' IJAZ UL AHSAN, J.---The petitioners seek a declaration from this court to the effect that proceedings of the Extraordinary General Meeting (EOGM) of the respondent-Company held on 9- 6-2009 were invalid and of no legal effect. The petitioners' claim to jointly hold more than 10% shares of the respondent-company. More specifically, petitioner No,1 claims to hold about 8.5% shares while petitioner No,2 claims to hold 4.5%. The petitioners jointly seek to exercise their rights as shareholders of the respondent under section 160-A of the Companies Ordinance, 1984.
2. The learned counsel for the petitioners submits that the respondent is a public listed company. It is inter alia required to comply with inter alia, provisions of section 208 of the Ordinance, which provide as follows:-- "208. Investment in associated companies and undertakings.--(1) A company shall not make any investment in any of its associated companies or associated undertaking except under the authority of a special resolution which shall indicate the nature, period and amount of investment and terms and conditions attached thereto: ' Provided that the return on investment in the form of loan shall not be less than the borrowing costs of investing company.
' Explanation.--The expression investment shall include loans, advances, equity, by whatever name called, or any amount which is not in the nature of normal trade credit.
(2) No change in the nature of an investment or the terms and conditions attached thereto shall be made except under the authority of a special resolution."
3. He submits that the respondent has failed in its compliance obligations in consequence of which the EOGM and the resolutions passed therein are liable to be declared illegal and invalid.
4. It appears that through a notice issued by the respondent, an EOGM of the members of the respondent was called to be held at 9-30 a.m. On 30-5-2009 at the Mills premises, on Sargodha Road, Faisalabad, to transact certain business. The said notice contained a statement under section 160(1)(B) of the Companies Ordinance, 1984 relating to investment in preference shares of Crescent Bahuman Limited (an associated undertaking). The said statement provided that Crescent Bahuman Limited (CBL) is a public unlisted company incorporated in Pakistan with an authorized capital of Rs,1,635 million divided into Rs,1,63,500,000 ordinary shares of Rs,10.
5. The CBL has offered 1.79,958,900,5 per cent unlisted non-voting accumulated participatory and convertible preference shares of Rs,10 to the respondent. The respondent already holds 26,926,433 ordinary shares of CBL and intends to subscribe upto 179,958,900 preference shares offered at Rs,10 per share along with further subscription for the amount due on account of mark-up from 1-4- 2009 till the date of issue of preference shares on account of markup on loans of Rs,1,799,589 million.
' It is significant to note that the preference shares were required to be issued against conversion of loans in the aforesaid amount advanced by the respondent to CBL.
6. The learned counsel' for the petitioners argues that the provisions of section 160(1)(b) do not incorporate a mere formality. They are designed to protect and safeguard the interests of shareholders and, therefore, it is a requirement of law that adequate and substantive information be provided to the shareholders in order to enable them to make an informed choice. He submits that the transaction was a debt equity swap arrangement and no plausible reason was given to explain why the loan was required to be replaced by non-voting -equity. He submits that if the proposed debt equity swa p arrangement is allowed to go through, the respondent would neither recover the principal nor mark-up for years. Adds that the benefits of entering into a transaction of this nature were not disclosed to the members. He submits that neither the breakup value of preference shares was made available to members nor was any information provided to them that may have been utilized by them to make an informed decision. He further submits that the statement given in the notice was completely silent about details of CBL which falls short of the information required to be provided to the shareholders under the provisions of section 160(1)(b) of the Companies Ordinance. He maintains that law requires detailed information to be provided to the shareholders which should be meaningful. Such information according to him is conspicuous by its absence. The learned counsel points out that the notice did not provide any information regarding CBL and when, if any, dividend would be paid by CBL against the preference shares. He further submits that no specific financial information has been provided by the respondent. He therefore argues that the rights of the petitioners as shareholders have been gravely prejudiced: As such the resolutions passed in the EGOM held on 9-6-2009 are liable to de declared invalid.
