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Legal Updates


Digital World Pakistan (Pvt.) Ltd vs.
Samsung Gulf Electronics FZE and another 2010
Corporate Law Decisions 804 (Single Bench – High Court of Sindh)

Subject: Contract; ‘Joint Venture Agreements’ (JVAs); Assembly / Distributorship Agreement.

Keywords: Enforcing JVAs; grant of temporary injunction.

Abstract: In this Suit, the plaintiff filed an interlocutory application for temporary injunction under Order XXXIX Rules 1 and 2 Civil Procedure Code (CPC) to restrain the defendants from appointing any person other than the plaintiff as an importer, manufacturer, assembler or distributor of “Samsung” brand colour television / parts in Pakistan. The plaintiff’s contention was that since its award of distributorship in the year 2000, the defendant had a negligible market and brand recognition in Pakistan. The parties entered into a distributorship with the understanding that they would enter into long term joint venture for the purpose of installing a factory / assembly unit in Pakistan for the manufacture of Samsung brand. To this effect, a letter of intent (LOI) was signed whereby the plaintiff was appointed as distributor for the defendants audio/video products. In 2002, the parties entered into a further agreement for assembling Samsung colour televisions under license (Assembly Agreement). Pursuant to the Assembly Agreement, the plaintiff was supplied with parts in semi or completely knocked down condition (CKD) for assembly in the plaintiff’s factory. To this end, the plaintiff invested Rs.360 million in land, plant and machinery and the plaintiff contended that its commercial relationship with the defendant was in substance a JVA, the aspects of which included: (a) importation of CKD kits as well as completely built up units (CBU) (b) investment in land, equipment, machinery, infrastructure, dealerships, advertising etc. and (c) exclusive distributorship for the sale of manufactured goods. In addition, the plaintiff’s bank exposures stood at Rs.1.6 billion and Rs.356 million receivable from the market. Clause 20 of the Assembly Agreement provided for termination for cause including, failing to meet quality standards, competing with interests of defendant, change of ownership and insolvency. The defendant submitted that as a licensee or agent, the plaintiff could not assert an eternal right to remain so and that the relationship was revocable at will. Further, the essence of joint venture meant carrying on business jointly for the purpose of earning profits and also sharing losses. In this case, all the kits, parts and built up units were purchased by the plaintiff for onward resale and cannot be construed as a JVA.

Judgment: The Court held that the Assembly Agreement was in the nature of a JVA as none of the grounds in Clause 20 of Assembly Agreement gave a right to terminate at will or for convenience. Further, the plaintiff had invested huge amounts in the business and looking at the substance of the relationship there was no doubt that the relationship was in the nature of a JVA or if the relationship was to be treated as an agency then it was an agency coupled with interest. The Court granted the injunction till disposal of the Suit.

Justice: Rukhsana Ahmed J.

Advocates: Makdhoom Ali Khan for the plaintiff and Mansoor-ul-Arfin for the defendants.

Cases relied upon: Abdur Rahim Baig v. Abdul Haq Lashari PLD 1994 Kar.388; West Pakistan Industrial Development Corporation v. Sheikh Muhammad Amin 1992 CLC 2047; Ittehad Cargo Services v Rafaqat Ali PLD 2002 Kar.420; Popular Pharmacy v. Nova Bio Medical PLD 1996 Kar.411; Business Computing International v IBM World Trade Corporation 1997 CLC 1903 and Pak China Chemicals v Dept. of Plant Protection 2006 CLD 210.

Note: It pertinent to note that no reference in this Judgment was given to accepted judicial definitions of a Joint Venture Agreement or case law related thereto, although it was held that the parties were joint venture partners. Black’s Law Dictionary 6th Edition defines a “Joint Venture” as "A legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit; An association of persons or companies jointly undertaking some commercial enterprise; generally all contribute assets and share risks[losses]. " This Judgment is pending in appeal before a Division Bench

M.V. “Goloz” Ex- M.V. “Mustafa Bey” vs.
Pacmar Shipping (Pvt.) Ltd. and another
2010 Corporate Law Decisions 660 (Division Bench – High Court of Sindh)

Subject: Admiralty law

Key words: Arrest of ship; Action in rem; transfer or ownership and beneficial title before writ issued and its effect; statutory lien of successive owner.

