' The plaintiff has filed this suit against the defendants for recovery of a sum of Rs,2,14,856.2,0 with interest @ 10% per annum with quarterly rests from the date of the suit till the amount is paid. A prayer is made in the suit for preliminary decree for sale of the mortgaged property mentioned in paragraph 8 of the plaint and also for sale of the pledged goods lying with the plaintiff. The defender) has also made a counter claim in the suit in the sum of Rs,64,546 against the plaintiff.
' The plaintiff has alleged that the defendant was allowed cash credit limit to the extent of Rs,50,000 which was subsequently enhanced and at the time of filing of the suit a sum of Rs,2,14,856.20 was due and payable by the defendants to the plaintiff. It is alleged that as security for repayment of the above amount the defendant from time to time executed various pledged agreements in respect of the goods which were in the custody of the plaintiff. The defendant also alleged to have hypothecated its machinery, installed in the factory premises at Lawrence Road, Karachi. In addition to the above securities the defendant also allegedly created equitable mortgage in favour of the plaintiff over his property bearing No,10, measuring 270 sqr. yds., which is a portion of a big Plot No,469 situated in Johar Colony, Patel Para, Nishtdr Road Karachi. The defendant in his written statement admitted availing of cash credit facilities granted by the plaintiff besides admitting the pledge of goods, hypothecation of machinery and execution of an agreement to create mortgage in favour of the plaintiff in respect of his immovable property. The defendant, however, contended that the plaintiff without any notice to him arbitrarily increased the margin from 30% to 40% which resulted to obstruction to the operation of account by him and ultimately caused damage to the pledge stocks of goods. The defendant has claimed that as a result of this obstruction by the plaintiff and negligence on their part to take proper care of the pledge stock the defendant suffered a loss arid he has accordingly claimed a decree in the sum of Rs,64,546 against the plaintiff. The counter-claim made by the defendant is denied by the plaintiff. The following consent issues were adopted by the Court on 17-12-1973:- "1. Is the plaint not properly signed and verified? If so to what effect?
2. Was the plaintiff not justified in raising the margin from 30% to 40% without giving any notice or opportunity of hearing to the defendant? If so, to what effect?
3. Was the plaintiff bound to sell the pledged goods and mitigate the losses after the expiry of validity period of cash credit limit on 31-1-1971? If so to what effect?
4. Is the plaintiff entitled to recovery from the defendant interest, penal interest, go down rent arid other charges etc., as claimed by them?
5. Is the defendant entitled to the counter-claim as claimed by him? If so to what amount?
6. Has the plaintiff any cause of action against the defendant?
7. What should the decree be?"
' On the above issues the parties have produced by consent documentary evidence which is Exhs.
6, 6/1 to 6/115, Exhs. 7, 7/1 to 7/84. Besides the above documentary evidence the parties have also led oral evidence. The plaintiff has examined one Syed Ziauddin, Principal Officer and attorney of plaintiff (Exh.8) and has produced through him documents Exhs. 8/1 to 8/4 and one Abdullah On wala, an Officer of the Plaintiff Bank (Exh.9) and has produced through him document Exhs. 9/1 to 9/115. The defendant examined himself (Exh.10) (Wrongly mentioned as "Exh.9") and produced document Exh.10/1 and after close of the evidence by the defendant the plaintiff examined Muhammad Shafi Runjho (Exh.11) (Wrongly described as "Exh. 19"). I have heard the learned counsel for the parties at length and my findings on the above issues are as follows:- ' ISSUE No,
1. This issue was raised by the defendant but at the hearing of arguments Mr.Khalilur Rehman, the learned counsel for the defendant, did not press this issue after conclusion of the arguments of learned counsel for the plaintiff. This issue is accordingly dropped.
