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IN THE HIGH COURT OF SINDH AT KARACHI

Spl. HCA No.225 of 2015

Present:
Mr. Justice Irfan Saadat Khan
Justice Mrs. Kausar Sultana Hussain

JUDGMENT

Dates of hearing: 24.01.2019, 11.02.2019 and 3.04.2019. .

Appellants: Muhammad Saleem Shaikh through Mr. Ali Raza


Habb, Advocate. .

Respondent: M/s. KASB Bank Limited through Mr. Faiz Durrani


and Mrs. Samia Faiz Durrani, Advocates. .

IRFAN SAADAT KHAN, J. The instant Special High Court Appeal has

been filed against the judgment and decree dated 09.06.2015 and

29.06.2015, respectively, in Suit No.B-158 of 2009, whereby the learned

Single Judge decreed the suit filed by the respondent in a sum of

Rs.33,750,086.52, alongwith cost of funds.

2. Briefly stated the facts of the case are that the appellant obtained

certain finances from the respondent bank in the following manner:

(a) Cash Finance Facility Rs.50,000,000/- (Rupees Fifty Million


only)
(b) Finance Against Packing Credit (Sub-limit of Cash Finance
Facility) Rs.35,000,000/- (Rupees Thirty Five Million only)
(c) Running Finance Facility Rs.15,000,000/- (Rupees Fifteen
Million only)
(d) Finance Against Foreign Bills Rs.20,000,000/- (Rupees
Twenty Million only)
(e) Foreign Bills Purchase (Discounting)(Sub-limit of FAFB)
Rs.20,000,000/- (Rupees Twenty Million only)
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3. The above finances were sanctioned by the respondent bank to the

appellant through Facility Offer Letter dated 07.11.2007 on the basis of six

month Kibor + 2% with Floor Rate 12% and SBP ERF Rate + 1%, which

was valid for one year. Necessary documents were prepared in this behalf,

which were duly signed by the appellant and the respondent bank. The

appellant then, in order to secure further finance facility, pledged stock of

rice in favour of the respondent bank through letters of pledge alongwith

valuation reports and thereafter the respondent bank sanctioned /enhanced

/renewed finance facility on the basis of three months Kibor + 3.5% and

SBP ERF Rate + 1%. However, when allegedly the appellant failed to

discharge finance facility availed by him, the respondent bank filed a suit

for recovery of Rs.58,282,490/-, being the principle plus markup and other

charges including cost of suit, against the present appellant, which matter

proceeded before the learned Single Judge, who after hearing the parties

decreed the same in favour of the respondent bank in respect of

Rs.33,750,086.52/-, alongwith cost of funds. Being aggrieved and

dissatisfied with the said judgment and decree the present Special High

Court Appeal has been filed.

