2012 C L C 1040

[Sindh]
Before Munib Akhtar, J
AHMED KULI KHAN KHATTAK----Plaintiff
versus
CREEK MARINA (SINGAPORE) PVT. LTD. Through Chief Executive Officer and 5
others----Respondents
Suit No.911 and C.M.A. No.7630 of 2011, decided on 24th February, 2012.
(a) Sale of Goods Act (III of 1930)---
----S. 2(3)---Companies Ordinance (XLVII of 1984), S.2(35) ---Shares in company---Legal
nature---Scope---Shares of company are regarded as constituting a bundle of rights that
shareholder has in, and against, company (and as appropriate against other shareholders as
well)---Of these, by far the most, valuable rights are the rights to participate and vote in a
members' meeting (such as the annual general meeting or an extraordinary general meeting)
and to receive dividends---Share certificates, in English Law are only evidence of a
shareholder's title to such rights, whereas under Sale of Goods Act, 1930, share certificates
are, in addition, goods as well.
(b) Sale of Goods Act (III of 1930)---
----S. 2(3)---Companies Ordinance (XLVII of 1984), S.2(35)---Shares in company---State of
goods---Scope---State of goods in context of shares is not limited to their physical
condition---Shares mean and include the document i.e. transfer deed duly executed by seller,
without which buyer cannot enjoy benefit of goods that he is acquiring.
Official Assignee, Bombay v. Madholal Sindhu AIR 1947 Bombay 217 and Ghulam
Mustafa v. Officer on Special Duty, Federal Land Commission and another 1984 CLC
824 ref.
(c) Civil Procedure Code (V of 1908)---
----O. XXXIX, Rr.1 & 2---Sale of Goods Act (III of 1930), S.2(3)--- Specific Relief Act (I of
1877), S.12--- Suit for specific performance of agreement to sell---Interim injunction, grant
of---Shares purchase contract---Plaintiff and two others entered into agreement with
defendant, for purchase of entire shareholding of defendant company---Defendants resisted
interim injunction on the plea that plaintiff failed to make payment in terms of agreement---
Validity---Payment of a sum of USD 1.5 million under one clause of agreement was not in
dispute---Plaintiff claimed that another payment of USD 1.5 million under other clause of
agreement was made but the same was denied by defendants---High Court for the purposes
of application for interim injunction, proceeded on the basis that tentatively the payment was
made by plaintiff---Plaintiff had made out a prima facie case and conduct of defendants in
the matter and in relation to transaction and before High Court left a lot to be desired---
Equities were in favour of plaintiff and against defendants---Undisputedly a large portion of
sale consideration remained unpaid and therefore, defendants' interest must also be
protected---High Court directed plaintiff to furnish bank guarantee in sum of USD 5.25
million or its equivalent Pakistani Rupees and interim injunction was granted---Application
was allowed accordingly.
Guandong Overseas Construction Group Company Ltd. v. Creek Marina (Pvt.) Ltd. PLD
2011 Kar. 304; 2011 CLC 648; Seth Essabhoy v. Saboor Ahmed PLD 1972 SC 39; Jaffar
Khan v. Muhammad Achar PLD 1961 Kar. 335; Ziaulkhalique and others v. Tanveer Ismail
and others 1989 MLD 3940; Kulkarni v. Manor Credit (Davenham) Ltd. [2010] EWCA 69;
[2010] 2 Lloyd's Rep 431; R.V. Ward Ltd. v. Bignall [1967] 2 All ER 449; Attorney-General
of Belize v. Belize Telecom Ltd. [2009] UKPC 10 and [2009] 2 All ER 1127 ref.
Abid S. Zuberi with Muhammad Haseeb Jamali and Ayan M. Memon for Plaintiff.
Arshad Tayebaly with Amel Khan Kansi for Defendants Nos.1 to 5.
Dates of hearing: 30th September, 10th October, and 25th November, 2011.
ORDER
MUNIB AKHTAR, J.--- By means of the present suit, the plaintiff seeks specific
performance (and attendant declaratory and injunctive relief) in respect of a share purchase
contract dated 22-2-2011. The contract was entered into between the plaintiff and two other
individuals as buyers, and the defendant Nos.1 and 2 as sellers, whereby the latter agreed to
sell the entire shareholding of the defendant No.3, comprising of 885,020 shares, to the
former for a total sale consideration of USD 13.5 million. By means of the application
presently under consideration, the plaintiff seeks interim injunctive relief. The suit and the
application come before the Court in the circumstances herein after stated.
2. The defendant No.4, a Singaporean Company ("Meinhardt") and the defendant No.6
("DHA") entered into an agreement (amended subsequently) on or about 27-9-2004 for the
construction of a massive multi-tower residential complex, to be known as the "Creek
Marina" project ("the project"). Essentially, the land was to be provided by DHA, while
Meinhardt was to be responsible (as per the recitals of the agreement) for the "design,
construction, development, marketing and financing" of the project. As presently relevant,
the agreement envisaged the setting up of a special purpose vehicle (SPV), a Pakistani
company, to carry out the project. This SPV is the defendant No.3 ("Creek Marina Pakistan"
or "CMP"), a private limited company registered under the Companies Ordinance, 1984. The
entire shareholding in Creek Marina Pakistan is held by the defendant No.1 (a Singaporean
Company) and (to a minor extent) the defendant No.2 (an individual). These defendants are
intimately associated with Meinhardt.
3. For reasons not necessary to consider in detail, the project ran into certain difficulties,
which led to a spate of litigation, with many suits being filed in this Court by different
parties. Certain differences also arose between Meinhardt, CMP and others on the one hand
and DHA on the other, which led to the filing of Suit 525 of 2011 by the latter (titled
Defence Housing Authority v. Creek Marina (Pvt.) Ltd. and others). An application for
interim relief was made in the suit, and came
up for hearing before me, and was disposed off by an order dated 15-7-2011. That order can
provide some useful background information, since in certain ways the dispute in that suit
serves as the backdrop to the present suit. However, it is not necessary to restate those
matters in full detail, which are to the extent required, adverted to in the paras below.
