Messrs Haseeb Waqas Sugar Mills Limited/Appellant No. 18 is a public company limited by shares, listed Karachi and Lahore Stock Exchanges. The shares of the company were acquired during the year 2004 - 2005 by Respondents No. 5 to 7 and others, to the extent of 39% of it's issued capital, from the Stock market. Transfer of these shares, was effected through Central Depository Company
(CDC) and the relevant entries are incorporated in the record of CDC. The appellants assailed, acquisition of these shares by Respondents No. 5 to 7, before the Commission through filing a complaint under. Section 21 of the Listed Companies (Substantial Acquisition of Voting Shares and Take-overs) Ordinance, 2002 (hereinafter referred as Ordinance, 2002). Executive Director of the Commission, through order dated 8th December, 2005, dismissed the complaint filed by the appellants. The appellants assailed the order of Executive Director in revision before Appellate Bench of the Commission, invoking the provisions of Section 484 read with Section 477 of the Companies Ordinance, 1984. The appellants through another complaint (Complaint No. 261-2005) under Section 21 of the Ordinance, 2002, in parallel proceedings challenged the acquisition of shares. The Executive Director of the Commission, vide order dated 08.12.2005 dismissed both the complaints and found the impugned acquisition, in accordance with law and dismissed the complaint of the appellants. The order was assailed before Commission in appeal (C.A. No. 84/2006), which was allowed vide order dated 22.2.2007 and the matter was remanded to the Commissioner for decision afresh, after conducting fresh investigation. The Commissioner in the post remand proceedings found that the acquisition is prima facie violative of Ordinance, 2002.
The matter is now fixed for hearing. The proceedings are pending with the Commission where parties are contesting their competing claims before the Commission.
2. The company failed to hold Annual General Meeting. Show cause notice under Section 158 of the Companies Ordinance, 1984, was issued on 4.3.2005 by the Enforcement Department of the Commission to the management of the company. The reply to the show-cause notice was filed by the appellants. Respondent No. 4 Director. Enforcement passed the order dated 8.12.2005, observing therein that management of the company is responsible for not holding Annual General Meeting of the company, imposed fine for default and directed for holding Annual General Meeting.
The complaint filed by the .appellants was also dismissed by the Commission through order dated 16.12.2005. The orders of the Director Enforcement and also of the Executive Director of the Commission, were assailed by the appellants in revision, filed under Section 477 read with 484 of the Ordinance, 1984, before the Appellate Bench of the Commission/Respondent No. 1. Show cause notices issued to the management with regard to the failure to hold Annual General Meeting for the years 2005 and 2006 were decided which were also assailed in Revision Petition Nos. 6, 48 and 81 of 2006 before Respondent No. 1. Respondent No. 1, through a consolidated order dated 30.11.2006, dismissed the revisions, upheld and affirmed the order regarding imposition of fine for failure to hold Annual General Meetings and further directed for holding Annual General Meeting.
The consolidated order of Respondent No. 1 was assailed by the appellants in Writ Petition No. 77/2007 titled 'Messrs Haseeb Waqas Sugar Mills Vs. SECP". During the pendency of the writ petition, instant appeal was filed and thereafter, the writ petition was withdrawn unconditionally.
3. Learned counsel for appellants in order to meet the objection of the respondent as to the maintainability of this appeal, submitted that provisions of Section 34 of SECP Act, 1997 provide for an appeal against an order of the Commission, comprising two or more Commissioners or against the order of the Appellate Bench of the Commission. Order impugned in this Commercial Appeal (order dated 30.11.2006) has been passed by two Commissioners and as such it is appealable under the above provision. Learned counsel emphasized that it is immaterial that order passed by two or more Commissioners, is in their appellate, revisional or original jurisdiction. Learned counsel went on to argue that appeal has been provided by Act, 1997 without distinction that the Commission has passed the impugned order under the provisions of Companies Ordinance, 1984 or SECP Act, 1997. A provision of law has to be interpreted as it is. More so, when the provision is clear and devoid of any ambiguity. He added that the appellant had two options to assail the order of the Director Enforcement, either to assail the order in appeal under Section 485 or in revision as per proviso to Section 484. The appellant has opted the remedy of an appeal instead of revision.
Learned counsel went on to argue that law provides remedy of appeal, against the order under Section 485 of Ordinance, 1984 and as such, it cannot be snatched, on technicalities.
