The two applications fixed for hearing are both filed seeking leave to defend on behalf of the first two defendants and defendants Nos.3 respectively.
The suit has been tiled under the Banking Companies (Recovery of Loans) Ordinance, 1979 for decree in the sum of Rs.42,583,820 with interest at the :ate of 14 % per annum with quarterly rests from the date of suit till payment and for sale of mortgaged property and distribution of the sale proceeds between the plaintiff and PICIC who is joined as pro forma defendant in the proceedings as holder of pari pasu charge.
On behalf of defendants Nos. l and 2, Mr. Muhammad A.I Sayeed has urged that the transaction in question was based on mark-up whereas the plaintiff has erroneously charged interest on the facility extended to defendant No. l and the claim, in any event, is 'illegal, arbitrary and 'unreasonable due to inclusion of compound interest and penal interest. To substantiate his submission, the learned counsel has referred to memorandum of deposit of title deeds, dated 14/16-3-1985 showing grant of finance with limit upto Rs.15 million under mark-up system. It is further urged by the ` learned counsel for the defendants Los. l and 2 that the State Bank of Pakistan had issued BCD Circular No.13-, dated 20th June, 1984 for elimination of 'riba' from the Banking system whereby all Banking Companies including the plaintiff were forbidden from extending finances based on interest with effect from 1st January, 1985. The relevant 'clause contained in the above said Circular is as follows:-- "(ii) As from the 1st January, 1985, all finances provided by a Banking Company to the Federal Government, Provincial Governments, public sector corporations and public or private joint stock companies shall be only in any one of the modes indicated in Annexure 1. "
Reference was also made to BCD Circular No.32, dated 26-11-1984 to contend that as from 1st January, 1985 interest, wherever charged by a Banking Company, was required to be replaced by a non-interest mode. Emphasis was particularly laid on para. 4 of the Circular which is as follows:-- "(4) In exercise of the powers vested in it under the. Banking Companies Ordinance, 1962, the State Bank of Pakistan is pleased to direct that as from the 1st January, 1985, interest, wherever charged by a banking company/development finance institution in any of the items of bank charges, shall be replaced by a non-interest mode considered appropriate by it. Moreover, overdue/penal interest or mark-up on mark-up shall not be charged by a banking company/DFI as from that date. Instead, it may take legal step for recovery of the overdue finance. "
As to the applicability and status of the Circulars issued by the State Bank ofPakistani, the learned counsel has urged that by virtue of- section 25 of the Banking Companies Ordinance, 1962, power to control advances by the Banking Companies vests in the State Bank of Pakistan whose instructions have statutory force and are mandatory required to be followed. Reliance in this respect is placed on judgment in the case of M/s. Hashwani Hotels Limited v. Federation of Pakistan (PLD 1997 SC 315). The learned counsel in order to make out a case for grant of leave, referred to the guiding principles laid down for such purpose by the Hon'ble Supreme Court in the case of Fine Textile Mills Ltd. v. Haji Umar EPLD 1963 SC 163) and M/s. Mechalec Engineers and Manufacturers v.
Messrs Basic Equipment Corporation (AIR 1977 SC 577). On the basis of such principles it was urged by the learned counsel that the defendants Nos. l and 2 are entitled to grant of unconditional leave.
Alternatively, it was urged that in the event of finding that the said defendants are to be burdened with conditions for grant of leave, the value of the mortgaged property offered to the plaintiff as security was far in excess of the claim amount and no further security be required from the said defendants. Towards conclusion of his submissions, the learned counsel has referred to judgment, dated 28-10-1996 in J.M. No.38 of 1992 whereby defendant No. 1 was ordered to be wound up and official liquidator had also been appointed. On the basis of such development, it is urged that the present proceedings, as against defendant No. 1, were to be stayed unless permission for proceeding with this case was obtained from the learned Company Judge. However, it is candidly pointed out by the learned counsel that the judgment passed in J.M. No.38 of 1992 was subject- matter of Civil Appeal No. 1694 of 1996 before the Supreme Court of Pakistan and the operation thereof has been suspended pending final disposal of the appeal.
