' In this petition made under sections 161(8), 208, 217 and 290 of the Companies Ordinance, 1984 read with section 151 of the Code of Civil Procedure by the petitioners who are holding not less than 10% share in respondent No,1-Company it has been prayed that it may be declared that a notice dated 8-9-1994 of Extraordinary General Meeting, the proceedings of Extraordinary General Meeting and the special resolution passed on 1-10-1994 therein authorising additional investment by the Investing Company in its associated company MLCF to be suffering from material defects, omission, irregularity and illegality, therefore, the same are void and nullity. It has also been prayed that this Court should declare that the conduct of the Common Directors of the Investing Company named in the aforementioned notice of Extraordinary General Meeting dated 8-9-1994 to be lacking in fiduciary behaviour.
2. The relevant facts for the decision of this petition as given by learned counsel for both the parties during arguments shortly stated are that respondent No,1-company is holding 1,10,49,808 shares in Maple Leaf Cement Factory Limited. The Maple Leaf Limited offered right shares which are double in number of the aforementioned shares already held by respondent No,1-company. It may also be mentioned here that five Directors are common in both the companies. On 8-9-1994 respondent No,1-company issued a notice for Extraordinary General Meeting to be held on 1-10-1994. According to the Agenda as disclosed in this notice two kinds of business were to be considered which are as follows:--
(1) ORDINARY BUSINESS
(i) To confirm the minutes of the last Annual General Meeting:
(ii) To approve the issuance of right shares in the ratio of one share for everyone share held at a premium of Rs,17.50 per share to the existing shareholders subject to the permission of the Corporate Law Authority, Government of Pakistan.
(2) SPECIAL BUSINESS ' To consider and pass the following Special Resolution with or without amendment:--
(i) Resolved as a Special Resolution that Chief Executive of the Company be and is hereby authorised to purchase up to 22,099,616 Right Shares of Maple Leaf Cement Factory Limited a Rs,35 (including premium of Rs,25) per share;
(ii) Resolved that the Authorised Share Capital of the Company be and is hereby increased from Rs,300,000,000 divided into 30,000,000 ordinary shares of Rs,10 each to Rs,700,000,000 divided into 70,000,000 ordinary shares of Rs,10 each.
' Further resolved as a Special Resolution that the Memorandum and Articles of Association of the Company be amended, added to, deleted and/or substituted as follows:-- ' A statement under section 160(1)(B) of the Companies Ordinance, 1984 was also appended with this notice which is as follows:-- "Maple Leaf Cement Factory Limited is a Public Limited, Listed Company and manufacturing cement Authorised Capital of the Company is Rs,One Billion and Paid Up Capital is Rs,144,334 Million.
' Maple Leaf Cement Factory Limited has undertaken Expansion Project to set up a complete new line of prodNtion of Rs,3,300 tonnes per day clinker capacity based on most modern dry process technology in addition to installing the environmental control equipment and upgrading the existing production facilities. The total cost of the project based on Debt-Equity ratio 50:50 is US$ 160.75 million.
' The Company has entered into an Investment Agreement with International Finance Corporation (IFC), Washington D.C. USA For loan of US$ 40.00 Million and another loan of US$ 25.00 million has also been arranged by IFC for expansion project. The agreement also provides for equity participation US$ 5 Million by IFU (Industrialization Fund for Developing Countries., Financed by Danish Government for the purpose of promoting economic activity in developing countries).
' The Factory is located at Iskanderabad and registered office is at 42-Lawrence Road, Lahore, Common Directors are:--
(1) Mr. Tariq Sayeed Saigol.
(2) Mr. Taufique Sayeed Saigol.
(3) Mr. Usman Said.
(4) Mr. Aamir Fayyaz Sheikh.
(5) Mr. Sarmad Amin.
