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Petitioner: BABAR SATTAR VS Respondent: FEDERATION OF PAKISTAN through Secretary Ministry of JUDGMENT
Court Name: Islamabad High Court Judge(s): Athar Minallah Title:BABAR SATTAR vs FEDERATION OF PAKISTAN through Secretary Ministry of
JUDGMENT
Reported As: 2016 CLD 134 Result: Petition allowed Judgment JUDGMENT ATHAR MINALLAH, J.---The petitioner is one of the Independent Members of the Board of Directors of the National Transmission and Dispatch Company Limited (hereinafter referred to as the NTD CL ') The petitioner has invoked the jurisdiction of this Court under Article 199 of the Constitution of the Islamic Republic of Pakistan 1973 (hereinafter referred to as the 'Constitution'), challenging the interference of the respondent No,1 in the affairs of the NTDCL in breach of the Companies Ordinance 1984, and the rules and regulations made thereunder. The prayer sought by the petitioner is as follows.- "In view of the aforesaid it is prayed that this Honourable Court may be pleased to declare that the Impugned Notification is ultra vires of the law and the Constitution, unlawful and of no legal effect. It is further prayed that the Respondent No,1 be restrained from claiming any discretionary or exclusive right to make appointments or remove members of the BOD of NTDC or other Public Sector Companies at its pleasure. It is further prayed that the Respondent No,1 be directed to act strictly in accordance with the Rules while dealing with NTDC and other Public Sector Companies and not interfere with the administration and management of NTDC that the Board and Management of the NTDC is responsible for in accordance with the provisions of the Companies Ordinance, the Rules and the Memorandum and Articles, It is further prayed that penal action be initiated against those officials of the Federal Government who are involved in and liable for the issuance of the Impugned Notification in blatant contravention of the law, including, but not limited to, action in accordance with Rule 25 of the Rules read together with section 506(2) of the Companies Ordinance.
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It is further prayed that this Honourable Court grant any other relief that may be deemed just and appropriate in the circumstances." 2. The question raised by the petitioner essentially relates to the scope and extent of the powers vested in the Federal Government vis-a-vis the NTDCL and its obligations under and pursuant to the Memorandum and Articles of the latter, particularly the Public Sector Companies (Corporate Governance) Rules 2013 (hereinafter referred to as the "Corporate Governance Rules"). The filing of the petition was triggered by issuance of a notification dated 29-09-2014 and the interference with the management of the NTDCL by the respondent No, 1. NTDCL has a pivotal role to play, particularly at a time when the nation is faced with the challenges of an energy crisis. The NTDCL and its management and control have inevitably assumed immense importance in protecting the interests of the consumer i,e., the general public. Needless to mention that the august Supreme Court in OGRA through Secretary v. Midway II, CNG Station and others, 2014 SCMR 220, has declared the provision of electricity as an integral part of the fundamental right to life enshrined and guaranteed under Article 9 of the Constitution. Thus the questions raised through the instant petition are inextricably linked with the lives of each citizen, thereby making it a matter of enforcement of fundamental rights and public interest as well. 3. After the petition was filed and notices were issued, the respondent No,1 took certain actions and passed the following orders without the approval or consent of the Board of Director of the NTDCL; On 03-11-2014 advertisements were published in various daily newspapers seeking applications from candidates for the appointment of a Managing Director. On 15-04-2015, issued office order, and purportedly expanded the Board of Directors by adding one Ex officio member and four private membeRs, On 30-01-2015, suspended the Managing Director, NTDCL without the approval of the Board of DirectoRs, On 01-04-2015, ordered the reinstatement of Mr. Tahir Mehmud as MD, NTDCL. Various orders were passed by another public sector company i,e., the Pakistan Electric Power Company (Pvt.) Limited (hereinafter referred to as "PEPCO") relating to administrative matters e.g. posting/transfers etc. of the officials and staff members of NTDCL. The above orders and actions were placed on the record of this Court through various applications. 