The plaintiff who is a former Director and presently shareholder of defendant No,1, has filed this suit for declaration and permanent injunction calling in question elections of nine Director of defendant No,1 held on 23-1-1995 in the Extraordinary General Meeting. Through first application which is under Order XXXIX, Rules 1 and 2, C.P.C. the plaintiff is seeking prohibitory injunction against the defendants from holding meeting of the Board of Directors of the defendant No,1 or to form any committee of Directors as well as not to allow defendant No,11 namely Zaver Petroleum Corporation to act as Managing Agent in reference to defendant No,15 namely Oil and Gas Development Corporation (hereinafter referred as OGDC) and/or to allot shares or to approve transfer of shares of the defendant No,1 till disposal of the suit. The second application is again filed by the plaintiff under the same provision of law as of earlier application but this time with the prayer seeking interim injunction restraining defendant No,12 namely Corporate Law Authority from taking any action on the special resolution passed in the meeting of the Board of Directors of the Company, dated 9-8-1995 and presented on 23-8-1995 under Companies Registration No,KAR-3471/1972-73 till decision of the suit. However, on 7-9-1995, it was stated by Mr. A.H. Pirzada, learned counsel for defendants Nos.1 to 11 that there were three resolutions passed on 9-8-1995 by the Board of Directors of defendant No,1 and that two resolutions have been implemented and acted upon. He made further statement at the Bar that the Head Office of the Company will not be shifted from Karachi to Islamabad till further orders.
2. The case of the plaintiff is that he has 0.46% shares of the defendant No,1 and that the defendant No,1 is the family business of the plaintiff and defendant No,2. That the Board of Directors decided to hold 20th Annual General Meeting of shareholders on 27th May, 1993 in which besides other business, elections of nine Directors for a period of three years were to be held. Against nine vacancies of the Directors, the company received 12 nominations including that of plaintiff. It is pertinent to note that the father of the plaintiff, namely, Akbar Ali Hashwani who was to retire in the year 1993, filed an application under section 41 of the Arbitration Act, 1940 before the Court which was numbered as J.M. No,30 of 1993. On 26-5-1993 this Court stayed the elections of the Directors.
This stay order was vacated on 22-1-1995 by my learned brother Mr. Hussain Adil Khatri, J. However, prior to dismissal of J.M. 30 of 1993, on 20-12-1994 the interim stay order dated 26-5-1993 was modified by consent of the Advocates appearing for the parties in that proceedings, to the extent that the Annual General Meeting of the company was allowed to be called in the fourth week of January, 1995 and the company was allowed to take preliminary steps for calling such meeting subject to the ad interim order as mentioned above. It was in these circumstances, the Extraordinary General meeting was called on 29-1-1995 and the nine Directors were elected for next here years who are now arrayed as defendants in the above suit. The main thrust of the plaintiff's case is that the elections of the Directors were held in violation of the provisions of the Companies Ordinance, 1984 and that the three directors, namely, Aziz Boolani who is defendant No,3, Ayaz Muhammad achene who is defendant No,6 and Abdul Monem Khan who is defendant 23.01.10 were not eligible to be elected as Directors. Defendants have filed their respective written statements denying averments of the plaint and have defended he legality of the elections and holding of E.G.M. on 23-1-1995.
3. I have heard Mr. Rasheed A. Akhund and Mr. Khalilur Rehman, advocates for the plaintiff, Mr. Abdul Hafeez Pirzada, Advocate for defendants Nos. 1 to 11 and Choudhry Muhammad Jamil, Advocate for defendant No,
15. Mr. A.H. Pirzada has raised a preliminary objection on the question of maintainability of this suit. He has relied upon section 179 of the Companies Ordinance, 1984 which provides that the Court may, on the application of members holding not less than 20% of the voting powers, declare election of all or any one of the Directors as invalid, if the Court is satisfied that some material irregularities were committed during holding of the elections. In reply to the objection of Mr. Pirzada, learned counsel appearing for the plaintiff has relied upon the case of Messrs China Fibre Company Limited, Khulna v. Abdul Jabbar and 4 others PLD 1968 SC 381. In this reported case, the plaintiff had filed a suit seeking declaration that he be declared as Managing Director of the company and also prayed for permanent injunction against the defendants restraining them from carrying on business in the name of Chalna Fibre Company Limited. Since the defendants' plea as to the maintainability of the suit was disallowed, they went to the High Court in a revision which was also dismissed. They approached Supreme Court and the leave was granted. The same objections were raised by the appellant before the Honourable Supreme Court as to the maintainability of the suit. It was held that since there was no provision in the Companies Act, 1913 (now repealed) under which the plaintiff could seek the reliefs as claimed in the suit as such section 38 of the repealed Act had no application. It was held that the suit was very much maintainable. The Honourable Supreme Court further held that the ouster of jurisdiction of a Civil Court in respect of a civil suit is not to be readily inferred unless that jurisdiction has been either expressly or implidely taken away by some other law.
