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Petitioner: K.E.S.C. Labour Union and others VS Respondent: Federation of Pakistan and others
Court Name: Sindh High Court Judge(s): Aqeel Ahmed Abbasi, Arshad Hussain Khan Title: K.E.S.C. Labour Union and others vs Federation of Pakistan and others Case No.: Const. Petition No.D-1511/2005, 3775, 3776/2012, 3767, 3818/2015 Date of Judgment:2021-01-21 Reported As: 2021 SHC 118, 2021 P C T L R 961 Result: Petition dismissed
JUDGMENT
JUDGMENT Constitutional Petition No.D-151 1 of 2005 was filed on 22.11.2005 by K.E.S.C. Labour Union (Petitioner No.1) along with Administration Officer employed by K.E.S.C. (Petitioner No.2), a shareholders in the K.E.S.C. (Petitioner No.3) and a local businessman, claiming to be spirited taxpayer (Petitioner No.4), seeking a declaration to the following ef fect:- i) Declare that the privatization process adopted by the respondent Nos.2 & 3 in respect of the sale of shares and management control in KESC was illegal, arbitrary , irrational and without any lawful authority; ii) Declare that the purported sale of the respondent No.1' s shareholding and management control in KESC to the Hassan Associates consortium is void and of no legal effect having come about in an illegal and malafide manner and being opposed to law and public policy; iii) Restrain the respondent Nos.1 and 2 from carrying through with the privatization of KESC without an independent and rational assessment of the merits and demerits of privatization at the current stage and disseminating the result of such assessment to the public at large; AND/OR iv) Restrain the respondents No.1 and 2 from carrying through with any transfer of the respondent No.1' s shareholding and management control in KESC to the Hassan Associates conso rtium or any other party without initiating a fresh and transparent bidding process and considering each bid on its merits; v) Direct the respondents No.1 and 2 to make a full disclosure of all facts relating to the KESC privatization upto date and hereafter and of the terms and conditions of any proposed sale and the details of any parties to whom such a sale is proposed to be ef fected; vi) Grant costs of the proceedings;
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2. On 18.05.201 1, an application under Order 1 Rule 10 CPC was filed with the prayer to join M/s. Abraaj Investment Management Limited as a party in the instant petition by the petitioners on the ground that K.E.S.C. was transferred to Hasan Associates Consortium in terms of shareholding (with a power) in favour of M/s. Abraaj Investment Management Limited, therefo re, transaction to be examined by the Court. Mr. Sajid Zahid, learned counsel representing M/s. Abraaj Investment Management Limited without prejudice and subject to all just exceptions extended no objection to implead M/s. Abraaj Investment Management Limited as a party in the aforesaid petition, whereafter , pursuant to Court order dated 18.05.201 1 they were added as respondent No.10 and amended title to this effect was filed. Record shows that large number of hearing took place in the aforesaid petition, whereas, several Misc. Applications were filed on which orders were passed from time to time, however , before the hearing in the above petition could be concluded two (02) other C.P.Nos.D-3775 & 3776 of 2012 were also filed by the K.E.S.C. Labour Union, relating to somewhat similar controversy agitated through instant petition, which were taken up for hearing along with aforesaid petition at the joint request of the learned counsel for parties pursuant to order dated 03.02.2015. Record further reveals that two (02) other C.P.Nos.D-3767 and 3818 of 2015 were also filed relating to similar controversy , which were also clubbed along with aforesaid petitions, whereafter , all the above petitions have been heard together , therefore, the same are disposed through common judgment. It is pertinent to note that before this Bench Mr. Salahuddin Ahmed Advocate has made his submissions on behalf of the petitioners, whereas, no other counsel representing the petitioners in other Constitutional Petitions have shown their appearance on behalf of petitioners, nor submitted written synopsis inspite of repeated opportunities provided in this regard. Mr. Abdul Sattar Pirzada Advocate representing the Privatization Commission along with Qazi Umair Ali Advocate, whereas, Mr.Sajid Zahid Advocate along with Taha Alizai represen ted the respondent No.10 (M/s. Abraaj Investment Management Limited) . Mr. Kashif Hanif Advocate represented the NEPRA. Mr. Aemal Kansi Advocate represented the K.Electric, Malik Naeem Iqbal Advocate, represented the respondent and Mr. Hassan Ali Advocate represented the respondent/Premier Mercantile (Pvt) Ltd. Learned counsel for the parties in addition to their verbal arguments have filed written synopsis, which can be summarized in the following terms:- 3. Mr. Salahuddin Ahmed, learned counsel for the petitioners has argued that petition was filed on 22.11.2005 challenging