1. ' This suit has been filed for recovery of Rs,13,28,950 under rule 22 of the Sindh Chief Court Rules (O.S.).
2. ' Briefly stated, the facts of the case are that the plaintiff which is a company registered under the Companies Act, 1913 pursuant to the policy of the Govt. Of Pakistan, at the relevant time, had the exclusive rights of exporting cotton to foreign countries and for the purposes of export of cotton the plaintiff used to purchase cotton from, amongst other sources, ginning and pressing factories in Pakistan. The plaintiff some times in October, 1988 negotiated to purchase from defendant No,1, which is a partnership firm, its entire production of cotton ginned and fully pressed by defendant No,1 at its factory for 1988-89 cotton crop. Pursuant to such negotiations, an agreement dated 24- 10-1988 was executed between the plaintiff and defendant No,1 at Karachi on 24-10-1988 whereby defendant No,1 had agreed to supply to the plaintiff its entire production of cotton ginned and fully pressed at its factory 1988-89 on the terms and conditions contained therein. It is the case of the plaintiff that an advance of Rs,10 lacs was granted by the plaintiff to the defendant No,1 at Karachi and defendant No,1 through its partner, defendant No,2, executed at Karachi, inter alia, a demand promissory note dated 27-11-1988 for a sum of Rs,10 lacs in favour of the plaintiff. In token of having received the said sum of Rs,10 lacs the defendant No,1 also executed at Karachi a receipt dated 27- 11-1988 for a sum of Rs,10 lacs. As a further security for repayment of the said sum of Rs,10 lacs and or any amount that might at any time be found due and payable by the defendant No,1 to the plaintiff, the defendants Nos.3 and 4, by way of equitable mortgage by deposit of title deeds, created a charge on their property bearing Plot No,48 out of Khata No,5/5, Khatoni Nos.11 to 13, Moza Rindan, Model Town, District Bhawalpur, measuring 5 Marlas, with building constructed thereon.
3. Defendants Nos.3 and 4 through their attorney, defendant No,2, also executed a memorandum of deposit of title deeds dated 25-11-1988, confirming the deposit of title deeds with the plaintiff at Karachi with intent to create equitable mortgage on their aforesaid property in favour of the plaintiff. It is the case of the plaintiff that the said advance was to be adjusted against the supply of cotton by defendant No,1 to the plaintiff latest by 31-1-1989 and in case of default in supply of cotton to the plaintiff, under the said agreement, the defendants were liable to refund/repay the entire advance or the balance which remained unadjusted by 31-1-1989 together with mark up @ Rs,0.43 per Rs,1,000 per day from 27-11-1988 till payment. According to the case of the plaintiff the defendants failed to supply the agreed quantity of cotton and/or repay the outstanding amount inspire of requests made by the plaintiff in this behalf with the result that a sum of Rs,11,72,000 is due and payable by defendants to the plaintiff as on 31-12-1989. On failure of the defendants to supply the cotton as per the said agreement, the plaintiff served a legal notice of demand dated 29-1- 1990 on the defendants calling upon them to pay to the plaintiff the aforesaid sum of Rs,11,72,000 together with mark up. The defendant No,3 through his Advocate's latter dated 4-1-1990, according to the plaintiff, acknowledged liability of defendant No,1 to pay the outstanding dues.
4. ' The defendants were served but only defendants Nos. 3 and 4 entered apperance through their Advocate whereas the defendants Nos.1 and 2 were declared ex pane vide order dated 20-9-1992.
5. Defendants Nos.3 and 4 have filed their written statement denying the averments contained in the plaint. The case of the plaintiff as against defendants Nos.3 and 4, who have denied to be - partners in defendant No,1, has been set up in paras. 7 and 8 of the plaint and a very vague denial of the said paras. 7 and 8 has been made by defendants Nos.3 and 4 in their written statement. The main plea of the defendants Nos.3 and 4, as taken in their written statement, is that defendants Nos.3 and 4 vide their letter dated 4-1-1990 (Annexure "M" to the plaint) informed the plaintiff that big heaps of cotton are lying with defendant No,1 and the plaintiff should adjust its claim against defendant No,1 by taking over the same and in case any indulgence in this regard in shown by the plaintiff, by not taking over the stocks of cotton lying at the factory premises of defendant No,1, the surety of the said defendants shall stand released and/or discharged and the guarantee so furnished shall stand revoked. It has further been averred by the said defendants in their written statement that the plaintiff in this regard omitted to take over the stocks and as such the guarantee so furnished by the said defendants stood revoked, as a consequence whereof the said defendants were released from their liability, if any.
