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Petitioner: LAHORE STOCK EXCHANGE LTD. VS Respondent: ASMATULLAH SHEIKH
Court Name: Lahore High Court Judge(s): Ihsan-ul-Haq Chaudhry Title: LAHORE STOCK EXCHANGE LTD. vs ASMATULLAH SHEIKH Case No.: Civil Revision No, 1487 of 1996 Date of Judgment:1996-07-15 Reported As: PLD 1996 Lahore 602 Result: Petition accepted
JUDGMENT
JUDGMENT ' The relevant facts for the decision of this Civil Revision are that the respondent filed a suit for declaration and permanent injunction wherein it was pleaded that he is member of the petitioner and entitled to use the facilities as such. It was alleged that his membership has been suspended illegally and mala fide. The main suit was accompanied by application under Order XXXIX, Rules 1 and 2 read with section 151, C.P.C. For grant of temporary injunction. The petitioner resisted the suit as well as application for grant of temporary injunction. Mr. Abid Hussain Sh, Civil Judge dismissed the application for grant of temporary injunction vide order, dated 7-9-1995, which was assailed through an appeal in the Court of District Judge, Lahore, which was entrusted to Mr. Rustam Ali Malik, Additional District Judge, who sent it back to the District Judge for entrusting it to some other Court in view of the objection of the respondent. The appeal ultimately came up on the file of Mr. Ghulam Mustafa Shehzad, Additional District Judge, Lahore, who proceeded to accept the same vide order, dated 9-4-1996, which has been assailed through this revision petition. The revision was admitted to hearing. The respondent appeared, accepted the service and requested for early fixation. The matter was of commercial in nature, therefore, it was given precedent over these matters and heard day to day. 2. The learned counsel for the petitioner argued that the trial Court exercised the discretion properly, legally and with reference to facts on record, therefore, there was nothing for the First Appellate Court to interfere in the discretionary relief. The learned counsel in this behalf has referred to Agha Muhammad Afzal and 2 others v. Municipal Corporation, Rawalpindi and 10 others (PLD 1992 Lahore 448). It was argued that the First Appellate Court failed to appreciate that the injunction would amount interference in the internal management of the petitioner, which is legally
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not possible. The learned counsel in this behalf has referred to Bipin Chandra and another v. M/s. Purushottam Bhai (AIR 1984 MP 110), Sardar Gulab Singh v. Punjab Zamindara Bank Ltd., Lyallpur (AIR 1940 Lahore 243) and Muhammad Mustafa Ali Khan v. District Board, Bareilly and another (AIR 1934 Allahabad 101) as well as referred to Taxmann's Company Law Digest 1913-1993, Volume I by Rakesh Bharga and Law of Injunctions by C.M. Row, Volume I, Seventh Edition. It is added that the First Appellate Court failed to appreciate that all the three ingredients governing the grant of injunction, were lacking in this case. The learned counsel in this behalf argued that the respondent-plaintiff had no prima facie case because the loss was determined and documents accounting for each and every amount were placed on record. It was added that the allegations of mala fide were falsified by the letters, dated 29-6-1995, 24-8-1995 and 27-8-1995 of the respondent himself. It is submitted that the First Appellate Court wrongly and illegally recorded that the respondent was not allowed hearing. The first notice was issued on 23-7-1995 and it was followed by suspension notice dated 25-7-1995 and final notice on the same date. It was argued that the First Appellate Court could not comprehend special nature of the business transaction by the petitioner and relationship between the parties. It was vehemently argued that the business transacted by the members to the petitioner is all interconnected, interdependent and interrelated, therefore, to keep the chain intact, time allowed to the members to perform their part of the obligations is specified in the rules, which has to be observed and enforced strictly otherwise the working of the petitioner would flop. It is added that there is not a single document on record placed by the respondent of even to prima facie rebut the statements of accounts produced by the petitioner. It was added that the same have been prepared in the normal transaction of the business, therefore, presumption of truth is attached to the same. It was argued that squaring up was completed and the respondent was declared as a defaulter and onward the mechanism for discharge of the liabilities and obligations of the clearing house, members and others as well as petitioner were to follow. The same have been interrupted by the injunction order. There is no justification for the same. ' The next limb of argument is that the respondent has alternate remedies; one under Corporate Law Authority Rules, 1984 and the other under Security Exchange Ordinance, 1969, which provided for revision and review besides a