JUDGMENT RANA BHAGWAN DAS, J.- By this petition under section 305 read with section 290 of the Companies Ordinance, 1984 (hereinafter called the Ordinance) petitioners who are the legal heirs of late Ghulam Muhammad Loan, founder and promoter of the respondent Kashmirian (Private)
Limited Company and holding 506 shares in the company, seek the appointment of an Official Liquidator to wind up the respondent No. 1 company or to pass any other order deemed fit and proper in the circumstances of the case.
2. Respondent company was incorporated in 1981 under the provisions of the Companies Act, 1913 with its registered office at Karachi and continue to operate under the provisions of the Ordinance with a share capital of Rs.20,00,000/- divided into 20,000 shares of Rs.100/- each. Paid-up capital of the company is Rs.6,00.000/- divided into 6000 ordinary shares of Rs.100/- each. Objects of the company are to manufacture, by, sell trade, export and otherwise deal in carpet-oriented products. Late Ghulam Muhammad Loan husband of petitioner No. 1 and father of petitioners Nos. 2 to 5 and his brother Ghulam Nabi Loan respondent No. 2 set up the company by way of a family business concern essentially dealing in the manufacture and export of hand knotted carpets. Both the bothers held equal number of shares in the company with late Ghulam Muhammad Loan apart from being one of .The four Directors as Chairman and Chief Executive of the company who died in 1986 whereafter no Chairman or Chief Executive was appointed in the company. While the business at Karachi is being looked after by petitioners being Directors of the company, manufacturing and marketing etc. Of the business in the Province of Punjab is being managed by respondents Nos.2 to
7. Two Directors from each of the groups were elected on 10.12.1992 for a period of three years whereafter no election of Directors has taken place.
3. It is alleged that after' the death of late Ghulam Muhammad Loan, respondent No.2 being his younger brother slowly and steadily began pilfering the funds and assets of the company with the result that entire business at Karachi was forced to halt. It is maintained that petitioner No. 1 as widow of the deceased took upon her shoulders responsibility of her children i.e. Petitioners Nos.2 to 5 and started her on independent business from her on resources. It is urged that the petitioners repeatedly requested respondents for settlement of their share in the assets of the company but to no avail.
Petitioners have attributed acts of gross irregularities in running the affairs of the company to the respondents as guilty of malversation and conversion by not maintaining proper accounts and siphoning OF the funds and stocks of the company. It is the grievance of the petitioners that no dividend was declared or paid to the shareholders and they are completely deprived of their lawful rights and share in the company business, assets and returns on their investments. It is further complained that in order to secure illegally and otherwise unapproved corporate sanctions, respondents are creating substantial, fiscal liabilities against the company and the funds are utilised to their exclusion. According to the petitioners, operations of the company are being conducted from Lahore in the form of a sole proprietorship of respondent No.2 and there is complete lack of confidence in the management of the company resulting in a total deadlock which is equally shared by the petitioners. I petitioners have the grievance that neither meetings of the Board of Directors nor Annual General Meetings were held after 1993 and they have been completely excluded from the business and management of the company, which is being carried out at Lahore to their exclusion. For all intents and purposes and under the corporate laws, the company is in the nature of a family concern, the petitioners claimed. In the circumstances, it is urged that it is no longer possible to go ahead with the company because of fraudulent denial of legitimate rights of the petitioners hence this petition for winding up and appointment of Official Liquidator.
4. Along with the petition, petitioners moved an application under section 325 of the Ordinance for appointment of Provisional Manager as well as an application for injunction restraining the respondents from selling, transferring or in any manner encumbering the assets of the company on which a learned Company Judge of this Court passed an interim order and appointed Official Assignee as Commissioner to inspect, prepare inventory and evaluate the stocks lying at company's warehouse a!t Lahore which was prepared on 7.9.1994. On an identical application moved on behalf of respondents, vide order dated 15.11.1994 petitioners were restrained from selling transferring or in any manner encumbering the assets of the company at Karachi and an inventory was got prepared in respect of articles lying at the registered office of the company and shop situated at Central Hotel Building. Besides by consent of the parties, accounts of the company with different Banks at Lahore as well as Karachi were frozen and both parties were restrained from operating the same.
