On 22-7-1995 (1) Citibank N.A., (2) Standard Chartered Bank, (3) Askari Commercial Bank Limited,
(4) Allied Bank Limited, (5) Habib Bank Limited and (6) Soneri Bank Limited (hereinafter individually referred to as "Member" and collectively referred to as "Syndicate" entered into a Term Finance Agreement with Pakland Cement Limited (hereinafter referred to as "Pakland" whereby they, agreed to provide to Pakland a sum of Rs.250 million for purchase of plant and machinery for which the latter agreed to pay the Marked-up Price in quarterly instalments starting from 1-11-1995 and ending. on 1-8-2000. The Purchase Price was contributed by the Syndicate Members as follows:-- 1.Citibank Rs.50,000,000 2.Askari Commercial Bank Rs.50,000,000 3.Allied Bank Limited Rs.50,000,000 4.Standard Chartered Bank Rs.50,000,000 5.Habib Bank Limited Rs.30,000,000 6.Soneri Bank Limited Rs.20.000,000 Total: Rs.250,000,000 Pakland undertook to pay the Marked-up Price to the Syndicate Members as follows: 1.Citibank Rs.87,560,883 2.Askari Commercial Bank Rs.87,560,883 3.Allied Bank Limited Rs.87,560,883 4.Standard Chartered Bank Rs.87,560,883 5.Habib Bank Limited Rs.52,536,530 6.Soneri Bank Limited Rs.35.024,353 Total: Rs.437,804,415 To secure repayment of the above amount defendant executed, inter alia, Demand Promissory Note, Letter of Pledge, Supplemental Memorandum of Deposit of Title Deeds dated 20-7-1995 executed by Pakland in favour of all syndicate Members, Supplemental Letters of Hypothecation dated 20-7-1995 and supplemental and waiver agreements dated 6-8-1995 to further secure repayment of the finance, defendants Nos.2 to 6 executed Letters of Guarantee dated 30-10-1998 each in the sum of Rs.67,000,000 plus service charge and all other sums due under the above-- referred Term Finance Agreement in favour of all Syndicate Members.
The defendant paid the first three instalments i.e. on or about 1-11-1995, 1-2-1996 and 1-5-1996 and thereafter did not pay amount. Consequently, four plaintiffs herein, namely, (i) Askari Commercial Bank, filed Suit No.868 of 1999 for recovery of Rs.91,586,126, (ii) Standard Chartered Bank filed Suit No.867 of 1999 for recovery of Rs.92,480,703, (iii) Allied Bank Limited filed Suit No.866 of 1999 for Rs.91,586,127, and (iv) Soneri Bank Limited filed Suit No.865 of 1999 for recovery of Rs.36,370,068.40 respectively. The plaintiffs also sought, among others, attachment and sale of the movable and immovable properties, sale of pledged shares and for injunction to restrain Pakland from selling, creating, transferring any interest right, charge of whatsoever nature in the movable and immovable properties belonging to defendant No.l in Karachi or other places as mentioned in the plaint, direction to defendant No.l to convert the shares of Saadi Cement Limited in marketable lots in favour of the plaintiff and liquidated damages at the, rate of 2 per cent. per annum from date of default till date of payment as provided under Clause 11 of the Term Finance Agreement. Other Members of the Syndicate were also made defendants in the suit. After service of the summonses in accordance with section 9 of the Banking Companies Act, 1997 the defendants filed applications under section 10 of the Banking Companies Act, 1997 for leave to defend the suit. As no relief was claimed against defendants Nos.2 to 6 who are Members of the Syndicate, the Court with the consent of the plaintiff granted their applications.
In its application for leave to defend the suit the defendants (except defendant No.3) took several pleas; however, at the time of arguments Mr. Munawar Hussain,, learned counsel for the defendants urged the following points only: (i)The agreement which formed the basis of the suit was an agreement for financing a project and, therefore, the relationship between the plaintiff and defendant No.1 was not that of a money lender and borrower but that of partners like in a Musharakah Agreement Consequently, defendant No. l was absolved from making any payment until it starts earning profit.
