1. I intend to dispose of the applications (C.M.As. Nos,7676 of 2001, 7854 of 2001 and 7855 of 2001), under section 10 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (the Ordinance for short) for leave to defend the suit filed by the defendants Nos,1, 5 and 7 as the facts and law applicable are common.
2. The background of the present suit are as follows:-- The plaintiff is a Banking Company and the defendant No,1 (customer) has been maintaining a current account with the plaintiff branch known as Shahrah-eFaisal, Karachi since 13-9-1995. The plaintiff at the request of the defendant No,1 allowed financial facility under letter of credit for a sum of Rs,78 million through sanction letter dated 23-10-1996 on the 180 days D.A. Basis for import of m.v. 'AMALTHEMA' for scraping. The aforesaid facility was availed by the defendant No,
1. In order to secure repayment of the aforesaid finance, the defendant No,1 executed the following security documents:--
(1) Promissory note in the sum of Rs,94.380 million.
(2) Agreement of Finances dated 23-10-1996 on purchase price of Rs,78 million, with buy-back price of Rs,94.380 million with deferred payment by 31-12-1998.
(3) Letter of pledge dated 23-10-1996.
(4) Letter of hypothecation dated 23-10-1996.
3. In order to further secure repayment' of the aforesaid finance facility provided to the defendant No,1, the defendants Nos, 2, 3 and 5 to 7, defendant No,7 through defendant No,4, mortgaged their properties detailed below, by depositing the original title deeds under separate Memorandums of Deposit of Title Deed, accompanied by Power of Attorneys in favour of the plaintiff:--
(i) Defendant No,2
(i) Flat No,A/15 on Plot No,ST-4, Al-Azam Square, F.B. Area, Karachi. (ii) C-61, Block-4, Gulshan-e- Iqbal, Karachi measuring about 600 sq. Yds. With construction standing thereon.
(ii) Defendant No,3 Flat No,A/13 on Plot No,St-4, Al-Azam Square, F.B. Area, Karachi.
(iii) Defendant No,5 Plot bearing No,B-29, Block S, North Nazimabad, Karachi measuring 400 sq. Yds. With construction standing thereon.
(iv) Defendant No,6 Flat No,304, IIIrd Floor, Reema Palace on Plot No,26/ 3, Jinnah Cooperative Housing Society, Karachi.
(v) Defendant No,7 Plot No,L-C-44, Landhi Industrial Area, Karachi measuring 23200 sq. Yds. (4.793 acres).
4. The defendants Nos,2 to 7 also executed letters of guarantee for repayment of finance to the defendant No,1, who failed and/or neglected to adjust the amount within time stipulated in the sanction letter or thereafter. A sum of Rs,7,08,51,085 is due and payable by the defendants. The break-up has been detailed as follows:--
(i) Principal amount Rs,5,37,03,714.
(ii) Muqadum and insurance charges at Rs,18,74,295.
(iii) Mark-up from 24-1-1998 to 31-12-1998 Rs,1,52,73,076 In addition to above amounts, the plaintiff also claimed liquidated damages at the rate of 20% per annum from the date of the expiry of the limit. Thus plaintiff claimed decree against the defendants in the following terms:--
(a) A judgment and decree jointly and severally against, the defendants in the sum of Rs,7,08,51,085 with future mark-up at the maximum rate from the date of the institution of suit until the realization of the decretal amount.
(b) A judgment and decree for the sale of mortgaged properties belonging to the defendants Nos,2, 3 and 5 to 7, as mentioned in paras. 8 and 9 of above plaint.
(c) Liquidated damages at the rate and period as this Honourable Court may deem appropriate in the circumstances of the case from the date of expiry of limit until the institution of the suit.
(d) Costs of the suit.
(e) Any further and better relief which this Honourable Court may deem appropriate in the circumstances of the case.