the ongoing privatization of Respondent No.3 - KESC (now K-Electric ). The privatization process was completed on 29.11.2015 and, resultantly , the controlling interest in KESC was transferred by the Respondent No.1 (the Government of Pakistan - 'GOP') to a consortium led by the Al-Jomaih Holding Company ['Al-Jomaih']. In 2008, Al-Jomaih transferred its controlling interest in KESC to Abraaj Investment Management Limited ['Abraaj']. As a result, the petition was amended to implead Abraaj and challenge the subsequent transfer as well. Presently , Abraaj has entered into an agreement to transfer the controlling interest in KESC to Shanghai Electric Power Company ['SEPCO'] albeit the transfer is yet to be finalized. The Petitioners have preferred applications to restrain this proposed transfer and to implead SEPCO. Notice was ordered thereon on 17.10.2016 but the applications have not been finally decided and are to be disposed of f along with the main petition. 4. The following questions of law arise out of the petition and the counter affidavit s filed as well as the arguments canvassed at the bar during hearing: i) Whether the Petitioners have locus standi to challenge KESC' s privatization? ii) If so, whether relief is to be denied due to the Petitioners' unclean hands? iii) In any event, whether the petition is barred due to the alternate remedy provided under the Privatization Commission Ordinance, 2000 ['PCO 2000']? iv) Whether KESC (a vertically integrated electric utility solely responsible for generating, transmitting and distributing electricity to all of Karachi) could at all be transferred out of State owne rship/control under the scheme of our Constitution? v) If so, whether such privatization (along with the subsequent transfer to Abraaj and the proposed transfer to SEPCO) lacked the mandatory approval of the Council of Common Interests ['CCI'] under Article 154 of the Constitution? vi) In any event, whether GOP' s KESC shares were sold at a gross under -value?
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vii) Whether the bidding process was collusive and wrongly converted to a negotiated sale in favour of Al-Jomaih which was given further benefits and concessions that were not factored in whilst determining the value of KESC shares? viii) In any event, whether it would now be equitable or practicable to grant the full relief and revert KESC to the ownership/control of the GOP? If not, whether any (and what) alternate relief can be granted to do complete justice? Maintainability Locus standi 5. The Petitioner No.1 is KESC' s registered trade union. The Petitioner No.2 is an administration officer in KESC and is not a union member . The Petition er No.3 has been a shareholder in KESC since before the privatization. The Petitioner No.4 carries on business and resides in Karachi and is a tax-payer and a KESC consumer . 6. The right to electricity has been recognized by the Supreme Court as a fundamental right guaranteed by Article 9 of the Constitution. As such, questions relating to KESC' s ownership and management and its transfer to private hands in violation of law and/or at an under-value have a material bearing on the provision of this fundamental right and are of vital interest to every citizen of Karachi. All citizens of Karachi can be termed, therefore, as "aggrieved persons" as per the definition of the term adopted by the Supreme Court. The Petitioners here, however , have a closer and substantial interest in the affairs of KESC than ordinary citizens of Karachi. Even otherwise, the specific locus standi of a trade union to challenge the privatization of an entity has been upheld by the Supreme Court in the Steel Mills privatization case. Equitable Relief & Unclean Hands 7. Abraaj and KESC claim that the instant petition is not brought in the genuine public interest but with ulterior motives on part of the KESC Labour Union which is using the same as a bargaining tool in its labour disputes with the KESC management. Abraaj filed a Memorandum of Settlement dated 3.4.2010 ['the Settlement'] with the KESC Labour Union and the Union' s letter dated 26.6.2010 to claim that the Union had committed to withdrawing the instant petition. As such, allowing the Union to press this petition in violation of its commitment would be inequitable. Abraaj also submitted - during oral arguments - copies of the Memos in CP Nos.3775 and 3776 of 2012 filed by the Union to show that it had actually accepted the privatization and was - in these subsequent petitions - seeking relief (i.e. transfer of certain shares to workers) that was only available post-privatization. This amounted, according to Abraaj, to approbation and reprobation. The Union - having waived its right to challenge the privatization - could not, now , be heard in opposition to the privatization. 