JAWAD HASSAN, J. This judgment will examine whether this Court can straightaway invoke its jurisdiction under Section 126(1)(b) of the Companies Act, 2017 (the "Act") or not? The Petitioners are invoking original jurisdiction of this Court being a Company Judge under Section 126 of the "Act" for rectification of register of shares of the Respondent No.1/Sohawa Flour and General Mills (Pvt.) Limited (the "Company") with the prayer to direct: The Respondents No.2 and 3 to record transfer of shareholding of the Petitioner No.2 and 3 in the "Company"
Security and Exchange Commission of Pakistan (the "SECP") to record the correct shareholding of the "Company" into its record by incorporating the names of the Petitioners No.2 and 3 as shareholders in equal proportion in place of the Respondents No.2 and 3.
I. CLAIM OF THE PETITIONERS
2. The basic claim of the Petitioners is that the Respondents No.2 and 3, vide agreements dated 02.01.2020 and 04.01.2021, have sold their entire shareholding in the "Company" in their favour but their shareholding has still not been transferred in the register of the "Company".
II. PETITIONERS' SUBMISSIONS
3. Learned counsel for the Petitioners Sultan Mazhar Sher, ASC inter alia argued that the Respondent No.2 entered into an agreement dated 21.12.2019 with the Petitioner No.1 for sale of the "Company" for a total consideration of Rs.100,000,000/- out of which Rs.500,000/- were paid as token money on 21.12.2019 whereas remaining amount of consideration was decided to be paid with following stipulations:- a. Rs.40,000,000 in cash; b. Transfer of house registration No. LCR-2427 in lieu of Rs.22,000,000/- consideration amount; c. Commercial plot, registration No. SVCH-00012 in lieu of Rs.33,000,000/- consideration amount; d. One residential plot, corner, phase 8 Registration No.IDE-16232 in lieu of Rs.5,000,000/- consideration amount.
Mr. Sultan Mazhar Sher, ASC stated that pursuant to aforesaid agreement, another agreement dated 27.12.2019 was executed between the parties expressly showing that above said consideration has been paid vide transfer of property, pay order and cheque; that the parties entered into agreement of sale on 02.01.2020, stipulations whereof clearly states (i) the flour mill including the "Company" has been sold to the Petitioner No.1; (ii) no outstanding issues are left between the parties; (iii), the "Company" has been transferred to the Petitioners; (iv) the Respondent No.2 requests regulatory bodies including SECP to transfer the "Company" in the name of the Petitioner No.1 in their record; that the Petitioners complained the "SECY" on 21.09.2021 but the same has not been replied so far; that the case of the Petitioners falls under Section 126(1)(b) of the "Act"' as unnecessary delay was made by the "Company" in entering the name of the Petitioners in the register as members due to default of the Respondents No.2 and 3 (old shareholders) in their obligation in terms of the agreements, referred to above.
III. SUBMISSIONS OF RESPONDENTS NO.1 AND 3
4. Barrister Usama Rauf, Advocate filed reply and objected to maintainability of the petition on the ground that this petition does not fall within the preview of Section 126 of the "Act" as factual controversy revolves between the Petitioners and Respondent No.2 in respect of alleged sale of land upon which the "Company" was built and established by the Respondents No.2 and 3. He inter alia argued that "Company" is a body corporate incorporated under the provisions of the "Act" and all of its rights, obligations and duties are controlled by the statute and its Memorandum and Articles of Association; that the "Company" is a separate legal entity other than its members and shareholders i.e. Respondents No.2 and 3 and are not legally bound to fulfill the commitments made by the Respondent No.2 with the Petitioner No. 1 unless the Board of Directors permitted to do so; that the Petitioners are claiming to be the owners of the "Company" pursuant to sale agreements dated 21.12.2019 and 02.01.2020 that were allegedly executed between the Petitioner No.1 and the Respondent No. 2 whereas the "Company" and the Respondent No.3 neither executed any agreements with the Petitioners nor authorized the Respondent No.2 to enter into any arrangements in respect of sale of its assets including machinery, fixtures, fitting, materials etc. lying inside the premises of the "Company"; that the transfer of shareholding is permissible under the "Act" but that is subject to duly stamped transfer deed between the transferor and the transferee in respect of the transfer of shares and in absence thereof, names of the shareholders could not be entered into the register maintained by the "Company"; that transfer of share in the "Company" is not permitted without the prior approval of the Board of the Directors of the "Company"; that there exists no contract between the Petitioner No.1 and the "Company" in respect of the sale as alleged by the Petitioners nor the Respondent No.3 sold her shareholding in the "Company" to the Petitioner No.1 therefore, the Petitioners are not entitled to rectify the register of the "Company" regarding the shares of the Respondent No. 3.
