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Petitioner: Messrs HUFFAZ SEAMLESS PIPE INDUSTRIES LTD. VS Respondent: SUI NORTHERN GAS JUDGMENT
Court Name: Lahore High Court Judge(s): Mian Allah Nawaz, Sharif Hussain Bokhari Title:Messrs HUFFAZ SEAMLESS PIPE INDUSTRIES LTD. vs SUI NORTHERN GAS
JUDGMENT
Reported As: 1998 CLC 1890 Result: Appeals dismissed Judgment JUDGMENT ' MIAN ALLAH NAWAZ, J.--- This judgment will govern three Intra- Court Appeals/bearing Nos.12, 13 and 18 of 1998. I.-C.A. No,12 of 1998 is by Messrs Huffaz Seemless Pipes Industries Ltd. (shortly stated as Messrs Huffaz), 1.-C.A. No,13 of 1998 is by Sui Northern Gas Pipe Lines Ltd. (briefly described as S.N.G.P.L.) and I.-C.A. No,18 of 1998 has been preferred by Messrs Ramna Pipe Lines and General Mills (Pvt.) Ltd. (hereinafter stated as Messrs Ramna Ltd.). All of these have arisen out the order passed by the learned Single Judge, dated 23-12-1997 in Writ Petition No,13164 of 1998. The aforesaid order was passed in following terms:-- "Resultantly for what has been stated above the payment of sales tax to the tune of Rs,3,83,00,000 in this manner by respondent corporation is transgression of their duty and accordingly the letter of intent issued on 21-7-1996 to respondent No,2 is declared to have been issued without lawful authority and of no legal effect. There shall be no order as to costs. ' Office is directed to send a copy of this order to Secretary, Ministry of Petroleum and Natural Resources, Government of Pakistan, Islamabad for information and taking appropriate action under the law." 2. In order to understand the competing claims of Messrs Huffaz Ltd., Messrs Ramna Ltd. And S.N.G.P.L., it is expedient, at the outset, to recount the events leading to institution of Writ Petition No,13164 of 1996. Vide an advertisement appearing in daily "Jang", dated 13-1-1996/11-1-1996, the S.N.G.P.L. Invited tenders for supply of 4,76,000 metres Steel Line Pipe (Size 4" x 0.188") at store of purchaser known as Manga Uttar Lahore. The tenders were to be opened on 11-2-1996. However, the purchaser extended the said date to 14-4-1996. The four parties namely Messrs Huffaz Ltd., Messrs
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Ramna Ltd., Pioneer Steel Mills Ltd. And Messrs Glamour Pipe Ltd., submitted their tenders which were opened on 12-4-1996. Since the tenders submitted by Messrs Pioneer Steel Mills Ltd. And Messrs Glamour Pipe Ltd. Were on high side, there was no competition between them and Messrs Huffaz Ltd. And Messrs Ramna Ltd. From the record it appears that Messrs Huffaz Ltd. And Messrs Ramna Ltd., quoted their offers in following terms:- Messrs Huffaz Ltd. Messrs Ramna Ltd. ' Rs, 362.60 per metre at Manga Uttar Store. This was inclusive of all taxes. ' The tender had a note at Serial No,3 wherein it was stated that any new levy imposed by the Government shall not be included as tender could not be submitted in that regard. ' The rate of tender shows that no break up of quoted price was given. ' Rs,381.75 per metre. This bid gave the complete break up. It stated that the pipe to be supplied was double length 12 diametres as per A.D.R.P.2 standard; 10% was to be added for jointer and it was clerified that if jointer was not acceptable please add 5% to quoted price. 3. The purchaser, instead of accepting or rejecting the aforesaid offers, started clarificatory negotiations with aforesaid two Companies. Consequently, the offers of both were put before the Bid Evaluation Committee and thereafter, before the Finance Committee on 25-6-1996. The Finance Committee agreed with the assessment of Bid Evaluation Committee and noted that offer made by Messrs Huffaz Ltd. Was only technically responsive with only one deviational conditions that taxes/levies, if increased, will not be applicable to it. The Finance Committee so recommended to Board that the offer of Messrs Huffaz Ltd. Be accepted in following terms:-- ".... ORDER Messrs Huffaz Seamless Pipe Industries (Pvt.) Ltd., Karachi Prices: Column 2 - Appendix "A" {{TABLE}} Item No, Description Quantity Steel Linepipe required (Detailed specifi- (Metres) cations as per tender enquiry). Rate F.O.R. Manga Total Autar per metre value