' These are two Judicial Miscellaneous petitions filed under the provisions of the Companies Act, 1913, by the petitioner, Usman Husein, J. M. 24/81 is a petition under section 153-C of the 1913 Act in the matter of Nagina Films Limited praying for the following reliefs "(a) Order and direct that affairs of the Company be conducted in manner to secure the petitioner his rights as 20% shareholder of the Company and in the said right to be director and to participate in the direction, management and administration of the Company and in the meetings and proceedings of the Company and to be supplied copies of accounts, minutes of meetings and proceedings ;
(b) Secure to the petitioner, his remuneration, allowances, benefits and dues ;
(c) Relieve the petitioner from oppressive manner of conducting the affairs of the Company and order direct that no criminal complaints and cases be filed against him and pending complaints and cases be withdrawn ;
(d) Give grant issue such further and other orders and directions as the facts and/or circumstances of the case may require ; and
(e) Allow costs herein and of the proceedings hereunder to be paid by T. M. Yousuf and his group shown as holders of shares in the Company."
' J. M. No, 25/81 is a petition filed by the same petitioner under section 162 of the Companies Act, 1913, praying for the winding-up of Nagina Films Limited.
2. Briefly the facts, as alleged by the petitioner in J. M. No, 24/81, are that Nagina Films Limited (hereinafter referred to as "the Company") was incorporated as a private Limited Company in 1975 with an authorised capital of Rs, 5,00,000 divided into 5,000 shares of the face value of Rs, 100 each.
The paid-up capital of the Company is Rs, 2,50,000. The petition under section 153-C of the 1913 Act has been filed by the petitioner as a holder of 500 shares of the total value of Rs, 50,000 in the capital of the Company and also claiming to be a creditor of the Company. According to the petitioner, the Company was floated by members of three families namely, the families of the petitioner, T. M. Yousuf and sons of Haji Tar Muhammad (Adam and Suleman) and that the foundation for the incorporation and running of the Company was the understanding or agreement between these families to purchase and take over, as co-owners or co-partners, the property of Nagina Cinema on Plot No, 5, Keamari, Karachi, and to run this Cinema through the medium of the Company. One thousand shares were acquired by the family of T. M. Yousuf, 1000 shares by Adam and Suleman (sons of Haji Tar Muhammad) and 500 shares by the petitioner. The first directors were T. M. Yousuf, Mrs. Rabia T. M. Yousuf, Adam Haji Tar Muhammad, Suleman Haji Tar Muhammad, and the petitioner, who was also the Managing Director of the Company.
According to the petitioner, certain remuneration and allowances were paid/given to the directors from April, 1975 to March, 1977 but thereafter, on account of disturbances in the country, these payments were not made but remuneration and allowances were again started with effect from July, 1979. The petitioner was appointed Managing Director of the Company on the formation of the Company and-he continued as such till 30-6-1980. According to the petitioner, he had earlier resigned on 24-4-1971 as Managing Director but apparently this was not accepted and then he tendered his resignation again on 8-6-1980 which was accepted and he ceased to be the Managing Director on 30-6-1980. Since 1-7-1980, according to the petitioner, T. M. Yuosuf is managing, controlling and running the Company. The petitioner has made the following grievances/grounds in his petition under section 153-C of the Companies Act, 1913 :- "(a) T. M. Yousuf since May/June, 1980, has been attempting to purchase the shareholding of the petitioner in the Company on face value, which, according to the petitioner, is a gross under- valuation and has been pressurizing and coercing the petitioner towards that objective ;
(b) Illegally removed the petitioner from the office of Director of the Company/and reduced the number of directors from five to three ; (c)Illegally excluded the petitioner from the management and administration of the Company ;
(d) Has acquired the shareholding of Haji Tar Muhammad family in the Company in order to exercise voting rights for the purpose of putting pressure on the petitioner to sell his shares without payment or at gross under value ; (e)T. M. Yousuf, purporting the act on behalf of the Company, has got filed several criminal cases/complaints in the name of the Company against the petitioner making false allegations and threats, force or show of force and making false allegations of misappropriation and breach of trust in respect of expenses incurred during the time the petitioner was the Managing Director of the Company. According to the petitioner, some of the said complaints are pending and some have been dismissed."
' According to the petitioner the aforesaid actions show that the affairs of the Company are being conducted in an unlawful manner and in a manner in fraud of petitioner as the minority shareholder and in a manner oppressive to him, and in the circumstances J. M. No, 24/81 has been filed for regulating the conduct of the affairs of the Company.
3. J. M. No, 25/81, as observed earlier, is a petition under section 162 of the Companies Act, 1913. The facts in this petition are more or less identical to the facts stated. In J. M. No, 24/81. Para. 25 and prayer clause of this petition No, J. M. 25/81 reads as follows :- '25. The said T. M. Yousuf in making and filing criminal complaints against the petitioner and in his dealings and treatment with and accorded to the petitioner seeking to expropriate his "holding of shares and to oust him from membership of the Company the said T. M. Yousuf is guilty of conduct which is likely to affect prejudicially the carrying on of business and the said.T. M. Yousuf by excluding the petitioner from directorship of the Company and for management and administration of the affairs of the Company is wilfully and persistently committing breaches of agreement relating to management of affairs of the Company or firm and the said T. M. Yousuf by treating the Company and its properties and assets as his private concern and property so conducts himself in matters relating to business that it not reasonably practical for the petitioner as the other partner to carry on business in partnership with him and the petitioner further submits that the facts and circumstances of the case render it just and equitable that the firm or Company be dissolved and wound-up.
' The petitioner, therefore, prays that the Hon'ble Court will be pleased to :-
(a) Order the Company in the petition to be dissolved and wound-up ;
(b) Order costs of proceedings in or under the petition to be paid and borne by those who oppose the petition ; and (c)Give grant and issue such further and or other reliefs as the nature and or circumstances of the case may require."
