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Petitioner: METRO MANAGEMENT (PVT.) LTD. VS Respondent: PRIVATIZATION COMMISSION OF JUDGMENT
Court Name: Sindh High Court Judge(s): Muhammad Mujeebullah Siddiqui, S. A. Sarwana Title:METRO MANAGEMENT (PVT.) LTD. vs PRIVATIZATION COMMISSION OF
JUDGMENT
Reported As: 2004 CLD 123 Result: Appeal dismissed Judgment JUDGMENT ' MUHAMMAD MUJEEBULLAH SIDDIQUI, J.---This appeal is directed against the order dated 25-2- 2003, passed by the learned Single Judge of this Court, whereby application under Order 39, rules 1 and 2, C.P.C. Has been dismissed. ' The relevant facts for the purpose of this appeal are that the appellant filed a suit for declaration, cancellation, permanent injunction and , specific performance seeking the following relief:- "(A) Declaration that the plaintiff is owner of 50.93% shares of Messrs Metropolitan Steel Corporation Ltd. By virtue of having made the full payment for such shares to defendant No, 1. (B) Direct the defendant No,1 to specifically perform its duty and obligations under Novation Agreement dated 27-11-1994 in transferring of 50.93% shares of Messrs Metropolitan Steel Corporation Ltd. In favour of the plaintiff. (C) Mandatory injunction against the defendant No,1 to issue 50.93% share of Messrs Metropolitan Steel Corporation Ltd. In favour of the plaintiff pursuant to agreement dated 27-11-1994. (D) Declare that any change/alteration in the ownership of 50.93% shares in favour of any third patty instead of the plaintiff is ab initio void, illegal and ncit sustainable in law and further order that the same be delivered up for cancellation. (E) Permanent injunction restraining the defendants 1 and 2, their subordinate officers, servants, agents, privy, legal heirs, persons acting under or through them from creating third party rights and interest in 50.93% shares of Messrs Metropolitan Steel Corporation Ltd. And further transfer of shares pursuant to advertisement dated 3-7-2002 is illegal, without jurisdiction and void.
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(F) Permanent injunction restraining the defendants, their subordinates, officers, servants, agents, privy, legal heirs, persons acting under or through them from handing over the possession of the factory known as Messrs Metropolitan Steel Corporation Ltd. Situated at HS-1, Industrial Area, Landhi, Karachi to any third party or create any third party rights, interest in the suit property and shares of the company till final disposal of the suit. (G) Receiver be appointed on the suit property i.e. Messrs Metropolitan Steel Corporation Ltd., situated at HS-1. Industrial Area, Landhi, Karachi is in danger of being wasted and misappropriated by the defendants and the plaintiff be put in possession of the suit property." ' Alongwith the suit an application under Order 39, rules 1 & 2, C.P.C. Was filed seeking temporary injunction restraining the defendants/respondents from handing over the possession of the factory known as Metropolitan Steel Corporation Ltd. To any third party or create any third party right, interest in the suit property and shares of the company till final disposal of the suit. ' On 23-1-2003, the plaintiff/appellant filed an application under Order 6, rule 17, C.P.C. Seeking amendments in the plaint and addition of following paras. In the prayer clause: -- "D(a) declare that the issuance of 73.6% right shares in favour of NDFC (NBP). HBL and UBL Messrs Metropolitan Steel Co oration Ltd. Is contrary to law, MOU and Articles an Memorandum of Association and therefore, illegal and id. D(b) without prejudice to the rights and contentions of the plaintiff that the increase of the share capital is contrary to law. Articles and Memorandum of Association and Memorandum of Understanding, the defendants i.e. NDFC (NBP), HBL and UBL had no right to sell/dispose of the purported 73.6% shares to any third party without the right of first refusal to the plaintiff and any alienation thereof is illegal and void. D(c) mandatory injunction directing the defendants i.e. NDFC (NBP) HBL and UBL to offer for sale the purported 73.6% shares to the plaintiff which has the right of first refusal." ' The facts alleged by the plaintiff in the plaint are that the plaintiff is a Private Limited Company. On 9-5-1992, an agreement of sale was entered between defendant No,1, the Privatization Commission of Pakistan and Mr. Sardar Muhammad Ashraf D. Baloch for sale of 41.64.944 shares out of 80.00.000 shares of Metropolitan Steel Corporation Ltd., (hereinafter referred to as the MSCL) a public limited company. The shares agreed to be sold represented 50.93% of the total paid-up capital in MSCL. Mr. Sardar Muhammad Ashraf D. Baloch made part payment to the extent of 31.76% share agreed to be sold and the balance payment for 68.2% of the shares agreed to be sold, was to be paid by 1-5-1995. ' Mr. Sardar Muhammad Ashraf D. Baloch was facing financial crunch and therefore, he entered into an agreement with the appellant/plaintiff for sale of shares agreed to be sold to him under agreement dated 9-5-1992. It was agreed in the sale agreement dated 9 5-1992 that on payment of entire sale consideration the Privatization Commission on behalf of State Engineering Corporation, Investment Corporation of Pakistan and State Insurance Corporation, shall transfer the shares in favour of Sardar Muhammad Ashraf D. Baloch. It was further agreed that the sellers (State