JAWWAD S. KHAWAJA, J.- This is a suit filed by the plaintiff Mian Nisar Elahi under Section 8(5) and Section 11 of the Central Depositories Act, 1997 (the "CD Act"). The plaintiff, who is an investor in securities, has prayed for a decree against defendant No. 1 which is the Lahore Stock Exchange (Guarantee) Limited ("LSE") and defendant No.3 viz., the Central Depository Company of Pakistan Limited (1 CDC") jointly and severally for a minimum sum of Rs.318,588,624 together with interest on the said amount from the date of institution of the suit till the date of decree and thereafter from the date of decree till the satisfaction of the same. Costs of the suit and such other relief which the Court deems fit are also prayed for.
2. Before taking tip the pleas of the parties in contention, it will be useful to give brief. Particulars of the defendants arrayed in the suit. The LSE is a company limited by guarantee incorporated under the Companies Ordinance, 1984 and is registered as a stock exchange under Section 3 of the Securities and Exchange Ordinance, 1969 (the "SE Ordinance"). Defendant No.2 is the Securities and Exchange Commission of Pakistan (the "SECP"), It was established by the Federal Government under the Securities and Exchange Commission of-Pakistan Act, 1997 (the "SECP Act") inter alia for licensing and regulating stock exchanges and entities connected with the capital markets in Pakistan Including central depositories. The CDC is a public limited company licensed as a central depository under the Central. Depository Companies (Establishment and Regulation) Rules, 1996 framed, under the Central Depositories Act, 1997, ("CDC Act"). Its primary function is to make provision for the establishment and operation of a central depository system for the accounting and transfer of securities through- electronic book-entries. The aspects of its functioning, which are relevant for this case, are discussed later. Muhammad Tanveer Malik (defendant No.4) is a Member of the LSE. His services as such Member were utilized by the plaintiff for the purpose of his trading and investment activities undertaken at the LSE. Defendant No. 5, namely, Iftikhar Shafi is an investor and was also a member of the LSE. He has been impleaded for the reason, inter alia, that LSE and SECP have treated him and the plaintiff as part of one group which, according to LSE and SECP, had indulged in illegal which, according to LSE and SECP, had indulged in illegal activities including manipulation of prices of securities listed on the LSE. As a consequence, LSE has sold the securities of the plaintiff to adjust the liabilities owed to it by Iftikhar Shafi.
3. Although the pleadings of the parties are unnecessarily rrolex their respective positions, as set out in their pleadings, can now very briefly be outlined. The plaintiff is an industrialist. Since 1998 he is also an investor in shares listed on the stock exchanges in Lahore and Karachi. As noted above, While transacting his business of investment and trading in shares on the LSE; he mainly utilized the services of Tanveer Malik, In his investment portfolio, the plaintiff held the shares detailed in paragraphs 16 and 18 of the plaint. Paragraph 16 lists shares in twenty-one companies listed on the LSE. These shares were pledged in favour of the LSE to secure the liabilities of Tanvir Malik in his capacity as a member of the LSE. The case of the plaintiff is that the pledged shares were unlawfully sold by the LSE in complicity with CDC, giving rise to the monetary claim setout in the plaint.
4. The LSE has resisted the suit, inter alia, on the ground that the sale of shares was in accordance with law and was also justified by the circumstances which prevailed between end May 2000, when the stock markets in Pakistan crashed, and April 2001, when foe pledged shares were sold by LSE. It has also been averred by LSE that sale of the pledged shares was sanctioned by foe order dated 9.4.2001 passed by a Commissioner of the SECP, In addition, LSE has alleged that the plaintiff had agreed to foe sale. The CDC, in its defense, has pleaded that it was obliged by law and its own regulations to honour all instructions of LSE as pledgee and, therefore, it had no involvement other than recording the call on the pledged shares and to transfer foe same from foe account of tire plaintiff in accordance with LSE's call. The nature and functions of a central depository under the CD Act have also been pleaded in defend, LSE and CDC have, on legal grounds, raised a number of preliminary objections, inter alla, against the maintainability of the suit and foe jurisdiction of tire Court This skeletal outline of the respective pleadings of the parties has been given at the outset to provide a broad context only, It will be fleshed out below during the course of discussion on the issues in contention.
5. Leamed counsel for the parties were asked to propose issues for trial. On their joint suggestion, the following issues were framed on 4.5.2005:-
(1) Whether the jurisdiction under Section 11 of the CDC Act, 1997 is a summary jurisdiction? If so, whether the present case is maintainable? OPD-1.
(2) Whether the present proceedings for damages ;1 filed by the plaintiff involve complicated questions of fact and law? If so, whether the present case for damages' is maintainable under the CDC Act, 1997? OPD-1.
(3) Whether the plaintiff s case is barred by time? OPD-1.
(4) Whether the plaintiff is an aggrieved party entitled to maintain the present case? OPD-1.
(5) Whether the present case for damages filed by the plaintiff is maintainable under Section 11 of the CDC Act, 1997 mad with Section 8(5) thereof? OPD-1.
(6) Whether the present case is hit by res judicata, vs pendens and/or barred by foe provisions of Order 2 Rule 2 CPC? OPD-1
(7) Whether the present case is entitled to proceed in light of the pendency of Commercial Appeals No.11 ,'[12j 13, 14 & 15 against the orders of foe Commissioner SECP dated 9.4.2001 and foe Appellate Bench dated 30.7.2002? OPD-1.
Note:-- During arguments, leamed counsel for both sides agreed that Commercial Appeal No.12 had inadvertently been omitted from this ^ issue when it was framed. A reference to this appeal has, therefore, been included* in issue No.7 with the concurrence of learned counsel for the parties.
(8) Whether the plaintiffs shares were unlawfully sold off by defendant No. 1? OPP.
9. Whether defendant No.4 was not in default of the rules and regulations of defendant No.1 at the time the plaintiffs shares were sold off by defendant No. 1? If not, whether the plaintiff shares could have been sold off by defendant r No. 1 in the absence of any default? OPP.
10. Whether defendant No. 2 lacked the jurisdiction to determine civil liabilities and to order that they be satisfied out of the properties of the private parties involved? OPP.
11. Whether the sale/transfer by defendant No.1 of the plaintiff shares was in violation of the order dated 9.4.2001 passed by the Commissioner, SECP/defendant No.2? If so, to what effect? OPP.
12. Whether the plaintiff is entitled to recover - damages for the losses suffered by him on account of the sale of his shares, and if so to what extent? OPP.
13. Relief.
Issues Nos. 1 to 7 reflect the preliminary objections raised by USE and CDC. When' the issues were framed, leamed counsel representing these two defendants made a request. That issues Nos.1 and 2 be taken up as preliminary issues because the same could be decided without recording evidence, It was also submitted that if LSE and CDC were to succeed on these issues, there would be no necessity for adjudication of the other issues. The request of counsel being reasonable was allowed. Leamed counsel for the parties were heard on die two preliminary issues. Vide order dated 6.6.2005, it was held that the present suit was maintainable before the High Court and that summary procedure was not applicable to the suit. ICA No.2 of 2005 has been filed, by LSE to impugn the order, dated 6.6.2005 but has not, as yet, been deckled. For completeness, the order, dated 6.6.2005 has been appended with this judgment as Appendix-I.
6. Issues Nos.3 to 13 now require adjudication. The plaintiff alone has appeared in support of his own case, while Amir Zareef Khan (DW-1), Secretary, LSE has bean examined as the sole witness by LSE. GDC has not examined any witness. The testimony of the witnesses was, at the request of the parties, recorded through a local commission. Extensive documentary evidence has also- been brought on record by the parties. The oral and documentary evidence has been examined and arguments of leamed counsel for the parties have been heard over a number of days. Before embarking on a discussion of the evidence, however, it will be helpful to examine the statutory provisions and regulatory instruments which are relevant for a proper understanding of the controversy covered by the issues.
7. The pledged shares are not in the form of paper scrips. These shares are entered in and the transactions relating thereto are effected through electronic book-entry in a central depository system maintained and operated by the CDC. The CD Act and regulations framed by the CDC with the approval of SECP govern the operation of the central depository system. Section 2 of the CD Act domains definitions of various terms used! In the Act and regulations, In view of the relevance of some of these terms in the present case, the same are reproduced as under:- "2. Definitions -In this Ad, unless there is anything repugnant in the subject or context,- - (1)............................................
(2) "account" means an account maintained by a central depository in the name of an account- holder so as to record the title of the account- holder t6 any book-entry securities entered in such account;
(3) "account-holder" means a person who opens and maintains an account with a central depository and operates such account;
(4) .......................................................
(5) "book-entry security", in relation to a centra! Depository, means a security which is transferable by book-entry in the central depository register pursuant to a declaration made by the central depository under subsection (6) of section 4 which is----
(a) in the case of a security transferable by registration, registered in the name of the central depository or issued to the central depository pursuant to section 14; or
(b) in the case of a security transferable by delivery or endorsement, deposited with or transferred by endorsement to the central depository.
(6) ....................................................................
(7) "central depository register" means a computerized electronic register maintained by a central depository in respect of book-entry securities; ........... ................. ..............
(17) "participant" means---
(a) an account-holder who is a member of a stock exchange; and . (b) ................................
Provided that such account-holders- perform services for sub-account holders in accordance with the terms of an agreement entered into between the central depository and each of the participants;
(27) "sub-account" means a sub-account maintained, as part of the account of a participant, in accordance with the regulations by a central depository in the name of a subaccount holder so as to record the title of the sub-account holder to any book-entry securities entered in such sub- account; and
(28) "sub-account holder" means a person in whose name a sub-account is opened and maintained by a participant with a central depository and is operated by that participant."
The defendant Tanvir Malik as member of the USE is a participant in terms of Section 2(17) above as he maintains an account with CDC and performs services for sub-account holders such as the plaintiff. Tanvir Malik has established, in his account, a sub-Account No.577 in which shares owned by the plaintiff are held.