4. In reply to the Petition No, 24/81, T. M. Yousuf, Managing Director of the Company, filed his counter-affidavit dated 8-7-1981 and has denied the various allegations made in this petition.
According to the said counter-affidavit, from the incorporation of the Company till 30-6-1980, that is for a period of about five years, the petitioner was the Managing Director and was exclusively managing the affairs of the Company and was operating the back account of the Company to the exclusion of other directors and that he used to receive all the earnings of the Company and maintained the Company's accounts. It was further pleaded on behalf of the respondents in the said counter-affidavit that the petitioner, while managing the affairs of the Company, had been making regular false entries in the books-of-account and preparing false, fraudulent and forged vouchers of payments in respect of which criminal cases have been filed in the competent Courts of law. It was further denied that there was any understanding or any agreement to own or operate Nagina Cinema as co-owners or co-partners. It was further averred that it was clearly understood that a company would be formed under the Companies Act, 1913. T. M. Yousuf has further stated in his said counter-affidavit that Messrs Adam and Suleman ceased to be shareholders and directors of the Company as all the shares held by them were purchased by T. M. Yousuf and his wife for consideration. In his counter-affidavit, T. M. Yousuf has referred to certain payments, which according to him, were made at the time the petitioner was the Managing Director of the Company, and which payments, according to T. M. Yousuf, had not been actually made but fraudulently incorporated in the accounts of the Company by the petitioner. It has been pleaded that the petitioner had withdrawn his earlier resignation and continued to be the Managing Director but ultimately he resigned when T. M. Yousuf asked him to submit the accounts for their detailed scrutiny and that the petitioner resigned anticipating disclosure of the grave irregularities committed by him in the Company's accounts. According to T. M. Yousuf, petitioner himself was exclusively responsible for non-payment of dividends as he had shown losses and given one excuse or another for such losses. As regards the purchase of the shares of Messrs Adam and Suleman, T. M. Yousuf has taken up the position that these shares were purchased at face value because there were no profits or even future hope of profits in the Company, so long as the petitioner controlled the Company. It has been further pleaded that after Messrs Adam and Suleman sold their shares to T. M. Yousuf and his wife and resigned and ceased to be directors of the Company, necessity arose to fill in the casual vacancies and these were filed by the appointment of Messrs Suleman A. Memon and Rasheed A. Akhund as the directors of the Company and this action was in conformity with Article 33 of the Articles-of-Association of the Company and paragraph 11(2) of the Companies (Managing Agency and Election of Directors)
Order, 1972 ; but then it was decided to, reduce the number of directors from five to three and, therefore, Mr. Rasheed Akhund resigned as director of the Company. It has been denied that T. M.
Yousuf in any way wanted to take over the shareholding of the petitioner in the Company.
Paragraph 26 of the said counter-affidavit dated 8-7-1981 of T. M. Yousuf is reproduced hereunder :- "26. Contents of paragraph 26 are denied. Criminal complaints have been filed by the Company against the petitioner and the petitioner alleged and cooked up differences with any share-holders or Director of the Company cannot be made to come in the way of the Company's right to prosecute delinquent director.
' It is however, specifically denied that T. M. Yousuf in any way wished to seek to expropriate the shareholdings of the petitioner in the Company. T. M. Yousuf is not guilty of any misconduct. He and his wife now own 80% shares of the paid-up capital of the Company. Under the law, "the holders of 80% can themselves manage the affairs of the Company. Question of excluding petitioner from the Directorship of the Company and its management is irrelevant and absurd, since he himself resigned as the Managing Director. The petitioner cannot ask for the equal treatment with the shareholders of 80% shares when he holds only 20% share. This Company is not a partnership business and any reference to conducting the affairs of the Company as partnership is irrelevant and invalid in law.
' After the resignation of the petitioner, the business of the Company has now picked up and the Company expects to show reasonable profits for the year ending June, 1981. However, the petitioner will now not get a chance of manipulating the accounts of the Company and this is no justification for dissolution or winding-up of the Company.
' I am informed and verily believe that in law there is no bads to ask for winding-up of a company and it will not be just and equitable to wind-up a limited company only because the majority shareowner's having 20% shares (i,e, less than 3/4th holding) is not appointed the Managing Director or a director of the Company. Present position of this Company is in accordance with Order X of the Companies (Managing Agency and Election of the Directors) Order, 1972. The Board fixed the number of Directors of this Company at three in Board meeting held on 29th January, 1981.
Under Order X(a) when the number of Directors of the Company is fixed as three directors, the director to be elected successfully will require 33.33% for him to be successful. Since the petitioner only holds 20% shares, he cannot be appointed even a director. Again, the petitioner chose not to attend the meeting of the Extraordinary General Meeting of the Company when the Directors were elected. So the question of his appointment as director did not in the first place arise.
' By way of abundant precaution, the petitioner was also removed as the director of the Company in the said Extraordinary General Meeting of the shareholders held on 25-2-1981. This action is valid under the provisions of Order XII and under section 81 of the Companies Act, 1930.
' Consequently the actions of the Company against the petitioner are in accordance with law and the petitioner cannot have any grievance against law or such grievance cannot be made the foundation for winding-up of a company."
5. In J. M. No, 25/81, counter-affidavit dated 6-7-1981 has been filed by T. M. Yousuf in reply to that petition and the averments in the said counter-affidavit are practically the same as are contained in the counter-affidavit of T. M. Yousuf dated 8-7-1981 filed in J. M. No, 24/81. Several affidavits have been filed on behalf of the petitioner and respondents in the two petitions and various documents had also been filed in support of their respective cases in these petitions.
