Mohammad Akbar and Mohammad Afzal, the petitioners in this case, who are brothers inter se and shareholders in a private limited company known as Kruddson Ltd. Seek the compulsory winding up of the Company under the provisions of section 162 of the Companies Act on the ground that it is just and equitable to do so.
2. According to the petitioners their father Hakimuddin, who was an exceedingly wealthy man, died a long time ago, leaving a huge estate consisting of. Lands and houses in Sialkot, Peshawar, Jammu and Kashmir, besides cash and jewellery worth lacs of rupees. Not . Even an approximate valuation of this estate was stated in the petition or subsequently in the. Various afdavits or in oral argument at the bar. It was not stated, either, when precisely Hakimuddin died but the counter-- affidavit on behalf of the Company puts the date at 1916 and this was not disputed. .On the death of Hakimuddin, his eldest son, G. Ahmad, as head of the family and with the entire concurrence of the petitioners who had full faith in him, took charge of the ancestral estate, the funds of..Which were invested in business. It seems that immediately. Before the partition of India, there was a business at Calcutta;--whether, prior to that there were businesses in any other parts of the country which were wound up to commence the Calcutta, business or the Calcutta business was established immediately after Hakimuddin's death, it does not transpire nor is the ascertainment of the fact really essential to the decision of the present petition. Suffice it that on Partition this business was closed down and the family brought their entire funds into Pakistan and set up a factory by the name of Kruddson Metal Industries in Karachi. This business prospered and in 1953 was converted into a private limited company under the name of Kruddson Limited, which is the company now sought to be wound up. It had a nominal share capital of Rs. 12,00,000 in the share of 12,000 shares each having a face value of Rs. 100, the actual issued capital being Rs. 6,78,200. The shareholders and their respective shareholding was :- Mr. G: AhcriadManaging Director3132 shares and Chairman.
Mrs. Amna Begum --- Director1300 (wife).
Mst. Kubra Khanum500 (daughter).
Mst. Zubeda Khanum500 (daughter).
Mst. Masuda AhmadDirector500 (daughter).
Mrs. Hakimuddin50 (Mother).
Mr. G. Murtaza200 (Brother).
Mr. M. Akbar (Bro-Director300 the ).
Mr. M. Afzal (Brother). Director300--- 6782 --- The relationships mentioned in brackets are' those of the individuals named to Mr. G. Ahmad. It will be noticed that more than half of the shares were allotted to Mr. G. Ahmad, a very substantial holding went to his wife and a considerable number to his daughters; admittedly he had no son. In comparison the number that was allotted to the petitioners was small, though some what larger than those given to Mr. G. Murtaza, the fourth brother and a small number was allotted to the mother, i.e. The widow of the late Hakimuddin. However, both the petitioners but not the only other brother, G. Murtaza, were made directors as also were G. Ahmad's wife and one of his daughters.
3. According to the petition, Mr. G. Ahmad not only had a great deal of affection for the petitioners but also "enormous confidence in their business acumen and managerial capability so much so that he entrusted the entire management of the Company affairs to them." An extension programme was then launched and the Company resolved to open branch factories at Sialkot and Rawalpindi. For reasons which have not been disclosed the Rawalpindi venture was abandoned but the petitioners were put in charge at Sialkot,where, even according to themselves, loses were Incurred each year except in the year 1965-f.6. These losses the petitioners attribute to causes beyond their control and claim that Mr. G. Ahmad's confidence in their business ability was unaffected thereby, instancing as proof of this confidence that in 1962 they were each awarded Rs.
4,000 in appreciation of their services. Despite the losses at Sialkot, Mr. G. Ahmad was determined to continue with the business there because that was his hometown and he regarded the establishment of a flourishing business there as a matter of personal prestige. During these years the Company as a whole, continued to be run profitably though most of the profits were ploughed back into the company in order to achieve growth.
4. When the petitioners went to Sialkot to look after the business there Mr. G. Ahmad, having no son and needing some one to assist him, took in his son-in-law, Salim Arshad, who was then employed in the W. P. I. D. C., as a Manager. The date of this appointment. Is somewhat obscure ; the petition places it In 1967 but this is obviously a mistake as Mr. G. Ahmad died on 16-11-1966 and the Sialkot.
