KASB BANK LIMITED Versus Mirza GHULAM MUJTABA

ORDER

MUHAMMAD TASNIM, J.--- This is an application (C.M.A. No.8592 of 2009) under section 10 of Financial Institutions (Recovery of Finances) Ordinance, 2001 (hereinafter called "Ordinance 2001") filed by defendants seeking leave to defend the suit unconditionally.

2. Brief facts leading to the controversy in this case are summarized as under:---

3. That on the request of Defendant No.1 the plaintiff-Bank allowed a finance facility in the sum of Rs.80,000,000.00 (Rupees Eighty Million) for a period of six months to the defendants as per facility advise letter dated 3rd November 2007 on the following terms and conditions:---

Facility

Term Finance (Fresh)

Amount

Rs.80.000 M (Rupees Eighty Million only)

Mark-up

3 month's KIBOR plus spread of 2.75% payable on quarterly basis. Note: Rate shall be received on calendar quarter basis and shall be reset on 1st working day of January, April, July and October each year based on KIBOR

Purpose

For trading: and investment in shares

Repayment

Principal repayment in lump sum on maturity through internal cash generations/sale proceeds of shares

Security Margin

50%

Expiry

Six months from the date of initial disbursement.

Prime Security

Pledge of shares of MY BANK Ltd. held in the CDC account of the bank, with 50% margin as per the Prudential Regulations. - Personal Guarantee of Mirza Ghulam MuJtaba Note: In case of shortfall in share security(ies), you are required to replenish the shortfall in the existing share securities either by depositing additional shares or to reduce the outstanding with the drawing power. Letter of ownership is required to be provided by the owner of shares to the effect that the shares lodged/being lodged with the bank are their absolute property and that they are the true and lawful owner of such shares.

4. To secure the above financial facility the defendants executed promissory note, letter of continuity, letter of pledges, undertaking/appropriate utilization of funds, undertaking regarding prudential regulations, declaration under State Bank of Pakistan's Prudential Regulations and three general power of attorneys in favour of plaintiff-Bank. Defendants Nos.1, 2 and 3 also furnished/their personal guarantees in their personal capacities. The defendants utilized the term finance facility in full but failed to repay the same as per terms and conditions agreed upon between the parties. The defendants were called upon by the plaintiff to adjust the liability but failed which has forced the plaintiff to file the present suit.

5. After service of summons in accordance with the provisions of Ordinance, 2001, defendants filed C.M.A. No.8592 of 2009 seeking leave to defend the suit raising number of legal pleas as to maintainability of the suit on the ground that the same has not been instituted by the competent person. It was further pleaded that no board resolution has been filed along with the plaint hence the suit is not maintainable. It was further pleaded in the leave to defend application that mark-up upon mark-up has been charged by the plaintiff-Bank which is not permissible under the law. In the leave to defend application the defendants have stated that the share by way of collateral issued in the CDC pledged account of the plaintiff-Bank having the authority to liquidate in case of non-receipt of payment on 26-6-2008. It was further pleaded that plaintiff-Bank having not liquidated the shares on 26-6-2008 for the purpose of envisaging that the share market is declining and wanted/threatened to purchase the said share in the lesser value and claimed for balance through their investors. It was further pleaded in leave to defend application that plaintiff-Bank parked the shares twice in stock exchange, however, clandestinely did not dispose of the same in June-July 2009 when the market price was Rs.18.72 per share. On receipt of such leave to defend application the plaintiff-Bank filed replication denying all the allegations made by the defendants in leave to defend application and maintained the stand in the suit.

6. Mr. Habibur Rehman, learned counsel for the defendants, in support of leave to defend application submitted that plaint in the suit has not been signed and filed by the competent persons and no board resolution has been brought on record hence proceedings are incompetent and suit is liable to be dismissed. However, he admitted that finance facility was availed by the bank as mentioned in the plaint and he also admitted the execution of documents by the defendants. He further submitted that there was no relationship of customer and financial institution in this case but defendants had established a relationship of partnership with the plaintiff-Bank. He has submitted that shares of My Bank were pledged with the plaintiff-Bank which were not sold by present plaintiff in market when they could fetch higher price. He further argued that due to aforesaid conduct defendants had sustained heavy loss for which they had filed separate suit for damages against the plaintiff. Learned counsel for the defendants has submitted that on 16-4-2008 the value of one share of My Bank was Rs.22.45. He further submitted that on 29th May, 2008 the value of the share of My Bank was Rs.19.50. He further submitted that value of one share of My Bank on 15-11-2007 was Rs.21.80. He lastly submitted that on 30-5-2008 the value of the share of My Bank was Rs. 19.50 but plaintiff-Bank did not act as a prudent bank and did not sell the share of My Bank in market though they had the authority to do so which has caused financial loss to the defendants. Learned counsel for the defendant has further submitted that substantial question of law has been raised by the defendants in this case hence leave to defend be granted to the defendants unconditionally as matter requires recording of evidence. In reply to the Court question as to whether the leave to defend application is in conformity with the provisions of section 10 of Ordinance 2001 learned counsel for the defendants submitted that the leave to defend application filed by the defendants is not in accordance with the provisions of subsections (3), (4) and (5) of section 10 of Ordinance 2001. However, he submitted that since sufficient cause has been shown by the defendants the penal consequences as contained in subsection (6) of section 10 of Ordinance 2001 will not be attracted in the circumstances of the case.