Abstract: This was an appeal filed against confirmation of arrest of the appellant ship in two related Suits (Suits No.17 and 21 of the 2009). The respondent No.1 had brought an action in rem against the appellant ship for their claim of services rendered to the ship for necessities (bunkers, food, water, provisions, spares, port-dues, pilot fees, launch hire, crew transportation, accommodation, communication, wharf handling and other such services). It was claimed that the cheques issued for these services were dishonoured. The respondent No.2 has supplied necessaries (lubricant oil) to the ship, which cleared the port without making payment for same. Accordingly, proceedings in rem were brought under Sections 3(2) of the Admiralty Jurisdiction of High Courts Ordinance, 1980 (Admiralty Ordinance). The ship, however, was sold to its new owners on 16.2.2009 and a provisional navigation certificate was issued by the Panama Maritime Authority on 28.5.2009 with the final registration effected and certificate issued on 29.12.2009. The latest warrant (in Suit No.21) for the ship’s arrest was served on 2.7.2009. The only question for determination was whether the transfer of ownership of the ship i.e., the beneficial interest, had passed to the new owner prior to the service of writ and the arrest so as to deprive the plaintiffs its action in rem leaving them with the only remedy to pursue their claims in personam against the previous owners of the ship. In other words, did the statutory lien travel with the ship despite its purported sale.

Judgment: The Court examined the nature of a provisional navigation permit and relied upon the treatise “Ship Registration” by N.P. Ready, printed by the Lloyd’s London Press, 1991. After examining law relating to Panamanian registration, the Court observed that a provisional navigation permit is not a document of title, but simply evidence of the vessel to fly Panmanian flag, which carries no right of mortgage unless registration of the owner’s title has been recorded in the Panamanian Public Registry. The Court recognized that ships, like persons and companies, require a nationality of the port of registry and the process of registration cannot be complete without entering the ship’s name in the record of rights. Further, the Admiralty Ordinance does not recognize equitable ownership as to maintain an action in rem two important preconditions must prevail: that the ship or its sister ship must be in the beneficial ownership at two crucial junctures, one, at the time the cause of action arose and, secondly, at the time of bringing the cause to Court. The Court further observed that the new owner had notice of the arrest of the vessel and had ample time to either avoid the sale or compel the beneficial owner to clear the ship’s liability. Accordingly, the statutory lien clinched the vessel and hence inherited by the successive owner who despite notice chose to obtain final registration after confirmation of arrest. In the above circumstances, the Court dismissed the appeals and ordered settlement of issues and evidence to be recorded on commission.

Justices: Mushir Alam and Aqeel Ahmed Abbasi JJ.

Advocates: Mazhar Imtiaz Lari for the appellants and Agha Zafar Ahmed for the defendants.

Cases relied upon: M.T. Pong San Fisheries Company v. M.V. Zohra-I PLD 1988 Kar.390; Yakong Ltd. v M.T. Eastern Navigator PLD 2001 SC 57; Aleem Ahmed Ansari v. M.V. Ashar PLD 1986 Quetta 54; Kuwait Floor Mills v M.V. Kashmir 1990 MLD 2196; Bangladesh Shipping Corp. v M.V. Nedon PLD 1981 Kar. 246 and Monica S. [1967] 2 Lloyd’s Report 113;

International Finance Corporate v Sarah Textiles Ltd. 2009
Corporate Law Decisions 761 (Single Bench – Lahore High Court)

Subject: Banking laws, recovery.

Key words: Recovery of Loan by “financial institution” not being a banking company; jurisdiction of High Courts in view of exclusive foreign jurisdiction clause; whether multilateral donor agency comes within the definition of “financial institution” for the purposes of Financial Institutions (Recovery of Finances) Ordinance, 2001 (“Ordinance”).

Abstract: The plaintiff filed a suit under Section 9 of the Ordinance for recovery of US$1,865,473 with interest, late payment of interest, charges and costs till date of realization of the suit amount. The suit was contested by the defendants on several grounds including (i) that the plaintiff does not fall within the definition of “financial institution” under Section 2(a) and that it had no authority to do banking business in Pakistan as it did not possess a valid license and (ii) the Pakistan Court had no jurisdiction to adjudicate the suit in view of the exclusive clause in favour of the Courts of England.

