ORDER SHEET

ORDER SHEET

IN THE HIGH COURT OF SINDH AT KARACHI

Suit Nos. 222 and 293 of 2012

Date

Order with signature of Judge

Date of hearing: 21.06.2012

Mr. Khalid Javed Khan for the plaintiffs in Suit No.293/2012.

Mr. Salman Talibuddin for the plaintiffs in Suit 222/2012 and for defendant No.1 in Suit No.293/2012.

Mr. Taha Ali Zai for defendants in Suit No.222 of 2012.

-.-.-

Mohammad Shafi Siddiqui, J.- These two suits have been filed by the directors of the Company namely Sukkur Beverages (Pvt.) Limited (hereinafter referred to as “the company”). The earlier suit i.e. Suit No.222 of 2012 was filed by one set of the directors against the other whereas the subsequent suit i.e. Suit No.293 of 2012 was filed by the defendant of the aforesaid suit against the plaintiff of the aforesaid suit. In both the suits the applications restraining the respective defendants have been filed. Another application bearing CMA No.2846 of 2012 which is for vacation of ad-interim exparte order dated 21.03.2012 passed in Suit No.293 of 2012 has also been moved.

Thus there are three applications which are to be decided by this common order i.e. (i) application bearing CMA No.2721 of 2012 and (ii) application bearing CMA No.2846 of 2012 in Suit No.293 of 2012 and (iii) application bearing CMA No.1974 of 2012 in Suit No.222 of 2012. By consent of the counsels the suit bearing No.293 of 2012 was taken up first for hearing of CMA 2846 of 2012 in Suit No.293 of 2012.

Learned counsel for the defendants in Suit No.293 of 2012 who has moved CMA No.2846 of 2012, submitted that the plaintiffs and the defendants are the directors and shareholders of the company which is a private limited company incorporated on 03.09.1974 under Companies Act, 1930. It has authorized capital of Rs.20 Million divided in 2 Million shares of Rs.10/- each while its paid up capital is Rs.150 Million. This company continues to operate under the Companies Ordinance, 1984. The plaintiffs’ and the defendants’ shareholding in the Company are as under:-

Asim Arshid (plaintiff No.1) 2,04,500

Shahzad Arshid (plaintiff No.2) 1,70,000

Ali Arshid (wife of plaintiff No.1) 1,70,000

Umer Arshid (son of plaintiff No.1) 500

Nafeesah Shahzad (wife of plaintiff No.2) 1,70,000

Nadir Akmal Khan Leghari (defendant No.1) 2,50,000

Sayeed Leghari (defendant No.2) 2,50,000

Ayub Leghari 2,50,000

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Total 15,00,000

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The salient feature for which the company was incorporated is to carry on the business of making and bottling beverages including soft drinks and its distribution and sales. The Company owned the soft drink bottling plant in Sukkur since 1988 and pursuant to their aforesaid business entered into two exclusive bottling appointment agreements with PepsiCo Inc. and with Seven-up International which is a part of PepsiCo Inc. group and both the above referred agreements were executed by PepsiCo Inc.

Pursuant to the aforesaid agreements the company sells and distributes soft drink known and sold under the trademarks Pepsi, Pepsi Cola, Miranda, Team, Mountain Dew and Seven-up in the districts of Sukkur, Nawabshah, Nausheroferoze, Larkana (including district of Jacobabad) and Kandhkot/Kashmore, Ghotki and to sub-divisions of Rahim Yar Khan and Sadiqabad in the Rahim Yar Khan district.

Last time the agreement was executed on 01.04.2008 which was for five years and is due to expire on 31.03.2013. Thus the company is operated by two groups who holds 50% share each. By virtue of these shareholdings each group is entitled to nominate two persons to company’s board of directors and also by agreement of shareholders the nominee of one group act as Company’s Chief Executive officer and the nominee of the other group as a chairman of the company’s board of directors.