(ii)Alternatively, defendant No. l was not a wilful defaulter but because of change in circumstances and economic climate in the country which should be deemed as a Force Majeure beyond the control of defendant No. 1, the agreement of finance was frustrated and consequently Pakland should not be forced to pay the amount immediately but the Court should order restructuring/rescheduling of the outstanding payments/instalments.
Mr. Ashraf Hussain Rizvi, learned counsel for defendant Nu.3 (guarantor of defendant No. 1) in support of his application submitted that defendant No.3 was neither working in the office of Pakland nor living with defendant No. 2 (who was his brother and a director of defendant No. l) who had turned his family out of the family house on 22-9-1996 and, therefore, the question of signing the guarantee dated 30-10-1996 could not arise. He further added that the guarantee was not valid because it did not bear the signature. of any witness to the execution of the document as required by section 17(2) of Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997.
In reply to the arguments of defendant No.l Mr. Sajid Zahid, learned counsel for the plaintiff submitted that the Term Finance Agreement dated 20-7-1995 executed between the parties is not a Musharakah Agreement but is in the nature of credit sale whereby Pakland; the buyer agreed to pay the marked-up price in quarterly instalments over a period of five years. With regard to the argument of Force Majeure resulting in frustration of the Term Finance Agreement, he submitted that there was no Force Majure Clause in the agreement and that Pakland had in the said agreement without reservation agreed to pay the marked-up price in instalments and having agreed to do so it must fulfil its promise. He added that neither there was a provision for rescheduling/restructuring in the agreement nor restructuring/rescheduling would be justified in view of the conduct of Pakland: With regard to the arguments of Mr. Rizvi, learned counsel for defendant No.3, Mr.Sajid Zahid, learned counsel for the plaintiff, referred to the signature of defendant No.3 available on Form-IX filed by defendant No.l (consent of directors) dated 19-3-1980 which bore the signature of defendant No.3 similar to the one on the guarantee which belied the contention of Mr. Rizvi. He further submitted that the guarantee was valid and no witness to the execution of the guarantee was required under the law.
I have heard the arguments of Mr. Sajid Zahid, learned counsel for the plaintiff and Mr. Munawar Hussain, learned counsel for the defendant No. 1, considered the matter and my conclusions are as follows.
The argument of Mr. Hussain, learned counsel for Pakland that the Term Finance Agreement dated 20-7-1995 is in the nature of Musharakah Agreement is misconceived. Musharakah is a relationship established by parties to undertake some specific business venture or to undertake business generally as partners through a mutual contract wherein the proportion of profit to be distributed between the partners must be agreed upon at the time A of affecting the contract which must conform to the ratio of capital invested by-them and in which each partner agrees to bear the loss exactly according to ratio of his investment. The provisions of the Term Finance Agreement I forming the basis of the relationship between the parties clearly show that it is not a Musharakah (partnership agreement) as the parties to the agreement have nowhere stated that they are entering into a relationship as partners and {{FOOT NOTE}} would share or distribute the profits of the business in agreed proportion. In fact it appears to be a Murabahah (Bai Mu'ajjal or Sale on Deferred Payment 8 Basis which is also termed as Agreement for Sale on Credit) wherein Pakland agreed to pay the marked-up price of the goods in quarterly instalments over e period of five years. Mr. Hussain was not able to show any provision whatsoever in the said agreement from which it could be inferred or deduced that it was a Musharakah (Partnership Agreement) as asserted by him. The argument of the learned counsel is accordingly rejected.