 4. On or about 22-2-2011, the defendants Nos.1 and 2 ("the sellers"), as holders of the
entire shareholding of CMP entered into the share purchase contract ("the Agreement")
described hereinabove with the plaintiff, Mr. Aftabuddin Qureshi and Mr. Muhammad
Maouz Lone. In brief, the plaintiff's case is that although part payment has been made for the
shares, the sellers have refused to finalize the transaction in breach of their obligations under
the Agreement. On this basis, specific performance of the Agreement is sought along with
certain declarations and injunctions, as well as interim injunctive relief. The sellers on the
other hand contend that it is the buyers who are in breach of their obligations under the
Agreement and are not entitled to any relief, whether final or interim.
5. For ease of reference, the relevant provisions of the Agreement are set out in para 18
below.
6. Learned counsel for the plaintiff, in support of his case, referred to clause 4 of the
Agreement, the payment clause, and stated that of the USD 13.5 million payable for the
shares, the clause itself gave credit for USD 750,000 already paid as on the date of the
Agreement. A further sum of USD 750,000 was payable on the signing of the Agreement,
and that had been paid. A sum of USD 1.5 million was payable by or before 30-4-2011 and
that payment had also been made. Thus, the total amount paid was USD 3 million, leaving a
balance of USD 10.5 million. This was payable in two instalments, also as set forth in clause
4. A cheque in the sum of USD 2 million and post-dated to not later than 30-6-2011 was to
be handed over to the sellers by or before 15-4-2011, and likewise a cheque (or cheques)
totalling USD 8.5 million and post-dated to not later than 30-3-2012 had to be handed over to
the sellers by or before 30-4-2011. Admittedly neither of these obligations had been met, but
learned counsel contended that that was because of breaches by the sellers of their
obligations under the Agreement.
7. Learned counsel referred to clause 2 of the Agreement, which provided that in order to
improve the marketability of the project, the buyers proposed certain changes therein, subject
to the approval of DHA. The changes envisaged were the construction of an additional tower,
and two additional levels in each tower as already proposed for the project. Clause 2
specifically provided that it was the sellers' responsibility to obtain DHA's approval, but if
they were unable to do so, clause 7 was to apply. The latter clause stated that if the sellers
were unable to obtain the necessary approval, then upon notice by them to the buyers, the
latter could try and obtain approval from DHA. If they failed to obtain the approval within 10
days of the notice, the Agreement was to be "deemed" cancelled and any sum payable by the
buyers thereunder was to be returned by the sellers "free of interest, save any sums paid prior
to this Agreement".
8. Learned counsel referred to a letter dated 1-4-2011 received by Mr. Aftabuddin
Qureshi, one of the buyers, from the defendant No.1. This letter made specific reference to
the Agreement, and asked that USD 250,000 be "advanced" to one Mr. Ashgar Ali Shah "to
assist in defraying his costs and expenses in respect of the Project". The letter stated that in
case the share purchase transaction was not completed, the sum would be returned by the
defendant No.1. The letter itself was copied to Mr. Shah. Learned counsel submitted that this
letter came as a complete surprise to the buyers. There was no reference to Mr. Shah in the
Agreement nor was there any obligation therein to make any such payment to any person.
Thereafter, another letter dated 9-4-2011, this time addressed to all three buyers and copied
as before to Mr. Shah, was also received from the defendant No.1. Again, the letter was with
specific reference to the Agreement. Both letters were signed on behalf of the defendant No.1
by the defendant No.2. The second letter expressed concern over certain meetings held
between the buyers and DHA, and in paragraphs 2 to 5 stated as follows:---
"(2) We note with concern that despite various meetings between the Buyers and the
DHA, the Buyers have not been able to satisfy the DHA of the Buyers' credibility to
take over and complete the Creek Marina Project. The DI-IA has informed the
Vendors of their assessment of the Buyers.
(3) There is now much doubt as to whether the Buyers are in position to complete the SPA
in accordance with the milestones pursuant to clause 4 of the CPA. It is implicit under
the SPA that unless DHA sanctions the Buyers to take control and run the Project, the
milestones under the SPA cannot be achieved.
(4) The Vendors would therefore urge you to use your best endeavours to re-engage the
DHA further and provide all necessary co-operation and information to the DHA in
order for them to make an evaluation in your favour if the Buyers are unable to
convince the DHA of their suitability, it is inevitable that the SPA cannot be
completed.
(5) Please let us know what steps the Buyers are taking to allay the Vendors reservations
on the matter."
9. Learned counsel contended that while the buyers did have meetings with DHA, at no
stage were they given any indication that they were in any manner unsuitable for any purpose
connected with the project. In any case, this ground was wholly extraneous to the Agreement.
The Agreement did not require the buyers to have themselves "approved" by DHA, nor were
the sellers' obligations thereunder contingent upon any such approval. Even the agreements
between Meinhardt and DHA relating to the project and/or between DHA and CMP did not
require any approval from DHA regarding a transfer of the shareholding of CMP. Learned
counsel contended that the ground taken in the letter of 9-4-2011 was simply an excuse being
developed by the sellers to somehow wriggle out of their obligations under the Agreement.
Learned counsel also submitted that the buyers refused to make any payment to Mr. Shah.
10. The next letter referred to by learned counsel was that dated 9-5-2011 from the
defendant No.1 addressed to all three buyers. The letter referred to the earlier letter dated 9-
4-2011, and then stated as follows:---
"2. As you are aware the DHA have on 2 April, 2011 rejected the Buyers consortium.
They stated as follows:--
"Our detailed meeting with the above three individual has concluded with the DHA
finding them to be unsuitable for taking over the development of the Creek Marina
Project. They neither have the required financial resources to restart the project, nor
the technical and managerial capability to deliver the Project."
3. The Buyers have also:
(i) failed to make payment of the sum of US$1,500,000 or its equivalent in Pakistan
Rupees on or before 30 April, 2011 pursuant to Clause 4.A.(ii) of the SPA;
 (ii) failed to deliver a post-dated cheque in the sum of US$2,000,000 its equivalent in
Pakistan Rupees to the Vendors on or before 15 April, 2011 as stated in clause 4.A.
(iii) of the SPA.
4. Kindly take notice that the Buyers are required to obtain approval of the DHA pursuant
to clause 7 of the SPA. Kindly treat this letter as the Notice. However, in view of the
rejection of the Buyers by the DHA, it is unlikely that the DHA will give the approval
envisaged under clause 7 of the SPA.
