1. The defendants have filed this application under Order 37, Rule 3, C.P.C. Praying for grant of unconditional leave to appear and defend the above suit on the grounds, inter alia that the plaintiff is neither entitled to charge interest, over and above and the agreed rate of interest, nor can charge penal interest.
2. The case of the plaintiff is that the defendant No.1 established an account bearing No.710 on 2-11- 1982 with the Airport Branch of plaintiff bank, that on 24-4-1983 the plaintiff bank sanctioned a loan of Rs.5 million which was repayable at the rate of Rs.20,000 per day including holidays, that this loan was secured by the Demand Promissory Note dated 25-4-1983 executed by the defendant and by the pledge of shares of the defendants Nos. l to 4 as well as personal guarantees of the said defendants. It is further case of the plaintiff that in furtherance of the abovesaid loan facilities the defendants have pledged several shares certificates alongwith transfer deeds pertaining to defendant No.5 namely Messrs Taj Mahal Hotel Ltd.' Karachi.
3. The grievance of the plaintiff is that defendant No.1 failed to abide by its contractual obligations for repayment of loan amount, but have admitted in its plaint that from 1-9-1987 the defendant No.1 has repaid a sum of Rs.7,00,000. That all the efforts of the bank to recover its outstanding against the defendants have failed and therefore, they have filed this suit for recovery of Rs.17,377,348 with interest at the rate of 4 % above bank rate, minimum 14 % per annum with quarterly rests and costs.
4. The defendants' case is that the plaintiffs have filed this suit with mala fides and in retaliation to the filing of eviction proceedings against the plaintiffs bank by defendant No.2. In the said proceeding the plaintiff bank was ordered to be evicted from the premises of the Taj Mahal Hotel against which an appeal was filed before this Court which was also dismissed and as a result of dismissal of leave petition by the Honourable Supreme Court the plaintiff bank have been evicted from the premises in the month of April 1991. That the promissory note dated 25-4-1983 when executed did not contain required revenue stamps and that at some subsequent stage some additional revenue stamps were mala fidely affixed by the plaintiff bank. It is further case of the defendants that the letter of guarantee dated 25-4-1983 was not executed by defendant No.3 namely Mansoor F. Baweja who at the relevant time was in Florida U.S.A., that the defendants have paid more than 9,00,000 rupees over and above the principal amount i.e. Rupees five million. It is further case of the defendants that in the last week of June, 1990 an understanding was reached between the defendants and the plaintiff bank through its then Provincial Chief/Senior Executive Vice-President to which now the plaintiff is avoiding to honour, that the plaintiff is not entitled in law to charge penal interest or interest on penal interest and if such amount of penal interest over penal interest imposed by the plaintiff are deducted from the so-called outstanding there will be left in the field very meagre amount to be paid. That charging of interest by the plaintiff bank is against the Injunctions of Islam and is also violative of Article 2A of the Constitution of Islamic Republic of Pakistan 1973.
5. I have heard Mr. H.A. Rehmani, Advocate in support of this application seeking leave to appear and defend the above suit and Mr. Abdul Qadir Siddiqui, Advocate for plaintiff who has vehemently opposed grant of this application. It is strenuously argued by Mr. H.A. Rehmani that in view of Annexure "C" filed with the plaint, the plaintiff is not entitled to charge penal interest. He has also referred to the case of National Bank of Pakistan v. Messrs Ch. Ilam Din & Co. And others PLD 1985 Lah. 117 and the case of Haji A.I Khan & Company, Abbottabad v. Messrs Allied Bank of Pakistan Limited 1992 CLC 1906. In the first cited case, a learned Single Judge of Lahore High Court while considering an application for leave to defend held that penal interest cannot be allowed to the plaintiff bank as it was an admitted position that such interest was never agreed by the borrower defendant. In the second reported case a D.B. Of Peshawar High Court while hearing an appeal against the order of Special Court Peshawar held, inter alia that since there was no clause or provision in any of the documents providing for imposition of the penal interest, hence the bank in absence of any such agreement cannot charge penal interest and all such entries of debit in the account of the appellant were declared without lawful authority and of no legal effect. Against the judgment of the D.B. OfPeshawar High Court, appellant went into appeal before the Supreme Court of Pakistan which was dismissed. Therefore, the view of the D.B. Of Peshawar High Court that the bank is not entitled to charge penal interest in absence of any agreement attained finality (Haji A.I Khan & Company, Abbottabad and 8 others v. Messrs Allied Bank of Pakistan Limited, Abbottabad PLD 1995 SC 362).
6. The plaintiffs have filed several documents with the plaint including sanction advice dated 24-4- 1983 letter of guarantee, promissory note and letter of continuity. None of these documents disclose, at any place that the defendants ever agreed to pay anything in addition to the interest agreed by them. On 9-5-1996 during hearing of this application I had passed the following order:-- "I have perused the bank statement filed as Annexure "G" to the plaint which indicates that the bank/plaintiff has charged penal interest as follows:-- 1.
