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Petitioner: PAKISTAN WAPDA and otherss VS Respondent: KOT ADDU POWER CO. LTD.
Court Name: Lahore High Court Judge(s): Malik Muhammad Qayyum Title: PAKISTAN WAPDA and otherss vs KOT ADDU POWER CO. LTD. Case No.: Civil Original No,1601-L of 1998 Date of Judgment:2000-04-12 Reported As: PLD 2000 Lahore 461 Result: Order accordingly
JUDGMENT
JUDGMENT This order shall dispose of three miscellaneous applications, two of which namely C.M. No.1393-L- 98 and C.M. No.1394-L-98 have been filed by the petitioner whereas third (C. M. No.1601-L-98) has been moved by respondent No. 1. The first two applications are under section 292 of the Companies Ordinance, 1984 and seek appointment of provisional manager and issuance of temporary injunction whereas the last application filed by respondent No. l prays for, appropriate orders in the light of the submissions made therein. 2.These applications arise out of a petition under section 290 of the Companies Ordinance, 1984 filed by Pakistan Water and Power Development Authority (hereinafter referred to as "WAPDA") against Kot Addu Power Company Ltd. (hereinafter referred to as "respondent No. l company"), National Power (Kot Addu) Ltd. and Registrar, Joint Stock Companies Islamabad, praying that in view of various acts of commission and omission detailed in the petition, appropriate orders may be passed directing the change in the management of respondent No. l company and the transactions and the agreements prejudicial to the interest of the company or the petitioner or public may be held to be inoperative and ineffective. 3 The background in which this dispute has arisen is that the petitioner is a statutory. corporation set up under Pakistan Water and Power Development Authority Act XXXI of 1958 with a view to provide for the coordinated development of the water and power resources of Islamic Republic of Pakistan. In pursuance of the aforesaid, the petitioner has been instrumental in establishment of various power generation units within the country. One of such units is Thermal Power Generation Unit set up at Kot Addu, District Muzafargarh in the Province of the Punjab. This unit is 1650-MW combined cycle power station with multi-fuel capability designed for operation on natural gas
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residuary fuel oil and high speed diesel. The capacity of the plant is stated to represent more than 15 % of the entire electricity produced in the country. 4. In the early nineties, the Government of Pakistan embarked upon policy of privatization of various public sector units, one of which was Kot Addu, ' Thermal Power Station. In order to facilitate the privatization of this unit WAPDA Act, 1958 was amended and section 8(2)(c)(vii) was introduced so as to empower WAPDA to formulate policies for privatization of any of its units. In order to privatize Kot Addu Unit it- was decided to corporatise it. Consequently, respondent No. 1 company was incorporated with authorised capital of Rs.36,000,000 and paid-up capital of Rs.88,02,532 divided into 880,000,228 ordinary shares of Rs.10 each. 5. The Government of Pakistan through Privatization Commission decided to invite bids for the sale of 26% shares of respondent No.1 --Company. In response to the said invitation, various bids were received including that of National Power plc. The Privatization Commission accepted the bid of National Power plc. of US Dollars 215 million for purchase of 26% shares. As a consequence of the above, as many as 11 agreements were entered into between the parties, pursuant to which 26% shares in the respondent No. l company were transferred and management and control of the unit was handed over to National Power plc. The more important agreements for present purposes are the Share Purchase Agreement, the Shareholders Agreement, the Power Purchase Agreement and the Note Agreement. 6. Under the Share Purchase Agreement, 26% of the total shares were transferred from petitioner to National Power International Ltd. for a total consideration of US $ 215 million. Share Holder Agreement provided that notwithstanding that National Power Kot Addu Ltd. held 26% shares in the company the right to manage the plant would vest for 25 years with respondent No.2 company. Article 4(1)(a) reads that-- "the Company's Board of Directors shall be composed of nine (9) Directors of whom four (4) shall be independent of both parties being neither employed by nor closely connected with either party nor with any of their respective affiliate------------purchaser shall be entitled to nominate four (4) Directors, one of whom shall be the Chief Executive of the Company Under this agreement, the petitioner was entitled to have only one Director on the Board out of nine. 7. The other agreement between the parties is the Power Purchase Agreement which was entered into on 27-6-1996 under which the petitioner agreed to purchase from the respondent electricity at the rate of Rs.3.44 per unit. Under the Note Agreement, respondent No. l took over the liability amounting to Rs.27,010,368,000 which was to be repaid by the-company within 22 years in half- yearly instalment along with interest at the rate of 11.25 % for one year; 12-1 /2 % for the second year and 14 % thereafter. 