JUDGMENT: FAQIR MUHAMMAD KHOKHAR, J.--- The petitioners, seek leave to appeal, under .Article 185(3) of the Constitution of Islamic Republic of Pakistan, against judgment, dated 28-11-2002, passed by a learned Division Bench of the High Court of Sindh at Karachi in H.C. Appeals Nos.215 and 216 of 2002.
2. The petitioners instituted a Suit No,347 of 2002, for declaration and injunction, against the respondents, in the High Court of Sindh at Karachi along with an application C.M.A. No,2034 of 2002 under Order XXXIX Rules 1 and 2, C.P.C. For grant of a temporary injunction. It was averred, inter alia, in the plaint, that the petitioner No,1 Adamjee Insurance Company Ltd. Was incorporated as a public limited company under the provisions of the Companies Ordinance, 1984. It was also registered as Insurance Company under the Insurance Act, 1938. It was doing its business of fire, marine, motor and miscellaneous insurance but not the business of life insurance. It was also listed on the Stock Exchanges of Karachi and Lahore. The sale and purchase of the shares of the petitioner-Company were open and free for everyone through the stock exchange. The petitioners Nos. 2 and 3 were the shareholders with 22% shares in the company. The respondent No,1 (Muslim Commercial Bank Ltd.), was also incorporated under the Companies Ordinance and was working as a Scheduled Bank under the Banking Companies Ordinance, 1962. The respondent No,2 (Mian Muhammad Mansha) was the Chairman of the respondent-Bank. The respondents Nos.3 and 4 were the trust bodies created for the purpose of pension fund and provident fund of the bank employees and were stated to be under the control and influence of the respondents Nos. 1 and 2.
The respondent Nos. 1 to 4 and Pakistan Emerging Venture Limited purchased shares of the petitioner-Company during the period from January, 2000, onward as under:-- 1.Muslim Commercial Bank Ltd. 29.37% 2.M.C.B. Employees Pension Fund 4.95% 3.M.C.B. Employees Provident Fund 3.70% 4.Pakistan Emerging Venture Ltd. 2.33% Total: 40.35 %
3. It was further stated that the respondent No,2 (Mian Muhammad Mansha) having purchased the Muslim Commercial Bank Ltd. (the respondent No,1) had also indirectly acquired more than 40% shares of the petitioner-Company through the respondents Nos.1, 3 and 4, Pakistan Emerging Venture Limited and Nishat Group of Companies which was beyond the limit fixed by section 67 of the Insurance Ordinance, 2000, and section 23 of the Banking Companies Ordinance, 1962. The respondent No,2 by exercising his influence over the said companies and bodies manipulated the acquisition of more than 40% shares of the petitioner-Company with a malicious design and ultimate object of hostile takeover of the management and control of the petitioner-Company.
Therefore, .The acquisition of the shares of the petitioner-Company by the respondents Nos.1 to 4, Pakistan Emerging Venture Ltd. And Nishat Group of Companies was liable to be declared void, unlawful, against public interest and public policy. The respondents including the respondent No,5 State Bank Of Pakistan and respondent No,6 Securities and Exchange Commission of Pakistan in their counter-affidavits and oral admissions categorically denied the allegations of the petitioners.
4. A learned Single Judge of the High Court by order, dated 22-8-2002, allowed the application C.M.A. No,2034 of 2002 of the petitioners in the following terms:- "That the Defendants Nos.1, 3 and the Directors of Defendant No,1 who are acting together may attend the meeting that may be held as per requisition vide Notice, dated 22-3-2002, date to be announced by plaintiff No,1 within 7 (seven) days from the date of order. However, the Defendants Nos. 1, 3 and 4 and the Directors of the defendant No,1 are restrained from exercising any right to interfere in the management or in a bid to influence or in any manner exercise their right to elect the Directors. Such share-holders may, however, be entitled to all the dividends and profits that may be declared or announced by he plaintiff No,1 during the pendency of the suit. The defendants Nos. 1, 3 and 4 and any other person claiming through or under them or their nominees are restrained from exercising their rights to seek election for them on the Board of Directors of Plaintiff No,1 till the decision of the suit. Since serious and intricate questions of law are involved determination of which also to some extent rest on evidence that may be required to be recorded.
