Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: Asif Mannaan and 9 others VS Respondent: Suleman Lallani and 9 others
Court Name: Sindh High Court Judge(s): Muhammad Junaid Ghaffar Title: Asif Mannaan and 9 others vs Suleman Lallani and 9 others Case No.:Suit No. 579 of 2014 and C.M.As. Nos. 4651, 12391 of 2014 and 588 and 13510
of 2015 Date of Judgment:2020-04-16 Reported As: 2021 P C T L R 380, 2020 CLD 1095, 2020 SHC 292 Result: Order accordingly Judgment ORDER MUHAMMAD JUNAID GHAFF AR, J.---This is a Suit for Declaration, Injunction and Recovery , and the Plaintif fs seek the following reliefs: - A. Declare that the acts and omissions of the Defendants are illegal, arbitrary , without jurisdiction and mala fide . B. Declare that the Defendants Nos. 1 to 8 are managing the affairs of Defendant No.9 illegally and fraudulently and in a manner highly oppressive to the minority shareholders. C. Declare that the payment of advisory fee to Defendant No.8 is illegal and unlawful. D. Declare that the Defendants Nos. 1 to 8 have failed to discharge their fiduciary obligations towards the Defendant No.9. E. Direct the Defendants Nos.1 to 8 to submit a copy of the Advisory Agreement dated 02.05.2005. F. Direct the Defendant No.10 to investigate the af fairs of Defendant No.9. G. Remove the Defendants Nos. 1 to 8 as directors of Defendant No.9. H. Direct the Defendant No.8 to return the amount of Rs.424,944,000/- along with markup to Defendant No.9 as well as all illegally acquired remunerations. I. Appoint a receiver to manage the af fairs of Defendant No.9. J. Cost of the Suit. K. Any other relief this Hon'ble Court may deem fit in the circumstances of this case. 1. Application at Serial No.1 (C.M.A. No. 4651/2014 ) has been filed seeking a restraining order against the defendants from placing Special Business Item No.4 before the shareholders for their approval in the 22nd Annual General Meeting which was supposed to be held on 9.4.2014. Application at Serial No.2 (C.M.A. No.12391/2014 ) has been filed under Order XXXIX, Rule 4, C.P.C. on behalf of defendants Nos.1 and 9 for recalling/reviewing
---
## Page 2
Order dated 18.09.2014, whereby , it was ordered that any decision taken in the meeting to be held on 19.9.2014 shall not be effective till 26.9.2014 when the matter is already fixed and shall be subject to further orders of the Court; (however , perusal of order dated 22.9.2014 reflects that order dated 18.9.20 14 stands recalled); hence, this application has served its purpose. Application at Serial No.3 (C.M.A. No. 588/2015 ) has been filed by the Plaintif fs under Section 151, C.P.C. seeking directions against defendant No.8 to deposit the amount of Rs.430.944 Million received as advisory fee with the Court. Lastly , application at Serial No.4 (C.M.A. No.13510/2015 ) again has been filed on behalf of the Plaintif fs seeking a restraining order against defendant No.10 from approving the issuance of right shares by defendant No.9. 2. Precise facts as stated appear to be that Plaintif fs are minority shareholders (claiming to be holding 1%, which is disputed by Defendants) in Defendant No.9 (Company in question) and are primarily aggrieved with payment of Rs.430.944 Million to Defendant No.8 as advisory fee and its post facto approval. Since admittedly the quantum of Plaintif f's shareholding is less than what is required to maintain a Company petition under the then Companies Ordinance 1984, and even under the Companies Act, 2017, instant Suit has been filed under the Ordinary Civil jurisdiction of this Court. Learned Counsel for the Plaintif fs has contended that they are shareholders in defendant No.9 and for the present purposes have brought this Suit to challenge the conduct and manner , in which defendant No.8 has been paid a very exorbitant advisory fee of Rs.430.944 Million. According to him defendant No.8 is already being paid a substantial amount of Rs.9.0 Million per annum as advisory fee pursuant to Agreement dated 2.5.2005 with defendant No.9; however , in addition to this, the advisory fee as above has been paid without following the due process as contemplate d under the Companies Ordinance, 1984. Per learned counsel though the Plaintif fs are minority shareholders having around 1% shareholding; but at the same time, it is the fiduciary duty of defendants Nos.1 to 8 being Directors and majority shareholders, to act in the interest of the Company i.e. defendant No.9. Per learned counsel if the directors of the Company itself are beneficiaries of such a transaction; then it is fraud with the ordinary shareholders and cannot be approved of. Accordin g to him, first the advisory fee in question was paid without any approval of the members and shareholders; and thereafter , a post facto approval was being obtained through a general meeting, which is impermissible and is against the law. Learned Counsel has referred to section 160 of the Companies Ordinance, 1984 and in response to the objection regarding maintainability of