The plaintiff-Bank has filed this suit for recovery of Rs,6,20,33,000 together with future mark up and costs etc. The defendants Nos.1 to 4 have submitted a joint application (PLA No,133-B of 1999) seeking leave to appear and defend this suit. To distinguish the said defendants from the Collector Customs (defendant No,5), they are referred to in this judgment as the contesting defendants.
2. Learned counsel for the contesting defendants, firstly, argued that the claim of the plaintiff-Bank was more than adequately secured by 15198 metric tons of scrap and steel which were pledged with the plaintiff-Bank. According to him, the market value of the said pledged stock is rupees twelve to thirteen crore while the plaintiff's claim is only Rs,6,20,33.000. He, therefore, contended that the Bank should proceed to sell the stock and realise the amount claimed by it. Learned counsel also argued that under the provisions of section 176 of the Contract Act, the plaintiff was bound to give notice and then to sell the pledged goods to recover the aforesaid amount.
According to him, the plaintiff was obliged by the aforesaid statutory provision, to serve notice on the defendant Company even prior to the filing of this suit. In order to appreciate these contentions, section 176 of the Contract Act, was duly examined, The same reads as under: "176. Pawnee's right where pawnor makes default.--If the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as collateral security; or he may sell the thing pledged on giving the pawnor reasonable notice of the sale."
3. It is clear from the above wording that a pledgee has two courses of action available to him. He may either bring a suit against the pawnor and retain the pledged goods as collateral security or he may sell the pledged goods on giving the pawnor reasonable notice of the sale.
4. In the present case, the plaintiff-Bank has opted for the first course of action and has instituted the present suit while retaining the pledged goods as collateral security. It is only in the second case where a pledgee proceeds to sell the pledged goods that he is required to give reasonable prior notice of the sale to the pawnor. That not being the situation in the present case, no prior notice of the Bank's intention to file the suit, was required by law.
5. The other contention of learned counsel for the contesting defendants that the plaintiff-Bank ought to have sold the pledged goods before tiling this suit, is also legally untenable. The law does not oblige a pledgee to realise its security before filing a suit. This is evident from a bare reading of section 176 of the Contract Act.
6. Mr. A. Karim Malik, Advocate, who appeared for defendant No,5, and learned counsel for the plaintiff-Bank, contended that the pledged stocks were lying in a customs bonded warehouse which was situated on the premises of the defendant-Company. According to learned counsel for defendant No,5, an adjudication had been made by the competent adjudicating authority, under the Customs Act, against the defendant-Company and the defendant-Company had gone in appeal against such adjudication. He also mentioned that, according to the Customs Authorities, some of the bonded goods had been removed without payment of customs duties.
7. On this learned counsel for the contesting defendants argued that the Bank, which was pledgee of the goods, would be responsible for any shortfall in the pledged stock. For the purpose of the present suit, this contention is purely conjectural. The mere fact that goods have been removed from the bonded warehouse without payment of customs duty does not necessarily imply that there is a shortfall in the pledged stocks. The pledged steel and scrap, in the circumstances of the present case, constitutes collateral security under the provisions of section 176 of the Contract Act.
As such, if there is any shortfall at the time of realisation of such security, the defendant-Company would be entitled to make a claim against the plaintiff-Bank subject to law and any defences which might be available to the plaintiff-Bank against any such action. However, for the time being, that question does not arise.
8. Learned counsel for the contesting defendants next contended that the amount being claimed by the plaintiff-Bank has arisen on account of a letter of credit facility provided to the defendant- Company by the plaintiff. According to him, the terms of the said facility were set out in the application for irrevocable documentary credit which has been placed at page 37 of the case file.
