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Petitioner: DIGRI SUGAR MILLS LIMITED and 2 others VS Respondent: Mian KAMRAN ILAHI through Legal Heirs and another
Court Name: Sindh High Court Judge(s): Abdul Maalik Gaddi, Munib Akhtar Title:DIGRI SUGAR MILLS LIMITED and 2 others vs Mian KAMRAN ILAHI through
Legal Heirs and another Case No.: High Court Appeal No,78 of 2014 Date of Judgment:2017-06-19 Reported As: 2018 CLD 449 Result: Appeal allowed. Judgment ORDER MUNIB AKHTAR, J.---This appeal arises out of Suit 1177/2013, filed by the present respondents against the appellants, and is against an order dated 21.03.2014 whereby the learned Single Judge was pleased to grant interim relief in terms as stated therein. Three applications were disposed off by means of the impugned order. C.M.A. 10015/2013, which may be regarded as the main application was filed by the respondents (i,e,, the plaintiffs in the Suit) seeking interim injunctive relief. On this application, an interim order was made on 20.09.2013. Another interim injunctive order was made on 06.01.2014, but the order was modified to a certain extent on 09.01.2014. Against this modification the respondents filed a review application, C.M.A. 423/2014, which is the second application that was disposed off by the impugned order. The appellants (i,e,, the defendants in the Suit) had in the meanwhile filed C.M.A. 199/2014, seeking recall of the interim orders. This was the third application disposed off by the impugned order. The ultimate result was that by the impugned order, the appellants were "directed not to dispose of/sell sugar to the extent of plaintiffs [i,e,, present respondents'] claim i,e, 21542 metric tons and/or create third party interest as ordered on 06.1.2014 till disposal of the suit". We may note at the outset that at the conclusion of the arguments, we allowed learned counsel to file written synopses and both sides did so. 2. Learned counsel for the appellants submitted that the appellant No, 1 ("appellant company") owned and operated a sugar mill, i,e,, was in the business of the manufacture and sale of sugar. Learned counsel submitted that on account of various economic and business factors, it became difficult for the appellant company to obtain full financial facilities from the normal banking sector. It was therefore forced to obtain financing also from alternative sources, at exorbitant and indeed
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usurious rates of return from various persons. It was submitted that the respondents were such persons, and the relationship between the parties, as presently relevant, was that of borrower and lender in money lending transactions, and not otherwise. However, in order to disguise and hide the true nature of the transactions, they were "dressed up" as sale of sugar agreements. Each transaction was duly supported by security being given by or on behalf of the appellant company, in the shape of post dated cheques, promissory notes and delivery orders, which served only to establish and emphasize that these were financing, and not sale, transactions. 3. Learned counsel submitted that in respect of the 2010-2011 season/crop (which was the year previous to the one presently relevant), the appellant company "sold" 6435 MT of sugar to the respondents. The sugar was delivered to the respondents. However, they had not accounted for the sale proceeds of the sugar to the appellant company, nor any given any accounting for the sugar "sold" to them. 4. Learned counsel submitted that notwithstanding the foregoing position, in the next season/crop, 2011-2012, which is relevant for present purposes, the appellant company, being in need of financing had no option but to agree to borrow moneys from the respondents. This time around, the parties entered into six agreements, dated 25.07.2011, 26.08.2011, 27.10.2011, 29.11.2011, 12.12.2011 and 12.12.2011 relating to sugar totaling 8917 MT. Learned counsel submitted that these agreements were financing agreements which were duly supported by post dated cheques, promissory notes and delivery orders, all given by way of security. However, the agreements were "dressed up" as sale agreements in order to disguise the fact that this was money lending as usurious rates. Learned counsel submitted that the sugar was in fact delivered to the respondents, which was sold by them. They recovered the amount lent and the interest/rate of return thereon, but did not (again) give any accounting to the appellant company, either of the sugar sold or the sale proceeds. 