' MUHAMMAD TASNIM, J.---Through this order, I shall dispose of application (C.M.A. No,764 of 2010) under Order XXXIX, Rules 1 and 2,. C.P.C. Filed by plaintiffs, whereby they have prayed to restrain all the defendants, jointly and severally, from issuing Right Shares of the said defendant No,1- company and for from altering the paid up share capital thereof, and/or from acting upon the impugned Resolution in any manner whatsoever, and also all the impugned actions and/or Resolution may kindly suspended. The afore-said application was taken up by the court on 27-1- 2010 and following order was passed:--
(1) "Granted.
(2) This is an application (C.M.A. No,764 of 2010) in which the plaintiff is seeking orders restraining the defendants jointly and severally from issuing Right Shares of the said defendant No,1 company and/or from altering the paid-up share capital thereof and/or from acting upon the impugned resolution in any manner whatsoever and for suspension of all the impugned actions and/or resolution. Learned counsel for the plaintiff has taken me to the resolution dated 6-1-2010 wherein the presence of his client has been endorsed but his dissent is not entertained in the minutes of the special meeting which are listed at page 159, the counsel has contended that his client will suffer financially if said orders are not suspended. After hearing the contention of learned counsel, the office is directed to issue notice to the defendants for 4-2-2010. In the meantime the defendants are restrained jointly and severally from issuing Right Shares of the said defendant No,1 company and/or from altering the paid up share capital thereof and/or from acting upon the impugned resolution in any manner whatsoever and so also the impugned actions and/or resolution are suspended till next date of hearing."
2. After service of this notice defendants appeared and filed their counter-affidavit on 4-2-2010.
Thereafter plaintiff filed their affidavit in rejoinder on 13-2-2010. The plaintiffs' side has challenged the authority of the person who has filed counter-affidavit on behalf of the defendants. The contentions of the learned counsel for plaintiffs are that since counter-affidavit has not been filed by authorized person, hence the same is liable to be ignored and prays that plaintiffs' application be granted as prayed, as no counter-affidavit, legally filed, is available on record.
3. Facts leading to the present case as set out in the plaint are as under:-- That the plaintiff No,1, a Pakistani national, is a builder and developer who owns and controls the plaintiff No,2 which is a single member enterprise, namely, Mazyood Giga International FZE, incorporated by the plaintiff No,1 in Dubai, U.A.E. The above named plaintiff No,2 is a subsidiary/group concern of the plaintiff No,3, namely, Giga Group Holding Company, which has been incorporated by the plaintiff No,1 in the British Virgin Islands. The above named plaintiff No,3 Company is also owned and controlled by the plaintiff No,
1. All the plaintiffs represent the Giga Group of Companies (hereinafter referred to as "The GIGA Group". It further stated in the plaint that the defendant No,2, namely, Emaar Giga International FZCO, (hereinafter referred to as "EGI") was incorporated in January, 2004 in Dubai, U.A.E., as a joint venture between the Giga Group and the Emaar Group of Companies (hereinafter referred to as "The EMAAR Group". The defendant No,3, namely, Emaar Properties PJSC representing the Emaar Group has 66.67% shareholding in EGI, whereas the plaintiff No,2 above named representing the Giga Group has 33.33% shareholding in EGI. The plaintiff No,1 is a Director of EGI. It is further case of plaintiffs that EGI was formed by the Emaar Group and the Giga Group with the sole purpose of undertaking property development joint venture projects in Karachi and Islamabad. For the joint venture projects in Karachi, the defendant No,1 company, namely, Emaar Giga Karachi Limited (hereinafter referred to as "EGKL", was formed by the Emaar Group and the Giga Group. EGKL was incorporated in Pakistan on 2-8-2005 as a private limited company and was converted into an unlisted public limited company on 3-4-2007.
