FATEH TEXTILE MILLS LTD HYDERABAD Versus WEST PAKISTAN INDUSTRIAL DEVELOPMENT CORPORATION KARACHI
KHUDA BACHSH MARRI, J .-Letters Patent Appeals Nos. 87/68 and 169/68, involve the same question of law. facts and evidence, therefore, I propose to dispose of both the appeals with this judgment.
2. The facts of the dispute between the parties are given in detail and the evidence have been fully discussed in the impugned judgments of my learned brother Mr. Justice Noorul Arfin, therefore brief facts and back ground of the dispute may be stated as under:--- -
That in the year 1955, the late Mr. Ghulam Ali Talpur (hereinafter called as Mr. Talpur) obtained permission from Government of Pakistan to set up a Cotton Textile Mills under the name of "Talpur Textile Mills" with a capacity, of 25,000 spindles and 500 looms, on Mr. Talpur's land measuring 23 acres, situated at Tando Muhammad Khan, District Hyderabad. Mr. Talpur due to financial difficulties imported only 10,000 spindles and due to paucity of funds, he was unable to proceed with the constructions of the factory and the installation of the plant and machinery. As a result he approached the Pakistan Industrial Development Corporation (the P. I. D. C.) the predecessor-in-interest of the present respondent (West Pakistan Industrial Development Corporation) for assistance in setting up the Mills. The predecessor-in-interest of the respondents agreed to give assistance through participation in the venture by the Muslim Cotton Mills Limited, Dacca, to which it was the Managing Agents. Thereupon a promoters agreement was executed between these parties on 17th April 1958 (which has been filed Exh. 6) and provided for the formation of a public company with limited liability, with issued and paid-up capital of Rs. 50,00,000 and with Muslim Cotton Mills Limited as the Managing Agents. The expenses already incurred by Mr. Talpur and the expenses with Muslim Cotton Mills had to incur in the erection and installation of the Mills, were agreed to be treated as debts to the company, and to be satisfied by the issue of 46,000 fully paid-up ordinary shares of Rs. 100 each to Muslim Cotton Mills Ltd. and in regard to Mr. Talpur, by the issue of 4000 fully paid-up shares of Rs. 100 each to him, the balance due to him, being agreed to be paid in cash. In fact, the public limited liability company was not formed, though the Muslim Cotton Mills Ltd., through the P. I. D. C. completed construction of said Mills' building and the erections and installations of the plant and machinery and also brought Mills into production. Mr. Talpur was credited in the Mills' book in the sum of Rs. 6,72,492 and the Muslim Cotton Mills Limited, and later the P. I. D. C., after it had acquired the Muslim Mills' interest (these facts are not in dispute) for Rs. 62,04,338.96, for their respective investments in the mills.
3. It so happened that the then Central Government decided upon a scheme of dis-investment of the P. I. D. C. from its various ventures and enterprises. Accordingly it was decided to transfer the Management of the Talpur's Textile Mills also to a private party, for which purpose the P. I. D. C. invited, and received offers from various parties including the present appellants. As an initial step to the taking over the Mills, the appellants entered into an agreement with Mr. Talpur on 5th April 1961. This agreement is Exh. 7 and under it Mr. Talpur in considera tion of the receipt of Rs. 14,50,000 from the appellants transferred his interest in the Mills to them and to give further effect to this agreement he gave two powers of Attorney, one general power which is Exh. 8, and the other a Special Power, which is Exh. 9, to one Mr. Barkat Bhai Akbarji, who was then Chairman of the appellants' Board of Directors. In the meantime, the appellants were in negotiations with the P.
1. D. C. for the purpose of acquiring the major share in, and control of, the said Mills. Therefore, a promoter's agreement was drafted by the parties and forwarded to the Central Government for its approval under the P. I. D. C.'s letter, Exh. 17/5, dated 15th April 1961. The Government suggested changes in this agreement and therefore, on 12th May 1961, the P. I. D. C. and the appellants agreed upon, and settled the terms of another promoter's agreement, which were incorporated in the writing which is Exh. 17/6, initialed by P. W. Mr. Muhammad Akram. who was then Secretary of the P. I. D. C. and by late Mr. Barkat Hhai Akbarji on behalf of the appellants. This writing was sent to the Central Government for its approval, under the P. I. D. C.'s letter Exh. 17/7, dated 13th May 1951. The agreement contained in Exh. 17/6, inter alia, provided that-----
"(i) the P. I. D. C. and the defendants shall, with convenient speed, cause to be incorporated a public limited company under the name "Fateh Textile Mills (Subsidiary) Ltd." or such other title as the parties may agree upon, with issued and paid-up Capital of Rs. 50 lacs divided into 50 thousand shares of Rs. 100 each, out of which the defendants had to contribute Rs. 2 ,50,000 in return of issue to them of 25,500 shares, and the P.
