The respondent is a flourishing private limited company. And I shall, for convenience, also refer to it as Pakpor or the Company. The petitioner is shareholder of Pakpor and holds shares of the face value of Rs. 2 lacs, but his claim is that he has paid for and is entitled to further shares of the face value of Rs. 10 lacs. And according to him, in view of his investment in Pakoor, he was appointed its Managing Director by a resolution of the Board of Directors dated 21st March 1966, e position he retained until the prescribed date in President's Order 2 of 1972. Further, according to him, the persona controlling the Company, and referred to by the learned counsel as the Gangji Group, had illegally failed to Issue him the additional shares of Rs. 10 lacs. This was to deprive him of the control of the Company. Then, taking advantage of their own Illegal conduce in not issuing to him the shares to which he was entitled, they ousted him from the Management of the Company. He has, therefore, on these allegations, filed a winding up petition, which has been admitted in this Court and together with the petition, he bad filed application for interlocutory relief. After arguments had begun before me, he also filed an application for the cross-examination of the Directors of the Gangji Group. And similarly, the respondent, which is now admittedly controlled by the Directors of the Gangji Group, has filed an application for the cross-examination of the petitioner. Further, as the petitioner had obtained ad interim orders in his favour, the respondent has also filed an application for setting aside those orders. All these applications have come up for hearing before me and I will dispose them of by this order.
2. I will first consider the applications of the petitioner for the appointment of an interim receiver or liquidator and though both the learned counsel have argued at length on the merits of the petition, I shall only consider their arguments in so far as they are relevant to the applications before me for interlocutory relief.
3. In order to appreciate Mr. Pirzada's arguments, I have to point out here that Pakpor was started by the Directors of the Gangji Group and others who were citizens of East Africa. But according to Mr. Pirzada, as local participation for the project was required under the orders of the Controller of Capital Issues, Pakpor's then directors entered into an agreement with the petitioner, which was confirmed in the resolutions passed by Pakpor's Board of Directors on 17th November 1965. The resolution on which Mr. Pirzada based his arguments, states as follows:-- "That Mr. Muhammad Ismail and his group will be allotted and issued fully paid-up shares of the face value of Rs. 12 lacs for consideration already received on obtaining the permission of the relevant authorities, including the Controller of Capital Issues. Further resolved that in the said event there will be two Directors nominated or appointed on the Board of Directors on behalf of the said Muhammad Ismail."
The petitioner was thereafter appointed the Manager of the Company. Then, by a resolution of the Company's Board dated 21st March 1966, he was appointed its Managing Director, but as this appointment was contrary to the articles, the articles were amended on 27-12-1966 and according to Article 91, the petitioner was to be the Company's Managing Director "until removed by the Board of Directors" Then, as to the Company's share capital it was divided Into ordinary shares of the face value of Rs. 100 each and the petitioner was issued 2000 shares, but according to him as he had Invested Rs. 12 lacs, he was entitled to 12000 shares under the resolution. Anti according to Mr. Pirzada, in deliberate breach of the agreement embodied in this resolution, the directors of the Gangji Group did not issue to the petitioner the additional 10000 shares to which he was entitled in order to deprive him of the control of the Company. And then they took advantage of President's Order 2 of 1972, to exclude him totally from Pakpor's Board of Directors. Therefore, on these allegations Mr. Pirzada submitted that in view of the petitioner's total ouster from Pakpor, either he or this Court's official assignee should be appointed, pending the hearing of the winding up petition, to manage the Company, as interim receiver or provisional liquidator.
4. Mr. Sayeed naturally opposed this submission and further submitted that the petitioner had only paid Re. 2 lacs for which he had received the two thousand shares, to which he was entitled. Now at this stage, I cannot help observing that the petitioner's claim to have invested Rs. 12 lacs in the Company and not Rs. 2 lacs is supported by the resolution of the Com--pany's Board of Directors dated 17th November 1965, but at the same time it is very strange that Mr. Pirzada would not give any particulars of this alleged investment. Further, as pointed out by Mr. Sayeed, this claim is not supported by the Company's annual reports and balance sheets either. Mr. Pirzada's explanation was that the petitioner had not signed the Company's annual reports and that he had signed the balance-sheets only on appropriate assurances by the directors of the Gangji Group. But this allegation is denied by the respondent, and no particulars have been given of the alleged assurances. Mr. Sayeed also referred me to other circumstances not irrelevant to the petitioner's claim. Thus, for instance he had remained com--pletely silent about his claim between 1966 and 1971. Similarly, Mr. Pirzada admitted that the petitioner's claim to the additional ten thousand shares was subject to the permission of the Controller of Capital Issues, but the sanction granted by the said Controller was, to say the least, inconsistent with the agreement envisaged in the resolution of 17th November 1965, which I have quoted. However, as these and other questions, on which the learned counsel addressed me at length, will be decided when the main petition is heard, I would not like to go into them at this stage, nor is it necessary for me to do so. This is because all companies were required to have fresh elections for their Boards of Directors under President's Order 2 of 1972 anti therefore even If I assume at this stage, that the petitioner's claim is correct, the question is whether his plea of ouster can be sustained in view of this Order?
