Messrs RAMNA PIPE AND GENERAL MILLS (PVT.) LIMITED Versus Messrs SUI NORTHERN GAS PIPE LINES (PVT.) and others

IFTIKHAR MUHAMMAD CHAUDHRY, J.‑‑ ‑--In above noted appeals, leave was granted to consider following questions:‑‑

(1) Whether the Constitutional petition was maintainable before the High Court in relation to the contractual obligations surfacing themselves after the purchase order, dated 21‑7‑1996 between the petitioner and respondent No. 1?

(2) Whether the High Court was competent to accept a part of the contract between the petitioner and respondent No.1 as binding and another part as, not so binding by observing that the clause relating to the payment of sales tax is ultra vires, particularly when such observation, prima facie runs counter to the observations made by this Court in Commissioner of Income tax, Peshawar Zone Peshawar v. Messrs Siemen A.G. A 1991 PTD 488 to the effect that nature of a contract intended by the parties thereto could not be changed, under the pretext that the rule of interpretation of, the, fiscal law in this behalf is different?.

(3) Whether the rights of party, other than the Company/Mills/ Juristic person, can be put at naught on the strength of lifting the veil of incorporation, more so, when the internal management of Company/Mills/Juristic person cannot be treated in law as running contrary to the acceptance of proper representation by them without even so much as the said third par having any mala fides in that regard?

2. Facts giving rise to instant appeals are that Sui Northern Gas (Pvt.) Ltd. (hereinafter referred to as "SNGPL") on 1 st January, 1996 invited tenders vide Tender, Enquiry No.LED/01/96 for supply of steel line pipe size 4." 0.188" WT on the conditions noted therein including schedule of requirement and specification. Conditions Nos.2, 3 and 6 are relevant qua controversy under consideration, therefore, being reproduced hereinbelow thus:‑‑

"2. Your firm and irrevocable offer in Pak Rupees must be based on delivery at our base Stores Manga Autar 38 KM. Multan Road, Lahore. Offers which are not firm will be rejected.

3. The delivery must conform to the terms given in the schedule of requirements and specifications and must be strictly adhered to earlier delivery will also be acceptable.

6. If you have any doubts as to the meaning of any portion of the specifications or General Terms, you should when submitting your tender, set out in your covering letter, the interpretation upon which you reply."

The tender document also contained certain clarifications out of which conditions Nos.3.2 and 3.4 being relevant are also reproduced hereinbelow thus:--

" Clarification of bid

3.2 No bidder will be permitted to alter his bid after the bids have been opened, but clarifications not altering the substance of the bid may be solicited and/or accepted. No bidder will be asked or required to alter the substance of his bid.

3.4 All deviations from or exceptions to, or qualifications of specifications shall be clearly stated separately in the proposals."

3. Appellants i.e. Messrs Huffaz Seamless Pipe Industries Ltd. (hereinafter referred to as "Messrs Huffaz" and Messrs Ramna Pipe and General Mills (Pvt.) Ltd. (hereinafter referred to as "Messrs Ramna") along with three other companies participated for supply of steel line pipes.

4. Messrs Huffaz quoted following price of Seamless Pipes:‑‑

"Rs.372.60 per Mtr. Ex‑SNGPL Stores Manga Autar. (Rupees three hundred seventy‑two and paisas sixty only). Parties are inclusive of all the taxes."

It is to be noted that in the foot note of the quotation, it was specifically mentioned that a new levy imposed by the Government is not included in it neither can be predicted nor calculated at the time of tender.

5. Appellant Messrs Ramna offered its bid for supply of consignment at Rs.381.71 per meter including all taxes etc.

6. It is significant to note that after opening of tenders but before their acceptance, on 8 th May, 1996, SNGPL wrote a letter to Messrs Huffaz, inter alia, stating that "please confirm that your quoted price is firm and irrevocable and is not subject to change because it has appended a note to its quotation to the effect that any new levy imposed by the Government is not included as it can neither be predicted nor calculated at the time of the tenders. With reference to this letter, Messrs Huffaz on 9 th May, 1996 replied that as nobody can calculate the new levies by the Government, the same will be borne by the buyer. It was also confirmed on its behalf that they will meet all the terms and conditions of subject tender enquiry applicable to steel line pipe production. Further it was clarified in unequivocal terms that their prices are for Manga Autar Stores and inclusive of all the taxes. In response to it reply, SNGPL on 14th May, 1996 persuaded Messrs Huffaz to review and withdraw their condition i.e. "as nobody can calculate the new levies by the Government, the same will be borne by the buyer". This letter was also replied by Messrs Huffaz on 19th May, 1996 as follows:‑‑

