P L D 1976 Karachi 10 (PLP)

A. K. Brohi for Defendants. Dates of hearing : 1st and tad October 1975. The plaintiff No. 2 is the Chief Executive of, the plaintiff No. 1 public limited company of which the defendants are the directors. By the present application the plaintiff No. 2, the Chief Executive, seeks to restrain the Board of Directors of the plaintiff No. 1 company from taking any action detrimental to his status during the pendency of his term of office as Chief Executive or to remove him from office of the Chief Executive of the plaintiff No. 1 company during the tenure of his office i.e. until 30th September 1976.

2. Mr. Kbalid M. Ishaque, the learned counsel for the Chief Executive contended that the plaintiff No. 2 was appointed as the Chief Executive of the plaintiff No. 1 company on t-10-1973 for a period of three years "as laid down inter alia by the provisions of the Companies (Managing Agency and Election of Directors) Order, 1972" (President's Order 2 of 1972) and that he was not liable to be removed from this public office by the directors of the company or for that matter by the general body of the shareholders until the expiry of his three years' term. The contention was, that only the Court has the authority and power to remove a Chief Executive from his office. The learned counsel further contended that not only the Chief Executive could not be removed by the Board or the General Body of Shareholders but that in terms of the said order he was exclusively vested with the powers and functions in relation to the management and administration of the affairs of the company subject only to the general supervision and control of the directors and that the Chief Executive was not even bound by the directions of the Board of Directors if such directions are contrary to law or against the interest of the company. When questioned as to how a dead-lock between the Chief Executive and the Board, as has obviously arisen in the present case, would be resolved, the learned counsel replied that the only alternative would be the recourse to a Court of law. The learned counsel was not unconscious of the fact that if this be the only method of resolving the dead-lock between the Chief Executive and the Board of Directors it may result in virtual ceasure of the company's business but contended that the law did not contemplate any other method for resolving the differences between the Chief Executive and the Board of Directors. I will presently examine the provisions contained in Companies (Managing Agency and Election of Directors) Order, 1972. But it will suffice to say that the Court will not be easily pursuaded to accept these contentions for, not only the alarming consequences they will bring about but the radical changes that will be introduced in the hierarchy of functionaries in the existing Companies Act, 1913, unless of course the new law is clearly and unambiguously as is understood by Mr. Khalid Ishaque.

3. The President's Order 2 of 1972 does not define the Chief Executive. Article 4(1) of this Order provides that all the directors of the Company nominated by the managing agent shall cease to hold their offices and the remaining directors shall, under its paragraph (a) of clause (2) appoint a person to be the Chief Executive in whom shall vest the powers and functions in relation to the management and administration of the affairs of the company subject to the general supervision and control of directors. Under clause (3) the Chief Executive so appointed shall hold office on such terms as the directors may determine and shall, if he is not already a director of the company be deemed to be its director. Article 8 provides that every public company shall not have less than seven directors, including, if he is not already a director, the Chief Executive appointed under paragraph (a) of clause (2) of Article

4. Article 9 provides that on expiration of the period of 180 days following the commencement of the said order or on the date of the first General Annual Meeting of the company held after such commencement, whichever is due earlier, all the directors of the company for the time being shall stand retired from office. Article 10 provides that the directors of a company shall fix the number of directors of the company and the directors shall be elected by the members of the company in general meeting on the basis of what may be described as cumulative voting. Article 11 provides that a director, including the Chief Executive, shall hold office for a period of three years unless he earlier resigns, becomes disqualified for being a director or otherwise ceases to hold office. Article 12 provides for the procedure by which a resolution for removing a director elected in the manner provided for in Article 10 is to be carried or passed.

4. Mr. A. K. Brohi, the learned counsel for the defendants contended that only that Chief Executive is the creature of President's Order 2 of 1972 who has been appointed by the remaining directors of the company under paragraph (a) of clause (2) of Article 4 and the person so appointed will hold office on such terms as the directors may determine which will include the duration of his term. Admittedly, in the present case the plaintiff No. 2 is not a Chief Executive appointed under this paragraph. The learned counsel went on to argue that after the election of the new directors under Article 10 there is no obligation on the Board of the Company to appoint any Chief Executive under this Order. The learned counsel conceded that the duration of office of the Chief Executive appointed under paragraph (a) of clause (2) of Article 4 may not have expired and that such a person may continue to be the Chief Executive of the company notwithstanding the election of new directors under Article 10, but with this question we are not presently concerned for admittedly the plaintiff No. 2 is not a Chief Executive appointed under the said paragraph. The argument of the learned counsel to my mind is substantial for there is no provision for appointment of a Chief Executive by Board of Directors constituted following the election under Article 10 of the Order.

