Ms Textile Asia Ltd etc. vs Mcb Bank Ltd

Stereo HCJ DA 38

JUDGMENT SHEET

IN THE LAHORE HIGH COURT, LAHORE

JUDICIAL DEPARTMENT

Regular First Appeal No. 2550 of 2015

M/s Textile Asia Limited etc. Versus MCB Bank Ltd.

JUDGMENT

Date of hearing 02.06.2021 Appellant(s) by Mian Sohail Ahmad, Advocate Respondent(s) by Mr. Imran Aziz Khan, Advocate

ABID HUSSAIN CHATTHA, J. This appeal under Section 22 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (the “Ordinance”) is directed against the impugned Judgment and Decree dated 11.11.2015 passed by the Banking Court No. III, Lahore (the “Banking Court”).

2.Precise facts of the case are that the Respondent (Muslim Commercial Bank Limited) filed a suit for recovery of Rs. 1,912,290/- against the Appellants on 31.10.2012. The Appellants submitted their application for leave to defend the suit (the “PLA”) on 10.01.2013. The PLA was dismissed and the suit of the Respondent Bank was decreed as prayed for alongwith cost of the suit and cost of funds in favour of the Respondent Bank jointly and severally against the Appellants vide Judgment and Decree dated 11.11.2015.

3.At the request of the Appellants, the Respondent Bank issued Bank Guarantee, BGTee No. 58/01 dated 17.05.2006 (the “Bank Guarantee”) for Rs. 3.0005 Million in favour of Sui Northern Gas Pipelines Limited (the “SNGPL”) as security for the gas connection of the Appellant No. 1 against 100% margin in the shape of Term Deposit Receipt No. 673990 of Rs. 3.0005 Million (the “TDR”), whereon, a lien favouring the Respondent Bank was also duly marked. The Bank Guarantee was valid for the period of two years and was

duly acknowledged by the SNGPL through its letter dated 19.08.2006 under intimation to the Respondent Bank. The Bank Guarantee was renewed on 15.05.2008 with the revised expiry date of 16.05.2010 with a claim lodgment date of 16.07.2010 under an agreement of financing dated 15.05.2008 backed by finance and security documents executed by the Appellants fully listed in paragraph No. 16 of the plaint.

4.On 09.09.2009, the Appellants approached the Respondent Bank for release of TDR held by the Respondent Bank on the premise that the SNGPL had returned the original Bank Guarantee and the Appellants were no longer required to renew the same since there was no outstanding amount payable by the Appellants towards the SNGPL. To confirm, if any dues against the Bank Guarantee are outstanding, the Respondent Bank wrote a letter dated 10.09.2009 to the SNGPL in the following terms:- “...We write to seek confirmation from your side about any over dues against this bank guarantee in any regard, reply of which must be received by us till September 20, 2009. In case of failure of any reply of the same from your side within this period i.e. till September 20, 2009, we shall refund the margin held as security in to the customer’s account. Regards, -Sd-” Since no reply from the SNGPL was received, therefore, Respondent Bank reversed the liability of the Bank Guarantee and released TDR of Rs. 3.0005 Million on 26.09.2009 to the Appellants. However, correspondence between the Respondent Bank and the SNGPL was followed which is part of the record. Consequently, the Respondent Bank was constrained to encash the Bank Guarantee through Pay Order for Rs. 1,912,290/- dated 01.08.2012 which was duly acknowledged by the SNGPL regarding encashment of the Bank Guarantee for the said amount. This demand of encashment of Bank Guarantee was also conveyed to the Appellants. Needless to state that through this correspondence, it transpired that the Appellants succeeded in releasing the TDR fraudulently by presenting the alleged

Bank Guarantee to the Respondent Bank unilaterally without recourse to the SNGPL. However, this issue is irrelevant for the purposes of the suit and this appeal.

