Corporate Law and

Corporate Governance
Lecture 12
Relevant Reading
• Muhammad Yasin
• Ashraf Tiwana
 Muhammad Yasin
Const. Petition No. 42 of 2011 (Constitutional Petition under Article 184
(3) of Constitution of Islamic Republic of Pakistan)
• Jawwad S. Khawaja, J. The issue arising in this case relates to the
appointment of Mr. Tauqir Sadiq (respondent No.5) to the office of
Chairman of the Oil & Gas Regulatory Authority (“OGRA”). The
petitioner Mr. Yasin is an employee of OGRA. It is his case that the
respondent does not possess the necessary credentials for holding
the office of Chairman, OGRA. On this basis, the petitioner prays inter
alia, that we declare the appointment of the respondent as illegal by
setting aside the notification dated 22.7.2009 whereby the
respondent was appointed in office. For reasons which appear below
in some detail, we have accepted this petition and have inter alia,
granted the said two prayers
3. OGRA is a statutory body corporate established under the Oil & Gas Regulatory
Authority Ordinance, 2002 (the “Ordinance”). The Ordinance sets out, in the first recital in
its preamble, the primary object of setting up OGRA. It aims to “foster competition,
increase private investment and ownership in the midstream and downstream petroleum
industry, protect the public interest while respecting individual rights and provide effective
and efficient regulation …”. Section 3 of the Ordinance which establishes OGRA stipulates
that the said authority “shall be independent in the performance of its functions”. These
material provisions of the Ordinance - independence guaranteed by statute, coupled with
the objective of protecting the public interest and efficient regulation are of particular
significance in the adjudication of this petition as will become evident shortly. In terms of
regulatory autonomy, OGRA is just one amongst a number of regulatory authorities which
have been created in Pakistan during the past few decades to ensure good governance in
important (mainly economic) sectors of the country. These include the National Electric
Power Regulatory Authority (“NEPRA”), Pakistan Telecommunication Authority (“PTA”),
Pakistan Electric Media Regulatory Authority (“PEMRA”), Securities and Exchange
Commission of Pakistan (“SECP”) and Competition Commission of Pakistan (“CCP”). These
bodies have explicitly been made autonomous to ensure that they remain free from
political or other interference and thus remain focused on the objectives of their parent
statutes.
• 4. On 6.9.2008, the post of Chairman OGRA fell vacant as a result of
the retirement of the erstwhile incumbent who had completed the
maximum permissible two terms in office. Thereafter a process for
the recruitment of Chairman was commenced. No reason appears
from the record as to why this process was not initiated and
completed well before the occurrence of the vacancy. It took an
inordinately long time spreading over ten months to make the
appointment. This was done vide Notification dated 22.7.20009.
4…For the present it will suffice to bear in mind that the appointment is
not dependent upon the unfettered whim and discretion of the
government of the day or the political executive. In fact, the legislature
has laid down stringent criteria in this regard. Section 3 (4) of the
Ordinance stipulates that “the Chairman shall be an eminent
professional of known integrity and competence with a minimum of 20
years of related experience …”. This statutory language significantly
constrains the executive authority in making the appointment of
Chairman, OGRA. The nature and effect of these constraints has also
been considered later in this opinion, in the context of this petition…
• 5. At this point, it is appropriate to set out some relevant particulars
of the present petition. It is the petitioner’s contention inter alia, that
the process whereby the respondent was appointed Chairman, OGRA
was non-transparent, partial and nepotistic. According to the
petitioner, the entire exercise was meant to grant an extraordinary
favour to the respondent who is stated to be a close relative (brother
in law) of a leading politician from a key political party in government.
• 6. The respondent does not deny his relationship with the leading
political figure mentioned by the petitioner but states that such
relationship does not, by itself, constitute a disqualification for his
appointment to the office.
13. When we see the Constitution in this manner, we are brought to the unavoidable
conclusion that it is a part of the fundamental rights of the people of Pakistan that they
be governed by a State which provides effective safeguards for their economic well-
being; a State which protects inter alia, the belongings and assets of the State and its
citizens from waste and malversation. Contrary to what some commentators seem to
believe, our Constitution is not silent on issues which affect the economic life of the
nation and its citizens. It contains a whole range of Articles which have a direct nexus
with good economic governance and fundamental rights. At the very beginning in
Article 3 there is, for instance, an oft-forgotten but eloquently stated directive: “The
State shall ensure the elimination of all forms of exploitation and the gradual fulfillment
of the fundamental principle, from each according to his ability to each according to his
work”. Then there is Article 4 which guarantees the protection of law, not just for life
and liberty, but also for the body and property of citizens. Furthermore, there is a whole
range of fundamental rights, such as the right to life (Article 9), the universal and non-
derogable right to a life of dignity (Article 14), the right to engage in business (Article
18) and to hold and acquire property (Article 23), and the right to be governed equally
and in accordance with law (Article 25) which have clear economic ramifications.
