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Petitioner: ARSHAD WAHEED VS Respondent: PROVINCE OF PUNJAB and others
Court Name: Lahore High Court Judge(s): Syed Mansoor Ali Shah Title: ARSHAD WAHEED vs PROVINCE OF PUNJAB and others Case No.: Writ Petition No,10809 of 2008 Date of Judgment:2010-06-24 Reported As: PLD 2010 Lahore 510 Result: Order accordingly
JUDGMENT
JUDGMENT SYED MANSOOR ALI SHAH, J.---The instant petition was filed by one Arshad Waheed describing himself as the Chief Executive Officer (CEO) of Messrs Earth Resources (Pvt.) Limited ("ERPL"). Later on through an application (C.M. 886 of 2008) it was prayed that Arshad Waheed "inadvertently" filed the petition and the name of the petitioner be amended so as to be replaced and read as ERPL. The said application was supported by Resolution of the Board of Directors of ERPL in favour of Arshad Waheed, dated 19-8-2008. This application was allowed by this Court vide order dated 23-2-2010.. Therefore, the petitioner before this Court is ERPL. 2. Brief facts are that ERPL (also interchangeably referred to as the "Company" hereinafter) was incorporated as a private limited company vide Certificate of Incorporation dated 24-4-2007. Form 29 under the Companies Ordinance, 1984 shows the constitution of the first Board of the Directors of the Company placed on the record by the petitioner is dated 30-6-2007, showing Mr. Arshad Waheed to be the Director and Chief Executive Officer of the company. Memorandum of Association shows the subscribed paid-up capital of the Company to be Rs.2,500,000 (Rs.2.5 million) divided into Class A shares of Re.1 (one) each as on 20-4-2007. (There is no other corporate record placed on the file showing increase of paid-up capital after incorporation or conversion of share denomination from Rs. 1 to Rs. 10, as discussed later). 3. It is contended by the petitioner that in October, 2006 (before incorporation of the Company), Arshad Waheed approached Punjab Mineral Development Corporation ("Punjmin" or "Corporation") as well as the Secretary, .Mines and Minerals Department, Civil Secretariat, Lahore. Para 3 of the petition states:-- "...During discussions, it revealed to him that the respondent-Corporation was facing serious problems in exploiting the Iron Ore reserves in their leased areas at Rajoa and Chiniot, as their technical expertise and resources were extremely deficient. Despite spending millions of rupees the project could not bear fruit, as the respondent-Corporation could not reach deep down to the Iron Ore deposits with its existing technical and financial resources. The petitioner, being a son of a patriot mining engineer, showed interest in making engagement with the Corporation in order to make the project successful, with the dream to explore Iron Ore, establish mining operations and ultimately set up a steel mill, resulting in great economic activity, extended tax base and numerous employment opportunities for the homeland. The then MD of the Corporation and the Secretary of the Mines and Mineral Department responded to the proposal very positively; and negotiations started between the parties." 4. According to the petitioner, the first formal offer by ERPL was made to the Minister for Mines and Minerals, Punjab on 23-3- 2007 for a proposed Joint Venture between ERPL and PUNJMIN for the establishment of Hematite and Magnetite Mining Operation at Chiniot and Rajo (now District Chiniot, Punjab). It is contended that Joint Venture Proposal was presented to PUNJMIN on 20-6-2007 by the Company. The scope of the Joint Venture as explained in the said proposal was as under: ERPL's vision is to set up a world-class mining operation which is not only profitable but is of great service to the nation of Pakistan. With our access to capital, expertise, a proven methodology, and demonstrated successes of our alliance partners and technical sub-contractors in critical mining application support engagements, we are confident that the proposed joint venture will be very successful. The proposed Joint Venture between ERPL and PUNJMIN shall accomplish the following in three phases:(1) Complete the exploration activities and prepare the techno--economic feasibility report;(2) Establish and commission a world class mining operation;(3) Establish a steel mill. 5. On 31-7-2007 a Technical Committee headed by Chief Inspectorate Mines, Government of the Punjab submitted its Report recommending the Joint Venture Agreement with ERPL. Thereafter the Board of PUNJMIN in its 69th Board Meeting held on 19-9-
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2007 directed PUNJMIN to negotiate with ERPL and put up the case to Secretary Mines and Minerals Department with agreed Memorandum of Understanding ("MOU") for further approval of the Government of the Punjab. A Summary was put up before the Chief Minister, Punjab on 16-11-2007 by the then Secretary, Mines and Minerals (Mr. Imtiaz Ahmed Cheema), which was routed through Minister for Mines and Minerals, Chairman P and D, and Chief Secretary, Punjab. All these public functionaries approved the contents of the Summary and therefore supported the proposed Joint Venture. 6. The Chief Minister, Punjab approved the Summary on 24-11-2007 and finally Joint Venture Agreement was entered between ERPL and PUNJMIN on 6-12-2007. An undated confirmation of handing over and taking over of all tangible and intangible assets pertaining to the Chiniot and Rajoa Iron Ore fields has been placed on the record which has been signed by the General Manager (Planning and Operations) on behalf of PUNJMIN (it is however admitted position between the parties that none of the assets were handed over to ERPL). 