Similarly for the joint venture projects in Islamabad, both the groups formed a separate company, namely, Emaar Islamabad Limited. It is further stated in plaint that the authorized share capital of the defendant No,1 (EGKL) is Rs,2,800,000,000.00 ordinary shares of Rs,10.00 each, and the paid up share capital thereof is Rs,2,258,014,900.00 divided into 225,801,490 shares of Rs,10.00 each. The plaintiff No,1, the defendant No,2 (EGI) and the defendant No,6 are the shareholders of EGKL. The plaintiff No,1 is also a Director of EGKL. The defendant No,1 (EGKL) is a subsidiary of the defendant No,2 (EGI), plaintiffs 2 and 3, and the defendant No,3. In view of the position of shareholding of both the Groups in the defendant No,2 (EGI) as explained in para 2 above, the Emaar Group has 66.67% shareholding in the defendant No,1 (EGKL), whereas the Giga Group has 33.33% shareholding therein. The defendant No,1 (EGKL) has four directors nominated by the Emaar Group, namely, the defendants 4 to 7, and two Directors nominated by the Giga Group, namely, the plaintiff No,1 and his nominee Director Mr. Muhammad Ali Qureshi. The entire management and control of the defendant No,1 (EGKL) is with the Emaar Group. The defendant No,1 (EGKL) is constructing a huge project over 108 acres of reclaimed land acquired from Defence Housing Authority, Karachi.
4. It is further claimed by plaintiff that on 27-11-2007 an agreement was executed by plaintiffs Nos.1 and 3, defendants Nos.2 and 3 and some other group of companies of the Emaar and Giga group.
It is further claimed that clause-3 of the agreement deals with the important management decisions. It is further claimed by the plaintiffs that defendant No,1 is subsidiary of defendant No,2 EGI, plaintiffs Nos.2 and 3, and the defendant No,3. It is also claimed that the terms of the agreement also apply to defendant No,
1. It is case of the plaintiffs that meeting of Board of Directors was held on 6-1-2010 at Dubai. A resolution was tabled by defendants Nos.4 to 7 representing Emaar Group with the subject "Preemptive offer of upto 54,198,510 authorized but unissued shares of PKR to each to EGKL's shareholder and/or new shareholders". It is further claimed that through this resolution defendants Nos.4 to 7 representing the Emaar Group proposed to consider and approve the issuance of Right Shares of EGKL for subscription of its unissued capital of Rs,541,985,100.00 divided into 54,198,510 ordinary shares of Rs,10.00 each. The last date for acceptance, renunciation or decline of the said Right Shares as well as for their subscription was proposed as 1-2-2010 in the said Resolution. It is further claimed that both the Directors of EGKL representing Giga Group including plaintiff No,1 opposed the above-mentioned resolution for issuance of Right Shares specifically on the group that the Giga Group has already tabled a proposal for evaluation and disinvestment, and also on the ground that the resolution violates the agreement (P-2). This opposition by the Giga Group was duly recorded in the minutes of the above-mentioned meeting of Board of Directors. The present plaintiffs felt aggrieved against the passing of the afore-said resolution and filed the present suit for Declaration and Permanent Injunction.
5. The defendants in their counter-affidavit denied the allegations made by the plaintiffs in the suit.
The filing of suit by the plaintiffs was also questioned. It is claimed by the defendants that any reference to agreement (P-2) to the plaint is not relevant for the purpose of this case. It was further claimed that agreement annexure (P-2) to the plaint applies only to defendant No,3, plaintiff No,3, plaintiff No,1 and defendant No,2. It is further claimed that since defendant No,1 is not party to the agreement annexure (P-2), it is not binding upon defendant No,
1. It is claimed by the defendants that Board of Directors had passed the resolution relating to Right Shares on 6-1-2010 after compliance of all legal formalities. The opposition of plaintiff No,1 was also recorded in the minutes of meeting. It is further claimed by the defendants that agreement (P-2) pertains to Emaar Islamabad Limited and not to defendant No,1 hence the plaintiffs' reliance on the clauses of agreement including clause-3 is misplaced/misconceived and same cannot, by any stretch of imagination, be extended to cover the defendant No,1, which is separate legal entity. Moreover the contention of the plaintiff that agreement is applicable to defendant No,1 by virtue of the fact that it extends to all subsidiaries, as defined in the Agreement is also misplaced, since in any event Clause 3.3 of the agreement talks about subsidiaries of Emaar Islamabad Limited and the defendant No,1 is not a subsidiary of Emaar Islamabad Limited.
