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Petitioner: Messrs N.N. TEXTILE MILLS (PVT.) LTD VS Respondent: GOVERNMENT OF PAKISTAN through JUDGMENT
Court Name: Sindh High Court Judge(s): Muhammad Junaid Ghaffar Title:Messrs N.N. TEXTILE MILLS (PVT.) LTD vs GOVERNMENT OF PAKISTAN through
JUDGMENT
Reported As: 2018 CLC 717 Result: Suit decreed Judgment JUDGMENT MUHAMMAD JUNAID GHAFFAR, J.--- This is a Suit for Declaration and Injunction and the Plaintiff through amended plaint has sought the following relief(s):- "(a) That the export was frustrated due to circumstances beyond the control of the Plaintiff and the Plaintiff is not be penalized for shortfall in export, and the letter dated 25.1.1990 issued by Defendant No. 2 is of no consequence. (b) That the Plaintiff is entitled for extension of time till the short fall in export against remittance of principal amount and interest under "PAY-AS-YOU-EARN" Scheme is recovered. (c) Permanent Injunction restraining the Defendants from encashing of undertaking dated 26.8.1987 (two undertakings), 23.9.1987, 23.2.1988, 3.3.1988, 22.3.1988. 9.8.1989 (six undertakings), 18.11.1988 (continuing undertaking) furnished in respect of year 1987-88 and dated 25.8.1988, 14.9.1988, 25.2.1988 and 18.3.1989 furnished in respect of year 1988-89 or any other undertaking furnished by the Plaintiff or their behalf in this respect and further retrain their agents/ functionaries from imposing/realizing the penalty and interest amount thereon. (d) Cost of the Suit. (e) Any other relief, which this Hon'ble Court may deem fit and necessary in the interest of justice." 2. Precisely, the facts as stated are that the Plaintiff is a small unit of Open End Spinning Yarn Mill with 1176 Rotors, manufacturing cotton yarn from machinery imported from abroad under "PAY-AS- YOU-EARN" scheme. The plaintiff was granted permission through letter dated 1.6.1982 and was allowed to import machinery and equipment up to the value of D.M. 620,000/- from Germany and up to the value of Swiss Franc S.Fr.2,399,884.66 from London on C&F basis. The total value whereof
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was Rs.20,433,800/-. The plaintiff was further permitted to import machinery and equipment upto the value of SFR.1,080,000/- again from London on C&F basis. The Payment for such import was to be made in foreign exchange within certain period through half yearly installments and the foreign exchange requirement was to be met from 50% of the total exports made by the plaintiff and in case of shortfall, the Federal Government had the power to allow payment of the shortfall amount in foreign exchange from its own resources. It is the case of the Plaintiff that after installation of the machinery, manufacturing of cotton yarn started and in the year 1986-87 the target of export was met in order to make payments to the suppliers of the machinery from 50% of the total export. However, in the year 1987-88 for the reason that it was a worst year for export of open end cotton yarn as 5 rupee per Kg. export duty was levied which was thereafter increased to Rs.10 per Kg, it was beyond the control of the Plaintiff Company to meet the International competition which resulted in a shortfall in exports due to circumstances as above to the tune of Rs.1,893,473/-. The Plaintiff approached Textile Commissioner to explain such position with a request for extension of time through Letter dated 28.7.1988. It has been further stated that in the year 1988-89 due to policies of the Government again the Plaintiff was unable to meet the export target and there was a shortfall in that year to the tune of Rs.7,059,446/-. The Plaintiff made a representation to Defendant No.1 through Letter dated 25.7.1989. The Textile Commissioner vide its Letter dated 22.8.1988 and 14.1990(sic) recommended the case of the Plaintiff to Defendant No.2 for extension of time to recover the shortfall and on the basis of said recommendations the case was further recommended by Defendant No.2 to Defendant No.1 vide Letter dated 19.9.1988 but such request was not acceded to, whereas, the Defendant No.3 directed Defendant No.4 to encash the guarantees as penalty of 27% with interest was imposed on the amount of shortfall in export earnings. This raised a cause of action and instant Suit was filed. Written statement was filed and on 22.12.1991 following issues were settled:- "(1) What are the rights and obligations of the Plaintiff under the P.A.Y.E. Scheme? Whether the imposition of the penalty by the Defendant No.3 on the Plaintiff was mala fide and/or discriminatory? Whether the failure of the Plaintiff to export was caused by any restriction imposed by the Government of Pakistan on the export of goods and if so, what is its legal effect? (4) Whether the Plaintiff has any cause of action against the Defendant No.4 and/or is entitled to any relief against the Defendant No.4? What should the decree be?" 3. Learned Counsel for the Plaintiff has contended that the default in fulfilling the export requirements and payment to the