Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: Rafhan Maize Products Co. Ltd VS Respondent: Monopoly Control Autho-Rity And 9 Other
Court Name: Lahore High Court Judge(s): Rustam S. Sidhwa Title: Rafhan Maize Products Co. Ltd vs Monopoly Control Autho-Rity And 9 Other Case No.: First Appeal from Original Orders Nos. 2, 3 and 5 of 1983 Date of Judgment:1986-06-27 Reported As: PTCL 1986 CL. 373 Result: Ordered accordingly.
JUDGMENT
JUDGMENT RUSTAM S. SIDHWA, J.-1. This judgment will dispose of First Appeal against Order (F.A.O.) No. 2 of 1983 preferred by Rafhan Maize Products Company Limited, appellant, and First Appeal against Order (F.A.O.) No. 3 of 1983 preferred by Knorr Zurich A.G. And Monda Aliments A.G., appellants, both calling for the setting aside of the order of the Monopoly Control Authority dated 23rd December, 1982 and First Appeal against Order (F.A.O.) No. 3 of 1983 preferred by Mian Muhammad Hanif Monnoo, appellant, calling for the setting aside of only that portion of the said impugned order' of the Monopoly Control Authority to the extent that it calls upon him to disinvest a part of his shareholding to the public. 2. For the purposes of these three appeals, the facts as given in First Appeal against Order (F.A.O.) No. 2 of 1983 shall be adopted. 3. The brief facts of the case are that Rafhan Maize Products Company Limited, appellant (hereinafter to be referred to as "the Rafhan Company") is a Private Limited Company in the Province of Sind, engaged in the manufacture of large quantities of high quality starch, glucose, dextrose, corn oil and a number of subsidiary products for the home and export markets. 4. That the Rafhan Company was established in 1950 by the late Haji Muhammad Shafi Monnoo (hereinafter called "Haji Shafi"), who also associated his three sons, Mian Mohammed Hanif Monnoo, Mian Nasir Ahmad Monnoo and the late Mian Muhammad Rafi Monnoo in the business
---
## Page 2
(Haji Shafi and sons or the survivors of these four individuals are hereinafter jointly referred to as "the Shafi Group)." 5. That in 1962, after years of negotiations with the family and the Government of Pakistan, Corn Products Company, a U.S. Corporation (hereinafter called "the Corn Products Company") was permitted to purchase through its Swiss subsidiary, Knorr Zurich A.G. The respondent No. 2 (hereinafter referred to as "Knorr Company") 51% of the issued capital of the Rafhan company from the Shafi Group, at a premium of approximately 300% under an elaborate Purchase Agreement Copies of the Purchase Agreement together with the Memorandum and Articles of Association of the Rafhan Company have been annexed with the appeal and marked "A" and "B". 6. The Purchase Agreement, which was a very comprehensive document, contained inter alia, detailed and specific provisions, which in conjunction with the Articles of Association, whilst assuring certain seats on the Board of Directors and one of the two Managing Directorships to the Shafi Group, as long as it or any individual survivors of the group held 36% of the shares, effectively transferred control of the Rafhan Company to the Corn Products Company, in that most important matters were made subject to resolution of the Company in General Meeting where the Knorr Company had an absolute majority. Even in the Board of Directors, the Purchase Agreement was so worded that the Chairman of the Board of Directors, who had the casting vote and hence the final voice in the Board of Directors, was to be elected by a majority of the votes in a general meeting from the members of the Shafi Group, only so long as he enjoyed the confidence of the Knorr Company. 7. As long as Haji shafi lived, he enjoyed the confidence of the Knorr Company and therefore, remained the Chairman of the Board of Directors. However, he died on 19th December, 1963, and thereafter the Chairman of the Board of Directors was always-a nominee of the Knorr Company. The Corn Product Company, therefore, effectively-remained in control of the entire management of the Rafhan Company, since its subsidiary the Knorr Company purchased the shares. Thus, the Chairman and Chief Executive Officer of the Rafhan Company, since the purchase of the shares by the Knorr Company, were Haji Shafi, up to December, 1963, when he died, and then Mr. P.H. Brown, Mr. H.R. White, Mr. Malcolm Macdonald, Mr. D.J. Fenn and Mr. R. Senn, who is the present Chairman and the Chief Executive Officer. Apart from Haji Shafi, all the other Chairmen named above were foreign nationals and were, therefore, appointed with the approval of the Government of Pakistan. A copy of the' last approval of the Government for the appointment for Mr. R. Senn, the current Chairman, has been annexed with the appeal and marked "C". 8. That after the death of Haji Shafi, differences arose between the Knorr Company and the Shafi Group on the interpretation of the Purchase Agreement and the Articles of Association, which also led to litigation. One of the tactics adopted by the Shafi Group to obstruct the running of the Rafhan Company was to prevent holding of general meeting by remaining absent. To remedy this, the Knorr Company transferred two of its shares to Monda Alimenta A.G. (hereinafter referred to as "the Monda Alimenta Company"), another Swiss Company wholly owned subsidiary of the Corn Products Company. The Rafhan Company's issued and paid-up capital at that relevant time was:- Holding ordinary shares of Rs. 100 Knorr Zurich A.G. 30,463 Monda Alimenta A.G. 2 Mian Muhammad Rafi Monnoo 7,169
