1. These are the applications fixed for granting leave to defend under section 10 of the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 on behalf of the defendants. All the applications have been argued simultaneously and on the same grounds, as such decided by a single order.
2. The case of the plaintiff is that they had granted facility to Tri Star Polyester Limited whereby, a sum of Rs,75 million were paid to the defendant. The facts that arise from the plaint are that the first financing agreement was entered into between Tri Star Polyester Limited and the plaintiff for a sale price of Rs,43.459 million in respect of purchase of various shares mentioned in the said agreement whereby, the said company namely Tri Star Polyester Limited agreed to buy back the same for a total purchase price of Rs,55.606 million. In the agreement clause 3 provides for payment of instalments and the dates for payment of each such instalment' It also provides a prompt payment bonus that in the event the purchase price is paid on the dates mentioned the prompt payment bonus shall be given to the defendants. The total prompt payment bonus is Rs,4.7 million.
3. Another agreement dated 1-1-1996 was entered into between the same parties for the purchase of shares mentioned in the schedule by the bank for a total sale consideration of Rs,43,549,000.00 at a re-purchase price of the said shares in the sum of Rs,60,938,357.64 with a prompt payment bonus at Rs,9.8 million.
4. There is another agreement dated 14-10-1996 whereby, the bank agreed to purchase the stock of polyester chips and polyester yarn for a total sale consideration of Rs,27,300,000.00 and agreed to re-sell the same at a marked-up/purchase price being Rs,38,201,041.67 with a prompt payment bonus of Rs,5.8 million.
5. The aforesaid three agreements are in respect of the defendant No, 1.Three other agreements were entered into with the defendant No,2 as under:--
(i) An agreement dated 5-3-1996 where the plaintiff bank agreed to purchase from the defendant No,2, the shares mentioned in the schedule for a total sale price of Rs,10 million and agreed to re- sell the same for a total sale consideration of Rs,12,795, 138.89 with a prompt payment bonus of Rs,2.2. Million.
(ii) Another agreement being agreement dated 1-1-1996 for purchase by the bank, shares mentioned in the schedule for a total sale consideration of Rs,10 million and a purchase price for re-selling, the same to the customer namely, the defendant No,2 for a total sale consideration of Rs,13,993,055.56 having a prompt payment bonus of Rs,2.2 million.
(iii) Agreement dated 5-3-1996 for a sale price of purchase of the shares mentioned in the schedule for a total sale consideration of Rs,50 million whereby, the customer/defendant No,2 agreed to buy back the same for a sale price of Rs,69,965,277.78 having a prompt payment bonus of Rs,12.2 million.
6. The case of the plaintiff is that the total amount sanctioned to the defendant No,1 was Rs,45 million and that, to the defendant No,2 was Rs,10. Million. I had asked Mr. Iqbal Haider, Advocate as to the ownership of the shares mentioned in Annexures P/2 and P/3 and had required him to explain that in the agreement Annexure P/7, it is the same shares that appeared but in a different serial. Mr. Iqbal Haider stated that the amount that was disbursed under the first agreement namely, Annexure P/2 dated 15-1-1995 was for the purchase of the said shares, details of which are given in the schedule. The ownership of the said shares having not been shown but it could only be presumed that if they had been sold they too belonged to the person selling it namely, Tri Star Polyester Limited. According to him, the entire amount of the sale consideration was paid to the defendant No,1 and that it was agreed that those shares shall be sold back to the defendant No,1 for the said amount of Rs,55.606 million. He stated that on the first day of January, 1996 the agreement that was entered into was a fresh agreement of the purchase of the same shares as, the previous amount that was due being Rs,55,606,394.01 was paid off and a fresh finance/purchase was therefore entered into. Annexure P/3 is the statement of account in respect of Tri Star Polyester Limited. On 12-12-1995 an amount of Rs,43,622,923.60 is shown as a debit balance. Whilst going through the accounts, there are numerous entries that have been shown as internal transfers and which, in fact are the mark-up that is charged to the account. On the date of the execution of the agreement dated 1-1-1996 Annexure P/3 there was an outstanding of Rs,43.622 million and that on that date in fact there was no new disbursement. Similarly, there is an agreement on 14-10-1996 but for only Rs,27.300 million. I had asked Mr. Iqbal Haider whether this amount was actually disbursed, to which he stated that the same has been actually disbursed into the account of the defendant No,1. Mr. Iqbal Haider stated that