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Suit No. 519 and Civil Miscellaneous Applications Nos. 4397 and 4398 of 1984, decided on 18th November, 1986.

‑‑‑S. 2‑‑Civil Procedure Code (V of 1908), O.XXXVII, R.3‑‑Suit for recovery of Bank loan‑‑Leave to appear and defend suit, grant of‑ Defendant's case that Bank acted recklessly in granting heavy loan‑‑Bank making advances in regular course of business in good faith for purpose of export and import against hypothecation of goods and deposit of title deeds of immovable property‑‑There being no rejoinder to such plea of Bank, were assertion by defendants that Bank had acted recklessly while granting loan, held, would not help defendants for granting leave especially in absence of plea of fraud.

‑‑‑S. 2‑‑Civil Procedure Code (V of 1908), O.XXXVII, R.3‑‑Suit for recovery of Bank loan‑‑Leave to appear and defend suit, grant of‑ Doctrine of indoor management, connotation of‑‑Plaintiffs) as per doctrine of indoor management, held, would not be obliged to make enquiry about the genuineness and validity of resolution where a certified true copy of same was filed with Bank by defendant for requisition of loan.

Pakistan Employees Co‑operative Housing Society Limited v . Mst. Anwar Sultana and others P L D 1969 Kar. 474 rel.

‑‑‑S. 2‑‑Negotiable Instruments Act (XXVI of 1881),. Ss.118 & 20‑ Contract Act (IX of 1872), Ss.124 to 147‑‑Suit for recovery of Bank loan‑‑Blank document of guarantee in respect of name of borrower, amount for which it purported as surety for, and date of its signing‑ Effect‑‑Agreement of guarantee, held, would be governed by provisions relating to guarantee as embodied in Contract Act, 1872 and not to Negotiable Instruments Act, 1881‑‑Such letter of guarantee having been signed for the party seeking loan even if a wrong date as to its execution was mentioned therein, would be effective unless same attracted Limitation Act, 1908, which plea had not been taken by defendants‑ Filling in the blank in letter of guarantee relating to amount of loan, advance or overdraft would be deemed to be understood being expressly written in letter of guarantee that said guarantors had, in fact guranteed for the repayment of all monies which would be due from debtor‑‑Where amount was not denied by debtor, filling up amount in the blank would go in favour of defendants being the fixed limit of liability under letter of guarantee.

Abdul Karim Jaffarani v. United Bank Ltd. and 2 others 1984 SCMR 568; Messrs Mechalec Engineers and Manufacturers v. Messrs Basin Equipment Corporation A I R 1977 S C 577; Sm. Kiranmovee Dassi v. Dr. J. Chatterjee (1945) 49 Cal. WN 246; Fine Textile Mills Limited Karachi v. Haji Omar P L D 1963 SC 163; Joshuna B. Powers Incorporated v. Express Newspapers Ltd. and another A I R 1952 Mad. 17; Santosh Kumar v. Bhai Mool Singh A I R 1958 SC (Ind.) 321; Haji Karim and another v . Zikar Abdullah 1973 S C M R 100; United Dominions Trust Ltd. v. Wertern 1976 W L R 64; Messrs Atlas Travels Ltd. v. National Commercial Bank Ltd. and another 1981 CLC 880 and 'Hari Kant Jha v. Nathu Choudhury and another A I R 1941 Pat. 504 ref.

‑‑Concensus ad idem, doctrine of‑‑For construing a document contracting parties would be deemed to be consensus ad idem with regard to essential terms of contract‑‑Court while construing a document would be required to analyseu it objectively so as to find implied intention, of fact of contracting parties, if circumstances of case so required.

‑‑‑S. 2‑‑Civil Procedure Code (V of 1908), O.XXXVII, R.3‑‑Suit for recovery of Bank loan‑‑Leave to appear and defend suit, grant of‑ Defendant, held, would be entitled to unconditional leave to appear and defend the had good defence or could raise a triable issue or disclosed such facts as would be deemed to be sufficient to entitle him to defend‑‑In absence of real defence, no leave would be granted ordinarily, but Court could grant conditional leave if circumstances so warranted‑‑Defendants having failed to make out a plausible defence would not be entitled to unconditional leave‑‑Where however, matter involved adjustment of amount of price recovered by sale of hypothecated goods and godown charges, defendants were allowed to appear and defend suit on furnishing specified security in Court.

