Full Judgment Text & Judicial Ruling

P L D 1976 Karachi 149

P L D 1976 Karachi 149 Before Khuda Bakhsh Marri and Agha Ali Hyder, JJ MESSRS FATEH TEXTILE MILLS LTD., HYDERABAD ----Appellant

versus THE WEST PAKISTAN INDUSTRIAL DEVELOPMENT CORPORATION, KARACHI-Respondent Letters Patent Anneal No. 87 of 1965 decided on 15th September 1975. (a) Interpretation of documents----

---Contract deed stipulating handing over possession of Mills in suit to defendants appellants with condition that defendants appellants will manage its business and affairs on behalf of plaintiffs-respondents till such time when a public limited company shall, have been jointly sponsored and promoted by both parties in terms of promoters agreement approved by Central Government and that defendants-appellants shall consult plaintiffs-respondents before taking major decisions in business and management affairs and will prepare Memorandum and Articles of Associations of Public Limited Company with privity of plaintiffs-respondents and get it incorporated within 6 months, failing which plaintiffs-respondents were entitled to resume management of Mills-Deed subsequently executed not succinctly and clearly giving exclusive possession to defendants-appellants but enumerating con ditions and qualifications, such as, preparation of Memorandum of Articles of Association, incorporation of company, expansion of Mills by installing more spindles and looms, and issue of further share capital-Handing over of the Mills to defendants-appellants, held, qualified and conditional.-[Contract-Company].

(b) Contract Act (IX of 1872)----

-- Ss. 73 & 74-Specific Relief Act (I of 1877), S. 8-Civil Procedure Code (V of 1908), S. 9-Equity-Contention that appellants having. invested heavily on Mills in dispute deprivation of their possession would be inequitable-Delivery of possession made to appellants subject to certain conditions and appellants having wilfully avoided to comply with such conditions, contention, held, not tenable.

(c) Civil Procedure Code (V of 1908)--

----- S. 9-Specific Relief Act (I of 1877), S. 8-Contract Act (IX of 1872), Ss. 73 & 74-Breach of contract-Condition in agreement deed, requiring defendants-appellants to register and incorporate a public -limited company-Not subjected to plaintiffs-respondents undertaking to expand Mills in suit-Expansion of Mills subject to sanction of Central Government, appellants, held, should have known fact very well-Expansion if required as condition precedent, appellants, held, ought to have incorporated such condition in agreement deed-Respon dents' holding out assurance for expansion of Mills and even making efforts but Central Government not agreeing due to change in policy, disagreement of Government to plaintiff's-respondent's request for expansion of Mills, held, gave no right to defendants-appellants to refuse or delay incorporation of agreed company and other stipulated agreements-Contracting parties expected to take all necessary pre cautions regarding capacity and capability of each other to perform; their part of contract-Mere promise in futuro, upon which plaintiffs -respondents had no control, held, cannot be equated to a binding and, definite contract.--[Breach of contract].

The contention that incorporation of the company by the appellant was subject to the undertaking of the respondents to expand the Mills is not well founded. The appellants should have known very well that the Central Government was the sanctioning authority and not P. I. D. C. (plaintiffs-. respondents) and if expansion was to be a condition precedent the appellants should have seen to it that it is incorporated but that is not the case. No doubt the respondents did hold out as assurance in an agreement for expan sion of the Mills and they did make efforts in this regard, which is not denied, by the other side, but due to change of policy Central Government did not agree to it, The non-agreement of Central Government to the request of P. 1. D. C. and the respondents for expansion of the Mills does not necessarily mean that it gives a right to the appellants to refuse or delay in incorporation of the company and its other stipulated obligations. A mere "promise in futuro" upon which the respondents had no control cannot be equated to a binding and definite contract and it was not difficult for appellants to realise its implications if they intended or tried to understand it, thug the fault must lay at appellants' door, because the contracting parties are expected to take all necessary precautions with regard to capacity and capability of ea-.h other to perform their part of agreement.

(d) Contract Act (IX of 1872)----

-- Ss. 73 & 74 - Breach of contract - Government sanctioning expansion of Mills by allowing an additional number of spindles to be installed but defendants-appellants allowing such sanction to lapse and failing to respond to repeated reminders of plaintiffs-respon dents or to make representations to Government and all along taking shelter behind so-called promise of plaintiffs-respondents which was not in their power to fulfil-Defendants-appellants' conduct, held, showed unwillingness to expand Mills and to fulfil their obligation. [Breach of contract].

