' SAAD SAOOD JAN, J.--This judgment will dispose of two regular first appeals, registered as Nos. 198 and 199, both of 1981. 'These have been taken together as similar questions of fact and law arise in them.
2. These regular first appeals arise out of two suits filed by the Citibank, N.A. against appellants Nos.
1 to 10 and by the Grindlays Bank Limited against appellants Nos. 1 to 8 for the recovery of amounts owing on account of loans, over-drafts, guarantee facilities and other financial accommodations extended to the appellants. The claim of the Citibank Limited was for an amount of Rs.2,47,24,601.78 whereas the claim of the Grindlays Bank Limited was in the sum of Rs.1,04,23,512.46. Both banks also asked for future compound interest at the rate of 14% per annum from the date of the institution of the suits to the date of the payment of the decretal amounts.
3. The principal debtor in both suits is appellant No. 1 which is a public limited company. This company was running a tannery by the name of Firdaus Tanneries. Its main business was of tanning and processing various types of hides and skins and exporting leather products. While obtaining financial accommodations from the banks, it had offered by way of security its book- debts, stocks-in-trade including stocks of raw materials, chemicals, stocks of leather, hide and skins, finished goods, merchandize, shoes, movable and immovable machineries. It had also created an equitable mortgage by depositing the title deeds in respect of its factory premises and two other properties situated in the Hide Markets, Lahore. Appellants Nos.2 to 10 in the suit filed by the Citibank and appellants Nos. 2 to 8 in the suit instituted by the Grindlays Bank were stated to have offered themselves as guarantors for the amounts owing from appellant No.1; in addition, appellants Nos. 2, 3 and 4 had created equitable mortgages in respect of their own immovable properties by depositing the title-deeds. It may be mentioned that appellants Nos. 2, 3, 4, 5 and 9 were also Directors of appellant No. 1.
4. The two suits were filed under the provisions of Banking Companies (Recovery of Loans)
Ordinance, 1979, in the Special Court constituted under that Ordinance. Section 7(2) of the Ordinance states:-- "In the exercise of its civil jurisdiction, the Special Court shall in all suits before it, including suits based on mortgages of all kinds on statement of accounts for recovery of money paid to, or to the order of the defendant, follow the summary procedure provided for in Order XXXVII in the First Schedule to the Code of Civil Procedure, 1908 (Act V of 1908)."
' Accordingly, as provided by rule 2(1) of Order XXXVII of the Code of Civil Procedure the learned Special Judge sent summonses to the appellants in Form No. 4 of Appendix B of the Code. The summonses required the appellants to obtain leave from the Court within ten days from the service thereof to appear and defend the suit. In accordance with their requirement appellants Nos. 1, 2, 3, 5, 6 and 8, in the suit filed by the Citibank and appellants Nos. 1, 2, 3, 4, 5, 6 and 8, in the suit filed by the Grindlays Bank, applied to the Special Court for leave to appear and defend the suits. By an order, dated 14-12-1980 the learned Special Judge granted these applications conditionally inasmuch as he permitted them to appear and defend the suits subject to the payment of the amounts claimed by the two Banks in Court within a period of one month. On 5-11- 1981 the appellants asked for review of the orders of 14-12-1980 so as to get the condition removed but their request was rejected. The appellants then challenged the order of the learned Special Judge in writ jurisdiction but without any success. As the appellants failed to comply with the condition upon which leave to appear and defend the suits was granted, the learned Special Judge by his judgment, dated 5-11-1981 passed preliminary decrees in the amounts claimed in the suits. The appellants have now come in the first appeal to this Co urt.
5. The sole question for consideration in these appeals is whether the learned Special Judge was justified in imposing the condition of prior deposit of the amounts claimed by the banks while granting leave to the appellants to appear and defend the suits, for, under rule 2(2) of Order XXXVII of the Code of Civil Procedure if a defendant fails to obtain leave to appear and defend the suit the allegations in the plaint are to be deemed to have been admitted and the plaintiff becomes entitled to a decree.