3. Subsequently, however, the part of the proposed Resolution- relating to Ordinary Business was dropped and as such was not placed before the members in the meeting held on 1-10-1994 for consideration, as such, was not voted upon. The second part of Agenda of the proposed Resolution under the head of Special Business was, however, put to vote which was passed by a majority of 83% of the members present and voting. Since according to the petitioners the investment by respondent No,1-company by way of purchasing the right shares as proposed in the said resolution was not in the interest of the Company, therefore, they opposed the said Resolution before which they circulated on 28-9-1994 among all minority shareholders a letter highlighting their point of view. It was admitted by Raja Muhammad Akram, Advocate, learned cowl for the respondent- company that after the passing of the said Resolution respondent No,1-company sold 75,00,000 letter of offer of the right share issued by Maple Leaf to a Foreigner which was 35% of the total letter of offers of right shares issued to respondent No,1-company. Through resolution dated 3-1-1995 of respondent No,1-company 15% out of the said right shares were given to shareholders of respondent No,1-company as special dividend. The Company decided to purchase the remaining 50% right shares offered by the Maple Leaf Cement Company itself. In order to raise funds for purchasing the said right shares respondent No,1-company decided to issue right shares to its shareholders for which prior consent of the C.C.I. Was also obtained.
4. This petition has been opposed by the respondents. Before proceeding further to examine the merits and demerits of the petition it is necessary to dispose of a preliminary objection raised by the respondents as to the maintainability of the petition as regards petitioners Nos.14, 15 and 16 are concerned. According to the objection these petitioners appear to be minors, therefore, they could not file petition of their own. According to the objection the said petitioners held more than 25% of the total voting strength of the petitioners and if they are not treated as party in the petition the shareholding of the remaining petitioners would fall below 10% and no shareholder holding less than 10% shares under the law could maintain the petition. Though in the title of the petition no mention has been made that petitioners Nos.14, 15 and 16 are minors, learned counsel for the petitioners when questioned did not deny the plea raised by the respondents in the said objection that they are in fact minors. Learned counsel for the petitioners, however, submitted that in the letters of authority on the basis of which this petition has been filed by M. Shahid Saigol petitioner No,1 on behalf of all the other petitioners it has been indicated that petitioners Nos.14, 15 and 16 being minors, therefore, letters of authority on their behalf was signed by their father M. Rafiq Saigol, as such, the petition should be deemed to have been filed through their real father as next friend as such the provisions of Order 32 had been substantially complied with and the petition should not be thrown out on mere technicalities as the procedural law is meant only to advance the cause of justice rather than to hamper the same. Learned counsel for the petitioners has also placed on record today the duly stamped letters of authorities authorizing petitioner No,1 to file the petition.
5. Learned counsel for the petitioners has also moved C.M. No,113/L of 1995 praying that the petitioners may be allowed to remove the said formal defect if any in the petition.
6. Learned counsel for the respondents submitted that since in the title of the petition the petitioners failed to indicate that petitioners Nos.14, 15 and 16 were minors and that they were being sued through their next friend whose interest was not adverse to the interest of the said minors, therefore, the defect was substantial which should not be allowed to be removed.
7. I have considered the arguments in the light of the judgments reported as Imtiaz Ahmad v.
Ghulam Ali and another PLD 1963 SC 382; Messrs Nishat Mills Limited v. Superintendent of Central Excise Circle II and 3 others PLD 1989 SC 222 and Mrs. Dino Manekji Chinoy and 8 others v.
Muhammad Matin PLD 1993 SC 693 on which reliance was placed by learned counsel for the petitioners in which it has been held that the rules of procedure should not be used as stumbling block and in case substantial compliance of such rule was shown to have been made the lis should be decided on merits. As has been indicated above it is clear from the letters of authority that the father of petitioners Nos.14, 15 and 16 signed the same on their behalf to authorise petitioner No,1 to file the petition. Even if it was not disclosed in the title of the petition that the said petitioners were minors but since the petition has been filed under the authority of their father who is their natural guardian, therefore, in my view substantial compliance with the provisions of Order 32, C.P.C. Has been made. It is clear from the relevant provision of Order 32, C.P.C. That so far as the minor plaintiff is concerned his next friend for filing the suit is not to be appointed by the Court and the person filing the suit as next friend would continue to be treated to be his next friend during the proceedings unless it was clearly shown that he was disqualified to act as such on account of his interest being in conflict with the interest of the minor/plaintiff whereas as regards guardian-ad- litem of the defendant the appointment with regard thereto is required to be made by the Court itself.