Messrs United Bank Ltd. v. President, Bazm‑e‑Salat and another P L D 1986 Kar. 464; Lord Denning's 'The Discipline of Law', London, 1979 and Reardon Smith Ltd. v. Yngvar Hansen Tangen (trading as H.E. Hansen‑Tangen), The (Diana Prosperity) (1976) 1 S L R 989, 996 ref .

‑‑‑S. 2‑‑Civil Procedure Code (V of 1908), O.XXXVII, Rr.2 g 3‑ Recovery of Bank loan, suit for‑‑Petition for leave to appear and defend‑‑Leave granted on condition of furnishing security equal to current balance as per statement of Bank‑‑Question of adjustment of amount being difference of the value of goods hypothecated with the Bank and price fetched on its sale by the Bank was considered by the Court for the purpose of reducing amount of security but adjustment not given because of the interest factor involved which was being accumulated on the sum due and more than counter‑balanced the adjustment claimed.

Habibur Rahman for Plaintiffs.

Muhammad Ali Sayeed for Defendants.

Dates of hearing: 7th, 16th October and 17th November, 1986.

These are two applications bearing No. Civil Miscellaneous Application No. 4398 of 1984 filed by defendant No.3, and Civil Miscellaneous Application No. 4397 of 1984 filed by defendant No. 5 under Order XXXVII, Rule 3, C.P.C. for leave to appear and defend the suit. They are taken up together as the pleas advanced by the counsel for the parties are common.

2. The applications arise out of the above suit for recovery of Rs.75,36,795.76 under the provisions of the Banking Companies (Recovery of Loans) Ordinance, 1979 read with Order XXXIV, C.P.C.

3. The plaintiffs, as alleged, are a limited company incorporated outside Pakistan in Dubai, U.A.E. and transacting business in Pakistan also, having their local branch in Karachi. Defendant No.l are a private limited company mainly engaged in the business of import and export. Defendant No.3 is stated to be the Director/ Guarantor of defendant No.l Company whereas defendant No.5 is the guarantor in his personal capacity. Defendant No.2 is the Managing Director of defendant No.l Company and also the son‑in‑law of defendants Nos. 4 and 5. Defendant No.3 is the son and defendant No. 4 is the wife of defendant No.5. Defendants Nos. 3 and 4 are also shareholders and Directors of the defendant‑Company. Defendant No.1 had and still have a current account with the plaintiffs being Account No. 1809, having opened the same on 30‑4‑1980. The defendant‑Company also operated a cash Credit Account bearing No. CC‑3. The defendants, as alleged, approached the plaintiffs for various loan facilities in the name of the defendant‑Company. Initially the defendant No.1 Company enjoyed in 1980‑81 from the plaintiff‑Bank LAFB (Loan Against Foreign Bills) limit of Rs.10 lacs, and LAPC (Loan Against Packing Credit) limit of Rs.25 lacs totalling to Rs.35 lacs. The above‑said loan limits were enhanced to Rs.67 lacs, as sanctioned by the plaintiffs on 9‑4‑1981. For failure to repay the loans by the defendants the plaintiffs have filed the above suit on 23‑8‑1984 after notice to them on 28‑6‑1984 for recovery of Rs.75,36,795.76.

4. Mr. Muhammad Ali Sayeed, learned counsel for the said defendants, in support of the applications for leave to defend submitted, in the first instance, that the plaintiff‑bank acted recklessly in granting loan/overdraft facility to the company to the limit of Rs.50 lacs whereas the company had a paid‑up capital of Rs.2 lacs only. He also challenged the resolution, dated 4‑7‑1981 passed by the Board of Directors in the meeting held at Karachi as, according to him, no meeting of the Board of Directors was held on the said date or could have been validly held with only one director present in Karachi. He further submitted that the Articles and Memorandum of Association of defendant No.l did not confer power on the defendant No.l to obtain loan or to secure the same.

