2. The facts necessary for deciding this Constitutional petition shortly stated are that on 10-12-1994 respondent No.3 company made an application to the Federal Government for obtaining a consent for right issue in order to raise funds for purchasing the right issue of Maple Leaf Cement Factory Limited an associated. Company. The consent was granted through the impugned order dated 29-12-1994 which has been assailed in this writ petition by the petitioner who is also one of the shareholders of respondent No.3--company.
3. The main burden of argument presented by Mr. Umar Ata Bandial, Advocate, learned counsel for the petitioner in support of this Constitutional petition was that the impugned order was violative for the guidelines issued by the Federal Government as envisaged by section 3(4) of the Capital Issues (Continuance of Control) Act, 1947 either in the public interest or in the interest of the Company or its shareholders, therefore, should be struck down.
4. In order to appreciate the arguments in true perspective it is necessary to examine and analyse the relevant provisions of the Capital Issues (Continuance of Control) Act, 1947. Subsection (2) of section 3 of this Act is as under:-- "Subsection (2)
No company, whether incorporated in Pakistan or not, shall except with the consent of the Government---
(a) make an issue of capital in (Pakistan);
(b) make in (Pakistan) any public offer of securities for sale;
(c) renew or postpone the date of maturity or repayment of any security maturing for payment in (Pakistan).
Subsection (4) of section 3 is as under:-- "Notwithstanding anything contained in the Companies Act, 1913 (VII of 1913), or in any other law for the time being in force, or in any contract or any Articles or Memorandum of Association of any company, any consent or recognition accorded under subsection (2) or under subsection (3) whether before or after the commencement of this subsection, shall be subject to such conditions as the Federal Government may, if it is of the opinion that it is necessary so to do in the public interest or in the interest of the company, impose from time to time."
Under section 12 of this Act, the Central Government has been empowered to make rules for carrying out the purpose of the Act, through notification in the official Gazette. It is common ground between the parties that no rules, as such, have been framed by the Central Government under this section. However, the Central Government issued xxxxxxxxx guidelines, Part-B of which relates to issue of right shares which is reproduced below:-- "(B) GUIDELINES FOR ISSUE OF RIGHT SHARES:
(1) No company will be allowed to make a right issue within one year of issue of capital or earlier right issue;
(2) In case right announcement is for 100% and more trading in the scrip shall be suspended by the stock exchanges from the day of the announcement in the stock market. The company shall apply within 5 working days to the Corporate Law Authority for approval of right issue Corporate Law Authority will decide such applications within 10 working days;
(3) Companies making right announcement below 100% shall be required to apply for consent within 10 days of the announcement;
(4) Right issue shall be allowed only for such purposes as directly benefit the expansion of the company's project, repayment of debt, or for its working capital requirements. No right issue shall be allowed for providing funds to the associated companies."
5. Mr. Umar Ata Bandial, Advocate, learned counsel for the petitioner argued that the consent order issued by the Federal Government in this case impugned in the writ petition is clearly violative of these mandatory guidelines, for, the right issue has been made in this case within one year from the earlier right issue and that the same was made not for the expansion of the company's project, repayment of debt, or for its capital requirements but to provide funds to associated company i.e. Maple Leaf Cement Company Limited. He maintained that these guidelines are to operate as conditions prescribed under subsection (4) of section 3 in the interest of the company and its shareholders, therefore, the Federal Government was wrong in assuming that it could pass the impugned order which is directly in conflict with these guidelines.
6. Learned counsel for respondent on the strength of rule laid down in the judgment of Indian Supreme Court reported as Narendra Kumar Maheshwari v. Union of India and others (AIR 1989 SC page 2138) argued that these guidelines had the effect of only departmental or administrative instructions and the same were not justiciable or enforceable through Court. He also argued that since the impugned order has already been acted upon in that right share having been offered and contributed by public, therefore, in view of judgment reported as S. R. Nayak and another v.
Union of therefore, and others (AIR 1991 SC page 1420) no interference should be made by this Court in exercise of discretion vested under Article 199 of the Constitution. In the case of Narendra Kumar Maheshwari (supra) similar provisions of Capital Control Act, 1947, as in force in India came up for interpretation.
