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Subject: Company and Banking laws.

Key words: Winding up by creditors; jurisdiction of banking Court and company Court in winding up proceedings;

Abstract: Muslim Commercial Bank (Bank) filed winding up petition under Sections 305(e) and 306(1) of the Companies Ordinance, 1984 for winding up of the respondent company (Respondent). The Respondent filed an application under Order VII Rule 11(d) CPC read with rules 7 of the Companies Court Rules, 1997 (1997 Rules) for rejection of the Bank’s winding up petition on the grounds that the Bank being a financial institution cannot file a winding up petition under the Companies Ordinance, 1984 as it must first have recourse under the Financial Institutions (Recovery of Finances) Ordinance, 2001 (Recovery Ordinance). In other words, the two laws are mutually exclusive and the Bank having instituted proceedings under the Recovery Ordinance was barred from initiating winding up proceedings as a creditor.

Judgment: The Court after reviewing Sections 4, 5(1), 7(4)(5) and 9(1) of the Recovery Ordinance held that there was nothing inconsistent in the provisions of the Companies Ordinance, 1984 and the Recovery Ordinance insofar as the winding up provisions of the Companies Ordinance are concerned. Accordingly, winding up by creditors being a wholly different situation, the jurisdiction of the Company Court may be invoked so long as it can be proved that a respondent company is unable to pay its debts and is thus liable to be wound up.

Justice: Muhammad Munir Peracha J.

Advocates: Jam Asif Mehmood for petitioner and Azid Nafees for respondent

Cases referred to: Majeed A Tahir v United Bank Ltd 2008 CLD 1162; Abdur Rahman Allana v. Citibank 2003 CLD 1843; Maj (Retd) Javed Inayat Khan Kayani v. the State PLD 2006 Lah. 752; Sindh Glass Industries Ltd v. National Development Finance Corporation PLD 1996 SC 601 and Pakland Cement 2002 CLD 1392.

Cases distinguished: Ghulam Dastagir and Sons v. Union Insurance Company of Pakistan Ltd. PLD 1995 Lah. 290.

Subject: Contract

Key words: Interpretation of statutes; contract; specific relief; whether damages payable in addition to specific performance.

Abstract: In this Appeal, the appellant (being in the business of re-rolling steel mill) agreed to purchase a vessel “M” from the respondents for the purposes of which it opened an irrevocable letter of credit. Upon arrival of “M”, the respondents repudiated the contract and refused to hand over delivery. “M” was auctioned and sold for Rs.6,505,299 of which Rs.3,477,899 was paid to the respondents and rest was invested by the Nazir. By Court order, the appellant was allowed to withdraw the amount on furnishing a bank guarantee. The trial Court after examining evidence held that since the respondents breached the contract, the relief of specific performance could not be granted and awarded a sum of Rs.2,036,628 as damages and directed the appellant to deposit the excess amount in Court with interest after adjustment of costs. The appellant appealed.

Judgment: The Court allowed the Appeal pursuant to Section 19 of the Specific Relief Act, 1877 (SRA) and held that under Section 19 of SRA the Court can grant compensation when (i) the plaintiff has not abandoned its right of specific performance and (ii) the Court comes to the conclusion that although the plaintiff is entitled to specific performance but due to some hardship or disadvantage it may also be compensated in damages for value of the property upto the date of the judgment. In this Appeal, the Court was mindful of the fact that the appellant sought to purchase “M” for its factory requirements and not for ordinary scrap business, a factor not considered by the trial Court. 

Justices: Arif Khilji and Soofia Latif JJ.

Advocate: Khalid Anwar for Appellants.

Subject: Company law.

Key Words: Directors right of inspection of books of accounts etc.; incurring capital expenditure; appointment of forensic auditor to investigate allegations of fraud; Courts not to interfere with internal management of company; “Rule of Majority”; “Rule of Transparency”.

Abstract: This case involves an interlocutory application for temporary injunction filed by the minority directors representing a minority group of shareholders against the directors representing the majority shareholders seeking (i) an order restraining the defendants from incurring capital expenditure on the ground that huge sums of money were being fraudulently siphoned off under the garb of capital expenditure and (ii) an order seeking the appointment of a forensic auditor to investigate the affairs of the company. The defendants filed an application under Order 39 Rule 4 seeking discharge of the plaintiffs’ applications.

