' AMER RAZA NAQVI, J.---The suit, in which this application being C.M.A. No,12277 of 2014 is filed, is for the declaration, permanent injunction and recovery against defendants. Defendant No,1 is Chief Executive Officer of defendant No,92 which is Company. The primary basis on which the suit was filed payment of Rs,424,944,333 supposed to be paid to defendant No,8. It was alleged in Para-21 of the plaint that advisory fee paid to the defendant No,8 constitute about 300% of total expenses of the Company. Interim injunction in respect of such amount was granted on 9-4-2014.
Subsequently present C.M.A. Was filed and it was prayed that defendant No,9 be restrained from conducting/holding its extraordinary general meeting supposed to be held on 19-9-2014. The application is mainly on the ground that in the said meeting approval for issuance of clause-A preference shares shall be considered. In this respect interim injunction was granted on 18-9-2014, however, such injunction was recalled on 22-9-2014 as it was found that facts regarding the service of the meeting have not been disclosed in the application. However, application was heard on various dates of hearing mentioned above.
2. In support of the application, learned counsel for the applicant submitted that under Rule 5 of Companies (Issue of Capital) Rules, 1996, it is mandatory that in case of issuance of right shares beside other things financial projection for the next three years is to be signed by "all" directors in addition to that material information should also be provided for the participants of meeting in which such proposal is to be approved. Learned counsel also submitted that for such purposes a statement is also required to be notified under section 160(i)(b) of the Companies Ordinance, 1984, which requirement has not been fulfilled properly. Learned counsel referred documents available at Page-79 onwards with his application and submitted that one of the directors Mr. Ali Hassan has not signed the financial projections for the next three years, which was mandatory requirement of rule 5 of Rules 1996. Page-65 of the application was referred by learned counsel and it was submitted that preference shares proposed to be issued will carry a dividend of 12% per annum on cumulative basis. Through this document approval was sought from the share holders for raising capital through issuance of Rs,114,492,798, clause "A" preference shares of Pak Rs,10 each of the aggregate subscription amount of Pakistani Rs, 114,492,798. It was proposed that such shares will be offered to the existing shareholders as right shares in proportionate to their respective share holdings in accordance with the provisions of Companies Share Capital (Variation in Rights and Privileges) Rules 2000. Per learned counsel through this process in fact Company would be saddled with the liabilities and no benefit will accrue to the Company as a guaranteed dividend will be attached with such shares and those shares would be preferential shares. In this regard learned counsel further referred financial projections for next three years and submitted that balance sheet of the Company as on 30-6-2014 available at Page 101 shows worth of the Company as Rs,21,092,925,000 and the net assets shown in the financial projection for the year 2015 is mentioned as Rs,19,803,005,000, therefore learned counsel submits that it is not understandable that how after acquiring an amount of Rs,1 Billion, the worth of the Company decreases in the coming financial year. According to learned counsel this amounts to an admission that acquiring of this money would not help the Company in any way. Learned counsel further submits that the suit itself has been filed on the ground that amount from the Company is being siphoned and in this regard he submits that payment of huge amount to a director amounting to 300% of total expenditures of the Company is a clear example of siphoning. Learned counsel further submitted that the main reason for acquiring this amount is mentioned in statement under section 160(1)(b) being proposed investments in future right shares called by Banklslami to meet its State Bank of Pakistan minimum capital requirement. Further the Company's requirement of fund and for debt retirement and for strengthening of working capital. Learned counsel referred Chairman's statement to the shares available at page-93 and submitted that company has already paid Pak Rs,84.29 million to Banklslami Pakistan Limited as advance against right issue call of Rs,400 Million. For