1. ' The petitioner Humayun Baig Muhammad prays for the winding up of "Aizad Beverages Industries", the respondent-Company, of which he is a shareholder and Director, alongwith two other Directors, namely, Aizad Hasan and K.M. Nasim. According to the petitioner, the Company, from its very inception, is really a family concern a partnership firm although it is incorporated as a private Company under the Companies Act, 1913, and in law, therefore, it is to be wound up on the same considerations as would govern a partnership firm. In this behalf, petitioner's case is that he had floated the Company, by himself, developed its business, and has been solely carrying on the affairs of the Company by making financial arrangements with banks and other institutions, and it is through his efforts that the other shareholders of the Company have benefited. In petitioner's words, "the rest of shareholders except the petitioner's group, did little in the matter of promoting the interests of the Company and for raising any financial arrangements for running the same. The financial arrangements brought about by the efforts of the petitioner ever since the inception of the Company run into millions of rupees, which can be verified from the accounts of the Company in the possession of the other Directors M/s. K.M. Nasim and Aizad Hasan."
2. ' The petitioner was elected as a Director of the Company in the year 1963 when the Company was incorporated and, according to him, he has given full time and complete devotion to the affairs to the Company on the basis of understanding, arrangement and assurances held out by the other shareholders that he would continue to remain on the Board of Directors and would have throughout the full and effective control of the management of the Company, its affairs, accounts, assets and all matters pertaining thereto. According to him, he has, at all material times, extended cooperation to the other Directors and shareholders in matters pertaining to the interest of the Company.
3. ' The petitioner alleges that recently, however, other two Directors have adopted a course of conduct and behaviour with the petitioner by which they have ousted and excluded him from the affairs of the Company and have done various acts of omissions and commissions in the management of the Company and its factory at Lyallpur which are injurious and detrimental to the interest of the Company and its shareholders. In this connection petitioner has alleged that Aizad Hasan and K.M. Nasim have wrongfully elected themselves, respectively, as the Chairman and the Chief Executive of the Company, in the meetings of the Company, which were illegally held, and have burdened the Company with heavy losses by the acts of total mismanagement and misappropriation. They are said to have shown fictitious loss of breaking, etc. To the extent of Rs,6,88,649 for the year ending 30th June, 1972. According to the petitioner, the Bank of Bahawalpur has claimed Rs,1,18,761.53 against the Company and the Company has further financial obligations to the following Banks:
(a) I.D.B.P. About Rs, 55,000
(b) P.I.C.I.C. Rs,18,04,462
(c) U.B.L. Towards Bank Guarantee to P.I.C.I.C. Rs,18,04,462 and additional overdraft and cash credit facility of Rs,5,00,000.
4. ' According to the petitioner, the Bank of Bahawalpur has already filed a petition under section 162 of the Companies Act, 1973 (J.M. 29 of 1973) for winding up of the respondent-Company on the ground that it is unable to pay its debts.
5. ' The petitioner has also complained that notwithstanding his strong protests, the two other Directors held a meeting on 4-5-1973 at G/78, Clifton, Karachi, which is not the registered office of the Company, and elected Aizad Hasan as the Chairman and Mr.K.M. Nasim as the Chief Executive of the Company and passed a Resolution that fresh bank accounts of the Company be opened with the Habib Bank Ltd. And operated under the signatures either of Aizad Hasan or K.M. Nasim. In yet another subsequent meeting held on 3-10-1973 the two Directors passed a Resolution shifting the registered office of the company to 416,Uamar House, MA. Jinnah Road, Karachi. According to the petitioner, the purported decisions taken at the meetings of the Directors held on 4-5-1973 and 3-10-1973 are mala fide and ultra vires as the only intent and object of the other two Directors and their group of shareholders is to prevent petitioner's participation and association in the affairs and the management of the Company and to derive undue and unfair advantage from the assets and properties for the Company without accounting for the same. The petitioner further asserts that the two other Directors have also refused to supply him the information regarding the affairs of the Company and in the events that have happened, a serious deadlock in the Company exists which is injurious and destructive to the interest of the Company.
