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Official Citation: 2024 CLC 1549
Court / Jurisdiction: Islamabad High Court
Year of Decision: 2024
Decision Date: 2024-12-31
Petitioner: Federal Government Employees Housing Authority through its Director JUDGMENT
Ruling Summary: This decision was rendered by the Islamabad High Court on 2024-12-31, officially reported as 2024 CLC 1549. In this matter between Federal Government Employees Housing Authority through its Director JUDGMENT and the Respondent, the court adjudicated key questions of statutory construction, procedural regularity, and legal precedent under Pakistani law.
Core Holding: The honorable bench evaluated governing statutory provisions and judicial authorities to establish the rights of the parties, delivering the binding reasoning set out below.
Case cited as 2024 CLC 1549
Court Name: Islamabad High Court Judge(s): Babar Sattar Title:Federal Government Employees Housing Authority through its Director
JUDGMENT
Reported As: 2025 IHC 270 Result: Petition Allowed Judgment
JUDGMENT Babar Sattar, J:- The petitioner is aggrieved by order dated 06.02.2025, pursuant to which ad- interim injunction has been granted against termination of Joint Venture Agreement ("JV Agreement") executed between the petitioner and respondent No.2, while hearing an application filed by respondent No.1, in terms of Section 20 of the Arbitration Act, 1940 ("Arbitration Act"). Arguments of the Petitioner 2. Learned counsel for the petitioner stated that respondent No.1 filed an application under Section 20 of the Arbitration Act ("Section 20 application") to stay termination of JV Agreement executed by and between the petitioner and respondent No.2. He stated that the petitioner had decided after issuance of notices pursuant to a decision of its Executive Board that the JV Agreement be terminated for various reasons, including, inter alia, delay in the execution of the project for financing, designing, engineering, construction, and supervision of residential apartments ("Project") being undertaken by the Joint Venture through incorporation of respondent No.3 and further, because respondent No.2 had transferred its shares to individuals, who were members of respondent No.1, against provisions of the JV Agreement. He stated that while the petitioner and respondent No.1 had no privity of contract, a Section 20 application was filed by respondent No.1 and an injunction against termination of the JV Agreement had been granted. He further stated that the matter was fixed for 06.03.2025 for decision on the injunction application. However, on such date, no order was passed due to a transfer application having been filed by respondent No. 1 before the District Judge, who is also yet to pass an order in relation to the transfer application.
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Consequently, no decision has been rendered by the Senior Civil Judge seized of the matter, while the injunctive order remains in the field. 3. Learned counsel for the petitioner submitted that the instant revision petition was maintainable in terms of section 115 of the Code of Civil Procedure, 1908 ("CPC") as the impugned decision related to assumption of jurisdiction in terms of section 20 of the Arbitration Act, which affected the rights of the petitioner. He submitted that the High Court could exercise its revisional jurisdiction to correct an error, illegality or irregularity in a decision of the subordinate court. On the question of maintainability, he relied on Umar Dad Khan vs. Tila Muhammad Khan (PLD 1970 SC 288), Messrs National Security Insurance Company Ltd. vs. Messrs Hoechst Pakistan Limited (1992 SCMR 718), Haji Rehmdil vs. The Province of Balochistan (1999 SCMR 1060) and Mst. Banori vs. Jilani through legal heirs (PLD 2010 SC 1186). He also relied on Excel Techno Solutions FZE, UAE through Sole Proprietor vs. Oil and Gas Development Company Limited (2019 CLC 416), where this Court had held that an injunction granted in terms of section 20 of the Arbitration Act could not be challenged in appeal, but could be scrutinized in exercise of revisional jurisdiction by the High Court. He then submitted that while exercising powers under section 41 read with section 20 of the Arbitration Act, the principles for grant of injunction in terms of Order XXXIX, Rules 1 and 2 were fully applicable. Such injunction could not be granted without determining that the three ingredients for grant of injunction (i.e. prima facie case, balance of convenience and irreparable loss) simultaneously co-existed in favour of the applicant. He submitted that it was settled law that where the grant of damages as compensation was an adequate remedy, it could not be assumed that not granting an injunction would cause irreparable loss. He further submitted that a contract that was not specifically enforceable in terms of sections 21 and 56 of the Specific Relief Act, 1877 ("Specific Relief Act"), could also not be negatively enforced through the issuance of an injunction. He contended that the contract in question was a contract for provision of construction services, which could not be specifically enforced and