Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: PAKISTAN AUTOMOBILE CORPORATION LIMITED AND Another VS Respondent: GENERAL MOTORS OVERSEAS DISTRIBUTION CORPORATION AND 2 Other
Court Name: Sindh High Court Judge(s): Ajmal Mian Title:PAKISTAN AUTOMOBILE CORPORATION LIMITED AND Another vs GENERAL
MOTORS OVERSEAS DISTRIBUTION CORPORATION AND 2 Other Case No.: Miscellaneous Appeal No. 2119 of 1981 Suit No. 377 of 1981 Date of Judgment:1982-03-06 Reported As: PLD 1982 Karachi 796 Result: Appeal dismissed Judgment ORDER This is a Suit filed by the present 2 plaintiffs, namely Plaintiff No. 1, Messrs Pakistan Automobile Corporation Limited, a company incorporated in Pakistan under the Companies Act, 1913 and Plaintiff No. 2, Messrs Republic Motors Limited, also a company incorporated in Pakistan under the Companies Act, 1913 against 3 Defendants, namely, Defendant No. 1, Messrs General Motors Overseas Distribution Corporation, a corporation constituted under the laws of the United States of America having their registered office at General Motor Building, 3044, West Grand Boulevard, Detroit, Michigan 48201 (U. S. A.), defendant No. 2 Messrs Ghandhara Industries Limited, a company incorporated in Pakistan under the Companies Act, 1913 and Defendant No. 3 Lt -Gen. (lietd.) M. Habibullah Khan Khattak. In the above suit the Plaintiffs have prayed for the following reliefs "(i) to declare that the Franchise letter dated 21st August, 1973 between the Plaintiffs and the Defendants No. 1 was formal franchise agree--ment and is a licence coupled with interest and was duly acted upon and by conduct of the parties over the years, since it was executed, remained and is a franchise agreement in relation to the assembly, manufacture, sales and service if Isuzu trucks buses. Automobiles, spare parts, accessories and all that appertains to these products and that the said agreement/licence cannot be withdrawn or revoked or otherwise assigned or given or granted to any person, company, firm or individual outside the scope of Federal Control ie. To the private sector in view of the express requirement of the law and public policy and the development of the motor vehicle industry under Government Control as also due to commitment under the franchise/licence coupled with interest;
---
## Page 2
(ii) to issue a consequential mandatory direction or directions to the Defendants No. 1 that the said franchise agreement dated 21st August, 1973 being a licence now coupled with interest and otherwise as a Contract also and by reason of Article 3 of the Order cannot be revoked and be kept in force and operation for the entire territory of Pakistan as in the past since its execution and to restrain the Defendant No. 2 or all persons claiming through or under the Defendant No. 2 and/or the Defendant No. 3 and any and all companies in which the Defendant No. 2 and/or No. 3 is or are a shareholder, director or otherwise interested and each Defendant by appropriate mandatory order be restrained from being given or otherwise accepting any agreement/franchise/grant in the matter covered by the franchise agreement dated 21st August, 1973 (Aanexure `B' hereto): (iii) to grant damages at the rate of 1.00 lac for the month of April, 1981 and for each month thereafter from the Defendants jointly and severally, for arbitrary, illegal and baseless allegations and withdrawal/ acceptance of the franchise and the said damages be ordered to be awarded for each month from and after April, 1981 until the Defen--dant No.'1 affirm the franchise in favour of the Plaintiffs and resume thereunder all operations, services and supplies and the other Defen--dants disavow the passing of the said franchise to them and each Defendant makes submission of respective effect in this Hon'ble Court; (iv) to grant costs of the suit to the Plaintiffs; and (v) to grant such other/further/additional relief or reliefs in favour of the Plaintiffs as may be deemed appropriate, fit or proper in or about the circumstances mentioned hereinabove." 2. Alongwith the above plaint the Plaintiffs have also filed an applica--tion under Order XXXIX, rule3 1 and 2 read with section 1$I, C. P. C. (C. M. A. No. 2119/81), in which they have prayed for the following inter--locutory reliefs "Application under Order YX XIX, rules l and 2 read with section 151, tr. P. C.-For reasons disclosed in the accompanying affidavit this Hon'ble Court may be pleased to direct, by an interim order, until the suit is decided, the Defendant No. I not to interfere with, withdraw or discontinue or otherwise act on or give effect the letter dated 30-3-1981, Annexure 'H' to the Plaint (hereinafter referred to as `the said franchise') whereby or for any other reason, the Defendants may cancel, withdraw, discontinue or interfere with or take away the franchise granted to the Plaintiffs vide letter dated 21-8-1973 as accepted on 5-9-1973 and continued to be acted and by a further appropriate interim order, until the suit is decided, restrain the Defendants Nos. 2 and 3 from accepting the said franchise, in any form, for or in the territory of Pakistan or otherwise manufacture, assemble, make, sell, supply in the territory of Pakistan any Isuzu Products, more particularly trucks, buses, automobiles, vehicles, spare parts, accessories and trading items connected therewith and/or supplies relating to the same in or from Pakistan including supplies of Isuzu Products to Defence Forces/ Services Departments, Road Corporations and Companies and all any other Federal or Provincial Government Department or Statutory Corporation. Urgent ad interim order is solicited in Chamber." 