2024 C L D 948
[Balochistan]
Before Muhammad Ejaz Swati and Nazeer Ahmed Langove, JJ
Dr. RASHID TARIN--- Petitioner
Versus
The GOVERNMENT OF BALOCHISTAN through Chief Secretary, Civil Secretariat,
Quetta and 2 others ----Respondents
C.P. No.769 of 2023, decided on 19th October, 2023.
(a) Constitution of Pakistan ---
----Art. 199---Writ of quo warranto ---Appointment of Chief Executive Officer of a public
sector company, challenging of ---Aggrieved person--- Scope ---Petitioner filed constitutional
petition challenging the appointment of the private respondent as Chief Executive Officer of People's Primary Health Initiative Balochistan (PPHI -B), a public sector company ---
Objection of the official respondents was that the writ petition was not maintainable as the petitioner had no locus standi to file the same ---Held, that objection of the respondents was
not tenable as in case of issuance of writ of quo warranto the person laying information before the court need not be an aggrieved person.
Hafiz Hamdullah v. Saifullah Khan and others PLD 2007 SC 52 ref.
(b) Companies Act (XIX of 2017) ---
----Ss. 2(54), 4, 186 & 187--- Public Sector Companies (Corporate Governance) Rules, 2013,
R.5(2) ---Public Sector Company (Appointment of Chief Executive) Guide Lines, 2015,
issued by Securities and Exchange Commission of Pakistan, Clause 7 & Schedule 1--- Chief
Executive Officer of a public sector company, appointment of ---Mechanism/eligibility
criteria ---Power /role of the Government ---Scope ---Petitioner challenged the notification for
appointment of the private respondent as Chief Executive Officer of People's Primary Health Initiative Balochistan (PPHI -B), a public sector company--- Contention of the petitioner was
that the relevant procedure /criteria had not been followed in the said appointment ---
Validity ---Section 4 of the Companies Act, 2017, expressly provides that provision of the
Companies Act pre- empts anything contained in any other law (or the Memorandum of
Association or Article of Association of a company or contract or agreement or resolution etc.) and any provision or resolution to the extent of its inconsistency with any provision of
the Companies Act, 2017, would be void--- Sections 186 & 187 of the Companies Act, 2017,
empower the Board to appoint the CEO of a Company, subject to S.186 (4) or 187 (4) of the Companies Act, 2017, which prescribes the (relevant) Government the power to nominate CEO of a Public sector Company---Apart from said provision, the company/ PPHI -B had
been registered / renewed as a public sector association not for profit in terms of S.2(54) of the Companies Act, 2017, therefore, the appointment of its CEO and allied matters (criteria,
process, evaluation of candidates, terms and conditions etc.) were further regulated under R.5(2) of Public Sector Companies (Corporate Governance) Rules, 2013 ('the Rules 2013') and Clause 7 and Schedule 1 of the Public Sector Company (Appointment of Chief Executive) Guide Line, 2015 ('PSC') issued by SECP ---Rule 5(2) of the Rules, 2013 is meant
for evaluation of candidate for the post of Chief Executive by the Board---After such evaluatio n the Board must recommend at least three persons to the Government for
appointment as CEO of the concerned public sector company; the nominee concurred by the Government is to be appointed by the Board as Chief Executive ---Following the specific
criteria for such appointment was important ---Said provisions (of the Companies Act, 2017,
Rules, 2013 PSC) and Articles of Association (AoA) of the Company (PPHI -B) provide
certain mechanism/eligibility criteria for the appointment of the CEO ---It is obvious from the
AoA that Board of Directors owes the Company and makes the Board responsible for placing the succession and appointment of the CEO ---Procedure adopted by the official respondents
for the appointment of the private respondent did not conform to the said provisions and AoA
of the Company on the matters, therefore, impugned notification could not be sustained---
High Court set -aside the impugned notification and directed the official respondents to take
necessary steps for the appointment of new CEO of the company on merits and in accordance with law ---Constitutional petition was allowed accordingly.
2019 SCMR 1952 and Ghulam Rasool v. Government of Pakistan through Secretary,
Establishment Division Islamabad and others PLD 2015 SC 6 ref.
Munir Ahmed Kakar, Adnan Basharat and Ali Ahmed Kakar for Petitioner.