7. I have examined the provisions of subsection (4) of section 3 of the Indian Act and the Capital Issues (Control) Act, 1947 and find that according to Indian law, the conditions can be imposed by the consent order itself subject to which the said consent is to operate whereas in the Act in force in Pakistan such conditions could be prescribed generally which are made operative in respect of consent orders passed even after the issuance of such conditions and also to those already passed. The rule laid down by the Indian Supreme Court in the light of the conditions named as guidelines subject to which the consent order was issued in that case would not be applicable in Pakistan, for, as observed above the guidelines issued under subsection (4) are general in nature and orders were to be issued in the light thereof, therefore, the legality of order issued and passed by the Federal Government in respect of right issue could be scrutinized and examined to ascertain its validity on the touchstone of these guidelines. This being so, it can safely be held that this Court under Article 199 is vested with the jurisdiction to examine the legality of order passed by the Government/public functionary and examine its legality on the touchstone of the guidelines issued by itself as no authority or public functionary can be allowed to act in violation thereof particularly when they had been issued in the interest of the company and shareholders.
8. The consent order impugned in the writ petition has been passed within one year from the previous right issue which also permits respondent No.3-company to make right issue to raise funds for purchasing right shares of associated company i.e. Maple Leaf Cement Company Limited, therefore, the same no doubt is in conflict with the said guidelines. Learned counsel for respondent No.3-company relied upon the provisions of section 6 of the Capital Issues (Continuance of Control) Act, 1947, and argued that the impugned order has the effect of exempting respondent No.3-company from the provisions of subsection (4) of section 3 of the Act, therefore, the same should be maintained. Section 6 of the Act is as under:-- "Section 6(1)
The Federal Government may, by general order which shall be notified in the official Gazette, provide, for the granting of exemption from all or any of the provisions of sections 3, 4 and 5;
(2) The Federal Government may by order condone a contravention of any of the provisions of section 3 or section 4, and on the making of such order the provisions of this Act, shall have effect as if an exemption had been granted under subsection (1) of this section in respect of the thing done or omitted to be done in contravention of section 3 or section 4, as the case may be."
The question which falls for consideration is as to whether the impugned order passed by the Federal Government in this case can legitimately be treated to be an order under subsection (2) of section 6 of the Act, therefore, I summoned the record from respondents Nos.1 and 2 in order to know whether while passing the consent order the Federal Government was conscious of the fact that the same would have the effect of allowing respondent No.3 company to raise funds for purchasing right-issue of associated company and that the consent was being granted before the expiry of period of one year from the previous right issue, for, exemption from the operation of provisions of sections 3 and 4 of the Act, could not have been. Made unless the authority granting such exemption was aware and conscious of the legal bars created by its own guidelines. I have examined the record. Mr. Abdul Ghafoor Khan, Assistant Chief on 20-12-1994 wrote the following notes as contained in paragraphs 112 to 120 which are reproduced below:-- "112. F. R. At pages 450-471/C may please be seen.
113. M/s. Kohinoor Textile Mills Ltd. Have submitted their application for permission to issue share capital to the value of Rs.135,824,190 at a premium of Rs.10 per share.
114. The company has furnished copies of its Annual Accounts 10 pertaining to 30-9-1993, 30-9-1992 and 30-9-1991, 1 copy of Memorandum and Article of Association, justification for raising additional capital and quoted rates of the company from 1 September, 1993 to 1st December, 1994.
115. As far as justification for raising additional capital is concerned, it has been contended that since M/s. Kohinoor Textile Mills Ltd. Is the single large shareholder of Maple Leaf Cement Ltd., holding about 48% shares, therefore, justification exists to avail this golden opportunity to maintain control of the company which is going to offer 200% right.st
116. The justification given by the company for raising capital has been examined. It has been observed that Kohinoor Textile Mills Ltd. Were allowed to issue right shares worth Rs35,432,390 on 26-5-1994 (P.401/C) at a premium of Rs.20 per share.
117. The attention of the company may be invited towards para.1 of the guidelines for issue of right shares wherein a company will not be allowed to issue right shares within one year of the issue of capital or earlier right issue. Company's letter dated 10-11-1994 (P.447/C) indicates the allotment of earlier right issue and raising of the paid-up capital from Rs.236,215,990 to Rs:271,648,380.
118. It is also mentioned that some of the directions of M/s. Kohinoor Textile Mills Ltd. Have filed petition under sections 161(8), 208, 217 and 290 read with section 151 of the Companies Ordinance, 1984 against issue of right shares by the company.
