SUIT NO. 669 of 2009
PREMIER FINANCIAL SERVICES
(Pvt.) Ltd. & ANOTHER ---------------------------------------- PLAINTIFFS
Vs.
THE SECURITIES & EXCHANGE
COMMISSION OF PAKISTAN -------------------------------- DEFENDANT
For hearing of CMA No. 483/2009.
Date of hearing: 15.04.2015.
Date of order: 08.07.2015.
Plaintiffs: Through Mr. Owais Ali Shah Advocate.
Respondent Through Mr. Naveedul Haq Advocate.
O R D E R
Muhammad Junaid Ghaffar, J. Through listed application under Order 39 Rule 1 & 2 CPC, the plaintiffs have prayed for a restraining order against the defendant, from inspecting and investigating the affairs of the plaintiffs pursuant to order dated 5.5.2009 passed under Section 21 of the Modaraba Companies and Modaraba (Floatation & Control) Ordinance 1980 (“Ordinance, 1980”) pending final disposal of the main Suit.
2. Through instant Suit the plaintiffs have impugned the action of defendant, whereby, the affairs of the plaintiffs are being investigated through enquiry under the Ordinance, 1980. It has been contended that the plaintiff No. 1 is a private limited company and is managing the affairs of plaintiff No. 2 which is a Modaraba, Floated under the Ordinance, 1980. Learned Counsel for the plaintiffs has contended that on 15.12.2006 an enquiry under Section 21 of the Ordinance, 1980 was ordered into the affairs of the plaintiffs, without issuance of any prior Show Cause Notice in this regard, whereas, the order dated 15.12.2006 did not even disclose any reason for conducting such enquiry and was issued in a mechanical manner. Learned Counsel contended that subsequently the defendant kept on asking for various documents time and again, despite the fact that all such information / documents had already been supplied to the defendant through various letters. Learned Counsel further submitted that thereafter on 17.9.2007, a comprehensive enquiry report was prepared by the defendant, which reflected that all the relevant documents were provided by the plaintiffs, whereas, the plaintiffs raised certain objections vide letter dated 28.9.2007 in response to such enquiry report. However, the defendant without considering such objections on 29.11.2007, issued Show Cause Notice in terms of Section 19, 20, 21, 23 & 32 of the Ordinance, 1980, which was replied by the plaintiffs vide letter dated 12.12.2007, wherein, the allegations were responded through a comprehensive representation. Per learned Counsel, thereafter, no proceedings took place, however, to the utter surprise of the plaintiffs, on 5.5.2009 after almost one and half year of issuance of Show Cause Notice, another order under Sections 21 of the Ordinance, 1980 was passed by the defendant, in which it was stated that in order to evaluate and verify various business transactions as reported by the Inspectors vide Inspection Report dated 17.9.2007, and Show Cause Notice dated 29.11.2007, Officers of the defendant were appointed as Enquiry Officers into the affairs of the management of the plaintiffs. Per learned Counsel such order was passed on the same set of allegations which was already replied by the plaintiffs in December 2007, whereafter, no further proceedings had taken place and suddenly such an adverse action has been initiated against the plaintiffs, without giving them a proper opportunity of being heard, therefore, such action on the part of the defendant is completely without jurisdiction and of no legal effect. Learned Counsel further contended that through written statement the defendant has annexed a letter dated 17.11.2006, purported to be sent as a complaint by a minority shareholder in the plaintiff No. 2, whereas, the plaintiffs were never confronted with any such letter or complaint when the Show Cause Notice dated 29.11.2007 was issued or prior thereto. Per learned Counsel such conduct of defendant is in violation of Section 21 of the Ordinance, 1980 whereas, defendant has failed to fulfill the two preconditions / situations which are mandatory before any such complaint / letter could be entertained by the defendant. Per learned Counsel, it is the case of the plaintiffs, that no enquiry can be conducted without there being a prior Show Cause Notice, whereby, the plaintiffs must be confronted with specific allegations in respect of which the enquiry is to be conducted. Leaned Counsel further submitted that the regulator i.e. the defendant, must ensure and be satisfied with regard to initiation of enquiry / investigation, before exercising any extreme powers which have been conferred upon the defendant by the legislature, as otherwise such roaming enquiry can jeopardize the business of plaintiffs and can also result in bad publicity, which may effect and damage the reputation of the plaintiffs, which cannot be redressed thereafter. Learned Counsel has also refereed to the provisions of Section 263 of the Companies Ordinance, 1984 and the provisions of Section 43 of the Societies Act, 1925 and submitted that these provisions are analogous to the provisions of Section 21 of the Ordinance, 1980 and contended that the Hon’ble Supreme Court as well as this Court, in a number of cases have held that before taking any extreme measures against a person, proprietary demands, that the said person should be confronted precisely with the set of allegations, and, thereafter, if necessary, any adverse order be passed. In support of his contention learned Counsel has placed reliance upon the cases of Chief Commissioner, Karachi Vs. Mrs. Dina Sohrab Katrak (PLD 1959 SC (PAK) 45), The University of Dacca and another Vs. Zakir Ahmed (PLD 1965 SC 90), Rohtas Industries Ltd. Vs. D. Agawal and another (AIR 1969 SC 707), Service Industries Textiles Ltd. Lahore Vs. SECP (2000 MLD 1880), Delhi Mercantile Cooperative Society Ltd. Vs. Registrar Cooperative Societies, Sindh Hyderabad and another (2011 YLR 2121), Mansab Ali Vs. Amir and 3 others (PLD 1971 SC 124), Moulana Atta-ur-Rehman Vs. Al-Hajj Sardar Umar Farooq land others (PLD 2008 SC 663), and Muhammad Haleem and another Vs. General Manager (Operation) Pakistan Railways Headquarter, Lahore and others (2009 SCMR 339).
3. Conversely, learned Counsel for the defendant has contended that instant Suit has been filed without any proper cause of action as the matter is still at the enquiry stage. Learned Counsel further contended that since the plaintiff No. 2 was running in loss and they had received several complaints in this regard, therefore, the impugned notice of enquiry was issued, whereas, the plaintiffs had all along denied access to various documents. Learned Counsel further submitted that since the reply to various notices were evasive, special audit was required to be carried out; however, due to failure on the part of the plaintiffs to share respective information, special audit also could not be conducted. Learned Counsel submitted that the purpose of enquiry was to extract proper information which was being withheld by the plaintiffs, whereas, no adverse order has been passed against the plaintiffs and mere issuance of enquiry notice has been impugned through instant Suit, wherein, restraining order is operating since 2009. As to maintainability of the instant Suit, learned Counsel contended that the declaration being sought through instant Suit is barred under Section 42 of the Specific Relief Act as the plaintiffs have no legal character and therefore, no specific relief can be sought by them. Learned Counsel finally contended that no prima facie case has been made out by the plaintiff, whereas, no irreparable loss would be caused to the plaintiffs if the enquiry is allowed to be conducted and similarly balance of convenience also does not lie in their favour. In support of his contention learned Counsel has relied upon the cases reported as Sheikh Abdul Wahid and 7 others Vs. Securities and Exchange Commission of Pakistan and 2 others (2008 CLD 