Pursuant thereto, a letter of credit was opened by the plaintiff-Bank for a sum of US dollars 4,647,500. On 180 days usance. For the purpose of denominating the amount of credit in Pak rupees, the exchange rate of 3,57,432 was stipulated in the L/C application. Consequently, the figure of Rs,16,61,16,522 appears as the rupee equivalent of the amount of the credit. The amount, however, which was debited to the account of the defendant-Company, was Rs,18,72,41,526. Learned counsel for the defendant-Company, therefore, argued that an amount of Rs,2,11,25,004 was debited to the account of the defendant-Company in excess of the agreed amount. This contention of learned counsel for the contesting defendants is not well-founded because according to Clause 1 of the conditions of the L/C application, the plaintiff-Bank was entitled to charge the rate of exchange which was prevalent on the date of lodgment of negotiated documents or the contracted rate if fixed under Clause 8 of the aforesaid conditions. Admittedly, no exchange rate was fixed under Clause 8 of the L/C application. It is also not in dispute that as on the date of lodgment the applicable rate of exchange was Rs,4,03,607 per US dollar. As a result, I find that the amount of Rs,18,72,41,526 arrived at by applying the said rate of exchange, was rightly debited to the account of the defendant-Company. Additionally, it may be noted that the defendant-Company had accepted the amount of debt without demur and had also been making adjustments of the finance without raising the objection which has not been raised in the PLA.
9. Learned counsel for the contesting defendants also contended that under Clause 8 of the conditions of the L/C agreement, the defendant-Company had irrevocably authorised the plaintiff- Bank to book forward exchange and the Bank was, therefore, obliged to do so and thus to fix such rate at Rs,3,57,232 per US dollars. It is true that an authorisation is contained in Clause 8 of the conditions of the L/C application. However, learned counsel for the plaintiff-Bank drew my attention to the additional conditions and instructions forming part of the L/C application. One of the instructions stated therein directs the plaintiff-Bank not to book forward exchange. This is a complete answer to the argument advanced by learned counsel for the contesting defendants that the plaintiff-Bank was under an obligation to book forward exchange cover.
10. It was then argued by learned counsel for the contesting defendants that the Bill of Exchange, which was drawn under the L/C established by the plaintiff-Bank, was never presented to the defendant-Company for payment nor was it ever protested under the provisions of the Negotiable Instruments Act. This contention of learned counsel is misconceived. I note from the terms of the letter of credit that it was to be governed by the Uniform Customs and Practice for Documentary Credits (1993 Revision) ICC Publication No,500. As per terms of the said publication, the Bill of Exchange was to be drawn on, and was actually drawn on the plaintiff-Bank. The amount there under, as such, was properly paid by the plaintiff-Bank when the bill was presented at maturity.
There was no obligation on the Bank to have the said Bill of Exchange either accepted by the defendant-Company or to have the same presented to the said Company for payment at maturity. Moreover, under ICC Publication No,500 the letter of credit was itself sufficient to make the plaintiff-Bank liable for payment even without the Bill of Exchange.
11. It may also be noted that the finance. Under letter of credit, was not denied by learned counsel for the defendant-Company. He only stated that an amount of Rs,14,25,20,534 had been paid towards adjustment of the aforesaid finance. According to him, only a sum of Rs,3,59,24,000 was outstanding and payable by the defendant-Company as on 14-2-1998, which is the position reflected in the statement of account appearing at page 30 of the suit file. According to him, two demand finance facilities being DF-I and DF-II had been fabricated by the plaintiff-Bank as, according to him, the defendant-Company had neither requested for nor availed any demand finance from the plaintiff-Bank. He further argued that the financing agreements relating to the aforesaid demand finance facilities, had also been fabricated by the plaintiff-Bank by utilising blank forms which had been provided to the plaintiff-Bank in connection with facilities availed by certain sister concerns of the defendant-Company. The signatures, on the financing agreements, it may be noted were not denied.