Judgment: The Court recognized that the definition of “financial institution” did not expressly include institutions such as the plaintiff. However, it was observed that the said definition was enlarged by the words “means and includes” and using the ejusdem generic principle the definition may be enlarged to include the plaintiff, which is clearly an international financial institution and is also recognized by Pakistan in terms of the International Finance Corporation Act, 1956. Further, the definition of “finance” in Section 2(d) of the Ordinance contemplates financial obligations comprising of mutual dealing between a financial institution and a customer. Finally, Court relied upon an earlier unreported judgment of the Lahore High Court (IFC v Regent Knitwear COS No.115 of 2000). As regards, the jurisdictional objection of the defendants, the Court referring to the relevant provision of the Finance agreement observed that the jurisdiction clause was for the “exclusive benefit of IFC” and as such the plaintiff was perfectly entitled to elect its choice of forum. Notwithstanding same, the Court held that Pakistan Court had jurisdiction over the defendant by virtue of Section 20 Civil Procedure Code. Accordingly, the Court decreed the suit and held that if the defendants fail to liquidate the liability within thirty (30) days, the proceedings would stand converted into an execution petition in accordance with Section 19 of the Ordinance.

Justice: Syed Asghar Haider J.

Advocates: Syed Ali Zafar along with Muhammad Suleman for plaintiffs and Shahid Ikram Siddiqui for the defendants.

Cases relied upon: Hitachi v Rupali Polyester Limited 1998 SCMR 1618; IFC v Regent Knitwear COS No.115 of 2000; Don Basco High School v Assistant Director EOBI PLD 1989 SC 128

Cases distinguished: C.M. Textile Mills (Pvt.) Limited v. Investment Corporation of Pakistan 2004 CLD 587; Bankers Equity Limited Bentonite Pakistan 2003 CLD 931; Muhammad Nafees v. Allied Bank 2004 CLD 937.

Note: This judgment is of great importance to the banking industry not only in terms of enabling multilateral organizations seeking recovery from their customers but, more importantly, the financing in question in the above suit was based on interest and not mark-up. Although this point was not contested , the Court considered the interest-based financing as an “obligation” and came within the meaning of the definition of “finance” under Section 2(d) of the Ordinance.

Allied Bank of Pakistan v. Shifa Laboratories
2010 Corporate Law Decisions 716 (Division Bench – Lahore High Court)

Subject: Limitation

Key words: Determination of limitation period for filing appeal; Section 12 Banking Companies (Recovery of Loans) Ordinance, 1979;

Abstract: Judgment and decree in the case was filed on 17.9.1996 and the appellant applied for its certified copy on 18.9.1996. The certified copy was prepared on 24.9.1996, however, the appeal was filed on 30.10.1996.

Judgment: The Court rejected the contention of the appellant that the appeal was filed on the basis of another certified copy obtain on 17.10.1996. The rationale for the above was that the appellant came into possession of a certified copy earlier and the fact that such copy was not utilized for the purposes of filing the appeal was not relevant. As a result the appeal was found to be time-barred and dismissed.

Justices: Umar Ata Bandial and Muhammad Khalid Mehmood Khan JJ.

Advocates: Muhammad Adeel Aqil Mirza for appellants and Muhammad Saleem Shehnazi for respondent.

Attock Refinery Ltd. v. Executive Director,
Enforcement and Monitoring Division S.E.C.P.
2010 Corporate Law Decisions 774 (Supreme Court)

Subject: Company law.

Key words: Investigating affairs of a company under the Companies Ordinance, 1984 (“Companies Ordinance”).

Abstract: The SECP ordered investigation into the affairs of the petitioner company pursuant to Section 265(b) of the Companies Ordinance. Petitioner company filed a petition before the Lahore High Court and after its dismissal preferred an appeal before the Supreme Court. The Supreme Court refused to grant leave to appeal.

Judgment: The petitioner company submitted that the appointment of an investigator is tantamount to disposing of the entire case and that the petitioner being a listed company an investigation would irreparably affect its reputation. The Supreme Court relied on the proviso to Section 485(1) of the Companies Ordinance that provided “that no appeal under subsection (1) shall lie from an order which does not dispose of the entire case before the Commission or the Federal Government as the case may be.” The Supreme Court held that the legislative purpose of the proviso was to avoid fragmentary decisions and delays so as not to hamper the regulatory function of the SECP. The Supreme Court also found no infirmity with the SECP’s conduct and its order in terms of which the investigator was appointed. Lastly, the Supreme Court held that the investigation was part of the case pending in relation to the petitioner company and only once the process was completed the petitioner company had recourse to prefer an appeal.

Justices: Jawwad S. Khwaja and Khilji Arif Hussain JJ.

Advocates: Ali Sibtain Fazli for the petitioner and Afnan Karim Kundi for the respondent.

Dewan Petroleum (Pvt.)
v. Government of Pakistan 2010
Corporate Law Decisions 988 (Single Bench – Lahore High Court)

Subject: Constitution; oil & gas; Rules of Business, 1973.