57), Royal Management Services (Pvt.) Ltd. and another Vs. The Chairman SECP, Islamabad and others (2015 CLD 150), Rehmatullah Khan and others Vs. Government of Pakistan through Secretary, Petroleum and Natural Resources Division, Islamabad and others (2003 SCMR 50), Burmah Eastern Ltd. Vs. Burmah Eastern Employees’ Union and others (PLD 1967 Dacca 190), Nasim Beg Vs. Securities and Exchange Commission of Pakistan through its Chairman and 2 others (2014 CLD 853), M/S Karsaz Construction Company Vs. Pakistan through Secretary, Ministry of Defence Islamabad and another (1999 CLC 1719), Alavi Sons Ltd. Vs. Government of East Pakistan and others (PLD 1968 Karachi 222), Mecmar Management (Pvt.) Ltd and another Vs. Karachi Port Trust and another (2002 YLR 1473), Abdul Rehman Mobashir and 3 others Vs. Syed Amir Ali Shah Bokhari and 4 others (PLD 1978 Lahore 113), Mrs. Shazadi Baber Vs. Hina Housing Project (Pvt.) Ltd and others (1994 CLC 1601), S.M. Shafi Ahmed Zaidi through legal heirs Vs. Malik Hassan Ali Khan (Moin) through legal heirs (2002 SCMR 338), Muhammad Rasab and another Vs. Muhammad Siddiquie Chaudhry (1998 MLD 2045), Mian Nur Husain and others Vs. Khalifa Muhammad Sultan and others (PLD 1956 (WP) Lahore 893), M. A. Naser Vs. Chairman, Pakistan Eastern Railways and others (PLD 1965 SC 83), Ilyas Ahmed Vs Muhammad Munir and 10 others (PLD 2012 Sindh 92), Muhammad Hamdan Shaikh Vs. The Chairman, Board of Secondary Education, Nazimabad, Karachi and 2 others (PLD 1998 Karachi 59), Government of East Pakistan Vs. Federation of Pakistan and another (PLD 1962 (W.P.) Karachi 353), Akmid Units, Muzafarabad and others Vs. Moinuddin and others (1987 MLD 1055), Managing Committee, Revenue Employees Cooperative Housing Society, Rawalpindi Vs. Secretary, Cooperative Societies Government of Punjab, Lahore and 3 others (2001 CLC 838), Negotiating Committee for Disinvestment of Akmidc Units, Muzaffarabad and 3 others Vs. Moinuddin and 6 others (1987 CLC 1322) and Sayyid Yousaf Husain Shirazi Vs. Pakistan Defence Officers Housing Authority and 2 others (2010 MLD 1267).
4. I have heard the both learned Counsel and perused the record. It appears that the plaintiff No. 1 which is a private limited company is the management company of the plaintiff No. 2, being a “Modaraba” floated under the Ordinance, 1980. It is the claim of the plaintiffs that they have pioneered in introducing the concept of rights issue at premium in the Modaraba Sector, whereas, they have also pioneered in bringing in the concept of wholly owned subsidiary in the Modaraba sector. They have also claimed to declare the highest cash dividend at the rate of 42.5% and due to this performance in the year 2004; the plaintiff No. 2 was ranked 16 in the top 25 companies by the Karachi Stock Exchange. It appears that primary grievance of the plaintiffs, is with regard to the continuous conduct of enquiry by the defendant, allegedly on the same set of allegations. The plaintiffs claimed that on 15.12.2006 the defendant had passed an order under Section 21 of the Ordinance, 1980 for appointment of Inspectors to conduct enquiry into the affairs of plaintiff No. 2, without assigning any reasons thereof, and disclosing any allegations, whereafter, the plaintiffs provided all the requisite information to the defendant, however, the defendant kept on demanding various documents and information from the plaintiffs, which were provided from time to time, and, thereafter, till issuance of the impugned enquiry notice, no final order was passed against the plaintiffs. The grievance of the plaintiffs appears to be, that this continuous hanging of the sword, under the garb of enquiry is damaging the reputation of the plaintiffs, and, is generating adverse publicity against the plaintiffs, therefore, this should come to an end as the shares of plaintiff No. 2 are listed on the Stock Exchange, prices of which have a direct nexus with such adverse publicity.
