AJMAL MIAN, C.J.---This is an appeal with the leave of this Court against the judgment dated 25- 1-1994 passed by a learned Single Judge of the Lahore High Court in Writ Petition No, 4080 of 1992, filed by the appellant seeking reliefs mentioned in para. 10 of the memo. Of the above writ petition which inter alia included declarations and directions, dismissing the same.
2. The brief facts leading to the filing of the above appeal are that the appellant entered into a contract with a foreign firm, namely, M/s. Toyota Tsusho, Hong Kong (hereinafter referred to as the foreign supplier) for the purchase of Ring Spinning Frames at the total price of 804 million Japanese Yen. Out of the above total price the appellant was to make down payment of 15% thereof and the balance was to be paid in six years in ten bi-annual instalments by the appellant in "Pay-as-You-Earn" Scheme (hereinafter referred to as PAYE Scheme). First instalment was payable within 18 months after the last major shipment i.e, 95% of the contract value. It seems that the appellant applied to the State Bank of Pakistan (hereinafter referred to as the S.B.P.) through their Banker M/s. Allied Bank of Pakistan Limited (hereinafter referred to as. The ABPL) for the registration of the above loan agreement under PAYE Scheme. The same was registered by the S.B.P. Under Registration No,INT:P62/89 dated 6-12-1989 as intimated by the S.B.P. Through its P. Dircctor's letter, dated 6-12-1989 addressed to the Manager of the A.B.P.L.
It will not be out of context to mention that the S.B.P. Issued F.E. Circular No,76, dated 18-10-1984 for absorption of exchange risk coverage by the Government of Pakistan against payment of fee at 3% per annum on the terms and conditions contained therein. However, sub-para. (iii) of para.2 of the above Circular clarified that "the above facility is not available for credits contracted under 'Pay - as-You-EarnScheme". By F.E. Circular No,38 dated 23-6-1986 the scope of the above F.E. Circular No 76 was extended as to include the "Pay-as-You-Earn" Scheme. It was also provided therein that all other terms and conditions and procedure laid down in F.E. Circular No,76 of 1984 would apply to the PAYE cases. It will be pertinent to reproduce paras. 2 and 3 of the above Circular which read as follows: "2. It has since been decided by the Government of Pakistan to extend the exchange risk coverage facility to the foreign currency loans contracted on for after 29th May, 1986 under 'Pay-as-You- Earn(PAYE) Scheme. Sub-para. (iii) of paragraph 2 of the above F.E. Circular may be amended accordingly.
3. The borrowers of foreign currency loans under PAYE Scheme covered by para. 2 above and desirous of availing of exchange risk coverage facility are free to exercise their option to get the exchange risk underwritten by the Government, within 30 days from the date of issue of this circular or within 30 days of the relative contract whichever is later."
The above circular was followed by F.E. Circular No,26 dated 5-5-1987. Sub-para. (ii) of para. 2 thereof provided as under: "(ii) The scheme has been extended to cover the risk with effect from the date of opening of letter of credit instead of the date of disbrsement as provided in paragraph 2(iv) of F.E. Circular No, 76, dated the 18th October, 1984. This facility will, however, be available to the loans to be contracted in future and also to the existing loan agreements where-against letters of credit are opened on or after the date of issue of this Circular. The Exchange risk coverage fee for the first year will be deposited by the borrowers with the area Chief Manager of State Bank of Pakistan on the date of opening of the letter of credit. The payment of fee for subsequent periods will be settled at the time of remittance of the repayment instalments of principal/interst. For the purpose of conversion of foreign currency amounts of principal/interest into Pakistan rupees, Authorised Dealersspot selling rate obtaining on the date of opening of the letter of credit will be applied."
The above F.E. Circular No,26 was followed by F.E. Circular No, 24 dated 6-4-1989 with reference to F.E. Circular No,26, dated 5-5-1987 inter alia providing as under: "1. Attention of the Authorised Dealers is invited to F.E. Circular No,26, dated the 5th May, 1987 in terms of which exchange risk coverage facility was made available with effect from the date of opening of letter of credit.
2. It has now been decided by the Government to make it optional for the borrowers to avail of exchange risk coverage facility either from the date of opening of letter of credit or from the date of disbursement.
3. While exercising the exchange risk coverage option, the borrowers will clearly indicate whether they desire to avail of the facility with effect from the date of opening of letter of credit or from the date of disbursement. The option will be registered by the State Bank of Pakistan as per the choice given by the borrowers which will be irrevocable."
