' MUNIB AKHTAR, J.---The plaintiff, a shareholder of the defendant No. 1 ("Company") seeks an order against certain alterations being made in the objects clause of its memorandum of association ("Memorandum"). To consider the proposed changes, an extra-ordinary general meeting of the shareholders was summoned for 25-1-2014 ("EOGM") by notice dated 4-1-2014 ("Notice"). The meeting was held and the Company's case is that the resolution was lawfully carried as a special resolution (by winch alone the objects clause can be altered). The plaintiff challenges the meeting and the resolution passed, both on procedural grounds as would bring the matter within the terms of section 160-A of the Companies Ordinance, 1984 ("1984 Ordinance"), as well as on substantive grounds as being in violation of section 21. The Company denies violation of any applicable provision and raises a preliminary objection as to the Court's jurisdiction. The foregoing, in a nutshell, is the dispute that falls for determination.
2. Learned counsel submitted that the plaintiff (itself a company) held 14% of the issued share capital of the Company. Referring to the objects clause of the Memorandum as presently constituted, learned counsel drew attention in particular to paragraphs 1, 5, 7, 23 and 39 to contend that the Company had been incorporated essentially to set up and operate television channels and to generally act as a media house. It was submitted that the Company's business had since inception focused on these activities (it was incorporated in 2004). The Company had successful operations in this regard, being the owner of the Hum TV and Masala TV channels, among others.
Referring to the notice for the EOGM, learned counsel referred to the proposed alterations sought to be made in the objects clause. A large number of paragraphs were proposed to be added, around 25 in all, relating to all manner of diverse and unrelated businesses. Only a few could conceivably, have any connection with the existing business or of the Company acting as a media house. In particular, learned counsel referred to the proposed paragraphs whereby the Company would be able to operate a sugar mill or a cement factory. Other proposed paragraphs would enable the Company to set up a textile business, enter the hotel industry, open a fashion house, carry on business consultancy, run spas and saloons, become a confectioner and manufacturer of biscuits and, cookies, and provide event management services. This enumeration, by no means exhaustive, reflects the diverse businesses that the Company could embark upon if the proposed alterations were allowed to go through, and learned counsel took serious exception to them.
3. As regards the procedural aspects of the objections to the EOGM, learned counsel referred to section 2(36) of the 1984 Ordinance, which gives the definition of "special resolution". It was submitted that the Notice did not state that the EOGM had been called to consider a special resolution. It was contended that the resolution was not passed properly as no voting as such took place. The representative of the plaintiff had attended the meeting and raised objections to the proposed resolution, but no heed was taken nor was he given an opportunity to properly air the same. Learned counsel submitted that subsequently, the objections were repeated in a letter dated 11-2-2014 written to the Company. On a query from the Court, learned counsel candidly stated that while the plaintiff had the requisite shareholding to demand a poll, no such demand was, as such, made. Learned counsel also referred to section 60(1)(b), which provides that a statement of material facts must accompany any notice of a meeting at which any special business is to be transacted. (Special business is any business other than that specifically stated in the aforementioned provision.) Although a statement did accompany the Notice, learned counsel submitted that it was materially defective and did not fulfill the statutory requirements. It was submitted that in relation to the proposed alterations, there should have been a proper justification of why so many and such diverse businesses were being added to the objects clause. In addition, the proposed resolution also intended to make certain other changes in the Memorandum, but the statement was silent as to these. It was submitted that the chief executive of the Company and a director were, respectively, a director in and chief executive of a cement company. This clearly created a conflict of interest since, as noted, one of the proposed businesses was to set up a cement plant. It was contended that there should have been proper disclosure in the statement but this was not done. Indeed, learned counsel submitted that the real purpose was only to enable the Company to engage upon the sugar and cement businesses; the other proposed additions were camouflage to hide the real intent. It was reiterated that there ought to have been proper disclosure, with supporting documents such as copies of any studies carried out, as to how or why such businesses could be carried on along with the existing business.
4. As regards the substantive grounds, learned counsel placed principal reliance on section 21(1)
(d), which allows the objects clause to be altered to add businesses that can be "conveniently or advantageously be combined with the business of the company". It was submitted that none of the businesses proposed to be added met the requisite standard. No alterations could be allowed as would effectively destroy the existing business. Again, the focus of attention was the proposed addition of the sugar and cement businesses. Learned counsel ,also relied on subsections (2) and
(3) of section 21 and referred to sections 22 and 23. It was submitted that the alterations to the objects clause could not travel beyond what was stated in and made permissible by section 21, and what was being attempted in the present case went well beyond that. The proposed additions were therefore clearly unlawful. Explaining the need to file the suit, learned counsel submitted that section 160-A allowed members holding the requisite threshold shareholding (10%) to file a petition challenging a general body meeting on grounds of material procedural irregularity etc. In the present case, the challenge was on both procedural and substantive grounds and therefore a suit had to be filed. It was submitted that a clear case for interim relief had been made out and all the ingredients were in favour of the plaintiff. It was prayed accordingly.
