The petitioner through the present petition under section 290 of the Companies Ordinance, 1984 (the Ordinance in short) seeks following order complaining oppressiveness on the part of the majority shareholders
(1) Declaration that the decision of the Board of Directors at their meeting held on 22-1-1999 pertaining to further issue of shares to finance the acquisition of CFL shares and all actions in pursuance thereof are unlawful, fraudulent and of no legal effect.
(2) Suspension of the decision dated 22-12-1999 of the Board of Directors of the respondent No,1 (i,e, respondents 2--7) to further issue shares to finance the acquisition of CLF shares owned by the respondents Nos,2, 3, 5, 6 and 7.
(3) Injunction restraining the respondents from acting upon the decision of the Board dated 22-12-1999.
(4) Direction to the respondent Nos,2--7 to cease and desist their direct and indirect efforts to browbeat and oppress the petitioner into reducing their shareholding by resorting to mala fide acts of oppression.
2. It is necessary to refer briefly to, the relevant part of the proceedings and the history of formation and composition of respondent English Biscuits Manufacturing (Pvt.) Ltd. (EBM in short), before examining the allegations of oppression made by the petitioner against the majority.
As a result of agreement between Peek Freans & Co. Ltd. And the House of Manji (Investment) Limited and M. Manji, a joint venture company was incorporated in 1,965, in the name and style of PEEK FREAN (PAKISTAN) LIMITED. The sponsor Peek Frean & Company-UK. (PF) had an equity of 25.25% and local sponsors 74.75% in the Company. A year later i,e, 1966, the name of the company was changed from PEEK FREAN (PAKISTAN) LIMITED to its present name i,e, ENGLISH BISCUIT MANUFACTURERS (PRIVATE) (EBM).
Similarly, the name of' Peek Frean & Company-UK was changed to Associated Biscuits International Limited-UK i,e, the petitioner (ABIL in short). The EBM is primarily engaged in manufacture of biscuits and other confectionery products in Pakistan. The respondent No,2 is its Managing Director, whereas, the respondents 3 to 7 are the Directors, The entire board of EBM with the exception of respondent 7 are family members of the respondents 2 and 3. Since 1993, ABL has neither representation on the Board of Directors of EBM, nor any other managerial or executive influence pertaining to its affaiRs, EBM, presently, holds fifty- one per cent. Shareholding in Coronet Foods (Pvt.) Limited (CFL in short), a private limited company, subsidiary of EBM, whereas, respondents 2, 3, 5, 6 and 7 collectively hold 1,135,000 shares representing 49% shareholding of CFL and the respondents 2 and 3 are the Managing Director and Director of CFL respectively. It is the case of the ABL that on 30-8-1999, notice for 34th Annual General Meeting of EBM was issued with Director's report ending 30-6-1999, inter alia, Agenda No,3 was in respect of the acquisition of 49% equity stake in CFL by EBM to make it wholly owned subsidiary and to avoid conflict of interest. The item of agenda No,3 reads as follows:--
3. ACQUISITION OF 49.0% EQUITY STAKE IN CFL(EBMUS SUBSIDIARY).
' The Board of Directors in its meeting held on 30th August, 1999, has in principle, considered to acquire 49.0% shares from individual shareholders of CFL at a fair value to be determined/settled with the present shareholders based on valuation of CFL's shares being carried out by the Auditors of CFL M/s. A.F. Ferguson & Co., Chartered Accountants (Price Water House Coopers) and M/s. Sidat Hyder Marshed Associates (Pvt.)
Ltd. (Arthur Andersen) on behalf of the proposed buyer (EBML). The move to make CFL a wholly owned subsidiary of EBML is to achieve the objectives of creating, manufacturing and marketing synergies through horizontal integration of the two companies. The proposed acquisition of 49.0% shares in CFL is intended to be funded through a raise in paid-up capital of EBML. The final decision in this regard will be made in due course.
The above item/agenda was placed in Annual General Meeting held on 8-10-1999. Mr. Zahid F. Ibrahim, representing th ABL on proxy, conveyed ABL point of view on acquisition of the additional 49% shares in CFL by EBM in following terms:- 'We agree in principle with this plan insofar as it would put to an end the 'Conflict of Interest' situation. It is imperative that the valuation be made on a transparent basis taking into account recurring profit and relationship between EBM and CFL. Therefore, we request for the details of term of reference given to A.F.
Ferguson & Co. And Seedat Hyder Murshed Associates (Pvt.) Ltd. We would also request for the clarification as to final valuation based on two valuation of different AuditoRs,'
On 2-11-1999, ABM addressed letter to the respondents, on receipt of the certified copy of minutes of the 34th Annual General Meeting held on 18-10-1999, maintaining that there has been no response to their request for (i) copy of detailed terms of reference provided to M/s. A.F. Ferguson & Co. And M/s. Sidate Hyder Morshed Associates, the nominated auditors and also (ii) the clarification as to final valuation based on the reports of two different auditors pertaining to the valuation of CFL shares. EBM through its letter dated 11-11-1999, in acknowledgement of the ABM letter forwarded the terms of reference provided to the Auditors/Valuators, regarding clarification on final value of CFL shares, it was stated that both of them have so far not submitted their reports. As and when their reports are submitted, the final value shall be determined after due consideration and approval of the Board. It is the case of the ABM that the respondents 2 to 7 in complete disregard of their obligations under the law and without any intimation to them who are majority shareholders of EBL proceeded to arbitrarily decide the matter of valuation of the shares in the meeting of the Board of Directors held on 22-12-1999. It is the case of the ABM that on 16-1- 2000, they received notice dated 14-1-2000 pursuant to the Article 7 of the Company in respect of further issue of 2,020,000 shares of Rs,10 each and ABL was offered 808,000 shares from the aforesaid Right Issue, according to their entitlement, and they were required to signify their acceptance of the offer or part thereof with payment by 26-1-2000 in the account of EBM with the designated bank failing which the offer or the balance thereof shall be deemed to have been declined and the Board shall be entitled to dispose of the same in such manner as it thinks most beneficial to the company.
