2017 CLC 169 Sindh

2017 CLC 169
[Sindh]
Before Khadim Hussain M. Shaikh, J
HASSAN ALI & CO. COTTON (PVT.) LTD.----Plaintiff
Versus
TRADING CORPORATION OF PAKISTAN (PVT.) LTD. and another----Defendants
Suit No.837 of 1989, decided on 8th August, 2016.
Specific Relief Act (I of 1877)---
----Ss. 42 & 54---Qanun-e-Shahadat (10 of 1984), Art.129(g)---Civil Procedure Code (V of 1908), O.XXIX, R.1---Suit for declaration and injunction by company---Valid institution of suit---Absence of authority to file suit---Presumption---Plaintiff company filed suit against defendants, through the person who did not have any authority to file the same---Validity---Where there was any defect in institution of suit, such as it had been instituted un-authorizedly and incompetently, such defect was incurable---Competency and authority to institute legal proceedings were to be determined strictly in accordance with Articles of plaintiff company, as for a suit to be validly instituted, it must have been instituted by a person authorized in such behalf, through a resolution passed in meeting of Board of Directors of the company and/or in accordance with Memorandum of Articles of Association thereof---In order to determine as to whether a suit was instituted by a person competent to do so, reference was to be made to Articles of Association and/or resolution of Board of Directors of the company, on whose behalf the suit had been instituted---Burden to establish that the suit was filed on behalf of plaintiff company by an authorized and competent person was upon plaintiff company---In the present case, more than eleven years had elapsed but no document/authority was produced by plaintiff to establish that the person who filed the suit was Chairman of plaintiff company and he was an authorized person to institute the suit on behalf of plaintiff company, nor Memorandum and Articles of plaintiff company had been produced so as to adduce that suit was instituted on behalf of plaintiff company by a duly authorized and competent person---Presumption about non-existence of alleged authority claimed by person who filed the suit and appeared as plaintiff's witness could legitimately be drawn against the plaintiff company in view of Art.129(g) of Qanun-e-Shahadat, 1984---Suit was dismissed in circumstances.
Messrs Muhammad Siddiq Muhammad Umar and another v. The Australasia Bank Ltd. PLD 1966 SC 684; Khan Iftikhar Hussain Khan Mamdot v. Messrs Ghulam Nabi Corporation Ltd., Lahore PLD 1971 SC 550 and Abdul Rahim and 2 others v. Messrs United Bank Ltd. of Pakistan PLD 1997 Kar. 62 rel.
JUDGMENT
S. Irtaza Hussain Zaidi for Plaintiff.
Syed Ashfaq Hussain Rizvi for Defendants.
Date of hearing: 11th May, 2016.
KHADIM HUSSAIN M. SHAIKH, J.--- This is a suit for declaration and injunction valued at Rs.2,42,00,000/- filed on behalf of Hassan Ali & Co. Cotton (Pvt.) Ltd. (hereinafter referred to as the plaintiff
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company) against Trading Corporation of Pakistan (Pvt.) Ltd., and National Bank of Pakistan (hereinafter referred to as the defendant corporation and the defendant bank respectively).
2.Briefly the facts of the case are that on 12.07.1989, the above suit was filed on behalf of the plaintiff for declaration and injunction. The case of the plaintiff is that the plaintiff is a private limited company and, inter-alia carries the business of cotton exports. The defendant corporation is a wholly State-owned corporation charged with the function of procuring internally and exporting Pakistan cotton. Unless permitted, no person other than the defendant corporation is allowed to purchase, sale, export or trade in cotton under own account. However, the said policy, during the financial year 1987-88 (in respect of the 1987-88 cotton crop) permitted private exports where under a private exporters could buy raw cotton (packed in fully pressed bales of 170 kgs average weight) from the defendant corporation. The plaintiff company entered into several contracts with the foreign buyers, which may be divided into two categories, namely, (1) contracts under barter system agreed with the Romanian Government by the Government of Pakistan and the other (2) non-barter contracts with foreign buyers, i.e. other than Romanian Government. In July 1988, the Government relaxed the rule allowing exporters to buy their export requirements from 'ginners' directly. Under this revised policy, the plaintiff company exported bales. On failure to supply the cotton bales under the contracts, the defendant corporation gave out excuses purported to be that during the crop year 1987-88, there were allegedly rains/floods as also re-sowing in the Punjab of the Punjab-cotton (the subject matter). The defendant corporation being a Government Organization and commanding coercive powers over cotton traders did not give anything in writing but also did not make any claim/demand under the impugned guarantee. The plaintiff company suffered on account of default in the matter of supply of local cotton for export by the defendant corporation under various local supply contracts. Instead of entertaining the claim of the plaintiff company for the breach of the contract on its parts, the defendant corporation took a strange turn by invoking the impugned guarantee and demanding the sum of Rs.15,00,000/- from the defendant bank. The said amount of Rs.15,00,000/- has reportedly been paid by the defendant bank to the defendant corporation on 12.07.1989. The realization of/under the impugned guarantee is a fraud perpetrated on the plaintiff company. The plaintiff company for the breach of the contract claims total amount of Rs.2,40,00,000/-, hence this suit was filed on behalf of the plaintiff company with the following prayers:-
(a)To grant a decree in favour of the plaintiff company and against the defendants Nos.1 and 2 jointly and severally, in the sum of Rs.2,42,00,000 with interest thereon at 15 per cent per annum with quarterly rests from the date of the suit until payment;
(b)To declare the impugned guarantee as in operative and incapable of being encashed and liable to be cancelled and the payment of Rs.15,00,000 to be not thereafter or otherwise illegal and no legal effect and the debit in the plaintiff company's account be ordered to be reversed.