7. Learned counsel for defendants submitted that since plaintiff-Bank did not act as a prudent bank and did not sell the share when they could fetch higher price, this is sufficient cause for non-compliance of provisions of subsections (3), (4) and (5) of Section 10 of Ordinance, 2001. Learned counsel for the defendants has further submitted that sufficient cause has not been explained in Ordinance 2001. Learned counsel while elaborating "sufficient cause has invited my attention to the provisions of Order IX, Rule 9, C.P.C. and section 5 of Limitation Act. In support of his contentions learned counsel for the defendants has also placed reliance on the following cases: ---

(1) Muhammad Khan and others v. Shabarati PLD 1995 Kar. 267,

(2) Muhammad Haleem and others v. H.H. Muhammad Naim and others PLD 1969 SC 270,

(3) Vedabai alias Vaijayantabai Baburao Patil v. Shantaram Baburao Patil and others AIR 2001 SC 2582,

(4) Sarpanch, Lonand Grampanchayat v. Ramgiri Gosavi and another AIR 1968 SC 222,

(5) Bank of Baroda v. Sansar Chand Kapur and another AIR 1994 Delhi 359,

(6) United Bank Limited v. Progas Pakistan Limited 2010 CLD 828,

(7) Messrs Fybron (Pvt.) Limited and others v. National Bank of Pakistan 2006 CLD 127,

(8) Rahat Badaruddin Bandey v. Union Bank Limited 2005 CLD 1080,

(9) The Central Bank of India, Ltd., Lahore v. Messrs Taj ud-Din Abdur Rauf and others 1992 SCMR 846,

(10) PICIC Commercial Bank Limited v. Spectrum Fisheries Limited 2006 CLD 440,

(11) Bankers Equity Limited and others v. Messrs Bentonite Pakistan Limited and others 2003 CLD 931,

(12) United Bank Limited v. Pak. Leather Grafts Limited and others 2010 CLC 701,

(13) Al-Madina Electric Store v. Habib Bank Limited 2006 CLD 734,

(14) Habib Bank Limited v. A.B.M. Graner (Pvt.) Limited and others PLD 2001 Kar. 264,