7. Mr. Imtiaz Rashid Siddiqui, Advocate, has entered appearance on behalf of the respondent- Company. He submits that the respondent has advanced a loan of Rs, 1,799,589,000 to CBL. He points out that CBL had experienced serious financial difficulties but at present has overcome the same and is a flourishing concern. On 31-3-2009 a restructuring policy relating to the afores.Aid loan was made in view of the fact that the respondent felt that recovering the loan from CBL would again plunge CBL into serious financial difficulty. However, if the loan was converted into 5% unlisted non-voting cumulative participatory and convertible preference shares, it would benefit CBL as well as shareholders of the respondent.
8. In the aforesaid background a notice was issued for an EOGM under section 208 of the Companies Ordinance, 1984. The said notice contained a statement under section 160(1)(b) of the Ordinance. The learned counsel has referred S.R.O. No,865(1)2000, dated 6-12-2000 which also finds mention in the notice for the EOGM. The learned counsel submits that the SECP has specified the information that a company is required to provide in a notice under section 208 of the Ordinance.
He points out that the requirements of the S. R.0 were fulfilled by the respondent.
9. Pursuant to the notice an EOGM was scheduled to be held on 30-5-2009. However, before such meeting the Board of Directors of Crescent Textile Mills (CTML) deliberated upon the matter in a meeting held on 25-4-2009. The Director representing petitioner No,1 participated in the meeting and endorsed the scheme in this regard the learned counsel has placed on record a copy of the minutes of the 168th meeting of the Board of Directors of the respondent held on Saturday 25th April, 2009. It was attended by Mr. Muhammad Iqbal Hussain, the nominee of NIT (petitioner No,1).
The learned counsel has also drawn my attention to the concluding paragraph of the minutes which indicates that the Board considered the proposal as very logical and appropriate and while approving the proposal, passed a resolution authorizing Mr. Muhammad Anwar, Chief Executive and the Company/Secretary, to take all necessary actions in this regard.
10. The learned counsel further points out that before the EOGM which was scheduled to be held on 30-5-2009, Petitioner No,1, vide letter dated 25-5-2009 addressed to the respondent company belatedly, raised certain queries. It was stated in the said letter as follows:- "We would like to point out that such a swap is not in accordance with the best practices and corporate governance as it tends to dilute the value of the shares.
' Further, the notice of EOGM purports to singly authorize, Chief Executive and/or Deputy Chief Executive Directors to take all necessary actions to make investment in preference shares which again if not used prudently, can affect negatively on the financials of CTML. Board minutes also do not include Board's approval for the same."
11. It is pointed out that the petitioners were all along aware and had all material information in their possession yet they chose to write the aforesaid letter. He points out that the EOGM was held on 30-5-2009, during which similar questions were raised on behalf of petitioner No,
1. The bona fides of the respondent are evident from the fact that the meeting was postponed for further consideration of the matter. During this period and before the postponed meeting was held, a detailed response to the aforesaid letter dated 25-5-2009 was given to petitioner No,1 in which absolute disclosure of all material information as made. Further, all queries raised were fully addressed in detail along with the provision of all requisite facts and figures.
12. The learned counsel has also drawn my attention to minutes of EOGM which were adjourned and held on 3rd June, 2009 and 9th June, 2009 only to accommodate the petitioners and to specifically address their concerns. The learned counsel has pointed out that despite the fact that Mr. Javed Umar Vohra (representative of JOVC) had agreed with the scheme and all concerns of NIT had been fully addressed, the representatives of NIT used delaying tactics. When the resolution was put to vote, out of 16 members present, only two representing NIT and JOVC opposed the same. He points out that petitioner No,2, Arif Habib Limited, who never opposed the scheme or participated in any of the meetings, has been roped in by NIT in order to create the critical mass (of 10% of total shareholding) to sustain this petition.
