MIAN HAMID FAROOQ, J.---Appellant Allied Bank of Pakistan, has filed the instant appeal under section 9 of the Banking Tribunals Ordinance, 1984 (since repealed) against the judgment and decree dated 14-5-1995, passed by the Chairman, Banking Tribunal, Faisalabad, challenging a portion of the decree, whereby the Banking Tribunal excluded the amount of Rs.2,32,024, sum deposited by the respondents, from the suit amount and declined to award the liquidated damages to the appellant-Bank.
2. Briefly stated the facts, culminating to the filing of the present appeal, are that the appellant- Bank, on 12-10-1994, filed a suit for recovery of Rs.2,40,834, also claiming liquidated damages at the rate of Rs.20%, through auction of the mortgaged property against the respondents before the then Banking Tribunal, Faisalabad. It was asserted in the plaint that pursuance to sanctioning a running finance facility amounting to Rs.2,00,000 vide letter dated 12-4-1990, and its extension on 30-6-1991, the respondents executed various charge documents, including an agreement for finance on mark-up basis, and also mortgaged their property as security and availed the said finance facility in toto. On the failure of the repayment of the finance facility by the respondents, the appellant- Bank filed a suit for recovery of Rs.2,40,834 claiming following reliefs:-- ---(i)That a decree for recovery of a sum of Rs.2,40,834 be passed in favour of the plaintiff against the defendants, jointly and severally with costs, in addition to the liquidated damages at the rate of Rs.20 % of the amount due.
(ii)That the amount due be ordered to be recovered by the attachment and sale of the mortgaged property of the defendants and in case of short fall of the recoverable amount, the amount not so recovered as aforesaid may please be ordered to be recovered by the attachment and sale of other assets of the defendants.---
3. Consequent to the service of show-cause notice, issued under section 6(2) of the Banking Tribunals Ordinance, 1984, the respondents/defendants filed the reply to the show-cause notice, wherein although availment of the initial loan facility was admitted, but the claim of the appellant- Bank relating to interest/penal interest and-liquidated damages was denied. It was further agitated in the reply that since the renewal of finance facility, in the year, 1991, respondent No.1 had been periodically depositing certain amounts in their account, which have not been taken into consideration/account by the Bank while preparing the statement of accounts.
4. Learned Chairman, Banking Tribunal, Faisalabad, after taking into account a sum of Rs.2,32,024 (amount deposited by the respondents); decreed the suit for the remaining amount of Rs.27,456, including the amount of Rs.36,246, being the account of mark-up of 210 days, in favour of the appellant-Bank and against the respondents with costs vide judgment and decree dated 14-5- 1995. However, the claim of liquidated damages was disallowed being arbitrary and premature.
5. It is evident from the pleadings of the parties and the decree-sheet, that respondent No.2 namely, Malik Saleem Badshah, died during the pendency of the suit and his legal heirs were brought on record, which necessitated the filing of the amended plaint by the appellant-Bank, who in complete oblivion of the said material fact has filed the instant appeal against dead person, namely, Malik Saleem Badshah, without impleading his legal heirs, which is a serious lapse on the part of the Bank. Be that as it may, perforce of sub-rule (3) of rule 4 of Order XXII of C.P.C. (sub-rule
(3) was added by Ordinance, XII of 1972) read with the provisions of Order LXI, 1A Rule 33, C.P.C. We have decided to proceed with the appeal as any order made or judgment pronounced will have the same force, as if the same has been pronounced before the death took place. However, as per the office report the respondent No.1 through one of the proprietor, namely, Anwar Saleem and respondent No.3 have been served, they are unrepresented today, hence, proceeded ex parte.
6. We have heard the learned counsel of the appellant Bank, who firstly contended that the plea of the respondents about the payment of Rs.2,32,024 is not borne out from the record and, therefore, exclusion of the said amount from the suit amount by the Chairman, Banking Tribunal, is not justified, hence, not sustainable in the law.
7. So far as its contention of the learned counsel is concerned, we have ourselves examined the statement of accounts, filed by the appellant-Bank, before the Banking Tribunal, which is at pages 105 to 115. It is the case of the appellant that running finance facility was further extended from 30- 6-1991, vide sanction letter of the even date It is discernible from the bare perusal of the statement of accounts that after 30-6-1991, respondent No.1 has deposited various amounts, the calculation whereof comes to Rs.2,20,024 (and not Rs.2,32,024 as calculated by the Banking Tribunal) and admittedly, the appellant-Bank has not accounted for the said amount. As the said amount of Rs.2,20,024 has been deposited by respondent No.1 and has not been taken into consideration at the time of the filing of the suit, therefore, the respondents are not entitled to the deduction of the said amount. Banking Tribunal, although, right in excluding the deposited amount from the suit amount, yet the calculation arrived at by the learned Tribunal and passing a decree of Rs.27,456 + 36,246 = 53,690 calls forinterference by this Court, as the same do not commensurate with the record of the case.