' ISSUE No,
2. It is an admitted position that cash credit facility was originally granted to the plaintiff in the year 1963 and it was renewed from time to time. The document Exh.6 shows that originally a sum of Rs,50,000 was allowed to the defendant under the cash credit advance and margin was fixed at 40%. The document Exh.6/3 shows that the cash credit advance limit was enhanced to Rs,1,00,000 on 17th June, 1963, but the margin was maintained at 40%. Similarly under Exh.6/12 which is dated 17th November, 1964 the cash credit advance limit was further enhanced from Rs,1,00,000 to Rs,1,50,000 against the pledge of stock etc., but the margin was kept at 40%. This limit of cash credit was renewed from time to time vide Exh.6/19, dated 8-3-1965, Exh.6/32, dated 29th June, 1966, Exh.6/40, dated 7th March, 1967, but margin fan all these documents was mentioned as 40%.
However, on 25th August, 1970 when cash credit advance limit was renewed up to 31st January, 1971 vide Exh.6/69 the margin was reduced to 30%. The case of plaintiff is that this reduction in the margin was allowed on the condition that the advance was to be collaterally secured by mortgage of the factory premises of the defendant which the defendant failed to do. Accordingly on 8/9 October, 1970 (Exh.4134) the plaintiff wrote to defendant that they have decided to raise the margin mentioned in Exh. 6/69 from 30% to 40% on the stock pledged with the bank but all other terms and conditions remained unchanged. As a result of this increase in the margin the defendants were further informed that their account with the plaintiff became irregular by Rs,23,465.74 which they were asked to make good immediately. They were also asked in the same letter to complete necessary formalities in respect of creation of mortgage over the property which the defendant had agreed to mortgage with the bank. This increase in the margin' was not accepted by the defendant who vide his letter dated 13th October, 1970 (Exh.7/35) described the above action as uncalled for and likely to create difficulties in the smooth operation of account by - the defendant and delay in supply of the goods to the plaintiff. The defendant accordingly requested the plaintiff to withdraw the increase of margin from 30% to 40%. In response to the above letter of defendant the plaintiff vide Exh.7/36 asked the defendant to arrange execution of agreement to create mortgage over the factory plot and machinery to enable the plaintiff to consider the request for reduction of margin from 40% to 30%. It appears that the bank ultimately did not agree to the reduction of the margin from 40% to 30% and accordingly on 14/15 December, 1970 vide Exh.7/37 the defendant was informed that his request for reduction of margin from 40% to 30% could not be acceded to. The defendant was accordingly asked to make good in his account a sum of Rs,24,697.74 which has fallen short as a result of increase in the margin. The defendant once again appears to have approached the plaintiff with a request for reduction of margin from 40% to 30% vide his letter dated 12-3-1971 (Exh.7/38) with further request for an additional limit of Rs,1,00,000.
The plaintiff vide their letter dated 7-6-1971 (Exh.7/39) advised the defendant to first complete the mortgage formalities as required by the Bank immediately and to regularize the account which has become irregular as a result of raising of the margin to enable the Bank the consider the request for renewal of the cash credit limit at 30% .margin and with regard to additional facility of Rs,1,00,000 demand by defendant the plaintiff regretted their inability to accede to the request.
