SALEEM-UD-DIN Versus JAMEEL AKHTAR PERVAIZ

1. NASIM HASAN SHAH, J.‑ ‑The facts, which form the background of this appeal, by leave of this Court, are these:

2. A winding up order was passed under section 162 of the Companies Act on 26‑2‑1971 by the Lahore High Court directing the winding up of Pak‑Wheat Products Ltd. An Official Liquidator was also appointed for this purpose. A flour mill called the "Gulberg Flour Mills" belonging to the Pak‑Wheat Products Ltd. was put to auction on 20‑6‑1971. In this auction the highest bid of Rs.32,70,000 was offered by one Syed Jamaat Ali Shah. In so far as the Company Judge reserved the power to accept or reject any bid or to enter into negotiations for the purpose of the disposal of the Gulberg Flour Mills, negotiations, accordingly, took place on the 24th January, 1972 and the offer of Syed Jamaat Ali Shah was accepted on the terms and conditions contained in the order of the Court dated 4‑2‑1972. Prior thereto, an application had been moved by Syed Jamat Ali Shah that the offer should be accepted in the name of Sunny Flour Mills and this request was granted by the Court also in the aforesaid order dated 4‑2‑1972. After the said order dated 4‑2‑1972 another order was passed by the Court on 9‑2‑1972 specifying certain further terms and conditions, on which the Mill was being auctioned and these terms which were contained in the orders of the Court dated 4‑2‑1972 and 9‑2‑1972 were to form part and parcel of the terms and conditions of the auction. In fact, a deed of sale agreement dated 15‑2‑1972 was executed incorporating the above terms and conditions.

3. In pursuance of these orders, for a consideration of Rs.36,01,087.50 paid by the auction‑purchaser in the manner indicated in the orders of the Court dated 4‑2‑1972 and 9‑2‑1972 (out of which a cheque of Rs.7,17,500/‑ was handed over to the Official Liquidator) the possession of the Gulberg Flour Mills was given to the suction purchaser.

4. The case of the appellants herein is that "flagrant breaches" of the terms and conditions of the auction dated 20‑6‑1971 as elaborated in the orders of the Court dated 4‑2‑1972 and 9‑2‑1972, and agreement to sell dated 15‑2‑1972 were committed by the auction‑purchaser but the same were condoned by the Company Judge on applications moved from time to time whereby they succeeded in getting the essential conditions of the auction by‑passed; that the condonation by the learned Company Judge of the flagrant breaches of the terms and conditions of the auction was contrary to law and that he was not right in the circumstances to allow the contract to subsist and continue but that it should have been rescinded. It is further submitted that the learned Judges of the Division Bench, hearing the Intra‑Court Appeal, have unjustifiably upheld the condonation of these breaches and erred in law in dismissing the appeal of the appellants.

5. Leave was granted to consider the question whether in all the circumstances of the case these breaches could be condoned and the contract completed or should it have been rescinded, if so whether can still be rescinded?

6. We have heard Sh. Shaukat Ali in support of the appeal and gone through the relevant record with the assistance of the learned counsel for the parties.

7. There is hardly any doubt that the Court possessed the power to condone the breaches and if it so elects allow the sale to be completed despite the breaches committed by a purchaser if in its opinion to do so would be in the best interest of all the parties concerned. The law is, as is evident from sections 178 and 179 of the Companies Act, 1913, that the Court must act in the best interests of all the persons interested in the property and assets of the Company under liquidation and if he considers that the interests of all concerned will be served best by maintaining the sale, in the terms of the purchase, despite breaches committed by the purchaser, there is nothing in law against his doing so.

8. In the present case, although there is no specific order of the Court dispensing with the requirement of furnishing the bank guarantee or extending the time for the payment of consideration but the conduct of the parties, as well as the various orders made by the Court from time to time, clearly shows that these conditions were never insisted upon. On the other hand, as the learned Judges of the High Court after referring to the relevant circumstances observed:‑‑

9. "Quite obviously, the shareholders for whose benefit both the stipulations were incorporated in the agreement to sell were not keen on their strict compliance."

