' MUSHIR ALAM, C.J.---The Petitioner No,1 SultanulArifeen, petitioner No,2 Shahid Firoz, petitioner No,5 Rizwan Feroz and petitioner No,7 Khalid Firoz are share holders and Javed Firoz, Shamsul Arifeen and Qadeer Batlay petitioners Nos.3, 4 and 6 respectively are share holders as well as Directors of Pakcom Limited, unlisted Public Company, (promoters of Insta Phone). All the petitioners have essentially impugned the recovery proceedings initiated against them as share holders and Directors of Pakcom Limited; under the Sindh Land Revenue Act 1967.
2. In nutshell it appears that Pakistan Telecommunication Authority (hereinafter abbreviated as PTA) through notice dated 1-12-2006 (available at page 235) demanded outstanding installments from the Pakcom Ltd. And called upon it to show cause as to contravening financial obligations notified therein; followed by first Enforcement Order dated 3-1-2008. Which action was successfully appealed against through F.A.O. 3 of 2008 and the Lahore High Court vide order dated 15-1-2008 remanded the matter to the PTA for decision afresh.
3. PTA on remand passed yet another order dated 4-3-2008 available at page 305 of the file, which led the Pakcom Ltd. To file another F.A.O. No,6 of 2008 under section 7(1) of Pakistan Telecommunication (Re-organization) Act 1996 before the Islamabad High Court along with a Writ Petition No,1298 of 2008 available at pages 327 and 399 respectively. The FAO and the Writ Petition were dismissed through consolidated order dated 6-4-2009 at page and 593 of the file respectively. The petitions bearing No,662 of 2009 and 663 of 2009 filed before the honourable Supreme Court were dismissed on 27-5-2010 followed by reasons dated 14-12-2010. It is stated at bar by the learned counsel for the petitioner that the Reviews bearing No,2 of 2011 and 3 of 2011 are still pending. It seems that pursuant to the dismissal of the petitions filed by Pakcom by the honourable Supreme Court PTA, the respondent No,4. Vide directive dated 26-8-2009. Requested DDO (R); CDGK to initiate recovery proceedings. Consequently DDO (R), CDGK directed the petitioners to pay the dues in the sum of Rs,7,498,464,515 (Rupees seven Billion, Four Hundred Ninety Eight Million, Four hundred sixty Four Thousand, Five Hundred and Fifteen Only) including 2% recovery charges) on 14-9-2009 failing which action under Land Revenue Act, 1967 was threatened.
4. Learned counsel for the petitioner has drawn our attention to the impugned demand notice dated 7-9-2009 (available at page 785). The demand was resisted and challenged through reply dated 11-9-2009, refuting any liability: it was asserted that liability and claim if any, is against the Pakcom Ltd. And not against the petitioners but, to no avail and consequent upon the dismissal of the petitions before the apex Court, the recovery proceedings are pressed against the petitioners under the Sindh Land Revenue Act, 1967, the instant petition has been filed.
(a) It was contended by learned counsel that the licence was issued to the Pakcom Ltd. And not to the petitioners. It was therefore, urged the liability of limited company cannot be imposed on the directors or shareholders of the company. It was next urged that even under section 23 of the Pakistan Telecommunication (Re-organization) Act, 1996, the demand of licence fee, if any, could be invoked only against a licensee, which in the instant case is Pakcom Ltd. And not against any other person, including its share holders and or directors. In order to buttress his contention that liability against a limited liability company cannot be enforced against the directors and or its shareholders in their personal capacity. It was vehemently assailed that the shareholders are liable only to the extent of their shareholding and not beyond that learned counsel for the petitioners has placed reliance on Ikram Bux Service v. Board of Revenue (PLD 1963 SC 564), Ayaz Durrani v.
Government of Pakistan (PLD 2000 Lahore 414), (c) Shamsuddin v. Federation of Pakistan (1995 CLC 299), (d) Ehtisham Ghazi v. Azharuddin (2001 YLR 526), (e) A Rehman v. Tehsildar Lahore (1993 CLC 1222), (f) Tariq Saed Saigal v. Dist. Excise and Taxation (1982 CLC 2387), (g) Hamdard Dawakhana v.
K.B. Joseph & Co. Ltd. (PLD 1971 Kar., 279), (h) Faiz Najmuddin Abdul Ali v. Capital Development Authority (PLD 1976 Karachi 1084).
6. Mr. Yawar Farooqui, learned counsel for the respondents Nos.4 and 5 contended that colossal amount of the public dues and revenue has been siphoned off using Pakcom Limited as a cloak through petitioners who are its Directors and share holders. It was urged that the limited liability companies are operated, run and managed by the natural persons and not otherwise, therefore, persons running and managing the affairs of Limited Liability Company are personally liable for the dues outstanding on account of the licence fee and penalty if any. According to him, it is a fit case to pierce the veil of incorporation to recover dues from the persons who are responsible to cause loss to the public exchequer.
7. Mr. Sarwar Khan, learned DAG while placing reliance on section 91 of the Sindh Land Revenue Act urged that the recovery could be effected against the petitioners under the Land Revenue Act and if at all any amount is recovered, the petitioners should proceed under the law to make onward recovery .Against the company which is actually and in fact responsible to make the payment.