Actual calculations are as under:-- Suit amount Rs.2,40,824 Mark-up for 210 daysRs.36,246 Rs.2,77,080 Amount depositedRs. 2,20,024 Payable Rs.57,064
8. Furthermore, the perusal of statement of accounts manifests that the appellant-Bank has charged mark-up over mark-up illegally, whereas according to circulars, issued by the State Bank of Pakistan, from time to time under the Islamic modes of financing, mark-up over mark-up B cannot be charged/claimed by the bank elaborate perforce of Circular No.32, dated 26-11-1984, issued by the State Bank of Pakistan, no mark-up over mark-up is permissible in a case of non-interest based financing. In addition to the said circular, Banks are precluded from charging mark-up over mark-up as per the principles laid down in the following judgments:-- (1)United Bank Limited v. Messrs Novelty Enterprises Ltd. And others(PLD 1998 Karachi 199), (2)National Bank of Pakistan v. Muhammad Tahir Paracha (1998 CLC1436) and (3)Messrs United Bank Ltd. v. Messrs Redco Textiles Ltd. And 7 others (2000 CLC 968).
9. In view of above discussion we hold that the appellant-Bank is entitled for a decree of Rs.57,064 (as calculated above) and as such the decree of Rs.53,690 (Rs.27,456+53,690 as mark-up) passed by the Banking Judge calls for interference and modification and we accordingly modify the decree to that extent.
10. It has next been contended on behalf of the appellant-Bank that with the passing of a decree favouring the appellant-Bank, it was in all fairness, entitled to the amount of liquidated damages as prayed for in the plaint and the rejection of the claim of the Bank regarding liquidated damages is against law, documents on record and facts of the case.
11. When asked from the learned counsel, under which law, circular issued by the State Bank of Pakistan and/or clause of the agreement, the liquidated damages are being claimed by the Bank, he had no reply in this context. However, we have of our own, from the in-depth perusal of the record of Banking Tribunal, dug out clause 7 in the agreement for financing on mark-up basis, on which the appellant-Bank, in desperation, can fall back upon, which reads as follows:-- "7. In default the customer further agrees and undertakes to pay to the Bank liquidated damages at 20% of the amount demanded by the Bank and not paid by the customer. "
12. In case a party alleges a breach of contract and wants to enforce a claim of damages/compensation through Court of law, then such a case is obviously covered and governed by the provisions of sections 73 and 74 of the Contract Act. Under section 74 of the Contract Act, when liquidated damages are entered in a contract itself, then in case of breach of such contract, the damages are to be assessed in the ordinary way, subject to that fixed amount as a maximum. In that case the plaintiff is under a legal obligation to prove the exact amount of damages, which he has allegedly suffered, irrespective of the specific amount mentioned in the contract, which is not at all a concrete proof and in such-like cases the plaintiff, who is complaining the breach of contract and also demanding the damages, shall have to first plead and then to prove the damages, suffered by him. We are of the considered view that liquidated damages under section 74 of the Contract Act, 1872, call for the proof and the person claiming such damages is under obligation to bring' sufficient material on record in order to prove that he had suffered so much of losses. Without proving the actual loss, even fixed amount stipulated as liquidated damages does not automatically become payable. In arriving the above conclusions we are supported and fortified by the principles laid down in Habib Bank Ltd. v. M/s. Farooq Composit Fertilizer Corporation Ltd. And 4 others (1993 MLD 1571), Messrs Hitec Metal Plast (Pvt.) through Chairman, Hasan. Pervaiz Sindhi, Muslim Housing Society, Karachi and 3 others v. Habib Bank Limited (PLD 1997 Quetta 87) and United Bank Limited v. Messrs Novelty Enterprises Ltd. And others (PLD 1998 Karachi 199).
13. In the above perspective, we have seen the record of the case. The appellant-Bank failed to plead and, of course, -to adduce any evidence, even prima facie, suggesting that the appellant- Bank has suffered losses on account of default committed by the respondents. Even no document has been produced in this regard, which will go to show that the appellant-Bank has suffered so much losses. We have also perused the plaint, which too, is silent about the claim of liquidated damages. Nowhere in the plaint, it has even been mentioned that the appellant-Bank has suffered losses on account of the breach of the, agreement attributable to the respondents/defendants, inasmuch as the fixed amount of losses, alleged to have been suffered and claimed by the appellant-Bank, has not been incorporated in the plaint. The appellant-- Bank has felt satisfied only after adding two lines in the prayer of the suit, which are being reproduced below:-- ---........In addition to the liquidated damages at the rate of 20% of the amount".
14. Apart from the afore stated bald assertion, the appellant-Bank comprehensively failed to produce any, prima facie, evidence in order to prove that whether any breach of agreement was committed by the respondents, which resulted in causing losses to the bank, and if so whether the bank is entitled to claim damages and to what extent. It is an established principle that for claiming damages onus to prove the existence of a concluded contract, breach of contract, the damages and then the quantum of damages, always lies on the plaintiff. In the case in hand the appellant bank failed to prove the requisite ingredients for the grant of damages and were not able to show, even prima facie, that they have suffered losses. Even under section 74 of the Contract Act, in case of liquidated damages, the appellant bank had to prove all the afore stated ingredients in order to claim liquidated damages, which proof is not forthcoming and lacking in this case. In these circumstances, the appellant-Bank has failed to make out any case, under the law, entitling them to claim liquidated damages.
