1. ' Judicial ,Miscellaneous No, 4 of 1989 is petition under section 305 read with section 309 of the Companies Ordinance, 1984, for winding up of the respondent No,1 Company on various grounds: ' It is alleged that the company is liable to be wound up because (i) the company issued fresh capital on 12th March, 1988, in illegal manner and in violation of section 86 of the Companies Ordinance, 1984, (ii) the Company has failed to maintain accounts, (iii) the tenancy of the building known as Badri Building, situated on I.I. Chundrigar Road, Karachi, has been transferred illegally to M/s. Ismail Sons Limited, which is wholly owned by respondent No,2, Sami Ahmed Shaikh and his family, (iv) the amount of commission received from M/s. Stahl Ltd. Has been misappropriated by the respondents, (v) the company has failed to hold meetings as required by law and its Memorandum and Articles of Association, (vi) the Articles of Association have been amended illegally, (vii) a person who was not a member of the company was appointed Director, (viii) the service laboratory of the Company has been intentionally kept in the premises of M/s. Ismail Sons Ltd., (ix) M/s. Ismail Sons Ltd. Is housed in the factory premises of the Company, (x) M/s. Ismail Sons Ltd. Is carrying on the same kind of business as company in the company's factory, (xi) the petitioners have been denied the right to examine the records of the company, and (xii) it is just and equitable that the company be wound up.
2. ' It is an admitted position that the petitioner No,1, respondent No,3 and respondent No,7 carried on business in partnership in the name of Unichem Corporation, under a Deed of Partnership, dated 1st July, 1973; that they carried on such business for and on behalf of themselves and members of their respective families; that their respective shares in the capital and in the profit and loss of the partnership was in the ratio 40:40:20; that the partnership was converted into a private limited company in the name of Unichem Corporation Ltd. And, the company was incorporated on the 1st July, 1976. It is also an admitted position that the shares in the said company were and are held in the names of the family members of (1) Abdullah Ismail, (2) Sami Ahmed Shaikh and (3) Saeed Ismail (hereinafter, respectively, referred to as AI Group, SAS Group and SI Group). There is no dispute that the shares were held by the aforesaid Groups up to the year 1983 in the proportion shown below:-- {{TABLE}} 1977 1978 1979 1980 1981 & 1982 1983 AI GROUP 836 836 1466 2658 2733 4237 SAS GROUP 836 836 1466 2676 2751 3880 SI GROUP 506 506 821 1443 1480 1480 {{TABLE}} ' As for the subsequent years, according to the petitioners, the three groups respectively continued to hold the same number of shares, as in 1983, up to the 12th March, 1988, when the respondents Nos.1 to 5 purported to issue 1221 new shares and to allot them in the manner which will presently appear. The respondents have not in fact denied this assertion except to say that in March, 1985, SI Group transferred part of its shareholding to SAS Group.
3. ' It would, thus, appear that from 1983 up to 12th March, 1988, AI Group, the petitioners, held 44.1492% of the shares in the company whereas the respondents Nos.2 to 5, SAS Group, held 40.4293% of such shares, and SI Group held 15.4241 % of the shares.
4. ' On the 12th March, 1988, the respondents Nos. 2 to 5 issued 1221 new shares and allotted them as follows:--- 432 Shares to AI Group 432 Shares to SAS Group 357 Shares to Salman son of Sami Ahmed Shaikh of SAS Group and the result of such allotment was as follows:- ' Al Group--4669 Shares ' SAS Group--4669 Shares ' SI Group--1480 Shares ' The grievance of the petitioners is that no notice of any resolution to increase the capital of the company and of the offer of new shares was given to them; that the new shares were not allotted in proportion to the shares held by the shareholders respectively; and that 357 shares were allotted to Salman Sami who was not a member of the company.
5. ' Section 86 of the Companies Ordinance, 1984 provides: "86. Further issue of capital.--(1) Where the directors decide to increase the capital of the company by issue of further shares, such shares shall be offered to the members in proportion to the existing shares held by each member, irrespective of class, and such offer shall be made by notice specifying the number of shares to which the member is entitled, and limiting a time within which the offer, if not accepted, will be deemed to be declined.
(2) The offer of new shares shall be strictly in proportion to the number of existing shares held: ' Provided that fractional shares shall not be offered and all fractions less than a share shall be consolidated and disposed of by the company and the proceeds from such disposition shall be paid to such of the entitled shareholders as may have accepted such offer.
(3) The offer of new shares shall be accompanied by a circular duly signed by the directors or an officer of the company authorised by them in this behalf in the form prescribed by the Authority containing material information about the affairs of the company, latest statements of the accounts and setting forth the necessity for issue of further capital.
(4) A copy of the circular referred to in subsection (3) duly signed by the directors or an officer authorised as aforesaid shall be filed with the Registrar before the circular is sent to the shareholders.
(5) The circular referred to in subsection (3) shall specify a date by which the offer, if not accepted, will be deemed to be declined.
(6) The provisions of this section shall also apply in the case of issue by a public company of debentures partly or wholly convertible into shares or with warrants to subscribe to the shares of the company except in cases authorised by section 87.
(7) If, in case of a public company, the whole or any part of the issue of shares so offered is declined or is not subscribed, the directors shall offer the unsubscribed part to any one or more institutions as may be specified by the Authority; and, if the said institutions do not subscribe to the whole or any part of the offer, such whole or part may be allotted and issued in such manner as the directors may deem fit."