Factory had been working many years Before that. Most probably it was in 1958 or a little later as the counter-affidavit speaks of the transfer of Petitioner No. 1 to Sialkot and petitioner No. 2 to Rawalpindi in 1958, the latter being retransferred to Sialkot in 1961. Nothing. However, turns upon the precise date; what is material is that well before Mr. G. Ahmad's death and while the petitioners were in Sialkot, Salim Arshed entered the business first as Manager and then as a Director. When in 1966 Mr. G. Ahmad fell seriously ill, Salim Arshed was appointed Managing Director having by that time. According to the petitioners, warmed himself into the affections of the rest of the family. On Mr. G. Ahmad's death, the Board of Directors passed a resolution appointing Salim Arshad as Managing Director and Mst. Amina, widow of Mr. G. Ahmad, as Chairman and to this resolution the petitioners claim that they consented only in order to preserve family harmony.
5. The subsequent management of the Company has, according to the petitioners, been one of systematic exclusion of the petitioners from any say its affairs and their deprivation of proportionate share of its profits for the personal aggran--disement of Salim Arshad. It is argued that a private limited company. Particularly one which may appropriately be called a domestic concern, should, for the purposes of a winding up petition, be treated as a partnership firm and therefore, if the relations between the parties are strained and, one of them does not, for good reason, have confidence in the management, or has been excluded from an effective say in its affairs, the company ought to have wound up.
6. The facts which I have outlined above are seriously disputed in material particulars on behalf of the company which, In effect, means by the remaining shareholders who would seem to be on terms of amity among themselves and agreed upon the mode of management of the company's business. It is denied, first, that the Company or the business which immediately preceded it was founded upon capital realised by the sale of the ancestral estate left by Hakimudin. Hakimudin did not, it was said, have any very large estate but that, on the contrary, any little property that he did leave was spent on the maintenance, education and marriages of his four sons and two daughters, G. Ahmed himself, the eldest, being only 16 when he died. G. Ahmad by his own endeavours built up the business at Calcutta, the sale of which financed the Karachi business after Partition. Mr. Murtaza had a small but independent block making business at Sialkot while the petitioners were employed in humble capacities in Jammu. The precise capacities in which they were employed was the subject of somewhat acrimonious controversy in the affidavits filed in this case, but it is really unnecessary to decide these minor questions of fact and there is, indeed, no evidence beyond the word of the parties which could form the basis of a decision if one were necessary. Learned counsel for the petitioners, Mr. Khalid Ishaque, himself agreed that it was impossible at this late date to prove this part of his case satisfactorily and therefore abandoned it. A surer indication of the source of the capital may, I think, be found from the proportion of the shares which were originally allotted and the positions enjoyed by the parties in the setup. The allotment of as many shares as 3132 to Mr. G. Ahmad and 1300 to his wife can hardly be explained if the original estate was inherited from Hakimuddin. Why, if that was so, would each of Mr. G. Ahmad's daughters, have been given any shares at all or as many as 500 when the petitioners' heirs equally with Mr. G. Ahmad, got only 300 shares each ? Hakimuddin's widow would surely, on that footing, have had more than 50 shares. It does appear, however, that the petitioners were somewhat preferentially treated in that their other brother, G. Murtaza was. Given only 200 shares, and was not made a director, as the petitioners were. One, but only one, of Mr. G. Ahmad's daughters eras also made a director. It cannot therefore, be doubted, I think, that the Company was the successor of businesses established and made profitable by Mr. G. Ahmad's own personal exertions but that he had affection for his brothers, more particularly the petitioners, wham he wished to have some share in the profits and ~ management of the Company. Mr. Khalid Ishaque then argues that, even so, the company was a private limited one and essentially a family business in which the petitioner originally had a substantial voice, even though not the dominant one. He therefore urges that all the considerations which requires such companies to be treated like partnership firms, apply to the Company and this proposition Mr. Fakhruddin, who appears for the respondent, does not dispute.
7. What is really meant by saying that a private Company such as the present one should be treated as if it was a partnership firm ? Does it mean, as learned counsel at one stage, though some what half-heartedly suggested, that if any shareholder desires the winding up of the Company, the Court should, as a matter of course, if not as of right, order a winding-up ? It would be convenient to refer to some of the decided cases on the subject including those cited at the bar, before I go on to examine the other controversies of fact raised.
