MUSHIR ALAM,J.--- Plaintiffs have filed the suit for declaration and injunction praying, inter alia for the following reliefs:
(i) Declaration to the effect that the shares acquired by the defendants Nos. 1 and 2 either in their name or in the name of their nominees, concerns or units have been acquired in violation of the provisions of law and public policy;
(ii) grant a Permanent Injunction against the defendants and each one of- them including their nominees/persons acting for them or their industrial concerns from acquiring any further shares of the plaintiff and from exercising any right or receiving any benefits, bonus, shares and right of voting at the share-holders meetings;
(iii) grant a Permanent Injunction against the defendants from seeking election for themselves or their nominees , employees, representatives or agents as Directors on the Board of the Plaintiff directly or indirectly for the benefit and in violation of the fiduciary obligation to the plaintiff;
(iv) grant a Mandatory Injunction and a Direction to the defendants to disinvest and sell in the open market all the shares in the plaintiff company acquired by them in excess of the law for the time being in force whether such has been purchased by the defendant No. 1. Defendant No. 2 or in the names of the concerns of the defendant No. 2 or in the name of their nominees;
(v) to Order penalties against the defendants for violation of the provisions of law in accordance with law for the time being in force;
(vi) grant costs of the suit; or
(vii) grant any other/further/additional relief that this Hon'ble Court may deem fit and proper in the circumstances of the case.
2. Plaintiff No. 1, Adamjee Insurance Company Ltd.
(AIC) a Public Company, incorporated under the Companies Act, 1913 (succeeded by the Companies Ordinance, 1984) and registered as "Insurance Company" under the Insurance Act, 1938 (since succeeded by 'assurance Ordinance 2000). Plaintiffs Nos. 2 to 4 are the share-holders collectively own and control 20% shares in the Plaintiff No. I company. It is claimed that, the plaintiff No. 1 is one of the leading and widely acclaimed Insurance Company between Vienna and Taipei, holding substantial shares in the insurance business in the private sectors. Defendant No. 1, Muslim Commercial Bank Ltd. ( MCB') is a Banking Company, working as a Scheduled Bank under the Banking Companies Ordinance, 1962. It is averred that, it is owned, managed and controlled by defendant No. 2 through its associate, front Companies and person under his influence and authority. Defendants Nos. 3 and 4 are Pension and Provident Funds, respectively created under a Trust for the benefit of employees of defendant No. 1.
3. Case of the plaintiffs is that, defendant No. 2, an industrial tycoon, has acquired the defendant No. 1 Muslim Commercial Bank, in a dubious manner, which is subject to scrutiny by the concerned authority. Plaintiffs assert that, the defendant No. 2 in a inconspicuous and schematic manner acquired over 40% shares in the plaintiff No. 1 Company, far in excess of limit prescribed under Section 67 of the Insurance Ordinance, 2000. It is claimed that, the Defendant No. 2 exercising his influence over MCB's Employees Pension and Provident Funds, used the funds of both the Trusts to, acquire the shares of the plaintiff No. 1 with malicious object to dethrone the present management of the Plaintiff No. 1. Plaintiffs have outlined the manner in which the shares in the plaintiff No. 1 AIC, were acquired discreetly from time to time by the defendants either in their own name or in the name of person directly under the influence of Defendant No. 2. Acquisition of such interest, has been seriously questioned by the plaintiffs, as corporate raid and hostile takeover in a bid to seize the control/management of plaintiff N o. 1 MC). All the allegations contained in the plaint, listed application were denied. Listed application was resisted on the ground that acquiring of the shares by the defendants, was in accordance with law. Defendants are within their rights not only to retain such share but also entitle to enjoy and exercise all the rights attached thereto.
4. Mr. Anwer Mansoor Khan, learned counsel for the plaintiffs contended that, the defendant No. 1 ( MCB') a Banking Company, is regulated under the Banking Companies Ordinance, 1962, cannot go beyond the objects setout in its Memorandum of Association read together with Section 7(1)(a) to (o) of the Banking Companies Ordinance, 1962 According to him, Sub-section (2) of Section 7, ibid, confines the domain of the Banking Company in terms of Section 7(1) of the Banking Companies Ordinance, 1962. To augment his arguments, he has drawn my attention to the definition of the Banking Company, as given under Section 5(b) ibid, and to the object of the defendant No. 1 as detailed in the Memorandum of Association Annexure E' to the Counter-Affidavit. He has also drawn my attention to clause 3 of the Memorandum, laying down objects for which the MCB was established, which clause is almost verbatim copy of Section 7(1) of the Banking Companies Ordinance, 1962. He also attempted to impress that the Banking Company, can only acquire shares in any other Company for the purpose of mere investment to earn money, dividends and profits on such investment and for no other purpose. He extracted support from object Clause (b) of the Memorandum, which is almost reproduction of clause (a) to, Sub-Section 7(1) of the Banking Companies Ordinance, 1962 and Clause (m) of the Memorandum as well, Clause (m) to Section 7(1) of the Ordinance. In the earlier referred Clause, Banking Companies are authorized to deal in stock, fund, shares, debentures, debenture-stock, bonds, obligations, securities and investment of all kinds. Whereas, latter clause deals with acquisition of the shares in any other Company having object similar to those of the Company i.e. MCB. According to Mr. Anwer Mansoor, object of the plaintiff No. 1 Insurance Company and defendant No. 1 the Banking Company are quite distinct and separate. Both the Companies operate in entirely different field. Therefore, the object clause doe snot permit acquisition of the shares of a Insurance Company for the purposes of controlling and managing the affairs by a Banking Company. Learned counsel also laid emphasis on Section 23(2) of the Banking Companies Ordinance, 1962 to impress that the Banking Company cannot acquire shareholding exceeding 30% of the paid-up share capital of any other Company. Mr. Anwer Mansoor, learned counsel contended that, defendants Nos. 1, 3 and 4 hold 40% shares in the plaintiff No. 1 and defendant No. 2 holds and controls in all over 51% of the controlling shares through other front Companies and person under his influence. He has drawn my attention to abridge Prospectus of Nishat Group, Annexure F at page 242 of the file, wherein, under the captioned "background/history", it is claimed "Nishat Group" is holding significant shareholdings in Adamjee Insurance Company Limited, the largest Insurance in Pakistan". To demonstrate that, the defendant No. 1 i.e. Mian Muhammad Mansha exercise control over such shares, through Nishat Group, which hold significant shares in Muslim Commercial Bank Limited. Mr. Anwer Mansoor, also pointed out that, after the defendant No. 1 had filed a Counter-Affidavit, one of the aide of defendant No. 2 namely A.I Munir, who is Senior Executive President of defendant No. 1, who holds 2500 qualifying shares for Directorship has served a Notice upon the Plaintiff No. 1, proposing the name of A.F. Ferguson Chartered Accountants Company in place of Present Auditor M/s. Ford, Rhodes, Robson, Morrow Chartered Accountants Company. He argued that, such move was not possible unless a person has a backing of 51% voting shares which, according to Mr. Anwer, establish that defendant No. 2 has direct control over majority shares in the plaintiff No. 1 Company.