8. Section 4 of the CD Act sets out the features of the central depository system required to be maintained and operated by a central depository such as CDC. Subsection (1) and its clauses a (ii) and b, being helpful in the context of this case, are reproduced as under:- "S.4. Central depository system:-
(1) A central depository shall establish a central depository system whereby, in accordance with the regulations:-
(a) (i) ............................................. (ii) where the account-holders are participants, sub-accounts may be opened and maintained, as part of the accounts of the participants, with the central depository by the participants on behalf of the sub-account holders so as to record the title of the sub-account holders to book- entry securities entered in such sub-accounts;
(b) transfers of such book-entry securities shall be effected electronically or by any similar means; Sub-section (5) of Section 4 stipulates that title to book-entry securities entered in a sub-account shall vest in the subaccount holder.
9. The liability of a central depository for its wrongful acts and negligence is governed under Section 8 of the CD Act, Sub-sections (1) and (5), being relevant for our purposes, are reproduced as under:- "8. Central depository discharged liability if acting on instructions:-
(1) A central depository, if acting in good faith and without negligence, shall not be liable for any loss, damages, compensation, posts and expenses in tort or under any law or contract for any breach of trust or duty and in the cases where the central depository has, in the accounts or sub- accounts maintained by it, made or allowed to be made entries or handled or allowed handling of any book-entry securities, according to the instructions of an account-holder or a participant, notwithstanding that the account-holder or the participant, as the case may be, had no right to dispose of or take any other action in respect of such book-entry securities."
(2) .......................................
(3) .......................................
(4) ..........................................
(5) Without prejudice to the provisions of any other law for the time being in force, if any loss is caused to an account- holder or a sub-account holder due to any negligent or wrongful act or omission of a central depository or any of its. Employees, the central depository shall compensate such account-holder or sub-account holder for such loss."
The plaintiffs claim against CDC is based on sub-section (5) above.
10. Pledges of book-entry securities are dealt with by Section 12 of the CD Act, which provides as under:- "12. Pledge of book-entry securities:-
(1) Book-entry securities shall be pledged only in favour of an eligible pledgee to secure the payment of a debt or liability or performance of any obligation by any account-holder directly or by any sub-account holder through instruction given to a participant when the book-entry securities are blocked in the manner set out in sub-section (2).
(2) The book-entry securities to be pledged shall be blocked when an account- holder or a participant gives instructions to the central depository system in a manner that the pledger or the relevant participant when the pledger is a subaccount holder ceases to handle the pledged book- entry securities and notice of the blocking is available through the central depository system to the eligible pledgee.
(3) A pledgee of the pledged book-entry securities shall, in addition to the powers available to him under the Contract Act, 1872 (IX of 1872), have the following powers:--
(a) a power, upon the default of the pledger, to transfer the pledged book-entry securities or any part thereof; and
(b) any other power which may be granted to him in writing by the pledger in relation to the pledged book-entry securities provided that the central depository shall not be concerned with or effected by the exercise of any such power.
(3) The central depository system shall only allow the pledgee to remove the block from the pledged book-entry securities in such manner that they are available to the pledger for the.
Purpose of handling them.
(4) The central depository system shall not allow the pledgor to handle the pledged book-entry securities save upon the removal by the pledgee of the block from such pledged book-entry securities.
(5) A participant shall not create a pledge over any book-entry securities entered in any sub- accounts maintained under his account with the central depository without the authorization of the subaccount holder concerned.
(6) No pledge of any book-entry securities may be made except as provided in this section.
(7) Except as otherwise provided in this section, the provisions of the Contract Act, 1872, shall be applicable to pledging of book-entry securities.
Explanation:- For the purpose this section, the account- holder or sub-account holder, as the case may be, pledging any book-entry securities shall be called the "pledgor", the eligible pledgee in whose favour a pledge of book-entry securities is made be called the "pledgee" and the book- entry securities when blocked are called the "pledged book- entry securities".
The provisions of Section 12 above are, in particular, relevant for resolving the Controversy between the contesting parties as win become evident when the issues are considered in the light of the evidence produced on record.
11. Section 35 of the CD Act empowers a central depository, such as the CDC, to frame regulations with the prior approval of the SEC. This power has been exercised by the CDC, which has framed regulations called the Central Depository Company of Pakistan Limited Regulation (the * "Regulations"). Chapter 11 of the Regulations governs the pledge of book-entry securities in the central depository system. Regulation 11.1.2 stipulates that a pledge of book- entry securities shall be effected by entering the number of securities covered by a pledge transaction in favour of the pledgee. Regulations 11.3.2 and 11.3:3, which relate to the pledgee's call option and the manner in which it is given effect in tie central depository system, have a bearing on the case in view of the arguments of leamed counsel for the defendants. These Regulations read as under:- 11.3.2. If:
(a) a Pledge CaH Transaction complies with Regulation 11.3.1; and
(b) the Pledge Group shows that there are sufficient number of Book-entry Securities entered in a Pledged Position in the Source Holding in favour of the Eligible Pledgee Transmitting the Transaction, the CDC shall:
(c) deduct, in relation to the Pledge Group, the number of Book-entry securities specified in the Pledge CaH Transaction from the Pledged Potation in favour of the flage Pledge in the Source Holding; and
(d) enter that number of Book-entry securities into the Available Balance of the Target Holding.
11.3.3. The Pledge CaH takes effect when, under Regulation 11.3.2, the CDC ducts Book-entry Securities specified in the Pledge Cet Transaction from the Pledged Position in favour of the Eligible Pledgee in the Source Holding the adds them to the Available Balance of the Target Holding."
As will be noted these Regulations attempt to setout the actual process, whereby a call on the pledged securities is made by a pledgee and is given effect by CDC.
12. After having noted the above-referred statutory provisions and Regulations, I now take up for consideration issues Nos.3 to 13.
Issue No.3.
13- Learned counsel for LSE did not elaborate as to how this suit was time barred nor did he refer to any article of the Schedule to the Limitation Act to justify the preliminary objection as to limitation.
As noted above, the suit has been filed under Section 11 of the CD Act. No period of limitation has been specified in the Limitation Act for the filing of suit under the CD Act. In the circumstances, in my opinion, Article No. 120 of the Schedule to the Limitation Act will apply, It provides for a six year period of limitation starting from the date on which the right to sue accrues, According to the plaintiff, the cause of action accrued to him on 9th and 10th April, 2001, when the CDC wrongly allowed transfer of the pledged shares from his sub-Account No.577 and the LSE illegally Soto toe said shares. The suit was filed on 8.4.12004, which is within three years from the aforesaid acts of LSE and CDC. The suit was thus, well within time. Issue No.3 is decided accordingly.
Issue No.4.
14. It was argued oh behalf of LSE that the plaintiff was not an aggrieved party because the shares in question had been pledged by Tanvir Malik from his main account and not by the plaintiff. To support this contention, leamed counsel for LSE referred to Exh. P-1 to P-9. These are printed forms bearing the title "Stock Pledging Form". The forms have been filed in and have been signed and stamped by the LSE (Clearing House) and Tanvir Malik. Starting from the form dated 18.1.2000 (Exh.*P-9) to the four forms dated 30.5.2000 (Exh. P-1 to Exh. P-4), these documents appear to be memorandums of pledges created 'and recorded in the central depository system of the CDC, Exhs. P-1 to P-9 at most, constitute a paper record of various pledge transactions for the convenience of LSE and Tanvir Malik.
15. The aforesaid documents (Exh. P-1 to Exh. P- 9) are not generated by the central depository system of CDC and, being in physical form, are by definition, not electronic book-entries in such system. These exhibits do not, indeed, could not by law override the central depository system. At this point, reference may usefully be made to the provisions of Section 12 of the CD Act, reproduced above which does not recognize any pledge of book-entry securities outside the central depository system, least of all a paper record to which CDC is not a party. Subsection (7)'of Section 12 supra expressly stipulates that "no pledge of any book-entry securities may be made except as provided in this section."
16. It should be evident from the above that the question whether the plaintiff was an aggrieved party in this case, has to be decided with reference to the provisions of. The CD Act. It is common ground between the parties that the pledged shares were book-entry securities and were part of the plaintiffs sub-Account No 577 in the .Central depository system of the CDC, Subsection (5) of Section 4 of CD Act, in clear terms, provides that "the title to book-entry securities entered in a sub- account shall vest in the sub-account holder". There is no warrant in law for the suggestion that the plaintiff who, admittedly, was the owner of the pledged shares and who claims that his shares were unlawfully sold, would not be an aggrieved party. On the contrary, Section 8 (5) of the CD Act, reproduced above, in unequivocal terms recognizes the right of a sub-account Holder (such as the plaintiff) to claim compensation from a central depository. The right to sue is vested in the subaccount holder himself. Tie is not dependant on the participant for enforcing his rights.
17. The argument that only Tanvir Malik (not the plaintiff) is the aggrieved party in this case is also in conflict with the contents of paragraph 4 of the preliminary objections in the written statement filed by LSE. It has been acknowledged therein by LSE that the shares "were pledged by the plaintiff to clear the outstanding liabilities" of Tanvir Malik. The entire tenor of the written statement of LSE also recognizes the plaintiff as the owner-pledger of the pledged shares, It is, therefore, not open to LSE to argue, contrary to its pleadings, that the plaintiff was not the pledger of the shares and, therefore, was not an aggrieved party. Here it may be added that one of the principal functions of LSE is to establish and operate a clearing house for the trading of securities. Clause iii (3) of the Memorandum of Association of LSE requires this. Learned counsel for the parties are agreed that only members of the LSE can effect transactions through the Clearing House, it is only for this reason that an individual investor is obliged to act h through a member of the LSE while transacting any trade of securities listed on the LSE. The role of a member, in this context, is that of an agent only at most.
