' This is a petition under sections 153 and 153-A and under section 12 of the Companies Act, 1913, for reconstruction/reorganization and alteration of the Memorandam of the Company.
2. Messrs Associated Services Limited with registered office at Karachi was registered at Karachi with an authorised capital of Rs, 25,00,003 divided into Rs 25,000 shares of Rs, 100 each. Annexure 'A' is the Memorandum and Articles of Association in clause (iii) whereof the objects for which the company was established have been enumerated. The issued capital of the petitioner Company is detailed in paragraph 3 of the petition which is reproduced as under :- {{TABLE}} Adam Limited ... 5,000 shares Haji Ghulam Ahmed Haji Adam ... 1,000 Mr. Abdul Kadir Haji Adam ... 1,000 shares Mr. Muhammadlaufique Haji Adam 1,000 " {{TABLE}}
3. The above individuals are real brothers and Adam Limited is the private limited company of the said brothers. The petitioner shareholders/ directors, namely, Haji Ghulam Ahmed, Haji Adam, Abdul Kadir Haji Adam and Muhammad Taufique Haji Adam, who manage the affairs of the petitioner and they proposed to incorporate a new Company at Karachi under the name of Engineering and Construction Services Limited. Annexure 'B' is the Memorandum and Articles of Association. It is averred in the petition that the petitioner-Company owns two plots of land bearing No, CL-9/6 and CL-9/7/I, measuring 6,757 sq. Yards and 2,185 sq. Yards respectively situated at Dr. Ziauddin Road, Karachi.
4. That it has been found that the petitioner-Company can conveniently conduct the hotel business and also carry on it other business as mentioned in the Memorandum of Association on the larger plot of land bearing No, CL-9/6 whereas on the smaller plot of land bearing No, CL-9/7/1 the projects of construction of office block thereon can be conveniently carried on.
5. That if the Company carries the business of running of hotels as well as the construction of office block, the same business cannot be run conveniently together in view of the nature of the said business. Accordingly, on the application of the Company both the plots of land, which were previously amalganated, have now been deamalgamated by the relevant authorities. Annexure 'C' are the photostat copies of the order of deamalgamation. It is, therefore, proposed that the plots of land should be separated and made independent of each other. For this purpose, a scheme of re- arrangement has been proposed for the bifurcation of those two units and for reorganization and reconstruction of the business of the petitioner in the manner outlined in the scheme' of re- arrangement. Annexure 'D' is the scheme of re-arrangement.
6. The principal features of the scheme for re-arrangement are as follows :- "(a) To bifurcate the business into two independent businesses, which in face are physically separate, one will relate to the construction and running of the hotels and the other will relate to the construction of the shopping area as well as the block of offices.
(b)That relating to the petitioner's business, the same shall be managed by Adam Limited and Haji Ghulam Ahmed whereas that relating to the office block etc., proposed Company Engineering and Construction Services Limited, the same shall be managed by Mr. Abdul Kadir Haji Adam and Mr. Muhammad Taufique Haji Adam.
(c) The petitioner will transfer to Engineering and Construction Services Limited the plot of land bearing No, CL-0/7/1 measuring 2,185 sq, yards by the issue of shares of the said Engineering and Construction Services Limited to the existing four shareholders of the petitioner of the par value of Rs, 1,9.:',000 in proportion to their present holdings in the petitioner.
(d)The petitioner will retain the fixed assets, namely, plot of land bearing No, CL-9/6 measuring 6,757 sq. Yards and will assume liability for loans/it has received from various persons and which are Rs, 18,64,368.67 only.
(e) Since part of the assets are to be transferred to Engineering and Construction Services Limited the existing issued capital of the petitioner will be reduced to Rs, 6,05,000 by the return of unrepresented capital to the value of Rs, 1,95,000 to the petitioner's existing shareholders in proportion to their holdings to be satisfied as aforesaid by the issue of fully paid-up shares at par of Engineering and Construction Services Limited."
7. That with the object of ascertaining the wishes of the shareholders of the petitioner, a notice for convening an extraordinary general meeting of the petitioner was circulated. Annexure `E' is the notice for convening an Extraordinary General Meeting of the petitioner.