4. The petitioner has contended that; the Regulation of Generation and Distribution of Electric Power Act, 1997 (hereinafter referred to as the 'Act of 1997') provided for the unbundling of the power utility business and its corporatization, whereby Generation, Transmission and Distribution were separated; it was made mandatory to issue licences only to companies incorporated under the Companies Ordinance 1984; as a result of the incorporation of the NTDCL, the Federal Government was left with no authority in relation to the affairs of the company, except in the manner provided under the Companies Ordinance, 1984 and the rules made there under; the Corporate Governance Rules provide for the mechanism regarding how a Public Sector Company shall be governed, and the said rules are binding on the Federal Government; section 183 of the Companies Ordinance, 1984 neither deals with the determination of the size of the Board, nor vests power in the Federal Government to make such a determination; section 183 does not address the manner or procedure for the nomination or removal of Director by the Government, or how the latter is to exercise discretion in this regard; it is settled law that discretion cannot be exercised in an arbitrary,
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whimsical or in an unstructured manner, and reliance has been placed on the case of 'A man Ullah Khan and others v. The Federal Government of Pakistan through Secretary, Ministry of Finance, Islamabad and others' [PLD 1990 SC 1092], `Muhammad Yasin v. Federation of Pakistan through Secretary Establishment Division Islamabad and others' [PLD 2012 SC 132]; the Federal Government, in exercise of its power vested under section 506 of the Companies Ordinance, 1984, has structured its own discretion and determined the manner for its exercise; the Corporate Governance Rules have been enacted for structuring the discretion and are to be read with the provisions of section 183; the Corporate Governance Rules determine the process for nomination, which ensures transparency and merit, while leaving the ultimate power of nomination with the Federal Government; In the case of "Ghazanfar Ali v. Federation of Pakistan, etc. [2014 CLD 664] the Federal Government had conceded that the Corporate Governance Rules apply to similarly placed Public Sector Companies, the plain reading of sections 198, 199 and 200 of the Companies Ordinance, 1984, read with Rule 5(2) of the Corporate Governance Rules makes it obvious that the Federal Government has no power to appoint or remove the Chief Executive Officer; the doctrine of pleasure has almost been rejected by the jurisprudence laid down by the Superior Courts; reliance has been placed on the cases of `Khawaja Muhammad Asif v. Federation of Pakistan and others' [2013 SCMR 1205], 'Barrister Sardar Muhammad Ali v. Federation of Pakistan' [PLD 2013 Lahore 343], `Shabana Akhtar v. District Coordination Officer' [2012 PLC (C.S.) 366], `Muhammad Yasin v. Federation of Pakistan through Secretary Establishment Division' [PLD 2012 SC 132], `Sheikh Zayed Hospital and Post Graduate Medical College v. Dr. Muhammad Saeed' [2010 PLC (C.S.) 967], 'Aman Ullah Khan v. Federal Government of Pakistan' [PLD 1990 SC 1092]; subsidiary legislation is binding on the Federal Government, particularly when it has said down the procedure and mechanism to regulate discretion; reliance has been placed on the case of `Khawaja Ahmed Hassan v. Government of Punjab' [2005 SCMR 186], `United Liner Agencies of Pakistan (Pvt.) Ltd., Karachi v. Miss Mahenau Agha' [2003 SCMR 132]; the Board of Directors has a fiduciary duty, and any interference by the stakeholders in violation of the law is illegal; public authorities have a trust to exercise and to do what is explicitly authorized; the Federal Government is under an obligation to treat and distribute its trust as largess; the Corporate Governance Rules are mandatory, and it is settled law that when the law prescribes something to be done in a particular manner, it should be done in that manner or not at all; Article 21-A of the General Clauses Act, 1897 imposes a duty to act in a fair, just and reasonable manner. 