the Suit, has contended that a Civil Suit against the defendants is maintainable as the transaction alleged falls within the exception to the rule settled in the case of [Foss v. Harbottle (1843) 67 ER 189]. Per learned Counsel, the alleged transaction has caused a tremendous loss to the Company in question and as a consequence thereof, the shareholders have lost substantial amount of their money , and therefore, the present Suit in the form of a derivative action is competent. According to him the purported advisory fee has been paid for certain transactions, whereby , shares of a Company namely Pakistan Internatio nal Container Terminal Limited ("PICT ") were firstly bought, and then sold; but for that no advisory fee is supposed to be paid, for the fact that defendant No.8 was already charging a heavy consultancy fee from the Company . He has also referred to inspection report of SECP dated 2.1.2014 and has submitted that despite an adverse report, no action has been taken. Per learned Counsel it is the case of the Plaintif fs that pursuant to the Agreement between defendants Nos.8 and 9, the transaction in question was fully covered by the said Agreement, and therefore, no further amount was required to be paid for the transaction in question. He has contended that it is a case of fraud, which is apparent from a mere examination of the transaction in question, whereas, the directors of the Company are apparently in breach of their fiduciary duty; hence a case for injunctive relief is made out. Acco rding to him, the Plaintif fs have also filed an application for restraining the defendants from giving effect to the transaction in question and in the alternative, so also for deposit of the amount received as advisory fee before the Nazir of this Court pending final trial of the Suit. He has argued that since the meeting in question has already been held pursuant to order dated 9.4.2014, whereby , the said approval is subject to further orders of this Court, for the present moment, the Plaintif fs are pressing upon their application for deposit of the amount received by Defendant No.8 from the Company with the Nazir of this Court till final adjudication of the Suit. This according to him, would be in the interest of all including the Company . In support he has relied upon the cases reported as Syed Amir Hussain Shah v. Progressive Papers Ltd. and others (PLD 1969 Lahore 615), Naveed Textile Mills Ltd., Karachi and 3 others v. Central
---
## Page 3
Cotton Mills Limited, S.I. T.E. Kotri District Dadu and 2 others (PLD 1997 Karachi 432), Nizam Hashwani v. Hashwani Hotels Limited and 14 other s (1999 CLC 1989 ), Kohinoor Raiwind Mills Limited through Chief Executive v. Kohinoor Gujar Khan Mills and others (2002 CLD 1314 ), Muhammad Suleman Kanjiani and 3 others v. Dadex Eternit Ltd. through Chief Executive and 4 others (2009 CLD 1687 ), Babri Cotton Mills Ltd. 's case (2009 CLD 541), Mst. Sakina Khatoon and 6 others v. S.S. Nazir Ahsan and 17 others (2010 CLD 963), Golden Arrow Selected Stock Funds Ltd. and another v. Clariant Pakistan Ltd. and 9 others (PLD 2016 Sindh 50), Foss v. Harbottle (1843) 67 ER 189, Re Lee, Behrens & Co, Ltd. [1932] All ER Rep 889, Edwards and another v. Halliwell and others [1950] 2 All ER 1064 and Re Halt Garage (1964) Ltd. [1982] 3 All ER 1016. 3. On the other hand, learned Counsel for the Company and private defendants has contended that the only grievance of the Plaintif fs is the payment of advisory fee, which according to them is exorbitant in nature; however , the Plaintif fs held less than 1% of the shareholding when this Suit was filed, which now stands reduced to 0.14%, and cannot successfully bring a Suit of this nature. According to him, the Companies Ordinance, 1984 or for that matter the Companies Act, 2017 as presently applicable, provides a complete mechanism for redressal of the grievance of the shareholders and for that it is mandatory that the shareholding must be equal to or more than 10% of the total shares of the Company; henc e the Plaintif fs are apparently disqualified in law to bring about such an action, and have therefore filed a Civil Suit seeking the relief, which otherwise is not available to them under the Company Law. Per learned Counsel, when the legislature has put in a condition for maintaining an action against the Company , then the option of availing the ordinary remedy under the Civil Jurisdiction of this Court is barred. Learned Counsel has also referred to the inspection report of SECP as well as the conclusion drawn by it and has contended that there is no adverse finding; nor any proceedings are pending insofar as defendant No.9/Company is concerned. Per learned Counsel, the defendants have acted in accordance with law and payment of advisory fee was placed in the 22nd Annual General Meeting of the shareholders as directed by SECP and was duly approved by a thumping majority , which was then submitted before SECP to their satisfaction. He has further contended that