There is also no clause relating to Force Majeure in the agreement which is normally expressly included if the parties wish to specify the possible unusual contingencies and circumstances which they envisage could occur during the life of an agreement and its effect on the obligations of the parties and its consequences on the contract. The argument of Mr. Hussain that the imposition of Customs Duty, Sales Tax and Regulatory Duty on the import of machinery frustrated the contract is not based upon correct understanding of law. He did not show any provision from the Contract Act, 1872 or any other law or reported judgment on the basis of which it could be argued that in case Customs Duty, Sales Tax and/or Regulatory Duty is imposed on import of goods, an agreement between the buyer and seller which requires payment of the price. in instalment over a period of time becomes frustrated and the buyer is absolved from his obligation to perform his part of the contract i.e. to pay the price of the goods which have been received by him. The learned counsel also did not show any provision in the Term Finance Agreement or any law to support his argument that if a banking company fulfils its commitment and provides finance to the customer, the latter is discharged from his obligation to pay back the finance/loan to the bank which has advanced credit to him. No doubt under section 56 of the Contract Act, a contract to do an act which, after the contract is made, becomes impossible; or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful. In the present case the plaintiff-bank provided finance to Pakland and fulfilled its part of the contract, the only thing that remained to be done was for Pakland (Customer) to fulfil its obligation of paying the instalments on the agreed dates. It cannot be argued that because the Government imposed Customs Duty, Sales Tax and Regulatory Duty on the import of machinery and/or certain other financial institutions backed out from their commitment to provide finance to Pakland, the Term Finance Agreement between the plaintiff and Pakland became impossible and, therefore, void thereby absolving Pakland from performing its part of the contract i.e. to pay the instalments of the marked-up price as promised.
Further the plaintiff is free to accept or reject the request of Pakland to reschedule or restructure the payments because of changed circumstances if it deems fit. The plaintiffs cannot under any principle of law be ordered to restructure or reschedule the instalments against their will. It is an admitted position that several banks and financial institutions have filed suits in this Court for recovery of their claims which total hundreds of million rupees. It also cannot be denied that defendant No.1 has not paid a single rupee after 1-5-1996. With so many creditors in the field it is unlikely that defendant No. l would be able to arrange funds to pay their debts even if they were rescheduled. Mr. Hussain submitted .that under Islamic law if a debtor is unable to pay the debt on time, the lender must show indulgence and grant him some time. In the present case the plaintiff has given more than reasonable indulgence by not commencing legal proceedings for more than three years in spite of defaults in payment of the quarterly instalments each one of which entitled the plaintiff to call the entire amount immediately. To show its bona fide defendant No. 1 could have paid some amount to the plaintiffs in the last eight months after filing of the suit on 3-6-1999 but it did not do so. The probability of any payment by defendant No. 1 is prima facie nil. No useful purpose would be served by granting any indulgence to them. Even otherwise this Court is not competent to reschedule payments except to a limited extent if the conditions specified in section 15(2) of the Banking Act, 1997 are fulfilled. The provisions of section 15(2) are not applicable in the circumstances of the present case.
The argument of Mr. Rizvi, learned counsel for defendant No.3, that the signature of defendant No.3 on the guarantee dated 30-10-1996 is --forged and fraudulent cannot be accepted. Exercising my powers under Article 84 of Qanun-e-Shahadat, I compared the signature of defendant No.3 on - the said guarantee with the signature of defendant No.3 on Form IX (Consent of Directors) dated 19-3-1980 which was filed by Pakland with the Registrar of Joint Stock Companies on 20-3-1980 which document has not been disputed by defendant No.3. and found the two signatures to be similar. The signature of defendant No.3 on the Affidavit in support of the application and the Vakalatnama filed by defendant No.3 which has been shown by Mr. Rizvi appear to be slightly different from the signature on the guarantee. It is common knowledge that a person can change his signature if he wants and that a signature varies with passage of time. The signature of defendant No.3 on the Vakalatnama and the affidavit therefore, cannot be used for comparison with the signature on the guarantee. The argument of learned counsel is not bona fide and is accordingly rejected. The assertion that defendant No.3 was turned out of the house on 22-9-1996 and, therefore, his signature on the guarantee dated 30-10-1996 is forged also does not also appeal to reason. The signature on the guarantee is not dependent upon his being in or out of the house. Further, the signature on the guarantee when compared with the admitted signature on Form IX appear to be same and any argument alleging it to be forged and fabricated is mala fide.
Further, the Banking Companies. (Recovery, of Loans, Advances, Credits and Finances) Act, 1997 came into force on 2nd June, 1997. Section 17(2) of the said Act states that all banking agreements executed by or on behalf of a bank and a borrower or customer shall be duly attested in the manner laid down in Article 17 of the Qanun-e-Shahadat Order, 1984 which requires that all banking documents shall be attested at least by two witnesses. It is admitted that the guarantee on the basis of which defendant No.3 has been sued was executed on 30-10-1996 which was prior to the coming into force of this Act. The requirement of two witnesses, therefore, would not be applicable to the present guarantee which was executed on 30-10-1996.
