1. ' The plaintiff No,1 who is Director as well as Chief Executive of Messrs Fecto Cement Ltd. (hereinafter referred to as "the Company") has filed this suit for declaration and perpetual injunction against four directors of the company, with the following prayers:---
(a) Declare that the plaintiff No,1 is entitled, as the Chief Executive of the Company, to enjoy and exercise all those powers associated with the office of Chief Executive, whether as conferred by law (expressly or by implication) or otherwise;
(b) Declare that the resolutions purportedly passed by the defendants on 7-8-1995 and consequential actions are contrary to law, invalid and have no legal effect;
(c) Permanently restrain the defendants Nos.1 and 2 from acting as or exercising any powers purportedly granted to the committee purportedly appointed by, under or in terms of the so-called resolution;
(d) Permanently restrain the defendants or any person acting for, under or on behalf of the defendants including (without limitation) their servants, employees, agents or officers from acting upon, implementing or in any manner whatsoever giving effect to the aforesaid resolutions or to any decision taken thereunder or in terms thereof including, but not limited to, any decision of the so-called committee comprising of the defendants Nos.1 and 2.
(e) ..
(f) .
2. ' Alongwith the suit, the plaintiffs have also filed an application under Order XXXIX, Rules 1 and 2, C.P.C. Read with section 151, C.P.C. (C.M.A. 3939 of 1995) praying that the resolution, dated 7-8-1995 be suspended and the defendants and their employees, agents and officers be restrained to implement or in any manner giving effect to the abovementioned resolution and any decision taken in furtherance of the said resolution. The defendant No,1 has filed his counter-affidavit denying the claim of the plaintiffs and has also pleaded non-maintainability of the above suit. The defendants Nos.2 and 3 have also filed their Vakalatnamas in favour of Mr. Qamar Abbas, Advocate but have neither filed any counter-affidavit nor any statement adopting the contents of counter-affidavit filed by the defendant No,1. The defendant No,4 despite service of the notices had chosen to remain absent.
3. ' The centre of the controversy is the resolution passed on 7-8-1995 during the meeting of the Board of Directors of Messrs Fecto Cement Ltd. (hereinafter referred to as the said resolution). There are in all ten Directors of the company, out of them, two are plaintiffs in the above suit. The plaintiff No,1 is the Chief Executive of the said company. The other four Directors of the Company are arrayed in the above suit as the defendants Nos. 1 to 4. Two of the other directors are appointed by the National Development Finance Corporation (hereinafter referred to as NDFC) by virtue of Article 81 of the Articles of Association of the Company. Messrs Saudi Pak Industrial and Agricultural Investment Co. (Pvt.) Ltd., hereinafter referred to as "SAPICO", has its nominee as one of the director of the Board by virtue of Article 84 of the Articles of Association. All these above-referred persons constitute the Board of Directors of the Company.
4. ' On 5th August, 1995 notices were issued for holding of the 27th meeting of the Board of Directors of the Company on 7th August, 1995 at 10-30 a.m. At Karachi. Agenda of the proposed meeting circulated among the Directors included confirmation of the minutes of the last meeting and to discuss and review the progress made in respect of certain decisions taken by the Board of Directors in their meeting held on 1-6-1995 and to take further necessary action. On 7-8-1995 a meeting of the Board was held and a detailed resolution was passed which is the cause of grievance to the plaintiffs who have approached this Court seeking declaration and injunction. In this resolution it is clearly mentioned that with immediate effect, the board takes back some powers of the Chief Executive, who is restrained from enjoying some of the implied powers conferred upon him vide the Companies Ordinance, 1984. The previous authority of the plaintiff No,1 to operate the bank accounts of the Company was cancelled and three persons namely plaintiff No,1 and defendants Nos.1 and 2 were authorised to operate the bank account of the Company with the signatures of any two of them. The said three Directors were in the same manner authorised to appoint, engage or authorise any Advocate, counsel or attorney to represent the bank in the legal matters, to sign on behalf of the company agreements, deeds, contracts and documents by the joint authority of any two of the three. Besides, a two men committee consisting of defendants Nos.1 and 2 was formed to review the affairs of the Company and with further authority to act as follows:---
(1) To authorise all future appointments;
(2) To take actions against those involved in anyway in misappropriation and embezzlement of Company's funds and business and to dispense with them;
(3) To change Secretary and internal auditor of the Company, if deemed necessary;
(4) To check Share Transfer Register so as to trace transfer of shares to benami shareholders;
(5) To withhold payment of dividend to benami shareholders if any;
(6) To take steps to ensure and verify true production capacity of the plant; and
(7) To take such action(s) as the members of the committee may deem fit in the interest of the Company so as to provide the requisite cover and credibility to the Company in the public eye.
