' Facts of the case out of which this Constitutional petition has arisen are that Begum Zia Farhat Awan and Salah-ud-Din petitioners Nos,1 and 2 are daughter and son respectively, of late Haji Abdul Rashid son of Muhammad Ashiq who was the Managing Director of the Universal Oil and Vegetable Ghee Mills Ltd., Salam Chambers, Patiala Ground, Lahore. In the year 1970 Haji Abdul Rashid referred to above, negotiated with respondent No,4 National Bank of Pakistan, for the grant of facility of overdraft for the company. By way of security the aforementioned, Haji Abdul Rashid executed a memorandum of deposit of title deeds securing the repayment to the said bank on demand of all the money which the bank had already advanced or should thereafter ad'ance to M/s. Universal Oil and Vegetable Ghee Mills Ltd., by way of overdraft, cash credit or otherwise, as well as for the payment of which the said mills may become liable to the bank together with all charges, interests and costs for the recovery of which the bank may become legally entitled. By way of creating an equitable mortgage upon all the estates and interests in the properties to which the said documents related the surety had deposited the following documents, which were detailed in the schedule to the aforementioned memorandum:--
(1) Registered sale-deed dated 24-9-1938 between Mian Fazal Elahi son of Haji Abdul Rahim in favour of Mian Abdul Rashid son of Mian Muhammad Ashiq evidencing the sale' f land situated in village Shah Dhand, Tehsil and District Peshawar.
(2) Abstract from the Register of Haqdaran Zamin, Mauza Shah Dhand, Tehsil and District Peshawar, for the years 1962-63.
(3) Abstract from the Register of Haqdaran Zamin, Mouza Shah Dhand, Tehsil and District Peshawar for the years 1958-59.
(4) Abstract from the Register of Haqdaran Zamin, Mauza Shah Dhand, Tehsil and District Peshawar, for the years 1954-55.
(5) Fard Intikhab as Jamabandi, village Shah Dhand, Tehsil and District Peshawar, for the years 1966-67.
(6) Fard Goshwara ownership of Abdul Rashid son of Muhammad Ashiq of village Shah Dhand, Tehsil and District Peshawar, dated 2-7-1970 showing the ownership of Mian Abdul Rashid of an area of 176 Kanals 10 Marlas.
(7) Aks Shajra Kishtwar, village Shah Dhand Tehsil and District Peshawar.
(8) Copy of the mutation for the year 1939-40.
(9) Non-encumbrance certificate dated 26-6-1970, issued by the Sub-Registrar, Peshawar.
(10) Certificate of valuation issued by the Municipal Engineer, Municipal Committee, Peshawar.
2. In addition- to the aforementioned deposit of the title deeds, the petitioner No,1 in her own right and as surety for the aforementioned Universal Oil and Vegetable Ghee Mills Ltd.; also deposited with the WAPDA House Branch of respondent No,4 the original copy of the registered sale-deed bearing No,1262 Behi No,1 Volume 1081 page 2/4 registered before the Sub-Registrar, Peshawar on 6-7-1965 and relating to a plot of land situated at village Mahal Patrai Tehsil and District Peshawar measuring 22,848 Sq.Ft. She has further deposited original copy of sale-deed of Bungalow No,42, Nishtar Abad Peshawar with WAPDA House Branch of respondent No,4 as collateral security for the loans of Universal Oil & Vegetable Ghee Mills Ltd. The petitioners Nos,1, 2 and 3 also deposited the original copies of the share certificates of Al-Mansoor Ltd., Lahore, as pledge against the facilities allowed by respondent No,4 to the aforementioned mills. Details of the shares is as under:- {{TABLE}} #TBS 0-- Begum Syed Jamat Ali Shah.