6. As stated earlier, J. M. No, 24/81 has been filed under section 153-C and J. M. No, 25/81 under section 162 of the Companies Act, 1913. Mr. J. H. Rahimtoola, learned counsel for the petitioner, stated that petition J. M. No, 25/81 has been filed under the just and equitable clause of section 162 of the Companies Act, 1913 and this is also stated in paragraph 25 of the said petition. Section 153-C is a new provision added after section 153-B through the Companies (Amendment) Ordinance, 1979 and it reads as follows :- "153-C. Prevention of mismanagement or oppression of members.-(1) If any member or members holding not less than one-tenth of the issued share capital of a company complains or complain, or the Federal Government is of the opinion, 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, or are being conducted in a manner prejudicial to the public interest, such member or members or, as the case may be, the Federal Government may make an application to the Court by petition; and the Court may make such order as it thinks fit in the circumstances for regulating the conduct of the affairs of the company and matters ancillary thereto.
(2) Where an order is made under 'subsection (1) on the application of any member or members, the company in relation to which the order is made shall cause a certified copy thereof to be delivered to the registrar for registration within fourteen days after the completion of the order, and if default is made in complying with this subsection, the company and every officer of the company who is knowingly and wilfully in default shall be liable to a fine not exceeding five thousand rupees and to a further fine not exceeding five hundred rupees for every day during which the default continues."
' Another relevant provision that has been added to the Companies Act, 1913 by the said Amendment Ordinance of 1979 is section 170(1-A) which reads as follows :- "170(1-A).-If, on a petition presented by any member or the registrar, the Court is of the opinion that, although the facts would justify the making of a winding-up order, the making of such order would unfairly prejudice the member or members concerned, the Court may make such order as it thinks fit in the circumstances for regulating the conduct of the affairs of the Company and bringing to an end the matters complained of."
7. I have heard at length the arguments of Mr. J. H. Rahimtoola, learned counsel for the petitioner in the two petitions, and Mr. Rashid A. Akhund, learned counsel for the respondents. It was contended by Mr. Rasheed A. Akhund that a petition under section 153-C of the Companies Act, 1913, can only be granted if the petitioner first makes out a case for winding up of a company under section 162 of the Companies Act. Section 153-C has been reproduced in the previous paragraph of this judgment and under this section a qualified share-holder can file a petition to the Court if- "(1) the affairs of the company are being conducted in an unlawful or fraudulent manner ; or
(ii) in a manner not provided for in its memorandum ; or
(iii) in a manner/oppressive to the members ; or
(iv) the same are being conducted in a manner prejudicial to the public interest."
According to Mr. Rasheed A. Akhund, there is no distinction between the grounds on the basis of which a petition could be granted under section 162 or under section 153-C of the Companies Act. It was contended by him that unless a petitioner makes out a case under section 162 of' the Companies Act, relief under section 153-C cannot he granted. In support of his contention learned counsel for the respondents, relied upon the case of R. E. S. Corporation Limited v. Nageshwara Rao (1). In India, the Companies Act, 1913 was repealed and replaced by the new Companies Act of 1956 but the said case decided by the Indian Supreme Court related to the period when Companies Act, 1913 was in force in India and in that Act at that time also there was section 153-C, which is similar to section 153-C of the Pakistan Companies Act, 1913. In AIR 1956 SC 213, the Indian Supreme Court accepted the proposition that before taking action under section 153-C, the Court must be satisfied that circumstances exist on which an order for winding-up could be made under section 162. Mr. J.
H. Rahimtoola, learned counsel for the petitioner, also conceded to this legal position. On a comparison of the provisions of section 162 and section I53-C of the Companies Act, 1913, I am also of the view that the Court must first come to the conclusion, on
(1) AIR 1956 SC 213 the basis of facts and circumstances in a particular case, that an order for winding-up can be made under section 162 before any action could be taken or relief granted to a petitioner under section 153-C of the Companies Act, 1913.
8. As observed earlier, the Petitioner has filed two Petitions, one under section 162 and the other under section 153-C of the Companies Act, 1913. It was contended by Mr. Rashid A. Akhund that because the Petitioner has filed these two Petitions, relief under section 162 may not be granted. I find no substance in this argument. Just because a Petitioner files two petitions, one under section 153-C and the other under section 162 of the Companies Act, 1913, the petitioner is not debarred from pressings his petition under section 162 for winding-up of the company. Further, it was the contention of Mr. Rashid A. Akhund himself that unless a case is made out under section 162, relief cannot be granted under section 153-C, which contention has been accepted by me. I am of the view that the petitioner can simultaneously file two petitions, that is, one under section 162 and the other under section 153-C against the same Company and the mere fact that such petition are filed simultaneously does not by itself disentitle the petitioner to relief under section 162 of the Companies Act, 1913.
9. I may now refer to the grievances/grounds raised in the two petitions and which have been referred to in paragraph (2) of this judgment. It was first contended by Mr. J. H. Rahimtoola, learned counsel for the petitioner, that since May/June, 1980, respondent T. M. Yousuf had been attempting to purchase the petitioner's shareholding in the Company on face value and which, according to the petitioner, is a gross under-valuation of the shares. It was further contended that various kinds of pressures and coercive tactics were employed by the respondent T. M. Yousuf for achieving his object of acquiring shares of the petitioner. The petitioner has not been able to establish to my satisfaction his allegations in this regard. Furthermore, during the course of argument, Mr. Rashid A.
Akhund had offered, on instructions from T. M. Yousuf to sell the entire shareholding of T. M. Yousuf and his family in the Company to the petitioner on a proper valuation being fixed. In my view the petitioner has not been able to make out a case in this behalf as from the documentary evidence it is not borne out that T. M. Yousuf had exercised pressures and employed coercive tactics to purchase petitioner's shares on face value.