Judgment: The Court addressed two principal questions involved in the interlocutory applications (i) as to whether in the circumstances of declining profits by the company corresponding to the investment can be termed as siphoning off the funds by the directors in majority thereby justifying interference by the Court and (ii) as to whether the plaintiffs after having approved the budget and accounts containing such capital expenditure have waived their right to object same subsequently. In answering the above, the Court observed that as a general principle, Courts would not interfere with internal management of a company so long as the power exercised by the board are consistent with the Companies Ordinance, 1984 and have been exercised in good faith and in the best interests of the company. Where, however, the said powers were not exercised in good faith, the Court may based on cogent documentary evidence before it, interfere in appropriate cases. Insofar as the ‘Rule of Majority’ is concerned, the same is one of the cardinal principles of company law but will be subject to the ‘Rule of Transparency’ in order to prevent the majority from depriving the rights of the minority. In other words, the principle of majority should be balanced through transparency at board meetings where all directors should have the benefit of full disclosure and material information to ensure that meetings are meaningful and decisions are taken in an informal manner.

Accordingly, the Court declined to order forensic audit as it would tantamount to a fishing enquiry which was inappropriate given that no evidence was on record to show that the plaintiff directors exercised their right under Section 230 of the Companies Ordinance, 1984 to inspect the books of account and other books and papers or that any information was being denied to them. As regards the incurring of capital expenditure, the Court permitted it provided that all further capital expenditure may only be incurred after obtaining prior approval in a meaningful meeting of the board in accordance with Section 196 of the Companies Ordinance, 1984.

Justice: Sajjad Ali Shah J

Advocates: Khalid Javed Khan for the plaintiffs and Sajid Zahid for the defendants.

Cases referred to: Mst. Khurshid Ismail v. Unichem Corp 1996 CLC 1863; Pakistan v. Israr ul Haq PLD 1981 SC 531; Jam Pari v. Muhammad Abdullah 1992 SCMR 786; Karachi Pipelines v. Gov’t of Sindh 1992 CLC 1668; Mahendra Singh Mewar v. Lake Palace Hotels and Motels Ltd. 1999 Company Cases (Vol.96) p.1999; Dadabhoy Cement Industries Ltd v NDFC PLD 2002 SC 500; and Ghulam Ghous v. Muhammad Yasin 2009 SCMR 70.

Subject: Agency law.

Key words: termination; agency coupled with interest; injunction.

Abstract: The case involved a claim for illegal termination of an agency under Section 202 of the Contract Act, 1872 (Contract Act). The plaintiff alleged that its agency could not be terminated as it was coupled with interest.  The plaintiff consequently sought a permanent injunction to restrain the defendant from appointing the defendant No. 2 as its new agent and alternatively, claimed damages.

Judgment: The issue (being the issue in all like cases) to be determined was whether the plaintiff had an overriding security interest in the subject matter of the agency. The Court looked into the facts alleged by the parties and prima facie held that (i) the plaintiff as an agent earned commission as its remuneration and as such is not protected under Section 202 of the Contract Act; (ii) the agency was non-exclusive (iii) the investments made by the plaintiff where obligations agreed to by the agent / plaintiff under the agency agreement (iv) the agreement appeared to be time-bound (v) the plaintiff was aware for some time of the appointment of defendant No.2 as the new agent and (vi) the plaintiff had claimed damages on account of heavy investment and accordingly damages would be adequate relief in this case. The plaintiff’s applications were dismissed.

Justice: Qaiser Iqbal J.

Advocates: Dr. Farogh Naseem for the plaintiff and Rehman Aziz Malik for defendant No.1 and Shakeel Pervez Bhatti for defendant No.2.

