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Petitioner: GOVERNMENT OF PAKISTAN VS Respondent: Messrs AL-FAROOQ ROLLER FLOUR MILLS LTD.
Court Name: Lahore High Court Judge(s): Sh. Amjad Ali, Muhammad Nawaz Abbasi Title: GOVERNMENT OF PAKISTAN vs Messrs AL-FAROOQ ROLLER FLOUR MILLS LTD. Case No.: Regular First Appeal No,68 of 1997 Date of Judgment:1999-06-15 Reported As: 2000 MLD 1130 Result: Order accordingly
JUDGMENT
JUDGMENT ' MUHAMMAD NAWAZ ABBASI, J.--- By this common judgment we propose to dispose of Regular First Appeal No,61 of 1997 filed by AlFarooq Roller Flour Mills against the Federation of Pakistan and Regular First Appeal No,68 of 1997 filed by the Federation of Pakistan against Al-Farooq Roller Flour Mills as both arise from a common judgment and decree, dated 19-7-1997 passed by a Civil Judge 1st Class, Rawalpindi. 2. For the sake of convenience and to avoid any confusion, the appellants and respondents in these cross-appeals will be referred by their names as Al-Farooq Roller Flour Mills and Federation of Pakistan. 3. Al-Farooq Roller Flour Mills filed a suit for recovery of Rs,2,55,,72,262 against the Federation of Pakistan through Secretary, Defence and the Director-General (Procurement) Pakistan Army on 21- 1-1990. In the suit the amended plaint was filed on 19-4-1995 through the Managing Director of the Mills having its office at Khairpur Miras, Sindh. 4. The Federation of Pakistan required the services of Flour Mills for grinding wheat for Pakistan Army through the Director-General (Procurement), and thus, the Federation invited tender for grinding of wheat. The tender submitted by Al-Farooq Roller Flour Mills for grinding of 40 thousand tons of wheat within one year with effect from 1-1-1989 at the rate Of Rs,10.95 per 100 kilograms was accepted. The management of the AlFarooq Roller Flour Mills undertook the responsibility of construction of godown for the wheat and to make the Mills functional and in consequence thereof, the parties signed the agreement on 29-12-1988 according to which the total amount for grinding 40,000 tons of wheat to be paid to Mills was Rs,43,80,000. The charge of the Mills was taken over by the Major Shahid Nazir an agent of the Federation who allegedly instead of running the affairs of
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The deposit as security Rs. 60,000 The expenses incurred on renovating the MillsRs.80,000 The total compensation for grinding the wheat under the Agreement.Rs.43,80,000 Unpaid telephone bills Rs.1,32,262 Loss caused due to the abandonment of the MillsRs.2,00,000 Loss occasioned due to dissuading the prospective buyers from purchasing the Mills.Rs.50,00,000 The loss for reputation of Mills due to illegal termination of the agreement and black listing of the plaintiff.Rs.25,00,000 The damages due to mental anguish and torture.Rs.25,00,000the Mills smoothly adopted hostile attitude towards the management of the Mills and created such circumstances which did not allow the contract to be performed by the management of the Mills. It was pleaded that due to bad law and order situation in Khairpur region the management wanted to sell the Flour Mills but the said Major Shahid Nazir dissuaded the purchaser from entering into the bargain with the owners of the Mills. The hostility of said Major Shahid Nazir was brought to the notice of Ministry of Defence through the Director-General (Procurement) but nothing was done. The correspondence made on behalf of the Mills with the Federation and the Director-General (Procurement) regarding the grievance of management and owners of the Mills against Major Shahid Nazir and the affairs in the Mills was made part of the record. It was complained that the telephones installed in the Mills were misused by the said Major Shahid Nazir and his colleagues and that the residential accommodation provided to Major Shahid Nazir by the management of the Mills in terms of the agreement was not occupied by him. It was added that the Flour Mills alongwith the staff was under the control of the Federation through Major Shahid Nazir who unnecessarily pointed out the defects in the machinery of the Mills. He neither associated any representatives of the Mills nor informed the management about the total quantity of wheat brought to the Mills and how much wheat was taken back ungrinded. It was pleaded that the complaints made by the said Major Shahid Nazir to the effect that wheat was not being grinded as per specification were tainted with ulterior motives as the same were made without getting the samples testified from the laboratory in the prescribed manner. The Federation and the Director- General (Procurement) on the basis of said reports made by Major Shahid Nazir terminated the contract on 20th May, 1989 and the said Major Shahid Nazir without associating the representatives of the Mills and settling the affairs relating to shifting of ungrinded wheat and handing over the Mills in a proper manner to the management, abandoned the same in August, 1989 with the result that spare parts and stores of the value of about two lacs were misappropriated in the intervening period. The termination of the contract and non-payment of the bills for the wheat grinded by the Mills by the Federation made the owners of the Mills defaulter in payment of loans obtained from the Banks for installation of Mills and as a result thereof the suits of the creditor Banks, namely, I.D.B.P. And Habib Bank Limited against the Mills for recovery of loans were decreed against the Mills which was sold through auction in execution of the decrees for a nominal price. In nutshell, Al- Farooq Roller Flour Mills sought decree for the recovery of the following loses due to the breach of the contract through the suit of damages against the Federation.