5. After service of summons in accordance with section 9 of the Ordinance, the defendants referred to above filed application under section 10 for leave to defend the suit. The defendant No,1 in their application for leave to defend the suit took several pleas, whereas, the common plea of the defendants Nos,5 and 7 is in denial of being mortgagors or guarantors, by executing memorandum, power of attorney and guarantees as security for repayment of loan to defendant No,
1. The defendant No,5 further plea is that he after taking permission from the K.D.A., he has mortgaged the property with Citibank much before the alleged date of memorandum of deposit of title deed and obtained loan for house building. The original document is with the Citibank and he is regularly making payment in connection of his housing loan, whereas, the plea of the defendant No,7 is that plot in question is a leased plot by K.D.A. To the defendant No,7 as limited company. The original lease deed is in its possession. The defendant No,4 as Special Attorney on behalf of the defendant No,7 had signed the lease deed, who expired in the year 1992 much before the alleged date of Memorandum. The defendants Nos,5 and 7 common plea is that the Memorandum of Deposit of Title Deed, Power of Attorneys and Lease Deeds in possession of the plaintiff pertaining to their properties are fake and fabricated documents.
6. During the hearing of the application plaintiff s letter dated 26-6-1999 addressed to defendant No,1 was referred, whereby the defendant No,1 was informed that the documents pertaining to three properties were found to be fake as reported by the Registration Authorities. These properties are,
(1) Plot No,B-29, Block S, North Nazimabad, Karachi, (2) Plot No,L-C-44, Landhi Industrial Area, Karachi, (3) Power of Attorney in respect of the property Flat No,304, IIIrd Floor, Reema Palace, Jinnah Cooperative Housing Society, Karachi. The defendant No,1 was asked by the plaintiff to arrange acceptable replacement of above securities. Amongst above, the properties at Serial Nos,1 and 2 belong to defendants Nos,5 and 7.
7. Mr. Waqar Muhammad Khan Lodhi, learned counsel for the plaintiff, when confronted with such situation, sought time to have the instructions in view of the admission by the Bank and in pursuance thereof, has submitted a statement on behalf of the plaintiff, signed by the Manager of the Bank as well as by the counsel, whereby the Bank has not pressed its claim against the defendants Nos,4, 5 and 7.
8. In view of such, statement, the suit of the plaintiff is dismissed as withdrawn against the defendants Nos,4, 5 and 7, with no order as to costs.
9. The plaintiff has also admitted in letter dated 26-6-1999 that the power of attorney in respect of the Flat No,304, 3rd Floor, Reema Palace, Jinnah Cooperative Housing Society, Karachi is also fake as reported by Registration Authorities. Such being the position, the case of the plaintiff against the defendant No,6 is similar to the defendants Nos,4, 5 and 7 against whom the plaintiff has not pressed the suit. This being the position, the suit of the plaintiff is also liable to be dismissed against the defendant No,6.
10. Mr. Rasheed A. Rizvi, learned counsel for the defendant No,1, inter alia, urged the following points in support of the application:--
(1) That the plaintiff is not entitled to charge the markup, nor mark-up on mark-up.
(2) Still 5.222 Tons of iron scrap is lying at the site worth Rs,50 million and due to the criminal and negligent act of the Bank and the Custom Authorities, it is rusting and causing loss.
(3) The defendant No,1 has suffered loss due to act, of the officer of the plaintiff, of misappropriation and fraud.
(4) The amount outstanding against the sanction letter has been maliciously manipulated and falsely shown as Rs,96,653.
(5) The plaintiff has breached the conditions of the L/C that an, amount equivalent to 10% of the L/C amount was kept in Foreign Currency in the shape of F.D.R., such F.D.R. Was to remain under lien with the Bank till issuance of final delivery order.
(6) The amount in US $ 25,000 deposited in foreign currency account A/C 02-240-0018-3 in the name of defendant No,2 has been misappropriated by Mr. Iqbal Kundi, with profits by obtaining cheque for transfer of the amount against liability of defendant No,l.
11. The availment of the facility and execution of the document are not disputed. The defendant No,1 also obtained various extensions in L/C time limit by 90 days each.