---
## Page 3
Mian Muhammad Hanif Monnoo 7,168 Mian Nisar Ahmad Monnoo 7,168 Mst. Hamida Begum 3,883 Mst. Farida Begum 3,883 Total:- 39,736 9. That with the association of the Corn Product Company with the Rafhan Company, the latter Company achieved substantial and continuing progress and increase in production as a result of the advanced technology and efficiency rendered possible by the active interest taken by the former. Thus, up to 1978j the Rafhan Company was able to achieve substantial export earnings in excess of rupees one crore per year and ensured that the products could be offered to domestic industries at economic prices and of a quality comparable to any world standard. It also promoted cultivation of maize, by making available imported seeds and other technical and material assistance to farmers and provided them with an expanding and guaranteed market. Apart from supporting the farmers, the Rafhan Company employed more than 600 people directly and many more indirectly e.g. Suppliers, contractors, etc. It also provided technical and managerial talent from visiting specialists and training of the local staff in overseas affiliates. It also generated huge .Revenues in duties and taxes (excise, sales and income) for the country. 10. As a result of this progress, the Rafhan company's total assets exceeded well over Rupees one crore when the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, V of 1970, came into force on August 17, 1971. The objects of the Ordinance were inter alia, the prevention of undue concentration of economic power in the hands of individuals and their families, the sharing of benefits of industrial development by the general public, the elimination of largely narrow family oriented attitudes of the entrepreneurs and the subsequent establish-ment of professional management in control of enterprises then managed ' and controlled by big business family groups. 11. Under section 4 (a) of the Monopolies Control Ordinance, as originally enacted, any private company with total assets of not less than one crore of rupees was deemed to constitute undue concentration of economic power, which was prohibited under section 3 of the Ordinance. 12. In March 1977, the Rafhan Company received a Notice No. F 90/R/UND/MCA/72, dated March 2, 1977 from the Monopoly Control Authority under section 11 of the' Ordinance to show cause why action under section 11 read with section 12(1) (a) (i) should not be taken in respect of the Rafhan Company. A copy of this notice together with a copy of the Company's reply, dated April 13, 1977, have been annexed with the appeal and marked 'D' and 'E'. 13. The. Rafhan Company contested this notice and a hearing took place on January 8, 1978, when an order was also passed directing the Company to submit certain information. This order was complied with. 14. That in 1978 the limit of total assets under section 4 (a) of the Ordinance was raised to rupees two Crores. As a result, the said notice was withdrawn and a fresh Notice No, F 90/R/UND/MCA/72, dated August 28, 1978, was served gn the Rafhan Company. A copy of the said show cause notice has been annexed with the appeal and marked "F". 15. The Rafhan Company submitted its reply to this show-cause notice by its letter, dated October
---
## Page 4
8, 1978, a copy of which is annexed with the appeal and marked "G". 16. That a hearing took place at Islamabad on November 15, 1978, when Mr. E.A. Nomani, Advocate, filed his power of attorney and appeared on behalf of the Refhan Company. At the hearing, the Monopoly Control Authority indicated -that not only did it propose to order that the Rafhan Company should be converted into a public company, but also that it should be quoted on a stock exchange in Pakistan. The Rafhan Company raised the objection that apart from the grounds submitted in its reply (Annexure "G"), the show-cause notice (Annexure "F") did not give any indication that the order would also require listing on a stock exchange and hence such an order would be illegal for want of notice under section 11 (2) (a). This objection was upheld and consequently the Rafhan Company was served another Notice No. F 90/R/UND/MCA/72, dated December 9, 1978, in continuation of the previous notice, dated August 28, 1978 (Annexure "F") informing the Company that the proposed order would also require it to be listed on a stock exchange in Pakistan. A copy of the said further notice has been annexed with the appeal and marked "H". 