• Re-possession of Vehicle - Car Finance/Lease
  
  
• Status of Mortgaged Property in the hands of a Buyer without Notice
  
  
• Petition for Leave to Appear and Defend in the Recovery Suit raising objections relating to Incomplete Statement of Accounts and reliance on SBP Circulars
  
  
• Validity of Sale of Property in Court Auction when subsequently the Decretal Amount between Judgment Debtor and the Decree-Holder is privately settled
  
  
• Inability of Beneficiaries of Letters of Credit to invoke Jurisdiction of Banking Court
  
  
• Relationship of Cross Suits filed by the Plaintiff and the Defendants
  
  

1. Shaukat Ali vs. State Bank of Pakistan and others
2007 CLD [Lahore] 1352

Brief Facts:

Writ Petition filed by a customer of the Respondent Bank who had availed a Car Finance Facility in consideration of monthly installments for a specified period. The Petitioner had defaulted in making timely payments and the Respondent Bank repossessed the car. The Petitioner by offering prompt payment of his outstanding dues (4 installments) sought return of the leased car.

Arguments:

Counsel for the Respondents argued that:

• Alternate remedy was available to the Petitioner by way of filing a civil suit before the Banking Court as per sections 2 (d) (e) and 9 of the Financial Institutions (Recovery of Finances) Ordinance, 2001, (the “2001 Ordinance”). The High Court has no jurisdiction to deal with this matter. Thus the Petition was not maintainable and liable to be dismissed.
  
  
• There was a factual controversy which could only be addressed by the Banking Court and the dispute was not merely about payment of certain installments.

Counsel for the Petitioner submitted that:

• There is no factual controversy as it is only a matter of payment of four outstanding installments which the Petitioner was ready to pay

Additional Advocate General supported the contentions of the Petitioner.

Decision:

• Litigation in the Banking Court could take years and the repossessed car would be ‘damaged’ by then.
  
  
• No factual controversy was found in the claim.
  
  
• Petitioner was directed to pay outstanding dues/installments to the Respondent Bank within two (2) days, where after Respondent Bank was to release the repossessed car to the Petitioner.
  
  
• In case further defaults occurred, the Bank would have a right to confiscate the car.

Conclusion/Commentary:

This case has set an unusual precedent of approaching the High Court directly in Writ Jurisdiction when an alternate remedy was available to the Petitioner before one Banking Court. However, a Suit before the Banking Court against the Respondent would have resulted in costly litigation in terms of time and money; and the leased/repossessed vehicle would have also deteriorated and lost its value. This decision if followed by more would encourage default cases relating to repossessed vehicles being filed directly before the High Court.

2. Baber Sheikh vs. The State
2007 CLD [Karachi] 1365

Brief Facts:

The Applicant entered into a Lease Agreement with a Leasing Company, whereby a Car was leased on certain terms and conditions. The Applicant failed to pay monthly rentals where after, the Leasing Company repossessed the Car through its authorized agents (“ICIL”). Applicant lodged FIR against the Leasing Company and ICIL for snatching the Car from him.

Arguments:

Counsel for the Leasing Company stated that:

• The allegation of the Applicant in his FIR, regarding snatching of the leased car by the Leasing Company was false.
  
  
• The leased car was voluntarily surrendered by the Applicant himself upon his default.
  
  
• The documents relied upon by the Leasing Company to support the above contentions were on the Court record.
  

• The leased car had been repossessed by the Leasing Company under section 16 (3) (a) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (the “2001 Ordinance”) upon default by the Applicant.
  
  

• The leased car was repossessed by the Leasing Company through its authorized agents ICIL.

• ICIL is a limited company and as authorized by its Memorandum and Articles of Association amongst other objects, runs the business of repossessing leased vehicles upon instructions of leasing companies.
  
  
• The leased vehicle in question was repossessed upon instructions of the Leasing Company and handed over to it.

Counsel for the Applicant.

• Strongly refuted the arguments of the Counsel for the Leasing Company and the documents he relied upon.
  
