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Petitioner: M/s. ZASHA LIMITED (PUBLIC) LIMITED COMPANY, LAHORE VS Respondent: AGRICULTURAL JUDGMENT
Court Name: Lahore High Court Judge(s): Munir A. Sheikh Title:M/s. ZASHA LIMITED (PUBLIC) LIMITED COMPANY, LAHORE vs AGRICULTURAL
JUDGMENT
Reported As: PLD 1993 Lahore 914 Result: Petition accepted Judgment JUDGMENT In this Constitutional petition the petitioner seeks issuance of a direction in the nature of mandamus to the following effect:--- "Respondent No,1 be directed to extend credit facilities and in that to disburse the remaining Foreign Currency Loan of Rs, 80,883 million excluding the amount already released and further directed respondent No,1 to release the importation costs of the machinery already imported under the First L.C. And lying at _the Karachi Port out of the amount allocated under the Head of the Local Currency Loan." 2.The facts giving rise to this Constitutional petition shortly stated are that on the request of Begum Shaheen Munawar one of the Directors of the petitioner Company financial assistance for setting up a Solvent Oil Extractioncum-Refining Plant at Chak Hyderabad, Tehsil Mian Channu, District Khanewal, sanction was accorded by the respondent-Bank for providing financial assistance of Rs, 122.733 million in the form of loan for setting up a Solvent Oil Extraction-cum-Refining Plant at Chak Hyderabad, Mian Channu, District Khanewal on interest basis against the total project cost of Rs, 176.498 million which was conveyed through letter, dated 27-11-1990. It appears from this letter that prior to that there were negotiations going on in writing for sanction of the said loan and the final approval was conveyed through this letter. This loan was further divided into two parts i,e, Foreign currency loan and Local currency loan. The Foreign currency loan was for Rs,80.883 million which was meant for imported machinery including 10% contingencies and the remaining loan was local currency loan for local machinery including contingencies, construction of Muskogee seed house,
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partial importation costs, erection and installation charges. Break-up of the total project cost as given in this sanction letter was as under:--- A.Fixed Cost (Rs, Million) -- L.C, F.C, Total. -- Land 25 acres and development 4.000 -- 4.000 -- Building and Civil Works 11.000 -- 11.000 -- Muskogee Seed House 10.000 -- 10.000 -- Plant and Machinery 17.00073.53090530 -- Importation cost 24.265 -- 24.265 -- Erection and Installation 4.500 -- 4.500 -- Furniture and fixtures 0.500 -- 0.500 -- Vehicles 1.500 -- 1.500 -- Pre-operational expenses 4.500 -- 4.500 -- Contingencies (10% of imported mach. And 5% of local machinery)0.850 7.353 8,203 -- Total Fixed Cost: 78.11580.883158.998 -- B.Net Initial Working Capital 17.500 -- 17.500 -- TOTAL PROJECT COST: 95.61580.883176.498 Under the Head Financial Plan it was provided that Sponsors' Equity would be Rs,44.915 million and General Public Equity would be Rs,8.850 million and the Equity Ratio was to be 70 : 30. 3.Para. 7 of this letter provides Disbursement Schedule. Since the argument of the learned counsel for the respondents as also of the petitioner mostly centred around the interpretation of this clause in relation to its true import and meaning which led to the controversy which has brought the petitioner before this Court, therefore, the same is reproduced below in extenso for facility of ready reference:- 7.Disbursement Schedule.---After execution of legal documents and investment of your equity towards construction of building worth Rs,11.000 million the utilization of which shall be checked through the concerned PCO to be appointed by the Project Monitoring Department, ADBP, HO, Islamabad, on the recommendations of Regional Manager, ADBP, Multan and after ensuring that the balance of Rs,53.765 million out of your equity is held by you in an acceptable form of assets to be available for investment as and when needed, loan of Rs,10.000 million-for the construction of building shall be released in appropriate instalment on item rate basis through National Tendering. Loan for locally fabricated machinery shall be released in appropriate instalment through National Tendering as per contract between you and suppliers and in accordance with the Bank's standing instructions. Loan for machinery to be imported worth Rs,80.883 million shall be released under ADB Agro Industries Credit Line No,810- Pak(SF)/811-Pak against irrevokable letter of credit to be established by you at ADBP, Model Branch, Lahore. To understand the procurement procedure of International competitive bidding, please contact Deputy Director (Procurement) of this Department at your earliest. Loan for partial importation, cost, worth Rs,9.500 million and erection and installation charges worth Rs,4.500 million shall be reimbursed to you on submission of relevant utilization vouchers. In case your equity is not invested at the time of opening of Letter of Credit, you will furnish tangible security acceptable to the Bank to cover 30% landed cost of machinery to be imported as an interim arrangement. In any case 10% security as required above will also be mortgaged with the Bank before you are allowed to establish L/C."
