' GUL MUHAMMAD KHAN, J.-Two appeals (I. C. A. 4-Com-77 and 1. C. A. 5-Com-77) filed against the order dated 12th January 1977, of the learned Company Judge shall be disposed of together by this order. They arose out of C. M. 101/L-71 and C. M. 102/L-71 in C.
0. 14-70, in which all the. Parties consented to winding up of the Company. An order dated 1st February 1971, was passed accordingly. It was prayed in C. M. 101/L-71 filed by the Industrial Development Bank of Pakistan (hereinafter referred to as the Bank) that the property sought to be auctioned by the Official Liquidator through Pakistan Times, dated 22nd September 1971, be released. The prayer made in the second case C. M. 102/L-71 was that the property mentioned in Schedule 'A' attached to their petition did not belong to the Company and may be released so that loan taken by the partnership from the Bank may be paid off. The learned Company Judge came to the conclusion that as the property in question stood validly transferred to the Company, there was no merit in the two applications.
2. The facts leading to these appeals are that on 4th November 1954, Mirza Munawwar Ahmad, appellant, alongwith Mirza Masood Ahmad, Mirza Muhammad Sadiq Beg (deceased now represented by his legal representatives) and Mirza Walayat Beg, formed a partnership under the name and style of 'Hospital Equipment Supply Company' (hereinafter referred to as the Firm). This Firm was registered with the Registrar of Firms, Lahore Division, on 10th June 1975. It carried on the business of manufacturing hospital equipment. On 16th December 1966, the Firm executed a credit agreement with the Industrial Development Bank of Pakistan for a loan of Rs, 1,24,000, for the import/purchase of machinery, construction of building and shifting of the operation of the Firm from Lahore to Gujranwala. As a security for repayment of loan the Firm mortgaged/hypothecated in favour of the Bank its entire movable and immovable property including leasehold rights of the plot of land bearing No, 60-A in the Small Industries Estate, Gujranwala, on which the factory of the Firm is situate.
3. One of the conditions of the loan of the Bank was that the partners will neither effect any change in the structure of the Firm nor would they dispose of any of the assets of the Firm, without prior approval in writing of the Bank. On 28th June 1967, the Firm sought for a permission from the West Pakistan Small Industries Corporation thereinafter referred to as the Corporation) through its Deputy Manager to form a limited company and to transfer its assets to it. Admittedly, no company was in existence and no such request was made to the Bank. In respect of that matter. On 30th June 1967 an 'agreement Exh. R. W. 7/1', signed by four partners on the one side and two of them as Directors of the would-be company on the other, was executed. This agreement purported to sell assets and liabilities of the Firm to the Company.
4. However, without waiting for the permission a company was formed and incorporated in the name of the Hospital Equipment Supply Company Limited (hereinafter to be called the Company) on 2nd August 1967. Its authorised capital was Rs, 10,00,00), divided into 10000 ordinary shares of Rs, 10 each. Shares worth Rs, 1,30,000 were allotted to the four partners in lieu of their shares in the Firm, in the following manner :- {{TABLE}} Mirza Munawwar Ahmad 400 Managing Director Mirza Masood Ahmad 300 Mirza Muhammad Sadiq Beg 200 Mirza Walayat Beg 400 {{TABLE}} ' The latter two were taken Directors of the Company while Mirza Munawwar Ahmad as the Managing Director. A further capital of Rs, 1,70,000 was raised by issuing 1,700 shares and three other Directors, namely Muhammad Yunis Qamar, Muhammad Aslam Khan and Mirza Jatfer Beg were made.
5. The business, assets and liabilities of the Firm are also said to have been actually taken over by the Company in view of the agreement (Exh. R. W. 7/1) dated 30th June 1967. Photo-copy of an unsigned agreement has been placed on record to show its contents but the original is not forthcoming.
6. It appears that the application for obtaining sanction submitted by the Firm on 28th June 1967, was recommended by the Deputy Manager of the Corporation on 30th March 1968, vide Exh. P/2.
There was further correspondence but the request was finally turned down by the Chairman of the Corporation on 2nd May 1968. The appellant repeated the same request in another letter dated 11th June (1968, Exh. 'B') but it was also rejected on 14th May 1969, by Manager-I of the Corporation (Exh.
R/1). Its communication was, however, made to the Firm on 23rd February 1970 (Exh. R/5) by the Deputy Manager. The last request made at the instance of the respondents on 14th May 1970 (Exh.
R/3) was also refused on 1st June 1970 by the Director vide Exh. R/4. The result is that at no stage was the request of the Firm or the Company allowed.
7. Meanwhile, disputes arose between the Managing Director and the other Directors of the Company which led to criminal as well as civil litigation. The appellant was removed as Managing Director on 1st January 1970. He withdrew his letter dated 11th June 1963 (Exh. `B'), requesting conversion of the Firm into Company vide his letter dated 19th January 1970. It appears that he was ignorant of the fact that even his second request had already been refused by Manager-I, referred to above as Exh. R/l. On 18th March 1970, Mirza Munawwar Ahmad, Mirza Masood Ahmad and four others filed Civil Original No 14 of 1970 praying for compulsory winding up of the Company.
