1. ' TARIQ MEHMOOD, J.---Facts, in brief, are that Qasim Khan had opened an Account No,251 with the respondent-bank on 25th March.
2. 1992. It appears from record that on 27th May. 1992, Azam. Khan was allowed to operate the acount.
3. Further [hat on 21st January. 1995, Qasim Khan had executed an unlimited letter of authority in favour for his sons Muhammad Azam and Mir Alam to operate the account and also to deal with bank on all matters, relating thereto. Exhs. D/4 and D/6 also reflect that on 19th November, 1996, the title of account was changed to that of Qasim Khan Muhammad Azam Khan.
4. ' Further facts are that Messrs Tameer-e-Nau Engineers and Contractors (hereinafter referred to as the "Principle Debtor") were awarded a contract by Lahore Development Authority for the work "Development of Subzazar Housing Scheme Phase-II" on 27th May, 1995. As per terms and conditions, principal-debtor furnished a performance guarantee to L.D.A. On 1st December, 1994, issued by the respondent-bank. Record reflects that due to alleged default by principal-debtor, L.D.A. Vide their letter, dated 14th September, 1995 made a request through their bank for encashment of performance guarantee. It is the case of respondent-bank that they had to own the commitment and made payment. In the circumstances, principal-debtor approached to respondent-bank vide their application, dated 26th November, 1995 and requested that the amount paid to L.D.A. Be converted into running finance, after adjustment of 10% cash margin. In order to secure such finance, in addition to securities already given by them at the time of issuance of guarantee, Qasim Khan allegedly stood guarantor and executed a document (Exh.D/13). The request was entertained and running finance was allowed. Qasim Khan died on 28th June, 1996.
5. ' Record, reveals that Mir Alam and Muhammad Azam are running their business in the name and'style of Messrs Qasim Khan and Company. Ai t1 that Account No,251 was being' maintained by them. It also appears from record "that appellant (Qasim Khan & Co.) received a sum of Rs,55,00,000 from National Highway Authority, Islamabad and remitted the same through telegraphic transfer in their aforementioned account. The appellants produced memorandum issued by Islamabad Branch of respondent-bank about the telegraphic transfer, commission and cost charged to the appellants for the aforesaid transfer. The amount was actually credited in their account with Bolan Bank, Jinnah Road, Quetta, but when the appellants issued cheques, the same were referred to drawer, although some of the cheques were honoured. When appellants approached the respondent-bank, they were informed that sum of Rs,38,88,721.65 have been deducted from their account to adjust the liability of principal-debtor, as their predecessor stood guarantor.
6. ' In the events of the background, the appellants instituted a suit on 4th June, 1998 seeking recovery of Rs,38,88,721.65 alongwith interest at the prevailing State Bank rate with effect from 28th March, 1998 till the realization of decretal amount. It was the case of appellants that bank had no authority to debit their account in the manner done by them. They also disputed the correctness of guarantee allegedly executed by their predecessor or later father Qasim Khan. The defendant- bank contested the suit and it was mainly contended that the bank had a lien or more appropriate a right to set-off against all money of the customer in its hand and bank was at liberty to transfer the deposit to set-off and liquidate debts due from principal-debtor.
7. ' The trial Court framed following issues on the pleadings of the parties:--- "(1) Whether the suit of plaintiffs is not maintainable in view of preliminary objections raised in the written statement?
(2) Whether the late Qasim Khan stood guarantor for Messrs Tameer-e-Nau Engineers and contractors, for the construction work of Sabzazar Housing Scheme, Phase-II, Lahore who did not complete the work in time?
(3) Whether transfer of Rs,38,88,721.65 from the account of late Qasim Khan to another account is according to the banking procedure?
(4) Whether the plaintiffs are entitled for relief claimed for?"
8. ' Both the parties led evidence in support of their respective contentions. The trial Court held that Qasim Khan had executed the guarantee (Exh D/13) in his life time. Also that he was holder of Account No,251, which was being operated by the appellants in his lifetime and even now, after his death. On the issue, whether the amount could be transferred, the trial Court while deciding the issue in affirmative, simply relied upon a letter (Exh. D/15) addressed to appellants, in reply to their complaint filed with the State Bank of Pakistan.