6. ' On the pleadings of the parties, the following consent issues were framed by the Court on 28-4- 1997:-- "(1) Whether nature of the suit is of rendition of account? If so, what is the liability of defendants Nos.3 and 4?
(2) Whether interest/mark-up is against law?
(3) What should be the decree?"
7. ' Learned counsel appearing for the parties agreed not to lead any evidence on the issues framed by consent of the parties and as is evident from the order dated 28-4-1997, the suit was ordered to be posted for final arguments on these issues.
8. ' I have heard Mr. Syed Mamnoonul Hassan, Advocate for the plaintiff and Mr. Sher Afghan, Advocate for the defendants Nos.3 and 4 and propose to deal the aforesaid issues together.
9. ' Mr. Syed Mamnoonul Hassan, Advocate for the plaintiff has contended that the suit of the plaintiff is based on agreement dated 24-10-1988 executed between the plaintiff and defendant No,1 and as against defendants Nos.3 and 4 it is a fore-closure suit under Order 34, Rule 4, C.P.C. For sale of the mortgaged property as the liability of defendants Nos.3 and 4 is co-extensive with that of defendants Nos.1 and 2 who have failed to repay/refund the amount advanced by the plaintiff to defendant No,1 in terms of agreement dated 24-10-1988. It has further been contended by Syed Mamnoonul Hassan, advocate, that in terms of the agreement dated 24-10-1988 the defendant No,1 was under an obligation to supply cotton to the plaintiff by 31-1-1989 and as per clause 2 of the said agreement in case of failure to do so, the defendant No,1 was required to refund the said amount of Rs,10 lacs which was allowed/granted to defendant No,1 as a loan. Since the defendant No,1 did not supply any amount of cotton to the plaintiff under the agreement dated 24-10-1988, the defendants are liable to repay refunds the entire amount of Rs,10 lacs to the plaintiff with mark- up at the rate agreed upon between the parties.
10. ' On the other hand, Mr. Sher Afghan, learned counsel for defendants Nos.3 and 4 has contended that in terms of para. 5 of the agreement dated 24-10-1988 the plaintiff was entrusted with the supervision of the entire cotton crop for the year 1988-89 and since the plaintiff failed to supervise the same, it lost all its rights under the contract: It has further been contended by him that defendants Nos.3 and 4 vide their letter dated 4-1-1990 (Annexure "M" to the plaint) had informed the plaintiff that big heaps of cotton, ginned cotton and cotton seeds valuing more than lacs of rupees are lying in the premises of defendant No,1 and the claim of the plaintiff can be satisfied by sale of the same. According to Mr. Sher Afghan, the plaintiff, under the said letter, was communicated that in case the plaintiff fails to take appropriate action in this regard, the liability of the defendants Nos.3 and 4 as surety/guarantor shall stand discharged. Further contention of Mr. Sher Afghan, Advocate, is that in terms of clause 5 of agreement dated 24-10-1988 executed between the plaintiff and defendant No,1, the plaintiff was entrusted with the supervision of entire cotton crop for the year 1988-89 and since the plaintiff failed to perform its supervisory function, the plaintiff lost all its rights under the said agreement. According to Mr. Sher Afghan, advocate, in the given set of circumstances of this case, the plaintiff has by not taking over the cotton lying in the premises of defendant No,1 committed an act which is inconsistent with the rights of defendants Nos.3 and 4 and the eventual remedy of defendants Nos.3 and 4 against defendant No,1 has been thereby, impaired and as such under section 139 read with section 141 of the Contract Act, the liability of defendants Nos.3 and 4 as surety/guarantors has extinguished. Reliance in this connection has been placed by Mr. Sher Afghan, Advocate, on a judgment reported in PLD 1968 SC 83.