The purpose/object for further issue of right share was disclosed in Part II of Statement under section 86(3) of the Ordinance:--
(17) Proportion of new issue to existing shares with any condition applicable thereto.Two ordinary shares of Rs,10 each for each issued/paid-up share at a premium of Rs,10 per share. The offer shall be deemed to be declined if not subscribed by 26-1- 2000.
(18)Pursuant of the present issue To acquire 2,450,000 ordinary specifying the main projects/ shares of Rs,10 each (49.0%) at a objects for which additional funds fair value/price of Rs,20 per share required.To acquire 2,450,000 ordinary shares of Rs. 10 each Rs, (49.0%) at a fair value/price of Rs. 20 per share from individual shareholders of M/s. Coronet Foods (private) Limited which is presently owned by EBML to the extent of 51%. The acquisition shall cost around 49.0 m which shall be financed to the extent of Rs,40.40m through issue of capital and the balance shall be financed through encashment of short term investment.
ABM became aware of the purported 22-12-1999 decision of the Board when, they received letter dated 14- 1-2000 on 16-1-2000. Significantly the valuation report of the auditors were not provided to the ABL until 18- 1-2000. The decision of the Board of Directors of EBM to purchase CFL shares at 100% premium by issuing further shares smacks of undue personal enrichment and oppression of minority shareholders, The valuation of CFL shares have been manoeuvred to the undue personal advantage of the respondents 2 to 7 which have been artificially inflated to a ridiculous 100% premium value through a non-transparent process where the sellers have manoeuvred the price at which EBM (of which the ABM holds 40% share) is being compelled to purchase CFL shares which has, been done for no reason other than to personally benefit the respondents 2 to 7. It was also their case that valuation, report of auditor M/s. Ferguson dated 6-12-1999 clearly specifies that the valuation report is based on the forecast and actual result could differ from the forecast since anticipated events frequently do not occur as expected and variations may be material. It was also pleaded that forecast has been prepared by respondents 2 and 3. Thus the valuation reports have no credible value is based on information manoeuvred by respondents 2 to 7, who are directly interested in the purchase of CFL shares by compelling the purchase CFL shares at an inflated value of Rs,20, the respondents 2 to 7 are determined to cause loss to the respondent. 1 and to cause personal benefit to the respondents 2 to 7 and grave prejudice to the interests of the ABL. Therefore, the efforts of the respondents 2 to 7 to improperly acquire the shares of CFL at ridiculously inflated value are mala fide, oppressive and fraudulent.
3. Alongwith petition, C.M.A. No,126 of 2000 under section 292 of the Companies Ordinance read with Order 39, rules 1 and 2, C.P.C. Was also filed for suspension of the decision of the Board of Directors dated 22-12- 1999 to issue shares to finance the acquisition of CFL shares owned by the respondents 2, 3, 5, 6 and 7 and to restrain the respondents from acting thereupon in any manner whatsoever.
4. On 26-1-2000, the parties were directed to maintain the status quo. After hearing the parties' counsel, perusal of the petition, counter-affidavit, affidavit-in-rejoinder, the application referred to above was disposed of with the following directions:--
(a) That the respondents are to supply to the petitioner the entire material/record including the copies of reports of Iqbal Nanji & Company to the petitioner within a period of 7 days;
(b) thereafter the respondent No,1 to approach the two auditors namely M/s. A.F. Ferguson & Co., Chartered Accountant and Sidat Hyder Murshed Associates (Pvt.) Ltd. For once again carry out the exercise to determine the value of shares of CFL by associating all parties including the petitioner after due notice and submit repot to the company within a reasonable time; the auditors will be at liberty to call for any other material or document/report/ evidence for reaching the right conclusion. The petitioners to bear the cost of the auditors for the exercise to be carried out by them hereinabove,
(c) the respondent-company if wishes to increase share capital is directed to call the general body meeting of their shareholders as provided under section 92(3) of Companies Ordinance, 1984;
(d) order dated 26-1-2000 will remain in force till compliance of the above directions.
5. The respondents impugned the order in High Court Appeal No,163 of 2000 which was disposed of by consent by order dated 5-10-2001, whereby following part of para.9 of the impugned order was deleted:- 'but they have to invoke the provisions of section 92(3) ibid for its final approval.'
The deletion of the above phrase, from the order, necessitated as the dispute apparently pertains to the increase in the paid-up capital covered under section 86 of the Ordinance.
