' SYED HAIDER ALI PIRZADA, J.---This High Court Appeal is directed against the order dated 17-11-1986 passed by a learned Single Judge of this Court in Suit No,465 of 1986 allowing the plaintiffs/respondent's application under Order 39, rules 1 and 2 and Section 151 of the Code of Civil Procedure. The respondent No,1 had filed the above suit for declaration and permanent injunction.
The appellant being aggrieved by the above order has. Filed the present appeal.
1. The brief facts leading to the filing of the above appeal are that the respondent No,1 is a company registered under the Companies Act, 1913 and carries on business, amongst others of marketing, supply and distribution of petroleum products, maintenance of petrol-pumps ,Ind depots and is owned and controlled by the Federal Government of Pakistan. The appellants are foreign companies and have been carrying on business in Pakistan. By a series of letters and an agreement dated 28-11-1959 between the Government of Pakistan and four Oil Companies namely,
(1) The appellant No,1 (The Burmah Oil Co. Ltd.), (2) the appellant No,2 (The Shell Petrolium Co.Ltd.),
(3) The Esso Standard Eastern Inc. And (4) The Caltex Corporation, a company known as Pakistan Refinery Ltd., was incorporated in Pakistan (hereinafter referred to as PRL'). The share capital of the Pakistan Refinery Ltd. Was rs20 crores divided into 20,00,000 shares of face value of rs100 each. Out of these rs 20,00,000 shares 40% shares were offered to the public in the open market, while 60% shares were secured for the four oil companies which are foreign companies. The 40% of shares offered to the public in Pakistan were called 'A' class shares, while those allocated to the four Oil.
Companies, were called 'B' class shares. The appellant No,1 is a shareholder in respondent No,2. On 26-3-1970 an agreement was entered into between the appellants No,1 the appellant called Petroleum Corporation and Esso `Standard Eastern (ESSO)" whereby said companies agreed to subscribe to the shareholding of respondent No,2 as under:-{{TABLE}} Burma Oil Co. Ltd. . =15% an Equity Shares The Shell Petroleum Co. Limited. =15% "
Esso Standard Eastern Inc. =18% "
(iv) Caltex Petroleum Corp. =12% " "
2. The Pakistan Refinery Ltd. Has constructed and founded an Oil Refinery for producing petroleum, Kerosene, lubricants and other allied products by refining and processing local and imported crude oil.
3. The four oil companies, who are together holding 60% shares in the refinery, have preserved for themselves the controlling interest of the refinery. The 40% shareholders are only entitled to the dividend earned on their investments. They have no share in the management and control of the refinery.
4. To regulate the inter se relationship among themselves, the four. Companies have agreed upon a working arrangement to effectively exercise their control over the refinery. These four companies, the 'B' Class shareholders can also modify and amend the Articles and Memorandum of the Parent Company, the Pakistan Refinery Limited.
6. The four 'B' Class shareholding Companies have greed among themselves on the modalities and rules how the benefits and privileges flowing from their right of control and management should be shared between themselves. The right to supply the 'Food Stock' to the refinery and the right of `off taking', lifting, the products of the Refinery are some of the main advantages to be shared by these companies. For 'off take' of the products and for supply of the 'Food Stock' the companies have agreed to a fix quota for each of them.
7. As the participation in the affairs and management and control of the Refinery carried valuable rights each participant was enviable of the other and the voting strength of each of the participants was jealously sought to be preserved by each. This voting strength was, obviously, dependent on the number 'of "B" Class shares held by each. The urge and anxiety to preserve and bag as many more shares as possible if and when available is fully reflected in the participation agreement referred to above.
8. Article 111 of the agreement deals with shareholding. Clause 3.02 of this Article would show that not only in present but even in future the participants were keen to keep an even balance in their shareholding.
9. Article XI of this agreement places a restriction on the right of free transfer of shares. None of the Four Oil Companies also who is a Member of the "participation club" can transfer its shares to a party who is not a member of the so called club of four unless he gets the first refusal from other member The shares intended to be sold would first be offered to the other participants and only on their refusal to buy them would they be offered to a stranger outsider. Clause 11.02 of this article is as follows:- "11.02.In the event that a participant wishes to transfer any or all of its shares in the refinery company otherwise than pursuant to Article 11.01, such shares shall first be offered on identical terms to the other participants in the ratio of their respective shareholding percentage. If a participant does not wish to take up all the shares so offered to it,. The shares which that participant does not wish to take up shall then be similarly offered to the remaining participants in the ratio of their respective shareholding percentages and at the same price and upon such other terms as were stipulated in the original offer, and if need be, further offer shall be made on the same basis until all the shares to be disposed of shall have been taken up by the other participants or until it is ascertained that there is a share or shares which none of the participants wishes to take up."