8. To begin with the respondents in their reply objected to the winding up. In para. 2(a)(iv) they stated that no meeting of the Board of Directors or the General House had been held from 2nd August 1967 (the date of incorporation) to 19th September 1969. They referred to three meetings held on 19th September 1969, 26th December 1969, and 1st January 1970, but their minutes do not show any resolution to take over the property of the Firm was passed. It is quite clear from the stand taken by the respondents that no agreement was entered into by the Company, at any stage after its formation, with the Firm, for the purchase of the property in question. In reply to para. 5 of the petition the respondents stated that after the refusal of the Corporatior/Bank to recognise conversion of the Firm into Company, they, while in charge, worte again on 14th May 1970, to the Corporation (Exh. R/3) for reconsideration of their decision. The only case made out by the respondents in their reply was that the Bank had always reacted favourably to the request for sanction of transfer and having also accepted the instalments towards the loan from the Company it could not change its position. The locus standi of the other petitioners was also challenged. A number of allegations were made by the respondents against Mirza Munawwar Ahmad appellant.
9. The Standard Bank, a creditor, supported the proceedings under section 175 of the Companies Act. The Corporation in its reply pleaded that the change in the status of the Firm into a Company was effected illegally. In para. 7 it opposed the application for liquidation. The Bank, however, pleaded vide an application dated 7th April 1970, that its loan was fully secured. The Bank also expressed its inability to release the securities. In the alternative it was urged that in case the Company is ordered to be wound up the claim of the Bank may be satisfied in preference to all other creditors.
10. On 1st February 1971, the respondents also changed their position and consented to the winding up of the Company. Consequently, an order to that effect was passed the same day by the learned Company Judge and Mr. Nazir Ahmad, Advocate was appointed as the Official Liquidator.
11. On 3rd August 1971, the Bank moved an application to the Official Liquidator to hand over possession of the morale and immovable property of the Firm as it was entitled to assume possession in view of its agreement dated 16th December 1966, with the Firm. The Official Liquidator rejected the application on 17th September 1971.
12. Consequently on 4th October 1971, the Bank filed C. M. 101/L-71 stating that since the partners could not effect any change in the structure of the Firm and could not dispose of its assets, the transfer of the assets of the Firm to the Company was illegal. The Bank also relied on sections 39 and 40 of the Industrial Development Bank of Pakistan Ordinance, 1961, to recover the amount due from the Firm by attachment and sale of the mortgaged/hypothecated property. It was, therefore, prayed that directions be issued to the Official Liquidator, to release the property of the Firm, detailed in Schedule Annex. 'C' to the application. Alternatively, it was prayed that if it was held that the property of the Firm stood transferred to the Company, permission be accorded to the Bank for the institution of proceedings under section 39 of the Ordinance against the Company.
13. Meanwhile, the Official Liquidator put in an advertisement for sale of the property in question. On 6th October 1971, Mirza Munawwar Ahmad and Mirza Masood Ahmad submitted another application C. M. 102/L-71. It was stated in it that the property of the Firm could never be transferred to the Company without the permission of the Corporation/Bank and that the advertisement for sale of the property made by the Official Liquidator was illegal. A prayer was also made for release of the suit property to enable the Firm to pay up the debts.
14. The learned counsel for the respondents raised a preliminary objection to the maintainability of the appeals under section 202 of the Companies Act and section 3 of the Law Reforms Ordinance.
It may be stated at the outset that section 3 of the Law Reforms Ordinance is not applicable to company cases as held in. Eastern Company (Private) Ltd. v. Mst. Gul BeguM (I), by this Court. The criterion of appeal ability under section 202 is the same as in an order passed by a Judge on original side of the High Court, under clause 10 of the Letters Patent. An order, refusing to wind up a company and adjourning the petition after hearing it on merit was held B to be appealable in Bachhery Factories Ltd. v. Hirjee Mills Ltd. (2). It was held in Seth Haribans v. National Sugar Mills (3) and Lala Mulk Raj Bhalla v. Official Liquidator Peoples Bank (4), that this section is wide enough to cover
(1) PLD 1980 Lah. 69 (2) AIR 1955 Born. 355
(3) AIR 1931 Lah. 8 (4) AIR 1938 Lah. 658 appeals against any order made in the matter of winding up provided such an order finally decides a dispute between the parties or deprives the applicant of a substantial or important right and is not a mere formal or interlocutory order. Same view was taken in the case of Sausar Chand v. Punjab Industrial Bank (1). In G. M. Bahri v. Maudaland Bahri Ltd. (2), an order for voluntary liquidation under supervision was held appealable, Reference be also made to the case of Dayabhai v. Murugappa Chettyar (3), where it was held as under ' I am of opinion that in the Letters Patent of the High Courts, the word 'judgment' means and is a decree in a suit by which the rights of the parties at issue in the suit are determined. The term `suit' in the Letters Patent includes suits instituted by a plaint or by an originating summons in the manner prescribed under the rules of the Court.
