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Petitioner: Messrs HABIB BANK LIMITED--Decree Holder VS Respondent: Messrs NATIONAL FIBERS LIMITED---Judgment Debtors
Court Name: Sindh High Court Judge(s): Munib Akhtar Title:Messrs HABIB BANK LIMITED--Decree Holder vs Messrs NATIONAL FIBERS
LIMITED---Judgment Debtors Case No.: Execution No, 36 of 2001 Date of Judgment:2015-03-17 Reported As: 2015 CLD 1351 Result: Application dismissed Judgment ORDER MUNIB AKHTAR, J.---C.M.A. 390 of 2009, which falls for determination, has been filed by persons ("Applicants") who are all related, being members of the Schon family, and are the majority shareholders of National Fibres Ltd. ("Company"). The application is for restitution (under section 144, C.P.C.) of the Company's property (being, essentially, its entire undertaking) that has been sold in an auction undertaken in the present execution proceedings. The auction-purchaser has paid the price and has been put in possession of the property, but the sale proceeds have not yet been disbursed. There are a number of claimants to the said proceeds, not least being the various banks that are the Company's creditors. The auction purchaser and some at least of the banks strongly oppose the present application. 2. Before proceeding further, certain preliminary points need to be made since, as ill appear shortly, the present C.M.A. Has been filed out of tangled circumstances and multiple proceedings. Firstly, the suit out of which the present execution proceedings arose, Suit B-85/2000, was filed by Habib Bank Ltd. ("HBL"). It was filed against the Company as the sole defendant. The suit was decreed ex parte, as prayed. Thus, HBL was the decree holder. In a manner and for reasons that need not detain me, that decree now vests in the National Bank of Pakistan ("NBP"). References to the decree-holder can therefore be to HBL or NBP but there is no material difference for present purposes. Secondly, the erstwhile National Development Finance Corporation ("NDFC") had filed a petition against the Company and others (including the applicants) under section 290 of the Companies Ordinance, 1984. This petition is material for present purposes. It is to be noted that, again in a manner and for reasons that need not be elaborated, NDFC has long since been
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absorbed into NBP. Thirdly, the applicants have, by way of abundant caution, moved an application (C.M.A. 8376 of 2009) in Suit B-85 of 2000 that is identical to the one at hand. Learned counsel for the parties were agreed that the outcome of this application will determine the fate of the other. Finally, since the narrative of the facts and the proceedings tends (unavoidably) to get rather mixed up, I have in an Annex to this decision set out the material details relating to the proceedings, as a sort of quick reference guide. 3. Learned counsel for the applicants referred to J.M. 39 of 1997, the petition filed by NDFC (and others, not now relevant) against the Company and the applicants under section 290 of the Companies Ordinance. I may note that the petitioners therein were the minority shareholders of the Company. At the time the petition was filed, the applicants constituted the Company's management. Learned counsel submitted that on 4-12-1997, by way of an interim order, the Court was pleased to displace the existing management and appoint NDFC's nominee as the chief executive till further orders. The order took effect from 5-12-1997. Learned counsel drew attention to that portion of the order where it was stated: "Besides NDFC and two other petitioners appear to be deeply interested in the revival of the company by [injecting] huge finances which would advance the interest of the company, its share holders and creditors therefore this order would be just, fair and equitable...." However, learned counsel submitted, none of this ever came about. No funds were provided and the Company was, essentially, left to die commercially. Thereafter, Suit B-85 of 2000 was filed by HBL against the Company. Learned counsel emphasized that at that time NDFC was in control of the Company and contended that although the Company was duly served in the suit, NDFC expressly chose not to oppose it. The suit therefore proceeded against the Company ex parte, and was so decreed, as prayed, on 7-12-2000 (with reasons following a few days later on 11- 12-2000). Thereafter, the present execution proceedings, Ex. 36/2001, were filed on 8-2-2001. The writ of attachment was issued on 26-3-2001 and the Nazir of the Court appointed as receiver of the Company's property with directions to sell the same. On 20-4-2001 the Official Assignee took over this role and assignment. The sale/auction proceedings went ahead and the sale was confirmed on 2-11-2001 to the highest bidder. However, a few months later the bidder, in effect, backed out and on 15-1-2002 it was ordered that the Company's property be again put up to sale/auction. In the second round, the offer of the present auction purchaser was accepted on 18-3-2002 and on 29-4-2002 the sale was confirmed. As already noted, the auction purchaser has paid the price (amounting to Rs, 452.5 million or thereabouts) and has been put in possession. 