It may further be observed that para. 4 of the F.E. Circular No,24 provided the consequences for opting by the borrower to exchange risk coverage by it with effect from the date of disbursement.
The above para. 4 reads as follows: "4. In cases where the borrowers opt to avail of the exchange risk coverage with effect from the date of disbursement, the following instructions concerning conversion rate, payment of fees etc. Will be followed:
(a) Conversion of foreign currency amount or the principal/interest into Pakistan rupees will be made at the Authorised Dealersspot selling rate obtaining on the date of disbursement and exchange risk coverage fee will also be payable with effect from the same date.
(b) Exchange risk coverage fee will be payable at the rate obtaining on the date of receipt of the option in the State Bank of Pakistan.
(c) The borrowers will be required to pay exchange risk coverage fee for the period from the date of disbursement to the due date of the first repayment instalment at the time of remittance of that instalment. The fee for the subsequent period will be paid by the borrowers at the time of remittance of the relative repayment instalments. "
3. It appears that under the above contract between the appellant and the foreign supplier, letter of credit was to be opened by 31-12-1989, but the same was not factually opened. The above date of opening of letter of credit was extended by the foreign supplier up to 31-3-1990 through Addendum dated 26-2-1990. It seems that the above Addendum was presented by the appellant to the S.B.P. At Karachi which was registered under No,INT-P-62(A)/90 dated 5-5-1990 by its Exchange Control Department. It may further be stated that the appellant's bank through its letter dated 9-4-1990 requested the S.B.P. Karachi to accord post facto registration of Addendum No, T- 291, dated 26-2-1990, in which date of opening of L/C had been altered as 31st March, 1990, instead of last date of opening of L/C i.e, 31-12-1989. The above letter was responded by the P.Director of the S.B.P. Through his letter dated 3-5-1990 addressed to the Manager of the appellantsBank stating therein that the S.B.P. Had registered the Addendum dated 26-2-1990 to contract dated 11-10-1989 under the aforesaid Registration number dated 5-5-1990. It was also stated that the other terms and conditions of the contract envisaged in paras. 2 and 5 of Letter No,INT-8896/5(283)-89, dated 6-12-1989 shall, however, remain unchanged.
It seems that in response to the appellant's Bank Letter No,MC/FEX/90 dated 14-5-1990 for providing exchange risk coverage, P.Chief Manager, S.B.P. Through his letter dated May, 1990 addressed to the appellant's Bank stated as follows: No,DAD/1499/90 DEPOSIT ACCOUNTS DEPARTMENT.
May, 1990 The Manager Allied Bank of Pakistan, Cantt: Branch, Multan.
Dear Sir, EXCHANGE RISK COVERAGE OF JAP:YEN 804,000(M) UNDER OUR L/C NO:90/010/MCBM/0248 UNDER PAY AS YOU EARN SCHEME A/C. M/S.FATIMA ENTERPRISES LIMITED, MULTAN.
Please refer to your Letter No, MC/EX/90, dated the 14th May, 1990 on the subject noted above.
We have to advise that in terms of instructions contained in F.E. Circular on the subject the exchange Risk Coverage options are required to be exercised within one month from the date of finalisation of the contracts i.e, within one month from the date of registration without Exchange Control Department at Karachi. Since, in this case you have not applied for registration of the option within the prescribed time limit, their request for registration option cannot be acceded to by us.
Yours faithfully, (Sd.)
(AZHARUL HASSAN) P. CHIEF MANAGER Encl.(18)."
In response to the above letter the appellant filed an appeal dated 20-5-1990 addressed to the Director, S.B.P., Exchange Control, Karachi, in which it was inter alia averred they exercised option under F.E. Circular No, 76 read with No,38 within 30 days of the registration of the Addendum.
However, it was also prayed to review/condone their request by allowing S.B.P., Multan to book exchange risk coverage from 3-5-1990 against irrevocable payment guarantee.