F.O.R. (including all Manga Autar Taxes) P/Mtr. (Rs,) (Rs,) {{TABLE}} 4" x 0.188" Wt. 571,200 372.60 212,829,120 12.96 Kg./M (double random length) Total value F.O.R. Manga Autar Rs,212,829,120 (including all taxes) ' Pursuant to this report, the Board of S.N.G.P.L. Held a meeting on 21-7-1996 and approved the report of Finance Committee in following terms:-- "6.2 - It was resolved:-- ' That the award of contract for the supply of 571,200 metres of 4" x 0.188" Wt. 12.96 Kg./H (double random length) @ Rs,372.60 per mile at a total value F.O.R. Manga Autar of Rs,212,829,120 on Messrs Huffaz Seamless Pipe Industries (Pvt.) Ltd., Karachi be and is hereby approved. 6.3 - On query of a Director the management informed the Board that as envisaged under section 64-A of the Sale of Goods Act, 1930 it is obligation of the vendee to pay the sales tax liability. The Board was further informed that the Company will discharge sale tax liability subject to the condition that documentary evidence of payment of sales tax to the relevant Government authority is presented. 6.4 - That the Managing Director be and is hereby authorised to take or cause to be taken all the necessary steps to give effect to this resolution." ' Resultantly on 21-7-1996 the letter of intent in favour of Messrs Huffaz Ltd. Was issued with following terms:--
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' However, as per your Letter No,10210, dated 19-6-1996, S.N.G.P.L. Accepts to pick-up the liability of sales tax subject to the condition that documentary evidence of sales tax having been paid to the relevant ' Government authority will be submitted by you alongwith each invoice of supply of pipe." ' Feeling aggrieved, Messrs Ramna Ltd. Invoked the Constitutional jurisdiction of this Court by filing Writ Petition No,13164 of 1996 which was allowed by impugned order, dated 23-12-1997. This is how these three I.-C.As. Have come to this Court. 4. Mr. Aftab Ahmad, Advocate, entered appearance on behalf of Sui Northern Gas Pipe Lines Ltd. Ch. Khurshid Ahmad alongwith Malik Muhammad Nawaz, Advocate espoused the cause of Messrs Huffaz Ltd., while Mr. A.K. Dogar, Advocate, presented the claim of Messrs Ramna Ltd. At the conclusion of their arguments, the learned counsel for the parties submitted, their written notes which have been placed on record. The submissions made by the learned counsel for the parties can be conveniently summarised below:-- Submissions made on behalf of S.N.G.P.L. ' Firstly; that S.N.G.P.L. Was/is a private enterprises incorporated under the Companies Ordinance, 1984; that neither it performs any function of the Federal Government nor of Provincial Government, nor it is a local authority. On the strength of above contention, it was suggested that S.N.G.P.L. Was not amenable to the Constitutional jurisdiction of this Court. Reference was made to Karachi Electric Supply Corporation v. Deputy Custodian of Enemy Property 1989 ALD 501(2), National Fertilizer Marketing Ltd. v. Secretary, Local Government 1992 MLD 1203 and Salahuddin v. Frontier Sugar Mills and Distillery Ltd. PLD 1975 SC 244. ' Secondly; that the dispute, in the instant litigation, pertains to contractual obligation which cannot be enforced through writ jurisdiction of this Court. Reliance was placed on Memin Motor Co. v. R.T.A., Dacca PLD 1962 SC 108, Muzaffar-ud-Din v. Chief Settlement Commissioner 1968 SCMR 1136, Pakistan Mineral Development Corporation Ltd. v. Pakistan WAPDA PLD 1986 Quetta 181, Gul Hassan & Co. v. Federation of Pakistan 1995 CLC 1662, Sharafatullah v. Federation of Pakistan 1995 CLC 1790, Ghulam Mohyuddin v. Secretary, Industries, Punjab 1996 CLC 2041, Tauheed Traders (Pvt.) Ltd. v. Government of Punjab 1995 MLD 912, Associated Provincial Picture House Ltd. v. Wednesbury Corporation (1948) 1 KB 223, Secretary of State for Education and Science v. Tamside Metropolitan Borough Council 1977 AC 1014, Chief Constable of the North Wales Police v. Evans (1982) 3 ER 141, Council of Civil Services Union v. Minister for Civil Services (1985) I AC 374, R.V. Panel (1990) 1 QB 146, R. v. Monopolies Commission (1986) 1 WLR 763, Fasih Chaudhry v. Director-General, Doordarshan AIR 1989 SC 157, G.B. Mahajan v. Jalgaon