8. Learned counsel for the respondent has not been able to demonstrate that the interest of father of petitioners Nos.14, 15 and 16 is in conflict with the interest of the said petitioners in this case, therefore, the father of the said petitioners rightly acted as their next friend. In a case reported as Karneen Khan etc. v. Ghazi Marjan and others 1990 MLD 1865 though it was not disclosed in the case that a defendant was a minor but since the case had been contested and defended by his mother, therefore, it was held that no legal detect can be said to have occurred in the proceedings as the minor's interest was being defended by his mother. In Abdul Hayee v. Muhammad Salah- ud-Din PLD 1967 Karachi 424 in similar circumstances the authority given to a person to prosecute the case by the relative of the minor was held to be valid and the appointee was treated as next friend of the minor. In view of the aforementioned discussion I am of the view that the petition does not suffer from any legal defect as urged by the respondents so as to adversely affect its maintainability, therefore, the objection is hereby repelled.
9. Learned counsel for the petitioners submitted that since five Directors of respondent No,1- company who are also Directors in the Maple Leaf Limited had personal interest to secure their Directorship in the latter company by purchasing the right shares offered by the Maple Leaf, therefore, they had become personally interest in the said arrangement, as such, were debarred from casting their votes in favour or against the resolution, as such, they should be declared to be lacking fiduciary behaviour under section 217 of the Companies Ordinance, 1984. Under section 217 such a declaration can only be made if any Director or Directors contravenes the provisions of section 214 or subsection (1) of section 215 or section 216. Under section 214 a Contractor or his relative having any interest in the contract or arrangement to be made by the Company is debarred from casting vote if such contract or arrangement is to be made through a decision in the meeting of the Directors. It is evident from these provisions of law that it is only when a Director acts in his capacity as Director that he cannot vote for such an arrangement in which he or his relative was interested. The above resolution was to be considered by the members of the company in Extraordinary General Meeting, therefore, the provisions of this section are not attracted. Section 215 of the Ordinance is applicable as regards other officers of the company, therefore, the same cannot be pressed into service. Section 216 also provides that no Director of a company shall, as a Director, take any part in the discussion of, or vote on, any contract or arrangement enter into, or to be entered into, by or on behalf of the company, if he is in any way, whether directly or indirectly, concerned or interested in the contract or arrangement and in case he contravenes this provision of the law his presence would not be counted for the purpose of decision taken and his vote was also be treated to be void. Apart from the fact that according to this provision bar is against a person acting as a director and not as shareholder, the provisions of this subsection has been made inapplicable by virtue of subsection (2)(c) thereof which provides that a director nominated by the company taking the decision, as director in the other company with which the contract was to be made was not debarred from taking part in the discussion or voting.
10. The said five directors are admittedly also shareholders of respondent No,1-company, as such, they are the members of the said company. From a bare reading of these provisions of law they were not debarred from taking part in the discussion and voting up the resolution as shareholders/members. If simultaneously they were also the directors of the company their right to vote and take part in the discussion as shareholders in the Extraordinary General Meeting was not in any way affected. In a given case the decision taken in the Extraordinary General Meeting was for the benefit of the company itself and indirectly in addition thereto the common directors were also to be benefited in any manner they cannot be held to be directly interested in the arrangement or the contract made. It is still doubtful which point I am not called upon to decide in this case as to whether the nature of special business discussed in the Extraordinary General Meeting would fall within the ambit of arrangement and contract as envisaged in these provisions of law which may be decided in any appropriate case.