Shai Haq Baloch, Additional Advocate General along with Arif Shah, Chief Audit
Officer PPHI -B for Respondents Nos.1 to 2.
Syed Ayaz Zahoor and Muhammad Ali Kanrani for Respondent No.3.
Date of hearing: 9th October, 2023.
JUDGMENT
MUHAMMAD EJAZ SWATI, J. ----People's Primary Health Initiative Balochistan
(PPHI -B) is a public limited company (the company) registered under Section 42 of
(repealed) Companies Ordinance 1984 now Companies Act, 2017 (the Act). The Government of Balochistan Health Department through an agreement dated 17th August 2018 assigned
the management of its primary health care facilities in the rural areas located in Balochistan province i.e. health facilities, whereby Basic Health Units (BHU's) mentioned in the agreement were given in the management of the company. The affairs of the company are supervised by the Members of Board of Directors (the Board) including three Ex- Officio
Directors i.e. Additional Chief Secretary Planning and Development Department, Government of Balochistan, Secretary Health, Government of Balochistan and Secretary Finance Department, Government of Balochistan. The company of the Board follows its registered Article of Memorandum of Association (MOA) and Article of Association (AOA), provisions of the Act, regulations by Security and Exchange Commission of Pakistan (SECP) and policies framed by Board for running the official business of the company. As per policies of the company Government has to nominate the CEO of the company while the Board has to appoint the CEO. Sections 45 and 46 of the AOA of the Company provides criteria for the appointment of Chief Executive Officer (CEO) as under,
"CHIEF EXECUTIVE:
The directors may appoint a person to be the Chief Executive of the company and vest in him such powers and functions as they deem fit in relation to the management and administration of the affairs of the company subject to their general supervision and control. The Chief Executive, if not already a director, shall be deemed to be a director of the company and be entitled to all the rights and privileges and subject to all the liabilities of that office.
QUALIFICATION OF THE CHIEF EXECUTIVE:
No person who is not eligible to become a director of the company under section 187 of the Ordinance, shall be appointed or continue as the Chief Executive of the company."
2. The Board of the Company in their 9th General meeting held on 16- 8-2017
unanimously decided the selection criteria for the post of CEO, which was notified vide notification dated 1- 9-2017, which reads as under,
"Chief Executive Officer: Eligibility Criteria/mode of appointment: A BS -20 officer
of PAS/BCS/BSS cadre or B -19 officer of these cadres with 3 -4 year service in BS -
19.
This posting will be subject to interview/selection of the candidates by the Board or Board Executive Committee. After selection of the candidate, a panel of at least three
officers will be forwarded to Government of Balochistan S&GAD for placement of
services of one of them with PPHI for appointment as CEO or Company Secretary as the case may be."
3. That after bifurcation of Health Department into two departments, Mr. Asfand Yar
Baloch BCS/B -19 was previously notified as the CEO of the Company on 12- 6-2021 and
Board Members unanimously endorsed the above notification.
4. The petitioner being Member of Board of Directors of the Company is aggrieved
against the impugned notification dated 18- 5-2023 issued by the respondent No.1, whereby
respondent No.3 has been appointed as CEO of the Company on standard terms and condition on contract basis for term of three years. It is the grievance of the petitioner that the impugned notification and appointment is in violation of the Act and AOA of the Company.
5. The learned counsel for the petitioner contended that the notification is in utter
violation of MOA, AOA and policy framed by the Board of the Company on 16- 8-2017. That
appointment of retire civil servant as CEO of the Company is also contrary to the Rules and
Policies ibid and violation of Article 25 of the Constitution of Islamic Republic of Pakistan
1973 (the Constitution). That the impugned notification is also against the general meeting of
the BOD dated 16 -8-2017 and violation of notification dated 22- 09-2017. That the Company
is a public limited company by guarantee and not have a share capital, while the respondent misconstrued the term public company as public sector company, which are classified as
separate entity under the provisions of Sections 2(52) and 2 (54) of the Companies Act, 2017
respectively. That license issued by the Security and Exchange Commission of Pakistan
(SECP) for the Company clearly mentioned it as public company and not as Public Sector
Company. Besides, above the audit reports of the company are presented before the BOD under Section 183 (2)(g) of the Companies Act 2017. That MOA and AOA of the petitioner
company setting out regulations for PPHI Balochistan. That impugned notification is in utter
violation of the Act and AOA of the Company.