1. D. C. Rs. 24,50,000 in consideration of the issue to it of 24,500 shares ;
(ii) the investment of the P. I. D. C. in excess of Rs. 24,50.000 would be paid to it in cash by the defendants (the amount so paid being agreed to be treated as loan by the defendants to the Mills;
(iii) the Fateh Textile Mills Limited would act as managing agents of the new company for a period of 20 years from the date of its incorporation, but the managing agency commission would be shared between the P. I. D. C. and the defendants in proportion to their investments in the share-capital of the new company;
(iv) it is contemplated that the said Mills be expended by addition of 15000 spindles and 500 looms, and if for this purpose additional share-capital is raised, the P.
1. D. C. would forego its rights under section 105-C of the Companies Act."
4. Though the terms of the promoter's agreement were settled and reduced to writing on 12th May 1961, the appellants, in anticipation of the formation and promotion of the said new company, had already begun to be associated in the management of the said mills from sometime in April 1961, and on the 6th of this month, the appellants paid Rs. 18,77,507.19 to the P. I. D. C. towards their contribution in the share-capital. On 5th April 1961, the appellants had paid Rs. 14,50,000 to Mr. Talpur under the agreement Exh.
6. These payments, therefore, I brought the appellants' contribution to 51 per cent. in the share-capital of the Company which had been agreed to be set up as aforesaid.
5. Now the approval of the Central Government to the promoter's agreement was given by letter Exh. 11, which bears the number P. I. D. C. II-10 (10)/59 and the date endorsed thereon is 1st July 1961. The approval of the agreement with a minor modification which required that the follow ing sentence in clause 3 (ii) of Exh. 17/6, should be deleted:----
"During the aforesaid period of 5 years Fateh Textile Mills shall have the right to purchase the shares of the Company held by P. I. D. C. at the aforesaid price."
6. It is the case of the respondent that Central Government's approval to the promoter's agreement was communicated to the P. I. D. C. first on telephone on 1st July 1961, whereupon P. W. Mr. Muhammad Akram immediately informed late Mr. Barkat Bhai of the appellants of this approval. The appellants then paid P. I. D. C. on the same day a cheque for Rs. 23 lacs under letter of the same date Exh. 16/1. This payment was acknowledged by the P. I D. C. by Exh 16/2, dated 3rd July 1961. The contention of the appellant is that this payment did not fully discharge the P. I D. C's. excess investment in the Mills, but was only in the nature of "on account" payment. This payment was followed by execution of the agreement Exh. 10, which, after referring to the Government's approval to the promoter's agreement, confirmed that the management of the said Mills had been handed over to the appellants w.e.f. 1st July 1961 and provided :---
"(i) that the defendants would manage the business affairs of the Mills on behalf of the P. I. D. C. until such time as the proposed limited company was formed and promoted in terms of the promoter's agreement approved by the Central Government.
(ii) that the defendants would consult the P. I. D. C. before taking any major decision, particularly, with regard to purchases of raw material and production and sale of finished goods;
(iii) that the defendants would honour all the commitment and liabilities made and incurred by the P. I. D. C. with respect to the said Mills as at 30th June 1961 ;
"(iv) that the proposed limited company would be incorporated within six moths and failing this, the P. I. D. C. would resume the management of the said Mills."
7. There is no date endoresed on Exh. 10, but both the parties agree that this document was executed on 3rd July 1961. On the next day, that is, the 4th July 1961, the terms of the promoter's agreement, which had already been agreed to between the parties were reduced to the writing Exh. 17/6, and were approved by the Central Government were incorporated into a formal document, Exh. 13, with the modification suggested by the Central Government in Exh. 17/5.
8. Though the appellants took over the management and possession of the Talpur Textile Mills on 1st July 1961, and retained the management and possession of the Mills, the public limited company, which had to be set up with all convenient speed under the promo'ter's agreement entered into on 12-5-1961 by writing Exh. 17/6 and incorporated into the formal document Exh. 13. on 4th July 1961, which was agreed to be incorporated within 6 months, from 3rd July 1916, under Exh. 10, remained to be set up and incorporated so far.
9. This is one of the grievances of the respondents against the appellants. Another grievance of the respondents is that the appellants have neglected and failed to consult them in matters concerning purchases of raw materials and production and sale of the finished goods, or even to render accounts of the business of the Mills, notwithstanding repeated demands made on them in this behalf. These were the circumstances that the respondents brought Suit No. 16 of 1963 against the appellants claiming a decree for possession of the said Mills, rendition of accounts and payment of Rs. 66,963.77. The respondents have complained that the appellants have gone back on their commitment to set up and incorporate a public limited company in accordance with the promoter's agreement, within six months from 3rd July 1961, as contained in Exh. 10, and, contrary to the provisions of this document to discharge the liabilities of the Mills which had been incurred by the P.
