P L D 2000 Lahore 461

Before Malik Muhammad Qayyum, J

PAKISTAN WAPDA and others---Petitioners

versus

KOT ADDU POWER CO. LTD. ---Respondent

Civil Original No. 1601-L of 1998, heard on 12th

April, 2000.

(a) Companies Ordinance (XLVII of 1984)--

----S. 290---Indian Companies Act (I of 1956),

Ss.397 & 398---English Companies Act, 1989, S.
459---Powers of Court to take corrective
measures---Scope---Law applicable on the subject
in India and England-- Comparison-7-Provision of
S.290 of Companies Ordinance, 1984, vests the
Court with wide and vast powers to take corrective
measures by passing appropriate orders in the event
that it is shown that the affairs of the company are
being conducted or are likely to be conducted in
unlawful or fraudulent manner or in a manner
prejudicial to public interest or in a manner
oppressive to the members or any of the members or
creditors---Such power is much wider than
corresponding provisions in the repealed Companies
Act, 1913, and Ss.397 & 398 of Indian Companies
Act, 1956, in many respects-- Amplitude of powers
conferred by S.290, Companies Ordinance, 1984
upon the Courts is unprecedented---Neither under
Indian Companies Act, 1950, nor English
Companies Act, 1989, the Courts enjoy such wide
jurisdiction-- Jurisdiction of the Courts in India and
England is much narrower, the Courts have not
shied away from extending their
jurisdiction---Where it is demonstrated that affairs
of the company are being conducted in an unlawful
or illegal manner or in a manner prejudicial to the
public interest or oppressive to the members or
creditors, the Court under S.290 of Companies
Ordinance, 1984 can interfere.

Bennet Coleman & Co. v. Union of India (1977) 47

Com. Cas. 92 and Shahbazud Din v. Service
Industries Textile Ltd. PLD 1988 Lah. 1 ref.

(b) Companies Ordinance (XLVII of 1984)--

----S. 290---West Pakistan Water and Power

Development Authority Act (XXX of 1958),
S.8(2)(c)(vii)---Privatization of power generation
unit-- Power Purchase Agreement between the
Authority and the companies--- Interference with
the agreement by High Court (Companies Judge)
during proceedings under S.290, Companies
Ordinance, 1984---Contention by companies was
that no interference could be made under the
proceedings-- Validity---Apart from being
purchaser, the Authority was also a shareholder
rather majority shareholder in the company---Power
Purchase Agreement was not to be read in isolation
as the same was one of the series of agreements
arrived at as a consequence of
privatization---Agreement itself referred to other
agreements and also to various acts of management
which were to be performed by the
parties---Contention of companies that the Power
Purchase Agreement could not be interfered under
S.290 of Companies Ordinance, 1984 was repelled
having no merits.

(c) Companies Ordinance (XLVII of 1984)--

----S. 209---Managing agents, institution

of---Institution of Managing Agents has been done
away within Pakistan as far back as 1972 and is
specifically prohibited by S.209 of Companies
Ordinance, 1984.

(d) Companies Ordinance (XLVII of 1984)--

----S. 90---Indian Companies Act (I of

1956)---English Companies Act, 1989---Voting
power of each shareholder---Corresponding
provisions of English as well as Indian Company
laws---Comparison---Voting power of each
shareholder under S.90(2) of Companies Ordinance,
1984, must be equal to the paid value of his
shares---Provision of S.90 of Companies Ordinance,
1984, is departure from the previous law---Law in
England and India is different where different
classes of shares are recognized---Provision of
Companies Ordinance, 1984 .provides only one
class of share and every shareholder is given right to
vote proportionately.

(e) Companies Ordinance (XLVII of 1984)--

----Ss. 90 & 290---Right of vote---Imposing of

restriction on such right by an
agreement---Validity---Petitioner Authority had
majority shares in the company and no restriction
could be placed on the right of the petitioner
Authority to take any decision by voting in
proportion to the shares held by it and petitioner
Authority could not be prevented from exercising
that right---Agreement to the contrary was prima
facie void.

(f) Companies Ordinance (XLVII of 1984)--

----Ss. 209 & 290---Mismanagement of affairs of

company---Appointment of Managing
Agents---Power generation plant was privatized and
handed over to the company for its
operation---Company hired one of its affiliated
company for operation and maintenance of the
plane---Validity---Such agreement was illegal as the
same amounted to appointment of Managing Agent
which had no place under the Companies
Ordinance, 1984---Hefty fee alongwith costs,
expenditure and bonus was being paid to that
affiliated company---Where cost of maintenance
which the contractor was charging was much more
than the cost which other unit was incurring, the
excessive payments constitute acts of
mismanagement---Management of the company was
held to be mismanaging its affairs for its gains while
oppressing the other shareholders in circumstances.

(g) Companies Ordinance (XLVII of 1984)--

----S. 290---West Pakistan Water and Power

Development Authority Act (XXXI of 1958),
S.9(2)(c)(vii)---Conducting affairs of company in a
manner prejudicial to public interest---Privatization
of power generation unit-- Management and
operation of the unit was handed over to the
company-- Money received from the petitioner
Authority by the company was a part of purchase
price of electricity---Company under operation and
maintenance agreement was dishing out huge sums
of money to one of its affiliates-- Money paid by the
Authority belonged to the people and by siphoning
away the funds, management of respondent
company was conducting its affairs in a manner
prejudicial to the public interest.

(h) Company--

---- Company should work not only for the benefit

of its shareholders but also for general good of the
community/public-at-large.

Shahbazud Din v. Service Industries Textile Ltd.

PLD 1988 Lah. 1 and N.R. Murty v. I.D. Corpn. of
Orissa Ltd. (1977) 47 Com. Cas. 389 ref.

(i) Companies Ordinance (XLVII of 1984)--

----S. 290---Contract Act (IX of 1872),

S.23---Contracts opposed to public
policy---Misappropriation of public
funds---Petitioner (WAPDA) was a public sector
organization utilizing the funds which belonged to
the public-- Payments which the petitioner
(WAPD:1) was forced to make under the
agreements were in fact made from the money of
public-at-large---Effect-- Such agreements entered
into between the parties, in addition to being against
public interest were also opposed to public policy
under the provisions of S.23 of Contract Act,
1872---By making such agreements in the form of
various agreements whereby the petitioner
(WAPDA) was tied down to make undue payments,
amounted to misappropriation of public funds in
circumstances.