complaint. In this behalf, the learned counsel has referred to section 56(i) of the Specific Relief Act. The other argument was that the First Appellate Court failed to appreciate the respondent was not to suffer any irreparable loss rather it was the petitioner, its members and others who were to suffer irreparable loss due to the failure of the respondent to pay the ascertained amount. In fact the purpose of the petitioner is to arrange for transaction for benefit of members and other citizens, therefore, injunction would cause irreparable loss to the persons, who are not even party to the suit as whole mechanism would fail. In any case the amount was ascertained one, therefore, no justification to stop its payment. The learned counsel in this behalf has referred to Nooruddin and 3 others v. M/s. Sindh Industrial Trading Estate Ltd. And 3 others (1993 CLC 2204), Pakistan Water and Power Development Authority v. Pakistan Atomic Energy Commission Employees Cooperative Housing Society Ltd., Islamabad (PLD 1993 Lahore 237), Umer Gul v. Malik Abdul Manan and others (PLD 1992 Peshawar 76) and Mian Muhammad Latif v. Province of West Pakistan through the Deputy Commissioner (PLD 1970 SC 180). It is argued that the injunction would amount to interference in the affairs of the petitioner, which has the status of a public department, therefore, no injunction can be issued in view of the provisions of section 56(d) of the Specific Relief Act. The learned counsel in this behalf has referred to Mrs. Sejal Rikeen Dalai and others v. The Stock Exchange, Bombay and another (AIR 1991 Bombay 30) and Pakistan Water and Power Development Authority (supra). The arguments were summed up with the submission that balance of convenience also in favour of the petitioner rather all members including the respondent.. It was added in this behalf that after declaring the respondent defaulter an
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extraordinary meeting of the members is to be called for verification. Thereafter, a detailed enquiry would follow into the claims and cross-claims. The outstanding amount of the respondent, if any, to be realized and placed in his account and similarly, the claims against him were to be satisfied from that account. It was argued that the First Appellate Court has heavily relied on the application of the respondent under Oaths Act for decision on oath and drawn an adverse presumption against the petitioner. The same is illegal and unjustified. The First Appellate Court wrongly and illegally set aside the order of the trial Court. 3. On the other hand, the learned counsel for the respondent argued that not only relief of temporary injunction but jurisdiction under section 115, C.P.C. Both are discretionary. There is no ground for interference in the order of the First Appellate Court. The learned counsel in this behalf has referred to Abdul Wahid v. Ahmad Din (1986 SCMR 704), Malik Khuda Bakhsh and another v. Syed Hamid Ali Shah (1981 SCMR 196), Karachi Building Control Authority v. Sufi Muhammad Ismail and others (1989 MLD 2987), Habib Bank Ltd., Karachi v. Zaki Muhammad Siddique and 2 others (PLD 1979 Karachi 179) and Sarfraz Ahmed and 5 others v. Anjuman-e-Islamia, Baluchistan and another (PLD 1983 Quetta 92). It was argued that the action against the respondent was mala fide. It was added that the order of the First Appellate Court is dated 9-4-4966 but the petitioner did not take exception to the same till the respondent filed second application for grant of temporary injunction in view, of the observations made by this Court while dismissing C.R. No, 1356/96 on 12-5- 1996. It is submitted that it was clear from this conduct of the petitioner that neither injunction issued by the First Appellate Court did cause any inconvenience nor irreparable loss to it. It is maintained that the petitioner is guilty of misconduct while not making mention of the earlier Civil Revision in the present revision petition in spite of complete knowledge. The next limb of the argument is that the First Appellate Court held that squaring up was not completed and order of suspension of membership was passed without hearing the respondent. These two facts were sufficient to constitute a prima facie case in favour of the plaintiff. It was added that in view of the provisions of Article 38 of Articles of Association the membership of the plaintiff could not be suspended without affording him two months' time to clear the amount outstanding against him. It is submitted that the rules were framed under Article 5 of the same and if provided for any shorter period the same would be ultra vires of the Article 38 of Articles of Association. It was argued that even as per rules the action should be for the amount payable and an amount becomes payable after determination by squaring up. It was added that the recovery of determined amount can also be stayed as held in Sahibiada Sharafuddin and 15 others v. Town Committee, Pindigheb (1984 CLC 1517). The next argument was that the alternate remedy was not as effective and efficacious as the civil suit and especially when now injunction has been issued and its violation would amount to contempt, therefore, the petitioner was well within its right to continue with the civil suit. The arguments are summed up with the submission that the learned Additional District Judge has referred to the application of his client for decision on oath but that is a ground which is independent of the main reasons given by the First Appellate Court and noted above. 