2025 C L D 1551
[Balochistan]
Before Gul Hasan Tareen, J
Messrs NATIONAL BANK OF PAKISTAN Attorney/Officer/Manager---Plaintiffs
Versus
Messrs BISMILLAH MARITIME BREAKERS through Partners and others ---
Defendants
Civil Suits Nos.01 and 02 of 2009, decided on 13th June, 2025.
(a) Financial Institutions (Recovery of Finances) Ordinance (XLVI of 2001) ---
----Ss. 3(2) & 9--- Contract Act (IX of 1872), Ss.127 & 128--- Suit for recovery of finance ---
Guarantor, liability of ---Cost of funds, recovery of ---Plaintiff / bank filed suit against
defendants / debtors as well as guarantors ---Validity ---Defendants / guarantors executed
guarantee for the benefit of defendant / principal debtor and had also executed memorandums
for deposit of title deeds for the benefit of defendant / principal debtor ---This was a sufficient
consideration to defendants / guarantors for giving the guarantees ---Liability under S. 128 of
Contract Act, 1872 of defendants / guarantors was co- extensive with that of principal debtor -
--Defendant / debtor had defaulted in discharge of principal amount ---Such default not only
incurred cost of funds under S. 3(2) of Financial Institutions (Recovery of Finances) Ordinance, 2001, rather was actionable under S. 9 of Financial Institutions (Recovery of Finances) Ordinance, 2001, rather was actionable under S.9 of Financial Institutions (Recovery of Finances) Ordinance, 2001---Finance agreement expired on 31 -03-2008, which
was date of default ---Plaintiff / bank was entitled for cost of funds from pleaded date of
default ---Defendant / debtor breached terms of sanctioned advices, finance agreement and
guarantees ---Suit was decreed accordingly.
Messrs Sittara Rice Trading v. United Bank Limited 2011 CLD 254; Khurshid Anwar
v. United Bank Limited 2002 CLD 1252; State Engineering Corpn. Ltd. v. National Development Finance Corpn. 2006 SCMR 619; Trading Corpn. of Pakistan (Pvt.) Ltd. v. Murshad Enterprises PLD 2004 Kar. 407 and S.L. Ramaswamy v. M.S.A.P.L. Palaniappa AIR 1930 Madras 364 ref.
(b) Damages ---
----Special damages ---Proof ---Where plaintiff claims special damages, he must plead
particulars of damages he has suffered.
(c) Administration of justice ---
----Mere acquittal in a criminal case does not absolve a defaulter from civil liability.
Muhammad Akram Shah for Plaintiff (in Suit No.01 of 2009).
Mujeeb Ahmed Hashmi for Defendants Nos.1 (i to iii) and 3 (in Suit No.01 of 2009).
Ex parte for Defendants Nos.2, 4 and 5 (in Suit No.01 of 2009).
Mujeeb Ahmed Hashmi for Plaintiff (in Suit No.02 of 2009).
Muhammad Akram Shah for Defendants (in Suit No.02 of 2009).
Date of hearing: 2nd June, 2025.
JUDGMENT
GUL HASSAN TAREEN, J. ---Plaintiff, National Bank of Pakistan through its
Branch Manager and defendant 1, M/s Bismillah Maritime Breakers, a registered partnership
firm, through its partners [defendants 1 (i) to (iii)] in Suit No.01/2009 are respectively defendant 1 and plaintiff in the consolidated Suit No.02/2019. Defendants 2 to 4 and 5 are guarantors and custodian of the pledged stock, respectively, and since common questions of
law and facts are involved and consolidated evidence has been recorded, therefore, both suits
are being decided together through this common judgment.
FACTS OF SUIT 01/2009:
2. On 23 May 2009, plaintiff instituted suit under section 9, the Financial Institutions
(Recovery of Finances) Ordinance, 2001 ('FIO') against the defendants 1 to 3 and the
predecessor of the defendants 4 (a) to 4(f) for recovery of Rs.431,693,315/ - with cost of
funds. Plaintiff has pleaded that the defendant 1 is a registered partnership firm in which defendants 1 (i), 1 (ii) and 1(iii) have 45%, 45% and 10% shares, respectively. The two partners each having 45% shares in the firm had applied to the plaintiff for Non- Fund/Import
LC and Fund Based FIM (180 days) for Rs.62 million which was sanctioned vide sanction advice dated 22 March 2002. Vide sanction advice dated 07 September 2002, the said facility was enhanced from 62 million to 163 million. Later, the facility was enhanced from 2004 to 2005 @ 250 million and 100 million, total 350 million. In 2006, vide sanction advice dated 31 October 2006, the facility was further enhanced from 250 million to 450 million plus 100 million, total 500 million. This facility was further extended vide sanction advice dated 29 January 2008. After the period of expiry, the said two partners requested for renewal of the facility for a period of three years which request was declined by the plaintiff on account of the poor performance of defendant 1. It was mentioned in the sanction advices, that in case of breach of the terms, the entire amount would be recoverable with mark up. To secure
repayment of the amount, defendant 1 had executed documents (described at para 5 of the plaint). Defendant 1 failed to discharge the liabilities and did not maintain the accounts and failed to pay the installments as agreed upon. As defendant 1 was reluctant to discharge the liabilities, the partners, with the connivance of defendant 5 (later impleaded through amended title) embezzled the pledged stock from the site. The stock report dated 29 December 2008 showed 11724 MT scrape available at the site against outstanding liability of Rs.328.855 million whereas on 31 December 2008, the stock report showed nil. Plaintiff has provided the break up of the liability as under: -
Principal amount………………………………. Rs.242,787,636/ -
Principal amount and Fund Based/FIM…… Rs.86,068,219/ -
Mark -up up to 31 December 2008…………. Rs.36,566,290/ -
Other charge liquidated charges……………. Rs.65,771,170/ -
Total………………………………………….…. Rs.431,693,315/ -
Plaintiff issued legal notices to the defendants to clear the outstanding liability.