Engineer Corporation Ltd., Investment Corporation of Pakistan and State Life Insurance Corporation through Privatization Commission, Ministry of Finance) shall co-opt Mr. Sardar M. Ashraf D. Baloch and his nominees as Directors on the Board of Directors of the Company in place of the Directors representing 50.93% of the shares in MSCL and entrust to him and his nominees the control and management of the company. It was further agreed that for co-opting Directors of the buyer (Mr. M. Ashraf D. Baloch) the meeting of the Board of Directors of the company shall be convened within seven days of signing of the sale agreement. Inter alia the following conditions were also agreed:-- (5) According to Article 18.5 of the "Instructions to the Bidders", the successful bidder shall take over the entire personnel under their management and their service matters shall continue to be dealt with in accordance with the relevant laws in force in Pakistan. The services of the employees of the
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company shall not be terminated for 12 months from the date of take-over. The Buyer, hereby indemnifies the Seller against any claim or liability in respect of any employee whether presently in service or terminated before the date of this agreement. If there is any case pending in any Court in respect of any employee against the company or Seller, the Buyer shall be solely responsible in respect of that litigation and shall hold the Seller indemnified against all such claims and liabilities. The Buyer undertakes to pay legal dues such as Provident Fund and Gratuity due to an employee of the Company when he/she eventually retires or leaves service. The Buyer also undertakes to share the liability arising on account of Golden Handshake to the extent of fifty per cent. To be certified by Privatization Commission as per procedure. (6) In addition to the price for the share capital of the company, the Buyer undertakes to get release of counter guarantees amounting to Rs.456.070 million. The Buyer, hereby undertakes to repay loans/dues amounting to Rs.15.640 million to the Government/ SEC in four equal half-yearly instalments with mark-up on the outstanding amount at 14%, from the date of handing over the management for which Buyer will furnish a bank guarantee. (7) The Government will transfer the shares to the Buyer upon receipt of 100% of bid value and on conclusion of the agreement and provided the Buyer furnishes bank guarantees for SEC/Government loans and replaces bank guarantees as per clause 6 above within sixty days of signing of the agreement. The share certificates will be kept in the custody of the Privatization Commission till such time SEC/Government counter guarantees are released. (11) In case of any difference or dispute arising out of this agreement or relating to the meaning, intent, import or interpretation of any of the terms and conditions of this agreement including the "Instructions to the Bidders", between the Seller and the Buyer and their Successors, assigns or legal representatives, the same shall be referred to the Secretary, Ministry of Finance, Government of Pakistan for decision who shall be the sole arbitrator and his decision shall be final and binding on the parties subject to the remedies available under the Arbitration Act. (13) In addition to the above the Buyer also hereby undertakes to pay to the Seller any liability which may be found due from the company to the Seller or to the Government of Pakistan and indemnifies the Seller against any liability found due to any financial Institution Government of Pakistan/Provincial Government, or any other department or institution after final settlements of accounts of the institutions mentioned above and which is not hereinbefore provided." ' In the agreement dated 26-8-1993, the appellant/ plaintiff and Mr. Sardar Muhammad Ashraf D. Baloch agreed that the Seller (Ashraf D. Baloch) shall co-opt the Buyer (appellant/plaintiff) and his nominees as Directors of the Board. Of Directors of the company in place of the Directors representing 50.93% of the shares in MSCL and entrust to him and his nominees the control and management of the company, immediately upon signing of this agreement. It was further agreed that the appellant shall pay to Mr. Ashraf D. Baloch all the amount paid to MSCL including any amount paid in respect of Golden Handshake or in respect of conduct of his business by 25-4-1995 and any amount due to the company by the seller (Mr. Ashraf D. Baloch) shall also be adjusted during this period. It was further agreed that after fulfilment of the terms and conditions of the sale agreement dated 20-4-1992 between Mr. Ashraf D. Baloch and Privatization Commission, the shares of MSCL will be transferred directly to the Directors of the appellant company in the proportion shown in the agreement. It was further agreed that immediately on signing of the agreement Mr. Ashraf D. Baloch shall hand over the possession of all assets and liabilities on as is, where is basis and meeting of the Board of Directors shall be held to confirm the change of management. The appellants further undertook to accept and fulfil all the terms and conditions of the sale agreement entered into by Sardar Muhammad Ashraf D. Baloch with Privatization Commission of Pakistan. Mr. Sardar Muhammad Ashraf D. Baloch, handed-over the possession of all the assets and liabilities to the appellant/plaintiff.