6. ' In defence Aizad Hasan in his counter-affidavit dated 23-11-1973 and the reply to the main petition dated 23-2-1977 has controverted the allegations levelled by the petitioner against him and K.M.
7. Nasim. As regards petitioner's assertion that he was solely responsible for the incorporation of the Company and running of its affairs, Aizad Hasan has stated as follows: "The petitioner Mr. Humayun Baig Muhammad out of consideration for family relationship had been appointed as part agent of the Company for the purpose of carrying out correspondence with the Registrar of Joint Stock Companies and the custody and the maintenance of records relating to the General Meetings of the Company and the meetings of its Board of Directors and was also entrusted with responsibilities of performing the Secretariat functions of convening the General Meetings of the Company and the meetings of the Company's Board of Directors.
8. ' That for the aforesaid purpose the Office of the petitioner Mr. Humayun Baig Muhammad situated in Palace Cinema Building, Civil Lines, Karachi was notified as the Registered Office of the Company under section 72(1) of the Companies Act, 1913."
9. ' So far as the shiftirg of the registered offices of the Company is concerned, Aizad Hasan has asserted as follows: "That in spite of several reminders on the deponent's part and several promises on the part of petitioner Mr. Humayun Baig Muhammad, the latter failed to convene a meeting of the Directors as required by Articles 4(2)(a) and 10 and a meeting of the Company as required by Article 9 of the President's Order No,2 of 1972.
10. ' That in the above-stated circumstances it became necessary to shift the Registered Office of the Company from the control and premises of petitioner Humayun Baig Muhammad to the control and premises of the deponent who alongwith the Group of Mr. K.M. Nasim owned 70% of the holding of the Company."
11. ' According to Aizad Hasan, the petitioner wanted to coerce and pressurise holders of 70% of the total issued capital of the Company into following his wishes and electing him as the Chief of the Company. Aizad Hasan has further asserted as follows: "Mr. Humayun Baig Muhammad resides and carries on business at Karachi and although the Company's Registered Office is at Karachi, but the Factory is situated at Lyallpur.
12. ' That Mr. K.M. Nasim lives in Lyallpur and he was, therefore, the most appropriate choice to be appointed as Chief Executive of the Company.
13. ' That accordingly in a meeting of Board of Directors held on 4th May, 1973, Mr.K.M. Nasim was elected as the Chief Executive of the Company.
14. ' That the petitioner Mr. Humayun wanted to coerce and pressurise holders of 70% of the total issued capital of the Company into following his wishes and electing him as the Chief of the Company. It was for this reason that the said Humayun Baig Muhammad had gone to the length of preventing a meeting of the Board of Directors to take place even at the cost of incurring for the remaining Directors of the Company a penal liability under Article 4(2)(a) read with Article 13(1) of the President's Order No,2 of 1972."
15. ' Aizad Hasan has explained that it was in view of these circumstances that the Annual General Meeting of the Company was convened. According to him, petitioner has made the serious allegations against him and K.M. Nasim with the ulterior motives as he did not want the registered office of the Factory to be shifted from his own office and thus his control and he desires to coerce and intimidate the majority of the Directors and the holders of majority shares ' into falling in line with his wishes.
16. ' Aizad Hasan has also controverted petitioner's allegations regarding mismanagement of the affairs of the Company. According to him, in his words, "production breakages, sale breakages, cost of samples, repairs and maintenance are normal incidence of the business of the Company and as the position recapitulated above shows the relevant percentages have been progressively improved to the benefit of the Company. In this context it may be submitted that the annual turnover during the last six years has been increased from Rs,10,60,000 to Rs,77,20,000. It is therefore but obvious that in absolute terms the pi oduction breakages, sales breakages, sample costs and expenditure on repairs and maintenance would proportionately increase.