5. Learned counsel submitted that although the respondents were not rendering any accounts to the appellant company despite its repeated requests, at the same time they in order to pressurize the appellant company kept the threat of the encashment of the post dated cheques dangling over the appellant company. Since the appellant company was in difficult straits and, in effect, financial thrall to the respondents, it was forced to issue fresh cheques for the earlier post dated cheques that were becoming stale. Ultimately, in August 2013, the respondents sought to encash the cheques. Learned counsel submitted that this was notwithstanding that there had been no rendition of accounts, and the respondents had already recouped themselves from the sale proceeds of the sugar delivered but unaccounted for. This forced the appellant company to file suit in this Court on the Original Side on or about 26.08.2013 being Suit 1076/2013, seeking various reliefs, including declaratory and injunctive relief, especially in relation to the cheques that the respondents were attempting to encash. 6. Learned counsel submitted that it was as a counter blast to the appellant company's suit that the respondents filed the suit out of which the present appeal arises, i,e,, Suit 1177/2013, which was filed on or about 20.09.2013. As already noted, this suit is in relation to the transactions in respect of the 2011-2012 season/crop. Along with the suit, and thereafter in it, the three interlocutory applications, as noted in the opening paragraph above, were filed, which were ultimately disposed off by the learned Single Judge by means of the impugned order. Learned counsel referred to the plaint and in particular drew attention to the prayer clause. The relief sought was for specific performance of the six agreements referred to in para 4 above, as well as for injunctive relief in respect of 21542 MT of sugar. In the alternative the respondents prayed for damages in the sum of Rs,1 Billion for alleged breach of the six agreements. Learned counsel referred to the first of the three applications, C.M.A. 10015/2013 which was filed along with the institution of the suit. On this application on 20.09.2013 an ad-interim order was made in respect of 21542 MT of sugar. An inspection by the Nazir was also directed of the premises where the sugar
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was said to be lying. Learned counsel submitted that in fact no such quantity of sugar was lying at the premises on the said date. Reference was made to the Nazir's report, especially para 4 thereof. According to learned counsel the Nazir's report showed that a certain quantity, 4027 bags of 50 Kg each were there, which were pledged to the National Bank of Pakistan. In addition, there was another stock of 924 bags, which were not pledged. Notwithstanding, this, learned counsel submitted that a contempt application was filed alleging disobedience of the order of 20.09.2013. On this another interim injunctive order was made on 06.01.2014, and another inspection by the Nazir was ordered. The interim injunctive order was again in respect of 21542 MT of sugar. On 09.01.2014 by another order it was clarified that the sugar to which the order related was "in relation to the sugar crop for the year 2011-12". Against this latter order, the respondents filed a review application (the second of the three applications disposed off by the impugned order). 7. Referring to the impugned order, learned counsel submitted that it was clear from the reasoned portion thereof (from para 14 onwards) that the learned Single Judge was much influenced by a belief that the appellant company was in breach and disobedience of the orders made from time to time. It was respectfully submitted that this conclusion was erroneous. The appellants had not at any time disobeyed any order made in the suit. It was emphasized that the amount of (unpledged) sugar actually lying at the premises as per the Nazir's report was still there, in compliance of the order of the Court. Learned counsel emphasized that the order of 09.01.2014 made clear that the interim injunction applied only to the sugar produced for the 2011-12 season/crop and not for any subsequent season/crop. However, this was ultimately modified by the learned Singe Judge in the operative part of the impugned order. Learned counsel submitted that the six agreements (of which one was considered in detail as representative of the others; since the agreements were cast in the same form) were in truth and substance nothing but money lending and financial transactions. It was submitted that the agreements were in violation of the West Pakistan Usurious Loans Ordinance, 1959 and hence unenforceable. Reference was made in some detail to section 4 of the said Ordinance. Learned counsel submitted that the sugar had been delivered to the respondents and they had sold the same, recouped the amount lent plus the (usurious and unenforceable) interest and were bound to account to the appellant company for the balance. In this regard learned counsel referred to one of the promissory notes (which were, again, all in the same form) that were made as security and submitted that it clearly referred to being in relation to a "loan". 