6. In the counter-affidavit defendants have stated that the requirements of section 92 of the Companies Ordinance, 1984 (hereinafter called as "Ordinance, 1984" relates to general meeting pertains to approvals/resolutions in respect of amendments to the Memorandum of Association of a Company to increase its Authorized Capital and/or to vary other conditions/restrictions relating to capital issues contained in the Memorandum. Therefore these provisions are not applicable to the issue of Right Shares. It is further stated that sections 158, 160 and 164 of the Ordinance, 1984 are applicable to general meetings of companies and/or therefore not relevant to the Right Shares. It is further stated that no, prima facie, case has been made out by plaintiffs for grant of injunction. It is further claimed by the defendants that plaintiffs are not entitled to for the injunctive relief. It is further stated in the counter-affidavit that defendant No,1 is suffering substantial losses on daily basis as a result of injunction order passed by this Court. Commercial operations of the company and serious damages to its good name, standing and reputation in the market as well as hardships to its shareholders have been caused. They have prayed for recalling of the above ad interim order passed by this Court on 27-1-2010.
7. In response to counter-affidavit plaintiffs' side filed affidavit-in-rejoinder, wherein assertion made by the defendants' side was denied and the contentions of the plaintiffs as contained in the plaint were maintained. Additionally, authority of the deponent, who signed the counter-affidavit, was also challenged.
8. Mr. Muhammad Naseem, learned counsel for the plaintiffs has submitted as under:--
(i) The resolution dated 16-1-2010 relating to Right Shares has been issued in clear violation of agreement annexure (P-2).
(ii) The agenda of impugned resolution was covered by clause 3.1.8 of the Agreement and as such clause-3.1 of the Agreement requiring prior approval and vote of plaintiffs was fully applicable.
(iii) The resolution impugned in the suit was passed in violation of clause 3.1 of the agreement.
Learned counsel for the plaintiffs has also submitted that resolution has been passed by the defendants in violation of section 92 of the Ordinance, 1984.
(iv) In terms of subsection (3) of section 92 of the Ordinance, 1984. Resolution could only be passed in general meeting of the Board of Directors of the Companies.
(v) Impugned resolution was not passed in general meeting nor the mandatory requirement of sections 158, 160 and 164 of the Ordinance, 1984 were fulfilled.
(vi) The words "Share Capitals" used in section 92 of the Ordinance, 1984 deals with "increase its share capital", which include authorized capital as well as paid up capital.
(vii) The presence of the plaintiff No,1 was shown in the Board of Directors' meeting in which impugned resolution was passed by the dissent of the plaintiffs was not entertained by the Board of Directors.
(viii)The plaintiffs have prima facie case and balance of convenience also lies in their favour.
(ix) In case injunction order dated 27-10-2010 is not confirmed, serious financial loss shall be caused to the plaintiffs.
(x) In the end, learned counsel for plaintiffs prayed that injunction application be granted as prayed, and interim order, passed on 27-1-2010 be confirmed.
(xi) In support of his above contentions, learned counsel for plaintiffs placed his reliance on the following case-law:--
(1) Messrs China Fiber Co. Ltd. v. Abdul Jabbar PLD 1968 SC 381,
(2) Muhammad Aref Effendi v. Egypt AIR 1980 SCMR 588,
(3) Jamil Ahmed v. Provincial Government of W. Pakistan PLD 1982 (Lahore) 49,
(4) Molasses Export Co. Ltd. v. Consolidates Sugar Mills Ltd. 1990 CLC 609
(5) ' Balaglam Oil Mills Ltd. v. Sha Karachi Trading AG PLD 1990 (Karachi)1,
(6) Mrs. Naz Shaukat Khan v. Mrs. Yasmin R. Minhas 1992 CLC 2540,
(7) Nooruddin v. Messrs Sindh Industrial Trading Estate Ltd. 1993 CLC 2204,
(8) Mian Ejaz Siddiq v. Mst. Kaneez Begum 1992 CLC 1658,
(9) Hafizullah Khan v. Al Haj Ch. Barkat Ali PLD 1998 (Karachi) 274
(10) Al-Jamiaul Arabia Ahasanul Uloom and Jamia Masjid v. S. Sibte Hasan 1999 YLR 1634,
(11) AM Fabric (Pvt.) Ltd. v. IDBP 2003 CLD 1321,
(12) Jahangir Siddiqui v. Dallah Arbaraka UK Ltd. 2005 CLD 406,
(13) Bolan Bank Limited through Attorneys v. Baig Textiles Mills (Pvt.) Limited through Chief Executive and 6 others 2002 CLD 557,
(14) Khan Iftikhar Hussain Khan of Mamdot (Represented by 6 Heirs) v. Messrs Ghulam Nabi Corporation Ltd., Lahore PLD 1971 SC 550,
(15) Taxam's Company Law Digest 1913-1993 (Pages 20 to 24),
(16) Puddephat v. Leitht No,1 [191611 Ch.200,
(17) Greenwal v. Porter [190211 Ch. 530,
(18) Euro Brokers Holdings Ltd. V. Monecor (London) Ltd. 2003 EWCA Civ 105.