5. Respondents resisted the petition and filed a para were counter affidavit denying various allegations against them but incorporation of the company and ,equal shareholding of the parties was not disputed. They referred to a Family Settlement Agreement dated 12.8.1991 between the parties duly signed by petitioners Nos. 1 & 2 and respondent No.2 and stated that as per agreed terms Nos. (i) & (ii) thereof, petitioners had exclusively withdrawn all the accounts receivable valued at dollars 6,59,226,87 from abroad in Karachi account out of total account receivable valued at dollars 8,1,416,27 and also got possession of properties of Karachi and Hyderabad either in the name of the company or in personal name of respondent No.2 by virtue of the agreement and his completed part performance thereof. Remaining part performance of agreement related to payment of Re.24,00,000/- against excessive stocks lying at Lahore up to 31.12.1991 which if paid, petitioners could no longer remain Directors and shareholders in the respondent company.
According to the respondents, respondent company is successor of M/s Oriental Carpets, a partnership concern with Ghulam Muhammad Loan and Ghulam Nabi Loan as partners on profit and loss sharing ratio of 60 : 40% respectively with effect from 1.7.1964 which was later on revised at the ratio of 50 ; 50% respectively with effect from 1.7.1973 and finally merged in the respondent company on 1.7.1981. With regard to the books of accounts, it is stated that these are prepared at Karachi office under the supervision and advice of petitioner No. 2 and accordingly filed in the office concerned and funds properly utilised in the interest of business of company. They specifically denied that there was less percentage of commission or losses or low profits from Lahore returns and that respondents never created any substantial, fiscal liabilities against the company. While admitting immovable properties as assets of the company as reflected in paras 9 and 10 of the petition, respondents pointed out industrial unit at Plot No.118 Sector 27 Korangi Industrial Area, industrial unit at Plot No.6, Block No. 4 measuring 400 sq. Yds, Landhi Industrial Area, appropriately valued at Rs. 50,00,000/- and Rs. 8,00,000/- respectively, two shops of Shirkat-e- Kashmirian situated at Central Hotel Building, Saddar, Karachi on goodwill basis, valued at Rs.25,00,000/-a and one old shop of Oriental Carpet Company situated at Victoria Road, opposite Hotel Metropole, Karachi on good-will basis, valued at Rs.20,00-,000/- as the properties of the company concealed by the petitioners with regard to the business of the company, it is the case of the respondents that it was smoothly running as reflected in Form A duly signed by petitioners Nos.
1 & 2. According to the respondents, petitioners did not come to Court with clear hands as they have suppressed the real facts with clean hands as they have suppressed the real facts with regard to properties and assets of the company in their possession, use and benefits therefrom misrepresented the facts played fraud upon this Court and abused the process of law.
6. At the hearing of the petition, Mr. Yawar Farooqui, learned counsel for the petitioners vehemently contended with all emphasis at his command that there is a complete deadlock and stalemate with regard to the management, business and affairs of the company inasmuch as neither any Annual General Meeting has taken place nor a meeting of Board of Directors held after 30.12.1993, that no balance sheet for the years after the year ended 30.6.1993 was prepared that the respondents have monopolised the affairs of the company at Lahore by completely ignoring and dishonestly excluding the. Petitioners who had equal shareholding in the company that by. Denying due share in the profits and income of the company the petitioners have been deprived of their rightful corporate share on their investments and that in view of embittered feelings between the parties owing to lack of confidence as well as probity of the respondents, it would only be just and equitable to order winding up of the company. Learned counsel submitted that both the parties possessing equal share-holding in the company, respondents can neither conveniently run, manage and administer the affairs of the company nor take any policy decision without the participation of the petitioners and that the business activities have come to a standstill which has created a complete deadlock and stalemate justifying an order of winding up with an option to both the parties to purchase other parties share after evaluations of the assets and liabilities of the company.
