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Petitioner: M. YOUSUF ADIL SALEEM & CO. CHARTERED ACCOUNTANTS through Partner and 5 others VS Respondent: MUHAMMAD SALEEM and another
Court Name: Sindh High Court Judge(s): Syed Hassan Azhar Rizvi Title:M. YOUSUF ADIL SALEEM & CO. CHARTERED ACCOUNTANTS through Partner
and 5 others vs MUHAMMAD SALEEM and another Case No.: Suit No,8 and C.M.As. Nos.62 and 1048 of 2011 Date of Judgment:2011-10-03 Reported As: 2012 CLD 364, 2012 CLC 415 Result: Order accordingly Judgment ORDER ' SYED HASAN AZHAR RIZVI, J.--- This order will dispose of the above-mentioned two C.M.As. Which have been filed in this suit. C.M.A. No,62 of 2011 is for grant of interim injunction filed by the plaintiffs under Order XXXIX Rules 1 and 2, sections 94(e) and 151, C.P.C. Seeking a restraint order against the defendants, their agents, ' representatives, attorneys, employees, successors assigns or any other person(s) acting under their control, instructions or guidance from causing any kind of hindrance or from interfering in any manner in the affairs, management, administration and day to day business/running of Partnership firm namely M. Yousaf Adil Saleem & Co. Additionally, the defendants be restrained from claiming/ acting/ posing/ officiating/ representing themselves as partners of the Firm/plaintiff No,1 during the period of suspension. C.M.A. No,1048 of 2011 filed by the defendants under Order XXXIX Rules 1 and 2 C.P.C. With the prayer to restrain the plaintiffs Nos.2 to 6 from interfering with the operation of the Lahore and Islamabad Offices of the plaintiff No,1 by the defendants. 2. This suit for declaration, accounts mandatory and permanent injunction has been filed by plaintiffs against the defendants. The case of the plaintiffs is that they and the defendants are the partners of a Firm known as "M. YOUSUF ADIL SALEEM & CO." From time to time the deed of partnership was modified and restructured and lastly the alternation of partnership deed was executed on 28-2-2005. It is averred in the plaint that in order to bring the firm in line with DTT's global strategy for regional integration, to implement the policies and procedures laid down the Professional Practice Manual of DTT and to integrate the operations of the Firm with those of Deloitte and Touch Middle East (DTME), the plaintiffs and the defendants considered it expedient to
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amend the Alteration of Partnership Deed dated 28-2-2005 and accordingly an Alternation of Partnership Deed dated 7-12-2006 was duly executed between the partners of Firm which had been duly registered with Registrar of Firms at Karachi. As a result of execution of Partnership Deed dated 7-12-2006 all existing officers situated in Karachi, Lahore, Islamabad and Multan stood integrated and became part and parcel of the Firm and that the office situated at Karachi became the principal office of the Firm and the previously existing Executive Management Group of Partners stood replaced with a Board duly constituted in accordance with the provision of the Alteration of Partnership Deed of 2006. It is also averred in the plaint that the main purpose of entering into the Partnership Deed of 2006 was to integrate the Firm with DTME and to comply with the policies and the Professional Practice Manual of DTT with a view to make the Firm a modern professional organization. 3. Counter-affidavit to C.M.A. No,62 of 2011 has been filed on behalf of the defendants wherein it has been stated that the balance of convenience is not in favour of the plaintiffs but in favour of the defendants. It has been categorically stated that the so-called Circular Resolution suspending the defendants are ex facie illegal. It has also been stated that defendants have been running the Lahore and Islamabad offices for over 20 years and the goodwill of Deloitte is intertwined with the goodwill of the defendants. It has been further stated that the suit is an abuse of process and the motives behind its filing as are evident from the email dated 8-1-2011, disentitle the plaintiffs Nos.2 to 6 from claiming any equitable relief and reveals the mala fide and ulterior motives of some of the Partners of the Firm to expel defendants from the Partnership Firm, planning the opening of offices in Islamabad and Lahore behind the back of the defendants much before their purported suspension, luring away the clients of Islamabad and Lahore offices for the benefit of the Karachi office that the plaintiffs Nos.2 to 5 control, blocking the emails and internet communications of defendant No,1 and senior management of Islamabad and Lahore offices and writing letters to