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Petitioner: HABIB AND OTHERS---Appellants VS Respondent: HAJI MOHAMMAD AND OTHERS---RespondentsHonorable Justice QADEERUDDIN AHMEDA. A. Fazeel,Noorul Arin
1964 P T D 126
1964 P T D 126
[Karachi Pakistan]
Before Qadeeruddin Ahmed and H. T. Raymond, JJ
HABIB AND OTHERS‑--Appellants
Versus
HAJI MOHAMMAD AND OTHERS‑--Respondents
Letters Patent Appeal No. 21 of 1963, decided on 23rd September 1963.
Partnership‑"Goodwill" ‑ Meaning ‑ Relationship of lease rights and other tangible things with sale of goodwill‑Relevant law on subject fully discussed.
Duladas Mullick v. Ganesh Das Damani A I R 1957 Cal. 280 ; New Gujrat Cotton Mills Ltd. v. Labour Appellate Tribunal and others A I R 1957 Born. 111; "Lindley" on Partnership 12th Ed. p. 466 ; Stuchbery and others v. General Accident Fire and Life Assurance Corporation Ltd. (1949) 2 K B 256 ; Dr. Peshoton v. Peerozshaw and another P L D 1962 Kar. 293 ; Crutwell v. Lya (1810) 14 E R 129 ; May v. Thomson (1882) 20 Ch. D 718; Ginesi v. Cooper & Co. (1880) 14 Ch. D 599; Churton v. Douglas (1859) 70 E R 385 and American Jurisprudence, Vol. 24, pp. 809, 816 and 117 ref.
A. A. Fazeel for Appellants.
Noorul Arin for Respondents.
Dates of hearing : 2nd, 3rd and 4th September 1963.
JUDGMENT
QADEERUDDIN AHMED, J.‑---- This is a Letters Patent Appeal against the order of our learned brother Mr. Justice Feroz Nana Ghulam Ally by which two applications and the report of the Nazir with regard to the acceptance of securities have been disposed of. The application under section 151, C. P. C. dated the 25th of March 1963, was made by the defendants respondents and the application under section 151 read with Order XX, rule 15, C. P. C. dated the 27th of May 1963, was made by the plaintiffs‑appellants. The report of the Nazir dated the 21st of May 1963, contained the objections of the plaintiffs --appellants to the securities that were furnished as well as his decision overruling them.
2. The application of the defendants‑respondents, which has been accepted without any reservation by the learned Judge, contained the following prayer:
It is also prayed that Official Assignee, who is in charge of the management of the firm be directed to immediately hand over the possession of the business and business premises including godowns at Karachi and Chittagong along with all the relevant papers relating to licences, quotas and cate gories of the firm. He may also be directed (1) to hand over all the unutilised licences and licences of the current period (2) to close the firm's account in various banks at Karachi and Chittagong immediately so that defendants 1 to 4 may b: able to open and operate the account in Banks in the name of the firm. It is prayed that this Hon'ble Court may be pleased to pass necessary orders.
The application of the plaintiffs‑appellants, which has been rejected by the learned Judge contained the following main prayers: --‑
. . . . . this Hon'ble Court be pleased :‑
(i) to set aside the sale of the goodwill of the firm in suit made in favour of the defendants;
(ii) to order the sale of the goodwill of the suit firm in favour of the plaintiffs on the same terms and conditions on which it was sold to the defendants;
(iii) to stay the confirmation of the sale in favour of the defendants and to handing over of the possession to the defen dants until the present application is decided.
The objections of the plaintiffs‑appellants to the acceptance of the securities have been overruled by the learned Judge.
3. This appeal came up on the 26th of June 1963, before a Division Bench of this Court, which included one of us, for admission and the decision of an application made by the plaintiff's‑appellants for interim stay of the order which is under appeal. Counsel for the parties were heard at length. The appeal was admitted to regular hearing and the application for stay was granted. The concluding paragraph of the order was as follows:
One of the grievances of the plaintiffs‑appellants is that they did not get the opportunity to produce evidence in support of their allegation of fraud. If any of parties wish to move this Court for the production of evidence, he should apply for this purpose and his application will be considered on merits.
