AHMAD SAEED KIRMANI Versus MUSLIM COMMERCIAL BANK LTD., ISLAMABAD

1. SALEEM AKHTAR, J. ‑‑‑The appellant has challenged the judgment and decree passed by the learned Judge in Chamber in the sum of Rs.3,55,210.37 and rejecting the claim of equitable set‑off in the sum of Rs.9,38,800 which was granted by the learned trial Court.

2. The respondent filed a suit against the appellant for recovery of Rs.6,51,403.37 in the Court of Special Judge, Banking Lahore. It was alleged that the appellant had opened an account with the plaintiff‑Bank and applied for house building loan. A total amount of Rs.4,50,000 was advanced and the appellant executed security documents including mortgage deed of the plot of land on which house was to be constructed. It was alleged the appellant certified the statement of loan account which showed debt balance of Rs.6,51,403.37 inclusive of interest charged at the rate of 14% per annum. The appellant applied for leave to appear and defend the suit on the plea that the entire loan had not been advanced and the respondent is not entitled to claim interest. The appellant also pleaded that interest was waived and no penal interest can be charged. After the leave was granted, the appellant filed written statement in which besides objections raised in the application for leave to appeal it was further stated that due to respondent's failure to advance the entire loan, the house could not be completed. He had to keep a Chowkidar and had to suffer expenses to the extent of Rs.24,000. It was further pleaded that the respondent has violated the terms of agreement and was liable to pay damages. In the end, while praying that the suit be dismissed it was further prayed that the appellant be awarded compensation for damages caused to him due to violation of the agreement by the respondent. The learned Trial Judge framed several issues. After recording evidence of the parties Issue No.3‑B was framed. Only Issues Nos. 1, 2, 3, 3‑A and 3‑B are reproduced as under:‑‑

3. "(1) What was the contracted total amount of loan? OPP.

(2) Whether the total contracted loan amount was delivered to the defendant? OPP

(3) If Issue No.2 is in the negative what is its effect? OPP

4. (3‑A) If Issue No.2 is in the negative whether the bank can charge the interest on the amount advanced to the defendant? OPP

5. (3‑B) If Issue No.2 is in the negative whether the defendant can claim compensation and to what extent? OPP

6. The learned trial Court under Issue No.2 held that the respondent did not disburse the loan to the extent of Rs.1,06,000 and the full amount of contracted loan was not paid by the Bank. So far Issues Nos.3 and 3‑A are concerned the following observation was made:

7. "It was obvious that the building could only be completed when the plaintiff Bank provided the full loan amount for the purpose to the defendant under the terms and conditions of the contract. But the bank has admittedly not done so and it has withheld Rs.106,000. If we leave out the 3rd amount of Rs.84,000 as discussed in Issue No.2. This withholding of substantial amount made it impossible for the defendant to complete the building and rent it out to the Egyptian Embassy. His contract to the Egyptian Embassy has failed for non -completion of the building and he could not procure the rent from the Embassy at the rate of Rs.14,000 per month what to talk of advance rent as deposed by the defendant. This failure of the defendant was due to the action of the plaintiff Bank. So, the plaintiff Bank cannot enforce the corresponding obligations under the contract against the defendant. The effect of this failure of the plaintiff Bank was that it cannot now charge any interest on the amount actually advanced to the defendant. Both the issues, therefore, are decided accordingly."

8. The learned trial Court while awarding compensation in the sum of Rs.9,38,800 observed as follows:

9. "If we assume that the reasonable time for the construction of the building capable and befitting of occupation by the Embassy of a foreign, sovereign, independent country like Egypt would be one year then it would be fetching rent in January, 1978, at the rate of Rs.14,000 per month (this rate has not been rebutted or controverted by the plaintiff) then the total benefit which the defendant would have got would be Rs.9,10,000. In this way the total bare amount which the defendant would be entitled to on the basis of mathematical calculation pertaining to the rent and expenses for Chowkidar would be Rs.9,38,800. The amount would be far higher if we took into consideration the mental torture, physical inconvenience and moral misery of not keeping the contract of renting out the building to a sovereign country like Egypt where the defendant himself had been the Ambassador at that time. However, I do not assess compensation on that score as the defendant himself has not brought sufficient material on the record to enable me to do so. The two issues, therefore are decided that defendant is entitled to compensation for the breach of the contract on the part of the plaintiff Bank. The amount of compensation on bare calculation was and is Rs.9,38,800."

10. In appeal, the learned Judge in Chamber of the Lahore High Court observed that the appellant had not pleaded specifically the claim of damages and in the absence of any pleading such damages could not have been allowed. It was further observed that:

11. "The decision of the learned Trial Court, therefore, based on the alleged loss on account of non‑recovery of rent of the premises by the defendant regarding question of damages, which the house could fetch had it been completed and rented out to Egyptian Embassy was not permissible under the law as it was neither pleaded and the only relief claimed was that the bank was not entitled to recover the interest. The learned trial Court also failed to appreciate that there was no evidence on the record that the contracted amount of loan was the total and maximum estimated cost of construction of the house and the house would in all circumstances have been completed with the said amount. There is also no covenant between the parties though the facility of loan was given to the defendant for construction of the house, that it was understood between the parties that the house would be completed with the said amount and no further money was required. Even otherwise since the defendant was claiming equitable set‑off, a relief in equity, therefore, before he could claim that relief it was incumbent upon him to have proved on record that he did take all possible steps to avoid the loss by raising funds from other sources to complete the house."