7. According to the Petitioner, 5 million Class A shares of ERPL (representing 20% equity) of Rs. 10 each, were transferred to PUNJMIN as consideration under the Joint Venture Agreement on 31-3-2008. According to the petitioner, PUNJMIN was to have one director on the Board of ERPL along with 20% Class A Shares in lieu of the transfer of its leases and licenses along with transfer of tangible and in tangible assets pertaining to the project. It is contended by ERPL that it had to invest US$ 2.5 million to US$ 5.0 million in the first phase of exploration and preparation of a bankable document for attracting investment for future operations; US$ 40 million to US$ 70 million in the second phase for commencement of mining operations and preparation of commercially viable business plan, and US$600 million in the third phase for establishment of a Steel Mill. 8. Vide Letters dated 31-5-2008, 12-7-2008 and 22-7-2008 ERPL wrote to PUNJMIN complaining that undue delay is taking place in the transfer of leases and licences from PUNJMIN to ERPL. Similar grievance was agitated vide letter dated 9-7-2009 sent to the Chief Minister, Punjab. However, vide impugned Notice dated 16-8-2008 PUNJMIN invited ERPL to a meeting to discuss the possible termination of the Agreement under clause 5.1 of the Agreement. The said Notice dated 16-8-2008 has been challenged before this Court through the instant petition. 9. Learned counsel for the petitioner contends that the impugned Notice dated 16-8-2008 shows that respondents are bent upon terminating the contract of the petitioner, which is based on mala fide and amounts to political victimization. It is submitted that the petitioner has a lawfully concluded contract it its favour. Petitioner prays that impugned notice dated 16-8- 2008 may be declared to be without lawful authority and PUNJMIN be restrained from terminating the Agreement dated 6-12- 2007 with the further direction that PUNJMIN be directed to perform its obligations under the said Agreement and as a consequence transfer lease and licence in the name of ERPL. 10. Khawaja Muhammad Harris, learned Advocate-General Punjab, appearing on behalf of the respondents raised preliminary objection regarding the maintainability of the writ petition. He submitted that the petitioner has no cause of action as no adverse action or order has been passed against the petitioner. He further argued that the so-called grievance of the petitioner arises out of a contract as the petitioner seeks specific enforcement of the same through the instant proceedings. It is submitted that the prayer made by the petitioner besides being premature is not amenable to writ jurisdiction. It is further submitted that allegation of mala fide is misconceived and misplaced, because respondent-PUNJMIN has issued notice under clause 5.1 strictly in accordance with the Agreement while PUNJMIN could have invoked clause 5.2 of the Agreement and terminated the Agreement. 11. Learned Advocate-General, Punjab made the following submissions on the merits of the case; (a)That PUNJMIN is an autonomous statutory Corporation incorporated under the Punjab Mineral Development Corporation Act, 1975 ("Act") and has been established to promote mineral development in the Province of the Punjab. It has an independent Board of Directors that has to function keeping in view commercial and national considerations (b)Under the Rules of Business, 1974 of the Provincial Government, PUNJMIN is an autonomous body attached with the Department of Mines and Minerals. It is submitted that the Board of Directors of PUNJMIN never approved the signing of the Joint Venture Agreement with ERPL. (c)He referred to section 18 of the Act to submit that the Corporation is to draw up "Schemes" for the development, surveying, prospecting, exploring, mining, processing,. industrial exploitation and purchase and sale of minerals including their import and export and submit the same to the Government for approval and that no Scheme was drawn up in this case which forms the subject matter of the Joint Venture Agreement. (d)He submitted that PUNJMIN has already spent a sum of Rs.117.59 million on the Project (under the Lease and the Licence granted by the Government). (e)Agreement for exploration and mining of Iron Ore worth US$30 to 35 Billion (current value over US$93 Billion) was finalized in favour of ERPL without considering the commercial and national consideration as provided under section 4(2) of the Act. The covenants of the Agreement are absolutely unfair and lop-sided and not in the national interest. (f)He submitted that ERPL was not short-listed and was awarded the contract without any public advertisement or without floating any national or international tenders. (g)He submitted that ERPL has no past experience in the exploration, excavation or development of minerals or iron ore and referred to the curriculum vitae of Mr. Arshad Waheed which has been placed on the record by the petitioner, which neither shows any expertise of Mr. Waheed in the mining business nor any past experience in the area. (h)He contended that registered office of the company as described in the corporate record is non-existent and is operated by the petitioner (one man) from his house in Gujranwala. The Company has no bank balance and no investment has been shown to have been made by the Company to date.
