1. GHULAM RASOOL K. SHAIKH, J.-This is an appeal under clause 10 of the Letters Patent against the judgment of the learned Single Judge sitting on the original side whereby 5 suits were dismissed with costs.
2. The appellants are five Co-operative Housing Societies, namely, Shahenshah Aurangzeb, Shahenshah Farukhsyr, Shehenshah Humayun, Shahenshah Shah Alam and Shehenshah Bahadur Shah as well as Hussain D'Silva Enterprise Ltd. Originally a company was formed by Messrs A. R.
3. Hussain and J. L. D'Silva and a scheme was prepared for the construction of flats. In order to raise the funds, Mr. Hafeez Ahmad. The then Managing Director of the House Building Finance Corporation (respondent) was contacted and he advised them to form Co-operative Housing Societies as it appeared that under the rules governing the grant of loans a limited company would not be eligible to obtain any credit from the Corporation. Consequently Hussain D'Silva Enterprise Ltd. Promoted 9 Co-operative Societies, out of them 5 are the present appellants. The remaining four Co-operative Societies were named after emperors Babar, Akbar, Jehangir and Shah Jahan. However, each of the 9 Co-operative Societies had 10 common members only, namely A. R. Hussain, J. L. D'Silva and their employees. The respondent was approached for the grant of loan. The respondent agreed by letter Exh. 6/1 dated 21-9-62 to advance rupees ten lass by way of loan to each of the co-operative societies, but subsequently by letter Exh. 6/2 dated 14th May 1963 the amount was reduced to Rs. 8 lacs. The main conditions for the grant of loan were as under : "(i) that each society shall itself make an initial investment of Rs. 1,05,477.00 excluding the cost of land, in its housing project ;
(ii) that the loan to each society shall be disbursed in 10 instalments at agreed intervals of time ;
(iii) that the first instalment of the loan, in the sum of Re. 2,65,000.00 would be paid on production of a bank guarantee therefor and interest on this amount at 6-- % per annum at the time of the execution of the mortgage deed, the said guarantee having been agreed to be released after payment of the third instalment of the loan by the defendants to each society ;
(iv) that the second instalment of the loan, to be in the sum of Rs. 1,45,000.00 would be paid on production of bank guarantee therefor, as also for interest thereon at 6-- % per annum on production of the receipt of the mortgage deed issued by the registration office, this guarantee also having been agreed to be released after payment of the third instal--ment of the loan by the defendants ;
(v) the remaining eight instalments fixed at Rs. 50,000.00 each, to be paid by the defendant at various stages of construction of the flats ; and
(vi) the repayment of the loans was spread over 15 years In instalments of Rs. 8,884.00 per month.
4. A. R. Hussain and J. L. D'Silva then purchased In the name of their limited company, Karachi Talkies Ltd. 9 plots of land situated in Garden Quarters from Eduljl Dinshaw Ltd. At the rate of Rs. 50 per sq.
5. Yd. And then sold these plots to 9 Co-operative House Building Societies at the rate of Rs. 60 per sq.
6. Yd. There--after each of the plots of land was mortgaged with the respondent under registered mortgage deed Exh. 7/2 (Aurangzeb) 7/18 (Farrukhsyr) 7/22 (Humayun) 7/19 (Shah Alam) 7/21 (Bahadur Shah). Each of the mortgage deed contained the following provisions : "(i) that the loan secured by the mortgage deed would be paid by the mortgagor with Interest at 61 % per annum in monthly instalments of Rs. 6,884.00.
(ii) that construction of the flats would be commenced within one month after the registration of the mortgage deed and would be completed, according to the plans, designs and specifications approved by the defendants, within three months from the date the last Instalment of the loan was drawn by the mortgagor :
(iii) that the loan shall be used only for the construction of fiats for which the particular loan was granted and that the construction shall be completed within the period mentioned above ; and
(iv) that in the event of failure on the mortgagor's part to repay the loan in accordance with the provisions of the mortgage deed, the defendants shall have the power to take possession of the mortgaged property to let or demise, or to sell or dispose of the said property or any part thereof, without the aid and intervention of the Court, and without prejudice to the powers reserved to the defendants under the House Building Finance Corporation Act, 1952."