11. Raja Muhammad Akram, Advocate learned counsel for the respondents referred to section 196 of the Companies Ordinance in order to argue that the directors were otherwise empowered to issue shares and invest the funds of the company. It is not necessary to dilate upon this aspect of the case and suffice it to say that under section 208 which is a special provision no company can make investment in associated company except under the authority of the resolution in the meeting of the members of the company by a majority of not less than 60% of such members entitled to vote as are present in person or by proxy of which not less than 21 days' notice has been duly given. It was not denied that it was under section 208 that the impugned resolution was passed and notice for the meeting issued.
12. Adverting to the main question as to whether the notice dated 8-9-1994 for holding Extraordinary General Meeting of respondent No,1-company to be held on 1-10-1994 and the resolution passed on 1-10-1994 in the meeting so held suffer from legal infirmities and the same stood vitiated. It may be mentioned that as is manifest from the statement appended with the notice under section 160(1)(B) and the resolution was passed for making investment in associated company, therefore, the relevant provisions of law for determination of this question would mainly be sections 160, 161(8) and 208 of the Companies Ordinance. Under section 160(1)(B) it has been made mandatory to annex to the notice of the meeting a statement setting out all material facts concerning the business... ... ... Under section 161(8) the Court on a petition by members having not less than 10% of the voting powers in the company declare the proceedings of a general meeting as invalid by reasons of a material defect or omission in the notice or irregularity in the proceedings of the meeting in case the same had prevented members from using effectively their rights and can direct that a fresh general meeting be held. Under section 208 it has been made imperative that the resolution must indicate the nature of investment to be made in the associated company and terms and conditions attaching thereto.
13. These provisions of law appear to have been enacted with a view to make the matters as regards investment by one company in associated company whether by way of purchasing the right shares or otherwise transparent. Apart from the fact that the terms and conditions attached to such an investment are required to be given in the resolution itself from which authority was sought to be derived for making such investment in the associated company a statement regarding all material facts in relation thereto under section 160(1)(B) was also to be appended with the notice so that all the members of the company must come to know as to what was the exact scope and nature of the business to be discussed in the meeting so that they could make up their minds considering the importance of the matter from their point of view to attend the meeting and to use their rights effectively. It is demonstrably clear from the special business as reproduced above which was transacted in the meeting held on 1-10-1994 that in the proposed resolution itself no mention was made as to terms and conditions attached to the purchase of right shares of Maple Leaf an associated company of respondent No,1-company. The proposed resolution is absolutely silent upon this aspect of the matter. It is also manifest from the statement attached with the said notice as reproduced above that no mention was made as to how the investment by respondent No,1-company in Maple Leaf by way of purchasing the right shares would be beneficial to the company and what would be the mode for raising funds and the duration of such investment short and long term benefits such as amount of dividends to be earned so as to apprise the members to take a decision whether to participate in the meeting and to use their rights effectively. In the said statement instead of focusing the attention to highlight the benefit to be derived by the respondent No,1-company by such investment, a stress was made merely to highlight the different aspect of the investments made by other investors in the Maple Leaf and discussing the Maple Leaf Company Limited. In my considered view the notice dated 8-9- 1994 for Extraordinary General Meeting suffered from acute illegality for non-compliance of provisions of section 160(1)(B) and the resolution itself passed on 1-10-1994 was also violative of section 208 as it failed to indicate the terms and conditions attached to the investment to be made in the Maple Leaf for which it was sought to be passed to confer authority thereunder to the Chief Executive to make such investment. The said provisions of law being mandatory, therefore, the notice as well as the resolution dated 1-10-1994 stood vitiated for non-compliance thereof.