4. The learned counsel for the petitioner while summing up the arguments submitted that Articles 38 and 39 of the Articles of Association are not relevant because the same deal with the amounts, dues, fees and charges etc. While the regulations deal with stock exchange transactions. The regulations have been framed under section 34 of the Securities Ordinance with the approval of the C.L.A., which was substituted for Federal Government vide Notification, dated 10-9-1981. It is argued that the respondent was estopped by his own conduct from challenging the squaring up proceeding as he himself requested in writing vide his letter, dated 24-8-1995 for the same. The learned counsel in this behalf has referred to Nathey Khan v. Mehr Din and another (1994 MLD 1630) and J.F.C. Gollaher v. Samad Khan (1993 MLD 726). The learned counsel for the petitioner explained the discrepancies in the statements prepared at different stages of the squaring up process. It was
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argued that the transactions were reported to, the Clearing House for squaring up, the same were registered. The respondent issued cheques but the same were bounced, therefore, the amounts have to be debited from his payments. It is submitted that where a member failed to deliver the shares then during the squaring up process .The shares were to be purchased by the petitioner at the prevalent market rate and amount including in the losses debited to the member. The squaring up was completed on 30-8-1995 as per request of the respondent, dated 24-8-1995. According to the same a total of sum of Rs,42,98,490 was outstanding against him besides the dispute as to 500 shares of Alico. The respondent was estopped by his conduct to challenge the amount. In this behalf the learned counsel has referred to Awan Sports Industries v. Director-General (NLR 1992 CL.1 735). ' It was argued that the respondent miserably failed to make out a prima facie and arguable case, which is the basic requirement for grant of application for temporary injunction. The learned counsel in this behalf has referred to Messrs Balagamwala Oil Mills v. Messrs Shakarchi Trading A.G. And others (1991 CLC 2071), Maqbool Ahmad and 4 others v. Syed Farzand Ali Shah and 15 others (1990 CLC 1756), Karachi Development Authority v. Hadi Bux Memon and another (1992 CLC 1036), Musheer Ahmed Pesh Imam v. Dr. Raza Omer (1991 CLC 678), Aijaz Hussain Bhatti and another v. Haji Bagh Ali and 9 others (1985 CLC 261), Muhammad Bakhsh and 4 others v. Province of Punjab through District Collector, Multan (now Lodhran) and 2 others (1994 SCMR 1836), Pakistan Engineering Consultants v. Pakistan International Airlines Corporation and others (1993 CLC 1926) and Mst. Sughra Bai v. Mst. Rabia (1982 CLC 344). It was added that the petitioner substantiated claim with the documents and complaints against the respondent. On the other hand, respondent failed to prove any document to shake the credibility of these documents. 5. I have given my anxious consideration to the arguments of the learned counsel for the parties, gone through the record, precedents relied by parties, relevant provisions of law, rules and regulations. Before proceeding with the merits it is worthwhile to note here that the petitioner has filed the suit for declaration and permanent injunction. According to para. 9 of the plaint cause of action accrued in his favour on 25-7-1995, the date when he was served with a notice and according to para. 7 the defendant has claimed a sum of Rs,43,28,425 as amount due from the plaintiff. It was, therefore, prayed that this notice be declared illegal and defendant be restrained from declaring the plaintiff a defaulter or taking any action of expelling or suspending him or taking any other action to prejudice in his rights as a member or from recovering or attempting to recover any amount from him or his property. The petitioner served the respondent with two notices on 25- 7-1995. The contents of the 2nd notice styled as ' final notice' make it clear that the respondent was informed that he has failed to comply with the rules and regulations and furnish satisfactory explanation in the meeting held on the said date, therefore, the Board has unanimously resolved to suspend him while he was asked to pay the amount and in case of failure he was to be declared a defaulter by the Board under the Members Default and Procedure for Recovery of Losses Regulations of Lahore Stock Exchange (Guarantee) Limited (hereinafter to be referred as Regulations of 1995) and distribution of claims against the plaintiff in accordance with the rules and regulations. 