8. The simplest answer to this objection is that the petition is preferred by four independent petitioners. Petitioners Nos.2 to 4 are not members of the KESC Labour Union nor are they liable or bound by the actions of the latter . No malafides or unclean hands have been shown on their part. They have not entered any settlement nor made any commitment to the KESC management. Nor are they party to any other petition. As such, even assuming - but not admitting - any inequitable conduct or waiver on part of the KESC Labour Union; the same could not be attributed to the other petitioners who remained fully entitled (as concerned residents of Karachi) to press the instant petition. 9. As far as the two subsequent petitions filed by the Union are concerned, they sought to enforce two separate and independent obligations on part of the GOP to transfer part of their shareholdi ng in KESC to KESC workers. It is respectfully submitted that such petiti ons are without prejudice to the instant petition. Moreover , the instant petition has been pending for more than 12-years and the Union was entitled to seek - in the meanwhile - alternate remedies for the betterment of KESC workers without detracting from the force of the instant petition. As such, the Union has preferred the instant petition with clean hands and in all good faith. Alternate remedy under the Privatization Commission Ordinance 2000 10. The Respondents argue that any challenge to KESC' s privatization (which was carried out pursuant to the PCO 2000) must be made under section 28 thereof which confers exclusive jurisdiction upon the High Courts to adjudicate "all matters related to, arising from or under or in connection with this Ordinance." The Respondents argue that this alternate remedy ousts the writ jurisdiction of this Court.
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11. In the first place, section 28 only covers cases where there is a challenge to the privatization process of an entity on the grounds that it violated the PCO Ordinance or the Rules or procedures prescribed thereunder . Whether KESC could have been privatized at all - in view of its quintessentially State functions pertaining to the provision of a Fundamental Right - under the scheme of our Constitution or wheth er such privatization could have been permitted without CCI approval under Article 154 of the Constitution are not matters falling within section 28. They can only be decided in this Court' s constitutional jurisdiction. 12. Moreover , the Supreme Court has observed at paragraph 28 in the Steel Mills judgment that section 28 of PCO 2000 applies only to matters relating to "the rights of and obligations of the parties who are the subject of the Ordinance. As far as pro bono publico cases are concerned, those shall not be covered..." The Petitioners herein were not bidders in the auction of KESC and were conferred no rights or obligations under the PCO 2000. They have filed the instant petition pro bono publico. 13. It is not the Petitioner 's case that the State must personally perform all functio ns pertaining to the provision of Fundamental Rights to the people. In some cases, it may be more beneficial to delegate such functions to the private sector provided that the State maintains sufficient safeguards and regulatory control to ensure that such delegation does not - in any manner or form - impair or curtail the peoples' realization of Fundamental Rights. In other cases, the Fundamental Right concerned and/or the functions being performed may be of such nature that any delegation would be impermissible and the State must take full and direct responsibility itself. 14. This assessment of whether any particular state function can be delegated or not has to be made by the courts in each country in light of their own constitutional ethos and history . Different judiciaries have chosen to draw the line differently . In the United States of America, for example, even the State function of detention and punishment has been outsourced to profit-making private companies and nearly 12% of all federal prisoners are housed in privately-owned prisons. In the United Kingdom, the Conservative government has even proposed partial privatization of the court system without any objection to its constitutionality! That is one extreme of the laissez faire economic spectrum. 15. On the other hand, in Greece, the privatization of water supply was held to be unconstitutional by its highest constitutional court. The court held that the Greek Constitution bound the State to protect the citizens' right to health and the transformation of a public utility into a private profit-making entity introduced uncertainty in the provision of affordable and high quality water to the people (which was essential to ensure their health). The insecurity introduced through the delegation of this essential utility to the private sector could not be remedied simply through State regulation/supervision over the private company' s performance. Similarly , the Indonesian Supreme Court reversed the privatization of two water supply companies after a period of twenty years by holding that such privatization was tantamount to denying citizens their basic right to water . Moreover , the Constitutional Court of Indonesia has also held that the law permitting privatization of electricity was conditionally unconstitutional as the State was bound to "control" vital branches of production that affected public livelihood and this term could not be reduced and narrowed down to (indirect) regulatory control but meant direct and active control. In Israel (unlike the US and the UK) the privatization of prisons was held to violate the citizens' constitutional right to dignity . 