' JAWWAD S. KHAWAJA, J.---This appeal filed by Aurangzeb Shaafi Burki (appellant-defendant) impugns the judgment and decree dated 25-4-2000 passed by the learned Banking Court-II, Lahore. The facts necessary for the disposal of this appeal are relatively straightforward. The Regional Development Finance Corporation (RDFC) which is respondent No,1 in this appeal filed a suit for recovery of Rs.26,72,571 against the appellant and three others namely, Messrs Shaafi Woolen Industries Ltd. (respondent No,2) (hereinafter referred to as the defendant-Company), Jehanzeb Burki (respondent No,3) and Messrs Alpha Insurance Company Ltd. (respondent No,4).
The defendant-Company had been sued as principal debtor while the remaining three defendants including the appellant were sued as guarantors on the basis of guarantees executed by them to secure the liabilities of the defendant-Company owed to RDFC.
2. The suit was filed before the Banking Tribunal, Lahore, under the provisions of the Banking Tribunals Ordinance, 1984. The Banking Tribunal issued show-cause notices to the defendants, which were replied to separately by the defendants including the present appellant. The learned Banking Tribunal did not find the appellant's reply to be satisfactory or as disclosing a good defence to the suit. As a result a decree for the amount of Rs.11,72,571 was passed against the' appellant and the other three defendants jointly and severally with costs. It is this decree, which is under challenge in the present appeal.
3. It is not in dispute that the defendant-Company applied for and availed facilities which were granted by RDFC. On 21-5-1986 RDFC issued a sanction advice setting out the terms of a mark-up finance facility of Rs.2 million in favour of the defendant-Company. The facility was to be valid for a period of one year from the initial date of release of funds and was to be secured, inter alia, by personal guarantees of the sponsoring directors of the defendant-Company. The appellant was one of the sponsoring directors and has executed a guarantee by way of security. The sanction advice was followed by a financing agreement dated 29-5-1986. This agreement stipulated a buyback price of Rs.24,01,500 as the amount payable by the defendant-Company. The said amount was also secured, as alleged in the plaint, by a guarantee executed by the appellant.
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4. On the expiry of the initial term of the facility, a second sanction advice dated 4-8-1987 was issued by RDFC in favour of the defendant-Company. This advice purported to be a renewal of the mark-up facility of Rs.2 million. This sanction advice also required personal guarantees of the sponsoring directors to secure the liability of the defendant-Company. A second financing agreement dated 8-11-1987 was executed between the defendant-Company and RDFC, pursuant to the sanction advice of 4-8-1987. The buyback price stipulated in the said financing agreement was also Rs.24,01,500. The appellant executed a personal guarantee to secure the liability of the defendant company under this second financing agreement dated 8-11-1987.
5. After the expiry of the limit allowed by the second sanction advice mentioned above, a third sanction advice dated 21-11-1988 was issued in favour of the defendant company by RDFC. This third sanction advice also purported to be renewal of the finance facility of Rs.2 million earlier allowed to the defendant company. In this sanction advice the personal guarantees of the sponsoring directors of the defendant company were not required as security. The appellant, however, did execute a personal guarantee and also signed a third financing agreement dated 10- 2-1989 on behalf of the defendant company, in his capacity as Managing Director of the company.
6. At this point, it is necessary to make note of certain material facts. The defendant company, which was the principal debtor has not preferred in appeal against the impugned decree dated 25-4-2000. As such the said decree has attained finality against the defendant company.
Secondly, Messrs Alpha Insurance Company Ltd. (respondent No,4) and RDFC arrived at a settlement out of Co:irt during the pendency of the suit before the learned Banking Tribunal. As part of the said settlement Alpha Insurance Company Ltd. (respondent No,4) paid a sum of, Rs.15,00,000 towards the claim of RDFC and in return RDFC discharged the said respondent from further liability under its guarantee. The name of respondent No,4 was, therefore, deleted from the array of the defendants by the learned Banking Court.
7. The case of the appellant is that RDFC could not have charged any amount by way of mark-up or interest over and above the buyback price of Rs.24,01,500 plus mark-up for a cushion period of 210 days. This argument was advanced on the basis of the financing agreements which had stipulated the buyback price and the law at the relevant time which permitted mark-up for 210 days. In the present case, it was demonstrated by learned counsel for the appellant, from the contents of the statement of account filed by RDFC that an amount in addition to the buyback price and mark-up for 210 days had been charged to the defendant company. Learned counsel for RDFC argued that there were documents available with RDFC to show that there was an agreement between the defendant company and RDFC permitting the latter to charge mark-up even for the period subsequent to the expiry of the third financing agreement dated 10-2-1989. The said documents, however, could not be brought on record because the learned Banking Court proceeded to decree the suit by dismissing the replies of the defendant company and the appellant to the show-cause notices issued to them, without requiring RDFC to submit any - rebuttal to the averments made by the appellant or by the defendant-Company in their respective replies to the show-cause notices received by them.
8. We note that the procedure adopted by the learned Banking Court was not consistent with the provisions of the Banking Companies (Recovery of Loans, Advances, Credits and Finance) Act, 1997.
Under the said law the replies submitted by the defendants to the show-cause notices issued to them were to be treated as petitions seeking leave to appear and defend. The plaintiff was thereafter to be allowed time to submit replies supported by affidavits and documents to rebut the assertions made by the defendants. The failure of the learned Banking Court to adhere to this procedure has, in our opinion, caused prejudice to RDFC to the extent that it has not been able to substantiate its claim for mark-up which has been debited to the account of the defendant company subsequent to 17-6-1989, which was the date of the expiry of the third financing agreement.
9. At this point, it is to be noted that even according to the appellant there is no dispute that the buyback price of Rs.24,01,500 was payable by the defendant company together with mark-up for 210 days. The mark up for 210 days comes to Rs.2,31,000. As such the liability of the defendant company to pay Rs.26,32,500 was not disputed. Out of this sum an amount of Rs.15,00,000 was paid to RDFC by Messrs Alpha Insurance Company Ltd. And a sum of Rs.7,61,050 was paid by the defendant company, the aggregate of the two amounts being Rs.22,61,050. Thus even according to the appellant a sum of Rs.3,71,450 was due and payable to RDFC. In addition, learned counsel for RDFC pointed out that a loan administration fee of Rs.12,742 was also payable by the defendant company. This amount was not disputed on behalf of the appellant. In the circumstances, an interim decree for Rs.3,84,192 (Rs.3,71,450 + 12,742) is passed against the appellant. To the extent of the balance amount claimed in the plaint, the impugned decree as against the appellant is set aside. The reply submitted by the appellant to the show-cause notice received by him under the Banking Tribunals Ordinance shall be treated as a petition seeking leave to appear and defend.
The same shall be deemed to be pending before the learned Banking Court, which shall allow RDFC to file a reply thereto. The Banking Court shall thereafter decide the issue as to whether or not a serious and bona fide defence has been set up by the appellant to the suit filed by RDFC. For this purpose the matter is remanded to the learned Banking Court, Lahore.