' A final judgment is a decree in a suit by which all the matters at issue therein are decided. A preliminary or interlocutory judgment is a decree in a suit by which the right to the relief claimed in the suit is decided, but under which further proceedings are necessary before the suit in its entirety can be determined. All other decisions are orders, and are not 'judgments' under the Letters Patent, or appealable as such......''
' Undoubtedly, the learned Company Judge has finally decided about the ownership of the property. That question is not only substantial and important but stands decided finally between the parties. As for the Bank also the decision is not only final but important. The legal right of the Bank has been taken away and the property has been removed from it lawful authority.
15. This controversy has in fact been considered deeply in Industrial Sales and Service v. Archifar Opal Laboratories Ltd. (4). It was held that if judgment or order determines the right to any relief claimed by any party to the proceedings and does not merely regulate a procedure and is not merely a technical step towards obtaining final adjudication it will be a judgment under clause 10 of the Letters Patent. The Supreme Court in Mumtaz Khan v. Chief Settlement and Rehabilitation Commissioner (5), ruled that the term 'judgment' in clause 10 shall not be confined to decree but is of wider import and would merely mean a judicial determination or a final decision of a Court but not an interlocutory order. An order directing holding of a meeting in contravention of the procedure as laid down in the Articles of Association was held to be a judgment in Mirza Munawwar Ahmad v. Mirza Jaffa,. Beg (6), and hence appealable.
16. The second preliminary objection was that the appellants could not file their application before the learned Company Judge without taking his leave first. Admittedly, this objection was not raised before the learned Company Judge. As it is an intra-Court appeal such an objection at the appellate stage cannot be allowed as held in Muhammad Ayub Khan v. Chief Settlement Commissioner (7). The Supreme Court took the same view in Mst. Zamro Jan v. Fateh Khan (8).
Even otherwise, the objection is
(1) AIR 1929 Lah. 707 (2) AIR 1930 Lah. 721
(3) AIR 1935 Rang. 267 (4) PLD 1969 Kar. 418
(5) PLD 1966 SC 276 (6) Law Notes 1970 Lah. 566
(7) PLD 1968 Lah. 495 (8) 1971 SCMR 385 misconceived. Leave may be required under section 171 of the Companies Act for a suit or proceedings other than those taken in defence. The two applications before the learned Company Judge arose out of the liquidation proceedings under which the property in which the appellants claimed interest was being taken over as the property of the Company. The appellants were thus acting in defence and in the same winding up proceedings before the same Court. In Jewan Das v.
Peoples Bank (1), it was held that once an action by the Company in liquidation itself has been proceeded with and is successful then there is no necessity for the defendants in the action to obtain leave.
17. The third preliminary objection was that the appellants are not aggrieved parties. Even -this objection was not raised by the respondents before the learned Company Judge. In any case, as both the appellants claimed interest in the property in dispute they did have the locus standi to move the matter before the learned Company Judge and come to this Court in appeal after failing there. No authority is needed for this proposition but one may rely on the case of Fazal Din (2) and of Sh. Amir-udDin (3).
18. The learned counsel then submitted that as the Firm had been dissolved with the consent of the partners no one of them has any interest left in the previous property of the Firm and so they could not make any grievance before the learned Company Judge. It is a well-established position of law that dissolution of a partnership is complete only after all of its assets have been realised and divided. Reference be made to the following passage from the judgment of the Privy Council in Sathappa Chetty v. S. N. Subrahmanyan Chetty (4) :
64. . . If the partnership was put an end to some years ago his rights arose then and either the parties ought at once to have contributed such a sum as would make up to him his share of the loss, or they ought to have in some way disposed of the remaining assets and then met the remainder of the loss by their contributions. But no one at the time suggested this. On the other hand they were entitled to say to the plaintiff: `Until all the assets are relised we cannot tell how much we owe to you, and we claim not to pay you anything until all the assets are realised.'
' If so, for that purpose the partnership went on; it went on, not because it would do any more business, until those assets were realized, the final dissolution of the partnership could not take place... ."
' Therefore, as the ownership of the Firm's assets is in dispute the partners have a right to pursue the matter. It is surprising that the learned counsel contested the two applications of the appellants for about 6 years from 1971 to 1977 but did not think of any such objection.
19. The learned Company Judge had on 3rd February 1972, framed the following issues :-
(1) Whether the firm Hospital Equipment Supply Company entered into a vendor's agreement with the Company now under liquidation on 30-6-1967?
(1) AIR 1937 Lab. 926 (2) PLD 1969 SC 223
(3) PLD 1968 SC 165 (4) AIR 1917 P C 70
(2) If the answer be in the affirmative, whether the property aforesaid was actually transferred to the Company under liquidation in pursuance of this agreement?
(3) Whether the property mentioned in Schedule 'A' to C. M. 102-L/71 was ever transferred to the Company under liquidation?
(4) Whether the Bank is estopped by its conduct from disputing the transfer of the property?
(5) Whether Mirza Munawwar Ahmad is similarly estopped?
(6) Relief.
Ali of them were found against the appellants and so their applications dismissed.
