1. Civil Miscellaneous Application No,76 of 1999 ' This is an Application filed by defendant No,2 under section 10 of the Banking Companies Act of 1997 for leave to defend the suit. The defence taken by defendant No,2 is that he has not signed any document whereby the plaintiff can establish that he had guaranteed payment of the loan by defendant No,1 and that he does not fall within the definition of "Customer" given in the Banking Act of 1997. The term "Customer" is defined in section 2(d) of the Banking Companies Act, 1997, as follows:-- "Customer means a person who has obtained finance under a system which is not based on interest from a banking company or is the real beneficiary of such finance, and includes a surety or an indemnifier;"
2. 'According to the allegations made in the plaint and the assertions made in the counter-affidavit filed by the attorney of the plaintiff-Bank, defendant No,2 in connivance with defendant No,l opened on 11-12-1993 a current accounts in the name of the latter in which he transferred Rs,20 Million udauthorizedly without any justification which amount was hastily withdrawn and not a single paisa was paid back which clearly indicates that defendant No,1 was a front man and defendant No,2 was the real beneficiary of the finance and, therefore, comes within the definition of a customer. However, defendant No,2 has pleaded that the loan to defendant No,1 was sanctioned by the Executive Committee and the Central Credit Committee of the Bank in accordance with the bank's procedure. In reply Mr. Qureshi pointed out that defendant No,1 opened the account with the plaintiff-Bank on 11-12-1993 and within fifteen days thereof defendant No,2 in connivance with defendant No,1 illegally transferred Rs,20 Million to the account of defendant No,1 the details of which are given in paragraph 3 of the plaint which read as follows:-- "3. The defendant No,1 in connivance with the defendant No,2 opened a Current Account No,58335- 1, on 11-12-1993, at the plaintiff/Bank' s Central Branch, at Karachi, and thereafter defendant No,2 transferred and credited a sum of Rs,20 (M) illegally, unauthorisedly without any justification in the account of defendant No,1 on 26-12-1993. Photo copies of Account Opening Form and Cash.
3. Transfer Credit Voucher are annexed hereto and marked as 'B' and 'C'."
4. ' He has further referred to paragraphs 6 and 7 of the counter-affidavit to the application under section 10 filed by defendant No,2 wherein the plaintiff-Bank has denied the assertion of defendant No,2 and has reiterated as to how defendant No,1 is the real beneficiary of the loan given by the plaintiff to defendant No,1. The relevant paragraphs of the counter-affidavit are as follows: "6. With regard- to the contents of paras. 5 and 6 of the affidavit, it is denied that the defendant No,2, is not a borrower or customer or beneficiary. It is submitted that the amount of the plaintiff- Bank has been usurped in connivance with defendant No,1, by transferring a sum of Rs,20 (M) illegally and unauthorisedly to the Account of the defendant No,1 being Chief Operating Officer of the Mehran Bank Limited, Karachi, as such, he is equally responsible/liable to pay the liabilities of the plaintiff-Bank and the suit for recovery of loan has been correctly filed against the defendants,
7. With regard to the contents of paras. 7, 8 and 9 of the affidavit, it is submitted that the defendant No,2, in his official duties as Chief Operating Officer in the Mehrari Bank Limited (Head Office) at Karachi, had illegally and unathorsidely transferred the amount in the account of defendant No,1 at his sweet will in order to clandestinely (sic) misappropriate and usurp (sic) the huge amount of the plaintiff/Bank. It is further reiterated that the defendant No,2, has misused his powers being Chief Operating Officer of the Mehran Bank Limited. Karachi."
5. ' No affidavit-in-rejoinder has been filed by defendant No,2 to these assertions made by the plaintiff in the counter-affidavit. Such assertions, therefore, shall be deemed to be, prima facie, correct. Defendant No,2 in his application for leave to defend could have stated that the loan was given on the application of defendant No, 1 . He did not do so because there was no such document. Further, defendant No,2 had signed the Credit Voucher for Cash Transfer of Rs,20 million as the Chief Operating Officer without any application, for a loan and without obtaining any security from defendant No,1 which no banker in his wisdom would do thereby exposing himself to dire consequences. The cash transfer was done in total disregard of banking procedures and safeguards obviously with ulterior motives and the said amount was swiftly withdrawn by defendant No,1 within two days of receipt of cash in his account. From the manner and the speed at which the account was opened, cash of Rs,20 million transferred and withdrawn from the account clearly shows that the defendant No,2 was in league with defendant No,1 and was the real beneficiary of the loan/finance/credit.
