' The facts of the case are that the plaintiff is a share-holder of the defendant No,1, a private limited company incorporated under the Companies Act, 1913, having 3,999 shares in her name. The defendant No,11, who is her real brother, holds another 2,667 shares of the said defendant. The total holdings of the plaintiff and the defendant No,11 are thus 6666 shares out of the entire issued share capital of the defendant No,1 consisting of 26,666 shares, each of the value of Rs,10. The defendant No,2 is the full time employee of the defendant No,1 Company and also its Managing Director. The defendants Nos. 4, 5 and 6 which are foreign companies registered outside Pakistan, hold amongst themselves 20,000 shares of the defendant No,l.
2. The said defendants sold their shares to Messrs Scan Maritime S.A. (defendant No,13) and requested the defendant No,1 through the defendant No,9 vide its letter, dated 25-8-1985, to transfer the shares to the name of the defendant No,13. The defendant No,1 was also informed that the defendants Nos. 7, 8 and 9 had been nominated to join the Board of its Directors.
3. After learning about the said transfer the plaintiff through its attorney's letter, dated 31-3-1985, informed the defendant No,10, one of the Directors of the Defendant No,4, that in terms of Article 40 of the Articles of Association of the defendant No,1, the first offer of shares was to he made to the existing shareholders in Pakistan and any transfer of shares made contrary to the said article would render the same infructuous. The said defendant was also requested to disclose the identity of the buyer. However, the reply dated 19-4-1985 received from the defendant No,10 was evasive.
4. The plaintiff again wrote to the said defendant in this behalf, but finally a reply was received from the defendant No,10 that according to the Articles of Association of the defendant No,1 the shares held by a member company or a person not being a national of Pakistan could only be disposed of to another such company or person. The plaintiff was further informed that under such circumstances the Directors of the defendant No,1 in the larger interest of the company had approved the sale of the shares to a foreign company who had expressed its willingness to purchase the same and hence the transfer was valid.
5. The case of the plaintiff is that the said transfer of shares in the name of the defendant No,13 is invalid, as besides the same being done in contravention of the Articles of Association of the defendant No,1; was also without any valid approval as the two Directors who had approved the transfer at a meeting of the Board of Directors held on 29-9-1985 were not competent to act as such.
6. The plaintiff has consequently prayed for the following reliefs: (i) declaration that the plaintiff is entitled to have the 20,000 shares transferred in her own name and that of the defendant No,11, her brother; (ii) specific performance by issuance of necessary directions to the defendants Nos.1 to 10 and 12 for the transfer of the said shares either jointly or proportionately in the name of the plaintiff or the defendant No,11; and (iii) Permanent injuction restraining the defendant Nos.1 to 10 and 12 from interfering with the rights of the plaintiff and the defendant No,11 in managing the affairs of the defendant No,1 Comapny and a mandatory injunction against the defendants Nos.1 to 10 and 12 to rectify the records of the defendant No,1 company and to restore status quo.
7. Written satements have been filed by some of the defendants only. The defendants Nos.1 and 2 have filed their written statement jointly, while the defendants Nos.7, 8, 9 and 13 have adopted the same written statement. The defendant No,11 in his written statement has fully supported the plaintiff's case.
8.. In the written-statement, filed on behalf of the defendants Nos.1 and 2, it has been denied that any contravention of the Articles of Association of the defendant No,1 has taken place. According to the defendants, Article 39 of the Articles of Association restricts the transfer of the shares held by a non-Pakistani to only such share-holders and accordingly the plaintiff and the defendant No,11 are not entitled to the transfer of the shares held by the foreign share-holders, namely the defendants Nos.4, 5 and 6. According to the defendants, Article 40 has also been misinterpreted by the plaintiff as, according to them, the said Article permits the transfer of shares to a person who is not a member, if no member is willing to purchase the shares or there is any person selected by the Board of Directors as "one whom it is desirable in the interest of the company to admit to membership". The defendants have also called in question the maintainability of the present suit as according to them, the plaintiff or the defendant No,11 could have resorted to the remedies provided by the Companies Ordinance, 1984. It has, consequently, been denied that the transfer of the shares in the name of the defendant No,13 was invalid either on account of the contravention of any of the Articles of Association of the defendant No,1 or the incompetency of any of the Directors of the said defendant to approve the transfer of shares in the meeting of the Board of Directors.
