ORDER SHEET
IN THE HIGH COURT OF SINDH, KARACHI
Suit No. 360 of 2007
Date Order
with signature of Judge
1.For hearing of CMA No.2727/2007
2.For hearing of CMA No.2479/2007
Date of hearings
16.5.2007 to 29.5.2007,
30.5.2007 & 1.6.2007.
Mr. Khalid Anwer, Advocate
for Plaintiffs
Mr. S. Hassan Shaikhoo, representative of P.S.O (Defendant No.1)
Mr. Asrhad M. Tayebaly, Advocate
for Defendant No.2
Mr. Wasim Sajjad, Advocate
for Defendant No.3
Mr. Anwar Mansoor Khan, Advocate
for Defendant No.4.
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QAISER IQBAL,J:- By this order I propose to dispose of CMA Nos.2479 and 2727 of 2007, filed by the plaintiffs seeking restraining order against the defendants for proceedings in the privatization process of Pakistan State Oil (PSO) without participation of the plaintiffs on the basis of equal access of data and information and allow them to participate in the process to its logical conclusion.
Consequent upon filing of the suit vide order dated 30.3.2007, plaintiffs were allowed to submit the reply to the defendants Show Cause Notice dated 28.3.2007 and to take decision on the reply received in transparent manner, after taking in consideration plaintiffs reply. Consequent thereupon defendant No.3 issued a letter/handout dated 6.4.2007, whereby the plaintiffs were disqualified from participating in the process of prequalification, its operation was suspended vide order dated 6.4.2007, the defendants were restrained from taking any step in the bidding process of P.S.O.
Precisely the facts leading to the case are that the plaintiffs, acting as a Consortium, filed an Expression of Interest (EOI) for the privatization of PSO, followed by statement of qualifications of Attock Group of Companies, engaged in oil exploration, production, refining and manufacturing plaintiff No. 1 in the month of June 2003 was privatized by Government of Pakistan 51% equity stake in the company after open and transparent process, after due vetting and investigation, Attock Group being successful bidder acquired National Refinery Ltd., for a sum of Rs.16.415 billion enriched the national exchequer. After the transaction was completed in July 2005 the new management on account of the strong reputation enjoyed in the market and business circle rose pre-tax profits upto Billions. The defendant No.3 advertised the privatization of PSO in early part of the year 2005, invited local and foreign investors in the participation of process, the plaintiffs promptly submitted an EOI. However, the matter was reactivated by defendant No.3 in the year 2006. The plaintiffs through a consortium filed an EOI to participate in the bidding process. Consequent upon request for statement of qualifications dated December 2006 each potential bidder submitted its statement of Qualification (SOQ) duly acknowledged. The confidential agreement was duly entered between the Consortium and defendant No.3 with the object that a detailed information regarding PSO be made available during due diligence process would be kept confidential. Detailed information about PSO was made available to the bidders from the ‘date room’ for a period at least ten days or more. Later Consortium waited confidently to receive confirmation from the defendant No.3, that it had qualified to participate in the bidding process, and then called upon the Financial Advisor (F.A) to commence with due diligence exercise. The plaintiffs were shocked to discover from press reports, that the bidding for PSO had been fixed on 05.05.2007, due diligence would commence from 19.03.2007 up to 30.03.2007. Consortium wrote to defendant Nos. 2 and 3 on 19.3.2007 to provide all requisite data for expected date of pre-qualification of prospective bidders, which was not replied. Plaintiffs wrote a letter dated 21.3.2007 to the (F.A), no reply was received, on 26.3.2007 a legal notice was served upon defendant No.3. It was informally informed by senior officers of PC that it was reluctant to allow the participation of the Consortium in the bidding process without lawful excuse excluded the Consortium. It is averred that decision of the defendant No.3 to exclude the Consortium, in any conceivable event would cost Government of Pakistan loss of billions of rupees totally unjustified. Plaintiffs were excluded from the data room on 27.3.2007, when it became clear that defendant Nos.2 and 3 would refuse to allow the plaintiffs to participate in the privatization process. The plaint was filed on 29th March 2007, on the basis of notice received on 28.3.2007 without disclosing any material were called upon to explain the position, which was replied on 30th of March 2007. Consequently, privatization commission (PC) was directed vide order dated 30.3.2007 to carry out privatization program if any bidder was found not qualified, for the purpose of transparency the reasons of disqualification be disclosed to the bidder, full opportunity be afforded to him within reasonable time fixed by the authority subsequent thereof final decision be taken about qualification or disqualification. Consequent thereupon on 6th April 2007 the defendant No.3 disqualified Attock Group of Companies from participation in privatization transaction on the basis of the report of the (F.A) J.P. Morgan Pakistan Ltd.
