' The facts of the case are that respondent No,1 is a Public Limited Company. The petitioners and respondents 2 to 7 are the shareholders. The petitioners are holding 25% of the total issued, subscribed and paid-up capital of respondent No,1 company and are holding 25% of the voting powers. Petitioners Nos.1 and 2 are also directors of the company.
2. The Board of Directors of the company decided to issue 60 Millions right shares and accordingly Letters of Rights were issued. The subscription was payable by 2-4-1995 which date was subsequently extended to 17-4-1995. The petitioners have filed the above petition under sections 305 and 306 of the Companies Ordinance, 1984 for winding-up respondent No,1 company. They have also filed Civil Miscellaneous Application for injunction to restrain respondent No,1 company from issuing 6,000,000 ordinary shares of Rs,10 each as right shares payable in full before 17-4-1995 and further restraining the company or their agents from collecting the share subscription amount on the letters of rights till the final hearing and disposal of the petition.
3. I have heard the learned counsel Mr. Muhammad Ali Sayeed for the petitioners and Mr. Nizam Ahmad for respondents Nos.1 to 7.
' Learned counsel for the petitioners had contended as under:--
(i) That the company has been incurring losses from 1983-84 till 1993-94. It is not able to pay its debts, with the result that United Bank Ltd. The creditor has filed J.M. No,67/1990 for winding up of the company. According to him, the profits shown in the years 1993 and 1994 are window dressing and are not the actual profits.
(ii) That the company is being run by respondents Nos.2 to 7 as sole proprietor concern and the petitioners have been excluded from their participation in the affairs of the company. The Board meetings are never held and they have been described by the learned counsel as paper meetings, wherein the resolutions are drafted in secrecy and put on record.
(iii) Although it is disclosed that the question of increases in the capital of the company was decided on 10-4-1994 but the petitioners came to know about it only in March 1995, when the petitioner received letters of.Rights dated 12-1-1995.
(iv) It was further urged by him that the affairs of the company are being conducted in violation of the provisions of the Companies Ordinance, 1984.
' The funds of the company were being misused. He referred to the minutes of the meeting of the Board of Directors held on 20-9-1992 which show that a sum of Rs,600,000 was paid to S. Ferozuddin Baweja, respondent No,2, management consultant for dealing and negotiating with the Holiday Inn Asia Pacific Region for a franchise contract and a further sum of Rs,2,000,000 was paid to him for reimbursement of expenses incurred on his bypass surgery in USA, as resolved in the meeting of the Board held on 16-1-1993. The respondents have been indulging in speculative business. In their meeting held on 8-6-1993, resolution was passed for investment of Rs,5,000,000 in the share market. The directors have also been guilty of insider trading. In support of this allegation, he relied on letter dated 18-1-1988, received by the company from the Corporate Law Authority. The funds are being misused with the result that the company has lost its substratum.
(v) The learned counsel lastly contended that in case the proposed shares are issued, they will not attract the purchasers and NIT also will not be interested in purchasing the shares and consequently the majority shares holders would increase their ratio of share holding and the petitioners, who have always been oppressed will be further oppressed by the respondents.
4. With reference to the first submission of the learned counsel for the petitioners, contesting respondents have denied the allegation that the company has run into serious losses as alleged.
They have also denied that the accounts have been manipulated. It is disclosed by them that the company has earned profits for the last several years. In the year ended on 30-6-1993 the company made substantial profit of Rs,32.588 millions which has wiped off all the previous losses, if any. The company has paid approximately Rs,10 millions as income-tax during the year 1992-93.
They have filed photocopy relating to the aforesaid payment. It is disclosed that prior to 30th June, 1991 the company did not make any net profit due to the general economic condition that pervaded in the decade of eighties, which affected all the trade and business in general and tourism industry in particular. However, these losses were not physical in nature, being depreciation losses. In fact the company had earned profit of Rs,92.317 millions, that is, before deduction of depreciation allowance. During the said period fixed assets of the company increased to the extent of Rs,124.992 millions, long-term liabilities decreased by paying off Rs,26.812 millions against bank loans and Rs,274 millions against refund of security deposit. During the financial years 1991-92, 1992-93 and 1993-94, the company earned total net profit of Rs,38.611 million which is about 32 per cent. Of the total paid-up capital for the company. In view of the above disclosure the submission of the learned counsel for the petitioners that the said profits are window dressing cannot be presently accepted. The above submission made on behalf of the respondents, are based on the books of accounts. No doubt the company has not paid dividend to the shareholders. It is stated that the dividends though could have been given but it was decided by the company to use the funds for the renovation for the hotel and its conversion into a five star hotel and its linkage with the international chain of "Holiday Inns". It has been done and the hotel's name has been changed in keeping with the franchise as "Holiday Inn Crown Plaza". With regard to the loan of UBL it is stated that the substantial loan has been already paid and only the question of penal interest and interest on the penal interest is to be resolved for which negotiations are in progress. Prima facie the company appears to be making profits and going forward. In any event above objections would be relevant at the time of final decision of the main petition.