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' After execution of above agreement, the appellant furnished bank-guarantee for payment of the outstanding amount to the defendant No, 1. Thereafter, Novation Agreement was executed on 27- 11-1994 between Messrs Sardar Muhammad Ashraf D. Baloch (Pvt.) Limited the appellant and the defendant No,1 whereby the original Buyer relinquished all its right under the original sale agreement and the defendant No, 1. Released the original Buyer. In this Novation Agreement almost all the conditions agreed with the original buyer were incorporated and thus a new agreement came into existence between the appellant and the defendant No, 1. The appellant and the defendant No,1 inter alia agreed as follows:--- "(a) In case of any difference or dispute arising out of this Agreement or relating to the meaning, intent, import or interpretation of any of the terms and conditions of this Agreement between the Seller and the New Buyer and their successors, assigns or legal representatives, the same shall be referred to the Secretary, Ministry of Finance, Government of Pakistan for decision who shall be the sole Arbitrator and his decision shall be final and binding on the parties." ' The grievance of the appellant/plaintiff agitated in the plaint is that despite the execution of tripartite Novation Agreement and submission of bank guarantee the defendant No,1, refused to transfer the shares in favour of the appellant/ plaintiff for ulterior motives. According to appellant/plaintiff they continued to operate MSCL effectively from 1994 onwards but due to constant economic burden of various financial institutions Messrs MSCL were forced to enter into a Memorandum of Understanding with NDFC predecessor of respondent/defendant No,2, National Bank of Pakistan and its consortium members for adjusting its outstanding dues. A Memo. Of Understanding was consequently executed on 21-7-1998 to streamline/restructure the outstanding dues of Messrs MSCL with NDFC. This Memo. Of Outstanding is a very important document for the purpose of this appeal and therefore, it is reproduced below:-- "Memorandum of Understanding ' This Memorandum of Understanding is made at Karachi this 21st day of July, 1998. Between ' Metropolitan Steel Corporation Limited (MSCL), a Company incorporated in Pakistan and having its registered office at Plot No,HS-1, Landhi Industrial Area, Landhi, Karachi, (hereinafter referred to as MSCL). AND (i) National Development Finance Corporation---Established under the National Development Finance Corporation Act, 1973, (Act No,XIII of 1973) having its Head Office at Finance and Trade Centre, Shahra-eFaisal, Karachi (hereinafter referred to as NDFC). (ii) United Bank Limited a Banking Company incorporated under the Company Laws of Pakistan having its registered office at---Karachi (hereinafter referred to as UBL). (iii) Habib Bank Limited a Banking Company incorporated under the Company Laws of Pakistan having its registered office at Habib Bank Plaza, I. I. Chundrigar Road, Karachi (hereinafter referred to as HBL). Hereinafter jointly referred to as "Lenders". ' This Memorandum of Understanding (MOU) records the agreement between MSCL and the Lenders (NDFC, UBL and HBL) regarding the amounts owing from MSCL to each of the Lenders as on 30th September, 1997 (hereinafter referred to as the Effective Date) on various accounts and the manner in which those amounts shall be paid to the Lenders and Witnesses as follows:-- (1) The indebtedness of MSCL to the Lenders as at the Effective Date arises on account of various loan and finance facilities provided by the Lenders to MSCL. (2) That the MSCL admits and acknowledges that it is liable to pay to the Lenders (NDFC, UBL and HBL) the sum mentioned thereagainst, as on 30-9-1997. (Rs. In million) percentage National Development
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Finance Corporation (NDFC)816.60 63.29 United Bank Limited (UBL) 147.30 11.42 Habib Bank Limited (HBL) 326.40 25.29 1290.30 100.00 (3) That the MSCL admits and accepts that presently it is unable to pay its debts. However, the MSCL agrees and undertakes to clear its liabilities towards the Lenders in the manner as prescribed in para. Twelve (12) hereof to which the Lenders namely NDFC, UBL and HBL have agreed. (4) That the MSCL agrees and undertakes to place its excess/ surplus land measuring 25 acres at the disposal of the Lenders. In order to dispose of the surplus land at a fair price, a four-Member Committee comprising one each from NDFC, UBL, HBL and MSCL will be formed with full powers to negotiate and finalize the sale of the said surplus land. ' The Committee shall take decisions by majority vote. Notwithstanding the above (i) a determination by the members from the Lenders on