Learned counsel submitted that in the recent past and even now the company’s Chief Executive Officer has been Asim Arshad while the Chairman of the Company’s Board of Director has been Nadir Akmal Khan Leghari. Learned counsel submitted that the plaintiffs in Suit No.293 of 2012 are responsible for running the company’s day to day affairs which responsibility he has failed to discharge to any degree of satisfaction whereas his client namely Nadir Akmal Khan Leghari, the defendant in Suit No.293 of 2012 has been responsible for dealing with the PepsiCo Inc. on behalf of the Company.

Mr. Talibuddin submitted that although the relationship between the two groups of the company was cordial and no issue of any significance arose in the management of the company until 2002 when his client became the Minister in the Sindh Government. It was this point of time that gave feeling of jealousy and some degree of inferiority complex in the mind and heart of the other group. Learned counsel submitted that earlier the agreements were executed for a period of one year at a time and it is only on this occasion that the agreement for five years was executed. He submitted that instead of appreciating the efforts, the plaintiffs began to make false and baseless allegations against the defendants and also started a campaign of abusing the company’s long standing employees and falsely accusing them of mismanagement.

He submitted that the plaintiff in order to achieve his goal aired the so-called shareholder issue (which was largely baseless and of his own creation) before PepsiCo Inc. through general manager of the Company on 05.10.2009 and requested for a meeting. The correspondence was exchanged and he took a complete departure with regard to the emails that has been discussed above. He submitted that in view of the exchange of emails and oppressive behavior of the plaintiff towards the company’s management, brought about a deadlock.

He submitted that in these circumstances all shareholders came to the conclusion that they can no longer continue and it would be in the best interest of all to sell their respective shareholdings in the company and consequently the defendant who was also representing his wife and his brother Ayub Leghari and the plaintiffs above named met PepsiCo Inc. on 30.03.2010 and confirmed about selling of their shareholding in writing on 08.04.2010 in terms of clause 8 of the agreement. However, the price was not mentioned in the said notification as there was neither any offer nor determination, though he attempted to have the fair market value of the company’s share. The subsequent attempts of the determination of the market value of the shares by a chartered accountant were also resisted by the plaintiff. On 04.08.2010. The PepsiCo Inc. wrote to the shareholders of the Company that in order to reach a fair determination of the market value of the shares any firm listed therein be appointed. Despite this the plaintiff continued to resist which caused inordinate delay to such evaluation.

At this stage the PepsiCo Inc. invited both the plaintiff and the defendant to attend a meeting at Karachi, however, the plaintiff remained absent and the PepsiCo Inc. was disappointed, however, a fresh date of 11.4.2011 was given but the plaintiff showed his inability to attend the meeting on 11.4.2011 and submitted that it may be held with the defendant which was accordingly attended by the defendant. Learned counsel submitted that in the said meeting the PepsiCo Inc. was concerned that no attempt had been made by the shareholders to have their shares valued. The outcome of this meeting was conveyed to the plaintiff. Learned counsel submitted that the plaintiff insisted in arriving a negotiating price informally with PepsiCo Inc. with the object to extract agreement at a price far and excess of the realistic value of the share.

The attempt to involve the family elders was also proved futile. Ultimately the defendant took the matter and engaged M/s Earns & Young’s to conduct the share valuation exercise and was accordingly conveyed to the plaintiff on 14.09.2011 to which the plaintiff did not respond. Again on 21.9.2011 the defendant wrote to the plaintiff regarding the evaluation of the shares as done by M/s Earns & Young’s. In the circumstances, the PepsiCo Inc. and M/s Seven-up International served formal notices on the company that the current bottling agreements will not be renewed after its expiry on 31.03.2013.