8. In one of the most frequently quoted cases, In Bet Yenidji Tobacco Company Limited (1) the situation was that the shares (1) (1946) 2 Ch. 426 carrying voting power were held in equal shares by two parsons, relations between whom had deteriorated to the extent that they were no longer on speaking terms and they had to communicate with each other through the Company's Secretary. Differences of opinion were a matter of frequent occurrence and the articles of association provided that such differences were to be resolved by arbitration and one such had, indeed, been resolved by arbitration which entailed costs alone of over --1,000. In these circumstances it was said there was both a deadlock in the affairs of the Company as well as lack of mutual confidence and a winding up was ordered under the Companies (Consolidation) Act, 1908 then in force in England, the material provision of which is in terms identical to our Act. In upholding the decision Lord Cozens-Hardy M. R. Said at ;page 431 "I have treated it as a partnership, and under the Partner--ship Act of course the application for a dissolution would take the form of an action; but this is not a partnership strictly, it is not a case in which it can be dissolved by action. But ought not precisely the same principles to apply to a case like this where in substance it is a partnership in the form or the guise of a private company ? It is a private company, and there is no way to put an end to the state of things which now exists except by means of a compulsory order. It has been urged upon us that, although it is admitted that the "just and equitai-'P" clause is not to be limited to cases .Cjusdem generis, it*has nevertheless been held according to the authorities, not to apply except where the substratum of the company. Has gone or where there is a complete deadlock. . Those are the two instances which are given, but I should be very sorry, so far as my individual opinion goes, to hold that they are strictly the limits of the "just and equitable" clause as found in the Companies Act. I think that In a case like this we are bound to say that circumstances which would justify the winding-up of a partnership between these two by action are circumstances which should ' induce the Court to exercise its jurisdiction under the just and equitable clause and to wind up the company."
It might be noted that, despite this state of affairs between the only two shareholders the Company continued to make profits in the relevant period.
9. The case of Loch and another v. John Blackwood Ltd. (1) was a Privy Council case which came fiom the West Indies where again the statute was in identical terms. Delivering the judgment of the Privy Council, Lord Shaw of Dunfermline quoted this passage from the earlier case of Ex parte Spuck--man (2) with approval "There must be something in the management and conduct of the company which shows the Court that it should be no longer allowed to continue, and that the concern ought to be wound up."
Whether these two sentences could stand
(1) 1924 A C 783(2) (1849) 1 Macand G. 170 together may be a question, but it is quite plain that the first ought not to be read alone without the second," and then again a passage from In re : Suburban Hotel Co. (1).
"But what I am prepared to hold is this, that this Court, and the winding-up process of the Court, cannot be used, and ought not to be used, as the means of evoking a judicial decision as to the probable success or nun-success of a company as a commercial speculation."
10. A passage from a Scottish case Baird v. Lees (2) quoted in the same judgment is also instructive :- "I have no intention to attempting a definition of circum--stances which amount to a `just and equitable' cause. But I think I may say this. A shareholder puts his money into a company on certain conditions. The first of them is that the business in which he invests shall be limited to certain definite objects. The second is that it shall be carried on by certain persons elected in a specified way. And the third is that the business shall be conducted in accordance with certain principles of commercial administration defined in the statute, which provide some guarantee of commercial probity and efficiency. If shareholders find that these conditions or some of them are deliberately and consistently violated and set aside by the action of member and official of the company who wields an overwhelming voting power, and if the result of that is that, for, the extrication of their rights as shareholders, they are deprived of the ordinary facilities which compliance with the Companies Acts would provide them with, then there does arise, in my opinion, a situation in which it may be just and equitable for the Court to wind up the Company."
It only remains to apply the doctrines thus expressed to the circumstances of the present case.
Their Lordships for-go unnecessary details. They are of the opinion that the learned Graves C. J. Is correct when he says that "The directors in control since the death of Blackwood Rodger have, I think, laid themselves open to the suspicion that by omitting to hold general meetings, submit accounts and recommend a dividend, their object was to keep the petitioners in ignorance of the truth and acquire their shares at an under value."
11. The same position was rearmed in In re : Davis and Collett (3) where Crossman J. Said :- "It seems to me that, in deciding whether it is just and equitable that the company should be wound up, I am left really to consider in the widest possible terms what justice and equity require: and it is with due regard to that consideration
(1) (1867) L R 2 Ch. 737 (2) 1924 SC 83
(3) (1935) 1 Ch. 693 that I must form an opinion of what was being and what is being done.
I find that the company is a private company in the fullest possible sense and that the petitioner and the respondent hold the capital of the - company substantially in equal shares. On the authorities, and particularly In re : Yenidje Tobacco Co. I am bound now to consider the position in the same way as I should consider it if the question arose as to the right of one of two partners in a private partnership to have the partnership dissolved. The same circumstances which entitle a partner to require the dissolution of a partnership entitle a person who is equally interested with one other person in a company to have that company wound-up on the ground that the circumstances render it just and equitable. That, I think is the effect of In re : Yenidje Tobacco Co., and I think that the principles apply here. I take that case, not because the facts in it exactly agree with those in this case, but because of the principles there laid down, where the statement of the law in Lindley on Partnership !s applied to a company."
