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Petitioner: Hassan Naimat Ullah Khan and another VS Respondent: Mumtaz City through CEO and 5 JUDGMENT
Court Name: Lahore High Court Judge(s): Mirza Viqas Rauf, Asim Hafeez Title:Hassan Naimat Ullah Khan and another vs Mumtaz City through CEO and 5
JUDGMENT
Reported As: 2023 CLD 1167, PLD 2023 Lahore 677 Result: Case remanded Judgment JUDGMENT ASIM HAFEEZ, J. This Regular First Appeal ('appeal') is directed against decree dated 04.01.2021, whereby plaint in a suit, instituted by appellants Nos.1 and 2 seeking specific performance, declaration, recovery of amounts and permanent injunction ('Civil Suit'), was rejected, in exercise of powers under clause (d) of Order VII rule 11 of Civil Procedure Code, 1908 ('C.P.C.'). Primarily the reasons cited for rejection of plaint were that appellant No.2, allegedly a foreign company, instituted Civil Suit without being incorporated with the Securities and Exchange Commission of Pakistan ('SECP'), hence, Civil Suit was declared barred by law in terms of section 441 of the Companies Act, 2017 ("Act of 2017"). 2. Facts, essential for deciding instant appeal, are that first and second appellant(s) instituted Civil Suit inter alia involving transaction relating to the purchase of immovable property - MC-11 Tower, measuring 24.77 Kanals - (plot) in a housing scheme, operating in the name and style of Mumtaz City - Respondent No.1. Respondent No.2 being alleged as an owner/CEO of respondent No.1 and respondent No.3, son of the respondent No.2, claimed having interest in respondent No.1. It was alleged in the plaint that plot was sold to the appellant No.2 - a company incorporated under the laws of UAE, which allegedly instituted the suit through appellant No.1, being its CEO and Chairman. Transaction was recorded through allotment letter, allegedly issued in the name of alleged nominees of the appellant No.2, comprising of appellant No.1 respondents Nos.4 and 6 ('collectively referred to as the allottees'). Respondent No.4 was shown as wife of the respondent No.5, alleged being a shareholder of appellant No.2. Respondent No.6 was allottee and shareholder of the appellant No.2. Record depicts that allotment letter, dated 02.02.2015, was issued by respondent
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No.1 in the name of the allottees - each having 33.33% share in the plot. Notably, allotment letter contained no reference qua the ownership of appellant No.2, albeit contents of the plaint contained reference to the sale of plot to appellant No.2 and indicates that consideration price was partly paid by the appellant No.2, and allegedly a sum of Rs.40,500,000/- was paid/arranged by the appellant No.1 and respondent No.5, claimed as personal loan - stated in paragraph 17. In paragraph 20 of the plaint, it was alleged that to facilitate repayment of personal loan, raised from the appellant No.1 and respondent No.5, it was proposed that plot be bifurcated in 4 separate plots - bearing numbers MC-11, MC-11A, MC-11B, MC-11C - and one of the plots be sold in the market for arranging funds. It was alleged that respondent No.1, acting through respondent No.2, offered the option of buy-back of one of the plots and transaction was consummated. This transaction and consideration thereof were questioned, alleging that instead of distributing consideration, proportionately amongst allottees, sum of Rs.50,000,000/- was paid through cheque, earlier issued in the name of respondent No.4 and later the identity of the payee was changed and made payable to respondent No.5 - husband of respondent No.4. Appellant No.1 alleged some grievances against, the respondents Nos.1 to 3 in lieu of claim of alleged unauthorized payments received, etc. Legal proceedings, initiated by the first and second appellants were initially came-up before the Senior Civil Judge, Islamabad West, which returned the plaint due to lack of territorial jurisdiction - as property in question is situated within the municipal limits of city of Rawalpindi. Cognizance was then taken by the learned trail court, Rawalpindi. Respondents Nos.1 to 3, 4 and 5 and 6 contested the Civil Suit by filing written statement(s), wherein various objections, jurisdictional and on merits were raised. Respondents Nos.4 and 5 filed separate application under Order VII, Rule 11 of C.P.C., seeking rejection of the plaint. Learned trial court proceeded to reject the plaint vide decision dated 04.01.2021. Hence, this first appeal. 3. Learned counsel for the appellants contends that plaint was rejected, simplicitor, on the premise that requirements under sections 435 and 436 of Act of 2017 were not met by the appellant No.2, hence, disability in terms of section 441 of Act of 2017 was attracted. Adds that section 441 of Act of 2017 is not applicable since appellant No.2 in not a foreign company, in terms of the expression 'foreign company' defined under section 2(35) of the Act of 2017. Adds that appellant No.2 was not obligated to fulfil the requirements of sections 435 and 436 of the Act of 2017, when it has neither established any place of business in Pakistan nor carries any business activity in Pakistan, either. Further submits that appellant No.1 was a co-suitor and raised grievances of personal nature in the Civil Suit, which are required to be adjudicated upon and decided upon the trial of the case, instead of summary rejection of the plaint. Learned counsel drew support from the decisions in the cases of Mol Pakistan Oil and Gas Company through Authorized Officers v. The Islamabad Capital Territory Administration through Chief Commissioner and others (2022 CLD 492), Gemalto Middle East FZ-LLC v. Federation of Pakistan through Secretary, Finance Division and others (2020 CLD 151) and China Annang Construction Corporation through Project Manager v. K.A. Construction Co. through Attorney (2001 SCMR 1877). 