Key words: Petroleum concession agreements; gas pricing formula; opinions of the Attorney General of Pakistan; promissory estoppel.

Abstract: The petitioner entered into a Petroleum Concession Agreement (PCA) for exploration in the Safed Koh Block and a Joint Venture Agreement for exploitation of gas. After declaration of commercial discovery, a development and commercial lease was executed between the petitioner and the Government of Pakistan (GOP). Pursuant to the PCA, the GOP nominated Sui Northern Gas Pipelines Limited (SNGPL) as purchaser of the gas. After commencement of gas production, a dispute arose over the well-head price of gas and the interpretation of the gas pricing formula contained in the PCA. The dispute regarding interpretation related to the applicable gas price i.e. whether the price should be computed by first determining the “marker price” (being the price stated for various zones pursuant to the Petroleum Policy in relation to the weighted average C&F price per barrel based on quoted FOB prices of the basket of crude oil imported in Pakistan) or whether the discounts are to be applied first and thereafter the marker price. Accordingly, the dispute was referred to the Attorney General of Pakistan (AGP) for his opinion in the matter, which opinion the AGP rendered in favour of the petitioner. However, GOP / respondents refused to accept the opinion on the basis that it was not binding on them and the petitioner invoked the writ jurisdiction of the Lahore High Court seeking enforcement of the opinion / determination of the AGP.

Judgment: The Court allowed the petition holding the opinion of the AGP to be binding and directing GOP / respondents to fix the well-head price on the basis of the said opinion. The Court relied on Constitutional role of the AGP to render advice to GOP and further held that such an advice would be binding on GOP in the circumstances of the case. The Court referred to the Rules of Business, 1973 (Rules) and observed that under Rule 14(3), once the AGP renders an opinion referred to him by the Ministry of Law and Justice Division, the concerned ministry shall refer the matter to the Prime Minister for orders who may refer the matter to the Cabinet. In the instant case, the proper procedure was not followed. Further, the parties had agreed through various correspondence that they would abide the opinion of the AGP, which established a right through promissory estoppel in favour of the petitioner. Accordingly, the Court held that the GOP / respondents could not as an after thought resile from the promise on the basis that the AGP’s opinion was not binding on them. The Court further rejected the objections of the GOP/ respondents with regard to the maintainability of the petition on the ground that the writ jurisdiction of the High Courts could not be invoked for enforcement of contracts. Homers, the Court observed that the issue in dispute did not relate to the enforcement of an agreement but rather from the failure of the GOP / respondents to abide by the opinion of the AGP.

Justice: Asid Munir J.

Advocates: Waseem Sajjad, Sami Zafar and Malik Qamar Afzal for the petitioner and Yousaf Khose and Tariq Aziz for the Respondents.

Cases followed: Airport Support Services v. Airport Manager, Karachi 1998 SCMR 2268 and Hazara Improvement Trust v. Mst. Qaisra Elahi and others 2005 SCMR 678.

Haji Muhammad Rafiq and two others v. Emaar Giga Karachi Ltd.
and six others 2010 Corporate Law Decisions 942
(Single Bench – High Court of Sindh)

Subject: Company law; specific relief.

Key words: Suit for declaration and injunction against the defendants to stop the defendant company from raising further capital pursuant to an issue of right shares under Section 86 of the Companies Ordinance, 1984 (Companies Ordinance); interference of Court with the affairs and management of a company.

Abstract: The defendant company proposed to raise further capital by issuance of ordinary shares at Rs.10 through its board of directors’ resolution. The plaintiff dissented to same and sought an injunction restraining the defendants from issuing the right shares or altering the paid up share capital of the defendant company.

Judgment: The dispute pertains involves the shareholders of a real estate development company. The plaintiff is a builder and developer and set up a joint venture in Dubai with Emaar Group of Dubai. For the purposes of their investment in Karachi, the parties incorporated the defendant company with the plaintiff’s shareholding amounting to 33.33% and the Emaar Group’s shareholding aggregating to 66.67%.

The plaintiff relied on a shareholders’ agreement executed between the parties whereby the affirmative vote of the plaintiff was required for raising further capital. However, on the facts, the said agreement pertained to another joint project for Islamabad and defendants’ position was that the same had no relevance to their Karachi projects, which were being executed by the defendant No.1 company. Further, the defendant No.1 company’s impugned resolution did not seek to raise the share capital of the company beyond the authorized capital.