Cases referred to1: 1Abdul Habib Rajwani v. Messrs Brothers Industries Ltd. 2007 YLR 590; Travel Automation (Pvt.) Ltd. v. Abacus International (Pvt.) Limited 2006 CLD 497; Roomi Enterprises (Pvt.) Limited v. Stafford Miller Limited 2005 CLD 1805; Time Visions International (Pvt.) Limited v. Dubai Islamic Bank Pakistan Limited 2007 CLD 762; Farooq & Co. v. Federation of Pakistan 1996 CLC 2030; Zubair Ahmed v. Pakistan State Oil Co. Limited PLD 1987 Kar. 112; Muhammad Aref Effendi v. Egypt Air 1980 SCMR 588; Muhammad Ibrhim v. Small Business Finance Corporation 2002 CLD 176; Messrs Business Computing International (Pvt.) Limited v. IBM World Trade Corporation 1997 CLC 1903; Pakistan Automobile Corporation Limited v. General Motors Overseas Distribution Corporation PLD 1982 Kar. 796; Huma Enterprises v. Syed Pir Ali Shah 1985 CLC 1522; Universal Trading Corporation (Pvt.) Limited v. Beecham Group PLC 1994 CLC 726; Bolan Beverages (Pvt.) Limited v. Pepsico PLD 2004 SC 860; World Wide Trading Co., v. Sanyo Electric Trading Co., Limited PLD 1986 Kar. 234; Muhammad Riaz v. Federal Construction Corporation Limited 1987 CLC Kar. 345; Universal Business Equipment (Pvt.) Limited v.  Messrs Kokusai Commerce Inc. 1995 MLD 384; Talani Vanna and others v. Krishnaswarni Konar AIR 1946 Nad, 9; Muhammad Farooq and Co. (Pvt.) Limited v. Messrs Pakistan Tobacco Co., Limited and others 1997 CLC 520; Syed Shafique Hussian v. Syed Abdul Qasim PLD 1979 Kar. 22; Caltex Oil Pakistan Limited v. Sheikh Rahan-ud-Din PLD 1958 Lah. 63; Sardar Muhammad Nawaz v. Firdous Begum 2008 SCMR 404; Muhammad v. Hashim Ali PLD 2003 SC 271; Salma Javed v. S.M. Arshad PLD 1983 Kar. 303; Balagarnwala Oils Mills v. Shakarchi Trading AG PLD 1990 Kar. 1; Molasses Export Co. Limited v. Consolidated Sugar Mills Limited 1990 CLC 609; Marghub Siddiqui v. Hamid Ahmed Khan 1974 SCMR 519; Rehman Khan v. Safia Begum 2002 YLR 3120; Syed Mahmood Ali Gardezi  v. Syeda Rabia Begum 1993 MLD 814; Muhammad Matin v. Mrs. Dino Manekji Chinoy PLD 1983 Kar. 387; Sui Gas Transmission Company v. Sui Gas Employees’ Union 1977 SCMR 220; S.N. Gupta and Co. v. Sadananda Ghosh PLD 1960 Dac. 153; Muhammad Yousuf v. Messrs Urooj Private Limited PLD 2003 Kar. 16; Farooq and Co. v. Federation of Pakistan 1996 CLC 2030; Sunshine Corporation (Pvt.) Limited v. V.E.L. Du Pont 1996 YLR 2162; Messrs Nasir Traders v. Haib Bank Limited Quetta PLD 1993 Quetta 94; Azeemun Nisa Begum v. Ali Muhammad PLD 1990 SC 382; Abdul Habib Rajwani v. Brothers Industries Limited 2007 YLR 590 (Kar.); Philippine Airlines Inc. v. Paramount Aviation (Pvt.) Limited PLD 1999 Kar. 227; Petrocommodities (Pvt.) Limited v. Rice Export Corporation of Pakistan PLD 1998 Kar. 1; Zahid Hussain v. Government of Sindh 1992 CLC 2396; Pakistan Associated Construction Limited v. Asif H. Kazi 1986 SCMR 820; Puri Terminal Limited v. Government of Pakistan 2004 SCMR 1092; Hameedull v. Headmistress 1997 SCMR 855; and Hazara Hill Tract Improvement Trust v. Mst. Qaisra Elahi 2005 SCMR 678.

Subject: Contract.

Key words: Restrictive covenant; equality of bargaining power viz. employee; specific performance.