12. Re: H. R. Harmer Ltd. (1) was a case under section 210 of the English -Companies Act, 1948 which has no parallel in our Act and which is in these terms "210. Alternative remedy to winding up in cases of vppres--sion.-(1) Any member of a company who complains that the afairs of the company are being conducted in a manner oppressive to some part of the members (including himself) or, in a case falling within subsection (3) of section 169_ of this Act, the Board of Trade, may make an application to the Court by petition for an order under this section.
(2) If on any such petition the Court is of opinion-(a) that the company affairs are being conducted as aforesaid; and (b) that to wind up the company would unfairly prejudice that part of the members, but otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up ; The Court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit, whether for regulating the conduct of the company's affairs in future, or for the purchase of the shares of any members of the company or by the company and, in thp case of a purchase by the company, for the reduction accordingly of the company's capital, or otherwise.
(3) Where an order under this section makes any altera--tion in or addition to any company's memorandum or articles, then, notwithstanding anything in any other provision-. Of this Act but subject to the provisions of the order, the company concerned shall not have power without the leave to the Court to make any further alteration in or addition to the memorandum or articles inconsistent with the provisions-
(1) (1958) 3 A E R 689 of the order ; but, subject * to the foregoing provisions of this subsection, the alterations or additions made by the order shall be of the same effect as if duly made by resolution of the company and the provisions of this Act shall apply to the memorandum or articles as so altered or added to accordingly.
(4) An office copy of any order under this section altering or adding to, or giving leave to alter or add to,. a company's memorandum or articles shall. Within fourteen days after the making thereof, be delivered by the company to the registrar of companies for registration ; and if a company makes default in complying with this subsection, the company and every officer of the company who is in default.Shall be liable to a default fine.
(5) In relation to a petition under this section, section 365 of this Act shall apply as it applies in relation to a winding-up petition, and proceedings under this section shall, for the purpose of Part V of the Economy (Miscellaneous Provisions) Act, 1926, be deemed to be proceedings under this Act in relation to the winding-up of companies."
It will be seen, therefore, that all cases that are covered by section 210 are cases which would, with us, fall under section 162(vi) (sic) of the Companies Act and would therefore be cases where a winding-up would be ordered through the special reliefs available in England are, of course, not available here. The founder of the Company and the sole proprietor of the predecessor business was a Mr. Harmer and, although shares of various categories were held in various proportion by his wife, sons and daughters-in-law, the majority of the 'B' shares in the Company which alone carried the voting power, stood in his name. Having thus the controlling votes in the Company he apparently used these to enforce his own decision ,and enforcing compliance with his wishes, overriding the wishes of the other shareholders and these were differences between him and two eldest sons who were the only two other directors, who therefore complained that they were an oppressed minority. The precise details are not important to my present purpose and it suffices to say that a single Judge made an order granting- relief under section 210 which was upheld in the reported judgment of the Court of Appeal, which, besides quoting the passage already reproduced from the judgment in Baird v. Lees, quotes also a number of passages from three Scottish cases, Elder and Elder w. Watson Ltd. (1), Meyer v. Scottish Co-operative Wholesale Society (2) and Thomson and Drysdale (3), some of which I think nay b,- profitably referred to:- "The introduction into section 210 of condition (iii) refers as back to the pre-194? Practice under the `just and equitable' clause, and is a salutary reminder of the fact that the new :remedy is not lightly to be accorded. Under the former practice
(1) 19 52 SC 49(2) 1954 SC 3 81
(3) 1925 SC 311 winding-up has been ordered fn many types of cases which involved no true element of oppression to shareholders, e.g. Where the substratum of the company had vanished, and such cases will doubtless continue to arise. On the other hand, the justice and equity which led to the grant of a winding-up order have often been found in conduct reasonably capable of being described as 'oppressive' to some part of the company's members, the oppression being usually exerted by a person with predominating voting power which was employed for his own advantage to the detriment of a helpless minority. The decisions indicate that conduct which is technically legal and correct may nevertheless be such as to justify the application of the 'just and equitable' jurisdiction, and, conversely that conduct involving illegality and contravention of the Act may not suffice to warrant the remedy of winding up, especially where alternative remedies are available.
Where the 'just and equitable' jurisdiction has been applied in cases of this type, the circumstances have always, I think, been such a9 to warrant the inference that there has been, at least, an unfair abuse of powers and an impairment of confidence in the probity with which the company's affairs are being conducted, as distinguished from mere resentment on the part of a minority at being out voted on some issue of domestic policy. The phrase 'oppressive to some part of the members' acquires a certain colour from its collocation in section 165 with such stronger expressions as 'intent to defraud', 'fraud', 'misfeasance' or 'other misconduct', and the essence of the matter seems to be that the conduct complained of should at the lowest involve a visible departure from the standards of fair dealing, and a violation of the conditions of fair play on which every shareholder who entrusts his money to a company is entitled to rely. This, broadly speaking was the class of case which the draftsman of section 210 evidently had in mind, and the question is whether the petitioners have brought themselves within the scope of the section.