5. The second submission of the learned counsel is based on the allegation that the petitioners are never sent the notices of the meetings of the company. The petitioners Nos.1 and 2 are members of the Board of Directors. The petitioners in support of the above contention have filed nine notices sent by them to the Managing Director and Chief Executive of the company. Three of these notices are dated 12-2-1995, two are dated 15-2-1995 one is dated 19-2-1995 other two are dated 21-3-1995 and the last one is dated 22-3-1995. In none of these notices complaint has not been made with regard to non-receipt of the notices of the meetings. No other letter or any material has been produced to demonstrate if any complaint has ever been made in this context. The meetings of the company are held in accordance with the Memorandum and Articles of Association of the company. The petitioners are holders of 25% of the total paid-up shares of the company. Had the respondents conducted the meetings, clandestinely or secretly, the petitioners with their substantial shareholding would not have kept silent for a long time. However, the allegation of the petitioners that they come to know about the issuance of the rights shares only in March 1995 although the decision in this regard was taken on 10-4-1994 needs to be considered in some detail as it is relevant for decision of the civil miscellaneous application under consideration. The decision to issue rights shares was taken in the Board's Meeting held on 25-5-1994. The learned counsel for the respondents at the time of hearing produced letters dated 18-5-1994, alongwith TCS receipts informing the directors including the petitioners 1 and 2 about the date and time of the above meeting. Prima facie the above evidence is sufficient to infer that the petitioners had the notice of the above meeting.
' It is further disclosed by the respondents that in Board's Meeting held on 26-9-1994 all the minutes of the meetings of the Board since last Annual General Meeting were read out, but no objection was raised on any issue including the issuance of rights shares. In the meeting held on 6th September, 1994 the issue of rights shares was discussed and the bankers were appointed for receiving the subscription. The petitioners were present in that meeting. They neither made any grievance, nor raised any objection on the said subject. All the matters were resolved unanimously.
The public announcement relating to the rights shares was made in the newspaper on 3-1-1995 after complying with all the formalities in this respect.
' In the above circumstances the submission of the learned counsel that the petitioners came to know about the issuance of the rights shares in March 1995 is not justified.
6. With regard to the fourth submission suffice to say that the decision to make payments to Feroz- ud-Din Baweja was taken by the Board of the Director in the meeting held on 20th September 1992.
The record does not show if any objection was taken by the petitioners particularly the petitioners 1 and 2 against. The said payments. The petitioner, therefore, cannot be permitted to make grievance thereof. However, the above payment cannot be a justification for passing an order to block the passage of issuance of rights shares. Same reason will apply to participation of the company in speculation business pursuant to the resolution passed by the Board of Directors in the meeting held on 8-6-1993. No doubt some of the directors appear to be involved in insider trading as reflected in the letter dated 8-1-1988 issued by Corporate Law Authority. It is not known what action was taken by the said authority. In so far as petitioners are concerned they have remained silent for over 7 years. The said respondents are not alleged to have indulged in such acts thereafter.
' However, the above solitary instance has no bearing on the application under consideration.
' The allegation that the company has lost the substratum, prima facie is not established on the facts on record.
7. This brings us to the last submission of the learned counsel for the petitioners to the effect that the shares will not attract purchasers and consequently they will be taken by the respondents and thus the petitioners would be reduced to minority shareholders.
' The respondents have disclosed that the company has already received more than 40 million against the rights shares and the bankers of the company have received and are receiving further amount on account of the said shares.
Learned counsel for the petitioners further submitted that the rights shares will not attract the purchasers and therefore, all the shares would be purchased by respondents 2 to 7 with the result that the petitioners would be reduced to minority shareholders and consequently the said respondents would adopt all possible oppressive methods. The above submission is misconceived.
Whatever rights shares remained unsold, they still would remain rights shares and the said respondents or the management of the respondent No,1 cannot appropriate rights shares for their benefit as the said shares will remain rights shares they are to be offered to the interested shareholders for purchase in ratio to their shareholding and it may be repeated such shares cannot be dealt with in any other manner.
' The above are the reasons for the short order dated 17-4-1995 whereby it was ordered that the respondents 1 to 7 shall issue 1.5 million rights shares to the petitioners as per letters of rights issued to them, subject to deposit of value of the shares as stated in the respective letters of rights within one month from the date of the said order.