Mr. Maqbool Baqar, representing .The defendants Nos.3 and 5, besides adopting the arguments, advanced by Mr. Muhammad A.I Sayeed, has referred to certain documentsfiled alongwith the plaint to urge that the same had been obtained from the defendants in connection with a different transaction and did not pertain to the loan advanced on 14-3-1984. The learned counsel for such purpose, also referred to the different font used in additional memorandum of deposit of title deeds, dated 25-1-1.986 and has urged that the plaintiff, in any event, cannot charge penal interest or compound interest despite agreement to such effect between the parties. In support of such submission, reliance was placed on Habib Bank Ltd. v. M/s. Farooq Compost Fertilizer Corporation Ltd. And 4 others (1993 MLD 15711 and Allied Bank of Pakistan v. Masood Ahmed Khan (1994 MLD 1557). It is further urged that the Courts should act liberally in granting leave to defend as was held in the case of Habib Bank Limited v. Mussarat A.I Khan (PLD 1987 Kar. 86). Mr. Maqbool Baqar has also assailed admissibility of the letter of guarantee, dated 15-8-1985 executed by the defendants on the ground that it did not bear attestation by two witnesses in terms of the requirement of Article 17 of the Qanoon-e-Shahadat Order, 1984 and relied on judgment in Muhammad Yaqoob and others v. Naseer Hussain and others (PLD 1995 Lah. 395). Continuing his submission, Mr. Maqbool Baqar has referred to the terms of Sanction Advice, dated 29-1-1984 and the letter of renewal, dated 18-11-1987 to contend that the date of review viz. 31-7-1984 was the date of expiry maturity of the finance whereafter mark-up could not be charged except for the grace period prescribed by law. It is further contended by Mr. Maqbool Baqar that the amended plaint was filed in the matter without notice to him pursuant to order passed with consent of learned counsel representing defendants Nos. l and 2 alone.
PLD 1990 Lah.99) and submit that penal interest, in any event, can be excluded. However, it has been urged that in the present case penal interest was payable by the defendants. As to the alternate submission of Mr. Muhammad A.I Sayeed, for acceptance of the mortgaged property as security in the event of grant of conditional leave, the learned counsel for the plaintiff has referred to the fact that the mortgaged property, is subject to pari pasu charge with the defendant No.6 and the extent of liability due to such defendant being unknown to the plaintiff, it could not be accepted as security for grant of leave and in any case by itself could not be a ground for grant of leave. Reference in this behalf was made to judgment in Habib Bank Limited v. Cargo Despatch Co.
Limited and 4 others (1987 CLC 1002) and Haji Shaikh Muhammad Hussain and others v. Citibank (1985 CLC 2467). As to the chargeability of compound interest, the learned counsel has referred to section 79 of the Negotiable Instruments Act and judgment in the case of Bank of Bahawalnur.
Limited v. Syed Muhammad Shies (PLD 1967 Kar.433).
5. Reverting to the first submission that the financial facility was granted to the defendant No.1 on mark up basis, I have been taken through the Memorandum of Deposit of Title Deeds registered on 19-3-1985 relevant portion whereof refers to creation of equitable mortgage for securing re-- payment of the sum of Rs.15 million financed under mark-up system and liquidated damages. The said memorandum is, however, negatived by plethora of documents filed with the plaint and the affidavits. The Promissory Note, dated 7-2-1984, the Certificate of Registration of Mortgage, dated 25-1-1986, Additional Memorandum Confirming Deposit of title Deeds, dated 25-1-1989, Letter of Guarantee, dated 15-8-1985, letters written by the defendant No. 1, dated 16-1-1986, 31-10-1987, 16- 12-1987 and 7-4-1988, Sanction Advice, dated 29-1-1984 and Renewal Letter, dated 18-11-1987 contain reference, rather admission, about chargeability of interest on the fixed loan amount.