  
• Alleged that the documents referred to by the Counsel for the Leasing Company were signed as blank documents by the Applicant at the time of availing lease facility and were subsequently filled in by the Leasing Company to suit their claim.
  
  
• Further claimed that statements of the Managing Directors of the Leasing Company and ICIL were not true.
  
  
• Alleged that the Applicant was thrown out of the leased car at the time of snatching.

Additional Advocate general pointed out that such complaints are pouring in ‘day in and day out’ and unnecessary burden is being placed upon the police by such complaints and on the courts.

Decision:

• It was observed that the statement of the Managing Director of the Leasing Company and its Counsel were contradictory and in view thereof, the documents relied upon by the Counsel could not be considered valid documents.
  
  

• It was held that in such a controversial situation where different statements exist, the Police report under section 173, Cr.P.C. was based upon an incorrect assessment.
  
  

• The order of the Magistrate based upon the aforesaid Police Report was set aside and the SHO of the concerned Police Station was instructed to conduct fresh investigation himself, proceed with the case and submit ‘challan’ against persons who may be found involved including the officials of any company.
  
  

• It was observed that repossession of the leased vehicle by the Leasing Company through its authorized agents without proper notice to the Applicant was unjustified and power under section 16 (3) (a) of the 2001 Ordinance, had been wrongly exercised by both Companies for which the Applicant could invoke remedy under Proviso to section 16 (3) of the 2001 Ordinance.
  
  

• Matter referred to the Home Secretary and SECP to look into how far these Companies were empowered to repossess vehicles in such manner and who would be responsible for any mishaps and report to High Court.

Conclusion/Commentary:

The situation as depicted is an alarming one as rightly observed by the Court. Section 16 of the 2001 Ordinance has granted Financial Institutions a right to repossess leased vehicles in case of default by their customers in making timely payments of monthly installments. However, if the repossession of vehicle is carried out in a callous manner, it may lead to violence and disruption of law and order. The Court rightly asked the relevant government departments for action and suggestions to ensure that provisions relating to repossession of leased property in the 2001 Ordinance are appropriately invoked.

STATUS OF MORTGAGED PROPERTY IN THE HANDS OF A BUYER WITHOUT NOTICE

3. Dost Muhamad vs. House Building Finance Corporation
2007 CLD [Lahore] 1369

Brief Facts:

One Mst. Kulsoom Akhtar obtained a loan from House Building Finance Corporation (“HBFC”) for construction of a house. As security, she mortgaged her Plot and its construction to be raised, with HBFC. Subsequently the property was sold to Abdul Majeed with permission of HBFC, who undertook to pay her debt secured by the property still being mortgaged with HBFC. Abdul Majeed without permission of HBFC further sold the property to Mir Badshah who sold it to the Appellant.

HBFC brought a Suit for recovery against Abdul Majeed. The Appellant filed an application in Court to become a party to the proceedings which was accepted. The Suit was contested by the Appellant and it was decreed in favour of HBFC, hence, this appeal wherein the Appellant seeks to be declared owner of the property free of encumbrance/charge of HBFC.

Arguments:

Counsel for the Appellant stated that:

• The Appellant is a bona fide purchaser of the mortgaged property.
  
  

• He had no knowledge about any encumbrance, charge or the mortgage on the said property.
  
  

• Property was purchased by him through a decree of the Court in a Suit for specific performance; hence, it can not be made subject to recovery of amount of HBFC.
  
  

• The Appellant had paid entire sale consideration amount.

Decision:

• The Appeal was dismissed on the basis that “…. the property being mortgaged, when not redeemed, could always be subject to recover the loan by enforcing the mortgage and the appellant can not take up the plea of a bona fide purchaser, even if he has bought the property through a decree….”.
  
  

• The entire consideration paid by the Appellant was never toward repayment of loan amount nor was it adjusted towards return of loan extended by HBFC.
  
  

• If Appellant has any grievance regarding misrepresentation or fraud against the seller, he should approach the appropriate forum of law to redress his grievance.
  