5. All of the Vendors' rights and remedies are hereby reserved." (Emphasis in original).
11. Learned counsel submitted that this letter, read in the light of the earlier
correspondence clearly established the sellers' breach. He contended that the alleged non-
payment of USD 1.5 million as referred to therein was completely incorrect; that amount had
been paid. The repeated references to approval by DHA were also entirely beyond the scope
of the Agreement. In any case, he submitted that the buyers were willing to take the
shareholding at their own risk and peril even without any DHA approval. As regards the non-
delivery of the cheque for USD 2 million, learned counsel contended that the cheque had not
been sent since the sellers were in breach of their obligations under the Agreement. In this
regard he referred to clause 8.5 of the Agreement. This required the sellers to ensure that the
proceeds of certain bank guarantees that had been given by contractors engaged for the
project, and which were the subject matter of litigation, would be "released" to CMP upon
resolution of the dispute. He submitted that the encashment of the guarantees had been
permitted by the Court by an order dated 22-3-2011 (and reported as Guandong Overseas
Construction Group Company Ltd. v. Creek Marina (Pvt.) Ltd. PLD 2011 Karachi 304; 2011
CLC 648). However, instead of the money being placed in CMP's bank account, an attempt
had been made to spirit it away, and place it elsewhere. This attempt had triggered the suit
(the aforementioned Suit 525 of 2011) filed by DHA (on 14-4-2011). This was in clear
breach of the Agreement. He submitted, relying on Seth Essabhoy v. Saboor Ahmed PLD
1972 SC 39, that in a suit for specific performance, if the defendant was in breach of his
obligations under an agreement, then it was not necessary for the plaintiff to show that he
was ready and willing to fulfil his part of the bargain as on the date of the filing of the suit.
12. Learned counsel further submitted that the letter of 9-5-2011 also stated that it was the
notice required to be given by the sellers to the buyers pursuant to clause 7 of the Agreement.
It will be recalled that that clause related to clause 2, and to the sellers' obligation to obtain
approval from DHA with regard to certain modifications in the project. Learned counsel
submitted that clause 7 had in fact been inserted in the Agreement for the buyers' benefit, and
it was for them to waive or forgo the same. The buyers were content to take the shares of
CMP even without any modification in the project as envisaged in clause 2. Learned counsel
submitted that instead of fulfilling their obligations under the Agreement, the sellers had,
after the letter of 9-5-2011, sent a letter dated 24-5-2011 to all three buyers, again copied to
the aforementioned Mr. Shah, stating that the Agreement stood cancelled "with immediate
effect" by reason of the buyers not having complied with clauses 4 and 7 thereof. As regards
Mr. Shah, learned counsel submitted that no explanation had at all been given by the sellers
in the counter affidavit as to why or how any payment was to be made to him.
13. Learned counsel also submitted that the transaction came within the purview of the
Sale of Goods Act, 1930 ("1930 Act") since shares were expressly included in the definition
of "goods" given in section 2(7) thereof. Learned counsel contended that section 20 of the
1930 Act was applicable to the facts and circumstances of the present case, and as therein
provided, the property in the shares had passed to the buyers as on the date of the Agreement.
He contended that all the ingredients for interim injunctive relief were in place in favour of
the plaintiff, and prayed that the application be allowed. It may be noted that the interim
relief sought by the plaintiff is for an order against the defendants Nos.1 to 5:--
"... restraining them from selling or transferring the 885,020 shares of defendant No.3
and/or creating third party right and interest in the said 885,020 shares and further
from creating lien, charge, pledge on the same in any manner whatsoever".
14. Learned counsel for the defendants Nos.1 to 5 strongly opposed the application and
prayed that it be dismissed. (It may be noted that DHA, the defendant No. 6, though
represented in the matter, did not file any counter affidavit.) Learned counsel, relying on
section 45 of the Contract Act, 1872, took a preliminary objection to the maintainability of
the suit. He submitted that of the three buyers party to the Agreement, only one had filed the
instant suit and the other two had not been joined as parties, even as defendants. All three
were however jointly interested in and party to the Agreement. The plaintiff alone was not
entitled to the grant of specific performance (which was in any case denied on the merits)
and thus to any injunctive relief, whether final or interim. The suit was liable to be
dismissed. Learned counsel also contended that section 20 of the 1930 Act had no application
at all in the facts and circumstances of the case, and property in the shares had not passed to
the buyers.
15. Learned counsel submitted that the buyers were in breach of their obligations under
the Agreement, since admittedly payment of the sale consideration had not made in the
manner as envisaged. He submitted that while credit for USD 750,000, and payment of
another such sum on the signing of the Agreement was admitted by the sellers, no other
payment had been made at all. In particular, the payment of USD 1.5 million, due by 30-4-
2011, which the plaintiff claimed had been made, was denied. Learned counsel submitted
that no material showing any such payment had been produced before the Court. This was
the main reason and ground why notice had been given to the buyers on 24-5-2011 that the
Agreement stood cancelled with immediate effect. Learned counsel submitted that although
the approval of DHA was not expressly provided for in the Agreement, it was understood
that the transaction could not move forward without DHA's approval, and if necessary, such
a term ought to be implied in the Agreement. Furthermore, the buyers were not at all
interested in acquiring the shareholding without the project being modified in terms as stated
in clause 2, and it was only an afterthought that they were now willing to abandon any such
claim. No approval however was forthcoming from DHA. With regard to the defendant No.1
's letter dated 9-4-2011 learned counsel submitted that no denial as such was ever made that
the share transaction was not subject to DHA approval. With regard to the letter dated 9-5-
2011 learned counsel submitted that again, there was no denial as such with regard to the
matter relating to DHA approval. As regards clause 2, learned counsel submitted that the
sellers did attempt to fulfill their obligations there under (regarding modifications to the
project), but the DHA approval was not forthcoming. However, he emphasized that the
payment obligations under clause 4 were not conditional upon the fulfillment or outcome of
the sellers' obligations under clause 2. The payment obligations were to be fulfilled in the
manner as envisaged and according to the timeline as provided in clause 4 and the buyers had
manifestly failed in this regard.
16. Learned counsel also submitted that clause 7 of the Agreement was not for the benefit
of the buyers alone. It enabled either or both sides to walk away from the Agreement if the
project was not modified as envisaged in clause 2. Learned counsel contended that the buyers
never wrote back to the letter of 9-5-2011 claiming that the sellers had failed to fulfill their
obligations under clause 2 or that the buyers' payment obligations under clause 4 were linked
to that clause and had been stopped on account of the sellers' alleged failure there under or
that the buyers were waiving their rights under clause 7. All of these contentions were now
being advanced for the first time to somehow get around and justify the buyers' failure to
make payment, which was their fundamental and basic obligation under the Agreement.