Said All Munir, has also signed the counter-affidavit on behalf of defendant No. 1 Bank. According to Mr. Anwer Mansoor presently, there is no law on Statute Books regulating such deceitful takeover or to provide protection against Corporate Raiders. According to him, Section 67 of the Insurance Ordinance, 2000 provides certain safeguard. Disclosure is to be made of any acquisition of interest in the Insurance Company by any person to the Securities and Exchange Commission of Pakistan, which was not made by the defendant No. 1, though he concedes that no rules so far have been framed under the Insurance Ordinance, 2000, yet the obligation casted upon the defendant No. 1 of notifying such acquisition of shares in excess of 10% cannot be dispensed with. Any filing-up of a Form in terms of Section 222 of the Companies Ordinance is not a sufficient disclosure. He contended that the defendant No. 1 has no authority nor is mandated by its Memorandum and Articles of Association to takeover the Plaintiff No. 1. The acquisition of share, was alleged to be motivated, against public policy, absence of reasonableness, fair play in acquiring shares are circumstances, where the Court comes to the rescue and may pass injunctive orders against unfair mala fide bid and attempt to takeover. It was further argued that since amalgamation and merger was not possible as objects of both the plaintiff No. 1 and defendant No. 1 are not similar, therefore, this backdoor method has been employed. In support of his contention, he has relied upon the English Case-Laws as reported 1960(1) All. E.R.' 768 upheld in Re-Bugle Press Ltd. 1960 (3) All. E.R. 791. He further argued that, what cannot be done directly cannot be allowed to be done indirectly. It was urged that the act of acquiring shares for the purposes of acquisition, that too, in a deceitful manner, is against Section 7(2) of the Ordinance, 1962 read with Memorandum of the defendant No. 1, cannot be sustained. In support of his contention, he has relied upon the case-laws as reported (I) Rolled Steel Products (Holdings) Ltd. British Steel Corp. And others (1982 (3) All. E.R. 1057), (ii) Alexander Ewan Camplell v.
Thomas Ernest Rofe (AIR 1933 Privy Council 39), (iii) Messrs G.M. Pfaff A.G. v. Sartaj Engineering Co.
Ltd. And 3 others (PLD 1971 S.C. 564) and (iv) Mian Muhammad Nawaz Sharif v. President of Pakistan and others (PLD 1993 S.C. 473.).
5. In contra, Mr. Khalid Anwer, learned counsel for the defendants contended that, the case of the plaintiff is totally baseless. Defendants acted within their rights and scope of activity as defined in its object clause. According to him, there is no malice, and shares were acquired in normal course of business. According to him, basic concealment have been made in the plaint, which disentitled the plaintiffs of any injunctive relief. It was asserted that, the total paid-up capital of plaintiff No. 1 is 54 Crores, 95% of the capital was wiped out last year on account of mis management on the part of the plaintiffs Nos. 2 to 4. It was contended that, the plaintiffs Nos. 2 to 4 as claimed in para 4, are controlling the plaintiff No. 1; therefore, the liability of such disaster squarely falls on them. It was argued that, plaint is full of self-praise and commendations, which are nothing but hollow claims, the plaintiff No. 1 is no more enjoying the tall reputation as alleged. According to Mr. Khalid Anwer, defendant No. I, since June, 2001, has not purchased any shares and defendant No. 2 does not subscribe a single share of MCB. He termed that suit as an abortive attempt to prevent bona fide share-holders to question the glaring misstatement and concealment made in the Audited accounts. He contended that the plaintiffs mala fidely did not file notice of Annual General Meeting ("AGM") of the Company that was scheduled to be held on 7th May, 2002. He drew my attention to Annexure ' A' to the Counter-Affidavit filed by the defendant No. 1, which is the notice of AGM.
Learned counsel pointed out, said meeting was to examine the Auditor's reports only and the plaintiffs want to avoid any embarrassment by seeking restraining orders. According to him, plaintiff No. 1 AIC has been downgraded by the Credit Rating Company. Since last three years the plaintiff No. 1 is sustaining losses in its principal business of Insurance. Income is derived from other investment. According to him, the Auditors have given qualified reports observing that, the plaintiff No. I AIC, has not followed International Accounting standard as mandated under Section 234 of the Companies Ordinance, 1984. It was further urged that, unlike Adamjee family, who have inducted their kith and kin in plaintiff No. 1. All Companies of defendant No. 2 are managed, regulated and controlled by Professional Management Personnel. He further argued that, prior to the promulgation of Insurance Ordinance, 2000 there was no restriction on acquisition of share- holding of Insurance Company, restrictions were only imposed after the insurance Ordinance, 2000 was brought on the Statute Book on 19.8.2000. He stated that, acquisition of share-holdings were reported to Securities and Exchange Commission of Pakistan. It was contended that, per plaintiff's own showing 3 persons hold 2500 qualifying shares. It was argued that, if at all, only 3 persons could be appointed as Directors as against the strength of nine Directors in the plaintiff No. 1, therefore, allegations of hostile takeover is mischievous and misconceived. As far as share-holding of defendants Nos. 3 and 4 are concerned, it was urged that they are separate legal entities, object of both the Trusts is to make investment in the shares of blue-chip companies. According to him, a restriction was imposed by the Government in March, 2000 restraining investment in Government Securities Scheme, therefore, both the Trust acquired shares in plaintiff No. I Company, Mr. Khalid Anwer, took me through various documents to show that, losses have been sustained by the plaintiff No. 1 AIC on account of contracting poor grade business; Credit Rating Company has downgraded the plaintiff No. 1. He contended that, Insurance Ordinance, 2000, is a prospective legislation, Section 67 thereof, requires reporting, if acquisition of shares at any time in any particular year is over 10%. According to him, Section 67, ibid, manifest one transaction of over 10% share only, whereas, there are scores of small transaction spread over three years. Mr. Khalid Anwer has drawn support from Clauses 3(1) and 3(m) to the Memorandum, to argue that managing the business and shares, is one of the object of defendant No. 1. In exercising of such powers MCB can manage the affairs of the AIC of whose shares they are, holding. Mr. Khalid Anwer, has drawn my attention to Annexure A/ I to the counter-affidavit which are the Minutes of 40th AGM, dated 28th June, 2001 of the plaintiff No. 1 company reflecting participation of Mis, MUA Usmani, Abdul Hameed A. Karim as Proxy for MCB and Mr. Shaukat All as Proxy for defendants Nos. 3 and 4 respectively. According to him, no exception to their participation in AGM was taken then, it does not lie in the mouth of the plaintiffs now to, object the participation of the defendants as share-holders in the forthcoming meeting. He argued that right to vote is a fundamental right which cannot be taken away. He argued that, there are other Companies in which plaintiffs hold substantial shares and also have nominee Directors, there is no allegation of hostile takeover. It was contended that, in order to conceal their self-claimed high performance, the plaintiffs want to foil any bid on the part of the share-holders to scrutinize the accounts. It is argued that, the dispute is between the two Groups of Share-holders i.e. Adamjee family and MCB. The plaintiff No. 1 ought to be impartial in such tug of war and' the plaintiffs Nos. 2 to 4 are not doing any service to protect the interest of plaintiff No. 1. In support of his contention, he has relied upon the case-laws reported as (1) Muhammad Sharif v. Government of Pakistan (1998 SCM R 2645), (2) A.R. Khan v. P.N. Boqa (1987 SC 107) and (3) Trustees of Port of Chittagong v.
