' MAMOON KAZI, J.---The appellants have challenged by this High Court Appeal, the judgment passed by a learned Single Judge of this Court, dated 31-3-1986, granting an application under section 20 of the Arbitration Act, 1940 filed by the respondents and allowing one month's time to the parties to nominate their Arbitrators in terms of the arbitration clause contained in the agreement executed by the parties.
2. The facts of the case giving rise to this appeal are that in 1981, the appellants approached the respondents for construction of a multistoreyed building over the appellants' Plot No,SNPA 15, situated in Block No,3 of the Karachi Cooperative Housing Societies Union Ltd., admeasuring 4,940 square yards.
3. After completion of the usual preliminaries, the parties entered into an agreement for construction of a multistoreyed building by the respondents over the said plot. After some time, it was alleged by the respondents that the appellants had refused to perform their part of the contract, as on 20-6-1984, it had been noticed by the respondents that the appellants had been unilaterally engaged in altering the character of the land by construction of road on the said plot.
Consequently, an application, under section 20 of the Arbitration Act was filed by the respondents before this Court, requesting for an order to direct the appellants to file the said agreement for necessary consequential orders to give effect to the arbitration clause. In the said agreement para. No,8 provided as follows:- "8. Arbitration clause.--(a) In case of any dispute or difference that may arise in between the parties to this agreement the same shall be referred to arbitration. Each party shall appoint one arbitrator within 15 days of such dispute and shall notify such appointment to the other and the two appointed Arbitrators within fifteen days of their appointment shall appoint any Retired Judge of the High Court or of the Supreme Court as an Umpire. The two appointed arbitrators shall proceed with the reference, in case of no unanimity in between the two arbitrators, the matter shall be referred to the Umpire for his decision."
4. When the application came up for hearing before a learned Single Judge of this Court, many Objections were raised on behalf of the appellants and one of the objections raised was that the said agreement was void and ultra vires of the bye-laws of the appellants' Society. The contention was that bye-laws No,6, referred to the objects of the appellants' society, however, the said agreement which authorised the respondents to build three residential blocks consisting of 140 flats and 140 car parking spaces with shops on the ground floor covering an area of 4,940 square yards, was in excess of the objects for which the appellants' society came into existence and hence the same was ultra vire of the powers of the Administrator of the said society who had acted on its behalf. The objects of the appellants' society which are embodied in clause 4 of the bye-laws are as follows:- "4. The objects of the Union shall be:--
(a) to acquire land from Government and other agencies on licence or lease on such terms and conditions, as are agreed upon between the Board of Directors of the Union and the Director of the Union and the Government or other agencies, as the case may be and to give sub-licence or sub- lease of the same to Member Societies or to individual Member in case of non-residential plots and to develope such land, and when the work of development of land is over, the Union will form itself into a Municipal or other public welfare organisation. The lease given to an individual Member by the Government, after fulfilling the terms and conditions of the licence, shall be between the individual Member and the Government or such other agency, as the case may be; (b)
(c) to provide and maintain municipal and other necessary services and to levy charges in respect of them of the Member Societies and plot-holders, till such times as the area is handed over to a local authority. The union shall frame rules and regulations for levying such charges, and the rules so framed shall come into force after being approved by the Registrar, Cooperative Societies--
(i) to plan and layout roads, lanes, paths and sites for shopping centres and public institutions etc., in consultation with the members on the General Body of the Member Societies for their respective areas, as far as practicable;
(iii) to design and/or construct mosque, Idgah, educational institutions, hospitals, shops, markets, parks and other welfare centres, and to allot land for this purpose to Member Societies and registered public institutions; preference being given to Member Societies."
