2009 C L D 361

[Lahore]

Before Syed Hamid Ali Shah, J

Messrs PETROSIN and 2 others---Plaintiffs

Versus

Messrs FAYSAL BANK---Defendant

C.O.S. No.47 of 1999, decided on 3rd September, 2008.

(a) Financial Institutions (Recovery of Finances) Ordinance (XLVI of 2001)---

----S.9 Civil Procedure Code (V of 1908), O.XVIII, R.3---Suit for damages against
Bank---Adjustment of loan amount by Bank from under lien foreign currency account of
plaintiff----Denial of plaintiff to have committed default in repayment of loan amount,
thus,, alleged such adjustment by Bank to be in breach of finance agreement---Plaintiff;
after closing his affirmative evidence reserved his right to adduce evidence in rebuttal---
Bank produced documentary evidence to prove plaintiffs failure to repay loan amount---
Non-production of evidence in rebuttal by plaintiff to disprove such documentary
evidence of Bank---Effect---Documentary evidence of Bank for remaining unrebutted,
successfully established plaintiff's default in payment of loan amount---Suit was
dismissed in circumstances.

(b) Financial Institutions (Recovery of Finances) Ordinance (XLVI of 2001)---

----S.9---Civil Procedure Code (V of 1908), S.11 & O.II, R.2---Constitution of Pakistan

(1973), Art.199---Suit for damages against Bank---Default in payment of loan amount by
plaintiff---Demand of Bank to adjust loan amount from under lien foreign currency
account of plaintiff being collateral security---Order of High Court passed in
constitutional petition filed by plaintiff restraining Bank from such adjustment---Suit by
plaintiff after such adjustment by Bank---Plea of Bank that suit was barred by res judicata
and O.II, R.2, C.P.C.---Validity---Plaintiff had challenged vires of BPRD Circular in
constitutional petition---Claim of damages would not fall within purview of writ
jurisdiction---Question of encashment of collateral security and its adjustment against
loan amount were factual controversies---Adjustment from collateral security was
permissible according to loan agreement, when there was default---Adjustment from
collateral security was permissible according to loan agreement, when there was
default---Regular trial would be required to determine question as to whether plaintiff had
committed default in repayment of loan amount---Such questions could not be
ascertained in writ jurisdiction---Suit was not barred by S.11 & O.II, R.2, C.P.C.

Shaukat Ali Mian and another v. The Federation of Pakistan 1999 CLC 607; Sar Anjam v.
Abdul Raziq 1999 SCMR 2167; Muhammad Arif v. Mahmood Ali and 4 others 2003
MLD 954; Aki Habara Electric Corporation (PTE) Limited through Authorized Signatory
v. Hyper Magnetic Industries (Private) Limited through Chief
Executive/Director/Secretary PLD 2003 Kar. 420; Abdul Haque and others v. Shaukat Ali
and 2 others 2003 SCMR 74; Province of Punjab through Chief Secretary and 5 others v.
Malik Ibrahim and sons and another 2000 SCMR 1172; Nasimuddin Siddiqui v. United
Bank Limited 1998 CLC 1817; National Bank of Pakistan v. Khalid Mahmood 2003
CLD 658; United Bank Limited v. Shahid Corporation 1991 CLC 1743 and Messrs PEL
Appliances Limited v. United Bank Limited 2005 CLD 1352 ref.

(c) Financial Institutions (Recovery of Finances) Ordinance (XLVI of 2001)---

---S.9---Suit for damages against Bank---Adjustment of loan amount by Bank from

collateral security of plaintiff---Validity---Adjustment from collateral security was
permissible according to loan agreement, when there was default in payment of loan
amount by customer.

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(d) Words and phrase---

---Word "by" as used in contracts and statutes---Connotation.

Muthua Chettiar v. Naraynan AIR 1928 Mad. 528; Goldman v. Broyles (Tax Cr.App, 141
SW 283); Rankin v. Woodworth (Pa, 3 Pen and W 48); Miller v. Philips (31 Pa (7 Casey)
218 and Conley v. Anderson (NY, 1 Hill 519) ref.

(e) Banking Companies Ordinance (LVII of 1962)---

----Ss.3-A, 25 & 41---Circulars issued by State Bank---Binding effect stated.

The circulars issued by the State Bank of Pakistan are in the nature of
instructions/directions to the Financial Institutions. The Commercial Banks, whether
private or government owned, are bound by those instructions. The directions are as
consequence of promulgation of statute or an Act of Parliament. Banking company
cannot deviate from these instructions or circulars. Banking Company is under obligation
to follow these instructions within the contemplation of sections 3-A, 25 and 41 of
Banking Companies Ordinance, 1962.

Wajid Saeed Khan v. Abdul Qadoos 1 than Swati and others 2007 CLD 1239; Messrs
Dadabhoy Cement Industries Limited and others v. Messrs National Development
Finance Corporation 2002 CLC 166 and United Bank Karachi v. Messrs Gravure
Packaging (Pvt.) Ltd. and 4 others 2001 YLR 1549 ref.

(f) Tort---

----Claim for damages for breach of contract---Proof---Duty of plaintiff to establish

damages suffered on each count by producing evidence that loss calculated as claimed
was result of breach of contract.

Sadaruddin v. Messrs Mitchell's Fruit Farms Ltd., Karachi PLD 1979 Kar. 694; Tariq
Cooking Oil v. United Bank Limited and other 2001 MLD 1181; City Bank v. Tariq
Mohsin Siddiqi and others PLD 1999 Kar.196 and Jamshed Karimuddin Musalman v.
Kunjilal Harsukh Kalar and another AIR 1938 Nag. 530 ref.

(g) Financial Institutions (Recovery of Finances) Ordinance (XLVI of 2001)---

----S.9---Suit for recovery of damages from Bank for having adjusted loan amount from
collateral security of plaintiff in breach of loan agreement---Vague assertion in plaint that
plaintiffs wanted to invest such money in business without disclosing its nature---Plaint
not showing as to which of the three plaintiffs and to what extent each plaintiff had
suffered loss---Evidence to prove such facts not produced by plaintiff----Suit was
dismissed in circumstances.

Sadaruddin v. Messrs Mitchell's Fruit Farms Ltd., Karachi PLD 1979 Kar. 694; Tariq
Cooking Oil v. United Bank Limited and other 2001 MLD 1181; City Bank v. Tariq
Mohsin Siddiqi and others PLD 1999 Kar. 196 and Jamshed Karimuddin Musalman v.
Kunjilal Harsukh Kalar and another AIR 1938 Nag. 530 ref.

(h) Financial Institutions (Recovery of Finances) Ordinance (XLVI of 2001)---

----Ss.5 & 7---Suit for damages against Bank for breach of Moharaba Finance
Agreement---Jurisdiction of Banking Court---Scope---Primary responsibility of banker as
trustee of account-holder would be to safeguard interest of its customer and save him
from any loss---Failure of banker to perform such obligations would give a valid cause to
its customer to bring his grievance before Banking Court---Defendant-Bank was under
legal and contractual obligation to fulfil agreements of finance---Determination of
question arising out of such agreements was covered under S.9 of Financial Institutions
(Recovery of Finances) Ordinance, 2001---Banking Court had jurisdiction to try such
suit.

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Habib Bank Limited v. Raj Begum 1990 MLD 804; Abdul Rahim v. United Bank Limited
PLD 1977 Kar. 62 and International Finance Corporation v. Halla Spinning Limited PLD
2000 Lah. 323 ref.

Hassan Aurangzeb for Plaintiffs.

Syed Ali Zafar for Defendant.

Date of Hearing: 27th August, 2008.

JUDGMENT

SYED HAMID ALI SHAH, J.---Plaintiff No.1, as Singapore based company, having its
place of business at Attaturk Avenue Islamabad. Plaintiff No.1 deposited US $6,118,000
in its foreign currency account, maintained with defendant bank, in the M.M. Alam Road
Branch. Plaintiffs Nos. 2 and 3, availed from the defendant, finance facilities under
Moharaba Financing agreement amounting to Rs.137 million and Rs.2530 million
respectively. Plaintiffs Nos. 2 and 3, defaulted in repayment of outstanding amounts
withdrawn from Moharaba Finance from time to time. Plaintiffs have, however, denied
such default. The encumbrances on foreign currency, as per State bank's BPRD Circular
No.23 dated 2-7-1998, were to be removed by July 31, 1998. The defendant in pursuance
of BPRD Circular No.23 (Exh.D.W.1/25) addressed communication vide letters dated 3-
7-1998 (Exh.P.W.1/6), 18-7-1998 (Exh.P.W.1/9) and 18-7-1998 (Exh.D.W.1/26) and
DW.1/27 for the liquidation of outstanding liabilities. Plaintiff Nos. 2 and 3 responded to
the above communication and their Legal Advisor served notices dated 17-7-1998 and
24-7-1998, wherein the defendant was advised to ignore BPRD Circular No.23 and not to
convert US dollar account into Pak rupees. The plaintiffs thereafter challenged the BPRD
Circular No.23, in Writ Petition No.15240 of 1998. An injunctive order was issued on 29-
7-1998 by a Division Bench of this Court in Intra-court Appeal. The defendant was
abstained from adjusting loan amount, from foreign currency account. Plaintiffs No.1 US
dollar account stood already converted into Pak Rupees at a rate of Rs.46 to one US
dollar, on 27-7-1998 and outstanding amounts were adjusted. The plaintiffs, deeming the
conversion, illegal act on the part of the defendant, filed instant suit. It is asserted in the
plaint that BPRD circular No.23 has been declared by a full Bench of this Court, as null
and void; that foreign currency was converted in an undue haste; that the conversion rate
was applied ignoring F.E. Circular No.8 and that the plaintiffs have suffered damages at
the hands of the defendant. A prayer for declaration to the effect that impugned
conversion of US dollars was unwarranted and was illegally made. Besides, the claim of
damages to the tune of Rs.1,00,00,000 with mark up, was also made against the
defendant.

2. The defendant contested the suit and filed petition for leave to defend the suit. The
leave was granted vide order dated 24-11-1999. The defendant thereafter filed written
statement, wherein the assertions of the plaint were controverted and various preliminary
objections were raised. Out of the divergent pleadings of the parties, this Court framed
following issues on 15-12-1999:--

(1) Whether the defendant bank was not liable and obliged to wait until the arrival of the
deadline before it could convert the under lien foreign currency account of plaintiff No.1
at the exchange rate of Rs.46 per US$?

(2) Whether the defendant bank could ignore and disregard the notice/instructions issued
by the plaintiffs?

(3) Whether the defendant bank has committed breach of contract and liable to pay
damages?

(4) Whether the Court has jurisdiction to try the suit?

(5) Whether the suit is not competent?

(6) Whether the plaintiffs have any cause of action against the defendant?

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(7) Relief.

3. The evidence of the parties was recorded through Local Commission. The plaintiffs as
well as the defendant restricted their oral testimony to the extent on one witness each and
produced various documents.

4. Learned counsel for the plaintiffs has contended that the relationship inter se the
plaintiffs and the defendant is of banker and customer, such relationship is fiduciary and
the defendant bank is under legal and contractual obligation to safeguard the interest of
its customer. Learned counsel supported the contention by making reference to the cases
of "Habib Bank Limited v. Raj Begum" 1990 MLD - 804, "Abdul Rahim v. United Bank
Limited" PLD 1977 Karachi 62 and "International Finance Corporation v. Halla Spinning
Limited" PLD 2000 Lah. 323. The foreign currency account under lien of the plaintiff,
was subject to encashment under SRO No.23, on 31-7-1998. The defendant bank was
obliged to wait until the arrival of deadline before encashment of collateral security. The
defendant has ignored the plaintiffs' instructions conveyed through various letters
including letter dated 24-7-1998 (Exh.PW.1/10). The defendant acted illegally and
hurriedly, while in the meantime deadline was extended and BPRD Circular No.23 was
ultimately struck down, by the full bench of this Court in the case of "Shaukat Ali Mian
and another v. The Federation of Pakistan" 1999 CLC 607. The decision was
subsequently affirmed and upheld by the Honourable Supreme Court of Pakistan.
Learned counsel has contended that according to the language used in Circular No.23
(Exh.D.W.1/25) the encumbrance was to be removed by 31-12-1998. Learned counsel
referred to the case of "Muthua Chettiar v. Naraynan" AIR 1928 Mad. 528 to contend that
the expression "by" indicates the utmost limit of time, being the end or expiry of date or
period indicated. Learned counsel went on to argue that the plaintiffs were deprived of
the option to get converted US dollar at their own, at the prevalent market rate. It was
contended that neither in the petition for leave to defend the suit, nor in the written
statement, it was pleaded that plaintiffs Nos. 2 and 3 have committed default. Any
evidence led in this regard, in departure from pleadings, cannot be read or considered,
learned counsel in support of this contention has placed reliance on various cases
including 'Sar Anjam v. Abdul Raziq" 1999 SCMR 2167, "Muhammad Arif v. Mahmood
Ali and 4 others" 2003 MLD 954, "Aki Habara Electric Corporation (PTE) Limited
through Authorized Signatory v. Hyper Magnetic Industries (Private) Limited through
Chief Executive/Director/ Secretary" PLD 2003 Kar. 420, "Abdul Haque and others v.
Shaukat Ali and 2 others" 2003 SCMR 74 and "Province of Punjab through Chief
Secretary and 5 others v. Malik Ibrahim and sons and another" 2000 SCMR 1172.
Learned counsel referred to the statement of P.W. recorded on 30-1-2002, wherein he
admitted that US dollar rate kept fluctuating during relevant period. It had gone upto
Rs.70 and touched Rs.80. The plaintiffs suffered loss due to encashment of foreign
currency US$ at a rate lower than the market prevalent rate, in the open market. The
witness estimated the loss approximately in this regard and the loss was worked out on
the basis of investment of the amount in various venture. The expected loss of the
plaintiffs was to the tune of ten (10) million. Learned counsel has submitted that Banking
Court constituted under the Act, 1997 (now repealed) had the jurisdiction to entertain and
adjudicate upon the suit of the plaintiff and the same was rightly filed in this Court.
Learned counsel in support of this contention has referred to the cases of "Nasimuddin
Siddiqui v. United Bank Limited" 1998 CLC 1817, "National Bank of Pakistan v. Khalid
Mahmood" 2003 CLD 658 and "United Bank Limited v. Shahid Corporation" 1991 CLC
1743. Learned counsel then submitted that High Court in its constitutional jurisdiction
cannot award damages. Case of the plaintiffs in Writ Petition No.15240 of 1998 was
distinct. The legality and constitutionally of BPRD Circular No.23 was challenged in writ
jurisdiction while the instant suit was filed for breach of contractual and legal obligation
by defendant in respect of finance facility. Plethora of case law was quoted on this legal
proposition. Learned counsel concluded his arguments by submitting that the suit was
instituted by duly authorized person and objection raised by the defendant in this regard
was frivolous.

5. Learned counsel for the defendant, on the other hand, has submitted that the plaintiffs
have committed default in repayment of outstanding amounts, pertaining to Moharaba
agreements. An amount of Rs.212.197 millions as on 27-7-1998 was outstanding against
plaintiff No.2 while an amount of Rs.269.218 million was outstanding against plaintiff
No.3. Exh. D.W.1/4 to Exh.D.W.1/23 substantiate the stance of defendant as to default,
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the plaintiffs have admitted availing of finance facilities but have failed to prove the
realization or payment of the amount of loan. There is no evidence on record to contradict
the factum of default. Learned counsel has referred to the statement of D.W.1, who while
recording his statement on 22-11-2002 had categorically stated that Ex. D. W.1/19 to Exh.
D. W.1/51 were executed by the plaintiffs. It was contended that the plaintiffs through
Exh.P.W.1/10 refused to accept the Circular No.23, dated 2-7-1998. The plaintiffs were
neither willing to pay off their liabilities, nor were ready to proceed according to the
instructions of State Bank of Pakistan. The defendant being a banking company is bound
under sections 25 and 41 of the Banking Company Ordinance, 1962, to follow and
comply with the instructions, regulations and circulars of State Bank of Pakistan. Learned
counsel supported this contention by referring to the cases of "Wajid Saeed Khan v.
Abdul Qadoos Khan Swati and others" 2007 CLD 1239, "Messrs Dadabhoy Cement
Industries Limited and others v. Messrs National Development Finance Corporation"
2002 CLC 166 and "United Bank Ltd. Karachi v. Messrs Gravure Packaging (Pvt.) Ltd.
and 4 others" 2001 YLR 1549. Learned counsel emphasized that after due information
through letters Exh.D.W.1/26 and Exh.D.W.1/27 the amount from foreign currency
account, was adjusted. The defendant has acted legally, therefore, there is no question of
payment of damages. It was contended that the claim of damages is maintainable only
when loss suffered is asserted in the plaint under each head separately and the same is
proved through cogent evidence. The plaintiffs have neither pleaded the detail of
damages suffered nor any cogent evidence was led in this regard. Learned counsel for the
defendant supported this contention by referring to the cases of "Sadaruddin v. Messrs
Mitchell's Fruit Farms Ltd., Karachi" PLD 1979 Kar. 694, Tariq Cooking Oil v. United
Bank Limited and other" 2001 MLD 1181, "City Bank v. Tariq Mohsin Siddiqi and
others" PLD 1999 Kar.196 and "Jamshed Karimuddin Musalman v. Kunjilal Harsukh
Kalar and another" AIR 1938 Nag. 530. Learned counsel has submitted that the suit in the
banking jurisdiction under Ordinance, 2001, is competent only where default in
fulfilment of an obligation is made. The damages claimed in the instant suit are on the
plea that the defendant hastily complied with the instructions of State Bank of Pakistan,
which cannot be termed as non-fulfilment of obligation. Learned counsel added that the
suit is not competent. He supported his contention by relying upon the case of "Messrs
TEL Appliances Limited v. United Bank Limited" 2005 CLD 1352. Learned counsel
summed up his arguments with the contention that the instant suit is barred by res
judicata and is hit by the provisions of Order II, Rule 2, C.P.C. The plaintiffs made a
specific prayer for the return of US Dollars, in his constitutional petition Writ Petition
No.15240 of 1998 but the prayer was not allowed by the full bench of this Court.

6. I have perused pleadings of the parties, documents produced in evidence, written

submissions and heard the respective arguments of the learned counsel for the parties. My
findings on the issues are as under:--

Issues Nos. 1 and 2.

7. Both these issues are interlinked, therefore, I will decide the same jointly.

8. Admittedly plaintiffs Nos. 2 and 3 have availed various finance facilities under
Moharaba agreements. Documents executed in this regard are Exh. D. W.1/16 to Exh. D.
W.1/51, which are admitted and proved. The deposit of US $6,118,000 by plaintiff No.1,
with the defendant-Bank, is also admitted fact between the parties. The parties are also
not at variance that the amount in foreign currency account was a collateral security, for
the repayment of aforementioned loans. The plaintiffs have taken stand that there was no
default in payment of outstanding liabilities towards the loan/finances availed by plaintiff
No.2 and 3, but they have failed to bring on record any proof of payment of the loan
amount, although the availing of loan facilities is not denied. The plaintiffs in para.
No.2.2 of the plaint has asserted that there was no default in payment of outstanding
liabilities of the defendant, which the defendant denied in the written statement was the
case of the plaintiff that they have committed no default, therefore, it is wrong to contend
that the factum of default has not been pleaded in written statement, therefore, no
evidence beyond the pleadings can be adduced. Exh.D.W.1/2 is statement of account,
duly verified on oath and certified according to Bankers' Books Evidence Act, 1891.
Entries in this document duly reflect the factum of default and the expiry date of
payment. Similarly Exh. D. W.1/3 is another statement of account, which also reflects the
same Exh.D.W.1/4 to Exh.D.W.1/18 are the notices, which the defendant has issued to the
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plaintiffs, regarding overdue amounts of Moharaba. Moharaba Agreements, letters of set
off, promissory notes and other loan related documents are Exh. D. W.1/19 to Exh.D.W.
1/51. Letters of lien are Exh.D.W. 1/39 and Exh.D.W.1/51. PW.1 has admitted execution
of Exh. D. W.1/19 to Exh.D.W.1/51. No document was produced by the plaintiffs in
rebuttal. The plaintiffs reserved the right to adduce evidence in rebuttal when the
affirmative evidence was closed but the same was not adduced, thus the documentary
evidence of the defendant remained un-rebutted. The plaintiffs have led no evidence to
prove that outstanding amounts towards Morahaba were paid. They have not produced
any receipt or other proof of payment. PW. 1 showed inability to tell the exact amount,
outstanding against the plaintiffs. Thus the default in payment of outstanding liabilities
stands successfully proved. The question of adjustment from collateral security is
permissible according to loan agreements when there is default.

9. Reverting to the encashment of the foreign currency deposit and its adjustment towards
overdue liabilities under BPRD Circular 23 dated 2-7-1998, it is the stance of the
plaintiffs that the defendant bank was obliged to wait until the arrival of deadline before
encashing US dollar deposits, under lien. According to the plaintiffs "by 31st July, 1998"
means utmost limit of time or end of the expiry time and not before. The defendant, on
the other hand, however, has explained that "by" as used in BPRD Circular 23,
signifies/connotes that encashment or conversion has to be made during 2-7-1998 to 31-
7-1998 i.e. period between the date of issuance of circular and its deadline. Plain reading
of BPRD Circular transpires that cover against direct or indirect deposits was directed to
be removed by 31-7-1998. If it was intended that cover, of collateral security of foreign
currency, was to be removed at forenoon on the last date, then word "on" instead of "by"
had been used, in the circulars.

Word "by" used in contracts or other enactment has been defined by the Courts. A few
instances are mentioned/ hereunder: --

(i) "By" as defined in the case of Goldman v. Broyles (Tax Cr.App, 141 SW 283)
indicates terminal points of time. It means "not later than" or "as early as".

(ii) Rankin v. Woodworth (Pa, 3 Pen and W 48). It was observed in this case that in a
contract to complete work "by" ensuing month of November excludes that month and
requires it to be completed before that time.

(iii) A similar view, as has been taken in Rankin v. Woodworth, was taken in the case of
Miller v. Philips (31 Pa (7 Casey) 218.

(iv) "By" as used in contract to deliver barely, requiring delivery by a certain day, is
practically synonymous with "on" or "before" that day Conley v. Anderson (NY, 1 Hill
519).

(v) P.C. Muthu Chettiar v. Narayanan Chettiar and others (AIR 1928 Madras 528), it has
been held that the express "by" clearly indicates the utmost limit of time, being the end or
the expiry of the date or period indicated.

Having glanced through various decision and the meanings of term "by" in dictionaries, I
am of the view that expression "by" used with a cut of date, ought to mean "on" or
"before" that date.

10. Every bank deals with numerous customers in its normal banking business. It is
practically not possible for bank to give effect to the circular on the deadline. The circular
(BPRD Circular 23) provides that the subject conversion and adjustments are required to
be made between the period from issuance of the circular and the deadline mentioned in
it. The defendant through letters dated 18-7-1998 (Exh.D.W.1/26) and 18-7-1998
(Exh.D.W.1/27) provided sufficient opportunity to the plaintiffs to pay off the overdue
amounts, towards Moharaba Finance. The plaintiffs had taken no steps to save their
foreign currency account. They have simply informed the defendant through letter
Exh.P.W.1/10, to refrain from encashment of collateral security and to not to accept
circular 23. State Bank of Pakistan has the power to control the advances made by the
Banking Company, as provided in section 25 of Banking Companies Ordinance, 2001.
The circulars issued by the State Bank of Pakistan are in the nature of
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instructions/directions to the Finance Institutions. The Commercial Banks, whether
private or Government owned, are bound by those instructions. The directions are as
consequence of promulgation of statute or an act of parliament. A banking company
cannot deviate from these instructions or circulars. The defendant being a banking
company, was under the obligation to follow these instructions within the contemplation
of sections 3-A, 25 and 41 of Banking Companies Ordinance, 1962. The defendant before
encashment, duly informed the plaintiffs of desired action for encashment of collateral
security. Plaintiffs Nos. 2 and 3 failed in paying of their liabilities. The plaintiffs could
get their foreign currency encashed to save themselves from loss, occasioned due to
encashment of US dollars, at specified rate. P.W. 1 in his evidence has himself admitted
that the defendant bank was legally bound to follow the instructions and circulars of State
Bank of Pakistan. The stance of the plaintiffs that the defendant could ignore the
instructions of State Bank as against notice/instructions of the plaintiffs, is not
convincing. The issue is, therefore, decided in favour of the defendant. The issue as
framed, is answered in affirmative.

Issue No.3.

11. As has already been observed while deciding issues Nos. 1 and 2 that the defendant
was bound to follow the directions/ instructions of the State Bank of Pakistan. The
defendant has thus committed, no breach of contract and as such is not liable to pay
damages. Even otherwise the plaintiff can get compensation for loss or damages, as was
caused to them by commission of breach of contract. It is the duty of the plaintiff to
establish the claim of damages suffered on each count and by producing evidence that
loss calculated as claimed is directly result of the breach of contract. There are three
plaintiffs and from pleadings it is not reflected that which of the plaintiff and to what
extent such plaintiff has suffered loss. It is vaguely asserted in the plaint that the deposit
of foreign currency, was to be invested in the business. The nature of business details of
loss suffered and other necessary details find no mention in the plaint. No evidence was
produced in this regard. The plaintiffs have failed to establish their claim of damages.
This issue is answered in negative and is decided against the plaintiffs.

Issue No.4

12. The relationship of the plaintiffs and the defendant is that one of the customer and
banker. The cause of action is based on a banking transaction. The suit has been filed
statedly on commission of default, in fulfilment of obligation with regard to finance.
Banker is the trustee of the account-holder and in that capacity, it is the primary
responsibility of a banker to safeguard the interest of its customer and save him from any
loss. If the banker fails to perform these obligations, the customer-account-holder has a
valid cause to bring his grievance before a Banking Court established under section 5 of
the Financial Institutions (Recovery of Finances) Ordinance, 2001. The defendant bank is
under legal and contractual obligation, to fulfil the agreements of Finance, e.g. Morahaba
agreements and letters of lien etc. The determination of questions arising out of
Morahaba agreements or letters of lien, is covered under section 9 of Ordinance, 2001
and this Court has therefore, jurisdiction to adjudicate upon the suit of the plaintiffs
within the contemplation of sections 7(4) and 9 of Finance Institutions (Recovery of
Finances) Ordinance, 2001. The issue is decided in favour of the plaintiffs and against the
defendant.

Issue No.5

13. The defendant claims that the suit is barred by res judicata and is not competent under
Order II, Rule 2, C.P.C. The plaintiffs had challenged the vires of BPRD Circular No.23
in the writ petition. The claim of damages falls outside the purview of writ jurisdiction.
The question of encashment of collateral security and its adjustment against outstanding
amounts, are the factual controversies. Whether or not, the plaintiffs have committed
default in payment of outstanding amounts, regarding Moharaba Finance are the issues,
the ascertainment thereof, requires regular trial. Such controversy cannot be ascertained
in writ jurisdiction. The suit is, therefore, competent and maintainable. The issue is
decided in favour of the plaintiffs.

Issue No.6.
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14. In view of my findings on issues Nos. 1 and 2, this issue is decided against the
plaintiffs.

15. The suit of the plaintiff in view of my findings on issues Nos. 1, 2 and 3, is dismissed
with no orders as to costs.

S.A.K./P-19/L Suit dismissed.

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2007 C L D 1164

[Lahore]

Before Sh. Azmat Saeed, J

FAISAL BANK through duly appointed Attorneys---Plaintiff

Versus

Messrs ZIMINDARA RICE MILLS and 21 others---Defendants

C.O.S. No.29 of 2006 and C.M. No.920-B of 2007, decided on 25th April, 2007.

(a) Financial Institutions (Recovery of Finances) Ordinance (XLVI of 2001)---

---Ss. 10 & 15---Contract Act (IX of 1872), Ss.151 & 152---Suit for recovery of loan by
the Bank---Petition for leave to appeal---Grant and availing of the facilities in question
had not been disputed; there was also no dispute inter se the plaintiff and defendants with
regard to payments made by the defendants nor was it alleged that such payments were
not reflected in the statement of accounts and to all intents and purposes, liability to the
extent of loan amount had been admitted in the petition for leave to appeal---Defendants
had merely claimed that value of the pledged goods alleged to have been lost and no
longer available were also liable to be adjusted against the claim of the plaintiff-Bank---
Bank's case was that it was entitled to recover its debts in their entirety---Validity---If the
pledgee sued for recovery of the original debt, he was required to keep the pledged goods
intact to be returned to the pledger, who always had the right to redeem the same and in
the eventuality of sate after reasonable notice, the amount realized therefrom was to be
adjusted against the debt due---Question of such adjustment would only arise when and if
the goods were actually sold---Where, however, the pledged goods were lost, damaged or
otherwise not available for delivery to the pledger, in equity, the pledgee could not seek
recovery of the debt secured thereby and pledger was entitled to an equitable set off by
way of adjustment of the value of the lost pledged goods and could always sue the
pledgee for damages for the loss suffered on account of the damaged or lost pledged
goods---To deprive the pledger of such right of equitable set off and adjustment could
result in grave hardship and inequity as the pledgee might obtain a decree for the debt due
for an amount which might be equal to or less than the value of goods pledged and in
execution seek recovery thereof against the person and other properties of the pledger
leaving him to seek his remedy at a later date---Inequity, thus was more likely to occur in
suits instituted under the Financial Institutions (Recovery of Finances) Ordinance, 2001
where the pledgee financial institution might obtain a decree for recovery through
dismissal of a leave application filed by the pledger customer who was then left to seek
his remedy through a long cause suit in the same court as he would be required to prove
his claim through evidence---Where pledged goods were lost or damaged, the value
thereof must be set off and adjusted against the claim of plaintiff financial institutions---
Merely because the pledged goods were lost or the pledgee was unable to return the
same, however, did not in every eventuality confer upon the pledger a right to an
equitable set off nor same was always a complete defence to a suit for recovery of debt
secured by the pledge---Liability of pledgee in such eventuality was circumscribed by
Ss.151 & 152, Contract Act, 1872---Where equities of the case did not appear to be in
favour of the defendants, they were therefore, disentitled to seek the relief of equitable set
off, particularly in view of their own acts and omissions---Principles.

A.M. Burq and another v. Central Exchange Bank Ltd. and others PLD 1966 (W.P.)
Lah.1; Messrs Muhammad Siddique Muhammad Umar and another v. The Australasia
Bank Ltd. PLD 1996 SC 684; Central Bank of India v. Syed Muhammad Abdul Jalil Shah
and others 1999 CLC 671; Mst. Talat Nasreen v. United Bank Ltd. and others 2003 CLD
94; National Bank of Pakistan v. Messrs Bright Leather Works and 3 others 1980 CLC
1170; Messrs Taj Sea Food Industries and 2 others v. Messrs United Bank Ltd. and 2
others PLD 1982 Kar. 902; Messrs Crystal Enterprises and 6 others v. Platinum
Commercial Bank Ltd. and 2 others 2002 CLD 868: Habib Bank Ltd. v. Kashif Steel
Industry and others PLD 2001 Lah. 224; Messrs Fybron Pvt. Ltd. through MD and 2
others v. National Bank of Pakistan through Zonal Chief 2006 CLD 127; Prudential
1 of 9
Commercial Bank Ltd. v. Hydaw, Ghee Industries Ltd. and 9 others 1999 MLD 1694 and
Messrs United Bank Ltd. v. Messrs Amin Corporation Ltd. and others PLD 1983 CLC
1559 ref.

(b) Contract Act (IX of 1872)---

---Ss. 172. 148, 160 & 176---Pledge---Bailment---Default---Rights inter se the parties---

Pledge, in terms of 5.172, Contract Act, 1872 is defined as the bailment of goods as
security for payment of debt or the performance of a promise---Section 148, Contract
Act, 1872 defines bailment as the delivery of goods by one person to another for some
purpose upon the contract that they shall, when the purpose is accomplished, be returned
or otherwise disposed of according to the directions of the person delivering them---
Pledge is a sub-specie of bailment and the purposes for the delivery of goods by way of
bailment is the security for payment as mentioned in S.172, Contract Act, 1872 and rights
inter se the parties are primarily governed by Chapter IX of the Contract Act, 1872 i.e.
from S.148 to S.181---Section 160, Contract Act, 1872 cast a duty for the return of the
goods to the pledger when the purpose for which the goods were delivered is
accomplished (in case of pledge, repayment of the debt)---In case of default by pledger in
making payment of the debt secured by pledge, rights of the pledgee are enumerated in
S.176 of the Contract Act, 1872, which include the right to sue for recovery of the debt
due retaining the pledged goods as collateral security or he may sell the goods pledged
after giving pledger reasonable notice of such sale.

(c) Contract Act (IX of 1872)---

----Ss. 152 & 151---Loss of goods pledged---Section 152, Contract Act, 1872 requires the
pledgee to take care of the goods pledged as a man of ordinary prudence would under
similar circumstances take care of his own goods of the same bulk, quality and value as
the goods pledged---No other duty in this behalf is cast upon the pledgee except as may
be agreed upon between the parties by such contract---Where a loss has been occasioned
to the goods and the pledgee has taken care of the same as a man of ordinary prudence
would look after his own property and no obligation under a contract, if any, has been
violated, then perhaps the liability for such loss may not visit the pledgee nor would the
pledger be entitled to any claim of set off against recovery of the debt secured: there must
be dereliction of duty either statutory or contractual by the pledgee before he could be
held liable under the law---In case of loss or damage of pledged goods, it is always for
the pledgee to show that it has fulfilled his obligations both statutory and contractual
which is an onerous burden and may require the recording of evidence.

Prudential Commercial Bank Ltd. v. Hydari Ghee Industries Ltd. and 9 others 1999 MLD
1694 and Messrs United Bank Ltd. v. Messrs Amin Corporation Ltd. and others PLD
1983 CLC 1559 ref.