1. D. C. as at 30th June 1961. making it necessary for the P. I. D. C. to pay Rs. 1,78,669.68 towards these liabilities or to render accounts of the business of tile Mills, or even to consult the respondents in matters relating to the management and conduct of the affairs of the Mills, or to share the managing agency commission with the respondents.
10. On the other hand the appellants took the plea that :----
"(i) the agreement Exh. 10, executed on 3rd July 1961, was substituted by the agreement Exh. 13, which was executed on 4th July 1961, and that this latter agreement amounts to novation of the contract embodied in Exh. 10, so that the condition for the incorporation of the public limited liability company within six months had been dispensed with, and substituted by a new condition providing for incorporation of the company jointly by the plaintiffs and the defendants with "convenient speed";
(ii) that the defendants were induced by the plaintiffs to enter into the promoter's agreement and to make investments in the said Mills by the assurance that the plaintiffs would obtain sanction for expansion of the said Mills by 15,000 spindles and 500 looms and that clause (vi) of the promoter's agreement (Exh. 17/5 and Exh. 13) should, in the light of this inducement, be construed to mean that the plaintiffs had agreed and undertaken to obtain this sanction;
(iii) "that the Government's refusal to accord such sanction did not absolve the plaintiffs of their obligations in this behalf, and that this refusal have been given in collusion with the plaintiffs ;
(iv) that the plaintiffs themselves had withheld cooperation from the defendants in the formation of the proposed company, and, further, had frustrated all the efforts made by the defendant in this behalf."
11. The appellants in return filed Suit No. 115/64 against respondents the Central Government of the agreement, Annex, 'C'. Learned Single Judge on the original side by the impugned judgments dated 6-5-1968, after framing issues, recording the evidence and hearing of the parties dismissed the appellants' suit, with special costs and decreed the respondents' suit, with the directions that the Mills may immediately be delivered to the possession of the respondents, holding that there was no agreement between the respondents and the appellants to the effect that the former shall obtain Government's sanction to import the number of spindles and looms mentioned above and that no assurances in this respect was obtained either by the P. I. D. C. or its successor-in-interest the respondents or the Central and Provincial Government. As stated earlier he decreed with costs the respondent's Suit No. 16 of 1963, that the appellants shall forthwith deliver and hand over to the respondents the management and possession of the said Mills, that the appellants shall render accounts to the respondents of the business of the said Mills from 1-7-196 (sic.) up to the date the management and possession of the said Mills is delivered to the respondents and further the appellants shall pay to the respondents the latter's appropriate share in the profits of the business of the said Mills and that the appellants shall, further pay to the respondents such sums as may be found by the Commissioner to be appointed for taking accounts, to have been paid by the P. I. D. C. or the respondents towards discharge of the liabilities of the said Mills, as at 30th June 1961, which liabilities were agreed to be discharged by the appellants under the promoter's agreement or under Exh. 1.0. He further directed appointment of a Commissioner by the Court in consultation with the parties. The Commissioner was later on appointed and he has already submitted his accounts in this Court.
12. We have heard at length Mr. Sharifuddin Pirzada, Advocate, assisted: by Messrs N. A. Faruqui, K. A. Ghani and Haidar Pirzada, Advocates for the appellants and Mr. Khalid M. Ishaque Advocate, assisted by Messrs, Rashid Munir, Mushtaq Memon and Jamil Ahmed, Advocates for the respon dents. The impugned judgments are challenged mainly on the grounds that the learned Single Judge ought to have seen that the exclusive possession of the appellants was under Exh. 13 and not under Exh. 10 and that due to heavy financial investments of the appellants in the Mills the order of dispossession of the appellants was inequitable and that Exh. 10, stood rescinded and/or superseded by Exh. 13, thereupon the respondents were precluded from, reclaiming possession under Exh. 10, and this most important fact was ignored by the learned trial Judge and that the delay in the incorporation of the company on the part of the appellants was justifiable in view of the change in the respondents' stand after the execution of the agreement Exh. 13 and that the appellants have all along been ready and willing to incorporate the proposed company and that the intention of the parties as manifested by the documents on record and the oral evidence showed clearly that the possession was to remain with the appellants both before and after that and that there was mis-appreciation of evidence on record as well as construing the contracts between the parties, that the appellants have discharged its burden by oral and documentary evidence with regard to representation and undertaking relating to the P. I. D. C., obtaining sanction for expansion of the Mills, that learned Single Judge erred in holding that the burden was cast upon the appellants to produce the witnesses who bad made the representations and held out inducements and given assurances relating to expansion, because the respondents had through