' SALEEM AKHTAR, J.---These appeals with the leave of the Court arise out of the consolidated judgment of a Division Bench of the High Court of Sindh whereby five appeals filed by the respondent Societies against the grant of compound interest by the learned Single Judge were allowed. The other five connected appeals were filed by the appellant against the refusal of the learned Single Judge to grant pendente lite interest. Another five connected appeals were filed by Habib Bank Limited against the order granting compound interest against it and also disputing the liability which according to it had ceased with effect from 17-6-1977 when it tendered amounts due to the House Building Finance Corporation. These High Court Appeals were filed against the order of a learned Single Judge. The appeals filed by the respondent Societies and Habib Bank against the grant of compound interest were allowed while the appellant's appeals were dismissed. These appeals arise out of the following facts:--
2. Five Societies which are respondents separately in each appeal were sponsored by respondents Ashfaque Hussain and De Silva under the Cooperative Societies Act, 1925, for construction of multi- storied building for each Society on various portions of Plot No,130, Garden West Quarters at Karachi. To each of these Societies the appellants granted a loan of Rs,8,00,000 under the provisions of the House Building Finance Corporation Act, 1952, and the Rules and Regulations made thereunder. The first respondent in each appeal is the Society which borrowed the money and secured the loan with a registered mortgage deed dated 27-5-1963. While Ashfaque Hussain and the De Silva guaranteed the repayment of the loan by executing a written bond of indemnity dated 16-5-1963. The Standard Bank which was succeeded by Habib Bank Limited had secured the loan by a bank guarantee dated 27-4-1964. The first two instalments of the loans amounting to Rs,4,10,000 were paid to each respondent Society upto the year 1963 for the purpose of construction of the proposed buildings. According to the appellant the amount was diverted to other uses in violation of the terms and conditions upon which the loans were granted. The appellant, therefore, by a notice dated 7-6-1967 recalled the loan and demanded the payment of the loan advanced till then and interest upto 31st May, 1967. The Societies and their sponsors challenged the action of the appellant and filed suits in the High Court. By order, dated 27-6-1967 the Societies were allowed to deposit by cheque in each case the amount of demand duly certified by the appellant and on that basis an interim stay against the recovery was confirmed. The suits filed by the Societies were ultimately dismissed by the learned Single Judge on 16-6-1969. The Letters Patent Appeals and Petitions for Special Leave to Appeal before the Supreme Court filed by the borrower Societies failed and the action taken by the appellant was held to be proper and valid.
3. On the conclusion of the aforesaid proceedings in suits filed by the Societies by an order dated 27-3-1972 the learned Single Judge allowed the application of the appellant to withdraw five cheques from the Court in terms of the order for encashment in satisfaction of its dues. The appellant filed petition under section 30 of the House Building Finance Corporation Act, 1952, for recovery of the dues on account of loans advanced to the Societies. The respondent Societies objected that the appellant was not entitled to claim compound interest as under the mortgage deed the appellant could recover only simple interest and, therefore, after the cheques had been encashed the appellant should release the mortgage deeds which were in its possession.
4. It seems that there was no controversy on the question of payment of the amount as demanded through the notice issued by the appellant. On 25-5-1973 the bank pleaded to the Court for discharge and return of guarantee and submitted four pay orders towards further interest upto 31- 5-1973. The learned Single Judge framed the issues in all the cases including an additional issue in the case relating to Humayun Society. The learned Single Judge held that the appellant was entitled to compound interest but the claim for pendente lite interest was rejected. The respondents filed appeals which were disposed of in the aforestated manner.
5. Civil Appeals Nos. 27-K of 1986 to 31-K of 1986 relate to the claim of compound interest; Civil Appeals Nos.32-K of 1986 to 36-K of 1986 relate to the claim for pendente lite interest and Civil Appeals Nos.37-K of 1986 to 41-K of 1986 relate to claim for further interest.
6. The Division Bench while disposing of the appeals observed that the principal document governing the relationship of the parties was the letter of sanction granting the loan which made oblique reference to Regulation No,11 which was directory in nature and was not incorporated in the contract. It was further observed that the appellant had waived the applicability of Regulation No,11.