Learned counsel emphasized that the sellers were never in breach of their obligations under
the Agreement. Finally, as regards Mr. Shah, learned counsel submitted that nothing turned
on the request made by the defendant No.1 for payment of USD 250,000 to him by way of a
(refundable or adjustable) advance. A request was made by the sellers that was turned down
by the buyers and that was all there was to it. Learned counsel submitted that the plaintiff
was not entitled to any specific relief with regard to the Agreement, had come to Court with
unclean hands and had failed to make out any case for interim relief. The application
therefore merited dismissal.
17. Exercising his right of reply, learned counsel for the plaintiff referred to an order
dated 16-8-2011 that had earlier been made by me in the suit. On that date, it had appeared to
me on the basis of submissions by learned counsel for the parties that it was possible that
there could be a negotiated settlement of the dispute. I had accordingly directed the
contesting defendants to make, through learned counsel, an offer to the plaintiff for his
consideration. That offer was made through learned counsel's letter dated 29-8-2011. Learned
counsel for the plaintiff drew attention to this letter, in which the plaintiff was asked to
deposit a sum of USD 10.5 million. Learned counsel contended that this figure was
understandable only if the plaintiff's case regarding payments were accepted; otherwise, the
figure ought to have been USD 12 million. This in itself was sufficient to show that payments
had been made as claimed by the plaintiff.
18. I have heard learned counsel as above, examined the record with their assistance and
considered the case law relied upon by them. In the first instance, it will be convenient to
gather in one place the relevant provisions of the Agreement. These are as follows:--
"2. PROPOSED CHANGES IN PROJECT:
To improve the marketability of the Project, the Buyers propose the following changes to
the Project subject to approval from the Pakistan Defence Housing Authority,
Karachi, Pakistan ("DHA"):
(1) Construction of an additional tower; and
(2) Implementation of 2 additional levels to each tower
The Vendors will be responsible to obtain the necessary approvals from the DHA. In the
even the Vendors are unable to obtain the approvals from DHA then clause 7
hereunder shall apply.
3. AGREEMENT TO SELL AND PURCHASE SHARES
Subject to the terms and conditions or this Agreement, the Vendors shall sell and the
Buyers shall purchase the Shares on an as is basis where is basis [sic], with all rights
and liabilities attaching thereto on a willing buyer and willing seller basis.
4. CONSIDERATION
Subject to the terms of this Agreement, the consideration for the purchase of the Shares
shall be the sum of United States Dollars Thirteen Million Five Hundred Thousand
[US$13,500,000] [the "Sales Price"] for all the Shares. The Vendors are on a without
prejudice basis prepared to give credit for a sum of US$750,000 paid earlier by the
Buyers. The Sale Price shall be paid in the following manner:
(i) The sum of United States Dollars Seven Hundred and Fifty Thousand [US$750,000] or
its equivalent in Pakistan Rupees, in favour of Creek Marina (Singapore) Pte Ltd. or
its designate, shall be paid by the Buyers upon the signing of this Agreement.
(ii) The sum of United States Dollars One Million Five Hundred Thousand
(US$1,500,000) or its equivalent in Pakistan Rupees, in favour of Creek Marina
(Singapore) Pte Ltd. or its designate shall be paid by the Buyers on or before 30 April,
2011.
(iii) The Buyers will deliver to the Vendors a post-dated cheque in the sum of United
States Dollars Two Million (US$2,000,000) or its equivalent in Pakistan Rupees, on
or before 15 April, 2011 in favour of Creek Marina (Singapore) Pte Ltd. or its
designate payable on or before 30 June, 2011 .
(iv) The Buyers will also hand over a post-dated cheque or cheques on or before 30 April,
2011 to the Vendors in the sum of United States Dollars Eight Million Five Hundred
Thousand Dollars (US$8,500,000) or its equivalent in Pakistan Rupees issued by Mr.
Ahmed Kuli Khan Khattak in favour of Creek Marina (Singapore) Pte. Ltd. or its
designate payable on or before 30 March, 2012. This post-dated cheque(s) shall be
secured by a joint affidavit (in a form to be approved by the Vendors) from the
Buyers that the said post-dated cheque(s) will not be cancelled, dishonoured,
withdrawn and that no stop payment shall be issued for any reason whatsoever in
respect of the said cheque(s).
For the avoidance of doubt the liability of the Buyers shall be joint and several.
5. Share transfer forms will be executed by the Vendors and board resolutions for
appointment of new directors by the Buyers will be carried out upon clearance of the
said cheque for US$2,000,000 in paragraph 4A(iii) above at the business address of
CMS.
6. Upon completion and filing and registration of the changes in the Securities and
Exchange Commission of Pakistan, of the Shares transfer and appointment of new
directors as stated in paragraph 5 above, the Buyers will be allowed access to the
Project site for purposes of commencing construction on the site.
7. In the event the Vendors are unable to obtain DHA approval pursuant to clause 2 above
or any other equivalent changes approved by the DHA, then upon notice by the
 Vendors that the Buyers obtain approval of the DHA within ten (10) days of the date
of the said notice and the Buyers are unable to do so, then this Agreement shall be
deemed cancelled and any sum paid by the Buyers under this Agreement shall be
returned to the Buyers free of interest, save any sums paid prior to this Agreement.
..............................................................................
8.5 Copy of the Bank Guarantees of Guangdong Overseas Construction Group Company
Limited within 14 days of receipt of the signed Agreement from the Buyers. The
proceeds of the said Bank Guarantees will be released to the Company once the
matter has been resolved by the Court.
9. TRANSFER
A. Subject as hereinafter provided, the transfer of the Shares shall take place at the
business address of CMS upon receipt of the partial Sale Price of United States
Dollars Five Million (US$5,000,000) by the Vendors pursuant to clauses 4.A.(i), 4.A.
(ii) and 4.A(iii) above.
B. On the date of transfer of the Shares the Vendors will deliver and procure to deliver to
the Buyers:---
(i) Duly executed transfers in favour of the Buyers or as it may direct accompanied by the
relevant share certificates in respect in the Shares and such other documents and/or
other confirmation as may be required for the purpose of having the transfers
stamped;
(ii) The written resignations of the Chief Executive Officer, the directors of the Company
and the Secretary of the Company to take effect on the date of transfer;
(iii) The written resignations of the existing auditors of the Company to take effect on the
date of appointment of the new auditors referred to in Clauses 9(C);
(iv) The certificate of incorporation, common seals, cheque book and statutory books of
the company; and
(v) All the financial and accounting books, ownership documents and records of the
Company.
