' The plaintiff through the amended plaint have prayed for the following reliefs :- "15. That the plaintiff therefore prays that this Hon'ble Court may be pleased to grant :
(a) A declaration that the immovable property bearing No, WS/B/ST/51 standing in Block 7 of K. D. A.
Scheme No, 16, Federal 'B Area, Karachi, together with all building, plant, machinery, equipment, tools and accessories fixed/installed and lying in the said factory on the said plot are subject- matter of mortgage and are charged with plaintiffs claim. In foreign currency i. e. German D. M.
56,602.25 alongwith (1) interest 7! % per annum with six monthly rests, (ii) costs of the suit, and (iii) such other costs, charges and expenses that the plaintiff may incur in respect of the mortgaged properties all in the said foreign currency upto the date of payment, to be paid by the defendant in Pak Currency to the plaintiff at the rates of exchange prevalent on the actual dates of payment or payments of the decretal amount or parts thereof by the defendants.
(b) a decree in form 5 'A' in Appendix 'D'' in the First Schedule to the Code of Civil Procedure.
(c) In the alternative-A decree in foreign currency i. e. German D. M. 56,602.25 alongwith (i) interest at 7% per annum with six monthly rests, (ii) costs of the suit, and (iii) and such other costs, charges and expenses that the plaintiff may incur in respect of the mortgaged properties all in the said foreign currency upto the date of payment, to be paid by the Defendants in Pak Currency to the plaintiff at the rates of exchange prevalent on the actual dates of payment or payments of the decretal amount or parts thereof by the defendants singly and/or jointly.
(d) costs of the suit ; and,
(e) Any other/further/additional relief or reliefs which this Hon'ble Court may deem just under the circumstance of the case."
2. The brief facts leading to the filing of the above suit are that defendant No, 1 which is company incorporated under the Companies Act, obtained a foreign currency loan/accommodation of U S $ 20,000 equivalent to D M 79,920 then equivalent to Pak Rs, 96,000 which was repayable by the above defendants to the plaintiff in 18 semi-annual instalments on 30th June and 31st December, commencing from 18th months after the opening of the Letter of Credit. It seems that the defendants as security for repayment of the said foreign currency loan/accommodation executed a demand promissory note dated 12th April, 1963 in the sum of Rs, 96,000 with interest at 7% per annum with six monthly rests. Defendant No, 1 also hypothecated in favour of the plaintiff all its plant/machinery, spare parts, accessories, equipments, goods and all movable property. It further seems that defendant No, 1 also agreed to mortgage its future fixed assets with the plaintiff to secure the repayment. It also seems that defendants Nos. 2 to 4 jointly and severally guaranteed the repayment of the said foreign currency loan/accommodation and observance of all terms and conditions contained in the said Credit Agreement by the defendant No,
1. It further seems that in pursuance of the above credit Agreement defendant No, 1 equitably mortgaged its factory situated on Plot No, WS/B/ST/51 situated in Block No, 7 in K.D.A. Scheme Federal 'B' Area, Karachi alongwith all plants, marcher, equipments and tools by depositing to the plaintiff title deeds and documents of title relating to the said plot. It seem that there was default in payment and therefore, the plaintiff filed the above suit on 24th October, 1974 for the recovery of Rs, 2,22,076.66 under Order XXXIV, C. P.
C. And had sought a decree on mortgage for the above rupee amount. It also seems that by President's Order No, 3 of 1982 Foreign Currency Loans (Rate of Exchange) Order, 1982 (hereinafter referred to as the Order) the law was amended as to the rate of exchange applicable to foreign currency loan. The above Order was made applicable to financial institutions referred to in section 2 (a) and other institutions which may be notified by the Federal Government in an official Gazette as the financial institutions within the meaning of the Order. It may be advantageous to reproduce hereinbelow sections 3 and 4 of the Order which read as follows :- "3. Rate of exchange applicable to foreign currency loans.-For the removal of doubts it is hereby declared that, notwithstanding anything contained in any other law for the time being in force, the judgment, of any Court or any agreement, contract or other instrument, the rate of exchange, for the purpose of conversion into Pakistan currency for repayment in respect of an outstanding foreign currency loan or any part thereof or interest in respect is thereof payable to a financial institution on the day of commencement of this Order, shall be deemed at all material times to have been, the rate of exchange in force under section 23 of the State Bank of Pakistan Act, 1956 (XXXIII of 1956), on the day on which the loan, part or interest is actually repaid or paid to the financial institution ; and all parties by whom the loan, part or interest is repayable or payable shall make the repayment or, payment accordingly.