The defendants are directed to file their written statement .Without any delay whereafter the case may immediately be set up for settlement of issues and appropriate orders for recording of the evidence at an early date may be passed.
' The respondents Nos.1 and 2 preferred High Court Appeal No,215 of 2002 whereas the respondents Nos.3 and 4 filed High Court Appeal No,216 of 2002 against order, dated 22-8-2002 passed by the learned Single Judge of the High Court. A learned Division Bench of the High Court by the impugned judgment, dated 28-11-2002 allowed H.C.A. No,215 of 2002 whereby the order, dated 22-8-2002 passed by a learned Single Judge in Chambers of the High Court was set aside and C.M.A. No,2034 of 2002 was dismissed. The H.C.A. No,216 of 2002 of the respondents No,3 and 4 was also disposed of by a separate judgment of even date, in terms of judgment, dated 28-11-2002 passed in H.C.A.
No,216 of 2002. Hence both these petitions for grant of leave to appeal.
5. Syed Sharifuddin Pirzada, Senior Advocate Supreme Court and Anwar Mansoor Khan, Advocate Supreme Court the learned counsel for the petitioners argued that respondents Nos. 1, 3, 4 and Pakistan Emerging Venture Limited had illegally acquired shares of the petitioner-Company to the extent of 29.3%, 4.95%, 3.70% and 2.33% respectively by making an aggregate holding of 40.35% shares. In addition, Nishat Group of Companies of the respondent No,2 had also acquired about 9% of the shares of the company. Therefore, the respondents Nos.1 and 2 were in a position to take over the company which was against law, public policy and interest. Under the provisions of section 23 of the Banking Companies Ordinance, no banking company could hold shares in any other company whether as a pledgee; mortgagee or absolute owner of any amount exceeding 30% of the paid-up share capital of the company or 30% of its own paid-up share capital or reserves whichever was less. These shares were acquired for the benefit of the respondent No,2 maliciously for the purposes of hostile takeover and seizing absolute control of the petitioner-Company. It was submitted that the High Court was under a legal obligation to discover the true character and status of the M.C.B. Employees' Pension Fund and Provident Fund, Pakistan Emerging Venture Limited and Nishat Group of Companies and their relationship with the respondents Nos.1 and 2 by lifting the veil of incorporation: Reliance was placed on the cases of Union Council, Ali Wahan, Sukkur v. Associated Cement (Pvt.) Limited 1993 SCM R 468, Fauji Foundation v. Shamimur Rehman PLD 1983 SC 457 and The President v. Mr. Justice Shaukat Ali PLD 1971 SC 585.
6. It was next contended that the respondents Nos.1 and 2 had cleverly remained within the limited of 30% fixed by section 23 of the Banking Companies Ordinance by acquiring 29.37% shares of the petitioners. But as a matter of fact the respondents Nos.1 and 2 had acquired more than 40% of the shares as the respondents Nos.3, 4 and Pakistan Emerging Venture Limited were their associated companies in which they had a controlling share and interest. Moreover, the respondents Nos.1 and 2 were prohibited by section 67 of the Insurance Ordinance No, XXXIX of 2000, to make a transaction for the acquisition of share holding of an insurance company without the approval of the Securities and Exchange Commission of Pakistan which was grantable only on application by the petitioner-Company. The respondents Nos.1 and 2 had failed to make disclosure and declaration of the acquisition of the shares of the petitioner-Company which was a clear contravention of the provisions of the Companies Ordinance as well as the Securities and Exchange Commission of Pakistan Ordinance Act No,XLII of 1997. However, the acquisition of such shares by a banking company having different nature of business and object was not permissible.