5. The learned Single Judge, while disposing of the said objections has observed in the impugned judgment as follows:-- "....As regards the objects, referred to above, it cannot be said that the objects do not contemplate on any such agreement. In fact, bye-law 4(a) and (c);
(iii) provide as an object of the Society, inter alia, to plan and lay-out....Site for shopping centre (sub-clause (i) and to design and/or construct shops, markets., (sub-clause (iii)). Faced with this situation, Mr. Noorul Hassan submits that the plaintiff is neither a member of the Society nor a registered Public Institution. No such plea has been taken in the written statement that the plaintiff is not member or it cannot be enrolled as a member. Again, it is a question of fact whether the- plantiff is a member or not."
6. An objection among others was also raised which indicated that the approval of the General Body of the Society had not been obtained as provided in clause 4(c)(i) of the bye-laws but the same was overruled on the ground that the matter was governed by the doctrine of indoor management and hence the agreement could not be struck down on such ground. Reference, amongst others was made to the case of The Pakistan Employees Cooperative Housing Society Ltd. v. Mst. Anwar Sultana PLD 1969 Kar.
474.
7. The only point urged by Mrs. Noorul Hassan, learned counsel for the appellants before us has been that the agreement executed by the Administrator, then looking after the affairs of the society, during its suppression under section 71(2) of the Cooperative Societies Act read with Rule 48 of the Cooperative Societies Rules, 1927 was in excess of the objects for which the appellants' society had come into existence and consequently the agreement was null and void and ultra vires of the powers of the Administrator which it temporarily enjoyed under the said provisions of law. Reliance in this regard has been placed upon the case of Arshbury Railway Carriage & Iron Co. v. Riche (1875) L.R. 7 H.L.
653. In this case the objects of Arshbury Railway Carriage & Iron Company were to make and sell, or lend on hire, railway carriages and wagons, and all kinds of railway plant, fittings, machinery etc. The objects of the company also included carrying on of business of mechanical engineers and general contractors, to purchase, lease, work and sell mines, minerals, land and buildings, to purchase and sell as merchants, timber, coal, metals or other materials etc. Arshbury Railway Carriage & Iron Company entered into an arrangement with Messrs Riche and his brother who were carrying on business as partners in Belgium as Railway Contractors. It was agreed that Arshbury Railway Carriage & Iron Company would purchase the concessions for making a line of railway from Antwerp to Tournay and would give the contract for the construction of the said railway line. The company, however, repudiated the contract for construction of the railway line as one ultra vires. M/s. Riche brought an action for damages for breach of contract. Arshbury Railway Carriage & Iron Company's case, inter alia, was that the objects of this company, as stated in the Memorandum of Association, were to supply and sell the materials required to construct railway, but not to undertake there construction. The contract entered into was to construct a railway, using Messrs Riche only as the person to be employed in the construction. That was contrary to the Memorandum and hence ultra vires the powers of the directors and the company. It was, consequently, contended that the contract was not merely in excess of legal powers, but was absolutely illegal and no consent of the shareholders could give it a cover of legality. It was held by the House of Lords that the contract was ultra wires and, therefore, void in its inceptions, and was incapable of -rectification even by the unanimous consent of all the shareholders.
8. Mr. Sher Afghan, while referring to section 23 of the Contract Act has contended that the administrator was fully empowered under the law to enter into a contract on behalf of the.
Appellants' society and he could perform all such powers and duties which were available to the Managing Committee and unless it is shown that the consideration or the object of an agreement is unlawful, as contemplated by section 23 of the Contract Act, nothing can render the contract illegal or void. Support, in this regard, was also sought from the case of Akram Moquim Ansari v.
Mst. Asghari Begum PLD 1971 Kar.
763. In this case, it was held by Noorul Arfin, J., an eminent Judge of this Court, that bye-laws of a cooperative society do not have any force of law and the same are only mewl to deal with the domestic matters and any transaction which has the effect of evading bye-laws cannot be treated as unlawful or fraudulent.