3. The brief facts leading to the filing of the above suit and the application are that Plaint No. 1 is a corporation promoted by the Federal Government of Pakistan with the objects set out in the Memorandum and Articles of Association, which inter alia arc relatable to assembly and manufacture of motor vehicles or-floating organization, managing and supervising such establishment etc. Whereas Plaintiff No. 2 are wholly owned subsidiary of Plaintiff No. 1 being a company incorporated under the Companies Act, 1913. The objects for which plaintiff No. 2 are, set up inter alia include to assemble and manufacture motor vehicles, their parts and accessories and to supply or to distribute the same. It seems that on 1-1-1971 the then President of .Pakistan and the Chief Martial Law Administrator issued and promulgated Economic Reforms Order, 1972 (P. O. Of 1/1972). Hereinafter referred to as the P. O. The object of the above P. O. Was to take over the management and control of the industries mentioned in the schedule, which Inter ally included
---
## Page 3
under category No. 5 assembling and manufacturing of motor vehicles. It also seems that in or about 1972 in pursuance of the P. O. The Government of Pakistan resumed/control management of certain companies engaged including of Messrs National Motors Ltd., and Haroon Industries Ltd., which were assembling and manufacturing of vehicles etc. It further seems that in pursuance of the power contained in clause (11 of Article 7(b) of the P. O. And in exercise thereof the Federal Government by Order No. 1/18/74-0. P. 3 dated 12-7-1974 issued a notification, whereunder the Federal Government acquired a majority portion of the shares or proprietary interest in the establishments mentioned in the Schedule to the above notification, which inter alts included companies dealing in automobiles and their assembly and manufacture. It may be pertinent to quote hereinabove the relevant portion of the above notification (which is Annex. `A' to the Plaint) which reads as follows No. 1/18/74-0. P. 3 GOVERNMENT OF PAKISTAN MINISTRY OF PRODUCTION AND PRESIDENTIALAFFAIRS (Production Division) ORDER Whereas in exercise of the powers conferred by clause (1) of Article 7-B of the Economic Reforms Order, 1972 (P. O. No. I of 1972), the Federal Government has acquired a majority portion of the shares or proprietary interests of the establishments specified in the Schedule below; Now, therefore, in exercise of the powers conferred by clause (1) of Article 7-E of the aforesaid Order, the Federal Government is pleased to order that the management of each of the establishments specified in the first column of the aforesaid Schedule, and the shares or proprietary interests acquired by the Federal Government therein, shall stand transferred to the Corporation specified in the second column of the Schedule against such establishment; SCHEDULE Name of the Establishment r ~iName of theCorporation 1. National Motors Limited. 2. Millat Tractors Limited. 3. Republic Motors Limited. 4. Trailer DevelopmentPakistan Automobiles Corporation Limited.Corporation Limited. 5. Naya Daur Motors Limited. 6. Awami Autos Limited. 7. Sind Engineering Limited. (Sd.) Islamabad,(Alauddin Ahmad) Dated 12th July,Additional Secretary." 1.974. It may be noticed that under the above notification, the proprietary interest acquired by the Federal Government in the Companies mentioned therein was transferred to the Corporation specified in second column of the Schedule i.e. To Plaintiff No. 1. 4. It also seems that Defendant No. 1 through their letter dated 21-8-73 addressed to Plaintiff No. I issued a letter of intent for the non-exclusive privilege of purchasing from them assembled Isuzu .Commercial truck and motor vehicles and Isuzu components packed in sets, required for the assembly of certain isuzu models which were to be set forth in an approved models and deletion supplement to the agreement. In the above letter of intent model TXD-5005 and Model BE 5001 were mentioned. It was also provided that during the pendency of the execution of a franchise agreement the letter of intent would be acted upon. Plaintiff No. 2 were required to accept the
---