IV. SUBMISSIONS OF THE RESPONDENT NO.2
5. Mr. Tariq Mehmood, ASC filed reply and also objected to maintainability of this petition. He inter alia argued that the alleged agreements are the result of fraud and misrepresentation, cancelation whereof has already been sought by the Respondent No.2 by filing suit before the court of competent jurisdiction; that factual controversy cannot be resolved in the summary proceedings filed under Section 126 of the "Act" thus this Court lacks jurisdiction to entertain and determine the question of title in respect of alleged sale of land by the Respondent No.2 in favour of the Petitioners; that rectification of register of the "Company" cannot be claimed by the Petitioners unless the sale transaction is completed and matured by executing sale deed or transfer deed in favour of the purchaser as the Respondent No.2 has not executed any transfer deed in respect of transfer of her share in the "Company".
V. REPORT OF "SECP".
6. In response to the main petition, Ms. Fatima Shabbir, Advocate filed parawise comments by stating that the "SECP" has received a letter on 21.09.2021 from the Petitioners No.2 and 3 rather Respondents No.2 and 3.
VI. DETERMINATION BY THE COURT
7. It is imperative to add that the Company Bench established under Section 5 of the "Act", has special civil jurisdiction to adjudicate company-related disputes; Section 4 whereof grants the "Act" overriding authority over other laws, making the Company Bench a specialized civil court as has been held by the Supreme Court of Pakistan in the case of "KAUSAR RANA RESOURCES (PRIVATE ) LIMITED and others versus QATAR LUBRICANTS COMPANY W.L.L. (QALCO) and others"
(2025 SCMR 517) with the following observation: "11. The Court, i.e., a Company Bench of the High Court, established under Section 5 of the Companies Act, has been conferred specific jurisdiction to adjudicate disputes between individuals or entities concerning their civil rights and obligations relating to companies and matters connected therewith. Section 4 gives Companies Act an overriding effect over any other law. The jurisdiction conferred on the Court by the Companies Act is, therefore, civil in nature.
Consequently, the Court established under the Companies Act qualifies as a civil court of special jurisdiction and may appropriately be referred to as a special civil court".
It has further been held as under: "17. The dispute in the present case, as well as the subject matter of the reference to arbitration, pertains to the alleged fraudulent transfer of shares and the rectification of the register of members (shareholders) which falls exclusively within the jurisdiction of the Court established under the Companies Act. Accordingly, we accept the request of learned counsel for the parties and direct that the Award made by the Arbitrator be filed before the Company Bench for further proceedings in accordance with the Arbitration Act".
Similarly, the Hon'ble Supreme Court has clarified this question in the case of "MIAN JAVED AMIR and others versus UNITED FOAM INDUSTRIES (PVT.) LTD., LAHORE and others" (2016 CLD 393 Supreme Court) and has held as follows: "17. .... Since the Ordinance was promulgated with an intent to amend the law relating to companies and certain other associations for the purpose of healthy growth of the corporate enterprises, protection of investors and creditors, promotion of investment and development of economy and matters arising out of or connected therewith, therefore, all matters relating to companies irrespective of the fact whether factual controversy involved or not are required to be tried by a Court having jurisdiction is under the Ordinance of 1984. Mere insertion of the term "summary procedure" does not debar the Company Judge from receiving evidence in cases where factual controversy is involved. The Court having jurisdiction under this Ordinance can receive evidence in cases it thinks appropriate in the circumstances of the case.