6. ' The Articles of association of the company contain, in clause 9 thereof, similar provision which is as follows:-- "Where the directors decide to increase the capital of the company by issue of further shares, such shares shall be offered to the members in proportion to the existing shares held by each member and such offer shall be made by notice specifying the number of shares to which the member is entitled and limiting a time within which the offer, if not accepted, will be deemed to be declined; and after the expiration of such time or on receipt of an intimation from the Member to whom such notice is given that he declines to accept the shares offered, the Directors may dispose of the same in such manner as they think most beneficial to the company."
7. ' It is an admitted position that the provisions of section 86 of the Companies Ordinance and of the Articles of Association were not complied with in that: meeting to decide the issuance of new shares was held by the Directors; no notices, as prescribed by section 86 were issued; new shares were not issued in proportion to the existing shares holding; and 357 shares were issued to Salman Sami who was not a member of the company.
8. ' Mr. Mansoor Ahmed Khan, the learned counsel for the respondents Nos.1 to 5, conceded that the provisions of section 86 and of the Articles had not been complied with; but submitted that because the ratio in which the three groups contributed the capital in the aforesaid partnership firm was 40:40:20, it was agreed and understood that they would continue to hold the capital in the new company in the same ratio; that although the ratio was not always maintained it was always understood between the parties that ultimately that ratio would be brought about; that the allotment of the new shares was made with the agreement of the parties; and that, therefore, breach of section 86 of the Ordinance was waived. He further contended that SAS Group had acquired 1000 shares from SI Group and that if the provisions of section 86, with regard to the proportions of the shares to be issued, were complied with SAS Group would be entitled to further shares from the new shares issued on the basis of those 1000 shares. He further submitted that the petitioner No,1 had resigned as Director on the 14th October, 1987, and that, in spite of such resignation, the respondents allotted the new shares to her which shows that respondents were acting bona fide. He submitted finally that the breach of section 86 of the Ordinance cannot by itself be a ground for winding up of the company; and that the petitioners have alternative remedy available to them under section 9 of the Ordinance. A further submission in this concoction was that in terms of a family agreement between the parties the petitioners had agreed to surrender their shares to the SAS Group.
9. ' The question, therefore, is whether there was any understanding/agreement between the parties that the proportion in which the parties were to hold shares in the company was to be the same as the proportion in which they had contributed the capital in the aforesaid partnership firm, and whether the allotment of shares in March, 1988, was made with the agreement of the parties. There is no evidence whatsoever on the record to suggest that there was any agreement or arrangement as contended for either in regard to the proportion of shares to be held by the groups or in connection with allotment of fresh shares; and, in fact, the ratio of 40:40:20 was at no time maintained. It, therefore, appears to be clear that the object of the exercise undertaken by the respondents on the 12th March, 1988, was to reduce the shareholding of AI Group from majority to that of equality with SAS Group.
10. ' The argument that on the basis of 1000 shares said to have been acquired by them from SI Group, SAS Group was entitled to a larger proportion of the further issue of shares is entirely beside the point which is that they acted in violation of section 86 of the Ordinance and of the Company's Articles of Association; and that contention that allotment of shares, out of the further issue, to the petitioner No,1 in spite of her resignation as managing director in October, 1987, was proof of good faith on the part of the respondents is, to say the least, extraordinary. It misses the elementary point that the petitioner No,1 was entitled to allotment of further shares by virtue of being a member of the company and not on account of being its managing director.
11. ' With regard to the alleged family settlement or arrangement among the three groups, the allegation in the counter-affidavit filed by respondents Nos. 1 to 5 is that a family settlement was arrived at between the parties on the 7th September, 1985, whereunder the AI Group was to surrender its shareholding in Ismail Sons Paints (Pvt.) Ltd. And in the respondent No,1, company in return for acquiring 100 per cent. Shareholding in Crescent Pencils (Pvt.) Ltd., and SAS Group was to acquire 100 per cent. Shareholding in the respondent No,1 company and Ismail Son Paints (P) Ltd. It is, however, admitted in paragraph 2.07 of the counter-affidavit that the alleged family arrangement was not recorded in writing but merely performed as between "trusting brothers".
12. ' The respondents Nos.6 and 7 have categorically denied that there was any such family arrangement as alleged. According to them, in September, 1985, SAS Group and SI Group exchanged their shares in Crescent Pencils (P) Ltd., so that AI Group acquired 100 per cent shareholding in Crescent Pencil (P) Ltd. And the three groups agreed to continue the business of respondent No,1 company as before. The petitioners have stated in their affidavit in rejoinder that the story put up by respondents Nos.1 to 5 with regard to the alleged family arrangement was false and that the only arrangement arrived at between the parties was recorded in the document a copy of which is Annexure 'A' to the affidavit in rejoinder. According to them, the document contained a proposal presented by Sami Ahmed Shaikh and amended and accepted by Abdullah Ismail. It is further alleged that according to the document SI Group and SAS Group agreed to have nothing to do with SAS Industries and Crescent Pencils Ltd., and that AI Group agreed to have nothing to do with Ismail Son Paints (P) Ltd. It is categorically asserted that it was never agreed that AI Group will have nothing to do with the respondent No,1 company.
