This is a petition filed by five persons who are members of the Board of Directors of Punjab Provincial Co-operative Bank Limited ("Bank"), whose term of office expired on 30-9-2004. In exercise to powers under clause 34 of the Byelaw of the Bank, the Registrar Co-operative Societies, respondent No.2 initially extended the term of office of the Board of Directors of the Bank for 3 months up to 31-12-2004. Thereafter by order dated 6-1-2005 he further extended their term for another six months up to 30-6-2005. The impugned order dated 20-4-2005 has been issued by the respondent No.2 during the extended period of the petitioner's term which declares as follows:-- "Order Whereas, the tenure of the Board of Directors of the Punjab Provincial Co-operative Bank Limited (PPCBL), was extended w.e.f. 1-1-2005 to 30-6-2005 vide order dated 6-1-2005 issued under No.RCS/B&C/BOD/III.
And whereas, the State Bank of Pakistan has been stressing from time to time for restructuring of the PPCBL enhancing its capital base, developing a formal criterion for selection of the Bank's Board Members and rationalizing its number of Directors in accordance with the guidelines issued by the State Bank of Pakistan, etc. And whereas, the Government of the Punjab has also stressed for restructuring of the PPCBL to make it a financially viable and self-reliant Institution.
Now therefore, I, Khalid Pervez, Registrar, Co-operatives, Punjab in exercise of the powers vested in me by virtue of Byelaw No.34 of Punjab Provincial Co-operative Bank, Ltd., have sufficient reasons and fully satisfied, specially to facilitate the restructuring in compliance of the directions of the government of the Punjab and State Bank of Pakistan, hereby withdraw the extension of the remaining period of the Board of Directors of PPCBL, which shall cease to exist with immediate effect.
No. RCS/B&C/PA-846 (Khalid Pervez), Registrar, Co-operatives, Punjab, Lahore. Dated 20-4-2005"
2. Learned counsel for the petitioners has urged that the respondent No.2 does not have power to retract the extension granted to the petitioners and, therefore, the impugned order is alleged to be arbitrary, unlawful and passed without lawful authority. He also pointed out that the Government of Punjab, respondent No.1 has no equity in the Bank but i.t is nevertheless developing a strategy for restructuring of the Bank whereas it has no right to commit interference in the Bank's affairs.
3. Learned counsel for the respondents has placed before the Court substantive material showing the financial exposure of the Provincial Government to secure the obligation of the Bank which is a scheduled bank under the Banking Companies Ordinance, 1962. The Government of Punjab has issued a guarantee dated 26-6-2004 to the State Bank of Pakistan ("SBP") in the amount of Rs.9.00 billion to secure the liabilities of the Bank owed to the SBP for the financial year 2004-2005. The Bank's borrowing from the SBP as on 31-3-2005 is in the amount of Rs.7.961 million. The Bank has a previous overdue financial obligation of Rs.2.528 billion owed to the SBP for borrowing made during the financial year 2003-2004. The SBP has extended time for repayment of this amount up to 30-6- 2005. For the current financial year 2004-2005 the financial obligation of the Bank towards the SBP is Rs.6.0 billion which is to be repaid by the Bank on or before 31-12-2005. The foregoing amounts are in addition to a liability of Rs.1.5 billion plus mark-up to SBP which is outstanding in the books of the Bank ever since 1977.
4. Learned counsel for the respondents has emphasized that the Bank is in a state of financial distress and surviving upon roll-overs by the SBP given upon the financial guarantee furnished by the Government of Punjab. The impugned order must be examined in the foregoing background of financial difficulties of the Bank and in particular, the fact the SBP has since long been asking the Provincial Government to take serious measures to restructure the Bank for which it has fixed 30-6- 2005 as a deadline. These measures include enhancement of capital base of the Bank from its present figure of Rs.457.0 million to the benchmark of Rs.2.0 billion set by the SBP. The restructuring requirements of the SBP also include the development of formal criteria of qualification and selection of the members of the Board of Directors of the Bank; the present criteria being non- technical, general and out-dated. It is emphasized that the Bank is a financial institution that renders public service of immense importance to the rural economy of the Province. The Provincial Government is committed to rescue it rather than to allow its dissipation due to financial default.
5. The SBP is the principal regulator of all financial institutions in the country. Unless its mandate and requirements are met, the Bank faces threat of its de-scheduling by the SBP. Such action would mean the closure of banking services and business of the Bank. Accordingly the steps recommended by the SBP represent careful deliberations which must be adopted, with or without modifications as are approved by the SBP, in order to save the Bank. This is precisely the objective of the impugned order.
6. The petitioners do not dispute the Bank's over dues and the conditionalities lay down by the S.13.P. Accordingly, the Court has neither any reason nor material on record to disagree with the object of the impugned action. Furthermore, the financial exposure of the Government of Punjab as a guarantor of the borrowings made by the Bank, leaves no doubt that by virtue of its obligation as surety, the Provincial Government is the only entity accountable for performance of financial obligations of the Bank and therefore, has a direct interest in its sound financial health and hence restructuring and revival. Any action taken by the Government of the Punjab in tandem with S.B.P. for the foregoing purpose cannot be faulted either on the ground of jurisdiction and authority or on the basis of motives and mala fides.
6-A. What remains to be considered is whether the petitioners have any legal right by virtue of their office to prevent the consideration, formation and implementation of the restructuring measures for the Bank by the Government of the Punjab in consultation with the S.B.P. By their present status the petitioners are not even representative of the membership body of the Bank. They are merely transitional caretakers continuing for administrative convenience at the grace and pleasure of the Provincial Government. The extension in their time in office confers no vested right because it is not based upon the qualifying criteria of elected and representative status. The extension is therefore, revocable and can be terminated without incurring any bar or estoppel or locus poenitentiae.
7. When, however, the petitioners occupy representative status then they have locus standi to defend the valuable rights of the equity holders of the Bank that deserve protection. According to the financial statement of account attached on record the members of the Bank have an equity of Rs.4.41 million in its capital as on 31-3-2005. Notwithstanding the allegation that this amount actually represents deposits of member cooperative societies converted into the share capital the Bank, the fact remains that the said equity holding has been generated from the funds belonging to more than a thousand member cooperative societies who therefore, have an interest that merits to be represented and defended in the affairs of the Bank. The restructuring proposals for the Bank that are finally formulated in consultation with the must contain provisions to safeguard the interest of the equity holding cooperative societies that are members of the Sank. This, however, does not mean that criteria of competence, integrity and professional accomplishment cannot be laid down as qualification for the office of Directors of the Bank as appears to be intended by the impugned order. It would make good sense if such qualifications are spelled out and implemented through elections at the earliest so that competent input and consultation may be rendered on behalf of the equity holders with respect of the restructuring proposals.
8. However, that stage of discussion has not arrived yet. It is accordingly held that the Government of the Punjab has sufficient legal interest and right to undertake restructuring of the Bank in consultation with the S.B.P. The final restructuring proposals by the Provincial Government shall include measures to safeguard the interest of the equity holders of the Bank both with respect to their financial interest and their right to representation in the decision making process of the Bank.
At the present stage when no action that is detrimental to the equity holders of the Bank has been taken, renders this petition to be premature and it is accordingly dismissed.