IN THE SUPREME COURT OF PAKISTAN 
(APPELLATE JURISDICTION) 
 
 
 
 
 
PRESENT: 
MR. JUSTICE MIAN SAQIB NISAR, HCJ 
MR. JUSTICE UMAR ATA BANDIAL  
MR. JUSTICE FAISAL ARAB 
 
 
CIVIL APPEAL NOs. 2105 & 2106 OF 2008 
(On appeal against the judgment dated 18.1.2008 passed by 
the High Court of Sindh, Karachi in Spl. HCA No. 29/2001 
and First Appeal No. 01/1998) 
 
 
Miss Rukhsana Murrad etc 
 
 
 
(In both cases) 
 
 
 
 
… Appellants 
VERSUS 
National Bank of Pakistan 
 
 
 
(In both cases) 
 
 
 
 
 
… Respondents 
 
For the Appellants: 
Syed Iftikhar Hussain Gillani, Sr. ASC 
 
 
 
For the Respondent: 
Mr. M. Rasheed Qamar, ASC 
 
Date of Hearing:  
02.05.2017 
 
 
JUDGMENT 
 
 
 
 
FAISAL 
ARAB, 
J.- 
Leather 
Goods 
International 
(hereinafter referred to as ‘LGI’), a sole proprietorship concern of the 
predecessor-in-interest of the appellants was engaged in the 
manufacture and export of leather garments. For its production needs, 
it had been availing financial facilities from respondent bank from time 
to time. The case of the respondent bank is that in January, 1987, LGI 
applied for a running finance facility which was sanctioned on 
25.01.1987 to the extent of Rs.675,000.00. In this regard, LGI 
executed an agreement of finance on 18.02.1987. The finance was 
repayable with markup by 30.06.1987. To secure this financial facility, 
LGI pledged its goods, hypothecated its machinery, assigned the 
proceeds of life insurance policy of its proprietor, created equitable 
mortgage on Plot No. 16-C Lane 9, Phase-II Extension, Defence 
CIVIL APPEAL NOs. 2105 & 2106 OF 2008 
2
Housing Authority, Karachi and executed a promissory note. All 
security documents were also executed on 18.02.1987. As against 
such facility, substantial part of outstanding amount and markup was 
recovered leaving a balance of Rs.261,775.76.  
 
2. 
 
To seek recovery of the remaining amount, the respondent 
bank served a legal notice upon LGI on 19.09.1988 but it failed to 
make any payment. The respondent bank was thus constrained to file 
suit for recovery on 28.08.1989 in the Banking Tribunal for Sindh and 
Balochistan at Karachi. This suit was later numbered as 905/1991. In 
the written statement, LGI denied that it availed any finance under the 
agreement dated 18.02.1987 and termed all documents executed on 
18.02.1987 to be forged. In this manner, the validity of the claim made 
in the banking suit was questioned. The parties then adduced their 
respective evidence. The Banking Court dismissed the suit on 
18.08.1997 after holding that no amount was disbursed under the 
agreement of finance dated 18.02.1987. The respondent bank then 
preferred appeal. In the meanwhile, having succeeded in getting the 
banking suit filed by respondent bank dismissed on 18.08.1997, LGI 
filed its own suit in 1998 bearing No. 773/1998 claiming damages. In 
the suit for damages, it was claimed that recoveries made under the 
agreement dated 18.02.1987, when no finance was disbursed, caused 
a huge loss of business to LGI including sale of valuable plot for a 
meager amount. Keeping in view the findings in respondent’s suit that 
no amount was disbursed to LGI under agreement dated 18.02.1987, 
the suit for damages filed by LGI was decreed by the Banking Court. 
Against such decree also the respondent Bank filed appeal. Both the 
appeals, one filed against dismissal of respondent bank’s recovery suit 
and the other filed against award of damages in the suit filed by LGI, 
CIVIL APPEAL NOs. 2105 & 2106 OF 2008 
3
were clubbed together and allowed by the High Court vide impugned 
judgment dated 18.01.2008. Aggrieved by such decision, the present 
appeals were preferred.  
 
3. 
 
Learned counsel for the appellants argued that the 
evidence shows that after execution of the finance agreement dated 
18.02.1987 no amount was disbursed, yet the plot valuing millions of 
rupees was sold for a meager amount of Rs.400,000.00 and the 
proceeds of insurance policy were appropriated by the respondent 
bank, therefore, the Banking Court rightly awarded damages to LGI. 
He next submitted that the evidence of the respondent bank also 
disclosed contradiction in the pleadings which was also ignored by the 
High Court as it was deposed by bank’s witness that the finance in 
dispute was sanctioned by the State Bank whereas in his cross-
examination it was admitted that the finance was never sanctioned by 
State Bank. He, therefore, contended that while deciding the appeals, 
the Division Bench of the High Court erred in decreeing the suit of the 
respondent bank and dismissing the suit of the LGI by misreading the 
evidence on record, which decision is liable to be reversed. 
 