6. On 4-12-2001, C.M.A. No,3518 of 2001 was filed by ABL against the respondents 2 to 7 complaining disobedience and breach of order dated 15-3-2000 with further request for suspension of all the actions illegally taken by the respondents as stated in their letter dated 22-10-2001, with direction to the parties to maintain status quo, supported by affidavit of Farrukh M. Junaidy, attorney of ABL. Number of documents covering the correspondence exchanged between the ABL, their counsel, auditors, EBM and their counsel were also placed on record.
The application referred to above has been resisted/opposed by filing counter-affidavit, with denial of the allegation of disobedience/breach, with the plea that after compliance of clauses (A) and (B) there was No, prohibitory order in the field as the order dated 26-1-2000 was to remain in force till compliance of the directions which were made by the respondents on 20-9-2001, thereafter, the position of order dated 26-1- 2000 with. Substituted dated 5-10-2001 (disposal of the HCA), the petitioner failed to signify their acceptance to purchase the right shares, on their failure, their shares were issued to other shareholders in accordance with section 86(7) of the Ordinance. Numerous documents were also placed alongwith the counter-affidavit, rejoinder was also filed.
It is also to be noted that though the respondents have contested the interlocutory applications but have not filed any counter-affidavit in opposition of the main petition.
7. In intent to dispose of main petition and the C.M.A. No,3518 of 2001 by common order as the petition and application have been argued by counsel of both parties together.
8. Before I deal with the respective contentions raised, it will be necessary to keep in view the scope of the jurisdiction of the Company Judge, under the provisions of section 290 and section 291 of the Ordinance.
The relevant provisions of the Companies Ordinance, 1984 are found in Part X dealing with Prevention of Oppression and Mismanagement. In the instant proceeding, I will be concerned with the sections 290 and 291 of the Ordinance, which read as follows:-- "290. Application to Court.---(1) If any member or members holding not less than twenty per cent. Of the issued share capital of a company, or a creditor or creditors having interest equivalent in amount to not less than twenty per cent. Of the paid-up capital of the company, complains or complain, or the Registrar is of the opinion, that the affairs of the company are being conducted, or are likely to be conducted, in an unlawful or fraudulent manner, or in a manner not provided for in its memorandum, or in a manner oppressive to the member or any of the members or the creditors or any of the creditors or are being conducted in a manner prejudicial to the public interest, such member or members or, the creditor or creditors, as the case may be, the Registrar may make an application to the Court by petition for an order under this section.
(2) If, on any such petition, the Court is of opinion--
(a) that the company's affairs are being conducted, or are likely to be conducted, as aforesaid; and
(b) that to wind-up the company would unfairly prejudice the members or creditors; the Court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit, whether for regulating the conduct of the company's affairs in future, or for the purchase of the shares of any members of the company by other members of the company or by the company and, in the case of purchase by the company, for, the reduction accordingly of the company's capital, or otherwise.
(3) Where an order under this section makes any alteration in, or addition to, a company's memorandum or articles, then, notwithstanding anything in any other provision of this Ordinance, the company shall not have power without the leave of the Court to make any further alteration in or addition to the memorandum or articles inconsistent with the provisions of the order; and the alterations or additions made by the order shall be of the same effect as if duly made by resolution of the company and the provisions of this Ordinance shall apply to the memorandum or articles as so modified accordingly.
(4) A copy of any order under this section altering or adding to, or giving leave to alter or add to, a company's memorandum or articles, shall within fourteen days after' the making thereof, be delivered by the company to the Registrar for registration; and if the company makes default in complying with this subsection, the company and every officer of the company who is knowingly and willfully in default shall be liable to fine which may extend to five thousand rupees and to a further fine not exceeding one hundred rupees for every day after the first during which the default continues.
(5) The provisions of this section shall not prejudice the right of any person to any other remedy or action.
291. Powers of Court under section 290.---Without ' prejudice to the generality of the powers of the Court under section 290, an order under that section may provide for--
(a) the termination, setting aside or modification of any agreement, howsoever, arrived at between the company and any director, including the chief executive, managing agent or other officer, upon such terms and conditions as may, in the opinion of the Court, be just and equitable in all the circumstances;
(b) setting aside of any transfer, delivery of goods, payment, execution or other transactions not relating to property made or done by or against the company within three months before the date of the application which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference; and
(c) any other matter, including a change in management, for which in the opinion of the Court it is just and equitable that provision should be made.
The perusal of the section 290 reproduced above shows that the power/jurisdiction of the Company Court can be invoked by--
(1) any member or members holding not less than twenty per cent. Of the issued share capital; or
(2) a creditor or creditors having interest equivalent in amount to not less than twenty per cent. Of the paid-up capital; or
(3) The Registrar when he is of the opinion, that the ground mentioned the section exists for seeking interference of the Court.
The causes which are to form basis of a petition under section 290 are:--
(a) That the affairs of the company are or are likely to be conducted in an unlawful or fraudulent manner;
(b) that the affairs of the company are being conducted in a manner not provided for in its memorandum:
(c) that the affairs of the company are being conducted in a manner oppressive to the member or any of the members or the creditors or creditors;
(d) that the affairs of the company are being conducted in a manner prejudicial to the public interest.