the above reasons learned counsel submitted that financial projections for the next three years, therefore is not only fictitious, misleading but false. Besides that learned counsel submits that according to such financial projections itself there would be no chance of improvement in the Company. He further contended that after proposed acquiring of an amount over 1 Billion rupees would be a burden on the Company also for the reasons earlier submitted by learned counsel. It was further submitted by learned counsel that besides above facts the financial projections signed by the Directors except one does not meet the requirement of Rule 5 of Companies (Issue of Capital)
Rules 1996. Learned counsel further submitted that Notes to the Unconsolidated Condensed Interim Financial Statements also mention the impairment in the. Companies in which investment has been made. Learned counsel referred Page 161 of the main file to show that total expenses of the company is about 623 Millions and 457 Million were consumed on account of consultancy and royalty and major portion of such amount was paid to defendant No,8 which has already been referred above. Learned counsel also referred various documents to show that Company is running in losses and per learned counsel the reason for such losses is favoritism and siphoning of the amount from the Company. Learned counsel has also argued that listed companies offer their shares to the General Public and to the Companies as well. The Assets of the companies including the amount available with the Company is a trust and directors are required to discharge their responsibilities in accordance with law and in the best interest of the company, therefore, when approvals are sought from the shareholders in extraordinary general meeting, the information supposed to be given in such meeting should be strictly in accordance with law so that participants of the meetings should be informed in clear manner not only about the affairs of the company but the grounds and basis on which proposals sought to be approved are based and the law and rules are framed so that directors and majority shareholders should not be allowed to play with the assets of the Company for their own benefits and they may not be allowed siphoning of the amount from the Company. Learned counsel submitted that for such reasons in case mandatory requirements in the present case under rule 5 are not fulfilled any approval even if made would not be legal and in case such matters are evident on record Courts can interfere and pass appropriate orders to protect interest of the Company and above all siphoning of any amount on any pretext. Per learned counsel the proposed issuance of preferential right shares is an attempt to siphon the amount by way of burdening the share-holders and Company through creation of liabilities. Learned counsel submits that shares of defendant No,9 were being traded for Rs,1326 on 31-1-2008 and the value decreased to Rs,9.93 on 6 September, 2010 and was Rs,4.81 on 28-10-2011 on 2nd January, 2012 also rate was Rs,4 and currently it is being traded for around Rs,9.
Per learned counsel in the year 2007 KSE Index was 4000 points and currently it is around 30,000 and therefore, ground of market fluctuation is not available with the defendants. Learned counsel says that defendant No,10 being regulator is not discharging its duties properly, they are even not assisting the Court and are not appearing (except on the last date) in the matter despite service and on account of their inaction and omission as well court can interfere in the matter. The learned counsel in support of his contentions relied on 1998 CLC 237, PLD 1969 Lahore 615, 1999 CLC 1938, 2000 CLD 1314 Lahore, 2010 CLD 963, 2009 CLD 1687 Kar, 2007 CLD 1047 Karachi, 2002 CLD 1747 Lahore, 2002 CLD 1314, 2006 CLD 1478, 2009 CLD 541, PLD 2013 SC 829, PLD 1997 Kar. 432 and 2005 CLD 747 (Karachi). He has also referred certain judgments from foreign jurisdiction. Per learned counsel the ratio of shareholding is immaterial when regulator is silent and law and rules are being violated by the directors and majority share-holders acting for the Company. In view of his submissions learned counsel presses that meeting has been held and approval has been accorded for issuance of preferential right shares and matter is now pending before the regulator/defendant No,10, therefore, defendant No,10 be restrained from giving approval for issuance of preferential right shares approved in the meeting held on 19-9-2014.
