BASHIR ENGINEERING INDUSTRIES Versus MUSLIM COMMERCIAL BANK LTD , Ch. Muhammad Hasin

ABAID ULLAH KHAN, J.‑‑ The facts relevant for the purpose of disposal of this appeal against the judgment of the learned Special Judge (Banking), Lahore, dated the 3rd December, 1983, declining to grant leave tp the appellants and respondent 5 to defend respondent 1's suit for recovery of Rs.1,44,265 and in consequence thereof decreeing the suit,' may be shortly stated. Messrs Bashir Engineering Industries Limited, Lahore appellant 1, is a private limited company whose directors appellants 2, 3 and 4 are. Salah‑ud‑Din, respondent 2, was an, attorney of the appellants. On the appellants' request the Muslim Commercial Bank Limited, Badami Bagh Branch, Lahore, respondent 1, opened on the 28th March, 1979, a confirmed irrevocable, without recourse, credit in favour of Messrs Jehangir Electric Works of Dubai to the extent of U.S. $ 30,000, equivalent to Rs.3,00,000, at 25 per cent margin, available for drafts at sight, for the import of iron and steel scrap. The appellants are stated to have undertaken to pay interest and other charges. Letter of credit's dates were extended from time to time and it was transferred to various other pet‑sons. As alleged by respondent 1, the appellants failed to pay the bills and retire shipping documents when asked to do so and consequently it per force sent shipping documents to its clearing, forwarding and shipping agents for clearance and thereafter forwarding of the imported goods to it at Lahore. The clearing agents informed that neither the whereabouts' of the ship nor its agent at Karachi were available or traceable. According to respondent 1 on a reference the appellants revealed that the goods had not been shipped at all and the amount relating to the letter of credit was received and drawn by the exporters, Messrs Yousaf Abdullah Mirza on presentation of forged and fraudulent documents. Respondent 1 maintained that it had sent the appellants a notice on the 3rd September, 1980, calling upon them to pay the amount due and vide their letter of the 10th September, 1980, they had promised to liquidate their all liabilities. As respondent 1 did not receive any payment it initiated legal action for realising the amount of loan.

2. In their application under Order XXXVII, Rule 3 of the Code of Civil Procedure seeking leave to appear and defend the suit, the appellants stated that against the receipt of first instalment of scrap weighing about 150 metric tonnes and valued at U.S. $15,000 payment had been made to respondent 1. They blamed respondent 1 for illegally releasing payment of the rest of the amount of letter of credit though the relevant documents, according to its own showing, were forged and fraudulent. They explained that respondent 1's representative and agent, the Middle East Bank, had acted illegally and unlawfully in making payment to the supplier on incomplete, forged and bogus documents and that respondent 1 and its agent had failed to act with due care and diligence in clearing the documents on incomplete and forged letters. Their case was that the payment had been made to the suppliers without actual shipment of the goods and without insisting upon the proof and evidence with regard to the said shipment having been made and even the custom manifest had not been secured before releasing the payment. In the circumstances they denied their liability to pay the amount in dispute, rather they asserted their entitlement to the refund of the margin amount from respondent 1. According to them serious questions of law and fact arose out of the dispute between .the parties and, therefore, they deserved to be granted leave to appear and defend the suit.

3. Respondent 2, who was just an attorney of the appellants, prayed for grant of leave to defend the suit because he had not received any consignment. He threw the blame upon respondent 1 for releasing payment on the basis of forged and fraudlent documents.

4. The learned trial Judge heavily banked upon the contents of the reply which the appellants gave vide their letter of the 10th September, 1980; to respondent 1's notice of the 3rd September, 1980, to draw inference that 'the defendants (appellants and respondent 5) were in full knowledge the material having not been issued and the payment having been procured by the party at UAE on false and wrong documents' and that 'they took the full responsibility of what had happened and assured that it would not happen in future and that they would be settling the account with the bank (respondent 1) very soon'. He thought that 'in view of this written assurance and acknowledgment there was no force in the assertion of the appellants that the bank (respondent 1) was at fault in paying to the party in UAE without proper investigation of proper documents'. Therefore, he 'did not find any reason to grant permission to the appellants to contest the suit' and consequently decreed the suit.

5. The learned counsel for the appellants had contended that the fact of the goods having not been shipped being not in dispute it remained to be seen whether and how far respondent 1 was responsible for the release of the amount of letter of credit on the basis of fake and fraudulent documents and this was a substantial question of law and fact which needed adjudication after proper investigation and, therefore, leave to defend the suit ought to have been granted to the defendants‑appellants. The learned counsel questioned the legality and propriety of the learned trial Judge's action of formulating his own conclusions from the contents of the photostat copy of the appellants' letter which had yet to be proved.

6. The well‑settled law touching grant of leave to the defendant to appear and defend the suit as reiterated by the Supreme Court of Pakistan in Fine Textile Mills Limited v. Haji Umar PLD 1963 SC 163, may be succinctly stated: Where the defendant discloses upon his affidavits facts which may constitute a plausible defence or even show that there is some substantial question of fact or law which needs to be tried or investigated into, then he is entitled to leave to defend. The learned counsel for the contesting respondent 1 could not controvert that the appellants' application and affidavit did disclose that there were substantial question of law and fact which required to be tried and investigated into. In such a situation leave to appear and defend the suit ought to have been granted to the defendants. The decision of the learned trial Judge to the contrary cannot be endorsed. The appeal is accepted, the impugned judgment and decree are set aside, the defendants (appellants and respondent 2) are given leave to appear and defend the suit and the suit is remanded to the learned trial Judge for deciding‑afresh according to law. As the suit was instituted as for back as on the 15th December, 1981, the learned trial Jude will do well to dispose it of within six months. The parties are left to bear their own costs.

M.Y.H./B‑41/L Appeal accepted