Thereafter on 17th June, 1971, and on 30-6-1971 the defendant was again asked by the plaintiff to do the needful but these letters were not replied by the defendant. However, on 12th August, 1971, the defendant made a request to plaintiff for increase of the cash credit limit to Rs,2,00,000 with 20% margin against pledge of goods and collateral security of the machinery and the property. In that letter the defendant stated that he will complete the formalities towards mortgage of the property as soon as the limit of Rs,2,00,000 requested for is sanctioned. In reply to this letter of the defendant the plaintiff on 28th September, 1971, (Exh .7/45) wrote to the defendant that before considering the request made by the defendant it is necessary that the defendant first create a registered mortgage over his factory premises and machinery installed therein, and also start taking delivery of pledge stock against deposit 100% market value. In reply to the above, letter of the plaintiff, the defendant on 29th September, 1971 (Exh.7/45) took the stand that his account was deliberately made irregular in October, 1970 and since this action of the Bank was uncalled for and designed to freeze the account of the defendant and deny him the delivery of the pledge goods, he was not liable to pay any interest, penal interest, god own rent and other charges from that date. He accordingly asked the plaintiff to reverse the entries of all the above charges debited in. his account since October, 1970. The defendant also asked the plaintiff in that letter that after crediting the above amounts the balance due against him may be intimated so that he may start taking delivery of the goods against proportionate payment. In reply to the above letter of defendant the plaintiff informed him vide Exh.7/48 that his request for refund of interest, insurance and god own charges could not be acceded to by the Bank, and these charges has to be borne by him until adjustment of the account. The defendant was informed that a sum of Rs,1,74,624 excluding interest for the current quarter was due and payable by him which he was called upon to pay failing which the Bank threatened to take action for recovery of the amount by enforcing sale of the pledge stock and machinery. On 6th October, 1971 (Exh.7/49), the defendant wrote to the plaintiff that the sum of Rs,1,74,624 claimed in the letter dated 5th October, 1971 was incorrect and that the actual amount due against the Bank was only Rs,.1,51,733.74. The Bank was accordingly asked to correct the account so that delivery of the goods' may be taken against the payment of the above amount. The plaintiff was further informed that any attempt on their part to sell the goods would amount to committing breach of the trust and the Bank will be doing so at his risk and will be responsible for all consequences and damages and losses which may result in that behalf. In this letter the defendant also mentioned that the Bank will be responsible for any loss to the pledged goods while in their custody. The. Bank vide their letter dated 18th October, 1971 (Exh.7/50) rejected the plea of defendant but invited him for further discussion so that the stock could be lifted against payment in liquidation of the Bank dues. The defendant was again asked by the Bank to contact its.
Chief Officer, vide their letter dated 21st October, 1971 (Exh.7/51) written with reference to defendant's letter dated 18th October, 1971 addressed to the Managing Director of the plaintiff. The defendant, however, before contacting the Chief Officer of plaintiff on 22nd October, 1971 vide his letter Exh.7/52 asked the Chief Officer of plaintiff to first conduct an enquiry in the matter and listed several grievances for his consideration. It appears that the defendant subsequently met the Chief Officer of plaintiff as a reference is made to the discussion held between the defendant's representative and the Chief Officer of plaintiff in the letter dated 10th March, 1972 (Exh.7/53). On 17th March, 1972, the defendant vide Exh.7/54 asked the plaintiff to refund all amounts debited in his account from October, 1970 and release the pledged stocks against other security namely mortgage of factory 'premises and machinery installed therein. The bank, however, on 19th October, 1972 (Exh.7/35) wrote to the defendant that since he did not complete formalities of mortgage and a ko failed to lift the stocks the Bank could not wait indefinitely in the matter and would proceed legally. Once again the plaintiff stated in this letter that the bank has agreed to waive the penal interest provided the defendant created registered mortgage on the fixed assets and undertake to lift the stock on monthly basis so as to clear the dues within a reasonable period. The defendant in response to the above letter on 29th April, 1972, (Exh. 7/56) wrote to the plaintiff that he was willing to execute the registered mortgage deed in respect of the fixed assets provided all expenses towards costs and mortgage, registration charges etc. are borne by the batik and all debit entries since October, 1970 are reversed and amount refunded and all goods released against this security. This offer of defendant was apparently not acceptable to the bank who through their counsel served a legal notice on the defendant on 6-3-1972 (Exh.7/57) and then filed the present suit.
' From the above discussed evidence it is .quite clear that the cash credit limit of Rs,1,50,000 was granted to defendant on 25th August, 1970, which was valid up to 31st January, 1971. It is also clear that this limit was granted against a 30% margin of stock of pledged goods which the plaintiff enhanced to 40% within 2 months of the grant of limit. The main grievance of the defendant is that the margin was enhanced from 30% to 40% without any notice to him and without hearing him beforehand. The plaintiff on the other hand contends that under the terms of advance they were entitled to change the terms of the credit without notice to defendant. Following conditions appears in the document Exh.6/69 under which the cash credit limit of Rs,1,50,000 was sanctioned in favour of defendant:- "Please note that the above-mentioned limit. has been renewed and enhanced without prejudice to our right to cancel the same either wholly or partially with or without notice to you or to alter all or any of conditions mentioned above if any without assigning any reason whatsoever therefor".