The aforesaid notices were forwarded by his client in October, 2011 which was replied on 25.10.2011. However, except allegations nothing came out. He submitted that despite accusation, no reference of plaintiffs’ request to have his share valued was made and the plaintiff always resisted vis-à-vis valuation on childish hope that the PepsiCo Inc. would agree to find a buyer at such price. The defendants, however, denied all allegations made in the email dated 25.10.2011. He submitted that the defendant No.1’s response with reference to contacting BMA with mutual consent for the purpose of valuing company’s share is misleading as BMA is not a firm of Chartered Accountant and also with certain important information were not disclosed to BMA which were substantially important in arriving a fair value of the shares. Despite all above the defendants reluctantly agreed but on the basis of full disclosure. Even then exercise was not carried out by the plaintiff. Subsequently on 28.10.2011 PepsiCo Inc. invited both the plaintiff and defendants on 01.11.2011 at Lahore and per learned counsel it was at this meeting that the plaintiff beseeched the PepsiCo Inc. officials to have the company’s shareholder and find a solution for them. The officials of the PepsiCo Inc., per learned counsel, disclosed that the representative of Pizza Hutt had contacted them and they are informed that the plaintiff had approached the owners of Pizza Hutt to find out if they would be interested in purchasing the company’s shares. Per learned counsel this came as a complete surprise as this was not the approved procedure. Conclusively the PepsiCo Inc. officials told both the plaintiff and the defendants to put the price in writing and the PepsiCo Inc. would see if anything could be done at this stage. Mr. Salman Talibuddin submitted that on 01.11.2011 both the plaintiff and defendant No.1 agreed to notify the PepsiCo Inc. a requisite price though negotiable for the entire shares of the company. This asking price, per learned counsel, was held to be unrealistically high for the PepsiCo Inc. and according to the learned counsel PepsiCo Inc. informed that no purchaser could be found in such price. He then submitted that the PepsiCo Inc. gave three following options:-

a) Both groups of shareholders should attempt to resolve their differences and a buy-out at the price notified to PepsiCo or any other price agreeable to them;

b) If the first option was not acceptable, PepsiCo Inc. would try and assist in the sale of SBL’s assets after 31 March 2013 at a 10 to 15% premium over their audited value; or

c) If neither the above options are exercised on or before 16 January 2012, PepsiCo would go ahead with its plans for the post 31 March 2013 scenario in the territory in which the plaintiffs would be assigned a significant role.

The defendants, however, agreed to opt the third option and to assume the role with PepsiCo Inc. in post 31.3.2013 scenario. However, the PepsiCo Inc. provided the time until 16.01.2012 in arriving a marketable price of the shares.

On 16.01.2012 nothing was notified to the PepsiCo Inc. by the plaintiff and PepsiCo Inc. asked the plaintiff and defendants to attend a meeting at Bangkok on 10.02.2012 to discuss the affairs. In the meantime a common friend also approached the plaintiff to have them arrive at an acceptable solution and during this intervention the plaintiff agreed to buy the shares held by the defendants and his family members at the price of Rs.1.3 Billion for their entire shares and the amount that would have been payable by the plaintiff to the defendants would be Rs.220,000,000/-. With this background both the plaintiff and defendants proceeded to Bangkok, however, the plaintiff did not mention anything regarding this understanding and the meeting was ended on a sour note and the PepsiCo Inc. informed that by 17.02.2012 the parties should inform their options to be adopted. The learned counsel for the defendants submitted that the plaintiff No.1 acting in consort with the plaintiff No.2 has not only deceived and flouted his commitment to purchase the defendants’ share but is also adamant on preventing the defendants from the legitimate exercise of third option put on the table by the PepsiCo Inc. on 06.01.2012.

Hence, learned counsel submitted that the plaintiffs should be permanently restrained in maliciously maligning the defendants with the sole aim of preventing him from entering into arrangement with PepsiCo Inc. for the post 31.03.2013 period as he would suffer irreparable loss which cannot be compensated in terms of money. Learned counsel submitted that the ad-interim order passed on 21.03.2012 by this Court was in fact obtained on false and fabricated facts and proceedings have been instituted in bad faith and are vexatious and oppressive and hence an abuse of the process of this Court. The order was obtained by concealment and misrepresentation of material facts and hence are not entitled to any equitable relief. Learned counsel in support of his application bearing CMA No.2856 of 2012 submitted that the ad-interim orders dated 21.3.2012 thus as an interim measure may kindly be varied in the manner which protects the legitimate interest of the defendants as well as the plaintiffs.

