P L D 1968 Supreme Court 398 (PLP)

HAMOODUR RAHMAN, J.‑These two appeals, by the special leave of this Court, arise out of the same judgment of a Division Bench of the High Court of East Pakistan, whereby a petition under Article 98 of the Constitution filed by the respondent company was accepted and a notification issued by the Governor of East Pakistan, in exercise of powers conferred by rule 181 of the Defence of Pakistan Rules, authorising the East Pakistan Industrial Development Corporation, Dacca, to carry on the trade and business of the respondent‑company until further orders, was declared to have been made without lawful authority and to be of no legal effect. One of these appeals has been filed by the Province of East Pakistan itself and the other by the Chairman, East Pakistan Industrial Development Corporation. They both complain that the High Court was not justified in declaring the impugned notification illegal. The respondent‑company is a public limited company which was incorporated in Pakistan on the 10th of February 1963, with its registered office at Khalispur, P. S. Daulatpur, in the district of Khulna. One Mr. S. L. Sethia, who was then an Indian national, it is alleged, was induced to promote this company by Mr. Ghulam Faruque, the then Chairman of the E. P. I. D. C., which bad also promised to finance the venture to the extent of Rs. 30 lacs if Mr. Sethia put in another Rs. 30 lacs. Mr. Setbia, it is said, agreed to set up a jute mill in Khulna and invest Rs. 30 lacs in it provided facilities were allowed to bring capital from outside Pakistan with an assurance that there would be no difficulty raised on this account from any Government Department in future. This assurance was, it is maintained, given by the E. P.1. D. C. by its letter of the 25th of August 1953, by which the bringing in of capital to the extent of Rs.20 lacs from outside Pakistan was approved, whatever the means employed, and the promotors were assured that a consolidated certificate would be issued to this effect after the amount brought in has been deposited with the E. P. I. D. C. Mr. Sethia claims that acting on this assurance he contributed Rs. 30 lacs towards the proposed share capital of the company by purchasing shares in his own name and in the names of members of his family and friends. But neither the East Pakistan Industrial Development Corporation nor the Pakistan Industrial Finance Corporation fulfilled their promise. Hence to complete the construction of the mill and to place it in a running condition, it is alleged, Mr. Sethia had ultimately to invest nearly Rs. 100 lacs but then the State Bank of Pakistan raised objections to the allotment of shares in the names of non‑residents, except two, namely, Mr. S. L. Sethia himself and one Mr. B. R. Bhandari. These two were permitted to hold shares up to the extent of Rs. 1,50,000 and Rs.25,000 respectively provided they agreed not to demand repatriation of capital or dividend outside Pakistan. This difficulty in the allotment of shares to persons who had contributed towards the investment made in setting up the mill was ultimately resolved through the intervention of the E.P.I.D.C. A formula was arrived at whereby capital brought from outside Pakistan was permitted by the State Bank of Pakistan to be invested in the names of Pakistani nominees of the foreign investors provided the E.P.I.D.C., certified that the shares had been allotted to Pakistanis. These nominees were mostly employees of the company in whom Mr. Sethia could place his trust. The E.P.I.D.C. also gave the required consolidated certificate on the 8th of January 1958, but after the promulgation of Martial Law in October 1958, non‑residents were called upon to declare their assets in Pakistan. In compliance with this order the company submitted to the State Bank of Pakistan its list of non‑resident investors and their nominees on the 31st of December 1958. In this list the name of the Pakistani nominee was shown first as the registered share‑holder and then the name of the person whom he represented was given along side. This list disclosed that, apart from Mr. Sethia and Mr. Bhandari, there were only two other genuine Pakistani share holders, namely, one Mr. H. P. Bhiman holding 1,000 shares and one Mr. A. Azim holding 750 shares. The State Bank of Pakistan, however, refused to recognise the investment of non‑residents through Pakistani nominees. This created a panic among the non‑resident investors who had not obtained permission even of their own respective Governments for sending the funds out to Pakistan. The Income‑tax Authorities at Chittagong also started sending registered letters to such non‑resident investors asking them to disclose what funds, if any, they had invested in this company. Due to their panic they totally denied that they had invested any funds in the company but at the same time continued to press Mr. Sethia to refund their moneys to them. Mr. Sethia was, it is said, ultimately compelled to pay them off out of his own funds and thus, it is claimed, he had to buy up the entire interest of these foreign investors between 1961 and 1962 in the name of himself, his wife, children and relations. It appears that after this Mr. Sethia did also move the Ministry of Finance, the Income‑tax Authorities and the State Bank of Pakistan to have the position regularized by allowing him to hold the shares formerly held by nominees of non‑resident investors in the name of himself, his wife, children and some other relations. A revised list was, accordingly, submitted in February 1963, by which time Mr. S. L. Sethia and his son Mr. R. S. Sethi& had, it is said, both acquired British nationality. The rest of the Sethias mentioned in the