12. In the' final .analysis, the learned Judge decreed the suit in the sum of Rs.3,55,710.37.

13. Mr. Raja Abdul Razzaque, the learned counsel for the appellant contended that the plaintiff was entitled to equitable set‑off which was duly pleaded in the written statement. The pleading of the appellant is sufficiently vague and unspecific. It is true that a party claiming set‑off against a plaintiff must have a claim of money legally recoverable by him not exceeding the pecuniary jurisdiction of the Court and both parties fill in the same character as they filled in the plaintiff's suit. It was observed in Naimat Ali v. Jairam Dass PLD 1983 SC 5 that:

14. "Thus a plea of legal set‑off, in its essential character is a defence and a counter‑claim combined, defence to the extent of the plaintiffs claim and a claim by the defendant in the suit itself for the balance. This rule read with Order XX, rule 19, C.P.C., permits what is in essence a counter‑claim of a specific kind, namely, where it is for an ascertained amount exceeding the plaintiffs claim in his suit for recovery of money. The doctrine of equitable set‑off even in respect of an unascertained sum of money is based on the principle that if there be some connection between the plaintiffs claim for a debt and the defendant's claim to set‑off, it will be inequitable to drive the defendant to a separate suit. Instances of such equitable set‑off are when the claims of the two parties arise out of the same transaction or transactions which can be regarded as one transaction or the cross demands are so connected in their nature and circumstances that they can be looked upon as part of one transaction."

15. On the basis of this principle claim for an equitable set‑off for an uncertained amount is maintainable. Where a party claims a set‑off he has to comply with the rules of pleading contained in the Code of Civil Procedure. By claiming set‑off in an amount which exceeds the claim of the plaintiff, the defendant in effect pleads to write off the plaintiffs claim and claims a decree for the balance amount. It is therefore in the nature of written statement as well as a plaint/counter‑claim for purposes of claiming the balance amount. Therefore, the rules of pleading should be followed in all cases including cases where damages are claimed. The claimant must state the particulars and basis of the claim and if it is quantified the basis of such quantification as well. It would not be a proper pleading in such cases to merely state that due to breach committed by the defendant the claimant is entitled to damages.

16. In the present case on analysis and close scrutiny of the pleadings and evidence it is clear that the appellant had been vague and unspecific so far his claim for damages is concerned. In the pleading, first it was stated that due to failure to advance the entire amount of loan the respondent is not entitled to claim interest and further that the appellant had to suffer Rs.24,000 towards charges for the Chowkidar. Faced with this situation the learned counsel for the appellant contended that as specific issue has been framed and parties have led evidence without any objection this discrepancy cannot be taken into consideration for rejecting the appellant's claim. The learned counsel referred to Domsalla and another v. Barr (Trading as A.B. Construction) and others (1969) 3 All E.R. where it was observed that if evidence is led by plaintiff at trial to which the defendant could have objected because facts were not pleaded but evidence was allowed to be recorded without any objection the issue must be decided on that basis.

17. Accepting this principle as a rule of justice if we apply it to the appellant's case we find that from the evidence hardly the damages have been proved. The learned Judge in Chamber has correctly analysed the evidence of the parties particularly that of the appellant. There is nothing on record except the words of the appellant. If the Egyptian Embassy had entered into an agreement it ought to have been in writing or in the form of letters exchanged between the parties. Furthermore, the claim for rent at the rate of Rs.14,000 per month suffers from the same defect and there is not a single witness to prove from which date the house was to be rented out. The appellant could have examined any official of the Egyptian Embassy but no attempt was made in this direction.

18. The appellant had first obtained a loan of rupees two lacs fifty thousand under the first mortgage but thereafter a second mortgage was executed as a security for a further loan of rupees two lacs. In the first mortgage it was provided that the appellant shall initially invest rupees one lac in the construction of the house and thereafter the loan shall be utilized. The appellant has not proved that he had invested one lac in the construction of the house. According to the appellant Rs.4,50,000 was necessary for completion of the work but neither any plan of the house nor any evidence of the architect or contractor, if any, was produced to prove which part of the house remained incomplete for lack of funds.

19. A party claiming damages suffered due to breach of contract must establish the contract, the breach thereof and the extent of damages.. The onus is on the plaintiff and without discharging it he cannot succeed. Section 73 of the Contract Act prescribes the rule for assessing the damages suffered due to breach of contract. Only such damages can be recovered which naturally arise in the usual course of things from such breach or the parties at the time of making the contract knew that loss or damage in likely to result from the breach. Another principle which is to be kept in mind while assessing damages is that whether the plaintiff was in a position to mitigate the damages and has neglected to avail of it. As discussed above the appellant has failed to prove the agreement with the Egyptian Embassy, the rate of rent and the date of occupation. The appellant as stated by him is a man of status and resources but he has not proved what steps he had taken to mitigate the damages. It was contended and held by the learned trial Court that as the Bank failed to pay the entire loan, the appellant could not be compelled to repay the loan received by him. In the facts of the case such an observation cannot be justified by any principle of law. A party can be relieved of his obligation under a contract where there are covenants which are conditional and the performance of one is dependent on the performance of the other. There is no such conditional or reciprocal promise between the appellant and the respondent. In view of the above discussion the appeal is dismissed with no order as to costs.

20. A.A./A‑976/S Appeal dismissed.