1. ' NAZIM HUSSAIN SIDDIQUI, J.--The petitioners have challenged the show-cause notice dated 21-7- 1993 issued by the respondent No,2 under section 265 of the Companies Ordinance, 1984, hereinafter called the Ordinance, and the order dated 28th June, 1994 passed by the said respondent. The facts relevant for decision of this petition are as follows:-- ' The petitioner No,1 Company, under the name and style Al-Ata Textile Mills Ltd., was incorporated in the year 1968 and a Ring Spinning Factory for manufacture of Yarn was established. Due to mismanagement, the company suffered huge losses. It was closed in 1978 and was declared as Sick Industrial Unit and remained closed till 1983. Majority shares of the company, as a Sick Industrial Unit, were purchased by one Muhammad Salman Salfi in the year 1983 and thereafter by a resolution the name of the company was changed from Al-Ata Textile Mills Ltd. To Salfi Textile Mills Ltd, which still is the name of the petitioner-Company. It is the case of the petitioners that new management also failed to run the company and the present management took over the project in the year 1984 and now the petitioner No, 2 is the major Shareholder and its Chief Executive. The petitioners have claimed that as a result of their constant hard work, devotion outstanding management, careful fiscal policies and good marketing, etc. The petitioner's company from being a Sick Unit has now been transformed into a profitable unit. Its sales in the year 1983 was of Rs,9,772,000 and in the year 1992 it reached Rs,369,025,000 and the loss in 1983 was of Rs,1,606,000 while in the year 1992 the loss was eradicated and the company earned a gross profit of Rs,39,813,000. It is alleged that, instead of distributing the profit, it was decided by the Management/Board of Directors that there should be balancing and further modernisation of the Industry to compete with the other modern and better textile mills in the country. The petitioners, therefore, have challenged said show-cause notice and order of the respondent No,2 mentioned earlier.
2. ' According to show-cause notice, dated 21st July, 1993 on examination of annual accounts of the petitioner No,1 for the year ended 30-9-1990, it was noticed that the company had not declared dividend for the last 16 years, and the accumulated losses of the company on 30-9-1992 stood at Rs,47,275 million, as compared to its paid-up capital of Rs,30.387 million, and in this way the equity of the company turned into negative to the tune of Rs, 10.892 million, resulting in a negative break- up value of share to Rs, (3.58) per share of Rs,10. It was noticed that the company is highly indebted and its current obligations are more than its current assets. For above reason the respondent No,2, the Corporate Law Authority, issued notice to the petitioners, under section 265 of the Ordinance, calling upon them to show cause, in writing, as to why inspector should not be appointed to investigate into affairs of the company. Relevant provisions of section 265 of the Ordinance, which have been mentioned in the notice, are as follows:--
(iii) That the affairs of the company have been so conducted or managed as to deprive the members thereof of a reasonable return ; or
(vi) That the affairs of the company are not being managed in accordance with sound business principles or prudent commercial practices ; or
(vii) That the financial position of the company is such as to endanger its solvency : ' The petitioner submitted reply of aforesaid show-cause notice on 8th August, 1993. It appears that the Authority was not satisfied with the reply and by order, dated 28th June, 1994, in exercise of powers conferred under section 265(b) of the Ordinance, appointed respondent No, 3 Abdul Wahid to act as Inspector to investigate into affairs of petitioner's company on a remuneration of Rs,35,000 which were to be paid by the petitioners.
3. ' The case of the respondent No, 2 is that the petitioners' company failed to declare dividend due to the loss for so many years and deprived its Members/Shareholders of reasonable return on their investment. It is alleged that the. Authority, after analysing and examining the material available on record, considered it necessary to issue the said show-cause notice. It is also the case of this respondent that proper opportunity was given to the petitioners to contest their case, but they failed to rebut the allegations. The respondent has claimed that, under section 268 of the Ordinance, it is the duty of the petitioners to provide and give all assistance in connection with the investigation, as is required by the respondent No,
3. The respondent has also challenged the maintainability of the petition on the ground that under section 484 and 485 of the Ordinance, remedy of Revision/Review/Appeal was available to the petitioners, but they did not avail it.