(vi) Possession of the site and all assets of the Company....
12. TIME OF ESSENCE
Any time or period mentioned in any provision of this Agreement may be extended by
mutual agreement between the Buyers and the Vendors but as regards any time, date
or period originally fixed or any time, date or period so extended as aforesaid time
shall be of the essence."
19. I first take up the preliminary objection to the maintainability of the suit. It is of
course indisputable that there are three buyers, and all three are jointly party to and interested
in the Agreement. Ordinarily therefore, it would be expected that all three appear as plaintiffs
or at least be joined as defendants. The absence of any one of the buyers from the suit may
well prove fatal in the end. These points in fact follow from the two cases cited by learned
counsel for the plaintiff, Jaffar Khan v. Muhammad Achar PLD 1961 Karachi 335 (DB) and
Ziaulkhalique and others v. Tanveer Ismail and others 1989 MLD 3940 (SHC; SB). The
division Bench judgment was also relied upon by learned counsel for the defendants.
However, as also pointed out by learned counsel for the plaintiff, the suit is at a preliminary
stage, and it is only an application for interim relief that is under consideration. The power to
add parties under Order I, Rule 10, C.P.C. can be exercised at any stage and is to be liberally
construed and applied. Furthermore, one of the remaining two buyers (Mr. Lone) has already
moved an application to be joined as a plaintiff and the plaintiff has filed an application with
regard to the second (Mr. Qureshi) to implead him as a defendant. In these circumstances,
and at this stage and for purposes of the present application, the plaintiff cannot and ought
not to be non-suited. The objection as to maintainability therefore, to the aforesaid extent,
cannot be accepted.
20. I now turn to consider the legal point taken by learned counsel for the plaintiff (and
denied by the other side), namely that section 20 of the 1930 Act applies in the facts and
circumstances of the present case and therefore the property in the shares passed to the
buyers on the execution of the Agreement. This is an important point which
requires careful consideration. As is well-known, the 1930 Act is
based and modeled on the (UK) Sale of Goods Act, 1893 (since replaced by the eponymous
Act of 1979; "the 1979 (UK) Act"). As presently relevant, there is one crucial difference
between our law and the English legislation: while shares are expressly "goods" within the
meaning of the 1930 Act, they are simply chosing inaction under English law. Shares are and
were not goods under either of the English enactments. Both the 1930 Act and the UK
legislation however, provide the same definition of "specific good" which are defined as
meaning "goods identified and agreed upon at the time a contract of sale is made" (the
English definition having certain additional words not presently relevant).
21. Now, section 19 of the 1930 Act provides, inter alia, that in the case of a contract for
the sale of specific goods, the property passes at such time when the parties to the contract
"intend it to be transferred". Subsection (2) provides that in ascertaining the intention of the
parties, "regard shall be had to the terms of the contract, the conduct of the parties and the
circumstances of the case". Finally, and most relevantly for present purposes, subsection (3)
provides as follows:--
"Unless a different intention appears, the rules contained in sections 20 to 24 are rules for
ascertaining the intention of the parties as to the time at which the property in the
goods is to pass to the buyer."
The foregoing provisions are in pari materia section 17 of 1979 UK Act. The rules in the
latter statute equivalent to sections 20 to 24 of the 1930 Act are stated in section 18 thereof,
and rule 1 corresponds to section 20. These rules are herein after referred to as "the statutory
rules".
22. The most obvious point about the statutory rules is that they apply only if there is no
intention to the contrary. In Kulkarni v. Manor Credit (Davenham) Ltd. [2010] EWCA 69;
[2010] 2 Lloyd's Rep 431, it was observed by the Court of Appeal that "the statutory
presumptions are not difficult to rebut" (at [29]). And earlier, in R.V. Ward Ltd. v. Bignall
[1967] 2 All ER 449, it had been observed in that Court (per Diplock, LJ) with specific
reference to the statutory rule embodied in section 20 that "in modern times very little is
needed to give rise to the inference that the property in specific goods is to pass only on
delivery or payment" (at p. 453). (The rule was then contained in the (UK) Sale of Goods
Act, 1893 as rule 1 of section 18 thereof.)
23. Section 20 of the 1930 Act provides as follows:---
"Where there is an unconditional contract for the sale of specific goods in a deliverable
state, the property in the goods passes to the buyer when the contract is made, and it is
immaterial whether the time of payment of the price or the time of delivery of the
goods, or both, is postponed."
It will be seen that the section applies if the following conditions are met: (a) there is an
unconditional contract; (b) the contract is for the sale of specific goods; and (c) the goods
must be in a deliverable state when the contract is made. If so, then if no intention to the
contrary is expressed, the property in the goods passes at the time the contract is made, and
this is so regardless of whether the payment of the price or delivery of goods (or both) is
postponed to some future date. What requires consideration is how this section applies in
relation to shares, and in particular, whether and if so how it applies in relation to the present
case. Before proceeding further, one point should be kept in mind. CMP is, as noted above, a
private limited company. Its shares are necessarily in physical form, i.e., in the shape of
actual share certificates. The following analysis is therefore in relation to shares in this form.
I say nothing in relation to shares in book-entry form held on an electronic system (such as
that operated by the Central Depository Company of Pakistan Ltd.), where somewhat
different considerations may apply.
24. The first point to note is that the goods in the present case, the shares of CMP, are
clearly specific goods. The 885,020 shares that constitute the entire shareholding of the
company are identified and agreed upon. Thus, one of the conditions necessary for section 20
to apply was met. The more interesting question however is whether the shares were in a
"deliverable state" when the Agreement was entered into. What does this expression mean
when used in relation to shares? Section 2(3) of the 1930 Act provides that "goods are said to
be in a 'deliverable state' when they are in such state that the buyer would under the contract
be bound to take delivery of them". (Section 61(5) of the 1979 UK Act is in pari materia this
provision.) The case-law on "deliverable state", almost all of it English or based on English
authorities, would seem to suggest that the term "state" is referable to the physical condition
of the goods. However, as noted above, shares are not "goods" within the meaning of the
English legislation and therefore, the case-law may not be too helpful in the present context.
