07.2020 to the Restructuring Agreement dated 08.01.2020. It was undertaken to give effect to the request of Defendant No. 1 that payment of markup for March & June Quarters, 2020 be allowed to be paid on 31.08.2020 and 30.09.2020, respectively; the rate of markup of March and June Quarter, 2020 as per existing approved restructuring arrangement i.e. cost of funds of preceding quarter of December, 2019 be applicable and upon payment of markup @ 8%, the accrual of markup over and above 8% may be reversed; and since payment of markup for the quarters of March and June, 2020 have been extended to August and September, 2020, therefore, the actual markup payment due in September, 2020 and onward may be charged and paid as per existing approved arrangement.
4. All the liabilities pursuant to the Restructuring Agreement as amended aforesaid have been unequivocally admitted and acknowledged by Defendant No. 1 in its Annual Report for the year 2020. Nevertheless, despite full assistance and accommodation extended by the Plaintiff Bank, Defendant No. 1 defaulted in the discharge of its obligations. Accordingly, the Plaintiff Bank was compelled to institute the suit for recovery. The amounts claimed were listed in paragraph No. 13 of the plaint which were calculated as on 30.06.2022 in terms of compliance of Section 9(2) & (3) of the Ordinance.
5. The contesting Defendants No. 1 to 4 filed their joint Application for leave to defend (the "PLA") to which Replication was filed by the Plaintiff Bank which is taken up in the first instance.
6. Learned counsel for the contesting Defendants submitted that they are entitled to the grant of unconditional PLA on the basis of questions of law and facts stipulated therein. The first part of such questions pertain to the Finance Facilities existing prior to restructuring which were dropped at the time of arguments in view of the fact that liability created pursuant to the Restructuring Agreement read with Addendums was acknowledged and admitted by Defendant No. 1 in the Audited Report ended on 30.06.2020 and in view of law laid down in case titled, "Habib Bank Ltd. v. Taj Textile Mills Ltd. through Chief Executive and 5 others" (2009 CLD 1143), wherein, it has been held that in the cases pertaining to restructuring, the amount is not disbursed but the same is brought forward envisaging as liability of the customer entailing that no physical disbursement of amount is made, as such, the Plaintiff Bank is not obliged to bring on record the statement of accounts prior to the restructuring agreement after restructuring is admitted by the Defendants.
7. The second part of the PLA essentially claimed that markup has been unlawfully claimed in the suit for delayed repayment period and beyond the date of default. Further, markup under the garb of cost of funds has been excessively charged and adjusted more than 8% per annum which is unlawful. The same is neither permissible nor payable or borne out from the statement of accounts read with the documents on record. The said objections shall be dealt with in the later part of the Judgment. Suffice is to hold that such objections pertain to determination of due liability and are not of such nature which would require recording of evidence.
8. The third part of the PLA is with respect to the maintainability of the suit. In this context, it is contended that the suit has been filed by unauthorized person, the statement of accounts is not in consonance with law and personal guarantees and finance documents are fake and without consideration.
9. Perusal of record depicts that the suit is instituted by a duly authorized attorney vide registered power of attorney dated 10.04.2021 which is duly appended with the plaint and executed pursuant to the resolution of the Board of Directors of the Plaintiff Bank, clause 18 whereof authorizes the attorney to institute the suit. The complete statement of accounts duly certified in the manner as ordained in Section 9 of the Ordinance is appended with the plaint. The plea qua fake personal guarantees and finance and security documents is merely a bald and general allegation which holds no substance, particularly, in the wake of admission in the Annual Report for the year 2020 which amounts to public declaration of Defendant No. 1 to the outside world. Clause 11.6 thereof at page 232 as per appended record with the plaint is reproduced as under:- "TF-VI has been obtained from The Bank of Punjab on conversion of short term borrowing, lease liability and restructuring and is secured by charge over fixed and current assets of the company, existing ownership of leased assets and personal guarantees of Company's Directors. The finance carries interest at the lender's cost of funds, payable quarterly. The finance is repayable in twenty equal quarterly installments with the first installment due in December, 2021. During the year, the lender allowed payment of interest for the quarters ended March 31, 2020 and June 30, 2020 to be deferred till August 31, 2020 and September 30, 2020 respectively. An amount of Rs 3.52 million on account of interest is overdue as at the reporting date."
