' MUHAMMAD MUJEEBULLAH SIDDIQUI, J.---This appeal is directed against the judgment and decree dated 18-5-2004, by a learned Single Judge of this Court in Suit No,173 of 2004.
2. Briefly stated the facts giving rise to this appeal are that the appellants a registered partnership firm of Chartered Accountants filed a suit for declaration and mandatory injunction seeking the following relief:-- "It is humbly prayed on behalf of the plaintiff, that this Hon'ble Court may:
(1) Declare that item XLI of the Code of Corporate Governance and clause (vii) of the said Directive are ultra vires the subsection (4) of section 34 of the SEC Ordinance, 1969.
(2) Declare that Item XLI of the Code of Corporate Governance and clause (vii) of the Directive are in violation of section 252 to section 254 of the Companies Ordinance, 1984.
(3) Suspend the operation of Item XLI of the Code of Corporate Governance and clause (vii) of the said Directive as being ultra vires of section 34(4) of the SEC Ordinance, 1969 and in contravention with section 252 to section 254 of the Companies Ordinance, 1984.
(4) Grant a permanent mandatory injunction restraining the defendant No,1 from directly or indirectly restraining any client of the plaintiff from exercising its rights guaranteed under section 252 to section 254 of the Companies Ordinance, 1984.
(5) Grant a permanent injunction restraining the defendant No,1 from violating the fundamental right of the plaintiff under Article 18 of the Constitution of the Islamic Republic of Pakistan and to maintain status quo.
(6) Grant any other further and better relief that this Hon'ble Court may deem just and fair in the circumstances."
3. It was averred in the plaint that the re spondent No, 1, Securities and Exchange Commission of Pakistan, has been constituted under section 3 of the Securities and Exchange Act, 1997 and the respondent No,2, Karachi Stock Exchange, is the leading Stock Exchange of the country. On 28-3- 2002, the respondent No,1, in purported exercise of powers conferred under subsection (4) of section 34 of the Securities and Exchange Ordinance, 1969, issued a Code of Corporate Governance (hereinafter referred to as the Code) vide notification No,2(10)SE/SMD/ 2002, directing the respondent No,2 to insert the regulations contained in the Code. According to Item XLI of the Code, "All listed companies are required to change their external auditors every five years. If for any reason this is impractical, a listed company may at a minimum, rotate the partner in charge of its audit engagement after obtaining the consent of the Securities and Exchange Commission of Pakistan". This item was to take effect, when next appointment of the auditors was due. However, in view of the representations made to the respondent Nol, the respondent No,1, on 10-5-2002 again issued a Directive No,13/SEC/CSM/2001 in exercise of powers under subsection (4) of section 34 of the Securities and Exchange Ordinance, 1969. According to clause (vii) of this directive, the requirement of changing the external auditors was to take effect after 31st December, 2003. The plaintiff continued to raise objection to the legality of the directive issued by respondent No,1 and serveral meetings were held between the Chairman of respondent No,1 and senior members of the Chartered Accountant profession.
4. The matter however, remained unresolved and the respondent No,1, started issuing letters to the clients of the appellant compelling them not to appoint the appellant as their auditors in pursuance of the mandatory change of auditors. Being aggrieved the appellant filed suit contending that unequivocal right, of share holders under sections 252 to 254 of the Companies Ordinance, 1984 to appoint auditors, their qualifications and disqualifications cannot be circumvented nor any letter placed by the defendant No,1, either through the Code or issuance of directive. It was further averred that Item No,XLI of the Code and clause (vii) of the directive were ultra vires, the subsection (4) of section 34 of the Securities and Exchange Commission Ordinance, 1969 under which they were purported to have been issued. It was also alleged that the impugned directions were violative of Article 18 of the Constitution of Islamic Republic of Pakistan. It was maintained that if the directive was permitted to be enforced the entire business of the appellant will come to halt and an institution established within a span of 102 years will sand destroyed.
5. After filing of the suit, the matter came up for hearing before a learned Single Judge on 25-2- 2004. The operation of the impugned directions was suspended. Subsequently, the respondents were served and the matter was adjourned for hearing of injunction application. On 16-3-2004, the learned Advocates for the parties stated that the whole suit can be disposed of on the basis of available record and without recording of evidence. The case was therefore, adjourned for hearing on 31-3-2004. No counter-affidavit on behalf of respondent No,1 and no written statements on behalf of the respondent/defendants were filed.
6. The learned Single Judge heard the learned Advocates for the parties without framing the preliminary issues of law. However, in the impugned judgment it was observed by the learned Single Judge that, "in view of the respective contentions of the parties, following issues/ points for determination need to be framed and replied:--
(1) Whether Item No,XLI of the Code of Corporate Governance is ultra vires the subsection (4) of section 34 of the SEC Ordinance, 1969 and sections 252 to 254 of the Companies Ordinance, 1984. If so, its effect?