5. I will now examine this Order, and its preamble states that its object is to protect "the just interests of the minority members of a company" Clause 2 defines a Managing Agent as "a person, firm or company entitled to the Management of the affairs of a company by virtue of an agreement with the company and includes a Secretary, Manager . . . . ." Clause 3 states that the Order "shall have effect notwithstanding anything contained in the Provisional Constitution Order, the Companies Act, 1913 or any other law for the time being in force or any agreement, contract, memorandum or articles". According to Clause 4 "All agreements or contracts entered into by a Company with its Managing Agent shall stand terminated forthwith and the Managing Agent and the Directors of the company nominated by the Managing Agent shall cease to hold their respective offices." As the petitioner bases his claim to the Managing Directorship of the Company on an agreement with it, Mr. Sayeed submitted -that his appointment stood terminated under this Clause. On the other hand, Mr. Pirzada submitted that the petitioner was not a managing agent within the meaning of Clause 4. It is not necessary to decide this argument because even if the petitioner was not a managing agent within the meaning of the Order, he was nonetheless a director and he can remain a managing director only as long as he is a director, therefore Clause 9 of the Order is relevant, This Clause reads as follows:- "Directors to stand retired.----On the expiration of the period of one hundred and eighty days following the commencement of this Order, or on the date of the first annual general meeting of a company held after such commencement, which ever is due earlier, all directors of a company for the dime being shall stand retired from office: Provided that the directors so retiring shall continue to perform their functions until their successors are elected."
As on the plain language of this Clause, the petitioner stood retired on the day prescribed in the Order, he cannot possibly contend that he was illegally ousted from Company's Board or from its control by the directors of the Gangji Group, and prangs facie this appears to be fatal to his plea of ouster.
6. When I drew Mr. Pirzada's attention to this, a merely stated that all companies were required under the Order to hold elections for directors within 180 days of the commencement of the Order and as Pakpor s elections had been held a week late, than the prescribed date, namely on 22 July 1972, these elections were in consequence null and void. Now if that argument is correct, it means that Pakpor has no director, bull can this help the petitioners' claim? As Managing Director, lie was under an obligation to ensure that the provisions of Clause 9 were complies with, and, to say the least, this objection it: slot being raised by a person with clean hands, a circumstance not irrelevant to the equitable relief sought by the petitioner in his applications. I also do not need to consider this objection, because it was hardly pressed and is inconsistent with the proviso to the Clause. But learned counsel vehemently submitted than the directors of the Gangji Group had manoeuvred the elections of 22nd July 1972, so as to prevent the petitioner from being elected a director and thereby they had committed fraud, so that the elections were null and void on this ground also. On the enquiries, Mr. Pirzada admitted that the Gangji Group were not required to vote for the petitioner, and his only submission was that they had committed fraud because they had dishonestly not issued to the petitioner the ten thousand additional shares is which he was entitled.
Now even if I assume that the petitioner is entitled to the 10,000 additional shares, the question is whether such an assumption could have had any effect on the elections-- held under Clause 10.
When I referred learned counsel to this clause, his reply was that the questions in issue in this application, were the same as to the winding up petition and he therefore requested that the main petition should be fixed for hearing immediately with the stay application. I would have liked to accede to this request, but I am compelled to reject it because of the very heavy arrears in this Court, and so it becomes necessary, to consider Clause 10. This Clause reads as follows:-nd "Voting for election of directors,--The directors of a company shall fix the number of directors of the company and the directors shall be elected by the members of the company in general meeting in the following manner, namely:
(a) a member shall have such number of votes as is equal to the product of the number of voting shares held by him and the number of directors to be elected;
(b) a member may give all his votes to a single candidate or divide them between more than one of the candidates in such manner as he may choose;
(c) the candidate who gets the highest number of votes shall be declared elected as director and then the candidate who gets the next highest number of votes shall be so declared and so on until the total number of directors to be elected has been so elected."