10. It was then contended by the learned counsel for the petitioner that T. M. Yousuf had acquired the shareholding in the Company of the third family, namely, Haji Tar Muhammad's family, in order to exercise voting rights for the purpose of putting pressure on the petitioner to sell his shares without payment or at gross under-valuation. I have already come to the conclusion that the petitioner has not been able to establish that T. M. Yousuf has attempted to purchase the shareholding of the petitioner in the Company at face value or at gross under-valuation. In any case under Article 22(a) of the Articles of Association of the Company, one shareholder of the Company can sell his or her shares to another shareholder and I find nothing illegal or immoral in T.
M. Yousuf purchasing the shares of Haji Tar Muhammad's family. The sellers have not made any grievance that their shares have been acquired at gross under-value or that any pressure was employed or exercised by T. M. Yousuf on them to sell their shares to T. M. Yousuf. This is also not the case of the petitioner.
11. The third contention raised by Mr. J. H. Rahimtoola was that T. M. Yousuf, purporting to act on behalf of the Company, has got several criminal cases/complaints filed in the name of the Company against the petitioner making false threats and false allegations of misappropriation and breach of trust in respect of expenses incurred during the time the petitioner was the Managing Director of the Company. It was contended by Mr. Rashid A. Akhund, appearing for respondent T. M. Yousuf, that on the basis of the reports of the auditors such complaints/criminal cases have been filed against the petitioner. I had made it clear to both the learned counsel, at the time the arguments were being addressed, that in the instant cases I do not wish to make any comment on the maintainability, competency or merits of any such criminal cases/complaints, as any observation by me in this regard, in the special circumstances of the instant cases, was likely to affect or prejudice the case of one party or the other. According to Mr. J. H. Rahimtoola, some of the complaints are still pending but others have been dismissed or quashed. If the complaints/criminal cases are false or incompetent, there are available to the petitioner provisions of law in the Criminal Procedure Code for dismissal or quashment of such proceedings.
Furthermore, the petitioner is also not debarred from filing suits against the complainants for claiming damages for malicious prosecution, if the complaints are found to be false and to have been instituted maliciously. In my view, in the present cases, the filing of criminal cases/complaints against the petitioner does not give the petitioner any right to move to this Court for winding-up of the Company, under section 162 or for taking action under section 153-C of the Companies Act, 1913.
12. The other contentions raised by Mr. J. H. Rahimtoola relate to the removal of the petitioner from the office of the Director of the Company, his exclusion from the management and administration of the Company and for that purpose, reduction of the number of directors of the Company from five to three by T. M. Yousuf and other directors representing the majority shareholding. It was the contention of Mr. J. H. Rahimtoola that this was family concern and as the base had gone and which was that the petitioner would remain a director and part of the management of the Company, it should be wound-up on the principle of just and equitable clause in section 162 of the Companies Act, 1913. It was strenuously contended by the learned counsel for the petitioner that being a family concern and a private limited company, this Company should be treated as a partnership concern. Mr. Rashid A. Akhund on the other hand argued that Nagina Films Limited is not a family concern, as there were three different families, who were the promotors and original shareholders of the Company and for the purposes of the petition under section 162 of the Companies Act, 1913, this Company cannot be treated as a partnership concern. It was further contended that the petitioner was lawfully removed from the directorship of the Company and that reduction of the number of directors from five to three was also done in accordance with law.
According to Mr. Rashid A. Akhund, no case had been made out for winding-up of the Company under the just and equitable clause and as a consequence neither petition under section 162 could be granted nor the petitioner was entitled to relief under section 153-C of the Companies Act, 1913.
13. Mr. J. H. Rahimtoola, learned counsel for the petitioner, relied upon the following reported judgments for the contention that in the facts and circumstances of the present case it is just and equitable that the Company be wound-up and that the petitioner is entitled to relief under section 153-C :-
(1) loch v. John Blackwood Limited (1924) A C 783.
(ii) In re : Davis and Collett Limited (1935) 1 Ch. 693.
(iii) In re : Yenidje Tobacco Company Limited (1916) 2 Ch. 426.
(iv) Lai Prasad Jaiswa l v. Karnal Distillery Co. Ltd. PLD 1965 SC 221.
(v) Ebrahim v. Westbourne Galleries Limited (1973) A C 360.
(vi) Re Lundie Brothers Limited (1965) 2 A E R 692.
' On the other hand Mr. Rashid A. Akhund, learned counsel for the respondents sought support from the following :-
(vii) Re Five Minute Car Wash Service Limited (1966) 1 A E R 242.
(viii) In re Kruddson Limited PLD 1972 Kar.
376.
(ix) Usman Textile Mills Ltd. v. Board of Directors PLD 1976 Kar.
10.
(x) Muhammad Ismail Ali v. Poknor Ceramics Ltd. PLD 1973 Kar.
491.
(xi) Halsbury's Laws of England, Volume 6, 3rd Edition, paragraphs 1035 and 1044.
14. (i) loch v, John Blackwood Limited is a decision by the Privy Council on appeal from the West Indian Court of Appeal. In the Companies Act, 1910 of Barbados there was a similar provision relating to the winding-up of a company as is contained in the Pakistan Companies Act, 1913. A petition for winding-up was filed by the shareholders, who were not directors on the ground that the directors had omitted to hold general meetings, or to submit accounts, or recommend a dividend, and that they had laid themselves open to the suspicion that their object in so omitting was to keep the petitioners in ignorance of the company's position and affairs and to acquire the petitioners' shares at an under-value. Keeping under consideration the domestic character of the company, it was held by the Privy Council, reversing the judgment of the Court of Appeal, that the petitioners were entitled to a winding-up order.
(ii) In re : Davis and Collett Limited, while considering the just and equitable clause under section 168 of the Companies Act, 1929 of U. K., a Single Judge of the Chancery Division of the High Court took the view that where the capital of a private company was so owned as to make the company in substance a partnership and one director had purported by means of irregularities to acquire complete control of the company and to exclude the other director or directors from the management of the company, it may be "just and equitable" within the meaning of section 168 of the Companies Act, 1929 that the company should be wound-up. In this decision, the judgment In re: Yenidje Company Limited was considered and its principles were applied.