4. In the present suit, the plaintiff is seeking declaration as to his legal character to be a Director of the defendant No,1 on the grounds, inter alia, that the remaining three defendants were not legally eligible to hold the post of Director as they are not members/shareholders of the said company.
According to the plaintiff, if the said three Directors are declared to be disqualified then ipso facto he becomes Director of the defendant No,1 as there remains no need for holding of elections. It was further contended that the relief sought by the plaintiff is not available to him under sections 7, 8, 290, 291 and 488 or in any other provisions of the Companies Ordinance, 1984. The scope of interference by a Civil Court in the matter of companies was considered in the case of Muhammad Yasin Facto and another v. Muhammad Raza Fecto and 3 others (Suit No,533 of 1995) wherein after making reference to the cases China Fibre Company (supra) Secretary of State v. Mask & Company AIR 1940 PC 105, Sardar Gulab Singh v. Punjab Zamindar Bank Ltd. AIR 1940 Lah. 243, Parvaiz Aslam Mian v. Synthetic Chemical Co. Ltd. PLD 1980 Kar. 401, Farrukh K. Captain v. Exxon Chemical Pak. Ltd. and others PLD 1991 Kar. 441 it was held by this Court that if any of following conditions are available then a civil Court will be competent to interfere in the affairs of a company:--
(i) Where the majority has acted in depriving the minority of their lawful and legitimate rights.
(ii) Where the acts, complained of, are ultra vires of the Memorandum and Articles of Association of the company.
(iii)Where the Directors have acted malafidely and against the interest of the company.
(iv) Where there is a violation of a principle of natural justice.
(v) Where the act, complained of, amounts to fraud and misrepresentation.
In view of the facts as alleged in the plaint and for the Law as stated hereinabove, I am of the tentative view that there appears no bar in maintaining this suit.
5. It was strenuously argued on behalf of the plaintiff that the elections of the nine Directors, held during the meeting of E.G.M. of 23-1-1995 was illegal and defective inasmuch as the notices were not issued in strict compliance of section 159(7) and section 50(2) of the Companies Ordinance, 1984. He has relied upon the case of The Karnal Distillary Company Limited Karnal PLD 1956 (W.P.)
Lah. 731 wherein a learned Single Judge of the Lahore High Court B.Z. Kaikaus, J. (as his Lordship then was) held that if a notice sent on 4th March is served on 8th March and the meeting was held on 28th March, the number of clear days would be only 19. Reliance was placed by the Lahore High Court on the cases of Railway Sleepers Supply Company's case (1885) 29 CH 204 and Hector Shalling Limited's case (1936)
1. In the instant suit the defendants have refuted these allegations of the plaintiff and have maintained that there was no violation of Companies Ordinance, 1984 by holding E.G.M. and elections of Directors. Subsection (7) to section 159 of the Companies Ordinance provides that the notice of Extraordinary General Meeting shall be issued to the members at least 21 days before the date of meeting. Subsection (2) to section 50 provides that in case a notice is issued, services of the same shall be deemed to be effected, if it is properly addressed pre-paid and posted unless the contrary is proved.
6. It was argued by Mr. Akhund that the time of posting till delivery is to be excluded as subsection
(7) to section 159 clearly provides period of "at least 21 days". Mr. Pirzada had invited my attention to Annexure "G" filed with the plaint which shows date of notice as 1st January, 1995. If the days of 1st January and 23rd January are excluded there left in between clearly 21 days. It is pertinent to note that subsection (7) to section 159 provides period of clear 21 days from the day the notice is sent and not from the day it is served. Therefore, the contention of Mr. Akhund that the period of 21 days was not provided between the issuance of notice and E.G.M. is not correct. There is another aspect of this case. None of the members who are, according to the plaintiff, 48 in numbers have complained of such defect, either to the defendant No,1 or to the Authority. Nor the plaintiff has filed any proof to suggest that any of the members was not served with the said notice. Here, I would also like to clarify that the gap of at least 21 days between the notices issued and the date of General Meeting should be calculated from the last notice issued to the member and not from the date of first notice. Plaintiff has not pleaded before this Court that the Annexure "G" was not issued on 1st January, 1995.