17. That the Rafhan Company submitted its reply to the second show-cause notice on February 14, 1979, copy of which has been annexed with the appeal and marked "I", together with a further reply dated April 4,. 1979, annexed thereto and marked "J". 18. That a hearing took place before the Monopoly Control Authority on October 28, 1979, at Karachi where Mr. E. A. Nomani, Advocate, appeared for the Rafhan Company. He also appeared on the same day for several other private companies with foreign participation, who had received similar show-cause notices. All these companies strongly contested the show-cause notices and after the hearing the Monopoly Control Authority asked Mr. E.A. Nomani, Advocate, to obtain the views of these companies and their shareholders whether they would be willing to accept consent orders on the following basis: (1) That the companies would accept being converted into public companies. (2) That where a company was more than 70% foreign owned, . The foreign shareholders should bring their shareholdings down to 70%. (3) That the Pakistani shareholders would offer 50% of their shares (or new shares be issued to all shareholders except existing Pakistani shareholders), so that the public in Pakistan, including N.I.T. I.C.P. And employees of the Company concerned could hold an equal percentage of shareholding with the existing private .Pakistani shareholders, it was stated that this was in accordance with the publicly stated and followed policy of ' the Government of Pakistan that where a private company with foreign participation exceeded a certain size, it should convert itself into a public limited company and offer 50% of its Pakistani, capital to the general public in Pakistan. It' was stated that this policy had been in force for many years even before - the promulgation of the Ordinance and was based on the ground that no foreign participation in any investment was. Permissible in Pakistan unless .The Government was satisfied that such foreign participation was beneficial for the industrial or agricultural development or economic progress of Pakistan. It was asserted that once the investment was permitted, the benefits of such investment should not be monopolised by local private individuals or families, who should share them with the general public in Pakistan and that as long as the foreign control did not exceed 70% ownership of the outstanding stock, it should not be disturbed. It was averred that the' policy was also aimed at encouraging such foreign
---
## Page 5
investment in Pakistan as was beneficial for its industrial or agricultural development or economic progress. 19. That the Corn Product Company through Knorr Company had made its investment in Pakistan on the understanding that its shareholders being well below 70%, it would not be deprived of its control of the Rafhan company. Thus, even as recently as 1974, when the Rafhan Company sought the Government of Pakistan's permission to increase its capital, permission was granted only on the condition that it converted itself into a public company and offered 50% of its Pakistani share capital to the general public. A copy of this consent order, dated November 27, 1974, has been annexed with the appeal and marked "K". Since this condition was not acceptable to the Shafi Group, the Rafhan Company - could not increase its capital and did not utilize the consent order. 20. That in due course, many foreign controlled private companies accepted these proposals of the Monopoly Control Authority voluntarily i.e. Without an order from the Authority and converted themselves into public companies; the said Companies being:-- Name of Company Foreign Shareholding before Conversion After Conversion. (a) Wellcome Pakistan Ltd. r 100% 70% (b) Abbott Laboratories Pakistan Limited. 85% 70% (c) Pakistan Gum & Chemicals Limited. 60% No change as below 70% (d) Burshane Pakistan Ltd. 81.54% 63.84% {{TABLE MISARRANGED}} In all these cases, except Wellcome, where there was no Pakistani shareholding, 50% of the Pakistani, capital was offered to the general public including N.I.T. And employees. In Wellcome, of course, the entire 30% was offered to the general public, including N.I.T. And employees. The Monopoly Control Authority also persuaded Bata Pakistan Ltd. And K.S.B. Pumps Ltd. To convert themselves into public companies and bring down their foreign shareholdings to 70%. In no case, however did the Authority interfere with the foreign shareholdings, if they were less than 70% and publicly declared this to be its intention, inter alia, at the hearing held on October 28, 1979. 21. That it was pointed out to the Monopoly Control Authority at the said hearing that about half of the Pakistan shares of the Rafhan Company were still registered in the name of Haji Shafi, who had died, and as there was litigation between his sons and- daughters on the ownership of these shares, consequently it was not possible to offer 50% Pakistani shares to the general public. Nevertheless, the Authority directed Mr. E.A. Nomani to obtain the view of the Shafi Group (i.e. Messrs Rafi, Hanif and Nisar Monnoo) on these proposals by December 31, 1979. 