8. Primarily, the Petitioners are seeking rectification of shareholding register of the "Company" under Section 126(1)(b) of the "Act" and requesting the "SECP" to incorporate their names as shareholders in place of the Respondents No.2 and 3. The said section is reproduced hereunder for ready reference: "126. Power of Court to rectify register. - (1) If -
(a) the name of any person is fraudulently or without sufficient cause entered in or omitted from the register of members or register of debenture-holders of a company; or
(b) default is made or unnecessary delay takes place in entering on the register of members or register of debenture-holders the fact of the person having become or ceased to be a member or debenture-holder; the person aggrieved, or any member or debenture-holder of the company, or the company, may apply to the Court for rectification of the register.
(2) The Court may either refuse the application or may order rectification of the register on payment by the company of any damages sustained by any party aggrieved, and may make such order as to costs as it in its discretion thinks fit.
(3) On any application under sub-section (1) the Court may decide any question relating to the title of any person who is a party to the application to have his name entered in or omitted from the register, whether the question arises between members or debenture-holders or alleged members or debenture-holders, or between members or alleged members, or debenture-holders or alleged debenture-holders, on the one hand and the company on the other hand; and generally may decide any question which it is necessary or expedient to decide for rectification of the register.
(4) Where the Court has passed an order under sub-section (3) that prima facie entry in or omission from, the register of members or the register of debenture-holders the name or other particulars of any person, was made fraudulently or without sufficient cause, the Court may send a reference for adjudication of offence under section 127 to the court as provided under section 482 (emphasis added).
9. Above provision of law makes it clear that any aggrieved person or any member of the company, or debenture-holder of the company, or the company may apply to the Court for rectification of the register in case name of any person is fraudulently or without sufficient cause entered in or omitted from the register of members in terms of Section 126(1)(a) of the "Act", or there is default or unnecessary delay in entering on the register of members the fact of the person having become or ceased to be a member in terms of Section 126(1)(b) of the "Act". Primarily, Section 126(1)(a) of the "Act" provides a right to make an application before the Court for the purposes of rectification of register of members or register of debenture holders of a company in a case where name of a person "fraudulently" or "without sufficient cause" was entered in or omitted from said registers. Though the terms "member" and "shareholder" are often used synonymously, yet both are different. For a person to become a shareholder, allotment or purchase of shares from another shareholder is enough. However, a person may not be treated as a member of the company until his name is entered in the register of members of the company. For example, if a shareholder (whose name is entered as a member) sells his shares to another person, he will be treated as member until his name is replaced with the name of the purchaser in the register of members. In case a person subscribes to shares of a company, he may not be treated as a shareholder until the shares are actually allotted to him. After allotment, he will not be a member until his name is entered in the register of members. This Court has already passed a detailed judgment on Section 126(1)(a) of the "Act" elaborating the judicial anthology of words" fraudulently" and "sufficient cause" by referring foreign jurisdictions and discussing pathology and anatomy of the Section ibid by relying upon judgments of Hon'ble Supreme Court of Pakistan in the case of "ABDULLAH KHAN USMANI versus Security and Exchange Commission of Pakistan and others" (2022 CLD 821). Now the question arises whether the Petitioners who are seeking rectification of register of the "Company" in terms of Section 126(1)(b) of the "Act" are members, shareholders or debenture holders of the "Company". Learned counsel for the Petitioners, when confronted, he reiterated that unnecessary delay was made by the Respondents No.2 and 3 in entering the names of the Petitioners as members due to their default in fulfilling obligations in terms of the agreements. Pertinently, record is indicative of the fact that the "Company" was formed by the Respondent No.2 and 3 and same was registered with the "SECP" as per Certificate of Incorporation dated 26.04.2016. The whole case of the Petitioners is that the Respondents No.2 and 3 have sold their entire shareholding in the "Company" vide sale agreements dated 21.12.2019, 02.01.2020 and 04.01.2021 but neither the same has reflected in the register of shares of the "Company" nor shareholding has transferred in their favour thus their case falls under Section 126(1)(b) of the "Act"' as unnecessary delay was made by the Respondents No.2 and 3 in entering their names as members due to their default in fulfilling obligations in terms of the agreements, mentioned above. Whereas the said stance of the Petitioners has vehemently been refuted by the Respondents on the grounds that there exists factual controversy over the alleged sale agreements including the lands upon which the "Company" was built as the execution of alleged sale agreements, at the one hand, was denied while on the other hand, the "Company" being a legal entity, has not authorized the Respondents No.2 and 3 to enter into any agreements rather the transfer of shareholding is not permissible without approval of the Board and prerequisite envisaged under Section 74 of the "Act". In order to invoke original jurisdiction of this Court under Section 126(1)(b) of the "Act", there has to be a clear-cut case of default and unnecessary delay in entering on the register of members or register of debenture-holders the fact of person having become or ceased to be a member or debenture-holder and for constituting such default and unnecessary delay on the part of other members, debenture-holder or shareholders, he has to be a member, shareholder or debenture holder of a company in terms of Section 126(1)(a) of the "Act".