any aspect concerning the transaction shall not be challenged or called in question by the MSCL or its representative on the Committee and (ii) no price for the land or any other term relating to payment shall be accepted without the written concurrence of the members representing the Lenders. The MSCL shall execute within 15 days from the date of this MOU a general power of attorney authorizing the members of the Committee to enter into sale agreement, execute the conveyance deed and get the same registered and receive the sale consideration. The proceeds will be utilized for retirement of debt of the MSCL towards the Lenders namely NDFC, UBL and HBL. (5) That the MSCL will issue standing instructions to all its debtors authorizing them to pay to NDFC the amount payable by them to MSCL. The collection of all receivables of MSCL will however, primarily, remain the responsibility of MSCL. The proceeds will be utilized for debt retirement and operational needs of MSCL. The NDFC in consultation with MSCL shall determine the amount of the operational needs of MSCL. (6) That the MSCL has opened 3 accounts with NDFC viz., Revenue account, Debt Servicing account and operation and Maintenance account. All the revenue/income and other receipts of MSCL will be deposited in the Revenue account so opened by MSCL. The Revenue account will feed the remaining 2 accounts. An amount which is in line with the debt servicing requirements of HSCL during a particular period, will be transferred from Revenue Account to Debt Servicing Account. However, any determination by NDFC will be treated as final and binding on all concerned. The MSCL will be entitled, subject to overall supervision of NDFC to operate the Operation and Maintenance account to meet its business requirements. (7) That the amount of Rs.190,301,697.07 deposited by the Federation of Pakistan with the Nazir of the Court pursuant to orders of the Honourable Court of Sindh in Execution Application No,10 of 1994 towards satisfaction of the decree, if and when released, will be deposited in Revenue account of MSCL maintained with NDFC and will be appropriated in the following manner:-- (a) Rs.060.0 million will be appropriated by NDFC towards the liquidation of the liabilities of MSCL. However, the aforesaid amount will be shared by NDFC with the remaining Lenders (UBL and HBL) as specified in para.12 hereof. (b) Balance amount available with NDFC will be given to MSCL for its working capital needs by transferring into the operation and maintenance account of MSCL maintained at NDFC. 8. That MSCL agrees and undertakes to pay to NDFC its entire claim for refund of excise duty (approximately Rs.80.0 million) in Suit No,745 of 1992 (Metropolitan Steel Corporation Limited v. Federation of Pakistan and others) pending in the Honourable High Court of Sindh if the suit is finally decreed in its favour and the decretal amount is paid and deposited by the judgment-
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debtor. However, the aforesaid amount will be shared by the NDFC with the remaining Lenders as specified in para.12 hereof. (9) That MSCL has certified that the Lease Agreement executed by MSCL giving the lease of the plant and machinery of the mill to a third party has since been cancelled by MSCL and the possession and use of the plant and machinery installed therein are exclusively with MSCL and that there is no hitch or hindrance in the use and operation of the mill by MSCL itself. The MSCL will register the cancellation of lease with the competent authority within fifteen days of the signing of this MOU. (10) That it has been agreed that MSCL will arrange a further cash equity of Rs.100 million to be raised through right issue and deposit the entire amount of equity of Rs.100 million in the Revenue Accounts maintained by MSCL with NDFC, at its FTC Branch, Karachi within 30 days from the date of raising the equity capital. The right issue will be initiated within a reasonable time after the implementation of the restructuring package as referred to in para. 12 of this MOU. Out of equity injection of Rs.100.0 million in the manner mentioned above, Rs.30.0 million will be transferred to Debt Servicing account of the respondent-company maintained with petitioner's FTC Branch and will be utilized for retiring the debt of Lenders as specified in para.11 hereof. The balance Rs.70.0 million will be utilized for working capital needs of MSCL. (11) That it has been agreed that out of the equity injection referred in para. 10 above Rs.30.0 million will be utilized for debt retirement in accordance with sharing formula mentioned below:-- Pro-rata Share Sharing basis (Rs. In Million) (Percentage) _________ NDFC 63.29 18.99 UBL 11.42 3.43 HBL 25.29 7,58