5. Learned counsel for the Company opposed the grant of any relief. A preliminary objection was taken to the jurisdiction of the Court. Learned counsel referred to section 21(2) as well as section 22, which provide that no alteration to the objects clause shall take place unless, and then only if and to the extent, decided by the Securities and Exchange Commission of Pakistan ("SECP"), the regulatory authority under the 1984 Ordinance. Reliance was also placed on section 24, which states that while considering the alterations, SECP shall have regard to the interests of the shareholders and creditors. Learned counsel submitted that under the previous dispensation, the Companies Act, 1913 ("1913 Act") the power of confirmation had been vested in the Court. It was contended that all the substantive objections taken by the plaintiff (which were otherwise denied as being devoid of merit) could be taken before the SECP when it took considered the alterations sought to be made. The law had been specifically changed and since jurisdiction had been vested in the statutory authority, it could only be exercised by the latter. The Court could not entertain the objections. As to the procedural objections, it was submitted that they could only be entertained as provided for under section 160-A. However, that provision (read with section 7) vested jurisdiction in the High Court as such whereas this Court, when entertaining suits on its original side, exercised the jurisdiction of the District Court. Therefore, objections under section 160-A (and again, the objections actually taken were denied as being devoid of merit) could only be taken by means of a petition (i.e. a JM) and not by way of a suit. On both grounds, the Court lacked jurisdiction in terms of the proceedings as filed..
6. On the merits, learned counsel submitted that the objections ought to be dismissed. It was submitted that proper notice for the EOGM was issued and the plaintiff admittedly attended the meeting. All the requirements of the 1984 Ordinance were complied with and the resolution passed properly as a special resolution. The statement accompanying the Notice fulfilled the requirements of section 160(1)(b). It was submitted that the successful operation of the Company's business as presently constituted, i.e., the TV channels, had established a strong brand name and recognition for "Hum", "Masala" and "Style 360". The, brands could he beneficially used by the Company to diversify its operations in other areas of business. Thus, the proposed alterations to the Memorandum. Indeed, even the existing paragraphs of the objects clause allowed the Company to engage upon a diverse range of businesses quite different and distinct from running TV channels. It was contended that any of the businesses could be advantageously and conveniently combined with the existing business and hence the proposed alterations were well within the scope of section
21. Learned counsel submitted that none of the businesses would be destructive of or harm the existing business, which would continue to be run effectively and profitably. It was submitted that it was well settled that the various clauses of section 21(1) were to be construed and applied liberally and broadly. It was also well established that the sorts of businesses that could be combined and run together was a commercial or business decision, in which the Court rarely intervened. It was ultimately for the shareholders to decide the nature and direction of a company's activities and, subject to there being a sufficient majority to carry a special resolution, to make alterations in the objects clause for this purpose. The threshold for compliance with section 21 was set low and had been successfully crossed in the present case. Since the Company felt that it could now consider other possibilities, the objects clause was proposed to be altered so as to broaden the business horizon. In order to ensure maximum flexibility and to obviate the need to go back repeatedly to the shareholders, a large number of businesses were proposed to be added to the objects clause. It was emphasized that merely because the businesses were being so added did not mean that the Company would at once engage upon any of them. As to what happened at the EOGM, learned counsel submitted that the proposed resolution was carried on a show of hands and it was strongly denied that a poll was demanded by the plaintiff, whether as alleged or otherwise.
Referring to the proceedings of the EOGM as brought on record by the Company, learned counsel submitted that it was only the plaintiff that objected to the proposed alterations. Eighty one percent of the members present voted in favour of the resolution, which was therefore successfully carried as a special resolution. While the result was obtained as stated, on a show of hands, learned counsel submitted that these shareholders also represented more than 75% of the voting power. Thus, on any conceivable view, the resolution was duly passed as required by law. It was submitted that no case for any interference by the Court or interim relief had been made out and the application merited dismissal. I allowed learned counsel to file written synopses, and learned counsel for the Company did so. Certain case-law was cited, both at the hearing and in the written synopsis; this will be considered as and to the extent necessary below.