It may also be noticed that in addition to general power of the Court under section 290, an order under that section may invoke for--
(a) the termination, setting aside or modification of any agreement, howsoever arrived at between the company and any director including the Chief Executive, Managing agent or other officer, upon such terms and conditions as may, in the opinion of the Court, be just and equitable in all the circumstances;
(b) setting aside of any transfer, delivery of goods, payment, execution or other transaction not relating to property made or done by or against the company within three months before the date of application which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference; and
(c) anv other matter including a change in the management for which in the opinion of the Court it is just and equitable that provision should be made.
8. The remedy provided by section 290 is of a preventive nature so as to bring to an end to oppression and mismanagement on the part of controlling shareholders and not to allow its continuance to the detriment of the aggrieved shareholders or the company. The remedy is not intended to enable the aggrieved shareholders to set at naught what has already been done by the controlling shareholders in the management of the company. The section does not confer any power on the Court to set aside or interfere with past or concluded transactions between a company and third parties which are no longer continuing wrongs. The provisions are essentially intended to control and prevent oppression of the rights of the minority shareholders and mismanagement by the majority, actually alternative to winding-up proceedings.
In order to invoke the jurisdiction of the company Judge under section 290 it must be made out that the company's affairs are being conducted in a manner prejudicial to public interest or oppressive to any member or members of the company and the facts justify the making of a winding-up order, but at the same time, making such winding-up order would unfairly prejudice such member or members, The provisions are essentially intended against the tyranny of the majority against the minority shareholders, The power of the Court under these provisions cannot be read as subject to the provisions contained in other chapters which deal with normal corporate management of the company. An analysis of the sections contained in Chapter X of the Ordinance would also indicate that the powers of the Court under section 290 or 291 cannot be read as being subject to the other provisions contained in sections dealing with corporate management of the company in normal circumstances with exception to application of the provisions of the sections 410 to 417 of the Ordinance. The topic or subjects dealt by Chapter X are such that it becomes impossible to read any such restriction or limitation on the powers of the Court. Without prejudice to the generality of the powers conferred on the Court under section 290, section 291 proceeds to indicate what types of orders the Court could pass. Under clause (c) of the section 291, the Court's order may provide for any other matter for which, in the opinion of the Court, it is just and equitable that provision should be made. The only limitation can be impliedly read on The exercise of the power would be that nexus must exist between the order that may be passed thereunder and the object sought to be achieved by those sections and beyond this limitation, which arises by necessary implication, it is difficult to read any other restriction or limitation on the exercise of Court's power. Further section intended to avoid winding-up of the company, if possible, and keep it going while at the same time relieving the minority shareholders from the acts of oppression and mismanagement or preventing its affairs from being conducted in a manner prejudicial to public interest and, with such objective, the Court has power to interfere with the normal corporate management E of the company.
9. After dilating on the scope of sections 290 and 291 with reference to the pre-conditions for the exercise of jurisdiction and limitation on exercise of such jurisdiction, I now venture to address the contentions raised.
10. Mr. Zahid F. Ebrahim, learned counsel for the petitioner contention was that the respondents 2 to 7, controller of the affairs of the EBM, have taken a decision in board meeting dated 22-12-1999 to purchase CFL share at 100% premium by issuing further shares smacks of undue personal enrichment and oppression of minority shareholders, The valuation of CFL shares have been manoeuvred to the undue personal advantage of the respondents 2 to 7 which have been artificially inflated to a ridiculous 100% premium value through a non-transparent process where the sellers have manoeuvred the price at which EBM is being compelled to purchase CFL shares which has been done for no reason other than to personally benefit the respondents 2 to 7. He also pointed out that valuation repot of Messrs Ferguson dated 6-12-1999 clearly specifies that the valuation report is based on the forecast and actual result could differ from the forecast since anticipated events frequently do not occur as expected and variations may be material. Therefore, his contention was that such report have no credible value based on information manoeuvred by respondents 2 to 7, who are directly interested in the purchase of CFL shares by compelling the EBM to purchase CFL shares at an inflated value of Rs,20, thus loss to EBM and to cause personal benefit to the respondents 2. To 7 and prejudicial interest of the petitioners, His contention was that efforts of the respondents 2 to 7 to improperly acquire the shares of CFL at ridiculously inflated value are mala fide, oppressive. His further contention was that the respondents 2 to '7 have duel position, i,e, purchaser and seller and the petitioner is being made to pay for the benefit being made by the respondents 2 to 7 as the purchase is being financed by further issue of shares of EBM, which is oppressive if the petitioner does not subscribe to further issue of shares to finance profit being illegally made by respondents 2 to 7, the petitioner's shareholding would be diluted from 40% to 13%.
His further contention was that it is the latest act in the series of mala fide manoeuvrs and acts of oppression of 'respondents 2 to 7 aimed at either ousting the petitioner. From the EBM or diluting its shareholding. He referred the J.M. No,11 of 1999 filed by the petitioner against the respondents 2 to 7, with regard to forcible acquisition of petitioner's shares and referred, particularly, sub-para. V of para. 3, containing the resolution dated 26-12-1998 of 33rd Annual General Meeting whereby Board was authorized
(a) to direct ABIL/DANONE to end the grave, wrongful and unlawful `Conflict of Interest' situation by disinvesting its shareholding in and sever its relations with CBL and (b) stop providing support, technical assistance and knowhow, and (2) should DANONE (40% shareholders in EBM through AWL) decline or fail to comply with resolutions (a) and (b) above within sixty days hereof, it shall be deemed that oppression, misconduct and breach of fiduciary obligations and ABIL is liable to forfeit its right to continue as member in EBM and the Board is authorized in such event of non-compliance of. Resolutions (a) and (b) to transfer 40% shares held by ABIL to other shareholders on prorata basis at fair value in Pound Sterling to be determined and certified by the Auditors, His further contention was that the Court has taken notice of J.M.