Saleem Nawigation Co. Ltd. (PLD 1965 S.C. 352).
Mr. Abdul Ghafoor Qureshi has filed a statement duly signed by Mr. Raja Qureshi, learned counsel appearing on behalf of the defendants Nos. 2 and 3 adopting the arguments advanced by Mr. Khalid Anwer, learned counsel for defendants Nos. 1 and 2. The statement is taken on record.
6. After hearing the arguments of all the learned counsel for the parties. I deemed proper to appoint Mr. Fateh All Villani as amicus curiae' to assist the Court on the issues involved. I record my appreciation for the valuable assistance rendered by him. Mr. Villani, contended that both the Banking as well as Insurance Business are in regulated regime. Both the sectors are being regulated in the best of larger Public Interest. According to him, Insurance Business is regulated under Section 6 of Insurance Ordinance, 2000, therefore, it is subject to supervision of Securities and Exchange Commission of Pakistan Clauses R to U of sub-section (4) of Section 20 of SECP Act, 1997. He further contends that, Insurance Business can only be carried out in terms of Section 23(3) of the Ordinance, 1962. It was contended that State Bank of Pakistan, is clothed with authority to control and regulate the Banking Company in terms of Section 40(A), 42 and 43(A) of the Ordinance of 1962. Mr. Villani, elucidated that objects of both the companies are separate and distinct, field of activity of one is entirely different from the other. According to him, prohibition can be read under the Insurance Ordinance, 2000, that Insurance Company cannot indulge into any other business. It is apparently for this reason the amalgamation or merger of Insurance Company with that of any company having different object is not provided for under the Insurance Act (Section 68 of the Ordinance of 2000) and similar restrictions can be deciphered from the provisions (Section 48) of the Banking Companies Ordinance, 1962. Learned amicus curiae was of the view that in the instant case the principal. Object in terms of Clause 3(a) to the Memorandum of Association of the Defendant No. 1 MCB is to carry on Banking Business. Other clauses are subservient to the principal clause and are to be employed in furtherance of its principal object. He further submitted that, where there are several clauses in the Memorandum any clause that deals specifically with any particular subject then the provision of such clause would override the General Clause. According to learned amicus curiae, clause (b) to the object clause 3 of the Memorandum is a General Clause which deals with acquiring shares and dealing with stocks and securities of the company, whereas, clause 3(m) is more specific clause providing for acquisition of the share of a company, which according to him, will prevail over the General Clause. In support of his contention, he has placed reliance on Golden Oraphies (Pvt.) Ltd. v. Director of Vigilance (1993 SCM R 1635, 1644).
According to him, the defendant No. 1 MCB admittedly owns 29.37% of the shares of the plaintiff in its own name which is barely 0.63% short of 30%. He further elaborates that 8.88% i.e. 4.9%and 3.93% respectively are held by Pension Funds Trust and Provident Funds Trust respectively are though held by separate entity but are _ apparently managed and controlled by the defendant No. 1 Bank, which apparently gives it control over 38.5% of beneficial interest shares in the plaintiff No. 1 AIC.
Besides, some other shares are held by other Nominee persons employed or in management of MCB, and such share-holding certainly gives ample power and authority to elect Directors enough to control and influence the policy decision of the plaintiff No. 1. He further contends that no doubt 25.45% of the shares were acquired by MCB. Prior to 19th August, 2000 i.e. Date of promulgation Ordinance of 2000 and 3.92% were acquired thereafter. According to his reading of Section 67 of the Insurance Ordinance, 2000, shares in excess of 10% could have been acquired only after approval of SECP. Another significant point highlighted by Mr. Villani, is that under the Memorandum of the defendant No. 1. MCB, incidental and ancillary business activities are outlined but Insurance Business, is conspicuously absent, in his view, when defendant No. 2 had acquired quite a sizeable number of shares in the Insurance Company, then both the State Bank of Pakistan as well s SECP in terms of Section 20(j) of SECP Ordinance, 1997 ought to have shown concern in carrying out the necessary exercise of regulating and/or monitoring such acquisition of shares which is in the Public Interest. According to him, insurance Business is highly risky business and the Bank deals with Public Money is expected to make investment in comparatively safe and sound business proposition.
7. Mr. Villani, further contended that, in case where investigations are underway, against any company, then the SECP has authority in terms of Section 279 of the Companies Ordinance, 1984 to regulate the transfer of shares and even imposed restrictions on exercise of rights attached to such shares. To a specific question by the Court that, where no investigation is underway or in case where the authorities apparently have abdicated or are oblivious of their responsibility and duties, would it be appropriate for the Court to pass any orders in terms of Section 279 of. Companies Ordinance, 1984. The answer was in affirmative. According to him, such powers could only be exercised by the Commission where it appears in connection with any investigation and that too, where it is of opinion that transfer of the shares in any company would be prejudicial to the Public Interest. It was lastly contended that, sensitivities of the issues involved and in view of the Public importance attached to both, the Insurance as well as the Banking Business, in Public Sector it was expedient for the Regulatory Agencies to have intervened in this matter. He pointed out that, a proposed draft legislation dealing with listed companies substantial acquisition of voting shares and take over, is under consideration of the Government, since almost two years, but same has not yet been promulgated for reasons best known to the relevant quarter, which position is confirmed by both the learned counsel. According to him, had such law being promulgated, perhaps this suit, might not have been filed.
