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Suit No. 824 of 1984, decided on 7th October, 1986.

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‑‑O. V, R. 20‑‑Substituted service‑‑Object behind service through publication‑‑Stated.

‑‑‑O. V R.20 & O. XXXVIII, R. 2‑‑Banking Companies (Recovery of Loans) Ordinance (XIX of 1979), S.6‑‑Banking Companies (Recovery of Loans) Rules 1980, R.8‑‑Limitation Act (IX of 1908), Art.159‑‑Suit for recovery of loan‑‑Service of summons through publication is not as effective as service through bailiff or by registered post‑‑Mere publication of summons under R.8 of Banking Companies (Recovery of Loans) Rules 1980, held, would not be proper service unless defendant was proved to be avoiding service of summons issued through bailiff and registered post or whereabouts of defendants were not known or where service could not be effected in ordinary manner.

Ali Akbar v. Gulzar Ali Shah P L D 1984 Kar. 252; Messrs Allied Bank of Pakistan Limited v. Messrs Tahir Traders and 8 others P L D 1986 Kar. 369; Maktaba Ishaat‑e‑Adab and another v. The Muslim Commercial Bank Ltd. 1984 C L C 374 and P L D 1975 Azad J&K 122 ref.

‑‑‑S.6‑‑Contract Act (IX of 1872), S.128‑‑Banking Companies (Recovery of Loans) Rules, 1980, R.8‑‑Recovery of loan‑‑Guarantee‑‑Defendant a Director of Company, signing letter of guarantee in respect of loan in question if received by company‑‑Director later on resigned from said company‑‑Letter of guarantee contemplating that guarantee shall continue to be binding on company or their representatives in respect of liabilities‑‑Director stating that he was not bound by guarantee after having resigned from directorship‑‑Held, even if Director had resigned, he would still be bound by guarantee to which he was a party and his resignation could not absolve him of his responsibility to lenders.

‑‑O. XXXVI, R. 3‑‑Banking Companies (Recovery of Loans) Ordinance (XIX of 1979), S.6‑‑Banking Companies (Recovery of Loans) Rules, 1980, R.8‑‑Leave to defend‑‑Loan secured by mortgage‑‑Securing of loan by a mortgage by itself could not be a ground for granting leave to defend‑‑Contention, that loan stood fully secured by mortgages, leave to defend should be granted, repelled.

‑‑S. 6‑‑Banking Companies (Recovery of Loans) Rules, 1980, R.8‑‑Civil Procedure Code (V of 1908), O. XXXVII, R.2‑‑Recovery of bank loan‑ Mortgage by deposit of title deed made by defendants in favour of plaintiffs and availing of cash credit facilities by former not denied and even otherwise one of defendants liable to plaintiffs for suit amount without such documents‑‑Leave to defend refused and suit decreed with costs and interest.

Iqbal Kazi for Plaintiff.

A.H. Mirza for Defendants Nos. 1 and 5.

J.H. Rahimtoola for Defendant No. 4.

Date of hearing: 27th August, 1986.

By this common Order I propose to dispose of C.M.A. No. 520 of 1985, C.M.A. No. 521 of 1985, C.M.A. No. 1121 of 1985 and C.M.A. No. 1120 of 1985. The first three applications have been filed under Order XXXVII, Rule 3, C.P.C. by defendants Nos. 1, 3, 4 and 5 and the last mentioned application has been made by defendant No. 4 under section 5 of the Limitation Act.

The defendant No. 1 which is a limited Company carries on business of Stevedores and Tally Contractors in Karachi and defendants Nos. 3, 4 and 5 are its Directors. The defendant No. 1 opened a current account with the plaintiff's Eidgah Branch, Karachi bearing No. 7977 on 21‑5‑1978. On 31‑5‑1978 the defendant No. 1 obtained and availed overdraft facility to the extent of Rs.30,00,000 in this account which carried interest rate of 4% above bank rate with minimum 14% per annum with quarterly rests. The defendants then executed promissory note for Rs.30,00,000, a letter of arrangement, and a letter of continuity on 31‑5‑1978. In order to secure the loan the defendant No. 2 deposited title deeds in respect of its property admeasuring about 2,500 sq. yds. situated in Napier Mole Reclamation, Keamari, Karachi together with Cinema and all the construction, structure, buildings and underground footing built thereon together with all plant, machinery, fixtures and fittings affixed thereto. The defendant No. 2 further confirmed such deposit of title deeds by its letter, dated 31‑5‑1978.

