This is a petition under section 290 of the Companies Ordinance, 1984 complaining that the affairs of the Company were being conducted unlawfully, in a fraudulent manner and in a manner oppressive to the members and prejudicial to the public interest.
2. The initial question which arose was with respect to the locus standi of the petitioners as envisaged under section 290 of the Companies Ordinance, 1984.
3. The case of the petitioners was that they had advanced a total sum of Rs.2 crores to the Company, out of which they received shares worth of Rs.1 crore, while their credit to the Company remained as one crore of rupees and both these amounts were to be added for purposes of determining the holding of 20% of the issued share capital of the Company. The relevant excerpt from section 290 of the Companies Ordinance, 1984 relating to this aspect of the case is reproduced below:-- "If any member or members holding not less than twenty per cent. of the issued share capital of a company, or a creditor or creditors having interest equivalent in amount to not less than twenty per cent. of the paid-up capital of the company"
4. It was alleged by the petitioners that the respondent's side has not made any investment in the Company and was a usurper, which fact has been denied by the other side.
5. While probing further into the matter, it transpired that an Inspector under section 263 of the Companies Ordinance had been previously appointed for investigating the affairs of the Company by the Authority and whose report finds mention in the record before this Court.
6. An objection, however, was taken by the petitioner's side with respect to the said report.
According to the petitioner, the said Inspector leaned towards the side of the respondent, did not consult the record and gave his views without adverting to the objections made by the petitioner's side. In this connection, reference was made to the following paragraphs of the said report:-- "3.2.1. Records show that on 20th February, 1999 existing Directors resigned and MS and his associates were appointed as Director for the remainder of the period which was due to end on 30-6-2002 as per Form A as on 31-12-1997. This form as well a that as at 31-12-1999 shows eight Directors.
For this meeting held on 20th February, 1999 acknowledgement for dispatch of notice and attendance record are not provided allegedly because the present management of Barex has stated, records held by the previous management were not handed over in full to present management."
"5.3.3.: The complainant has rightly stated that the annual accounts do not correctly show the share capital. Shares of the value of Rs.15 million were issued for consideration other than cash and return of allotment in Form III was filed showing that the shares were so issued during the year ended 30-6-1999. The accounts for year and the subsequent account therefore, should have clearly shown that shares of the value of Rs.15 million were issued for consideration other than cash."
"5.3.8.: The balance sheet shows that the shares issued for consideration other than cash have not been shown as such. These are included in shares fully paid in cash. This is not only against the statutory provisions of law but also may amount to misstatement.
Deferred cost' amounting to Rs.19,153,086 appears in the balance sheet as at 30th June, 1999 but neither any explanation in this regard is given nor it is prorated over the future years.
Similarly 'capital work in progress' appears at Rs.9,543,260 in the said balance sheet but any details thereof is not given in the accounts and we have not been shown approval of these expenses by the BOD.
The total of the property and assets side of the balance-sheet as at 30th June, 2001 is under-cast by Rs.10,000 as shown in the annexures. 'Rental Income' amounting to Rs.2,460,000 in the account for the year to 30th June, 2001 is very much disputed but any disclosure in this regard has not been made."
"5.3.9.: These accounts have been audited by chartered accountants appointed under section 252 of the Companies Ordinance from year to year.
On the face of it any mismanagement or misappropriation of funds is not apparent from the accounts.
The only specific instance of alleged misappropriation pointed out is that Press Information Department made payments of Rs.10,618,738 and many other which have been embezzled by Mr. Umar Mujib Shami after opening fresh bank accounts.
I wrote to Barex for Production of accounts record of DP but it was submitted that company has nothing to do with it. The undertaking styled DP, is sole proprietorship of Mr. Umar Mujib Shami as earlier explained to you. The said proprietor however, confirmed that the 'cheques of the said amount had been received by DP and were deposited into bank account."
"6.6. I have been requested by the complainant to refer to arbitration award by Chairman APNS in the matter.
I am afraid the award only binds the parties submitting to the arbitration and not third parties; moreover an arbitration award may be just a practical way, a via media to solve knotty issues and may not be a xact legal statement. I therefore, do not think I show refer to the said award."
"6.7.: I have also been requested to lift the veil of incorporation and to cast aside the status of an incorporated company of Barex.