The details of the claim of the four plaintiffs' according to the statement of account and loss of profit suffered by them as summarized .in the plaints is as follows:
(A) Askari Commercial Bank Ltd. (Suit No.868 of 1999):
(i) Amount of 4-20 instalments of marked-up price:Rs.78,177,321
(ii) Plus profits/return accrued to plaintif f:Rs. 13,408,805 Total amount due: Rs.91,586,126
(B) Standard Chartered Bank (Suit No.867 of 1999):
(i) Amount of 4-20 instalments of marked-up price:Rs.78,177,321
(ii) Plus profits/return accrued to plaintif f:Rs.13,408,576
(iii) Miscellaneous charges due from defendant No. 1Rs.00,894,576 Total: Rs.92,480,703
(C) Allied Bank Limited (Suit No.866 of 1999):
(i) Amount of 4-20 instalments of marked-up price:Rs.78,177,321
(ii) Plus profits/return accrued to plaintif f:Rs.13,408, 806 Total: Rs.91,586,127
(D) Soneri Bank Limited (Suit No.865 of 1999):
(i) Amount of 4-20 instalments of marked-up price:Rs.31,270,928.40
(ii) Plus profits/return accrued to plaintif f:Rs. 5,459,140.00 Total: Rs.36,730,068.40 On perusal of Schedule "B" of the Term Finance Agreement dated 20-7-1995, it appears that Pakland is required to pay the marked-up price in instalments in the amount shown in Column III and is entitled to a specified amount as Prompt Payment Bonus shown in Column V if it pays the instalment on or within 7 days of the due date of payment. Thus, the actual instalment payable by Pakland to the plaintiff if paid on time is. the amount shown in Column III less Prompt Payment Bonus shown in Column V of Schedule "B". The Prompt Payment Bonus therefore, prima facie, is in the nature of penalty for late payment which is neither permissible under section 74 of the Contract Act, 1872 nor under Islamic principles of finance for Murabahah which do not allow recovery of any penalty in case of delay in payment. The payment of any penalty on delayed payment of instalments would also amount to Mark-up on Mark-up which is prohibited by State Bank of Pakistan BCD Circular No.32 dated 26th November, 1984. The alleged prompt payment a bonus under any nomenclature or form, therefore, cannot be permitted to be incorporated in or if incorporated cannot be enforced under an agreement based upon the principles of Islamic finance and I under BCD Circular No.32. Consequently, Pakland is liable to pay only the instalments as shown in Column III of Schedule "B" less the Prompt Payment Bonus shown in Column V thereof.
The plaintiffs, therefore, cannot recover any additional amount which may have been incorporated in the Term Finance Agreement Which is over and above the marked-up price in the .agreement.
The amount financed by the first three plaintiffs, namely, Askari Commercial Bank, Standard Chartered Bank and Allied Bank Limited, were the same but the amounts claimed by them in their suits were different. Similarly, the amount claimed by the Soneri Bank Limited did not appear to have been calculated on the same basis as Askari Commercial Bank (Suit No.868 of 1999).
Accordingly, I directed Mr. Zahid, learned counsel for the plaintiff, to file a revised statement of account showing the outstanding Marked-tip Price less Prompt Payment Bonus due from Pakland to the four plaintiffs. He filed a statement which showed that after deduction of the Prompt Payment Bonus, Pakland was liable to-pay to plaintiffs the .following amounts: (i)Suit No.868 of 1999, Askari Commercial Bank Rs.70,287,671.
(ii)Suit No.867 of 1999, Standard Chartered Bank Rs.70,287,671.
(iii) Suit No. 866 of 1999, Allied Bank Ltd. Rs.70,287,671.
(iv) Suit No.865 of 1999, Soneri Bank Ltd. Rs.29,016,743.
Mr.Hussain did not dispute the above calculation.