Begum Jamat Ali Shah #TBE #TBS Salah-ud-Din #TBE #TBS If. #TBE #TBS II 11 ,, #TBE #TBS Names of Regd. Shares Holders Syed Jamaat Ali Shah #TBE Certificate NQ._ Distinctive Nos, No, of hares 20 301 to 2300 2000 5 2301 to 4300 2000 15 4801 to 5300 500 21 5301 to 6050 750 9 8301 to 10180 1880 6 4301 to 4800 SOO 10 1 to 100 100 11 101 to 200 100 12 " 201 to 250 50 22 7051 to 8300 1250 14 (251 to 300) 870 (13181 to 15000)
23 10181 to 13180 32X1 14000 {{TABLE}}
3. The respondent No,1 in exercise of the powers under the provisions of the Hydrogenated Vegetable Oil Industry (Control & Development) Act, 1973 took over the control and management of the Universal Oil and Vegetable Ghee Mills Ltd. Vide notification issued under Article 146 of the Constitution of the Islamic Republic of Pakistan dated 5-9-1973 and entrusted its functions to the respondent No,2. Respondent No,3 was appointed by respondent No,2 vide its notification dated 19- 9-1973 in accordance with the provisions of section 6 of the said Ordinance as the Managing Director of the Universal Oil and Vegetable Ghee Mills Ltd. Another development which took place is that under the provisions of section 5 of the Banks (Nationalisation) Act, 1974 the respondent No,4 National Bank of Pakistan has been nationalised and has been taken over by the Federal Government. Ownership with all its assets and liabilities now vests in the Federal Government of Pakistan as per provisions of section 5 of the Act, relevant portion whereof reads as under:- "The ownership, management and control of all Banks shall stand transferred to, and vest in, the Federal Government on the commencing day."Subsequently, vide letter dated 3-10-1990 it has been decided by the Federal Government of Pakistan to pick up the Public Sector Enterprises liabilities of stuck up bank loans amounting to Rs,3,586.323 million. The bonds have been issued which will have the maturity of 20 years with a mark up at 9% per annum, which will be reckoned from Ist July, 1990. Resultantly, in pursuance of this letter the bonds referred to therein have been issued and have been received by respondent No,4 which fact is recognized by the letter issued by the Vice-President of respondent-bank dated 3-6-1991 by way of valid and sufficient security for repayment of the loan which according to the account of the copmay in the books of the bank stands closed and, therefore, it becomes crystal clear that the company has been taken over by the Federal Government completely alongwith its rights and liabilities and the bank has accepted the bonds for repayment of the loan in the shape of bonds which have been issued by the Federal Government's letters dated 3-10-1990 and 3-6-1991 reproduced as under:- GOVERNMENT OF PAKISTAN (FINANCE DIVISION)
(CORPORATE FINANCE WING)
' Syed Shamasul Haq, Joint Secretary (CF), Phone No,821953.
' D.O.No,F.17(21)-CF/89-90/1515 Islamabad, 3rd November, 1990.
' My dear.
' It has been decided by the Government to pick up the Public Sector Enterprises (PSEs) liabilities of stuck up bank loans amounting to Rs,3,586.323 million. Notification on the subject has been issued to the Press for publication, copy 'thereof has been supplied to the State Bank of Pakistan vide this Division's letter of even number dated 29th October, 1990. The bonds will have the maturity of 20 years with a mark up at 9% per annum, which will be reckoned from Ist July, 1990. The mark up will be payable on yearly basis after the grace period of 2 yeaRs,
2. A list of PSEs against the loans of which bonds are to be issued is enclosed. This also gives bank- wise details. Formal requisitions giving details of amount of the bonds to be issued to each bank are also enclosed duly. Signed by the Deputy Secretary (Corporate Finance Wing).
3. Further necessary action may please be taken under intimation to this Division.
With regards.
' Yours sincerely, ' Sd/Syed Shamasul Haque, ' Mr. LA. Hanfi, ' Governor, ' State Bank of Pakistan, ' Karachi.
' Copy alongwith copies of enclosures to the Chairman, Pakistan ' Banking Council, Karachi for information and necessary action.
' Sd/-Ahmad Mahmood Zahid Deputy Secretary (CP-1)
' Letter dated 3-6-1991.
' WAPDA: ADV: 3184 Dated 3-6-1991.
' The Chief Accountant, ' Universal Oil & Vegetable Ghee Mills Ltd.
' Lahore-Sheikhupura Road, ' Sheikhupura.
' Dear Sir, ' PICKING UP OF PUBLIC SECTOR ENTERPRISES LIABILITIES BY THE GOVERNMENT OF PAKISTAN ' Reference your letter No,UGM/CA/03/3387, dated 16-5-1991, we pr write to advise that the entire outstanding in the captioned account has been transferred to our Head Office. The account of the Company in our Books stands closed.
' Yours faithfully, S d/- ' Vice-President/Manager.
' It may be mentioned here that National Bank of Pakistan respondent No,4 as well as the debtor company now vest in the Federal Government.