Learned counsel further submitted that there appears to be interim orders in both the suits which, according to the learned counsel, are overlapping and perhaps to certain extent clashing with each other. Learned counsel submitted that ad-interim order passed in Suit No.222 of 2012 dated 01.03.2012 is in conflict with the order dated 21.03.2012 passed in Suit No.293 of 2012. Learned counsel submitted that the parties are at dragger’s end and unless the orders of 21.03.2012, referred to above, is varied or modified to safeguard interest of both the plaintiffs and the defendants, the rights and interests of defendants in Suit No.293 of 2012 shall be seriously prejudiced. Learned counsel submitted that he had moved an application bearing CMA No.1974 of 2012 in Suit No.222 of 2012 wherein he has prayed that the defendants therein (plaintiffs in Suit No.293 of 2012) be restrained from addressing false and baseless and malicious communication to PepsiCo Inc. and be restrained from taking any step that are intended to or shall have the effect of removing or hampering the plaintiff (in Suit No.222 of 2012) from entering into arrangement with PepsiCo Inc. for a period after 31.03.2013 when company’s current exclusive bottling appointment agreements will expire. Learned counsel submitted that under the facts and circumstances of the case stated above, he has all legitimate rights to enter into such negotiations or agreements as there is no likelihood of the renewal of bottling agreement after 31.03.2013. Learned counsel submitted that the fiduciary relationship of the defendants would not come in the way in entering into post 31.03.2013 scenario as there is no likelihood of continuing the relationship between the company and the PepsiCo Inc.

Learned counsel in support of his contentions has for the assistance of this Court filed Company s’ Duties, Liabilities and Remedies by “Simon Mortimore” wherein the role and duties of the directors of the company were highlighted. He also submitted the Companies Act 2006 of England which highlighted the changes to legislation and also describes the general duties of the directors. He also submitted the extract of Section 86(h) of the Companies Act 1913 and Sections 214 and 217 of the Companies Ordinance 1984 along with case reported in PLD 1995 Lahore 264.

Learned counsel in support of his contentions has also submitted the text of International Review of Law, a judgment of Island Export Finance Limited V. Umunna and another of Queen’s Bench Division, Baiston Limited and another V. Headline Filters Limited and another (in the High Court of Justice – Chancery Division), Foster Bryant Surveying Limited V. Bryant, Savernake Property Consultants Limited ([2007] EWCA Civ 200), Thermascan Ltd. v. Norman (Chancery Division), Vaishnav Shorilal Puri and others v. Kishore Kundanlal Sippy and others and lastly a judgment from Supreme Court of Canada i.e. Can. Aero v. O’Malley ([1974] SCR 592). Thus, the learned counsel submitted that in in the light of the above submissions and the law, the application for modification of the order dated 21.03.2012 is liable to be allowed, as prayed.

As against this learned counsel for the plaintiffs in Suit No.293 of 2012 briefly submitted that the plaintiffs and defendants control the shares (50% shares each) of the company which bottles and supplies Pepsi under Agreement with PepsiCo Inc. since 1983. The last agreement was renewed on 01.04.2008 and is due to expire on 31.03.2013. During the last five years disagreement between the plaintiffs and the defendants started which is reflected from the correspondence exchanged between them. However, the company is by and large performing its functions normally without any serious problems relating to its business activities and PepsiCo Inc. does not have any issue with the performance of the Company.

Learned counsel submitted that the plaintiff No.1 is the Chief Executive of the company, the defendant No.1 has all along been dealing with PepsiCo Inc. on behalf of the company. The plaintiffs had no problems with that. The problem started when the defendant No.1 started feeding misleading information about the disputes between the shareholders to scare PepsiCo Inc. with the object of getting rid of the 50% shares held by the plaintiffs. Learned counsel submitted that defendant No.1 also misled the plaintiffs and falsely conveyed to PepsiCo Inc. that plaintiffs want to sell their shareholding. It is submitted that neither the plaintiffs want to sell their shareholding nor they want to buy the 50% shares controlled by defendants. Both parties can continue as 50% shareholders.