119. In view of the foregoing, it is proposed to keep the case pending till the decision of the Court.
120. For orders please."
9. The matter was placed before the Deputy Chief (CI). After discussion the note recorded by Mr. Abdul Ghafoor Khan, Assistant Chief as contained in para. 121 is as under:-- "121. As discussed it is stated that Mr. Saifullah, Partner, Taseer Hadi Khalid & Co., appeared on behalf of M/s. KTM and discussed the case with Member/CCI in the presence of Deputy Chief (CI) and requested for grant of permission to issue share capital up to Rs.135,824,190 at a premium of Rs.10 per share. He also filed following documents (pages 472-492/C):--
(i) Agreement and evidence of sale of 6,250,000 Letters of Right in Maple Leaf Cement Factory Ltd., and receipt of Rs.125,000,000 thereagainst.
(ii) Letter from KTM in relation to the profitability of KTM for the year ended 30th September, 1994.
(iii) The Form 3 for increase in paid-up capital by Rs.68,468,400 and Rs.106,297,170 inclusive of premium in both cases.
(iv) Two Appendices marked "A" and "B" giving particulars in relation to the total paid-up capital and reserves of KTM and investments in associated companies.
(v) Court orders allowing investment by KTM into the shares of MLCF.
The consent order was passed on 22-12-1994 which is as under:-- "In view of the fact that 18.44% of entitlement is being offered to the shareholders by way of specie dividend and that the company will comply with High Court's order, the right issue at premium of Rs.10 is approved.
10. It is clear from these notes as contained in 112 to 120- as reproduced above that the authority was conscious that the guidelines already issued did not ordinarily permit making of right issue as claimed in this case being within one year from the previous right issue and that respondent No.3- company was shareholder of Maple Leaf Cement Factory Limited as such the later was an associated company for which the right issue was being made to raise funds for purchasing the right share of such associated company. Respondent No.3--company also furnished copies of its Annual Accounts pertaining to 30-9-1993, 30-9-1992 and 30-9-1991 alongwith copy of Memorandum and Articles of Association to justify raising of additional capital. As noted in para.121 material was placed before the authority as regards sale of offer letters of right shares of Maple Leaf Cement Factory Ltd., and receipt of Rs.125,000,000 and letter from Kohinoor Textile Mills Limited in relation to the profitability for the year ending 30th September, 1994 and other particulars. After considering this material and other attending circumstances the consent order in question was passed with special reference that 18.44% of entitlement was being offered to the shareholders by way of specie dividend. The right issue was allowed at premium of Rs.10. It is clear from this, that while according consent the question of interest of shareholders of respondent No.3-company was also kept under consideration and was in fact the controlling factor.
11. Learned counsel for the petitioner when questioned as to why this order should not be construed to be an order passed under subsection (2) of section 6 of the Act through which respondent No.3- company has been granted exemption from the provisions of sections 3 and 4 of the Act, attempted to argue that misstatement of facts were made before the authority and the interest of the minority shareholders were not kept in sight. He argued that no dividend was distributed by respondent No.3-company among its shareholders were as whatever dividends earned were being applied for making payment of price of Maple Leaf Cement' Factory Limited after privatisation. He also argued that the right issue was being offered at a price higher than the price of the ordinary share in the market of respondent No.3-company due to which the shareholders' interest would be adversely affected. He further argued that the investment by Kohinoor Textile Mills Limited in Maple Leaf Cement Factory Company would not in the long run be beneficial to the shareholders of the company.
12. The petitioner as one of the shareholders in his individual capacity has filed this writ petition.
Learned counsel for the petitioner when questioned submitted that the petitioner is holding 1-1/2 lac shares in the company out of total shares of 1,10,49,000 whereas 1,05,24,000 shares are being offered as right shares by Maple Leaf Cement Factory Ltd. If the guidelines were issued by the Federal Government, as argued by the learned counsel, in the interest of shareholders of the company the same were issued for the benefit of the shareholders as a class and not for minority shareholders only as argued by Mr. Bandial, Advocate. If the majority of the shareholders of respondent No.3--company consider that the consent order is against their interest there is nothing to prevent them to bring a resolution in the meeting of shareholders of the Company and pass the same debarring it from making any investment in the Maple Leaf Cement Company Limited.