I also accept it that in the familiar 'deadlock' type of case the partnership and the small company may be virtually Indistinguishable, and identical principles may fall to be applied to both alike. But this is not to say that we can import the detailed provisions of the Partnership Act into the Companies Act, still less that we can ignore the specific requirement of section 210 that before applying that section we must be able to affirm 'oppression' of some part of the members of the company. While therefore I give full weight to the circumstances that we have here to deal with a small domestic concern, I do not feel free to deal with the case otherwise than under the terms of section 210 alone.
"My Lords, on the facts as I have outlined them and as they appear in greater detail in the judgments of their Lordships of the First Division, it appears to me incontrovertible that the society has behaved to the minority shareholders of the company in a manner which can justly be described as oppressive. It had the majority power and it exercised its authority in a manner 'burdensome, harsh and wrongful' I take the dictionary meaning of the word.
But, it is said, let it be assumed that the society acted in an oppressive manner; yet it did not conduct the affairs of the company in an oppressive manner."
"Now, in any case in which the shareholders who hold a preponderating interest in a company make it manifest that they intend to set at naught the security provided by company procedure, and to treat the company and its affairs as if they were their own property, it is impossible that the minority should, retain any confidence in the impartiality or probity of the company's administration, and according to the circumstances of each particular case-it becomes a question whether the minority are not entitled, as a matter of `justice and equity' within the meaning of section 129(vi) of the Companies (Consolidation) Act, 1908, to have the company wound up. It is always true that the majority are entitled to use their voting power in what they believe to be the interests of the company; and the petitioner's fellow shareholder had no doubt been allowed to acquire an overwhelmingly preponderant power so far as votes were concerned.
But whether he could have used that power, not only to annul the arrangements made in the director's minutes. I assume he could, but also to acquire for himself the petitioner's touring business (for which the company had never paid a single penny) is a very different matter. In any case, he never attempted to use his voting power in the only legitimate way.
It must, however, be kept in view that this state of matters did not result from any underhand manoeuvring on the part of the respondent (who holds the 1501 shares), nor yet from any accidental circumstances. It resulted from the deliberate actings and contracts of the two shareholders, each of whom originally held a single share. Accordingly, in considering whether it is just and equitable that the company should be now wound up, the Court must be careful not to allow itself to be made an instrument for relieving the petitioner from the natural and lawful consequences of his own actings and contracts. On the other hand, in circumstances like the present, it behoves the shareholder who has the 1501 votes to avoid any conduct which would reasonably lead to the, inference that he falls to appreciate the fact that it is his duty to use his voting power in the interests of the company as a whole, and that he must not ignore the interest of the other shareholder or treat the company and its assets as if they were his own private property. Further, he must avoid acting in such a way as might reasonably be held to make it impossible for the other shareholder to co-operate with him in the management of the company."
13. In re: Cuthbert Cooper & Sons Ltd. (1), on the other hand, was a case in which an order of winding up was refused. The company was a private one and the original shareholders
(1) (1937) L Ch. 392 were a father and his two elder sons. The father died and, by his will, his shares were bequeathed to his three youngest sons one of whom he appointed his executor. The directors i.e. The eldest sons refused to register the shares in question in the names of the younger sons who then asked for a winding-up. This prayer was refused but the principle in the Yenidji Tobacco Co. Case was not doubted it being expressly held that, as laid down in that case, the Court is "to be guided by thd principles which influence the Court in determining whether or not a partnership shall be wound up".
13-A. Again in the case of Re: Lundie Brothers Ltd. (1), it was held, following the Yenidji Tobacco Co.'s case, that the principles applicable were the same as were invoked for the winding up of a partnership firm. In that view of the matter, the termination of the employment of the petitioner by the other two shareholders each of whom held an equal number of shares, amounted, in the circumstances of that case, to his unjustified exclusion from the business.
13-B. Finally, the Supreme Court in a case, which notices most of the cases to which I have referred, namely Lad/1 Prasad Jaiswa l v. Karnal Distillery Co. Ltd. (2), observed at page 233t- "Now in the case of a private limited company the tendency of the Courts has uniformly 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.
Commonly the exclusion of a partner from the management of the 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."
14. Neither in principle, therefore, nor on authority, am I persuaded that a private limited company is required to be wound up whenever a shareholder wishes that it should be, as would be the case in a partnership-at-will, when one of the partners desires the dissolution of the firm. If that had bean the intention of the Legislature nothing would have been simpler than to have provided that a private Company is to be wound up upon notice to that effect being given by any shareholder or to have used other language comparable to the provisions of section 43 of the Partnership Act.
