' This suit was filed on 2-6-1973 against two named defendants, who had furnished personal guarantee on behalf of borrower company, namely Messrs Fine Fabrics Ltd., they were also the directors of the company for the recovery of Rs.10,91,372.43, then equivalent to DM.2,95,592.69. The brief facts leading to the filing of the above suit are that the plaintiff under a credit agreement dated 27th February, 1965, advanced a loan to the Messrs Fine Fabrics Limited (hereinafter referred to as the borrower) amounting to 2,94,104 D.M. then equivalent to Pakistan Rs.3,50,000. The above two defendants executed a letter of guarantee, dated 27th February, 1965 Exh. 6/4. It seems that the above loan was repayable in 18 instalments as per re-payment schedule Exh.6/13. It further seems that 11 instalments were paid by the borrower prior to the devaluation of Pakistan rupee on 11th May, 1972. Two further instalments were paid after the devaluation of the Pak. rupee, thus making payment of 13 instalments. It further seems that the shares of the company were transferred to new management with the approval of the plaintiff. The relevant correspondence on the above subject is exhibited as Exhs. 6/18 to 6/24. It also seems that a winding-up petition was filed in the High Court in respect of the borrower company on 26-2-1971 Exh. 6/32, whereupon the winding-up order was passed on 11-10-1971 Exh. 6/33. It further seems that the plaintiff as a creditor lodged a claim with the official liquidator. In response to which, the plaintiff have received a total payment of Rs.3,45,251.23 by January, 1976 from the official liquidator. The major amount was received, namely, Rs.3,26,222.94 on 15-1-1976. The present suit was filed on 2-6-1973 i.e. after passing of the order of the winding up of the borrower company. In the present suit the borrower company has not been impleaded as a party. It may also be observed that after the enforcement of the Foreign Currency Loan Rate of Exchange Order, 1982 (hereinafter referred to as the Order), the plaintiff filed an amended plaint on 23-1-1984 in pursuance of an order of this Court allowing the plaintiff's amendment application. In the amended plaint the plaintiff have claimed decree for D.M.
2,95,592.69 instead of claiming the same in Pak. rupees. The two defendants had filed separate written statements to the unamended plaint, but no amended written statement was filed after the filing of the amended plaint.
2.(a) Defendant No. 1 in his written statement, dated 7-3-1974 has averred that the suit is time- barred. It has been further averred that the surety has been discharged by the subsequent conduct of the plaintiff in accepting mortgages from the company and later on the substitution of the directors of the company with the permission of the plaintiff and calling for fresh guarantee from the new directors.
(b) Defendant No. 2 in his written statement which was filed on 28-11-1974, has pleaded that the plaintiff should have lodged their claim in the liquidation petition before the official Liquidator. It has been further pleaded that the failure to implead the company is fatal to the maintainability of the suit. It has also been averred that the above defendant No. 2 stands discharged from his personal liability. It has been further averred that the suit is time-barred and without prejudice to the above contentions the plaintiff's claim has been grossly exaggerated by including addition of penal interest and conversion of Pak. rupees into D.M. at the most of inequitous rate. On the basis of the pleadings of the parties the following consent issues were framed on 15-9-1978:-
(1) What were the contents of the credit agreement executed between the plaintiffs and the borrower company viz. Messrs Fine Fabrics Ltd.?
(2) Whether the pronote endorsed by defendants was without consideration and had been given as a collateral security? If so, its effect?
(3) Whether the letter of guarantee executed by defendants as only a collateral security and did not create personal liabilit on the part of that defendant to repay the loan advanced to Messrs Fine Fabrics Ltd.?
(4) Whether the plaintiff bank had approved re-organisation of the borrower company and/or had taken fresh guarantees? Its effect.
(5) Whether the suit is time-barred and/or is not maintainable against the defendants.
(6) What is the effect of the borrower company being in liquidation?
(7) Whether the borrower company was a necessary party and whe her the suit is bad for non- joinder of that party?
(8) Whether the plaintiff bank is not entitled to penal interest and whether the conversion of foreign currency into Pakistani rupee has been made at an inequitous rate of exchange?
(9) Whether defendants are not liable on the plaintiff's claim?
(10) What should the decree be?
The above issues were re-cast on 25-1-1978 but the learned counsel argued the above issues framed on 15-9-1978. I would, therefore, treat the above-quoted issues as the issues framed in this case. Re-cast issues may be treated as replaced by the above issues.
3. My findings on the above issues are as follows:- ' Issue No. 1.--The terms and conditions of the loan are reduced in the form of a credit agreement Exh. 6/4.
