After hearing the learned counsel for the parties I dismissed Civil Original No. ?0 of 1974, with costs for reasons to be recorded later. I now proceed to give the reasons which prompted me to pass the above order.
2. Civil Original No. 30 of 1974 is really an outcome of an attempt at settling the dispute arising from Civil Original No. 23 of 1974 which was submitted by Muhammad Raza Khan etc., under section 162 of the Companies Act, 1913, for the winding up of Hunza Central Asian Textile and Woollen Mills Ltd., Rawalpindi.
3. The facts relevant for the disposal of this petition, as stated in the petition for winding up of Hunza Central Asian Textile and Woollen Mills Ltd., are that the Company is a private limited company which was incorporated on the 19th August, 1963. The capital of the Company was Rs. 5,00,000 which was divided into 5000 shares of Rs. 10.) each, which were allotted to Brig. Mir Mukammad Jamal Khan, Muhammad Umar Khan, and Hajji Ghulam Muhammad Khan. The first two had 1500 shares each while the last named Member had 2000 shares. Muhammad Umar Khan died in November, 1970, leaving a widow Mst. Kulsoom Bibi, five sons and eight daughters. His shares were distributed among his heirs. The eight petitioners in the petition for winding up amongst whom three are the sons of Muhammad Umar Khan deceased, for Ore his daughters and one is his widow, were allotted 1224 shares. Muhammad Umar Khan, during his lifetime, was excluded from tli,~ maikkagement of the Company by various illegal and fraudulent methods. Haji Ghulam Muhammad Khan increased the share capital from Rs. 5,00,000 to Rs. 1 0,00,000 without the knowledge of Muhammad Umar Khan and prepared for this purpose fake resolutions purporting to have been passed in a meeting dated the 25th May, 1965, which was actually never held. After icereasing ..,the capital, Haji Ghulam Muhammad Khan, contrary to the provisions of section 105-C of the Companies Act and without offering the shares to the shareholders in vroportion to the shares already held by them, allotted 2750 shares to himself on the 22nd April, 1966. On the 1 st June, 1970, he allotted 1250 shares of the increased share capital to all the three Directors. He gave five hundred shares each to himself and Muhammad Umar Khan and 250 shares to Brig. Jamal Khan. Thus by the illegal allotment of these 3250 shares to himself he acquired preponderant majority of the shares in the company and altered the original share structure of the Company in a manner as to have the control of the Company himself. After the death of Haji Muhammad Umar Khan, his heirs were also kept in dark about the affairs of the Company and they were never served with notice of any meeting of the, Company nor did they receive any dividend or any information from the Directors. Only, monthly allowance of Rs. 1.5(3:) was paid to them by the Managing Director about the real nature of which no information was ever given to them. When the heirs of Haji Muhammad Umar Khan deceased became aware of the illegal increase, they protested to the Managing Director. Later on it was found that She remaining 1000 shares had been given by Ghulam Muhammad Khan to his own son Ghulam Qadir Khan on the 13th September, 1972, again without complying with the provisions of section 105-C of the Companies Act and in this manner the Managing Director further strengthened his illegal control of the Company. On the 15th January, 1972, Presidential Order known as Companies Managing Agencies and Election of Directors Order, 1972, was enforced. By this order the existing Directors of all the companies were retired and a provision was made for the election of new Directors according to the procedure provided by the Presidential Order. The intention of the Presidential Order was to protect the rights of the majority shareholders but Haji Ghulam Muhammad Khan without holding a meeting and without associating the heirs of Muhammad Umar Khan, prepared false-.. Records of election of three Directors including himself, the other two being his own wife and Mir Muhammad Jamal Khan. The heirs of Muhammad Umar Khan were in this manner excluded from the Company. The Company which produces textile and woollen goods, has, during the last few years earned huge profit but no dividend was ever paid to the heirs of Muhammad Umar Khan although the Managing Director, namely, Ghulam Muhammad Khan himself lives luxuriously in a Company's bungalow in the Mills premises without paying any rent and he has built a second bungalow at the Company's expenses for his son Ghulam Qadir Khan notwithstanding the fact that the expenditure for construction was never authorised. The Managing Director keeps false and bogus books of account. He maintains a personal account at the Company where the turn over runs into lass although his salary is only Rs.
2,000 p.m. These are the relevent allegations.