"1. Reference Serial No.1 of your above tale fax demanding to review and withdraw the condition "as nobody can calculate the new levies (expected in forthcoming budget/import policy) by the Government the same will be borne by the buyer'. We confirm that our prices are firm. In this regard we would like to make it clear that our offered prices are firm as required by the clause 2 of invitation to bid we had not incorporated any new condition or other than elaborated clause 8 (force majeur) of Appendix "A" of your Tender Enquiry which states:

"The term force Majeure as employed herein shall mean acts of Government in their sovereign capacity".

After this clarification we are sure that the above clause need not to be withdrawn.

Here it is worth‑mentioning that we are only an agent to collect Government levies/taxes and deposit the same in the Government Treasury if so required/demanded/imposed by the Government."

7. The tenders were opened on 11 th February, 1996 and Managing Director got prepared bid evaluation report, recommending therein acceptance of the offer of Messrs Huffaz for the following reasons:‑‑

"9. As brought out in para.6 of Annexure I, the offer made by Messrs Huffaz Seamless Pipe Industries Ltd., Karachi is the only technically responsive offer, and the only commercial deviation is with regard to their requirement that taxes/levies, if increased, will be applicable to their quoted price. In order to avoid delay in purchasing of pipe it is recommended that order may be placed on them as follows for the revised quantity accepting this deviation as a special case in view there being no other alternative."

8. In response to above recommendations, Evaluation Committee also approved an order in favour of Messrs Huffaz on the even date accepting its rate of Rs.372.60 per meter inclusive of all taxes.

Thereafter on 9 th June, 1996, Messrs Huffaz in continuation of their quotation No.SNGP/QOTO 96 dated April 13, 1996 wrote a letter to SNGPL.

The Finance Committee in its meeting held on 25 th June, 1996 also recommended for acceptance of bid of Messrs Huffaz to the Board of Directors with the observations that subject to any increase or decrease in the sales tax, liabilities/credit would be on the shoulder of the buyer. For convenience, relevant extracts from the minutes of meeting of Finance Committee are reproduced hereinbelow:‑‑

"The, Finance Committee noted that the offer made by Messrs Huffaz. Seamless Pipe Industries Ltd., Karachi was the only technically responsive offer and the only commercial deviation was with regard to their requirement that taxes/levies, if increased would be applicable to their quoted price.

The Finance Committee was informed that the tender documents stipulated the price for delivery at SNGPL Stores Manga Autar including all prevailing Government taxes/duties including sales tax, transportation etc. The Finance Committee was also informed that Messrs Huffaz had asked for inclusion of sales tax in their price, which (sales tax) has been imposed by the Government after the opening of bids, because previously they were exempted from the payment of sales tax, this exemption has been withdrawn by the Government in the current budget. The Finance Committee, therefore, considered the option for retendering as well as allowing the supplier the benefit of inclusion of sales tax subsequently. It was noted that retendering would not help achieve any better results, as far as prices were concerned, because in any cases the sale tax liability will be included and Messrs Huffaz was the only technically acceptable bidders in this case. Besides the tender documents stipulated the by increase of "prevailing Government taxes including sales tax" in the prices on the bid opening date. It was, therefore, agreed to recommend to the Board that any subsequent change in the sales tax should be allowed to the bidders, if they claim subject to the condition that they produce documentary evidence of payment of sales tax.

After some consideration, the Finance Committee accepted the recommendation of the Management and recommended to the Board for placing the order on Messrs Huffaz Seamless Pipe Industries Ltd., Karachi for 571,200 metres of 4" dia at a total value for Manga Autar Rs.2,12,920,120 subject to any increase or decrease in the sales tax, the liability/credit would be on the shoulder of the buyer."