4. Mr. Ali Raza Habb Advocate has appeared on behalf of the appellant

and stated that the learned Single Judge was not justified in allowing the

suit without considering various aspects, evidences and the documents

produced before him. He stated that the learned Single Judge without

considering the fact that higher quality of stock of rice was pledged with

the respondent bank against finance facility has decided the suit on

technical grounds only. He further stated that the appellant pledged his best

quality Super Kernal Basmati Rice with the respondent as security however

somehow or the other the same rice, as per the respondent, turned out to be

that of lower quality i.e. Aree-6, Aree-9 and D-90 in the custody of the
3

bank. According to the learned counsel the said pledged /hypothecated

goods were in the custody of the bank and if there was a difference in the

quality, as alleged by the bank, it was the bank who was responsible for the

same and not the appellant, since, as stated above, the stock of rice

hypothecated with the bank was in the custody of the bank being monitored

by their Muqaddam and security guards. He stated that inspection /survey

reports were also presented and produced before the learned Single Judge

but the same were not considered. He in this regard invited our attention to

various documents annexed with the instant appeal to show that the

hypothecated /pledged stock was in the custody of the bank and it was the

bank who was the custodian of that stock of rice. He further submitted that

if there was a misappropriation in the stock of rice the same was due to the

negligence of the respondent bank and the appellant has got nothing to do

in this behalf. He further stated that the learned Single Judge dismissed the

leave to defend application in a cursory manner without considering various

aspects, which were explained to him. He stated that in the valuation

/survey report also the stock of rice has been mentioned as Super Kernal

Basmati Rice, which was not at all considered. He stated that the dispute

arose between the parties when the auction purchaser wrote a letter dated

21.09.2010 to the bank that the pledged stock is not Super Kernal Basmati

Rice rather the same was Aree-6, Aree-9 and D-90. He also stated that

under Sections 151 and 152 of the Contract Act, since hypothecated goods

were lying under the custody of the bank, it was the responsibility of the

bank to care for the quality and the quantity of the hypothecated goods and

if there was any disparity, it was only the respondent bank who was to be

blamed and not the appellant. He further stated that the learned Single

Judge has not considered the fact that the respondent bank has failed to

disburse Rs.20,000,000/- (Rupee Twenty Million only) against FAFB and


4

has breached the trust between the appellant and the bank. He stated that

even the amounts mentioned in the suit were exaggerated, which were not

at all considered by the learned Single Judge. He further stated that the

learned Single Judge has also relied upon such documents which have no

relevancy with the issue in hand and has decided the matter on mere

technical grounds without considering the mandatory requirement of

subsection (2) of Section 9 of Financial Institutions (Recovery of Finances)

Ordinance-2001 (FIO 2001). He, therefore, submitted that the judgment

and the decree passed by the learned Single Judge may be set-aside. In

support of his above contentions, the learned counsel has relied upon the

following decisions:

1) Habib Bank Limited Vs. Messrs Medina Rice and Ice Mills
and others (2015 CLC 1808)

2) Messrs Ali Traders Rice Dealer Gujranwala through Sole


Proprietor and another Vs. National Bank of Pakistan (2015
CLD 1)

3) Pakistan through Secretary Communication, Islamabad Vs.


Messrs Habib Insurance Company Ltd., Karachi (1991 CLC
1270)

4) Q.B.E Insurance Ltd. Vs. The Trustees of Port of Karachi


through Chairman & others (1992 CLC 804)

5) A.M. Burq and others Vs. Central Exchange Ltd. and others
(1966 PLD (W.P) 1)

6) Apollo Textile Mills Ltd. and others Vs. Soneri Bank Ltd.
(2012 CLD 337)

7) Messrs Bhangoo Farming Services and 2 others Vs. The Bank


of Punjab through Manager (2016 CLD 766)

5. Mr. Faiz Durrani Advocate alongwith Mrs. Samia Faiz Durrani

Advocate has appeared on behalf the respondent bank and stated that this

appeal is not maintainable as the same is hopelessly time-barred. According

to them the judgment was passed on 09.06.2015 and the appeal was to be

filed within 20 days, whereas the same was filed on 22.07.2015 hence,
5

according to them, the appeal is time-barred and is liable to be dismissed in

limine. They further submitted that the appellant has miserably failed to

demonstrate that they have not availed the finance facility granted to them

and even during the course of the arguments before the learned Single

Judge and before this Bench also the appellant has not denied availing of

the loans and the finance facility. According to them the manner in which

the various finance facilities were availed by the appellant has elaborately

been discussed by the learned Single Judge in his impugned judgment.

They stated that the appellant has breached the trust of the bank by

misstating about the quality and the quantity of the stock of the rice pledged

by him with the bank, which prompted the respondent bank to take

appropriate action against him. They also stated that though the appellant

has stated that the quality of the pledged /hypothecated stock to be Super

Kernal Basmati, which rice is of superior quality, but in fact pledged with

the bank lower quality of rice being Aree-6, Aree-9 and D-90 which aspect,

according to them, has been confirmed by an independent valuer appointed

by the learned Single Judge, when the matter was being agitated before

him. They stated that the learned Single Judge was quite justified in

declining the leave to defend application on the basis of the facts obtaining

in the instant matter. They stated that it was the appellant who approached

the bank for availing the finance facilities, which were duly granted, but the

appellant has failed to fulfill his financial legal obligations towards the

bank and thereafter the suit was filed against him. The learned counsel

stated that when the appellant had failed to adjust the finance facilities

granted to him it was only thereafter that the suit was filed. They stated that

the pledged /hypothecated stocks were not in the custody or possession of

the bank. They further stated that even certain cheques issued by the

appellant to the bank were dishonoured. They also invited our attention to
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Section 10(6) of the FIO 2001 and stated that the case of the appellant

squarely falls under the said provision of the law. They vehemently refuted

the contention of the learned counsel for the appellant that if there was a

disparity in the quality and quantity of the stock of goods why no action

was taken by the bank in this behalf. They submitted that it should have

been the appellant rather than the bank to lodge FIR if there was some

disparity in the quality and quantity of the pledged stock. They further

submitted that when the appellant has not questioned the various finance

facility agreements entered between him and the bank, he now is legally

restrained and barred from agitating the instant matter when he has duly

been found to be a defaulter in respect of the agreements entered between

the parties and the bank is fully authorized to take appropriate legal action

against the appellant in case of any default. They invited our attention to

various clauses of the agreements and other documents to prove and show

the liability of the appellant towards the bank and his failure in clearing out

the debts of the bank. They in the end supported the order of the learned

Single Judge and stated that this appeal being meritless is liable to be

dismissed with heavy cost. In support of their above contentions, the

learned counsel have relied upon the following judgments:

1) Habib Bank Limited Vs. Orient Rice Mills Ltd. and others 2004
CLD 1289

2) Messrs World Trans Logistics and others Vs. Silk Bank Limited
and others (2016 SCMR 800)

3) Siddique Woollen Mills and others Vs. Allied Bank of Pakistan


(2003 CLD 1033)

4) Messrs Sadia Industries and 3 others Vs. Messrs Soneri Bank


Limited (2014 CLD 1458)

5) Younus Kamal Vs. Standard Chartered Bank (SBLR 2014 Sindh


1)

6) Zeeshan Energy Ltd. and 2 others Vs. Faisal Bank Ltd. (2004
CLD 1741)
7

7) Apollo Textile Mills Ltd. and others Vs. Soneri Bank Ltd. (2012
CLD 337)

8) Muhammad Arshad and another Vs. Citibank N.A., Lahore


(2006 SCMR 1347)

9) Messrs Ibrahim Oil Mills through Proprietor and 2 others Vs.


MCB Bank Limited (2015 CLD 802)

10) Bank of Khyber Vs. Messrs Spencer Distribution Ltd. and 14


others (2003 CLD 1406)

11) Muhammad Arshad and another Vs. Citibank N.A., Al-Falah


Building, Lahore (2006 CLD 1011)

12) Siddique Woollen Mills and others Vs. Allied Bank of Pakistan
(2003 SCMR 1156)

6. Mr. Ali Raza Habb in his rebuttal stated that he has two main

objections against the judgment of the learned Single Judge firstly the

learned Single Judge has not considered the fact that the respondent bank

has not disbursed the finance facilities to the appellant as per the

agreements entered between the parties and secondly the difference in

quality of the pledged rice was due to the negligence of the respondent

bank, hence the order may be set-aside and the matter may be remanded to

the learned Single Judge for deciding the matter afresh.

7. We have heard all the learned counsel at considerable length and

have also perused the record and the various decisions relied upon by them.

8. From the arguments of the learned counsel for the appellant it is

evident that primarily he has agitated and argued two main points in the

instant Special High Court Appeal. The learned counsel for the appellant

seems to be aggrieved by the order of learned Single Judge on two issues

only:-

1) That the learned Single Judge was not justified in observing


that the finance facilities granted by the respondent-bank to
8

the appellant was not fully utilized/disbursed to them, as per


the agreements entered between the parties.

2) That the learned Single Judge was not justified in not


considering the fact that the difference in the quality of the
rice pledged by the appellant with the bank was due to the
negligence of the bank, who were the custodians of the same.

9. We will take-up the first objection of the appellant with regard to the

non-availing/disbursing of the finance facilities by the appellant from the

bank. The record reveals that in the year 2007 the appellant approached the

respondent-bank for availing finance facilities. The bank after fulfilling

legal and codal formalities and evaluating the collateral offered as security

by the appellant sanctioned certain finances. The details of which have

already been given at page 1 of the present judgment. Thereafter, the parties

entered into agreements with each other and several documents were

executed. It is an undeniable position that the appellant fully availed and

utilized the above said finance facilities, which he was under legal

obligation to adjust by 31.10.2008. However, when the appellant failed to

pay out the liabilities in respect of the finances availed by him, he made a

request for enhancing/renewing the finance facilities. In the letter of facility

dated 7.11.2007, which is Annexure ‘P/2’ full description of the finance

facilities offered and accepted by the appellant is given. Thereafter, in

pursuance to this facility of the letter the parties entered into the following

agreements dated 8.11.2007:-

1) The bank agreed to disburse Rs.6,50,00,000.00 to the


appellant and the appellant was liable to pay to the bank
Rs.7,47,50,000.00.

2) The bank agreed to disburse to the appellant


Rs.5,50,00,000.00 and the appellant was liable to pay
Rs.5,99,50,000.00 to the bank.
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10. The appellant, as noted above, fully utilized the above finance

facilities, however, he failed to adjust and clear out the bank’s liability on

or before 31.10.2008. Thereafter the appellant approached the bank for

renewal/enhancing of the finance facilities. Again facility offer letter dated

6.12.2008 was prepared and on 18.12.2008 the appellant returned the

facility offer dated 6.12.2008 after duly signing the same. The details of the

new approved facilities are as follows:-

“(i) Cash Finance Facility Rs.50,000,000/- [Rupees Fifty Million


only.