4. Learned counsel narrated in detail about the background of the respondent company. The idea of incorporation of the company was conceived by the family who are appellants herein. They established, sugar mill project by investing a sum of Rs.62 million in the equity of the company. The family at present is holding 57% of the share holdings of the company while the respondents hold 34.35% of the shareholdings in the company. When the complaint was filed, the ratio was 52.28% and 39% of appellants and the respondents respectively. There has never been a complaint, about the mismanagement of the company, ever since its incorporation. According to learned counsel, the dispute arose when the company, convened it 13th Annual General Meeting on 31.1.2005 and the share-holding was closed on 30.1.2005 and the management received letter of consent to ad as ,a director from Respondents No. 5 to 7, with two other individuals. The appellants then found that Respondents No. 5 to 7 hold, in their individual capacity, less than 1% of the equity of the company. It was revealed to the appellants, from letter of consent from Respondents No. 5 to 7 that they have acted in concert with other acquirers and acquired 39% of the shareholdings of the company, illegally, by offending the provisions of Listed Companies (Substantial Acquisition of Voting Shares and Take-Overs) Ordinance 2002. Learned counsel contended that guided by the provisions of Section 26(2) of the Ordinance, 2002, the appellant postponed the Annual General Meeting, through public advertisement, cited in various newspaper including "Business Recorder", "Nawa-e-Waqt" and "Pakistan" in their prints dated 30.1.2005. Notices were also conveyed to the Securities and Exchange Commission of Pakistan (SECP). The complaint was filed against Respondents No. 5 to 7, under Section 21 of the Ordinance, 2002 on 26.2.2005 regarding acquisition of shares, after seeking approval from the board of directors of the Company. The complaint remained pending before the Commission and was not taken up for hearing for a period of two years. The Executive Director Enforcement viewed the controversy from the angle that it is mandatory requirement of the Companies Ordinance, 1984, that Annual General Meetings be held in each calendar year, within the gap of 18 months and issued show-cause notice to the director regarding non-holding of the meeting. Show cause notice under' Section 158(1) of the Ordinance was replied but learned Commission passed the direction vide order dated 8.12.2005, for holding of the Annual General Meeting.
5. Learned compel contended that the purpose of promulgation of Ordinance, 2002 was to provide fair and equal treatment to investors and to ensure transparent and efficient system for substantial acquisition of voting shares and take over. Section 30 of the Ordinance, 2002 was referred to contend that Ordinance, 2002 supersedes other laws including Companies Ordinance, 1984. The impugned order has the effect of taking away, the over-riding impact of the Ordinance, 2002. Learned counsel went through the relevant parts of order dated 1.10.2007, passed by the Commissioner (Security market division) whereby, the complaint of the appellant was entertained with certain directions the Commission proceeded to commence proceedings under Section 26(3)
(c) of Ordinance, 2002. He added that the respondents were directed vide order dated 1.10.2007 to refrain from declaring in securities of Haseeb Waqas Sugar Mills Limited or dispose of any of securities held by them, during relevant period. Learned counsel added that order remained unchallenged and the shares held by Respondents No. 5 to 7 are under restraint order. The holders of such shares, cannot legally perform their functions as directors of the, company. It was then submitted that Respondents No. 5 -to 7, acting in concert, acquired more than 10% of voting shares, in the company, without a valid disclosure to the company and the stock exchange, within the meanings of Section 4 of Ordinance, 2002. They acquired more than 20% voting shares, without public announcement as envisaged in Sections 5, 8, 9, 10 and 11 of the Ordinance, 2002. The acquisition being illegal does not confer any right to the acquirer. Allowing them to participate in the board meeting, will amount to paying the prize for illegality. Learned counsel emphasized that by virtue of prohibiting order passed against the acquirer, Respondents No. 5 to 7 cannot deal with security, which means that whatever the rights, the acquirer have with regard to voting shares, are frozen. Learned counsel added that allowing the respondent to remain on board of directors, will result into permitting the outsiders to invade company and creates chaos. Appellants will be blackmailed and Respondents No. 5 to 7 will disrupt the company.
6. Mr. Jawwad-ul-Hassan, Advocate who represents No. 5 to 7 as well, contended that it is the prerogative of the share-holders to manage the affairs of the company through board of directors.