Letter of Government of Pakistan, Ministry of Privatization & Investment Privatization Commission dated 28th March 2007 in response to the Consortium letter dated 19th March 2007, 26.3.2007 addressed by Mr. Khalid Anwer & Co. were informed that in terms of RSOQ, Attock Group of Companies was obliged to provide the following:
(a) Details of all pending threatened or contemplated litigation in any jurisdiction that can affect the ability of the Potential Purchaser or any of its directors to acquire the Equity Stake and exercise management rights after the acquisition.
(b) Details of adverse information in any award, report, litigations, investigations by regulatory bodies, governmental or law enforcement agencies in any jurisdiction that can affect the ability of the potential purchaser or any of its directors to acquire the Equity Stake and exercise management rights after the acquisition.
In the SOQ submitted by Attock Group of Companies, material information relating to the Chairman/Director beneficial owner Mr. Ghaith R. Pharaon was brought to the notice of the defendant No.3, inter alia, relates to:
(1) Global Regulatory Information Database (‘‘GRID’’)
(2) Integra Screen databases on Senior Political Figures, International Government Agencies and Organizations, Law Enforcement, Fraud Risk, Money Laundering Risk, Corruption Risk etc.
(3) Office of Foreign Assets Control’s (‘‘OFAC’’) list of specially Designated Nationals and Blocked Persons. This list was maintained by the U.S. State Department.
(4) Factive Public Figures & Associates Databases on Special Interest Persons, Special Interest Entities and Politically Exposed Persons.
As a consequence of above letter. issued on 28.3.2007 Consortium was provided an opportunity to explain its position in a meeting held on 30.3.2007 keeping in view the judgment of the Supreme Court of Pakistan in Pakistan Steel Mills case.
The defendant No.3 in the letter dated 6th April 2007 blamed Attock Group of Companies not disclosing details in terms of Section 2.1, 2.2 and violation of 3.5 (g) and (h), following allegations were leveled against the Chairman of Attock Group of Companies:-
3. (a) The U.S. Federal Reserve Board in 1997 had assessed $ 37 million fine against Mr. Pharaon (Chairman ACC, NRL and APL, and Director POL) and permanently barred him from the United States banking industry due to his illegal activities/attempt to buy US banks. Mr. Pharaon’s appeal was rejected by the US Supreme Court in October 1998 and a Federal Appeals Court ruled in February 1999 that he must pay interest on the fine of US $ 37 million.
(b) Mr. Pharaon is an international fugitive and faces BCCI-related criminal charges under indictments in Washington DC, New York, Georgia and Florida issued by US Deptt: of justice and New York County District Attorney Internal Revenue Service. A US court in Washington DC issued warrant for his arrest in November 1991 on charges of fraud, conspiracy and racketeering. He is wanted by the FBI, which conducted an unsuccessful raid on his yacht in the Mediterranean in June 2006.
(c) An award was given by the Cayman Islands Court of Appeals of US$ 2.1 billion against Mr. Pharaon in favour of BCCI Liquidators in September 1997. A settlement was reached with the Liquidators in November 2001 for US$ 175 million. However, this did not affect any outstanding criminal charges.
(d) Six cases were instituted by Director-General Intelligence & Investigation (Customs & Excise), CBR against APL relating to fraudulent exports to Afghanistan (in which the goods were actually decanted and sold in the Pakistan Market). A total amount of Rs.16,123,121 on account of central excise duty, sales tax and petroleum development levy were recovered by the customs authorities from APL. Furthermore, another three cases were instituted by Customs Intelligence in respect of seizure of smuggled Iranian petroleum which had been refilled in oil tankers bound for export to Afghanistan. A total amount of Rs.1,456,926 on account of custom duty, sales tax, central excise duty and tax was recovered by Customs from APL. Criminal proceedings lodged vide FIR No.41 dated 5.6.2004 are still pending.
(e) Order passed by Commissioner, Securities and Exchange Commission of Pakistan in 2003 appointing Inspector under section 265 of the Companies Ordinance 1984 to investigate affairs of ARL (which is a subsidiary of AOC and has common Directors with other members of the Attock Group) with regard to charges of transfer pricing in favour of APL. The Inspector’s work could not progress due to non-cooperation of ARL staff. Proceedings were stayed by the Lahore High Court in an appeal filed by the Company.
Mr. Khalid Anwer has contended that the plaintiffs were disqualified in flagrant and deliberate disobedience of Court’s order dated 30.3.2007, whereby defendant No.3 had proceeded to take decision purporting to dis-qualify the plaintiffs. Disqualification order has been passed in flagrant breach of the fundamental principles of ‘‘natural justice’’, as no material was available before a decision was taken as is spelled out from the defendant No.3’s letter dated 29.3.2007, proper and reasonable opportunity of hearing the plaintiffs was not afforded. On account of fundamental breach of law dis-qualification is complete nullity in the eye of law. It is urged that first three grounds of disqualification relates to Dr. Ghaith R. Pharaon in his individual and personal capacity, with Bank of Credit & Commerce International (BCCI), which was destroyed being first Muslim Bank, spinning the globe and thus was perceived as a direct threat to vested Western interests .The bank’s depositors eventually received 80% of their deposits. By 2003 the liquidation costs of BCCI exceeded U.S $1.2 billion. If liquidation costs were to be added to the funds of the bank the, claims of BCCI creditors and depositors could have been fully settled Dr. Ghaith R. Pharaon was simply a victim of the shakedown tactics perfected by liquidators.