In my view, the key point is that the "state" of the goods must be such that the buyer is
"bound" to take delivery of them. The question therefore is: when would be a buyer "bound"
to take delivery of shares if tendered to him by the seller in the context of a contract for the
sale of shares?
25. The legal nature of the shares of a company is well understood. Shares are regarded as
constituting a bundle of rights that the shareholder has in, and against, the company (and, as
appropriate, against other shareholders as well). Of these, by far the most valuable rights are
the right to participate and vote in a members' meeting (such as the annual general meeting or
an extraordinary general meeting) and to receive dividends. In English law, share certificates
are only evidence of a shareholder's title to such rights, whereas under the 1930 Act, the
share certificates are, in addition, goods as well. Now, insofar as the company is concerned, a
shareholder can enjoy his bundle of rights only if his name appears in the members' register.
A person who acquires shares under a share purchase agreement must therefore, get himself
registered in the members' register. The manner in which this is to be done is provided for in
section 76 of the Companies Ordinance, and it is well established that the provisions thereof
are mandatory. This section requires that a duly stamped transfer deed executed by both the
transferor and the transferee must be produced along with the share certificates; absent such
deed, the shares cannot, and will not be transferred. If a proper transfer deed and the share
certificates are produced, then in accordance with law, and assuming that all other formalities
have been fulfilled, the company is bound to transfer the shares in the name of the transferee
and substitute his name for the transferor in the members' register. A transfer deed is
therefore absolutely essential.
26. Until and unless the buyer's name gets on the members' register, he cannot directly
enjoy the benefits of the shares and the company will continue to recognize the seller as its
member. Of course, the buyer can obtain a proxy from the seller to attend members' meetings
and the latter has to account to the buyer for any dividends received by him. But this is, at
best, at second hand and obviously not the same thing as directly enjoying the benefits of
membership, and leaves the buyer at the mercy of the seller (or on the outcome of a court
action, which would almost inevitably prove cumbersome and costly). Since the buyer must
have both the share certificates and a transfer deed executed by the seller in order to get his
name on the members' register, it follows that if the seller only tenders the share certificates,
the buyer is not obligated to accept the shares. In other words, a valid tender of shares by a
seller must necessarily be accompanied by a duly executed transfer deed. Of course, this is
invariably expressly provided for in a well drafted share purchase agreement. In my view
however this is, strictly speaking, not necessary. Such a term must necessarily be implied as
a matter of law in any contract for the sale of shares. It is for this reason that it has been
observed as follows in Official Assignee, Bombay v. Madholal Sindhu AIR 1947 Bombay
217:---
"...a sale of shares backed by share certificates and blank transfers is in India a sale of
goods and not as in England a sale of chosen in action." (at pg. 221)
The reference to "blank transfers" is simply to a transfer deed executed by the transferee
without the transferor's name having been filled in.
27. Putting the point in terms of the 1930 Act, a buyer of shares is not bound to take
delivery of shares unaccompanied by a duly executed transfer deed. If however, the buyer is
not bound to take delivery of the shares alone, then it follows that in terms of section 2(3) the
goods (i.e., the shares) cannot be in a "deliverable state". In other words, the "state" of the
goods, in the context of shares, is not limited to their physical condition. It must mean and
include the document, i.e., the transfer deed duly executed by the seller, without which the
buyer cannot enjoy the benefit of the goods that he is acquiring.
28. The meaning of "deliverable state" in the context of a sale of shares may be contrasted
with the situation before the Court in Ghulam Mustafa v. Officer on Special Duty, Federal
Land Commission and another 1984 CLC 824 (SHC; DB). Under the Land Reforms
Regulations, 1972, a certain benefit was available to a person who owned a tractor. The
petitioner claimed the benefit on the basis of a tractor acquired
from its previous owner. However, his claim was
turned down on the ground that the tractor had not been
transferred to the petitioner's name by the motor registration
authorities in the registration book. The learned Division Bench referred to sections 18 to 24
of the 1930 Act, and in particular to sections 19 and 20 (pp. 826-7). It was specifically
observed that "under the Motor Vehicle Act under which a tractor is registered, there is no
provision providing that till the transfer of a registration book in favour of a purchaser, the
ownership of the tractor shall remain with the original owner". It was held on the facts of the
case that section 20 was applicable, and the property in the tractor had passed to the
petitioner at the time that the contract of sale was entered into. The petition was accordingly
allowed.
29. The difference between the case at hand and the facts in Ghulam Mustafa is immediate
and striking. In the latter case, the required act
(transfer of the tractor in the registration book) had to be done
not by the seller but the concerned authority. Even absent such
transfer, the purchaser could himself directly enjoy the benefit of
the tractor in the ordinary course. In the case of shares however,
the law requires the seller to execute a transfer deed without
which the shares cannot be transferred at all in the buyer's name in the members' register, and
without such transfer the buyer cannot himself directly enjoy the benefit of what he has
acquired. In my view therefore, the term "state" in the definition of "deliverable state" in
section 2(3) of the 1930 Act is relatable to and includes any document which the law requires
the seller to execute and without which the buyer is wholly or substantially unable or
incapable of himself directly enjoying the benefit of the goods being acquired in the normal
course. It must however be kept in mind at the same time that the goods as such are separate
and distinct from the document required to be executed by the seller.
30. Insofar as the Agreement is concerned, it follows from the foregoing that the shares of
CMP were not in a deliverable state at the time that the Agreement was executed. This is so
because clauses 5 and 9(B) of the Agreement expressly provided that the sellers would be
obliged to execute and hand over the transfer deeds at a future date and on occurrence of a
certain event, namely, payment of at least USD 5 million by the buyers. (The handing over of
the goods themselves, i.e., the shares, was also postponed to that date/event but that of course
is immaterial for purposes of section 20.) Thus, one of the conditions required for the
application of section 20 was not fulfilled as on the date of execution of the Agreement, and
hence the property in the shares did not pass to the buyers on that date.
31. In my view, there is also another reason why section 20 is inapplicable. The
Agreement envisaged the transfer of the entire shareholding of
CMP to the buyers. Thus, there was to be a transfer not only, and merely, of shares in CMP
but also of its management and control. This is clear from the various provisions of the
Agreement including, in particular, clause 9. In my view, the Agreement clearly expresses an
intention that the property in the shares was to pass not
before the date and on occurrence of the event stated in clauses 5 and 9. Since the application 
of section 20 is contingent on a contrary intention not being expressed, and keeping in mind
what has been said by the Court of Appeal (see para 22 supra) with which I respectfully
agree, this is an additional reason why the section was not applicable in the facts and
circumstances of the present case. The legal point taken by learned counsel for the plaintiff
cannot therefore be accepted.
