order/judgniant will also dispose of C.M. No.881/L-94 in C.O.C,M,No.888/L-94 in C.0. No, 71/94, C. M.
No. 783/L-94 in C.0. No.81/94,C.M.No.886/L-94 in C.O, No.85/94. C.M, No.884/L-94 in C.0, No. 86/94, C.M, No.885/L-94 in C.O. No. 87/94, C.M, No.880/L-94 in C.0. No.89/94, C.M. No.887/L-94 in C.O.
No.91/94, C.M.No, 883/L-94 in C.0. No. 92/94, C.M. No.918/L-94 in C.O. No,137/94 and C.M.No.919/L- 94No.138/94 moved by the petitioners under Section 292 of the Companies Ordinance, 1984 and the following civil miscellaneous applications;- 1.C.M.No. 973/L-94 in C.O.No.90/94 2.C.M.No. 971/L-94 in C.O.No.91/94 3.C.M.No.972/L-94 in C.O. No.92/94 4t. C.M.No.970/L-94 in C.O. No.137/94 5.969/L-94 in C. 0. No. 13 8/94 moved by the respondents under section 141, C.P.C read with Order 7, Rule 11, C.P.C for rejection of the main petitions.
2. The respondents-Companies are 12 out of 16 Companies known as Ittefaq Group of Companies.
The petitioners have moved the main petition under Section 290 of the Companies Ordinance, 1984 praying inter alia that the directions be issued to terminate the one-man show and the dictatorial control of Mian Sharif over the respondent Company as well as other Companies associated with it under the name and style of Ittefaq Group of Companies and the affairs of the respondent- Company be regulated in such a manner as to enable the petitioners to obtain management on the basis of their majority shareholding. Inthe alternative it has been prayed that the petitioners be enabled to purchase the shares of other members of the Company who do not consider it possible to remain associated with them and that the equitable exchange of assets be effectuated across the Board of Ittefaq Croup as had been attempted through the family settlement in the past which had proved abortive. In the end it has also been prayed that any other relief deemed appropriate to the peculiar facts of the case be also afforded.
3. This application (C.M. No. 882/L-94) has been moved under Section 292 of the Companies Ordinance, 1984 read with section 355 thereof with a view to enforce the restraint orders initially passed on 14-7-1994 and 2-8-1994 as also for suspension of the management of the respondents --Company which should be replaced by a neutral Chief Executive who should conduct the affairs of the Company till further orders etc. This application has been opposed by the respondents. The respondents on the other hand have filed civil miscellaneous applications in five cases mentioned above praying that the main petition be rejected as the petitioners in those cases are not holding 20% of the issued share capital of the said Companies as contemplated by section 290 of the Ordinance.
4. Before proceeding further it is appropriate to deal with and decide this objection because this goes to the root of the case and is also relevant to determine as to whether the petitioners in the main petition have been able to make out' prima facie case for passing an interim order as prayed for. The aforementioned objection raised by the respondents rests on entries in the return filed with the Registrar in Form-A. According to the learned counsel for the respondents as per entries in the said Form the petitioners in the abovementioned five Companies at least do not hold 20 % of the paid up share capital of the said Companies wherever as regards others they have yet to establish that they are holding not less than 20 % paid up capital of the Companies.
5.Learned counsel for the petitioners argued that under Section 155 of the Companies Ordinance, 1984 the entries on the register referred to in section 156 J on which reliance has been placed by the respondents is to be taken as prima facie evidence of any matter inserted therein and is not the conclusive or final ; proof of the said contents. According to him the entries in Form-A are merely prima, facie evidence and if other cogent evidence is present on the record the same shall be preferred over the entries made in Form-A.