In 1979 the defendant No. 1 renewed and increased the overdraft facility to Rs.40,00,000 and utilized the same on 10‑3‑1979 and for this purpose the defendants on 10‑3‑1979 executed and delivered to the plaintiffs a promissory note for Rs.40,00,000 letter of arrangement and letter of continuity. The defendants Nos. 3 and 4 also executed a letter of guarantee on the same date in their personal capacity for the payment of the said amount to the plaintiff. The defendant No. 1 also deposited with the plaintiff title deeds in respect of its immovable property bearing Survey No. 6. Survey Sheet Ly‑1 (old Plot No. 6) Sheet K1/27, 28, P.O. 30 measuring about 165 sq. yds. in Lyari quarters, Karachi with buildings, shops, walls, fittings and fixtures constructed thereon. Such deposit was also confirmed by the defendant No. 1 through letter, dated 13‑6‑1969. This mortgage was duly registered under the provisions of the Companies Act, 1913 in the office of Assistant Registrar, Joint Stock Companies Karachi as certified by him on 21‑10‑1979. To further secure the loan the defendants got deposited fixed deposit receipts of third parties together amounting to Rs.12,27,500 who had submitted a letter of ownership and a letters of lien relating thereto on 31‑6‑1979. On 27‑6‑1979 the defendant No. 1 also created a lien on fixed deposit receipts for Rs.25,00,000 to secure the aforesaid loan. The defendant No.l also created a lien against fixed deposits in its name for Rs.3,00,000 to further secure the loan. Thereafter some of the F.D.Rs. were withdrawn by the defendants and some other were deposited thus on 13‑2‑1980 leaving F.D.Rs. amounting to Rs.30,00,000 as security for repayment of loans with the plaintiffs.

On 14‑2‑1980 the defendant No.l requested the plaintiffs that its liability of Rs.40,00,000 be reduced to Rs.10,00,000 against appropriation of its F. D.Rs. by the plaintiffs amounting to Rs.30,00,000. The defendant No. 1 further confirmed that it would continue to utilise the credit facility to the extent of Rs.10,00,000 against the existing mortgages. Accordingly the plaintiffs encashed F.D.Rs. of Rs.30,00,000 and the amount was credited to the account of the defendant No. 1 and its liability was reduced to Rs.10,03,976.61.

Thereafter the plaintiff served a notice on the defendant No‑1, dated 9‑3‑1982 calling upon it to adjust the outstanding liability of Rs.8,81,679.11 in its current account to which the defendants replied by its Advocate's letter, dated 10‑4‑1982 assuring the plaintiff that they would pay the latter's claim as soon as monies were recovered by sale in execution No. 18 of 1982 pending in the High Court. The plaintiffs also addressed similar letters to defendants Nos. 2, 3 and 5. The defendants however, failed to liquidate their outstanding and hence the suit.

I have heard Mr. A. H. Mirza on behalf of defendants Nos, 1 and 5 and Mr. J.H. Rahimtoola on behalf of defendant No. 4 and Mr. Iqbal Qazi on behalf of the plaintiff. None appeared on behalf of defendant No. 3 who has also filed application for leave to defend the suit (C.M.A. No. 521 of 1985).