9. ' Syed Ayaz Zahoor, learned counsel for the appellants vehemently argued that;
(i) the respondent-bank was not competent to make payment to Lahore Development Authority on the basis of guarantee (Exh.D/7) and since it was an illegal act on the part of the respondent- bank, therefore, it alone was responsible.
(ii) the guarantee was issued after obtaining security of hypothecation of stock of construction material and equitable mortgage of bungalow worth million of rupees but no action was taken by the bank either against principal-debtor or their guarantor,
(iii) that no lien was marked in the account of the appellant, and therefore, adjustment/deduction by the bank was illegal,
(iv) no security was furnished by late Qasim Khan whereof bank could claim lien,
(v) the alleged guarantee (Exh. D/3) was forged documents and it was for such reason that it was never enforced in the lifetime of Qasim Khan,
(vi) the trial Court was under legal obligation to compare admitted signature of Qasim Khan on record with his disputed signatures and in absence of such exercise, it could not be validity held by the trial Court that guarantee was executed by late Qasim Khan,
(vii) the amount could not be recovered from the appellants without instituting a suit for recovery against the principal-debtor and the guarantors, who had furnished security at the time of issuance of bank guarantee or sanction of running finance,
(viii) the judgment of trial Court is result of misreading of evidence.
10. ' Support was sought from judgments reported in PLD 1982 Karachi page 200, PLD 1980 Karachi page 115 and PLD 1967 Karachi 829.
11. ' On the other hand, Mr. H. Shakeel Ahmed, learned counsel for the respondent-bank contended that;
(i) appellants cannot challenge the action of the hank in making payment to L.D.A., in that, Qasim Khan stood guarantor after making payment to L.D.A. And at the time of sanction of running finance;
(ii) the signature of Qasim Khan has been proved on record, inasmuch as, the Bank Manager posted at the relevant time has appeared in Court and deposed that Qasim Khan signed in his presence and further that even the trend of cross-examination suggest that execution of guarantee by late Qasim Khan has not been disputed by the appellants;
(iii) and that action of respondent-bank is protected by section 171 of the Contract Act, in that, it had a lien over it. He referred PLD 1982 Karachi 200, PLD 1980 Karachi 115 and AIR 1960 Punjab 632.
12. ' Although, lengthy arguments were addressed from both the sides, it appears to us that the real point involved in the controversy has been ignored not only by the learned counsel for the parties but also overlooked by the Court below. The real point for controversy is whether in the facts and circumstances of the case, bank could claim a set-off in the amount lying in appellants' account and it is important to point out that both the parties advanced lengthy arguments on the matter nor relevant including question of Bank's lien, although bank in its written statement filed before the trial Court actually claimed a set-off. The other point for determination is whether Qasim Khan executed alleged guarantee in his personal capacity or otherwise. In case, it was executed in personal capacity, whether bank could at all adjust the account of principal debtor on the basis of its right of set-of and to what extent against his successors. As there is sufficient evidence on record to decide the points of determination, therefore, we proceed to finally decide the controversy on the basis of available record, particularly when nobody requested for leading any additional evidence and otherwise there is sufficient evidence on record (Refer 1997 SCMR 1849). It may not be irrelevant to point out that admittedly appellants were running and maintaining an account and the amount in dispute was deducted from their account, to adjust the liability of principal debtor but without any notice. So, very heavy burden was upon respondent-bank to defend their action, particularly when they themselves produced documentary evidence to show the nature of account being maintained by the appellants.
13. ' However, since Mr. H. Shakeel Ahmed, learned counsel for the respondent-bank while defending the action of bank, heavily relied upon section 171 of the Contract Act, therefore, it would be appropriate to reproduce section 171 of the Contract Act and to consider the judgments cited at the bar by learned counsel for the parties. The others we noted at our own to highlight the difference between Banker's right of lien and set-off and the circumstances in which bank can claim such right and against whom:--
171. General lien of bankers, factors, wharfingers, attorneys and policy-brokers.---Bankers, factors wharfingers, attorneys of a High Court and policy-brokers may, in the absence of a contract to the contrary, retain as a security for a general balance of account, any goods bailed to them; but no other persons have a right to retain, as a security for such balance, goods bailed to the unless there is an express contract to that effect."
