SHAHID KARIM, J.---This is a petition under section 290 read with section 292 of the Companies Ordinance, 1984 (Ordinance) , seeking appropriate orders for running the affairs of the Company.
2. The petitioners are shareholders of the respondent No,1, Company. The learned counsel for the petitioners ,submits that the petitioners collectively hold shares to the extent of 24.905 per cent.
Thus, the petitioners are prima facie authorized to maintain the instant petition.
3. The learned counsel for the respondents does not take cavil with the position of shareholding to submit that he has other .Grounds of attack on the basis of which it is urged that the petition is not maintainable.
4. The primary grounds of challenge brought forth in this petition are as follows: i. That the circular issued by the Company under section 86(3) of the Ordinance does not disclose the correct position as regards the entry No,12 of that circular, which relates to the profit and loss of the declaration of dividend during the preceding three years for the Company. ii. The circular does not disclose the purpose of the issue of further share capital nor does it specify what necessitated the Company to issue further share capital. iii. The learned counsel refers to Form 'A' annexed at page 29 of the petition to submit that the amount of indebtedness on the date up to which Form 'A' has been submitted, has been shown.
As 'Nil' which belies the true and correct factual position. iv. Relying upon paragraph 6(b) of the grounds taken in the petition, it is submitted that the business of the Company is ultra vires the Memorandum of Association of the Company.
5. The primary reason which triggered the filing of the instant petition is that a circular was issued by the respondent-company under section 86(3) of the Ordinance. According to the circular, the respondents proposed to issue 1880488 further shares in order to increase the capital of the Company. The .Learned counsel for the petitioners does not dispute the fact that a notice was also given to the petitioners which accompanied the circular. This circular was also served on the SECP in terms of section 86 of the Ordinance. It is also not disputed by the learned counsel for the petitioners that the petitioners were offered the pre-emptive light of the issuance of capital in proportion to the existing shares held by each of the petitioners, irrespective of class. The petitioners have admittedly declined the offer made in this regard. Prior to this, an extraordinary general meeting was held on 16.5.2014 and it is also not denied that the notice of that meeting was served upon the petitioners.
6. A petition under section 290 of the Ordinance can be maintained by members holding not less than 20% of the issued share capital of a company if they complain that the affairs of the company are being conducted in an unlawful or fraudulent manner or in a manner not provided for in its memorandum or in a manner oppressive to the member or any of the members. On such a petition being filed the Court may with a view to bringing to an end the matters complained of, make such order as it thinks fit whether for regulating the conduct of the company's affairs in future or for the purchase of the shares of any members of the company by some other members of the company or by the company.
7. It has to be seen whether the instant petition qualifies on the touchstone of the grounds mentioned in section 290 of the Ordinance in order to compel this Court to intervene and pass orders of the nature which have been mentioned in that provision. From the submissions made by the learned counsel for the petitioners as also by the respondent, and the counsel for the SECP, I do not find any substance in the submissions made by the learned counsel for the petitioners in order to exercise the jurisdiction vested under section 290 of the Ordinance nor do I find that the complaint made through this petition brings forth clearly that the affairs of the Company are being run in an unlawful or fraudulent manner.
8. The primary challenge of the petitioners is that the circular issued by the Company in terms of section 86(3) of the Ordinance does not disclose the correct factual position and thus the petitioners were deprived of their legitimate right to make an informed decision on the basis thereof. Precisely, the learned counsel has drawn my attention to two entries, one at serial No,12 and the other at serial No,18. With regard to the entry No,12, it has been mentioned that the profit/losses were nil during the preceding three years as also that no dividends/bonus was declared by the Company during that period as well. The learned counsel has juxtaposed this entry with the directors' report at page 49 of this petition which is accompanied by audited accounts of the Company for the year ending June 30, 2012. For the claim relating to financial overview, it has been mentioned as follows: "Financial Overview The year 2011-12 proved to be the year of excellence and significant achievements. The Company delivered excellent results and broke last year's set targets in sales and production. Moreover, the gross and operating profits also showed considerable improvement which need to be acknowledged. These commendable achievements also reflect our Plaint's safety and operational reliability. During the year under review the Company performance was much better than previous year, despite of uncertain economic and adverse market conditions as a whole.
