' This petition under section 284 of the Companies Ordinance, 1984, was filed on behalf of 121 persons, who statedly have deposited different amounts with the Taj Company Limited, for seeking an order to hold the Meeting of all persons falling in the class of creditors, who have invested amounts in the respondent-Company to be conducted under an Officer appointed by the Court to propose an arrangement to effectively safeguard the deposits and to otherwise ensure compliance with the terms and conditions on which these deposits have been received.
2. The assertions made for seeking the aforesaid order are that on a move by the Registrar of Companies, this Court vide order dated 19-12-1990 has appointed a Board of Administrators, observing that prima facie the affairs of the respondent-Company are being conducted in an unlawful and fraudulent manner as well as contrary to the provisions of Memorandum of Association. It is added that the manner in which the Board of Administrators is functioning shows that no proper administration of the affairs of the respondent Company has been carried out and that the administrative decision-making is completely absent and instead the approach of an official liquidator has been adopted. This spells sure disaster for all the creditors including the petitioners and that the prevailing situation is unacceptable to them. It is further averred that attitude to avoid decisions is to be found in interim Report No,3 dated 12-1-1991 of the Board of Administrators made in relation to Bahawalpur Board Mills Limited as well as demand to hold a creditors' meeting.. This demand was made through a representation dated 2-1-1991 submitted to the Board of Administrators. Report No,3 has been termed as "routine functioning of official liquidators an illustration of failure to take crucial decisions". It is asserted that one of the Members of the Board is not in a position to devote time to the affairs of the Company on account of personal reasons, the other is not stationed at Lahore and the third appears to be mentally equipped to be a good official liquidator but has shown little aptitude as an effective administrator and therefore, it is necessary that the interim arrangement of the Board of Administrators be terminated forthwith. With these pleas and assertions the order and directions to supply the list of all the persons including the firms/companies who had made the deposits and to issue public notices in the Daily Newspapers of Pakistan and Daily Newspapers of foreign countries for holding a creditors' meeting with the suggested Agenda for the Meeting, have been sought.
2. Dr. Abdul Basit, Advocate, learned counsel for the petitioners, at the outset sought deletion of the names of petitioners Nos.1 to 43 as he did not have the wakalatnamas executed by these persons for the purpose of present petition and also that of Fateh Muhammad, petitioner No,74 who had withdrawn his Wakalatnama. The names of these petitioners were, therefore, deleted. After deleting these names, this petition will, therefore, be treated to have been filed by 77 petitioners.
3. Dr. Abdul Bash, Advocate, learned counsel for the petitioners, during arguments submitted that though the arrangement proposed in the petition has been opposed by the other creditors, the ex- Managing Director, the Board of Administrators and the Registrar of Companies, still the petitioners are to be treated as a "Class of Creditors' in themselves and such a proposal made by any Class of Creditors is to be put for consideration in the Meeting of that very Class of Creditors. In support of this plea reliance was placed on In re: Application under sections 153 and 153-A Companies Act, 1913 v. Messrs Hunza Central Asian Textile & Woollen Mills Ltd., Rawalpindi (PLD 1976 Lahore 850). He argued that criterion for treating any group of Creditors as a distinct Class is the possession of such common characteristics as have a rational nexus with proposal for arrangement made as contemplated by Section 284 (1) of the Companies Ordinance and that the petitioners are to be treated as a distinct class of creditors who seek conversion of their deposits into Shares/Equity of Taj Company Limited and association with the management and affairs of the Company. He emphasised that the common characteristic is -the proposal to convert their investment into Shares/Equity of Taj Company Limited; that even a single Creditor irrespective of the value of his interest is qualified to make an application under section 284 Companies Ordinance and that only such creditors making the proposal to which they are commonly interested will be voting in the meeting of the Class of Creditors and the proposal if carried by the majority in number representing 3/4th in value of that very Class of Creditors, will come up for sanction of the Court.
4. The Registrar of Companies in its reply has opposed the petition with the assertions that the application is premature at this stage as the Board of Administrators is already in the process of ascertaining the correct and factual position with regard to the investors/depositors as also the financial position of the Company and that unless the entire facts are before the Court, no useful purpose would be served by convening the Meeting. It is added that the Court has already directed to issue public notices calling the depositors to file their respective claims. The independent Auditors appointed by the Board of Administrators have already submitted their report (which has been placed on record with Report No,4). The other assets of the Company are under process of being located, identified, and the investors/depositors have also been required to submit information as to their investment and that the number of creditors is not yet known as according to the report of Administrators, the record available appears not to reflect the true number of the creditors and the deposits received.
