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Writ Petition No. 482 of 1961, decided on 20th June 1963.
Scheme, formulated by Government, having no statutory force but all the same having roots in authority conferred on respon sible officers of State by Statutes and affecting activities and conduct of members of public‑Violation of scheme renders exercise of authority by Government arbitrary and as such legally objectionable and, therefore, justiciable‑Constitution of Pakistan (1956), Art. 170.
Pakistan and another v. Hussain Ali Shah P L D 1960 S C (Pak.) 310 rel.
Mrs. Salima Nasiruddin for Petitioner.
Muzaffar Hassan for Respondents 1 & 2.
Dates of hearing : 13th March, 21st and 23rd May, 1963.
This is an old petition which was presented on the 17th of October 1961, and was admitted to regular hearing on the 1st of December 1961 by Wahiduddin Ahmad and Bashir Ahmad, JJ. The petitioner has requested that three orders of respondent No. 1. The Secretary, Ministry of Commerce, Government of Pakistan (Annexures A/9, B/1 and B/3), one order of respondent No. 2, the Chief Controller of Imports and Exports (Annexure A/7) and two orders of respon dent No. 3, the State Bank of Pakistan (Annexures A/1 and A/2) be quashed by issuing a writ in the nature of certiorari. He has further requested for mandamus to be issued directing the respondents to grant bonus vouchers to him.
2. The allegations of the petitioner are that he is a registered exporter and that having acted in accordance with the Public Notice issued by the Government of Pakistan to implement the Scheme of granting bonus vouchers in foreign exchange for encouraging exports of this country, he has become entitled to 40 per cent bonus on the proceeds of the carpets of Iranian origin which were processed in Pakistan and were exported by him,
3. The relevant facts are that the Government of Pakistan evolved and introduced a scheme on the 15th of January 1959; under which the exporters of certain "commodities and manufactured goods of Pakistan" were entitled to receive bonus vouchers representing various percentages of the foreign exchange earned by them. In pursuance of that scheme a Public Notice was issued in the Extraordinary Gazette of Pakiqtan, dated the 16th of January 1959, setting out the categories .of those "commodities and manufactured goods of Pakistan", on the export of which the bonus could be earned and also the categories of those articles which could be imported by the use of the bonus vouchers. Paragraph 3 of that Gazette was as follows
"3. Exporters of the goods included in the Scheme will be entitled to receive bonus entitlement vouchers of value equivalent to‑
(a) 40% of F. O. B. value earned by the export of all manufactures excluding jute and cotton manufactures,
(b) 20% of F. O. B. value earned by the export of all other items including jute and cotton manufactures, and
(c) 20% of net foreign exchange earned by the service industries listed in Schedule I appended.
Bonus will not be admissible on exports made against barter deals, rupee payment accounts and border trade or other arrangements which do not bring in foreign exchange."
The Government reserved the right to make changes in the Scheme and to relax its rules. On the 9th of December 1959, another Public Notice was issued in an Extraordinary Gazette of Pakistan setting out in Schedule III of it the description of those goods which could be exported to earn the bonus. They were classified under various heads and grouped together. The caption of the fifth group was "Textiles". Under this group, there were several sub‑clauses of goods. Sub‑Clause No. (3) was given the sub‑heading "Woolen and Worsted". The second item under it was as follows
"Carpets and Rugs (including handloom carpets)".
If the nature of this item was to be understood in terms of the previous Public Notice of the 16th of January 1959, then they could be none else excepting "commodities and manufactured goods of Pakistan", but in the second Public Notice some change was brought about by the insertion of a "Note" in paragraph 2. That Paragraph is as follows
"2. The Government have also decided to add, with effect from the 15th January 1959‑
(i) the following Note below paragraph 3 of the Public Notice No. 326/102/59 EPIII, dated the 15th January 1959, namely
Note.‑The term all manufactures' in sub‑para. (a) above shall cover only those goods manufactured or processed in Pakistan, for which bonus rate of 40% has been specified in Schedule III appended.
(ii) Schedule III to the said Public Notice as follows
. . . . . . . .
. . . . . . . .
. . . . . . . .