5. ' I have heard Mr. Khalid Anwar, Advocate for the plaintiffs and Mr. Qamar Abbas, Advocate for the defendants Nos.1, 2 and 3. Mr. Qamar Abbas, learned counsel appearing on behalf of the defendants has raised a preliminary objection as to the maintainability of the above suit. He has strenuously contended that in view of section 42 of the Specific Relief Act, 1877 the plaintiffs are not entitled to any declaration as the plaintiffs have neither any legal character nor any legal status or right to the "property." He has also argued that except for the provisions contained in the Companies Ordinance, 1984 this Court is not competent to interfere in the day to day affairs of a company. In fact Mr. Qamar Abbas is referring to the doctrine of indoor management. On the point of maintainability of the suit he has strenuously relied upon the case of Abdul Rehman Mubashir and others v. Syed Amir Ali Shah Bukhari and others PLD 1978 Lah.
113. In this reported case a suit was filed by the plaintiffs seeking declaration that the defendants who were all Mirzais/Ahmedis being non-Muslims cannot call their places of worship as Masjid nor they can call Ann. The question of maintainability of the suit came up before a Division Bench of Lahore High Court. Several case-laws pertaining to Pakistan and Indian jurisdiction were discussed in the said case and various aspects of section 42 of Specific Relief Act, 1877 were considered by the learned Division Bench of Lahore High Court. The relevant portion of this reported case, upon which Mr. Qamar Abbas, Advocate has relied upon, is reproduced as hereunder:--- "It is clear from these authorities that section 42 would be attracted to a case in which the plaintiff approaches the Court for the safeguard of his right to legal character or property but where right to his own legal character or property is not involved, the suit is not maintainable. The suit must be one which must bring benefit to him in regard to these two rights. No suit involving any other right, hypothetical or abstract would be competent under that section. The Court will not, therefore, entertain suits in which no benefit accrues to the plaintiff or where the plaintiff sets up merely an abstract right to satisfy his ego or satisfy his grudge against another person. Section 42 cannot be invoked in matters of mere sentiments which have no concern with the vindication of the plaintiffs' title to status and property."
6. ' In reply to the preliminary objection raised by the counsel for the defendants, Mr. Khalid Anwar, Advocate has relied upon the case of M/s. Chalna Fiber Company Ltd., Khulna and others v. Abdul Jabbar and others PLD 1968 Supreme Court 381. In this case the Hon'ble Supreme Court did not uphold the objection of the defendants/appellants on the question of the maintainability of the suit on the grounds that the respondents/plaintiffs had no remedy under the Companies Act to claim relief as prayed in the suit. In this case the plaintiff who was the Managing Director of the appellant Company was removed from his post on the basis of a forged resignation while he was in jail.
7. Following is the relevant portion of the said judgment:--- "In the present case the position is different, for, there is no provision in the Companies Act under which the respondent No,1 could seek the reliefs he claimed in the suit. Section 38 of the Companies Act has clearly no application whatsoever, for, that section deals with the rectification of any share register. His name had not been removed from the share register. All that had been done fraudulently and illegally during his detention. All that he wanted, therefore, was a declaration as to his status as the Managing Director of the Company. In other words, his allegation was that he had been fraudulently removed from his office of Managing Director and that he could only be restored to the said office if he obtained a declaration from a competent Court that the removal was fraudulent."