Mr. Khalid Anwer has invited my attention to a book titled bankrupt; through BCCI fraud, whereby author had attacked BCCI for financially supporting Pakistan’s nuclear programme in the following words;-
‘‘ Many Government security services had intimate links with BBCI but none was closer than Pakistan’s. In 1970’s BCCI was heavily involved in the financing of Pakistan’s attempts to build its own a nuclear. This came about through Abedi’s close ties with General Zia, then President of Pakistan. Over the next fifteen years, a series of attempts was made to obtain nuclear components, with varying degrees of success. BCCI transferred cash and gold in order to finance operation, and arranged air freight, shipping and insurance.
In 1983 the head of Pakistan’s nuclear program, Dr. Abdul Qadir Khan was arrested in Holland on charges of trying to steal blueprints for a uranium enrichment factory, BCCI provided for his defence, paying all the expenses of his legal counsel. (Bankrupt the BCCI fraud by Nick Kochan & Bob Whittington, Victor Gollancz, London, 1991, pg 123).’’
It is urged that BCCI became victim of an international conspiracy Dr. Ghaith R. Pharaon was thus, just a pawn trapped in a far greater game and conspiracy. There was no question of his having committed any irregularities. Disqualification order, 3 (a) to (c) pertains to BCCI related civil and criminal charges. It is urged that PC and its (F.A) had condemned Consortium unheard on the basis of old news items, as allegations have no conceivable connection with the plaintiffs. The award made against Dr. Ghaith R. Pharaon was ex-parte in violation of natural justice finally settled without any admission of liability.
So far fourth ground of disqualification is concerned the allegations were levlled by Director General, Intelligence & Investigation (Customs and Excise), CBR, and Customs Intelligence against Attock Petroleum Ltd. , Plaintiff No.2 for alleged fraud exports to Afghanistan, the matter was examined, decided and settled by Customs, Central Excise & Sales Tax Appellate Tribunal, Peshawar Bench in favour of Plaintiff No.2. Tribunal held that APL has no part in the commission of the alleged offences and that it was the independent, third party contractors who were responsible for any crimes that may have been committed as is evident from the Tribunal’s order annexure R/30 filed alongwith counter affidavit of the plaintiff No.3. So far as first information reports referred to by PC is concerned, it was registered against different individuals and the Plaintiff No.3 has no concern with the same. None of the Directors or any senior management persons were named in F.I.R.
So far as the fifth ground of dis-qualification is concerned, it is urged that is entirely a new ground did not find mention in PC letter dated 28.3.2007 purporting to be a show cause notice, the matter is still pending adjudication before a Division Bench of Lahore High Court in Company Appeal No.4 of 2003 could not be made basis for disqualification of the Consortium, it will not in any eventuality affect the ability of plaintiffs as potential bidders nor does it require disclosure under either (g) or (h) of section 3.5 of RSOQ. On account of suspension of the order by a competent forum, cannot be investigated. In any event the appointment of an Inspector does not establish any wrongdoing, therefore, any order against ARL which is not a member of the Consortium cannot affect the ability of the Consortium or any of their Directors to acquire equity stake and exercise of management rights after the acquisition. Privatization Commission did not serve a proper notice on the Consortium nor sought a proper reply from the plaintiffs proceeded to exclude Attock Group of Companies from participating in the bidding process.
The learned counsel for the plaintiffs has disclosed information about other bidders, Bakri Energy Company Consortium, The Dabbagh Holding Company Consortium, which includes Goldman Sachs, PC has conveniently overlook the fact that Goldman Sachs, alongwith other major Wall Street financial firms, were investigated by the Attorney General of several American States including New York, as well as the Securities and Exchange Commission of USA.
Vitol S.A. has been qualified by the PC, investigated by NAB in connection with supplying 2,80,000 tons contaminated oil to Pakistan.
Adverting to the status of defendant No.2, Financial Advisor to PC, were involved in serious irregularities in the Enron scandal, which was one of the largest corporate collapses in U.S history. J.P. Morgan settled a law suit filed by shareholders of Worldcom by making payment of U.S.$ 2.2 Billion. Consequently, Federal Reserve Board of U.S. took action against J.P. Morgan which was also involved in serious irregularities in Worldcom scandal. Consequently, J.P. Morgan settled a law suit filed by shareholder of Worldcom by making payment of U.S. $ 2 Billion on account of investigation in relation to Goldman Sachs. Defendant No.2 was found U.S. $ 80 Million. In 2003 J.P. Morgan was final U.S $ 6 Million for improper ICO commission. It is urged that British Petroleum and Merchant Bridge Group were qualified by PC thought did not follow required procedure joined Kohinoor group in violation of Section 4.4.(b) of RSOQ.