14. In simple words, a lien is a right in one man to retain that, which is in his possession, but belongs to another, till certain demands of the person in possession are satisfied.
(i) Fancy Investment Ltd. Karachi v. United Bank Ltd. And 2 others (PLD 1982 Karachi 200).- Although both the learned counsel have relied upon this judgment, but in our view the same is not relevant in the facts and circumstances of the case. In context of banker's it was held in the said case that:- - "Where security is delivered to a banker for a specific purpose it is inconsistent with right of lien and impliedly there is an agreement to contrary, and therefore, a banker cannot exercise lien over such property. Before lien is exercised by a banker he has to establish that he has taken possession of security as a banker and secondly there is no contract to contrary."
15. ' Also, for determining the nature of lien, following passage was quoted from Bran-dao v. Barnet (1846) 12 Cl & Fin. 787, which is being consistently followed:- "Banker most undoubtedly have a general lien on all securities deposited with them as hankers by a customer, unless there be an express contract, or circumstances that show an implied contract inconsistent with lien."
(ii) Farooq v. Messrs Eastern. Banking Corporation Ltd. Karachi (PLD 1980 Karachi 115).
16. ' Incidentally this judgment has also been relied upon by both the learned counsel but is not relevant. In this case, the claim of a banker for lien under section 171 of the.
(iii) A Contract Act was repelled on the ground that the bank had not proved that there was any general balance outstanding against the customer in his account, and secondly that no goods were pledged to the banker over which he could exercise lien.
(iv) Hussain Khan v. Barkat Ali and others (PLD 1967 Karachi 829).
17. ' The judgment is also not relevant as in this case it was held that a building contractor has no lien on constructions made by him for the payments of his bills. This kind of lien is not recognized by section 17 of the Contract Act. No lien can arise from building contract, whether by operation of law or under the terms of the contract. The rule is that property in materials built into a building ceases to the property of the contractor and becomes that of the owner. The contractor, in the circumstances, could not lay any claim to the property and was not entitled to proceed against the same in execution of the decree which he had obtained against the owner.
(v) Punjab National Bank Ltd. v. Arura Mal Durga Das (AIR 1960 Punjab 632).
18. ' It was held in this case that a bank has no lien upon the deposit of a partnership for a balance due by one of the partners. Although this judgment has been cited by learned counsel for the respondent-bank, it appears to us that same goes against him but since it is relevant, therefore, we found it appropriate to reproduce relevant portion of the judgment:-- "14. The rule of English law that the Bank has a lien . Or more appropriately, a right to set-off against all monies of his customers in his hands has been accepted as the rule in India. According to this rule when monies are held by the Bank in one account and the depositor owes the Bank on another account, the Banker by virtue of his lien has a charge on all monies of the depositor in his hands and is at liberty to transfer the monies to whatever account, the banker may like with a view to set- off or liquidate the debts.----
15. In order to create Banker's lien on several accounts it is necessary that they must belong to the payer in one and in the same capacity. Where the person has two accounts one a trustee account and another private account at a Bank, deposits in the two accounts cannot be set-off, the one against the other.----
16. Bankers have a right to combine one or more accounts of the same customer. But it cannot combine the account belonging to another or to himself alone with another account which is the joint account with another and third person.-- Similarly, the Banks have no lien on the deposit of a partner, on his separate account, for a balance due to the Bank from the firm. Therefore, the hanker is entitled to combine all accounts kept in the same right by the customer. It does not matter whether the accounts are current or deposit or whether they are in the same or different branches.---- It is of essence to the validity of a banker's lien, that there should be a mutuality of claim between the Bank and the depositor. In order that it should be permissible to set-off one demand against another both must mutually exist between the same parties.
19. One this reasonings the joint and several accounts nerved by two or more persons cannot be adjusted against the individual deposit of one of them. It is not open to the bank to claim the deposit of one partner made on his separate account in order to utilize other deposit against the debt due from the firm. In other words partnership deposits cannot be applied to the individual indebtedness of one of the partners. Courts in England do not allow a lien to the banker on the deposit of a partner on separate account for a balance due to the Bank from partnership firm."