No,11 of 1999 in order dated 15-3-2000 in the following terms:- 'The petitioners filed affidavit-in-rejoinder wherein they have reiterated the contentions and grounds raised in the petition and the affidavit. In addition they have also placed a copy of J.M. No,11 of 1999 pending between the same parties under section 290 of the Companies Ordinance. In the said petition the resolution dated 26-12-1998 passed by the company whereby the shares owned by the petitioners have been decided to be transferred to other shareholders had been challenged; the Court granted interim injunction on 15-3-1999 against the respondents; the petition and the application are pending for final adjudication.'
He pointed out that the above petition on the of statement made on behalf of the respondents was disposed of as they have withdrawn the resolution for the forcibly acquisition of the petitioner's shares.
11. Conversely, Mr. Shaiq Usmani, representing the respondents' contention was that in the Annual General Meeting held on 18-10-1999 the petitioner's representative agreed for the resolution of the conflict of interest through purchasing 49% shares of CFL. The method of financing the purchase of shares was clearly mentioned in the Director's report presented at the annual general meeting by raising capital by issuing fresh shares which was adopted in the annual general meeting. The objection as to the valuation report based on forecasts provided by the respondents, his plea was that the same was provided to the petitioner on 18-1-2000 and subsequently Board through its resolution dated 22-12-1999 approved the issuance of fresh shares under section 86 of the Ordinance at the premium of Rs,10 per share. His further contention was that issuance of fresh shares was in terms of section 86 of the Ordinance. Mr. Shaiq Usmani, learned counsel for the respondents referred Single Bench judgment of Lahore High Court in Shahbazud Din Chaudhry and 27 others v. Messrs Service Industries Textiles Limited (PLD 1988 Lahore 1), (a case pertaining to a public limited company), on Court's power to interfere in the working of internal management, wherein three principles of company law, approved by Indian Supreme Court in Shanti Prasad Jain v. Kalinga Tubes Ltd. (AIR 1965 SC 1535) were adopted. These principles are:--
(a) Unless misconduct complained has produced insolvency, an order for winding-up under 'just and equitable' clause would not be made;
(b) that the Courts will not intervene at the instance of shareholders in matters of internal management of the company by directors so long as they are acting within the powers conferred on them by the articles of the company.
(c) that if there is lack of confidence that would be the ground for an order for winding-up but that lack of confidence must arise not because the aggrieved party is in minority but must arise from the lack of probity in the conduct of the affairs of the company.
Mr. Shaiq Usmani also referred the restrictive interpretation to section 210 of English Company Act by the Court - of appeals in re; Jermyn Street Turkish Baths 'Ltd. ((1971) 3 All. 184), reproduced by the learned Single Judge in para. 27 at page 29 of the report as follows:-- The affairs of a company could only be said to have been conducted in a manner oppressive to some part of the members of the company where shareholders having a dominant power in the company, either exercised that power to procure that something was or was not done in the conduct of the company's affairs or procured by an express or implied threats of an exercise of that power that something was not done in the conduct of the company's affairs; to amount to oppression such conduct must be unfair or burdensome, harsh and wrongful to the other members cf the company or some of them and lack that degree of probity which they were entitled to expect in the conduct of the company's affairs; oppression which was unfair to them as the result of some overbearing act or attitude on the part of the oppressor.'
Mr. Shaiq Usmani also referred para.29 of the report which is based on the view expressed by Supreme Court of India in N.I.I. Ltd. v. N.I.H. Ltd. (AIR 1981 SC 1298), which reads as follows:-- "29. Some of the important principles which clearly emerge from the precedents analysed above are that unwise, inefficient or careless conduct of a director in pursuance of his duties cannot give rise to a claim for relief under section 290, Companies Ordinance, 1984. The person complaining of 'oppression' must show that he has been constrained to submit to a conduct which lacks in probity or to a conduct which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as shareholder and not as a director or employee of the company. It is also clear that where the 'just and equitable' jurisdiction has been applied, the circumstances have always been such as to warrant the interference that there has been at least unfair conduct, abuse of powers and an impairment of confidence in the probity with which the affairs of ,the company were being conducted as distinguished from mere resentment on the part of minority at being out-voted on some issue of domestic policy."
On the above premises, Mr. Shaiq Usmani contended that from the facts brought, there is no oppression insofar as respondents are concerned, all the decisions have been taken by the Board of EBM in the interest of the company. The decision to issue fresh shares was also known to the petitioner through the Directors' report and provisions of section 86 of the Companies Ordinance was fully complied with.
