C.O.S. No.69 of 2012
The Bank of Punjab
M/s Acro Spinning & Weaving
Mills Ltd. etc.
05.06.2012
Mr. Shahid Ikram Siddiqui, Advocate for petitioner/
defendants.
Mr. A.W. Butt, Advocate for respondents/Plaintiff.
C.M.No.392-B/2012
The respondent/plaintiff filed a suit for recovery of
Rs.422,189,433.77 against petitioners/defendants alleging
their non-fulfillment of financial obligation in terms of
Section 9 of the Financial Institutions (Recovery of
Finances) Ordinance, 2001 (hereinafter called as “FIO”),
the petitioners filed petition for leave to defend the suit and
controverted the respondents assertions and allegations, the
suit is still pending adjudication. The respondent on
4.5.2012 served notice on petitioners under Section 5 (r) of
National Accountability Ordinance, 1999 (hereinafter
referred to as “the NAB Ordinance”), demanding the
repayment of suit amount within 30-days failing which the
non-payment of finance will be termed an offence of
corruption and corrupt practices in terms of Section 9 (a) of
the NAB Ordinance and a reference will be submitted
under Section 31-D of the NAB Ordinance. The petitioners
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The Bank of Punjab v. M/s Acro Spinning & weaving Mills, etc.
submit that operation of notice dated 5.4.2012 be ordered to
be suspended till the final disposal of suit.
2.
The respondent vehemently opposed the petition. The
respondent stated in his reply that petitioner’s company has
willfully failed to perform its obligations under Finance
agreement or agreements despite various reminders,
petitioners act thus for non-payment of finance is a willful
default in terms of Section 5 (r) of the Ordinance 1999
being the amount due.
3.
Learned counsel for petitioners submits that court has
yet to decide whether the petitioners have committed
default in fulfillment of their obligation or it is the
respondent who failed to discharge its obligation under
finance agreement. The respondent in its plaint has not
alleged that petitioner company is willful defaulters, the
impugned notice is a device to blackmail the petitioners and
to recover that amount which is not due. Learned counsel
submits that unless a decree is passed, the petitioner could
not be declared the defaulter what to say the willful
defaulter. Learned counsel submits that Court constituted
under the FIO only has the exclusive jurisdiction to declare
any customer as defaulter. Learned counsel submits that
FIO is subsequent special law and as such the subsequent
special law has to prevail. Learned counsel has relied on
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The Bank of Punjab v. M/s Acro Spinning & weaving Mills, etc.
Asim Textile Mills Ltd and others v. National Accountability
Bureau and other (PLD 2004 Karachi 638), Industrial
Development Bank of Pakistan through attorney v. Abdul
Latif Channa and 6 others (2012 CLD 609), Agricultural
Development Bank of Pakistan v. Sanaullah Khan and
others (1988 PLD Supreme Court 67) and Brig. (Retd)
Mazhar-ul-Haq and another v. M/s. Muslim Commercial
Bank Limited, Islamabad and another (PLD 1993 Lahore
706) and Wateen Telecomm (Pvt.) Ltd. v. P.T.A. and others
(PLD 2010 Lahore 260)
4.
Learned
counsel
for
respondent
submits
that
petitioner availed different financial facilities and a sum of
Rs.422,189,433/27 is due and recoverable from the
petitioners, the petitioners have willfully failed to perform
their part of agreement and as such the petitioners are
willful defaulters. Learned counsel submits that to decide
that customer is willful defaulter is within the domain of
National Accountability Bureau constituted under National
Accountability Bureau (hereinafter referred to as NAB).
Learned counsel has relied on Sunrise Textiles Limited
through Ex-Managing Director v. Crescent Commercial
Bank Limited and others (2007 SCMR 1569), Haji Sardar
Khalid Saleem v. Muhammad Ashraf and others (2006
SCMR 1192), National Steel Rolling Mills and others v.
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The Bank of Punjab v. M/s Acro Spinning & weaving Mills, etc.
Province of West Pakistan (1968 SCMR 317 (2) and Mir
Nabi Bakhsh Khan Khoso v. Branch Manager, National
Bank of Pakistan, Jhatpat (Dera Allah Yar) Branch and 3
others (2000 SCMR 1017).
5.