Defendants 2, 3 and the predecessor of defendants 4(a) to 4(f) had stood guarantors for the defendant 1. Plaintiff has prayed as under: -
"It is accordingly respectfully prayed that decree in favour of plaintiff -bank and
against the defendants may be passed jointly and severally for a sum of Rs.43,16,93,315/ - along with cost of fund at the prevailing rate as certified by the
State Bank of Pakistan with effect from the date of filing of suit till realization of decretal amount.
Further final decree for attachment and sale of the mortgaged properties, details whereof are given herein below, may kindly be passed: -
(i) Property bearing B -76/408,409, measuring 624.60 sq. yards situated at S.S Chambers,
S.I.T.E Karachi and
(ii) Property bearing House No.179 measuring 1887 sq. yards situated at Essa Home Garden East, Karachi,
Any other/further/additional relief or relief which the Hon'ble Court may deem fit and proper in the circumstances of the case may also be awarded along with cost of suit."
3. On 21 June 2010, defendants 1 (ii) and 3 made application for leave to defend the suit
under section 10(2), the FIO. On 27 August 2009, defendant 1 (i) and (iii) made application
for leave to defend the suit. On 04 March 2010, defendant 2 made application for leave to defend the suit. Similar application was made on 21 June 2010 by the predecessor of defendants 4(a) to 4(f). On 15 April 2011, plaintiff filed replications.
4. On 02 November 2020, unconditional leave to defend the suit was granted to the
defendant 1 (i, ii and iii). On 12 November 2021, unconditional leave to defend the suit was granted to the defendants 4(a) to 4(f). On 26 July 2024, defendant 3 was granted unconditional leave to defend. On plaintiff's application made under Order I rule 10, the Code of Civil Procedure, 1908 ('Code'), defendant 5 ('custodian') was directed to be impleaded vide order dated 05 August 2024. on 11 October 2024, the custodian was impleaded by filing amended memo of the suit. Vide order dated 30 October 2024, respondent 5 was proceeded ex -parte.
5. On pleadings, following issues were framed: -
"(i) Whether cause of action accrued to the plaintiff against the defendants? (O.P.P)
(ii) Whether suit is not maintainable under sections 127 read with 133, the Contract Act 1872? (O.P.D)
(iii) Whether suit is barred by section 9, the Financial Institutions (Recovery of Finances) Ordinance 2001? (O.P.D)
(iv) Whether applications made by the defendants 1 (i and iii), 1(ii) and 3 and predecessor of defendants 4(a) to 4(g) for leave to defend the suit were barred by limitation? (O.P.D)
(v) Whether this court has territorial jurisdiction to try the suit? (O.P.D)
(vi) Whether plaintiff had sanctioned the pleaded finance facilities to the defendant 1? (O.P.P)
(vii) Whether defendants 1, 2, 3 and predecessor of defendants 4(a) to 4(g) had
executed the security documents (described in para 5 of the plaint)? (O.P.P)
(viii) Whether plaintiff had obtained signatures of defendant 1 on the security documents
without disclosing the nature and contents thereof to the defendants and defendants had executed them in good faith? (O.P.D)
(ix) Whether the defendant 1 with the connivance of the custodian namely Asif Associates (Pvt.) Ltd. embezzled 11724 MT pleaded against the liability of Rs.328.855 million? (O.P.P)
(x) Whether defendant 1 had breached the terms of pleaded sanction advices and did not properly maintained their accounts; as such, committed default in payment of the outstanding liabilities? (O.P.P)
(xi) Whether plaintiff is entitled for recovery of Rs.43,16,93,315/ - along with cost of fund
w.e.f the date of institution of suit till realization? (O.P.P)
(xii) What should the decree be?"