Before dealing with the contentions of the learned counsel for the parties it would be proper to mention that the appellant was incorporated and established by the Federal Government by a Central Act known as House Building Finance Corporation Act, 1952 (XVIII of 1952). Under section 42 of the Act the Board of Directors are empowered with the previous sanction of the Central Government to make regulations with regard to the conditions subject to which the Corporation may grant loans. According to the House Building Finance Corporation Loan Regulations, 1954, was made which prescribed conditions for the grant of loan. Regulations Nos.10 and 11 are as follows:--
(10) "The repayment of loan and interest thereon in equal monthly instalments shall commence from the first day of the third following month after the receipt of the last instalment by the borrower. In case the borrower has declined to receive or has otherwise not received the entire amount of the loan sanctioned by the Corporation the repayment of the loan shall commence from the first day of the fourth following month after the receipt of the last instalment by the borrower. The total amount of the loan and interest thereon shall be recovered within a period to be determined by the Corporation not exceeding 20 years commencing from the date on which the first instalment of the loan is paid."
(11) The interest shall be payable by the borrowers from the date the payment is made by the Corporation and will be recoverable by monthly rest."
This Regulation No,11 was substituted for the earlier Regulation No,11 in the year 1957. However, for the present appeals Regulation reproduced aforestated is relevant.
7. The main contention of the learned Advocate Supreme Court for the appellant is that it was entitled to compound interest and other interests claimed by it. The admitted position is that the loan was sanctioned by a document called 'letter of sanction' in which it was provided that the loan will carry an interest at the rate of 6% per annum and was recoverable with interest at the same rate. This document does not mention payment of interest with monthly rest. It further provided that the second instalment will be paid on execution of a mortgage with the Corporation the property offered as security for repayment of the loan. The mortgage was to be executed on the Corporation's Mortgage Deed Form which was available to the borrowers. Clause (1) of the Mortgage Deed executed by the respondent's Societies provided that the loan was payable in monthly instalments with interest of the rate of 6-1/4% payable from the date of payment by the Corporation. The interest on instalments as well as on loan after the entire amount had been paid was to be charged at the rate of 6-1/4% per annum. Clause 11(a) provided that the respondent will from time to time and at all times comply with the rules framed by the Central Government under the House Building Finance Corporation Act, 1952 and the Regulations of the Corporation for the time being enforce and applicable to the loan granted to it. It would, thus, be clear that the Regulations were incorporated in the Mortgage Deed and were made applicable to the loan. The letter of sanction was for granting the loan on terms and conditions mentioned therein which provided the execution of Mortgage Deed as a security for repayment of the loan. Thus, the letter of sanction and Mortgage Deed formed the principal documents governing the rights and liabilities of the parties in respect of the loan. In the Mortgage Deed the Rules and Regulations of the appellant were made applicable as terms and conditions of the loan. Thus, by reference the Regulations were incorporated as a part of the agreement governing the terms and conditions of the loan.
Incorporation of a rule, regulation or bye-law in a contract by reference is not uncommon in commercial documents. The contracting parties can agree to abide by any rule or regulation by incorporating it in the contract specifically or by reference to it. Once it is so incorporated, it becomes a part of the Contract. It may be noted that such incorporation should be clear and unambiguous.
8. In Amir Abdullah Khan v. Ch. Muhammad Ataullah Khan PLD 1990 SC 972 a pre-emption claim was sought to be enforced by reference to the registered sale-deed and it was held that:-- "Such a reference to the registered deed had the effect of incorporation of the whole of the document in the plaint. There being no conditions, no words of qualification or limitation governing such incorporation by reference, the incorporation was of the entire contents thereof. Sir Roland Burrows K.C. On page 49 of `Interpretation of Documents' (Second edition) mentions this feature in the following words:-- `The contents or part of the contents of another document may be incorporated by reference, and in such case the other document, so far as it is incorporated, is read with the document under consideration'."
It is well-settled that by reference to a document, rule, regulation or bye-law the same can be incorporated in any deed or contract and by virtue of such incorporation it forms part of the deed.
In Aktieselskabct Ocean v. Harding (B) & Sons Limited, (1928) 2KB 371 at page 393, Russell, J.
