MUHAMMAD AKRAM, J.---This is an application by Sh. Maqbool Elahi and others against the respondents under section 175 of the Companies Act VII of 1913 (hereinafter called the Act) for the appointment of a Provisional Liquidator for Sh. Fazal Elahi (Lyallpur) Limited, pending their main petition (C. O. 4 of 1969) made under section 162 of the Act for winding-- up of this Company.
2 Sh. Fazal Elahi (Layallpur) Limited (hereinafter called the Company) is a private limited Company.
It is named after the father of Sh. Maqbool Elahi petitioner No. 1. It was registered on the 31st of October 1957, with a nominal capital of Rs. 1,00,00,000.00 (one crore) divided into two lass shares of Rs. 50.03 each. It is a manufacturing concern founded by the parties and their predecessor.
3. The main petition under section 162 of the Act for the winding up of the Company is based on the following allegations in brief:- "There are in all five shareholders of this Company holding the following shares:- Rs.
Rs.
(i) Sh. Maqbool Elahi, petitioner No. 1.
3,250 x 50 1,62,500.00
(ii) Mst. Khalida Khanum (wife of petitioner No. 1) petition--er No. 2.
1,250 x 50 62,500.00
(iii) Javed Maqbool (son of petitioner No. 1) petitioner No. 3.
250 x 50 12,500.00
(iv) Latif Khanum (mother-in-law of petitioner No. 1) peti--tioner No. 4.
250 x 50 12,500.00
(v) Rasool & Co. Ltd., respondent No. 1.
5000 x 50 2,50,000.00 Total 5,00,000.00
(i) Sh. Fazal Elahi (Layallpur) Ltd., a Private Limited Company,
(ii) Fazal Nylon Mills Ltd., as a public limited company, and
(iii) Rasool Maqbool Ltd., as a private limited company.
There were the following four Directors in this Company at the time of the death of Mian Ghulam Rasool 9n London on the 12th of December 1966:-
(i) Sh. Maqbool Ahmad, petitioner No. 1,
(ii) Mst. Khalida Khanum, petitioner No. 2.
(iii) Mian Ghulam Rasool, deceased, and
(iv) Mian Mukhtarul Jalil, respondent No. 2.
After the death of Mian Ghulam Rasool, the Directors met on the 26th of May 1966, and respondent No. 3, Mr. Ziaul Jalil was co-opted as a Director in place of his deceased father.
4. Thereafter disputes and differences arose between the parties. It is alleged that according to the Articles of Association the two groups in the Company were placed at par with each other and are associated together in this venture as equal partners, so that they must always act jointly. Neither the shareholders nor the Directors in the two groups could act without the presence and association of each other. The petitioner has further alleged that the Company has obtained a loan of Rs. 8,25,000.00 from PICIC on the personal guarantees furnished by petitioner Nos. 1 and 2 on the express stipulation that "Sh. Fazal Elahi (Lyallpur), Ltd., will not change its management".
However, according to the petitioners it has become impossible for the Company to function in accordance with its Articles of Association for a number of reasons set out in the petition. The last meeting of the Board of Directors of the Company was held on the 26th of May 1966, and thereafter no meeting could be held due to the disputes and differences between the Directors of the Company, evenly divided between the two groups and not in a position to sit together to form the necessary quorum of at least three. But that the respondents Nos. 2 and 3 have falsely claimed that the petitioners Nos. 1 and 2 have ceased to be directors of this Company for their failure to attend a meeting summoned for the 15th of November 1968, and that in their place they have co- opted their own brother Akhtarul Jalil as a Director in the Company contrary to the Articles of Association. He was not even qualified for his appointment as a director of the Company. The petitioners have also alleged that in this state of affairs so far even the accounts for the years 1965-66, 1966-67 and 1967-68 have not been adopted and there was no Annual General Meeting of the Company held after the 13th of December 1965. Even if a General Meeting was held it is likely to remain inconclusive under the circumstances. The petitioners have asserted that the registered office of the Company is situated at Shama Cinema Building, Lahore and its factory at Nishatabad in Layallpur. But in the absence of petitioner No. 1, on tour outside Pakistan, all the statutory books of the Company were removed from the registered office of the Company by the respondents. The petitioners have expressed the apprehension that the respondents have indulged in the wholesale fabrication of the registers and records of the Company. The Company was also indebted to the Habib Bank Ltd., Layallpur, in the sum of Rs. 5,00,C00.00 against the security of stocks of nylon chips and Gut worth Rs. 14,84,444.00. But on the 10th of September 1968, respondents illegally managed to take delivery of the stock worth Rs. 6,29,700.00 from the Company without making any payment in order to cause embarrassm ent to petitioner No. 1 and bringing him in disrepute with his bankers".
The petitioners have, therefore, submitted that it was just and convenient that this Company may be ordered to be wound up.
5. In their joint written statement, the respondents have denied all the material allegations. They have asserted that this petition is mala fide. The petitioners in collusion with their relations have involved them in a number of proceedings with a view to harass them and to impede the smooth working of the Company. They have alleged that the issued paid-up capital of the Company is Rs.