20. It was contended by the learned counsel for the appellants that as the original agreement Exh.
R. W. 7/1 had not been produced and proved, it could not be relied upon. In the alternative it was pleaded that even if the finding of fact of the learned Company Judge be accepted as correct about its actual execution and contents, it could not be held that there was any agreement with the Company, which was incorporated more than a month thereafter. Admittedly the Company was not in existence when the agreement Exh. R, W. 7/1 was executed. It became a legal person or say was born after its incorporation as held in the case of Messrs Haripur Rosin and Turpentine Factory Ltd. (1). Thus without going into the controversy about its execution or genuineness, we agree with the learned counsel that even if there was an agreement, it was between the partners interse or partners and promoters but not with the Company. The Company which was incorporated more than a month later on 2nd August 1967, could not be a party to that deed and so issue No, 1 could not have been decided in the affirmative.
21. As regards issues Nos, 2 and 3 the case of the respondents was that immediately after the execution of the agreement Exh. R. W. 7/1 on 30th June 1967, all the assets and liabilities were transferred to the Company. In every transaction of sale or acquisition of an interest, there must be two parties, a seller and a buyer. Exh. R. W. 7/1 shows that the seller had agreed. The four partners of their own evaluated the assets and the liabilities of the Firm. The document was executed before the incorporation of the Company. Exh. R. W. 7/1 could thus at the most be an offer by the Firm to be considered by the Company after its formation. Admittedly, one of the objects of the Company in the Memorandum of Association, t. e. 1(a) was `to acquire and take over as going concern the business now carried on under the name and style of Hospital Equipment Supply Company. Lahore, and all the assistant and with a view thereto enter into the agreement and to carry on the same into effect with or without modification.'
22. Article 54(b) of the Articles of Association confers power on the Directors `to take on lease, purchase or otherwise acquire for the Company any property, rights or privileges, which the Company is authorised to acquire at such price and generally on such terms and conditions as they think fit'. No meeting of the Directors was held up to 19th September 1969, and no decision taken as stated by the respondents in their objections supported by an affidavit filed in C.
0. 14-70 and referred to in para. 8 above. The Managing Director who was corresponding with the Corporation had no power on behalf of the Company to take any action or enter
(1) PLD 1973 Lab. 361 into any agreement. The subscribed capital of the new share-holders was more than what the partners of the Firm thought would bring after the take over of the Firm was complete. The offer by the Firm was, therefore, never accepted by the Company and hence no contract enforceable at law. Mere correspondence on the part of the Managing Director for permission to convert Firm into Company could not attract any legal consequence and no property of the Firm would vest in the Company.
23. In Newborne v. Sensolid (Great Britain) Ltd. (1), tinned ham was sold to S. Ltd. The contract was 'We have this day sold to you .. . (signed) Leopold Newborne (London) Ltd.'. The signature was typed and underneath was written 'Leopold Newborne'. The market fell and S. Ltd. Refused to take delivery.
When an action was brought it was found that Leopold Newborne (London) Ltd. Had not been incorported at the time of the contract and Leopold New Bprne tried to enforce the contract in his own name. Held, neither Leopoled Newborne (London) Ltd., nor Leopoled Newborne could enforce the contract, as 'This company was not in existence and. .. The signature on that document, and, indeed, the 'document itself. .. Is a complete nullity.'
24. Notwithstanding what has been said above, none of the partners can sue on their agreement or the Memorandum and Articles of Association. The following passage from Halsbury's Laws of England, Vol. 7, para. 118 (end part) page 72 (4th Edition) may be reproduced : - "Where the articles provide that the company on incorporation is to enter into an agreement for the purchase of property and for the appointment of the vendor as a Director, the vendor who becomes a share-holder cannot sue nor can any person claiming through the vendor sue or rely on the articles as constituting a contract . . . .
25. The respondents are also relying on clause 1(b) of the Memorandum of Association. While requesting the Corporation to reconsider their request for getting approval from the Bank for transfer of property from the Firm to the Company on 14th May 1970 (Exh. R/3), they referred to that provision as their mainstay. Clause 1(b) requires the Company to enter into an agreement for the purpose but admittedly that was never done. There is thus a clear violation of the Memorandum of Association with respect to the claim that the Company has already acquired the assets and liabilities of the Firm. It is, however, an established position of law that any act of the Company in violation of the Memorandum is ultra vires and so void and cannot even be ratified. Reference be made to Re Birkbeck Building Society (2). It was held in Sardar Gulab Singh v. Punjab Zamindara Bank Ltd. (3), that a resolution removing a Managing Director being in violation of Articles of Association and law was void and ineffective. In any case, the contents of a Memorandum of Association do not bind a third party even though named therein as held in Ram Kumar Pettdar v.
Sholapur Spinning & Weaving Factory (4). The Court further observed that a company cannot be bound by a contract entered into on its behalf before the company was formed and that it is for the company to consider after its formation whether it will enter into a contract or not. It was held in Wearne Brothers Ltd. (5), that a company cannot be bound by
(1) (1954) 1 Q B 45 (2) (1912) 2 Ch. 183
(3) AIR 1940 Lah. 243 (4) AIR 1934 Born. 427
(5) (1928) 7 Rang. 144 (P any contract made on its behalf before it comes into existence nor can it subsequent to its formation ratify such a contract.