When these articles are read together, we cannot escape the
conclusion that the Constitution envisages a political dispensation
where good economic governance is a right of the people of Pakistan
which they cannot be deprived of. Articles 18, 23 and the other Articles
cited above support this conclusion. In his treatise ‘Judicial Review of
Public Action’, while interpreting these Articles, Justice Fazal Karim a
former Judge of this Court and the nation’s leading legal academic and
author, concludes with a telling comment from which we seek
guidance: “In short, Article 18 and the rights guaranteed by it are
concerned with the economic life of the nation and its citizens.”
14. It needs to be understood that in our present context, the economic life
of the nation and its citizens, is inextricably linked with the proper
functioning of regulatory bodies such as OGRA. To fully appreciate this, we
may take stock of some recent developments, which have deepened the
connection between the proper ‘effective and efficient’ functioning of
regulatory bodies and the fundamental rights of citizens. In the past,
particularly during the 1970’s, direct State ownership and management of
business enterprises was a policy objective of the Government. More
recently, however, such State involvement has receded through privatization
of many State owned enterprises and through entrustment of activities
(which hitherto were undertaken by the State) to companies initially owned
by the State but slated for disinvestment through privatization. The most
relevant example of this, in the context of the present case is the creation of
the Oil and Gas Development Company Ltd.
15.However, once the legislature entrusts regulators such as OGRA with
State power, making them responsible for the governance of critical
sectors of the national economy, then it should be clear that regulators
incur important constitutional and legal obligations to the people of
Pakistan.
“22. Vital autonomous institutions…can function ‘effectively and
efficiently’ only if their autonomy is respected. This is the letter as well
as the spirit of the law. Such autonomy is only possible when
appointments in key positions in these regulators are made in a
demonstrably transparent manner; that is, by ensuring compliance with
the checks which the Ordinance lays down for such appointments”
23. The provisions that the Legislature has made for ensuring regulatory
autonomy are a reflection of accumulated economic wisdom based on
empirical study. Here we can cite
just one pertinent example from contemporary literature on regulatory
economics pointing to the rationale and text of the Ordinance. In her article
“Effectiveness of Regulatory Structure in the Power Sector of Pakistan”, Afia
Malik, a research economist at the Pakistan Institute of Development
Economics, Islamabad, identifies “regulatory autonomy” as the foremost
indicator of good regulatory governance. “Regulatory autonomy” refers to the
regulator’s ability to resist the pressure of ‘regulatory capture’ and pressures
from economic and political interest groups. Amongst the key dangers to
watch out for, according to the author, are “[u]ndue interference and
influence of the government” which the author says hamper “independent
functioning, which in turn affects the consumers as well as producers.”
Also, A. R. Kamal, one of Pakistan’s renowned development economists has
similarly highlighted the importance of effective checks, cautioning against
the danger of compromising the autonomy of regulatory institutions. He
warns: “[s]ince there is a cycle where the regulatory agencies over time
degenerate into protecting the organizations which they are supposed to
regulate, checks and balances must be put in place so that persons in
responsible positions in these bodies are not corrupted.” He further
emphasises that “regulatory authorities . . . must be given autonomy so that
their decisions gain credibility; and checks and balances should be so
formulated that they cannot indulge in corrupt practices.”
25. At the end of this part of our opinion, we can now summarise our three-step
rationale for maintaining the present petition. Firstly, when understood correctly, a
number of Articles of the Constitution make it clear that it is not silent about the
economic life of the nation and the concomitant fundamental rights of its citizens;
secondly, we are clear that there is an ever-greater nexus between the proper and
independent functioning of regulatory bodies and the economic life of the nation
and its citizens and that this nexus is fully recognized by the Legislature in its use of
language employed by the Ordinance in the provisions referred to above; and
finally, there can be no doubt that regulatory bodies can function competently and
independently only once their autonomy is ensured through enforcement of the
legal checks upon appointments to important positions therein. When these three
points are fully appreciated, it becomes clear that the validity of the process of
appointment of the Chairman, OGRA is indeed a matter of public importance
which has a direct linkage with the fundamental rights of the people of Pakistan,
and thus warrants the exercise of jurisdiction by this Court under Article 184 (3)
supra
Tracing colonial legacy
28..That was a time when almost all important State functionaries
including not just the Prime Minister and the Cabinet but also judges
and civil servants, were appointed and removed by the British monarch
in his absolute unfettered discretion. It is for this reason they were said
to “hold office during the King’s pleasure”. While this vestige of an
absolute monarchy receded in Britain on account of emerging
democratic conventions, in the colonies it survived.