9. After giving the matter our anxious consideration, we are of the view that although, there can be no cavil with the observations made by Noorul Arfin, J., in the said case but the question requiring determination in the present case is different. The appellants' society came into existence for the purpose stated in its objects which are embodied in clause 4 of the bye-laws, reference to which has earlier been made by us in this judgment Although, the learned Single Judge, in the impugned judgment has observed that the construction of shopping centres or markets was included in the objects of the appellants' society as per clauses 4(a) and (c) (iii) of the bye-laws but a close look at the said clause indicates that the object behind the appellants' society was mainly to acquire land from Government and other organisations or to give sub-licence or sub-lease of the same to Member Societies or to individual members, as the case may be. The objects also appear to be to provide building material, equipment and articles for development of land and to provide and maintain municipal and other necessary services and to levy charges in respect thereof against members or societies and plot holders and to plan and layout roads, lanes, paths and sites for shopping centres and public institutions etc. And to construct or arrange to be constructed a mosque, an Idgah, sewerage etc., to design or construct educational institutions, hospitals, shops, markets, parks and other welfare centres etc. It therefore, appears that the object for which the society was primarily formed was the welfare of the public-at-large. The agreement in question clearly indicates that the object behind the same principally was only to benefit the respondents, albeit it provided for construction of the offices of the society or to build shops on the ground floor.
Mr. Sher Afghan, in fact, has tried in vain to convince us that building of shopping centres or markets was one of the objects of the said Society because nothing can Is, spelt out from the agreement to indicate that the object behind it was to benefit the Societies or their members. In Palmer's Company Law, 22nd Edition, at page 84, it has been observed as follows:- "The function of the objects clause to define the powers of the company is of great importance because a company incorporated by registration under one of the Companies Act, like any other corporation created by Act of Parliament, has no existence, and cannot act as a legal person, outside the purposes (ultra vires) defined in the objects clause of the memorandum (or given to it) by statute. A company incorporated under a Companies Act does not enjoy full legal personality as e.g., a chartered company does, but its legal personality exists only for the particular purposes of its incorporation as defined in the objects clause. An act which is ultra vires the company is null and void in the same manner as an act done by a local authority outsi6.e its statutory authority. In common law, if the company conculdes a contract which is ultra vires, neither the company nor the other contracting party can sue on it."
10. The above observations are clearly applicable to the facts of the present case. No doubt, the appellants are Cooperative Housing Society but as has been observed in Palmer's Company Law, the appellants' society does not enjoy full legal personality but its legal personality exists to the extent of the purpose of its incorporation under the Cooperative Societies Act. The purposes are those as defined in the objects of the society. No doubt, the objects of the society are embodied in the bye-laws of the society, which, as was held in the case of Akram Moquim Ansari, cannot have the force of law but nevertheless clause 4 of the bye-laws, wherein the objects are embodied, is of fundaments character because that indicates the purpose for which the appellants society came into existence. The society, therefore, after its registration under the Cooperative Societies Act acquired status of a legal person but only to the extent of its objects for which it was registered.
Consequently, the agreement which was executed on behalf of the appellants being in excess of the objects of the appellants. Society, was clearly ultra vires of the powers vesting. Either in the administrator or the managing committee of the appellants. It may be further pointed out that, as was observed by Venkataramana Rao, J. In Sabarathnam v. Official Liquidator AIR 1943 Mad. 111, a corporate body cannot be estopped from denying that they have entered into a contract which it was ultra vires for them to make. (See Halsbury's Laws of England, Vol. 13 at page 474).
11. The natural corollary of this would be that the arbitration clause'which was part of the agreement was also ineffective and void. If reference to any case-law is needed the same may be made. To the case of Syed Ghousuddin Ahmed v. Chairman, Karachi Port Trust PLD 1967 Kar. 275 and Godhu Mal v. Ganga Hasso Mal Idnani AIR 1958 Allahabad 26, to which our attention has been invited by Mr. Noorul Hassan.
12. In the result, we accept this appeal and set aside the impugned judgment dated 31-3-1986. The parties are left to bear their own costs.