9. Accordingly Board of Directors in its meeting held on 21 st July, 1996 accepted the recommendations of the Finance Committee as follows:‑‑

"6.1 A note regarding award of contract for the supply of 571,200 meters of 4'' dill steel Linepipe conforming to API 5L Grade B specifications and/or Company's specifications, required for Distribution Development Programme 1996‑97 was considered by the Board. The Board also perused the recommendations of the Finance Committee held on 25th June, 1996. After some consideration:

6.2 It was resolved that the award of contract for the supply of 571,200 meters of 4" x 0.188 "Wt 12.96 Kg/M (double random lengths) at Rs,372.60 per metre at a total value F.O.R. Manga Autar of Rs.212,829,120 on Messrs Huffaz Seamless Pipe Industries (Pvt.) Ltd. Karachi be and is hereby approved.

6.3 On query oaf a Director the management informed the Board that as envisaged under section 64‑A of the Sales of Goods Act vendee to pay the sales tax liability. The Board was further informed that the Company will discharge sales tax liability subject to the condition that documentary evidence of payment of sales tax to the relevant Government authority is presented.

6.4 That the Managing Director be and is hereby authorized to take or cause to be taken all the necessary steps to give effect to this resolution. "

10. In pursuance of above approval of the Board of Directors on 21st July, i996, letter of intent was issued by SNGPL in favour of Messrs Huffaz accepting its rate of Rs.372.60 per meter along with another commitment that SNGPL will pick up the liability of sales tax subject to the condition that documentary evidence of sales tax having been paid to the relevant Governments shall be submitted alongwith each invoice for supply of pipe.

Messrs Huffaz on receipt of letter of intent on 24th July, 1996, asked for following clarification from SNGPL:‑‑

"As regard to SNGPL acceptance of liability of sales tax paid at actual, kindly clarify that SNGPL will pay the sales tax at actual to supplier in addition to Rs.372.60 (this does not include 18% sales tax). Of course we will forward documentary evidence about sales tax paid."

SNGPL accordingly on 21st July, 1996 issued purchase order to Messrs Huffaz for the supply, of seamless pipe lines.

11. Messrs Ramna challenged purchase order, dated gist July, 1996 before the High Court by invoking its Constitutional jurisdiction, which later on was withdrawn and fresh Constitutional Petition being No. 13164 of 1998 was filed which was disposed of on 23 rd October, 1997 by a learned Single Judge of the Lahore High Court. Being dissatisfied from the judgment of the High Court. Messrs Huffaz instituted an I.C.A. which too has been dismissed vide impugned judgment, dated 29 th May, 1998, as such instant appeals have been filed.

12. Learned counsel for Messrs Huffaz argued that the High Court to exercise of its Constitutional jurisdiction cannot rewrite contracts executed between two public limited companies. To elaborate his argument, he contended that intervention by the High Court in the mutual contract between two parties is also against the specific Islamic Rule of interpretation. Reference is made to Commissioner of Income Tax, Peshawar Zone, Peshawar v. Messrs Siemen A.G. 1991 PTD 488 and Government of N.‑W.F.P. through Secretary, Law Department v. Malik Said Kamal Shah PLD 1986 SC 360.

13. Learned counsel for respondent (appellants Messrs Ramna) stated that if a contract on the face of it is just, prosper, truthful, honest, transparent, not capable to cause injury/loss to the interest of a third party i.e. public‑at‑large, and is also based on correct application of relevant provisions of law on the subject then the High Court would be precluded in interfering with otherwise it has jurisdiction under Article 199 of the Constitution to examine its validity.

