Dira Dockyard and Engineers Ltd. Vs. Bangladesh Shilpa Rin Sangstha and others

Dira Dockyard and Engineers Ltd. and others (Appellants)


Bangladesh Shilpa Rin Sangstha and others (Respondents)

Supreme Court

Appellate Division



Shahabuddin Ahmed CJ  

MH Rahman J         

ATM Afzal J

Latifur Rahman J                    


November 19, 1994.

Lawyers Involved: 

Rafique-ul-Huq, Senior Advocate (AJ Mohammad Ali, Advocate) with him), instructed by M Nawab Ali Advocate-on-Record—For the Appellants.

AKM Nazrul Islam, Advocate (AFM Mesbahuddin, ASC with him), instructed by Sharifuddin Chaklader, Advocate-on-Record—For Respondent No. 1.

TH Khan, Senior Advocate (MA Wahhab Miah, Advocate with him), instructed by Md Aftab Hossain, Advocate-on-Record—For Respondents Nos. 2-6.

Civil Appeal Nos. 64 and 65 of 1989.

Judgment ATM Afzal J.- These two appeals by leave taken up together for consideration arise out of a proceeding under Article 33 of the Bangla­desh Shilpa Rin Sangstha Order, 1972 (Presi­dent’s Order No. 128 of 1972) briefly, the Order, being Miscellaneous Case No. 117 of 1983 filed by the Bangladesh Shilpa Rin Sangstha, briefly, the Sangstha, in the Court of the District Judge, Dhaka on 28-9-1983 which subsequently, on transfer to the Court of the Subordinate Judge and Commercial Court No. 2, Dhaka, was renumbered as Misc. Case No.13 of 1984, for realisation of its dues amounting to Taka 68.46 lakh including compensation. In that procee­ding Tapashee Shipping Lines Ltd., to which the disputed loan was granted, was made opposite party No.1 and its directors were made oppo­site parties No. 2-5. Dira Dockyard and Engi­neers Ltd., another company, was made oppo­site party No. 6 and its directors were impleaded as opposite party Nos. 7-11.

2. In Civil Appeal No.64 of 1989 afore­said OP Nos. 6-9 are the appellants and in the other appeal, Civil Appeal No. 65 of 1989 the Sangstha is the appellant. The facts leading to these appeals are as follows:

3. The Sangstha, in the aforesaid procee­ding, inter alia, alleged in its petition that it was established under PO No.128 of 1972 to provide credit facilities and other assistance to indust­rial concerns in Bangladesh. The Opposite Party No.1, Tapashee Shipping Lines Limited, shortly Tapashee, is a public limited company carrying on the business of water transport. The Opposite Party Nos. 2-5 are the Managing Director and other Directors of Tapashee. On the application of Tapashee, the Sangstha sanc­tioned a loan of Taka 70 lakh to Tapashee for acquisition of 2 (two) 600 DWT Cargo Vessels. The estimated cost of the project was Taka 117 lakh and the cost of the above two vessels were Taka 95.75 lakh. The loan was repayable in 10 equal half-yearly instalments commencing two years after the first disbursement made on 4-11-80. To that effect a Loan Agreement was con­cluded between Tapashee and the Sangstha on 31-5-1980.

4. Further case is that on 28-9-1980 a tri­partite contract was entered into between the Sangstha and Tapashee on the one hand as “Purchaser” and the opposite party No. 6, Dira Dockyard and Engineers Limited, a Ship building Company, (hereinafter referred to as the Dockyard or Builder). The opposite party Nos. 7-11 is the Managing Director and other Directors of the Dockyard. It was stipulated in the tripartite contract that the Dockyard will build at its own site, 2(two) Coasters of 600 DWT capacity in accordance with specifica­tions drawn by  the Sangstha  and  as  per drawing approved by Nippon Kaiji Kyokai as Surveyor and deliver the same to Tapashee. The price of each coaster shall be Taka 47,87,500 and the total price of the 2(two) Coasters will be Taka 95, 75,000. Out of this amount the Sangstha will pay to the Dockyard Taka 70,00,000 by es­tablishing an irrevocable letter of credit and the balance amount of Taka 25,75,000 will be paid by the sponsor-purchaser, Tapashee, through a crossed cheque on a schedule bank. The Dock­yard shall never increase the price of the Coasters from the quoted amount in any case.

5. The schedule of payment to be made both by the Sangstha and Tapashee to the Dock­yard was to be the following: 20% on signing of the contract, 40% for engine and other related fittings, 30% after engine installation and laun­ching, 10% after trial operation and delivery.