6.The argument has considerable force. It has been provided in Section 155 of the Ordinance that the entries in the register referred to in Section 156 of the Ordinance is prima facie evidence of the matter inserted therein from which it is manifest that the same could be shown to be not factually correct. The respondents themselves have placed on record a copy of Memo. Of understanding dated 25-9-1991 arrived at between the parties regarding allocation of assets of each Company to the shareholders according to their strength of shareholding of these Companies. The said memorandum of understanding shows that all the Companies were known as Ittefaq Croup of Companies which were grouped together. It has also been acknowledged in this memorandum of understanding that the seven families namely Mian Muhammad Sharif, Mian Javed Shafi, Mian Meraj-ud-Din, Mian Khalid Siraj, Mian Farooq Barkat, Mian Yousaf Aziz and Mian ldrees Bashir established these Companies. According to the entries in item No. 18 of this memorandum it has been acknowledged that the share-holding of these families in all the Companies were joint.
Inpara. 4 of the Memorandum read with last paragraph it has been acknowledged that each family was holding equal shares in all the Companies. The not worth assets of the Companies were calculated and it was acknowledged that each family's share in the not worth assets of all the Companies is equal. According to the well-settled principle that acknowledgement by a party of the rights of adversaries is stronger evidence than the evidence which has been termed as prima facie. The present petitions have been moved by two of the said seven families namely Mian Meraj family and Mian Siraj family, therefore, according to the acknowledgement made in the said Memorandum of Understanding the petitioners' two families are holding 28 % shares in the Companies. Some of the Companies are Private Limited Companies whereas the others are Public Limited Companies. It was admitted at the bar by learned counsel for the respondents that only Ittefaq Textile Mills Limited (C.O. No.71/94), Brothers Textile Mills Limited (C.O. No.89/94), and Khalid Siraj Textile Mills Limited (C.O. No. 137/94). Out of the Public Limited Companies are the listed Companies on Stock Exchange, therefore, it shall be presumed thatout of 50 % shares which are to be deemed to be held by seven families in equal shares the other 50 % shares are held by the public. In this view of the matter 28 % shares of petitioners' family in these Companies would be less than 20 % of the paid up capital of the Company, as such, the objection that the petitioners cannot maintain the petition under Section 290 of the Companies Ordinance, has force qua those three petitions. According to the said Section a member of the company to maintain petition must hold not less than 20 % paid up share capital F3 of the Company. In Ittefaq Brothers (Pvt.) Limited (C.O.
No. 90/94) some family members of one family admittedly have not been made party. Learned counsel for the petitioners when questioned as to whether without the missing members other members who have filed the petition do hold 20% of the paid up capital of the said Company frankly conceded that they do not. No application uptill today has been made either on behalf of the said petitioners or by the missing members for impleadment as party. The said petition for' the similar reason is also not maintainable.
7. Learned Counsel for the petitioners submitted that since under the orders of this Court made under Section 265 of the Companies Ordinance the Corporate Law Authority has appointed the inspectors for holding investigation into the affairs of these Companiesalso and as a consequence of this investigation the Corporate Law Authority can make a request for replacement of the management, therefore, these petitions should be kept pending till such time the Corporate Law Authority takes the decision after the receipt of the report of the said investigation.
8. I am afraid this course cannot be adopted. The petitioners have to establish their own locus standi at present and if they lack locus standi according to the law at present to maintain the petition the same cannot be allowed to remain pending. According to the acknowledgement made in the said Memo. The petitioners are holding less than 20 % of the paid up capital of the remaining Companies, therefore, they have no locus standi to maintain the other petitions. Out of the said remaining Companies only in Ittefaq Sugar Mills Limited (C.O. No. 92/94) apart from members of seven families 20 % shares are held by Saeed Sheikh and his family members. Out of the remaining 8096 shares the petitioners are holding 28 %, as such, they shall be deemed to be holding 23 % of the paid up capital in this Company, therefore, they have locus standi to maintain that petition too.
9. Learned counsel for the respondents tried to argue that since the petitioners are not accepting the distribution and allocation of not worth of the assets as stated in the said Memorandum of Understanding, therefore, theycannot be allowed to take benefit of any admission made therein as regards position of share holding and reliance should be placed on entries in Form-A
10. The argument has no force. The petitioners can get benefit of any acknowledgement or admission made by his adversary about his interests and rights in the Companies even if there was a dispute about the allocation and distribution of the not worth assets of the said Companies and as to which assets should be given to which party is a separate matter which can be determined independently.