Even otherwise the acquisition of shares by the respondents Nos.1 to 4 with the object of seizing hostile control and management of the petitioner-Company was against public policy and public interest. Such an act of corporate raiding by the respondents Nos.1 and 2 was also against the public welfare and public good. The learned counsel placed reliance on the case of Rattan Chand Hira Chand v. Askar Nawaz Jung (deceased) by L.Rs, and others 1991 (3) S.C.C. 67, in which the Supreme Court of India .Had observed that under the provisions of section 23 of the Contract Act, 1872, a contract having tendency to injure public interest or public welfare was opposed to public policy and hence unlawful and void. The learned counsel also referred to the case of Gammon India Ltd. (1990) 3 Comp. L.J. 89, (C.L.B.) where the transfer of 31% share in Gammon Industries Limited in favor of various corporate bodies under the ultimate control of one person, which was likely to bring about the change in the decision of Board of Directors of said company, was held to be prejudicial to public interest. Reference was also made to the cases of Distilleries Company of Sri Lanka Limited No,110, Norris Canal Road, Colombo v. Ganganath Amaraweera Kariyaawasam and two others passed in C.A.L. No,163 of 2001 delivered on 7-2-2002, by the Court of appeal of Sri Lanka and G.A.F. Corporation v. Paul Milsterin etc. Lexsee 453 'F.2d. 799 by United States Court of Appeals for the Second Circuit, where a similar view was taken. The State Bank of Pakistan had also issued and published Prudential Regulations for Corporate/Commercial Banking (First Edition 2003) under the provisions of section 47 of the State Bank of Pakistan Act, 1956. By Regulation 6 (1- B) of the said Regulations, the Banks/D.F.Is. Were prohibited from holding shares in any company whether as a pledgee, mortgagee, or absolute owner of an amount exceeding 30% of the paid-up share capital of that company or 30% of their own paid-up share capital and reserves whichever was less.
7. The learned counsel for the petitioners further submitted that the High Court ought to have taken judicial notice that a law prohibiting the acquisition of more than 10% paid-up shares of a company was in the offing. The High Court had reserved the judgment in the case on 13-9-2002 and had announced the same on 28-11-2002. The Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Ordinance, 2002 (CIII of 2002) (hereinafter referred to as the Listed Companies Ordinance) was promulgated on 29-10-2002. By section 4 thereof any person acquiring/holding voting shares of more than 10% in a listed-company was required to disclose the aggregate of his shareholding to the said company and to the stock exchange on which the voting shares of the said company were listed. The additional voting shares could be acquired within a period of 12 months thereafter but the total acquisition would not exceed an aggregate of 25%.
Section 5 ibid also prohibited the additional acquisition of more than 25% voting share in the listed- company by any person directly or indirectly and no person could acquire the control of a listed- company unless such person had made a public announcement of offer to acquire voting shares or control of such company in accordance with the Listed Companies Ordinance. Under the provisions of section 20(4)(J) of the Securities and Exchange Commission of Pakistan, Act of 1997, the Commission was empowered to regulate acquisition of shares, merger and takeover of companies. It was stated that the respondents Nos. 1 and 2 had transacted the business of banking in contravention of the provisions of section 27(1) read with section 43-B of the Banking Companies Ordinance. Therefore, they were disentitled to exercise their voting and other rights as share- holders in view of the law laid down by this Court in the case of Mercantile Traders (Pvt.) Ltd. v. State Bank of Pakistan 2002 SCM R 250. The learned counsel referred to the case of Mian Muhammad Nawaz Sharif v. President of Pakistan and others PLD 1993 SC 437. In support of the submission that what could not be done directly was not permitted to be done indirectly.
8. As regards the aspects of prima facie case, and balance of convenience, it was submitted that the petitioners had succeeded in establishing that the matter involved serious questions which were required to be tried. The same by itself was sufficient for grant of- an interlocutory injunction.
The learned counsel relied on the cases of American Cyanamid Co. v. Ethicon Ltd. (1975) All E.R.
504), Sui Gas Transmission Company v. Sui Gas Employees Union 1977 SCM R 220 and Mrs. Dino Manekji Chinoy and 8 others v. Muhammad Matin PLD 1983 SC 693. It was lastly contended that the learned Single Judge in Chambers of the High Court had rightly granted temporary injunction by taking into consideration all the relevant aspects of the case but the impugned judgment by the Division Bench suffered from numerous defects.