4. Learned counsel representing respondents Nos.4 and 5 submits that appellants, in first and second paragraphs of the plaint referred to various commercial ventures having source in Pakistan, which assertion primarily established that appellant No.2 is doing business in Pakistan through appellant No. 1. Adds that plot was purchased by and for appellant No.2 company, which had paid consideration for the purchase, as alleged in the plaint, hence, appellant No.2 was not competent to institute Civil suit, based on the transaction under reference, without fulfilling the requirements of sections 435 and 436, ibid, as mandated under section 441 of the Act of 2017. Further submits that allottees, in fact and law, are the shareholders and nominees of the appellant No.2, hence, suit was principally filed for and on behalf of the company and no exception qua applicability of section 441 of the Act of 2017 could be claimed. Learned counsel read various
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paragraphs of the plaint to bring home the contentions that legal proceedings were initiated for and on behalf of the appellant No.2 company, qua subject matter transaction - rights therein were allegedly attributed to the appellant No.2. Reference is made to the decisions in the cases of 'Hala Spinning Mills Ltd v. International Finance Corporation and another (2002 SCMR 450), Trek Technologies Limited v. Icondor Telecom (Private) Limited and another (2018 CLD 668), Mol Pakistan Oil and Gas Company through Authorized Officers v. The Islamabad Capital Territory Administration through Chief Commissioner and others (2022 CLD 492), Gemalto Middle East FZ-LLC v. Federation of Pakistan through Secretary Finance Division and others (2020 CLD 151) and Maulana Abdul Haque Baloch and others v. Government of Balochistan through Secretary Industries and Mineral Development and others (PLD 2013 Supreme Court 641). 5. We confronted learned counsel representing the respondent No.6 that whether his client supports or opposes the decision under reference, and we got muted response. 6. Learned counsel representing the respondents Nos.1, 2 and 3 submits that appellant No.1 and respondents Nos.4 and 6 were the allottees of plots in the records. 7. Arguments heard. Record perused. 8. Fundamental question requiring adjudication is whether exercise of jurisdiction by way of rejection of plaint under clause (d) of Order VII, Rule 11 of C.P.C. is lawful, in the context of the facts and circumstances pleaded in the plaint. Civil Court rejected the plaint upon invoking legal disability envisaged under section 441 of the Act of 2017, in absence of the fulfillment of requirements stated therein. Learned counsel gave different shades to variously referred provisions of the Act of 2017, while making submissions. It is appropriate to reproduce often-referred provisions of the Act of 2017, which read as, "2(35). "Freign company" means any company or body corporate incorporated outside Pakistan, which (a) has a place of business or liaison office in Pakistan whether by itself or through an agent, physically or through electronic mode; or (b) conducts any business activity in Pakistan in any other manner as may be specified. 435. Documents to be delivered to registrar by foreign companies.---(1) Every foreign company which, after the commencement of this Act, establishes a place of business in Pakistan shall, within thirty days of the establishment of the place of business or conduct of business activity, deliver to the registrar (a) a certified copy of the charter, statute or memorandum and articles of the company, or other instrument constituting or defining the constitution of the company, and if the instrument is not written in the English or Urdu language, a certified translation thereof in the English or Urdu language; (b) the full address of the registered or principal office of the company; (c) a list of the directors, chief executive and secretary (if any) of the company; (d) a return showing the full present and former names and surnames, father's name or, in the case of a married woman or widow, the name of her husband or deceased husband, present and former nationality, designation and full address in Pakistan of the principal officer of the company in Pakistan by whatever name called; (e) the full present and former names and surnames, father's name, or in case of a married woman or widow, the name of her husband or deceased husband, present and former nationality, occupation and full addresses of some one or more persons resident in Pakistan authorised to accept on behalf of the company service of process and any notice or other document required to be served on the company together with his consent to do so; and (f) the full address of that office of the company in Pakistan which is to be deemed its principal place of business in Pakistan of the company.