consequently an injunction against its termination could also not be issued. For these propositions he relied on Dewan Petroleum (Pvt.) Ltd. vs. Oil and Gas Investment Limited (2019 CLC 1486) and Pakistan Real Estate Investment and Management Company (Pvt.) Ltd. vs. Messrs Sky Blue Builders (2021 CLC 488). Learned counsel for the petitioner then submitted that in terms of section 20 of the Arbitration Act, it was only a person who was a party to an arbitration agreement that could file an application to have the arbitration agreement filed. He submitted that the Civil Court admitted the application filed by respondent No.1 under section 20 of the Arbitration Act and had issued an ad-interim injunction prohibiting the petitioner from terminating the JV Agreement that was executed by and between the petitioner and respondent No. 2. And respondent No.1, who filed the Section 20 application before the Civil Court was not a party to the JV Agreement. A plain reading of Section 20 of the Arbitration Act made it evident that the application was not maintainable, having been filed by a person who was not a party to the JV Agreement, and consequently the arbitration agreement that formed clause 16 of the JV Agreement. For this proposition he relied on Inayatullah Khan vs. Obaidullah Khan (1999 SCMR 2702) and Messrs K&N International vs. Messrs Motorway Operations and Rehabilitation Engineering (Pvt.) Ltd. (2019 CLC 1613). He submitted that arguments with regard to the maintainability of the Section 20 application were raised before the Civil Court which, notwithstanding such arguments, continued to extend the ad-interim injunction. This was despite the fact that attention of the court was drawn to clause 14.3 of the JV Agreement, which explicitly provided that a variation of the JV Agreement could only be made in writing and signed by each party to the JV Agreement. This was most relevant in a backdrop where the Section 20 application itself stated that the applicant was not a signatory to the JV Agreement, but ought to be treated as a party to the JV Agreement by virtue of the doctrine of alteration of contract through conduct. He submitted that the doctrine had never been acknowledged by the superior
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courts in Pakistan. And any evidence in support of such implied alteration of a written contract was inadmissible in view of Article 102 and 103 of the Qanun-e-Shahadat Order, 1984, as held by the Sindh High Court in Genesis Aviation Services (Pvt.) Ltd. vs. Gulf Air Company G.S.C. (PLD 2015 Sindh 341). Learned counsel for the petitioner submitted that the petitioner had impugned order dated 06.02.2025, granting injunctive relief while admitting an application in terms of section 20 of the Arbitration Act, which order was not sustainable in the eyes of the law. He submitted that the petitioner had also challenged the assumption of jurisdiction by the District Judge in relation to a transfer application filed on behalf of respondent No.1 by Mr. Naeem Ali Gujjar, Advocate (and President, District Bar Association Islamabad), by superseding the previously appointed counsel, after arguments on the maintainability and merit of the Section 20 application had already been heard by the Senior Civil Judge. While he filed his power of attorney at such belated stage and sought an adjournment to be able to argue the matter, on the very next day a transfer application was filed which was tantamount to abusing the process of the court and preempt the rendering of any decision by the Civil Court in relation to the Section 20 application. Upon receipt of such application, the District Judge summoned the record of the Civil Court thereby preventing the Civil Court from hearing arguments or passing an order to decide the Section 20 application. Arguments of the Respondents 4. Mr. Umer Ijaz Gilani, learned counsel for respondent No.1 appeared along with Mr. Naeem Ali Gujjar, Advocate. Mr. Gujjar submitted that he had only filed an application seeking transfer of the case as the Civil Judge had shown his displeasure over his filing of the power of attorney in the matter. He submitted that he was not abusing his office as the President of District Bar Association and that the District Judge had also not passed any order on the transfer application. 5. Mr. Umer Ijaz Gilani, learned counsel for respondent No.1 submitted that the instant petition was not maintainable in terms of section 7(3) of the Federal Government Employees Housing Authority Act, 2020, for not being duly authorized. He further submitted that the revision was not maintainable as the impugned order suffered from no jurisdictional defect. And the High Court did not ordinarily interfere with interlocutory orders in its revisional jurisdiction. He submitted that the petitioner had also concealed the fact that there were two civil suits pending before the civil court that had a bearing on the transfer application. And despite the issuance of an injunctive order, the petitioner had not abided by the injunctive order. Learned counsel for respondent No.1 submitted that Section 20 application filed by respondent No.1 was maintainable as the JV