1. ' National Bank of Pakistan, plaintiff herein, has filed this suit for recovery of Rs,137,428,643.04 against West Pakistan Tanks Terminal (Pvt.) Limited (defendant No,1) and its Directors/Guarantors Amir Ali A.H,. Ganji, Hashim Ganji, Sadruddin Ganji (defendants Nos.2 to 4 respectively), who had obtained Export Refinance (Pre-shipment-I) Facility from the plaintiff. Under the agreement of finance, dated 30-3-1992, defendant No,1 was required to pay back the purchase price of Rs,56,302,000 on or before 30-3-1993. Defendant No,1 utilized the facility and paid back only part of the purchase price within the agreed period. Consequently, plaintiff filed this suit against defendant No,1 and its guarantors. According to the documents available on record the bailiff was not able to serve the summons as the office of the defendant No,1 was closed and defendants Nos.2 to 4 were not available when he, visited their office and residence at the address given in the plaint. The defendants were, however, served by publication in the daily "Dawn" of 20-971999 and daily "Nawa- e-Waqt" of 18-9-1999.
2. ' On 16-11-1999, Mr. Manji,' learned counsel for defendant No,1 filed an affidavit without any application seeking leave to defend under section 10 of the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997. Under the provisions of the Banking Companies Act, 1997 upon an application mined by a defendant within 21 days of service the Court is empowered to give leave to defend the suit if a serious and bona fide dispute is raised thereby; provided where service has been validly effected only through publication in the newspapers the Banking Court may extend the time for filing an application for leave to defend if satisfied that the defendant did not have knowledge thereof. The application for condonation has to explain each day of delay. This cannot be done unless an application stating sufficient reason for condonation is made Qureshi Salt and Spices v. M.C.B. 1999 SCM R 2353, 2360. In the instant case, defendant No,1 has neither filed any application for leave to defend nor for condonation of delay on the ground that the defendants had been served only through publication. Defendant No,2 has tiled only an affidavit on behalf of defendant No,1 without any application. The affidavit can be ignored and the suit decreed on the basis of the statements in the plaint which is verified on oath. However, exercising powers under section 151, C.P.C. For the ends of justice I have decided to treat the affidavit as an application for leave to defend the suit.
3. ' The defendants were served through publication in Daily "Nawa-eWaqt" of 18-9-1999 and in Daily "Dawn" of 20-9-1999. For the purpose of filing an application for leave to defend, the Court is required to take the first date of publication as the starting point of limitation Qureshi Salt and Spices v. M.C.B. (bid). The first advertisement appeared in Daily "Nawa-e-Waqt, therefore, 18-9-1999 will have to be taken as the starting point of limitation. It could be argued that defendants Nos.2 to 4 being Gujrati speaking do not read "Nawa-e-Waqt" which is an Urdu Newspaper. Giving the defendants the benefit of doubt and assuming for the sake of argument that the advertisement in the Daily "Dawn" of 20-9-1999 is the starting point of limitation, the application for leave to defend should have been filed on or before 11-10-1999. The affidavit of defendant No,3 seeking leave to defend which is being treated as an application was, however, filed on 16-11-1999. The request for leave to defend is, thus, patently barred by limitation.
4. ' Mr. Manji, learned counsel for defendant No,1, makes an oral motion that time to file the application for leave to defend may be extended pursuant to the proviso to section 10 of the Banking Companies Act, 1997. I am afraid this request cannot be granted because no such request has been made by defendant No,1 in the affidavit. Mr. Manji, being a senior counsel, while drafting the affidavit should have filed an application for condonation of delay or should have at least made such a request in the affidavit. He states that he did not do so because of instructions of his clients. In such circumstances, the request of Mr. Manji is not justified and is accordingly rejected.
5. 'In view of the rejection' of the application for leave to defend, the Court is empowered to decree the suit as prayed. However, before passing any judgment and decree it is the duty of every Court to ensure that the claim of the plaintiff is in accordance with law and that the Court does not grant any relief to the plaintiff which the latter is not entitled to under the law. In order to ensure that the judgment and decree passed against the defendants is in accordance with law. The Court on 2-11- 1999 directed Mr. Quraishy, learned counsel for plaintiff, to file a summary of account giving the breakup of the claim with details of finance advanced together with mark-up charged thereon, mark-up for the Cushion Period. Liquidated Damages or any other amount debited to the Account of defendant No,1 He has filed a statement of account duly verified on oath according to which the plaintiff claims a total amount of Rs,137,428,643.04 only. The said statement includes mark-up beyond the agreed period of finance as well as 20 per cent. Liquidated damages which according to Mr. Quraishy, the bank is entitled to recover under clause (9) of the Agreement of Finance, dated 30-3-1992. The mark-up I beyond the period of finance cannot be granted under the principles of Islamic Finance H.B.L. v. Farooq Compost 1993 M LD 1571. Further, under section 74 of the Contract Act, 1872, in case of breach of contract the person complaining of the breach is entitled to claim from the party who has committed the breach reasonable compensation not exceeding the amount specified in the, agreement between the parties. What is reasonable compensation is a question of fact. The plaintiff has neither shown nor indicated in any document as to how the liquidated damages have been calculated at 20 per cent. Or offered to prove that the liquidated damages claimed are reasonable compensation in the present circumstances. The claim of liquidated damages is, thus, contrary to the provisions of the Contract Act and the law laid down by the superior Courts and is, therefore, rejected. It is also an established law that the bank cannot charge any amount over and above the agreed amount or mark-up on the agreed price as it is prohibited under the principles of Islamic System of Finance. If this claim was allowable under the law, the plaintiff would have produced the relevant State Bank Circular in this behalf. This has not been done. Accordingly, the claim for mark-up beyond the agreed period is also rejected.