15. In none of the cases to which I have referred was an order of winding up made on the ground, simpliciter, that one of the shareholders desired such an order. In each of them there was a ground such as a deadlock in the management, a justified lack of confidence in those who were managing the Company or conduct on their part calculated to deprive a minority of their due share in the profits or management of the Company. Indeed, in some cases, a winding-up order was
(1) (1965)2 A E R 692(2) PLD 1965 SC 221 refused when grounds were urged which did not, in the opinion of the Court, make it just and equitable to wind up the Company ; obviously in these cases if the wishes of the petitioning shareholders sufficed, and order of winding up would have been made. I think that the true position is that a private limited company is to 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 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. In the Supreme Court case of Ladli Prasad, for example, each of the three directors had equal voting power in the company and decisions were to be taken only unanimously; in these circumstances, the resolution purporting to remove one of them was held to be illegal and the relations between the three were found to be so embittered that there was truly a deadlock.
16. It is neither possible nor desirable, I think, to attempt an exhaustive enumeration of the circumstances in which a Court would order a winding-up under the "just and equitable' clause.
The Legislature has not chosen to do so in order that the variety of circumstances which are the result of human conduct and business affairs and which would justify an order be left unqualified to enable the Court to consider always the justice of each particular case. But, in relation expressly to the present case and the present case alone, I think it is correct, as argued by the learned counsel for the respondent, Mr. Fakhr--uddin, that three criteria are attracted, one of which at least must be held established before a winding-up may be properly ordered t-
(1) That there is a deadlock which prevents the making of decisions either in the Board of Directors or at a general meeting.
(2) That the petitioners have been excluded from participa--- tion in the profits of the company or in its management.
(3) That there is a justified lack of confidence in the probity of the management. Here the emphasis is on the word "justified"; the lack of confidence must not be arbitrary or asserted merely with a view to obtaining an order of winding--up.
17. Now, T proceed to consider the various matters pleaded in support of the prayer for winding up.
It is no longer contended, as I have already shown, that the company was founded upon funds which originally come from the estate of the late Hakimuddin and that each of the petitioners is therefore entitled to as big a share in it as Mr. G. Ahmad was on his heirs would now be; on that basis they would collectively, have been virtually masters of the Company. Their present claim is one of the basis of their share, i.e., the share which Mr. G. Ahmad chose to give them. Their primary grievance, on that basis is that they have been excluded from that participation in the management of the company to which their share entitles them. The allegations which they made in the petition on this, as on the other factual aspects of the case, were couched in extremely vague language. This was explained by their learned counsel on the score of their having inadequate information before they filed the petition because, it was claimed that they had been denied access to the records of the company. Now, in the first place, nothing has been shown in the course of these proceedings which would indicate that they, at any time before the petition was filed, made any grievance of such non-access, but the matters of which they complain are, in the main, such that they would have knowledge even in the absence of access to the records. Moreover, even after full inspection was given as a result of an order of this Court based on an offer made by counsel for respondent these allegations were either not made more specifically or were limited to one or two explainable cases.
For instance, in the petition it was said that "The meeting of the Board of Directors Is called only once in a year, and so also the General Meeting. The agenda of the meeting are sent to the petitioners either on the date of the meeting, or after the meetings are over. The petitioners' request for the adjournment of the meetings were also refused. The agenda is so drafted as not to give a clear idea about the purpose of the meeting and the petitioners are also not supplied copies of the resolutions." Surely the petitioners would know of meetings of which they were given notice only after they were held or of which adjournments were refused or of which the agenda was so drafted without having to look into the records of the Company. The affidavit filed on 4th March 1971 after inspection was taken limits the objection on this score to two cases only; paragraph 4 of that affidavit is in these terms t- "That the applicants used to be given very short notice of the meetings of the Board of Directors as a result of which they could not attend the meetings. For instance, once the meeting of the Directors was to be held on 10-5-1969, but the notice was sent to the applicants on 7-5-1969 and this was received by them at Sialkot on 10-5-1969. Similarly, notice of the meeting of the Directors to be held on 26-12-1968 was sent to the applicants on 17-12- 1968, and was received by them on 21-12-1968. Copies of the notices are filed herewith as Annexs. `B', and `C'. The request of the applicants for the postponement of the meeting was also turned down. Telegram rejecting the request is filed herewith as Annex. 'D'. This was done with a view to make it impossible for the applicants to attend the meeting, so that Mr. Saleem Arshad could without the fear of any opposition take whatever decision he liked with the concurrence of other Directors being under his influence."