6. The Coasters were to be delivered within 6-8 months from the date of disbursement of the aforesaid first instalment. In case of failure to deliver the coasters within the stipulated time, the Dockyard shall be liable to pay the purchaser a compensation @ Taka 1,000 only per coaster per day for the period of such default.

7. It is the case of the Sangstha that the work order was placed on 28-10-1980 and the latest date of delivery of the vessels was 16-12-1981. The Sangstha disbursed the 1st instalment of Taka 14.00 lakh directly to the Dock­yard on 4-11-80. The 2nd instalment of Taka 28.00 lakh was also released to the Dockyard through Rupali Bank, Motijheel Branch, on 6-12-1980 for procurement of 2 new Kelvin Marine Diesel Engines. But the Dockyard in violation of the contract and the letter of credit had imported/procured second-hand/ recondi­tioned marine engines. Tapashee was asked by the Sangstha by a letter dated 17-12-198 to submit progress report of the work properly in time but Tapashee did not care to reply. The Sangstha had written to Tapashee on 24-11-1981 with a copy to the Dockyard to submit neces­sary papers to settle up the dispute arising out of the import of used engines by the Dockyard. The Sangstha also wrote to both Tapashee and the Dockyard on 27-1-1982, 4-2-1982, 6-4-1982, 13-4-1982 and 6-5-1982 requesting them to submit the papers and documents and also for a report of break-up utilisation of fund but the Sangstha did not receive any reply. The Project was also discussed by the Martial Law Investi­gation Committee on 7-7-1982 and the Sangstha was advised not to make any further disburse­ment to Tapashee/Dockyard and to take steps to recover the disbursed amount.

8. The Sangstha claims a sum of Taka 68.46 lakh due upto 1-1-1983 the details of which are as follows:

Principal dues            Taka 42.00 lakh

Interest                    Taka 13.79 lakh

Penal Interest            Taka   0.21 lakh

Compensation @ Taka 1000 per day per Coaster for the period of default from 17th December, 1981 to 31st August, 1983 Taka 12.46 lakh—Taka 68.46 lakh.

9. It is the further case of the Sangstha that the loan of Taka 70.00 lakh was secured by the following:

(a) Loan Agreement dated 31-5-1980,

(b) Personal Guarantees executed by the directors of the borrower company, and

(c) Floating charge on all movable proper­ties and other assets of Tapashee.

Tapashee is liable to pay the claimed amount and its directors, opposite party Nos.2-5, being the guarantors are also jointly/seve­rally liable to repay the dues. The Dockyard and its directors are also jointly and severally liable together with Tapashee and its directors to pay the dues of the Sangstha.

10. The Sangstha served a legal notice on the Dockyard on 30-8-1982 pointing out the vio­lation of the tripartite contract, namely, impor­tation of second-hand/reconditioned old eng­ines for the said cargo vessels and called upon the Dockyard to effect payment of the amount already disbursed by the Sangstha along with the compensation money within 15 days. The Dockyard failed to take any step to repay the outstanding dues. The cause of action arose of 31-3-1980 and lastly, on 20-8-1982 when the legal notice was served. The Sangstha there­fore, prayed for an order directing the opposite parties, to pay all its dues with interest, liqui­dated damages, compensation, other charges and legal expenses.

11. The Dockyard Group (Opposite Party Nos. 6-11) and the Tapashee Group (Opposite Party Nos.1-5) filed two sets of written objec­tions on 3-6-1984 and 29-7-1-1984 respectively and two sets of additional written objections on 9-4-1987 and 16-5-1987 respectively.