8.Ever since June, 1996, respondent NQ~ 2 has been managing respondent No. l company. Subsequently, in addition to 26% shares holding, respondent No.2 acquired another 10% shares in respondent No.l company. The present position therefore is that while respondent No.2 owns 36% shares of the total shareholding of respondent No.1 company the remaining 64 % share holding vests in the petitioner. 9. In the applications under section 290 of the Companies Ordinance, 1984, the petitioner has complained that respondent No.2 has been conducting the affairs of respondent No.l company in a manner prejudicial to public interest and by supplying the electricity at an exorbitant rate, it has been fleecing not only the petitioner but also the public in general. The allegations of mismanagement and malfeasance have also been levelled. It is claimed that respondent No.2 has siphoned off colossal amounts which have been misappropriated by it. On these premises, the appointment of provisional manager pending decision of the main petition and issuance of
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temporary injunction restraining respondent No.2 from charging more than rupees 1.98 per unit for supply of electricity have been prayed for. 10. In the reply filed by respondent No.2, the allegations of mismanagement and acting in a manner contrary to public interest have specifically been refuted. It has further been stated that the Power Purchase Agreement is in the nature of commercial agreement simpliciter between the purchaser and the seller and cannot form the subject-matter of proceedings under section 290 of the Companies Ordinance, 1984. It may be mentioned that the respondents have not filed any reply to the main petition and have instead moved C.M. No.1673-L/p8 under section 3 of the Arbitration (Practising and Conventions) Act, 1937 for stay of the proceedings in view of the arbitration agreement between the parties. 11. On these miscellaneous applications, I have heard Mirza Mahmood Ahmad, Advocate, on behalf of the petitioner .Mr. Abdul Hafeez Pirzada, Advocate for respondent No. l and Mr. Makhdoom Ali Khan, Advocate for respondent No.2. 12. Section 290 of the Companies Ordinance, 1984 vests the Court with wide and vast powers to take corrective measures by passing appropriate orders in the event that it is shown that the affairs of the company are being conducted or are likely to be conducted in unlawful or fraudulent manner or in a manner prejudicial to public interest or in a manner oppressive to the members or any of the members or creditors. The power given by section 290 of the Companies Ordinance, 1984 is much wider than corresponding provisions in the Companies Act, 1913, sections 397 and 398 of the Indian Companies Act, 1956 in many respects. 13. Section 290 of the Companies Ordinance, 1984 reads as under:-- "If any member or members holding not less than twenty per cent. of the issued share capital of a company, or a creditor or creditors having interest equivalent in amount to not less than twenty, per cent. of the paid-up capital of the company, complains or complain, or the Registrar is of the opinion, that the affairs of the company are being conducted, or are likely to be conducted in an unlawful or fraudulent manner or in a manner not provided for in its memorandum or in a manner oppressive to the members or any of the members or the creditors or any of the creditors or are being conducted in a manner prejudicial to the public interest, such member or members, the creditor or creditors as the case may be, the Registrar may make any application to the Court by petition for an order under this section. (2)If, on any such. petition the Court is of opinion-- (a)that the company's affairs are being conducted or are likely to be conducted as aforesaid; and (b)that to wind up the company would unfairly prejudice the members or creditors; the Court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit, whether for regulating the conduct of the company's affairs in future, or for the purchase of the shares of any members of the company by other members of the company or by the company and, in the case of purchase by the company, for the reduction accordingly of the company's capital or otherwise. ................................................................................................................................................................................. ................................................................................................................ (5)The provisions of this section shall not prejudice the right of any person to any other remedy or action. " 14. The corresponding provision in India has been split up in two sections viz., sections 397 and 398. Section 397 of the Indian Companies Act, 1956 reads as under:-- (1)Any members of a company who complain that the affairs of the company are being conducted in a, manner prejudicial to public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Company Law Board for an order under this section, provided such members have a right so to apply in virtue of section 399.