13. ' In response to the affidavit in rejoinder of the petitioners and the counter-affidavit of the respondents No,6 and 7, Sami Ahmed Shaikh filed an additional affidavit on behalf of respondents Nos.1 to 5 whereby he asserted that the family arrangement had been arrived at and that as immediate steps towards implementation of the said arrangement it was agreed, inter alia, that personal bank guarantees given by Sami Shaikh in respect of SAS Industries and Crescent Pencils
(P) Ltd. To Habibi Bank Ltd. Were to be released and that till such time as the shares held by AI Group and SI Group in Ismail Son Paints (P) Ltd. And respondent No,1 were transferred to Sami Ahmed Shaikh, the management of respondent No,1 was handed over to Sami Ahmed Shaikh. The document, referred to above, produced by the petitioners with their counter-affidavit, has been admitted in the additional affidavit and has been characterized as "a proposal upon which family arrangement was based and it is admitted that the proposals contained therein were accepted by the petitioners with certain modifications. In the circumstances, it was contended that the respondents Nos.6 and 7 were estopped from denying that there was a family arrangement. It is further alleged in the additional affidavit that the management of respondent No,1 was handed over to Sami Ahmed Shaikh in part performance of the agreement to transfer respondent No,1 company to SAS Group and that "the reasons for not mentioning UCL (i,e, respondent No,1) specifically as against SAS Industries, Crescent Pencils and Ismail Son Paints was that in the case those companies shares had already been transferred whereas in the case of UCL the shares were yet to be transferred and, therefore, only the management was transferred. With regard to the issue of further shares on the 12th March, 1988, to AI Group, it is alleged in the additional affidavit that the reason, for it was "that the share application money paid by Mrs. Khursheed Ismail was lying in the share application account prior to September, 1985 and it was for this reason, and on the objection of the auditor that further allotmentto her had to be made.
14. ' The document, mentioned above, containing the agreement between the parties, is admittedly in the handwriting of Sami Ahmed Shaikh and contains corrections/amendments made therein by Abdullah Ismail. Mr. Mohsin Tayabally, the learned counsel for the petitioners, pointed out that Clause 2 contains following provisions:--SI and SAS have nothing to do with SAS Ind.-- CPL.AI has nothing to do with IPL". According to him this provision shows that SAS Group and SI Group would have nothing to do with SAS Industries and Crescent Pencils (P) Ltd. While AI Group would have nothing to do with Ismail Son Paints (P) Ltd. He further submitted that there is no mention of respondent No,1 company in clause (2) or clause (3) of the document. In fact, the only relevant clause of the document, as pointed out by Mr. Mohsin Tayabally, is calause 11 providing that respondent No,1 company was to be run by Sami Ahmed Shaikh who would be paid Rs,9,000 per month for his efforts. It was submitted that, in view of the above provisions in the document, the allegation in the counter-affidavit that there was a family arrangement which was performed as between the trusting brothers was false. The submissions of Mr. Mohsin Tayabally are fully supported by the contents of the document and other circumstances; and Mr. Mansoor Ahmad Khan did not even attempt to controvert it. The respondents' version is further belied by the fact that further shares were allotted to AI Group. That was done only because members of that group were, at the relevant time, members of the company; and the explanation of the respondents that shares were allotted to Khurshid Ismail because share purchase money paid by her earlier was lying with the company is an afterthought and palpably false. Another factor belying the respondents' story is their own assertion to the effect that they offered to buy the shares of AI Group. If AI Group were bound under the alleged family settlement to transfer their shares, the question of the respondents offering to purchase those shares could not arise.
15. ' Mr. Mansoor Ahmed Khan, being unable to controvert the position as set out above, advanced the plea that the shares in SAS Industries and Crescent Pencils were taken over by AI Group without consideration. The plea, in view of what has been stated above does not appear to be correct and is, in any case, entirely irrelevant to the question of illegal issue of further shares of respondent No,1 company and to that of the alleged family settlement.
16. ' It was next contended that the respondents have failed to maintain accounts. In support of the allegation, Mr. Mohsin Tayabaly relied on the inventory which was prepared by the Official Assignee who was appointed Commissioner for the purpose, wherein it is stated that the cash book was maintained only from July, 1988 to 5th December, 1988, and that in the Ledger Register there were no entries against the heads of capital account, share application account, Land and Building, Factory Building, Depreciation Accumulated, film making plant, varnish plant, Electrical Equipment, Furniture and Motorcar, Motor-cycle and Car, Commission on Indent and various other heads. It is further stated in the Inventory that the accounts of electric installation and Indenting commission were maintained up to July, 1988, and that the following heads were blank in the Books of the Company:-- ' Appropriated profits ' Advance Income Tax ' Income Tax on sales (maintained up to July)
17. ' Income Tax payable -Refundable -paid (maintained up to July)
18. ' Sale Chemicals.
19. ' Returned Chemicals. -Glue (maintained up to July) - - Return Glue (maintained up to July) - - Resin - - Return Resin - - Tax ' Stock in trade ' Chemicals purchased (up to July maintained)
20. ' Material imported (maintained up to July)
21. ' Locally (maintained up to July)
22. ' Marine Insurance ' Import licence fee (maintained up to July)
23. ' Packing material (maintained up to July)
24. ' Wages and Benefit (maintained up to July)
25. Education Cess (maintained up to July)
26. ' Old Age Benefit Account consumed store (maintained up to July)
27. ' Mr. Mansoor Ahmed Khan does not dispute the veracity of the report submitted by the Official Assignee but submit that it shows only delay in maintaining accounts and not failure to maintain accounts. The report, however, shows that the only books which were submitted to the Official Assignee were from July, 1988, onward and even they were not complete in many respects; and, in fact, there were no entries at all against various heads of accounts. There is, therefore, no merit in the submission that the report indicates only delay in maintaining accounts for the period prior to July, 1988. He then referred to paragraph 4 (iii) of the application (CMA 2509/92) under section 412 of the Ordinance which had been filed by the petitioners and to Annexure ' D' to that application.