Observed:-- "The incorporation of the terms is merely a shorthand method of expressing and creating rights and liabilities as between B and C by reference to the language of some other document. The document which contains the reference is to be read as if the wording of the document referred to were repeated therein so as to create rights and liabilities as between the parties thereto."
' In this regard reference can also be made to Province of Pakistan v. Muhammad Hosain Mia, PLD 1965 SC 1, where it was observed that if a transaction is entered into by more than one document both the documents should be read together and their combined effect considered.
9. While interpreting the terms of contract the Court has to first ascertain the intention of the parties. In the matter of Reference by the C President of Pakistan under Article 162 of the Constitution of Islamic Republic of Pakistan PLD 1957 SC 219 it was held:-- "One general rule that emerges, and it is an ancient rule, from discussions on the subject is that in the interpretation of written instruments, whether they are Constitutional charters or ordinary statutes or other documents, the first object of the Court is to discover the intention of the author and that such intention is to be gathered from the words used in the statute or document."
10. The contract has to be construed strictly and literally without deviating or implying anything which is not supported by the intention of the parties and the language of the document. It is a sultry principle of consideration of document that nothing can be implied in a .Contract which is inconsistent with its expressed terms. In West Pakistan Industrial Development Corporation, Karachi, v. Aziz Qureshi PLD 1973 SC 222, it was held that a stipulation not expressed in a written contract should not be implied merely because the Court thinks that it would be a reasonable thing to imply it. Such an implication can be made only on consideration of the terms of the contract in a reasonable manner and if the Court is satisfied that it should necessarily have been intended by the parties when the contract was made. In documents of contracts, where terms and conditions have been exhaustively specified dealing with all possible future and foreseeable contingencies but if certain fundamental contingencies have been left out which necessarily in the context, facts and circumstances of the case should have been incorporated and can be spelt out, then the Court may imply such conditions. Reference can be made to Paragadas Mathuredes v.
Jeewan Lal (1928) Ltd. PLD 1948 PC 162.
11. The main purpose of construction of terms of a written agreement is to find out the intention of the parties to the agreement. By looking to the words used one has to construe the intention which has persuaded the parties to enter into the agreement. Chitty on Contract, 26th Edition, Vol. I, page 514, observed as follows:-- "The cardinal presumption is that the parties have intended what they have in fact said, so that their words must be construed as they stand. That is to say, the meaning of the document or of a particular part of it is to be sought in the document itself. One must consider the meaning of the words used, not what one may guess to be the intention of the parties. However, no contract is made in a vacuum. In construing the documents, the Court may resolve an ambiguity by looking at its commercial purpose and the factual background against which it was made.
' Further, the law does not approach the task of construction with too nice a concentration on individual words. 'The common and universal principle ought to be applied; namely; that (agreement) ought to receive that construction which its language will admit, and which will best effectuate the intention of the parties, to be collected from the whole of the agreement, and that greater regard is to be had to the clear intention of the parties than to any particular words which they may have used in the expression of their intent."
' Odgers in the Construction of Deeds and Statutes, third edition, at page 23 said: "In other words the intention of the parties must be discovered, if possible, from the expressions they have used."
' He has relied on various authorities and quoted Pearson, J. In Helbers v. Parkinson (1983) 25 Ch. D200, who observed:-- "I conceive that all deeds are to be construed not only strictly according to their words, but so far as possible, without infringing any rule of law, in such a way as to effectuate the intention of the parties.
' Odgers further observed at page 26: "Ordinarily, parties use apt words to express their intention; but often they do not. The cardinal rule again is that clear and unambiguous words prevail over any intention, but if the words used are not clear and unambiguous the intention will prevail. We have seen that the most essential thing is to collect the intention of the parties from the expression they have used in the deed itself."
In construing the deeds, the words are to be taken in their literal, plain and ordinary meaning.