As regards the claim of liquidated damages, Mr. Zahid, learned counsel for the plaintiffs submitted that instead of claiming liquidated damages at two (2) per cent. per annum as stipulated in clause 11 of the contract, the plaintiffs has claimed the same at 14 per cent. per annum only which is the actual loss suffered by them which could be proved, inter alia, from the rate of return/profit given by the State Bank of Pakistan on Treasury Bonds and other instruments issued by S.B.P. but in the present case he would not press for the claimed amount and leave it at the discretion of the Court to grant to the plaintiffs reasonable compensation under section 74 of the Contract Act. He added that this was without prejudice to his right to argue the point of liquidated damages in some other case. Section 74 of the Contract Act, 1872 reads as follows:-- "74. Compensation for breach of contract where penalty stipulated _for.--When a contract has been broken, if a sum named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation bar way of penalty, the party complaining of the breach is entitled, whether or not actual damages or loss is proved to have been caused thereby, to receive from the party. who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for." (Underlining added).
There is no doubt that defendant No.l has committed breach of the Term Finance Agreement which contains a clause for payment of liquidated damages at 2 per cent. per month for delaying payment of the instalment. In the present case the plaintiff is not insisting on payment of such damages and has left the same at the discretion of the Court. Section 74 of the Contract Act, inter alia, provides that the party complaining of breach is entitled, whether or not actual damages or loss is proved to have been suffered by him as a result thereof, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named. The reasonable compensation would depend upon and vary according to the circumstances of each case. There is no denying the fact that Customs Duty, Sales Tax and Regulatory Duty was imposed after opening of Letters of Credit by defendant No.l and factors over which defendant No.l had no control which had a negative effect on the economy of the country and consequently on Pakland making it difficult for them and many other persons in the Cement Industry to pay back their loans as promised. This is confirmed by the fact that a "Study on the Revival of Cement Sector" was submitted by a sub-Committee on cement sector to the State Bank of Pakistan Coordinating Committee for revival of sick units in or around March, 1999. It is also a fact that the provisions of the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 is in addition to and not in derogation of any other law for the time being in force (section 3 of the Banking Act, 1997) and that the Contract Act, 1872 is still in force. It is also a fact that the Islamic System of Finance, in relation to Morabahah, prohibit payment off any penalty in case of delay in payment of the agreed purchase price. It G would also be proper not to overlook the :fact that the Sindh Chief Court Rules, which have now become archaic, do not provide for payment of reasonable lawyers' fees which are actually charged by Advocates these days. Therefore, taking into account all these factors, I am of the view that in the interest of justice and equity and in the special circumstances of the case a sum of Rs.50,000 would be reasonable compensation under section 74 of the Contract Act, 1872 which defendant No.l should pay to the plaintiffs in Suits Nos.
868 of 1999 by Askari Bank, 867 of 1999 by Standard Chartered Bank and 866 of 1999 by Allied Bank and Rs.30,000 to the plaintiff in Suit No.865 of 1999 by Soneri Bank respectively.
In view of the above discussion, the plaintiffs' suits are decreed jointly and severally against defendants Nos. 1 to 6 as follows: 1(a) Askari Bank Limited (Suit No.868 of 1999), Standard Chartered Bank (Suit No.867 of 1999) and Allied Bank Limited (Suit No.866 of 1999) in the sum of Rs,70,287,671 and liquidated damages of Rs.50,000 each i.e. Total Rs.70,337,671 each.
(b) Soneri Bank Limited (Suit No. 865 of 1999) in the sum of Rs.29,016,743 and liquidated damages of Rs.20,000 i.e. Total Rs.29,036,743.
2. Mark-up on the decretal amount at the. rate of 18 per cent per annum from date of suit till date of payment.
3. Decree for sale of mortgaged property.
4. Decree for sale of pledged shares and/or other moveable properties as specified in the letter of pledge.
5. Decree for sale of hypothecated property
6. Permanent injunction restraining defendants Nos..1 to 6 from selling, transferring or creating any right, interest, lease or any other kind of charge of whatsoever nature on the properties of defendant No. 1.
7. Costs of the suit