His contention was that it is necessary for the Court to first arrive at a conclusion that the circumstances brought out by the petitioners are such that the company ought to be wound-up and it is only then that the Court can pass an order under section 290 and to support his contention he has referred the case of Rajahumundry Electric Supply Corporation Ltd. v. A. Nageshwara Rao and others (AIR 1956 SC 213), in the above case, inter alia, it was pleaded that allegations in the application were not sufficient to support a winding-up order under section 162, and that, therefore, no action could be taken under section 153-C. The Bench consisting of Bose and Venkatarama Ayyar; Judges agree with the contention that before taking action under section 153-C, the Court must, .Be satisfied that circumstances exist on which an order for winding-up could be made under section 162. It was further observed that the true scope of section 153-C is that whereas prior to its enactment the Court had no option but to pass an order for winding-up when the conditions mentioned in section 162 were satisfied, it could now in exercise of the powers conferred by that section make an order for its management- by the Court with a view to its being ultimately salvaged.
Where, therefore, the facts proved do not make out a case. For winding-up under section 162, no order could be passed under section 153-C.
The sums and substance of the contention of Mr. Shaiq Usmani, learned counsel for the respondents was that neither the petitioner was able to establish a case of oppressiveness nor the facts brought could be the grounds for winding-up of the respondent 1, therefore, the petition has no merits.
12. The facts which emerge from the pleadings are that petitioner ABIL shareholding in respondent 1 is 40%, whereas, 60% shares belong to groups of respondents 2 and 3, they can be categorized as 'ABIL Group', `K.B.
Group' & 'E.Q Group' i,e, three Croups. The respondent 1 is private limited company.
13. Dealing with the true character of the company in Scottish Cooperative Wholesale Society Ltd. v. Meyer ((1958) 3 All ER 66) Lord Keith said that the company was in substance, though not in law, a partnership, consisting of the society, Dr. Meyer and Mr. Lucas and whatever may be the other different legal consequences following bn one or other of these forms of combination, one result followed from the method adopted, 'which is common to partnership, that there should be the utmost good faith between the constituent members'. Finally, it was held that the Court, ought not to allow technical pleas to defeat the beneficent provisions of section 210. The rule as regards the duty of utmost good faith, on which stress was laid by Lord Keith in Meyer, received further and closer considertion in Ebrahimi v. Westbourne Galleries Ltd., (1973) AC 360 (HL) wherein Lord Wilberforce considered the scope, nature and extent of the 'just and equitable' principle as a ground for winding-up a company and it was held by the House . Of Lords that the words just and equitable' which occur in section 222 (1) of the English Act (corresponding to our section 305(h)), was not to be construed ejusdem generis with clauses (a) to (e) of section 222 (corresponding to our clauses (a) to (g) of section 305). Lord Wilberforce observed that the-words 'just and equitable' are recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own; and that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, exceptions and obligations inter se which are not necessarily submerged in the company structure; In re; Yenidji Tobacco Company Limited, ((1961) 2 Ch. 426), Master of Rolls Lord Cozens-Hardy observed that in affirming the order he had treated it as a partnership, although it was strictly not a partnership, for, according to him, precisely the same principles ought to reply to a case like this where in substance it is a partnership in the form or guise of a private company. It was a case of winding-up of private limited company and the winding-up order of company made by a learned Single Judge was upheld on appeal, as it was proved that the two directors of the company were not on speaking terms, that the so-called meetings of the Board of Directors have been almost a farce or comedy and no business which deserves the name of business in the affairs of the company could be carried on.
The leading authority on the point in our country is of Ladli Prasad Jaiswal v. The Karnal Distillery Co. Ltd.
(PLD 1965 SC 221), the apex Court by adopting the principle enunciated in re: Yenidje Tobacco Company Limited, said that now in case of private limited company the tendency of the Courts has uniformally been to treat it more or less as a partnership and to apply the same principles in the winding-up of a private limited company as would entitle a partner to have a partnership firm dissolved, commonly the exclusion of the partner from the management of a firm, the existence of a state of deadlock between the partners or the justifiable lack of confidence in the management have been regarded as just and proper grounds for dissolving a private limited company.
The above principle was followed by this Court in re: Kruddson Limited (PLD 1972 Karachi 376) by late Justice Tufail Ali A. Rehman by observing: "That the true position was that a private limited company, in the matter of a winding-up petition, could be treated as a partnership firm in the sense only that such circumstances as would Justify the dissolution of a firm under section 44 of the Partnership Act, 1932, on the ground that it was just and equitable to order a firm to be dissolved, would also justify the winding-up of a private company but it was neither possible nor 'desirable, to attempt an exhaustive enumeration of, the circumstances in which a Court would order a winding-up under the Just and equitable' clause. It was further held that the right to participate in the management of the company does not mean the right exclusively to manage any part of the company's business and that the right of a shareholder is to participate by the exercise of his voting rights in the management of the company."
In Messrs Nagina Films Ltd. v. Usman Hussain and others (1987 CLC 2263), a Division Bench of this Court comprising of Ajmal Mian and Muhammad Mazhar Ali, JJ., after examination of a number of cases on the subject including Ladli Prasad Jaswal case, enunciated inter alia, the following principles:
(a) That principles of dissolution of partnership may be applied if the apparent structure of the company is not the real structure and on piercing the veil it is found that is reality it is a partnership.
(b) Generally the exclusion of a partner from the management of the firm, existing of a state of dead lock between the partners or justifiable lack of confidence in the management have been regarded as just and proper grounds for dissolving a private limited company.
The same principles were followed by Mr. Justice Mamoon Kazi in Iqbal Alam and another v. Messrs Plasticrafters (Pvt.) Limited and 4 others (1991 CLC 589).