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Loss due to non-payment of bills by the Federation and in consequence thereof the taking over of the Mills by the creditors of the plaintiff.
Total:Rs.1,00,00,000
Rs.2.55.72.262
5. The appeal filed by the plaintiff before the Secretary, Ministry of Defence under the agreement was pending undecided at the time of filing of the suit. 6. The Federation of Pakistan and the Director-General (Procurement) having denied the averments of the plaint in the written statement. Pleaded that inspection of Mills was carried out by the Board of Officers of the General Headquarters before execution of the agreement and although the Mills was not technically fit due to insufficient storage facilities yet being found suitable for grinding the wheat, the contract was signed. Since the Flour Mills was not in operation for the last two years before the execution of an agreement, therefore, the contract was entered into on the assurance given by the management of the Mills to make it in proper order but as per commitment neither the storage facility was provided within the stipulated time nor the Mills was fully made operational till the termination of the contract. It was pleaded in the written statement that the plaintiff having failed to fulfil the contractual obligations caused loss to the defendant on account of defective grinding of wheat and the expenses of Rs,5,980 which was incurred on transportation of 974-729 tons wheat from Khairpur to Multan for grinding the same on failure of the Al-Farooq Roller Flour Mills to do the needful as its obligations. Thus, the Federation has deducted the loss borne by it from the amount of security of Rs,60,000 of the Mills and the balance amount of Rs,31,000 was available for payment to Al-Farooq Roller Flour Mills. 7. The learned Civil Judge on the basis of pleadings of the parties framed the following issues:- (1) Whether the plaintiff has no cause of action? OPD (2) Whether the suit is not maintainable? OPD (3) Whether the suit is false, frivolous and vexatious as such the defendants are entitled to special costs under section 35-A of C.P.C,? (4) Whether the plaintiff suffered heavy losses due to the illegal termination of the agreement and non-payment of the amount validly, contractually, legally due to the plaintiff? OPD (5) Whether tip plaintiff is entitled to a decree for recovery of Rs,2,55,72,262? OPP (6) Whether the machinery of the Mills was defective and not in operation conditions at the time of its taking over by the defendants? OPD (7) Whether the plaintiffs failed to provide to the Army Officers Incharge of the Mills facilities stipulated in the contract between the parties? OPD (8) Whether the wheat grinded at the Mills produced below specification flour? OPD (9) Relief. 8. Issues Nos.1, 2, 3 and 4 were decided against the Federation of Pakistan and in favour of Al- Farooq Roller Flour Mills whereas issue No,5 was partly decided against the Mills and partly against the Federation. Issues 6, 7 and 8 were decided against the Federation. Consequently, under issue No,9, a decree to the tune of Rs,1,75,50,000 w h interest at the rate of 14 per cent. Per annum from the date of institution of the suit till the actual payment was passed in favour of Al-Farooq Flour Mills and against the Federation through the judgment, dated 19-7-1997. The remaining claim of the Mills amounting to Rs,83,22,262 was rejected and the suit to that extent was dismissed. The trial Court, however, fixed a period of three months for the payment of the decretal amount failing which decree would be executed.