the statement of account clearly shows that on 30th October, 1996 there was a credit balance in the account of the defendant No,1 as such the account was paid off and, that on 13-11-1996 a sum of Rs,27.300 million was debited to the account which was in fact, the amount mentioned in the finance agreement. According to him, therefore, under the first two agreements there was nothing payable they having been paid off and the third agreement was distinct and separate. According to him, the goods mentioned in the third agreement were also of stocks of polyester chips and polyester yarn and not the shares as mentioned in the first two agreements. He therefore, stated that as regards the Tri Star Polyester Limited it is the sum of Rs,27.300 million that was the sale price whereas the sum of Rs,38,201,041.67 being the purchase price was liable to be paid by the defendant No,2 and/or guarantors to the plaintiff. It is his case that the actual disbursement in respect of each agreement has been made and re-payments have been made to clear the outstanding against each of the said agreement except the third agreement. I had asked Mr. Iqbal Haider as to how on 2-5-1996 the balance stood at zero and where were the transfers made as shown in the statement of account. He stated that the transfer has been made to the P.D.O. (Past Due Obligation) Account as, according to him when an amount becomes due the same is transferred to the said account where the mark-up continues to be levied for the period of ninety days and thereafter transferred to another account being a non-accrual account. However, if payment is made in the present account the amount transferred to the P.D.O. Account is re-transferred in the main account and set off against the payment. He stated that such a transfer was also made on 16-5-1996 where Rs,26,879,967.40 were internally transferred to the P.D.O. Account. Thus, the account showed a credit balance. I have seen these accounts in some details. It is impossible for a person to decipher that accounts due to the complexity by which the said accounts are maintained by the plaintiff. It has to be audited by a qualified Accountant only then could one reveal the exact amount that has been paid, charged or mark-up added thereon.
7. It is the case of Mr. Haider that on 2-7-1996 a credit balance had arisen in the account which is shown on Annexure P/30 on page 221 of the file in the sum of Rs,4,176.25. It is therefore his case that the account under the previous agreements i,e, the agreements of 151-1995 and 1-1-1996 having been paid off by the 2nd of July, 1996, such was a past and closed transaction and that the agreement of finance dated 14-10-1996 was post facto, as dues under the previous agreement of 1- 1-1996 were paid off by 4-7-1996. This seems strange, that an amount due had been paid off earlier than the expiry, and another agreement is entered into. And that too before the expiry of the said agreement. According to him the amount remained in credit in the account till November, 1996 and a sum of Rs,27.300 million were disbursed to the defendant on 13-11-1996 when the agreement was entered into on 14-10-1996 for the said amount of Rs,27.300 million. It was the case of the plaintiff that this amount was withdrawn by Cheque No,860155 and transferred from Account No,200971- 019 that of Tri Star Polyester Limited to the Account of Tri Star Power. From Tri Star Power a cash cheques was issued for the aforesaid amount of Rs,27.300 million and deposited in the account of First Tri Star Modarabai,e, Account No,201035-015 in cash on 13-11-1996 thereby reducing the debit of Modaraba in the sum of Rs,35,211,879.17 to Rs,7,911,879.17. Notwithstanding the position, it may not be out of place to say that the amounts withdrawn are from the sale price, of which the seller (the defendants) are the owner. If they were to withdraw from their own money, they would be free to do so. The misconception is that payments in the account are re-payments of the debts. The debt was to be re-paid by a specified date, and is contained in the agreement. It is unimaginable that a person in the business would re-pay prior in time and then enter into a fresh agreement. This seems out of place.
8. Initially on 13-5-1996 a sum of Rs,45.154 million were drawn from First Tri Star Modaraba and paid to Tri Star Polyester Limited per Cheque No,816332 and which is duly reflected in the Account of Tri Star Polyester Limited of the same date i,e, 16-5-1996 on page 217, Annexure P/30. Thisentered transfer between the group companies was by way of cheques or cash deposits and that, therefore, it was the case of Mr. lqbalHaider that it was not the bank who was transferring money here and there but was done by the parties themselves. Withdrawals of the amount per se, amounts to disbursement on account of the agreement. The question that whether it remained a continuity of the previous agreement is what has to be decided.