(j) Contract Act (IX of 1872)--

----S..23---Expression "public policy" occurring in

S.23, Contract Act,
1872---Connotation---Expression "public policy"
means that no man can lawfully do that which has a
tendency to be injurious to the public
welfare-- "Public policy" comprehends protection
and promotion of public welfare-- Such is the
principle under which freedom to contract or private
dealing "is restricted by law for the good of
community"---Meaning of public policy is the
interest of persons other than the parties.

Central Inland Water Transport Corporation

Limited and others v. Brojo Nath Ganguly and
others AIR 1986 SC 1571; Rattan Chand Hira
Chand v. Askar Nawaz Jung and others (1991) 3
SCC 67 and Messrs Abdul Razzak & Co. v.
Assistant Collector of Customs and another PLD
1993 Kar. 227 ref.

(k) Contract Act (IX of 1872)--

----S. 23---Contract against public

interest---Validity---Contract which had a tendency
to injure public interest or public interests or public
welfare was one against public policy---Contract
opposed to public policy of the State was
unlawful---Neither the Government nor the subject
could lawfully be allowed to do that which had
tendency to be injurious to the public or against the
public good.

Rattan Chand Hira Chand v. Askar Nawaz Jung and

others (1991) 3 SCC 67 ref.

(l) Companies Ordinance (XLVII of 1984)

----Ss. 290 & 292---West Pakistan Water and Power

Development Authority Act (XXXI of 1958),
S.8(2)(vii)---Provisional Manager, appointment
of-- Privatization of power generation
unit---Authority privatised one of its units and
formed a company for management and operation
of the unit---Company so formed had shares oaf the
Authority as well as the Company---Despite the fact
that company had minority shares and Authority
had majority shareholdings of 64 % the
management was with the company---Management
was conducting the affairs of the company in a
manner which was not only oppressive to its
members and creditors, but also prejudicial to the
public interest---Company was siphoning away
billions of rupees to its affiliates by raising price of
energy exorbitantly---Effect---All the funds
belonged to the public while in return, the- public
was getting ~ expensive electricity-- Management
by mismanagement was fleecing the
company---Prima facie the management was
conducting .the affairs of the company in a manner
prejudicial to public interest as also oppressive to
the Authority---High Court to ensure the smooth
running of the company respondent No. I and to
restrain the company respondent No.2 from acting
in a manner prejudicial to the public interest and
detriment to that of Authority appointed Provisional
Manager to manage the affairs of the company
pending decision of the main petition.

Killick Nixon Ltd. and others v. Bank of India and

others (1985) 57 Coin. Cas. 831; Re: Cumana Ltd.
1986 CLC 430; Amal Kumar Mukharjee and
another v. Clarian Advertising Service Ltd. and
another (1982) 52 Com: Cas. 315 and Richardson
and Crudes Ltd. v. Haridas Mundhra and others AIR
1959 Cal. 695 ref.

(m) Words and phrases-

--"Public policy" ---Connotation.

Mirza Mahmood Ahmad for Petitioner. Abdul

Hafeez Pirzada for Respondent No. 1.

Makhdoom Ali Khan for Respondent No.2.

Date of hearing: 12th April, 2000.

JUDGMENT

This order shall dispose of three miscellaneous

applications, two of which namely C.M.
No.1393-L-98 and C.M. No.1394-L-98 have been
filed by the petitioner whereas third (C. M.
No.1601-L-98) has been moved by respondent No.
1. The first two applications are under section 292
of the Companies Ordinance, 1984 and seek
appointment of provisional manager and issuance of
temporary injunction whereas the last application
filed by respondent No. l prays for, appropriate
orders in the light of the submissions made therein.

2. These applications arise out of a petition under

section 290 of the Companies Ordinance, 1984 filed
by Pakistan Water and Power Development
Authority (hereinafter referred to as "WAPDA")
against Kot Addu Power Company Ltd. (hereinafter
referred to as "respondent No. l company"),
National Power (Kot Addu) Ltd. and Registrar,
Joint Stock Companies Islamabad, praying that in
view of various acts of commission and omission
detailed in the petition, appropriate orders may be
passed directing the change in the management of
respondent No. l company and the transactions and
the agreements prejudicial to the interest of the
company or the petitioner or public may be held to
be inoperative and ineffective.

3 The background in which this dispute has arisen is

that the petitioner is a statutory. corporation set up
under Pakistan Water and Power Development
Authority Act XXXI of 1958 with a view to provide
for the coordinated development of the water and
power resources of Islamic Republic of Pakistan. In
pursuance of the aforesaid, the petitioner has been
instrumental in establishment of various power
generation units within the country. One of such
units is Thermal Power Generation Unit set up at
Kot Addu, District Muzafargarh in the Province of
the Punjab. This unit is 1650-MW combined cycle
power station with multi-fuel capability designed
for operation on natural gas residuary fuel oil and
high speed diesel. The capacity of the plant is stated
to represent more than 15 % of the entire electricity
produced in the country.

4. In the early nineties, the Government of Pakistan

embarked upon policy of privatization of various
public sector units, one of which was Kot Addu, '
Thermal Power Station. In order to facilitate the
privatization of this unit WAPDA Act, 1958 was
amended and section 8(2)(c)(vii) was introduced so
as to empower WAPDA to formulate policies for
privatization of any of its units. In order to privatize
Kot Addu Unit it- was decided to corporatise it.
Consequently, respondent No. 1 company was
incorporated with authorised capital of
Rs.36,000,000 and paid-up capital of Rs.88,02,532
divided into 880,000,228 ordinary shares of Rs.10
each.

5. The Government of Pakistan through

Privatization Commission decided to invite bids for
the sale of 26% shares of respondent No.1
Company. In response to the said invitation, various
bids were received including that of National Power
plc. The Privatization Commission accepted the bid
of National Power plc. of US Dollars 215 million
for purchase of 26% shares. As a consequence of
the above, as many as 11 agreements were entered
into between the parties, pursuant to which 26%
shares in the respondent No. l company were
transferred and management and control of the unit
was handed over to National Power plc. The more
important agreements for present purposes are the
Share Purchase Agreement, the Shareholders
Agreement, the Power Purchase Agreement and the
Note Agreement.