  

• It was further observed that the property mortgaged to discharge the loan can not be absolved of the charge/encumbrance without actually clearing the dues of HBFC.

Conclusion/Commentary:

It is well established that the right of the Mortgagee comes first when the property has been mortgaged with it by the Mortgagor in consideration for a facility extended to him. This right of the Mortgagee is well protected by law as was established by the captioned matter where the right of the Mortgagee came above that of a bona fide purchaser of the property under mortgage.

4. Agricultural Development Bank of Pakistan vs. M/S Modern Leathers and others
2007 CLD [Lahore] 1424

Brief Facts:

• The Plaintiff Bank entered into Two (2) Finance Agreements with the Defendant Company (Defendant No. 1) which mortgaged a number of its properties to secure the loan. As additional collateral, the Defendant No. 1 also executed an agreement for mortgage of future assets.
  
  

• The Directors/Controllers (Defendants No. 2-10) of the Defendant No. 1, executed Personal Guarantees in favour of the Plaintiff Bank to further secure the facilities.
  
  

• The Defendant No. 1 defaulted in making payments of its liabilities to the Plaintiff Bank, hence this Recovery Suit in which the Defendants filed Applications for Leave to Defend the Suit.

Arguments and Findings:

Defendants:

• The Statements of Accounts (“Statements”) appended with the Plaint were incomplete and not fulfilling requirements of section 9 (2) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (“2001 Ordinance”).
  
  

• First entries in the Statements did not record/show disbursements but merely transfers of certain outstanding amounts from the Plaintiff Bank’s head office accounts.
  
  
• The Statements alleged to contradict other documents which were on the Court record and those relied upon by the Plaintiff Bank. Disbursement of loan entries did not correspond with the loan amount as per the Sanction Advice, which showed one of the descriptions relied upon by the Plaintiff Bank was wrong.
  
  
• Conflict between the Plaint and the Statements about the amount and dates of disbursement were also visible in the other charge creating documents.
  
  
• The Defendants disputed accrual of interest/mark-up liability against the Guarantors by the Plaintiff Bank after 01.07.1999 on account of:

  (i) Petition for winding up of Defendant No. 1 was filed in 2001 by the Defendant No. 2, on account of insolvency which was opposed by the Plaintiff Bank;

  (ii) The Plaintiff Bank, thus, encouraged occurrence of default by accumulation of over dues and is estopped from claiming amounts larger than what was due from the Guarantors as on 01.07.1999.
• Upon filing Supplemental Statements of Accounts by the Plaintiff Bank, the Counsel for the Defendant No. 1 filed objections in a New Petition for Leave to Appear and Defend the Suit (“PLA”) which was to be read only to the extent of Objections raised in respect of Supplemental Statements.
  

• New objection/contention raised by the Defendants amongst others was that the Defendant No. 1 having bona fide claim under BPD Circular 29 issued by the State Bank of Pakistan (“SBP”) was not allowed to settle under it.
  
  
• Request by the Defendants to settle under the BPD Circular 29 issued by SBP was denied by the Plaintiff Bank and the SBP on the pretext that the case of the Defendant No. 1 did not fall under the incentive scheme.
  
  
• Writ Petition for relief under said Circular of SBP was dismissed in limine because of dispute on the “date of default” involving question of fact which could be resolved in a Suit.

Plaintiff:

• The Plaintiff Bank explained that there were discrepancies in the accounts of loan transaction (disbursement amount) as originally the accounts were being maintained at the Islamabad Branch, subsequently same were transferred to the Lahore Branch, thus the Statements submitted by the Plaintiff Bank contained only those entries that were available with the Lahore Branch of the Plaintiff Bank
  
  
• The stand taken by the Defendants No. 4, 6, 7, 8 and 10 regarding accrual of mark-up after 01.07.1999 is inconsequential because the Defendants on their own accord withdrew the Winding up Petition.
  