7. I have heard learned counsel as above, examined th "160-A. Circumstances in which proceedings of a general meeting may be declared invalid.--- The Court may, on e record and considered the case-law. It will be convenient to begin by gathering the statutory provisions in one place. Section 160-A provides as follows:--a petition, by members having not less than ten per cent of the voting power in the company, that the proceedings of a general meeting be declared invalid by reason of a material defect or omission in the notice or irregularity in the proceedings of the meeting, which prevented members from using effectively their rights, declare such proceedings or part thereof invalid and direct holding of a fresh general meeting: ' Provided that the petition shall be made within thirty days of the impugned meeting."
' The provisions regarding alteration of the objects clause, as presently relevant, are as follows:-- "(20) Restriction on alteration of memorandum.---A company shall not alter the conditions contained in its memorandum except in the cases and in the mode and to the extent specified in this Ordinance.
(21) Alteration of Memorandum.---(1) Subject to the provisions of this Ordinance, a company may, by special resolution alter the provisions of its memorandum ... With respect to the objects of the company, so far as may be required to enable it- ...
(d) to carry on some business, not being a business specified in its memorandum, which may conveniently or advantageously be combined with the business of the company; ...
(2) The alteration shall not take effect until and except in so far as it is confirmed by the Commission on petition: ...
(22) Powers of Commission when conforming alteration.---The Commission may make an order.
Confirming the alteration either wholly or in part, and on such terms and conditions as it thinks fit, and make such order as to costs as it thinks proper.
(23.---Exercise of discretion by Commission The Commission shall in exercising its discretion under sections 21 and 22 have regard to the rights and interests of the members of the company or of any class of them, as well as to the right and interests of the creditors, and may, if it thinks fit, adjourn the proceedings in order that an arrangement may be made to the satisfaction of the Commission for the purchase of the interests of dissident members; and may give such directions and make such orders as it may think expedient for facilitating or carrying into effect any such arrangement: ...
(24) Procedure on confirmation of the alteration.---(1) A certified copy of the ing the alteration, together with a printed copy of the memorandum as altered shall within ninety days from the date of the order, be filed by the company with the registrar, and he shall register the same, and shall certify the registration under his hand, and the certificate shall be conclusive evidence that all the requirements of this Ordinance with respect to the alteration and the confirmation thereof have been complied with, and thenceforth the memorandum so altered shall be the memorandum of the company. ...
(25) Effect of failure to register within ninety days.---No such alteration shall have any operation until registration thereof has been duly effected in accordance with the provision of section 24 and if such registration is not effected within ninety days next after the date of the order of the Commission confirming the alteration, or within such further time, as may be allowed by the Commission, in accordance with the provisions of section 24, such alteration and order, if any, and all proceedings connected therewith shall, at the expiration of such period of ninety days or such further time, as the ease may be, become null and void:..."
"Commission" of course means SECP. Reference must also be made to the equivalent provisions of the 1913 Act, which - were as follows:-- "(10) Restriction on alteration of memorandum.---A company shall not alter the conditions contained in its memorandum except in the cases and in the mode and to the extent for which express provision is made in this Act: ...
(12) Alteration of Memorandum.---(1) Subject to the provisions of this Act, a company may, by special resolution alter the provisions of its memorandum ... With respect to the objects of the company, so far as may be required to enable it- ...May conveniently or advantageously be combined with the business of the company; ...
(2) The alteration shall not take effect until and except in so far as it is confirmed by the Court on petition:...
(13)Powers of Court when conforming alteration.---The Court may make an ing the alteration either wholly or in part, and on such terms and conditions as it thinks fit, and make such order as to costs as it thinks proper.
(14)Exercise of discretion by Court.---The Court shall in exercising its discretion under sections 12 and 13 have regard to the rights and interests of the members of the company or of any class of them, as well as to the right and interests of the creditors, and may, if it thinks fit, adjourn the proceedings in order that an arrangement may be made to the satisfaction of the Court for the purchase of the interests of dissentient members, and may give such directions and make such orders as it may think expedient for facilitating or carrying into effect any such arrangement: ...
(15)Procedure on confirmation of the alteration.---(1) A certified copy of the ing the alteration, together with a printed copy of the memorandum as altered shall within three months from the date of the order, be filed by the company with the registrar and he shall register the same, and shall certify the registration under his hand, and the certificate shall be conclusive evidence that all the requirements of this Act with respect to the alteration and the confirmation (hereof have been complied with, and thenceforth the memorandum so altered shall be the memorandum of the company....