However, it was urged by Mr. Shaikh Abdul Aziz that as per schedule 2 to the credit agree ent the terms and conditions of the line of credit agreement are pa t of the terms and conditions of the present loan. He has further u ged that under the line of credit agreement entered into between the plaintiff and the foreign lending agency 60% amount was to be paid in Paki tani rupees and 40% in foreign currency and, therefore, the liability of the borrower was to the extent of 40% in the foreign currency and the balance of 60$ in the Pakistani rupees. Mr. Shaikh Abdul Aziz, learned counsel for the defendant No. 2 had cross-examined P.W. 1 on the above point. He had stated that there is no such document by the name of line of credit agreement. He has also denied the sugge tion that the above document was suppressed by the plaintiff from the Court. Though the learned counsel for defendant No. 2 had c oss examined the plaintiff's witness on the above point, but I find that no such plea was raised in the written statement by either of the nor any notice was served by the defendant for the production of any such document known as the line of credit agreement. In terms of section 3 of the Order, the repayment is to be made on the basis of the rate of foreign exchange obtaining on the date of repayment or on the date of payment of the loan amount or any part thereof and interest thereon, notwithstanding any contrary law, order of decree of Court or document or instrument. Apart from this, the borrower was sent a repayment schedule under plaintiff's letter dated 18-10-1966 Exh. 6/13, which indicates that the repayment was to be made on the basis of D.W. 100% and not 40% as contended by the learned counsel for defendant No.
2. In the absence of any express plea in the written statement, the defendants are not entitled to raise the above plea. My answer to the above issue is that the terms and conditions of the loan are contained in Exh. 6/1 read with repayment schedule annexed to the plaintiff's letter dated 18-10- 1966 Exh. 6/13.
4. Issue No. 2.--No argument was advanced on this issue for the reason that the suit is not based on the promissory note. This issue, therefore, has not been pressed.
5. Issues Nos. 3, 4, 6 and 7.-- These issues can be taken up conveniently together. A Guarantee letter dated 27-2-1965 was executed by defendants Nos. 1 and 2 Exh. 6/4. A perusal of the terms and conditions of the above letter of guarantee, particularly Clauses II (2 & 3) provide that the guarantee shall not be considered as satisfied or discharged by any payment or satisfaction of the whole or part of the sum or sums of any money owing now or at any time hereinafter by the borrower or by discharging the borrower by operation of law or otherwise for any reason and that the liability shall continue till the full amount is paid. It further provides that the above guarantee is additional and without prejudice to any securities, guarantees, decrees, obligations, rights, remedies, which the bank may have.
It has been vehemently urged by Mr. Shaikh Abdul Aziz that since defendant No. 2 had transferred his shares with the consent of the plaintiff bank and as factually the management was also transferred, liability of defendant No. 2 stands discharged. In this regard, it may be pertinent to refer to Exhs. 6/14, 6/18, 6/19, 6/20, 6/21 and 6/22, which deal with the transfer of the shares by defendants Nos. 1 and 2, in favour of the new management. It may be pertinent to refer to the plaintiff's letter, dated 15-11-1969 Exh. 6/23, in which they had requested the borrower to get the new personal guarantees substituted of the new directors. The borrower's reply contained in their letter dated 23rd December, 1969 Exh. 6/24, stating therein, that the matter was receiving due consideration. It is an admitted position that no guarantee was substituted in place of Exh. 6/4. In this view of the matter, the liability of the guarantors under Exh. 6/4 remained in tact in spite of the transfer of the shares and in spite of the change in the management. It may also be observed that under the terms of the above personal guarantee, the liability of the guarantors was co-extensive with the borrower. The petition for winding up of the borrower company was filed on 26-2-1972 Exh.
6/32 and the winding up order was passed on 11-10-1971 Exh. 6/33, whereas file present suit was filed on 2-6-1973 i.e. after the passing of the above winding up order. It was urged by Mr. Shaikh Abdul Aziz that non-joinder of the borrower company to the above suit is fatal. In this regard, it may be pertinent to observe that in the terms of the guarantee letter Exh. 6/4, the liability of the guarantor was joint and several. Furthermore, since the company was under liquidation, the plaintiff had lodged their claim, with the fficial liquidator, which was one of the remedy available to them again t the borrower. It may also be observed that the plaintiff have received a sum of Rs.
3,45,251.23 from the official liquidator as a result of the lodging of their above claim with the official liquidator. Because of the receipt of above amount, the defendants, liability to that extent stands reduced. I am inclined to hold that it was not necessary for the plaintiff to have impleaded the borrower company in the present suit, as they have prosecuted the other legal remedy which was available to them. It was in fact more beneficial to the defendants inasmuch as their liability stands reduced on account of the receipt of the above amount as observed hereinabove. My finding on issue No. 3 is in the negative. Whereas my finding on issue No. 4 is in affirmative subject to the condition that the defendants' liability in the present guarantee remained intact and there was no substitution of a fresh guarantee. As regards issues Nos. 6 and 7 my findings are that the factum that the borrower company is in liquidation has no effect on the above suit except that the aforesaid amount received by the plaintiff from the official liquidator is to be adjusted from the suit amount. Whereas my finding on issue No. 7 is in the negative.