5.Learned counsel for the Appellants submitted that the impugned Judgment has been passed against the law and facts of the case. It was submitted that the gas connection was disconnected and installations were removed from the premises in the month of July, 2007. The Appellants at the time of obtaining gas connection had deposited cash security of Rs. 3,687,000/- with the SNGPL. The SNGPL deducted its alleged outstanding bill of Rs. 2,606,662/- and refunded balance amount of Rs. 1,146,704/- on 13.08.2007 vide cheque bearing No. 63452573 dated 11.08.2007. The Bank Guarantee was returned by the SNGPL. Therefore, the Appellant No. 2 returned the original Bank Guarantee to the Respondent Bank and after intimation to the SNGPL vide letter dated 10.09.2009, the Respondent Bank, by completing all the formalities, refunded the margin by encashing the TDR. Hence, the relationship of ‘customer’ ceased to exist between the Appellants and the Respondent Bank. Nonetheless, the impugned Judgment has failed to consider this aspect and did not take into account the letter of the Respondent Bank written to the SNGPL dated 31.05.2010, which stated that “Reference your letter no. LAC. 3-2158 dated 26.05.2010 received on 31.05.2010, we write to say that we do not have any such bank guarantee outstanding in our books”. As such, the Banking Court ignored the tangible material placed before it, hence, the suit for recovery has been unlawfully decreed, whereas, the PLA of the Appellants ought to have been accepted, as the issue raised required evidence.

6.The learned counsel for the Respondent Bank defended the impugned Judgment and Decree by submitting that the issuance and renewal of the Bank Guarantee is admitted. The encashment of the Bank Guarantee and release of TDR are also unequivocally established. Hence, this appeal is liable to be dismissed.

7.Arguments heard and record perused.

8.Record reflects that issuance of the Bank Guarantee by the Respondent Bank on behalf of the Appellants in favour of the SNGPL as beneficiary is admitted in the PLA and is backed by finance and security documents executed by the Appellants, which are fully described in the paragraph No. 16 of the plaint. The payment made by the Respondent Bank to the SNGPL amounting to Rs. 1,912,290/- is also established through Pay Order on record. Admittedly, the Appellants have encashed the TDR and have not paid the amount to the Respondent Bank which was paid to the SNGPL on their behalf with respect to the encashment of the Bank Guarantee. The request letter dated 13.03.2008 by the SNGPL to renew the Bank Guarantee and letter dated 17.04.2008 written by the Appellants to the Respondent Bank requesting to renew the Bank Guarantee are also on record.

9.The contention of the Appellants that the Bank Guarantee had been erroneously or unlawfully encashed, suffice is to say, that under the law, the Respondent Bank was required to encash the Bank Guarantee and could not refuse to encash the same at any pretext. Hence, the Respondent Bank was well within its legal right to claim the amount paid against the Bank Guarantee, which now stands discharged. In case reported as Shaheen Calico Printing Works (Regd.) through partner and 3 others v. Muslim Commercial Bank Limited, 2005 CLD 1457, it has been held that the contract of the Bank Guarantee was independent in nature which had to be encashed and the financial institution under the terms of Guarantee is obliged to enforce the same irrespective of existence of any dispute between the issuer and the creditor. Reliance is also placed on case titled, Shipyard K. Damen International v. Karachi Shipyard and Engineering Works Ltd.,

PLD 2003 SC 191.

10.The plea of the Appellants that nothing was outstanding against the SNGPL because the latter after deducting the amount due had returned Rs. 1,146,704/- as balance amount, is also without force. If the SNGPL has got encashed the Bank Guarantee illegally from the Respondent Bank, the Appellants can initiate independent legal proceedings against the SNGPL and settle account with the SNGPL,

separately. Even otherwise, the letter relied upon by the Appellants in this respect is dated 13.08.2007, whereas, the Bank Guarantee was renewed on 15.05.2008. Hence, this letter is of no help to the Appellants because if all dues towards the SNGPL were cleared by the Appellants on 13.08.2007, there was no need to renew the Bank Guarantee on 15.05.2008.

11.For the purposes of this appeal, it has been unequivocally established that the Bank Guarantee was issued in favour of the SNGPL upon request of the Appellants and has been discharged by the Respondent Bank by making payment of Rs. 1,912,290/- to the SNGPL. Hence, the Respondent Bank is well within its right to recover the said amount from the Appellants, therefore, the impugned Judgment and Decree has been lawfully passed. The Ordinance is a special law to decide breach of obligations between the ‘customer’ and the ‘financial institution’. The relationship between the ‘customer’ and the ‘financial institution’ is based on the finance documents executed between them. Banking Court is not a proper forum to decide disputes of a ‘customer’ with a third party. This is especially so when the SNGPL is not a party in the suit and in this appeal before us. The Appellants have failed to raise any issue that would have necessitated the grant of leave to defend. The Banking Court had adverted to the grounds stated in the PLA. Accordingly, the suit of the Respondent Bank was rightly decreed after dismissing the PLA.

12.For what has been discussed above, this appeal having no merits is dismissed with no order as to cost.

(Muhammad Sajid Mehmood Sethi) (Abid Hussain Chattha) Judge Judge

*WaqaR*