' This judicial miscellaneous application under section 39 of the Industrial Development Bank of Pakistan Ordinance, 1961, has been filed by the Industrial Development Bank of Pakistan against M/s. Murtaza Flour Mills Ltd., and four others.
2. The facts of the case are that in April, 1966 at the request of the respondents, the petitioners granted to the respondent No, 1 a foreign currency loan, of DM. 7,14,200 (or any other available foreign line of credit), payable in twenty-six monthly instalments, to set up a flour mill at Nawabshah. As a security for repayment of the said loan, the respondents Nos. 1 to 4 executed a demand promissory note, dated 12-9-1966 in the sum of U.S.$ 1,77,050 payable in Pak rupees to the petitioners and the respondent No,1 hypothecated its plant and machinery imported with the said loan. The respondent No, 1 also undertook to mortgage the future fixed assets of the said project.
The respondents Nos. 2 to 4 further guaranteed the payment of the said loan by the respondent No, 1 in accordance with the credit agreement executed by the respondent with the petitioners.
3. The respondent No, 5 is the successor of Standard Bank Limited which had then furnished a bank guarantee in favour of the petitioner for the payment of a sum of Rs, 14,38,000. The guarantee, according to clause (4) thereof, was to remain in force until the said borrower has--
(i) invested a sum of Rs, 14,38,000 in the project in the manner stated in the said Credit Agreement dated 12-9-1966 as well as any overrun in the financing of the cost of the project;
(ii) installed and completed the factory for which the loan has been granted;
(iii) created mortgage on the assets of the said project in your favour in terms of the Credit Agreement referred to above between you and the Borrowers."
4. The respondent No, 1, thereafter, neglected and failed to perform its commitments and obligations under the said credit agreement and also committed default in payment of the instalments in consequence whereof, the petitioner vide their legal notice, dated 27-11-1975 (Ex.
7/10), recalled the said loan and filed the present petition against the respondents.
5. I have heard Mr. Muhammad Ali Sayeed and Mr. Hamza I. Ali, learned counsel for the respondents Nos. I and 5 respectively, and Mr. A.I. Chundrigar, learned counsel for the petitioner.
6. Mr. Muhammad All Sayeed has firstly argued that some of the reliefs claimed by the petitioner cannot be granted by this Court. It may be pointed out that vide para. No, 18 of the petition, the petitioner seeks an order directing the respondents to pay the petitioner's dues. This relief no doubt cannot be granted to the petitioner. According to section 39 of the I.D.B.P. Ordinance the petitioner can apply to the Court for one or more of the following reliefs, namely:--
(a) an order for the sale of the property pledged, mortgaged, hypothecated or assigned to the Bank as security for the loan, or
(b) transfer of the management of the concern to the Bank, or
(c) an injunction ad interim where there is apprehension that machinery or equipment may be removed from the premises of the concern without the permission of the Board.
' However, there appears to be no controversy over this issue as Mr. A.I. Chundrigar, learned counsel for the petitioner has very fairly dropped the prayers made under para No, 18 of the petition.
7. The second contention of Mr. Muhammad Ali Sayeed is that even the relief sought by the petitioner under para No, 19 of the petition cannot be granted to it as there was no valid agreement of hypothecation executed by the respondent No, 1 hypothecating its goods in favour of the petitioner. Reference in this respect has been made to the evidence of Fasahat Ali Siddiqui, Manager Legal Department, I.D.B.P. (Ex. 7), according to which, the movable properties possessed or owned by the respondent No, 1 in the form of machinery etc. Were not in existence till November, 1968, whereas admittedly, the agreement in question had been signed on behalf of the respondent No, 1 on 12-9-1966. Although the said factual position has not been denied by Mr. A.I. Chundrigar but his argument has been that such a transaction was a perfectly valid transaction and therefore, it cannot be called in question. Reliance in this respect has been placed by Mr. Chundrigar upon the case of H.V. Low & Co. Ltd. v. Pulinbiharilal Singha and others AIR 1933 Cal. 154, wherein it was held that a valid hypothecation can be created in respect of not only such movables as are existing on the premises at the time, but also in respect of movables which might be subsequently acquired and brought there. In this case, the respondent had executed a `kabulyar containing the following stipulations:-- "Further the right I have got on the basis of this settlement, the machineries of the said Kuthi, the engine and the boilers etc. Will all along remain under first charge for the said royalty and minimum royalty."
' It was observed by their Lordships of the Calcutta High Court that:-- "In most modern systems of law, the hypothecation of movables is either not permitted at all or is fenced in by a multitude of rules, which are absolutely necessary for prevention of fraud the charge having been not merely of the movables existing on the premises at the time, but also in respect of movables which might be subsequently acquired and brought there, may be said to have been in respect of property which had not yet come into being. Though a transaction of this character is not governed by the Transfer of Property Act or by the Contract Act, its validity can hardly be disputed."