(16)Effect of failure to register within three months.---No such alteration shall, have any operation until registration thereof has been duly effected in accordance with the provision of section 15, and if such registration is not effected within three months next after the date of the order of the Court confirming the alteration, or within such further time, as may be allowed by the Court in accordance with the provisions of section 15, such alteration and order, if any, and all proceedings connected therewith shall, at the expiration of such period of three months or such further time, as the case may be, become absolutely null and void.... "
8. I start with the preliminary objection regarding the jurisdiction of the Court to hear a challenge to a proposed alteration of the objects clause. As noted above, learned counsel for the Company has contended that such challenge can only be taken before the SECP: Learned counsel relied on Lahore Race Club and others v. Raja Khusbakht-ur-Rehman PLD 2008 SC 707. Since the 1913 Mt any "conditions" contained in the memorandum can only be altered in the manner and to the extent as made permissible by the statute. "Conditions" are those matters which are required to be stated in the memorandum and obviously include the objects clause. (Interestingly. In the predecessor legislation, the Indian Companies Act, 1882, there was very limited scope for alteration of the memorandum, and the objects clause could not be altered at all: see section 12.) The reason for this control over any alterations is well known. Since the liability of the members is limited only to the extent of the amount, if any, unpaid on the par (or face) value of the shares, there was a need to protect those dealing with the company, especially its creditors. They had a right to know exactly what the company was about, and could do. This perceived need led also to the development of the judicially evolved rule of ultra vires; the company could not do anything beyond what was stated in the objects clause or was reasonably incidental thereto. Similar considerations applied also in relation to companies limited by guarantee.
9. When sections 21(2) to 25 of the 1984 Ordinance are compared with sections 12(2) to 16 of the 1913 Act, the close similarity between these provisions is obvious. As presently relevant the substantive difference is that in the earlier statute, the matter rested with the Court, whereas now the petition has to be presented before SECP. In my view, learned counsel for the Company is correct that this is a deliberate change in the law, which must be given due effect. The conclusion is reinforced when the (again near identical? Section 20 and section 10 respectively are also taken into consideration. In my view the preliminary objection must be sustained. Any challenge to proposed alterations to the objects clause on the ground that they are contrary to section 21(1) can only be by petition before SECP. Such a petition must be presented since otherwise the alterations will not have effect, and SECP is bound to have regard to the interests of all the members when considering whether and if so how and to what extent effect is to be given to the changes. Of course, there are statutory rights of appeal against SECP's decision, and possibly other remedies as well. The matter may therefore ultimately end up before the High Court. But, jurisdiction does not lie directly with the Court. The decision cited by the learned counsel for the Company does not, with respect, assist him. At issue was rectification of the members' register (under section 152) of the first appellant, it being a company limited by guarantee. The member seeking such rectification filed a civil suit yin the courts at Lahore, and a preliminary objection was taken that the suit was barred, as under section 152 the power lay with the Court. The company succeeded on this point in the civil courts but lost in the Lahore High Court. On further appeal to the Supreme Court, the decision of the High Court was set aside. Learned counsel relied in particular on paras 19 and 20 of the judgment (at pp. 715-16). While the Supreme Court observed (in para 19) that the 1984 Ordinance was a special law, which provided its own remedy for rectification of the members' register and that when the law required something to be done in a particular manner it had to be so done or not at all, it was also observed (in para 20) that if the Court felt that the actual dispute could not be resolved in summary procedure, then it could "refer/advise the party to approach the Civil Court for resolution of the disputed controversies". This last observation is of course a well settled proposition. Therefore, the jurisdiction of the Court in relation to a dispute under section 152 was not exclusive in the sense that in certain circumstances the matter can be decided by the civil courts. Were these observations to be applied here, it could mean, e.g., that if the Court decided that the issues raised a complicated question of law or involved a resolution of interpretation as regards section 21(1), then it could entertain the objections directly notwithstanding the vesting of jurisdiction in SECP. If anything therefore, the cited case, with respect, tends to go against the point sought to be made by learned counsel. However, as I have said, in my respectful view the decision does not apply to the issue at hand. Here, the law as it had stood for around 70 years prior to the promulgation of the 1984 Ordinance was changed only to the extent of the vesting of jurisdiction and was otherwise allowed to remain the same as before (subject to what is stated below). The intent of the law-maker is clear. It must be given due effect. Jurisdiction now lies with SECP. Any challenge to the proposed alterations must be so dealt with.