4. 
 
In rebuttal, learned counsel for the respondent bank 
though conceded that no amount was disbursed after the execution of 
the agreement on 18.02.1987 but it was explained that this agreement 
was intended to cover LGI’s obligation towards Part-I of the Export Re-
finance Scheme availed by it on 27.08.1986 as well as the penalty 
which was imposed by the State Bank on 25.09.1986 on account of 
LGI’s failure to meet export target under previous Part II of the Export 
Refinance facility. Against both the heads, State Bank had issued a 
debit voucher to the respondent bank and in order to settle State 
CIVIL APPEAL NOs. 2105 & 2106 OF 2008 
4
Bank’s above-referred claim against LGI and keep its account 
regularized, the respondent bank at the request of LGI sanctioned the 
financial facility of Rs.675,000.00 on 25.01.1987. Thereafter, 
agreement of finance along with other security documents were 
executed on 18.02.1987 and Rs.675,000.00 were credited to the 
account of LGI and from this account, State Bank’s outstanding claim 
for Rs.671,841.00 was settled. He submitted that this also explains 
the innocuous contradiction of respondent bank’s witness as to which 
of the two sanctioned the finance i.e. the State Bank or the respondent 
bank. He further submitted that there was also an admission in a 
letter written by LGI to respondent Bank on 12.05.1987 that a sum of 
Rs.640,324.00 was still payable and proposed that Rs.450,000.00 
would be adjusted from the sale of the mortgaged plot and the 
remaining balance from the proceeds of the insurance policy assigned 
to the respondent bank as well as from the sale proceeds of the 
pledged stock. Learned counsel for the respondent bank maintained 
that in this background the High Court rightly allowed the appeals.  
 
5. 
 
It has come in evidence that between the years 1984 and 
1986 LGI had been availing various financial facilities under Part-I and 
Part-II of State Bank of Pakistan’s Export Refinance Scheme through 
respondent bank’s Saddar branch, Karachi. The Export Re-Finance 
Scheme allows the exporters to avail finance from State Bank to 
finance their exports, which is adjustable against export proceeds. In 
case no exports are made or there is a shortfall, the State Bank 
imposes penalty. The last of the Export Refinance facilities availed by 
LGI from State Bank was on 27.08.1986 bearing No. R-39/U-74 to the 
extent of Rs.548,400.00 which was to be adjusted in 150 days against 
the export proceeds i.e. by  24.01.1987. A shortfall in exports under 
CIVIL APPEAL NOs. 2105 & 2106 OF 2008 
5
the previous Part-II of Export Refinance facility had also occurred in 
the meanwhile that resulted in imposition of penalty on 25.09.1986 by 
State Bank to the tune of Rs.123,441.00. Thus, in all, a sum of 
Rs.671,841.00 (Rs.548,400.00 availed under Part I of Export Refinance facility No. 
R-39/U-74 plus Rs.123,441.00 towards State Bank’s penalty against Part I of Export 
Refinance facility) became due and payable by LGI to the State Bank on 
account of LGI’s failure to meet its export target. In LGI’s letter dated 
24.11.1986 to the State Bank, the shortfall in exports and the 
resultant imposition of penalty has been duly acknowledged. In fact in 
this letter, LGI requested the State Bank to waive the penalty on 
account of loss of export orders. So it was solely on account of LGI’s 
failure to export leather garments promised under Export Refinance 
Scheme that the State Bank perforce recovered Rs. 671,841.00 from 
the respondent bank through which the Export Refinance facilities 
were being availed by LGI. Thus it becomes abundantly clear that the 
financial facility of Rs.675,000.00 was sanctioned by respondent bank 
on 25.01.1987 for no other purpose except to facilitate LGI to adjust 
Rs.671,841.00 which it owed to the State Bank. Ultimately, it was 
from the financial facility of Rs.675,000.00 that Rs.671,841.00 were 
paid to the State Bank of Pakistan on 18.02.1987 on behalf of LGI.  
 
6. 
 