suppliers from such foreign exchange was never willful and rather occurred due to abrupt changes in the Government policies including levy of export duty on open end yarn which resulted in lesser exports. He has further contended that all along the Textile Commissioner was apprised of the situation and he being an expert in this field, recommended the case of the Plaintiff to the Defendants as per Exhibit PW-1/23 and 24; however, the Defendants did not approved such recommendations, but at the same time failed to give any reasoning for such refusal. Per learned Counsel consequently the Defendant No.3 approached Defendant No.4 without issuing any Show-Cause Notice or passing of any reasoned order, imposed penalty in a mechanical manner and sought encashment of the Bank Guarantees, and therefore, they have erred in law as it is not necessary or mandatory to always impose penalty in such matters. 4. On the other hand, Learned Counsel for the Defendant No.3 the only contesting Defendant before the Court has raised a preliminary objection regarding maintainability of the Suit as according to the learned Counsel instant Suit has been incompetently filed as the person who has signed the plaint was never authorized by the Plaintiff Company. In support of this contention he has relied upon the cases reported as Government of Pakistan v. Premier Sugar Mills and others (PLD 1991
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Lahore 381), Dr. S.M. Rab v. National Refinery Ltd. (PLD 2005 Karachi 478), Messrs Gulf Air v. Messrs Shakil Air Express (Pvt.) Ltd. (PLD 2003 Karachi 156), SDA and others v. FIBC (2014 MLD 1110), Messrs Razo (Pvt.) Limited v. Director, Karachi City Region Employees Old Age Benefit Institution and others (2005 CLC 1208), Rafiq Dawood and 4 others v. Messrs Haji Suleman Gowa Wala & Sons Ltd. and others (2009 CLC 1070), Messrs Cargil Incorporated and another v. Messrs Trading Corporation of Pakistan and another (2010 CLC 420), Gul Begum v. Muhammad Riaz and another (2006 MLD 480) and Khan Iftikhar Hussain Khan of Mamdot v. Messrs Ghulam Nabi Corporation Ltd. Lahore (PLD 1959 SC (Pak.) 258). In respect of Issue No.2 learned Counsel has submitted that no corroborative evidence has been produced by the Plaintiff regarding the alleged change in Government Policy and therefore, no case is made out. 5. I have heard both the learned Counsel and perused the record. The facts have already been discussed hereinabove and need not be reiterated for the sake of brevity. All the issues are more or less interlinked with each other and therefore, they are being decided through this common opinion. Firstly, I would like to address the objection raised by the learned Counsel for Defendant No.3 regarding maintainability of the Suit. At the very outset, I may observe that though the learned Counsel has vehemently argued this point, and it appears that though there was an objection in this regard in the written statement, but there was no issue framed regarding maintainability of Suit and in such situation it was never available to the Plaintiff to lead any evidence to that effect. The defendant No.3 ought to have an issue framed before leading of evidence and only then ends of justice could have met. Mere arguments of such nature in a Civil Suit which is being decided after evidence, depriving a party to properly lead its evidence is not an appropriate course of action. Whereas, even otherwise, when the Plaintiff's witness was cross-examined, he replied, "That is correct to suggest that before filing of this Suit the Company has passed a resolution in this regard, it must be on record." Again to a question, he has replied that, "It is incorrect to suggest that before filing of the Suit the Company has not passed any resolution". In these circumstances, I am of the view that since no issue was framed whereas, the Plaintiff's witness has satisfactorily responded to such question in his cross-examination, there is no further need to decide except, that the Suit has been competently filed. 6. The precise controversy on merits in this matter appears to be that whether the Plaintiff was liable to pay 27% penalty mandatorily for having defaulted in meeting the export targets. The Plaintiff has led its evidence through various documents including Exhibits PS-1/23 and 24, wherein, the Textile Commissioner has in detail explained the then situation prevailing in the export market and the difficulties being faced by the exporters. In this regard, it would be advantageous to refer to some of the letters issued by the Textile Commissioner. Exhibit PW-1/23 is a letter dated 28.8.1988 and the same reads as under:- "GOVERNMENT OF PAKISTAN MINISTRY OF INDUSTRIES TEXTILE COMMISSIONER'S ORGANIZATION 2ND Floor, Kandawala Bldg., M.A. Jinnah Road, Karachi, the 22nd August,88. No.TEX/COM/S(325)/ 86 OFFICE MEMORANDUM SUBJECT:- EXTENSION IN TIME TO RECOVER SHORTFALL OF EXPORT EARNING AGAINST REMITTANCE OF PRINCIPAL AND INTEREST UNDER 'PAY' SCHEME. M/s. N.N. Textile Mills have approached this Organization for utilization of more than 50% of the exporting earnings for re-payment of their debt liabilities. They have also requested that State Bank of Pakistan may be advised not to charge penalty according to SRO.223(I)/73 dated 21.2.1973. A