14. Faced with this situation Raja Muhammad Akram, Advocate, learned counsel for the respondents strenuously argued without conceding that notice was defective that so far as the petitioners are concerned they could not claim to have been either kept in darkness about these matters or that they were not aware of the true nature of the business as they themselves issued a lengthy statement in writing to all minority shareholders on 28-9-1994 highlighting the alleged negative effects of such investment, therefore, they could not maintain that they were prevented from using their rights effectively which is a condition precedent for declaring proceedings in the meeting as invalid on account of any defect in the notice for want of disclosure of all material facts. Under section 161(8) shareholders having not less than 10% voting powers could maintain the petition but it could be urged by them that the proceedings in the said meetings had been vitiated on account of defect in the notice if the members in general were prevented from using their rights effectively. They were entitled to maintain and show that had all material facts been disclosed and terms and conditions attached to the investment clearly mentioned those who abstained from attending the meeting would have taken a decision to attend the same in view of the importance of the matter, therefore, it is the prejudice caused qua the whole body of members which can be made the basis for declaring the proceedings invalid and not in relation to particular members bringing the petition before the Court as in section 161(8) the expression used is "that the members were prevented from using effectively their rights" and not such members who had brought the petition before the Court. It may also he mentioned here that even if the said statement issued by the petitioner is scrutinised minutely it would be clear therefrom that while highlighting the damaging effect of such investment according to their point of view they had not been made available any information as to how the proposed investment was going to be beneficial for respondent No,1-company. It was necessary to give all material facts in the statement attached to the notice and also to give terms and conditions attached to such investment in the resolution itself.
15. Learned counsel foxr the respondent tried to come out of this difficulty by further arguing that every member of respondent No,1-company must be knowing all material facts himself as regards the company's affairs, merits and demerits of investment as the relevant facts as regards Maple Leaf had been disclosed in the statement attached with the notice, therefore, all the members shall be deemed to be knowing the business to be transacted alongwith all material facts as also the terms and conditions attached thereto. He placed reliance on judgment reported as Parashuram Detaram Shamdasani and another v. Tata Industrial Bank Ltd. And others AIR 1928 PC 180. It was a case under section 79(i) of the Companies Act, 1913. It was held that the shareholder who by his conduct shows that he knew the real effect or work to be transacted at a meeting, cannot complain of the notice on the ground of insufficiency. Section 79(i) of the Companies Act, 1913 did not provide as a mandatory requirement of attaching with the notice a statement of all material facts regarding the business to be transacted whereas it only required that a notice of meeting of a company with a statement of business to be transacted was to be served on the members.
There is a difference between the mere nature of business simpliciter and all material facts regarding the said business as also the terms and conditions attached to the investment to be made. The rule laid down in this judgment, therefore, is not aptly applicable in this case as the provisions of section 160(1)(B) and section 208 of the Companies Ordinance, 1984 are substantially not comparable with section 79(1) of the Companies Act, 1913.
16. East India Commercial Co. (Pvt.) Limited v. Raymon Engineering Works Ltd. AIR 1966 Calcutta page 232 referred to by the learned counsel for the respondent in support of his argument as to what was the scope of the expression material facts also lays down that it depends upon the facts of each case as to whether resolution and the proceedings would be vitiated for want of disclosure of all material facts. In this reported case it was noticed that the shareholders of a company had already agreed to an increase in the authorised capital and issue of further shares and had also been informed that the primary object of increasing the capital and the number of shares was to invite foreign collaboration from a certain American/German group by ensuring their financial participation arid technical-cum-management know-how and all that the impugned special resolution asked for was that a definite number of such shares as required under section 81 of the Indian Company law should be allotted to collaborators mentioned therein. In these circumstances it was held that the explanatory statement which stated the names of the foreign collaborators, the amounts involved in the financial agreement, the commission to be paid to the foreign collaborators and what was expected of them was sufficient to hold that the same had disclosed all the material facts.
17. 'The rule laid down in Maharani Lalita Rajy a Lakshmi M.P. v. Indian Motor Co. (Hazaribagh) Ltd.
And others AIR 1962 Calcutta page 127 is also not applicable in this case as the facts of that case were materially different. It was a case of interest of one shareholder of the company as partner in the other company and the complaint was that the interest of such. Shareholders in both the companies and business transacted had not been sufficiently disclosed. It was held in the facts and circumstances of this case that the disclosure of the essential facts as regards interest of such persons in both the companies had been made clearly by stating in the facts as under:-- "Sri N.N. Ganguli and director of the company and partner of Ganguli and Company and Sri R.N.