8. The defendant No., 1 admittedly, is a Banking Company, within the meaning of Section 5 of the Banking Companies Ordinance, 1962 (hereinafter referred to as the "Ordinance, 1962") a Banking Company in addition to the business of Banking as provided under Section 7(1) may engage in any or more of the business provided for, in Clause (a) to (o) thereof. In order to appreciate the respective contentions of both the learned counsel, it will be advantageous to reproduce Section 7 of the Ordinance, 1962, which runs as follows:- (I)receipt of the copy, it can, perhaps, be argued that time has not been against him. However, this kind of grace is not available. (a)the borrowing, raising or taking up of money; the lending or advancing of money either upon or without security, the drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hundis, promissory notes, coupons, drafts, bills of lading, railway receipts, warrants, debentures, certificates, scrips, [participation. Term certificates, term finance certificates, musharika certificates, modaraba certificates and such other instruments as may be approved by the State Bank] and other instruments and securities whether transferable or negotiable or not; the granting and issuing of letters of credit, travellers cheques and circular notes; the buying, selling and dealing in bullion and specie; the buying, and selling of .Foreign exchange including foreign bank notes, the acquiring, holding, issuing on commission, underwriting and dealing in stock, fund, shares, debentures, debentures-stock, bonds, obligations, securities [participation term certificates, term finance certificates, mushirka certificates, modaraba certificates and such other instruments as may be approved by the State Bank] and investments of all kinds; the purchasing and selling of bonds, scrips or other forms of securities, [participation term certificates, term finance certificates, musharika certificates, modaraba certificates and such other instruments as may be approved by the State Bank] on behalf of constituents or others; the negotiating of loans and advances; the receiving of all kinds of bonds, scrips or valuables on deposit or for safe custody or otherwise; the providing of safe deposit vaults; the collecting and transmitting of money and securities; (a)(a) the providing of finance as defined in the Banking Tribunals Ordinance, 1984;]
(b) acting as agents for any Government or local authority or any other person or persons; the carrying on of agency, business of any description including the clearing and forwarding of foods, giving of receipts and discharges and otherwise acting as an attorney on behalf of customers, but excluding the business of a managing agent or treasurer of a company; (b)(b) acting as "modarabad company" under the provisions of the Modaraba Companies and Modaraba (Floatation . And Control) Ordinance, 1980 (XXXI of 1980);]
(c) contracting for public and private loans and negotiating and issuing the same;
(d) the effecting, insuring, guaranteeing, underwriting, participating in managing and carrying out of any issue, public or private, Government municipal or other loans or of shares, stock, debentures, debenture-stock or other securities or debenture stock of any company, corporation or association and the lending of money for the purposes of any such issue;
(e) carrying on and transacting every kind of guarantee, indemnity and business; (e)(e) purchase of acquisition in the normal course of its banking business of any property, including commodities, patents, designs, trade marks and copyrights, with or without buy-back arrangements by the sellers or for sale in the form of hire-purchase of on deferred payment basis with mark-up or for leasing or licensing or for rent-sharing or for any other mode of financing;]
(f) managing, selling and realizing any property which may come into the possession of the company in satisfaction or part satisfaction of any of its claims;
(g) acquiring and holding and generally dealing with any property or any right, title or interest in any such property which may form the security or part of the security for any loans or advances or which may be connected with any such security; (h) undertaking and executing trusts;
(i) 'undertaking the administration of estates as. Executor, trustee or otherwise;
(j) establishing and supporting or aiding in the establishment and support of associations, institutions, funds, trusts and conveniences calculated to benefit employees or ex-employees of the company or the dependents of connections of such persons, granting pensions and allowances and making payments towards insurance; subscribing to or guaranteeing moneys for charitable or benevolent objects or for any exhibition or for any public, general or useful object;
(k) the acquisition, construction, maintenance and alteration of any building or works necessary or convenient for the purposes of the company;
(I) selling, improving, managing, developing, exchanging, leasing, mortgaging, disposing of or turning into account or otherwise dealing with all or any part of the property and rights of the company;
(m) acquiring and undertaking the whole or any part of the business of any person or company, when such business is of a nature enumerated or described in the sub-section,
(n) doing all such other things as are incidental or conducive to the promotion or advancement of the business of the company;
(o) any other form of business which the Federal Government may, by notification in the Official Gazette, specify as a form of business in which it is lawful for a banking company to engage. (2) No Banking company shall engage in any form' of business other than those referred to in sub-section (1).
By virtue of sub-section (2) referred to above, restriction is imposed on a Banking Company not to engage in any form of business other than, those detailed in sub-section (1) thereof. Main business a Banking Company could do is the "Banking Business" Banking is defined under Section 5(b) of the Ordinance to mean: "the accepting, for the purposes of lending or 'investment' of deposit of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft order or otherwise".
From the bare reading of the above-referred Sections, it is apparent that, the Banking Company is expressly prohibited from carrying on any kind of business not enumerated in clauses (a) to (o) of section 7(1) of the said Ordinance, Memorandum and Articles of defendant No. 1 is on record as Annexure E to the Counter-Affidavit 'filed by the defendant No. 1 which outlines sphere of its activity in its object Clause (3). Perusal of which shows that, the clause (a) thereof, by and large is adaptation of section 5(b) of the Ordinance of 1962 and , sub-clauses (b) to (s) of the Memorandum are almost verbatim adaptation of clauses (a) to (o) of sub-section (1) to section 7 of the Ordinance of 1962 with exception to certain amendment brought in Section 7 in 1980 and 1984 respectively and some new Clause (a)(a), (b)(b) and (e)(e) were also made by Ordinance No. LVII of 1984 and Ordinance No. LVIII of 1980 respectively, therefore, I do not deem it necessary to reproduce object clause of Memorandum, as Section 7 of the Ordinance, 1962 has been reproduced above.
9. Mr. Amer Mansoor, learned counsel for the plaintiffs vehemently contended that Company cannot go beyond its Memorandum. According to him, prime object as specified in the Memorandum of defendant No. 1, that is, carrying on Banking Business, according to him, any other business is incidental or ancillary thereto. He has drawn my attention to objection clause 3(b) to emphasise that, the defendant No. 1 may acquire hold and deal in stock, funds, shares etc. For the purposes of investment, deposit for safe custody or otherwise. According to him acquiring shares for the purposes of acquisition of a Company is provided for in a specific clause (m) to object clause 3 to the Memorandum, such acquisition could only be made in any other company having object similar to those of Banking Company and not otherwise. Clause 3(b) of the Memorandum is almost verbatim reproduction of Clause 7(1)(a) of the Ordinance, 1962 Clause (m) of the Memorandum reads as follows:- "taking or otherwise acquiring and holding shares in any other company having objects similar to those of the company" .
Section 7(1)(m) of the Ordinance of 1962 reads as follows: "acquiring and undertaking the whole or any part of business of any person or company, when such business is of a nature enumerated or described in the sub-section."