14 As per the facts and figures available on record, SNGPL is a limited company incorporated under the Companies Ordinance, 1984. Its 36% shares are held by the Government through the President of Pakistan and the rest are held either by the Public or by private and public sector companies, therefore an incorporated body being custodian of public interest is bound to carry out its functions in a legal and highly transparent manner to ensure protection/safeguard of the interest of the public having shares in it as they have reposed confidence in it to run business or, their behalf so that the benefit of the same could be extended to them. There is no dispute that as per Islamic rule of interpretation of contracts as it has been observed in Commission of income Tax (ibid), when two contracting parties agreed to do something by a mutual valid contract or intended to do so and it is not prohibited by Islam, a third party, like the Income Tax Department or for that matter the Court has no power to modify either the contract or interfere with what they intended to do with it. As per ratio of this precedent, emphasis has to be laid on expression `mutual valid contract'. In this context, learned counsel for Messrs Huffaz also placed reliance on Government of N.‑W.F.P. through Secretary, Law Department (ibid) and pointed out following portion in support of his arguments:‑‑

15. In the case in hand, dispute rests between two limited companies one of them is a public limited company i.e. SNGPL having the shares of the public, therefore, the authority relied upon by the learned counsel needs no discussion as it pertains to sale (Bay) between two persons and in such contract, interference by the third person has been prohibited. It may be noted that in judgment in the case of Messrs Airport Support Services v. The Airport Manager, Quaid‑e‑Azam International Airport, Karachi and others 1998 SCMR 2268 it has been held that a contract carrying element of the public interest is open for judicial review relevant para. Therefrom is reproduced hereinbelow:‑‑

"Further a contract, carrying elements of public interest, concluded by functionaries of the State, has to be just, fair transparent, reasonable and free of any taint of mala fides, all such aspects remaining open for judicial review. The rule is founded on the premises that public functionaries, deriving authority from or under law, are obligated to act justly, fairly equitably, reasonably, without any element of discrimination and squarely within the parameters of law, as applicable in a given situation. Deviations, if of substance, can be corrected through appropriate orders under Article 199 of the Constitution. In such behalf even where a contract, pure and simple, is involved, provided always that public element presents itself and the dispute does not entail evidentiary facts of a disputed nature, rederess may be provided. A number of precedents have, contextually come to occupy the field and, inter alia, may be noted (1) Anjuman‑e‑Ahmadiya, Sargodha v. Deputy Commissioner, Sargodha, PLD 1966 SC 639, (2) The D. F.O. South Khari v. Ram Sanehi Singh, 1971 (3) Supreme Court Cases 864‑AIR 1973 SC 205; (4) Rashid A. Khan v. West Pakistan Railway Board PLD 1973 Lahore 733; (5) The Majilis i‑lntizamia, Jamia Masiid, Ghulam Muhammad Abad Colony v. Secretary to Government of West Pakistan, Communication and Works Department, PLD 1975 SC 355, (6) Muhammad Ashraf Ali v. Muhammad Naseer and 2 others 1986 SCMR 1096 (7) M/s. Dwarkadas Marfana & Sons v. Board of Trustees, Bombay Port, AIR 1989 Supreme‑Court 1642; (8) M.H. Abidi v. State Life Insurance Corporation, 1990 MLD 563; (9) Mahabir Auto Stores v. Indian Oil Corporation, AIR 1990 .Supreme Court 1031; (10) Shrilekha Vidyarthi v. State of U.P. AIR 1991 Supreme Court 537; (11) M/s Pacific Multinational (Pvt.) Ltd v. Inspector‑General of Police Sindh. PLD 1992 Karachi 283; (12) Messrs Presson Manufacturing Ltd. v. Secretary Ministry of Petroleum & Natural Resources and 2 others 1995 MLD 15 (Lahore) and (16) Shoaib Bilal Corporation v. Government of Pakistan KLR 1997 Rev. Cas. 27 Lahnre."

Above view has been reiterated by this Court in the case of Nizamuddin and another v. Civil Aviation Authority and 2 others 1999 SCMR 467. Learned counsel for Messrs Ramna in support of the proposition had also cited a good number of judgments but they need no discussion as majority of them have already been referred in the case of Messrs Airport Support Services (ibid).