In regard to the meeting of the 10th May 1969 it was admitted that the notice was received too late but it is pointed that nothing r of any consequence was done at the meeting. The minute book shows that the directors reviewed the general affairs of the company and that certain shares originally belonging to G. Murtaza (who had since died) were registered in the name of the now owners. In regard to the meetings of the 21st December 1968 it is pointed that four days' tittle was admittedly available to the petitioners and that that was not the short. If the purpose of short notices was to exclude the petitioners from effective participation more important Business was likely to be transacted at such meetings. It is also pointed out on behalf of the respondent that, though the petitioners alleged that directors' meetings were held only once a year, the records show that in fact there were :- 3 Meetings in 1966 which all attendeJ.
4--- 1967 of which petitioners attended3 3,a 1968 ---1 3--- 1969 ------ none .F 1970 --- --- 00 3--- 1971 --- ,. --- .V In regard to none of these meetings was any objection taken at the time on the ground of inadequacy of notice or otherwise. Of the two of which it is now said that proper notice was not given, in one case the objection is not well founded and at the other no decision were taken. One can hardly avoid the conclusion that those are not really facts which gave rise to any grievance contemporaneously but that they are now being used to make out a case.
18. It is then said that the petitioners have been deprived of management of the Sialkot business which is in fact being closed down since they are not being employed in any other part of the Company's business they have been excluded, while Salim Arshad is monopolising the business.
The respondent, on the other hand, claim that the losses incurred at Sialkot clearly demonstrate the petitioners' incompetence and that their removal from active management of any part of the business is therefore justified and indeed, in the interests of the petitioners themselves inasmuch as losses incurred would affect dividends available for payment to all shareholders including the petitioners. It does seem prima facie that the respondent's stand on the facts is justified by the known results of the Sialkot business but it is not really necessary so to decide. The right to participate in the management of the company does not, in my view, mean the right exclusively to manage any part of the Company's business. The right of a shareholder is to participate by the exercise o his voting rights in the management of the company as a whole; 8 ft is not necessary that a part of the business proportionate to his shareholding must be separated and put under his exclusive control. Such a proposition would yield to startling results. As was said in Elder v. Elder and Watson referred to earlier; "Moreover I search the petition in vain for any relevant averment that the petitioners have suffered in their character as members of the company. Qua members, their position does not seem to me to differ significantly from that of any other shareholder. The true grievance is that two of them.
George Elder and James Glass, have lost the positions which they formerly held as directors and Officers of the company. I do laot consider that section 210 was intended to meet any such case, the 'oppression' required by the section being oppression of members in their "character as such. I do not think that a 'just and equitable' winding up has ever yet been ordered merely because of changes effected in the board of directors or the dismissal of officers, and very strong grounds would be needed to justify such a step."
In the present case the petitioners not only enjoy the right of voting at general meetings but also as directors; the assertion that they have been excluded from the Board of Directors is, as I have shown, not established.
19. Nor can it be really said that the petitioners are not receiving their share of the profits of the Company. Although it was asserted in the petition that dividends have not been paid regularly, it is now admitted that this is not so. The Company has in fact made profits since Salim Arshad became Managing Director; the actual figures have been detailed and are not denied. For the years ending June 1967, June 1968, June 1969 and June 1970 dividends have been declared and paid at the rates of 7J %, 5 %, 10 % and 15 % respectively. The grievance, however, is that the emoluments or perquisites whichever be the more appropriate term in the circumstances originally paid to the petitioners at the rate of Rs. 1,C00 per month each have been reduced to Rs.
300 while Salim Arahad draws Rs. 1,400 and Mst. Amina, widow of Hakimudin, receives the same.
Even if one ignores the fact that Salim Arshad is working whole time for the Company and is entitled to remuneration on that account and one regards these as payments to owners of a business the receipt by each of the petitioners of Rs. 300 out of a total sum of Rs. 3,400 so spent by the Company is hardly disproportionate to their share of the total stock which is one--sixth; the payment to Salim Arsbad and Mst. Amina are at least admittedly with the consent of the remaining shareholders, if not that of the petitioners also.
20. It was argued that relations between the parties are admittedly strained and that, in line with the decisions I have quoted, such a state of affairs in the case of a private Company is sufficient ground for a winding-up. It is unnecessary, for the purposes of this part of the case, to examine Mr. Fakhruddin's contention that the relations are not really so strained as is suggested, as witness the fact that even during the pendency of this petition, Mr. Salim Arshad has made personal loans to the petitioners. It is not strained relations, as such, that justify a winding-up; to warrant such an order the strained relations must result in a deadlock. For instance, in the Yenidji Tobacco Co.'s case, the shares were he'd equally by two individuals and the result of their differences was that no decision could be taken.