FACTS OF SUIT 02/2019:
6. On 29 August 2019, plaintiff instituted suit against the defendants for recovery of
Rs.938,000,000/ - against the defendants. Plaintiff has pleaded that it is a private registered
partnership firm carrying on the business of ship breaking and scrap. Plaintiff has pleaded that it had obtained finance facilities from the defendants of Rs.62 million against securities by way of mortgage and pledge of iron scrap stock vide sanction advice dated 22 March 2002. Later, Rs.62 million was enhanced to Rs.163 million. From 2004 to 2005, it was further enhanced up to Rs.250 million and Rs.100 million, total Rs.350 million. Vide sanction advice dated 31 October 2006, the facility was enhanced from Rs.250 million to Rs.450 million plus Rs.100 million, total Rs.550 million. Said facility was extended vide sanction advice dated 31 March 2008. Defendants had obtained signatures of the partners of plaintiff on the charged documents without explaining contents thereof. Plaintiff repaid huge amounts of more than Rs. one billion to the defendants on account of repayment of loan,
mark up and other charges. The pledged stock in the shape of ship scrap of more than Rs.360
million was in the physical possession of the defendants and their employed custodian. The defendant 2, as per banking practice, would inspect the stock from time to time. On 29 December 2008, last inspection of the stock was carried out by the staff of defendant 2 which was found complete in all respects. All of a sudden, the defendant 2 lodged a false report
vide FIR 01/2009 against the partners of plaintiff's firm to cover their illegal act of
misappropriation of the pledged stock. Plaintiff was held responsible for removal of the said
pledged stock per report dated 31 December 2008. The partners remained behind the bars for more than fifteen months and after trial, they were acquitted from the charge vide judgment dated 08 June 2015. Defendant 1 has instituted Suit No.01/2009 against the plaintiff for recovery. Pledged stock was in the possession of the defendants through their said custodian and staff and, therefore, they are liable to pay the proceeds thereof to the plaintiff. Defendants are liable to pay Rs.938,000,000/ - to the plaintiff, the market value of the
embezzled pledged stock as each ton is of Rs.80,000/ - per prevailing market rate. Plaintiff
prayed as under: -
"In view of above, it is, therefore, prayed that this Honorabe Court be pleased to pass judgment and decree in favour of the plaintiff and against the defendants as under:
a) Judgment and decree for Rs.938,000,000/ - (Rupees Ninety Three Crore Eighty Lac
Only) to be paid by the defendants to the plaintiff with mark up Civil Suit 01 of 2009 etc -8- Only for viewing purpose. Contact office for certified copy. thereon @ 14%
per annum from the date of suit till realization.
b) Cost of the suit, any other relief(s) which this Honorable Court be deem fit and proper.
7. On 10 July 2020, defendant made application under section 10(2), the FIO for leave
to defend the suit along with an application under section 5, the Limitation Act, 1908 ('Act, 1908') for condonation of delay. Vide order dated 10 March 2021, it was observed and held that the application for leave to defend the suit is not barred by limitation; as such, leave to
defend was unconditionally granted. On 24 May 2021, defendants presented written
statement.
On pleadings, following issues were framed: -
"(i) Whether the defendants had obtained from the plaintiff the D.P. Note, Finance
Agreement, Letter of Pledge, Letter of Guarantees, Letter of Continuity,
Memorandum of Deposit of Title Deeds, Mortgage Deed, Letter of Hypothercation etc. without explaining the contents thereof to the plaintiff? (O.P.P)
(ii) Whether the pledged ship scrap was in the possession of defendants and they had deputed Muccadum and security guards for the safe custody thereof? (O.P.P)
(iii) Whether the pledged stock/ship scrap was in the possession of plaintiff and plaintiff with the connivance of Muccadum had secretly sold out the said stock? (O.P.D)
(iv) Whether on 29.12.2008, the pledged stock was available on the ground as per stock report dated 29 December 2008? (O.P.D)
(v) Whether the defendants and their Muccadum namely Asif Associates embezzled the pledged stock and plaintiff is entitled for recovery of the pleaded value thereon, that is Rs.938,000,000/ - with mark -up @ 14% per annum from the date of institution of
the suit till realization? (O.P.P)
(vi) Whether the suit of the plaintiff is beyond the scope of section 9 of the Financial Institutions (Recovery of Finances) Ordinance, 2001? (O.P.D)
(vii) Whether the suit is barred by the law of limitation? (O.P.P)
(viii) Whether cause of action accrued to the plaintiff? (O.P.P)
(ix) What should the decree be?"
8. Vide order dated 11 October 2024, both suits were consolidated and the consolidated
evidence was recorded. Defendants 2, 4(a) to 4(f) and 5 were proceeded ex -parte. Plaintiff
examined Khurram Rasheed, Relationship Manager, NBP Head Office, Karachi as PW 1 who tendered in evidence the documents as Ex.P/1 to Ex.P/20. Recognized agent of plaintiff
appeared on oath and tendered in evidence documents as Ex.P/21 to Ex.P/77. Representative
of the Banking Court appeared and tendered in evidence the stock reports (08 pages) as Ex.P/78 to Ex.P/85. Defendants 1 (i, ii, iii)/plaintiff in Suit No.02/2009 through Awais Shaukat Hussain appeared on oath.
9. After completion of evidence, I have heard parties' learned counsel and have gone
through the record.