17. ' Aizad Hasan has also denied that the petitioner had experienced any practical or oral difficulty in having access to the books of the Company for the purpose of satisfying himself on the subject.
18. According to him, the petitioner has throughout been supplied with monthly reports of the profit and loss accounts up to 30th June, 1972 and even thereafter. He has further asserted by referring to extracts of accounts that the Company is being run on financially sound basis and has vehemently denied that fictitious losses have been shown in the accounts.
19. ' The first and the primary question that arises for consideration is whether the respondent- Company, although incorporated as a private limited Company, yet is to be treated as a partnership firm for the purpose of winding up proceedings. Mr. Mansoor Ahmed Khan, submitted that the Company for all intents and purposes is a family concern and the considerations which apply to dissolution of a partnership firm would be attracted for the purpose of the disposal of this case. In this behalf learned counsel heavily relied upon the rule laid down by Lord Wilberforce in Ebrahim v. Westbourne Galleries Ltd. And others (1972, 2 All E.R. 492) and also our Supreme Court in "Ladli Prasad Jaiwal v. Karnal Distillery Co.Ltd. (PLD 1965 SC 221) that 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 the partner to have a partnership from dissolved. Commonly the exclusion of a partner from 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".
20. ' On this point the real starting point is the Scottish decision in Symington v. Symingtons' Quarries Ltd. (1905) 8F 121. There had been a partnership business carried on by two brothers who decided to transfer it to a private limited Company. Each brother was to hold half the shares except or a small holding for a third brother to hold the balance for voting. A resolution was passed in general meeting by the notes of one brother together with other members having nominal interests that he should be sole Director. The other two brothers petitioned for a winding up under the just and equitable provision and the Court so ordered. The reasons for so doing, given by some of their Lordships of the First Division, are expressed in terms of last substratem or deadlock words clearly used in a general rather than a technical sense. The judgment of Lord M'Laren, which has proved to be the most influential as regards later cases, puts the ground more generally. He points out the Company was not formed by appeals to the public: it was a domestic Company the only real partners being the three brothers. Lord M'Laren said: "in such a case it is quite obvious that all the reasons that apply to the dissolution of private companies, on the grounds of incompatibility between the views or methods of the partners, would be applicable in terms to the division amongst the shareholders of this Company...."
21. ' In England the leading authority is the Court of Appeal's Decision in re: Yenidje Tobacco Co. Ltd.
22. (1961) 2 Ch.
426. Lord Cozens-Hardy M.R. Said in a much quoted passage (1970) 3 All E.R.370: "In those circumstances, supposing it had been a private partnership, an ordinary partnership between two people having equal shares, and there being no other provision to terminate it, what would have been the position? I think it is quite clear under the law of partnership, as has been asserted in this Court for many years and is now laid down by the Partnership Act (1890) that state of things might be a ground for dissolution of the partnership for the reasons which are stated by Lord Lindley in his book on partnership in the passage which I will read, and which, I think, is quite justified by the authorities to which he refers: 'Refusal to meet on matters of business, continued quarrelling, and such a state of animosity as precludes all reasonable hope of reconciliation and friendly cooperation have been held sufficient to justify a dissolution. It is not necessary, in order to induce the Court to interfere, to show personal rudeness on the part of one partner to the other, or even any gross misconduct as a partner. All that is necessary is to satisfy the Court that it is impossible for the partners to place that confidence in each other which each has a right to expect, and that such impossibility has not been caused by the person seeking to take advantage of it."
23. ' In 1924 these authorities were reviewed, approved and extended overseas by the Judicial Committee of the Privy. Council in an Appeal from the West Indian Court of Appeal (Barbados), Lock v. John Blackwood Ltd. (1924) A.C.