10. At this stage it is necessary to reproduce clause 11.05 of the agreement which reads as under:- "11.05. In the case of a transfer of shares made pursuant to the foregoing provisions of this Article XI to a third party purchaser, the following conditions shall apply:-
(a) the participant whose shares are to be transferred shall procure that the third-party purchaser shall become a party to and be bound by all the provisions of this and all other applicable agreements and, where a transfer of only part of a shareholding is involved, all those rights and allegations of the participants in question which vary in proportion according to the number of shares held by that participant in relation to the aggregate of the shares held by all participants shall be appropriately prorated as between the participants in question and the third-party purchaser; and
(b) the participant whose shares are to be transferred shall, if so required by the other participants, indemnify the refinery company and the other participants against all losses, damages, costs and expenses which they may suffer or incur and which are attributable to any failure of the third-party purchaser, occurring within a period of five years after transfer of shares, to perform and observe the obligations and conditions of the agreements referred to in Article 11.04 (a).
10. In the year 1976 ESSO decided to disinvest its business and assets in the oil business in Pakistan and confine itself to the production, manufacture and distribution of natural gas fertilizer made from natural gas. In order to give effect to this decision, ESSO decided to offer for sale all its undertakings, rights and obligations relating to oil distribution, marketing, refining within Pakistan, to the Government of Pakistan or to a company controlled by the Government of Pakistan. Included amongst other the rights and obligations that ESSO intended to transfer, were the shares of ESSO in the PRL together' with the rights and obligations attached to the shares under the agreement as it was, in any event, agreed by the participants to the agreement that in case of sale of shares to a third-party the third-party would be bound by the rights and obligations of any of the participants to the agreement.
11. The Government of Pakistan have for purposes of formally vesting the shares in the "State Oil Company Ltd." taken quite a few steps which it is not necessary to state here. Reference may be made to Act. LXXIX of 1976 dated 30-12-1976 and a Notification dated 15-9-1976 to show that State Oil Company Ltd. Are the designated Company to whom the Esso's shares finally stand transferred and who are now vested with all the rights and obligations which vested in Esso.
12. Para. 1 of the agreement dated 15-9-1976 is relevant and may be reproduced here:- "1. Esso shall sell to the President and the President shall buy from Esso on 'the Commencing Day'
(hereinafter defined), the said shares free from all charges or liens or any other encumbrances attached and with all rights attached thereto."
13. Before proceeding further it must be mentioned here that Esso have fully observed the obligations under Cause 11.02 of Article III of the Participants Agreements and have disposed of their shares to the plaintiffs after obtaining the approval and concurrence of other members of the `Participants Agreement'.
14. In this connection three letters have come up in discussion to show the conduct of the appellant at the time when Esso transferred their shares to the respondent No,1. It must be remembered that in 1976 when Esso wanted to pull out and dispose of their entire shareholding they had to obtain a refusal from the other members of the 'participants agreement' in compliance with Article 11.02.
15. A letter dated 29-4-1976 was addressed by the General Manager of Esso International to the Secretary, Ministry of Fuel Power and Natural Resources which is to the following effect:- "We refer to our discussion with you in connection with the waiver required from participants, to enable us to sell our shares to you in PRL.
Participants have now agreed to provide Esso with the required waiver subject to the following pre- conditions:
(1) The Government has approved the sale and purchase of Products Agreement including the shareout formula.
(2) The Government succeeds to our (Esso's) rights and obligations under the Refinery Agreement as amended to date including the Agreement agreed to on November 21, 1975.
(3) The Government provides a letter to the other Participants as follows:- "In consideration of your granting a waiver of certain pre-emptive rights you enjoy with respect to the disposal of the shares of PRL now held by Esso, the Government of Pakistan gives its assurance that it has no intention of directing the Government Corporation, which it is proposed shall become the owner of said shares, to amend its lifting patterns and volumes in any not consistent with its off-take obligations under the Refinery Agreement and the sale and purchase of Products Agreement to each of which it will have become a party". Your prompt action this matter will be greatly appreciated."
16. A reply dated 21-8-1976 was sent by Director General, Petroleum, Government of Pakistan to (1)
Burrnah Oil Co. Ltd. (2) The Shell Petroleum Co. Ltd. And (3) The Caltex Petroleum Corporation, in which the assurances called for in the letter noted above were offered in the following terms:- "The assurances contained in this letter are conditional upon the waiving by all the three companies: Burmah Oil Company Limited, Shell Petroleum Company Limited and Caltex Petroleum Corporation of their pre-emptive rights to the said shares and the proposed sale of said shares being concluded."
17. The dispute had arisen because the appellants were disposing of the 15% shares held by them to the appellant No2. In these circumstances the respondent No,1 filed the above suit for declaration and permanent injunction against the appellants, ' Having filed such a suit the respondents No,1 filed an application for injunction restraining the appellant No,1 from selling its shareholdings in Pakistan Refinery Ltd. To appellant No,2 and restraining Pakistan Refinery Ltd., the respondent Not from registering or recording in its share registers the sale or transfer of the said shares in the name of the appellant No,2.
' The application was contested by the defendants/appellants.
' The application for injunction came up for consideration before the learned Single Judge on the pleadings, as aforesaid. Though no oral evidence was adduced, parties relied upon affidavits evidence and they further relied upon various documents filed before learned Single Judge. The application was, however, allowed as referred to herein before.
