' By this common Judgment, I intend to dispose of I. Miscellaneous 8/72, Suit No, 210/72 and Suit No, 104/73.
' The brief facts leading to the filing of the above cases are as follows :-
2. J. Miscellaneous, 8 of 1972.-(a) Industrial Development Bank of Pakistan (hereinafter referred to as the financial institution) under credit agreement, dated 14th December, 1964, Exh. 1/1 (in J.
Miscellaneous 8/72) agreed to grant a foreign currency loan namely D. M. 4,03,200 then equivalent to Rs, 4,80,000 to Messrs Textile Accessories (Pakistan) Ltd. (hereinafter referred to as the borrower).
It seems that in order to ensure the re-payment of the above loan, Messrs Commerce Bank Limited (which has now been substituted by United Bank Ltd. After the enactment of (Banks Nationalization Act, 1974) (hereinafter referred to as the guarantor bank) executed a bank guarantee, dated 30th October, 1964, Exh. 7 (in Suit No, 104/73). It further seems that defendants Nos. 2 and 3 in Suit No, 104/73 namely, Syed Hasan Mahmud son of Makhdumulmulk and Begum Azra Hasan Mahmud wife of Syed Mahmud executed Letter of Guarantee, dated 14th December, 1964, Exh. 8 (in Suit No, 104/73) (hereinafter referred to as the guarantors). It further seems that 11 instalments were paid against the total 17 instalments specified inter alia in the above credit agreement and the bank guarantee. It further seems that the borrower also executed an agreement of hypothecation, dated 14th December, 1964 in favour of the financial institution Exh. 1/11 (in J. Miscellaneous 8/72). It also seems that Custom Department had filed some recovery proceedings against the borrowers and forwarded a certificate of recovery to the City Deputy Commissioner for execution. Thereupon, the financial institution filed J. Miscellaneous 8/72 on 10th January, 1972 in which the following prayer was made :- "It is, therefore, respectfully prayed :
(1) The management of the concern and the project assets may be transferred to the petitioner so that the petitioner may find a proper person to run the project who may pay off Customs dues, dues of the petitioner and the dues of respondent No, 6 or in the alternative an order for the attachment and sale of the property pledged, mortgaged or hypothecated with the petitioner may be passed for the recovery of the loan amount of the Bank amounting to Rs, 2,45,536 and cost of these proceedings and interest at 9% per annum and an injunction ad interim may be passed that the machinery and plaint installed at Units 1 and 2 of S. I. T. E., may be attached until transfer of the management of the project to the petitioner or until the sale of the project as may be considered proper by the Court."
(b) After that the amended application was filed on 21st August, 1973, in which on account of devaluation the original amount of Rs, 2,45,536 was substituted by Rs, 6,59,062.35. It further seems that the third amended application was filed on 17th January, 1984 after the promulgation of the Foreign Currency Loans (Rate of Exchange) Order, 1982, President's Order No, III of 1982 (hereinafter referred to as the Order) in which the following prayer was substituted : "It is, therefore, respectfully prayed :
(1) The management of the concern and the project assets may be transferred to the petitioner so that the petitioner may find a proper person to run the project who may pay off customs dues, dues of the petitioner and the dues of respondent No, 6, or in the alternative an order for the attachments and sale of the property pledged, mortgaged by hypothecated with the petitioner may be passed for the recovery of the loan amount of Bank amounting to D. M. 1,79,220.35 and net Rupees charges of Rs, 13,869.09 and cost of these proceedings and interest at 9% per annum and an injunction ad interim may be passed. That the machinery and plaint installed at units 1 and 2 of S. T. E. May be attached until transfer of the management of the project to the petitioner or until the sale of the project as may be considered proper by the Court."
(c) It may be observed that originally in the above application 7 parties were arraigned as respondents. However, on 8th May, 1972 then respondents Nos. 4 and 5, namely, Syed Badruduja Raja son of Syed Nazirul Haq and Begum Isar Badar wife of Syed Badruduja were dropped, whereas then respondent No, 6 Commerce Bank Limited were dropped on 18th January, 1974. Furthermore, then respondents 2 and 3 Syed Hasan Mahmood son of Makhdoomulmulk and Begum Azra Hasan Mahmood were dropped, with the result that there remained only two respondents i. e. Respondent No, 1 Messrs Textile Accessories (Pakistan) Ltd. And City Deputy Commissioner, Karachi. It may be observed that in the above J. Miscellaneous no relief was prayed for against respondents Nos. 2 to 7.
' It may be pointed out that no written statement has been filed by any of the respondents in above J. Miscellaneous. One Rana Muhammad Yousuf son of Chaudhry Alamgir had filed objections in affidavit-form on 7th February, 1972, showing himself as Perokar of respondent No, 2, the Chairman of respondent No, 1, whereas respondent No, 6 the guarantor Bank filed objections on 7th February, 1972. In the above affidavit and objections it was denied that the above respondents were liable to pay any sum. The guarantor Bank had pleaded that on account of variation in the terms of loan made by the financial institution without their consent, their obligation stood discharged by virtue of section 133 of the Contract Act. In support of the above J. Miscellaneous application the financial institution examined P. W. 1 Mr. M. Aleemuddin. He has produced a number of documents namely Exhs. 1/1 to 1/21.