Adverting to the credentials of Dr. Ghaith R. Pharaon, it is urged that on 31.1.1997 U.S. Federal Reserve Board on the basis of administrative proceedings imposed fine of U.S.$ 37 Million and barred him from participating in the U.S. banking industry alleging that BCCI through Dr. Ghaith R. Pharaon had acquired a majority stake in a California bank in 1985 without obtaining prior permission from the Federal Reserve Board , Federal Reserve Board initiated proceedings in the United State District Court, Southern, District New York to enforce fine that it had imposed .Federal Reserve Board claimed 10% surcharge on the amount of fine and also interest. U.S. District Court held that F.R.B was entitled to the surcharge and not the interest. The appeal filed in U.S. Court of Appeal No.2Circuit upheld the levy of surcharge and also permitted charging of interest. The decision was reported in Wall Street Journal on 26th February 1999. Dr. Ghaith R. Pharaon challenged the administrative findings of the FRB. On 19.10.1989 U.S. Supreme Court refused leave to appeal reported in Gulf Daily News on 20.10.1988 referred to the so-called ‘‘report’’ relied upon by the PC. The entire dispute between FRB and Dr. Ghaith R. Pharaon was settled by means of a Settlement Agreement without any adjudication or finding or admission of guilt or liability on the part of Dr. Ghaith R. Pharaon on payment of about U.S.$ 47 Million. The matter was not required to be disclosed in terms of section 3.5 (g) and (h), at the end of the day FRB withdrew the case. In relation to the ground of disqualification that Dr. Ghaith R Pharaon is an ‘‘international fugitive’’, facing BCCI related criminal charges under the indictment from various U.S. States. It is alleged that Washington DC Court issued a warrant for his arrest in November 1991, FBI conducted an unsuccessful raid on his yacht in the Mediterranean in June 2006. It is unfortunate aspect of the case that annexures F & F1 to the counter affidavit were downloaded on 10.4.2007. Thus, the matter was not available with PC either on 28.3.2007 when the PC issued purported show cause notice, or on 5.4.2007, when Board took decision to disqualify the plaintiffs.
It is contended that Dr. Ghaith R. Pharaon is Chairman/Director of each member of Consortium in his individual or personal capacity, not seeking to acquire a single share in PSO. All charges levelled against him were dropped. The FRB proceedings and News Item from Khaleej newspaper relied upon by PC were the basis of the proceedings initiated by Dr. Ghaith R. Pharaon in Paris Court, the French Court proceeded to fine concerned newspaper for printing such news item.
On behalf of the plaintiffs Consortium much of the emphasis is laid that the Government of Pakistan , Ministry of Water and Power Chairman Equity participation on the Attock General Limited Power Project letter dated 27th February 2007, reported in Daily Times dated 13.5.2007, the Nation dated 14th May 2007 relating to ground breaking ceremony of Attock General attended by the Government Chief as well as Dr. Ghaith R. Pharaon in person, glowing tributes were paid to him for contributing millions of U.S. dollars in pipeline project including Attock General Group Limited as foreign direct investment . This situation is corroborated by the supplement published in daily Dawn dated 12.5.2007, peaks in volume about financial capacity to acquire equity stake and exercise management right after acquisition.
Mr. Waseem Sajjad has contended that process of privatization of PSO requires transparency for seeking pre-qualification as potential bidders, in terms of RSOQ submitted PSO, due date for submission was 15th January 2007, Consortium of bidding parties were required to furnish information used by the commission exclusively to evaluate technical, financial, management legal and other capabilities of potential bidders after such evaluation potential bidders may be allowed to participate in competitive bidding for the equity stake. It is stressed that PC is a statutory body governed by contractual obligations was required to furnish material information as laid down in case of Wattan Party v Federation of Pakistan PLD 2006 SC 760. Although Consortium was duty bound to furnish information about the Members, Directors, legal capability, details of all pending threatened, contemplated litigation in any jurisdiction, details of adverse information in any award, litigation and investigation in any jurisdiction that can affect the ability of the potential purchaser or any of its directors to acquire the equity stake and exercise management rights after the acquisition. On 28th March 2007, PC addressed a letter, purported to be a show cause notice, the basis of suit filed by the Consortium, order dated 30.3.2007, passed thereon reply of the Consortium’s advocate dated 29.3.2007, were placed before the Board of PC in the meeting held on 5.4.2007, dis-qualified the Consortium, on the basis of the information furnished by the official Agency Board of Revenue. It is further contended that PC was not required to trace reasons of disqualification. On the contrary, Consortium would have furnished the information coupled with the explanation furnished first time in rejoinder filed by the plaintiffs. It is urged that Dr. Ghaith R. Pharaon is the Chairman/Director of the Consortium involved in decision making process having nexus with Bay View Company(SA) registered in Panama. Ultimate beneficiary of investment in subsidiaries Pakistan Oilfield Limited (POL), Attock Refinery Limited (ARL), Capgas (Private) Limited and Attock Hospital (Private) Ltd.