(15) Nusrat Textile Mills Ltd. and others v. United Bank Ltd. 2005 CLD 1421,

8. Conversely, Mr. Saim Hashmi, learned counsel for the plaintiff, submitted that defendants had availed the finance facility in the sum of Rs.80.00 million. He further submitted that defendants had executed number of documents for securing repayment of the finance and due discharge of obligation. He further submitted that defendants utilized the finance facility in full but did not repay the same in accordance with the terms and conditions agreed upon between the parties hence, no substantial question of law and facts have been raised, the leave to defend application is liable to be dismissed. Learned counsel for the plaintiff further submitted that leave to defend application filed by the defendants is not in accordance with the provisions of section 10 of Ordinance 2001. He further says that since subsections (3), (4) and (5) of section 10 of Ordinance, 2001 have not been complied with by the defendants application for leave to defend in terms of subsection (6) of section 10 of Ordinance, 2001 is liable to be dismissed. Learned counsel for the plaintiff further submitted that no substantial question of law or fact has been raised by the learned counsel for the defendants which requires any evidence. Hence, leave to defend application be dismissed on merit. Learned counsel for the plaintiff has further invited my attention to letter dated 12th May, 2008 written by the defendants to the plaintiff-Bank which appears as annexure "R" to the replication wherein defendants have stated 'Term Finance Facility for Rs.80.00 Million is going to mature on May 15, 2008. In this regards, please note that a present Stock Market is at Correction Level. We expect that Market will touch at its new improved level in coming days and we want to avail opportunity. Hence, I request you to grant extension of said Term Finance Facility for Rs.80.000 Million for further six months." Learned counsel for the plaintiff invited my attention to Annexure 'R/1' to the replication which is a letter dated 8th August, 2008 addressed by defendants to the plaintiff stating therein that "Keeping in view of the above mentioned text you are kindly requested not to liquidate "My Bank Shares" and keep waiting as the proposal with other banks are under process, and it is expected that they will start to take exposure on the shares shortly. However if you will liquidate our shares then it may lead to open a litigation and we will constrained to lodge huge claims on you." Learned counsel for the plaintiff further invited my attention to annexure -R/2' to the replication wherein defendants have communicated to the plaintiff that "You are therefore, requested not to liquidate the shares under lien with your bank, because these are sponsor shares and it will create legal problem as mentioned in our previous letter dated September 20, 2008." He has further invited my attention to Annexure 'R/3' to the replication which is letter dated 19th January, 2009 addressed by the defendants to the plaintiff-Bank wherein defendants have stated that "Please be noted that under current stock market recession your any action for selling of shares is not justified and nor acceptable. In addition its selling without our consent authority by bank would cause heavy losses to sponsors and it will open unnecessary litigation as well." Finally, learned counsel for the plaintiff invited my attention to the letter dated 24th January, 2009, addressed to the plaintiff-Bank wherein the defendants have stated that "We have positive approach hence offering alternate option to cover the margin requirement of State Bank of Pakistan, however at this stage of stock market your any action for selling of shares to cover the shortfall in margin is not justified and nor acceptable. In addition its selling would cause heavy losses to sponsors and it will open unnecessary litigation as well." Based upon the above letters, learned counsel for the plaintiff submitted that after availing the facility from the plaintiff-Bank neither the defendants cleared their liability nor allowed the plaintiff-Bank to sell the shares of My Bank through the stock exchange. On the contrary, number of letters, as mentioned above, were addressed by the defendants to the plaintiff-Bank stating therein that if shares are sold legal proceedings shall be drawn against the plaintiff for recovery of damages. Learned counsel for the plaintiff submitted that defendants have not approached this Court with clean hands, hence leave to defend application be dismissed and the suit be decreed. Learned counsel for plaintiff invited my attention to section 176 of Contract Act and has submitted that under the aforesaid provisions if pawnor makes default in payment of debt or performance at the stipulated time of the promise in respect of which goods were pledged the pawnee may bring a suit against pawnor upon debt or promise and retain the goods pledged as collateral security or he may sell the things pledged on giving the pawnor reasonable notice of the sale. He further submitted that on the one hand defendants claimed that plaintiff bank should have sold the pledged shares when they could fetch higher value but on the contrary defendants have written number of letters to the plaintiff for not selling the pledged shares in the market otherwise suit for damages shall be filed against the plaintiff-Bank. Learned counsel for the plaintiff in support of his contentions has placed reliance on the following cases:---

(1) Banque Indosuez v. Jet Travels Limited and others 1991 CLC 446,

(2) National Bank of Pakistan v. Muhammad Ashraf Sanik and another PLD 1987 Lah.17,

(3) Khyam Films and another v. Bank of Bahawalpur Ltd. 1982 CLC 1275,

(4) Habib Bank Limited v. Messrs Sabcos (Pvt.) Ltd. 2006 CLD 244,

(5) Bank of Khyber v. Messrs Spencer Distribution Ltd. and others 2003 CLD 1406,

(6) NIB Bank Limited v.- Taha Spinning Mills Limited and others 2010 CLD 635,

(7) Askari Commercial Bank Limited v. Hilal Corporation (Pvt.) Ltd. and others 2009 CLD 588,

(8) Messrs Mach Knittes (Pvt.) Limited and others v. Allied Bank of Pakistan Limited 2004 CLD 535,

(9) Bank of Khyber v. Messrs Spencer Distribution Ltd. and others 2003 CLD 1406,

(10) Muhammad Arshad and another v. Citibank N.A., Al-Fallah Building, Lahore 2006 CLD 1011,

(11) National Bank of Pakistan v. Messrs A.I. Brothers (Private) Limited and others 2007 CLD 1356,

(12) American Express Bank Ltd v. Adamjee Industries Limited 1995 CLC 880,

(13) Messrs Razzaq & Company v. Messrs Riazeda (Pvt.) Limited 1990 CLC 1243,

(14) Siddique Woollen Mills and others v. Allied Bank of Pakistan 2003 CLD 1033,

(15) A.M. Burq and another v. Central Exchange Bank Ltd. and others PLD 1966 (W.P.) Lahore 1;

(16) Muhammad Habib and others v. Messrs National Bank of Pakistan 1989 MLD 1026,

(17) Salim Adamjee v. Al-Faysal Investment Bank Ltd. and another PLD 1999 Kar. 468,

(18) Messrs Crystal Enterprises and others v. Platinum Commercial Bank Ltd. and others 2002 CLD 868,

9. I have heard the learned counsel for the parties and have perused the record as also the written submissions submitted by the learned counsel for the defendants during the course of arguments and have also examined the case-law cited by the parties at the bar.

