' ABAID ULLAH KHAN, J.--For the determination of this appeal, the pertinent facts which are no longer in dispute are quite simple. The appellant, Messrs S.M. Trading Company, Faisalabad, was the selling agent of the Lyallpur Cotton Mills, Faisalabad, which, as a result of eruption of hostilities between Pakistan and India in 1965, was treated as enemy property and whose management was taken over by the Government through the Enemy Property Management Board. In 1969-70 the appellant lifted some stock of yarn manufactured by the Lyallpur Cotton Mills. The cheques which the appellant issued in favour of the Mills for payment of price of the yarn were dishonoured. An amount of Rs,5,14,903.88 as arrears of price of yarn was outstanding against the appellant.
2. On the 15th May, 1972, by means of a sale-deed the Government of Pakistan sold the land, buildings, plant and, machinery of the Lyallpur Cotton Mills to Fauji Foundation for Rs,260.21 lacs.
The mechanism for evaluating the current assets and liabilities of the Mills, agreed upon between the Government and Fauji Foundation, is set out in para 2 of letter No,3(28)CEPI/70 issued on the 16th May, 1972, by the Government in the Communication Division to the Managing Director of Fauji Foundation, which is reproduced as under:- "2. It is further agreed as follows:
(A) That representatives of the Enemy Property Board and the Vendees shall draw up a provisional statement showing the current assets and liabilities of the Mill and work out the value of the net current assets of the Mill as on the date of transfer, after taking into consideration and working out the following by mutual consultations:- ' Determination of what shall be the correct book value of stocks in trade and stores as per accepted accounting principles. Offsets against the correct book value of stocks and stores. Bad and doubtful debts. All liabilities accrued up to the date of the transfer including all dues payable to employees, e.g. , pay for accumulated earned leave, provident fund, accrued gratuity, pension, workers participation fund, social security contribution and any other statutory requirements.
(v) Any other liabilities for goods, expense and finance.
(vi) The Committee shall complete their evaluation of stocks and stores, latest by 31st May, 1972.
(B) That a joint team of Auditors M/s.A.F.Ferguson & Co. And Riaz Ahmad & Co. Will carry out a complete audit from the date of last audited Balance Sheet till the date of take over.
(C) That on the date of transfer, all employees who have attained the age of superannuation may be paid off and discharged from service."
3. Fauji Foundation was to take over and pay for separately the 2898 Monthly Law Digest [Vol. Vnet current assets as is apparent from sub-para (3) of para 1 of the letter which runs as under,- "(3) You shall take over and pay for separately the net current assets (i,e,, the difference between the current assets and the current liabilities) as on the date of transfer at a valuation mutually agreed to by the joint team of representatives of the Custodian and the Fauji Foundation. This amount shall be payable after the date of completion of audit, in a manner to be mutually agreed upon.)"
4.. After taking over Mills, Fauji Foundation came across papers indicating the appellant's outstanding debt to Lyallpur Cotton Mills. Considering itself to be successor of Lyallpur Cotton Mills it brought suit under the name of Fauji Lyallpur Cotton Mills, respondent 1, to recover Rs,5,14,903.88 plus interest from the appellant.
5. Respondent 1 impleaded the Eastern Merchantial Bank Limited, Faisalabad, respondent 2, as defendant in the suit thinking it to be a guarantor of the appellant for payment of debt.
Nevertheless, it is now accepted by the contesting parties (appellant and respondent 1) that the Bank is in no way liable for the appellant's debt.
6. The appellant resisted the suit, inter alia, on the ground that respondent 1. Could not sue in the name of the Mills and that it was not competent nor authorised to collect the debt in dispute. The learned trial Court of the Civil Judge, Faisalabad, which decreed the suit by its judgment dated 'the 21st June, 1979, was not favourably impressed by the appellant's objection in this behalf. Before this Court the learned counsel for the appellant mainly banked upon the argument that respondent 1, and for that matter even Fauji Foundation which had purchased the Lyallpur Cotton Mills, had not been transferred and had not acquired the right to collect the outstanding debt in dispute which the appellant owed to the Lyallpur Cotton Mills. The learned counsel for the parties were at one on the point that the transfer of the current assets and liabilities, including the debt in question, was to be regulated by paras 1(3) and 2 of the letter of the Government reproduced above. After consulting the relevant papers and making the desired search the learned counsel for respondent 1 informed this Court that the debt in dispute was not included in the statement which had been drawn up for the purpose of transfer of current net assets of the Mills nor did respondent 1 make any payment in respect thereof. The learned counsel had to concede that the debt in the circumstances could not be said to have been validly transferred to respondent 1 which consequently could not legally recover it from the appellant through legal action or otherwise. In such a situation the suit brought for the recovery of the amount in dispute was not maintainable.
The appeal has, therefore, to be accepted, the judgment and decree of the learned trial Court are set aside and respondent l's suit is dismissed leaving the parties to bear their own costs throughout.