Memorandum of Association, in fact, defines the sphere of the activity, a company can venture, into or undertake during the course of its business pursuit. The object and purpose of curtailing the sphere of activity, in the object clause is mandated for a limited liability company under Section 16(iii), and for other companies not limited by shares under Section 18(iii) of the Companies Ordinance, 1984. Such parameters are laid down with obvious aim, so that a body corporate may know its scope and field of activity in which it has to invest its capital and so also to make any person dealing with company to be aware of the powers and jurisdiction of the company in which it may venture. Where law provides for a larger scope of activity a Company may .Venture, but the Company itself, chooses to limit its scope of activity, than it is the parameter circumscribed by the Company in its Memorandum will prevail. In case, Company is desirous to stretch scope of its object to the maximum as permissible under law, the then such object could only be achieved by amending the object clause. It can be seen from reading clause (m) to the Memorandum, reproduced above that, MCB, chose to restrict or narrow down its perspective, limiting its power to acquire share in any other Company having object similar to those of the Company i.e. MCB.
10. Where a company comes into existence for the attainment of a specified and specialised object then all other objects are incidental and ancillary to the main or principal object for which company was formed, therefore, it will not be wrong to say that all other objects mentioned in Object Clause are to be pursued in furtherance of its main and principal object, clause, which in the instant case is the Banking Business. Lit the case of Commissioner of Income Tax (Central)
Karachi v. Messrs Habib Insurance Company Ltd., Karachi (PLD 1969 Kar. 278). Similar view taken by a Division Bench of this Court at page 293 is as follows:- ""The cardinal rule for construing the memorandum of a limited liability company is that when a company has a primary object all other clauses in the memorandum are to be understood as ancillary to the main object of the company."
Main thrust of arguments of the plaintiffs' counsel that defendant No. 1 in a schematic manner acquired directly or indirectly shareholding of the plaintiff No. 1 in order to dethrone the present management of the plaintiff No. 1. According to the learned counsel, if the shares in the plaintiff No. 1 are acquired not for the investment purposes as enumerated in object Clause 3(b), same is not permitted in view of bar that could be read in Section 7(2) and 23(2) of the Banking. Companies Ordinance, 1962 read with clause
(m) to its object clause 3 to the Memor.Andum. Of such arguments, he also placed reliance on the Insurance Ordinance, 2000.
' AIC' Shares purchased/held by: MCB Employees' Pension Fund MCB Provident Fund Pak Staff During August 1, 2000 to March 20, In furtherance Section 67 of all the counsel, would also be MCB 2002 {{TABLE}} #TBS S.No. Date MCB MCB Employees Pension Fund Ok MCB Employees Provident Fund Ok #TBE 1.8.2000 10,811,235 22.89 29.9.2000 11,847,235 25.08 173,000 0.37 1,402,500 2.97 1.11.2000 11,862,235 25.11 eV 1.12.2000 11,916,735 25.23 894,500 1.89 1.1.2001 VI 1,753,000 3.71 VI 1.2.2001 11 2,140,300 4.53 7: 1.3.2001 12,850,235 27.20 2.4.2001 13,875,235 29.37 28.5.2001 13,875,235 29.37 2,140,300 4.53 1,402,500 2.97 15% Bonus Sig. 2,081,285 321.1)45 210,375 allotted. 15,956, 20 29.37 2,461,345 4.53 1,612,875 2.97 1.8.2001 2,686,845 4.95 1,813,875 3.34 1.9.2001 1.10.2001 1.11.2001 1.12.2001 1.1.2002 VI 1.2.2002 2,01,2,3575 3.70 1 7. 20.3.2002 2,137,375 3.93 Collectively defendants Nos. 1, 3 and 4 hold 38.25% in plaintiff No. 1 as on 20.3.2002.
11. Mr. Khalid Anwer, learned counsel for the defendants conversely argued that there are no restriction on the Banking Company' to carry. On any other business in addition to the banking business as can be spelt out from section 7(1) of the Companies Ordinance. As discussed above, the prime and principal business of a Banking Company is to transit Banking Business' as enumerated under Section 5(b) of the Ordinance, 1962. In view of the dicta laid down in the case of Habib Insurance Company Limited (supra) all the other clauses in the Memorandum are to be read ancillary and incidental to the main business. Contention of Mr. Khalid Anwer that under Clause (1) and (p) of the Memorandum corresponding to Section 7(1)(1) and (m) respectively mandates, taking or otherwise acquiring and holding shares in any other company and managing the property and rights of the company. According to him, if the shares in the plaintiff No. 1 are acquired then all rights attached thereto, including right to vote, are exercisable by the share- holders in an effort to improve the working of the plaintiff No. 1 by participating in the decision making meeting. In doing so, in fact they will protect their property so that its value may not diminish. Arguments are both ingenuous and interesting. It was urged that such course is in furtherance of developing and protecting its rights and interests in the share. According to him if the defendant No. 1 prosper then. Ultimate benefit will go to the Depositor whose funds are used for the purposes of investment. In order to appreciate the arguments, it will be advantageous the understood restriction on the nature of the subsidiary of a Banking Company which is defined under Section 23 of the Banking Companies Ordinance, 1962. Section 23 lays down restriction on the nature of the subsidiary company. Subsidiary company is defined under Section 3 of the Companies Ordinance, 1984 as follows:-
(3) Meaning of "subsidiary" and "holding company"; (1) For purposes of this Ordinance, a company or body corporate shall be deemed to be a subsidiary of another if:-
(a) that other company or body corporate directly or indirectly controls, beneficially owns or holds more than fifty per cent of its voting securities or otherwise has .Power to elect and appoint more than fifty per cent of its directors: or
(b) the first mentioned company or body corporate is a subsidiary of any company or body corporate which is that other's subsidiary.
(1) For the purpose of this Ordinance, a company shall be deemed to be another's holding company if, but only if, that other is its subsidiary."
Section 23 of the Banking Companies Ordinance, 1962 runs as follows:- "Restriction on the nature of subsidiary companies. (1) A Banking company shall not form any subsidiary company except a subsidiary company formed for one or more of the following purposes, namely:-
(a) the undertaking and executing of trusts;
(b) the undertaking of the administration of estates as executor, trustee or otherwise; [(bb)the carrying on of the business of modaraba under the provisions of the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980)];
(c) the providing of safe deposit vaults;
(d) with the previous permission in writing of the State Bank, the carrying on the business of Banking exclusively outside Pakistan;. [x] [(dd) the conduct of any form of business permitted by Section 7; or]
(e) such other purposes as are incidental to the business of Banking.
(2) Save as provided in sub-section. (1), no Banking company shall hold shares in any company whether as pledgee, mortgagee or absolute owner, of an amount exceeding thirty percent of the paid-up share capital of that company or thirty percent of its own paid-up share capital and reserves, whichever is less: Provided that any Banking Company which is on the date of commencement of this Ordinance holding any shares in contravention of the provisions of this sub-section shall not be liable to any penalty therefor if it reports the matter without delay, to the State Bank and if it brings its holding of shares into conformity with the said provisions within such period, not exceeding two years, as the State Bank may think fit to allow.