The corporate democracy is the essence of the corporate personality of the company.
Management of affairs of the company vests in the hands of the directors, once elected, the elected body cannot be deprived of their functions. Relevant case law on the subject was referred including the cases of "Rajapalayan Industrial and Commercial Syndicate Ltd. and another Vs. K.A.
Vairaprakasam and another (AIR 1989 Madras 139), "Col. (Retd.) Syed Mukhtar Hussain Shah Vs. Wasim Sajjad and 30 others" (1986 SCM R 48), 'Muhammad Asim Kurd alias Gailoo Vs. Nawabzada Mir Lashkari Khan Raisani and others (1999 SCM R 689), "Syed Masroor Ahsan Vs. Muhammad Tariq Chaudhry and others" (1991 SCM R 668), "Sheikh Abdul Hameed Vs. Punjab Local Councils Election Authority and 3 others" (1984 CLC 993), 'Abdullah Ismail and another Vs. Sindh Industrial Trading Estate" (1997 CLC 783), 'Nizam Hashwani Vs. Hashwani Hotels Limited and 14 others" (1999 CLC 1989), "Shamsuddin Ahmad Vs. Charu Chandra Biswas and others" (AIR 1934 Calcutta 621) and 'Adamjee Insurance Company Limited and others Vs. Muslim Commercial Bank Limited and others" (2005 SCM R 318).
7. Learned counsel for the respondents, on the other hand, has questioned the maintainability of the instant appeal. He submitted that the complaint, wherefrom the instant proceedings have arisen, was under Section 476 of the Companies Ordinance, 1984. The order passed under Section 476 of the Companies Ordinance is assailable under Section 477 read with Section 484 of the Ordinance, 1984. The appellants, treating the order, passed by Respondent No. 4 as an order under Section 476, has filed revision petition, invoking the provisions of Section 477 read with Section 484 of the Ordinance, 1984. Since the original order of Respondent No. 4 was under Section 476 and the revision against the order was filed under Sections 477 and 484 of the Companies Ordinance, 1984, the remedy of appeal is not available to the appellants under Section 485 of the Ordinance, 1984.
While referring to Section 485 of the Companies Ordinance, 1984, learned counsel contended that remedy under Section 485 is available to an aggrieved person against the original order, directive, judgment of the Commission, but no such appeal is available against the order passed by the Commission in a revision under Sections 477 and 484. He further contended that an appeal under Section 485 is competent before Division Bench. The order was, in the first instance, assailed in writ petition, which was subsequently withdrawn. The appellants have the remedy of assailing the order in writ petition by withdrawal of their petition. Learned counsel went on to argue that instant appeal has been filed under Section 34 of the Securities and Exchange Commission of Pakistan Act, 1997 against the order dated 30.11.2006 passed by Respondent No. 1. The provisions of Section 34 of the Act, 1997 provide for the remedy of appeal against the order of two or more Commissioners or the Appellate Bench. The order impugned in this appeal is neither of two Commissioners nor by the Commission as Appellate Authority. The Commission has passed the order in it's revisional jurisdiction and the order is thus not assailable in appeal. He emphasized that order of the Commission under Section 34 is the one passed by the Commission under Section 33 of the Act, 1997, while the original order, which can be made appealable under Section 34, is the original order of the Commission passed under Section 30. Through filing an incompetent appeal, the appellants have succeeded in depriving the elected directors of the company from taking part in the management of the company. In this illegal exercise, the company has not held its Annual General Meeting, ever since it's election of new board of directors.
8. While touching the merits of the case, learned counsel stood behind the impugned order and submitted that no provision of law exists either in the Ordinance of 1984 or in the Ordinance, 2002, to allow the company avoid to hold its Annual General Meeting or elections of its directors or finalization of its accounts. It is essential and management of the company is bound to hold it's Annual General Meeting, approve its audited Accounts through General Body and get the management of the company run through its elected body. There is not a single provision in the relevant laws, which provides for restraining the elected directors from participating in the affairs of the company. The proceedings before Respondent No. 4, are not impediment for Respondents No. 5 to 7 to continue and perform their functions as directors of the Company. Even if the matter is decided by the Commission adverse to Respondents No. 5 to 7, it can be according to Section 25 of the Ordinance, 2002. No prohibitory order under Section 25 can be passed restraining Respondents No. 5 to 7 to partieipate in the members meeting or in the meeting of board of directors of the Company. He went on to argue that acquirer having once been transferred the shares of a listed company, acquires all the rights of a member of the company. The rights of share-holder held by such member of the company can neither be restricted nor reduced. The appellants had no right or authority under the provisions of Companies Ordinance, 1984, to either postpone the Annual General Meeting or deprive a share-holder or a member of the company from taking part and casting his vote in the Annual General Meeting, likewise his right to decide and take part in the meeting of the Board of Directors. The appellants have violated each and every provisions of law.
