' This an application under section 12(2) of the C.P.C. Filed by Zafar Ahmad and others (petitioners herein) for setting aside of the order dated 27-7-1993, whereby their Writ Petition No,2263 of 1993 was disposed of on the basis of a compromise between the parties.
2. The factual background, in which the dispute between the parties arises, is that Pakistan Switchgear Limited is an incorporated company having limited liability and its entire share-holding was owned by the Federal Government. Pursuant to its policy to privatize the State-owned industry, the Government of Pakistan invited bids for the sale of 90% of the shares of the PSI,. The association of the employees of the company was the highest bidder at Rs,22.50 per share. This bid was approved by the Federal Government, which led to the execution of an agreement for sale between the parties on 23-12-1991; which was later on supplemented by another agreement dated 10-6-1992. According to the petitioners, besides being transferred the shares in their favour, they were also placed for management and control of the company inter alia by inducting four of its directors in the Board of Directors. Later on, some disputes and differences arose which need not be detailed here. Suffice it to say that on 11-2-1993, an order was passed by the Federal Government for immediate re-possession of the company on account of noncompliance of the terms and conditions of the agreement for sale. This order was assailed by the petitioners by filing Writ Petition No,2263 of 1993, which was admitted to regular hearing.
3. Subsequently, negotiations started between the parties for settling the dispute through a compromise. On 24-7-1993, a civil miscellaneous application (C.M. 1840 of 1993) jointly signed by learned counsel for the petitioners as also for respondents Nos.1, 2 and 7 was submitted in Court, praying that the Constitutional petition be disposed of in terms of the compromise between the parties. It, however, transpired that certain formalities still remained unfulfilled. Consequently, the case was adjourned to 26-7-1993 ultimately, on 27-7-1993, the compromise was accepted and the Constitutional petition was disposed of in terms stated therein.
4. In this application under section 12(2) of the C.P.C., the petitioners have averred that their consent to the agreement, which formed basis of the order of this Court, was procured through fraud and misrepresentation and in any case by material concealment of facts and, therefore, the same be set aside. The precise grievance of the petitioners is that though they were made to understand that the liability of the company towards N.D.F.C. Was Rs,16.552 million but later on it transpired that the claim of the NDFC was Rs,35,285.890.07
5. The application has been contested by the respondents by filing a reply, in which a preliminary objection has been raised that on the facts stated in this application itself, the same was not maintainable under section 12(2) of the C.P.C. On merits, it has been stated that the petitioners were fully aware that the amount of Rs,16.552 million was only as an approximation and was disputed and that they had taken over the entire liability of the NDFC.
6. So far as the preliminary objection raised by learned counsel for the respondents is concerned, it is devoid of any merit. In this application, the petitioners have challenged the compromise and the subsequent order of this Court on the basis of misrepresentation, which is one of the grounds mentioned in section 12(2) of the C.P.C. For setting aside of that order.
7. Proceeding now to the merits, a reference to application (C.M. No,1840 of 1993) would show that the liability of the company towards NDFC has not been specified herein but it has been stated that the petitioners shall furnish an acceptable bank guarantee to respondent No,2 to secure it against any claim, which may be made by NDFC on account of guarantees furnished by respondent No,2 to it for the working capital finance and export finance availed by respondent No,6. It was also mentioned that the amounts claimed by NDFC are disputed by the petitioners and, therefore, the petitioners alone shall be responsible for any litigation with NDFC and the costs in respect thereof.
8. Pursuant to the stipulation, the petitioners arranged for bank guarantees in the sum of Rs,16.552 million. Earlier, during the course of negotiations, the Director (Finance) of State Engineering Corporation (Pvt.) Ltd. Had informed the Privatization Commission vide his letter dated 10-7-1993 that the liability of the company towards NDFC was Rs,12.185 million on account of working capital finance and Rs,4.367 million as export finance as on 31-5-1992. A copy of this letter along with comments was sent by the Privatization Commission to Mr. Muhammad Akram Sheikh, their learned counsel in the Constitutional petition for finalization of the compromise.
9. In this application, it has been specifically stated in para. 4 that at the time when the parties entered into the agreement, the petitioners were informed that the total liability of the company towards NDFC was Rs,16.552 million. This averment has not been disputed in the reply filed by respondents to the application under section 12(2). On the other hand, it has been stated that due to mistake the books of Pakistan Switchgear Limited did not correctly reflect the position of the loans outstanding against it and in addition to the two amounts mentioned in the letter dated 18- 7-1993, there was another account outstanding against the company which was being maintained at the Regional Accounting Office of NDFC which could not at the time of compromise be mentioned.
10. From the contents of the application under section 12(2) and reply thereto as also the respective contentions of the learned counsel for the parties, it is quite evident and indeed is not denied by respondents that at the time when the agreement was entered into between the parties the petitioners were informed that the liability of the company towards NDFC was Rs,16.552 million. The petitioners were even disputing the correctness of the demand. It is a common ground between the parties that the petitioners were not made aware that there was another amount outstanding against the company which could not be brought out during the negotiations in compromise as the books of the respondent company itself not reflect true positions. In this factual background, the question which arises is as to whether representation by the respondents to the petitioners that the amount outstanding against the company was Rs,16.552 million, which later on proved to be incorrect, amounts to fraud and misrepresentation within the meaning of law.
11. Learned counsel for the respondents submitted that as there was no intentional or deliberate misstatement made by the respondents, no fraud or misrepresentation has been made out. This contention of the learned counsel cannot be accepted in view of section 18(3) of the Contract Act, 1872 wherein misrepresentation has been defined as under:---
(3) Causing, however innocently, a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement."
12. Reference to the provision would show that any representation, which is not correct, though innocent and not intentional would amount to misrepresentation. It was so held in Mercantile Fire & General Insurance Co. Of Pakistan v. Messrs Imam and Imam Ltd. 1989 CLC 2117. The Oceanic Steam Navigation Company, Limited v. Soonderada's Dhurumsey and others ILR 14 (1890) 241 and Sorabshah Pestonji and others v. Secretary of State AIR 1928 Bom.
17.
13. From the facts and circumstances of the case, it is quite evident that at the time when the petitioners consented to the agreement it was given to understand that the amount payable to NDFC was Rs,16.552 million but this assertion proved to be wrong as it was subsequently found that there was another amount and in addition to the two accounts which had been taken into consideration while working out the amount in question and the total liability of the company towards NDFC was Rs,35,285,890.07. The agreement is, therefore, clearly vitiated by misrepresentation and is liable to be set aside.
13-A. So far as the order passed by this Court is concerned, it was based upon the agreement. In law, it is well-settled that a consent decree or order is nothing but a contract between the parties with command of the Court is superadded to it. Consequently, if the agreement, on the basis of which the order was based, is shown to suffer from misrepresentation or fraud, the order would also fall to the ground. (See Riaz Hussain v. Mazaray Khan 1988 CLC 1129.
' For the aforesaid reasons, this application is allowed, order, dated 27-7-1993 and the compromise on the basis of which the order was based, are hereby set aside with the result that the Constitutional petition shall be deemed to be pending before this Court and shall be decided afresh on its own merits.