## Page 4
above letter of intent within 30 days, which they did on 15-9-1973. It also seems that no formal franchise agreement was executed between 'Plaintiff No. 1 and Defendant No. 1. It is also evident that in the letter of intent, the original period of franchise contemplated was 5 years, but even after the expiry of the above period the parties continued to act upon the above letter of intent. It further seems that the parties, namely, Plaintiff No. 1 and Defendant No. 1 exchanged certain letters in the years 1979, 1980 and 1981 on the question, as to whether the arrangement contained in the above letter of intent should be continued or should be discontinued. In this regard it may be pertinent to point out that Defendant No. 1 through their letter dated 17-10-1980, addressed to the Managing Director of the Plaintiff No. 1 with reference to the discussion held on 15-10-1980 purported to confirm that in view of the impending changes in Plaintiff No. 1's future programme isuzu franchise would be granted eventually to private sector company and also purported to confirm the mutual agreement that Plaintiff No. 2 would run out of their isuzu orders and existing stocks by August, 1981. It also seems that the above letter was followed with further correspondence and eventually defendant No. I through their letter dated 30-3-1981 purported to cancel the arrangement contained in the above letter of intent. It may also be pertinent to mention that defendant No. 1 issued a letter of intent dated 3-10-1980 in favour of defendant No. 2 for the purposes specified in the letter of intent of 1973 issued in favour of plaintiff' No. 1 and thereafter executed a franchise agreement dated 1-4-1980 in their favour. The plaintiffs after the receipt of the above termination notice dated 30-3-1981 have filed the present suit. The above suit as well as the above application have beck resisted by all the 3 defendants. 5. Defendant No. 1 in their counter affidavit have averred that the suit as framed for declaration and injunction is not maintainable and the relief's are clearly beyond the scope of sections 21, 42, 54, 55 and 56 of the Specific Relief Act, and that the plaintiffs are not entitled in terms to any interim injunction as prayed or otherwise and that the ad interim order granting status quo passed on 28- 5-1981 and further order passed on are liable to be vacated. It has been further averred that the letter of intent dated 21-8-1973 did not give exclusive franchise right to the plaintiff for assembly, distribution, sale of isuzu trucks/products. It has been averred that the letter of intent clearly states that GMODC franchise agreement would grant plaintiff No. 1, the non-exclusive privilege of franchise. It has also been averred that since the plaintiff' No. 1 in spite of repeated telexes failed to return the work papers, no franchise agreement could be or was indeed offered to the plaintiffs. (The copies of telegrams dated 15-9-1975, 26-9-1975, 16-10-1975 and 11-I1-1975 from defendant No. I to plaintiff No. 2 have also been enclosed to the counter-affidavit). It has been further averred that having regard to all these and other reasons, namely the fact that the plaintiffs were not prepared to accept the fundamental term o1 the proposed franchise agreement that it was on non-exclusive basis. It has also been averred that having regard to all these and other reasons, namely, the fact that the plaintiffs' performance in the years 1977, 1978 and 1979 was very poor and that the plaintiffs were not prepared to commit to promote the business of isuzu products as '::core particularly set out in paragraph 8, defendant No. 1 were entitled to withdraw this offer to enter into a franchise agreement with the plaintiffs or either of them. In para. 8 of the counter-affidavit, defendant No. 1 have given the detail of the vehicles imported by plaintiff No. 2 in the years 1974 to 1980, which indicates that in 1977 to 1980 plaintiff No. 2 have not imported any vehicle. It has also been averred that the plaintiffs had imported 408 isuzu Bus chassis in the year 1978 and 344 isuzu trucks in the year 1980, but these were imported from Japanese trading company, namely, Messrs C. Itoh and that such import of isuzu vehicles from sources other than defendant No. 1 is .Of no economical benefit to defendant No. I and that the plaintiff's allegation that they could not import any vehicle in the years 1977-78, 1978-79 because of fire it not true. It has been reiterated that the plaintiffs' performance in the imports of isuzu trucks and vehicles Was not satisfactory and that plaintiff No. 1 was negotiating with Messrs Hino Motors to utilize plaintiff No. 2's facilities exclusively for
---