10. Now taking up the first contention of learned counsel for defendants regarding competence of persons who had signed the plaint in this suit. Such power of attorneys are in favour of Mr. Anwar Ahmed Abbasi son of Mr. Anis Ahmed and Mr. Muhammad Sultan Khan son of Muhammad Siddiq dated 12-4-2007 and 26-2-2009. He has further argued that the bank should have produced along with the aforesaid power of attorneys, the memorandum of articles and the resolution of the board of directors. A bear perusal of power of attorneys would show that these power of attorneys have been issued by the plaintiff-Bank itself under its common seal and has been executed by President of the Bank who was authorised by the bank to execute power of attorneys in favour of present attorneys: The power of attorneys filed along with plaint are notarized in accordance with law. The aforesaid power of attorneys in paragraph 9 contains as under:-

"(9) To commence, prosecute, continue and defend all actions, suits or legal proceedings whether civil, criminal or revenue including proceedings to procure or establish the bankruptcy or insolvency of any person or firm or liquidation or winding up of any company; to compromise or refer to arbitration any claims of disputes either in such suits or proceedings or otherwise; to appoint Solicitors, Advocates, Pleaders, Vakils and other legal agents; to make, sign, verify, execute plaints, petitions, written statements tabular statements, Vakalatnamas, powers of attorney or any other papers expedient or necessary in the opinion of the Attorney to be made, signed, executed, verified, presented or filed."

11. A perusal of above quoted paragraph from the power of attorney would indicate that attorney has been authorized to commence, prosecute, continue and defend all actions, suits or legal proceedings whether civil, criminal or revenue, including proceedings to procure or establish the bankruptcy or insolvency of any person or firm or liquidation or winding-up of any company, or otherwise; to appoint Solicitors, Advocates, etc. It further authorizes the attorney to sign, execute, verify plaints, petitions, written-statement, memorandum of appeal, applications and other allied documents.

12. The judgment cited by learned counsel for the defendants in the case of United Bank Limited (supra) (2010 CLD 701) is distinguishable on facts as in the reported judgment two officers who had signed the plaint had failed to show that Messrs. Ayaz Hashim Shamsi and Aamir M. Karachiwala who had purportedly granted sub-power of attorney to the other two officers under Clause 14 of the officers power of attorney dated 23-4-2008 had the power to do so or not but in the present case power of attorney was executed in favour of signatories of the plaint by the bank under its common seal signed by the President of the bank who was authorized by the bank to appoint attorneys of the bank for the purpose mentioned above, such power of attorneys are also notarized in accordance with law so the judgment cited by the learned counsel for defendants has no application or relevance to the present case.

13. The other judgment cited by learned counsel for the defendants in the case of The Central Bank of India Ltd. Lahore v. Messrs. Taj-ud-Din Abdur Rauf and others 992 SCMR 846. In the reported judgment attorney Mr. S.K. Shikari filed suit for recovery against defendants on behalf of the bank who was allegedly holder of power of attorney on behalf of the bank but said. Mr. S.M. Shikari. at one stage of the proceedings submitted that he had filed the suit on receiving instruction from the appellant bank's Central Office in Bombay, subsequently he made another statement on the same day that he was not in a position to state as to whether the said instructions were supported by under any provision of the Articles of Associations of the Bank and had again on 12-3-1951 stated that the directors of the appellant bank were authorised under Article 116(7) of the Articles of Association of the Bank but neither he produced the alleged letter from the Central Office at Bombay to the Lahore Branch containing ,instructions to institute the present suit, nor the Articles of Association were produced by the bank. In view of above, suit was dismissed having been filed by an incompetent person but in the present case, as stated above, the persons who signed the plaint were equipped with power of attorneys in their favour which were executed by the President of the Bank who was authorized by the Board of Directors of the Bank to do so hence judgment in the case of The Central Bank of India is distinguishable on facts and does not improve the case of the defendants.

14. The other judgment in the case of PICIC Commercial Bank Limited v. Spectrum Fisheries Limited 2006 CLD 440 where proceedings under sections 306 and 305 of Companies Ordinance 1984 were initiated by the PICIC Bank and said petition was filed by authorized officers who were duly authorized by the President and the Company Secretary of the petitioner under the authority given to them by the board resolution dated 17th March, 2001. In the reported case the Board of Directors had authorised the Chief Executive Officer/President and the Company Secretary of the petitioner as attorneys of the bank who in turn had authorized the person who signed the petition but had deligated their powers to the officers of the bank. But in the present case the bank had issued power of attorneys in favour of signatories of the plaint and the President of the Bank had the powers to issue such power of attorneys hence in this view of the matter judgment relied upon by the learned counsel for the defendants is also distinguishable on facts and does not apply to the circumstances of the present case. The other judgments in the cases of Al-Madina Electric Store v. Habib Bank Limited 2006 CLD 734, Nusrat Textile Mills Limited and others v. United Bank Limited 2005 CLD 1421 and Habib Bank Limited v. A.B.M. Graner (Pvt.) Limited and others PLD 2001 Kar. 264 are concerned all the three judgments are distinguishable on facts and are not applicable to the case in hand.