Learned counsel further submitted that the plaintiffs urged the defendant No.1 that since the agreement with PepsiCo Inc. is due to expire on 31.03.2013, the defendant No.1 should negotiate with PepsiCo Inc. for renewal of the agreement as without the agreement renewed, the company will come to standstill after 31.03.2013. It is submitted by the learned counsel that as the company needs renewal of the agreement for its survival after 31.3.2013, PepsiCo Inc. also equally needs the company and its bottling plant and infrastructure for its survival in that particular market as otherwise PepsiCo Inc. products cannot be supplied in this region and there is no other bottling plant in Sukkur region. Thus, if the shareholders and directors of the company i.e. the plaintiffs and the defendants remain steadfast and solely committed and loyal to the company, PepsiCo Inc. would have to renew the agreement after 31.03.2013.

Learned counsel further submitted that the defendant No.1, though a director and being in a fiduciary relationship of trust with the company, started to feed false and misleading information with the objective of persuading PepsiCo Inc. to deal with him directly and not extend agreement with the company of which he remains a director and shareholder. He assured PepsiCo Inc. that if it informs the company about its intent of non-renewal of agreement after 31.03.2013, the plaintiffs would be compelled to surrender and sell their shares at pittance where after the defendant No.1 may run the new business alone. The plaintiffs did not fall in this trap and refused to be blackmailed into selling their shares. PepsiCo Inc. vide letter dated 12.10.2011 conveyed its intent of non-renewal of contract. This was done merely to push the plaintiffs out of the company. In the meantime the defendant No.1 was secretly negotiating with the PepsiCo Inc. for bottling agreement with him directly i.e. outside the company. When the plaintiffs discovered this they tried to contact PepsiCo Inc. so as to give them the true picture and inform that the company has absolutely no performance problems or issues. The defendants rushed and filed suit and got stay order against the plaintiffs’ approaching PepsiCo Inc.

Learned counsel further submitted that it is well settled principle of law that a director such as defendant No.1 stands in fiduciary relationship with the company which is akin to that of a trustee. While still being a director he must be absolutely candid, honest and completely devoted and committed to the company and only act for the benefit of the company. He cannot lawfully enter into any agreement or transaction with may adversely affect the business/interests of the company. If the defendant No.1 wants to negotiate with PepsiCo Inc. and enter into any agreement, such agreement must be for the benefit and interests of the company and not outside the company as is now being done by the defendant No.1. Rather than making efforts to have the agreement with PepsiCo Inc. renewed for period after 31.03.2013, the defendant No.1 is secretly negotiating and wants to enter into agreement for his own benefit at the expense of the company and its shareholders. This, per learned counsel, is absolutely prohibited under the law and this is exactly what the Court directed him to do vide order dated 21.03.2012.

Learned counsel in support of his contentions referred to Article 3(1) and (2), 23, 55, 56 of Memorandum and Articles of the company. He has also placed reliance on the cases reported in PLD 1992 SC 276, 1986 MLD 1870, (1972) 2 AER 162 and (2012) B.C.C. 72 and prayed that it may be held that while still being a director of the company the defendant No.1 stands in a fiduciary relationship with the company and must act as per the articles of the company and with the sole objective of promoting and extending the business and interests of the company and that the defendant No.1 is free to negotiate with PepsiCo Inc. to seek renewal agreement after 31.032012 for the benefit of the company only and not for himself personally or any party other than the company as is being admitted by the defendant No.1 and prayed that the ad-interim order dated 21.3.2012 passed by this Court be confirmed.

Mr. Taha Ali Zai, learned counsel for defendants in Suit No.222 of 2012, though on general adjournment but appeared as the matter was proceeding at the request of other learned counsel who have shown urgency. Mr. Taha adopted the arguments of Mr. Khalid Jawed Khan as clients of Mr. Taha are plaintiffs in Suit No.293 of 2012 and defendants in Suit No.222 of 2012 and who were ably represented by Mr. Khalid Jawed Khan.