(c)To cancel the impugned guarantee with instructions that the cancelled guarantee document be returned to the plaintiff company;
(d)To grant such other/further/additional or relief order/orders, direction or directions which this Hon'ble Court may be pleased to consider proper or otherwise appropriate in or about the facts and circumstances of the case.
3.The defendants have filed their separate written statements wherein they have denied the allegations and claims leveled on behalf of the plaintiff company against them. It is further the case of the defendant corporation that CEC had nothing to do about any firm export contract of the Private Sector Exporters (including the plaintiff company) as the local sales contract needed EPC only, not the contract with their foreign buyers, nor there was any restriction on purchase, sale and trading of cotton. However, the sale
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contracts between the plaintiff company and defendant corporation were for 1987-88 cotton crops, which was the current crop at that time. It was neither for subsequent year cotton of 1988-89 nor for old crop. The sale contracts between the plaintiff company and Defendant corporation were local sale contracts on the terms and conditions provided therein. The said contracts did not provide for Romanian barter agreement. The defendant corporation had no concern as to whether the export contract for sale of cotton to foreign buyers by the plaintiff company was under any barter or not. The plaintiff company had no concern with the cotton bales, if any, contracted to be sold to the Romanian Government by the Government of Pakistan. The plaintiff company was only bound to comply with the terms and conditions of the said sale contracts between the plaintiff company and defendant corporation. For export of 1987-88 crop by Private Sector Exporters, the Private Sector Exporters had to buy cotton from the defendant corporation. Neither the defendant corporation failed to supply cotton to the plaintiff company as per terms of the contract nor the Government of Pakistan relaxed any rule allowing exporters to buy cotton from cotton ginners directly. However, such relaxation was given by the Government for the next cotton crop of 1988-89, which was not applicable to the plaintiff company. The plaintiff company lifted a total of 1,09,844 bales of cotton but exported/shipped a total of 1,07,252 bales only, leaving a balance of 2,592 unshipped bales with it. The plaintiff company, thus has made itself liable for imposition of penalty as per clause 'g' of the public notice No.4(87)/Exp-I dated 18.08.1987 and clause 15 of annexure to the sale contract and a large amount is recoverable by the defendant corporation from the plaintiff company. The defendant corporation was / is not concerned as to what quantity the plaintiff company shipped to which country on barter or non-barter basis. The plaintiff company and the defendant corporation had to follow the terms and conditions of sale contract executed between the plaintiff company and defendant corporation and the decision regarding forfeiture of earnest money was taken by the review committee, comprising of Vice Chairman of defendant corporation and the Chairman, Karachi Cotton Association (KCA) a representative body of the Private Sector Exporters including the plaintiff company. The plaintiff company had submitted a letter of undertaking dated 10.04.1988 to the Chairman (KCA), whereby the plaintiff company undertook that "the decision of the Committee comprising of the Vice-Chairman CEC and the Chairman, Karachi Cotton Association set-up to review cases of forfeiture of earnest money of Private Sector Exporters on the unpaid/un-lifted bales shall be final and binding on us". The plaintiff company had contracted to lift 1,54,666 bales of cotton of CEC, out of which the plaintiff company lifted 1,09,780 bales only, leaving 44,886 un-lifted bales. The defendant corporation was thus entitled to impose penalty on the plaintiff company on 44,886 un-lifted bales. However, the said review committee in its award dated 21.04.1988 decided to condone 5,440 bales for penalty. As a gesture of good will the defendant corporation granted extra relief to the plaintiff company by condoning further 1,451 bales. The defendant corporation thus condoned a total of 6,891 bales for imposition of penalty and imposed penalty of Rs.17,67,230/- on 37,995 bales only as against 43,434 bales under forfeiture. Out of claim of Rs.17,67,230/-, the defendant corporation recovered a sum of Rs.15,00,000/- by encashment of said Bank Guarantee, leaving a balance