' Reference was made in this case to a number of precedents. In Holroyd v. Marshall (1862) 10 H L C 191, it was held:-- "It is quite true that a deed which professes to convey property which is not in existence at the time is as a conveyance void at law, simply because there is nothing to convey. So in equity a contract which engages to transfer property, which is not in existence, cannot operate as an immediate alienation merely because there is nothing to transfer. But if a vendor or mortgagor agrees to sell or mortgage property, real or personal, of which he is not possessed at the time, and he receives the consideration for the contract, and afterwards becomes possessed of property answering the description in the contract, there is no doubt that a Court of equity would compel him to perform the contract, and that the contract would, in equity, transfer the beneficial interest to the mortgagee or purchaser immediately on the property being acquired. This of course assumes that the supposed contract is one of the class of which a Court of equity would decree the specific performance It follows that immediately on the new machinery and effects being fixed or placed in the mills they became subject to the operation of the contract and passed in equity to the mortgagees, to whom Taylor was bound to make a legal conveyance, and for whom he in the meantime was a trustee of the property in question."
' Similar views were expressed by the Allahabad High Court in Ram Sarun v. Mohan Lal AIR 1924 All.
833. It was held in the case as under:- "A mortgage of a future crop, neither shown nor cultivated at the time, is recognised and enforced in this country as an executory agreement, binding on the parties to the transaction. The transaction is not governed by the Transfer of Property Act or by the Indian Contract Act, in so far as it is neither a mortgage of immovable property nor a pledge of existing movable property. It is, to use the language adopted in Misri Lal v. Mazhar Hussain in the nature of an agreement to mortgage movable property that may come into existence in future and as such it creates an equitable charge which is valid and enforceable."
' In Babu Ram v. Ram Sarup AIR 1926 All. 164, the same Court once again expressed similar views, thus:- "There can be, no doubt, that under section 3 of the Transfer of Property Act growing crops are not immovable property, and, therefore, that Act does not apply to this case. Further when the mortgage was made these crops were not in existence. The need originally amounted to a mere agreement to hypothecate the further crops when they do come into existence. Such an agreement was valid, as was pointed out by the Calcutta High Court in the case of Misri Lal v.
Mazhar Hussain. But as soon as the crops grew, the hypothecation became complete and attached to the crops and created an equitable interest in the mortgagee."
8. The. Agreement of hypothecation of goods, executed by the respondent No, 1 shows that it had hypothecated in favour of the petitioner all its plant, machinery, spare parts, accessories, equipment and all other movable properties and assets as may thereafter be purchased by the respondent No, 1 together with the benefits of all rights appertaining as security for the repayment of the loan. No doubt, these goods, which had been hypothecated by the respondent No, 1 were not in existence at the time of the execution of the agreement but it is not disputed that goods answering the same description were subsequently acquired by the respondent No, 1.
Consequently, in my opinion, the mortgage can be enforced and the argument of Mr. Muhammad Ali Sayeed is not tenable.
9. I now turn to the contentions raised by Mr. Hamza I. Ali on behalf of the respondent No,
5. The first contention of the learned counsel is that, according to clause (a) of section 39(1) of the I.D.B.P.
Ordinance, before its amendment by the I.D.B.P. (Amendment) Ordinance, 1981, only such property of the respondents or any other person liable for the payment of money could be sold as had been pledged, mortgaged, hypothecated or assigned to the Bank as security for the loan. Consequently, according to the learned counsel, as the respondent No, 5 had not mortgaged or pledged or hypothecated or assigned its property to the Bank for payment of any loan, but had only furnished Bank Guarantee in favour of the petitioner, no order can be passed against the respondent No, 5 under section 39(1) as a Bank Guarantee cannot be sold. There is no controversy on the point that the parties are to be governed by the law as it stood before the introduction of the said amendments in the Ordinance. The second contention of Mr. Hamza I. Ali is that in any case, since the respondent No, 1 had created an equitable mortgage in respect of their immovable properties in favour of the petitioners, consequently, according to the terms of the bank guarantee, the same stood discharged.
