Meezan Bank Ltd vs Muhammad Kashif etc.

HCJDA-38

JUDGMENT SHEET

IN THE LAHORE HIGH COURT,

MULTAN BENCH, MULTAN

JUDICIAL DEPARTMENT

RFA No. 31 of 2024

Meezan Bank Limited Versus Muhammad Kashif and Others

JUDGMENT

Date of Hearing 03.02.2026 Appellant-Bank Mr. M. Yousaf Ch., learned by Advocate.

Respondent No. Mr. Arshad Aziz, learned Advocate. 1 by Respondents No. Mr. Saqib Aziz, learned Advocate. 2(i) to 2(iv) by

Sultan Tanvir Ahmad J:- The appellant-bank filed suit for recovery of Rs. 3,856,878/- along with costs, cost of funds and other charges. The respondents were proceeded against ex-parte vide orders dated 02.12.2021 and 11.10.2023 due to their failure to appear and to seek leave to contest. Learned Banking Court No. 1, Multan (the ‘Banking Court’) passed judgment and decree dated 30.11.2023 against the respondents, to the extent of Rs. 2,063,748, the principal outstanding, along-with cost of funds from the date of default till realization of the principal amount and cost of suit. This judgment and decree has been assailed in the present appeal.

2.Mr. Muhammad Yousaf Ch., learned counsel for the appellant-bank, has argued that the appellant-bank is entitled to Rs. 1,148,821 as remaining profits / mark-up for the period

from the date of default till the expiry of the finance agreement. The appellant-bank has also claimed other charges and charity. Learned counsel for the appellant-bank has also stated that section 3 of the Financial Institutions (Recovery of Finances), Ordinance, 2001 (the ‘FIO’) clearly mandates the Banking Courts to grant remaining outstanding contractual amount in addition to cost of funds.

3.Mr. Arshad Aziz and Mr. Saqib Aziz, learned counsel for the respondents have supported the impugned judgment and decree while arguing that the disputed amount(s) are not recoverable, being penalty in nature which cannot be permitted as consequence of civil default.

4.We have heard the arguments and gone through the record.

5.It is admitted position that the appellant-bank has extended lease facility, under the principles of “IJARA- Finance”, through agreement dated 11.02.2019 (the ‘finance agreement’). After contribution of the respondents, the financed amount is Rs. 2,174,200/-. The parties agreed to its repayment in sixty (60) installments, as given in rental schedule, which reflects the total payable amount as Rs. 3,898,824/- uptil 20.02.2024. The finance amount was disbursed on 30.01.2019. The customer paid only five (5) installments / rentals. As per the attached statement, total paid sum is Rs. 318,685/-, which is adjusted uptil 17.09.2019. No further amount or rental is paid.

6.The crucial question framed before us is based on the wording of section 3 of FIO:-

“3. Duty of a customer.- (1) It shall be the duty of a customer to fulfill his obligations 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).”

(Emphasis supplied)

7.It is argued that above provides for cost of funds apart from the liabilities that may incur under the contract, therefore, decree should have been passed for the entire profit / mark-up until expiry of the finance agreement i.e. 20.02.2024 in addition to principal and cost of funds from the date of default. Mr. M. Yousaf Ch., learned counsel for the appellant- bank submits that liability of mark-up or profit incurs under the contract that was holding the field until 20.02.2024 and contract also provides for other amounts that have been claimed. While making above submission the learned counsel for the appellant- bank, however, has ignored the settled principle that where an Act or Statute refers to a thing being done, it is to be taken as referring to the things being lawfully done. Therefore, “other liabilities under the Contract”, in section 3(2) of the FIO, connote the liabilities lawfully incurring under the Contract. This is further clear from section 17 of the FIO, which reads:- “17. Final Decree.- (1) The final decree passed by a Banking Court shall provide for payment from the date of default of the amounts found to be payable on account of the default in fulfillment of the obligation, and for costs including, in the case

of a suit filed by a financial institution cost of funds determined under section 3.

(2)The Banking Court may, at the time of passing a final decree, also pass an order of the nature contemplated by sub-section (1) of section 16 to the extent of the decretal amount.”

