1. ' This is an application by defendant No, 4 for leave to appear and defend the suit. Mr. Shamsi submits, firstly, that the plaint has not been signed by an authorised person and the suit is, therefore, not competent because the person signing the plaint has not been authorised by power of attorney to file the suit. He relies on Millat Tractors Ltd. v. Ch. Tawakalullah (NLR 1991 A.C. 432), Government of Pakistan v. Premier Sugar Mills and others (PLD 1991 Lahore 381), Khan Iftikhar Hussain Khan of Mamdot v. Messrs Ghulam Nabi Corporation Ltd. (PLD 1971 SC 550) and Messrs Muhammad Siddique Muhammad Umar v. The Australasia Bank Ltd. (PLD 1966 SC 684).
2. Ms. Sofia Saeed, on the other hand, submits that the defendant has taken this plea for the first time in the additional affidavit in rejoinder; and that he was not entitled to do so by virtue of Rule 75(2) of the Sindh Chief Court Rules which provides that an affidavit in rejoinder must be confined to matters of reply. The submission of Ms. Sofia Saeed is obviously right. The defendant was not entitled to raise this question by way of affidavit in rejoinder. Mr. Shamsi submits, in reply, that he was entitled to raise this question because it is a question of law. The submission is not correct because whether or not power of attorney had been executed in favour of the person who has signed the plaint is a question of fact and not of law.
3. ' In any event, the record shows that in response to the objection raised by the office, the plaintiff produced the original power of attorney for inspection by the office and filed a photocopy thereof which is at page 271 of the record. Paragraph 9 of that power of attorney authorises Mr. Nasrul Hasnain son of Syed Zakawat Hussain to commence, prosecute, continue and defend all actions, suits or legal proceedings". Ms. Saeed has today produced a copy of the Memorandum and Articles of Association of the plaintiff. By Article 98 of the Articles of Association, the management of the business of the Company has been vested in the Directors and they have been empowered to do all such acts and things as may be done by the Company. By Article 99(4) of the Articles, the Directors have been empowered, inter alia, to "authorise or empower the Manager or any other officer for the time being of the company to exercise and perform all or any of the power, authority and duty conferred or imposed upon the Directors by the Memorandum and Articles of Association subject to such restrictions and conditions, if any, as Board may think proper". Again, Article 101 of the Articles of Association provides that the Directors may at their discretion delegate to any Manager or other officer such powers as they are not expressly prohibited from delegating for such time and subject to such condition and restriction as they may think expedient. It will, thus, be seen that the directors of the plaintiff are empowered to exercise all the powers of the company which includes the power to file a suit. They are further empowered to authorise any. Manager or officer of the company to perform all or any of the powers and authorities of the directors, and to delegate any of the powers to any Manager or officer of the plaintiff. The power of attorney has obviously been given in exercise of the powers granted to the Directors by the Articles of Association.
4. ' In the case of Muhammad Siddiq Muhammad Umer v. The Australasia Bank Ltd. (PLD 1966 SC 684) it was observed, at page 695, as follows:-- "It was apparent from the pleadings that the suit was being instituted by a constituted Attorney of a Public Limited Company. He could only do so if he was duly authorised in that behalf and occupied one or other of the offices mentioned in Rule 1 of Order 29 of the Civil Procedure Code. A copy of the power of attorney had been produced which showed that Muhammad Khan had been empowered in that behalf but the question still remains to be ascertained as to whether those who gave him that power were competent to do so, as the authority was on behalf of the public limited company. For this purpose a reference to the Articles of Association of the Company was certainly necessary to see whether the Directors were competent to delegate such power. It was not necessary to see whether the Directors had in fact approved of the giving of such power of attorney to the person who presented the plaint."
5. ' It is obvious that the requirements mentioned in the passage cited above have been met in the present case. The suit has, Therefore, been competently filed.