revised list, however, still remained Indian nationals. The State Bank of Pakistan declined to agree to the transfer of any share in the company which may either increase the holding of non‑residents beyond Rs. 1,75,000, as previously approved, or disturb the present position of the remaining shares. The result, therefore, was that the shares remained allotted to the persons mentioned in the list approved by the E.P.I.D.C. and the State Bank of Pakistan on the 30th of April 1959. The Share Register thus ex facie showed only two non‑resident share‑holders, namely, Mr. S. L. Sethia and Mr. Bhandari. Subsequently between 1963 and 1965 shares of four non‑Muslim Pakistanis were shown as transferred in favour of three Muslim Pakistanis. For this no permission of the State Bank of Pakistan was necessary because the proportion between Pakistani and non‑Pakistani share‑holders remained the same. In September 1965, when the Defence of Pakistan Ordinance was promulgated the position was that on the share register there were only two approved non‑Pakistani share‑holders, of whom one was an Indian and the other claimed to be a British national, and out of the four Directors of the company three were Pakistani citizens and one was a British national, namely, Mr. S. L. Sethia himself. Mr. S. L. Sethia claims that he acquired British citizenship on the 23rd of September 1959, and holds a British Passport since then. His wife Mrs. Ratan Kumari Sethia became a British national in August 1965. His son Mr. Ranjit Singh Sethia is a born British national and the latter's wife Mrs. Shanta Sethia is also a British national. According to Mr. Sethia's contention, therefore, since he has paid off all other non‑resident investors, the entire share capital of the company is now in fact being held by Britishers and Pakistanis, except for the shares held by Mr. Bhandari. Apart from this, he maintains that there is no employee or officer In the company who is an Indian National. In these circumstances, the respondent‑company contended before the High Court that the company was, by no means, an enemy concern and, therefore, no order under rule 181 of the Defence of Pakistan Rules could have been made for the taking over of the company. On these facts, however, the High Court came to the conclusion that although prima facie on the records there was only one Indian share‑holder, namely, Mr. Bhandari, the company was substantially owned by Indian share‑holder: through their Pakistani nominees who were mere benamdars. But it was accepted that there was no Indian Director or officer of the company. It was not accepted that Mr. Sethia had purchased out the other Indian share‑holders between 1961 and 1962, for, the transfer forms recovered along with the share scripts were found to be totally blank except for the signatures of the Pakistani benamdars. Therefore, so far, at any rate, as the Registrar of Joint Stock Companies and the State Bank of Pakistan and the respondent‑company itself were concerned these shares could, it was held, be regarded in law as belonging only to Pakistani share‑holders. In view of this legal position the High Court held that the respondent‑company did not come within the ambit of the definition of an "enemy firm" given in rule 169(2)(c) of the Defence of Pakistan Rules, as it originally stood. The argument that this rule had since been amended in November 1965, with retrospective effect from the date on which the Defence of India Rules first came into operation and, therefore, the respondent company was clearly now an enemy firm under this amended definition, was not accepted by the High Court as sufficient for validating an order made before the amendment was introduced, for, it was said, the mind of the authority could not possibly have been directed to any other essential of rules 169 or 181 except those which were to be found in them as they originally stood. The Government's further contention that the facts relevant to be considered under the amended provisions were also taken into consideration at the time of issuing the impugned notification did not also find favour with the High Court, because, this fact had not been disclosed in the first affidavit‑in‑opposition filed on behalf of the Government but was incorporated only in a supplementary affidavit. The condition precedent to the exercise of the powers cinder the Defence of India Rules was, therefore, found to be lacking in the present case, for, rule 181 did not give any power to the Government to make any order affecting any firm which was not an enemy firm. Besides this, the High Court also took the view that the impugned notification had been made in violation of the principles of natural justice, as no opportunity to show cause was given before making the impugned order even to the Pakistani share‑holders. The rule, as already stated was accordingly, made absolute and the notification was declared to have been issued without lawful authority. Leave was granted in this case to consider whether the relevant provisions of the Defence of Pakistan Rules had been properly interpreted and applied by the High Court and what, if any, was the effect of the retrospective amendment made in rule 169 by the Defence of Pakistan Ordinance No. 46 of 1965. The learned Advocate‑General, appearing for the Province of East Pakistan, has, of course, contended that the Company come within the mischief of definition of an "enemy firm" given in rule 169 even in its unamended form. According to the learned Advocate‑General in order to ascertain the true status of the company one has to go behind the veil of its incorporation. In the present case, after this facade of the company and its place of registration is removed one finds that