Besides, the re-payment schedules submitted by the defendant No. 1 itself also contain entries showing computation of interest at the rate of 11 % per annum. As to the Memorandum of Deposit of Title Deeds registered on 19-3-1985, it is p specifically stated in the plaintiff's counter-affidavit, filed on 15-12-1994, that the term mark-up was mentioned by mistake and that at the time of grant (disbursement) of loan on 14-3-1984, financing under mark up system did not prevail. The argument to the effect that after promulgation of the State Bank Circular BCD No.13, dated 20th June, 1984 finance could not be provided by any banking company including the plaintiff on the basis of interest does not look justified from bare perusal of the circular. To me it is evident that the grant, distinct from continuation or renewal, of finance after 1st January, 1985, on the basis of interest, had been rendered impermissible. The grant of loan through .Sanction Advice, dated 29-1- 1984, upon acceptance thereof, implied or express, became a valid and enforceable contract giving rise to certain rights in favour of both the parties subscribing thereto. Such rights could not be taken away or abridged through subsequent legislation muchless a notification/circular. The principle against retroactivity is quite well-established and finds support from judgment in the case of M/s Army Welfare Sugar Mills Ltd. v. Federation of Pakistan (1992 SCMR 1656). The renewal of the loan subsequently also cannot attract the applicability of the above referred Circular issued by the State Bank of Pakistan since renewal merely amounts to extension and continuation in force of the earlier agreement. On the same analogy, arguments raised in the case of Trinity Private School v. Mumtaz H., Hidayatullah (1997 SCMR 494) to the effect that acceptance of rent every month be treated fresh renting out every month, was repelled. Other two (2) circulars being BCD No.7, dated 28th March, 1984 and BCD No.32, dated 26th November, 1984 manifestly relate to the various items of bank charges and cannot be made basis for striking down the contract between the plaintiff and defendants Nos. l to 5: In the circumstances, the contention to the effect that the fixed loan was granted on mark-up basis does not inspire confidence. Likewise, the assertion that interest based facility could not be continued or renewed after issuance of BCD Circular No.13, dated 20th June, 1984 is equally without force.
6. As to the principles for grant of leave, the learned counsel for the defendants have referred to the case of Fine Textile Mills Ltd. Karachi v Haji Umer (PLD 1963 SC 163) and M/s Mechalec Engineers and Manufacturers v. M/s Basic Equipment Corporation (AIR 1977 SC 577), The first mentioned case lays down the basic principles for grant of leave it proceedings of summary nature under Order 37, Rule 3, C.P.C. Which make it obligatory upon the Court to gnat leave to appear and defend the suit upon disclosure of facts as would make it incumbent on the holder of negotiable instruments to prove consideration or such other facts as the Court may deer sufficient. While interpreting such clause, the Hon'ble Supreme Court has held that a Judge is not to try the action but has to see that there is a bona fide allegation of a triable issue, which is not illusory. The sufficiency of cause cannot be equated with foolproof defence and putting up plausible defence was found to be enough for grant of leave. It was further held that even in the case of vague and unsatisfactory evidence, leave may be granted subject to conditions. In the case of Messrs Mechalec Engineer (supra) the Indian Supreme Court upon review of the case law applicable to, the cases falling under Order 37, Rule 3, C.P.C. Has quoted with approval the following principles for grant of leave as were held by Das, .J. In the judgment reported as (1945) 49 CWN 246:-- "(a) If the defendant satisfies the Court that he has a good defence to the claim on its merits the plaintiff is not entitled to leave to sign judgment and the defendant is entitled to unconditional leave to defend.
(b) If the defendant raises a triable issue indicating that he has a fair or bona fide or reasonable defence although not a positively good defence the plaintiff is not entitled to sign judgment and the defendant entitled to unconditional leave to defend.
(c) If the defendant discloses such facts as may be deemed sufficient to entitle him to defend, that is to say, although the affidavit does not positively and immediately make it clear that he had a defence, yet, she was such a state of facts as leads to the inference that at the trial of ,the action he may be able to establish a defence to the plaintiff's claim the plaintiff is not entitled to judgment and the defendant is entitled to leave to defend but in such -a case the Court may in its discretion imposed conditions as to the time or mode of trial but not as to payment into Court or furnishing security.
(d)If the defendant has no defence or the defence set up is illusory or sham on practically moonshine then ordinarily the plaintiff is entitled to leave to sign judgment and the defendant is not entitled to leave to defend.