3. Suit No, 210 of 1972.-(a) This suit was filed on 18th May, 1972 by the guarantor Bank against the borrower and the financial institution for the decree of Rs, 3,75,615.04 against the borrower and a decree for s. 4,68,384.39 against the financial institution, in the alternative a decree for entire amount of Rs, 8,43,999.43 against the borrower with 9% per annum interest with quarterly rests with effect from 1st April, 1972. In the above suit it was averred that the financial institution is liable as they failed to obtain first charge on the property of the borrower. It was also averred that the guarantor Bank stood discharged from their liability under the above bank guarantee. It was further averred that the financial institution was liable to refund the amount paid by the guarantor Bank under the above guarantee. Against the borrower, it was averred that they were liable to pay under the arrangement entered into between the guarantor -Bank and the borrower under Exhs.
6/2, 6/3, 6/7, 6/9 and 6/10 of suit file No, 210/72. The borrower was declared ex parte by order, dated 31st May, 1973. However, the financial institution filed a detailed written statement, in which it was inter alia averred that the bank guarantee remained intact as the full loan amount was not repaid.
It was also denied that the financial institution committed any breach of the understanding with the guarantor Bank as to the obtaining of the first charge on the borrower's property.
(b) On the basis of the pleadings of the parties by, consent of the plaintiff and defendant No, 2, following 9 issues were adopted on 8th October, 1973 :-
(1) Did plaintiffs at the request of defendant No, 1 issue Bank guarantee No, CBL/149, dated 30th October, 1964 for Rs, 4,80,000 in favour of defendant No, I, on the basis of counter guarantee, dated 30th October, 1980, given by defendant No, 1 ?
(2) Did plaintiffs grant cash credit limit of Rs, 1,00,000 initially for a period of one year upto 9th .
June, 1967 to defendant No, 1 in their Current Account No, 704 as mentioned in para. 3 of the plaint ?
(3) Did defendant No, 1 in consideration of the abovementioned cash credit limit execute documents as mentioned in paragraph 4 of the plaint ?
(4) Did defendant No, 1 fail to adjust his cash credit facility which was granted by way of overdrafts in their Current Account No, 704 and also failed to pay their instalments to I.D.B.P. As mentioned in para. 5 of the plaint ?
(5) Did defendant No, 1 execute a demand promissory note for Rs, 4,60,000, dated 31st July, 1969 as mentioned in para. 7 of the plaint as well as the other documents as mentioned in the said para. ?
(6) Are plaintiffs entitled to subrogation to all the securities which are held by defendant No, 2 as a result of various payments made by plaintiffs to defendant No, 2 under Bank Guarantee No, CBL/149, dated 30th April, 1964 as mentioned in para. 8 of the plaint ?
(7) Did plaintiffs issue Guarantee No, CBL/149, dated 30th October, 1964 on clear understanding to the knowledge of defendant No, 2, that defendant No, 2 would take the registered mortgage of all the assets and properties of defendant No, 1 as security for their advance for which the plaintiffs issued guarantee in question as mentioned in para. 9 of the plaint ?
(8) Did defendant No, 2 without the consent of the plaintiffs change the terms of their contract with defendant No, 1 as mentioned in para. 9 of the plaint ? If yes, did plaintiffs' liability under the said guarantee stand discharged by virtue of section 133 of the Contract Act ? If yes, is defendant No, 2 liable to refund a sum of Rs, 4,68,384.39 with interest thereon paid to them by the plaintiffs under the said guarantee as mentioned in para. 9 of the plaint ?
' To what relief or reliefs are plaintiffs entitled against the defendants ?
(c) The guarantor Bank examined Munir A. S. Siddiqui Exh. 6 (in Suit No, 210/72) who produced the copy of bank guarantee Exh. 6/1, undertaking, dated 30th October, 1964 executed by the borrower in favour of the guarantor Bank Exh. 6/2, agreement for cash credit, dated 5th January, 1967 Exh.
6/3, agreement for cash credit, dated 5th January, 1967 Exh. 6/4. Letter of undertaking executed by the borrower dated 5th January, 1967 Exh. 6/5, certificate of registration of mortgage under section 114 of the Companies Act, 1913 Exh. 6/6, certified copy of the statement of account Exh. 6/7, copy of borrower's Secretary's letter, dated 28th August, 1968 Exh. 6/8, promissory note, dated 31st July, 1969 executed by the borrower in favour of the guarantor bank for Rs, 4,60.,96c.47 Exh. 6/9, D. P. Note Delivery letter dated 31st July, 1969 Exh. 6/10, copy of guarantor bank's letter, dated 19th January, 1972 addressed to the financial institution Exh. 6/11.
' Financial institution examined D. W. 1 Muhammad Aleemuddin Exh. 7 who produced a copy of letter, dated 14th November, 1964 containing the terms of loan Exh. 71 and copy of guarantor bank's letter, dated 24th October, 1968 addressed to the financial institution Exh. 7/2.
' It may be pertinent to observe here that by a consent order, dated 3rd April, 1978, it was ordered that the evidence in the above three cases are to be read into each other.
4. Suit No, 104 of 1973.-(a) This suit was filed by the financial institution on 31st January, 1973 for the recovery of Rs, 6,59,62.35 against the guarantor Bank and the two guarantors namely. Syed Hasan Manmood and Begum Azra Hasan Mahmood. It seems that after the enforcement of the Order an amended plaint was filed on 17th January, 1984, in which following prayer was made :- "13. That the plaintiff prays for judgment and decree in the following terms :-
(i) for D. M. 1,79,220.35 and net rupee charges of Rs, 13,869.09 against the defendants singly and jointly with interest at 10% per annum from the date of the suit till realisation. In any case, in view of the Foreign Currency Loans (Rate of Exchange) Order, 1982, the claim of the plaintiff as to foreign currency amount be decreed in foreign currency i. e. D. M.