5,50,000.00 (five lac fifty thousand) consisting of eleven thousand shares of Rs. 50, held as under:- Rs.
(i) Rasool & Company Ltd.
5,500 x 50 2,75,000
(ii) Rasool Jalil Corporation Ltd.
500x 50 25,000
(iii) Sh. Maqbool Elahi (petitioner No. 1).
3,250 x 50 1,62,500
(iv) Mst. Khalida Khanam (petitioner No. 2).
1,250 x 50 62,500
(v) Javed Maqbool (petitioner No. 3).
250 x 50 12,500
(iv) Mst. Latif Khanam (petitioner No. 4).
250 x 50 12 Total 5,50,000 According to the respondents, petitioners Nos. 1 and 2 have already ceased to be and are no more the Directors of the Company under Article 68(5) and (7) of the Articles of Association of the Company. It is alleged that the present Directors of the Company are:-
(i) Mian Mukhtar-ul-Jalil, respondent No. 2.
(ii) Mian Zia-ul-Jalil, respondent No. 3.
(iii) Mian Akhtar-ul-Jalil, their brother.
The respondents have admitted that at first their father Ghulam Rasool and petitioner No. 1 were partners in the firm known as Sh. Fazal Elahi & Company, Sialkot. In the year 1956 the firm got a licence for the import of machinery for the installation of a Nylon Monofilament Plant (Gut) worth Rs. 1,53,000.00. How--ever, after the import of the Plant it was transferred to this Company formed in the year 1957. The Plant was actually installed by Sh. Fazal Elahi (Lyallpur) Ltd. And was started in January 1960. Afterwards it was decided to expand this business to include manufacturing of Nylon, Chip and Yarn. For this extension of the business of the Company, the technical know how possessed by respondent No. 2 was all important. It was as a result of the plans prepared by and on the application submitted by him that the PICIC sanctioned a loan of Rs. 24,25000.00 in the name of the Company for the import of the machinery for Polymerisation of Nylon Chips and Spinning of Nylon Yarn and Twine due to his ceaseless labour and efforts. Thereafter this business was split up to be carried as under:
(i) Manufacture of Nylon Chips and Guts by Sh. Fazal Elahi (Lyallpur) Ltd.
(ii) Spinning of Nylon Yarn and Twine by Fazal Nylon Ltd. Floated as a public limited Company in 1962.
The two manufacturing Companies have independent premises and they are in no way dependent on each other. The respon--dents have vehemently denied the allegation that for any valid reason it has become impossible for the shareholders and the Directors in this Company to function. They have denied that the Company was liable to be wound up for any valid reason.
6. I have heard the learned counsel for the parties on this application under section 175 of the Companies Act, 1913 for the appointment of the Provisional Liquidator in the light of the above allegations and counter-allegations made by the parties. It is admitted before me that to start with there were only five shareholders in the Company, comprised of the tour petitioners led by Sh.
Maqbool Elahi petitioner No. 1, representing one group holding shares of the value of Its. 2,50,000.00 and respon--dent No. 1, represented by the family of Mian Ghulam Rasool holding shares of the equal value of Rs. 2,50,003, in the capital of the Company. Also that there were in all four directors of the board, two each from each group within the Company. There was this parity between the shareholders and Directors of the Company. Under Article 55 of Articles of Association of this Company, . No business shall be transacted at any General Meeting unless a quorum of members be present. Two members present in person or by proxy shall be a quorum for a General Meeting.
However, more than 50 percent of the share capital must be represented". Prima facie this stipulation in this behalf was inserted to ensure that the representative of both the groups are associated together in the deliberations of the shareholders of the Company. Article 57 provides that: "Until otherwise determined by the Company in General Meeting the number of Directors shall be not less than two not more than four including the ex officio Directors, if any. Each Company holding 30 per cent. Or more shares of the Company will be represented proportionately in the Board of Directors. If such representative, Director or Directors retire, his or their substitutes must be taken on the Board of Directors before the Board conducts further busi--ness. The election of all Directors should be by unanimous vote." According to Article 72 of the Articles the quorum necessary for the transaction of the business of the Directors may be fixed by them and unless so fixed shall be three. These provisions have been made with a view to secure proportionate representation on the Board of Directors of the Company and also to see that a representative of each group is allowed to participate in the Meetings of the Board.
7. Although the allegations in the written statement are altogether vague and not sufficiently clear, yet it transpires from the minute books of the Company produced by the respondents, on the applications made by the petitioners and their affidavits, that they have by a series of actions taken by them purported to disturb this balance of power between the two groups within the Company, in their favour. Their is a serious dispute between the parties concerning their validity.
Clause (7) of Article 68 of the Articles of Association provides that every Director shall vacate his office, if he absents himself from three consecutive meetings of the Directors. In this connection clause 5 of this Article further lays down that he shall also vacate office if he or any firm, of which he is a partner, without the sanction of the Company in general Meeting accepts or holds any office of profit under this Company, Relying on these provisions it is alleged by the respondent's that Mst. Khalida Khanam petitioner No. 2 had ceased to be a Director of the Company after she had absented herself from the three consecutive Meetings of the Board and had become a partner in Messrs Thapar & Brothers, Sialkot one of the sole agents of this Company. In this case I find that the minutes for the meetings of the Board and the shareholders are not entered in a regularly bound register or book. They are recorded on loose papers pasted or attached in a register kept for the purpose. But no adverse inference can be drawn from this circumstances because the genuineness of some of these proceedings in their existing condition is admitted by the petitioners.