26. The English Law on the point is also the same. There also if any person purports to make a contract on behalf of a company, or as trustee for it, e.g. a contract for the purchase of property by the company, before the formation of a company, the contract is not binding on the company even if the company takes the benefit of the contract. The reason is that before incorporation the company lacks capacity to make the contract and nothing can be done by an agent which cannot be done by the principal.
27. In re : English & Colonial Produce Co. Ltd. (1), Solicitors, on the instructions of persons who afterwards became directors of the company, prepared the memorandum and articles of association of the company and paid the registration fees. It was held that the company was not liable to pay their costs. Vaughan Williams L. J. Observed that: "There is no binding authority for the proposition that a company, because it has taken the benefit of work done under a contract entered into before the formation of the company, can be made liable in equity under that contract."
27. Conversely, a company cannot, after incorporation enforce a contract made in its name before incorporation. In Natal Land Co., Ltd. v.I Pauline Colliery Syndicate Ltd. (2), N company agreed with a person acting on behalf eat future company, P company, that N. Company would grant a mining lease to P company. P company discovered coal whereupon N company refused to grant the lease. The Court decided that P company could not compel N company to grant the lease. Further, such a contract cannot be ratified by the company after it is incorporated as the company was not a principal with contractual capacity at the time when the contract was made.
28. In Kelner v. Baxter (3), a company was being formed to buy an hotel from K. A contract was made 'on behalf' of the proposed company by A, B and C for the purchase of 2,900 of wine from K.
The company was formed, and the wine handed over to it and consumed, bat before payment was made the company went into liqudation. It was held that A, B and C were personally liable on the contract, and no ratification could release them from their liability. Of course, a company may, after incorporation, enter into a new contract to carry into effect a contract made on its behalf before incorporation.
29. In re : Northumberland Avenue Hotel Co. (4), a contract was made between W. And D., who was acting on behalf of an intended company, for the grant of a lease. The company, on its formation, entered on the land the subject of the lease and began to erect buildings on it but did not make any fresh agreement with respect to the lease. It was held that the agreement, being made before the formation of the company, was not binding on the company and the acts of the company were not evidence of a fresh agreement between W. And the company.
(1) (1906) 2 Ch. 435 (2) (1904)-A C 120
(3) (1866) LR2CP 174 (4) (1886) 33 Ch. I.) 16
30. In re : Nation Motor Coach Co. (1), it was held that it is not possible for a company to make itself a party to a pre-incorporation contract by adopting it. It was observed that adoption and ratification are one and the same thing. Further, a mere provision in the Company's Memorandum was considered insufficient to carry out a pre-incorporation contract as held in Meehado v. Porto Alegre Rail Co. (2). Even the acquiescence of the company was not material vide the judgment in Natal Co.'s case referred to in para. 27 above.
31. The law with regard to the companies is so stringent that any contract made by a registered company before it is entitled to commence business is provisional only, and is not binding on the company until it is entitled to commence business. If, therefore, goods are supplied to a company which never becomes entitled to commence business, it was held In re: 'Otto' Electrical Manufacturing Co. (1905) Ltd. (3), that the company was not liable to pay for them. The company also will not be entitled to enforce such a contract until it is entitled to commence business.,
32. The respondents produced voluminous evidence. They also occasionally referred to and relied on the other documents in various fields produced before the learned Company Judge to prove that the Company, after taking over the assets and the liabilities of the Firm, had not only shown the same in its books but also informed various other departments of the Government and other agencies about it. This contention is, as discussed above, of no avail to them without showing either that the Company had in fact got them transferred to it or the same stood transferred by operation of law. The Company has to by a positive act, consistently with its Memorandum and Articles of Association, acquire those assets after its incorporation. In Natal Co.'s case referred to in para 27 above and other instances referred to, the Court did not attach any importance to acts of the Company in pursuance to a pre-incorporation contract. Therefore, apart from the plea of estoppel to which we shall revert presently, the only view that can be taken by us is that Mirza Munawwar Ahmad either in his capacity as a Managing Director, without any authority from the Company, was dealing with the property of the Firm in anticipation of the permission that was being sought for throughout. Mirza Munawwar Ahmad never obtained any authority from the Company to take over that property. Neither the Board of Directors nor did the General House ever consider that arrangement, though Memorandum of Association did specifically provide that an agreement will be entered into to acquire the Firm as a going concern.
33. Further, according to the conditions 13 (xii) and (xiv) of the loan agreement the borrower, except with the permission of the Bank, could not change its partnership deed or constitution. The Firm also could not change its Management or allow its partners to dispose of their shares, or substantial part thereof, in the Firm. These conditions had a statutory force in view of section 32 of the Industrial Development Bank of Pakistan Ordinance, 1961 (Ordinance XXX of 1961). Section 32 reads as under :- "32.-(1) For the purpose of transacting any business under this Ordinance with any industrial concern, the Bank may impose such conditions as it may consider necessary or expedient for protecting its interest
(1) (1908) 2 Ch. 515 (2) (1874) LR9CP 503
(3) (1906) 2 Ch. 390 and securing that its guarantee under writing, loan subscription or other aid is put to such use by the industrial concern as the Bank has agreed to.