5. Perusal of the record reflects that pursuant to issuance of enquiry notice dated 15.12.2006 several correspondence had exchanged between the parties, whereas, an enquiry report was also prepared by the defendant, whereafter, a Show Cause Notice dated 29.11.2007 under Section 19, 20, 21, 23 & 32 of the Ordinance, 1980 was issued to the plaintiffs, whereby, they were show caused as to why further proceedings should not be initiated against them, including removal of the management of plaintiff No. 2 in terms of Section 19 of the Ordinance, 1980 or appointment of Administrator or any other Modaraba company to manage the affairs of plaintiff No. 2. The plaintiffs replied to the said Show Cause Notice, in respect of which the proceedings kept pending and no final adjudication of the Show Cause Notice was done, when, once again the impugned order under Section 21 of the Ordinance, 1980 dated 5.5.2009 has been passed. It may be noted that admittedly no final order, either in favor or against the plaintiffs, was passed pursuant to show cause notice dated 29.11.2007, and, for all legal and practical purposes, the proceedings initiated pursuant to such show cause notice were in fact pending and had not culminated finally. Merely for the fact that no further action was being taken against the Plaintiffs, would not ipso facto mean that the proceedings in respect of the show cause notice have been finally decided in favor of the Plaintiffs, due to elapse of time. It is not the case of the Plaintiffs that the Ordinance 1980, provides for any time limit to pass appropriate orders after issuance of show cause notice, nor any such provision was referred to by the learned Counsel for the Plaintiffs. In somewhat similar facts the Hon’ble Supreme Court in the case of Assistant Collector of Customs AFU Airport, Lahore Vs. M/s Tripple-M (Private) Limited, through Managing Director and 4 others (PLD 2006 SC 209) has been pleased to hold that after issuance of a show cause notice within the prescribed limitation, a further notice of hearing, though issued after a period of 3 years, would not render the Order passed thereon, to be void, as the subsequent notice of hearing is to be treated as a notice in continuation of the proceedings before the authorities which had commenced the proceedings within time whilst issuing first show cause notice. The Hon’ble Supreme Court has held as under:
8. It is on record that a notice was issued to the respondent-Company on 10.7.1989 i.e. within less than two months of the clearing of the consignments and thus within time. The subsequent notice dated 31.8.1992 was a notice of date of hearing requiring the respondent to appear before the appellant on 12.9.1992 for showing cause that why short recovery of Rs.96,964 as regulatory duty, be not recovered. By no stretch of imagination, it can be said to be a fresh show-cause notice. It has to be treated, as a notice in continuation of the proceedings before the appellant which had commenced, within time, under the show-cause notice dated 10.7.1989. Even otherwise, it was merely a notice of date of hearing of the case. We have given our anxious consideration to the letter dated 6.11.1990 addressed by the appellant to the Audit Officer, which according to the learned counsel for the respondent, means that the proceedings had been dropped against respondent in 1990. We are unable to agree with this contention as well. The said letter does not show that the proceedings had been dropped. The last paragraph of the said letter (reproduced above), cannot be treated as a decision of the appellant of dropping the proceedings against the respondent. The said letter was an internal correspondence and at the most it can be treated as an indications to the Audit Department that appellant was of the view that the proceedings should be dropped, which course of action was never adopted and in this back ground, the Audit Department was also being requested before hand to drop the audit objection. The fact remains that appellant never took any decisive steps of dropping the proceedings. Had this been a decision of the appellant, it would have been written as decision in the presence of the respondent. We are, therefore, of the view that the appellant may have come to the conclusion, at that time, to drop the proceedings against the respondent but no such final step was taken by the appellant, in that direction. No other document has been shown to us to suggest that the proceedings against respondent were ever dropped by the appellant, who is the competent authority. It is thus concluded that the above-said proceedings initiated against the respondent through the show-cause notice dated 10.7.1989, were well within time, were not hit by the period of limitation then prescribed under section 32(3) of the Act and were never dropped. As regards the observations of the learned Single Judge of the High Court that the order-in-original dated 26.9.1992 passed by the appellant was not within a reasonable time from the date of the issuance of notice dated 10.7.1989, the same are neither here nor there. No order can be scraped or annulled or set aside, only on the ground that the same has been passed with unreasonable delay. There is no such concept attached to the judicial and quasi-judicial proceedings, unless provided in the statute. The above-mentioned observations of the learned Single Judge have attained seriousness because of the contention of the learned Senior Advocate Supreme Court of the appellant that this issue may be involved in a large number of customs cases and the department would suffer because of the above-said observations made in the impugned judgment especially when the judgment has been approved for reporting. It is, therefore, held that the said observations have no value in the eye of law. No other point was urged before us. (Emphasis supplied)