once SECP has accepted the transaction, the matter ends, as the mandate of law has been duly fulfilled and complied with; therefore, no case for any injunctive relief is made out. Per learned Counsel the Plaintif fs have no locus-standi to institute the present Suit, which otherwise is aimed and brought to blackmail and pressurize the defendants by certain vested interests/adversaries, whereas, no statutory violation has been committed by the defendants. According to him in such matters, it is the majority of the sharehold ers, who run the Company and decide/ratify such decisions, which, in the instant case, has been approved by them; therefore, the Plaintif fs have failed to make out a prima-facie case. Lastly , he has contended that defendant No.9 has made huge profits from the efforts of defendant No.8 and has been paid advisory fee accordingly . In suppo rt of his contention he has relied upon the case of Muhammad Suleman Kanjiani and 3 others v. Dadex Eternit Ltd. through Chief Executive and 4 others (2009 CLD 1687 ). 4. Learned Counsel appearing on behalf of SECP has contended that pursuant to a complaint dated 08.04.2013, an inspection of the Company's affairs was ordered and vide report dated 02.01.2014, some irregularities were pointed out in holding meetings and thereafter the Company was asked to seek a fresh approval of the shareholders in the forthcoming Annual General Meeting; which though has been obtained, but due to pendency of this Suit and order passed on 09.04.2014; SECP has not yet taken any final decis ion. Per learned Counsel, now it is for the Court to issue any directions to SECP which will be followed accordingly . 5. While exercising his right of rebuttal, learned Counsel has contended that Plaintif fs have locus-standi to file instant Suit, as according to them the transaction in question is covered by the Advisory Agreement already existing between defendants Nos.8 and 9; hence , payment of this exorbitant advisory fee is in violation of the Agreement, and therefore, this Suit is competent as a derivate action by the shareholders. He has lastly contended that SECP has pointed out various violations and appropriate action has to be taken in accordance with the Companies Ordinance, 1984 or the Companies Act, 2017. 6. I have heard all the learned Counsel and perused the record. For the purposes of deciding the listed applications, the brief facts as narrated are that Plaintif fs being minority shareholders are aggrieved by payment of
---
## Page 4
advisory fee of Rs.430.944 Million to Defendant No.8 by the Company , and its post facto approval in the Annual General Meeting supposed to be held on 9.4.2014, which as of now stands conclu ded. They have filed this Suit on 9.4.2014 and on that very date, as an ad-interim measure, the meeting was allowed to be conducted; however , approval of agenda item No.4 regarding this issue, was to be effective subject to further orders of this Court. Thereafter , perhaps for the reason that since payment had already been made to Defendant No.8, the Plaintif fs filed another application (C.M.A. No. 588/2015 ) listed at Serial No.3 in 2015, seeking directions against Defendant No.8 to deposit the same with the Nazir of this Court. In essence, the Plaintif fs' Counsel has pressed upon this application only. It appears that the Plaintif fs in question are though shareholders of defendant No.9; but their shareholding is less than or around 1% as claimed in the plaint. As of today , as per the averments of Defendants, including SECP , it is 0.14%, and therefore, under the Company Law, they do not qualify to bring or challenge the transaction in question as for that a minim um 10% shareholding is required. In that case, apparently as one could say, they also appear to be disqualified so as to even bring about a Civil Suit competently , under the ordinary Civil Jurisdiction of this Court. However , there is an exception to this rule being followed by the Courts in the Sub- continent famously known as the rule of exception of Foss v. Harbottle . This rule of exception is though consistently being followed by the Courts of Sub-continent including our Courts; however , it is also pertinent to note that since inception of this rule, all along , the laws with regard to the Companie s, have also changed. So in all fairness, whether this rule is still to be followed strictly by this Court is unclear and remains debatable. However , in Pakistan (and, so it would appear , in India as well) the judicially evolved rule and its exception continues to apply . For the present purposes, I would say that since this point has not been argued; nor this Court has been assisted on it, I leave it open, with the observation that it shall be dealt with as and when it is brought before the Court. Nonetheless, for the present purposes, I proceed further with the assumption that this exception rule still applies and examine whether the Plaintif f's Suit is one of it or not. From examination of various precedents, cited