(ii) Finance Again Packing Credit Part in short FAPC – I and II


[Sub-limit of Cash Finance Facility] Rs.50,000,000/- [Rupees
Fifty Million only]

(iii) Finance Against Foreign Bill [SBP] Rs.20,000,000/- [Rupees


Twenty Million only]

(iv) Finance Against Foreign Bills [Own] Rs.20,000,000/-


[Rupees Twenty Million only] [Sub-limit of FAFB-SBP]

(v) Foreign Bills Purchase (Discrepant Sub-limit of FAFB-SBP]


Rs.20,000,000/- [Rupees Twenty Million only]

(iv) Running Finance Facility Rs.15,000,000/- [Rupees Fifteen


Million only]”

11. The above finance facilities thereafter were made available to the

appellant, who as per the record availed the same also in full. The details of

revised finance facilities are available on the record, as per bank facility

offer letter dated December 06, 2008 (Annexure ‘P/14’ of the file) and the

agreements entered between the parties dated 18.12.2008 (Annexures

‘P/15’ to ‘P/22’ of the file). The appellant in order to utilize the finance

facilities offered by the bank in full created hypothecation in favour of the

bank and executed a letter of hypothecation in respect of his stock of rice

stored at Khawaja Godown. The dispute arose between the parties when the

appellant after fully availing the finance facilities did not pay out the bank’s

liabilities towards the bank inspite of various requests and it was thereafter
10

that the suit was filed on behalf of the bank for recovery of the outstanding

amount of Rs.5,82,82,490/-. From the various communications, available

on the record, between the parties it could be seen that the appellant had

promised to clear out the bank liabilities and has asked the bank to give him

some time due to the some shipment problems. The appellant has even

promised to clear out the entire markup if some time is given to him due to

bad market position and has clearly stated in his letters about bad market

position of export of rice, that the shipment payment would soon be

realized to him, that he is in contact with the buyers however as noted from

the record the appellant has failed to clear out the bank liabilities in due

time. The assertion now taken by the learned counsel for the appellant, in

our view, appears to be an afterthought that he has not fully utilized the

finance offered by the bank as per the agreements entered between the

parties; whereas from the facts noted from the record the bank had duly

made available to the appellant all the finance facilities as per the

agreements entered between the parties, which were as per the offer letters.

The appellant before the learned Single Judge as well as before this Court

has failed to demonstrate as to which finance facilities have not been fully

availed or were not made available by the bank to him. The facility offer

letters of November 7, 2007 and 6.12.2008 cleary show the details and

description of the finance facilities being offered by the bank, which have

fully been utilized by the appellant. Hence, the assertion of the learned

counsel for the appellant that the finance facilities offered by the bank were

not fully utilized or made available by them is not borne out of the records

and is found to be contrary on the basis of the facts obtaining in the instant

High Court Appeal. We, therefore, find no merit in this submission made

by the learned counsel for the appellant and reject the same accordingly.
11

12. We will now dilate upon the second issue raised by the learned

counsel for the appellant that if there was any change in the quality of the

pledged rice, the bank was responsible for the same since they were the

custodian of it. It is seen from the record that the appellant initially

approached the respondent-bank in 2007 for grant of certain finance

facilities, details of which have already been mentioned in upper paras of

this judgment on securing personal guarantees and offering other

collaterals, which were fully utilized. However when the appellant failed to

clear out the liabilities of the respondent-bank in due time they again

approached the respondent-bank for extension of time for paying-out the

liabilities and for renewal of the finance facilities and then pledged their

stock of rice stored in Khawaja Godown in favour of the respondent-bank

and duly executed a letter of pledge dated 18.12.2008 in this behalf. It was

only when the appellant failed to pay-out his liabilities in due time, he

consented on selling out the pledged stock to clear his liabilities.

Correspondence in this behalf are available on record including a letter

dated 22.1.2009 (Annexure ‘R/34 of the file) wherein promise to pay out

the liabilities in favour of the bank has duly been mentioned.

13. It is a matter of record that the pledged stock of rice was sold either

to the auction purchaser by the Nazir of this Court or purchased by the

appellant himself with the permission of the Court and with the consent of

the respondent-bank. It is noted that when the order was made by the Court

with regard to the sale of the pledged rice it transpired that only a portion of

the pledged stock comprised of Basmati Rice whereas remaining portion

was other variety of rice. The portion of the rice comprising of Basmati

Rice was sold out and sale proceeds were paid to the respondent-bank.