7. Each of the five Societies received Rs. 4,10,000.00 from the respondent as under : The failure of the appellants to comply with the terms and conditions regulating the loan which was advanced to the appellant societies gave rise to a dispute between the parties. 'The external auditors of the respondent made inquiries and submitted a report Exh. 7/23 dated 24-2-1964 referring to the breach committed by the sponsors of the societies. After the exchange of correspondence the respondent gave notices Exhs. 8/25 to 8/39 dated 7-9-1967 recalling the loans under section 29 of the House Building Finance Corporation. Consequently suits were filed.
8. The suits resisted by the respondent and several pleas had been taken. The various allegations made by the appellants were denied. It was pleaded that since the appellants diverted the loans to the societies other than those for which the loans had been advanced and breach was committed with respect to the terms and conditions on which the loans were granted, the recalling of loans was fully justified.
9. On behalf of the appellants four witnesses, namely, J. L. D'Silva, S. M. Alam, M. O. Abbasi and Salahuddin Khan were examined. On the other hand Ubedullah Abbasi was examined on behalf of the respondents. Apart from this both the parties produced several documents. The learned Single Judge, on the assessm ent of the evidence and the consideration of various documents decided all the issues against the appellants and dismissed the suits. Consequently the present appeals had been filed.
10. It is not necessary to set out the details of the evidence of the various witnesses and the documents produced by the parties but reference to them would be made while taking up the contentions which have been raised before us.
11. It may, however, be pointed out that according to letter Exh. 6/1 dated 21-9-62 the cost of land had to be paid out of the loan which was to be received by the appellants from the respondent- corporation but this was modified by letters Exh. 6/2 dated 4-5-63 whereby the to cost of land was excluded and the appellants were required to purchase the land out of their funds as per condition No. 1. It was also one of the conditions of the loan that the amount of loan advanced to each of the Society was to be spent over the flats to be constructed by it and neither the funds of one society could be diverted to other society nor those funds could be diverted to some other purpose. But it was found by the learned Single Judge on the basis of the evidence of J. L. D'Silva who was examined on behalf of the appellants as their witness as well as conceded before us by the learned counsel for the appellants that the appellants had not purchased the land in terms of the loan till a portion of the loan was actually received by the appellants and the land was purchased with that money, and furthermore, the construction of the flats has not been commenced till today by any of the societies except Humayun with regard to which the construction started in 1964 but was soon stopped and later it was undertaken in 1967 after the Institution of the present suit as well as the loans were diverted to purposes other than for which the loans were granted. Thin it is an admitted position that the appellants had violated the terms and conditions regulating the grant of loan to them. With this background we now proceed to examine the merits of the controversy.
12. The learned counsel for the appellants urged before us that although the terms and conditions of the loan were not complied with by the appellants yet there was novation of the contract by letter Exh. 6/2 dated 13-9-1965 and in the alternative the Corporation had waived the breaches which had been committed by the subsequent correspondence which followed. Taking up the plea in respect of the novation of the contract since reliance had been mainly placed upon Exh. 6/21 it may be reproduced hers to appreciate the contention. It reads as under :--- "House Building Finance Corporation, Zonal Office.
13. 21, Muslimabad.
14. Ref : No. BBFC/16111, Karachi, 13th September 1965: Dear Sirs, The Board of Directors in the meeting held on 25th and 26th August 1965 has considered the question of investment of amounts of instalments of loan already advanced to your societies. It has been decided by the Board that the Corporation might release the remaining instalments of loan to Shahenshah Shah Jehan provided inter guarantees in the form enclosed is given by all the Nine Co-operative Societies supported by the original or duly attested copies of the amended Bye- laws authorizing the Societies to give inter guarantees and resolution passed by the General body of all the Societies authorizing you to execute the inter guarantees and Bond of Indemnity on behalf of the Societies in favour of the Corporation. You are, therefore, advised to please take further necessary action in the matter. The remaining instalment of loan will be released to Shahehenshah Jehangir Co-operative House Building Society Limited after the amount to be advanced to Shahenshah Shahjehan is utilised in the construction of the former and duly certified by our Engineer. Similar procedure will be adopted in respect of the remaining societies.
15. It has also been decided by the Board that the rates of construction per sq. Ft. Which were enforced at the tuna of sanction of the loans to the 9 Co-operative Societies shall not be altered to their advantage as the societies were responsible for the delay in completing their construction as per terms of the Mortgage Deeds.
