' MUNIB AKHTAR, J. --- By means of this common order I intend disposing of objections taken by the Securities and Exchange Commission of Pakistan ("SECP") and the Karachi Stock Exchange ("KSE") to the compromise applications that have been filed in the listed suits for their disposal by means of a compromise decree in each case. The relevant facts, and the objections taken, are common in respect of all the compromise applications, and are therefore being taken up together. These objections arise in the following circumstances.
2. The Defendant No, 1 (herein after referred to as the 'Brokerage House') is the same in all the suits, and is a corporate member of KSE. Each of the plaintiffs opened an amount with the Brokerage House for the purposes of making investments and trading on the Stock Exchange. It appears that in each case, in terms of the relevant CDC Rules and Regulations, the Brokerage House opened an investor's account as a sub-account with it, in which the shares acquired from time to time by the respective plaintiff were placed. The plaintiffs' grievance in each case is that in an unauthorized and unlawful manner, the Brokerage House removed and transferred shares from their respective investor accounts and transferred them into either the main account of the Brokerage House and/or in another account maintained by it. Thereafter, the Brokerage House pledged the shares so transferred with the Defendant No, 2, which is a bank from which it appears to have obtained certain finance facilities. It appears that subsequently, the Brokerage House was unable to meet its commitments towards the Defendant No, 2 in respect of the finance facilities, and the latter eventually exercised its rights as pledgee, and sold off the shares that had been pledged to it. The Plaintiffs complain that the shares that were so sold off included the shares that belonged, in each case, to them and the present suits have been filed in order to recover the aforesaid shares.
3. It seems that the Plaintiffs are not the only clients or investors of the Brokerage House that had the foregoing grievance; a number of other. (and possibly most) of the clients of the Brokerage House were in the same position and predicament. Since the matter pertained to a large number of investors on the stock exchange, complaints were made both to the SECP and to KSE and it appears that they made inquiries into the whole affair: Each of the Plaintiffs in the above suits on the one hand, and the Brokerage House on the other, now appear to have resolved their disputes and differences by way of a compromise and in order to give effect to the same, a compromise application has been moved in each suit, which are all in the same terms in all material respects.
Although neither SECP nor KSE are parties to these suits, they have nonetheless intervened therein, and have raised objections to the proposed compromises.
4. Learned counsel for the Plaintiffs submitted that the requirement under Order XXIII, Rule 3, CPC was that the parties present a "lawful agreement" to the Court for its consideration. If the Court came to the conclusion that the agreement was lawful, then a compromise decree followed as a matter of course in respect of the matters covered by the compromise agreement as were in dispute in the suit (and possibly, other matters also, although that is a point not directly relevant in the present circumstances). Learned counsel submitted, after narrating the facts as above, that neither SECP nor KSE had any locus standi to interfere or intervene in the matter. His case was that each of the compromise applications was a lawful agreement and hence the respective suit could be decreed and disposed of in terms thereof. He referred, in particular, to a single Bench judgment of this Court reported as Sajida Sultana and another v. Eastern Traders and others (PLD 1971 Karachi 109). He referred also to Hukam Chand and others v. Raja Ran Bahadur Singh and another (AIR 1919 Patna 146) to contend that while a compromise application could perhaps be rejected if it was found to be mala fide in nature, that was not true of the present cases. Finally, he referred to another Single Bench judgment of this Court reported as Muhammad Shujauddin and others v.
Muhammad Haroon and others (1989 CLC 910) to contend that the proper remedy for an intervener was to move an application under Section 12(2), CPC (or any other proceedings) if the intervener contended that the compromise was fraudulent or collusive, but the intervener could not step in at the stage of the compromise itself and derail the compromise proceedings.
5. Learned counsel for SECP submitted that the Defendant No, 1 did not have sufficient assets to meet the claims of all its creditors, i,e,, all the investors whose share had been unauthorizedly or unlawfully dealt with or disposed off by it. His primary objection, as the regulator, was that the Defendant No, 1 could not be allowed to compromise its differences and disputes with the investors in a piecemeal fashion, since that would unfairly give an advantage to some of the investors over the others. His case, therefore, was that either the Defendant No, 1 should compromise with all the investors or clients or that the matter should be dealt with by and under the supervision of the Court itself, so as to ensure that all the investors were placed on an equal footing. Learned counsel \further submitted that the relief sought in the present suits was in respect of a return or restoration of the shares. However, the admitted position was that the shares had long since been disposed of, and were no longer available with the Defendant No, 1, and the shares as actually available in its accounts were insufficient to meet the claims of all the clients. In these circumstances, it would, according to learned counsel, be inequitable and unfair to give a preference to some creditors over others. Learned counsel also submitted that it was not possible to track down the shares being claimed by the various Plaintiffs since by way of one or more transfers, the Defendant No, 1 had commingled the shares of different persons and clients and it was not possible to unravel these transactions, and the various movements and transfers in respect of the shares, in order to ascertain which shares belong to whom. For all of these reasons, learned counsel submitted that the agreements sought to be enforced by means of the compromise applications were unlawful. Learned counsel appearing for KSE, in order to save time, adopted the submissions made by learned counsel for SECP.