(d) Financial Institutions (Recovery of Finances) Ordinance (XLVI of 2001)---

----Ss. 10 & 15---Suit for recovery of loan by Bank---Petition for leave to defend suit by
defendants-Mortgage-Financial facilities were granted and availed by the defendants---
Record showed that facilities were to be secured by mortgage of the properties---Original
title deeds of the said properties were admittedly with the plaintiff-Bank---Factum of the
mortgage was duly borne out from the revenue record---Properties in dispute, therefore,
had been duly mortgaged with plaintiff-Bank in circumstances---No defence whatsoever
had been set up with respect to the amount for which the plaintiff was entitled to an
immediate interim decree---Claim of defendants with reference to the equitable set off the
pledged goods did not appear to be well founded in fact, in law or in equity and the
defence taken was at best illusory---Held consequently, it would be appropriate for the
defendants to furnish bank guarantee for the amount claimed as set off if they seek leave
to defend the suit---Leave to defend the suit was granted with reference to the amount of
the claim subject to defendants' furnishing the bank guarantee for specified amount
within 30 days from the day of present order.

Mst. Talat Nasreen v. UBL and others. 2003 CLD 94; Habib Bank Ltd. v. Kashif Steel
Industry and others PLD 2001 Lah.224; Messrs Crystal Enterprises and 6 others v.
Platinum Commercial Bank Ltd. and 2 others 2002 CLD 868: Mian Aftab A. Sheikh and
2 of 9
2 others v. Messrs Trust Leasing Corporation Ltd. and another 2003 CLD 702; Bashir
Ahmed Mughal v. S.M.E. Bank Ltd. through General Manager and 2 others 2005 CLD
1689.; Messrs Fybron Pvt. Ltd. through Managing Director and others v. National Bank
of Pakistan through Zonal Chief 2006 CLD 127; A.M. Burq and another v. Central
Exchange Bank Ltd. and others PLD 1996 (W.P.) Lah.1; Messrs Muhammad Siddique
Muhammad Umar and another v. The Australasia Bank Ltd. PLD 1996 SC 684; Central
Bank of India v. Syed Muhammad Abdul Jalil Shah and others 1999 CLC 671; National
Bank of Pakistan v. Messrs Bright Leather Works and 3 others 1980 CLC 1170; Messrs
Taj Sea Food Industries and 2 others v. Messrs United Bank Ltd. and 2 others PLD 1982
Kar. 902; Prudential Commercial Bank Ltd. v. Hydari Ghee Industries Ltd. and 9 others
1999 MLD 1694 and Messrs United Bank Ltd. v. Messrs Amin Corporation Ltd. and
others PLD 1983 CLC 1559 ref.

Kh. Aamir Farooq for Plaintiff.

Mushtaq Akhtar Mehdi for Defendants.

Mian Qamar Uz Zaman (in CM No.920-B of 2007) for Applicant.

ORDER

SH. AZMAT SAEED, J.---The plaintiff which is the banking company instituted a suit
for recovery of Rs.54,908,228.97 along with cost of funds and cost of suit alleging in the
plaint that plaintiff is a financial institution while defendant No.1 is a partnership concern
constituted through partnership deed dated 2-4-2003 with defendants Nos.2 to 7 as its
partners. It is the case of the plaintiff that in the year 2003 defendant No.1 through its
partners applied for, was granted and availed of four separate finance facilities which
were renewed subsequently in 2004. Details of facilities allegedly granted by plaintiff and
availed of by defendant No.1 partnership through its partners viz. defendants 2 to 7 are as
follows:-

(A) Morabah pledege of Rs.45 million.

(B) Export Refinance 11 of Rs.7.5 million.

(C) Export Refinance I of R75 million.

(D) Export Refinance (Post) Rs.15 million.

2. It is contended that said facilities were secured by pledge of basmati rice,

hypothecation of stock of paddy, lien on export bills and personal guarantees of
defendants Nos.2 to 7 and mortgage of property of defendants Nos.2 to 22. It is
contended on behalf of plaintiff that defendant No.1 purportedly pledged 22040 bags of
basmati rice weighing 100 Kg each, 600 bags of paddy super purportedly containing 65
Kg each and 900 bags of basmati rice, 386 purportedly weighing 100 Kg each as was
evidenced by letter of pledge executed by defendants in favour of plaintiff-Bank. Details
of 16 separate properties allegedly mortgaged in favour of plaintiff-Bank by defendants 2
to 22 are set out in para.4 of the plaint.

3. It is further alleged in the plaint that a part of pledged stock was stolen by defendant
No.1 through its partners and an F.I.R. in this behalf has been got registered with the local
police station. It was also the case of the plaintiff that on failure of the defendants to fulfil
their obligation and repay the loan, the plaintiff-Bank sold 10507 bags out of the pledged
stock of rice for an amount of Rs.24,714,125 and further, also realized a sum of
Rs.4,62,5458 through the sale of Naku and in this behalf a total sum of Rs.25,176983 was
received and adjusted against the liability of the defendants. It is also the case of the
plaintiff that at the time of the aforesaid sale, it was discovered that each of the bags
contained .35% less rice, and also was not of the quality as vouched for by the
defendants. Thus in this context, the plaintiff has raised a claim of Rs.54,908, 228.97,
break-up whereof has been set out in para 5 of the plaint: Along with the plaint,
statements of account as well as finance agreements, promissory notes, letters of pledge,
guarantees, copies of the title deeds of the properties allegedly mortgaged in favour of the

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plaintiff-Bank and the copies of the Revenue Record evidencing such mortgage have
been appended.

4. Pursuant to notice issued by this Court, the defendants entered appearance and filed
application for leave to defend the suit, i.e., PLA 62-B of 2006. In the PLA defendants
have admitted the grant of facilities as alleged by the plaintiff in its suit. However, it was
contended that defendant No.1 had first obtained finance facilities from the plaintiff-Bank
with effect from 6-9-2000 which were renewed from time to time. However', it was
alleged that said facilities were not renewed after 31-9-2004. It was also admitted that
defendants could not pay its outstanding liability which as per the case of the defendants
fell due on 31-9-2004. It was also admitted that the plaintiff-Bank had sold part of the
pledged stock as alleged in the plaint and the amount as alleged by the plaintiff was
received from such sale and stands adjusted against the liability as is clear from the
statement of accounts.

5. Defendants took up the plea that after the aforesaid sale a balance of 10780 bags of
basmati 386 each weighing 100 Kg ought to be in the custody of plaintiff-Bank, but in
fact, said pledged goods are not available, as they have been taken away by the officers of
the National Bank of Pakistan and an F.I.R. in this behalf had been lodged by the
Mugadam entrusted with the pledged stock by the plaintiff-Bank itself.

6. It is also contended that mortgaged documents on the basis whereof, the present suit
has been filed are blank, therefore, ineffective in law. Furthermore, in view of the alleged
disputed renewal vide the finance agreement dated 27-11-2004, guarantors and
mortgagors stand discharged.

7. It is also the case of the defendants as disclosed in the PLA that in fact only amount of
Rs.43,447,583.89 is due from the defendants and the value of the pledged goods which
the plaintiff-Bank held and lost is Rs.3,10,49000 which amount is liable to be adjusted
from the claim and consequently a net outstanding admittedly due from the defendants to
the plaintiff-Bank is Rs. 1,23,98,584.

8. In the above perspective, defendants seek leave to defend the suit with respect to the
balance amount. Mr. Mushtaq Mehdi Akhtar Advocate in support of the contentions
raised on behalf of defendants says that it is the plaintiff who is liable for the loss of the
pledged goods and the value thereof must necessarily be adjusted against the claim as
raised by plaintiff-Bank. In support of his contentions relies on 2003 CLD 94 Mst. Talat
Nasreen v. UBL and others.

9. In rebuttal learned counsel for the plaintiff-Bank has vehemently contended that the
facilities in question were in fact renewed on 27-11-2004. He has seriously disputed the
quality and quantity of the rice as pledged with the plaintiff-Bank by contending that
defendants in fact had deceived the plaintiff-Bank by pledging goods of poor quality and
each individual bag did not contain the quantity as represented, which fact was
established when part of the pledged goods was sold and the amount realized therefrom
adjusted against the liability of the defendants.

10. Learned counsel further adds that even otherwise there are other claimants with
regard to the pledged goods i.e., the National Bank of Pakistan which claims charge
thereupon affected by a third party. In these circumstances it is contended that the matter
of the pledged goods can best be decided by the executing Court and the plaintiff-Bank is
entitled to an immediate decree for the amount claimed in the plaint.

11. It is further contended that the mortgage has been legally effected in terms of section
58(f) of the Transfer of Property Act, and no exception can be taken thereto, especially, as
entries in this behalf have been duly recorded in the Revenue Record. Learned counsel
adds that the execution of the documents is not disputed or denied by defendants nor any
specific entry in the statements of accounts appended with the plaint has been questioned.
To substantiate his contentions, learned counsel for the plaintiff relies on PLD 2001
Lahore 224 Habib Bank Ltd. v. Kashif Steel Industry and others, 2002 CLD 868 Messrs
Crystal Enterprises and 6 others v. Platinum Commercial Bank Ltd. and 2 others, 2003
CLD 94 Mst. Talat Nasreen v. Untied Bank Ltd. and others, 2003 CLD 702 Mian Aftab
A. Sheikh and 2 others v. Messrs Trust Leasing Corporation Ltd. and another, 2005 CLD
4 of 9
1689 Bashir Ahmed Mughal v. S.M.E. Bank Ltd. through General Manager and 2 others,
2006 CLD 127 (Lahore) Messrs Fybron Pvt. Ltd. through Managing Director and others
v. National Bank of Pakistan through Zonal Chief PLD 1966 (W.P.) Lahore 1 A.M. Burq
and another v. Central Exchange Bank Ltd. and others, PLD 1996 SC 684 Messrs
Muhammad Siddique Muhammad Umar and another v. The Australasia Bank Ltd. and
1999 CLC 671 (Lahore) Central Bank of India v. Syed Muhammad Abdul Jalil Shah and
others.

12. During the course of the proceedings of the suit, in order to explore the possibility of
the sale of the allegedly pledged goods, with the consent of the parties, a Local
Commission was appointed to make an inventory of the pledged goods and to make
available samples thereof to the prospective bidders. In pursuance of this Court's order,
the local commission visited the mill of defendant No. 1 on 15-2-2007 and was informed
by defendants 6 to 13 that the pledged goods were in fact stored at the godown of Messrs
Fysal Rice Mills. Local Commission as is mentioned in his report went to Fysal Rice
Mills, however, was not permitted to make inventory of the rice allegedly stored thereat
by the representatives of Fysal Rice Mills as allegedly the keys of the godown were with
the National Bank of Pakistan.

13. In the meanwhile, National Bank of Pakistan also joined the fray by filing an
objection petition to the proposed sale of alleged pledged goods, and in this behalf C.M.
No.920-B of 2007 was filed alleging therein that Messrs Asjad Traders had obtained a
facility from the National Bank of Pakistan and secured the same through the (sic) and
stored in the godown of Zamindar Rice Mills defendant No.1. And in this behalf letter of
disclaimer was allegedly issued by Messrs Zimindar Rice Mills i.e. defendant No.1 in
favour of the National Bank of Pakistan. Upon failure of Messrs Asjad Traders, the
National Bank of Pakistan filed a suit for recovery before the Banking Court No.2 at
Gujranwala which was decreed, in which, the said pledged goods allegedly belonging to
Messrs Asjad Traders and stored at the premises of Zimindar Rice Mills defendant No.1
were attached. Subsequently, the Court auctioneers were also appointed: Plaintiff filed an
objection petition on 24-10-2005 before the Banking Court No.2, Gujranwala, claiming
that the rice in question belonged to Zimindar Rice Mills and had been pledged in favour
of plaintiff-Bank. The Banking Court No.2 Gujranwala seized of the matter appointed a
local commission for determination of the controversy regarding title of the goods in
question. Said local commission submitted its report allegedly to the effect that the
godown in which rice was stored at Zimindar Rice Mills had a separate lock and key
which was in the possession of Messrs Asjad Traders and not Messrs Zimindar Rice Mills
or the plaintiff-Bank.

14. It was contended by the National Bank of Pakistan that plaintiff-Bank had failed to
disclose the aforesaid facts, that the rice allegedly pledged by respondent No.1 in favour
of plaintiff-Bank was in fact the property of Messrs Asjad Traders and was under lien
with the National Bank of Pakistan.

15. Counsel for the parties have been heard and the record appended perused. With
reference to the defence to be offered by principal debtor(s) it has been noticed that grant
and availing of the facilities in question has not been disputed. There is also no dispute
inter se the plaintiff and defendants with regard to payments made by said defendants nor
is it alleged that such payments are not reflected in the statement of accounts. In fact, for
all intents and purposes, liability to the extent of Rs.43,447,583.89 has been admitted in
the PLA, and it has merely been claimed that value of the allegedly pledged goods be
adjusted therefrom.

16. In terms of section 172 of the Contract Act, a pledge is defined as the bailment of
goods as security for payment of debt or the performance of a promise.

17. Section 148 of the Contract Act defines bailment as the delivery of goods by one
person to another for some purpose upon the contract that they shall, when the purpose is
B accomplished, be returned or otherwise disposed of according to the directions of the
person delivering them.

18. From the perusal of the aforesaid two statutory provisions it is clear that pledge is a
sub-specie of bailment and the purposes for the delivery of goods by way of bailment as
5 of 9
envisaged by section 148 of the Contract Act is the security for payment as has been
mentioned in section 172 of the Contract Act. Thus, the rights inter se the parties are
primarily governed by Chapter 9 of the Contract Act i.e., from sections 148 to 181
thereof.

19. Section 160 of the 'Contract Act cast a duty for the return of the goods to the pledger
when the purpose for which the goods were delivered is accomplished (in case of pledge,
repayment of the debt).

20. In case of default by pledger in making payment of the debit secured by pledge, rights
of the pledgee are enumerated in section 176 of the Contract Act, which include the right
to sue for recovery of the debt due retaining the pledged goods as collateral security or he
may sell the goods pledged after giving pledgor reasonable notice of such sale.

21. In pith and substance, the case of the defendants is that the value of the rice i.e., the
pledged goods in the facts and circumstances of the case are liable to be adjusted against
the claim of the plaintiff-Bank, as allegedly the pledged goods are no longer available.
While it is the case of the plaintiff that it is entitled to recover its debt in its entirety.
Similar issue came up for consideration before a Full Bench of this Court which by
means of its celebrated judgment reported as PLD 1966 (W.P.) Lahore 1, supra, observed
as under:-

"It is, therefore, clear that the right to proceed against the property is not merely
accessory to the right to proceed against the debtor personally. Thus, a pledger cannot
compel the pledgee to exercise the, power of sale or its adjustment as a means of
discharging or satisfying the amount due to him. The pledger therefore is 1 competent in
law to sue for his debt without selling the pledged property and adjusting its price
towards the payment of the debt. He has, however, to keep the property pledged intact so
that he may be able to hand over the security to the pledge on payment of the debt by
him" .... The principle in equity is that the creditor is not entitled to recover the amount of
his secured debt when he cannot return the security. In Ellis E and Company's Trustees v.
Dixon -Johnson (1925) AC 489 p.493)

22. The following observations of Lord Cave of the House of Lords were also reproduced
in the aforesaid judgment in the following manner:--

"Lord Cave had observed I have always understood the rule in 'equity to be that if a
creditor holding security sues for his debt, he is under an obligation on payment of the
debt to hand over the security; and if having improperly made away with the security, he
is unable to return it to his debtor, he cannot have judgment for the debt. If that rule had
been strictly applied on the hearing of the action, the action must have been then and
there dismissed."

23. In the above context, the value of the pledged goods admittedly lost were adjusted
against the claim of the plaintiff in the said case.

24. In the case reported as PLD 1996 SC 684 Messrs Muhammad Siddique Muhammad
Umar and another v. The Australasia Bank Ltd., it was observed as under:--

"Even assuming that some goods were pledged with the bank as security for the advance,
this does not, in our opinion, absolve the defendant from his liability to clear his dues.
The banker only acquires a lien over such pledged goods for the recovery of his dues and
has a right after notice to the debtor to sell those goods to reimburse himself. But it is
only where such a sale is actually held that the debtor can claim an adjustment of the sale
proceeds of the goods against the amount claimed by the bank. There is no evidence in
the present case that any goods were in fact sold by the bank or that the bank still retains
any goods as such security."

25. In the case reported as 1999 CLC 671 (Lahore) Central Bank of India v. Syed
Muhammad Abdul Jalil Shah and others, it was held as under:--

"21. From the foregoing it is quite clear that the findings of the learned first Court on this
point cannot be sustained. We are therefore of considered opinion that the appellant was
6 of 9
competent to institute the suit without returning/rendering the amount of pledged goods
to respondent No.1. However, respondent No.1 was entitled to claim set off with regard
to his pledged stock with the bank."

26. In the case reported as 2003 CLD 94 Mst. Talat Nasreen v. United Bank Ltd. and
others, it was observed as follows:--

"Where the pledged goods are wrongfully sold the pledger remedy is to sue pledgee for
having converted pledged goods for his own use and claim recovery of its realizable
value"

27. In the above case, value of the pledged goods (DSCs) wrongfully encashed were set
off against claim of the plaintiff-Bank.

28. In the case reported as 1980 CLC 1170 National Bank of Pakistan v. Messrs Bright
Leather Works and 3 others, the value of the lost pledged goods were also adjusted
against the claim of the plaintiff-Bank.

29. In the case reported as PLD 1982 Karachi 902 Messrs Taj Sea Food Industries and' 2
others v. Messrs United Bank Ltd. and 2 others it was held as under:--

"We are therefore of the' view that the recourse to section 176 could not be had by the
respondent-Bank which had defaulted in the first instance and which was itself
responsible for the distribution of the pledged goods."

30. A Division Bench of this Court in the case reported as 2002 CLD 868 (Lahore)
Messrs Crystal Enterprises and 6 others v. Platinum Commercial Bank Ltd. and 2 others
through general attorney, held as under:-

"4. Learned counsel for the appellant next argued that the respondent-Bank is under law
required to account for the imported goods in its custody. This may be so. However, this
is a matter, which can only arise in the execution proceedings, when the collateral
security is realized in such proceedings through the same."

31. A single Bench of this Court in the case reported as PLD 2001 Lahore 224 Habib
Bank Ltd. v. Kashif Steel Industry and others observed as under:--

"7…….As such, if there is any shortfall at the time of realization of such security, the
defendant company would be entitled to make a claim against the plaintiff-Bank subject
to law and any defences which might be available to the plaintiff-Bank against any such
action. However, for the time being, the question does not arise."

32. In the case reported as 2006 CLD 127 (Lahore) Messrs Fybron Pvt. Ltd. through MD
and 2 others v. National Bank of Pakistan through Zonal Chief set aside the judgment and
decree and remanded the case to the Banking Court with direction to immediately sell the
pledged goods.

33. An examination of the statutory provision applicable and the judgment referred to
hereinabove reveals that in case the pledgee sues for recovery of the original debt, he is
required to keep the pledged goods intact to be returned to the pledger, who always has
right to redeem the same. In the eventuality of sale after reasonable notice, the amount
realized therefrom is to be adjusted against the debt due. The question of such adjustment
only arises when and if the goods are actually sold.

34. However, where the pledged goods are lost, damaged or otherwise not available for
delivery to the pledgor, in equity, the pledgee cannot seek recovery of the debt secured
thereby and pledger is entitled to an equitable set off by way of adjustment of the value of
the lost pledged goods and can always sue the pledgee for damages for the loss suffered
on account of the damaged or lost pledged goods.

35. To deprive the pledger of such right of equitable set off and adjustment can result in
grave hardship and inequity as the pledgee may obtain a decree for the debt due for an
amount which may be equal to or less than the value of the goods pledged and in
7 of 9
execution seek recovery thereof against the person and other properties of the pledger
leaving him to seek his remedy at a later date. Thus, inequity is more likely in suits
instituted under the (Recovery of Finances Ordinance, 2001) where the pledgee financial
institution may obtain a decree for recovery through dismissal of a leave application filed
by the pledger customer who is then left to seek his remedy through a long cause sue in
the same Court as he would be required to prove his claim through evidence, Thus,
ordinarily where the pledged goods are lost or damaged, the value thereof must be set off
and adjusted against the claim of the plaintiff financial institution.

36. However, merely because the pledged goods are lost or the pledgee is unable to return
the same does not in every eventuality confer upon the pledger a right to an equitable set
off nor is always a complete defence to a suit for recovery of the debt secured by said
pledge.

37. Liability of the pledgee in such eventuality is circumscribed by sections 151 and 152
of the Contract Act which reads as under:-

151. "Care to be taken by bailee.---In all cases of bailment the bailee is bound to take as
much care of the goods bailed to him as a man of ordinary prudence would, under similar
circumstances take of his own goods of the same bulk, quality and value as the goods
bailed.

152. Bailee when not liable for loss etc. of thing bailed. The bailee, in the absence of any
special contract is not responsible for the loss, destruction or deterioration of the thing
bailed if he has taken the amount of care of it described in section 151."

38. Section 152 of the Contract Act requires the pledgee to take care of the goods pledged
as a man of ordinary prudence would under similar circumstances take care of his own
goods of the same bulk, quality and value as the goods pledged. No other duty in this
behalf is cast upon the pledgee except as may be agreed upon between the parties by such
contract.

39. In the eventuality that a loss has been occasioned to the goods and the pledgee has
taken care of the same as a man of ordinary prudence would look after his own property
and no obligation under a contract if any has been violated, then perhaps the liability for
such loss may not visit the pledgee nor would the pledger be entitled to any claim of set
off against recovery of the debt secured. In short there must be dereliction of duty either
statutory or contractual by the pledgee before he could be held liable under the law. In
this behalf reference may be made to the following judgments. The Sindh High Court in
the case reported as 1999 MLD 1694 Prudential Commercial Bank Ltd. v. Hydari Ghee
Industries Ltd. and 9 others held as follows:--

"The seal put by the Customs Authorities, likewise, can always be removed upon
payment of the customs dues. The underlying fact however remains that the pledged
goods are available and can be returned unless proved otherwise. I must record here that
except for oral assertion, nothing is shown to presume pilferage of loss of the subject
palm oil. Thing brings me to the issue if the plaintiff is to be called. upon in the
circumstances of the case to prove that it had acted diligently and had taken as much care
of the goods entrusted to it as a man of ordinary prudence would take of his own goods of
similar quality and value. The law regulating the subject is contained in sections 151 and
152 of the Contract Act which are as follows:-

151. .....

152……

The above referred provisions require the bailee to show that reasonable care was taken
by it in the handling the goods"

40. In the case reported as PLD 1983 CLC 1559 Messrs United Bank Ltd. v. Messrs
Amin Corporation Ltd. and others it was held as follows:--

8 of 9
"... the stocks were damaged but the damage was on account of the self heating and there
was no responsibility of the plaintiff-Bank in respect of such loss"

41. However, in case of loss of or damage to the pledged goods, it is always for the
pledgee to show that it has fulfilled his obligations both statutory and contractual which is
an onerous burden and may require the recording of evidence.

42. Learned counsel for the defendants has attempted to set up the defence that the
admitted liability be set off against the balance pledged goods which may not be
available. Unfortunately, the facts of this case which are self-evident on record, do not
support the premises on the basis whereof, the learned counsel attempted to build his
case. It is self-evident from the record that there is a serious dispute as to whether the
pledged goods were the property of defendant No.1 i.e. Zimindar Rice Mills or the
property of Messrs Asjad Traders. There is an equally serious dispute as to whether the
rice in question was in fact pledged with the plaintiff-Bank or is under lien with the
National Bank of Pakistan. However, the title of the same rice is claimed by two separate
entities i.e., defendant No.1 and Messrs Asjad Traders. It is also equally evident that same
rice is under charge of two separate banks i.e., the plaintiff-Bank and the National Bank
of Pakistan. The possibility that deception bordering on fraud may have been exercised in
this case is not remote. The possibility of connivance or incompetence of bank officials
(employed by defendant No.1 and the National Bank of Pakistan) cannot be ruled out.
Similarly, the quantity and quality of rice already pledged is also subject to serious doubt.
A part of the pledged rice had admittedly been sold by the plaintiff-Bank was found to be
short in weight by 35%. This fact has been clearly averred in the plaint (para.5) and not
specifically denied by the defendants in the corresponding paragraph of the PLA. Thus,
as to what quantity of rice was in fact and in law pledged with the bank will require
determination, through detailed evidence and only thereafter the said rice may or may not
be available for sale to adjust the liability of the defendants. The equities of the case do
not appear to be in favour of the defendants who are therefore disentitled from seeking
the relief of equitable set off, particularly, in view of their own acts and omissions.

43. Adverting now to the question of mortgage suffice it to say that admittedly the
financial facilities were granted and availed of by the defendants. It is evident from the
record that said facilities were to be secured by mortgage of the said properties. Original
title deeds of the said properties are admittedly with the plaintiff-Bank. The factum of the
mortgage is duly borne out from the Revenue Record. In this view of the matter, this
Court has no hesitation in holding that properties in dispute have been duly mortgaged
with the plaintiff-Bank.

44. The upshot of the above discussion is that no defence whatsoever has been set up with
respect to the amount of Rs.1,23,98,584 for which the plaintiff is entitled to an immediate
interim decree. With reference to the equitable set off the pledged goods, the claim in this
behalf of the defendants does not appear to be well-founded in fact, in law or in equity
and the defence taken is at best illusory. Consequently, it would be appropriate for the
defendants to furnish the bank guarantee for the amount claimed as set off if they seek
leave to defend the suit.

45. Resultantly, interim decree for Rs.1,23,98,584 is passed in favour of the plaintiff-
Bank and against the defendants jointly and severally. Leave to defend the suit is granted
with reference to the balance amount of the claim subject to defendants' furnishing the
bank guarantee for Rs.3, 10,49000 within 30 days from today, viz., 25-4-2007.

To come up for further proceedings on 25th of May 2007.

M.B.A./F-17/L Order accordingly.

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2004 C L D 1289

[Lahore]

Before Jawwad S. Khawaja, J

HABIB BANK LIMITED---Plaintiff

Versus

ORIENT RICE MILLS LTD. and others---Defendants

C.O. S. No.58 of 2000, decided on 8th June, 2001.

(a) Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act (XV
of 1997)---

----Ss. 2(c) & 9---Letter of request for loan by borrower--Effect---Borrower could not be,
allowed to raise a plea contrary to its stance taken in its letter of request.

(b) Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act (XV
of 1997)---

----S. 9---Qanun-e-Shahadat (10 of 1984), Art.45---Suit for recovery of loan amount---

Verbal denial of defendant to have availed finance facility---Plaintiff-Bank based its
claim on finance agreement, its statement of account, defendant's letter of request and
financial statements of defendant duly audited by Chartered Accountant showing disputed
amount to be due by defendant to Bank---Validity---Such audited accounts could be
construed as admissions on the part of defendant, which admissions would not be
conclusive and could be rebutted---In absence of any evidence to rebut contents of
audited financial statements of defendant, mere verbal denial of defendant of having
availed total loan or as claimed by Bank would not be sufficient for denying liability by
defendant---Liability of Bank had been established from very strong corroborative
evidence in the form of audited financial statements of defendant, in respect' of which
there was no reasonable rebuttal by defendant--Contention of defendant was repelled in
circumstances.

Ahmed Khan v. Rasul Shah and others PLD 1975 SC 311; Barkhurdar v. Muhammad
Razzaq PLD 1989 SC 749 and Pakistan Development Corporation Ltd. v. The Bank of
Bahawalpur PLD 1960 Kar. 885 fol.

Mat. Hameeda Begum and others v. Khadim Hussain and others 2001 MLD 427;
Citibank N.A. v. Riaz Ahmad 2000 CLC 847; Ram Narain v. Lt. Col. Hari Singh and
another AIR 1964 Rajasthan 76 and Muthukaruppa Mudali and others v. Pr. Mu.
Kathappudayan and others 25 IC 726 ref.

(c) Qanun-e-Shahadat (10 of 1984)---

----Art. 45---Admission would only be relevant evidence, but not conclusive.

Ahmed Khan v. Rasul Shah and others PLD 1975 SC 311; Barkhurdar v. Muhammad
Razzaq PLD 1989 SC 749 and Pakistan Development Corporation Ltd. v. The Bank of
Bahawalpur PLD 1960 Kar. 885 fol.

(d) Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act (XV
of 1997)---

----S. 9---Suit for recovery of loan amount---Denial of defendant to pay mark-up on

enhanced amount of loan--Finance agreement executed by defendant -set out its
commitment to pay mark-up in respect of entire finance--Held, defendant could not be
allowed to resile from its commitment.

I.C.P. and others v. Messrs Chiniot Textile Mills Ltd PLD 1989 Kar. 316 distinguished.
1 of 14
(e) Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act (XV
of 1997)---

----Ss. 9 & 18---Contract Act (IX of 1872), Ss.151, 152 & 176---Suit for recovery of loan
amount secured by pledge of stock---Loss of pledged stock---Plea of defendant was that
Bank could not enforce its claim in respect of cash finance facility in absence of pledged
stock---Validity---Section 176, Contract Act, 1872, empowered Bank to file suit without
selling pledged goods and treat the pledge as collateral security only---Matter relating to
any shortfall in pledged stock and responsibility therefor could be determined in
execution proceedings and at that time collateral security would be required to be
accounted for and brought to sale--Rights and obligations of the Bank as pledgee and
those of defendant under Ss. 151 and 152 of Contact Act, 1872 could be determined at the
time of realization of collateral security.

A.M. Burq and another v. Central Exchange Bank Ltd. and others PLD 1966 (W. P.)
Lah.1 ref.

(f) Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act (XV of
1997)---

----S. 9---No mark-up could be charged by Bank on accrued mark-up.

I.C.P. and others v. Messrs Chiniot Textile Mills Ltd. PLD 1989 Kar. 316 fol.

(g) Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act (XV
of 1997)---

----S. 9---Suit for recovery of loan amount---Claim for markup by Bank---Validity---

Mark-up could not be allowed to Bank without an agreement or statement of account
disclosing commitment by defendant to pay mark-up.

(h) Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act (XV
of 1997)---

----S. 17---Qanun-e-Shahadat (10 of 1984), Art.17(2)(a)---Transfer of Property Act (IV of

1882), S.59---Banking documents---Want of attestation of documents referred to in S.17
of Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997
or Art. 17(2)(a) of Qanun-e-Shahadat, 1984 or S.59 of Transfer of Property Act, 1882--
Effect---In absence of proper attestation of mortgage-deed, there could be no mortgage-
deed and no rights in property would be transferred in view of provision of S.59 of
Transfer of Property Act, 1882, even if execution thereof was acknowledged by its
executant---Want of attestation of document referred to in S.17 of Act, 1997 or Art. 17(2)
(a) of Qanun-e-Shahadat, 1984 would not render such document void or inadmissible in
evidence---Principles.

Under section 59 of Transfer of Property Act, 1882, attestation of a mortgage-deed by at

least two witnesses is an essential pre-requisite for the creation of a valid and enforceable
mortgage. If the deed is not attested by two witnesses as required, the mortgage, in fact,
does not come into existence. The necessary consequence, which follows from a want of
proper attestation, is that no interest in the property is transferred to the putative
mortgagee. On the other hand, the requirement for attestation of an instrument pertaining
to financial or future obligations as set out in Article 17(2) of the Qanun-e-Shahadat
Order, 1984, is materially and qualitatively different from the requirement of attestation
set out in section 59 of the. Transfer of Property Act, Article 17 of the Qanun-e-Shahadat
Order requires attestation for the purpose of proof pertaining to financial or future
obligations referred to in the said provision. The language employed in Article 17 of
Qanun-e-Shahadat Order, 1984 is also, in material terms, different from that used in
section 59 of the Transfer of Property Act. While section 59 by clear working stipulates
that there can be no mortgage-deed (and thus no mortgage) in the absence of proper
attestation by at least two witnesses, Article 17(2) of the Qanun-e-Shahadat Order does
not affect the validity of a document pertaining to financial or future obligation.

2 of 14
There is nothing in Article of the Qanun-e-Shahadat Order or in section 17 of the Act to
even remotely suggest that want of attestation on any document referred to in Article 17
of the Qanun-e-Shahadat Order or in section 17 of the Act, will render such document
void or inadmissible in evidence. In this material particular, the provisions of Article 17
of the Qanun-e-Shahadat Order and those of section 17 of the Act are significantly
different from the provisions of section 59 of the Transfer of Property Act. The latter
provision affects the mortgage-deed itself and results in the statutorily prescribed
consequence that no rights in property stand transferred in the absence of proper
attestation even where the executant of an instrument purporting to be mortgage-deed,
acknowledges execution of such instrument.

Section 59 of the Transfer of Property Act does not present an analogy, which can be
applied to the provisions contained in Article 17 of the Qanun-e-Shahadat Order or to
section 17 of the Act.

Shamu Patter v. Abdul Kadir Ravuthan and others 39 Indian Appeals 218 and Mt. Hira
Bibi and others v. Ram Hari Lal and others 1925 PC 203 ref.

(i) Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act (XV of
1997)---

----S. 17---Qanun-e-Shahadat (10 of 1984), Art.17(2)(a)--Personal guarantee, execution

of---Proof---Where execution of guarantee was admitted, then neither there would be
need for proving its execution through attesting witnesses nor mere want of attestation
would render same inadmissible in evidence.

(j) Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act (XV of
1997)---

---S. 17---Qanun-e-Shahadat (10 of 1984), Art.17(2)(a)--Power of attorney relating to

financial obligations, execution of---Proof---Where execution of such power-of-attorney
was denied by its purported executant, then same would be inadmissible in evidence for
want of attestation.

(k) Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act (XV
of 1997)---

----S. 9---Contract Act (IX of 1872), S.128---Suit for recovery of loan amount---
Guarantor claiming to be employee of defendant-Company and holding only nominal
equity in company denied his liability to pay loan amount ---Validity--Mere such fact
could not absolve guarantor of his personal liability undertaken by him by executing
personal guarantee to secure payment/ obligations of defendant-Company.

Shams Mehmood Mirza for Plaintiff.

Mansoor-ul-Arfin for Defendants Nos. 1 to 7.

Malik Asif Iqbal for Defendant No.8.

Date of hearing: 16th May, 2001.

JUDGMENT

This suit filed by the plaintiff-Bank seeks recovery of a sum of Rs.238,665,360.70 from
the defendants alongwith other sums prayed for in the plaint. The defendants have
submitted separate petitions seeking leave to appear, particulars of which are as under:--

PLA No. 117-B of 2000 by defendant No. 1, PLA No. 118-B of 2000 by defendant No. 2,
PLA No. 119-B of 2000 by defendant No.3, PLA No. 120-B of 2000 by defendant No.4,
PLA No.121-B of 2000 by defendant No.5, PLA No. 122-B of 2000 by defendant No.6,
PLA No.123-B of 2000 by defendant No.7 and PLA No. 124-B of 2000 by defendant
No.8.