10. I turn to the other aspect of the preliminary objection, namely that the challenge on procedural grounds (as would lie under section 160-A) can only be by a petition filed before the Court and not by way of a suit in this Court on the original side. To a certain extent, this objection must be examined along with a point implicit in the conclusion arrived at in the last preceding paragraph.
The point is this. The proposed alterations, which must be confirmed by SECP, must necessarily be brought about by a special resolution: section 21(1) so provides. What if the member(s) objecting before SECP challenge the resolution itself, contending that (for whatever reason) in law no special resolution has been passed? On one view, this ought to be something that can be taken up by SECP since the existence, in law, of a special resolution is the threshold requirement for the exercise of the jurisdiction vested in it under the above referred provisions. The difficulty with such a conclusion is that a challenge to the special resolution the basis of what is stated in section 160-A ("material defect or omission in the notice or irregularity in the proceedings of the meeting." etc) can only be by petition before the Court. Now, section 160-A (which was originally subsection (8) to section 161 when the 1984 Ordinance was promulgated) had no equivalent in the 1913 Act; it is a "new" power conferred on the Court (though of course itself now 30 years old). The situation here is therefore in a sense the reverse of what was earlier considered. Furthermore, section 160-A imposes both a time limit, and a threshold requirement as to the shareholding. To hold that SECP can take up the sort of objections as can be agitated under section 160-A would mean that these limitations could be easily circumvented: in principle, a single member holding a miniscule shareholding could mount such a challenge before the SECP after the 30 day period stipulated in section 160-A. Yet, the need for SECP to be in some manner satisfied that a special resolution was passed, should this be challenged before it, cannot also be ignored.
11. In my view, the solution to this conundrum lies in section 173, subsection (1) provides that every company must cause "a fair and accurate summary" of the minutes, inter alia, of all general meetings to be kept in "properly maintained books". Subsection (2) provides that any such minutes, if purported to be signed by the chairman of the relevant meeting or the chairman of the next succeeding meeting, shall be "evidence" of the proceedings. And, finally, subsection (3) provides as follows: "[u]ntil the contrary is proved, every general meeting of the company ... In respect of the proceedings whereof minutes have been so made shall be deemed to have been duly called and held, and all proceedings had thereat to have been duly had...." (These provisions had their equivalent in section 83 of the 1913 Act). In my view, if the special resolution in question is challenged before SECP and the record in relation thereto as required to. Be kept under subsections
(1) and (2) of section 173 is produced, then SECP would be entitled to accept it as such and proceed further to consider the proposed alterations in terms of the above referred provisions. However, SECP would not in my view, be entitled to take the matter further in terms of subsection (3), i.e., to allow the objecting members to prove to the contrary. This is so because this could encroach upon the jurisdiction of the Court under section 160-A, and may not even otherwise be appropriate given the summary nature of the proceedings under the above referred provisions. Thus, once compliance with subsections (1) and (2) is shown, SECP would be bound to regard the threshold requirement for the exercise of jurisdiction as having been met. It would be for the objecting members to prove to the contrary elsewhere, either before the Court under. Section 160-A or some other provision of the 1984 Ordinance, or (possibly) other proceedings if so permissible.
12. The foregoing conclusion, important though it is in its own right, does not quite address the preliminary objection itself. I cannot, with respect, accept the submission by learned counsel for the Company that this Court, while entertaining suits on the original side acts as a District Court.
However a full consideration of this important but complex matter will take us too far afield.
Therefore, notwithstanding the preliminary objection, I have considered the procedural challenge on the merits. In my view, with respect, the objections are without merit. The statement filed by the Company along with the Notice for the EOGM was compliant in all material respects with section 160(1)(b). The purpose behind requiring such a statement is essentially the same as for all notices: to provide such sufficient information as would reasonably be required by a member to enable him to decide whether to attend the meeting or not. The statement at hand complies with this requirement. It contains a description, albeit brief, of the various businesses sought to be added to the objects clause. I cannot accept the submission by learned counsel for the plaintiff that a detailed study ought to have first been undertaken by the Company and a report in relation thereto annexed to the Notice as part of the statement or at least made available to the members.