9. On the other hand Mr. Taha Alizai, learned counsel for defendants has submitted as under:--
(i) Authorized capital could not be increased without approval of Securities and Exchange Commission of Pakistan.
(ii) Authorized capital of the defendant No,1-copmpany is Rs, 2,800,000,000 divided into 280,000,000 ordinary shares of PKR 10 each. He further submitted that Paid Up Capital is PKR 2,258,014,900 divided into 225,801,490 ordinary shares of PKR 10 each and Unissued Capital is PKR 541, 985,100 divided into 54,198,510 ordinary shares of PKR 10 each for which resolution was passed.
(iii) Provisions of section 92 of the Ordinance, 1984 will not apply in the circumstances of the case.
(iv) Authorized capital of the company is not being increased but the gap between paid-up capital and authorized capital is being filled by issuing Right Shares.
(v) Defendant No,1-company acted strictly in accordance with Article 39 of the Memorandum of Association of defendant No,1-company, which is quoted hereunder:- "39. Except and so far as otherwise provided by the conditions of issue or by the Articles, any capital raised by the creation of new shares shall be considered part of the authorized capital and shall be subject to the provisions herein contained with reference to transfer and transmission, voting and otherwise."
(vi) Learned counsel for defendants has further invited my attention to Article 85 of the Memorandum of Association of defendant No,1-company, which is quoted hereunder:-- "85. The Directors may meet together for the dispatch of business, adjourn, and otherwise regulate meetings of the Board as they think fit. A resolution moved at any meeting of Directors shall be passed by a simple majority vote."
(vii) Resolution dated 6-1-2010 annexure (P-4) of the plaint was passed strictly in accordance with law.
(viii) Perusal of the minutes of Board meeting would show that the plaintiffs have already tabled Giga proposal for valuation and disinvestments therefore they did not support the resolution.
(ix) Provisions of section 92 of the Ordinance will not apply as subsection (3) of the section 92 of the Ordinance, 1984 applies in case where authorized capital is being increased, but in the present case authorized capital has not been increased but Right Shares were decided to be issued for unissued capital.
(x) Learned counsel has further invited my attention to the provisions of section 196 of the Ordinance, 1984 more particularly to section 196(2)(b), which provides that the Directors of Company shall take decision by means of resolution passed in their meeting to issue shares and to perform other functions provided in the above-referred section of the Ordinance, 1984. After passing of the resolution dated 6-1-2010 an offer was made to the plaintiffs to accept or reject by 8-2-2010 but the plaintiffs have filed the present suit on 26-1-2010.
(xi) Agreement filed annexure (P-2) along with plaintiff has no relevance with the point in issue.
()di) Plaintiff No,1 has only one share in defendant No,1company and that too as nominee of defendant No,2.
(xiii) No case for grant of injunction is made out.
(xiv) No prejudice shall be caused to the plaintiffs it injunction passed earlier is recalled.
(xv) It is settled law that court cannot substitute its findings over the decision of Board of Directors taken in accordance with Articles of Association and the Ordinance, 1984.
(xvi) If plaintiffs are interested in disinvestments for which they may take appropriate legal action, but cannot apply to the court for halting the normal function of the company wherein he has only one share and that too as nominee of defendant No,2.
(xvii) Learned counsel has referred following case-law in his support:
(1) Muhammad Suleman Kanjiani and 3 others v. Dadex Eternit Ltd. Through Chief Executive and 4 others 2009 CLD 1687,
(2) Khyam Films and another v. Bank of Bahawalpur Ltd. 1982 CLC 1275,
(3) Haji Muhammad Rafiq v. Shahenshah Jehan Begum PLD 1987 (Karachi)180,
(4) Sahibzada Anwar Hamid v. Messrs TOPWORTH Investments (MACAU) Ltd. Through Chairman and 5 others 2003 YLR 2843,
(5) Messrs Pioneer Cables v. Messrs S.G. Fiberes Ltd. 2007 YLR 1981,
(6) Messrs Hotel GALAXY (Pvt.) Limited through Chief Executive and 2 others v. 2007 CLD 1590 and
(7) Trading Corporation of Pakistan (Pvt.) Ltd. v. Merchant Agency 2007 CLC 1811 .