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9. The Federation and the Director-General (Procurement) being aggrieved of the judgment and decree passed by the trial Court against them in the suit preferred Regular First Appeal No,68 of 1996 whereas Al-Farooq Roller Flour Mills being also not satisfied has filed Regular First Appeal No,61 of 1997 for the grant of the decree of the claim made in suit in toto. 10. Learned counsel representing the Al-Farooq Roller Flour Mills the appellant in R.F.A. No,61 of 1997 and respondent in R.F.A. No,68 of 1997 raised the following contentions:-- (a) The agreement between the parties was executed after the inspection of the Mills which was found in perfect working condition at the time of possession, ' therefore, there was no justification for the termination of the contract on the ground that the Mills was not in working order; (b) the trouble was started on taking over the charge of Mills by Major Shahid Nazir an agent of the Federation and the Director-General (Procurement) who having close contact with the proprietor of Sultan Flour Mills, Multan was not happy with the contract of Federation with Al-Farooq Mills as earlier Sultan Flour Mills was sole contractor for grinding of wheat for Defence. He argued that due to the bifurcation of the quota of wheat of Sultan Flour Mills, the proprietor of said Mills was annoyed and consequently, he in connivance with Major Shahid Nazir, Officer Commanding created obstacles to the performance of contract by the Mills and made the situation adverse to the Mills with the result that the Federation and the Director-General (Procurement) on the basis of the material provided to them by Major Shahid Nazir terminated the contract. Learned counsel with reference to the letters written by the management of the Mills against Major Shahid Nazir to the Ministry of Defence and the Director-General (P) submitted that the management of Al-Farooq Roller Flour Mills was not at fault and that Major Shahid Nazir, an agent of the Federation was responsible for breach of contract; (c) that the contract was terminated on 20-5-1989 whereas the Mills remained in the control of the Federation till 9-8-1998 when it was abandoned by Major Shahid Nazir with information to the management and thereby caused loss to the Flour Mills; (d) that out of 40,000 tons of total wheat, only 974.726 tons wheat was lying ungrinded, which was later shifted to Sultan Flour Mills, Multan. The major quantity of the wheat having already grinded by the Al-Farooq Roller Flour Mills, the termination of contract was not legal and in consequence thereof, the Federation was responsible for the damages caused to the Mills. ' The learned counsel has cited Saeed Ahmad Karmani v. Messrs Muslim Commercial Bank, Islamabad 1993 SCM R 441, Deputy Collector of Central Land Customs, Peshawar and 2 others v. Premier Tobacco Industries, Peshawar 1993 SCM R 447, Isiah High School, Chiniot, through Province of the Punjab v. Jawad Hussain 1996 SCM R 193, Sufi Muhammad Ishaq v. The Metropolitan Corporation, Lahore through Mayor PLD 1996 SC 737, Miss Waheed Shafi v. University of Engineering and Technology, Texila through Vice-Chancellor and 3 others PLD 1996 SC 747 in support of the contention that in case of breach of the contract of the nature between the parties, the losses other than the actual losses can also be claimed under section 73 of the Contract Act, 1872. 11. The learned counsel next contended that the Mills was under the debt as loans were obtained from Industrial Development Bank of Pakistan and Habib Bank Limited, which fact was brought to the notice of the Federation and the Director-General (P) with a request to make payment of bills but non-payment of the running bills resulted into default on the part of Al-Farooq Flour Mills in the payment of instalments of loan to the creditors and consequently, the Mills under the decrees was auctioned at a nominal price at the cost of heavy loss to the owners. Learned counsel in support of his arguments had placed reliance on certain documents and the statements of the witnesses appearing on behalf of Al-Farooq Roller Flour Mills. He argued that due to the fault of the Federation, the Mills of the value of Rs,2,25,00,000 was sold for a sum of Rs,70,10,000 after the termination of the contract. Learned counsel while developing his arguments contended that actual damages upon the breach of the contract can be claimed under section 73 of the Contract
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Act, whereas the damages of general nature are claimed under tort and in this way the decree in favour of the Al-Farooq Roller Flour Mills is a composite decree consisting upon the damages under section 73 of the Contract Act as well as under the tort which is based on the claim for loss caused to the Mills due to the conduct of Major Shahid Nazir, the agent of Federation. He argued that since the application under Order I, Rule 10, C.P.C. For impleading Major Shahid Nazir as party was opposed by the Federation taking responsibility as his principal, the damages under section 73 of the Contract Act as well as under the tort could be claimed together from the Federation, therefore, the decree passed does not suffer from any factual or legal defect. 