5. The submission that the bank acted recklessly does not help the defendants, the facts and circumstances of the case, for granting leave and more so in the absence of a plea of fraud. It may be stated that although a plea of collusion has been taken in the application but no particulars are mentioned therein. In any case, the allegation of conclusion does not call for any consideration by me for the reason that it was not at all urged before me. The plaintiff‑Bank appears to have made advances in the regular course of business in good faith for the purposes of export and import against hypothecation of goods and deposit of title deeds of immovable property, as alleged in para. 11 of their counter‑affidavit to the application filed by defendant No.3 to which there is no rejoinder.

6. Regarding the resolution too, the submission has no force, as according to the Doctrine of Indoor Management, the plaintiff was not obliged to make an enquiry whether the meeting had actually been held and if so was it legal or not, after a certified true copy of the resolution is filed with the plaintiff by the defendant No.2. If an authority is needed, the same may be found in the case reported as Pakistan Employees Co‑operative Housing Society Limited v. Mst. Anwar Sultana and others P L D 1969 Kar. 474.

7. As regards the absence of power of the company, after the learned counsel for the plaintiff referred to Article 21 of the Articles and Memorandum of Association of defendant No.l, learned counsel did not press the point.

8. Mr. Muhammad Ali Sayeed then submitted that defendants Nos. 3 and 5 reside permanently in Dubai. In early or middle of 1980 defendant No.3 put his signatures on the three printed documents including a letter of guarantee. Defendant No. 5 also signed a letter of guarantee. But at the time when these documents were signed they were blank in respect of the name of the borrower company and the amount for which they are alleged to have guaranteed. The documents did not bear any date. These documents viz. Letter of Guarantee, Letter of Agreement and Packing Credit Letter have now been shown C to have been signed on 4th July, 1981, 15‑12‑1983 and 7‑12‑1983 respectively. It was submitted that on all these dates the defendants were not in Pakistan. This fact by itself, as submitted by the learned counsel, constitutes a valid defence. Reliance was placed by him on a decision of the Hon'ble Supreme Court, reported as Abdul Karim Jaffarani v. United Bank Ltd. and‑ 2 others 1984 S C M R 568. Particular reference was made to the following observations:‑

"There is distinction in law between 'execution' of a document and the admission of the signature appearing on a document. The word 'execution' means that the party by affixing his signature or mark has signified his assent to the contents of the document and if a party admits that he has done this, then he admits execution."

9. Mr. Muhammad Ali Sayeed in further support of his application relied on a case Messrs Mechalec Engineers and Manufacturers v . Messrs Basin Equipment Corporation A I R 1977 S C 577 wherein following principles were enunciated by the Indian Supreme Court to be followed while considering the question of granting leave to defend:‑

"(a) If the defendant satisfies the Court that he has a good defence to the claim on its merits the plaintiff is not entitled to leave to sign judgment and the defendant is entitled to unconditional leave to defend.

(b) If the defendant raises a triable issue indicating that he has a fair or bona fide or reasonable defence although not a positively good defence the plaintiff, is not entitled to sign judgment and the defendant is entitled to unconditional leave to defend.

(c) If the defendant discloses such facts as may be deemed sufficient to entitle him to defend, that is to say, although the affidavit does not positively and immediately make it clear that he has a defence, yet, shows such a state of facts as leads to the inference that at the trial of the action he may be able to establish a defence to the plaintiff's claim the plaintiff is not entitled to leave to defend but in such a case the Court may in its discretion impose conditions as to the time or mode of trial but not as to payment into Court or furnishing security.

(d) If the defendant has no defence or the defence set up is illusory or sham or practically moonshine then ordinarily the plaintiff is entitled to leave to sign judgment and the defendant is not entitled to leave to defend.

(e) If the defendant has no defence or the defence is illusory or sham or practically moonshine then although ordinarily the plaintiff is entitled to leave to sign judgment, the Court may protect the plaintiff by only allowing the defence to proceed if the amount claimed is paid into Court or otherwise secured and give leave to the defendant on such condition, and thereby show mercy to the defendant by enabling him to try to prove a defence."