6. ' It is next contended that the suit cannot proceed against the defendant because defendant No, 1 Company has been ordered to be wound up. The argument appears to be that in view of the provisions of section 318 of the Companies Ordinance, 1984, the defendant No, 4 will not be able to exercise his right under section 145 of the Contract Act. I must confess that I am unable to understand the argument. Section 145 of the Contract Act provides that in every contract of guarantee there is an implied promise by the principal debtor to indemnify the surety and the surety is entitled to recover from the principal debtor whatever sum he has rightfully paid under the guarantee; and s C section 318 of the Companies Ordinance provides that an order for winding up of a company operates in favour of all the creditors and contributories of the company. If, therefore, the defendant becomes liable to pay by virtue of his guarantee, surely, he would be entitled to claim payment from the liquidator of I the company.
7. ' It is then submitted by Mr. Shamsi that the guarantee was for past consideration and was, therefore, in view of section 127 of the Contract Act, read with illustration (c) thereto, void. He relies on Paulo Varghese and others v. Ittipe Abraham and others (AIR 1952 Travancore-Cochin 202) and Ram Narain v. Lt.-Col. Harisingh and another (AIR 1964 Rajasthan 76).
8. ' Section 127 of the Contract Act provides:-- "Anything done, or any promise made for the benefit of the principal debtor may be sufficient consideration for the surety giving the guarantee." and illustration (c) to section 127 is as follows:-- "A sells and delivers goods to B.0 afterwards, without consideration, agrees to pay for them in default of payment. The agreement is void."
9. ' Reference, in this connection may also be made to section 2(d) of the Contract Act which defines "consideration" as follows:-- "When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or promises to do or abstain from doing, something, such act or abstinence is called a consideration for the promise."
10. It is clear that, by virtue of section 2(d), anything done or abstained from or any promise made by a promisee, in order to amount to "consideration", must have been done or abstained from or made at the desire of the promisor. If, therefore, the promisee does or abstains from doing, or promises to do or abstain from doing, something, at the desire of a surety, such act or abstinence or promise would be good consideration for the guarantee. If, on the other hand, the act or abstinence or promise of the promisee is not done or made at the desire of the surety, such act or abstinence or promise is not good consideration. For the same reason, a guarantee given subsequently, for an act or abstinence or promise which was not done or made at the desire of the surety, is without consideration; and such act, abstinence or promise cannot be treated as consideration for a guarantee given subsequently without any further act, abstinence or promise done or made by the promisee. If, however, a guarantee is given afterwards in return for something more done or abstained from or some promise made by the promisee at the desire of the surety, such something more would be good consideration for the guarantee for future as well as for past transactions. Such, in fact, is the effect of illustration (c) to section 127 of the Contract Act; and all that section 127 does is to make it clear that it is not necessary that the surety himself must receive some benefit in return for his guarantee and that any benefit to the principal debtor is sufficient consideration for the guarantee.
11. ' The rule is clearly stated in Chitty on Contracts, Volume II, 2nd Edition, page 1018, thus:-- "If the surety guarantees past transactions in return for an undertaking by the creditor to continue to deal with the debtor, or to grant him further credit, there will be good consideration. In practice, the surety frequently guarantees both past and future transactions in return for such an undertaking, and such a guarantee is good as to both sets of transactions, for consideration to be executed on one side is at all events prima fade consideration for all that is done on the other, and all the promises are to be referred to all the considerations. Difficult question of construction may arise in these cases since guarantees are often expressed in terms which leave it doubtful whether the surety is guaranteeing post and future transactions, or past ones only. In these circumstances, extrinsic evidence is admissible to show that the parties contemplated future transactions as falling within the guarantee, and that the whole guarantee is therefore valid. But if it is evident that the guarantee was intended to be limited to past transactions the guarantee will be void as being without consideration."
12. ' In the case of Chakhan Lal and others v. Kanhaiya Lal and others (AIR 1929 All. 72) the facts, as recited in the headnote of the report, were that a person stood surety for his brother for the payment of a sum, part of which was due on previous debts of the brother, part was due on Hundis jointly executed by both, part was paid at the time the person agreed to stand as surety and part was to be paid later on by the creditor who did not pay the same. It was held by a Division Bench of Allahabad High Court that there was sufficient consideration for the guarantee for the whole sum including the sum due on past debts of the brother.