28. According to him, that paragraph and Annexure ' D' are accounts of the year 1990-91 and reflect the position of the year 1989-90. He submitted that the petitioners themselves have produced these accounts and have taken no objection to the lapse or mistake on the part of the respondents in maintaining accounts. The argument is without any merit because paragraph 4 (iii) of application mentioned above merely alleges that during the years 1989-90 and 1991 the respondents Nos.2 to 5 siphoned of Rs,1,741,904, Rs,2,447,404 and Rs,2,751,112 which was earned by way of Commission from Stahl (G.B.) Ltd.; and Annexure 'D' to the application is a copy of balance- sheet as at 30th June, 1991, showing accumulated profit of Rs,2,513,475. It is obvious that neither the averments in the application nor Annexure' D' thereto in any manner amounts to saying that the respondents have maintained proper accounts.
29. ' Mr. Mansoor Ahmed Khan then submitted that section 233 of the Companies Ordinance, 1984, requires the Directors of the every company to lay before the company in Annual General Meeting, at least once in every calendar year, a balance-sheet and profit and loss account and that the balance-sheet (Annexure-D to CMA 2509/92) is in compliance of that provision. He submits further that the books of accounts mentioned in section 230 of the Ordinance are different from the accounts required to be present under section 233. I must confess that I have failed to understand the purport of this argument. Section 230 requires, by subsections (1) and (2) thereof, every company to keep at its registered office or, as the case may be, branch office, proper books of accounts with respect to the matters specified therein; and subsection (3) provides that proper books of accounts shall not be deemed to be kept if there are not kept such books as are necessary to give a true and fair view of the state of affairs of the company. Further, subsection (4) of section 230 provides that the books of I A account and other books and papers of every company shall be open to inspection by the directors during business hours; and by subsection (6) every company is required to preserve in good order books of account relating to period of not less than ten years preceding the current year or, in the case of a company incorporated less than ten years before the current year, such books for the entire period preceding the current year. The object of these provisions clearly is to enable the directors at any time to obtain, by inspection of the books, a true view of the state of affairs of the company. If, therefore, a company fails to keep such books up to date, the object would be defeated. The respondents have failed to comply with the provisions of section 230 and it is not open to them to argue that they having complied with section 233, are absolved from complying with the provisions of section 230.
30. ' It is alleged in paragraph 5 (vii) of the petition that the company was the tenant in respect of the premises situated at 7-Badri Building on I.I. Chundrigar Road, Karachi, that the premium of the said rented premises runs into millions of rupees and that respondent No,2, unauthorisedly and with a view to deprive AI Group and the company of such valuable property transferred the tenancy rights to Ismail Sons Paints (Pvt.) Ltd. Which is a company owned and controlled by SAS Group. The stand of the respondents Nos.1 to 5, in their counter-affidavit, is that the tenancy of the premises was originally in the name of Ismail Son Paints (P) Ltd. And that "rented premises, godown-cum- office premises in Badri Building, I. I. Chundrigar Road, Karachi, had been a place from where Ismail Sons handled/kept stock and effected sales of their paints. However, for some time Ismail Sons gave 'Agency' for sale of their paints to Unichem and simultaneously arranged with the landlord to have the tenancy also changed in the name of Unichem. It was an Agency for Stahl so long as Unichem were the agents. As from 1-1-1986, Unichem ceased to be the agents and by common consent and for this reason tenancy reverted back to Ismail Sons. This was during the period when the company, Unichem, was under common and joint control and management". The petitioners have denied that the tenancy of the premises ever belonged to Ismail Sons and the respondents have not produced any material, documentary or otherwise, in support of the plea reproduced above. No doubt, the allegation in the counter-affidavit with regard to the original tenancy of the premises and subsequent transfer of the tenancy rights has not been specifically denied in the affidavit in rejoinder. The fact, however, remains that the respondents have merely made bare allegations and have produced no material whatsoever in support thereof. Further, assuming that the tenancy originally belonged to Ismail Sons, the respondents were obviously not entitled to retransfer the tenancy to them.
31. ' The next ground on which the winding up of respondent No,1 Company has been sought relates to the agency commission from M/s. Stahl (G.B.) Ltd. The case of the petitioners, in this regard, is contained in paragraph 5 (viii) of the petition which is as follows:- "Thai the company is the sole sales and distribution agent of Stahl Chemicals (G.B) Ltd., England, and the company is entitled to commission on the value of the products imported into Pakistan.
32. The petitioners have come to know that the Company has signed a fresh agreement with the ,said principal as of 1st July, 1988, whereby the principal has agreed to enhance commission due and payable to the company. It is contention of the petitioners that ever since the appointment of the company as agent of the said company, Stahl Chemicals (G.B) Ltd., England, the commission payable to the company was the same as commission fixed by the fresh agreement, dated 1st July, 1988. That the respondent No,2 has been showing in the books of account receipt of commission at a much lesser percentage and the agreement, dated 4th October, 1988, has been made only with a view to cover up several misappropriations of the commission by respondent No,2."
33. ' The case of the petitioners, thus, is that the commission payable by . Stahl to the company was 7.5 per cent ever since the appointment of the company as agent of Stahl but that the respondent No,2 has been showing commission at 3 per cent. And has been misappropriating the remaining amount.
34. ' The allegations of the petitioners have been denied by the respondents and their case, as contained in paragraph 3.03 (viii) of the counter-affidavit, is as follows:-- "The 'agency' has been enjoyed for a sufficient long time during Mthe most of which period Unichem, as stated above, was under common/joint control and the accounts were jointly considered, approved and passed after due audit by eminent auditors. This aspect would show the mischievousness and falsity of the pretention/objection. On the basis of such false allegation, and relating, as it does, mostly to the period of common control, except one year, the petitioners assertion bears patent malice and mischief and the demand is opposed to equity and justice. It may be mentioned that by the dissolution of the company, Unichem, the said 'agency' would stand determined the agreement automatically terminated which was duly recently modified with increased rate of commission. This' agency' was secured personal connection of Mr. Sami Ahmed Shaikh with the said 'principals'. It is evident that the sole aim of the petitioners is to destroy and shatter the answering respondent-company, Unichem, and is a classical case where Solomon's justice call for being given to the mother to whom the child really belonged'. All the allegations are false and categorically denied. It is categorically denied that any gain was received arid not shown in the accounts or this was done at any time. Whatever agency commission has been received, it has been shown in the books of accounts. The enhanced rate of agency commission, as from 1-7- 1988, is also a matter of record and will be recorded in full quantum as received according to the new rate."