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4.It has also been pointed out that excepting loan of an amount of Rs,80.883 meant for import of machinery the entire part of the loan was local currency the break-up of which was given in the sanction letter itself which has been reproduced above. It included importation cost of Rs,24.265 million out of which as per disbursement clause as reproduced above an amount of Rs,9.500 million only was to be shared by the Bank and remaining was to be paid by the petitioner. It may be mentioned here that whatever amount was to be spent according to the sanction letter by the respondent under different Heads like Building and Civil Works, Erection and Installation, preoperational expenses and Importation cost the same as admitted by the learned counsel for the respondent was to form part of amount of equity which the sponsor's were required to invest or the total equity provided in the sanctioning letter. It may be mentioned here that the amount of equity was subsequently as admitted by the learned counsel for the respondent reduced from the amount given in the sanction letter as such the sponsors equity was only to the extent of Rs,26.1 million and to the same extent was the amount of general public equity. The fact that the loan as against Importation cost was Rs,24.265 million the major portion of which i,e, more than Rs, one crore as admitted by the learned counsel for the respondent was to be paid as customs duty etc. On the arrival of the machinery imported from the foreign country, therefore, this aspect of the case gains importance when in the latter part of judgment it would be discussed as to at what stage the investment of sponsor's equity was to be made and could possibly be made as much was argued in this respect. It is significant that in the disbursement schedule an express promise was made that in case of non-investment of equity at the time of opening of Letter of Credit the petitioner was required to furnish tangible security acceptable to the Bank to cover 30% landed cost of the machinery to be imported as an interim arrangement. It was also required that in any case 10% security as required above would also be mortgaged with the Bank before the petitioner was allowed to establish L.C. Since opening of Letter of Credit was an act which was relatable to the disbursement of that part of loan which was termed as foreign currency loan, therefore, this part' of the disbursement schedule is relatable to disbursement of the said part of the loan. It was admitted by the learned counsel for the respondent that subsequently as a matter of policy the requirement to provide 10% security as mentioned in this clause was waived off by the Bank, therefore, the said clause is no longer part of the sanction. 5. The first Letter of Credit was opened on the request of the petitioner by the respondent on 12-11- 1991 for import of machinery worth Rs,1,27,000,00. Since at that stage no investment as regards sponsor's equity in full had been made, therefore, the Bank as an interim arrangement under the said disbursement clause got the land owned by Shahzad Khakwani, one of the Directors of the petitioner-Company, mortgaged in favour of the Bank for an amount of Rs,35,00,000 as such, a charge to the extent of the said amount was created in favour of the Bank which was admittedly 30% of the landed cost of the machinery to be imported. The disbursement to the extent of the said amount for import of machinery out of foreign currency loan was made and machinery imported. 6.In December, 1991 the petitioner requested the Bank to open Second Letter of Credit to import machinery worth Rs,3,36,000,00. Since 30% of the landed cost of this part of the machinery was Rs,1,09,000,00 therefore, the bank required the petitioner's company to provide tangible security as interim arrangement till the amount of sponsor's equity was invested, therefore, land measuring 225 acres belonging to Begum Shaheen Munawar was mortgaged for the said amount in favour of the Bank. According to the petitioner in spite of that and repeated requests made in that behalf by the petitioner-Company the Bank put off the matter of disbursement of the second instalment of Foreign currency loan. Ultimately on 30-1-1992 the respondent-Bank intimated the petitioner that according to the revised instructions issued by the Head Office the petitioner was required to deposit 75% i,e, Rs,33.680 million of the equity (if the same had not been invested on the project) in the business deposit account to be opened in a branch of the Bank. It was also intimated that the