Municipal Council AIR 1991 SC 1153, AIR 1993 SCW 683, AIR 1994 SCW 643 and AIR 1996 SC 11 Headnote "B". ' Thirdly, that the invitation to offer were called for on 11-1-1996; that the tenders were opened on 19- 4-1996; that SRO.No,669(1)/94 was issued on 4-7-1994; that this notification was supplemented by another Notification Nos.367(1)/94 on 9-5-1994; that aforesaid were rescinded vide SRO No,473(1)/96, dated 3-6-1996; that the latter notification of 1996 so annulled SRO No,669(1)/94, dated 4-7-1994; that the Board of Governors of S.N.G.P.L. Resolved to accept the offer of Messrs Huffaz Ltd. On 21-7-1996; that S.N.G.P.L. Issued the letter of intent on the same date. On the strength of above events, it was canvassed that it was the purchaser who was liable to pay the sales tax and not the seller. Submissions made on behalf of Messrs Huffaz Ltd. ' The learned counsel for Messrs Huffaz supported the line of argument of the learned counsel for S.N.G.P.L. In addition to what was argued by that learned counsel, he contended that the Government of Pakistan had issued a Petroleum Policy in March, 1994; the clause 7.82 of this policy outlined that the Central Board of Revenue. Ministry of Commerce/other Ministries shall issue SROs/saving enumerated item from levy of sales tax, import duty, fees. Continuing, the learned counsel stressed that at page 54 of that policy, exemptions were specified. Pursuant to the
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aforesaid policy, the SRO No,367(1)/94 and SRO.669(1)/94 were issued on 9-5-1994 and 4-7-1994 respectively. These notifications provided exemptions from sales tax on material which was locally manufactured and which was so certified by the Central Board of Revenue from time to time; that Notification No,669(1)/94 was to be read with Petroleum Policy and SRO No,367(1)/94; that Regulatory Authority was defined in the policy. According to the learned counsel, the perusal of Annexure "C" of Petroleum Policy indicated that till the Regulatory Authority prepared a general indicative list, shall notify and certify to Central Board of Revenue whether a Company or any items of goods were within the ambit of exemptions; that these items were to be supplied to gas pipe lines companies. On the above lines, it was maintained that Messrs Huffaz Ltd. Were not liable to pay the sales tax on the supply of pipes to S.N.G.P.L. And that their offer was not inclusive of sales tax. ' Secondly; that the Messrs Huffaz Ltd. Have completed the contract; that they had supplied the pipes to the extent of 71.1% which has been utilized by the purchaser so it was highly unjust to cancel the contract. Arguments on behalf of Messrs Ramna Ltd. ' Firstly, that the offer of Messrs Huffaz Ltd. Was vague and did not relate to double-rendum length pipe (12 metres); that the offer of Messrs Ramna Ltd. Was certain and it gave the complete break- up; that if calculation was made scientifically then the offer made by Messrs Huffaz Ltd. Comes to Rs,408.86 per metre which was higher than the offer of Messrs Ramna Ltd. i,e, Rs,381.75 per metre; that Messrs Ramna Ltd. Had, in order to drive its point, given break-up of both offers in following terms:, {{TABLE}} 315.76 - without sales tax. 1 56.84 - sales tax being 18%. 1 439.66 67.06 - 372.60 sales tax 18% 1 again. 1 {{TABLE}} ' The break-up of Messrs Ramna Ltd.'s offer was as follows:-- 323.51 - price of pipe without sales tax. 58.24 - sales tax = 381.75 ' On this score, it was submitted that the offer of Messrs Ramna Ltd. Was lower than the offer of Messrs Huffaz. ' Secondly, that the Board of Directors of S.N.G.P.L. Comprised of twelve persons out of which ten belonged to Government or Government-controlled institutions; all the loans obtained by the S.N.G.P.L. Were guaranteed by the Government of Pakistan; that the Chairman of the Board of the Company was the Secretary of the Federal Government. On these factors, it was suggested that the Sui Northern Gas Pipe Lines Ltd. Was a Company which was funded and controlled by the Federal Government and so was subject to Constitutional limitation as any other functionaries of Federation/Provinces. 5. From the foregoing narration of facts, circumstances of the case and submissions made by the learned counsel for the parties, the following questions emerge for consideration:-- (1) Whether S.N.G.P.L. Is a limited Company registered under the Companies Ordinance, 1984 and is, so, not amenable to jurisdiction of this Court under Article 199 of the Constitution of Pakistan (1973)? (2) Whether the disputes, raised in the instant litigation, pertain to contractual obligations and so no writ could be issued by this Court to enforce such obligations? (3) Whether the Stores supplied by Messrs Huffaz Ltd. To S.N.G.P.L. Were exempt from liability of payment of sales tax?