12. The Dockyard Group contended in their written objection filed on 3-6-1984 that the Tapashee Group are mere fortune hunters having no financial stability or credibility. They formed themselves into a public limited com­pany and managed to obtain from the Sangstha a loan of Taka 70 lakh for the acquisition of two self-propelled Cargo Vessels of 600 DWT each. The Sangstha and Tapashee entered into a loan agreement on 31-5-1980 to the effect: The Dock­yard Group is in no way connected with the said loan nor are they parties to the said loan agreement. The Dockyard Group did not receive any loan nor stood any guarantee therefore. They merely entered into a Tripartite Agreement dated 28-9-1980 for building the vessels at a total price of Taka 95.75 lakh out of which the Sangstha was to pay Taka 70 lakh and the balance of Taka 25.75 lakh was to be paid by Tapashee. It is the case of the Dockyard Group that when the Sangstha was to pay the 1st instalment of Taka 14.00 lakh representing 20% of Taka 70 lakh, Tapashee had also to pay the Dockyard Taka 5.15 lakh as their share of the price of the vessel. When the Sangstha had to pay the second instalment of Taka 28 lakh representing 40% of Taka 70 lakh, Tapashee had also to pay their share of Taka 10.30 lakh at the same time. Tapashee never paid their part of the 1st or 2nd instalments totaling to Taka 15.45 lakh as a result of which there was delay in the construction of the vessels. Two second­hand/reconditioned engines were imported at the initiative of Tapashee. The Board of Direc­tors of the Sangstha waived the requirement of import of new machine and communicated the same by their Letter No. E-1211/12050 dated 24-11-1981 seeking some modifications of the loan agreement with Tapashee. It is not known whether the Tapashee Group accepted those fresh conditions and modifications although under Article XI of the Loan Agreement they were bound to accept the same. The securities and guarantees provided by the Directors of Tapashee are all fake and therefore, the Sangstha with a bad motive had decided to proceed against the Dockyard Group falsely claiming joint and several liability. The opposite party Nos. 7-10 and 11 ceased to be the directors of the Dockyard long before the filing of the Miscellaneous Case. Hence their perso­nal properties cannot be proceeded against.

13. In their additional written objection filed on 9-4-1987 the Dockyard Group stated that Tapashee in fact, took Taka 26,60,000 from the Dockyard on various dates from 27-10-1980 to 15-5-1981 by signing payment vouchers agreeing in return to supply goods to the Dock­yard for construction of the two coasters. Tapa­shee failed to supply the goods and did not return the money. This is an additional ground of delay in constructing the vessels. It was further stated that the Dockyard Group in good faith acknowledged payment of equity money from Tapashee without actually receiving the same. In pursuance of the tripartite contract the second instalment of Taka 28 lakh was paid to the Rupali Bank and the said cheque was not liable to be encashed by anybody. The Dock­yard Group never received the said amount of Taka 28 lakh and as a matter of fact the Sangstha recalled that cheque from Rupali Bank.

14. The Tapashee Group in their written objection filed on 29-7-1984 stated that the tri­partite contract dated 28-9-1980 was in fact a bilateral contract. It was entered into by the Sangstha on account of Tapashee as Purchaser on the one hand and the Dockyard as Builder on the other hand. The Sangstha and Tapashee are the co-sponsors of the project and co-purchasers and co-owners of the vessels ordered and contracted to be built by the Dock­yard. Both the Sangstha and Tapashee are entitled to joint compensation from the Dock yard @ Taka 1000 per day per coaster for the period of default. The Tapashee Group paid the equity money to the Dockyard before the Sangstha released the 1st and 2nd instalments. Thus Tapashee is also entitled to the refund of the equity money from the Dockyard. It is the contention of the Tapashee Group that the Sangstha was in a fiduciary relationship with Tapashee in the matter of the contract dated 28-9-1980. The Sangstha did not pursue its fidu­ciary role towards the beneficiary of the project and caused frustration of the project for no fault of Tapashee. The Sangstha failed to claim com­pensation from the Dockyard for importing reconditioned engines. The surveyors also miserably failed to supervise and inspect the progress of the building works of the vessels by the builder. The officials of the Sangstha in collusion with the Dockyard allowed the 2nd instalment of Taka 28.00 lakh to be encashed by the builder without opening a letter of credit and the project was frustrated thereby. The Tapashee Group was not required to repay the loan which was straight away advanced to the builders. That is why the Sangstha did not serve any notice under Article 32 of PO No. 128 of 1972 to the Tapashee Group. It is the further contention of the Tapashee Group that in the event of successful implementation of the project, the loan advances to the builder would have stood transferred to Tapashee through the acquisition of the vessels and in that event Tapashee would have stepped in as loanees of the Sangstha rendering them liable for repay­ment of the loan. The Tapashee Group is not jointly or severally liable at all to repay the money which they have not been actually paid. Mere sanction of the loan in favour of Tapashee and mere description of Tapashee as the bor­rower do not render it liable for repayment of the loan. The Martial Law Investigation Com­mittee also agreed with this submission of Tapashee and recommended steps to be taken only against the Dockyard.