(v) N. Muhammad Hussain Sahib v. The Chartered Bank and another (AIR 1965 Madras 266).
20. ' It was held in the said case that:--- "The general lien of bankers over any goods bailed to them is embodied in section 171 of the Contract Act. The question is whether any such lien may be over money deposited by the customers. Where moneys are deposited in a bank the ownership of the moneys passes to the bank and the right of the bank over the moneys lodged with it would not be really a lien at all and it would be more correct to speak of it as a right of set-off or adjustment. Whether the right of the bank is called a lien or set-off, the said right can be exercised only by the bank by getting the funds deposited in its branch by the customer transferred to it with the consent of the customer. It is not open to the customer to call upon the bank to exercise any such lien or set off."
(vi) It would also be advantageous to refer the judgment reported in AIR 1956 Madras 570, as in the said judgment their lordships were pleased to highlight distinction between lien and right to set-off or justification by banker:- "The lien under section 171 can be exercised only over property of some-one else and not his own property. Thus when goods are deposited with or securities are placed in the custody of a bank it would be correct to speak of the rights of the bank over the security or the goods as a lien because the ownership of the goods or securities would continue to remain in the customer. But, when moneys are deposited in a bank as a fixed deposit, the ownership of the moneys passes to the bank and the right of the bank over the moneys lodged with it would not be really a lien at all. It would be more correct to speak of it as a right of set-off or adjustment."
(vii) In another judgment reported in AIR 1928 Lahore 316. It was held that general lien held by the bank does not entitle it to appropriate the fixed deposit in 'either or survivor' account towards the debt due by one of them alone. Following observations were made after giving brief background of the case, which is reproduced hereunder:- "A bank issued a fixed deposit receipt for Rs,500 in favour of B & R, the amount being payable to either or survivor. R obtained an overdraft from the bank. The bank credited the amount due under the fixed deposit receipt to this overdraft and on demanding payment informed him of the action taken on it and refused to pay thereupon brought an action against the bank for the recovery of the amount due under the fixed deposit receipt.
21. ' Held; that the bank could not appropriate the money towards the debt due by R alone."
(viii) Similarly in other case reported in AIR 1945 Madras 447. Bankers lien and bankers right of set- off were explained in the following words:--- "Banker's lien is the right of retaining things delivered into his possession as a banker if and so long as the customer to whom they belonged or who had the power of disposing of them when so delivered is indebted to the banker on the balance of the account between them provided the circumstances in which the banker obtained possession do not imply that he has agreed that this right shall be excluded. Banker's lien can properly be said to arise only in respect of any securities held by the bank. If the customer deposits certain securities and ultimately there is a sum due to the bank, the bank has a lien over these securities and it could hold them against the amount due by the customer. In the case of money of the customer paid into the bank into his current account or deposit account the amount ceases to be the property of the customer and becomes the property of the banker and the bankers is thereafter under a contractual obligation to repay or give credit to the customer for the amount. In such a case, there is no property of the customer of which the banker has possession, the possession of the banker-co-existing with his own ownership of the money. Accordingly, the essential conditions necessary to the existence of the lien are lacking.
22. ' Under his right of set-off the banker can take into account any item in his own favour as against any payment in by his customer before arriving at the balance subsisting between them."
(ix) Mercantile Bank of India Ltd. v. Rochaldas Gidumal & Co. AIR 1926 Sindh 225.
23. It was held that lien of a bank over the money of its customer does not extend to amounts, which have been handed over for a specific purpose. The relevant portion is reproduced hereunder: "Where a person hands over certain money to a bank to be transmitted to another place and to be paid to the payee there and the bank issues a bill of exchange nr a demand draft, the money is held by the bank under a special contract which excludes the general lien of banker's on goods bailed. The fact that the remitter and payee are the same person or that the money is to be transmitted by telegraphic order makes no difference."