13. ' In M. Ghulam Hussain Khan and another v. M. Faiyaz All Khan and another (AIR 1940 Oudh 346) one Madar Khan had executed an instalment bond, in February, 1929, in favour of a Dargah Committee.
14. Subsequently, the appellant executed, in July, 1929, a surety bond in favour of the committee binding himself to pay a certain sum to the committee in the event of default on the part of Madar Khan. It was presumed, in the circumstances of the case, that if the security bond had not been furnished, the lease given to Madar Khan, in return for which he had executed the instalment bond, would have been cancelled. It was, therefore, held that there was sufficient consideration for the surety bond. Reliance was placed on the case of Jagadindra Nath Roy v. Chandra Nath ( (1904) 31 Cal. 242) wherein it was held:-- "The surety deed... Itself shows that the demand for fresh security was made by the lessor and it is clear that the defendant 2 was asked to become and became surety for defendant No, 1 in order to save him from the result of failure to comply with the demand of the lessor which would have been either forfeiture of his lease or institution of legal proceedings. This resulted in an advantage to the lessee and we therefore hold .... That there was sufficient consideration for the bond executed .... By defendant 2."
15. ' In the case of Paulo Varghese, it was alleged in the plaint that the respondent promised that he would make the defendants Nos. 1 and 2 discharge the debt to the plaintiff and that he himself would be personally responsible for the discharge of the debt. It was held-- "The debt was already contracted and subsequently the alleged surety is stated to have come forward and said that he would be responsible for the discharge of the debt. The creditor did not suffer any detriment at the instance of the surety. This is an obvious instance of a promise which is not supported by consideration."
16. ' The case is clearly distinguishable and is of no assistance to the defendant.
17. ' In the case of Ram Narain v. Lt.-Col. Hari Singh the plaintiff had money dealings with one H. The transactions between the plaintiff and H were settled and H executed an entry in the account book of the plaintiff for having received a sum of Rs,7,500 in cash on 18-12-1953. The respondent signed this entry stating that he was responsible for payment of this amount. It was found as a fact that previous accounts between the parties were squared up on 16-12-1953 and the account book came to be written on 18-12-1953, that no cash was paid on 18-12-1953 and that if H stood discharged of all his liabilities on 16-12-1953, nothing was done on 18-12-1953 by way of benefit to H.
18. In those circumstances it was obvious that the respondent was not liable; and the case, therefore, is distinguishable on facts. The learned Judge, however, went on to hold, obiter, that, in view of the language of illustration (c) to section 127, any thing done or any promise made for the benefit of the principal-debtor must be contemporaneous to the surety's contract of guarantee. He dissented from the Oudh case cited above.
19. ' I am afraid that it is not possible to agree with the conclusion arrived at by the learned Judge in Ram Narain's case for several reasons. In the first place, there is nothing in the language of sections 2(d) and 127 of the Contract Act or in that of illustration (c) to the latter section which excludes past consideration given at the desire of the surety. Secondly, it is not possible to see why, on principle, a guarantee executed by a surety after consideration is given to the principal borrower at the desire of the surety, should not be held to be good guarantee. If a loan is given by a creditor to the principal borrower at the behest of surety, a benefit is thereby conferred upon the principal borrower; and that in terms of sections 2(d) and 127 constitutes sufficient consideration. Does it make any difference that, in pursuance of such a transaction the surety subsequently executes a guarantee?. In my opinion, it does not, either in principle or on authority. Finally, the conclusion runs counter to the authorities.
20. ' The question for consideration now is whether the guarantee in question can, in the light of the above principle, be said to be without consideration. It provides, in relevant parts, as follows:-- "In consideration of your agreeing to grant advances, credit, facilities or accommodation at my/our request to Shahyar Textile Mills Ltd. (hereinafter referred to as the customer(s). I/we (jointly and severally) hereby agree to pay and satisfy to you on demand up to Rs,40,000,000 but not exceeding the sum of rupees forty million all moneys and liabilities already advanced, paid or incurred or which you at any time advance, pay or incur to or for the use and accommodation of or on the credit of the customer(s), (whether on current), cash credit, overdraft or loan account or by way of opening of any Letter of Credit or otherwise or by the discount of, or otherwise in respect of bills of exchange, promissory notes or other negotiable securities drawn, accepted or endorsed by the customer(s) or otherwise however together with all interest, discount, commission and other banking charges, law and other costs, charges and expenses which may become ' payable in connection therewith.