10. In order to appreciate the first contention of Mr. Hamza I. Ali, it will be worthwhile to reproduce section 39(1) of the I.D.B.P. Ordinance, as it stood before the said amendments. This section provided as under:-- "39(1). Where the Bank becomes entitled to require the immediate payment of any loan (before the due date) by reason of the breach of any condition of any agreement between the Bank and an industrial concern to which the loan has been granted or any person liable for payment of that loan, or where an industrial concern to which any loan has been granted or any person liable for payment of that loan fails to repay the loan by the due date or in compliance with the notice under section 38, an officer of the Bank, generally or specially authorised by the Board in this behalf may apply to the District Judge within the local limits of whose jurisdiction the concern carries on the whole or a substantial part of its business, or the office or branch of the Bank from which the loan was disbursed is situated, for one or more of the following reliefs, namely:--
(a) an order for the sale of the property pledged, mortgaged, hypothecated or assigned to the Bank as security for the loan, or
(b) transfer of the management of the concern to the Bank, or
(c) an injunction ad interim where there is apprehension that machinery or equipment may be removed from the premises of the concern without the permission of the Board."
' It is also pertinent to refer to subsections (3) and (9) of the said section, which provided as follows:- "(3) When the application is for the relief mentioned in clause (a) or clause (c) of subsection (1), the District Judge shall pass an order ad interim attaching the property referred to in clause (a) as aforesaid or such other property of the concern (or of the persons liable for payment of the loan or of both) as is likely in his estimation to fetch, on being sold, an amount equivalent to the outstanding liability of the concern to the Bank together with the costs of the proceedings taken under this section, with or without an injunction ad interim restraining the concern from transferring or removing any machinery or equipment without the consent of the Bank.
(9) On completing an investigation under subsection (8) the District Judge shall pass an order:--
(a) confirming the order of attachment or directing the sale of the attached property, or
(b) varying the order of attachment so as to release a portion of the property from attachment and directing the sale of the remainder of the attached property, or
(c) releasing the property from attachment if he is satisfied that it is not necessary in the interest of the Bank to retain it under attachment, or
(d) confirming or vacating the injunction, or
(e) transferring or refusing to transfer the management of the concern to the Bank."
11. A perusal of clause (a) of section 39(1) of the aforesaid Ordinance, no doubt, shows that the Bank can proceed either against the borrower or any other person liable for the payment of loan, which may include his surety or guarantor, but clause (a) of section 39(1) shows that the Court can pass an order only for the sale of such property which has been pledged, mortgaged, hypothecated or assigned to the Bank as security for the loan. No doubt, a bank guarantee is a kind of security comparable to a pledge, mortgage or hypothecation, but at the same time it cannot be classified as either of them. It also cannot be sold in terms of clause (a) of section 39(1) of the I.D.B.P.
Ordinance.
12. Mr. Hamza I. Ali has invited my attention to the amendments introduced in section 39 by section 20 of the Industrial Development Bank of Pakistan (Amendment) Ordinance, 1981. The original clause (a) has now been substituted by a new one and it now provides as follows:-- "(a) an order for the sale of the property pledged, mortgaged, hypothecated or assigned to the Bank as security for the loan and any other properties, disclosed or undisclosed, of the industrial concern or the properties disclosed or undisclosed, of persons liable for the repayment of the loan, including guarantors."
' The contention of Mr. Hamza I. Ali is that, the object of the amendments introduced in section 39 clearly was to remove and remedy the defects earlier D occurring in that section. It has been pointed out by the learned counsel that there was no power vesting in the Court before the aforesaid amendments, whereby the property of the surety or a guarantor other than that which had been pledged, mortgaged, hypothecated or assigned to the Bank as security for loan could be ordered to be sold. The comparison of the provision of section 39(1)(a) before and after their amendment shows that after the amendment any properties disclosed or undisclosed of the persons liable for the repayment of loan, including the guarantors can be ordered to be sold by the Court. However, such was clearly not the case before the said amendments. Since the parties are to be governed by the law as it stood before the said amendments, no relief can be sought by the petitioners against the respondent No, 5 as the relief sought by them does not fall within the ambit of any of clause (a), (b) or (c) of section 39(1). No doubt, under subsection (3) of section 39, where relief has been sought under clause (a) or clause (c) of subsection (1) of section 39, the Court can pass an order ad interim attaching the property referred to in the said clauses, but again, such order can be passed where the Court can grant a final relief under such clauses. I am consequently of the view that the petitioners can only seek relief against the respondents Nos. 1 to 4, but no relief can be sought by them against the respondent No, 5.
13. In view of my conclusion it is not necessary for me to go into the second contention of Mr. Hamza I. Ali.
14. In the result, the ad interim order of attachment passed against the respondent No, 1 is confirmed and the attached properties belonging to the respondents may be sold in terms of section 39 of the I.D.B.P. Ordinance.
' The order of attachment passed in respect of the respondent No, 5, dated 17-4-1976, which was partially modified by the order of this Court, dated 20-41976, cannot be confirmed.