3 of 14
The defendant-Company has been sued as principal debtor, while the defendants Nos.2 to
8 have been impleaded in their capacity as guarantors to secure the payment obligations
of the defendant-Company.

2. As per contents of para.5 of the plaint, the defendant-Company has availed the
facilities mentioned in the said paragraph. The defendants have, statedly, executed the
various documents, referred to in para.6 of the plaint, in respect of the aforesaid finance
facilities, including finance agreements, demand promissory notes, facility letters and
security documents which have been executed by the defendant-Company and personal
guarantees which have been executed by defendants Nos.2 to 8.

3. Various grounds have been urged on behalf of the defendant-Company in support of its
application (PLA No.117-B of 2000), seeking leave to appear. The facility-wise
contentions of learned counsel for the defendant-Company and the replies thereto by
learned counsel for the plaintiff-Bank are discussed below.

4. Learned counsel for the defendant-Company has, firstly, referred to the Export Re-
finance ("ERF") facility of Rs.55,000,000 in respect of which a sum of Rs.63160,719 has
been claimed by the plaintiff-Bank. The finance agreement dated 30-10-1998 in respect
of the ERF facility has been placed on record at page 26 of the case file. According to the
said agreement, the sale price constituting the finance is Rs.55,000,000, while the
defendant-Company is obliged to make repayment in lump sum of the marked-up price
amounting to Rs.63,160,719 on or before 30-9-1999. It was submitted by learned counsel
for the defendant-Company that the sale price of Rs.55,000,000 was never disbursed to
the defendant-Company. He referred to the statement of account, at page 193 of the case
file debited to the account of the defendant-Company on 16-3-1999. The defendant-
Company, however, in its application seeking leave to appear, has taken the plea that the
aforesaid amount had been debited to its account without any authorization and had not,
in fact, been disbursed to the said company. The plaintiff-Bank has submitted its reply to
the PLA and alongwith it has filed a statement in respect of the current account of the
defendant-Company. The said statement of account shows that the amount of
Rs.55,000,000 was credited to the current account of the defendant-Company on 16-3-
1999 alongwith another credit entry for a sum of Rs.28,500 on the same date. Thereafter,
a sum of Rs.56,327,200 was debited to the said current account on the same date i.e. 16-
3-1999. It is argued by learned counsel for the defendant-Company that the said debit
entry dated 16-3-1999 is wholly unauthorized and further that no explanation has been
preferred by the plaintiff-Bank as to where that amount has gone.

5. Learned counsel for the defendant-Company has also referred to certain

inconsistencies in the stance adopted by the plaintiff-Bank in relation to the ERF facility
and the debits made in the account of the defendant-Company relating to the said facility.
In this regard, he has firstly, pointed out that in the plaintiff-Bank's reply to the PLA, it
has been stated that the aforesaid amount of Rs.55,000,000 under the ERF facility was
credited to the current account of the defendant-Company on 16-3-1999, while in C.M.
No.208-B of 2001 in a letter addressed by learned counsel for the plaintiff-Bank to
learned counsel for the defendant-Company, it has been asserted that the ERF limit was
disbursed on 3-11-1998. According to learned counsel for the defendant-Company, the
first disbursement is shown in the statement of account on 16-3-1999, while the aforesaid
letter of learned counsel for the plaintiff-Bank asserts that the amount was disbursed
earlier on 3-11-1998. On this basis, it was contended by learned counsel for the
defendants that the statement of account relating to the ERF facility was not reliable and
should not be made a basis for denying leave to appear to the defendant-Company.

6. In response learned counsel for the plaintiff-Bank contended that the ERF facility had
been allowed to the defendant-Company for a period of eleven months starting from the
date of the agreement dated 30-10-1998. He further stated that the facility was in respect
of an overall limit of Rs.55,000,000 and the defendant-Company was allowed to avail
refinance for various transactions within the overall limit for which export refinance was
permissible. He, therefore, explained that initially export refinance was disbursed to the
defendant-Company on 3-11-1998 as stated in his letter to learned counsel for the
defendant-Company. However, the said amount together with mark-up thereon, had been
repaid by the defendant-Company and the Bank, as such, had no claim against the
defendant-Company in respect of the first disbursement under the ERF facility. He also
4 of 14
referred to the statement' of account pertaining to the ERF facility and pointed out that no
amount had been claimed from the defendant-Company in respect of the ERF facility for
any amount disbursed prior to 16-3-1999. This, indeed, is correct. As such, the apparent
discrepancy in the statement of account, which was pointed out by learned counsel for the
defeadant-Company, stands fully explained.

7. It was next contended by learned counsel for the defendant-Company that even though
the ERF facility, as per contents of agreement dated 30-10-1998, was for a period of
eleven months, starting from 30-10-1998 and ending on 30-9-1999, the plaintiff-Bank
could only have charged mark-up for the period subsequent to the disbursement of the
facility. This argument of learned counsel for the defendant-Company also stands
explained as discussed in the preceding paragraph because the plaintiff-Bank has not
charged or claimed any mark-up for the period prior to the disbursement made on 16-3-
1999.

8. Learned counsel for the defendants next drew my attention to the statement of the ERF
account at pages 193 and 194 of the file. According to him, there was a debit entry of
Rs.10,800,000 in the said account on 2-9-1999 and also a further debit entry of Rs.
7,000,000 on 14-9-1999. According to learned counsel, the total limit of the Export
Refinance Facility was Rs.55 million. The facility had been availed in full. However, on
2-9-1999, an amount of Rs.10,800,000 was credited to the ERF account, while on 14-9-
1999 a further sum of Rs.7,000,000 was credited to the said account.

9. It was learned counsel's contention that even though there were debit entries in the
Export Refinance Account in respect of the aforesaid sums of Rs.10,800,000 and
Rs.7,000,000, there were no disbursements of the said amounts to the defendant-
Company. This contention, however, is not entirely correct. As pointed out by learned
counsel for the plaintiff-Bank, the amount debited as aforesaid, was transferred to the
current account of the defendant-Company and was utilized by the said defendant as
export refinance. The statement of account does bear out the assertion made by learned
counsel for the Bank. Furthermore, the plaintiff-Bank has, with its reply to PLA No.117-
B of 2000, submitted two specific letters of request of the defendant-Company to revolve
the export refinance within the aggregate limit of Rs.55,000,000. The first request made
to the plaintiff-Bank is by means of letter dated 31-8-1999 and is for a sum of
Rs.10,800,000. The defendant-Company has, with its requests, furnished the requisite
documents to the bank including an undertaking under the Export Refinance Scheme of
the State Bank as well as a Demand Promissory Note which are on file. Likewise, by
means of an undated letter, the defendant-Company has made a further request for
revolving the export refinance of Rs.7,000,000. The requisite undertaking and promissory
note relating to the same are also on file. It was, therefore, contended by learned counsel
for the plaintiff-Bank that the aforesaid transactions were covered within the overall limit
of the ERF facility and were fully documented as noted above, in accordance with the
provisions of the Export Refinance Scheme of the State Bank of Pakistan. This
contention of learned counsel has force and is also fully supported by the documents
referred to by him.

10. It was then argued by learned counsel for the defendant-Company that each Export
Refinance Transaction was required to be separately sanctioned and dealt with
independently under the Export Refinance Scheme Part II of the State Bank of Pakistan.
He also argued that, as a consequence, separate sanction letters and documentation was
necessary for the two transactions of Rs.10,800,000 and Rs.7,000,000, respectively,
which are reflected in the Export Refinance Account of the defendant-Company. These
contentions of learned counsel are not material in the light of the express requests made
by the defendant-Company itself seeking the aforesaid refinance: Furthermore, the said
transactions have been adequately explained by the plaintiff-Bank in its reply. As noted
above, the defendant-Company, after availing the export refinance limit to the full, had
repaid the amounts of Rs.10,800,000 and Rs.7,000,000, respectively, thereby creating
room within the total sanctioned limit of Rs.55,000,000, to enable the plaintiff-Bank to
grant the requested refinance. The defendant-Company, as such, cannot be allowed to
raise a plea which is contrary to its own stance as reflected in its letters of request.

11. In addition to the above, learned counsel for the plaintiff-Bank drew my attention to
the financial statements of the defendant-Company for the year ended 31-8-1999. The
5 of 14
.said statements have been duly audited by a firm of Chartered Accountants. The auditors
have obtained all the information and explanations necessary for the purpose of their
audit as submitted in their report to the members of the defendant-Company Note 5 to the
audited accounts clearly shows the amount due by the defendant-Company to the
plaintiff-Bank in respect of the ERF facility. The liability of the defendant in respect
thereof for the year 1998 is shown as Rs.55,000,000 and in respect of 1999, it is shown as
Rs.56,275,000. The audited accounts provide material corroboration to the statement of
account filed in support of the plaintiff-Bank's claim.

12. The documents considered above do clearly show that the defendant-Company had
availed the Export Refinance Facility and was liable to repay the same to the plaintiff-
Bank. Learned counsel for the defendant-company, made reference to various precedents
to nullify the effect of the contents of the audited accounts and the above referred letters
requesting export refinance of Rs.10,800,000 and Rs.7,000,000, respectively. He argued
that the audited accounts at best, could be construed as admissions on the part of the
defendant-Company which admissions were not conclusive and could be rebutted. As a
statement of law there can be no dispute with the contention of learned counsel for the
defendant-Company. The various precedents cited by him, which are discussed below,
enunciate the same legal principle. However, the contention of learned counsel is not
tenable in the circumstances of the present case. Firstly, it is to be noted that learned
counsel for the defendant-Company has not been able to show any reason why the
audited financial statements, which have been prepared by a reputable firm of Chartered
Accountants, should be treated as an admission. Secondly, even if the audited financial
statements are or can be treated as admissions, no argument has been advanced by
learned counsel for the defendant-Company which would rebut the contents of the
audited statements to justify that the same may be disregarded. Thirdly, the precedents
cited by learned counsel for the defendant-Company are distinguishable on fact as briefly
discussed below.

13. Learned counsel for the defendant-Company, firstly, referred to the case titled Ahmed
Khan v. Rasul Shah and others PLD 1975 SC 311. It was held in this case that admissions
are only relevant evidence and are not conclusive. This legal proposition is well-
established. The facts of the cited precedent, however, show that there was plenty of
relevant evidence available in that case to rebut the admission which was set up against
one of the parties to the litigation. In the present case learned counsel for the defendant-
Company has not been able to point to any evidence which would counter the audited
financial statements of the defendant-Company. The mere verbal assertion made by the
defendant-Company that facilities were not availed by the defendant-Company or, were
not availed to the extent claimed by the plaintiff-Bank, cannot suffice for the purpose of
denying the liability, of the defendant-Company. Learned counsel for the defendant-
Company also referred to the case titled Barkhurdar v. Muhammad Razzaq PLD 1989 SC
749. This judgment relies on the case of Ahmed Khan v: Rasul Shah and merely reiterates
the enunciation of law given in the earlier precedent.

14. Learned counsel for the defendant-Company next cited the case titled Pakistan
Development Corporation Ltd. v. The Bank of Bahawalpur PLD 1960 Karachi 885. It has
been held in the cited case that admissions are not conclusive and that it is always open to
a person who made an admission to show that he had done so under a mistake,
misapprehension or miscalculation. In. the present case, learned counsel for the
defendants has been unable to point to any mistake, misapprehension or miscalculation.
The cited precedent, in the circumstances, goes against the argument advanced by learned
counsel for the defendant-Company.

15. Finally, learned counsel referred to the case titled Mst. Hameeda Begum and others v.
Khadim Hussain and others 2001 MLD 427. This is a case decided by a Bench of the
Lahore High Court relying on the case of Ahmed Khan v. Rasul Shah and the case titled
Barkhurdar v. Muhammad Razzaq referred to above. The material facts of the case are
that an admission had been made which was contrary to the contents of the Revenue
Record relating to the redemption of a mortgage. The admission related to the date of
redemption of mortgage on which date the person making the admission, was ten years
old. After a discussion of the evidence it was held in the cited case that there was
sufficient material on the record to rebut the admission so made. As noted above, in the

6 of 14
present case there is no evidence to rebut the contents of the audited financial statements
placed on record, by the plaintiff-Bank.

16. Learned counsel for the defendants next contended that in actual fact the defendant-
Company had availed export refinance up to a limit of Rs.25,000,000 which amount was
outstanding when the limit for the said finance was raised to Rs.55,000,000. He,
therefore, contended that the bank was only entitled to charge mark up in respect of the
enhanced amount of Rs.30,000,000. This contention, however, cannot be accepted in the
light of the agreement dated 30-10-1998 which has been executed by the defendant-
Company, setting out therein its commitment in respect of the entire; finance. Of
Rs.55,000,000. It was on the basis of the said agreement that the plaintiff-Bank was
induced to grant finance. The defendant-Company, therefore, cannot be allowed to resile
from its commitment.

17. The last contention in respect of the ERF facility was that under relevant State Bank
circulars and also a circular dated 26-4-1994 issued by the plaintiff-Bank itself, there was
no scope for any renewal of facilities or the continued charge of mark-up thereon after the
expiry of the agreed period. This contention is also not well founded because the
defendant-Company had itself made a request for the restructuring of its financial
obligations to the plaintiff-Bank and had also entered into the agreement in relation to the
ERF facility. In these circumstances, the defendant-Company cannot be allowed to back
out from its financial commitment.

18. The plaintiff-Bank has also made a claim for Rs.10,653,000 on account of cash
finance (pledge). The amount due under the Cash Finance Facility as on 22-5-2000 was
Rs.9,172,000 but a sum of Rs.1,480,283 has been charged thereon by way of mark-up to
arrive at the sum claimed by the plaintiff-Bank. According to learned counsel for the
defendant-Company, the aforesaid Cash Finance Facility was secured through pledge of
rice which the bank cannot now account for. He, therefore, contended that in the absence
of the pledged stocks of rice, the plaintiff-Bank, could not enforce its claim in respect of
the Cash Finance Facility. In support of his contention, learned counsel cited the case
titled "A.M. Burq and another v. Central Exchange Bank Ltd. and others" PLD
1966(W.P.) Lahore-1. The facts of the said case are, however, distinguishable. In the cited
precedent, there was no dispute between the parties that the pledgee bank was solely
responsible for the destruction/ disappearance of a part of the pledged goods. As such, the
said bank's admitted failure to account for the missing goods was made a, basis for the
said judgment.

19. In the present case, however, the bank has lodged an F.I. R. dated 2-5-1998 at P. S.
Sadar Kamoki. The F.I.R. has not been produced on record by either party. It is, however,
clear from the contents of the PLA No. 117-B of 2000 and the reply thereto that the
responsibility for loss of the pledged rice cannot, at this juncture, be placed on the
plaintiff-Bank. Section 176 of the Contract Act empowers the plaintiff-Bank to file its
suit without selling the pledged rice and to treat the pledge as collateral security only.
Clearly this option has been exercised by the plaintiff-Bank. The matter relating to any
shortfall in the pledged stock of rice and the responsibility therefor can be determined in
execution proceedings at the time the collateral security is required to be accounted for
and brought to sale. The rights and obligations of the plaintiff-Bank as pledgee and those
of the defendant-Company under sections 151 and 152 of the, Contract Act, which were
referred to by learned counsel for the defendant-Company, can also be determined at the
time of realization of the collateral security.

20. For the present it will suffice to point out that the stock statements, which are on
record at pages 37 and 38 of the reply to the PLA, cannot be treated as evidence of the
fact that the plaintiff-Bank was delivered possession of the stocks of rice referred to
above. The said stock statements have been signed by a representative of the defendant-
Company and are clearly inconsistent with the plea now being advanced on behalf of the
company. It is also important to note that the stock statements are dated subsequent to the
F.I.R. dated 2-5-1998 but quantities of rice valuing Rs.6,484,400 have purportedly been
delivered by the defendant-Company to the plaintiff-Bank and received by the Muqadam
of the latter. In view of the admitted position that the stocks of rice, in fact, do not exist,
no liability for loss of the same can be attributed to the plaintiff-Bank on the basis of the
aforesaid stock reports. Furthermore, it is important to note that the cash finance facility
7 of 14
has mostly been adjusted through payments made by the defendant-Company
Rs.6,000,000 in respect of the said facility has been paid subsequent to the filing of the
present suit and, as a result, only a sum of Rs.3,000,000 approximately, remains
outstanding on this score.

21. The next claim in the plaintiff’s suit relates to a Demand Finance Facility of
Rs.65,000,000. This facility is covered by an agreement dated 11-11-1998. The amount
claimed by the plaintiff-Bank in respect of the said facility is Rs.81,323,645 which
includes mark-up of Rs.16,327,000.

22. It is not in contention between the parties that the aforesaid, amount of Rs.65,000,000
is comprised of the following three facilities:--

(a) FAPC

Rs.30,000,000

(b) Cash Finance (Hypothecation)

Rs.20,000,000

(c) IDA Loan

Rs.15,000 000

Total:
Rs.65,000,000

23. Learned counsel for the defendant-Company has not disputed the aforesaid principal
amount but has denied the liability of the defendant-Company to pay the mark-up
claimed thereon amounting to Rs.16,327,000. Learned counsel for the defendant-
Company has contended that in accordance with the circulars issued by the State Bank of
Pakistan and by the plaintiff-Bank itself, which have referred to above, it was not
permissible to the plaintiff-Bank to create a fresh Demand Finance Facility merely for the
purpose of adjusting the existing liabilities of a customer of the Bank and thereafter to
charge mark-up on the fresh demand finance facility created for the aforesaid purpose.

24. The above contention of, learned counsel is not legally tenable. As noted above, it
was the defendant Company itself which made a request for restructuring of the various
facilities availed by it. The Demand Finance Facility was then granted by the plaintiff-
Bank on the specific request of the defendant-Company. In these circumstances, it is
quite clear that the restructuring of facilities was done by the plaintiff-Bank on the
express request of the defendant-Company which also thereafter executed relevant
documents to set out its commitment to repay the restructured amount in accordance with
agreed terms. The defendant-Company cannot now be allowed to resile from its
commitment which has clearly resulted in the existing arrangement. The plaintiff-Bank
has advanced the Demand Finance Facility and has also refrained from initiating legal
action against the defendant-Company in 1998 when the restructuring request was made
by the defendant-Company. In the circumstances, the defendant Company is estopped
from disputing the amount of mark up which was committed by it and on the basis of
which the Demand Finance Facility of Rs.65,000,000 was granted to it.

25. Learned counsel for the defendant-Company also argued that in the light of the
dictum laid down in the case titled I.C.P. and others v. Messrs Chiniot Textile Mills Ltd.
PLD 1989 Karachi 316, no mark-up could be charged by the plaintiff-Bank on accrued
mark-up. The cited precedent does hold so. However, it is not applicable in the
circumstances of the present case because the plaintiff-Bank has not charged any mark-up
on mark-up. The amount set out in paragraph 22 above constitutes the claim of the
plaintiff-Bank on account of the principal amount of the facilities referred to in the said
paragraph. Mark-up thereon has only been charged pursuant to the express request and
the agreement of the defendant-Company as noted in the preceding paragraphs of this
judgment. The amount of Rs.16,327,000 as mark-up, therefore, constitutes a valid and
enforceable claim. At this juncture, it is important to note that the sum of Rs.22,237,689,
which had accrued by way of mark-up on N the facilities referred to in paragraph 22
above, was adjusted, at the request of the defendant-Company, through the creation of
8 of 14
another Demand Finance Facility (DF-II) on which no mark-up has been charged or
claimed by the plaintiff-Bank. Furthermore, there is no assertion on behalf of the
defendant-Company that mark-up has been charged on the aforesaid amount of accrued
mark-up. The case of I.C.P. and others v. Chiniot Textile Mills Ltd., is, therefore,
inapplicable to the facts of the present case.

26. The fourth claim made by the plaintiff-Bank is in respect of the second Demand
Finance Facility (DF-II) in respect of which the plaintiff-Bank has made a claim of
Rs.22,237,689. There is no dispute or contention between the parties in relation to the
validity of this claim.

27. The fifth claim of the plaintiff-Bank against the defendant-Company is in respect of a
Running Finance Facility of Rs.40,000,000 covered by a financing agreement dated 22-
12-1998. It was contended by learned counsel for the defendant-Company that the said
amount had not been disbursed to it. Learned counsel for the plaintiff-Bank, however,
pointed out that at the specific request of the defendant-Company, the said amount was
disbursed to its sister concern, namely, Petro-commodities (Pvt.) Ltd. In support of this
contention, learned counsel referred to letter dated 9-2-1998 addressed to the plaintiff-
Bank by the defendant-Company. In the, said letter, the defendant-Company has
specifically requested for a Running Finance Facility of Rs.40,000,000 to, adjust the
over-dues of the aforesaid sister concern. Furthermore, learned counsel for the plaintiff-
Bank drew my attention to the audited accounts of the defendant-Company. Note 3.2 to
the said accounts expressly sets out the fact that the defendant-Company is liable for the
Rs.40,000,000 running finance. The defendant-Company, as per audited accounts, is also
charging mark-up to Petro-commodities (Pvt.) Ltd. on the aforesaid amount.

28. Learned counsel for the defendant-Company contended that a mere request for
running finance was not, in itself, sufficient to burden the defendant-Company with
liability. According to him, there needed to be a specific overt act subsequent-to the letter
of request dated 9-2-1998, referred to in the preceding paragraph. It was his contention
that the defendant-Company had neither drawn the aforesaid amount by means of any
cheque nor had any authority been given- to the plaintiff-Bank to debit the current
account of the defendant-Company for the purpose of adjusting the liability of Petro-
commodities (Pvt.) Ltd. This contention, however, is not well founded because the claim
of the plaintiff-Bank is not based merely on the letter of request but is duly supported by
the audited accounts of the defendant-Company. In the said accounts not only has the
liability of the plaintiff-Bank been established but the further fact that the defendant-
Company is charging 44 Paisas per thousand per day to Petro-commodities Ltd., on
account of the adjustment of the latter's liability, has been verified by the auditors.

29. Learned counsel for the defendant-Company referred to the same arguments and
precedents which have been discussed in paragraphs 13, 14 and 15 above to counter the
effect of the audited financial statements of the defendant-Company in respect of the
Running Finance Facility. For the reasons already discussed in the aforesaid paragraphs
of this judgment, I find no merit in the submissions of learned counsel for the
defendantCompany.

30. In the above noted circumstances the disbursement of the. Running Finance Facility,
the authorization for the disbursement and the utilization of the said facility have been
clearly established on record. It is thus clear that no credible or bona fide defence has
been raised by the defendant-Company in respect of the Running Finance Facility.

31. Finally, as against the defendant-Company, the plaintiff-Bank has made a claim of
Rs.2,591,271 in respect of a third Demand Finance Facility (DF-III). It appears that the
said facility was being availed by the defendantCompany at the Central Branch of the
Bank at Karachi. By means of letter dated 17-4-2000, the defendant-Company requested
for the transfer of the said liability to the Mall Branch of the plaintiff-Bank at Lahore.
This request was acceded to and, as a consequence the liability, on account of demand
finance amounting to Rs. 1,757,500 was transferred by the plaintiff-Bank from Karachi to
Lahore, as requested. Learned counsel for the defendant-Company has contended that the
plaintiff-Bank is not entitled to claim any amount by way of mark-up over and above the
sum of Rs.1,757,500 which was the amount of liability transferred from Karachi. This
assertion is based on the premise that there is no agreement on the record to show that the
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plaintiff-Bank was entitled to any mark-up, at all, on the aforesaid facility. Furthermore,
no statement of account relating to the DF-III facility has been filed by the plaintiff-Bank
with its plaint. This contention of learned counsel for the defendant-Company does
appear to have merit. Without an agreement or a statement of account disclosing
commitment by the defendant-Company to pay mark-up, it is not possible to allow such
mark-up to the plaintiff-Bank.

32. Learned counsel for the defendants also advanced a general argument in respect of
each of the financial facilities forming part of the plaintiff-Bank's claim in the present
suit. He contended that the statements of account furnished by the plaintiff-Bank
alongwith its plaint could not be relied upon to decree the Bank's suit without
corroborating evidence. In support of this contention learned counsel cited the case titled
Citibank N.A. v. Riaz Ahmed 2000 CLC 847. The facts of the precedent case distinguish
it from those of the present suit. In the cited case the counsel for the plaintiff-Bank had
made a statement relinquishing the Bank's claim in respect of a sum of Rs.13,00,000. The
said amount, however, was claimed by the Bank in its appeal. It was clear from the record
before the learned Appellate Court that the aforesaid amount had, indeed, been
relinquished and it was also noticed by the learned Appellate Bench that the aforesaid
amount was, in fact, advanced to the defendant not by the plaintiff-Bank itself but by a
subsidiary of the plaintiff-Bank which having been separately incorporated, was a distinct
legal entity. Furthermore, the learned Appellate Court found that there were no
documents on file to support the claim in respect of the aforesaid sum of Rs.13,00,000
although the amount did find mention in the statements of account filed by the plaintiff-
Bank with its plaint. It was in these circumstances that the learned Appellate Bench held
that the statements of account could not be relied upon without corroborative evidence. In
the present case, barring the amount claimed by the plaintiff-Bank as mark-up on the
Demand Finance Facility (DF-III) the Bank has produced relevant agreements and other
documents executed by the defendants to support the statements of account filed with the
plaint. Furthermore very strong corroborative evidence in the form of the audited
financial statements of the defendant-Company has been placed on record in respect of
which there is no reasonable rebuttal by the defendants. For these reasons the cited
precedent is distinguishable and does not advance the case of the defendants.

33. Learned counsel for the defendants next advanced arguments in respect of the
guarantees on the basis of which the plaintiff-Bank had made its claim against defendants
Nos.2 to 8. Defendants Nos.2 and 3 have, each, executed five guarantees which are,
respectively, dated 30-10-1998, 28-10-1998, 11-11-1998, 31-12 1998 and 22-12-1998.
Each of the defendants Nos.4 to 8 have executed separate personal guarantees. Execution
of guarantees by the respective defendants is not denied.

34. Learned counsel has firstly, contended that the guarantees, executed by defendants
Nos.2 to 8, cannot be made a basis for a decree against the said defendants because the
said guarantees are not attested in accordance with the requirements of section 17 of the
Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 (the
"Act") and Article 17 of the Qanun-e-Shahadat Order, 1984. I have examined the
guarantees, with the assistance of learned counsel and note that the same do lack the
formal attestation required by the aforesaid statutory provisions.

35. For the purpose of drawing an analogy learned counsel for the defendants referred to
section 59 of the Transfer of Property Act, which requires mortgage deeds to be attested
by two witnesses. He contended that the concept of attestation by witnesses had always
existed in law, even prior to the enactment of Article 17 of the Qanun-e-Shahadat Order.
On this basis, he contended that the meaning of the term attestation and .the effect of any
lack of attestation as per requirements of the Qanun-e-Shahadat Order, could be
determined by referring to relevant case-law, wherein, the said matters had been
considered and adjudicated upon. In this regard, he, firstly, referred to the case of Shamu
Patter v. Abdul Kadir Ravuthan and others 39 Indian Appeals 218 and to the case titled
Mt. Hira Bibi and others v. Ram Hari Lal and others 1925 Privy Council 203. Both
precedents relate to section 59 of the Transfer of Property Act and contain an enunciation
of law as to the meaning of the term "attestation" and the legal consequences which
follow if a mortgage-deed is not duly attested by two witnesses.

10 of 14
36. In both cited precedents, it has been held that a mortgage-deed, which is not properly
attested as required by section 59 of the Transfer of Property Act, does not result in the
creation of a mortgage security. In the case of Hira Bibi, it has been held that this is so
even where the executant of a mortgage-deed acknowledges execution thereof and the
attestation is made by an attesting witness on the basis of such acknowledgment.

37. I have considered the contentions of learned counsel for the defendant-Company. In
order to appreciate the same, it is necessary to reproduce the relevant portion of section
59 of the Transfer of Property Act, which, inter alia, provides as under:--

"Where the principal money secured is one hundred rupees or upwards, a mortgage other
than a mortgage by deposit of title deeds can be effected only by a registered instrument
signed by the mortgagor and attested by at least two witnesses."

It is clear from the bare reading of the aforesaid statutory provision that attestation of a
mortgage-deed by at least two witnesses, is an essential pre-requisite for the creation of a
valid and enforceable mortgage. If the deed is not attested by two witnesses as required,
the mortgage, in fact, does not come into existence. The necessary consequence, which
follows from a want of proper attestation, is that no interest in the property is transferred
to the putative mortgagee. On the other hand, the requirement for attestation of an
instrument pertaining to financial or future obligations as set out in Article 17(2) of the
Qanun-e-Shahadat Order, 1984, is materially and qualitatively different from the
requirement of attestation set out in section 59 of the Transfer of Property Act. Article 17
of the Qanun-e-Shahadat Order, requires attestation for the purpose of proof pertaining to
financial or future obligations referred to in the said provision. The language employed in
Article 17 aforesaid is also, in material terms, different from that used in section 59 of the
Transfer of Property Act. While section 59 by clear wording stipulates that there can be
no mortgage-deed (and thus no mortgage) in the absence of proper attestation by at least
two witnesses. Article 17(2) of the Qanun-e-Shahadat Order does not effect the validity
of a document pertaining to financial or future obligations.

38. Where the signatures on a document are admitted, as in the case of the guarantees
executed by defendants Nos.2 to 8 there will be no need for proving execution of the
instrument through attesting witnesses, There is nothing in Article 17 of the Qanun-e-
Shahadat Order or in section 17 of the Act to even remotely suggest that want of
attestation on any document referred to in Article 17 of the Qanun-e-Shahadat Order or
section 17 of the Act, will render such document void or inadmissible in evidence. In this
material particular, the provisions of Article 17 of the Qanun-e-Shahadat Order and those
of section 17 of the Act are significantly different from the provisions of section 59 of the
Transfer of Property Act. The latter provision, as noted, effects the mortgage-deed itself
and results in the statutorily prescribed consequence that no rights in property stand
transferred in the absence of proper attestation even where the executant of an instrument
purporting to be a mortgage deed, acknowledges execution of such instrument.

39. Based on the above discussion, I am clear in my mind that section 59 of the Transfer
of Property Act and the case-law cited by learned counsel for the defendantCompany, do
not present an analogy which can be followed in this case or applied to the provisions
contained in, Article 17 of the Qanun-e-Shahadat Order or to section 17 of the Act.

40. Learned counsel for the defendants next referred to the case titled Abdul Khaliq v.
Muhammad Asghar Khan and 2 others PLD 1996 Lahore 367 to assert that a learned
Division Bench of this Court while deciding an appeal, had held that want of attestation
by two attesting witnesses rendered a document inadmissible in evidence where such
document pertained to future or financial obligations. The precedent cited by learned
counsel is clearly distinguishable on facts. In the said case execution of a power-of-
attorney had been denied by the purported executant. It was in these circumstances that it
was held by the Appellate Bench that the power-of-attorney, which in that case related to
financial obligations and was thus required to be attested in accordance with Article 17 of
the Qanun-e-Shahadat Order was inadmissible in evidence for want of attestation. In the
present case, however, as noted above, the execution of the personal guarantees by
defendants Nos.2 to 8 has not been denied by them. Mere want of attestation will,
therefore, not render the said guarantees inadmissible in evidence.

11 of 14
41. Based on the above discussion, I hold that the personal guarantees, which have been
executed by defendants Nos.2 to 8 axed which form the basis of the plaintiff-Bank's
claim against the said defendants, cannot be excluded from consideration merely because
the same are not attested in the matter required by Article 17 of the Qanun-e-Shahadat
Order.

42. Learned counsel for the plaintiff-Bank also argued that by virtue of the wording of
section 17 of the Act, the attestation requirements of Article 17 of the Qanun-e-Shahadat
Order would only apply to such documents which are executed both by the Bank and its
customer and the same would be inapplicable to documents such as the personal
guarantees in question, which have only been executed by the defendants and not by the
Bank. However, in view of what has been held in the preceding paragraph, I do not
consider it necessary in this case to give any finding on the submission made by learned
counsel for the plaintiff-Bank.

43. Learned counsel for the defendants next argued that the guarantees, which were being
pressed into service by the plaintiff-Bank against the defendants Nos.2 to 8, were without
consideration. In support of this contention, he referred to the provisions of section 127 of
the Contract Act and. to illustration 'C' thereof. Support was also drawn from the ratio in
the case titled Ram Narain v. Lt. Col. Hari Singh and another AIR 1964 Rajasthan 76 and
the case titled Muthukaruppa Mudali and others v. Pr. Mu. Kathappudayan and others 25
IC 726. The aforesaid precedents and legal provisions were relied upon by learned
counsel to contend that any past consideration was not sufficient for the purpose of being
treated as consideration for a guarantee executed subsequently. In the present case, he
contended that the liability of the defendant-Company stood created prior to the dates on
which the various guarantees were executed. This contention of learned counsel is not
supported by the record.

44. It may be noted that the guarantees executed by the defendants Nos.2 to 8 (subject to
the finding in paragraph 48 below) related to the various agreements executed by the
defendant-Company in favour of the plaintiff-Bank and the liability created thereunder.
Execution of the guarantees is contemporaneous with some of the financing agreements
and also with forbearance and grant of time by the Bank to the defendant-Company
which is sufficient consideration for the execution of the guarantees. It is thus clear that
the guarantors have executed the said personal guarantees for consideration and are liable
for the amounts owed by the defendant-Company to the plaintiff-Bank. I therefore, hold
that subject to what has been stated in paragraph 48 below, the defendants Nos.2 to 8
have not been able to raise any serious or bona fide dispute in respect of the claim made
against them by the plaintiff-Bank.

45. In respect of the two guarantees each dated 30-10-1998, respectively executed by
defendants Nos.2 and 3, learned counsel argued that the amount of Rs.55,000,000 secured
thereby included a sum of Rs.25,000,000 on account of an earlier overdue liability of the
defendant-Company. Only the additional sum of Rs.30,000,000 had, in fact, been
advanced by the plaintiff-Bank on account of export refinance. According to him, even
the additional amount was not, in fact, disbursed to the defendant-Company. He
therefore, argued that the guarantees executed by the defendants to secure the said
liability were void for want of consideration. The contentions of learned counsel relating
to the non-disbursement of the Export Refinance Facility have already been considered in
an earlier part of this judgment. I have therein held that the defendant-Company had
received the Export Refinance Facility, which stood verified even in the audited accounts
of the company. In the circumstances, the guarantees executed by the defendants to
secure the said liability would also be valid.