783. The judgment of the Board delivered by Lord Shaw of Dunfermline clearly endorses, if not enlarges, the width to be given to the just and equitable clauses. The case itself was one of a domestic company and was not one of deadlock. One of the directors had given grounds for loss of confidence in his probity and (a matter echoed in the present case) had shown that he regarded the business as his own. His Lordship quotes with approval from the judgments of Lord M'Laren in Symington v. Symington (1905) 8 F 121 and Lord Cozens-Hardy MR in Re: Yenidje Tobacco Co. Ltd.
24. ' In "Thomson v. Drysdala 1925 S.C. 311 winding up order was passed under the just and equitable clause at the instance of a holder of one share against the only other shareholder who had 1505 shares, clearly not a case of deadlock.
25. ' In Ladli Parsad Daiwal v. Karnal Distillery Co. Ltd. Their Lordships of our Supreme Court were dealing with a case of a Company which in substance was a partnership, its members were only the members of the family of Kishori Lal and no outsider. Under a unanimous Resolution of the Company Ladli Parsad Jaiwal, the appellant in the Supreme Court was made a permanent Director and Chairman of the Board of Directors ,and he was to have an equal voice in the management of the affairs of the Company, and no decision to the Company could be taken unless it was unanimously arrived at by all the three Directors of the Company. Later on by a subsequont Resolution, appellant was removed from Directorship of the Company. The latter Resolution was held to be illegal and the appellant's exclusion from participation in the management of the affairs of the Company were considered as a state of deadlock in the business of the Company sufficient for winding up order on just and equitable grounds, as in the case of dissolution of a partnership firm.
26. ' The facts of the present case before me admittedly are that the Company is in real effect a family concern consisting of the petitioner, his wife's brother Aizad Hasan and his cousin K.M. Nasim. The only other shareholders are a private limited Company formed by the petitioner and the wives of the two other Directors Aizad Hasan and K.M. Nasim. Out of the issued share capital of Rs,7,50,000 the petitioner and his group, namely, Humayun Limited hold share capital to the extent of 30%.
27. Petitioner's assertion that from "its (Company's) inspection the petitioner has from time to time made diligent efforts and given continuous devotion to the affairs of the Company, developed its business and enabled it to run by making beneficial financial arrangements with banks and other Institutions" and also that "the rest of shareholders did little in the matter of promoting the interest of the Company and/or raising any financial arrangements for running the same" are uncontroverted and indeed it is admitted by Aizad Hasan in his counter-affidavit dated 23-11-1973 that the petitioner, out of consideration for family relationship, had been appointed as part agent of the Company for the purpose of carrying out the correspondence with the Registrar of Joint Stock Companies and the custody and maintenance of records relating to the general meetings of the Company and the meetings of its Board of Directors and was also entrusted with responsibilities of performing the secretariat functions of convening the general meetings of the Company and the meetings of the Company's Board of Directors." The office of the petitioner was indeed the registered office of the Company and he had solely carried on the affairs of the business of the Company ever since its inception, in 1963, till the dispute arose some time in 1973. It was vehemently asserted by Mr.Mansoor Ahmed Khan, learned counsel for the petitioner, which assertion was not denied by the other side, that the petitioner was responsible for making all financial arrangements for running of the Company and its business to the benefit of the other two Directors. On these clear and admitted facts there is no escape from the conclusion that the Company, although incorporated as a private limited Company is, in its essence, a partnership firm, consisting of family members, there being no outsider involved in any manner whatever. On these facts the doctrine which developed in the Courts in England since beginning of this century and which has been followed by our own Supreme Court is that a winding up order may be ordered if such facts are shown as could justify dissolution of a partnership firm.
28. ' The question then is whehter 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. The answer to this question, has already been given by this Court in "Re: Kruddson Ltd., Karachi, PLD 1972 Karachi 376". The late Chief Justice (Mr. Justice Tufailali A. Rehman) after reviewing the case-law at length, observed that: "I think that the true position is that a private limited Company 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 A 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.
29. 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.
30. 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."