However, if a person, outside the scope of member, debenture-holders or shareholders, believes that default or unnecessary delay has happened in registering members, shares, or debenture- holders affecting his claimed rights, he has certain options depending on his status which may include lodging of a complaint with the "SECP" (which can conduct an inspection, investigation or even can issue orders to a company to correct the defaults, if necessary) and may avail remedy in the Civil Court due to breach of a contract. In the case in hand, the agreements which are placed on record are primarily alleged to have been executed between the Petitioner No.1 and the Respondent No.2. Before proceeding further, it would be imperative to have a glance over these agreements. The agreement dated 21.12.2019 was executed between Muhammad Farooq (Respondent No.2) and Imran Malik (Petitioner No.1) with the following terms and conditions: Bare perusal of above stated terms reveal that the "Company" was allegedly sold for a consideration of Rs.100,000,000/- out of which Rs.5,00,000/- were paid as token money whereas the remaining amount was to be paid in lieu of properties bearing House No.LCR2427, commercial plot No.SVCH-00012, coroner plot in Phase-8 IDE-16232 and Rs.40,000,000/- were to be paid on 10.10.2020. Pertinently, neither proof of payments qua aforesaid alleged executed agreement was made part of this petition nor any document of validly transfer of shares in terms of Section 76 of the "Act" has been placed on record. The Court in terms of order dated 20.09.2022 sought report from the Deputy Commissioner, Rawalpindi qua ownership of the Petitioners' property mentioned in alleged agreements to sell; pursuant thereto, below mentioned reports were submitted which read as under: Reported submitted by District Collector, Rawalpindi on 05.11.2022 reads as follows The General Manager Bahria Town, Rawalpindi forwarded complete detail of properties mentioned in annexure of subject Company Original, where name of Petitioner Imran Ahmad Malik does not exist in any transaction. (Bahria Town report Annexed A). Furthermore, regarding verification of ownership of M/s Sohawa Flour and General Mills (Pvt) Ltd. This office has already submitted field staff report to District Food Controller, Rawalpindi and in Civil Court also.
10. Pertinently, three properties bearing House No. LCR-2427, commercial plot No. SVCH-00012, plot in Phase-8 IDE-16232 were mentioned in the alleged agreement dated 27.12.2019, ownership of members alongwith transfer details are depicted in letter dated 24.10.2022 of Bahria Town, Rawalpindi which reads as: Reported submitted by District Collector, Rawalpindi on 06.11.2022 reads as follows "It is important to submit here that petitioner No.2 submitted an application before Deputy Commissioner, Rawalpindi contending that report already submitted before this Honorable Court does not clarify the ownership of properties mentioned in the alleged agreement, whereas petitioner No.2 along with council Raja Muhammad Ali Advocate appeared before undersigned and admitted that name of the petitioner Imran Ahmed Malik does not exists in transfer of properties list. However the properties mentioned in alleged agreement were transferred as property No.LCR-2427 was transfer by Kaleem Rubani to Farhanda Farooq, whereas property No.SVCH-00012 was transfer from Muhammad Imtiaz Khan to Farhanda Farooq and property No.IDE- 16232 from Muhmmad Idrees to Muhammad Farooq.