10. Issue wise findings on each issue are as under: -
In Suit 01/2009, issues were framed and my findings on each issue and issues are as
follows: -
Issue (i): Whether cause of action accrued to the plaintiff against the defendants? (O.P.P)
11. The defendants 1 (i and iii) in their common application for leave to defend the suit
pleaded that they had never availed any finance facility as alleged by the plaintiff, whereas, in legal objection (F), these defendants have pleaded that the finance agreement dated 01 April 2007 was executed by one partner. In legal objection (H), defendants have pleaded that the charged documents are fake and their fabricated signatures have been shown. In legal objection (J), these defendants have denied the pleaded financial facility. At para 4 on merits,
they have denied availing of the pleaded finance facilities and defended that plaintiff had
obtained their signatures on blank documents (para 4). On the other hand, in their separate Suit No.02/2019, defendants 1 (i, ii and iii) have admitted the fact that they had applied to
the plaintiff (defendant 1 in Suit 02/2019) for availing finance facility and admitted
execution of the charged documents (para 1 and 2 of their plaint). Defendant 1's attorney,
[defendant 1 (i)] in his examination in chief and cross -examination has admitted, availing of
the finance facility from the plaintiff, the date of expiry and, execution of the charged documents. In his examination in chief, the attorney did not state that they have paid the
liability as claimed in the suit or they had paid the installments and other charges to the
plaintiff. Defendants 2, 3 and predecessor of Civil Suit 01 of 2009 etc - 11- Only for viewing
purpose. Contact office for certified copy. defendants 4(a) to 4(f) have been impleaded as
guarantors. Defendants 2, 3 and the predecessor of defendants 4(a) to 4(f) stood guarantors for the defendant 1 vide Ex.P/1, Ex.P/5 and Ex.P/8, respectively. Though, they had denied execution of the Ex.P/1, Ex.P/5 and Ex.P/8, however, after presenting written statements, they did not appear; as such, they were proceeded ex- parte. Thus, cause of action accrued to
the plaintiff against the defendants for, defendants had committed default in fulfillment of the obligations with regard to the pleaded finance facilities under section 9 subsection (1), the FIO. Thus, issue 1 is answered in the affirmative.
Issue (ii): Whether suit is not maintainable under sections 127 read with 133, the Contract Act 1872? (O.P.D)
12. This issue was framed on the pleadings of defendant 1 [(i) and (iii)] and defendants
[1(ii)] and 2. Sections 127 and 133 read as:
'127. Consideration of guarantee: - Anything done, or any promise made for the
benefit of the Principle debtor, may be a sufficient consideration to the surety for giving the guarantee.
S.133. Discharge of surety by variance in terms of contract: - Any variance, made
without the surety's consent in the terms of the contract between the principle "debtor", and the creditor, discharges the surety as to transactions subsequent to the variance."
Vide guarantee deed dated 28 May 2008 (Ex.P/1), the defendant 2 stood guarantor to
the plaintiff for repayment within two days from demand of all sum due and payable to the plaintiff. He had signed the guarantee which was attested by two witnesses. He had also executed memorandum of deposit of title deeds dated 29 May 2008 (Ex.P/2). Defendant 3 executed guarantee deed dated 29 May 2008 (Ex.P/5) and also executed memorandum of
deposit of title deeds dated 29 May 2008 (Ex.P/7). The predecessor of defendants 4(a) to 4(f)
executed guarantee deed dated 09 June 2008 (Ex.P/8) and also executed memorandum of deposit of title deeds dated 09 June 2008 (Ex.P/3). Though, the guarantors have denied the
execution of these exhibits, however, after presenting written statements, they failed to
appear and contest the suit; as such, they were proceeded ex- parte. Section 127, the Act 1872
relates to consideration of guarantee. The guarantors executed the guarantee for the benefit of the principle debtor/ defendant 1 and also executed memorandums for deposit of title deeds for the benefit of the defendant 1 which was a sufficient consideration to the
guarantors for giving the guarantees. These guarantors failed to plead and prove any variance
in the terms of the contract executed between the plaintiff and the defendant 1 in view of
section 133, the Act, 1872. The burden of proof of this issue was on the defendants 2, 3 and defendants 4(a) to 4(f), which they failed to discharge. Thus, issue (ii) is answered in the negative.
Issue (iii): Whether suit is barred by section 9, the Financial Institutions (Recovery of Finances) Ordinance 2001? (O.P.D)
13. The burden of proof of this issue was on the defendants, however, they could not
show any infirmity in the suit in view of the section 9, the FIO. Section 9, the FIO relates to procedure of Banking Courts. Plaint was signed and verified on oath by the duly employed attorney of the plaintiff at the date of its institution. Plaint states the amount of finance availed by the defendant 1, the amount of finance and other amounts payable by the
defendant 1 to the plaintiff and statement of account. Thus, the objection raised by the
defendants has no legal substance and, therefore, issue (iii) is decided in the negative.
Issue (iv): Whether application made by the defendant 1 (i and iii), 1(ii) and 3 and predecessor of defendants 4(A) to 4(G) for leave to defend the suit were barred by limitation? (O.P.D)
14. This Court vide order dated 14 May 2010 had observed that service on defendants has
not been effected per mandatory mode as described in section 9 subsection (5), the FIO. Thus, mode of service prescribed by said provision was directed to be effected at the cost of plaintiff. However, service through publication in Daily Jang, Karachi could not be effected as publication was disallowed by the Press Information Department, Government of Sindh on the ground that the said publication is not an approved newspaper and restrictions have been placed by the Government of Pakistan on the said newspapers (case diary dated 02 July 2010). Section 10(2), the FIO prescribes thirty days time for making an application for leave to defend of the date of first service by any one of the modes laid down in subsection (5) of section 9. On 24 July 2019, defendants 1(ii) and 3 filed written statement/ application for leave to defend. On 02 July 2010, defendants 1(ii) and 4 filed application for leave to defend. Same application was made by the predecessor of defendants 4(a) to 4(f) on 27 August 2009. Thus, from the date of service of summons, defendants had made applications for leave to defend the suit within thirty days. However, record is silent with regard to service of notice through publication in daily Jang, Karachi. Hence, applications for leave to defend the suit were not barred by limitation. Reliance is placed on the case reported as Messrs Sittara Rice Trading v. United Bank Limited (2011 CLD 254). For these reasons, issue (iv) is answered in the negative.