8. Learned counsel submitted that even if the case set out by the respondents in the plaint were accepted, namely that the transactions and hence the agreements were that of sale and purchase of sugar, even then the respondents were not entity to any interim relief. The learned Single Judge had erred material!) in reaching the contrary conclusion. It was submitted that the sale was that of sugar, which was a "fungible", i,e,, a type of commodity in which one bag could easily be replaced and substituted by another. No specific performance and hence no injunctive relief could be granted for such a commodity and in respect of a sale agreement for the same. Reference in this regard was made to the well known provisions of the Specific Relief Act, 1877, being sections 21(a) and 56(f). Learned counsel further submitted, referring to the agreements and to para 16 of the plaint, that the six agreements were for a total amount of 8917 MT, whereas the application for interim relief was. for 21542 MT. As noted above, in the plaint there was also a prayer for injunctive relief for this amount. Explaining the difference between these two quantities, which came to 12625 MT, learned counsel submitted that this represented (as per para 16 of the plaint) the sugar claimed in terms of the "default" clause in the agreements. Learned counsel submitted that any such claim (the validity of which was denied) was nothing but damages for alleged breach of contract (which also was denied) and hence no such relief could be given in interlocutory proceedings. The effect of the operative part of the impugned order was that the
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respondents' suit had been effectively decreed. Learned counsel submitted further that the damages claimed by the respondents were in addition to the relief of specific performance and not by way of an alternative. Since the respondents had quantified the amount of their loss, on this ground also no interim injunctive relief could be granted. Learned counsel submitted that the respondents had made much of the fact that the original delivery orders were still with them and hence the sugar had not been delivered to them. Explaining the appellants' case, learned counsel submitted that the sugar had been delivered. The delivery orders were issued only for security purposes and were not intended to be used. At the end of the season and once the sugar had been disposed off and accounts settled then all the security documents, including the delivery orders, were to be returned to the appellant company. Learned counsel submitted that the respondents had failed to make out a case for interim relief and that the impugned order ought to be set aside and the appeal allowed. As already noted, learned counsel also filed a written synopsis, in which the submissions were reiterated and developed and much case law cited, from which relevant passages were extracted and reproduced. 9. Learned counsel for the respondents submitted that it was well settled that in appeal, an order of the learned Single Judge would only be interfered with if it were shown that the discretion exercised by him in granting interim relief was not in accordance with the well established principles relating thereto. It was submitted that that was patently not the case here. The, learned Single Judge had exercised his discretion judiciously and in keeping with the well established principles. The appeal ought therefore to be dismissed. Learned counsel submitted that the record clearly showed, and the learned Single Judge had rightly concluded, that the delivery orders were still in the possession of the respondents. That one fact put paid to the appellants claim that the sugar under the six agreements had been delivered. That was patently not the case. Referring to the plaint, learned counsel submitted that the legal relationship established by the agreements was not that of a financing or money lending transaction, but rather of a sale and purchase. The respondents were the buyers of the sugar as stipulated in the six agreements, and the appellant 'company was the seller. Admittedly, the buyers had paid the price. They were therefore entitled to delivery of the sugar. It was submitted that the learned Single Judge had adverted to this aspect of the case in para 15 of the impugned order. Referring to the Sale of Goods Act, 1930 ("1930 Act") learned counsel placed reliance on sections 2(4) and 58 to submit that the respondents were entitled to specific performance of the six agreements and hence to injunctive relief, which was rightly granted by the learned Single Judge. It was submitted that the delivery orders were "documents of title" within the meaning of section 2(4). Each delivery order was with reference to a specific quantity of sugar to be delivered on a specific date. It was accepted that the agreements were all in respect of "future goods" (as defined in section 2(6)) and hence were agreements to sell within the meaning of section 4. Each agreement, in each relevant part, crystallized into a sale of goods on the date as given in each respective delivery order. Referring to the six agreements, learned counsel submitted that the respondents were referred to as "investor" therein (and not, e.g., as buyer) because the payments for the sugar were made upfront in full in order to enable the appellant company to produce the sugar. But, it was emphasized, regardless of the nomenclature adopted in the agreements, they were nothing but agreements for the sale and purchase of goods, i,e,, sugar. It was submitted that the substance of the agreements had to triumph over the form thereof, and the substance was as just noted. 