in substance, upon the admissions of Mr. Sethia himself, the directors and shareholders in Pakistan are mere name‑lenders, for, the effective control is that of the non‑resident Indian shareholders. Alternatively, the learned counsel contends that since the amendment takes effect retrospectively and the company clearly comes within the mischief of the amended definition it is not open to the company now to contend that it is not an enemy firm or to challenge the validity of the impugned order. As regards the reasons given by the High Court for not accepting this last contention the learned counsel points out that even in the first affidavit of Mr. M. M. Rehman, Section Officer, Commerce and Industries Department, Government of East Pakistan, it had been clearly stated that the relevant authority had before taking action under rule 181 of the Defence of Pakistan Rules applied its mind "to the fact that 95 % of the interests of the company are held by the Indian investors in the benami of Pakistan nationals and the company is run by the Indian investors through the Board of Directors who are none but the nominees of the Indian directors." The definition of an "enemy firm" as given in rule 169 before its amendment was, so far as is relevant for our purposes, to the following effect:‑ "169 (2) `Enemy firm'‑`enemy firm' means‑ I . (a) . . . . . . (b) . . . . . . (c) any company, whether incorporated in Pakistan or not, of which any officer is an enemy subject, and which is carrying on business in Pakistan, or (d) any person or body of persons, whether incorporated or not, who or which in the opinion of the Central Government is carrying on business in Pakistan. (i) under the control whether direct or indirect of any enemy subject, or (ii) wholly or mainly for the benefit of enemy subjects generally or any class of enemy subjects or any individual enemy subject;" An "Enemy subject" has been defined in the same rule as: (a) any individual who possesses the nationality of a State at war with Pakistan, or having possessed such nationality at any time has lost it without acquiring another nationality, or (b) any body of persons constituted or incorporated in or under the laws of such State;" It will thus be observed that in the unamended definition a company becomes an "enemy firm" under clause (c) of rule 169 (2) only if an officer of it is an enemy subject and it is carrying on business in Pakistan. Learned Advocate‑General contends that since in the case of the respondent‑company the Pakistani directors were merely benamdars and or representatives of the Indian shareholders, they are to be deemed, for the purposes of ascertaining the true status of the firm, to be clothed with the status of their principals or the real owners of the shares who were undoubtedly enemy subjects and, therefore, for all intents and purposes, the company was an enemy firm. If this had been the true intention of the definition, given in, clause (c) above, then it would have been wholly unnecessary tog incorporate in it clause (d), because, clause (d) visualises the position where a Pakistani citizen is carrying on business under the control, whether direct or indirect, of an enemy subject, or mainly for the benefit of any enemy subject, e.g. as a benamdar or a representative. The contention, therefore, that an officer in clause (c) includes a director who holds shares as a representative or benamdar of a share‑holder who is an enemy subject clearly appears to be untenable. Unfortunately clause (d) cannot be invoked in aid in the present case, for, thereunder a further condition has to be fulfilled, namely, that the Central Government must have formed the opinion that the conditions mentioned in sub‑clauses (i) and (ii) of this clause have been satisfied. No such opinion has been. formed by the Central Government in the present case nor has the Central Government delegated its power of forming such an opinion to any Provincial Government. I am unable, therefore, to accept that the company came within the mischief of the unamended definition of an "enemy firm" as given ,(p rule 169 of the Defence of Pakistan Rules. It is clear, however, that after the amendment the company, constituted as it is, does come within its ambit, even without lifting the veil or going behind the facade of its incorporation. In its amended form clause (c) now reads as follows :‑ "(c) any company, whether incorporated in Pakistan or not, of which any member, share‑holder or officer is an enemy subject, and which is carrying on business in Pakistan." It is admitted that at least one member, namely, Mr. Bhandari is even now an Indian national and, therefore, under this amended definition the company is an enemy firm, without going into the question as to whether Mr. Sethia and the members of his family were British subjects at the relevant time, that is to say, in September 1965. The objection raised by the High Court to making this definition operative retrosctively against the respondent‑company is that since the amendment came after the impugned order was made, the authority making the impugned order could not have applied his mind to the question as to whether any member or share‑holder of the company was an Indian national. All that he was concerned in finding out at the time when the impugned order D was made was as to whether any officer of the company was an Indian subject. This may be so theoretically but what, if he actually did consider, other matters which, though not relevant then, have become relevant now? There can be no doubt that the authority did in fact consider, as stated in the affidavit‑in opposition, that 95 % of the interest of the company was held by Indian investors in the benami of Pakistan