4. The petitioner interpreted the above Note to indicate that carpets of foreign origin, which were processed in Pakistan, could earn the bonus at the rate of 40 per cent of their F. O. B. value if they were exported from Pakistan. He, therefore, exported carpets of Afghan origin which were processed Pakistan and claimed bonus on them. His claim was accepted and bonus was granted to him. He also exported carpets of Iranian origin, which were processed in Pakistan, and claimed bonus on them also, but he was informed by the State Bank of Pakistan, the Controller of Imports and Exports, and the Secretary, Ministry of Commerce, Government of Pakistan, that the bonus was not admissible on their exports, and that his request for the grant of bonus vouchers could not be accepted. The six orders of these authorities, to which reference has been made above in the first paragraph, conveyed that information to the petitioner. The petitioner made several representations to press his claim, and has, as the last resort, filed this petition.
5. It is not denied by the respondents that the petitioner did export the carpets as described by him. Besides, no dispute was raised in those proceedings with regard to the percentage of foreign exchange or the F. O. B. value of the exported goods. The respondents have raised three contentions which are‑
Firstly,‑that the Note' does not refer to those goods which may be of foreign origin ;
Secondly,‑that the Scheme has no statutory force ; there fore, it confers no legal right, with the consequence that the breach of the entitlement alleged to have accrued under it, is not justifiable, and
Thirdly,‑that the petitioner has not come to this Court "with clean hands".
6. As the first two contentions were of equal importance, we thought it proper to begin by trying to understand the meaning of the Note'. Mr. Muzaffar Hassan, Advocate, who appeared for the respondents, gave us to understand that the purport of the Note' could become undisputably clear to us if the background on the facts which led to its insertion was known to us. He has, therefore, examined Mr. S. N. M. Ellam, Section Officer, Ministry of Commerce, Government of Pakistan, Rawalpindi, to inform us of the background of facts.
7. The witness has stated that the object of the scheme was to encourage the export of Pakistan goods by providing the incentive of bonus vouchers. It is quite clear, according to him, that the scheme applies to those commodities and manufactures only which are "of Pakistan". This is clearly stated in paragraph 2 of the Public Notice issued in the Extraordinary Gazette of Pakistan dated the 16th of January 1959. The distinction which has beets drawn in the Note' between "manufacturing" and "processing" should not be understood to have any reference to the place of origin of the exported goods but should be understood to have been meant only to make it clear that not only the "manufacturers" but also the "processors" were entitled to earn the bonus by exporting the goods "of Pakistan". He did not deny that even those who were purchasers of such goods, and were neither the manufacturers nor the processors of them, could also earn the bonus if they exported them. We, therefore, enquired from him as to what was the utility of the distinction. He was not able to give any explanation, but stated that the Government did not grant foreign exchange on the export of those goods which were of foreign origin and were merely processed in Pakistan. It was put to him that the carpets of Afghan origin which were processed in Pakistan were admitted to the bonus and that such bonus was actually granted to the petitioner. His explanation was that carpets of the Afghan quality were, produced in Pakistan also, and that it was impossible to distinguished between the two products ; therefore, to avoid the confusion that could arise from their indistinguishability, the distinction of origin was dropped in respect of all of them and all carpets of that quality were admitted to the benefit of the bonus.
8. The above explanation given by the witness is not borne out by the contents of the letter No. 2 (48)/60‑EPII of the Government of Pakistan, Ministry of Commerce, dated the 9th of May 1961, addressed to the Deputy Controller of Exchange Control Department (State Bank of Pakistan). The relevant part of it is as follows
"It has been represented to this Ministry that Carpets of Afghan origin are processed in Pakistan before export. Further it has been made out that the export of carpets of Afghan origin is a good source of foreign exchange earning. After due consideration it has been decided that Carpets of Afghan origin will now be exported as Afghan Carpets (Pakistan Origin), the export of which will be allowed by the Customs Authorities without an export licence and bonus will be admissible at the rates prescribed in the Export Bonus Scheme."
9. The purpose of granting bonus on the export of the carpets of Afghan origin, according to the above quotation, is not the impossibility experienced in distinguishing those carpets from the carpets of Pakistani origin, but the advisability of argumenting a good source of earning foreign exchange.