6. ' It is pertinent to mention here that every officer of a company is entrusted with the property belonging to the company and if he fails to exercise such degree of care as a reasonable person might be expected to take of his property in the circumstances and the company in consequence of such failure suffers loss he would be liable to the company for such loss arising from his negligence. Similarly, a bank officer who is entrusted with the money of the bank and who is responsible for advancing loans to customers is required to exercise due care and caution before sanctioning or giving any loan to the customer and obtain sufficient security so that the bank may not suffer any loss if the customer fails to pay back the loan. To forestall any negligence or lapse on the part of the banks the State Bank of Pakistan (SBP) has issued under the provisions of the Banking Companies Ordinance, 1962 guidelines to all banks to regulate the business of banking in Pakistan in the form of Prudential Regulations. Regulations III and XVIII, which are relevant, for the purpose of this suit read as follows:--- "Regulation III Limit on Bank's exposure against unsecured advances.--- No bank shall provide financing facility in any form of a sum exceeding Rs,1,00,000 (Rupees one hundred thousand only) to any one individual or person without obtaining realisable securities of the value not below the outstanding amount. Financing facilities granted without securities including those granted against personal guarantees shall be deemed as 'clean' for the purpose of credit regulations. Provided further that-- -
(a) at the time of granting a clean facility, banks shall obtain a written declaration to the effect that the borrower in his own name or in the name of his family members, has not availed of such facilities from other banks so as to exceed the prescribed limit of Rs,1,00,000 in aggregate:
(b) no clean facility shall be granted to frustrate the objective of credit restrictions in force for the time being.
(c) the purpose for which a clean facility is sanctioned shall be expressly stated in the sanction letter.
7. ' Clean facilities granted to finance the export of commodities eligible under export finance scheme shall be exempt from the per party limit on clean facilities.
8. ' The aggregate exposure of a bank against all its clean facilities shall not, at any point of time, exceed the amount of the bank's capital and general reserves (free of losses).
9. ' Any violation or circumvention of the above Regulation shall render the bank liable for penalties under the Banking Companies Ordinance, 1962.
10. ' Advances given to employees of a bank in accordance with their entitlement, shall be exempt from the application of the Regulation II"
11. "Regulation XVIII Minimum conditions for grant of finance facilities.--- Each bank is mandated to institute such system or procedure or take such steps as it deemed fit to ensure that defaulters are not accommodated. Every bank is, therefore, required to obtain information about the total outstanding liabilities to banks and financial institutions (from Credit Information Department of the State Bank) of any applicant seeking financial accommodation involving the sum of Rs,0.5 million or more before approving any lending. In case of those who are reportedly in default no fresh accommodation whether fund based or otherwise would be allowed unless rescheduling or restructuring of outstanding liabilities is done to the satisfaction of lending banks by the respective borrowers. If in exceptional circumstances, a bank decides to provide such financing to any person, firm or company who is reportedly a defaulter as per information supplied by the Credit Information Department or any other Banks/D.F.Is. It shall place on record circumstances or reasons necessitating grant of any accommodation in such cases. The State Bank may, if necessary, undertake special inspection of such exceptions."
12. 'Consequently,, if an officer of the bank who is responsible for disbursement of loans acts negligently or omits to take the reasonable degree of care in extending a loan as required by the Prudential Regulations and consequently the bank suffers loss, the bank would be justified in suing such an officer for recovery of the loss suffered by it.
13. ' Defendant No,2 has neither produced any evidence nor' made any statement in the application to the effect that he had followed the guidelines provided in the Prudential Regulations. It also appears that other officers of the bank including the members of the Executive Committee are guilty of this lapse of duty.
14. ' When an officer of the bank acts negligently or does not exercise degree of care and caution expected of a prudent banker, he would also be guilty of criminal breach of trust. Section 408 of the Pakistan Penal Code defines Criminal Breach of Trust as follows:-- "408. Criminal breach of trust by clerk or servant.--- Whoever, being a clerk or servant or employed as a clerk. Or servant, and being in any manner entrusted in such capacity with property, or with any dominion over property, commits criminal breach of trust in respect of that property, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine."