Heard. Record perused.
6.
The
relationship
between
the
petitioners
and
respondent is of customer and banker. The respondent has
allowed certain financial facilities to petitioners. It is an
admitted fact that respondent is operating as Financial
Institution under the supervision and control of State Bank
of Pakistan, the respondent being Financial Institution is
accepting deposit from public at large and is lending the
deposit of its depositor for business transactions for the
benefit of its shareholders and depositors under the
instructions, directions and guidelines of State Bank of
Pakistan meaning thereby every act of the respondent is
under the supervision and control of State Bank of Pakistan.
7.
It is also an admitted fact that under the rules,
regulations and directions of State Bank of Pakistan the
respondent
allow finance to its
customers
against
acceptable securities permitted by the State Bank of
Pakistan, If the terms of respondents are acceptable to
customer than a concluded agreement comes in to
existence. The evaluation and viability of the business
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proposal is the prime consideration and is the responsibility
of the lender as the right to refuse to allow the finance is the
sole discretion of the lender.
8.
To regulate the customer and lender relationship, the
legislators have legislated Special laws. At present the
following enactments are regulating the affairs of finance
between customer and financial institutions i.e. Financial
Institution (Recovery of Finances) Ordinance, 2001 XLVI
of 2001 (ii) Offence in respect of Banks (Special Courts)
1984 Ordinance No.IX of 1984. The Ordinance XLVI of
2001 (hereinafter referred to as FIO) deals with the
finances allowed to customer by the financial institutions
and the later legislation deal with the offences in respect of
Banks. The FIO also provides the offences with respect to
Finance. The punishments of offences with respect to
finances are different as provided in Pakistan Penal Code,
meaning thereby the FIO provides the complete resolution
of financial disputes civil and criminal between the parties.
9.
Under Section 2(C) customer is defined as under:“(c) “Customer” means a person to whom finance has been
extended by a financial institution and includes a person on
whose behalf a guarantee or letter of credit has been issued by
a financial institution as well as a surety or an indemnifier.”
10.
Finance is defined in Section 2(d) of the FIO as
under:-
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The Bank of Punjab v. M/s Acro Spinning & weaving Mills, etc.
(d)
Finance” includes—
(i)
an accommodation or facility provided on the basis of
participation in profit and loss, mark-up or mark-down in
price, hire purchase, equity support, lease, rent sharing
licensing charge or fee of any kind purchase and sale of any
property including commodities, patents, designs trade
marks and copy-rights, bills of exchange, promissory notes
or other instruments with or without buy-back arrangement
by a seller, participation term certificate, musharika,
morabaha, musawama, istisnah or modaraba certificate,
term finance certificate;
(ii)
facility of credit or charge cards;
(iii)
facility of guarantees, indemnities, letters of credit or any
other financial engagement which a financial institution
may give, issue or undertake on behalf of a customer, with a
corresponding obligation by the customer to the financial
institution;
(iv)
a loan, advance, cash credit, overdraft, packing credit, a
bill discounted and purchased or any other financial
accommodation provided by a financial institution to a
customer;
(v)
a benami loan or facility that is, a loan or facility the real
beneficiary or recipient whereof is a person other than the
person in whose name the loan or facility is advanced or
granted;
(vi)
any amount due from a customer to a financial institution
under a decree passed by a Civil Court or an award given
by an arbitrator; any amount due from a customer to a
financial institution which is the subject matter of any
pending suit, appeal or revision before any Court; any
other facility availed by a customer from a financial
institution.”
11.
The obligation is defined in Section 2(e) of the FIO,
2001 which is read as under:(e)
Obligation” includes—
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The Bank of Punjab v. M/s Acro Spinning & weaving Mills, etc.
(i)
any agreement for the repayment or extension of time
in repayment of a finance or for its restructuring or
renewal or for payment of extension of time in payment
of any other amounts relating to a finance or
liquidated damages; and
(ii)
any and all representations, warranties and covenants
made by or on behalf of the customer to a financial
institution at any stage, including representations,
warranties and covenants with regard to the
ownership,
mortgage,
pledge
hypothecation
or
assignment of, or other charge on assets or properties
or repayment of a finance or payment of any other
amounts relating to a finance or performance of an
undertaking or fulfillment of a promise; and
(iii)
all duties imposed on the customer under this
Ordinance.”