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Explanation.- For the purposes ..of this section the term "conduct of business activity" includes any business to be undertaken by a foreign company by virtue of its memorandum, and articles of association or as licensed or authorized by any law. (2) The list referred to in clause (c) of subsection (1) shall contain the following particulars, that is to say - (a) with respect to each director- (i) in the case of an individual, his present and former name and surname in full, his usual residential address, his nationality, and if that nationality is not the nationality of origin, his nationality of origin, and his business occupation, if any, and any other directorship which he holds; (ii) in the case of a body corporate, its corporate name and registered or principal office; and the full name, address, nationality and nationality or origin, if different from that nationality, of each of its director; (b) with respect to the secretary, or where there are joint secretaries, with respect to each of them- (i) in the case of an individual, his present and former name and surname, and his usual residential address; (ii) in the case of a body corporate, its corporate name and registered or principal office: Provided that, where all the partner in a firm are joint secretaries of the company, the name and principal office of the firm may be stated instead of the particulars mentioned in clause (b). (3) Every foreign company, other than a company mentioned in subsection (1) shall, if it has not delivered to the registrar before the commencement of this Act the documents and particulars specified in section 451 of the Companies Ordinance, 1984 (XLVII of 1984), shall continue to be subject to the obligation to deliver those documents and particulars and be liable to penalties in accordance with the provisions of that Ordinance. 436. Return to be delivered to registrar by foreign companies whose documents altered. ---If any alteration is made or occurs in - (a) the charter, statute or memorandum and articles of a foreign company or any such instrument as is referred to in section 435; (b) the address of the registered or principal office of the company (c) the directors, chief executive or secretary or in the particulars contained in the list referred to in section 435; (d) the principal officer referred to in section 435; (e) the name or addresses or other particulars of the persons authorised to accept service of process, notices and other documents on behalf of the company as referred to in the preceding section 435, or (f) the principal place of business of the company in Pakistan; the company shall, within thirty days of the alteration, deliver to the registrar for registration a return containing the specified particulars of the alteration and in the case of change in persons authorised to accept service of process, notices and other documents on behalf of the company, also his consent to do so. 441. Company's failure to comply with this part not to affect its liability under contracts.---Any failure by a foreign company to comply with any of the requirement or section 435 or section 436 shall not affect the validity of any contract, dealing or transaction entered into by the company or its liability to be sued in respect thereof; but the company shall not be entitled to bring any suit, claim any set-off, make any counter-claim or institute any legal proceeding in respect of any such contract, dealing or transaction, until it has complied with the provisions of section 435 and section 436.