6. The learned AAG assisted by the learned counsel for the respondent No.3 contended
that the petitioner has no locus standi to challenge the validity of the impugned notification.
That the petitioner is not eligible to hold the office of the Member of Board that he has
already served more than ten years in violation of Rule 3 -a of Public Sector Companies
(Corporative Government) Rules 2013 (the Rules). That the respondent No.3 was nominee of
the GOB as his nomination was approved by Chief Minister Balochistan who was competent authority as per amended Rules of 2017 and 2019. That the petitioner is seeking implementation of MAO and AOA as well as policy framed by the BOD in its 9th general meeting on 16 -8-2017 under the Companies Act 2017 for which he has alternative remedy,
therefore, this petition is not maintainable and liable to be dismissed. That the petitioner was also appointed as Director Member of the Board after his retirement from service, therefore, he cannot probate and reprobate in a same breath. That there is no provision provided under the Rules or in the Act with regard to the appointment of any Director or Member of the Board or CEO of PPHI Balochistan. That the BOD has no lawful authority to prescribe the age of the CEO without support of any statutory provisions. The learned counsel for the respondent No.3 placed reliance on cases reported in 2014 SCMR 982 and PLD 2005 SC 806.
7. We have heard the learned counsel for the parties and perused the record. The
respondent contended that instant petition is not maintainable as petitioner has no locus standi to file the same, is not tenable as in case of issuance of writ of quo warranto the person laying information before the court need not be an aggrieved person. Reference is to be made to case titled Hafiz Hamdullah v. Saifullah Khan and others (PLD 2007 SC 52).
8. Section 4 of the Act expressly provides that provision of the Company Act preempt
anything contained in any other law or the MOA or Article of a Company or in any other
contract or agreement executed by the Company or any resolution passed by the Company in
General meeting by its shareholders or its Board and any such provision or resolution to the extent of its inconsistency with any provision of Company Act would be void.
9. The learned counsel for the respondent contended that the petitioner has served for
the last ten years as a member of the Board of Directors and he was appointed after his
retirement and serving till today, as such, without adopting recourse provided under the law and AOA and he is not eligible to such post. Section 161 of the Act provides that a director shall hold office for period of three years and as per Section 158 of the Act "on expiring of terms of office any directors shall stand retired from office and the directors so retiring shall
continue to perform their functions until the successors are elected, therefore, the aggrieved
person may resort the recourse under Sections 157, 158, 161, 162 and 163 of the Act for
removal of the petitioner."
10. It is the case of the petitioner that clause 45 and 46 of AOA of the Company
empowers the Board of Directors to appoint or remove the CEO of the Company. The Board of Directors of the Company in its General meeting held on 16th August 2017 laid down eligibility criteria and mode of appointment of the CEO and issued notification dated 1- 9-
2017.
11. The CEO of the Company is the most important position in the sense that law confers
the responsibility of administration and management of the Company to the CEO. His responsibilities include implementation of strategies and policies approved by the Board, making appropriate arrangements to ensure the funds and resources are properly safeguarded and one used economically, efficiently and effectively in accordance with all statutory obligations. The appointment of the CEO of the Company is prescribed in Sections 186 and 187 of the Companies Act, which reads as under,
"186. Appointment of first chief executive.---(1) Every company shall have a chief
executive appointed in the manner provided in this section and section 187.
(2) The name of first chief executive shall be determined by the subscribers of the memorandum and his particulars specified under section 197 shall be submitted along with the documents for the incorporation of the company.
(3) The first chief executive shall, unless he earlier resigns or otherwise ceases to hold office, hold office up to the first annual general meeting of the company or, if a shorter period is fixed by the subscribers at the time of his appointment, for such period.
(4) Notwithstanding anything contained in this section, the Government shall have the power to nominate chief executive of a public sector company in such manner as may be specified.
187. Appointment of subsequent chief executive.---(1) Within fourteen days from the date of election of directors under section 159 or the office of the chief executive
falling vacant, as the case may be, the board shall appoint any person, including an
elected director, to be the chief executive, but such appointment shall not be for a period exceeding three years from the date of appointment:
Provided that the chief executive appointed against a casual vacancy shall hold office till the directors elected in the next election appoint a chief executive.
(2) On the expiry of his term of office under section 186 or subsection (1) of this section, a chief executive shall be eligible for reappointment.