9. The next three agreements are that of the defendant No,2 which are, in fact against the similar transactions. It is the case of the plaintiff that as regards the agreement of 5-3-1996 with the defendant No,2 it is a separate and distinct agreement wherein, a sum of Rs,45.154 million were in fact withdrawn on 16-5-1996 instead of the date of agreement. According to the plaintiff the previous finances had been paid off and which according to them are shown in account till 15-5- 1996 on which date there was a credit balance of Rs,1,064,130 as such the last agreement in the Modaraba dated 5th March, 1996 is the only agreement which is due for payment.
10. Mr. Abid S. Zuberi, Advocate has, on the other hand, argued that in fact, all the subsequent agreements having been acted upon and are void and a fraud on the statute. He said that there had been no sale or the purchase of any goods and the disbursements made under the first agreement were the only ones that were made and that the subsequent agreements were nothing but an extension and re-scheduling of the first agreement. Mr. Abid S. Zuberi has relied upon the order passed in Suit No,1812 of 1999 (Habib Bank Limited v. Qayoom Spinning Mills) in which it has been held that subsequent agreement if such are for re-scheduling are void and the plaintiff will only have to fall back and the amount contained in the original agreement shall be paid. Mr. Abid S. Zuberi has referred to various advices saying that mark-up on mark-up has been added and that in view of the statement made by the plaintiff's counsel in the first instance such as is apparent and clear.
11. The only question that remained is whether the accounts are valid and proper. The question of continuity of account can also be determined in the case by scrutinizing the accounts, the transactions have been denied and as a result, the statement of accounts have been denied. Thus the dispute would only revolve around the accounts. The only position that has been taken up is that the complexities of the manner in which the accounts have been handled have caused mark- up on mark-up to be charged by way of re-scheduling and nothing else.
12. There is no requirement, therefore, to lead evidence to prove any specific document or to prove any fact. Such cannot be termed to be a serious dispute, as it can be determined from the admitted documents and the scrutiny of the accounts only. In view of the above, the applications listed for grant of leave to defend are dismissed. However, in view of the language of section 10 that, only leave to defend has not been granted but appearance cannot be restricted as held in the judgment in the case of PICIC v. Frontier Ceramic Ltd. 2000 CLC 287 the defendants are to be allowed to participate in the proceedings in Court. Thus, the defendants may for the purpose of determining the amount due participate in all proceedings.
13. For the purpose of deciding as what is the exact amount now due, I shall appoint a Chartered Accountant with the following scope:
(A) To determine whether the agreements dated 15-1-1995 and 1-1-1996, Annexures P/2 and P/3 of Tri Star Polyester Limited and agreements dated 15-1-1995 and 1-1-1996 of First Tri Star Modaraba, Annexures P/5 and P/6 had been paid off prior to the grant of facility by the plaintiff to the defendant on 14-10-1996 in case of Tri Star Polyester, Annexure P/4 to the plaint and the 5-3-1996 in case of First Tri Star Modaraba, Annexure P/7 to the plaint. For the purpose of determining the aforesaid, the Chartered Accountant shall look into the entire transactions which will include the transfers into various accounts including the account which is known as P.D.O. (Past Due Obligation) Account or any other account that is used for the purpose of internal transfers which are commonly used in the present statement of accounts.
(B) To determine whether the subsequent agreements P14 and P/7 are separate and are not the continuation of the agreements Annexures P/2, P/3, P/5 and P/6 in respect of Tri Star Polyester Limited and First Tri Star Modaraba respectively.
(C) To determine the mark-up that has been charged to the account in respect of each agreement.
(D) To determine as to what is the amount actually payable.
14. The Chartered Accountant shall however, be careful not to allow any roll over. Re-scheduling or re-structuring, mark-up otherwise the addition to arrive at the Purchase Price. However, if it is concluded that the third agreement of the defendants Nos. 1 and 2 is not in continuity of the first two agreements, mark-up claimed in the third agreement shall be allowed. Mark-up on mark-up under no circumstances shall be allowed. Excise Duty shall be allowed. Genuine charges may be allowed, but a separate sheet shall be prepared showing the Excise Duty and the other charges.
15. I appoint M/s. Afzal Muneef & Co. Chartered Accountant as commissioners to look into the aforesaid with the powers to call upon the plaintiff or the defendants or their counsel and require them to produce any accounts or documents for the purpose of determination of the above. Such determination shall be made within one month from the date of the appearance by the counsel if they are called or from the date of the receipt of the file in the event the counsel or parties are not called. The fee of the Accountant is fixed at Rs,50,000 payable by the plaintiff but shall form part of the costs in the proceedings.
16. The original file of the case shall be transmitted to the commissioner abovenamed.