The above factual position becomes even more clear 
when LGI’s statement of account bearing No. 9014-6 (available at page 
318 of the Paper Book) is scrutinized. The account No. 9014 was opened 
on 18.02.1987 not at the instance of LGI but was necessitated due to 
change over to computerized banking. In this account, LGI’s credit 
balance of Rs.814.08 from its previous current account No. 3708 
which was being made inoperative was transferred. In paragraphs 5 
and 7 of the plaint in the suit bearing No. 773 of 1998, LGI has itself 
CIVIL APPEAL NOs. 2105 & 2106 OF 2008 
6
acknowledged that its current Account No. 3708 which had a credit 
balance of Rs.814.08 became inoperative on 17.02.1987. Account No. 
9014 further shows that on 18.02.1987, i.e. the day when the 
agreement of finance was executed, a sum of Rs.671,841.00 was 
debited. This debit entry reflects the payment made by the 
respondent bank to the State Bank on LGI’s behalf covering 
Rs.548,400.00 availed by LGI under Part I of Export Refinance facility 
from State Bank on 27.08.1986 and Rs.123,441.00 being penalty 
imposed by State Bank on account of short fall in LGI’s exports 
under Part II of the Export Refinance facility availed earlier. Then 
there are three debit entries of Rs.60,324.00, Rs.7,080.44.00 and 
Rs.6,246.00 
dated 
24.06.1987, 
30.06.1987 
and 
27.10.1987 
respectively, all reflect payments made against State Bank’s penalty. 
There is a debit entry of Rs.103,335.00 dated 30.06.1987 towards 
charging of markup. Then there is a credit entry of Rs.29,275.80 
dated 18.03.1987 in the statement of account which is downward 
adjustment of State Bank’s penalty that was originally charged to the 
extent of Rs.123,441.00 on 25.091986. As against the recovery made 
by respondent bank against assignment of life insurance policy, a 
credit entry to the extent of Rs.138,455.00 also appears on 
22.09.1987. Then there is a credit entry dated 22.11.1987 for a sum 
of Rs.400,000.00 which represents the amount recovered against the 
consented sale of the mortgaged plot. It may be pointed out that LGI 
in its letter dated 12.05.1987 had itself stated that the outstanding 
amount would be liquidated from the proceeds of insurance policy 
assigned to the respondent bank and from the sale proceeds of the 
mortgaged plot. LGI for four long years never protested against 
adjustment of proceeds of insurance policy and sale of mortgaged 
plot. Only in the written statement filed in the recovery suit on 
CIVIL APPEAL NOs. 2105 & 2106 OF 2008 
7
15.10.1991 that LGI took the stand that no finance was availed 
under the agreement of finance dated 18.02.1987. After adjustment 
of above-referred entries in the statement of Account No. 9014-6, a 
debit balance of Rs.261,775.96 finally remained outstanding against 
LGI on 01.03.1989 and this was the amount for which respondent 
bank filed recovery suit in Banking Court in 1989.  
 
7. 
 
From the above, it is abundantly clear that in fact the 
agreement of finance dated 18.02.1987 for Rs.675,000.00 was 
executed to regularize the amount which the respondent bank had to 
pay perforce to the State Bank of Pakistan on 18.02.1987 on behalf of 
LGI. In the evidence neither Rs.548,400.00 availed by LGI from State 
Bank against Part I of the Export Refinance Scheme nor the penalty 
imposed by State Bank against Part II of such facility availed earlier 
was denied. In fact the same was acknowledged by LGI in its letters 
dated 24.11.1986 and 12.05.1987. We have also noted that in letter 
dated 12.5.1987, LGI had also acknowledged that there was an 
outstanding 
balance 
of 
Rs.640,324.10. 
This 
is 
exactly 
the 
outstanding balance, which appears in the statement of account No. 
9014-6 as on 03.04.1987. The plea of LGI that no finance was 
disbursed after execution of the finance agreement dated 18.02.1987 
for Rs.675,000.00 was though correct but it became quite evident 
from the evidence discussed above that said agreement was executed 
so that the finance is availed from respondent bank to settle 
Rs.671,841.00 owed by LGI to the State  Bank. In this background, 
the plea that no amount was disbursed after the finance agreement 
was executed on 18.02.1987 is of no legal consequence.  
 
CIVIL APPEAL NOs. 2105 & 2106 OF 2008 
8
8. 
 
Taking into consideration the admissions made by LGI in 
its letters dated 24.11.1986 and 12.05.1987 as well as the entries 
contained in LGI’s bank statement of account No. 9014-6, the 
Division Bench of the High Court while deciding both the appeals 
vide impugned judgment rightly decreed the suit for recovery filed by 
respondent bank and dismissed the suit for damages filed by LGI. 
These appeals having no merit are accordingly dismissed. 
 
 
CHIEF JUSTICE 
JUDGE 
JUDGE 
Islamabad, the  
2nd of May, 2017 
Not Approved For Reporting 
Khurram