16. Leaned counsel for Messrs Huffaz did not seriously object to jurisdiction of learned High Court relating to examination of a contract in exercise of powers under Article 199 of the Constitution in view of the judgments in the case of Airport Support Service (ibid). But learned counsel for SNGPL took exception against such exercise of jurisdiction by High Court and he placed reliance on TATA Cellular v. Union of India AIR 1996 SC 11. He stated that in the matters relating to execution of a contract between two limited companies, High Court ordinarily would not exercise jurisdiction under Article 199 of the Constitution of Islamic Republic of Pakistan. We are not persuaded to entertain this argument in view of law laid down in the judgments by this Court referred to hereinabove. Now to attend the proposition advanced by the learned counsel for Messrs Huffaz, namely, that the High Court cannot rewrite a contract in exercise of its jurisdiction under Article 199 of the Constitution, it is to be seen that in view of dictum in the case of Commissioner Income Tax, Peshawar (ibid) it would be seen whether the contract between the parties is valid one arid the functionaries of SNGPL have entered into a just, fair transparent, reasonable and free of any taint of mala fides contract to pursuance whereof it has picked up liability to pay sales tax, etc. after receiving tenders from participants for the supply of steel line pipes. It is to be noted that exemption to pay Sales Tax has been claimed by Messrs Huffaz in view of the Petroleum Policy, 1994, therefore, short resume of the Petroleum Policy and SROs issued by the Federal Government granting exemption of sales tax on machinery equipments, material, etc. if are supplied for the projects being carried out for gas transmission and distribution is necessary. In this context, relevant paras of Petroleum Policy are reproduced hereinbelow:‑‑

"(a) No Import or Export Duties including Customs Duty, Sales Tax, Iqra surcharge and any other Surcharges shall be levied or charged on machinery, equipment, material, accessories, specialized vehicles, Spares, Consumables and chemical imported or exported in accordance with the list approved by the Regulatory Authority for oil transportation and gas transmission and distribution projects.

The relevant Regulatory Authority shall notify the CBR from time to time of the list of machinery, equipment, materials, accessories, specialized vehicles, spares, chemicals and consumables required to be imported by the petroleum sector. A general indicative list of the items covered under this policy will be jointly prepared by the Regulatory Authorities within one month of the announcement of the policy. This list will be subject to amendments by additions and deletions from time to time as considered appropriate by the relevant Regulatory Authority. Whether specific item falls within the list shall be decided by the relevant Regulatory Authority. Until the general indicative list is finalized the relevant Regulatory Authority will certify whether a company or an item can avail the concessions and incentives set out herein.

(b) Energy Conservation, environment and safety control.

(i) Local manufacturers or producers will be entitled to all such benefits as are admissible for exports.

(ii) No Sales Tax will be leviable or payable on items manufactured or produced locally which are sold to companies in the petroleum sector."

In pursuance of above policy, the Federal Government issued a Notification S.R.O. No.669(I)/94, dated 4 th July, 1994 contents whereof read as under thus:‑‑

"Notification No.S.R.O.669(I)/94, dated 4 th July, 1994: In exercise of the power conferred by subsection (1) of section 18 of the Sales Tax Act, 1990, the Federal Government is pleased to exempt from the payment of sales tax such locally manufactured machinery, equipments, materials, specialized vehicles, accessories, spare, parts, chemicals and consumable as are supplied to the projects specified in the Table of Notification NO.S.R.O.367(I)/94, dated 9 th May, 1994 subject to the following conditions namely:‑‑

(1) Only such machinery equipment, material specialized vehicles, accessories, spare parts chemicals and consumable shall be entitled to the exemption under this Notification as are certified through Central Board of Revenue by the relevant Regulatory Authority from time to time in terms of Annexure VI to the Petroleum Policy, 1994.

(2) Only such petroleum companies, corporation, organizations and such phases of the projects shall be entitled to the exemption under this Notification as are specified in Notification No.S.R.O,367(I)/94 dated 9 th May, 1994."