10. While exercising right of rebuttal, learned counsel for plaintiffs once again reiterated that counter-affidavit on behalf of the defendants has not been filed by an authorized person and the same be ignored. Learned counsel for plaintiffs relied upon the judgments of superior courts, in support of his contentions. The contention of the learned counsel was that since counter-affidavit has not been filed by authorized person, which has no legal value. Additionally it was argued that the learned counsel for plaintiffs that defendant No,1 being the subsidiary of defendant No,2 is bound by the terms of the agreement annexure (P-2).
11. In response to above learned counsel for defendants brought on record an authorization letter dated 1-2-2010 along with Board of Resolution dated 17-11-2005 in favour of Chief Executive of the defendant No,1-company, who in turn executed authorization letter dated 1-2-2010 in favour of the deponent who filed the counter-affidavit on behalf of Emaar Giga Karachi Limited, defendant No,1 and its Directors defendants Nos.4, 5, 6 and 7. It is pointed out that prior to this another authorization was also brought on record in favour of deponent in respect of present suit. Learned counsel for plaintiffs argued that authorization now placed on record is of no consequences and same be ignored.
12. From the contention of learned counsel for the parties following points emerged for consideration and decision of application under disposal:--
(1) Whether counter-affidavit on behalf of defendants was competently filed?
(2) Whether agreement dated 27-11-2007 annexure (P-2) is binding upon defendant No, 1.
(3) Whether defendant No,1 is subsidiary of defendant No,2.
(4) Whether for issuance of right shares compliance of section 92 of the Ordinance, 1984 is necessary?
(5) Whether issue of Right Shares is dealt with under the provisions of sections 86 and 94 of the Ordinance, 1984?
(6) Whether the court can substitute its findings with regard to decision taken by Board of Directors of the company?
(7) Whether plaintiffs have made out a case for grant of injunction?
13. Now taking upon point No,1 regarding authority of the deponent of the counter-affidavit. The perusal of the counter-affidavit shows that in paragraph-1, the deponent has specifically stated that he has been authorized by defendant No,1 to file counter-affidavit on behalf of all defendants.
In addition to above, during the course of arguments, learned counsel for defendants has brought on record two authorizations one dated 1-2-2010 filed on behalf of defendant No,1 which also includes defendants Nos.4 to 7. From the perusal, it is clear that defendant No,1 has authorized deponent of counter-affidavit to act on its behalf as well as on behalf of its Director who have been sued in their capacity as Directors of defendant No,
1. Defendants Nos.4 to 7 have not been sued in their individual capacity. The Board resolution dated 17-11-2005 although relating to the time when defendant No, 1 was Private Limited Company but such resolution shall continue to be operative by operation of law, in view of section 40(3) of the Ordinance, 1984. The Board of Directors of defendant No,1-company have delegated authority to the Chief Executive who in turn has authorized deponent by means of authorization dated 1-2-2010. It is to be noted that for the first time authority of deponent was questioned through rejoinder and during the course of arguments on 5-5-2010 on which date learned counsel for defendants produced authorization which was taken on record and such authorization clearly shows that deponent was authorized by defendants Nos.1 and 3. Since the authority letter along with Board Resolution have been brought on record, the objection of the plaintiffs' side with regard to the authority of the deponent is of no consequences.
14. The points Nos. "2" and "3" deal with issue that the agreement dated 27-11-2010 annexure (P-2) is binding upon the defendant No,1 and whether defendant No,1 is subsidiary of defendant No,2. The perusal of annexure (P-2) at page 95 of the record shows that said agreement is between the following parties:--
(1) Emaar Properties PJSC (Defendant Nos.3).
(2) Emmar Properties LLC.
(3) GIGA Group Holding Limited (plaintiff No,3)
(4) Mr. Muhammad Haji Rafiq (plaintiff No,1)
(5) Emaar Islamabad Limited.