46. Likewise, the assertion of learned counsel relating to the other facilities, mentioned in
para.5 of the plaint. namely, the Cash Finance Facility; Demand Finance (DF-I) Facility
of Rs.65,000,000, Demand Finance (D-II) Facility of Rs.26,411,000 and Running
Finance Facility of Rs.40,000,000 have been held to have been availed by the defendant-
Company and for which the said company is liable. In this view of the matter, the
guarantees executed in favour of the plaintiff-Bank to secure the payment obligations of
the defendant-Company, are also valid and enforceable.

12 of 14
47. In addition to the above submissions, learned counsel for the defendants also argued
that defendants Nos.5, 6, 7 and 8 were merely the employees of the company holding
shares only of the face value of Rs.5000 each. The total equity held by the said
defendants in the defendant-Company was equal to 0.2 percent of the total paid up
capital. He further argued that the said defendants, being employees of the company,
were not required to furnish personal guarantees. In support of this contention, learned
counsel referred to the memorandum on the record dated 24-12-1997 issued by the
plaintiff-Bank, wherein, only the sponsors of the defendantCompany were required to
give personal guarantees. The mere fact that the defendants Nos.5 to 8 are employees of
the company and hold only nominal equity in the defendant-Company, cannot absolve
them of their personal liability which was undertaken by them by executing personal
guarantees to secure the payment obligations of the defendant-Company. Learned counsel
for the plaintiff-Bank also drew my attention to the Bank's sanction advice requiring
personal guarantees from sponsors and directors of the Company. He rightly pointed out
that the guarantees were executed by all directors of the defendant-Company on account
of the said requirement.

48. Learned counsel then pointed out that each of the guarantees, executed by defendants
Nos.4 to 8, contain a material discrepancy inasmuch as the date of execution of the said
guarantees is stated to be 22-12-1998 but the said guarantees also purport to secure the
Demand Finance (DF-II) Facility which was allowed pursuant to an agreement dated 31-
12-1998 i.e. a date subsequent to the execution of the said guarantees. On this basis, he
contended that the guarantees had been manipulated and blanks therein filled without the
authority of the defendants Nos.4 to 8. This contention of learned counsel for the
defendants cannot be accepted in its entirety because of the fact that the defendants Nos.4
to 8 have assumed personal liability for the debts of the defendantCompany, by executing
the personal guarantees relied upon by the plaintiff-Bank. However, it does appear from
the contents of the guarantees executed by the said defendants Nos.4 to 8 that they are not
liable for the amount of Rs.26,411,000 which is being claimed by the plaintiff-Bank from
the defendant-Company in respect of the Demand Finance Facility (DF-II) on the basis of
agreement dated 31-12-1998.

49. It was also contended by learned counsel for the defendants that Amin Laljee
defendant No.4 was not in Pakistan on the date of the execution of the guarantee. He
produced in Court some letter, which is not part of the record of this case, to support his
assertion. I have considered the contents of the said letter even though the same was not
filed with PLA 120-B of 2000 on behalf of defendant No.4. It does not, in any manner,
establish that defendant No.4 was not present in Pakistan on the date on which he
purportedly executed a personal guarantee in favour of the plaintiff-Bank. Furthermore,
execution of the guarantee having been admitted, the submission of learned counsel does
not raise a serious or bona fide dispute to the Bank's claim against defendant No.4.

50. Learned counsel for the defendants then made reference to a memorandum of deposit
of title deeds dated 5-10-1993 and argued that the same was invalid because admittedly
none of the facilities, set out in paragraph 5 of the plaint, were advanced to the defendant-
Company or were outstanding against it on 5-10-1993. He, therefore, contended that
there was no mortgage security for the sums being claimed by the plaintiff-Bank in the
present suit. Learned counsel for the plaintiff-Bank, however, drew the attention of the
Court to a subsequent memorandum of deposit of title deeds which is dated 15-10-1998,
whereby the mortgage, created by the defendant-Company in favour of the plaintiff-
Bank, has been duly evidenced to secure a maximum amount of Rs.250,000,000 together
with charges thereon. Particulars of the said mortgage have also been filed with the
Registrar of Companies as required by the Companies Ordinance, 1984.

51. From the above discussion it is evident that the defendant-Company has only been
able to raise a valid defence in respect of the sum of Rs.833,771 claimed by the plaintiff-
Bank-by way of mark-up on the Demand Finance (DF-III) Facility. The same is,
therefore, disallowed. Likewise, it is clear, as discussed above, that the sum of
Rs.26,411,000 being claimed by the Bank in respect of the Demand Finance (DF-II)
Facility cannot be decreed against the defendants Nos.4 to 8.

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52. The result of the foregoing discussion is that subject to terms set out in the preceding
paragraph, the suit of the plaintiff-Bank is decreed jointly and severally against the
defendants, as prayed for in the plaint.

S.A.K./H-24/L Suit decreed.

14 of 14
P L D 2001 Lahore 224

Before Jawwad S. Khawaja, J

HABIB BANK LIMITED---Plaintiff

versus

KASHIF STEEL INDUSTRY and others---Defendants

C.O.S. No. 94 of 1999, heard on 1st February, 2001.

(a) Contract Act (IX of 1872)----

----S. 176---Pawnee's right ---Default made by pawnor---Effect---Pledgee has two

courses of action available to him under the provisions of S.176 of Contract Act, 1872---
Pawnee may either bring a suit against the pawnor and retain the pledged goods as
collateral security or he may sell the pledged goods on giving the pawnor reasonable
notice of the sale.

(b) Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act (XV
of 1997)----

----S. 9---Recovery of Bank loan---Leave to defend the suit---Loan was advanced to the
defendant company and the same was rescheduled on the terms which were agreed by the
defendants---No objection was ever raised to the demand finance facilities, availed by the
defendant company---Directors had guaranteed the payment obligations of the defendant
company ---Plaintiff Bank had placed on record guarantees admittedly signed by the
Directors in respect of the facilities---Contention of the defendants was that demand
finance agreements were not legally enforceable because the same were without
consideration as no finance had been provided to or availed by the defendant company---
Validity---Such objection raised for the first time by the defendant company to the
demand finance facility was an afterthought and did not show bona tides---No serious or
bona fide defence to the claim of the plaintiff-Bank had been raised---Application for
leave to defend the suit was dismissed and the suit was decreed in circumstances.

Abdul Hameed Butt for Plaintiff.

Zahid Malik for Defendants Nos. l to 4.

A. Karim Malik for Defendant No.5.

Date of hearing: 1st February, 2001.

JUDGMENT

The plaintiff-Bank has tiled this suit for recovery of Rs. 6,20,33,000 together with future
mark up and costs etc. The defendants Nos. l to 4 have submitted a joint application (PLA
No. 133-B of 1999) seeking leave to appear and defend this suit. To distinguish the said
defendants from the Collector Customs (defendant No.5), they are referred to in this
judgment as the contesting defendants.

2. Learned counsel for the contesting defendants, firstly, argued that the claim of the
plaintiff-Bank was more than adequately secured by 15198 metric tons of scrap and steel
which were pledged with the plaintiff-Bank. According to him, the market value of the
said pledged stock is rupees twelve to thirteen crore while the plaintiff's claim is only Rs.
6,20,33,000. He, therefore, contended that the Bank should proceed to sell the stock and
realise the amount claimed by it. Learned counsel also argued that under the provisions of
section 176 of the Contract Act, the plaintiff was bound to give notice and then to sell the
pledged goods to recover the aforesaid amount. According to him, the plaintiff was
obliged by the aforesaid statutory provision, to serve notice on the defendant Company
even prior to the tiling of this suit. In order to appreciate these contentions, section 176
of the Contract Act, was duly examined. Tile same reads as under:
1 of 4
"176. Pawnee's ht where pawnor makes default.--If the pawnor makes default in ,
payment of the debt, or performance, at the stipulated time of the promise in respect of
which the goods were pledged, the pawnee may bring a suit against the pawnor upon the
debt or promise, and retain the goods pledged as collateral security; or he may sell the
thing pledged on giving the pawnor re reasonable notice of the sale."

3. It is clear from tile above wording that a pledgee has two courses of action available to
him. He may either bring a suit against the pawnor and retain the pledged goods as
collateral security or he may sell the pledged goods on giving the pawnor reasonable
notice of the sale.

4. In the present case, the plaintiff-Bank has opted for the first course of action and has
instituted the present suit while retaining the pledged goods as collateral security. It is
only in the second case where a pledgee proceeds to sell the pledged goods that he is
required to give reasonable prior notice of the sale to the pawnor. That not being the
situation in the present case, no prior notice of the Bank's intention to file the suit, was
required by law.

5. The other contention of learned counsel for the contesting defendants that the plaintiff-
Bank ought to have sold the pledged goods before tiling this suit, is also legally
untenable. The law does not oblige a pledgee to realise its security before tiling a suit.
This is evident from a bare reading of section 176 of the Contract Act.

6. Mr. A. Karim Malik, Advocate, who appeared for defendant No.5, and learned counsel
for the plaintiff-Bank, contended that the pledged stocks were lying in a customs bonded
warehouse, which was situated on the premises of the defendant-Company. According to
learned counsel for defendant No.5, adjudication had been made by the competent
adjudicating authority, under the Customs Act, against the defendant Company and the
defendant-Company had gone in appeal against such adjudication. He also mentioned
that, according to the Customs Authorities, some of the bonded goods had been removed
without payment of customs duties.

7. On this learned counsel for the contesting defendants argued that the Bank, which was
pledgee of the goods, would be responsible for any shortfall in the pledged stock. For the
purpose of the present suit, this contention is purely conjectural. The mere fact that goods
have been removed from the bonded warehouse without payment of customs duty does
not necessarily imply that there is a shortfall in the pledged stocks. The pledged steel and
scrap, in the circumstances of the present case, constitutes collateral security under the
provisions of section 176 of the Contract Act. As such, if there is any shortfall at the time
of realisation of such security, the defendant-Company would be entitled to make a claim
against the plaintiff Bank subject to law and any defences which might be available to the
plaintiff-Bank against any such action. However, for the time being, that question does
not arise.

8. Learned counsel for the contesting defendants next contended that the amount being
claimed by the plaintiff-Bank has arisen on account of a letter of credit facility provided
to the defendant-Company by the plaintiff. According to him, the terms of the said
facility were set out in the application for irrevocable documentary credit which has been
placed at page 37 of the case file. Pursuant thereto, a letter of credit was opened by the
plaintiff-Bank for a sum of US dollars 4,647,500 on 180 days usance. For the purpose of
denominating the amount of credit to Pak rupees, the exchange rate of 3,57,432 was
stipulated in the L/C application. Consequently, the figure of Rs. 16,61,16,522 appears as
the rupee equivalent of the amount of the credit. The amount, however, which was
debited to the account of the defendant-Company, was Rs. 18,72,41,526. Learned counsel
for the defendant-Company, therefore, argued that an amount of Rs. 2,11,25,004 was
debited to the account of the defendant-Company in excess of the agreed amount. This
contention of learned counsel for the contesting defendants is not well-founded because
according to Clause of the conditions of the L/C application, the plaintiff-Bank was
entitled to charge the rate of exchange which was prevalent on the date of lodgment of
negotiated documents or the contracted rate if fixed under Clause 8 of the aforesaid
conditions. Admittedly, no exchange rate was fixed under Clause 8 of the L/C
application. It is also not in dispute that as on the date of lodgment the applicable rate of
2 of 4
exchange was Rs 4,03,607 per US dollar. As a result, I find that the amount of Rs.
18,72,41,526 arrived at by applying the said rate of exchange, was rightly debited to the
account of the defendant Company. Additionally, it may be noted that the defendant-
Company had accepted the amount of debt without demur and had also been making
adjustments of the finance without raising the objection, which has not been raised in the
PLA.

9. Learned counsel for the contesting defendants also contended that under Clause 8 of
the conditions of the L/C agreement, the defendant Company had irrevocably authorised
the plaintiff-Bank to book forward exchange and the Bank was, therefore, obliged to do
so and thus to fix such rate at Rs. 3,57,232 per US dollars. It is true that an authorisation
is contained in Clause 8 of the conditions of the L/C application. However, learned
counsel for the plaintiff-Bank drew my attention to the additional conditions and
instructions forming part of the L/C application. One of the instructions stated therein
directs the plaintiff-Bank not to book forward exchange. This is a complete answer to the
argument advanced by learned counsel for the contesting defendants that the plaintiff-
Bank was under an obligation to book forward exchange cover.

10. It was then argued by learned counsel for the contesting defendants that the Bill of
Exchange, which was drawn under the L/C established by the plaintiff-Bank, was never
presented to the defendant-Company for payment nor was it ever protested under the
provisions of the Negotiable Instruments Act. This contention of learned counsel is
misconceived. I note from the terms of the letter of credit that it was to be governed by
the Uniform Customs and Practice for Documentary Credits (1993 Revision) ICC
Publication No.500. As per terms of the said publication, the Bill of Exchange was to be
drawn on, and was actually drawn on the plaintiff-Bank. The amount thereunder, as such,
was properly paid by the plaintiff-Bank when the bill was presented at maturity. There
was no obligation on the Bank to have the said Bill of Exchange either accepted by the
defendant-Company or to have the same presented to the said Company for payment at
maturity. Moreover, under ICC Publication No.500 the letter of credit was itself sufficient
to make the plaintiff-Bank liable for payment even without the Bill of Exchange.

11. It may also be noted that the finance under letter of credit, was not denied by learned
counsel for the defendant-Company. He only stated that an amount of Rs. 14,25,20,534
had been paid towards adjustment of the aforesaid finance. According to him, only a sum
of Rs. 3,59,24,000 was outstanding and payable by the defendant-Company as on 14-2-
1998, which is the position reflected in the statement of account appearing at page 30 of
the suit file. According to him, two demand finance facilities being DF-I and DF-11 had
been fabricated by the plaintiff-Bank as, according to him, the defendant-Company had
neither requested for nor availed any demand finance from the plaintiff-Bank. He further
argued that the financing agreements relating to the aforesaid demand finance facilities,
had also been fabricated by the plaintiff-Bank by utilising blank forms which had been
provided to the plaintiff-Bank in connection with facilities availed by certain sister
concerns of the defendant-Company. The signatures, on the financing agreements, it may
be noted were not denied.

12. Learned counsel for the plaintiff-Bank, however, drew my attention to three letters
addressed to the plaintiff-Bank on behalf of the defendant Company to belie the
submissions made by learned counsel for the contesting defendants. Of particular
significance is letter dated 3-7-1998 addressed to the plaintiff-Bank by the defendant-
Company. This letter is titled "Rescheduling of Credit Facilities", and refers to a financial
package which was agreed upon between the plaintiff-Bank and the defendant-Company.
The amount of Rs. 3,59,24,000 was admitted to be outstanding on account of the
principal amount. It was agreed that the said amount would be paid within a period of
two years in four equal half-yearly installments. The first such installment being payable
on 31-12-1998. The outstanding principal amount of the L/C facility was agreed to be
converted into a demand finance while another demand finance was to be created in
respect of mark-up up to 30-6-1998 on which a moratorium had been requested by the
defendant-Company.

13. Prior to the above-noted letter, the defendant-Company had addressed two other
letters dated 23-1-1998 and 21-5-1998 respectively requesting that demand finance
facilities be provided to the defendant Company. According to learned counsel for the
3 of 4
plaintiff-Bank, it is on account of the aforesaid specific requests made by the defendant-
Company that the two demand finance facilities were provided to it.

14. I also note that the demand finance agreements and the statements of account in
respect thereof, are consistent with the request for financing made by the defendant and
are also in line with the specific terms which are mentioned in the defendant-Company's
letter dated 3-7-1998. Learned counsel for the contesting defendants argued that the
plaintiff-Bank had not placed on record any letter of sanction in respect of the two
demand finance facilities. Such letter of sanction is not material in the circumstances
where terms agreed between the plaintiff-Bank and the defendant-Company, have been
expressly set out in the defendant-Company's own letter of 3-7-1998 and the same are
also consistent with the demand finance agreements which were executed by the
defendant-Company pursuant to the said terms.

15. Finally, learned counsel for the contesting defendants argued that the guarantees,
purportedly executed by the defendants Nos.2, 3 and 4 to secure the liabilities of the
defendant-Company, were fabricated. Once again, his argument was based on the ground
that the aforesaid defendants Nos.2, 3 and 4 had given blank signed guarantee forms to
the plaintiff-Bank in respect of the associated concerns of the defendant-Company and
not in respect of the facility, which had been provided by the plaintiff-Bank. Signatures
on the guarantees, however, were not denied.

16. It is to be noted that defendant No.2 is the Chief Executive while defendants Nos.3
and 4 are the Directors of the defendant-Company. In view of my finding that the demand
finance facilities "DF-I and DF-II" were duly advanced to the defendant-Company and
are properly claimable by the plaintiff-Bank, it would be logical and consistent with
normal practice that the three Directors of the defendant-Company have guaranteed the
payment obligations of the defendant-Company particularly so when the plaintiff-Bank
has placed on record guarantees admittedly signed by the defendants Nos.2, 3 and 4 in
respect of the said facilities.

17. Before parting with this judgment I would like to make reference to the submission
made by the learned counsel for the contesting defendants that the demand finance
agreements were even otherwise not legally enforceable, because they were without
consideration as no finance had been provided to or availed by the defendant-Company.
His contention is not legally tenable. It is clear from the letters addressed to the plaintiff-
Bank by the defendant Company, referred to above, that the defendant-Company had
sought rescheduling and had been provided accommodation on terms which were agreed
by the defendant-Company. Prior to the filing of the present application for leave to
appear, the defendant-Company did not, at any time, raise any objection to the demand
finance facilities availed by it. On the contrary, it had with due deliberation induced the
plaintiff-Bank into providing the financial accommodation requested by it. In these
circumstances, the objection now being raised for the first, by the defendant Company to
the demand finance facilities, is obviously an afterthought and does not show bona fides.

18. Based on the above discussion, I find that the contesting defendants have not been
able to raise any serious or bona fide defence to the claim of the plaintiff-Bank. In this
view of the matter, their application (PLA No. 133-B of 1999) seeking leave to appear, is
dismissed. As a consequence, the suit of the plaintiff-Bank against the said contesting
defendants, is decreed as prayed for alongwith mark-up and other charges permissible
under the law.

Q.M.H./M.A.K./H-29/L Suit decreed.

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2001 M L D 1646

[Karachi]

Before Sabihuddin Ahmed. J

Mrs. AZIZ SAJJAD---Plaintiff

Versus

U.B.L. and others---Defendants

Civil Suit No.270 and Civil Miscellaneous Application No.3123 of 2000 decided on 20th
December, 2000.

Civil Procedure Code (V of 1908)---

----O.VII, R.11---Suit for damages---Rejection of plaint---Plaintiff had created equitable

mortgage in respect of shop in question by deposit of title deeds, in favour of defendant-
Bank as collateral security for loan---Plaintiff having failed to liquidate the loan, the
Bank filed recovery suit before Banking Tribunal which was decreed and mortgaged
property was ordered to be sold in order to recover the decretal amount which was
furnished by defendant---Validity---Plaintiff would have no cause of action against
defendant who had purchased shop which was sold under orders of the Court---Such sale
could not be the basis of suit for damages against the Bank and auction-purchaser of
shop.

S. Mussarat Ali for Plaintiff.

Zubair Qureshi and Zamiruddin Ahmed for Defendants.

ORDER

This order will dispose of the application (C.M.A. No.3123 of 2000), filed by the
defendant No. l under Order 7, Rule 11 read with section 151, C.P.C. for rejection of the
plaint on the ground that the plaintiff has no cause of action to file the suit.

Briefly the facts for the disposal of the present application are that the plaintiff obtained
sub-lessee of Shop No.25 on ground floor sub-plot No.4, of Plot No.171-2-A. Block 3
P.E.C.H.S. Karachi in commercial complex, known as Rabi Centre. The plaintiff through
her husband and attorney created equitable mortgaged by deposit of title deed in favour
of the United Bank Limited as, collateral security for financial facility, granted to M/s.
Hosama Enterprises in the sum of Rs.3,75,000. M/s. Hosama Enterprises, the principal
borrower failed to liquidate the loan. The defendant No.1 filed recovery Suit No.242 of
1992 before the Banking Tribunal No.2 at Karachi against the principal borrower and the
plaintiff, which was decreed by judgment dated 15-9-1992. The mortgaged property was
ordered to be sold in order to recover the decretal amount if it is not paid. It may be
pointed out that before filing of the suit referred to above, M/s. Shaikh Sajjadh & Sons
(Pvt.) Ltd., was ordered to be liquidated in terms of Banking Companies Ordinance,
1962, in J.M. No.27 of 1988. The shop was auctioned in the liquidation proceedings
under orders of the Court and sale was confirmed on 8-2-1990, possession was handed
over to the defendant No.2 on 3-4-1990. Public notice for sale of the shop was issued on
9-8-1993 in execution of the decree in favour of the defendant No. l but could not be sold
as the same was already sold to defendant No.2 in J.M. No.27 of 1988. The plaintiff for
the first time served notice on the defendant No. l on 19-1-2000 and filed the suit for
damages quantifying 1,16,94.185 due to loss of property by sale and a sum of
Rs.1,00,00,000 as compensation due to mental torture and uneasiness to the plaintiff.

I have heard the learned counsel for the parties.

Admittedly, the shop owned by the plaintiff was mortgaged by her through her husband
to liquidate the loan granted by the defendant No. l to M/s. Hosama Enterprises through
the suit was decreed and the shop in question was ordered to be sold to liquidate decretal
1 of 2
amount but before the decree, the shop was sold under order of this Court in J.M. No.27
of 1988 in favour of the defendant No.2. The plaintiff has no cause of action against the
defendant to bring the suit for damages. The plaintiff herself has admitted the f creation
of mortgage by deposit of title deed. The decree was granted in favour of defendant No.
1, whereas, the defendant No.2 is the purchaser of the shop in J.M. No.27 of 1988 under
orders of the Court, therefore, the plaintiff has no cause of action to bring the suit against
the defendants. The property has been sold under orders of the Court, which cannot be
basis of suit for damages against the bank and auction purchaser. Consequently, the
application is allowed and the plaint of the suit is rejected subject to the payment of
Rs.25,000 as a special costs under section 35-A of the C.P.

H.B.T./A-168/K Plaint rejected.

2 of 2
1999 CLC 671

[Lahore]

Before Mian Allah Nawaz and Ghulam Mahmood Qureshi, JJ

CENTRAL BANK OF INDIA---Appellant

versus

Syed MUHAMMAD ABDUL JALIL SHAH and others---Respondents

Regular First Appeal No.44 of 1969, decided on 30th October, 1997.

(a) Civil Procedure Code (V of 1908)--

----O. XXIX, R.1 & OXXXVII, Rr.l & 2---Suit for recovery of loan Competency---Suit
was filed by person who was appointed attorney vide deed of attorney executed by two
Directors of company and its Manager who had necessary powers to do so under Articles
of Association of plaintiff/Bank---Deed of Attorney showed that person who filed suit as
attorney was empowered to initiate any action on behalf of plaintiff-Bank arid to take to
its final conclusion---Suit filed by attorney, in circumstances, was competently filed.

The Australasia Bank Ltd. v. H.S. Mahmood Hassan Akbar PLD 1983 Kar. 431;- Ashraf
Ali v. Bank of India Ltd. 1981 CLC 1582; Mahmood-urRehman Faisal v. Secretary,
Ministry of Law PLD 1992 FSC 1; . Messrs Muhammad Sadio v. The Australasia Bank
Ltd. PLD 1966 SC 684 and Royal British Bank v. Turquand 1856 EL & BI 327 ref.

(b) Civil Procedure Code (V of 1908)---

--'--O. XXXVII, Rr.l & 2---Limitation Act (IX of 1908), Arts. 116 & 132--
Borrower/debtor had opened cash credit account in plaintiff-Bank in 1946, had executed
mortgage deed in 1947 and suit for recovery of outstanding loan was filed by plaintiff-
Bank in 1952---Relief with respect to recovery of amount lent on basis of personal
covenant in mortgage deed was covered by Art. 116, Schedule to Limitation Act, 1908,
while prayer regarding realization of outstanding amount of debt by sale of property in
mortgage deed was covered by Art. 132 of the said Act---Plaintiff-Bank having claimed
all said reliefs, suit filed by plaintiff-Bank was covered by Art. 116 or 132, Limitation
Act, 1908 which had prescribed period of six years commencing from breach of
registered contract arrived at between the parties---Suit filed by plaintiff-Bank within
prescribed period of six years was maintainable and could not be dismissed on ground of
limitation.

Thiruvendipuram Chengalmma Garu and others v. Vemasani Veerarghava Naidu (1928)

114 IC 340; Sheo Das Pande v. Munj Behari and another (1928) 114 IC 813; R.
Ratnasabapathy Chettiar and others v. Davasigamony Pillal AIR 1929 Mad. 53; Kishan
Sahai and others v. Renumath Singh and others AIR 1929 All. 139; Ch. Kidar Nath and
others v. Mian Sarajud-Din AIR 1946 Lah. 97; Ganesh Lai v. Khetramohan 5 Pat. 585; 52
Mad. 105; 52 All. 369; 16 Lah. 137; 13 Pat. 228 and 35 CWN 1030 ref.

(c) Contract Act (IX of 1872)---

----S. 176---Default of pawner in making payment of loan---Rights of pawnee--When a

pawner would default to make payment of loan, pawnee would have three rights; firstly,
he would bring a suit against pawner upon debt or promise; secondly, he could retain the
goods pledged as collateral security till realization of debt; and thirdly, pawnee could sell
the things pledged after reasonable notice of sale to pawner and to sue pawner for
recovery of balance amount---Right to retain pledged goods, right to sell same and right
to bring an action for realization of debt, were not alternative remedies, but concurrent.

A.M. Burq v. Central Exchange Bank Ltd. PLD 1966 Lah. l; Percy F. Fisher v: Ardeshir
Hormasji Gazdar AIR 1935 Born. 213; Nim Chand v. Jaga Bundhu Ghose (1895) 22 Cal.

1 of 15
21; Haridas Mundra v. National Grindlays Bank Ltd. AIR 1963 Cal. 132; ILR 24 All. 251
and Yellappa v. Desayappa ILR 30 Bom.218 ref.

(d) Evidence Act (IX of 1872)---

----S. 34---Bankers' Books Evidence Act (XVIII of 1891), S.4---Evidence--Rules of

appreciation---Three well known rules of appreciation of evidence were; firstly where a
document, such as bond, receipt of entry in book of accounts, execution of which was
admitted, embodied on admission of receipt of a debt, admission would shift onus of
proof upon person who had executed such document; secondly, presumption of good
faith was in human transactions similar to presumption of innocence in criminal cases as
expressed in maxim "praesumunturrite esse acta"; burden of proving that a particular
transaction suffered from bad faith, fraud, collusion, misrepresentation, coercion and
undue influence, essentially would lay upon party who alleged said circumstance; thirdly,
copies of accounts taken from books of accounts maintained by Banks, were per se
admissible as prima facie evidence of existence of such entry in books of account and
were admitted in evidence of transaction and accounts recorded therein to same extent as
original entry under S.4 of Bankers' Books Evidence Act, 1891---Such entries were not
solely sufficient to charge borrower with liability and needed to be proved by supportive
evidence.

Nihal Chand v. Design AIR 1932 Lah. 135; Mrs. N. Johnstone v. Gopal Singh AIR 1931
Lah. 419; VCAR Annamalai Chettiar v. M.N.M.N. Ramanathan Chettiar PLD 1947 PC
82; Shah Magammal and another v. Darbarilal Chowdhry AIR 1928 PC 38; Comtibal v.
Kanchhedilal PLD 1949 PC. 156; Messrs Muhammad Sadiq Muhammad Umar and
another v. The Austalasia Bank Ltd. PLD 1966 SC 684; Douglass v. Lloyds Bank Limited
(1929) 34 Com. Cases 263; Abdul Haq v. The Firm Shivji Ram-Khan Chand AIR 1922
Lah. 338; Australasia Bank Ltd. v. H.S. Mahmood Hassan Akbar PLD 1983 Kar. 431;
Gul Habib v. Habib Bank Ltd. PLD 1983 Pesh. 31 and Muhammad Yaqoob Khan v.
Hussain Khan 1981 PCr.LJ 431 ref.

(e) Evidence---

---- Documentary evidence---Rules of appreciation enumerated.

(f) Qanun-e-Shahadat (10 of 1984)---

----Arts. 132 & 133---Examination-in-chief---Cross-examination---If a fact was asserted

in examination-in-chief and was not impeached by way of cross-examination that
assertion would be deemed to have been admitted by defaulting party.

(g) Civil Procedure Code (V of 1908)---

----S. 34---Interest---Power to grant---Power to grant interest under S.34, C.P.C. was

discretionary in nature and Court could decline to grant same at the rate stipulated in
contract if circumstances so warranted.

Jaigobind Singh v. Lachmi Narain Ram AIR 1940 FC 30; Sukhraj Rai v. Ratinath Panjara
AIR (29) Pat. 102 and Massu etc. v. United Bank Limited etc. 1990 MLD 2304 ref.

Ch. Khurshid Ahmad and M.A. Farani for Appellant.

Mian Muhammad Zafar Yasin and Sahibzada Anwar Hameed for Respondents.

Date of hearing: 20th October, 1997

JUDGMENT

MIAN ALLAH NAWAZ, J.--- This judgment will govern two Regular First Appeals
namely 44 of 1969 and 4 of 1970. Both these have arisen out of judgment and decree
passed by the learned Civil Judge, 1st Class, Multan, dated 8-2-1969. The appellant, in
Appeal No.44 of 1969 is the Central Bank of India Ltd., Bombay through Assistant
Custodian Enemy Property, Lahore (hereinafter described as Creditor/Bank/Plaintiff).
2 of 15
The second appeal is by New Bank of India Ltd., through same functionary (hereinafter
known as "Mortgagee"), Syed Abdul Jalil Shah/predecessor-in-interest of respondents
Nos. l to 10, was the sole owner of registered partnership known as Messrs Jalil Cotton
Factory (hereinafter described as Borrower/Defendant). Respondent No.2 shall be
referred to as "Guarantor".

'2. Factually speaking, on 2-12-1946 the Borrower opened a cash credit account in
Multan Branch of the Creditor with maximum limit of Rs. six lacs. The Borrower started
availing the facility, executed a deed of hypothecation on 12-12-1946. On the same date,
he executed a deed of pledge as well as pronote. The aforesaid instruments were
executed, as securities for repayment of loan alongwith interest at the rate of one per cent.
above the rate of Reserve Bank of .India with monthly rest. The Borrower deposited with
the Bank Trust Deed dated 9-8-1946/pertaining to agricultural land measuring 22 Bighas
of land known as "Bagh Chela Ramwala, situated in Tarf Sadhu Hassan and Tarf Ismail
within the urabn limits of Municipal Committee, Multan. Respondent No. l agreed to
maintain a margin of 25 to 30% of pledged goods in the constructive custody of land. As
the Borrower was not able to make repayment as well as to keep the requisite pledge
stock, he executed a mortgage-deed, dated 15-2=1947 (Exh.P.10). This showed that the
stock value of borrower was Rs.4,11,700 while bank dues were Rs.4,87,505-10-9.
Unfortunately the position of the pledged stocks further deteriorated and so on 12-4-1947
the Borrower further executed a mortgage-deed (Exh.P.ll) admitting the entries of
statement of accounts furnished to him by the Bank and also admitting the position of his
pledged stock qua his liability in following terms:

1. Details of pledged stock:

Cylinder Oil 300 Maunds CBS Rs.25 Rs.7,500

Kappas 4 F 600 Maunds ® Rs.18 Rs.10,800

Kappas 289 F 2000 Maunds @ Rs.20 Rs.40,000

Cotton Loose 4F 375 Maunds ® Rs.20 Rs.15,000

Cotton Seeds 4F 900 Maunds ® Rs.10 Rs. 9,000

Cotton Seeds 289E 2400 Maunds @ Rs.8/8 Rs.24,000

Fully pressed cotton bales 289E @ 149-7-10

Maunds @ Rs.50. Rs.35,500

Cotton loose 4F, 300 Maunds @ Rs.40 Rs.12,000

2. Value of pledged stock Rs.1,54,200

3. Outstanding liability of Borrower towards Bank Rs.4,26,903-14-3

At this juncture the guarantor executed a letter, dated 5-2-1947 under which he undertook
to repay the liability of the Creditor.

3. Since the Borrower was not able to repay his liability, the Central Bank of India
brought a suit on 27-8-1952 against respondent No. l in the Court of Senior Civil Judge,
Multan with following prayers:--

"(a) That a decree for payment of the amount of Rs.3,74,836-8-0 referred to above may
be passed in favour of the plaintiff against the defendants and both the defendants be held
jointly and severally liable for the payment of the whole decretal amount.

(b) That in case of default the mortgaged properties described in paras.5,.7 and 10 of the
plaint be sold except that property described in para. 10 be sold subject to the charge of
the New Bank of India Ltd., Multan City, as mentioned in para. 11 of the plaint and the
sale proceeds be appropriated towards the repayment of the decretal amount.
3 of 15
(c) That in case the sale proceeds are found insufficient to pay the amount due to the
plaintiff-Bank then liberty be reserved to the plaintiff-Bank for obtaining a decree for
realising the balance from other properties of the defendants and the person of defendant
No. 1.

(d) That the plaintiff may be allowed interest from the date of institution of the suit till the
date of the payment of the whole amount due to the plaintiff.

(e) That the plaintiff may be awarded the costs of suit; and

(f) That the plaintiff may be granted any other relief which may be appropriate in view of
the facts of the case and provisions of law."

Despite efforts, service could not be effected upon the Guarantor who was so proceeded
against ex parte. The mortgagee lodged an application for being impleaded as party
which was allowed and mortgagee was so arrayed as defendant No. 3.