15. In the case of Banque Indosuez v. Jet Travels Limited and others 1991 CLC 446 a learned Single Judge of this Court (as he then was) while dealing with the point in issue has held as under:---

"... On verification it was found that photostat copy of the Power of Attorney was in the name of only one person i.e. Syed Rasheed Akhtar while the plaint is signed by both, Syed Rasheed Akhtar as well as Saleem. Mr. S.A. Sarwana states that due to oversight he could not file Power of Attorney of Saleem. He shows the original to the Court and files a photo copy of the' Power of Muhammad Saleem, which is taken on record. The objection is, therefore, repelled. So far as the resolution by the Bank is concerned, it is not necessary to produce the same before the Court at the time of filing of the suit. Mr. Farooque Naek has relied upon the case of National Bank of Pakistan v. Muhammad Ashraf Sanik and another PLD 1987 Lah. 17, wherein a suit filed by National Bank of Pakistan by a person holding Power of Attorney which authorised him to institute/defend any action or other proceedings relating to affairs of Principal, was held to be a proper authority. This ruling would not help the Defendants."

16. In the case of National Bank of Pakistan v. Muhammad Ashraf Sanik PLD 1987 Lah. 17 a learned Single Judge of Lahore High Court (as he then was) while dealing with the aforesaid point in paragraph 21 of the report has held as under:---

"(21) The only other contention raised on behalf of the defendants which is left to be considered is the objection as to the competence of the signatory of the plaint to institute the suit on behalf of the plaintiff. Suffice it to say that the certified copy of the registered Power of Attorney in favour of Mr. Zia-ud-Din one of the signatories of the plaint has been placed on record which clearly authorizes him (refer recital 13) to institute/defend etc., any action or other proceedings relating to the affairs of the Bank and it squarely meets this objection. Otherwise also the objection in the light of the case-law cited by the learned counsel for the plaintiff does not appear to have force."

17. In the case of Khyam Films and another v. Bank of Bahawalpur Ltd. 1982 CI,C 1275 a learned Single Judge of West Pakistan High Court in the year 1966 while deciding the point in issue had held that authority of a person who signs the plaint can be questioned by the principal. The learned Judge in the reported judgment has observed as under:-

".... In my opinion the fact that the person did or did not have authority can effectively be challenged only by the principal. If in spite of the objections taken the principal continues to recognize the authority of the agent to institute the suit I am inclined to think that this would amount to a ratification and the suit would still be a validly instituted suit."

18. The upshot of the above discussion is that since the plaint in the present suit has been presented by the two signatories who are attorneys and were authorised by the bank, it is valid presentation and suit is maintainable under the law. Even otherwise, section 9(1) of Ordinance, 2001 provides that financial institution may institute a suit in the Banking Court by presenting a plaint which shall be verified on oath by the Branch Manager or such other officer of the financial institution as may be duly authorized in this behalf by power of attorney or otherwise. A bear reading of above provision would show that plaint can be present by a financial institution before a Banking Court duly signed and verified on oath either by a Branch Manager or such other officer of the bank who holds a power of attorney or has been authorized otherwise. In the present case valid power of attorneys have been brought on record which fulfils the requirement of section 9(1) of Ordinance 2001. Accordingly, I hold that suit has been validly filed and the same is maintainable.

19. Now taking up the next contention of learned counsel for the defendants that plaintiff-Bank did not sell the pledged shares in time and did not act as a prudent bank. An examination of the record shows that number of letters were addressed by the defendants to the plaintiff-Bank for not selling the pledged shares in market otherwise defendants shall initiate legal proceedings against the plaintiff-Bank. Even otherwise, the argument of learned counsel for defendants is in violation of the provisions of section 176 of the Contract Act which is quoted hereinunder:--

"176. Pawnee's right where pawnor makes default . If he pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged on giving the pawnor reasonable notice of the sale.

If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due the pawnee shall pay over the surplus to the pawnor."

20. In view of provisions contained in section 176 of the Contract Act that if the pawnor makes default in payment of debt or performance at the stipulated time of the promise in respect of which the goods were pledged a pawnee may bring the suit against the pawnor upon the debt or promise, and retain the goods pledged as collateral security or he may sell the things pledged on giving the pawnor reasonable notice of the sale. Learned counsel in support of his aforesaid submission has cited following judgments.