(2) Any condition imposed on an industrial concern under subsection (1) shall be valid and shall, notwithstanding anything contained in any other law for the time being in force, be enforceable age instance such concern."
' The Firm or the respondents, therefore, could not change these conditions unilaterally.
34. Under section 40 the Bank may in case of default and notwithstanding any proceedings taken by it before the District Judge for recovery of the amount, take over the Management of the concern and may sell or realise any property pledged, mortgaged, hypothecated or assigned by the concern to secure its liability to the Bank. The act of the Firm, if it really meant the transfer or sale of its property to the Company amounted to take the property out of the statutory right of Bank and, therefore, unlawful. The learned Company Judge relied more on the penalty provided by clause (xvii) of the agreement and observed that the parties could even in the absence of section 32 stipulates such a condition in the agreement. It is stated with great respect that the obvious conclusion in that case would have been that the existence of clause (xvii) side by side with section 32 may only give a choice of action to the Bank but could in no way empower the parties to defeat section 32.
35. The observation of the learned Company Judge that the transfer by the Firm is not invalidated due to lack of consent of the Bank runs counter to section 32 and the guaranteed rights of the Bank under sections 39, 40 and 41 of the Industrial Development Bank of Pakistan Ordinance. The other observation that there is no letter of the Bank disapproving the transfer is also uncalled for. Firstly, the Bank had never been asked about it as all correspondence with regard to this aspect of the case was directed to and ended with the Corporation. Not a single document was brought to our notice that the matter was dealt with by an authority of the Bank competent to take action. Again validity attaches to the transactions only if it is with the approval of the Bank and not that there is no disapproval.
36. Again, what was sought to be transferred included also an interest in the immovable property.
Sections 3 and 130 of the Transfer of Property Act and the case of Eastend Agencies v. Mafizuddin (1), were relied upon. It was held in the latter that transfer of a share in a partnership involving immovable property also required registration. According to section 17(2) read with section 49 of the Registration Act, no right in immovable property would pass without registration. The respondents had built their case on the doctrine of part performance as embodied in section 53-A of the Transfer of Property Act. It may be noted that this protection is available only in a case where there is an agreement in writing and signed by the parties as held in Muhammad Amin v. Mian Muhammad (2). As discussed above Exh. R. W. 7/1 could not be signed by the Company as it was not then. The Supreme Court in Ghulam Sakina v. Umar Bakhsh (3), held the same view. There is no agreement at all in this case
(1) PLD 1970 Dacca 155 (2) PLD 1970 B J 5
(3) PLD 1964 SC 456 and, therefore, there is no question of allowing any advantage under that doctrine.
37. The Company as well as the partners, knew or shall be deemed to be knowing, the legal as well as the factual position that in view of the restriction in the agreement with the Bank they could not transfer the assets of the Firm to the Company. They should also be knowing that the request sent on their behalf in anticipation of the formation of the Company and the agreement had been turned down on 2nd May 1968, by the Chairman of the Corporation. An effort had, however, been made all along by Mirza Munawwar Ahmad for the requisite permission. He might be making those efforts on behalf of the Firm or as a promoter but he certainly could not do so for the Company as there was no authority by the Directors or the General House about it. All the efforts which were being directed for the purpose with the Corporation could be the first step to allow the transfer of plot. The next step would have been to approach the Bank. Mirza Munawwar Ahmad never could cross even the first hurdle. No reference was, therefore, made to Bank for the purpose.
38. The next issue is whether the two appellants are estopped from challenging the transfer of the Firm's property to the Company. We have already found that there was no agreement between the Firm on the one hand and the Company on the other. We have also said that the document Exh. R.
W. 7/1 was at the most an agreement inter se the partners for them transfer of the assets of the Firm to the Company or it was an agreement of the Firm with promoters who too were the partners of the Firm. It has also been found by us that though one of the objects of the Company in the Memorandum of Association was to acquire and take over as going concern the business of the Firm and all of its assets and liabilities and to enter into an agreement and to carry on the same into effect yet no agreement was entered into and no steps were taken by the Board of Directors or the Company. We have also seen that the sole efforts on the part of N Mirza Munawwar Ahmad (which were not authorised by the Board of Directors or by any agreement or resolution of the Company) had failed on 2nd May 1968, by the order of Manager-I of the Corporation, for the first time.
39. The Bank has also produced its record and exhibited certain documents. Exh. 101-L/28, is a letter dated 27th January 1968, sent to the Bank under the signature of all the partners or their attorney admitting the loan and the mortgage/hypothecation of its assets. Exh. 101-L/27 is a certificate of the Bank based on its record that the Bank had no account of the Company with it and that all instalments were received in the account of the Firm. This is supported by the reminders issued by the Bank as they are available on the file of the Corporation. The last reminder is dated 23rd June 1969, at page 268. Even the correspondence of the Corporation is directed and addressed to the Firm. The last cheque dated 17th November 1969, was issued by the Firm to the Bank. There is no evidence on record that the bank even held out any assurance to the Firm or any direct approach was made to it.