The above condition makes it lawful for' the plaintiff to cancel the limit either wholly or partially or without notice or to alter all or any of the conditions mentioned above at any time without assigning any reason, whatsoever, therefor. The validity of the above condition in the contract is not questioned by the learned counsel for the defendant, but it is contended that before revising or altering the terms of cash credit advance, the defendant was entitled to a hearing. The contention of the learned counsel for the defendant has no force. The cash credit advance limit of Rs,1,50,000 was sanctioned in favour of defendant in August, 1970 and on 8th October, .1970 he was advised that the margin has been raised from 30% to 40%. The learned counsel was unable to point out any precedence or. law under which the defendant was entitled to a notice or hearing in such vii case.
The cash credit advance was granted under a contract which did not provide for any notice or hearing in such an eventuality. After October, 1970 number of letters were exchanged between the parties in which the defendant filly put forth his. point view which was considered by the plaintiff.
The plaintiff's contention all along was that the defendant had failed to fulfill the requirement of a registered mortgage in respect of fixed assets which the defendant had agreed at the time of obtaining cash credit advance against 30% margin and, therefore, the margin was increased from 30% to 40%. This position was specifically mentioned in the letter dated 10th ' March, 1972 (Exh. 7/53) written by the Chief Officer of plaintiff fo defendant which is as follows:- "You are aware that your firm's cash credit limit, was renewed in February, 1968, for Rs,1,20,000 against pledge of stocks at 40% margin. Our Manager, Local Officer, Karachi had agreed to enhance the limit 'to Rs,1,50,000 and also to reduce margin on stock to 30% subject to the advance being collaterally secured by mortgage of the factory. At your request, however, hypotheca tion of machinery instead was accepted as an interim measure to help you to meet your immediate requirements.
' You had desired some time to create mortgage which request was acceded to. But despite a lapse of about 1 years or so the mortgage on the factory has not been created by you, so that the facility of reduced margin' cannot be allowed/continued further."
' The defendant in reply to above assertion of plaintiff stated as follows in his letter dated 17th Mareh, 1972 (Exh.7/54):- "1 agree that at the time of sanction of limit of Rs,1,50,000 with 30% margin against pledge of the goods the hypothecation of the machinery was accepted as collateral security in place of the mortgage of the factory premises as a considerable time was involved in having the formalities completed whereupon the hypothecation of the machinery was to be released by the Bank. But hardly I had operated the account for a month that the margin was arbitrarily increased to 40% which made the account irregular by several thousands of rupees thus making it impossible for me to run the account and take deliveries of the stocks. Furthermore, the account was not regularized in spite of my signing the agreement of mortgage on 22-10-1970 and hence the deliveries of the goods were refused."
' As soon as the formalities in respect of the mortgage of the property were completed the relevant papers were delivered to the bank but the officers of the bank were not prepared to release the hypothecation of the machinery and insisted the mortgage thereof alongwith the factory premises.
I was further asked to execute and register a general power of attorney in respect of all my belongings and assets which I could not do in the face of their hostile attitude against me. I refer to letter No, CI:KPI:44/4187 dated 28-9-71 to this connection. I had spent a considerable time, labour and money in the completion of the , formalities and delivered the relevant papers to the bank with the hope that it would ensure smooth running of the account."
It is, therefore, quite clear that the stand taken by the bank was not disputed by the defendant. In these circumstances the demand for increase of margin from 30% to 40% by the plaintiff was neither arbitrary nor unjustified. The learned counsel for the defendant was unable to point out any provision of law under which the plaintiff was bound to give notice to the defendant or hear him before enhancing the margin from 30% to 40% and therefore on this ground the demand of the bank could not be challenged. In any case, the defendant's view point in this regard was fully considered by the Bank after the enhancement of margin from 30% to 40% which is clear from the lengthy Correspondence which took place between the parties and the learned counsel for the defendant was unable to show that any prejudice was caused to the defendant by not hearing him before enhancement of margin from 30% to 40%. The issue is answered in the negative.