(iii) In re : Yenidje Tobacco Company Limited is a judgment by the British Court of Appeal. In this case two persons, who previously were in business separately, agreed to amalgamate their businesses and in order to do so formed a private limited company in which they were ,the only shareholders and directors. On account of a deadlock between the two share-holders/directors, one of them filed a petition for winding-up of the company alleging that a complete deadlock had arisen, that substratum of the company was gone, and that it was just and equitable within the meaning of the words used in the Companies Act that a winding-up order be made. The Court of Appeal, affirming the decision of the Single Judge of the Chancery Division, were of the view that if this were a case of partnership there would clearly be grounds for dissolution, and that the same principles ought to be applied where there was in substance a partnership in the guise of a private company. It was held that the position in that case amounted to a complete deadlock, and that it was "just and equitable" that the company should be wound-up.
(iv) In Ladli Prasad Jaiswa l's case, Supreme Court of Pakistan, after reviewing the case law, accepted the principles laid down in the case of Yenidje Tobacco Compqny Limited. It was observed in that case by the Supreme Court of Pakistan that in the case of a private limited company the tendency of the Courts has uniformally been to treat it more or less as a partnership and to apply the same principles in the winding-up of a private limited company as would entitle a partner to have a partnership firm dissolved. It was further observed that commonly the exclusion of a partner from the management of a firm, the existence of a state of deadlock between the partners or the justifiable lack of confidence in the management have been regarded as just and proper grounds for dissolving a private limited company.
(v) Ebrahim v. West bourne Galleries Limited is a judgment of the House of Lords. It was held in this judgment that a limited company was more than a mere legal entity and the rights, expectations and obligations of the individuals behind it inter se were not necessarily merged in its structure and that while the "just and equitable" provision did not entitle a party to disregard the obligation, which he assumed by entering a company, it enabled the Court to subject the exercise of legal rights to equitable considerations of a personal character arising between individuals, which might make it inequitable to insist on legal rights or to exercise them in a particular way.
(vi) In Re Lundie Brothers Limited, a decision by a Single Judge of the Chancery Division of the High Court of England, the petitioner had filed a petition for relief under section 210 of the English Companies Act, 1948 (similar to section 153-C of the Pakistan Companies Act, 1913) and alternatively for an order under section 222 for its winding-up. The petitioner was a minority shareholder and the majority shares were held by two brothers. After some time the petitioner, who was the then Chairman of the company, was ousted and one of the brothers (majority shares) became chairman in his place. After another three years, the petitioner's employment as a working director was terminated and instructions were given to the bank for cheques signed by any two directors to be honoured, thus, rendering the petitioner's signatures unnecessary. It was held in the circumstances of that case, the petitioner was entitled to a winding-up order but was not entitled to any relief under section 2W of the English Companies Act, 1948.
' I may now refer to the case-law cited by Mr. Rashid A. Akhund, learned counsel for respondents as under :-
(vii) Re Five Minute Car Wash Service Ltd. Is a judgment by Buckley, J. Of the Chancery Division of the High Court of England. In this case the petitioner had filed a petition under section 210 of the English Companies Act, 1948, on the ground of oppression by the majority shareholders, the petitioner being a minority shareholder. Some of the alleged acts of oppression related to differences of opinion between the petitioner and the managing director of the company on matters of policy, some were allegations of inefficiency by the managing director, some related to projects of the managing director, which did not materialize on account of opposition at board's meetings and some were allegations of a vague and general character about difficulty experienced in negotiation on behalf of the company, unrelated to any particular complaint against the managing director. It was held that in order to establish that a person conducting the affairs of a company was doing so oppressively within the meaning of section 210 of the Companies Act, 1948 (similar to section 153-C of the Companies Act, 1913) it must be shown at least that he was acting unfairly towards the person claimed to be oppressed and since the allegations in that case did not suggest that the managing director acted unfairly, harshly or with any lack of probity towards any member of the company, although the allegations suggested that he was unwise, inefficient and careless in the performance of his duties as managing director, the conduct alleged did not amount to oppressive conduct within the meaning of section 210 of the English Companies Act, 1948.
(viii) In re Kruddson Limited is a decision by the late Chief Justice Tufail Ali A. Rehman of the erstwhile High Court of Sind and Baluchistan. In this judgment it was observed that a private limited company was not required to be wound-up whenever a shareholder wished that it should be, as would be the case in a partnership at will, when one of the partners desired the dissolution of the firm. It was further observed that the true position was that a private limited company, in the matter of a winding-up petition, could be treated as a partnership firm in the sense only that such circumstances as would justify the dissolution of a firm under section 44 of the Partnership Act, 1922, on the ground that it was just and equitable to order a firm to be dissolved, would also justify the winding-up of a private company but it was neither possible nor desirable, to attempt an exhaustive enumeration of the circumstances in which a Court would order a winding-up under the "just and equitable" clause. It was further held that the right to participate in the management of the company does not mean the right exclusively to manage any part of the Company's business and that the right of a shareholder is to participate by the exercise of his voting rights in the management of the company as a whole and that it was not necessary that a part of the businesses proportionate to his shareholding must be separated and put under his exclusive control. It was held that winding-up of company cannot, therefore, be claimed by a minority of shareholders on the ground that they had been excluded from managing a part of business.
(ix) PLD 1976 Kar. 10 is a decision by Fakhruddin G. Ebrahim, J. On an injunction application. While considering the provisions of the Companies (Managing Agency and Election of Directors) Order II of 1972, it was observed by the learned Single Judge that the appointment of the Chief Executive could be brought to an end by the Board of Directors of the Company, which is the appointing authority.