9. On the basis of the respective pleadings of the parties, the following consent issues were framed:-- "(1) Whether the transfer of 20,000 shares of Rs,10 each of Defendant No,1 Company by the defendants Nos.4 to 6 to Defendant No,13 was in accordance with the Articles of Association of the Defendant No,1 Company?
(2) Whether the plaintiff and Defendant No,11 on being registered as members of the Defendant No,1 Company are bound by the Articles of Association of the Defendant No,1 Company?
(3) Whether non-Pakistani Shareholders of Defendant No,1 could only transfer their shares to non- Pakistanis?
(4) Whether the Articles of Association of Defendant No,1 Company in respect of transfer of shares are in accordance with the Companies Ordinance? If not, what is the effect?
(5) Whether the appointments of Defendants Nos.7 to 9 as Directors of Defendant No,1 were valid and proper and whether the Board of Directors which sanctioned the transfer of shares of Defendants Nos.4 to 6 was validly constituted on the date of sanctioning the purported transfer of shares?
(6) Whether Defendant No,13 is a mere camouflage and cover for some unidentified persons who would not otherwise be entitled to the transfer of shares in dispute?
(7) What was the position of Defendant No, 2 in the Company and whether he acted without lawful authority at any stage?
(8) Whether the suit as framed is maintainable in law?
(9) Whether any cause of action has accrued to the plaintiff?
(10) Whether the plaintiff is entitled to the relief/reliefs claimed?
(11) What should the decree be?"
10. The parties have not led any oral evidence, but have relied only upon the documentary evidence respectively filed by them with their pleadings.
11. I have heard Mr. A. I. Chundrigar; learned counsel for the plaintiff and Mr. A.A. Fazeel, learned counsel for the defendants Nos.1, 2, 7, 8, 9 and 13 and Mr. Abid Japanwala and Mr. Murtaza, learned counsel appearing on behalf of the defendants Nos.4, 5, 6 and 10 and 3 respectively. The last two have adopted the arguments of Mr. A.A. Fazed and Mr. A.1. Chundrigar respectively.
12. As far as issues Nos.2 and 7 are concerned, the same were not pressed by any of the learned counsel and hence no discussion would be necessary thereon.
13. I would now like to take up issues Nos.1 and 3 together as the same are interconnected. The first question, therefore, is whether the transfer of the said 20,000 shares by the defendants Nos.4, 5 and 6 to the defendant No,13 was in accordance with the Articles of Association of the defendant No,1 Com. Pany. In this respect, both the parties have placed reliance upon Articles 39 and 40 of the Articles of Association, which provide as follows:-- "(39) Transfers of shares which may for the time being be registered in the name of a person or company not being a National of Pakistan or a company controlkd by Nationals of Pakistan shall be further subject to the provisions and restrictions contained in the next seven clauses hereof and all references to transferors. Persons and members whomsoever and wheresoever they may occur throughout the same clauses shall be deemed to mean transferors, persons and members respectively other than Nationals of Pakistan and all references to a share or shares shall mean such as may for the time being be registered in the name of a person or company not being a National of Pakistan or a Company controlled by Nationals of Pakistan.
(40) No share shall (save as provided by clauses 49 and 50 hereof) be transferred to a person who is not a member so long as any member is willing to purchase the same or any person selected by the Board of Directors as one whom it is desirable in the interest of the Company to admit to membership is likewise so willing."
14. The contention of Mr. A.T. Chundrigar, is that the shares transferred to the defendant No,13 should have been first offered to the plaintiff or the plaintiff and the defendant No,11 jointly.