21. In case of A.M. Burq and another (supra) the learned Division Bench of Lahore High Court has held as under:---

"It was held, "that the plaintiff was entitled to recovery, although the gun had not been returned or tendered, the defendant might enforce the return by bringing his action or trover." The respondent could invoke successfully the principle laid down in this judgment if he had still been in possession of 29 reams of paper. It is a right of the pawnee-pledgee either to bring a suit upon the debt or to sell the things pledged upon giving a reasonable notice of sale. Both these rights are concurrent and they are provided in section 176 of the Contract Act. Under this section, as interpreted in Percy F. Fisher v: Ardeshir Hormasji Gazdar AIR 1935 Born. 213 the pawnee has a right of action for the debt notwithstanding the possession of the goods, subject to the pawnor's right to redeem the goods upon tender of the amount due before the sale. In Nim Chand v. Jaga Bundhu Ghose (1895) 22 Cal. 21, it was held :--

"There can be no doubt that when movable property is pledged to a person for money lent, he acquires, a special property therein; he has a charge upon it for the satisfaction of the loan advanced, and he is entitled under section 176 of the Contract Act, either to bring a suit against the owner upon the debt or promise, retaining the goods pledged as collateral security, or he may sell the things pledged upon giving reasonable notice of the sale."

It is, therefore, clear that the right to proceed against the property is not merely accessory to the right to proceed against the debtor personally. Thus a pledger cannot compel the pledgee to exercise the power of sale or its adjustment as a means of discharging or satisfying the amount due to him. The pledger, therefore, is competent in law to sue for his debt without selling the pledged property and adjusting its price towards the payment of the debt. He has, however, to keep the property pledged in tact so that he may be able to hand over the security to the pledger on payment of the debt by him."

22. In case of Muhammad Habib and others (supra) learned Division Bench of this Court has dealt with the issue as under:--

"Even otherwise under section 176 of the Contract Act the pawnee has got the option that in case the pawner makes default in payment of the debt, either to bring a suit against the pawner upon the debt or promise, and retain the goods pledged as a collateral security, or he may sell the goods pledged on giving the pawner reasonable notice of the sale. Apparently in the instant case the plaintiff/respondent chose to bring the suit while retaining the pledged goods as collateral security. Admittedly the plaintiff/ respondent did not sell the goods before the institution of the suit, but it was only after the institution of the suit in the Court, that at the request of the appellant the Court ordered the sale of the pledged good through Nazir of the Court."

23. In case of Salim Adamjee (supra) another learned Division Bench of this Court has dealt with the provision of section 176 of the Contract Act and has held as under:--

"Section 176 of the Contract Act is applicable to this case. It is as under:--

"If he pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged on giving the pawnor reasonable notice of the sale.

If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor."

According to this section, the 'pawnee' has a right either to file a suit in case the pawner makes default in payment of debt or sell the things pledged on giving reasonable notice of the sale. It is an admitted position that the respondent No.1 had sent notice to the appellant for the sale of pledged shares as back as September 1998. The respondent No. 1 thereafter, could sell the pledged shares on any date to reimburse themselves by the sale of the pledged shares. The object of the notice is that the pawner, being the owner of the property shall have priority to get back his property by clearing the dues outstanding against him. It is based upon equitable principles. On one hand, it provides fair opportunity to the pawner to get back his property and on the other, it also safeguards the interest of the pawnee. The right of respondent No.1 to sell the pledged shares was absolute and could not be bracketed with the possible rise in price of shares."

24. In the case Messrs Crystal Enterprises and 6 others (supra) a learned Division Bench of Lahore High Court has held as under:

"Under the provisions of the Contract Act, the pledgee bank was entitled either to sell the goods prior to the filing of the suit or to file its suit and to retain the pledged goods as collateral security. It is clear that the bank exercised the second option and it therefore, entitled to retain the imported goods in its custody, as collateral security."

25. From the examination of the above judgments it is clear that it is a right of the pawnee/pledgee either to bring a suit upon the debt or to sale the goods pledged upon giving a reasonable notice of sale. Both these rights are concurrent and they are provided under section 176 of the Contract Act. Under this section the pawnee has right to auction of the debt, notwithstanding, the possession of the goods subject to pawnee's right to redeem the goods upon tender or amount due before the sale.

26. In view of above, it is held that plaintiff-Bank has rightly filed suit in spite of the fact that pledged shares were not sold and were retained by the plaintiff-Bank. The action of the bank is clearly in line with the provisions of section 176 of the Contract Act.