Issue (v): Whether this court has territorial jurisdiction to try the suit? (O.P.D)
15. The burden to prove this issue was on the defendants, however, they could not
substantiate. The finance facility was sanctioned by the Manager, National Bank of Pakistan, Hub Chowki, Branch. All correspondences were effected between the plaintiff/financial institution and the defendant 1/customer, and the charged documents were executed, within the local limits of the territorial jurisdiction of this Court. Plaintiff has pleaded that defendant 1 has failed to fulfill its obligations per finance agreement which were executed, and the cause of action wholly accrued, within the territorial jurisdiction of this Court. Defendant itself has instituted the consolidated suit for recovery of damages against the plaintiff before this Court and, therefore, has admitted that this Court has territorial jurisdiction to try the suit. Hence, issue (v) is decided in the affirmative.
ISSUES VI, VII AND VIII OF SUIT 01/2009:
(vi) Whether plaintiff had sanctioned the pleaded finance facilities to the defendant 1? (O.P.P)
(vii) Whether defendants 1, 2, 3 and predecessor of defendants 4(a) to 4(f) had
executed the securities documents (described in para 5 of the plaint)? (O.P.P)
(viii) Whether plaintiff had obtained signatures of defendant No.1 on the security
documents without disclosing the nature and contents thereof to the defendants and defendants had executed them in good faith? (O.P.D)
ISSUES I, II, III AND IV OF SUIT 02/2019:
"(i) Whether the defendants had obtained from the plaintiff the D.P. Note, Finance Agreement, Letter of Pledge, Letter of Guarantees, Letter of Continuity, Memorandum of Deposit of Zite Deeds, Mortgage Deed, Letter of Hypothercation etc. without explaining the contents thereof to the plaintiff? (O.P.P)
(ii) Whether the pledged ship scrap was in the possession of defendants and they had deputed Muccadum and security guards for the safe custody thereof? (O.P.P)
(i) Whether the pledged stock/ship scrap was in the possession of plaintiff and plaintiff with the connivance of Muccadum had secretly sold out the said stock? (O.P.D)
(iv) Whether on 29.12.2008, the pledged stock was available on the ground as per stock report dated 29 December 2008? (O.P.D)
The afore reproduced issues in both the suits are same and being inter -related are
decided together.
16. The burden of proof of issues (vi and vii) of Suit 01/2009 were placed on the plaintiff
and that of the issue (viii) on the defendants. Plaintiff has pleaded that defendant 1 (i and ii) had applied for Non Fund/Import LC and Fund Based FIM (180 days) for an amount of Rs.62 million which was sanctioned vide sanction advice dated 22 March 2002. Vide second sanction advice dated 07 September 2002, the availed facility was enhanced from Rs.62 million to 163 million which was further enhanced from 2004 to 2005 at Rs.250 million and Rs.100 million, total 350 million. In 2006, vide sanction advice dated 31 October 2006, the said facility was further enhanced from Rs.250 million to 450 million plus Rs.100 million, total 550 million. The expiry period was 31 March 2008. To secure repayment of the availed finance facility, defendants had mortgaged immovable properties, executed charged documents and pledged the stock in the shape of ship scrap, however, defendants failed to maintain the accounts, paid the liability and mark up rather embezzled the pledged stock with
the connivance of the custodian, defendant 5.
In the written statement, the defendant 1 has denied availing of the pleaded finance
facility and execution of the charged documents and has pleaded these documents as fake.
However, the defendant 1 in its Suit 02/2019 admitted that it had availed the finance facility and executed the charged documents. Thus, defendant 1's written statement and plaint on the issue of availing finance facilities and execution of the charged documents are inconsistent. Defendant 1 has not explained the inconsistent pleadings on same material proposition of facts. Plaintiff brought on record the charged documents through its representative, representative of the Banking Court, Quetta and in the examination in chief of its attorney. Defendant 1's attorney in his cross -examination did not deny the pleaded finance facilities
and availing of the pleaded finance facility and execution of the charged documents through partners and the guarantees and the memorandums of deposit of title deeds by the defendants 2, 3 and the predecessor of the defendants 4(a) to 4(f). Thus, on admission of the defendant 1 in its own plaint and in the light of plaintiff's evidence, plaintiff has proved the pleaded
outstanding liability and execution of the charged documents. Defendant 1's attorney in his
examination in chief and cross -examination admitted the material facts. Relevant in his
cross -examination is reproduced hereunder: -
'1. It is correct that the firm had applied for finance liability of Rs.62 million in 2001.
2. It is correct that the firm had applied to the plaintiff bank for enhancement of
sanctioned advice from 62 million to 163 million in 2002.
3. It is correct that the firm had to pay the availed facility within 180 days.
4. It is correct that in 2004 -2005, the firm had applied for enhancement of the facility to
the extent of 250 million and 100 million, total 350 million.