10. We pointed out to Mr. Muzaffar Hassan, Advocate the above noted inconsistency between the statements of the witness and the letter which was written by him to the State Bank of Pakistan. He, therefore, conceded that there was a contradiction in them but explained it by making a request to us to allow the witness to retire from the witness box for a few minutes to let him "cool down" because he was "excited" and "confused". We accepted the request, but the witness made no improve ment.
11. The point of view of the witness is contradicted by other official letters also. One of them is from the Secretary, Ministry of Commerce bearing No. 2 (48)‑60‑EP. II, dated the 6th of January 1961, to the Director of Trade Promotion and Commercial Intelligence, stating inter alia that‑
". once they (the exporters) declare that their goods are of foreign origin, they lose their title to earn bonus on their export under the Export Bonus Scheme."
The reply bearing No. CR‑B‑10(5)/60, dated the 24th of January 1961, signed by Mr. Saudur Rehman, contained the following information along with other material.
"(i) The position concerning bonus is not clear.
(iii) .
(vi) (sic) One exporter under licence reports that his declara tion at Customs is Afghan Carpets (Pak Origin) and this is accepted.
(vi) (sic) There can be no comparison between the popular Afghan type and Pakistan type carpets. The qualities are totally different and easily distinguishable. Only the mori type is common to Afghanistan and Pakistan. The Afghan mori is however of superior quality and construction, more expensive than Pakistani and very few can come into Pakistan. One obvious difference is that Pakistani moris are of chemically washed mill yarn and always have a cotton thread backing. Afghan moris have a wool yarn backing and are of dull finish. The silken texture of the Pakistani carpet is the base of its popularity abroad.
"2. (ii) Afghan and Pakistan carpets are not similar and are easily distinguishable. So a reliable comparison of prices and varities is neither possible nor necessary."
12. Mr. Muzaffar Hassan, therefore, took it upon himself to offer an explanation by pointing out the difference between the expression "commodities" and "manufactured goods". He referred to the goods described under the heading "MINERALS" (Group III) and under the heading "MARINE PRODUCTS" (Group IV) and :argued that those goods were not and could not be manufactured but could only be processed. He said that fish, prawn, shark fins, etc. were products of nature and were exported after processing them. There was, therefore, a distinction between "manufactured goods" or "manufactures" and "commodities". If the provision in the Scheme was simply that :"manufactures" of Pakistan could earn the bonus, then marine products, minerals, etc., could not be admissible to the bonus. This explanation of counsel, however, suffered from an obvious weakness, which is that the distinction between "manufacturing" and "processing" has been drawn in the above mentioned Note' by enlarging the meaning of the expression "all manufactures". 1f the intention was to make the idea of processing applicable to those commodities which were not manufactured, then there was no need to enlarge the meaning of the expression "all manufactures". This expression, according to the explanation offered by counsel, is exclusive of those commodities which are natural products and which can be merely processed in Pakistan but enlarging the meaning of this exprest;ion the intention could not be to restrict the idea of processing to those commodities which are natural products.
13. Counsel tried to support his above‑mentioned argument by pointing out that a new sub‑class of goods was added under sub‑head (3) of Group V, Schedule III, by the Extra ordinary, Gazette of Pakistan, dated the 9th of December 1959, as follows
"Afghan carpets (Pakistan origin) . . . 40%".
This reference appeared to us to weaken his argument rather than to strengthen it, because if counsel and the witness were right in contending that all goods which are described in Schedule III must be taken to be of Pakistan origin on the ground that the Scheme applies to no other goods, then it was unnecessary to qualify (mention) the above sub‑class of goods by adding the words "Pakistan origin". The insertion of these words gives the impression that the other goods described in that Schedule might or might not be of "Pakistan origin". The insertion of these words subsequent' to the insertion of the Note', supports the view that a distinction was meant to be drawn between those goods which were manufactured in Pakistan and the, others which were of foreign origin but were processed in Pakistan.