6. The relevant provision regulating the grant or for that matter, the withholding of leave ip to be found in rule 3, sub-rules (1) and (2) of Order XXXVII. These sub-rules read as follows:--
(1) The Court shall, upon application by the defendant, give leave to appear and to defend the suit, upon affidavits which disclose such facts as would make it incumbent on the holder to prove consideration, or such other facts as the Court may deem sufficient to support the application.
(2) Leave to defend may be given unconditionally or subject to such terms as to payment into Court giving security, framing' and recording issues or otherwise as the Court thinks fit.
' It will thus be seen that the question whether in a particular case the leave should be withheld or allowed or granted conditionally is one which falls within the discretion of the Court. The discretion has of course to be exercised judicially and in a manner that would not shut out a plausible defence of the defendant. Thus in Fine Textile Mills Ltd., Karachi v. Haji Umar PLD 1963 SC 163, it was observed:-- 'In a suit of this nature where the defendant discloses upon his affidavits facts which may constitute a plausible defence or even show that there is some substantial question of fact or law which needs to be tried or investigated into, then he is entitled to leave to defend. What is more is that even if the defence set up be vague or unsatisfactory or there be doubt as to its genuineness, leave should not be refused altogether but the defendant should be put on terms either to furnish security or to deposit the amount claimed in Court.
' The principles upon which the provisions of Order XXXVII of the Code of Civil Procedure should be applied are not dissimilar to the principles which govern the exercise of the summary power of giving liberty to sign final judgment in suit filed by a specially endorsed writ of summons under Order XIV of the Rules of the Supreme Court in England. One of such principles laid down by the Court of Appeal in the case of Kodak v. Alpha Film Corporation was that at the stage when leave to defend is sought "the Judge is not to try the action: he is to see that there is a bona fide allegation of triable issue, which is not illusory; he need not be satisfied that the defence will succeed: it is enough that such a plausible defence is verified by affidavit."
' In Abdul Karim Jaffarani v. United Bank Limited, 1984 SCMR 568, the Supreme Court reiterated the above view and further observed:-- "No hard and fast rule can be laid down for determining the question as to how the discretion vesting in the Court to subject the order for grant of leave to defend to conditions, ought to be exercised as this question depends on the facts and circum stances of each case. It would be improper to lay down a rule of thumb for the exercise of power in matters of discretion vesting in a Court when even the statute has left it unfettered. However, in order to correctly exercisethe discretion vesting in a Court under the provisions in question, it is necessary to examine the scope and object underlying such provisions providing for special procedure of this kind. In view of the legislative history of these provisions, the overall object envisaged by the Legislature was to provide for expeditious disposal of litigation involving commercial transactions of a particular nature by a summary procedure so that the defendant does not have the means open to exploitation in the ordinary procedure for trial of suits to prolong the litigation and prevent the plaintiff from obtaining an early decision by raising untenable and frivolous d efences. It is in this context that the discretion to impose conditions is to be exercised. If, therefore, the Court is of the opinion that the defendant is trying to prolong the litigation and impeding a speedy trial, although on the allegations made in the application a triable issue has been raised then the Court would be justified to impose conditions. But it will be improper exercise, of discretion to impose conditions simply because, at the leave granting stage the defendant is unable to adduce his evidence on the pleas raised in his defence. The proper stage for substantiating his defence by evidence would be at the trial subsequen tly" .
7. On behalf of the appellants it was contended that in a case where the loan was adequately secured by mortgage of immovable property the imposition of condition while granting leave to defendant to appear and defend the suit was uncalled for. In support of this contention reliance was placed upon a decision of this Court reported as S.M. Ayub and Company v. National Bank of Pakistan 1983 CLC 2828. In this case while seeking leave the defendant alleged that he had paid back part of the loan and that was fully secured by a mortgage. The learned trial Judge granted leave to the defendant subject to the condition that he should deposit in Court the remaining part of the loan which he had not yet paid. The defendant challenged the legality of the condition in writ jurisdiction. A learned Single Judge dismissed the application on the ground that the imposition of condition was a matter within the discretion of the trial Judge. The defendant filed an lntra Court Appeal which came up before a Division Bench. The Division Bench set aside the condition, holding that in a case where the loan was fully secured by mortgage, etc., the imposition of condition to deposit the suit amount would render leave illusory. It will be noticed that in this case the Division Bench has made the existence of security as the main consideration for deciding whether a condition should or should not be attached to the leave. On the other hand in the above- mentioned two decisions of the Supreme Court the rule laid down is that it is the quality of the defence put up by the defendant which is to be regarded as the determining factor in this regard.