(3) The chief executive retiring under section 186 or this section shall continue to perform his functions until his successor is appointed, unless non- appointment of his
successor is due to any fault on his part or his office is expressly terminated.
(4) Notwithstanding anything contained in this section, the Government shall have the power to nominate chief executive of a company where majority of directors is nominated by the Government, in such manner as may be specified."
12. From the above it appears that Board is empowered to appoint the CEO of the
Company, but power under Section 187(1) of the Companies Act is subject to Section 186(4) or 187(4) of the Companies Act, which prescribed the Government power to nominate CEO of the Company. The Section 187(1) of the Companies Act empower the Board to appoint any person including a Director if fulfill the eligibility criteria as a CEO for a maximum period of three years.
13. The license of the Company has been renewed by the SECP under Section 42 of the
Act as a public sector association not for profit and by virtue of Section 2(54) of the Act,
public sector companies (Corporate Governance Rule, 2013) (the Rule) and public sector company (appointment of Chief Executive) guide line 2015 (PSC) issued by SECP are also attracted in the instant case. The appointment of the CEO of the public limited company in term of Section 187 (1) of the Companies Act is further regulated under clause 7 of the PSC,
which stipulate that board has the power to appoint the CEO and issue his appointment
contract embodying the requisite terms and conditions of appointment. The PSC guide line
further stipulates that such appointment must be made on "fit" and proper criteria. The relevant process of appointment in term of fit and proper criteria is further specified in schedule 1 of the PSC guidelines which include advertisement, shortlisting process, evaluation of shortlisting conditions and their interview process. Rule 5(2) of the Rule meant to the evaluation of candidate for the post of chief executive by the Board, after such evaluation the Board must under Rule 5(2) recommend atleast three persons to the Government for appointment as CEO of the concern public sector company. The nominee concurred by the Government is to be appointed by the Board as chief executive. Reliance in
this respect is to be placed on case "title selling of National Assets including PIA at
throwaway price in the matter of human rights case No.11827- S of 2018 (2019 SCMR 1952),
wherein the Honorable Supreme Court of Pakistan observed as under,
"7. In addition to the criteria for appointment of CEO the Rules 2013 provide for the
Responsibilities, powers and functions of the Board of Directors of a public limited company. It is clear from the language thereof that the Board owes the company and
its stakeholders a fiduciary duty, performance whereof is solely for the best interests
of the company. Rule 5(2) makes the Board responsible for the planning, succession
and appointment of the Chief Executive of the company and in doing so it has to evaluate the potential candidates on the 'fit and proper criteria' as reproduced above. It
cannot be over emphasized that in undertaking such evaluation, the board must act
independently, transparently and in a totally impartial and unbiased manner so as to
select the best and most suitable candidate purely and strictly on merit."
The importance of following the specific criteria for appointment has been elaborated
in case title Ghulam Rasool v. Government of Pakistan through Secretary, Establishment
Division Islamabad and others (PLD 2015 SC 6), wherein the Honorable Supreme Court of Pakistan observed as under,
"In Syed Mahmood Akhtar Naqvi and others v. Federation of Pakistan etc (PLD 2013 SC 195), this Court has held that "whenever there are statutory provisions or rules or regulations which govern the matter of appointments, the same must be followed". Keeping in view the above discussion, it can be said that the matter of appointment of heads of statutory bodies, autonomous/semi -autonomous bodies, corporations,
regulatory authorities etcetera are governed under specific statutory provisions which cannot be overlooked or substituted by some other mechanism."
14. The above provision of the Companies Act and AOA of the Company provided
mechanism/eligibility criteria for the appointment of the CEO. It is obvious from the AOA that Board of Directors owes the Company and makes the Board responsible for the placing succession and appointment of the CEO. The procedure adopted by the official respondent for the appointment of the respondent No.3 does not conform to the law and AOA of the Company on the matters, therefore, impugned notification cannot be sustained.
In view of above, the Constitution Petition No.769 of 2023 is allowed. The impugned
notification dated 18- 5-2023 is set aside. The official respondents are directed to take
necessary steps for the appointment of new CEO of the company on merits and in accordance with law.
MQ/25/Bal. Petition allowed.This judgment is reproduced from a publicly available source for informational purposes and does not constitute legal advice. If you believe this listing contains an error,
let us know.