11. Mr. Hamid Khan Advocate, learned counsel for respondents in C.O. No.87/94 and C.O. No. 89/94 submitted that Mian Ilyas Mehraj of Mehraj family and Mian Khalid Siraj of Siraj family after the said Memorandum of Understanding had resigned from the Directorship of the Companies in these petitions, therefore, they havc no right to maintain the petition.
12. The fallacy of this argument lies in assuming as if the relinquishment of Directorship by the member of a Company, the membership of company also stands relinquished. Even after their resignation from the Directorship of the said Companies they under the law continue to retain membership of the Company and as such his locus standi to maintain the petition.
13. Mr. Hamid Khan, Advocate, learned counsel raised the following contentions to oppose the said petition:- (a)that the petitioners families according to Memorandum of Understanding have no interest in the Companies which according to the arrangement have fallen to the share of others; (b)that the Sugar Mills in these days are earning profits, therefore, no allegation of mismanagement can be made in regard thereto; (c)that the prayer made in this C.M. Is unjustified and goes beyond the prayer made in the main petition as in the main petition it has not been prayed that the management should be replaced; (d)that each company is a separate entity whereas the petitions filed in these cases are sterio- typed inasmuch as all the companies have been amalgamated; (e)that no specific allegations have been made against any of the Directors regarding act of mismanagement, misfeasance, misappropriation and draining out of funds as alleged; (f)that it is necessary that a Director against whom an allegation has been made should be made a party, as such; main petition suffers from non. Joinder of necessary parties.
14. Mr. Ashtar Ausaf A.I, Advocate, learned counsel for the respondents in other cases excepting C.O.
No.71/94 adopted the arguments raised by Mr. Hamid Khan, Advocate, and in addition thereto he made the following submissions:-- (i)that no rejoinder to the written statement which has been supported with an affidavit has been filed with counter-affidavit as also reply to civil miscellaneous application moved under Order 7, Rule 11, C.P.C., therefore, the allegations that the petitioners do not hold 20% shareholding of the Companies shall be deemed to have remain unrebutted.
(ii)that the dispute mainly relates to division of assets of the Companies and being a dispute between the shareholders of the Company, therefore, it was not a case of mismanagement.
(iii)that in order to qualify for obtaining an order under Section 290 of the Companies Ordinance it was necessary that a case of winding up of the companies should be made out which in this case has not been established; (iv)that it was required by law to give full particulars of mismanagement and misappropriation which element is missing in this case.
15. Mr. Iqbal Mahmood Awan, Advocate, learned counsel for respondents in C.O. No.71/94 argued that the said Company is earning profits and the petitioners having resigned from the Directorship of Units Nos.2 and 3 of the said Company have no locus standi to file the petition. He adopted the argument raised by Mr. Hamid Khan and Mr. Ashtar Ausaf, A.I, Advocates.
16. There can be no cavil with the principles laid down by the superior Courts in these judgments.
The petitioner in such a case has to make out a case for replacement of the management but each case according to its peculiar facts and circumstances is to be adjudged in order to find out whether the petitioner E had succeeded to make out a prima facie case for passing interim order during the pendency of the main petition. In order to determine whether an interim order should be made and if so what should be the nature of the order the case as a whole has to be considered in the light of the material placed on the record and the allegations made in the petition.