6. Learned counsel for the Defendant No, 1 submitted that each of the Plaintiffs had its own separate cause of action against the said Defendant, .And it was therefore open to the parties to enter into a compromise agreement in respect of the dispute between them. Learned counsel further contended that settlements were in fact underway with other investors as well, and a number of matters had already been resolved out of Court. He stated, on instructions, that the Defendant No, 1 was ready to negotiate and settle with all its clients and to resolve the outstanding claims in terms of a compromise between the parties. Learned counsel for Defendant No, 2, the bank, did not oppose or object to the compromise applications.
7. I have heard learned counsel for the parties and gone through the record with their assistance, and considered the case-law relied upon by learned counsel for the Plaintiffs. The case put forward by learned counsel for SECP and KSE, which are both, in one way or another, the regulators in respect pf the trading that takes place on the stock exchange, is that the proposed compromises are unfair inasmuch as they have the effect of giving a preference to some creditors over others.
However, in my view, even if the case put forward by the regulators is accepted, there is a difference between an agreement that is unfair and an agreement that is unlawful. There are, of course, many statutory instances where a fraudulent preference given by a debtor to some of its creditors can be set aside, and judicially evolved principles also point to, and move, in this direction. However, an agreement that may be inequitable in the sense of granting something to some, but not to all, of the creditors is not necessarily fraudulent, and it is for the objectors to make out a clear-cut case in this regard. Learned counsel for SECP placed on record the relevant extracts from the CDC records pertaining to the Defendant No, 1, which showed the movements of shares from the accounts of the Plaintiffs to those owned or maintained by the Defendant No, 1 itself. While it is undoubtedly correct that the shares of the Plaintiffs became commingled with those of other investors, and possibly with shares belonging to the Defendant No, I itself, there can be hardly any doubt from the record relied upon that specific numbers of shares in respect of each of the Plaintiffs were taken from their respective investor accounts and transferred elsewhere. The fact that the shares became commingled cannot in and of itself detract from the basic fact that shares that identifiably belonged to the Plaintiffs were removed from their respective accounts, and it is this fact that is the primary grievance of the Plaintiffs. That the Plaintiffs cannot now be restored to their original positions, i,e,, their shares cannot be handed back to them, does not, in my view, mean that the Plaintiffs cannot accept anything else in lieu thereof by way of a compromise.
Learned counsel for the Plaintiffs correctly pointed out that, in fact, by means of the contemplated compromises, the Plaintiffs were also giving up a portion of their claims (in .At 'least some cases it would seem in significant part); in the sense that it appears that the amounts proposed to be paid to them are significantly less than the value of their shares at the relevant time. Nothing has been placed on record that would indicate that the Plaintiffs are being fraudulently given a preference over other claimants. It would seem that the contemplated compromises would not be contrary to any applicable statutory provisions; if that had been the case, SECP and/or KSE would undoubtedly have exercised their statutory powers to block the proposed compromises. In my view, the alleged inequity of the proposed compromises is not so clear-cut or established as would or ought to stand in the way of at least some of the claimants (i,e,, the Plaintiffs) obtaining a settlement of their disputes with the Defendant No,
1. The stand taken by the SECP and KSE, i,e,, that a compromise should be an all-or-nothing affair would invariably end up in no action at all being taken, which would hardly serve anyone's interest. I do not deny, and expressly accept the inherent jurisdiction and power of the Court to refuse enforcement of an agreement which, even though lawful on the face of it, so shocks the conscience that it would be inequitable to enforce it, or which work substantial injustice if given effect to, and I also re-affirm and accept the view taken in Sajida Sultana's case (supra) that an agreement which on the face of it is voidable, or is found to be voidable on the basis of undisputed and/or admitted facts, will also not be enforced. However, in my view, the application of any such test must be rather stringent, and the threshold to refuse a compromise application ought to be set fairly high. This follows, in my view, from the word "shall" which appears in the latter part of Rule 3 of Order XXIII. This word should not be read as requiring the Court to mandatorily and mechanically pass a decree if a compromise application on the basis of a "lawful agreement" is placed before it. However, even if it is interpreted in the softer sense of "may", a refusal to make a decree on a lawful compromise should very much be the exception rather than the rule. In the present case, nothing has been brought on record to bring the objections upto the required standard.
8. For all of the foregoing reasons I have come to the conclusion that the objections raised by SEP and the Karachi Stock Exchange are, in the facts and circumstances of the present case, without merit and must therefore be, and hereby are, rejected. Compromise .