out summoned their then Chairman but omitted to examine him and failed to discharge the onus in this regard and that the learned Single Judge has discredited the fact that Clause 6 of the agreement has only recited the essence of the contract but it also implied the respondents' obligations relating to procuring expansion from the Central Government as per Exh. 13, and that learned trial Court has failed to see that the possession could not be claimed under an alleged agreement which was not approved by the Central Government and moreover the respondents by their writings and conduct were estopped from claiming possession and that respondents' claim for accounts, damages and possession etc. was misconceived and that the respondents ought to have sought specific performance of contract Exh. 13 if they were interested in the incorporation of the company and that the learned Single Judge grievously erred in directing the immediate delivery of the possession of the Mills and further the direction for accounts were contrary to the principles of natural justice and in fact was in excess of juris diction, that the learned trial Court has erred in not noticing the respondents admission both in regard to expansion and exclusive possession that while construing the contract he was wholly misdirected in passing the impugned, judgments and that witnesses of the respondents were totally discredited by documentary evidence and the evidence was full of inconsistencies and that the learned trial Judge should not have made observations with regard to demeanour of the respondents witnesses without commenting upon such demeanour at the time when their evidence was recorded and that the learned trial Judge should have held that the respondents and the P. I. D. C. stood committed to the appellants in obtaining expansion of the Mills and that; the suit the respondent has brought lacked territorial jurisdiction thus no cause of action accrued in respect of their suit and that learned Single Judge was not justified in granting special costs in the aggregate sum of Rs. 10,000, therefore, the judgments in appeals are erroneous and unsustain able under law and liable to be set aside.
13. With assistance of the learned counsel for the parties we had the benefit of going through the entire record including the evidence. The crucial points of controversy between the parties concern the interpretation of important documents such as Exh. 6, Exh. 10 and. Exh. 13, as well as real intention of the parties to perform their part of the contract which can only be deduced by weighing the evidence on record and construing the real import of the documents mainly of Exhs. 6, 10 and 13, as well as the admissibility or otherwise of evidence of some witnesses.
14. Apart from voluminous documentary evidence the appellants and the respondents both produced oral evidence. On behalf of the appellants evidence was given by S. Abdus Sattar partner in S. H. Churigar & Co., and Mr. Jan-e-Alam, a Director of Fateh Textile Mills Ltd. On behalf of the respondents Mr. Mohammad Akram, Director and Mr. Muhammad Bilal Faruqui, Development Officer of the respondents, Mr. S. A. Ghaffar, an officer m the Industrial Development Bank of Pakistan and Mr. Bashir Ahmed, Assistant Director, Investment Promotion Bureau, Government of Pakistan were examined in Court. The contention of the appellants that the exclusive possession of the appellants of the Mills in question was under Exh. 13, Annex. `C', and not under Exh. 10, Annex. `B', appears to be without any foundation, the contention is borne out neither by the documentary nor by oral evidence. According to Exh. 10, the management of Talpur Textile Mills was handed over to the appellants w.e.f. 1st July 1961 with stipulations that "they will manage business and affairs of the said Talpur Textile Mills Ltd. on behalf of the P. I. D. C. till such time when a public limited company shall, have been jointly sponsored and promoted by P. I. D. C. and Messrs Fateh Textile Mills, in terms of the promoter's agreement approved by the Central Government". It goes on to state to the extent that Messrs Fateh Textile Mills shall consult P. I. D. C. before taking major decisions in the management of the Talpur Textile Mills, such as purchase of raw material, production, programme, sale of finished goods etc. and Messrs Fateh Textile Mills Ltd., undertake to prepare the memorandum and Articles of Association of the Public Limited Company with the privity of P. I. D. C. and get it incorporated and registered within six months from the date thereof or at anytime earlier,' than the period herein reserved, failing which P. I. D. C. shall resume the management of Talpur Textile Mills, unless the delay in formation of the said public limited company is due to causes beyond the control of Messrs Fateh Textile Mills, Ltd. A plain reading of the above stipulations in Exh. 10. makes it quite clear that handing over of the Mills was qualified and conditional.
15. As to Exh. 13 of 4th July, 1961, even this does not succinctly and clearly give exclusive possession to the appellants because there are also conditions and qualifications, enumerated therein mainly the preparation of Articles and Memorandum of Association as well as incorporation of the Company and contemplated expansion of the said Textile Mills by installing 15000 spindles and 500 looms and by issue of further share capital of the Company which was to be subscribed for or procured by Fateh Textile Mills and the P. I. D. C. Although the appellants managed to obtain the possession of the Mills yet it was always conditional and qualified.