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(2) If, on any application under subsection (1) the Company Law Board is of opinion:-- (a)that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members; and (b)that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up; the Company Law Board may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. " Section 398 is to the following effect: (1)Any members of a company who complain:-- (a)that the affairs of the company are being conducted in a manner prejudicial to public interest or, in a manner prejudicial to the interests of the Company; or (b)that a material change (not being a change brought about by, or in the interests of, any creditors including debenture-holders, or any class -of shareholders, of the company) has taken place in the management or control of the company whether by an alteration in its Board of Directors, or manager or in the ownership, of the company's shares, in its membership, or in any other manner whatsoever, and that by reason of such change. it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company, may apply to the Company Law Board for an order under this section provided such members have a right so to apply in virtue of section 399. (2)If, on any application under subsection (1) the Company Law Board is of opinion that the affairs of the Company are being conducted as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the Company Law Board may, with a view to ..bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit." Section 459 of the English Companies Act, 1989 reads thus: "(1)A member of a company may apply to the Court by petition for an order under this Part on the ground that the company's affairs are being or have been conducted in a manner which is unfairly prejudicial to the interest of its members generally or of some part of its members (including at least himself) or that any actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial. (2)..................................................................................... Previously law on the subject was contained in section 153 (c) of the Companies Act; 1913 which was much narrower. That provision read: "(1)If any member or members holding not less than one-tenth of the issued share capital of a company complains or complain, or the Federal Government is of the opinion that the affairs of the company are being conducted in an unlawful or fraudulent manner or in a manner not provided for in its memorandum, or in a manner oppressive to the member or any of the members, or are being conducted in a manner, prejudicial to the public interest, such member or members or, as the case may be, the Federal Government may make an application to the Court by petition; and the Court may make such order as it thinks fit in the circumstances for regulating the conduct of the affairs of the company and matters ancillary thereto." 15. The amplitude of powers conferred by section 290 of the Companies Ordinance, 1984 upon the Courts is unprecedented. Neither under the Indian Companies Act nor English Companies Act, these Courts enjoy such wide B jurisdiction. This fact is evident from the bare language used in the said section which provides that if a member(s) or a creditor(s) (otherwise qualifying the numerical strength) complains that the affairs of the company are being conducted or are likely to
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be conducted in an unlawful or fraudulent manner or in a manner not provided for in its memorandum or in a manner oppressive to the member(s) or creditor(s) or being conducted in a manner prejudicial to public interest, the Court can assume jurisdiction under section 290 of the Ordinance, 1984 and pass appropriate orders. 16. Even in India and England where as stated above the jurisdiction of the Court is much narrower, the Courts have not shied away from extending their jurisdiction. In the case of Bennet Coleman & Co. v. Union of India (1977) 47 Com. Cas. 92 (97), on the issue of jurisdiction the Court observed as follows:-- "An examination of the aforesaid sections brings out two aspects; first, the very wide power conferred on the Court, and secondly the object that is sought to be achieved by the exercise of such? power, with the result that the only limitation that could be impliedly read on the exercise of the power would be that nexus must exist between. the order that may be passed thereunder and the object sought to be achieved by those sections and beyond this limitation which arises by necessary implication it is difficult to read any other restriction or limitation on the exercise of the Court's power." 