6. Insofar as the contention of the learned Counsel for the plaintiffs with regard to issuance of any prior Show Cause Notice, before passing any order of enquiry under Section 21 of the Ordinance 1980 is concerned, it would suffice to observe that Section 21 ibid merely empowers the Registrar on his own motion or on an application made by the holders of Modaraba Certificates, the value of which is not less than ten percent of the total subscribed amount of the Modaraba, by an order in writing to cause any enquiry, and, in terms of sub section (5) on receipt of the report of the person conducting enquiry, shall take such action as he may consider necessary on the basis of such report. It does not provide for issuance of any such Show Cause Notice prior to making an order of enquiry. In fact the order under Section 21 of the Ordinance 1980 is only to the extent of conducting the enquiry, and, after completion of such enquiry, if deemed fit, a Show Cause Notice can be issued. This procedure has already been adopted by the defendant in the case of the plaintiffs, when the earlier order of enquiry dated 15.12.2006 was passed and an enquiry was conducted, whereafter, Show Cause Notice dated 29.11.2007 was issued. Therefore, the proposition that issuance of Show Cause Notice is a sine qua non before any adverse action is taken, is not applicable in the given facts of the instant matter, as after completion of the enquiry, the defendant may issue a Show Cause Notice or proceed further as may be necessary in terms of Section 21 of the Ordinance, 1980. The record also supports this in respect of the earlier round of enquiry, whereas, if any adverse order is passed, the same can be further impugned in accordance with law.
7. Adverting to the second contention of the learned Counsel for the plaintiffs, that the defendant is repeatedly conducting enquiry against the plaintiffs, in respect of the same set of allegations. In this regard, I may observe that defendant is the appropriate regulatory authority under the Securities & Exchange Commission of Pakistan Act, 1997, and such authority vested in the defendant, requires it to manage and regulate companies, including Modaraba Companies, to safeguard the interest of minority shareholders, and, to supervise and manage the overall affairs of such companies with regard to their compliance, in respect of statutory provisions. If once an enquiry has been conducted and thereafter a Show Cause Notice has been issued, this would not debar the defendant from proceeding further either on the same enquiry, or to initiate any other individual enquiry, as the plaintiffs are being provided an opportunity to defend the allegations leveled by the defendant through a proper Show Cause Notice. The facts so disclosed in the instant matter, reflects that after issuance of Show Cause Notice dated 29.11.2007, no final order has been passed against the plaintiffs, and therefore the continuation of the said enquiry does not in any manner give rise to any cause to the plaintiffs to initiate instant proceedings. It is a settled proposition of law that the Courts must not interfere in the proceedings at the stage of enquiry, as this amounts to preempting the conduct and action of the authorities concerned. In such matters, the Courts must exercise judicial restraint. Since admittedly the impugned order dated 5.5.2009, states that it is in continuation of the earlier proceedings, in respect of which no final order had been passed, therefore, the question that as to whether the enquiry being conducted on the basis of impugned order dated 5.5.2009, is in fact, in respect of the same set of allegations as had been leveled earlier or not, is of no relevance in such a situation. Therefore, this Court at this stage of the proceedings cannot exercise jurisdiction to pass any restraining orders, in respect of an enquiry which otherwise appear to have been initiated in accordance with law. Insofar as the role and authority of defendant to act as a regulator of the companies is concerned, the Hon’ble Supreme Court in the case of Muhammad Ashraf Tiwana and others Vs. Pakistan and others (2013 SCMR 1159) with regard to the defendant’s role to safeguard the interest of investors, has observed as follows:-
“(5) The SECP as such is amongst the most important regulatory authorities directly impacting the economic life of the citizens of Pakistan. It may also be noted that amongst the various functions and powers of SECP which have been mentioned in section 20 of the Act, there are a number of functions which relate directly to the economic well-being of the people of Pakistan. By way of illustration only, it may be mentioned that in section 20(6), the SECP has been specifically ordered and mandated inter alia, “to maintain the confidence of investors in the securities markets by ensuring adequate protection for such investors”. The Securities and Exchange Ordinance, 1969, which, as noted above, is also administered by SECP deals in the capital markets in Pakistan. By virtue of that statue too, the SECP is required “to provide for the protection of investors” (Preamble);”
“It is a self-evident fact that persons making investments in and through the capital markets of the country will either be attracted to the capital markets or shy away from such market depending upon the trust and confidence which they have in such markets and this in turn depends upon the rigour and quality of the regulator. Moreover, investments made by the people, being property, are required to be protected through enforcement of the fundamental rights”.