A perusal of the Petroleum Policy as well as S.R.O. reproduced hereinabove reveals that exemption from sales tax on the material being used on the project specified therein was available subject to certification through Central Board of Revenue by the relevant regulatory authority from time to time in terms of Annexure VI to the Petroleum Policy, 1994, If supply is not being made of the taxable material in respect of a project covered by the Petroleum Policy, no exemption of sales tax shall be granted at all. It is interesting to note that in instant case Messrs Huffaz submitted its tender alongwith others strictly in accordance with the terms and conditions mentioned therein declaring that the offer made by it is firm and irrevocable i.e. Rs.372.60 per metre inclusive of all taxes which undoubtedly includes sales tax as well. It is equal important to bear in mind that in the footnote of the tender document submitted by Messrs Huffaz, it was specifically mentioned that any nevi levy imposed by the Government is not included in it as neither it can be predicted nor calculated at the time of the tender. As far as imposition of Sales Tax is concerned, it is not a new levy except that at, the time of filing tenders by Messrs Huffaz, its payment was exempted on the supply of steel line pipes, subject to Petroleum Policy, referred to hereinabove.

It may also be noted that in reply to the letter dated 8th May, 1996 sent by SNGPL to Messrs Huffaz, latter confirmed in unequivocal terms that their prices are inclusive of all the taxes . We fail to understand in view of such unambiguous commitment as to why SNGPL was anxious to persuade to Messrs Huffaz to withdraw the condition incorporated in the footnote of the tender, when supplier was confirming its rate inclusive of all taxes, by sending letters to it including the one dated 14th May, 1996, which was replied on 19 th May, 1996, its contents have already been reproduced in above paras. A careful examination of the same reveals that Messrs Huffaz once again confirmed that their prices are firm as required by clause 2 of condition of bid i.e. firm and irrevocable offer. Despite of it, in view of consistent stand of Messrs Huffaz that their rates are inclusive of tax, the Committee constituted to evaluate bids recommended for acceptance of the offer of Messrs Huffaz without mentioning therein that SNGPL in clear violation of the terms and conditions of the tender particularly clauses relating to clarification of bid wrote letter on 19 th June, 1996 wherein for the first time exemption from the sales tax was claimed contents of this letters being relevant reads as under:‑‑

"As regards to price quoted to you we have already confirmed that those are "firm and irrevocable". We were exempted from sale tax when we quoted our price. Now the position is still not clear about exemption of sale tax in, the coming financial year. In case the exemption facility is withdrawn the matter will have to be taken up with the Government as per rule."

In our considered opinion, Messrs Huffaz felt necessity to write above letter because the Government of Pakistan Ministry of Finance and Economic Affairs, in the meantime, vide S.R.O. No.473(I)/96, dated 13 th June, 1996 had rescinded S.R.O. No.669(I)/94, dated 4 th July, 1994 contents whereof have been reproduced hereinabove w.e.f. 1 st day of July, 1996.

Be that as it may, the Finance Committee without examining carefully the offer of Messrs Huffaz and letters written by the parties to each other except last letter dated 19th June, 1996, arbitrarily made recommendations that liability of sales tax would be on the shoulders of the buyer. For sake of emphasis, it is repeated that in the correspondence between the parties referred to hereinabove, Messrs Huffaz never reserved its right in respect of levy of sales tax as it has been insisting upon for the liability of SNGPL only in respect of new levy if imposed by the Government after grant of supplying order to it, therefore, the recommendations made by the Finance Committee were based on mala fides. Not only this, the Board of Directors were also misguided by the functionaries of SNGPL by making representation that under section 64‑A of the Sale of cods Act, the sales tax is the liability of the Board. To our utter surprise the Board of Directors independently did not bother to consider implications of section 64‑A of the Act, which only speaks in respect of customs or excise duty and sales tax has nothing to do with it as has been laid down in Messrs Chhotabhai v. Union of India AIR 1962 SC 1006.

Even if for sake of arguments, it is presumed that if SNGPL had to pick up the liability of sales tax after awarding contract to it, it was obligatory upon it to examine first of all whether prior to submitting offer Messrs Huffaz was exempted from sales tax under S.R.O. No.669(I)/94, dated 4th July, 1994 because exemption from sales tax under this S.R.O. was subject to certification by the Regulatory Authority as per Petroleum Policy of 1994. Therefore, the Board of Directors without examining the offer of Messrs Huffaz independently endorsed the recommendations of the Finance Committee illegally Thus, from the facts narrated above, it is abundantly contract between Messrs Huffaz and Messrs SNGPL, valid one, therefore, interference by the High Court in writ jurisdiction and I.C.A. Bench vide impugned judgment to the extent of picking up liability of sales tax by the latter could not be treated to be rewriting of the contract.

