' This suit under the Banking Companies (Recovery of Loans) Ordinance, 1979 for recovery of Rs, 12,28,895.38 by sale of mortgaged property and hypothecated goods has been instituted by National Bank of Pakistan, the plaintiff, against Muhammad Ashraf Sanik and another, defendants.
2. It has been asserted by the plaintiff that On the request of the defendants, the plaintiff initially sanctioned a loan limit of Rs, 75,000 for them which on further requests was enhanced to Rs, 1,25,000 on 19th May, 1976 and to Rs, 2,00,000 on 25th February, 1978. The defendants were also accommodated to draw a further sum of Rs, 4,85,850 which they drew through cheques between the period 14th July, 1979 to 27th December, 1979. The above loan was secured through mortgage of the property viz. House No, S-31-R-166, Link McLeod Road, Lahore and through hypothecation of stocks of watches, ornaments etc. The defendants executed the following documents from time to time to avail of the loan facilities :-
(i) D. P. Note dated 27th December, 1974 of the value of Rs, 75,000 ;
(ii) Undertaking by the defendants for the payment of loan and interest thereon ;
(iii) Agreement for Cash Credit (hypothecation of watches, gold, gold ornaments etc.), dated 27th December, 1974 ;
(vi) Registered Deed of simple mortgage, dated 27th December, 1974 ;
(v) Registered General Irrevocable Power of Attorney, dated 27th December, 1974 ;
(vi) D. P. Note dated 19th May, 1976 of the value of Rs, 1,25,000
(vii) Agreement for Cash Credit hypothecation of goods, etc. Dated 15th May, 1976 ;
(viii) Undertaking by the defendants to pay the loan with interest and all other charges ;
(ix) Registered deed of simple mortgage, dated 19th May, 1976 ;
(x) Affidavit dated 19th May, 1976, by defendant No, 1 ;
(xi) D. P. Note dated 25th February, 1978 of the value of Rs, 2,00,000;
(xii) Agreement for Cash Credit hypothecation of goods, dated 25th February, 1978 ;
(xiii) Undertaking by the defendants for payment of loan with interest and other charges ;
(xiv) Undertaking by the defendants ; and
(xv) Registered Deed of Additional Simple Mortgage, dated 5th April, 1978.
' Further averment in the plaint is that on the mortgaged site, the defendants wanted to construct a Plaza by demolishing the existing structure and for the purpose entered into an agreement, dated 4th June, 1980 with the plaintiff-Bank for re-payment of the loan amount. On the said date the defendants admitted their liability in the sum of Rs, 7,52,018.06. The increased liability as on 31st December, 1980 amounting to Rs, 8,33,158.29 was also subsequently acknowledged by the defendants. Through letter dated 25th February, 1981 of the plaintiff the defendants were asked to clear their liability and pay the sum of Rs, 3,00,000 as had been agreed upon vide clause 1 of the afore4aid agreement, dated 4th June, 1980. The defendants in reply re-acknowledged the loan liability through their letter, dated 8th March, 1981 and explaining their difficulties gave a fresh proposal for repayment of the amount. This revised programme for repayment of loan was also not adhered to by the defendants and as on 6th March, 1983 the amount due from the defendants to the plaintiff accumulated to Rs, 12,28,895.38 which having not been paid the plaintiff has filed the present suit for its recovery with interest at the rate of 4 per cent. Above the Bank rate with a minimum of 14 per cent. Per annum with quarterly rests. The suit amount is sought to be recovered through sale of the mortgaged property and hypothecated goods.
3. The defendants filed an Application (C. M. No, 5779/C-1983) for leave to appear and defend the suit. This application of the defendants was dismissed for non-prosecution on 22nd December, 1984 and the suit of the plaintiff was decreed on the same date. The defendants then made an Application (C. M. No, 114/B-1984) for recalling the preliminary decree passed as aforementioned.
This application itself was dismissed for non-prosecution, where after the defendants made yet another application (C. M. No, 54/B-1985) under Order IX, rule 9 read with Order XXXVI1, rule 4 and section 151, C. P. C. For restoration of the first application viz. C. M. No, 114/B of 1984. This subsequent Application (C. M. No, 54/B of 1985) was allowed by my order, dated 15th January, 1986 and on the same date allowing the other application viz C. M. No, 114/B of 1984 the preliminary decree was set aside and the application for leave to appear and defend the suit was also restored to its original number.
