Wednesday, November 23, 2011

Tort under Banking Jurisdiction (Financial Institutions (Recovery of Finances) Ordinance 2001 (“FIO”))

2009 C L D 49 on Pages 52-53
[Karachi]
Before Mrs. Qaiser Iqbal and Arshad Siraj, JJ
M. NUJEEBULLAH QURESHI---Appellant
Versus
Messrs CITI BANK N.A.---Respondent
On Pages 52-53
We are of the considered view that Credit Card falls within the term of finance, the case of the appellant is based on torturous liability arising out of act and omissions of State Bank of Pakistan by placing his name on Data Check List, therefore, banking Court has no jurisdiction over a tort case based upon the damages.

  1. 2007 C L D 457 on Para 6
[Lahore]
Before Maulvi Anwarul Haq and Syed Asghar Haider, JJ
Messrs ASMAR TEXTILE MILLS (PVT.) LTD. through Chief Executive ---Appellant
Versus
ASKARI COMMERCIAL BANK LTD. Through Manager and another----Respondents
6. So far as the claim for damages is concerned, it is in the plaint itself that the same is being claimed on account of defamation. It is by now well settled that a claim in tort is not within the jurisdiction of Banking Court. However, we do find that so far as suit- pertaining to recovery of damages is concerned, the learned Judge Banking Court after holding that it had no jurisdiction ought to have ordered return of the plaint. 
7. This RFA accordingly is disposed of in the manner that while upholding the findings recorded by the learned Judge Banking Court in the impugned judgment and decree, we order that the plaint inasmuch as it pertains to recovery of damages on account of defamation, shall be returned to the appellant for presentation before a Court of competent jurisdiction.

  1. 2006 C L D 167 on Page 168
[Lahore]
Before Mian Hamid Farooq and Syed Hamid Ali Shah, JJ
Mehr ASHIQ HUSSAIN---Appellant
Versus 
CITIBANK, N.A. through Chief Manager and another---Respondents
On Page 168

5. In view of the stance of the appellant, he neither falls within the definitions of "borrower" and "customer" nor he obtained any "finance" or "loan", as defined under Act XV of 1997. The suit filed by the appellant was simple suit for recovery of damages on the basis of torts. It is evident from the portion of judgment in the case of Nasimuddin Siddiqui and another (supra), reproduced by the learned Banking Court, that suit for damages in tort cases has specifically been excluded from the jurisdiction of the Banking Court. The learned Banking Court rightly relied upon the judgment, relied upon by both the learned counsel, and passed the impugned order, which is not open to exception.

  1. 1998 CLC 1718 on Pages 1732-1733 (also see 1735)
[Karachi]       
Before Rasheed Ahmed Razvi, J
NASIMUDDIN SIDDIQUI and another‑‑‑Plaintiffs
Versus
UNITED BANK LIMITED and others‑‑‑Defendants
On Pages 1732-1733
The second condition precedent for bringing a suit within the scope of Banking Court is that such suit must arise from a commission of default in fulfiling any obligation touching the business of loan or finance. This suggests that if the transaction is outside the scope of the loan or finance, even then commission of any default in fulfilment of obligation will not bring a suit within the jurisdiction of a Banking Court. However, a question, whether there exists any agreement to grant loan or finance, will definitely fall within the jurisdiction of Banking Court. Therefore, where a suit is filed by a customer or a borrower claiming that amount received by them was not as a result of loan or finance, it will fall within the jurisdiction of a Banking Court. Similarly, a suit for specific performance filed by a customer or borrower against the Banking Company seeking fulfilment of its obligation in respect of loan or finance will also fall within the jurisdiction of the Banking Court.


  Case Law on Condition Precedents for Jurisdiction of Banking Court under FIO

  1. 2003 C L D 1843 on Page 1848
[Karachi]
Before Shabbir Ahmed, J
ABDUL REHMAN ALLANA‑---Plaintiff
Versus
CITIBANK ‑‑‑Defendant
On Page 1848
“It is manifest from the perusal of section 9(1) that the jurisdiction of a Banking Court is only attracted where a customer or a financial institution commits a default in fulfilment of any obligation with regard to any finance then the suit in a Banking Court could be instituted by presenting the plaint.
Likewise, subsection (4) of section 7 excludes the jurisdiction of any Court with regard to any matter to which the jurisdiction of Banking Court extends under the Ordinance including a decision as to the existence or otherwise of a finance. Section 7(4) is controlled by section 9(1) which contemplates the presence of three pre­conditions for the exercise of jurisdiction by the Banking B Court:‑‑
(i)         The plaintiff be either financial institution or the customer
(ii)        Cause of action on default in fulfilment of any obligation.
(iii)       With regard to the finance i.e. subject‑matter.”