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petitioner should also deposit accrued to commitment charges as advised by the Head Office vide letter, dated 7-11-1991. This gave rise to the present controversy which was in the first instance brought before the Wafaqi Mohtasib by the petitioner through a complaint in which Wafaqi Mohtasib after considering the material placed before him held that the said demand by the Bank was not justified and it was directed to release the Foreign Currency Loan and open the L.C. Against the decision/direction of the Wafaqi Mohtasib the respondent-Bank filed representation before the President which was also rejected. A review application/application for seeking clarification made by the Bank before the Wafaqi Mohtasib was also rejected. Prior to that on 19-1-1993 the petitioner provided documents with regard to revised pro forma and revised agreement with the Foreign party to import the machinery and had requested the Bank to open Letter of Credit. After the dismissal of application for review the Bank intimated the petitioner that the requirement of deposit of the abovementioned amount in cash had been waived but in spite of that Letter of Credit was not open i,e, the Foreign currency loan disbursement was declined, therefore, the petitioner has filed this writ petition for issuance of a direction in the form of writ of mandamus. 7.Before proceeding with the merits of the case it is necessary to dispose of a preliminary objection raised by the learned counsel for the respondent. It was argued by him with full vehemence at his command that the rights claimed by the petitioner arise from a contract and according to firmly settled law obligations arising from contract cannot be enforced through Constitutional petition under Article 199 of the Constitution. In support of this contention he referred to a number of reported judgments and I need not dilate upon the same as there can possibly be no cavil with the said principle. Learned counsel in support of his argument referred to different paragraphs of the writ petition as also the written statement filed by the petitioner in another Writ Petition No,4466/93 filed by the Bank to challenge the legality of the order passed by the Wafaqi Mohtasib in this case to demonstrate that it was the case of the petitioner itself that there was an agreement between the parties, as such, this is a case of enforcement of contractual obligations, therefore, the writ petition should be dismissed on this ground only and there was no need to enter upon the merits of the case as the remedy of the petitioner was to file suit for damages or if the law permits to file suit for specific performance of the agreement. 8.This contention engaged my serious consideration. On the other hand learned counsel for the petitioner argued that it was not a case of enforcement of contractual obligations as the petitioner wants a direction to the Bank to abide by its promise of advancing financial assistance in the form of loan as sanctioned, therefore, it was a case which is not hit by the mischief of the rule of enforcement of contractual obligations in Constitutional jurisdiction. He relied upon judgments reported as The Gujarat State Financial Corporation v. M/s. Lotus Hotels (Pvt.) Ltd. (AIR 1983 SC 848), Pakistan through Secretary, Ministry of Commerce and 2 others v. Salah-ud-Din and 3 others PLD 1991 SC 546 and Federation of Pakistan and others v. Ch. Muhammad Aslam and others 1986 SCMR 916. 9.The argument raised by the learned counsel for the respondent though appears to be ingenious but after considering the reported judgments and subjecting the same to rigorous test and close scrutiny the same is found to be not tenable for reasons to follow. 10. The respondent-Bank has been created under the Agricultural Development Bank Ordinance, 1961 which has been declared a corporate body, therefore, it is a juristic person. According to preamble and section 16 of the Ordinance the main function of the Bank was to provide financial assistance in the form of loan to agriculturalist obviously from the resources placed at the disposal of the Bank by the State. It is actually the function of the State which the State is performing through the Bank, therefore, there can be hardly any doubt and the learned counsel for the respondent did not question the correctness of the same that the Bank being a statutory body was a person performing functions in connection with the affairs of the Federation. The financial
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assistance as regards Foreign currency loan was to be given from the resources provided to the Federation of Pakistan by Asian Development Bank which was placed at the disposal of the Bank for providing financial assistance to different agriculturists. It is implicit in the Ordinance itself that the Bank was bound in the matter of grant of financial assistance by the provisions of the A Ordinance and the rules framed under the said Ordinance. Among others Rule 11 of the Rules framed under the Ordinance provides as to in what manner, against what kinds of securities such financial assistance loan was to be given by the Bank. If the provisions of the Ordinance are read with the rules framed thereunder I feel no hesitation in holding that in the matter of grant of financial assistance the Bank has got no freedom