(Underlining is added) The above clearly provides that final decree shall provide for payment of those amounts which are found to be payable due to default. The words ‘found payable’ necessitates the Courts to make determination as to lawfully permissible amount.

8.Now coming to the ‘date of default’ in the present case. It is submission of the appellant-bank that the finance agreement expired on 20.02.2024, therefore, the date of default should be taken from non-payment of last installment till expiry of agreement and until the expiry date of the finance agreement mark-up should be permitted. The learned Banking Court has taken the date of default from the payment of last installment i.e. 17.09.2019 and granted cost of funds on principal outstanding therefrom. As already discussed that nature of finance facility is ‘IJARA-Finance’. The customer was obliged to re-pay the finance in sixty (60) installments. Non-payment of each installment constituted default in fulfillment of obligation. This is also provided in the clause 17 of the finance agreement which, inter alia, stipulates that lease rentals when remain outstanding for a period of thirty days shall constitute ‘event of default’. However, in the present case the appellant-bank has triggered the ‘event of default’ by filing the suit on 20.09.2021.

9.Making claim, on the footing of breach of a finance agreement by customer, prior to expiry or its completion, amounts to a definite election on the part of financial institution to treat the agreement as at an end and by

such election, the financial Institution disables itself from claiming mark-up for remaining period for which it was essential to demonstrate that the Financial Institution was willing to keep the agreement in field. Reference can be made to “K.S. Sundarmayyar” case1. The following extract from the judgment is relevant:- “...It will not be open to a party to a contract, who has once elected to accept the breach assuming there was a breach on the part of the other side to cancel that election and treat the contract as if it were subsisting...”

10.In case of “Rana Muhammad Ausaf”2, another learned Division Bench of this Court examined a finance facility, which was also repayable in installments. Following is observed regarding the ‘date of default’ and recovery of mark- up for remaining period:- “9. Even otherwise, the impugned decree for cost of fund from institution of suit, is not entirely adverse to the appellant. In the present case, when admittedly the finance facility was valid for period of 12 years till 04.12.2026, the respondent financial institution had the option to wait till expiry of said period and recover the entire outstanding amount along with agreed mark up but instead it filed suit on 01.3.2019, hence surrendered its claim of mark up from 01.3.2019 till expiry of finance facility i.e. 04.12.2026 and has only claimed cost of funds as contemplated under section 3 of the Ordinance, which is admittedly much less than the rate of mark up in the house finance facility agreement” “K. S. Sundaramayyar Versus K. Jagadee-san and another” (AIR 1965 Madras 85) “Rana Muhammad Ausaf Versus House Building Finance Company Limited” (2023

CLD 554)

11.The claim of mark-up by the appellant-bank, from date of institution of suit and till expiry of agreement, therefore, is rejected. The claim of charity, termination and other charges is also not admissible in view of the above discussion as well as law already settled in various cases3.

12.The learned Banking Court, somehow, has treated the payment of last installment as the date of default, instead of date of filing the suit, ignoring the discussion made above. The appellant-bank is entitled to the mark-up that has accrued uptil the institution of the suit and the cost of funds after the date of institution of suit till realization. To this extent, the impugned judgment and decree, therefore, is set-aside and the case is remanded to determine the amount payable uptil the suit.

Appeal is partially allowed in the above terms.

(Anwaar Hussain) (Sultan Tanvir Ahmad) Judge Judge

Approved for reporting Announced on 16.02.2026.

Judge Judge

J.A. Hashmi/-

“Al Baraka Bank Pakistan Limited through Authorized Officers Versus Eden Housing Limited through Chief Executive Officers and Others” (2024 CLD 852).  “House Building Finance Company Limited through Authorized Officer Versus Muhammad Iqbal and Another” (2021 CLD 1416).

 “ORIX Leasing Pakistan Ltd through Attorney Versus M/s Muhammad Noor Dairies through Proprietor & 3 Others” (2021 CLD 1027).  “M/s United Bank through Authorized Attorneys Versus M. Mubeen Khan”(2012 CLD 1995).