4. Bar of jurisdiction, etc.-(1) The provisions of this Order, or any order made thereunder, shall not be called in question in any Court on any ground whatsoever.
(2) Any order, writ, judgment, decision or decree of any Court, made, given, issued or passed before or after the commencement of this Order, which is inconsistent with the provisions of this Order, shall be null and void and of no effect."
' After the enforcement of the above Order, which came into force on 28th February, 1982 the plaintiff after obtaining the permission of the Court filed amended plaint on 6th October, 1983 and sought decree on mortgage in German D. M. Instead of rupee in terms of para. 15 of the amended plaint quoted hereinabove.
3. Defendants Nos. 1 and 3 had filed separate written statement on 18th April, 1975 and 26th April, 1975, respectively, whereas defendants Nos. 2 and 4 filed joint written statement on 1st April, 1975.
After the amendment only defendant No, 3 filed amended written statement on 27th October, 1983.
Defendant No, 1 in their written statement averred that they never agreed to pay the loan in Deutsche Marks and the calculation of the plaintiff taking into account the rate of U S dollars vis-a- vis Duetsche Marks. It was averred that the said amount was not calculated in terms of loan agreement. It was also averred that entire suit amount was not due.
' Defendants Nos. 2 and 4 in their written statement have denied their liability and have inter alia pleaded that under condition 8 (iii) of loan agreement, their liability was for a period of two years from 12th April, 1963.
4. On the basis of the pleadings of the parties following six issues were framed by this Court on 31st October 1975
(1) Is the suit time-barred against defendant No, 3 ?
(2) Is the suit bad for non-joinder of proper parties ?
(3) Is the suit not maintainable against the Guarantors i. e. Defendants Nos. 2-4 ?
(4) Have the defendants Nos. 2-4 transferred their shares in the defendant No, I with the consent of the plaintiffs. If yes, what is the effect ?
(5) Are the guarantors relieved of their liability by any subsequent agreement of hypothecation made by defendant No, 1 ?
(6) What should decree be ?
' The plaintiff in support of the suit examined P. W. 1 Aleemuddin Exh. 7 and produced a number of documents Exhs. 7/1 to 7/50. Defendant No, 1 examined one Abdul Ghani its Secretary and Manager Exh. 8 who produced Exh. 8/1, the notice, dated 19th March, 1974 issued by the City Deputy Collector.
Defendant No, 3 also examined himself Exh.
9.
' It may be observed that nobody appeared on behalf of defendant No,
1. Mr. Afzal Nabi Advocate appeared for defendant No,
3. Whereas Mr. S. M. Sadique appeared for defendants Nos. 2 and 4.
' My findings on the above issues are as follows :-
5. Issue No, 1.-In para. 11 of the plaint, it has been averred that inter alia the cause of action accrued on 17th May, 1974 when the last deposit was made by the defendant. The ,defendant No, l's aforesaid witness Abdul Ghani admitted the factum that the last payment was made in 1974. The suit was filed as observed hereinabove on 24th October, 1974. The learned counsel for the above defendants has not been able to show as to how the suit was time-barred. My finding on the above issue is accordingly in the negative.
6. Issue No, 2.-The burden of proof of this issue was also on the defendants. However, the learned counsel for the defendants Messrs Afzal Nabi and S. M. Sadique were unable to point out as to how the suit is bad for non-joinder of proper parties. In the suit the borrower and guarantors have been impleaded and prima facie they are the necessary and proper parties. My answer to the above issue is in the negative.
7. Issue No, 3. -Mr. Afzal Nabi the learned counsel for defendant No, 3, whose arguments were adopted by Mr. S. M. Sadique has vehemently urged that under the loan agreement, the liability of the guarantors was for a period of two years and since the guarantees were not extended after their execution on 12th April, 1963, they are no longer liable. In support of the above contention, he has referred to clause (8) (iii) of the loan agreement Exh. 7/2 and clause I (2) of the Letter of Guarantee Exh. 7/5 executed by defendants 2 to 4. It may be advantageous to reproduce hereinbelow clause (8) (iii) of the loan agreement and clause I (2) of the Letter of Guarantee, which read as follows :- "(8) The loan/credit and the obligations of the borrower(s) shall at the discretion of the Bank be secured at such times and from time to time as the Bank may determine by all or any of the following ;-
(iii) guarantees of such Banks, Corporation and persons and, if the Borrower(s) is/are a Company or Corporation, of such of its /their Directors and/or Managing Agents as the Bank may require from time to time. The guarantees, if of more than one person, will be joint and several and will be renewable every 2 years and will contain such provisions as the Bank may determine."