7. 26-12-1983 66,653 2.
8. 29-3-1984 69,845 3.
9. 25-6-1984 73,208 4.
10. 30-9-1984 81,621 5.
11. 24-12-1984 81,430 6.
12. 30-3-1985 83,480 7.
13. 30-6-1985 88,363 8.
14. 29-9-1985 93,566 9.
15. 24-12-1985 97,846 10.
16. 31-3-1986 1,01,623 11.
17. 29-6-1986 1,06,437 12.
18. 30-9-1986 1,14,331 13.
19. 30-3-1987 1,16,353 14.
20. 3-6-1987 1,17,440 15.
21. 30-9-1987 1,23,408 16.
22. 29-12-1987 1,29,324 17.
23. 17-9-1990 15,99,046 Mr. Abdul Qadir Siddiqui, Advocate in view of the above legal and factual position has conceded to the said proposal and has vehemently argued that as per Annexure "C" (Sanction Advice) dated 24-4-1983, the defendant had agreed to pay interest at 4 % above the bank rate but at a minimum rate of 14 % Since this matter can be disposed of after the ascertainment of real amount outstanding against the defendant, I direct both the parties to file up to date statement strictly in accordance with Annexure "C" within two weeks."
24. On 29-5-1996, after hearing was concluded, both the parties have filed their respective statements of account which are as follows:-- "Plaintiff's statement of account dated 22-5-1996 Bank's demand i.e. Suit filed amount.
25. Rs.17,377,348 Less penal interest and its compounding impactas per Honourable Court order.
26. 5,068,228 12,309,120 Less repayment/deposits after suit filed 5,000,000 7,309,120 Additional interest accrued as per the sanctioned advice i.e. 4% above the bank rate minimum 14% P.A. With quarterly rests for the period from 18-9-1990 to 31-5-1996.
27. 10,610,236 Bank's Demand 17,919,356 Defendant's statement of account dated 29-5-1996.
28. Amount Loan granted on 25-4-1983 5,000,000 Interest @ 14% P.A. Up to 31-5-1996 (as per detail attached)
29. 5,224,392 10,224,392 Amount deposited (as per detail attached)
30. 5,92,0000 Balance payable 4,304,392 The statement filed by the defendant as well as by the plaintiffs shows difference of more than 13 millions of rupees. It is pertinent to note that in the statement of plaintiff it is admitted that the defendants have further made repayments of loan even after filing of this suit which was disclosed to be Rs.5 million. The defendants alongwith the abovesaid statement of account have also filed letter of the Manager U.B.L. Airport Branch dated 16-5-1996 to show that from 1-6-1983 till 16-8-1992 a sum of Rs.59,20,000 have been repaid by the defendants as against loan of Rs. 5 million. The plaintiff in their statement have simply totalled the amount of penal interest as disclosed in the statement of loan account and have deducted the same from the final balance. In my view this is not the proper method for calculation as ordered by this Court on 9-5-1996. For the first time the bank has charged penal interest of Rs.66,653 on 26-12-1983 and again thereafter charged penal interest of Rs.65,380 on 7-1-1984. After addition of this amount of penal interest in the statement of account the bank has again charged an amount of interest. The bank should have first deducted these two entries of penal interest and then should have imposed the agreed rate of interest and the same method should have been adopted for further entries. Therefore, merely adding all the amounts of penal interest and deducting the same from the last figure shown is not the correct and proper approach.
31. So far the question of charging penal interest is concerned, I fully agree with the learned counsel for the defendants that the plaintiff bank is not entitled to charge penal interest since, it was never agreed by the borrower/defendant. In this regard I would like to refer the case Radha Kishun and others v. Hira Lal Shah and others AIR 1927 PC 50 where it was held that in a suit for recovery of amount with compound interest, the burden is on the plaintiff of proving an agreement with the defendant to pay compound interest. In the instant case, the plaintiff was not able to show any agreement to this effect. In view of this matter, the statement of account filed with the plaint as Annexure "G" and the figure shown as outstanding, therefore, becomes doubtful. I have gone through Annexure "G" which is statement of account. The total amount of penal interest imposed in this statement from time to time comes to Rs.33,69,369. In view of the above discussion and after going through the pleadings of the parties and documents, I am of the view that the defendants have made out a good arguable case disclosing plausible defence. I, therefore, grant this application in the following manner:--
(i) In view of the statement of accounts filed by the defendants admitting up to date outstandings, I decree the suit of the plaintiff up to Rs.4,304,392 with proportionate cost and interest at the rate of 12% from the date of suit till its repayment.
(ii) For the remaining amount of claim of the plaintiff the defendants are granted unconditional leave to appear and defend the suit.
32. With the above directions C.M.A. No.5892 of 1990 stands disposed of.