(e) Evidence Act (I of 1872)----

----Ss. 91 & 92-Admissibility in evidence-Interpretation of docu ments-Section 92 excludes oral evidence only to vary terms of written contract-Does not refer to question whether parties agreed to contract on terms set forth in document-Section 91 similarly excludes oral evidence as to terms of written contract-Oral evidence, hence, held, admissible to show document executed by a person as never being intended to operate as an agreement but executed solely for purpose of creating evidence about some other matter - Nothing in either section excludes oral evidence to show there being no agreement between parties - Appellants themselves producing evidence in support of their contention and such evidence supplementary to documentary evidence - Intention of appellants assessable from documentary as well as oral evidence, as a whole, oral evidence, held, not inadmissible in circumstances.-[Contract-Admissibility of evidence-Interpretation of documents].

Abdul Hamid v. Abbas Bhai-Abdul Hussain Sodawaterwala P L D 1962 S C 1; Muhammad Akram and others v. Ch. Muhammad Salim P L D 1964 Lah. 490 and Tyagraja Mudaliyar and another v. Vedathenni A I R 1963 P C 70 held not applicable.

( f ) Evidence AM (I of 1872)----

--S. 92, Provisos (2), (3) & (6) -Agreement, oral, exclusion of evidence of-Burden of proof-Separate oral, apart from documentary, agreement-Onus to prove-Lies on person alleging separate agree ment-Plea not raised in written statement filed by defendant-Not allowed to be raised so as to set up a new case.-[Burden of proof- Contract].

Shareefuddin Pirzada, N. A. Faruqui and Haider Ali Pirzada for Appellant.

Khalid M. Ishaque for Respondent.

Dates of hearing: 20th, 21st, 22nd, 27th and 28th May 1975.

JUDGMENT KHUDA BACHSH MARRI, J.-Letters Patent Appeals Nos. 87/68 and 169/68, involve the same question of law. facts and evidence, therefore, I propose to dispose of both the appeals with this judgment.

2. The facts of the dispute between the parties are given in detail and the evidence have been fully discussed in the impugned judgments of my learned brother Mr. Justice Noorul Arfin, therefore brief facts and back ground of the dispute may be stated as under:--- -

That in the year 1955, the late Mr. Ghulam Ali Talpur (hereinafter called as Mr. Talpur) obtained permission from Government of Pakistan to set up a Cotton Textile Mills under the name of "Talpur Textile Mills" with a capacity, of 25,000 spindles and 500 looms, on Mr. Talpur's land measuring 23 acres, situated at Tando Muhammad Khan, District Hyderabad. Mr. Talpur due to financial difficulties imported only 10,000 spindles and due to paucity of funds, he was unable to proceed with the constructions of the factory and the installation of the plant and machinery. As a result he approached the Pakistan Industrial Development Corporation (the P. I. D. C.) the predecessor-in-interest of the present respondent (West Pakistan Industrial Development Corporation) for assistance in setting up the Mills. The predecessor-in-interest of the respondents agreed to give assistance through participation in the venture by the Muslim Cotton Mills Limited, Dacca, to which it was the Managing Agents. Thereupon a promoters agreement was executed between these parties on 17th April 1958 (which has been filed Exh. 6) and provided for the formation of a public company with limited liability, with issued and paid-up capital of Rs. 50,00,000 and with Muslim Cotton Mills Limited as the Managing Agents. The expenses already incurred by Mr. Talpur and the expenses with Muslim Cotton Mills had to incur in the erection and installation of the Mills, were agreed to be treated as debts to the company, and to be satisfied by the issue of 46,000 fully paid-up ordinary shares of Rs. 100 each to Muslim Cotton Mills Ltd. and in regard to Mr. Talpur, by the issue of 4000 fully paid-up shares of Rs. 100 each to him, the balance due to him, being agreed to be paid in cash. In fact, the public limited liability company was not formed, though the Muslim Cotton Mills Ltd., through the P. I. D. C. completed construction of said Mills' building and the erections and installations of the plant and machinery and also brought Mills into production. Mr. Talpur was credited in the Mills' book in the sum of Rs. 6,72,492 and the Muslim Cotton Mills Limited, and later the P. I. D. C., after it had acquired the Muslim Mills' interest (these facts are not in dispute) for Rs. 62,04,338.96, for their respective investments in the mills.