  1. 2003 C L D 363 on Page 378
[Karachi]
Before Shabbir Ahmed, J
BANK ALFALAH LIMITED---Plaintiff
Versus  
IFTIKHAR A. MALIK ---Defendant
On Page 378
“A close scrutiny of sections 7(4) and 9(1) of the Ordinance would reveal that a customer or a Financial Institution will be entitled to file a suit when any of them commits a default in fulfilling any obligation with regard to any loan for finance. The first requirement is that the parties should either be a customer or a Banking Institution, which have been defined in section 2 of the Ordinance. According to subsection (c) of section 2, customer means a person to whom finance has been extended by a financial institution and includes a person on whose behalf a guarantee or letter of credit has been issued by a financial institution as well as a surety or an indemnifier. Therefore the plaintiff be either "customer" or "financial institution". 
The second condition precedent for bringing a suit before the Banking Court is that such, suit must arise from a default in fulfilling of any obligation and thirdly with regard to any finance. This suggests that if the transaction is outside the scope of finance even then any default in fulfilment of obligation will not bring a suit within the jurisdiction of Banking Court.”

  1. 2003 C L D 1026 on Pages 1032-1033
[Karachi]
Before Shabbir Ahmed, J
KARACHI ELECTRIC PROVIDENT FUND- --Plaintiff
Versus
NATIONAL INVESTMENT (UNIT) TRUST and others---Defendants
on Pages 1032-1033
“No doubt the term 'finance' has wide connotation it includes the bill of exchange, promissory notes or other instruments with or without buy-back arrangement by a seller, participation term certificate, Musharika, Morabaha, Musawama, Istisnah or Modaraba certificate, term finance certificate. To attract the jurisdiction of the Banking Court under section 9(4) of the Ordinance there may be a default in fulfilment of any obligation with regard to any finance between a customer and financial institution. In the instant case, the defendant is a financial institution. The plaintiff cannot be a customer, as defined in clause (e) of section 2 of the Ordinance. The plaintiff being holder of units certificate becomes sharer in the trust in which funds are pooled and interest in income producing securities. The position of the plaintiff thus is of an investor. The fixation of price and right to purchase the unit certificates will not bring the unit certificates as finance as defined in the Ordinance. It will remain an investment, analogous to the 'share'.
For foregoing reasons the suit is not a suit in terms of section 9 of the Ordinance as neither exists any relationship of "customer" and "banker" between the parties and nor there exist any default with regard to any finance obtained by the plaintiff as a consequence of such relationship.
I am therefore of the view that suit shall proceed on the original side of this Court. The office, to treat the suit as ordinary suit and be dealt with accordingly.”

  1. 2002 C L D 658 on Page 663
[Peshawar]
Before Shah Jehan Khan and Ijaz‑ul‑Hassan, JJ

NATIONAL BANK OF PAKISTAN through President and 4 others‑‑‑Appellants
Versus
KHALID MEHMOOD ‑‑‑Respondent

On Page 663

Para 9.

“The second condition precedent, for bringing a suit within the scope of Banking Court is that such suit must arise from a commission of a default in fulfilling any obligation touching the business of loan or finance. This suggests that it the transaction is outside the scope of the loan or finance even then commission of any default in fulfillment of obligation will not bring a suit within the jurisdiction of a Banking Court. However, a question whether there exists any agreement to grant loan or finance will definitely fall within the jurisdiction of Banking Court. Therefore, where a suit is filed by a customer or a borrower claiming that amount received by them was not as a result of loan or finance it will fall within the jurisdiction of Banking Court. Munir Ahmad Siddique and another v. Feroz Ahmad Siddique and 2 others 1990 MLD 1776, National and Grindlays Bank Ltd. v. N.P. Miranda and 2 others 1984 CLC 2106, Messrs Shafiq Hanif (Pvt.) Ltd., Karachi v. Bank of Credit and Commerce International (Overseas) Ltd., Karachi PLD 1993 Karachi 107 and Kamran Industry (Pvt.) Ltd. v. Industrial Development Bank of Pakistan and others 1994 SCMR 1970.”

