INDUSTRIAL DEVELOPMENT BANK OF PAKISTAN Versus ROQAIYA BEGUM

1. Pakistan Industrial Finance Corporation the plaintiff's predecessor in interest had advanced a loan of Rs.4,50,000 in the year 1960 to Hyderabad Tanning and Shoe Manufacturing Company Ltd. hereinafter referred as the company. The company executed a demand promissory note on 10‑10‑1960 for Rs.4,50,000 and also mortgaged /hypothecated its factory building, land, machinery, plant reserve parts, fittings and fixtures. Badrul Islam the predecessor in interest of defendants Nos. 1(i) to 1(v) and defendant No. 2 were the guarantors for the re‑payment of the loan. As the company failed to repay the loan the plaintiff filed proceedings under section 39 of the I.D.B.P. Ordinance 1961 and by a decree passed on 17‑5‑1963 the plaintiff was given the management of the properties of the company and power to sell them.

2. In pursuance of the said decree the plaintiff took over the possession of the property of the company on 6‑6‑1963 and sold it for a sum of Rs.3,05,000 and the sale‑deed in that respect was registered at Hyderabad on 29‑12‑1969. On that date after adjusting the sale consideration received from the purchaser Rs.1,94,560.55 remained unpaid. The plaintiff has claimed this amount and Rs.18,840 in respect of the costs awarded in the decree. The plaintiff, therefore, filed this suit for recovery of Rs.2,13,400.55 against Badrul Islam and defendant No. 2. Badrul Islam died during the pendency of the suit and his legal heirs were brought on record as defendants No. l (i) , (ii) , (iii), (iv) and (v). Badrul Islam had filed his written statement and pleaded that the sale of the company assets were not on adequate consideration and the entire transaction lacked bona fide and genuineness. It was also pleaded that no notice of sale was given to the defendant. It was denied that he had undertaken any personal liability for repayment of the loan of the company and that the guarantee was as a Director of the Company and its Managing Agent. No sooner he resigned from the directorship and the managing agency was dissolved his liability ceased to exist. It was further pleaded that suit was barred by time. It was alleged that after taking over the factory on 7‑5‑1963 the plaintiff has mismanaged and caused huge loss to the company. The defendant No. 2 filed a separate written statement raising the same plea as pleaded by the defendant No. 1. Both the defendants denied the account and balance claimed by the plaintiff. On the expiry of the defendant No. 1 an application ‑under Order XXII, rule 4 was filed by the plaintiff and the only ground stated was that the defendants Nos.1(i) to (v) are the legal heirs of the defendant No.l. This application was granted and amended plaint was filed in which instead of defendant No.1 the name of the legal heirs was added and no further consequential amendments were made. On the basis of the pleading the issues settled earlier were reframed on 23‑3‑1978 as follows:‑

(1) Whether the suit is barred by time?

(2) Whether the plaintiff for bona fide and adequate considerations sold the property of Hyderabad Tanning and Shoe Manufacturing Company Ltd? If not, what is the effect.

(3) What is the effect of non‑encashment of the bank guarantee. furnished by the buyer of the property of Hyderabad Tanning and Shoe Manufacturing Company Ltd. and non‑cancellation of the agreement of sale on buyer's failure to pay the balance amount of sale consideration within the stipulated time?

(4) What amount, if any, is payable by the defendants singly or jointly to the plaintiff?

(5) Relief.

3. ISSUE No. 1

4. The loan was advanced to the company on 10‑10‑1960 when the deed of guarantee Exh.8/A was also executed by defendants Nos. 1 and 2 which reads as follows:‑

5. "In consideration of your agreeing to grant to the Hyderabad Tanning and Shoe Manufacturing Co. Ltd., at our request a loan of Rs.4,50,000. We the undersigned being the Directors and Managing Agents of the said Company hereby guarantee to you the payment of all moneys which shall at any time be due from the said The Hyderabad Tanning and Shoe Manufacturing Co. Ltd., to you on the balance of their account with you, in respect of the abovesaid load including all interests and other charges and expenses which you may in the course of your business charge in connection with the said loans.