4. The plaintiffs‑appellants made two applications one for summoning local witnesses to be examined in Court and the other to examine two witnesses on commission at Chittagong. Counsel for the parties agreed on the 15th of July 1963, that evidence be recorded and the hearing be continued from day to day. Five witnesses of the plaintiffs‑appellants were examined on the 2nd of September 1963, and the request for adjournment to examine two witnesses on commission was rejected by our order dated the 2nd of September 1963.
5. The facts which form the background of this appeal constitute the history of a keenly contested suit in which the parties have 3 times applied to the Supreme Court for leave to appeal against interim orders but did not meet with success there. They have displayed the same keenness during the hearing of this appeal and have made references to all those orders and affidavits which could be utilised by the respective parties. The paper‑book of this appeal contains 601 pages. It is necessary, therefore, that the relevant facts be stated here so that the contentions which have been raised may be easily intelligible.
6. Haji Abdul Shakoor had two wives and was carrying on business in partnership with his children from both the wives in the name of Messrs Abdul Latif Jusab. He, along with the sons of his second wife, filed Suit No. 24 of 1960 against the sons of the first wife on the 25th of January 1960, for dissolution of the partnership and accounts. The plaintiffs applied for the appointment of a receiver and on the 18th February 1960, the Nazir was appointed to be the receiver. We may mention here that Sharif, who is one of the plaintiffs, was also appointed as the receiver at one time but was removed from that office as will be seen later. The defendants‑respondents made an application on the 5th of February 1962, asking inter alia for directions that the business of the firm be wound up and final accounts be submitted. While disposing of that application Mr. Justice Inamullah Khan ordered on the 12th of March 1962, as follows: --‑
The parties will have the first option to purchase the good will, but in case they do not want to purchase it would be sold to any one who is willing to purchase. After the goodwill is sold Mr. Moulvi to finally determine the accounts.
The above order is to be noted because the allegation of fraud made in this appeal is founded on the allegation that the terms of this order were surreptitiously violated.
7. Mr. Moulvi, accordingly, fixed a date for auctioning the goodwill among the parties. Counsel for the defendants‑res pondents wrote to him that the implications of the term `goodwill' be elucidated before holding the auction. The Commissioner expressed his inability to do so, whereupon Mr. Fakhruddin, counsel for the plaintiffs‑appellants stated as follows:---
.. the term goodwill has accepted connotation of its own. It consists of the name of the firm, categories of licences held by the firm, places of business and godowns inclusive of tenancy rights. Defendants have the necessary information and he (Mr. Fakhruddin) is prepared to give all the information required by the defendants.
After the above statement the Commissioner recorded further proceedings as follows:
Mr. Suleman, Advocate for defendant No. 4 says that his client has come from Calcutta only on Monday last and does not know where the firm's godowns are and how many they are and their location, as well as Income‑tax dues against the firm and the present existing rights of the firm against the Government. He wants time for getting this clarification through an application to the Court and reasonable time to assess all these.
Mr. A. K. Lakhani, Advocate says, in case I do not seek directions as suggested by him from the Court, (he) wants time to move the Court about it.
The Commissioner then adjourned the proceedings to enable the defendants‑respondents to obtain the required elucidation. In the evening of the same day Mr. Fakhruddin wrote a letter to Mr. Suleman setting out particulars of the assets of the firm with the obvious intention of giving the information which according to Mr. Suleman was not with his client, so that this information combined with the elucidation which was given by Mr. Fakhruddin might remove the need for obtaining elucidation from Court.
8. The defendants‑respondents, however, applied to the Court for elucidation stating in paragraph 12 of it as follows :‑
It is, therefore, prayed that this Hon'ble Court will be pleased to issue direction to the persons incharge of the firm to submit details of the matters, rights, liabilities, and assets, stock‑in‑trade, tenancy rights of business, premises and godowns, licences, quotas, categories and other things which they mean to include in the goodwill and after the said details to issue directions to the Commissioner accordingly.