15. In their additional written objection filed on 16-5-1987 the Tapashee Group further stated that the Dockyard Group before recei­ving the two instalments of money from the Sangstha received the equity payment from Tapashee by giving receipts. The tripartite con­tract dated 28-9-1980 superseded the bilateral loan agreement dated 31-5-1980. In the contract dated 28-9-1980 there was no stipulation to supply materials to the builder. It was further stated that the Dockyard Group obtained a cheque of Taka 28.00 lakh being the 2nd instalment as well as a letter of advice from Sangstha directly, but they kept the letter of advice with them and submitted the cheque to the Rupali Bank and encashed the same with a view to defalcating it.

16. After filing the Miscellaneous Case under Article 33(1), the Sangstha filed an appli­cation for injunction and attachment before judgment. The learned District Judge, Dhaka allowed the application against which the Dock­yard Group moved the High Court Division in appeal.  They lost in the appeal and thereafter preferred, by leave, Civil Appeal No.37 of 1985 before the Appellate Division. By Judgment and order dated 14-7-1986, this Division dismissed the appeal and held that in terms of Article 33(1) read with the definition of “Loan” under Article 2(t) of PO No.128 of 1972, the Dockyard Group is liable to repay the loan.

17. The learned Subordinate Judge relying mainly on the aforesaid judgment of this Divi­sion, by his judgment and order dated 26-6-1987 allowed the Miscellaneous Case and direc­ted the opposite parties to deposit the amount claimed within 60 days failing which, it was further  ordered  that, the same  would be realised by selling the schedule property and bear interest till realisation.

18. Being aggrieved by the said judgment opposite party Nos.6-9 and opposite parties No. 1-5 filed two separate appeals in the High Court Division being First Miscellaneous Appeal Nos.241 of 1987 and 242 of 1987 respectively. A Division Bench which heard the appeals by an elaborate judgment dismissed FMA No. 241 of 1987 and allowed FMA No. 242 of 1987 by the impugned judgment and order dated 24 November, 1988.

19.  As to the last submission made on behalf of the Dockyard Group (OPs 6-9) appel­lants (all other submissions were rejected) that the directors of the Dockyard having furnished no letter of hypothecation, no mortgage deed of floatation charge, no irrevocable general power of attorney, no letter of guarantee and no demand promissory note to either the Sangstha or Tapashee as security for the loan Taka 70 lakh, they have no personal or contractual lia­bility of the Dockyard (Company), the High Court Division observed:

“We can see the force of Mr. Awlad Ali’s submission, but we have difficulties in entertaining the same. Not only the Dock­yard but also its Directors contested the Sangstha’s application for injunction and attachment before judgment up to the Appellate Division. The Appellate Divi­sion has already held that the “appellants” (meaning to say, not only the Dockyard but also its Directors) are liable to repay the loan. In view of the aforesaid clear finding of the Appellate Division, we find our­selves unable to provide any relief to the Director appellants of Dockyard on this point.”

20. Leave to appeal was granted at the instance of OP Nos. 6-9 (appellants in Civil Appeal No.64 of 1989) to consider whether the High Court Division was right in dismissing the appeal of the directors of the Dockyard relying on the judgment of this Division in Civil Appeal No. 37 of 1985 which was passed in an interlocutory matter in spite of finding force in the submission that they were not per­sonally or contractually liable for repayment of the loan.

21. As regards with the liability of the Tapashee Group, the High Court Division found that the liability of Tapashee to repay the loan immediately starts after the 1st instalment is disbursed in pursuance of the tripartite con­tract, but the only requirement is that it should be alleged and proved that Tapashee was res­ponsible for breach of any agreement with the Sangstha. Having found further that Tapashee did not commit any breach of agreement, it was finally found that the Sangstha failed to bring its case against the Tapashee Group within the mischief of Article 33(1) of the Order and accordingly, their appeal was allowed.

22. Leave to appeal was granted at the instance of the petitioner Sangstha (appellant in Civil Appeal No. 65 of 1989) to consider the sub­mission that the High Court Division erred in overlooking the liability of the Tapashee Group to repay the loan in terms of the loan agreement Exhibit-1 thus attracting Article 33 and in not holding that they in any case came squarely within the ambit of the said Article 33.