the strategic clients of Lahore and Islamabad office. It has been stated that the cause of action to be based on the apprehension that Deloitte may expel the plaintiff No,1 from its membership firms and the correct facts are that it is the plaintiffs Nos.2 and 3 who by their acts of commission and omission are injuring the reputation and business goodwill of the plaintiff No,1 and Deloitte. It has been stated that the activities of the plaintiff No,3 have damaged the reputation and goodwill of the plaintiff No,1 and the integrity of the firm has been compromised in the eyes of its peers and in business circles by reason of the persistent involvement of the plaintiff No,3 in the political activities and government affairs because of his family connections and has brought a bad name to the Firm in the national and international media. It has been also stated that defendant No,1 is not only founder partner but also member of the board as well as Deputy Managing Partner (DMP) of the Firm. Clause 15.2 of Partnership Deed provides a term of 5 years for DMP and the position of DMP is vacated only in cases of demise or retirement of DMP. It has been stated that Board has no authority to suspend DMP therefore defendant No,1 continues to hold the position of DMP as he is not employee of the Firm. It has been stated that Clause 20 of the Partnership Deed itself provides the detailed mechanism for disputes resolution and every partner is contractually bound by the said provisions of the Partnership Deed. According to the Partnership Deed any adverse action against any partners including suspension can only be taken in case the arbitration fails to resolve the dispute. It has also been stated that the purported suspension that tantamount to expulsion was made in violation of the injunctive orders passed by the Courts at Islamabad and Lahore. It has, therefore, been stated that the plaintiffs are not entitled to any relief sought in the plaint and the application under reply is liable to be dismissed with heavy costs, as the plaintiffs have not approached to this Hon'ble Court with clean hands. 4. Counter-affidavit to C.M.A. No, 1084 of 2011 has been filed by Mushtaq Ali Hirani, plaintiff No,4, who is also attorney of plaintiffs Nos.1, 2, 3 5 and 6. He has denied all such' allegations, assertions and
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averments contained in the application as well as in the written statement filed by, the defendants. It has been stated that the suspension of the defendants is valid and legal, reason for the same are mentioned in the Circular Resolution. It is specifically denied that the goodwill of the defendants, if any, is intertwined with the goodwill of Deloitte or the plaintiff No, 1. It is also specifically denied that the effect of their suspension is to deprive them of their right to do business. It has been stated that the question of expulsion can be decided by a duly convened Board and Partners General Meeting in terms of Clauses 10, 14.5 and 18 of the Operating Partnership Deed, while decision of suspension in the meanwhile has been taken under express powers of the Board under clause 14.5(j) of the said Deed. It has also been stated that it will be seen from the last recital to the operative Partnership Deed dated 7-12-2006 the change in the nature of the working of the partnership including the amplification and alteration of the terms and conditions of the partnership and the rights and obligations of the partners inter se was necessitated by the unanimous decision of all partners to comply with Deloitte policies and to transform the Partnership Firm into a Modern Professional Organization. Among the principal changes was the fact that the Partnership was no more a Partnership-at-will and in 2005 an Executive Management Group was established as an oversight management body of the Firm with other substantive powers detailed in the Deed dated 28-2-2005. This body was subsequently converted into the Board by the Operative Partnership Deed dated 7-12-2006 and its powers and responsibilities were substantively enhanced and specifically empowering the Board to suspend any of the partners, while the power to expel is reserved with the Partners General Meeting on the recommendation of the Board. It has been stated that through the instant application the defendants are effectively seeking alternation of the partnership deed which expressly opposes operation of the plaintiff No,1 on territorial lines and the defendants do not have a prima facie case nor balance of convenience is in favour of the defendants. It is, therefore, prayed that the application under reply is liable to be rejected. 