12.
The word “default” find mention in Section 3 and 9
of the FIO which is read as under:“Duty of a customer.—(1) it shall be the duty of a customer to
fulfill his obligation to the financial institution.
(2)
Where the customer defaults in the discharge of his
obligation, he shall be liable to pay, for the period from the date of
his default till realization of the cost of funds of the financial
institution as certified by the State Bank of Pakistan from time to
time, apart from such other civil and criminal liabilities that he may
incur under the contract or rules or any other law for the time being
in force.
(3)
For purposes of this section a judgment against a customer
under this Ordinance shall mean that he is in default of his duty
under sub-section (1) and the ensuing decree shall provide for
payment of the cost of funds as determined under sub-section (2).”
13.
The wording of Section 3 of the FIO shows that word
default is subject to the judgment of court against the claim
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The Bank of Punjab v. M/s Acro Spinning & weaving Mills, etc.
of Financial Institution, the intention of framer of law is
clear that to declare any customer the defaulter is in the
domain of court as the word used are “a judgment against a
customer under the ordinance shall mean that he is in default of
his duty under sub-section (1) of Section 3 of the FIO”.
14.
There is no denial of the fact that all finances allowed
or to be allowed by the financial institutions is secured
against an acceptable securities with sufficient margin as
per the dictates of State Bank of Pakistan.
15.
In the above said factual background it has to be seen
whether the default in the repayment of finance could be
deemed to be willful default or not ? The legislator while
enacting FIO has not used the word “willful default” in the
whole enactment. Section 3 of the FIO itself provides the
penalty of default of customer, meaning thereby, if the
customer commits default the court is bound to grant costs
of funds from the date of default till payment or realization ,
this mean the default of the customer if proved come to an
end by the order of the court and the customer becomes
liable to repay the finance with additional amount of costs
of funds and the Financial Institution stand compensated,
the intention of legislator is thus clear that default of
customer to fulfill his obligation is not a criminal offence
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The Bank of Punjab v. M/s Acro Spinning & weaving Mills, etc.
and is compensatable in terms of money which is the
business of the Bank.
16.
Under Section 9 of the FIO, again the word default
has been used in the following manner “Where a customer or
a financial institution commits a default in fulfillment of any
obligation with regard to any finance”. Now it has to be seen
whether the word “default” has been used intentionally or
accidentally in the said provision of law especially when the
said provision of law speak about the default of both the
parties.
17.
The word “willful default” is the composition of two
words “default” and “willful”. In Black’s law dictionary the
word default and willful are defined as under:“Default:
By its derivation, a failure. An omission of that
which ought to be done;……Specifically, the omission or
failure to perform a legal or contractual duty, to observe a
promise or discharge an obligation (e.g. to pay interest or
principal on a debt when due); or to perform an
agreement……The term also embraces the idea of dishonesty,
and of wrongful act, or an act of omission discreditable to
one‟s profession……”
“Willful:
Proceeding from a conscious motion of the
will; voluntary; knowingly; deliberate. Intending the result
which actually comes to pass; designed; intentional;
purposeful; not accidental or involuntary.
“Premeditated; malicious; done with evil intent, or with a bad
motive or purpose, or with indifference to the natural
consequences; unlawful; without legal justification.”
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The Bank of Punjab v. M/s Acro Spinning & weaving Mills, etc.
“An act or omission is “willfully done, if done voluntarily and
intentionally and with the specific intent to do something the
law forbids, or with the specific intent to fail to do something
the law requires to be done; that is to say, with bad purpose
either to disobey or to disregard the law. It is a word of many
meanings, with its construction often influenced by its
context……..”.
“A willful act may be described as one done intentionally,
knowingly, and purposely, without justifiable excuse, as
distinguished from an act done carelessly, thoughtlessly,
heedlessly, or inadvertently. A willful act differs essentially
from a negligent act. The one is positive and the other
negative.”
18.
Most of the judgments relied upon by the learned
counsel for petitioner show, the issue in dispute in these
judgments was rent related matters, but in the present case
the matter is a financial dispute and as such the meaning of
“willful default” has to be examined with respect to
financial transaction.
19.