5. Mr. Ali Shah Gillani, Advocate, appeared on behalf of the respondent No,1 and submitted that the petitioner cannot be treated as an 'aggrieved person' as he is a Member of the Board of Directors; the jurisdiction of this Court has been invoked despite the fact that the petitioner had statutory or alternate remedies provided under the Companies Ordinance, 1984; the ex parte ad interim relief granted was beyond the prayer; the interim relief granted tantamounted to granting the final relief; there is no live issue, as the notification dated 29-09- 2014 was subsequently withdrawn; the allegations of mala fide raised by the petitioner are not supported by any material placed on record; the notification was issued while the instant petition was pending and, therefore, amounts to adjudicating the matter suo motu, it is settled law that this Court has no jurisdiction to act suo motu, reliance has been placed on Dr. lmran Khattak and another v. Sofia Waqar Khattak, PSO to Chief Justice and others' [2014 SCMR 122]; Section 183 of the Companies Ordinance, 1984, particularly the second proviso thereof, vests power in the Federal Government to nominate or remove a Director; the Corporate Governance Rules have to be examined by harmoniously reading the relevant rules with the provisions of
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the Companies Ordinance, 1984; Rule 3(4) of the Corporate Governance Rules provides for the filling of a casual vacancy by the Directors, while the Rules have not defined as to how a casual vacancy occurs; in the case of the NTDCL, the Directors are nominated by the Federal Government and they serve at the pleasure of the latter; the best interest of the company constitutes the best interest of the Federal Government, and it is for the latter to take decisions in the interest of the NTDCL; the Parliament, in its wisdom, has granted the Federal Government the powers under section 183 of the Companies Ordinance 1984; reliance has been placed on 'Province of East Pakistan and others v. Sirajul Haq Patwari and others' [PLD 1966 SC 854]; the Federal Government, giving effect to its constitutionally mandated socio economic policy objectives, has vast powers to control the NIDCL; Article 30 of the Constitution extends to the Federal Government the responsibility to decide whether its actions, or those of any authority performing functions on its behalf, are in accordance with the principles of policy; the nominating power of the Federal Government are in accordance with the legislative meaning and intent and in furtherance of Articles 37 and 38, read with Article 30 of the Constitution, and the pleasure granting proviso under section 183 of the Companies Ordinance, 1984; reference has been made to various definitions of the expression 'control' in support of the contention that it is the Federal Government's constitutional mandate to control the NTDCL; the doctrine of pleasure is based on notions of subjectivity and upon political considerations; reliance placed on 'Muhammad Yasin v. Federation of Pakistan through Secretary Establishment Division' [PLD 2012 SC 132] is misconceived and inapplicable to the facts and circumstances in the instant petition; the doctrine of pleasure, as interpreted by the august Supreme Court, was in the context of constitutional appointment, and will not extend to the powers of the Federal Government exercised under section 183 of the Companies Ordinance, 1984; the law has to be saved and not destroyed. Mr. Afnan Karim Kundi, learned Additional Attorney General, argued on behalf of the Federation and submitted that. the Corporate Governance Rules are directory in nature rather being mandatory; it has, therefore, been stressed by the learned counsel for the respondent No,1, and the learned Additional Attorney General, that though the Corporate Governance Rules are valid, and intra vires, but to the extent of nomination of the Directors of the Board of the NTDCL under section 183 of the Companies Ordinance 1984 they are to be treated as directory and, therefore, would not come in the way of powers conferred on the Federal Government to directly nominate or remove a Director. Learned counsel and the Additional Attorney General have been heard and the record perused with their able assistance. PRELIMINARY OBJECTIONS.- The learned counsel for the respondent No 1 has taken two preliminary objections; firstly, that the notification dated 29-09-2014 was withdrawn vide notification dated 08-05-2015 and, therefore, the petition had become infructuous and, secondly, the subsequent events i,e. the advertisement dated 03-11-2014 inviting applications for the appointment of a Managing Director of the NTDCL, enhancing the size of the Board of Directors and appointing Directors vide notification dated 15-04-2015 are outside the purview of the prayer and cannot be taken into consideration. This Court is mindful of the settled principles enunciated by the august Supreme Court in Dr. Imran Khattak and another v. Ms. Sofia Wagar Khattak, PSO to Chief Justice and others [2014 SCMR 122] and those relating to the molding of relief. A plain reading of the prayer sought in the instant petition, and the assertions and grounds articulated in the memo thereof, makes it obvious that it