18. The LSE has framed regulations, as mandated by clause (iii) (3) of its Memorandum of Association under which the Clearing House is to function. These, inter alia, cover exposure limits of members of the LSE, default of members and the procedure for recovery of losses. A tripartite arrangement is necessitated in all cases where a trade in shares is being transacted by a member of the LSE on behalf of an Investor. As a result, shares and securities, which are a owned by investors, are pledged by a member on behalf of such investor fo secure the member's default towards the Clearing House of the LSE. Such tripartite arrangements are not unique to stock exchanges but are fairly common in the world of commerce. A lender, for instance, may advance money to a borrower against shares provided as security by a third party. That this was the nature of the arrangement whereby the plaintiffs shares were pledged by Tanvir Malik as Member, LSE, in favour of the LSE Clearing House, is, beyond doubt, It is established through the tenor of the pleas setup respectively by the parties, In this context, paragraph 19 (ii) of LSE's written statement can also be referred to, It has been expressly averred therein that "the shares were < admittedly pledged to secure any defaults by. Tanvir Malik i. e. Defendant No. 4", Read with paragraph 4 of LSE's written statement noted above, there remains no room for doubt that ' the plaintiff had a direct- contractual relationship with LSE created through the agency of Tanvir Malik.
19. For the foregoing circumstances, it is clear that the plaintiff, who claims his shares were illegally sold, is an aggrieved party and is, therefore, entitled to maintain this suit, issue No. 4 is, therefore, decided in the affirmative,
20. Before moving on to the next issue, I would like to note, at this stage, that the argument, which was advanced by leamed counsel for LSE on issue. No. 4 Is somewhat disingenuous. A stock exchange, which, among other things, provides a market for trading of shares of obliged by foe very nature of its franchise, to afford protection to investors who buy and sell shares through its members, it would be quite extraordinary if a Stock exchange could tell an investor that regardless of any wrongdoing on the part of the exchange and irrespective of the harm that may have been caused to him, he has no claim against the exchange because foe exchange only recognizes and deals with its own members. This brief note has been made here. Further consideration of this aspect of the case and the duties of LSE follows later while discussing issues Nos. 8, 9, 11, 12.
Issue No. 5.
21. Issues Nos.1 and 2 also relate to legal aspects of *the maintainability of the present suit. These issues, as noted above, have already been decided vide order, dated 6.6.2005 as preliminary issues. Issues Nos.1 and 2 gave rise to pure questions of law. Issue No. 5 raises mixed questions of law and fact. Before h considering the arguments of learned counsel for the parties, it is appropriate to examine Section 11 of the CD Act, which provides as under:- "11. Bar on rectification of central depository register.- Notwithstanding anything contained in section 152 of the Companies Ordinance, 1984, if--
(a) an account-holder or a sub-account holder did not consent to a transfer of any book- entry securities from, or to, his account or sub-account, as the case may be; or
(b) the name of any account-holder or subaccount holder is fraudulently or without sufficient cause entered in, or omitted from, the central depository register, the aggrieved party may apply to the Court for relief and the Court may award damages to the aggrieved party but shall not order rectification of the central depository register.
Explanation:- The expression "Court" for the purposes of this section shall mean the High Court having jurisdiction over the defendant."
22. Four aspects of the above statutory ' provision were touched upon by learned counsel for the defendants to elaborate his objection to the maintainability of the suit, He, firstly, drew a distinction between a grievance based on the wrongful creation of a 'pledge position by CDC in its central depository system as opposed to the wrongful sale made by a pledge after a pledge position has validly been recorded in the central depository system. According to learned counsel for the defendants, it is only the first situation which attracts the jurisdiction of the High Court under Section 11 of the CD Act.
23. To elucidate his argument, learned counsel contended that the provisions of the Contract Act, 1872 (subject to Section 12(8) of the CD Act) were applicable to the pledge of book-entry securities under a central depository system recognized by Section 12 of the CD Act. It was argued that the equivalent, in the central depository system, to physical delivery under the Contract Act, was the passing of control over the pledged shares to the pledgee through electronic book-entry, It was, therefore, his case that once a pledge position had been recorded over the plaintiffs shares with his consent, the CDC became a mere bystander and incurred no liability for any subsequent act including the exercise by a pledgee such as LSE, of its pledge call option: It can be accepted that, in situations where a central depository has acted lawfully and without negligence, this general statement of the law may be correct. The case of the plaintiff is that CDC had allowed LSE to exercise its call option and had permitted withdrawal of the pledged shares from his sub-Account No.577, in violation of orders which had been passed by SECP and by the High Court. If this is correct, it would follow that CDC had acted unlawfully in allowing LSE to exercise its pledge ball option. As a consequence, the plaintiff would have a cause of action against CDC under Section 8
(5) of the CD Act.
24. It was argued on behalf of the plaintiff that CDC had acted in utter disregard of its responsibility as a central depository and custodian of the interests of the plaintiff attaching to his ownership of the pledged shares. Learned counsel for the plaintiff, firstly, drew the attention of the Court to Exh.
P-68. This is a letter dated 12.6.2000 addressed to the Chief Executive, CDC by the SECP. Through this letter, CDC was directed to suspend deliveries from the accounts and sub-accounts of Tanvir Malik until further orders, In compliance with the said directive of the SECP, the Chief Executive of CDC wrote a letter (Exh. P-69) the same day to Tanvir Malik informing him that his admission to the central depository system was being suspended and that this suspension would remain in force until further notice. As a: consequence of the letter (Exh, P-69), the operation of Tanvir Malik's account with CDC was frozen. The freezing order (Ex. P-68) was subsequently modified by ah order (Exh. P-96) issued by Tariq Iqbal Khan, Commissioner, SECP. The directive dated 12,6.2000 was withdrawn and instead Tanvir Malik was restrained, inter alia, from transferring any shares held in the sub-account of the plaintiff. This order (Ex. P-96) was also duly communicated by SECP to CDC and LSE. In addition, the plaintiff filed a number of writ petitions with the object of preserving his share portfolio. One such petition was WP. No. 14491 of 2000 (Exhp-94). The CTC was arrayed as respondent No. 19 in the writ petition alongwith the Directors and functionaries of the LSE. On 247.2000, interim relief was allowed to the plaintiff in the following terms:- C.M. 3/2000, Notice, In the meanwhile, the respondents shall refrain from selling, transferring or in any other way disposing of the shares and securities of the petitioner Copy 'dasti'.
Here it may be added that CDC was represented in W-P. No. 14491/2000. It must, therefore, be assumed that it was fully aware of the position adopted by the plaintiff in relation to the pledged shares and also of the above order stated 24.7.2000.
25. Notwithstanding the freezing order (Exh. P-96), referred to above, and the order granting interim relief to the plaintiff, CDC permitted LSE to exercise its pledge call option, It was argued by learned counsel for the plaintiff and I must agree in the given circumstances, that this deliberate illegality on the part of CDC. Leamed counsel for CDC, on the other hand, did not make any attempt to counter this submission made on behalf of the plaintiff.
26. There is another aspect of the case, which requires consideration at this stage. One of the pleas, which is the mainstay of the defence raised by LSE to the present action, is that the sale of shares was allowed by SECP vide order dated 9.4,2001 (Exh. P-105) passed by one of the Commissioners of SECP. The contents of this order and its implications in the present case have1 been considered, in some detail, in a later part of this judgment. For the purpose of issue No.5, however, a few facts need to be noted. The order (Exh. P-105) was passed in show cause proceedings where CDC was neither a party nor was it privy, to such proceedings. The order was passed on 9.4.2001 and through, some process unexplained on the record, came into the possession of the CDC on the same date, It is not clear as to when CDC got hold of a copy of the order and through whom. It is a long order covering more than 20 closely typed pages, It does not make any reference to the freezing order (Exh P-96) issued by the SECP, referred to above. Nor is there any evidence available on record that the freezing order (Exh. P-96) was withdrawn by SECP through some other communication addressed to CDC. The CDC nonetheless permitted LSE to exercise its pledge call option. This is reflected in the account activity report generated by CDC, which was sent to the plaintiff under cover of a letter (Exh. P-71) dated 26.7.2001. Interestingly, the SECP order (Exh P-105) has been referred to under each set of shares which was transferred out of the plaintiffs sub- Account No.577 on 9.4.2001. This shows that CDC was conscious it could not allow transfer of shares without the approval of SECP. Its plea, therefore, that it was a helpless bystander incapable of preventing the said transfer, cannot be accepted.
27. CDC has not produced any witness to explain as to how, when and from whom it received a copy of the SECP order (Exh. P-105), Even if it is assumed that by some mysterious process CDC did get hold of the order on the very date the same was passed i.e. 9.4.2001, there is nothing to show that the order was read or deliberated upon, by any functionary of CDC or by legal counsel to examine its contents and to determine its implications in view of the freezing order (Exh. P-96) and the order granting interim relief to the plaintiff in Writ Petition No. 14491/2000.
28. In the foregoing circumstances, I am not in the slightest doubt- that not only did CDC act unlawfully in transferring the pledged shares from the plaintiffs sub- Account, it also acted with gross negligence,
29. It was next submitted by leamed counsel for the defendants that the pledged shares, in fact, stood transferred from the plaintiffs sub-Account at the time when the pledge was created and In this view of the matter, Section II was, not attracted in this case. This contention has no merit, It flies in the face of CDC's own activity report and its letter (Exh. P- 71) from which it can be conclusively determined that the transfer of the pledged shares from the sub-Account of the plaintiff was effected on 9.4.2001, after the SECP order of that date.
19. The submissions of leamed counsel for LSE are also not consistent with Section 11, apart from being against the evidence brought on record, It is to be noted that the jurisdiction under Section 11 is attracted find the holder of book-entry securities in a sub-account can invoke the same if he "did not consent to a transfer" of any book-entry securities from his sub-account. The mere fact that CDC had recorded a pledge position in the plaintiffs sub-account has no bearing on the right of the plaintiff to approach the High Court under Section 11 of the CD Act and to claim damages.