However, the argument of Mr. A.A. Fazed is that according to Article 39 of the Articles of Association of the defendant No,1, the shares held by the defendants Nos.4, 5 and 6 could only be transferred to a foreign company or a foreigner. The learned counsel also does not agree with the contention of Mr. Chundrigar that Article 40 imposes absolute restrictions on the transfer of shares to a non- member. Although, Article 39 makes the transfer of shares to a person not being a National of Pakistan or to a company not being controlled by the Nationals of Pakistan, subject to the provisions or restrictions contained in the next seven clauses in the Articles of Association, but no such intention can be spelt out from the said Article to suggest that the shares held by a foreign company or a foreigner are transferable only to another foreigner. The first argument of Mr. A.A.
Fazed is, therefore, not acceptable. However, the argument of Mr. A.A. Fazed in respect of Article 40 appears to be more formidable, because Article 40 shows that although the first offer for sale of shares of the defendant No,1 company is to be made to an existing member, but at the same time the Article also permits transfer of the shares to a person who is not a member of the defendant Company, provided he has been selected by the Board of Directors as one whom it is desirable in the interest of company to admit to membership and he has shown his willingness to accept the same. It would thus he observed that the restrictions, if any, imposed by Article 40 of the Articles of Association are not absolute and if the Board of Directors approves the transfer of shares, the shares can he validly transferred even to a nonmember. Mr. A.A. Fazed has invited my attention to a copy of the minutes of the meeting held by the Board of Directors of the defendant No, 1 on 29-9- 1985, wherein the sale of the shares by the defendants Nos. 4, 5 and 6 to the defendant No, 13 was approved by the Board of Directors. Mr. A.A. Fazed has pointed out that the transfer of the 2000 shares by the defendants Nos. 4, 5 and 6 was even approved by the State Bank of Pakistan, vide their letter dated 12th September, 1985. He has further pointed out that according to section 13 of the Foreign Exchange Regulation Act, the transfer of shares held by the defendants Nos. 4, 5 and 6 was not possible either to the plaintiff or her brother, the defendant No,11 except with the permission of the State Bank of Pakistan. Reference in this respect has been made by him to Chapter XX, Clause 6(c) of the Exchange Control Manual, which imposes further restrictions on transfer of securities held by a person resident outside Pakistan to another such person. Bc that as it may, but so far as Article 40 of the Articles of Association is concerned it clearly shows that there are no absolute restrictions in regard to the transfer of shares of the defendant No, 1 as proposed by Mr. A.I.
Chundrigar and the shares of the defendant No, 1 could be transferred to a non-member notwithstanding the fact that an existing member was willing to purchase the same, if the Board of Directors had given its approval to such transfer. Since such approval was accorded by the Board of Directors for the transfer of 20,000 shares held by the defendants Nos. 4, 5 and 6 to the defendant No, 13, the issue No, 1 is answered in the affirmative. However, the issue No, 3, for the reasons pointed out above, is answered in the negative.
15. Turning now to Issue No, 4, Mr. A.I. Chundrigar has pointed out that the restrictions imposed in respect of the transfer of shares by the. Articles of Association of the defendant No, 1 arc in accordance with the provisions contained in the Companies Act, 1913 or the Companies Ordinance, 1984. Reference was made by him to section 2(13) of the Companies Act, 1913, and section 2(28) of the Companies Ordinance, 1984 which define "private company" as "a company which by its Articles, (i) restricts the right to transfer the shares, if any;" As there appears to be no controversy in regard to this issue, I need not dwell further thereon, and the issue is, therefore, decided in the affirmative. However, it shall have no material bearing on the findings given by me above.