5. Affidavits-in-Rejoinder have been filed by the plaintiffs reiterating the facts as stated in the plaint and the affidavits in support of their respective applications and have denied the objections and pleas raised in the counter-affidavits. 6. I have heard Mr. Rasheed A. Razvi learned counsel for the plaintiffs and Mr. Munir A. Malik, learned counsel for the defendants. 7. Mr. Rasheed A. Razvi, learned counsel for the plaintiffs after narrating the brief background of the case has contended that the defendants have been acting with a mala fide and on hidden agenda to pressurize the plaintiffs to agree to effectively work on geographical basis, without complying with the policies of the firm and DPM. He contended that in the light bf the Partnership Deed of 2006 all existing offices situated in Karachi, Lahore, Islamabad, and Multan stood integrated and became the part and parcel of the Firm and that the office situated at Karachi became the principal office of the Firm. He contended that such integration was done in order to bring the Firm in line with DTT's global strategy for regional integration, to implement the policies and procedures laid down in the DPM and to integrate the operations of the Firm with those of DTME. Learned counsel has referred to Clauses 10, 14 & 15 of Partnership Deed of 2006. For convenience sake, the same are reproduced below:--- "10. Expulsion and Cessation of Partners 10.1 On the recommendation of the Board, a Partner may be expelled from the FIRM by a decision of 3/4th majority votes of all the Partners at a duly convened Partners' General Meeting (PGM) on anyone or more of the following grounds:-- ' If he is convicted of an offence involving moral turpitude by the competent Court of law. (ii) If, he fails to perform or discharge his duties, responsibilities and obligations enunciated in Article 5 above.
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(iii) If he wilfully and knowingly violates any laws, rules and regulations which have, created or may create an adverse impact on the FIRM's business, reputation and goodwill or which have brought or may otherwise bring all or any of the other partners into disrespect in the eyes of the Client(s) or Institute of Chartered Accountants of Pakistan (ICAP). 10.2. Notwithstanding anything contained in preceding paragraphs, a Partner shall ipso facto cease to be a Partner of the FIRM if he ceases to be member, or is removed from his membership, of the Institute of Chartered Accountants of Pakistan (ICAP) for any reasons whatsoever, including professional misconduct or is disqualified by any Court or judicial authority, from practising as Chartered Accountant." "14. The Board 14.1 There shall be Board which shall consist of five (5) members, 3 being partners of the FIRM and 2 representative of DTME. The existing EMG stands substituted by the Board. 14.2 The Partners have already constituted the Board consisting of the following partners, who were earlier members of the EMG, and their tenure would expire on June 30, 2011 namely (i) Muhammad Yousuf Adil (ii) Muhammad Saleem (iii) Asad Ali Shah In addition to above partners of the FIRM, to representatives of DTME will become the members of the Board immediately from the date when the nominations for the same have been received from the DTME Board. 14.3 ....................................................................... 14.4 ......................................................................................................................... 14.5 The Board shall be the oversight management body of the FIRM and shall be responsible for the monitoring of operations and development of the FIRM's strategies and policies. The Board shall represent the FIRM's view on matters of public policy or public interest. More specifically, in addition to the powers and functions specified elsewhere in this Deed, the powers, functions and responsibilities of the Board shall be the following:--- (a) . (b) (c) . (d) . (e) . (f) .. (g) . .. (h) .. (i) (j) Suspension of a partner and imposing any restrictions with regard to his delivering any services on behalf of the FIRM or issuing any audit or other opinions, and/or suspensions of his monthly drawings. If suspensions relates to a member of the Board a unanimous vote of the remaining members of the Board shall be necessary. (k) (l) (m) ........................................................................................................................... (n). (0) ............................................................................................... (P) ............................................................................................... (q) (r) (s).
