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Miscellaneous Applications Nos. 782, 896 and 1110 of 1986 in Suit No 122 of 1986, decided on 17th April, 1986.

‑‑O. XXXIX, Rr. 1 & 2‑‑Contract Act (IX of 1872), S. 202‑ Injunction‑‑Agency, termination of‑‑Defendant (Construction Company) executing an irrevocable general power of attorney in favour of plaintiff and later executing an agreement with him appointing him as defendant's representative and sole and exclusive authorised agent inter alia for supervision and management or execution of projects awarded to company‑‑Agreement entitling plaintiff to receive 30% of net profits earned by company on projects and making him liable to contribute 30% of losses if suffered on such projects‑‑Agreement in one of its clauses providing that 'party desirous of terminating agreement shall serve a notice in writing by registered post A.D. and upon service of such notice agreement shall terminate on completion of six weeks or on completion /handing over of all projects whichever date be later'‑‑Another clause providing that Managing Director of Company could take over control and management of projects and such action could not be challenged‑‑Plaintiff in such eventuality was entitled to profits of projects on finalization of accounts‑‑Property as contemplated in S.202, Contract Act, 1872, held, not restricted to immovable or movable property but included interest in a contract which might be substantial, tangible or intangible‑‑Agreement, held, involved property in which substantial interest of plaintiff had been created‑‑Plaintiff seeking stay of operation of deed of cancellation of irrevocable general power of attorney which in effect meant granting of mandatory injunction against defendant and permitting plaintiff to continue to act as an agent and attorney in terms of power of attorney and agreement between parties‑‑Mandatory injunction, held, granted in very rare and exceptional circumstances which depended on facts of each case‑‑Cancellation of power of attorney in present case, not yet being effective and taking over action of Managing Director not being challengeable by plaintiff, stay of operation of notice and deed of cancellation, held, would not entitle plaintiff to participate in management and control of projects‑‑Agency in present case, though coupled with interest, defendant had a right under contract to terminate it with certain conditions and limitations and in case of any breach plaintiff would be entitled to claim damages which could always be quantified‑‑Neither any irreparable injury, held, would, in circumstances, be caused to plaintiff nor balance of convenience was in his favour‑‑Ends of justice would be met if financial interest of plaintiff was protected‑‑Defendant accordingly directed to furnish security for Rs. five lac and also furnish copy of statement of accounts and bank statement to plaintiff after every three months and plaintiff to be further entitled to inspect books of accounts relating to projects under execution after every four months.

Muhammad Aref Effendi v. Egypt Air 1980 S C M R 588; P L D 1982 Kar. 796; World Wide Trading Co. v . Sanyo Electrict Trading Co. Ltd. P L D 1986 Kar. 234 and Adamjee Paper and Board Mills Ltd. v. Maritime Agencies Ltd. 1984 C L C 440 ref.

‑‑‑S. 34‑‑Contract Act (IX of 1872), S. 202‑‑Reference to arbitrator‑ Contract of agency‑‑Dispute arising between parties covered by arbitration clause of agreement‑‑Dispute referred to sole arbitrator under agreement for adjudication and proceedings of suit stayed.

Bilal A. Khawaja for Plaintiff.

Khalid M. Ishaq for Defendant No.l.

Sabir Hussain Kizillbash for Defendants Nos. 2 to 5.

The plaintiff has filed this application for injunction against the defendant No.l restraining them from removing the plaintiff as its duly authorised representative under agreement, dated 1‑9‑1981 and cancelling the irrevocable general power of attorney, dated 2‑3‑1981 till the final disposal of the suit or the completion and settlement of account of four projects. On 16‑2‑1986 ex parte interim stay order was granted. The defendant No. 1 has filed application under Order XXXIX, Rule 4, C . P . C . for vacating this interim order. Both the applications will be disposed of by this order.

The brief facts are that in the year 1977 the plaintiff who is an engineer joined service with the defendant No.l. On 2‑3‑1981 the defendant No.l executed an irrevocable general power of attorney in favour of the plaintiff. An agreement, dated 1‑9‑1981 was executed between the plaintiff and defendant No.l which inter alia provide that the defendant No.l will appoint the plaintiff as its representative and sole and exclusive authorised agent for preparation and submission of bids, participation in meeting, discussions, negotiations and commitments on behalf of the company, to accept the award of any work, supervision and management or execution of projects awarded to company, opening and operation of bank account in the name of the company, dealing with employees, consultants and other agents, Government or semi autonomous bodies in connection with the discharge of the duties. He has made responsible solely and exclusively for the proper financial administrative as well as technical management and control of the projects to which the provisions of the agreement applies. He was to maintain proper accounts and amount equivalent to 3% of each payment received was to be remitted to the company at Lahore which was to be adjusted in the final accounts. The plaintiff was entitled to receive 35% of the net profits earned by the company on the projects and was also liable to contribute 35% of losses suffered on the projects. The plaintiff was also allowed monthly allowance of Rs.7,000 and other benefits. He was not treated as an employee of the company and was answerable to the Managing Director of defendant No.l who had the exclusive power to take over the control of the project if deemed necessary by him for the smooth execution of the work and his action of taking over was to be final and not to be challenged by the plaintiff. The plaintiff was however, entitled to his share in the projects. Clause 11 provides that agreement shall not be terminated by either party except in the manner provided. Clauses 10 and 11 read as follows:‑