3. It so happened that the then Central Government decided upon a scheme of dis-investment of the P. I. D. C. from its various ventures and enterprises. Accordingly it was decided to transfer the Management of the Talpur's Textile Mills also to a private party, for which purpose the P. I. D. C. invited, and received offers from various parties including the present appellants. As an initial step to the taking over the Mills, the appellants entered into an agreement with Mr. Talpur on 5th April 1961. This agreement is Exh. 7 and under it Mr. Talpur in considera tion of the receipt of Rs. 14,50,000 from the appellants transferred his interest in the Mills to them and to give further effect to this agreement he gave two powers of Attorney, one general power which is Exh. 8, and the other a Special Power, which is Exh. 9, to one Mr. Barkat Bhai Akbarji, who was then Chairman of the appellants' Board of Directors. In the meantime, the appellants were in negotiations with the P. 1. D. C. for the purpose of acquiring the major share in, and control of, the said Mills. Therefore, a promoter's agreement was drafted by the parties and forwarded to the Central Government for its approval under the P. I. D. C.'s letter, Exh. 17/5, dated 15th April 1961. The Government suggested changes in this agreement and therefore, on 12th May 1961, the P. I. D. C. and the appellants agreed upon, and settled the terms of another promoter's agreement, which were incorporated in the writing which is Exh. 17/6, initialed by P. W. Mr. Muhammad Akram. who was then Secretary of the P. I. D. C. and by late Mr. Barkat Hhai Akbarji on behalf of the appellants. This writing was sent to the Central Government for its approval, under the P. I. D. C.'s letter Exh. 17/7, dated 13th May 1951. The agreement contained in Exh. 17/6, inter alia, provided that-----

"(i) the P. I. D. C. and the defendants shall, with convenient speed, cause to be incorporated a public limited company under the name "Fateh Textile Mills (Subsidiary) Ltd." or such other title as the parties may agree upon, with issued and paid-up Capital of Rs. 50 lacs divided into 50 thousand shares of Rs. 100 each, out of which the defendants had to contribute Rs. 2 ,50,000 in return of issue to them of 25,500 shares, and the P. 1. D. C. Rs. 24,50,000 in consideration of the issue to it of 24,500 shares ;

(ii) the investment of the P. I. D. C. in excess of Rs. 24,50.000 would be paid to it in cash by the defendants (the amount so paid being agreed to be treated as loan by the defendants to the Mills;

(iii) the Fateh Textile Mills Limited would act as managing agents of the new company for a period of 20 years from the date of its incorporation, but the managing agency commission would be shared between the P. I. D. C. and the defendants in proportion to their investments in the share-capital of the new company;

(iv) it is contemplated that the said Mills be expended by addition of 15000 spindles and 500 looms, and if for this purpose additional share-capital is raised, the P. 1. D. C. would forego its rights under section 105-C of the Companies Act."

4. Though the terms of the promoter's agreement were settled and reduced to writing on 12th May 1961, the appellants, in anticipation of the formation and promotion of the said new company, had already begun to be associated in the management of the said mills from sometime in April 1961, and on the 6th of this month, the appellants paid Rs. 18,77,507.19 to the P. I. D. C. towards their contribution in the share-capital. On 5th April 1961, the appellants had paid Rs. 14,50,000 to Mr. Talpur under the agreement Exh. 6. These payments, therefore, I brought the appellants' contribution to 51 per cent. in the share-capital of the Company which had been agreed to be set up as aforesaid.

5. Now the approval of the Central Government to the promoter's agreement was given by letter Exh. 11, which bears the number P. I. D. C. II-10 (10)/59 and the date endorsed thereon is 1st July 1961. The approval of the agreement with a minor modification which required that the follow ing sentence in clause 3 (ii) of Exh. 17/6, should be deleted:----

"During the aforesaid period of 5 years Fateh Textile Mills shall have the right to purchase the shares of the Company held by P. I. D. C. at the aforesaid price."

