' The plaintiff had filed the above suit under Order XXXIV, C. P. C. For recovery of Rs, 10,51,595.60 on 26-2-1974 and had prayed for a mortgage decree in respect of the three foreign currency loans.
First loan amounting to U. S. $ 59,730 then equivalent to Pak. Rs, 2,87,600 was granted on 6-4-1962 to defendant No, 1, which was repayable in 14 half yearly equal instalments commencing from 31- 10-1963. Defendants Nos. 1, 3, 4, 5 and 7 executed a Promissory Note for the above sum of Rs, 2,87,600. Defendants Nos. 3, 4, 5 and 7 also executed a letter of guarantee dated 19-5-1962 foi securing repayment of the above loan. Furthermore, defendant No, 1 also hypothecated its plant, machinery, accessories, equipments etc. Under agreement of hypothecation dated 9-5-19u4. As additional securities, defendant No, 1 also equitably mortgaged its movable and immovable properties by depositing title deeds relating thereto in respect of the properties mentioned in para. 10 of the plaint. It further seems on or about 2-10-1963 the plaintiff at the request of the defendants granted second advance-loan/accommodation in the sum of U. S. $ 1,24,677 repayable in 14 half yearly instalments commencing from 31-10-1973 in Pak. Currency at the ruling rate of exchange at the time of repayment with interest at 52.% per annum with six monthly rests under a credit agreement dated 11-3-1964. As a security against the above second loan for repayment, defendant No, 1 executed a Demand Promissory Note dated 11-3-1964 in the sum of Rs, 6,01,100 payable on demand to defendants Nos. 2 to 6 with interest which was endorsed by the above defendants in favour of the plaintiff by a note of delivery, dated 11-3-1964. It further seems that defendants Nos. 2 to 6 also executed a letter of guarantee dated 11-3-1964. Defendant No, 1 also hypothecated its plant, machinery, accessories, spare parts etc. Under an agreement of hypothecation dated 11-3- 1964 for the above second loan. Defendant No, 1 in or about January, 1965, mortgaged its movable and immovable properties mentioned in para. 18 of the plaint in pursuance of the above second loan. It also seems that under a credit agreement dated 17-5-1963, the plaintiff at the request of the defendants granted to Defendant No, 1 third advance loan/accommodation in the sum of U. S. $ 2,60,910 repayable in 14 half-yearly instalments commencing from 31-10-1963 in Pakistan currency at the ruling rate of exchange at the time of repayment with interest at 51% per annum with six monthly rests. It may be observed that for the above third loan defendants Nos. 1 to 6 executed a Promissory Note dated 17-5-1963. Defendants Nos. 2 to 6 also executed a letter of guarantee dated 17-5-1963. Defendant No, 1 executed an agreement of hypothecation dated 15-10-1962 and also an agreement, dated 15-10-1964 for creating mortgage as the security for repayment of the above third loan. The properties mortgaged by defendant No, 1 as the securities for the repayment of the first loan were further mortgaged for repayment of the third loan as well. Defendant No, 1 further executed an agreement on 15-11-1963 to create mortgage on its future assets. Since there was default, the above suit was filed on 26-2-1974 as observed hereinabove.
2. After the promulgation of President Order No, 3 of 1982, the Foreign Currency Loan (Rate of Exchange) Order, 1982, hereinafter referred to as the Order, on 28-2-1982, the plaintiff after obtaining the permission of the Court filed an amended plaint claiming therein, decree in terms of U. S. Dollar instead of rupees. It may be advantageous to reproduce herein below para. 32 of tilt amended plaint, which reads as follows :-
32. That the plaintiff prays that this Hon'ble Court may be pleased to grant
(a) In foreign currency i,e, U. S. $ 1,04,636.19 alongwith (i) interest @ 11 % per annum with six monthly rests (ii) costs of the suit and (iii) such other costs, charges and expenses that the plaintiff may incur in respect of the mortgaged properties all in the said foreign currency upto the date of payment, to be paid by the defendant in Pakistani Currency to the plaintiff at the rates of exchange prevalent on the actual dates of payment or payments of the decretal amount of parts thereof by the defendants.