As correctly pointed out by learned counsel for the Company, the fact that businesses are proposed to be added does dot mean that they shall be undertaken immediately. The objection that the statement did not provide any description as regards other changes being made to the Memorandum and the Articles need not detain me, since the present application was essentially argued as a challenge to the proposed alterations to the objects clause. The objection in terms of section 2(36), namely that the proposed resolution was not described in the Notice as a "special resolution" in so many words is also without merit in the facts and circumstances of the present case. The submission by learned counsel for the Company that the resolution was passed by more than three-quarters of the members present on a show of hands, and that those members also represented more than 75% of the voting power, was not seriously contested. As already noted, learned counsel for the plaintiff candidly accepted that no poll was demanded although the plaintiff did have the necessary voting power to do so. It would therefore be futile to call another meeting of the members to reconsider the resolution adopted, prima facie, the result would be a foregone conclusion. Furthermore, the plaintiff is described in para 1 of the plaint as a "leading investment company" and a "leading listed company" having "thousands of highly satisfied investors", I find it hard to accept that such an entity, which undoubtedly has any number of high caliber professionals and advisors including lawyers, could have been misled by the omission in the Notice as now agitated. This plaintiff prima facie knew, and must be regarded as knowing, the nature of the resolution proposed to be passed, its rights as a member (including the right to demand a poll) and its position as holder of 14% of the shareholding vis-a-vis other members/groups who hold shares in the Company. Finally, I may note that objections taken in the letter of 11-2-2014 addressed to the Company (referred to above) appears prima facie to have been more of a tactical ploy than a serious airing of grievances, given that the plaint was presented the next day, on 12-2-2014. Since the procedural challenge has been found to be without merit it is not necessary to give a definite ruling on the preliminary objection in relation thereto.
13. The foregoing discussion is dispositive of the present application as being not maintainable for the reason that jurisdiction vests in SECP under the above referred provisions. However, I have decided to say something regarding the interpretation and application of section 21(1), and in particular clause (d) thereof on which primary reliance was placed by learned counsel for the plaintiff. This is so because firstly, the point was fully and very ably argued by learned counsel for both sides. Secondly, there are relatively few decided cases in Pakistan and most of those relate to the 1913 Act. There is therefore a dearth of modern authority. Finally, and for this reason, it is necessary to give guidance to SECP, since statutory interpretation is a matter peculiarly within the province of the superior Courts.
14. I begin by noting that section 21(1) in fact has seven clauses. Section 12(1) of the 1913 Act also had seven clauses, and it is a singular feature that apart from clause (d), all the other clauses have the same wording in the two subsections. When clause (d) is considered, one difference is that it refers to the proposed business as "not being a business specified in [the] memorandum"; these words were not to be found in section 12(1)(d). It is however unclear as to what effect is sought to be achieved by these words. The reason is that if the business is already specified in the memommium, then the objects clause would hardly need to be altered to allow the company to pursue it as well as any business being actually undertaken. Be that as it may, the second difference is far more important and, as will be explained below, does make a material difference.
This is that the words "under existing circumstances", which were to be found in the 1913 Act are missing in the 1984 Ordinance. Now, the 1984 Ordinance is closely modeled on the (UK) Companies Act, 1948 ("UK 1948 Act") and tends to faithfully follow the provisions of the latter. Section 21 has its counterpart in section 5(1) of the latter statute. This also had seven clauses, each of which, had the same wording as in section 12(1) of the 1913 Act. In particular, clause (d) in Section 5(1) of the UK 1948 Act also had the words "under existing circumstances". The UK 1948 Act was replaced with the Companies Act, 1985. Section 4(1) of the latter statute was worded identically to section 5(1) of the UK 1948 Act. I may note that the legislation currently in force in the United Kingdom, the Companies Act 2006 has taken a different turn. Section 31(1) provides that unless the articles of a company otherwise provide, its objects are "unrestricted". This change caps developments that have been taking place in English company law over the past several decades, driven in part by the need to align the law with EU directives. This has led, e.g., to the abolishment of the ultra vires rule in English law. Turning to India, one finds section 17(1) of the Companies Act, 1956 to be equivalent to section 21(1). The Indian provision also had the same seven clauses, with clause (d) containing the words "under existing circumstances". Interestingly, in India there is now new legislation in the field being the Companies Act, 2013 ("new Act"). This statute is being brought into force progressively and was recently enforced (on 1-4-2014) as regards the provisions presently relevant. Section 13 of the new Act eschews the seven clauses of old and simply provides that a company may by special resolution alter the provisions of its memorandum. Although this is subject to certain conditions and limitations, none of these are relevant for present purposes and it appears that in India the objects clause can now be amended essentially as the members deem appropriate. The one specific limitation in this regard, contained in subsection (8) of section 13, is not relevant for present purposes.
