Rejection of Plaint in Mortgage Dispute

In C.R. No. 198 of 2008, the Lahore High Court (LHC) addressed whether a civil suit for specific performance and damages related to a mortgaged property could proceed in the presence of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (FIO). The petitioner had filed an application under Order VII Rule 11 of the Code of Civil Procedure (CPC) for rejection of the plaint, arguing that the civil court lacked jurisdiction due to the exclusive authority of the Banking Court under Section 23(2) of the FIO.

Background:

The dispute originated from an agreement to sell dated June 7, 2004, concerning 15.2 kanals of land on Ferozepur Road, Lahore. The agreement involved the petitioner, the owner of GA Steel Re-Rolling Mills, and the respondent, who agreed to purchase the land. Key facts included that the property was mortgaged with MCB Bank against financial facilities availed by the petitioner’s company. The agreement required the petitioner to clear the bank’s mortgage liability and release the property. The respondent paid Rs. 7,640,285 directly to the Banking Court as part of the mortgage settlement.

The petitioner attempted to withdraw these deposited amounts and refused to complete the sale. The respondent filed a suit for specific performance to enforce the agreement. Later, the respondent added an alternative claim for Rs. 88,210,425 in damages, citing Clause 10 of the agreement. The petitioner filed an application under Order VII Rule 11 CPC, claiming that the civil court lacked jurisdiction due to the exclusive jurisdiction of the Banking Court under Section 23(2) of the FIO. The trial court dismissed the application on January 7, 2008, prompting the petitioner to file this revision before the Lahore High Court.

Key Issues:

Jurisdiction of Civil Court vs. Banking Court: Does a civil court have jurisdiction over disputes involving mortgaged property, or is the matter exclusively under the Banking Court’s jurisdiction under Section 23(2) of the FIO?

Validity of the Agreement to Sell and Specific Performance: Can an agreement to sell a mortgaged property be enforced, even if the mortgage has not been cleared?

Petitioner’s Conduct and Estoppel: Can the petitioner, after accepting payments towards the mortgage settlement, refuse to complete the sale and then invoke technical defenses?

Technicalities vs. Substantive Justice: Should the suit be rejected at the preliminary stage, or does it require a full trial to determine the facts and enforceability of the agreement?

Court’s Analysis:

Civil Court Jurisdiction and Banking Court’s Role: The Court rejected the petitioner’s argument that the Banking Court had exclusive jurisdiction and held that the dispute was based on an agreement to sell, not a banking transaction, making it a contractual dispute between private parties. Section 23(2) of the FIO applies to cases where a financial institution seeks to recover its dues, not to disputes over private contracts. The petitioner’s reliance on 2006 CLD 771 was misplaced, as that case dealt with direct banking claims, unlike the present case.

Enforceability of the Agreement to Sell: The agreement clearly mentioned the mortgage and required the petitioner to clear it before transferring the property. The respondent paid Rs. 7,640,285 to the Banking Court, fulfilling part of the agreement. The petitioner’s attempt to withdraw the amount and cancel the agreement was contrary to the contract’s terms.

Petitioner’s Conduct and Estoppel: The Court ruled that the petitioner could not claim the agreement was invalid after benefiting from it. The respondent acted in good faith by depositing money to clear the mortgage, while the petitioner acted in bad faith by refusing to honor the agreement.

Importance of a Full Trial: The Court emphasized that technical objections should not obstruct justice. A full trial was necessary to examine (i) the genuineness of the agreement; (ii) whether the petitioner’s refusal to complete the transaction was lawful; and (iii) whether the respondent was entitled to specific performance or damages. The Court relied on 2002 SCMR 1089 and 2008 SCMR 510, affirming that an agreement to sell does not create an interest in property until formal transfer.

Court’s Conclusion:

The civil court had jurisdiction to hear the suit, as the dispute was not covered under the Banking Court’s exclusive jurisdiction. The agreement to sell was a valid contractual obligation, and the petitioner could not evade liability after accepting payments towards the mortgage. The suit should proceed to trial, as factual disputes required evidence and could not be decided at a preliminary stage. Technical objections should not be used to defeat substantive rights, and justice required a full trial. The revision petition was dismissed, and the trial court’s decision to proceed with the case was upheld.

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