The above quotation will show that doubt existed about the details of the subject‑matter and not as to the subject‑matter of goodwill. The application was opposed by Mr. Fakhruddin. Sharif submitted a counter‑affidavit in reply to the application stating in paragraph 13 of it as follows :‑
With reference to paras. 8 to 10 of the application, I say that term goodwill has accepted connotation of its own. It consists of the name of the firm coupled with tenancy rights in places of business and godowns and benefits attached to the name such as category quotas and import licences and the defendants are fully aware of the same, but to delay the sale proceedings by the Commissioner they have come out with the present application at the nick of the time when the auction is about to take place.
9. The application was heared by Mr. Justice Abdul Rahim Kharl who ordered as follows:‑
I find no substance in this application. The Commissioner is selling out only goodwill of the firm. Mr. Lakhani in this connection mentioned, the question of assets, of debts of the firm and also with whom the right of tenancy is. All these are irrelevant for the purposes of what goodwill is. The order for sale of goodwill was made on 12‑3‑1962 and this application is made at this stage only to get the sale delayed or to obstruct it. Rejected.
(Sd.) Abdur Rahim Kharl, JUDGE 19‑3‑1963
Note.‑The counter‑affidavit filed by receiver withdrawn by the plaintiff's Advocate.
(Sd.) Abdur Rahim Kharl. JUDGE."
The above order and the note under it are to be noted because the parties have sought to use them to serve their conflicting purposes. The defendants‑respondents did not appeal against it and their stand now is that it was not necessary to do so because they could rely on the elucidation given on behalf of the plaintiffs‑appellants in the absence of any direction of the Court. Counsel for the plaintiffs‑appellants has contended on the other hand that his clients withdrew the affidavit submitted by them in reply to the application, which contained references to the assets and tenancy rights of the firm, as a symbol of abandon ing that stand in view of the order of the Court that transfer of those properties was out of question as goodwill alone was being sold. The observation taken as a whole made it negatively clear, according to counsel, that assets and tenancy rights of the firm could not be transferred, whatever else might be transferred when goodwill alone was sold.
10. The parties thereafter appeared before the Commissioner on the 21st of March 1963, who held the auction and accepted the highest bid of the defendants‑respondents for Rs. 4,21,000. He submitted his report to the Court which was accepted on the 25th of March 1963.
11. As a result of the confirmation of the sale the question of the payment of the price arose and the parties went to the Supreme Court, as stated above and a Letters Patent Appeal was also preferred in connection with the manner and time of payments. This is the second Letters Patent Appeal from the proceedings of the suit.
12. As one of important points for decision in this appeal is the dispute as to whether the defendants‑respondents have bought licences and tenancy rights of the firm or not, we may mention that the defendants‑respondents have stated in paragraph 3 of their application dated the 28th of March 1963, which was made by them after the auction as follows:
. . . . . .The goodwill was purchased by defendant No. 2 for self and benami for defendants Nos. 1, 3 and 4 in view of clarification of the word goodwill made and admitted by the plaintiffs.
Appellant Sharif has also stated, in paragraph 10 of his affidavit dated the 6th of April 1963, in reply to paragraph 5 of the application dated the 25th of March 1963, (see paragraph 2 above) of the defendants‑respondents in which they asked for the delivery of "business and business premises including godowns at Karachi and Chittagong along with all relevant papers relating to licences, quotas and categories of the firm" as follows:
.. I submit that the defendants are not entitled to the direction therein sought and that no orders thereon should be made until the defendants have deposited in Court the full purchase price. I say that unutilised licences were ordered to be issued to the firm prior to the sale of the goodwill and the defendants in no event would be entitled to the benefit thereof as auction purchasers.
The words "until . . . . . deposited . . . . . purchase price" and "prior to the sale" are noteworthy because they restricted the objections of the plaintiffs‑appellants to the full payment of. the price and to the period of time in which the licences were issued. Additionally, it is noteworthy that no objection was taken to the demand made by defendants‑respondents to the delivery of business, business premises and closure of the bank accounts of the firm. They claimed on the other hand in their application dated the 27th of May 1963, that the sale of goodwill made in favour of the defendants‑respondents be set aside owing to fraud and that the auction sale be confirmed in their own favour (see paragraph 2 above).