8. These minutes of the Meetings produced by the respon--dents purported to show that respondent No. 2 had successively called three meetings of the Board of Directors for the 9th of December 1967, 12th of June 1968 and 7th of November 1968, inter alia, to consider the matter about these disqualification incurred by Mst. Khalida Khanam and for the appointment of a new Director in her place. But on each occasion only two Directors, Mian Mukhtar-ul-Jalil and Mian Zia-ul-Jalil respon--dents Nos, 2 and 3, had attended and consequently all the three meetings were adjourned for want of quorum without transacting any business, Allegedly the notices of the agenda for these meetings was sent by the Company to the petitioner by post under postal certificate. Be that as it may so far there is nothing to prove that they were properly addressed to petitioners Nos. 1 and 2 on their correct address. They have denied the receipt of the alleged notices by them. In the meantime it appears that Sh. Abdul Aziz, father-in-law of petitioner No. 1, brought a suit in the civil Court at Sialkot against Sh. Fazal Elahi (Lyallpur) Limited impleading all the four Directors (petitioners Nos. 1 and 2 and respondent Nos. 2 and 3) as parties. During the course of the hearing in that suit, on the 6th of November 1968, two separate and contrary written statements were filed on behalf of the Company in the trial Court. To resolve this impasse the Court directed that all the four Directors should meet together and decide about their representation for the Company in the suit. Consequently petitioners Nos. 1 and 2 are alleged to have called a meeting of the Directors for the 13th of November 1968 and sent notices to respondents Nos. 2 and 3 under registration post. But they failed to attend and the meeting was adjourned in the absence of a quorum without transacting any business.
9. However, according to the version of the respondents, and this is a main bone of contention between the parties, respondent No. 2 had also called a meeting of the Directors to be held at the office of the Mill premises for the 15th of November 1968, at 9 a.m, Notice of this meeting was published in the "Pakistan Times" dated the 3rd of November 1968. Notices are also stated to have been despatched to petitioners Nos. 1 and 2 under postal certificates, But they failed to attend and in their absence the respondents Nos. 2 and 3, the remaining two Directors, passed a resolution to the effect that both of there have vacated their respective offices under Article 68 of the Articles of Association and Mian Akhtar-ul-Jalil was appointed as a Director to fill in the vacancy in accordance with the provisions of Article 89, fable A of the Companies Act applicable to the Company. They decided to meet again and hold another meeting in the evening at 9 p.m. The second meeting was attended by the respondents Nos. 2 and 3 and their third brother as the Directors of the Company. They are stated to have resolved to shift the registered office of the Company from Shama Cinema Building, Lahore, to the Mill's premises at Nishatabad, Lyallpur. 1 hey also decided to inform all the different bankers of the Company to the effect that petitioners Nos. 1 and 2 had ceased to be the Directors of the Company and cannot operate on its accounts. In the meeting it also was resolved that Javed Maqbool petitioner No. 3 should be dismissed from his position as the Manager of the Company for his mis-handling the affairs of the Company. After this the three brothers appear to have convened another meeting of the Board of Directors of the Company at 7-30 --a.m. On the 16th of November 1968, at the Mill's premises. They decided that the paid-up capital of the Company should be raised by Rs. 50.000.00 OR Rs. 1000 x 50 each) and notices ordered to be sent to the existing shareholders by post requiring them to inform the Company within 15 days if they wanted to purchase were shares in proportion to their existing holdings in the Company. According to the respondents, in spite of the notices issued to the petitioners they failed to exercise their option for the purchase of these shares within time. In these circumstances the Board of Directors, comprised of the three brothers again met on the 17 of December 1968 at 12-30 p.m. And- made the following allotment of these additional shares in the Company:--- Rs.th
(i) Rasool & Company Ltd.500 x 5025,000
(ii) Rasool Jalil Corporation, Ltd.,500 x 5025,000 Lahore, a sister concern belonging to the respondents.
10. With regard to the meetings of the shareholders, the respondents maintain that a general meeting of the Company was duly held on 30-12-1966. This was attended by Javed Maqbool, petitioner No. 3, who is alleged to have initialled the proceedings in token of his presence. In this meeting the annual balance-sheet and profit and loss account of the Company for the year ending 30-4-1966 was stated to have been unanimously approved. The respondents are also stated to have convened two Annual General Meetings on the 4th of January 1969 in which the annual accounts of the Company for the years ending 30-4-1967 and 30-4-1968 were passed.
11. Before me the learned counsel for the petitioner has very --vehemently challenged the bona fides of all the aforesaid meeting of the Board of Directors and the shareholders allegedly convened by the respondents in the absence of she petitioners. It was contended that all these proceedings were false, fictitious and have been fabricated fraudulently with a view to deprive the petitioners of their legitimate status and position in the Company.