Discretion to be structured
“36..(a) whether an objective selection procedure was prescribed; (b)
if such a selection procedure was made, did it have a reasonable nexus
with the object of the whole exercise, i.e. selection of the sort of
candidate envisaged in the relevant provision of the statute; (c) if such
a reasonable selection procedure was indeed prescribed, was it
adopted and followed with rigour, objectivity, transparency and due
diligence to ensure obedience to the law.”
48. The most damning piece of evidence which assails the integrity of the
selection process is the fact that in two full rounds of short-listing, and in all
four interviews which the respondent statedly went through, no one seems
to have noted the false nature of his claim that he possessed a Masters
(LL.M) degree in Law from a reputable international Institution. This was
stated on the very first page of his exhaustive CV covering nine pages. Even
a five minute quick search on the internet is enough to get to the bottom of
the curious case of the American ‘University’ in London (“AUL”), whose
graduate the respondent claims to be.
49. The so-called AUL, it seems, was never a University at all. In fact, for so
long as it existed, it was a limited liability company incorporated in the UK
trading under the name and style of AUL Graduate School of Advanced
Studies Ltd
Fiduciaries of the people
56. Among many other harmful consequences thrown up by cases such as the
present one, is the unnecessary clogging of Court dockets thus reducing the
Court resources available for resolution of other cases. It is clear this case
would not have arisen if the selection process had been designed and
implemented to ensure fulfillment of the requirements of the Ordinance. Civil
servants and other holders of public office have to remain conscious that in
terms of the Constitution “it is the will of the People of Pakistan” which has
established the Constitutional Order under which they hold office. As such they
are, first and foremost fiduciaries and trustees for the People of Pakistan. And,
when performing the functions of their Office, they can have no interest other
than the interests of the honourable People of Pakistan in whose name they
hold office and from whose pockets they draw their salaries and perquisites.
 Ashraf Tiwana
Constitution Petition No. 59 of 2011 and CMAs Nos. 326 and 633 of
2012 and Crl. O. P. 94 of 2012 in Const. P. 59/2011
Jawwad S. Khawaja, J. This is a petition filed under Article 184(3) of the
Constitution. The Petitioner is a former employee of the respondent
No. 2, viz. Securities and Exchange Commission of Pakistan
(SECP/Commission)…..
Short Order
(a) the selection and appointment of respondent No. 4 namely,
Muhammad Ali Ghulam Muhammad as Commissioner and Chairman
SECP does not meet the requirements of the Securities and Exchange
Commission of Pakistan Act 1997 (the Act)
5. The SECP as such is amongst the most important regulatory
authorities directly impacting the economic life of the citizens of
Pakistan
6. It is in the context of the above circumstances that it can be stated
that the SECP is the apex regulator in the economic sector in Pakistan.
Its activities including aspects of its governance and functioning are
clearly questions of public importance
18. The most important aspect of this case is the challenge leveled by the
petitioner to the appointment of the Chairman (Respondent No. 4) of the
SECP. It has firstly been contended that since the Chairman “belongs to the
broker community”, his appointment violates “the spirit of Sections 16 and
17 of the Act, read with Section 35 thereof as also Sections 15A to 15E”.
According to learned counsel, the appointment of a person from the broker
community, particularly one who has had a direct and active personal
involvement in the business of share brokerage until a short while before
being appointed Chairman SECP, amounts to a “revolving-door policy”
 To support his contention, reference was made by learned counsel to
prominent academics and research institutions, such as Marver H.
Bernstein’s work “Regulating Business by Independent Commissions”
(Princeton University Press: 1955) and a recent working paper by Frederic
Boehm, “Regulatory Capture
Revisited – Lesson from Economics of Corruption” (International Centre for
Corruption Research: 2007). The main thrust of the argument of learned
counsel was that the SECP could not possibly retain its autonomy,
independence and impartiality if its working environment was directed
towards a segment of the regulated activities such as brokerage and that
such inclination must be inferred on the basis that the respondent No. 4
had been in the brokerage business.
• 29. We have also carefully gone through the record placed before us.
Apart from the circumstances, noted above, which show that no
attempt whatsoever was made to attract the pool of potential talent
having the requisite statutory qualifications, we have been unable to
find any exercise or effort whatsoever for determining if indeed
respondent No. 4 was a person known for his integrity or if he had the
requisite expertise, experience or eminence. It may well be that he
may have these qualifications; equally, it may be that he does not
possess these attributes. What is missing is due diligence or a fair and
demonstrably transparent selection process.
“65. We wish to add that issues of appointments to senior positions in
public bodies, which have been highlighted in this petition and in other
cases which have come up before us, have underscored the need for a
transparent, inclusive, and demonstrably fair process for the selection
of persons to be appointed to such senior positions. The Federal
Government may consider the necessity of putting in place
independent mechanism and of framing open, fair, and transparent
processes so that the objectives for which the public bodies are
established can be efficiently achieved and at the same time the
pernicious culture of arbitrariness, favoritism and nepotism is
eliminated.”
Goodbye and Goodluck!