nationals. To my mind the question before the Court was as to whether the impugned order made prior to the amendment was a valid order on the date it was sought to be challenged. Now that the amendment has enlarged the scope of the definition by providing that even if a single member or shareholder of a company is an enemy subject, the company will become an "enemy firm", the respondent‑company is an enemy firm but the objection raised is that a voluntary finding upon a question, which the authority was not legally required at the relevant time to consider, cannot be relied upon to support the order. The satisfaction of the legal requirements postulated, it is said, an enquiry only as to other irrelevant or extraneous facts, even though such facts became relevant subsequently. I am, for my part, unable to agree with this contention. In my view the validity of the impugned order has to be determined on the basis of the law prevailing at the time it is challenged and if it can be shown that the order has been made after duly complying with even the requirements of the law as altered then I can see no reason why the order should not be upheld as a valid order. It has; of course, been argued on behalf of the authorities that the order has been made upon proper application of the mind of the authority concerned to the relevant facts and circumstances required to be considered both before the law was amended and after the law was amended. 1t may well be that under the unamended provision it was not necessary to consider certain facts but if such additional facts as were then takers into account are subsequently also required by law to be considered, must the order be declared to be bad even though the subsequent require ment of the law has been satisfied by the authority? I think riot. There can be no point, in my view, in requiring the authority to repeat the process oh again formally recording that it was satisfied after applying its mind even to the subsequent conditions. If this were the only point, I would have upheld the point of view of the Government that the respond‑company is an enemy firm, in respect of Which an order under rule 181 can be made. Rule 181, however, is in these terms :‑ "

181. Power to carry on business of enemy firm. (1) Where it appears to the Central Government that the control or management of an enemy firm has been, or is likely to be, so elected by the state of war was to prejudice the effective continuance of its trade or business, and that it is in the public interest that the trade or business, should continue to be carried on, the Central Government made by order authorize a person to miry on the trade or business in such manner arid to such extent as may be prescribed." This rule occurs in Chapter XVI of the Defence of Pakistan Rules, which deals with the "Control of enemy firms," Rule 170 prohibits any person from trading with err e.:;‑2my firm either directly or indirectly or paying to or accepting any money or security or other negotiable instrument either from are enemy firm or for and on behalf of air enemy firm. It would thus appear that if a firm or a company comes within the mischief of the definition of an "enemy firm" then it as riot possible for it to carry ors any kind of business in Pakistan, for, any one dealing with such a firm or hawing any kind of transaction with such a him is liable under this rule to be punished with imprisonment for a term which may extend to seven years or with fine; or with both. Then come rules 171 and 172 which give power to the Government to appoint Controller's or Inspectors of enemy firms for securing compliance wish the provisions of this Chapter, so far as firms are, concerned. Thereafter, rate 17.3 authorises a Controller of are enemy firm to Wee that tire b?3siness of wile enemy firm is carried ore only under his supervision. Under rule 1"7`4 even suspected enemy firms can be supervised by the Controller. .Mule 177 gives power to the Government to cancel or determine contracts, transfers of movable or immovable property, allotment of securities to or by enemy firms, and the transfer of negotiable instruments anti other actionable claims, and finally rule 181 empowers the Central Government to actually take over and carry on the business of the enemy barred. The power given by the last mentioned rule is, therefore, of a more drastic nature anti it is accordingly hedged lea with certain important pre‑conditions. Apart from the fact that to acquire jurisdiction under this Chapter the firm or company must firs be found to be an enemy firm falling within the four corner of the definition given in rule 169, the Government must also b satisfied with regard to the following further conditions before the powers under rule 181 can be invoked, namely; (i) that the management of the firm has been so badly affected by the state of war as to prejudice the effective continuance of its trade o business and (ii) that it is in the public interest that the trade o business should continue to be carried on. It is only when both these conditions are satisfied that the Government acquires the power to take over and carry on the business of such an enemy firm. These conditions, it is argued by the learned counsel appearing for the respondent‑company, are not only conjunctive but even with regard to the first condition there must exist a direct nexus or connection between the state of war and the prejudice. This connection, it is said, is lacking in the present case, for, there is nothing on the record which would show that the state of war had, in fact, prejudiced the continuance of the business of the company. The Government had, it is pointed out, in its affidavit in‑opposition only asserted that