In rent case the tenant does not invest any money, the
tenant maximum deposit the security with the land lord and
that security has nothing to do with the payment of rent but
is meant for repair of agreed wear and tear of the rented
premises. In the rent dispute the tenant is in a commanding
position as he remains in possession of the premises inspite
of the fact that he is not paying the rent unless the court
pass a decree or order of his ejectment. Likewise in tax
matter, the defaulter has no stake, he had already earned
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The Bank of Punjab v. M/s Acro Spinning & weaving Mills, etc.
profit but has not paid the tax, so for deciding the question
of willful default the commanding position and availability
of security are the deciding factor. In the case of financial
transaction the interest/profit and finance is fully secured by
way of “acceptable security”. The lender remain in
commanding position as the customer after providing
securities to bank/lender put restrictions against his right to
alienate the securities, hence the financial transaction could
not be equated with the transactions other than finance.
In
Finance agreement under FIO the intention of both the
parties is bona fide at the time of entering in to agreement
as both wanted to earn profit that is the reason in FIO the
word “DEFAULT” has been used only for the purpose of
imposition of penalty in the shape of money.
The question of default was examined by the Full
Bench of Lahore High Court Muhammad Umer Rathore v.
Federation of Pakistan (2009 CLD 257) and the full bench
opined as under;
“I would, however, venture to add that the term “default” has
got special significance in the context of provisions of S.15 of
the Financial Institutions (Recovery of Finances) Ordinance,
2001.
“Default” as commonly understood is a large and
loose word i.e. failure to do or pay what one should do. In
Irfan Gul Magsi v. Haji Abdul Khaliq Soomro and others 1999
PTD 1302, it was observed that “Every failure on the part of a
person without any ulterior design and mala fide intention
would not equate with the expression “default” as used in its
strict legal sense. Before a person is declared to be in default,
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The Bank of Punjab v. M/s Acro Spinning & weaving Mills, etc.
it is absolutely necessary that there should have been a
demand to make payment of a determined sum which should
have remained un-responded and unattended for a period
beyond the period prescribed by law.” Even under the laws
which provide for the recovery through the coercive process
i.e. as land revenue, it is necessary to make determination of
the amount due and a mere claim by one party to a particular
amount, cannot be made basis for the enforcement of coercive
procedure. In Agricultural Development Bank of Pakistan and
another v. Abid Akhtar and others (2003 SCMR 1547), it was
observed that the “petitioner bank (Agriculture Development
Bank of Pakistan) cannot be equated with a proper judicial
forum for determination of the amount due against a borrower
notwithstanding the fact that summary power of recovery of
amount due has been conferred on it by law with a view to
obviate cumbersome procedure of execution of decree as
contained in Order XXI of the Code of Civil Procedure, 1908
and the Banking Law”. It was further observed that in the
event of substantial dispute between the parties, the recovery
of such procedure would be available “only where the amount
claimed was found due, ascertained and determined by a
competent judicial forum”. The rationale behind was that
unbridled, unjust ad arbitrary power could not be attributed to
have been conferred on such functionaries. The provisions of
section 15 of the Financial Institutions (Recovery of Finances)
Ordinance, 2001 indeed vest the Financial Institutions with a
vest and extensive power of selling the properties of
mortgagors without intervention of the court and without due
determination of amount. This unguided, arbitrary and
unreasonable power, which is amenable to discretionary and
discriminatory exercise is contrary to all norms of justice and
need to be tested on the touchstone of the Constitutional
provisions, being the fundamental and basic law of the land.”
20.
The National Accountability Bureau Ordinance 1999
was promulgated in the year 1999 and Section 5(r) was
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The Bank of Punjab v. M/s Acro Spinning & weaving Mills, etc.
inserted in NAB Ordinance 1999 through an amending
Ordinance No. IV of 2000 dated 03.2.2000.
21.