16. Yours faithfully (Sd.) Salahuddin Khan, General Manager."
17. The learned Single Judge clearly came to the conclusion that this letter did not amount to novation of contract and we also share the same view. By no stretch of imagination this letter can be treated to be novation of the previous contract and substitution by another contract. What the Corporation wanted was that all the societies should jointly execute another guarantee and bonds of indemnity for the release of the remaining instalments of loan to Shahenshah Shah Jehan Society. It nowhere conveys the sense as was convassed before the learned Single Judge that the entire loan granted to the various societies had to be paid to them for the construction of fiats of Shah Jehan Society. The learned Single Judge gave elaborate reasons in dispelling this contention with which we fully agree. Even the learned counsel for the appellants half--heartedly pressed this point before us and finding that there was no substance in the plea raised by him he switched on to the plea of waiver.
18. The learned Single Judge also came to the conclusion after discussing the evidence that Exh. 6/21 was written by Mr. 5alahuddin, General Manager of the Corporation without the authority of the Board of Directors or the Managing Director of the Corporation. The evidence of Salahuddin who alleged that he had written the letter at the instance of Mr. Raga Ali, Managing Director was disbelieved. We too share the same view. Briefly stating our reasons it may by pointed out that admittedly Mr. Salahuddin himself had no authority to write the letter and, therefore, he stated that he had written the letter at the instance of Mr. Raza Ali but this was very unlikely as admittedly the relations between Mr. Raza Ali and the sponsors of the societies were not cordial and he was not prepared to accommo--date them. He, therefore, could not have authorised Mr. Salahuddin to write the letter. Furthermore Mfr. Salahuddin when be left the service of the Corporation was employed by Mr. J. L. D'Silva and his partner A. R. Hussain who were the sponsors of the societies.
19. Pursuing further it would be clear tint this letter is not consistent with the resolution which was passed by the Corporation. The resolution is dated 25th/27th August 1965. The relevant portion of the resolution reads as under : "(a) After obtaining inter guarantees enforceable at Law from all the Nine Co-operative Societies and after proper satisfaction of the Managing Director regarding the title of the Societies to the land mortgaged with the Corporation by metes and bounds: the societies that have fulfilled their conditions be given instalments due to them according to the progress of construction, as admissible under the rules and at such stages as the Managing Director may deem fit.
(b) The aforesaid inter guarantees required to be furnished by all the 9 Societies shall vouchsafe the interest of the Corporation so that the 9 Co-operative Societies shall he made jointly and severally responsible to fulfil their contractual obligations and indemnify the Corporation against any loss that may be incurred by the Corporation due tea tire failure of any of the Societies in fulfilling the terms and conditions of the mortagage deeds executed by them.-
(c) The rates of construction per sq. Ft. Which were enforced at the time of sanction of the loans to the 9 Co-operative Societies shall not be altered to their advantage as the Societies were responsible for the delay in completing their construction as per terms of the mortgaged deeds."
20. Thus it is clear from this resolution that what was intended was that those 9 societies which had fulfilled their conditions were to be given instalments due to them according to the progress of the construction. Inter guarantees were required to be furnished for the loan which was to be advanced to the 9 Co-- operative Societies to safeguard the interest of the Corporation after fulfilling the terms and conditions of the loan. In this resolution there is absolutely no reference to any particular society much less Shahenshah Shahjehan Society which was referred to in the letter Exh. 6/21, nor there is any reference that the loan advanced to Shahenshah Shahjehan Society may be utilised for the construction of Jehangir Society. Thus it clearly appears to us that this was a spurious letter obtained by the spensors of the society from Mr. Salahuddin who was on friendly terms with them and was subsequently employed by them after he had left the service of the Corporation and, therefore, it is not binding on the corporation.
21. In order to meet this it was urged by the learned counsel for the appellants that although under para. 12 of the plaint it was specifically shown that the aforesaid letter was received from the Corporation but the genuineness or the authority of this letter was not disputed in the written statement and in this connection reference was made to para. 17 of the written statement. This contention was successfully refuted by the learned counsel for the respondent by showing that neither this letter was produced along with the plaint nor its contents were disclosed but the reliance was mainly placed upon the resolution and this letter was referred to for the purpose of reference only, as was clear from para. 12 of the plaint.
22. The learned Single Judge also held the view that the letter required registration but in view of the conclusion which we have reached in respect of this letter it is unnecessary to go into this question.