Agreement stood altered in terms of section 62 of the Contract Act, 1872 ("Contract Act") by implication by virtue of the conduct of the parties. He submitted that where the question of whether the JV Agreement stood altered by novation was a mixed question of law and fact and it was proper for the civil court to consider the record, and evidence produced by the parties in relation to the question of fact. He submitted that the JV Agreement had been executed by the petitioner and respondent No.2 for financing, designing, engineering, construction, supervision and execution of the Project, and the parties agreed to the formation of new Joint Venture Company as a Special Purpose Vehicle ("SPV"). The petitioner provided land for the Project and it was the responsibility of respondent No.2 to provide financing and other services. Clause 5 of the Agreement specified the manner in which management fee was to be distributed between the Joint Venture Partners. And after payment of management fee, profit from the Project was to be split up fifty-fifty. Clause 6.2 of the Agreement specified the Board of Directors of the Joint Venture Company (i.e. SPV) and that the CEO of the SPV would be nominated by respondent No.2. He relied on third proviso to the JV Agreement, which provided that respondent No.2 would have a right to nominate a partner with whom it would jointly carry out the implementation and supervision of the Project. He submitted that it was in terms of the said proviso that respondent No.1 was appointed as the implementation partner. Pursuant to the JV Agreement, the SPV called EHFPRO (Pvt.) Limited (Respondent No. 3) was incorporated. As
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respondent No.2 lacked the financial ability to finance the Project, respondent No.1 was inducted as implementation partner pursuant to an agreement dated 19.08.2010, between respondent No.1 and respondent No.2. Respondent No.2 agreed to finance the Project subject to being treated as 25% beneficiary owner of the SPV. This agreement was then followed by a loan agreement also executed between respondent No.1 and respondent No.2 dated 19.08.2010. Whereas the Joint Venture Agreement granted respondent No.2 the right to nominate the CEO of the SPV, the Board of Directors of SPV in their meeting dated 19.08.2010 approved the agreement between respondent No.1 and respondent No.2 dated 19.08.2010. Further, by virtue of agreement dated 19.10.2012 it was agreed between respondent No.1 and respondent No.2 that the beneficial ownership of shares owned by respondent No. 2 in the SPV would not be on equal basis between respondent No.1 and respondent No.2, but that respondent No.1 would have the benefit of 80% of the shares and respondent No.2 would have the benefit of 20% of the shares within the pool of shares due to respondent No.2 under the JV Agreement. The second agreement dated 19.10.2012 was also approved by the Board of SPV in its meeting dated 19.11.2012. The Board also approved the transfer of shares of the SPV from respondent No.1 to respondent No.2. He submitted that it was also a matter of record that CEO of respondent No.1 had remained the CEO of the SPV. He submitted that in view of the aforementioned agreements and actions, it was evident that the petitioner in its capacity as a shareholder of the SPV, while being part of the Board of the SPV, had acquiesced to the inclusion of respondent No.1 as party to the JV Agreement. Respondent No.1 had a stake in the Project by virtue of being a member of the SPV as well as by virtue of the agreements executed between respondent No.1 and respondent No.2, that had been approved by the Board of SPV, and continued to draw management fee in terms of provisions of the JV Agreement. Thus, in view of all these facts it was evident that respondent No.1 had been treated as member of the JV Agreement and the JV Agreement, thus, stood altered in view of subsequent conduct of the parties. It was therefore entitled to rely on the dispute resolution clauses of the JV Agreement, which it did by filing the Section 20 application. The civil court while admitting such application and passing an ad- interim injunction, thus did not commit any illegality. 6. On behalf of respondent No.2, a power of attorney was filed, but no argument was addressed to the court. Mr. Muhammad Nadeem Raja, Advocate appeared on behalf of respondent No.3. Learned counsel for the petitioner contested his authorization that he had been authorized by the CEO of the SPV and not the Board of Directors. And that the CEO of respondent No.1, was also the CEO of respondent No.3. That without due board authorization, the learned counsel could not be deemed to be representing respondent No.3. Learned counsel for respondent No.3 merely submitted that there had previously been an arbitration in terms of clause 16 of the JV Agreement which was concluded by award dated 17.10.2012 and was made rule of the court by judgment dated 23.10.2012 in Civil Suit No.40/2012 titled Progressive Motels and Resorts (Pvt.) Ltd. vs. The Federal Government Employees Foundation. He submitted that in the said award respondent No. 1 had been treated as a party