4. It appears that the appellant received a letter from Assistant Economic Adviser, Ministry of Finance, External Finance Wing, Government of Pakistan Letter No,F.4(47)EF(C)/87-938, dated 13/17- 4-1992 addressed to them which reads as follows: "M/s.Fatima Enterprises Ltd., Head Office Fazalabad, Vehari Road Multan Tlx: 42331-FELMN PAK SUBJECT: EXCHANGE RISK COVERAGE. Dear Sir, I am directed to refer to your letter dated. (No date given) on the above subject and to say that it has been decided to condone the delay in exercise of exchange risk option by M/s. Fatima Enterprises Ltd. In respect of loan agreement registered with S.B.P. Vide Letter No,INT: 8996/5(283)-89, dated. 6-12-1989 on the exchange rate obtained on the date of option subject to following:
(i) the exchange risk coverage will be available with effect from the date of receipt of option in the State Bank of Pakistan (SBP) on the basis of the letter.
(ii) the exchange risk coverage fee will be charged w.e.f, the date of receipt of exchange risk coverage option in the S.B.P.
(iii) conversion of foreign currency amounts of the principal/interest into Pak. Rupee will be made at the Authorised Dealer's $pot T.T. And O.D. Selling rate obtaining on the date of receipt of exchange risk coverage option in the S.B.P.
(iv) one year fee will be deposited simultaneously with the exercise of the option."
That the conditions contained in the above quoted letter were not accepted by the appellant inasmuch as their case was that they were to be governed by the above F.E. Circular No,76 read with F.E. Circular No,38.
5. It seems that the matter was again referred to the Government of Pakistan by the S.B.P. The P.Director of the State Bank of Pakistan through his Letter No,8038//ECP-16(351)-92, dated 27-9- 1992 addressed to the Chief Manager, S.B.P., Multan directed him as under: "The Chief Manager, State Bank of Pakistan, Multan.
Dear Sir, EXCHANGE RISK COVERAGE OPTION ACCOUNT M/S FATIMA ENTERPRISES LIMITED.
Please refer to our Endt. No,5226/ECP-16(351)-92, dated the 22nd June, 1992 on the above noted subject.
As L/C has already been opened, machinery arrived and cover is being made available to the borrowers from a date falling after the date of disbursement, it has been decided in consultation with the Ministry of Finance that one year's fee in advance will not be recovered from M/s. Fatima Enterprises Limited. The exchange risk coverage fee for the first time will be recovered at the time of remittance of first instalment of principal/interest or that of interest alone as the case may be. You may, however, call for documentary evidence confirming that machinery has already reached the country before exercise of the option. Yours faithfully (Sd.)
(ABDUL JABBAR FATTANI), P. Director."
After that the appellant's Bank through letter addrssed to the P. Chief Manager, S.B.P., Multan dated 7-4-1991 submitted six bills of entry pertaining to goods imported under L/C No,90/010/MCBM/0248.
Thereafter, the P.Chief Manager, S.B.P., Multan through his letter, dated 12-10-1992 addressed to the appellant's Bank intimated acceptance of the option of exchange risk coverage on the terms and conditions contained therein which reads as follows: "Please refer to your Letter No,MC/FEX/92, dated 20th August, 1992 regarding the above noted subject.
We have to advise that your request to make available to you J.Y.837,165,000 (Principal amount JY.683,400,000 Interest J.Y.153,765,000) of repatriable foreign currency loan has been registered with us from the date of disbursement in respect of M/s. Fatima Enterprises Ltd. Multan subject to the following terms and conditions concerning conversion rate, payment of fee, submission of repayment schedule and an irrevocable standing payment authority:-
1. The Exchange Risk Coverage will be available from the date of disbursement. Date of disbursement means the date of issue of relative Bill of Lading (Para. 2 (vi) of F.E. Circular No,76 of 1984.)
2. The Exchange Risk Coverage fee will be charged from the date of disbursement.
3. The Exchange Risk Coverage fee will be charged at tie rate obtaining on the date of disbursement.
4. The conversion of foreign currency amount of Principal/interest into Pak Rupees will be made available at the Authorised Dealers spot selling rate obtaining on the date of disbursement. You are further advised to please furnish us with three copies of repayment schedule duly registered with State Bank of Pakistan and an irrevocable standing authority of the nominated bank in favour of Government of Pakistan in the prescribed format in due course."
Upon receipt of the above letter the appellant furnished a bank guarantee of about Rs,eleven crore on or about 19-10-1992.
6. It appears that the matter did not rest on the issuance of the above letter.
The S.B.P. Disowned the commitment made under above letter dated 12-10-1990 Thereupon, the appellant filed the above writ petition, which was dismissed by a learned Single Judge by the aforesaid judgment. Against the above judgment the appellant filed a petition for Leave to Appeal.