recoverable amount of Rs.2,67,230/- for which the defendant corporation reserves its right to recover from the plaintiff company. In view of the award of the review committee, out of five Bank Guarantees furnished by the plaintiff company, three Bank Guarantees (i) dated 04.10.1987 for Rs.5,00,000/-(ii) dated 11.10.1987 for Rs.5,00,000/- and (iii) dated 23.11.1987 for Rs.3,00,000/- were returned to the plaintiff company on 21.12.1988 on competition of delivery. Bank Guarantee dated 08.11.1987 for Rs.15,00,000/- (subject matter of this suit) was encashed on 11.07.1989 by the defendant corporation. With regards to the 5th Bank Guarantee No.052/87 dated 08.11.1987 for Rs.10,00,000/-, it is stated that its validity has expired. The defendant corporation fulfilled the commitments in full made to the plaintiff company under the sale contract between the plaintiff company and defendant corporation. The allegations made against the defendant corporation are false, and mala fide. The claims of Rs.2,42,00,000/- made by the plaintiff company on various accounts are false, baseless, imaginary, fabricated and untenable and are denied and repudiated by the defendant corporation. The plaintiff company's suit is misconceived, mala fide, false, baseless, incompetent, infructuous and not maintainable in law and is liable to be dismissed with costs. In the written
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statement filed on behalf of the defendant bank, all the allegations and claims levelled on behalf of the plaintiff company have been denied. It is further stated therein that the Bank Guarantees aggregating to Rs.38 lacs referred to were furnished by the Hasrat Mohani Road Branch, Karachi. The guarantee in question stood renewed upto 03.08.1989. A demand was received by the defendant bank from the defendant corporation vide letter dated 05.07.1989 and this fact was duly notified by the defendant bank to the plaintiff company vide a letter dated 08.07.1989. In response to this request for encashment of the guarantee in question the defendant bank paid the demanded amount of Rs.15 lacs to the defendant corporation on or about 10.07.1989 in terms of its obligations to that effect under the said guarantee.
4.On the pleadings of the parties, twelve issues were framed.
5.A perusal of record reveals that the parties were examined through the commission. One Akbar Ali Hashwani was examined on behalf of the plaintiff company by filing his affidavit-in-evidence and then he was subjected to cross-examination. He produced Export Sale Certificate as Ex-5/1, Export Price Check Price Contract Ex-5/2, SBP Contract as Ex-5/3, Public Notice as Ex-5/4 N.P. cutting of dawn public notice Ex-5/5, N.P cutting of morning news copy of notice as Ex-5/6, Letter from Textile Commissioner as Ex-5/7, Letter dated 24.05.1988 from Ministry of Commerce as Ex-5/8, statements showing total E.P. quantity of bales as Ex-5/9, Letter dated 19.11.1987 forwarding Bank Guarantee as Ex-5/10, Bank Guarantee as Ex-5/11, Letter dated 13.06.1989 from plaintiff company to defendant corporation as Ex-5/12, Letter dated 08.07.1989 from defendant bank to plaintiff company as Ex-5/13 and Statement showing un-lifted quantity as Ex-5/14. The defendant corporation examined Muhammad Ilyas, Manager (TCP) through his affidavit-in-evidence and then he was also subjected to cross examination. He produced Resolution of Board of Directors of TCP as Ex-7/1, Copy of public notice dated 18.08.1987 published in Business Recorder, which has already been produced as Ex-5/4, Copy of public notice dated 08.09.1988 published in Business Recorder, which was marked as 7/2, Letter of undertaking dated 10.04.1989 marked as 7/3, Sale Contract dated 13.12.1987 bearing No.PS/HAC/11/43 between CEO and Hasan & Co. as Ex-7/4, Contract No. PS/HAC/28/78 dated 13.12.87 as Ex-7/5, Contract No. PS/HAC/29/79 dated 13.12.87 as Ex-7/6, Contract No. PS/HAC/38/142 dated 19.02.88 as Ex-7/7, Summary of party wise position of earnest money forfeited/condoned through Review Committee, dated 21.04.89 marked as 7/8, Details of party wise position of earnest money forfeited/condoned marked as 7/9, Working of amount of earnest money forfeited A/C Hasan Ali & Co., marked as 7/10, Copy of Bank Guarantee dated 08.11.87 marked as 7/11, Bank Guarantee dated 11.10.87 marked as 7/12, Bank Guarantee dated 11.10.87 marked as 7/13, Bank Guarantee dated 23.11.87 marked as 7/14, Bank Guarantee dated 08.11.87 marked as 7/15, Original letter dated 27.11.88 addressed to Chairman CEC by the plaintiff company as Ex-7/16, Letter dated 06.02.89 marked as 7/17 and Letter dated 14.02.89 marked as 7/18.