31. ' As regards justification for grant of winding-up order, petitioner's case is that he has been wrongfully ousted from the management of the Company, and the two other Directors are not only guilty of mismanagement of the affairs of the Company, but they have also made false and fictitious entries in the books of account to his prejudice as a shareholder. In this respect petitioner relies upon his letter dated 2-7-1973 addressed to K.M. 'Nasim (Annexure 'C' to the petition) and the subsequent correspondence exchanged between the parties.
32. "Mr. K.M. Nasim, ' Aizad Beverage Industries Limited, Lyallpur.
33. Dear Nasim, ' I have received from the Auditors, a copy of the balance-sheet and profit and loss accounts for the year ending 30th June, 1972. It seems that the expenses in the following heads are not correct and accurate but appear to be exorbitant and fictitious:
(a) Production Breakage Rs,1,82,970/-
(b) Sale Breakages Rs, 1,29,929/-
(c) Sampling Rs,2,10,078/-
(d) Repairs and Maintenance Rs,1,65,672/- ' I would like to have a complete explanation and statement to support and vouchsafe the said entries. In the past also, I have been protesting about such entries and the alleged expenses.
34. ' I am still looking into the accounts and other matters and I will write to you in due course.
35. ' Please also let me know the expenses in the abovementioned heads for the year ending 30th June, 1973, alongwith the supporting statements and particulars.
36. ' Please note that you have not furnished to me monthly profit and loss account from September 1972 onwards. Likewise, you have not sent me Bank deposits and current liabilities from April 1972.
37. These may be supplied at an early date.
38. ' Please also convey the information on dividends which was asked for on phone, but, which has not been supplied so far. Yours Sincerely, ' For AIZAD BEVERAGE INDUSTRIES LIMITED Humayun H. Baig Muhammad."
39. ' The letter in reply dated 5-7-1973 from K.M. Nasim reads: "Dear Humayun, ' I regret that the message conveyed by my letter No,LY/HO/66/73/dated 21st July, 1973 has not been registered by you, and that you are still letting loose a spate of false, frivolous, and vexatious correspondence to endure your ulterior motives of cheap blackmail for causing wrongful loss to the Company and securing wrongful gains for yourself.
40. ' Please note that the Company is not prepared to succumb to your designs, regardless of the pressure you are exercising upon it. We will act only and only in accordance with law. We will submit to the dictates of law and not to the dictates of a minority shareholder who is seeking to reap undue advantages by mudslinging, bullying, and blackmail.
41. ' Your entire string of letters is mala fide, and motivated by ulterior designs. There is absolutely no substance, as you very well know, in your invendos and insinuations.
42. ' I repeat with the fullest sense of responsibility every word of what I have stated in my above- referred letter of the 21st July, 1973, and invite to you most earnestly to vindicate yourself (if you can) by taking any "appropriate action".
43. ' Meanwhile, please note that no further correspondence of this type will be entertained from you.
44. ' Yours sincerely, (Sd.) K M Nasim Chief Executive."
45. ' By the subsequent letter petitioner called upon K.M. Nasim to disclose certain information regarding the accounts of the Company to which he received the reply dated 10-10-1973 which reads as under: "Aziz A. Munshi, Esq. Advocate, Motiwalla Building, Campbell Street, Karachi.
46. Dear Sir, Re : Mr. Humayun H. Baig Muhammad ' We act for Mr. K.M. Nasim, Director, Aizad Beverage Industries Ltd. (hereinafter referred to as the "company") Samundri Road, Lyallpur. Our client had passed on to us your letter dated the 28th September, 1973 for replying to you directly. Regarding the statement made in paragraph No,1 of your letter, we have been instructed to inform you that your client, Mr.Baig Muhammad is not entitled to be supplied with any information in regard to the accounts and affairs of the Company under the Articles of Association of the Company, Companies Act or any other law for the time being in force in Pakistan. Our information required by Mr. Baig Muhammad.
47. ' Our client further contends that Mr. Baig Muhammad is also not entitled to be supplied with the documents and information mentioned by you in paragraph 2 of your letter and he refuses to supply the same on our advice.