(x) PLD 1978 Kar. 491 is a. Decision by Dorab Patel, J. It was observed by the learned Single Judge in this judgment that a company could at any time remove any of its directors by an extraordinary resolution under section 86-G of the Companies Act, 1913.
15. As observed earlier, in PLD 1965 SC 221, the Supreme Court of Pakistan had observed that in the case of private limited company the tendency of the Courts has been more or less to treat it as a partnership and to apply the same principles in the winding-up of a private limited company as would entitle a partner to have a partnership dissolved. Obviously the observation of the Supreme Court of Pakistan cannot be taken to mean that a private limited company is to be treated for all intents and purposes as a partnership firm. The aforesaid observations had been made by the Supreme Court with reference to winding-up of private limited companies and accordingly the same are to be restricted to the case of winding-up of private limited companies. Further, as was observed in PLD 1972 Kar. 376, for purposes of winding-up, a private limited company is not to be considered as a partnership-at-will and, therefore, a private limited company could not be asked to be wound up by a shareholder merely on the ground that he wanted the company to be wound-up. In my view, the proper interpretation of the said principle laid down by the Supreme Court in PLD 1965 SC 221 is that in case of winding-up, a private limited company may be treated as a partnership firm to the extent as would justify the dissolution of a partnership film under section 44 of the Partnership Act, 1932. Reliance is placed on PLD 1972 Kar.
376. At this juncture, section 44 of the Partnership Act may be reproduced below :- "S. 44.-At the suit of a partner, the Court may dissolve a firm on any of the following grounds, namely
(a) that a partner has become of unsound mind, in which case the suit may be brought as well by the next friend of the partner who has become of unsound mind as by any other partner ;
(b) that a partner, other than the partner suing, has become in any way permanently incapable of performing his duties as partner ;
(c) that a partner, other than the partner suing, is guilty of conduct which is likely to affect prejudicially the carrying on of the business, regard being had to the nature of the business ;
(d) that a partner, other than the partner suing, a wilfully or persistently commits breach of agreements relating to the management of the firm or the conduct of its business, or otherwise so conducts himself in matters relating to the business that it is not reasonably practicable for the other partners to carry on the business in partnership with him ;
(e) that a partner, other than the partner suing, has in any way transferred the whole of his interest in the firm to a party, or has allowed his share to be charged under the provisions of rule 49 of Order XXI of the First Schedule to the Code of Civil Procedure, 1908, or has allowed it to be sold in the recovery of arrears of land-revenue or of any dues recoverable as arrears of land-revenue due by the partner ;
(f) that the business of the firm cannot be carried on save at a loss ; or
(g) on any other ground which renders it just and equitable that the firm should be dissolved."
' Reading of section 44 of the Partnership Act shows that subsections (a) and (b) are not relevant to the case of a winding-up of a company. Subsection (f) of section 44 can be compared with subsection (v) of section 162 of the Companies Act, 1913. Subsection (g) of section 44 of the Partnership Act is the just and equitable provision for dissolution of a firm, which is parallel in terms with the just and equitable clause relating to winding-up of companies and contained in subsection (vi) of section 162 of the Companies Act, 1913. Subsection (c) of section 44 of the Partnership Act is a ground, which can be covered by the just and equitable provision of section 162 of the Companies Act. It is to be seen whether provisions contained in subsections (d) and (e) of section 44 of the Partnership Act are provisions that are available only to a partner at the time of dissolution of a firm by the Court or the grounds contained in these two subsections can also be pressed into service by a shareholder under the just and equitable clause for winding-up of a private limited Company.
It is now well-established, and also confirmed by the Supreme Court PLD 1965 SC 221, that the following grounds, which are available to a partner for having a partnership firm dissolved, are also available to a share holder for the winding-up of a private limited Company under the just and equitable clause:--
(1) exclusion of' a partner from the management of a firm ;
(ii) the existence of a state of deadlock between the partners ; and
(iii) justifiable lack of confidence in the management.
' In relation to the ground relating to the exclusion of a majority from the management of a private limited company it may be observed that this does not mean a right to manage any part of the company's business exclusively and that the right of the minority shareholder is to participate by the exercise of his voting right in the management of the Company and further that it is not necessary that a part of the business of a Company, proportionate to the complainant shareholder's shareholding, must be separated and put under his exclusive control (PLD 1972 Kar.
376). It was further held in this Karachi case that winding-up of a Company cannot be claimed by a minority shareholder on the ground that they had been excluded from managing a part of business of the company.
' When a private limited company is formed, there is generally a prior arrangement or agreement between the promotors, who may be representing different groups. Such agreement or understanding may be reflected in the memorandum and articles of association of a company that is formed and/or by a separate agreement between the promotors. It is also possible that the agreement or understanding may not be available in writing either as a separate document or expressed in precise terms in detail in the memorandum and articles of association of the Company that is formed, but it may be possible to infer the major points of agreement or understanding between the promoters from the memorandum and articles of association of the company or from other documents. Strictly speaking, once a Company has been incorporated, its character, that is, the memorandum and articles of association, govern the relationship, rights and obligations of the shareholders inter se and as between the shareholders and the company, but in equity it would be wrong for the majority shareholder or shareholders to disregard the terms of the agreement or understanding on the basis of which the pro-motors floated the private limited company. As held by the House of Lords in Ebrahirn's case, a limited company was more than a legal entity, and the rights, expectation and obligations of the individuals behind it inter se were not necessarily merged in its structure and it was open to the Court to subject the exercise of legal rights to equitable considerations of a personal character arising between individuals, which might make it inequitable to insist on legal rights or to exercise them in a particular way. I am, therefore, of the view that in the case of a private limited company, the Court is entitled to look into the agreement or understanding between the promotors and in spite of the legal cover of incorporation of the Company, if the Court is of the view that the exercise of legal rights by the majority shareholders would be inequitable, the Court may decline to enforce such legal rights and may go further, if the facts and circumstances so indicate, to wind-up the Company under the just and equitable provisions of the Companies Act, 1913.