7. On his part Mr. Ashtar Yusaf Ali, learned counsel for the respondent company, who appeared to represent the interests of respondents Nos. 2 to 7 as well (as no further arguments were advanced by Mr. Muhammad Aqil, advocate) contended that the petitioners have failed to disclose specific events and circumstances to show that there is a complete .Deadlock in relation to the affairs and business activities of the company as everything was going on smoothly and satisfactorily till the order for appointment of Commissioner passed by this Court at the instance of the petitioners on 4.9.1994. Learned counsel submitted that the idea behind this petition is to settle private disputes on the part of the petitioners in relation to properties other than assets of the company and that this Court is not a proper forum for settling such disputes in the exercise of its jurisdiction under section 305 or section 290 of the Ordinance. Referring to the balance sheet for the period ending 30.6.1993, annexure C to the counter affidavit, learned counsel submitted that the accounts are prepared at Karachi and this balance sheet, is duly signed by Mst. Shomaila Loan, petitioner No.2, but he was-unable to say whether balance sheets for the subsequent years were prepared. With regard to the Annual General Meetings and the Meetings of Board of Directors, leaned counsel referred to the contents of Form "A" dated 31.12.1993 submitted to the Registrar of Companies indicating that the Annual General Meeting of the company was held on 30th December,. 1993 with the result that the next Annual General Meeting could be held before the close of the calendar year but the petitioners filed this petition on 10.9.1994.
8. (Before judicially scrutinising . The arguments advanced by the learned counsel for the parties, it seems appropriate to point out that under section 305 of the Ordinance various circumstances have been illustrated in which a company may be wound up by Court and present case would be governed by clause (h) of this provision of law which postulates that a company may be would up by the Court if the Court is of the opinion that it is just and equitable that the company should be wound up. Likewise section 290 of the Ordinance provides that if any member order members holding not less than twenty percent of the issued share capital of a company, or a creditor or creditors with the aforesaid extent of interest in the capital of the company, complains that the affairs of the company are being conducted, or are likely to bo conducted, in an unlawful or fraudulent manner, or in a manner not provided for in its memorandum or in a manner oppressive to "the member or any of the members or the creditor or any of the creditors are being conducted in a manner prejudicial to the public interest, such member or members or the creditor or creditors as the case may be or the Registrar may make. An application to the Court by petition for, an order.
Sub-section (2) lays down that if, on any such petition, the Court is of the opinion (a) that the company's affairs are being conducted, Or are likely to be conducted, as aforesaid and (b) that to wind up the company would unfairly prejudice the members or creditors; the Court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit, whether for regulating the conduct of the company's affairs in future, or for the purchase of the shares of any members of the company by. Other member of the company or by the company and, in the case of purchase by the company, for, the reduction accordingly of the company's capital or otherwise.
9. On a careful assessm ent of the averments and pleadings of the parties, examination of the correspondence between the parties and various documents placed on record, ! Am of the confirmed view that relationship between the parties is that of a partnership firm in the form of a company limited by shares with equal shareholding. Admittedly there are two Directors from each' of the parties with 50% shareholding in the company itself incorporated by two brothers in 1981 as a family concern. From the conduct and attitude of the parties towards each other, it is evident that there is a complete lack of faith and confidence in each other as they have been suspecting each other for a considerable time and all efforts to make an equitable distribution of assets and properties between them failed despite hectic efforts. Undisputedly after the preparation of the inventories at Lahore as well as Karachi pursuant to the orders passed by this Court, business activities of the company have come to a complete halt which could not be revived owing to the pendency of this petition before this Court. A close scrutiny of the letters exchanged between the parties in July & August, 1990, copies whereof were appended to the. Petition and seriously referred to by learned counsel for the respondents during the course of arguments, obviously tends to show that the parties have been attempting to distribute the assets and properties in the name of the company for a considerable period of time but no mutual settlement could be arrived at. Even during the pendency of the petition there have been proposals and counter proposals between the parties but without any success.