Petitioner No. 1, Sh. Maqbool Elahi, in his sworn affidavit dated the 28th of March 1969, has affirmed that no general meeting of the Company was held in the years 1966, 67, 68 or 69. Neither he, nor his wife, Mst. Khalida Khanam or his son Javed Maqbool or his mother-in-law Mst. Latif Khanam, the four petitioners in the case, convened a general meeting during these years and nor did they receive any notices from any of the respondents for any such meetings. The minutes produced by the respondents go to show that a general meeting was held on the 30th of December 1966, and two general meetings on the 4th of January 1964. But none of the four petitioners have ever received any notice of these meetings alleged to have been convened by the respondents.
Petitioner No. 1 has further affirmed that whenever the meetings of the Company were held, during his stay in Pakistan, he always used to attend and preside on almost all those meetings. From the 22nd of December 1958 to the 26th of May 1966, in all about 40 meetings of the Board of Directors were held. Five of these by circulation and of the remaining 35 meetings he attended all the meetings. He has asserted that there never was any reason for any of the petitioners to have absented from any of these meetings stated to have been summoned by the respondents. He has further deposed that no Directors meetings was ever called for the 9th of December 1967, 12th of June 1968, 7th of November 1968 and 15th of November 1968 by the respondents. He has affirmed that he and his wife, Mst. Khalida Khanam have continued to remain as the Directors all along, receiving their due remuneration as such paid to them till October 1968. He has denied that they have ceased to be the Directors of this Company for any reasons. The deponent has further affirmed that at no stage any of the petitioners received any intimation for the issue of additional shares which were never offered to them for the purchase. Had any offer been made in this respect, they would have willingly accepted the same and purchased the additional shares. The petitioner has affirmed that the story for the issue of the further shares of the value of Rs. 50,000.00 in November 1968 the Directors had decided to recommend the payment 10% dividend which would consume Rs. 50,000.00 thus raised by the Company. Had this need for cash existed in November 1968, the Company could have utilised its other resources including the dividends then undeclared. In the above connection the deponent has further affirmed that he, his wife and son are living in Peeli Kothi, Naseer Road, Noorpura, Sialkot. But the respondents are alleged to have despatched their notices addressed to them at "Ahmadpura" or (Nasser Road), Sialkot. This was obviously an insufficient and misleading address knowingly supplied by the respondents. Before 1958 the petitioner used to live at "Ahmadpura", but he gave up that residence in the year 1958.
"Ahmadpura" is to the east of Sialkot Fort while Nasser Road is to the West of Sialkot Fort at a distance of more than one mile from "Ahmadpura". The petitioners have been corresponding with the respondents at their address care of Sh. Fazal Elahi & Co. Ltd., Charan Das Road also known Mojahid Road, Sialkot City.
12. In connection with the above, the learned counsel for the respondents has stoutly defended the much controverted resolution dated 15-11-1968 and all the subsequent resolutions in question, passed by the Board of Directors, and the Company and has asserted that all actions taken by the respondents upto--date on behalf of the Company were fully justified and unex--ceptionable. On the other hand, the learned counsel for the petitioners has vehemently questioned and criticised the bona fides and the validity of all these resolutions. He maintains that no notices of those alleged meetings were even sent to the petitioners and the plea raised by the respondents to the effect that they were despatched to them under the postal certificates, was altogether false and a fabrication to deceive this Court. The learned counsel has also challenged the appointment of Akhtar-ul-Jalil as an additional director on the board in place of petitioners Nos. 1 and 2. According to him he was not even qualified for the appointment at the time. He has further asserted that no such appointment could be made except with their consent by a unanimous vote .In accordance with the Article 57 of the Articles of Association of the Company. The learned counsel has argued that by these subterfuges the respon--dents have managed to illegally and fraudulently oust tae petitioners from their share of the management of the company usurped by them. These are certainly some of the big and serious questions raised before me at the hearing. The respon-- dents have still to justify all their actions taken in this behalf after an adequate opportunity for the evidence has been allowed to them. At this stage, in the absence of any evidence led by the parties, I have advisedly refrained from expressing any considered opinion in this behalf. However, for the purpose of this application, it still remains to be seen as to whether or not the petitioners have otherwise disclosed a case for an order under clause (vi) of section 162 of the Companies Act on the ground that it is just and equitable to wind up this Company.
13. In the leading case in Re: Yenidje Tobacco Co. Ltd. (1916 Ch. D 426), there were only two Directors in a private Company and they were not on speaking terms. The so-called meetings of the Board of Directors had been almost a farce or comedy, and the Directors would not speak to each other on the board, and some third person bad to convey communications between them which ought to go directly from one to the other. In these circumstances in the opinion of the Court there was no way out except by means of a compulsory order. In this connection, Lord Cozen-Hardy M. R.
Observed:- "If ever there was a case of deadlock I think it exists here; but, whether it exists or not, I think the circumstances are such that we ought to apply, if necessary, the analogy of the partnership law and to say that this company is now in a state which could not have been contemplated by the patties when the company was formed and which ought to be teranmated as soon as possible.
