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Petitioner: THE PAKISTAN SHIPPING CORPORATION and anothers VS Respondent: RUSTAM F. COWASJEE and others
Court Name: Supreme Court of Pakistan Judge(s):Dr. Javed Iqbal, Muhammad Haleem, Shafi-ur-Rehman, Abdul Qadir
Sheikh, Syed Usman Ali Shah Title:THE PAKISTAN SHIPPING CORPORATION and anothers vs RUSTAM F. COWASJEE and others Case No.: Civil Petitions Nos. 122, 145-R and 157-R of 1982 Date of Judgment:1988-08-29 Reported As: 1989 SCMR 1332 Result: Appeal partly accepted Judgment ORDER ' SHAFIUR RAHMAN, J.--One appeal and two petitions for leave to appeal arise out of proceedings originating in the Lahore High Court by Writ Petition No, 1943 of 1978 (per Mushtaq Hussain, C.J.; PLD 1981 Lah.1). ' The expression appellants in this judgment refers to the Government of Pakistan and the Pakistan Shipping Corporation who are the appellants in Civil Appeal No, 122/82 and the petitioners in Civil Petition No, 145-R/1982. The expression respondents refers to six writ petitioners all Cowasjees who are respondents in the two matters referred to and the petitioners in Civil Petition No, 157-R/1982. ' The respondents reconstituted a partnership under the name and style of "Messrs East & West Steamship Company (1961)", in the year 1961. The partnership owned two ships namely, M.V."RUSTOM" and M.V. "OHARMAZD" which used to ply on the high seas. The shares of the partership were as hereunder:-- {{TABLE}} 1. Rustom F. Cowasjee, 25% Respondent No, 1. 2. Ardeshir Cowasjee, 19% Respondent No,2. 3. Cowasjee R.F.Cowasjee, 18% Respondent No, 3 4. Crus R. Cowasjee, 18% Respondent No, 4
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5. Jamshed M. Cowasjee, 10% Respondent No,5. 6. Soli M. Cowasjee, 10% Respondent No, 6. {{TABLE}} ' On the devaluation of the Pakistani Rupee effective from 11th May, 1972, a question with regard to the revaluation of the two ships arose. The matter was referred to Export Surveyors "G.B. Potts & Co. Ltd." who submitted a report dated 30th March, 1973 on "RUSTOM" which concluded as hereunder: -- ' This ship has been maintained in high class condition as she was utilised in owner's scheduled passenger liner service between Karachi and Chittagong. ' We are of the considered opinion that the fair and reasonable market value of the above vessel, in sound condition, as at end of 1972 was Rs, 10,230,000 (Rupees ten million two hundred thirty thousand)." ' With regard to "OHARMAZD" their report of the same date concluded as hereunder:- "We are of the considered opinion that the fair and reasonable market value of the above vessel, in sound condition, at end of 1972 was Rs,53,750.000 (Rupees fifty three million seven hundred fifty thousand)." ' On the 1st day of January, 1974 was promulgated Pakistan Maritime Shipping (Regulation and Control) Ordinance (No,III of 1974) (hereinafter) referred to as the Ordinance. Simultaneously with its promulgation and enforcement on the same date issued an order under section 5 taking over the management, among others, of East and West Steamship Company. It was found that the audited accounts existed up to 28th of February 1970 and unaudited accounts were ready upto 28th of February, 1973, Rahim Jan & Company who were previously the auditors of the firm were called upon to complete the audit of the account of the years ending 28-2-1971, 29-2-1972 and 28- 2-1973. The Auditors Rahim Jan & Company completed the audit as required but showed in the Audit Report of the year 1972-73 ending on 28-2-1973 the revaluation of the two ships as reported by 'G.B.Potts & Company Limited' by their report dated 30th of March, 1973. This incorporation of the revaluation has increased the value of the ships by Rs,3,01,90,074. The Auditor's Report is dated 28th June, 1974. There took place certain changes in the management not relevant to the case but on 14-1-1975 the Chairman National Shipping Corporation on a direction of the Federal Government asked the Auditors M/s. Rahim Jan & Company to revise the Balance Sheet for the year 1972-73 ending on 28-2-1973 by reversing the entries relating to the revaluation of the two vessels by the Surveyors G.B. Potts & Company Limited. The Auditors reported on 22-1-1975 their incompetence in the matter. However, Rahim Jan & Company suggested a via media which was adopted. The accounts were revised deleting the revaluation and the accounts so revised by the appellants were verified by M/s. Rahim Jan & Company. ' In the meantime the appellants were engaged in getting the net worth value of the proprietary interest of the respondents ascertained as provided for in Schedule to Pakistan Maritime Shipping (Regulation and