Investment in subsidiaries:
|
Class of Shares held |
Proportion of nominal value of shares held |
Country of Incorpo-ration |
Company of Operation |
Pak Oilfields Limited (POL) Ordinary Rs.10 53.75% Pakistan Pakistan
Attock Refinery Limited (ARL) Ordinary Rs.10 52.50% Pakistan Pakistan
Capgas (Private) Limited Ordinary Rs.10 51.00% Pakistan Pakistan
Attock Hospital (Private) Limited Ordinary Rs.10 100.00% Pakistan Pakistan
Manifestly suggest that Attock Oil Company Limited was a majority shareholder on 15.1.2007 and Dr. Ghaith R. Pharaon was the sole shareholder of the company, whereas in the month of March 29, 2007 through Annexure R/15, it transpires that the international Group (SA) shareholder of Bay View International Group (SA) after the submission of information in SOQ, major changes had taken place, company was transferred in the name of children of Dr. Ghaith R. Pharaon without furnishing information and seeking consent of PC, such information was furnished first time through a letter filed alongwith affidavit-in-rejoinder, suggest that the Consortium was liable to be disqualified in terms of section 2.2 (n) and 4.4 (b).
Adverting to the ground of disqualification contained in PC’s letter dated 6th April 2007, it is contended that Attock Group of Companies had withheld information bringing the case under Section 3.5 (g)( and (h) of RSOQ, as adverse information were suppressed with ulterior motives.
Adverting to the fourth ground of dis-qualification an order passed by Commissioner, Securities and Exchange Commission of Pakistan in 2003 to investigate affairs of ARL, on the basis of the common Directors, Members with regard to charges transfer pricing in favour of Attock Petroleum Limited APL part of the Consortium. Set-up as an associate undertaking of ARL, which was transferring its project to APL. Consequently, Attock Refinery Ltd., suffered loss by obtaining subsidiary from the Government, while APL was making huge profit, SECP appointed Inspectors to investigate all affairs more particularly to check and ensure that company is not transferring its profit to its associated undertaking, order dated 14.1.2002 shows that Dr. Ghaith R. Pharaon, Director of the Board of Attock Oil Company Ltd., was also associated admittedly with Attock Petroleum, comprising of shareholders, (a) Pharaon Commercial Investment Group Limited, (b)Attock Oil Company Limited, (c)Pakistan Oilfields Limited and (d) Attock Petroleum Limited Employees Welfare Trust included Dr. Ghaith R. Pharaon, as one of the Directors of Attock Petroleum. M/s Attock Refinery Ltd., has proceeded to file Appeal No.04 of 2003 in Lahore High Court, vide order dated 8.4.2003, status-quo order was directed to be maintained, appeal is pending adjudication from the last four years, speaks in volume about Consortium, did not disclose information in SOQ with malafide object to create monopoly of Attock Group of Companies, withholding of information was sufficient to disqualify the Consortium.
Mr. Wasim Sajjad further contended that the grounds of dis-qualification contained in the letter dated 6th April 2007 -have been admitted in rejoinder filed by Senior Manager (Corporate & Legal) of the Plaintiff No.3, charges levelled against the Chairman/Director of the Consortium. So far as fourth ground) of dis-qualification is concerned, admittedly first information report is yet pending. Whereas in respect of fifth ground, inquiry conducted by SECP was not stayed by Lahore High Court, status-quo order is operating meaning thereby that the investigation is till pending adjudication.
Mr. Arshad M. Tayebaly, learned counsel for defendant No.2 has contended that in the plaint no allegation was set-up against Financial Advisor did not participate in the pre-qualification proceedings. In para 8 of the plaint the word ‘‘perhaps’’ has been used connoting that PC at the behest of (F.A) was reluctant to allow the participation of the Consortium in the bidding process. It is urged that in rejoinder, specific allegations have been levelled, whereby defendant J.P. Morgan was found to be involved in serious irregularities in the Enron and Worldcom scandal.
Representative of Pakistan State Oil did not contest the case.
Mr. Anwar Mansoor Khan, learned counsel for Federation contended that by virtue of RSOQ required to file SOQ by 15th January 2007 required to submit complete disclosure of information about the track corporate record of the potential bidder and to fulfill all conditionalities, for adjudication of the issue of corporate governance by PC to abide the terms contained in 1.1, 1.2, concealment on the basis of malafides of details pertaining to the litigation pending in Pakistan or outside ipso-facto was sufficient to dis-qualify a potential bidder in the instant case. In para 5 of the plaint the averments contained are contrary to RSOQ, the Consortium has proceeded to file suit for declaration, resulted in subsequent disqualification, suit has become infructous.