Which was granted to consider the contentions raised by the learned counsel for the appellant and the respondents inter alia as to the effect of condonation of the delay in exercise of the option by the appellant.
7.(a) In support of the above appeal Mr. M. Akram Sheikh, learned senior counsel appearing for the appellant, has contended as follows:
(i) That the Addendum, dated 26-2-1990 issued by the foreign supplier altering the last date of opening the L/C from 31-12-1989 to 31-3-1990 amounted to a fresh contract in terms of F.E. Circular No, 76 read with F.E. Circular No,38 and as the appellant got the same registered with the S.B.P. On 5-5-1990, they exercised the option within thirty days in terms of para. 3 of F.E. Circular No, 38 and hence the S.B.P. Was not justified in declining to extend the foreign exchange risk coverage in terms of above F.E. Circular No,76 read with F.E. Circulars Nos. 38, 26 and 24.
(ii) That since the Government of Pakistan condoned the delay, if any, in the exercise of the option for covering the foreign exchange risk, the effect was that the parties were placed in the same position as if there was no delay.
(iii) That under the above F.E. Circulars the competent authority was the P. Chief Manager, S.B.P., Multan and, thus, the S.B.P. Could not have wriggled out from their commitment contained in their letter, dated 12-10-1990, which was acted upon inasmuch as the appellant furnished bank guarantee on or about 19-10-1992 in terms of the above letter for about Rs, eleven crore.
(b) On the other hand, M/s M. Bilal, learned senior counsel for the S.B.P. And Maulvi Anwarul Haq, learned Deputy Attorney-General appearing for the Federation, respectively, have contended as under:
(i) That since the appellant's loan agreement under PAYE Scheme was registered on 6-12-1989 by the S.B.P. The appellant was to exercise option within thirty days as per para. 3 of F.E. Circular No,38, which they had not exercised and, therefore, the S.B.P. Was not bound to provide exchange risk coverage.
(ii) That the above Addendum dated 26-2-1990 cannot be treated as a fresh contact in order to treat its registration on 5-5-1990 for the purpose of exercise of option for exchange risk coverage within 30 days.
(iii) That the appellant by suppressing the fact, namely, that were corresponding with the S.B.P. At Karachi obtained the above letter dated 12-10-1992 from the P.Chief Manager S.B.P., Multan for the coverage of foreign exchange risk and, therefore, the same is not binding.
8. Firstly, we may take up the question, as to whether the above Addendum dated 26-2-1990 can be treated as a fresh contract between the appellant and the foreign supplier. In this behalf Maulvi Anwarul Haq, learned Deputy Attorney-General has referred to the judgment of this Court in the case of The Central Bank of India, Ltd. v. Muhammad Islam Khan (PLD 1962 SC 251) in which this Court while dealing with the concept of 'novation of contracthas held as under: "It is difficult to accept the plea raised on behalf of the respondent in the Courts below that there was a novation of the contract between the parties or that the old contract was substituted by a new one, by the mere circumstances that time was given for payment of the sum which has already become due, after unqualified acceptance of the bills. By mere extension of time for the performance of a contract, novation does not necessarily take place but the promisee gets certain rights under section 63 of the Contract Act. It is only when a new term is introduced in a contract that novation may be said to have resulted therefrom. For instance, by mere extension of the time for delivery of goods, there is no such alteration of the original contract as to operate as a rescission thereof, within the meaning of section 62 of the Contract Act. It is clear on the facts that in the present case there was no rescission of the previous contract by the substitution of an entirely new contract inter partes. All that happened was that in consideration of payment of interest at a certain rate, the appellant bank agreed to forbear from demanding payment till the date of the arrival of the goods in Port. The nature of the debt already incurred by the acceptor of the bills on their maturity, could not be altered by an agreement to postpone its payment. It there had a qualified acceptance of the bills, within the meaning of section $6 of the Negotiable Instrument Act, the argument of novation might have had substance. However, here the acceptance was unconditional and unqualified and the bills had matured by a regular demand being made for payment, before time was granted for making the actual payment at the debtor's request. If there was to be a variation of the original contract, it was necessary to indicate it in the endorsement of acceptance itself, on the face of the bills, in clear and unequivocal terms. It seems to us, therefore, that this was not a case of substitution of the old agreement by a new one and the High Court view to the contrary is not sustainable."