(b) A decree in Form 5-A in appendix 'D' in the First Schedule to the Code of Civil Procedure : In the Alternative :
(c) A decree in foreign currency i. e. U. S. $ 1,04,636.19 alongwith (i) interest @ 11 % per annum with six monthly rests (ii) costs charges and expenses that the plaintiff may incur in respect of the mortgaged properties all in the said foreign currency upto the date of payment; to be paid by the defendant in the Pakistani Currency to the plaintiff at the rates of exchange prevalent on the actual dates of payments of the decretal amount or parts thereof by the defendants signly and/ or jointly ; Costs of the Suit ;
(e) Any other further/additional relief or reliefs which this Hon'ble Court may deem fit and proper in the circumstances of the case ;"
(3) The above suit was resisted by the defendants. Defendant No, 1 filed its written statement on 17- 8-1974, Defendants Nos. 2 to 7 filed a joint written statement on 17-8-1974. It seems that no amended written statement was filed by the defendants to the amended plaint. In the above written statements, it was averred by the defendants that they were made to sign blank agreements, blank Promissory Notes etc. By the plaintiff at the time of granting of loans. It was also averred that the amount of interest claimed is also not in consonance with the agreements. It was also pleaded that the suit was bad for misjoinder of causes of action and parties and that the above mortgage suit could not have been combined with the causes, of action on guarantee letters. It was also denied that the defendants were, liable to pay a sum of Rs, 10,52,595.60 as on 17- 1-1974. It was also denied that the defendants were liable to pay penal interest.
3. On the basis of the pleadings of the parties, this Court on 20-2-1975 framed the following issues :-
(1) Is the present suit bad for misjoinder of parties and of causes of action (B. P. On defendants) ?
(2) What amount, if any, is due and payable to the plaintiff on the date of the suit.
(3) To what reliefs and against which defendants in the plaintiff entitled?"
' The plaintiff examined P. W. 1 Muhammad Aleemuddin Exh. 7 and also produced documentary evidence namely, Exh. 6 and Exhs. 6/1 to 6/122. It may also be stated that Exhs. 7/1, 7/2 and 7/3 were produced by the defendants through the cross-examination of the above witness. The defendants did not examine any witness.
' My findings on the above quoted issues are as follows :-
4. Issue No, 1.-Mr. Muhammad Ali Syeed, .Learned counsel for the defendants has not argued this issue as to show how the suit was bad for misjoinder of the parties and causes of action. My answer to the above issue is in negative.
5. Issues Nos. 2 and 3.-Thes issues can be conveniently taken up together.
(a) Mr. A. I. Chundrigar, learned counsel for the plaintiff has contended that on the basis of the oral and documentary evidence, the plaintiff are entitled to the reliefs prayed for in the amended plaint including the penal interest at I j % provided in the loan agreements.
(b) On the other hand Mr. Muhammad All Sayeed, learned counsel for the defendants has urged as follows :- (i)That section 3 of the Order is not attracted to the present case as the foreign currency loans were converted into Pakistani currency loans in 1970.
(ii) That the plaintiff are not entitled to penal interest.
6. Adverting to the above first contention of Mr. Muhammad Ali Sayeed, it may be observed that he has referred to the admission made by P. W. 1 in his cross-examination, which reads as follows :- "It is correct under this letter that we offered to convert the foreign loan granted to the defendants into the Pakistani Currency loan, as was requested by the defendant. On the date of the letter the outsanding loans against the defendants on account of foreign currency loans given to them were indicated as Rs, 8,35,036. It is correct that upto 30-4-1970 the plaintiff was demanding the payment of instalments of the loan and other dues in U. S. Dollars and after this date it was demanding payment of the loans in Pakistan Rupees. Again says that the bank demanded the loans in local currency after the conversion of the foreign into local currency, which was done on 20-10-1970. The financial year of the bank ends on 30th June each year."