16. Subsections (d) and (e) of section 44 of the Partnership Act, 1932 may now again be perused.
Except for the first part of subsection (e), the other provisions in this subsection (e) are not applicable to cases of limited companies. In my opinion, grounds available to a partner for dissolution of a firm as are contained in subsection (d) and first part of subsection (e) of section 44 of the Partnership Act, 1932, are also available to a shareholder in a petition for winding-up of a private limited company, although the acts complained of might have been performed in exercise of their legal rights by the majority shareholders, if such acts violate or are contrary to the essential terms of the agreement or agreement on the basis of which the parties concerned formed the private limited company. This is so on principles of equity. The Court will consider it inequitable permit the majority to deny the minority in a private limited company a such rights and privileges a were agreed to be conferred or granted by the essential terms of the agreement between the promoters. In such cases the Court will consider the following :-
(i) whether there was a promoters' agreement or arrangement ;
(ii) whether any basic or essential term of such agreement has been violated by the majority shareholders ; and
(iii) whether the complained action of the majority is inequitable and for this purpose the Court may look into the intention of the majority in exercising their so-called legal right as a majority.
17. In the light of the principles enunicated in paragraphs (15 and 16) of this judgment, it is now proposed to discuss and consider the remaining grounds urged by the petitioner and which are the removal of the petitioner from the office of the director of the Company, reduction in the number of directors from five to three, and exclusion of the petitioner from the management and administrative of the Company. It is an admitted position that for about five years since the incorporation of the Company, the strength of the board of directors remained five and during this period various meetings of the board took place. Out of the five directors, petitioner was one and two directors represented each of the other two groups. In the articles of association of the Company, the names of the first directors are mentioned and these were also the five representing the three family groups. Petitioner's holding in the Company has been 20 % of the paid-up capital and the two other groups held 40 % each. On the basis of the said shareholdings, the groups were represented on the board of directors. Petitioner holding 20% shares, in the circumstances, got one seat on the board of directors. Similarly the other two groups got two seats each. In view of these admitted facts, it is established that the agreement or understanding between the three groups while forming the Company was that so long as the petitioner held 20% shares he will be entitled to one directorship, and the other two groups, two directorships each. It is, therefore, obvious that the agreement was that the strength of the board of directors would remain five and would not be reduced and the petitioner would be a part of the management. If the petitioner had been told that the majority shareholders would have the right to reduce the strength of the board of directors in order to oust him or his nominee from the board, petitioner would not have agreed to join hands and pool his resources with the other two groups in floating the Company. The basis or essential term of the agreement between the promotors was that the petitioner holding only 20% shares and in a minority would nevertheless be a part of the management as a director of the Company. In the instant case it is admitted on behalf of the respondents that the strength of the board of directors was reduced from five to three by the majority shareholders. As a consequence of this reduction, the petitioner, though still representing 20% shareholding, has lost his right of one directorship, the majority representing 80% now being legally capable to elect all the three directors. Mr. Rashid Akhund, learned counsel for the respondents, had argued that the petitioner had been removed from the office of director of the Company and the number of directors had been reduced from five to three by the board of directors and these actions were taken by or on behalf of the majority shareholders in exercise of their legal rights. The reason for the reduction of the number of directors from five to three was none other than to deptive the petitioner of his right to a directorship and to participate in the management of the Company, and Mr. Rashid Akhund could advance no other reason. It was very vehemently contended by Mr. Rashid Akhund that the number of directors was lawfully reduced. When the attention of the learned counsel was invited to articles 10 and 12 of the Companies (Managing Agency and Election of Directors) Order, 1972, it was contended by him that these articles were not applicable as no election for directors had taken place and the number of directors had not been fixed by the directors of the Company. Under the 1972 Order, directors are elected for a period of three years and voting for election of directors takes place through a special procedure which gives the right to minority shareholders to have representation on the board of directors depending on the strength of the board and the percentage of the shareholding of the minority. Articles 8 to 12 of President's Order 2 of 1972 are reproduced here :- "8. Minimum number of directors.-Every private company shall have not less than three directors and every public company shall have not less than seven directors, including, if he is not already a director, the Chief Executive appointed under paragraph (a) of clause (2) of Article 4.
9.Directors to stand retired.-On the expiration of the period of one hundred and eighty days following the commencement of this Order, or on the date of the first annual general meeting of a company held after such commencement, whichever is due earlier, all directors of a Company for the time being shall stand retired from office : ' Provided that the directors so retiring shall continue to perform their functions until their successors are elected.
10. Voting for election of directors.-The directors of a company shall fix the number of directors of the company and the directors shall be elected by the members of the company in general meeting in the following manner, namely :-
(a) a member shall have such number of votes as is equal to the product of the number of voting shares held by him and the number of directors to be elected ;
(b) a member may give all his votes to a single candidate or divide them between more than one of the candidates in such manner as he may choose ; and
(c) the candidate who gets the highest number of votes shall be declared elected as director and then the candidate who gets the next highest number of votes shall be so declared and so on until the total number of directors to be elected has been so-elected.
11. Term of office of directors.-(1) A director, including the Chief Executive shall hold office for a period of three years unless he earlier resigns, becomes disqualified for being a director or otherwise ceases to hold office.
(2) Any casual vacancy occurring among the directors may be filled up by the directors, and the person as appointed shall hold office for the remainder of the term of the director in whose place he is appointed.
12. Removal of director, etc-A resolution for removing a director elected in the manner provided for in Article 10, or for reducing the number of directors, shall not be deemed to have been passed if the number of votes against it is equal to, or exceeds, the number of votes shall would have been necessary for the election of a director at the immediately preceding annual election of directors in the manner aforesaid."