17. It is manifest from the Memorandum of Understanding dated 25-9-1991 that the shareholders of all the Companies took a decision that they can no longer continue with each other, therefore, it was resolved that the assets of the Companies should be divided and an understanding was reached which was reduced into writing in the form of the said Memorandum. It was, however, provided that the effective date of the said decision would be the date on which all the concerned persons/parties would put their signatures on the same and the blank transfer deeds had been handed over to the purchasers of the shares in the Company from the sellers. Admittedly all the persons concerned uptill today have not put their signatures in a acknowledgment of acceptance of allocation of assets as stated in the said Memorandum of Understanding. It was not the case of the respondent that all the families.Have also surrendered blank transfer deeds, therefore, the understanding reached in the said Memorandum as regards allocation of shares prima facie has not become effective, as such, all the seven families shall be deemed to continue to hold shares in all the Companies as before. This fact also find established as according to the showing of the respondents themselves entries in the relevant record show that all the members of seven families are the members of all the said Companies. According to this Memorandum Brother Sugar Mills Limited was kept in common pool whereas admittedly the same has been subsequently given to Bashir family. According to the respondents it was done by resolution subsequently passed but no material has so far been placed on the record to show that the said resolution was passed in the meeting attended by all the concerned and signed by them. Brother Textile Mills which was according to the Memorandum of Understanding allocated to Siraj family has admittedly been given to Idrees Bashir subsequently.
18. According to the petitioners they were made to hand over blank transfer deeds which were recovered through a petition filed before this Court. The arrangement made for allocation of assets in this Memorandum though prima facie having not legally become effective and it is alleged that the respondents are treating the said Companies exclusively belonging to, them and running the affairs, as such. According to them the record is being mutilated and is being replaced by fake record in order to deprive the petitioners of their legitimate valuable rights in the assets of the said Companies which are also being brought under encumbrances in lieu of huge debts. According to the learned counsel for the petitioners against some Companies the Bank being the creditors have filed winding up petitions and the rights of the petitioners are also likely to be adversely affected.
According to the petitioners the funds of the said Companies are being drained out and brought to the exclusive use of the respondents.
19. In order to safeguard their interest the petitioners earlier moved petitiops under Section 265 of the Companies Ordinance, for a declaration that the affairs of the company should be investigated. It was with a view to know as to how the affairs of the Companies were being handled by the respondents as the petitioners stood absolutely ousted were not in a position to know about the state of affairs. The declaration was made for investigating the affairs of the Companies and the Corporate Law Authority has appointed the Inspectors for investigating the same. The Corporate Law Authority was directed to submit interim report as to what progress had been made in the said investigation. The report was submitted by the Corporate Law Authority which is available on the record. I would refain from mentioning this report as regards C.Os. Nos. 137/94, 71/94, 89/94 and 90/94 as the petitions according to the finding recorded above are not maintainable. As regards Brother Sugar Mills Limited (C.O. No.87/94) according to the C.L.A's Report the respondents-Company appear to be interested in gaining time as the management was using delaying tactics and the information demanded from it was not being furnished. It is stated that the final report could be made in the last week of January, . 1995 provided the Company provided full record under information required from it. About Brother Steel Mills Limited (C.O. No. 81/94) it has been stated that the Inspectors were still in process of obtaining and re-constructing the required information and documents on the grounds that the records before 17-5-1994 seem to have been destroyed. According to the Inspectors the relevant flow of information, clarification and explanation was slow as the same had to be cleared by top management. According to the C.L.A.
The present state of affairs and progress is far from satisfactory. In regard to Ittefaq Sugar Mills Limited (C.ONo.92/94) it has been stated that the Inspector had started investigation. Nothing has been stated about the pace and speed of investigation from which it also appears that cooperation is not being extended to the Inspectors. As regads Ittefaq Foundries (Pvt.) Limited (C.O.
No. 85/94) it has been stated that both the parties were summoned to produce the relevant documents. In their custody. According to the Inspectors since complete information had not been supplied so far, therefore, the time for completion of the assignment could not be ascertained and it will take considerable time. About Ramzan Sugar Mills Limited (C.O. No. 86/94) it has been stated that the main hindrance in speedy completion of work was that the flow of information was very slow as the record partly was located at site (Chiniot) and partly at Head Office at Lahore. The cooperation of management of the said Company according to the Inspectors was satisfactory. In respect of Khalid Siraj Industries (Pvt.) Limited (C.O. No. 70/94) it was stated that the parties were not able to provide details of investments in this Company, therefore, unless investigation in the main Factory i.e. Ittefaq Foundries was completed it was difficult to complete the investigation in the said case. As regards Ilyas Enterprises (Pvt.) Limited (C.O. No.138/94) it is stated that the Inspectors had received some information from the Company which was being examined.