27. Now taking up the next question of learned counsel for the defendants that in the circumstances of the case since sufficient cause has been shown hence defendants are not obliged to follow the procedure of filing leave to defend application under section 10 of Ordinance 2001. He submits that no doubt subsections (4) and (5) of section 10 of Ordinance 2001 have not been complied with in the leave to defend application under disposal but he submits that subsection (6) of section 10 of Ordinance 2001 provides that "unless the defendant discloses therein sufficient cause for his inability to comply with any such requirement". In other words he says that if sufficient cause is given by defendants then subsections (3), (4) and (5) need not to comply with by a defendant while filing a leave to defend application. On Court question what is the sufficient cause for non-complying of section 10 of Ordinance 2001 learned counsel for the defendant replied that since plaintiff-Bank did not act promptly and did not act as a prudent bank and did not sell shares pledged with it which has caused serious financial loss to the defendants is sufficient cause for non-compliance of provisions of section 10 of Ordinance 2001. It is settled law that when a particular procedure has been provided under the statute for doing a particular thing in a particular manner the party invoking such provision of law has to act in accordance with the procedure laid down in the c statute. It is further pointed out that provisions of subsections (3), (4) and (5) of section 10 of Ordinance 2001 are mandatory in nature as in case of non-compliance a penalty has been provided for under subsection (6) of section 10 of Ordinance 2001. On this ground alone the leave to defend application is not maintainable under the law as it does not comply with the requirement of section 10 of Ordinance 2001. In the case of Habib Bank Limited v. Messrs Sabcos (Pvt.) Ltd. 2006 CLD 244, wherein learned single Judge of the Court while dealing with the issue has held as under:

"13. Keeping in view of above principle of law I have examined the application for leave to defend and found that it is in the form of written statement. It contains 9 preliminary legal objections. On further perusal it reveals that the defendant did not specifically state the information or facts required to have been supplied under subsection (4). The learned Advocate for the defendants has frankly conceded that the application does not fulfil the mandatory requirements of subsection (4). However, he has stated that the summary of substantial questions of law as required under subsection (3) has been mentioned but further conceded that the summary of the facts as required under subsection (3) has not been mentioned in the application. Even if we take the 9 preliminary legal objections as substantial questions of law then again the second requirement of subsection (3) has not been complied with the present case. On further perusal it reveals that facts and figures as required under subsection (4) have also not been mentioned nor any explanation has been furnished for non-compliance. The learned Advocate for the defendants has also frankly conceded that provisions of subsection (4) have not been complied with nor the defendants have furnished any explanation in the application for non-compliance of the said provisions. As such, the defendants have disobeyed the directions of law and mandatory provisions as provided under subsection (3) and (4), therefore, their application for leave to defend is liable to be dismissed. Consequently invoking the provisions of subsection (6) I dismiss the said application."

28. Similarly in case of Bank of Khyber 2003 CLD 1406 the learned Single Judge of Lahore High Court while dealing with the point in issue has held as under:

"Upon the examination of the instant leave application, I find that the said defendants failed to give amount of finance availed by the defendants; the amount paid by them; the dates of payments; amount of finance and other amounts relating to the finance payable by the defendants to the financial institutions; the amount of finance and other amounts, which the defendants dispute as payable to the financial institutions, thus, the said defendants have comprehensively failed to adhere to the provisions of section 10(4) of Ordinance of 2001 in the above back drop, now the pivotal question, which has arisen for determination by this Court is as to whether the instant leave application, filed by the said set of defendants, is liable to be rejected summarily. Provisions of section 10(3), (4) and (5) of Ordinance XLVI of 2001, inter alia, provide that the application for leave to defend shall be in the form of a written statement, containing summary of substantial questions of law and facts, and' also giving certain particulars to be furnished by the defendants regarding the finance, i.e. finance availed, amount paid by the defendants etc. and that such an application must be accompanied by all the documents in support of substantial question of law and facts raised by the defendants. If the aforenoted provisions of law are placed in juxtaposition with the contents of the application, filed by the aforementioned set of defendants, the only irresistible conclusions, which can be drawn is that the said defendants did not comply with the aforesaid provisions of law. In the above perspective, I am constrained to hold that the said defendants have comprehensively failed to file leave application, as required under the law, and they have not complied with the requirements of section 19(4) and (5) of Ordinance XLVI of 2001, thus, the defendants failed to file leave application in accordance with the provisions of the said Ordinance.

(7) Section 10(6) of Ordinance XLVI of 2001 provides that an application for the grant of leave, which does not comply with the requirements of subsections (3), (4) and (5) of Section 10 of Ordinance XLVI of 2001, the same shall be rejected, unless the defendants able to show sufficient cause for their inability to comply with any such requirements, in this case, as noted above, the application filed by these defendants does not fulfil the requirements of sections 10(4) and (5) of Ordinance XLVI of 2001. Additionally, they have not been able to show in their application, any cause, what to talk of sufficient cause for their inability to comply with said requirements.