1.79,220.35 alongwith interest @ 10% per annum with six monthly rests in the foreign currency upto the date of payment, to be paid by the defendants in Pakistani Currency to the plaintiff at the rate of exchange prevalent on the actual dates of payment or payments of the decretal amount of parts thereof by the defendants.
(ii) Costs of this suit.
(iii) any other further/additional relief(s) this Hon'ble Court may deem fit to grant regard being had to the nature of this case.-
(b) The above suit was resisted. Defendant No, 1 filed written statement on 25th October, 1973, Exh. 3, in which the stand taken by them in their above Suit No, 210/72 was reiterated. It was again pleaded that in view of the variation in the terms of the loan, the bank guarantee stood discharged and that factually the financial institution was liable to pay the amount claimed by the guarantor Bank in their above suit.
' Defendants Nos. 2 and 3 filed joint written statement on 16th October, 1973 Exh. 6, in which inter alia it was pleaded that the suit was not maintainable, suit was bad for misjoinder of parties and non- joinder of necessary parties, that the suit was time-barred. Without prejudice to the above pleas, it was averred that a loan of Rs, 4,80,000 was sanctioned by the financial institution in favour of the borrower. It was further averred that letter of guarantee was not only executed by the guarantors but also by Syed Badruduja and Begum Isar Badrudduja. It was also pleaded that the financial institution had already filed a case being No,
5. Miscellaneous 8/72 in this Court and, therefore, the above suit was res judicata and was not maintainable against the above defendants.
(c) On the basis of the pleadings of the parties, the following issues were framed by this Court on 9th September, 1974 :-
(1) Is the suit as framed not maintainable under law ?
(2) Is the suit bad for misjoinder of parties and not maintainable as the necessary parties have not been joined and implied ?
(3) Is the suit time-barred ?
(4) Is suit liable to be stayed in view of provisions of section 10 C. P. C. Till Miscellaneous Application 8/72 and Suit No, 210/72 filed by defendant No, 1 against plaintiffs and Messrs Textile Accessories (Pakistan) Ltd. And others arising out of this very guarantee in question which is pending before this Hon'ble Court is disposed off ?
(5) Did defendant No, 2 stand discharged from its liability under the bank guarantee No, CBL/149, dated 30th October, 1964 w. e. f. 24th October, 1968 under section 133 of the Contract Act as mentioned in para. 4 of the written statement of defendant No, 1 ?
(6) To what relief or reliefs are plaintiffs entitled and against which of the defendants ?
(d) The financial institution examined P. W. 1 Muhammad Aleemuddin Exh. 23, who produced original bank guarantee executed by the guarantor Bank, dated 30th October, 1964 Exh. 7, letter of guarantee, dated 14th December, 1964 inter alia executed by the guarantor Exh. 8, copy of financial institution's letter, dated 13th June, 1968 to the guarantor Bank Exh. 9, the guarantor Bank's letter, dated 20th August, 1968 addressed to the financial institution Exh. 10, copy of financial institution's letter, dated 4th October, 1968 addressed to the guarantor Bank, Exh. 11, guarantor Bank's letter addressed to the financial institution, dated 24th October, 1968, Exh. 12, guarantor Bank's letter, dated 23rd July, 1971 addressed to the financial institution Exh. 13, D.
0. Of the guarantor Bank's Managing Director, dated 20th October, 1971 addressed to the Deputy Managing Director of the financial institution Exh. 14, copy of letter of Deputy Managing Director of financial institution, dated 4th November, 1971 addressed to the Managing Director of the guarantor Bank, Exh. 15, guarantor Bank's letter addressed to the Deputy Managing Director of the financial institution, dated 8th November, 1971 Exh. 16, copy of financial institution's letter, dated 26th November, 1971 addressed to the guarantor Bank Exh. 17 and other documents Exhs. 18, 19, 20, 21, 22, 23/1 to 23/12 24, 25 and 26. None of the defendants examined any witness in the above suit nor produced any documents.
5. (a) I intend to take up first the issues of Suit No, 210/72 and my findings on the above issues are as follows :- ' Issue No, I.-The copy of the guarantee executed by the guarantor Bank is Exh. 6/1 and the counter guarantee executed by the borrower in favour of the guarantor Bank is Exh. 6/2, in the above suit.
My finding on issue No, 1 is, therefore, in the affirmative.
(b) Issues Nos. 2 to 5.- These issues are interlinked and, therefore, can be disposed of conveniently together. Exh. 6/3 is agreement for cash credit, dated 5th January, 1967 executed by the borrower for availing of continued advances to the extent of Rs, one lac, Exh. 6/5 is the letter of undertaking, dated 5th January, 1967 executed by the borrower in favour of the guarantor Bank, Exh. 6/7 is the certified copy of the statement of account showing debit balance of Rs, 8,43,999.43, Exh. 6/9 is promissory note executed by the borrower on 31st June, 1969 of Rs, 4,63,960.47, Exh. 6/10 is D. P. Note delivery letter, dated 31st. July, 1969. The above evidence remained unrebutted by the borrower. The borrower has not filed any written statement in the above suit nor produced any witness. Factually the borrower was declared ex parte by the Court by order, dated 21st May, 1973. In this view of the matter, my findings on the above issues are in the affirmative.