32. Section 58 of the 1930 Act empowers the court to grant specific performance of a
contract for the sale of specific goods, but subject to the provisions of Chapter-II of the
Specific Relief Act, 1877. The explanation to section 12 of the latter statute of course
provides that unless the contrary is proved, it shall be presumed that the breach of a contract
to transfer moveable property can be adequately compensated in money terms. In my view,
when the contract is for the transfer of the entire or a substantial portion of the shareholding
of a company and/or the circumstances of the case indicate that a transfer of the management
and control of the company is envisaged, then prima facie, such a share purchase contract
may be specifically enforced. The reason is of course that a transfer in the foregoing terms is
of something more than a mere transfer of shares. Such a transfer may well not be capable of
being valued or compensated in monetary terms. This is especially so where the business of
the company concerned is thriving and it is pursuing a prestigious venture such as the
project. Obviously, if prima facie such a share purchase contract may be specifically
enforced, then the plaintiff may also be entitled to interim injunctive relief if a suitable case
is made out in this regard.
33. As noted above, the primary objection taken by learned counsel for the defendants to
the grant of interim relief is that the buyers have failed to make payment in terms of clause 4
of the Agreement. The payment of a sum of USD 1.5 million (by way of two sums of USD
750,000 each) is not in dispute. The plaintiff claims that payment of USD 1.5 million (as per
clause 4A(ii)) has been made, but this is denied by the defendants. I have already noted, in
para 17 supra, the submission by learned counsel for the plaintiff regarding the aforesaid
payment. In my view, prima facie, this submission is not without force. Therefore, for
present purposes, I proceed on the basis that tentatively, this payment was made by the
buyers.
34. This leaves the matter of the balance USD 10.5 million, which even the buyers accept
has not been paid. Learned counsel for the plaintiff submitted that this amount was not paid
on account of the breaches by the sellers of their obligations under the Agreement. The first
point that requires consideration is whether the payment milestones under clause 4 were
stand alone, independent obligations, as submitted by learned counsel for the defendants. In
my view, that cannot be so on account of the words with which this clause opens, which
expressly make it subject to the other terms of the Agreement. Thus, the payment obligations
have to be considered in the context of the Agreement as a whole. In order to properly
understand the position, it will be appropriate to restate the payment milestones envisaged by
clause 4. These were, in material respects, as follows:---
(a) The first milestone was recognition of an amount of USD 750,000 already paid and
payment of a like amount on the execution of the Agreement (clause 4A(i)). These
payments, totalling USD 1.5 million, are not in dispute.
(b) The second payment milestone was 15-4-2011, by which date a cheque for USD 2
million, postdated to not later than 30-6-2011 had to be delivered to the sellers (clause
4A(iii)). This cheque was admittedly not delivered by the buyers.
(c) The third payment milestone was 30-4-2011, by which date two things had to happen:
 (i) Payment had to be made of a sum of USD 1.5 million (clause 4A(ii)). The plaintiff
claims that this payment was made, which is denied by the defendants. I have
tentatively concluded that this payment was made.
(ii) One or more cheques totalling USD 8.5 million, postdated to not later than 30-3-2012
had to be handed over to the sellers (clause 4A(iv)). Admittedly, this was not done by
the buyers.
It is also important to keep in mind that the transfer of the shares and control and
management of CMP was to take place only upon part payment, i.e., when USD 5 million
had been received by the sellers. Keeping the payment milestones in mind, this would have
meant that the transfer was to take place by or around 30-6-2011, the latest date by which the
post-dated cheque for USD 2 million was payable.
35. As noted above, the first thing, as presently relevant, that
happened after the execution of the Agreement was the request, on 1-4-2011, by the
defendant No.1 that a sum of USD 250,000 be handed over to the aforementioned Mr. Shah
by way of an (refundable or adjustable) "advance". The second thing that happened was the
letter of 9-4-2011 from the defendant No.1, which has been reproduced in para 8 supra. I will
revert shortly to the matter of Mr. Shah. Insofar as the letter of 9-4-2011 is concerned, in my
view, learned counsel for the plaintiff is correct in stating that its contents were extraneous to
the Agreement. There was nothing in the Agreement that would indicate that DHA's approval
was required for the transaction. The submission by learned counsel for the defendants that
such a requirement be implied as a term in the Agreement cannot be accepted. The law with
regard to implied terms has recently been reconsidered and restated by the Privy Council in
Attorney-General of Belize v. Belize Telecom Ltd. [2009] UKPC 10; [2009] 2 All ER 1127
(at [16] to [27]). The advice of the Board was delivered by Lord Hoffmann whose judgment,
as always,
merits close consideration. There is nothing in the defendants' case that would require applic
ation of any of the principles enunciated by the Privy Council. Indeed, quite the opposite. All
the material facts (i.e., the relevant background) were well-known to both the sellers and the
buyers at the time the Agreement was entered into. If at all the parties had regarded it as
essential or necessary or even appropriate to obtain DHA's approval, it could and would have
been expressly made part of the Agreement. As observed by the Privy Council (at [17]):
"If the parties had intended something to happen, the instrument would have said so.
Otherwise, the express provisions of the instrument are to continue to operate
undisturbed. If the event has caused loss to one or other of the parties, the loss lies
where it falls."
36. It is also pertinent to note that it was the sellers who, in paragraph 3 of the letter of 9-
4-2011, sought to establish a link or connection between DHA's approval and the payment
milestones set out in clause 4. They cannot have it both ways. It cannot be contended at one
and the same time that the payment milestones were independent, stand-alone obligations
and also dependent on approval by DHA. In my view, it was the sellers who inserted an
extraneous element into the transaction and raised an issue that did not, and could not, arise
from the Agreement itself.