6. It is the case of the respondent that Central Government's approval to the promoter's agreement was communicated to the P. I. D. C. first on telephone on 1st July 1961, whereupon P. W. Mr. Muhammad Akram immediately informed late Mr. Barkat Bhai of the appellants of this approval. The appellants then paid P. I. D. C. on the same day a cheque for Rs. 23 lacs under letter of the same date Exh. 16/1. This payment was acknowledged by the P. I D. C. by Exh 16/2, dated 3rd July 1961. The contention of the appellant is that this payment did not fully discharge the P. I D. C's. excess investment in the Mills, but was only in the nature of "on account" payment. This payment was followed by execution of the agreement Exh. 10, which, after referring to the Government's approval to the promoter's agreement, confirmed that the management of the said Mills had been handed over to the appellants w.e.f. 1st July 1961 and provided :---

"(i) that the defendants would manage the business affairs of the Mills on behalf of the P. I. D. C. until such time as the proposed limited company was formed and promoted in terms of the promoter's agreement approved by the Central Government.

(ii) that the defendants would consult the P. I. D. C. before taking any major decision, particularly, with regard to purchases of raw material and production and sale of finished goods;

(iii) that the defendants would honour all the commitment and liabilities made and incurred by the P. I. D. C. with respect to the said Mills as at 30th June 1961 ;

"(iv) that the proposed limited company would be incorporated within six moths and failing this, the P. I. D. C. would resume the management of the said Mills."

7. There is no date endoresed on Exh. 10, but both the parties agree that this document was executed on 3rd July 1961. On the next day, that is, the 4th July 1961, the terms of the promoter's agreement, which had already been agreed to between the parties were reduced to the writing Exh. 17/6, and were approved by the Central Government were incorporated into a formal document, Exh. 13, with the modification suggested by the Central Government in Exh. 17/5.

8. Though the appellants took over the management and possession of the Talpur Textile Mills on 1st July 1961, and retained the management and possession of the Mills, the public limited company, which had to be set up with all convenient speed under the promo'ter's agreement entered into on 12-5-1961 by writing Exh. 17/6 and incorporated into the formal document Exh. 13. on 4th July 1961, which was agreed to be incorporated within 6 months, from 3rd July 1916, under Exh. 10, remained to be set up and incorporated so far.

9. This is one of the grievances of the respondents against the appellants. Another grievance of the respondents is that the appellants have neglected and failed to consult them in matters concerning purchases of raw materials and production and sale of the finished goods, or even to render accounts of the business of the Mills, notwithstanding repeated demands made on them in this behalf. These were the circumstances that the respondents brought Suit No. 16 of 1963 against the appellants claiming a decree for possession of the said Mills, rendition of accounts and payment of Rs. 66,963.77. The respondents have complained that the appellants have gone back on their commitment to set up and incorporate a public limited company in accordance with the promoter's agreement, within six months from 3rd July 1961, as contained in Exh. 10, and, contrary to the provisions of this document to discharge the liabilities of the Mills which had been incurred by the P. 1. D. C. as at 30th June 1961. making it necessary for the P. I. D. C. to pay Rs. 1,78,669.68 towards these liabilities or to render accounts of the business of tile Mills, or even to consult the respondents in matters relating to the management and conduct of the affairs of the Mills, or to share the managing agency commission with the respondents.

10. On the other hand the appellants took the plea that :----

"(i) the agreement Exh. 10, executed on 3rd July 1961, was substituted by the agreement Exh. 13, which was executed on 4th July 1961, and that this latter agreement amounts to novation of the contract embodied in Exh. 10, so that the condition for the incorporation of the public limited liability company within six months had been dispensed with, and substituted by a new condition providing for incorporation of the company jointly by the plaintiffs and the defendants with "convenient speed";

(ii) that the defendants were induced by the plaintiffs to enter into the promoter's agreement and to make investments in the said Mills by the assurance that the plaintiffs would obtain sanction for expansion of the said Mills by 15,000 spindles and 500 looms and that clause (vi) of the promoter's agreement (Exh. 17/5 and Exh. 13) should, in the light of this inducement, be construed to mean that the plaintiffs had agreed and undertaken to obtain this sanction;

(iii) "that the Government's refusal to accord such sanction did not absolve the plaintiffs of their obligations in this behalf, and that this refusal have been given in collusion with the plaintiffs ;

(iv) that the plaintiffs themselves had withheld cooperation from the defendants in the formation of the proposed company, and, further, had frustrated all the efforts made by the defendant in this behalf."