12. Conversely, learned Standing Counsel contended that Al-Farooq Roller Flour Mills having failed to grind the wheat as per specification contained in the agreement, the contract was terminated to avoid any complications in the supply of grinded wheat to Pakistan Army in the filed at different places. He argued that the evidence adduced by the Mills as well as by the Federation in the suit strongly supported the action of termination of the contract. He added that the contract was for the grinding of wheat and not for the taking over the Mills on lease, therefore, the claim of damage on the ground that the Mills being in the control of the Federation ever after termination of the contract, the purchasers were dissuaded by Major Shahid Nazir is not founded under section 73 of the Contract Act, 1872. Learned Standing Counsel contended that the personal bad relations of Major Shahid Nazir with the management of AI-Farooq Flour Mills were neither part of the contract nor could be made a ground for claim of damages against the Federation under the contract. The Federation being principal of Major Shahid Nazir was only responsible for its acts in terms of the agreement with the Mills and not its private affairs in the individual capacity. He submitted that as per agreement, the Mills had to grind 40,000 tons of wheat for which compensation to the tune of Rs,43,80,000 was to be paid to the Mills by the Federation and not Major Shahid Nazir and the Director-General (Procurement) was responsible for the payment of bills for wheat grinded by the Mills and, thus, the contention of the learned counsel for the Mills that the running bills were not paid at the instance of Major Shahid Nazir is not borne out from the record. Learned Standing Counsel argued that the balance amount of Rs,31,038.86 of security lying with the Federation will be paid to Al-Farooq Roller Flour Mills if and when it is so desired. In nutshell, the case of the Federation as contended by the learned Standing Counsel is that the claim of the Mills beyond the contractual amount was imaginary, fanciful and artificial. The crux of the matter was that the parties could not plead and claim anything out of the contract and that the claim relating to damages and assets of sale of Mills for less price in auction in execution of the decrees of the Civil Courts, neither could be claimed nor decreed. It was claimed that the total wheat supplied for grinding was 7,950 tons, out of which 974.926 was lying at the spot ungrinded at the time of termination of contract, therefore, the claim of the Mills that total quantity of 40,000 tons wheat was grinded is factually incorrect. He, in support of his arguments, contended that admittedly there were no storage facilities, therefore, no question of storage of wheat arose and that the total quantity of 40,000 tons was required to be grinded within the period of one year and if the same had already been grinded at the time of termination of contract, the Mills should have filed a suit for recovery of compensation and not a suit for damages without any cause of action. 13. The salient features of the agreement, dated 29-12-1988, Exh.P.114 were that it had to commence from first January, 1989 and was to be ended on 31st December, 1989. The total quantity of the wheat to be grinded in the prescribed schedule during the period of one year was 40,000 tons. The establishment and the labour of the Mills under the supervision of management of Mills were responsible to run the Mills. Except deputing an agent to supervise and control the grinding of wheat, no person was to be appointed by the Director-General (P) to work in the Mills. The Director- General (P), however, reserved the right of termination of contract at any time under clause (37) of the agreement. In the event of any dispute, the aggrieved party had a right of appeal to the
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authority mentioned in clause (44) of the agreement i,e, Ministry of Defence and the decision was to be final 14. We have heard the learned counsel for the parties at length and gone through the record with their help. The primary question for determination would be that in what manner what breach was committed by the Federation and the Director-General (Procurement) and what loss was caused. The contract between the parties was only for the grinding of 40,000 tons of wheat within a period of one year for the compensation of Rs,43,80,000 as grinding charges to be paid to the Mills by the Federation. As per evidence of Fazal Elahi, the Managing Director of Al-Farooq Roller Flour Mills, who appeared as a witness of the Mills, an amount of Rs,60,000 was deposited by the Mills as security and the staff of the Director-General (P) vacated the Mills without handing over the same to the management in proper manner. He stated that an appeal was filed before the Secretary, Defence on 17-10-1989, which remained pending undecided till filing of the suit. He further, stated that Major Shahid Nazir, who was deputed by the Director-General (P) in the Mills without having technical knowledge about the Flour Mills made complaints regarding defects in the Mills for ulterior motives. The witness giving the details of the correspondence, which was made on