' MIAN SAQIB NISAR, J.---This judgment shall dispose of the present appeal as also the others mentioned in schedule attached thereto, as common questions of law and facts are involved in all these matters.
2. Briefly stated the facts of the cases are that, the Bank of Punjab (the respondent) instituted suits for the recovery of certain sums against the appellants (named in Part-I of the schedule, hereinafter referred to as the appellants) and against the Lahore Development Authority (LDA), (the appellant in appeals mentioned in Part-II of the schedule) as the principal borrowers and the guarantor respectively. The defendants filed leave applications, which have been disallowed and through the impugned judgments and decrees, the suits of the Bank have been allowed in terms of the decree in each case.
3. For the understanding of the matter, the factual backgrounds of the cases are that, the respondent-Bank stated in its plaints that, for the purposes of construction of new Tollinton Market at Jail Road, Lahore, the appellants through the L.D.A., approached the Bank for allowing them the Demand Finance Loan, aggregating to Rs.43.354 Million with the specific amount in the account of each of the appellants, who were the allottees of the premises to be constructed by the L.D.A.
Through the medium of borrowing from the Bank. The loan was sanctioned vide consolidated advice dated 23-6-1992 and in this way, the finance was taken by the individuals, the appellants, in their personal capacities/accounts, but thereafter transferred to the account of the L.D.A. For the purpose of construction of the new Tollinton Market. This finance was guaranteed by the L.D.A.
Through document dated 23-6-1992, besides the appellants also executed the documents such as the memorandum of deposit of title deeds, demand promissory notes, both dated 23-6-1992. The finance was repayable within a period of four years, alongwith mark-up accrued thereupon as per the agreement between the parties. However, the appellants have failed to discharge their liability, resultantly, the decree to the tune of the specific amount mentioned in each of the suits was claimed from the said appellants. The decree was also sought against the L.D.A. As a guarantor being jointly and severally liable. It may be pertinent to state here that, the prayer clause of the plaints reads as under:--
(a) A judgment and decree for Rs.2,132,187 may kindly be passed in favour of the plaintiff and jointly and severally against the defendants with future mark-up (including mark-up from date of institution of the suit till realization) alongwith other costs/charges and expenses till the final payment of the said amount;
(b) the decretal amount will be recoverable by sale of the property mortgaged;
(c) in case the proceeds of the mortgaged property do not satisfy the claim of the plaintiff then the decretal amount should be recovered by the sale of the other property of the defendants;
(d) any other relief that this Honourable Court may deem fit and proper under circumstances of the case.
4. The appellants filed leave applications and all the defendants except L.D.A., took up the plea that they have not borrowed any money from the respondent-Bank; the documents attached with the plaint allegedly executed by them are forged, statement of account is inaccurate, inasmuch as unauthorized and illegal entries have been made therein, showing exaggerated liability of the appellants and thus, they are not liable to pay any amount to the respondent-Bank. The primary ground for leave to appear and defend of the L.D.A. Is that the guarantee dated 23-6-1992, though executed by the L.D.A., is void, because under the provisions of the Lahore Development Authority Act, 1975, the L.D.A. Cannot furnish the guarantee for the repayment of the loan procured by a third party. As mentioned above, the learned Banking Court, after considering the leave applications of both the set of defendants, has disallowed the same holding that, no substantial question of law and facts has been raised. Resultantly, the suits were allowed in terms of the judgments and decrees in each case.
5. Learned counsel for the appellants has explained to us the factual background of the case, and stated that, some where in the year 1976, the Government of Punjab decided to raise a new building in the place of then Tollinton Market, situate at The Mall, Lahore, and for the purpose of rehabilitating the shopkeepers/occupants of these premises, promised to construct new Tollinton Market at Shadman, Jail Road, Lahore. For this, the appellants were required to pay certain amount as costs of the land, which was accordingly paid. An agreement was executed between the Association of the Occupants and the L.D.A., according to which, 96 persons were found entitled to be accommodated in new building, however, this list was subsequently enhanced to 106 persons.
At that time, in order to raise the finances for the construction, it was agreed between the appellants and the L.D.A. That the loan shall be procured from the National Bank or Habib Bank, but subsequently, this was not so done. However, allegedly the L.D.A. In collusion with the Bank of Punjab somewhere in the year 1992, procured certain finance facility for the purpose of raising the construction to which, the appellants are not privity as they never requested for thc facility, which was even not provided to them. Therefore, they are not the customers within the meaning of law, liable to discharge any debt owed by the L.D.A. It is also submitted by the learned counsel that, no documents have been executed by the appellants and the sanction advice, letters envisaging the request of the appellants to seek the loan and the other documents, are fabricated and prepared in collusion by the L.D.A. And the respondent-Bank. He has further stated that the aggregated amount of Rs.43.365 Million is not shown to have been disbursed to each individual by allocation of a specific amount, rather the letter sanctioning the amount of loan as also the other documents in which the specific amount qua each of the appellants has been mentioned, are the interpolation and the blanks have been filled. He has reiterated, `that the statement of account is fabricatett document; the L.D.A. Is the principal borrower and not the appellants. He has argued that the agreement allegedly executed on 23-6-1992 expired on 23-6-1996 and resultantly, the respondent- Bank is not entitled to charge any mark-up in the shape of interest beyond the contract period.