6. Under the Share Purchase Agreement, 26% of the

total shares were transferred from petitioner to
National Power International Ltd. for a total
consideration of US $ 215 million. Share Holder
Agreement provided that notwithstanding that
National Power Kot Addu Ltd. held 26% shares in
the company the right to manage the plant would
vest for 25 years with respondent No.2 company.
Article 4(1)(a) reads that--

"the Company's Board of Directors shall be

composed of nine (9) Directors of whom four (4)
shall be independent of both parties being neither
employed by nor closely connected with either party
nor with any of their respective affiliate purchaser
shall be entitled to nominate four (4) Directors, one
of whom shall be the Chief Executive of the
Company "

Under this agreement, the petitioner was entitled to

have only one Director on the Board out of nine.

7. The other agreement between the parties is the

Power Purchase Agreement which was entered into
on 27-6-1996 under which the petitioner agreed to
purchase from the respondent electricity at the rate
of Rs.3.44 per unit. Under the Note Agreement,
respondent No. l took over the liability amounting
to Rs.27,010,368,000 which was to be repaid by
the-company within 22 years in half-yearly
instalment along with interest at the rate of 11.25 %
for one year; 12-1 /2 % for the second year and 14
% thereafter.

8. Ever since June, 1996, respondent NQ~2 has

been managing respondent No. l company.
Subsequently, in addition to 26% shares holding,
respondent No.2 acquired another 10% shares in
respondent No.l company. The present position
therefore is that while respondent No.2 owns 36%
shares of the total shareholding of respondent No.1
company the remaining 64 % share holding vests in
the petitioner.

9. In the applications under section 290 of the

Companies Ordinance, 1984, the petitioner has
complained that respondent No.2 has been
conducting the affairs of respondent No.l company
in a manner prejudicial to public interest and by
supplying the electricity at an exorbitant rate, it has
been fleecing not only the petitioner but also the
public in general. The allegations of
mismanagement and malfeasance have also been
levelled. It is claimed that respondent No.2 has
siphoned off colossal amounts which have been
misappropriated by it. On these premises, the
appointment of provisional manager pending
decision of the main petition and issuance of
temporary injunction restraining respondent No.2
from charging more than rupees 1.98 per unit for
supply of electricity have been prayed for.

10. In the reply filed by respondent No.2, the

allegations of mismanagement and acting in a
manner contrary to public interest have specifically
been refuted. It has further been stated that the
Power Purchase Agreement is in the nature of
commercial agreement simpliciter between the
purchaser and the seller and cannot form the
subject-matter of proceedings under section 290 of
the Companies Ordinance, 1984. It may be
mentioned that the respondents have not filed any
reply to the main petition and have instead moved
C.M. No.1673-L/p8 under section 3 of the
Arbitration (Practising and Conventions) Act, 1937
for stay of the proceedings in view of the arbitration
agreement between the parties.

11. On these miscellaneous applications, I have

heard Mirza Mahmood Ahmad, Advocate, on behalf
of the petitioner .Mr. Abdul Hafeez Pirzada,
Advocate for respondent No. l and Mr. Makhdoom
Ali Khan, Advocate for respondent No.2.

12. Section 290 of the Companies Ordinance, 1984

vests the Court with wide and vast powers to take
corrective measures by passing appropriate orders in
the event that it is shown that the affairs of the
company are being conducted or are likely to be
conducted in unlawful or fraudulent manner or in a
manner prejudicial to public interest or in a manner
oppressive to the members or any of the members or
creditors. The power given by section 290 of the
Companies Ordinance, 1984 is much wider than
corresponding provisions in the Companies Act,
1913, sections 397 and 398 of the Indian Companies
Act, 1956 in many respects.

13. Section 290 of the Companies Ordinance, 1984

reads as under:--
"If any member or members holding not less than
twenty per cent. of the issued share capital of a
company, or a creditor or creditors having interest
equivalent in amount to not less than twenty, per
cent. of the paid-up capital of the company,
complains or complain, or the Registrar is of the
opinion, that the affairs of the company are being
conducted, or are likely to be conducted in an
unlawful or fraudulent manner or in a manner not
provided for in its memorandum or in a manner
oppressive to the members or any of the members or
the creditors or any of the creditors or are being
conducted in a manner prejudicial to the public
interest, such member or members, the creditor or
creditors as the case may be, the Registrar may
make any application to the Court by petition for an
order under this section.

(2) If, on any such. petition the Court is of opinion--

(a) that the company's affairs are being conducted or

are likely to be conducted as aforesaid; and

(b) that to wind up the company would unfairly

prejudice the members or creditors;

the Court may, with a view to bringing to an end the

matters complained of, make such order as it thinks
fit, whether for regulating the conduct of the
company's affairs in future, or for the purchase of
the shares of any members of the company by other
members of the company or by the company and, in
the case of purchase by the company, for the
reduction accordingly of the company's capital or
otherwise.
.

(5) The provisions of this section shall not prejudice

the right of any person to any other remedy or
action. "

14. The corresponding provision in India has been

split up in two sections viz., sections 397 and 398.
Section 397 of the Indian Companies Act, 1956
reads as under:--

(1) Any members of a company who complain that

the affairs of the company are being conducted in a,
manner prejudicial to public interest or in a manner
oppressive to any member or members (including
any one or more of themselves) may apply to the
Company Law Board for an order under this
section, provided such members have a right so to
apply in virtue of section 399.

(2) If, on any application under subsection (1) the

Company Law Board is of opinion:--

(a) that the company's affairs are being conducted in

a manner prejudicial to public interest or in a
manner oppressive to any member or members; and

(b) that to wind up the company would unfairly

prejudice such member or members, but that
otherwise the facts would justify the making of a
winding up order on the ground that it was just and
equitable that the company should be wound up;
the Company Law Board may, with a view to
bringing to an end the matters complained of, make
such order as it thinks fit. "

Section 398 is to the following effect:

(1) Any members of a company who complain:--

(a) that the affairs of the company are being

conducted in a manner prejudicial to public interest
or, in a manner prejudicial to the interests of the
Company; or

(b) that a material change (not being a change

brought about by, or in the interests of, any creditors
including debenture-holders, or any class -of
shareholders, of the company) has taken place in the
management or control of the company whether by
an alteration in its Board of Directors, or manager or
in the ownership, of the company's shares, in its
membership, or in any other manner whatsoever,
and that by reason of such change. it is likely that
the affairs of the company will be conducted in a
manner prejudicial to public interest or in a manner
prejudicial to the interests of the company, may
apply to the Company Law Board for an order
under this section provided such members have a
right so to apply in virtue of section 399.