According to the Inspectors they had a meeting with the management of the Company from which detailed information had been demanded. It may, however, be mentioned here that as regards Ittefaq Brothers (Pvt.) Limited (C.O. No. 90/94) which is otherwise not maintainable it has been stated that the record was not available because according to the management the same was destroyed during the demolition operation carried on by the L.D.A. On 16-5-1994. It has been stated by the C.L.A. That the record of the company under section 230 was required be kept in the Head Office of the Company. Learned counsel for the respondents submitted that it may be kept at any other place and the only requirement was that the Registrar of the Company should be informed. According to them the record of the said Company was shifted to the house of the shareholders after informing the Registrar. Be that as it may, the question would still be as to what were the compelling circumstances to shift the record of the Company to the house of the shareholders instead of keeping the same in the Head Office of the Company.
20. The petitioners in their endeavour to safeguard their interest moved yet another petition under Section 72(2) of the Companies Ordinance. In these petitions an interim order was passed directing the respondents to furnish full information as to the shares of the petitioners in the Company and in case they had been encumbered in any way the nature of encumbrance and the precise location of the shares. The respondents challenged the said proceedings and obtained the stay order which was subsequently vacated. They got two weeks time on 16-10-1994 for filing the requisite information. Some information was filed on 30-10-1994 which was not according to the order passed as the same did not indicate as to whom and how many shares were issued. It was also not complete because there was no mention as to whether the shares had been pledged and if so on which date and with whom. Subsequently further statements were filed against which the petitioners have raised serious objection as the information provided by the respondents was lacking in many respects. Those petitions are still pending.
21. In these petitions the petitioners got an order issued for appointment of Local Commissioner to put their signatures on the books of accounts. The books on which the said Local Commissioner were allowed to put their signatures according to the report do not also appear to be entire record.
The position which emerges according to the above-background of the cases is that the petitioners stand excluded absolutely from the affairs and management of the respondents- companies. They are not being allowed to know as to how the affairs are being conducted as the respondents are denying their rights as share--holders of the Companies. As has been observed above according to the law petitioners are not divested of their rights as shareholders from all the Companies as the Memo. Of understanding is not yet operative as regards allocation of funds and assets of the Companies. Every effort made by the petitioners to get the information regarding the affairs of the Companies has gone in vain as the Inspectors who have been appointed to investigate the affairs have not been provided the full information for the progress of the investigation. In these circumstances the allegations of the petitioners that they have been ousted from the said companies prima facie stand established. The reluctance of management of the respondent-companies to provide full information and record to the Inspector fully support to the plea raised by the petitioners that a fake record is being prepared in order to cover the irregularities committed in conducting the affairs of the Companies. The petitioners have no access to the Head Office of the Companies as per stand taken by the respondents as they do not acknowledge them to be any longer related to the said Companies having no rights in them, therefore, they, have been deprived of their legitimate rights to safeguard their interests and rights as shareholders. The stand taken by the respondents also furnishes prima facie evidence that the petitioners have not`' been paid their share in the devidents of the said Company and that the General Annual Meeting and other meeting had not been held in accordance with law, for, the plea raised by the respondents that they had become exclusive owners of the respondents-Companies as shareholders to the exclusion of the petitioners they cannot possibly plead that the petitioners were aid their shares of dividents and were given notices for attending Annual General Meeting if any held. The management exclusively belong to the respondents and in these circumstances the apprehension that the assets of the said Companies and the dividends are being misappropriated and act of misfeasance are being committed are not without any foundation which from the above circumstances can be taken to be prima facie evidence to support the plea.