## Page 5
manufacturing of Hino vehicles and that this fact was brought to the notice of plaintiff No. I by the defendant repeatedly inter alia through their letter dated 11-7-1980 and 7-8-1980 and a reply was finally received 5 months later, namely, through plaintiff No. 1's letter dated 11-8-1980.. It has been averred that from the above letter of plaintiff No. 1 dated I1-8-1980, it is clear that far from denying the existing arrangement, which would exclude isuzu vehicles from being assembled at plaintiff No. 2's factory, plaintiff No. 1 made a vague reply by stating that "it is therefore, unduly early to understand that the present measure will exclude any possibility of future isuzu assembly in Pakistan". It has also been averred that plaintiff No. 2 have facility to assemble vehicles of the makes mentioned in para. 9 of the counter-affidavit, which do not include isuzu vehicles. It has been repeatedly reiterated that the plaintiff have no case for an ad interim injunction. 6. Defendant No. 2 in addition to the filing of a counter-affidavit to the plaintiffs' above injunction application also filed an application under Order XXXIX, rule 4 read with section 151, C. P. C. (Miscellaneous Application No. 2340 dated 17-6-1981) for recalling the ad interim orders passed by this Court. In supporting affidavit of the above application, it has been averred that plaintiff No. 2 instead of assembling isuzu vehicles, which could have materially enhanced their profit deliberately bypassed defendant No. 1 in dealing with the import of isuzu vehicles on a number of occasions from a Japanees Trading Company C. Itoh. It has also been averred that the plaintiffs have suppressed the fact that they are in actual act of negotiating promotion of Hino trucks and buses to be manufactured at premises of plaintiff No. 2 to the exclusion of other types of trucks and buses in Pakistan except Bedford and that in these circumstances it does not lie in the mouth of plaintiffs to say that sale, distribution or assembly of motor vehicles cannot by law be done except , through a state --owned agency. It has also been averred that defendant No. 1 had issued a letter of intent and also executed an agreement of franchise in favour of defendant No. 2 prior to filing of the above suit. It has also been averred that the P. O. Does not prohibit setting up of assembly and manufacturing plant of motor vehicles by private parties. In the counter, affidavit defendant No. 2 has reiterated the facts mentioned by him in their affidavit in support of their aforesaid application under Order XXXIX, rule 4, C: P. C. And inter alia have averred that the granting of the injunc--tion prayed for shall cause irreparable loss to them. In this connection it may be pertinent to quote hereinbelow relevant portion of para. 4 of the counter-affidavit dated 25-6-1981 "(4) That the contents of para, 4 are extremely misleading and, therefore, repudiated, denied and traversed in tote. The correct facts are :- (i) Haroon Industries Ltd., was a taken-over establishment and was dealing with the assembly of trucks and buses and had two assembly lines; (ii) the assembly lines, in the totality of the context may include land, buildings, constructions but the important part is "toolings". The toolings have to be adopted specifically to the line of manufacture of assembly; (iii) that for assembly of Isuzu vehicles, conforming jigs, fixtures, over-head hoists and other ancillary and subsidiary machinery and equipment bad to be installed and was so done; (iv) for each assembly workers have to be given special training for while basically assembly of vehicles might appear to be similar, in fact, it has its own differences from make to make. Isuzu vehicles likewise bad their specialties in which the working personnel had to be trained an d fully versed; (v) in the matter of assembly it is not the assembly lines and the trained personnel which constitute "licence coupled with interest." It is also the inventory of spare parts and accessories which have to go with it and which an assembler/distributor has to keep in store. The present spare parts, accessories and allied material, in the hands of the plaintiffs No. 2 should exceed Rs. 35 lacs;
---
## Page 6
(vi) the inventory of the assembled vehicles is something about 135 buses and 160 trucks which, even if these are valued at the minimum average of Rs. 1.60 lacs each, would value over Rs. 4.50 crores.The sudden stoppage or disconnection of the arrangement contemplated by the letter of the defendants No. 1 and impugned in these proceed--ings means an immediate staggering and irreparable involvement and involvement represented by the inventory figures as above, say Rs. 5.10 crores." 7. Defendant No. 3 has also filed a counter-affidavit and also rejoinder, in which he has made more or less same averments which have been made by defendant No. 2 in their affidavit in support of their application and the counter-affidavit to the plaintiffs' application. Defendant No. 3 along with his affidavit in rejoinder dated 19-1-1982 has filed Annxs. X/1 to X/3 in order to indicate that the setting up of an assembly and manufacturing plant by a private party is not prohibited under the P. O. 8. (a) In support of the stay application Mr. Mansoor Ahmad Khan, learned counsel for the plaintiffs have made the following submissions: (i) That licence in favour of plaintiff No. 1 for assembling and manu--facturing isuzu vehicles and for selling the same and their spare parts etc. Was coupled with interest