The perusal of the above quoted extract from the above judgment indicates that mere extension of time for the delivery of goods does not constitute novation of contract in terms of section 62 of the Contract Act but the same is covered by section 63 of the above Act, which provides that "Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit".
In this view of the matter, the contention of Mr. M. Akram Sheikh, learned senior counsel that the above Addendum dated 26-2-1990 was a fresh contract is not tenable.
9. Adverting to Mr. M. Akram Sheikh's submission that since the Government of Pakistan had condoned the delay in the registration of the loan agreement, the parties were placed in the same position as if there was no delay in exercise of the option for the foreign exchange risk coverage, it may be stated that the above condonation was not unconditional but was subject to four conditions contained in the above letter dated 13/17-4-1992 quoted hereinabove in para.
4. Admittedly the appellant did not comply with the aforesaid conditions. The above contention also fails.
10. Adverting to the last submission of Mr. M. Akram Sheikh, namely, that under the above F.E.
Circulars the competent authority was the P.Chief Manager, S.B.P., Multan and, thus, the S.B.P.
Karachi could not have wriggled out from its commitment contended in its letter dated 12-10-1992, which was acted upon inasmuch as the appellant furnished bank guarantee on or about 19- 10- 1992 in terms of the above letter for about Rs, eleven crore, it may be stated that the S.B.P. With the concurrence of the Ministry of Finance agreed to provide foreign exchange risk converage option to the appellant in terms of above quoted Letter No,8038/ECP/16(351),92, dated 27-9-1992 written by the P.Director, S.B.P., Karachi addressed to the P. Chief Manager, S.B.P., Multan. Pursuant to the above letter the appellant through its Bank's aforesaid letter, dated 7-10-1992 submitted six bills of entry pertaining to the import of the machinery as a piece of evidence in terms of above S.B.P's. Letter dated 27-9-1992 for showing that the machinery had already reached in the country before exercise of the option. After that the P.Chief Manager, S.B.P., Multan issued the aforesaid Letter No,OAD/38/92, dated 12-10-1992 offering to cover the foreign exchange risk on the terms and conditions contained therein. Pursuant thereof as stated above the appellant furnished a bank guarantee of about Rs, eleven crore. The contention of M/s. M. Bilal and Maulvi Anwarul Haq that the above letter was obtained by the appellant from the P. Chief Manager,. SBP, Multan by suppressing the material fact about the correspondence between them and the S.B.P., Karachi seems to be not correct. However, it appears that the P.Chief Manager, S.B.P., Multan could provide the foreign exchange risk coverage in terms of the aforesaid letter dated 27-9-1992 quoted hereinabove in para. 5 issued by the P.Director, S.B.P., Karachi to the P.Chief Manager, S.B.P., Multan with the concurrence of the Finance Ministry, Government of Pakistan. In our view, any term or terms in the above P.Chief Manager, S.B.P., Multan's letter dated 12-10-1992 contrary to what is contained in P. Director, B.P.S., Karachi's letter dated 2-9-1992 is not legal and binding on the S.B.P.
For the reason that the appellant had failed to exercise the option within the period of 30 days as envisaged by para. 3 of the aforesaid F.E. Circular No,38 for covering the foreign exchange risk in respect of the above loan agreement and, therefore, the State Bank with the concurrence of the Government of Pakistan as a special case agreed to provide the above foreign exchange risk coverage in terms of the above Letter No,8038/FCP/16(351)-92, dated 27-9-1992. In our view the above letter is binding on the State Bank.
11. We would, therefore, allow the above appeal and set aside the judgment under appeal and would hold that the appellant is entitled to have the coverage of foreign exchange risk in respect of the above loan agreement in terms of the P. Director, S.B.P., Karachi's aforesaid Letter No,8038/ECP/16(351)-92, dated 27-9-1992 read with the aforesaid F.E. Circulars.
The State Bank shall calculate the amount which is payable by the appellant in terms of the above documents and may recover the same from the bank guarantee furnished by the appellant in terms of the order of this Court dated 14-1-1999. The above bank guarantee dated 4-2-1999 was deposited by the learned counsel for the appellant with the Additional Registrar (Judicial) and the same would be handed over to Mr. M. Bilal as already ordered on 15-3-1999.
The appeal stands disposed of as above. There will be no orders as to costs.