15. I have taken the trouble to look at English and Indian legislation in some detail because of the parallels between company law in those jurisdictions and in this country. I therefore find the result very interesting. It would seem that for decades on end the same seven clauses have appeared in the same terms in all three jurisdictions. The difference is of course in relation to clause (d). Since 1984 this has differed in this country from the established pattern. Of the two differences one is insignificant. The other, the omission of the words "under existing circumstances", must be regarded as most significant and material. This is especially so when the position under the two statutes with which the 1984 Ordinance has the closest connection, the 1913 Act (which it replaced) and the UK 1948 Act (which it invariably follows), is kept in mind.
16. When section 21(1) and its equivalents are looked at more broadly, there can be no doubt that it is well settled that the power to alter the objects clause has been construed liberally and the seven clauses interpreted and applied accordingly. Learned counsel for the Company referred to In re: Parent Tyre Co. Ltd. [1923) 2 Ch 222, where it was observed as follows (pp. 228-9; emphasis supplied):-- "Dealing now with the main part of the resolution, I have come to the conclusion that, although the businesses there described are, in my opinion, a new departure, in the sense that they do not fall within the memorandum as at present drawn and are businesses which have no definite relation to the present business of the company, yet, in my judgment, this fact is not fatal to the introduction of the additional objects enumerated in the special resolution. The question whether any given additional business is one which may conveniently or advantageously be combined with the business of the company carried on at the time when the special resolution is passed must, in my judgment, be determined by the persons engaged in the business of the company. It is essentially a business proposition, whether an additional business can or cannot be conveniently or advantageously carried on under existing circumstances with the business of the company. The additional business, of course, must not be destructive of or inconsistent with the existing business; it must leave the existing business substantially what it was before; but the additional business may be one which is different from the original business and yet may well be capable of being conveniently and advantageously combined with the business which is being carried on. I think it would be placing altogether a too narrow construction upon section 9, to hold that, because the additional business involves a new departure which was not contemplated by the original memorandum, therefore it does not fall within the purview of the section.
' In the present case, the evidence has satisfied me that not only the managers of, but also the vast bulk of the shareholders in the company have come to the conclusion that the businesses now proposed to be carried on are businesses which can conveniently and advantageously be combined with the business of the company, and therefore are businesses which, in my judgment, not being destructive of or inconsistent with the business which the company is now carrying on, may properly be sanctioned by the Court under section 9, subsection (1(d))."
I may note that the section 9 referred to was part of the Companies (Consolidation) Act, 1908, the statute then in force in England. Clause (d) was in exactly the same terms as noted above, i.e., had the words under existing circumstances". Reliance was also placed on In re: Standard General Assurance Co. Ltd. AIR 1965 Cal 16 where it was observed as- follows (pg.27):-- "55. In my opinion, when a company seeks to alter its objects with a view to carry on some new business, if the company's position is financially sound, if the alterations are fair to all classes of members of the company and if the rights of creditors are in no way prejudiced, such alterations should be confirmed provided the requirement of the statute is complied with. It is not a matter for the court to determine as to what business the company should carry on If the directors and members of a company propose to alter its objects, and if there: is no objection from the creditors or if their position is not prejudiced by the proposed alteration, this court should not stand in tile way of the company's seeking new objects to enable it to embark on a new venture. But there are certain obvious limitations which have been dealt with in the several decisions discussed by me above. The new business must not be destructive of or inconsistent with the existing business.
There must be some existing business which the company should be carrying on at the lime when it passes the resolution for altering its objects and such business must be carried on under its existing object clauses. The company's financial position must be sound, to enable it to carry on the new business. Subject to limitations mentioned, the wisdom of the directors and members of the company in regard to the decision to carry on the new business proposed under the altered object must prevail. This is the view taken by this court so far, and I propose to adhere to and follow the same. In a trading company, whose aim is to earn profits for the benefit of share-holders, the directors and share-holders of the company are the best judges of the trading policy of the company and so long as the requirements of the statute are complied with and the policy pursued by the company through the object clauses in its memorandum is not fraudulent or unfair to any class of its members and does not violate the statutory provisions, the court should not easily or lightly interfere, with the decision of the share-holders and directors of the company and also of creditors, if any. But the decision of the share-holders, creditors and directors, is not final and it is for the court to see if the statutory requirement has been complied with and the alterations sought for are not contrary to or inconsistent with the object clauses in the memorandum as they stand."