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6. In so far question No,1, it is necessary to note that this flows from expression "a person performing, within the territorial jurisdiction of the Court, functions in connection with the affairs of the Federation, a Province or a local authority" embodied in Article 199 of Constitution of Pakistan. This Article is one of the most fundamental provision in the Constitution. It enshrines what is known as doctrine of judicial review/due process of law. It empowers the Court to issue writ in the nature of mandamus, certiorari, prohibition, quo warranto and habeas corpus to functionaries of State and local authorities. This Article recognizes the powers of High Court to come to rescue of any person who is not being treated in accordance with law and is subjected to excesses or abuse by Governmental authorities. The scope of this Article was examined by a Division Bench of this Court in Flying Board Paper Production Ltd. v. Messrs Lab. A.I.D.S. Corporation, Lahore 1996 MLD 1238. After taking into consideration the rule enunciated in Romaana Dayaram Shertty v. The Internatipnal Airport Authority of India and others AIR 1979 SC 1628 and Miss Asma Mani v. The Government of the Punjab PLD 1972 SC 139. It was held:-- "(i) With the march of time the sphere of Governmental powers has been considerably widened. Public functionaries had to perform multidimensional activities i,e, giving jobs, entering into contract issuance of quotas, licences, so on and so forth, dealing with State largesse. These functionaries are the actual trustees of State and are enjoined under the law to act with reasonableness, neutrality and without any tint of arbitrariness. They are to safeguard the State largesse and must not squander/waste it by their capricious unfair actions. Their such actions are subject to judicial review of this Court. (ii) Our Governments are the Government of Laws. The State functionaries derive their powers from the Constitution and laws and are enjoined to act clearly within the sphere of their powers. Furthermore, the Governmental power, residing in such functionaries, is a sacred trust. Whenever the action/order or decision of State functionaries do not conform to above principle, this Court has power, under Article 199 to strike down such orders. In short, the Constitutional scheme leaves no room for arbitrariness, capriciousness, nepotism and jobbery. The jurisdiction embodied in Article 199 of the Constitutions sparkling jewel in the Scheme of balancing the various organs of State. It is designed to keep the mighty functionaries of the State within the ambit of their authority. In the word of Alpheus Thomas Mason, it brings the might officers of the State how high sever may be, to their heels. See Judicial Activism: 55 Virginia Law Review 411(1969). It is designed to foster justice between the parties and is not aimed to help unscrupulous, greedy persons who might invoke this jurisdiction with ulterior motive. " 7. Having examined the underlying scheme of Article 199, now we turn to core question as to whether S.N.G.P.L. Is a Company registered under the Companies Ordinance, 1984 and is not subject to judicial review. This question is not free from difficulty. Who are the persons against whom a writ can be issued, under Article 199 (ibid)? This point was considered by the Supreme Court of Pakistan in Salahuddin v. Frontier Sugar Mills and Distillery Ltd. PLD 1975 SC 244. In this case, Frontier Sugar Mills Distillery Ltd./respondent was registered as a Company under the Companies Act, 1913. The Board was