17. In Shahbazud Din v. Service Industries Textile Ltd. PLD 1988 Lahore 1, it was held as under: "...Section 290 of the Companies Ordinance, 1984 confers power on the Court to give appropriate order and to initiate corrective measures wherever a company is acting in a manner prejudicial to the public interest. The receiving of interest on the money lent and investment made in view of the clear and unequivocal injunctions of the Holy Qur'an and Sunnah is not conducive to public interest and as such corrective measures are required to be taken by the respondent-company . . . . " 18. Mr. Abdul Hafeez Pirzada, the learned counsel for respondent No. 1 contended that the power under section 290 is only available in those cases where it is shown that the grounds for winding up under section 305 of the Companies Ordinance, 1984 exist but to wind up the company would unfairly prejudice it. There is no warrant for this contention so far as this country is concerned. It will be seen that section 397(2)(b) of the Indian Companies Act, 1956 clearly states that to wind up the company would unfairly prejudice such member or members "but that otherwise facts would justify making of winding up order on the ground that it was just and equitable that the company should be wound up". These words are missing in section 290 of our law. Consequently, it cannot be said that in order to succeed in an application under section 292 of the Companies Ordinance, 1984 the petitioner must show that there are grounds for winding up of company under the doctrine of just and equitable. On the other hand, if it is demonstrated by the petitioner that the affairs of the company are being conducted in an unlawful or illegal manner or in a manner prejudicial to the public interest or oppressive to the members or creditors the Court can interfere under section 290 of the Companies Ordinance, 1984. 19. In the case of N.R. Murty v. I.D. Corpn. of Orissa Ltd. (1977) 47 Com. Cas. 389, the Court observed as follows:-- "---------It was contended that on the averments in the petition, no case for winding up on just and equitable grounds was made out and so long as a case for winding up was not made out, no other relief could be granted in this petition. The power of the Court under sections 397 and 398 of the Act can be invoked in different circumstances. Under section 397, unless facts justify the making of a winding up order, jurisdiction cannot be exercised. No such facts, however, are necessary to be proved for the application of section 398; it is enough if the affairs of the company are conducted in a manner prejudicial to the public interest to vest power in the Court to make an order in terms of statutory provisions ...." 20. The next question is as to what is the public interest. This aspect has been the subject-matter of discussion in various cases. In Shahbazud Din's case (supra) PLD 1988 Lahore 1, at page 42 the Court held as under:--
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" ....A matter of public and general interest is that in which a class of community have a pecuniary interest or some interest by which their legal rights and liabilities are effected.." In N.R. Murty's case supra (1977) 47 Com. Cas. 389, the Court at page 391 observed as follows:- "...The expression 'public interest' in section 397 takes the company outside the conventional sphere of being a concern in which the share holders alone are interested. I emphasize the idea of the company functioning for the public good or general welfare of the community; at any rate, not in a manner detrimental to the public good ...." 21. In Killick Nixon Ltd. and others v. Bank of India and others (1985) 57 Com. Cas. 831, the Court at page 832 observed as follows:-- " ....Under section 397 and 398 any personal grievance of a member himself is not contemplated ....It merely stipulated minimum qualifications which members should possess such as their numerical strength or the extent of their share capital. Under these provisions, . therefore, any personal prejudice to the members for coming before the Court is not required." 22. In English Law the new concept of unfairly prejudicial conduct was introduced by Companies Act, 1980 through section 75, now consolidated in Companies Act, 1989 as section 459, which provides that a member may petition, the Court for a remedy if the company's affairs have been conducted in a manner unfairly prejudicial to members' interest. The expression unfair prejudice is wider than, and replaced the concept, oppression in the old Companies Act, 1948 (section 210). The Courts have now taken new approach in dealing with minority shareholders complaints and is prepared to look at any alleged prejudicial conduct from any objective point of view, to take into account any relevant circumstances to give the section its natural meaning without any technical gloss. 