We are told that we ought not to do it because the company is prosperous, making large profits, rather large profits than before the disputes became so acute . . . .
"It is contrary to the good faith and essence of the agree--ment between the parties that the state of things which we find should be allowed to continue."
This case was followed with approval in Re: Davis and Collett: Ltd. (1935 All. E R.315) Crossman, J.
Observed that. In considering whether it was just and equitable that the company should be wound up the Court was left in the widest possible terms to consider what justice and equity required; as the petitioner and the respondent held the capital of the company in equal shares and were the only members of the company the Court was bound to consider the position in the same way as if a question arose as to the right of two partners in a private partnership to have the partnership wound up; and, the petitioner having been prevented from taking any part in the management of the company, it was just and equitable that the company should be wound up." In Ladli Parshad Jaiswa l v. The Karnal Distillery Co. Ltd. (PLD 1965 SC 221), the Supreme Court of Pakistan had no hesitation, upon a review of the authorities, to accept this principle followed in England. In this connection the Court observed:-- "Now in the case of a private limited company the tendency of tire Courts had uniformly been to treat it more or less as a partnership and to apply the same principles in the winding-up of a private limited company as would entitle a partner to have a partnership firm dissolved.
Commonly, the exclusion of a partner from the management of the firm, the existence of a state of deadlock between the partners or the justifiable lack of confidence in the management have been regarded as just and proper grounds for dissolving a private limited company. Thus in the case of In Re: Yenidiji Tobacco Company Limited, this principle was applied in England in the case of winding-- up of private limited company. "
14. But the learned counsel for the respondents has attempted to argue that the rule laid down in Re: Yenidjl Tabarco Co. Ltd. Was by no means absolute. He has suggested that in more recent cases in England a departure was made in the law laid down in it. In this connection he has cited before me the following observations by Simonds, J. In Re: Cuthbert Cooper & Sons Ltd. ((1961) 3 All E R 926):- "It has been pressed upon me that I am to be guided by the principles laid down by the Court of Appeal in Re: Yenidje Tobacco Co. Ltd. And followed recently by Crossman, J. In Re: Davis & Collect Ltd. But whether it be a matter of articles of association or articles of partnership the rights of the parties are determined by those articles, and the question whether it is right for me to apply the principles of partnership to the question of dissolution, depends upon what are the contractual rights of the parties as determined by the articles of association in this case."
Similarly in Re: Davis Investments (East Ham) Ltd. ((1937) 2 Ch. D 466), the case of Yenidje Tobacco Co. Ltd., was distinguished and Danckwerts, L. J. Observed that:- "We have been referred to cases of winding up where the persons interested in the Company could not agree, and these have some analogy to the case of partners. These are an application of provision that a company may be wound up where that is just and equitable, but really are an extension of the ordinary practice of the Court."
But he was at the same time of the opinion that: "In the present case the most obvious thing is that the position of the contending parties may well be decided by the terms of the Articles of Association. It may be that the apparent differences can be overcome through the operation of those articles: We simply do not know. It may be there could be a meeting of the company and the shareholders would be evenly divided and the Chairman might have a casting vote which would enable the company to pass a resolution removing one of the contending parties from the position of direction and appointing a new Director, and to consequently the organisation and administration of the Company could proceed thereafter perfectly efficiently. That would be a result which, if it was not done dishonestly, would be in accordance with the constitution of the Company. Thus it would be something in accordance with terms which both share--holders had entered into on the formation of the Company, and which were binding on them." In the same case in this connection Donovan, L. J. Observed that: "Counsel for the petitioner's argument goes to this length: that in a case of a two-man company, if the shareholders, being equal in their shareholdings, fall out, one of them alleging that further co--operation is impossible, then the Court in the absence of a reply from the other shareholders must at once treat them as though they were partners and order a winding up, as it would, in a partnership case, order a dissolution. I do not think that is the law." The case in Re: Yenidji Tobacco Co. Ltd. Was explained in Charles Fort Investments Ltd. v. Amanda ((1963) 2 All E R 940). In this con--nection Willmer, L. J. Has remarked:- "I can only say that to my mind the case of Re: Yenldji Tobacco Co. Ltd. And equally the case cited in the morning, Re: Davis & Collect, Ltd. Where the same principle was applied, are utterly remote from the question that has to be dealt with in this case. Re: Yenidji Tobacco Co. Ltd., for instance, was a case of a two-man company, and it so happened that the two men fell out with each other and could not get on, with the result that deadlock ensued and the business of the company could not be carried on. It was in that context that it was held that a winding up order ought to be made on the same basis as an order might be made for a dissolution of partnership; but here we are dealing with a shareholder who can be described as very much a minority shareholder. His whole holdings amounts to only one seventy-fifth of the capital of the plaintiff company, and the four thousand shares at stake in the two transfers now in question amounts to an even smaller fraction of the capital. Nor is he a shareholder who has any part in the running of the plaintiff company. He is merely a small shareholder. There is nothing, as I see it, in his relation--ship to the plaintiff company which remotely resembles that of a partnership such as there was in Re: Yendije Tobacco Co. Ltd. I do not think that there is any room for the application of that principle in the circumstances of the present case."