23. The points raised in these two appeals thus appear to be short and simple.

24. To take up the matter in Civil Appeal No. 64 of 1989 first it may be noted that the learned Counsel for the appellants Mr Rafique-ul-Huq frankly stated that he does not press the appeal insofar as the Dockyard (Company) appellant No.1 is concerned. From the impug­ned judgment it appears that in the High Court Division also the Dockyard Group refrained from arguing that it had no liability at all but confined their argument to the extent that the directors of the company in the facts of the case have no liability to repay the loan. As regards with payment of the 1st instalment of Taka 14 lakh to the Dockyard there was no dispute, but the payment of the second instalment of Taka 28 lakh was very much disputed. The High Court Division upon scrutinising the facts and evidence on record and the submissions made on behalf of the Dockyard Group clearly found that Taka 28 lakh as the 2nd installment of loan was disbursed and received by the Dockyard and that the Dockyard is fully liable to repay the said amount apart from the admitted amount of Taka 14 lakh.

25. As regards with the liability of the directors of the Dockyard (appellant Nos. 2-4), it has been noticed that but for the judgment of this Division in Civil Appeal No.37 of 1985, the High Court Division would have found them not liable. Mr Rafique-ul-Huq argued that High Court Division was wrong in apprecia­ting the purport of the said judgment and allowed itself to be misled by not examining independently the question of liability of the directors in the light of the facts alleged and proved in the case.

26. It has already been noticed that Civil Appeal No. 37 of 1985 arose out of an order of the District Judge granting injunction and attachment before the Judgment in the Miscella­neous Case. Appellant No. 1 in that appeal was the Dockyard (Company) and the other appel­lants were the directors of the company as in the present appeal (Civil Appeal No. 64 of 1989). Leave to appeal was granted to consider two questions—1) that since the appellants (directors) gave no personal guarantee for the discharge of any liability of appellant No. 1 (Company) they are not liable to repay the amount in question and the order of attach­ment of their properties was not legally sustain­able, and 2) that appellant No.1 who has been paid for construction of the vessels is not liable for repayment of the loan, the same having been extended to Tapashee, respondent No.2 (therein). In considering the second question, the tripartite contract and the definition of ‘loan’ and in the Order were examined and it was found that the appellants having received the loan sanctioned in favour of Tapashee under a legal arrangement (tripartite agreem­ent) they must be said to have fallen within the meaning of the clause “any person liable for payment of that loan” and that Article 33 could be invoked to recover the loan from them. Although the word “appellants” has been used, it was meant to convey, keeping in view the question at issue, the liability of the company (appellant No.1) only under the tripartite agree­ment. Admittedly, the directors were neither a party to the tripartite agreement or any agree­ment with the Sangstha nor they executed any guarantee for the loan amount received by the Dockyard (company). It is clear that in Civil Appeal No. 37 of 1985 this Division only found that appellant No.1 was liable for repayment of the loan and it could not get away from its lia­bility on the plea that what was received by it was not loan amount but an advance for construction of the vessels.

27. It must be contended honestly that the first of the two questions as above was not sepa­rately considered and answered and therefore, it is not correct to say that this Division had already decided  about the liability of the directors also in that appeal. It follows there­fore that the High Court Division was not justi­fied in taking the view as it did with regard to the judgment of this Division in Civil Appeal No. 37 of 1985. The position therefore is that insofar as the liability of the Dockyard is con­cerned, there is not only a finding against it by this Division in Civil Appeal No. 37 of 1985 but the High Court Division also in the impugned judgment found independently to the same effect. As far as the liability of the directors of the Dockyard is concerned, the High Court Division found no legal basis for liability against them except the judgment of this Divi­sion in Civil Appeal No. 37 of 1985. Now that it has been made clear that the said judgment has not considered the question of the directors’ liability specifically, the question remained open and now it remains to be considered whether in view of its own finding the High Court Division should have allowed their appeal.

28. The learned Counsel for the Sangstha defending its case against the directors argued that the directors being agents of the company, the general principles of the law of principal and agent regulate the relationship of the company and its directors. In the present case, the directors having actually received the loan amount on behalf of the company and they having imported second-hand/reconditioned used marine diesel engines in violation of the contract they are also liable along with the company for repayment of the loan. The lear­ned Counsel read out passages from Palmer’s Company Law Vol. I (1982 Edition) in support of his submission but he failed to co-relate the law with the facts of the case. He could not cite any authority to show that a director has been held liable for the debts of the Company merely because he received the money as the agent of the Company.

29. On the other hand, Mr Rafique-ul-Huq argued that directors may act as agents of the Company but they are not in general person­ally liable for the debts and other obligations of the company unless they execute a guarantee to bind themselves personally for such debts and obligations. Mr Huq referred to Chapter 10 of ‘Directors’ Personal Liability’ by Robert R Pennington (1989 Edition) which deals with ‘Directors’ Duties and Liabilities to a Company’s Creditors’. It reads:

10.01 Immunity of directors as regards the company’s creditors and contractors.

Directors are in general not personally liable for the company’s debts, other obli­gations to its creditors or persons with whom they deal on its behalf, nor do they owe duties themselves to such persons.