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copy of their representation is enclosed. The case was examined by this Organization and our views on the subject are as under:- (i) It is a fact that the Rotors Spinning units were in difficult position for a few month when the Govt. imposed heavy duty on the export of yarn irrespective of count of the yarn. Since Open End. Spinning unit produce coarse yarn maximum upto 16s count therefore, the import of duty was higher on the Opened End Spinning which restricted export. (ii) M/s. N.N. Textile Mills had an export earning of Rs.15,780,935 against their liabilities of Rs.9,783,941 hence they have a short fall of Rs.3,786,947 to clear debt liability from the 50% of their export earnings. Inspite of difficulties they have earned sufficient foreign exchange and short fall is only 10% which they can cover in the next financial year. (iii) In case if at this stage 27% penalty and interest on short fall is imposed this will ruin their liquating position and it will become further difficult for them to repay their liabilities in foreign exchange from their export earnings. (iv) In this connection para 7 of "PAYE" Scheme is reproduced as under: "Provided further that the Federal Govt. may, in special cases, allow the utilization of more than fifty percent of annual foreign exchange earnings for the repayment of debt liability." In view of the above position Ministry of Industries may take the following action:- (a) Their request may be forwarded to Ministry of Finance to adjust/recover the shortfall through the export earnings of the subsequent year 1988-89 as a special case. (b) In the meantime the State Bank of Pakistan may be requested not to impose penalty till the final decision is taken by Ministry of Industries/Ministry of Finance. (G.N. KHAN) TEXTILE COMMISSIONER PHONE:711697 Ministry of Industries (Mr. Inamul Haque Additional Secretary) Government of Pakistan, ISLAMABAD." Similarly, Exhibit PW-1/24 is a letter dated 14.1.1990 and the same reads as under:- "GOVERNMENT OF PAKISTAN MINISTRY OF INDUSTRIES TEXTILE COMMISSIONER'S ORGANISATION 2ND Floor, Kandawala Bldg., M.A. Jinnah Road, Karachi, the 14th January, 1990. No. TEX/COM/S(325)/86 OFFICE MEMORANDUM SUBJECT: EXTENSION IN TIME TO RECOVER SHORTFALL OF EXPORT EARNINGS AGAINST REMITTANCE OF PRINCIPAL AND INTEREST UNDER PAYE SCHEME. This refers to Ministry of Industries Letter No.2(31)/84-Dev.I dated 12th Oct. 1989 on the above subject. The case of M/s. N.N. Textile Mills (Pvt.) Ltd. Has been examined and the views of this office are as under:- (1) The open-end industry was developed in the country as a result of boom in the corduroy, denim, Towel and canvas industries. As this industry has technical restriction to economically spin only course yarn upto 16's, a such it had performed very well when the international market responded to increase demand of open-end yarn. (2) The years 1987-88 and 1988-89 were the worst years for open-end units as the international
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demand of O.E. yarn in our conventional market like Hong Hong, Korea, Taiwan etc. remained suppressed due to international decline in the demand of Corduroy, Denim etc. The competition posed by China and the local industry in the above market has also ascerted pressure for low up list of on our open-end yarn. (3) There were internal factors also such as voluntary restraint and export duty on cotton yarn, which was changed from time to time and increase in prices of raw cotton last year which rendered it in competitive. The demand of the Ring spin yarn had increased specially in Japanese market which was attracting good prices and hence the Government had to impose restriction to monitor export of yarn. But all such measure were without any consideration of the hard hit Open- End industry for which the Open-End units had been making representation of the Government for withdrawal of the export duty or revising it at a different rate for the course yarns. They also had been making appeal through Press campaign. They desired withdrawal of the export duty to make them competitive in the export market but no decision could be taken in this regard. In view of the above the open-end units were placed at dis-advantageous position and most of them failed to fulfill their export commitment as stipulated in the PAYE Scheme. (4) On one side we are restricting the export of yarn by imposing export duty on yarn for meeting the local requirement of ancillary industry and at the same time we are punishing the open and rotor spinning units by importing penalty for not meeting their export commitment under PAYE Scheme. Actually speaking we should have exempted all PAYE scheme units from the export obligation. (5) This office is of the view that M/s. N.N. Textile Mills (Pvt.) Ltd. Had genuine reason for their failure to meet their commitment for compulsory export under PAYE Scheme as such their case may be sent to Ministry of Finance with recommendation to exempt them for payment of penalty. In the meantime State Bank of Pakistan may kindly be informed that this case is under consideration of Ministry of Industries for decision and they may not impose penalty till it is decided by Government under intimation to this office. This issue with the approval of Textile Commissioner. Sd/- (M. IDREES AHMED) DIRECTOR (TEXTILES ) FOR TEXTILE COMMISSIONER PHONE:711696 Ministry of Industries (Mr. Muhammad Sharif S.O.) Government of. Pakistan, ISLAMABAD." 