4. That suit was contested. It was pleaded therein that the Creditor, at the time of the
filing of the suit, was in possession of the pledged goods worth Rs.ten lacs; that the Bank,
with the dawn of independence had migrated to India without accounting for the pledged
goods; that the suit on that ground was incompetent. It was further objected that the suit
was filed on the basis of deed of hypothecation, deed of pledge dated 12-12-1946 and
deed of mortgage dated 15-2-1947 and so it was barred by time under Article 57 in
Schedule to Limitation Act. On facts, it was pleaded that Messrs Jalil Cotton Factory was
owned and run by the guarantor who had migrated to India; that the deeds, mentioned
above though executed by him, yet were signed by under undue influence and coercion of
Guarantor.

5. On the above pleadings, the learned trial Court framed as many as 35 issues on 1-12-
1962. Two additional issues were also framed namely I-A and I-B on 6-2-1963.
Thereafter, the borrower lodged a suit (No.299 of 1968) for rendition of accounts on 12-
10-1962 against the creditor bank. In this suit four additional issues were framed. The
evidence was recorded by the learned first Court in Bank's suit. Upon the consideration of
the material on record, the learned trial Court decided issue No.33 against
plaintiff/holding that the statement of account furnished by the plaintiff was insufficient
to prove the liability of the borrower. Issue No.27 was decided against the bank with a
conclusion that the plaintiff had neither 'returned nor tendered accounts with regard to
pledged stock and so the suit was incompetent. Issues Nos.2 and 17 were decided jointly.
On these issues, it was found that the bank was in possession of the pledged goods. On
the basis of the above conclusions, the learned first Court held that the suit was not
competent. Issues Nos.3, 4, 13 and 14 were dealt with jointly and it was held that the suit
was beyond time under Article 57 in Schedule to Limitation Act. Issue No. 16 was
adjudicated against the borrower. Issue No. l was not decided as impressed. Issue No.5
was decided against the plaintiff and it was held that the suit was not competent. Issues
Nos. 8, 9, 10 and 11 were decided against the Bank. Issues Nos. 14, 22, 23, 24, 25 and 26
were also answered against plaintiff. Issues Nos. 18, 19, 21, 28, 30, 31 and 32 were found
against the plaintiff. On these findings the suit was dismissed on 8-2-1969.

6. Feeling aggrieved the Central Bank of India as well as the New Bank of India
preferred appeals bearing R.F.A. Na. 44 of 1969 and 4 of 1970. These appeals came up
for hearing on 5th, 6th, 7th, 8th and 12th of October, 1991 and reserved for its decision.
The decision was announced on 6-6-1992 allowing appeals. Feeling dissatisfied, Syed
Iftikhar-ud-Din Haider Gardezi and 9 others successors-in-interest of Syed Muhammad
Abdul Jalil Shah Gardezi/defendant No. 1, filed Civil Appeal No. 461 of 1992 in the
Supreme Court. The same was allowed by apex Court on 24-10-1995 in following
terms:-------

"Result of the above discussion is that this appeal is remanded to the High Court to be
heard and decided within three months without fail. The impugned judgment and decree
of the High Court is set aside. Learned counsel for the parties may raise and argue as
many questions of law and facts as they may like during the hearing. With these
observations, this appeal succeeds and is allowed with no order as to costs. "
4 of 15
The record of this case was received by this Court on 6-5-1996. This is how these appeals
have been reheard.

7. The learned counsel for the appellant/Central Bank of India, in support of Appeal No.
44 of 1969, reiterated whatever was argued by him on 5th, 6th, 8th and 12th of October,
1991. He simply stated that he had no other points in his armoury. Contrarily, Ch.
Khurshid Ahmed, Senior Advocate/learned counsel for the Borrower reiterated earlier
contentions alongwith following points:

(i ) Relied upon Exh.P.17 and statement of Saeed Ahmad (D.W.11) to contend that the
report of the said witness demonstrated that the statement of account of Bank suffered
from manifest discrepancies and was not worth to determine borrower's liability.
According to the learned counsel, the lender was required to prove the statement of
account by strong and cogent evidence. Reliance was placed on The Australasia Bank
Ltd. v. H.S. Mahmood Hassan Akbar PLD 1983 Kar. 431 and Ashraf Ali v. Bank of India
Ltd. 1981 CLC 1582. It was pointed out that the testimony of D.W.11 was expert opinion
and could not be lightly ignored.

(ii) That Issues Nos. 19, 22, 23, 24, 25 and 26 were decided by the first Court correctly.
The borrower had taken up the plea that the guarantor was legal advisor to Non-Muslim
Bank; that he had appeared in the witness-box and proved that he was merely a figure
head while actually the guarantor was the real borrower; that Exh.D.8 was a trust-deed
and so it could not serve the purpose of equitable mortgage. So Issues Nos.28, 31 and 32
had been correctly decided by the Court below.

(iii) On the question of interest it was submitted that the same had been declared in
violation of the injunctions of Islam and so this Court cannot decree the interest against
Syed Abdul Jalil. Strength was sought from Mahmood-ur-Rehman Faisal v. Secretary,
Ministry of Law PLD 1992 FSC 1.

8. From the above resume of facts, the contentions of the parties following points fall for
determination:

(1) Whether the instant suit was competently instituted?

(2) Whether the instant suit was barred by time?

(3) Whether the plaintiff had rendered accounts to respondent No. 1, with respect to stock
pledged by respondent No. 1, as required by section 172 of the Contract Act, if not,
whether the plaintiff had right to file the instant suit? .

(4) Whether Issues Nos. 19, 22, 23, 24, 25 and 26 were correctly adjudicated upon by the
Court below?

(5) Whether finding of first Court on Issues Nos.28, 31 and 32 were not open to any
exception?

9. As regards the first point, suffice it to note that the suit was filed by the plaintiff/public
limited Company inqorporated under the Indian Companies Act, 1913. The plaint was
signed, verified and filed by Mr. S.R. Jariwala as recognised agent of the Company under
Rule 1 of Order XXIX, C.P.C. The deed of general attorney, in favour of the said
attorney, was executed on 2-5-1951 by two Directors namely Mr. B.D. Lan and Mr,
Premchand. The statement of Mr. S.R. Jariwala was recorded on Commission wherein he
deposed that he was the Principal agent of the plaintiff in Pakistan and was also bank
attorney. As against this evidence, Syed Abdul Jalil appeared as D.W. 12 and did not utter
a single word to controvert the above assertion. The point for determination is whether
the plaintiff had proved that the suit was competently instituted. Similar point cropped up
for consideration in Messrs Muhammad Sadiq v. The Australasia Bank Ltd. PLD 1966
SC 684. In this case, Australasia Bank Ltd. brought a claim for recovery of loan against
Kh. Muhammad Sadiq through attorney. The suit was contested and a plea was taken that
it was filed by a person who did not have the legal authority to file it. The learned
Original Court upheld this objection and dismissed the suit. On appeal before the
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Division Bench, the two Judges differed on this question and so the matter was referred
to a third Judge who felt necessity of recording evidence, In this exercise, the memo. of
Association, Articles of Association of the Bank and Resolution authorising the Director
to appoint attorney were brought on record. On this material, the learned third Judge held
that the suit was validly Instituted and decreed the suit. On further appeal, the Supreme
Court answered the question in following terms:-----

"This brings us to the next question as to whether the suit had been competently filed. As
already stated, one of the learned Judges of the High Court had taken the view that since
the power of attorney had affixed to it the common seal of the company there was a
presumption that the power of attorney was lawfully executed, and then the onus was on
the other side which challenged the validity of the power of attorney to show that it was
ultra vires the powers of the company. The third learned Judge evidently did not agree
with this view, for, if he had done so he would not have called for the additional evidence.

We are unable to uphold the view that the production of the power of attorney bearing the
common seal of the company was by itself sufficient. In saying this the learned Judge has
evidently overlooked that as a rule the Articles of Association of a company contain
special provisions prescribing for the manner in which the seal of the company may be
affixed and that those who deal with a company are bound to see that the document on
the face of it, accords with those provisions of the Articles. It is only when it does so and
the instruments is on the face of it regular, persons dealing with a company have a right
to presume that the seal so affixed has been duly affixed, that the Directors were duly
appointed and their signature duly made. The burden only then shifts to prove the
contrary on those who allege it. Again, the law requires that, prima facie, those who deal
with a person acting under or purporting to act under a power of attorney are put upon
enquiry and are bound to satisfy themselves as to the authenticity of that power. It is only
when such a person acts or purports to act under a properly executed power that the
principal cannot repudiate his action.

This rule, has been accepted as settled over since the decision of the Court of Exchequer
Chamber in England in the case of Royal British Bank v. Turquand 1856 EL and BI 327).
According to this rule persons dealing with a company are bound to read the public
documents of a company i.e. its Memorandum and Articles of Association and to satisfy
themselves that the transaction entered into or proposed to be entered into is not
inconsistent therewith, but they are not bound to do more, nor are they required to
enquire into the regularity of the internal proceedings or what has been called "the indoor
management of the company", for, they are entitled to assume that all other things have
been done regularly. There are, of course, exceptions to this rule, but we are not
concerned with those exceptions here.

We have referred to these provisions in order to Indicate that once the authority of
Muhammad Khan to present the plaint was challenged, a reference not only to the power
of attorney was called for but also to the Articles of Association of the company. It will be
observed that in the preamble to the Articles of Association it is clearly stated that the
regulations contained in Table ' A' of the First Schedule to the Companies Act shall not
apply this company but only the Articles adopted shall apply. Under Article 125 thereof
Khawaja Bashir Bakhsh was appointed the permanent Chairman of the Board of
Directors for as long as he was qualified and willing to act as such. Under Article 123 two
Directors were sufficient to form a quorum and at a meeting at which this quorum was
present the meeting could under Article 126 exercise all or any of the authorities and
powers and directions given by or under the Articles of the Company. Article 131 vested
the general control of the company in the Directors and Article 132 inter alia, gave them
power to institute conduct, defend, compound or abandon legal proceedings and to
authorise or empower "the managers or other officers for the time being of the company
to exercise and perform all or any of the powers, authorities and duties conferred or
imposed upon the Directors". Article 135 provided that the custody of the common seal
of the company shall be with the Chairman of the company and that the seal shall not be
used except by the authority of the Directors or a Committee of the Directors in the
presence of one Director at lease who shall sign every instrument to which the seal is
affixed and every such instrument shall be countersigned by the permanent Chairman or
some other person appointed by the Directors.

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Now a reference to the power of attorney itself shows that it was signed by two Directors
and the permanent Chairman and it was also sealed with the Common seal of the
company. The said three Directors also appeared before the Registrar for presenting this
document and there admitted its execution. We have also now the resolution of the Board
of Directors passed on the 20th of December, 1942, which approved the terms of the
power of attorney to be given to Muhammad Khan as also itself registration. Clause 6
thereof gave him the power to commence, prosecute, or proceedings and clause 8 thereof
expressly authorised him to make, sign, execute, present and file all applications, plaints,
petitions or written statements, etc. It is clear, therefore, that Muhammad Khan was
properly and lawfully empowered by the Directors who themselves had express power
given to them under the Articles of Association to delegate their authority and the
delegation so made empowered Mr. Muhammad Khan to sign, execute and present
plaints, on behalf of the company. The suit was, therefore, in our view, rightly held to
have been competently filed".

10. Applying these principles to the facts of the case in hand, we are in no doubt that the
findings of the learned first Court on this issue was/is not correct.

From the evidence, it is crystal clear that the plaint was filed by S. R. Jariwala who was
appointed attorney vide deed dated 2-5-1951. The said instrument was executed by the
two Directors of the Company and the Manager who had necessary powers under Article
116(11) of the Article of Association. Under Clause (7) of Deed of Attorney, S.R.
Jariwala was empowered to initiate any action on behalf of Bank and take to its final
conclusion. In our view, the aforesaid evidence was sufficient to prove that S.R. Jariwala
had authority to file the suit. On this finding we set aside the finding of Court below on
Issues Nos.7, 8, 9 and 10 and hold that the suit was competently brought by the plaintiff.

11. Now we come to the point of Limitation. Before we proceed further, it needs to be
restated that the Pakistan Limitation Act, 1908 (hereinafter shortly stated as 'Act') is
comprehensive code dealing with all matters relating to Limitation of actions, appeals,
applications and so on and so forth. The Courts are obliged under section 3 to give effect
to it regardless of calls of expediency or convenience of the parties. The Trial Court held
that the instant suit was under Article 57 of the Act. This reads as under:

"Article 57

For money payable for money lent Three years, When the
loan is

made ............

A simple reading of this provision will show that it covers the suits for recovery of loan
advanced by lender without effecting any writing and without fixing any date for its
repayment. From this, it clearly follows that this Article was inapplicable to facts of the
case in hapd which was filed to recover the outstanding amount due to the plaintiff firstly
against the person of respondents Nos. 1 and 2 severely and jointly and then by sale of
properties mortgaged under mortgage deed dated 5-12-1947 and 12-4-1947. It was
further prayed therein that if the outstanding amount was not realised through the
aforesaid remedies, then the liabilities of respondent No. 1 be satisfied from personal
properties of respondents Nos. l and 2. Obviously the suit embodied multiple reliefs
noted above. The question is as to which Article in Schedule to Act is applicable to this
suit. This question has never been free form difficulty. Articles 116 and 132 of Schedule
to Act are relevant. These came up for consideration before the Full Bench in Sahib
Dayal v. Maherban AIR 1923 All. 1. After the survey of the case-law, the Full Bench
concluded that Article 132 ibid applies to actions to enforce charge on mortgage-deeds by
sale of mortgaged immovable property while Article 116 ibid covers the suits for
recovery of deficiency arising out of such sale. This view was approved in
Thiruvendipuram Chengalmma Garu and others v. Vemasani Veerarghava Naidu (1928)
114 IC 340 and Sheo Das Pande v. Munj Behari and another (1928) 114 IC 813, R.
Ratnasabapathy Chettiar and others v. Davasigamony Pillai AIR 1929 Mad. 53 and
Kishan Sahai and others v. Renumath Singh and others AIR 1929 All. 139. The above
point came up for examination before the Full Bench of Lahore High Court in Ch. Kidar
Nath and others v. Mian Saraj-ud-Din AIR (33) 1946 Lah. 97. In this case, the question
7 of 15
referred to Full Bench was "Whether the mortgage, who lost his right to recover the
mortgage-debt as ordinary debt, after the lapse of time, retains right to recover the debt
out of sale-proceeds of mortgage-property and has brought such property to sale, through
recovering the full amount, can be permitted to recover interest for six years prior to the
institution of suit by a personal decree". Before answering the question noted above, the
Full Bench dealt with the scope of Articles 116 and 132 in Schedule I to the Act and
approved the view noted above in following words:------

"It is beyond dispute that a suit for the enforcement of a personal covenant express or
implied in a registered mortgage deed is governed by Article 116, Limitation Act. There
was at one time some doubt as to the implication of certain observation made by their
lordships of the Judicial Committee in Ganesh Lal v. Khetramohan (5 Pat. 585) but by
now it is well settled that those observations were not intended to alter the law as
applicable to actions for the enforcement of personal covenants whether express or
implied against a mortgagor in respect of the mortgage debt. The Full Benches of the
Madras and the Allahabad High Courts in 52 Mad. '105 and 52 All. 369, a Division
Bench of this Court in 16 Lah. 137, a Division Bench of Pat. High Court in 13 Pat. 228
and a Division Bench of Calcutta High Court in 35 CWN 1030, have dealt with this
question at considerable length and had laid it down that in spite of the observation in 5
Pat 585, Article 116 Limitation Act, is the Article applicable to actions for the
enforcement of personal covenants in registered mortgage-deeds. Article 116 gives the
parties six years for a suit for compensation for the breach of a contract in writing
registered, the terminus qua being the date when the contract is broken, or, where there
are successive breaches, when the breach in respect of which the suit is Instituted
occurred. According to the language of the article, therefore, a suit for the enforcement of
the personal covenant express or implied, in a registered mortgage-deed, can be brought
within six years from the date of breach of that covenant. The question that we have to
consider in the present case, is, whether the breach of the personal covenant for the
payment of the principal mortgage money occurred more than six years prior to the
institution of the suit, there can be a separate and independent breach of the covenant to
pay interest subsequent to the lapse of time for the enforcement of personal covenant in
respect of the principal, so as to entitle the mortgagee to maintain an action within six
years from the date of such breach."

12 The ratio deducible froth the foregoing examination is that Article 132 ibid covers the
suit for recovery of money/charge on immovable property mentioned in the mortgage
deeds by their sale while Article 116 ibid applies to suits for recovery of outstanding debt
on the basis of personal covenant' incorporated in the mortgage deeds. Guided by this
rule, it is clear to us that relief with respect to recovery of money lent on the basis of
personal covenant in the mortgage deed was covered by Article 116 in Schedule to the
Act while the prayer regarding realisation of outstanding amount of debt by sale of
property in mortgage deed was covered by Article 132 in Schedule to the Act. Clearly
respondent No. 1 had opened cash credit account on 12-12-1946; had executed mortgage
deed on 15-2-1947 and 12-4-1947; that the suit had been filed on 4-7-1952. All these
reliefs were claimed in the plaint and so we find the suit was covered by Articles 116 and
132 in Schedule to the Act. Article 116 prescribes period of six years commencing from
breach of registered contract while the latter Article provides period of 12 years.
Applying these periods we find that the suit was filed clearly within the above prescribed
periods and so we find no difficulty in saying that the finding of the Court below on
Issues Nos.3, 4, 13 and 14 were bad in law and so cannot be sustained. We accordingly
set aside the findings of the Court below on these issues and find that the suit filed by the
appellant was well within time.

13. Having determined the first two points, now we turn to third one. 'Before we proceed
to deal with the contentions of the parties on this point, we find it useful to note the
findings of the learned first Court on this point. Relevant finding is as under:

"He has in support of his argument, cited PLD 1966 Lahore page I at page 7 wherein it
was held by my Lords Mr. Justice Yaqub Ali and Mr. Justice Sardar Muhammad Iqbal
that the principle of equity is that the creditor is not entitled to recover the amount of a
secured debt when he cannot return the security. In that authority, there is a reference by
their Lordships to an authority of the House of Lords wherein it was held by Lords Cave
that where a creditor holding security sues for his debt he is under an obligation, on
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payment of the debt to hand over the security and if having improperly made away with
the security, he is unable to return it to his debtor, he cannot have judgment for the debt.
The facts of the authority cited by the learned counsel for the defendant quite fit in the
facts of this case with the exception that in that authority the answering defendant had
claimed a set-off and had not requested the Court to dismiss the suit, It was clearly held
by their Lordships of the High Court that since the creditor had not been able to account
for 29 reams of paper and therefore on this principle of equity, the whole suit was liable
to be dismissed. Learned counsel for the plaintiff on the contrary has not been able to
quote a single authority in rebuttal holding a different view. In the present case also since
the plaintiff had not been able to account for the security and return it, the suit was liable
to be dismissed. Learned counsel for the plaintiff has however argued that as indicated by
S.R. Jariwala, the stocks were taken over by the Government and therefore, it was beyond
their power to return the security. In the first place it is not the case of the plaintiff that
the security was taken over by the Government. The plaintiff's case is that the pledged
stocks were with the defendant who has done away with it. The evidence on the other
hand was established beyond doubt that the pledged goods were in the control of the
plaintiff. No receipt for taking over by the Government of the stocks has been produced.
The statement of S.R. Jariwala is not supported by any evidence. The plaintiff was
responsible to account for the security in his possession. Since he has failed to do so, the
suit as liable to be dismissed on the strength of authority quoted above. "

14. The most curtail provision in this case is section 176 of the Contract Act. It is as
under:------

If the pawner makes default in payment of the debt, or performance, at the stipulated time
of the promise, in respect of which the goods were pledged, the pawnee may bring a suit
against the pawner upon the debt or promise, and retain the goods pledged as a collateral
security; or he may sell the thing pledged on giving the pawner reasonable notice of the
sale.

If the proceeds of such sale are less than the amount due in respect of the debt or promise,
the pawner is still liable to pay the balance. If the proceeds of the sale are greater than the
amount so due, the pawnee shall pay over the surplus to the pawner.

A careful analysis of this section makes it clear that when a pawner defaults to make the
payment of loan the pawnee has three rights; firstly, he brings a suit against pawner upon
debt or promise; secondly, he may retain pawn as collateral security till the realisation of
debt; and thirdly, pawnee may sell the pawn after reasonable notice to pawner and to sue
the pawner for recovery of the debt. It thus clearly follows that right to retain pawns, right
to. sell the same and right to bring an action for realisation of debt, are not` alternative
remedies but concurrent. This question was corisictered by a Division Bench of erstwhile
High Court of West Pakistan in A.M. Burq v. Central Exchange Bank Ltd. PLD 1966
Lah. 1. In this authority, Mr. A.M. Burq had pledged his share as security of the payment
of debt. In another account, he pledged papers as security and in the third account he
pledged 29 reams of papers. The pawnee filed a suit against the pawner for recovery of
Rs.35,807-8-10 alongwith agreed interest. The claim with regard to his account for
Rs.12,517-2-1 was found barred by time. The suit was decreed with regard to remaining
claims. M.A. Burq filed an appeal in the High Court. In the appeal, the question raised
was whether the appellant should have been allowed set-off of price of 29 reams of
papers which were in possession of the Bank as pledged goods". Upon the assessment of
evidence and relevant law the learned Division Bench accepted the appeal, reduced the
decretal amount by Rs.2,320 with interest by holding that neither pawnee had accounted
for 29 reams nor had returned the same to pawner. It is useful to reproduce the relevant
passage from the opinion of his Lordship Mr. Justice Sardar Muhammad Iqbal (as he then
was). It reads as follows:-----

"It is a right of the pawnee-pledge either to bring a suit upon the debt or to sell the things
pledged upon giving a reasonable notice of sale. Both these rights are concurrent and they
are provided in section 176 of the Contract Act. Under this section, as interpreted in
Percy F. Fisher v. Ardeshir Hormasji Gazdar AIR 1935 Bom. 213 the pawnee has a right
of action for the debt notwithstanding the possession of the goods, subject to the pawner's
right to redeem the goods upon tender of the amount due before the sale. "

9 of 15
In Nim Chand v. Jaga Bundhu Ghose (1895) 22 Cal. 21), it was held:-----

"There can be no doubt that when movable property is pledged to a person for money
lent, he acquires, a special property therein; he has a charge upon it for the satisfaction of
the loan advanced, and he is entitled under section 176 of the Contract Act, either to bring
a suit against the owner upon the debt of promise, retaining the goods pledged as
collateral security, or he may sell the things pledged upon giving reasonable notice of the
sale.

It is, therefore, clear that the right to proceed against the property, is not merely accessory
to the right to proceed against the debtor personally. Thus, a pledger cannot compel the
pledgee to exercise the power of sale or its adjustment as a means of discharging or
satisfying the amount due to him. The pledger, therefore, is competent in law to sue for
his debt without selling the pledged property and adjusting its price towards the payment
of the debt. He has, however, to keep the property pledged intact so that he may be able
to hand over the security to the pledger on payment of the debt by him. The respondent is,
admittedly, not in possession of 29 reams of paper pledged to it as a security for the
payment of the loan. He has also not proved that it had been damaged or destroyed at the
risk of the appellant. It may be a case of an unauthorised conversion. Question, however,
arises whether the appellant can be granted a relief in respect of this property in the suit
filed by the respondent. "

17. Section 176 of the Contract Act was noticed in Haridas Mundra v. National Grindlays
Bank Ltd. AIR 1963 Cal. 132, wherein it was held:-----

"In construing this section too much importance should not be given to the semi-colon in
the first paragraph. In a case where the pawner makes default the pawnee has three rights;
(1) he may bring a suit against the pawner upon the debt or promise, and (ii) he tray
retain the pawn as a collateral security or (iii) he may sell it on giving the pawner
reasonable notice of the sale. The right to retain the pawn and the right to sell it are
alternative and not concurrent rights. While the pawnee retains, he does not sell; and
when he sells he does not retain. But the pawnee has the right to sue on the debt or the
promise concurrently with his right to retain the pawn or to sell it. The retention of the
pawn does not exclude this right of suit, since the pawn is a collateral security only. Nor
does the sale of the pawn destroy this right, the pawner is still liable on the original
promise to pay the balance due. The sale does not give a fresh starting point of limitation
for a suit to recover the balance. See ILR 24 All. 251 and Yellappa v. Desayappa ILR 30
Bom. 218. Similarly the institution of a suit upon the debt or promise does not reduce the
pledge to a passive lien and destroy the pawnee's right to sell the pawn. The right of sale
is necessary to make the security effectual for the discharge of the pawner's obligation
and the right continues in spite of the institution of the suit. The point in issue arose
directly for decision in Suit No.860 of 1945 Gorkahram Sahduram v. Agarchand Chunilal
decided by Sarkar, J. on August 5, 1952. In that case Sarkar, J. observed:-----

'I have already said that some of the sales took place after the suit had been filed. I did not
understand learned counsel for the defendant to make any special point or this. Nor do I
myself find that this makes-any difference. The pledgee has admittedly the right to sell. I
do not see that he loses this right by filing a suit'.

It is to be observed that this opinion was not challenged on appeal though some of the
other findings of Sarkar, J. were set aside in A.F.O. D. No.12 of 1953, Agarchand
Chunilal v. Gorakhram Sadhuram, decided on January 17, 1957. "

21. From the foregoing it is quite clear that the findings of the learned First Court on this
point cannot be sustained. We are, therefore, of considered opinion that the appellant was
competent to institute the suit without returning/rendering the amount of pledged goods
to respondent No. 1. However, respondent No. l was entitled to claim set off with regard
to his pledged stock with the bank. This aspect of the matter will come up for
examination later. The conclusion of the Courts below on Issues Nos.2, 5, 17 and 34 are
thus, contrary to law and are hereby reversed. We are constrained to note that issues
framed by the learned trial Court are overlapping and covers the same point again and
again. For this reason we have framed questions which arose out of the arguments
addressed by the learned counsel for the parties.
10 of 15
22. Coming to merits of the cases, the point arising for decision is whether evidence of
the appellant/plaintiff was/is sufficient to prove that the amount claimed from the
respondent No.l was/is, if so to that extent. Besides oral evidence the documentary
evidence adduced by the appellant/plaintiff is as follows:--

Deed of hypothecation, dated 12-12-1946 Exh.P.I

Deed of Pledge of goods Exh.P.2.

Promissory note, dated 12-12-1946 Exh.P.3.

Declaration, dated 12-12-1946 Exh.P.4

Letter, dated 12-12-1946 Exh.P.5

Letter of interest, dated 12-12-1946 Exh.P.6.

Declaration, dated 12-12-1946 Exh.P.7

Trust-deed, dated 9-8-1946 Exh.P.8

Letter Exh. P. 9.

Mortgage deed dated 15-2-1947 Exh.P.10

Mortgage Deed dated 12-4-1947 Exh.P.l1.

Letter dated 15-2-1947 Exh.P.12.

Letter of guarantee dated 5-2-1947 Exh.P.13.

Letter dated 13-4-1947 Exh.P.14.

Letter of authority dated 17-2-1947 Exh.P.15.

A letter Exh.P.16.

Statement of Accounts. ' Exh.P.17

Except Exh. P.17, all the above documents were proved by Digjee Shah Patel (P.W. 1)
while former document was tendered by him into evidence. Amazingly enough the
execution of aforementioned documents were admitted by respondent No. 1, who,
however, took up the plea that his signatures on these documents were obtained by
respondent No. 2. As against this evidence respondent No. 1 relied upon eleven
witnesses, namely, Iftikhtar Ahmed, General Manager of Central Cooperative Bank,
Multan (D.W.1), Syed Sahib Ali Shah (D.W.2), Khadim Hussain (D.W.3), Sher
Muhammad (D.W.4) Malik Ranjho (D.W.5) Muhammad Hussain (D.W.6), Ghulam
Mohy-ud-Din (D.W.7), Khadim Hussain (D.W.8), Mahmood Bakhsh (D.W.9), Ch. Ashiq
Hussain (D.W.10), Mr. Saeed Ahmad (D.W.11) and himself appeared as D.W.12.

17. Before we proceed to analyse the above material, we feel expedient to reiterate three
well known rules of appreciation of evidence which are as follows: ----

Firstly: where a document, such as bond, receipt of entry in the book of accounts, the
execution of which is admitted embodies an admission of receipt of a debt admission
shifts the onus of proof upon the person who executes such document. Reference be
made to Nihal Chand v. Design AIR 1932 Lah. 135, Mrs. N. Johnstone v. Gopal Singh
AIR 1931 Lah. 419, VCAR Annamalai Chehttiar v. M.N.M.N. Ramanathan Chettiar PLD
1947 PC 82, Shah Magammal and another v. Darbarilal Chowdhry AIR 1928 PC 38 and
Comtibal v. Kanchhedilal PLD 1949 PC 156.

11 of 15
Secondly: in law there is a presumption of good faith in human transactions similar to the
presumption of innocence in criminal cases as expressed in the maxim praesumuntur rite
esse acta. The burden of proving that a particular transaction suffers from bad faith, fraud,
collusion, misrepresentation, coercion and undue influence, essentially lies upon the party
who alleges these circumstances;

Thirdly: that the copies of accounts taken from the Books of Accounts maintained by the
banks are per se admissible as prima facie evidence of existence of such entry in the
Books of Accounts and are admitted in evidence of transaction and accounts recorded
therein to same extent as original entry under section 4 of the Bankers' Books Evidence
Act, 1891. However, these entries are not solely sufficient to charge the borrower with
liability and needs to be proved by supportive evidence. Reference be made to Messrs
Muhammad Sadiq Muhammad Umar and another v. The Australasia Bank Ltd. PLD 1966
SC 684. The relevant passage from this classic judgment on this point is being
reproduced in extenso with advantage----

'The appellants have supported the view taken in dissenting judgment. It is necessary,
therefore, to examine first the scope of section 4 of the Bankers' Books Evidence Act,
which provides as follows--

(4) Subject to the provisions of this Act, certified copy of any entry in a bankers' book
shall in all legal proceedings, be received as prima facie evidence of the existence of such
entry, and shall be admitted as evidence of the matters, transactions and accounts therein
recorded in every case where, and to the same extent as, the original entry itself is now by
law admissible, but not further or otherwise.'

It will be observed that all that this section says is that the certified copy shall be prima
facie, evidence of the existence of such an entry in the books of the bank and shall be
admitted as evidence of the matters, transactions and accounts therein recorded to the
same extent, as the original entry itself is now by law admissible, but no further or
otherwise. It does not purport, therefore, to give the certified copy any greater efficacy
than the original itself. It merely provides a simplified mode of proof of the original
entry, provided the original entry itself, is relevant to the enquiry or was admissible under
the law prevailing in 1891. The Evidence Act, which was enacted in 1872, was a law
applicable on the date of enactment of the Bankers' Books Evidence Act, and it clearly
governed the proof of the original entry. If under that Act the original entry was not by
itself sufficient to charge a person with liability the certification of entry under the latter
Act could not make it so. We must not also confuse between admissibility in evidence
and sufficiency to charge with liability. 1t is with the latter that we are concerned here
and this is not dealt with by the Bankers' Books Evidence Act.

Even with regard to section 3 of the English Bankers' Books Evidence Act, 1879, which
stops at the word ' recorded' and does not contain the rest of the words to be found in
section 4 of our own Act, Pagest in his law of Banking has observed that the 'object of the
above Act is to avoid the inconvenience and dislocation of business, formerly entailed on
bankers by their being compellable to produce their books in legal proceedings, 'but even
so it seems that in England where the Bank is itself a party to the litigation it can still be
compelled to produce its,. original books under a supoena duces tecum. Thus in the case
of Douglass v. Lloyds Bank Limited (1929) 34 Commercial Cases 263) the bank was
made to produce its old deposit ledgers to trace the deposit alleged to have been made in
1866 and not repaid. The bank could produce its old ledgers only upto 1873. Hence the
Court held that since the bank had no record of the subsistence of this deposit it
confirmed its view that the deposit had been repaid.

The same is the view of the learned Editor of Halsbury's Statutes, 2nd Edition (vide
Vol.9, p.599).

We are unable, therefore, to agree that the mere production of certified copy of the
account was by itself sufficient to charge the defendants with liability. The copy produced
was tantamount, however, to production of entries from the original books of account.
Those entries could have been admissible in evidence only for the purposes mentioned
under the Evidence Act and to the extent therein provided. Sect-ion 34 of the Evidence
Act provides that ' Entries in books of account, regularly kept in the course of business,
12 of 15
are relevant whenever they refer to a matter into which the Court has to inquire, but such
statements shall not alone be sufficient evidence to charge any person with liability'. It is
clear from this section that corroboration is necessary of the entry to charge a person with
liability, but as to what should be the nature or the extent of the corroboration no hard and
fast rule can be laid down, for that must depend on the circumstances surrounding each
transaction and the reliability of the manner in which the account has been kept.

There can be no doubt in the present case that the entries were relevant in evidence. The
question, therefore, now is as to whether there were such corroborative circumstances as
to make them also sufficiently reliable for charging the defendant with liability. Two of
the learned Judges of the High Court have taken the view that the admissions of the
defendants were alone sufficient to furnish such corroboration. We have already referred
to the oral evidence of the witnesses which shows that the statement of account had been
properly prepared from the relevant books of account and that the defendants did have an
overdraft account with this bank. This was now been further confirmed by the Additional
evidence of the Ex-Managing Director of the Bank. The defendant Muhammad Siddique
had himself in his evidence also admitted the execution of the pronotes and the cash
credit agreements and the fact that he had executed these for 'fixing the limit of the loan'
which he had taken or could take from the bank. But in his evidence he set up the case
that these advances were made against the security of goods which had not been returned
to him. The Ex-Managing Director admitted the pledge of goods but stated that a delivery
order for these goods was issued in favour of this defendant but the goods could not be
taken delivery of as he had in the meantime been declared an evacuee by the Government
of India."

Also see Abdul Haq v. The Firm Shivji Ram-Khan Chand AIR 1922 Lah. 338. Australasia
Bank Ltd. v. H.S. Mahmood Hassan Akbar PLD 1983 Kar. 431, Gul Habib v. Habib Bank
Ltd. PLD 1983 Pesh. 31 and Muhammad Yaqoob Khan v. Hussain Khan 1981 PCr.LJ
431.