31. The above noted argument of learned counsel for the defendants also loses sight of the defining feature of the central depository system. With the enactment of the CD Act and the licensing of CDC as a central depository a fundamental change has been brought about in the scheme which prevailed .Previously under the Contract Act. The said statute only catered for physical delivery of goods including shares, which under the Sale of Goods Act, are treated as goods. If the shares are in the form of paper scrips, there can be a physical delivery pf the same from the pledger to the pledgee. However, shares, which are transferred or deposited into a central depository system, do not have material existence. Transactions relating to such shares are made through electronic book-entries in the central depository system. There is, as such, a loss' of physical control over the shares on the part of both, the pledger and the pledgee. By operation of the CD Act and the central depository system created thereunder, control of shares to the limited extent being examined at this stage, is ceded to the CDC There is no physical delivery of shares when a pledge is created in a central depository system and likewise, there is no physical transfer from pledger to pledgee when a pledge call option is exercised by a pledgee. These transactions occur simply though electronic book-entry in the central depository system. The account statement (Exh P- 115) of the plaintiffs Sub-Account No.577 and the activity report of the sub-Account (Exh P-71) confirm this conclusion.
32. Learned counsel for LSE and CDC also made reference to various parts of the testimony of Amir Zareef (DW-1) with the object of showing that even the plaintiff had accepted the fact that "custody" of the pledged shares had passed to LSE1 with his consent, In particular, he referred to a.
Suggestion given to DW-1 by learned counsel for the plaintiff to substantiate his argument. The testimony of the witnesses, it may be noted, and the language, actually employed by them and by learned counsel, is necessarily couched in terms which have historically been associated with the pledge of shares in physical form.-The CD Act itself employs similar language. This, therefore, is the only language which could have been used by counsel and by the witnesses, The words used by counsel or by a witness cannot be made the basis for interpreting the CD Act. For this the language of the statute will have to be seen.
33. The provisions of Section 12 of the CD Act, which governs the pledge of-book-entry securities, must now be considered. Subsection (2) thereof talks of the blocking of book-entry securities by way of pledge. Subsection (3) (a) of Section 12 empowers a pledgee to transfer the pledged shares upon the default of-the pledgor. This also necessarily implies a linear sequence of events spread over time, the transfer of shares can, thus, only be effected at a point in time after a default has been committed by the pledgor arid not at the time the pledge was created, It is, therefore, incorrect to assert that the pledged shares had been transferred out of the plaintiffs sub-account at the time the pledge was created. The argument of leamed counsel premised on this assertion is, thus, without merit.
34. It may also be added, at this stage, that the above argument is based on a notion which is not in consonance with the concept of electronic book-entries in a central depository system. Learned counsel for CDC appears to have overlooked CDC's own written statement wherein the plaintiff has been chided for not comprehending the nature of the central depository system. The features of the central depository system, which have been setout in Section 4 of the CD Act, and the relevant provisions of Chapter 11 of the Regulations reproduced above, which relate to pledge calls, have also been elaborated in the written statement filed by CDC. One thing, which is manifestly clear from the same, is that the accounting and book keeping relating to book-entry securities takes place within the central depository system. There are no. Physical ledgers in relation to accounts of . Pledgees, participants and sub-account holders. All dealings, which are transacted between such persons, are effected electronically. The relevance of this, in the circumstances of the present case, is that as between the LSE, as eligible pledgee, Tanvir Malik, as participant/account-holder, and the plaintiff, as sub-account holder, it is of little relevance that the pledged shares were kept in the plaintiffs sub-Account No. 577 as evidenced by the statement of account (Exh. P-115) or had been transferred to the account of LSE at the time the pledge was created. The fact, however, remains (as determined above) that the pledged shares were not transferred out of the plaintiffs sub- Account until 9.4.2001, i. e. More than 10 months after the creation of the last pledge.
35. In relation to issue No, 5, the next submission of leamed counsel for LSE was that under Section 11 of the CD Act only "an aggrieved party" may apply to the Court for relief. His objection that the plaintiff is not an aggrieved party has already been dealt with and rejected while deciding issue No. 4.
36. It was also contended by leamed counsel for LSE that the jurisdiction under Section 11 could only be invoked by a sub-account holder where he did not consent to the transfer of any book-entry securities, from his subaccount. It was argued that in the present case the very fact that the plaintiff had agreed to the creation of a pledge in favour of LSE amounted to his consent to the transfer of the pledged shares from his sub-account and, therefore, the jurisdiction under Section 11 of the CD Act was not available to him This submission is misconceived The plaintiff does not dispute the fact that his shares had been pledged in favour Of LSE. His grievance is that the shares were sold without his consent and also in violation of the lawful orders which were bindings LSE and CDC. Moreover, the fact that the plaintiff had agreed to the pledge of his shares in favour of LSE cannot, by any stretch of reasoning, be construed;as his consent to the transfer of his shares from his sub-account or as his authorization for the sale of the pledged shares otherwise than for the limited purpose for which the pledge was created viz. To secure the default of Tanvir^Malik as Member LSE, towards the LSE Clearing House.
37. Lastly, in the context of issue No.5, it was submitted that even if the High Court had jurisdiction under Section 11 above, the plenary jurisdiction of the Civil Courts under Section . 9 of the CPO had not been ousted and, therefore, the- High Court should stay its hand in this case and let the plaintiff approach the competent Civil Court for the redressal of his grievance, It was argued that the wording of Section 11 supra that the Court "may award damages" meant that the Court had discretion to decline exercise of jurisdiction. This argument is wholly without merit. The word "may" is only used in the sense that the Court will not, in all cases, be obliged to award damages. The more important thing to be seen is whether the Civil Court has been left with any jurisdiction in cases falling under Section 11 of the CD Act. The answer to this is Simple and is to be found in the explanation to Section 11 which makes it abundantly clear that if damages are to be awarded thereunder, this can only be done by the High Court. This necessarily excludes the jurisdiction of any Issue No. 5 is, for the reasons discussed above, decided in the affirmative. /Issue/Vols 6.
38. Learned counsel referred, firstly, to four writ petitions which, at various times, had been filed by the plaintiff, it was .Submitted that these writ petitions had been decided and the decisions therein operated as res judicata in the present case, it is, therefore, necessary to examine these writ petitions and foe bases on which the same were decided.
39. The first of these petitions was W.P. No. 13035 of 2000 (fExh. P-92) titled Mian Nisar Eiahi vs. The Managing Director LSE and 3 others, the LSE! SECP, CDC and Tanvir Malik were. Arrayed as respondents therein, In the petition, the plaintiff had challenged an order passed by the SECP dated 12.6.2000 (Exh. P-68). This order has been discussed while discussing issue No.5. The order, it may be repeated, was- addressed to CDC, SECP had suspended deliveries from Tanvir Malik's house account and sub-accounts maintained with CDC, The writ petition was disposed of vide order dated 12.7.2000 (Exh. P-93) with a direction to SECP and CDC to take a final decision as to the petitioner's grievance within one week. Pursuant to the said order, the SECP, vide order dated 25.7.2000 (Exh. P-96), withdrew the order (Exh. Pr68) and passed a fresh order restraining Tanvir Malik from transferring shares from the plaintiffs sub- Account No. 577.
40. The plaintiff then filed Writ Petition Nb!f4491 of 2O0O (Exh. P-94) against LSE and 18 others including the SECP, CDC and Directors of LSE. In the petition, it was alleged that the LSE and CDC, among others, were hatching a conspiracy to deprive the plaintiff of his shares, It was prayed, inter alia, that the respondents including LSE, SECP and CDC be restrained from acting on their illegal designs. On 24.7.2000, interim relief was allowed to the plaintiff in terms reproduced above. The order was violated by CDC on 9.4.2001. The writ petition was later dismissed for non-prosecution on 14.6.2002.
41. Thereafter, the plaintiff filed Writ Petition No. 15369 of 2000. The LSE, SECP, CDC and Tanvir Malik were included in the array of respondents. The petition sought to challenge a notice dated 27.7.2000 (Exh. P- 99) addressed by SECP to the plaintiff whereby the plaintiff was given an opportunity to show cause why the freezing order (Exh. P-96), dated 25.7.2000 should not continue, pending an inquiry which had been initiated by SECP. This writ petition was withdrawn on 18.9.2000.
The plaintiff then filed Writ Petition No. 1344/01 wherein the plaintiff challenged the order (Exh. P-96) dated 25.7.2000 passed by SECP. The SECP, CDC, LSE and Tanvir Malik, among others, were impleaded as respondents. This writ petition was disposed of vide order dated 21.2.2001 (Exh. P-102), whereby SECP was directed to conclude a pending inquiry within 44 days.
42. It is clear from the four writ petitions, mentioned above, that the same were filed before the sale of shares which is challenged in the present case, It is, therefore, obvious that this sale of shares was not, indeed, could not have been subject-matter of the aforesaid writ petitions. The decisions of these petitions, therefore, cannot possibly constitute res judicata in the present case.
43. The objection based on Order 2, Rule 2, CPO, reflected in issue No, 6, was not elaborated by learned counsel for the defendants, In any event, jt is not in dispute that the present suit is the only legal action initiated by the plaintiff in respect of his claim for damages based on the sale of his shares, In the event, I do not see how Order 2, Rule 2, CPC is attracted in this case. The provisions of Order 2, Rule 2, CPC may apply if the plaintiff .Files a suit in future seeking relief which he could have claimed in this suit but has omitted to do so. The objection based on the principle of tis pendens, as set out-in issue No.6, was neither pressed nor elaborated by leamed counsel for the defendants, It must, therefore, be taken as having been given up.
44. In the foregoing circumstances, issue No.6 is decided in the negative and it is held that the suit is not barred on the grounds noted in issue No. 6.
Issue No.7.
45. It was argued on behalf of LSE that in view of the pendency of Commercial Appeal No.12 of 2002, which had been filed by the plaintiff to assail the orders of the Commissioner, SECP dated 9.4.2001 (Exh. P-105) and of the Appellate Bench of the SECP dated 30.7.2002 (Exh. P- 112), the present suit could not proceed, This argument was advanced on the basis that Commercial Appeal No. 12 was res sub judice and it covered all aspects of the present case, in order to understand this submission, it is necessary to setout, briefly, the background in which Commercial Appeal No.12 was filed.