6.Akbar Ali Hashwani, alleged Chairman of the plaintiff company, who was examined on behalf of the plaintiff company, in his cross-examination has stated that:-
"The plaint in this suit has been signed by me. The company is registered under Companies Ordinance. Under the Ordinance Chairman has power to defend and file suit and safeguard interests of company and further the Board of Directors have authorized me to file suit. I will produce the document showing authorization by the Board in the Court as and when needed by the Court, therefore, I have filed affidavit in the court as Chairman and Director of Company."
7.Record reflects that on 10th March, 2016, learned counsel for the defendant corporation pointed out that in his evidence, Akbar Ali Hashwani, examined on behalf of the plaintiff company, was put specific questions about his authority and competency to institute the instant case, as, no Board Resolution has been filed by the plaintiff company to verify the fact that he was authorized by the Board of Directors to institute, prosecute and adduced evidence in this matter and since in this regard the legal principle is now settled in
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view of various judicial pronouncements starting from Messrs Muhammad Siddiq Muhammad Umar and another v. The Australasia Bank Ltd. (PLD 1966 Supreme Court 684) as well as Khan Iftikhar Hussain Khan Mamdot v. Messrs Ghulam Nabi Corporation Ltd., Lahore (PLD 1971 Supreme Court 550), this issue of maintainability of the present case may be decided first. In view of the above, the learned counsel for the plaintiff company was put on notice to first satisfy the Court about maintainability of the suit.
8.Record further reveals that out of twelve issues framed in this case, one of them is about maintainability of the suit. Since the question of maintainability of the suit has been raised, therefore, I intend to decide this question about maintainability of the suit first, on which the suit can be disposed of.
9.I have heard the learned counsel for the parties on the question of maintainability of this suit.
10.The learned advocate for the defendants has mainly contended that the suit has been filed by an unauthorized and incompetent person, therefore, the suit is not maintainable. He prays that the suit may be dismissed with costs.
11.Conversely, the learned counsel for the plaintiff company has argued that the suit has been properly instituted as the plaint is signed by Akbar Ali Hashwani, the Chairman of the Board of Directors of the plaintiff company; that Akbar Ali Hashwani has expired quite long ago, hence the Board Resolution could not be produced; and per him non-production of Board Resolution and/or Memorandum of Articles of the plaintiff company would not render the suit incompetent. He has prayed that the suit may be held to have been instituted, by a competent and authorized person.
12.Admittedly, the plaintiff is a limited company registered under the Companies Ordinance, 1984. The provisions of filing a suit by or on behalf of a body corporate are contained in Order XXIX Rule 1 of Code of Civil Procedure, 1908, which reads as under:-
1. pleading made be signed and verified on behalf of the corporation by the secretary or by any director or other principal office of the corporation who is able to depose to the facts of the case.
Subscription and verification of pleading.-- In suits by or against a corporation, any
13.From plain reading of the above provision of law, it would be seen that it only deals with the subscription to and verification of the pleadings in suits by or against the corporation, and does not deal with the frame of the suit.
14.The legal proposition arose before the Honourable Supreme Court and was considered in the case of Messrs Muhammad Siddiq Muhammad Umar and another v. The Australasia Bank Ltd. (PLD 1966 SC 684) and subsequently in the case of Khan Iftikhar Hussain Khan of Mamdot v. Messers Ghulam Nabi Corporation Ltd., Lahore (PLD 1971 SC 550). Moreover, in the case of Abdul Rahim and 2 others v. Messrs United Bank Ltd. of Pakistan (PLD 1997 Karachi 62), detailed examination of case law was made by the Honourable Division Bench of this court with reference to the scope and applicability of Order XXIX Rule 1 of Code of Civil Procedure, 1908 and the effect of the suit filed by a person not duly authorized on behalf of the company; and, after analysing the case law on the said point certain principles were extracted in the said judgment. It would be advantageous to reproduce here the following observations made by the Honourable Division Bench of this Court.
