RAFIQUE HAZQUEL MASIH vs BANK ALFALAH LTD. and others

' TASSADUQ HUSSAIN JILANI, J.--- Petitioner seeks leave to appeal against the order dated 14-11- 2002 passed by Lahore High Court, Lahore vide which petitioner's appeal against the order dated 17-9-2002 passed by learned Special Judge Banking through which petitioner's objection petition in execution proceedings was dismissed.

2. Facts in brief are that respondent-Bank's suit for recovery of Rs,38, 51,238.70 was decreed vide judgment/decree dated 13-5-1998. In execution proceedings petitioner filed an Objection Petition to the effect that he was merely a guarantor and unless the principal debtor is proceeded against in the first instance the recovery proceedings against the petitioner are not maintainable. This objection petition was dismissed. Hence this petition.

3. Learned counsel for petitioner submits that petitioner was merely a guarantor; that he admittedly did not derive any financial benefit out of the loan; that respondent-Bank without first proceeding against the principal judgment-debtor has initiated recovery proceedings against the petitioner which are not warranted in law. In support of his contentions he placed reliance on the case of Ghulam Mustafa Jatio v. Additional District and Sessions Judge/Returning Officer, N.A. 158 Naushero Feroze and others 1994 PSC 751.

4. Learned counsel for the respondent-Bank who was on watching brief defended the impugned order by submitting that the liability of the guarantor is co-extensive with that of principal debtor; that in his capacity as guarantor the petitioner is signatory to a contract with the respondent-Bank; that in terms of section 128 of the Contract Act the petitioner is equally liable to make payment; that even in terms of letter of guarantee tendered before the Bank at .The time of grant of loan the petitioner is liable to make payment and that the guarantor is a customer in terms of section 2(c) of the Financial Institutions (Recovery of Finances) Ordinance XLVI of 2001. In support of the submissions made the learned counsel relied upon the following judgments:--

1. United Bank Ltd. v. Haji Bawa Company Ltd. And 3 others 1981 CLC 89;

2. National Bank of Pakistan v. F.S. Aitzazuddin and 2 others PLD 1982 Karachi 577;

3. Messrs. U.B.L. v. Messrs Sindh Tech. Industries Ltd. And others 1998 CLC 1152;

4. Mrs. Muhammad Shafi through Agent v. Sultan Ahmed 2000 CLC 85;

5. Habib Bank Limited v. Malik Atta Muhammad and 4 others 2000 CLC 451

6. The Bank of Bihar Ltd. v. Dr. Damodar Prasad and another AIR 1969 SC 297.

' He also referred to Chitty on Contracts to bring home the point that the guarantor can be proceeded against without first proceeding .Against the principal debtor.

5. We have heard learned counsel for the parties and have given anxious consideration to the submissions made. A loan agreement is primarily a contract and the provisions of Contract Act, are applicable subject of course to the special law i,e, Financial Institutions (Recovery of Finances)

Ordinance, 2001. Admittedly the petitioner at the time of approval of loan had given a letter of guarantee, which has been placed on record at page 10 of Second Paper Book, wherein inter alia in para (B) 1, petitioner had candidly given an undertaking to the respondent-Bank as under:-- "(B) I/We joint and severally further agree as under:---

(1) My/our liability under this guarantee shall be that of principal debtor and you may at your option hold me/us primarily responsible for the liabilities of the Customer."

' Similarly in Para (B) 4 of the same letter petitioner further undertook as under:-- "4. You may as you think fit and without reference to me/us grant to the Customer time or other indulgence or make or accept any arrangement or composition with him in respect of any payment hereby guaranteed and also vary, renew, release, realize or in any way deal with any other guarantees or securities or rights now or hereafter held by you in respect of the sums due under the said agreement/the facilities and this guarantee shall not prejudice or be prejudiced by such other guarantees or securities."

6. Having given the afore-referred undertaking it is not open for the petitioner to wriggle out of it and raise the plea that the principal debtor should be proceeded against first for the recovery of loan. Furthermore section 128 of the Contract Act specifically mandates that "the liability o the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract".

7. In the case of The Bank of Bihar Ltd., v. Dr. Damodar Prasad and another AIR 1969 SC 297 at page 298, it was observed as under:-- "4. Before payment the surety has no right to dictate terms to the creditor and ask him to pursue his remedies against the principal in the first instance. As Lord Eldon observed in Wright V. Simpson, (1802) 6 Ves Jun 714 at p.734=31 ER 1272 at p.1282: "But the surety is a guarantee; and it is his business to see whether the principal pays, and not that of creditor." In the absence of some special equity the surety has no right to restrain an action against him by the creditor on the ground that the principal is solvent or that the creditor may have relief against the principal in some other proceedings."

' The precedent case-law relied upon by the petitioner's counsel Ghulam Mustafa Jatio v.

Additional District and Sessions Judge/Returning Officer, N.A. 158 Naushero Feroze and others 1994 PSC 751 is distinguishable both on facts and the law laid down therein. The issue in the said case was that of disfranchisement of an elected representative on the ground of his being a guarantor in a loan default case and this Court allowed the appeal of the guarantor who was sought to be disqualified and this Court inter alia held that the guarantor is not covered by clause (iii) of subsection (2) of section. 12 of the Representation of the People Act, 1976. The aforesaid ratio has no nexus with the question, which is a moot point in the instant case.

8. In absence of any specific stipulation in the contract of loan or any consideration of equity, a guarantor cannot take up the plea that the Bank should enforce the liability against the principal debtor before proceedings against the guarantor. The reason being that the Bank grants loan only on the guarantee and in absence of letter/contract of guarantee the Bank may not have sanctioned the loan.

9. For what has been discussed above, we do not consider it a fit case to grant leave against the impugned order. The petition having no merit is accordingly dismissed and leave refused.