4. Learned counsel submitted that while all this was going on, the applicants filed an application in Ex 36/2001 on 20-6-2001. The application was under sections 12 and 18 of the then applicable loans/finances recovery legislation (Act XV of 1997) read with Order XXI, Rule 58, C.P.C. By this application, the applicants sought to have the ex parte decree in Suit B-85/2000 set aside. On 6-8- 2001, the Court observed that the application be treated as one under section 12(2), C.P.C., and since such application ought to be filed in the suit that had been decreed, directed that it be transferred to the file of Suit B-85/2000 and decided therein. The application was so transposed, and permitted to be formally substituted with an application under section 12(2), C.P.C., being C.M.A. 7799/2001. This application was decided by order dated 25-10-2001, and was dismissed. Against this dismissal, the applicants preferred an appeal, being Sp. H.C.A. 291/2001, which was filed on 30-10-2001. I may note that in the execution proceedings (Ex 36/2001) during the first round of auction/sale (which, as noted, proved abortive) on 2-11-2001 it was specifically brought to the Court's attention that Sp. 291/2001 had been filed. 5. It will be recalled that the sale of the Company's property was confirmed in favour of the present auction purchaser on 29-4-2002. Learned counsel for the applicants submitted that on 7-8-2002, on an application made by the applicants, it was ordered in J.M. 39/1997 that the sale proceeds obtained from the auction/sale of the Company's property not be disbursed. J.M. 39/1997 was
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ultimately disposed off by order dated 3-12-2004. This order needs to be described in some detail. By the order, the Company's board of directors, as had existed before the order of 4-12-1997 (as to which see above), was "revived". The petitioners (i,e, NDFC and others) did not oppose this, and it was expressly noted in the order that this "concession" was made by them "as the company no longer has any tangible assets". As regards the interim order of 7-8-2002, it was noted by the Court that it was stated that there was a possibility of a compromise. Reference was also made to Sp. HCA 291/2001. Keeping these factors and the submissions of learned counsel in mind, the Court ordered as follows: "In the circumstances, the order dated 7-8-2002 to remain intact till the final disposal of the said appeal or for a period of three months from today whichever is earlier. Subject to the above, the Petition is dismissed as not pressed". 6. Since, as it were, the clock was now ticking against the applicants insofar as the disbursement (or otherwise) of the sale proceeds, they made an application in Sp. H.C.A. 291/2001 seeking to have any disbursement stayed. On this application by order dated 22-3-2005 a learned Division Bench was pleased to direct that the sale proceeds should not be disbursed. Thereafter, on 25-4-2008, a compromise application (C.M.A. 615/2008) was presented in Sp. H.C.A. 291/2001. This sought to compromise the matter between the applicants (who were of course the appellants), NBP and the Company in terms as therein stated. This application was disposed of in terms of an order dated 7- 10-2008. Since both the application and the order are of importance, they need to be described in detail. The application recited that the Schon family (i,e,, the applicants) had entered into an agreement on 25-10-2005 with the National Accountability Bureau (NAB). A copy of the agreement was annexed to the application. It stated that the Schon family and the creditors of various companies under its ownership/management/control had settled the outstanding liabilities on the basis of an aggregate payment of Rs, 1.225 Billion Rupees, to be made by the Schon family in terms as stated therein. Insofar as the Company was concerned, the application recited that it was "a unit owned by the Schon family", and after referring to various creditors of the Company, stated that "to get back the vacant possession of the project", the Schon family had offered to pay collectively to NBP, Allied Bank Ltd. ("ABL") and all other creditors "a total sum of Rs, 475.125 million (which is 5% above the highest bid received for the project of Rs, 452.500 million)". It was stated that this offer had been accepted by the creditors. The application then set out the terms of the compromise as it applied, in particular, to NBP. The first clause set out the total settlement amount (the aforementioned Rs, 475.125 million) of which NBP's share (as given in clause 2) came to Rs, 262.208 