the Governor of East Pakistan was pleased to authorise the taking over of the business of the respondent‑company, because, he thought that the East Pakistan Industrial Development Corporation would be able to carry on the trade and business of the company more efficiently. It is nowhere stated in this affidavit that any body ever considered or applied his mind to this aspect of the condition. Only in the supplementary affidavit filed in the course of the hearing of the petition under Article 98 additional facts had been sought to be brought in to show that there was material upon which the of the Government could be based as to be first n, namely, that the management of the company had been so affected by the state of war as to prejudice the effective continuance of its business. The High Court has not considered "it safe to bestow any serious consideration on such belated statements" but nevertheless relying upon certain annexures to the same affidavit has come to the conclusion that "these were circumstances existing on the date of the impugned notification which indicated that a vacuum had been created in the management" by reason of the benamdars seeking to assert full ownership after the outbreak of hostilities. But even apart from this it is, in my view, more than apparent that if the company is an enemy firm then the continuance of its business is seriously prejudiced by the state of war by reason of the provisions of the Defence of Pakistan Rules themselves. There can be no doubt, therefore, that the first condition was fully satisfied. Now coming to the second condition, it appears, that nowhere has any one on behalf of the Governor of East Pakistan stated that it was ever considered necessary to determine whether it was in the public interest that the trade or business of this 9ppapany. should continue to be carried on. This was an important consideration for the taking of the drastic action contemplated by rule 181, for, it was equally open to the authorities to take a less 'drastic form of action under rules 171 to 173, such as merely supervising its management or even supervision of its business. The complete taking over could only be justified in the public interest and not merely the interest of the company itself, which alone would benefit by "efficient management." It is clear, therefore, that even though the respondent company came within the mischief of the definition of an "enemy firm" as amended by Notification No. S. R. O. 315 (R)/65, dated the 9th November 1965, read with Defence of Pakistan (Third Amendment) Ordinance No. 46 of 1965, the impugned order was made without forming any opinion as to the necessity, in the public interest, of taking over and continuing the business of the respondent‑company. It is an admitted fact that the respondent company carries on the business of a jute mill and there are many other such mills in East Pakistan. There is nothing, therefore, to show that the nature of the industry is by itself such that public interest requires the continuance of its functions, for, unless this is necessary an order under rule 181 cannot be justified, even though it is not difficult to visualize, as contended on behalf of the Government, that If the company is an enemy firm then it would be well‑nigh impossible for it to carry on any business in Pakistan after the promulgation of the Defence oil Pakistan Rules. The order of the Government was, therefore, in my view of bound to fail on this ground at least. Learned Advocate‑General has, however, contended that nonetheless interference was not called for under Article 98, for, it is still open to Government to pass a proper order after considering the relevant facts and thus defeat any directive that the High Court may issue. This argument is wholly untenable, for, it omits to notice that the High Court cannot and does not issue any directive to the Governor to take any particular kind of action. All that it need do is to declare that its impugned order or notification has been made without lawful authority and then leave the Governor to act in accordance with law. It is not bound to speculate upon what the Government is or is not likely to do in the future. Under Article 98 of the Constitution the High Court merely pronounces upon the legality or constitutionality of an act of the executive. In this it is not to be deterred by the possibility of the executive doing the same thing afterwards by following the right procedure or complying with the legal formalities. The High Court does not substitute its own opinion for the opinion of the executive in such matters, nor does it dictate to the executive as to the nature of the action to be taken. Thus no question of rendering the order of the High Court futile or ineffective can arise in these circumstances. The Courts are merely interested in seeing that the executive authority act in accordance with law and does not take away rights by arbitrary or illegal exercise of power. They are not interested in seeing as to what kind of action will or will not be taken. The learned counsel for the respondent has at and attempted to argue that rule 181 way itself ultra vies on the relevant date and it was only validated with retrospective effect by amendment introduced by Ordinance No. 46 of 1965. This, it is argued,1 could not legally be done, for, what is already dead in the eye of the law cannot be resurrected. It is unnecessary for me, however', to enter into this controversy. Since I am in favour of upholding the order of the High Court on another ground I do not wish to express any opinion on this matter. But for the reasons I have already given I would dismiss these appeals but make no order as to costs. K. B. A. Appeals dismissed.