I have heard the learned counsel for the parties and perused the record. The core issue involved in terms of the pleadings and arguments is that since the parties are at draggers end and there is no hope of the continuance of relationship of company with PepsiCo Inc. the directors would be free from their duties and responsibilities and the effect of fiduciary relationship would not be that significant under the circumstances stated above. It is for this reason that Mr. Salman Talibuddin has moved an application bearing CMA No.2846 of 2012 for the vacation of the ad-interim exparte order dated 21.03.2012 whereby his client was restrained from entering into any separate/private agreement or arrangement with PepsiCo Inc. except for the benefit of the company.

In order to understand the relationship of directors with the company and the effect of fiduciary relationship the relevant provisions of the Companies Ordinance, 1984 such as Sections 214-217 are reproduced hereunder:-

“214. Disclosure of interest by directors.- (1) Every director of a company who is in any way, whether directly or indirectly, concerned or interested in any contract or arrangement entered into, or to be entered into, by or on behalf of the company shall disclose the nature of his concern or interest at a meeting of the directors :

Provided that a director shall be deemed also to be interested or concerned if any of his relatives, as defined in the Explanation to sub-section (1) of section 195, is so interested or concerned.

(2) The disclosure required to be made by a director under sub-section (1) shall be made, -

(a) in the case of a contract or arrangement to be entered into, at the meeting of the directors at which the question of entering into the contract or arrangement is first taken into consideration or, if the director was not, on the date of that meeting, concerned or interested in the contract or arrangement, at the first meeting of the directors held after he becomes so concerned or interested; and

(b) in the case of any other contract or arrangement, at the first meeting of the directors held after the director becomes concerned or interested in the contract or arrangement.

(3) For the purposes of sub-section (1) and (2), a general notice given to the directors to the effect that a director is a director or a member of a specified body corporate or a member of a specified firm and is to be regarded as concerned or interested in any contract or arrangement which may, after the date of the notice, be entered into with that body corporate or firm, shall be deemed to be a sufficient disclosure or concern or interest in relation to any contract or arrangement so made.

(4) Any such general notice shall expire at the end of the financial year in which it is given, but may be renewed for further period of one financial year at a time, by a fresh notice given in the last month of the financial year in which it would otherwise expire.

(5) No such general notice, and no renewal thereof, shall be of effect unless either it is given at a meeting of the directors, or the director concerned takes reasonable steps to ensure that it is brought up and read at the first meeting of the directors after it is given.

(6) A director who fails to comply with sub-section (1) or sub-section (2) shall be liable to a fine which may extend to five thousand rupees.

(7) Nothing in this section shall be taken to prejudice the operation of any law restricting a director of a company from having any concern or interest in any contract or arrangement with the company.

215. Interest of other officers, etc.- (1) Save as provided in section 214 in respect of director, no other officer or a company who is in any way, directly or indirectly, concerned or interested in any proposed contract or arrangement with the company shall, unless he discloses the nature and extent of his interest in the transaction and obtains the prior approval of the directors, enter into any such contract or arrangement.

(2) An officer who contravenes sub-section (1) shall be liable to a fine which may extend to five thousand rupees.

216. Interested director not to participate or vote in proceedings of directors.- (1) No director of a company shall, as a director, take any part in the discussion of, or vote on, any contract or arrangement entered into, or to be entered into, by or on behalf of the company, if he is in any way, whether directly or indirectly, concerned or interested in the contract or arrangement, nor shall his presence count for the purpose of forming a quorum at the time of any such discussion or vote; and if he does vote, his vote shall be void.

(2) Sub-section (1) shall not apply to-

(a) a private company which is neither a subsidiary nor a holding company of a public company;

(b) any contract of indemnity against any loss which the directors, or any one or more of them, may suffer by reason of becoming or being sureties or a surety for the company;

(c) any contract or arrangement entered into or to be entered into with a public company, in which the interest of the directors aforesaid consists solely in his being a director of such company and the holder of not more than such shares therein as are requisite to qualify him for appointment as a director thereof, he having been nominated as such director by the company referred to in sub-section (1).

(3) Every director who knowingly contravenes any of the provisions of sub-section (1), or sub-section (2) shall be liable to a fine which may extend to five thousand rupees.