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(i)The letter issued by KASB (Bank) has no date and it does notindicate the amount of funds made available for the petitioner. It also does not mention if the Company maintains an account with the Bank. (j)ERPL has shown to have provided 5 million Class A shares of Rs.10 each to PUNJMIN when under the Articles of Association Class A shares are of Re. 1 each. (k)That after the signing of the Joint Venture Agreement, Rao Manzer Hayat, the Managing Director of PUNJMIN and later on the Secretary, Mines and Minerals Department, Government of the Punjab pointed out the flaws in the Joint Venture Agreement and urged for a review of the matter resulting in the setting up of a Committee by the Chief Minister which recommended that the Agreement be terminated with mutual consent. (l)The actual physical possession or the lease-hold rights have never been actually transferred in the name of the petitioner and no expenditure or investment has been made by the Company to date. 12. The then Managing Director of PUNJMIN, Rao Manzer Hayat, who signed the Joint Venture Agreement on behalf of PUNJMIN was also summoned by the Court. Other than the submissions made in Court, the Ex-Managing Director of PUNJMIN requested the Court to grant him a hearing in camera in the presence of the counsel for the parties. However, instead of in camera hearing the said officer submitted his written submission in confidence in a sealed envelope. Summary of his submissions made in Court and recorded in his sealed note are as under: (i)That the Corporation is run by a Board of Directors constituted under section 5 (1) of the Act comprising of the Chairman i.e., the Minister for Mines and Minerals; Managing Director, Chairman Planning and Development (P and D); Secretary, Mines and Minerals Department, and Secretary, Finance Department. He submitted that under section 6(2)(b) of the Act he (Managing Director) was only to perform his duties specified and assigned to him. (ii)He submitted that in the 69th meeting of the Board of Directors of PUNJMIN dated 19-9-2007, it was resolved that PUNJMPV had to negotiate with ERPL and put up the case to Secretary, Mines & Minerals Department with a mere MOU for further approval of the Government of the Punjab. Submits that no such case was put up before the Secretary, Mines and Minerals Department. However, the Secretary, Mines and Minerals Department initiated a Summary on his own before the Chief Minister with the proposal to enter into joint venture with Messrs ERPL. The Summary was routed through Minister, Mines and Minerals, Chairman P & D and Chief Secretary, Punjab to incorporate their views. He contended that Minister for Mines and Minerals, Chairman P & D, Chief Secretary, Punjab and then finally Chief Minister Punjab approved the said Summary. Thereafter, after the approval of the Chief Minister, Punjab the Summary was marked back to the Secretary, Mines and Minerals Department through the Minister, Mines and Minerals, Chief Secretary, Punjab and Chairman P&D. The Secretary, Mines and Minerals Department noted on the said Summary that the Agreement ought to be finalized and signed with the concerned company so that exploration development work can be taken ahead. He submitted that duly approved Joint Venture Agreement was forwarded to him for signatures under written direction to do so. He submitted that he had no choice but to implement the orders of his superiors. (iii)He contended that at this stage there was no other legal recourse available with him so he marked the Agreement to the Law Department for comments. Even the Law Department approved the same on 4-12-2007. (iv)He submitted that due to his persistent efforts the lease or license were Pot transferred to ERPL. (v)He submitted that he was threatened a couple of times and told not to oppose the Agreement or else will face serious consequences. (vi)He safeguarded the financial interests of the Provincial Government running into Billions of Rupees. (vii)Resultantly, the said officer was posted to an insignificant post of Secretary, Population Welfare, Government of the Punjab. (viii)He contended that he put up a note before the Secretary, Mines and Minerals Department dated 12-3-2008 requesting that the Joint Venture Agreement should be made operational only after incorporating certain clauses and after the approval of the competent authority. However, nothing was heard of the said note. He was later on promoted as Secretary, Mines and Minerals and in this capacity the said officer once again moved a Summary before the Chief Minister on 5-7-2008 requesting the Government to accord approval to the handing over of the Iron Ore lease and licence of Chiniot and Rajoa, respectively to Messrs ERPL as well as permission for national/international tender. (ix)A high powered Committee was constituted by the Chief Minister to look into the matter and through working paper prepared by the applicant concerns of PUNJMIN were placed before the said Committee. The Committee decided that PUNJMIN will invoke clause 5 of the Joint Venture Agreement for its termination with mutual consent. Hence the impugned notice dated 16-8-2008. 