"(10) It is clearly understood by the parties to this agreement that the representative, who , shall be designated, for business convenience sake, as the Resident Director of the Company, shall not be an employee of the company, and shall only be answerable to the Managing Director of the Company who will have the exclusive power to take over the control of the project if deemed necessary by him in the interest of smooth execution of the work. The Managing Director shall be the Sole Judge to decide to take over the control and execution of the project and his action under this clause shall not be challenged. In such an eventuality the representative shall remain entitled to his share of the project till the completion and handing over of the project and finalisation of all accounts in respect of the project.

(11) This agreement shall not be terminated by either party to this agreement except in the following manner:‑

(a) The party desirous of terminating this agreement shall serve a notice, in writing, of its intention to that effect on the other party by addressing a letter, registered acknowledgement due, to that party.

(b) The agreement shall stand terminated on the expiry of six weeks or on completion /handing over of all the projects which are under execution at the time of service of such notice, whichever is latter subject to the provisions of clause.

(c) Settlement of accounts etc. shall be finalised /completed in all respects within a maximum period of four weeks from the date of termination of the agreement as laid down at (b) above."

The projects which are subject‑matter of this agreement have been mentioned in clause 13 of the agreement. All future projects located elsewhere were to be included in the agreement with prior mutual consent.

The plaintiff has alleged that after the execution of agreement two projects, one of Hyderabad Water Treatment Plant for defendant No.2 and the other for construction of 25 M.G.D. electrification unit and Pumping Station of defendant No.3 were awarded in the month of September, 1985. While the plaintiff was supervising Hyderabad Project, he suffered a mild heart attack and was hospitalised. The entire project at Hyderabad was passed on for execution to another contractor Messrs Mehran Construction Company who were associates of defendant No. 1. The plaintiff received a letter, dated 4‑2‑1986 wherein the Managing Director of the defendant No.l informed him that as he has failed to properly execute the projects he has taken over the control and execution of the project under clause 10 of the agreement and further that the general power of attorney has been cancelled by a registered deed of cancellation, dated 1‑2‑1986. The defendant No.l was intimated on the intention to terminate the agreement, dated 1‑9‑1981 and that the plaintiff was no more representative of the defendant No.l. The plaintiff replied the letter denying all the averments made against him. The parties entered into correspondence and the plaintiff filed the suit for declaration that an irrevocable general power of attorney, dated 2‑3‑1981 and agreement, dated 1‑9‑1981 are coupled with interest and cannot be terminated or cancelled without prior consent of the plaintiff, and the cancellation of power of attorney and termination of the agreement is illegal. Permanent injunction has been sought against the defendant.