5. It is correct that in 2006, through advice sanction dated 31 October 2006, the said
facility was enhanced from 250 million to 450 million plus 100 million, total; 550 million.
7. It is correct that firm had made an application to the plaintiff bank for renewal of the expiry date for a period of further three years which was 31 March 2008.
10. it is correct that violation of terms of sanction advice makes liable the borrower for payment of the amount.
11. It is correct that we had executed the charged documents.
13. It is correct that plaintiff bank had issued notice to the firm for payment of the mortgaged money; voluntarily stated we had discharged the liability.
The afore reproduced admissions have proved that defendant 1 had availed the
pleaded finance facilities which were enhanced up to 550 million. Execution of the charged documents have also not been denied. Defendant 1 in its plaint has pleaded that the plaintiff had not disclosed the nature and contents of documents, however, they had signed in good
faith. In his examination in chief, defendant 1's attorney has not stated as such. Defendant 1
(ii) though, has claimed that he had not availed any finance facility and he was a sleeping
partner, however, the attorney admitted the finance facility. The defendant 1's attorney has
admitted that partners of the firm had availed the facility. Hence, defendant 1 (ii) pleading is baseless. Each partner would share the profits of the firm and likewise, would be liable to share the liability. Defendant 1(ii) has pleaded that he was sleeping partner; as such, admitted
his legal character as partner of Bismillah Maritime Breakers. Thus, he cannot escape from
his liability as partner. He is 45% shareholder in the firm and for this reason, is liable to the
plaintiff bank. The defendants 2 and 3 have, though, pleaded that they had executed blank documents and pleaded fraud but they did not appear on oath nor proved this fact. The burden of proof that they had signed the blank documents was on such defendants under Article 118, the Qanun- e-Shahadat Order, 1984. The illustration (b) to Article 118 is relevant
which reads: -
'(b) A sues B for money due on a bond. The execution of the bond is admitted, but B says that it was obtained by fraud, which a denied.
If no evidence was given on either side, A would succeed as the bond is not disputed and the fraud is not proved.
Therefore, the burden of proof is on B.'
The defendants 2 and 3 and the defendants 4(a) to 4(f) did not appear on oath in
support of their pleaded fraud, thus failed to prove that they had executed blank documents. Reliance is placed on the case reported as Khurshid Anwar v. United Bank Limited (2002 CLD 1252). Relevant reads as under: -
"9. Finally, learned counsel for the appellant argued that the personal guarantee (Exh.P.5), which the appellant had executed, had been obtained by the respondent -
Bank in blank. He, therefore, argued the same could not be enforced against the appellant. We are afraid this contention is without force. The appellant has not denied his signatures on the guarantee (Exh.P.5). He being a director was fully aware of the terms stipulated by the respondent -Bank of the finance availed by Zeenat Textile
Mills Ltd. The personal guarantees of the directors was one of such terms. In fact the appellant himself wrote a letter (Exh. D.1) to the Bank. dated 13- 3-1979. Although
this letter was written on behalf of Zeenat Textile Mills Ltd. It was signed by the appellant and expressly stated therein that the personal guarantees of the active directors, which included the appellant, should be treated as sufficient compliance of the requirement of the Bank for personal guarantees of the directors. In view of the
expressed wording of the letter (Exh.D.1) the appellant cannot be allowed to resile
from the personal guarantee."
For these reasons, issues (vi) and (vii) are answered in affirmative and the issue (viii)
in the negative (Suit 01/2009). Therefore, issues (i), (iii) and (iv) are decided in the
affirmative, whereas, issue (ii) is answered in the negative (Suit 02/2019).
Issue (ix): Whether the defendant 1 with the connivance of the custodian namely
Asif Associates (Pvt.) Ltd embezzled 11724 MT pleaded against the liability of Rs.328.855 million? (O.P.P)
17. Plaintiff has pleaded that the defendant 1 with the connivance of the defendant 5 had
removed the pledged stock from the site whereas, in its suit, defendant 1 has attributed this act to the plaintiff. Admittedly, vide stock report dated 29 December 2008 (Ex.P/80), 11724 MT scrap was available at the site and under the control of the custodian, defendant 5. The stock report dated 31 October 2008 shows nil (Ex.P/81). Both parties are blaming each other for loss of the pledged stock. The additional condition 6 of the sanction advice dated 04 November 2006 (Ex.P/12) is relevant which reads as: -
'6. The stock/assets offered as security shall be inspected periodically at Bank's discretion at your cost. Stock report will be submitted monthly.'
The letter of pledge executed by the defendant 1 on 01 April 2007 (Ex.P/26) is a relevant document. The relevant conditions read as: -
4. 'I/We shall hold you, your nominees and agents, harmless and indemnified against all loss or injury, damage or deterioration that may be caused to the pledged goods as a consequence or result…'
Per condition 6, defendant 1 had undertaken for insurance of the pledged stock. Per
condition 9, defendant 1 had confirmed that pledged goods are its absolute property and are at its sole disposal.