8. ' It was further held by the Supreme Court in the case of Chalna Fiber Company Ltd. That it is a well- settled rule that the ouster of jurisdiction of Civil Court is not to be readily inferred unless that jurisdiction has been either expressly or impliedly taken away by some other law. For further reference see the case of Secretary of State v. Mask & Company AIR 1940 PC 105.
9. ' There is other case-law on the proposition whether and under what circumstances a Court can interfere in the affairs of the Company and can grant relief to the plaintiffs? It would be advantageous if some of these case-laws are examined. (i) in the case of Parshu Ram Datta Ram Shamdasani v. The Tata Industrial Bank Ltd. (25 Bom. LR 1083) a suit was filed by the shareholders of the defendant Company against the Directors of the Company seeking declaration that the proceedings of a general meeting were improper and that certain appointments made at that meeting were invalid. It was held by a single Judge of the Bombay High Court that the grievances of the plaintiff about holding of meeting amounts to irregularities in the procedure. It was in view of this finding that the learned Judge of Bombay High Court held that irregularities are not a matter for the Court but for a majority of the share-holders of the Company to deal with. It was further held that the Courts will interfere only if the rights of the shareholders are infringed or if a case of fraud or ultra vires is made out. The Rule laid down in the cases of Foss v. Harbottle (1843) 2 Hare 461) and Macdougall v. Gardiner (1875) I Ch. D. 13 was followed.
(ii) Subramenia Aiyar and others v. United Life Insurance Company and others AIR 1926 Madras 1215.
10. In this case plaintiffs were Advocates of the High Court who brought a suit against insurance company for declaration that they were validly elected policy holders' directors and for further declaration that insurance company has no power to nominate policy holders' directors. A learned Single Judge of Madras High Court following the law laid down in the case of Pul Brook v. Richmand Consolidated Mining Company (1878) 9 Ch.D. 610 held that a director can maintain an action in his own name against the other directors on the ground of individual injury to himself.
(iii) Sardar Gulab Singh v. Punjab Zamindara Bank Limited AIR 1940 Lahore 243: In this case plaintiff was removed from his post of Managing Director in an extraordinary meeting of the shareholders.
11. The plaintiff filed a suit for declaration praying that he be declared to be the Managing Director of the defendant Company with the prayer of injunction restraining the defendants from preventing him from acting as such. It was held by a learned Single Judge of the Lahore High Court that the resolution removing the plaintiff from the office of Managing Director was ultra vires and as such suit of the plaintiff was maintainable.
(iv) Sati Nath Mukeriee v. Suresh Cahndra Roy and others AIR 1941 Calcutta 136: In this case the company involved was an insurance company. During an ordinary general meeting held on 29-9- 1939 where elections of the directors were also to be held, one set of directors was retired and other set was declared elected. In the said meeting a new resolution was adopted declaring that only two out of other retiring directors were to be elected. In these circumstances the aggrieved directors filed a suit. It was held by a learned Single Judge of the Calcutta High Court that the suit up to the extent whether the plaintiff is a director was good and maintainable.
(v) Satyavart Sidhwantalankar and others v. Arya Samaj, Bombay AIR 1946 Bombay 516: In this suit defendant was a society registered under Societies Act, 1860. One of the issues involved in this suit was whether resolution under question was ultra vires and whether it amounts to interference in the internal management of the society and whether such suit was maintainable. It was held by a learned Single Judge of Bombay High Court Mr. Bhagwati, J. (as he then was) that the Court will not interfere in the internal management of the Companies acting within their rights as this principle is based on the supremacy of the majority. But the learned Judge imposed a rider on the exercise of the powers of the majority in the following words:---
(a) Where the act complained of is ultra vires.
(b) Where the act complained of is a fraud on the minority; and
(c) Where there is absolute necessity to waive a rule in order that there may be no denial of justice ' It was impliedly laid down that under such circumstances a Court was competent to interfere.
(vi) Famed Sons Ltd. v. Karachi Cotton Association PLD 1956 Karachi 315: This was a suit filed by the plaintiff on the original side of this Court. Alongwith the suit the plaintiff filed an application under Order XXXIX, Rules 1 and 2, C.P.C., read with section 151, C.P.C., praying that the defendants be restrained from putting into effect a clarification regarding particulars of cotton tenders. After considering the cases of Arya Samaj, Bombay and of V.N. Bhajekar v. K.M. Shinkar and others (AIR 1934 Bombay 243) Mr. Inamullah, J. (as he then was) held as follows:--- "I would be reluctant to interfere with the internal management of the association unless I had reason to hold that the action of the board was fraudulent or against natural justice."