For the above principles, the case report as Sm. Kiranmovee Dassi v. Dr. J. Chatterjee (1945) 49 C WN 246 at p. 253, was relied on. With due respect, I feet inclined to quote the following observations of our own Supreme Court made in Fine Textile Mills Limited Karachi v. Haji Omar P L D 1963 SC 163 which read as under:‑

"In a suit of this nature 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. What is more is that even if the defence set up be vague or unsatisfactory or there be a doubt as to its genuineness, leave should not be refused altogether but the defendant should be put on terms either to furnish security or to deposit .the amount claimed in Court."

It was further observed:‑

.where the allegations are not merely illusory leave to defend should be granted."

10. Reliance was also placed on the cases of Joshuna B. Powers Incorporated v. Express Newspapers Ltd. and another A I R 1952 Mad. 17 and Santosh Kumar v. Bhai Moot Singh A I R 1958 S C (Ind.) 321. In the Madras case it was observed that:‑

"It is not the province of the Court hearing an application for leave to defend to examine the defence, if there is one, and find out the truth or otherwise of the defence, but only to consider whether there is a real defence to the suit, and if it is satisfied that the defence is not imaginary, speculative or fanciful, but real and bona fide, there is no other course open to it except to grant leave to defend.

In the Supreme Court case it was observed that:‑

" .. though the Court is given a discretion it must be exercised along judicial lines, and that in turn means, in consonance with the principles of natural justice that form the foundation of our laws .

... ..Taken by and large, the object is to see that the defendant does not unnecessarily prolong the litigation and prevent the plaintiff from obtaining an early decree by raising untenable and frivolous defences in a class of cases where speedy decisions are desirable in the interests of trade and commerce. In general, therefore, the test is to see whether the defence raises a real issue and not sham one, in the sense that, if the facts alleged by the defendant are established, there would be a good, or even a plausible, defence on those facts."

11. On the other hand, Mr. Habibur Rehman, learned counsel for the plaintiff relied upon the case of Haji Karim and another v. Zikar Abdullah 1973 S C M R 100 for the proposition that initial presumption arises under section 118 of the Negotiable Instruments Act (XXVI of 1881) being made, drawn, accepted or endorsed for consideration. Presumption can, however be rebutted by the person denying consideration and it is in the circumstance the Court will be justified in granting conditional leave to the defendant.

To meet the objection taken by Mr. Muhammad Ali Sayeed that the agreement at the time of putting signature by defendants Nos. 3 and 5 was blank, Mr. Habibur Rehman placed his reliance on a case reported as United Dominions Trust Ltd. v. Wertern 1976 W L R 64. In this case, on the plaintiffs claim for L.750, the learned trial Judge held that if a person signed in blank an agreement which he knew would be completed by some other person it was not open to the signatory to say that he did not consent to whatever figures the completed document contained and he accordingly gave judgment for the plaintiffs. On appeal by the defendant it was held, dismissing the appeal, that for the purposes of the doctrine of non east factum, to distinguish between the careless signing of a completed document and a document in blank was neither right on the authorities nor acceptable to common sense. It was further held that the transaction which the document purported to effect was not essentially different in substance or in kind from the transaction intended and, therefore, could not be considered void, and that the element of consent to it by the defendant was not totally lacking and that, accordingly, the Judge had reached the right decision for the right reasons.

12. Mr. Habibur Rahman also placed his reliance on the cases reported as Messrs Atlas Travels Ltd. v. National Commercial Bank Ltd. and another 1981 C L C 880 (D.B.) and Hari Kant Jha v. Nathu Choudhury and another A I R 1941 Pat. 504, which, apparently, relate to completion of inchoate Negotiable Instruments and thus distinguishable from the facts of the present case.

13. In the matter before me, I am concerned with a letter or agreement) of guarantee (not a promissory note, which is blank in respect of (i)' the name of the borrower for whom and (ii) the amount for which it purported to stand as surety for and (iii) the date of its signing. There is, however, no dispute about rest of its contents including the conditions stated therein, as they were in printed form at the time of signing it. However, the provisions of section 118 and section 20 of the Negotiable Instruments Act, 1881, as to the presumptions and inchoate documents will not be applicable to the case before me as they pertain to negotiable instruments and not to an agreement for guarantee, which is certainly non‑negotiable. The agreement of guarantee is to be governed by the provisions relating to guarantee as embodied in sections 124 to 147 of the Contract Act, 1872, and not the Negotiable Instruments Act, 1881.