We need hardly say that we are bound by the decisions of the Supreme Court. We may respectfully add that the view taken by the Supreme Court is in accord with the object and scheme of the Ordinance. The legislatorial draftsma n must have been aware that the Banks ordinarily do not advance large loans unless the security offered is more than adequate to cover the debt; yet, he has chosen to extend the summary procedure set down in Order XXXVII to suits brought by banks on mortgages as w ell. It is an indication of his intention that it is the quality of the defence and not the extent of the security which should be the governing factor in considering the question to leave.
Accordingly, we shall, therefore, examine the quality of defence in examining whether the learned Special Judge acted properly in imposing the impugned condition.
8. As already mentioned, of the appellants only appellants Nos. 1, 2, 3, 4, 5, 6 and 8 applied for leave to appear and defend the suits. The grounds taken by appellants Nos. 1, 2, 3, 4 and 5 were identical.
Appellants Nos. 6 and 8 raised some additional pleas as well. It is to be noticed that none of these appellants denied the execution of loan agreements, or obtaining of loan facilities and other financial accommodations from the banks, by appellant No.
1. Similarly they did not dispute hypothecation of its properties by appellant No. 1 or creation of equitable mortgages in favour of the banks. Appellants Nos. 2, 3 and 4 did not disavow the creation of equitable mortgages in respect of their own properties by way of security for the amounts owing from appellant No.l. Further appellants Nos. 2, 3, 4 and 5 did not challenge the allegations of the banks that they were guarantors of the amounts outstanding against appellant No.
1. They however, alleged that the amounts claimed in the suits had not been correctly worked out and the rate of interest charged by the banks was excessive. They further stated that appellants Nos. 2 and 3 who were the Chief Executive and the Director of appellant No. 1, respectively, were in jail and they had been directed by the Martial Law authorities to keep themselves from the affairs of appellant No. 1; further the record of appellant No. 1 had been removed by the investigating agencies in connection with the criminal cases registered against the officers of the company. In the circumstances they were suffering from serious handicaps in checking the accounts submitted by the banks. We are not impressed by these pleas. Together with the plaints the two banks had filed detailed statements of accounts. The proceedings remained pending before the learned Special Judge for about nine months before the order granting conditional leave was made. During this period no attempt was made nor any application was moved before the learned Special Judge for getting the record either summoned from the investigating agency or for getting it examined in the light of the statements of accounts submitted by the Banks. Thus they had ample time and opportunity to pinpoint the inaccuracies in the said accounts. Even if it be assumed that on account of incarceration of two of the directors and seizure of the records by the investigation agencies they needed more time for checking the statements of accounts filed by the bank they could have asked the learned Special Judge for a suitable adjournment. This they never did. On the other hand they moved the Court for the indulgence of permitting them to pay the amount claimed by r k in instalments extending over a period of ten years. In the absence of any specific instances of inaccuracies the plea that the accounts of the banks were unreliable or did not truly represent the extent of indebtedness of appellant No. 1 cannot be taken seriously. As regards the rate of interest charged by the banks that was just in accordance with the agreements between the parties and the appellants cannot be permitted to repudiate it.
9. The additional ground taken by appellant No. 6 was that he had resigned from the Directorship of appellant No. 1 with effect from 16-11-1978 and the two banks were informed accordingly. Further the two banks had discharged and released him from all responsibilities as surety with effect from 17-11-1979. The plea of appellant No. 8 was also similar. He too claimed that he had resigned from Directorship of appellant No. 1 and had "sold all his shares and other holdings in the Company i.e. M/s. H. Sh. Muhammad Hussain and Company Limited and remained no more a Director whereupon his signatures on all documents whether as a guarantor or otherwise were withdrawn and cancelled and was absolved of all responsibilities and liabilities. In the explained circumstances he neither remained a debtor nor a guarantor for any loan or other credits of any kind advanced to M/s. H. Sh. Muhammad Hussain and Company Limited". It was further alleged that on 31-7-1979 appellant No. 1 had a credit balance with the two banks. As such appellants Nos.