million. Clause 3 set out the repayment schedule: "20% of the said amount to be paid to [NBP] shall be paid out of the amount available with NAB, and immediately upon the "Schon Family" being handed over the vacant and peaceful possession of entire assets of National Fibres Limited. Balance 80% to be paid as per Clause 3(b) of the agreement dated 25-10-2005 between NAB and the "Schon family" in 5 years after the Schon, Family receiving the vacant possession of Messrs National Fibres Limited." Clause 8 of the compromise, which bore the heading "condition precedent", needs to be set out in full: "The parties agree that upon acceptance of this compromise, the decree in Suit B-85 of 2000 and Suit No,B-79 of 2001 shall stand fully satisfied and be reversed with consent of the parties hereto and the Decree holder-NBP hereby consents and agrees that any amount received from any Bidder/Auction Purchaser by the Commissioner for sale shall be returned and vacant possession of all the assets of National Fibres Limited will be handed over to the "Schon Family". NBP would provide its NOC to High Court of Sindh, with regard to handing over the unit of National Fibres
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Limited to Schon Group and shall have no responsibility for providing vacant possession of the unit." (I may note that Suit B-79/2001 was apparently another suit filed by HBL against the Company. That suit does not require any separate consideration, and none was given to it by learned counsel.) 7. When the foregoing application C.M.A. 615/2008 came up before a learned Division Bench on 7- 10-2008, both ABL and the present auction purchaser were represented by counsel. Learned counsel for ABL submitted (as recorded in the order) that it was "mortgagor and secured creditor and their right may not be effected by the compromise". As regards the auction purchaser, learned counsel submitted that "their right may also not be effected". The learned Division Bench ordered as follows: It appears that the compromise is in between .NBP and the appellant, who are the only parties to the appeal, with no mention in it to effect any right of third party. Learned counsel of the parties to appeal submit that whatever right has already been accrued or there is any entitlement, then it will not be effected by compromise. In such circumstances, there should be no apprehension in the mind of third parties against the compromise. Mr. A. I. Chundrigar [counsel for ABL] submits that there are some disputes in respect of the Execution Application No, 36 of 2001. Mr. Mushtaq Memon [counsel for the appellants, i,e,, the applicants] submits that the Execution application may be decided on its own merits in accordance with law. He further submits that there are interim orders, which may be recalled. Since the compromise is apparently proper and is being entered into in accordance with law, while no mala fide or illegality has been pointed out or appears on the scene, hence C.M.A. No,615 of 2008 is accepted and appeal is disposed of in terms of condition laid down in the said CMA while interim orders pass earlier are recalled." (Certain typographical errors as in original) A compromise decree was drawn up accordingly in Sp. HCA 291/2001. 8. It is in the foregoing backdrop that the application presently under consideration (and the corresponding application in Suit B-85/2000) came to be filed. As noted, it- seeks an order and direction from the Court by way of restitution under section 144, C.P.C. It is prayed as follows: "... That this honourable Court may be pleased to order recall of sale proceedings and set aside the sale of property of the defendant Company which can be revived upon restitution of the immoveable property owned by it". 9. Learned counsel for the applicants relied upon three grounds in support of the application. Firstly, it was contended that the sale was void by reason of section 410 of the Companies Ordinance. Secondly, it was contended that the decree stood satisfied by reason of the compromise recorded in Sp. H.C.A. 291/2001 and that therefore there could be no sale of the Company's property and, in particular, no sale as presently at hand could be concluded. It was submitted that the sale was reversible inasmuch as it had not yet attained finality and the sale proceeds had not been disbursed. The amount could be returned to the auction purchaser and possession of the Company's property retaken. Thirdly, it was contended that since the auction purchaser had, at all material times, knowledge of the challenge to the decree, it could be set aside as his position was not of a bona fide purchaser for value without notice. 10. In support of his case under section 410 of the Companies Ordinance, learned counsel referred to section 294 thereof. This provides as follows: "In relation to an application under section 290, sections 410 to 415 shall mutatis mutandis apply as they apply in respect of winding up". Referring to the section 290 proceedings filed by NDFC against the Company, i,e, J.M. 39/1997, learned counsel relied on the order dated 4-12-1997 made therein (see above). By this order the then existing management of the Company (being the applicants) was displaced and a chief executive appointed by order of the Court. The person so appointed was the nominee of the petitioners in the JM. Learned counsel submitted that after the takeover by NDFC, it ensured that the subsequently
