Special High Court Appeal No.

22/2008
Habib Ahmad versus HSBC & 5 Others
MEMO By SH

This plaintiffs appeal arises from the judgment and order in suit no. 428 of 1987. The
suit was initially filed on the original side of the Sindh High Court but after promulgation
of Ordinance 25 of 1997 (Banking Companies (Recovery of Loans, Advances, Credits
and Finances) Ordinance, 1997), it became a banking suit and in 1998 it was formally
registered as a banking suit in the High Court vide order of the High Court. After the
dismissal of the suit vide judgment and order dated 08-08-2007, the present appeal was
preferred vide section 22 of the Financial Institutions (Recovery of Finances) Ordinance,
2001.
Appellant/Plaintiff who was a customer of the respondent no. 1/bank, has impugned the
sale of 2,98,000 shares of defendant no. 2/respondent no. 2 pledged/mortgaged by the
appellant/plaintiff to respondent no. 1 as security for the running finance facility of Rs. 2
crore extended to the customer. The sale of shares to respondent no. 3, 4 and 5 through
respondent no. 6 has been called in question on the grounds of fraud, collusion and mala
fide of respondents, at a price below the prevailing market price, in order to damage and
ruin the appellant and make illegal gains. Appellant therefore seeks declaration that
purported sale is non est as against appellant, an injunction that purported sale be not
given effect to by either of the respondents and claims damages to the tune of Rs. 50
million due to acts of commission and omission on part of respondents.
As part of his evidence, appellant has only examined himself, rest of the evidence is
documentary (Ex. 4/1 to Ex. 4/78). All respondents filed written statements separately.
On behalf of respondent no. 1, Mr. Nadir M Jafri, an officer of the bank was examined
and Ex. 5/1 to Ex. 5/27 were relied upon. Respondent no. 2 did not examine any one on
its behalf nor relied upon any documentary evidence. Respondent no. 3 to 6 examined
themselves and also relied upon documentary evidence (Ex 6/1 to 6/4, 71 to 7/3, 8/1 to
8/7 and 9/1 to 9/38A respectively).

Special High Court Appeal No. 22/2008

Habib Ahmad versus HSBC & 5 Others
MEMO By SH

As many as 13 issues were framed on 13-05-90 on which trial proceeded. It is however

peculiar that being a banking suit, defendants were not required to seek leave of the Court
for defending the suit as was the requirement both of the Banking Companies (Recovery
of Loans, Advances, Credits and Finances) Act, 1997 and Financial Institutions
(Recovery of Finances) Ordinance, 2001.

ISSUE WISE DISCUSSION

1. Issue no. 1 and 7 were not pressed by the counsel of the parties at the time of
arguments. These issues are as following:
a. Whether the suit as framed is maintainable?
b. Whether the suit as framed and filed by the Plaintiff is maintainable?
2. Next the Court deals with issue no. 2, 8, 9 and 10 as they relate to default in
payment and in consequent thereto sale of shares by the defendant bank. The
issues are as following:
a. Whether the sale of shares by the defendant no. 1 is illegal and void by reasons of
non-compliance of the provisions of section 62 of the Companies Ordinance,
1984?
b. Did the Plaintiff default in repaying the defendant Banks loan granted to
Plaintiff? If so, what is its effect?
c. Was the defendant bank entitled under the Pledge Agreement dated 18-02-1986 to
sell the shares pledged in its favor by plaintiff upon the latters default? If so,
what is its effect?
d. Was the sale of shares belonging to plaintiff by the defendant bank valid and
proper under the Pledge Agreements dated 18-02-1986 and the law? If so, what is
its effect?

