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Petitioner: EASTERN COMPANY (PRIVATE) LTD., LAHORE AND 2 OTHERS VS Respondent: Mst. GUL BEGUM
Court Name: Lahore High Court Judge(s): Mian Mahboob Ahmad, Shafi-ur-Rehman Title:EASTERN COMPANY (PRIVATE) LTD., LAHORE AND 2 OTHERS vs Mst. GUL BEGUM
JUDGMENT
Reported As: PLD 1980 Lahore 69 Result: Appeal dismissed Judgment JUDGMENT ' MEHBOOB AHMAD, J.-This Intra Court Appeal is directed against the order dated 22-7-1978 passed by a learned Single Judge on Civil Misc. No, 59-L/1978 in C. 0. No, 35/1978. The facts necessary for the purposes of this appeal are that the respondents filed a petition under section 162 of the Companies Act for winding up of appellant No, 1, Company. Appellant No, 2 who was the Director of the Company was impleaded as respondent No, 2 in the said petition. The petition is inter alia, based on the allegations that appellant No, 2 has stolen away the properties of the Company, has illegally and without authority disposed of its assets, has passed false and bogus resolutions to oust respondent No, 1 as a Director of the Company and to deprive the respondents' of their valuable interest in the Company which was initially floated by husband of respondent No, 1 and father of other respondents, that appellant No, 2 has incorporated another Company by the name of Kom pass (Private) Limited having the same objects as appellant No, 1-Company with the idea underlying to filter the assets of appellant No, 1 Company and also its connections to the aforesaid other Company, that appellant No, 2 has washed away the substratum of Company, that on account of the acts of appellant No, 2 a deadlock has been created making it impossible for appellant No, 1 Company to function and that on the various scores of dishonesty of appellant No, 2 in respect of the affairs of appellant No, 1 it is just and equitable that the Company be wound up. 2. Apart from the allegations aforementioned the respondents also levelled another allegation that appellant No, 2 obtained running bills amounting to Rs, 98,92,649 on the first contract, Rs, 25,00,000 on the second contract and Rs, 1,50,000 on the third and that all these amounts, excepting 10 per
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cent deducted at source, have been misappropriated by him. Appellant No, 2 denied having received these payments and asserted that all running payments were received during the lifetime of Malik Sarfraz Khan, excepting a sum of Rs, 6,00,000. 3. Along with the above petition (C. O. No, 35 of 1978) under section 162 of the Companies Act, the respondents also filed another application under section 175 of the Companies Act being Civil Misc. No, 59-L/1978 for appointment of a provisional liquidator. This application filed by the respondents was resisted by the appellants, who themselves also submitted another petition under section 151, C. P. C. Being Civil Misc. No, 66-L/1978 challenging the maintainability of the main petition for winding up. The learned Single Judge disposed of the latter civil miscellaneous petition by order dated 5-7-1978 and held that the petition for winding up was maintainable. Against this order the appellants have gone to the Supreme Court by filing a petition for Special Leave to Appeal. 4. Civil Miscellaneous No, 59-L/1978 has been disposed of by the learned Single Judge by the impugned order. 5. It is an admitted position that Eastern Company (Private) Limited was incorporated on 12-10-1976 and according to the Memorandum and Articles of Association of this Company there were four subscribers/shareholders who were also designated as Directors of the Company and each one of them held 500 shares in the Company. These shareholders were : (1) Malik Sarfraz Khan . . . . Since deceased. (2) Mst. Gul Begum ......................... Respondent No, 1. (3) Kausar Salam Sheikh . . ............. Appellant No, 2, and (4) Mst. Kausar Malik . . . ............... Appellant No, 3. ' Appellants Nos, 2 and 3 are respectively husband and wife, whereas appellant No, 3 is the daughter of late Malik Sarfraz Khan and respondent No, 1. It is, therefore, evident from the above constitution of the Company that it was essentially a family concern. Malik Sarfraz Khan (deceased) was the Managing Director of the Company. He died on 7-12-1977. Before his death there was no dispute inter se the shareholders, as he being the head of the family, was arranging the affairs of the Company. It is on his death that the disputes arose between his legal heirs i,e, all the present respondents and appellant No, 3. The proceedings of winding up of the Company in which the presently impugned order has been passed, is obviously the result of this trouble and dispute between the one set of heirs namely the respondents and the others namely the appellant No, 3 and ber husband the appellant No, 2. 