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(t).. (u) (v). (w) (x) (y) (z) (aa) ........................................................................................................................... (ab) ........................................................................................................................... (ac) ............................................................................................................................ (ad) Recommend amendment(s) in this Deed. (ae) Recommendations of expulsion of a partner. (at) ............................................................................................................................ (ag) ............................................................................................................................ (ah) ........................................................................................................................... (ai) ............................................................................................................................. 14.6 ........................................................................................................................... 14.7.. 14.8 ............ 14.9 Quorum of the Board. Shall be 4 members including one member from DTME and the decision will be taken on the basis of simple majority which must include at least one member of DTME and two members of DTP. In case a member cannot attend a meeting of the Board, he may appoint a proxy to attend a meeting on his behalf and vote. A proxy must be a member of the Board. Until the representatives of the DTME are nominated and join the Board, the quorum of the Board shall be all the members of the remaining members of the Board and all decisions will be on consensus/ unanimous basis." "15. Managing Partner & Deputy Managing Partner 15.1 MYA shall be the Managing Partner of the FIRM for a period of 5 years from July 1, 2006. 15.2 MS shall be the Deputy Managing Partner of the FIRM for a period of 5 years from July 1, 2006. 15.3 For future purposes, upon the demise or retirement of the Managing Partner, the PGM shall choose the Managing Partner for a term of four (4) years." 8. He contended that the defendant. No,1 has duly signed the Circular Resolution of the Board thereby assenting to the recommendations made by the Nominating Committee proposing plaintiff No,3 the Chief Executive of the firm for a period of four years w,e,f, 8-2-2010 and the Board further recommended that plaintiff No,2 and defendant No,1 be elevated as the Non-Executive Chairman and the Co-Chairman of the Board respectively w,e,f, 8th February, 2010. He further argued that the defendant No,1 not only recommended that plaintiff No,2 should make an announcement giving effect to the Circular Resolution of the Board but he himself accepted the position of non-executive Co-Chairman of the Board, and he continued to use this designation in several correspondences exchanged by him from February 8, till August, 2010. He also contended that the defendant No,2 accepted the announcement of February 8, 2010 and never objected to the making the appointments of CEO / Managing Partner, Chairman of the Board and Co-Chairman of the Board from February 8 till August, 2010. Mr. Razvi contended that recommendation made in Circular Resolution of the Board has been duly resolved by Circular Resolution of the Partners which resolution has been duly signed by plaintiffs Nos.2, 3, 4, 5 and 7. He, therefore, contended that the circular resolution of Partners has been effectively passed by more than 3/4th majority in accordance with section 18.6 of the Alternation of Partnership Deed of 2006, hence defendants have no basis to challenge the appointment of plaintiff No,3 as the Chairman/Managing Partner of
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the Firm. He referred to the E-mail dated February 2, 2010 sent by defendant No,1 to plaintiff No,3, contents of the same are reproduced below:--- "From" Saleem, Mohammad (PK --- Islamabad)" Date: Tue, 2 Feb 2010 11.25:02 --- 0500 ' To: Shah, Asad Ali (PK --- Karachi) Subject: RE: CEO Resolutions Dear Asad ' In continuation of our conference call this afternoon, I had a detail meeting with our senior legal counsel Mr. Kamal Azfar, SASC. The points emanating from our discussion are detailed as under: (1) That Circular Resolution of the Partners has no legal effect unless the Partnership Deed is amended. Such type of actions can have adverse bearing on the ongoing litigation in the Sindh High Court. (2) The inference drawn from Manoj's message is that "February 1st as the date for Asad to take over as CEO and a announcement to that effect should come from Yousuf to the Partners ... This is the right protocol for internal announcement within the Pakistan Firm, Yousuf's announcement should also say that he and Saleem will be Co-Chairs of the Board....". Manoj has also suggested that "Pakistan Partners will be meanwhile working on a ' modified partner agreement to capture these new roles...." Which means amendments in the Partnership Deed? ' As discussed in the conference call, I have extended full endorsement of the circulation of internal communication and let's start working comprehensively on the required amendments to give a legal effect to the new proposed structure and governance reforms at PK Firm at the earliest. ' Our Firm is a Board driven Firm and the Board has endorsed your appointment as CEO, so assume the responsibility and execute accordingly. ' Best of Luck ' Sd/- Muhammad, Saleem Dy. Managing Partner ' M. Yousuf Adil Saleem & Co., Chartered