(6) Emaar Giga International FZCO (Defendant No,2)
15. It is to be noted that defendant No,1 is not party to the agreement but Emaar Islamabad Limited has been shown The Company" meaning thereby that any reference to the company in the agreement is reference to Emaar Islamabad Limited. It is further to be noted that Emaar Islamabad Limited is not party to the proceedings. From the perusal of agreement annexure (P2) it is manifestly clear that defendant No,1 is not party to such agreement. Learned counsel for the plaintiffs has submitted that since the defendant No,1 is subsidiary of defendant No,2 hence the terms of the agreement are also binding upon defendant No,1-company. Learned counsel for the plaintiffs has referred to clauses 3.3 and 3.4 of the agreement, whereby it has been provided that provisions of clause-3 shall apply equally to any matters undertaken by the company or by any of its subsidiary as if reference to the "Company" included any such subsidiary. Subject always to any rights that third party shareholders may have in relation to such subsidiaries. Learned counsel has further emphasized on clause-3.4, which provides that subject to any rights that third party shareholders may have in relation to the Company's subsidiaries, none of the Company's subsidiaries shall pass any resolution in general meetings and no Director of any such subsidiary appointed by the Company shall sign any resolution in writing or vote in a manner which is contradicting the requirements of this clause-3 of the Ordinance, 1984, which is quoted hereunder:- "3. Meaning of "subsidiary" and "holding company."(1) For purposes of this Ordinance, a company or body corporate shall be deemed to be a subsidiary of another.
(a) that other company or body corporate directly or indirectly controls, beneficially owns or holds more than fifty per cent of its voting securities or otherwise has power to elect and appoint more than fifty per cent of the Directors; or
(b) the first mentioned company or body corporate is a subsidiary of any company or body corporate which is that other's subsidiary: ' Provided that, where a central depository holds more than fifty per cent of the voting securities of a company, such company shall not be deemed to be a subsidiary of the central depository save where such voting securities are held beneficially by the central depository in its own behalf.
(2) For the purpose of this Ordinance, a company shall be deemed to be another's holding company if, but only if that other is its subsidiary."
16. A perusal of above-quoted provision of section 3 of the Ordinance, 1984 would indicate that for the purposes of this Ordinance, a company or body corporate shall be deemed to be a subsidiary of another if that other company or body corporate directly or indirectly controls, beneficially owns or holds more than fifty per cent of its voting securities or otherwise has power to elect and appoint more than fifty per cent of the Directors; or the first mentioned company or body corporate is a subsidiary of any company or body corporate which is that other's subsidiary. Provided that, where a central depository holds more than fifty per cent of the voting securities of a company, such company shall not be deemed to be a subsidiary of the central depository save where such voting securities are held beneficially by the central depository in its own behalf. For the purpose of this Ordinance, a company shall be deemed to be another's holding company if, but only if that other is its subsidiary. From the perusal of the record it is clear that neither Emaar Islamabad Limited is party to the proceedings nor has come forward to participate in the proceedings nor made party as defendant by the plaintiffs.
17. From the reading of the agreement, it appears that neither the defendant No,1 is party to the agreement annexure (P-2) nor is subsidiary of defendant No,2. Contention of the learned counsel for the plaintiffs that terms of the agreement entered into between the parties are binding upon defendant No,1 is of no consequences and is hereby repelled. Provisions of section 3 of the Ordinance, 1984 do not advance the case of the plaintiffs. It is further pointed out that plaintiff No,1 has only one share in defendant No,1-company and that too as nominee of defendant No,2. Apart from this defendant No,2 has no concern 4with defendant No,1-company. From the record it cannot be gathered that defendant No,1 is subsidiary of defendant No,2.
18. The point No, "4" is with regard to the question that for issuance of Right Shares, compliance of section 92 of the Ordinance, 1984 is necessary. To deal with this question, it will be advantageous to reproduce section 92 of the Ordinance, 1984, which is quoted as under:-- "92. Power of Company Limited by Shares to alter its share capital.--(1) A company limited by shares, if so authorized by its articles, may alter the conditions of its memorandum so as to---
(a) increase its share capital by such amount as it thinks expedient;
(b) _____
(c) _____
(d) _____
(2) _____
(3) The powers conferred by subsection (1) shall be exercisable by the company only in a general meeting.