13. With reference to the contents of the petition the learned counsel has submitted that the petitioners have been guilty of concealment of the facts, insofar as, they have not disclosed the fact that a Board meeting was convened before holding the EGOM. A letter was written by the petitioner which was responded to in considerable detail and the EOGM was adjourned twice in order to address the concerns of the petitioner. He has also referred to paragraph 5(d) of the notice to assert that the allegation that a statement setting out all material information as required by section 160(1)(b) of the Ordinance was not contained in the notice for the EGOM is factually. He further points out that the challenge of the petitioners is limited only to the extent of the notice of the EOGM being defective which means that they have abandoned their other claims/objections.
14. The learned counsel for the respondent has also drawn my attention to the annual report for the year, 2008 to show that all requisite information was disclosed and was available to all shareholders much before the aforesaid scheme was floated or contemplated. He has also referred to page 23 of the balance sheet of the respondent to show that all figures and material information regarding investment in associated companies and loans and advances was disclosed in the said report. Likewise, details of investment in CBL were also given in the balancesheet/financial statements for the year, 2008. He has also referred to the information disclosed under the note No,21 "Loans and Advances" to point out that the requisite information as totally, completely and fully disclosed for all shareholders to see. He has likewise referred to the annual report for the year, 2009 to show that there was neither withholding of any information nor any attempt to hide any information from the shareholders.
15. The learned counsel for the respondent finally submits that petitioner No,1 is a trust fund and is not a member of CTML. Points out that the record indicates that National Bank of Pakistan is a member and petitioner No,1 is merely a proxy holder. He, therefore, submits that the petition is incompetent as it has not been filed by members having 10% of the voting shares of the company.
16. The learned counsel has drawn my attention to a document which provides details of account- holders of the company as on 30th May, 2009 (Annex "B/1" page 139). By referring to the said document, the learned counsel submits that petitioner No,1 is not shown as a member/shareholder of the respondent. He has also drawn my attention to Annex C/1, (page 169) which is a letter dated 13-5-2009 written by a senior officer of petitioner No,1 addressed to the respondent enclosing proxy forms from National Bank of Pakistan, Trustee Department, in respect of Extraordinary General Meeting of the respondent scheduled to be held on. 30-5-2009. The learned counsel has also referred to the proxy forms issued in favour of Muhammad Khalid or failing him Mr. Umar Mansoor Bajwa. It is significant to note that the proxy forms have been signed by Mr. Muhammad Qasim, Special Attorney of National Bank of Pakistan (Trustee Wing).
17. I have heard the learned counsel for the parties at length. In the first place I propose to decide the question of maintainability of this petition. A list of share-holders/members of company as of 30th May, 2009 has been placed on record as Annex-B 1. Perusal of the said list indicates that petitioner No,1 is not shown as a member/share-holder of the respondent company. It is noticed that vide letter dated 13-5-2009, written by a Senior Official of petitioner No,1 addressed to the respondent, enclosed proxy forms from National Bank of Pakistan, Trustee Department in respect of Extraordinary General Meeting of the respondent scheduled to be held on 30-5-2009. The said proxy forms have been issued in favour of Muhammad Khalid or failing him Mr. Umar Mansoor Bajwa. It is significant to note that the proxy forms have been signed by Muhammad Qasim, Special Attorney of National Bank of Pakistan Trustee Wing. It appears from a perusal of the said document that the petitioner is a trust and is not a share holder/member of the respondent- Company. Although as a business practice the beneficial owner is treated as the shareholder but, strictly speaking the beneficial share-holders are technically not the share-holders insofar as their names do not appear in the records of the Company either as members or the share-holders. The petition has been filed by National Investment Trust, which is admittedly a trust and in terms of section 148 of the Companies Ordinance, 1984, its name cannot be entered in the Register of Members. The learned counsel for the petitioner has not denied the fact that the name of petitioner No,1 does not feature as a member in the Register of Members of the respondent Company.
18. Section 160(a) of the Companies Ordinance specifies the person, who can maintain a petition under the said section. It provides as follows:--
(a) notice of the meeting specifying the place and the day and hour of the meeting along with a statement of the business to be transacted at the meeting shall be given--
(i) to every member of the company;
(ii) to any person entitled to a share in consequence of death of a member if the interest of such person is known to the company; and
(iii) to the auditor or auditors of the company.