The reason for this general immunity from liability to the company’s creditors, to persons with whom the company contracts and to third persons generally for wrongs or torts committed by the company, its the same reason that underlies the directors immunity from liability to the company’s shareholders. Directors act as agents of the company, which is a distinct legal person from themselves, in incurring debts or making contracts on the company’s behalf and in running its business undertaking the fact that the company incurs liability as a result of this agent’s acts does not mean that its directors, as such agents, incur liability as well.

Because of this immunity, directors have been held not to be liable at common law or in equity for debts which they incur on the company’s behalf at a time when they know that it is already insolvent, and is therefore incapable of paying the new debts they incur (Wilson vs. Lord Bury (1880); Multinational Gas and Petrochemi­cal Co vs. Multinational Gas and Petroche­mical Services Ltd (1983), per Dillon LJ at page 487 of the report), nor are directors liable at common law or in equity to the company’s creditors or persons with whom it has contracted, if they manage the company’s affairs negligently and so disable it from paying its debts and fulfilling its contracts (same cases).

10.06 Guarantees by directors

A guarantee is a contract entered into by a person, known as a guarantor or surety, by which he undertakes that a debt owed by another person will be duly paid to the creditor or that contractual obliga­tion of another person will be duly per­formed. A guarantee presupposes the existence of a primary contractual obliga­tion owed by the promisor or debtor, and the guarantee is a secondary or collateral contractual obligation undertaken by the surety to the creditor or the beneficiary of the primary obligation that the debt will be paid or the obligation fulfilled.

Gurarantees of a company’s debts and contractual obligations can, of course, be given by anyone, but they are mostly given in practice by directors and principle share­holders of the company. If the company fails to pay the guaranteed debt or to per­form the guaranteed contract, the creditor or the other party to the contract may resort to the company or the surety, or both of them, to recover the debt or damages for breach of the company’s obligations under the contract.

Admittedly the directors did not execute any guarantee in the present case in respect of the loan money advanced to the Dockyard. They are not parties to the tripartite contract or any contract with the Sangstha. There is no pleading either that the Dockyard Company was a sham and the directors actually used it to benefit themselves by obtaining the loan amount in the name of the company.

30. Indeed, it appears that the Sangstha has been thoroughly negligent in entering into the contract with the Dockyard in that it has failed to secure the money advanced to the Dockyard by taking normal and appropriate measures for repayment of the amount. It is on record that the Sangstha obtained from the borrower Tapashee letter of hypothecation (Exhibit-2) mortgage deed of floatation charge (Exhibit-3) Irrevocable General Power of Attor­ney (Exhibit-4) Demand Promissory Note (Exhibit-6) and further letter of guarantee (Exhibit-15) from its directors (OP Nos. 2-5) in order to secure the loan sanctioned in favour of Tapashee. Strangely, however, similar docu­ment or any document was not obtained from the Dockyard Group to whom the loan money was actually being advanced. Further although it is provided in Article 3 of the contract dated 28-9-1980 Exhibit-1 /A that payment for engine and other related fittings shall be made by the Sangstha either by (i) establishing bank to bank L/C or (ii) by reimbursement of actual amount after procurement. It has been found by the High Court Division that the Sangstha instead of sending its letter dated 10-12-1980 Exhibit-12 (C) to the Rupali Bank, Motijheel Branch directly for the purpose of opening L/C for the import of two Kelvin Marine Diesel Engines (enclosing a cheque for Taka 28 lakh drawn on Janata Bank. Motijheel Branch in favour A/C Dira Dockyard) handed over the cheque and letter to opposite party Nos. 7 and 9 (directors of the Dockyard who are also brothers) who took advantage of the situation and instead of L/C being opened with Rupali Bank delibe­rately imported second-hand engines in viola­tion of the terms of the contract by opening L/C themselves from their own bank at Shantinagar. These facts reveal that the Sangstha was not only negligent in the matter of the tran­saction with the Dockyard Group but the concerned officials were very likely in collusion with the directors of the Dockyard with ulterior motive. There can hardly be any doubt that because of those dishonest officials, the second instalment (Taka 24 lakh) had travelled into the pockets of the directors and they had bungled the project by importing second hand/recondi­tioned engines in breach of the contract. The contract was with the builder company but the directors who received the money and bungled in the name of the company have remained outside the mischief of law, thanks to the great management of the Sangstha.