The afore reproduced conditions reveal that pledged stock was in the exclusive
physical possession of the defendant 1 and the plaintiff had no direct and or physical control
of the pledged stock. Pledged stock was at the sole disposal of the defendant 1, therefore, it
was the contractual obligation of the defendant 1 to indemnify the plaintiff against any loss et cetera that might be caused to the pledged stock. The stock report dated 29 December 2008 (Ex.P/80) reveals the availability of the pledged stock at the site, however, the stock report prepared on 31 December 2008 (Ex.P/81), (prepared just after two days), reveals availability of pledged stock at site as nil. The attorney of defendant 1 while responding question 18 stated that, 'the pledged stocks were dumped on our plots.' Answering question 25, the attorney admitted his signature on the stock report dated 29 December 2008. When the stock was removed between the 29 December and 31 December, and thereafter, the defendant 1 did not, intimate the bank nor, initiate any action nor informed the plaintiff regarding loss thereof. The plaintiff lodged FIR and instituted suit against the defendant 1 that this defendant with the connivance of defendant 5 has embezzled the stock. On the other hand, the defendant 1 on 29 August 2019 instituted Suit 02/2019, attributing loss of the pledged stock to the plaintiff which shows mala fide intention of the partners.
Thus, issue (ix) is decided in the affirmative.
Issue (x): Whether defendant 1 had breached the terms of pleaded sanction advices and did not properly maintained its accounts; as such, committed default in payment of the outstanding liabilities? (O.P.P)
Issue (xi): Whether plaintiff is entitled for recovery of Rs.43,16,93,315/ - along
with cost of fund w.e.f the date of institution of suit till realization? (O.P.P)
Both the issues being interconnected are decided together.
18. Plaintiff's claimed and pleaded finance facilities have been admitted by the defendant
1 in their separate suit. Plaintiff produced the charged documents and the stock reports which have not been denied. Plaintiff has established that defendant 1 as principle debtor and the defendants 2, 3, the predecessor of the defendants 4(a) to 4(f) and the defendant 5 had breached the terms of the sanction advices, guarantees and the finance agreement. Defendant 1 did not produce any single document showing that the fi rm was properly maintaining the
accounts and had indemnified the bank/plaintiff from loss caused due to loss of the pledged
stock. Defendant 1 could not establish that it had paid even a single penny to the plaintiff,
thus, plaintiff established that defendant 1 is liable for payment of the claimed amount.
Defendants 2, 3 and the predecessor of defendants 4(a) to 4(f) stood guarantors; therefore,
under section 128, the Act, 1872, their liability is co- extensive with that of the principle
debtor, that is, defendant 1. Reliance is placed on the case reported as State Engineering Corpn. Ltd. v. National Development Finance Corpn. (2006 SCMR 619). Relevant therein reads as: -
"6. It is also pertinent to mention here that section 139 is not attracted in the present case whereas section 128 is applicable in the given circumstances. The liability of the guarantor/surety is co- extensive with that of the principal debtor, unless it is
otherwise provided by the contract as envisaged in section 128 of' the Contract Act, 1872, unless it B is otherwise provided by the Contract. They are jointly and severally liable to pay the outstanding amount to the creditor…"
For the aforesaid reasons, issues (x and xi) are decided in the affirmative.
Remaining issues of Suit 02/2019:
Issues (i), (ii), (iii) and (iv) have decided along with the issues vi, vii and viii of Suit
01/2009 in favour of the defendant 1 of Suit 02/2019. Issues (v), (vi), (vii), (viii) and (ix) are decided as under: -
Issue (v): Whether the defendants and their Muccadum namely Asif Associates
embezzled the pledged stock and plaintiff is entitled for recovery of the pleaded value thereon, that is Rs.938,000,000/ - with mark -up @ 14%
per annum from the date of institution of the suit till realization? (O.P.P)
Issue (vi): Whether the suit of the plaintiff is beyond the scope of section 9 of the Financial Institutions (Recovery of Finances) Ordinance, 2001? (O.P.P)
19. The burden of proof of this issue was on the plaintiff which it has failed to discharge.
While deciding issue (ix) in Suit 01/2009, it has been held that the pledged stock was in the exclusive physical control of the plaintiff; therefore, defendants could not be held liable for the loss of said stock. Plaintiff could not prove that the pledged stock was embezzled by the defendants with the connivance of the custodian. Though, plaintiff has alleged and pleaded connivance of the custodian, Asif Associates (Pvt.) Ltd, however, the custodian has not been impleaded as party in the suit. Suit on account of non -joinder of the custodian is defective in
form and substance. Plaintiff has not produced a single piece of evidence that the pledged stock was embezzled by the defendant 1. Plaintiff had indemnified the defendants in relation to the loss of the pledged stock vide letter of pledge (Ex.P/26). In fact it was hypothecation as the stock pledged remained in the possession of the defendant 1. The plaintiff was not responsible for the loss of the hypothecated stock and it had taken the amount of care of it as described in section 151, the Act, 1972 per section 152 of the same Act. Defendant 1 has not pleaded any contract to the contrary. Plaintiff has employed the defendant 5 as custodian and per report dated 29 December 2008 (Ex.P/80), the stock was available at the site. Reliance is placed on the case reported as Trading Corpn. of Pakistan (Pvt) Ltd. v. Murshad Enterprises (PLD 2004 Karachi 407). Relevant reads as under: -
"From a bare perusal of above provisions, it is apparent that, the moment goods are delivered to the bailee, he assumes duty to take as much care of the goods bailed to him, as a man of ordinary prudence would have taken of his own goods. Unless, it is provided otherwise, by way of any special contract, a bailee cannot be held responsible for the loss, destruction or deterioration of the goods bailed. If the bailee is able to demonstrate that, he had taken as much care of the goods bailed to him as a man of ordinary prudence would have taken. Then even if the loss, destruction or deterioration has taken place, he gets statutory exoneration from any such liability by virtue of section 152 of the Contract Act."
