livelawpk.com - Effect of Sanction in Bank Financial Agreement

The Absence of a Sanction Advice for the Renewed Facilities did not Invalidate the Finance Agreement of Bank --- Lahore High Court

5 months, 3 weeks
179

The Absence of a Sanction Advice for the Renewed Facilities did not Invalidate the Finance Agreement of Bank --- Lahore High Court

Islamabad 26-06-2024: The Lahore High Court has issued a landmark judgment in favor of the National Bank of Pakistan (NBP) in a financial recovery suit amounting to over Rs. 23.35 crore. The case, [COS No. 21/2017], saw NBP suing respondent Enterprises and others for the recovery of Rs. 23,49,86,002.72 under Section 9 of the Financial Institutions (Recovery of Finances) Ordinance, 2001.

The plaintiff, NBP, sought the recovery of funds along with the costs of the suit and costs of funds from the defendants through the sale of mortgaged, pledged, and hypothecated properties. The defendants included respondent Enterprises as the principal borrower and several guarantors.

The defendants contested the suit on multiple grounds:

They argued that the personal guarantees by Defendants No. 4 to 7 were no longer valid as the renewals of the finance facilities required guarantees only from Defendants No. 2 and 3.
They claimed the bank should be responsible for any shortfall in the pledged stock.
They disputed certain charges and amounts claimed by NBP, asserting they were beyond the stipulated dates and not backed by proper documentation.

Mr. Justice Abid Aziz Sheikh found that the personal guarantees from Defendants No. 4 to 7 were not enforceable as they were excluded from the terms of the renewed finance facilities. It was determined that issues related to the pledged stock should be addressed during execution proceedings. The Court agreed with the defendants that the markup of Rs. 1.437 million charged beyond the expiry of the finance agreement was invalid and excluded this amount from the claim. The absence of a sanction advice for the renewed facilities did not invalidate the finance agreements.

The Court dismissed objections to the 'Brought Forward' and 'transfer' entries in the statement of accounts, supporting the bank’s documentation. The Court ruled that NBP had provided adequate documentation supporting the disputed LC payments.

The Lahore High Court decreed in favor of the National Bank of Pakistan, holding Defendants No. 1, 2, and 3 jointly and severally liable for Rs. 23,35,49,002.72 (excluding the excess markup). The recovery will be made through the sale of the mortgaged, pledged, and hypothecated properties. The claims against Defendants No. 4 to 7 were dismissed. The decree is converted into execution proceedings, and the bank is to submit a list of properties for recovery.

This ruling is a significant legal victory for the National Bank of Pakistan, reinforcing the enforceability of financial agreements and the responsibilities of guarantors in financial recovery suits.