Case 3900 (PLP)

2500 1-300-426-2625 2 Muhammad Zainul Abeddin 1425 301-425-2626-3925 3 Muhammad Taqiuddin Saleem 500 4426-2925 4 Shakira Begum 500 3926-4425 4925 1-4925 Total Face Value (Rs.) 2,50,000 2,12,500 1,42,500 1,21,125 50,000 42,500 50,000 42,500 4,92,500 4,18,625 at or for the total price of Rs. 4,00,000 which price represents the total marked value of the shares after computing the total assets of the Company as hereinafter mentioned." Similarly in clause (3) of the Agreement the payment of Rs.1,50,000 by the defendants to the plaintiffs is termed as the first initial payment for the acquisition of the shares of the plaintiffs in the Company. Clause (6) of the Agreement again sets out the total assets acquired against the consideration of Rs. 4 lacs in the following terms:-- "(6) Out of the aforesaid agreed and joint total consideration of Rs. 4,00,000 (Rupees four lacs only) for the total acquisition of all the shares of the Company, the control and charge of the Company, its properties, assets, rights and privileges, the purchasers shall on the execution hereof initially pay the sum of Rs. 1,50,000 as advance in part payment of the said total consideration, jointly to the Second Parties.' In paragraph 13 of the Agreement which refers to the resolution of the Board of Directors of the Company it is mentioned that the Board has resolved and given approval to the transfer of all the shares of the company to the purchasers (defendants) at or for the said total price of Rs. 4 lacs and that the said approval and sanction of the Board for transfer of shares of purchasers (defendants) shall be irrevocable. The above-referred clauses in the agreement indicate that consideration of Rs. 4 lacs fixed in the agreement represented the value for transfer of shares of the Company of the paid up value of Rs. 4,18,625 and of course the legal incident of transfer of these shares to defendants would mean the transfer and vesting of all the assets and liabililties of the Company with its total control and management to the defendants. It is an admitted position in the case that upon execution of the agreement all the assets of the Company alongwith its total control and management stood transferred to the defendants so also the shareholdings of the plaintiffs in the Company. Therefore, in order to justify the forfeiture of the balance consideration of Rs. 2,50,000 as damages arising from the breach of condition by the plaintiffs relating to sanction letter of German loan, the defendants must establish that they would have normally suffered this amount as damages in case of non-performance of the above condition of the agreement by the plaintiffs. Mr. Munawar Abbas, the learned counsel for defendants, urged before me that in so far as the management and control of the Company was concerned, it same over to defendants on the signing of the agreement and transfer of shares in the Company in their favour and therefore, the stipulation in the agreement providing the forfeiture of Rs. 2,50,000 by the defendants in the event of failure of plaintiffs to obtain sanction letter of German loan should be construed as pre-estimated liquidated damages which the plaintiffs had agreed to pay to the defendants in case of the breach of this condition. The learned counsel accordingly contended that the defendants were entitled to legally forfeit the same in terms of clause (16) of the Agreement. I ant unable to agree with the contention of the learned counsel. The amount of Rs. 2,50,000 as earlier pointed out by me, was the balance consideration for the transfer of shareholdings in the Company and all its assets in favour of defendants. The contention of Mr. Munawar Abbas, is also not commensurable with the various stipulations contained in other clauses of the agreement and specially clause (18) thereof, which provided that in spite of completion of all the conditions of the agreement including the one relating to sanction letter of German loan by the plaintiffs, if the I.D.B.P. raised any other objection the plaintiffs would still lose their right to claim the balance consideration of Rs. 2,50,000 from the defendants and the Company shall vest in the defendants free from all claims of the plaintiffs. Could such a stipulation in the agreement be treated as pre-estimated liquidated damages which the parties had in their contemplation at the time of entering into the Agreement? In my view this forfeiture clause in the agreement was in the nature of a stipulation in terrorem incorporated in the agreement to compel the performance of condition relating to sanction letter of German loan. The defendants under the agreement had paid only a sum of Rs..1,50,000 to the plaintiffs and the balance of Rs. 2,50,000 was to be paid to plaintiffs upon` completion of certain 'terms and conditions which included the terms relating to the obtaining of sanction letter of German loan. Upon payment of Rs. 1,50,000 the plaintiffs transferred the entire shareholdings in the Company except the shares of the value of Rs. 15,000 in favour of defendants and it is an admitted position that as and from that time the total control and management of the Company with all its assets vested with the defendants. In these circumstances the stipulation in clause (16) of the Agreement which provided for payment of Rs. one lac as damages to defendants or forfeiture of balance of Rs. 2,50,000 by them in case of breach of condition regarding sanction letter of German loan by the plaintiffs could not be treated as pre-estimated liquidated damages. The provision in clause (16) of the agreement undoubtedly made .a very large sum payable in the event of default by the plaintiffs and is therefore m the nature of a penalty and not enforceable as such. I will, accordingly now consider as to what reasonable compensation by way of damages should be awarded to the defendants in the circumstances of the case as the plaintiffs have almost accepted the non-fulfillment of the condition relating to sanction letter of German loan by them. The property transferred under the agreement consisted of share-holdings of the plaintiffs in the company of the face value of Rs. 4,92,500 and paid up value of Rs. 4,18,625 with all the assets as shown in Schedules 1 and 2 of the agreement. It is not in dispute that the defendants were put in possession of all the assets and properties shown in the agreement and that before filing of the present suit the entire share-holdings of the company stood transferred in the name of the defendants. The defendants have not led any evidence of damages suffered by them on account of non-performance of the condition by the plaintiffs relating to sanction letter of German loan. The plaintiffs on the contrary denied that the defendants have suffered any loss or damages on account of breach of the above condition and have further asserted that there has been considerable appreciation in the value of the assets transferred to defendants under the agreement. The defendants in their evidence have admitted that at the time they cancelled the agreement there was no construction existing on the plot and the machinery and plant was not transferred to Rawalpindi. It is also admitted that they constructed the factory and installed the machinery and plant and commissioned it in the year 1967. Clause (17) of the agreement provides that irrespective of breach of condition by the plaintiffs the defendants could still acquire the company and all it assets upon payment of the balance of Rs. 2,50,000 to the plaintiffs. In the circumstances of the present case in my view the situation in the case will be governed under this clause of the agreement and I accordingly hold that the plaintiffs are entitled to the payment of the balance of the sale consideration. The plaintiffs have admitted that they received a sum of Rs. 12,000 out of the balance of Rs. 2,50,000 after the execution of the agreement and therefore they are entitled to receive Rs. 2,38,000 from the defendants. The plaintiffs have further claimed interest at 6% per annum on this amount from Ist December, 1965 as well as future interest at the same rate from the date of institution of the suit till the amount is paid to them. As the plaintiffs were themselves in breach of the condition regarding obtaining of the sanction letter of German loan I am not inclined to grant interest claimed by them in the suit. However, from the date of the decree the plaintiffs will be entitled to claim interest at the rate of 12% until the amount is paid.