(c) Issue No, 6. -In support of the issue Mr. Salim Karamally, learned counsel for the guarantor Bank has referred to section 140 of the Contract Act whereas Mr. A.I. Chaundrigar has relied upon section 141 of the Contract Act. It may be advantageous to reproduce hereinbelow the above two sections, which read as follows :- "140, Where a guaranteed debt has become due, or default of the principal debtor to perform a guaranteed duty has taken place, the surety, upon payment or performance of all that he is liable for, is invested with all the rights which the creditor has against the principal debtor."
"141. A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship is entered into, whether the surety knows of the existence of such security or not ; and, if the creditor loses, or, without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security."
' It may be noticed that under the abovequoted section 140, it has been provided that where a guaranteed debt has become due or default of the principal debtor to perform a guaranteed duty has taken place, the surety upon payment or performance of all that he is liable for, is invested with all the rights which the creditor had against the principal debtor. It may further be noticed that whereas section 141 provides that a surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of surety ship is entered into whether the surety knows of the existence of such surety or not and if the creditor loses or without the consent of the surety parts with such security is discharged to the extent of the value of security.
' In the instant case it is an admitted position that under the bank guarantee the guarantor Bank had to pay 17 instalments as mentioned in the guarantee itself which corresponded with the instalments provided in the credit agreement executed by the borrower in favour of the financial institution. According to Mr. Karamally learned counsel for the guarantor Bank, 12 instalments were paid, whereas according to the documentary evidence on record factually 11 instalments were paid. Reference may be made in this regard to Exh. 1/17 (in J. Miscellaneous 8/72). In any case, admittedly all the instalments were not paid and, therefore, the guarantor Bank has not performed all that they were liable to do. In this view of the matter abovequoted section 140 is not attracted to.
I am also inclined to hold that section 141 has no relevancy to the issue under discussion. My finding on the above issue is that since the guarantor Bank has not discharged their full obligation by not making payment of all the 17 instatments, they cannot press into service the right of subrogation in terms of section 140 of the Contract Act. However, in case they discharge the liability of the borrower even after the passing of the decree by this Court they shall be entitled to press into section 140 of the Contract Act a that stage.
(d) Issue No, 7.-On this issue, it was urged by Mr. Salim Karamally that the plaintiff had agreed to furnish the bank guarantee on the express understanding that the financial institution would obtain first charge over the borrower's property. In this regard it may be pertinent to observe that under the terms of the loan, it was agreed to by the borrower to create mortgage. In this regard reference may be made to Exh. 1/1 (of J. Miscellaneous 8/72) particularly sub-para. 1 of para. 4 of Schedule II, which provides that the borrower shall execute a mortgage. There is also a letter, dated 29th October, 1964 form the Secretary of Sind Industrial Trading Estate stating no objection to the creation of the mortgage Exh. 1/3 (in J. Miscellaneous 8/72). In addition to that there are other documents namely, Exhs. 9, 10, 11, 12, 13, 16 and 21 (Suit No, 104/73) which indicate that the financial institution by its letter, dated 13th June, 1968 addressed to the guarantor Bank sought their concurrence for acceptance of first charge by way of hypothecation of the plant and machinery instead of mortgage of the said plaint and machinery, which was declined by the gurrantor Bank by its letter, dated 20th August, 1968. The other letters also indicate that a mortgage deed was to be executed by the borrower in terms of the credit agreement, However, the question in issue is, as to whether there was any express understanding/agreement between the guarantor Bank and the financial institution as to the obtaining of mortgage by the financial institution as a condition precedent to the furnishing of the bank guarantee. It may be observed that under the credit agreement the bank guarantee, which was to be furnished by the borrower was to be an unconditional bank guarantee. The bank guarantee itself Exh. 7 (of Suit No, 104/73) indicates that it is an unconditional bank guarantee. Nothing has been brought on record by the guarantor Bank to indicate that this was an express understanding/agreement between the financial institution and them that the financial institution would obtain the mortgage and that they were furnishing the bank guarantee on the above understanding/agreement. In this view of the matter, my finding on the above issue is that though under the credit agreement the borrower was to execute a mortgage in respect of the plant and machinery and the factory but there was no express undeastanding or agreement between the financial institution and the guarantor Bank as a condition precedent for furnishing the above bank guarantee by the guarantor Bank.
(e) Issue No, 8.-On this issue, it may be pertinent to refer to para. 9 of the plaint, in which the guarantor Bank has averred that : "plaintiffs came to know that in spite of plaintiffs letter, dated 24th October, 1968, the defendant No, 2 changed the terms of their contract with the defendant without the consent of the plaintiffs who were guarantors by virtue of their bank guarantee dated 30th October, 1964, by their failure to obtain registered mortgage of the properties belonging to defendant No, 1 in their favour and instead of that at the request of defendant No, I agreed and accepted hypothecation of their properties only by way of security and as such, plaintiffs contended that their liability under the said guarantee stood discharged by virtue of section 1.33 of the Contract, Act". This averment has also been made in other part of the body of the plaint.