12. Adverting to the first contention, Mr. Rasheed A. Rizvi contended that the plaintiff is not entitled to charge the mark-up or mark-up on mark-up and referred Annexure 'C', the agreement for financing dated 3-10-1996 and contended that no doubt the price and buy-back price are mentioned in the agreement but the column of markup is blank, therefore, in absence of an agreerment for payment of mark-up, the plaintiff cannot charge the markup.
13. ' The bare perusal of the agreement dated 23-10-1996 shows that the transaction is Marahaba (Bai'
14. Mujjal) or sale on deferred payment basis, which is also termed as agreement of sale on credit.
15. One of the modes of Trade Related Financing, detailed in Annexure '1' of B.C.D. Circular 13, dated 20- 6-1984, (i) purchase of goods by banks and their sale to clients at appropriate mark-up in price on deferred payment basis, wherein the defendant agreed to pay the mark-up in price of goods on or before 31-12-1998, therefore, in my view, in absence of percentage, the plaintiff-Bank is entitled for mark-up in price i,e, the difference between the sale and buy-back price.
16. Mr. Rasheed A. Rizvi with vehemence has also contended that approximately 5,222 Tons of Iron scrap is lying on the site worth Rs,50 million but due to criminal and negligent act of the plaintiff- Bank and the Customs Authorities, it is rusting and causing loss.
17. Mr. Waqar Muhammad Khan Lodhi has disputed the negligence on the part of the plaintiff and maintained that the defendant himself was negligent as he failed to pay the customs duty as such left over scrap is in custody of the Customs Authorities. He also disputed the tonnage and the value of the scrap. The defendant has taken such plea that approximately 5,222 Tons of Iron scrap is lying at site worth Rs,50 million but hds not produced any material to substantiate the tonnage of the scrap and its value. The defendant has admitted that the scrap is rusting due to negligence on the part of the customs, where the defendant himself is in default in payment of customs duties. On store, he can't attribute for such loss towards the plaintiff. The liability for payment of such duty is on the defendant.
18. Mr. Rasheed A. Rizvi's submission, with regard to the loss suffered by defendant No,1 due to act of misappropriation and fraud by officers of the Bank was that Muhammad Iqbal Kundi, Manager has been dismissed from the Bank in early period of 1999 on charges of fraud and misrepresentation, that Manager illegally and with ulterior motives included three immovable properties in the sanction letter, which are cited at S1. Nos, b, c and d. He also pleaded that in the last mentioned property viz. Flat No,304, Reema Palace, Karachi was in his occupation and the said Manager alongwith Mahmood A. Khan, Zonal Chief used to manipulate the accounts of the defendants as well as account of the L/C limit, therefore, the claim of the plaintiff and the documents are based on fraud and malpractice.
19. Mr. Waqar Muhammad Khan Lodhi has pointed out that no doubt in sanction letter three properties were shown for collateral security by equitable mortgage and pointed out that these properties were offered by the defendant No,1 through his own letter dated 5-9-1996, whereby a request for establishment of letter of credit for Rs,78 million was made. The perusal of the Annexure 'A-2' reflects that the defendant No,1 offered these properties as security against this facility, which were already furnished as security against earlier facility. The first property is the property of defendant No, l's wife, whereas, the documents of rest of properties on verification were found to be fabricated, such intention was communicated to defendant No:1, by letter dated 26-6-1999, (Annexure 'B-1' to C.M.A. No,7676 of 2001 of the defendant No,1) and he addressed a letter to the plaintiff on 4-1-2002, whereby he provided photocopies of property documents of Liaquatabad with a request that three mortgaged properties be released and the property sought to be released are none other than those properties whose documents were found to be fake. Therefore, the defendant can take blame on himself for such act and not to blame the plaintiff-Bank.
20. The second limb of arguments of Mr. Rasheed A. Rizvi regarding fraud and misrepresentation or deceit, is reflected in Annexure 'B-2', a letter addressed to I.A. Usmani, complaint by the defendant that he was not dealt with fairly by the Manager and Zonal Chief, who misled and misguided him despite receiving benefits out of record, details of such monetary and material benefits were mentioned. The defendant was also aggrieved by unnecessary extensions in time limit of L/C, whereby he was burdened with discounting charges without any justification. So far the extensions in L/C period is concerned, the defendant through Annexures 'P-3', 'P-4', 'P-6' and 'P-7' dated 16-4- 1997, 17-7-1997 obtained the extensions and lastly by letter dated 27-10-1997 and agreed for payment of discounting charges, therefore, these pleas are not tenable.