(vii) Parvaiz Aslam Mian Aslam v. Synthetic Chemical Company Ltd., Karachi and other PLD 1980 Karachi 401: In this suit, filed on the original side of this Court, an application was also filed praying for temporary injunction restraining the defendant from taking steps or action for implementation of a special resolution passed in an extraordinary general meeting for winding up of defendant No,
1. It was held by a learned Single Judge of this Court, Mr. Naeemuddin, J. (as he then was) that there are three conditions precedent for interfering in the internal management of company by the Courts. Following is the relevant portion of the said reported case: "Lastly, it is well-settled that a Court cannot interfere in the internal management of the company unless the act, complained of, is ultra vires, mala fide, fraudulent or against the principle of natural justice."
12. From the case-law as discussed hereinabove, it can be safely held that the Courts are not competent to interfere in the day to day working of a company on the well-established doctrine of indoor management. But this is not an absolute bar and there are situations where a Director or a shareholder can bring a case before the Court against a company and its Directors. The Court will be justified to interfere if the following conditions are fulfilled:-
(1) Where the majority has acted in depriving the minority of their lawful and legitimate rights.
(2) Where the acts, complained of, are ultra vires of the Memorandum and Articles of Association of the company.
(3) Where the directors have acted malafidely and against the interest of the company.
(4) Where there is a violation of a principle of natural justice.
(5) Where the act, complained of, amounts to fraud and misrepresentation.
13. ' In the instant case allegation of the plaintiffs are that plaintiff No,1, for all legal and pecuniary purposes, was "removed" (as discussed infra) from the assignment of Chief Executive without adopting due course of law. It is further argued by the learned counsel for the plaintiff that the meeting of 7-8-1995 was mala fide and that the said resolution is ultra vires of the company, therefore, in view of such averments of the plaint, I am of the considered view that this suit is very much maintainable as the plaintiffs have no other remedy available under the other provisions of Companies Ordinance, 1984 through which they are entitled to seek such declaration as to their legal status in the Board of Directors after passing of the impugned resolution.
14. ' Mr. Khalid Anwar, learned counsel appearing for the plaintiffs has attacked with force the resolution, dated 7-8-1995 passed by the Board of Directors on the ground that the time between issuance of notice and the date of meeting was neither sufficient nor reasonable. He has also invited the Court's attention to Articles 81 and 84 of the Articles of Association of the company wherein the presence of two Directors of N.D.F.C. And the Director of S.A.P.I.C.O. Were made mandatory while deciding such matters as of the resolution. In reply to these grounds, it is argued by Mr. Qamar Abbas, Advocate that the quorum provided in Article 58(e) of Association for the meeting of Directors is 1/3rd of the numbers or four Directors whichever is greater. According to Mr. Qamar Abbas, six Directors attended the meeting on 7-8-1995. To determine this question it will be necessary to ekamine Articles 81 and 84 of the said Company's Articles of Association. Both the relevant articles are reproduced as follows:--- Article 81 ' That notwithstanding anything to the contrary contained in any article herein, the decisions of the Board on all the following matters shall always require the participation of National Development Finance Corporation's (N.D.F.C.) nominees on the Board of Directors of the Company:
(a) Appointment/change of M.D./Chief Executive;
(b) Appointment of key personnel and consultants;
(c) Award of contracts to any Suppliers of Plant, Machinery and Equipment and for construction of civil works of the project;
(e) Capital expenditure exceeding Rs,4 million per item during any financial year;
(j) Delegation of powers of M.D./Chief Executive and
(k) Recommendation on the appointment of auditors. . Article-84 ' Notwithstanding any provision to the contrary contained in any article herein all decisions of the board shall be taken by majority provided that decision on the following matters shall always require the concurrence of SAPICO nominee(s) on the Board of Directors without which concurrence the purported action would be ultra vires the Company:
(i) Appointment/change of M.D./Chief Executive.