6. 'Defendant No,1 has failed to raise any serious and bona fide dispute; accordingly their deemed application for leave to defend is hereby dismissed. Consequently, the plaintiff's claim is decreed jointly and severally against all the defendants in the sum of Rs,53,448,731.56 only together with mark-up at the rate of 18.94% which is the present rate for similar finances. The plaintiff shall also be entitled to costs. Plaintiff has also prayed for sale of the hypothecated stocks specified in the letter of hypothecation executed on 4-5-1992. Accordingly, the prayer for sale of the hypothecated stocks is also granted.
7. ' On going through the documents, I find that the plaintiff bank which at that time was Mehran Bank Limited and has now been merged with National Bank of Pakistan, extended finance facilities in the sum of Rs,50 million merely on the basis of guarantees of Amir Ali A.H. Ganji, Hashim Ganji and Sadruddin Ganji and a letter of hypothecation of movable described in the Schedule which is totally blank and without obtaining any tangible security. It appears from the application for credit facility, dated 25-2-1992, a copy of which is on the record, that the credit was recommended by the Branch Manager, Manager, Sub-Manager and the Zonal Chief of the Mehran Bank Limited and thereafter approved by the Executive Committee of the bank as is evident from the initials of its members.
8. ' 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 recommending, approving or advancing credits facilities to customers is required to exercise due care and caution before sanctioning or providing any loan or facility 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.
9. ' 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.
10. ' 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).
11. ' Any violation or circumvention of the above Regulation shall render the bank liable for penalties under the Banking Companies Ordinance, 1962.
12. Advances given to employees of a bank in accordance with their entitlement, shall be ,exempt from the application of the Regulation II."
13. "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."
14. 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. It is apparent from the copy of the application of credit facilities and the credit approval that the guidelines provided in the Prudential Regulations were not followed by the Branch Manager, Manager, Sub-Manager and the Zonal Chief of Mehran Bank Limited. The members of the executive Committee also did not discharge their duty as required.
15. '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 bel 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."
16. ' In the present case, the officers of Mehran Bank described above including the Members of the Executive Committee were entrusted with the property of the bank which included the subscription of the share-holders and the monies deposited by the customers and depositors of the bank. They were required to advance loans and credit facilities to borrowers as prudent bankers in light of the guidelines provided in the Prudential Regulations. By failing to do so, they acted with wilful dishonesty and prima facie are guilty of criminal breach of trust under section 408 of P.P.C. Which is punishable by imprisonment of either description for a term of which may extend to ten years and shall also be liable to fine. This 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.
17. ' It is apparent that the Members of the Executive Committee and other Officers of the Bank, namely, Branch Manager, Manager, Sub-Manager and Zonal Chief should have refused to approve the facility without obtaining tangible and/or reliable security in the form of a mortgage, pledge or counter-gurantee from another bank. As a consequence of their negligence, the bank has suffered a loss of over Rs,53 million. 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. In the presence of these facts the bank should have held an enquiry against such officers and members of the Executive Committee and commenced proceedings against them which does not appear to have been done. It would, therefore, be 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.
18. ' Office is directed to send a certified copy of this order to the President of plaintiff-Bank at its Head Office address for information with direction to trace all these persons and take appropriate civil and criminal action against them. The Officer Incharge of Mehran Bank's Affairs shall submit a report on the action taken by 15-3-2000.
19. ' A copy of this order shall also be sent to Mr. R.A. Chughtai, Deputy Governor, State Bank of Pakistan to ensure that appropriate action is taken in this case as well as in other cases involving similar misconduct by the officers of all nationalized banks. In addition, he shall issue appropriate instructions/warning to all bank officers of the risk and personal liability involved arising from such improper, negligent or imprudent conduct and submits a report of the action taken in this behalf.
20. ' The office shall also send a certified copy of this judgment to the Chairman, National Accountability Bureau, Islamabad for information and necessary action, if deemed fit.
21. ' To come up in Court for consideration of the report of the plaintiff Bank on 13-3-2000.