7. I would also like to observe that there must be a gap of 35 days in between holding of elections of the Directors and in the meeting of the Board of Directors fixing the number of Directors to be elected (section 178). If on 1st January, it is decided by the Board of Directors that the election of certain number of Directors are to be held, then convening of General Meeting must be held after 5th February. Notices to the members should be despatched at least 21 days prior to holding of General Meeting. In case, the annual general meeting is fixed on 6th February then notices as provided under subsection (7) to section 159 should be issued prior to 14th January. Last date of receiving intimation from a member seeking election of the Director should be well before 14 days prior to holding of E.G.M. as provided under section 178(3) of the Companies Ordinance. A company is bound to inform its members about the list of the persons interested in seeking office of the Director at least 7 days prior to holding of General Meeting as provided under section 178(4). It will be advantageous if a model schedule is suggested for the benefit of all the companies in order to avoid any irregularity in future:--
(a) If meeting of Board of Directors for fixation of number of elected Director is held on 1st January then election of the Directors should be held after 6th February (after 35 days).
(b) Notice under section 159(c) of the Companies Ordinance, 1984 must be issued to the members on or before 15th January.
(c) Intimation or commonly known as nomination of the candidates seeking election as Director must be called and received in office of the company prior to 20th January.
(d) Intimation of the names of the persons members contesting elections of the Director should be circulated amongst the members prior to 28th January.
If the elections for the Board of Directors are conducted within the time and dates as suggested in the above format then it could be easily said that there was no irregularity in holding of elections which can materially affect the result.
8. Mr. Rasheed Akhund's other attack is that the defendants Nos.3, 6 and 10 were not members/shareholders of the defendant No,1. As such, in view of section 187(h) they were not eligible to become Director of the company. Mr. Abdul Hafeez Prizada had relied upon proviso (i) to subsection (h) of section 187 to support his contention that where a person is representing an Institution which is a member of the company, he is not required to be a member as provided in section 187 of the Companies Ordinance, 1984. Mr. Pirzada has vehemently argued that the plaintiff is estopped in law to raise such ground as he himself has contested election without raising such objection and once he lost election, now he has turned back and is challenging the same. He has also relied upon Annexure "A" filed with the written statement of defendant No,1 to show that all these three Directors acquired qualifying shares on 31-1-1995. In para. 16 of the plaint, it is categorically stated that these three defendants namely 3, 6 and 10 were not shareholders of the company nor they represent or are nominees of any Bank, Financial Institution or Government. The replies of these defendants to such allegation of the plaintiff vide their respective written statements are couched in the same words that they being representatives of sister concerns of the defendant No,1 were fully qualified to be nominee Directors. At this stage, it would be pertinent to reproduce paras.7, 9, 16 and 21 of the parawise comments of the defendant No,12 namely Corporate Law Authority which clarifies, to much extent present factual controversy:-- "(7) The last election was held on 14-6-1990 and the next election was due to be held on or before 13-6-1993 in terms of sections 178 and 180'of the Companies Ordinance, 1984, so, no provision of law was violated by issuing notice for holding election on 27-5-1993. Rest of the facts is not known.
9(a) ....................
9(b) The proviso, providing for exception of section 187(h) is applicable to "person representing the Government or Institution or Authority which is Member' instead of 'Government Banks or any Financial Institution or Authority as stated in the petition. Rest of the facts are not known.
16. It is correct that Messrs Ayaz M. Lakhani, Abdul Moneem Khan and Aziz Boolani are not shareholders of the company.
21. It is correct that a complaint was submitted by Messrs Akbar Ali Hashwani, Nizam Hashwani and Amin Hashwani on 22-1-1995 stating therein that the nomination of Messrs Ayaz M. Lakhani, Abdul Moneem Khan and Mr. Aziz Boolani should be rejected as they are not shareholder of the company.
The copy of the complaint was sent to the Chief Executive on 23-1-1995 for his comments. In reply thereof, the company Secretary vide his letter, dated 12-2-1995 forwarded a copy of letter, dated 29-1-1995 addressed to the complainants stating therein that as Mr. Ayaz M. Lakhani, Mr. Abdul Moneem Khan and Mr. Aziz Boolani are representing the interest of 'Institution' in terms of section 187(h)(i) of the Companies Ordinance, 1984 which is a member, their nominations are fully within the purview of existing law. Further, information in this regard have been called from the Company vide letter, dated 28-2-1995 reply of which is still awaited."
9. The present controversy can well be answered more appropriately only after Articles 73 of the Articles of Association of Hashwani Hotels Ltd. defendant No,1) and section 187(h) alongwith its provisos of the Companies Ordinance, 1984 are referred:-- "73. A Director shall not require any share qualification so long as only subscriber's share are in issue. After the first issue of shares, the qualification of a Director and ex officio Director shall be his holding shares to the value of Rs,5,000 at least in his own name, relaxable in the case of Directors representing interest holding shares of the requisite value.