10. Before parting with the case I may mention here that after the close of evidence Mr. Munawar Abbas, the learned counsel for the defendants filed an application on 22nd January, 1981 praying that an additional issue with regard to limitation be framed in the suit. The application was allowed by me on the statement of the learned counsel that he would argue this additional issue on the basis of the evidence already recorded in the case and the pleadings of the plaintiffs. I will therefore, now consider this issue. Mr. Munawar Abbas, while making his submission on the issue of limitation urged before me that the defendants repudiated the contract by their letter dated 28th August, 1965 which is Exh. 56 on record and therefore, the cause of action if any arose to plaintiffs on that date and accordingly the suit for recovery of the amount should have been filed within three years of that date. The suit, therefore, as filed on 29th November, 1968, in the submission of the learned counsel, was beyond time. In paragraph 16 of the plaint the plaintiffs have shown the cause of action as having arisen originally on 4th November, 1964 when the agreement was entered into between the parties. It is further shown to have arisen on 30th November, 1965, when it is alleged the title in respect of the property was completed by transfer of all the share-holdings in favour of the defendants. The cause of action is finally stated to have accrued to plaintiffs on 21st September, 1966 when the plaintiffs replied to the letter of defendants. Mr. J.H. Rahimtoola the learned counsel for the plaintiffs in reply. to the argument of Mr. Munawar Abbas, urged that the notice dated 28th August, 1965 was bad in law as by consent of parties the period for performance of the condition regarding German loan sanction by the plaintiffs was extended up to 17th September, 1965. To support his contention the learned counsel invited my attention to Exh. 103/26 written by defendant Munir Ahmad as partner of Bashir Brothers to National Bank of Pakistan with reference to the Bank guarantee furnished in connection with the agreement which was expiring on 18th May, 1965 and was extended up to 17th September, 1965. The defendant Munir Ahmed in his cross-examination was confronted with this letter and he admitted that by this letter the defendants extended the validity of Bank guarantee up to 17th September, 1965. In the retrospect it is contended by Mr. Rahimtoola that the time being available to the plaintiffs for performance of the condition up to the date of validity of the Bank guarantee the notice dated 28th August, 1965 issued by the defendants terminating the contract was not a valid notice. Although the contention of Mr. Rahimtoola appears to be not without force but it is not necessary to decide this contention here as Mr. Munawar Abbas stated before me that if the plaintiffs succeed in showing that the cause of action had arisen to them on 30th November, 1965 upon acquisition of all the shares by the defendants then the suit which was filed on 29th November, 1968 is within time. I will therefore first examine whether the plaintiffs have succeeded in showing that the cause of action accrued to them on 30th November, 1965. The suit filed by the plaintiffs is for recovery of the balance of the sale consideration. The agreement between the parties related to the acquisition of the shares of a limited Company. On 4th November, 1964 when the agreement was made between the parties all the shares admittedly were not transferred in favour of defendants. The balance due under the agreement was to be paid to the plaintiffs by the defendants on completion of the transfer of all the shares and other formalities mentioned in the agreement. It has come in the evidence that the remaining shares of the value of Rs. 15,000 in the name of plaintiff No. 1 were transferred in favour of defendants on 30th November, 1965, intimation of which was given to plaintiffs by the defendants. 1, therefore, hold that the suit as filed on 29th November, 1969 is within time.

11. As a result of the above discussion the plaintiffs' suit is decreed in the sum of Rs. 2,38,000 with proportionate costs but interest will be payable from the date of decree at the rate of 12% per annum till the amount is paid. H.B.T./M-808/K Suit decreed.