35. ' Thus, the plea of the respondents is that (i) that the allegation of misappropriation of commission is false; (ii) that commission was received, except for one year, during the period when the company was under joint/common control of the parties; (iii) that whatever commission had been received had been recorded in the books, and (iv) that increased commission "will be recorded" as and when received.
36. ' In reply to the counter-affidavit, the petitioners filed affidavit in rejoinder and produced therewith copies of credit notes sent by Stahl during January to December, 1988, showing that commission for the entire period had been shown to be 3 per cent. Notwithstanding the provision for payment of commission at 7.5 per cent. In the agreement from 1st July, 1988. The allegation that the commission was always, in fact, paid at 7.5 per cent. Was reiterated. Copies of four of those credit notes are Exhs. 1/21 to 1/24.
37. ' In order to explain their plea in the counter-affidavit that the rate of commission was 3 per cent.
38. Prior to ist July, 1988, and 7.5 per cent. Thereafter, and to explain the statement in the counter- affidavit that commission at the rate of 7.5 per cent. Will be recorded in full quantum as received according to the new rate", the respondents filed an application (C.M.A. 1867/93) whereby they sought to produce copies or certain documents to show that commission had been received at 7.5 per cent from 1st July, 1988 till 30th June, 1989; and had been recorded in 1988-89 accounts.
39. ' The petitioners, thereupon filed an application (C.M.A. 337/94), under Order 19, Rule 2, C.P.C. For cross-examination of respondent No,2, which was granted; and the respondent No,2 was, consequently, cross-examined on the issue of agency commission. During the cross-examination, the documents sought to be produced by the respondents vide C.M.A. 1867/93 were produced. The object of C.M.A. 1867/93 was thus achieved and the application was accordingly disposed of.
40. ' The respondent No, 2 has stated in his cross-examination that the company had obtained the agency from Stahl in 1973; that the agency was oral and there was no written record of the mutual rights and obligations of the Company and Stahl; that commission was payable at 3%; that on the.
41. 4th October, 1988, an agreement (Exh. 1/6) was entered into between the parties, which was effective from the 1st July, 1988, and whereby the rate of commission was enhanced to 7.5 per cent.; that the said agreement was entered into because (a) the commission was raised from 3 to 7.5 per cent. In view of the change of relationship between the company ans Stahl (b) new responsibilities were being given to the company as mentioned in the agreement" and (c) the laboratory was erected by Stahl and the company was required to run it; and that the agreement dated the 4th October, 1988, was terminated by Stahl with effect from the 1st February, 1991, and the agency was given to Samsons Chemicals (Pvt.) Ltd. (which is a company wholly owned by the respondent No, 2 and his family) because the company was to book orders for other customers ans also to act as stockist of Stahl products, which the company was unable to do.
42. ' He produced, during the cross-examination, a letter, dated the 13th January, 1989 from Stahl (Exh.
43. 1/9) purporting to enclose therewith revised credit notes for commission at 7.5 per cent. From July to November, 1988 which included the commission in the following credit notes which were to be treated as cancelled. {{TABLE}} No, 4851 No, 4959 No, 4869 No, 4879 No, 4885 dated 29-7-1988 for L 2651.64 dated 31-8-1988 for. L 1544.23 dated 26-10-1988 for L 1425.50 dated 23-11-1988 for L 1238.64 dated 23-12-1988 for L 4025.65 {{TABLE}} ' Copies of four of those credit notes are Exhs. 1/21 to 1/24. A copy of the fifth credit note i,e, Credit Note No, 4879 was not produced during the cross-examination by either the petitioners or the respondents but there appears to be no dispute that such a credit note had been sent by Stahl; and that all of them show commission to have been paid at 3% and not 7.5 per cent.
44. ' The respondent No, 2 also produced Credit Notes--- ' No, 4852 dated 29-7-1988 for L 6629.10 ' No, 4860 dated 31-8-1988 for L 3860.57 ' No, 4870 dated 26-10-1988 for L 3563.76 ' No, 4880 dated 23-11-1988 for L 3096.59 ' No, 4885 dated 23-12-1988 for L 8910.96 and L 1153.17 ' As Exhs. 1/7 to 1/11 and 7 more credit notes for the period up to the 31st August, 1989, all showing payment of commission at 7.5 per cent.
45. ' Now, the petitioners' case, as stated above, is that the commission was always paid/payable at 7.5 per cent. And that the agreement, dated the 4th October, 1988, was made only to cover up misappropriation of commission by respondent No,
2. The explanation of the respondent No, 2 is that the rate of commission was increased in view of change of relationship between the company and Stahl and because new responsibilities "as mentioned in the agreement" were given to the company; and that is why it was considered necessary to make the agreement. The explanation does not carry any weight for the simple reason that the respondents have not produced any evidence, oral or documentary, to show that their rights and obligations were prior to the 4th October, 1988; and the respondent No, 2 did not specify in his evidence the new responsibilities given to the company under the agreement.