4. During the tendency of this petition for winding up an application under sections 153 anti 153-A of the Companies Act (Civil Original No. 30 of 1974) was filed for approval by this Court of a proposed compromise between the Company and the shareholders. It is proposed that the Company may be allowed to reduce its capital by a sum of Rs. 1,25,400 for which amount the petitioners in the winding up petition hold shares in the Company and to pay off this amount to the above petitioners by issuing debenture of the total face value of Rs. 1,50,000 divided into 1500 fully paid-- up debentures of Rs. 100 each redeemable at the option of the Company and carrying in the meantime simple interest at the rate of 12 per cent. Per annum. According to the petitioner this proposal has been sanctioned by the Board of Directors who passed a resolution to that effect. The Company shall however take appropriate steps for the adoption of the said resolution by the Company in an extraordinary general meeting in accordance with the requirements of Article 50-A of the Articles of Association and section 55 of the Companies Act in order to reduce the capital equivalent to the shares of the dissident shareholders viz., the petitioners in Civil Original No. 23 of 1974. The petitioners in Civil Original No. 23 of 1974 opposed the petition under section 153 of the Companies Act on the ground that this was a device to oust them from the membership of the Company. It was averred that the application was mala fide and had been moved to delay and confuse the real issues before this Court. Objections have also been raised regarding the maintainability of the petition and it is further proposed that the petitioners in Civil Original No. 23 of 1976 `are willing to pay twice the value offered to them for the shares of the respondents'. The legality of the resolution of the Directors has been challenged on the ground that the resolution was passed by an improperly constituted Board of Directors. Lastly, it was stated that the shares of the petitioners in Civil Original No. 23 of 1974 were not correctly indicated in the application because one of the issues framed in the petition for winding up is that share capital was illegally increased without an offer to the shareholders under section 105-C of the Companies Act, 1913 ; if the provisions of this section had been complied with the shares of heirs of Muhammad Umar Khan would have increased substantially.
5. Mr. Muhammad Amin Butt, Advocate, appearing for the Company argued on the point of maintainability of the petition that an application for reduction of capital by paying off only some of the shares of a particular class of shareholders is within the ambit of the Companies Act in view of tile provisions of Article 50 of the Articles of Association and sections 55 and 153 of the Companies Act. He argued that the purchase of shares of a minority by paying them off is a well known method of reduction of capital and it is not necessary to bring about the reduction by a pro rata reduction from each share and by making all the shareholders to suffer equally. He relied upon British and American Trustee and Finance Corporation v. Couper ((1894) 70 L T R 882and a number of other cases. He further cited Katni Cement and Industrial Co. Ltd. (AIR 1929 P C 256and India Flour Mills Ltd. (AIR 1934 Sind 54) on the object of section 153 and the conditions laid down for exercise of jurisdiction under that section. Mr. Muhammad Amin Butt, Advocate, also argued that it would be fair and equitable to allow this compromise or arrangement in the interest of the Company as well as its members. He stated that the dissidents may be compensated by payment of the face value of their shares, although the market value of each share is now Rs. 53.32. The dissidents will thus get better return for their shares while the Company will be saved from the trouble of further litigation and the risk of winding up.
6. Mr. Wasim Sajjad, who appeared for the dissidents argued that section 153 is for safeguarding the rights of minority and not for confiscation of their rights. Moreover, it will be of no avail to act under section 153 in view of the unanimous opposition of all those persons whose shares are proposed to be purchased by the Company for reduction of the capital. He argued that section 153 deals inter alia with a compromise or arrangement between the Company and a class of its members, and in order to safeguard the rights of the members of the class, it provides that a resolution in support of the compromise or arrangement must be passed by a majority of members representing 3/4th value of the shares of members of that class. In the present case the class comprises of the petitioners in Civil Original No. 23 of 1974. The petition under section 153 can succeed only if a majority of members representing 3/4th value of the shares of members of this class acquiesces in the reduction of capital as proposed. He dealt with the interpretation of the word 'class' in section 153 and urged that the petitioners in Civil Original No. 23 of 1974 form a class separate from the other shareholders and if a meeting under that section is arranged it would be of this class only and not of all the body of the shareholders. The learned counsel, also threw light on the unreasonableness of the offer and brought to the fore the counter offer of the petitioners is Civil Original No. 23 of 1974 to purchase all the shares of the Company at double the face value. He stressed that the suggested arrangement will be contrary to public policy since if there is any such precedent that the petitioners in the liquidation petition may be ousted by the management of the Company by resort to the procedure of reduction of capital, hardly any application for winding up of the Company submitted by the shareholders thereof can succeed and the management in such case will have power to indulge in all types of irregularities to the detriment of the shareholders particularly the minority.