5. Mr. Khalid M. Ishaque, the learned counsel for the Chief Executive contended that Articles 4,^ 8 and 11 have to be read together and if so read the conclusion is irresistible that a Chief Executive has to be appointed by the newly elected directors who will hold office for three years and m whom will vest the powers and functions in relation to the management and administra tion of the affairs , of the company subject to the general supervision and control of the directors. I am unable to agree with the learned counsel for Article 4 was intended to fill in the vacuum created by the disappearance of the managing agents. Again Article 8 expressly refers to that Chief Executive who had been appointed under paragraph (a) of clause (2) of Article 4 on displacement of the managing agents. The recourse to Article 11 by Mr. Khalid Ishaque in support of his contention that the Chief Executive is to hold office for a period of three years is to my mind Misconceived. The heading of this article "Term of Office of Directors", is significant. The words "including the Chief Executive', find a mention in this Article to emphasis that notwithstanding the fact that the director may also be the Chief Executive, and in a given case though his term as Chief Executive may not have expired, be will nevertheless vacate his office as a director on expiry of three years period. Such .a Chief Executive may be the one appointed under paragraph (a) of clause (2) of Article 4 or an officer appointed by the Board elected under Article 10 and given the designation of a Chief Executive. Article 11 in any event cannot be read as creating an obligation on the directors elected under Article 10 to appoint E a Chief Executive whose duration of term shall not be less than three years. It follows, therefore, that if a Board of Directors elected under Article 10 appoints a Chief Executive it is not that Chief Executive contemplated by paragraph (8) of clause (2) of Article

4. It would be an appointment purely contractual notwithstanding the fact that the appointee carries the designation of the Chief Executive.

6. Mr. A. K. Brohi, next contended that even if it be assumed that the Order obliged the Board of Directors elected under Article 10 to appoint a Chief Executive for a duration of three years, such an officer would never the less be removable by the Board in view of the provisions contained in section 16 of the General Clauses Act. The argument was that power of appointment will include power of dismissal or removal and a reference to power of removal is needed only when the intention was to take away or limit that power in the appointing authority and merely from the fact ' that the duration of the appointment is three years or that the Order provides for the procedure for removal of directors but not for removal of a Chief Executive, will not lead to the inference that a contrary intent has been expressed in the Order. I am not unimpressed by this argument and more so for the meaning advanced will keep the existing hierarchy of Company's organs unimpaired. It is inconceivable that the Presidential Order 2 of 1972 intended to create in the Chief Executive a super organ, over and above the duly elected Board of Directors, which Board under Article 10 represents minority interests as well.

7. My conclusion, therefore, is that the plaintiff No. 2 does not hold the office of the Chief Executive created by the Presidential Order 2 of 1972 and he is therefore, not a holder of a public office. He is pure and simple an employee of the company. There is also doubt as to whether or not his appointment has been made by the Board for a period of three years for no resolution of the Board or the company states the duration of his appointment. Assuming, however, that the appointment of the plaintiff SNo. 2 as the Chief Executive is one contemplated or recognized by the order, I am in agreement with Mr. A. K. Brohi that such an appointment can be brought to an end by the appointing authority namely, the Board of Directors. Prima facie, therefore, the plaintiff has not made out any case.

8. Lastly, no irreparable loss will be caused to the plaintiff No. 2 if he is not granted the injunction sought, for, assuming that he is wrongly removed from the office by the Board of Directors and it is so ultimately held by this Court, he can be re-instated to that office for the un-expired portion of his term as was done by the Supreme Court of Pakistan in the case of Salahuddin v. Frontier Sugar Mills & Distillary Ltd. (P L D 1975 S C 244). The balance oft convenience is also in favour of the defendants for they are as against the plaintiff No. 2, duly elected directors of the company entitled to act for and on behalf of the company and the imposition of the plaintiff No. 2 as the Chief Executive in the present state of things, which is virtually a war between the two, would only result in cessation of company's business to the detriment of its shareholders.

9. The result is that this application is dismissed with cost which will be borne by the plaintiff No.

2. S. Q. Application dismissed.