9- A. It is a common ground that after the death of late. Ghulam Muhammad Loan sometimes in 1986, there is no Chief Executive in the company which was required to be appointed by the Directors as provided in Article 47 of the Articles of Association in accordance with the provisions of sections 198 and 199 of the Ordinance. In the absence of a Chairman-Chief Executive or a Managing Director of the company both the parties are handicapped in taking any effective and purposeful decision with regard to policy matters or further progress of the objects of the company. Whatever the reasons be, admittedly no meeting of Board of Directors or even Annual General Meeting of the members could be held after 1993 and even the election of Directors of the company could not be conducted owing to strained relations between the parties. It may be observed that interim order with regard to appointment, of Commissioner is no bar to the holding of such meeting and or election of Board of Directors as required by law. It does not even restrain the parties from electing a Chairman Chief Executive of the company though for strained relation between them it might be difficult to elect one of them to act as Chairman Chief Executive of the company. Needless to observe that with the creation of complete deadlock export as well as promotion of carpet business in the local market has not taken place for the last more than two and half years. It is, therefore, futile to say that there was no deadlock in relation to the affairs of the company or that the petitioners did not cite any specific events to that effect on the date of filing this petition. I am of the confirmed view that while exercising jurisdiction under the Ordinance, this Court is competent to take into consideration subsequent events and developments taking place even after the institution of the petition. I am unable to subscribe the view of the learned counsel for the respondents .That this Court cannot take into consideration the subsequent events taking place after, the institution of the petition. This may be a narrow view of the legal position which is contrary to settled norms and principles approved by the superior Courts. I am benefitted by the view expressed by the then Chief Justice of this Court, Nasir Aslam Zahid (as His lordship then was) in the case of Mansoor Ali Bandey Ali v. Marine Food Industries Limited (1985 CLC 1239). In the said case His Lordship observed that the general principle, no doubt, is that only such grounds should be considered as are taken in the winding up petition and the petitioner should not be allowed to rely upon subsequent' events. However, in appropriate case in the interest of justice, for compelling reasons or for shortening the litigation, the Courts have allowed a petitioner to refer to subsequent events and the Courts have considered and relied upon such subsequent events for deciding the winding up petition.
10. Even otherwise it has been consistent view of the Courts in exercise of their jurisdiction and if a Court of general jurisdiction is competent to mould the relief in view of the changed circumstances of a case in order to avoid multiplicity of litigations and to do complete justice between the parties, I see no reason as to why a Court exercising its discretion under the Company law should feel helpless, in taking such view of the matter (See PLD 1989 Karachi 404 8 PLD 1978 SC 220).
11. In the celebrated case Laley Parsed Jaiswal u. Karnal Distillery Company Limited (PLD 1965 Supreme Court 221), their lordships of the Supreme Court expressed the view that in the case of a private limited company, the tendency of the Court 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 a partner to have a partnership firm dissolved. Commonly the exclusion of a partner from the management of a 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.
12. Aforesaid view was also followed in Mansoor Ali Bandey Ali case (supra) in which the petitioners owned only l/5th share in the private limited company. This view was affirmed and reiterated by Division Bench of this Court in Nagina Films v. Usman Hussain (1987 CLC 2263), in which Amal Mian, J. (as his lordship then was) a deduced the following principles on a judicial review of the case law on the subject as under: "(i) That in a particular case the principles of dissolution of partnership may. Be applied if the apparent structure of the company is not the real structure and on piercing the veil it is found that in reality it is a partnership.
(ii) That generally the exclusion-of a partner from the management of the firm, existences of a state of deadlock between the partners or justifiable lack of confidence in the management have been regarded as just and proper grounds dissolving a private limited company.
(i.e) That when the members of a company had entered into membership of the company on the basis of personal relationship involving mutual confidence or an understanding as to the extent to which each of the member was to participate in the management of the company, exclusion of any member from the- management in breach of the above understanding would entail the grant of winding up petition."
The view taken in Laley Prasad Jaiswa l's case was again followed by Saeeduzzaman Siddiqui, J. (as his Lordship then was) in Muhammad Shabhir Khan v. Muhammad Anwar (1988 CLC 1955).
Identical view #as also taken by Haziqul Khairi. J. (as he then was) in Pakistan State Oil Company v.
Pak O.P. Limited (PLD 1993 Karachi 322).A somewhat same view was take by G.H. Malik, J. (as he then was) in. Khurshid Ismail v. Unicam Corporation (Pvt.) Limited (1996 CLC 1863) holding that company would be wound up on just and equitable grounds where company was family concern analogous to partnership firm and respondents (Directors) had committed several acts of commission and omission rendering the company liable under various provisions of section 305 of the Companies Ordinance;. Where partners were excluded from the management of company; and there was complete deadlock among the parties,