14. We explained the above criticism of counsel's argument to him, whereupon he offered a less un‑compromising explanation. He ‑ informed us that carpets of the quality which are manu factured in Afghanistan were also manufactured in the Noman's land of the Tribal Area which lies between the North of Pakistan and Afghanistan. The inhabitants of that Area, counsel stated, owed allegiance to Pakistan, therefore, the carpets which were manufactured in the Noman's land, were to be owned by Pakistan and their production was to be encouraged. The object of drawing the distinction between manufacturing and processing; therefore, according to counsel, was to enable the export of those carpets which were manufactured in the Noman's land and were processed in Pakistan so that the country could earn additional foreign exchange by their export and the allegiance of the inhabitants of the Noman's land become stronger to this country. We are not concerned with the political aspect of this explanation, but it amounts to an admission that the distinction on which the petitioner relies is not unrealistic; neither in the explanation calculated to establish a distinction between the manufactures of Pakistan and the manufactures of other countries.
15. The conclusion of the above discussion is that a distinction between manufacturing and processing has been deliberately drawn with the object of encouraging the export of goods of foreign origin which are processed in Pakistan. We can easily appreciate the valuableness of this purpose, but are unable to construe the provision so as to restrict its application to those goods only which are manufactured in the Noman's land and processed in Pakistan.
16. Turning now to the second contention of counsel we are unable to agree with him that the Export Bonus Scheme it so completely a matter of policy' that neither the question of the legality of any act done in pursuance of it nor the creation of any legal right or obligation can arise in respect of it. If we understood counsel rightly, he said that no provision of law nor any mandatory requirement of law had been violated by the respondents, and that it was irrelevant to the exercise of writ jurisdiction if any liability of the Government could be said to have arisen from the breach of a contract, or from the violation of the principle of estoppel or in tort. He argued that there was no provision of law which could be said to be the foundation of this policy of the Government. On the contrary, according to him, the policy had its roots in the will and discretion of the State to encourage exports for earning foreign exchange for itself and simultaneously to encourage the establishment and development of a certain type of industry in the country.
17. We appreciate this aspect of the policy and if wisdom of State policies was relevant to our manner of thought, we would have tried to explain that confidence of the public in the just working of a policy is an important pre‑requisite of its success. But looking at the Scheme from the legal point of view only we may point out that the policy does not only affect inanimate objects like foreign exchange and industry, but also affects the conduct of exporters, manufacturers and processors of goods. Before the export of goods, and to the extent of the success of the policy, all of these men make extensive preparations which culminate in exports. As these men are invited to act in a certain manner and to make financial commitments in order to earn foreign exchange for the State and thereby to get a share out of that foreign exchange, they acquire a right which is not purely contractual, because firstly, they participate in a restricted sense in the working of the policy by adapting their course of trade to it; Secondly, the policy has its roots in the authority conferred on responsible officers of the State by the Import and Export Control Act, 1950 as well as by the Statutory control of foreign exchange under the State Bank of Pakistan Act, 1956. As that legal authority is a public duty, it cannot be exercised arbitrarily, whimsically or in disregard of how it involves the members of the public in its performance. The harm, if any, coming to a member of the public as a result of his bona fide involvement in its performance may be said to be allied in nature to an injury resulting from tort, but the declared will and the wisdom of the State in the form of a scheme also imposes a restriction on the discretion of the State as to the manner in which that authority is to be exercised. This restriction is not merely in the nature of estoppel, because it is the result of public declarations made by the State as to the right course for it to adopt with respect to the exercise of its authority in the given context. The violation of the Scheme is, therefore, not merely violation of the principle of estoppel but additionally it renders the exercise of that authority arbitrary, and as such legally objectionable.
18. The State Bank of Pakistan issues bonus vouchers to the exporters under the Export Bonus Scheme in proportion to the entitlement which is created by the provisions of the Scheme. The Scheme is not unalterable because being a manifestation of the wisdom of the State, it is undoubtedly liable to be changed or abondoned according to what the dictates of that wisdom may be understood to be by those who are in authority. But we are not able to concede that it is a display of either arbitrary will or arbitrary generosity with respect to the distribution of foreign exchange. So long as the Scheme remains, or has remained, in operation in any form, those members of the public who have in the restricted sense participated in its working, are entitled to their share in the distribution of foreign exchange in accordance with the declared will and wisdom of the State.