11. ' Before adverting to the submissions, made by learned counsel, appearing for the parties, it may be stated that learned counsel for defendants Nos.3 and 4 has not advanced any argument on the issues framed by the Court on 28-4-1997 and the entire thrust of arguments of Mr. Sher Afghan, advocate, was to the effect that the plaintiff was informed by defendants Nos.3 and 4 vide annexure "M" to the plaint that heaps of cotton are lying in the factory premises of defendant No,1 and that plaintiff should take over possession of the same for adjustment of its claim and since the plaintiff failed to do so the liability of defendants Nos.3 and 4 has extinguished under section 139 read with section 141 of the Contract Act. In the circumstances, I have no option but to hold that on the basis of documents brought on record by the plaintiff the instant suit cannot be in the nature of suit for rendition of account and the liability of defendants Nos.1 and 2 to pay the amount outstanding against them is on the basis of agreement dated 24-10-1988 and in so far as defendants Nos.3 and 4 are concerned, their liability to pay the amount outstanding against defendants Nos.1 is based on the equitable mortgage of their property for the advance/loan granted by the plaintiff to defendants Nos.1 and 2. In so far as the second issue with regard to interest/mark up being against Islam is concerned it may be stated that judgment of the Federal Shariate Court in respect of Riba being against injunctions of Islam is subject-matter of appeal before the Supreme Court of Pakistan (Shariate Appellate Bench) and as a result whereof operation of the order passed by the Federal Shariate Court is suspended. Such being the position I cannot go into the question of Riba being against the injunctions of Islam. Under the circumstances, I hold that under the agreement dated 24-10-1988 the defendants are liable to pay mark-up on the amount of advance/loan. Reliance in this connection may be placed on the case of Sirajuddin and 2 others v. Habib Bank Ltd., reported in PLD 1994 Peshawar 233.
12. ' Reverting to the arguments advanced by Mr. Sher Afghan, Advocate, to the effect that under clause (5) of the agreement dated 24-10-1988, the plaintiff was entrusted with the supervision of entire cotton crop for the year 1988-89 it may be stated that under clause (5) of the said agreement the plaintiff was only entitled to depute its staff supervision and guidance to improve the quality of cotton and also to regulate and control the movement of cotton bales at factory to ensure that the plaintiff gets contracted supplies within the stipulated time and the advance payment made by it to defendant No,1 is properly secured. A bare reading of this clause of the agreement dated 24-10-1988 does not establish that the plaintiff, under the said clause of the agreement, had the right to have full control of the management of the factory of defendant No,1.
13. Under the said clause the plaintiff had an option to depute its staff for supervision with a view to monitor the quality of the cotton and the management of the factory of defendant No,1 remained vested in defendant No,1 alone. In any event, the supervisory powers of the plaintiff were to be exercised by them at their own discretion and the power conferred under the said clause was not mandatory inasmuch as the word "may depute" has been used in the said clause. As to the second leg of argument of Mr. Sher Afghan, advocate, with regard to the liability of defendants Nos.3 and 4 having been extinguished under section 139 read with section 141 of the Contract Act, it would be advantageous here to first reproduce sections 139 and 141 of the Constrct Act, 1872 which read as under:- "139. If the creditor does any act which is inconsistent with the rights of the surety, or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged."
14. "141. A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship is entered into, whether the surety knows of the existence of such security, or not; and if the creditor loses or, without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security."
15. For application of section 139 of the Contract Act, in my opinion, the first thing which a party is required to show to the Court is that there is something which a creditor is required to do and which such creditor has omitted to do as a result whereof the eventual remedy of the surety against the principal debtor has been impaired. Applying this test on the facts of this case, it may be noted that no duty was cast upon the plaintiff, under the agreement, to take over control and/or possession of the cotton lying at the factory of defendant No,1 before approaching the Court for payment of its dues outstanding against defendant No,1 . In so far as section 141 of the Contract Act it concerned, it may be observed that under section 141 a surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship is entered into. In the instance case, which is based on an agreement for supply of cotton by defendant No,1 to the plaintiff, the cotton itself, under the agreement, was not a security for payment of advance/loan given by the plaintiff to defendant No,1 In fact, the security for repayment of the amount advanced by the plaintiff to defendant No,1 as against defendant No,1 was the demand promissory note executed by defendant No,1 in favour of the plaintiff and collateral security for repayment of the amount of loan given by he plaintiff to defendant No,1, was the equitable mortgage of their property by defendants Nos.3 and 4.
16. ' The judgment relied upon by Mr. Sher Afghan, Advocate, as reported in PLD 1968 SC 83, is distinguishable inasmuch as the security in the judgment cited was pledged with the Bank and on account of its lost by the Bank it was held by the Hon'ble Supreme Court of Pakistan that on account of the Banks failure to peruse remedy against such lost pledged goods the surety stood discharged. Since in the instant case the cotton which was said to have been lying at the factory premises of defendant No,1 was not pledged with the plaintiff, the dicta laid down in the said judgment of the Hon'ble Supreme Court of Pakistan is not applicable in the case in hand.
17. In these circumstances, I am of the considered view that the plaintiff has been able to successfully prove its case against the defendants and as such the suit is decreed as prayed with costs and future mark up @ Rs,0.43 per Rs,1,000 per day from the date of the filing of the suit till its realisation.