287. Ineligibility of certain persons to become Director.--- No person shall be appointed as a Director of a company, if he--
(h) is not a member.
Provided that clause (h) shall not apply in the case of--
(i) a person representing the Government or an institution or authority which is a member;
(ii) a whole time Director who is an employee of the company;
(iii) a chief executive; or
(iv) a person representing a creditor."
10. The term "Director" has been defined in section 2(13) of the Companies Ordinance, 1984 which includes any person occupying the position of a Director, by whatever name called, while the term "Member" is defined in section 2(21) of the said Ordinance. According to this definition, a Member, in relation to a Company having a share capital, means a subscriber to the memorandum of the company and every person to whom it is allotted or who becomes the holder of any share, scrip or other security which gives such member a right to vote in the company and whose name is entered in the register of members, and, in relation to a Company not having a share capital, member means any person who has agreed to become a member of the company and whose name is so entered. However, the terms "institution" and "authority which are members" have nowhere been defined in the Companies Ordinance. Section 2(15)(a) defines financial institution only, while "authority" means the Corporate Law Authority constituted under section 11 of the Ordinance, 1984.
11.In so far as Article 73 of the Articles of Association of the defendant company is concerned, it exempts a Director from holding any qualification shares so long as only subscriber shares are in issue. It is not the case of any party that at present only subscribers' shares are in issue. According to the parwawise comments of Corporate Law Authority, defendant No,1 was-incorporated on 12th Day of October, 1972 as a Private Limited. Company. But the status of the company was subsequently, converted into a public limited company and it is now a public limited company for all practical and legal purposes. It is further stated in the said parawise comments that whenever the new shares are issued to increase the capital, such shares are offered to the existing members in proportion to their shareholding in terms of section 86 of the Companies Ordinance, 1984. (see para. 23(a): of the parawise comments). However, this Article 73 of the Articles of Association further relaxes this clause in case of Directors representing interest holding shares of the requisite value. Nowhere in the Articles of Association it has been described who is such Director representing interest holding requisite share value. In Article 74, PICIC has been authorized to appoint one Director to the Board during subsistence of its loan. Likewise, ICP and IDBP have also been authorized to appoint one person each on the Board of Directors. The case of defendants Nos.1, 2, 3, 6 and 10 is that since the three defendants who were elected Directors were representing the Companies namely Hashwani Sales and Service (Private) Ltd. Hashwani Hotels (Pvt.) Ltd. and Hassan Ali & Company (Pvt.) Ltd., respectively, who are shareholders of defendant No,1, therefore, they were not required to be a member. If it is so, then why all these three defendants participated in the elections. There is no provision in the Articles of Association for holding of elections of nominee Directors. Simple nomination would have been sufficient to bring them on the Board of Directors. This plea of Mr. Abdul Hafeez Pirzada is, therefore, not convincing and tentatively appears to be an afterthought. It is stated in their written statements that "they were fully qualified to be nominee Directors". But, at the same time, they have contradicted themselves by stating that subsequently, they have acquired qualification shares which was approved by the Board of Directors on 31-1-1995 and that there was no violation of section 187 of the Companies Ordinance, 1984. If these three defendants were nominees of the shareholders company of defendant No,1 then why there arose any necessity of acquiring 500 shares. Both the pleas are mutually destructive and make the stand of these defendants doubtful in so far as status of these three defendants is concerned at the time of holding of election on 21st January, 1995. Section 187 of the Companies Ordinance, 1984 clearly envisages that no member can be appointed as a Director except for the four qualifications given in the proviso to subsection (h) of section 187. Defendants Nos.3, '6 and 9 were required to show that they fall under any of these three provisions. In my view, Article 73 of the Articles of Association of Defendant Company is in conflict to the spirit of section 187 of the Companies Ordinance, 1984. The rights of all such companies who are member of any company are protected under. Section 162 of the Companies Ordinance, 1984. Such companies are authorized to appoint any of their officials through resolution to represent at any meeting in order to protect rights and interest of such shareholder companies. But the scheme of section 187 of the Companies Ordinance, 1984, does not envisage a situation where an appointment of a Director is made who is not a member but is a nominee of a shareholder Company. Such exemption is permissible where a person is representing the Government, institution or authority which is a member. The last exemption cannot be treated at par with a company which is a member.