to the JV Agreement. Arguments of the Petitioner in Rebuttal 7. In rebuttal, learned counsel for the petitioner submitted that the JV Agreement was never altered or amended explicitly or by implication. He submitted that clause 14.3 of the JV agreement clearly provided that in case of any conflict between provisions of the JV Agreement and the Memorandum and Articles of the SPV, the provisions of the JV Agreement would prevail and that the provisions of the Memorandum and Articles of the SPV would be altered accordingly. He submitted that the agreement dated 19-08-2010 between respondent No.1 and respondent No.2 that had been relied on by respondent No.1 itself provided in clause 1.3 that respondent No.1 would not be made a party to the JV Agreement and would not become a legal owner of any shares in the SPV. He submitted that this was consistent with the definition of parties in the JV Agreement,
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which clearly named the petitioner and respondent No.2 as parties. Clause 2.1(b) of the JV Agreement also provided without ambiguity that 50% of the shares, each would be issued to the petitioner and respondent No.2. Similarly, clause 13 of the JV Agreement provided that none of the parties to the JV Agreement would transfer any shares or create or dispose of any right or interest in the shares. He submitted that in view of these unequivocal provisions, which were consistent with the provisions of the Agreement between respondent No.1 and respondent No.2 dated 19-08-2010, the question of any implied amendment of the JV Agreement resulting in the inclusion of respondent No.1 did not arise. He then submitted that the SPV was created pursuant to provisions of the JV Agreement and any agreement endorsed by the board of the SPV could not have the effect of amending the JV Agreement. Likewise, any decision rendered by the Board of the SPV, where the petitioner was represented as a shareholder or board member could also not have the effect of amending the JV Agreement, which could only have been amended in writing through an addendum signed by the petitioner as the legal entity. Preliminary Matters 8. With regard to the authority of the learned counsel purporting to represent respondent No.3, a perusal of the comments filed by respondent No.3 reflects that they have been filed by the Chief Executive of respondent No.3, who, as asserted by respondent No.1, is the CEO of respondent No.1. The provisions of the JV Agreement state that the SPV will have four board members, two members being nominated by the petitioner and two members being nominated by respondent No.2. And further that the Chairman of the SPV would be a board member nominated by the petitioner, who would have a casting vote in case of any difference of opinion in the board. This Court has noted that there is no board resolution appended with the comments filed by respondent No.3 or the power of attorney filed by the counsel purporting to represent respondent No.3. Consequently, this Court finds that the counsel appearing on behalf of respondent No.3 is not duly authorized. On the question of authorization of the instant petition, the objection of the learned counsel for respondent No.1 is without merit. It has been contended by him that the petition could only have been filed by the Director General FGEHA ("DG FGEHA") himself or by an officer appointed by the Executive Board in view of section 7(3) of the Federal Government Employees Housing Authority Act, 2020 ("FGEHA Act"). It was further submitted that the DG FGEHA could only delegate his powers under section 7 of the FGEHA Act to an officer of FGEHA with the approval of the Executive Board. Section 7 of the FGEHA Act deals with the powers and functions of the DG FGEHA and vests in him all executive powers of FGEHA. Section 7(2) specifies the functions of the DG FGEHA. Section 7(3) then vests authority in the DG or an officer appointed by the Executive Board of FGEHA to institute petitions in court. Section 7(4), that respondent No.1 relied on, provides that, "the Director General may, with the approval of the Executive Board, delegate any of his powers specified in sub-section (2) to an officer of the Authority." The approval required in terms of section 7(4) of the FGEHA Act only relates to powers of the DG FGEHA specified in section 7(2) of the FGEHA Act. The power to institute a petition is vested in the DG FGEHA in terms of section 7(3) of the FGEHA Act. And in view of section 9 of the FGEHA Act such power could be delegated by the DG FGEHA to an officer of FGEHA without seeking the approval of the Executive Board. Thus, the instant petition filed by the Assistant Director (Law) of FGEHA by virtue of powers delegated to him by the DG FGEHA in terms of section 7(3) read with section 9 of the FGEHA Act does not suffer from legal infirmity. 9. This Court has also taken note of order dated 23.10.2012, referred to by the counsel purportedly representing respondent No. 3, passed in Civil Suit No. 40 of 2012 by this Court. A perusal of the application filed by Progressive Motels and Resorts (Pvt.) Ltd. (i.e. respondent No.2) in terms of section 20 of the Arbitration Act reflects that the only parties to the application were respondent No.2, as plaintiff in the said application, and the petitioner as respondent. It was therefore the application of respondent No.2, as party to the JV Agreement, that was entertained by this Court