16. So far as issue No, 5 is concerned, Mr. A.I. Chundrigar has pointed out that only two directors, namely, Mr. Moonis and Mr. A.H. Lobo had attended the meeting of the Board of Directors, dated 29- 9-1985 when the transfer of the shares in question was approved by them. Although, no controversy has been raised in regard to Mr. M. Moonis acting as a Director at the relevant time, as he was a whole-time employee of the defendant No,1 and by virtue of that was qualified to act as a Director, but it has been disputed that Mr. A.H. Lobo was a validly appointed Director of the company. The factual position is that Mr. A.H. Lobo was nominated as "alternate Director" by the defendant No,7, who was himself a nominee of the defendant No,
13. However, such nomination by the defendant No, 7 vide his letter, dated 9th October, 1985, which was sent to the defendant No,1 after the meeting of the Board of Directors held on 29-9-1985 has been called in question by Mr. Chundrigar. It is pertinent to point out that originally Mr. A.H. Lobo was elected as one of the Directors of the defendant No, 1 at the meeting of the Board of Directors held on 27-6-1985, however, this meeting was attended by Mr. M. Moonis and Mr. M. Mohsin Khan as Directors of the company, who held proxies from the defendants Nos. 4, 5 and 6 respectively. The minutes of the meeting held on 27-6-1985 further show that five Directors, including Mr. A.H. Lobo, who had retired as Directors of the defendant No, 1 company had offered themselves for re-election and were elected at the same meeting the Board of Directors. However, after the purchase of /11,000 shares of the company by the defendant No, 13, it nominated the defendants Nos. 7, 8 and 9 to join the Board of Directors, but nothing has been produced by the parties to indicate as to whether the position of the five Directors earlier elected at the meeting held on 27-6-1985, had in any manner altered, although, the argument of Mr. A.I. Chundrigar is that at the time of the transfer of shares of the defendants Nos. 4, 5 and 6 to the defendant No, 13 on 29-9-1985, the nomination of Mr. A.H. Lobo as Director of the company also came to an end as the minutes of the meeting of the Board, dated 29-9-1985 show that the defendant No,7, whom Mr. A.H. Lobo represented had already tendered his resignation as a Director as per the telex sent by him on 16-9-1985. According to Mr. A.I. Chundrigar although, the resignation tendered by the defendant No,7 was accepted at the meeting of the Board of Directors held on 29-9-1985, but, according to the learned counsel, the resignation when tendered had in fact become effective from the date on which it was so tendered, and not from the date when it was accepted. Reliance in this respect has been placed by Mr. A.I. Chundrigar on the case of Muhammad Yousuf Khan Khattak v. S.M. Ayub PLD 1973 SC 160, wherein it had been so held by the Supreme Court. However, the argument has been resisted by Mr. AA. Fazed, according to whom the facts of the present case are distinguishable as the ruling given by the Supreme Court was based on a provision contained in the Articles of Association of the Company, whereas in the present case no such provision can be found in the Articles of Association of defendant No,1.
However, according to Mr. Fazeel, Mr. A.H. Lobo still continued to be validly appointed Director by virtue of his appointment as such at the meeting of the Board of Directors held on 27-6-1985. Mr. AA. Fazed has also invited my attention to section 185 of the Companies Ordinance, 1984 which provides that: "No act of a director or of a meeting of directors attended by him, shall be invalid merely on the'ground of any defect subsequently discovered in his appointment to such office: Provided that, as soon as any such defect has come to notice, the Director shall not exercise the right of his office till the defect has been rectified". Consequently, according to the learned cousel, in any case since there was nothing to indicate that Mr. A.H. Lobo did not act bona fide, all actions performed by Mr. A.H. Lobo at the meeting held on 29-9-1985 were valid. I find lot of force in Mr. AA.
Fazeel's argument. It may be pointed out that section 185 of the Companies Ordinance, 1984 (For corresponding provision, see section 86 of the Companies Act, 1913) clothes all the actions taken by a Director with validity even if it has been subsequently discovered that his appointment was not valid on account of some defect therein. The section also assigns validity to all such actions taken at a meeting of the Board of Directors, if the same has been attended by any such Director.
