' This is a suit for recovery of money as well as damages under the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 (hereinafter referred to as the Banking Companies Act, 1997). The plaintiff has claimed a sum of Pak. Rupees equivalent to the U.S. $ 5,00,000 with interest/mark-up as well as for damages in the sum of Rs,10,00,000 per day from the date of refusal to encash there bank guarantees alongwith cost of the suit.
2. Defendant is a banking company and has filed the instant application under section 10 of the Banking Companies Act, 1997 seeking unconditional leave to defend the above suit. I have heard Mr.-Ijaz Ahmed, Advocate in support of this application and Mr. Zahid F. Ibrahim, Advocate for plaintiff.
3. Brief facts leading to filing of this suit are that the defendant Bank on the request of Messrs Gerry's International (Pvt.) Ltd. Issued three bank guarantees favouring the plaintiff for a total amount of the U.S. $ 5,00,000. Initially, the first bank guarantee was issued on 28-12-1995 for U.S. $ 50,000, but subsequently, this was enhanced to U.S. $ 1,50,000 on 9-12-1996 and the date of expiry shown in that instrument was 14th December, 1997. This date of validity was further extended on 13- 12-1997 upto 14th December, 1998. In all the three bank guarantees the period of validity was mutually extended upto 14th December, 1998. Following is the detail of the said three bank guarantees:- "B G . No . LG1407/950TH /05, dated 28-12-1995 for equivalent to US $ 1,50,000.
B.G. No,LG1407/97/0TH/12, dated 7-6-1997 for equivalent to US $ 1,50,000.
B.G. No, GT17/1997/0758, dated 14-7-1997 for equivalent to US $ 2,00,000.
4. The first ground urged in support of seeking leave to defend this suit is the competency and authority of the person to file the instant suit. It is claimed in para.4(h) and (i) of the supporting affidavit that the plaint has not been signed/verified by the person duly authorised and that the same has not been verified in accordance with the provisions of Order VI, Rules 15 and 16 of the Code of Civil Procedure, 1908. Mr. Ijaz Ahmed has referred to the case of Khan Iftikhar Hussain Khan Mamdot v. Messrs Ghulam Nabi Corporation Ltd., Lahore PLD 1991 SC 550. In that case, it was held by a Full Bench of Honourable Supreme Court that since due notice of the meeting of the Board of Directors was not given to the deceased appellant, the resolution passed was not a valid one and, therefore, the person who filed the suit was not competent to institute the suit. Reference was made to the case of H.M. Ebrahim Sait v. South India Industrial Ltd. AIR 1938 Mad.
962. I may also refer her to an earlier decision of the Supreme Court decided by a larger bench than the case of Khan Iftikhar Hussain Khan Mamdot (supra) which is Messrs Muhammad Siddiq Muhammad Umar and another v. The Australasia Bank Ltd. PLD 1966 SC 684. In the second case, it was held, inter alia, that in order to see the authority of an attorney who has filed the suit, reference could be made to Articles of Association and that the rules of procedure are not made for the purpose of hindering justice. Both these judgments of the Supreme Court of Pakistan were considered, by a learned Division Bench of this Court in the case of Abdul Rahim and 2 others v.
Messrs United Bank Ltd. Of Pakistan PLD 1997 Kar. 62 at 112 and it was held that the objections regarding competence to institute/defend legal action can only be entertained where such plea is taken in the pleadings or where request is made to frame additional issues or any evidence or additional evidence is led in respect thereof or where the Court suo motu raised an objection in this regard.
5. Mr. Zahid F. Ibrahim has invited my attention to the order, dated 13-9-1999 whereby this Court extended an opportunity to the plaintiff to cure illegality and to file a fresh plaint after due verification. On 16-9-1999, the same was filed. According to the learned counsel for the plaintiff, this has fully met the objections raised by the defendant. In my view, such plea raised by a defendant through an application under section 10 of the Banking Companies Act, 1997 will not be sufficient to bring his case within the phrase "a serious and bona fide dispute". Even otherwise, non-compliance of the provisions of Rules 15 and 16 of the Order VI, C.P.C. Is a mere technicality and could be cured even at a later stage. Recently, a learned single Judge of Lahore High Court in the case of Bankers Equity Ltd. And 5 others v. Sunflo CIT-RUSS Ltd. PLD 1999 Lah. 450, has dismissed an application under section 10 of the Banking Companies Act, 1997 filed by a defendant on the ground that it was filed by an unauthorised person and that a company, which is a body corporate, cannot orally authorise any person to sign any application or plaint. This is not the case of the present defendant and, therefore, the case of Bankers Equity (ibid) is not of any help to the defendant. The present plaint is in full compliance of section 9 of the Banking Companies Act, 1997 which says that a suit in the Banking Court is to be filed by presenting a plaint duly supported by a statement of an account which is to be verified on oath by the Bank Manager or by any such officer as the Board of Directors of a Banking Company may authorise in this behalf and in case of a borrower there is no such requirement.