5. Qazi Zahid Hussain, Advocate, appearing for a set of 99 investors, argued that the applicaton is incompetent as such a meeting can be called only where the company is liable to be woundup while the case of the petitioners is that in case the Company is run on the lines they suggest it will earn profit. Learned counsel referred to subsection (6) of section 284 in support of this plea. He added that the proposal of conversion of the amounts of deposit into Shares or into Debentures is neither beneficial nor bona fide as the creditors under section 405 (5) of the Companies Ordinance are to receive preferential treatment over shareholders as well as debenture-holders. He submitted that in any case the application is premature as the definite list of the creditors is yet to be prepared and finalised as the record of the Company made available does not reflect the true picture of the deposits received.
6. Haji Muhammad Abdullah Hashmi who claims to be the President of Association of Depositors, in his reply has also opposed the petition. His case is that the application is neither bona fide nor the proposal made secures the interests of the depositors as after becoming share holders, the depositors will lose preferential status of creditors. It was added that they fail to understand whose interest, Dr. Abdul Basit Advocate, learned counsel for the petitioners is in reality securing and safeguarding as in one petition he is representing 77 depositors while in other petition, on behalf of Workers Union, order is sought for payment of salaries to them for the period they have not admittedly worked as Bahawalpur Boards Mills stands sealed and in both these petitions he is pressing the plea that Bahawalpur Board Mills should be allowed to be run by the ousted lessee as it will bring to the Bahawalpur Board Mills Rs, Five Lacs lease money. He argued that in the veil of representation of 77 depositors who appear not to have been made aware of the true effect of the proposal of conversion of deposits into Share/Equity, the interest of the ousted lessee is being sought to be secured.
7. Mr. M. Saleem Sehgal, Advocate, learned counsel for Ch. All Muhammad Managing Director of the respondent Company, in opposition of the petition, argued that the application is incompetent as:- -
(i) no specific proposal of compromise or arrangement has been made;
(ii) the proposal or the arrangement has not been agreed to by the Company through its Board of Directors or the Board of Administrators and as such it cannot be termed as a compromise or arrangement between the creditors and the Company and
(iii) the petition is liable to be dismissed summarily as the proposal made is neither bona fide nor beneficial to the interests of the depositors and otherwise the proposal is being opposed by the overwhelming majority of the depositors presently pursuing these proceedings.
' He argued that the proposal to issue shares in lieu of deposits made cannot be allowed under the Companies Ordinance as shares can be issued only to the financial institutions under the law and that no other rights can be claimed except those recognized by the law. In support of these submissions reference was made to various judgments as well as to the provisions of the Companies Ordinance, 1984.
8. Mr. Muhammad Naazar Khan, Member, Board of Administrators, argued that such an application can be moved by the company alone and not by the creditors; that the proposal in terms of section 284/286 of the Compaines Ordinance has not been spelled out either in the petition or in the representation dated 2-1-1991. The position taken in the Court while arguing the matter to the effect that the petitioners be issued shares in lieu of amounts deposited by them or debentures of equal value be issued with the right to participate in the affairs of the Company is neither permitted by law nor it secures the interests of the petitioners; the proposal made by 77 creditors is neither feasible nor practicable nor is likely to succeed as these petitioners do not form the requisite majority and that the plea that these 77 petitioners can be treated as a Class of Creditors by themselves is without merit.
9. Dr. Abdul Bash, Advocate, learned counsel for the petitioners, in reply firstly submitted that the investors are not seeking to become shareholders in such a manner as to render themselves liable to contribute towards any liability in the event of liquidation. According to him the petitioners want that in lieu of their investment they be allocated shares in the Equity of the Company or transferable debentures with the right to control the affairs of the Company so that they may sell/dispose of the same in the market. He finally took up the position that his earlier proposal to convert the amount of deposits in shares be treated to have been withdrawn. He submitted that on his advice the petitioners primarily want that they should obtain control over the affairs of the company and also such rights in the Equity of the company which they, may if need be, sell in the Equity Market as in that manner the depositors hope to realize to a reasonable extent the investment made by them as otherwise in case of liquidation of the respondent Company they will be receiving nothing in lieu of their investments made. He emphasised that the offer of leasing of Bahawalpur Board Mills to run the Mills on payment of Rs,Five Lacs per month is the best offer and the same should be accepted as in that manner the respondent Company will have rupees five lass for payment to at least 500 investors at the rate of Rs,1,000 per month. He was asked to point out the principle on the basis of which 500 out of almost 30,000 investors can be selected for payment out of the aforesaid amount and that the abovesaid proposal is also economical, what to say of being the best offer for the company, keeping in view the total monthly liability of the company on account of loans and its capital investment. These questions were, however, not answered by the learned counsel.
10. I have considered the respective submissions of the learned counsel for the parties and have also gone through the pleadings as well as the reports submitted by the Board of Administrators.