' Para. .1(2) of Letter of Guarantee- "(2) And due observance and performance by the Borrower of all terms and conditions of and obligations imposed by and under the Credit Agreement, dated 12th April, 1963 entered into between you and the Borrower."
' On the basis of the above-quoted clause (8) (iii), it has been urged by the learned counsel for the defendants that the guarantee was to be renewed after every two years and since it was not done, the liability of the above defendants as guarantors ceased to exist. On the other hand it was urged by Mr. A. I. Chundrigar learned counsel for the plaintiff that in the body of guarantee Exh. 7/5 no guarantee period has been specified and that the liability of the guarantors was co-extensive with the liability of the borrower. It is true that under the above-quoted clause (8)(iii),the plaintiff had the option to get the guarantee renewed after every two years but this fact will not limit the guarantee period if not provided in the Letter of Guarantee itself. In the above-quoted para. I (2) of the Letter of Guarantee the reference has been made to the due observance and performance by the borrower of all terms and conditions of an obligations imposed by or under the credit agreement, dated 12th April, 1963 entered into between the plaintiff and the borrower. From this, in my view, it cannot be inferred that defendants Nos. 2 to 4's liability was limited for a period of two years. The obligations of the guarantors are specified in para. II of the Letter of Guarantee which has 10 sub-clauses. It will be pertinent to refer to Para. (2), (5), which read as follows ;- "II. In consideration aforesaid, we do hereby jointly and severally further agree, undertake and guarantee as follows : ' That this guarantee shall not be considered as satisfied or discharged by any payment or satisfaction of the whole or any part of the sum or sums of money owing now or at any time hereafter by the Borrower or by discharging of the Borrower by operation of law or otherwise or for any other reason but shall be a continuing security and shall extend to cover any sum or sums of money which shall for the time being constitute the balance due to you from the Borrower in respect of the Credit/Loan mentioned above.
' That we waive all suretyship or other rights at any time inconsistent with any of the terms hereof and further agree that if the Borrower shall become insolvent bankrupt, enter into liquidation (compulsory or voluntary) or make any arrangement or composition with creditors you may (notwithstanding payment to you by us or any other person of the whole or any part of the amount hereby secured) rank as creditor and prove against the estate of the Borrower for the full amount of all your claims against the Borrower or agree to and accept any composition in respect thereof and you may receive and retain the whole of the dividends composition or other payments thereon to the exclusion of all our rights as guarantors for the Borrower in competition with you until all your claims are fully satisfied and we will not by paying off the amount payable by us or any part thereof or otherwise prove or claim against the estate of the Borrower until the whole of your claims against the Borrower have been satisfied and you may enforce and recover payment from us of the full amount payable by us notwithstanding any such proof or composition as aforesaid."
From the above-quoted clauses of the Letter of Guarantee, it is evident that the liability of the guarantors was till the time the entire loan under A the agreement was repaid. The other sub- clauses of para. II of the Letter of Guarantee also lends support to the above-conclusion. It may be observed that though above plea was raised in the written statement, but no question was put to the plaintiff's witness on the above aspect. Be that as it may, even on the basis of the documents on record with reference to the ocular evidence the above contention of the learned counsel for defendants Nos. 2 to 4 is not sustainable. My answer to the above issue is in the negative.
8. Issue No, 4.-No arguments were advanced on the above issue by the learned counsel for the above defendants. However, even if it is to be held that defendants Nos. 2 to 4 had transferred their share in defendant No, 1 Company with the consent of the plaintiff that would not discharge their liability as guarantors for the loan in the absence of any express discharge. Nothing has been produced before the Court to show that either new Guarantors were substituted in place of defendants Nos. 2 to 4 or that the plaintiff has ever discharged the above defendants from their obligation under the guarantee letter Exh.
715. My to the above issue is that the above transfer has not affected the above defendants' liability.
9. Issue No, 5.-No arguments were also advanced on the above issue. However, the answer to this issue is provided in the Letter of Guarantee namely in paras. II (3) and (4). My answer on the above issue is in the negative.
