P L D 1993 Supreme Court 292 (PLP)

SAAD SAOOD JAN, J.‑‑ This is an appeal by special leave from the judgment dated 6‑8‑1988 of the Lahore High Court, affirming the judgment and decree of the Senior Civil Judge, Sialkot, in a suit for possession through specific performance of contract.

2. M/s. Rahim Industries Pakistan Limited, respondent No.1, is a private limited company. It obtained two'plots, bearing Nos.47‑A and 48‑A (halo on lease from the Pakistan Small Industries Corporation (hereinafter referred to as the Corporation), in the Small Industries Estate at Sialkot. Ii constructed a factory building thereon. On 16‑10‑1978, through its Managing Director, Humayun Iqbal Sheikh, it entered into an agreement with the appellant for the sale of the factory building for a sum of Rs.4,75,000 and received Rs.10,000 by way of earnest money. The terms of the agreement were incorporated in a document executed on the same date by both the parties. One of the terms of the agreement provided that the appellant would pay all the amounts due in respect of the plots and that the payments made on this account would be adjusted against the price of the factory building. Soon after the execution of the agreement respondent No.1 applied to the Corporation for permission to transfer the plots to the appellant. The Corporation accorded the permission on 22‑7‑1979.

3. Apparently, respondent No.1 had obtained a loan from the Muslim Commercial Bank and by way of security it had mortgaged the factory building with the Bank. It also owed a sum of Rs.50,000 to the Corporation. The Bank obtained a decree against it and took out execution proceedings. On its request the appellant arranged with the Habib Bank Limited, Sialkot Cantonment, to be a surety in the sum of Rs.2,00,

000. This arrangement remained valid for 2 months, but it does not appear that respondent No.1 took advantage of it. It, however, cleared the decretal amount from its own resources.

4. There was some correspondence between the appellant and respondent No.1 in which the parties accused each other of violating the agreement of 16‑10‑1978. Ultimately, on 6‑10‑1980 the appellant filed a suit for specific performance of the agreement. During the pendency of the suit respondent No.1 sold the factory building to respondent No.2. In view of this changed position the appellant amended its plaint and impleaded respondent No.2 as well.

5. The suit was resisted by the respondents on a number of grounds. It was inter alia alleged that Humayun 1qbal Sheikh was not competent to enter into any agreement for the sale of the factory building with any one; there was no concluded agreement between the parties and that the parties were merely negotiating terms upon which the property in dispute might be sold to the appellant; and, that the appellant had been guilty of breach of the agreement inasmuch as it had failed to carry out its obligation with regard to paying mortgage amount to the Muslim Commercial Bank and the sums due to the Corporation.

6. After considering the evidence led by the parties the trial Court found that the document of 16‑10‑1978 represented an agreement for the sale of the factory building and that it was not merely a record of the negotiations preliminary to the entering of an agreement. However, it held that Humayun IqbaI Sheikh was not competent to enter. into an agreement on behalf of respondent No.1, and thus there was no legal agreement for the sale of the factory building between the parties. Accordingly, it dismissed the suit.

7. From the judgment of the learned trial Court the appellant filed an appeal in the High Court, After reappraising the evidence a Divison Bench came to the conclusion that under the Articles of Accociation of respondent No.1 its managing director, Humayun Iqbal Sheikh, had all the power to enter into an agreement of the nature incorporated in the document of 16‑10‑1978; further, there was a valid agreement between the parties for the sale of the factory building to the appellant; however, the appellant had violated a very material term of the agreement by not paying off the amounts due to the Bank and the Corporation and as such it had been guilty of the breach of the agreement; the appellant had brought the suit with inordinate delay which disentitled it to the equitable relief of specific performance; accordingly, it declined to interfere with the judgment of the trial Court. The appellant has now come in appeal to this Court.

8. Leave to appeal was granted to the appellant to consider the contention of the appellant that the Courts below had misconstrued the agreement by assigning to it the liabilities which did not belong to it with the result that it had been wrongly held to have violated the terms of the agreement. .

9. The document executed by the parties on 16‑10‑1978 is Exh.P.W.3/2 on the record. The material terms of the agreement read as follows:‑‑ As already noticed, respondent No‑1 had taken a loan from the Muslim Commercial Bank and had mortgaged the factory building to secure the loan. The amount of the loan was about Rs.4,00,

000. The Bank had obtained a decree against it. Subsequently, it cleared off the decretal amount from its own resources. Apart from that respondent No.1 owed a sum of Rs.50,000 to the Corporation. This amount was subsequently paid by respondent No.2. The High Court was of the view that without the payment of the loan to the Bank and the dues to the Corporation the factory building could not be sold nor could the sale‑deed be executed and registered in favour of the appellant; further, the appellant made no effort to liquidate its liabilities under the agreement in the matter of payment of the Bank's loan and the Corporation's dues and it was due to the non‑fulfilment by the appellant of the most essential condition of the agreement, namely, payment of A outstanding dues in respect of the factory building, that the sale in its favour could not be finalized.