"So far as counsel for the defendant has attempted to rely on the principles of partnership, in my view his arguments are misplaced. The Court has treated the situation of a private limited company with only a few shareholders as resembling a partnership, but counsel for the defendant has attempted to extend the principle of such cases as Re: Yenidje Tobacco Co. Ltd. To such a degree that the principles of the Companies Act, 1948, could no longer be operated."
15. From the above discussion it follows that the principle laid down in Re: Yenidje Tobacco Co. Ltd.
Must be necessarily confined to the purely private companies with a few shareholders bearing the complexion of a partnership firm. To such a company the analogy of the partnership law was applied for its winding-up. Before the Supreme Court of Pakistan, in Ladli Parshad Jaiswal v. The Karnal Distillery Co. Ltd. Discussed above, the company was of this nature and the Court had no hesitation in applying this principle evolved in Re: Yenidji Tobacco Co. Ltd.
16. In the instant case as well this is a private company. It was conceived in the friendship, mutual trust and great reliance between late Mian Ghulam Rasool deceased and petitioner No. 1. Virtually it was formed as a two-man company headed by petitioner No. 1 and the deceased holding equal represent--ation between them in the company. But unfortunately after the death of Mian Ghulam Rasool serious disputes and differences arose between the parties. The mutual trust and reliance so essential for its smooth running is wanting and a deadlock was created. So much so that even according to the version of the respondents the directors could not meet for about a year in spite of the three successive meetings of the Board summoned by them for the 9 of December 1967, 12 of June 1968 and 7 of November 1968 to transact any business of the company. Even according to the respondents the petitioners are holding shares worth Rs. 2,50,000 against the shares of the value of Rs. 3,00,000 controlled by the respondents not at all an insignificant minority.
Prima facie, therefore, the petition for the winding up of this' Company under clause (iv) of section 162 of the Companies Act appears to be tenable. Irrespective of the fact whether or not a deadlock exists, the circumstances are such that prima facie "we ought to apply the analogy of the partnership law and to say that this company is now in a state which could not have been con-- templated by the parties when the company was formed and which ought to be terminated as soon as possible".
17. These are some of the broad features of the main case and I must now turn to the prayer made by the petitioners for the appointment of a Provisional Liquidator for this Company pending the final decision. This prayer is contained in the main petition and the petitioners have also separately applied under section 175(2) of the Companies Act for the appointment of the Provisional Liquidator. In my opinion, therefore, these two must be read together and I cannot merely confine myself to the allegations in the miscellaneous application above for a satis--factory disposal of this matter.th th th
18. Section 175(2) of the Companies Act lays down that the Court may make an order for the appointment of Provisional Liquidator at any time after the presentation of petition and before the making of an order for winding up. The powers thus vested in the Court in this behalf are un-- qualified and general. But the discretion conferred on the Court must always be exercised judicially and not in an arbitrary, capricious and wanton manner. The appointment of a Provisional Liquidator is a serious matter and the power has got to be exercised with the necessary care and circumspection in the light of the circumstances prevailing in each case. It is made with a view to protect the assets of the company to safeguard them from jeopardy and for a fair and equitable distribution among its contributories after the Company has been wound up. In appointing the Provisional Liquidator it is permissible for the g Court under section 174 of the Act to take into consideration the wishes of the creditors and the contributories of the company. The appointment of a Provisional Liquidator of a Company, before the winding up, is a drastic step fraught with gravel consequences and dangers to the Company and any decision in this respect must not be lightly made. The consequences flowing from a wrong order in the appointment of the Provisional Liquidator are far more serious, if afterwards the Court finds that the company was not at all liable to be wound-up. By the time the business may have come to a stop and the company may not be able to survive after the shock. For all these reasons, in general, the Courts do not appoint a Provisional Liquidator unless it is clear that the Company was bound to be wound up and its liquidation has become inevitable.
19. But, before me, the learned counsel for the respondents has very largely relied on the observations made in this connection in the leading case of Ex parte Emerson, in Re: London, Hamburg and Continental Exchange Bank ((1866) 2 Eq. 231), to contend that in no case the Court can make the appointment of a Provisional Liquidator if there is an opposition to it. Lord Romelly, M.