10. In the alternative learned counsel submitted that the agreements were an agency coupled with an interest, which could not be terminated by the appellant company. Even on this basis, the respondents were entitled to interim relief. In support of the alternative claim, learned counsel referred to para 5 of the plaint. In the context of this alternative submission, learned counsel submitted that the six agreements could be regarded as composite agreements, having elements
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of both an "investment" and of agency. It was on the basis of the agreements that the respondents entered into forward contracts, i,e,, with third parties for the onward sale of the sugar. (This submission was in fact common to both the bases on which learned counsel put the respondents' case.) A huge amount of sugar was involved, and the respondents had paid an enormous sum for the same. It was simply not possible for the respondents to go into the market and purchase this quantity of sugar to meet their onward or forward commitments. Referring to the "default clause", learned counsel submitted that it was this clause that brought the total quantity of sugar to which the respondents were entitled to 21542 MT. It was submitted that this clause was an integral part of the whole transaction. The respondents were thus entitled to the whole quantity bargained for, i,e,, the amount of sugar as per the contract and the "default" quantity to be delivered in addition thereto, since the appellants were admittedly in breach of the delivery obligations. With reference to the submission that there was an agency coupled with an interest, learned counsel submitted that the respondents had a preexisting interest in the subject matter of the agreements (i,e,, the sugar) since the moneys had been paid upfront to the appellant company for its production. 11. Exercising his right of reply, learned counsel for the appellants submitted that the respondents' case failed on both bases, i,e,, as agreements for the sale of goods under the 1930 Act, or an agency coupled with interest. As regards the former, learned counsel submitted that if goods were neither specific nor ascertained, then specific performance could not be granted in terms of section 58 of the 1930 Act. That was the situation at hand. Reliance was placed on Re Wait [1927] 1 Ch. 606. Furthermore, section 58 was in any case expressly subject to Chapter II of the Specific Relief Act, and in terms of Section 21(a) (which fell in that Chapter) the respondents were not entitled to specific performance. As regards the alternate basis, learned counsel referred to a Division Bench judgment of this Court reported as Fospac (Pvt.) Ltd. v. Fosrock International and another PLD 2011 Karachi 362: It was submitted that the facts and circumstances of the case did not come within the scope of section 202 of the Contract Act (which relates to agency coupled with interest). Thus, the respondents' case failed on either ground. 12. We have heard learned counsel as above, considered the record and seen the written synopses filed. We begin with certain general observations. The first point is that this is an appeal against an order made in interlocutory proceedings, on an application for interim relief (and ancillary applications). It is for the plaintiffs (here the respondents) to establish and make out a case for such relief. That case must be made within the frame of the suit as filed by them and not otherwise, i,e,, they must make out a case for interim relief on the basis of Suit 1177/2013. It would not be appropriate for them to be allowed to make out a case, even if only in part, on the basis of what the appellants have said in the appellant company's suit, Suit 1076/2013. We must remain within the frame of Suit 1177/2013. This leads to the second point: how is Suit 1177/2013 framed? On a reading of the plaint as a whole and the submissions made before us, it is clear that the suit is framed on the basis that the six agreements were sale and purchase agreements in relation to goods, i,e,, sugar. The submission on the basis that the agreements amounted in some sense to an agency coupled with an interest was very much a subsidiary and alternate way of presenting the respondents' case. Now, when the written synopsis submitted by learned counsel for the respondents is considered, the position as set out therein is reversed. On a reading of the written synopsis it would seem that the entire case sought to be made out was primarily and essentially that of an agency coupled with an interest. The case in terms of the sale of goods finds only a brief mention, as though it was this aspect that was subsidiary. Interestingly, this appeal was earlier heard by another learned Division Bench and judgment reserved on 01.04.2014. However, judgment could not be delivered and ultimately the matter was set for rehearing as per roster, by order dated 24.12.2014. Now, when judgment had been reserved earlier learned counsel had also filed written synopses, which are on the Court file. The written synopsis then filed on behalf of the respondents