' Reference may also be made to In re: Bhutoria Brothers (Pvt.) Ltd..AIR 1957 Cal 593 where, with reference to clause (d), it was observed as follows (pg. 595):-- "6. ...Therefore, it is clear from the language of the section that some business which is not already there under the existing Memorandum may be introduced by alteration of the Memorandum provided such business can be conveniently or advantageously combined with the business of the company under existing circumstances. The important conditions to bear in mind in interpreting section 17(1)(d) of the Companies Act are (1) that "existing circumstances" of the company should be considered and (2) that the nature of the proposed new business must be such that either on the ground of convenience or of advantage the new business can be combined with the existing business of the company. In considering what can either be "conveniently" or "advantageously" combined with the existing business of the company, foremost regard should be given to the views of the shareholders which in this ease have been expressed by their unanimous resolution. There is still a residuary power and duty of the Court to see that this expression of view by the share- holders is a sensible one and the introduction of the proposed new business is obviously not something which cannot with reason be conveniently or advantageously combined with the existing business."
17. From our own jurisdiction, learned counsel for the Company relied on In the matter of Riaz and Co. PLD 1967 Karachi 695 (SB), where reliance was placed on Parent Tyre & Co. (supra), and In re: National Underwriters Association Ltd. PLD 1969 Karachi 71 (SB). The case last mentioned is interesting because here the proposed alteration was refused. However, as pointed out by learned counsel, this was because the existing business of the company had been that of reinsurance and the proposed business was that of mercantile insurance. The learned Single Judge cited with approval a passage front the then current edition of Buckley on the Companies Act, which included the following: "The additional business must not be destructive of or inconsistent with existing business. It must leave the business substantially what it was before with some alterations or additions as the Act indicates". The learned Single Judge also cited In re: Cyclists Touring Club [1907] 1 Ch 269 (which was also cited before me by learned counsel) as well as Parent Tyre Co.
(supra) and concluded that since the proposed business of mercantile insurance would be inconsistent with the business of reinsurance, the proposed alteration had to be refused. The petition was therefore dismissed.
18. In my view, when the case-law in relation to the previous "version" of clause (d) is considered, it is clear that while the courts were on the whole content to allow the matter of any proposed changes to be left to the shareholders, they were concerned with giving proper effect to the words now omitted, "under existing circumstances". These limiting words led to the result that the additional business not only could not be destructive of or inconsistent with the existing one, but also had to leave the latter substantially as it was before. The omission of these words has therefore made a material change in the law. The proposed or additional business(es) cannot of course be destructive of the existing one, since otherwise there would not be any business with which the new business(es) could be "combined", a requirement still to be found in clause (d) (but see para 19 intra). Other than that, the effect on the existing business is now irrelevant. The existing business may be left substantially the same as before or it may be reduced to a mere shadow of what it was previously and become, in effect, a sideshow for the company, or the final position can be any situation in between. The proposed business(es) may be wholly inconsistent with the existing business. The proposed changes may result in the company completely changing course and going off in a totally new direction. In other words, the circumstances of the company may alter substantially and even become unrecognizable as compared to the existing position. All of this is now immaterial. A proposed alteration to the objects clause cannot now be tested on the anvil of existing circumstances or the effect of the proposed change on those circumstances or any inconsistency therewith. Therefore, any determination that takes the existing circumstances into consideration, whether directly or indirectly, would be contrary to what section 21(1)(d) stipulates and be liable to be set aside.
19. The omission also has a material effect on the requirement that the proposed changes be such as can "conveniently or advantageously be coffibined" with the business of the company. Clearly, when existing circumstances had to be kept in mind, the manner in which existing, and proposed businesses could be "combined" was different from the situation now prevailing, where any such consideration is irrelevant. In my view, in the present clause (d) the word "combined" must therefore be construed and applied in a much looser sense than before. The word now simply has the sense of the old and proposed businesses being carried on together by the company and even here, as noted, how and to what extent the old business is continued has become irrelevant. In my view, all that is required is that the new or proposed business ought not to be immediately wholly destructive of the old or existing business, and that is all. Anything else falls within the domain of the shareholders and provided that a special resolution is passed, it is for them to make the necessary decision. Barring exceptional circumstances, which must be clearly spelt out, there ought not to be any interference with the decision of the members. Clause (d) has taken an entirely new shape on account of the omitted words, and the change in the law must be given due effect.
20. Before concluding, I may clarify that while SECP, when considering a petition under section 21(2), would be bound to act in accordance with the principles of law enunciated herein above it must decide any petition actually before it on its own merits. A petition presented in respect of the special resolution passed at the EOGM must therefore be dealt with accordingly.
21. In view of the conclusion arrived at in para 13 above, this application fails and is hereby dismissed.