8. That the extraordinary general meeting of the petitioner-Company was held on 29th of August, 1983 and all the shareholders were present in person or by proxy. The scheme was approved unanimously by an extraordinary resolution of the shareholders. Annexure 'F' is the minutes of the said meeting signed by the Chairman of the meeting, containing the text of the resolution. The creditors of the Company have also given their consent to the scheme of re-arrangement.
Annexure `G' is the copy of the resolution passed in the meeting.
9. As the extraordinary general meeting held on 29th August, 1983 at 10-30 a.m. At the registered office of the company, an extraordinary resolution as provided under section (?) of the Act was passed. A full text of the resolution is extracted below : "To enter into any arrangement with any person or company carrying on or about to carry on same or similar business which may directly or indirectly benefit this company and sell or otherwise dispose of its undertaking or any part thereof, property, rights and liabilities for such consideration and upon such terms and conditions as the company may think fits"
10. Notice of the petition was duly published in the daily "Morning News," "Mashriq" and also in the Gazette of Pakistan. Notice was served on the Assistant Registrar, Joint Stock of Companies, pasted on the Court Notice Board and at the principal place of the business of the company Messrs Associated Services Limited. In spite of these notices no one appeared to oppose this petition. The Assistant Registrar, Joint Stock Companies, in his written statement took the stand that item No, iii needs approval of this Court under section 12 of the Act, and in fact action on the last mentioned item needs to precede the other items so that, the petitioner gets necessary legal authority to resort to action as contemplated in items Nos. (i) and (ii) above. During the pendency of the petition, the petitioner already furnished copies of the said resolutions as required under section 82 of the Act as such the Assistant Registrar did not press the other objections.
11. It is appropriate, therefore, that I first deal with the objection of the Assistant Registrar. The Assistant Registrar has contended that the provisions contained in section 12 of the Companies Act indicated that if a Company wanted to amalgamate with another company and if no such power was found in the Memorandum, it would not be lawful for the company to amalgamate without incorporating such power in the Memorandum. As such item (MI of Annexure `G' be confirmed first, therefore, the petition under sections 153 and 153-A of the Act be filed for confirmation.
12.On the other hand, Mr. Mansoorul Arfin, the learned counsel for the petitioner-Company has contended that, the provisions contained in sections 153 and 153-A of the Companies Act would indicate that amalgamation would be a statutory right in certain cases and in certain cases amalgamation would be resorted to by the company on the strength of specific power in the Memorandum. For the purposes of the present petition it need only be said that if a company by virtue of its power in the Memorandum desires to amalgamate, it would have to come to a Court of law. The power to amalgamate may flow from the Memorandum or it may be acquired by resorting to the statute. Section 12 of the Act indicates that a company which desires to amalgamate with another company will take necessary steps to come to before a Court for alteration of its Memorandum in aid of such amalgamation. The statute confers a right on a company to alter its Memorandum in aid of such amalgamation with another company. The provisions contained in sections 153, 153-A and 153-B illustrate some instances of statutory power of amalgamating a company with another company without any specific power in the Memorandum.
13. It will again appear how a company under section 153-A of the Act may apply to the Court for sanctioning of a compromise or arrangement between a company and any such persons as are mentioned in section 153 of the Act and it' it is shown to a Court that the compromise or arrangement has been proposed for the purpose of or in connection with any scheme for the reconstruction of any company, the Court may either by the order sanction the compromise or arrangement or by a subsequent order make provisions inter alia for all or any of the following matters namely :
(a) The transfer to the transferee company of the whole or any part of the undertaking.
(b)Continuation by or against the transferee company of any legal proceedings pending by or against any transferor company:
(c) The dissolution without winding up of any transferor company.
14. Reference may be made to Buckley Companies Act, 14th Edn., page 683 wherein a discussion under section 287 of the English Companies Act which corresponds to section 153-A of the Companies Act, 1913 and section 208-C of the Companies Act, 1913 as amended by in 1930, it is stated that a company cannot by clauses in its Memorandum of Association take power to effect that which section 153-A authorises upon terms other than those which section 153-A imposes. The sale of some part of a company's assets may be, but the sale of all its undertakings and assets, and the distribution of proceeds cannot be, a corporate object. Buckley, therefore, states that the latter cannot under a clause for that purpose introduced into the Memorandum be made without regard to the provisions of section 287 of the English Act. In other words the requirements of section 287 of the English Act or section I53-A of the Companies Act are supreme and cannot be controlled by the Memorandum. The objection is overruled and in view of this legal position the assertion of Assistant Registrar is not well founded.
