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Banking Suit No.824 of 1985, decided on 16th March, 1987.

---O.XXXVII, R.3--Banking Companies (Recovery of Loans) Ordnance (XIX of 1979), S.6--Suit for recovery of loan--Leave to defend suit- Plaintiff not stating in detail how security against which loan was granted was insufficient or that valuation of mortgaged property could not meet liability of defendant--Facts stated in plaint and in counter affidavit making out substantial controversy which required consideration--Unconditional leave to appear and defend suit was granted to defendants in view of defence raised by them.

---O.XXXVII, R.3--Banking Companies (Recovery of Loans) Ordinance (XIX of 1979), S.6--Leave to defend suit counter suit-Mere filing of counter claim, made by defendant, held, could not be a ground for granting leave to defend suit against defendant counter claim should show substantial or plausible defence before it could be considered a ground for granting leave to defend suit.

J.H. Rehmatoola for Defendants Nos.1, 2 and 4.

Mr. Waswani for Defendants Nos.10 and 14.

Farooq H. Naik, Mr. Zaidi and Mr. Sattar for others.

This is an application under Order 37 R.3, C.P.C. filed by defendants Nos.l, 2 and 4. In the plaint the defendant No.1 has been described as a borrower whereas the defendants Nos.2 to 8 are its directors /shareholders and guarantors. It is alleged in the plaint that the defendant No.1 applied for working capital loan of Rs.5 million to the plaintiff which was allowed in terms of letter, dated 24-4-1984 containing terms and conditions of the loan. The defendant No.1 executed additional agreement of hypothecation, dated 12-5-1984 and agreement of mortgage mortgaging the plot of land together with the building and structures-plant and machinery and other equipments erected or installed thereon, situated at 14, West Wharf Road, Karachi. Although this land was mortgaged with I.D.B.P. the defendant No.9, it was agreed between the plaintiff and I.D.B.P. to retain the said title deed for security of the plaintiff ranking pari passu with each other. By way of additional security the defendants Nos.2 and 3 deposited title deed of agricultural land situated at Tehsil Hub, Mauza Pathra. The loan was thus advanced by the plaintiff on these securities and according to the plaintiff a sum of Rs.54,67,836.36 is due.

Mr. Rehmatoola the learned counsel for the defendants No.1, 2 and 4 has contended that the suit against the defendants is not maintainable under the Banking Companies (Recovery of Loans) Ordinance, 1979. The plaintiff is a financial institution which was created under National Development Finance Corporation Act, 1973 (Act XIII of 1973). According to the learned counsel section 2(a) defines banking companies which does not include the plaintiff as a banking company. However under section 2(a) the Federal Government is empowered by issuing Notification in the Official Gazette to declare any financial institution to be a banking company for the purpose of this Ordinance. In persuance of this provision the Federal Government has issued Notification No. S.R.O. 122 (1)(81), dated 15-2-1981 in which the plaintiff has been declared to be a banking company for the purposes of this Ordinance. There is no dispute about the fact that such a notification does exist but the learned counsel for the defendants Nos. l, 2 and 4 contends that it is not valid in view of section 25 of the Act XIII of 1973 which reads as follows:--

.--The Corporation shall not be deemed to be a banking company for the purposes of the Banking Companies Ordinance, 1962 (LVII of 1962), or any other law for the time being in force relating to banking companies."

The contention of the learned counsel is that the institution creating the plaintiff specifically prohibits the plaintiff to be declared as banking company. The learned counsel has further contended that by Notification a substantive provision of law cannot be repealed.

Mr. Vaswani the learned counsel has merely relied upon the notification. The matter does neat end here. The question raised requires interpretation of provisions of two statutes. Act XIII of 1973 prohibits the plaintiff to be treated as banking company. The subsequent statute i.e. Banking Companies (Recovery of Loans) Ordinance, 1979 permits the Federal Government to declare any financial institution as a banking company for the purposes of this Ordinance. The conflict in these two provisions is obvious and raises substantial question of law and interpretation of statutes. This objection must be considered at the time of final hearing as it will go to the root of the matter.

The next contention of Mr. Rehmatoola is that the loan is fully secured. In this regard he has referred to paragraph 16 of his affidavit which has simply been denied. The plaintiff has not stated in detail how the security is insufficient nor it has given the valuation of the mortgaged property to show that it cannot meet the liability of the defendant No.1. The other contention of Mr. J.H. Rehmatoola is that Defendant No.1 has filed a suit bearing No.201/86 against the plaintiff, other banks and Federal Government of Pakistan claiming damages in respect of the same subject matter on the basis of which the plaintiff has filed this suit. The learned counsel contend that as counter suit has been filed by the Defendant No.1 leave to appear and defend the suit should be granted unconditionally. It is true that Defendant No.1 has filed counter suit but mere filing counter claim made by the defendant cannot be a ground for granting lave. The counter claim should show substantial or plausible defence before it can be considered a ground for granting leave to defend the suit. In the present case the facts stated in the plaint as well as in the counter affidavit make out substantial controversy which require consideration. Considering the defence raised by the Defendants Nos.l, 2 and 4 I grant them unconditional leave to appear and defend the suit. The written statement should be filed within three weeks.

2 & 3. These two applications have been filed by investment Corporation of Pakistan and Muslim Commercial Bank Ltd. Mr. Vaswani Advocate states that they are formal defendants and no relief has been sought against them. They are granted unconditional leave to appear and defend the suit.

4. This application has been filed on behalf of Defendant No.5 who has been sued as a guarantor. The defendant No.5 has denied the execution of the deed of guarantee. Besides this denial the learned counsel for the Defendant No. 5 is also adopted the arguments of Mr. J.H. Rehmatoola on the basis of which leave to defend has been granted to Defendants No.1, 2 and 4. In the circumstances and for reasons stated in the order passed on application filed by Defendants No.1, 2 and 4 the Defendant No.5 is also granted unconditional leave to appear and defend the suit. The written statement should be filed within three weeks.

M.H.Y./N-19/K Leave to appeal granted.

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