Special High Court Appeal No. 22/2008

Habib Ahmad versus HSBC & 5 Others
MEMO By SH

3. Next, Court decides together issues no. 3, 4, 5, 11, 12 and 13 as all these issues
have been taken together by the learned counsel as they are similar in substance
and related to each other. Similarity in the issues is another reason that each and
every issue proposed by the parties was adopted (together for decision) without
their sorting (otherwise repetition would have occurred). The issues are as
following:
a. Whether in order to defraud the plaintiff the officers of defendant no. 1 in
collusion with defendants no. 3 to 6 illegally sold the shares much below the
market price?
b. Whether the sale of the shares was arranged by defendant no. 1 in collusion with
other defendants through mala fide maneuver at a time when right shares of the
order of 25% of the existing shares were going to be announced by the defendant
no. 2?
c. Whether because of illegal and fraudulent actions of the defendants, the plaintiff
has suffered direct and indirect losses? If so, to what effect?
d. Whether or not the defendants no. 3 to 6 sold and purchased the shares in
question in the normal course of business transaction in the Stock Exchange?
e. Whether defendants no. 3 to 6 had any notice of dispute, if any, between the
plaintiff and defendant no. ? if not, what is the effect?
f. Whether defendant no. 3 to 6 are liable to pay any damages to the plaintiff?
4. Lastly, issue no. 6 was decided by the Court. Issue no. 6 is as following:
What should be the decree?
5. In order to proceed further in examining appellants claim, it would be
advantageous to reproduce from the statement/affidavit in evidence of the
appellant/plaintiff dated 16-02-1997: (from para no. 6 )

Special High Court Appeal No. 22/2008

Habib Ahmad versus HSBC & 5 Others
MEMO By SH

That the Pakistani shareholders of the Boots Company (Pakistan)

Limited whose shares are in question in the present case and which is
the Defendant no. 2 herein, had at the end of 1985 offered a total
number of 446040 shares held by them in the Boots company for sale
out of which 323032 shares were offered to general public as per
approval by the Corporate Law Authority. I had realized the potential
value of these shares and decided to try and procure the maximum
number of shares and thus be in a position to take full advantage in
relation thereto. Accordingly, I made heavy purchases through a
number of brokers in early 1986; at that time I have acquired about
all the shares which were available in the market. These shares were
purchased in part through the financial facility made available to me
by the Bank. As the price of the shares shot up due to the heavy
purchases made by me, a number of brokers including Amin Esa Tai
and Jehangir Siddique, Aziz Fida Hussain as well as Ali Hussain
Rajab Ali, defendant no. 3 to 6, who felt that I would not be able to
raise the enormous cash resources necessary to finance these
purchases made heavy sales and thereby ended up in short sold
position. Under the Stock Exchange Rules, settlement of all ready
transactions in shares have to be made within a period of 7 to 14
days. As the time came for making delivery of the shares there was
widespread panic amongst the concerned brokers who were short
sold. The price accordingly jumped still higher since there were not
at that point of time enough shares in the market. The price at one
point exceeded Rs. 150 per share as against the price of
approximately Rs. 45/- per share which was prevailing at the time I
came into the market and started making purchases. These brokers
who have never forgiven me ultimately had to prevail upon one of the
then directors of the company (Mrs. Momina Chundrigar of the Adil
Group) to release a substantial amount of shares from her
holdings.The immediate consequence of the release of the
additional shares into the market illegally was that the price fell
sharply. Thus my original plan which was to be able to dispose of the
shares within a period of three months at a substantial profit and
repay the bank its dues could not be carried out.

6. In the above quotation, appellant admits that at the end of 1985 price of defendant
no. 2s share was Rs. 45/- per share and further states that it rose to Rs. 150/- per

Special High Court Appeal No. 22/2008

Habib Ahmad versus HSBC & 5 Others
MEMO By SH

share with in a period of quarter of a year solely through heavy sales made by the
appellant and consequent shortage of the shares in the market. This means that as
per admission of the Plaintiff/Appellant rise in price of shares was not real but
totally speculative, and that also due solely to the planning and activities of the
appellant himself. This speculative bubble, according to appellant exploded due to
release of the additional shares into the market illegally therefore price fell
sharply. Thus my original plan which was to be able to dispose of the shares
within a period of three months at a substantial profit and repay the bank its dues
could not be carried out.

7. It would here be advantageous, to reproduce from the statement/affidavit in

evidence dated 24-11-2003 put in by the officer of defendant no. 1 Bank: (from
para 7 to 10, 18 and 19)
That as security for the repayment of the dues to the defendant
bank, the plaintiff pledged 2,98,600 shares of Boots Company
Pakistan Limited with the defendant bank with clear authority to the
defendant bank to sell the said shares on the default of plaintiff to
clear his liabilities. It was agreed by the plaintiff that the facilities
shall not exceed more than 50% of the current market value of the
shares held in pledge by the defendant bank in terms of
endorsements made in two letters dated 18-02-1986 by the plaintiff.
However, plaintiff failed to fulfill his obligation in the matter. It may
be stated that at the time the facilities of Rs. 20 million were availed
by the Plaintiff against the shares, the market value being quoted at
the Stock Exchange of Boots Companys shares was Rs. 130 per
share. Accordingly, the said facilities granted to the Plaintiff were
on the relevant date duly secured because on the date the finance
was availed the approximate value of 298000 shares at Rs. 130 per
share was Rs. 3,88,18,000/-.
That immediately after the Plaintiff had availed the advance
facilities, the share price of Boots Company started going down in