(2) If, on any application under subsection (1) the

Company Law Board is of opinion that the affairs of
the Company are being conducted as aforesaid in
the management or control of the company, it is
likely that the affairs of the company will be
conducted as aforesaid, the Company Law Board
may, with a view to ..bringing to an end or
preventing the matters complained of or
apprehended, make such order as it thinks fit."

Section 459 of the English Companies Act, 1989

reads thus:

"(1) A member of a company may apply to the

Court by petition for an order under this Part on the
ground that the company's affairs are being or have
been conducted in a manner which is unfairly
prejudicial to the interest of its members generally
or of some part of its members (including at least
himself) or that any actual or proposed act or
omission of the company (including an act or
omission on its behalf) is or would be so prejudicial.

(2) ... ... ... ... ... ... ... ... ... ... .. ...

Previously law on the subject was contained in

section 153 (c) of the Companies Act; 1913 which
was much narrower.

That provision read:

"(1) If any member or members holding not less

than one-tenth of the issued share capital of a
company complains or complain, or the Federal
Government is of the opinion that the affairs of the
company are being conducted in an unlawful or
fraudulent manner or in a manner not provided for
in its memorandum, or in a manner oppressive to
the member or any of the members, or are being
conducted in a manner, prejudicial to the public
interest, such member or members or, as the case
may be, the Federal Government may make an
application to the Court by petition; and the Court
may make such order as it thinks fit in the
circumstances for regulating the conduct of the
affairs of the company and matters ancillary
thereto."

15. The amplitude of powers conferred by section

290 of the Companies Ordinance, 1984 upon the
Courts is unprecedented. Neither under the Indian
Companies Act nor English Companies Act, these
Courts enjoy such wide B jurisdiction. This fact is
evident from the bare language used in the said
section which provides that if a member(s) or a
creditor(s) (otherwise qualifying the numerical
strength) complains that the affairs of the company
are being conducted or are likely to be conducted in
an unlawful or fraudulent manner or in a manner not
provided for in its memorandum or in a manner
oppressive to the member(s) or creditor(s) or being
conducted in a manner prejudicial to public interest,
the Court can assume jurisdiction under section 290
of the Ordinance, 1984 and pass appropriate orders.

16. Even in India and England where as stated

above the jurisdiction of the Court is much
narrower, the Courts have not shied away from
extending their jurisdiction. In the case of Bennet
Coleman & Co. v. Union of India (1977) 47 Com.
Cas. 92 (97), on the issue of jurisdiction the Court
observed as follows:--

"An examination of the aforesaid sections brings out

two aspects; first, the very wide power conferred on
the Court, and secondly the object that is sought to
be achieved by the exercise of such? power, with
the result that the only limitation that could be
impliedly read on the exercise of the power would
be that nexus must exist between. the order that may
be passed thereunder and the object sought to be
achieved by those sections and beyond this
limitation which arises by necessary implication it is
difficult to read any other restriction or limitation on
the exercise of the Court's power."

17. In Shahbazud Din v. Service Industries Textile

Ltd. PLD 1988 Lahore 1, it was held as under:

"...Section 290 of the Companies Ordinance, 1984

confers power on the Court to give appropriate
order and to initiate corrective measures wherever a
company is acting in a manner prejudicial to the
public interest. The receiving of interest on the
money lent and investment made in view of the
clear and unequivocal injunctions of the Holy
Qur'an and Sunnah is not conducive to public
interest and as such corrective measures are
required to be taken by the respondent-company . . .
."

18. Mr. Abdul Hafeez Pirzada, the learned counsel

for respondent No. 1 contended that the power
under section 290 is only available in those cases
where it is shown that the grounds for winding up
under section 305 of the Companies Ordinance,
1984 exist but to wind up the company would
unfairly prejudice it. There is no warrant for this
contention so far as this country is concerned. It will
be seen that section 397(2)(b) of the Indian
Companies Act, 1956 clearly states that to wind up
the company would unfairly prejudice such member
or members "but that otherwise facts would justify
making of winding up order on the ground that it
was just and equitable that the company should be
wound up". These words are missing in section 290
of our law. Consequently, it cannot be said that in
order to succeed in an application under section 292
of the Companies Ordinance, 1984 the petitioner
must show that there are grounds for winding up of
company under the doctrine of just and equitable.
On the other hand, if it is demonstrated by the
petitioner that the affairs of the company are being
conducted in an unlawful or illegal manner or in a
manner prejudicial to the public interest or
oppressive to the members or creditors the Court
can interfere under section 290 of the Companies
Ordinance, 1984.
.
19. In the case of N.R. Murty v. I.D. Corpn. of
Orissa Ltd. (1977) 47 Com. Cas. 389, the Court
observed as follows:--

" It was contended that on the averments in the

petition, no case for winding up on just and
equitable grounds was made out and so long as a
case for winding up was not made out, no other
relief could be granted in this petition. The power of
the Court under sections 397 and 398 of the Act can
be invoked in different circumstances. Under
section 397, unless facts justify the making of a
winding up order, jurisdiction cannot be exercised.
No such facts, however, are necessary to be proved
for the application of section 398; it is enough if the
affairs of the company are conducted in a manner
prejudicial to the public interest to vest power in the
Court to make an order in terms of statutory
provisions ...."

20. The next question is as to what is the public

interest. This aspect has been the subject-matter of
discussion in various cases. In Shahbazud Din's case
(supra) PLD 1988 Lahore 1, at page 42 the Court
held as under:--

" ....A matter of public and general interest is that in

which a class of community have a pecuniary
interest or some interest by which their legal rights
and liabilities are effected.."

In N.R. Murty's case supra (1977) 47 Com. Cas.

389, the Court at page 391 observed as follows:-

"...The expression 'public interest' in section 397

takes the company outside the conventional sphere
of being a concern in which the share holders alone
are interested. I emphasize the idea of the company
functioning for the public good or general welfare
of the community; at any rate, not in a manner
detrimental to the public good ...."