(3-A)___
(4) _____
(5) _____
19. The perusal of the above-quoted provisions would show that powers of company limited by share to alter its share capital has been provided under this provision, whereby a company limited by shares if so authorized by its articles may alter the conditions of its memorandum so as to increase its share capital by such amount as it thinks expedient. At page 195 annexure (P-4) the authorized capital of the defendant No,1 has been shown. Similarly paid up capital has also been shown in the above-referred annexure. It has also been mentioned in the afore-said annexure that unissued capital of Rs,541.985,100 is the amount for which further shares can be issued. Through the impugned resolution the defendant No,1-company was agreed to issue 54,198,510 ordinary shares of Rs,10 each with aggregate value of Rs,541.985,100 which was offered by way of Right Shares to the existing members in proportion to the number of shares held by them in accordance with section 86(1) of the Ordinance, 1984. From the perusal of A section 92 of the Ordinance, 1984 it is clear that company limited by shares, if so authorized by its articles, may alter the conditions of its memorandum so as to increase its authorize capital such action is to be taken by company in general meeting of Board of Directors. But in the present case conditions of the memorandum of company are not being altered and authorized capital is also not being altered but as per annexure (P-4) right shares are being offered for the amount unissued capital within limit of authorized capital. In this view of the matter, provisions of section 92 of Ordinance, 1984 shall not be applicable in the circumstances of the case.
20. Now taking up the point No,5 with regard to issue of Right Shares, the reference is to be made to sections 86 and 94 of the Ordinance, 1984. Section 86 of the Ordinance, 1984 is quoted as under:-- "86. Further issue of capital.--(1) Where the directors decide to increase the capital of the company by the issue of further shares, such shares shall be offered to the members in proportion to the existing shares held by each member, irrespective of class, and such offer shall be made by notice specifying the number of shares to which the member is entitled, and limiting a time within which the offer, if not accepted, will be deemed to be declined: ' Provided (2)
(3)
(4) ______
(5) ____
(7) _
21. Similarly section 94 of the Ordinance, 1984 is quoted as under:-- "94. Notice of increase of share capital or of members.--(1) Where a company having a share capital has resolved to increase its share capital beyond the authorized capital. [or such capital is increased under subsection (3-A) of section 92J, and where a company not having a share capital has resolved to increase the number of its members beyond the number previously registered, it shall file with the registrar, within fifteen days after the passing of the resolution, a notice of the increase of capital or members, as the case may be, and the registrar shall record the increase: ' [Provided that where default is made by a company in filing a notice of increase in the authorized capital under subsection (3-A) of section 92, the scheduled bank or the financial institution to whom shares have been issued may file notice of such increased with the registrar and such notice shall be deemed to have been filed by the company itself and the scheduled bank or financial institution shall be entitled to recover from the company the amount of any fee properly paid by it to the registrar in respect of such increase].
2---------- 3---------- 4----------
22. The examination of the above-quoted provisions of section 86 of the Ordinance, 1984 would show that if Directors decide to increase the capital of the company by the issue of further shares, such shares shall be offered to the members in proportion to the existing shares held by each member, irrespective of class, and such offer shall be made by notice specifying the number of shares to which the member is entitled, and limiting a time within which the offer, it not accepted, will be deemed to be declined. Similarly the examination of provisions of section 94 of the Ordinance, 1984 would show that where a company having a share capital has resolved to increase its share capital beyond the authorized capital, or such capital is increased under subsection (3-A) of section 92, and where a company not having a share capital has resolved to increase the number of its members beyond the number previously registered, it shall file with the registrar, within fifteen days after the passing of the resolution, a notice of the increase of capital or members, as the case may be, and the registrar shall record the increase.
23. From the perusal of the above, it would be seen that issue of Right Shares is being dealt with under section 86 of the Ordinance, 1984, whereas section 94 of the Ordinance, 1984 clarifies that section 92 of the Ordinance, 1984 applies only in case of increase of "authorized share capital" of a company. From the above, it is clear that section 92 of the Ordinance, 1984 relates to alter the condition of company's memorandum of Association for increasing its "Authorized Share Capital" but does not deal with issue of Right Shares. Any reference to provisions of section 92 of the Ordinance, 1984 is of no consequences in the circumstances of the present case. As stated earlier the defendant No,1-company is intending to issue Right Shares for the amount unissued capital shown in annexure (P-4) but the defendant No,1-company is not increasing the authorized capital to attract the provisions of section 92 of the Ordinance, 1984.
24. It is common knowledge that authorized Share Capital is maximum ceiling of shares that company can issue as provided in the memorandum of association. The Law provides that as and when authorized share capital of company is to be changed it is to be changed by passing resolution in the general meeting of the Board of Directors and thereafter it requires approval from Securities and Exchange Commission of Pakistan.
