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Petitioner: MUHAMMAD FAROOQ KHAN VS Respondent: SULAIMAN A. G. PANJWANI AND 2 OTHERS
Court Name: Sindh High Court Judge(s): Zaffar Hussain Mirza Title: MUHAMMAD FAROOQ KHAN vs SULAIMAN A. G. PANJWANI AND 2 OTHERS Case No.:Suit No, 297 of 1967 and Suit No, 161 of 1965 Suit No, 297 of 1967 Suit No, 161 of
JUDGMENT
Reported As: PLD 1977 Karachi 88 Result: Order accordingly Judgment JUDGMENT ' As common issues excepting one arise for decision in the two suits, this judgment will dispose of Suit No, 161 of 1965 and Suit No, 297 of 1967. 2. In Suit No, 161 of 1965, Muhammad Farooq Khan is the plaintiff and Sulaiman Panjwani, Pakistan Shipping Agencies Ltd., and Habib Bank Ltd., are the defendants. The brief facts of the case as disclosed in the Plaint are that Muhammad Farooq and Sulaiman Panjwani entered into partnership under the mire and style of Enterprisers Pan Islamic under a deed of partnership executed by them on 21-t-1964. The partnership firm had an account with the Habib Bank Foreign Exchange Branch at Karachi. It is averred in the plaint that differences having arisen between the parties the partnership was mutually dissolved and accounts were taken, settled and closed. A clearance certificate to this effect was executed by the parties on 29-7-1964 closing the accounts and the partnership business. It is contended in the plaint that plaintiff Muhammad Farooq sent intimation regarding the dissolution and settlement of accounts of the firm to Habib Bank. It was then contended that on 20-8-1964. Despite the dissolution of partnership, defendant Sulaiman Panjwani, behind the back of Muhammad Farooq and without his knowledge obtained a clean overdraft of Rs, 50,000 from Habib Bank in the name of the dissolved partnership firm and invested the same amount in his own company defendant Pakistan Shipping Agencies Ltd. It was further stated that defendant Sulaiman Panjwatu, once again obtained in the similar way two overdrafts of Rs, 100,000 each from the Habib Bank Ltd., in the name of the partnership firm and utilised the amounts for th" purposes of his company. The plaintiff Muhammad Farooq further alleged that Habib Bank Ltd., being aware of the dissolution of the firm was in collusion with defendant Sulaiman
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Panjawani, and attempted to create a liability against plaintiff Muhammad Farooq The latter averred that at the relevant time he was at Hong Kong and upon receiving information from his head office at Karachi, he immediately protested to Habib Bank Ltd., by cable personally addressed to the Deputy General Manager of the Bank, in which he reiterated the fact of the dissolution of the partnership. Plaintiff Muhammad Farooq finally complained that despite repeated correspondence Habib Bank Ltd., continued to forward to him intimation regarding accruing interest on the amount of loan and claimed the amounts from him jointly and severally with defendant Sulaiman Panjwani as partners of the firm. He challenged the authority of Sulaiman Panjawani to create liability by taking overdraft loans in the name of the dissolved firm. On the basis of these averments plaintiff Muhammad Farooq claimed the relief of declaration that he was not liable to the Habib Bank Ltd , for the overdrafts amounting to Rs, 2,50,000 and interest thereon and that the action of Habib Bank Ltd., was collusive and not binding upon him. He further claimed a declaration to the effect that defendant Sulaiman Panjawani had invested the overdraft amount in his own business carried on through Pakistan Shipping Agencies Ltd., purchasing properties and earning profits therefrom. Lastly, he claimed a permanent injunction to restrain the Habib Bank Ltd., from filing any suit or taking any legal proceedings against him on the basis of the said overdraft amounts paid to defendant Sulaiman Panjawani. 3. Defendant Sulaiman Panjawani filed written statement on behalf of himself and Pakistan Shipping Agencies Ltd., resisting the suit. In substance he admitted that he was the Managing Director of the latter company and that he had entered into partnership with plaintiff Muhammad Farooq but claimed that he invested Rs, 2,50,000 in the business of the firm. He alleged misconduct against Muhammad Farooq including misapplication of funds. On account of this, he alleged, that he demanded settlement of account whereupon Muhammad Farooq proposed for conversion of the firm into a limited company and agreed to pay some amounts due to him and further that the remaining amount due to him would be invested in the proposed company by bringing the assets of the .Firm in the company and shares issued in his name. Defendant Sulannan Panjawani asserted that this agreement was reduced into writing in a memorandum dated 29-7-1964 which was termed as clearance certificate by plaintiff Muhammad Farooq. He further alleged that terms and conditions of the aforesaid agreement were not implemented and that it was subsequently discovered that the agreement