6. The above regulations of 1995 have been framed under section 34 of the Securities Ordinance and notified with the approval of the C.L.A. As required by law. The next question is whether the respondent was to be dealt under Article 38 of the Articles of Association or under these regulations. Article 38 appears in Chapter-E dealing with the dues, fees and charges and reads as under:--- "38. Failure to pay.--If a Member fails to pay his subscription, fees, charges or other monies which may be due by him to the Exchange or to the Clearing House within two months after notice in writing has been served upon him by the Exchange he may be suspended by the Board until he
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makes payment and if within a further period of six months he fails to make such payment he may be expelled by the Board in accordance with Article 83." ' This clearly deals with the dues out of stock exchange business and cannot be by any stretch of imagination applied to business transactions, which would be covered by the Regulations of 1995. The same reads as under:- "MEMBERS DEFAULT AND PROCEDURE FOR RECOVERY OF LOSSES REGULATIONS OF THE LAHORE STOCK EXCHANGE (GUARANTEE) LIMITED ' Preamble: ' File No, LSE/MDPRLR/RULES/94-03.---Whereas the question of review of the Rules and Regulations governing the members default and procedure for recovery of losses at the Lahore Stock Exchange has been under-consideration since a long time. And whereas in the process of review of various aspects of default under the existing Rules and Regulations, it is deemed necessary that, a separate regulation governing members default and procedure for recovery of losses is desirable in order to protect the interest of the institution and of all concerned. Now, therefore, the Board of Directors of the Lahore Stock Exchange (Guarantee) Limited, with the prior approval of the Corporate Law Authority, hereby make these regulations which shall be deemed to be effective at once. 1. Short title.---These Regulations may be called "Members Default and Procedure for Recovery of Losses" of the Lahore Stock Exchange (Guarantee) Limited. 2.Default.--(i) In case a Member fails to pay any amount payable by him or fails to deliver shares as per Rules and Regulations of the Exchange over and above the prescribed amount, he shall be issued a notice by the Exchange requiring him to deposit the amount and deliver the shares. On failure to comply with the notice by the member within the time allowed, he shall be suspended by the Board. (ii) Upon the suspension of a Member, all his outstanding transactions shall be squared in the open market and a final notice of loss so determined, shall be served, calling upon him to pay the losses within the time stipulated therein. If he fails to comply with such notice, he shall be declared Defaulter by the Board. (iii) Upon declaration of Defaulter, a statement shall be prepared by the Exchange to ascertain such Defaulter's scriptwise loss with a statement of transactions made with other members in those scrips. The losses arising out of the squaring up of the transactions by the Exchange in a particular clearing shall be debited to the account of those members with whom such transactions had been originally contracted by the Defaulter and such members shall have to pay the losses to the clearing house of the Exchange. (iv) Such payments by the members will, however, be treated as "Claim" by them against the Defaulter and shall be settled alongwith other claims out of the assets of the Defaulter that may be realised/recovered by the Exchange, on a proportionate basis. 3. Recovery and Distribution of loss of a Defaulter.---Loss shall be recovered in the following sequences: (i) Deposit of the Member with the Exchange. (ii) Sale of Member's Assets in the control of the Exchange. (iii) Contribution from Clearing House Protection Fund as may be prescribed. (iv) Any other sources of recovery as may be determined by the Board. 4. Payment of Claims.---Payment of claims will be made in accordance with the General Rules and Regulations of the Exchange." ' The other relevant rules are Clearing House Procedure Manual of the Lahore Stock Exchange, Chapter I of which prescribes ' Accounting Period' Tuesday to Monday while ' Settlement Day' is