3. Mr. Khalid Javed Khan, learned counsel for the defendants Nos.1 and 9 contested the application and submitted that 21 days notice was duly served through publication in respect of the meeting referred by learned counsel for the plaintiff' and in addition individual notices were also sent. He submitted that in the written statement filed on behalf of his clients it is mentioned that collective share holdings of the plaintiff is only 0.5%, however, after filing of the suit shares have been sold and shareholdings of the plaintiffs now comes to 0.14%. The decision has been taken by the majority of the shareholders and such a minority shareholders cannot dictate the majority according to Corporate Law governing the affairs in question. The majority shareholders are main stack holders and therefore cannot act against the interest of the Company. He submits that in case of winding up the stakeholders will become creditors. Learned counsel further submitted that defendant No,9 is having shares of 21% in Banklslami Pakistan Limited, who is required by State Bank of Pakistan to meet the minimum capital of 10 Billions and it is in the interest of defendant No,9 to protect the interest of Banklslami and after meeting the target of 10 Billion, shares of Banklslami are expected to earn dividend, which will be beneficial for the defendant No,9 and the amount expected to be raised by issuance of right shares will be consumed in providing the amount to Banklslami and 84% of such amount equivalent to the share holding of defendant No,9 in the Banklslami will be consumed on that account. He has referred various documents filed by him along with his counter affidavit including the half yearly report of June 30th of 2014. He further submitted that the amount proposed to be raised is in addition to payment earlier made which is of the same amount and counsel for the plaintiff has tried to confuse this issue. He has referred projected balance sheet of BankIslami Pakistan Ltd. Filed along with his counter affidavit. He submitted that Court cannot interfere in the day today affairs of the Company especially when decisions are taken by support of over 91% of share holders in the present case. More over it is role of regulator to consider all these factors agitated by the plaintiffs and appropriate actions can always be taken by the regulator as was done in case of payment to a director, in which case regulator directed that approval be taken from General Body, which was done. He argued that shareholders of 0.14% cannot be allowed to hostage the majority. He submitted that total shareholding is 763 Million and plaintiffs are holders of shares amounting to Rs,1 Million. He further submitted that the prayer is beyond the context of the suit. He submitted that section 160(a) provides that at least 10% share holding is required for approaching the regulator and therefore such a small minority cannot be allowed to knock the door of the Court for their own designs. He Submitted that he agrees with the principles laid down in the authorities referred by the learned counsel for the plaintiff but those are not applicable in the present case as those judgments were based in context different from the one in present suit and listed application. He, however, concedes that rules of 1996 are relevant rules and in respect of violation of Rule 5, defendant No,9 has already approached under Rule 10 to the Regulator, who would be require to dispose of such application keeping in view of all the factors agitated by the plaintiffs but that jurisdiction cannot be assumed by this Court and the shares cannot be launched without approval of SECP. He submitted that there are stages of proceedings with the matter. The actions are proposed by the directors, those are placed before general meeting and after approval of general meeting, the approval of SECP is also required and in that manner there is no room of any foul play. He has referred PLD 1997 Karachi 432, which case-law was also relied by the plaintiff. He further submitted that plaintiffs did not participate in E.O.G.M. In which the proposal was approved. In this regard he has referred Para 1.2 of the said Booklet. He also relied on 2006 CLD 635, 2006 CLD 1470 and 2010 CLD 1110.
4. In rebuttal Mr. Murtaza Wahab submitted that plaintiffs were not allowed to participate in the meeting. He further submitted that State Bank has not issued any final order for Banklslami for raising the capital requirement of 10 billion and in the past extensions are given to the Banks liberally and further defendants Nos.1 and 9 have influence over Banklslami. They have also their influence on the companies, in which defendant No,9 has invested.