was obtained by fraud. This defendant further categorically denied that any intimation was sent to Habib Bank Ltd., regarding the alleged dissolution of partnership and alleged that plaintiff Muhammad Farooq himself kept the account with the Bank open and operative. He further stated in detail facts and circumstances alleging that plaintiff Muhammad Farooq unauthorisedly received a sum of Rs, 2,00,000 from the trade representative of U. S. S. R. In Pakistan on behalf of Pakistan Shipping Agencies Ltd., to which he was not entitled. On receiving information about this, he alleged, he confronted the facts to plaintiff Muhammad Farooq, who admitted the same and requested him to arrange a further overdraft of Rs, 2,00,000 with the Habib Bank to procure the amount for payment to Pakistan Shipping Agencies Ltd. It was m consequence of this that he arranged the amount and paid the same to the latter company. This defendant, therefore, denied the allegation of fraud and collusion between himself and Habib Bank alleged in the plaint. 4. Defendant Habib Bank Ltd., also filed a written statement resisting the suit and stated that on or about 23-1-1964, the partnership firm of Enterprisers Pan Islamic whereof Sulaiman Panjawani and Muhammad Farooq represented themselves to be the partners opened an account with the Foreign Exchange Branch of the Bank. The said two persons represented themselves on behalf of their firm to be authorised to operate upon the said account jointly and severally and did in fact operate upon and deal with Habib Bank Ltd. In their said account jointly and severally. It was - further averred that the partnership firm is and the partners represented to be a trading firm.
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Defendant Habib Bank Ltd., further contended that --the overdraft facilities in the aforesaid account of Enterprisers Pan Islamic were given by it against security and stock and goodwill of said trading firm and against lien of payment due under letters of credit. The overdraft facilities were also secured by equitable mortgage of the properties consisting of buildings and constructions on Plot No, 80/81 in Karachi Memon Cooperative Housing Society at Karachi belonging to defendant Sulaiman Panjawani. It was further disclosed that the account of firm as on 2-12-1964 showed a debit balance in the sum of Rs, 3,04,019.6 and that for the first time, on that date Habib Bank Ltd., received from plaintiff Muhammad Farooq a letter dated 24-11-1964 alleging dissolution of the firm Enterprisers Pan Islamic. The allegation of fraud and collusion were also denied by this defendant. It was categorically denied that any intimation regarding the alleged dissolution was received by the Bank prior to 2-12-1964 or that the alleged letter dated 31-7-1964 intimating dissolution of partnership by Muhammad Frooq was ever received. Further, it was contended that no public notice of the alleged dissolution was notified or publicized in newspaper as required by section 45 read with section 72 of the Partnership Act. Thus it was finally contended that the loans or overdraft facilities were obtained in the name of the partnership firm in this account and therefore Habib Bank Ltd., was entitled to call upon plaintiff Muhammad Farooq and defendant Sulaiman Panjawani to discharge their liabilities. 5. On the pleadings of the parties the Court framed as many as 18 issues. But it is not necessary to set out these issues here as subsequently the parties consented to drop them except one issue and adopt issues framed in suit No, 297 of 1967 filed by Habib Bank Ltd. 6. Coming now to the last mentioned suit (Suit No, 297 of 1967), this suit has been filed, as mentioned above, by Habib Bank Ltd., against the partnership firm Enterprisers Pan Islamic, Muhammad Farooq Khan, and Sulaiman Panjawani, in respect of transactions of loan obtained by the latter in the partnership account from Habib Bank Ltd., in controversy in the previous suit. The case of Habib Bank Ltd., in this suit is substantially the same as disclosed in their written statement substance of which has seen reproduced above. It was alleged that defendant Sulaiman Panjawani authorized and representing himself to be authorised obtained cash credit or loan and overdraft facilities. The latter on behalf of the firm and on his own behalf between 22-4-1964 and 21-11-1974 executed and signed promissory notes, papers and documents in respect of the aforesaid loan and other facilities. The Habib Bank Ltd., claimed a sum of Rs, 3,87,33-.43 as on 15-11- 67 the date of the suit. It was further alleged that defendant Suleiman Panjawani, to secure the said cash credit and loan and overdraft facilities deposited with Habib Bank Ltd., documents of title of the property details of which are mentioned above, as and by way of equitable mortgage besides securing the debts by hypothecation of goods under an agreement of hypothecation. The plaintiff in the suit further challenged the allegation 'that intimation of the alleged dissolution of the firm was given on 29-7-1964 to Habib Bank and denied having received any such intimation. The Bank claimed a decree for Rs, 3,87,337.43 with interest at 6% per annum from the date of suit until payment and preliminary mortgage decree declaring the amount due and directing defendants in suit to pay the amount in Court with usual reliefs as are claimed in mortgage suits of this nature. 