As the other members of the Company were admittedly not under any obligation to vote for the petitioner, it is obvious that t--he could have been elected a director only if he was holding sufficient shares when the Company's books were closed for the elections. Now Mr. Pirzada admitted that the petitioner could not have been elected on the basis of the two thousand shares which stood in his name in the Company's books but the submission was that he would have been automatically elected if the ten thousand additional shares to which he was entitled had been issued to him. But even if I assume that the petitioner was entitled to these ten thousand additional shares, as he had not taken steps to enforce his rights, can it be said that he was holding them within the meaning of Clause 10(a)? I do not think so. In my humble opinion, the word "held" in clause 10(a means the shares owned by a member with regard to which there is no dispute between him and the company and it must be given the same meaning as in the relevant provisions of the Companies Act. And as to that Act, section 31 requires every, company to keep a register of its members and the register of a company with a share capital must contain a statement of the shares held by each member, distinguishing each share by its number, and of the amount paid or agreed to be considered as paid on the shares of each member. "Similarly every company has to maintain, under section 32, a list of its members which must show "the number of shares held by" each member at the date of the return. From the particulars thus required, it is clear that the words "shares held by each member" in these sections means the shares to which a member Is entitled according to the company's register, but not shares about which there is a dispute between the member and the company, and significantly, for such disputes, the Legislature has provided a remedy under section 38. Now as the Order has been enacted only to amend certain provisions of the Companies Act, the word "held" in it has the same meaning as in the sections discussed, and this means that at the time of Pakpor's elections, the petitioner held only 2000 shares under clause 10 of the Orders. That is what he has himself declared on his ballot paper in the elections, a copy of which is Annexure "A" to the respondent's affidavit. Accordingly, on his own admission, he could not have been elected a director. But even if I assume that he was entitled to the shares claimed by him, this does not help his case because he did not care to apply within time for the rectification of Pakpor's share register under section 38, and the result is that his failure to get elected was not due to any fraud or indeed any action on the part of the Gangji Group, but was the direct consequence of his failure to prosecute his remedies for his claim.
However, even if I accept Mr. Pirzada's submission that the petitioner should be deemed to have been elected, he would nonetheless have been in a minority on the Company's Board. And as the directors of the Gangji Group, who would have been in control of the Board in any event, do not want his services, they could have terminated his appointment as Managing Director at any time under Article 91 of the Company's articles. On this ground also, prima facie the plea of exclusion falls.
7. Mr. Pirzada then submitted that the elections of 22nd July 1972 were illegal because persons who were not members of the Company had been allowed to vote. Mr. Sayeed denied this allegation and also relied on clause 16 of the Order. Sub---clause 2 of this clause is relevant and it reads as follows: "No Court including Supreme Court and a High Court shall grant any injunction or make any order, nor shall any such Court c entertain any proceedings in relation to anything done or intended or purporting to be done under this Order". As I am not exercising jurisdiction under Article 201 of the Interim Constitution, I agree with Mr. Sayeed that this clause is a sufficient answer to Mr. Pirzada's submission and I will not therefore go into disputed questions of fact. As Mr. Pirzada was aware of this difficulty, he submitted that the Order was illegal because Martial Law itself was illegal. However, he also said that he would advance arguments on this question only at the appropriate stage. As no arguments on the legality of Martial Law were addressed before me I would only observe here that the Order appears to be a fatal bar to the petitioners contention that he was ousted from Pakpor's Board of Directors and from its control.
8. Finally Mr. Pirzada submitted that in suits for the dissolution of partnerships, whenever the plaintiff complained of exclusion from the firm, the Court always appointed an interim receiver of the firm, pending the hearing of the suit and learned counsel's submission was that this rule was fit to be extended to winding up petitions. I must make it clear that I am considering this submission only with reference to winding up petitions of private companies filed by members, and I cannot help observing that the submission is based on several assumptions, one being that the provisions of Order XL, Civil Procedure Code are applicable to such petitions. Now although the Court is empowered to grant ad Interim relief under section 170 of the Companies Act and to appoint a provisional liquidator under section 175, section 141 of the Civil Procedure Code extends all the provisions of that Code to winding up petitioners. Therefore, I agree with Mr. Pirzada that the petitioner can seek relief under order XL, C. P. C., as well as under the provisions of the Civil Procedure Code generally, and so the questions which arise for determination are: What are the rules in partnership suits? Should they be applied to winding up petitions and if so to what extent?