46. ' As for the delay in payment of commission at 7.5 per cent instead of 3 per cent, the explanation of the respondent No, 2, in para. 2 of the C.M.A. 1867/93, is that after the signing of the agreement "as a matter of habit, credit notes by Stahl at the old rate of 3% had been received" and that" it took time to turn to the new basis arrangement/agreement. The position was rectified by Stahl vide their letter dated 13-1-1989 by which their 3% credit notes for the months of July, November, 1988 were cancelled". This is a strange explanation and an inconsistent one at that because on the one hand "habit" is pleaded in aid and, on the other hand it is asserted simply that it took time to change to new basis. Assuming, however, that Stahl, by force of habit or otherwise, continued to send credit notes at 3 per cent., surely there was no reason for the respondents, upon receiving such credit notes, not asking Stahl to send credit notes at 7 per cent.; and there is no evidence to show that they did so. On the contrary, according to the respondents, it was Stahl who "rectified" the position.
47. ' The sequence of proceedings in this case also casts a dark shadow on the case of the respondents. If, as they allege; Stahl had "rectified" the position by sending fresh credit notes for commission at 7 per cent., by their letter of 13th January, 1989, that letter and those credit notes must have been received by the respondents before the 31st January, 1989, when they filed their counter-affidavits. Yet, no mention of them was made in the counter-affidavit, the respondents resting content with stating that the enhanced commission will be recorded when received according to the new rate. Then, the petitioners produced credit notes with their affidavit in rejoinder showing that commission had been received at 3 per cent. After 1st July, 1988; but the respondents did not reach and made no effort to explain the situation even in the additional affidavit filed by them on the 18th April, 1989. There the matters arrested until October. 1993, when apparently as a result of a query during hearing of arguments, the respondents produced the letter, dated the 13th January, 1989, and the "new" credit notes with C.M.A. 1867/93 which was filed on the 27th October.
48. 1993. It is. Therefore, difficult to believe that Stahl wrote the letter, dated the 13th January, 1989, or, if they did, that they sent any credit notes with it; for, had they, in fact, done so, surely, the respondents would have mentioned them in their counter-affidavit or at least in the additional affidavit instead of waiting till October, 1993, and then producing them because of what happened during the hearing. It would, therefore, appear that either the respondents had the "new" credit notes with them all along but avoided to produce them until it became unavoidable or that they procured them some time in October, 1993. The former appears to me to be the more probable in view of the numbers which the "new" credit notes bear in relation to the "old" ones and the dates of the credit notes.
49. ' The respective dates of the "new" credit notes are the same as those of the previous ones and there appears to be no reason why that should be so. Surely, it would have been natural for the "new" credit notes to be, dated 13th January, 1991, or thereabout when they are alleged to have been issued.
50. ' The numbers of the "new" notes vis-a-vis the old ones which were to be cancelled is also significant. Thus Credit Note No,4852 was to replace Credit Note No,4851, Credit Note No,4860 was to replace Credit Note No,4859, Credit Note No,4870 was to replace Credit Note No,4869; and Credit Note No,4880 was to replace Credit Note No,4879. It does not appear to be a mere coincidence that the number of each of the new credit notes follows immediately after the respective numbers of old credit notes and that too after an interval of about two and a half years.
51. ' It would, therefore, appear that the respondent No,2 obtained two sets of credit notes showing commission at 3 and 7.5 per cent. Respectively and accounted for commission only at 3 per cent.
52. For all these reasons, it appears to me that the allegations of the petitioners with regard to the agency commission are well-founded.
53. ' The more serious allegation in connection with the commission agency is that the respondent No,2 and it transferred to Samsons Chemicals (Pvt.) Ltd., a company wholly owned by him and his family, and had thus deprived the company of what Mr. Mohsin Tayabaly described as its prime asset. The explanation of respondent No,2, in the cross-examination, is that the agreement was terminated by Stahl because the company was unable to book orders for other customers and to act as stockist of Stahl Products. He also stated that the agreement was terminated under clause 14 of the agreement but was unable to state the sub-clause of clause 14 of the agreement under which the agency agreement was terminated. He, of course, did not produce the letter terminating the agency; and, that being so, his evidence as to the contents cannot, in the absence of any reason for failure to do so, be accepted. In any event, the explanation is not worthy of credit in view of the various advertisements which appeared in a trade publication "Pakistan Leather Show".
54. ' In the advertisement (Exh. 1/1) published in February, 1988, the company is shown as agent of Stahl, and it is stated that a "wide range of finishing products continues to be held in stock in Karachi and SiaJkor, and orders, to be addressed to company, are solicited from customers. Exhibit 1/4 is a similar advertisement in 1989. In April, 1991, a similar advertisement .(Exh. 1/2) appeared except that orders were, probably as a prelude to what was to come, to be addressed to Samsons Chemicals (Pvt.) Ltd. And then came to advertisement (Exh. 1/3) in 1992 wherein there was no mention of the company and wherein it was stated:--- "Samsons Chemicals (Pvt.) Limited is a new name for our agent in Pakistan. Nothing else has changed. The same team of people will continue to provide you with top-level service and highest quality products..."
55. ' The advertisements make it abundantly clear that the company continued to stock the products of Stahl up to 1991 as did Samsons in 1992; and that the people who acted as Stockists were "the same team of people"; and, further, that nothing else had changed.
56. ' It is, therefore, clear that the so-called termination of the agency was procured by respondent No,2 in order to appropriate the benefits to himself and his family to the detriment of the company, the petitioners and the respondents Nos.6 and 7. The deed was undoubtedly fraudulent. The respondent No,2, however, perhaps did it in view of his assertion in the counter-affidavit that the agency was obtained due to his personal connections, that, therefore, he was the mother and the agency was his child, and that, consequently, according to Soloman's justice the child should go to the mother.