The Court refused to grant the injunction on the grounds that the plaintiff failing to make out a strong prima facie case as the directors were fully entitled to raise further capital by a majority vote. The Court relied on the principle of non-interference of Courts in the affairs and management of a company and held that absent any malice or illegality on part of the directors justifying interference, the Court would not interfere in the internal management of a company.

Justice: Muhammad Tasnim J.

Advocates: Muhammad Naseem and Nadeem Akhtar for the plaintiff and Taha Alizai for the defendants.

Cases relied upon: Muhammad Suleman Kanjiani v Dadex Eternit 2009 CLD 1687

Cases referred to: Khyam Films and another v. Bank of Bahawalpur Ltd. 1982 CLC 1275; Haji Muhammad Rafiq v. Shahenshah Jehan Begum PLD 1987 (Karachi) 180; Sahibzada Anwar Hamid v. Messrs TOPWORTH Investments (MACAU) Ltd. Through Chairman and 5 others 2003 YLR 2843; Messrs Pioneer Cables v. Messrs S.G. Fibres Ltd. 2007 YLR 1981; Messrs Hotel GALAXY (Pvt.) Limited through Chief Executive and 2 others v. 2007 CLD 1590 and Trading Corporation of Pakistan (Pvt.) Ltd. V. Merchant Agency 2007 CLC 1811.

Sakina Khatoon and six others v. S.S. Nazir Ahsan
2010 Corporate Law Decisions 963 (Single Bench – High Court of Sindh)

Subject: Company law; temporary injunction.

Key words: Corporate legal personality; rights of shareholders in property of company.

Abstract: The Suit was instituted in 1991 and grievance of the plaintiffs / successors in interest was that the defendants (being attorneys holding general powers over certain property) had unlawfully deprived them of their legal entitlement to and in the estate of the deceased and in particular the shareholding of the deceased in the defendant company (Company). The decision however relates to an Application moved by the plaintiffs seeking an interim injunction in relation to the property of the company and specifically restraining the defendants from receiving rent and enjoying the use and occupation of the property belonging to the Company till disposal of the Suit.

Judgment: The Court dismissed the Application and ordered the Company to submit monthly statements duly certified by its auditors of its income and expenditure. The Company was defunct / non-operational and its only income generating asset was its property measuring 5484 sq. yards, a portion of which had been leased to some of the defendants who made regular monthly payments to the Company. In light of the narrow scope of the Application, the preliminary legal question before the Court was right of the plaintiffs over the property of the Company. The Court observed that it is a fundamental principle of company law that the assets of a company belong to it alone and not to its shareholders as the company is a separate juristic entity. On this basis, the plaintiff’s grievance of being deprived of their shareholding would not equate to their being deprived of the assets of the Company and any attempt to do so would be untenable in law. Accordingly, the Court held that since the plaintiffs do not have a rights per se in property of the Company, they could not be entitled to seek injunction in relation to the income of the Company derived from its assets and the proper remedy would be for the plaintiffs to institute proceedings to end the oppression by the majority shareholders and to that end institute derivative or representative action.

Justice: Munib Akhtar J.

Advocates: Mian Mustaq Ahmed for the plaintiffs and Agha Zafar Ahmad for the defendants.

Cases referred to: Muhammad Tab v. Arshad Mehmood 2009 SCMR 114 and Jamil Akhtar and others v. Las Baba and others PLD 2003 SC 494

Dil Jan Khan v. Dr. Muhammad Younus and another
2010 Corporate Law Decisions 1175 (Division Bench – Lahore High Court)

Subject: Defamation.

Key words: Defamation Ordinance, 2002 (Ordinance); “proper apology” scope.

Abstract: The Appeal was preferred against the Judgment of the Additional District Judge, Narowal (Judgment) seeking to overturn the Judgment on the grounds that a “proper apology” had been published by the appellant newspaper in accordance with Section 5(e) of the Ordinance and in light of same the liability to pay damages awarded in the sum of Rs.2,000,000 is not required.

Judgment: The Court rejected the contention of the appellant and held that the publication of an apology cannot be used as a defence as it was published in compliance of the Judgment and was not voluntary apology as contemplated under Section 5(e) of the Ordinance. The said provision permits a person to raise a defence if he demonstrates that an “offer to tender a proper apology and publish the same was made by the defendant but was refused by the plaintiff.” Further, the Court held that “proper apology” must have an element of voluntariness in order to be raised as a defence, which was clearly not the case in the instant matter.

Justices: Nasir Saeed Sheikh and Mian Shahid Iqbal JJ.

Advocates: Ch. Anwaar ul Haq Pannum for the appellant and Sultan Mahmood Dar for the respondent.