10. It is evident from the above that not only the Restructuring arrangement was acknowledged and admitted but even default was conceded by Defendant No. 1. 'Restructuring' is also a 'finance' in terms of Section 2(d)(iii) of the Ordinance which explicitly provides that 'finance' includes... 'any other financial engagement which a financial institution may give, issue or undertake on behalf of a customer, with a corresponding obligation by the customer to the financial institution'. Similarly, Section 2(d)(ix) of the Ordinance also stipulates that 'finance' includes 'any other facility availed by a customer from a financial institution'. Correspondingly, Section 2(e)(i) ordains that 'obligation' includes 'any agreement for the repayment or extension of time in repayment of a finance or for its restructuring or renewal or for payment or extension of time in payment of any other amounts relating to a finance'... It follows that restructuring is infact a mutually beneficial financial transaction based on convenience and expediency by which a financial institution postpones the recovery of amount due under the defaulted facilities to a future date and the customer accepts such postponement to avoid default and clear the liability based on its future cash flows. Such restructuring arrangement can be with or without payment of cost of funds, by whatever name, it may be so described.
11. There is no prohibition under the Ordinance to impose cost of funds in the nature of markup with mutual consent of the parties on the restructured amount for the reason that upon restructuring, the due amount which ought to have come in the coffer of the financial institution before restructuring, is allowed to remain with the customer for a future date to which a cost may be applied. Hence, by mutual agreement, the parties could validly agree qua such costs at a particular rate which could be levied and recovered in the manner as stipulated in the Restructuring Contract. In other words, Restructuring Agreement is nothing but a financial accommodation for all intents and purposes and cost of funds and / or markup, by whatever nomenclature it may be described, can validly be agreed and recovered upon default for the simple reason that a financial institution has agreed for deferment or postponement of the amount due at an early date with the consent of the borrower as a defaulting party to a future date. Such cost of funds are principally based on the same rationale as cost of funds which has been permitted under the Ordinance in terms of Section 3 thereof with the difference that default is mutually determined by the parties and it is not dependent upon certification of the State Bank of Pakistan from time to time but is based on mutually agreed rate under the Restructuring Agreement. Hence, the existing Finance Facilities were validly restructured with mutual consent by the Plaintiff Bank and Defendants No. 1 to 4 within the ambit and scope of the express provisions of the Ordinance and as such, the restructuring arrangement is liable to be enforced as agreed by the parties.
12. Perusal of statement of accounts indicates that principal amount of DF-1 (serviceable) stood at Rs. 229,453,080/-. There is no ambiguity in this amount. The agreed cost of funds for restructured period from 31.01.2020 has been levied at different rates invariably above 8% in violation of agreed restructuring arrangement discussed above, therefore, the claimed amount in the suit cannot be granted. Further, defaulted amount in the suit is claimed as on 30.06.2022, whereas, as per statement of accounts, default occurred on 30.06.2021. Nevertheless, the freezed or outstanding markup of Rs. 18,496,000/- under DF-II at the time of restructuring was surely payable as occasion for its payment did not arise due to prior default. Accordingly, the Plaintiff Bank is only entitled to recover the following amount after deduction of paid cost of funds till the date of default i.e. 30.06.2021.
Principal (A) Rs. 229,453,080/- Restructured period markup @ 8% P.A. Rs. 32,131,740/- Markup recovered under restructuring (Rs. 23,393,667/-)
Net Markup payable (restructured period) (B)Rs. 8,738,073/- Grand Total (A)+(B) Rs. 238,191,153/- Past accrued freezed markup (C) Rs. 18,496,000/- Grand Total (A)+(B)+(C) Rs. 256,687,153/-
13. Since no questions of law and facts have been raised in the PLA which require recording of evidence, therefore, the PLA of Defendants No. 1 to 4 is rejected and in consequence thereof, the Plaintiff Bank is held entitled to Decree for recovery of the defaulted amount calculated above from Defendants No. 1 to 4 jointly and severally.
14. The PLAs of Defendants No. 5 to 7 have only been filed in their capacity as the Proforma Defendants for the reason that they hold various charges on the assets of the contesting Defendants and as such, have not opposed the Decree of the suit subject to their corresponding rights qua charges against the assets of the contesting Defendants. The same can be adequately determined during execution proceedings. Hence, the PLAs of the said Proforma Defendants are disposed of, accordingly.
15. In view of the above, suit of the Plaintiff Bank is decreed for Rs. 256,687,153/- against the Defendants, jointly and severally, with costs of the suit and cost of funds from the date of default i.e. 30.06.2021 till realization of the decretal amount. Decree sheet be prepared accordingly. In the event of non-payment of decretal 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.