9. Mr. Taffazal Rizvi, Advocate on behalf of SECP, stood behind the impugned judgment. He referred to various provisions of Companies Ordinance and submitted that holding of annual general meeting is essential requirement of law. Failure to hold two consecutive meetings entail penal consequences i.e. winding up of company. The accounts require regular audit and approval by the general body. Managing affairs of the company, without validly elected board of Directors and running the business of the company without approved accounts, speak of the fact that the appellants are running the business illegally and in neglect of memorandum and articles of association of the company.
10.Learned counsel contended that responsibility of the Commission was to ensure holding of.
Annual General Meeting, which was held under the directions of the Commission. The Board was elected in Annual General Meeting, which was held under the directions of the Commission. The Commission has passed the impugned orders in accordance with law. The orders do not suffer from any illegality or legal infirmity and if any order is passed in this appeal, the Commission will proceed further in accordance with the directions of this Court. He has adopted the line of arguments of learned counsel for Respondents No. 5 to 7, qua the maintainability of this appeal. He added that since the matter is pending before the Executive Director of the Commission, the instant appeal is premature at this stage.
11.Heard learned counsel for the parties and record perused.
12.The management of the company has failed to hold it's annual general meetings for the years, 2004, 2005 and 2006.
13.Executive director vide order dated 8.12.2005, imposed upon the management of the company, fine of Rupees five (5) million for not holding the AGM for the year 2004. Appellant assailed the order in Revision No. 6 of 2004, under Sections 477 and 484 of the Ordinance, 1984. Showing cause notice dated 4.3.2005 was issued to the management for not holding Annual General Meeting within the prescribed time, under Section 158, before imposition of penalty vide order dated 18.12.2005.
14.Enforcement Department further directed the company to hold Annual General Meeting, under Section 170 within 30 days of direction (vide order dated 8.12.2005). Company's failure to comply with direction, resulted into issuance of another show-cause notice dated 26.1.2005. Executive director vide order dated 4.4.2006 imposed another penalty of Rs.32,200 per day under Section 171 of the Companies Ordinance, 1984. Appellants assailed the order in Revision Petition No. .47 of 2006.
15.The Annual General Meeting for the year 2005, became due in the meanwhile and a third show-cause notice was issued on 6.7.2006, for default in holding Annual General Meeting. Order dated 16.8.2006 was passed and the penalty of Rs.50,000/- on each director and the Chief Executive was imposed, the order was assailed in Revision Petition No. 81 of 2006.
16.The Commission through consolidated order/judgment dated 30.11.2006 dismissed the petitions and upheld the imposition of penalties. The instant appeal assails order dated 30.11.2006 of the Commission. Learned Commission observed in the impugned order that dispute of acquisition of shares, in violation of Take-over laws/Ordinance, 2002, should have not been made ground for not holding Annual General Meeting for two consecutive years. Election of directors was one of the agenda in Annual General Meeting. It was further observed in the impugned judgment that act of omission on the part of management to hold meetings within the prescribed time, was violation of law: The finding of the. Commission, (under assail), is the correct view and unexceptionable. I will discuss this issue in the succeeding paragraphs.
17. The company is required under Section 158 of Ordinance, 1984, to call at least one meeting .
(AGM) of its shareholders in each calendar year, with a gap not more than eighteen (18) months between two meetings. If the company fails to hold annual general meeting, two consequences will follow. Firstly any member can apply to the Commission (SECP) and later will order the calling of meeting. Secondly, the Commission has the power to take suo moto action for such default and pass similar order/direction. Additionally, the failure to call AGM is an offence, punishable with fine.
The penalty is imposed upon the company as well as every officer, who is party to such default.