in the settlement of terms and conditions on which the same was to be given and was bound to follow the same. One of the ingredients of a contract and contractual obligations arising therefrom and the relationship of the two parties under a contract is that both the parties must have freedom of settlement of terms and conditions of the contract, to settle the consideration, the right to revoke the same in certain circumstances, which necessary ingredients are not available in this case. The Bank as already observed was performing the functions of the State and the resources of the State placed at the disposal of the Bank were to be utilized for granting financial assistance to various persons, therefore, the sanction accorded by the Bank in hand for providing financial assistance to the petitioner in this case is an administrative act of the State performed in accordance with the provisions of the Ordinance and the Rules as such was a promise held out to the petitioner to avail of the said financial assistance from the State resources on the terms given therein, therefore, was not a contract simplicity and the rule of promissory estoppel as laid down in the reported judgments relied upon by the learned counsel for the petitioner as referred above is fully applicable. It does not make any difference that the State gave that promise in the form of a notification as was done in the judgments of the Supreme Court referred to above or the same was given to an individual in accordance with the provisions of the law and the rules. In the case of 'AIR 1983 SC 848' (supra). The Gujarat State Financial Corporation which was a similar corporate body, in performance of its statutory duty entered into an agreement to advance loan to a company for project of setting up a 4-Star Hotel. One of the conditions subject to which the said financial assistance was promised to be advanced was that the rate of interest would be 12-1/2 per cent. p.a. If re-finance is available from Industrial Development Bank of India (IDBI) at 9% p.a. Otherwise it would be 13% p.a. The Industrial Development Bank of India declined to re-finance as a consequence of which the Corporation declined to abide by its promise and advance loan, obviously, on the ground that one of the conditions had not been fulfilled. The matter was brought before the High Court in Constitutional jurisdiction. An objection was raised that since the petition had been filed for enforcement of obligations arising from a contract, therefore, the writ petition was not maintainable. This argument was repelled by the Supreme Court on the ground that the said Corporation was functioning under a Statute. It promised to advance financial assistance in performance of its statutory duty in the form of loan had the advancement of loan already sanctioned was declined on the ground not permissible within the ambit of the condition on which the same was advanced, therefore, it was held that it was a case of promissory estoppel, as such,, the Constitutional petition was maintainable. On merits it was held that the failure of IDBI to re-finance had the effect of only enhancement of rate of interest at 13% according to the promise given by the Corporation, therefore, the Corporation could not back out of its obligations arising from the solemn promise. The argument thus fails which is hereby repelled. 11.Learned counsel for the respondent when questioned as to how after having called upon the petitioner to create charge over the land measuring 225 acres owned by one of the Directors of the Company which was complied with as an interim measure which was tangible security in lieu of investment of equity for opening Second LC. The respondent-Bank could back out from its promise
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to disburse the second instalment of Foreign currency loan, argued that the petitioner was required to invest total amount of equity before claiming disbursement of loan as per policy decision of 20- 1-1992 conveyed through letter, dated 30-1-1992 and in lieu thereof to deposit an amount equal to 75% of the total amount of equity therefore, the petitioner could not claim disbursement of loan. He also argued that three of the Directors namely Raja Munawar Ahmad, Kamran Farooq Alamgir and Shahzada Suleman in their personal guarantees furnished to the Bank in pursuance of the sanction letter made false statements about ownership of the properties mentioned in the said guarantees the Directors of the Company did not deposit their share certificates as required under the terms of the sanction letter with the Bank and having also not got inspected the account books of the Company, as such, the Bank was justified for withholding the disbursement of the Foreign currency loan and opening of Letter of Credit for that purpose. 