19. In short, the above right, and the corresponding obligation of the State are neither purely contractual nor merely the consequence of estoppel, but additionally they are the off shoots of public participation, on the invitation of the State itself, in the working of the Scheme. Moreover the right and obligation are two complementary parts of the exercise of a legal authority, which is also a public duty. These aspects reflect a legal characteristic of such authority which is that it must be exercised reasonably. Its exercise cannot be said to be reasonable if it is capricious.
20. We are able to see that if the respondents had a reason in the Scheme to form an adverse judgment against the petitioner, their judgment could not be justiciable, but no such defence has been set up, and there is no allegation that any conditions attached to the earning of bonus vouchers have remained unfulfilled.
21. We need no discuss or even cite English and Indian judicial precedents in support of the petitioner's case, because we are relieved of the burden of our task by a judgment of our own Supreme Court in Pakistan and another v. Hussain Ali Shah (P L D 1960 S C (Pak.) 310), In that case an import licence for an Indian film was granted in accordance with the declared policy of the Government but was subsequently cancelled. The ground on which it was cancelled was held by their Lordships to be a pretext' and an after thought'. As to the argument that no legal right to the grant of an import licence had been made out, their Lordships observed
"the learned Judges (of the High Court) noted that it was only upon fulfilment of certain conditions by the petitioner that he became entitled to, and was granted, the import licence which was later cancelled, and observed
Having acted upon the invitation of the respondents and having fulfilled the conditions which involved financial commit ments, he did acquire a legal right to an import licence of equivalent value.
Accordingly, the writ was issued requiring that the cancelled licence should be restored the respondent with necessary modification as to the period of validity'.
We agree entirely with the views of the learned Judges. The pretext of non‑compliance with the rule requiring sub mission of a Bank certificate with the import application is clearly an after‑thought, and in the light of the fact that a licence had actually been issued, after proof of the receipt of the sale‑proceeds of the respondent's film from abroad, it would appear to be merely colourable. The licence granted was no mere act of discretion or unilateral act on the part of the Government. It was granted in fulfillment of an undertaking, which imposed certain prior conditions upon the applicant, which conditions he had fulfilled, and thereby there had accrued in his favour, something in the nature of a legal right to an import licence of equivalent value. That right had been respected, and in so doing the Government had performed no bare uncontrolled act of discretion under their powers, but had exercised the relevant power as a matter of obligation in favour of the respondent."
23. The third contention of counsel for the respondent sounded like a vain attempt to discredit the petitioner. His stand was that the petitioner was helped by some dishonest Government employees in alighting upon the idea that carpets of foreign origin could earn the bonus if they were processed in and exported from Pakistan. In support of this stand he referred to the letter No. 1014/1753/Exp. 11/60, dated the 8th of September 1960 signed by Mr. S. Faizullah Shah, Executive Officer on behalf of the Chief Controller of Imports and Exports. The letter was as follows:
"With reference to your letters No. Nil dated the 8th September 1960 on the above subject, I am to say that as these carpets are processed in Pakistan and may be termed as Pakistani Carpets as such no Export Licence is required and the same can be exported freely under G. R. P. X Procedure of the State Bank of Pakistan, provided you are registered exporters with this office."
Counsel had probably prepared his address before he knew that we ourselves would be able to lay our hands on the letters written by the witness examined by him (See paragraph 8 above) and Saudur Rehman (See paragraph 11 above). It appears to us that the letters signed by S. Faizullah Shah is considered by counsel to be too outspoken to fit into the defence taken by the respondents in these proceedings but we do not find anything objectionable in it.
24. In conclusion, we accept the petition, quash the orders of the respondents which have been mentioned in the first paragraph of this judgment, and order a writ of mandamus to be issued directing the respondents to issue bonus vouchers to the petitioner in accordance with his entitlement under the Scheme.
[Judgment announced by Qadeeruddin Ahmad, J owing to the absence of Mr. Justice Raymond on account of vacation.]
K. B. A.
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