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challenges and questions the exercise of discretion of the respondent No, 1 and its acts and omissions relating to the nomination or removal of members of the Board of DirectoRs, Direction has also been sought against respondent No,1 to, inter alia, act strictly in accordance with the Corporate Governance Rules while dealing with the affairs of the NTDCL and not to interfere with the management and administration. thereof. In other words, through the petition the scope and extent of the power and discretion which may be exercised by the Federal Government has been questioned. The advertisement, dated 03- 11-2014, and the notification dated 15-04-2015 have a direct nexus to the cause of action and the defense of the case. By no stretch of the imagination does it amount to setting up a new case. Both the advertisements and the notification issued subsequent to the filing of the petition fall within the ambit of the prayer sought in the petition and the grounds taken therein. Placing reliance on judgments of the august Supreme Court, the law in this regard was eloquently stated in the case of All Pakistan Textile Mills Association throug h Secretary v. Federation of Pakistan throug h. Secretary Com merce, Ministry of Com merce, Islamabad and 2 others [PLD 2009 Lahore 494] and the same is reproduced as follows.- "There can be no cavil with the rule that a Court seized of a matter which is competent and maintainable before it can always mould the relief as is warranted by the facts of the case, even taking into account the subsequent development occurring during the pendency of the us; besides, the judgments cited by the appellant's counsel, reference in this behalf can also be made to Salahuddin and 2 others v. Frontier Sugar Mills and Distillery Ltd. Takht Bhai and 10 others PLD 1975 SC 244, however, the rule is subject to important limitations; that no prejudice is caused to the defendant/respondent by doing so; such events must have nexus to the cause of action or the defence of the case and should not amount to setting up a new case by the parties; eithei side must get a chance of meeting the effect of the subsequent events, which in ordinary course should be incorporated by appropriate amendment of the pleading." Reference may also be made to the cases of Mst. Amina Begum and others v. Mehar*Ghulam Dastagir' [PLD 1978 SG 220], `Marghub Siddiqi v. Hamid Ahmed Khan and 2 others' [1974 SCMR 519], "Salahuddin and 2 others v. Frontier Sugar Mills and Distillery Ltd. Takht Bhai and 10 others" [PLD 1975 SC 244], `Mehrab Khan through Attorney v. Province of Sindh through Secretary Irrigation and Power Department, Government of Sineth and 5 others' [2005 CLC 441], 'Messrs Facto Belarus Tractors Limited Karachi and another v. Federation of Pakistan through Secretary, Ministry of Industries, Production and Special Initiatives Islamabad and others' [PLD 2006 Karachi 479]. 9. There is no force in the objections raised by the learned counsel for the respondent No 1, as this Court is satisfied that in the light of the settled principles the publishing of the advertisement seeking application for appointment of a MD and the notification of expansion of the Board of Directors, are events which can be taken into consideration and, in the facts and circumstances of the case, no prejudice will be caused to -the respondents. The said acts and orders have a direct nexus with the cause of action disclosed in the petition and covered within the ambit of the prayer sought. It is also misconceived that after the withdrawal of notification dated 29-09-2014, the proceedings have become suo motu in nature. The objections are, therefore, without force. ON MERITS The questions for consideration, therefore, are (a) whether under section 183 of the Companies Ordinance, 1984 the Federal Government has unfettered and unstructured power to nominate or remove a member of the Board of Directors, (b) whether the Corporate Governance Rules are directory and not binding on the Federal Government, (c) whether the Federal Government or any other public sector company has the power or jurisdiction to interfere with the administration and management or the NTDCL, which otherwise falls within the exclusive ambit of its Board of Management and, lastly, (d) the legality of the advertisement dated 03-11-2014 and the notifications removing the Managing Director, expanding the Board of Directors and nominating an Ex officio and four other private persons as Directors, In order to address these questions, it would be beneficial to examine the relevant statutes and the object and purpose behind establishing the NTDCL as an incorporated entity.