The preamble of National Accountability Bureau
Ordinance 1999 (Ordinance, No.XVIII, of 1999) is read as
under:
“An ordinance to provide for the setting up of a National
Accountability Bureau so as to eradicate corruption and
corrupt practices and hold accountable all those persons
accused of such practices and matter ancillary thereto:
WHEREAS it is expedient and necessary to provide for
effective measures for the detection, investigation, prosecution
and speedy disposal of cases involving corruption, corrupt
practices, [misuse or abuse] of power, [or authority]
misappropriation
of
property,
[taking
of]kickbacks,
commissions and for matters connected and ancillary or
incidental thereto;
And whereas there is an emergent need for the
recovery of outstanding amounts from those persons who have
committed default in the repayment of amounts to Banks,
Financial Institutions, [Government agencies] and other
agencies;
And whereas there is a grave and urgent need for the
recovery of state money and other assets from those persons
who have misappropriated or removed such [money or] assets
through corruption, corrupt practices and misuse of power
[*
22.
*] or authority;”
The financial Institutions (Recovery of Finances)
Ordinance 2001 was promulgated on 30th August, 2001, its
preamble is read as under;
“WHEREAS it is expedient to repeal and with certain
modifications, re-enact the Banking companies (Recovery of
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The Bank of Punjab v. M/s Acro Spinning & weaving Mills, etc.
Loans, Advances, Credits and Finances) Act, 1997, for the
purposes hereinafter appearing;”
23.
Section 5(r) of NAB provides as under:“5(r) “willful default” a person or a holder of public office is
said to commit an offence of willful default under this
Ordinance if he does not pay or continues not to pay or return
or repay the amount due from him to any bank, financial
institution co-operative society Government department or a
statutory body or an authority established or controlled by a
Government on the date that it became due as per agreement
containing the obligation to pay, return or repay or according
to the laws, rules, regulations, instructions, issued or notified
by State Bank of Pakistan or the bank, financial institution,
co-operative society, Government Department, statutory body
or any authority established or controlled by a Government as
the case may be, and a thirty days‟ notice has been given to
the defaulter.
Provided that it is not willful default under this
Ordinance if the accused was unable to pay, return or repay
the amount as aforesaid on account of any willful breach of
agreement or obligation or failure to perform statutory duty
on the party of any bank, financial institution, co-operative
society or a Government department or a statutory body or
any authority established or controlled by Government:
Provided further that in the case of default concerning
a bank or a financial institution a seven days‟ notice has also
been given to such person or holder of public office by the
Governor, State Bank of Pakistan:
Provided further the aforesaid thirty days or seven
days‟ notice shall not apply to cases pending trail at the time
of promulgation of the National Accountability Bureau
(Amendment) Ordinance, 2001.”
24.
For ascertaining the real intention and necessity of
the two enactments, the perusal of preamble of two
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The Bank of Punjab v. M/s Acro Spinning & weaving Mills, etc.
enactments is necessary, preamble of NAB show that this
enactment was brought into action to eradicate the
corruption and corrupt practices of holder of person and
holder of public office, whereas the FIO is the improved
version of the then Banking Companies (Recovery of
Loans, Advances, Credits and Finances) Act, 1997 meaning
thereby for bringing the transaction of Finance under the
NAB, the element of corruption and corrupt practice is the
condition precedent. The definition clause of NAB will
show word “default” and “willful default” was not defined
in the original enactment and word willful default was
inserted by way of the amending Ordinance IV of 2000 with
effect from 3.2.2000.
25.
The word used in Section 5(r) of NAB Ordinance
the amount due from him” are significant. Admittedly the
lending is under an agreement and the lender only can claim
that debtor has failed to pay, the debtor disputes the claim,
in these circumstances a dispute will arose and the said
dispute will be a question of fact. (Under Line is mine)
26.
It is an established principle of law that claim remain
the claim unless adjudicated by the competent court of law,
“hence the logical conclusion is that word amount due” is
the outcome of the adjudication by the competent court of
law.
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The Bank of Punjab v. M/s Acro Spinning & weaving Mills, etc.
27.
The question of amount due came up before the
Hon’ble Supreme Court of Pakistan coupled with the
defaulter Abdul Latif v. The Government of West Pakistan
and others (PLD 1962 S C 384) and the Hon’ble Supreme
Court of Pakistan held as under:“Here we may observe that the object and reason of the
Punjab Land Revenue Act together with the policy underlying
it is all too apparent from the Act itself. There are provision
in the Act with respect to the making and maintenance of
records of rights in land, and other matters relating to land
and liabilities incidental thereto. There are several classes of
Revenue Officers under the control of the Board of Revenue.