7. In this suit Muhammad Farooq Khan filed written statement on behalf of the firm Enterprisers Pan Islamic and on his own behalf. He reiterated his stand viz-a-viz the liability claimed against the fires as disclosed in the previous suit filed by himself. He further challenged the authority of defendant Sulaiman Panjawani to represent the firm individually and severally for taking loans from the bank and maintained that the partnership firm stood dissolved on 29-7-1964 of which intimation was given to Habib Bank Ltd., on 31-7-1964 which was duly acknowledged. Consequently, it was contended that loans or advances obtained by defendant Sulaiman Panjawani after the date of dissolution of the firm was solely and individually the liability of the said defendant.
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8. Defendant Sulaiman Panjawani also filed the written-statement resisting this suit and substantially raising the pleas as pleaded in his written statement in the previous suit. He maintained that he was fully authorised during the currency of the partnership as its partner to act in the course of business for or on behalf of firm. He disclosed that he had filed Suit No, 152 of 1965 in this Court inter alia for dissolution of the firm and rendition of account. It was his case that the overdraft facilities were availed of by the firm upon the joint representation of the partners comprising the firm, and therefore denied the allegation that he had solely executed and signed the promissory notes, papers and other documents in support of the said transactions. He also denied that he had deposited with the plaintiff's bank documents of title of the property as alleged, with the intention or object to create an equitable mortgage thereof. He alleged that documents of title had been wrongly retained by the plaintiff bank upon misrepresentation made to him. He also denied that the overdraft was secured by hipshot reaction of goods. Further, this defendant denied the allegation that the firm of which he and Muhammad Farooq were partners was dissolved on 29-7-1964 or that the accounts were rendered by the latter. He, however, admitted that no intimation regarding the alleged dissolution was communicated to the plaintiff-Bank. According to this defendant, the partnership subsisted, on account of which he had filed Suit ; No, 152 of 1965 in this Court for rendition of account. 9. On 19-5-1969, upon the pleadings of parties in Suit No, 297 of 1967 the Court framed the following issues:- (1) Whether the firm was dissolved, if so did the plaintiffs have notice of dissolution ? Whether the Defendant No, 3 was authorized by defendants Nos. 1, 2 or under the partnership deed or in law to obtain cash, loan and overdraft facilities from the plaintiff, if not, what are its effects ? (3) Are the plaintiffs entitled to the reliefs claimed ? (4) What should be the decree if any ? (5) Whether plaintiffs are secured by mortgage and hypothecation. ; After the evidence of the parties was closed and both suits were fined for final arguments, on 26- 3-1976 on behalf of the parties it was consented that the issues framed in Suit No, 297 of 1967 be adopted as issues in Suit No, 161 of 1965 with one additional issue as under:- 'Whether the suit is maintainable ?" 10. In view of the fact that except for one issue common issues arise for decision of both suits, I would take up the consideration of each issue separately for the purpose of both suits:- ; Issue No, 1.-The question for consideration under this issue is whether upon evidence on record it is established that the firm was dissolved and it so whether notice of dissolution was served on the defendants. The question whether the firm was dissolved or not arises on account of the plea raised by Muhammad Farooq Khan whereby he disowned the liability for overdraft advances made by Habib Bank and drawn by Sulaiman Panjawani after 29-7-1964, the alleged date of dissolution, There is no doubt that the two partners entered into an agreement terms whereof were reduced into writing in a memorandum of agreement dated 7-9-1964 which is on record as (Exh. 8/1). According to the learned counsel for the plaintiff this document constitutes the deed of dissolution of the partnership as a result of which Muhammad Farooq Khan ceased to have any relationship with Sulaiman Panjawani as a partner and therefore the latter could not by his act bind the former. Mr. A. 0. Siddiqui, learned counsel appearing for Sulaiman Panjawani on the other hand contended that the document does not expressly speak of and was not intended to operate as dissolution of partnership. He referred to various facts and circumstances appearing in the evidence which according to the counsel clearly indicated that the partners continued to do business as usual, He further submitted that this conduct at least proves that the dissolution was never acted upon. Whether the partnership was dissolved or not is a question only inter se the two partners and