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The ACT OF 1997 With the object of providing for the regulation of Generation, Transmission and Distribution of electric power and matters connected therewith, the legislature enacted the Regulation of Generation, Transmission and Distribution of Electric Power Act 1997 (hereinafter referred to as the "Act of 1997"), which was published in the official gazette on 16-12-1997. The enactment of the Act of 1997 was in pursuance of the policy to unbundle the energy sector. The components of Generation, Transmission and Distribution were separated. Chapter III of the Act of 1997 provides for the grant of licences. Section 24 provides as follows.- 24. Licensees to be companies---Except the WAPDA, the SHYDO or any other person specially exempted by the Authority, a generation, transmission or distribution licence shall not be granted to any person unless it is a company registered under the Companies Ordinance, 1984 (XLVII of 1984)." The legislative intent in promulgating the Act of 1997 was obviously to ensure that the unbundled sectors would be autonomous and independent in the sense that each entity will be an incorporated company and governed under the provisions of the Companies Ordinance, 1984, and the rules/regulations made thereunder. It was a significant development and the legislature dearly intended that the unbundled sectors were not to be treated or governed as attached Departments of the Federal Government, despite being wholly owned by the latter. Section 3 of the Act of 1997 established the National Electric Power Regulatory Authority (hereinafter referred to as the "NEPRA") as a regulatory body and, inter alia, vested in it the exclusive power to grant licenses for generation, transmission and distribution of electric power. In order to be eligible for the grant of a license, it was made mandatory that the person or entity which is licensed ought to be a company registered under the Companies Ordinance, 1984, except WAPDA, SHYDO or any other person/body specifically exempted by NEPRA. The legislature clearly intended that the licensed companies were to be managed and controlled through the systems, principles and processes concomitant with corporatisation rather than direct bureaucratic or State intervention. Thus governance, management and control of the unbundled sectors was envisioned through corporate governance rather the Rules of Business and normal governmental channels. ESTABLISHING THE NTDCL Pursuant to the mandatory requirement prescribed under section 24 of the Act of 1997, the NTDCL was incorporated as a Public Sector Company on 06-11-1998. The certificate of commencement of business was issued by the Joint Registrar of Companies on 24-12-1998. The Memorandum of Association enumerated the objectives for which the NTDCL had been established. The Articles of Association, inter alio, specified the powers and duties of the Directors, the manner in which casual vacancies occurring in the Board of Directors are to be filled, and the procedure for removal of Directors have been provided thereunder. Needless to mention that the Articles of Association are subject to the provisions of the Companies Ordinance, 1984. The NTDCL is not 100% owned by the Federal Government. 88% shares are owned by the latter while 12% by the employees of NTDCL, pursuant to the Benazir Employees Stock option Scheme. It appears that the Federal Government had not given much priority to such an important corporatized entity, as is evident from the fact that its Board of Directors remained dysfunctional for a considerable time. It was made functional by constituting the Board by notifying its seven members vide notification dated 27-09-2013. The eighth member is the
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Managing Director in Ex Officio capacity. Four members were nominated from the private sector. CORPORATE GOVERNANCE RULES The Public Sector Companies (Corporate Governance) Rules, 2013 were notified on 08-03-2013. The Rules were framed in exercise of powers conferred by section 506 of the Companies Ordinance, 1984, read with clause (b) of section 43 of the Securities and Exchange Commission of Pakistan Act, 1997. The notification i,e. S.R.O. 180(1)/2013 was issued with the approval of the Federal Government. Sub-rule (3) of Rule 1 declares that the Corporate Governance Rules shall apply to all Public Sector as defined in clause (g) of rule 2. The definition of Public Sector Company is expansive and it, inter alia, includes companies, whether public or private, which are directly or indirectly controlled, beneficially owned or in which not less than fifty percent of the voting securities or voting powers are held by the Government or any instrumentality or agency of the Government. Rule 3 provides for the composition of the Board and provides that it shall consist of executive and non-executive directors, including Independent Directors, An Independent Director is defined in clause (d) of sub-rule (1) of Rule 2. Sub-rule (2) of Rule 3 provides that the Board shall have forty percent of its total members as Independent Directors within the first two years of the notification of the Rules and the same is to be raised to a majority of Independent Directors in two years from the date of the notification of the Rules. The Rules provide for a strict test, criteria and scrutiny process for selecting candidates for appointment/nomination by the Federal Government. Persons proposed to the Federal Government for nomination as Independent Members are required to have a requisite range of skills, competence, knowledge, experience and approach. The object for such criteria has been declared as ensuring that the 'Board as a group includes core competencies and diversity considered relevant in the context of the Public Sector Company's operations'. Rule 3(7) further provides that the appointing authorities, whether the Federal Government or the other share holders, apply the fit and proper criteria given in the Annexure. The Annexure enumerates the factors or criteria to be taken into consideration for determining a 'fit and proper person'. The list, though not exhaustive, inter alia, includes the qualities of financial integrity, repute and recognition in the relevant profession, known competence, good character etc. In order to achieve the object of head hunting and scrutiny of suitable…
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