17. Learned counsel for Messrs Huffaz contended that the High Court in exercise of the Constitutional power had no jurisdiction to lift the veil of incorporation by making interference in its indoor management. Learned counsel for SNGPL fully supported him in this behalf and contended that for this reason alone, impugned judgment deserved to be set aside. In this behalf, reliance has been placed by them on The United Bank Ltd. v. Messrs Pak Wheat Products Ltd. PLD 1970 Lah. 235 and Messrs Canal Breeze Cooperative Housing Society Limited v. Agricultural and Transport Development Corporation (Pvt.) Limited 2000 SCMR 506.

18. On the other hand, learned counsel for Messrs Ramna contended that the functionaries of SNGPL exceeded their authority in picking up the liability of the sales tax after grating work order to Messrs Huffaz, therefore, High Court was empowered to interfere in a contract executed with a third party, as such, interference would not be an interference in the indoor management of the incorporated company:

19. We have examined the arguments advanced by both the sides carefully. In this behalf, suffice it to observe that the High Court in exercise of writ jurisdiction and the I.C.A. Bench had not interfered in the indoor management of SNGPL as it had not been debarred to carry out its internal functions according to the Memorandum and Articles of Association, therefore, the judgments relied upon by the learned counsel are not applicable. It is also to be noted that vide impugned judgment, learned High Court had made interference in respect of a transaction which has been concluded by SNGPL with a third party in order to safeguard the interest of the public who have got the shares in the SNGPL by exercising powers of judicial review under Article 199 of the C Constitution which are too wide and sweeping to be adopted in every case as has been held in Nizam‑ud‑Din and others (ibid). In the case of The United Bank Ltd. (ibid) powers and authority of the functionaries responsible to run the company and challenge to the same have been discussed whereas in the judgment in the case of Messrs Canal Breeze Cooperative Housing Society Ltd. (ibid) question for examination was whether doctrine of indoor management is applicable to a cooperative society and it was answered as under:‑‑

"The contention of the learned counsel for the appellants that doctrine of indoor management would not apply to a cooperative society as the Act specifically excluded application of the provisions of Companies Ordinance to the Societies registered under the Act and that a similar provision exists in the Companies Ordinance excluding application of its provisions to the Societies registered under the Act, has no force. The doctrine of indoor management is not applied to the transactions entered into between a registered company and a third party in good faith, on the basis of any statutory provisions in the Companies Ordinance. This doctrine, as would appear from the preceding discussion is applicable to such transaction on the principle of public policy, equity and good conscience, to protect an innocent person dealing in good faith with a corporate entity. Section 23 of the Act confers a corporate status on a society registered under the Act as follows:

"23. Societies to be bodies corporate. ‑‑‑ The registration of a society shall render it a body corporate by the name under which it is registered, with perpetual succession and a common seal, and with power to hold property, to enter into contracts, to institute and defend suits and other legal proceedings and to do all things necessary for the purposes of its constitution."

The corporate status conferred on a society registered under the Act is in no way different from the corporate status of a company registered, under the provisions of the Companies Ordinance, 1984. The fact that a society may be registered under the Act with or without limited liability only if it has amongst its objects the promotion of the economic interest of its members in accordance with cooperative principles, is also no ground to exclude the application of the doctrine of indoor management to a transaction between a cooperative society and the third party. As would appear from the preceding discussion, the doctrine of indoor management would be applicable to a cooperative society not because of its objects but because of its corporate status.

We are, therefore, of the view that the doctrine of indoor management applies to the transactions entered into between a third party and a cooperative society registered under the Act in the same manner as it applies to transactions between third party and a company registered under the Companies Act, 1913 or Companies Ordinance, 1984.

20. As Messrs Huffaz had already completed supply of steel line pipe to SNGPL in pursuance of the work order issued to it on 21st July, 1997, therefore, no relief can be granted to Messrs Ramna in its Appeal No. 1534 of 1998.

Thus, for the foregoing reasons, both the appeals are dismissed. No order as to costs.

M.B.A./R‑13/S Appeals dismissed.