18. Stage is now set to assess the claiming of the parties on merits. As regards objection
to admissibility of Exh. P.17. suffice it to say that it was tendered in evidence by P. W. 1;
that it related to accounts prepared by the Bank and so was per se admissible. This
document demonstrates not only withdrawal of amount by respondent No. 1 but also
deposits made by him. These entries are against the interest of the appellant and were so
admissible in evidence under Article 34 of the Qanun-e-Shahadat Order, 1984. This
statement was made in the course of business and shows mutuality of account between
the parties. Add to it, the execution of these documents was admitted by respondent No.l.
In view of this we safely conclude that this was correctly tendered in evidence so rightly
admitted into evidence as Exh.P.17. Ganji Shah/Accountant of Central Bank of India,
Multan Branch, appeared is the witness-box and stated he had been working as
Accountant in the said Branch from 1945 to 1949; that Syed Abdul Jalil Shah was
personally known to him; that he had opened a cash credit account jn 1947. He proved
the execution of documents Exhs.P.L. to P.17. He deposed that he was liable to pay, at the
time of institution of suit, Rs.3,76,000 alongwith interest of Rs.2,34.000; that this liability
was up to 31-1-1963. This witness was subjected to lengthy cross-examination but
nothing was extracted to demolish his evidential value. It is interesting to note that the
respondents did not dare to put question to this witness that the aforesaid documents were
executed by Syed Abdul Jalil Shah under undue influence/coercion and that the factory
belonged to guarantor. It is well known that if a fact is asserted in examination-in-chief
and is not impeached by way of cross-examination, that assertion is deemed to have been
admitted by defaulting party. On this principle, we have no difficulty in inferring that the
assertions made by P.W. 1 with regard to execution of EXhS.P.I to P.17 were admitted by
Syed Abdul Jalil Shah and so stand proved. As against this, respondent No.l relied upon
the testimony of Iftikhar Ahmad (D.W.1), Syed Sahib Ali Shah (D.W.2), Khadim Hussain
(D, W.3), Malik Ranjhu (D.W.5), Muhammad Hussain (D.W.6), Khadim Hussain
(D.W.8), Muhammad Bakhsh (D.W.9), Ch. Ashiq Hussain (D.W.10), Mr. Saeed Ahmad
Accountant Area and Workshop M.P.O., Lyallpur (Faisalabad) and Syed Muhammad
Abdul Jalil Shah himself appeared as D.W.12. Sufficient to note that the testimony of
D.W.1 to D.W.10 are valueless. These witnesses, in one way or the other, had deposed
that pledged goods were in the custody of the Central Bank of India and had not been
returned to Syed Abdul Jalil Shah. This is not in dispute. Interestingly, the Bank had not
taken the stance that these were returned to respondent No. 1. Mr. S. R. Jariwala stated
13 of 15
that the Bank was neither in possession of these goods nor was in a position to return the
same to borrower at the time of the institution of the suit as these were taken by the
Government of Punjab at the time of Partition of Subcontinent. It is true that the appellant
as pawnee was bound to retain these goods till the realisation of the debt and was
required to return the same to borrower after receipt of Bank's dues. On this conclusion
we find that respondent No. 1 was entitled to claim set-off to the extent of Rs.1,54,200 as
value of the pledged stock as given in Exh.P.11 D.W.11 entered into the witness-box to
prove his Report Exh.D.3. He posed himself as an expert in Accounts and tended to show
that the statement of Accounts embodied in Exh.P.17 was eratic and incredible. This
report comprises of 33 pages and is dated 1-11-1968. The conclusions of this expert are
as follows:------

"Therefore, the conclusion I arrive at from the above is that the Bank Statement Exh.P.17
as furnished by the plaintiff-Bank hardly depicts a reliable record. (Page 7 of Report):

(i) The stock values in Exh.P.11 were merely estimated both as regards quantity and the
value on 12-4-1947. They were under-estimated.

(ii) The bank dues on 12-4-1947 in Exh.P.11 and Exh.P.17 were not correct and hardly
reflect a true picture of the Bank dues.

(iii) The 2nd mortgage deed executed on 12-4-1947 was not necessary in view of the
revised position of the factory's stocks and the bank dues were already well protected
through instrument of Demand Promissory Note dated 12-12-1946 (Exh.P.3) from the
account-holder for Rs.6,00,000 as security before the cash credits were allowed which
never exceeded the cash credit limit and value of Demand Promissory Note as per
conditions agreed upon between the both parties in .Exhs.P.l and P.2" (See pages 12 and
13 of Report).

In cross-examination, he conceded that he was working as accountant in M.P.O.

Workshop WAPDA; that he had prepared his report without seeking permission from his
superiors and entered the witness-box as witness of respondent No. l . He admitted that
Syed Tassadaq Hussain Gardezi was his tenant and he was responsible for giving him this
assignment. He further stated that he had not received any remuneration as he was not
certain as to whether he was entitled to it or not being an employee of WAPDA. He
admitted that he had never served as an Accountant in any Bank but had been dealing
with Habib Bank Ltd. The aforesaid facts clearly show that he was hired by Tassadaq
Hussain Gardezi who was a relative of Syed Abdul Jalil Shah; he had never worked in
any Bank and had not even sought permission from his superiors; that he entered the
witness-box on the initiative of Syed Abdul Jalil Shah as against bank. Clearly he is not
an independent witness and carries tilt towards Syed Abdul Jalil Shah and was not
conversant with the Accounts maintained by the Banks. He so, cannot be treated as an
expert as well as an independent witness. The perusal of the report further shows that
even those points, on which he was not required to say anything, he had given his
opinion. He was only required to examine the Accounts i.e: Exh.P.17 and P.11 of the
Bank but he had given his opinion with regard to legal position of pledged stock. On this
state of affair, we are not inclined to place much reliance on this witness. Add to it
D.W.12 entered the witness-box and reiterated his stand embodied in his written
statement. He admitted that he was an Honorary Magistrate; that he was owner of huge
property including the mortgaged properties. He also admitted that all the documents
were signed by him with a plea that he had lent his signatures on these documents
without reading and understanding them. He admitted that Exh.P.14 was handwritten
document but it was not written by him; that it must have been written by the Manager of
the Bank. Seeing from any angle, we are not able to believe that Syed Abdul Jalil Shah,
who had been functioning as a Magistrate and was well read person, could lend his
signatures on the asking of guarantor and that too without understanding or reading them.
This stance is highly incommensurate with the solid standing of Mr. Abdul Jalil Shah.
Even, he did not give any detail with regard to circumstances 'of coercion/undue
influence exercised upon him. This is not enough. He had taken mutually inconsistent
pleas. On one hand, he stated that he had not borrowed the loan from the appellant and in
fact it was the guarantor who had received it but on the other hand, he stated that at the
time of institution of the suit the pledged goods were worth Rs.10 lacs and they belonged
to him. These two pleas are manifestly conflicting and destroy each other. The conclusion
14 of 15
is that the appellant/plaintiff, by overwhelming evidence noted above, had proved its case
as set out in the plaint. We accordingly are unable to accept the defence of Syed Abdul
Jalil Shah. We have already noted that the appellant was in constructive possession of
goods worth Rs.1,54,200 at the time of execution of Exh.P.11. On the foregoing
assessment, we find that the appellant was/is entitled to receive Rs.3,74,836-8-0 minus
Rs.1,54,200 as price of pledged stock as a set-off alongwith 6 % simple interest from the
date of the institution of the suit to the date of realisation of the aforesaid decretal
amount.

19. In so far the interest, we are not inclined to award it in consonance with the
stipulations embodied in the deed of hypothecation, promissory note as well as mortgage-
deeds on account of special features of this case. No'. doubt the suit was filed on 4-7-
1952 and remained pending adjudication for over more than 16 years. Preliminary
objections were framed on 8-6-1954 and the matter was referred to Custodian for its
determination. The learned Custodian rendered his decision on 18-8-1989 by holding that
the appellant was not an evacuee concern. The record was received by the learned
Administrative Civil Judge on 5-12-1960. Meanwhile, the guarantor had migrated to
India due to the advent of Partition and the property left by him had been allotted to
displaced persons coming from India. The first appeal remained pending in this Court and
was decided on 6-6-1992. Pursuant to order of remand by the Supreme Court, this appeal
was heard on 20-10-1997 and the decision is being announced today on 30-10-1997.
Taking all these circumstances into consideration, we find improper to award interest at
the rate of 6% to the appellant/plaintiff as compensation for retention of goods by'
respondent No. 1. The power to grant interest under Rule 14 of Order XXXIV, C.P.C. is
discretionary in nature and the Court may, decline to grant it at the rate stipulated in the
contract if the circumstances so warrant. See Jaigobind Singh v. Lachmi Narain Ram AIR
1940 FC 30 and Sukhraj Rai v. Ratinath Panjara AIR (29) Pat. 102. As regards the
contention that the interest is Rib'a and opposed to Injunctions of Islam, suffice it to say
that this aspect of the ease is beyond the jurisdiction of this Court and lies within the
domain of Federal Shariat Court. See Massu etc. v. United Bank Limited etc. 1990 MLD
2304.

Now we come to R.F.A. No.4 of 1970 filed by New Bank of India Ltd. through Assistant
Custodian of Enemy Property. The learned counsel appearing on behalf of the appellant
had not addressed any argument in support of this appeal on 5th, 6th, 7th, 8th and 12th of
October, 1991. The aforesaid Bank even did not file any leave to appeal against our
decision dated 6-6-1992. Mr. M.A. Farani, Advocate, has entered appearance and argued
his case. However, we are not inclined to deal with this appeal on merits separately for
the circumstances noted above.

21. In result we hereby set aside the judgment and decree passed by the trial Court and
pass a preliminary decree in terms of Rule 4 of Order XXXIV of C.P.C. in favour of the
appellant/plaintiff and against respondents Nos.l and-2 with no order as to costs. The file
of the case shall be sent to the learned Senior Civil Judge, Multan who shall appoint a
Local Commissioner in order to take account as required under Rules 2 and 4 of Order
XXXIV, C.P.C. and proceed in the case thereafter according to law, with expedition so as
to bring the instant litigation to its final conclusion.

H.B.T./C-16/L Order accordingly.

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P L D 1966 (W. P.) Karachi 18

Before Illahi Bakhsh Khamisani, J

NATIONAL BANK OF PAKISTAN-Plaintiff

Versus

FAHIM & CO. AND OTHERS-Defendants

Suit No.68 of 1958, decided on 25th March, 1964.

(a) National Bank of Pakistan Ordinance (XIX of 1949)----S. 25(1)(h)—“Collateral"

security-Must co-exist with original security taken earlier in point of time-Provision,
however, does not prohibit taking of security by way of deposit of title-deeds for advance
already made and secured in accordance with clauses (a) to (g) of S. 25(1) where security
so taken has already disappeared at time of taking security by way of deposit of title
deeds.

Ebrahim Azeem v. William Dickson Cruickshand 16 S W R 203 ref.

(b) Registration Act (XVI of 1908)---S. 17-Deposit of title-deeds-Letter confirming such

deposit-Held, to be merely a memorandum not requiring registration.

Official Assignee v. Sind Provincial Co-operative Bank Ltd. A I R 1943 Sind 36; Rachpal
v. Bhagwandas A I R 1950 S C 272 ; Sundarachariar v. Narayana Ayyar A I R 1931 P C
36 and National Bank of Pakistan v. Fasihuddin and others P L D 1964 Kar. 92 ref.

Nurul Arifin for Plaintiff.

Iqbal Kazi for Defendants Nos. 1 and 2.

Mahmud Hussain for Defendants Nos. 3 to 7.

Dates of hearing: 9th, 10th, 16th, 17th and 21st January 1904.

JUDGMENT

The present suit which is for the recovery of Rs. 303800/4/9 arises out of a cash credit
facility with the limit of Rs. 5 lacs, given to defendant No. 2 for himself and on behalf of
defendant No. 1. Defendant No. 2 executed the agreement Exh. 51, with the National
Bank of Pakistan to this effect. Defendant No. 2 who was at that time doing business for
himself and on behalf of defendant No. 1 in hides, skins and wool processed in his
godown, pledged all his goods with the bank. Letters pledging the goods Exhs. 56 to 71,
dated 2nd April 1951 to 29th September 1951, were executed. Pursuant to this cash credit
facility defendant No. 2, drew from 6th March 1951, the day on which this facility was
given, up to 17th June 1952, Rs. 1,24,823/7/4 from the National Bank of Pakistan.

2. Defendant No. 2 had also been granted a cash credit facility by the Habib Bank and he
had drawn from that Bank certain sums of money which, with interest, came to Rs.
73,237-15-7. Defendant No. 2 had equitably mortgaged his property, namely, Iqbal
Manzil (Plot No. 670 Jamshed Quarters, Karachi) by deposing its title deeds with that
Bank.

3. Defendant No. 2, in the meantime, with the permission of the plaintiffs exported the
goods that were pledged with them. The plaintiffs were consequently left without any
security for the amount that was advanced by them to defendant No. 2. As in, those
circumstances the defendant desired to deal with one bank instead of two he wrote a letter
on 17th June 1952, Exh. 118, to the plaintiffs requesting them to pay off his debt to Habib
Bank and to take over the title deeds in respect of Iqbal Manzil that had been deposited
with the Habib Bank. The plaintiffs agreed to the proposal and paid Rs. 73,237/15/7 to
Habib Bank by a cheque and debited that amount to the account of defendant No. 2. They
took a pronote from defendant No. 2 for Rs. 2,50,000/- on the same day. That pronote is
1 of 10
Exh. 53. The cheque by which they paid Rs. 73,237/15/7 to Habib Bank is Exh. 36. The
title deeds of Iqbal Manzil which were with Habib Bank were transferred on the -same
day to the plaintiffs. The letter of deposit of title deeds with the plaintiffs is Exh. 54. He
also executed a power of attorney in favour of the plaintiffs to sell Iqbal Manzil if and
when it became necessary.

4. Defendant No. 2 drew more money from the plaintiffs after he had executed a pronote
for Rs. 2,50,000. As the defendants did not repay the debt of the plaintiffs, this suit was
filed against them on the 13th of May 1958. This, suit, as has been stated above, is for the
recovery of Rs. 3,03,800-4-9 including interest on the- principal amount at the rate of 6 Y.
up to the date of the institution. It is founded upon the statement of account which was
filed with the plaint.

5. Fahim & Company, defendant No, 1, which is a firm, was reconstituted and its present
members, who are the wife (defendant No. 3) and the children (defendants Nos. 4 to 7) of
defendant No. 2, were taken as partners, Defendants 4 to 7 were minors, consequently
they were admitted to the benefits of the partnership only.

6. Defendants 3 to 7 have denied the claim of the plaintiffs and have pleaded total
ignorance of the transaction between defendant No. 2 and the plaintiffs. Defendants 4 to 7
have further stated that being minors they were only admitted to the benefits of the
partnership and as such they were not to be liable for the claim of the plaintiffs.
Defendant No. 2 however, admitted all that has been said in the plaint except only that
the claim of the plaintiffs as set out in the plaint is not admitted by him. He has admitted
that the amount due from him up to 17th June 1952 was Rs. 1,97,638; 10-11. He has also
admitted that he had drawn cheques for Rs. 140--10-0, Rs. 1,325-9-0, Rs. 2,000 and Rs.
5,000 after 17th June 1952. He has admitted the execution of the documents but has
alleged that he had don so owing to the undue influence that was exercised on him. He
has pleaded that the interest was unconscionable and contrary to the prevailing practice.

7. On the pleadings of the parties, the following issues were framed:-

(1) When did the defendant No. 3 become a partner in the firm, defendant No. 1 ?

(2) Was the said firm dissolved on 11th or 14th January 1954? If so, what is the effect?

(3) Whether the defendants 4 and f 5 on attaining majority elected not to become partners
of the defendant No. 1 ? If so, to what effect?

(4) Are defendant Nos. 3, 4, 5, 6 and 7 not liable for the debts of defendant No. 1 (1) and
for the transactions mentioned in paragraph (2) of the plaint?

(5) Whether the defendant No. 2 executed the document mentioned in para. (7) of the
plaint under coercion and undue influence exercised on him by the plaintiffs? If so, what
is the effect?

(6) Is defendant No. 2 the owner of the suit property or only a Benamidar ? If s0, what is
the effect?

(7) Whether the defendant No 2 did not possess any legal right or authority to mortgage
the suit property to the plaintiffs? If so, what is the effect?

(8) Is the property in dispute trust property and are defendants 4-7 beneficiaries in respect
thereof and therefore entitled to hold possession of the same as owners? If so, what is the
effect?

(9) Whether the plaintiffs were and are not empowered to advance any money or give any
credit on the security of immovable property, under the provisions of the National Bank
of Pakistan Ordinance, 1949? If so, is the security given by the defendants not
enforceable for that reason?

(10) Whether the plaintiffs are not mortgagees in good faith, for good consideration and
without notice Y If so, what is the effect ?
2 of 10
11. What, if any, is the amount due from the defendants or any one of them to the
plaintiffs?

(12) What is the relief, if any, to which the plaintiffs are entitled to?

8. Issues 1, 2 and 3, which relate to the admission of defendants 3 to 7 into partnership

after the dissolution of the firm in January 1954 and to the election of-defendants 4 and 5
on attaining majority as partners of defendant No. 1, were conceded in favour of
defendants. No discussion is consequently required to decide them. They are decided in
favour of the defendants.

9. Issue No. 4 deals with the question as to whether defendants 3 to 7 are liable for the
debts of defendant No. 1 and for the transactions in the plaint. Defendant 3 is the wife of
defendant No. 2 whereas defendants 4 to 7 are his children. Defendants 4 to 7 were
admittedly minors at the time when the transaction between defendant 2 and the plaintiffs
took place. It is also admitted that defendants 4 to 7 were only admitted to the benefits of
the partnership. They can not therefore be liable for the losses of the partnership or the
liabilities which were incurred before their majority by defendant No. 2 with the
plaintiffs. There is also nothing on the record to indicate that defendant No. 3 when she
was taken as a partner in the firm Fahim & Co. ever knew that she was being taken in as
a partner.

10. Issue No. 5 which relates to the question as to whether defendant 2 had executed the
documents under coercion or undue influence has been pressed with respect to undue
influence only of the plaintiffs on defendant No. 2. The learned counsel for defendant No.
2 has argued that the total liability as admitted by defendant No. 2 in his written statement
up to 17th June 1952 amounted to Rs. 1,97,638-10-11 only and the fact that defendant 2
was called upon to execute and did execute a pronote for Rs. 2,50,000 is a clear proof of
the fact that the pronote was executed owing to undue influence. I see no force in this
argument because the pronote executed by defendant No. 2 was not meant to make him
liable to pay Rs. 1,50,000 irrespective of receipt by him of that much money. It was
executed to secure the limit upto which money could be withdrawn. Even the suit has not
been filed on the basis of the pronote but on the basis of the statement of account filed
with the plaint. The amount of money therefore mentioned in the pronote is not sufficient
for holding that defendant No. 2 had executed the pronote and other documents under
undue influence. This issue is consequently decided against defendant No. 2.

11. Issues 6, 7 and 8 are connected and will betaken up together. The subject-matter of
these issues in substance is whether Iqbal Manzil (Plot No. 670 Jamshed Quarters) was
the property of defendant No. 2 or whether he was holding it as a Benamidar on behalf of
his children and as such had no right or authority to equitably mortgage it. It is agitated
under issue No. 8 that Iqbal Manzil is a trust of property and that defendant No. 2 was
holding it for the benefit of the beneficiaries who are defendants 4 to 7. The crux of these
issues is the ownership of Iqbal Manzil. It is an admitted position that Iqbal Manzil was
purchased in the year 1947 from a Hindu in the name of defendant 2. It is also admitted
that the sale deed was executed in favour of the defendant No. 2. It is contended that
defendant No. 2 at the time of purchasing this property had not invested his own money.
It is alleged that Mr. Fahim had sent the money from Bombay to be paid for purchasing it
for the benefit of the children of defendant No. 2 because their mother was the niece of
Mr. Fahim and he had no children of his own. these premises it was contended that
defendant No. 2 was holding this property in trust for the benefit of defendant? 4 to 7 as a
Benamidar. Reliance has been placed on behalf of the defendants on the evidence of
Ramnik Lai and Rochiram in, particular These two witnesses were examined in Suit No.
1; 69 of 1953 on commission and their evidence by consent was brought on the record of
this case as Exh. 12.0. Ramnik Lal is said to have been deputed by Mr. Fahim to purchase
this property and' according to him he had paid the consideration on behalf of Mr. Fahin,
at the time of the registration of the sale deed. Rochiram on the other hand has stated that
Mr. Fahim himself had negotiated the transaction and purchased the house., He, however,
admits that Rs. 15,000 were paid as earnest money by Ramnik Lai on behalf of Mr.
Fahim. He has also admitted that the sales price of Rs. 1,40,000, was paid by Mr. Fahim
and Ramnik Lal Amjad Husain Nadeem is another witness who has been examined on
behalf of the defendants as D.W. 3. He is the nephew of Mr, Fahim. According to his
3 of 10
evidence, he was sent from Bombay in 1947 for looking out for a house. He has stated
that he had selected Iqbal Manzil and paid Rs. 15,000 as earnest money, He does not state
that the earnest money was paid by Ramnik Lal. He admits that Mr. Fahim was present at
the time of the registration of the sale deed and has paid the money himself before the
Sub-Registrar. Defendant No. 2 has categorically stated in his evidence that the
transaction about this house was made at a time when Mr. Fahim was not present in
Karachi, The evidence of all these witnesses appears to be totally contradictory. . None of
them has agreed on who paid price or who paid the earnest money. It is inconceivable
that the payment would be left to be made by Ramnik Lal or Amjad Hussain Nadeem if
Mr. Fahim was himself present. No accounts of any kind have been produced to prove the
source of the money. The argument advanced on behalf of the plaintiffs is that admittedly
Mr. Fahim and defendant No. 2 were partners in a firm at Bombay and there is nothing to
indicate even if it be assumed that the money was paid by Mr. Fahim, that this money did
not belong to defendant No. 2. The learned counsel for the defendants has relied upon,
letters. Exhs. 120-B and 120-C. According to him, these letters were written by Mr.
Fahim to Amjad Hussain Nadeem and defendant No. 2 and that they indicate that lqbal
Manzil was intended to be purchased for the benefit of the children but the name of their
father was used as a Bennnddur. 1 pointed out to the learned counsel for the defendants
that the letter, Exh. 120-C; could not relate to the purchase of Iqbal Manzil as it was
writer on the 10th of June 1947 whereas Iqbal Manzil was purchased on the 11th of June
1947. 'The learned counsel conceded this So far as letter, Exh. 120/B, is concerned, it has
no reference whatever to Iqbal Manzil. Even if it be assumed that it has some reference
for Iqbal Manzil it will not confer the ownership of Iqbal Manzil on Mr. Fahim or on the
children of defendant No. 2. The most important documents for deciding as to who was
the real owner of this property are Exh. 120-A and the written statement of defendant No.
2 in Suit No. 1069 of 1953 Exhibit 120/.A is dated 13th June 1948 and purports to be a
declaration made by defendant No. 2 that Iqbal Manzil was purchased from the money of
Mr. Fahim and that he was prepared to re-transfer the property to him at any time. Even
this declaration does not gay that Mr. Fahim had purchased this property for the children
of defendant No. 2 and that defendant No. 2 was holding the property in trust for them.
The question therefore that the property was purchased for the children by Mr. Fahim and
defendant No. 2 was holding it in trust is completely foreign to this declaration and
obviously gives rise to an inference that this theory is of subsequent creation.

12. Suit No. 1069 of 1953 was filed by the brothers of Mr. Fahim claiming Iqbal Manzil
to be the property of Mr. Fahim and asking for their share in it. Defendant No. 2 in. this
case was the defendant in that suit also. He had filed a written statement in that suit and
had very clearly stated that the property did not belong to Mr. Fahim nor had Mr. Fahim
paid for it. He also in clear terms stated that the property belonged to him. These two
documents mentioned above leave no room for doubt that Iqbal Manzil was purchased by
defendant No. 2, and that it belonged to him at least qua the claim of defendants Nos. 4 to
7.

14. (sic) Even if the case of defendant No. 2 be accepted that Iqbal Manzil was purchased
with the money of Mr. Fahim for the benefit of the children of defendant No. 2 it cannot
be construed to be the trust property and defendant No. 2 cannot be said to have been
holding it in trust for defendants 4 to 7. Section 5 of the Trust Act reads as under:-

"(5) No trust in relation to immovable property is valid unless declared' by a non-

testamentary instrument in writing signed by the author of the trust or the trustee arid
registered, or by the will of the author of the trust or of the trustee.

No trust in relation to movable property is valid unless declared as aforesaid, or unless

the ownership of the property is transferred to the trustee.

These rules do not apply where they would operate so as to effectuate a fraud."

Under this section no trust in relation to immovable property is valid- unless declared by
a non-testamentary instrument in writing signed by the author of the trust or the trustee
and registered. The trust also in relation to movable property cannot be valid unless the
ownership of the property is transferred to the trustee. On any view of the position taken
by the defendants their case cannot fall within section 5 of the Trust Act. Even the learned
counsel for the defendants has admitted that section 5 is against him. He, however, stated
4 of 10
that he was bringing his case within section 82 of the same Act. Section 82 of this Act
reads as under:

"(82) Where' property is transferred to one person for a consideration paid or provided by
another person, and it appears that such other person did not intend to pay or provide
such consideration for the benefit of the transferee, the transferee, must hold the property
for the benefit of the person. paying or providing the consideration.

Nothing in this section shall be "deemed to affect the Code of Civil procedure, section
317, or Act No. XI of 1859 (to improve the law relating to sales of land for arrears of
revenue -in the Lower Provinces under Bengal Presidency), section 36."

Even this section cannot be invoked for the assistance of tile defendants. Under this
section defendant No. 2 cannot be said to be holding the property on behalf of his
children. If he was in possession of the property, payment of which was made by Mr.
Fahim, then under this section he would be holding it on behalf of Mr. Fahim and not on
behalf of his children. Defendant No. 2 is now precluded from urging that he was holding
the property on behalf of Mr. Fahim, who had paid for it, in view of the written statement
filed by him in Suit No, 1069 of 1953.

15. In view of what has been stated above, I decide all these issues against the
defendants.

16. Issue No. 9 is the real issue between the parties and very lengthy arguments have
been addressed by the learned counsel for the defendants. The contention put across is
that the plaintiffs could not advance money or give any cash credit facility on the security
of Iqbal Manzil under the provisions of the National Bank of Pakistan Ordinance 1949.
The second argument which does not fall within the ambit of issue No 9 but is pressed
into service is that Exh. 54 which purports to be the memo of deposit of title deeds is
really a mortgage deed and requires registration under section 17 of the Registration Act,
The argument further is that in the absence of registration Exh. 54 is inadmissible in
evidence, and that therefore the very bottom of the case that Iqbal Manzil is mortgaged is
knocked but.

17. For the purposes of dealing with the arguments advanced by the learned counsel for
the defendants reliance is placed on section 25 (1) (h) of the National Bank of Pakistan
Ordinance, 1949, which reads as under:-

"(25) The Bank is authorised to carry on and transact the several kinds of business
hereinafter specified:---

(1) the advancing and lending of money and opening of cash, credits upon the security of-

(h) immovable property or documents of title relating thereto as collateral security only
where the original security is one of those specified in sub-clauses (a) to (f), and subject
to such directions as may be issued by the Central Board where the original security is of
the kind specified in sub-clause (g)."

It is being contended that under clause (h) of section 25 (1y of this Ordinance the deposit
of title deed in respect of Iqbal Manzil ; could be made if this security were to be treated
as collateral and if the original security was one which is specified in sub-clauses (a) to
(f). It is argued that the original security being non-existent on the day this alleged
collateral security of deposit by way of title deeds regarding Iqbal Manzil was made, the
collateral security could not be taken. The deposit of title deeds with a view to creating
equitable mortgage of Iqbal Manzil thus according to the learned counsel for the
defendants was contrary to the provisions contained in section 25(1)(h) of this Ordinance.
That being so, it was further argued that section 26 of this very Ordinance would be a ban
on the bank against transacting business contrary to what is contained in section 25. The
learned counsel for the plaintiffs has repelled this argument by saying that the case of the
plaintiffs would be covered by section 25 (1)(c) and (g) in that the pledge of hide, skins,
etc., made to the plaintiffs by defendant 2 earlier would be covered by section 25 (1) (c)
and (g). I do not agree with what the learned counsel for the plaintiffs has argued. Clause
(h) of section 25 (1) authorises that a collateral security be taken by deposit of title deeds
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only. The word `collateral itself connotes that security which is collateral must co-exist
with the original security `~ taken earlier in point of time. The question of collateral
security conceivably cannot arise in the event of original security being non-existent on
the day on which the collateral security is taken. Under these circumstances, I see no
force in the argument of the learned counsel. He has, however, further argued that section
25 merely requires of the bank not to advance monies unless compliance is made of what
is contained in its clauses (a) to (g) but that this section nowhere prohibits taking of
collateral security to secure money already advanced on security in accordance with
clauses (a) to (g) and the security so taken having disappeared before the collateral
security is taken. I have thought on this argument cooly and I find that there is substance
in it. B In the total absence of a prohibition on security being taken to have the advance
already made secured, the taking of the security by way of deposit of title deeds, in my
opinion, will note be in violation of what is contained in Ordinance XIX of 1949. In
support of this view, reference can be made to Ebrahim Azeem v. William Dickson
Cruickshand (16SWR203). The relevant portion is reproduced hereunder:--

"But if the security was given to secure a debt already incurred and due, we do not think
that the taking it was ultra vires. It is one thing to say that the Bank shall not make a
business of lending money on mortgage of land and the like, and another thing to say that
money being actually due and owing to the Bank, the Bank shall not take the security of
land or other immovable property, or any other kind of good security not expressly
prohibited, with a view to its own protection. The original lending of money on the
security of immovable property is quite a different thing (and affects the general position
and business of a Bank quite differently) from taking such security for a debt due. The
forbidding the entering into loan transactions on the strength of such security, does not
appear to us necessarily to include a prohibition against taking such security as a
protection against loss in respect of a debt due; and, in the absence of any express
prohibition, we do not see why we should infer an intention to impose it, when very
possibly, not to say probably, it was never intended that it should be either expressed or
implied. Prima facie, a debt having been actually incurred, it appears to us to be clear
gain to the creditor to get any security for it, whether by way of mortgage or otherwise;
and we think that the taking of such 'security bona fide, is within the general scope of the
business of the Bank of Bengal, as it is not expressly declared not to be so." ,

Under the circumstances my own view is that the deposit of title deeds is not contrary to
what is contained in Ordinance XIX of 1949.

18. With regard to whether document, Exh. 54 would require registration, the argument of
the learned counsel is that this document in itself purports to create the mortgage and
therefore requires registration. He has cited numerous cases to enunciate that where a
document purports to be a deed of mortgage, it would require registration. There can be
no dispute about this proposition. If this document, Exh. 54, could be construed to be a
mortgage deed then obviously it would require registration and the same having not been
registered will be inadmissible in evidence. But the point that needs consideration really
is whether this document is a mortgage deed or a memorandum of deposit of title deeds.
My own view in the matter is that it is merely a memorandum of deposit of title deeds
and not the mortgage deed. The main consideration is as to whether the mortgage created
by the document, Exh. 54, was created prior in time to the document, Exh. 54. This
question is effectively considered by reference to Exh. 118 which was written on the
same day on which Exh. 54 was written but earlier in point of time. In Exh. 118
defendant No. 2 had requested the plaintiffs to pay off his Habib Bank debt and to keep
the title deeds in deposit with them. The equitable mortgage was created after Exh. 118
was written and was followed by the letter, Exh. 54. Here it will be necessary to go
through Exh. 54. It reads as under:

Fahim & Company

17th June, 1952.

The Manager,
National Bank of Pakistan,
Local Principal Office,
Karachi,
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Dear Sir,

I, F. F. Musharrif of Karachi do hereby confirm that I have this day deposited with the
National Bank of Pakistan, Local Principal Officer, Karachi, the title deed relating to my
property and detailed in the Schedule hereunder written, with the intention of creating an
equitable mortgage on the properties, including all my right, title and interest comprising
in or arising from the said title deeds for securing to the said Bank the repayment on
demand of the amount from time to time advanced by the said bank to the firm of Messrs
Fahim & Co. Karachi, of which I am one of the partners and attorney for the other
partners with interest at the rate of six per cent. per annum and payable to the said bank
on the basis of a promissory note Rs. 2,50,000 (rupees two lakhs fifty thousand only)
executed by me in their favour on the 17th June 1952.

Yours faithfully,

(Sd.) F. F. Musharrif

Schedule of title deeds.

A bare reading of this letter clearly indicates that it was written by way of confirmation of
the act that had already been done. In other words the equitable mortgage had been
created earlier to create an equitable mortgage and Exh. 54 was written to confirm that
fact. This letter, in my opinion, is therefore clearly a memorandum of deposit of title
deeds and does not itself purport to be a mortgage deed. The first case on which reliance
is placed for this point is Official Assignee v. Sind Provincial Co-operative Bank Ltd (A I
R 1943 Sind 36). The relevant portion of the judgment reads as under:

"There seems then no need to frown on an equitable mortgage or to strain the law against
it or to regard it as a practice which in the interests of the community should be
discouraged and discontinued. On the other hand, if the parties do indeed put their
bargain or their contract into a written document, if out of abundant caution they
overreach themselves as in I L R 1939 Kar. 287 (P C), then it is the written document
which prevails. There will not be, as the learned Advocate for the respondent argues, two
separate and distinct and valid mortgages, the equitable mortgage in the forenoon and the
legal mortgage in the afternoon. The transaction is one, and in competition between an
equitable and legal mortgage, the legal mortgage will prevail and will require registration.
But we agree with the learned Judge that in this case Exh. 24 did not contain the bargain
between the parties, but merely evidence it. Necessarily, the "memorandum must refer to
the equitable mortgage, if it is to evidence it; it may mention the loan, the period of the
loan, the rate of interest and describe the property. If an equitable mortgage is proper and
lawful thing, there is nothing wrong that evidence, even written evidence of it, should be
preserved. If the memorandum becomes so complete as to contain in itself the bargain as
such then the written contract supersedes the oral contract, and the parties if they desire
merely to evidence that equitable mortgage overreach themselves but they must take risk.
Speaking for myself, I think the case before me is a case almost on the verge of what is
permitted if the memorandum is to serve only its limited purpose."

The memorandum in the case referred to above reads as under:---

" Karachi, 7th August 1937.