Lastly, it is argued that as the title of the premises was not yet transferred to the appellants by the L.D.A., resultantly, any document such as allotment letters, allegedly deposited by the appellants does not constitute an equitable mortgage.
6. Mr. Zahid Hamid, Advocate, learned counsel for the L.D.A. Though supported the case of the respondent-Bank about the grant of loan to the appellants and also stated that the entire documents were validly and genuinely executed by them and that the amount, which had been borrowed by the appellants, was disbursed to their individual account, which finally came to the account of the L.D.A. For raising the construction, but has vehemently argued that the L.D.A. Though had facilitated the other appellants for the procurement of the loan from the respondent-Bank and though admittedly has also executed a guarantee dated 23-6-1992 for the repayment of the amount. But this guarantee according to him, is void and ultra vires of the L.D.A. Act, 1975; besides it is also impermissible under the provisions of the Local Authorities Loans Act, 1914. Therefore, as the guarantee is invalid, the L.D.A. Is not liable to repay the respondent-Bank, as a guarantor.
7. We have heard the learned counsel for the parties. As far as the argument of Mr. Asghar Hamid Bhutta, Advocate, the learned counsel for the appellants, that no document had been executed by the appellants, on the face of it, seems to be misconceived and baseless, because the original allotment letters, which were supposed to be in possession and custody of the appellants, are with the respondent-Bank, thus, it necessarily leads to an inference, that irrespective, if these letters are title documents or otherwise, but were deposited by the appellants, for the purpose of procuring the loan and-creating a charge over property, which was allotted to them and eventually has been constructed by the L.D.A., with the finances provided by the respondent. Moreover, there is registered mortgaged deed, which clearly mentioned that the loan had been procured by the appellants and in discharge of their liability, they are creating the charge over the shops/premises.
Mr. Bhutta, though disputed the execution of other documents, but has not been able to answer, if this instrument was not executed by the appellants. This plea of the appellants that they never requested for the loan and/or executed the necessary documents, to our mind, is absolutely frivolous, particularly in the situation, when it was initially agreed between the appellants and the L.D.A. That the construction shall be made with the borrowing made by the appellants from some Bank, may be at that time it National Bank or Habib Bank, but subsequently, the loan through the medium of L.D.A., was procured in the individual accounts of the allottees in the consolidated form of Rs.43.365 Million. If, the appellants had not executed such document, the Bank would never have lended the money for the purpose of construction of new Tollinton Market because this was the only source of financing of the project.
8. The other submission of Mr. Bhutta, that in the loan application, allegedly executed by the appellants, the handwritten amount is absolutely an interpolation and this is not the amount, which was actually disbursed to the appellants, because it does not correspond to the area of the shops, which was likely to be transferred to each of the appellants and, therefore, the entries in the statement of account likewise are also forged and fabricated. We have applied our mind to this aspect of the matter and find no force in the submission, because according to the documents on record the consolidated loan amount was divided to each of the individuals according to the rate on which the premises are to be sold to each of the appellants corresponding to the area. This is exactly, what has been done in the present case. As has been apprised to us by the learned counsel for the Bank and the L.D.A., that the cheques of the specific amounts were deposited in the individual accounts of the appellants, and these were subsequently transferred to the L.D.A. By the appellants enabling the L.D.A. To raise the constructions. This statement was never seriously controverted by Mr. Bhutta, and he did not request the Bank to place on record any such material, when even an offer was made by the Bank's counsel. In the situation, we shall be correct in assuming that, on account of the agreements between the appellants and the Bank, it is the amounts, which were loaned out to them in their individual capacity out of the consolidated amount of Rs.43.365 Million.
9. The submission of the learned counsel for the appellants that, instead of dividing this amount according to the rate and the area of 94 allottees, the actual affectees of the old Tollinton Market, the number has been unauthorizedly increased by the L.D.A. To 106, the loan has been divided upon 94 persons and no charge has been made from the remaining, this argument has no support from the record. The list of 106 affectees was finally approved by the L.D.A., years before 1992, when the loan was given by the Bank and the appellants are not shown to have raised any objection in this behalf. Moreover, it is not established from the record that nothing has been charged from the others except 94 persons, and that they have been promised the transfer of the premises free of cost.
10. Attending to the last submission that, the Bank has charged mark-up beyond the contract period, we have examined the record; the statement of account and find that, the finance agreement was on mark-up basis and was for a particular period of time i.e. Till 23-6-1992, enabling the Bank A to charge mark-up. Thereafter,. There was no agreement or law under which, the mark-up could be charged, thus, the amount in this behalf shown in the statement of accounts and claimed by the Bank, is illegal. We, therefore, intend to modify the judgments and decrees to that extent.