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filed Suit B-85/2000 was not defended or contested, which led to the (present) ex parte decree in favour of HBL. NDFC thus acted to facilitate the creditors and not the Company. It was on such decree that the execution proceedings (Ex 36/2001) were filed, which led to the sale now under challenge. Since the Company had been stripped of its property, NDFC then not press J.M. 39/1997, which was ultimately dismissed as not pressed on 3-12-2004. When the Court made the order of 4- 12-1997 directing that the then management be displaced, NDFC was allowed to take over the Company because it had undertaken to provide the necessary financing as would lead to a revival of the latter. This however, never came about. Learned counsel submitted that the order of 4-12- 1997 was a substantial order, the making of which brought section 294 and hence section 410 into play. Section 410 provides in material part as follows: "410. Avoidance of certain attachments, executions, etc .---(1) Where any company is being wound up by or subject to the supervision of the Court, any attachment, distress or execution put in force without leave of the Court against the estate or effects or any sale held without leave of the Court of any of the properties of the company after the commencement of the winding up shall be void." (Subsection (2) merely states that the section does not apply to proceedings by the Government.) It was contended that since section 410 was, by virtue of section 294, to apply "mutatis mutandis" to section 290 proceedings, and the former applied "after the commencement of the winding up", and a winding up was deemed to commence on the date when the winding up petition was presented (section 311), section 294 became applicable (at the very least) when a substantive order in relation to the affairs and management of the company was made under section 290. In the present case, that was the order of 4-12-1997, already referred to above. From that date, section 410 became applicable and any attachment of or execution on or sale of the Company's property thereafter without the permission of the Court was void. "The Court" here meant the Court while exercising its jurisdiction under the Companies Ordinance. Since admittedly no such permission had been obtained the entire sale/auction proceedings of the Company's property in Ex. 36/2001, which were of course after 4-12-1997, were void. Learned counsel submitted that section 294 could become applicable even during the pendency of the petition under section 290. In support of his case regarding the applicability of section 294 learned counsel relied on certain case-law which will be considered at the appropriate stage below. It was contended on the foregoing basis that the sale to the present auction purchaser had therefore to be declared void, with consequential relief in relation to the Company's property. 11. As regards his other grounds, learned counsel submitted that the auction purchaser had full knowledge at all material times of the challenge to the decree under which the sale/auction was proceeding. In this regard reference was made to the order dated 2-11-2001 in Ex. 36/2001. It was submitted that on that date the present auction purchaser was represented before the Court, and the order specifically noted that it was brought to the Court's attention that the applicants had filed Sp. HCA 291/2001 challenging the dismissal of their application under section 12(2), C.P.C. In terms as stated above. Reference was also made to the order dated 7-2-2002 in Ex. 36/2001, as also to the order dated 18-3-2002. On the latter date the auction purchaser was declared the successful bidder. The applicants were again represented before the Court and the order noted their appeal (i,e, Sp. HCA 291/2001). Learned counsel submitted that the rule of caveat emptor also applied to sales in execution proceedings. Now, in the very proceedings of which the auction purchaser throughout had notice and knowledge, i,e, Sp. H.C.A. 291 of 2001, the decree had been reversed by means of the compromise recorded by order dated 7-10-2008. The auction purchaser had therefore to face the consequences and could not be allowed to claim that he was a bona fide purchaser of the Company's property, who remained unaffected by the reversal of the decree. Certain case-law was relied upon but it is not necessary to set it out at this stage.