217. Declaring a director to be lacking fiduciary behavior.- The Court may declare a director to be lacking fiduciary behavior if he contravenes the provisions of section 214 or sub-section (1) of section 215 or section 216:

Provided that before making a declaration the Court shall afford the director concerned an opportunity of showing cause against the proposed action.”

Section 214 of the Companies Ordinance, 1984 deals with the obligation of the director who is interested in any contract or arrangement entered into by the company to disclose his interest to other directors and imposition of penalties for not disclosing his interest. From the bare reading of this section it appears that the object of this section is to compel a director to disclose his personal interest when there is possibility of such interest conflicting with their duties to the company as its director and thus to avoid there being such a conflict which would remain unknown. Section 214 further stretches down to the effect that the disclosure of interest must be made at a meeting of the directors. A director is in fiduciary relationship with the company and it is a general rule of equity that no one who has such duties to discharge shall be allowed to enter into engagement or negotiations in which he is or can have a personal interest conflicting or which may conflict with the interest of those whom he is bound to protect. The company is entitled for the services of its directors in terms of the Companies Ordinance 1984. The company is a separate and distinct legal entity and the directors perform duties under the law.

It is however significant to note that it is not the case of the defendants here that they intend to enter into any secret contract or contract which is against the interest of the company itself. Subsection 6 of Section 214 deals with the penalty which makes the operation of this section as of a mandatory in nature.

Same is the case with Section 215 which deals with the “officer of the Company”. Section 216 of the Companies Ordinance, 1984 relates to the ouster of the interested director from the participation or voting in the proceedings of the directors.

Section 217 is the most important provision in relation to the current issues that deals with the fiduciary relationship of directors. Under this section the directors who are involved in such could be declared to be lacking fiduciary behavior if they contravene the provisions of Section 214 or subsection 1 of Section 215 or Section 216 of the Companies Ordinance, 1984. Section 217 makes other sections such as 214, 215 and 216 as mandatory in nature as it provides a penalty for contravening the aforesaid sections.

The main contention of Mr. Salman Talibuddin is that since the agreement is due to expire on 31.03.2013 and additionally the directors of the company are also in strange relationship, therefore, it ought to have collapsed and hence any kind of negotiations with the principal. i.e. PepsiCo Inc. these provisions would not be in stricto senso applicable under the facts and circumstances of the case.

It is an admitted position that the company was incorporated in the year 1974 and till 1988 the company was not doing any business with PepsiCo Inc. For the first time the plant was purchased by the company in the year 1988 while the company was operating since 1974. Although the plaintiff’s counsel has opposed the contentions of Mr. Salman Talibuddin that the parties are at draggers end and that the situation (as presented by Mr. Salman Talibuddin) cannot be saved/changed, it is the dispute as primarily shown by Mr. Salman Talibuddin between PepsiCo Inc. and the company. In worst circumstances after 31.03.2013, the agreements of sale and bottling the products of PepsiCo Inc. would come to an end. In my opinion this alone does not mean that the company, Sukkur Beverages (Pvt.) Limited, would ceased to exist. The company would continue to exist and function in terms of the Companies Ordinance, 1984 and as long as the company exists, the relationship of its directors with the company exists. If this legal entity i.e. the company is to survive and live with all its functionings, the loyalty of its directors with the company is the first one to continue and it cannot be made disfunctional and allowed the company to suffocate under such circumstances. This function of loyalty of director and fiduciary relationship was taken care of by section 214 to 217 of the Companies Ordinance, 1984. A company cannot be allowed to live by dis-functioning the aforesaid organ.

More importantly a company should not be allowed to be betrayed by its directors and the company being a separate legal entity is entitled to undivided loyalty from its directors. The directors were enjoying this ship when it was sailing with full pace and providing benefits to its directors but the Companies Ordinance, 1984 does not allow the directors to get away from the ship when it is in hot water. This is the time when company needed its loyal directors more than any other time and they should make every effort to save the ship from sinking. The directors have derived maximum benefits when it was at its peak and its directors cannot be allowed to betray and become disloyal in difficulties.