13. The main emphasis of the arguments of the Ex-Managing Directors, PUNJMIN was that once all the approvals had been granted by the high-ups namely Chief Minister, Minister, Mines and Minerals, Chief Secretary, Punjab, Chairman P&D and Secretary,. Mines and Minerals, he had no choice but to execute the Joint Venture Agreement. He, however, took pains to explain that after the said signing he did not let go and continuously pursued the matter, which resulted in the constitution of the high powered . Committee and the issuance of the impugned Legal Notice. 14. Arguments heard, record perused. 15. The pleadings and the arguments of the parties have raised the following legal and factual questions: (i)Power of PUNJMIN to negotiate and enter into a joint venture agreement with a private third party? (ii)Power of the Government (Mines and Minerals Department) under Punjab Mining Concession Rules, 2002, to endorse and bless a Joint Venture Agreement between PUNJMIN and a private third party? (iii)Selection of ERPL by Government and PUNJMIN without an open public process of national and international public tendering?
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(iv)Maintainability of the instant petition and the power of this Court to probe further into the legality of the Joint Venture Agreement, in case the petition is held to be non-maintainable? 16. In order to address the above questions, sequence of facts, necessary to understand the scope of the case, as culled out from the record and the submissions of the parties is as under:-- (a)PUNJMIN on the basis of pre-feasibility studies had identified underground Iron Ore in Rajoa and Chiniot in District Jhang (now falling within the limits of the newly-constituted District Chiniot). Two Schemes prepared by PUNJMIN for exploration and evaluation of the reserves in the said area were approved by the Provincial Government in 2005. The Schemes were for Techno Economic Feasibility Study on Iron Ore for Chiniot reserves at an estimated cost of Rs.90 million and Exploration and Evaluation Study of Rajoa Iron Ore at an estimated cost of Rs.45 million. (b)Thereafter, Mining Lease for Iron Ore under Rule 42 of the Punjab Mining Concession Rules, 1986 for an area measuring 586.77 acres was granted to PUNJMIN on 26-8-1998 situated near Chiniot, District Jhang (as it then was) and Prospecting License under Rule 119 of the Punjab Mining Concession Rules, 2002 was granted to PUNJMIN on 14-9-2004 for 500 acres for land situated near Rajoa, also in District Jhang (as it then was). (c)Admittedly the reserves of Iron Ore at the abovementioned two sites and their valuation is as under:-- Area Capacity Chiniot Iron Ore 110 million metric tonnes Rajoa Iron Ore 500 million metric tonnes. 610 million metric tonnes US$ 48.8 billion (610 million metric tonnes x US$ 80 per metric tonne). Present Day value (as per the Advocate-General, Punjab) US$ 70.150 billion (610 Million metric tonnes x US$ 115 per metric tonnes) i.e. Rs.596 billion (@ US$ 1 = Rs 85) (d) Petitioner ERPL enters the stage and insinuates itself in around this time riding high on some hidden but powerful political support. Lack of transparency, disregard of law and undue haste in entering a Joint Venture Agreement of public natural resources (public property) in the tune of US$ 70 billion without batting an eyelid compels this Court to draw this negative inference. (e) ERPL solicits and enters into a dialogue with the PUNJMIN, as well as, the Government (Mines and Mineral Department) regarding a proposed Joint Venture pertaining to the two iron ore reserves mentioned above. PUNJMIN, as well as, the Government without any lawful authority, in total disregard of the governing law and due process entertain ERPL and initiate negotiations on the possibility of a joint venture agreement with PUNJMIN. (f) A Working Paper was prepared for the Board of PUNJMIN by the management of PUNJMIN, which stated as under: UNJMIN is presently engaged to carry out implementation on two approved ADP schemes titled "Exploration and Evaluation of Iron Ore Deposit in Rajoa area near Chiniot District Jhang" and "Techno-Economic Feasibility Study for Mines Development of Chiniot Iron Ore