16. It is submitted that the Constitution of Pakistan does not envisage a laissez faire capitalist economic system. It was aimed at establishing a system of "Islamic Socialism" . Indeed, Article 2-A of the Constitution makes the Objectives Resolution a substantive part of the Constitution where an obligation is laid down upon the State to ensure "social justice" . Moreover , our Supreme Court has taken an expansive view of the "right to life" enshrined in Article 9 of the Constitution as not merely a guarantee of vegetative existence but as entitling every citizen to the basic amenities of modern civilized life. At the same time, the Principles of Policy set out in Article 38 of the Constitution - especially clauses (a), (b) and (c) thereof - bind the State to promotin g the social and economic well- being of the people and raising their stand ard of living and providing them reasonable facilities for work and leisure and with the basic necessities of life. In this view of the matter , in the Pakistani constitutional context at least, the provision of a basic amenity such as electricity cannot be left to the vagaries of the marketplace and the State must assume direct and active responsibility for the same.
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17. Even otherwise, the Pakistani constit ution explicitly mandates State control over essential electric utilities like the KESC through Article 154 (1) of the Constitution - which reads as follows: "The Council shall formulate and regulate policies in relation to matters in Part II of the Federal Legislative List and shall exercise supervision and control over related institutions." [Emphasis added] 18. The subject of electricity falls within this List. KESC is a related institution. Naturally , the CCI can only exercise effective supervision and control over such institutions if they remain under ownership of the State. If they are privatized, the CCI shall be seriously hindered in the performance of its constitutionally-mandated duty of supervision and control. Needless to say, a constitutional functionary cannot abdic ate, curtail or refuse to perform its constitutionally mandated duty. Thus even if the CCI itself acquiesced to the privatization, the transaction would still violate Article 154 (1). It is, therefore, essential that ownership and control of KESC be returned to the State so that CCI can properly perform the mandatory duty cast by Article 154. Whether KESC' s initial privatization (and its subsequent transfer to Abraaj and now its proposed transfer to SEPCO) lacked the mandatory approval of CCI 19. Without prejudice to the above contention that the CCI could not have given its consent to KESC' s privatization as that would leave the CCI unable to perform its duty mandated by the second part of Article 154 (1); it is submitted that - in any case - the consent of the CCI to KESC' s privatization was lacking. 20. It was an undisputed position between the parties, especially in view of the judgment in the Steel Mills case, that KESC' s privatization required prior approval from the CCI. The Steel Mills judgment further clarifies that this objection may be raised by any member of the public including a trade union and not necessarily the federal or a provincial government. The GOP filed, in this regard, a statement dated 13.9.2006 attaching CCI's purported approval to KESC' s privatization. This so-called approval clearly shows that while the CCI accorded approval to several other proposed privatizations but only granted "post- facto approval to the completed privatiz ations at Annex-2 of the Summary". Annex-2 of the Summary includes the privatization of the GOP' s 73% shareholding in KESC. Needless to say , post-facto approval would only be required if prior approval had not been taken. 21. It is, of course, axiomatic that when the law requires something to be done in a particular manner , it must be done in that manner and no other manner shall suffice. As such, none of the counsels for the Respondents tried to argue that the post-facto approval of the CCI was sufficient to satisfy the law's requirement. Instead, they staked their entire case on a previous decision of the CCI dated 12.9.1993. They claimed that KESC' s privatization was already approved on 12.9.1993 and the post-facto approval in 2006 was merely done by way of abundant caution. 