11. The criticism leveled against the Board of Administrators is unfounded. The Board has taken charge of the Lahore office of the respondent-Company and has initiated investigation into its affairs. They have been acting in this period and the Chartered Accountants appointed by them have also submitted the interim report. This report has been placed on record alongwith Report No,4. According to the interim report of S.M. Masood and Company,- Chartered Accountants, the estimated liability under Deposit Scheme comes to Rs,13,38,50,000 and the shortfall in meeting the obligations for liabilities under the Deposit Scheme comes to Rs,1,05,18,65,159. The Board has finalized the Scheme to computerize the Depositors Ledger at Lahore so as to provide maximum information regarding various categories of depositors. They have also invited, through Press, depositors to submit information of their deposits supported by documents so that the position as to the number of depositors and the amount deposited could be ascertained. The estimate of the sums deposited by different persons, Firms and Companies reaches the figure of Rs,2,000 millions said to have been deposited by about 30,000 persons. The exact details as per report, and the total sums is being ascertained through detailed audit by computerisation of record of the Company and by registration of the depositors. The amount available in the Accounts maintained with different Banks does not appear to be sufficient even to meet the outstanding liabilities. The Board of Administrators are of the view that a substantial amount is needed as working capital to run on economic lines the main business of Taj Company Limited. It is in the background of aforenoted facts that feasibility, reasonableness and utility of the proposal made by the petitioners is to be seen and determined.
12. The plea that where arrangement or compromise is proposed, the Court should preferably direct calling of the meeting of the creditors and thereby leave it to creditors or members to consider the reasonableness, utility or practicability of the proposal made as they are the best protectors of their own interests, is without merit. The very perusal of section 284 of the Companies Ordinance would show that the power vested in Court is a discretionary power and is to be exercised applying its judicial mind and after being satisfied about the merits of the application..
Obviously the Court is not to pass order unless it is satisfied that it is a fit case to do so. Reference may be made to Taxmann's Company Law Digest Volume-II wherein at page 922 two cases from the Indian jurisdiction have been reported. These are Sakamari Steel & Alloys Ltd. In re (1981) 51 Comp. Cas. 266 (Born.) and Krishnakumar Mills Co.Ltd. In re (1975) 45 Comp. Cas. 248 (Guj.).
13. In the first case, one of the questions was "whether the scheme should be turned out at the initial stage or the creditors be given opportunity to consider what was best in their interest. It was observed that the language of Section 391 (1) corresponding section of Companies Ordinance, 1984 is 284 (1) is manifestly clear about the discretion vesting in the Court in granting an application and that surely the Court will not pass an order unless it is satisfied that it is a fit case to do so. In the other case, it was observed that the principles which the Court has to bear in mind in granting sanction are; firstly whether the provisions of the statute have been complied with or not; and secondly, whether the majority has been acting bona fide or not, the Court has also to consider whether the scheme as proposed is reasonable and practicable of being implemented. The very fact that the two secured creditors of the value of Rs,22 lakhs which was more than half the total value of the creditors, secured as well as unsecrued, were opposing the scheme, it could not be urged successfully that the scheme was practicable of implementation. It was finally held that the request for convening the meeting could not, therefore, be accepted.
14. In the instant case only 77 petitioners claiming to be the creditors have put in this proposal.
Nothing whatsoever has been placed on record to show that they are in fact the creditors and if they are what is the amount of deposits made with the company. The other set of depositors who are being represented and who are much more in nubmer, opposed this request. The bona fides of the proposal apart, the reasonableness as well as practicability of the proposal has not been established . In the petition, the proposal is to hold the Meeting of all the persons falling in the class of creditors who have invested in the respondent company. The purpose of the meeting is to propose arrangement to effectively safeguard the deposits and to ensure compliance with terms and conditions on which deposits were received. No precise and specific proposal was made in the petition. On pointing out the aforesaid deficiency, the plea taken was, that in the representation dated 2-1-1991 (Copy of which has been attached with the petition) specific proposal has been made. This proposal reads:- "A date be publicly announced for a Meeting of all the Creditors to be held for the purpose of converting their loan amounts into the Shares/Equity of Taj Company Limited and of otherwise devising ways of associating them with the management of the affairs of the Company.."
' Dr. Abdul Basil, Advocate, ultimately withdrew the proposal as to the conversion of the amount deposited into shares in view of the reliance of the learned counsel for the respondent on provisions of sections 86, 87, 92, 120, 182, and 187 of the Companies Ordinance in support of the contention that it was only the financial institutions which can be issued shares, securities and redeemable capital documents.
15. Learned counsel for the petitioners then argued that the proposal finally is that redeemable and transferable Debentures with the right to control the affairs of the Company be issued in lieu of the amount deposited. This plea, again does not keep in view the prohibitions contained in Section 114 of the Companies Ordinance. These proposals, one after the other in fact reflect the desperate position in which these depositors find themselves or due to realization that in case of winding up, these depositors may not be able to receive reasonable amount against the deposits made by them.