46. In end May 2000, there was a serious .Crisis in the LSE and the Karachi Stock Exchange. As a result, the LSE remained closed between 31.5.2000 and 2.6.2000 while the Karachi Stock Exchange remained closed on 31.5.2O0O. This was an event unprecedented in the history of Pakistan as noted by the SECP in a show cause notice (Exh. P-103) dated 29.3.2001, which was issued to the plaintiff, It is this show cause notice which was the starting point of proceedings against the plaintiff and has, through various intervening stages and events, have led to the filing of Commercial Appeal No. 12. The show cause notice (Exh. P-103) sets out various facts, inter alia, in support of allegations that, the plaintiff had been guilty of manipulating share prices (para. 4 of the notice); generating false and misleading appearance of active trading (para. 5); and the failure of the plaintiff to discharge the liabilities owed by him and the defendant Iftikhar Shafi and the brokerage house of Iftikhar Shafi towards the LSE, and the Karachi Stock Exchange (paragraph 7).
47. The plaintiff was, therefore, charged with violations under Sections 17 (e) (ii) (iv) and (v) of the SE Ordinance, 1969. He was called upon to show cause why SECP should not impose a penalty on him under Section 24 (1) of the SE Ordinance and/or initiate criminal proceedings against. Him under the said section read with Section 25 thereof. The plaintiff was provided an opportunity of being heard in person or through an authorized representative. The plaintiff was also required to show cause "as to why the liability accruing in favour of Lahore Stock Exchange, Karachi Stock Exchange and/or the brokers" should not be enforced against him.
48. In response to the show cause notice, the plaintiff appeared before the SECP Commissioner (Enforcement and Monitoring) on 6.4.2001* and sought an adjournment through a formal application, inter alia, on the ground that the various documents, mentioned in the show cause notice, had not been furnished to him and also that the time allowed to him for his reply was inadequate. The adjournment request was declined and the show cause proceedings were continued on 6.4.2001 after the plaintiff had walked out of the hearing. Thereafter, the order dated 9.4.2001 (Exh. P-105) was passed wherein it was held that the charges levelled against the plaintiff stood proved, Paragraph 59 of the order, being relevant for the purpose of the present discussion, is reproduced as under:- "59. I, therefore, have po hesitation in invoking the powers provided by Sections 20(4)(0), 20(6)(b) and 20(6Xg) of the Securities and Exchange Commission of Pakistan Act, 1997 read with Section 7(c) of the Securities and Exchange Ordinance, 1969 and direct that the Board of the LSE and the KSE shall form a combined committee (consisting of three members of each stock exchange) within three days from the date of this order. The committee so constituted shad then decide the quantum of all claims and settle the same on a pro rata basis. The joint committee shall have decided [sic] all claims within three weeks from the date of this order."
49. The aforesaid order was challenged by the plaintiff through Writ Petition No.1220/01 which was allowed am1 the order, was set aside vide, judgment dated 7.8.2001, However, the judgment in the writ petition was reversed by the Hon'ble Supreme Court vide judgment dated 25.9.2001. The plaintiff was directed to approach the Appellate Bench of the SECP to impugn the order, dated 9.4.2001. The plaintiff filed Appeal No.19 of 2001 (Exh. P-112), which was decided by the Appellate Bench of the SECP on 30.7.2002. It was, inter alia, held by the Bench that it would be just and equitable for losses incurred as a result of price manipulation and the resultant default to he appropriated from the available assets of the plaintiff and other members of the group who had joined with him in such manipulation. However, as to the quantum of the default obligations, it was observed that the matter was pending adjudication before a Court. An order was then passed directing that the shares 'remaining in the plaintiffs sub-Account No.577 will not be transferred. The proceeds from the sale of the pledged shares, which were lying in an escrow account with LSE, were ordered to be retained until the determination of the liabilities of the defendant Iftikhar Shafi by the Court.
50. Commercial Appeal No. 12, as noted above, impugns the order of the Commissioner, SECP dated 9.4.2001 and the aforesaid order of the Appellate Bench dated 30.7.2002. The learned Division Bench of the High Court, seized of the Appeal will, no doubt, adjudicate on the merits and legality of these orders. For the purpose of the present suit, I proceed on the premise that every allegation made against, the plaintiff is held by the learned Division Bench to have been proved and it is further held that he is responsible for discharging the liabilities owed by Iftikhar Shafi to LSE, the Karachi Stock Exchange and their various members/brokers. Such finding will have no effect on the outcome of the. Present be noted that the cause of action in the present case is alleged on the basis of the wrongful sale of the plaintiffs shares by LSE and the unlawful and negligent acts of CDC noted above. If the plaintiff succeeds in proving that the sale, indeed, was unlawful, he will be entitled to the award of damages under Section 11 of the CD Act Commercial Appeal No.12 of 2002, therefore, is not a matter which is res sub judice in relation to this suit. Neither the cause of action nor the parties in the Commercial Appeal are the same as in the present case. Furthermore, as held above the only forum which can grant the relief in this case is the High Court in exercise of the jurisdiction vested in it Under Section 11 of the CD Act. The learned Division Bench hearing Commercial Appeal No.12 will be exercising a separate and distinct appellate jurisdiction vested in it under the SECP Act. The award of damages to the plaintiff is not a matter before the learned Division Bench.
51. I should add here that the emphasis of LSE's learned counsel on Commercial Appeal No.12 of 2002 and the show cause proceedings leading upto its filing is entirely misplaced, It may well be that the plaintiff is guilty of every offence with which he is charged. If so, he will, no doubt, be given the full measure of the law. The point however, remains that in the present case the plaintiff is not on trial, It is LSE and CDC who have to answer his claim. They have to justify their own acts on the touchstone of the law. It is certainly not open to them to plead that the plaintiffs misdeeds (which are sub judice in Commercial Appeal No, 12 of 2002) have given them a licence to break the law or to disregard the rights given to the plaintiff bylaw. If anything, the defendants on account of their privileged positions (considered below) have corresponding responsibilities including special duties of care and fiduciary obligations, which they have to fulfill.
52. For the reasons given above Commercial AppeaTNo.12 cannot be taken as af bar to the exercise of jurisdiction by the High Court under Section 11 of the CD Act. As to Commercial Appeals Nos.11, 13, 14 and 15 mentioned in issue No.7 these were not referred to in the arguments of learned counsel for LSE. I, therefore, cannot see how these appeals are relevant for deciding issue No.7.
53! In view of the foregoing discussion I hold that the present, suit can proceed notwithstanding the pendency of the above referred Commercial Appeals.
Issues Nos. 8 and 9.
54. These issues, on account of their overlapping scope, can conveniently be decided together.
These two issues represent, the principal basis of the plaintiffs case.
55. It is established from the record, discussed earlier, that LSE exercised its pledge call option on 9.4.2001. The pledged shares were transferred from the plaintiffs sub- Account No. 577 on the same day as reported by CDC in its letter (Exh.Pr71) dated 267.2001 addressed to the plaintiff. The shares were sold by LSE on 10.4.2001. It is in this backdrop that I now take up the submissions o learned counsel for the parties on issues Nos.8 and 9.
56. It was argued on behalf of the plaintiff that there was no justification whatsoever for the. LSE to exercise its pledge call option and to sell the shares because Tanvir Malik was not in default of his obligations towards the LSE at any time upto 9.4.2001 and even during the period immediately following this date. To support this contention, leamed counsel for the plaintiff adverted to Exh. P- 110, which is an order dated 7.8.2001 passed in Writ Petition No. 1221 of 2001 which had been filed by Tanvir Malik, inter alia, against the LSE and CDC and was heard alongwith Writ Petition No.1220 of 2001 filed by the plaintiff, In the order (Exh. P-110), the statement of learned counsel for LSE was recorded acknowledging that Tanvir Malik had not, till then, been declared- a defaulter by the LSE.
There is no notice , or other document brought on record by LSE to show that prior to the date of the pledge call, that is, 9.4.2001, any action had been initiated by LSE against Tanvir Malik under the LSE's default regulations. These facts substantiate the plaintiffs plea in respect of the default of Tanvir Malik.
57. The only witness produced by the LSE-was its Company Secretary, Amir Zareef (DW-1). His testimony, on the question of Tanvir Malik's default, is also of relevance. To a specific question put to him as to whether any notice of default had been issued to Tanvir Malik by the LSE under Article 39 of its Articles of Association, DW-1 he conceded that this was not done, Further on in his cross- examination, DW-1 evaded the suggestion put to him that Tanvir Malik had met all his settlement obligations towards the LSE on the two settlement dates which are relevant, in this case i.e. 31.5.2000 and 7.6.2000. DW-1 also did not dispute the suggestion put to him by counsel for the plaintiff that Tanvir Malik was functioning as a member of the LSE right unto 9.4.2001, which is the date on which the pledge call was made, LSE did not produce any evidence to the contrary which could have shown that Tanvir Malik had committed any default of his obligations before 9.4.2001.
58. From the oral and documentary evidence considered above, it is established that Tanvir Malik was not in default when the pledged shares were sold by LSE. Learned counsel for the plaintiff argued that in these circumstances, the pledged shares, which were meant solely for securing the default of Tanvir Malik, towards LSE, could not have been lawfully sold. There is merit in this submission.
59. Learned counsel for the plaintiff next contended that even if Tanvir Malik had been in default, the pledged shares could not have been lawfully sold without a notice to Tanvir Malik and to the plaintiff, It was submitted that the sale of the pledged shares without notice was void. To substantiate this submission, Learned counsel, firstly, referred to subsection (8) of Section 12 of the CD Act^which has been reproduced above, ami to Section 176 of the Contract Act, which, in relevant part, provides as under:-- "176. If the pawnor makes default in payment of the , debt, or performance, at the stipulated time of the promise in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he, may sell the thing pledged on giving the pawnor reasonable notice of the sale."
By virtue of Section 12(8) of the CD Act, the provisions of the Contract Act have been made applicable to the pledge of book-entry securities.
60. These statutory provisions will be considered shortly. First, the evidence. There is no notice exhibited on, record addressed either to the plaintiff (who was the acknowledged owner-pledger of the shares) or to Tanvir Malik stating the occurrence of any default for which the pledged shares were liable to be sold. The plaintiff, in his own testimony, also categorically stated that no such notice was given to him or to Tanvir Malik. This testimony has not been controverted. On the other hand, the suggestion put to Amir Zareef (DW-1) that no notice was given by the LSE before the pledged shares were called was not denied, In fact, his evasive response referring to some determination made by SECP is implicit acknowledgment of the fact that no notice was, in fact, given by LSE before it exercised its pledge call option.