Abstract: The appellant company instituted proceedings for breach by the respondent / employee (former general manager marketing) of the restrictive covenant. The covenant in question was inserted in a letter addressed to the employee conveying an annual increment in his salary.  The restrictive covenant required the respondent not to join any of the appellant’s competitors for a period of two years upon leaving employment.  The appellant claimed that the respondent, in pursuit of his functions, had acquired confidential information regarding the manufacturing process and quality-control documents and that this sensitive data could be used against the appellant by its competitors. 

Judgment: The Court whilst examining the facts observed that respondent had worked in the sales department throughout his tenure and the nature of his job did not permit him access to such information.  As far as the names and addresses of the retail outlets are concerned, information on such dealers was common knowledge in the market and could be readily obtained. Further, all letters of increment issued from time to time had been identical save for the one in question which revised the terms and conditions without any negotiation with the employees and inserted words to the effect ‘I accept the terms and conditions contained therein’ discreetly without any notice or opportunity afforded to the employee.  Given the respondent had served the company for thirty five years it was questionable whether such a weighty clause could be inserted in the contract and without mutual agreement and same would offend the principle of equality of bargaining power.
[Note: Although the dispute pre-dates the promulgation of the Competition Ordinance, the reasoning of the Court in this case would have been different in light of Section 4 of the Competition Ordinance pertaining to agreements preventing, restricting or reducing competition]

Justices: Khilji Arif Hussain and Arshad Noor Khan J.J.

Advocates: Sana Minhas for appellant and Abdul Qayyum Abbasi for respondent.

Cases referred to: Hafeezullah Khan v. Al-Haj Chaudhri Barkat Ali PLD 1998 Kar. 274; Shri Gopal Paper Mills Ltd v. Sunder K. Ghansham AIR 1962 Cal. 61; Niranjan Shankar Golikari v Century Spinning and Manufacturing Co. Ltd. AIR 1967 SC 1098; Superintendance Company of Indian (P.) Ltd. v. Lodhi Parshad Jiswal AIR 1958 Punjab 190.

Subject: Enforcement of foreign arbitration agreement; agency.

Key words: New York Convention; stay of proceedings.

Abstract:  The case deals with an application made by the defendants under Section 4 of the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Ordinance, 2007 (“2007 Ordinance”) for stay of proceedings and referring the matter to the foreign arbitration forum. The dispute settlement clauses of the Sales Agency Agreement required the parties to settle their disputes through foreign arbitration under the rules of the International Chamber of Commerce.

Judgment: The Court held that Section 4 of the 2007 is mandatory in nature and unless the arbitration agreement falls under the exceptions to Section 4, the Court is bound to give it effect and refer the parties to their agreed forum of arbitration. The onus of proving that the arbitration agreement in question was (i) null and void, (ii) inoperative or (iii) incapable of being performed was on the plaintiff. After examining the arbitration agreement and finding that it did not suffer from any of the above infirmities, the Court stayed the suit and referred the parties to their agreed arbitration forum.

Justice: Qaiser Iqbal J.

Advocates: Abdul Qayyum Abbasi for the plaintiff, Khawaja Mansoor for the defendant Nos. 1 to 5, Nazar Akbar for defendant No. 6 and Iqra Saleem and S.M. Ghani for defendant No.7.

Cases relied upon: Travel Automation Ltd v. Abacus International Ltd. 2006 CLD 497

Cases referred to: Bolan Beverages v. Pepsico PLD 2004 SC 860; Time Visions International v. Dubai Islamic Bank PLD 2007 Kar. 278; Huma Enterprises v. Pir Ali Shah 1985 CLC 1522; Worldwide Trading Company v. Sanyo Electric Trading Company PLD 1986 Kar.234; Palani Vannan v. Krishnaswami Konar AIR 1946 Mad.9; Sheoparson Singh v. Ramnandan Prasad Narayan Singh AIR 1916 PC; Business Computing International Ltd. v. IBM World Trade Corporation 1997 CLC 1903.

Subject: Enforcement of foreign judgment, Procedure

Key words: foreign jurisdiction; enforcement; execution of foreign judgment.

Abstract: The plaintiff Bank instituted the instant suit on a cause of action based upon judgments obtained from the Courts of the Emirate of Dubai. The defendants resisted contending that the plaintiff has no cause of action as the foreign judgments had not been obtained in light of the requirements of Section 13 of the Civil Procedure Code 1908 (CPC).