6. We also agree that this guarantee shall continue in force in spite of any time of other indulgence that you may grant to the said The Hyderabad Tanning and Shoe Manufacturing Co. Ltd., and shall not determine even if we shall die or shall cease to be a Director of the said The Hyderabad Tanning and Shoe Manufacturing Co. Ltd."

7. The learned counsel contended that the plaintiff had obtained a decree against the company on 17‑5‑1963 (Exh. 6) and the suit against the defendants Nos. 1 and 2 could not be filed as such proceeding under I.D.B.P. Ordinance did not permit any action against the guarantor which was possible only after amendment in 1965. According to the learned counsel for the plaintiff, the property was sold on 29‑12‑1969 and at that time the plaintiff came to know the amount due and payable by the company and, therefore, the suit was filed on 27‑12‑1972. According to the plaintiff's counsel the suit is within time. In this regard reference has been made to United Bank Ltd. v. Haji Bawa Company Ltd. and 3 others 1981 C L C 89. The observations made in this judgment cannot be applied to the present case as the deed of guarantee in the referred case provided that the liability of the guarantor shall arise two days after the service of the notice by the bank.

8. Therefore, the suit was held to be within time as the period of limitation was computed from the date falling two days after the service of notice when the cause of action arose. In the present case, the terms of guarantee are completely different. They do not provide that the liability of the guarantor shall arise after the happening of a contingency. According to the terms and conditions of the deed of guarantee the liability of the defendants was co‑extensive with principal borrower. Mr. Asif Zahidi the learned counsel for the defendant No. 1 has contended that the suit should have been filed within three years from the date when the amount became due and default was committed in the year 1963. However, alternatively he contended that if the time is computed from the date when the properties were sold then on no principle of law it can be 29‑12‑1969 when the sale‑deed was registered. The plaintiff had accepted the offer of the purchaser on 11‑7‑1967 and received Rs.1,00,000 from it. The purchaser was further required to complete the sale within one year. Upto 14‑10‑1969 the plaintiff had received Rs.2,05,000. From the day the offer was accepted, the plaintiff was in a position to ascertain the amount which remained due and payable by the company. Therefore, even if the date is extended till the final debit balance could be ascertained after the sale of the company's property, the same could not be extended beyond 11‑7‑1967. Mr. Zahidi has gone to the extent of even extending it to 14‑10‑1967 and not beyond that because the plaintiff had unreasonably given concession to the purchaser causing unreasonable delay in recovery of the entire purchase price. I am not inclined to extend this concession upto 14‑10‑1967 as it is not in consonance with the provision of law. Section 128 of the Contract Act provides that the liability of the surety is co‑extensive with that of the principal debtor unless otherwise provided by the contract. In the present case no such condition has been mentioned in the deed of guarantee. Under it the guarantors had guaranteed the payment of all moneys which shall at any time be due from the company in respect of the loan, interest and other charges and expenses of the business which the plaintiff may in the course of business charge in connection with the loan. The liability of the defendant guarantors was co‑extensive with the liability of the company. In these circumstances suit should have been filed within three years from the date when the company was found liable to pay. The material date for computing the period of limitation against the defendants Nos. 1 and 2 was in 1962 when proceedings under I.D.B.P. Ordinance was taken against the company. Because on that date the plaintiff was fully aware of the amount due and payable by the company and the default committed by it. The limitation against a surety commences to run from the date of his own contract Daljit Singh v. Harkishan Lal Shah and Brothers AIR 1940 All.

116. The liabilities of the principal debtor and his surety arising under the same transaction are distinct and separate. The liability of the surety depends upon his contract i.e. the deed of guarantee which should be construed strictly. Applying these principles on the facts of the case it is clear that the liability of the defendants Nos. 1 and 2 arose the moment amount became due and payable from the company. Even if for argument sake it is accepted that the actual' amount due and payable became known when the company's property was sold then it will fall on 11‑7‑1967 when offer was accepted by the plaintiff and not on 29‑12‑1969 when sale‑deed was registered. The suit is barred by time. My finding is in the affirmative.