' Mr. Nomani appearing in support of this appeal has strongly contended that the reasons assigned by the learned Single Judge in allowing the plaintiff No,1/respondent No,1's prayer for injunction are clearly unsustainable. According to Mr. Nomani, the learned Single Judge failed to recognise that such rights do not include any rights, with their associated obligations contained in a separate and distinct private contract between four of those shareholders, namely, the "foreign Oil Companies", the Participant's Agreement. Mr. Nomani next took us through the affidavits and the documents in contending that the plaintiff No,1 first respondent was not entitled to interlocutory order, it was a fit case where the Court should not have restrained the appellant lio.1 from selling its shareholding to appellant No,2.
' All the points thus raised by Mr. Nomani have been strongly contested by Mr. Fazed appearing on behalf of plaintiff No,1/respondent No,1. According to Mr. Fazed, the learned Single Judge was right in taking the view that the plaintiffs/respondent No,1 have prima facie case, but only to the extent of 18% of the shares now being transferred.
' We have carefully considered the rival contentions put forward before us. The learned Single Judge considered the legal position and in the light of the same he held that the shares in question are not simple dividend earning shares, but carry a potential of being utilised for a number of other purposes in a variety of ways. They confer upon their owner enviable power and prestige, in addition to the right to earn dividend. He was satisfied that a prima facie case has been made out and the balance of convenience was in favour of the respondent No,1.
' Mr. Nomani contended that the learned Single Judge has finally determined clause 11.05 of "Participants Agreement". We are of the opinion that the learned Single Judge has recorded findings on the arguments advanced' before him on those points during the hearing of the application for temporary injunction. The learned Single Judge specifically mentioned this with regard to his finding on prima facie case. We think that had the learned Single Judge any intention of deciding these issues finally, he would have framed issues and would have permitted the parties to adduce such evidence as they deemed fit and proper. The parties could also produce original documents. As the learned Single Judge has recorded only tentative findings and these points have to be finally decided, we refrain from making any comments which may prejudice the final determination of these points.
' The learned Single Judge has referred to Participants Agreement, three letters and other agreement and has held that the predecessors of respondent No,1 had d assigned to the respondent No,1 "all the rights attached thereto.".
The object of the interlocutory injunction is to protect the plaintiff against the injury by violation of his right, for which he could not be compensated in damages. The plaintiff's need for which protection is required is to be weighed against the corresponding need of the defendant. The Court must weigh one's need against another and determine where the balance of convenience lies.
' The four oil companies who are together holding 60% shares in the Refinery have preserved for themselves the controlling interest of the PRL. To regulate the inter se relationship among themselves, these four oil companies have agreed upon a working arrangement to effectively exercise their control over PRL Article XI of the Participants Agreement places a restriction on the rights of free transfer of shares. None of the four oil companies can transfer its shares to a party which is not a member of the so-called club of four members if he gets the first refusal from other member The object of clause 11.02 is that in the event that a participant wishes to transfer any or all of its shares in PRL otherwise than pursuant to clause 11.02, such shares shall first be offered on identical terms to the other participants in the ratio of their respective shareholding percentage at the time of the offer. If any participant does not wish to take up all the shares so offered to it the shares which that participant does not wish to take up shall then be similarly offered to the remaining participants in the ratio of their respective shareholding percentages and at the same price and upon such other terms as were stipulated in the original offer.
' Mr. Nomani virtually asked us that the plaintiffs/respondent No,1 are not entitled to the benefit of this clause. We entirely agree with the learned Judge that the balance of convenience was in favour of plaintiffs/respondents. Lord MacNaphten in advising the House of Lords in Tolburst v.
Associated Portland Cement Manufacturers (1903 AC 414 at p.420) held, "It is well-settled that as a general rule the benefit of a contract is assignable in equity and may be enforced by the assignee".
This is precisely the matter to be gone into at the trial and as stated earlier what is of materiality at this stage is the consideration as to the balance of convenience or inconvenience and hardship.
The balance of convenience in view of the aforesaid circumstances was/is in favour of the plaintiffs/respondent No,1 There was/is also a clear likelihood of an irreparable injury being caused to the respondent No,1 in case its prayer for interim injunction was refused there being nothing in its hands to secure its interest.
' The learned Single Judge has considered all the necessary ingredients while allowing to issue temporary injunction. We are, therefore, of the view that the injunction was rightly granted by the learned Single Judge in favour of the respondent No,1.
' Mr. Nomani lastly contended that the following observations/remarks of the learned Single Judge be expunged:- "I am afraid the arguments advanced by learned counsel were not only incoherent, but are contradictions in terms."
' Mr. Fazed, learned counsel for the respondent No,1 has submitted that he has no objection if the remarks/observations quoted above are expunged as the same are not necessary in the circumstances of the case. We think that the above submission is well-founded. By consent of the parties the above remarks/observations appearing in para. 27 of the impugned order are expunged.
' Before we part with this appeal we would like to make it clear that whatever observations made by the learned Single Judge and by us while disposing of this appeal should not affect in any way the disposal of the suit itself on merits. Whatever observations we have made are only for the purpose of examining whether it was a fit case for allowing the temporary injunction.
' In the circumstances of the case, the parties are directed to bear their own costs.