15. The short question, thus, arises whether the proposed scheme of arrangement be approved under section 153 of the Companies Act of 1413. In order to answer this question it would be proper to briefly recall the relevant facts of this petition.
16. The petitioner-Company was incorporated as a private limited company by shares. The authorised capital of Rs, 25,00,000 divided into 25,000 shares of Rs, 100 each. All the shareholders are real brothers and Adam Limited is the private limited company of the said brothers,
17. For some time the shareholders/petitioners of the company have been contemplating the question of its reorgalization by converting constituting its projects into two separate companies. It has been found that the petitioner-Company can conveniently conduct the hotel business and also carry on its other businesses as mentioned in the Memorandum of Association on the larger plot bearing No, CL-9/6 whereas on the smaller plot of land bearing No, CL-9/7/1 the projects construction of office block thereon can be conveniently carried on. In order to reconstruct the business of the company an extraordinary general meeting of the Company was called on 29th August, 1983 at 10-30 a.m., for which a proper notice was given to each shareholder on 7-8-1983. In this meeting, the minutes of which are on record as Annexure 'F' all the three shareholders participated. At the meeting aforesaid the following extraordinary resolutions were unanimously passed :- "(1) Resolved that the scheme of arrangement, a copy of which has been submitted to this meeting and for purpose of identification signed by the Chairman thereof be and is hereby approved and that the Company do apply to the High Court of Sind, Karachi for sanctioning the scheme under the Companies Act, 1913.
(2) Resolved that subject to the sanction of the Court the paid-up capital of Rs, 8,00,000 (divided in Rs, 8,000 fully paid-up ordinary shares of Rs, 100 each) be reduced to Rs, 6,05,000 (divided into 6,050 ordinary shares of Rs, 100 each) by cancelling 1950 fully paid-up ordinary shares of Rs, 100 each of the face value of Rs, 1,95,000.00 and the reduction to be made in proportion to the existing shareholding.
(3) Resolved that the following sub-clause be added after sub-clause (59) to be numbered as clause (59-A).
' To enter into any arrangement with any person or company carrying on or about to carry on same or similar business which may directly or indirectb benefit this company and sell or otherwise dispose of its undertaking or any part thereof, property, rights and liabilities for such consideration and upon such terms and conditions as the company think fit."
' The relevant provisions which need be noticed are sections 12, 153, 153-A and 153-B of the Companies Act of 1913.
18. It will appear from a reading of these provisions that an extra ordinary resolution for the scheme of arrangement for amendment of the Memorandum of Association can be passed validly only when the requirements of the aforesaid provisions are complied with.
19. In the present case admittedly the notice for an extraordinary-meeting was given on 7-8-1983 and the meeting s-as held on 29-8-1983. Obviously, therefore, twenty-one days clear notice was given. In these circumstances it will not be unreasonable to assume that no member of the company wanted to object to the "extraordinary resolutions" aforesaid. The scheme has duly received the approval of the shareholders.
20. The scheme of arrangement visualises the incorporation of a new company, namely, Engineering and Construction Services Limited to which the petitioner-Company proposes to transfer it smaller plot of land bearing No, CL-9/7/1 measuring 2,185 square yards by the issue of shares of the said Engineering and Construction Services Limited to the existing four shareholders of the petitioner or the par value of Rs, 1,95,00u in proportion to their present holding of the company.
21. The object of the proposed scheme appears to be to reorganise and reconstruct the: business of the petitioner-Company. This would involve not only the transfer of part of the undertakings assets of the petitioner-Company to the new company but also the reduction of the issued capital of the petitioner-Company. In fact para. 9 of the petition, which recapitulates the various features of the proposed scheme of arrangement, confirms this petition. A copy of scheme of arrangement is also on record and it further shows that what the company proposes to do is to reconstruct its business by new company which has already been incorporated to which a part of the undertakings of the petitioner-Company would be transferred.