24. ' It may also be seen that contract between the bank and its customer is a contract between a debtor and a creditor. In Sheldon and Fidler's Practice and Law of Banking, Eleventh Edition, at page No, 31, following observation has been made:- "As we have seen, the contract between the banker and his customer is a contract between a debtor and a creditor. The contract contains an implied promise by the banker to repay the money lent to him by the customer. Where, however, a customer has an account which is in credit but owners money to the banker in respect of another account, the banker may have the right to reduce his liability to repay the customer by the ,amount which the customer owes to him, or, if that is the case, to reduce the amount which the customer owes to him, by the credit balance in the customer's account. This is known as the banker's right of set-off or of combining accounts. The banker may exercise the right of set-off only when the money owed to him is a sum certain, which is due, and where there is no agreement, express or implied, to the contrary."
25. So, it is clear that bank can exercise right of set-off only when the money owed by it is a sum certain, which is due, against his same customer, and whether there is no agreement, expressed or implied, to the contrary. The banker should, therefore, always be guided by his knowledge of circumstances, and should be conscious in exercising right of set-off in such cases. Applying these principles, simple facts are that Qasim than had opened an account in has name, but subsequent documents produced by bank itself (Exhs.D/4 and D/6) reflect that either the title of account was changed and/or the same was being operated by Muhammad Azam Khan and Mir Alam Khan, even in the lifetime of Qasim Khan. Qasim Khan allegedly executed guarantee (Exh. D/13) but in his personal capacity. Admittedly Qasim Khan died on 28th June, 1996. There is no denying of the fact that appellants continue operating the said account, but this cannot be ignored that persons can do business in any name and they might be running it in the name of their late father out of love, respect etc. The firm name is merely a convenient mode of describing and it is not very important, in that, bank has not disputed that after the death of Qasim -Ian, they are running and maintaining the account. Also that T.T. Was purchased by Messrs Qasim Khan & Co. (Exh. P/3-A) and credited in their account, at Quetta. The case of appellants/plaintiffs is very simple and brief. They say that on 21st February, 1998, ati amount of Rs,5.5 million was remitted from Islamabad in their account, which was duly credited but the bank without any lawful authority transferred a sum of Rs,38,88,721.65 in the account of principal-debtor. Azam Khan when appeared in witness-box specifically stated that he had received a bill from the National Highway Authority and sum of Rs,5.5 million was sent through telegraphic transfer from Islamabad Branch to respondent-bank.
26. The amount was duly credited in their account. This admittedly happened after about one year and eight months of the death of Qasim Khan. There is also no denial of the facts that an amount of Rs,38,88,721.65 was transferred from the account of appellants to adjust the liability of principal debtor (and alleged liability of Qasim Khan as guarantor, in his personal capacity). It is also not disputed that neither the transfer was made with the consent or authority of the appellants nor any prior notice was given to them. In such circumstances, the burden was upon the bank to justify the transfer. Respondent-bank, in its written statement set up the plea that they had a lien or more appropriately a right to set-off against all money belonging to alleged guarantor to liquidate debts due, in whatever account, the amount may be. But it is not that simple as appellants were maintaining and operating A/C No,251 with the respondent Bank in their own right, amount of Rs,5.5 million was received by the appellants in their own right from L.D.A., nothing to the contrary has been proved or even alleged by the bank and statement of Azam Khan went unchallenged, inasmuch as, the same was remitted by appellants themselves to the credit of their account. The question of banker's lien over the amount in dispute did not arise and respondent-bank could not possibly claim it as a set-off as the amount did not belong to Qasim Khan and that mutuality is essential to the validity of a set off but the same was lacking. And learned counsel for the respondent also failed to satisfy us, as to how so-called amount of alleged guarantor could be claimed as set-off, to adjust the liability of a principal-debtor.
27. ' Also that the appellants or their partners were not guarantors of principal-debtor. Further that resort could only be made to a Court of law, in the peculiar circumstances of the case. So, appellants were not liable for the alleged guarantee of their predecessor or late father, unless it could be established in a Court of law and to the extent of the estate of the deceased coming to their hands. But from the evidence produced on record, it is clear that account was being maintained by Muhammad Azam Khan and Mir Alam Khan even in the lifetime of their father Qasim Khan. Although, initially he had opened the account in his personal capacity but subsequently it underwent a change. It is also admitted feature of the case that after the death of Qasim Khan, they were operating and maintaining the account in their own right. Needless to add that documents were produced by bank itself to establish these facts. The alleged guarantee executed by Qasim Khan was personal in nature. Although clause 9 of the guarantee provides that in the event of his death, it shall continue to be binding and operating agai4nst his successors.