4. The petitioners on 2-6-1974 issued a notice to respondent No,4 demanding the release of their securities but the respondent refused to accept the petitioners' demand, hence, this Constitutional petition has been filed seeking the issuance of a writ/order directing the respondent No,4 to release the securities referred to above and deliver the same to the petitioneRs,
5. Syed Jamshed Ali, Advocate, learned counsel for the petitioners has argued that the debtor company has since been taken over by the Federal Govenment alongwith its rights and liabilities including the loan in question. Similarly, respondent No,4 has also been taken over by the Federal Government and the same vests in the Federal Government. Respondent No,4, the bank has already accepted the bonds issued by the Federal Government as sufficient security for the repayment of the loan advanced to the said company. Hence, respondent No,4 has no lawful authority to refuse the return of securities in question. In support of his argument learned counsel for the petitioners has placed reliance on case of Lords Blaneshburgh Warrington of Clyffe, Aktim Macmillan v. Royal Bank of Canada AIR 1934 Privy Council 210 and Spencer and Venkatasubba Rao v. Mutukumara Ram aswa mi Chettiar, Major and others AIR 1923 Madras 340. In both the cases, it has been held that if the estate which is liable to the payment of loan is taken over by the creditor, the securities shall have to be returned. Learned counsel has furthai argued that the bonds by way of security issued in terms of section 19 of Act 65 of 1973 having been received by the bank and having been accepted as a valid security, petitioners' securities cannot be retained by the bank.
Learned counsel has further referred to the provisions of sections 56, 133 and 134 of the Contract Act and has argued that as the liability to pay the loan by the principal has been taken over by the Government, liability of the sureties also stands discharged and, therefore, refusal of respondent No,4 to return the securities is illegal and is without lawful authority. Elaborating his arguments further, learned counsel has stated that the contract between the petitioners and respondent No,4 stands frustrated by virtue of the legislative measures and, therefore, respondent No,4 cannot refuse the return of the securities which is admittedly property of the petitioneRs, Learned counsel has relied upon certain paragraphs of a book on the Law of Contract namely Chitty on Cont. Acts Twenty-fourth Edition, Volume 1 at page 1402. Learned counsel has referred to paragraphs Nos,1405, 1407, 1408 and 1413 thereof in support of his argument that the contract now stands frustrated and, therefore, the petitioners are entitled to the return ofthe deposited securities. Paragraphs Nos,1405, 1407, 1408 and 1413 referred to above are reproduced as under:-- ' Para No,1405. Theory of radical change in the obligation.
' In view of the decision of the House of Lords in Davis Contractor Ltd. v. Farhan UDC, the proper test for frustration may be formulated as follows; if the literal word of the contract were to be enforced in the changed circumstances, would disinvolve a fundamental or radical change from the obligation originally undertaken? In this case Lord Radcilfe said. "Frustration occurs whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstance in which the performance is called for would render it a thing radically different from that which was undertaken by the contract. None Haec in Foedera veni. It was not this that I promised to do...There must be...Such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for."
' Lord Reid put the test for frustration in a similar way. "The question is whether the contract which they did not make is, on its true construction, wide enough to apply to new situation." If it is not, then it is at an end." Later in his speech, he approved the words of Asquith Li. That the question is whether the events alleged to frustrate the contract were "fundamental enough to transmute the job the contractor had undertaken into a job of a different kind, which the contract did not contemplate and to which it could not apply."
' Lord Somervell agreed with the conclusion of Lord Reid on "what is the proper basis of frustration." and it is 'submitted that the test put forward by Lord Reid is substantially the same as that of Lord Radicliffe. Hence, it is submitted that there was a majority of three in the house of Lords in the Davis Contractor's case in favour of the formulation of the legal standard of frustration in the above terms.
Para.1407 Their Lordships also agreed that it is a matter of law for the Court to construe the contract in the light of the facts existing at its formation and then "to determine whether the ultimate situation...Is or is not within the scope of the contract so construed". It is submitted that the House of Lords has accepted the view that the test for frustration is objective and that frustration is a matter of positive judicial intervention. It is not a subjective inquiry into the actual or 'presumed intentions of the parties, as was suggested by the older theory of the implied term, since the discharge of a contract on the ground of frustration occurs automatically upon the happening of the frustrating event, and does not depend upon any repudiation or other act of volition on the part of the either parry. The fact that the parties at the time of contracting, actually foresaw the possibility of the event or new circumstances in question does not necessarily prevent the doctrine of frustration from applying.