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and while the award does mention the role of respondent No.1 in the execution of the Project, the suit itself did not include respondent No.1 as a party, and therefore, it cannot be claimed in view of the proceedings in such matter that this Court treated respondent No.1 as a party to the JV Agreement. The said arbitral award and the decision declaring it to be rule of court need not be discussed any further for our present purposes. Questions to be adjudicated 10. The primary legal questions that need to be answered to adjudicate the controversy at hand are: (i) whether respondent No.1 made out a prima facie case that it was a party to the JV Agreement and consequently a party to the arbitration agreement contained within the JV Agreement and was, therefore, competent to file an application in terms of Section 20 of the Arbitration Act, (ii) whether the test for the grant of an ad-interim injunction was satisfied in the facts and circumstances of the instant case, in view of which the civil court could have exercised authority in terms of Section 41 of the Arbitration Act read with Order XXXIX Rules 1 and 2 of CPC to grant the ad-interim injunction that has been impugned before this Court, and (iii) does the manner in which the transfer application was filed and proceedings conducted by the District Judge suffer from legal infirmity? Transfer Application and its Legality 11. This Court summoned the record in relation to the transfer application, which reveals that the District Judge is yet to adjudicate the transfer application filed by respondent No.1. This Court would not, therefore, pass any observations on the matter as that could prejudice the adjudication of the transfer application that is yet to be decided. Mr. Naeem Ali Gujjar, Advocate (who appeared in the civil court on behalf of respondent No. 1 and sought an adjournment on 05.03.2025, and then filed a transfer application before the District Judge), appeared before this Court and sought to dispel the impression that the said application was filed to capitalize on his position as President, District Bar Association. It is a settled and respected convention amongst lawyers that one counsel does not accept a brief that would have the effect of superseding a previous counsel, who is holding such brief, unless of course the litigant exercises his right to appoint a fresh counsel in view of the performance of the existing counsel. In such cases too, the established convention is that the superseding counsel brings the matter to the attention of the original counsel before superseding him/her in order to maintain comity within the Bar. An equally respected convention is that lawyers who are elected as representatives of the Bar, are loath, during their term in office, to file a power of attorney in an ongoing case to supersede previously appointed counsel, in order to preserve the integrity of the office they hold and to exercise due care in not cultivating an impression that representative positions are sought for the purpose of, or that have the effect of, influencing the outcome in judicial matters. Mr. Naeem Ali Gujjar, Advocate acknowledged these revered traditions and stated that he seeks to uphold them during his term as President. In these circumstances, the third question articulated in para. 10 above need not be addressed any further, and it would remain for the District Judge to decide the transfer application pending before him in accordance with law. Maintainability of Section 20 Application 12. Let us first consider the test for maintainability of an application filed under section 20 of the Arbitration Act. Section 20 of the Arbitration Act states the following: 20. Application to file in court arbitration agreement.--(1) Where any persons have entered into an arbitration agreement before the institution of any suit with respect to the subject matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies, they or any of them, instead of proceeding under Chapter II, may apply to a Court having jurisdiction in the matter to which the agreement relates, that the agreement be filed in the Court. (2) The application shall be in writing and shall be numbered and registered as a suit between one or more of the parties interested or claiming to be interested as plaintiff or plaintiffs and the
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remainder as defendant or defendants, if the application has been presented by all the parties, or, if otherwise, between the applicant as plaintiff and the other parties as defendants. (3) On such application being made, the Court shall direct notice thereof to be given to all parties to the agreement other than the applicants, requiring them to show cause within the time specified in the notice why the agreement should not be filed. (4) Where…
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