The proper interpretation of the principle laid down by the apex Court in Ladli Prasad Jaiswal (supra) and followed in subsequent cases is that in case of winding-up, a private limited, company may be treated as a partnership firm to the extent as would justify the dissolution of a partnership firm under section 44 of the Partnership Act and the following grounds, which are available to a partner for having a partnership firm dissolved, are also available to a shareholder for the winding-up a private limited company under the 'just and equitable' clause:--
(1) exclusion of a partner from the management of a firm;
(2) the existence of a state of deadlock between the partners; and
(3) justifiable lack of confidence in the management.
In the instant case, the respondent-company is a private limited company of three groups, petitioner's ABIL Group, respondent's K.B. Group and `E.Q Group', therefore, any attempt on the part of respondents to oust petitioner from the company and/or dilute their shareholding is bound to result into bitterness and justifiable lack of confidence in the management. As a consequence thereof, the above principles would apply as are applicable for the dissolution of a partnership firm.
13. The petitioner's case is that the decision of the Board of Directors held on 22-12-1999, whereby the Board has taken a decision to purchase the shares of CFL on 100% premium through right issue is oppressive and against the interest of not only the petitioner but also against the respondent 1 as well as the respondents are purchasing their own shares at 100% premium and is getting two shares in petitioner 1 against one share of CFL by manipulated value based on forecast provided by none other than the respondents 2 and 3.
It is true that an isolated act, may not necessarily and by itself support the inference that the commission/omission was mala fide or burdensome, harsh and wrongful. But a series of acts/omissions following upon one another can, in the context, lead justifiable to the conclusion that they are a part of the same transaction, of which the object is to cause or commit the oppression of persons against whom those acts are directed. This may usefully be illustrated by reference to a: familiar jurisdiction in which a litigant asks for the transfer of his case from one Judge to another. An isolated order passed by a Judge which is contrary to law will not normally support the inference that he is biased; but a series of wrong or illegal orders to the prejudice of a party are generally accepted as supporting the inference of a reasonable apprehension that the Judge is biased and that the party complaining of the orders will not get justice at his hands.
The question sometimes arises as to whether an action in consonance with law is per se oppressive, as was done by W.H. Bhagwati, J.' in S.M. Ganpatram v. Sayaji Jubilee Cotton and Jute Mills Co. (AIR 1965 Gujarat 96) that 'a resolution passed by the directors may be perfectly legal and yet oppressive, and conversely a resolution which is in contravention of the law may be in the interests of the shareholders and the company'. On this question, Lord President Cooper observed in Elder. v. Elder (1952) SC 49: The decisions indicate that conduct which is technically legal and correct may nevertheless be such as to justify the application of the 'just and equitable' jurisdiction, and, conversely, that conduct involving illegality and contravention of the Act may not suffice to warrant the remedy of winding-up, especially where alternative remedies are available. Where the 'just and equitable' jurisdiction has been applied in cases of this type, the circumstances have always, I think, been such as to warrant the inference that there has been, at least, an unfair abuse of powers and an impairment of confidence in the probity with which the company's affairs are being conducted, as distinguished from mere resentment on the part of a minority at being outvoted on some issue of domestic policy.'
In Needle Industries (India) Ltd. And others v. Needle Industries Newey (India) Holdings Ltd., and others (AIR 198 (sic) SC 1298), Y.V. Chandrachud, C.J., on behalf of the Bench after reviewing the various decisions said that where the party complaining oppression has failed to make out a case of oppression, the Court is not powerless to do substantial justice between the parties and placed them, as nearly as it may in the same position in which they would have been if the crucial meeting were not held in accordance with the law.
In the instant case, as noted above, the decision to purchase the shares of CFL at 100% premium is not an isolated act, earlier to this, through 33rd Annual General Meeting, the respondents tried to forcibly acquire the petitioners' shares on the plea of conflict of interest without recourse to the provisions of section 290.
Such act on the part of the respondents lack that degree of probity, which the petitioners were entitled to expect in the conduct of the company's affairs, I am conscious of the limitation that the person complaining of oppression is to show that he has been constrained to submit to a conduct which lacks in probity, conduct which is unfair to him and which causes to him in the exercise of his legal and proprietary rights as shareholder. In my view, an attempt on the part of respondents to purchase petitioners' shares without recourse to the provisions of section 290 by resolution dated 26-12-1998, followed by the purchase of CFL shares at 100% premium on valuation based on the forecast provided by the respondents are sufficient to demonstrate that the conduct of the respondents as directors is with purpose to oust the petitioners or dilute their share, lack that degree of probity, which the petitioner is entitled to expect in the conduct of the affairs of the company, more particularly, when the respondents have duel position, seller and purchaser, to achieve transparency, the process of valuation ought to have been done under the supervision of an independent body/source. Once it is demonstrated that the affairs of the company are being conducted in manner oppressive to members (petitioner), a justification for a winding-up order on the ground of lack of confidence in the management, such winding-up order would unnecessarily prejudice the members,
14. This takes me to the C.M.A. No,3518 of 2001, the contempt application.
The main plea, against the contempt application taken by the respondents was that order dated 26-1- 2000, was to remain effective till the compliance of the directions contained in order dated 15-3-2000. The respondents complied with the directions on 20-9-2000 and on that day, the order dated 26-1-2000 come to an end. Mr. Shaiq Usmani further contended that directions in terms of paras. (a) and (b) were complied with by the respondents whereunder they again supplied the entire material including the surveyor Iqbal Nanji & Co. To the petitioners within the stipulated time and also instructed the Chartered Accountants to evaluate CFL shares as per Court ordeRs, The petitioners themselves failed to settle the matter of fees and remain engaged in the correspondence with the auditors, The petitioners, have to blame themselves. After compliance, the position as of 16-1-2000 was restored. The respondents were within their right to purchase the shares of the petitioners as they failed to exercise their option to purchase the shares.