9. As to the first question, if a suit is filed for the dissolution of a firm by a partner, and the plaintiff alleges only exclusion and not waste or malversation the Court will appoint a receiver from among the defending partners, as was done in Omar v. Razzaq (PLD 1956 Sind 85), on the basis of a passage in Kerr. But if the plaintiff in such a suit can show that there is a reasonable apprehension of waste or malversation of the firm's assets, the D Court will remove the defending partners from the Management of the firm and appoint the plaintiff or a third party as an interim receiver. This second rule can be invoked by any plaintiff who can show that there is a reasonable apprehension of waste or malversation if the defendants are allowed to remain in possession of the disputed property, and this rule is applicable to winding up petitions even when the company sought to be wound up is prosperous. The law is so well settled that the petitioner himself bad alleged waste in his application and the Court had therefore directed the Nazir to inspect the Company's premises at Lalamusa. But unfortunately, despite the Nazir's report, Mr. Pirzada was not able to make out any case of waste or malversation of the Company's assets by the respondent, Hence his plea that the rule in Omer's case. If I may so call it, should be extended to winding up petitions, because, according to learned counsel, private companies were similar to partnership firms. I agree with Mr. Pirzada that a private company is like a firm In many ways, but if there are similarities between a firm and a private company there are also differences between them Thus, for instance, in the absence of contract to the contrary every partner Is entitled under the Partnership Act to share in the management of the firm and this is basis of the rule in) Omer's case. But as a member of a company cannot possibly claim any right to manage it, the rule in partnership suits is not fit to be Extended to winding up petitions. I am, of course, aware that a director is entitled to share in the management of a company and so the question is whether the rule in Omer's case should be extended to winding up petitions filed by members who are directors. That really was Mr. Pirzada's submission, but I cannot agree with it for more reasons than one. In the first place, unlike a firm, a company can, at any time, remove any of its directors by an extraordinary resolution under section 86-G of the Companies Act. Secondly, a partner has a right to share in the Management of the firm as long as the firm lasts or, if the matter is governed by contract, for the period fixed in the contract.
Now there will be an analogy between the position of a director and a partner only if the appointment of the director is for a fixed period. But if as in the present case, a director can be removed at-any time under the terms of his appointment, then it is idle to talk of the similarity between a firm and a private company and the practice fn partnership suits cannot be extended to such cases. Even otherwise, merely because a practice has grown up in the partnership suits it does not mean that it should be extended to winding up petitions. After all, if a company F Is well run and its Board of Directors is functioning, the appoint--ment of an interim receiver would result in drastic Interference with its business and might do untold harm. On the other hand, the interests of the aggrieved party can be protected by methods otter than the appointment of an interim receiver, therefore In the absence of authority binding on me, I would not appoint, an interim receiver or a provisional liquidator on the plea of exclusion simpliciter. And it is significant that, despite his usual industry, learned counsel was not able to refer me to any judgment of any Court in support of the sweeping proposition advanced by him.
10. The correct position, in my opinion, is stated in Halsbury. In Halsbury's Laws of England, Volume 5, 3rd edition, it is observed at page 559: "That the Court may appoint a provisional liquidator to take possession of and protect the assets of the company at any time after the presentation of a winding up petition . . . . ". I may also add here that this passage was approved and followed by Sardar Iqbal, J. As be then was, in the National Bank of Pakistan v. Punjab National Silk Mills (PLD 1969 Lah. 194). Sardar Iqbal, J., observed in that case at page 201, "The Court must . . . . . Come to its own conclusion whether in the circumstances there is any apprehension of the assets of the company being wasted or that if an order appointing a Provisional Liquidator is not made, some creditors may have advantage over the others. The real purpose is to take over the possession of the property for its proper management and to ensure that in case an order of winding up is passed, the interests of the creditors of the shareholders remain protected." I am in respectful agreement with these observations, which were followed by Akram J. In Shaikh Magbool Ellahi and others v. Rasool and Company Ltd. And others (PLD 1970 Lah. 539). Mr. Pirzada however submitted that his argument was supported by the judgment of the Supreme Court in Ladli Parasad Jaiswal v.
Karnal Distiller), Co. Ltd. (PLD 1965 SC 221). But I find that the only question decided in this case that "it was a just and equitable to wind up a private limited company on the same principles as would entitle a partner to have a partnership firm dissolved". I am in respectful agreement with this view, but the question before me is totally different, namely the appointment of an interim receiver.