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following Tuesday. It also provides a detailed and complete procedure for maintaining accounts and Rule 4.08 deals with the payments and same reads as under:--- "4.08. The members of the Clearing House are required to follow the following procedures for delivery and payment failing which they will be liable to penalty as prescribed hereinafter. (a) The Cheque/Pay Order payable by the members must be delivered to the Exchange by 11-00 a.m. On the clearing days without exception. (b) A grace period of 30 minutes may be allowed to the members enabling them to tender the payment latest by 11-30 a.m. (c) A late fee of Rs,10 will be payable by the members making payment later than 11-30 a.m. But before 11-45 a.m. (d) A late fee of Rs,25 will be payable by the members making payment later than 11-45 a.m. But before 12-00 noon. (e) Payments will not be acceptable from the members after 12-00 noon. The shares receivable by such defaulting members will be received by the Exchange and shall be sold out in the open market at the risk, cost and consequences of the member concerned." 7. It is clear from the Regulations of 1995 and above rule that business in the Stock Exchange and Clearing House proceeds in a very systematic but at high speed. This is obviously for the reason that fluctuation of share prices is normal and all actions in the Stock Exchange and Clearing. House are so interconnected, interdependent and so interwoven that a default on the part of one member may bring the whole business of Exchange to standstill position. The different parties may not come in direct contact with each other but their conduct is relevant to many, if not all, as is clear from the working of Exchange and Clearing House. 8. It would be seen from the above provisions that the working of the petitioner involve enormous financial exposure by the petitioner on behalf of its members like the respondent, therefore, it was essential that the liability should be worked immediately, payments made promptly and documents delivered as per schedule. In short in the stock exchange business the time is essence of the contract and parties have to adhere to the same. If a member fails to make the payment or deliver the shares as per schedule then the transaction is liable to be squared up on the basis of prevalent rate of the shares in the open market and the loss, if any would be debited to him. All these steps have to be taken one after the other in quick succession and within the specified time 9. Now coming to the prima facie case. The petitioner has placed on record documents in support of its claims against the respondent. These are the entries contained in books of account, regularly kept in course of business by the petitioner and are relevant, therefore, presumption of correctness is attached to the same and as against this the respondent has not produced any document, whatsoever, to rebut this presumption. The admitted position between the parties is that the squaring process was in progress when the respondent instituted the suit. The same has now been completed as per request of the respondent, dated 24-8-1995 and the matter between the parties is to proceed now beyond the stage of squaring up in accordance with the rules and byelaws, therefore, interference at this juncture amounted to interference in internal working of the petitioner and the respondent, if aggrieved, has alternate remedies under the Securities Ordinance as well as C.L.A. Rules, 1984. 10. It is clear from the order of the First Appellate Court that it did not comprehend the controversy while proceeding to accept the appeal. The facts, which according to him constituted a prima facie case, were: Firstly, that there was no squaring up to 25-7-1995 when second and final notices were issued. This is even not the case of the petitioner. It is clear from the record that the respondent was served with a notice on 23-7-1995 with statement of claims against him. Thereafter, the second notice was issued on 25-7-1995 and he was informed that he has failed to deposit a sum of Rs,43,28,425 as per claims reported to date resulting from 'squaring up procedure'
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and his failure to deliver the share as per rules and regulations of the Exchange, therefore, it was unanimously resolved to suspend membership of the respondent. This was followed by final notice in which the same amount was quoted as outstanding against the respondent and he was called upon to pay the same up to 1-30 p.m. Positively and in case of failure he was to be declared defaulter. The First Appellate Court failed to appreciate that the squaring up process was in progress and was not completed on the date of service of notice as was clear from the notices. This process takes time and as a result of its initiation the above amount was found against the respondent. It was no stage to challenge the same. ' Secondly, he referred to Article 38 of the Articles of Association, according to which, a member may be expelled only by majority of 2/3rd. He failed to keep in mind the distinction between 'suspension' and 'expulsion'. Moreover, it was not relevant as held above. It is nobody's case that the respondent has been expelled. He has been suspended by unanimous resolution after serving him with show-cause notices. ' Thirdly, that the ground which prevailed with the A.D.J. Was that 'full opportunity' was not given to the appellant prior to the issuance of the impugned notice, which ought to have been issued after squaring up has taken place. This again speaks of lack of comprehension of…
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