15. It is contended by the petitioners' counsel that despite clear direction of the Court by order dated 15-3- 2000 to the respondents to supply to the petitioner entire material record and then carry out revaluation, the respondents 2 to 7 connived with the auditors and suppressed the material/documents and failed to carry out revaluation as directed by order dated 15-3-2000. The respondents went ahead and purchased the shares of CFL of face value of Rs,10 at Rs,20 and financed the sale by issuing further shares to which no offer was made to the petitioner after the co-called revaluation. It was also contended that the suppression of material documents with connivance of auditors is proved by a cursory examination of letters dated 21-6-2000 (Annexure E-5, page 671 and Annexure E-14, Draft of the letter dated 21-6-2000 page 809). Annexure E-5 is letter dated 21-6-2000 addressed to the petitioners' counsel by A.F. Ferguson & Co., copy to the respondent 1, in response to letter dated 30-5-2000, whereby the documents/ information were provided to the petitioners in connection with the valuation of shares of CFL. It contains three documents:--
(1) Audited financial statements for the years ended June 30, 1996 to June, 1999.
(2) Projected balance sheet, profit and loss account and cash flow statement for the years ending June 30, 2000 to June 30, 2009.
(3) Valuation report of Iqbal Nanjee & Co.
The letter dated 20-6-2000 has been produced by the petitioner through affidavit in support of the contempt application. The draft letter dated 20-6-2000 has been filed by the respondents through counter-affidavit (Annexure E-14) whereby the auditors had proposed to point out the basis of valuation on following information:--
(1) Audited financial statements for the years ended June 30, 1996 to June 30, 1999.
(2) Projected balance sheet, profit and loss account and cash flow statement for the years ending June 30, 2000 to June 30, 2009 as prepared by the management of CFL. The reasonableness of these projections were ensured through review of the books and accounts of CFL for prior yeaRs,
(3) Following agreements between Coronet Foods, (Pvt.) Limited and English Biscuit Manufacturers (Pvt.)
Limited (EBM):
(a) Marketing and management agreement.
(b) Licensing of 'Brands' agreement.
(c) Agreement for use of 'Peid Piper' trade mark on CFL products.
(4) Valuation report of Iqbal A. Nanjee & Co.
The agreements detailed at S. No,3 above, between the Coronet Foods (Pvt.) Limited and English Biscuit Manufacturers (Pvt.) Limited (EBM) pertaining to (a) marketing and management, (b) licensing of Brands and (c) agreements for use of 'Peid Piper' trade mark on CFL products were withheld from the petitioner.
The handwritten note is available on Annexure E-14 its contents are 'this should not be mentioned and deleted has also suggested by SIDAT HYDER' with initial of Iqbal All Muhammad to whom the draft appears to have been sent for approval before sending it to the petitioner. This is sufficient to establish that all information/materials were not conveyed to the petitioners in terms of order dated 15-3-2000. Secondly, the notice dated 14-1-2000 issued to the petitioner pursuant to the Article 7 of the Company for conveying their acceptance had already expired and no fresh offer was given to the petitioners for purchase of the right share. Therefore, I have no hasitation to conclude that the respondents purchased the shares -of CFL without compliance of the directions contained in order dated 15-3-2000 and also purchased the right shares without notice to the petitioner with intention to dilute the petitioners holding in the company.
Therefore, the respondents 2 to 7 have disobeyed the order, thus liable for the contempt.
Therefore, the application (C.M.A. No,3518 of 2001) and the petition are disposed of in the following terms:--
1. (a) The respondents are directed to restore ante 15-3-2000 position by reversing the process of acquisition of CFL shares and issuance of rights shares of EBM forthwith.
(b) The respondents 2 to 7 have rendered themselves liable for attachment of their properties, however, the end of justice would be met if they are fined in the sum of Rs,10,000 each, same is imposed. The amount of fine be deposited within a week with Nazir of this Court, failing which their property (shareholdings in EBM) stand attached.
2. (a) The decision of Board of Directors dated 22-1-1999 with regard to further issue of shares to finance the acquisition CFL shares and all actions in pursuance thereof are declared illegal and of no legal effect.
(b) The valuation of CLF shares be done a fresh through independent valuator/auditor to be engaged at the expenses of EBM.
(c) On the basis of valuation fixed by . Auditor, the shares of CFL be purchased from the finance by issuance of right shares.
(d) The petitioner be offered to purchase right share in terms of section 86, if declined or not subscribed, then be sold to other shareholders,
3. The Official Assignee is appointed Commissioner for implementation of above order with power to appoint independent auditor and to ensure that all the materials, records, reports and assistance required by auditor, in the said process, are provided to auditors by the respondents.
The petition with listed application is disposed of in above terms, the parties are left to bear their own costs.