' From the above quoted statement of P. W. 1, it seems that the foreign currency loans were converted into local currency loans on 2040-1970. However, it has been contended by Mr. Chundrigar that in view of the language employed in section 3 of the Order, the above act of converting foreign currency loans into Pakistani currency for the purpose of repayment is of no consequence. It may be advantageous to reproduce herein below the above section 3 of the Order, which reads as follows "Section 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 an outstanding foreign currency loan or any part thereof or interest in respect is thereof - payable to .a financial institution on the day of commencement of this order shall be, and shall be deemed at all material tithes 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 noticed that under the above quoted section 3, 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 in respect thereof is payable to the Financial Institution on the day of the commencing 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 and that all the parties by whom the loan, part or interest is repayable or payable shall make the repayment or payment accordingly. It is, therefore, evident that the intention of the Legislature by providing deeming clause in section 3 was to make a borrower of a foreign currency loan liable to repay the loan on the basis .Of conversion of the foreign currency at the rate notified by the State Bank-of-Pakistan in section 23 of the State Bank of Pakistan Act, .1956 prevalent on the day on which the loan, part or interest is actually repaid or paid to the Financial Institution, 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. In my view, the fact that on 20-10-1970 the above' foreign currency loans were converted into local currency loans for the purpose of repayment has been nullified by above section 3 of the Order, which has retrospective effect and shall be deemed to be in force even on, 20-10-1970. Furthermore, as observed hereinabove, the above section 3! Is to be given effect notwithstanding any law or agreement, contract or instrument.
7. (a) Reverting to the question, whether the plaintiff are entitled to claim 1+% penal interest above the agreed interest of 51%, it may be observed that Mr. Muhammad Ali Sayeed has again relied upon P. W. l's the following admission in his cross-examination.
"It is correct that the bank has charged the penal interest. We have charged penal interest on the basis of the agreement and not on account of any loss to the Bank. I cannot say whether we were liable to pay penal interest to Ixemp Bank of U. S. A."
' On the basis of the above admission, it was vehemently urged by Mr. Muhammad Ali Sayeed, learned counsel for the defendants that since admittedly the plaintiff had not suffered any loss and that as no plea to that effect was raised in the plaint, this Court will not allow penal interest in view of language employed in section 74 of the Contract Act and the law on the above point enunciated by the Superior Court in Pakistan. On the other hand, it was canvassed at the Bar by Mr. Chundrigar that 1e474, penal interest is a reasonable interest in context with 54% payable under the loans agreements on the amount of loans without default. He has also submitted that in view of section 34-B of the C. P. C. The Court even otherwise is obliged to grant interest 2% above the bank rate from the date of the decree till payment.
(b) Mr. Muhammad All Sayeed in support of his above contention has referred to the case of Messrs General Iron and Steel Works v. Fazal Muhammad (1) the case of Province of West Pakistan v. Messrs Mistri Patel & Co. And another (2) the case of Syed Sibta Raza and another v. Habib Bank Ltd., (3) the case of West Pakistan Industrial Development Corporation Karachi v. Aziz Qureshi, (4) the case of Shaikh Shoukat Ali v. The Trustees of Port of Karachi (5) and the case of Muhammad Karimuddin and 3 others v. Kanza Food Industries Ltd., Karachi (6).
' On the other hand Mr. Chundrigar has referred to the case of Chunilal and another v. Munnalal and others (7). Mr. Chundrigar has also candidly invited my attention to illustration (d) to section 74 of the Contract Act, and has fairly conceded that this Court has the power to disallow the penal interest.
8. (1) In the above first case a Division Bench of the erstwhile High Court of West Pakistan, Karachi Bench, while maintaining the judgment of a Single Judge awarding a sum of Rs, 20,000 as damages to the plaintiff, who was engaged by the defendants as an engineer to set up are rolling mill, observed that if a plaintiff fails to prove actual damages suffered by him, he will not be entitled to recover simliciter damages on the basis of liquidated damages provided in the contract and that it is his duty to prove damages in a given case and that each case would depend on its own facts.