40. The doctrine of Estoppel is enacted in section 115 of the Evidence Act. It reads as under :- "115. When one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and -such person or his representative, to deny the truth of that thing."
' The essential ingredients of estoppel are :- (0 there should be a declaration, act or omission made by A;
(ii) with the intention of causing or permitting another to believe a thing to be true so that he acts upon such belief ' It is in such a situation that the maker of the eclaration, act or omission his representative, is disallowed denying the truth of that declaration, at or omission. The question is who made the declaration_ this case; the Bank, the Firm or the Company? The facts given above show that the Bank never made any representation at all. In this view of the matte it is the Bank or the Corporation which might have been in a position to estop the Firm. The Company also never made any declaration or other act as there is no agreement, no resolution or decision of the Board o Directors or the Company. In fact the Company did not exist at the time the agreement was made.
The respondents have not proved that they p or the Firm acted on the representation, declaration or act of the Company or the Bank in that behalf. Any declaration or representation that was made originated with Mirza Munawwar Ahmad. It certainly was without authority of the Company and so void. It can, therefore, be said that the declaration or representation being made was either by the Firm or Mirza Munawwar Ahmad appellant. Can both of them bind the Bank or the Company ?
41. The Bank is a statutory corporation, a body corporate. Its rights and obligations are regulated by law. There are administrative levels at which various decisions have to be made. Normally, it 'is the Board which has to perform all the functions as given in section 27 of Ordinance XXXI of 1961. Under section 42 the Board may delegate its functions. The Bank had produced its documents showing that it never changed its position vis-a-vis the Firm. The onus thus lay on the respondents to prove otherwise. The Firm or the respondents have not produced or proved a single document showing that any competent authority of the Bank had at any time even held out an assurance for conversion or made any representation to them to change their position on its basis. The contention of the respondents was thus not sound.
42. A company is obliged to be managed in accordance with its Memorandum and Articles of Association. As said above, Article 54(b) of the Articles of Association confers all the powers to purchase a property in the Board. No power at all vests in the Managing Director. He is there only to carry out the decisions and orders of the Board or the Company. The Memorandum required that the Company will enter into an agreement with the Firm for the purpose of acquiring the going business of the Firm. No such agreement was entered into. No valuation of the assets and the liabilities was settled. Any act of allotment of shares in lieu of that transaction was, therefore, void.
Such an act cannot be validated even by the assent of the general meeting of the members as held in Towers v. African Tug Co. (1) and Ashbury Railway Carriage and Iro Co. v. Riche (2). A pre- incorporation agreement cannot even be modified
(1) (1904) 1 Ch. 558 (2) (1875) L R 7 H L 653 or ratified as observed in National Motor case referred to in para. 30 above. No estoppel would have arisen in such a case even if it had been proved that the conduct of the Company did attract application of estoppel. It was held In re : National Permanent etc. (1), that no debt arose if borrowing by a company was ultra vires of its powers. In East Anglian Railway Co. v Eastern Counties Rail Co. (2), the Court ruled that a company could not b restrained from doing ultra vires acts but that any contract entered into by the company beyond its powers was void and could not be enforced against it.
43. The principles of acquiescence and waiver have also been applied in this case. Under certain conditions abstention from speech, or from action may be deemed to constitute a representation, as much positive language or conduct, for the purpose of `estoppel', The terms `lying !By' `lathes', 'encouragement', 'standing by', 'acquiescence', or `waiver' are often used to denote estoppel. The rule is based on the principle that where a man has been silent when in conscience he ought to have spoken, he shall be debarred from speaking when conscience requires him to be silent.
Reference be made to Thomas Barclay v. Syed Hussain Ali (3). However, in case of waiver there is intentional relinquishment of a known right and a mere gratuitous indulgence shown, by not enforcing strictly one's legal rights, for even a long time, cannot give rise to inference as held in ihahenshah Shahalam Co-operative Society Ltd. v. House Building Finance Corporation (4).
44. There is also difference in respect of a conduct of a person who is under a statutory duty and the one who is not. It was held in the University of Peshawar v. Syed Bashir Ahmad (5), as under "It is pointed out that in view of this basic statutory provision, the respondent had to execute an agreement, and as none exists, the legal foundation for the respondent's service in the University is missing, and he cannot build up the structure of his rights without that foundation. The respondent in para. 22 of his concise statement in this Court, has accepted the position that the so-called appointments made in this case by the Syndicate were in contravention of the provisions of section 45 of the Act, and were, therefore, ineffective. If all the orders of the University relating to his appointment are illegal, obviously they will include also those which were passed in his favour.
Whether the University or the respondent is to blame for non-execution of this contract is immaterial in judging the matter. Without the fulfilment of the statutory requirement of a contract, the question of the respondent's confirmation after the expiry of the probation period did not arise ...."