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445. Interpretation of provisions of this Part. ---For the purposes of this Part-- (a) the expression "certified" means certified in the specified manner to be a true copy or a correct translation. (b) the expression "director", in relation to a company includes any person in accordance with whose directives or instructions the directors of the company are accustomed to act; (c) the expression "place of business includes a branch, management, share transfer or registration office, factory, mine or other fixed place of business, but does not include any agency unless the agent has, and habitually exercise, a general authority to negotiate and conclude contracts on behalf of the company or maintains a stock of merchandise belonging to the company from which he regularly fills orders on its behalf: Provided that: (i) a company shall not be deemed to have an established place of business in Pakistan merely because it carries on business dealings in Pakistan through a bona fide broker or general commission agent acting in the ordinary course of his business as such; (ii) the fact that a company has a subsidiary which is incorporated, resident, or carrying on business in Pakistan (whether through an established place of business or otherwise) shall not of itself constitute the place of business of that subsidiary an established place of business of the company; and (d) the expression "secretary" includes any person occupying the position of secretary, by whatever name called". [Emphasis supplied] 9. In the context of the controversy at hand and facts pleaded, section 441 of the Act of 2017 and few other provisions need sharper focus. Section 44I ibid requires the foreign company(ies) - as defined under section 2(35) of the Act of 2017 and to which Part XII apply - to ensure compliance of the requirements under sections 435 and 436 of the Act of 2017 before brining legal proceedings/action or raising/pleading alleged claim, based on any contract, dealing or transaction(s) entered for and on behalf of the foreign company. Disqualification envisaged in terms of section 441 of the Act of 2017 is somewhat alike the disqualification imposed on unregistered Firm(s) in terms of section 69 of the Partnership Act 1932. Section 441 of the Act of 2017 provides remedy to the companies incorporated/registered outside Pakistan, subject to the fulfillment of the conditions/requirements under the Part XII, whereupon such companies are classified as foreign companies and claim eligibility for invoking the remedies provided under the special enactment - the Act of 2017. It is noticeable that section 441, ibid, comes under the umbrella of Part XII of the Act of 2017 ('Part XII'), which exclusively deals with 'the 'COMPANIES ESTABLISHED OUTSIDE PAKISTAN - PROVISIONS AS TO THE ESTABLISHMENT OF PLACES OF BUSINESS IN PAKISTAN'. It is found that Part XIV of the erstwhile Companies Ordinance 1984 ('Part-XIV') was forerunner to the above-referred Part XII, ibid. Section 450 of the erstwhile Companies Ordinance 1984 provisioned for the applicability of Part XIV and likewise section 434 of the Act of 2017 - its descendant enactment - provides for the application of Part XII of the Act of 2017 - including section 441 and other sections under that Part. It is noticeable that unlike its forerunner enactment - the erstwhile Companies Ordinance 1984 - the Act of 2017 defines the expression 'foreign company' in terms of section 2(35) of the Act of 2017. We found that section 434 of the Act of 2017 is not a mirror image of section 450 of the erstwhile Companies Ordinance 1984, but slightly different in its scope and effect - which widened the footprint of a foreign company, having established place of business and carrying out business activity in Pakistan. For better understanding, it is appropriate to reproduce texts of section 450 of the Companies Ordinance, 1984 and section 434 of the Act of 2017 respectively, which read as,
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"450. Application of this Part to foreign companies. This Part shall apply to all foreign companies, that is to say, companies incorporated or formed outside Pakistan which, after the commencement of this Ordinance, establish a place of business within Pakistan or which have, before the commencement of this Ordinance, established a place of business in Pakistan and continue to have an established place of business within Pakistan at the commencement of the Ordinance". "434. Application of this Part to foreign companies:---This Part shall apply to all foreign companies, that is to say, companies incorporated or formed outside Pakistan which, after the commencement of this Act, establish a place of business within Pakistan or which have, before the commencement of this Act, established a place of business in Pakistan and continue to have an established either a place of business within Pakistan or conduct business in Pakistan through an agent or any other means at the commencement of this Act". [difference found in latter provision of law is focused] 10. Upon bare reading of section 434 of the Act of 2017, it appears that besides providing for the applicability of Part XII - including section 441 of the Act of 2017 and other sections, being the family of Part XII - it classifies the companies incorporated outside Pakistan as foreign companies, to which foreign companies Part XII and provisions