Finality of Compromise Settlements in Banking Litigation

The Islamabad High Court resolved a protracted dispute arising from the execution of a decree in favor of SME Bank against M/s Blossom Towels Industries (Private) Limited, its CEO, and his wife (E.F.A. No. 02 of 2013). The Court upheld the finality of compromise settlements recorded by the Banking Court and ruled that the appellants were bound by their earlier commitments, including the assumption of liability for the outstanding amounts owed to SME Bank.

Background:

This case has a lengthy history spanning over 25 years, starting with a finance facility of Rs. 2 million obtained by M/s Blossom Towels Industries from the Small Business Finance Corporation (now SME Bank) in 1996. The dispute escalated when Blossom defaulted on its repayment obligations, leading SME Bank to file a suit for recovery of the outstanding amount. A judgment was passed in favor of SME Bank on 12.07.2001, decreeing the recovery of Rs. 2,805,179 with markup and costs.

Several agreements for the sale of mortgaged property between Mian Muhammad Ajmal (Blossom’s CEO) and Syed Nazar Hussain Shah complicated the situation. Eventually, a compromise settlement was reached between the parties before the Banking Court, but disputes continued regarding the execution of the decree and additional liabilities claimed by SME Bank. These led to multiple rounds of litigation across various courts, culminating in the present appeal.

Key Issues:

Execution of Decree and Settlement Compliance: Whether the appellants were bound by the settlement agreement recorded by the Banking Court in 2003 and whether SME Bank's withdrawal of the decretal amount satisfied the decree.

Apportionment of Payments: Whether SME Bank’s apportionment of payments towards markup and principal was lawful and in accordance with established legal principles.

Effect of Compromise Decree: Whether the settlement recorded before the Banking Court constituted a final and binding compromise decree that precluded further litigation on the same matters.

Court's Analysis:

Binding Nature of Settlement Agreement: The Court reaffirmed that the settlement agreement recorded before the Banking Court in 2003 was a binding compromise decree. Both parties had agreed to specific terms, including the withdrawal of the amount deposited by Syed Nazar Hussain Shah. The Court held that the appellants were bound by this settlement and could not re-litigate issues that had been resolved through this compromise. Any challenge to the decree was precluded by the principle of finality.

Lawful Apportionment of Payments: The Court found that SME Bank’s apportionment of the amount withdrawn towards accrued markup and principal was in line with established legal principles. Citing the rule that payments in a debt due with interest are first applied towards interest and then towards the principal, the Court held that SME Bank acted correctly in its allocation of funds.

Finality of the Compromise Decree: The Court emphasized that the decree passed on the basis of the settlement was not only binding as a contract between the parties but also operated as res judicata, precluding further challenges. The decree was a compromise decree, which holds a unique status in law as it reflects the mutual agreement of the parties. The Court rejected the appellants’ attempts to reopen the matter, stating that they were barred from challenging the decree under the principle of finality.

Court's Conclusion: The Islamabad High Court affirmed that the settlement agreement and subsequent decree were binding on the appellants. The Court upheld SME Bank's apportionment of payments and rejected the appellants' challenges to the execution proceedings. The appellants were ordered to bear the costs of the litigation, with specific amounts payable to the Government treasury and SME Bank.

Contact Us:

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