19. The word member is defined in section 2(1)(21) as follows:-- "member" means, in relation to a company having share capital, a subscriber to the memorandum of the company and every person to whom is allotted, or who becomes the holder of, any share, scrip or other security which gives him a voting right in the company and whose name is entered in the register of members, and, in relation to a company not having a share capital, any person who has agreed to become a member of the company and whose name is so entered".
20. In view of the foregoing and in terms of section 160(a) read with section 2(1)(21), I .Hold that the petition has not been filed by a member and the benchmark for maintaining a petition under section 160(a), which requires that the petition must be filed by members having not less than 10% of the voting power in the company is not met. After final arguments had been addressed, a halfhearted attempt was made on the part of the petitioners to argue that a trustee can initiate proceedings before this court in terms of Order XXXI of the Civil Procedure Code which provides that in all suits concerning property vested in a trustee executor or administrator, where the contention is between the persons beneficially interested in such property and a third person, the trustee, executor or administrator shall represent the person so interested. Without going into the meaning and scope of the provisions of Order XXXI, C.P.C. And its applicability to the facts and circumstances of the present case, suffice it to say that no such capacity has been claimed/disclosed by petitioner No,1 in the petition. On the contrary, petitioner No,1 categorically stated that it holds 8.5% shares in the respondent-Company which assertion is not borne out from the record including copies of register of members, which have been placed on record. It has nowhere been asserted that the present petition is being filed in a representative capacity. Further, there is nothing on record to indicate that member/members of the respondent had issued a power of attorney or other authorization in favour of petitioner No,1 to initiate these proceedings.
21. I have also gone through the contents of the notice for EOGM issued by the .Company under the provisions of section 208 of the Companies Ordinance, 1984. The said notice contains a statement under section 160(1)(b) of the Ordinance. It is important to note that SECP has specified the information that a company is required to provide in a notice under section 208 of the Companies Ordinance, 1984 in S.R.O.No,865(I)(2000) dated 6-12-2000. A perusal of the information provided in the notice sent by the company indicates that the requisite information was provided in the said notice. Section 208 of the Companies Ordinance provides as follows:-- ["208. Investment in associated companies and undertakings.--(1) A company shall not make any investment in any of its associated companies or associated undertaking except under the authority of a special resolution which shall indicate the nature, period and amount of investment and terms and conditions attached thereto: ' Provided that the return on investment in the form of loan shall not be less than the borrowing costs of investing company.
Explanation.--The expression investment shall include loans, advances, equity, by whatever name called, or any amount which is not in the nature of normal trade credit.
(2) No change in the nature of an investment or the terms and conditions attached thereto shall be made except under the authority of a special resolution.
(3) If default is made in complying with the requirements of this section, every director of a company who is knowingly and wilfully in default shall be liable to fine which may extend to one million rupees and in addition, the directors shall jointly and severally reimburse to the company any loss sustained by the company in consequence of an investment which was made without complying with the requirements of this section.
(4) This section shall not apply to--
(a) a banking company;
(b) Any other financial institution approved by the Commission;
(c) A private company which is not subsidiary of a public company; and
(d) A Company whose principal business is the acquisition of shares, stock debentures or other securities]"
22. As discussed above, the Securities and Exchange Commission of Pakistan issued Notification No, S. R. O. 865(I) /2000 dated 6-12-2000 which provides that while issuing notice for its general meeting where a special business relating to investment in any of its associate companies or associate undertakings is to be transacted under section 208 of the said Ordinance, a statement shall be annexed pursuant to clause (b) of subsection (1) of section 160 of that Ordinance setting out amongst others, the following information, namely:-- "1. In case of equity investment:--
(i) Name of investee company or associated undertaking;
(ii) Nature, amount and extent of investment;
(iii) Average market price of the shares intended to be purchased during preceding six months in case of listed companies;
(iv) Break-up value of shares intended to be purchased on the basis of last published financial statements;
(v) Price at which shares will be purchased;
(vi) Earnings per share of investee company in last three years;
(vii) Source of funds from where shares will be purchased;
(viii) Period for which investment will be made;
(ix) Purpose of investment;
(x) Benefits likely to accrue to the company and the shareholders from the proposed investment; and
(id) Interest of directors and their relatives in the investee company.