and, therefore, could not have been revoked in view of section 202 of the Contract Act, 1872.. (ii) That since the franchise in favour of Plaintiff No. f was exclusive, the granting of the same franchise in favour of defendant No. 2 by defendant No. 1 contravenes the plaintiff No. 1's right. (iii) That the P. O. 1/1972 prohibits setting up of the factories in respect of items mentioned in the First Schedule to the above order and. Therefore, the franchise agreement executed by defendant No. 1 in favour of defendant No. 2 is against the public policy and is hit by section 23 of the Contract Act. (b) On the other hand Mr. Sharif, learned counsel for defendant No. 1 has urged the following points; (i) That the franchise contained in the letter of intent dated 21-8-1973 was non-exclusive. (ii) That defendant No. I was justified in withdrawing their offer to execute franchise agreement as the performance of the plaintiffs was not satisfactory and that in fact they were negotiating with defendant No. I's competitor for exclusively manufacturing Hino vehicles, and, therefore, the action taken by defendant No. 1 was justified. (iii) That no specific performance of the agreement of the nature can be claimed and that in any case the relief of specific performance being discretionary relief, the Court will not grant to the plaintiffs as they have not come with clean bands. (c) Mr. Khalid Ishaque learned counsel for defendant No. 2 has contended as follows; (i) That the franchise in favour of the plaintiff No. 1 was non-exclusive and, therefore, granting of franchise by defendant No. 1 in favour of defendant No. 2 does not contravene any right of the plaintiffs. (ii) That under P. O. 1/1972 there is no prohibition for setting up private industries in respect of the subjects covered by the Schedule in the order. (d) Mr. Liaquat Merchant for defendant No. 3 has made the following submissions (i) That under P. O. 1/1972 there is no prohibition for setting up an industry by a private sector in respect of the subjects covered by the schedule to the above order. (ii) That defendant No. 1 have given sufficient notice to plaintiff No. 1 before revoking the letter of intent and, therefore, no exception can be taken to the above action of defendant No. 1. (iii) That the Supreme Court case reported in the 1980 SCMR has no application to the instant case. 9. It may be pertinent to take up the question as to whether the franchise contained in the letter of intent dated 21-8-1973 in favour of plaintiff No. 1 was exclusive right or it was non-exclusive. It may be observed that Mr. Mansoor Ahmad Khan has vehemently urged that the word 'franchise'
---
## Page 7
connotes the exclusive right in respect of the subject-matter covered by the franchise. His further submission was that the nature of the work contem--plated under the letter of intent itself suggests that it was an exclusive franchise. On the other hand M/s. Khalid Ishaque, Liaquat Merchant and Sharif have vehemently contended that from the letter of intent dated 21-8-1973 and also from the other documents on record it is evident that no exclusive franchise was granted in favour of plaintiff No. 1 by defendant No. 1. I have gone through the documents on record and my tentative view is that prima facie no exclusive franchise can be spelled out from the said documents. In this regard, it may be pertinent to refer the above letter of intent dated 21-8-1973 issued by defendant No. 1 in favour of plaintiff No. 1. In sub-para. 3 of the above letter, it has been stated that the GMODC would grant plaintiff No. 1 non-exclusive privilege .Of purchase from GMODC assembled Isuzu commercial and truck motor vehicles and Isuzu components packed in sets required for the assembly of certain Isuzu models which shall be set forth in an approved models deletions supplement to the agreement. (This is Annexure D to the plaint). It may also be pertinent to refer to plaintiff No. 1's letter dated 17-12-1979 document No. 2 to the counter affidavit of defendant No. 1 particularly para. 5 of the above letter, which reads as follows "You make our statement that we would `block' import of Isuzu pro--ducts into Pakistan sound as some sort of a threat. This is not the cue we had mentioned to you the standardization exercise that the Government of Pakistan is currently seized with. We have been asked to recommend products which should be standardized for import. Obviously if we do not have any exclusive rights for Isuzu products, it would be normal business practice on our part to resist inclusion of these products in the list of standardized vehicles. We would like to reiterate yet once again that GMODC cannot, in all fairness, expect us to effectively market its products as long as- (i) There is virtually no flow of product information from GMODC to RML. (ii) There are "free for all" arrangements prevalent which parties of little means and no repute trying to undercut us. (In fact, more often…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.