9. On the other hand, Mr. Khalid Anwar, Senior Advocate Supreme Court the learned counsel for the respondents Nos.1 and 2 submitted that the learned Division Bench of the High Court had dismissed the application of the petitioners for grant of temporary injunction as necessary conditions for grant of a temporary injunction, such as prima facie case, the balance of convenience and irreparable loss were not satisfied. The suit was instituted on 22-3-2002 on which date the result of premium of the petitioner-Company was announced by the petitioners, showing colossal loss of Rs,499 million for the year ending on 31-12-2001. On account of heavy losses, the petitioners had to shut down their business in Dubai, England and Saudi Arabia. The respondent-Bank had not exceeded the statutory limit of 30% in the acquisition of shares of the petitioner-Company as required by section 23 of the Companies Ordinance. At the relevant time, the respondent No,2 had not acquired any share in the petitioner-Company and he was a non-executive Chairman of the respondent-Bank. The respondents Nos.1 and 2 had no direct or indirect controlling share or interest in the respondents Nos.3 and 4 or the Pakistan Emerging Venture Limited which were independent legal entities. The term of office of the Directors of the petitioner-Company had already expired on 30-6-2002 who were illegally occupying their office without holding the elections as required by the provisions of sections 178 and 180 of Companies Ordinance. The meeting of the shareholders of the company was held on 28-6-2001 in which the respondents Nos.1, 3 and 4 were allowed to participate and vote for their shares without any demur. The learned counsel pointed out that the purpose of Annual General Meeting Scheduled to be held on 7-5-2002 of the petitioner-Company was only to receive, consider and adopt the audited accounts for the year ending 31-12-2001 and to appoint Auditors and to fix their remuneration. It was not meant for the elections of the Directors. Therefore, there was no justification for the learned Single Judge in Chambers to pass an ad interim order, dated 7-5-2002 restraining the holding of the scheduled and other meetings of the share-holders till further orders. It was further stated that section 35 of the Insurance Act, 1938, dealt with the life insurance companies only. The petitioner-Company was not a life insurance company. The respondent No,1 had not acquired more than 3.92% shares of the petitioner-Company at the time of promulgation of Insurance Ordinance, 2000, in August, 2000, which was not retrospective in operation. Under section 160(5) of the Companies Ordinance no member holding shares in a company could be debarred from casting his vote. The learned counsel empathetically stated that under the garb of an injunctive order the Directors of the petitioner-Company could not be permitted to continue as such although their term of office had already expired. The annual accounts of the petitioner-Company left no doubt in mind that it was in a bad shape. Mere acquisition by the respondent Bank of the shares of the petitioner-Company to the extent of 29.37% shares for the purpose of investment was not sufficient to hold that the acquisition of those shares was not a part of banking business in terms of section 23 of the Companies Ordinance. Likewise, section 67 of the Insurance Ordinance was not attracted as the respondents Nos.1 and 2 were not shown to have purchased more than 10% of the shares of the petitioner-Company at the time of its promulgation. As to the provisions of Listed Companies Ordinance, 2002, the learned counsel drew our attention to its section 3(L) which provided that nothing contained therein would apply to the existing shares held by a person on the date of its commencement viz. 29-10-2002. The declarations and reports were duly made, by the respondent-Bank to the authorities as required .By law. It was lastly contended that the learned Division Bench of the High Court had taken correct view of the matter in allowing the appeals of the respondents Nos.1 to 4. The impugned judgments were just, fair and in accordance with law.
10. Raja Muhammad Akram, Senior Advocate Supreme Court learned counsel for the respondents Nos.3 and 4 supported the arguments of the learned counsel for the respondents Nos.1 and 2 and prayed for the dismissal of both the petitions.