(2) In case of loans and advances:-
(i) name of investee company together with the amount and purpose of loan or advance; in case any loan had already been provided or loan has been written off to the said investee company, the complete details of the said loan;
(ii) a brief about the financial position of the investee company on the basis of last published financial statements;
(iii) rate of mark-up to be charged;
(iv) particulars of collateral security to be obtained from borrowers and; if not needed, justification thereof;
(v) source of funds from where loan or advance will be given;
(vi) repayment schedule;
(vii) purpose of loans and advances; and
(viii) benefits likely to accrue to the company and the shareholders from loans and advances."
23. A perusal of the notice issued by the respondent for EOGM of members to be held on 30-5- 2009, indicates that the requirements of section 160 as well as those of S.R.O.No,865(I)/2000 dated 6-12-2000 were made. It would be useful to reproduce the relevant portion of the notice:-- "Statement under section 160(1)(b) of the Companies Ordinance, 1984.
' Investment into preference shares of Crescent Bahuman Limited (An associated undertaking).
' This statement sets out material facts pertaining to the special business to be transacted at Extraordinary General Meeting of the Company to be held on 30th May, 2009.
' Crescent Bahuman Limited (CBL) is a public unlisted company incorporated in Pakistan with an authorized capital of Rs, 1,635,000,000 divided into 163,500,000 ordinary shares , of Rs, 10 each (proposed Rs,3,500,000,000 divided into 350,000,000 shares of Rupees 10 each. CBL has its Registered Office at 40-A, Off: Zafar Ali Road, Gulberg-V, Lahore.
' CBL has offered 179,958,900 5%, unlisted, non-voting, cumulative, participatory and convertible preference shares of Rupees 10 each to the company (CTML). The CTML already holds 26,926,433 ordinary shares of CBL and intends to subscribe upto 179,958,900 preference shares offered at Rs,10 per share along with further subscription for the amount due on account of Mark-up from 1st April, 2009 till date of issue of preference shares on account of mark up on loans of Rs,1,799,589 million.
' The salient features of the preference shares to be offered by CBL are as under:-- ' The preference shares will be issued against conversion of loans of Rupees 1,799,589 million.
The preference shares will enjoy preference over ordinary shares in case of payment of divided and liquidation.
The preference shares will be unlisted, non-voting, cumulative, participatory and convertible into nonvoting ordinary shares and will carry 5% preferred dividend rate (cumulative).
CTML will have the option to convert one third of the investment in preferred shares along with any accumulated preferred dividend into non-voting ordinary shares of CBL after the end of 2 years upto 5 years from the date of issue of preference shares at the conversion price of Rupees 10 per share ' CBL will have the option to redeem the outstanding preference shares upto 100 per cent anytime after the end of 6 years upto 9 years from the date of issue of preference shares at the redemption price of Rupees 10 per share ' After the expiry of 9 years from the date of issue of preference shares all outstanding , preference shares along with any accumulated preferred dividend will be converted into one-voting ordinary shares of CBL at the conversion price of Rupees 10 per share ' The company is fully authorized by its Memorandum and Articles of Association to make such investments..
Interest of Directors and Availability of Relevant Documents ' Directors of the company have no interest in the proposed resolution except to the extent of their respective shareholding ' The documents pertaining to above resolutions are available for inspection at the registered office of the company on any working day upto 30th May, 2009 during business hours and also at the time of meeting.
' Following is the information required under Notification No,S.R.O. 865(1)/2000 dated 5th December, 2000 in this respect.
1. Name of investee company or associated undertakingCrescent Bahuman Limited
2. Nature, amount and extent of investmentUpto 179,958,900 Preference shares of Rs.10 each per share along with any additional amount of mark-up due from 1st April, 2009 till issue date 3.