16. Mr. Jan-e-Alam the witness of the appellants on Court's question replied that if expansion is not sanctioned, we would say that the P. I. D. tr. should take back the Mills that is only on the basis of the trial balance sheet. This statement is in favour of the appellants. If a real intent of the parties is to be gathered it is very necessary that Exh. 10 and Exh. 13 should be read as a whole supplementary to each other and not excluding each other, and this can also be gathered from the trend of the evidence produced by the parties, therefore, the contention that one Exh. 13 excludes Exh. 10 cannot be accepted.
17. To the contention of the appellants that it was inequitable to deprive them of the possession as they have invested heavily, it may be said that the possession was subject to certain conditions i.e. preparation of Memorandum and Articles of Association and incorporation of the Company within certain time and that time never came and numerous documents on record filed by the parties go to show that it was the appellants who avoided to get the company incorporated. It seems they have no intention right from the start because otherwise there should not have been any hitch to incorporate the company if there was real intention to fulfil their obligations.` The contention that incorporation of the Company by the appellants was subject to the undertaking of the respondents to expand the Mills is also not well founded. The appellants should have known very well that the Central Government was the sanctioning authority and not P. I. D. C. and if expansion was to be a condition precedent the appel lants should have seen to it that it is incorporated but that is not the case No doubt the respondents did hold out as assurance in the agreement Exh. 10 for expansion of the Mills and they did make efforts in this regard, which is not denied by the other side, but due to change of policy Central Govern ment did not agree to it. The non-agreement of Central Government to the request of P. I. D. C. and the respondents for expansion of the Mills does not necessarily mean that it gives a right to the appellants to refuse or delay in incorporation of the company and its other stipulated obligations.
18. The contention of the appellants that the respondents agreed or undertook or held out any assurance to obtain sanction of the Government for expansion of the Mills for which reliance was placed on Exhs. 14, 17/8, 17/17, 17/21, 17/23, 17/25 and 17/39. None of these documents has any hearing on the question under consideration. In this regard the learned Single Judge observed that :----
"It is next to be considered whether the evidence brought on the record by the parties supports in any way the defendant's contention that the P. I. D. C. agreed or undertook, or held out any assurance, to obtain sanction of the Government for expansion of the said Mills. I would first take up the documentary evidence on this question. For the defendants, reliance was placed on Exhs. 14, 17/8, 17/17, 17/21, 17/23, 17/25 and 17/39. None of these documents has any bearing on the question under consideration. But Mr. Nasim Farooqi vehemently insisted that these documents support the defendant's case and it therefore becomes necessary to refer to these documents in some detail, even at the risk of making the judgment lengthy. Exh. 14 is the letter dated 31st July, 1961, under which the P. I. D. C. sub mitted to the Secretary, Ministry of Industries, Government of Pakistan, a scheme prepared by Mr. Muhammad Bilal Faruqui, its Development Officer, for the expansion of the said Mills. The letter refers to Clause (vi) i of the promoter's agreement, Exh. 13, and states that : "it is contemplated to expand the Textile Mills by installing another 15000 spindles and 500 looms with bleaching, printing, mer cerizing, dyeing and finishing units", and that "it is also proposed to install the air-conditioning Unit. . . ". Exh. 18/8 is the defendants' letter dated 2nd December, 1961, to the P. I. D. C. which, after referring to the objections of the Ministry of Industries to the application for the expansion of the Mills, requests the P. I. D. C. to again take up the matter with the Government. .err. Nasim Farooqui has placed reliance on the following note put on this letter by Mr. Y. S. Ahmad, then a Director of the P. I. D. C."
M. Subhan Jt. Secretary, Industries told me that he might sanction 25000 spindles and 250/300 looms if an application is made immedi ately."
According to the plaintiffs' witness, this application had to be made by the defendants on account of the transfer of the Mills from public to private sector. Exh. 17/17 is an extract from the minutes of the meeting of the P.
1. D. C's Board of Directors held on 15th May, 1961, in which the scheme for the expansion of the Mills was approved, as also amendments to clause 3 (iii) and (iv) of the proposed promoter's agreement. Exh. 17/21 is the letter dated 15th August, 1961, from the Ministry of Industries to the P. I. D. C. seeking clarification as to why the scheme for the expansion of the said Mills was submitted by the P. I. D. C. when this expansion was to be financed wholly by the defendants. Exh. 17/23 is the P.
1. D. C.'s reply to Exh. 17/21, stating that the scheme for expansion has been submitted by the P. I. D. C. as this body still had 49 per cent. shares in the said Mills. Exh. 17/25 is again a letter of the Ministry of Industries to the P. I. D. C. dated 28th September, 1961, inquiring whether Government's approval had been obtained to the expansion of the said Mills, as such expansion would upset the proportion of the shares of the P.