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was in stark contrast to the one now filed. Then, as far as we can make out, no submission was made on the basis that the respondents' case was that of agency coupled with an interest. Rather, the case proceeded on the basis that the agreements were sale agreements (see pp.14-23 of the earlier written synopsis). The present written synopsis therefore-presents something of a turnabout by the respondents. With respect; this is not appropriate and cannot be allowed. We will therefore consider the respondents' case on the basis that the six agreements were sale and purchase agreements in relation to sugar, i,e,, that the matter came within the scope of the 1930 Act. It is only if we conclude that the respondents have failed to make out a case on such basis that we will consider the submission that there was an agency coupled with an interest, while keeping in mind that it is very much a subsidiary and alternate argument. 13. The third point to note is that whatever be the nature of the respondents' claim (i,e,, a sale of goods or agency coupled with an interest), it must be kept in mind that the respondents seek specific performance of six particular agreements, as set out in the prayer clause of the plaint. Now, an examination of each agreement (which, as noted, are in the same form) shows that it is expressly in relation to the 2011-2012 season/crop. This is made clear from clause 3, which specifies the "commodity" to be "White Refined Sugar/Season-Crop 2011-2012". Therefore, any interim injunctive relief must be confined only to that for which specific performance has been sought. It has been noted above that in the suit the order dated 09.01.2014 made a clarification in this regard. As preseptly relevant, the order stated clearly: "Restraining orders passed on 20.09.2013 and 06.01.2014, which are continuing are in respect of 21542 metric tons of white refined sugar in relation to the sugar crop for the year 2011-2012". However, by the impugned order the order dated 09.01.2014 was recalled and the operative part now generally directed the appellants "not to dispose of/sell sugar to, the extent of plaintiffs claim i,e, 21542 metric tons and/or create third party interest as ordered on 06.1.2014 till disposal of the suit". In other words, the order now applied to any sugar manufactured by the appellant company, regardless of the season/crop. With respect, we are unable to agree that this direction/order is correct. Even if the respondents were entitled to interim relief, it had to remain within the frame of their suit, and the relief of specific performance as sought by them. The learned Single Judge, with respect, erred materially in allowing the relief granted by him to travel beyond those limits. 14. Finally, one further point, since this also would apply regardless of whether the respondents' claim is considered to be one based on the sale of goods or agency coupled with an interest. This is with respect to the difference between the quantity of sugar as per the six agreements (8917 MT) and the quantity for which injunctive relief was sought (21542 MT). The respondents explained this difference in para 16 of the plaint: "16. That in light of the above facts, the Plaintiffs are entitled to (1) 8917 Metric tons of Sugar being the quantity in the said agreements and (2) 12625 Metric Tons of sugar arising from the default clause." The total of these two quantities of course comes to 21542 MT. Now, the default clause in the agreements provided as follows (emphasis supplied): "10. Default In case of delay on the part of the Seller to provide sugar as per Quantities on the dates specified in clause 8, the rate of 70 Kgs per metric ton per month proportionally on a daily basis will be reduced from the purchase price from the Seller." The respondents' claim, in effect, and learned counsel appearing for them so argued, that if there was any delay on the part of the appellant company to supply the contractual quantity as the stipulated date(s), then the latter would be obliged to supply even more sugar (within the same price) at the rate set out in the default clause. With respect, we are unable to agree. It would be a strange default clause that provided that a seller who had breached his obligation to deliver had then to deliver even more quantity of the contractual goods. What use would such a default clause
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have for the buyer? The seller has failed to deliver. What purpose would be served by requiring him to do more of that…
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