However, the proviso to section 185 further indicates that as soon as such defect has come to notice, such Director shall not exercise the right of his office till the defect has been rectified. It therefore, follows that all such actions of a Director, taken in good faith shall be deemed to have been validy taken. Consequently, if any action of a Director of the Company has been challenged as invalid on account of a defect in his appointment, the onus would be on a person questioning such action to show further that such Director acted as such in spite of the defect coming to his notice and without rectification of the same. Therefore, although there is no definite evidence produced by the plaintiff to show that Mr. A.H. Lobo acted as a Director without a valid authority, but assuming that he did, all such actions taken by him under the colour of his office in absence of any evidence to the contrary would be deemed to have been taken bona fide and in good faith and hence validly taken. I am accordingly of the view that the Board of Directors which sanctioned the transfer of shares of the defendants Nos. 4, 5 and 6 was validly constituted on 29th September, 1985. For the same reason, it cannot be said that the appointment of the defendants Nos. 7, 8 and 9 as Directors of the defendant No,1 at the meeting of the Board held on the said date was invalid.
Issue No, 5 is, therefore, answered in the affirmative.
17. Turning to Issue No, 6, it has been alleged by the plainifft in para. 15-A of the plaint that the name, SCAN MARITIME SA., taken by the defendant No, 13 is a camouflage and a cover for some unidentified persons, who are in fact nationals of Pakistan. Therefore, according to the plaintiff this Court has power to lift the veil of incorporation of the defendant No, 13 and uncover the third party behind such veil. Reliance in this respect has been placed by the learned counsel on The President v. Mr. Justice Shaukat Ali PLD 1971 SC 585 and Fauji Foundation v. Shamimur Rehman PLD 1983 SC 457, wherein it has been held that nothing prevents the Court from lifting and piercing through the veil of incorporation to determine the true relationship of shareholders with regard to their dealings with the company or to ascertain the true nature of the company itself.
18. This issue has in fact lost its importance after my findings on the preceding issues, however, as far as the power of the Court to lift or pierce through the veil of incorporation is concerned, there can hardly by any cavil with the same. But the onus would be on the party raising the issue to prima facie lay material before the Court calling for the lifting of the veil and exposing the camouflage. The allegations made by the plaintiff in para. 15-A of the plaint (para. 15 of the original plaint) have been denied by the defendants Nos.1 and 2 in their written statement and the same written statement, as pointed out earlier, has also been adopted by some other defendants. Since the allegations made by the plaintiff have been denied by the defendants, the onus is clearly on the I plaintiff to lay down material before the Court in this respect and establish the plea. Since no such material has been placed before the Court, the issue is decided against the plaintiff and in the negative.
19. As far as issue No, 7 is concerned, there is no contest thereon as pointed out earlier and, therefore, I now advert to issue No,
8. In this respect Mr. AA. Fazeel has invited my attention to sections 263 and 290 of the Companies Ordinance, 1984 which provide as follows:-- "263. Investigation of affairs of company on application by members or report by registrar.---The Authority may appoint one or more competent persons as inspectors to investigate the affairs of any company and to report thereon in such manner as the Authority may. Direct--
(a) in the case of a company having a share capital, on the application of members holding not less than one-tenth of the total voting power therein;
(b) in the case of a company not having a share capital, on the application of not less than one- tenth in number .Of the persons entered on the company's register of members:
(c) in the case of any company, on receipt of a report under sub-section (5) of section 231 or on a report by the registrar under sub-section (6) of section 261.
290. Application to Court.---(1) If any member or members holding not less than twenty per cent of the issued share capital of a company, or a creditor or creditors having interest equivalent in amount to not less than twenty per cent of the paid-up capital of the company, complains or complain, or the registrar is of the opinion that the affairs of the company are being conducted, or are likely to be conducted, in an unlawful or fraudulent manner, or in a manner not provided for in its memorandum, or in a manner oppressive to the member or any of the members or the creditors or any of the creditors or are being conducted in a manner prejudicial to the public interest, such member or members or, the creditor or creditors, as the case may be, the registrar 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's affairs are being conducted, or are likely to be conducted, as aforesaid; and
(b) that to wind up the company would unfairly prejudice the members or creditors; 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 member of the company by other members of the company or by the company and, in the case of purchase by the company, for the reduction accordingly of the company's capital, or otherwise.