Special High Court Appeal No. 22/2008

Habib Ahmad versus HSBC & 5 Others
MEMO By SH

the market so much so that on 27-02-1986 (i.e. hardly eight days

later) the market value came down from Rs. 130 per share to Rs. 91
per share (a decline of Rs. 39 per share) thereby reducing the value
of securities to 2, 71, 72, 600 rupees (i.e. a decrease of 11 million)
which barely covered the liabilities of the plaintiff in the sum of Rs.
2,40,00,000/-. On 6-3-1986, when the defendant bank by its letters
of date, asked the plaintiff to make immediate arrangements to
place further shares of the current value of rupees 11,042,000/- to
cover the shortfall, the price per share went down further so much
so that against total liabilities of Rs. 19999470/- the market value of
the pledged shares stood at Rs. 17916000/- only, not fully and
adequately enough to cover the outstanding liabilities.
That the Plaintiff failed and neglected to comply with the aforesaid
demand of the defendant bank to maintain the margin of the current
market value of the shares.
That the defendant bank in terms of its two letters dated 10-08-1986
and two letters dated 4-10-1986 called upon the plaintiff to make up
for the shortfall of the securities as per the terms of the Agreements
and obligations undertaken by the plaintiff. It was pointed out that
credit facilities had exceeded 50% of the current market value held
as collateral with the defendant bank. It was further pointed out that
the plaintiff had also failed to pay the mark-up amount.
That in pursuance thereof and having given due notice and several
prior warnings, the defendant bank instructed its stock broker to
commence selling the concerned shares pledged with the defendant
bank through the Stock Exchang. As a result thereof, 37,300 shares
were sold in different lots over the period of 10-5-1987 to 17-51987and till the last shares was sold, plaintiff did not raise any
objection. Whilst on 10-5-1987, the price quoted on stock exchange
was Rs. 76 per share by 17-5-1987 i.e. in a matter of eight days, the
price had fallen to Rs. 65 i.e. by a sum of Rs.11. In these
circumstances defendant bank quite legitimately apprehended that
any further efforts to sell the shares in different lots or even in one
bulk through the stock exchange would inevitably result in a further
drastic slump.

Special High Court Appeal No. 22/2008

Habib Ahmad versus HSBC & 5 Others
MEMO By SH

As it was in the interest of plaintiff and defendant bank to secure the

best sale price for the shares to reduce/liquidate the overdraft of the
plaintiff with the defendant bank, the latter instructed its stock
broker that as the share price had dropped considerably since sale
started, the stock broker should accept the offer for balance of
shares at Rs. 55 per share as soon as possible to avoid further
lowering of price.

8. It is clear from the above:

a) That at the end of 1985 price of Boots per share was 45.
b) That increase in Boots share was due to heavy speculative transactions made by
plaintiff, so much so that within a period of three months, share price shot upto
Rs. 150 per share.
c) That after reaching the extreme price of Rs. 150 per share, price began to steadily
decrease by itself or due to market forces. Thus within seven days of sanction of
facilities by the Bank, price fell from Rs. 130 per share to Rs. 91 per share.
d) That defendant bank had nothing to do with the steady slump in the price per
share in the market.
e) That Plaintiff, who is a self-confessed defaulter, was bound to maintain a
specified margin of pledged securities with respect to facilities availed which it
failed to maintain from day one.
f) That Plaintiff was reminded again and again to maintain the agreed margin, but he
always defaulted.
g) That bank ultimately had to terminate the facilities in view of persistent default by
the plaintiff in fulfilling his obligations.
h) That as plaintiff failed to deposit even the mark-up amount according to the
Agreements, the bank in order to protect itself, by a private sale of the shares,