15. Law makers have already provided an adequate safeguard to the banks by way of insertion of section 11(4) of the Banking Tribunals Ordinance, 1984, which is reproduced below:--- ---Where a decree passed by a Banking Tribunal remains unsatisfied beyond a period of thirty days from the day of the decree the Banking Tribunal shall on application by the decree-holder impose a penalty on the judgment-debtor of such amount as it may deem appropriate and the amount of such penalty shall be recovered from the judgment-debtor as a fine under the Code of Criminal Procedure, 1898 (Act V of 1898), and the recovery so made shall be made over to the banking company as liquidated damages for failure of the judgment-debtor to satisfy the decree.- -- It is evident from the perusal of the aforesaid provision of law, that if the decree passed by a Banking Tribunal remains unsatisfied for a period of 30 days from the date of the decree, the Tribunal, on the application of the decree-holder, can impose a penalty in the nature of liquidated damages. It manifests that liquidated damages can be levied by a Banking Tribunal only after the passing of the decree and not before thus, the law is specific as regards liquidated damages and impliedly excludes the imposition of liquidated damages in any other form than section 11(4) (ibid).
Apart from this provision of law there is no other provision of law either in the Banking Tribunals Ordinance or anywhere else, which empowers the Banking company to claim an amount as liquidated damages and that, too, before the passing of the decree. Had the intention of the law makers been that the bank is entitled for the liquidated damages even before the passing of the decree, then according to our view the liquidated damages could easily have been included in the Banking Tribunals Ordinance in the same manner as section 11(4), (ibid), has been inserted in the said Ordinance. Non-inclusion of any such provision of law gives support to the view that it was not the intention of the Legislature that such liquidated damages, as prayed for by the bank, could be recovered from the defaulting defendants.
16. Usually in running finance facility, agreement for financing on their mark-up basis is executed for one year. As per the principles set out in State Bank circular a banking company before filing a suit against the defaulting defendant can add a future mark-up of 210 days, known as "cushion period" in the statement of accounts, which covers the period between demand and default and the period likely to be consumed in litigation (Reliance is placed on United Bank Limited v. Messrs Novelty Enterprises Ltd. And others (PLD 1998 Karachi 199). Needless to mention that in the case in hand the Banking Tribunal has awarded an amount of Rs.36,246 to the appellant-Bank, being the mark-up of "cushion period". In our view, this also provides another adequate cover to the interest of the banking company and this law also impliedly excludes the claim of liquidated damages.
17. Banking system for the first time was shifted over to non-interest banking system vide BCD Circular No-13, dated 20-6-1984, issued by the State Bank of Pakistan, which prescribed permissible modes of financing under the system not based on interest. It is matter of common knowledge that Circular No .13 was succeeded by numerous circulars in a row. From the perusal of Circular No-13 and all the succeeding circulars, it is clear that there is no concept of liquidated damages in any of the Islamic modes of financing. None of the circulars issued by the State Bank of Pakistan provides that in any of the Islamic modes of financing the bank would be authorised to charge liquidated damages from the defaulting customer/defendant, thus on this ground, too, the bank is precluded from charging the liquidated damages. Even the provisions of Sale of Goods Act does not empower any party to charge the liquidated damages from a defaulting party.
18, We have also given our anxious thoughts to the definition of "finance" as given in section 2(a) of the Banking Tribunals Ordinance, 1984. We are of the considered view that this definition of "finance" also does not include and cover the amount of liquidated damages and the liquidated damages are outside the purview and scope of definition of "finance" and the banks cannot even claim the amount of liquidated damages relying on the definition of "finance".
19. We have also perused the sanction letters dated 12-4-1990 and 30-6-1991, produced by the appellant bank, before the Banking Tribunal. The said sanction letters, which are presumed to be the main stay of the claim of a banking company in such-like cases. Although provide the minute details, like the amount of financial facility, nature of finance, the securities retained by the appellant bank, the period of finance, date of expiry, rate of mark-up to be charged on such finance and all other terms and conditions, yet even those sanction letters no where provide that in case of default the bank can charge the amount of liquidated damages from the customers, who even failed to fulfil his contractual obligations. This aspect of the case further fortifies our view expressed in the preceding para..
20. Seeing from any angle we are of the considered view that under the facts and circumstances, the appellant bank is not entitled to claim liquidated damages and the claim of the bank in its respect is not in any way supported by any law and has rightly been disallowed by the Banking Tribunal, and we hereby confirm the impugned judgment to that extent.
21. In view of the above discussion and reasons, we are not inclined to interfere with the judgment and decree dated 14-5-1995, passed by the Banking Tribunal, so fat as the declining of liquidated damages are concerned. However, on the basis of our findings recorded in paras. 7 to 9, we modify the decree of Rs.53,690 as awarded by the Banking Tribunal and while modifying the decree we hereby pass a decree for the recovery of Rs.57,064 only against the respondents. The appeal is partly accepted. The parties are left to bear their own costs.