' Cases since 1956 have endorsed and applied the test for frustration formulated in the Davis Contractor's case.
Para. 1408.
' The implied term theory. Although three members of the House of Lords in the Davis Contractor's case rejected the implied term theory, it should be considered here in view of the large part it has played in the development of the doctrine of frustration. The classic exposition of the theory is to be found in the speech of Lord Loreburn in FA Tampline S.S. Co. Ltd. v. Anglo-Mexican Petroleum Products Co. Ltd. "A Court can and ought to examine the contract and the circumstances in which it was made, not of course to vary but only to explain it, in order to see whether or not from the nature of it the parties must have made their bargain on the footing that a particular thing or state of things would continue to exist. And if they must have done so, then a term to that effect will be implied, though it be not expressed in the contract...In most of the cases it is said that there was an implied condition in the contract which operated to release the parties from performing it, and in all of them I think that was at bottom the principle upon which the Court proceeded. It is, in my opinion, the true principle, for no Court has an absolving power, but it can infer from the nature of the contract and the surrounding circumstances that a condition which was not expressed was a foundation on which the parties contracted...Were the altered conditions such that, had they thought of them, the parties would have taken their chance of them, or such that as sensible men they would have said, if that happens, of course, it is all over between us?"
' It was by means of this theory that the doctrine of frustration was first introduced into English law and it has frequently been accepted in judgments. But even before the Davis Contractor's case in 1956 there was considerable criticism of this theory and the following objections to the theory ought to be borne in mind when reading the older decisions.
Para. 1413.
' In addition to the frustrating events mentioned in the preceding paragraph, the following events may be taken as illustrations of the kind of events which have been held, in the circumstances of particular contracts, to being the doctrine of frustration into operation: destruction by fire or other cause of the subject-matter of the contract, an explosion or stranding disabling a ship, requisitioning of the subject-matter of the contract by the Government, seizure of a ship by a foreign Government, incapacity or death of person obliged to perform personal service, extraordinary delay sufficiently long to frustrate the commercial adventure of the parties. On the other hand, mere inconvenience, or hardship, or financial loss involved in performing the contract, or delay which is within the commercial risk undertaken by the parties, has been held insufficient to frustrate particular contracts.
' Learned counsel has also referred to an another authoritative book on the Law of Contract written by Avtar Singh Third Edition at page 236 whereof explaining the concept of frustration of contract learned author has referred to the case of Cricklewood Property Ltd. v. Leighton's Investment Trust Ltd. 1954 (Appeal Cases) 221 wherein Viscound LC Simon said that it means "the occurrence of an intervening event or change of circumstances so fundamental as to be regarded by the law both as striking at the root of the agreement, and as entirely beyond what was contemplated by the parties when they entered into the contract. To the same effect is the judgment reported in case of Twentsche Overseas Trading Co, Ltd. v. Uganda Sugar Factory Ltd. AIR 1945 Privy Council 144 wherein Lord Wright has observed as under:-- "The word frustration is here used in a technical legal sense. It is a sort, of shorthand: it means that a contract has ceased to bind the parties because the common basis on which by mutual understanding it was based has failed. It would be more accurate to say, not that the contract has been frustrated, but that there has been a failure of what in the contemplation of both parties or purpose of the performance."
' This principle has also been applied by Teja Singh J, of the Punjab High Court in Parshotam Das v.
Batala Municipal Committee AIR 1949 East Punjab 301 at page 304. Learned counsel has further argued that the concept of impossibility of performance can also be taken in aid of the arguments that due to the intervention of the legislative measures and intervention of the Federal Government, the original contract between the Directors of the Company and the bank having come to end, securities deposited shall have to be released inasmuch as the very bottom of the contract stands rooted out as a result of instrumentality of the State and, therefore, the petitioners are entitled to the grant of relief as prayed for. According to the learned counsel even otherwise retention of securities by respondent No,4 is useless inasmuch as the same could be proceeded against for a recovery of overdraft liability within 12 years w,e,f, 1970 under Article 132 of the Limitation Act, and within three years under Article 57 of the Limitation Act on account of their liabilities. The period of limitation having expired the securities even if retained by respondent No,4 cannot be proceeded against for the recovery of loan in view of the bar of the limitation.