R. Has observed:- "It is perhaps convenient that I should state what my practice is with reference to the appointment of provisional liquidators. Where there is no opposition to the winding up, I appoint a provisional liquidator as a matter of course, on the presentation of the petition. But where there is an opposition to it, I never do, because I might paralyse all the affairs of the company, and afterwards refuse to make the winding-up order at all. But when the Directors themselves apply or do not oppose the winding-up, then I appoint the provisional liquidator." This practice has subsequently approved by the Court of Appeal in Re: Cilfoden Benefit Building Society ((1868) 5 C A 462). These observations have assumed classic importance. But, as I understand, the ratio in these observation is-never to appoint a provisional liquidator if afterwards the Court was going to refuse to make the winding --up order. Otherwise it would paralyse the business of the Company. Any other interpretation would reduce the provisions of section 175(2) of the Act to a dead letter. I am fortified in those conclusions from the remarks made by Lord Romelly. M.R. In another case in re: The Railway Finance Company Limited (14 W R 754). He has said that: "I do not appoint a Provisional Liquidator unless it appears that the Company cannot go on". Ratigan, J., in People's Rank of India Ltd. (AIR 1914 Lah. 117), with reference to the above remarks by Lord Romelly has observed: "These remarks I understand to be limited in any event to cases where a petition is preferred for the compulsory' winding up of a company which asserts its solvency and ability to carry on its business and the ratio decidendi is that the Court should do noting which might possibly paralyse all the affairs of the company, especially as in the result, the petition might possibly be rejected. I cannot believe that the rule was intended to apply to the case of a Company which has admittedly suspended its business and declared publicly its inability to pay its debts". The Court has further held that: "The power to appoint a provisional liquidator, which is given to the Court by section 134 of Companies Act, 1913 is general, and so far as the terms of the section go, absolutely unqualified"
In my opinion, therefore, it would be too much to suggest that the jurisdiction of the Court to appoint a provisional liquidator is altogether ousted in every case in which there is opposition, as it is bound to be in all the contested cases of this nature. Although at the same I have n C hesitation in holding that the Courts in this country, as well as England, have always been reluctant to appoint a provisional liquidator unless it is plain that the company cannot go on and it has become inevitable for the company to be wound up. In the matter of Northern Airways Ltd., Lahore (AIR 1949 Lah. 9), the Court has held that the mere fact that the petitioners have made serious allegations against the Company is no ground for the appoint--ment of the Provisional Liquidator.
Much more is required to be established. In this connection the Court observed:- "At the present stage of proceedings, It is not possible for me to give a positive finding that there is absolutely no force in the position taken by the respondent-company, and I do not think that the fact that very serious allegations are made by the petitioners against the company would be itself justify me in making an order for the appointment of a provisional liquidator. It was argued by Mr. Indar Dev Dua, learned counsel for the petitioners that all that was necessary for the petitioners was to satisfy the Court that a prima facie case for winding up existed, and if this was done it was necessary, in order to protect the rights of the petitioners and other share--holders, that the Company should be placed in the hands of a provisional liquidator. I am afraid it is not possible for me to subscribe to this wide proposition and no authority was quoted by the learned counsel to support it."
"Before the Court takes such a drastic steps as to appoint a provisional liquidator before the winding-up against the wishes of the Company the Court must be satisfied that it is absolutely necessary to do so. In the case of a Company which has all along been functioning and carrying on business in the ordinary course, to place its management and the conduct in the hands of a Provisional Liquidator, would in effect put a stop to its business."
PLD 1957 Lah. 844), this Court on a detailed consideration, has summed up the legal position on this matter as under:- "It is for these reasons that the Courts generally have not appointed the provisional liquidators unless the Company is plainly, commercially and technically insolvent. If the Company suspends its business and refuses to pay its creditors and no doubt whatsoever is left that it must go into liquidation, then it is plainly, commercially and technically insolvent, and therefore, the appointment of a provisional liquidator is urgently called for. Such an appointment is also necessary if the directors of the Company themselves demand it or do not oppose it. Again in cases where it is quite apparent that the Directors or the servants of the Company are tamper-- ing with the records or destroying them or are misappropriating the Company's money then it may become necessary in the larger interests of the contributories and the creditors to appoint a provisional liquidator in order to protect the assets of the Company. Such a liquidator may also be appointed if a fair majority of shareholders passed a genuine resolution that the Company should be wound up or the creditors in spite of their best efforts have not been able to realise their debts and this can be clear evidence be attributed to the financial difficulties of the Company."
PLD 1967 Kar. 44), a Division Bench of this Court after holding that prima facie it was "just and equitable" within the meaning of clause (vi) of section 162 of the Act to wound up the company, has proceeded to approve of the appointment of a provisional liquidator for it. In another case in the National Bank of Pakistan v. The Punjab National Silk Mills Ltd. And others (PLD 1969 Lah. 194), this Court has held that: "The Provisional Liquidator is appointed under section 175(2) of the Companies Act. It gives the power to the Court to appoint a Provisional Liquidators. It does not lay down any circumstances and situations in which a Provisional Liquidator may be appointed. It is left to the discretion of the Court which it is always expected to exercise in a judicial manner after giving due consideration to the facts and circumstances of each case. The Provisional Liquidator should not be appointed merely because serious allegations are made in the petitions. The Court must look into the allegations and the position taken up by the company and come to its own conclusion whether in the circumstances there is any apprehension of the assets of the company being wasted or that if an order appointing a Provisional Liquidator is not made, some creditors may have advantage over the others. The real purpose is to take over the possession of the property for its proper management and to ensure that in case an order of winding up is passed, the interests of the creditors and the shareholders remain protected. The Provisional Liquidator is not ordinarily appointed and the Courts must always bear in mind that the appointment is not only provisional but also contingent in this sense that it operates to protect the property for an equal distribution only in the event of an order for compulsory winding up being made, and if no such order be made then the appointment ought not to interfere with the rights of third persons.