25. Now taking up point No, "6", whether Court can substitute its findings with regard to decision taken by Board of Directors of the Company?. Learned counsel for the defendants has invited my attention to the case of Muhammad Suleman Kanjiani (supra), wherein learned single Judge of this Court has held as under:-- "In the circumstances, I am of the view that directing forensic audit would not only amount to fishing inquiry but would be against the basic principle relating to the administration of the affairs of the Company that, the Court does not generally intervene at the instance of the shareholders in internal administration of the company and would not interfere with the management of the Company by its directors so long they are acting within the powers conferred on them under the articles of the Company. However, the principle is subject to an important exception i,e, the powers so vested in them must have been exercised honestly, in good faith and in the best interest of the shareholders."
26. From the perusal of the above it is manifestly clear that generally Court does not interfere with the affairs and management of company or decision taken by Board of Directors as long Directors of the company perform their function strictly in accordance with the Ordinance, 1984. Unless there is any arbitrary, capricious or whimsical act on the part of Board of Directors of the Company. It is to be seen whether the action of the Board of Directors is against the interest of the shareholders or based on malice or for some other justifiable reasons pointed out by the shareholders, only then Court can interfere in the affairs and management of the company. In the present case impugned Resolution was passed by the Board of Directors for issuance of Right Shares to meet requirement of immediate equity and raising of funds for the project.
27. The judgments cited by learned counsel for the plaintiffs mentioned at serials Nos.2 to 7 deal with the grant of temporary injunction. There is no cavil to the proposition laid down in the above- referred judgments, but such judgments are not applicable in the circumstances of the present case for the reasons that plaintiffs have failed to make out any prima facie case hence the judgments referred hereinabove are of no help to the learned counsel for the plaintiffs. With regard to the case mentioned at serials Nos.8 to 13, these judgments have no relevance with the point in issue. The referred judgments will only apply to the plaintiffs if present plaintiffs were able to make out case for grant of injunction.
28. Learned counsel for plaintiffs has relied upon the case of Khan Iftikhar Hussain Khan of Mamdot (supra) in support of this contention that since the deponent of the counter-affidavit did not have the authority from the Company hence same be ignored. The judgment cited by learned counsel for plaintiff is distinguishable on facts and circumstances of the case in hand. In the reported judgment passing of resolution by the Board of Directors was questioned on the ground that meeting of Board of Directors was not convened in accordance with law hence resolution passed in incompetent meeting of the Board of Directors held to be of no consequences. But in the present case sufficient material has been placed on record along with resolution so also two authorization in favour of the deponent. As against this, on the above point learned counsel for the defendants has relied upon the case of Trading Corporation of Pakistan (Pvt.) Ltd. (supra), wherein learned Division Bench of this Court has held as under:-- "Thus, we hold that though there was no formal resolution passed in a meeting for filing recovery suit against the respondent, there did exist approval of the requisite number of Directors in terms of Article 113, who authorized the filing of the suit. In such circumstances absence of formal resolution could only be treated as technical omission which in the peculiar circumstances cannot be regarded as incurable defect. Furthermore, the appellant, out of abundant caution, has filed a formal resolution of appellant's Board of Directors signed by six Directors including its Chairman, ratifying the act of the person who filed the suit on behalf of the appellant."
29. Learned counsel for the defendants has also relied upon the case of Sahibzada Anwar Hamid (supra), wherein a single judgment of Lahore High Court after examining series of cases relied on the subject has concluded as under:- "32. I may respectfully add that while considering a matter the primary consideration for a court should be whether non-compliance of a procedural provision has caused any prejudice to the opposite-party. It is a case in which the petitioner desires a technical knock-out of the respondents on the basis of technical and even hypertechnical objections which will plainly defeat the ends of justice."
In view of above, it is held that counter-affidavit was competently filed by the deponent.
30. From the above discussion, it is clear that plaintiffs have failed to make out any case what to talk about prima facie case. Balance of convenience also does not lie in favour of plaintiffs, but if injunction order passed on 27-1-2010 is confirmed, serious prejudice shall be caused to the defendant No,1-company because due to the afore-said order the Right Shares which have been proposed to be issued in pursuance to the decision of the Board of Directors have been halted.
From the record it further appears that company had taken such decision just to improve its financial condition so that object for which this company was formed be achieved. In the circumstances it would be just and fair to recall the order dated 27-1-2010.
31. In view of above facts and circumstances of the case, plaintiffs have failed to make out a case for grant of injunction. Present application merits no consideration which is, accordingly, dismissed.
Interim order passed on 27-1-2010, in the above suit, is hereby recalled.