6. Mr. Asdullah Siddiqui, learned counsel for respondent No,2 appeared on the last date of hearing and he admitted that the complete ownership and control of the company has been taken over by the Government alongwith its liabilities and the bonds have been deposited with respondent No,4 by way of securities which have been accepted as a valid security by the bank which also vests in the Federal Government and further that the company has been completely taken over by the Government alongwith its rights and liabilites including the loan in question. He, therefore, does not seriously oppose the grant of favourable relief to the petitioners in this writ petition. Ch. Muhammad Farooq, learned Deputy Attorney-General of Pakistan appearing for respondent No,1 also has not seriously opposed the writ petition in view of the factual and legal position referred to above.
7. Kh. Muhammad Farooq, Advocate on behalf of respondent No,4 has vehemently argued that as the loan is still outstanding, the securities cannot be returned. Learned counsel has however, admitted that respondent No,4 as well as the debtor company vest in the Federal Government but has argued that respondent No,4 is still working under the provisions of National Bank of Pakistan Ordinance, 1949 and it does not completely vest in the Government. It is only the control and management of the bank which vests in the Government. When confronted with the provisions of section 5 of the Nationalization of (Banks) Act, 1974 which provide that even the ownership of the nationalized banks shall vest in the Federal Government, learned counsel for the respondent No,4 has no satisfactory answer to rebut the contention of the petitioners' counsel, that respondent No,4 completely vests in the Federal Government. Learned counsel for respondent No,4 has further admitted that the Federal Government has deposited the bonds by way of security/discharge for the repayment of loans in terms of section 19 of Act LXV of 1973 which have been accepted as a sufficient security by respondent No,4. Learned counsel for the respondent No,4 has further conceded that the debtor company has been completely taken over by the Federal Government which includes the loan liability as well and has frankly admitted that the letters Annexure 'A' and `B' referred to by the learned counsel for the petitioners which have been placed on the record in this writ petition have been written by the authorities concerned and contents thereof are correct.
8. I have considered the arguments of the learned counsel for the parties who appeared in this case and have also perused the record as well as the relevant statutory provisions on the subject and the case-law cited at the Bar and the Authoritative Books referred to above. Admittedly the debtor company for which the petitioners stood surety and in lieu of loan whereof the securities were deposited with the respondent No,4, has been taken over by the Federal Government completely including the liabilities thereof which includes the loan in question. The said company, therefore, is now the concern of the Federal Government. It also stands established that the respondent No,4 also vests in the Federal Government and the bonds by way of security for repayment of loan in question has admittedly been deposited with respondent No,4 who is in custody thereof and which have been accepted by the bank as a sufficient security/discharge for return of the loan amount. Accounts of the company also stand closed in the books maintained by the Bank as is clear from letter dated 3-6-1991 Annex 'IV. Consequently the debtor company having been taken over by the Federal Government in whom the Bank also vests, it shall be deemed that the creditor has taken over the debtor company and as such the ratio as laid down in case of Lords Blanesourgh, Warrington of Clyffe, Atkin Macmillan and Alness v. Royal Mackenzie AIR 1934 Privy Council 210 and Spencer and Venkatasubba Rao, JJ. v. Mutukumara Ramaswami Chettiar, Major and others 1923 Madras 340 shall full apply to the case in hand and the petitioners sureties shall not remain liable for payment of the loan due against the company.
9. Principle of frustration of contract as provided under the provisions under section 56 of the Contract Act, read with sections 133 and 134 of the Act and as enunciated in the commentary in the Authentative Books referred to above as well as explained in the judgments, relevant portions whereof have been referred to above, clearly prove that the contract between the petitioners and respondent No,4 with regard to their liability to pay the loan amount which could have been recovered from the securities deposited with the Bank, stands frustrated by virtue of the intervention of the legislative measures and the Federal Government. Consequently, private of contract between the petitioners and respondent No,4 having come to an end under the principle of frustration of contract and impossibility of performance thereof due to legislative measures the respondent No,4 has absolutely no jurisdiction to refuse the return of securities deposited by petitioners with it.
' Hence refusal of respondent No,4 to return the securities demanded by the petitioners is an act which is illegal and is without a lawful authority.
10. Resultantly, this writ petition is accepted and respondent No,4 is directed to return the securities deposited by the petitioners which have been referred to in this order within a period of one month from the receipt of this order. In view of the difficult legal questions involved in the case, the parties are left to bear their own costs.