31. The High Court Division has fully noti­ced the wrongdoing indulged in by the afore­said directors of the Dockyard which has not been disputed before us. The judgment reads:

Indeed, Exhibit-12(C) shows that the Letter of Advice of the Sangstha together with the cheque for Taka 28 lakh was never despatched to the Rupali Bank directly by the Sangstha. It was collected by DW 1 (Md Hossain Bhuiyan) and his younger brother Kashem Bhuiyan whose signatures on Exhibit-12(c) in acknow­ledgment of the cheque and advice have been proved by DW 3. Hence there is substance in the submission of Mr. AKM Nazrul Islam that DW 1 kept the letter of advice to himself and submitted only the cheque to the Rupali Bank and encashed the same in the account of the Dockyard, DW 1 has admitted in his cross-exa­mination that he has accounts at Rupali Bank but he has not submitted the statement of accounts for purposes of showing that it was not credited to his account. He also stated that he did not check up whether Taka 28 lakh was credited to his account at Rupali Bank, Motijheel Branch.

“We find it to be inescapable that the Dockyard entered into a tripartite contract Exhibit-1/A undertaking to import new Kelvin engines, knowing full well that new engines cannot be imported. On his admis­sion DW 1 is a dealer of second-hand engines. He had therefore the original intention of buying second hand recondi­tioned engines from the very beginning. He imported those engines not by chance but by design. He wanted to present Sangstha and the Tapashee with a fait accompli.”

In spite of having made such findings against the directors the High Court Division observed that they having not been bound down by any guarantee etc. they could not be made personally liable for the liabilities incurred by the Dockyard (company). We are of the view that the legal position has been correctly stated and that the learned Counsel for the Sangstha having failed to establish any other legal basis of personal liability of the directors in the facts of the case as alleged, we are further of the view that their appeal was/is liable to be allowed.

32. Now coming to the Sangstha’s appeal Civil Appeal No. 65 of 1989, as far as the liabi­lity of the opposite party-respondent Nos.1-5 (Tapashee Group) to repay the loan concerned, the matter has been finally settled by the deci­sion of the High Court Division. It is no longer open to Mr TH Khan, learned Counsel for the said respondents, to contend, as was similarly contended in the High Court Division and which contention was rejected, that Tapashee is a loanee in law but not a loanee in fact and it had no liability to repay the loan until the Coasters were delivered to it, in that the Sangstha under the tripartite agreement took over the control, administration and disbursement of the entire loan amount and made payment to the Dockyard Group straight away. The High Court Division clearly found:

“The money that would be paid to the Dockyard would be the loan money of Tapashee. It will start bearing interest from the date of first instalment and therefore Tapashee will be very much liable for repay­ment of the loan since the Sangstha disbur­sed the first instalment in pursuance of the tripartite contract. The only requirement is, that to make Tapashee and its Directors liable the Sangstha will have to show, in terms of Article 33(1), that Tapashee was in breach of any agreement with the Sangstha.”

As already noticed, the appeal of the oppo­site party-respondent Nos. 1-5 was allowed by the High Court Division not because they were found not liable to repay the loan but because Article 33(1) was found inapplicable in their case, inasmuch as it was found that there was no allegation against Tapashee, far less proved, that it was in breach of any agreement with the Sangstha. The High Court Division said:

“We therefore, fail to see how the Tapa­shee Group can be asked to repay the loan before the due date by reason of the breach of any condition of any agreement between the Sangstha and Tapashee to which the loan had been granted.”

Article 33(1) reads thus:

33. (1) Where the Sangstha becomes entitled to require the immediate payment of any loan before the due date under Article 32 or by reason of the breach of any condition of any agreement between the Sangstha and an industrial concern to which any loan has been granted or any person liable for payment of that loan, or where an industrial concern to which any loan has been granted or any person liable for payment of that loan fails to repay the loan by the due date or in compliance with the notice under Article 32, an officer of the Sangstha generally or specially authorised by the Board in this behalf, may apply to the District Judge within the local limits of whose jurisdiction the industrial concern carries on the whole or a substantial part of its business, or the office or Branch of the Sangstha from which the loan was disbursed is situated, for one or more of the following reliefs, namely:





It will be seen that a proceeding under the aforesaid Article can be commenced, inter alia, (1) when the Sangstha becomes entitled to require the immediate payment of any loan before the due date under Article 32 or (2) where an industrial concern to which any loan has been granted or any person liable for pay­ment of that loan fails to repay the loan by the due date. Schedule I of the loan agreement Exhibit-I provides as follows:


Except as BSRS shall otherwise require the Borrower shall repay the loan in 10(ten) equal half-yearly instalments payable on the first day of January and the first day of July in each year commencing after 2(two) years of first disbur­sement. The repayment in instalments and interests thereon as determined by BSRS on an­nuity basis or otherwise and communicated to the Borrower shall be binding on the Borrower.