14. As regards the nature of the agreement, there is no denial that it was signed for consideration in relation to the grant of loan/overdraft facility to defendant No.l through defendant No.2. There is no allegation that no loan or overdraft facility was granted to defendant No.l. In fact, no such plea was taken up before me by the learned counsel for the defendants.

15. As regards the filing in the name of defendant No.1 by the plaintiff, in the said letter of guarantee, it has no force too, for, it is L not claimed by the defendants that the letter of guarantee signed by them was meant for a party other than defendant No.l. Admittedly, the defendants stand in near relationship with defendant No.2, for whom their desire to establish him in business is on record.

16. As regards the submission of Mr. Muhammad Ali Sayeed that on all the three dates, namely, 4‑7‑1981, 15‑12‑1982 and 7‑12‑1983, which appear on the letters of guarantee, letter of agreement and packing credit letter respectively, the defendants Nos. 3 and 5 were out of Pakistan and these documents, according to him, were all signed in the middle of 1980. Assuming, for the sake of argument, that the letter off guarantee or the other two letters bear a wrong date as to their execution, I fail to understand, what difference would it make if the said documents are taken to be executed in the middle of 1980, unless F it attracts the law of limitation. But the learned counsel did not agitate any point as to the claim against defendants being time‑barred. It is not denied that these documents were actually signed by the defendants who delivered the same to the plaintiff. The defendants have not challenged the consideration.

17. As to the filling up of the amount unilaterally by the plaintiff, at the place left blank at the time of signing of the said document, it will, perhaps, also make little difference. If one looks into the contents of the letter of guarantee it says "In consideration of your making or continuing advances or otherwise giving credit or accommodation to ...... I/We (the signatories to the letters of guarantee) agree that the guarantee shall be a continuing security binding on me/us until receipt by you (the Bank) of written notice of discontinuance thereof.." Guarantee was meant for "due repayment of all monies which shall at any time be due to the bank from the Principal (defendant No.l company)". Therefore, filling in the blank in the letter of guarantee so far as the amount of loan/advance or overdraft facility is concerned, was already understood as it was expressly written in the letter of guarantee that the said defendants had, in fact, guaranteed for the repayment of all monies which shall at any time be due from defendant No.l. Defendant No.l have not denied that the amounts were advanced by the plaintiff to the defendant No.l. The filling up of the amount in the blank, to my mind, goes in favour of the defendants as it fixes the limit of liability under the letter of guarantee. Suppose, the amount is not filled in by the bank and the suit is filed and the letter of guarantee duly signed by the defendants leaving the amount unstated, is produced in Court, what its effect would be. It would, perhaps, be taken to be a guarantee for an unlimited amount and still continuing guarantee in respect of the amounts of loans/advances given to defendant No.l. For construing a document it is now an established rule that the contracting parties are concensus ad idem with regard to essential terms of the contract. A perusal of the letter of guarantee will show that there is no vagueness or uncertainty as to the terms of the contract of guarantee where under accepting the liability while signing the printed form by the defendants, as guarantors, which seems to be valid and enforceable in law.

18. A Court while construing a document is to analyse it objectively so as to find implied intention, in fact, of the contracting parties, if the circumstances of the case so require. To what commercial object or purpose, the intention or understanding between the parties can be attributed, when the defendants sign a printed letter of guarantee, leaving the space, as blank, for writing an amount, as to its limit. To my mind, the only logical conclusion would be that it was to be filled in by the plaintiff as the nature of letter of guarantee was a continuing) one, and no amount, unless agreed otherwise on signing the letter of guarantee, could be mentioned therein. It, therefore, appears that the object of signing the letter of guarantee, without specifying the exact amount, was to give to the transaction such afficacy as the guarantors intended for the principal borrower. It is noticeable that defendants did not make any allegation in their affidavits that they had agreed' with the plaintiff for a lesser amount than it is mentioned in the aforesaid letter of guarantee.