by the Plaintif f's Counsel, or otherwise available, it is noted that the Courts have, depending upon the facts and circumstances of a particular case, entertained Civil Suits, under its ordinary jurisdiction, if the Plaintif f can satisfy that his grievance falls within the exception to the rule as settled in the case of Foss v. Harbottle . This exception is also commonly known as a derivative action. The said rule is that where what has been done amounts to fraud and the wrongdoers are themselves in control of the Company it is relaxed in favour of the aggrieved minority , who are allowed to bring an action on behalf of themselves and others. And the reason for this is, that if they were denied their right, their grievance could never reach the Court because the wrongdoer s themselves, being in control, would not allow the Company to come before the Court and sue the wrongdoers. However, even if it is assumed that the Plaintiffs have been successful and their case falls within the exception to the subject rule, the test for granting of an injunctive relief will still have to be fulfilled, notwithstanding this successful attempt. All three ingredients for grant of an injunctive relief must be present before any injunction orders could be passed in their favour. In this matter, three applications have been filed by the Plaintiffs and primarily the learned Counsel for the Plaintiff has pressed upon C.M.A. No. 588/2015 filed under section 151 of Civil Procedure Code (C.P.C.) through which it has been prayed to direct defendant No.8 to deposit the amount of advisory fee received by him from defendant No.9 before the Nazir of this Court. In fact, the other two applications of the Plaintiffs have now become infructuous or are of no relevance for the present purposes, in that, the Meeting in question has already been held, and the approval, has also been obtained, though post facto. As to the application being pressed upon, at the very outset, it may be noted that an application under section 151, C.P.C. seeking such a relief, is out of context and is not to be entertained under this provision of Civil Procedure Code. The relief being sought through this application is kind of a mandatory injunction; or a direction; or one may call it an application in the nature of attachment before judgment. However, by whatever context it is examined, at least it cannot be granted under section 151, C.P.C., by exercising inherent jurisdiction of this Court. It is settled law, that if there is an appropriate or specific provision available for a relief being claimed under C.P.C.; not every now and then, the said relief can as a matter of right, or for that matter in the interest of justice, has to be granted and entertained necessarily under section 151, C.P.C. The Code of Civil Procedure is undoubtedly not exhaustive; it does not lay down rules for guidance in respect of all situations nor does it seek to provide rules for decision of1
---
## Page 5
all conceivable cases which may arise. The Civil Courts are authorized to pass such orders as may be necessary for the ends of justice, or to prevent abuse of the process of court, but where an express provision is made to meet a particular situation the Code must be observed, and departure therefrom is not permissible. Inherent jurisdiction of the court to make order ex debito justitiae is undoubtedly affirmed by section 151 of the Code, but that jurisdiction cannot be exercised so as to nullify the provisions of the Code. Where the Code deals expressly with a particular matter, the provision should normally be regarded as exhaustive. The inherent powers of the Court are in addition to the powers specifically conferred on the Court by the Code. They are complementary to those powers and therefore it must be held that the Court is free to exercise them for the purposes mentioned in section 151 when the exercise of those powers is not in any way in conflict with what has been expressly provided in the Code or against the intention of the Legislature. Inherent power is not to be exercised in a manner which will be contrary to or different from the procedure expressly provided in the Code. Inherent jurisdiction of the court must be exercised subject to the rule that if the Code does contain specific provisions which would meet the necessities of the case, such provisions should be followed and inherent jurisdiction should not be invoked. In other words, the court cannot make use of the special provisions of section 151 of the Code where a party had his remedy provided elsewhere in the Code and he neglected to avail himself of the same. Further the power under section 151 of the Code cannot be exercised as an appellate power. 