(3) Where an order under this section makes any alteration in, or addition to, a company's memorandum or articles, then, notwithstanding anything in any other provision of this Ordinance, the con nany shall not have power without the leave of the Court to make any further alteration in or addition to the memorandum or articles inconsistent with the provisions of the order; and 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 Ordinance shall apply to the memorandum or articles as so modified accordingly.
(4) A 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 for registration; and if the company makes default in complying with this subsection, the company and every officer of the company who is knowingly and wilfully in default shall be liable to fine which may extend to 5,000 rupees and to a further fine not exceeding one hundred rupees for every day after the first during which the default continues.
' The provisions of this section shall not prejudice the right of any person to any other remedy or action."
' Basing his argument upon sections 263 and 290 ibid, Mr. A.A. Fazeel has argued that adequate relief can be granted to the plaintiff under the said sections and while placing reliance upon PLD 1949 Lah. 301 the learned counsel contends that, where a special Tribunal is appointed by an Act to determine questions as to rights which are the creation of that Act, then except so far as otherwise expressly provided or necessarily implied, that Tribunal's jurisdiction to determine those questions is exclusive. Reference in this respect was also made by him to PLD 1970 Azad J&K 35 and PLD 1979 Azad J&K 56 wherein similar observations have been made.
20. The above contention.Has been resisted by Mr. A.I. Chundrigar and, in my opinion, rightly so. As far as section 263 is concerned, (for corresponding provision in the Companies Act see section 138), the Corporate Law Authority, constituted under section 11 of the said Ordinance has been empowered to appoint one or more competent persons as Inspectors to investigate the affairs of the company and to report thereon in such manner as the Authority may direct in the case of a company having a share capital, on the application of members holding not less than one-tenth of the total voting power therein. Although the shares held by the plaintiff, being 3,999 are not less than one-tenth of the total of 26,666 shares issued by the company, but the powers of investigation vesting in the Authority under section 263 are not the same as vesting in the Court under the Companies Ordinance, 1984 or the Companies Act, 1913. Admittedly, the reliefs claimed by the plaintiff cannot be granted to her by the said Authority by virtue of powers vesting in it under section 263 of the Companies Ordinance. Mr. AA. Fazeel has pointed out that sections 264 to 282 which follow section 263 are also to be read along therewith, but the learned counsel has very candidly conceded that even in such a case, none of the reliefs claimed by the plaintiff in the suit can be granted to her by the Authority. As far as section 290 of the Companies Ordinance is concerned, subsection (1) thereof clearly indicates that the proceedings can be initiated under that section by any member or members of ' the company "holding not less than twenty per cent of the issued share capital of a company..."
Admittedly, the number of shares held by the plaintiff falls short of twenty per cent of the total issued share capital of the defendant No,1 and hence she is not qualified to initiate proceedings under section 290 either before the Registrar, Joint Stock Companies or the Court. Consequently, in my opinion, none of the cases referred to by Mr. A.A. Fazeel is attracted to the facts of the present case, because the principle enunciated therein would apply only where similar relief can be granted to a party under the special law, which as pointed out earlier, is not possible in the present case. Therefore, the argument put forth by Mr. A.A. Fazed must fail and the issue is answered in the affirmative.
21. In view of my findings that the transfer of shares to the defendant No, 13 is valid and in accordance with the Articles of Association of the defendant No, 1, the issues Nos. 9 and 10 are answered, in the negative as neither any cause of action has accrued to the plaintiff nor she is entitled to the reliefs claimed by her.
22. In the result, the suit is dismissed with costs.