In The Lahore High Court Lahore Judicial Department

R.F.A.No.1207/2013.

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Stereo. H C J D A 38.
IN THE LAHORE HIGH COURT LAHORE JUDICIAL DEPARTMENT

Dr. Faiz Rasool etc.

R.F.A.No.1207/2013

Versus

The Askari Bank Limited.

Date of hearing: Appellants by: Respondent by:

JUDGMENT
5.3.2015 Mr. Muhammad Umar Riaz, Advocate. M/s Barristers Kashif Rajwana & Saeed Nasir, Advocates.

M. Sohail Iqbal Bhatti, J.- Through this appeal, the appellants have challenged the order and decree dated 25.9.2013 passed by learned Single Judge/Banking Court in C.O.S. No.62/2011.

2.

The facts of the case are that respondent-bank filed a Suit

for Recovery of Rs.7,61,31,085/- along with profit, cost of fund and

expenses under Section 9 of the Financial Institutions (Recovery of

Finances) Ordinance, 2001. The appellants/defendants in response to

the summons issued under Section 9(5) filed an application for leave

to appear and defend the suit. The learned Single Judge/Banking

Court through impugned order dated 25.9.2013 dismissed the

application for leave to defend the suit and passed a decree for

recovery of Rs.6,86,29,408/-, hence this appeal.

3.

The learned counsel for the appellants argued that it is

correct that the appellants had entered into a “Diminishing Musharika

Agreement” with the respondent-bank but the same does not fall

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within the definition of “finance” as provided in Section 2(d) of the Financial Institutions (Recovery of Finances) Ordinance, 2001, therefore, the Banking Court did not have jurisdiction under Section 9 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 and the impugned order and decree being passed without jurisdiction are nullity; the learned counsel further argued that without prejudice to the argument that Banking Court did not have jurisdiction, it has to be determined as to whether any default had been committed in terms of clause 12.1 of the Musharika Agreement executed between the parties and what would be the consequences of the default in terms of clause 12.2 of the Musharika Agreement.

4.

On the other hand, the learned counsel for the

respondent-bank argued that Askari Home Musharika Purchase

Facility amounting to Rs.50.00 Million was allowed to the appellants

through Facility Offer Letter dated 21.05.2008 for purchase of

residential house measuring 2 Kanal 78 Sq. Ft, situated at Plot No.12,

Block-A, New Muslim Town, Lahore. In consideration thereof, the

appellants/defendants executed all the relevant charge documents. The

learned counsel argued that since the default was committed by the

appellants/defendants regarding fulfillment of the terms and

conditions of the Musharika Agreement as well as Undertaking to

purchase the “Musharika Units” and also monthly payments

agreement; it has been further argued that even otherwise a default

was committed by the appellants/defendants in terms of clause 12.1(f)

of the Musharaka Agreement and therefore the bank was left with no

other option but to file a Suit for Recovery on 9.4.2011 but the

appellants/defendants in their application for grant of leave to appear

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and defend the suit completely denied the availing of Musharika Finance Facility while drawing our attention to application for grant of leave to appear and defend the suit filed by the appellants/defendants on 17.5.2011 (which is available at Page 173 to 197 of the Paper Book). The learned counsel further argued that on one hand, the appellants/defendants in their application for grant of leave to appear and defend the suit have refused the availing of finance facility and now in this appeal, the appellants are taking a diametrically opposite stance and are trying to take benefit of different clauses of the Musharika Agreement the execution of which has been denied by the appellants in application for leave to defend the suit.

5.

We have considered the arguments advanced by the

learned counsels for parties and have also perused the record.

6.

Firstly, we would decide the objection regarding

jurisdiction of the Banking Court as the learned counsel for the

appellants has argued that the Diminishing Musharika Agreement

does not fall within the definition of finance. It would be useful to

reproduced Section 2(d) of the Financial Institutions (Recovery of

Finances) Ordinance, 2001;

“2(d). “finance” includes :-
(i) An accommodation or facility provided on the basis of participation in profit and loss, mark-up or mark-down in price, hire purchase, equity support, lease, rent sharing licensing charge or fee of any kind, purchase and sale of any property including commodities, patents, designs, trade-marks and copy-rights, bills of exchange, promissory notes or other instruments with or

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without buy-back arrangement by a seller, participation term certificate, musharika, morabaha, musawama, istisnah or modaraba certificate, term finance certificate;
ii) ------------------------------------------------iii )-----------------------------------------------iv )-----------------------------------------------v )------------------------------------------------vi )------------------------------------------------”

The perusal of the above said definition makes it abundantly clear that Musharika falls within the definition of finance. Thus, the question to be resolved would be as to whether “Diminishing Musharika” is distinct from Musharika to oust the jurisdiction of the Banking Court.