(3) Save as provided in sub-section (1) and notwithstanding anything contained in sub-section (2), a Banking. Company shall not, after the expiry of one year from the date of commencement of this Ordinance hold shares, whether as pledgee, mortgagee or absolute owner, in any company in the management of which any managing director or manager of the Banking Company is in any manner concerned or interested."
12. Company law recognizes amalgamation and merger of two Companies pursuant to Scheme of Amalgamation as may be approved by the Court of law in terms of Section 284 of the Companies Ordinance, 1984. Corresponding provisions providing amalgamation of a Banking Company with another Company are laid down in Sections 47 and 48 of the Banking Companies Ordinance, 1962.
Similarly provision for the amalgamation of Insurance Company is provided for In Section 68 of the Insurance Ordinance, 2000. The word "Amalgamation" under the Black's Law Dictionary, Sixth Edition, means "union of different races, or diverse elements , societies, unions, associations, or corporations, so as to form a homogeneous whole or new body; interfusion; intermarriage; consolidation; merger; coalescence; as, the amalgamation of stock", "Merger" is also defined under the Black's Law Dictionary (Sixth Edition),. "it means the fusion or absorption of one thing or right into another; generally spoken of a case where one of the subjects is of less dignity or importance than the other." Besides-above conventional mode acquiring interest and rights in another company recognized under law, another mode not uncommon in commercial world is popularly known as "Takeover". In the scheme of arrangement for the purposes of amalgamation or merger rights of various class of stake holders to some extent are taken care of, as the schemes are subject to approval and judicial scrutiny, thereby rights of all the class of stake holders receive statutory protection and judicial security. Whereas, in a takeover bid, such rights, under the present scheme of law in Pakistan, are not protected and secured. "Takeover bid" is defined under the Black's Law Dictionary (Sixth Edition) as "an attempt by an outside corporation or group, usually called the aggressor or "insurgent", to wrest control away from incumbent management of target corporation. A takeover attempt may involve purchase of shares, a tender offer, a sale of assets or a proposal that the target merge voluntarily into the aggressor."
13. Indeed, takeover may not be employed as a mean of merging or amalgamating two or more companies which are going concern the aggressor or raiding company may acquire the control of another company or the target company discreetly for more than one reason. For instance, shares of a viable company are available at a considerable low value then its actual or potential value or that, it has substantial tangible, assets and properties which could be easily appropriated and taken over by the raiding company or to destabilize or eliminate its competitor with monopolistic tendency or it may be for lust of financial/economical power. Since such takeover are usually not always viewed s friendly gesture. In case, where takeover bid, is aimed at to sub-due and assume the control of the target company for object other than more investment, if such be the case then it is construed as a hostile takeover in a bid to dethrone the exiting management of. In tripple the business by interfering in the regular affairs of the business activity or to influence the policy decision of the target company for its own purpose and object whatever it may be. From bare reading of Section 23 read with Sections 47 and 48 of the Banking Companies Ordinance, 1962 and section 67 of the Insurance Ordinance, 2000. It is clear that law restricts and prohibits amalgamation of a Banking Company with any other company not having object similar to that of a Banking Company nor a Banking Company can form a subsidiary company for purpose other than set out in Section 23(1) likewise, amalgamation of an Insurance Company with any company other than Insurance Company is not permissible. It is settled proposition of law that what cannot be done directly, cannot be achieved in directly. Such rule was observed lastly by Apex Court in the case of Mian Muhammad Nawaz Sharif (supra) at page 687. Therefore, there is no difficulty in arriving at conclusion that objects both of Banking Company and that of Insurance Company are altogether distinct and separate. Law restricts carrying on Banking and Insurance business sunder two different legislatures neither of the Company, can carry on business of either, other than its own. Therefore, the Banking Company, prima fade, cannot undertake the business of Insurance Company and likewise Insurance Company cannot undertake business of the Banking Company.
As there is a specific prohibition of amalgamation of two types of company under the Banking Companies Ordinance, 1962 and Insurance Ordinance, 2000 respectively and so also restrictions are placed in forming subsidiary company. Admittedly Mr. All Munir, Senior Executive Vice President of MCB, holding shares qualifying to elect him as Director in MC, and his apparent interest in the management and affairs of AIC is manifest from the Notice of Change of Auditors, such being the position, in terms of sub-section (3) of Section .23 of Banking Company Ordinance, 1962. Banking Company (MCB) prima facie cannot hold share in any capacity in which Managing Director or Manger of Banking Company is in any manner concerned or. Interest. 'Contention of Mr. Khalid Anwer, learned counsel for defendants Nos. I and 2 is that the shares that were acquired by the defendant No. 1 were in terms of Section 67 of the Insurance Ordinance, 2000 which was promulgated on 19th August, 2000 is prospective in operation. Any acquisition of more than 10% interest in the defendant No. I cannot be construed violative of Section 67 ibid. According to him, it is only required that 10% shares acquired in any one year are to be reported to the SECP according to him, the shares were acquired progressively and after promulgation of the Ordinance, 2000 very nominal shares were acquired. Argument appears to be impressive and ingenious. In order to appreciate such arguments perusal of Section 67 of the Insurance Ordinance would be beneficial which runs as follows:- ""67. Approval of acquisition or transfer.-- (1) Any proposed transaction for the acquisition of a shareholding of more than ten per cent, (10%) in an insurance company, or, in the case of a non- life insurer, of the whole or any part exceeding ten per cent, (measured by either the premium income or the sum of the liabilities for unearned premium and outstanding claims and the premium deficiency Explanation: A number of transactions shall be deemed to be related if there being more than one reserve proposed to be acquired) of the business located in Pakistan of an insurer (whether in one or a number of related transactions and whether at the same or different times) shall not proceed unless, on application by the transferor, approval is given by the Commission. purchaser, those purchasers are acting together or in concert or if, in all the facts and circumstances of the case, there is such a relationship between the purchasers or such common purpose between, them so that it would be reasonable to conclude that the transactions are related.
(2) The application required under sub-section (1) shall be made in such form and shall be accompanied by such documents as may be prescribed.
(3) The Commission may, within 15 days from the receipt of the application, require the applicant to submit such further documents and information as may be required for it to make an informed decision about the transaction in the interests of policy holders and share-holders and the applicant shall provide the same within a period of seven days or such later period as the applicant may in writing request.
(4) If after sixty days of the receipt of the application or the receipt of any additional material under subsection (3), approval has not been granted or a notice given to the applicant declining approval, the Commission shall be deemed to have given its approval.
(5) Approval given or deemed to be given by the Commission under this section shall not preclude the necessity of obtaining any such approval or consent required to be obtained from the Commission under the provisions of any other applicable law."