  
• The Guarantors provided effective, valid and binding Irrevocable and Continuing Personal Guarantees to the Plaintiff Bank which could not be discharged unilaterally.
  
  
• The sanction, disbursement and utilization of finance facilities are admitted by the Defendants. Supportive correspondence has also been brought on record.
  
  
• Discrepancies in the amount and date of loan disbursement contained in the Supplementary Statements and other charge creating documents is immaterial in the light of the above mentioned admission.
  
  
• The reliance by the Defendants on the Supplemental Statements to establish their case for eligibility under BPD Circular 29 is resisted on the ground that the date of disbursement of the loan to the Defendant No. 1 has no nexus with the effective date of default which determines eligibility for availing settlement thereunder.
  
  
• Objected to a claim under BPD Circular 29 being entertained as the same had not been raised by the Defendants in their PLA’s.

Finding of Facts:

• The Plaintiff Bank admits that incomplete statements of accounts have been produced before the Court. These shortcomings of the Plaintiff Bank’s Statements clearly fail to meet the object of the 2001 Ordinance.
  
  
• The Plaintiff Bank was directed to submit documents removing or explaining apparent inconsistencies in the Statements.
  
  
• Supplementary Statements contained new disclosures, therefore, the Defendants were given an opportunity to raise further objections.
  
  
• The grant of PLA’s of the Defendants hinges on 2 questions: (i) whether errors noted in the Statements of Accounts entitles the Defendants to file additional defenses? (ii) And if so, whether a defense under BPD Circular 29 to the progress and maintainability of the Suit can be raised by the Defendants?
  
  
• In ordinary cases the date of disbursement is important, in this particular case the said date holds greater importance because under the agreed terms contained in the Sanction Advice that date determines the date of repayment of the loan and consequently the date of commission of default, if any, by the Defendants.

Decision:

• Refusal Letter by the Plaintiff Bank and SBP showed that the case of the Defendant No. 1 regarding settlement under BPD Circular 29 was never decided on merits because the said Defendant was considered ineligible.
  

• Supplemental Statements provided by the Plaintiff Bank furnished the basis for the Defendant No. 1 to advance its plea under BPD Circular 29.

• It was observed that a defense under BPD Circular 29 can have substance but only if the terms of the said circular over ride the contractual terms of the Agreements.
  
  
• The Plaint does not contain any grounds to exclude the availability of the BPD Circular 29 to the Defendant No. 1 nor does the reply filed by the Plaintiff Bank to the PLA give any reason for denying availability of the said settlement scheme to the Defendant No. 1.
  
  
• Keeping the above mentioned points in view, it was held that substantial questions and issues arose in the Suit which could be resolved only in trial, thus the PLA’s submitted by the Defendants were accepted.
• As for the objection taken by the Plaintiff Bank that a plea taken by the Defendants outside the terms of its PLA’s can not be entertained, it was held that since the claim of the Plaintiff had changed, it would be proper that the Defendants be given a chance to present their defense afresh.

Conclusion/Commentary:

The general view (as expressed in 2003 CLD 931) that a suit filed with an un-supporting Statement of Account merits rejection of its Plaint was not followed by the High Court in the captioned Judgment with the observation that rejection of the same would only delay/postpone consideration of the contentions raised by both the parties, furthermore, it was said that “…. It seems appropriate that a suit should not progress on account of a defective document attached to it, but prima facie, such a defective document can not bar a suit that has otherwise been filed within time.”

As regards the status of circulars issued by the State Bank of Pakistan, the Court followed the Judgments cited at PLD 1997 SC 315 (Circulars issued by the State Bank are binding) and at 2002 CLD 542 (Circulars issued by the State Bank of Pakistan are under authority conferred upon it by Statute, therefore, Circulars be treated as having force of law).

VALIDITY OF SALE OF PROPERTY IN COURT AUCTION WHEN SUBSEQUENTLY THE DECRETAL AMOUNT BETWEEM JUDGMENT DEBTOR AND THE DECREE-HOLDER IS PRIVATELY SETTLED