2. This guarantee shall be a continuing guarantee and remain in full force and effect until three calendar months after. I/each of us shall have given or sent to you notice in writing of my/our intention to discontinue and determine the same.."
21. The defendant No, 4 has, by the above guarantee, undertaken to pay the plaintiff the sum named therein on account of all moneys... already advanced" or which the plaintiff may "at any time advance". The consideration for the guarantee was, therefore, advances granted by the plaintiff in the past as well as the advances which the plaintiff agreed to grant the principal borrower in future. Besides, in return for the guarantee, the bank undertook to continue to deal with the principal--borrower and thus conferred a benefit on it. The guarantee is, therefore, good as to both the past as well as any future transactions. One other factor which may be taken note of in this connection is that the defendant No, 4 was apparently a director of the principal borrower when loans were given to the latter and, as Miss Sofia Saeed points out, it was a condition of the loans that the directors of the company would execute personal guarantees as security. The guarantee in question was, therefore, executed in pursuance of that condition.
22. ' I am, therefore, satisfied that the guarantee in question was given for sufficient consideration.
23. ' It is then contended that the guarantee was revoked by defendant No,4 by his letters copies of which are Annexures D-3, D-5 and D-6 to the affidavit in support of the application. Annexure D-3 is the letter from the defendant to the plaintiff stating that he had resigned from the Directorship of the defendant No, 1 with immediate effect. Annexure D-4 is to the same effect. Annexure D-5 is the plaintiffs letter, dated January 18, 1988, in reply to the above letters, stating that resignation from the directorship of company would not absolve the defendant from his legal obligation to the bank as guarantor. Annexure-D-6 is a letter from the defendant to the plaintiff referring to his earlier letters and stating that he had informed Pakistan Banking Council that he was not responsible for the liabilities of the defendant No, 1.
24. ' There is evidently nothing in those letters to show that the defendant No, 4 had revoked the guarantee. Mr. Shamsi refers to the letter, dated February 8, 1988 (Annexure D-6) wherein it is stated that the defendant had informed Pakistan Banking Council that he would not be responsible for the liabilities of defendant No,
1. In the first place, Pakistan Banking Council was not party to the guarantee and, secondly, even if the defendant No, 4 had informed Pakistan Banking Council, as alleged, that would not amount revocation of the guarantee.
25. ' Section 130 of the Contract Act provides that a continuing guarantee may at any time be revoked by the surety as to future transactions by notice to the creditors. Ms. Sofia Saeed submits that the words "resignation" and "revocation" mean totally different things and that intimation of resignation from directorship cannot possibly be construed as notice of revocation of the guarantee. Be that as it may, under section 130, a guarantee can be revoked only as to future transaction; and it is nobody's case that there were any future transactions after the defendant wrote the letters mentioned above to the plaintiff. The argument, therefore, clearly fails.
26. ' The next argument advanced on behalf of the defendant is that the guarantee was discharged because (i) the defendant will not, in view of the winding up of defendant No, 1, the principal borrower, be able to claim reimbursement as provided by section 145 of the Contract Act and (ii) the plaintiff varied the repayment schedule without the consent of the defendant.
27. ' The first limb of the above argument has already been dealt with above; but Mr. Shamsi submits that the plaintiff, not having opposed the petition for winding up of defendant No, 1, the defendant No, 4, the surety, is discharged. He is, however, unable to cite any principle or authority in support of his proposition or to show that the plaintiff was under any obligation to do so; and I do not believe that there is any such principle or authority. In the case of Punjab National Bank v. Mehra Brothers
(P) Ltd. (AIR 1983 Cal. 335), the bank had filed the suit for recovery of money against the principal debtor and the sureties. The principal debtor was ordered to be wound up and an official liquidator was appointed but leave was obtained from the Company Judge to proceed with the suit against it. The bank had, in addition, also preferred a claim against the principal debtor in the winding up proceedings. It was contended that, in those circumstances, the liability of the sureties had ceased and or lapsed. It was held, rejecting the contention, that making of a claim before the liquidator did not amount to foregoing the claim against the sureties and that the Bank had not, by preferring a claim before the liquidator and by its claim being admitted by the liquidator, foregone its claim against the sureties.