13. Learned counsel for respondent-company has brought to my notice that in the Annual General Meeting dated 31-3-1993 in which the question as to proposed investment to be made in the Maple Leaf Cement Company Limited was considered Mr. Zia A. Sheikh a nominated Director of petitioner and other shareholders of his group supported the same. The stand of Mr. Zia A. Sheikh as taken in the said meeting was as follows:-- "Mr. Zia A. Sheikh added with the permission of the Chairman that we are issuing right shares for investment while other companies issue rights for modernization of their mills and do not show the good results from this money but your company is investing this amount in very good company.
Your company will immediately start earnings on its investments. Mr. Zia A. Sheikh proposed that Right may be issued @ 20% instead of 15% at premium of Rs.10 per share instead of Rs.15 per share and after a brief discussion the Chairman asked the Company Secretary to table changed resolution before the meeting thus the following resolution was tabled by the Company Secretary:- - "RESOLVED that Right shares be issued @ 20% instead of 15% at a premium of Rs.10 per share instead of Rs.15 per share subject to the permission of the Controller of Capital Issues, Islamabad.
The resolution was unanimously approved by the shareholders."
It is clear from this that the petitioner and his associates were not as a matter of principle against the making of investment by Kohinoor Mills Limited in Maple Leaf Cement Factory Limited, therefore, the petitioner now cannot turn around that with the passage of short time the same had become adverse of the interest of the shareholders.
14. The submission that respondent No.3-company did not distribute the dividends among the shareholders is nothing but grievance of a shareholder against the Company which should be resolved within the Company internally and was not a relevant factor as regards according of consent.
15. Mr. Umar Ata Bandial, Advocate, learned counsel for the petitioner referred to a number of reported judgments in support of his arguments that the authority granting exemption from the general rule applicable in this case must be shown to have applied its mind to the relevant facts having logical nexus with the object of law which criteria in this case has not been fulfilled. I am afraid the above discussion would show that the authority while passing the order had taken into consideration all the relevant facts, therefore; the exemption granted under section 6(2) is perfectly valid having been granted on relevant considerations. It is not a case where the authority was not conscious D about the existence of bars created by the guidelines.
16. Mr. Umar Ata Bandial, Advocate, learned counsel for the petitioner faintly argued that the guidelines having been issued to safeguard the interest of the shareholders of the Company as a whole, therefore, the grant of exemption therefrom under section 6(2) of the Act, had the effect of making variation in relation to rights of shareholders arising therefrom, as such, the same could only be made as provided in section 28 of the Companies Ordinance, 1984 by virtue of section 108 thereof. He also argued that before according consent by exempting respondent No.3-company from the provision of sections 3 and 4 of the Act, under section 6(2) thereof, the consent of shareholders whose rights were being varied should have been taken into consideration.
17. Section 28 of the Companies Ordinance, 1984, prescribes the procedure for alteration or making addition to articles bf the Company and the rights of the shareholders governed by them. Learned counsel for the petitioner have questioned candidly conceded that the articles of respondent No.3- company does not prescribe any condition or bar against the issue of right-shares or investment by the Company in the associated Company, as such, the consent order passed under the Act by the Federal Government does not have the effect of making alteration or addition or variation in the rights of the shareholders as provided in the articles of the Company, as such, section 28 is not applicable. As has already been observed the authority while accorded consent took into consideration all the relevant facts, therefore, it can safely be held that in its opinion the same was in the interest of shareholders as a whole, for, if majority of the shareholders as observed above intend to oppose the same they, are at liberty to pass resolution in the meeting of shareholders prohibiting issuance of right shares and the purchase of right shares of Maple Leaf Cement Company Limited.
18. Learned counsel for respondent-company placed on record a number of documents in order to demonstrate that the purchase of right shares of Maple Leaf Cement Company Limited and making of investment in its project was in the larger interest of not only the shareholders but also the economy of the country inasmuch as huge foreign exchange was to be earned and thousands of people of the area where the plant is being established are to get employment. I have not intentionally discussed the merits or demerits of the investment to be made in the Maple Leaf Cement Company Limited as it is a matter to be discussed and decided by the shareholders of the Company in a meeting under the Companies Ordinance, for if majority of the shareholders having anything to say against this investment may oppose the same by passing a resolution which would prohibit respondent No.3-company from making such investment in spite of the impugned consent order.
19. For the foregoing reasons this writ petition has no merits which is hereby dismissed with no order as to costs.