The Company's sales revenue has increased to Rs, 2.05 billions (2011: Rs, 1.22 billion, increase of 68%) which shows a definite sign of growth and potential. The Gross profit of the Company was Rs, 533.30 million (2011: Rs, 253.79 million). Admin, Selling and Financial costs are also within the rang.
Net Profit after taxation has increased to Rs,186.98 million against last year profit of Rs, 66.43 million. Current ratio has also improved significantly by 1.08: 1.0 (2011 : 0.81 : 1)."
9. The conclusion that was sought to be drawn by the learned counsel was that the fact mentioned in the circular issued by the Company for the further issue of capital runs counter to the financial overview mentioned in the directors' report. However, nothing much turns on this aspect highlighted by the learned counsel. It is not denied by the learned counsel for the petitioners that the petitioners were in possession of the copy of the directors' report as also the audited accounts of the Company and thus they could make an informed decision regarding this matter and any wrong information given in the circular did not prejudice their faculty of making an informed decision. The learned counsel by the said statement, made the nuanced argument that if incorrect information is given in the circular, then that would bring the case within the ambit of section 290 of the Ordinance as the affairs of the Company would be deemed to being conducted in a fraudulent manner as this would amount to defrauding the shareholders. This, in my opinion, is a far fetched view of the incorrect information mentioned in the circular and the primary test should have been the prejudice caused to the petitioners. Moreover, the learned counsel for SECP has submitted that this is a mere irregularity which can be corrected and, in fact, the SECP has not accepted the contents of the information given in the circular which is still pending with the SECP. It goes without saying that the SECP could now proceed to exercise the power vested in it by law as in terms of section 86 of the Ordinance, a copy of the circular has to be sent to the SECP for its information and necessary action. In the same vein, is the objection taken to entry at serial No,18 of the circular. According to the learned counsel, the purpose for the issue of further share capital is lacking in material particulars and general observations have been made that this was required to meet the required capital. However, this aspect has been elaborately dealt with by the respondents in their reply and in particular at page 7 of the reply, in which it has been mentioned that the issue of further share capital is required for the service of liabilities to the tune of 700 million which is owed by the Company to different creditors. In any case, this aspect has been mentioned in the audited accounts of the Company as well and was not an aspect which was not in the contemplation of the petitioners at the relevant time.
10. The statement of law on the precise nature of power under, section 86 of the Ordinance, 1984 and a challenge on its basis has been brought out in the judgment of the Supreme Court of Pakistan reported as Naseer A. Sheikh and 4 others v. The Commissioner of Income-Tax (Investigation), Lahore and others (PLD 1992 Supreme Court 276) in the following terms: "...It is to be borne in mind that qua the company, the Directors hold a fidutiary relationship and are required to exercise powers vesting in them for the benefit of the company. But, when the need of the company for increase of capital is established, the fact that in promoting the interest of the company, the Directors make use of this need to promote their own interest as well, their action cannot be dubbed as breach of trust. In Hirsche v. Sims (1894) AC 654 it is laid down: "If the true effect of the whole evidence is that the defendants truly and reasonably believed at the time that what they did was for the interest of the company they are not chargeable with dolus malus or breach of trust merely because in promoting the interest of the company they were also promoting their own or because they afterwards sold shares at prices which gave them large profits."