However, this was denied by the financial institution in its written statement in para. 9 in which it was averred that : "The plaintiff when issuing Guarantee No, CBL/149 of 30th October, 1964 had not been assured by defendant No, 2 . That the latter would obtain from defendant No, 1 a registered mortgage of all the assets and properties of defendant No, 1 by way of security for the loan of Rs, 4,80,000 sanctioned and/or given by defendant No, 2 to defendant No,
1. Merely because letter, dated 14th June, 1968 (Annexure 'R' to the plaint) was written by defendant No, 2 to the plaintiff does not mean that any indulgence granted by defendant No, 2 to defendant No, 1 was subjected to agreement of the plaintiff. The guarantee, dated 30th October, 1964 is very clear when it provides that any time or indulgence may be granted by defendant No, 2 to defendant No, 1 and this means that no previous permission of the plaintiff was necessary if any time or indulgence was granted by defendant No, 2 to the plaintiff. The liability of the plaintiff did not stand discharged by virtue of section 133 of the Contract. Act or otherwise".
I have already held above under issue No, 7 that the guarantor Bank has failed to prove that there was any express understanding/agreement between them and the financial institution, whereby the latter was obliged to obtain a registered mortgage, as a condition for furnishing the bank guarantee. Apart from the above finding, I find that factually the financial institution had not agreed to accept hypothecation in place of the mortgage. The correspondence between the guarantor Bank and the financial institution has already been referred to issue No,
7. In addition to that it may be pertinent to refer to Exhs. 7/3 and 7/4 of Suit No, 210/72. Exh. 7/3 is a letter, dated 13th May, 1969 written by the financial institution to the borrower under the caption "Re-completion of registered mortgage". In this letter the attention of the borrower was invited to the previous letter, dated 24th December, 1968 (wrongly typed as 69) and subsequent reminders, dated 29th January, 1969 and 17th April, 1969 on the subject. The borrower was requested to complete the registered mortgage. This letter was followed by Exh. 7/4 which is a letter, dated 9th December, 1969. It is true that the borrower through their letter dated 15th March, 1966 Exh. 23/9 requested the financial institution for the waiver of clause relating to the creation of mortgage. Upon the receipt of the above request a reference was made to the guarantor Bank for concurrence of the variation of the above terms of the loan which was declined by the guarantor Bank as observed hereinabove under Issue No,
7. After that the financial institution through their above letters Exhs. 7/3 and 7/4 had called upon the borrower to execute the mortgage. From the above documents, it is, therefore, evident that factually there was no waiver on the part of the financial institution. Furthermore, the guarantor Bank under the terms of guarantee was obliged to see that the terms and conditions of the credit agreement were complied with by the borrower. Mr, Karamally has referred section 133 of the Contract Act, which provides that any variance made without the surety's consent, in terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance. In my view, the above section 133 is not attracted to the instant case in view of my finding that there was factually no variation in the terms of the credit agreement. Furthermore, the bank guarantee executed by the guarantor Bank was an unconditional bank guarantee without stipulation providing any obligation on the part of the financial institution to obtain the execution of a mortgage deed. Mr. Chundrigar has referred to section 137 of the Contract Act, which provides that mere forbearance on the part of the creditor to use the principal debtor or to enforce any other remedy against ' him does not, in the absence of any provision in the guarantee to the contrary, discharge the surety. Strictly speaking this section has also no application. It is not the question of forbearance on the part of the financial institution to sue the principal debtor. The question in issue is, E, whether there was any variation in the terms of the credit agreement as to ' discharge the guarantor Bank. In view of the above discussion my finding on issue No, 8 is in the negative.
( f) Issue No, 9.-Mr. Huda though appeared in J. Miscellaneous 8/72 but has not filed his Vakalatnama in this suit. The evidence of the guarantor Bank against the borrower in this suit remained unrebutted. As per state ment of account Exh. 6/7 of Suit No, 210/72 the borrower was liable to pay a sum of Rs, 8;43,999.43. I would, therefore, decree the suit against the borrower namely Messrs Textile Accessories (Pakistan) Limited to the extent of Rs, 8,43,999.43 with 9% interest per annum as provided under the promissory note from the date of the suit till the date of the decree and interest at the rate of 2% above the bank rate from the date of the decree till payment in terms of section 34-B, C. P. C. And costs. However, the suit against the financial institution, namely, Industrial Development Bank of Pakistan is dismissed with no order as to costs.
6. Suit No, 104 of 1973.-(a) My findings on the issues framed in Suit No, 104/73 are as follows :- 1 l Issue No, 1.-It was urged by Mr. Karamally that since the financial institution has varied the terms of the credit agreement without th F consent of the guarantor Bank, the latter stands discharged in view of section 133 of the Contract Act and, therefore, the suit is not maintainable. I have already given my reasons under issue No, 8 of Suit No, 210/72 that this is not so. My finding on the above issue is in the negative.
(b) Issue No, 2.-The borrowers in their written statement have raised this plea but nothing has been brought on record to indicate as to how the suit is bad for misjoinder of parties. The above suit has been filed by the financial institution against the guarantor Bank and the two guarantors. The letter of guarantee is Exh. 8 of the file Suit No, 104/73. Under the letter of guarantee, the liability of the guarantors was joint and several. It seems that factually the above letter of guarantee was executed by four persons, who were originally impleaded in J. Miscellaneous 8/72. However, two of them were dropped, namely Syed Badrudduja and Begum Isar Badar Wife of Syed Badrudduja.
Since the present suit was filed against guarantor Bank and the two guarantors and as under the terms of letter of guarantee Exh. 8, the liability of the above guarantors was joint and several,' the suit is not bad for misjoinder of any necessary parties. This was evenG candidly conceded by Mr. Huda learned counsel for the borrower that the suit is not bad for misjoinder of necessary parties.