21. Mr. Rasheed A. Rizvi canvassing the breach of the condition has maintained that the lien with the Bank over the F.D.R. Receipt was not to be exercised till the issuance of final delivery order. The defendant also deposited Rs,66,93,000 as cash margin. Said amount has not been shown correctly and the adjustment is breach of the agreement.
22. Mr. Waqar Muhammad Khan Lodhi met this contention by referring para.7 of the replication, which is reply of para.6, wherein the plaintiff have admitted that defendant No,1 did deposit cash margin equivalent to 10% of the letter of credit Rs,76.16 million, which comes to Rs,7.69 million and not Rs,76,16,7000 as mentioned in para.6 of the reply. It was also maintained by him that said amount is included in the credit entry of 21,205,011 dated 28-1-1998, whereas, US $ 25,000 were encashed by Cheque No,254231 dated 18-9-1997 for US $ 26,000 inclusive of profit by the defendant No,2 as per statement of account of MRs, Nighat Aslam, Annexure 'P 1/3'. The defendant No,1 plea is that Mr. Iqbal Kundi obtained cheque of defendant No,2 account with promise that proceed of the said cheque would be utilized against the outstanding of defendant No,
1. The cheque has been encashed. The defendant No,2 has chosen not to contest the plaintiff suit. To claim adjustment of amount of cheque, it should be in favour of the plaintiff, during the course of the argument, it was pleaded that only it was signed by account holder and was given in blank. In such situation, the defendant No,2 has to blame herself but adjustment Cannot be claimed against the plaintiff.
23. The defendant No,1 has admitted his outstanding liability of Rs,70.700 million through his letter dated 16-4-1998 and assured to clear the liability on resolving the sales tax refund from the Government Department by selling the stock. So far the exercise of lien is concerned the Bank has right to exercise the lien when the defendant has breached the agreement by not making payment as agreed, he cannot be allowed to contend that the exercise of lien or adjustment of margin amount is against the breach. So far as the statement of accounts is concerned, it has to be examined while determination of the liability of the defendant No, 1.
24. Mr. Rasheed A. Rizvi, learned counsel for the defendant No,1 has also maintained that in modern banking, the Banks are maintaining the computerized accounts including the plaintiff-Bank, whereas, the statement of account filed with the plaint is manual, as such, he maintained that' a presumption has to be drawn that the entries mentioned therein are manipulated one and does not reflect the correct figure.
25. Mr. Waqar Muhammad Khan Lodhi contended that the Bank has prepared the statement of account manually though conceded that the Bank is maintaining computerized statement of accounts of the respective parties but pleaded that there is no bar in preparing the statement of account manually. It has to. Be examined whether the entries reflect correct position of transactions.
26. In the light of the above discussion, I am of the view that no substantial questions of law or fact have been raised on behalf of the defendant No,1 for the grant of leave to defend, as the availing of the facility, execution of documents, liability to pay have not been disputed as such. I am of the view that the defendant has failed to make out a case for leave to defend by raising questions of law and fact which require evidence, therefore, the application is dismissed.