21. In Killick Nixon Ltd. and others v. Bank of

India and others (1985) 57 Com. Cas. 831, the Court
at page 832 observed as follows:--

" ....Under section 397 and 398 any personal

grievance of a member himself is not contemplated
....It merely stipulated minimum qualifications
which members should possess such as their
numerical strength or the extent of their share
capital. Under these provisions, . therefore, any
personal prejudice to the members for coming
before the Court is not required."

22. In English Law the new concept of unfairly

prejudicial conduct was introduced by Companies
Act, 1980 through section 75, now consolidated in
Companies Act, 1989 as section 459, which
provides that a member may petition, the Court for a
remedy if the company's affairs have been
conducted in a manner unfairly prejudicial to
members' interest. The expression unfair prejudice
is wider than, and replaced the concept, oppression
in the old Companies Act, 1948 (section 210). The
Courts have now taken new approach in dealing
with minority shareholders complaints and is
prepared to look at any alleged prejudicial conduct
from any objective point of view, to take into
account any relevant circumstances to give the
section its natural meaning without any technical
gloss.

23. In re: Cumana Ltd. (1986) CLC 430, (Court of

Appeal) Lawton L.J observed as follows:--

"...(d) The last of the acts of unfair prejudicial

conduct found by the judge was that, during a
period of 14 months .. ..Mr. Bolton had taken or
received from Cumana the sum of 3,56,000
pounds-- 160,000 pounds purporting to be by way
of bonus and 1,90,000 pounds by way of 9
contribution to his pension fund. The judge decided
that these sums were excessive. They were. (e) it
follows in my judgment, that there are no grounds
for upsetting the judge's findings that Mr. Bolton
had conducted the affairs of Cumana in a manner
which was unfairly prejudicial to Mr. Lewis
interests..."

24. As mentioned earlier, the petitioner is a statutory

corporation having been set up by Pakistan Water
and Power Development Authority Act, 1958. In the
present cage it has three capacities; firstly it is
shareholder to the extent of 64% of the shares in
respondent No.l company; secondly it is creditor to
the extent of Rs.223 billion and thirdly it has
entered into Power Purchase Agreement with
respondent No.2 company. According to the
petitioner, the Power Purchase Agreement and the
Share Holders Agreement which it was obliged to
enter into under the instructions of the Privatization
Commission and Government of Pakistan are not
only illegal and unlawful 'but are also contrary to
public interest.. It is to be seen that in order to
facilitate the privatization of power units section 8
of WAPDA Act, 1958 was amended by providing
that the authority may frame scheme or schemes for
privatization of various units. It is common ground
between the parties that the scheme for privatization
of Kot Addu Power Station did not emanate from
WAPDA and as a matter of fact, it did not frame
any scheme for privatization. Instead the
Government of Pakistan took the decision to
privatize the shares which was done through
Privatization Commission.

25. The stipulations in the Power Purchase

Agreement and Share Holders Agreement which
have strongly been objected to by the learned
counsel for the petitioner are sale of electricity, at
the rate of Rs.3.44 per unit and right of respondent
No.2 to manage the unit .notwithstanding that it
does not own majority shares and is also a debtor to
the tune of Rs.22 billion. So far as the price of the
electricity sold is concerned, it has been pointed out
by the learned counsel for the petitioner and is not
denied by the learned counsel for the respondents
that Muzaffargarh Power Station is producing
electricity at the cost of Re. 1.98 while the
respondents are charging the petitioner exorbitant
rate of Rs.3.44 per unit.

26. Mr. Abdul Hafeez Pirzada, the learned counsel

for respondent No. l submitted that the
circumstances of the two units are not the same
inasmuch as in the case of Muzafargarh Power
Station there is no debt-servicing involved while in
the case of Kot Addu Power Station the petitioner
has to service debt to the tune of Rs.25 billion.
However, it has rightly been pointed out by the
learned counsel for the petitioner, that so far as
repayment of the principal amount is concerned it.
cannot be debited to the account of the company
and it is not covered by head debt-servicing as by
paying off the principal amount the value of the
shares increases. Be that as it may there is much
stronger evidence available on the record to show
that the power rates fixed in the Power Purchase
Agreement are highly exorbitant and inflated.
Before the unit was privatized, it was run for a
period of five years by the petitioner itself. The
petitioner has placed on the record material to show
that the electricity was being produced at- much
lesser cost than the one being charged by the
respondents. The chart is as under:--
Years Total Units Cost per Unit
1990-91 1,922,077,000 KWH Rs.1.66
1991-92 2,812,568,000 KWH Rs.1.41
1992-93 3,243,248,000 KWH Rs.1.29
1993-94 3,776,956,000 KWH Rs.1.21
1994-95 3,957,743,000 KWH Rs.1.70
1995-96 5,270,012,000 KWH Rs.1.28

(up to 27th June, 1996).

As against the above, in the agreement there was, a

sudden jump and rate of Rs.3.44 per unit was fixed
which can by no stretch of imagination be
considered to be justifiable return on equity and it
virtually amounts to fleecing WAPDA and in turn
the public at large. Prima facie the Power Purchase
Agreement is clearly contrary to public interest.

27. There is no merit in the contention of the

learned counsel for the respondents that the Power
Purchase Agreement cannot be interfered with in
the proceedings under section 290 of the Companies
Ordinance, 1984 for` various reasons; firstly that
apart from being purchaser the petitioner is also a
shareholder rather majority shareholder in the
company; secondly the Power Purchase Agreement
is not to, be read in isolation but is one of series of
the agreements arrived at as a consequence of the
privatization and thirdly the Power Purchase
Agreement itself refers to other agreements and also
to various acts of management which are to be
performed by the parties.

28. Another illegality which prima facie appears to

have been committed by the respondent No.2 is that
it has entered into agreement with one of its
subsidiary companies for managing and operating
the plant and the said subsidiary company is being
paid a 'sum of US $ 3 million every year. The
position of that company is virtually that of the
managing agents. There cannot be any gainsaying
that the institution of managing agents was done
away with in Pakistan as far as back 1972 and is
specifically prohibited by section 209 or the
Companies Ordinance, 1984.

29. Mr. Abdul Hafeez Pirzada, the learned counsel

for respondent No. l submitted that sum of US $ 3
million is minimal and constitutes a fraction of the
total expenditures. Even if that be so, the fact
remains that the respondent "has incurred
unauthorised expenditure to the extent of US $ 3
million every year which amounts to mismanaging
the company. The contractor appointed by
respondent No.2 for the operation and maintenance
of the plant namely National Power International
has also been paid bonus of Rs.10,470,000 in
addition to the fixed fee, cost and expenses.