13. The grounds stated by them in support of their above prayer, in the affidavit submitted by appellant Sharif with the application, are as follows :‑
14. On 22‑5‑1963, the defendants filed an affidavit in suit No. 2095 of 1960 in the Court of Mr. Shamsul Arifin Qureshi, Civil Judge, Karachi in which they reluctantly admitted that they had entered into a partnership with some outsiders in respect of the firm in this suit but vehemently refused to disclose the exact nature of the transaction. A certified copy of the said affidavit is attached herewith and marked `A'.
15. That the plaintiffs and I believe that the defendants have actually outright sold out the firm and in any case they have created major and dominant interest in the firm in favour of outsiders. This transaction may be in the apparent form of partnership but actually it is outright sale and/or assignment of dominant and major rights in favour of the outsiders.
16. That the plaintiffs, including myself, believe that the defendants sold out or created major and dominant interest in favour of the strangers before the auction and bid at the auction only as ostensible and apparent purchasers for the real purchasers who were outsiders. However, in any case, the defendants bid at the auction with the intention of selling the goodwill to outsiders and pay the auction price to this Hon'ble Court from money received from the prospective purchaser.
14. Against the above background, counsel for the parties have addressed us by dividing their arguments into 3 parts relevant to the two applications and the report of the Nazir which were disposed of by the order which is under appeal. We take up tire consideration of the report first because the objections raised against the adequacy of the securities can be disposed of briefly.
15. Counsel for the plaintiffs‑appellants has objected to the adequacy of the value of two properties and to the title of one property. His objection to the value of two properties is that one of them was purchased in 1948, for Rs. 15,272 and the other in 1951, for Rs. 18,200 but they have been accepted as good securities for Rs. 1,50,000 and Rs. 60,000 respectively. This objection is incomplete because counsel has said nothing as to whether their present value is adequate or not for accepting them as securities 'for the value for which they have been accepted. The value of some properties has appreciated disproportionately in Karachi. His objection to the title of one property is that its owner had purchased it on the strength of the Final Transfer Order, which was held by its seller. He said that there have been cases in which Final Transfer Orders were found to have been obtained by fraud and that they were set aside. This argument again is insufficient because he has suggested no reason as to why suspicion of fraud should be entertained in this case. We, therefore, over‑rule the objections which have been raised against the order of the learned Single Judgle with respect to the report of the Nazir.
16. Turning now to that part of his order by which he rejected the application of the plaintiffs‑appellants dated the 27th of May 1963, we may .mention that counsel for the plaintiffs appellants conceded that if the defendants‑respondents had entered into an agreement for partnership with strangers before partici pating in the auction, the order of Mr. Justice Inamullah Khan dated the 12th of March 1962, (see paragraph 6 above) would not have been violated and that there could be no fraud in it. He urged that they had either wholly or partly sold the goodwill to strangers. In the circumstances of this case it appears to be clear to us that the defendants‑respondents could not have sold the goodwill to strangers as alleged by the plaintiffs‑appellants (see paragraph 13 above) before participating in the auction because, as pointed out by Mr. Noorul Arifin, they could not be certain of successful bidding for it. Even if they had sold the property which did not belong to them, the transaction would have in law become an agreement to sell it conditionally on its acquisition and could not be a sale. We may add that Sharif appellant has disclosed, in his evidence recorded by us, that the plaintiffs‑appellants had also obtained financial help from strangers. Their own resources were so inadequate that, according to him, they would have been in need of borrowing Rs. 3 to 4 Lakhs."
He has further stated :‑
it is true that the amount of Rs. 3 to 4 Lakhs which we had to borrow was meant to pay off the price of half of the goodwill because the other half already belonged to us.
It is clear from the above statements of Sharif and the arrangements which were made by the defendants‑respondents for procuring financial help that neither party was in a position to make a successful bid for the goodwill without the financial help of outsiders. Both of them tried to obtain it and we would not be surprised if the stand taken on behalf of the plaintiffs‑appellants by Mr. Fakhruddin that goodwill included "categories of licences", places of business" and "tenancy rights" had for its basis the confidence of his clients that they could successfully out‑bid the defendants‑respondents owing to the arrangement which they had made. It is true that they accidentally came to know from an affidavit submitted in an another suit that the defendants respondents had also entered into an arrangement for getting financial help. The information came as a surprise to the plaintiffs. ,appellants who were expecting to buy the goodwill "at a reason able price" and even for a little more than that (see paragraph 5 of the affidavit of Sharif dated the 27th of May 1963) but were unexpectedly and completely out‑bid (see paragaph 10 of the said affidavit of Sharif). When the plaintiffs‑appellants came to know that the defendants‑respondents had also made financial arrangements for out‑bidding them they may have felt piqued at having been out‑witted but we do not think that any fraud was played on them. Equally, do we think that, there was no reason for the defendants‑respondents to announce the arrangements that they had made ; nor does it appear that the plaintiffs‑appellants had themselves announced the financial arrangement which they had made.