7. In reply, Mr. Muhammad Amin Butt argued that the word "class" in section 153 means only the shareholders who own shares of particular classes, for example, ordinary shares, preference shares, deferred shares, etc., and consequently the matter of reduction of capital under section 153 can be decided by 3/4th of the majority of the members holding shares of three-fourth value of shares of the entire capital forming that type of shares. It may be stated that during the course of his main argument he had conceded that the word "class" does not mean the class of persons holding a particular class of shares. When he was confronted with this concession, he stated that it was a mistaken admission and since the admission was on a point of law he could revoke it. In regard to the offer of the petitioners in Civil Original No. 23 of 1974 to purchase all the shares in the Company at double the face value, he argued that this was most unreasonable since there is a distinction between the controlling shares and the shares of a minority. The controlling shares are extremely valuable and cannot be sold or thrown away even at double the face value.
8. This is an established principle that the company cannot purchase its own shares. This is, however, subject to an exception provided by section 55 of the Companies Act. Section 55 provides that "(1) Subject to confirmation by the Court, a Company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its Articles, by special resolution reduce its share capital in any way, and in particular without prejudice to-- the generality of the foregoing power, may-
(a) extinguish or reduce the liability on any of its shares in respect of share capital not paid up ; or
(b) either with or without extinguishing or reducing liability on any of its shares, cancel any paid-up share capital which is lost or unrepresented by available assets ; or
(c) either with or without extinguishing or reducing liability on any of its shares, pay off any paid-up share capital which is in excess of the wants of the company, and may, if and so far as is necessary, alter its memorandum by reducing the amount of its share capital and of its shares accordingly.
(2)
The share capital can, therefore, be reduced inter alia by paying off any paid-up share capital, if such reduction is authorised by the articles and if it is consumed by the Court. Article 50 of Articles of Association in sub--Article (e) authorises the Company "to reduce its capital in any manner authorised and subject to any condition prescribed by the statutes". It is this principle of section 55 which is being invoked by the Company in support of its proposals for compromise or arrangement under section 153 of the Act Section 153 does not deal specifically with reduction of the capital. But it envisages all types of compromise or arrangement between a Company and its creditors or any class of them, or between the Company and its members or any class of them.
Like the decision of reduction of capital in section 55, the compromise or arrangement under section 153 is also subject to the sanction of the Court. There can be no doubt that compromise or arrangement under section 153 does envisage the reduction of capital of the Company in the manner provided by section 55 of the Companies Act provided that the other conditions of section 153 are fulfilled. These conditions are that-
(1) the compromise or arrangement should be proposed-
(a) between a company and its creditors ; or,
(b) between a company and any class of its creditors ; or
(c) between a company and its members ; or.
(d) between a company and any class of its members.
(2) The proposal should be made by the Company, or its creditors or members or in case of a company being wound up, by the liquidator.
(3) The arrangement for compromise must be agreed to by majority in number representing three-fourths in value of the- n) creditors ; or
(ii) class of creditors;
(iii) members ; or
(iv) class of members ; present either in person or by proxy at the meeting.
(4) The compromise arrangement must be sanctioned by the Court.
9. It is, therefore, clear that if arrangement for compromise is proposed between a company and a class of members, it must be agreed to by the majority representing three-fourth in value of that class and not by three. Fourth of the majority of all the members of the company. This proposition was not contested by Mr. Muhammad Amin Butt.
10. The word "class" has been the subject-matter of the judicial interpretation in a number of cases.
In Sovereign Life Assurance Company v. Dodd ((1892) 2.Q B 573) the word "class" was interpreted by Bowen, L. J. It was stated that "It seems plain that we must give such a meaning to the term 'class' as will prevent the section being so worked as to result in confiscation and injustice, and that it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest."
It was held in that case that the holders of life insurance policies which have matured form a distinct class from the holders of policies which have not matured. In re: United Provident Assurance Company Limited ((1910) 2 C H 477)it was held that where a company had issued shares, some of which were fully paid, others partly paid, and others partly paid but the unpaid balance had been paid up in advance of calls, the shareholders formed three distinct classes, and a single meeting could not be held for the holders of fully paid shares and the holders of partly paid shares who had paid up the balance of their ca ital in advance of calls. In Cprruth v. Imperial Chemical Industries Limited ((1937) 2 All B R 422-(1937) A C 707)the company had put up a scheme for reduction of capital affecting the deferred shareholders only. It was observed that "If the consent of the class to the variation of its right is to be given by a resolution passed at a separate meeting of shareholders of that class, only shareholders of that class may attend and speak and vote."