19. There is a difference between signing a blank paper and signing a printed document, with certain spaces left blank, as in the instant) case. The said defendants were in the full know of the fact that the; plaintiff Bank was going to fill in the date and amount in the said letter of agreement. It amounts to agreeing to or impliedly authorising the plaintiff to fill in the date and the amount at a later point of time. The irresistable conclusion, therefore, seems that the defendants have taken upon themselves the liability under the letter of guarantee to repay the amount advanced to defendant No.l.

20. In his attempt to distinguish the judgment in the Dominions' case and the most recent judgment of my learned brother, Saleem Akhtar, J., in Messrs United Bank Ltd. v. President Bazm‑e‑Salat and another P L D 1986 Kar. 464, pointed out by me during the arguments, Mr. Muhammad Ali Sayeed submitted that these judgments were pronounced at the stage of final hearing. He, therefore, contended that the intention of the guarantors or the understanding of the parties can only be established after evidence is led by the parties or at least the defendants. On this point, I think it will be advantageous if I reproduce a passage from Lord Denning's 'The Discipline of Law', London, 1979, on 'The Construction of Contracts', page 46, quoting the observation in Reardon Smith Line Ltd. v. Yngvar Hansen‑Tangen (trading as H.E. Hansen Tangen), (The Diana Prosperity) (1973) 1 S L R 989, 996:‑

"When one speaks of the intention of the parties to the contract, one is speaking objectively‑‑the parties cannot themselves give direct evidence of what their intention was‑‑and what must be ascertained is what is to be taken as the intention which reasonable people would have and if placed in the situation of the parties. Similarly when one is speaking of aim, or object, or commercial purpose one is speaking objectively of what reasonable person would have in mind in the situation of the parties. "

21. Now, reverting to the principles for grant of leave, a defendant' is entitled to an unconditional leave to appear and defend if he has good defence or raises a triable issue or discloses such facts as may be deemed to be sufficient to entitle him to defend. If there is no defence, in its real sense, no leave will be granted ordinarily, but the Court may grant him conditional leave, if the circumstances otherwise I so warrant.

22. For the foregoing discussion, on the pleas for leave to defend, as argued before me, I am of the view that the defendants have failed to make out a plausible defence so as to entitle them an unconditional leave. But since the matter involves adjustment of the amount of the price recovered by sale of the hypothecated goods and godown charges, the above defendants are allowed to appear and defend the suit on furnishing security within one month from today in the sum of Rs.7,179,477.99 as per statement filed by the plaintiff in Court on 17‑I1‑1986, showing the current balance amount due to the plaintiff's bank. Mr. Habib‑ur‑Rahman has no objection to it.

23. It will not, perhaps, be out of context to mention that defendant, No.l company is ex parte and defendant No.2, the Managing Director, was granted conditional leave, by consent of the parties, by my order, dated 26‑1‑1986, on furnishing security in the suit amount by the said defendant within two months, but no security was furnished nor any application for extension of time to furnish security was ever made. The said defendant No.2, as stated by Mr. Habib‑ur‑Rahman, has also left the jurisdiction of this Court.

24. Before parting with the case, I would like to mention that while ordering the defendants Nos. 3 and 5 to furnish security I applied my mind to the adjustment of a sum of Rs.13 lacs being difference of the value of the goods hypothecated with the plaintiff‑Bank. There was, however, disagreement between the parties as to its value. According to the defendants its value was over Rs.40 lacs, as per affidavit filed on their behalf, whereas, according to the plaintiff it was less as per .I affidavit‑in‑rejoinder to their application for permission to sell the goods. In fact it fetched only Rs.27 lacs and odd, when sent to sale as per statement filed by the plaintiff, I felt inclined to give an adjustment of Rs.13 lacs to the defendants in the amount now claimed by the plaintiff while ordering security but the fact that the suit was filed in 1984 and one application for leave to defend moved by defendant No.4 is till pending, and interest for over two years, has already accrued to the plaintiff after filing the suit, and the suit will still take more time for disposal and so the amount of interest till that stage, may even exceed the difference amount in the value of goods, as alleged, I did not deem it just and proper to allow any adjustment.

A . A . Order accordingly.

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