From a bare reading of above provision, it is clear that any proposed transaction for the acquisition of a shareholding of more than 10% in an insurance Company in Pakistan, whether in one or a number of related transactions and whether at the same of different time shall not proceed unless on application by the transfer approval is given by the Commission. In case, where there are number of purchasers and relationship inter se is apparently for common purpose than in terms of Section 67, all such transactions treated by one and same person. Contention of Mr. Khalid Anwer, that, such disclosure was made in the returns required to be filed under the Companies Ordinance, 1984, is substantial compliance, such arguments are not tenable. Insurance Ordinance, 2000, requires independent application by the acquire before acquisition of shares exceeding 10% in insurance which admittedly was not done. It was argued that, for the reason, no form of application since had been prescribed. It was argued that for the reason no form of application has since been prescribed. It may be observed that requirement to seek prior approval from the Commission as mandated in term of Section 67(1) of the Insurance Ordinance, 2000 cannot be dispensed with, simply because no particular form of application has been prescribed, as the requirement to seek prior approval is separate and distinct requirement thai may be necessary under provision of any other law [See Section 67(5)1. Absence of prescribed form of application is also no excuse to seek approval as required under sub-section (1) of Section 67 of the said Ordinance, as form of application is merely powers conferred under the Ordinance to the Commission are merely enabling provision, failure to prescribe form of application will not render the requirement to seek prior approval of Commission nugatory, despite absence of prescribed form and defendant No. 1 could have made its intention of acquiring share beyond 10%.
Prima facie, absence of such approval, renders the acquisition of shares questionable. Since defendant No. 1, by virtue of it being one of the major contributory to the Trust Funds of defendant No. 3 and exercise controlling influence, all the transaction by them, prima fade, appears to be related transaction in concert for the attainment of some common purpose as major percentage of shares by defendants Nos. 3 and 4 were acquired after the promulgation of Insurance Ordinance, 2000 i.e. After 18.9.2000 and apparent after the defendant No. 1 as is reflected from the schedule of such acquisition of share.
14. Before promulgation of the Insurance Ordinance, 2000 on 18.9.2000, Insurance Act,.1938 was in the field. Under Section 35 of the Act of 1938, no insurance business could be transferred to or amalgamated with bushings other than to that of any other Insurance Company that too in accordance with scheme prepared under that Section and sanctioned by the Court. It, therefore, it follows that prior to the Ordinance, 2000, Insurance Business could not have been transferred to a Company other than Insurance Company. When Insurance Business could not have been transferred under the Act of 1938, then conversely no such business could have been acquired by a non-insurance company, any proposition to the contrary would be in apparent negation of statutory provision.
15. It may be observed that institute of managing agent has been done away with in 1972 and through device of acquiring shares and managing: the control of any other company may it be in the form of subsidiary or associated company of the Banking Company under the present of law, cannot be approved. Prima facie, under Section 209 of the Companies Ordinance, 1984. a Company holding share in another company either in its own name or in the name of its nominee has authority to exercise rights attached to such shares including appointment or get elected any person as Director in such company of which it holds share or beneficial interest. Such exercise of right commensurate with the number or value of such interest held as may be permissible under the law. The question is whether the defendant holding such sizeable number of share directly or indirectly in AIC, is permitted under the law to hold such share and so also exercise rights attached thereto is indeed debatable.
16. Adverting to other arguments of Mr. Khalid Anwer, learned counsel, in terms of Clause (b) of the Memorandum, the Banking company indeed was authorized to invest in the shares of another company for the purposes of investment. Apparently, the defendant No. 1 is under the influence and control of defendant No. 2, and shares in plaintiff No. 1 are held in the name of Directors of defendant No. 1 and shareholding in the name of defendants Nos. 3 and 4 could, prima facie, be said to be related inter se. When number of purchasers of the shares are acting together or in concern or if on account of the relationship between them appears to so proximate and influence of one can easily be inferred on other then the purpose of gaining control over the management in business of the plaintiff No. 1 is apparent and obvious. Fact that said shares were only acquired when the prices were falling and shares were retained not for the purposes of trading to earn profit as there was no selling of the shares by the defendant No. 1 and its other aides. Key business of a Banking Company is lending or investment as provided for, under Section 5(b) of Ordinance, 1962, Investment has not been defined in the Ordinance, 1962. In Blacks Law Dictionary (Sixth Edition), it is defined as "an expenditure to acquire property or other assets in order to produce revenue; the asset so acquired. The placing capital or laying out of money in a way intended to secure income or profit from it employment; to purchase securities of a more or less permanent nature, or to place money or property in business venture or real estate, or otherwise by it out so that it may produce revenue or gain or both in future. A distinction between the business of investment and the purchase of sale of investment by a person is enumerated in the case of Commissioner income Tax (supra) (PLD 1969 Kar. 278, at page 291) is as follows:- "The principle underlining the above definitions is that in order to constitute business, there must be a continuous exercise of activity for the purpose of gain. This element of continuity is essential to constitute a business of investment. The reason for this condition is that in modern society people no longer hold their savings in gold or cash but are encouraged to invest their savings in property and securities, yet a man who invests his savings in buying a property would not be said to be carrying on a business if he lets out the property on rent, nor would a person who has purchased shares out of his savings be said to carry on business merely because he derives income from his investments. If, however, he regularly buys and sells property or shares, so as to make profit out of the fluctuations in the prices of property or shares, then it would be said that he was carrying on the business of investment; there is thus a fundamental distinction between the business of investment, and the purchase and sale of investments by a person."
From the perusal of the above observation and from the tend of arguments and pleadings, prima facie, the acquisition of shares by the defendant No. 1 is not the investment made in the shares of the plaintiff No. 1 by the defendant in furtherance of its principal object as defined under Sections 5(b) and 7(1) of the Ordinance, 1962 read with Object Clause 3(a) as enumerated in its Memorandum. Apparently and prima facie, it appears to be a bid to takeover the plaintiff No. 1 through backdoor or speaking in corporate parlance it amounts to ' hostile takeover'. As already observed above, when the law provides a particular thing to be done in a particular fashion or manner than it' is to be done in same fashion and manner. Both, the Banking Ordinance, 1962 and Insurance Ordinance, 2000 lay down the manner in which the business in other company could be acquired and not otherwise. Such acquisition of the share is apparently and prima facie against the mandate of law. The question that may rise is when a company is considered to be holding shares for the purpose of investment and to earn the profit out of investment attending circumstances are to be seen. It has come on record that Mr. All Munir one of the Senior Executive Vice-President of the defendant No. 1 also holds 2500 shares in the plaintiff No. 1 Company; after the counter-affidavit has been filed by the defendant No. 1 in this matter had served a Notice dated 10th April, 2002 expressing his intention to move for substitution of the Auditors of the Company. No doubt share holders are within -their rights to exercise all rights as are attached to the shares but such exercise of the right at this juncture certainly demonstrate that the defendant No.1 is tightening the noose around the plaintiff No. 1 and is -serious to participate and involve itself in the business of the plaintiff No. 1 and is serious to influence the policy decision if not meddling in its affairs.