7.

The literal meaning of Musharika is sharing under

Islamic jurisprudence, Musharika means a joint enterprise formed for

conducting some business in which all partners shared the profit

according to a specific ratio while the loss is shared according to the

ratio of contribution. The Musharika in generality has been divided

into two kinds;

i. Shirkat-ul-Milk (partnership by joint ownership). ii. Shirkat-ul-Aqd (partnership by contract).

It is the normal principle of Musharika that the capital investment is quantified; and the basic rule of distribution of profit is that the ratio of profit for each partner must be determined in proportion to the actual profit accrued to the business and not in proportion to the capital invested by the partner. However, the loss is distributed exactly according to the ratio of investment. But, in the

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near past, another form of Musharika has developed which is “Diminishing Musharika”. According to this concept a financier and his client participate either in the joint ownership of a property or an equipment, or in a joint commercial enterprise. The share of financier is further divided into a number of units and it is understood that the client will purchase the units of the share of the financier one by one periodically, thus increasing his own share until all the units of the financier are purchased by him so as to make him the sole ownership of the property.

8.

In case of house financing, the proposed arrangement is

composed of the following transactions;

i- To create joint ownership in the property.
ii- Giving the share of financier to the client on rent.
iii- Promise from the client to purchase the units of share of the financier.
iv- Actual purchase of the units at different stages. v- Adjustment of rental according to the remaining
share.

Thus, the Diminishing Musharika cannot be taken out of the pale of the term “Musharika” which has been specifically termed as finance in Section 2(d) of the Financial Institutions (Recovery of Finances) Ordinance, 2001, therefore, in case of default by the client to fulfill the terms and conditions of the finance, the financial institution can institute a suit in the Banking Court.

9.

From the documents, it appears that the appellants

committed default and indulged in cheating and breach of trust. We

would like to reproduce a Hadees-e-Qudsi to quantify the sanctity

attached to Musharika as under:-

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“Allah Subhan-o-Tallah has declared that He will become a partner in a business between two Mushariks until they indulge in cheating or breach of trust (Khayanah)”.
We have observed that Musharika Agreement was entered into between the parties and according to the Appendix-B attached to the Musharika Agreement;

“Respondent banks’ musharika share is Rs.5,00,00,000/- i.e. 81% of the banks’ share.
Appellants’ musharika share is Rs.1,20,82,130/- i.e. 19% of the share in musharika.”

Number of Banks’ Musharika Units are 192 and value of each musharika unit is Rs.2,60,417/. Similarly, according to the monthly payment agreement, the appellants are required to pay monthly payment amount starting from Rs.7,52,500/- when total number of musharika units outstanding are 192 and in case the musharika units are purchased in accordance with the agreement, the monthly payment amount is reduced.

10.

Upon the query made by this Court, it has been frankly

conceded by the learned counsel for the appellants that till the time of

filing of the suit on 9.4.2011, the appellants had neither purchased the

musharika units as agreed nor paid the monthly payments (which is

basically the profit). Thus, it is an admitted fact that the appellants

being shariks had breached the terms and conditions of musharika and

the suit had been rightly filed upon commission of default by the

appellants.

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11.

We have observed that the appellants had executed

following documents;