Mr. Karamally though did not argue on this aspect yesterday when the arguments were concluded on this issue except what I have referred to hereinabove but today he has submitted that the borrower should have been impleaded as a party and the omission to implead the borrower is fatal to the suit. However, he has not cited any provision of law or any ruling. It will suffice to observe that under the terms of the bank guarantee, the guarantor Bank undertook to pay the loan amount unconditionally, whereas under the letter of guarantee executed by the guarantors Exh. 8 they are at par with the principal debtor in terms of clause II (3) an their liability was joint and several in terms of clause II (9). It would have been appropriate for the financial institution to have impleaded in the suit the borrower but whether this omission is fatal or not is a different question. It may be observed that there are three proceedings in respect of the same subject-matter pending before this Court which are the subject matter of this judgment, namely, J. Miscellaneous 8/72 filed by the financial institution .Against the borrower, Suit No, 210/72 filed by the guarantor bank against the borrower and the financial institution and the present suit filed by the financial institution against the guarantor Bank and the two guarantors. Nothing has been brought on record by the guarantor Bank or by the borrower in the evidence of any of the above three proceedings, which are to be read together in terms of the consent order to indicate that there has been any payment made either by the guarantor Bank or by the borrower in addition to the payment shown in the statement of accounts produced by the financial institution. Furthermore, in clause 6 of the guarantee, Exh. 7 of the present suit, it was agreed by the guarantor Bank that any certificate in writing as to the amount at any particular time issued by the financial institution's authorized officer shall be conclusive as to the liability of the guarantor Bank as to the quantum of amount. In view of the above background, I am inclined to hold that the omission to H implead the borrower in the present suit is not fatal and does not warrant the dismissal of the suit.
(c) Issue No, 3.-On this issue, it was argued by Mr. Karamally that since the obligation in the terms of the credit loan had taken place in 1968 and as guarantor Bank stopped making payment after discovering the above breach on the part of the financial institution, the cause of action accrued to the financial institution in 1968. However this contention is negatived by the statement of accounts which indicates that the last payment was made even as per statement of the guarantor Bank on 3rd August, 1971 as per Exh. 1/7 (in J. Miscellaneous 8/72) whereas the above suit was filed on 31st January; 1973 I e. Within three years from date of the last payment. My finding on the above issue is accordingly in the negative.
(d) Issue No, 4. -It was urged by Mr. Huda, learned counsel for the guarantors that since the financial institution had filed J. Miscellaneous 8/72 on 31st January, 1972 the above suit could not have been filed on 31st January, 1973 and that in any case the Suit No 210/72 filed by the guarantor Bank was also pending which was prior in time and, therefore, the present suit is hit by section 10, C.
P. C. In this regard it may be pertinent to refer to section 10, C. P. C., which reads as follows : "10. Stay of suit.-No Court shall proceed with the trial of any suit in which the matter in issue is also directly and substantially in issue in a previously instituted suit between the same parties, or between parties, under whom they or any of them claim litigating under the same title where such suit is pending in the same or any other Court in Pakistan having jurisdiction to grant the relief claimed or in any Court beyond the limits of Pakistan established or continued by the Central Government and having like jurisdiction, or before the Supreme Court.
' It may be noticed that .Under the above quoted section 10, it has been provided that no Court shall proceed with the trial of any suit which the matter in issue is also directly and substantially in issue in a previously instituted suit between the same parties or between the parties under whom they or any of them claim litigating under the same title where such suit is pending in the same or any other Court in Pakistan having jurisdiction to grant the relief claimed etc. J. Miscellaneous 8/72 was filed under section 39 of the Industrial Development Bank of Pakistan Ordinance, 1961, which provides that where the Bank becomes entitled to require the immediate payment of any loan by reason of any breach of any condition of any agreement between the bank and an industrial concern to which the loan has been granted or any person liable for payment of that loan or where an industrial concern to which any loan has been granted or any person liable for that loan fails to repay the loan in compliance with notice under section 38, an officer of the Bank, generally or specially authorised by the Board in this behalf, may apply to the District Judge within the local limits of whose jurisdiction the concern carries on the whole or a part of its business or the office or branch of the Bank from which the loan was disbursed is situated, for one or more of the following reliefs : (a) an order for sale of the property pledged, mortgaged, hypothecated or assigned to the bank as security for the loan and any other property disclosed or undisclosed of the industrial concern or the property disclosed or undisclosed of the person liable for repayment of the loan including guarantors, (b) for an order for the transfer of the management and (c) for an injunction ad interim for prohibiting the removal of the machinery etc. In my view, the proceedings under section 39 of the Industrial Development Bank of Pakistan, Ordinance, 1961 (hereinafter referred to as the Ordinance) cannot be equated with a suit referred to under section 10, C. P. C. It is a special type of proceeding provided under a special law and, therefore, in my view section 10, C. P. C. Is not attracted to. As regards the pendency of the Suit No, 210/72 prior to the institution of the present suit, it may be observed that apart from the fact that the parties to the above suit are not the same, namely, that in the present suit the borrower is not a party and secondly two of the guarantors Hasan Mahmood and Begum Agra Hasan Mahmood are also not party to Suit No, 210/72 and, therefore, it cannot be said that the two suits are between the same parties. The present suit as observed hereinabove is inter alia on the letter of guarantee executed by defendants Nos. 2 and 3 which is not the subject-matter of Suit No, 210/72. Additionally, the questions in issue except as to the liability of the guarantor bank are different. I am, therefore, of K the view that section 10, C. P. C. Has no application.