As rightly pointed out by learned Amicus, that defendant No. 6, State Bank of Pakistan, is regulatory Agency for the purpose of a Banking Company and exercise authority and control over the working and functioning of MCB, the defendant No. 1. State Bank of Pakistan, though a proforma party in instant proceeding ought to have taken note of acquisition of shares by the defendant No. 1 in AIC and if shares acquired by defendants Nos. 3, 4 and so also by Mr. All Munir and others are also accounted for being in proximate relationship with each other, where possibility of influence by MCB; over the Trust Funds and other persons could not be altogether ruled out, then share holding exceeds 30% as mandated under Section 23 of the Ordinance, 1962. Even, defendant No. 6, the Security and Exchange Commission of Pakistan established under Section 3 of Securities and Exchange Commission of Pakistan, Act, 1997, authorized to regulate under Section 20(J) of the Act of 1997, substantial acquisition of shares and mergers and takeover of Companies. Question as to what is substantial acquisition of shares is indeed a relative term. It may vary from Company to Company. Even the Commission, has not taken note of such acquisition of shares, on the contrary the representative of the Commission at Karachi, attempted to avoid the responsibility to assist the Court on the issue, which conduct cannot be approved of. The Commission, in terms of Section 279 of the Companies Ordinance, 1984 has power to impose restrictions on shares and debentures in certain cases, where during the course of any investigation, the Commission is of opinion that such transaction would be prejudicial to the public interest. To attend to such situation ,in the wake of allegation of hostile takeover, elaborate legislations have been made in U.S.A., Austria, and Germany. In India, it is regulated under SEB1 (Substantial Acquisition of Shares and Takeover)
Regulation, 1994. Even in U.K. There is self-regulatory code known as ' City Code', though not legally enforceable but, its existence is taken into account by the Courts and on occasion is recognized as representing the required or desired practice [See Morgan Crucible Co. Plc v. Hill Samuel Bank Ltd.
(1991 1 All E.R. 148)]. Unfortunately in Pakistan, neither any legislation is in force nor there is any such ' self-regulatory code' like ' City Code'. Even regulatory agencies like State Bank and 'SECP' are sitting ideal, the indifferent attitude both the regulatory agencies displayed to this import issue despite specific directions by the Court, speaks for itself and needs no further comment. Fact that SECP, under given circumstances has authority to pass orders when the company affairs are under its investigation. Since SECP is not seized of any investigation. This Court, therefore, under circumstances has jurisdiction to examine the vires of transaction of acquisition of shares of AIC by MCB and others. Subject-matter of suit.
17. Learned counsel for the defendants Nos. 1 and 2 rightly pointed out that the proposed AGM scheduled to be held on 7th May, 2002 was only for the purpose of adopting the audited accounts for the year ended December 31, 2000 and not for the purpose of election of Directors, therefore, the apprehension of the plaintiffs are absolutely ill-founded. I have perused the Notice of 41st AGM proposed to be held on 7.5.2002 to transit the following business:-
(1) To receive, consider and adopt the audited accounts for the year ended December 31, 2001 and the Directors and Auditor's reports thereon.
(2) To appoint Auditors and fix their remuneration.
Learned counsel for the defendant highlighted the financial irregularities that led the plaintiff No. 1 to suffer loss last year inasmuch as bad business wiped out almost 95% of its capital. Such financial mismanagement has necessitated the change of auditors in order to improve the financial position and to expose the illegalities and financial indiscipline displayed by the person presently having the control of the plaintiff No. 1.
18. Mr. Anwer Mansoor, learned counsel concedes to such factual aspect and contends that he has approached this Court to seek restraining orders not only for the purpose of seeking protection against the interference by outsiders and Corporate Raider who intend to high-jack the plaintiff No.
1. It is admitted that the defendant No. 1 together with defendants Nos. 3, 4 and others, hold substantial share in AIC, even little more than the majority shares as apprehended by the plaintiffs, if rights attached thereto, are exercised it may amount to virtual takeover of the plaintiff No. 1 Company. Right to elect the Directors, to participates in the management through its elected Representatives, to table and vote on resolution at meeting of the Company and right to earn dividends and profits on the shares held by it are but few of the valuable rights that, are attached to any shares. The question that needs serious consideration is whether the shares of the plaintiff held by the defendants could be construed to be in the course of its normal business for the purpose of investment then it being the property of the defendant No. 1 are they entitled to exercise such control and take measure to manage developed and deal with any part of the shares, while doing so exercise all or any rights attached thereto, if so to what extent such rights could be exercised by the defendants or any of them. Whether such statutory rights can be restricted, abridged, controlled or regulated in case where the shares are held as an investment indeed is not free from doubt and whether the plaintiffs through injunctive order may seek restraint on exercise of such right by the share-holders. In circumstances, where prima facie, 't appears that the, Banking Company cannot hold share more than 30% in terms of Section 23 of he Ordinance of 1 967 and where the share in an Insuance Company were acquired against the provision of Section 35 of the Insurance ALt, 1938 without follower the provisions thereof as on the own showing of the defendant No. I major shareholdings were acquired prior to promulgation of Insurance Ordinance,, 2000. It was also pointed out that election of directors was to be held sometime in the month June, 2002.
Under tin facts and circumstances of the case, l deem appropriate to pass the following orders:-
19. That the defendants Nos. 1, 3 and the Directors of defendant No. 1 who are acting together may attend the meeting that may be held as per requisition vide Notice dated 22.3.2002, date to be announced by plaintiff No. 1 within 7 (seven) days from the date of order. However, the defendant Nos. 1, 3 and 4 and the Directors of the defendant No. 1 are restrained from exercising any right to interfere in the management or in a bid to influence or in an manner exercise their rights to elect the Directors. Such shore-holders may however; be entitled to all the dividends and profits that may be declared or announced by the plaintiff No. 1 during the pendency of the suit. The defendants Nos. 1, 3 and 4 and any other person claim in through or under them or their nominees are restrained from exercising their high ts to seek election for them on the Board of Director of plaintiff No. 1 till the decision of the suit. Since serious and intricate questions of law are involved determination of which also to some extent rest on evidence that may be required to be recorded.
The defendants are directed to file their written statement without any delay, whereafter the case may immediately be sent-up for settlement of issues and appropriate orders for recording of the evidence at an early date may be passed.
The upshot of the above discussion, this listed application i.e. CMA No. 2034/2002 under Order, 39, Rules, 1 and 2, CPC is allowed in terms set out above. . revisions by the competent authorities. Therefore, it is advisable to consult the official sources or legal professionals for the most up-to-date and accurate information.