' ISSUE No,3. It is contended by the learned counsel for the defendant that the goods were of a perishable nature, and therefore, the plaintiff should have sold the same immediately after expiry of the period of cash credit limit in order to mitigate the losses. It is common ground between the parties that the cash credit limit granted to defendant expired on 31st January, 1971. After expiry of the period of cash credit limit and even before the defendant wrote several letters to plaintiff in this by but in none of them he contended that the goods pledged by him were of perishable nature and, therefore, plaintiff should dispose them of quickly. In fact on 5th October, 1971, when plaintiff wrote to defendant to adjust the amount outstanding against them and threatened to dispose of the pledged goods, the defendant warned the plaintiff that any attempt on their part to dispose of the goods would amount to breach of trust.
Similarly, on 19th April, 1972, when defendant was called upon by the plaintiff to start lifting of the stock immediately and was threatened for recovery of dues by sale of pledged goods at the risk of the defendant, the defendant once again wrote to plaintiff vide Exh.7/56, that any action taken by the plaintiff by way of distress sale of goods would be solely at their responsibility. In response to the legal notice of plaintiff dated 6-5-1972 the defendant expressed his intention to lift the goods against payment of Rs,1,51,737 but made no complaint that the goods were of perishable nature and any delay in there, disposal will adversely affect the goods. Similarly, on 7th October, 1972, defendant wrote to the Chief Officer of plaintiff (Exh.7/61) requesting for release of the entire stocks and undertook to pay the amount of Rs,1,51,733.74 in installment of Rs,5,000 per month but did not contend that the goods were of perishable nature and if they are not allowed to be sold immediately they would deteriorate in their quality. The plea that the goods were of perishable nature appears to be an afterthought as it was raised only after the suit was filed by the plaintiff.
The defendant in his evidence cross-examination admitted that the goods were pledged from time to time between 1963 to 1970 and he further admitted that he could not say within what period the goods pledged became perishable. The defendant has not been able to point out any provision of law which required the plaintiff to immediately dispose of the pledged goods upon expiry of cash credit limit. Section 176 of the Contract Act, which deals with the right of "Pawnee", where the 'Pawnor' makes .a default, gives a right to the 'Pawnee' to either sell the pledged goods if the 'Pawnor' makes default in payment of debt or to bring a' suit against the 'Pawnor' and retain the goods pledged as a collateral security. There is no time limit fixed in this section for the sale of pledged goods by the 'Pawnee'. In the case of Continental Syndicate of Trade v. Lloyds Bank Ltd. PLD 1966 Kar. 556, the sale of pledged goods by a 'Pawnee' after two years of the notice was held to be within reasonable time. In the present case from the evidence on record it is quite clear that the defendant at no stage before the filing of the suit contended that the goods were of a perishable nature and, therefore, the plaintiff should take steps to dispose them of quickly. On the contrary there is ample evidence to show that after expiry of the cash credit limit, the plaintiff time and again offered to sell the pledged goods but the defendant obstructed the sale. The defendant has not been able to prove any negligence or mala fides on the part of plaintiff in disposing of the pledge goods after expiry of cash credit limit. I accordingly hold that the defendant has failed to show that the plaintiff was bound to dispose of the pledged goods immediately on the expiry of the cash credit limit on 31-1-1971. The issue is accordingly answered in the negative.
' ISSUE No,4. The plaintiff has contended that until such time the amount outstanding in the account of defendant was paid they were entitled to interest, go down rent and other charges. The defendant on the other hand contends that after 9th October, 1970 the plaintiff was not entitled to any of these charges, or the penal interest. In so far penal interest is concerned the learned counsel for the plaintiff stated before me that the bank has not charged any penal interest from the defendant, and the learned counsel for the defendant was also unable 'to point out from the documents that any penal interest was debited to their account. In fact, some of the letters on record addressed to the defendant by the plaintiff show that the penal interest was agreed to be deleted from the account of the defendant. In so far the agreed rate of interest, go down rent and other charges are corned, they were debited to the account of the defendant in the same manner as they were recovered earlier. The burden of proving that the plaintiff was not entitled to charge interest, go down rent and other charges after 9-10-1970 was on defendants who failed to prove the same. I would accordingly hold that except for penal interest the plaintiff is entitled to charge interest, go down rent and other charges claimed in the suit.