27. This brings me to the question of determination of the liability of the defendant.
28. I have examined the statement of account with assistance of the learned counsel for the plaintiff and defendants and under the direction the break-up of the statement of account has been filed by the plaintiff. The L/C was for US Dollar 2,047,949.20 at the rate of Rs,37.19 per US $ Dollar. It is not disputed that the defendant No,1 got extensions in the L/C period and due to increase in exchange rate, the L/C was negotiated at Rs,45.63 per Dollar. The defendant has agreed for the amount at exchange rate up to maturity i,e, 26-1-1998. Thus the amount of L/C comes to Rs,93,425,138 less the amount of margin paid at the time of opening in the sum of Rs,7,618,000 leaving L/C amount in the sum of Rs,85,834,138. According to agreement, the sale price was Rs,78.000 million and repurchase price Rs,94.380 million. Thus the mark-up amount comes to Rs,16.380 million but has been charged only Rs,14,089,032. The Bank is entitled for the L/C discount charges and commission. The insurance and Muqadam charges have also been claimed in terms of clause 6 of the letter of pledge. The pledge goods were to be insured against fire, theft and other risk by the customer (pawner) and in case of their default by the paWnee. It is not a case of defendant No,1 that the pledge goods were insured. It has been insured by the pawnee, as such, the Bank in terms of section 175 of the Contract Act is entitled for extraordinary expenses incurred by them in the shape of insurance as well as by appointment of Muqadam. The Bank has also charged miscellaneous documentation and advertisement charges and mark-up on discounted amount in absence of any agreement as well as mark-up on previous transaction. These amounts cannot be claimed by the Bank. In addition to 10% margin in the sum of Rs,7,618,000. The defendant No,1 from time to time also has deposited a sum of Rs,35,332,011 in all Rs,42950011. The break-up of the account is detailed as follows:-- Sr. No, PARTICULARS DEBIT CREDIT BALANCE 01 L/C amount in Pak. Rs.76,163,231. negotiated @ 37.19 per us Dollarfor 2,047,949.20 US $, remitted to Foreign Exporter after 9 months extension in time required by the defendant due to increase in rate @ 45.63 per Dollar.93,452,138 --- DR 93,452,138 02 Less . 10% margin of original L/C amount deposited by the defendant.--- 7,618,000 DR 85,834,138 03 Difference of mark-up As per agreement between sale and repurchase price i.e. 94.380. million (-) 78.000 (M)
29. Rs.16.380 million but actually charged (Less)14,089,032 --- DR 99,923,170 04 L/C discounting charges 3,201,587 --- DR 103124757 05 L/C commission, insurance and Muqadmage charges 1,571,365 --- DR 104696122 06 Miscellaneous, docu--ments and advertise--ment charges 34,670 --- DR 104730792 07 Minus total repay--ment Rs.42950011, less 10% margin already deducted at 2 above--- 35,332,011 DR 69,398,781 08 Mark-up condos counted amount 273,000 --- DR 69671781 09 Mark-up on previous transaction up to 25-6-1997 1,179,304 --- DR 70,851,085 The plaintiff-Bank is not entitled for amount claimed at Si. Nos,6, 8 and 9. On exclusion of these amounts, the following position emerged:-- Sr. No,PARTICULARS DEBIT CREDIT BALANCE 01 L/C amount in Pak. Rs.76,163,231. negotiated @ 37.19 per us Dollar for 2,047,949.20 US $, remitted to Foreign Exporter after 9 months extension in time required by the defendant due to increase in rate @ 45.63 per Dollar.93,452,138 --- DR 93,452,138 02 Less . 10% margin of original L/C amount deposited by the defendant.--- 7,618,000 DR 85,834,138 03 Difference of mark-up As per agreement between sale and repurchase price i.e. 94.380. million (-) 78.000 (M)
30. Rs.16.380 million but actually charged (Less)14,089,032 --- DR 99,923,170 04 L/C discounting charges 3,201,587 --- DR 103124757 05 L/C commission, insurance and Muqadmage charges 1,571,365 --- DR 104696122 06 Miscellaneous, documents and advertisement charges 34,670 --- DR 104730792 07 Minus total repayment Rs.42950011, less 10% margin already deducted at 2 above--- 35,332,011 DR 69,398,781 Therefore, the plaintiffs' suit is decreed for a sum of Rs,6,93,64,111 with mark-up 2% above the Bank rate from the date of institution of the suit till the realization of the decretal amount against defendants Nos,1 to 3 jointly and severally with decree for sale of mortgaged properties belonging to defendants Nos,2 and 3 only with costs, whereas, the suit is dismissed against defendants Nos,4 to 7, with no order as to costs.