The only contention raised by Mr. A. H. Mirza on behalf of defendants Nos. 1 and 5 has been that the claim of the plaintiffs is time‑barred. According to Mr. Mirza the cash credit facility was extended to the defendants on 31‑5‑1978 and promissory notes for Rs.30,00,000 and 40,00,000 were executed by them on 31‑5‑1978 and 10‑3‑1979 respectively and therefore, the suit which has been filed on 17‑12‑1984 is time‑barred. When attention of Mr. Mirza was drawn to the statement of account filed as Annexure 'X' with the plaint and Annexures 'S' and 'T' also filed with the plaint, the learned counsel had no further argument to offer. It may be pointed out that according to the statement of account (Annexure 'X') an amount of Rs.3,12,592.56 was deposited by the defendant No. 1 in the cash credit account on account of debt which extended the period of limitation as contemplated by section 20 of the Limitation Act. Thereafter by a letter, dated 10‑4‑1982 addressed by the defendant's Advocate to the plaintiff: (Annexure 'T') liability to pay was further acknowledged by the defendants. This letter was sent in reply to the plaintiffs letter, dated 9‑3‑1982 (Annexure 'S') whereby the defendants had clearly been asked to adjust the entire outstanding liability in the cash credit account in question. These documents, therefore, give a fresh starting point to the period of limitation which is now to be reckoned from 10‑4‑1982 i.e. when acknowledgment of liability was made by the defendant No.l through its Advocate's letter. Under such circumstances the suit which was filed on 17‑12‑1984 is within time. All other defendants who were Directors of the defendant No. 1 have given a continuing guarantee in respect of the said loan and their liability to pay the loan was clearly co‑extensive with the defendant No. 1. The argument of Mr. A . H . Mirza is, therefore, devoid of force and the same cannot be accepted and C.M.A. No. 520 of 1985 is, therefore, dismissed.

Turning to the contentions raised by Mr. J.H. Rahimtoola on behalf of the defendants Nos. 1 and 4, in C. M. A. No. 1120 of 1985 and C.M.A. No. 1121 of 1985, before touching the merits of the case, I would first like to refer to the question of limitation as admittedly the application for leave to defend has been filed more than ten days after a notice in respect of the suit was published in 'Morning News', dated 1‑2‑1985. The application for leave to defend the suit was thereafter filed by the defendant No. 4 on 19‑3‑1985 alongwith an application under section 5 of the Limitation Act (C.M.A. No. 1120 of 1985) stating that he had neither received summons from the Court through bailiff nor by post and he had no occasion to know about the publication of the notice in 'Morning News' as he did not subscribe to the said newspaper. According to the defendant he came to know about filing of the suit from defendant No. 3 on 10‑3‑1985 and, therefore, the date of knowledge would be deemed to be the date of service and as such the application for leave to defend the suit was not time‑barred. It has been further contended by Mr. J.H. Rahimtoola that even otherwise, notice served through publication does not constitute proper service as Order XXXVII, Rule 2, C.P.C. read with Form No. 4, Appendix 'B' in the First Schedule to the C.P.C. provides that a copy of the plaint is to be annexed to the summons and since the same could not be possible in case of publication, the service of notice was not proper. Reliance was also placed on Ali Akbar v. Gulzar Ali Shah P L D 1984 Kar. 252, Messrs Allied Bank of Pakistan Limited v. Messrs Tahir Traders and 8 others P L D 1986 Kar. 369 and Maktaba Ishaat‑e- Adab and another v. The Muslim Commercial Bank Ltd. 1984 CLC 374. In all these cases it was held that where a suit is filed under Order XXXVII, Rule 2, C.P.C. the summons to the defendant must be accompanied by a copy of plaint, otherwise, the service of summons cannot be deemed to be proper for computing the period of limitation as prescribed by Article 159 of the Limitation Act. In Tahir Traders' case, which was decided by my learned brother, Salim Akhtar, J., it was further held that mere publication of summons under Rule 8 of the Banking Companies (Recovery of Loans) Rules, 1980 would not be proper service unless defendant was proved to be avoiding service of summons issued through bailiff and registered post or whereabouts of defendant were not known.

Mr. Iqbal Kazi learned counsel for the plaintiff has however, argued that the cases reported in P L D 1984 Kar. 252 and 1984 C L C 374 were not filed under the Banking Companies Act (Recovery of Loans) Ordinance, 1979 and, therefore, the same are distinguishable and that the law laid down by Salim Akhtar, J. in Tahir Traders' case is not a good law as the Ordinance 1979 is a special statute and since Rule 8 which has been made thereunder provides for three modes of service, therefore, service effected by any one of the such modes would give a starting point to the period of limitation prescribed under Article 159 of the Limitation Act.