Control) Act, 1974 (Act XVIII of 1974) (hereinafter referred to as the Act) which substituted the Ordinance on the 11th of March, 1974. For the purpose M/s. A.F. Ferguson & Company, Chartered Accountants, had been selected at one stage but substituted, on an objection, by M/s. Ford, Rhodes, Robsen & Morrow. They determined the Net worth value as on 28-2-1973 by a report submitted on 10-6-1975 but it was not accepted by the appellants on the ground that it was too qualified and unworkable. They were substituted by M/s. Hy der Bhimjee & Company on 26-12-1975. Their report showed the Net worth value at Rs,24,32,279. After making the adjustments of the drawings made by the partners of the firm against their personal accounts during the year 1973-74 prior to taking over of the management, amounting to Rs,24,46,667, a sum of Rs,14,388 was found payable by the partners of the firm, the respondents, to the appellants. On 24-2-1976 the appellants acquired the proprietary interests of the partners/respondents in exercise of the powers
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possessed under section 5(1)(c) of the Act and a demand was made from them of Rs,14,388. The respondents faced another problem with the Income-tax Authorities who, treating them as the owners of the East and West Steamship Company (1961), the management of which alone had been taken over by the Government, charged them to tax for profits earned by the firm after its management was taken over. The appellants were denying a share in the profits to the respondents except the return guaranteed to them under section 26 of the Act. While engaged in this multi-facet controversy over the affairs of the firm, the respondents approached the Federal Government for supplying them the various documents relating to the functioning of the firm, the Accounts, the variations in the Accounts and the replacement of the one by the other. The respondents were denied access to these documents as would appear from the following recital contained in Government's letter dated 6th of February, 1978:- "As regards your request for supply of certain documents, it is also regretted that it cannot he acceded to, while the income-tax case for the assessment year 1974-75 is already being pursued by the Pakistan Shipping Corporation from their side." ' In this background of events, a Constitutional petition was filed by the respondents in March, 1978 in the Lahore High Court. The relief sought was to the following effect:-- "(a) Declare that the petitioners are still the owners of the said establishment/ships. (b) In the alternative, declare that the petitioners are entitled to compensation computed in accordance with the said Act. (c) Direct the respondents to make payment to the petitioners of compensation and other amounts due and payable to them in accordance with the provisions of the said Act. (d) Direct the respondents to furnish copies of the audited balance sheets/accounts/assessment orders/directions/other documents relevant for purposes of computing the petitioners' entitlement under the said Act. (e) Such other relief as may be deemed appropriate by this Hon'ble Court." ' The two appellants filed separate written statements. In none of them was a ground specifically taken that the Constitutional jurisdiction was not suited to the nature of the factual controversy involved in the case or that there was an adequate alternative remedy which could be availed of more appropriately by the respondents for redressing their grievances. Similarly no objection at all was taken to the territorial jurisdiction of the Lahore High Court in entertaining the Constitutional petition. There being no preliminary objections of this nature, the case proceeded to decision on merits. With regard to the revaluation of the two ships, the position taken by appellant No, 1, in para. 19 of its written statement, was as follows:-- "Consequent upon the devaluation of Pakistan rupee in May 1972, the ex-partners had already revalued m.v. OHARMAZD by Rs,1,30,96,669 on account of the outstanding foreign loan liability of that ship. No such foreign loan liability was outstanding against their other ship m.v. RUSTOM. Subsequently they got m.v. RUSTOM and mv. OHARMAZD surveyed by a firm of Marine Surveyors namely Messrs G.B. Potta & Co., who in their Survey Experts dated 30th March, 1973 (copy already supplied by the petitioners at Annex. E and F to their petition) valued the ships at Rs,1,02,30,000 and Rs,537,50,0i.). On aat basis the ex-partners made an entry in their accounts on 28th February, 1973 revaluing the ships accordingly. Now, in the context of devaluation of Pakistan Rupee, the Government Policy was to allow revaluation of such ships on which foreign loan was outstanding. Since in the instant case revaluation of m.v. OHARMAZD had already been made previously after devaluation of Pakistan Rupee in May 1972 as stated above and no foreign loan on m.v. RUSTOM had been outstanding, the Government disallowed revaluation made by the ex partners on 28th February, 1973. Besides, there was no ground for making that entry in the accounts for the year ended 28th February, 1973 when the survey report rendered by the Marine Surveyors was dated 30th March, 1973. Hence the new Chairman P.S.C. Board under the orders of the Government