' This application for leave to appear and defend the suit has been resisted by the plaintiff.
4. The learned counsel for the applicants-defendants has raised the following contentions : ' First, that liability up to Rs, 2,00,000 with interest thereon for which the property was mortgaged is admitted but 4ie defendants cannot be burdened with the liability of the sum of Rs, 4,85,850 withdrawn through cheques between the period 14th July, 1979 and 27th December, 1979 as the said amount was in fact drawn by the ex-Manager of the plaintiff-Bank, Mahmood Yasin Minto, whose wife had entered into partnership business with the son of defendant No,
1. It was urged that the aforementioned ex-Manager by practising fraud on the defendants got the cheques signed from them and withdrew the amount from the Bank feel. His own benefit and that otherwise also the said withdrawal by cheques being in excess of the sanctioned limit of defendants they are not liable to pay the same ; ' In the same context the learned counsel for the applicants-defendants contended that a complaint was made against the aforementioned Manager of the Bank and the institution of the present suit is only a counterblast to frustrate the aforementioned complaint of the defendants ; ' Secondly, that the Power of Attorney in favour of the signatures of the plaint having not been produced Mr. Zia-ud-Din was not competent to institute the suit on behalf of the plaintiff ; ' Thirdly, that it having been alleged by the defendants that fraud was practised on them by the ex- Manager of the Bank, he is a necessary party to the present suit and the matter calls for an enquiry and regular trial ; and ' Lastly, that a prima facie case having b, en made out by the defendants which may give rise to important questions of law and fact, leave to appear and defend the suit may be granted.
5. The learned counsel for the plaintiff vehemently opposing the application for leave to appear and defend the suit submitted that the liability to the extent of sanctioned limit having been admitted and it also baying been admitted that the cheques in excess of the sanctioned limit were drawn by the defendants there is no occasion for grant of leave to appear and defend the suit.
6. The learned counsel for the plaintiff also contended that the alleged fraud practised on the defendants by the ex-Manager of the Bank is only imaginary and that this plea appears to have been concocted by them on learning that serious steps are being taken for recovery of the due amount. It was urged by him that in the face of periodical acknowledgments by the defendants of the amount due from them to the plaintiff without any reservation, there is no justification for advancing the plea that the loan amounts were not availed of by the defendants. He in this connection referred to confirmation slips, dated 31st December, 1979 and 31st December, 1980 and agreement, dated 4th June, 1980 executed by the defendants and which respectively acknowledged the liability as on the aforementioned dates to be Rs, 7,31,249.42, Rs, 8,33,158.29 and Rs, 7,52,018.06.
7. The learned counsel for the plaintiff next submitted that all the documents annexed with the plaint in original have been admittedly signed by the defendants which fact leaves no room for denial of any portion of the claim of the plaintiff against them.
8. As regards the contention raised on behalf of the defendants that they are not liable to pay any amount in excess of the sanctioned limit, the learned counsel for the plaintiff submitted that there being admission that the amount of Rs, 4,85,850 had been withdrawn through cheques drawn by the defendants on their account with the plaintiff-Bank, when no funds were available therein, the issuing of each such cheque was a request for overdraft which facility was afforded to the defendants by the plaintiff and now after having availed of the amount of loan through overdraft as mentioned above, the defendants cannot be allowed to turn around and take the plea that there being no sanctioned limit beyond Rs, 2,00,000 the defendants are not liable to pay the amount in excess thereof. In support of the above contention reliance has been placed on National Bank of Pakistan v. Messrs Ch. Ilatn Din & Co. And others (1).
9. The learned counsel for the plaintiff further urged that no plausible and genuine defence having been disclosed by the defendants and only vague allegations of fraud having been levelled without any material on record in support of the allegations there is no case made out by them for grant of permission to appear and defend the suit. The learned counsel cited Faqir Muhammad and 5 others v. Sheikh Nasim Ahmad (2).
10. Lastly, relying on Khayam Films and another v. Bank of Bahawalpur Ltd. (3), Gul Habib v. Habib Bank Ltd. (4) the learned counsel for the plaintiff contended that the certified copy of the Power of Attorney in favour of the signatory of the plaint has been placed on record as the original was not traceable which inter alia confers power on the attorney to institute and file any suit on behalf of the plaintiff and thus there is no scope for submitting that the suit has been incompetently filed. He also submitted that in any case the institution of the suit by the signatories has been categorically ratified by the plaintiff, which is a complete answer to the objection raised on behalf of the defendants.