 37. The same point applies in relation to the defendant No. 1's letter of 9-5-2011
(reproduced in para 10 supra). It is pertinent to note that in paragraph 2 of this letter, the
sellers have reproduced an extract from DHA's letter dated 2-4-2011, whereby the latter
purports to have "rejected" the buyers. This was obviously a letter addressed to one or more
of the defendants. Thus, when the defendant No. 1 wrote the letter of 9-4-2011, the
"rejection" by DHA must already have been in the sellers' knowledge. However, no
indication of this was at all given in that letter. In my view, the letter of 9-4-2011 was
therefore prima facie misleading. The buyers were wrongly led to believe that a suitable
effort by them could still convince DHA to give its approval. However, as the letter of 9-5-
2011 makes clear, that could not have happened. (Of course, this is quite apart from the fact
that DHA's approval in any case was extraneous to the Agreement.)
38. The letter of 9-5-2011 also purports to give notice in terms of clause 7 of the
Agreement to the buyers, and something must be said on this account as well. This purported
notice was, in my view, rather disingenuous on the part of the sellers. If, according to them,
DHA had already "rejected" the buyers on 2-4-2011, and this was already well within their
knowledge for more than a month, then obviously no purpose would be served by giving the
buyers notice under clause 7 on 9-5-2011 to try and have the project modified in terms of
clause 2 of the Agreement. By then, clauses 2 and 7 had long since lost all relevance. In my
view, the sellers' conduct is prima facie open to serious question. It will also be noted that
clause 12 expressly made time of the essence in respect of any time or period mentioned in
the Agreement. Although no time was specified by which the sellers were to give notice
pursuant to clause 7, once such notice was given, a 10 day period was expressly provided for.
In my view, taking the various payment milestones into consideration, it can reasonably be
concluded that the sellers really ought
to have tried to fulfil their obligations under clause 2 by around 5-4-2011, and if they proved
unsuccessful, to give notice to the buyers by that date. The reason is that the buyers would
then have ten days to make efforts on their own before 15-4-2011, which was of course the
second payment milestone by which the cheque for USD 2 million was to be handed over to
the sellers. A notice under clause 7 after 5-4-2011 would put the buyers in a dilemma: should
they wait for the notice and default on the payment milestones, or meet the milestones only
to subsequently receive the notice under clause 7 which could result in the Agreement
coming to an end? In my view, the sellers ought to have given an explanation as to the
issuance of the notice under clause 7 on 9-5-2011, after more than one month beyond what
could reasonably be expected. However, no such explanation was forthcoming.
39. The other aspect of the letter of 9-5-2011 is of course, the sellers contention that the
payment milestones with regard to the USD 2 million cheque and USD 1.5 million payment
had been missed. I have already come to the tentative conclusion that the payment of USD
1.5 million was made by the buyers. In para 8 of the plaint, this payment is stated to have
been made by means of a cheque dated 30-4-2011 drawn on Askari Bank Ltd. In my view,
this objection with regard to non-compliance of clause 4 must be considered in the context of
what has been stated above. It was the sellers who were introducing extraneous elements into
the transaction and establishing linkages between the payment obligations and those
elements. No explanation has also been given as to what efforts were made by them to fulfil
their obligations under clause 2 and why, if those efforts proved unsuccessful, the notice
under clause 7 was delayed beyond what could reasonably be expected. It does not therefore
now lie with them to set up a case that the payment milestones were independent obligations
which had been missed by the buyers.
40. I now turn to what I have found to be a rather troubling aspect of the case, namely the
role and position of Mr. Asghar Ali Shah. Who was this person? Why was a request made to
the buyers to "advance" him the sum of USD 250,000 (a large sum by any standard,
especially when converted into Pakistani rupees) with specific reference to the Agreement
and to "defray" his "costs and expenses" in respect of the project? What were those "costs
and expenses" and why had Mr. Shah incurred them? Why, when the defendants were
ostensibly giving up the project, did they regard it necessary to make a payment to Mr. Shah,
which would, after all, come out of the sale consideration? In any case, why and how were
the sellers/defendants obligated to him? Learned counsel for the defendants would rather that
Mr. Shah be brushed aside as, at most, an unnecessary distraction. However, the record does
not permit this. As noted above, Mr. Shah was kept privy to all the relevant
correspondence sent by the defendant No.1, including the letter of 24-5-2011 whereby the
Agreement was terminated. Although the record does not indicate exactly when the buyers
refused to "advance" any money to Mr. Shah, it is pertinent that almost immediately after the
letter of 1-4-2011, DHA purported (on 2-4-2011) to "reject" the buyers and then the sellers,
suppressing their knowledge of this "rejection", wrote to the buyers on 9-4-2011 casting
doubt on whether the transaction would be completed at all and yet urged the buyers to try
and satisfy DHA regarding their "suitability". On Mr. Shah, the counter affidavit filed by the
defendants is ambiguous to the point of being evasive. Quite clearly, something was going
on, and prima facie it would seem that something has not been fully disclosed to the Court.
Having examined the record and considered the matter, I have been left with the strong
impression that whatever was going on, if properly disclosed, would bring no credit to the
defendants, but would rather cast them in a very
poor light indeed. Prima facie, the material available suggests that
there was a link between Mr. Shah, the transaction under the Agreement and DHA. The
defendants' evasiveness indicates that this link may not bear any scrutiny, let alone a close
one. I find it unacceptable that there has been an apparent concealment of material facts from
the Court. The blame in this regard must lie with the defendants: they brought Mr. Shah into
the picture and kept him there till the very end. They therefore must know the correct and
true facts and their lack of candor is disturbing.
41. Needless to say, what has been stated in the paras herein above is of a tentative nature,
and for purposes of the present application. If and when the suit goes to trial, it shall be
disposed off entirely on the basis of the evidence led by the parties and uninfluenced by
anything herein stated.
42. In view of the foregoing discussion and consideration, I conclude that the plaintiff has
made out a prima facie case and the conduct of the defendants in the matter and in relation to
the transaction and before the Court leaves something (actually, rather a lot) to be desired.
The equities in my view lie in favour of the plaintiff and against the defendants. At the same
time, it is indisputable that a large portion of the sale consideration remains unpaid and
therefore the sellers' interest must also be protected. Accordingly, I hereby allow the
application as prayed, but subject to the condition that the plaintiff shall furnish
a bank guarantee to the satisfaction of the Nazir of the Court in the sum of USD
5.25 million or its equivalent in Pakistani rupees. The injunction shall be operative
immediately, but shall automatically stand vacated and recalled if the plaintiff fails to furnish
the bank guarantee within a period of 30 days from today. If the guarantee is not in place
within the stipulated period the Nazir shall issue a certificate to this effect to any defendant
who makes an application to him in this regard.
M.H./A-21/K Application allowed.
;