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therefore learned counsel for the plaintiff did not at length deal with it, as according to him in these two suits the material question was whether the alleged intimation regarding dissolution was received by the Habib Bank. If the answer to this is in the affirmative, the counsel submitted, Muhammad Farooq Khan would cease to be liable for further transactions made by Sulaiman Panjawani, irrespective of whether the firm was actually dissolved or not. If on the other hand, Habib Bank Ltd., had no notice of the dissolution through the alleged intimation or otherwise Muhammad Farooq Khan would continue to be liable to the bank for the acts of the other partner. Mr. Rahmatullah, learned counsel for ilabib Bank conceded to this and Mr. A. G. Siddiqui learned counsel for Sulaiman Panjawani did not dispute this position. On this basis Mr. Muhammad Arif frankly -conceded that Muhammad Farooq was liable for Rs, 50,000 which amount was taken by way of advance before 29-7-1964 but denied the liability for the rest of the amount which was drawn after this date by the other partner. I was told that the question whether the partnership was dissolved in fact or not is a material issue between two partners in Suit No, 152 of 1965. In this view of the matter, in my opinion, it is not necessary to decide in this suit whether the partnership was in fact dissolved or not. The only question that arises for decision is whether the Habib Bank had notice or knowledge of the alleged dissolution of partnership. Section 45 of the Partnership Act provides as under:- "(1) Notwithstanding the dissolution of a firm the partners continue to be liable as such to third parties for any act done by any of them which would have been an act of the firm if done before the dissolution in which public notice is given of the dissolution ; Provided that ............................................................................... (2) Notice under subsection (1) may be given by any partner." ; The manner of giving public notice is provided for in section 72 which is in the following termst- "A Public notice under this Act is given:- (a) Where it relates to the retirement or expulsion of a partner from a registered firm, or to the dissolution of a registered firm, or to the election to become, or not to become a partner in a registered firm by a person attaining majority who was admitted as a minor to the benefits of partnership, by notice to the Registrar of firms under section 63, and by publication in the official Gazette and in at least one vernacular newspaper circulating in the district where the firm to, which it relates has its place or principal place of business ; and rob in any other case, by publication in the local official Gazette and in at least one vernacular newspaper circulating in the district where the firm to which it relates has its place or principal place of business." ; Mr. Muhammad Arif raised two-fold contention as regards notice of dissolution to the Habib Bank Ltd. He submitted that the bank was given actual notice by Muhammad Farooq through letter dated 31-7-1964 Exh. 8/4 and in the alternative the submission was that the bank had implied notice of the fact of dissolution. Mr. Rahmatullah on the other hand contended tr at the bank had no notice actual or implied and further contended that the notice contemplated in the section 45 must necessarily be actual in view of section 72 of the Partnership Act. 11. Relying on section 72 Mr. Rehmatullah contended that even if it is assumed that actual notice was served on Habib Bank Ltd., it will not be sufficient to relieve Muhammad Farooq Khan of the liability for the dues of the Bank as that section contemplates a public notice and not a personal notice. The disputed notice is admittedly not a public notice and therefore first question for consideration is whether this constitutes a valid notice under section 45 of the Partnership Act. Now the principle underlying section 45 quite obviously is that when a firm is dissolved and no notice is given of such dissolution, people who continue to trade with it should not be affected by the dissolution. But persons who had in fact notice of such dissolution are not adversely affected by reason of absence of publi notice. Having regard to this object behind the provision it is reasonable to hold that individual notice affords higher protection than public notice as spelled out by section