22. There are various grounds under section 305 for the winding up of the Company, one of them being that the Company has conducted its business in amanner oppressive to any of its members or persons concerned with the formation or promotion of the company or the minority shareholders. According to clause (h) of the said section the Court is empowered to make an order for winding up of the Company if it is of the opinion that it was just and equitable. The management of any Company according to my view is to act as trustee of the members/shareholders of the Company. In this case the management instead F is denying to the petitioners their rights as shareholders in the company. The relations of the shareholders inter se in all the Companies being so strained that at present there appears to be no solution in sight and a dead-lock has been created. The credibility gap between the petitioners as shareholders of the Companies and the management of the Companies widening day by day. In these circumstances the Court is certainly empowered to intervene and passs any appropriate order to safeguard the interest of the parties/share-holders as also the Companies themselves.
23. 1 am not in agreement with the learned counsel for the respondents that the prayer made in this -petition goes beyond the prayer made in the main petition inasmuch as in the prayer in the main petition, it is implied therein that the petitioners want replacement of management or detachment of the present management and ,for passing any appropriate order. Apart from this once a petition under section 290 of the Companies Ordinance has been made and G certain material brought on the record it is the Court which is primarily concerned to pass any appropriate order in the circumstances of the case and the powers of the Court are not in any manner fettered by the prayer made by the parties. After considering the facts and circumstances of this case in the light of the material brought on the record by both the parties I am fully convinced that prima facie case has been made out by the petitioners for intervention in the matter by this Court. The interest of the petitioners in these circumstances cannot be safeguarded unless an order is made for running the affairs of the Companies by a neutral management.
24. Learned counsel for the respondents submitted that the matter as regards investigation of the affairs of the Companies by the Inspectors appointed by the C.L.A. Should not be taken into consideration in these proceedings as they are separate proceedings altogether. The conduct of the respondents with regard to the said investigation can certainly be taken into consideration while deciding the question of exercising discretion by the Court for passing interim orders. The arguments is repelled.
25. The allegation as regards mismanagement mostly relates to the respondents-Companies regarding conduct of the affairs of the Company to the exclusion of the petitioners to their prejudice but no specific charge against any of the Directors or the Chief Executive individually in respect of any criminal act such like misappropriation has been made, therefore, in my view it was not necessary to implead any Director of the Company in the petition as party. Learned counsel for the respondents submitted that since the Inspectors according to C.L.A. Report had stated that the investigation may be completed by 31-1-1995, therefore, the report of the Inspector should be waited for and till such time these proceedings may be stayed.
26. Only in the case of one of the Companies as stated above the C.L.A. Submitted that the Inspector expected that the investigation would be completed before 31-1-1995 and not others. I directed Mr. Atta Muhammad Khan, Joint Registrar, Registrar of Companies, who is representing the C.L.A. In this case to furnish information about the progress of the investigation, who stated after getting instructions that so far as C.L.A. Is concerned it had directed the Inspector to try to complete the investigation before 31-1-1995 but according to him the Inspectors' reaction was that the progress is too slow due to non--production of the required record from which I have gathered the impression that the investigation cannot be completed before 31-1-1995. Even otherwise proper and fair investigation can only take place in the circumstances as mentioned h above after the suspension of the present management and in the presence of neutral management which shall be helpful for decision in main petition.
27. For the foregoing reasons C.Os. Nos. 71/94, 89/94, 90/94, and 137/94 are hereby rejected. C.M.
No.971/L-94 in C.O. No.91/94, C.M. No.972/L-94 in C.O. No.92/94 and C.M. No. 969-L/94 in C.O.
No.138/94 filed by the respondents for rejection of the said C.Os. Are also rejected. C.M. No. 783-L/94 in C.O. No. 81/94, C.M. No.886-L/94 in C.O. No. 85/94, C.M. No.884-L/94 in C.O. No. 86/94, C.M. No. 885-L/94 in C.O. No.87/79, C.M. No. 887-L/94 in C.O. No.91/94, C.M. No.883-L/94 in C.O. No.92/94 and C.M. No. 919--L/94 in C.O. No.138/94 are hereby accepted. The present management of the respondents-Companies in these cases is hereby suspended/removed forthwith till further orders.
The Inspectors already appointed by the C.L.A. For I conducting the investigation are hereby appointed as Administrators who shall act as Chief Executive of the said Companies and perform the functions of management as such. The terms and conditions as regards their remunerations etc. Shall be settled later on.