11. Some of the principles of a petition under section 290 of the Ordinance, 1984 in relation to the compliance or otherwise of section 86 have been enumerated and are well established. The power to issue shares need not be used only when there is a need to raise additional capital, although this is one of the primary purposes. The power can be used to create a sufficient number of shareholders to enable a company to exercise statutory powers or to enable it to comply with the statutory requirements. The Supreme Court of India has recognized the limited ground on which the court would interfere in a rights issue. It follows that if the rights issue is for the bona fide purposes of the company, no injunction would be granted against such issue merely on the ground that it may alter the balance of powers (Nanalal Zaver and another v. Bombay Life Assurance Company AIR 1950 SC 172 and Needle Industries (India) v. Needle Industries Newey (India) AIR 1981 SC 1298).
12. It was held in Milan Sen v. Guardian Plastics Ltd. (1998) 91 Corn. Cases 105 that where the company is in genuine need of more capital as decided by the Directors and there is nothing to doubt the Directors' bona fide or motive in a further issuance of shares, the Court cannot be called upon to strike down or stay the issue just only because the issue benefits the Directors also in their capacity as shareholders. It the company's interests are to be promoted by the issue and the statutory requirements of section 81 have been complied with, the issue is valid even if the Directors' interests are also promoted thereby. It has further been held in Sri Hari Rao v. Gopal Automotive Ltd. (1999) 96 Com. Cases 493 that a minority shareholder cannot ask for a further issue of shares which he does not want to subscribe should be stopped because it would constitute his oppression.
13. The learned counsel for the respondents has submitted that an extraordinary general meeting for the issuance of the right shares was held on 16.5.2014. Ten members of the group to which the petitioners belong, participated in the said meeting and the offer was made to the participants/ petitioners in that meeting.
14. The objection of the learned counsel for the petitioners relating to Form 'A' and the information regarding the amount of indebtedness in respect of the Company is also not tenable. It goes without saying that the information given in Form 'A' and its correctness or otherwise can very well be gauged and determined by the petitioners from the audited accounts of the Company and is not a secret being kept by the respondents so as to deprive the petitioners of the true state of affairs regarding the indebtedness of the Company.
15. Lastly, the learned counsel for the petitioners submits that the affairs of the Company are being conducted in a manner not provided for in its memorandum. Precisely, the learned counsel in order to substantiate the contentions made in paragraph 6(b) of the petition, submits that the Company has set up a plant of production/manufacturing of CO2 within the premises of the respondent No, 1/Company in collaboration with an in joint venture with other parties which offends the purpose and objects spelt out in the Memorandum of Association. The learned counsel for the petitioners has not elaborated upon the precise manner in which and the clauses of the Memorandum of Association which have been violated in this regard. I have, with the assistance of the parties, read through the Memorandum of Association, annexed with this petition. The said memorandum is widely worded and gives ample powers to the Company to undertake the business of manufacturing, selling, importing etc. Of all commodities of distillery products. It does not out a clog on the power of the Company to set up a business which is related to the primary business of the Company. The learned counsel for the respondents submits that CO2 is a by- product of the industrial waste and was not being utilized purposefully and was being wasted. In order to capture and utilize the CO2 being produced as a by-product, a plant has been set up in order to utilize that product. In my opinion, the power to set up a plant for the production of CO2 is an object which is encompassed by the terms of the Memorandum of Association and is included in it and is thus intra vires the powers of the Company. I am not persuaded to agree with the learned counsel for the petitioners that the setting up of the plaint is not within the ambit of the object clause.
16. From the facts adumbrated, it is clear that the affairs of the Company are not being conducted in an unlawful or fraudulent manner or in a manner not provided for in its memorandum. Nor has anything been brought forth which would bring home the fact that the affairs of the Company are being conducted in a manner oppressive to the members. The contentions made by the learned counsel for the petitioners merely give rise to certain irregularities committed by the Company at worst and fully falls within the domain of SECP to exercise the powers vested in SECP by law in this regard. There is no stopping the SECP from proceeding in the matter of any aspect which in the opinion of the SECP falls within its jurisdiction and of which the Company has fallen in breach.
17. For what has been stated above, this petition is without any merit and is, therefore, dismissed.