30. It is also to be seen that the maintenance cost of

Muzaffargarh Power Unit which is of similar
capacity and is of similar nature is Re.0.8 per unit
which comes to Rs.27 crore. The maintenance cost
which the contractors/managing agents are charging
is 0.26 paisa per unit which comes to Rs.1.27 billion
which shows that the managing agents are
siphoning off about one billion per year. It may be
mentioned that at the time when the plant was
handed over, it was of international standards as
mentioned in the Memorandum of Information filed
by the respondents themselves along with their
reply.

31. So far as the Share Holders Agreement is

concerned, again it is to be seen that admittedly the
petitioner is a majority shareholder. According to
section 90(2) of the Companies Ordinance, 1984 the
voting power of each shareholder must be equal to
the paid value or his shares. Section 90 is G
departure from the previous law. The law in
England and India is different where different
classes of shares are recognized. So far as Pakistan
is concerned, there is only one class of shares and
every shareholder is given the right to vote
proportionately. In this view of the matter, prima
facie no R restriction could be placed on the right of
the petitioner to take any decision by voting in
proportion to the, shares held by it and it cannot be
prevented M from exercising that right. The
agreement to the contrary is therefore prima facie
void.

32. The learned counsel for the respondents have

cited certain judgments from the English
jurisdiction to show that the agreement between the
shareholders to vote in a particular manner is valid.
These judgments do not have any applicability in
our country because it has not been shown that there
is any provision like section 90(2) of the Companies
Ordinance, 1984 in England:

33. It has also been mentioned above that

respondent No.2- company has maneovred to hire
one of its affiliated company namely National
Power I International Ltd. for operation and
maintenance of the plant. In addition to the
arrangement being illegal; since it amounts to
appointment of managing agents, it is to be seen that
hefty fee amounting to US $ 3 million per annum
along with cost, expenditure and bonus is being paid
to the aforesaid company. The cost of maintenance
which the contractor is charging is much I more
than the cost which other unit is incurring and in
this connection about one billion has been paid to
the contractor. These excessive payments clearly
constitute acts of mismanagement. The management
of respondent No.1 company is mismanaging its
affairs for its gains while oppressing the major
shareholders i.e. the petitioner.

34. In terms of Power Purchase Agreement, Initial

Dependable Capacity Tests (IDC tests) were to be
performed at the earliest possible date. .The
invoices for the payment of power purchase were to
be prepared by respondent No.1 in terms of the
result of IDC tests. These tests are essential since in
their absence no mechanism exists to determine as
to at what capacity the plant is operating. For a long
time these tests were not performed and in the
meantime respondent. No. l kept on, and still is,
invoicing the petitioner on provisional basis. When
finally the tests were performed by the petitioner the
management of the respondent No.l maneovred to
delay verification and confirmation of the results. In
fact, the results have not yet been confirmed, and
the only inference which could be drawn for this
attitude is that the management of the respondent
No.1 by over-invoicing is rewarding its own
affiliate by siphoning away the money which the
petitioner is forced to make in the absence of final
results of IDC. tests. Due to this oppressive and
illegal omission on the part of management of the
respondent No. l the petitioner is made to pay
billions of rupees which are legally not due to
respondent No. l The delay in getting the result of
IDC tests verified and confirmed is a blatant
example of the way the affairs of the respondent No.
l are being mismanaged by its management.

35. The Power Purchase Agreement requires the.

installation and maintenance of System Control and
Data Acquisition systems (hereinafter referred to as
"SCADA"). SCADA is a system which, amongst
other things, monitors the accurate supply of
electricity supplied to the National Grid. The system
not only monitors but also records all the
information received by it. Any fluctuation
howsoever minor is instantly monitored and
simultaneously recorded by SCADA. Here it is
pertinent to note that the net electrical output varies
with the kind of fuel used consumed to produce it.
Therefore, the analysis of data recorded by SCADA
sets forth the accurate information. regarding which
type and when a certain kind of fuel is used to
produce-the electricity. This fact is evident from
respondent No. 1 s own statement made in the
counter-affidavit to C.M. No.1393-L/98 (at page 36)
whereby it is conceded that the SCADA system was
disconnected by respondent No. l due to serious and
genuine concern. that the information would be used
inappropriately and unjustifiably for fiscal metering.
It is interesting to note that if SCADA is not
designed for 'the abovestated purpose then why
there was a dire need of committing such an illegal
act of disconnecting the system. Article 8.6 of the
Power Purchase Agreement reads as under:--

"8.6. Telecommunication Circuit.--The Company, at

its sole and expense, shall maintain--

(a) the telecommunication system of the Company

for--

(A) telecommunication and tele-protection facilities

at WAPDA's grid stations at Kot Addu,
Muzffargarh, D.I.Khan, Multan and the control
centre; and

(B) telemetering and date interface for WAPDA's

System Control and Data Acquisitions Systems, as
more fully described on Schedule 12: .....

36. It follows from the above that it was respondent

No. l which had to maintain SCADA and its act of
disconnecting the same amounts not only to
mismanagement but is also oppressive to the
petitioner since such an act was done in order to
obtain some favourable gains.' The fact of the
matter is that by ill-maintenance of SCADA
respondent No. l has given a free-hand to
respondents to over-invoice the petitioner according
to their whims and caprice. In the absence of
SCADA and with the unverified and unconfirmed
results of IDC tests, there is no way the petitioner
could verify the invoices prepared by respondent
No. 1. In this state of affairs, the only possible
inference is that respondent No. 1 is pocketing huge
sums by over-invoicing, which the petitioner has to
pay owing to the oppressive attitude of the
management of respondent No. 1. This attitude is a
clear manifestation of flagrant mismanagement.