23. Taking tip the plea of waiver it was urged by the learned counsel far the appellants that the breach of the terms and conditions of the loan which was committed was within the knowledge as well as with the connivance and approval of the Corporation. It was, further urged that no action was taken by the Corporation at any time and, therefore, the violation of the terms and conditions of the loan was waived. For this the learned counsel placed reliance upon the correspondence which passed between the parties. We are afraid we are unable ice entertain this plea as it suffers from serious infirmities. It is plain enough that this plea was not raised at the time of the trial of the suit as neither any issue was framed nor this point was agitated during the course of arguments before the learned Single fudge. The issue was confined mainly to the question of the novation of the contract. Consequently the plea must be deemed to have been abandoned. Besides, it is a mixed question of fact and law and, therefore, it cannot be allowed to be agitated at this stage. Even we have perused the correspondence and we are unable to agree with the learned counsel that the Corporation at any time waived their right to rescind the contract and recall the loan on the basis of the breaches which had been committed. Not a single letter or the resolution speaks of the condonation of the misuse of the funds. The Corporation had all along resisted the diversion of the loan to other projects or purposes. It is amusing to find that not only the sponsors of the societies did not utilise the amount over the construction of the flats for which the loans were granted but the loans were diverted to their own private business which fact was never known to the Corporation. Consequently there could be no question of any waiver. It was observed by the Supreme Court of Pakistan in the case of Ghulam Rasul v. Chief Administrator, Auqafs (PLD 1971 SC 376) that to raise an estoppel there must be something in the nature of a representation by the party against whom It is pleaded as a result of which the party to whom it is made has been induced to take a particular course of conduct. In the present case no such representation made by the Corporation is visible from the material on record. Consequently the principle of estoppel cannot be extended to this case. Indeed the Corporation took a long time to enforce the penalty clause but this was with a view to safeguard its own interest and was merely to consider the ways and means of helping the appellants to retrieve the position. So it was a case of more indulgence shown to the appellants rather than any waiver. In this connection we would like to reproduce the pertinent observation made by the Supreme Court in the case of Ocean Industries Ltd. v. Industrial Development Bank (PLD 1966 SC 738) and it reads as under:- "To establish the case of waiver or estoppel it was necessary to clearly show that the party alleged to have waived its rights had acted in such a manner as to lead to the other side to believe that such rights will not be enforced or will be kept in suspense or abeyance for some particular time.
24. The `gist of the equity', as observed by Viscount Simonds in the case of Tool Metal Co. v. Tungston Electric Co. (1955) 2 A E R 757 `lies in the fact that one party has by his conduct led the other to alter his position.' Yet he cautioned that he would not have it supposed that in commercial transactions "mere acts of indulgence are apt to create rights". A mere gratuitous indulgence shown by not enforcing strictly one's legal rights for a brief period cannot, in our view, give rise to the inference that the rights have been abandoned for all times.'
25. This observation fully applies to the present case. No plea of waiver can be spelled out from the correspondence which was relied upon by the learned counsel. Mere acts of indulgence in commercial agreements do not constitute estoppel or waiver.
26. It was further pointed out by the learned counsel for the respondent that there were no assets with the appellants as only two buildings had been completed in 1966 and, therefore, no step was taken to recover the amount. The learned counsel for the appellants failed to meet this argument.
27. In the end the learned counsel for the respondent urged that the suit was not maintainable for declaration which was sought ire view of the provisions of section 42 of the Specific Relief Act. Can the other hand, the learned counsel for the appellants pleaded that since this plea was not raised at the trial of the snit it could not be agitated at this stage. It is unnecessary to go into this question in view of the conclusion which we have reached on the merits of the case. However, we wish to point out that the conduct of the petitioners is not beyond reproach which disentitles them to any relief. Not only they diverted the loans to some purpose unconnected with the construction of the flats but they have paid no instalment although they had received between 50 and 60 lacs of rupees since the year 1962 and were required to repay the amount by yearly instalments.
28. In the circumstances, we find no force in these appeals and, therefore, the same are dismissed with costs.
29. KHUDA BAKHSH MARRI, J.-I agree.
30. K. B. A.
31. "1.Aurangzeb Rs.2,65,000on27-5-1963 Rs.1,45,000on27-5-1963 2.FarukhsyrRs.2,65,000on27-5-1963 Rs.1,45,000on27-5-1963 3.HumayunRs.95,000on6-10-1962 Rs.1,70,000on17-5-1963 4.Shah AlamRs. 2,65.000on27-5-1963 Rs.1,45,000on27-5-1963 5.Bahadur ShahRs. 95,000on 6-10-1962 Rs.1,70,000on 15-5-1963 Rs.1,45,000on 15-5-1963"