5. I have heard both the learned counsel at length. Mr. Khalid Javed Khan represented defendants Nos.1 and 9 and other defendants opted not to be represented, defendant No,10 also did not participate in the proceedings till the time when the matter was fixed for further hearing on 10-10- 2014 when representative of defendant No,10 appeared and sought time to file synopsis on legal grounds. He was allowed to do so. Mr. Khalid Javed Khan also submitted synopsis, representative of SECP in addition to synopsis filed a statement slating that Commission has no objection if the matter is referred to it for passing appropriate order in accordance with law. There are two portions of listed application. It was prayed that defendant No,9 be restrained from conducting/holding its extra ordinary general meeting to be held on 19-9-2014. At the initial stage this relief was not granted and meeting was held. It was also prayed in the application that defendant No,10 may also be restrained from permitting defendant No,9 from approving the issuance of Clause "A" preference shares. Mr. Khalid Javed Khan stated that so far as the legal principles contained in the judgments relied by learned counsel for the plaintiff, he agrees to such legal position, however, plaintiffs, who are holding only 0.14 shares cannot be allowed to dictate the majority and the decision for issuance of "A" clause shares have been approved in the meeting above referred by overwhelming majority. It is not disputed that the Companies' Share Capital (Variation in Rights and Privileges) Rules, 2000 and the Companies (Issue of Capital) Rules, 1996 are relevant in the controversy. Rule 5(n) of the Companies (Issue of Capital) Rules, 1996 specifically deals with the issuance of right shares by a listed Company and certain conditions have been made mandatory at the time of announcing right shares. It provides that such announcement should clearly state the purpose of the right issue benefit to the Company, use of funds and financial Projections for next three years. It also provides that financial plan and projections shall be signed by all the directors, who were present in the meeting in which the right issue is to be approved. It is an admitted position that one of the directors present in the meeting did not sign the financial projection. Mr. Khalid Javed Khan submitted that under rule 10 Authority can relax any rule subject to such conditions as it may deem fit. He further submitted that defendant No,9 has filed an application under Rule 10 for relaxing the rule regarding signing of all the directors. In my humble view relaxing of any rule, can only be in a situation where it is not practicable to comply with any requirement of these rules. Non-signing of the financial projection by any director is not a situation which could be termed as "not practicable". The words "not practicable" could only be relevant where it was beyond control of the Company or it could be a circumstance in which in a given situation it is not possible for the Company to comply with the rule. Non-signing of the document by a director does not fall in that category, therefore, it could not have been approved legally by the extra ordinary general meeting, therefore, this sole reason is sufficient to declare approval of issuance of right shares as void. In such situation defendant No,10 is restrained from approving the decision of E.O.G.M. Regarding issuance of right shares as proposed in the statement under section 60(i)(b) of the Companies Ordinance, 1984.
6. I have also noted that in the chairman's statement to the share holders available at Page-93 of listed application it is mentioned that defendant No,9 has already paid Pak Rs,84.29 Million to Banklslami as advance against right issue call of Pak Rs,400 Million. Although Mr. Khalid Javed Khan argued that this amount was not the subject matter of present controversy but he could not substantiate his arguments from any document. I have also noted that proposed issuance of preference shares were said to have carried a dividend of 12% per annum on cumulative basis and therefore it is obvious that this would affect the minority share-holders, who do not wish to avail option of acquiring proposed Clause "A" preference shares. Both the learned counsel have relied on a judgment of Division Bench of this Court reported in PLD 1997 Karachi 432. It has been observed in said case-law at Page-440 that, various portions of Companies Ordinance do not curtail the Power of the Court in cases of gross violation and manifestly unjust conduct, they only streamline such power. The subscription amount sought is Pak Rs,1,144,927,980 and no proper justification has been placed on record for burdening the Company with such a huge liability. This fact is relevant particularly in view of the fact that the value of the share of the Company decreased considerably.
The financial projection of defendant No,9 for the next three years does not disclose the liabilities although it was claimed in the documents produced in support of issuance of right shares that this will benefit the Company but such benefit is not reflected by way of possible increase of assets of the Company.
7. I do not agree with the contention of learned counsel for the plaintiff that sufficient notice was not issued for holding of E.O.G.M. Dated 19-9-2014, therefore, the other decisions taken in such meeting except the issuance of Clause "A" preference shares is not touched in this order. I have also not dealt the matter of payment of huge amount to a director as the same is subject matter of C.M.A. No,4651 of 2014, which is still pending and the interim orders are operating in that respect.
As a result C.M.A. No,12277 of 2014 is partially allowed as observed earlier and defendant No,10 is restrained from permitting the Company (defendant No,9) from approving the issuance of Clause "A" preference shares, subject matter of this application, till disposal of this suit.
8. Mr. Khalid Javed Khan has referred 2006 CLD 635, 2006 CLD 1470 and 2010 CLD 1110, all these three cases were decided by Security and Exchange Commission of Pakistan and does not deal with the Powers of the Court and therefore are not relevant for the purpose of present controversy.