6. The second objection raised by the defendant is to the maintainability of this suit. According to Mr. Ijaz Ahmed, the plaintiff is neither borrower nor customer and that the transaction as alleged in this suit does not arise out of finance or loan. It was further contended that the question of maintainability of a suit is a good ground to grant unconditional leave. Reliance is placed on the case Messrs Banque Indosuez (Bangque Del Indochine Et De Suez) v. Syed Muhammad Sabir and others 1992 CLC 1641. In that case, it was held by a learned single Judge of this Court Saleem Akhtar, J. (as his Lordship then was) that the defence plea that the defendant does not fall within the definition of "borrower" and that since the suit is not within the scope of Banking Companies (Recovery of Loans) Ordinance, 1979 (now repealed by the Act, 1997), it entitles defendant to unconditional leave to appear and defend the suit.
7. Mr. Zahid F. Ibrahim while supporting the maintainability of this suit has contended that issuance of a bank guarantee is one of the important functions of the commercial banks and the same could not excluded from the bank functions. He has placed reliance on a decision of this Court in Nasimuddin Siddiqui and another v. United Bank Limited and others 1998 CLC 1718 wherein it was held, inter alia, that even a suit filed by a borrowet seeking damages arising out of a contract between the bank and the customer shall fall within the jurisdiction of the Banking Court. It was further held that the decision as to the existence or otherwise of a loan or finance includes the question of considering voidness or voidability of an agreement to grant loan or finance also falls within the jurisdiction of Banking Court to decide about its illegality and voidability. How a bank guarantee is to be defined. Mr. Zahid F. Ibrahim has referred to a recent decision of a full bench of Honourable Supreme Court in the case of Haral Textile Limited v. Bank Indosuez Belgium, S.A. And others 1999 SCMR 590 at 610. Following is the relevant portion of the said decision:-- "A contract of Bank Guarantee is a trilateral contract under which the bank has undertaken to unconditionally and irrevocably abide by the terms of the contract. It is founded on an act of trust with full faith to facilitate free growth of trade and commerce in internal or international trade or business. It, like a Letter of Credit, creates an irrevocable obligation to perform the contract in terms thereof. A Bank must honour a Bank Guarantee free from interference by the Courts otherwise trust of any commerce, internal and international, would be irreparably damaged. If a Bank Guarantee is unconditional and irrevocable, the Bank concerned must pay when demand is made unless the Bank has pledged its own credit involving its reputation. Generally, it has no defence except in case of fraud."
8. Earlier, a learned single Judge of this Court, K.A. Ghani, J. (as he then was) in the case of Sirafi Trading Establishment v. Trading Corporation of Pakistan Ltd. 1984 CLC 381 at 392 held that the bank guarantee is to be governed by the same principles of law which are applicable to payments by the banks against confirmed letters of credit. It was further held, "Thus, an absolute \obligation is imposed upon the bank which executes the guarantee to honour the same according to its terms". This view was upheld by a Division Bench of this Court vide its judgment, dated 18-12-1992 in H.C.A.-160 of 1990 Messrs Rafiuddin Rafidian Bank v. M.L. International (Pvt.) Ltd.
9. In the present banking system, issuance of a bank guarantee has become one of the most important functions of a commercial bank. Nowadays, the functions of a commercial bank are not limited to accepting deposits of money from public for the purpose of lending or investment, repayable on demand or otherwise, and withdrawal of cheques drafts etc. Etc. By the passage of time, the functions of a commercial bank as well as its commitments towards national and international economic growth have increased immensely. As observed by a learned Division Bench of this Court in the case of Shams Textile Mills Ltd., Lahore v. Federation of Pakistan and others PLD 1982 Kar. 513 that the words "banking" and "banker" may bear different meanings in different periods of history and their meanings may not be uniform in different countries of different habits of life and of different degrees of civilization. Reference was made to the case The Bank of Chettinad Ltd. Of Colombo v. The Commissioner of Income-tax, Colombo PLD 1948 PC 107. Thus, the present commercial banks are also extending money services for their customers such as undertaking safe custody of valuables, act as executors or attestees, advising customers of financial matters, arranging amalgamation and reconstruction of companies in addition to issuance of national and international travellers' cheque and credit cards facilities. I am, therefore, of the considered view that a civil suit based on the commitments/obligations of a commercial bank arising out of a bank guarantees will also fall within the scope of Banking Companies Act, 1997. This suit is, therefore, maintainable in law.
10. Mr. Ijaz Ahmed has referred to a decision of Division Bench of this Court in United Bank Ltd. v.
Messrs Adamjee Insurance Co. And 2 others 1988 CLC 1660 and contended that as ruled in that case, the transaction as alleged in the present case does not bring the plaintiff within the definition of "borrower". In that case, words borrower and loan as defined in section 2(b) and (d) of the Banking Companies (Recovery of Loans) Ordinance, 1979 were defined. However, in the facts of the present case, the plaintiff could not be placed under the terms "borrower" and the transaction was not that of loan. The plaintiff falls within the term "customer" and the defendant is admittedly a commercial bank. The transaction arises out of a financial matter as defined in section 2(e). It would be advantageous to quote sections 2(f)(ii) and (e) of the Banking Companies Act, 1997:-- "2(e) Finance' includes an accommodation or facility under a system which is not based on interest but provided on the basis of participation in profit and loss, mark-up or mark-down in price, hire- purchase, equity support, lease, rent-sharing, licensing, charge or fee of any kind, purchase and sale of any property, including commodities, patents, designs, trade marks and copy-rights, bills of exchange, promissory notes or other instruments with or without buy-back arrangement by a seller, participation term certificate, Musharika, or Modarba, certificate, term finance certificates or any other mode other than an accommodation or facility based on interest and also includes credit or charge cards, guarantees, indemnities and any other obligation, whether fund based or non fund based and any accommodation or facility the real beneficiary whereof is a person other than the person to whom or in whose name it was provided. (Emphasis laid).