12. Learned counsel for the plaintiff-Bank, however, drew my attention to three letters addressed to the plaintiff-Bank on behalf of the defendant-Company to belie the submissions made by learned counsel for the contesting defendants. Of particular significance is letter dated 3-7-1998 addressed to the plaintiff-Bank by the defendant-Company. This letter is titled "Rescheduling of Credit Facilities", and refers to a financial package which was agreed upon between the plaintiff- Bank and the defendant-Company. The amount of Rs,3,59,24,000 was admitted to be outstanding on account of the principal amount. It was agreed that the said amount would be paid within a period of two years in four equal half-yearly instalments. The first such instalment being payable on 31-12-1998. The outstanding principal amount of the L/C facility was agreed to be converted into a demand finance while another demand finance was to be created in respect of mark-up up to 30-6-1998 on which a moratorium had been requested by the defendant-Company.
13. Prior to the above-noted letter, the defendant-Company had addressed two other letters dated 23-1-1998 and 21-5-1998 respectively requesting that demand finance facilities be provided to the defendant-Company. According to learned counsel for the plaintiff-Bank, it is on account of the aforesaid specific requests made by the defendant-Company that the two demand finance facilities were provided to it.
14. I also note that the demand finance agreements and the statements of account in respect thereof, are consistent with the request for financing made by the defendant and are also in line with the specific terms which are mentioned in the defendant-Company's letter dated 3-7-1998.
Learned counsel for the contesting defendants argued that the plaintiff-Bank had not placed on record any letter of sanction in respect of the two demand finance facilities. Such letter of sanction is not material in the circumstances where terms agreed between the plaintiff-Bank and the defendant-Company, have been expressly set out in the defendent-Company's own letter of 3-7- 1998 and the same are also consistent with the demand finance agreements which were executed by the defendant-Company pursuant to the said terms.
15. Finally, learned counsel for the contesting defendants argued that the guarantees, purportedly executed by the defendants Nos.2, 3 and 4 to secure the liabilities of the defendant-Company, were fabricated. Once again, his argument was based on the ground that the aforesaid defendants Nos.2, 3 and 4 had given blank signed guarantee forms to the plaintiff-Bank in respect of the associated concerns of the defendant-Company and not in respect of the facility which had been provided by the plaintiff-Bank. Signatures on the guarantees, however, were not denied.
16. It is to be noted that defendant No,2 is the Chief Executive while defendants Nos.3 and 4 are the Directors of the defendant-Company. In view of my finding that the demand finance facilities "DF-I and DF-II" were duly advanced to the defendant-Company and are properly claimable by the plaintiff-Bank, it would be logical and consistent with normal practice that the three Directors of the defendant-Company have guaranteed the payment obligations of the defendant-Company particularly so when the plaintiff-Bank has placed on record guarantees admittedly signed by the defendants Nos.2, 3 and 4 in respect of the said facilities.
17. Before parting with this judgment I would like to make reference to the submission made by the learned counsel for the contesting defendants that the demand finance agreements were even otherwise not legally enforceable because they were without consideration as no finance had been provided to or availed by the defendant-Company. His contention is not legally tenable. It is clear from the letters addressed to the plaintiff-Bank by the defendant-Company, referred to above, that the defendant-Company had sought rescheduling and had been provided accommodation on terms which were agreed by the defendant-Company. Prior to the filing of the present application for leave to appear, the defendant-Company did not, at any time. Raise any objection to the demand finance facilities availed by it. On the contrary, it had with due deliberation induced the plaintiff-Bank into providing the financial accommodation requested by it. In these circumstances, the objection now being raised for the first, by the defendant-Company to the demand finance facilities, is obviously an afterthought and does not show bona fides.
18. Based on the above discussion, I find that the contesting defendants have not been able to raise any serious or bona fide defence to the claim of the plaintiff-Bank. In this view of the matter, their application (PLA No,133-B of 1999) seeking leave to appear, is dismissed. As a consequence, the suit of the plaintiff-Bank against the said contesting defendants, is decreed as prayed for alongwith mark-up and other charges permissible under the law.