11. I have given anxious consideration to the contentions raised on A behalf of the parties. I am inclined to agree with the learned counsel for {{FOOT NOTE}}
(1) PLD 1985 Lah. 117 (2) PLD 1979 Lah. 356
(3) 1982 CLC 1275 (4) PLD 1983 Pesh. 31 {{FOOT NOTE}} the plaintiff that the defendants have not been able to show any genuine or even plausible defence which they can set up to the suit or which may give rise to triable issues. It has been correctly pointed out that bald allegations of alleged fraud by the ex-Manager of the plaintiff-Bank on the defendants without any details and particulars thereof which allegations on the face of it are only illusory cannot be made the basis to grant leave to appear and defend the suit. Moreover a plea of fraud as the basis of defence cannot be entertained in the absence of particulars thereof as provided under Order VI, rule 4, C. P. C. It is well-settled that when fraud is the basis of action or defence the particulars have to be invariably furnished. Reference in support of the above view may usefully be made to Ghulam Shabbir v. Mst. Nur Begum and others (1), Muhammad Umar v.
Muqarab Khan etc. (2), Bharat Dharma Sydicate Ltd. v. Herish Chandra (3) Bal Gangadhar Tilak and others v. Shrinivas Pandit and others (4) and Faqir Muhammad and 5 others v. Sheikh Nasim Ahmad (5).
12. Otherwise also I find that a conjunctive reading of the application for leave to appear and defend the suit and in particular the contents of grounds (i), (c) and (d) thereof in fact tend to .
Show that the amounts through cheques in question were withdrawn by the defendants with full knowledge of the manner of withdrawal and the use to which the amounts were to be put. The cheques it may pertinently be observed were admittedly issued by the defendants. The averments in the application for leave to appear and defend the suit also clearly show that the son of defendant No, 1 and the wife of the then Manager of the Bank were running a partnership business and it appears that on the basis of that business connection the defendants were being accommodated even out of the way. That being so the defendants cannot be permitted to allege fraud against the, plaintiff-Bank.
13. Before dealing with the contentions raised on behalf of the defendants that the payment against cheques being in excess of the sanctioned limit of advance, no liability in respect thereof devolves upon the defendants, it appears appropriate to refer to some provisions of the Negotiable Instruments Act (XXVI of 1881). The said provisions are reproduced hereunder for facility of reference : ' Section 5 defines a "bill of exchange" as under : "A 'bill of exchange' is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay on demand or at a fixed or determinable future time a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument." x x x x X x "Where the payee is a fictitious or non-existing person the bill of exchange may be treated as payable to bearer."
' Section 6 defines the 'cheque' as under : "A 'cheque' is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand."
Section 7 defines the drawer, the drawee and the payee respectively as the maker of a 'bill of exchange' or 'cheque', the person who is directed to {{FOOT NOTE}}
(1) PLD 1977 SC 75 (2) 1968 SCM R 983
(3) AIR 1937 P C 146 (4) AIR 1915 P C 7 5) PLD 1979 Lah. 356 {{FOOT NOTE}} pay the bill of exchange or cheque and the person named in the instrument to whom or to whose order the money is by the instrument directed to be paid.
14. A conjunctive reading of the above provisions, therefore, shows that a 'cheque' is a 'bill of exchange' which I f drawn unconditionally on an account is to be honoured by the 'drawee'. It is correct that cheques are generally drawn to be met out of funds in the hands of the Bankers yet in terms of the definition of cheque and bill of exchange such a limitation as to existence of funds with the Bank as a fore requisite for issuance of a cheque cannot be imposed. It can be safely inferred that when a customer draws the cheque for a larger amount than what he has to his credit in the Bank he obviously makes a request to the Bank to pay the amount in spite of insufficiency of funds as he knows or is presumed to know the amount to his credit in the account.
Refer Page its Law of Banking, Eighth Edition, Wherein at page 132 this proposition has been discussed in the following words :- "A banker is not obliged to let his customer overdraw unless he has agreed to do so or such agreement can be inferred from course of business ; borrowing and lending are a matter of contract not necessarily premeditated but, possibly, spontaneous, as where a customer, without previous arrangement, draws a cheque, payment of which overdraws his account."
"The drawing a cheque or accepting a bill payable at the bank, when there are not funds sufficient to meet it, is presumably a request for an overdraft."