In fact, plaintiff has claimed recovery of Rs.938,000,000/ - on account of special
damages, however, plaintiff has neither pleaded each and every ingredient of the damage it has suffered on account of loss of the pledged stock nor substantiated any special damages.
Where a plaintiff claims special damages, he must plead the particulars of damages he has
suffered. In his statement on oath, plaintiff's attorney merely stated that the firm had lost its two plots and is entitled to the claimed damages. Plaintiff even did not plead the description of said plots in the plaint, quantity of the available stock and its value. Mere acquittal in a criminal case does not absolve a defaulter from civil liability. Thus, plaintiff has failed to
prove the claimed damages. Thus, both issues are decided against the plaintiff, that is issue
(v) in negative and issue (vi) in affirmative.
Issue (vii): Whether the suit is barred by the law of limitation? (O.P.P)
20. Plaintiff has claimed damages against the defendants. Plaintiff should have instituted
the suit within three years when cause of action accrued to the plaintiff under Article 115,
Schedule- I, the Act 1908. Plaintiff has claimed that the pledged stock was embezzled by the
defendant 1 with the connivance of the custodian so principally he has claimed damages for breach of contract of pledge, as such, suit was governed by Article 115. Reliance is placed on the case reported as S.L. Ramaswamy v. M.S.A.P.L. Palaniappa (AIR 1930 Madras 364). Cause of action accrued in 2009, when the defendants had lodged FIR 01/2009 against the partners of the plaintiff with the FIA under sections 403, 406, 409, 420, 468, 471 and 109, the Pakistan Penal Code, 1860. Cause of action again accrued to the plaintiff when it
received notice of Suit 01/2009 in which it had been alleged that, 'the plaintiff with the
connivance of the custodian has misappropriated the pledged stock.' Plaintiff has not pleaded any ground of exemption from the law of limitation per Order VII, Rule 6, the Code in the
plaint. Section 24(1), the FIO reads as: -
'(1) Save as otherwise provided in the Ordinance, the provisions of the Limitation
Act, 1908 (Act IX of 1908) shall apply to all cases instituted or filed in a Banking
Court after coming into force of this Ordinance.'
Plaintiff could not plead any sufficient cause for condonation of delay of long six
years caused in institution of this suit under order VII rule 6, the Code and section 24 subsection (2), the FIO.
For these reasons, issue (vii) is decided in the affirmative.
Issue (viii): Whether cause of action accrued to the plaintiff? (O.P.P)
Issue (ix): What should the decree be?
21. As hereinabove held and as held in the Suit 01/2009, defendants had not embezzled
the pledged stock, therefore, no cause of action accrued to the plaintiff.
For the aforesaid reasons, plaintiff's suit is dismissed with costs.
Issue (xii) of Suit 01/2009:
What should the decree be in Suit 01/2009?
The defendants are liable to pay the claimed cost of funds to the plaintiff under
section 3(2) of the FIO and being an actionable claim, plaintiff is entitled to claim it under section 9, the F.I.O. Section 3 reads: -
'3. Duty of a customer. (1) It shall be the duty of a customer to fulfill his obligation to the financial institution.
(2) Where the customer defaults in the discharge of his obligation, he shall be liable to pay, for the period from the date of his default till realization of the cost of funds of the financial institution as certified by the State Bank of Pakistan from time to time, apart from such other civil and criminal liabilities that he may incur under the contract or rules or any other law for the time being in force.
(3) For purposes of this section, a judgment against a customer under this Ordinance shall mean that he is in default of his duty under subsection (1), and the ensuing decree shall provide for payment of the cost of funds as determined under subsection (2).
22. Undeniably, defendant 1 had defaulted in discharge of the principal amount. Such
default, not only incurs the cost of funds under section 3(2), the F.I.O, rather is actionable
under section 9. The finance agreement had expired on 31 March 2008, which is the date of default. Plaintiff is entitled for cost of funds from pleaded date of default i.e. 31 March 2008 (though plaintiff has claimed from the date of institution of the suit).
As already observed, defendants have breached the terms of sanctioned advices,
finance agreement and guarantees.
Consequently, the plaintiff is entitled to have a decree in its favour. The plaintiff's suit
is decreed in the sum of Rs.431,693,315/ - against the defendants (jointly and severally) along
with cost of funds w.e.f. 31 March 2008 at the rate as certified by the State Bank of Pakistan. Final decree for sale of mortgaged properties mentioned at paragraph 4 of the plaint is also passed for recovery of the decretal amount including costs of the suit.
Suit stands decreed. Office to draw decree sheet.
The suit stands converted into execution proceeding. Case will be heard for execution
on the expiry of thirty days from the date of pronouncement of this judgment and decree.
Decree sheets be drawn in both the suits.
MH/73/Bal. Suit decreed.This judgment is reproduced from a publicly available source for informational purposes and does not constitute legal advice. If you believe this listing contains an error,
let us know.