28. However, the settled principle of law is that a pecuniary obligation arising out of the contract by a deceased party will bind his legal representative to the extent of the estate of the deceased coming to his hands. Refer A.D.B.P. v. Sanaullah Khan (PLD 1988 SC 67). However, the extent to which contractual obligation is binding on the legal representative of a party to such contract has been elucidated in the following extract by Keith in his book on Elements of Law of Contract, which has been quoted with approval by the Horl'ble Supreme Court in the afore-mentioned cited case:--- "Generally a contractual obligation undertaken by deceased promisor would be binding on his legal representatives to the extent of the estate of the deceased promisor in their hands as this obligation of the legal representative is not personal. However, there is one exception to this rule in case of contracts which involve personal elements, and if personal skill is the essence of the contract, the obligation under the contract can be discharged only by that party whose personal skill is involved. The legal representatives of the deceased promisor cannot be require to perform, nor can they render performance of contract involving personal skill and action. On the death of a person, on principle, the benefits and burdens of his contracts pass to the legal representatives as part of his estate."
29. ' It was also observed that:--- "From this a general principle has arisen that a pecuniary obligation arising out of the contract by a deceased party will bind his legal representative to the extent of the estate of the deceased coming to his hands. This principle has been statutorily recognized in section 50 of the Civil Procedure Code which lays down the. Extent to which a decree passed against a judgment-debtor who dies before the decree has been fully satisfied, against legal representative."
30. ' Finally it was held that:-- "Similarly in case of money decree the liability of the legal representatives of a party who has died after the passing of the decree extends under section 52 of the C.P.C. To such property of the deceased as is proved to have come into their possession or to the extent of the property of the deceased in respect Of which such legal representatives have failed to satisfy the Court that they have duly applied such property of the deceased which came to their possession. In this context of the law, without proving that any property has come into the hands of the son and to what extent in value compared with the pecuniary liability of the deceased father, it cannot be recovered from the son. This aspect was completely overlooked by the trial Court and the First Appellate Court and no such inquiry was made or any proof furnished by the appellant-bank so as to make respondent No, 1 liable for the debts of his deceased father."
31. It may also be seen that the learned trial Court while deciding Issue No,3 in favour of bank has simply relied upon a letter (Exh.D/15) issued by the State Bank of Pakistan, in reply to complaint filed by the appellants against the respondent. The approach of learned trial Court was totally illegal as Civil Court was under a legal obligation to decide the validity of action of the respondent with reference to law and not to base its decision, on the opinion expressed in the letter by some official of State Bank, particularly when no law was referred and more particularly when the appellants have specifically alleged that Manager of State Bank of Pakistan and Manager of Bolan Bank were relative inter se. We may add that wehave intentionally withheld our views about genuineness of the guarantee allegedly executed by late Qasim Khan, as it was not found necessary in order to resolve the real controversy and lest it may prejudice the case of either party, in case appropriate proceedings are filed.
32. In view of our findings, we declare the action of respondent-bank was patently illegal and hold that the appellants are entitled to the amount claimed and transferred from their account. Also that section 34, C.P.C. Authorizes a Court to award interest from the time of the institution of the suit up to the date of decree and further till the realization of the amount. Although the act of respondent- bank in withholding the amount of appellants or making deduction from their account and adjustment in the account of principal debtor was wholly illegal and appellants have also claimed interest from the date of deduction, the learned counsel for appellants has not addressed any argument, whether we can grant such interest or the same is governed by some substantive law.
33. Further neither any damages have been claimed against the bank nor any evidence was led to justify the same. Accordingly, we set aside the judgment and decree, dated 25th September, 1999 passed by learned Additional District Judge-11, Quetta and decree the suit of appellants against the bank in the sum of Rs,38,88,721.65 with interest at the rate of 10% per annum from the date of institution of suit till the date of decree and from the date of decree till its realization, with cost throughout: Decree sheet be drawn.