"It is settled that the business and affairs of a company are to be conducted strictly in consonance with the articles of association subject of course to the operative laws. The business and affairs of a company include the power, competence and authority to institute legal action (see H.M. Ebrahim
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Saith v. South India Industries Ltd. AIR 1938 Mad. 962). By deduction, the factum of competence and authority to institute legal proceedings would also have to be determined strictly in consonance with the Articles of the Company. Such interpretation would also be in consonance with Muhammad Siddique and Central Bank of India wherein it has been categorically stated that where the competence to institute legal action is challenged reference has to be necessarily envisaged to the articles. Where the articles of the company confer power on a particular person or director to institute legal action and that person or director institutes the suit there can be no additional requirement of a resolution of Board of Directors for the simple reason that such power is to be exercisable by a real persona. However, where the power to institute the suit is conferred upon an artificial person or body e.g. the Board of Directors or a Committee (as in Premier Sugar Mills (supra) the requirement to produce and prove the resolution passed by that artificial person or body cannot be dispensed with since such a person can only take a decision as a body through a resolution passed in a duly convened meeting and not otherwise. The above principles would also become applicable in the case of delegation or subdelegation of powers i.e. in case the delegator is a real person (when articles confer the powers to institute legal action on a real person) all that would be required would be to scrutinize the articles and then the power of attorney to see whether it has been properly executed and confers the power so claimed. There would be no requirement to produce or prove the resolution from the Board of Directors in this regard. If on the other hand, the delegator is an artificial person/body (when the articles confer the power to institute legal action on e.g. the Board of Directors or some Committee) the resolution passed by that artificial person/body i.e. the Board/Committee shall become indispensable. However, there would be no requirement to produce or prove a separate power of attorney. In this backdrop we would venture to reconcile Muhammad Siddique, Iftikhar Mamdot and Central Bank of India by presuming that in Muhammad Siddique and Central Bank of India the articles conferred the power to institute or defend legal proceedings to a real person i.e. a director. Thus the requirement to produce or prove a resolution from the Board of Directors was dispensed with. However, in Iftikhar Mamdot the articles conferred the power to institute or defend legal proceedings upon an artificial person/body i.e. the Board of Directors in view whereof the requirement to produce and prove the resolution thereof authorizing institution of the suit was found to be indispensable."
15.In view of the above, I am of the humble view that in case there is any defect in institution of the suit such as it has been instituted un-authorizedly and incompetently, the said defect is incurable. The competency and authority to institute legal proceedings would also have to be determined strictly in accordance with the Articles of the company, as for a suit to be validly instituted, it must have been instituted by a person authorized in this behalf, through a resolution passed in a meeting of the Board of Directors of the company and/or in accordance with the memorandum of the Articles of the association thereof. In order to determine whether a suit has been instituted by a person competent to do so, reference will have to be made to the Articles of association and/or resolution of Board of Directors of the company, on whose behalf the suit has been instituted. The burden to establish that the suit was filed on behalf of the plaintiff company by an authorized and competent person was upon the plaintiff company.
16.A perusal of the, record reveals that the cross-examination of Akbar Ali Hashwani was recorded in piecemeal. The above portion of his cross-examination was recorded on 03.08.2005, although the period of more than 11 years has elapsed, but no such document and/or authority has been produced by the plaintiff company to establish that in fact Akbar Ali Hashwani was a Chairman of the plaintiff company; and that he was an authorized person to institute the instant suit on behalf of the plaintiff company nor Memorandum of the Articles of the plaintiff company have been produced till date so as to appreciate if the suit in hand was instituted on behalf of the plaintiff company by a duly authorized and competent person, and hence the
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presumption about non-existent of the alleged authority claimed by the above witness Akbar Ali Hashwani in his favour and about the incompetency of the suit can legitimately be drawn against the plaintiff company, in view of Article 129(g) of Qanun-e-Shahadat Order, 1984.
17.The contention of learned counsel for the plaintiff that the suit has been properly instituted and that non production of Resolution of the Board of Directors and Memorandum of the Articles of the plaintiff company would not render the suit instituted by Akbar Ali Hashwani on behalf of the plaintiff company incompetent, is untenable.
18.In the light of what has been discussed above and the case-law referred to hereinabove, the suit instituted on behalf of the plaintiff company by Akbar Ali Hashwani is not maintainable, therefore, the suit is dismissed with no order as to costs.
MH/H-16/SindhSuit dismissed.