22. The creditors of the petitioner-Company have also given their consent to the scheme of re- arrangement.
23. The shareholders of the petitioner-Company filed their affidavits and stated therein that they have waived notice of the petition and they have no objection for the sanctioning of the scheme of re-arrangement. Additionally, notice of the proceedings were also published in two local newspapers and in the Gazette of Pakistan dated 12-10-1983. Notices were also affixed on the Court Notice Board. In this view it must be held that the requirements of sections 153, 153-A of Act VII of 19.13 have been amply complied with.
24. The scheme of arrangement as a whole appears reasonable and for the benefit of ail the shareholders of the present company. All that this scheme proposes to accomplish is to bifurcate the business of the petitioner-Company into two independent businesses although for that purpose another company is in existence. It has been provided in para. 5 of the scheme of arrangement that each shareholder of the petitioner-Company would be a shareholder in the new company in proportion to his shareholding in the petitioner-Company. Since all the shareholders have resolved that the proposed scheme of arrangement under the exigencies of commerce, is necessary there is no reason to disagree with their views particularly as they are all businessmen and would naturally know what is good for the company and for promoting their own interest.
25. I am of the view that when the shareholders of the petitioner-Company propose to bifurcate the business into two independent businesses, and if there is no objection from the creditors or if their position is not prejudiced by the proposed scheme of re-arrangement the Court should not stand in the way of the Company's seeking sanction of the scheme of re-arrangement.
26. No creditor or member of the company opposed the petition. The scheme of arrangement is in the interest of the creditors. All the creditors' will be paid by the petitioner-Company. In these circumstances, I have D come to the conclusion that the Court in the exercise of its discretionary power ought to confirm the reduction of capital and ought to sanction the scheme of arrangement.
27. The Assistant Registrar of Companies who appeared before me stated after hearing the arguments of Mr. Mansoorul Arfin that, he had no objection to the reduction cf share capital being granted and the approval of the scheme of reorganisation and that he would like to leave the matter to the Court to be decided according to merits. Section 153-A of the Companies Act is a complete code under which the Court can sanction a scheme containing all the alterations required in the structure of the company for the purpose of carrying out the scheme. Procedure for alteration in the Menorandum and Articles of Association of a company prescribed under other provisions of the Companies Act is not required to be followed before sanctioning a scheme involving such alterations. The whole purpose of section 153 is to reconstitute that company without the company being required to make a number of applications under the Companies Act for various alterations which may be required in its Memorandum and Articles of Association for functioning as a reconstituted company under . The scheme. The company is, therefore, not required to make a separate application under the Companies Act for alteration of Memorandum and Articles of Association to show the new share capital such as an alteration can be sanctioned under the scheme itself. In my view it is 'open to the Court while sanctioning under the scheme under section 153 to make an order whereby the Memorandum and Articles of Association of this company stand amended to reflect new capital structure.
28: In the instant case the reduction of capital forms part of the scheme of rearrangement. These two considerations are interlinked with each other and the overall duty of the Court is to satisfy itself that the scheme of re-arrangement together with the reduction of capital is such that an intelligent and honest man, a member of the class concerned and acting in respect of his interest might reasonably approve and might reasonably consider to be fair and equitable. In the instant case the scheme was unanimously approved and no one voted against the resolutions, Mr. Mansoorul Arfin, the learned counsel for the petitioner-Company has submitted that all shareholders of the petitioner-Company are also members of the transferee Company. Therefore, I have to conclude that the affairs of the petitioner-Company are not being conducted in a manner prejudicial to the interest of its members or public at large and hence there is no impediment to the sanctioning of the scheme.
29. In these circumstances, I have come to the conclusion that the reduction of capital and the scheme of re-arrangement cannot be pronounced to be unfair and inequitable.
30. The scheme prepared by the petitioner-Company, therefore, ought to be and is accordingly sanctioned subject to the Memorandum of Association and the Articles of Association of the company should be altered and amended in accordance with the provisions in the Companies Act, 1913, so as to correctly reflect the capital structure of the company under the scheme.
' Subject to the above condition the scheme proposed by the company is sanctioned. The scheme should be annexed to this judgment.
Scheme sanctioned.