And when I invited learned counsel to refer me to the observation in the judgment on this question, he was compelled to admit that it was not even considered by their Lordships. He thought however that the judgment supported his argument on general principles. Now, according to learned counsel, the general principles were that because their Lordships bad held that a private company could be wound up on the same grounds as would entitle a partner to have a firm dissolved, according to learned counsel, this implied that the practice In partnership suits about the appointment of interim receivers was fit to be extended to winding up petitions. The argument is fallacious. A judgment cannot be an authority for a proposition which is neither considered in it, nor raised by the parties, therefore, as interlocutory relief was neither considered nor sought In the judgment cited, in my humble opinion, it is completely irrelevant to the point under discussion.
11. However, as I have said earlier the petitioner has also filed an application under Order XIX, rule 2, C. P. C. For the cross-examination of the respondents' directors. And Mr. Pirzada hoped to improve his case through the cross examination of the respondent's directors, but as observed in Barlas Bros. (Karachi) & Co. v. Yangtze (London) Ltd. (PLD 1959 Kar. 423): "Order XIX, rule 2 also gives discretion to the Court to permit cross-examination which discretion it would exercise to advance the cause of justice and cross-examination would be disallowed only where it could not help in the determination of the matters before the Court . . . . " It is also contrary to the practice of this Court to permit cross-examination in interlocutory matters save in exceptional cases. Therefore, I wanted to know on what grounds learned counsel wanted to cross-examine the respondent's directors. He only submitted that the Court bad no discretion to reject an application under Order XIX, rule 2. I cannot accept this submission in view of the observations quoted. Mr. Pirzada then submitted that the affidavits of the respondents' directors would not be admissible in evidence unless he was allowed to cross-examine them, and in this connection he relied on the further observations of the Division Bench in the case cited at page 439. The learned Judges have observed: "if there was a possibility of the cross-examination providing material for the proper decision of the case, the affidavit could not on the principle embodied in rule 1 of Order XIX, C. P. C. Be regarded as evidence of the facts stated therein." Mr. Pirzada naturally relied on these observations, but they had reference to the final decision of the case and not to an order on an interlocutory application, therefore the judgment is distinguishable on the facts and does not help the petitioner's case. On the other hand, in the National Bank's case. Sardar Iqbal, J. Has pointed out that a petition for the appointment of a provisional liquidator had to be decided on affidavits. I respectfully agree with this view, which is in accord with the practice of this Court. I, therefore, dismiss the petitioner's application under Order XIX, rule 2, C. P. C. And as the respondent has filed a similar application, this is also dismissed.
12. The result is that the petitioner's prayers for interim relief have to be decided, in accordance with the usual practice, on the basis of the affidavits and the documents on the record. And according to that evidence the petitioner is the owner of the two thousand shares and has a claim of ten thousand additional shares. According to the settled law the mere fact that the petitioner is a substantial shareholder in the Company does not, by itself, entitle him to relief under Order XL. C. P.
C. And Mr. Pirzada also did not press this aspect of the case. He however laid great stress on the petitioner's claim to ten thousand additional shares. But even if I assume that the petitioner has proved his claim to these additional shares, he has failed, for the reasons which I have given, to matte out a prima facie case of ouster. In any event in my humble opinion, an interim receiver or a provisional liquidator should not, in a winding up petition, be appointed on a plea of ouster simpliciter. Therefore, the petitioner's applications are dismissed.
13. Before parting with this order, I have to point out that the petitioner is in occupation of a house in the Company's premises at Lalamusa. The respondent wants to eject him and had offered him alternative accommodation at its own expense. Mr. Pirzada however insisted that pending the hearing of the winding up petition, the petitioner's occupation of this house should be protected.
Now it is not disputed before me that this house was being occupied by the petitioner only with the Company's leave and as it could have directed him to leave it even whilst he was its Managing Director I do not see how his occupation can be protected. The respondent is therefore free to eject him according to law, but in order to give him time to find accommodation I direct that he shall not be dispossessed for a period of 30 days. Finally, I have observed earlier that the Court has ample powers to protect the petitioner's legitimate -interests by methods other than the appointment of an interim receiver. Accordingly I direct the respondent to prepare, at the g .End of every calendar month, a statement of the Company's sales and expenses and to send a copy of it to the petitioner within two weeks of the preparation of the statement. In my opinion this is sufficient to protect his legitimate interests.