(ii) Appointment of key personnel/Departmental Heads/Managers and Consultants.
(xi) Delegation of power of M.D./Chief Executive.
(xii) Recommendation on the appointment of Auditors.
15. ' Perusal of the abovesaid articles. Shows that the participation of the three Directors of N.D.F.C. And SAPICO is mandatory, particularly in reference to the nature of transactions mentioned in Articles 81 and 84. The resolution, dated 7-8-1995, prima facie amounts to withdrawing the powers of Chief Executive and entrusting the same to other Directors. It is pertinent to note that in the impugned resolution the authority to operate bank accounts is now entrusted to any of the two Directors consisting of plaintiff No,1 and the two defendants. In the similar manner, the abovementioned three persons are further authorised to appoint or engage any advocate and to sign on behalf of the Company all agreements, deeds, contracts and documents. Any two of the abovesaid Directors are now authorised to operate bank accounts, to appoint attorneys and to execute agreements or contracts on behalf of the company. Through this resolution the defendants No,1 and 2 can administer, run and manage the Company by themselves without concurrence of the plaintiff No,1 and can easily ignore him while dealing with the affairs of the Company who is admittedly the Chief Executive of the company. Through such mechanism the defendants have removed the plaintiff No,1 from the assignment of Chief Executive without adopting due course of law. This view is further supported by the fact that through the said resolution a sub-committee consisting of defendants Nos.1 and 2 was constituted which was entrusted vast powers to run the affairs of the Company, thus, taking away powers of the Chief Executive of the Company.
16. ' Be that as it may, this impugned resolution amounts to at the very least delegation of the powers of Chief Executive. I am not unmindful of the fact that NDFC and SAPICQ are repositories of huge amount of public funds which have been invested and advanced to the defendant No,1. In my view the presence of representatives of these institutions at a meeting where there were allegations and counter-allegations of misappropriation of the funds of the defendant No,1 to the detriment of the creditors and shareholders, was essential. Perusal of Article 81 of the Association shows that the participation of the two Directors of NDFC is necessary in such meetings while under Article 84 of the Association, the 'concurrence" of the SAPICO is the touchstone, in absence of which any resolution passed contrary to the items mentioned in these two Articles would be ipso facto, ultra vires of the Company.
17. ' It is important to bear in mind that the purpose of meeting of the Board of Directors is to promote a mechanism for joint deliberations of all the Directors, to promote exchange of ideas for the betterment and smooth running of the Company as well as to provide an opportunity to the minority to canvass before the majority their point of view. Such mechanism helps in resolving several disputes among the directors and also help in reaching consensus and harmony. Any deliberation or transaction pertaining to the affairs as mentioned in Articles 81 and 84 of Articles of Association, if held in absence of the three nominee directors will be ultra vires of the. Company as well as mala fide.
18. It has not been denied that the three Directors belonging to the NDFC and SAPICO were from Islamabad and they were required to attend the meeting at Karachi. None of the parties has filed any proof of service of notice on these Directors. Even if it is presumed that the notice of meeting as issued on 5-8-1995 was served on 6th August, 1995 upon these three Directors, if not impossible, it would be certainly difficult for them to reach Karachi within 24 hours. Keeping in view these circumstances, I am of the view that the period in-between issuance of notice and holding of meeting was neither sufficient nor reasonable. (For further reference see the case of M.R. Murty v.
19. Industrial Development Corporation of Orissa and others Vol. 47 C.S. 1977 page 389).
20. ' There is an admission by the Directors who participated in the said meeting which has been incorporated in the said resolution filed as Annexure ' V' to the plaint, that through the said resolution some of the powers of the Chief Executive were withdrawn by them and that he was restrained from enjoying some of the implied powers conferred upon him vide the Companies Ordinance, 1984. Although there is no specific provision in the Companies Ordinance, 1984 defining the powers of Chief Executive but in section 2(6) the Chief Executive has been defined as an individual who is entrusted with the whole or substantially the whole powers of the management or affairs of company subject to the control and direction of the Directors. It cannot be denied that a company is to be run by the Directors. But at the same time, it is pertinent to observe that the Directors are not entitled to run the affairs to a company contrary to the provisions of the Companies Ordinance or contrary to the Memorandum or Articles of Association.