and its Industrial Utilization District Jhang." Messrs ERPL has approached PUNJMIN and shown interest for joint venture to exploit and develop the said iron ore deposits of Rajoa and Chiniot and to establish a steel mills to cater the steel product demand of northern region from Multan to Peshawar. In this regard, PUNJMIN had several meetings with Messrs ERPL and the said party also had discussion with worthy Minister and Secretary, Mines and Minerals Department Lahore and Managing Director, PUNJMIN. In the light of discussions held, certain modalities have already been evolved. The broader outline of the agreement has been prepared with the joint efforts of the legal advisors of both the parties for finalization. Messrs ERPL will invest US$ 666 million on this project where US$ 6 million shall be incurred in the exploration phase, US$ 60 million in the development phase and US$ 600 million at the time of establishment of steel mill. If the public/private joint venture is materialized, it will be one of the mega Project in exploration history of Pakistan. The said party has expressed its intention to bring Chinese technology leading to transfer of technology especially in shaft sinking and aquifer through water bearing strata. This expertise/narrow specialization is not available in Pakistan. We have as yet not finalized the equity issue for which PUNJMIN needs further .negotiations however PUNJMIN is persuading to finalize the equity issue at 20:80 ratio, where PUNJMIN' S share would be 20. The matter is placed before the Board of Directors to formally allow PUNJMIN to hold negotiations with Messrs ERPL to finalize the equity at 20:80 ratio and other issues and sign the agreement for joint venture. This joint venture will expand the tax base in the country and shall be a source of employment for thousands of skilled, semi skilled and unskilled workers in Punjab. 17. From the above it is clear that ERPL has shown interest in a joint venture to exploit and develop the iron ore deposits in Rajoa and Chiniot (now District Chiniot). The Working Paper does not refer to any provision of law under which this Joint Venture with ERPL is possible. It also fails to highlight whether PUNJMIN is assigning its existing rights under the Lease and License issued by the Government. There is. no verification (as no reference is made to any financial or technical due diligence) by PUNJMIN of ERPL especially when ERPL (as per the Working Paper) is to invest US$ 666 million on the Project whereas US$ 6 million was to be incurred in the exploration phase, US$ 60 million in the development phase and US$ 600 million at the time of establishment of the steel mill.
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18. Through the Working Paper, the Board of Directors of PUNJMIN are requested to formally allow PUNJMIN to negotiate with ERPL and finalize equity at a ratio of 20:80 (PUNJMIN 20% and ERPL 80%) and sign the Agreement for a joint venture. 19. In its 69th Board Meeting held on 19-9-2007 the Board of Directors of PUNJMIN passed the following inchoate Resolution on Agenda Item No. "The Board directed PUNJMIN to hold negotiations with ERPL and put up case to Secretary Mines with agreed MOU for further approval of Government of the Punjab." 20. Rao Manzar Hayat, Ex-Managing Director, PUNJMIN, categorically submitted that no case was put up before the Secretary, Mines and Minerals Department by PUNJMIN after the passing of the above Resolution by the Board of Directors. In the absence of any summary initiated by PUNJMIN, a Summary was moved by the Secretary, Mines, and Minerals Department on his own initiative before the Chief Minister, Punjab, which gave the following justification for the joint venture. The learned Advocate- General appearing for the Provincial Government did not controvert this fact:-- "The work on Rajoa Iron Ore Scheme which is essentially of preliminary exploratory nature is underway. But PUNJMIN is facing serious difficulties in the implementation of Techno Economic feasibility scheme of Chiniot because of non availability of technical know how for large sized shaft sinking which is the major component of the scheme. It is quite doubtful that PUNJMIN with its existing capability and resources will be able to successfully implement this development project which ultimately aims at mining and marketing of iron ore and establish a steel mill in Chiniot-Rajoa mining area." (emphasis supplied) 21. The Summary further describes the scope of work of the Joint Venture as:- Phase-1Complete exploration and preparation of bankable techno economic feasibility (cost Rs 250-300 million) Phase-2Mining…
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