7.(sic.) We have heard the arguments and perused the record. There is no dispute that the petitioner are the Directors and share holders as described above. Admittedly originally License was issued to the Pakcom Limited on 19-4-1990, which was revalidated/renewed for 15 years on 19- 4-2005. It is also admitted that Pakcom Limited failed to meet its financial obligations under the licence leading to first Enforcement Order under section 23(3) of the PT (R) Act, 1996 dated 1-12- 2006. Record also shows that the show cause notice and recovery proceedings were only against the Pakcom Limited through its Directors namely the petitioners A herein. It is matter of record that Pakcom Limited challenged such proceedings upto honourable apex Court.
8. It is now well established and entrenched in corporate parlance and jurisprudence that a company registered under the Companies Ordinance,. 1984 is a separate legal entity separate and distinct from its shareholders and directors, right from the case of Salmon v. Salmon 1897 AC 22.
9. Question whether liability of a corporate entity or limited liability company could be recovered from its shareholders and/or directors came up for consideration in number of cases one may gainfully refer to;
(a) Ikram Bux Service v. Board of Revenue (PLD 1963 SC 564), in cited case Court disapproved issuance of instructions to consider limited company as against individual for the grant of route permit, which instruction was found to be violative of Motor Vehicles Act, 1939.
(b) Ayaz Durrani v. Government of Pakistan (PLD 2000 Lahore 414), in said case petitioner was arrested to recover the electricity dues payable by the limited liability company of which he was the Chief Executive. Court held, "it needs no gain saying that a company incorporated under the Companies Ordinance, 1984 is a separate legal and distinct juristic person quite apart from the Chief Executive, director or shareholders. Liability of a company cannot fall upon the director or the shareholders who have no personal responsibility for the same".
(c) Shamsuddin v. Federation of Pakistan (1995 CLC 299), in referred case also director of limited company was arrested for non-payment of charges for energy supply. It was held that director cannot be arrested for the liability of limited company, recovery proceedings could be initiated against the company in accordance with law.
(d) Ehtisham Ghazi v. Azharuddin (2001 YLR 526), in cited case, bailable warrants were issued against the director of a company for the recovery of liability of a limited company, were struck down by the Court. Itwas held that Managing Director merely acts as employee/representative of company, unless director has executed some documents acknowledging the liability of the company upon himself in his personal capacity as guarantor for the company or case is covered under section 47, C.P.C. Or section 111 of the Companies Ordinance, 1984, a director cannot be held liable for the decree against the company.
(e) A Rehman v. Tehsildar Lahore (1993 CLC 1222), followed similar view as in the case Shamsuddin (1995 CLC 299) and Ehtisham Ghazi (2001 YLR 526) above.
(f) Tariq Saed Saigal v. Dist. Excise and Taxation (1982 CLC 2387), in cited case education cess was sought to be recovered through coercive process under the Workers Children (Education)
Ordinance it was held that the provisions of the Ordinance and rules framed there under cannot be stretched to an extent to attach and dispose of the personal property of Chief Executive or directors or for that matter detain him. It was further held that the Law and Rules however empower for proceeding against the property of the company in the hands of the chief executive/director and to adopt other measures under the Companies Act, 1913,
(g) Hamdard Dawakhana v. K.B. Joseph & Co. Ltd. (PLD 1971 Karachi 279) cited case also resounds principle that the limited company is separate and distinct legal person distinct from persons who owns it and further that such person cannot be held liable for the debts of the company.
(h) Fait Najmuddin Abdul Ali v. Capital Development Authority (PLD 1976 Karachi 1084) in referred case' it was held that since the amount sought to be recovered by the Capital Development Authority Islamabad through City Deputy Collector, Karachi, therefore High Court of Sindh has jurisdiction in the matter. It was further held that unless amount is determined in appropriate proceedings provisions of Land Revenue Act, 1967 cannot be invoked.
(i) Shaikh Datar Cotton Industries and Oil Mills v. Mahmood Pvt. Ltd. 2006 CLD 191 the court examined the situation in which corporate veil could be lifted; court declined issuing execution against the director of the Company, who signed the correspondence as an authorized signatory of the company. Similar view was taken in Nihal Chand v. Kharal Singh Sunder Singh (1936) 6 Corn.
Cases 418 @ 421.
Desiraju Vankatakarishna Sarma Re, (1955)25 Com. Cases 32 @35 and parameshwari Das v.
Collector of Bulandshahr (1955) 25 Corn. Cases 343, G.C. Mehrotra v. Deputy Collector (Collection)
Sales Tax (1998) 93 Corn. Cases 617, I was held that individuals constituting the company cannot be held responsible for sales tax/Income tax dues of the company it is only the assets, of the company which can be proceeded against.
(k) Kallash Prasad Modi v. Chief General Manager Orissa Telecommunications AIR 1994 Orissa 98, Court refused to accept the plea that the for the default in payment of company's phone Director could be held liable.