23. In re: Cumana Ltd. (1986) CLC 430, (Court of Appeal) Lawton L.J observed as follows:-- "...(d) The last of the acts of unfair prejudicial conduct found by the judge was that, during a period of 14 months .. ..Mr. Bolton had taken or received from Cumana the sum of 3,56,000 pounds--- -160,000 pounds purporting to be by way of bonus and 1,90,000 pounds by way of 9 contribution to his pension fund. The judge decided that these sums were excessive. They were. (e) it follows in my judgment, that there are no grounds for upsetting the judge's findings that Mr. Bolton had conducted the affairs of Cumana in a manner which was unfairly prejudicial to Mr. Lewis interests..." 24. As mentioned earlier, the petitioner is a statutory corporation having been set up by Pakistan Water and Power Development Authority Act, 1958. In the present cage it has three capacities; firstly it is shareholder to the extent of 64% of the shares in respondent No.l company; secondly it is creditor to the extent of Rs.223 billion and thirdly it has entered into Power Purchase Agreement with respondent No.2 company. According to the petitioner, the Power Purchase Agreement and the Share Holders Agreement which it was obliged to enter into under the instructions of the Privatization Commission and Government of Pakistan are not only illegal and unlawful 'but are also contrary to public interest.. It is to be seen that in order to facilitate the privatization of power units section 8 of WAPDA Act, 1958 was amended by providing that the authority may frame scheme or schemes for privatization of various units. It is common ground between the parties that the scheme for privatization of Kot Addu Power Station did not emanate from WAPDA and as a matter of fact, it did not frame any scheme for privatization. Instead the Government of Pakistan took the decision to privatize the shares which was done through Privatization Commission. 25. The stipulations in the Power Purchase Agreement and Share Holders Agreement which have strongly been objected to by the learned counsel for the petitioner are sale of electricity, at the rate of Rs.3.44 per unit and right of respondent No.2 to manage the unit .notwithstanding that it does not own majority shares and is also a debtor to the tune of Rs.22 billion. So far as the price of the electricity sold is concerned, it has been pointed out by the learned counsel for the petitioner and is not denied by the learned counsel for the respondents that Muzaffargarh Power Station is
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producing electricity at the cost of Re. 1.98 while the respondents are charging the petitioner exorbitant rate of Rs.3.44 per unit. 26. Mr. Abdul Hafeez Pirzada, the learned counsel for respondent No. l submitted that the circumstances of the two units are not the same inasmuch as in the case of Muzafargarh Power Station there is no debt-servicing involved while in the case of Kot Addu Power Station the petitioner has to service debt to the tune of Rs.25 billion. However, it has rightly been pointed out by the learned counsel for the petitioner, that so far as repayment of the principal amount is concerned it. cannot be debited to the account of the company and it is not covered by head debt-servicing as by paying off the principal amount the value of the shares increases. Be that as it may there is much stronger evidence available on the record to show that the power rates fixed in the Power Purchase Agreement are highly exorbitant and inflated. Before the unit was privatized, it was run for a period of five years by the petitioner itself. The petitioner has placed on the record material to show that the electricity was being produced at- much lesser cost than the one being charged by the respondents. The chart is as under:-- Years Total Units Cost per Unit 1990-91 1,922,077,000 KWHRs.1.66 1991-92 2,812,568,000 KWHRs.1.41 1992-93 3,243,248,000 KWHRs.1.29 1993-94 3,776,956,000 KWHRs.1.21 1994-95 3,957,743,000 KWHRs.1.70 1995-96 (up to 27 June,19965,270,012,000 KWHRs.1.28 As against the above, in the agreement there was, a sudden jump and rate of Rs.3.44 per unit was fixed which can by no stretch of imagination be considered to be justifiable return on equity and it virtually amounts to fleecing WAPDA and in turn the public at large. Prima facie the Power Purchase Agreement is clearly contrary to public interest. 27. There is no merit in the contention of the learned counsel for the respondents that the Power Purchase Agreement cannot be interfered with in…
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