20. In the circumstances of this case, therefore, some intervention by the Court at this stage appears to be necessary. The learned counsel for the respondents has pointed out that this is a prosperous company and there are no allegations that its business has run into losses. But in Re: Yenidje Tobacco Co. And in the case of Ladli Parshad Jaiswal v. The Karnal Distillary Co. Ltd.
Decided by the Supreme Court, the respective companies were ordered to be wound up in spite of the fact that they were doing prosperous business at the time. At one stage during the course of proceedings before me, Chief Law Officer of Pakistan, Industrial Credit and Investment Corporation, Karachi, appeared before me to represent that the company is an industrial under taking of national importance and should continue to function. As a major creditor of the company they expressed a genuine desire to mediate between the parties in the interest of the company. But in spite of the intervention by their Managing Director the differences between the parties could not be resolved. There are the two major creditors of this company, namely the PICIC and the Habib Bank Ltd. The former has joined in the request for their appointment as the joint provisional liquidators along with the representative of the parties. The Habib Bank Ltd., has also requested for their appointment as a joint provisional liquidator, in case the Court at all decides to make any appoint--ment in the case.
21. Nevertheless, after anxious considerations, I have decided to take a less drastic step by inducting a Receiver in this company with the specific powers conferred on him from time to time in the interest of this company and its business, instead of appointing a provisional liquidator for it with all its grave consequences. In Batan Lal v. Jagadhri Light Railway Company (AIR 1946 Lah.
193), the Court held that it was wrong to say that the appointment of a receiver is unheard of to conduct the business of a Company. Similarly in Muhammad Arjumand Malik and others v. Haji Abdul Ghani and another this Court has held that there can be no objection to the appointment of a receiver, in a fit case, under the provisions of Order XL, rule 1, C. P. C., to take charge of the business of the company and manage its assets and properties pending the disposal of main case. As discussed above, for this purpose, the position of a private limited company, as the one in question, is no better than that of a partnership In Bhagawan Ram Kairi v. Rahhika Ranjan Das and others (AIR 1953 Assam 25), it was held that where a dissolution of the partnership is inevitable and the partners are on bad terms, the usual way of guarding their interests is by appointing a Receiver. In Kin Foo alias Whee Fong v. Whee Seik Chang (AIR 1925 Rang. 287), it was held that in a dispute for the dissolution of a firm it is desirable and even necessary in most cases to appoint a Receiver to preserve the property during the pendency of the suit. Under the Indian Jurisdiction, in Rajamandry Electrical Supply Corporation Ltd. v. Nagehwara Rao (PLD 1956 SC (Ind.) 266), an application was made under section 162, clauses (v) and (vi) of the Indian Companies Act, 1913 for the Company to be wound up. The grounds on which the relief was claimed were that (a) large amounts were owing to the Govern--ment for charges for electrical energy supplied by it, (b) that the directors had misappropriated the funds of the company and (c) that the directorate, which had tile majority in voting strength, was riding rough shod over the rights of the shareholders. In these circumstances Venkatarama. J. Has held:-- "And where accordingly a case had been made out for winding up, under section 162, the appointment of adminis--trator under section 153-C, cannot be attacked on the grounds that it is an interference with the internal management of the officers of the company. If a liquidator can be appointed to manage the affairs of a company, when an order for winding up is made under section 162, an administrator could also be appointed to manage its affairs, when action is taken under section 153-C."
There is no doubt that there is no provision of law in the Companies Act, 1913 in force in Pakistan corresponding to section 153-C inserted in the Indian Companies Act, 1913. But in my opinion under the law in force in this country there is nothing to prevent this Court from the appointment of a Receiver j in a fit case by resort to the provision contained in Order XL, rule 1, of the Code of Civil Procedure, in the interest of this company and its business.
22. I find that in spite of what has been said above, the respondents are admittedly the shareholders in the company having at least, 50 % share in the total holdings. They are also entitled to their share in the management. Therefore on a careful consideration of all the facts and circumstances, I have decided to appoint a Receiver for this company subject to the following terms and conditions:-
(i) He shall be co-opted fully into the management and business of the company with respondent No. 2, Mian Mukhtar-ul-Jalil and this appointment shall not mean his ouster from the company. The two shall jointly manage the affairs and business of the company with equal powers and be responsible for the same to this Court.
(ii) In the event of a difference of opinion between them the matter in difference shall be referred to this Court for its order or to an umpire to be appointed hereafter after hearing both the parties.
(iii) They shall be liable to maintain regular, true and faithful accounts of the company under their supervision and control.
(iv) Any further orders that may be passed by this Court from time to time.
23. The Pakistan Industrial Credit and Investment Corpora--petition, Karachi, is the biggest creditor of this company, has financed this venture in a big way and is vitally interested in its welfare. The Corporation has already prayed for their appointment as a Joint Provisional Liquidator. The Managing Director of the Corporation will nominate one of his officers of high repute and ability to act as a Receiver for this company to take charge of its affairs without any delay. His appointment shall be for the whole time and will be posted at the Mill's premises at Layallpur. The nomination of the receiver thus made by the Managing Director shall be subject to my post facto approval and his remunerations can be settled afterwards.
24. In terms of the above I accept this application but there shall be no order as to costs.