11. Now examining the other appeals of the L.D.A., the L.D.A. Has admitted the facts of the case regarding applications for loan by the allottees, which was sanctioned by the Bank, the documentation executed by the allottees and also has admitted the execution of the guarantee dated 23-6-1992 by it. Thus, on account of the above, in ordinary circumstances, the L.D.A. Is the guarantor for the repayment of the amounts, in terms of the specific stipulation in the guarantee document. But the learned counsel for the L.D.A. By relying upon section 22(1) of the Lahore Development Authority Act, 1975, has argued that the L.D.A. Shall be deemed to be a Local Authority for the purposes of Local Authorities Loans Act, 1914 and under the provisions, is prohibited to obtain any local or foreign loan without the specific sanction of the Government, which is not available; now if, the L.D.A. Cannot obtain the loan for itself, it cannot even guarantee the loan for third party. It is also argued that according to section 7 of the Local Authorities Loans Act, 1914, no local authority shall borrow the money or otherwise charge its funds, except for the purposes mentioned under the Act, and if, any such contract is made, which is otherwise than that purpose, it shall be void.
Learned counsel has further referred sub-clause (b) of proviso to section 7, which reads as follows:-- "(b) to affect the power conferred on any local authority by any such enactment to charge its funds, by guaranteeing the payment of interest on money to be applied to any purpose to which the funds of the local authority can legally be applied."
12. The submission is that the guarantee, if at all, can only be given in terms of the above section and not for repayment of the loan, which has been obtained by a third person. In nutshell, it is submitted that to provide the guarantee for the purpose involved in the matters, is not mentioned either in the Lahore Development Authority Act, 1975 or the Local Authorities Loans Act, 1914, therefore, the guarantee is void because of the conspicuous omission of authority to furnish guarantee in contract to Article 166 of the Constitution of Islamic Republic of Pakistan, 1973, which provides that the Executive Authority of the Federation can extend to the borrowing and also giving the guarantee from time to time as fixed by the Act of the Parliament, therefore, the L.D.A. Is not liable to pay the amount as guarantor and the decree passed against the L.D.A. Is illegal and unlawful.
13. We have applied our mind to this argument and find that, on the basis of the admitted position on the record, it is the L.D.A. In fact, which was instrumental in facilitating the financing to the other appellants for the project, which was to be constructed by the L.D.A. If the L.D.A. Has not guaranteed that amount, the Bank of Punjab would not have given the loan facility to the individuals. Neither in the L.D.A. Act, 1975 nor in the Local Authorities Loans Act, 1914, there is any prohibition that the guarantee shall not be given by the L.D.A. For the loan to be provided to a third party, and it is the rule of interpretation that, what is not 'specifically prohibited, shall be permissible, particularly in view of section 6(3)(vii) of the L.D.A. Act, 1975, which enables the L.D.A. To enter into contracts, and the guarantee being one of the contracts, could always be validly executed by the L.D.A. In favour of the respondent-Bank, rendering itself to be the guarantor for the repayment of financing provided to the other appellants. The analogy, which the learned counsel for the L.D.A. Intends to draw from Article 166 c the Constitution, is not apt because, under the said Article, the furnishing of the guarantee by the Federal Government has though been made permissible, but it is circumscribed by the Act of the Parliament, which is not the situation under the two Acts mentioned above in which, even if there is no specific permission, but there is no prohibition as well.
' In the light of above, the submission made by the learned counsel for the L.D.A. Is repelled and it is held that, the L.D.A. Is the guarantor and is jointly and severally liable for the repayment of the amount to the respondent-Bank.
14. Further the question, raised by Mr. Zahid Hamid, Advocate, that according to the prayer in the plaint, the relief has been sought for the purposes of realization of the decretal amount by the sale of the mortgaged property, but instead of granting this as a primary relief, the Banking Court has held the L.D.A. Jointly and severally liable with the other appellants, which decree is illegal and unlawful, suffice it to say that, obviously when the property is mortgaged for the security of a loan, first the mortgaged property has to be sold for the satisfaction of the decree, and if, the decree is not satisfied only then, the decree for joint and several liability against the principal borrower and the guarantor can be passed. Resultantly, we modify the judgment and decree in the following manner:--
(i) That the decree against the appellants is though joint and several, but it shall first be satisfied from the sale of the mortgaged property and if, it is not fully satisfied, only then the appellants i.e. The individuals and the L.D.A., shall be jointly and severally responsible for the satisfaction of the decree.
(ii) That the respondent-Bank was only entitled to charge the mark-up till 3-6-1996 and any mark- up claimed and awarded by the learned Banking Court is illegal and unlawful. However, in view of the provisions of section 17 read with section 3 of the Financial Institutions (Recovery of Finances)
Ordinance, 2001, the respondent-Bank is entitled to the costs of fund from the date of default of the finance till the realization of the amount from both the set of appellants, which shall be worked out by the learned Executing Court in accordance with law at the time of execution of the decree.
(iii) That the interest in each of the case, which is beyond the period of the contract, till the institution of the suits, and pendente lite, if awarded in the impugned decree, shall also be specifically worked out and excluded from the decree by the learned Executing Court at the time of executing the decree.
' With the above modification and for whatever has been discussed in the judgment, these appeals have no force and are hereby dismissed with costs throughout.