1. D. C. and of the defendants in the capital of the Mills. Exh. 17/27 is the reply dated 16th October, 1961, to Exh. 17/25, to the effect that approval by the Government of the promoter's agreement, including its clause (vi). amounts to approval of the Government to the reduction of the P. I. D. C.'s share in the Mills. Exh. 17/39 is P. I. D. C.'s letter dated 14th May. 1962 to the defendants in which the defendants contention that the P. J. D. C. was under contractual obligation to obtain Government's sanction for the expansion of the Mills is repudiated, but it is added that the P. I. D. C., as "shareholder of the proposed company shall support the application of the defendants to the Government for the expansion of the Mills". This is all the documentary evidence on which Mr. Nasim Farooqi rested the defendants' case. But this evidence does not in any way support the defendants' case. Most of the documents are self-explanatory. The scheme for the expansion of the Mills was submitted by the P. I. D. C. as holder of 40 per cent. shares in the Mills. The note of Mr. Y. S. Ahmad on Exh. 17/8 does not refer to any undertaking or assurance given by the P. I. D. C. but refers to the assurance stated to have been given by the then Joint Secretary of the Ministry of Industries that expansion of the Mills will be permitted if an application for this purpose is made immediately. The defendants were aware of this note, and it is they who bad to make the application. But Mr. Jane Alam admitted that at no time the defendants made application to the Government for sanction for 15000 spindles and 500 looms. Exh. 17/17, the extract from the minutes of the meeting of the P. I. D. C.'s Board of Directors, also does not show that the P.
1. D. C. undertook the obligation to obtain sanction for such expansion. The Board merely approved the expansion of the Mills, and it did so as the P. I. D. C. did not intend then to divest itself completely of all its interest in the said Mills. Exh. 17/39 expressly repudiates the suggestion that the P. I. D. C. was under contractual obligation to obtain sanction for the Mills' expansion. Mr. Nasim Farooqi, however, contended that the fact that the P. I. D. C. did submit a scheme for expansion of the Mills to the Government could be consistent only with the P. I. D. C.'s undertaking to obtain this sanction. This contention carries no weight, because, firstly, the scheme was submitted by the P. I. D. C. as holder of 49 per cent. shares in the Mills and, secondly subsequent conduct of the parties to an agreement is not relevant for its interpretation. I would refer to the discussion of the legal position on this point in paragraph (15) above.
21. The oral evidence led by the parties on the question under dis cussion consists only of the depositions of Mr. Muhammad Akram, Director of the defendants. During the period when negotiations were in progress with regard to the participation of the defendants in the said Mills, Mr. Muhammad Akram was Secretary of the P. I. D. C. He was actively associated with these negotiations. Mr. Muhammad Akram impressed me as a straight forward and truthful witness. He does not bear any prejudice against the defendants. At one stage, in the course of the trial, he, on my suggestion, made genuine efforts to assist the defendants to get out of the difficulty in which they seem to have placed themselves. Mr. Akram stated that the negotiations on behalf of the defendants were conducted by the late Mr. Barkat Bhai, the then Chairman of the Defendants' Board of Directors. He: denied that any agreement was made or undertaking, promise or assurance given, by the P. I. D. C. to obtain sanction of the Government for the expan sion of the Faid Mills. The defendants' Director, Mr. Jane Alam, on the other hand asserted in his statement that the negotiations with the P.
1. D. C. were conducted on the defendants' behalf by him and the late Mr. Barkat Bhai, and that the P.
1. D. C. did hold out the assurance to obtain sanction for the expansion of the Mills "within 3 or 4 months" According to this witness, this assurance was given by all the persons who took part in the negotiations on the P. I. D. C's behalf, that is the Chairman. Lt: Gen. Haji Iftikhar, Mr. Y. S. Ahmad, the Director, and Mr. Muhammad Akram, who was then Secretary of the P. I. D. C. But Mr. Akram repudiated the suggestion to this effect. Both Lt.-General Haji Iftikbar and Mr. Y. S. Ahmad are not now with the plaintiffs, and the latter, as admitted by Mr. Jan-e-Alam, is not even in Pakistan. The defendants did not make any attempt to summon or examine on commission, these persons on the question at issue. Moreover, it is not possible to attach any importance to Mr. Jan-e- Alam's evidence on this point, in view of his own admission noted above, that the assurances given by the P. I. D. C. with regard to the sanction for the expansion of the said Mills were incorporated in clause (vi) of the pro moter's agreement. Exh.
13. But this clause does not contain any such assurance or undertaking on the P. I. D. C.'s behalf, but merely provides that the P. I. D. C. would forego its rights under section 105-C of the Companies Act if the share capital of the proposed company was increased due to the expansion of the Mills".