21. In support of his contention that an injunction application, in such circumstances, is liable to be rejected, Mr. Qamar Abbas has relied upon the case of Syed Hasan Mansoor Zaidi and others v.
22. Syed Ghayoor Zaidi and others (1988 CLC 1347). In this reported case, the plaintiffs were seeking injunction against the defendants restraining them from using and acting upon certain documents on which the signatures of the plaintiffs, as alleged, were obtained forcibly with threat and undue influence. It was held by a learned Single Judge of this Court, Mr. Syed Haider Ali Pirzada, J. (as he then was) after following the case of Bentile Stevens v. Jones (1974) 2 AER 653, that the Court cannot grant an interlocutory injunction in respect of "irregularities" which could be cured by going through proper process. In the instant case, as discussed above, it is not a matter of irregularities but as alleged by the plaintiffs the controversy relates to the illegalities, mala fides and ultra vires of the impugned resolution which cannot be cured by going through other process. Here, the presence and concurrence of the nominee directors of the NDFC and SAPICO, in a meeting which was discussing an agenda involving subject-matter of Articles 81 and 84 of the Association was necessary. No such controversy was in issue before this Court in the abovementioned reported case. Therefore, the law laid down by this Court in the case of Syed Hasan Masroor Zaidi is not attracted on the facts of this case.
23. ' In a recent case this Court refused to grant an injunction to a shareholder who has brought a suit for declaration and injunction against company and its directors seeking a declaration that he be declared as director of the company "elected unopposed" and that the elections scheduled to be held on 30-4-1991 be stayed. (See the case of Farrukh K. Captain v. Exxon Chemical Pakistan Ltd.
24. And others PLD 1991 Karachi 441). The grounds on which injunction was refused to the plaintiff in the reported case are not available to the defendants in the instant case. The facts of both the cases are different. The reasons prevailed for the refusal of an injunction in the case of Farrukh Captain were as follows:--- "Although the general body has adjourned the election of directors to 30-4-1991 and invited fresh nominations, the plaintiff is in the field and has neither been debarred nor prevented from contesting the election by the defendants who also undertake despite their objection to the failure of the plaintiff to hold qualification shares for election of directors, not to raise it at any stage of election. Be that as it may, there appears to be very slim chances of the plaintiff getting elected as he has earned open hostility of shareholders representating 96 persons of voting power, which fact has also been candidly conceded by Mr. Abdul Hafeez Pirzada, learned counsel for the plaintiff. To restrain the respondent No,1 company from holding election will be too harsh an order against the will and wishes of such a thumping majority of shareholders which includes all but a meagre four per cent. Represented by the plaintiff."
25. In the instant case, the plaintiffs have, prima facie proved that the resolution, dated, 7-8-1995 is ultra vires to Articles 81 and 84 of the Articles of Association of the Company and that the meeting was held in haste without giving sufficient and reasonable time to three nominee directors to attend. The said resolution amounts to removal of plaintiff No,1 from the charge of Chief Executive without adopting due course of law. I am satisfied that all the three ingredients for grant of injunctions are available in the favour of plaintiffs' case. The result of these observations is that the application for interim injunction filed by the plaintiffs is granted as prayed. Civil Miscellaneous Application 3939 of 1995 stands disposed of.
26. In order to avoid any misunderstanding of misinterpretation of this order by the directors, I may' mention that nothing in this order will bar the company to call a fresh meeting, according to law, putting impugned resolution on agenda, but such meeting should be called after giving proper notice. In case, if the company calls a fresh meeting on such agenda they will intimate the Official Assignee about the said meeting who will attend the same and will prepare minutes of the meeting to foreclose further factual controversies between the parties. The company shall pay to the Official Assignee a fee of Rs,5,000 in case if such meeting, as observed above, is called by the company. With these observations Civil Miscellaneous Application 3939 of 1995 is allowed as prayed.