(1) PLD 1967 Kar. 1 (2) PLD 1969 SC 80
(3) PLD 1971 SC 743 (4) 1973 SCMR 555
(5) PLD 1975 Kar. 1096 (6) PLD 1982 Kar. 590
(7) 131 I C 368
(ii) As regards the second case, it may he observed that the question before the Honourable Supreme Court of Pakistan was, whether the earnest money in form of a bank guarantee in lieu of cash amount under an agreement to purchase 4,000 tons of rice can be forfeited under section 74 of the Contract Act. In the above case the appellant/defendant instead of suffering loss on the re- sale of the rice upon failure of the purchaser to lift the same, made a profit of Rs, 10,000. It was held while maintaining the judgment of the High Court that despite of an express stipulation in the contract, the Court on equitable principles can relieve a defaulting buyer from the forfeiture of earnest money if the circumstances of the case justify such a course. It was also pointed out that there is difference between English and Pakistani law as to the distinction between liquidated damages and penalty. In the above case, no amount of security deposit was forfeited in spite of the breach on the part of the purchaser.
(iii) In the third case Hon'ble Supreme Court while dealing with the case of an ex-employee of Messrs Habib Bank Ltd., who left the service before the expiry of the stipulated period of five years held that the bank was entitled to receive reasonable compensation not exceeding Rs, 2,000 provided in the service contract as liquidated damages. The Supreme Court maintained the judgment of a learned Single Judge of the High Court allowing a sum of Rs, 2,000 as damages. It was observed that section 73 of Contract Act, 1872 covers case of breach of a contract, where no amount of compensation is stipulated in the agreement itself and the compensation is to be assessed directly on the basis of the loss, which has accrued to either of the contracting parties. It was further held that award of compensation by the Court under section 74 of the Contract Act will depend upon its finding as to what in the facts and circumstances of the case, is reasonable compensation subject to the limit of the amount mentioned in the contract. It was also observed that "It is true that the aggrieved party is entitled to recover compensation from the party who is guilty of breach of the contract whether or not actual damage or loss is proved to have been caused thereby".
(iv) The fourth case is on section' 73 of the Contract Act. It was held by the Hon'ble Supreme Court that under section 73 of the Contract Act, compensation is not allowed for any remote and indirect loss or damages.
(v) Referring to the fifth case, it will suffice to observe that a Division Bench of this Court held that the clause providing penalty in the Contract is void. It was further held that damages are awardable only for some loss or detriment to the party prejudiced by*the breach of contract and that in the absence of any evidence showing loss or inconvenience on account of alleged delay in the completion of the building work, the claim for damages is not sustainable.
(vi) In the sixth case, a learned Single Judge, of this Court while construing section 74 of the Contract Act held that the party complaining of breach of contract is entitled to recover damages, whether or not actual damages suffered by it, subject to maximum limit of such damages being amount so mentioned in the agreement. It was further held that merely because a specific sum by way of liquidated damages being mentioned as payable in event of breach of agreement, the Court is not bound to grant the same to the party. .9. Reverting to the case relied upon by Mr. Chundrigar, it may be stated that a Division Bench of the Lahore High Court in 1930 allowed an appeal of a mortgagee and granted 15% instead of 12% as per terms of the mortgage deed which provided that in default of payment, the mortgagor was entitled to claim 15% interest of 12% agreed rate of interest. It was further held that increase from 12% to 15 % is not unreasonable.;
10. From the above cited cases, the following principles are deducible :
(i) That even if a contract provides a sum as liquidated damages in case of breach, an aggrieved party will not be entitled to recover the same without proving that he has suffered loss.
(ii) That if a party suffers loss on account of breach of a contract on the part of the other party, and if the contract provides a sum as liquidated damages, the aggrieved party will be entitled to recover the loss to the extent of the amount provided as liquidated damages.
(iii) That the Court in a fit case may grant nominal damages in case of breach of a contract against the defaulting party even in the absence of any proof of loss.
(iv) That despite of the breach on the part of a contracting party, the Court on equitable principles can relieve a defaulting party from th forfeiture of the earnest money if the circumstances of the case justify such a course.
(v) That the Court may decline to enforce a penal clause of a contract including a clause relating to penal interest.
(vi) That a clause providing payment of higher rate of interest than the agreed rate of interest in case of default in payment within the stipulated time, is enforceable if the higher rate .Of interest is= .Reasonable and not penal.
11. The ratio of the majority cases cited and discussed hereinabove seems to be that even under section 74 of the Contract Act, the Court is not bound to allow the amount mentioned as the liquidated damages in a contract. The Hon'ble Supreme Court in the above 1969 case declined to forfeit any amount of the earnest money, though admittedly the purchaser had committed breach by not lifting the contracted rice.