(e) If the defendant has no defence or the defence is illusory or sham or practically moonshine the although ordinarily the plaintiff is entitled to leave to sign judgment, the Court may protect the plaintiff by only allowing defence to proceed if the amount claimed is paid into Court or otherwise secured and given leave to the defendant on such conditions, and thereby show mercy to the defendant by enabling him to try to prove a defence. "
7. After promulgation of the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997, herein after referred to as the '1997 Act', all the proceedings filed under the Banking Companies Recovery of Loans) Ordinance, 1979 and the other laws specified in section 7(6) of the said Act are to proceed forth as matters instituted under the 1997 Act. The provisions of section 10 of the 1997 Act which provide for grant of leave to defend, are as follows:-- '(10) Leave to defend-Subject to section 11, the Banking Court shall, upon an application made by a defendant within twenty-one days, give leave to defend the suit, if a serious and bona fide dispute is raised thereby."
The general principles for grant of leave as have been laid down in the case of Fine Textile Mills Limited (supra) remain applicable to the applications for grant of leave under the 1997 Act. The question as to what shall be a serious and bona fide dispute obviously emcompasses a plausible and triable defence which renders the plaintiff's claim doubtful or non-genuine. While the new law has tried to rationalise the relations between the customer and the banking company by extending the benefits of special legislation and the special fora for vindication of grievances to a borrower/customer. The rigors of the 1979 Ordinance and the 1984 Ordinance, which have been repealed by the 1997 Act, have been tried to be softened. The applications for grant of leave, in the circumstances, have to be considered liberally. An additional ; reason for my said view is that Special Courts and Benches exclusively attending to banking cases have been set up under the 1997 Act and the proceedings are to be disposed within 90 days and adjournments beyond seven days have to be avoided. As to how far the defendants in the present case have succeeded in making out the case for grant of leave shall be considered after I have adverted to the further grounds urged by the learned counsel for defendants.
8. It is contended by Mr. Muhammad A.I Saeed, Advocate, appearing for the defendants Nos. l and 2 that the value of mortgaged property offered to the plaintiff as security is far in excess of the claim amount and, therefore, instead of requiring any additional security, leave be granted conditional to the very security. It is urged that the advance under the fixed loan account was limited to Rs.15 million whereas the value of the mortgaged property was assessed by the plaintiff itself at Rs.78 million in the year 1977. In support of such submission, reliance has been placed on Behra Food Grain Corporation v. Muslim Commercial Bank (1987 CLC 1843) wherein -conditional leave was granted by the original Court to the defendant subject to deposit of the suit amount in cash and the suit was subsequently decreed on account of failure on the part of defendants in making the deposit, as above. On appeal, the decree was set aside for the reason that substantial questions of law and -facts had been raised by the defendants which were considered plausible defence and on account of admission made on behalf of the bank that the loan against the cash credit facility had been fully accrued, as case for unconditional leave was found to have been made out. In the present case, however, the documents filed alongwith the plaint clearly show that the fixed loan facility was availed by the defendant No.1 on interest basis and the liability to make repayment with interest at the rate of 11 % per annum with quarterly rests, was repeatedly acknowledged. Apart from the pronotes and the letters of guarantee, two letters, dated 16-1-1986 and 23-5-1987 are available on the record substantiate such acknowledgement. Besides, the mortgaged property is admittedly subject to pari passu charge with PICIC and the extent of outstanding as claimed by PICIC is not known in the present case despite impleadment of PICIC as party to the present case as a pro forma defendant. It is pertinent to note the PICIC has chosen to remain unrepresented in the, present case. Indeed, the grant of benefit to defendant No.1 for treating the mortgaged property as sufficient security, could have been considered, had the defendant No.1 disclosed all other charges over the mortgaged property. The learned counsel for the plaintiff in this behalf has referred to the case of Habib Bank Limited v. Cargo Despatch Company Limited (1987 CLC 1002) wherein Mamoon A. Kazi, J. (as Judge of this Court) had repelled similar contention raised on behalf of defendant by holding that, "the security of loans by mortgage, by itself cannot be a ground for grant of such leave to the defendant". In the present case quite significantly, the execution of documents has not been disputed or denied by the defendant. The dispute has mainly been raised on the ground that the fixed loan was granted on mark-up basis instead of interest. Such contention has already been found by me to be without substance and attempt has been made to take undue advantage of the mistake committed in preparation of the memorandum of deposit of title deeds registered on 19-3-1985 which stands contradicted by large number of documents referred by me in the earlier part of this order.