Accountants Member Firm of Deloitte Touch Tohmatsu" 9. Learned counsel urged that in order to bring the Firm in line with the Practice Review, the requirements of DPM, the Partnership Deed of 2006 and the Partnership Act, 1932, the Board exercising powers conferred by section 14(j) of the Partnership Deed of 2006 in good faith and in the best interest of the Firm; the Board members unanimously passed the resolutions via circulation restraining the defendants from:-- (i) Exercising any rights as a member of the Board and any leadership position until he remains suspended as a partner. (ii) Submitting any proposals, EOIs, bids for any new clients, engagements or in response to any press advertisements on behalf of, the firm, without the approval of Risk and Reputation Leader. (iii) Issuing any audit/assurance opinions, or any other form of reports without obtaining prior approval of the Functional Leader/Functional Risk Leader --- Audit and Assurance, in the case of the audit reports, and from Risk and Reputation Leader in the case of all other reports and (iv) For accepting any new engagement or clients without prior approval of the Risk and Reputation Leader. 10. Learned counsel contended that it is impossible for the absolute majority of the Partnership Firm to run, manage and administer the business of the Firm due to illegal, unjust, unfair and mala fide conduct, of the defendants and in fact the minority shareholders of the Firm have paralyzed the working of the Firm inasmuch as no meeting of the Board could be held during the year 2010. He further stated that there exists strong possibility that DTT and DTTL may withdraw their affiliation and association with the plaintiff No,1, therefore, the plaintiffs are left with no option but to approach this Court for seeking a prohibitory injunction against defendants in order to save the Partnership Firm. 11. Mr. Rasheed A. Razvi learned counsel for the plaintiffs has drawn my attention to sections 9 and 12(c) of the Partnership Act, which relate to general duties of partners and conduct of the business. He contended that according to section 9 of the Partnership Act, the partners are bound to carry
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on the business of firm to the greatest common advantage, to be just and faithful to each other, and to render true accounts and full information of all things affecting the firm to any partner of his legal representative. He submitted that section 12(c) provides that any difference arising as to ordinary matters connected with the business may be decided by a majority of the partners, and every partners shall have the right to express his opinion before the matter is decided, but no change may be made in the nature of the business without the consent of all the partners. Learned counsel also made reference to section 33 of the Partnership Act and argued that a partner can be expelled by a majority of the partners provided there is a contract between the partners to this effect and further that such power has been exercised bona fide and in good faith. In support of his submission, learned counsel has placed reliance on the case of SYED KHURSHID SOHAIL v. AZIZ HAMI AND '4 OTHERS (1988 MLD 381). 12. Learned counsel next contended that defendants have instituted three suits one before High Court at Islamabad, second suit before Senior Civil Judge at Lahore and third suit before Senior Civil Judge at Islamabad malafidely and with ulterior motive and succeeded to, get the stay orders in the said suits by misrepresentation and concealment of true facts on the ground that present plaintiffs intend to change the basic structure of the Firma He contended that defendants themselves violated Clause 20 of the Partnership Deed of 2006 by filing suits at Lahore and Islamabad. He also contended that defendants have admitted the various assertions made in the memo of plaint. In this regard he made reference to Paragraphs 19 to 24 of the memo of plaint which have not been categorically denied by the defendants in their written statement. He also contended that defendants have not denied in their pleadings the important documents annexed with the memo. Of plaint. He relied upon Order VIII Rules (3), (4) & (5) of C.P.C., which read as under:- "(3) Denial to be specific.--- It shall be sufficient for a defendant in his written statement to deny generally the ground alleged by the plaintiff, but the defendant must deal specifically with each allegation of fact of which he does not admit the truth, except damages. (4) Evasive denial.--- Where a defendant denies an allegation of fact in the plaint, he must not do so evasively, but answer the point of substance. Thus, if it is alleged that he received a certain sum of money, it shall not be sufficient to deny that he received that particular amount, but he must deny that he received that sum or any part thereof, or else set out how much he received. And if an allegation is made with diverse circumstances, it shall not be sufficient to deny it along with those circumstances. (5) Specific denial.--- Every allegation of fact in the plaint, if not denied specifically or by necessary implication, or stated to be not admitted in the pleading of the defendant, shall be taken to be admitted except as against a person under disability: Provided that the Court may in its discretion require any fact so admitted to be proved otherwise than by such admission." 13. To strengthen his above submissions, learned counsel has placed reliance on the cases of INAM NAQSHBAND v. HAJI SHAIKH…
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