12. I would like to make reference to an unreported case which was also amongst the same group as of instant case, where a learned Single Judge of this Court, Hussain Adil Khatri, J. (as he then was) considered the importance and need of being member as a pre-requisite to contest election as Director of a company (see Akber Ali Hashwani v. Sadruddin Hashwani J.M. No,30 of 1993). The ratio of case Muhammad Ismail Ali Charan v. Pak Porko Ceramics Ltd. PLD 1973 Kar. 491 as laid down by another Judge of this Court, Dorab Patel, J. (as his Lordship then was), was followed in J.M.
No,30 of 1993 (supra) with the following observations:-- "(15) It need not be stressed, being evident that the election is to be held on the basis of the list maintained by the Company with regard to the members of the company and the shares held by them and return whereof is required to be filed with Corporate Authority in prescribed form. Section 153 prescribes punishment for fraudulent entries in and omission from such register of the members... ... The elections of the Directors of the company are requirement of the Companies Ordinance, 1984 and have to be in harmony with the provisions thereof. Only such persons are to be treated as members of the company whose names are mentioned in the Register of Members, maintained under section 147 of the Companies Ordinance, 1984 and such register is mandated under section 155 thereof shall be prima facie evidence of any matter inserted thereon by virtue of section 147 of the Ordinance. Right to vote is dependent upon the number of share held by each member. according to the register of members. The said Ordinance provides machinery and remedy if there be any dispute with regard to the entries in the Register of Members, even though other remedies are not barred. But the fact remains that the participation in the election would be as per entries of shareholding in the register at the relevant time and, therefore, the shareholders cannot claim participation on the basis of the shares which are subject-matter of the dispute. No principle of law can be pressed in service to subvert the requirement of law and compliance with the provisions of law on the plea of the pendency of dispute, particularly when specific remedy has not been availed and the strong presumption attached to the correctness of, entries in the said register has remained unrebutted..." (underlining is mine).
13. On 25-3-1997, Mr. Abdul Hafeez Pirzada filed a statement in writing alongwith a copy of his notice, dated 10-10-1996, during the course of arguments, in order to show that defendants Nos.1 and 2 are making their best efforts for getting Zaver Petroleum to be able to repay its outstanding loans which would result in the release of the guarantees and charges given by defendant No, 1.
This statement was orally made by the learned counsel in another suit (Suit No,935 of 1996) but was placed on record in writing in the instant suit. It was further offered through this statement that if this Court directs, defendant No,2 will submit at regular intervals of three months, all information relating to major investment made on behalf of defendant No,1. However, no response was shown on behalf of plaintiff to such offer which was made by defendants Nos.1 and 2 without prejudice to their case. I am fully conscious that under such circumstances as discussed hereinabove, the prime function of Court should be to ensure the smooth and effective running of a company but at the same time Court should not permit any member, Director or even a shareholder to violate any provisions of Memorandum and Articles of Association or the provisions of the Companies Ordinance, 1984. According to the circumstances as 'detailed above, I am of the tentative view that there did exist non-compliance of the statutory provisions as well as violation of Articles of Association.
14. As a result of the above discussion, I am of the considered view that the plaintiff has successfully established a good prima facie case for grant of interim injunction. I am also of the view that the other two ingredients, i,e, suffering of irreparable loss and injury as well as balance of convenience are also present in the plaintiff's case. It was out of these considerations that on 20-8-1997 both these applications were granted through following short order which is incorporated in this detailed order:--
(i) The statement of Advocate for defendants Nos.1 and 2, dated 25th March, 1997, alongwith letter, dated 10th October, 1996 of Mr. Abdul Hafeez Pirzada, are brought on record and interim injunction is granted in terms thereof.
(ii) Defendant No,1 and its Directors are further restrained from implementing or acting upon the special resolution, dated 9-8-1995, passed in the meeting of the Board of Directors of the defendant No,1 till further orders.
(iii) Defendant No,1 and its Directors are further restrained from passing any such resolution or acting in such a manner which may be detrimental or prejudicial to the rights of the plaintiff till disposal of the suit.
(iv) Defendant No,1 will file quarterly statements from the date of suit till further orders, disclosing all the material resolution, if any, passed in respect of the conduct of business and management of defendant No,l's business till further orders.
In view of the aforesaid order of interim injunction and with a view to keep in order running of the Company, I issue following directions:--
(a) That the suit be fixed for regular hearing within three months.
(b) Evidence be recorded through Commissioner for which parties are directed to suggest name of proposed Commissioner within one week.
(c) Parties' are also directed to file their respective draft issues within one week.
With the above observations, adjourned for further proceedings. To come up in the last week of August, 1997."
Above are the reasonings for the said short order.