falling under said part apply - section 2(35) of the Act of 2017 needs to be read in the context of Part XII. Perusal of relevant provisions of law suggests that every company, incorporated outside Pakistan, is not per se a foreign company in terms of the Act of 2017, but companies which fulfill the legal requirements under Part XII are classified as foreign companies. Section 434 of the Act of 2017 caters for the situations, before and after the commencement of the Act, 2017. Legislative intent is evident, whereby the Act of 2017 was made retrospectively applicable to such foreign companies, which have, before the commencement of the Act, established a place of business in Pakistan and continue to have established either a place of business within Pakistan or conduct business in Pakistan through an agent or any other means, at the commencement of the Act of 2017. In the case at hand the transaction of purchase of plot was allegedly conducted in or about February 2015, however, there is disagreement regarding established place of business in Pakistan, fundamental requirement for classifying the companies incorporated/ registered outside Pakistan as foreign companies. Evidently, to attract Part XII of the Act of 2017, it is essential to bring case within the ambit of section 434 of the Act of 2017, failing which neither Part XII nor section 441 of the Act of 2017 would be attracted for the purposes of invoking legal disability in the context of the Act of 2017. A company incorporated outside Pakistan would not be eligible to invoke remedies under the Act of 2017, unless requirements under Part XII are met. Question calling for determination is whether appellant No.2 is a foreign company and fulfils the conditions prescribed under section 434 of the Act of 2017 of the Part XII, read in the context of in section 2(35) of the Act of 2017. Learned counsel for the appellant repeatedly hammered the fact that appellant No.2 has not established any place of business in Pakistan, hence, section 441 of the Act of 2017 is not attracted. Learned counsel for the respondents insisted that appellant No.2 has a place of business in Pakistan and same conducts business activity as well - and reference was made to some paragraphs of the plaint. This factual controversy needs to be resolved/determined before adjudging the issue of attracting legal disability provided under section 441 of the Act of 2017. The august Supreme Court of Pakistan dilated upon the scope and extent of section 456 of the erstwhile Companies Ordinance 1984 in the case of China Annang Construction Corporation through Project Manager v. K.A. Construction Co. through Attorney (2001 SCMR 1877), - matter of non-fulfillment of requirements under sections 451 and 452 of the Companies Act 1984 was issue-in-context of the Civil Suit filed - relevant observations in paragraph 10 thereof are reproduced hereunder for convenience,
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"10. The argument when examined in relation to the provisions of sections 451, 452 and 456 of the Companies Ordinance is found to be of considerable force. It may be mentioned here that a Foreign Company has not been bound down by any provisions of the Companies Ordinance to establish in Pakistan a place of business. It is only when such a company decides to establish place of business in Pakistan that it is required to comply with the provisions of sections 451 and 452 of the Companies Ordinance, 1984 and submit documents mentioned therein to the Registrar failing which incur the disability to file any legal proceedings by way of suit or take a defence by way of counter-claim in respect of any contract executed by it. There is nothing on the record that the appellant-corporation within the contemplation of the meaning of the expression "established" as discussed above had established place of business in Pakistan therefore, its case did not fall within the mischief of these provisions as such it was not debarred from seeking legal remedies by filing suit and taking plea in defence of counter-claim, as such, the findings of the High Court are not sustainable." [Emphasis Supplied] 11. Learned Judge Civil Court has neither adverted to the scope of section 434 of the Act of 2017 - a gatekeeper provision which provided conditions for the application of Part XII - nor determined the status of the appellant No.2, in the context of provisions of the Act of 2017. The question of applicability of Part XII or otherwise remained unaddressed and undetermined, and without such determination learned Judge Civil Court proceeded to reject the plaint for non-compliance of requirements of sections 435 and 436 of the Act of 2017. Conspicuously, it was not determined that whether appellant No.2 comes within the ambit of Part XII, in terms of section 434 of the Act of 2017, and whether section 441 of the Act of 2017 is attracted to the facts of the case at hand or conversely, if the appellant No.2 does not qualify as a foreign company under the provisions of Act of 2017, whether remedy of instituting a Civil Suit is available to the appellant No.2 in the circumstances, and whether legal disability in terms of section 441 of the Act of 2017 is still attracted for the purposes of determining the factum of exercise of jurisdiction by the Civil Court - this question is addressed in latter part of the decision. 12. There is another aspect…
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