(e) Issue No, 5.-This issue has already been dealt with exhaustively hereinabove under issue No, 8 of Suit No, 210/72 and, therefore, it will be futile to repeat the same. It will suffice to observe that any finding to the above issue is in the negative.
(f) Issue No, 6.-On this issue, it was urged by Mr. Karamally that the liability of the guarantor Bank was to the extent of Rs, 4,80,000 under the bank guarantee and therefore, they cannot be made to pay the suit amount, whereas it was urged by Mr. Huda that the foreign currency loan was converted into Pakistani rupees at the time of filing of the J. Miscellaneous 8/72, and therefore, the financial institution is not entitled to claim the suit money in terms of the foreign currency. On the other hand, it was urged by Mr. Chundrigar that the liability of the guarantor Bank was co-extensive with the liability of the principal debtor under the terms of bank guarantee and, therefore, they are liable for the suit amount. It was further urged by him that in view of section 3 of the Order the Financial institution is entitled to recover the loan amount on the basis of the conversion of the foreign currency into Pakistani currency at 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.
' It will be convenient to take up first the contention of Mr. Karamally. In this regard it may be appropriate to reproduce hereinbelow paras. Of the preamble, 2, 3 and 5 of the bank guarantee Exh.
7. (in Suit No, 104/73), which read as follows : "Whereas you have granted and/or agreed to grant at our request to Messrs Textile Accessories (Pakistan) Ltd. Karachi (hereinafter called the Borrower" which expression shall wherever the context so admits mean and include its/his/their successors-in-interest and assigns) a foreign currency loan not exceeding (D. M. 403,200) at present equivalent to Pakistani Rs, 4,80,000, repayable in 17 equal half yearly instalments payable on 30th June and 31st December each year commencing from the 18 month following the establishment of the letter of credit by you in consideration and on condition that they furnish an unconditional Bank guarantee for the amount of Rs, 4,80,000 representing 100% of the loan amount for the entire period till its repayment in full."
(ii) Due compliance by the borrower of all its/his/their obligations towards you under the agreement made and entered into between you and the borrower in writing.
(2) We agree that if the borrowers make default in payment of any instalments and interest mentioned hereinabove or in performance of any of its obligations we shall be liable to pay to you on demand the whole balance then remaining due to you including interest, commission, charges, turnover, commission and costs, charges and expenses (including legal expenses) whatever payable by the borrower and also any difference arising out of the fluctuations in the rupee rate and foreign currency rate of exchange for which difference we shall be responsible so long as this guarantee remains unsatisfied, provided that our liability shall under no circumstances exceed 100% of the loan amount plus linterest, commission, Bank's charges, expenses including legal expenses and exchange of fluctuation risk.
' The guarantee shall remain in force till such time that the loan amount plus interest and other charges are paid in full by the borrowers, in terms of the agreement referred to above between you and the borrower.
' 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 or by the discharge of the borrowers by operation of law or otherwise or for any other reason but shall be continuing security and shall extend to cover any sum or sums of money which shall for the time being constitute the balance due from the borrower in respect of the principal and interest, the commitment charge, turnover commission and all other costs, charges and all kinds of expenses mentioned above."
It may be noticed that under the above bank guarantee, the guarantor Bank undertook to ensure the repayment of the foreign currency loan, namely, D. M. 403,200 which was at the time of execution of the bank guarantee equivalent to Rs, 4,80,000. It may be pointed out that in the above quoted para. Of the preamble words "at present equivalent to Pakistani Rs, 4,80,000" have been used. These words are to be read with above quoted clause 2, whereby the guarantor Bank expressly undertook the risk of function in the rate of foreign exchange. It was expressly agreed by the guarantor Bank that they shall be liable for any difference arising out of fluctuation in the rupee rate and foreign currency rate. It may further be noticed that under para. 3 read with para. 5 it was expressly agreed by the guarantor Bank that they shall remain liable under the guarantee till the time full payment was made under the credit loan agreement. It may also be pointed out that under para. 1 of the bank guarantee even the amount and the dates for the payment of the instalments were agreed to by the guarantor Bank. I am, therefore, of the view that the liability of the guarantor Bank was not to the extent of Rs, 4,80,000 as urged by Mr. Karamally but their liability was co-extensive with the liability of the borrower and since admittedly only 11 instalments out of 17 instalments were paid the guarantor Bank remained liable under the guarantee.
' Reverting to the contention of Mr. Huda that at time of filing of J. Miscellaneous, the foreign currency loan was converted into Pakistani currency and, therefore, the financial institution is not entitled to claim decree in foreign currency, it may be observed that he has referred to the case of Tomkinson and another v. First Peunsy Ivanit Banking and Trust Co. (1) the case of Pakistan Industrial Credit and Investment Corporation Limited, Karachi v. Mahboob Industries Ltd. Karachi and 10 others (2), the case of Indus-trial Development Bank of Pakistan v. Messrs William Son & Co.