Again I feel I am not entitled to do that because it is in view of incorporation that investigation under section 263 of Companies Ordinance, 1984 in the affairs of Barex has been entrusted to me."
"6.8.: I have checked the veracity of statements of MS given in paragraphs 6.3 and 6.4 from records.
These clearly shows the position that the two organizations are separate proprietorship. I have also noted that the annual accounts of Barex Limited do not show any closing stocks before or after the change of the management, these also show that sales of Barex mainly consist of services to DP and that DP is treated as a separate party in these accounts.
I also note that the first two payments (apparently bank transfers) of Rs.5.00 million by SKN were received in DP bank account but these have been stated to be for shares in the capital of Barex and not as loans or capital of DP in the agreement dated 25th February, 1999 (Annexure F), which is the very first agreement after these payments and copies of which have been supplied to me both by SKN and MS. The agreement provides that Barex will act as management company of the newspaper of the party of the second part. Throughout the agreement, the concept of two separate business entities entering into a contract continues and reciprocal promises of the two are given. In view of the foregoing my findings is that Barex and DP are distinct business entities having separate proprietorship but these must be treated as associated undertakings."
"7.2.: The C.E. Barex has raised the question of recovery of amounts due from SKN on account of his taking over of Islamabad Office amounting to Rs.10,790,000 up to 31st December, 2001 pursuant to agreement dated 27th June, 2001."
7. It has been argued before this Court on behalf of the respondent's side that this report having not been challenged previously and separately, would be taken to be a final report in the matter acceptable to both sides.
8. This Court was informed that an office of the Company is occupied by the petitioner's side at Rawalpindi who were not allowing access to the respondent's side, while the allegation against the petitioner's side with respect to the Lahore office was vice versa.
9. The main allegation of the petitioner's side was that although the petitioner's side were the share-holders, they were not being allowed even the bare privileges which the share-holders are entitled to under the Companies Ordinance.
10. Regarding the report under section 263 of the. Companies Ordinance, it was said that when the SECP had ordered investigation, it ought to have itself discovered the infirmities in the report and ought to have come to a logical conclusion in all fairness to both sides and upon this failure this fresh cause of action had arisen.
11. It was the case of the petitioner's side that the present management was not maintaining the Register of Members, Register of Transfer of Shares, the Minutes Books etc. honestly and thus acting fraudulently.
12. It was further alleged that on 20-2-1999 shares had been transferred to the respondent's side (family) by the previous management although it had no locus standi in the matter.
13. Keeping in view the allegations and the counter-allegations which have been made in respect of a public limited company, a mention of which has been briefly made above, this Court has readily come to the conclusion that the investigation of Company's affairs has become essential in the public interest. As section 265(ii) provides an efficacious remedy, under the circumstances, this Court directs the SECP to appoint two Inspectors for purposes of investigation of the affairs of this Company in the light of the allegations made, but while choosing such persons the SECP will have regard of their integrity and acumen. The Inspectors shall associate representatives of both sides for purposes of investigation. They will be submitting a report to this Court within a period of 3 months from today using SECP as the channel. The SECP shall also be adding its own comments to the report. The Inspectors shall be entitled to such fee/compensation as the SECP normally determines in such-like cases keeping in view the quantum of work involved. The SECP shall now be subm tting a reply by the 1st October, 2005.
14. As the two Inspectors have to investigate the affairs of the Company on basis of allegations coming from both sides, all parties are directed to allow the Inspectors free access to the record and to the premises and to answer all queries to be raised by the said Inspectors. The failure on anybody s part shall give rise to a presumption against the said side.
15. It was said by the respondent's side that this application was only meant to cause harassment and to re-op 11 the matters already settled with the old administration, which fact has been denied.
Anyway, if the Inspector comes to the conclusion that the application was baseless, the petitioner's side will have to pay cost in accordance with law and to be determined by the Court.
16. The Inspectors be provided with copies of the petition along with all documentations submitted by both the sides.
17. A copy of this order be also immediately sent to the SECP through the Joint Registrar, SECP at Lahore for compliance of this order in another 15 days.
18. Since this Court has taken the cognizance under the provisions of section 265 of the Companies Ordinance, 1984 and has referred the matter to the SECP, this lis is disposed of in the aforementioned terms. The report, however, be submitted in the office later by the SECP.