Special High Court Appeal No. 22/2008

Habib Ahmad versus HSBC & 5 Others
MEMO By SH

which it was authorized to do, reimbursed itself partially as to the outstandings

due to the plaintiff.
i) That in all above situations, the bank acted as a prudent commercial entity, strictly
in accordance with the market practice.
9. The next issue is whether there was collusion between the bank and defendant
no. 2 to 6 regarding the sale of shares? Plaintiff in this regard has not been able to
adduce an iota of evidence beyond the mere allegation. Defendant no. 1, on the
other hand states in his affidavit in evidence at para no. 25 & 30 as following:
That the plaintiffs allegation that the defendant bank had secretly
or surreptitiously sold the shares in question or the bank had
committed any fraud in collusion with any broker is baseless and
incorrect. Having given due notice and several prior warnings, the
defendant bank in pursuance of the Pledge Agreement sold the
relevant shares of the plaintiff through the stock exchange in different
lots to secure the best possible price. When it became quite apparent
and as further confirmed by the defendant banks stock broker, that
any further effort to sell shares in different lots would result in a
drastic reduction in the value of the said shares, the defendant bank
to protect its interest made a bona fide sale in one bulk of certain
remaining shares at Rs. 55 per share. This bulk sale was also
reported in the stock exchange and indeed recorded in its daily
reports.
That in fact the plaintiffs allegations against the defendant no. 1
bank are totally baseless and without any foundation. In essence, this
constitutes defamation against the bank and bank reserves its position
in this regard to proceed against the plaintiff as advised.

10. In his cross-examination by counsel of the plaintiff, the bank deposed as under:
It is incorrect to suggest that the shares were sold by the bank in
collusion with the brokers at lower price than prevailing in the
market for the illegal gains.

Special High Court Appeal No. 22/2008

Habib Ahmad versus HSBC & 5 Others
MEMO By SH

11. Having confessed that increase in share price beyond Rs. 45 per share was
speculative and due solely to the efforts of plaintiff in this behalf, it was indeed a
contradiction in terms by the plaintiff to suggest collusion between the bank and
defendant no. 3 to 6 with regard to sale of shares at Rs. 55 per share. Bank in fact
knew all the way that increase in share price was merely speculative and therefore
when it was noticed that there was a persistent trend of slump in price, the wisest
way was adopted to dispose of the remaining shares i.e. sale by private treaty. It is
clear to any person that any security that is consistently losing its value, can only
be sold in bulk on a reduced price; otherwise nobody would be interested to have
invested its money in a losing venture.
12. The fact bearing directly on the issue of collusion is the reasonability of the sale
price of about a quarter of million shares of Boots Company. Plaintiff has failed to
offer any evidence that the price fetched was unreasonable. In fact evidence
supplied by him is grotesque as it relates merely to sale of shares in the amount of
hundreds. This has no comparison to the amount of shares sold in lots of 100000,
93400 and 93400. In this view, Plaintiff utterly failed to substantiate the allegation
of collusion.
13. The next issue relates to issuance of notice before sale by the bank to the
appellant; this was the duty of the bank under section 176 of the Contract Act as
well as the Pledge Agreement. The learned trial Court appear to have taken the
view that not only notice was issued but also that sale was with consent and
authority of the appellant in which case no notice or fresh notice was required. On
page 41 of the Judgment, the learned Judge has observed:
The objection of the Plaintiff is that pledged shares have been sold
without notice and that section 176 of the Contract Act has been
violated as no reasonable notice in terms thereof has been given. To

Special High Court Appeal No. 22/2008

Habib Ahmad versus HSBC & 5 Others
MEMO By SH

this, learned counsel for the defendants have referred Ex 5/9 and Ex
5/10 dated 28th January 1987. By these two letters, the bank has
demanded return of its finance in both the accounts maintained by the
plaintiff. The relevant para in both the letters with difference of
account number is as follows:
Further to our letter no. CBC 865131, dated 10 August
1986, we regret to note that you have not responded to
our demand for adjustment of excess appearing under
your above account.
You would appreciate that as a commercial bank we
cannot permit the present position to linger on and as
such demand the immediate adjustment of all the
outstanding under the above account alongwith update
markup accrued thereon.
Please be advised, if our above demand is not complied
with within 10 days from the date of issue of this letter
we will be constrained to start selling off the security
pledged by you with us to eliminate the said outstanding.
Both the above letters have been acknowledged by the Plaintiff for
29-01-1987 by putting following note on them
I accept the letter on condition if you allow me thirty
days (30 days) from today.
The above exhibits have not been disputed by the Plaintiff which
establishes that the bank was demanding its finance back and the
letters dated 28-1-1987 ex 5/9 (which is Ex 4/8 with the Plaintiffs
evidence) and Ex 5/10 do fulfill the requirement of section 176 of the
Contract Act. Plaintiff even after acknowledgment of the letters did
not make any efforts to pay back the finance hence action on part of
the bank by selling the shares cannot be considered in violation of the
above section of the Contract Act.