Adverting to the credentials of Mr. Ghaith R. Pharaon, it is contended that he is not a bidder simplicitor Chairman or Director of the Consortium, real owner and beneficiary of Attock Group of Companies. Mere fact that he was a component of Privatization of National Refinery Ltd, which is now running in profit, would not tantamount to create bar upon PC on account of non-performance of conditionalities laid down in RSOQ not furnished in SOQ. It is manifestly revealed that the status of Mr. Ghaith R. Pharaon is that of principle beneficiary the plaintiffs are subsidiaries of Attock Oil Company Limited and 100% share of Attock Oil Company Limited vest in Bay View International Group S.A. It is urged that Consortium on account of misstatement in connection with the subsequent change, in terms of section 5.3. after cut date changed the corporate veil on 29th March 2007, by transferring holding of certificates representing outstanding share of Bay View International Group S.A., contained in letter dated March 29, 2007.
In support of the above contentions, reliance is placed in the case of M.A Khan & Co. v. Pak Railway Employees Cooperative Housing Society Ltd., 2006 SCMR 721, M/s Shams and Brothers v. Government of Pakistan 2007 YLR 161, Wattan Party v. Federation of Pakistan (ibid) and M/s Sakhi Dattar Cotton Industries v. M/s Mahmood (Pvt) Ltd., 2006 CLD 191. On the issue of lifting of the corporate veil reliance is placed on the report of Abdul Qayyum Khan v. District Officer and others 2003 MLD 670, M/s Shams Brothers v. Government of Pakistan 2007 CLD 125.
Before examining respective arguments advanced by the learned counsel for the parties, it would be appropriate to observe the concept of privatization process, which should be open, fair and in transparent manner, for the benefit of the people of Pakistan with the right direction at the right price.
Not only that the financial status of the potential bidder but also corporate governance is material to post-privatization performance. In a book Privatization in India, challenging Economic Orthodoxy By T.T. Ram Mohan-Routledge Culzon 2005, commenting upon the question of governance has written as under:-
7.1 Institutions and governance
The literature on privatization does suggest that the private sector- or privatization- delivers when certain pre-conditions are met. We need competition, to be sure, but we also need strong institutions; law enforcement, regulation, corporate governance, a market for corporate control, and efficient bankruptcy procedure.
Yet, votaries of privatization are unwilling to buy this contention. In their view, the markets will ensure that assets are efficiently allocated once privatization is effected. This view is, of course, rooted in the propositions of Ronald Coase, who argued that, no matter what the law was, firms and individuals could always write contracts that achieved efficiency. In other words, markets would find a way, however ineffective the law might be.
Johnson and Shleifer (2001), while reviewing the literature on the link between legal institutions and the effectiveness of privatization, show that the empirical evidence weighed against these propositions. Legal rules and investor protection do matter. Corporate governance is thus material to post-privatisation performance. They write.
In the Manual of Corporate Securities and Exchange Commission of Pakistan , 2.8 describes basic definition of corporate governance, widely recognized was given in a report by the committee under the chairmanship of Sir Adrian Cadbury tiled The Financial Aspects of Corporate Governance Report.
2.8 A basic definition of corporate governance, which has been widely recognized, was given in a report by the committee under the chairmanship of Sir Adrian Cadbury tiled The Financial Aspects of Corporate Governance the Cadbury Report;
‘‘Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and so satisfy themselves that an appropriate governance structure is in place. The responsibilities of the directors included settling the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. The Board’s actions are subject to laws, regulations and the shareholders in general meeting.’’
Corporate governance not only includes that the system by which business corporations are directed and controlled also includes the decision making of the firm for the establishment of a competitive market, therefore, Ghaith R. Pharaon being Director and Chairman of the Consortium’ was required to furnish information in SOQ, in the absence of his antecedent PC had proceeded on the basis of the information furnished by F.A.
Condition 2.1 laid the eligibility requirement sub-paras relevant in connection with the plaintiffs case are as under:-
1.2 No legal rights are created by filing in SOQ.
1.3 The commission has a right to reject any or all SOQS without assigning any reason whatsoever.
2.1 No person can bid unless he is pre-qualified by the Commission.
2.2 Condition is also relevant for disqualification, some of the
relevant paras are produced as under:
(b) provides any false or misleading information or misrepresents, withholds, conceals any information in the SOQ;
(e) has a track record of corporate behavior evidencing any willful details on any of its pre-contractual/contractual obligations to any party in or outside Pakistan;
(j) is deemed by the Commission to be unable to fulfill the eligibility requirements of bidding for the Equity Stake,
(k) is involved in any litigation, which may have a material adverse effect on its ability to acquire the Equity Stake or to manage PSO after completion of the acquisition of the Equity Stake,
(n) fails to advise the Commission of any significant change in its ownership or control or where the Potential Bidder is a Consortium a change in the constitution of the Consortium or significant change in the ownership or control of any Consortium member and to obtain the Commission’s consent to such change,
(p) is deemed by the Commission of having failed to satisfy any requirements under this RSOQ.