22. That Mr. E. A. Nomani conveyed the Authority's suggestions to the Rafhan Company vide his letter, dated November 6, 1979, addressed to the Company, which has been annexed with the appeal and marked "L". The Rafhan Company forwarded copies of this letter to the Shafi Group and also the daughters and widow of Haji Shafi, who were party to the litigation relating to the late Haji Shafi's shares. 23. That one of the Pakistani shareholders, Mr. Nisar A. Monnoo requested Mr. E.A. Nomani, Advocate, to obtain an extension of time from the Authority, as he was taking his daughter to U.S.A, for treatment. A copy of his letter, dated December 11, 1979, has been annexed with the petition and marked "M". Mr. Muhammad Rafi Monnoo and Mr. Muhammad Hanif Monnoo, the remaining members of the Shafi Group, also informed Mr. E. A. Nomani, Advocate, that they Would like to give
---
## Page 6
their reply after full consultation with Mr. Nisar and requested that the time be extended upto February 29, 1980. The Rafhan Company's Advocates, therefore, wrote to the Authority confirming what had happened at the hearing on October 28, 1979, and requested for extension of time on behalf, of Messrs Rafi Monnoo, Hanif Monnoo and Nisar Monnoo, Pakistani Shareholders, upto February 29, 1980. A copy of the Company's Advocate's letter, dated December 22, 1979, has been annexed with the appeal and marked "N". 2A. That on January 16, 1980, the Authority allowed the request for extension of time upto February 29, 1980. A copy of the Authority's letter, dated January 16, 1980, has been annexed with the appeal and marked "O". 25. That on February 20, 1980, Mr. Muhammad Hanif Monnoo wrote to the Rafhan Company on his own behalf and on behalf of Messrs Rafi and Nisar Monsoon pointing out that no communication whatsoever had been received by him and his brothers from the Monopoly Control Authority and, therefore, . They reserved their rights to take their stand when the Authority approached them. He also expressed their opposition to the proposed conversion. A copy of his letter, dated February 20, 1980, has been annexed with the appeal and marked "P". Consequently on February 28, 1980, the Rafhan Company's Advocates informed the Authority that the company had failed to persuade its Pakistani shareholders to agree to its proposals and that in the circumstances the show-cause notice should be withdrawn. A copy of the Advocate's letter, dated February 28, 1980, had been annexed with the appeal and marked "Q". 26. That in June, 1980, the limit of total assets under section 4(1) of the Ordinance was raised to rupees three Crores. Consequently, the? Said notices, dated 8th August and 9th December, 1978, were withdrawn by order, dated August 6, 1980, and a fresh Notice No. 90/R/UND/MCA/ 72, dated August 10, 1980, was served on the Rafhan Company based on the total assets of the company being not less than three Crores rupees. Copies of the order withdrawing the previous notices and the fresh notice have been annexed with the appeal and marked "R" and "R1". This notice did n6t disclose the nature or details of the order which the Authority proposed to pass and, unlike the previous notice, did not even state that listing on the Stock exchange was required, 27. That on August 25, 1980, the Rafhan Company submitted a short reply to the latest show-cause notice adopting the replies dated April 13, 1977, (Annexure "E"), October 8,. 1978 (Annexure "G"), and April, 4, 1979 (Annexure 'J') and also relied on all the replies, documents and information already submitted. The Rafhan Company at the same time pointed out that the show-cause notice was defective, as it did not give details of the nature of the order which was under contemplation. The Rafhan Company did not, however, expressly adopt the reply, dated February 14, 1979 (Annexure "I"), as that reply was to the show-cause notice, dated December 9, 1978, (Annexure "R") wherein listing on the Stock Exchange was desired. A copy of the reply dated August 25, 1980, has been annexed with the appeal and marked "S". No hearing took place for some time, as in the meantime Mr. Riaz Ahmad, Chairman, of the Authority had retired. On January 20, 1981, a hearing took place before the Authority with the new Chairman Mr. Irtiza Hussain and Mr. S.M.A. Sabzwari, Member. Mr. E.A. Nomani, Advocate, appeared for the Rafhan Company and after opposing the notice on the grounds given in the replies, he explained what had happened so far in the proceedings and that while the Company was prepared to accept an order of conversion with 50% of the Pakistani shares being offered .To the public, the Pakistani shareholders were not accepting this. The Advocate further informed the authority that there had been a compromise amongst the legal heirs with regard to the late Haji Shafi's shares and that unless the Authority was able to persuade all parties to