(1) In a very recent case Arshad Saleem v. Civil Aviation Authority 2011 CLD 1171 a bench of this court accepted the HCA against the order passed on application under section 12(2), C.P.C., where by the judgment and Decree passed jointly and severally against the company and its (paid) Director.
Court set aside the judgment and Decree as against the (paid) Director, who signed the agreement on behalf of the Company and maintained the same against the(sic).
10. From the above discussed case-laws, it is abundantly clear that the liability of the Company cannot be treated or foisted as the liability of the directors and or its share holders merely because any contract is signed by any of the directors/shareholder and or any other person authorized by the company, for and on behalf of the company, unless of course in situation where directors or persons other than the company could also be held personally liable firstly; where the director/any other person has executed some documents acknowledging and or assuming the liability of the company upon himself in his personal capacity as surety, guarantor or indemnifier for the company as per provisions of Contract Act, 1872 (such is normal and usual in banking and commercial transition). Secondly; where the creditor or regulator as the case may be before extending any financial benefit, licence, 'permit, or concession in any form, which carries recurring financial liability or obligation seek from the director and, or member who proposes a person for election or appointment to the office of director, shall add to the proposal a statement that the liability of the person holding that office will be unlimited and the officers of the company or any of them shall before that person accepts the office or act therein, give' him notice in writing that his liability will be unlimited (See section 111 of the Companies Ordinance 1984). Thirdly; by securing a special resolution in terms of section .112 of the Companies Ordinance, 1984 thereby liability of director/s could be made unlimited, provided the memorandum so permits and in case memorandum does not so permit, memorandum could be amended to achieve such objectives.
And fourthly; is a situation that makes the liability' of director/s unlimited, is where the business of the company is being consciously carried on with less than minimum statutory strength of directors that is to say less than three in case of public or in case of private company less than two members (except in case of single member company) for more than six months, in such an eventuality, such directors are severally liable for the payment of whole debts of the company contracted during that period (Sep Section 47 of the Code of Civil Procedure 1908). Learned Counsel for the respondents were not able to show that the petitioners are covered by any of the four situations discussed herein or for that matter personally liable under any other law for the liability of the Pakcom Limited.
11. As regards contention of Mr. Yawar Farooqui learned counsel for the respondent that company is being used as a cloak or shield to avoid liability or defraud creditors. We find it difficult to ascribe to proposition that impugned recovery without determination and adjudication whether any assets and or properties of the company have been siphoned off by the petitioners and/or by any other person in summary proceedings under the Land Revenue Act. It may be observed that in the instant case it is not so declared by the adjudicating authority, liability is clearly of the Company. In deed there are situations where the corporate shield is used as a camouflage to defeat criminal and or financial liability. Veil of incorporation, in appropriate cases and proceedings could be lifted.
However, in summary proceedings under the Land Revenue Act, 1967 we are afraid such exercise cannot be carried out. Provisions of Land Revenue Act could be invoked against a person against whom liability is adjudicated and or established. In instant case liability prima facie is against a corporate entity of which petitioners are directors. In case the respondent Authority is able to establish that petitioners have used corporate shield to defraud the authority and or appropriated the property of the corporate entity, the PTA could follow the assets or property of the company in the hands of director and or any other person by establishing so.
12. In number of cases, it is noted that persons constituting the company easily get away taking benefit of corporate shield. Such situation could be safely avoided if some of the precautionary measures as noted in para 10 are taken, by the regulators and authorities granting concession, permits or licence etc. To the corporate entities.
13. Contention of Mr. Sarwer Khan learned Additional Advocate-General, Sindh that amount could be recovered from the petitioners and they in turn could recover the same as mandated in terms of section 91 of the Sindh Land Revenue Act 1967. In deed a remedy provided to a person who pays the amount of arrears of land revenue, under protest, by filing a suit in a court from whose jurisdiction the recovery was effected. Such situation would only occur where the amount is paid under protest and not in cases where the very liability is denied. There are string of cases that have set the rule that the recovery of dues as arrears of land revenue E by any Authority or Agency as may be permitted by law to do so or by the Government coercive process could be employed after the claim has in fact crystallized as dues and determined on the basis of some adjudication in accordance with law either by the Authority if such powers are conferred under the law and where no such adjudication powers are conferred by filing legal proceedings. (one can gainfully see Abdul Latif v. Government of West Pakistan and others (PLD 1962 SC 1047), Muhammad Akber Cheema v. The Province of West Pakistan (1984 SCMR 1047), Agricultural Development Bank of Pakistan v. Sanaullah Khan PLD 1988 SC 67). In the instant case arrears as to licence fee if at all is determined against the Company and not against the petitioners. The coercive recovery process has been initiated against the petitioners merely on assumption that the directors of the company are liable for the dues outstanding against the company. As observed above the liability of company cannot be foisted on the directors or shareholders of the company, unless of course situation is covered by any of the situations as enumerated in para 10 above or by any law.
14. In view of the foregoing discussion impugned demand notice as against the petitioners is struck down. This is however, without prejudice to the rights, if any of the respondents to initiate recovery proceedings against the company or for seeking winding up and/or following the assets and properties of the company in the hands of a third party including the petitioner, if at all, in appropriate proceedings.
' The petition in the above terms stands disposed of.