behalf of the Mills to the Federation against Major Shahid Nazir, stated that he acted maliciously against the Mills. However, the witness has not stated anywhere in his examination-in-chief about the total quantity of the wheat brought to the Mills and that what was grinded and what was left ungrinded when the agreement was terminated. In cross-examination, he stated that an order for the supply of 37,000 tons of wheat was issued on 1-1-1989 and that as per schedule a specific quota was to be grinded in every month and the payment was to be made tfrough running bills but the Mills was not paid any bill for the wheat grinded till termination of contract. He stated that it is not in his knowledge that what quantity of wheat was grinded from 1-1-1989 to 20-5-1989 and denied that only 520.250 tons were grinded whereas the Mills was required to grind 7950 tons of wheat during this period. He admitted that no record pertaining to the account of the wheat was available but denied the suggestion that wheat was not grinded as per schedule and in consequence thereof, the contract was terminated. According to this witness, two telephones bearing numbers 3290 and 3291 were under the use of Major Shahid Nazir in the Mills and that an amount of Rs,1,32,262 in connection with telephone bills being payable by the Federation was not paid. He, however, admitted that this amount included the amount of the telephone bills prior to 1-1-1989. The witness further stated that the owners intended to sell the Mills due to bad law and order situation in Khairpur and admitted that three suits were filed by the Creditor Banks in Sindh High Court at Karachi against the Mills for the recovery of loans taken for installation of the Mills. The Industrial Development Bank of Pakistan filed the suit in the beginning of 1989 whereas the Habib Bank Limited filed the suit in the year 1988 and another suit was filed by the said bank in the beginning of year 1990 which were decreed and no appeal was filed against the decrees. He, however, has not given the date of auction of the Mills in consideration of the decrees in question, whether before or after termination of contract. He admitted that some amount of loan was returned and after making adjustment of the same, the suits were filed against the Mills by the creditors. 15. The star-witness of the Federation, namely, Major Shahid Nazir appeared as D.W.1. He stated that the outstanding bills of telephones installed in the Mills pertained to the period prior to 1-1-1989 and that total bill of Rs,36,726.45 of telephone No,3291 and Rs,75,321.45 of telephone No,3290 were unpaid. He stated that 180 tons wheat was required to be grinded daily under the agreement whereas the wheat was grinded within the range of maximum 85 and minimum 9 tons daily which was much below to the prescribed and that 974.729 kilograms ungrinded wheat was sent from the Mills to Multan after termination of the contract. He categorically stated that out of the total wheat brought to the Mills a quantity of 520.20 tons was grinded by the Mills from 1-1-1989 to 20-5-1989, and that it was not in his knowledge about the total quantity of wheat supplied to the Mills but
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974.729 tons was lying ungrinded in the Mills when the agreement was terminated. He stated that except the ill-performance of the Mills in grinding the wheat and non-availability of godown for storage of wheat, there was no complaint against the Mills and that the Mills remained under the control of the Director-General (P) till August, 1989, wheres the agreement was terminated in May, 1989. During this period, no representative of the owners of the Mills approached the Federation or the Director-General (P) for taking over the Mills, however, a representative of the Mills gave a certificate, which is Exh.D.1. He denied any loss to the Mills owners because of termination of the contract as well as late delivery of the possession. Similarly, he denied any loss to the Mills-owners for want of private sale of the Mills as the interested purchasers could not inspect the Mills during the period the Mills remained under the control of Federation. 16. The Managing Director of Al-Farooq Roller Flour Mills has made a general statement regarding the damages caused to the Mills whereas Major Shahid Nazir D.W.1 has placed factual position with reference to the record. The Mills claimed damages on different account. The major claim of the Mills is that loss was caused due to the reason that despite availability of willing purchasers, the bargain for sale of Mills could not struck with them as Major Shahid Nazir did not allow the purchasers to enter into the premises of the Mills and subsequently, the Mills was auctioned in satisfaction of the decrees at a very low price. Matte-ul-Haq Khalid P.W.6, Mian Muhammad Luqman P.W.8, Muhammad Amin P.W.9, Dr. Muhammad Abbas Bokhari P.W.10 and Sardar Arif Rashid P.W.11 were produced by the Mills to establish the fact that they were interested in the purchase of the Mills but Security Staff did not allow them to enter into the premises of the Mills. Matte-ul-Haq stated that he has contacted Fazal Elahi on telephone who told him that the Mills…
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