Judgment: The Court examined the foreign judgments in light of the requirements of the CPC and observed three methods by which a foreign judgment may be enforced in Pakistan: (i) execution by decree holder under Section 44 or 44A of the CPC; (ii) instituting proceedings on the basis of the foreign judgment being the cause of action and (iii) instituting a suit on the original cause. Further, relying on Emirates Bank International Ltd. v Osman Brothers (1990 MLD 1779), the Court reiterated the requirements of Section 13 of the CPC, which recognizes the enforceability of foreign judgments. The main issue in this case was whether the foreign judgment fulfilled the requirement of natural justice on the grounds that it was a default judgment on account of the non-appearance of the defendants in the Courts of the Emirates of Dubai.
The Court observed that the defendants were aware of the case and yet did not enter appearance. The test in such cases where a party has deliberately not entered appearance is to determine whether the judgment pronounced operates as a penalty for the conduct of the party or whether it is based on the merits of the case. Accordingly, where the defendants refuse to enter appearance despite several opportunities to do so, a judgment so pronounced on the merits does not offend the principles of natural justice. It was held that the foreign judgment meets the requirements of Section 13 of the CPC and the suit was validly instituted. 

Justice: Syed Hamid Ali Shah J.

Advocates: Malik Mateenullah for plaintiff and Jahanzeb Khan Bharuana for the defendants.

Cases referred: Al-Attar Sports Dress Trading v. Habib Bank Limited 2005 CLD 1693; Naeemullah Malik v. United Bank Ltd 2006 CLD 1592; Habib Bank Ltd. v. Ali Muhammad 2005 CLD 491; Mian Nazir Ahmed v. Abdur Rashid Qureshi 1986 CLC 1309; Ganguli Engineering v. Sushila Bala Basi AIR 1957 Cal. 103; Popat Virji v. Damodar Jairam AIR 1934 Bom. 390; Chairman, Board of Mining Examination v. Chief Inspector Mines v. Rajmee AIR 1977 SC 965; Emirates Bank Int’l Ltd. v. Osman Brothers 1990 MLD 1779.

Subject: Contract

Key words: Indemnity and damages

Abstract: In this Appeal, the appellant claimed an excess amount from the leasing company / respondent which included certain front end fee and facilitation charges incurred by the leasing company / respondent after repossession of the leased goods (buses). In particular the issue was whether the leasing company / respondent had a right to recover such charges after it had already repossessed the leased property. The basis of this right of the leasing company was contained in the indemnity clause of the concerned lease agreement.

Judgment: The Court rejected the appellant’s contentions and held that the losses incurred by the leasing company / respondent resulted from the appellant’s breach of the lease agreement. The indemnity clause of the lease agreement clearly stated in this regard that “The Lessee further indemnifies the Lessor against any loss or expense which the Lessor shall certify as rights incurred by it as a consequence of the occurrence of any Event of Default and Termination, or arising out of any misrepresentation of the Lessee.” Accordingly, the Court held that the appellant cannot now back out of the indemnity provided by him and was bound in terms of Section 124 and 125 of the Contract Act, 1872.
Justices: Mushir Alam and Ather Saeed JJ.

Advocates: Sohail Rana for the appellants and Abdul Qayyum Abbasi for the respondents.

Subject: Company

Key words: Scheme of Amalgamation / Merger; whether registration under Registration Act, 1908 required.

Abstract: The central issue in this Petition under Section 284 read with Section 287 of the Companies Ordinance, 1984 was whether any instrument or conveyance was required for Scheme of Amalgamation approved by Court and particularly whether Section 17 of the Registration Act, 1908 requiring compulsory registration was applicable.

Judgment: After examining the Scheme annexed to the petition, the Court observed that all formalities associated with the Scheme had been met by the petitioners and held that no registration was required where a Scheme has been approved by the Court. The Court further held that the Scheme once approved by the Court would operate from the date of transfer specified in the Scheme as approved by the members of the company and not the date of the Court’s Order.

Justice: Mian Saqib Nisar J.