19. It appears that appellants were not ready and willing to expand the Mills as is obvious from their conduct by allowing sanction of 2800 spindles to lapse and failed to respond to the repeated reminders of the Industrial Development Bank of Pakistan, or to make any application to the Govern ment for sanction to import 15000 spindles and 500 looms. If the appellants were ready to fulfil their obligations there was nothing to prevent them to approach the Central Government themselves for expansion of the Mills as per agreement but all along they had taken shelter under the so-called promise or undertaking of the P. I. D. C. Had they done that perhaps they will be in better position to show their bona fide that they intended to fulfil their portion of agreement but this is not so.
20. The fundamental controversy between the parties may be summa rised as : (1) What construction to be put to following material part of promoter's agreement as embodied in Exh. 17/6 and Exh. 13 in Clause (ii):----
"It is contemplated to expand the said Textile Mills by installing another 15000 spindles and 500 looms and the cost thereof shall be raised by the issue of further share capital of the Company, which shall be wholly subscribed for or procured by F. T. M. and P. I. D. C. hereby undertakes to forego its right under section 105-C of the Companies Act.
(2) What the intentions of the contracting parties were at the time of execution of Exhs. 10 and 13 and thereafter until filing of the suit, and which one of the parties delayed or avoided to fulfil its obligations ?
(3) Whether in presence of documentary evidence on record, oral evidence is admissible to absolve the disputed points, if so, to what extent ?
Mr. Sharif-ud-din Pirzada submitted where there is an ambiguity in docu mentary evidence, it can be explained and elaborated for proper under standing of intent of parties by referring to oral evidence on record and that the rule that "when words of any written instrument are free from ambiguity and when external circumstances do create any doubt or difficulty as to proper application of those words, then oral evidence is inadmissible." He referred to Abdul Hamid v. Abbas Bhal-Abdul Hussain Solawatetwala (PLD1962SC1), Muhammad Akram and others v. Ch. Muhammad Salim (P L D 1964 Lah. 490), and Tya graja Mudallyar and another v. vedathanni (AIR 1963PC70). None of the above judgments in our opinion supports the contention raised by counsel for the appellants. In Supreme Court judgment it was held that "time not originally made the essence of a contract. One party not entitled to make time as essence after wards by notice, unless there is default or unreasonable delay by other party". This case does not help the appellant as we have held already that originally although 2 months time was fixed for incorporation of the Com pany yet the Company was not incorporated and the time was extended by another document, therefore, it cannot be said that the time was essence of the contract. Even otherwise the appellants failed to perform their liabilities. In the Lahore Judgment, it was held that "it is permissible to take into consideration other documents and evidence in order to discover intention of parties at time of execution. Mere description of document in title cannot determine nature of document. Court to study substance of proceedings and not to confine its attention to mere form where the two different constructions possible. Construction making document valid to be adopted". In the present case following the principles laid down in this judgment by consulting all the documents and the evidence on record the intention of the appellants can be deduced with regard to incorporation and expansion of the Mills which has been done as recorded in the judgment. Therefore, this case does not help either. In A I R 1936 Privy Council Case, it was held that `'section 92 only excludes oral evidence to vary the terms of the written contract, and has no reference to the question whether the parties had agreed to contract on the terms set forth in the document. So also section 91 only excludes oral evidence as to the terms of a written contract. Oral evidence is admissible therefore to show that a document executed by a person was never intended to operate as an agreement, but was brought into existence solely for the purpose of creating evidence about some other matter. Even if there were no provisos to sections 91 and 92, there is nothing in either a section to exclude oral evidence in such a case to show that there was no agreement between the parties and therefore, no contract". In the present case, in fact, the appellants themselves produced evidence in support of their contention which naturally can be considered supplementary alongwith docu mentary evidence. According to the above principle the intention of the appellants can be assessed from documentary as well as oral evidence as a whole. Therefore, it cannot be said that oral evidence altogether was not admissible in the present case.