22. However , a perusal of the decision dated 12.9.1993 makes it clear that the CCI never approved KESC' s privatization. The decision states that the CCI considered the summary dated 9.9.1993 submitted by the Ministry of Water & Power and approved, inter alia, the "Plan for Privatization of WAPDA as recommended by Privatization Commission (Para 5 and Annex VI)" [Emphasis added]. It does not mention KESC. Similarly the summary dated 9.9.1993 put up by the Ministry of Water & Power only seeks CCI's approval to the "Plan for Privatization of WAPDA as recommended by Privatization Comm ission (Para 5 and Annex VI)" [Emphasis added]. The Ministry did not even seek the CCI's approval for KESC's privatization. The only mention of KESC at all is in the Minutes of the Meeting of the Privatization Commission where it is observed that KESC should be privatized as is without disaggregating the generation, transmission and distribution. When all the documents are viewed together , however , it is clear that it was only the privatization of WAPDA which was being discussed at various levels for nearly two years. KESC was mentioned merely in a passing observation in one PC meeting to draw a contrast to the plan for WAPDA 's privatization where the generation, transmission and distrib ution sectors would be divided before privatization. KESC' s privatization was not included in the Ministry of Water & Power 's Summary for the CCI nor did the CCI ever pass a specific order in relation thereto. To argue that the CCI had approved KESC' s privatization when it specifically stated that it was approving WAPDA 's privatization (just because the former is also mentioned in the PC' s Minutes of Meeting) is, with respect, a patently disingenuous stance. Whether the GOP sold 73% of its shareholding at a gross undervalue? 23. One of the main reasons given by the 9-member bench of the Supreme Court for annulling the Steel Mills privatization was that the PC's valuation of the Pakistan Steel Mills (prepared with the assistance of M/s A.F.
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Fergusons - an affiliate firm of Price Waterhouse Coopers ['PWC'], Chartered Accountants) was made using the discounted cash flow (DCF) method which was a method that tended to favour the buyer and not the seller and that the underlying asset value of land belonging to the Steel Mills had been ignored. The Supreme Court observed that the valuers should have adopted a methodology that took into account the underlying asset value rather than simply the cash flows of the company . The Supreme Court further observed that it would have been better to have listed the shares of the Pakistan Steel Mills on the stock-exchange so that the market could properly determine the correct value of the its shares. 24. The Respondents have argued - solely on the basis of PWC' s Valuation Analysis - that the stock market price of KESC shares was not reflective of the real value of KESC shares as only a very small percentage of shares were being traded on the stock exchange and the stock market prices were inflated. However , the Supreme Court - in the Steel Mills judgment - refused to blindly accept the valuation report and there is no reason for this Court to do so either (especially since PWC' s Valuation Analysis itself only gives vague and speculative reasoning for the much higher market price of KESC shares). At the very least, given the huge difference between the stock market capitalization value and the DCF valuation approach, the Respondents bore a heavy burden to otherwise justify the adoption of the DCF approach - which they failed to do. 25. Even otherwise, a careful examination of PWC' s Valuation Analysis shows that KESC was grossly under-valued even according to the DCF method. The DCF method depends on an estimate of the cash flowing in and out of the company in the foreseeable future and gauges the ultimate value of the company from such estimated cash flows. These assumptions of the future income and expenses must be accurate for the estimate of the actual value of the company to carry any weight or meaning. If these assumptions are inaccurate, the DCF valuation model will produce a "garbage in, garbage out" result mentioned in the Steel Mills judgment. 26. The first assumption made by PWC in the valuation of KESC was that the tariff mechanism and structure fixed by NEPRA for KESC would be capped at the notified level for a period of seven years after privatization. This would mean that the average tariff charged by KESC from consumers (in real inflation-adjusted terms) would gradually decline by around 4.4% over the first seven years after privatization. This assumption was made by PWC due to the NEPRA Tariff Determination dated 10.9.2002 which categorically stated that the consumer-end tariff structure and mechanism notified by NEPRA for KESC would remain the same for seven years after privatization. 27. This assumption was wrong, because - less than three months after privatization - KESC moved an application for revision of tariff mechanism. Astonishingly , this application was supported by the PC! In particular , the application sought waiver of the 4% cap applied…
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