Since to that case no member of the class of shareholders concerned objected to the holding of the class meeting and general meeting together it was held on the facts of that case that the class of shareholders will be taken to have waived their right to a separate meeting and the variations resolved upon and consented to at the joint meeting will be effective. The same definition was adopted with approval in Manikganj T. & B. Co. v. Madhabendra (AIR 1936 Cal. 162) and In re: Light of Asia Insurance Co. Ltd. (AIR 1942 Cal. 578It was stated in the latter case using the phraseology of Sovereign Life Assurance Company v. Dodd that "If different state of facts exists among different creditors which may differently affect their minds and their judgment they must be divided into different classes . . . . . . . . . . . It must be given such a meaning as will prevent the section being so worked as to result in confiscation and injustice and it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest."
Prior to the - addition of subsection (6) to section 153 by Act XXII of 1936, which provides that unsecured creditiors who may have filed suits or obtained decrees shall be deemed to be of the same class as other unsecured creditors; it was held in a number of cases that the creditors who have obtained decrees belong to a different class from other creditors. Reference may be made to
(1) Manlkganj Trading and Banking Co. Ltd. v. Madhabendra Kumar Shaha and another AIR 1936 Cal. 162.
(2) Noakhali Loan Co. Ltd. v. Hemendra Narayan Jtoy AIR 1936 Cal. 402.
(3) In re: Dewangunj Bank & Industry Ltd. AIR 1935 Cal. 117.
(4) Srt. Shushila Bala Basu v. Anjuman Trading and Banking Co. Ltd. And another A I It 1935 Cal. 398.
(5) Sudhanya Kumar Rahut v. Faridpur Loan Office Ltd. AIR 1937 Cal. 10.
(6) Mahiganj Loan Ofce Ltd. v. Beharl Lal Chaki AIR 1937 Cal. 5U7.
(7) Krishna Nath Sen v. Dinajpur Loan Office Ltd. AIR 1938 Cal. 337. .
11. The words "compromise or arrangement" also throw light on the interpretation of the word "class". A compromise has been described as an agreement terminating a dispute between the parties as to the rights of one or both of them, or modifying the undoubted rights of a party which he has difficulty in enforcing. Sneeth v. Valley Gold Limited ((1893) 1 Ch. 477and Mercantile Investment and General Trust Company v. Internattunal Company of Mexico ((1893) 1 Ch. 484An arrangement on the other hand embraces a wider class of agreements and it need be in no way analogous to a compromise. In re: Guardian Assurance Company ((1917)1 Ch. 431and In re: Katni Cement and Industries CO. Ltd. One instance of this is given at page 436 of Pennington's Company Law (Second Edition) that arrangement will include agreements which modify rights about which there is no dispute and which can be enforced without difficult.
12. It will, therefore, be evident that if any dispute is settled by compromise between a company and a contending party by which the undoubted rights of a party are modified or there is an arrangement which modifies rights of a particular party about which there is no dispute, the party whose rights are modified will form a class since their rights are no so dissimilar as to make it impossible for them to consult together with a view to their common interest. On the other hand, a party which benefit from the modification of the rights will have absolutely similar Interest or to put it differently the rights of the members of that party will not be so dissimilar as to make it impossible for them to consult together with a view to their common interest. In the present case, the interest of shareholder who want the company to purchase the shares of other shareholders except themselves cannot be similar to the interest of the shareholders whose rights are intended to be purchased particularly when the latter category is not agreeable to being divested of their shares in the Company. The dispute being between the Company on the one hand and the petitioners in Civil Original No. 23 of 1974, on the other, and the resolution of the dispute being intended by a method coercing the said petitioners to part wit their shares, the interest of the two parties cannot be said to be similar and they cannot be deemed as one class. If a meeting for approval of the proposed compromise or arrangement is to be held it must be the meeting of the class which would be affected by the proposed compromise or arrangement 1 e. the meeting of only the petitioners in Civil Original No. 23 of 1974 and not of the other shareholders.
13. The argument of the learned counsel for the petitioners is based upon the analogy of classification of shares as ordinary, preference, deferred etc. But section 153 does not deal with the classification of shares. It deals with classes of members or classes of creditors in a dispute between the company; and the class of members or the creditors. The classification therefore had to be made keeping in view the parties to the dispute which is required to be settled. In some cases indexed the shareholders holding a particular class of shares may form a class, but it would be unduly restricting the scope of 'class' to limit it to persons holding particular class of shares.