To

The Sind Provincial Co-operative Bank Ltd., Karachi.

Dear Sir,

We confirm having already deposited with you the title deeds of our following property
in Karachi as per particulars given hereunder as security by way of mortgage for the sum
of Rs. 11,500 (eleven thousand and five hundred) advanced to us by way of over-draft
and for which we have handed you a Demand Promissory note and all interest thereon
and all costs and charges and sums that may be, incurred or spent by you.
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We undertake at all times, so long as any money remains due to you, to keep the
mortgaged property insured against loss or damage by fire in the full value thereof and
will duly and punctually pay all premiums and sums of money necessary for such
purpose and will duly assign and hand over to you the policy or policies of Insurance and
the receipts for every such payment. If default be made in keeping the property so
incurred at any time, it shall be lawful for you to effect the insurance and to treat all
moneys so, spent as moneys advanced to us.

We declare that the property mortgaged with you is free from all encumbrances or liens
of any sort whatever.

Description of property and title deeds deposited. S. No. 47 Sheet M. M. 7, containing

about 310 square yards, Machi Miani Quarter, Karachi (Old No. 9 Sheet C-3). (1) Sanad
dated 21st August 1928 issued by the City Deputy Collector, Karachi, in favour of
Ghulam Hussain Varoo, Abdul Muhammad Jumo and Hussain Karim. (2) Extract from
new property register. (3) Certified copy of partition deed dated 15th May 1929 between
Abdul Muhammad Jumo and Ghulam Hussain Varoo and Hussain Karim.

Yours faithfully,

(1) Ghulam Hussain Varoo. (Sd). Ghulam Hussain Varoo:

(2) Hussain Karim. (Sd). Hussain Karim."

A perusal of the above memorandum will make it clear that it is more detailed than the
one in the present case and yet a view has been taken that it is just a memorandum and
not a mortgage deed.

19. The second case on this point is Rachpal v. Bhagwandas (AIR1950 SC 272). 'The
relevant portion runs as under:

"On account relating to the appellant's dealings being examined a large sum was found
due to the respondents who demanded payment. The appellant thereupon brought and
gave certain title deeds relating to immovable properties belonging to his family, for the
purpose of being held as security for the amounts then due and to become due on further
dealings. A draft of the memorandum was thereafter prepared and signed and delivered to
the respondents. The memorandum was in the following terms: We write to put on record
that to secure the repayment of the money already due to you from us on account of the
business transactions between yourselves and ourselves, and the money that may
hereafter become due on account of such transactions we have this day deposited with
you the following title deeds in Calcutta at your place of business at No. 7, Sambhu
Mullick Lane, relating to our properties at Samastipur with intent to create an equitable
mortgage on the said properties to secure all moneys including interest that may be found
due and payable by us to you on account of the said transactions . . . . . .

Held that the memorandum did not require registration."

20. The third case on the point is Sundarachariar v. Narayana Ayyar (A I R 1931 P C 36.).
The relevant portion reads as under:-

"A person in Madras gave a promissory note and on the same date gave a memorandum
which contained a list of the title deeds with the introductory words: "As agreed upon in
person, I have delivered to you the under mentioned documents as security:

Held: that the memorandum was not other than a written record of the particulars of
deeds the subject of an agreement constituted in fact by the act of deposit and the
payment of the money, and that it neither purported nor operated to create or declare any
right, title or interest in the property included in the deeds, with the result that it did not
8 of 10
require registration. Even if it was a condition of the advance that the memorandum was
to be given, the fact that the memorandum was prepared, signed and handed over to the
mortgagee before the advance of the balance of the money to be secured by the deposit
could not alter the nature and meaning of the document. It was and remained a list of the
documents deposited and nothing more. It did not embody the terms and of the agreement
between the parties and did not require registration."

21. The admitted position on the record is that the title deeds lying with Habib Bank had
been taken from there and kept in deposit by the plaintiffs. This letter Exh. 54, is
consequently a confirmation of the deposit of those title deeds. The deposit of title deeds
did not accompany this letter.

22. In view of that has been said in cases cited above, there can be no escape from the
conclusion that Exh. 54 is merely a memorandum and therefore does not require
registration. The very fact that this memorandum was written on a letterhead and not on a
stamped paper is also a circumstance in support of the view I am holding. In view of the
above discussions this issue is decided against the defendants. Full Bench decision of this
Court reported to in National Bank of Pak. v. Fasihuddin and others (P L D 1964 Kar. 92)
also supports me on the conclusions drawn by me.

23. The decision on issue No. 10 will go along with the decision on issue No. 9. There
can be no two opinions about the question that 'the plaintiffs are a mortgagee in good
faith for good consideration. The plaintiffs had admittedly advanced moneys and that the
deposit of title deeds with them had been made with a view to create equitable mortgage
for a consideration.

24. So far as issue No. 11 is concerned, the learned counsel r for the defendants have not
been able to challenge any of the items of moneys drawn by defendant No. 2 as shown in
statement of account filed with the plaint. In fact it has been admitted that after June 17,
1952 the defendants withdrew from the plaintiffs Rs. 140-10-0, Rs. 1,325-9-0, Rs. 2,000
and Rs. 5,000. It has also been admitted by defendant No. 2 that the amount due from
him on 17th June 1952 was Rs. 1,97,638-10-11. The only dispute between the parties is
on the rate of interest. The rate of interest as stipulated to be charged from the defendants
was 1% above the bank rate i.e. 4 % up to 17th June 1952. The interest agreed upon to be
paid after 17th June 1952 is 6 %. The contention raised is that there is no warrant for
changing the rate of interest from 17th June 1952. The loan when previously given was at
the rate of 4 %. It continued to be at that rate despite the fact that the pledge of the goods
vanished on 17th June 1952 and the loan became an unsecured one. When the advances
already made and a further advance of Rs. 73,000 and odd made to defendant 2 came to
be secured on account of deposit of title deeds there is no justification whatever for
increasing the rate of interest. The learned counsel for the plaintiffs has urged that the rate
of interest being agreed rate of interest between the parties it cannot be changed unless it
be shown that it is unconscionable or exorbitant. I cannot quite agree with the learned
counsel for the plaintiffs. As I have already stated, the change in the rate of interest is
unwarranted by any circumstance on the record and I am, therefore, inclined to take a
view that the increase, in the rate of interest in the circumstances of this case would
appear to be exorbitant. I therefore while allowing the claims of the plaintiffs for their
principal reduce the rate of interest from 6 % to 4 %.

25. The learned counsel for the defendants have also argued the points which were not
covered by the issues. Since they were not covered by the issues they did not require any
mention. But since they have been argued, I would make a reference to them and also
give my finding that there is no substance in them.

26. The first point raised is that the statement of account filed with the plaint was not in
accordance with the Banker's Book Evidence Act of 1891. It is urged that the certified
copy does not indicate that it was signed by principal accountant. I have looked at the
statement of accounts. It shows that it was signed by an accountant. The burden lay on
the defendant to show that the accountant who had signed this statement of accounts was
not the principal accountant of the bank. I, therefore repelling the contention of the
learned counsel for the defendants, am of the view that the certified copy of the statement
of account is in accordance with the provisions of law.

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27. The second point put across is that the suit is founded upon the confirmation slip
which had been signed by defendant No. 2 from time to time and that they required to be
stamped. It is argued that the stamps appearing on these confirmation slips have been put
subsequently and as such would not meet with the requirement of law. I am afraid I
cannot look into this issue at the stage. Although the defendants knew that the suit was
brought within time on the basis of these confirmation slips yet they did not so much as
even raise a contention in their written statements that the suit was time-barred. At no
point of time has any defendant stated that the confirmation slips of which a mention was
made in the plaint were stamped subsequent to the time when they were signed by
defendant No. 2. In view of there being no dispute raised by the defendants on this point
the plaintiffs could not foresee what the case of the defendants would ultimately be in the
arguments so that they should have examined evidence to establish that the stamps
appearing on the confirmation slips were put on them at the time when they were signed
by the defendant No. 2. The learned counsel for the defendants concede that no issue on
this aspect of the case has been raised. He also concedes that the point in question was
not directly or indirectly raised by any of the defendants at any time. I, therefore, see no
substance in this point of the counsel for the defendants also.

28. In view of what I have stated above, I decree the suit of the plaintiffs with costs. The
decree shall be given to the plaintiffs against defendant No. 2 alone for the sum which
will be calculated in the light of the observations made by me pertaining to the rate of
interest. A declaration is also given that the property specified in paragraph 8 of the plaint
is charged for the payment of the plaintiff's claim.

K.B.A. Suit decreed.

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2006 C L D 687

[Supreme Court of Pakistan]

Present: Javed Iqbal and Ch. Ijaz Ahmad, JJ

Messrs STATE ENGINEERING CORPORATION LTD. ----Petitioner

Versus

NATIONAL DEVELOPMENT FINANCE CORPORATION and others----Respondents

C.P. No. 1441-L of 2004, decided on 7th February, 2006.

(On appeal from the order, dated 25-2-2004 passed by the Lahore High Court, Lahore in
R.F.A. No.62 of 1998).

(a) Contract Act (IX of 1872)---

----S. 126-'Guarantee'-Connotation-'Guarantee' is an under-taking by a third party for one

of the parties to the contract whereby the third party binds itself to see that the promise or
condition would be fulfilled according to covenant.

(b) Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act (XV
of 1997) --

----S. 9---Contract Act (IX of 1872), S.128---Constitution of Pakistan (1973), Art.185

(3)---Recovery of bank loan---Liability of guarantor/ surety---Suit was decreed in favour
of bank against the borrower and guarantor---Petitioner being guarantor was aggrieved of
the judgment and decree passed by High Court in exercise of banking jurisdiction---
Validity---Liability of guarantor/surety was co-extensive with that of the principal debtor,
unless it was otherwise provided by the contract as envisaged in S.128 of Contract Act,
1872---Guarantor and principal debtor were jointly and severally liable to pay the
outstanding amount to the creditor---Guarantor could not shirk from the liabilities
incurred by him through the execution of documents---Creditor's in an action against
guarantor was merely required to show existence of liability of the principal debtor and
occurrence of default or breach of terms leading to the liability---Defence based on
technicalities, loss of procedure or covenants to which guarantor was not a party, could
not be pressed into service by guarantee---No infirmity or illegality in the judgment
passed by High Court having been found by the Supreme Court and no question of law of
public importance having been raised by the petitioner, leave to appeal was refused.

Rafique Hazquel Masih v. Bank Alfalah Ltd. and others 2005 SCMR 72 = 2005 CLD 95;
M/s. Platinum Insurance Company Ltd. v. Daewoo Corporation PLD 1991 SC 1; Ram
Sagar Singh v. Yogendra Narain Prasad Singh AIR 1975 Pat. 239; Ashrafi Rai v.
Parsbadilal AIR 1959 M.P. 26; Dalchand v. State of Rajasthan AIR 1976 Raj. 112; Madho
Sah v. Sitaram Sah AIR 1962 Pat. 405; Arumugham Chettiar v. Sadasiram AIR 1971
Mad. 321; Nagpur Nagrik Sahakari Bank Ltd. v. Union of India AIR 1981 A.B. 153;
Budh Singh v. Mukhund Murailal AIR 1975 A.B. 201; Kali Cheran v. Abdul Rehman
AIR 1918 PC 226; Central Exchange Bank Ltd. v. Mst. Zaitoon Begum and 2 others PLD
1968 SC 83 and Sree Meenakshi Mills Ltd. v. Ratilal Tribhovandas Thakar AIR 1941
Bom. 108 rel.

(c) Pleadings---

----Parties are bound by their pleadings.

Mst. Murad Begum's case PLD 1974 SC 322 rel.

(d) Constitution of Pakistan (1973)---

----Art. 185---New plea---Fresh plea cannot be raised before Supreme Court.

1 of 5
John E. Brown Lee. v. Vivan Mac Milian AIR 1940 PC 219; Ashfaque-ur-Rehman v. Ch.
Muhammad Afzal PLD 1971 SC 766 and Ganga Nath Sen v. Ram Jit Ray ILR (1942) 1
Cal. 11 rel.

(e) Contract Act (IX of 1872)---

----S. 141---Surety's right---Scope---So long as principal debtor is liable, the guarantor

also agrees to be liable---Right has been conferred on surety by S.141 of Contract Act,
1872, to the benefit of every security which creditor has against principal debtor at the
time when the contract of surety is entered into.

Citibank N.A. Newdehly v. Juggilal Kamlapat Jute Mills Co. Ltd. Kanpur AIR 1982
Dehly 487 rel.

(f) Constitution of Pakistan (1973)---

--Art. 185(3)---Petition for leave to appeal---Concurrent findings of fact by the Courts

below---Scope---Supreme Court cannot interfere with the concurrent findings of the
Courts below while exercising power under Art.185(3) of the Constitution.

Humayun and others v. The State 1986 SCMR 1987 and Evacuee Trust Property Board v.
Muhammad Sharif 1984 Pakistan Supreme Court Cases 1501 rel.

Sh. Shahid Waheed, Advocate Supreme Court for Petitioner.

Nemo for Respondents.

Date of hearing: 7th February, 2006.

ORDER

CH. IJAZ AHMAD, J.---The detailed facts have already been mentioned in the impugned
judgment. However, necessary facts out of which the present petition arises are that the
respondents filed suit for recovery of an amount of Rs.61,660, 547.07 against the
petitioner. The contents of the plaint reveal that petitioner had given guarantee for the
finance provided by the respondents to Pakistan Switchgear Ltd. in the Lahore High
Court, Lahore (Banking jurisdiction). The petitioner filed application for leave to appear
and defend in the Banking Court which was dismissed partly vide interim decree dated
15-1-1998 to the extent of the claim of the respondent for the amount of Rs.26,793,585.
The leave was granted to the petitioner to the extent of claim of liquidated damages.
Petitioner being aggrieved filed R.F.A. No.62 of 1998. During the pendency of the said
appeal the learned Banking Court refused to grant liquidated damages to the respondent-
Bank vide final judgment, dated 2-6-1999. Respondent being aggrieved filed R.F.A.
No.59 of 2000 by the respondent. The learned High Court dismissed both the appeals
vide impugned order, dated 25-2-2004. Hence, this petition.

2. Learned counsel of the petitioner submits that both the Courts below erred in law to
decide the case against the petitioner in violation of section 139 of the Contract Act. He
further urges that the learned High Court also erred in law to decide the case against the
petitioner in violation of clause/condition No.13 of the Contract Act according to which
the amount has been disbursed to the respondent in lump sum but the learned High Court
erred in law to decide the case against the petitioner in violation of mandatory provisions
of 139 of Contract Act as well as clause 13 of the agreement arrived at between the
parties.

3. We have given our due consideration to the contention of the learned counsel of the
petitioner and perused the record. It is better and appropriate to reproduce the operative
part of the impugned order to resolve the controversy between the parties.

"Learned counsel for the appellant, while arguing the case stated that, admittedly there
are three finances granted to the original borrower, which were through the finance
agreements dated 25-6-1988, 27-9-1988 and 2-5-1989, and are based upon Islamic mode
of financing i.e. the mark-up basis; Clause 4 of these agreements, clearly stipulates that,
2 of 5
the guarantees shall be given by the appellant in pursuance of the agreement, according to
clause 4(e), the respondent N.D.F.C. was bound to recover the amount in the first instance
from WAPDA, but it committed a lapse in the performance of its obligation, resultantly,
the appellant in terms of section 139 of the Contract Act, stands discharged. It is also
argued that, according to condition No.13 of the agreement, the disbursement of the
finance, made to the borrower, was to be on the basis of specific schedule depending
upon the progress of supply orders of WAPDA, but in breach of this condition, the
respondent had disbursed the financing in lump sum, therefore, the guarantee of the
appellant, which is strictly on the basis of the financing agreement, cannot be enforced.
Lastly, it is submitted that, according to the statement of accounts at page 94 of the file,
certain amounts, such as central excise duty, liquidated damages and mark-up price, have
been unauthorizedly entered and exaggerated; these amounts are liable to be excluded.

We have heard the learned counsel for the parties and find that, under the law, the
guarantee is an independent contract between the parties. In these guarantee documents,
which are admitted by the appellant, the appellant in clear, unequivocal and unambiguous
terms had guaranteed to stand as surety for whatever amount is due to the respondent
from the main borrower. As the main borrower in this case undoubtedly has defaulted in
the payment of the dues, resultantly, the appellant was bound to discharge its surety
obligation. From the record and also the arguments, raised before us, we do not find that,
the provisions of section 139 of the Contract Act, are attracted to the facts and
circumstances of the case. Resultantly, we do not find any merit in the argument, which is
hereby repelled."

4. After reading the aforesaid operative part of the impugned order we are of the view
that the learned High Court had rightly discarded the pleas raised by the petitioner before
the learned High Court with cogent reasons. The same are in accordance with the dictum
laid down by this Court in Rafique Hazquel Masih's case 2005 SCMR 72. The relevant
observation is as follows:--

"Furthermore section 128 of the Contract Act specifically mandates that "the liability of
the surety is co-extensive with that of the principal debtor, unless it is otherwise provided
by the contract".

"In absence of any specific stipulation in the contract of loan or any consideration of
equity, a guarantor cannot take up the plea that the Bank should enforce the liability
against the principal debtor before proceedings against the guarantor. The reason being
that the Bank grants loan only on the guarantee and in absence of letter/contract of
guarantee the Bank may not have sanctioned the loan."

5. It is pertinent to mention here that the petitioner had given a guarantee at the time of
sanctioning loan facility to the original loanee by the respondent. Guarantee means that it
is an undertaking by a 3rd party for one of the parties to the contract whereby the 3rd
party binds itself to see that the promise or condition would be fulfilled according to
covenant. A contract of a guarantee is a contract to meet the promise or discharge the
liability of a 3rd person in case of his default. The person who gives the guarantee is
called the surety, a person in respect of whose default the guarantee is given is called the
creditor. (see section 126 of the Contract Act).

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
is otherwise provided by the Contract. They are jointly and severally liable to pay the
outstanding amount to the creditor. A guarantor cannot shirk from the liabilities incurred
by him through the execution of documents as law laid down in the following
judgments:--

(i) Rafique Hazquel Masih v. Bank Alfalah Ltd. and others 2005 CLD 95; (ii) Messrs
Platinum Insurance Company Ltd. v. Daewoo Corporation PLD 1991 SC 1; (iii) Ram
Sagar Singh v. Yogendra Narain Prasad Singh AIR 1975 Pat. 239; (iv) Ashrafi Rai v.
Parsbadilal AIR 1959 M.P. 26; (v) Dalchand v. State of Rajasthan AIR 1976 Raj. 112;
(vi) Madho Sah v. Sitaram Sah AIR 1962 Pat. 405; (vii) Arumugham Chettiar v.
3 of 5
Sadasiram AIR 1971 Mad. 321; (viii) Nagpur Nagrik Sahakari Bank Ltd. v. Union of
India AIR 1981 A.B. 153; (ix) Budh Singh v. Mukhund Murailal AIR 1975 A.B. 201 and
(x) Kali Cheran v. Abdul Rehman AIR 1918 PC 226.

7. The learned High Court was justified to hold that the section 139 is not applicable in
the present case coupled with settled principle of law that the liabilities of the surety
cannot be discharged as the law laid down by this Court in Central Exchange Bank Ltd. v.
Mst. Zaitoon Begum and 2 others PLD 1968 SC 83. The relevant observation is as
follows:--

"Mere forbearance, on the part of the creditor to sue the principal debtor, or to enforce
any other remedy against him, would not, in the absence of any provision in the
guarantee to the contrary, discharge the surety, as is provided by section 139 of the Act."

8. It is pertinent to mention here that facts of Mst. Zaitoon Begum's case (supra) are
entirely different and distinguished qua the case in hand, therefore, application of the
section 139 of the Contract Act is not attracted as held by the learned High Court in the
impugned judgment. Section 139 of the Contract Act lays down that if the creditor does
any act which is inconsistent with the rights of the surety, or omits to do any act which is
his duty to the surety requires him to do and the eventual remedy of the surety himself
against the principal debtor is thereby impaired, the surety is discharged. It is pertinent to
mention here that petitioner has failed to point out any inconsistency against his right in
terms of the section 139 of the Contract Act.

9. It is also a settled principle of law that a creditor in action against the guarantor is
merely required to show existence of liability of the principal debtor and the occurrence
of default or breach of the terms leading to the liability. Defence based on the
technicalities, loss of procedure or covenants to which guarantor is not a party cannot be
pressed into service by guarantee. See Sree Meenakshi Mills Ltd. v. Ratilal Tribhovandas
Thakar AIR 1941 Bom. 108. So far as section 141 of the Contract Act is concerned, this
provision was not pressed before the learned High Court by the petitioner's counsel as is
depicted from the impugned judgment. It is a settled principle of law that parties are
bound by their pleadings as the law laid down by this Court in Mst. Murad Begum's case
PLD 1974 SC 322.

10. It is an admitted fact that petitioner had not taken the plea of the section 141 of the
Contract Act before the learned High Court as well as in the memorandum of petition
before this Court. It is a settled principle of law that the fresh plea cannot be raised before
this Court as the law laid down by the Privy Council and this Court in the following
judgments:--

(i) John E. Brown Lee v. Vivan Mac Millan AIR 1940 PC 219 and (ii) Ashfaque-ur-
Rehman v. Ch. Muhammad Afzal PLD 1971 SC 766.

11. So long as the principal debtor is liable, the guarantor also agrees to be liable Ganga
Nath Sen v. Ram Jit Ray ILR (1942) 1 Cal. 11. Even otherwise section 141 of the
Contract Act confers a right on the surety to the benefit of every security which the
creditor has against the principal debtor at the time when the contract of surety is entered
into (See Citibank N.A. Newdehly v. Juggilal Kamlapat Jute Mills Co. Ltd. Kanpur AIR
1982 Dehly 487). It is an admitted fact that both the Courts below had given concurrent
findings of fact against the petitioner. It is a settled principle of law that this Court cannot
interfere with the concurrent findings of the Courts below while exercising power under
the Article 185(3) of the Constitution as the law laid down by this Court in the following
judgments:

(i) Humayun and others v. The State 1986 SCMR 1987 and (ii) Evacuee Trust Property
Board v. Muhammad Sharif 1984 Pakistan Supreme Court cases 1501.

12. In view of what has been discussed above, we do not find any infirmity or illegality in
the impugned judgment. Even otherwise petitioner's learned counsel failed to point out
any question of law of public importance. Resultantly, the petition being devoid of any
merits is dismissed. Leave is refused.

4 of 5
M.H./S-6/SC Petition dismissed.

5 of 5
P L D 1964 (W. P.) Karachi 92

Before Qadeeruddin Ahmed, A. S. Faruqui and H. T. Raymond, JJ

NATIONAL BANK OF PAKISTAN-Applicant

Versus

FASIHUZZAMAN AND ANOTHER-Respondents

Civil Reference No. 433 of 1961, decided on 25th November 1913.

(a) National Bank of Pakistan Ordinance (XIX of 1949), S. 25 (h)-Word "or" used
conjunctively and not disjunctively (obiter).

Where it was argued, while interpreting clause (h) of S. 25 of the National Bank of
Pakistan Ordinance, 1949, that the use of the word `or' between `immovable property' and
`document of title' relating thereto implied that according to the provisions of sub-clause
(h) the Bank is competent to lend money either

(a) on the security of immovable property i.e., by mortgage thereof; or

(b) on the security of title deeds and, therefore, the condition regarding acceptance `as
collateral security' appeared to be attached only to documents of title-deeds relating to
`immovable property'

Held, the argument, that the Bank cannot lend money on the security of documents of
title to immovable property but can do so on the security of immovable property itself,
was unreasonable. The word `or' in clause (h) of section 25 of the National Bank of
Pakistan Ordinance, 1949 is conjunctive and not disjunctive.

(b) Stamp Act (II of 1899), Sch. 1, Art. 40-Expressions "for the above-mentioned
purpose" and "where the principal or primary security is duly stamped" in Art. 40 (c)-
Whether secondary mortgage deeds named in clause (c) refer to mortgages mentioned in
clauses (a) and (b) of section and whether primary security must also be mortgage and
duly stamped as such to attract lighter duty under clause (c).

Tej Ram v. Maqbul Shah A I R 1928 Lah. 370 ; In re: Gopaldas Versimal A I R 1928 Sind
90 ; Imperial Bank v. Bengal National Bank A I R 1930 Cal. 536 ; (1933) Madras Stamp
Manual, page 121 ; Commentary on Stamp Act 1899 by Chitley and Rao (2nd Edition) p.
650 ; Commentaries by Sanjiwa Rao and Walter Russell Donogh and Mulla's Stamp Act
ref.

(c) Stamp Act (II of 1899), Sch. I, Art. 40 (c)-Language of clause (c) defective.

Sayeed A. Shaikh for Applicant.

Noorul Arfin for Respondents.

Date of hearing : 5th November 1963.

JUDGMENT

QADEERUDDIN AHMED, J.----This is a reference by the Chief Controlling Revenue

Authority for Karachi under section 57 (1) of the Stamp Act, 1899. He has stated the
case, given his own opinion on it, and then formulated three questions as follows

"(i) Where a loan is advanced by the Bank against a promissory note, is a mortgage deed,
executed simultaneously or subsequently, to be regarded as the primary or as collateral
security, within the meaning of the sub-Article (c) of Article 40, Schedule I, Stamp Act,
1899 7 Whether the rulings relied upon by the National Bank of Pakistan would apply to
the present case where the primary security is a promissory note, in face of ruling in A I R
1928 Lah. 370 wherein it has been held that Article 40 (c) applies where a document
1 of 6
offering further security is executed subsequent to the original mortgage which has been
reduced to writing ;

(ii) Whether the applicant's contention that under the National Bank of Pakistan
Ordinance, 1949, mortgage of immovable property can be accepted only as a collateral
security and not as a primary security, is valid, and if so, whether it can overrule the
provisions of the Stamp Act, 1899 ;

(iii) Whether the mortgage deed in question is leviable with stamp duty under sub-Article
(c) or sub-Article (b) of Article 40 of Schedule I, Stamp Act, 1899 ?"

2. Mr. Sayeed A. Sheikh appearing on behalf of the referring authority, withdrew the
second question on the ground that the Revenue Authorities have no jurisdiction to decide
as to what business can be carried on by the Bank under the National Bank of Pakistan
Ordinance, 1949. That question had arisen incidentally before the Revenue Authorities
owing to the argument that was advanced on behalf of the Bank, that the Bank could not
accept immovable property as a primary security; therefore, in law, the mortgage deed
executed in favour of the Bank was necessarily a collateral security. We agree with
counsel that this question could not be formulated in the reference for directly obtaining
an answer to it, but we think that it arises indirectly, and can be considered by us
incidentally if found necessary. We may further point out that the first question contains a
subsidiary question with regard to the applicability of the decision in Tej Ram v. Maqbul
Shah (A 11 R 1928 Lab. 370), irrespective of the decisions given in In re Gopaldas
Versffmal (A I R 1928 Sind 90) and Imperial Bank v. Bengal National Bank (A I R 1930
Cal. 536). This subsidiary question as well as the three main questions are distinctly
helpful to us in appreciating the rationale of the case, but we have to decide the case itself
and not necessarily to answer the questions.

3. Section 57 of the Act requires that the Chief Controlling Revenue Authority may state
any case referred to it under subsection (2) of section 56 of the Act or otherwise coming
to its notice, and state such case, with its own opinion thereon for the decision of the
High Court in the territorial jurisdiction of which it arises. When the case is so referred, it
is to be decided by not less than three Judges of the High Court to which it is referred. We
have, therefore, to examine the statement of the case contained in the reference and, if no
further particulars are ordered by us to be furnished under section 58 of the Ac,, to decide
the amount of the duty with which the document in question is legally chargeable, The
sections are clear in this respect. They are as follows :-

"57. (1) The Chief Controlling Revenue-authority may state any case referred to it under
section 56, subsection (2), or otherwise coming to its notice, and refer such case, with its
own opinion thereon,-

(a) if the case arises in East Bengal, to the High Court of East Bengal;

(b) if the case arises in West Pakistan, to the High Court of West Pakistan.

(2) Every such case shall be decided by not less than three Judges of the High Court to
which it is referred, and in case of difference, the opinion of the majority shall prevail.

58. If the High Court is not satisfied that the statements contained in the case are
sufficient to enable it to determine the questions raised thereby, the Court may refer the
case back to the Revenue-authority by which it was stated, to make such additions thereto
or alterations therein as the Court may direct in that behalf."

4. The statement of the case shows that a mortgage deed was executed by two debtors of
the Bank, to secure a loan of Rs. 6,000 on a stamp-paper of the value of Rs. 12 only. It
was impounded in 1959, by the Registrar of Documents and the Collector ordered the
payment of Rs. 78 as additional duty on it as well as of Rs. 156 as penalty. He then
referred the case under section 56 of the Act to the Chief Controlling Revenue Authority,
Karachi. That Authority has referred it to this Court under section 57 of the Act.

5. The main issue for decision before us is : whether the mortgage deed is chargeable
with the lesser duty prescribed in clause (c) of Article 40 of the Stamp Act, 1899, or the
2 of 6
higher duty prescribed in clauses (a) and (6) of that Article. This is to be determined, on
the basis of the statement of the case, in terms of Article 40 (c) of the Act. The relevant
parts of the Article are as follows:

Description of Instrument

40. Mortgage deed not being an……….

Proper Stamp Duty

(a) when possession of the property or any part of the property comprised in such deed is
given by the mortgagor or agreed to be given;

The same duty as a Convey ance (No. 23) for a con sideration equal to the amount
secured by such deed.

(b) when possession is not given or agreed to be given aforesaid;

The same duty as a Bond (No. 15) for the amount secured by such deed.

Explanation.-A mortgagor who gives the mortgagee a power-of-attorney to collect rents

or a lease of the property mortgaged or part thereof, is deemed to give possession within
the meaning of this Article. Two rupees.

(c) when a collateral or auxi liary or additional or substituted security, or byway of

further assur-

ance for the above-men-tioned purpose where the principal or primary security is duly
stamped-for every sum secured not exceeding Rs. 1,000;

and for every Rs. 1,000 or part thereof secured in excess of Rs. 1,000. Two rupees.

6. The grounds on which the Chief Controlling Revenue Authority considers the
mortgage deed to be chargeable with the higher duty are that-

"The provisions of the section (c) shall not be attracted unless-

(a) the document constituting the primary security is a mortgage deed, and

(b) the proper stamp duty on such mortgage deed has been paid either under sub-Article

(a) or (b) of the Article 40."

By "section (c)" and "Sub-Article (a) or (b)" he means clauses (a), (b) and (c) of Article
40 of the Act. He has not explained the above grounds further. They are his conclusion as
well as the reasons for it. The explanation of the conclusion itself, as provided by his
counsel his address, is that though a promissory note can constitute; a primary security
and though a mortgage deed can be a collateral security to any other primary security, yet
unless such a primary security is a mortgage deed or at least a document which bears the
proper stamp duty chargeable under clause (a) or clause (b) of the Article, such a
collateral mortgage deed cannot properly bear the lesser duty that is prescribed in clause
(c). This explanation makes it unnecessary for us to consider whether a promissory note
can constitute a primary security or not. All that remains to be considered is whether a
mortgage deed which purports to be a collateral security to a promissory note that is not
stamped as a mortgage deed, can properly bear the lesser stamp duty or not. We may note
here that neither the referring authority nor his counsel seems to attach any qualification
to the collateral mortgage deed itself for considering it fit to attract the lesser duty, but
attaches conditions to the primary security for that purpose.

7. In order to disprove the above view, two arguments were apparently advanced before
the referring authority on behalf of the Bank. One of them was that the decisions given in
Imperial Bank v. Bengal National Bank and In re Gopaldas Versimal, were judicial
3 of 6
precedents, according to which a promissory note could be a primary security, and the
other argument was that the Bank was debarred by virtue of section 25(h) of the National
Bank of Pakistan Ordinance, 1949 from advancing money against the primary security of
immovable property ; therefore, the mortgage deed in question which was executed in
addition to a promissory note must be treated as a collateral security. The Authority has
met these arguments, firstly, by relying on the view expressed in Tej Ram v. Maqbul Shah
and the observation made in (1933) Madras Stamp Manual, page 121, which has been
quoted by Chitaley and Rao at page 650 in their Commentary (2nd Edition) on the Stamp
Act, 1899 ; and secondly, by interpreting section 25 (h) of National Bank of Pakistan
Ordinance 1949, differently from the interpretation placed on it by the Bank.

8. The relevant portion of Tej Ram v. Maqbul Shah is as follows :-

"Article 40 (c) deals with a case in which a separate instrument offering additional or
substituted security is executed subsequent to the original mortgage transaction, which
had been reduced to writing in previously completed instrument. This is admittedly not
the case here, as the stipulation as to the original mortgage and the collateral security
were made simultaneously and were both embodied in one and the same deed."

In the above case the mortgage deed contained a stipulation that in the event of the house
and the vacant site, which were mortgaged, being found to be insufficient to pay off the
dues, the mortgagee could recover the balance from certain shop. The point for decision
was as to whether Article 40 (c) was attracted when the two securities were created
simultaneously. The quotation, therefore, is not helpful in the present case. The
observation quoted by Chitaley and Rao from the Madras Stamp Manual is as follows :-

"A document, whereby the executant mortgaged certain lands to secure the payment of a
certain sum due to the mortgagee under a promissory note previously executed, is not a
collateral security falling under this clause. It is a primary mortgage and the duty is
leviable under clause (b)."

Neither the facts of that case, nor the reasons for the view are known; therefore, we
cannot safely accept the view as a general proposition of law.

9. The relevant provision of the National Bank of Pakistan Ordinance, 1949, at the time
of the execution of the mortgage deed which is now in question, was as follows

“S. 25. The Bank is authorised to carry on and transact the several kinds of business
hereinafter specified, namely

* * * * *

(h) immovable property or documents of title relating thereto as collateral security is one
of those specified in sub-clauses (a) to (J) and, subject to such directions as may be issued
by the Central Board, where the original security is of the kind specified in sub-clause
(g)"."