Mr. Bilal Khawaja the learned counsel for the plaintiff has contended that as the agency was coupled with interest the defendant No.l in terms of agreement was not entitled to cancel the power of attorney or the agreement. In support of his contention the learned counsel for the plaintiff has referred to various clauses of the agreement, dated 1‑9‑1981 and the power of attorney as well as the projects which were under execution. The learned counsel also relied on Egypt Air case 1980 S C M R 588 in support of his contention. Mr. Khalid M. Ishaque the learned counsel for the defendant No.l has contended that there was only one alive project in hand namely Hyderabad Water Treatment Plant which due to the circumstances, one of them being that the plaintiff was unable to supervise, has been handed over to Messrs Mehran Associates which are executing and were to provide all finance, material and machinery. They were to pay 3 as profit. According to the learned counsel for the defendant No.l if any profit accrues it will not be more than 3% paid by Mehran Associates out of which 35% can be claimed by the plaintiff. According to him the value of this project is about R5.5 crore and there is no other project which is under execution. It seems that besides this project there is another project of construction of 15 M.G. Reservoir for K . D . A . at Karachi. It is being executed under the supervision of the defendant No.l. There was Quetta Project which has been suspended for the last two years. The learned counsel further contended that section 202 of the Contract Act is applicable where the agent has an interest in the property which forms part of the contract and as there is no property in valued, this provision will not apply. In the facts and circumstances at this stage it is not possible to investigate and determine the issues arising from these facts. From the agreement it seems clear that prima facie the plaintiff has an interest in the subject‑matter of the contract, as he was not only required to act as agent or the Resident Director but by virtue of the power of attorney and contract, sole and exclusive responsibility was conferred on the plaintiff for financial, administrative as well as technical management and control of the projects. He was responsible for maintenance of accounts and is entitled to receive 35% of the net profit earned by the company on the project and was also liable to bear 35% of the losses suffered on the projects. The plaintiff was not merely a Resident Director or an agent entitled to receive remuneration and share profits of the company but he was made liable even to contribute his share of the losses suffered by the company. This was not a case of an ordinary contract for management by any person as a director or manager. By making plaintiff liable for the losses and creating interest in the profits he is entitled to see that the affairs of the company are properly administrated and accounts are properly maintained. Under section 202 of the Contract Act if agent's interest has been created in the property which is subject‑matter of the agency then such agency cannot be terminated by the principal unilaterally to the prejudice and disadvantage of the agent unless the contract provides for such termination. If the contract of agency expressly provides for termination of agency coupled with interest then the principal has full authority to cancel it.

The learned counsel for the plaintiff has heavily relied on Muhammad Aref Effendi v. Egypt Air 1980 S C M R 588 in which a notice for cancellation of agency was issued by the defendant.' The appellant filed a suit for declaration and permanent injunction and applied for interim injunction which was refused by the High Court. The appellant filed petition for Special Leave to Appeal where in view of the following substantial question of law and facts it was observed:‑---

"(i) Under what circumstances a contract of agency of the kind involved in this case could be cancelled or revoked by a principal;

(ii) Whether section 202 of the Contract Act was applicable to the facts of this case and what is true construction and scope of that section;

(iii) Whether the plaintiff /petitioner is entitled to continue the agency and or claim damages from the principal on the pleadings as made by him in this plaint and if so to what ultimate relief he will be entitled on the facts and in the overall circumstances of the case;

(iv) Whether the plaintiff /petitioner had not submitted his account to the principal in terms of the contract and whether he was justified in withholding the same on any legal ground; and

(v) Whether the termination of contract in this case was lawful or not.

These are all substantial questions of law and fact and since they involve a careful study and scrutiny after leading of appropriate evidence, therefore, the High Court was not justified to refuse grant of a temporary injunction as prayed for at this stage. In the circumstance we are inclined to grant leave to appeal to the petitioner and converting this petition into an appeal, accept the same and hold that this was a fit case in which a temporary injunction ought to have been granted on terms. "

While referring to the aforestated judgment in P L D 1982 Kar. 796 it was observed that 'it is evident that the Supreme Court was of the view that in a fit case even where a party seeks the specific performance of an agency agreement, the Court can grant interim injunction for keeping in tact above contract till such time as it may consider just and proper or till the disposal of the suit--------------- the Supreme Court as a general rule has not laid down that in every case, in which a party alleges that agency agreement in his favour is coupled with interest, the Court is obliged to grant an ad interim injunction'. This view has been followed in World Wide Trading Co. v. Sanyo Electric Trading Co. Ltd. P L D 1986 Kar. 234. Whether a substantial question of law and fact prima facie arises in a given case entirely depends upon the facts and circumstances of each case. In the present case there is no dispute about the agreement and power of attorney executed in favour of the plaintiff. A close scrutiny of clause 11 of the agreement will show that right to terminate the agreement is subject to certain conditions. One of them is that the party desirous of terminating the agreement shall serve a notice in writing by registered post A.D. and on service of such notice the agreement shall terminate on completion of six weeks or on completion /handing over of all projects which are under execution whichever date may be latter. But this clause does not override clause 10 of the agreement which provides that the plaintiff is responsible to the Managing Director who will have exclusive power to take over the control of the project if deems necessary in the interest of smooth execution of the project. The Managing Director will be the sole Judge to decide to take over the control and execution of the project and action under this clause shall not be challenged by the plaintiff. He shall be entitled to the profits of the projects on finalisation of the accounts. Clause 10, therefore, contemplates a completely different situation where the Managing Director of the Company can take over the projects and relieve the plaintiff of his duties under the agreement which includes control and management of the projects. Such action cannot be challenged by the plaintiff. (The admitted position as emerging from paragraph 6 of the counter‑affidavit, is that in exercise of the power under clause 6 of the Managing Director of the Company has taken over the project and relieved plaintiff of all the duties and responsibilities. There is difference in clauses 10 and 11, of the agreement. Clause 10 does not contemplate cancellation of agreement but only contemplates taking over the control, management execution and administration of the projects and the plaintiff is relieved of his duties and responsibilities. The operation of agreement remains alive and is to continue till the projects are finalized and accounts are settled. Till that date the plaintiff would be entitled to his share. On the other hand clause 11 contemplates termination of agreement by service of notice with limitations, that it would be effective either on expiry of six weeks from service of notice or completion of the projects under execution whichever is latter. Clause 10 does not interfere with the power to terminate the agency agreement. The admitted position is that the plaintiff has two projects under execution and they have not yet been completed or handed over. In terms of agreement the notice of termination of agency shall take effect on completion or handing over of these projects. The learned counsel for the parties have admitted that the projects under execution cannot be completed within six weeks. Therefore, there exists power, under this agreement, to terminate the agency which will be effective from a future date.