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12. As regards section 144, C.P.C. Itself, learned counsel referred in detail to the compromise that had been decreed in Sp. HCA 291/2001. Learned counsel submitted that the decree had been expressly and specifically reversed, and thus section 144 was fully applicable. Referring to the scope of section 144, learned counsel submitted (relying on certain case-law) that it conferred vast powers on the Court and had to be construed and applied accordingly. The basis of the section was that an act of the court could not prejudice or cause injury to anyone and that the Court was bound to give such directions and make all necessary orders as resulted in the rectification of the situation that had been brought about by the decree that had been reversed. Restitution followed automatically. Learned counsel prayed that the application be allowed and the sale set aside, which consequential relief to follow accordingly. 13. Learned counsel for the auction purchaser opposed the application. Learned counsel submitted that, keeping in mind the relief sought in the application, two points required consideration. Firstly, what was the effect of the compromise decree in Sp. HCA 291/2001 that was said to have reversed the decree in execution? Learned counsel contended that the compromise did not at all affect the sale proceedings in the execution. Indeed, his case was that the applicants had never opposed the sale as such; their only issue, if at all any, had been with the manner of the sale. Secondly, it was submitted that a reversal of a decree did not necessarily mean or lead to a reversal of any sale under the decree. Referring first to the decree as made in Suit B-85/2000, learned counsel submitted that there had never, as such, been an appeal against the decree itself. It will be recalled that the applicants had first filed an application ("first application") in the execution proceedings (Ex. 36/2001), which was directed to be transferred to the suit and was then substituted by the application under section 12(2), C.P.C. (that was dismissed, leading to Sp HCA 291/2001). Learned counsel referred to the first application and to another application filed in the suit, under Order I, Rule 10, C.P.C. Learned counsel submitted that both these applications were not pressed by the applicants, and were dismissed as such in the suit by order dated 5-10-2001. Learned counsel then referred to the application under section 12(2), C.P.C. As filed in the suit and to its dismissal, as just noted. Learned counsel also referred to various orders in the execution proceedings, while the sale/auction was underway. He referred in particular to the order dated 18- 3-2002, where it was recorded as follows: "Mr. Mahmood A. Khan, Advocate for the Intervenor [i,e, the applicants] makes a statement at the bar that if the property is divided then it would fetch more price. According to him this is the only objection which he likes to place before this Court. His objection is acknowledged." Learned counsel submitted that the stance taken by the applicants kept changing and no consistent position was adopted. Reference in this context was also made to para 14 of the affidavit in support of the first application. Learned counsel submitted that although the auction purchaser has paid the entire sale price and the sale has been confirmed by the Court, no appeal was filed nor any challenge mounted to any of these matters or any order relevant thereto. 14. Referring to the proceedings in Sp HCA 291/2001, learned counsel submitted that those proceedings in fact reinforced the point that the applicants had consented to the sale. Reference was made to para 6 of the "grounds" of the memo of appeal, as well as the prayer therein. In the former, the objection taken by the applicants was the property had not been sold in a "professional manner and as such the recovery from the sale of the property in [piecemeal] form or by dividing the immoveable property into small plots can be increased substantially". The relief sought in the appeal was that the decree be set aside or varied "to the extent of the actual outstanding and that the property should be sold in a manner whereby all persons having any interest in the property of the [Company] will be benefited to its maximum". This, learned counsel submitted, clearly showed that the applicants were only interested in and concerned with the manner in which the decree was executed. Learned counsel referred to the agreement dated 25-10-2005 that had been arrived
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at between the Schon family and NAB. Reference was also made to an addendum, dated 18-7- 2008, to the agreement. Clause 6 of the addendum provided as follows: "In the event of sale of any asset mentioned in the Agreement as a result of any act of any bank, and other creditors the proceeds of sale shall be considered as full and final settlement of liabilities of Schon Family and its directors in respect of assets". Thus, learned counsel contended, the sale in the present case was not disputed but rather recognized and its effect on the settlement or compromise specifically provided for. Referring to the compromise application that was filed in Sp HCA 291/2001, which led to the order of 7-10-2008 and the compromise decree, learned counsel relied on clause 8 thereof and to the observations in the order (set out above) to submit that the rights of the…
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