' ISSUE No,5. The defendant has made a counter-claim of Rs,64,546. It is an admitted position that after institution of the present case the `,pledged goods were sold by the Nazir of this Court for Rs,19,500. In his evidence the defendant stated that the value of pledged goods was Rs,2,13,779. He however, stated that he has made counter-claim of Rs,64,546 only. It has not been explained by the plaintiff in his evidence as to how 'he has calculated the counter-claim at Rs,64,546. If the defendant's case is that the goods worth Rs,2,13,779 were destroyed/lost as a result of negligence on the part of the plaintiff then the claim should have been for the above amount and court-fee should have been paid thereon. Mr. Khalilur Rehman, the learned counsel for the defendant contended that a sum of Rs,64,546 is in fact the margin which was lying deposited with the Bank.
He, however failed to substantiate his contention with reference to the documents available on record. The defendant in his evidence before the Court only stated that he has claimed Rs,64,546 by way of counter-claim. He also stated that he has claimed go down rent from 1-3-1973 up to the date of auction @ Rs,500 per month. The counter-claim appears to be based on the ground that the pledged goods which were stored with the plaintiff were deteriorated/lost.as a result of negligence on the part of the plaintiff. The plaintiff in his evidence has produced number of statements showing stock pledged with them from 1966 on wards. The statement produced in Court are Exh.6/35, 6/49, 6/54, 6/60 and 6/74. From these statements it is quite clear that the goods were taken out from time to time by the defendant and sufficient stocks were maintained with the bank.No complaint at any time was made by the defendant that the stocks were not properly kept or stored by the plaintiff. Mr. Khalilur Rehman, the learned counsel for the defendant however, contended that his client was denied delivery of goods after dispute arose between the party. I have already referred to the correspondence between the parties in detail while dealing with issue No,3 and there is enough evidence on record to show that the plaintiffs were even prepared to offer delivery of pledged goods on payment of 60% of the value. The burden of proving the counter-claim in the suit is entirely on the defendants who failed to establish the same. I accordingly dismiss the counter-claim made by the defendant but in the circumstances of the case will make no order as to costs.
The plaintiff in paragraph (9) of the plaint has categorically stated that an equitable mortgage in respect of the property measuring 272 sqr. yds. bearing No,19 was created in their favour. The defendant has not denied this averment of the plaintiff and in fact consistently pleaded that the mortgage of property was created in favour of the plaintiff. I accordingly pass a preliminary mortgage decree for account in Form 5-A of Schedule II of the C.F.C. I declare that on the date of the filing of the suit a sum of Rs,2,14,856.20 was due and payable by the defendant to the plaintiff.
The plaintiff has claimed interest @ 10% per annum with quarterly rests from the date, of the suit till payment. However, the learned counsel for the plaintiff is unable to show that the defendant had agreed to pay interest at the rate claimed in the suit. The document Exh .6/69 shows that the rate of interest was 31% above bank rate subject to a minimum of 81%. I accordingly hold that the plaintiff will be entitled to interest on the above amount @ 81% per annum, simple interest up to the date of the preliminary decree and thereafter the interest will be payable at the same rate until the amount is paid. The plaintiff will also be entitled for such costs and charges which it may be properly incurred in respect of mortgage security. The plaintiff will also be entitled to costs of the suit against the defendant. In case the defendants deposit the amount found due and payable as aforesaid under the preliminary decree within six months of the date thereof, the plaintiff shall deliver up to the defendant, or to such person as the defendant appoint, all documents in his possession or power relating to the mortgaged property, and shall, if so required, retransfer the property to the defendant at their cost free from the mortgage and from all encumbrances created by the plaintiff or any person claiming under him, or where the plaintiff claims by derived title, by those under whom he claims, and shall also, if necessary, put the defendant 'in possession of the property.