---
## Page 7
voluntarily accept a consent order, the Authority could not compel any one to divest his shares .Under the Ordinance, on the grounds already submitted in the Rafhan company's replies and arguments advanced before the Authority. The Authority directed Mr. Nomani Advocate to furnish the details of the compromise. This was done by letter, dated February 14, 1981, a copy of which has been annexed with the appeal and marked "T". 28. That a hearing was held again on April 13, 1981, at Karachi where Mr. E.A. Nomani, Advocate, again appeared on behalf of the Rafhan Company and informed the authority that the Company was unable to convert, in accordance with the proposals of the authority, as although the 51% controlling shareholders were willing to support the proposals of the Authority, the requisite balance of votes required for the Special Resolution was not available. 29. That thereafter the Authority issued notices to Messrs Rafi Monnoo, Hanif Monnoo an 30. That it is the case of Mr. E.A. Nomani, Advocate, that throughout the proceedings from 1977, he had appeared only for the Rafhan Company and had filed power of attorney on its behalf only, which is on the record of the Authority. He never represented the foreign shareholders nor had he any authority to do so. He submits that' the Authority assumed that he represented both the Rafhan Company and the controlling. Sshare- holders, Knorr Company and the Monda Alimenta Company, because the Rafhan Company advocated that it was in its best interest that its control remained with the Corn Products Company and that he had occasionally conveyed the view of the controlling shareholders to the Authority. Mr. E. A. Nomani submits that the Rafhan Company informed the authority that it had been trying to persuade the Pakistani shareholders to accept the proposals of the Authority and that the controlling shareholders .Were willing to compensate the Pakistani shareholders generously for divesting their shareholding. The controlling shareholders had in fact offered rupees one crore to the Pakistani shareholders in addition to the price that they would receive by selling 50% of-their shares to the public. The Company gave details of this offer to the Autho-rity by its letter, dated March 7, 1982, a copy of which has been annexed with the appeal and marked "U". 31. That throughout the long period of five years, it was never even verbally suggested by the Authority that the controlling shareholders i.e. The Knorr Company and the Monda Alimenta Company, would also be required to divest its shares. 32. That another hearing took place on March 15, 1982, when Mr. E. A. Nomani, Advocate, appeared for the Rafhan Company and Dr. Pervaiz Hassan, Advocate, appeared for Mr. Muhammad Hanif Monnoo. It was there for the first time that Dr. Pervaiz Hassan, in oral arguments, raised the issue that the controlling foreign shareholders should also be asked to disinvest and that asking the Pakistani shareholders alone to disinvest amounted to discrimination. Both Dr. Pervaiz Hassan and Mr. E.A. Nomani were asked to submit their written arguments. They were, however, not asked to supply copies to each other. The Rafhan Company's Advocates submitted their written arguments on March 17, 1982. A copy of the same has been annexed with the appeal and marked "V". It was stated in these arguments that: (a) The Rafhan Company's Advocate was representing only the said Company and not the controlling shareholders; (b) That the Rafhan Company's Advocate confined his arguments only to answer Dr. Pervaiz Hassan's arguments. Since the hearing of March 15, 1982, was confined to the question whether the
---
## Page 8
Pakistani shareholders should divest, the arguments were also confined, to that subject. The Company however never withdrew or waived its original objections on merits to the show-cause notice itself and this was made clear even in the written arguments in the following words: "In the above circumstances, it is submitted that, at best, the Authority only has power to order a technical conversion and in this connection reliance is placed on the Company's reply to the show cause notice." 33. That since Mr. Rafi Monnoo and Mr. Nisar Monnoo had asked for an adjournment on March 15, 1982, they were issued another notice of hearing before the Authority on April 21, 1982. No notice of this hearing was issued to the Rafhan Company or to the foreign shareholders. Mr. E.A. Nomani, Advocate, however, happened to be present before the Authority on April 21, 1982, in some other cases, and therefore, he requested for permission to be present on behalf of the Rafhan Company. This request was granted. Mr. Rao N.S. Khan, Accountant, appeared for Messrs Rafi and Nisar Monsoon. He repeated the arguments of Dr. Pervaiz Hassan, Advocate, and stated that his clients had no objection to divest, if the controlling foreign…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.