(2) Whether the fundamental rights of the plaintiff as guaranteed under Article 18 of the Constitution of Pakistan shall be violated if the defendant No,1 is not restrained from enforcing the said Item No,XLI of the Code of Corporate Governance?
(3) What should the decree be?"
' Vide judgment dated 18-5-2004, suit as well as injunction application were dismissed.
7. Being aggrieved with the above judgment the appellant has preferred this appeal inter alia on the ground that the learned Single Judge failed even to consider the plain language, scope and intent of section 34(4) of the SEC Ordinance, 1969, to ascertain whether Item No,XLI of the Code was intra vires/ultra vires and concluded that the law enforced was in public interest and therefore, cannot be deemed to be ultra vires the Constitution of Pakistan or any other provision of Company Law. It is also alleged that instead of considering the scope of the provisions contained in section 34(4) of the Securities and Exchange Ordinance, 1969, the learned Single Judge has travelled to examine the state of affairs in several other countries which was not required to be considered, in the suit. It is urged that the learned Single Judge failed to consider or to give effect to the consequences arising from the respondent No,1, failure to file any counter-affidavit or written statement in the suit.
8. We have heard . Mr. Zahid F. Ibrahim, learned counsel for the appellant and Mr. Anwar Mansoor khan learned counsel for the respondents.
9. We are of the considered opinion that normal course specified in the law has been deviated in this case which has resulted in to the grievance, that the main controversy and contention has been over-looked and the suit has been decided on extraneous considerations.
10. A perusal of the record in the Court of learned Single Judge, shows that the matter has been decided in undue haste. The case was fixed for hearing of injunction application, counter-affidavit was filed on behalf of respondent No,2, Karachi Stock Exchange Limited. No counter-affidavit was filed on behalf of respondent No,1, Securities and Exchange Commission of Pakistan, which is the main contesting party and no written statement was filed on behalf of any respondent/defendant.
No preliminary issue was framed before the hearing of final arguments with the result that the situation was fluid and the arguments were mainly addressed on the point whether the impugned direction is in public interest and is beneficial to the shareholders of the company/stakeholders and what were the measures taken in several other countries for protecting interests of shareholders. The main issue alleged by the appellant/plaintiff, to wit, the Item No,XLI of the Code was ultra vires the provisions contained in section 34(4) of the Securities and Exchange Odinance, 1969, was totally eclipsed. If the normal course would have been adopted, written statement would have been filed by both the defendants and thereafter preliminary issues on the point of law would have been framed, the situation would not have arisen. The wisdom in the procedure provided in law has stood the test of time which should not be deviated otherwise consequences are bound to take place as in the present case.
11. We have found that the arguments have been addressed before us also in the same vein as before the learned Single Judge. The provisions in Civil Procedure Code, permit the deciding of entire suit on preliminary issues of law but for that purpose also guidance have been provided in Order XIV, C.P.C. It is provided in rule 1(4) of Order XIV, C.P.C. That issues are of two kinds; (a) issues of fact, (b) issues of law. It is provided in Order XIV, rule 1(5) that, at the first hearing of the suit the Court shall, if after reading the plaint and the written statements, if any, and after such examination of the parties as may appear necessary, ascertain upon what material propositions of fact or of law the parties are at variance, and shall thereupon proceed to frame and record the issues on which the right decision of the case appears to depend. It is further provided in Order XIV, rule 2 that, where issues both for law and of fact arise in the same suit, and the Court is of opinion that the case or any part thereof may be disposed of on the issues of law only, it shall try those issues first.
12. It is further provided in Order XIV, rule 3 as follows:-- "3. Materials, from which issues may be framed.---The Court may frame the issues from all or any of the following materials:
(a) allegations made on oath by the parties, or by any persons present on their behalf, or made h', the pleaders of such parties;
(b) allegations made in the pleadings or in answers to interrogatories delivered in the suit;
(c) the contents of documents produced by either party."
13. A perusal of the above rules shows that the allegations made on oath by the parties or by any person present on their behalf or made by the pleader of such parties, allegations made in the pleadings and the contents of documents produced by either party, may form basis for framing the issues.
14. In this case, we find that neither written statements were filed on behalf of defendants nor any counter-affidavit to the injunction application was filed on behalf of the Securities and Exchange Commission, the main contesting party. No preliminary issue of law was proposed or framed before hearing the final arguments.
15. In the above circumstances, we are of the opinion that, it is a fit case which should be remanded to the learned Single Judge with the direction that the defendants be directed to file their written statements, whereafter the issue of law be framed and then arguments be heard afresh which should be confined to point raised in the pleadings and no extraneous contentions be considered so that the focus of attention is the point which is alleged in the pleadings and on which the parties are at variance. It is imperative for the right decision on the point requiring adjudication.
16. Consequent to the above conclusion, the impugned judgment and decree is set aside and the case is remanded to the learned Single Judge for fresh proceedings; in the manner directed above.
' The appeal stands disposed of accordingly with no orders as to costs.