“i) Askari Home Musharaka Agreement dated 25.06.2008.
ii) Mortgage Deed dated 12.11.2008 registered with Sub-Registrar Samnabad Town, Lahore as Document No.262 Book No.1, Volume No.270 on 29.01.2009.
iii) Memorandum of Deposit of Title Deeds dated 25.06.2008.
iv) Undertaking to Purchase Musharakah Units dated 25.06.2008.
v) Undertaking to Sell Musharakah Units dated 25.06.2008.
vi) Undertaking cum indemnity dated 25.067.2008. vii) Monthly Payments Agreement dated 25.06.2008. viii) Demand Promissory Note dated 25.06.2008 for
Rs:50 Million. ix) Demand Promissory Note for Rs:72.616 Million. x) Personal Guarantee of Defendant No.1/Appellant
No.1 dated 16.12.2009. xi) Personal Guarantee of Defendant No.2/Appellant
No.2 dated 16.12.2009.”
Further appellant No.2/defendant No.2 mortgaged the
following property in favour of the respondent-bank in order to secure
the facility: -
“All that piece and parcel of bungalow measuring 02
Kanals 78 Sq., Ft. (double storey building situated at
Plot No.12, Block A, New Muslim Town, Lahore
together with land, building, structures of all sorts,
amenities, easements etc. constructed or to be
constructed thereon, air conditioners/air-conditioning
plants, equipments, fittings and fixtures, appurtenances
whatsoever, installed or to be installed therein/thereon”.

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Appellant No.2/defendant No.2 also executed and deposited the following original documents with the respondent-bank.

“(i) Sale Deed dated 16.06.2008. (ii) Copy of Assessment Form PT-1. (iii) Transfer Letter from Lahore Development
Authority (in favour of Mst. Farhat Kausar dated 9.7.2010). (iv) Letter from LDA in favour of Askari Bank Limited regarding placement of mortgage.”

12.

The respondent/plaintiff-bank alleged in its plaint that the

appellants/defendants breached the terms and conditions of the

Musharika Agreement and thus committed default and claimed an

amount of Rs.7,61,31,085/- as on 21.3.2011. The details of which

were given as under: -

Principal.
Principal amount disbursed on June 25, 2008.
Principal amount repaid by the customer.
Principal outstanding.

Rupees 5,00,00,000/-
1,302,085/4,86,97,915/-

Profit.

Rupees

Total profit due as of 31.03.2011.

2,40,72,715/-

Profit repaid by the

41,23,307/-

customer uptil 31.03.2011.

Profit due as on 31.03.2011.

1,99,49,408/-

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13.

We have observed that the appellants in their application

for grant of leave to appear and defend the suit have out-rightly denied

that any facility was availed by them and have mentioned in Para

No.9 of their parawise reply that the respondent-bank is complete

stranger to the appellants/defendants and no agreement had been

executed by the appellants/defendants in favour of the

respondent/plaintiff-bank.

We have further observed that after filing of the application for grant of leave to appear and defend the suit, the learned counsel for the appellants/defendants upon instruction stated that the appellants/defendants admit the availing of the facility and were willing to pay the principal amount. The statement made by the learned counsel was specifically confirmed by the appellant No.1 which was recorded in the order of trial court on 19.2.2013 and the appellant No.1 also offered to pay the outstanding liability in the installment of Rs.5,00,000/- per month till the amount of principal and profit was completely repaid.

We have, during the proceedings of this appeal, enquired from the appellant No.1 regarding his admission of the liability; upon which the appellant No.1 out-rightly stated that he made no such statement before the learned Single Judge/Banking Court.

14.

We have observed that in their application for grant of

leave to appear and defend the suit, the appellants had totally denied

the liability and furthermore the application for grant of leave to

appear and defend the suit had not been drafted in accordance with

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Section 10(4) of the Financial Institutions (Recovery of Finances) Ordinance, 2001. Which is reproduced as under: -

“(4). In case of a suit for recovery instituted by a financial institution the application for leave to defend shall also specifically state the following ---
(a) The amount of finance availed by the defendant from the financial institution; the amounts paid by the defendant to the financial institution and the dates of payments;
(b) The amount of finance and other amounts relating to the finance payable by the defendant to the financial institution upto the date of institution of the suit;
(c) The amounts of finance and other amounts relating to the finance payable by defendant to the financial institution upto the date of institution of the suit;
(d) The amount if any which the defendant disputes as payable to the financial institution and the facts in support thereof.
Explanation.---For the purposes of clause (b) any payment made to the financial institution by a customer in respect of a finance shall be appropriated first against other amounts relating to finance and the balance, if any, against the principal amount of the finance”.
The consequences of non compliance with the
requirements of sub-section (4) of Section 10 of the Financial
Institutions (Recovery of Finances) Ordinance, 2001 have been given
in sub-section (6) which stipulates that an application for leave to
defend in such cases shall be rejected unless the defendant discloses
sufficient cause for his inability to comply with any such requirement.