9. ISSUE No. 2

10. The defendants have challenged the bona fide of the plaintiff in selling the assets and property of the company. In this regard it has been stated that no proper advertisement or notice was given for sale of the factory. The plaintiff has produced documents to show that after decree was passed on 17‑5‑1963 it was making serious efforts by making inquiries and advertising for the sale. The first advertisement was made on 5‑6‑1963 but as no proper offers were received it was repeated on 29‑10‑1963. Again no favourable offers were receiv4bd and on 28‑11‑1964 third advertisement was issued. Inquiries were made by various parties and on 17‑1‑1965 offer for three lacs was made by a party which was conditional and could not be accepted. Then on 9‑6‑1.967 United Trading and Allied Industries offered Rs 3,05,00"1 which was accepted on 11‑7‑1967. There seems to be some correspondent in the matter to show that the purchasers were prepared to finish a bank guarantee also. There is no doubt about it that there has been unreasonable delay in recovery of sale consideration, which was received on 14‑10‑1969 when the balance amount was paid. The delay in executing the sale‑deed and selling the property of the company remains unexplained. Except that the advertisements were issued the plaintiff does not seem to have taken any proper step or made any serious effort to obtain higher price for the company's property. There were many ways open for the plaintiff to have engaged estate brokers or made private efforts to get better offers. Mr. Asif Zahidi the learned counsel has contended that the defendants had served a notice under Order XII, rule 8 for production of the survey report of the company's property which was obtained by the plaintiff at the time of advancing loan which would have proved the value of assets and properties of the company but this document was not produced by the plaintiff, therefore, adverse inference should be drawn against the plaintiff. The defendants have also not produced any evidence to show the market value of the property at the time of sale. In these circumstances the plaintiff may be termed negligent in dealing with the company's property but there was no lack of bona fide nor it has been proved that the property has been sold for inadequate consideration. My finding on the issue is in the negative.

11. ISSUE No. 3.

12. The main contention of the defendant is that the plaintiff has recovered the sale consideration from the purchaser even after the stipulated period and did not encash the bank guarantee or cancel the contract and forfeit part of the sale consideration received from the purchaser. None of the parties have seriously argued on this issue. In fact it has not been pressed.

13. ISSUE No. 4.

14. In view of finding on issue No. 1 no amount can be recovered from the defendants.

15. The learned counsel for the defendants have contended that in no circumstance the defendants Nos.l (i) to 1(v) who are descendents of Badrul Islam, the defendant No. 1 can be held liable to pay the decretal amount, if any, as they have not inherited any property from the deceased defendant No. 1. Except this assertion no further arguments were advanced to illuminate this aspect of the case.

16. There is no evidence on record to establish that the defendants 1(i) to 1(v) have inherited any property from their predecessor defendant.

17. The law permits that if a person against whom claim is made dies before institution of the suit then for such claim suit can be filed against those who are in possession of the estate or property of the deceased or represent it. Similarly, if the defendant dies during the pendency of the suit his legal representative can be joined as defendant. A decree can be passed or executed against a legal representative to the extent of the deceased's property in his possession. In this regard it would be pertinent to refer to the definition of the word 'legal representative' as provided by section 2(11), C.P.C. which reads as follows‑ ‑

18. Section 2(11).‑‑ 'Legal representative' means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased and where a party sues or is sued in a representative character the person on whom the estate devolves on the death of the party so suing or sued;