Underlining for emphases
11. It is astonishing to note that the alleged agreements, referred to above, were allegedly executed by the Petitioner No.1 namely Imran Ahmed Malik whose name is neither reflected in the transaction qua sale/purchase of the properties allegedly owned by him rather the relief is being sought for transferring of shareholding of the "Company" in favour of the Petitioner No.2 and 3 who had neither executed any agreement nor they ever remained members of the "Company". Though the Petitioners have attached partnership agreement dated 01.01.2020 (page 45 of the petition) showing the transfer of 12 kanals land shamlat by the Respondent No.2 in favour of the Petitioners No.2 and 3 yet perusal of record reveals that it merely speaks about transfer of alleged land but not about the mode and manner of transferring of share regardless of the fact that multiple civil litigation is pending before the court of competent jurisdiction as is evident from the reports submitted by the District Collector, Rawalpindi. This Court in the "CH. SHAUKAT ALI NOON and another versus TEHZEB BAKERS (PVT.) LIMITED and others" (2024 CLD 113) has already held that partnership agreement has no relevance to the transfer of shares. It has been held in the case of "ALLIANCE TEXTILE MILLS LIMITED and 8 others versus Mrs. NAHEED KAYANI and 9 others" (2015 CLD 1532) that "register of members could not have been changed on the basis of a disputed agreement dated 21.04.1993 and that the appellants would have to prove their claim before the appropriate forum before they could seek rectification under section 152 of the Ordinance". Even otherwise, the Petitioners have not brought on record any document/evidence qua payment of token money or the remaining amount to be paid. Furthermore, the Petitioner No.1, in the alleged agreement dated 27.12.2019, has claimed the ownership of the land but no transfer deed or any instrument of transfer of shares has been produced which is mandatory requirement of Section 74 of the "Act" according to which, the execution of transfer shall be submitted to the "Company" to register the same and to add and omit the name of the transferee and the transferor as the case may be. Subsequently, when a duly executed transfer deed signed and stamped by the transferor and transferee is tendered to the Board of Directors of a private limited Company, then in such circumstances the Board as per Sections 74 and 75 of the Act is bound to register the transfer of shares i.e. to add and omit the name of the transferee and the transferor respectively, and failure of the board to register the same shall grant the aggrieved party the right to move the Court under Section 126 for rectification of the register of members. The process for transfer of shares as per Section 76 must be complied with i.e. a notice must be issued to the Board of Directors by the prospective selling member indicating an intention to sell the shares, the Board of Directors upon such a requisition shall offer the shares to all the shareholders in proportion to their existing shareholding, upon acceptance by the shareholders of the offer so made a duly recognized instrument of transfer shall be executed between the parties (a share transfer deed). In the case in hand, the sale of shares has not expressly been made vide alleged agreements as was held in "KHURSHID AHMED KHAN versus PAK CYCLE MANUFACTURING COMPANY LIMITED" (PLD 1987 Lahore 1). With regard to stance of the Petitioners qua payment of consideration for the transfer of shares in terms of the alleged agreements, is also not present in this case. In I.C.A.No.3 of 2005, titled "Haji Abdur Rehman versus Umar Farooq Miankhel and others", decided on 13.02.2018, the Hon'ble Mr. Justice Yahya Afridi, (the then Chief Justice of Peshawar High Court, Now Chief Justice of Pakistan), while deciding the questions relating to jurisdiction of the Company Judge and transfer of shares discussed various provisions of the Companies Ordinance, 1984 that are pari materia to the provisions of the "Act" holding that: "The ratio decidendi of the above case finally resolved, firstly; that the Company Judge could adjudicate complicated disputed questions of facts by recording oral and documentary evidence, and secondly, that the Company Judge, if competent to decide a matter, was not to delegate the same to the Commission".
It has further been held that
10. A separate forum of redressal before the Commission, for those whose request for transfer of shares is refused, was created by inserting Section 78 A of the Ordinance vide Companies (Amendment) Ordinance, 2002.
11. Sections 76 and 77 of the Ordinance envisage various stages and conditions for acceptance of a request for transfer of shares of a company. The particulars of the said stages may be summarized in terms that:- Stage-I (Section 76)
Lodgment of request for the transfer of shares of a company.