There is
elaborate procedure for
reconsideration of
assessment and the assessee has a right of appeal. The order
of the Revenue Officer is also open to revision. From these
provisions it seems perfectly clear that the Act does not give
absolute power to the Revenue Officers to fix the liability at
their sweet-will. When the land revenue has been determined
after following an elaborate procedure, preparation of a
statement of account becomes more or less a mechanical job.
In the above context it is laid down in section 66 that „a
statement of account certified by a Revenue Officer shall be
conclusive proof of the existence of an arrear of land revenue,
of its amount and of the person who is the defaulter‟. It must
be remembered that a right construction of the Act can only be
attained if its whole scope and object, together with an
analysis of its wording and the circumstances in which it is
enacted are taken into consideration. From an examination of
the Land Revenue Act, it is apparent that it provides first a
procedure for determination of land revenue and then comes
the machinery for realization of such revenue.”
28.
Again this issue came up before the Hon’ble
Supreme Court of Pakistan in Agricultural Development
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The Bank of Punjab v. M/s Acro Spinning & weaving Mills, etc.
Bank of Pakistan v. Sanaullah Khan and others (PLD 1988
S C 67) and the Hon’ble Supreme Court of Pakistan
followed the dictum of Abdul Latif v. The Government of
West Pakistan and others (PLD 1962 S C 384).
29.
The above said discussion and dictates of Apex Court
will show that the declaration of financial institution that
debtor defaulted to fulfill his obligation under the
agreement is not “amount due” in terms of Section 5(r) of
the NAB Ordinance, 1999 and it remain the claim till the
decree is passed by the Banking Court under the FIO. For
example on the Financial Institution claim that customer has
defaulted in performance of his obligation under the finance
agreement the court passed a decree in favour of Bank, but
the decree is satisfied in execution of decree through the
liquidation of securities the matter will be finalized so no
question of amount due will arose, hence the logical
conclusion of the issue in hand is that claim of Lender is not
amount due as defined in Section 5(r) of NAB.
30.
There is another angle of the above proposition,
Section 5 (r) of NAB is subject to proviso of Section 5 (r)
that it will not be willful default under Section 5 (r) ibid, if
the debtor was unable to repay or pay the amount due to the
default of financial institution. It appears that legislator was
cautious about the fact that the lender may claim that
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The Bank of Punjab v. M/s Acro Spinning & weaving Mills, etc.
non-payment of amount of finance is “willful default” they
provided that willful default of customer will be subject to
establishing the fact that lender is not at fault, hence before
the declaration of amount due, the adjudication is
mandatory, from the above discussion it is clear that amount
due mean a decree passed by the Banking Court that too
which is against a person without any security as in that the
finance will be recovery of writing off Finances in terms of
Section 8 of the FIO, although the procedure for recovering
of the imprudent finance, FIO provides procedure, but if we
interpret the imprudent finance in its narrow meaning it
may be called “willful default” but in that case the customer
and the official of lender both will be accused, hence in the
absence of decree the provision of 5 (r) of NAB Ordinance
could be press into service.
31.
There is no denial of the fact that financial institution
provides life to the economy of the country, they are
providing finances/loan to industry and trade but the
circumstances of country in the most important factor
towards the smooth running of industry and trade, hence
this factor is the most relevant factor for deciding the
question of willful default of customer and to adjudicate the
status of customer a willful defaulter is the jurisdiction of
Banking court.
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32.
The respondent has filed a suit for recovery of
finance and prayed for the sale of mortgage property and
other securities for realization of its claim, the petitioners
have filed application for permission to defend the suit
which will be decided by the court according to law. There
is no allegation against the petitioners that defendant has
allowed finance without securing the finance as required
and the Finance in dispute is imprudent loan/Finance.
33.
If the argument of learned counsel for respondent is
accepted that it is the financial institution who can declare
the customer willful default and NAB can take cognizance,
the very purpose of establishing Banking Court will fail.
34.
In view of the above the operation of Notice Under
Section 5 (r) dated 4.5.2012 issued by respondent to
petitioner will remain suspended till the final disposal of the
suit.
35.
The petition is allowed in the above said terms.
(Muhammad Khalid Mehmood Khan)
Judge
*KMSubhani*
Approved for reporting.