15. ' In the present case, defendant No,2 was entrusted with the property of the bank, that is money and he was required to advance the loan as a prudent banker in light of the guidelines provided in the Prudential Regulations. By failing to do so, he acted dishonestly and prima facie is guilty of criminal breach of trust under section 408 of P.P.C. Which is punishable by imprisonment of either description for a term which may extend to ten years and shall also be liable to fine. The section is included in the First Schedule of the Offences in Respect of Banks (Special Courts) Ordinance, 1984 for which an employee of a bank can be prosecuted in the Special Court established for this purpose.
16. ' Defendant No,2 as the Chief Operating Officer should have refused to sign the cash transfer voucher and in his affidavit should have stated the unusual circumstances beyond his control which led to the transfer of such a huge amount to the account of defendant No,1 under his signature. He should have produced some evidence or given some explanation to show that the defence taken by him was bona fide. He did not do so. From the documents placed on record, it is evident that defendant No,2 connived with defendant No,1 to transfer Rs,20 million to the account of the latter for his personal benefit. The explanation given by defendant No,2 does not inspire confidence. He has not been able to raise any serious and bona fide dispute. Accordingly, the application of defendant No,2 for leave to defend the suit is hereby rejected.
17. ' Mr. Muhammad Habib Khan further contended that the credit voucher dated 26-12-1993 which has been made the basis of the suit has been signed by four officers of the bank including defendant No,2 who was the Chief Operating Officer of the Bank, and therefore, defendant No,2 cannot be solely made liable for the cash transfer to the account of defendant No,
1. The argument of Mr. Khan, learned counsel for defendant No,2, is not tenable. Defendant No,2 as the Chief Operating Officer of the Bank enjoys wider powers and consequently is burdened with greater responsibility which he failed to discharge resulting in huge loss to the bank. His responsibility is not minimized in any way because other Officers allegedly joined him in the misconduct. Admittedly the Credit Voucher contains the signatures of four Officers including defendant No,2 who were responsible for the transfer of Rs,20 million to the account of defendant No,
1. If the amount was being transferred contrary to the Prudential Regulations and without obtaining appropriate security which a prudent banker ought not to do; defendant No,2 and the other Officers who were required to sign the voucher should have refused to put their signature on it which would have saved the bank from the loss. The omission to do so clearly indicates that they did not act prudently. It cannot be denied that all persons who put their signatures on such documents would be jointly and severally guilty of criminal act or acts and the Bank would be justified in commencing criminal action against them as well as civil action for recovery of financial loss suffered by it.
18. ' It may be observed that only the President of Mehran Bank defendant No,2) has been proceeded against in this suit. From the evidence on record complicity of certain other officers in respect of the aforesaid imprudent act and crime cannot be completely ruled out. In the circumstances, it is not known as to why no action was initiated against the officers who had acted in league with defendant No,2. The responsibility of the members of the Executive Committee who had approved the aforesaid loan has also been ignored which should not have been the case. In the presence of these facts the Bank should have held an enquiry against such officers and members of the Executive Committee which does not appear to have been done. It would, therefore, he appropriate if an enquiry against such officers and members of the Executive Committee is initiated and appropriate civil and criminal action taken against them, if so required.
19. ' Office is directed to send a certified copy of this order to the President of plaintiff-Bank at its Head Office address for information and necessary action. The Officer Incharge of Mehran Bank's Affairs shall submit a report on the action taken by 31-12-1999.
20. Civil Miscellaneous Application No,77 of 1999 This is an application under Order I. Rule 10 read with section 151. C.P.C. For striking out the name of defendant No,2 from the plaint. In view of the above discussion, it is obvious that defendant No,2 is the real beneficiary of the finance and consequently a necessary party and has been rightly impleaded in the present proceedings. The application is patently rnala fide and is accordingly dismissed with special costs of Rs,5,000 under section 35-A, C.P.C.
21. ' In view of the rejection of the aforesaid two applications, plaintiff's claim is decreed against the defendants jointly and severally in the sum of Rs,20,263,000 with mark-up at the rate of 20 per cent.
22. Per annum which according to counsel is the present rate of mark-up for similar finance from the date of suit till the date of payment together with costs. Defendant No,2 shall also pay additional costs of Rs,5,000 to the plaintiff as stated above.
23. ' The above are the reasons of the short order dated 28-4-1999 for dismissing the aforesaid two applications and deckeeing the claim of the plaintiff.