' The Company which got its own shares purchased was not estopped from denying that ultra vires act as held in Barkat Ali v. Official Liquidator (6). In Minister of Fisheries v. Mathews (7), it was held that where a Minister granted a tenancy, which was ultra vires of his powers, he could not be estopped from denying that a tenancy exists. A Division Bench of Calcutta
(1) (1869) 5 Ch. App. 309 (2) (1851) 11 C B 775
(3) (1907) 6 C L J 601 (4) PLD 1972 Kar. 178
(5) PLD 1970 SC 402 (5) AIR 1943 Mad. 111
(7) (1950) 1 K B 148 High Court in Satibusan Mukherjee v. The Corporation of Calcutta (1), upheld a judgment of the Single Bench in the Corporation of Calcutta v. Satibhusan Mukherjee (2), that a Corporation cannot be estopped from nallenging what it did indirectly, placing itself under the disability of estoppel.
Where a building contractor resumed work on the recommendations of the Executive Engineer for higher rates of payment than those agreed upon, the rule of estoppel was found not applicable as the recommendation had ultimately been rejected after one year by the competent authority.
Reference be made to Ghulam Ali v. Pakistan (3). The same view was taken in Abdul Wahid Khan v.
Custodian (4), where the subordinate officers of the Custodian had acted without sanction or approval of the superior officers. Again a mere omission on the part of the Government to claim for sometime the levy of bazar dues by the Zamindar does not amount to waiver of rights as held in Ranshah Baqu v. The Government of the Central Provinces (5).
45. In Southend-on-Sea Corporation v. Hodgeson (6), the respondent purchased a piece of land on a statement by an officer of the local authority that the land had existing user right. Subsequently, a notice was served on the respondent to cease the user. It was held that estoppel could not be raised to hinder the exercise of a statutory discretion conferred on a public authority. Similarly, a lease by a local without the consent of the Ministry of Health was held ultra vires and so no estoppel applicable, in Rhyl Urban District Council v. Rhyl Amusements Ltd. (7). In Ikram Bus Service v. Board of Revenue (8), the petitioner was not estopped from challenging the grant of permits made at its instance, to a company yet to be formed, as there could be no estoppel against statute.
46. The net result of the above discussion is that the Bank as a statutory body cannot be estopped from doing its statutory duty. No estoppel would be attracted against the Company either for the ultra vires acts or for something done by someone on its behalf before its incorporation. The efforts on the part of Mirza Munawwar Ahmad, as a partner or even as a Director without the authority of the Company or the Board of Directors cannot estop the Company. In Rama Corporation Ltd. v.- Proved Tin & General Investments Ltd. (9), a Director entered into an agreement which could be done either by the Board or its delegate. No delegation was made in favour of the Director. It was held that the defendant company was not estopped from establishing that there was no authority in the Director to enter into that agreement on behalf of the company and that it was not liable.
47. The next question is can Mirza Munawwar Ahmad be estopped? He made a representation that the Firm had sold or transferred its assets and liabilities to the Company and that the partners of the Firm had accepted shares in lieu thereof. He may thus be estopped from saying that the Firm has not transferred its assets to the Company. However, the Company cannot be compelled to take over the assets and liabilities which had been
(1) AIR 1949 Cal. 20 (2) AIR 1947 Cal. 273
(3) PLD 1960 Kar. 581 (4) PLD 1962 Quetta 72
(5) AIR 1949 P C 140 (6) (1961) 2 A E R 46
(7) (1959) 1 A E R 257 (8) PLD 1963 SC 564
(9) 952) 1 A E R 554 agreed to be taken over and evaluated before the Company was born. To what effect and purpose can such an estoppel be? Can anyone compel any unwilling buyer to purchase something and that too at the price which has been quoted by the seller? Then what about the property? Can the person who made the representation be deprived of that property as a punishment for the misrepresentation he made? Thus despite the applicability and attraction of estoppel in such a case to Mirza Munawwar Ahmad, the property remains property of the Firm as the buyer never agreed to purchase it.
48. Again, a misrepresent enation on a question of law does not attract any estoppel. Munawwar Ahmad had sent the agreement and the other documents which would show that the vendee had never been in corporated till 30th June 1967. Further, the Memorandum and Articles of Association alongwith the certificate of incorporation of the Company which are on the record of the Corporation show for a fact that the agreement Exh. R. W. 7/1 was executed about a month prior to the incorporation of the Company. The Memorandum showed that the Company had to execute an agreement to take over the Firm as a going concern. The Articles showed that the power to purchase vested in the Board of Directors. The representation by Mirza Munawwar Ahmad was thus against law. Nobody should have been misled by that representation. In any case, the requests were turned down on all the three occasions they were made.
49. The learned counsel for the Bank had submitted during his arguments, that the learned Company Judge failed to consider his case in his judgment under appeal. Mr. Zamir Hussain, the learned counsel for the respondents conceded the position. He admitted that the Bank had the first charge on the property of the Company and the prayes at para (b) of its application should have been allowed. In his view, the request of the Bank could be rejected only if the learned Judge had come to the conclusion that the property in dispute belonged to the Firm and not the Company.
The impugned order rejecting the application of the Bank in the circumstances was uncalled for.
' In view of the above, we accept both the appeals and declare that as the property in dispute remained vested in the Firm, the Official Liquidator had no authority to deal with it. The Liquidator shall, therefore release the property to the Firm. Further the Bank shall be entitled to exercise its rights under the credit agreement or the law. The respondents shall also pay the costs.