6 and 8 at least, who had ceased to be the Directors of the Company before that date stood discharged from all future liabilities incurred subsequently by appellant No. 1.
10. According to the banks the position of appellants Nos. 6 and 8 is that of guarantors. In support of their claim against these two appellants they have relied upon a document which was allegedly executed jointly by the latter in their favour on 2-8-1975. A photostat copy of this document is on the record. A perusal of this document shows that it was executed in favour of the Grindlays Bank alone; for that reason the Citibank cannot take advantage of it in order to make appellants Nos. 6 and 8 also liable for the amount owing from appellant No.
1. It may be mentioned that there is a photostat copy of another document also which has been executed jointly in favour of the two banks but it bears the date 13-2-1971. In their plaints neither of the two banks had referred to this document. Apparently they are not relying upon it to enforce their claim against appellants Nos. 6 and 8. We shall not, therefore, take any notice of it.
11. A perusal of the aforementioned document of 2-8-1975 shows:--
(i) It was executed by appellants Nos. 6 and 8 together with some other appellants;
(ii) The executants, both jointly and severally, guaranteed repayment of the debt owing from appellant No. 1 to an unlimited extent;
(iii) The executants were offering themselves as guarantors in their personal capacity as distinguished from their status as Directors of appellant No. 1; and
(iv) The guarantee was continuing one.
' In view of the above position it is idle for appellants Nos. 6 and 8 to contend that upon their ceasing to be Directors of appellant No. 1 the guarantee which they had given to the Grindlays Bank came to an end or that as appellant No. 1 had a credit balance with the banks on 31-7-1979 they could not be held responsible for any financial liability incurred by appellant No. 1 subsequent to that date. There is also nothing on the record to show that at any time before the institution of the suit the said appellants had given notice to the banks with regard to the revocation of the guarantee. Thus prima facie they cannot escape their liability for the amount claimed in the suit by the Grindlays Bank. However, so far as the claim of the Citibank is concerned they cannot be held liable as guarantors for the debt owing from appellant No. 1 under the deed of 2-8-1975.
12. The next contention on behalf of the appellants relates to the form of the two suits. Appellant No. 1 had asked the two banks for overdraft/loan and guarantee facilities to the extent of Rs.1,71,00,000.
The banks granted the said facilities by splitting the amount asked for between themselves. Thus, the Grindlays Bank agreed to provide facilities to the extent of Rs.96,00,000. While the Citibank undertook to do so to the extent of Rs.75,00,000. By way of security appellant No.1 hypothecated its movable properties jointly in favour of the two banks. Subsequently the limits were raised and the hypothecation agreements were extended. Apart from that the immovable properties offered as security by equitable mortgages by appellants Nos. 1, 2, 3 and 4 to the two banks were the same.
Nevertheless, neither of the two banks impleaded the other bank as a party to its suit. Learned counsel for the appellants contended that the said omission violated the provisions of rule 1 of Order XXXIV of the Code of Civil Procedure and as such the two suits were liable to be dismissed on that account. In support of his contention he referred to Sunitibala Debi v. Dhara Sundari Debi AIR 1919 P C 24.
13. Rule 1 of Order XXXIV (ibid), reads as follows:-- "Subject to the provisions of this Code, all persons having an interest either in the mortgage- security or in the right of redemption shall be joined as parties to any suit relating to the mortgage".
' There is an explanation appended to this rule but that is not relevant for the purpose of considering the objection raised on behalf of the appellants. In Sunitibala Debi v. Dhara Sundari Debi (ibid) , consequent upon some litigation, Sunitiballa Debi had agreed to pay sum of Rs.80,000 to her two step mothers in consideration for their giving up all claims to the estate of her father. To secure the payment of the said amount she executed a mortgage deed in respect of the entire estate. Subsequently one of the step mothers without impleading the other brought a suit on foot of the said mortgage asking for payment of Rs.80,000 with interest and sale of half the mortgaged property. An objection was raised on behalf of Sunitibala Debi that the suit could not proceed in the absence of the other step-mother. The objection was upheld by the Privy Council which observed:- "Where a mortgage is made by one mortgagor to two tenants in common, the right of either mortgagee who desires to realize the mortgaged property and obtain payment of the debt, if the consent of the co-mortgagee cannot be obtained, is to add the co-mortgagee as a defendant to the suit and to ask for the proper mortgage decree, which would provide for all the necessary accounts and payments, except there could be no judgment for a sum of money entered as between the mortgagee-defendant and the mortgagor."