The said Ordinance, as is clear from its provisions, has been designed to achieve expeditious disposal of suits in cases between the banking companies and the borrowers. According to section 3 of the Ordinance, the provisions of the Ordinance are in addition to and not in derogation of any other law for the time being in force. Section 7(1) of the Ordinance provides for expeditious hearing of the suits by the Special Court and further restricts its powers to grant adjournments except in extraordinary circumstances and after recording grounds. Thereafter, section 7(2) further provides that in all suits before the Special Court it shall follow the procedure prescribed in Order XXXVII in the First Schedule of the Code of Civil Procedure. These provisions, therefore, clearly indicate that there is emphasis on expeditious disposal of cases in respect of which the Special Court has been empowered to exercise jurisdiction. Now, Rule 2 of Order XXXVII provides that in all suits upon bills of exchange, Hundies or promissory notes, the summons shall be in Form No. 4 in Appendix 'B' or in such other form as may be from time to time prescribed. As 'prescribed' means prescribed by Rules or forms under the C.P. Code, reference to other forms as may be from time to time prescribed is not necessary for the purpose of this case. Form No. 4, however, indicates that a copy of the plaint must accompany the summons. Turning to Rule 8, which, as it appears in order to cut short the procedural formalities, makes a marked deviation from the ordinary procedure provided in the C.P. Code in regard to service of summons and provides that 'Th6 reader shall on receipt of plaint, order immediate issue of summons and notices to the defendant simultaneously through the bailiff of the Court, by registered post A. D. and by publication'. This rule has been clearly framed with same object in view, i.e. to achieve expeditious disposal of cases. It is however, noteworthy that the rule nowhere suggests that if service on the defendant is effected by one of the three modes, the same would be proper service. Such inferference also cannot be possible if Rule 8 is read alongwith Order XXXVII, Rule 2, C.P.C. because according to the latter the summons to the defendant must be accompanied by a copy of the plaint which, as already pointed out, cannot be possible in case of service of notice by publication. However, the rule need not be construed with absolute rigidity because if the Court is satisfied that service of summons has been effected through bailiff or registered post and a copy of the plaint was sent alongwith the summons, the same might be treated as proper service to give a starting point to the period of limitation as contemplated by Article 159 of the Limitation Act since it would be in conformity with the provisions of Order XXXVII, Rule 2, C.P.C. and section 7(2) of the Ordinance of 1979. But such cannot be the case with service by publication unless it is shown that the defendant was intentionally avoiding service or that for some reason summons cannot be served upon him in the ordinary manner. Service by publication is usually resorted to by the Court under Order V, Rule 20, C.P.C. in cases where the defendant cannot be served in the ordinary manner as provided in the C. P. C . The object behind such service is so that the defendant may either himself learn about the proceedings pending against him in the Court or he may be informed by some other person who has read such notice in the newspaper, in case the defendant has not read the same. Another object behind service through publication is, that the proceedings in the suit may continue and the same may not be defeated merely because the defendant cannot be served with summons in the ordinary manner. But in such case, the defendant can always show that he was not aware of the process of the Court and on being satisfied in this regard, the Court would ordinarily allow reopening of the case. (See P L D 1975 Azad J & K 122). Now, under such circumstances can service by publication be treated as effective in the same manner as service through bailiff or by registered post even when it is shown that the defendant did not read the notice in the newspapers The answer would obviously be in the negative. I, therefore, cannot accept Mr. Iqbal Kazi's argument that service of summons on the defendant by publication was proper service. I, find myself in full agreement with the views expressed by my learned brother, Salim Akhtar, J., in Tahir Trader's case, and I say so with great respect.

Since it has nowhere been alleged that service on the defendant) could not be effected in the ordinary manner, service of notice on him by publication was not a proper service and I, therefore, would straight away allow C.M.A. No. 1120 of 1985 and consider the case on merits.