61. The provisions of Section 176 of the Contract Act can now be considered. Learned counsel for the plaintiff cited a number of precedents wherein Section 176 has been interpreted, It will, however, suffice for our purpose to refer to two cases. The first is titled Usman Malik vs. The Bank of Bahawalpur Ltd. (PLD 1959 (W.P.) Karachi 725) and the second Alliance Bank of Simla, Ltd. Vs. Ghamaridi Lal-Jaini Lai (AIR 1927 Lahore 408). In these cases, it has been held that no sale of a pledged security can be effected without a reasonable notice being given by the pledgee to the pledgor. This, indeed, is what Section 176 (supra) provides. The object of the law is also understandable. Rights to property are to be protected. Any taking of such rights against the will of the owner must have the sanction of law. Section 176 of the Contract Act is also a reflection of this desire of the law to protect individual property rights. If a reasonable notice is given to the person, who has pledged his property, he may well be able to pay off the pledgee .Or to discharge the obligation secured by the pledge and to redeem the pledge, in the alternate, if the pledger considers the notice to be unjustified, he can approach a Court for relief.
62. The requirement of a reasonable notice, as envisaged by Section 176 of the Contract Act, is especially important in the circumstances of the present case for a number of reasons; the foremost being the inherent nature of capital markets and the recognition of the rights of investors.
This special aspect of capital markets is recognized by all legislation which directly impacts such markets. The SE Ordinance, under which the LSE has been licensed, in its preamble, recites the protection of investors as the primary object for its enactment. Likewise Section 20 (6) (b) of the SECP Act stipulates that while performing its functions and exercising its powers the SECP shall strive "to maintain the confidence of investors in the securities markets by ensuring Adequate protection of such investors". The reason for this emphasis on protecting the investor is obvious.
Capital markets would cease to exist if there were no investors.
These markets can only function successfully and fulfill their raison, detre if investors have confidence in the fairness and integrity of key- institutions such as stock exchanges. The surest way to undermine investor confidence would be to deprive inve stors of their investments made through capital markets, without giving them treatment to which they are entitled under law.
63. In addition to the above, reference may also be made to the Memorandum of Association of the LSE. Among the foremost objectives of the LSE is the following:- "To maintain high standards of commercial honour and integrity, to promote and inculcate honourable practices and just and equitable principles of trade and business ..."
In my humble view, a Court of law would find if impossible to hold, in the circumstances noted above, that it was either honourable or just or equitable for the LSE to have sold the pledged shares without notifying the plaintiff of its intent that property belonging to him, which he had acquired through transactions on the LSE and which was pledged on the faith that LSE would act according to law and in keeping with its own Constitution, was to be sold,
64. I have no hesitation in holding that the sale of the pledged shares by LSE without notice to the plaintiff was illegal.
65. Leamed counsel for the plaintiff then referred to the further plea advanced by LSE that the plaintiff was a member of a group which included, amongst others, the defendant Iftikhar Shafi and, therefore, the pledged shares, although belonging to the plaintiff and furnished the default of Tanvir Malik, could be sold for the purpose of adjusting the liabilities of all members of the Beged group whether or not such liabilities were secured by the pledge, It was submitted that this premise is wholly untenable at law because a pledged security can only be realized and sold to enforce an obligation for which the pledge was made and not for any other obligation, In support of this submission, leamed counsel for the plaintiff, firstly, referred to5 Section 174 of the Contract Act and then to the case titled Cowasji Muncherji vs. Official Assignee of Bombay (AI R 1928 Bombay 507).
Section 174, supra, in clear and unambiguous language provides that a pledged security-can be kept by pledgee only as security for the obligations for which it was pledged. I have also gone through the precedent cited by learned counsel for the plaintiff, It fully supports the argument made by him that in the present case, the pledged shares could not have been sold because Tanvir Malik was not in default as on the date of sale and such default was the only event which could have justified the sale.
66. The LSE has also relied on some alleged verbal requests, which purportedly were made by the plaintiff asking the LSE to sell the pledged shares. These verbal requests have not been pleaded in the written statement filed by LSE, but have been referred to by DW-1 in his testimony. This witness has deposed that the plaintiff wrote a number of letters informing the SECP of his financial difficulties and had proposed that his shares be disposed of in the market. These letters will be discussed shortly but, for the present, it may be noted that there is no letter addressed by the plaintiff to LSE. In his examination-in- chief, DW-1 stated that he was present in most of the meetings held between the plaintiff and the management of the LSE. He also deposed that he was present in a meeting in which the plaintiff made the request that his shares be sold. No minutes of any such meeting have been adduced in evidence, which would show that DW-1 was present.
There is, however, evidence on file from which it can be inferred that there is no truth in this statement. DW-1 conceded that the LSE did not address any letter to the plaintiff responding to his alleged verbal requests for disposing of his shares He also stated that he had made an internal memo, for the Managing Director, LSE recording the verbal request of Mian Nisar Elahi. No such memo, was, however, brought on record.
67. The LSE, for reasons unexplained, has not examined any of its directors to give evidence of the verbal requests allegedly made by the plaintiff. Here I may add that despite the testimony of DW-1, no minutes of the meetings of the Board of Directors of LSE have been adduced on record to show that the plaintiff was present in such meetings or had made a request to the Board that his shares be sold, It also does not seem credible that the plaintiff, who is an industrialist of longstanding and was a leading investor in securities would make a request for the sale of his shares, to DW-1, who, - at the relevant time, was only a junior employee of LSE working as its Deputy Secretary (Legal), it is noteworthy that the LSE had, for the first time instituted an award for the best investor on the exchange which, in the year 2000, was given to the plaintiff.
68.. As opposed to the unsubstantiated and unreliable testimony of DW-1, learned counsel for the plaintiff referred to extensive litigation initiated by the plaintiff (which has been referred to earlier in the context of issue No.6) showing not only that he was not agreeable to the sale of his shares but, quite to the contrary, had approached the High Court more than once, expressing his apprehension that the LSE (in concert with others including CDC) was bent upon misappropriating his shares. The first instance of this is Writ Petition No. 13035/2000 (Exh. P-92). The plaintiff sought I \ a writ against what he termed to be arbitrary orders of the respondents., whereby his shares were being withheld from him. He specifically prayed for the release of his shares and also sought a writ to declare the withholding of his shares by the respondents to be illegal.
69. Writ Petition No.14491 of 2000 (Exh. P-94) is even clearer in showing the intention of the plaintiff that he had no wish that his shares be sold, In paragraph 10 of the petition, the plaintiff averred that the respondents had joined hands and had hatched a conspiracy "to swallow the shares, scrips and securities of the petitioner", for adjusting the losses sustained by suspended members of the LSE. The r prayer made in the petition is also relevant for showing that during the material period between June 2000 and April 2001, the plaintiff, was making all out efforts to protect his investment portfolio which included the pledged shares.
70. Learned counsel for the plaintiff next referred to Writ Petition No.1344/01 (Exh. P-101) also filed by.
The plaintiff wherein he expressed the fear that his shares will be sold as a result of a conspiracy between LSE, SECP and CDC. This petition and the writ petitions mentioned in the preceding two paragraphs were filed before the sale of the pledged shares.
71. Learned counsel for the plaintiff submitted that in view of the above noted contentious legal proceedings initiated by the plaintiff, in which serious allegations against the defendants were made and wherein the plaintiffs intention to ensure that his shares were not sold, was clearly spelt out, it was not conceivable that the plaintiff had made a verbal request to a junior employee of LSE that his shares be sold, It was argued that the story of the alleged verbal request was an afterthought cooked up by the LSE to justify the sale of the pledged shares and to avoid its liability for damages on account of wrongful conversion.
72. This submission is well-founded, It also finds implicit support from the pleadings of LSE. It has been noted '-v 2007 above that the verbal request which has been mentioned by Amir Zareef (DW1) does not find mention in the written statement filed by LSE. If indeed there had been such request, it would have been pleaded as a principal defence to this suit. The absence of the plea, which potentially could have provided .a complete answer to the plaintiffs claim can only lead to one conclusion viz., that there was no verbal request made by the plaintiff asking LSE to sell the pledged shares.
73. I now take up for consideration two letters dated 15.8.2000 (Exh. D-1) and 29.8.2000 (Exh. D-2) written by the plaintiff and addressed respectively to the Commissioner (Securities Market) and the Director Investigation SECP. Lea/ned counsel fdr LSE referred to ^these letters in support of his submission that the plaintiff had requested the sale of his shares and, therefore, could not be allowed to urge any grievance against the sale made by .LSE. I have gone through both letters, which show that the plaintiff was facing financial difficulties, In the letter (Exh. D-2) he stated that these difficulties were caused by the restrictions imposed by SECP on his right to sell the pledged shares. Even in the letter (Exh. D-1) he asserted his right to sell the pledged shares and sought withdrawal of the order, dated 25.7.2000 (Exh. P-96) whereby transactions in his sub- Account had been frozen. These two letters were neither addressed to LSE nor can the same be treated as requests to LSE to dispose of the pledged shares. The efforts made by the plaintiff to get his shares released from the restriction imposed by SECP cannot possibly be construed as a request, made by him that LSE should sell his shares. Secondly it is important to note that the two letters were written almost eight months propr to the date on which LSE proceeded to sell the pledged shares, In this circumstances, I cannot accept the plea that these two letters be treated as the plaintiffs consent to the sale of shares made by LSE.
74. At this juncture, reference once more needs to be made to the. Order, dated 25.7.2000 (Exh. P- 96) passed by the SECP whereby deliveries from the plaintiffs sub-Account No.577 stood suspended. There is nothing on record to show that SECP had withdrawn the restraint on the plaintiffs sub-accourt.' This Can only mean that the exercise of a pledge call option by LSE in respect of the pledged shares and their subsequent sale was in violation of the order (Exh. P-96) and was, therefore, illegal regardless of any consent allegedly given by the plaintiff.