7. Nonetheless, even if this is an appli cation for a mandatory injunction or for that matter an application for attachment before judgment; the Plaintif fs have not been able to make out a prima-facie case nor balance of convenience lies in their favour . Such an application is rarely granted in like matters, and for that the averments/allegations, at a bare minimum are required to be so convincing that the Court can consider them to be prima facie in nature. It is settled law that a relief of attachment before judgmen t, otherwise is definitely a very harsh order to be made against a partic ular defendant. In granting such relief the Court has to be satisfied that plaintif f's case is of a prima facie nature, based on an unimpeachable averment/claim in the plaint, and Court must have reasons to believe on the basis of material before it, that unless jurisdiction is exercised and orders as solicited are not passed, there is a real danger that defendant may remove itself from the territorial jurisdiction of the Court and an intent to avoid passing of a decree must be clearly shown with reasonable clarity . In this Suit, the Plaintif fs' case is, that the Agreement in question between defendants Nos.8 and 9, for which an annual remuneration was being paid; covers the transaction in question. It is their case that in that situation, no additional advisory fee ought to have been paid. Now this question insofar as the case' of the Plaintif fs pleaded before the Court on the basis of material available on record, cannot be decided without leading evidence by the respective parties. There is nothing on record, prima facie, so as to remotely suggest that the transaction in question is specifically covered by the Agreement referred to. It is a matter of fact that the advisory fee has already been paid, even before the institution of this Suit, whereas, no restraining orders to that effect are in field. Moreover , the Plaintif fs never approached this Court timely , and instead lodged a complaint before SECP. The only order, which is in field is to the extent that the approval of Special Agenda Item No.4 of the meeting held on 19.04.2014 would be subject to further orders of the Court. It is also a matter of fact that on the objection of SECP, whereby, certain irregularities were pointed out in this regard, subsequently Annual General Meeting was conducted with their permission and consent so as to regularize the defect, if any, and the payment of advisory fee has been approved and ratified by the majority of shareholders; hence, for the present purposes, and while deciding the listed applications of the Plaintiffs, there cannot be any exception to that transaction. As to the irregularity as alleged, if any, it was always open for SECP to act in accordance with law, whereas, they have allowed the Company to hold another meeting and seek approval. Such meeting has been held, whereas, approval has been obtained; hence, apparently, nothing more is to be done by SECP as of now. 8. As to the case law relied upon by the learned Counsel for the Plaintif fs, it may be observed that insofar as the cases of English jurisdiction are concerned, notwithstanding the importance we in the sub-continent attach to them, they are always persuasive in nature and are not a binding precedent ipso-facto. And moreso when the law relied upon is not pari-materia in essential terms. Keeping this aspect aside, since the entire edifice of the arguments by2 3 4
---
## Page 6
the Plaintif f's Counsel was on the rule and its exception as settled in Foss v. Harbottle ; let us now see what in essence is the dicta laid down and the rule of exception is. This was a Suit brought by two shareholders before the Chancery Division of the High Court against the Directors and some others, alleging that the Directors, as Directors, had bought for an excessive price certain lands from themselves as private individuals, and, to find money for the purchase, had mortgaged the Company's property in a manner unauthorized by the Act of Incorporation. Directors took an objection that an individual shareholder could not sue, and the learned Vice- Chancellor , while conceding that in certain circumstances a Suit might properly be so framed, held that this was not such a case. It was held that the injury alleged was an injury to the Corporation as a whole, inflicted upon it, as a cestui que trust, by its trustees, and it was for the Corporation to deal with it. The purchase was not void but only voidable, and if the Corporation should choose to ratify it no individual shareholder could resist such action. (apparently the facts of this case-are alike, and on that score, any reliance placed on it by the Plaintif fs. Counsel demolishes its own case). It was held that "The very fact that the governing body of proprietors assembled at the special general meeting may so bind even a reluctant minority is decisive to show that the frame of this suit cannot be sustained whilst that body retains its functions ". The principles on which this case was decided were thus that there was no infringement of the individual rights of a shareholder , only a possible injury to the Company as a corporate body; and secondly , since it would lie with the…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.