Stage-II (Section 77)
The Board of Directors of the company ("Board") is to decide the request made for transfer of shares of the company.
Stage-III In case, the Board approves the request for transfer of shares, the said transfer is recorded in Register of Transfer of Shares, and the Register of Members maintained by the company.
Stage-IV (Section 78-A)
In case, the Board decides not to accept the transfer of shares, then any aggrieved party may seek the redressal of his grievance by filing an appeal to the Commission against the refusal to accept the requested transfer.
12. In order to resolve the controversy agitated by the parties in the four matters, it would be appropriate to further elaborate the first two stages, noted hereinabove:- Stage-I(Section 76)
Lodgment of Request for Transfer I. A written application by a transferee or transferor for transfer of the shares has to be made to the company for registration of the said transfer; and II. the said application is to be accompanied by, i. a proper instrument of transfer deed duly stamped and executed by the transferor and transferee; and ii. scrip/share certificates to be transferred.
What is also important to note is that the above two conditions have been rendered great importance, as failure to observe the same by the company would, under sub-section (7) of Section 76 ibid, lead to penal consequences of imposition of fine upon the company and every Officer of the company, who knowingly or willingly is a party to such default.
When the legislature in its wisdom has provided a penalty upon those who default in complying with the provisions contained in subsection (1) of Section 76 of the Ordinance, then the said conditions are to be strictly construed and their fulfilment is to be considered mandatory and not directory.
Recently, the Lahore High Court in Alliance Textile Mills Limited's case(2015 CLD 1532) refused to validate the transfer of shares of a company, as the mandatory requirements of Section 76 of the Ordinance had not been satisfied. The worthy Court opined that:- "We have heard the learned counsel for the appellants at length and find that the alleged transfer of shares in favour of the appellants did not meet the requirements of section 76 of the Ordinance.
Section 76 of the Ordinance clearly provides that the company shall not register a transfer of shares or debentures unless proper instrument of transfer duly stamped and executed by the transferor and the transferee has been delivered to the company along with the scrip.
Admittedly, in this case, the original instrument of transfer was in the custody of Habib Bank Limited where they had been pledged. Therefore the mandatory requirement of section 76 of the Ordinance was never complied with and any rectification in the register of members to show the transfer in favour of the appellants was not in accordance with the law".
It would be pertinent to note that subsection (2) of Section 76 of the Ordinance provides an exception to the condition precedent for submission of the transfer deed. To invoke the exception, the application for transfer of shares has to be made and submitted to the company by transferee, who has to prove to the satisfaction of the Board that the transfer deed duly executed between the parties has been lost, destroyed or mutilated.
Stage-II (Section 77)
13. The decision to accept the request for transfer of shares or otherwise rests with the Board.
Section 77 of the Ordinance mandates the Board not to refuse a transfer of share, unless the Transfer Deed is either improper or invalid. The negative command contained in Section 77 ibid reflects the true intent of the legislature for the same to be strictly followed. Further, failure to comply with the command embodied in the aforementioned provision may lead to penal consequences provided under sub-section (2) of Section 78 of the Ordinance, whereby penalty of fine may be imposed on the defaulters".