37. The Power Purchase Agreement was executed

for the purchase by the petitioner of Dependable
Capacity and the entire Net Electrical Output
produced by respondent No. 1. In terms of Article
IX of the Power Purchase Agreement, the petitioner
is to make payments under two heads namely
Capacity Payments, section 9.1, and Energy
Payments, section 9.2. Under section 9.1, the
petitioner makes per month Capacity Payment in
arrears equal to the product of the Capacity
Purchases Price. While under section 9.2 payments
are to be made according to Energy Payment Price
for each MWH. or Net Electrical Output, the
Capacity Purchase Price and Energy Payment Price
are calculated, in accordance with Schedule 6 of the
Power Purchase Agreement. The Capacity Purchase
Price comprises of two components; (i) the
Escalable Component; and (ii) the Non-escalable
Component. The Escalable Component includes (a)
fixed O&M costs; (b) administrative costs; and (c)
return on equity, while the Non-escalable includes
debt servicing, the Energy Purchase Price includes
(a) fuel costs; and (b) variable O&M costs.

38. The Power Purchase Agreement as structured is

clearly against public interest for the reasons that
under the Power Purchase Agreement respondent
No.l is also charging the petitioner the principal
interest and other fees payable under the Note
Agreement i.e. under the head of debt servicing.
Resultantly, not only that the debt is being written
off, but also the value of respondent No. 1's share is
increasing at the cost of the petitioner, whereas the
petitioner is financing itself the increase in the value
of its shares. The net effect of this illegal act is that
the petitioner is being forced to pay 84 paisas per
unit under the head of debt servicing i.e. of an
amount which belongs to the petitioner in the first
instance. The petitioner is under a statutory duty to
develop the water and power resources of Pakistan
and to provide electricity to the public at large at
rates which are affordable by the people of Pakistan.
In view of the provisions contained in the Power
Purchase Agreement whereby the petitioner has to
finance the` payment of debt owed to itself, the cost
of electricity purchased by the petitioner is dearer
by 26 % of the total unit price. This illegal burden
has to be borne by the public which is clearly not in
its interest.

39. Moreover, it is the duty of the petitioner under

the WAPDA Act, 1958 to develop the water and
power resources of the country. Since the petitioner
has been illegally burdened with the payment of the
abovereferred amounts, its statutory duties of
developing the Power Sector have been totally
compromised. The financing of the principal which
obviously constitute the bulk of debt service charge,
should come from the resources of respondent No. l
itself, resulting reduction in the profit being made
by it. Even the position of the petitioner as the
creditor or respondent No. l is in jeopardy since the
petitioner is being repaid money owed to it by
charging the petitioner itself. This arrangement is
against the public interest since the petitioner is a
public sector organization and the money it is being
forced' to pay actually belongs to the public at large.
Therefore, such an arrangement seriously prejudices
the interest of public.

40. Under the Operation and Maintenance

Agreement, the management of respondent No. l is
dishing out huge sums of money to one of its
affiliate. The money it received from the petitioner
is a part of purchase price of electricity. AS stated
above, the money belongs to -the people and by
siphoning away the funds the management of
respondent is conducting its affairs in a manner
prejudicial to the public interest.

41. The intention of law is that a Company should

work not only for the i benefit of its shareholders
but also for general good of the community/public
K at large. Whenever the question of public interest
has arisen, the Courts have not only upheld the
concept but have also strengthened it by giving
widest F possible interpretation to it. In Shahbazud
Din's case supra PLD 1988 Lahore 1 at page 42, the
Company Bench of this Court observed as under:--

'...What is then the connotation of the expression

'public interest used in section 290 of the
Ordinance? Obviously the context in which the term
has been used would provide the guideline. One of
the meanings assigned to it is to the following
effect:--

'A matter of public or general interest does not mean

that which is interesting as gratifying curiosity or a
love of information or amusement but that in which
a class of community have a pecuniary interest, or
some interest by which their legal right or liabilities
are affected.

Under Company Law in cases of reconstruction of

companies, Court has to consider and ascertain
amongst other matters, the question whether the
proposed scheme will serve the public interest .. ..
one of the principal items on which the Court has to
receive satisfaction is, whether considerations of
public interest ought, in the opinion of the Court, to
override the decision of the creditors or
shareholders . . . . "

Similarly, in N.R. Murty's case supra (1977) 47

Com. Cas. 389, at page 391, it was observed as
follows:

"...The expression 'public interest' in section 397

takes the company outside the conventional sphere
of being a concern in which the shareholders alone
are interested. I emphasize the idea of the 'company
functioning for the public good or general welfare
of the community; at any rate, not in a manner
detrimental to the public good...'

42. The petitioner being a public sector organization

utilises the funds which actually belong to the
public. The payments which the petitioner is forced
to make under the agreements are intact made from
the money which belongs to public at large. By
making such arrangements in the form o-f various
agreements whereby the petitioner is tied down to
make undue payments amounts to misappropriation
of public funds.
43. The learned counsel for the petitioner has
referred to section 23 of the Contract Act, 1872 to
show that the agreements entered into between the
parties, in addition to being against public interest,
are also opposed to public policy. Section 23 reads
as under:--

"23. What considerations and objects are lawful,

and what not:

The consideration or object of an agreement is

lawful, unless-

it is forbidden by law; or

is of such nature that, if permitted, it would defeat

the provisions of any-law; or

is fraudulent; or

involves or implies injury to the person; or

property of another; or.

the Court regards it as immoral, or opposed to

public policy. .

In each of these cases, the consideration of object of

an agreement is said to be unlawful.

Every agreement of which the object or

consideration is unlawful or void. "

44. The expression 'public policy' or opposed to

public policy has not been defined in the Contract
Act, 1872. Public policy would mean that no man
can lawfully do that which has a tendency to be
injurious to the public welfare. Public policy
comprehends only the protection and promotion of
public welfare. It is that principle under which the
freedom to contract or private dealings is restricted
by law for the good of the community. Therefore, it
can be inferred that the meaning of public policy is
the interest of persons other than the parties. In
Central Inland Water Transport Corporation
Limited and others v. Brojo Nath Ganguly and
others (AIR 1986 SC 1571), in para. 93 of the report
it was observed as follows:--

"...Contract Act does not define the expression

"public policy" or "opposed to public policy". From
the very nature of things, the expressions "public
policy", "opposed to public policy", or "contrary to
public policy" are incapable of precise definition.
Public policy, however, is not the policy of a
particular Government. It connotes some matter
which concerns the public good and the public
interest. The concept of what is for the public good
or in the public interest or what would be injurious
or harmful to the public good or the public interest
has varied from time to time. As new concepts take
place of old, transactions which were once
considered against public policy are now being
upheld by the Courts and similarly where there has
been a well-recognized head of public policy, the
Courts have shirked from extending it to new
transactions and .changed circumstances and have at
times not even flinched from inventing a new head
of policy. Practices which were considered perfectly
normal at one time have today become obnoxious
and oppressive to public conscience. If there is no
head of public policy which covers a case, then the
Court must in consonance with public conscience
and in keeping with public good and public interest
declare such 'practice to be opposed to public
policy. Above all, in deciding any case which may
not be covered by authority Courts have before
them the beacon light of the Preamable to the
Constitution. Lacking precedent, the Court can
always be guided by that light and the principles
underlying the Fundamental Rights and the
Directive Principles enshrined in the Constitution
...."