headed by the Chief Minister of Province, who was later on succeeded by the Chief Secretary of Government of West Pakistan and one Director was nominated by the Government. On 23-4-1950, the shareholders of this Company added Article 139 in the Articles of Association whereby Taj Muhammad Khanzada, was appointed as the Managing Director. On 15-1- 1972, the President of Pakistan promulgated the Companies (Managing Agency and Election of Directors) Order, 1972 (President's Order 2 of 1972). On 24-1-1972, a meeting of shareholders resolved that Mr. Taj Muhammad Khanzada shall remain Managing Director for a term of three years and one Khan Sadullah Khan was also-appointed as Director. The Board of Directors' meeting held on 10-3-1972 fixed its number as nine. On 31-3-1972, the shareholders were informed that seven Directors of Company had offered themselves for re-election. The Board of Directors
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were elected and unanimously appointed Khan Fida Muhammad Khan as Chairman of the Board of Directors for a period of three years and by resolution annulled the appointment of Taj Muhammad Khanzada as Managing Director. Mr. Salahuddin Khan was appointed as Chief Executive while Taj Muhammad Khanzada as Resident Director. Against this resolution, Taj Muhammad Khanzada sued for seeking a declaration that the proceedings of a general meeting of shareholder, dated 31-3-1972 were null and void. Alongwith the suit, an application for grant of temporary injunction was moved which was dismissed. In this scenario Mr. Taj Muhammad Khanzada requisitioned the extraordinary general meeting of shareholders on 31-3-1972. Now Salahuddin Khan filed a suit on 7-6-1972 for grant of perpetual injunction and moved an application for grant of temporary injunction. The said application was dismissed by the first Court as well as by the Appellate Court and by the learned Single Judge of the Peshawar High Court on 9-3-1973. Feeling aggrieved, Salahuddin Khan filed a Civil Appeal No,8/P of 1974. This was not sufficient. Salahuddin Khan and others filed a Writ Petition No,116 of 1972 which was also dismissed by the Division Bench of Peshawar High Court on 13-12-1972. Against this order another Civil Appeal No,7/P of 1974 before the Supreme Court was filed. The Supreme Court accepted Civil Appeal No,7/P of 1974 and dismissed Civil Appeal No,8/P of 1974 as infructuous.. Taking into consideration the expression "persons used in Article 199 (ibid)" his Lordship Mr. Justice Anwarul Haq, while speaking for the Bench, said:-- "However, private organizations or persons, as distinguished from Government or semi- Government agencies and functionaries cannot be regarded as persons performing functions in connection with the affairs of the Federation of a Province simply for the reason that their activities happen to be regulated by laws made by the State. Accordingly, a joint stock company incorporated under the Companies Act, for the purpose of carrying on commercial or industrial activity for the benefit of its shareholders cannot be regarded as a person performing State functions, just for the reason that its functioning is regulated by law or that the distribution of its manufactured products is subject to Governmental control in the public interest. The primary test must always be whether the functions entrusted to the organization of person concerned are indeed functions of the State involving some exercise of sovereign or public power; whether the control of the organization vests in a substantial manner in the hands of Government; and whether the bulk of the funds is provided by the State. If these conditions are fulfilled then the person, including a body public or body corporate may indeed be regarded as a person performing functions in connection with the affairs of the Federation or a Province; otherwise not. ' Now, the Frontier Sugar Mills and Distillery Ltd., is a public limited company, incorporated under the Companies Act, 1913, like a large number of other such Companies in Pakistan. Although the Provincial Government holds preferential shares in the Company to the extent of Rs,two lacs, yet the bulk of its paid up capital of Rs, ten lacs has