4. ' Respondent No,3 Abdul Wahid filed a statement which has not been challenged by the petitioners.
5. According to this statement, the respondent No,3 had visited the petitioner's company office and met with Mr. Farooq Advani and Mr. Owais and they provided him published copies of accounts of the petitioners company. On 7th July, 1994, the petitioner No,2 Anwar Ahmad Tata gave him one more published copy of annual accounts. Said Farooq Advani of petitioners company had made a programme to visit the factory along with respondent No,3 on 9th July; 1994 and instead thereof the petitioners have filed this petition. The respondent No,3 has claimed that the petitioners have filed this petition after they provided published copies of accounts and after getting an idea/outline of inspection from respondent No,3.
6. ' Mr. Mansoor Ahmad Khan, learned counsel for the petitioners strenuously argued that the show- cause notice is illegal and mala fide as before issuing the said notice the outstanding performance of the company since 1983 till date was not taken into consideration, and, in fact, the notice was issued ignoring the decision of Board of Directors of the petitioners Company, whereby they had decided for modernisation of the Industry instead of distributing the profit to the shareholders.
7. Learned counsel also submitted that during the period commencing from 1983 to 1993 the accumulated losses were reduced from Rs,79,358,714 to Rs,58,567,705 out of the profits and a sum of Rs,20,791,009 was ploughed back for balancing, modernisation, and repair of the Sick Unit. Above contention has no force. It is noted that the figures given in the show-cause notice have not been challenged by the petitioners nor the factum of annual accounts examination of the petitioners company up to 30th September, 1992 has been questioned. It being so, prima facie, it is evident that presently the petitioner's Company is highly indebted and its current obligations are more than its currents assets. Although the petitioners have claimed to have earned huge profit, the fact remains that the profit so earned was not distributed among the shareholders nor dividend was declared for the last 16 years. Under section 265 of the Ordinance, the Corporate Authority is competent to issue show-cause notice on any of the grounds mentioned in said section. In this case the show-cause notice was rightly issued on the grounds mentioned earlier.
8. ' Learned counsel for the petitioners next argued that order, dated 28th June, 1994 appointing respondent No,3 as Inspector to investigate into the affairs of the petitioners-company is not a speaking order in as much as neither it referred to the grounds raised by the petitioners in reply to the aforesaid show-cause notice nor assigned any reason for the rejection thereof. Elaborating it, he submitted that the case was heard by Mr. Iqbal Junejo, while the order, dated 28th June, 1994 was passed by Mr. Shamim Ahmad Khan, Chairman and Mr. Javed Masood, Member. It is true that order, dated 28th June, 1994 does not refer to show-cause notice and to its reply. The fact, however, remains that it was passed after having taken into consideration both the show-cause notice and its reply. Learned Deputy Attorney-General, Mr. Farooq H. Naek for the respondents Nos.1 and 2 explained that after Mr. Iqbal Junejo was transferred the matter was handled by the Chairman and Members mentioned earlier. According to section 11 of the Ordinance, no act or proceedings of the Authority shall be invalid by reason only of the existence of a vacancy in, or defect in the Constitution of the Authority. No prejudice was caused to the petitioners. It appears that the respondent No, 2 by letter, dated 11th May, 1994, had directed the petitioners to supply the detailed information's regarding alleged investment of Rs,30.481 million as shown in Note-14 to the account for the year ending 30th September, 1992, especially the investment of Rs,30.000 million made in an associated undertaking i,e, M/s. Tata Textile Mills Limited, details of purchase of Spindles, and to supply a copy of members register complete in all respect, but these information's were never supplied by the petitioners and consequent upon failure to supply the above information's and to provide other necessary details, the order dated 28th June, 1994 was passed. Under the circumstances said order is just and proper and no exception can be taken to it. So, this contention is also without any force.
9. ' The respondent No, 3 would be entitled to Rs, 35,000 as remuneration to be paid by the petitioners on submissions of his report to the respondents.
10. ' In consequence, we do not find any merit in this petition and the same is dismissed in limine.