17. The plaintiffs appellants have not only prayed in their application dated the 27th of May 1963 (see paragraph 2 above) that the sale in favour of the defendants‑respondents be set aside but also that the auction may be confirmed in their own favour. We find no justification for the latter prayer ex cepting for their own conviction that the bid given by them was more than reasonable. Here we should note that at the time of the admission of this appeal their counsel had offered to buy the name of the firm only, without any appurtenances to it like licences and teliancy rights, for Rs. 4,21,500. The offer created the impression at that time that the defendants‑respondents were claiming a great deal more than the name of the firm for a lesser price without justification. That impression was confirmed by the acceptance of the offer by Mr. Lakhani on behalf of the defendants‑respondents who were present in Court and who within a few minutes of the acceptance rejected it on the ground that extremely valuable licences could be obtained by buying the name of the firm. The whole situation was not then before this Court and the impression created by the offer, its acceptance and repudia tion was one of the reasons for admitting this appeal to regular hearing. The facts which have come to our knowledge by the evidence of Sharif leaves no doubt in our minds now that neither the order of Mr. Justice Inamullah Khan was violated by the defendants‑respondents, nor was there any fraud in the transaction which has been questioned. We, however, reserve our judgment at this juncture with respect to the prayer of the plaintiffs‑appellants that the sale be set aside and proceed to examine the decision under appeal with respect to the application of the defendants‑respondents.
18. We called upon Mr. Fazeel to show us the law in support of his contention which has been raised against the defendants respondents that the sale of goodwill did not convey to them the tenancy rights and the licences. He considered this unnecessary and declined to do so, making it, however, clear that he relied on the observation made by Mr. Justice Abdul Rabim Kharl on the 19th of March 1963, while rejecting the application for clarifi cation of the meaning of `goodwill that‑
the question of assets, of debts of the firm and also with whom the rights of tenancy is,
was irrelevant when goodwill alone was sold. We pointed out to him that the observation was made while dismissing the application ; therefore it could not be accepted to be that clari fication which was sought for but was refused. It could not be binding on the parties as that elucidation. Counsel requested us in reply to let him stop where he desired. We have thus received little help from him with respect to the legal meaning of `goodwill'. We, therefore, proceed without it, to examine his appeal against the acceptance of the application of defendants respondents dated the 25th of March 1963, in which they have demanded the delivery of business, business premises, licences and closure of bank accounts.
19. Mr. Fazeel has questioned that part of the order of the learned Single Judge which is relevant to the above demand on three grounds, which were firstly, the above‑mentioned observa tion of Mr. Justice Abdur Rahim Kharl; secondly, the insistence of the defendants‑respondents to seek clarification from Court in disregard of the elucidation given by Mr. Fakhruddin; and thirdly, the withdrawal of the affidavit (see paragraph 9 above) which according to him was symbolical of the abandonment of the stand of the plaintiffs‑appellants that the sale of goodwill included the other assets of the firm. As in our view the observation of Mr. Justice Abdur Rahim Kharl cannot be said to be a binding exposition of the meaning of goodwill, we conclude that the stand of Mr. Fazeel in this respect was merely negative.
20. Mr. Noorul Arifin discussed the positive side of the problem. He supported the acceptance of the application of the defendants‑respondents dated the 25th of March 1963, by urging firstly, that the plaintiffs‑appellants had never before this appeal questioned the correctness of the claim of the defendants respondents to the licences and business premises. On the contrary Mr. Fakhruddin had resisted the attempts of the defendants respondents to obtain an authentic clarification of the term "goodwill" by giving his own elucidation of it before the Com missioner. The same…
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