Admittedly, the first disbursement was made on 4-11-1980 and so the first half-yearly instalment fell due on and from 4-11-1982. It has been alleged by the Sangstha, inter alia, in its petition under Article 33 that the opposite parties are liable to pay its dues with interest, etc. but they failed to pay the same and “since the money is not forthcoming either from the opposite party No.1 or 6, the petitioner Sang­stha has no alternative but to file this applica­tion for the recovery of its dues for which the opposite party Nos. 1 and 6 are jointly and severally liable.” The opposite parties Nos. 2 to 11, being guarantors and actually receiving the money are also jointly/severally liable to repay the dues.”

33. The proceeding was started on 28-9-1983 and admittedly the opposite party-res­pondents No.1-5 failed to pay their dues as per repayment schedule before that date or on any day thereafter. In the circumstances, we do not see why the Sangstha cannot proceed against the said respondents under Article 33. The High Court Division has apparently failed to consider this aspect of the matter.

34. Then again, it appears that the Sang­stha becomes entitled to require the immediate payment of the loan before the due date under Article 32. Under the said Article the Sangstha may notwithstanding any agreement to the con­trary, by notice, require any industrial concern to which it has granted any loan to repay the loan if, inter alia, the industrial concern without any satisfactory reason has failed to attend or reply to the enquiries made by the Sangstha or failed to supply the papers or document asked for by the Sangstha. The Sangstha has alleged in its petition that opposite party No. 1 was asked by letter dated 17-12-1980 to submit pro­gress report of the work properly in time but it did not care to reply. It said further:

“The petitioner had written to the opposite party No.1 on 24-11-81 with a copy to the opposite party No. 6 to submit necessary papers and documents to settle up the matter. The petitioner also wrote to both the sponsors and the Dockyard on 27-1-82, 4-2-82, 6-4-82, 13-4-82 and 6-5-82 requesting them to submit the papers, documents and also a break-up for utilisation of fund but no reply has yet been received by the petitioner.”

35. The aforesaid allegations are not con­troverted. The High Court Division has noticed them and taken the view that they do not constitute any breach of any condition of the loan agreement by Tapashee. The High Court Division, however, failed to consider that because of the failure of Tapashee to reply to the enquiries made by the Sangstha and to sup­ply the papers or documents asked for by it, the Sangstha certainly became entitled to require the immediate payment of the loan under Article 32. Letter dated 24-11-1981 (Exhibit-12) shows that the Sangstha is making direct allegation against Tapashee that the Dockyard had imported second-hand/reconditioned marine engines “in association with you viola­ting the conditions of the tripartite agreement” and that “the violation of the tripartite contract by you and the builder of your vessel has been viewed with utmost dissatisfaction.”

36.  In the face of such grave allegations Tapashee chose, for reasons best known to it, not to give any reply to the series of letters addressed to it by the Sangstha and remain silent which was trying to salvage the Project. There cannot be any manner of doubt that the Sangstha in the aforesaid circumstances became entitled to repayment of the loan under Article 32. That being so, there can also be no doubt that the Sangstha was fully entitled to proceed against the opposite party-respondent Nos.1-5 under Article 33 for realisation of the loan. Thus, in any case, it must be said that the High Court Division upon a mistaken view of the law and facts wrongly held that Article 33 was not attracted in the case of the aforesaid opposite party-respondents. In view of the dis­cussion above, the Sangstha’s appeal is liable to be allowed.

37. In the result, therefore, Civil Appeal No.64 of 1989 is allowed in part and Civil Appeal No. 65 of 1989 is allowed as a whole. The impugned order of the High Court Divi­sion is set aside and that of the Subordinate Judge-cum-Commercial Court No.2, Dhaka restored subject to this that, Miscellaneous Case No.13 of 1984 is dismissed only as against opposite party Nos. 7, 8 and 9 (appellants No.2, 3 and 4 in Civil Appeal No. 64 of 1989).

There will be no order as to costs.


Source: 14 BLC (AD) (2009) 166