Relevant provision in Section 158(4) of the Ordinance, 1984, which reads:-- "158(4). If default is made in complying with any provision of this section, the company and every officer of the company who is knowingly and willfully a party to the default shall be liable-- (a)if the default relates to a listed company, to a fine not less than (fifty) thousand rupees and not exceeding (five hundred) thousand rupees and to a further fine not exceeding two thousand rupees for every day after the first during which the default continues; and (b)if the default relates to any other company, to a fine not exceeding (one hundred) thousand rupees and to a further fine not exceeding (five) hundred rupees for every day after the first during which the default continues."
18. The above provision of law, in unqualified terms, provides for holding of Annual General Meeting.
No departure is permissible from the compliance of the mandatory provisions of Section 158. The company is artificial person and those who manage its affairs are under legal as well as fiduciary obligation, to run the affairs of the company as the law (Companies Ordinance, 1984) requires Corporate democracy is the essence of the corporate personality of a juristic person. The legislature in its wisdom was conscious of the importance of holding of Annual General Meeting and that is why a company is made liable to be wound up, if fails to hold two consecutive Annual General Meetings.
19. The accounts of the company are audited annually and are approved in Annual General Meeting. Carrying financial activities of the company, without proper audit of accounts and its approval from general body, show that the management of company deals with account in an unauthorized manner. The company can lawfully manage its affairs, when it's members approve the accounts and select among themselves the board of directors to perform the functions on behalf of the company. The exclusion of the directors from the management of the company or exclusion of the share-holders from electing the directors and approving the audited accounts will negate the concept of corporate democracy. The directors, who are elected for a specified period, continue to perform their functions beyond such period will amount to usurp the powers given to the directors. The directors are elected for certain period and they can perform their function during that period only. Their terms of office, validly exist for the period for which they were elected and not thereafter. The management is under an obligation to hold the meeting (AGM) as and when it becomes due.
The appellant has taken refuge from this obligation, on the plea that provisions of Ordinance, 2002, have precedence over other laws including Ordinance, 1984. The acquisition of shares in violation of provisions of Ordinance, 2002, can be no justification for the management of a company to opt for a different course, for management of affairs of the company other than a legal course. Take Over Laws/Ordinances, 2002 has the over-riding impact but to certain limitations. Ordinance, 2002 will over-ride only those provisions of Companies Ordinance, 1984, which are in conflict with the former statute. Section 30 of the Ordinance, 2002 will prevail and those provisions of Ordinance, 1984 which are not in conflict with the Ordinance will hold the field. The Ordinance, 2002 nowhere provides for a different procedure for holding election of the directors or calling the Annual General Meeting of the target company. The provisions of sub-Sections (2) to (5) of Section 178 do not offend the provisions of Ordinance, 2002, therefore, these provisions will apply with all its force and vigour to the target companies, as well. The members are not required to be deprived of their right to be represented in the company.
21. The acquisition of voting shares in violation of the provisions of Ordinance, 2002, do not render the acquisition of share void and ab initio. It is curable defect and the acquisition can be validated by imposition of fine or directing the acquirers to sell the shares acquired by offending provisions of Ordinance, 2002, or to debar the acquires from the company for the next three years. The provisions of Ordinance, 2002 are enacted in the interest of security market and not to safeguard the interest of existing share-holders in the listed company. The member of the company is eligible to vote and participate in the annual general meeting of the company as long as he is on the register of the share-holder. A member is only debarred from participating in the meeting (AGM) when his name is removed from the register either in the normal course or-through rectification of the register through an order of the Court. The share-holder unless he seizes to be a member of the company is vested with the right to participate in the meeting (AGM), seek from the management or from the commission, direction for calling such meeting.
Respondents No. 5 to 7 were elected as Directors of the company in the annual general meeting.
The election of director can be declared invalid through a petition u/S. 179 of the Companies Ordinance, 1984. The appellant has not challenged the proceedings of the Annual General Meeting in which Respondents No: 5 to 7 were elected as Director within the prescribed period of limitation.
Depriving these Directors from participating in the management of the company is unfair, inequitable and illegal. The commission has rightly directed the appellant, through impugned order, to hold Annual General Meeting. There is no illegality in the imposition of fine. The impugned order is not open to exception.
22. For the foregoing, this appeal is without any merit and is accordingly dismissed. The impugned decisions qua the imposition of penalties and calling the general meetings are affirmed and upheld.