3.5 Condition pertains to the legal capability, which includes following information;
(g) Details of all pending threatened or contemplated in any jurisdiction that can affect eh ability of the Potential Purchaser or any of the directors to acquire the Equity Stake and exercise management rights after the acquisition.
(h) Details of adverse information in any award, report, litigations, investigations by regulatory bodies, government or law enforcement, agencies in any jurisdiction that can affect the ability of the potential purchaser or any of its directors to acquire the Equity Stake and exercise management rights after the acquisition.
4.4 Condition relates to the material changes and reads as under:
(a) Each Potential Bidder must immediately report to the Commission in writing any material change in the information provided by it in its SOQ (including any information relevant to any Consortium member) up to the date on which bidding is held. Any failure to report such material change shall constitute grounds for disqualification under Section 2.2. the material change itself could also lead to a disqualification of the Potential Bidder.
(b) No signification changes in the ownership or control of the Consortium or the Potential Bidder or where the Potential Bidder is a Consortium, no modification to the Consortium will be allowed at any time without the prior written consent of the Commission. In giving such consent the Commission may require, the Potential Bidder (as modified) to re-qualify under the terms and conditions of this RSOQ in order to be eligible to submit a bid for the acquisition of the Equity Stake.
4.5 The potential bidder certifies that any information supplied may be verified by the Commission by any means. Any concealment can lead to disqualification.
Much of the emphasis has been laid by Mr. Khalid Anwer learned counsel appearing for the Consortium that PC had condemned the Plaintiffs without affording an opportunity of hearing proceeded to pass adverse order thereby vested rights of the Consortium were put to jeopardy, reliance in this context is placed on case law (1) Ghulam Mustafa Jatoi v. Additional District & Sessions Judge, 1994 SCMR 1299, (2) East End Exporters v. Chief Controller of Imports and Exports, PLD 1965 SC 605, (3) Muhammad and another v. Nazir Ahmed and 3 others 1981 CLC 912, (4) Chief Commissioner, Karachi v. Mrs Dina Suhrab Katrak PLD 1959 SC 51. (5) University of Dacca v. Zakir Ahmed PLD 1965 90, (6) M/s Erusian Equipment and Chemicals Ltd. V. State of West Bengal and another AIR 1975 SC 266, (7) B. Surinder Singh Kanda v. Government of the Federation of Malaya 1962 Appeal Cases 322 (Privy Council), and (8) Pakistan v. Public at large PLD 1987 SC 304 (Supreme Court Shariat Appellate Bench).
Second limb of the arguments advanced pertains to the material on the basis of which, adverse order was passed, never disclosed to the effected party nor an opportunity was afforded by PC to challenge acted in utter disregard of natural justice and deviated from principle of adequate disclosure order of disqualification was illegal as it was not based on the ground not mentioned in show cause notice. In support of above contentions, reliance is placed on Tanvir Ashraf v. Ch. Riasat Ali 2004 YLR 659 Lahore, Full Bench, Islamabad Club v. Punjab Labour Court No.2 PLD 1980 SC 307, Usman v. Labour Appellate Tribunal and another 1984 CLC 2782, Karachi DB, The Collector Central Excise and Land Customs and others v. Rahm Din 1987 SCMR 1840, M/s Exide Pakistan Limited v. Deputy Collector Adjudication, Collectorate of Customs (2004 PTD) Karachi 1449, Muhammad Amin v. The Province of Sindh and 6 others (1992 MLD) Karachi 671.
The question for determination is whether by virtue of conditionalities laid down in RSOQ and submission of SOQ by the Consortium, a vested and valuable rights had accrued to them whether PC was justified in disqualifying the plaintiffs..
Learned counsel for PC placed reliance on the case of Assistant Excise Commissioner v. Issac Peter & others (1994) 4 Supreme Court Cases 104, commenting on the doctrine of fairness or the duty to act fairly and reasonably developed in the administrative law field to ensure the rule of law and to prevent failure of justice and stress that principle of natural justice ensure fair decision where the function is quasi-judicial, the doctrine of fairness is evolved to ensure fair action but it can certainly not be invoked to amend, alter or vary the express terms of the contract between the parties. This view get supports from the observations made in case of Messrs Ithehad Cargo Service v Messrs Syed Tasneem Hussain Naqvi.(PLD 2001 S.C 116):-
‘‘Adverting to the contention that the respondent was condemned unheard by the Vigilance Directorate as well as the Pre-qualification Committee to be found that none of them was obliged to provide him an opportunity of hearing particularly when the third ground of his disqualification was fully supported by record and in any case the scenario would not have changed even if he had been heard because litigation between him and Pakistan Railways is admittedly pending in this Court. The contention that the Pre-qualification Committee had rubber stamped the recommendations made by the Vigilance Directorate is also not tenable because the applications of two recommendees of the Vigilance Directorate were rejected by the Pre-qualification Committee and this overt act clearly points to application of independent mind by the Pre-qualifications Committee.’’