11. We have heard the learned counsel for the parties at length and have also perused the available record. The matter of acquisition and transfer of shares of the company is primarily regulated by the Companies Ordinance. The learned counsel for the petitioners were unable to show us any provision of the Companies Ordinance whereby any prohibition or restriction was placed on acquisition/purchase of shares of the petitioner-Company by the respondents Nos.1 to 4. The respondent No,2 was not even found to have acquired the shares of the petitioner-Company although he was Chairman of the respondent-Bank. Until such time that the petitioners are in a position to prove otherwise by lifting veil of incorporation, the respondents No,3 and 4 and also Pakistan Emerging Venture Limited seem to be independent legal entities over which the respondents Nos.1 and 2 have no control or controlling share or interest. Necessary material was not brought on record to indicate as to the amount of shares of the petitioner-Company acquired by the Nishat Group of Companies and also as to the relationship with respondent No,2. It is difficult at this stage to draw any conclusion as to how much influence was wielded by the respondent No,2 qua the respondents Nos.3, 4 or other companies. The respondent No,1 was entitled in terms of section 23 of the Companies Ordinance to acquire the shares of the petitioner-Company not exceeding 30% of its paid-up capital as an investment. Admittedly, the respondent No,1 had acquired/purchased 29.37% shares of the petitioner-Company which was not in violation of any law at the relevant time. The available record shows that the respondent-Bank had been making necessary declaration and other reports to the Securities and Exchange Commission of Pakistan and to the State Bank of Pakistan as required by law. The term of the office of the Directors of the petitioner-Company had already expired on 30-6-2002 but they continued to occupy their office.
The respondent A No,1 had participated through its nominee in the meeting of the company, held on 28-6-2001, without any protest by the petitioners. The balance of convenience would lie in holding the elections of the Directors of the company as required by the provisions of section 178 of the Companies Ordinance. The company was found to have sustained huge losses with the result that it had to wind up its business in Dubai, England and Saudi Arabia. The petitioner-Company was not a life insurance company. Therefore, the provisions of section 67 of the Insurance Ordinance would not be attracted as the respondent-Bank had not acquired/purchased excessive shares of the petitioner-Company by the time the Insurance Ordinance, 2000, was promulgated. In their counter-affidavit as well as oral submissions, both the State Bank of Pakistan and the Securities and Exchange Commission of Pakistan clearly took the position before the High Court that the respondent-Muslim Commercial Bank had not violated the provisions of section 23 of the Companies Ordinance in any manner and that bank had acquired the shares in accordance with law. By virtue of its section 3, the provisions of the Listed Companies Ordinance were not to apply to the existing shares held by a person on the commencing day i,e, 29-10-2002. The legislative policy was quite clear that past and closed transactions were not intended to be reopened. It does not stand to reason that although the respondents had validly and lawfully acquired the shares, yet they could be restrained from exercising their voting and other rights as shareholders and from taking part in the affairs of the petitioner-Company. The learned counsel could not satisfy us that the respondents Nos.1 and 2 had acquired controlling interest in the petitioner-Company. It was not demonstrated that shareholding of the respondent-Bank in the company was such that it was more powerful than all the other shareholders put together and was in a position to control the course of the general meeting of the Company. The impugned judgment of the learned Division Bench of the High Court is just and fair which does not suffer from any legal infirmity so as to warrant interference by this Court. The order passed by the learned Single Judge in Chambers did not take the correct view of the matter and had resulted in usurpation of office of the Directors of the Company by such persons whose term had already expired thereby depriving the shareholders to exercise their vested rights in accordance with law. The petitioners had failed to make out a prima facie case in their favor. They had also not been able to satisfy the other essential ingredients such as balance of convenience and irreparable loss so as to entitle them to grant of temporary injunction. These cases are not fit and suitable for grant of leave to appeal.
12. For the foregoing reasons, we do not find .Any merit in these petitions which are dismissed and leave to appeal is refused accordingly. Consequently, the interim order dated 20-12-2002 passed by this Court shall stand vacated forthwith. However, the above observations made by us for the limited purpose of temporary injunction shall not, in any manner, affect or prejudice the main suit which shall be decided on its own merits and in accordance with law.