10. It is difficult to subscribe to the view taken by the High Court. Admittedly, at the request of respondent No. 1, the appellant had arranged with the local Branch of Habib Bank to act as surety in the sum of Rs.2,00,

000. This surety was valid for a period of two months. There is nothing on the record to show that respondent No.1 had asked the appellant to provide surety in a larger amount. Respondent No.1 has also not offered any explanation why it did not avail of the surety which was actually furnished within the said period. In fact no one appeared on its behalf to state that it had at any, stage called upon the appellant to clear off the mortgage debt iv accordance with. the terms of the agreement and that the appellant had declined to do so. As regards the amount owing to the Corporation it is no doubt true that under the agreement of 16‑10‑1978 it was to be paid by the appellant and that it did not do so till the institution of the suit. However, the non‑payment of the dues could hardly stand in the way of completing the sale as the amount thereof was to be adjusted against the price of the factory building. The respondents led no evidence to show that the non‑payment of the said amount had put respondent No.1 in a disadvantageous position or otherwise harmed his interests in any manner. In the circumstances the omission of the appellant to pay the dues of the Corporation can hardly furnish a justification to deny specific performance of the agreement, particularly when respondent No.1 had received a fairly substantial amount by way of earnest money.

11. It was contended on behalf of the respondents that shortly after the execution of the deed of 16‑10‑1978 the appellant had lost interest in the property in dispute and therefore it was not keen to complete the sale. In this context reliance was placed upon a letter written in August, 1980, by the Joint Director of the Corporation to respondent No.l. This letter is Exh.DW.1/2 on the record. The relevant extract from the letter reads as follows: "The case for the sale of your prouect (sic) to M/s. Aman Industries has already been disposed. of in a way that the party somehow or the other was not interested to purchase your factory building and this Corporation has already allotted one '13' category plot to them for the establishment of their unit at SIE, Sialkot. No other case except as mentioned above for the sale of your unit, is building (sic) in the Head Office. As far as the surcharge levied on PSIC due is concerned, it cannot be waived off at this stage and you will have to pay the entire amount of PSIC over dues including surcharge. You are, therefore, advised in your own interest to deposit the entire amount of overdues with PSIC and produce clearance certificate to this effect. You are also advised to submit your case for the sale of project, if you have any intending purchaser at present, with full justification and detail through the Joint Director, Zone, PSIC, Lahore." The recital in the letter that the appellant was not interested in purchasing the factory building was merely an opinion of the Joint Director. He has not given any reason in support of his opinion. He was not examined by the respondents and thui the appellant was denied the opportunity of eliciting the basis of his opinion. The mere fact that the appellant had already been allotted a '13' category plot did not necessarily imply that it was no longer interested in acquiring the factory building.

12. As regards the delay in bringing the suit it is to be noticed that the agreement was entered into between the parties on 16‑10‑1978. The Corporation gave its permission for the sale on 23‑7‑1979. Thereafter correspondence ensued between the parties. When the appellant came to know that respondent No.1 was intending to sell the property in dispute to some one else it had a notice published in a national newspaper giving publicity to the agreement for sale in its favour. It is therefore quite clear that at no stage the appellant had given up its rights under the agreement so as to give an impression to respondent No.1 who had received a substantial amount by way of earnest money, that it was no longer interested in the agreement. In the circumstances there is no reason why it should have been denied specific perfornance of the agreement.

13. It was stated on behalf of respondent N6.2 that it was not aware of the agreement of 16‑10‑1978 between respondent No.1 and the appellant when it purchased the factory building; subsequently, it made huge investments on the plots in question and raised a factory which at its present value was worth more than Rs.2 crore; thus, it was not a fit case where specific performance of the agreement should be allowed. This contention is without any merit. The rule of lis pendens is fully applicable in this case as respondent No.2 purchased the factory building during the pendency of the suit. If it had made any inquiries from the office of the Corporation it would have come to know, if it had not learnt otherwise earlier, that an agreement for the We of the factor building existed between the appellant and respondent No.l. There is hardly any equity in its favour.

14. For the reasons stated above we accept this appeal, set aside the judgments of the Courts below and grant a decree for the specific performance as prayed by the appellant. There will be no order as to costs. AA./A‑991/S Appeal accepted.