6. Issue No. 5.-- This issue has two parts, namely, first part relates to the limitation and second part pertains to the liability of the defendants. As to the question of limitation, it may be observed that Exh. 6/39 which is a certified copy of the account indicates that the last payment, namely, Rs. 15,933.66 was made on 30-6-1970, whereas the present suit was filed on 2-6-1973 i.e. within 3 years. In this view of the matter, the suit is within time.
Referring to the second part of the above issue, it will suffice to observe that the question of liability of the defendants has already been dealt with under the above issues Nos. 3, 4, 6 and 7 and, therefore, it is not necessary to deal with the same again. However, it may again be stated that the defendants' liability remained intact.
7. Issue No. 8.-- It was urged by Shaikh Abdul Aziz Advocate, that since defendant No. 2 had already transferred his shares in the borrower company, to the new management with the consent of the plaintiff, it was a fit case for disallowing the penal interest to the plaintiff. It may be observed that the plaintiff have not claimed any penal interest in the present suit from the date of the filing of the suit, they have included penal interest for the period prior to the filing of the suit.
Mr. A.I. Chundrigar has referred to the case of P.C. PAUL v. K.A.L.R. firm and another AIR 1924 Rang.
46, and the case of Chunnilal and another v. Munshilal and others reported in 131 I C 368. In the first case a Division Bench of the Rangoon High Court dismissed an appeal against the judgment and decree inter alia granting decree for interest at enhanced rate of interest, namely, Rs. 2 per mensem in place of Rs. 1-12-0 provided in the mortgage deed after the date of default, whereas in the second case a Division Bench of the Lahore High Court in 1930 allowed the appeal and granted 15% interest instead of 12% from the date of the default under a mortgage deed.
' It will suffice to observe that the defendants have not made out a case for re-adjustment of the amount debited by the plaintiff as the amount of liquidated damages i.e. penal interest in terms of clauses (5)(3) of the credit agreement Exh. 6/1. However, I may observe that I have held in a number of suits that the plaintiff are entitled to recover on the basis of rate of foreign exchange obtaining on the date of repayment or payment of the principal amount or part thereof and the contracted amount of interest, which is in the present case 7-3/4% and not penal interest or any other item. The calculation of the amount of penal interest by the plaintiff in the foreign currency even for the period prior to the date of the suit is not in consonance which the view, which I have taken in the above-decided suits. My finding on issue No. 8 is that the plaintiff are not entitled to penal interest from the date of the suit and that they cannot claim penal interest prior to the date of suit in foreign currency in question, but in Pakistani rupee.
8. Issue No. 9.-- This issue has already been covered under issues Nos. 3, 4, 6 and 7 and, therefore, needs no separate discussion. It will suffice to observe that the defendants remained liable under the personal guarantee Exh. 6/4. However, it may be pertinent to observe that defendant No. 1 had expired according to the information conveyed by his counsel contained in the statement dated 11- 3-1984 filed in this Court, stating therein that defendant No. 1 had expired about a year back. No application was filed for bringing L.Rs. of the above deceased defendant No.
1. It may be mentioned that in view of provisions of R.R. 3 and 4 of Order XXII, C.P.C., the suit was proceeded with in the absence of the legal heirs as they had not come forward to become a party to the suit. It will suffice to observe that their liability will be to the extent of the estate received by them from deceased defendant No. 1 upto the decretal amount. If they have not received any estate as the legal heirs they would not be liable personally.
9. Issue No. 10.-- As observed hereinabove that I have held in a number of suits that the plaintiffs are entitled only 2 items on the basis of the foreign exchange rate in terms of section 3 of the Order, namely, the principal amount or part thereof and the contracted amount of interest i.e. in the present case 7-3/4%, but the remaining items are to be calculated in Pakistani rupees. In this regard references may be made to my judgment dated 5-4-1984 given in Judicial Miscellaneous 18 of 1978. I see no reason to take different view in the present suit. Since the plaintiff's claim amount is required to be re-calculated, in my view it is a fit case for appointment of a Commissioner. But the question arises as to who would pay the Commissioner's fee. The difficulty in the present case is that defendant No. 1 has expired and his legal heirs are not on record, whereas accoring to Mr. Shaikh Abdul Aziz, learned counsel for defendant No. 2, the latter is not available in Pakistan. I would appoint the Nazir of this Court as the Commissioner and would order the plaintiff to pay the tentative fee, namely, Rs.
500 subject to fixation of the fee after the submission of the report according to the quantum of the work involved. The Nazir will submit his report within two weeks from the receipt of a copy of this judgment.