Where the plain and ordinary meaning may lead to inconsistency with other expressions used in the document or absurdity then such plain and ordinary meaning can be modified to avoid absurdity and inconsistency because the law favours to save a deed, if possibile. In order to G avoid inconsistency and absurdity resulting from plain and ordinary construction the Courts are always anxious to adopt a reasonable construction by which the intention of the parties can be spelt out. In Perrin v. Morgan (1943) AC 399 at page 421 Lord Romer while construing a will observed:-- "Rules of construction should be regarded as a dictionary by which all parties including the Court are bound, but the Court should not have recourse to it to construe a word or phrase until it has ascertained from the language of the whole will read in the light of the circumstances whether or not the testator has indicated his intention of using the word or phrase otherwise than in its dictionary meaning."
Thus, it is clear that the intention of the parties has to be collected from the document as a whole and every part of the deed should be examined and read together. According to Odgers:-- "The intention must be inferred not from the force of a single expression, if it militates against the collected general intention, but at the same time, as it is the rule that 'ordinary words ought to be given their plain and ordinary meaning', the Court cannot disregard that meaning or deviate from the force of any particular expression unless it finds from other parts of the deed some expression which shows that the author could not have had the intention which the expression used and in its literal form would imply."
12. In the present case mortgage deed incorporates the Regulations and thus Regulation No,11 forms part of the contract between the parties. In this regard reference can be made to section 24 of the House Building Finance Corporation Act which prescribes conditions for grant of loan. It specifically states that no loan shall be made unless it is fully secured by a mortgage deed of movable or immovable property of the borrower as may be prescribed. The word 'prescribed' has been defined as prescribed by Rules or Regulations under the Act. Therefore, section 24 makes it necessary that security for repayment of loan should be provided by way of mortgage in the manner laid down by the Rules and Regulations.
13. Having referred to the terms of the contract and the provisions of law we now revert to the question whether the appellant is entitled to charge interest with monthly rest i.e, compound interest. The right to the charge simple interest or compound interest entirely depends on the provisions of applicable law, Rules, Regulations and the Contract between the parties. The letter of Sanction does not speak of charging compound interest but it requires the borrower to execute a mortgage deed as security for repayment of loan which contains material terms and conditions agreed upon between the parties. It specifies the number of instalments and the amount to be paid to the borrower and also the time when the instalments will be paid. The first and second instalments are required to be paid on production of bank guarantee for the amount of instalment plus interest at the rate of 6-1/4% per annum. Clause (1) of the mortgage deed provides that the borrower shall pay the aggregate sum of Rs,8,00,000 in monthly instalment of Rs,6,884 with interest thereon at the rate of 6-1/4% from the date of payment by the appellant. The interest from the payment of first instalment till one month before the time fixed for first instalment of repayment of loan shall be separately calculated and paid in lumpsum before the repayment of loan starts. For the subsequent period i.e, after the entire loan has been advanced and repayment starts the interest shall be charged @ 6-1/4% per annum. Clause 8(a) in terms of Regulation No,10 fixes the time from which repayability of the loan shall start. According to it the monthly instalment shall fall due 'from the first day of the third month following the date of the receipt of the last instalment by the mortgagor'. The schedule of payment of loan in ten instalments stage-wise has been fixed by the mortgage deed. Respondent No,1 was thus required to repay in instalments from the date specified above with agreed interest at the rate of 6-1/4% per annum. The letter of sanction and mortgage deed in clear terms provide that interest shall be charged @ 6-1/4% per annum. It does net speak of compound interest. It is only by reference Regulation No,11 that compound interest has been claimed. The intention of the parties is in clear and unambiguous manner established that interest was to be charged and paid @ 6-1/4% per annum. Mr. Usman Ghani Rashid, the learned Advocate Supreme Court, has made statement that the appellant charged compound interest if there is default in payment of any instalment. Therefore, practice of the appellant has been to charge compound interest only after the default has been committed by the borrower in repayment of loan by instalments. Considering the terms and conditions of the loan documents and the practice of the appellant which must have been in the knowledge and contemplation of the parties, the claim for compound interest cannot sustain. The respondent Society had been paid only two instalments and time for repayability of loan had not commenced when the appellant recalled the loan by notice dated 7-6-1967. It is pertinent to note that by this notice the appellant called upon the respondent Societies to repay the amount of instalments paid and interest which had been quantified and calculated at the rate of 6-1/4% per annum and not the compound interest. This also confirms that the respondent Societies were not required to pay interest with monthly rest.