It was further observed as follows:--

" ....The clause in the rule was struck down by the

High Court and the Supreme Court also approved
the decision of the High Court by observing that
considering the inequality. in the bargaining power
of the parties the clause in the contract of
employment was void under section 23 of the
Contract Act as opposed to public policy "

"....It is thus clear that the principles governing

public policy trust be and are capable on proper
occasion, of expansion or modification. Practices
which were considered perfectly normal at one time
have today become obnoxious and oppressive to
public conscience. If there is no head of public
policy which covers a case, then the Court must in
consonance with public good and public interest
declare such practice to be opposed to public policy
.... "
Similarly in Rattan Chand Hira Chand v. Askar
Nawaz Jung and others ((1991) 3 SCC 67) the Court
came to the conclusion that what is against public
interest is against public policy. The relevant
observation of the report is as follows.

"...I am in respectful agreement with the conclusion

arrived at by the High Court. It cannot be disputed
that a contract which has a tendency to injure public
interest or public interests or public welfare, is one
against public policy "

45. A contract opposed to public policy .of the State

is unlawful. Neither the State Government nor the
subject can lawfully be allowed to do that which has
tendency to be injurious to the public or against the
public good. No doubt, there cannot be any
comprehensive formula or classification to
determine what is against public policy but the
concept keeps on varying and does not remain
stable.

46. In M/s. Abdul Razzak & Co. v. Assistant

Collector of Customs and another PLD 1993
Karachi 227, the Court came to the conclusion that
betel nuts have none of the properties which will.
make them fell in the category of food. They neither
nourish the body nor sustain or promote growth nor
maintain life. At page 236 of the report, it was
observed as under:--

"...Having regard to the fact that the only use of

betel nuts, established in the case, is that for human
consumption, the sale of such betel nuts, as may be
unfit for human consumption, by a Government
Department would neither be proper nor desirable
for that would be putting public health in jeopardy
by encouraging the nefarious trade of selling for
human consumption, sub-standards articles,
prepared from rotten betel nuts. This would
undoubtedly be opposed to public policy. This being
so the alleged agreement to purchase the disputed
goods would be void for being opposed to public
policy and consequently under section 65 of the
Contract Act the plaintiff will be entitled to the
refund of the said amount of Rs.2,00,000 deposited
by the plaintiff ...."

47. As mentioned earlier, during the entire process

of privatization the petitioner was not allowed to act
independently rather it was tied down to put its
consent on the series of contracts that were executed
in pursuance of privatization of the Complex. The
WAPDA Act, 1958 clearly and unambiguously
postulates that scheme for privatization must first
emanate from the petitioner side. The foremost
reason being that it is only the petitioner which has
the expertise which can chalk out projects that
require state-of-the-art technical know-how.
However, while privatization was being carried out
the petitioner was rendered impotent under undue
pressure. Now that the so-called arrangements in the
form of Power Purchase Agreement, Share Holders
Agreement and Share Purchase Agreement are
effected and their aftermath are causing prejudice to
not only the petitioner but also the public interest.
The effect of. these agreements has resulted in
artificial swelling in the prices of electricity at
which the petitioner has to buy it from the
respondent No. 1. Consequently, this burden will
trickle down to the consumers i.e. public at large. ' .

48. Respondent No.2 as minority shareholder took

over and acquired the effective control of
respondent No. 1. Despite having the majority
shareholding of 64 % the petitioner in terms of
Share Holders Agreement to which it was forced to
be a consenting party, has been put into a
straitjacket. Respondent No.2 is conducting the
affairs of the company in a manner which is not
only oppressive to its member and creditor (the
petitioner) but also prejudicial to the public interest.
The management of respondent No. l is siphoning
away billions of rupees to its affiliates by raising the
price exorbitantly. Under the terms of Power
Purchase Agreement, the petitioner has to pay high
price. All these funds belong to the public while in
return they are getting expensive electricity. By
mismanaging the affairs of respondent No.l,
respondent No.2 is fleecing the company. As
already stated, respondent No. l produced
approximately 15% of the entire electricity
produced in the country.

49. Before parting with the case, a reference may be

made to Amal Kumar Mukharjee and another v.
Clarian Advertising Service Ltd. and another (1982)
52 Com. Cas._ 315. In that case admittedly the
company had extensive business and was making
high profits at the time of filing of petition and the
Court came to the conclusion that it was a fit case to
appoint a special officer to supervise and control the
business and management of the company. A
reference may also be made to Richardson and
Crudas Ltd. v. Haridas Mundhra and others (AIR
1959 Cal. 695), the Court observed as follows:--

" ....Constitution of an Advisory Board by order of

Court in a proper case of company management is
within the competence of the Court under section
402 of the Companies Act, 1956. The pattern of
Court's power of managing under section 402 has to
be worked out. The section is an innovation
in- company administration by the Court-..'."

50. It follows, therefore, that prima facie respondent

No.2 is conducting the affairs of respondent No. 1
company in a manner prejudicial to public interest
as also oppressive to the petitioner itself and in
order to ensure the smooth running of respondent
No. l and restrain respondent No.2 from acting in Y
manner prejudicial to the public interest and
detriment to that of the petitioner, the appointment
of Provisional Manager is essential.

In view of what has been stated above, the

temporary injunction already granted is confirmed
and Chaudhry Muhammad Siddiq retired Chief
Engineer, Thermal is appointed as Provisional
Manager to manage the affairs of respondent No. l
company pending decision of the main petition. So
far as C.M. No 1601-L-1998 moved by respondent
No.l is concerned; as the temporary injunction has
been confirmed, this application has become
infructuous and is dismissed as such.

Q.M.H./M.A.K./P-I1/L Order accordingly.

;