8. Both these letters have been brought in evidence however, the Defendants have not been able to controvert the contents of the said letters. In fact there is no denial that these Letters were issued from the office of the Textile Commissioner. It further appears that based on these letters the Ministry of Industries Defendant No. 2 issued a Letter dated 19.9.1988 Exhibit PW-1/25 and forwarded the case to the Ministry of Fianc Defendant No.l. Again this letter is a matter of record and reads as under:- "No.2(**)/84-Dev.I. GOVERNMENT OF PAKISTAN MINISTRY OF INDUSTRIES Islamabad the 19th September, 1988. OFFICE MEMORANDUM SUBJECT:- EXTENSION IN TIME TO RECOVER SHORTFALL OF EXPORT' EARNINGS AGAINST REMITTANCE OF PRINCIPAL AND INTEREST UNDER "PAY' SCHEME.
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The undersigned is directed to enclose herewith a photo copy of letter dated 28-7-1988 along with its enclosure received from M/S N.N. Textile Mills (Pvt.) Limited on the subject cited above. The case has been examined and the views of this Ministry are given below:- (i) It is a fact that the Rotors Spinning units were in difficult position for a few months when the Govt. imposed heavy duty on the export of yarn irrespective of count of the yarn. Since Pen End Spinning unit produce course yarn maximum upto 16s count therefore, the import of duty was higher on the open-end Spinning which restricted export. (ii) M/S. N.N. Textile Mills had an expert earning of Rs.15,780,935 against their liabilities of Rs.9,783,941 hence they have a short fall of Rs.3,786,947 to clear debt liability from the 50% of their export earnings. Inspite of difficulties they have earned sufficient foreign exchange and short fall is only 10% which they can cover in the next financial year. (iii) In case if at this stage 27% penalty and interest on short fall is imposed this will ruin their liquidity position and it will become further difficult for them to repay their liabilities in foreign exchange from their export earnings. (iv) In this connection para 7 of 'PAYE' Scheme is reproduced as under: "Provided further that the Federal Govt. may, in special cases, allow the utilization of more than fifty percent of annual foreign exchange earnings for the repayment of debt liability". In view of the position stated above it is suggested that:- (a) Request of the unit to adjust/cover the shortfall through export earnings of the subsequent year 1988-89 may be accepted as a special case. (b) In the meantime the State Bank of Pakistan may be advised not to impose penalty till the final decision is taken by Ministry of Finance. (MUHAMMAD SHAREEF) Section Officer Tele: 826863. Ministry of Finance (Mr. Idris Ahmad), Section Officer, Islamabad. Copy forwarded to:-- (1) State Bank of Pakistan Karachi. A photo copy of N.N. Textile Mills (Pvt.) Limited Letter dated 18-7- 1988 is enclosed. (2) Textile Commissioner's Organization Kandawala Building, M.A. Jinnah Road, Karachi." 9. On the other hand, in response to these recommendations, the Textile Commissioner informed the Plaintiff through Letter dated 4.2.1990 PW-1/26 and stated as follows:- "GOVERNMENT OF PAKISTAN MINISTRY OF INDUSTRIES TEXTILE COMMISSIONER'S ORGANISATION 2ND Floor, Kandawala Bldg., M.A. Jinnah Road, Karachi, the 4th Feb. 1990 No.TEX/COM/ 8(325)/86 M/s. N.N. Textile Mills (Pvt.) Limited, D-64 S.I.T.E., KARACHI-28 SUBJECT:- EXTENTION IN TIME TO RECOVER SHORTFALL OF EXPORT EARNINGS AGAINST REMITTANCE OF PRINCIPAL AND INTEREST UNDER PAYE SCHEME. Dear Sirs, I am directed to refer to your letter dated 25th July, 1989 on the above subject, addressed to the
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Secretary Finance, Government of Pakistan Islamabad with a copy to the Secretary, Ministry of Industries and Textile Commissioner's Organisation and to say that your request was considered by the competent authority and has not been acceded to as intimated by the Ministry of Industries in their O.M. No.2(31)/89-Dev.I(Pt.) dated 25.01.1990. Yours truly, (R.H. Zubair) Deputy Director For Textile Commissioner Phone:713413" 10. Perusal of the aforesaid letter (Ex-PW-1/25) reflects that the request of the Plaintiff was considered by the competent authority and has not been acceded to. No reasoning has been assigned by Defendant No.1 for not appreciating the recommendations of Defendant No.2 and the Textile Commissioner. The Defendant