Similarly, in the Supreme Court case, to which reference has been made, each of these branches of a family had equal voting power and decisions were required to be taken unanimously which was impossible when two of them were determined to exclude the third altogether. A somewhat comparable case is reported as Charles Forte Investments Ltd., v.
Amanda (1), when the petitioning shareholders were a small
(1) (1963) 2 A E R 940 minority. Wilmer L. J. Said in the course of his judgment at pages 948 and 949: "I must, however, deal with the argument presented to us by counsel on behalf of the defendant, who has sought to contend that, following the principle applied In Re-Yenidje Tobacco Co. Ltd.
(1916-17 A E R 1050), the "present case is one in which a winding-up order could be justified on the same grounds as would justify a dissolution of partnership. It has been contended that the plaintiff-company in the present case does really amount in effect to a quasi--partnership, being, as counsel for the defendant expressed it, merely a syndicate for holding shares in Forte's (Holdings) Ltd. I can only say that to my mind the case of Re: Ysnidje Tobacco Co. Ltd. And equally the case cited to us this morning, Re: Davis and Collett. Ltd. Where the same principle was applied, are utterly remote from the question that has to be dealt with in this case. Re: Yenidje Tobacco Co.
Ltd. For instance, was a case of a two man company, and it so happened that the two men fell out with each other and could not get on, with the result that dead-lock ensued and the business of the company could not be carried on. It was in that context that it was held that a winding-up order ought to be made on the same basis as an order might be made for a dissolution of partnership; but here we are dealing with a shareholder who can be described as very much a minority shareholder. His whole holding amounts to only one seventy--fifth of the capital of the plaintiff company, and the four thousand shares at stake in the two transfers now in question amount to an even smaller fraction of the capital. Nor is he a shareholder who has any part in the running of -the plaintiff--company. He }s merely a small shareholder. There is nothing, as I see it, in his relationship to the plaintiff-company which remotely resembles that of a partnership such as there was In Re-Yenidje Tobacco Co. Ltd. I do not think that there is any room for the application of that principle in the circumstances of the present case."
21. It was next urged that the management have so utilised the assets of the Company as to obtain unfair monetary benefits for themselves to the detriment of the interest of the shareholders generally. Two instances were quoted of this. One was that Salim Arshad had used the assets to furnish security which was required of him when he was appointed as receiver by the order of the Court in respect of the Sialkot factory. But this overlooks the fact that the suit was filed by the Company to obtain possession of the factory from the petitioners who had refused to hand over the same. The circumstances in which they were removed from the control of this factory have already been briefly stated. The receivership, then, was for the benefit of the company and not for Salim Arshad personally and, even if the use of assets of the Company for the purposes of furnishing the security was irregular (which I do not hold) it can hardly be said that this was a diversion of the funds of the Company fox the personal benefit of Salim Arshads
22. A sum of Rs. 30,000 belonging to the late Mr. G. Ahmad which was lying in fixed deposit receipt and had been utilised ,as security by the Company in his life time for a loan was next ,claimed to have been withheld from distribution to his heirs, including the petitioners. Now, this money was admittedly pledged while G. Ahmad was alive for a loan to the Company .And until the loan is repaid it is difficult to see how it could be available for distribution. But taking the worst view of the matter the money belonged to G. Ahmad and not to the Company, its misappropriation, if so strong an expression is permissible, would still not be misappropriation of the Company's funds and has no relevance to its management or a resulting lack of confidence fn the managers.
23. Finally, complaint was made of the fact that a sum of Rs. 8,195.81 was paid to Salim Arshad as commission for the year ending 30-6-1967 without approval of the Board of Directors. An examination of these records of the Company however shows, as Mr. Khalid Ishaque agrees, that the money was credited to Salim Arshad's account on 8-11-1967 and then payment was regularised by a resolution on 18-11-1967. Mr. Fakhruddin asserts that the money was not actually drawn by Salim Arshad until after his date but this not very clear and Mr. Khalid Ishaque does not admit this.
But the resolution was undoubtedly passed, although after the money had been credited; there was already however another resolution granting commission at a particular rate and the resolution of 18-11-1967 merely allowed the appropriation of a specific sum. Admittedly also, the other directors were at all times willing that the sum be paid. Even if this was somewhat irregular, some degree of informality in the decision making of a private company might well be regarded as excusable, if not justifiable. In any event there cannot, on this account be said to be a justified lack of confidence in the management of the Company.
24. Clearly therefore there are not in this case any of the circumstances; which I have summarised above, which would entitle the petitioners to a winding-up Order and I therefore dismiss the petition with costs.