Ganguli a partner of Ganguli and Company are interested in the above resolution. This explanatory note was essential because Ganguly and Company were being appointed Managing Agents of the Company for a irenewed period."
' On the other hand the view taken by me finds support from a number of judgments from foreign jurisdiction referred to by learned counsel for the petitioners interpreting section 173 of the Indian Companies Act, 1956 which is similar to section 160(1)(B) of Companies Ordinance, 1984. These are:--
(1) (1917) AC 607;
(2) (1915) I Ch.D 503;
(3) (1898) I Ch. Dv. 358;
(4) (1973) 43 Company Cases 17, and
(5) (1899) I Ch. 861
18. In Lalaji Bhi C. Capadia v. Lalaji Bhai Desai (19'73) 43 Company Cases 17 it was held that section 173 of the Indian Companies Act, 1956 had been enacted in the interest of general body of shareholders that in the notice of a meeting statement containing all material facts concerning each special item of business should be given so that all the shareholders must be in a position to make up their mind in advance whether they would attend the meeting or leave it to the good sense of the majority present in the meeting. It was held that noncompliance with this requirement will have the effect of nullifying the action taken in the meeting. It was also laid down as a rule that while considering the legal efficacy of any such notice a benevolent construction cannot be adopted so as to defeat the provisions of the statute. The argument here that all the members must be presumed to know about the affairs of the company its financial position as also the company in which investment was to be made. These assumptions on which the argument was raised is wholly untenable. Even if it be so assumed it cannot be argued that the members were not entitled to disclosure of all material facts and the terms and conditions attached to the investment before taking a decision as regards the business in question. On top of this it has been laid down as principle of law in case reported as E.A. Evans v. Muhammad Ashraf PLD 1964 SC 536 that if doing of a particular thing is made lawful doing of something in conflict of that will be unlawful. It has also been laid down that where the statute provided as a mandatory requirement for issuance of a notice as prescribed under the law, implied notice or information received aliunde would not be sufficient to absolve the person from its legal obligation from issuing express notice in writing. In view of the law declared by the Supreme Court there is no merits in the arguments of the learned counsel for the respondent.
19. 83% of the members present and by proxy who voted in favour of the resolution if considered with reference to entire body of members would be by a majority of not more than 51% which fact was not disputed during argument by learned counsel for the respondent. This aspect assumes significance as resolution under section 208 of the Companies Ordinance was required to be passed by not less than 60% of such members entitled to vote as are present in person or by proxy.
If all material facts had been given in the statement attached to the notice and terms and conditions attached to the investment proposed to be made disclosed in the proposed resolution itself for information of the whole body of shareholders/members, would have been very material for such members to take a decision to attend the meeting or not due to which it can safely be held that such members due to non-compliance with these mandatory provisions were prevented from using their right effectively in relation to the said business.
20. For the foregoing reasons this petition is accepted. The notice dated 8-9-1994 for Extraordinary General Meeting and the resolution passed in pursuance thereof on 1-10-1994 in the Extraordinary General Meeting are hereby declared to be invalid. The respondent No,1-company may hold fresh Extraordinary General Meeting for the purpose after making compliance with the provisions of section 160(1)(B) and section 208 of the Companies Ordinance.
21. As to prayer for issuance of direction to respondent No,3 for making inquiry as regards additional investment proposed to be made by the Investing Company in the Maple Leaf Cement Factory Limited (MLCF) and the conduct of the Common Directors in relation thereto the same is hereby declined without adjudiction on merits. It will be open to the petitioners to invoke the provisions of section 265 of the Companies Ordinance, 1984 independently which is a complete and independent code supported by tangible evidence to satisfy the Court that such an investigation was necessary which shall be considered and decided in accordance with law. There will be no order as to costs.