21. It may be noted that principles for construction of documentary evidence are embodied in sections 91 and 92 of our Evidence Act (Act I of 1872). Under Evidence Act, section 91, if the terms of a contract, grant or any other disposition of property, have been reduced to writing, and in all cases in which any matter is required by law to be reduced to writing, no evidence can be given in proof of the terms of such contract, grant or other disposition of property, or of such matter, except the document itself, or secondary evidence of its contents in cases in which secondary evidence is, admissible under the Evidence Act. Under section 92 when the terms of a contract, grant or other disposition of property, or any matter required by law to be reduced to the form of document, have been proved by the tender in evidence of the document itself, no evidence of any oral agreement or statement is admissible, as between the parties to any such instrument, or their representatives-in-interest, for the purpose of varying, adding to or subtracting from its terms. The rule in section 92 is subject to the several exceptions contained in provisos (1) to (6) of the section. Mr. Pirzada for appellants laid great stress to invoke provisos (2), (3) and (6) in support of his contentions by stating that the respondents were bound in law to obtain auction for expansion from the Central Government. I see no reason to disagree with the conclusion reached by learned Single Judge that none of these provisos to section 9 2 can be made applicable to the present case. Because the onus of proving of any separate oral agreement apart from documentary as claimed by appellants is on the appellants. (A I R 1915 F p C 2). Even otherwise, as no plea of separate oral agreement was advanced in written statement by present appellants as observed by learned trial Judge, it is too late in the day to allow appellants to set up a new case. This fact is supported by appellants' own witness Mr. Jane Alam when replying to a question as to why the assurances regarding expansion of the Mills were not set out in Exh. 13, he stated "there is a clause regarding expansion and it is clause (viii' stated above. In answer to a question by the court, he stated that "clause (vii)" is strictly in accordance with the assurance held out to us." In view of the above clear statement of appellants and of certain witnesses who were associated in the agreements from the start there is little doubt in my mind that there was no separate oral agreement contrary to the documentary evidence established on record with regard to expansion.
22. Great stress was laid by counsel for the appellants on proviso (6) but this would apply only if the written contract, or any part thereof is doubtful in its meaning. Clause (vi) of Exh. 13 and Exh. 17/6 is as under: ----
"(i) that it was intended to expand the said Mills by addition of 15000 spindles and 500 looms ; and
(2) that if such expansion did take place, and the share capital of the proposed company was consequently increased, the P. I. D. C. would c forego its rights under section 105-C of the Companies Act, 1913."
This section 105-C provides that where the capital of the company is increased by the Directors by issue of further shares, such shares shall be offered to the existing members in proportion to the existing shares held by each member. It is the second part of clause (vi) which gives out its purpose, which is, that the P. I. D. C. should not claim additional shares in the new company if its capital is increased due to the expansion of the Mills. The clause does not place any obligation on either party to obtain the sanction of the Government for the expansion of the Mills.
23. Learned counsel for the appellants laid stress on section 19 of the Contract Act, by saying that the appellants were induced by false representation to get into agreement on promise of expansion of the Mills, if so P. I. D. C. must make good its promise, therefore, expand the Mills. But again we cannot agree because a mere "promise in futuro" upon which the respondents had no control cannot be equated to a binding and definite contract and it was not difficult for appellants to realise its implications if they intended or tried to understand it, thus the fault must lay at appellants door, because the contracting parties are expected to take all necessary precautions with regard to capacity and capability of each other to perform their part of agreement.
24. It was within everybody's knowledge that the Central Government a third party was the sanctioning authority and not the respondents, there fore, it cannot be said that the promise of expansion of Mills is definite and' unqualified. Over and above the expansion of Mills was subject to in corporation of the company which responsibility initially was cast upon the appellants because the appellants who had taken possession of the Mills. May be P. I. D. C. should not have been in an unholly haste to give posses sion of the Mills to the appellants before incorporation and other stipulations were complied with because had it been otherwise the appellants in all pro bability would have gone through the process of incorporation of the company and fulfilled their obligations. It can be inferred from the evidence on record both oral and documentary that after successfully taking possession of the Mills and running it under its own control the appellants lost interest either in its incorporation or to fulfil other obligations such as consultation on major decisions, purchase and sale or giving accounts.
25. Mr. Kalid M. Ishaque, learned counsel for the respondents after referring to evidence oral and documentary as well as Text Books on Company Law and Evidence Act, in substance argue that intention of the appellants can be gathered from the evidence that soon after taking posses sion of the Mills and running it on profit basis they lost interest in its incorporation and to fulfil other obligations so much so that the appellants without consultation of the respondents changed the accounting system from English to that in Gujrati obviously to keep the appellants in the dark. He -submitted that all that appellants wanted was to take possession of the Mills and once this object was achieved they used delaying tactics so as to compel the respondents to disinvest itself from the Mills because had the appellants incorporated the Company they would have to fulfil other parts of their obligations i.e. to give accounts, to appoint Directors on behalf of the respondents but this they had no intention to do, therefore he submitted the respondents were justified to ask the Court for possession of the Mills because it was the appellants who were at fault and not the respondents. There is sufficient force in these arguments.
26. For the reasons given above we are of the opinion that it was the appellants and not the respondents who failed to perform its part of obliga tions. Therefore, we see no infirmity in the judgment of the learned Single Judge, hence we see no force in these appeals which are hereby dismissed with costs.
G. A. H. Appeals dismissed.