Mr. Khalid M. Ishaque the learned counsel for the defendant contended that as no property is involved in the agreement section 202 will not apply. The property as contemplated in this section is not restricted to immovable or movable property. It includes interest in a contract which may be substantial tangible or intangible. In the present agreement the parties have to execute several projects which may involves millions of rupees and, therefore, the agreement involve property in which substantial interest of the plaintiff has been created.

The question for consideration is whether the plaintiff is entitled to interim injunction for stay of operation of the notice of termination and cancellation of power of attorney. The learned counsel for the defendant has referred to Adamjee Paper and Board Mills Ltd. v. Maritime Agencies Ltd. 1984 C L C 440 and contended that mandatory injunction can only be issued to maintain status‑quo as on the date of institution of the suit and not to bring about the new state of thing. In the present case the plaintiff has sought stay of the operation of the deed of cancellation of irrevocable general power of attorney registered on 1‑2‑1986. This in effect means granting of mandatory injunction against the defendant No.l and permitting the plaintiff to continue to act as an agent and attorney in terms of power of attorney and the agreement between the parties. Mandatory injunction is granted in very rare and exceptional circumstances which depends on the facts of each case. In the present case the cancellation is not yet effective as the projects under execution have not been completed and handed over. The Managing Director of the defendant No.l has taken over the control and management of the projects under clause 10 of the agreement. As I have observed earlier the plaintiff cannot challenge the taking over action and, therefore, if the operation of notice and deed of cancellation is stayed it will not entitle the plaintiff to participate in the management and control of the projects.

The learned counsel for the plaintiff has stated that he has no interest in carrying on the execution and administration but his interest should be protected. Therefore, the interim order of stay is being sought not for restoration of status‑quo ante or for exercising the power of performing the duties and obligations under the agreement but for protection of his financial interest which he can claim even after taking over under clause 10 and termination of agency under clause 11 of the contract. No doubt the plaintiff has a pirma facie case but merely on this ground interim injunction cannot be granted. The plaintiff has to further establish that balance of convenience is in his favour and if interim injunction is not granted irreparable injury shall be caused to him. It may be noted that although the agency is coupled with interest, the defendant No.l has a right under the contract to terminate it with certain conditions and limitations. In case breach is committed the plaintiff would be entitled to claim damages which can always be quantified. In these circumstances neither any irreparable injury will be caused to the plaintiff nor balance of convenience is in his favour. As the plaintiff wants to secure his financial interest it would meet the ends of justice if the same is protected. The defendant No.l is directed to furnish security for Rs. five lacs to the satisfaction of the Nazir within a period of two weeks. The defendant No.l shall also furnish copy of the statement of account and bank statement to the plaintiff after every three months. The plaintiff shall further be entitled to inspect the books of accounts relating to the projects under execution after every four months without any manner interfering or obstructing the management, and administration of the projects. These applications are disposed of in these terms.

2. This is an application under section 34 of the Arbitration Act for stay of the proceeding and reference of the dispute between the' parties to the Arbitrator named in the agreement. Admittedly there exists dispute between the parties which is covered by the arbitration) clause of the agreement. Mr. Muhammad Sayed son of Muhammad Sharif is the sole arbitrator under the agreement. Both the learned counsel for the parties agree that the dispute may be referred to the arbitrator and proceeding in suit be stayed. Accordingly the dispute between the parties in this suit is referred to Mr. Muhammad Sayeed the sole arbitrator for adjudication. The proceeding in the suit is stayed. The award should be made within a period of four months. The office should notify the learned arbitrator immediately on‑ Court motion.

S. Q. Order accordingly.

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