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amended the balance-sheet drawn upon 28th June, 1974, when Mr. Rustom F. Cowasjee was Chairman of the P.S.C. Board. The other points mentioned by the petitioners do not call for any comments on our part. The balance-sheet initially prepared by the Auditors of the firm containing the revaluation on 28-6-1974 had not been approved by the Managing Director and it was the audited balance-sheet of 14-2-1975, without revaluation, which was approved by him (the Managing Director)" ' The appellant No, 2 also submitted to the same position. ' As regards the claim to the sharing of the profits for the period after the management was taken over and before their interest was acquired i.e, from 1-1-1974 to 26-2-1976 an explanation was given in the following words which was based on the advice rendered by the Ministry of Law:- "The Ministry of Law vide their U.O. No, 670/76-Law, dated 19th July, 1976 agreed with us that the ex- partners would not be entitled to the profits earned by the firm because the terms "minimum return" and "profits" had different meanings, and there was no provision in the 1974 Act that the ex- partners of the firm would he entitled to the profits earned by the firm when it remained under the management of the Federal Government. Furthermore, the term "partnership" was defined wider section 4 of the Partnership Act, 1932 as the relation between persons who agreed to share the profit of a business carried on by all or any of them acting for all and the provision of the Income- tax Act for payment of tax on the profit gained by the partners was based on that concept, meaning thereby that since in the present case after the establishment was taken over by the Federal Government the ex-partners were not allowed to exercise any powers or function in relation to it, the profit would not go to them for that period and the liability for tax on such profits would also not arise. Thereupon, the ex-partners were intimated vide our letter dated 12th October, 1976, that their contention that they would be entitled to the profits of the firm for the period prior to acquisition of proprietary interests was not correct, but that they would get "minimum return" as guaranteed under section 26 of the 1974 Act. ' The Law Ministry on another occasion, while reaffirming their opinion, further indicated that under Article 253 of the Constitution, the Parliament had the power to declare that any trade, business, etc. Should be carried on or owned by the Government or a Corporation to the complete or partial exclusion of other persons and that it was not the intention of section 26 of the 1974 Act which was designed to protect the interests of private parties in respect of their investment in the takenover establishments, nor would it be in consonance with the principle deducible from Article 253 of the Constitution. That the profits in the instant case would go to the previous owners. The Law Ministry further observed that it would be idle to argue that the Federal Government had taken over the management for the benefit of the private share-holders and whatever profit accrued would be ploughed back to the pockets of the previous owners." ' So far as the claim of the respondents to the documents was concerned, the position taken up was as follows:- (i) "The Chairman P.S.C. Was of the view that copies of the reports prepared by the Government Auditors which the ex-partners have asked for in this context could not be supplied because under the 1974 Act we are not obliged to do so and it may lead to an unending controversy. (ii) "The ex-partners asked for the accounts of the firm for 1973 onwards which were not supplied mainly for the following reasons:-- (a) They were unpublished accounts and Government was not obliged to provide copies to the ex- partners; (b) Necessary details in regard to the determination of 'net worth' of their proprietary interests were already furnished vi& our letter No, 1-39/75- Sh.II, dated 24-3-1976 (copy at Annex. C of the petition)."