48. "In regard to the statement made in paragraph 3 of your letter, we have been instructed to inform you that our client had rightly informed Mr. Baig Muhammad that the was not liable to answer Mr. Baig Muhammad's queries concerning the Company's accounts, audited balance-sheet and auditor's report. Our client is under no legal obligation or under the Articles of Association of the Company liable to answer any such queries of Mr. Baig Muhammad. Our client has thereby done nothing which would constitute wrongful evasion of his legal obligations.
49. ' In view of what has been stated above, our client refuses to comply with the requisitions contained in paragraph 4 of your letter, and we have been instructed to inform you that should your client be ill-advised to commence any legal proceedings against our client threatened in your letter/reply, such proceedings will be vigorously resisted on behalf of our client, at the sole risk of Mr. Baig Muhammad as to costs and consequences. Yours faithfully, (Sd.) Orr, Dignam & Co."
50. ' The petitioner yet received another reply dated 17th October, 1973 which reads: "Aziz A. Munshi, Esq.
51. Advocate, Motiwalla Building, Campbell Street, Karachi.
52. Dear Sir, Re : Humayun H. Muhammad ' We act for Mr. K.M. Nasim, Director, Aizad Beverages Industries Ltd., Samundri Road, Lyallpur. Our client has transmitted to us your letter dated the 28th September, 1973 and has instructed us to reply thereto as follows: "The allegations made in your letter are based on misconception of law and facts and are, therefore, totally rejected by our client. The fact is that Mr. Baig Muhammad is a Director representing a small percentage of the paid-up capital of Aizad Beverage Company Limited (hereinafter for convenience referred to as "the company") on the Board of Directors. However, not having been fully advised about his rights under the Articles of Association of the Company, the Companies Act and other laws in force in Pakistan, he has been making frivolous and unlawful demands in regard to the supply of information and documents concerning the affairs of the Company for which he had no right. Mr. Baig Muhammad did not stop at demanding such information and documents but went to the extent of indicating that our client had misappropriated the Company's money and further alleged that fictitious entries had been made in the Company's account and balance-sheet. He further tried to stress this point by alleging that a statement of wealth should be made out by our client indicating the wealth acquired by our client.
53. Our client has taken very serious exception to these allegations and has instructed us to inform Mr. Baig Muhammad through you, which we hereby do, that he reserves the right to commence proceedings against Mr. Baig Muhammad for these false and malicious allegations.
54. ' It view of what has been stated above, we have been instructed to reject the allegations and demands contained in paragraphs 1, 2, 3 and 4 of your letter. We have further been instructed to inform you, which we hereby do, that our client refuses to comply with the requisitions contained in paragraph 5 of your letter and that if Mr. Baig Muhammad is ill-advised to commence any proceedings against our client in connection therewith, the same will be vigorously resisted at the sole cost of Mr. Baig Muhammad as to costs and consequences. Yours faithfully, (Sd.) Orr, Dignam & Co."
55. ' It is clear from the perusal of the correspondence exchanged between the parties that very serious disputes, to say the least, have arisen between the parties as to the management of the affairs of the Company. Mr. Mansoor Ahmed Khan, Advocate submits that petitioner's allegations do clearly make out a valid case for dissolution of a firm and as such the respondent-Company should be ordered to be wound up. I fmd force in this argument. However, petitioner's allegations are in material particulars controverted by Aizad Hasan and since the allegations and the counter allegations have come on record in the form of affidavits and counter-affidavits, fmal finding thereon cannot be given unless the parties are given chance of cross-examination. . I am informed that the petitioner is outside Karachi and will not be available to appear in Court for the purpose of cross-examination. It would be necessary to examine Aizad Hasan also for the purpose of cross- examination. I, therefore, adjourn further hearing to a date in office with the conclusion already reached by me that the respondent-Company is a family concern and is to be treated as a partnership firm for the purpose of these winding up proceedings.