75. The next plea taken by LSE which requires consideration is that the plaintiff had assumed the liabilities of Iftikhar Shafi and had given an assurance that the same shall be cleared by the plaintiff. At the outset, it may be noted that this plea does not address the issues under discussion.
Moreover, this plea was not taken in the written statement filed by LSE and was only raised by DW-1 and that too during his cross-examination. This witness stated that following the crash of the stock market in the year 2000, LSE had conducted its own inquiry and the report of the inquiry was sent to SECP alongwith 13 documents on which it was based. He sought to produce the said report and 13 annexures appended with it in evidence. Among the said annexures is a document which has been marked as Exh. D- 5/6. It purports to record the minutes of a meeting dated 17.7.2000, of a sub- committee formed by the Board of Directors of LSE to look into contracts transacted through the Clearing House of the LSE. According to the LSE, Exh. D-5/6 bears the signatures of Tanvir Malik and is proof ' of the assurance given by the plaintiff to discharge the liability of Iftikhar Shafi. Learned counsel for the plaintiff objected to the admission, of these documents in evidence. The local commission has recorded the objections raised by learned counsel for the plaintiff and has left the same to be decided by the Court. The objections against receiving the aforesaid documents in evidence are quite formidable and were argued at length by learned counsel for the plaintiff. I, however, need not burden this judgment with these arguments because learned counsel for LSE, wisely, did not press for the admission of these documents in evidence.
76. In view of the foregoing discussion I hold that there was no such default for which the pledged shares could have been sold and also that the said shares were unlawfully sold.
Issue No. 10.
77. Learned counsel for the plaintiff argued that the determination of the respective civil rights and liabilities of the plaintiff and the defendants could only be adjudicated by a forum, which, in view of the constitutionally mandated separation of powers between the executive and the judiciary, could lawfully be regarded as a judicial forum. According to him, the SECP lacked the attributes of such forum. He, however, did not press this issue as, according to him, no relief was being sought in the present suit against SECP and also because the jurisdiction of the SECP and the vires of the order dated 9.4.2001 were subject-matter of Commercial Appeal No.12 off 2002, which was pending adjudication in the High Court.
Issue No.11
78. LSE has, in its written statement, pleaded and, through the testimony of DW-1 attempted to show that the order (Exh. P-105) dated 9,4.2001 passed by the, Commissioner, SECP constituted authority for LSE to sell the pledged shares. I have gone through Exh, P-105 and find nothing therein' which could justify this defense, It is not for me while deciding this suit to examine the legality of the order (Exh. P-105) because this matter is sub judice in Commercial Appeal No.12 of 2002 pending adjudication before a learned Division Bench of this Court. The question before me is whether the order (Exh. P-105) provided a basis for the plea raised by LSE in defense.
79. It is apparent from the contents of the order that the Boards of Directors of the LSE and the Karachi Stock Exchange were directed, in the words of the order, "to form a combined committee (consisting of three members of each stock exchange) within three days from the date of the] order. The committee, so constituted, [was to] then decide the quantum of all claims and settle the same on a prorate basis", It has been conceded by DW-1 in his cross- examination that, in fact, no joint committee was constituted pursuant to the aforesaid order. The language of the order cannot, by any stretch of reasoning, be construed as authorizing LSE to sell the pledged shares.
80. There is another angle from which the above- referred defence raised by LSE can . Be examined. Admittedly, there are no words in the said order, which state that LSE may. Sell the pledged shares. If for a moment we proceed on the premise that the wording of the order can, by some feat of reasoning, be construed as permitting LSE to sell the pledged shares, what would such permission imply. The answer is not difficult. The most explicit permission still could not have been taken by LSE as authority that, it could sell the pledged shares without fulfilling the requirements of Section 176 of the Contract Act. This is a further reason why the defence setup by LSE based on the order (Exh. P-105) cannot justify the sale of the pledged shares by LSE.
81. At this point I may add that as in the case of CDC, there is no explanation as to how, when and from whom LSE got the order (Ex. P-105). Furthermore, even though the LSE company Secretary appeared as a witness, he did not state- that the aforesaid order was read or considered by the Board of LSE or by any other functionary of LSE. There is no evidence that any opinion was sought from counsel to ascertain the implications of the order or to find out if it allowed LSE to sell the pledged shares. What is apparent from the record is the mindless and unseemly rush to encash the shares without regard to the loss it may cause to the investor. I can only conclude that apart from being illegal, the sale of the pledged shares was also a result of gross incompetence and negligence and also perhaps culpability under the statutes governing LSE. The SECP as regulator of capital markets and enforcer of the regulatory regime may need to probe into the matter.
Issue No. 12.
Q2. While deciding issues Nos:8, 9 and 11, I have concluded that the sale of the pledged shares was unlawful. CDC also acted unlawfully and negligently by disobeying bindings orders passed by SECP and the High Court as held in the discussion on issue No.5 above. But for the wrongful acts of CDC the sale would not have been made. Both CDC and LSE have acted collusively and in a manner which has deprived the plaintiff of his shares. Their acts constitute conversion, under every accepted definition of the tort, whether given in textbooks or precedent. The two defendants have thus rendered themselves liable to pay damages to the plaintiff.
83. The question now is of the measure which has to be applied for determining the amount to be awarded as damages, In the plaint, as noted above, the plaintiff has setout the figure of Rs.318,588,624/- as the quantum of damages as oh 2.4.2004 i.e. Four days prior to the filing of his suit. The break up of this figure has been given in paragraph 56 of the plaint and is, for ease of reference, reproduced as under:-- Value of pledged shares on 2.4.04 Rs. 174,398,410 Value of Dividends on Pledged Shares Rs. 9,343,610 Value of bonus shares on Pledged Shares on 2.4.04 Rs. 34,846,604 Loss of voting rights Rs. 100,000,000 Total Rs. 318,588,624 This, however, is the minimum amount because the plaintiff has also claimed (in paragraph 56) any further increase in the value of the shares and the dividends which may be declared on the said shares between 2.4.2004 and the date of judgment.
84. On behalf of LSE, it was argued that the value of the shares on the date of conversion would be the maximum amount which Gould be awarded to the plaintiff. It was submitted that the amount of Rs.78,088,000/-, which had been realized through sale of the pledged shares, is lying in an interest bearing escrow account and if, at all, the plaintiff was found entitled to a decree, the maximum decretal amount would be the sum which has accumulated in the escrow account.
85. I have considered the aforesaid submissions and have also gone through case law which was cited by both sides to substantiate their respective submissions. To start with, it is useful that there is some common ground between the parties on the bases for determining the quantum of damages. Learned counsel for both sides have relied on IBL vs. Coussens [1991] 2 AII ER 133 which is a case decided by the Court of Appeal in England. Of the three learned judges on the Bench, two have given their separate reasons for the Courts decision. Both have relied on the dictum of Brandon L, in the case of Godschmidt & Co. Ltd. Vs. Western Transport Ltd., where he said: , "...... I cannot see why there should be any universally applicable rule for assessing damages for wrongful detention of goods, whether it be the rule contended for by the plaintiffs or any other rule.
Damages in tort are awarded by way of monetary compensation for a loss or losses which a plaintiff has actually sustained, and the measure of damages awarded on this basis may vary infinitely according to the individual circumstances of any particular case."
86. Although the case of IBL Ltd vs. Coussens (supra), was a case under the Torts (Interference with Goods) Act, 1977, the rule recognized therein as generally applicable in cases of torts furnishes a good starting point for determining the factors which may be relevant for arriving at the quantum of damages.
87. I will now consider the case law cited by the parties specifically relating to the measure of damages in cases of conversion.
88. Learned counsel for the plaintiff referred to the case titled Michael vs. Hart & Co., (1901 (2)
KB.867)'. This was a case in which the plaintiff had opened an account with the defendants who were stockbrokers. The defendants were to buy and sell stocks and shares for the plaintiff. On May 11, 1901, it was agreed between the plaintiff and the defendants that certain contracts for the purchase of stocks, which had been made by the defendants on the plaintiffs account for settlement in the middle of May, should be carried over to the following settlement which was to take place on May 28 and 29. The defendants, however, in breach of the said agreement, sold the stocks which they had bought for the plaintiff and closed his account on 16 May. The plaintiff sued the defendants and claimed the highest prices which the sold stocks could have realized at any time during the currency of his account, It was argued on behalf of the defendants that damages could only be assessed with reference to the price which prevailed either on the date of the breach of agreement i.e. On May 16 when the defendants closed the plaintiffs account or on May 29 at which date the account would have closed in accordance with the agreement with the plaintiff, It was specifically urged that it was not for the plaintiff to select any intermediate date which was most un-favourable to the defendants on the fictitious assumption that he would have given instructions for sale, to the brokers at the time when the price was highest. Wills J. Held that the plaintiff was entitled to the highest prices which were obtainable during the period during which he had the option of selling, I am in respectful agreement with the reasoning which led to the aforesaid conclusion, and can do no better than to reproduce the same. The teamed Judge said:- "The only matter that I have to deal with in this case is the measure of damages. The plaintiff had entered into a contract with the defendants, whereby the defendants were to purchase shares on his behalf. The defendants in pursuance of that contract had purchased various shares on the plaintiffs behalf, and the plaintiff was entitled to have those shares delivered to him on the settling day on payment of certain prices. The defendants further by their contract undertook that they would at any time before the settling day, if directed to do so by the plaintiff, sell the same shares for the plaintiff. This they did not do, but repudiated their contract, and put an end to it. Under thos6 circumstances it seems to me that the plaintiff is entitled to all the advantages that would have been his or that might have been his if the contract had been carried out. Amongst those advantages was the right to sell the shares whenever he chose during the period over which the transactions were to run, and at different times different prices might have been realized. No doubt the plaintiff would in fact never have realized the best prices that ruled during that. Period. But I think I am right in saying that the-Courts have never allowed the improbability of the plaintiffs obtaining the highest prices to be taken into consideration for the purpose of reducing the damages. The defendants are wrong-doers, and every presumption is to be made against them."