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' The partners also claimed certain advances to the firm over and above their allocated share and wanted the same to be repaid. In respect of it the position taken up in the written statement, was as follows (Para. 13):-- "The balance-sheet of the firm as at 28-2-1973 included only an amount of Rs,1,07,81,340 as "due to partners" under the heading "outstanding liabilities". It was held by the Government that in the absence of any evidence to show that the partners had agreed to leave the said amounts with the firm in return for some benefit in the form of interest or compensation to be given by the firm, it cannot be treated as an advance to the firm and the true nature of that amount will be as an amount not forming part of the liabilities of the firm but that constituting an element of the partners' proprietary interest." ' The learned Chief Justice in Chamber accepted the Constitutional petition by orally announcing the judgment on 5-6-1978. An Intra-Court appeal was forthwith filed on 22-6-1978 by the appellants against that announced order without waiting for the written judgment of the Court. A copy of the judgment was made available to the appellants on 17-9-1980 and thereafter additional grounds of appeal were filed before the Appeal Bench of the High Court. One of the preliminary objections taken by the appellants themselves to the judgment and the appeal therefrom was that though the judgment was orally announced by the learned Chief Justice in Chamber on 5-6-1978, no record of it was prepared as required under the High Court Rules and Orders and that the judgment was received in the High Court Registry from the learned Chief Justice on 27-8-1980 when the learned Chief Justice had ceased to be the Chief Justice of the High Court, having been appointed and taken over as Acting. Judge of the Supreme Court on 26-5-1980. On these facts it was stated that the judgment orally announced and not recorded on 5-6-1978 was no judgment and so were the reasons recorded and received in the Registry on 27-8-1980 and a proper disposal of the Constitutional petition had not taken place and the same had to be reheard and redecided. Reliance was placed on the decision in the case of Nazar Abbas Khan etc. v. Government of Pakistan etc. PLD 1981 Lah. 237. ' This ground was taken up by the Appeal Bench of the High Court as a preliminary ground and dealt with separately by its judgment dated 4-4-1982. After going deep into the question of validity of the judgment brought before it in appeal, the learned Judges recorded the following conclusions:-- "Therefore, in all the circumstances of the case, we are of the view that instead of remanding the case which will only entail unnecessary agony of protracted litigation and consumption of public time, which time can better be utilized for disposing of cases which are pending for years, this case is disposed of to finish. ' In view of what has been stated above, this application is disposed of in the manner that the appeal shall now proceed to further arguments on merits. It is adjourned to 24-4-1982." Against this judgment a petition for leave to appeal was filed (Civil Petition No, 365 of 1982). Leave to Appeal was granted on the 24th April, 1982 in the following words and it was numbered as Civil Appeal No, 122 of 1982:- "Leave to appeal is granted to examine, inter alia, the questions raised in the petition, relatable to announcement, preparation and standing of a High Court judgment. This order shall not prejudice the case of either party on merits in the intra-Court appeal which is now being heard in the High Court. ' There shall be no stay of the proceedings before the High Court. ' As and when the High Court decides the appeal on merits, the petitioner would inform the Registry about the decision. Till then this appeal shall be kept pending."
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' In the judgment the learned Chief Justice of the Lahore High Court dealt with the various issues raised before him. According to the learned Chief Justice the definition and description of net worth value in the Schedule to the Act left no alternative to the appellants in the matter of assessing the proprietary interest of the respondents. The learned Chief Justice concluded as follows:-- "It has not been demonstrated to me how, on what authority and under what law the Chairman of the Pakistan Shipping Corporation Board or the Managing Director could change the latest annual audited balance-sheet and approve a balance-sheet prepared under the orders of the Government despite the clear provisions of paragraph 4(b) of the Schedule and the stand taken by Rahim Jan & Company, the auditors of the establishment." ' On the question of revaluation of the ships undertaken before 1-1-1974 and incorporated in the Accounts closing on 28th of February, 1973, the learned Chief Justice held as hereunder:-- "It is, therefore, clear that the revaluation of assets made in the balance-sheet of 1973 was not only not opposed to any principle of law or of practice but, in fact, was in complete accord with the latter. ' It may also be mentioned that the revaluation was incorporated after proper survey of the two ships by a firm of Marine Surveyors, namely Messrs G.B. Potts & Company. ' As regards the advances made by the partners and the outstanding shown against them it was noted that drawings made by the partners represented a sum of Rs,24,46,667 while the advances made by them and standing to their credit were shown to be Rs,66.62,821.85. As regards the recovery of the amount drawn