On merits, the first argument of Mr. J. H. Rahimtoola is that the defendant No. 4 resigned from the directorship of defendant No. 1 in August, 1980 which was duly intimated to the plaintiff by letter, dated 10‑8‑1980 and, therefore, the suit as against this defendant is, time‑barred because he was not liable for any acknowledgment of liability made by the defendant No. 1 after 10‑8‑1980. This contention of Mr. J.H. Rahimtoola has been vehemently contested by Mr. Iqbal Kazi both on factual as well as legal planks. Although the factual position stated in para. 8 of the defendant's affidavit has been completely denied in the plaintiffs' counter‑affidavit, but in my opinion, the argument in any case is not of much avail to the defendant. The letter of guarantee filed as Annexure 'I' with the plaint which has also been signed by defendant No. 4 clearly contemplates that notwithstanding such notice the guarantee shall continue to be binding on the defendants or their representatives in respect of the liabilities. Therefore, even assuming that the defendant had resigned, he is still bound by the guarantee to which he is a party. In view of such a position the resignation, if any, cannot absolve the defendant of his liability to the plaintiffs and the contention of Mr. J.H. Rahimtoola, therefore, cannot be accepted.

The second contention raised by Mr. J. H. Rahimtoola has been that the letter of the defendants, dated 14‑2‑1980 filed with the plaint as Annexure 'R' constituted novation of the earlier agreement and as such the defendant No. 4 was released of his earlier liability proceeding from the guarantee (Annexure 'I'). This argument of Mr. J.H. Rahimtoola also carries little force as the document Annexure 'R' only shows that the liability of the defendants was reduced to Rs.10,00,000 only after appropriation of the F. D.Rs. amounting to Rs.30,00,000 by the plaintiffs. The factual position is further supported by the statement of account Annexure 'X' which shows that on 23‑2‑1980 after crediting Rs.30,00,000 in the defendants' account, their liability was reduced to about Rs.10,30,976.61. The said letter (Annexure 'R') therefore, by no stretch of imagination can be construed as giving rise to a new agreement in place of the earlier one.

The next argument of Mr. J.H. Rahimtoola was that Annexures 'D' and 'F' clearly indicated that the same had been manipulated by the plaintiffs. In support of this contention Mr. J. H. Rahimtoola pointed out some discrepancies in respect of dates mentioned in the said documents. Annexure 'D' is a memorandum of deposit of title deeds signed by the defendants and Annexure 'F' is a promissory note allegedly executed by the defendants on 10‑3‑1979. Although the contention of Mr. J. H. Rahimtoola appears to be correct as the discrepancies referred to by Mr. J. H. Rahimtoola are clearly evident from the said documents, but since the mortgage by deposit of title deeds made by the defendants in favour of the plaintiffs and availing of cash credit facilities by the former are not denied, even if Mr. J.H. Rahimtoola's contention is accepted as correct the same cannot provide any material benefit to defendant No. 4, as he would still be liable in the suit amount to the plaintiff, without such documents.

Lastly, it was argued by Mr. J. H. Rahimtoola that the loan stands fully secured by the two mortgages, therefore, leave should be granted to the defendant to defend the suit. This argument also appears to be without force as the securing of loan by a mortgage, by itself cannot be a ground for granting of such leave to the defendant.

I, therefore, find no force in C.M.A. No. 1121 of 1985 and the said is, therefore, dismissed. C.M.A. No. 521 of 1985 is also dismissed but for non‑prosecution as none has appeared on behalf of the defendant No. 3.

As a result the suit is decreed against all the defendants with costs as prayed for Rs.12,89,716.74 together with interest at 14% per annum with quarterly rests from the date of the institution of the suit till the realisation of the decretal amount.

A decree is also passed under Order XXXIV, Rule, 4, C.P.C., in Form 5‑A, Appendix 'D' to the First Schedule of the C.P. Code against the defendants, in respect of the aforesaid properties. The defendants are given six months' time to pay the amount in Court.

M.Y.H./4947/K Suit decreed.

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