No.3 then directed the Defendant No.4 to make the payment of the penalty and interest on the, shortfall in the export earnings of the Plaintiff as guaranteed failing which coercive measures would be initiated. Now when all the aforesaid letters are examined in juxtaposition to the evidence led by the witness of Defendant No.3 it appears that nothing has come on record so as to. disbelieve the contention of the Plaintiff. The witness stated that "I am not author of written statement filed by Ms. Naheed A. Shah on record". He however, stated that "I do not know whether the duty per Kg. of Rs.5 were increased to Rs.10/- in 1997 and 1998." He further states "that my Advocate did not tell me the facts of the case and question asked by the Counsel for the Plaintiff I cannot answer". He was again questioned that whether you have read the affidavit in evidence and understood it before signing to which he replied, "I did not read it and understood it before signing. My Advocate told me to sign and I signed it." While confronted, he has admitted regarding letters issued by the Textile Commissioner to the Ministry of Industries, copy whereof was endorsed to Defendant No.3. After perusal of the said evidence led on behalf of Defendant No.3 it appears that insofar as the documentary evidence so relied upon 'on behalf of the Plaintiff including various letters is concerned, they are not disputed. The learned Textile Commissioner time and again referred the matter to Ministry of Industries and Finance with certain sound reasoning's, but Defendant No.1 i.e. Ministry of Finance rejected his recommendations without assigning any reasons whatsoever. The question before the Court is that whether under the given facts and circumstances, the Plaintiff can be subjected to payment of 27% penalty along with interest mandatorily, or the same can be dispensed with according to the situation prevailing at the relevant time. The case of the Plaintiff is to the effect that initially the Plaintiff met the export target for payment to the suppliers in foreign exchange, but in subsequent years, due to change in policies and implosion of export duty, the export targets could not be met which resulted in shortfall of foreign exchange to make payments to the foreign suppliers. It is not in dispute that insofar as the foreign suppliers are concerned, the payments were made from the foreign exchange reserves of the Federal Government, whereas, the Plaintiff has paid the same in equivalent amount in the local currency. It is only a case wherein, the Plaintiff has not been able to generate enough foreign exchange from its earnings of exports during a given year and has allegedly burdened the Government to generate the same. In that case, the defendants were required to come before this Court with some evidence so as to rebut the stance of the plaintiff. However, it is in fact on the contrary. The documentary evidence in the shape of Government own correspondence is a matter of record and has not been controverted in any manner by the defendants. 11. It is by now a settled proposition of law that penalty could not be imposed in absence of a definite finding against a party, and in any event, it could only be imposed after taking into consideration the facts and circumstances of a case, whereas, admittedly it is not the case of the
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Defendants that any subjective analysis was made in respect of the Plaintiff's case. A compulsory penalty of 27% has been imposed for having defaulted. There is nothing on record in shape of material or evidence so as to justify that firstly the default of the Plaintiff was willful, and secondly, any quantum of loss was ever sustained by the Defendants in the case of Plaintiff for default in generating foreign exchange. It is also a settled law that the authorities at the helm of affairs must exercise the discretion and public powers fairly and reasonably whereas, the burden through imposition of penalty must bear a reasonable nexus that harm has been caused to the Government. All this is lacking in this case. A somewhat similar controversy was brought to the notice of a learned Division Bench of this Court in the case of Messrs Neelam Textile Mills Ltd. v. State Bank of Pakistan and 2 others (PLD 1999 Karachi 433) and the relevant findings are as under:- "13. It may be seen that the legislature conferred upon the rule making body the power to make a rule which may provide that Industrial Unit or Enterprise may be liable to pay, by way of penalty, the sum not exceeding a maximum limit under two situations i.e. (i) failure to repatriate foreign exchange earnings and (ii) failure to generate adequate export earnings to meet debt liabilities in terms of the Scheme. In the first place the expression "penalty" itself denotes that the person required to defray the same has through some wilful act of commission or omission incurred some financial burden which the legislature considers expedient to impose.…
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