(t) 'loan' means loan, advance and credit under a system based on interest and includes- (i)
(ii) a guarantee, indemnity, letter of credit or any other financial engagement which a banking company may give, issue or undertake on behalf of a borrower;"
11. It will be seen that the term "finance" as defined under section 2(e) of the Act, 1997 includes all possible transactions being conducted by the commercial banks. It also includes credit cards, charge cards, guarantees, indemnities and other obligations, whether fund based or non-fund based. It also includes the phrase "any accommodation or facility" extended to any person who is real beneficiary of such accommodation or facility whether it stands in the name of such person or not. The definition of finance is so exhaustive that it includes bank guarantees no matter in which form they are issued including performance bonds and mobilisation advance bond.
12. In reply to the contention of Mr. Ijaz Ahmed that the plaintiff being neither borrower nor customer of the defendant's bank, absence of such relationship will not give any jurisdiction to a Banking Court to entertain the E instant suit, I may add that the terms "customer" and "finance" are so wide and comprehensive that they include nearly all business transaction of the modern banking system. The rule laid down by a learned Division Bench of this Court in United Banks' case 1988 CLC 1660 will not improve the defendant's case. In that reported case, the instruments involved were insurance policies. Secondly, in the repealed Banking Companies (Recovery of Loans) Ordinance, 1979, the terms "finance" and "customer" were neither defined nor included. However, this may be said in respect of the term "borrower". The definition of "customer" as given in section 2(d) covers the case of the plaintiff. The term "customer" has been defined in the Act, 1997 as the one 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 indemnifier. As earlier observed, issuance of a bank guarantee by a commercial bank will bring such act within the scope of finance. This act of the defendant's bank makes the plaintiff its customer as plaintiff is the real beneficiary of such a bank guarantee. In the instant case, a bank guarantee was duly executed by the defendant in favour of the plaintiff who is real beneficiary of such finance and, therefore, the plaintiff being a customer is entitled to maintain this suit. This objection of the defendant is again overruled.
13. In so far as the status of defendant is concerned, it is covered by the definition of banking company as given in section 2(a) of the Banking Companies Act, 1997. It is to be noted that in para. 3 of the plaint it is claimed by the plaintiff that all the three bank guarantees were issued by the defendant bank at the instance of Messrs Gerry's International, which fact has not been denied by the defendant either in the application seeking leave to defend or in its supporting affidavit. The only plea raised is that these guarantees are no more valid from the day when the plaintiff terminated the general sales agreement. This plea is not supported by any of the instrument of the bank guarantee. In fact, cancellation of agency agreement gives a cause of action to the plaintiff to seek enforcement of bank guarantee as it is clearly stipulated in these guarantees that the same shall remain in force and binding on the guarantor (defendant) till 14-12-1997 or until the G.S.A. Is cancelled by the plaintiff whichever is earlier. Subsequently, all the three guarantees were extended on 14-12-1998 and on 17-11-1998, the, plaintiff approached the defendant for enforcement of these bank guarantees which date is earlier in time to the date of expiry of these bank guarantees. This action of the plaintiff was consequent to the dismissal of said application in Suit No,1104 of 1998 (Gerry's International (Pvt.) Ltd. v. Qatar Airwa's and ANZ Grindlays Bank by this Court on 16-11-1999. Till then, interim injunction was in operation restraining the parties hereinabove from encashing the three bank guarantees. In such circumstances, it cannot be Sid that these bank guarantees had expired and cannot be enforced in Law.
14. Defendant is a banking company of international repute. One c its duties are to perform contractual obligations. It is regrettable to note tbt on flimsy and vexatious grounds the defendant had attempted not to perfem its contractual obligation. The instant transaction is fully covered by section 9 of the Banking Companies Act, 1997. The plaintiff being customer the defendant, as discussed hereinabove and the bank guarantees being put of finance, this falls within the scope of the Banking Companis Act,1997. After considering all the above noted facts and other facts s stated in the application under reference. I am of the considered view tut the defendant has failed to make out a serious and bona fide dispute. Accordingly, this application is dismissed.
13. As a result of dismissal of defendant's avocation filed under section 10 of the Banking Companies Act, 1997, this is decreed for the total amount of three bank guarantees i,e, upto the cleat Of US $ 5,00,000 with interest at the rate of 12% per annum from date of this suit till realisation.
The claim for damages of Rs,10,00,000 is declined. In the aforesaid terms, suit is decreed with costs.