19. This definition is relevant for the purposes of Code of Civil Procedure. It clearly lay's down that a person who represents the estate of a deceased person is a legal representative. Reference can be made to Muhammad Iqbal and 2 others v. Ghulam Ali Shah P L D 1975 Lah. 1205. Those persons who assume possession and authority over the estate of a deceased by intermeddling with the property are also legal representative as observed in Dr. Arshad Mahmood v. Dr. Mumtaz Husain P L D 1974 Lah. 312. The intermeddler, by virtue of this definition cannot be given the status of the owner but he is treated as legal representative for the purpose of continuity of proceeding under the Code without any right to inherit the property. Reference can be made to Jai Kishen Das v. Karimuddin and another A I R 1939 Lah. 321. From the definition it is clear that unless it is established that the person sought to be joined or sued as legal representative of a deceased person is in possession or has inherited the property of the deceased he cannot be termed a legal representative of the deceased. This interpretation finds support from the subsequent provisions of the Code of Civil Procedure, namely, sections 50, 52, 53 and 146. Section 50 governs cases where judgment debtor dies after the passage of the decree against him and before full satisfaction of the decree has been obtained by the decree‑holder. Section 52 deals with cases where decree is passed against a party as the legal representative of a deceased and the decree is for the payment of money debts out of the property of the deceased. Under section 50 the legal representative against whom the decree is sought to be executed will be liable only to the extent of the property of the deceased which comes in his hands and has not been duly disposed of. Similar limitation is provided under section 52 also under which the decree against a legal representative should be for payment of money debts out of the property of the deceased in his hands and has not been duly disposed of. Therefore, a person as a legal representative can be charged with liability only if the property of the deceased has come in his hand and he has not unduly disposed of or applied such property. In Shabir Hussain v. Farzand Hussain AIR 1938 P C 80 it was observed that 'the decree will only be enforceable against each heir to the extent of the assets which come in his or her hand in accordance with section 52, C.P.C. In Venkatachalam Chettiar v. Umayal Achi and others A I R 1958 Mad. 395 it was observed that a legal representative was bound to satisfy the decree only if he had assets of his deceased ancestor. Where a decree is sought against the legal heir of a deceased or decree is executed against the legal representative of a deceased defendant/ judgment debtor the onus is upon the plaintiff or the decree‑holder to first establish that some property of the deceased debtor/ defendant has been inherited by the legal representative. Where it is established that some property has come in the hands of the legal representative it is his duty to explain and account for such property. If it is not available then he has to prove that it has been duly disposed of. Reference can be made to Mian Muhammad Sharif and others v. Mehraj Din A I R 1934 Lah. 106 where it was observed as follows‑.‑

20. "The proposition of law is firmly established that once it is admitted or proved that the person, whom it is sought to make liable as the legal representative of a deceased person had come into possession of assets belonging to the estate of the deceased, it is for him to satisfy the Court as to the extent of the assets received by him and to account for them: see Ranchode Das v. Krishna Das (1911) 12 I C 253. It should be observed that in such cases the onus is, in the first instance, on the plaintiff decree‑holder to prove that some assets had come into the hands of the alleged legal representative and when this is done, the onus is shifted on to the latter to show the extent of the assets received by him and also to satisfy the Court as to how they had been applied: Raja of Kalabasti v. Prayagdossjee Varu (1916) 35 I C 224."

21. In Hazura Singh v. Kishan Singh A I R 1933 Lah. 447 it was observed that where property in the hand of son is sought‑to be proceeded for debts of the father, if it is proved that the son has received certain assets from the father, onus is on the son to give detailed information regarding the property received by him. For this observation reliance was placed on Magaluri Garudiah v . Narayana Rungiah (1881) 3 Mad. 359, Ranchode Das v. Krishna Das (1911) 12 IC 253, Rajah of Kalahasti v. Prayag Dossjee Varu (1916) 35 I C 224 and Angavalathhmmal v. Janaki Ammal A I R 1924 Mad. 466= 79 I C 894. The interpretation of the term 'legal representative' as discussed above finds firm support from the provision of section 52, C . P . C . which requires a Court to pass a decree firmly indicating that it is to be operative against the estate of a deceased‑debtor. In this regard reference can be made to the following observation in Sm. Rani Brijraj Kumari v. Manranjan Prasad Singh A I R 1947 Pat. 365:‑

22. "In my judgment, therefore, compliance of the provisions of section 52 of the Code is not a mere matter of form but is a matter of substance. It may be that it would not always accord with justice to insist upon the actual words of the section being present in the decree; but the decree itself must bear sufficient materials to indicate that it was intended by the Court to be operative against the estate of a deceased debtor."

23. The law is well‑settled that if the deceased has not left any estate and nothing has come into the hand of any heir or other person then hell cannot be termed a 'legal representative' and cannot be sued as such for a claim against the deceased debtor nor a decree passed against a deceased judgment debtor be executed against him.

24. In the present case the plaintiff has not established that the defendants Nos. 1(i) to (v) have inherited any property of the deceased defendant. Therefore, they cannot be termed as legal representative and no decree can be passed against them. The suit is dismissed with no order as to costs.

25. A.A. Suit dismissed.