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'22 of the Partnership Act. In a recent case reported as Tariq Mohsin v. Province of Sind (1) a Division Bench of this Court had occasion to construe section 45 (1) of the Partnership Act and it was observed as under; "Although no public notice of the dissolution of the firm has been given in this case, counsel's submission is that actual and individual notice is on a better footing and affords higher protection to the petitioner. I am inclined to agree." ; Two decisions from Indian jurisdiction reported as Thurnuther Rama Rao v. 7 hoda Gan Venkateswa ra Rao and (2) and Central United Bank Ltd. And another v. b. A. Venkata Rama Naida (3) were referred to in this decision. Counsel contended that the Indian decisions were based on the principle of estoppel rather than on the interpretation of sections 45 and 72. 1 have gone through these judgments and find that in both cases question of sufficiency of individual notice regarding dissolution of partnership or retirement of a partner from the partnership was considered and it was held that individual notice was sufficient even though public notice in the manner prescribed by section 72 was not served, to relieve a partner dissociating; (1) PLD 1976 Kar. 728 (2) A T R 1963 Andh. Pra. 153 (3) AIR 1963 Mad. 302 ' himself with the partnership of further liability for the debts of the partnership, Therefore, both on principle and on authority, I would hold that if it is established that if individual notice was served upon the Bank by Muhammad Farooq Khan, he would no longer be liable for debts incurred in the name of the partnership after that date. 12. This brings me to the next question whether the notice was actually served on or received by the Bank. In this connection Mr. Arid argued that letter dated 31-7-1964 was delivered in the office of Habib Bank Ltd., and copy thereof was signed on behalf of the latter which has been produced as (Exh. 8/4). This document expressly speaks of the dissolution of the firm having taken place on 29- 7-1904 and intimates the Bank that the current account in the name of the firm shall be closed and no operation of same by any one would be allowed. Upon this document there appears a rubber seal of the Habib Bank as well as initials of some one consisting of a straight line curving in a loop without further modulation. It was argued that this letter was delivered by one Hamiduz Zafar, the Accountant of the Enterprisers Pan Islamic and was delivered to Habib Bank Ltd Foreign Exchange Branch, Blinder Road, Karachi. Muhammad Farooq Khan in his deposition has testified that the intimation regarding dissolution of the firm was sent to Habib Bank Ltd., and has produced the letter (Exh. 8/41. He further states that this letter was delivered to the Bank by their accountant named Zaffar, who is dead now but had filed an affidavit in this very suit in support of this fact. The affidavit has also been produced in evidence as (Exh. 8/5). On the basis of this evidence Mr. Arif submitted that the factum of notice has been established. With regard to the initials appearing on the document, learned counsel submitted that the initials of the Bank's employee on this document are the same as the initials on the admitted documents, namely (Exh. 8/42) and (Exh. 6/23). In the cross-examination, Muhammad Usman Joint Executive Vice-President of Habib Bank Ltd., on the other hand has made the following statement :- "I see (Exh. 8/4) in Suit No, 161 of 1965. This is by the Bank to defendant No, 1, dated 7-11-1964. The initials appearing at the bottom of the letter are mine but cannot say whose initials appear in the circle. (Mr. Arif undertakes to file photo copy of this letter which will be (Exh. 6/23). This document has come from the possession of the Bank. It is not correct that the seal and the initials in (Exh. 8/4) in Suit No, 161/65 are of the Bank or any officer of the Bank respectively. I have seen the initials of Mr. Basharat, He was Officer In charge in Letter of Guarantee Department. The initials in the red circle in (Exh. 8/4) in Suit No, 161/65 appears to be similar to his." ' On the basis of the aforesaid statement counsel contended that the initials on Exh. 8/4 stands proved. He further submitted that the alleged agreement of dissolution between the partners
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dated 29-11.1964 Exh. 8/1 provided for the establishment of a company with the two partners as directors. It was submitted that the fact that a new account was opened in the name of the newly formed company on 18-11-1964 further corroborates the fact of notice, 13. Now it is apparent that the onus of proof regarding this issue lay upon plaintiff Muhammad Farooq Khan. The controversy would have been greatly resolved if the alleged signatory of the initials Mr. Basharat had appeared as a witness in the case. But at the time of evidence he was already dead. Mr. Arif has urged that even so the Bank ought to have filed its counter-affidavit rebutting the allegations made by the Accountant of the plaintiff. But I do not find much force in this contention for the simple reason that the affidavit of Hameeduz Zaffar was filed in connection with interlocutory relief and nowhere…
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