9. In regard to the contention raised by Mr. Maqbool Baqar, Advocate in addition to the above- referred questions urged by Mr. Muhammad A.I Saeed, Advocate, suffice to observe that the other transaction in relation whereto the various documents were allegedly signed by the defendants has not been specified in any of the affidavits. The defendants Nos.3 and 5 have simply tried to take undue advantage of the time gap between Sanction Advice and the actual disbursement of the fixed loan amount. The defendants have even failed to deny the letter, dated 28-2-1984 with which the pronote and the letters of authority for debetting the account of defendant No. l were forwarded to the plaintiff bank. The defendants obviously cannot be given any premium on account of delay in forwarding the said documents which, in turn, had delayed disbursement of the loan amount. The argument of Mr. Baqar based on Article 17 of Qanun-e-Shahadat which requires attestation of documents by at least two witnesses, is equally without force since such provision could be pressed only when execution of documents is sought to be proved with reference to Article 79 of the Qanoon-e-Shadadat Order. The judgment in Muhammad Yaqoob and other (supra) cited by the learned counsel is not applicable to the present case since the application for leave to defend alone is being considered. The objection passed on Article 17 of the Qanun-e-Shahadat order can possibly be pressed in the event of denial of the document and at the time of evidence.
10. This leaves for consideration the question if penal interest and the compound interest could be charged by the plaintiff. The learned counsel for the plaintiff has candidly conceded to the rule laid down in the case of Allied Bank of Pakistan v. Masood Ahmed Khan (supra) with regard to non--- chargeability of penal interest but submits that the penal interest can be excluded from the claim amount on the basis of principle laid down by the Lahore High Court in UBL v. Messrs Sartaj Industries (supra) and has urged that decree be passed for the remaining amount. To justify the claim for compound interest, the learned counsel for the plaintiff has referred to the pronote dated 7-2-1984 which reflects consent on the part of the defendant No. l to pay interest at the minimum rate of 11 % per annum with quarterly rests. In the submission of Mr. Mansoorul Arfeen section 79 of the Negotiable Instruments Act is attracted to the case and the interest has to be included in the principal amount due. According to the learned counsel the word 'amounts' indicates that it has to be the aggregate sum which becomes due in terms of the promissory note upon which interest has to be calculated periodically in the agreed manner. For the above submission, reliance has been placed on a Division Bench judgment of the erstwhile High Court of West Pakistan in Bank of Bahawalpur Limited v. Syed Muhammad Shies (PLD 1967 Kar. 433). In the circumstances, an opportunity was given to the parties to submit statement of account/revised statement of account. The plaintiff has filed revised statement showing a total outstanding balance of Rs.37,080,704 as on the date of institution of the proceedings by deleting the amount of penal interest from the claim amount. The defendant No. 1 has also filed a statement of account admitting therein its liability in the sum of Rs.13,801,446.48. The statement of account prepared by the defendant No. l is based on mark-up and I am not inclined to accept it in view of my finding that the fixed loan was advanced on the basis of interest. The sum of Rs.4,198,553.52 claimed to have been repaid by the defendant No. 1 has duly been accounted for in the statement of account submitted by the plaintiff.
10-A. In the circumstances I do not find any serious or bona fide dispute in the matter entitling the defendants to grant of leave. Both the applications filed on behalf of the defendants are, accordingly, dismissed. As a result of dismissal of the applications for leave to defend the facts stated in the plaint are deemed to have been admitted. However, the plaintiff shall not be entitled to claim for penal interest after exclusion whereof the claim amount comes to Rs.37,080,704.
Consequently, the suit is decreed in the sum of Rs.37,080,704 with interest at the rate of 14% . Per annum compoundable yearly from the date of the suit till payment. A final decree for sale of the mortgaged property and distribution of the sale proceeds on pro-rata basis between the plaintiff and defendant No.6 is passed under section 14 of the Banking Companies (Recovery of Loans, Advances, Credit and Finances) Act, 1997. The plaintiff, however, shall not be entitled to costs of the proceedings since the entire dispute had arisen on account of its own mistake in mentioning the grant of loan on mark-up basis in the memorandum confirming deposit of title deeds registered on 19-3-1985.