' It may be mentioned here that the objection with regard to the form of the two suits brought by the banks was not taken by any of the appellants in the application for seeking leave to appear and defend. Further the grounds of appeal also did not include this objection. However that may be, clause 10 of the hypothecation agreement clearly provided:-- (Underlining is our)
"It is expressly hereby agreed by the Borrower with the said Banks and each of them and by each of the said Banks between themselves that it shall be lawful for each of the said Banks to exercise without the concurrence of the other of the said Banks any power or authority hereby expressed to be exercisable by the said Banks or by either of the said Banks alone and to bring or take any suit or other proceedings against the Borrower in the sole name of the Bank desiring to bring or take the same without joining the other of the said Banks as to plaintiff or defendant or otherwise and without any authority from or concurrence of the other of the said Banks 'but the Banks will always act in consultation and co-operation'."
'Thus so far as the agreement of hypothecation is concerned each bank could bring a suit on its own against the appellants without impleading the other bank. As regards the various mortgages of immovable properties, we may mention that the two banks were represented before us by the same counsel who stated at the bar that, the suits had been brought by the two banks after mutual consultation and with the consent of each other. Since rule 1 of Order XXXIV is intended entirely for the benefit of the mortgagee we are not prepared, B in view of the statement made by the learned counsel for the bank; to uphold the objection of the appellants with regard to the form of the suits. For the same reason th'e rule laid down in Sunitibala Debi's case becomes inapplicable.
We may, however, add that both banks had moved us for impleading the other bank as a party to its suit. As we do not regard the objection raised on behalf of the appellants to be fatal to the suits, we think it unnecessary to record any decision on their applications.
14. Finally, the learned counsel for the appellants contended that the learned Special Judge had acted illegally in passing decrees upon documents and statements of accounts before these had been proved or exhibited and that the learned Judge was not right in assuming that after leave had been refused he had no further responsibility in the matter and that the decrees had to follow as a matter of course. Learned counsel further stated that even though the Bankers Books Evidence Act did permit a banker to file a certified copy of a statement of accounts as proof thereof it did not attach any presumption of correctness to such a statement. We find little merit in this contention.
When the appellants failed to comply with the condition upon which leave was granted to them they had to be treated as if their prayer for leave had been refused. Now rule 2, sub-rule (2) of Order XXXVII of the Code of Civil Procedure states that when a defendant fails to obtain leave the allegations in the plaint shall be deemed to have been admitted and the plaintiff shall be entitled to a decree. Accordingly the learned Special Judge was not required to call upon the banks to formally prove their documents and statements of accounts or show their genuineness. On the other hand the banks became entitled to obtain decrees in accordance with the claims made by them in their plaints.
15. In the light of the above discussion we find that the learned Special Judge acted properly in attaching the condition of pre-deposit of the amount claimed by the Grindlays Bank before granting leave to appellants Nos. 1, 2, 3, 4, 5, 6 and 8. As the condition was not complied with the learned Special Judge rightly passed a preliminary decree in favour of the Grindlays Bank. It may be mentioned that appellant No. 7 had not even cared to apply for leave. We would accordingly dismiss the appeal in R.F.A. No. 199 of 1980 with costs.
16. As regards the suit filed by the Citibank, for the same reasons, we uphold the preliminary decree in so far as appellants Nos. 1, 2, 3, 4, 5, 7, 9 and 10 are concerned and set aside the same in respect of appellants No. 6 and 8. It may be mentioned that appellants Nos. 7, 9 and 10 had not made any application for seeking leave. Appellants Nos. 6 and 8 should be given unconditional leave to appear and defend the suit. The Citibank shall have its costs from appellants Nos. 1, 2, 3, 4, 5, 7, 9 and 10. So far as appellants Nos. 6 and 8 are concerned the costs shall abide by the final event.