Ltd. And 2 others (3) and Dicey and Morris on the Conflict of Laws, 9th edition Rule 172 page 894. The ratio decided of the above cases is that in case of breach of contract, the rate of foreign exchange is the rate prevalent on the date of the breach and that in case of payment of instalments under a loan agreement the rate of foreign exchange will be the rate prevalent on the due date of payment. The question in issue is, whether the above principles are attracted to the present case or whether they have been negative by an express legislation. It may be observed that the Order was promulgated after the two decisions of this Court referred to hereinabove 1980 CLC 249 and PLD 1980 Kar. 576 in order to nullify the above judgments. Section 3 of the order reads 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 Pakistani currency, for repayment in respect of as outstanding foreign currency loan or any part thereof or interest in respect is thereof
(1) 1961 A. C. 1007 (2) 1980 CLC 249
(3) PLD 1980 Kar. 576 ' payable to a financial institution on the day of commencement of this order shall be and 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."
' It may be pointed out that under the above quoted section 3 of the Order, it has been provided 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 outstanding foreign currency loan or any part thereof or interest thereof payable to a financial institution on the day of commencement of the Order and 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 date on which the loan, part or interest is actually repaid or paid to the financial institution. It further provides that all the parties by whom the loan, part or interest is repayable or payable shall make the repayment accordingly. I am inclined to hold that the above section has expressly negative the principles enunciated inter alia in the above cited cases and, therefore, the liability of the borrower in respect of foreign loan is to be determined in terms of above quoted section 3. It is true that at the time of filing of J. Miscellaneous 8/72 the financial institution had prayed for a sum in Pakistani rupees and thereby converted the foreign currency loan into Pakistani rupees for the purpose of claim in the above Miscellaneous application. So, also in the present suit when it was originally filed, the decree was claimed in terms of money. The above section 3 apparently is retrospective in effect as it inter alia provides that "shall be deemed at all material times to have been the rate of exchange in force under section 23M of the State Bank of Pakistan Act, 1956 on the date of repayment or payment of the loan". In view of the above retrospective effect and because of the fact that the above section 3 is to be enforced notwithstanding anything contained in any other law for the time being in force, the judgment of any Court or any agreement or contract or other instrument, the act on the part of the financial institution to convert foreign currency loan into Pakistani currency for the purpose of claim in J. Miscellaneous 8/72 and the present suit, in my view is of no consequence. The liability of the borrower and of all other persons is to be adjudged in terms of the above section 3. However, I am inclined to hold that the financial institution is not entitled to have a decree in foreign currency but what they are entitled to is to obtain a decree in rupees equivalent to the balance amount of the foreign currency loan. This aspect I have dealt with in my judgment in Suit No, 479 of 1974 delivered on 14th March, 1984.
7. (a) The next question which arises for consideration is, as to the rate of interest. It was urged by Mr. Chandigarh that under section 8 of Banking Companies (Recovery of Loans) Ordinance, 1979 (hereinafter referred to as the Ordinance) the financial institution is entitled to claim the interest at the rate of 2% above bank rate from the date of the judgment and so also under section 34-B, C.P.C. In support of his first contention he has invited my attention to the amendment brought about in the Ordinance by Ordinance No, II of 1983 whereby inter alia clause ( f) of section 2 of the Ordinance was amended and High Court has also been mentioned as the Tribunal for the purpose of the Ordinance. The above contention of Mr. Chandigarh seems to be devoid of any force as the present suit was filed prior to the enforcement of the Ordinance, Furthermore, under section 13 of the Ordinance it has expressly provided that any case pending at the commencement of the Ordinance before a High Court in the exercise of its original jurisdiction shall continue to be heard and shall be decided by the High Court. In this view of the matter section 8 of the Ordinance has no application.
(b) As regards section 34-B, C. P. C., it may be observed that under the above section it has been provided that in case of a banking company the Court shall grant interest at 2% above the bank rate from the date of the decree. Further question arises, whether the interest under section 34-B, C.
P. C. Is to be awarded in terms of section 3 of the Order which contemplates the payment of interest at the rate of the foreign currency obtaining on the date of repayment and payment. In other words under section 3 even the amount of interest on the foreign currency loan is to be converted into Pakistani currency on the basis of the rate obtaining in terms of above section on the date of payment. It was urged by Mr. Chandigarh that the financial institution is entitled to recover interest in terms of section 3 of order even the interest amount, which is to be awarded by the Court under section 34-B, C. P. C. However, I am inclined to hold that reference to the interest under section 3 of the Order is reference to the interest payable under the credit agreement and not the interest which may be awarded under section 34-B C. P. C. I am, therefore, of the view that the financial institution will be entitled to interest under section 34-B in Pakistani currency and not in foreign currency for the purpose, of conversion into Pakistani currency. However, in case the financial institutions wishes to obtain interest in terms of section 3 of the Order, they cannot claim interest under section 34-B C. P. C. I would, therefore, decree the above suit in rupees equivalent to D. M. 1,79,220.35 with 7% interest with six monthly rests from the rate of the suit till the date of the decree to be calculated on the basis of rate of foreign exchange prevalent in terms of section 3 of the order on the date of payment/realization and further interest at the rate of 2% above bank rate in Pakistani currency from the date of decree till its payment/realization and costs against the defendants jointly and severally. However, this decree will be subject to adjustment in case the financial institution causes the sale of the hypothecated plant and machinery which are the subject-matter of J. Miscellaneous 8/72.
8. J. Miscellaneous 8 of 1972.-1 order the attachment and sale of the plant and machinery mentioned in the list annexed to the agreement of hypothecation Exh. 1/11 (in J. Miscellaneous 8/72) in terms of section 39 of the Industrial Development Bank of Pakistan Ordinance, 1961 for realizing rupees equivalent to D. M. 1,79,220.35 with 71% interest thereon with six monthly rests from the date of the application till the realization in terms of section 3 of the order.