Corporate and Business Law

Case Analysis

Case Serial No. 05 -2016 C L D 134

Institution Name: Institute of Business Management, IoBM

Kalpana Ratan, 20221-32355

Instructor Name: Dr. Atifuddin

Babar Sattar vs. Federation of Pakistan & others

Citation: 2016 CLD 134

Court: Islamabad High Court

Judge: Justice Athar Minallah

Decision Date: 9th July, 2015

1. Introduction

The case of Babar Sattar v. Federation of Pakistan stands as a landmark judgment in the realm of

corporate governance within Pakistan’s public sector. It underscores the judiciary’s role in

delineating the boundaries of executive authority, ensuring that public sector companies operate

with autonomy and in adherence to established legal frameworks.

2. Background of the Case

• Petitioner: Babar Sattar, an independent director on the board of the National

Transmission and Despatch Company Limited (NTDCL).

• Respondents: Federation of Pakistan, Ministry of Water and Power, and others.

• Key Issues:

I. Unauthorized advertisement for the appointment of a new Managing Director (MD)

without board approval.

II. Arbitrary expansion of the board of directors.

III. Suspension and reinstatement of the MD without following due process.

3. Legal Framework

Companies Ordinance, 1984

• Section 183: Discusses the powers of the federal government concerning public

sector companies.

• Sections 196, 199, 200, 506: Pertinent to the appointment and removal of

directors and the overall governance structure.

Public Sector Companies (Corporate Governance) Rules, 2013

• Rule 3: Composition of the board, including the requirement for independent

directors.

• Rule 5: Responsibilities of the board, including the appointment of the CEO and

ensuring compliance with laws and policies.

These rules aim to ensure transparency, accountability, and efficiency in the management of

public sector companies.

4. Court’s Analysis and Judgment

Justice Athar Minallah of the Islamabad High Court held that:

• The Corporate Governance Rules, 2013, are mandatory and not merely advisory.
 • The federal government cannot unilaterally appoint or remove directors or

interfere in the operations of public sector companies without adhering to the due process

outlined in the Companies Ordinance and the Corporate Governance Rules.

• NTDCL, as a separate legal entity, must operate independently, and its

management decisions should be free from arbitrary governmental control.

5. Implications of the Judgment

The verdict reinforced the principle that public sector companies must be governed with the

same level of professionalism and autonomy as private sector entities. It emphasized the

importance of:

• Rule of Law: Government actions must be grounded in legal authority.

• Transparency and Accountability: Decisions should be made through

established procedures, ensuring checks and balances.

• Corporate Autonomy: Public sector companies should have the freedom to

make operational decisions without undue external influence.

6. Comparative Analysis

Judicial Activism in Pakistan

The case reflects a broader trend of judicial activism in Pakistan, where courts have increasingly

taken a stand against executive overreach. This trend is discussed in scholarly works analyzing

the judiciary’s role in maintaining the balance of power among state institutions.
7. Compliance with Corporate Governance

An examination of compliance reports from other public sector companies, such as the Pakistan

Reinsurance Company Limited, can provide insights into how entities are aligning with the

Corporate Governance Rules, 2013. These reports often highlight areas of compliance and non-

compliance, offering a practical perspective on governance challenges.

8. Conclusion

The Babar Sattar v. Federation of Pakistan case serves as a pivotal reference point in the

discourse on corporate governance in Pakistan. It underscores the judiciary’s commitment to

upholding the autonomy of public sector companies and ensuring that governmental actions are

in strict compliance with established legal frameworks.

My understanding of the case:

This case is about a disagreement between an independent board member of a government-

owned company and the federal government of Pakistan.

The company involved is NTDCL (National Transmission and Dispatch Company Limited). It is

responsible for managing electricity transmission across the country and plays an important role

in Pakistan’s power sector. This company was created as a corporate entity, so it should follow

the laws that apply to companies and not be treated like a government department.
The person who filed the case, Mr. Babar Sattar, was one of the independent members of

NTDCL’s Board of Directors. He went to court because he believed the federal government was

interfering too much in how the company was being run, and it wasn’t following the rules that

apply to companies.

The government had done things like:

• Publishing advertisements to hire a new Managing Director (MD) for NTDCL

without board approval.

• Expanding the Board of Directors by appointing new members without following

the proper process.

• Suspending and later reinstating the MD without approval from the board.

• Letting another government company (PEPCO) interfere in the internal affairs of

NTDCL.

Mr. Sattar said that all these actions were illegal because NTDCL, like any other company, is

supposed to make decisions through its board, not through government ministries or

departments.

He based his case on two main legal points:

1. The Companies Ordinance, 1984 – This law explains how companies in

Pakistan should work, especially regarding board members and CEOs.

were made to ensure that government-owned companies are run professionally, with

transparency and fairness. They also explain how directors and CEOs should be appointed.

The government argued that it had the power to do what it did, especially under Section 183 of

the Companies Ordinance, which they said allowed them to appoint or remove directors as they

pleased. But the Islamabad High Court disagreed. The judge, Justice Athar Minallah, gave a

detailed ruling, saying:

• The Corporate Governance Rules must be followed. They are not optional. These

rules were made to ensure good governance and are binding on everyone, including the

government.

• The federal government cannot control or manage companies like NTDCL as if

they are just government departments. These are separate legal entities and should be allowed to

function independently.

• The appointment or removal of directors or MDs must follow proper procedures,

which includes board discussions, performance reviews, and fair evaluation based on skills and

qualifications.

• The doctrine of pleasure, which means the government can remove people

whenever it wants, doesn’t apply here because this is a company governed by corporate law, not

a government job.

In short, the court said that the government cannot do everything according to its own wishes. It

must respect the laws it created, especially when it comes to running public companies. The
court cancelled the government’s notifications and actions because they were taken without

following the law.

Final Thoughts

What I understood from this case is that even the government has to follow the law, especially

when it comes to public companies. You can’t just make decisions without involving the board

or without following the correct legal process. This case really shows the importance of

corporate governance and how public interest must always come first.