14. Mr. Muhammad Amin Butt laid much emphasis on the contention that it is not necessary for the Company to reduce capital pro rata of all members of the Company. He argued that the Court has jurisdiction t sanction reduction of capital of the shares of some members of the same class. He also argued that the three grounds in section 55 of the Companies . Act are only particular instances, but they cannot, be deemed to be' exhaustive in view of the general language of section 55 which particularizes the three grounds "without prejudice to the generality of the foregoing power". There is ample authority for both these propositions. In support, of the last proposition, reference may be made to In re: Louisiana & Southern States Real Estate and Mortgage Company ((1909) 2 Ch. D 552The basic authority on the first proposition which has always been followed is the case of British & American Trustee & finance Corporation v. Couper (1894 A C 399It was held in that case that it is not necessary that the reduction should affect all holders of the same class of shares. If all the shareholders were of the opinion that its capital should be reduced and that this reduction would best be effective by paying one shareholder and cancelling the shares held by him, their resolution to this effect would not be ultra vires, since there is no expression in the statute to indicate that the discretion of the Court with respect to an application to reduce capital does not extend to any possible mode of reduction and capital may be legitimately reduced by buying out some of the members of the Company. The reasoning in this case applies to the provisions of sections 55 and 153 of the Companies Act, 1913. It can hardly be contended on this reasoning that the reduction of capital should always be made pro rata from all the shares. It is, therefore, unnecessary to refer to the other authorities produced by the learned counsel on this point. But this case is authority only for the feasibility of the reduction of capital by paying off some of the share- holders of a particular class. It is, however, within the discretion of the Court to sanction or refuse to sanction such a scheme as is clear from the following observation of Lord Herschell L. C.
"It was the policy of the Legislature to entrust the prescribed majority of the share-holders with the decision whether there should be a reduction of capital, and, if so, how it should be carried into effect. The interests of the dissenting minority of the share-holders (if there oe such) is properly safeguarded by this ; that the decision of the majority can only prevail if it be confirmed by the Court."
15. The Noble Lord laid down a rule of guidance for the exercise of this discretion in the following words :- "There can be do doubt that any scheme which does not provide for uniform treatment of shareholders whose rights are similar, would be most narrowly scrutinised by the Court, and that no such scheme ought to be confirmed unless the Court be satisfied that it will not work unjustly or unequitably. But this is quite a different thing from saying that the Court has no power to sanction it."
16. Lord Macnaghten while dealing with the Court's powers struck oil' a note of caution that "it is for the Company alone, to judge of the prudence of the course proposed . . . . . . If the parties to the transaction come to the conclusion that the bargain is a fair one, why should the Court say that there is a preference on the one side or on the other". But he also added that the Court should interfere if there is anything unfair or inequitable in the transaction. In another case Poole v.
National Bank of China Ltd. (1907 AC 229) a Lord Macnaghten saw no reason to alter or modify what he said in the earlier case, but before deciding the case he posed two questions and decided it in the light of the answers furnished by him to those questions. These two questions are :-
(l) Ought the Court to refuse its sanction to the reduction out ref regard to the interests of those members of the public who may be induced to take shares in the Company ? And
(2) Is the reduction fair and equitable as between the different classes of share-holders ?
17. The principle of these authorities of the House of Lords is that, while the Court should keep in view the dictum that the question of reducing capital is a domestic one for' the decision of the majority and that their decision bus been arrived at by businessmen who are fully congnizant of their necessities que, are the best custodians of their interests and should, therefore, be slow to interfere, the interest of the minority has to be protected and no scheme should be unfair or inequitable to it. See also In re: Khottar Electrical Engineering & General Supply Company Ltd., D. 1.
Khan (AIR 1938 Pesh. 41 and In re: Light of Asia Insurance Company Ltd.
18. Section 153 does not specifically deal with the question of reduction of capital. It may be considered only as one of the several modes in which a compromise or arrangement may be approved by the Court. The approval will, however, be subject in such a case to the provisions of section 55 which being specific in regard to a particular category of cases, cannot be ignored. Now as stated above, section 55 deals particularly with three types of cases in which the reduction of capital can be sanctioned by the Court. No doubt this particularisation does not prejudice the generality of the powers conferred by the section, but the section cannot be considered to confer upon the Company the power of arbitrarily reducing its capital. It is for this reason that it has not been left to the Company to determine the question finally in a meeting held in accordance with the provisions of section 81 of the Companies Act, but makes a further provision of such resolution being subject to confirmation by the Court. If the matter is viewed from this point, it will be clear that the three illustrative cases described in the section deal with the majority of cases in which the reduction of capital can be allowed without the charge of 'arbitrariness. These three cases deal with the-
(a) extension or reduction of the liability on any of its shares in respect of the share capital not paid up ;
(b) cancellation of any paid up share capital which is lost or unrepre--sented by available assets ; or
(c) paying up any paid up share capital which is to excess of the wants of the Company.