28. ' Mr. Shamsi has cited the case of United Bank Ltd. v. Messrs Kohistan Ltd. (1987 CLC 2364) where it was held that where a company which was the principal debtor was completely dissolved under the provisions of Martial Law Regulation No, 63, the sureties could not be sued. There the creditor had not filed its claim before the Administrator and had filed the suit against the surety two years after the company had been completely dissolved. The case obviously has no application to the facts of the present case.
29. ' In support of the submission that the plaintiff varied the terms of repayment without the consent of the defendant No, 4, Mr. Shamsi relies on the letters which the defendant wrote to the plaintiff, copies whereof are Annexures P-14, P-15 and P-16 to the plaint. By these letters the defendant had sent to the plaintiff "revised repayment schedule" with a request to approve the same. There is nothing on the record to show that such approval was ever accorded and, indeed, Mr. Shamsi has not been able to point out any such approval. There was, therefore, in fact no variation in the repayment schedule. Assuming, however, that there was any such variation, Ms. Saeeda points out that the plaintiff was, by virtue of clause (3) of the guarantee entitled to grant time or indulgence to defendant No,
1. She submits that in view of that fact the provisions of section 133 of the Contract Act would not apply. Mr. Shamsi submits that clause (3) of the guarantee is not valid because it violates the provisions of section 23 of the Contract Act as it is intended to defeat the provisions of section 133 of the Contract Act. Section 133, as has been seen, provides that variation without the consent of the surety would have the effect of discharging surety. The guarantee admittedly contains such consent as has been contemplated in section 133. The provisions of clause (3) of the guarantee, therefore, are in pursuance of section 133 of the Contract Act and not intended to defeat them.
30. ' It is finally contended on behalf of the defendant that he is discharged because the plaintiff has lost security of pledged cotton given by defendant No,1. Mr. Shamsi has today produced a certified copy of the order passed in J.M. 10/93 wherein the defendant No, 1 has been ordered to be wound up. According to him, that order shows that the plaintiff has not only lost the pledged cotton but has also agreed that the pledged cotton be sold and sale proceeds be distributed among all the creditors of defendant No,
1. The order, however, shows clearly that the cotton in question had been mixed up with cotton pledged to another bank and that it was not possible, for the time being, to identify the particular bales of cotton as being the subject-matter of a pledge to any particular bank. It was, therefore, ordered by consent of the counsel, that the bales of cotton may be sold by the Official Liquidator and the sale proceeds be held by him for payment disbursement to the banks or any of them who can prove that they were the pledgees of the bales of cotton in question or any part thereof. The order thus makes it very clear that the plaintiff did not give up its pledge but, on the contrary, has preserved the right as pledgee by reserving the right to the proceeds of the sale subject only to determination of the specific quantity of bales which may be found to have been pledged to it.
31. No other ground has been urged in support of the application and, as can be seen from the foregoing discussion, the defences set up are far from plausible. In the circumstances, defendant No, 4 is not entitled to leave to defend the suit. The application is, therefore, dismissed.
32. ' The application of defendants Nos. 1, 2 and 3 for leave to appear and defend the suit was dismissed on the 24th May, 1995, and the suit is proceeding against defendant No, 1 with the leave of the company Judge. Today the application of defendant No, 4 has also been dismissed. The plaintiff is, therefore, entitled to a decree. It is, therefore, hereby declared that the sum due on account of mortgage by the defendant No, 1 is Rs,9,22,86,593 with interest thereon at the rate of 14% p.a. With quarterly rests from the date of the suit till payment. Let preliminary decree in Appendex D, Schedule I, C.P.C., be prepared. The suit is also decreed against the defendants Nos. 1 to 4 jointly and severally for Rs,9,22,86,593 with interest thereon as aforesaid and costs of the suit.