  1. P L D 2001 Lahore 411 on Pages 414-415
 Before Jawwad S. Khawaja, J
 GHARIBWAL CEMENT LTD. through Company Secretary, Lahore and
another‑‑‑Plaintiffs
 Versus
 ENGLISH LEASING LTD. through Chief Executive and another‑‑‑Defendants
On Pages 414-415
Paras 3-6
"finance" includes an accommodation or facility under a system which is not based on interest but 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 without buy‑back arrangement by a seller, participation terms certificate, Musharika or Modaraba certificate, term finance certificate or any other mode other than an accommodation or facility based on interest and also includes credit or charge cards, guarantees, indemnities, Letters of Credit, any other obligation, whether fund based or non‑fund based, and any accommodation or facility the real beneficiary whereof is a person other than the person to whom or in whose name it was provided.
4. From a bare reading of the above definitions, it would appear that finance can be provided by a Banking Company even without a disbursement of funds. Facilities for establishing Letters of Credit and all non‑fund based facilities including guarantee facilities are, by definition, types of finance which come into existence without an actual disbursement of funds by a banking company.
5. Even otherwise, the word disbursement has not been used in the Act while defining the term "finance". Considering the wide scope of the wording employed to define the said term, it would be unjustified to restrict the definition to instances where disbursement has actually been made by a Banking Company. Finance can be said to have been provided by a Banking company to a customer where both customer and Banking Company stand irrevocably committed by contract, respectively to receive and provide finance upon such conditions as may have been agreed upon between them. As such, a financing agreement, which obliges a Banking Company and customer to do certain acts, may constitute the providing of finance by a Banking Company notwithstanding the fact that disbursement of funds is either deferred or is subject to fulfilment of certain conditions by a customer or is dependent upon the occurrence of a contingency. In this view of the matter, the argument of learned counsel for the defendants that actual disbursement of funds is a necessary attribute of finance, as defined in the Act, is without merit.
6. Having decided the legal contention between the parties, it next needs to be seen if in the circumstances of the present case it can be said that the defendant company had provided finance to the first plaintiff.”

  1. 2000 Y L R 2407
[Karachi]
Before Sarmad Jalal Osmany, J
AVARI HOTELS LIMITED and others‑‑‑Plaintiffs
Versus
INVESTMENT CORPORATION OF PAKISTAN and 6 others‑‑‑Defendants
Again from a bare reading of the above section it is clear that the jurisdiction of a Banking Court is only attracted where a' borrower/customer or a Bank commits a 'I default in fulfilling any obligation with regard to any loan or finance. Only then could they institute a suit in the Banking Company by presenting a plaint duly supported by statement of account etc. So also it would be seen that the definition of the word "borrower" as per section 2(c) means a person who has obtained a loan under a system based on interest from a Banking Company and "customer" as per section 2(d) means a person who has obtained finance under a system which is not based on interest from a Banking Company. Of course, the definitions of the terms "Finance" and "loan" as given in section 2(e) and (f) of the Act are very wide and include not only an outright loan of money but involve numerous financial instruments as well including bills of exchange, promissory notes etc., the purpose of which is to cover all possible forms of banking and financial transactions.
In view of all the above provisions of the Act, in my opinion, in order that a Banking Court may assume jurisdiction in any particular matter it first must be established that there is a present relationship of borrower/customer and banker between the C parties and further that some default has been committed by either party with regard to any loan or finance, obtained by the borrower/customer from the Bank as a consequence of such relationship. In the present matter it is admitted by all concerned that although it may be that in the past there was a relationship of borrower/customer and banker between the parties but at present there is none as all the amounts owed by the plaintiff to the defendants have been fully paid back. In fact, the suit has not been filed by the plaintiff against the defendants for any alleged default in fulfilling any obligation by the defendant with regard to any loan or finance. On the other hand, the suit has been filed by the plaintiff for the purpose of redeeming securities deposited with the defendants as consideration for the loans extended by the defendants to the plaintiff. An ancillary prayer of the plaintiff is that the propriety audit proposed to be conducted by the defendants into the financial affairs of the plaintiff be injucted against. Such propriety audit is referred to in clause 21 of the Restructuring Agreement dated 30‑12‑1989 the purpose of which is to give some financial control over the affairs of the plaintiff­Company to the defendants. Such purpose is manifest in the letter addressed to the plaintiff by ICP (defendant No. l) a copy of which has been filed as Annexure J1‑1. to the plaint, which is critical of the financial affairs of the plaintiff‑Company as regards its indebtedness to various banks/financial institutions, its debt servicing, failure to pay dividents, huge accumulated losses and unpaid tax demands etc. However, again the fact is that the said letter does not refer to any overdue loans at all as far as the defendants are concerned. In my view, therefore, the letter under reference addresses the defendants rights as shareholders in the plaintiff­ Company and not as their Bankers and does not at all concern the rights and obligations between the parties as to any financial engagement in their capacity as banker and customer respectively. As to the cases relied upon by Dr. Farogh Naseem, in Nasimuddin Siddiqui and another v. U.B.L. and another and Mst. Parveen Jaffer v. Bankers Equity Limited (supra) my learned brother Rasheed Ahmed Razvi, J. has also come to the same conclusions as myself and accordingly I fully concur with these conclusions.

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