In all these three grounds, reasons for reduction have been given which no prudent man can challenge as unreasonable. These reasons are for extension or reduction of liability. The reasons suggested are that-
(i) the liability is proposed to be extinguished or reduced ;
(ii) the available assets do not represent the share value ; or
(iii) the paid up share-capital is lost ; or
(iv) the share capital is in excess of the wants of the Company.
This further supports the view that arbitration was: not to be countenanced in the reduction of capital. Since three grounds cover most of the cases in which the reduction of capital may be necessary, I am of the view that any other ground for reduction should be analogous to the three ground given in section 55. If a matter is not covered by the grounds and section 55 or analogous grounds, I cannot countenance it as being one of the cases to which section 153 may apply.
The reduction can, therefore, be allowed only when the decision can prudently be arrived at by businessemen in the interest of the business o the Company and not for the confiscation of shares.
The Court, shall ensur that a scheme does not unfairly prejudice any present or future share-holder or creditor. Westburn Sugar Refineries Ltd. ((1951) 1 All E R 881 - 1951 A C 625 (635)per Lord Redcliff: In re: Katni Cement and Industrial Company Ltd. the test of reasonableness of the scheme is whether it is regarded by reasonable people, conversant with the subject as beneficial to both sides and `not only to those who are making it. It was held in In re: Holders Investment Trust Ltd. ((1971) 2 All E R 289that if a scheme of reduction involves an alteration of right to a class of shares, and by the Memorandum or Articles, the consent of a meeting of the class is required, the Court will not approve the reduction of capital of class, consent obtained by the vote of the holders of a majority of the shares of the class who did not act in good faith in the interest of members of the class generally but who wished to promote some other interests of their own such as their interest as holders of a different class of shares. In re : Cooper, Cooper & Johnson Ltd. (1902 W N 199the Court refused to approve a scheme which merely provided for. The reduction of the Company capital.
Similarly In re: St. Court Estate Ltd. (1944 Ch. 6) the Court refused to approve a scheme for the conversion of preference shares into redeemable preference shares, a second reason given for its decision was that the Company could carry out the scheme by issuance of new redeemable shares for cash and using the proceeds to pay off existing preference shares or a duly authorised reduction of capital.
19. Applying these principles to the present case it will be seen that the aim and object of the petition is merely to strangulate all opposition to the management of the Company. It is a device to strengthen the control of the present management over the affairs of the Company by curbing any opposition to it. Generally the opposition to the management comes from a minority and if a precedent is created by allowing reduction of capital by excluding such opponents, it will amount to providing a handle to the majority to indulge in misdeeds without any apprehension or danger of accountability or exposure in a Court of law. The proposal to say the least is actuated by bad faith and is arbitrary.
20. The petitioners in Civil Original No. 23 of 1974 have attacked the present management on the ground of violation of section 105-C of the Companies Act and have challenged the vires of the Managing Director's alleged action in allotting to him 3250 shares and allotting to his son 1000 shares out of 5000 shares of enhanced capital thus giving himself a very strong controlling position in the Company. Their case is that Muhammad Umar Khan, their predecessor-in-inserest and after his death, his heirs were entitled to the offer of at least 1500 shares out of the increased capital of 5000 shares. This is one of the points which requires determination in Civil Original NQ. 23 of 1974.
The management by this proposal wants to deprive the petitioners in the winding up petition of their right to seek judicial determination of this matter. This amounts to closing the gate of justice to them. For this reason also the proposal is-most unreasonable.
21. Another question which has been raised by the petitioner is whether the present management is legally constituted. The proposal has been put forward with a view to throttle the course of justice in respect of this question.
During arguments of the learned counsel for the petitioners I failed to find out any ground from which I could infer that the proposal has be made in any manner in the interest of the Company.
That it has been mad to confiscate the shares of the minority is more than evident from the conduct of the management which is willing to purchase the shares of the petitioner in the winding-up petition on face value, but is not willing to part with its own shares even for double the face value. The order passed by me dismissing the petition under section 153 with costs is justifiable for these reasons. s. A. H. Petition dismissed,