57. ' Mr. Mansoor Ahmed Khan stressed the fact that until resignation of the petitioner No,1 in 1987 the company was under the joint control of the petitioners and respondents and that, therefore, it is not open to the petitioners now to allege that the commission was, in fact, always payable at the rate of 7.5 per cent. And not 3 per cent. In this connection, reference may be made to the allegation in paragraph 5(viii) of the petition that notwithstanding the shareholders being shown as managing Directors/Chief Executives of the company, respondent No,2 "has been managing and running the affairs of the company". This allegation has not been denied in the counter-affidavit; and the allegation of the petitioner appears to be supported by the various actions taken by the respondents prior to the resignation of the petitioner No,1, as will appear presently.
58. ' It is alleged in para. 5(ix) of the petition that no meetings of the Board of Directors nor annual general meetings have been regularly and properly convened; that election of the directors have not been held for several years; and that the petitioners' group has been completely excluded from the management. This allegation has not been denied by the respondents whose reply in the counter-affidavit is that the petition is mostly concerned with the period of "common control" and that the petitioners were a party to the alleged default.
59. ' During the hearing of the petition on the 16th March, 1993, Mr. Mansoor Ahmed Khan had contended that all meetings and elections had been duly held since 1988 and that he was prepared to produce the relevant record of the company in proof of his contention. The hearing was, therefore, adjourned, at his request, to enable him to do so.
60. ' As for the period to 1988, Mr. Mansur Ahmed Khan conceded that no meetings were held during that period, but contended that the company was a "closed company" that the petitioners were a party to the default because the company was under "common control" and that no prejudice had been caused to the petitioners by the default. The argument, however, ignores the fact that the express and categorical assertion in the petition that the respondent No,2 has been managing, and running the affairs, of the company, has not been denied by the respondents.
61. ' With regard to the period since 1988, the respondent No,2, instead of producing the relevant record as undertaken by his counsel on the 16th March, 1993, filed an affidavit alleging that the first election of the company was held on the 28th September, 1989, and that the second election was held in 1992. It may, in this context be noted that both the alleged elections were held after the present petition was filed in January, 1989.
62. ' No record relating to the election alleged to have been held in September, 1989, was produced; and it was not even alleged, muchless proved, that any notice of the meeting for that election was sent to the members.
63. ' As for the second election, in 1992, it is alleged in the affidavit that requisite notices and proxy forms were sent to all members of the company under certificate of posting, that Sami Ahmed Shaikh, Mrs. Gulfam Shaikh and Saud Sami (all members of SAS Group) filed their nominations for the three posts of directors, and that they were duly elected. According to the "minutes" of the extraordinary meeting alleged to have been held on the 16th September, 1992, it was attended by Mrs. Gulfam Shaikh, Saud Sami (by proxy), Master Salman Sami and Sami Ahmed Shaikh (again, all members of SAS Group). The "minutes" bear the signatures of Mrs. Gulfam Shaikh and one other person whose signature appears against the remaining three names.
64. ' The petitioners have denied that any notice of the "meeting" in September, 1989, was given to them; and Mr. Mohsin Tayabaly pointed out that, in any case, sending notices under certificate of posting was in breach of the directions given by the Registrar who, by his letter, dated the 10th March, 1992, had directed the respondents to send notices by registered post.
65. ' Thus, it stands admitted and confirmed by the Registrar in his comments that no elections were held prior to 1989 and there is no evidence of any election having been held in 1988.
66. ' As for the election in 1992, it does not appear that any notice of the meeting was given to the petitioners and the respondents Nos.6 and 7 because the "meeting was attended only be Mrs. Gulfam Shaikh and one other person, presumably the respondent No,2. It would be strange, particularly in view of the disputes between the parties, if the petitioners and the respondents Nos.6 and 7 would have kept quiet in spite of receiving notices and thus allowed the SAS Group to do as it pleased.
67. ' In the circumstances, it is clear that no meetings of the company and no election of directors was held in 1988 or 1992 and that the so-called election of 1992 was a more facade.
68. ' The next allegation by the petitioners is that on the 6th March, 1986, the respondent No,2 filed Form VIII purporting to be a special resolution amending Article 86 of the Articles of Association of the Company although no meeting of the General Body of the company was held on 6th March, 1986, and no notice of such meeting was given to the petitioners. The original Article 86 provided that the petitioner No,1 shall be the Chairman but by the new Article 86 the directors were given power to elect the Chairman of their meeting.
69. ' The reply of the respondents, in the counter-affidavit, was that amendments in the Articles were made "in accordance with the provisions and the requirement of the law and practice" and that in the meeting held for the purpose "the shareholders of all the three groups were duly present".
70. ' The reply is yet another instance of reckless averments indulged in by the respondents; for not a scrap of material has been produced to show how the relevant provisions of law were complied with or that any notice of the meeting was given to the members, or, indeed, that any meeting was held. In the event, Mr. Mansur Ahmed Khan, very in wisely, did not urge any of the pleas in the counter-affidavit during the argument; but, perhaps not so wisely, contended that amendments were made to comply with the provisions of the Companies Ordinance, that they were made when petitioner was part of the management and that the petitioner No,1 had "consented to be removed" but then continued to be the Chairman. The argument, besides attempting to set up a new case, is clearly without substance. Mr. Mansur Ahmed Khan did not specify the provisions of the Ordinance which- were to be complied with by the amendment in the Articles; the argument as to "common control" has already been considered; and there is no evidence that the petitioner No,1 consented to be removed. The purported amendment was, thus, illegal.