13. On behalf of respondents, learned counsel referred to case reported in re: Krudd Sons Ltd.
Karachi {PLD 1972 Karachi 376) and Muhammad Fikree v. Fikree Development Corporation Limited (1992 MLD 668). In Krudd Son's case late Tufail Ali A. Rehman's, C.J. Held that winding up of a company cannot be claimed by a minority of shareholders on the ground that they had been excluded from managing a part of the company business. The case is clearly distinguishable on facts inasmuch as the late Chief Justice took the view that the right of a shareholder is to participate by the exercise of his voting rights in the management of the company as a whole; it is not necessary that a part of the business proportionate to his shareholding must be separated and put under his exclusive control! Such a proposition would yield to startling results. In the present case, petitioners are admittedly the owners of equal shareholding in the company with equal representation in the management of the affairs of the company. Their rights and interests in the management of the company, are, therefore, much more stronger and valuable than a mere minority shareholder. The case is thus really of no assistance to the respondents and completely distinguishable on facts.
14. In Muhammad Fikreeys case, Mamoon Kazi, J. (as His Lordship then was) dismissed the petition under section 290 of the ordinance for reason that this provision of law could not be invoked by any party for settlement of disputes between the parties inter se. Without disputing the proposition of law laid down in the aforesaid case, it has hardly any bearing on facts of this case and is completely distinguishable. In the present case, petitioners do not seek the distribution of properties other than the assets of the company nor is such dispute subject-matter of this petition.
Indeed they seem to have, referred to such .Dispute in the correspondence between the parties by way of giving a background of the litigation leading to embittered feelings and relationship between the parties. In fact it is the respondents who have referred .To a family agreement between the parties which could not be finally acted upon. Be that as it may, while deciding this petition, this Court is neither competent to decide the fate of properties held by the parties other than the assets of the company nor am I inclined to deal with, such dispute with the necessary corollary that this petition cannot be dismissed on this ground alone inasmuch as the present petition is for winding up of the company whereas Muhammad Fikree's petition was decided under the provisions of section 290 which are somewhat distinct and distinguishable from the provisions contained in section 305 of the ordinance.
15. Arguments in this case where heard on 18.2.1997 and judgment was reserved with a direction to the parties counsel for placing balance sheets of the company for the last three years if any, but none has been placed. On the contrary Mr. Yawar Farooqui, learned counsel for the petitioners has filed a letter dated 22.2.1997 from Deputy Registrar of Companies addressed to Chief Executive of the company indicating that the company had not filed form 29 for appointment of Managing Director Chief Executive, Form 29 first appointment of Auditors, Form 29 for appointment of Auditors since 1985 to 1996, From-29 for election of Directors, Form-A for the years 1994 to 1996 and consent of auditors with a direction to i.e the aforesaid documents within 14 days of the communication.
Chief Executive of the respondent company was also called upon to let the Deputy Registrar know the dates on which Annual General Meetings were held as required under section 158 and the balance sheet, profit and loss accounts laid before the General Meeting as required under section 233 of the Ordinance during the years. A copy of this letter was also endorsed to petitioner No. 1 as well as respondents No. 2 & 3 being the Directors of the company as available on the record of the Deputy Registrar. On the other hand Mr. Muhammad Aqil, learned counsel for respondents has placed plioto-copy of a balance sheet for the year ended 39th June, 1994 prepared under the signatures of Ghulam Nabi Loan and Mrs. Irshad Loan i.e. Respondents Nos. 2 & 3. Balance sheets for the years ending 30th June, 1995 and 30th June, 1996, however, were not filed which justifies the inference .That balance sheets and the profit and loss accounts for these years were not prepared.
Even the balance sheet for the year 1994 cannot be considered for the reason that no General Meeting of the members took place for approval of the balance sheet and the profit and loss accounts as none is indicated from the record. There is no gain saying that registered office of the company being located at Karachi, balance sheets hitherto before were prepared by the petitioners Nos. 1 & 3 being Directors of the company and placed before the Annual General Meeting as required by law.
16. For the aforesaid facts and reasons, I am of the. Considered view that a fit case for winding up of the company has been made out on several grounds amongst others that there is complete deadlock in relation to conduct of affairs of the company between the parties for a considerable period of time and that such affairs of the company are not conducted in accordance with the provisions of the Ordinance nor are they likely to be conducted in consonance with the provisions of the Ordinance and thus it is just and equitable that the company should be wound up. Official assignee is accordingly appointed as Official Liquidator with all powers under the Ordinance to take over the assets, liabilities, debts and securities of the company.