come from private shareholders. At one time, the Chief Minister of the Province or the Chief Secretary may have been the ex officio Chairman of the Board, but at that time of filing the writ petition the management was clearly vested in the elected Board of Directors functioning through a private person appointed as the Managing Director by the Board of Directors. In fact, under Article 139, as added in 1950, respondent Taj Muhammad Khanzada appears to have been appointed to this position for an indefinite period. In these circumstances, the Company obviously remains under its own management irrespective of the Government's right to nominate one of the Directors. The Company is not an organization or corporation created by a special statute nor is it substantially financed and controlled by the Government. The Government control is limited to those regulations which apply to all similar concerns engaged in the sugar industry. Such Governmental control of commercial or industrial activities cannot be regarded as investing joint stock companies with the character of a person performing functions in connection with the affairs of a Province or a Federation. The High Court,
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was, therefore, clearly right in holding that the Company was not amenable to the issuance of writ under clause (2)(a)(i) of Article 201 of the Interim Constitution. ' Continuing his Lordship said:-- "The final position which, therefore, emerges in the case is that while the High Court was right in thinking that the Frontier Sugar Mills and Distillery Ltd., Takht Bhai, was not a person performing function in connection with the affairs of the Federation, a Province or a local authority and, therefore, not amenable to the jurisdiction of the High Court under clauses (2)(a)(i) and (2)(a)(ii) of Article 201 of the Interim Constitution, yet clause (2)(b)(ii) of the said Article to issue a writ in the nature of quo warranto requiring the respondents to show under what authority they were holding the office of Chief Executive and Director of the Company respectively, as these offices are public offices, as distinguished from ordinary employment or service. However, while granting a declaration under clause (a)(b)(ii), referred to above, the High Court would not be in a position to order the reinstatement or restoration to office of the rightful claimant." ' The view taken in Salahuddin's case (supra) was followed by a Full Bench of this Court in Muhammad Aslam Saleemi v. Pakistan Television Corporation PLD 1977 Lah. 852, wherein it was held therein that Pakistan Television Corporation was amenable to the jurisdiction of this Court. This view was followed in Ahtramullah v. Pakistan Television Corporation 1981 PLC (C.S.) 726. 8. From the above it clearly follows that Salahuddin's case (supra), is not authority for the proposition that a Company registered under Companies Ordinance, 1984 'is insulated from judicial scrutiny. Answer to this question depends upon variety of circumstances. Clearly, with the march of time the activities of the State had multiplied manifolds. Today, the Government is the regulator and dispenser of special services, large number of benefits including jobs, contract, licences, quotas, mineral rights, leases of State lands and utility services to its citizens. The Government had assumed the role of even entrepreneur. Normally, the State does not involve itself entrepreneurial activities through its beaurocracy, but enters these fields with the help of Corporations/instrumentalities which might be created under some statute or might be registered under the Companies Ordinance, 1984. This increases the largess of State and enhances the magnitude of range of Governmental functions. Should these activities/functions of such instrumentalities be immune from principles of check and balance embodied in the Constitution? This question was attended to by famous American Judge Frankfurter in Viteralli v. Saton 359 US 535 Second Series 1012 who forcefully evolved following rule:-- "An executive agency must be rigorously held to the standards by which it professes its action to be…
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