10. Issue No, 6.--I have heard Mr. Chundrigar on the question, whether this Court can pass a decree in the foreign currency. It was urged by Mr. Chundrigar that in view of the Order which contemplates that the rate of exchange for the purpose of discharging a foreign currency loan liability shall be the rate on the date of payment, it is open to this Court to pass a decree in foreign currency as the foreign currency is to be converted in the Pakistani rupee on the basis of the rate of foreign exchange obtaining on the date of payment or realization. In furtherance of the above argument he has submitted that even in England the new trend is that decrees are passed in foreign currency. He has referred to the case of Pakistan Industrial Credit and Investment Corporation Ltd., Karachi v. Mahboob Industries Ltd., Karachi and 10 others (1) the case of Industrial Development Bank of Pakistan v. Messrs William Son & Co. Ltd. And 2 others (2), the case of Jugoslavenska Oceansk Providba v. Castle Investment Company Inc. (3) the case of Miliangos v.
George Frank (Textiles) Ltd. (4) and the case of Barclays Bank International Ltd. v. Levin Bros (Bradford) Ltd. (5).
(i) The above first case was decided by my learned brother Naimuddin, 3 in which it was held that debt to be calculated at the rate of exchange prevailing on the dates when each instalment became due and respecting instalments becoming due on account of the declaration made by the plaintiff on the expiry of period mentioned in the notice. It was further held that recovery of debt payable in foreign currency of judgment and order in action in whatever form in Court in Pakistan for recovery of a debt payable in foreign currency must be expressed in Pakistani rupee unless relative values of respective currencies are fixed by statute or some other authority binding on Pakistani Court or by agreement but the amount of judgment/order must be passed on quantity of Pakistani rupee payable in Pakistan to obtain in the market.
(ii) In the above second Karachi case which was decided by me I have, after referring a number of Pakistani, English and Indian cases, have summarised the principles as follows :- "10. (a) For the above-quoted and discussed Indian and Pakistani cases referred to hereinabove in paras. 6 and 7 the following principles are deducible :
(i) In an execution application for the recovery of costs awarded by the Privy Counsel in sterling during the prepartition days, the Indian Courts on the basis of the provisions of the C. P. C.
Permitted conversion of sterling into Indian rupee on the basis of the rate of exchange prevalent on the date of the order and not at the rate obtaining on the date of filing of the execution application or the date of payment.
(ii) In a case for enforcing a foreign judgment in foreign currency, the rate of exchange would be the rate prevalent on the date when the foreign judgment is sued in Pakistan and not the rate prevalent on the date of the foreign judgment.
(iii) In a case of winding up of a company, the rate of exchange for converting foreign currency into local currency or vice versa would be the rate of exchange prevalent on the date of order of the winding up.
(1) 1980 CLC 249 (2) PLD 1980 Kar. 576
(3) (1973) 3 All E L R 498 (4) (1975) 3 All E R 801
(5) (1976) 3 All E R 900
(iv) In a case of a breach of a contract, the material rate of exchange for the purpose of converting foreign currency into Pakistani rupee or vice versa, would be the rate of prevalent on the date of the breach of the contract and not at the rate of exchange obtaining on the date of the suit for the date of the decree.
(v) In a case for the recovery of an amount due under a contract, the into Pakistani rate of exchange for converting foreign currency into Pakistani rupee, or a Pakistani rupee into foreign currency, would be the rate of exchange prevalent on the due date and not the rate obtaining on the date of the filing of the suit or the date of the decree, as default in payment on the due date would constitute a breach of the contract.
(vi) In a case for the recovery or damages for the commission of a tort the rate of exchange for the purpose of computing the amount into foreign currency or vice versa would be the rate of exchange prevalent on the date of the commission of the tort and not the rate obtaining on the date of the filing of the suit or the date of the decree.
(vii) In a case of the recovery of an amount under a foreign exchange bill the material rate of exchange for the purpose of converting foreign currency into Pakistani rupee would be the rate prevalent on the date when the bill of exchange was matured date for the payment or the date of the suit or the date of the decree."
' It may be observed that after the above judgments and the majority judgment given in an appeal the Order was enacted by President Order No, 3 of 1982 in order to nullify the effect of the above judgments and to provide that the rate of exchange will be the rate prevailing on the date of repayment or payment.
(iii) In the above English case reported in (1973) 3 All E R 498 the Court of appeal maintained an award given in England in foreign currency namely U S dollars. It was held that an award lawfully made in a foreign currency could be enforced under section 26 of the Arbitration Act, 1950 in the same manner as a judgment or order to the same effect. Although a judgment of an English Court had to be in sterling it did not follow that an arbitration award could only be enforced under section 26 if it was in sterling.