12. Similar, issue was dealt with by the Court in the case of "ALLIANCE TEXTILE MILLS LIMITED and 8 others Versus Mrs. NAHEED KAYANI and 9 others" (2015 CLD 1532) holding that under Section 76 of the Act, a company cannot register transfer of shares i.e. cannot add the name of the transferee or omit the name of the transferor unless a proper instrument of transfer duly stamped and signed by the transferor and transferee has been delivered to the Company along with the script. Likewise in "FAWWAD BUTT versus Messrs MARY (PVT.) LIMITED and 5 others" (2015 CLD 1309) it has been held that "Memorandum and Articles of Association of the defendant No.1, place specific embargo on transfer of shares that without the concurrence of other shareholders of the company the shares of the private limited company cannot be transferred". In "ZAKIR LATIF ANSARI and another versus PAKISTAN INDUSTRIAL PROMOTERS LTD. and 2 others" (1988 CLC 1541), the Court held that "there is, however, a long line of decisions both pre-partition and post-partition wherein the Courts both in India and Pakistan consistently took the view that the proceedings for rectification of share register is in the nature of summary procedure and, therefore, such jurisdiction will be exercised by the Company Judge in a case where facts are simple and undisputed and did not involve decision on intricate and disputed question of title between the parties in which case the parties may left to settle through dispute in appropriate civil proceedings". In "Mrs. YASMEEN LARI versus Mums LAHORE INVESTMENT LTD. and 2 others" (PLD 1981 Lahore 90), the Court held that "no request made to respondent by transferor or transferee of shares to register transfer and respondent never considered or refused to register same". In "AMHED KULI KHAN KHATTAK versus CREEK MARINA (SINGAPORE) PVT. LTD. through Chief Executive Officer and 5 others" (2012 CLD 879) the Court has held that "Shares are regarded as constituting a bundle of rights that the shareholder has in, and against, the company (and, as appropriate, against other shareholders as well). Of these, by far the most valuable rights are the right to participate and vote in a members' meeting (such as the annual general meeting or an extraordinary general meeting) and to receive dividends. In English law, share certificates are only evidence of a shareholder's title to such rights, whereas under the 1930 Act, the share certificates are, in addition, goods as well. Now, insofar as the company is concerned, a shareholder can enjoy his bundle of rights only if his name appears in the members' register. A person who acquires shares under a share purchase agreement must therefore, get himself registered in the members' register. The manner in which this is to be done is provided for in section 76 of the Companies Ordinance, and it is well established that the provisions thereof are mandatory. This section requires that a duly stamped transfer deed executed by both the transferor and the transferee must be produced along with the share certificates; absent such deed, the shares cannot, and will not, be transferred. If a proper transfer deed and the share certificates are produced, then in accordance with law, and assuming that all other formalities have been fulfilled, the company is bound to transfer the shares in the name of the transferee and substitute his name for the transferor in the members' register. A transfer deed is therefore absolutely essential".
13. The requirement of transfer of shares as envisaged under Section 126(1)(b) of the "Act" is that the person has to be an "aggrieved person". The expression "aggrieved person" would include a transferor of shares who had handed over the transfer documents to the transferee who lodged them with the company and the same were rejected by the company as bad delivery. So long as the grievance of a member or an aggrieved person or company if there has been default or unnecessary delay in entering in the register the fact of any person having become or ceased to be a member, an application under section 126 of the "Act" can be made. The cause of action to invoke the provisions of section 126 of the "Act" arises only when the fact of any member having ceased to be a member is brought before the company or its board and there is default or delay in taking decision. The Petitioners failed to furnish any evidence that they approached the Board of Directors of the company seeking removal. As per Gower's Principles of Modern Company Law, procedure on transfer prescribes that "when shares are bought and sold at least three entirely distinct legal transactions are involved. First, there will be a contract for the sale of the shares, a contract which, if effected through a stockbroker, will be evidenced by his "bought" and "sold" notes. This alone, however, will not operate to transfer the "property" in the shares, for shares are not like goods and the property in them does not pass as a result of the contract. In this respect they more closely resemble land; just as the contract of sale of land requires to be completed by a conveyance, so a contract for the sale of shares requires to be completed by transfer". This approach has been discussed in details by this Court in the case of "CH. SHAUKAT ALI NOON and another versus TEHZEB BAKERS (PVT.) LIMITED and others" (2024 CLD Lahore 113) holding as under: "Be that as it may and without commenting upon the legality or authenticity of partnership deeds referred to above, the "Petitioners" in order to invoke Section 286 of the "Act" have to fulfill mandatory requirement being members and holding threshold