89. Coming to our own jurisdictions, reference can be made to the case titled Louis Dreyfus & Co.
Vs. Ghandamal & Co. (AIR 1919 Sind 67). This was also a case of conversion where Louis Dreyfus & Co. Had misappropriated a large quantity of wheat belonging to the plaintiff Ghandamal & Co.' The relevant facts of the case, briefly, are that Dreyfus & Co. Had earlier rejected the wheat but subsequently, when prices shot up with the advent of the First World War, they sold the wheat The price thereafter kept fluctuating, It was argued on behalf of Louis Dreyfus & Co., that the plaintiff was entitled to the price of Rs. 32-12-0 only which was the price on the date of conversion. While repelling this argument, the Court held as follows:- "If the damages were for breach of contract; then no doubt his contention would be correct, for the measure of damages in such a case is the difference between the contract price and the market price at the date of the breach, and is unaffected by a subsequent rise in prices, see Jamal vs. Moolla Dawood Sons & Co., [AIR 1915 P.C.48]. But this is an Action in tort for conversion, and in such a case, according to the recognized law rn England, the Court or jury, in assessing the damages, is not limited to the value of the property at the time of conversion, but may find as damages the value at a subsequent time even up to the date of trial, I see Halsbury's Laws of England, Vol. 10, Art. 363, sat p. 344, and Vol. 27, Art. 1602 at p. 908; Mayne on Damages 9th Edn. p. 410; Addison on Torts, 7th Edn. p, 511. There is also a further difference between the two cases, In actions of contract, as a rule, the motives or conduct of the. Defendant are not to be taken into account in" assessing damages whereas in actions of tort which affect property, the conduct of the defendant may be so taken into account Halsbury's Laws of England, Vol. 10, Arts. 593 and 598 at pp. 323, 325. "
90. Learned counsel for the defendants repeated his argument that the measure for determining damages in the case of conversion was the value of the goods as on the date of conversion. To support this submission he firstly referred to the case titled Alliance Bank of Simla vs. Ghamandi Lal-Jaini Lai (AIR 1927 Lahore 4Q8). In this case the measure of damages was not directly in issue.
The judgment was in favour of the defendants Ghamandi Lal- Jaini Lai whose goods were wrongfully sold by the appellant-Bank. It was held by the Court that in the case of wrongful conversion the measure of damages "ordinarily" is the value of the goods 0n the date of such conversion. The tenor of the judgment, shows that the defendants were happy with this ruling, It also appears that the value of their goods on the date of conversion was higher than the value which had been obtained by the plaintiff-Bank and which had been credited to their account, In the circumstances, the question as to whether the defendants could claim a higher value with reference to a date subsequent, to the wrongful conversion, did not arise in the case, It should also be noted that what was enunciated by the Court obiter, was the rule ordinarily applicable in cases of wrongful conversion. The word "ordinarily" necessarily implies that the rule is not absolute and that there will be instances where an amount higher than the value of goods prevailing on the date of .Conversion may be claimed by a plaintiff or where the reference date for calculating damages might be subsequent to the date of conversion.
91. The next case cited by learned counsel for the defendants was Motilal s/o Babulal vs. Lakbmichand s/o Laila Prasad Agarwal (AIR (30) 1943 Nagpur 162). This precedent relied on the case of Alliance Bank of Simla, (supra), In this case too, the Court did not find it necessary to make the determination which is required in the present case. Moreover a finding of fact was recorded by the learned Court that, the goods had been sold after due notice under Section 176 of the Contract Act and there was thus no wrongful conversion involved in the case.
92. The above noted cases cited by learned counsel for the defendants do not advance his argument that the plaintiff would only be entitled to the value of the shares as on the date of conversion.
93. Leamed counsel for the defendants next referred to the case titled general and Finance Facilities, Ltd. Vs. Cooks Cars (Romford). Ltd. [(1963)2 All E.R.314]. Although this case was cited by learned counsel for the defendants, it does not entirely support his argument that a plaintiff, in an action for conversion, will be entitled only to the value of the goods as on the date of conversion: From the judgment of Lord Diplock; LJ, the following excerpt may usefully be reproduced. He observed that- "The action in conversion is a purely personal action and results in a judgment for pecuniary damages only. The judgment is for a single sum of which the measure is generally the value of the chattel at the date of the conversion together with any consequential damage flowing from the conversion and not too remote to be recoverable in law." (The emphasis is mine).
94. The case law discussed above shows that the Court is not restricted to the value of goods on the date of conversion, as the measure of damages for wrongful conversion.
95. In the present case, I have already noted above the fact that LSE had acted unlawfully in selling the shares and CDC had also acted illegally and negligently. The LSE and CDC are entities which enjoy privileged positions by virtue of the respective licenses granted to them by SECP under the SE Ordinance and the CD Act. The two companies also enjoy protection from competition. The CDC at present is the only central depository in Pakistan and, therefore, enjoys a monopoly in its area of business. The LSE is also just one out of three stock exchanges in Pakistan, Both companies, as has been discussed above, are important for the efficient functioning of capital markets. The CDC, as its name suggests, is a depository and also acts as a custodian of the interests of the various stake holders connected with the stock market including sub-account holders sugh as the plaintiff, In this capacity CDC* has a fiduciary responsibility and a special duty of care, to ensure that the interests of account holders are properly and diligently safeguarded. A special onus, therefore, lies on CDC to perform its duties in a fair and transparent manner. The only way in which CDC can protect itself from legal action is by acting in good faith, within the law and without negligence, In the present case, for reasons noted earlier in this judgment, I am not left in any doubt that CDC did not act lawfully and in good faith when it accepted the pledge call made by LSE and permitted the transfer of the pledged shares from the plaintiffs account to the account of LSE. Likewise LSE, as noted above, ,acted against the law and in breach of the duty of care owed by it to the plaintiff.
These circumstances can legitimately be factored into the measure of damages as' noted in Michael vs. Hart & Co., and the case of Louis Dreyfus & Co., (supra).
96. ; Now I come to the question; what is the loss suffered by the plaintiff? The loss to him, simply put, is the loss of the pledged shares. How is this loss to be quantified in monetary terms? This is the next question. For reasons that follow the answer to the question 'is- relatively straightforward.
97. Prior to the creation of CDC as a central depository, the plaintiff would have had a remedy under Section 152 of the Companies Ordinance to claim rectification of the registers of members of the companies listed in paragraph 16 of the plaint. This remedy, however, is no longer available to him because Section 11 of the CD Act expressly stipulates that upon the suit of an aggrieved party "the Court may award damages to the aggrieved party but shall not order rectification of the central depository register". This provision, in the circumstances of the present case, simplifies the calculation of damages. I have been informed that the prices of the pledged shares now are substantially higher than the value of the shares on 10.4.2001 when the same were wrongfully sold by LSE.
98. Had there been no statutory bar on the rectification of the central depository register, the plaintiff would have been entitled to the shares listed in paragraph 16 of the plaint, In such event I would have ordered rectification of the central depository register. This would have entailed reversal of the entries recorded in the plaintiffs sub-Account No.577, whereby the pledged shares were transferred out of the said account. This course of action, though unavailable, provides the surest and most accurate measure for determining the quantum of damages in this case. If the central depository register, nationally were to be rectified today, the value of the pledged shares could easily be determined on the basis of the price of the said shares on the date of this judgment.
99. In order, however, to ensure that neither party is prejudiced by any aberrant movement in the price of, the shares and to eliminate the influence of extraordinary peaks or bottoms in prices on account of any abnormal events, a fair basis would be to take the average closing price of the said shares over the last 30 working days preceding the date of this judgment, In my humble view, this would be the most appropriate method of calculating the value of the shares and consequently the amount to be awarded. To the plaintiff, In addition, he would be entitled to a sum equivatent to the dividends (whether cash or in the form of bonus shares) declared on the pledged shares between 10.4.2001 and the date of this judgment. These sums are awarded to the plaintiff as the same are consequential to and flow directly from the wrongful conversion of the plaintiffs shares.
'
100. The plaintiff, as noted above, has also claimed a sum of Rs.100,000,000/- as damages on account of the, loss of voting rights suffered by him due to the wrongful conversion of his shares, It is true that after 9.4.2001 the plaintiff was deprived of his right to vote his shares at the general meetings of the companies -mentioned in paragraph. 16 of the plaint. Learned counsel for the plaintiff was asked to state a basis on which his loss of voting rights could be quantified in monetary terms. He was unable to do so, but stated that the Court could award any figure. I have found this difficult to accept. I may also, add that there is no evidence on record of the general meetings of the aforesaid companies, or of the voting record of such meetings or indeed, of any prior meetings of the said companies which were attended by the plaintiff (whether personally or through proxy). The plaintiffs claim for damages to compensate him for the loss of voting rights must therefore, be declined except for a token sum of Rs.1,000,000/- to recognize that he was wronged on this score.
101. Ido realize that cases may arise under Section 11 of the CD Act where the above basis for assessing damages may not be appropriate, but then, to repeat the words of Brandon LJ, "I Cannot see why there should be any universally applicable rule for assessing damages."
Relief
102. Based on the foregoing, discussion and conclusions a decree is passed in favour of the plaintiff and against LSE and CDC jointly and severally for:-
(a) the amount equivalent to the average dosing price of the pledged shares over the 30 working days at the LSE immediately preceding the date of this judgment;
(b) the sum equivalent to the cash dividend declared on the aforesaid shares between 10.4.2001 and the date of this judgment;
(c) the amount equivalent to the value (determined on basis given in (a) above) of bonus shares declared as dividend on the pledged shares between 10.4.2001 and the date of this judgment; and
(d) the sum of Rs. 1,000,000/- on account of the loss of the plaintiffs voting rights attaching to the pledged shares.
The sums at (a), (b) and (c) above can easily be calculated through simple arithmetic. If, however, there is any difference on the figures, between the parties, the same can easily be sorted out in execution. This decree disposes of the suit finally.
103. In addition to the sums in they preceding paragraph, the plaintiff shall be entitled to interest on the aforesaid amounts at the rate of 12 percent per annum from the date of the decree until the payment of the decretal amount.