Average market price of the shareN/A
4. Breakup-value of shares N/A
5. Price at which shares will be purchasedRs.10 per share
6. Earnings per share of investee company in last four 2005 Rs.20,32 2006 Rs.18.86 2007 Rs.3.50 2008 Rs.1.73
7. Source of funds from where investment will be madeConversion of loans given to CBL
8. Period for which investment will be made.Long term
9. Purpose of investment Subscription of preference shares offer
10. Benefits likely to accrue to the company and the shareholders from the proposed investmentTo receive dividends that will increase profitability of the company and to take advantage of the potential capital gains that would increase share-holders value.
11. Interest of directors and their relatives in the investee companyThe Directors of CTML have no interest in the above said investment except and to the extent of their holding in CBL
24. - It is also significant to note that it was clearly and categorically stated in the notice that documents pertaining to above resolution are available for inspection by the registered office of the company during business hours and also at the time of the meeting. It has not been alleged that the petitioners or their representatives had made an effort to inspect any record but were prevented from doing so. It is, therefore, difficult for me to hold that the petitioners did not have adequate notice or that any information which was required by them as not provided, withheld or not made available.
25. It is also evident from the record that before the EOGM, which was scheduled to be held on 30- 5-2009, the Board of Directors of CTML met and deliberated the mater in its meeting on 25-4-2009.
Petitioner No,1 was represented in the said meeting and did not raise any objection against the proposed arrangements. The concluding paragraph of the minutes of 168th meeting of the Board of Directors of respondent held on 25-4-2009 shows that the Board considered the proposal as logical and appropriate and approved the same.
26. It appears from a perusal of the record that subsequently, petitioner No,1 may have had second thoughts which led to the letter dated 25-5-2009 raising certain queries to the effect that the swap may dilute the value of shares. Questions to the same effect also appear to have been raised during the EOGM held on 30-5-2009. It appears that on account of the questions raised by the petitioner No,1, the meeting was postponed and detailed response was sent to the petitioner addressing the questions raised. It appears that on account of the same reason the EOGM was adjourned to 3-6-2009 and 9-6-2009 to satisfy the petitioners and to address their concerns. It is also significant to note that when the resolution was put to vote, out of 16 members present, only two representing NIT and JOVC opposed the same. JOVC has not joined this petition, which points towards the fact that they have decided not to oppose the scheme.
27. It is also important to note that the petitioners being entities engaged in the business of sale and purchase of shares have the requisite expertise and services of professionals available to them. I have gone through the annual report for the years, 2008-2009 issued by the respondent- company. A perusal of the said report shows that all figures and material information regarding investment in associated companies, loans and advances were disclosed in the said report.
Likewise, details of investment in CBL were also given in the balance sheet/financial statement, which were all along available to the petitioners. I am, therefore, not convinced by the arguments of the learned counsel for the petitioners that the requisite information was not provided to or available to the petitioners, which caused prejudice to their interests.
28. The declaration sought by the petitioners can only be granted if there is a "material defect" in the notice under section 208 of the Companies Ordinance, 1984 or in the meeting held in consequence of the notice. Just any defect does not furnish basis for exercise of jurisdiction under section 160 of the Ordinance. The petitioners were required to demonstrate that in the first place there was a defect in the notice or in the proceedings of the meeting held in consequence thereof and in the second place such defect was material. In my opinion, the petitioners have not succeeded in crossing the aforesaid threshold. I find that there was no effort on the part of the respondent company to conceal or withhold any material information and the information provided in the statement under section 160(1)(b) of the Ordinance met the requirements of section 160 of the Companies Ordinance 1984 and S. R. O. No, 865(1) /2000 dated 6-12-2000.
29. On the basis of my findings that the petitioner No,1 is not a member of the respondent company and cannot maintain this petition and that there was no material defect or withholding of any material information either in the notice under section 208 of the Companies Ordinance, 1984 or in the meetings held in consequence thereof, this petition fails. It is accordingly dismissed.