SHC stops change in K-Electric board of directors

The Sindh High Court (SHC) on Friday stopped any change in the present board of directors of Karachi’s sole power supply company K-Electric (KE) till further orders.

The interim order came on a lawsuit filed by Saudi- and Kuwait- based companies Al-Jomiah power limited and Denham Investment which owned 46.2 per cent of shares in the KES Power, a majority 66.4 per cent shareholder in the KE, against the proposed change of board of directors of the KE by the other co-owners.

The plaintiffs submitted in the lawsuit that the KE was owned and controlled collectively by them and Infrastructure and Growth Capital Fund SPV21 Limited (IGCF) and other investors alleging that the IGCF in gross violation of the shareholders’ agreement was attempting to transfer the beneficial ownership effect or management control of the KE in connivance of the Alvarez and Marsal, liquidators of the IGCF.

They submitted that it had been reported in the media that the transfer of management control of a large part of KES power and KE was in advance stages for which a proposal had been filed and was awaiting approval by the grand court in Cayman Islands, a forum where the former co-owner Abraaj group filed for voluntarily liquidation proceedings in terms of which Alvarez was appointed to take over the IGCF.

They submitted that neither the plaintiffs nor the government of Pakistan were aware of any such transfer of beneficial ownership change in the board or management control. They referred that the annual general meeting of the was KE scheduled to be held on October 26 in which the sale of the KE was to be deliberated however the notice of the meeting circulated on October 5 did not include any such matter as part of its agenda.

They submitted that the plaintiffs were not part of any plan of the co-owners with regard to change of board of directors of the KE however the same was being discussed by the IGCF and Alvarez through proposals filed in Cayman Islands. They submitted that it had also come into their knowledge that the defendants had sent board nominations to the KE on the basis of transaction that had been entered into in order to hijack the company bypassing the regulatory framework in Pakistan.

They submitted that the KE had also made a material disclosure to the Pakistan Stock Exchange in relation to the transfer of beneficial ownership and management control at the behest of the IGCF which were unlawfully trying to gain control over the national asset.

They pleaded that the defendants were using off-shore jurisdictions and complexed structures to disguise the transfer of beneficial ownership and management control of the national asset in which the government of Pakistan maintained ownership. They submitted that the defendants could not use the jurisdiction of Cayman Islands to unilaterally manipulate the transfer of beneficial ownership of the KE which was not permissible without the approval of the plaintiffs as shareholders or the regulators in Pakistan.

The plaintiffs submitted that any change in the KE management control if so approved before the grand court in Cayman Islands had implications in Pakistan as the KE was regulated under the Pakistani laws and accordingly any such offer proposed by the defendants triggered obligations under the shareholders agreements, disclosure and approvals in Pakistan and shall result in acceleration of finance facilities in excess of Rs200 billion, which the KE could not afford being the primary utility provider of power to consumers in Karachi. Their counsel told the high court that the transfer of beneficial ownership in KE and or any change in its board and management could not take place without approval of 75 per cent of its stakeholders and election of its directors also could not take place without approval of its shareholders and regulators.

He submitted that the shareholder agreement provided that any change in the control of the KE would be subject to national security clearance by the federal government as well as various statutory and regulatory approvals by the competent authorities.

He requested the SHC to declare that the acts of the defendants with regard to change in beneficial ownership and management control of the KE was in gross violation of the National Electric Power Regulatory Authority law and shareholders agreement.

The plaintiffs also requested the high court to monitor and regulate the affairs of the KE in accordance with the prevailing laws of Pakistan. A single bench of the high court headed by Justice Nadeem Akhtar after a preliminary hearing of the case issued notices to the IGCF, Alvarez, KES and others, and called their replies on the next hearing. In the meantime, the SHC ordered that no change shall take place in the present board of directors of the KE till further orders.