(8) Now the question, which arises is as to whether the provisions of section 10(6) of Ordinance XLVI of 2001 is mandatory or directory. Basic principle for the interpretation of statute is that when a provision of law has been couched with the penal consequences, the said provisions of law would be considered as a mandatory provision of law and where no penal consequences entail to the non-compliance of a provision of law, in that case, the said provision of law would be taken as directory. Having gone through the provisions of section 10(6) of Ordinance XLVI of 2001 as noted above, I am of the considered view that this provision of law is mandatory in nature, as the non-compliance of said provision of law entails the penal consequences of rejection of leave application, as provided in the aforenoted provision of law. In the present case, as the defendants did not comply with the aforenoted provisions of law, therefore, the presumption would be that no application for grant of leave to defend a suit is deemed to be pending and the present application for leave to defend is liable to be rejected per force of section 10(6) of Ordinance XLVI of 2001."

29. An examination of leave to defend application filed by defendants clearly demonstrates that provisions of subsections and (5) of section 10 of the Ordinance, 2001 have not been complied with. Subsection (6) of section 10 of the Ordinance, 2001 provides that if an application for leave to defend which does not comply with the requirement of subsections (3), (4) and is liable to be dismissed. Defendant has failed to show any sufficient cause for their inability to comply with such requirements. On the contrary defendants' counsel has conceded before the Court during his arguments that provisions of subsections (4) and (5) of section 10 of the Ordinance, 2001 have not been complied with. The aforesaid judgments fully apply to the present case and the application filed by the defendant does not fulfil the requirement of section 10 of the Ordinance 2001 hence liable to be dismissed on this ground alone.

30. The other judgments cited by learned counsel for the defendants have no direct bearing upon the case in hand. Even otherwise they are distinguishable on facts and are of no help to the defendants.

31. Now taking up the contention of learned counsel for the plaintiff that availment of facility is admitted, execution of documents is also admitted and it is also admitted that liability of the bank has not been cleared by the defendants. He relied upon the case of National Bank of Pakistan 2007 CLD 1356, wherein learned Single Judge of this Court finally concluded as under:

"As regards the question, whether defendants in Suit No.1445 of 1999 are entitled for leave, the defendants have not denied that financial facilities have been granted by the Bank and or received by them, the execution of document has also not been denied by the defendants, the defendants are therefore not entitled for leave to defend the suit. Suit No.B-02 of 2004 is, therefore, dismissed and Suit No.1445 of 1999, is decreed for the sum of Rs.58,138,577 with cost of funds at the prevailing rate fixed by the State Bank of Pakistan from the date of filing of the suit till realization."

32. The learned counsel for the plaintiff-Bank also relied upon the case of Muhammad Arshad and another 2006 CLD 1011 wherein the honourable Supreme Court of Pakistan while dealing with issue of terms of agreement entered into between the customer and the Bank has held as under:

"We have no hesitation in our mind to hold that agreement dated 26-6-1999 was authentic, genuine and executed between the parties and acted upon. A careful perusal of the agreement dated 26-6-1999 would reveal that mark-up was charged in accordance with the terms and conditions stipulated therein. It is to be noted that in the agreement dated 26-6-1999 it has been stipulated in a categoric manner that the petitioners had also entered into mark-up agreement which was executed on 21-6-1995 and thus, it stood admitted by the petitioners. It would not be out of place to mention here that an amount of Rs.21,05,280 was mentioned as mark-up in the last agreement. It would be too late in the day to challenge its authenticity on the pretext of certain blank columns. The question which arises here at this juncture would be that as to why certain columns were left blank and if it was so done why the incomplete agreement was signed by the petitioners? No answer could be given by the learned Advocate Supreme Court on behalf of the petitioners. In our considered view the plea of "blank columns" would hardly renders any assistance to the case of petitioners. In view of the provisions as contained in section 20 read with section 118 of the Negotiable Instruments Act, 1881 no benefit could be given to the petitioner on the ground that the agreement was not completely filled in when executed as it would have no substantial hearing on the validity of the agreement."

33. Since the defendants have not discharged their obligations as per agreement suit has been rightly filed by the plaintiff. Learned counsel for the defendants has failed to make out any substantial question of law as well as fact in respect of I which any evidence is required to be led.

34. In the circumstances, leave to defend application filed by defendant is dismissed for the aforesaid reasons. Consequently the suit of the plaintiff is decreed as prayed with costs against the defendant along with costs of funds from the date of default till realization.

35. C.M.As. Nos.9265, 8595, 8591, 8593 and 8594, all of 2009, have become infructuous in view of order passed above on C.M.A. No.8592 of 2009.

M.H./K-38/K Suit decree