Clause (a) relates to certain stocks, funds and securities, clauses (b) and (d) to certain
debentures, clauses (e) and (j) to certain goods and documents of title thereto, clause (e)
to certain shares of companies and clause (g) to certain bills of exchange and promissory
notes. The referring Authority has interpreted clause (h) as follows :-

"The use of the word `or' between `immovable property' and `document of title' relating
thereto, in my opinion implies that according to the provisions of sub-clause (h) the Bank
is competent to lend money either

(a) on the security of immovable property, i.e., by mortgage thereof (in which case sub-
Article (b) of Article 40, Schedule I of the Stamp Act will apply, as in the case under
reference); or

(b) on the security of title deeds.

4 of 6
The condition regarding acceptance `as collateral security only' appears, to be attached
only to documents of title-deeds relating to `immovable property'

It is unnecessary to discuss the above argument because the conclusion, which is set out
in the last sentence, is unreasonable. A According to it, the Bank cannot lend money on
the security of documents of title to immovable property but can do so on the security of
immovable property itself. In our opinion, the word `or' in clause (h) is conjunctive and
not disjunctive,

10. As pointed out above, in paragraph 5, this case must be decided on the basis of clause
(c) of Article 40 of the Stamp Act; 1899. Mr. Sheikh has argued, firstly, that the words-

"for the above-mentioned purpose",

which occur in the clause, refer to the mortgages executed as the primary security under
clauses (a) and (b) of the Article; therefore, the primary security of a collateral mortgage
deed must be a mortgage. Moreover, as the words-

"where the principal or primary security is duly stamped"

follow the words "for the above-mentioned purpose", the primary security must be duly
stamped as a mortgage deed if the collateral mortgage is to attract the lighter duty.
Counsel's second argument was that if the primary security had not been intended to be a
mortgage deed only, then clause (c) which relates to secondary mortgage deeds would not
have been given a place in Article 40 which relates to mortgage deeds and to no other
securities.

11. Taking up the first argument, we may explain that if the words "for the above-
mentioned purpose", which occur in clause (c) are taken to refer to the contents of clauses
(a) and (b) of Article 40 of the Act, then they convey no meaning. This will become clear
if the relevant parts of Article 4 (reproduced above) are compared with the relevant parts
of the English section from which clause (c) of our Article has been taken. Clause !c) is
almost a verbatim copy of clause (2) of the section of the English Stamp Act 1891, which
deals with-

"Mortgage, Bond, Debenture, Covenant, . . . . . and War rant of Attorney…."

A glance at the above heading of the English section will show that it is not restricted,
like our Article, to mortgage deeds only. We reproduce below clauses (1) and (2) of the
English section in order to indicate how inartistically clause (2) has been copied in our
Article. The English clauses follow immediately after the above heading, as under :--

(1) Being the only or principal or primary security (other than an equitable mortgage) for
the payment or repayment of money-

* * * * * *

(2) Being a collateral, or auxiliary, or additional, or substituted security (other than an

equitable mortgage), or by way of further assurance for the above-mentioned purpose
where the principal or primary security is duly stamped

* * * * * *

(The italics are ours).

Clause (2) has been inserted in our Stamp Act as clause (c) with two changes only. They
are that the words which appear within brackets in it have been omitted in our clause (c),
and the first word, i.e., "Being", has been replaced by the word "when". The result of the
second change is that our clause suffers from a grammatical defect. It stands without a
predicate. The reset of the retention in our clause (c) of the words "for the above-
mentioned purpose" is that they refer to no above-named purpose at all in Article 40 of
our Act, because the words "for the payment or re-payment of money", which occur in
clause (1) of the English section do not find a place in clauses (a) and (b) of our Article.
5 of 6
These defects have been noted by Sanjiwa Rao and by Walter Russell Donogh in their
commentaries on our Stamp Act. Mulla has observed in his commentary that

“The above-mentioned purpose, must be the purpose stated in the definition (of a
mortgage deed)", section 2(17) of our Act.

There are 39 Articles and 79 sections above Article 40 of our Act, but the learned
commentator has been able to find a suitable subject of reference in the definition that is
contained in section 2(17) for the words "the above-mentioned purpose" which occur in
Article 40(c). That definition is as follows :-

" `mortgage deed' includes every instrument whereby, for the purpose of securing money
advanced, or to be advanced, by way of loan, or an existing or future debt, or the
performance of an engagement, one person transfers, or creates, to, or in favour of,
another, a right over or in respect of specified property."

The italics are ours).

The purpose as stated in the above definition is merely "securing" money or debt or the
performance of an engagement. The inclusion of this purpose in the definition of a
mortgage deed does not make that particular kind of security an integral part of the
purpose. This is borne out by the words "the abovementioned purpose" Their effect is not
that the secondary mortgage deeds named in clause (c) must have been executed in
relation to the principal mortgages mentioned in clauses (a) and (b) of Article 40 of the
Act. This conclusion is further supported by the words "principal or primary security"
used in clause (c). If the object was otherwise, then the words would have been "principal
or primary mortgage".

12. We have relied on the language of clause (c) with some diffidence because it has been
inserted in Article 40 with such lack of care for precision that using them in support of
our view creates a self-distrust, but the clause is the law of the land and our attempt is to
give full effect to it.

13. Turning now to the second argument of Mr. Sayeed A. Sheikh, we find that there is a
good reason why clause (c) should find a place with clauses (a) and (b), in Article 40 of
the Act. That reason is that all of them deal with mortgage deeds. Clauses (a) and (b) deal
with those mortgage deeds which constitute the principal or primary securities, and
clause (c) deals with those of them which are executed as collateral, auxiliary, additional,
substituted or further assuring securities. As the Article deals wilt mortgage deeds of all
types, clause (c) is rightly given a place in it. We may remind outset here that the Article
merely prescribes the proper duty for various types of mortgage deeds without defining
as to what is a mortgage, what is a principal or primary security and what is a collateral
auxiliary, additional, substituted or further assuring security. It is unnecessary for the
present discussion to draw the distinctions that exist between (i) a collateral, (ii) an
auxiliary, (iii) an additional, (iv) a substituted and (v) a further assuring security. They are
so fine that very often these classes appear to overlap, but the real value of using all the
five expressions is to make clause (c) a comprehensive provision. They serve the purpose
more of being inclusive than exclusive. The Article deals with all mortgage deeds but not
with all securities; therefore, in spite of this Article there may be other kinds of secondary
securities to primary mortgage deeds and other kinds of primary securities to secondary
mortgage deeds. The contention that clause (c) would not have been included in Article
40 if a mortgage deed could be a collateral security to a promissory note seems to us to be
patently wrong.

14. Our conclusion, therefore, is that the mortgage deed in question is chargeable with the
lighter duty prescribed in clause (c) of Article 40 of the Stamp Act, 1899. As the stamp
duty paid on it under this clause has not been questioned before us, we decide that it bears
the correct stamp duty, and add, by way of caution, that no additional stamp duty or
penalty is payable with respect to it.

15. The reference is answered accordingly.

K. B. A. Reference answered accordingly.

6 of 6
P L D 1961 (W. P.) Lahore 888

Before M. R. Kayani, C. J., and Jamil Husain Rizvi, J

Mst. ZAITOON BEGUM AND ANOTHER----Appellants

versus

THE CENTRAL EXCHANGE BANK LTD., LAHORE

(IN LIQUIDATION) AND ANOTHER----Respondents

Letters Patent Appeal No. 37 of 1960, decided on 29th June 1961.

(a) Benami-"Fixed deposit" made in bank by father with his own money, in name of wife
or child-Not by itself sufficient to presume that deposit was benami-Deposit only a mode
of making a gift.

(b) Contract Act (IX of 1872), S. 141-Pledge of goods by customer, for bank overdraft-
Customer in addition depositing with Bank Fixed Deposit Receipts belonging to wife as
"additional security" for overdraft-Bank allowing pledged goods to remain in possession
of customer as turstee and proceeding to adjust overdraft against security of Fixed
Deposit Receipts-Wife, had, entitled to benefit of pledge of goods-S. 141 applicable.

(c) Muhammadan Law-Guardianship-Father, legal guardian of minor daughter-Pledge of

minor's property (Bank Fixed Deposit v. Receipts) by father as "additional" security for
his overdraft from Exchange Bank-Held, that father, under Muhammadan Law, had
power to Bank Ltd. pledge minor's property and that such pledge was as "principal" and
"not as agent or guardian" of minor-S. 147, Contract Act (IX of Kayani, C J 1872) was
therefore in applicable-Minor, held, not entitled to benefit and I. H. of security by goods
which Bank had not pursued-(Fatawa-e-Rizvi, JJ Alamgiri Vol. 9 (Syed Amir Ali's
Translation, 1932 Edition p. 222 rel.); Mulla's "Principles of Muhammadan Law" (13th
Edition (para. 366 and Imambandi v. Mutsaddi (1918) 45 I A 73 considered].

(d) Co-sharers-Bank Fixed Deposit Receipts in joint name of two persons-Co-sharers

entitled to half and half in absence of any indication of exact shares.

Siraj-ud-Din Ahmad for Appellants.

Sh. Zahur Ahmad for Respondent 1.

Muhammad Zafar Ullah for Respondent 2.

Dates of hearing: 15th and 16th June 1961.

JUDGMENT

KAYANI, C. J.----This is a Letters Patent Appeal by Mst. Zaitun Begum widow of the
late Mr. Rafi Butt, and her minor daughter Yasmin from an order of the Liquidation Judge
dismissing their petition under section 183 (5) of the Companies Act by which they
prayed that the official liquidator of the Central Exchange Bank Ltd., Lahore (under
liquidation) be directed to admit their claim for Rs. 53,748-8-0 on the basis of the
following fixed deposit receipt :-

S. No.
Fixed Deposit Receipt.
Amount
Favouring

Rs.
a.
p.

1 of 1
1.
207/28/48
20,000
0
0
Mst. Zaitun Begum.

2.
211 /32/48
9,800
0
0
Mst. Zaitun Begum.

3.
231/50148
10,000
0
0
Mr. Rafi Butt and Mst. Zaitun

4.
233/52/48
9,800
0
0
Mst. Yasmin minor.

5.
235/54/48
9,800
0
0
Mst. Yasmin and Shamim Akhtar

6.
237/56/38
4,24880

Mst. Yasmin and Zaitun Begum.

2. It will be noticed that in one of the receipts, Mst. Shamim Akhtar appears as a co-
depositor with Mst. Yasmin. Mst. Shamim Akhtar is also a minor and is a step-sister of
Yasmin. Her mother did not make her a party to her application but at the stage of appeal
she has been impleaded at her own request.

3. These deposit receipts were themselves deposited in the Central Exchange Bank by Mr.
Rafi Butt deceased for the purpose, ostensibly, of guaranteeing the payment of loans
which Mr. Rafi Butt took from the Central Exchange Bank in various capacities, though
this is not admitted by the applicants. On the 24th of May 1952 the Central Exchange
Bank went in liquidation and the State Bank of Pakistan was appointed its official
liquidator. The liquidator having invited applications from the creditors of the Central
Exchange Bank, the applicants also put in a claim for the amount of the deposit receipts
but were told that no such amount stood in their names. The date on which the appellants
preferred their claim has been given to us as the 29th of October 1953, but the date on
which the liquidator dis-owned the claim as not been made available. On the 19th of July
1955, however, the bank sent to Mst. Zaitun Begum three notices of dividends, informing
her that the first, second and the third dividend of one anna in the rupee had been
declared and that it will be payable to her at the office of the liquidator on a certain date.
The amount of dividend given in each of these notices was Rs. 130-1-0, which meant that
Mst. Zaitun Begum's claim had been' admitted to the extent of Rs. 2,081-1-6. This
appears to have given her fresh hope and she addressed to the official liquidator a letter
on the 25th of July 1956 (Exh. R. W. 1/2, page 53) pointing out to him that in the first
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instance he had rejected her claim and requesting him that since he had discovered an
account in her name, he might look into his books more carefully and award her dividend
on her original claim of Rs. 53,748-8-0. On the 2nd of October 1956, the liquidator
replied (Exh. R. W. 1/3, page 55) that the late Mr. Rafi Butt had pledged to the Central
Exchange Bank ten fixed deposit receipts covering an amount of Rs. 90,748-8-0,
including the six receipts in question, "as additional security" towards the accounts of

"(1) Mr. Rafi Butt.

(2) Messrs Ghulam Nabi & Sons,

(3) Messrs Hind Enamel Works, and

(4) Messrs Ghulam Nabi Corporation Ltd."

and that whereas the account of Messrs' Ghulam Nabi Corporation td. had been adjusted
by the bank before going into liquidation, the holders of the remaining three accounts
were indebted to the bank as follows: ---

Rs. a. p.

(1) Mr. Rafi Butt

48,523
13
6

(2) Messrs Ghulam Nabi & Sons

12,811
3
9

(3) Messrs Hind Enamel Works

30,136
15
0

3. The liquidator stated further that the fixed deposit receipts had matured on the 15th of
April 1950, when their value had risen to Rs. 93,553-1-9 with the addition of interest: Mr.
Rafi Butt's overdraft account was immediately adjusted against this money and against
the balance the other two accounts were adjusted with the prior permission of the
Liquidation Judge, thus leaving a balance of Rs. 2,081-1-6, for which Mst. Zaitun
Begum's claim had been accepted.

4. The appellants thereupon filed the application under section 183 (5) of the Companies
Act, already mentioned.

5. Before adverting to the application, we should reproduce here the substance of certain
correspondence which had passed between Mst. Zaitun Begum and the Central Exchange
Bank after the death of Mr. Rafi Butt in 1948 and before the Bank went into liquidation.
On the 2nd January 1949, Maulvi Siraj-ud-Din Ahmad, Advocate for the appellants,
wrote to the Central Exchange Bank a letter (Exh. D. 1) in the form of a notice which we
reproduce here so far as it is relevant :-

"My client's deceased husband Mr. Rafi Butt deposited with you fixed deposit receipts as
additional security for your satisfaction against overdraft accounts of Messrs Ghulam
Nabi Corporation, Hind Enamel Works and Ghulam Nabi & Sons; Lahore. Your charge is
on the goods of the said corporation etc. which are in your possession and you are to
realise your debt out of the sale proceeds of those goods- It is therefore requested that the
said F. D. Receipts may kindly be returned to my client."

The Bank replied on the 12th of January 1949 (Exh. P. 1) that in the absence of any
particulars of the fixed deposits in question it was difficult to trace out those deposits, but
that "as admitted by you in your notice," since they had been deposited as additional
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security against the three over-draft accounts, they could not be returned until the
accounts had been adjusted.

6. In reply (Exh. D. 2), Maulvi Siraj-ud-Din Ahmad, on the 22nd of January 1949, gave a
list of seventeen receipts, including five of the six receipts in question, and warning the
Bank that the additional security is to be touched only if the pledged goods are found to
be insufficient to pay off the loan standing against them." He added that "it has been
brought to my client's notice that some goods have been removed from your custody
without cash payment. If it is a fact, you shall be responsible for any deficit caused by
such removal and you shall not be entitled to make up any such deficit out of the fixed
deposit receipts under reference."

7. If the Bank sent any reply to this letter, it is not on our record.

8. The list of the goods "pledged with the Bank" appears in Exh. R. W. 1/4 (page 71).
These are pipes, tubes, brass sheets, syringes etc., of the value of Rs. 1,63,500 and are
shown in Exh. R. W. 1/4, a list prepared by the Bank itself, on the 15th of October 1949,
to have been received by Mr. Taqi Butt as a trustee on behalf of the Bank". Mr. Taqi Butt
is younger brother of the late Mr. Rafi Butt and a partner in the concerns aforesaid.

9. On the 26th of April 1955, long before the present application had been lodged, the
official liquidator sought orders of the Liquidation Judge on the following matters (Exh.
R. W. 1/1, p. 51). The Bank informed the Court that Mr. Raft Butt, who was one of the
directors of the Central Exchange Bank, had been maintaining with the bank the
following four accounts: ---

(1) M. Rafi Butt, (2) Messrs Ghulam Nabi & Sons, (3) Messrs Hind Enamel Works, and
(4) Messrs Ghulam Nabi Corporation Ltd.

The account in his personal name at No. 1 had been adjusted by the Bank itself "by
transferring the credit balance of his fixed deposit account", while account No. 4 had
been transferred by Mr. Rafi Butt himself to Malik Fateh Muhammad Khan Tiwana
against whom a regular suit had been filed for the debts owing from him. There now
remained the two other concerns, namely, Messrs Ghulam Nabi & Sons and Messrs Hind
Enamel Works, which were indebted to the bank to the extent of Rs. 11,392/14/3 and Rs:
26,682-11-0, respectively, apart from interest from the 1st of January 1952. Demand
notices had been issued to these firms but had no effect on them. There were now two
types of securities covering these debts :-

"One is that of hypothecation of goods worth approximately Rs. 1,26,000 "(this

apparently overlooked the amount of Rs. 37,500 in Exh. R. W. .1/4 at which 'the pipes
had been valued)" by Mr. Taqi Butt, a partner in both the firms and a younger brother of
Mr. Rafi Butt. As those goods were not pledged, Mr. Taqi Butt had accepted the position
of a trustee. When called upon to clarify his, position, Mr. Taqi Butt contended that those
goods were hypothecated by him only as a temporary arrangement in the absence abroad
of his brother and that after his brother returned from Europe and pledged other goods
and fixed deposit receipts, all the goods of Mr. Taqi Butt were presumed to have been
automatically released, but the record shows that the contention of Mr. Taqi Butt is not
correct.

That the second security is that of ten fixed deposit receipts valuing Rs. 90,748-8-0 in
favour of sundry parties and pledged with the Bank as additional security by Mr. Rafi
Butt. Out of this, an amount of Rs. 48,523-I3-6 was re-transferred to the personal amount
of Rafi Butt as stated earlier. An amount of Rs. 45,029-4-3 being the undisbursed balance
was transferred to sunday creditors account pending adjustment.

That the official liquidator had some time back been approached by Mst. Zaitun Begum
to admit her claim as a creditor for Rs. 63,648 being the amount of fixed deposit receipts
in her name. Her request could not, however, be acceded to in view of the substantial
amount owned by Rafi Butt to the Bank.

The official liquidator therefore suggests that the amount outstanding may be adjusted out
of the balance of fixed deposit receipts and the balance paid to Mst. Zaitun Begum."
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10. After discussing the matter with the official liquidator, the Liquidation Judge accepted
the suggestion, with the result that only Rs. 2,081-1.6 were left for Mst. Zaitun Begum.

11. We now advert to the application under section 183 (5) which purports to be a petition
by Mst. Zaitun Begum on her own behalf and on behalf of her minor daughter, Yasmin.
In paragraph 1 she states that "she deposited through her deceased husband, M, Rafi Butt,
six fixed deposit receipts in the Central Exchange Bank (Anarkali Branch) Lahore
without stating the purpose for which the receipts themselves were deposited. Then, after
giving the history of the case, she pleads that "the liquidator has no authority to adjust the
petitioner's fixed deposit ` receipts' amount in any other account without her permission
which was never obtained. Moreover it may be submitted that the Bank had goods
pledged against those accounts as security and the outstanding amounts of those accounts
could be realised by the sale of those pledged goods."

12. In reply, the Bank also related the history of the case and how it had obtained the
permission of the Liquidation Judge to adjust the overdraft accounts against the fixed
deposits. As regards the goods pledged with the Bank, the liquidator pleaded that they
had remained in trust with Mr. Taqi Butt, the partner of Ghulam Nabi & Sons and other
allied concerns promoted by Mr. Rafi Butt deceased, and have not been forthcoming
since then and that the Bank was legally entitled to proceed against the securities of the
fixed deposit receipts." The learned Liquidation Judge struck the following four issues,
the fourth appearing here in its modified form :-

(1) Whether the fixed deposit receipts in question were not pledged as security for
repayment of loans owing from late Mr. Rafi Butt, Ghulam Nabi & Sons, Hind Enamel
Works and Ghulam Nabi Corporation Ltd. by the applicant?

(2) Whether the amount of these fixed deposit receipts could not have been adjusted rn
the aforementioned accounts even if issue No. 1 is answered against the applicant?

(3) Whether the fixed deposit receipts in the name of Mst. Yasmin (minor) could have
been lawfully pledged for repayment of loans mentioned in issue No. 1?

(4) Did the Central Exchange Bank release, part with or lose the goods hypothecated or
pledged by Messrs Ghulam Nabi & Sons and Hind Enamel Works as security for
repayment of loans in respect of which the petitioners are claimed to have pledged the
fixed deposit receipts in question? What was the value of those goods and if the issue be
answered in affirmative, what is its effect on the case?

On the first issue, the finding was that the appellants had failed to show that the fixed
deposit receipts in question had not been pledged as security for the repayment of loans
owing from the four firms aforesaid. On issue No. 3, the finding was that Mr. Rafi Butt
could lawfully pledge the receipts in the name of his minor daughter Yasmin, for the
repayment of his loans. The remaining two issues were taken together and it was found
that the fixed deposit receipts had been dealt with by Mr. Rafi Butt as if they were his
personal property, that in fact they were his personal property although in the name of his
wife and daughter, that Mst. Zaitun Begum had authorised her husband to operate on this
receipts, that she had accepted the position that the receipts had been pledged by her
husband to cover his debts, and that section 141, Contract Act, which gave the surety the
benefit of earlier securities was inapplicable because Mst. Zaitun Begum was not in the
position of a surety.

13. Contrary to the volume of evidence on the file, Maulvi [Sira-ud-Din Ahmad again
contended for the appellants that the receipts had been deposited with the Bank by the
appellants themselves, not by Mr. Rafi Butt, and he further contended that if Mr. Rafi
Butt deposited the receipts then he did so without authority from his wife. In a way he
repudiated even his own letter Exh. D. 1 dated the 2nd of January 1949, by which he
based Mst. Zaitun Begum's claim on the fact that "my client's deceased husband Mr. Rafi
Butt deposited with you fixed deposit receipts as additional security for your satisfaction
against overdraft accounts" etc. In doing so he relied on Mst. Zaitun Begum's statement
before the Liquidation Judge that she had given these receipts to her husband "for

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renewal and not for pledging them as security". She tried to explain away the statement in
Exh. D. .1 in the following manner :-

"After the death of my husband I visited the Bank and was told by Sardar Muhammad
Shafi that these securities were pledged by my husband as additional security for
repayment of certain loans. On the basis of this information I instructed my counsel to
issue the notice dated the 22nd of January 1949, Exh. D. 1. Apparently the reference is to
the notice of the 2nd of January, not the 22nd.

14. A -letter (Exh. P. W. 1/1, page 49) purporting to be dated the 20th of November 1944
and to be signed by Mst. Zaitun Begum was produced from the records of the Bank to
show that Mst. Zaitun Begum had authorised her husband to operate on her fixed deposit
account. The letter is to the following effect :-

"Re : My Fixed Deposit Account.-Kindly note that my above account will hence-forth be
operated upon by my husband Mr. M. Rafi Butt."

Mst. Zaitun Begum denied her signature on this letter, and the handwriting expert, whom
the official liquidator produced to compare her signature, supported her statement that the
signature on the letter did not belong to her. The learned Liquidation. Judge has not
accepted the opinion of the expert and the statement of Mst. Zaitun Begum and has held
that by this letter she had authorised her husband to operate on her account. Sheikh Zahur
Ahmad, appearing for the official liquidator, however, has informed us without any
persuasion that the letter in question has not been proved to have been signed by Mst.
Zaitun Begum. It will not be necessary for us, in view of other material on the file, to
give a decision on this matter.

15. Until her statement before the Liquidation Judge on the 27th of April 1959, it had
never been Mst. Zaitun Begum's case that she had given these receipts to her husband for
renewal. If, "however, it is true that she had given them for renewal, then after having
been informed by Sardar Muhammad Shafi, Manager of the Bank that "these securities
were pledged by my husband as additional security for repayment of certain loans" she
would have naturally protested that this was not the purpose for which she had entrusted
the receipts to her husband, and instead of instructing her counsel to issue that notice
Exh. D. 1 on the basis of the information given to her by Sardar Muhammad Shafi, she
would have instructed her counsel to protest that Sardar Muhammad Shafiq information
was incorrect.

17. Maulvi Siraj-ud-Din Ahmad tried to take advantage .of the fact that the original fixed
deposit receipts had been mis-laid in the records of the Bank after the records had been
transferred on liquidation to the State Bank of Pakistan, and suggested that if those
receipts had been produced they would have shown that they had not been pledged as
securities. This argument, however; is repudiated by a document on which Maulvi Siraj-
ud-Din Ahmad himself relied for proving that certain oilier goods, namely pipes; tubes
and brass sheets etc., mentioned in Exh. R. W. 1/4 (page 71) had been "pledged with the,
Bank." This document, as already stated, was prepared by the Central Exchange Bank on
the 15th of October 1949, before it went into liquidation and the third item in it shows a
"list of F.. D. Receipts pledged with the bank." These are ten in number, including the
receipts in question, and are for a total amount of Rs. 90,784-8-0. The original of Exh. R.
W. 1/4-was also produced by, the banking officer of the State Bank of Pakistan, Mr.
Muhammad Nazir Hasan, when his statement was recorded on the 1st of June 1959. He
was particularly examined on this occasion because ~ by that time certain documents had
been discovered in the Bank records.

18. We, therefore, assume, without any hesitation, that the fixed deposit receipts in
question had been pledged as securities by Mr. Rafi Butt with the permission of Mst.
Zaitun Begum. We do not, however, hold as the learned Liquidation Judge has held, that
the receipts were treated by Mr. Rafi Butt as his personal property and that, in fact they
were his personal property. This inference he based on the fact that Mst. Zaitun Begum
"did not know any material particular of the fixed deposit receipts * * * * * For instance,
she does not know the amount, the date of their maturity, and not even this much as to
how many fixed deposit receipts stood in her own name and how many in the name of
her minor daughter. We have already shown that in Exh. D./2 (page 47) she gave through
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her counsel, Maulvi Siraj-ud-Din Ahmad, details of seventeen fixed deposit receipts. But
even if she did not know these details from memory when she appeared before the
Liquidation Judge, the worst that can be assumed against her is that her husband had
deposited these monies in her name or in the name of her minor daughter, and since this
is one of the recognised modes of making A a gift to a wife or a daughter, it cannot be
presumed that because the money belonged to the husband or father, the purchase was
benami. The learned Liquidation Judge realised that "no specific issue had been framed-
on this point," but he "assumed" that they must have been invested by Mr. Rafi Butt
himself. Here it should be remembered that it was never the case for the official
liquidator that Mr. Raft Butt being himself the opposite the appellants could not prefer
any claim to the receipts. It was- in fact on the assumption that the appellants were the
depositor that a balance of Rs. 2,081-1-6 was allowed to them.

19. It was on this basis that the learned Liquidation Judge held that section 141 of the
Contract Act was not applicable, for in his opinion it applied "to a case where a third
person furnishes security for repayment of a loan by the principal debtor whereas in this
case Mr. Rafi Butt had himself pledged the fixed deposit receipts as security for
repayment of loans * * * * *" If, however, Mst. Zaituu Begum is held to be the owner of
the receipts and her husband pledges them with her consent, then while her husband is the
principal debtor, she assumes the position of a surety. Under section 126, Contract Act, a
contract of -guarantee is a contract to perform the promise or discharge the liability of a
third person in case of his default. The deposit of goods or receipts obviously constitutes
such a guarantee. The person who gives the guarantee is called the surety; the person in
respect of whose default the guarantee is given is called the principal debtor; and the
person to whom the guarantee is given is called the creditor.

20. Section 141 is as follows :-

"A surety is entitled to the benefit of every security which the creditor has against the
principal debtor at the time when the contract of surety ship is entered into, whether the
surety knows of the existence of such security or not ; and, if the creditor loses, or,
without the consent of the surety, parts with such security, the surety is discharged to the
extent of the value of the security."

21. This means that if the Central Exchange Bank held any goods in security against the
overdraft accounts of Mr. Rafi Butt at the time when the fixed deposit receipts in question
were deposited as additional security, then the depositor of additional security is entitled
to the benefit of those goods, and if the Bank has lost those goods by its own conduct, the
burden of the depositor of additional security is discharged to the extent of the value of
those goods. Now let us examine the nature of the earlier security.

22. According to the official liquidator's report dated the 26th of April 1955 (Exh. R. W.
1/1) to the Court, goods worth approximately Rs. 1,26,000 had been "hypothecated" by
Mr. Taqi Butt as those goods were not "pledged", Mr. Taqi Butt had accepted the position
of a trustee. Mr. Taqi Butt's contention that the effect of the pledging of "other goods and
fixed deposit receipts" was that his goods were "automatically released" was not accepted
by the official liquidator because the "record shows that the contention of Mr. Taqi Butt is
not correct". The official liquidator's statement here, that the goods were hypothecated
and not pledged, is repudiated by the records of the Bank as shown in Exh. R. W. 1/1,
which showed these goods in the "list of goods pledged with the Bank" with an additional
note that these goods had been received by Mr. Taqi Butt as a trustee on behalf of the
Bank.

23. The banking officer, Mr. Muhammad Nazir Hasan, himself stated-before the
Liquidation Judge on the 23rd of November 1959 that "Mr. Taqi Butt, younger brother of
Mr. Rafi Butt, and one of the partners in these concerns, pledged certain goods as security
for repayment of the loan", but added that "the goods remained in the custody of Mr. Taqi
Butt and were never physically taken into possession by the Bank." He further stated in
cross-examination that "there is an endorsement on Exh. R. W. 1/8 to the effect that Mr.
Rafi Butt had taken into possession goods pledged by him with the Central Exchange
Bank as a trustee on his behalf", that "there is a similar endorsement in the case of goods
pledged by Mr. Taqi Butt also" and that "goods pledged with a bank are always given into
its possession." It was therefore the Bank's own fault that although the goods were
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pledged with it by Mr. Taqi Butt possession of them was not taken and the Bank preferred
to leave them with Mr. Taqi Butt as a trustee. There is no doubt that whatever remedies
are open against trustee are open to the Bank against Mr. Taqi Butt. It cannot however, be
argued either that the goods were not pledged with the Bank or that since the Bank was
not in possession thereof B it could not proceed against them. If the Bank was cognizant
of the legal position, it certainly showed preference for Mr. Taqi Butt in suggesting to the
Liquidation Judge that the overdraft accounts of Mr. Rafi Butt should be satisfied against
the additional security furnished by the fixed deposit receipts. We have no doubt that
section 141, Contract Act, is fully applicable and that since the earlier security easily
exceeded the overdraft accounts, the fixed deposit receipts belonging to Mst. Zaitun
Begum and her minor daughter should not have been adjusted against those accounts.

24. It now remains to decide, whether the fixed deposit receipts in the name of the minor
daughter, Yasmin, could have been lawfully pledged by her father. The learned
Liquidation Judge has stated that although "in paragraph 362 of the Principles of
Muhammadan Law" by Mullah, it is stated that a father of a minor child is not competent
to dispose of the ward's property," this was contrary to the provisions of Muslim Law, and
he has referred to Fatwa-e-Alamgiri, Volume 9, 1932 Edition, translated by Syed Amir
Ali, (this is a different person from the late Mr. Justice Amir Ali), pages 222-223.

25. We find the following proposition stated in paragraph 366 of Mulla's "Principles of
Muhammadan Law" (13th Edition): ---

A legal guardian of the property of a minor has power to sell C or pledge the goods and
chattels of the minor for the minor's imperative necessities, such as food, clothing, or
nursing.

This has reference in the foot-note to Imambandi v. Mutsaddi ((1918) 45 1 A 73)

corresponding to I L R 45 Cal. 878, pages 895-896. The impression one gets from the
statement in Mulla's hand-book is that the legal guardian, that is to say, a father, can sell
or pledge goods of the minor only for the minor's imperative necessities and not
otherwise. Now, Imambandi's case related to the power of a mother, who is not a legal
guardian, but who was de facto guardian in that case, to sell or pledge her ward's
property. It was observed at page 895 of the Calcutta Report that the Hadaya Classifies
the Acts that may have to be done for an infant under three heads, and the second head is
to the following effect : -

"Acts arising from the wants of an infant, such as buying or selling for him on occasions
of need, or hiring a nurse for him, or the like, which power belongs to the maintainer of
the infant, whether he be the brother, uncle or (in the case of a foundling) the mooltakit,
or taker-up, or the mother, provided she be the maintainer of the infant, and as these are
empowered with respect to such acts, the walee, or natural guardian, is also empowered
with respect to them in a still superior degree."

26. At page 896 the following passage occurs :-

"The examples given under the second head indicate the class of cases in which the acts
of an unauthorised person who happens to have charge of a child are held to be binding
on the infant's property. They also help to explain and illustrate the extent of such de facto
guardian's powers. The permissibility of these acts depends on the emergency which
gives rise to the imperative necessity for incurring liabilities without which the life of the
child or his perishable goods and chattels may run the risk of destruction. For instance, he
may stand in immediate need of aliment, clothing or nursing; these wants must be
supplied forthwith."

27. The words "imperative necessities", "clothing" an "nursing" occurring in paragraph

366 of Miilla's hand-book have apparently been borrowed from this passage. But the
commentator has lost sight of the fact that these observations were mad in relation to the
powers of a de facto guardian and not of legal guardian, as a father is. Paragraph 366 is,
therefore, misleading and the correct position is stated in Fatawa-a Alamgiri to which the
learned Liquidation Judge has referred. To this book a reference has been made in the
Privy Council case also at page 903 of the Calcutta Report. Fatawa-e-Alamgiri, at page
222 of Syed Amir Ali's translation, 1932 Edition, states as follows :-
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"If the father has pledged his minor child's property for such debt as he has incurred
either for himself or for his minor child, then it is lawful (for him)."

We have now to consider the position whether, when Mr Rafi But pledged the property of
his minor daughter, since h had power to pledge it, the daughter could be regarded as
surety within the meaning of section 141, Contract Act. It can b reasonably argued that if
the father had power to pledge the property, then he pledged it as the principal-debtor,
and not as an agent oz guardian of his minor children. Section 141 would not, therefore,
be applicable to the case of the minors.

29. We accept this appeal with proportionate costs throughout and direct that the official
liquidator should regard Mst. Zaitun Begum, but not her daughter, Yasmin, to be entitled
to the amount represented by her share of the fixed deposit receipts, in question and to the
dividend payable on this amount.

30. Shamim Akhter's deposits will be treated similarly with those of Yasmin. In the
absence of any indication of shares, receipt which are in the joint names of two persons
will be deemed to entitle each person to one-half of the amount stated therein.

A. H. Order accordingly.

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