12.Learned counsel for the petitioner denied that there was any false statement made by these Directors in the personal guarantees furnished by them in regard to ownership of the properties. I have noticed that the petitioner-company was not informed about the alleged false statements made by these Directors of the Company in the personal guarantees and the first letter of Credit was opened without any such objection. This objection has been raised in these proceedings with the argument that section 24(c) of the Agricultural Development Bank Ordinance, 1961 is attracted. Section 24(c) of the said Ordinance which according to the argument was attracted is reproduced below as under:- "24(c) In the opinion of the Bank false or misleading information on any material particular has been given in the application for the relevant loan, advance or credit or in any other statement or communication made in connection with any loan, advance or credit granted to him;". It is clear from the bare reading of this clause that it is applicable in case where in the application for grant of loan, a false statement was made which led to the sanction of loan, but for which the loan would not have been sanctioned. Learned counsel relied upon the latter portion of this clause which in my opinion is not to be read disjunctively and even if the said clause is read independently and applied to any statement subsequently made in connection with the loan the same would also not be attracted inasmuch as it was admitted by learned counsel for the respondent when questioned that the Directors were not required to create charge over their properties through personal guarantees and irrespective of the fact whether any property was mentioned in the said guarantees or not, the personal guarantee itself did not have the effect of creating charge over the personal properties of the Guarantors to make it available as security for the recovery of the loan therefore any statement regarding property made in the personal guarantees has no relevance or direct nexus with the recovery of loan as none of the properties owned by Directors having been made security, could be proceeded against for reimbursement of loan. The provisions of section 24 being penal in nature are to be construed strictly. This is apart from the fact that it has been borne out from the personal guarantees furnished by Directors of Koh-i-Noor Edible Oils Limited which was accepted by the respondent-Bank, no mention of ownership of any properties by the Guarantors was made therefore, the argument has no force and is rejected. 13.Regarding the other matters i,e, inspection of account books etc. The Company was never intimated or required by the Bank to provide the same. Even in the letter, dated 30-1-1992 requiring the petitioner to deposit cash amount equal to 75% of the equity, it does not say that the petitioner failed to comply with the said conditions, therefore, it was rightly argued that these grounds have been raised as a crude attempt on the part of the Bank to justify by all means its illegal act of withholding the opening of Letter of Credit. 14.According to the sanction letter there is nothing as to which part of the equity is to be invested at what stage. This sanction letter though requires investment of equity and from its terms it is clear
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that the investment of equity could be made from time to time at different stages of disbursement and there was nothing in it that whole of it should be invested before disbursement of the loan. This construction and interpretation of the sanction letter is implicit from its terms. 15.As has already been pointed out the loan has been divided into two parts i,e, Foreign currency loan and local currency loan. One of the major part of equity is the Importation charges of Rs, 24.265 million out of which only an amount of Rs, 95,00,000 was to be shared by the Bank. The major portion of the said expenditure was to be undertaken after the import of machinery because it included the amount to be paid on account of customs duty etc., therefore, it is not possible to accept the argument of the learned counsel for the respondent that whole of equity was required to be invested before the disbursement of any portion of the loan was made. The disbursement schedule also negatives this argument of the learned counsel for the respondent as it provides that after the investment of equity towards construction of building worth Rs,11.000 million the utilization of which was to be checked, the disbursement of local currency loan of Rs,10.000 million for construction of Muskogee building was to be made only if it was ensured that the balance of Rs,53,675 million out of the petitioner's equity was held in acceptable form of assets to be available for investment as and when needed. It may significantly be noted here that the investment of Rs,11.000 million for construction of building and disbursement of loan of Rs,10.000 million for construction of Muskogree House was part of local currency loan, therefore, this arrangement relates only to…
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