There is a contractual arrangement between the parties ought to have been construed reasonably requiring the plaintiffs to furnish information so that PC may investigate truth and accuracy of SOQ, misrepresentation or concealment of facts may render potential bidder disqualified for pre-qualification. On account of deviation from the contractual obligation it was not necessary for PC to observe norms as suggested, this view find support from the case of State of Gujarat and others v Meghi Pethraj Shah Charitable Trust and others (1994) Supreme Court Cases 552.
More so a transparency in the process of privatization process is to be maintained by government functionary from the beginning till its end, therefore, terms and conditions imposed under RSOQ having nexus with the nature of contract to be awarded to the potential bidder Consortium did not furnish complete information within due date purposely with held adverse information flouted pre-condition for one or the other reasons.
Proceeding further Consortium have admitted factum of subsistence of charges, against its Chairman, first time disclosed in rejoinder, by virtue of suppression or concealment of the information had made themselves disentitled to participate in the bidding process. Malice on the part of Consortium is palpably clear from the contents of SOQ, deliberately withheld information to create cloud in the process of privatization about the corporate track record for good governance. Process was transparent fair, information furnished by F.A. was scrutinized. The plain tiffs were served with purported show cause notice on the basis of the letter of PC afforded an opportunity to appear before the PC which was avoided too and Board proceeded to scrutinize plaintiffs SOQ, pre-qualification in terms of policy guideline strictly adhere to. It may be pertinent to note that the allegations and discrimination malice have been leveled but allegation of nepotism or favoritism are missing. The guideline provided spelled out that any participant can be excluded by the Board without assigning any reason, no valuable right has accrued to the plaintiffs so far as Potential bidders are concerned, issue cannot be adjudicated upon. Plaintiffs as well as Pc have failed to furnish information in respect of disclosure of adverse information in their SOQ, they are not party to the suit therefore, question of discretion, malice, misstatement concealment on their part in the absence of such material visa-vis the case of the plaintiffs cannot be adjudicated upon. Privatization of plaintiff No.1, does not create bar in way of PC to consider information furnished by F.A. It will not be out of place to mention that credential of the Member/Chairman/Director of Consortium ought to have been furnished to PC as a mandatory requirement of RSOQ, on a subsequent date during pendency of the suit explanation was furnished, admission of dis-qualification grounds simplicitor reflects upon the track record. PC was duty bound to prima-facie consider, involvements of Dr. Ghaith R. Pharaon in the litigation as well as corporate behavior, in consonance with verdict of the Hon’ble Supreme Court in Wattan Party case (ibid) laid down criteria in the following manner:-
‘‘ This Court would not like to comment on the veracity of the allegations leveled either in the application, in the F.I.R., the civil suits filed or the report of the Enquiry Commission least it may prejudice the case of either side before appropriate forums/courts. However, for the purposes of qualification as a potential bidder, the disqualification condition stipulates that a potential bidder would be disqualified to participate in the bidding process if, “he is involved in litigation, arbitration or any other dispute or event which may have material adverse effect on its ability to acquire the Equity Stake or to manage PSMC after completion of the acquisition of the Equity Stake.” It is surprising that although the afore-referred allegations are a matter of record and have not been controverted either by respondent Mr. Arif Habib or by the Privatization Commission yet he was cleared of the qualification process and was allowed to participate.”
Mr. Khalid Anwar has contended that Review Petition is subjudice in the above matter before the Apex Court, Dictum laid down in Watten Party’s case does not apply to the case of the plaintiff as detailed reason has been set-forth. It is stressed that a party cannot approbate and reprobate i.e. change stand and position according to its own convenience. Therefore, the plaintiffs have relied on the arguments and submissions made by the PC and Government of Pakistan in Review Petition are quite sufficient to conclusively demolish and destroy the stand sought to be adopted by them before this Court. Until the review petition is granted by apex Court, judgment in Wattan Party’s case is conclusive and binding upon this Court.
Prima-facie it is established that at the time of submission of SOQ, Dr. Ghaith R. Pharaon fully owned Bay View shares subsequently holding was transferred/passed on to his children, without the consent of PC change had occurred which itself is sufficient to dis-qualify the plaintiffs in terms of section 2.2(n) (o) read with section 4.4 (b) of RSOQ. The Commission has power under section 5.2 to call for supplementary information which the plaintiffs were required to furnish vide impugned letter dated 28..3.2007, reply was considered by the defendant N o.3 and an opportunity was afforded to appear before Board of Privatization Commission, therefore, discretion cannot be exercised in favour of the plaintiffs.
For the reasons stated above, both the CMAs stand dismissed. Interim order hereby stands recalled.
JUDGE