Since there was a dispute with regard to the remaining portion of the rice

whether the same was Basmati or not M/s. K.G. Traders (Pvt.) Limited was
12

appointed for examination of the rice, who after examining the same

furnished a report dated July 12, 2011 (Annexure ‘G’ at page 459 of the

file) and at page 465 of the file complete description of the stock available

at the Khawaja Godowns was mentioned, which clearly reveals that Super

Basmati was only 7.7% of the entire stock available at the said godown. It

was under those circumstances that auction purchaser refused to lift the rice

at the given price and then reauction proceedings were initiated and the

remaining rice was sold out which interestingly was purchased by the

appellant himself. It is also noted that all these proceedings were

culminated in presence of the appellant with his consent.

14. Now here a question would arise, if the quality of the rice was

changed by the respondent-bank then why no legal proceedings were

initiated by the appellant against the bank. This question perhaps remained

unanswered on the part of the appellant as it has been averred quite strongly

that since the respondent-bank was the custodian of the pledged rice and if

there was a change in the quality, it was the bank who was responsible for

it. It is also noted from the record that it was the duty of the appellant to

secure the pledged stock so far as the quality and quantity is concerned as

evident from his correspondence with the respondent-bank. The contents of

the various clauses of the pledge agreement between the parties also clearly

reveal that it was the duty of the appellant to maintain the pledged stock

and keep the respondent-bank informed about the same; keep the register of

the pledged goods for the time being and from time to time pledged with

the respondent-bank, duly and punctually enter particulars of the sold goods

or consumed and furnish a report on a weekly basis; keep the bank

harmless and indemnified against all losses, injury, damage or

deterioration; in case the pledged goods suffer any reduction or diminution

in market value an additional security to the extent of such shortfall be


13

deposited, pay all rents, rates, taxes other imposition and charges in respect

of the pledged stock, will insure the stock and pay the premium etc. From

the valuation /inspection report dated 17.10.2009 it is noted that the keys of

the godown were lying jointly with the Muqaddam and the appellant. It was

also observed in the survey report that the pledged stock was stored in the

godown since long without any movement. Though, it has been averred by

the appellant that the stock was in the custody of the bank but it was the

appellant who had arranged the godown and placed the goods over there. In

the undertaking given by the appellant it has clearly been mentioned that

they would give a free access on the premises to the representative of the

bank and provide them necessary assistance for conducting quarterly site

visits and stock inspections. Hence the assertion of the appellant with

regard to the custody of the pledged stock rice with the bank does not seem

to be borne out of the records. It is noted that the appellant informed the

respondent-bank that the pledged stock was Super Kernal Basmati Rice,

which according to them in 2009 was worth Rs.8,600/- per 100 kgs. and if

the same was found out subsequently to be Aree-6, Aree-9 and D-90 by an

independent valuer, a portion of which was purchased by the appellant

himself subsequently, it was the appellant who appears to have not given

the correct factual position about the quality of rice to the respondent bank.

This also goes against the appellant. Had this being the case, the appellant

would definitely have taken some legal action against the respondent-bank

for manipulation and misappropriation in the stock, which admittedly was

not been done till date rather it was the other way round as it was the

respondent-bank, who informed the appellant about the quality of the

pledged goods. Moreover even the auction purchaser refused to lift the rice,

which was not Super Kernal Basmati, it was then the appellant himself

purchased the remaining rice and alleged the respondent-bank to have


14

changed the quality of rice. It is noted that it was with consent of the parties

that M/s. K.G. Traders was appointed for inspection /survey who submitted

their report, which has been discussed in the above paragraphs. It is also

interesting to note that no reply in respect of the shortfall with regard to the

quality of rice as informed by the respondent-bank to the appellant was

even given by him.

15. Therefore keeping in view all the above facts, we have reached to

the conclusion that the appellant has miserably failed to demonstrate that

the shortfall with regard to the quality of the stock was upon the

respondent-bank and reject his contention accordingly. The other grounds

raised by the learned counsel for the respondent need not be addressed in

view of the categoric observations made above. So far as the decisions

relied upon by the learned counsel for the appellant and the respondent are

concerned they are found to be distinguishable on the basis of facts

obtaining in the instant appeal.

16. In the light of what has been stated above, we do not find any

illegality or irregularity, misreading or non-reading of the evidence in the

judgment and decree dated 9.6.2015 passed by the learned Single Judge by

decreeing the suit in the sum of Rs.33,750,086.52, plus cost of funds as

certified by the State Bank of Pakistan from time to time w.e.f. 1.11.2009

till realization of the decretal amount. The judgment and decree thus is

hereby up-held and affirmed and this High Court Appeal is dismissed

alongwith the listed application.

JUDGE

JUDGE

Karachi:
Dated: .04.2019.

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