71. ' It is then alleged that by a purported resolution, dated the 15th October, 1987, the respondent No,2 appointed himself a director of the company although on that date he was not even a member , of the company. The case of the respondents in the counter-affidavit is that on the 15th October, 1987, the respondent No,2 was a member of the company. Mr. Mansur Ahmed Khan submitted that, as shown by Annexure R-5 to the respondents' additional affidavit, Sami Ahmed Shaikh became a member of the company 'by transfer of one share to him on the 14th January, 1987. Annexure R-5 is only a statement prepared by the respondents showing transfer of one share by Mrs. Gulfam Shaikh to Sami Ahmed Shaikh. The claim of the respondents and the statement (Annexure R/5) are belied by the comment of the Registrar affirming that Sami Ahmed Shaikh was not a member of the company on the 15th October, 1987. They are also belied by the counter-affidavit of the respondents themselves. In Annexure 'B' to the petition Mrs. Gulfam Shaikh is shown to have held 3580 shares from 1983 up to 12th March, 1988, and that has been accepted by the respondents in their counter-affidavit as correct--see paragraph 5(ii) of the petition and paragraph 3.03 (ii) of the counter-affidavit. The statement (Annexure R/5) is, therefore, evidently a fabricated document.
72. ' The grounds mentioned in paragraph 5(xiii) (xiv) and (xv) were not pressed by Mr. Mohsin Tayabaly.
73. ' Mr. Mohsin Tayabaly finally submitted that it is just and equitable that the company be wound up because (a) the company is a family concern analogous to a partnership firm; (b) irreconcilable differences and disputes have arisen between the parties and half a dozen cases in Courts are pending between them, and (c) the petitioners have been totally excluded from the management of the company. The first two grounds, namely, the nature of the company and the litigation between the parties, are not in dispute. As to the third reason, it is alleged in para. 5(xvi) and (xvii) of the petition that, inter alia, the petitioners had been agitating the question of their participation in the management of the company; that a legal notice in that regard was sent to the respondents; and that the respondents, in reply refused to accept the demands of the petitioners, claiming that, in view of the alleged family arrangement, the SAS Group was entitled to sole and exclusive control of the company.
74. ' The reply of the respondents is contained in para. 3.03 (xvi) and (xvii) of their counter-affidavit. Then case is that the company had been handed over to SAS Group under the family arrangement and that the legal notice was, therefore, vaxatious and fraudulent and that the petitioners were seeking liquidation of the company which was under the control of SAS Group by virtue of the family settlement. There is, thus, no denial that the petitioners have been excluded from the management of the company. On the contrary, such exclusion is sought to be justified on the basis of the alleged family settlement. There was, however, as discussed hereinabove, no such family settlement.
75. What emerges from the above discussion is that the respondents Nos.1 to 5 have committed several acts and omissions rendering the company liable to be wound up under various provisions of section 305 of the Companies Ordinance; that the company is really a partnership firm; that the petitioners have been excluded from the management of the company, and that there is complete deadlock among the parties. It is, therefore, also liable to be wound up on the ground that it is just and equitable to do so. As held in the case of Ladli Prasad Jaiswal v. The Karnal Distillery Co. Ltd.
76. (PLD 1965 SC 221)--- "Now in the case of a private limited company the tendency of the Courts 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.
77. Commonly the exclusion of a partner from the management of the 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."
78. ' The above principle was followed in Nagina Films Ltd. v. Usman Hussain (1987 CLC 2263) and Iqbal Alam v. Plasticrafters (Pvt.) Ltd. (1991 CLC 589).
79. ' Mr. Mansur Ahmed Khan made no attempt to counter the argument that it was just and equitable to wind up the company but submitted that J.M. No,4/89, for winding up of the company, was "overtaken" by J.M. No,68/89 filed by the petitioners under section 290 of the Ordinance and had, thus, been rendered infructuous. Mr. Mohsin Tayabaly submitted, on the other hand, that J.M.
80. No,68/89 was filed without prejudice to J.M. No,4/89 and had no effect on the latter. The argument that J.M. No,4/89 was rendered infructuous by J.M. No,68/89 was not supported by any principle or authority and there appears to be none. He then contended that the premises of the company and of Ismail Sons Paints (Pvt.) Ltd. Are contiguously adjacent and entry to the company premises is through the gate of Ismail Sons Paints and that, Sami Ahmed Shaikh, as a member of Ismail Sons Paints, would be unfairly prejudiced by an order to wind up the company. He did not elaborate the argument but it was apparently based on subsection 2(b) of section 290 of the Ordinance. The argument is quite clearly without merit because the "members" referred to in subsection 2(b) are members of the company to whom the dispute relates and not any other company.
81. By section 290 of the Ordinance, the Court is empowered with a view to bringing to an end the matters complained of, to make an order for regulating the affairs of the company in future or for purchase of the shares of any members of the company by other members of the company or by the company, if it is of the opinion---
(a) that the company's affairs are conducted or are likely to be conducted in the manner specified in subsection (1); and
(b) that to wind up the company would unfairly prejudice the members or the creditors.
82. ' Both the above conditions have to be satisfied before an order can be made under section 290; and while, as indicated above, the first condition is satisfied nothing was brought to my notice to show that an order to wind up the company would prejudice any of its members or creditors unfairly. J.M. No,68 of 1989 is, therefore, liable to be, and is, hereby dismissed.
83. In the circumstances, I am satisfied that the respondent No,1 company is liable to be wound up on the several grounds discussed above including that it is just and equitable that it should be wound up. The company is, therefore, whereby ordered to be wound up. The Official Assignee shall be the Official Liquidator.
84. Comapny wound up.