100.00 30.00 (12) That in return to the commitments made by HSCL as specified in paras. 4-11 hereof, the Lenders namely NDFC, UBL and HBL have agreed to restructure and reschedule their loans as under:-- (A) Restructuring Rs. In Million Total Outstanding 1290 (Payable to NDFC, UBL & HBL) Less (i) Down payment (out of Rs.100.0 million additional equity)30 (ii) Adjustment against collection of MSCL's receivables/sale of land:-- (a) Adjustment against sale of 25 acres of land100 (b) Adjustment against refund of sales tax (presently lying in the Court)160 (c) Adjustment against refund of excise duty (case80
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pending in Sindh High Court) (d) Adjustment against receivables from WAPDA55 (iii) Payment in 20 bi-annual installments along with mark-up 8161 p.a.416 841 Balance 449 To be waived and converted into equity)1290 ' The Lenders namely NDFC, UBL and HBL have agreed that an amount of Rs.221.41 million will be waived as set out in para. 19(R) and an amount of Rs.228.0 million will be converted into equity against which MSCL will issue shares to the Lenders namely NDFC, UBL and HBL as set out in para. 12 (C) hereof. (B) The Lenders namely NDFC, UBL and HBL have agreed that subject to successful implementation of this package and debt servicing on time in future, an amount of Rs.221.40 million will be frozen and subsequently waived periodically in direct proportion to debt servicing by MSCL. The amount of waiver allotted to each Lender in the said waiver is given below:-- Share (Rs. In Million)
NDFC 142.53 UBL 18.82 HBL 60.66 221.41 (C) The Lenders namely NDFC, UBL and HBL have agreed with MSCL that out of the amount payable by MSCL to Lenders (NDFC, UBL and HBL) an amount, to the extent of Rs.228.0 million will be converted into MSCL's equity. The share of NDFC, UBL and HBL in equity conversion would be as follows:-- hare in conversion of loan amount into equity in Million) NDFC 140.0 UBL 19.0 HBL 69.0 228.0 ' The MSCL agrees that it will complete all the requisite legal formalities and procedure and issue ordinary shares in the capital of MSCL to NDFC, UBL and HBL equivalent to the amounts shown above, within 90 (Ninety) days of the date of signing of this MOU. (D) Furthermore the Lenders (NDFC, UBL and HBL) have agreed with MSCL that out of the total amount owed and payable by MSCL an amount of Rs.395 million be adjusted by way of collection of receivables /claims and sale of excess land as mentioned at 12.A (ii) a-d above. No mark-up will be charged on the said Rs.395 million till June 30, 1998. The situation will be reviewed in July, 1998 and decision will be made accordingly. The decision of NDFC will be final and binding on all parties. The share of each Lender in the said Rs.395 million on pro rata sharing basis is given below:-- Pro-rata Sharing basisShare Share (Rs. In Million)
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NDFC 63.29 250.00 UBL 11.42 45.11 HBL 25.29 99.89 100.00 395.00 (E) (i) After the adjustments as proposed above in paras. 12(A)-(D) above against the total outstanding amount payable by MSCL to the NDFC. UBL and HBL an aggregate amount totaling Rs.416 million will still remain to be paid. It is agreed that the balance amount will be paid by the company to the NDFC, UBL and HBL in 20 bi-annual instalments alongwith mark-up at 16.1% per annum. Institution-wise break-up of balance loan of Rs.416 million is given below:-- (Rs. In Million) NDFC 265.08 UBL 61.55 HBL 89.26 415.89 ' The figure is rounded to Rs.416 million. (ii) A grace period of 2 years will be allowed for payment of this amount i.e. the first instalment will fall due on 30-12-1999. (iii) Each Lender namely NDFC, UBL and HBL will sign a separate supplemental agreement(s) to cover the revised repayment schedule(s) and the liability of the aforesaid amount to be paid by MSCL to the respective institution. The MSCL hereby undertakes unconditionally that it will sign all the requisite/documents, as required by the respective institutions to give effect and secure all the future repayments of the said liability. (iv) The mark-up charged during the grace period will be frozen and recovered in one year after the payment of twenty bi-annual instalments referred above. (v) The security/type of loan of each Lender (except HBL) would remain unchanged. If MSCL secures release of pledged item the amount paid by the MSCL to secure release of the pledge will be adjusted against the very next instalment falling due and accordingly the share of beneficiary. Lender in the next instalment due will be reduced. (F) Cut-off date for determining the amount outstanding against MSCL, for the purpose of current restructuring will be September 30, 1997 which is the effective date. (G) Habib Bank Limited will be…
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