The fiduciary relationship is also discussed in the Trust Act, 1882 as well as in the Partnership Act, 1932. Dealing with such relationship the Trust Act defines that whenever a person such as guardian, agent, director, promoter of the company etc either directly or indirectly avails himself of his position to make profit or gains any advantage, he will in equity be trustee for such profit and gain and accountable for the same. Section 88 of the Trust Act, 1882 is reproduced as under:-

“88. Advantage gained by fiduciary: Where a trustee, executor, partner, agent, director of a company, legal adviser, or other person bound in a fiduciary character to protect the interests of another person, by availing himself of his character, gains for himself any pecuniary advantage, or where any person so bound enters into any dealings under circumstances in which his own interests, are, or may be, adverse to those of such other person and thereby gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained.”

This section defines that a constructive trust shall arise out of all dealings entered into by a person occupying a fiduciary position. Under the circumstances in which his own interests are or may be adverse to that of the beneficiary and a benefit thereby accrues to that person. The underlying principle being that an advantage gained by a person who has got into a position where his duty clashed with his interest, is not countenanced by a Court of equity.

The following case laws also tend to support the above:

i) PLD 1963 Dacca 269

ii) PLD 1982 Karachi 172

In a case reported as Tower Vs. Premier Waste Manager Limited, cited by counsel for the plaintiff, the duties of the Directors have been defined. These duties have been derived from common law, rules and equitable principles as they apply to directors. This judgment also highlighted the Companies Act 2006 England, as it appeared to have been reported on 28.7.2011.

In my view the duties of the directors towards a company is the prime factor as far as smooth sailing of the company is concerned. The director’s loyalty to the company and the duty to observe that no conflict principle, which embraced a duty not to make a secret profit/ benefit for himself. The parties/directors owe fiduciary duties to a company as they were appointed to direct the affairs of the company for its benefit. It should be the prime consideration to use their position to promote its success and to protect its interest in accordance with the equitable principle. Thus a company is entitled to the undivided loyalty of its directors. If a director obtains the opportunity for himself (while being a director), he will be liable to the company for breach of duty regardless of the fact that he acted in good-faith or that the company could not and would not take advantage of the opportunity.

In view of the above submissions and the law cited by both the Counsels in support of their respective contentions, I have reached conclusion that the loyalty of a director for its company is indispensable and is a prime consideration and under no stretch imagination one can blink his eyes towards the importance of fiduciary relationship. The directors are supposed to swim and sink with the company but the element of being disloyal cannot be accepted under any circumstances.

In view of the above facts and circumstances, I am of the view that the defendant in Suit No. 293/2012 who are the Plaintiff in Suit No. 222/2012 cannot be given this license to deal with their principal i.e. Pepsi Co in the manner they like. If at all the defendants in Suit No. 293/2012 desire to meet and negotiate with Pepsi Co, they shall have no hesitation in their mind that the dealing should be strictly in accordance with law and for the benefit of the company alone. Thus the application filed by the defendant in Suit No. 293/2012 bearing CMA No. 2846/2012 is dismissed, as I see and find no occasion or justification to vary the findings arrived by my learned brother on 21.3.2012 whereby the directors of the company were restrained from entering into any separate/private agreement or arrangement with PEPSI CO except for the benefit of the company. The other application bearing CMA No. 2721/2012 in Suit No.293/2012 is allowed with further clarification that in case the defendant approach, negotiate or enter into any agreement with the Pepsi Co it should be for the benefit and interest of the company alone and not for his personal gain. Consequently, the application bearing CMA No. 1974/2012 in Suit No.222/2012 is also disposed of with observation that the plaintiff in Suit No.222/2012 is allowed to enter into arrangement with Pepsi Co for a period after March 31^st 2012 but for the benefit of the company and the defendant in Suit No. 222/2012 shall not address false, baseless and malicious communication to Pepsi Co or shall not take any steps that are intended to or shall have effect of preventing or hampering the Plaintiff into any arrangement/agreement or negotiation which may be for the benefit of the company.

Dated: JUDGE