The rule may thus be summed up that where a person draws a cheque on a Bank for an amount in excess of the balance to his credit in his Bank Account and the Bank encashes the cheque in due course, a transaction of loan arises in law that is to say, the drawer shall be deemed to have asked for the loan/overdraft and the Bank shall be deemed to have advanced the same to the extent of excess. As such all considerations of justice, equity and good conscience shall prevail to preclude the drawer from denying his liability in respect of such a loan.
15. I may also observe that if the Bank believing that a cheque has been issued by a customer who does not have to his credit an amount equal to the amount drawn through the cheque treats the request as one for overdraft and pays the amount, the customer has borrowed the money especially where the payment is not objected to by the drawer before or soon after encashment of the cheque, and on the contrary the dawn amount is acknowledged as loan through subsequent confirmation of loan. The drawer in such circumstances shall be estopped to take a plea and assert that the encashment of the cheque beyond the amount available to the credit of the drawer cannot be held as his liability as the Bank should have refused to honour the cheque, there being no amount to his credit.
16. I may also hold as a general principle that if after issuing a cheque, the drawer keeps quiet and takes no steps to inform the Bank in time i. e.1 before the cheque is encashed that the cheque should not be honoured and the Bankers honour the same and make payment in due course, which according to section 10 of the Negotiable Instruments Act, means payment) in accordance with the apparent tenor of the instrument in good faith, the! Liability for the drawn cheque shall absolutely and squarely fall on the drawer.
17. Before parting with the above aspect of the matter it would be pertinent to further observe that the claim of interest on an overdraft finds support on the ground of universal custom of bankers and also on the basis of implied agreement for example where the customer has acquiesced in the system under which the interest is charged.
18. In the light of the above principles 1 would now advert to the case in hand. It would be seen that even from the contents of the application for leave to appear and defend the suit; it is manifest that at the time of issuing the cheques in dispute the defendants fully knew that the funds in their account with the plaintiff were not sufficient to meet them. This fact alone clearly establishes the knowledge and intention of the defendants to obtain overdraft/loan from the plaintiff to the extent of the overdrawn cheques. The matter does not end at that, the defendants at no point of time not only did not raise any objection to the encashment of the cheques in question, but continued to acknowledge as loan the payments made against them as also them as interest charged thereon by signing a number of confirmation slips.
19. The case of the defendants becomes all the more flimsy in view of the established position that the cheques in question which have been placed on record in original were issued by the defendants under signatures of defendant No, 1 who also received the amount in cash against them as the cheques being bearer have his signatures on the reverse thereof in token of receipt of the amount. The cash against the cheques having been received by defendant No, 1 it can be justifiably deemed that the said amounts were appropriated by the defendants to their own use.
20. From the aforementioned attendant circumstances and the material on record, it is clear that there was an express intention of the defendants to obtain a loan and that of the plaintiff-Bank to advance the same to them through payments against the overdrawn cheques on the basis of the security already held by the Bank for the loan sanctioned to the defendants and, therefore, the defendants shall stand precluded and estopped by their conduct and also in law to deny their liability and that they are under a legal and moral obligation to pay the total amount claimed in the suit.
21. The only other contention raised on behalf of the defendants which is left to be considered is the objection as to the competence of the signatory of the plaint to institute the suit on behalf of the plaintiff: Suffice it to say that the certified copy of the registered Power of Attorney in favour of Mr. Zia-ud-Din one of the signatories of the plaint has been placed on record which clearly authorises him (refer recital 13) to institute/defend etc.,L any action or other proceedings relating to the affairs of the Bank and it squarely meets this objection. Otherwise also the objection in the light of the case-law cited by the learned counsel for the plaintiff does not appear to have force.
22. In view of the foregoing discussion I find that no plausible and genuine defence having been disclosed by the defendants they are not u entitled to the grant of permission to appear and defend the suit and consequently their application is dismissed.
23. The application for leave to appear and defend the suit having been dismissed, the contents of the plaint shall be deemed to be admitted. Resultantly a preliminary decree with costs for recovery of Rs, 12,28,895.38 is hereby passed in favour of the plaintiff and against the defendants. The plaintiff shall also be entitled to recover interest at the rate of 14 per cent. Annum from the date of institution of the suit till realization of the decretal amount.
24. The defendants are given six months' time to pay the decretal amount, failing which the plaintiff may apply for passing of a final decree.