Prior to the promulgation of the 1972 Order, a bare-majority was legally capable of capturing all the seats on the board of directors of a company. By the introduction of the special voting procedure, this legal right of the majority was tampered with and the minority shareholders also got the opportunity to have representation on the board thereby becoming a part of the management. For instance, if the number of directors is fixed at five, a group representing 20% shareholding, i,e, one- fifth of the total shareholding, can always have a director elected on the board.
' The Company in this case was incorporated in 1975 and the first directors were named in its articles of association, which included the petitioner. Under the 1972 Order (President's Order 2 of 1972), election for directors are to take place every three years but in the case of this Company actual elections did not take place as apparently the number of aspirants for directors were not more than five, there being no dispute between the parties till 1980. Further there is no specific resolution of the board of directors of the Company fixing the number of directors at five. In these circumstances it was urged by Mr. Rashid Akhund that Articles 10 and 12 of President's Order 2 of 1972 were not attracted and no illegality has been committed by the majority in reducing the number of directors from five to three. The argument, though attractive, has not impressed me. The very fact that the strength of the board of directors remained as five for over five years during which numerous meetings of the board took place implies that the directors had agreed that the number of directors would remain five. This tantamounts to fixing the number as five by the board of directors under Article 10 of President's Order 2 of 1972. Then there is an averment by T. M. Yousuf in para. 23 of his counter-affidavait dated 6-7-1981 in J. M. 25/1981 that the number of directors was reduced from five to three. This also shows that the number of directors was fixed at five and then it was reduced. In view of the number of directors being fixed as five, this strength could not be reduced in violation of Article 12 of President's Order 2 of the 1972. Firstly if a majority intends to reduce the fixed strength of the directors, proper notice of such intention should be given to all shareholders as a part of the agenda to enable the shareholders to exercise their right under article 12 of President's Order 2 of 1972. No such prior notice was given to the petitioner. If he had been given notice, he would have exercised his right as 20% shareholder and thus defeated the resolution in terms of Article 12 of President's Order 2 of 1972. Annexure "R/40" to the counter- affidavit dated 6-7-1981 of T. M. Yousuf in J. M. 25 of 1981 is the notice to the shareholders for the extraordinary general meeting of the members of the Company scheduled for 25-2-1981. Certain resolutions proposed to be passed in the said meeting are reproduced in the said notice but there is no resolution for reduction of number of directors mentioned in the notice. However, the minutes of the meeting of 25-2-1981 (Annexure ``R-39") purport to show that the following resolution was also passed :- "Further resolved that the number of Directors on the Board of Directors of the Company shall be three only."
' It is, therefore, apparent that the resolution passed by the majority share-holders of the Company for reduction of directors was in violation of Article 12 of President's Order 2 of 1972.
18. Even if it is assumed that the action of the majority shareholders in reducing the number of directors from five to three and removal of the petitioner as a director of company did not violate any provision of Companies Act, 1913 or of President's Order 2 of 1972, in view of the agreement between the parties prior to the incorporation of the Company that the petitioner representing 20% shareholding will be entitled to one directorship, it is inequitable for the respondents to exercise their rights in this regard as a majority. Reduction of directors from five to three was patently made by the majority for the purpose of getting rid of the petitioner as a director and this Court will not permit the exercise of their rights as a majority to deprive the petitioner of a directorship and also his right to be part of the management so long as he holds 20% shares in the Company.
19. As I have reached the conclusion that the petitioner, as owner of 20% shares in the Company has been deprived of his right to a directorship and his right to participate in the management of the Company, the petitioner has made out a case under the just and equitable provision for the Winding-up of the Company. Mr. Rashid A. Akhund had contended that even if the petitioner makes out a case for winding-up, this Court may not order winding-up, of the Company but may restore the directorship of the petitioner and declare that the reduction of the number of directors from five to three was illegal, and that such orders can be passed under section 153-C of the Companies Act, 1913. I am not inclined to accept this contention. In view of the serious allegations and counter- allegations made by the parties against each other, even if the directorship is restored to the petitioner, there will be insurmountable complications in the management of the Company, and instead of the litigation coming to an end, there will be further litigation between the parties.
20. Reference may here be made to section 170(1-A) of the Companies Act, 1913, which provides that if on a petition for winding-up the Court is of the opinion that although the facts would justify the making of a winding-up order, the making of such order would unfairly prejudice the member or members concerned, the Court may make such order as it thinks fit for regulating the conduct of the affairs of the Company and bringing to an end the matters complained of. The words member or members concerned "employed by the Legislature" in this section refer to the petitioner or petitioners who approach the Court for winding-up of the Company. In this case, it has not been pointed out how the petitioner would be prejudiced if a winding-up order is passed. I am of the view that in the facts and circumstances of this case, there is no need for taking action under section 170(1-A) of the Companies Act, 1913.
21. I may refer to and dispose off one contention raised by Mr. Rashid, A. Akhund, learned counsel for the respondents, that the principle relating to the treatment of a private limited Company as a partnership for purposes of winding-up applies only to family concerns and that as in the instant case it was not members of one family that had floated the Company but three different families were the shareholders, the aforesaid principle cannot be applied. In the case law on the subject I find no such restriction as is sought to be placed by learned counsel for the respondents. In PLD 1965 SC 221, the Supreme Court of Pakistan did not make any such observation. I have already expressed my view in paras. 15 and 16 of this judgment and the principles enunciated there are applicable to private limited companies and are not restricted to one family companies.
22. As a result, J. M. 25/1981 is granted with costs and the private limited Company, Nagina Films Limited is ordered to be wound-up. The Deputy Registrar (Judicial) of this Court is appointed official linquidator of the Company with all powers and is directed to perform such functions and take such proceedings as are required under the provisions of the Companies Act, 1913.
' In view of the grant of J. M. 25/1981, the other petition S. M. 24/1981 under section 153-C of the Companies Act, 1913, has become infructuous and the same is, therefore, dismissed with no order as to costs.