by them without giving credit for the advances made by them the learned Chief Justice quoted section 13(d) of the Partnership Act and section 48(b) entitling them to the return and interest thereon. ' The respondents were also held entitled from 1-1-1974 to 24-2-1976 when that proprietary interest was taken-over by the Government to profits in view of the minimum guarantee under section 26. The relief granted by the learned Chief Justice was in the following terms:- "The following decisions are declared to be without lawful authority and therefore void:- (1) The revision of the latest audited balance-sheet (1973) and the refusal to accept the revaluation of the ships as carried out by the Company before the taking over of the establishment. (2) The decision to deduct a sum of Rs,24,46,667 on account of drawings made by the partners from their personal accounts during the accounting year 1973-74. (3) The decision refusing to make over the profits to the petitioners from the time of the take-over up to the date of the acquisition of the proprietary interests. (4) The decision to refuse to supply the copies of all the documents asked for by the petitioners. (5) The decision not to reimburse the petitioners in respect of the advances made by them to the firm and forming part of their current accounts with it. ' The respondents shall determine the net worth value of the establishment on the basis of the latest annual balance-sheet of the without making any alterations in it. They shall reimburse the petitioners company originally existing at the time of take-over of the management in respect of the advances made by them to the company and referred to above. The respondents shall furnish to the petitioners copies of all the documents claimed by them and pay to them the profit, if any, made by the respondents from the establishment upto the time the assets were acquired." ' The Appeal Bench of the High Court re-examined the contentions on merits. On the preliminary objection with regard to the territorial jurisdiction of the Lahore High Court, the Appeal Bench vide the judgment dated 31-5-1982 held as follows:-- "On facts, the appellants did not question the jurisdiction of the Lahore High Court to entertain and determine the writ petition. Having lost the game. It is neither permissible, nor, befitting the appellants, to raise this plea in appeal." The other preliminary objection with regard to laches was disposed of as hereunder:--
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"It was said that the last impugned order was passed on 24-3-1976 but the Constitutional petition was not filed until 1-3-1978 and therefore, it suffered from laches, is insubstantial as representations of the respondents were being considered." On merits the Appeal Bench approved the decision on the computation of net worth value in the following words:- (i) "There is no provision of law pointed out by the learned counsel for the appellants which gives any right or jurisdiction to the appellants to issue a direction to the auditors who have prepared a balance-sheet to make any change. On the other hand, the relevant statute takes the balance- sheet as basic for its application and enforcement. The learned Chief Justice, if we can say so with respect, was quite right in holding that the direction to the auditors for reversal of the entries, was ultra vires and illegal." (ii) "A little prick will take the wind out of the sails of the learned counsel's submission if we refer to as what has been done to m.v. Rustom. Its value calculated with reference to original cost minus the depreciation allowed has been arrived at zero. Now, here was a vessel sailing on the high seas and, after take over, has been sold by the appellants themselves for about two crores of rupees. To say that its net worth value was nil is travesty of the highest order. The contention of the appellants is hollow to the roots." (iii) "In the case in hand, we are quite clear that the matters requiring determination of facts could not be justly or legally determined behind the back of the persons concerned/the respondents. If this were possible, it will be open to the acquiring authority to say that notwithstanding that we are required to pay compensation for the acquired interest, we have determined the same in our office and you are entitled to nothing. If the person concerned could not come to a Court of law for relief, what else could he do except suffer injustice? Which in faith and history of mankind, always rebounds on the person or the authority who acts arbitrarily, unjustly or cruelly. Therefore, we are quite clear and definite that the respondents were entitled to be associated and heard at all stages while their rights to compensation and other ancillary matters were being determined." ' On the question of entitlement to profits, if in excess of the guaranteed minimum under section 26, the Appeal Bench affirmed the finding of the learned Chief Justice observing as follows:-- "It is so obvious and patent that we fail to understand as to how it could be urged that the respondents were not entitled to the profits, even though their interests were not acquired, simply because the management had been taken over and the respondents were not carrying on the business. Besides that the respondents could not carry on the business on account of the acts of the appellants themselves, but even a dead partner is entitled to profits earned by the firm of which he was a partner and which uses his interest vide section 37 of the Partnership Act. The fact…
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