14. As observed there seems to be obvious inconsistency in the terms and conditions of the letter of sanction and the mortgage deed on one hand and Regulation No,11 on the other which was incorporated by reference in the mortgage deed. The attempt of the Court is always to keep the document alive and binding according to the intention of the parties. The use of the words which may be mandatory or directory cannot entirely govern the construction of a document. Such mandatory or directory words give way to the intention of the parties. Chitty on the Contract referred earlier in the first Volume at page 526, observed as follows:-- "Where the different parts of an instrument are inconsistent, effect must be given to that part which is calculated to carry into effect the real intention of the parties as gathered from the instrument as a whole, and that part which would defeat it must be rejected. The old rule was in such a case, that the earlier clause was to be received and the later rejected, but this rule was a mere rule of thumb, totally unscientific and out of keeping with the modern construction of documents. To be inconsistent a term must contradict another term or be in conflict with it, such that effect cannot fairly be given to both clauses. A term may also be rejected, if it is repugnant to the intention of the parties as it appears from the document. However, an effort would be made to give effect to every clause in the agreement and not to reject a clause unless it is manifestly inconsistent with or repugnant to the rest of the agreement."
' These observations are based on the following judgments:--
(1) Walker v. Giles (1848) 6 CB 662, 702,
(2) Love v. Rowtor Steamship Co. Ltd. (1916) 2 AC 527, 535,
(3) Sabah Flour and Feedmills Sdn Bhd v. Comfez Ltd. (1988) 2 Lloyd's Rep. 18,
(4) Doed Leicester v. Biggs (1809) 2 Taunt 109, 113,
(5) Pagham SPA v. Tradax Ocean Transportation SA (1987) 2 Lloyd's Rep. 342, 350.
(6) Adamstos Shipping Co. Ltd. v. Anglo Saxon Petroleum Co. Ltd. (1959) AC 133.
(7) Bromer Handelsgesellschaft mbH v. J.H. Rayner & Co. Ltd. (1979) 2 Lloyd's Rep. 216 and
(8) Sudatlantica Navegacion v. S.A. Devamar Shipping Corp. (1985) Lloyd's Rep. 271 ' The inconsistency and conflict has been traced out earlier and, therefore, the loan documents have to be construed in the light of the principles of interpretation of documents described above.
The inconsistency can be resolved and has been resolved by the practice followed by the appellants that the compound interest is to be charged in case default is made in repayment of the loans after the entire loan has been paid to the borrower. In any event the provision for payment of compound interest was incorporated by reference and according to Chitty:-- "If clauses are incorporated by reference into a written agreement and those clauses conflict with the clauses of the agreement, then in the ordinary way, the clauses of the written agreement will prevail."
' Reliance has been placed on Admastes Shipping Co. Ltd. v. Saxon Petroleum Co. Ltd. (1959) AC 133.
On the basis of this principle also the appellant is not entitled to recover compound interest.
15. The learned. Advocate Supreme Court for the appellant has pointed out that the provisions of the Objectives Resolution were not pressed in service by any party. We have noted that the same has been applied for striking off the compound interest but no comments have been made with regard to the interest itself which has been held to be recoverable. We do not wish to make any comment on this aspect of the case as neither the issue has been raised nor argued by any party.
16. In view of the aforestated discussion we dismiss Appeal Nos. CA.27-K of 1986, CA. 28-K of 1986, CA. 29-K of 1986, CA. 30-K of 1986 and CA. 31K of 1986 but on different reasonings. Mr. Usman Ghani Rashid, the learned counsel for the appellant has frankly conceded that if the appellant is not entitled to compound interest the claim for interest pendente lite which is subject-matter of Civil Appeals Nos.32-K of 1986, CA. 33-K of 1986, CA.34-K of 1986, CA.35-K of 1986 and CA. 36-K of 1986 and claims for further interest in CA. 37-K of 1986, CA. 38-K of 1986, CA.39-K of 1986, CA.40-K of 1986 and CA. 41-K of 1986 will not arise particularly as the entire amount with simple interest as demanded had been paid. The appeals are, therefore, dismissed with no order as to costs.
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