' In the instant case there are circumstances which go in favour of taking the view that at least from the date of the suit the plaintiff should not be allowed 14% additional interest as penal interest.
Firstly, that the above suit was filed for the recovery of Pakistani rupees, but after the enforcement of the Order, the plaint was amended and a decree in U. S. $ was prayed for. This Court inter alia in the two cases, (i) namely, Pakistan Industrial Credit and Investment Corporation Ltd., Karachi v.
Mahboob Industry, Karachi and 10 others (1) (which judgment was upheld upon an antra-Court appeal) (ii) Industrial Development Bank of Pakistan v. Messrs William Sons & Co. Ltd. And 2 others (2), had taken view that the foreign exchange rate applicable in case of repayment of foreign currency loan would be the rate obtaining on the due date of each instalment. The above judgments have been nullified by section 3 of the Order. The effect of it is that the defendants have now become liable to pay more than triple amount inter alia on account of the devaluation of Pakistani rupee in 1972 and because of de-linking of rupee from U. S. $ a few years back. Secondly, the
(1) 1980 CLC 249 (2) PLD 1980 Kar,, 576 plaintiff's witness has admitted the fact that the plaintiff have not suffered any loss, and that they were claiming penal interest because of the terms in the loan agreement and not because of the fact that they have suffered loss. Thirdly, under section 34-B, C. P. C., the defendants are liable to pay interest from the date of decree at the rate of 2% above the bank rate, which is more than double as compared to the agreed rate of interest 51%.
12. A further question arises, whether the interest which is to be awarded by the Court from the date of the decree in terms of section 34-B, C. P: C. Is to be paid in Pakistani currency or it should be converted from U. S. Dollars into Pakistani currency. It has been urged by Mr. Chundrigar, learned counsel for the plaintiff that under section 3 of the order even the amount of interest is to be calculated on the basis of the rate of foreign exchange prevalent on the date of payment. However, I am inclined to hold that reference to interest in section 3 of the Order is reference to the interest payable under the relevant foreign currency loan agreement and not to the interest which may be awarded by the Court under section 34-B, C. P. C. If the plaintiff would have claimed interest in terms of agreement even from the dace of decree, the plaintiff would have been entitled to calculate the interest amount in the foreign currency and then to convert it into Pakistani rupee in terms of section 3 of the Order.
13. Mr. Muhammad Ali Sayeed has also pointed out that factually after the filing of the suit, the defendants have paid the following two sums :-
(i) Rs, 6,87,275.00
(ii) Rs, 2,750.27 Total Rs, 6,90,025.27 ' This factum has not been denied, by Mr. Chundrigar. He has candidly submitted that the defendants may be given adjustment of the above amount.
14. It may be observed that the defendants have not been able to point out that the amount of the foreign currency calculated in the amended plaint is not correct. I would, therefore, pass a preliminary decree against defendant No, 1 in Form 5-A in Appendix `13' to the First Schedule to the C. P. C. And declare that rupees equivalent to U. S. Dollar 1,04,636.19 minus Rs, 6,90,025.27 already paid, are due and payable to the plaintiff with 5/% interest per annum with six monthly rests from the date of suit till the date of decree to be calculated in U. S. Dollar and to be converted along with the principal amount into Pakistani rupees on the basis of the rate of exchange of U. S. Dollar on the date of payment or realization in terms of section 3 of the Order. Future interest at the rate of 2% above the Bank rate, from the date of decree till payment in Pakistani currency in terms of section 34-B, C. P. C. And costs. If the defendants pay into the Court the above amount within 6 months from today with subsequent costs, charges and expenses as provided under rule 10 of Order XXXIV, C. P. C. Together with subsequent interest on the above amount the plaintiff shall deliver to the defendants or to such person as the defendants appoint all documents in their possession or power relating to the mortgaged property and shall if so required transfer the property to the defendants at their costs free from mortgage and free of encumbrance created by the plaintiff or any person claiming under them. If the net proceeds of the sale of the mortgaged property are found insufficient to pay the amount due to the plaintiff, they may apply to the Court under Order XXXIV, rule 6, C. P. C. For a decree for the balance amount against the defendants in accordance with law.