10. The conclusion was expressed thus:‑

11. "In the circumstances their failure to challenge the various orders of deposit made by the Court after 14‑2‑1974 and the issuance of the "no‑objection certificate" without any objection on their part indicates that they too were not averse to relaxation being granted to the purchaser in respect of the said stipulations. Taking all these circumstances into consideration no doubt is left that the breaches committed by the purchaser were condoned by the Court without any objection from the appellants."

12. Sh. Shaukat Ali, learned counsel for the appellants, had no answer to the aforementioned finding.

13. As for the submission that the breaches committed by the purchaser should not have been condoned, if the Court had the power to do so,' the learned Judges in the High Court did consider this aspect of the case and after taking into account the entire background and circumstances observed as follows:‑

14. "It is necessary to reiterate that while administering or disposing of the property of the company under liquidation the Court has to look into the interest of both the creditors as well as the contributories and must strike the best bargain. It was not disputed that in February, 1972 when it was decided to sell the property to the purchaser, the best offer was that of the purchaser. For how long that offer continued to remain the best has to be seen in the light of the conduct of the parties. Admittedly, the purchaser did not furnish any bank guarantee at all and that he did not pay the entire consideration within the stipulated period of 2 years. Yet neither the appellants nor any of the creditors came forward to seek rescission of the contract. On the other hand, the purchaser was allowed to deposit varying amounts in Court towards the sale consideration till April, 1975, without any protest from either the creditors or the contributories. In the circumstances it may not be improper to infer that even till April, 1975, the offer of the purchaser was the best."

15. The learned Judges went on to observe:‑---

16. "As already noticed the flour mills had been sold to the purchaser for Rs.32,70,000/‑; but as the consideration was to be paid in instalments spread over a period of two years interest at 9$ was added to the consideration and the purchaser was required to pay Rs.36,01,087.50 by 14‑2‑1974. By 2‑4‑1975 he had paid Rs.34,20,080. This left a balance of Rs.2,88,040.61 on that day. This, of course, Included a substantial amount of interest calculated at compound rate till 2‑4‑1975. It will thus be seen that by that day the bulk of the consideration had already been paid. Apparently, all the contributories and creditors were satisfied with this position as none from them moved the Court for a long time for rescission of the agreement on account of the purchaser's failure to strictly abide by the agreement."

17. Dealing with the question as to whether the learned Single Judge was justified in condoning the breaches of the agreement the learned Judges of the Division bench said:‑‑

18. "There is no dispute that the purchaser did not make any payment after 2‑4‑1975 till the appellants moved the Court in October, 1978, for taking notice of the breaches of the agreement. The question therefore is whether the Court should have rescinded the contract when the bulk of the consideration had already been paid or given an opportunity to the purchaser to pay the remaining amount as the learned Single Judge has done in this case. In this context, it may again be noticed that even though the last date for paying the consideration expired on 14‑2‑1972 the appellants kept quiet till October, 1978 before coming to the Court. Even after the expiry of the last date the purchaser was allowed to make deposit in the Court. . This was sufficient to give an impression to the purchaser that the terms of the agreement would not be strictly insisted upon."

19. The conclusion of the‑ learned Judges of the Division Bench was:‑

20. "Taking all these circumstances into consideration it cannot be said that the learned single Judge had no justification for giving another opportunity to pay the rest of the consideration or in doing so he had acted contrary to The interest of the contributories or the creditors."

21. We are inclined to agree.

22. Our overall conclusion is that as the Court could condone the breaches being the judge of the question whether in all the circumstances of the case the breaches should or should not be condoned. It has not been shown that this discretion was improperly exercised or in exercising its discretion the Court ignored of jeopardised the interests of any party concerned.

23. The result is that no ground for interference has been made out. This appeal fails and is dismissed but the parties are left to bear their own costs.

24. M.B.A./S‑170/S Appeal dismissed.