(iv) As regards the second case reported in (1975) 3 All E R 801, it may be observed that the facts of the above case were that by an agreement made in May, 1971 the plaintiff, a national of Switzerland, agreed to sell to the defendants, an English company, certain quantity of polyster yarn.
The relevant law applicable to the contract was Swiss law and the money of account and payment was Swiss francs. The yarn was produced by the plaintiff in Switzerland and delivered to the defendants in the autumn of 1971 under five different invoices of which mentioned the price in Swiss francs, payment of which was to be made within 30 days to a Swiss Bank. The defendants did not pay any part of the price. Thereupon, on 20th April, 1972 the plaintiff issued a writ claiming the payment of the sterling equivalent of the contract price at the date when payment should have been made. It may be pointed out that between the above date and the date of the hearing of the action sterling fell in value against the Swiss franc with the result that at the date of the hearing, the contract price in Swiss francs was equivalent to a much larger sterling sum than it had been in 1971.
At the hearing of the case the plaintiff obtained leave to amend the statement of claim so as to claim the amount due to him in Swiss francs. The defendants did not dispute their liability but contended that the plaintiff was not entitled to a judgment of a sum of money expressed in a foreign currency. The majority view of the House of Lords was that the plaintiff was entitled to a decree in Swiss francs to be converted into sterling at the rate prevalent on the date when leave was given to enforce the judgment.
(v) Reverting to the case reported in (1976) 3 All E R 900, it may be stated that in the above case the question before Mocatta, J. Was whether in order to obtain a judgment in foreign currency, it was necessary to establish that the proper law of the contract giving rise to the obligation was the law of a foreign country. It was held that in order to obtain judgment for payment of a sum of money expressed in a foreign currency, it was not necessary to establish that the proper law of the contract giving rise to the obligation was the law of a foreign country. In the above case the decree was granted in dollar upon four Bills of Exchange which were payable in U S dollars.
11. It may be observed that in England the old view was that the Court can grant decree in terms of Sterling Pound and not in any other foreign currency. It seems that the English Courts have departed from the above old view and have granted decree in foreign currency but convertible into sterling on the basis of the rate prevalent on the relevant date according to the circumstances of the case. My learned brother Naimuddin, 3 in the above Karachi case has clearly held that in Pakistan a decree can be granted only in terms of Pakistani currency. In the above-quoted section 3 of the Order, it has not been provided that a decree of the Court should be in foreign currency but what has been provided is that notwithstanding anything contained in any other law for the time being in force, the judgment of any Court or any agreement, contract or other instrument, the rate of exchange for the purpose of conversion into Pakistani currency for repayment in respect of an outstanding foreign currency loan or any part thereof or interest in respect thereof payable to the financial institution on the day of commencement of the Order shall be deemed at all material times to have been the rate of exchange in force under section 23 of the State Bank of Pakistan Act, 1956 on the day on which the loan, part or interest is actually repaid or paid to the financial institution and all parties by whom the loan, part or interest is repayable or payable shall make the repayment or payment accordingly.
I am, therefore, of the view that in order to give full effect to the above section 3 of the Order, it is not necessary that a decree should be in foreign currency, but it should be couched in such way that a judgment-debtor is made to pay Pakistani rupees equivalent to the foreign currency concerned to be worked out on the basis of the rate of foreign exchange prevalent in terms of the above section on the date of payment or on the date of realization of the loan.
12. Since nothing has been pointed out by the learned counsel for th above defendants Nos. 2 to 4 as to indicate that the German D M 56,602.25 has been wrongly calculated, I would pass a preliminary decree against defendant No, 1 in Form 5 'A' in Appendix 'D' to the First Schedule and declare that rupees equivalent to German D. M. 56,602.25 are due and payable to the plaintiff with interest at 7per annum with six monthly rests to be calculated on the basis of the rate of foreign exchange of the above currency obtaining on the date of payment or realization. If the defendants pay into the Court the above amount within 6 months from today with subsequent costs, charges and expenses as provided under rule 10 of Order XXXIV, C. P. C. Together with subsequent interest on the above amount the plaintiff shall deliver to the defendants or to such person as the defendants appoint all documents in their possession or power relating to the mortgaged property and shall if so required transfer the property to the defendants at their costs free from mortgage and free of encumbrance created by the plaintiff or any person claiming under them. If the net proceeds of the sale of the mortgaged property are found insufficient to pay the amount due to the plaintiff, they may apply, to the Court under Order XXXIV, rule 6, C. P. C. For a decree for the balance amount against the defendants in accordance with law.