16. The formidable obstacle in the way of the petitioners is that they have put in a proposal which does not qualify them to maintain the petition as a "Class of Creditors" within the meaning of subsections (1) and (2) of Section 284 Companies Ordinance. The plea that such common characteristics as have a rational nexus with proposal for arrangement made is the only criterion contemplated by section 284 (1) of Companies Ordinance, 1984, for treating any Group of Creditors as a distinct Class, is without merit. On the question of 'class' of creditors firstly reference may be made to subsection (6) of section 284 of the Ordinance. This subsection reads as under:-- "(6) In this section the expression "company" means any company liable to be wound up under this Ordinance and the expression "arrangement" includes a re-organisation of the share-capital of the company by the consolidation of shares of different classes or by the division of shares into shares of different classes or by both these methods and for the purpose of this section unsecured creditors who may have filed suits or obtained decrees shall be deemed to be of the same class as other unsecured creditors."
It will therefore be seen that all unsecured creditors who may have filed suits or obtained decrees are to be deemed to be of the same Class as other unsecured creditors. This very question came to be considered in Sovereign Life Assurance Co.v. Dodd (1892)2 QB 573 (CA). It was observed that the word `class' is vague and to find out what is meant by it one must look at the scope of the section which is a section enabling the Court to order a meeting of a Class of creditors to be called and that it seems plain that one must give such a meaning to the term 'class' as will prevent the section being so worked as to result in confisaction and injustice, and that it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest. In the case (a case from Indian jurisdiction) of Manekchowk & Ahmedabad Mfg. Co.Ltd. : In re (1970) 40 Comp. Cas. 819 (Guj) it was observed as under:-- "Broadly speaking a group of persons would constitute one class when it is shown that they have conveyed all interest and their claims are capable of being ascertained by any common system of valuation. The group styled as class should ordinarily be homogeneous and must have commonality of interest and the compromise offered to them must be identical. This will provide rational indicia for determining the peripheral boundaries of classification. The test would be that a class must be confined to those persons whose rights are so similar as not to make it impossible for them to consult together with a view to their common interest."
Thus it is the commonality of the interests held in the company which can be considered for treating the holders of such interest as one Class. The possession of common characteristics or agreement with the proposal for arrangement made will not render such persons making the proposal as a distinct class. If a set of persons making the proposal because of the commonality of the interest in the proposal of compromise or arrangement is to be treated as distinct class within the meaning of section 284 then there would not be any proposal which can be defeated by the majority as all such persons making the proposal will rank for treatment as a Class by themselves.
Such interpretation would render subsection (2) redundant. The petitioners as such cannot be termed as a "Class of Creditors" within the meaning of section 284(1) of the Companies Ordinance entitled to maintain the petition. If the interpretation which the learned counsel for the petitioners wants to place on this provision is accepted, then there would remain no need to hold the meeting for ascertainment of wishes of majority in number representing 3/4th in value of the creditors or class of creditors as the creditors making the proposal being themselves a distinct and separate class on account of making the proposal would obviously support the proposal.
17. There is yet another obstacle which the petitioners cannot surmount. The order to hold a meeting under section 284 is to be passed where the proposal for compromise or arrangment is between the company and the creditors or Class of Creditors etc. It is inherent in the Section that the company must consent to the proposal made. In the case of Re Savoy Hotel Ltd. (1981) 3 All ER 46 it was held that the Court cannot approve a Scheme unless it is proposed by the Company or if it is proposed by some one else, unless the Company has consented to it by a resolution passed in the General Meeting. It is to be seen that the statute makes the majority of the creditors or a Class of creditors bind the minority; it exercises most formidable compulsion upon dissentients, or would be dissentient creditors and it therefore requires to be construed with care so as not to place in the hands of some of the creditors the means and opportunity of forcing dissentients to do that which it is unreasonable to require them to do or of making a mere jest of the interest of the minority.
Neither the ex-managing directors of the Company nor the Board of Directors nor the majority of the creditors who are pursuing the proceedings pending in the Court are in favour of this proposal.
18. This Court is not intended to act as a post office with no discretion or power to call a meeting.
While considering an application under section 284(1) the Court is to receive satisfaction as to the prima fade case that the compromise or arrangement is genuine, bona fide and would be in the interest of the creditors of the company. The Court is to be satisfied about the justness for a direction to the shareholders or creditors to meet together to consider the proposal, if any. In my view the order under section 284 of Companies Ordinance can be made only if the Court considers the feasibility or otherwise of the proposed scheme and bona fides of the applicant. In the instant case, neither the reasonableness nor the feasibility nor the utility of the proposed scheme has been established. The proposal has not got the consent of the company either through the ex- management or through the Board of Administrators.
19. In the circumstances, no case is made out for the order or the directions prayed for. The petition is without merit and is dismissed with no order as to costs.