8. Subsequently, following the aforesaid judgment, the Hon’ble Supreme Court in the case of Royal Management Services (Pvt.) Ltd. and another Vs. The Chairman SECP, Islamabad and others (2015 SCMR 101) has been pleased to observe that Modarabas are managed for the benefit of investors and thus the Company managing them must act solely for the benefit of the investors. The Hon’ble Supreme Court in this case has upheld the action of Securities & Exchange Commission, in terms of Section 20(c)(iii) of the Ordinance, 1980, whereby it had appointed another Modaraba Company to manage Petitioner Modaraba Company. Therefore, insofar as the role of defendant (SECP) is concerned, there cannot be any exception to it.
9. Insofar as objection raised on behalf of the defendant, with regard to maintainability of the instant Suit is concerned, it would suffice to observe that a learned Division Bench of this Court in the case of Arif Majeed Malik and others Vs. Board of Governors Karachi, Grammer School (2004 CLC 1029), while dealing with such objection has been pleased to observe as follows:-
“18. We have given our anxious consideration to the question involved after having noticed that both view, as to section 42 being exhaustive or otherwise have been taken by superior Courts in the subcontinent. Possibly one reason for divergence of judicial opinion appears to be that when the Specific Relief Act was enacted in 1877 the concept of rights which could be enforced through Courts was largely confined to “status” as understood in a feudal social context or rights pertaining to property in a laissez-faire economy. With the development of jurisprudence over more than a century a large number of other rights which did not strictly speaking, relate to status of an individual or deal with tangible property came to be recognized by law and some of them in the form of guaranteed fundamental rights. The right of privacy, to carry on the business of one’s choice, access to public information and, large body of social and cultural rights neither relate to status in the traditional sense nor tangible property. Keeping in view the well-settled principle that wherever there is a right there must always be a remedy to enforce it persuaded Courts not to remain bound within the technicalities of section 42 for the purposes of granting relief.
19. Moreover, Article 4 of the Constitution guarantees to every citizen the inalienable right to be treated in accordance with law. This guarantees, which has been often described as embodying the right of law does not operate merely against the instrumentalities of the State. Article 5 stipulates obedience to the law and the Constitution as the inviolable obligations of every citizen. It would indeed be anomalous to suggest that a victim of illegal action has to go without redress because sub-Constitutional legislation does not lay down the mode for enforcing his rights. For this reasons too, we are persuaded to hold that the view that the provisions of section 42 of Specific Relief Act are not exhaustive seems to be preferable.”
Therefore, the objection with regard to maintainability of instant Suit at this stage of the proceedings cannot be considered, however, the defendant can raise this objection at the time of framing of issues and lead its evidence in this regard, which shall then be decided on its own merits and in accordance with law.
10. In view of hereinabove facts and circumstances of the instant case, I am of the view that the plaintiffs have failed to make out any case for grant of injunction, as no prima facie case has been made out by them, whereas, no irreparable loss would be caused to them if the injunction is refused, and so also the balance of convenience does not lie in their favour as a mere enquiry notice / order has been impugned through instant Suit, whereas, no further proceedings have taken place so far. In view of such position, listed application being misconceived in facts and law is hereby dismissed. The plaintiffs are directed to associate themselves in respect of the enquiry initiated against them and fully cooperate with the defendant, failing which defendant would be at liberty to pass appropriate orders in accordance with law. After finalization of the enquiry which shall be so done within a maximum period of 90 days, the defendant shall proceed strictly in accordance with law and shall also provide opportunity of being heard to the Plaintiffs, and, if any adverse order is passed, the same shall be dealt and proceeded with, in accordance with law.
11. Listed Application stands dismissed.
J U D G E
ARSHAD/