of 10% issued share capital of "Tehzeb Bakers". Pertinently, a company consists of members, though it has its own separate legal entity and its members are the persons who constitute the company as a corporate body. In the case of a company limited by shares, the shareholders are the members. The terms "members" and "shareholders" are usually used interchangeably, being synonymous, as there can be no membership except through the medium of shareholding. Thus, in general, every shareholder is a member and every member is a shareholder. However, there may be exceptions to this statement, a person may be a holder of shares by transfer but will not become its member until the transfer is registered in the books of the company in his favour and his name is entered in the register of members. Similarly, a member who has transferred his shares, though he does not hold any shares yet he continues to be a member of the company until the transfer is registered and his name is removed from the register of members maintained by the company. In a company limited by guarantee, the persons who are liable under the guarantee clause in its Memorandum of Association are members of the company. Likewise, in an unlimited company, the members are the persons who are liable to the company, each in proportion to the extent of their interests in the company, to contribute the sums necessary to discharge in full, the debts and liabilities of the company, in the event of its being wound-up. The person desirous of becoming a member of a company must have the legal capacity of entering into an agreement in accordance with the provisions of the Contract Act, 1972. It is to be noted that though the term 'members' has not been defined under Section 2 of the "Act" but Section 2(21) of the Companies Ordinance, 1984 (Repealed) specifies the attributes that qualify a person to be a member of a Company. The said section reads as under: "member" means, in relation to a company having share capital, a subscriber to the memorandum of the company and every person to whom is allotted, or who becomes the holder of, any share, scrip or other security which gives him a voting right in the company and whose name is entered in the register of members, and, in relation to a company not having a share capital, any person who has agreed to become a member of the company and whose name is so entered.
Underlying for emphases
11. Likewise, Section 118 of the "Act" also specifies the attributes that qualify a person to be a member of a Company which reads as:
118. Members of a company.--The subscribers to the memorandum of association are deemed to have agreed to become members of the company and become members on its registration and every other person-
(a) to whom is allotted, or who becomes the holder of any class or kind of shares; or
(b) in relation to a company not having a share capital, any person who has agreed to become a member of the company; and whose names are entered; in the register of members, are members of the company.
Underlying for emphases
12. Above two provisions of law define the modes of becoming a member of a company, firstly by subscribing to memorandum; secondly by allotment of shares and thirdly by entering their name in the register of members of a company in terms of Section 119 of the "Act". It is pertinent to mention here that though the "Petitioners" claim themselves as members and shareholders of "Tehzeb Bakers" but none of the modes, mentioned above, which create obligation upon them, have been fulfilled for invoking Section 286 of the "Act". Thus, the present case, however, cannot benefit from the rule expressed by the foregoing provisions of the statutes and in absence of clear statutory intendment to the contrary, the above requirements setting out the essential attributes of a member, cannot therefore, be disregarded. In this view of the matter, it is held that the "Petitioners" never remained the members or shareholders of "Tehzeb Bakers" hence, the prayers made by them cannot be acceded to".
14. Furthermore, bare perusal of the contents of the petition reveals that the Petitioners did not allege themselves to be members, debenture holders or shareholders of the "Company" rather put much emphases on the agreements, mentioned above, for shifting the burden of creating default and unnecessary delay on the part of the Respondents. The prayers made by the Petitioners also reveal that they are seeking directions against the Respondent No.2 and 3 and the "SECP" to record transfer of shareholding of the Petitioner No.2 and 3 in the "Company" regardless of becoming a member, debenture-holder or a shareholder of the "Company" and without fulfilling the requirement of Section 126(1)(a) of the "Act" thus they cannot be termed as members, debenture- holders or shareholders of the "Company".
15. In view of Section 126 of the "Act" and the judgments of Hon'ble Supreme Court of Pakistan, Lahore High Court, Sindh High Court including the Division Benches and the decision of the Hon'ble Mr. Justice Yahya Afridi (the then Chief Justice of Peshawar High Court, Now Chief Justice of Pakistan) in I.C.A.No.3 of 2005, titled "Haji Abdur Rehman versus Umar Farooq Miankhel and others", decided on 13.02.2018, the contents of petition, the prayers made alongwith documents appended therewith, it is held that the Petitioners have failed to prove themselves to be members, debenture holders or shareholders of the "Company" thus, without fulfilling the requirements of Section 126(1)(a) of the "Act" they cannot invoke Section 126(1)(b) of the "Act". This petition therefore, holds no merit hence dismissed.