11. The appellants in return filed Suit No. 115/64 against respondents the Central Government of the agreement, Annex, 'C'. Learned Single Judge on the original side by the impugned judgments dated 6-5-1968, after framing issues, recording the evidence and hearing of the parties dismissed the appellants' suit, with special costs and decreed the respondents' suit, with the directions that the Mills may immediately be delivered to the possession of the respondents, holding that there was no agreement between the respondents and the appellants to the effect that the former shall obtain Government's sanction to import the number of spindles and looms mentioned above and that no assurances in this respect was obtained either by the P. I. D. C. or its successor-in-interest the respondents or the Central and Provincial Government. As stated earlier he decreed with costs the respondent's Suit No. 16 of 1963, that the appellants shall forthwith deliver and hand over to the respondents the management and possession of the said Mills, that the appellants shall render accounts to the respondents of the business of the said Mills from 1-7-196 (sic.) up to the date the management and possession of the said Mills is delivered to the respondents and further the appellants shall pay to the respondents the latter's appropriate share in the profits of the business of the said Mills and that the appellants shall, further pay to the respondents such sums as may be found by the Commissioner to be appointed for taking accounts, to have been paid by the P. I. D. C. or the respondents towards discharge of the liabilities of the said Mills, as at 30th June 1961, which liabilities were agreed to be discharged by the appellants under the promoter's agreement or under Exh. 1.0. He further directed appointment of a Commissioner by the Court in consultation with the parties. The Commissioner was later on appointed and he has already submitted his accounts in this Court.

12. We have heard at length Mr. Sharifuddin Pirzada, Advocate, assisted: by Messrs N. A. Faruqui, K. A. Ghani and Haidar Pirzada, Advocates for the appellants and Mr. Khalid M. Ishaque Advocate, assisted by Messrs, Rashid Munir, Mushtaq Memon and Jamil Ahmed, Advocates for the respon dents. The impugned judgments are challenged mainly on the grounds that the learned Single Judge ought to have seen that the exclusive possession of the appellants was under Exh. 13 and not under Exh. 10 and that due to heavy financial investments of the appellants in the Mills the order of dispossession of the appellants was inequitable and that Exh. 10, stood rescinded and/or superseded by Exh. 13, thereupon the respondents were precluded from, reclaiming possession under Exh. 10, and this most important fact was ignored by the learned trial Judge and that the delay in the incorporation of the company on the part of the appellants was justifiable in view of the change in the respondents' stand after the execution of the agreement Exh. 13 and that the appellants have all along been ready and willing to incorporate the proposed company and that the intention of the parties as manifested by the documents on record and the oral evidence showed clearly that the possession was to remain with the appellants both before and after that and that there was mis-appreciation of evidence on record as well as construing the contracts between the parties, that the appellants have discharged its burden by oral and documentary evidence with regard to representation and undertaking relating to the P. I. D. C., obtaining sanction for expansion of the Mills, that learned Single Judge erred in holding that the burden was cast upon the appellants to produce the witnesses who bad made the representations and held out inducements and given assurances relating to expansion, because the respondents had through out summoned their then Chairman but omitted to examine him and failed to discharge the onus in this regard and that the learned Single Judge has discredited the fact that Clause 6 of the agreement has only recited the essence of the contract but it also implied the respondents' obligations relating to procuring expansion from the Central Government as per Exh. 13, and that learned trial Court has failed to see that the possession could not be claimed under an alleged agreement which was not approved by the Central Government and moreover the respondents by their writings and conduct were estopped from claiming possession and that respondents' claim for accounts, damages and possession etc. was misconceived and that the respondents ought to have sought specific performance of contract Exh. 13 if they were interested in the incorporation of the company and that the learned Single Judge grievously erred in directing the immediate delivery of the possession of the Mills and further the direction for accounts were contrary to the principles of natural justice and in fact was in excess of juris diction, that the learned trial Court has erred in not noticing the respondents admission both in regard to expansion and exclusive possession that while construing the contract he was wholly misdirected in passing the impugned, judgments and that witnesses of the respondents were totally discredited by documentary evidence and the evidence was full of inconsistencies and that the learned trial Judge should not have made…

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