In passing, it may be said that since shares were not merely pledged but in fact
mortgaged to the bank (blank transfer deeds signed by the appellant were delivered

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Special High Court Appeal No. 22/2008

Habib Ahmad versus HSBC & 5 Others
MEMO By SH

to the bank alongwith the scrips), therefore section 176 which applies to the sale of
pledged shares will not apply to the sale of mortgaged shares. In this view of the
facts, the sale of shares by the bank even without notice to the mortgagor was
completely unexceptionable.

14. The issue that sale of pledged shares was in violation of section 62 of the
Companies Ordinance 1984 is exhaustively dealt with by the trial Court. Even
otherwise, shares were not offered to the public but sale was admittedly effected
through private treaty and therefore section 62 (1) in its terms was not applicable
to the sale transaction. This is furthered strengthened by proviso to sub-section (5)
of section 53 of the Companies Ordinance 1984 which states that:
No one shall issue any form of application for shares in or debentures
of a company, unless the form is accompanied by a prospectus which
complies with the requirement of this section:
Provided that this sub-section shall not apply if it is shown that the
form of application was issued either
i.

..

ii.

In relation to shares or debentures which were not offered to the

public

15. Next issue is Whether because of illegal and fraudulent actions of the
defendants, the plaintiff has suffered direct and indirect losses? In this regard
again Plaintiff failed to produce any evidence of comparable transaction which
could prove that shares disposed at 55 rupees per share price could have been
disposed off appreciably. Evidence produced by Plaintiff as submitted above is
grotesque as it relates to sale of shares in lot of scores or at best a few hundreds,
while transaction by Bank was to the tune of 100000 and 93400 shares which is
patently very huge as compared to transaction of 700 or 5000 shares fetching a

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Special High Court Appeal No. 22/2008

Habib Ahmad versus HSBC & 5 Others
MEMO By SH

price of 65 or even 67. In this view, Plaintiff failed to adduce any evidence to
prove that actions of defendants resulted in any direct or indirect losses to him. In
fact Plaintiff had admitted in his evidence that real price of the share in question
was merely 45 rupees and temporary appreciation in price was merely due to the
speculative and manipulative activities of Plaintiff. The speculative bubble once
burst, price of share came tumbling down. In these circumstances, price fetched
by bank for a lot of a quarter of million of shares was a very smart deal on part of
bank to which no exception could be taken.

16. As far as decision of certain issues together is concerned, the trial Court has
recorded its reason for joint disposal of certain issues which have been quoted
above. The legal position is that the objector must show that he has been
prejudiced by joint disposal of several issues instead of their decision separately.
The appellant though has objected to the joint decision of issues, has not shown as
to how and in what manner he has been prejudiced. In this view the objection of
the Appellant regarding joint decision of certain issues is not worthy of any
consideration.

17. That suit of the Plaintiff for declaration and injunction is otherwise not
maintainable. The Plaintiff should have filed a suit for the avoidance of sale of
shares on the ground of collusion; but plaintiff instead filed a suit for declaration
and injunction. Plaintiff clearly knew that he would not be able to prove collusion
therefore he very cleverly framed the suit for reliefs that suited his weak position.

18. In view of above discussion, trial court rightly dismissed the suit of the Plaintiff
and declined to give him any relief as prayed for in the Plaint. Present appeal is

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Special High Court Appeal No. 22/2008

Habib Ahmad versus HSBC & 5 Others
MEMO By SH

merely a pressurizing tactic on behalf of plaintiff to ward off the inevitable fate of
having been put to pay the amount decreed against the Appellant in suit no.
947/1992.

CASELAW
(PROOF OF FRAUD, COLLUSION: Pleading and proof; nature of evidence;
requirement of proof)
1. AIR 1926 Cal 73
2. AIR 1941 Patna 83
3. AIR 1941 PC 93
4. AIR 1954 Assam 94
5. AIR 1955 MP 417
6. PLD 1968 Kar 320
7. 1993 SCMR 145

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