6. According to the record produced before the learned Single Judge, the only work which the Company has are three contracts of construction, one from the Punjab Provincial Workers Board for developing plots for allotment to the Industrial Workers in the Industrial Workers Colony at Ferozepur Road, the other for construction of 90 quarters for Airmen and the third for constructing a Mess for the Officers of the Pakistan Air Force. 7. During these proceedings one of the clients of the Company namely Punjab Province Workers Welfare Board who had awarded the first and the major contract to the Company, through its counsel represented before the learned Single Judge that the only interest of the said Board is that the contract be allowed to be completed by the Company. It was submitted by him that the appointment of Provisional Liquidator be put in abeyance for at least a period of six months and the Company be allowed to complete the contract as otherwise the Board shall suffer immense loss. 8. After taking into consideration the pleadings of the parties and examining the records produced pertaining to the affairs of the Company, the learned Single Judge reached the conclusion that the respondents have been able to establish by prima fade strong evidence that appellant No, 2 has taken over illegal possession of the Company, its record and business for the purposes of ousting the respondents from its management and has mismanaged and misconducted the affairs of the
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Company for his personal gains and further that there is a prima fade evidence of misappropriation of the property of the Company by him. The learned Single Judge also came to the conclusion that appellant No, 1 being essentially a family concern is in part materia to a two- man Company formed in friendship and if disputes arise between shareholders of such a Company, it shall create a deadlock for want of mutual trust and reliance which is necessarily required for smooth running and in this view of the matter also, an application for winding up is prima fade maintainable under section 162(iv) of Companies Act. 9. On the basis of the conclusions so reached, the learned Single Judge also held that the case is a fit one for appointment of a Provisional Liquidator. He, however, felt that the appointment of a Provisional Liquidator may be a great hurdle in the completion of the contracts in hand with the Company and in order to avoid the non-fulfilment of those contracts which would be prejudicial to the interests of the clients of the Company as also to the Company itself, his Lordship asked the parties whether they would agree to the appointment of a Local Commissioner with powers to look after the affairs of the Company particularly its financial side and whether either of the two persons leading the two groups in the family, namely Kausar Sheikh, appellant No, 2 or Manzoor Malik, respondent No, 5 would be willing to perform the contracts in hand under the control and supervision of the Local Commissioner that may be appointed by the Court. To this both the parties agreed. 10. The learned Single Judge, however, on a second thought, did not adopt the above course and appointed Mr. Muhammad Idris, Advocate as Receiver with powers to conduct business and complete the existing contracts. Certain directions were given by the learned Single Judge in consequence of this appointment and it was also laid down that Mr. Kausar Salam Sheikh, appellant No, 2 will remain associated with the business and will act under the supervision of the receiver. It was further observed by the learned. Single Judge that if the above arrangement is not found beneficial and fruitful, a report be submitted by the receiver on which Mr. Ma nzoor Malik, respondent may be given chance to work for completion of contracts under the supervision of the appointed Receiver, superseding Kausar Salam Sheikh, appellant No, 2. 11. It is against this judgment that the appellants felt aggrieved and came up in this Intra-Court Appeal. 12. The learned counsel appearing on behalf of the respondents raised a preliminary objection that the Intra Court Appeal is not maintainable and does not lie in view of section 3 of the Law Reforms Ordinance of 1972. The learned counsel submitted that the order passed by the learned Single Judge and impugned in this Intra-Court " Appeal is merely an interlocutory order and does not dispose of the entire case before the Court and as such is not open to challenge in appeal before the High Court being an order falling within the prohibitory clause contained in subsection (3) of section 3 of the Law Reforms Ordinance XII of 1972 as amended upto date. The learned counsel elaborating his contention further submitted that the concept of appeal is to remove the whole matter from a lower forum to a higher one and since the right of appeal at the time of institution of the main petition for winding up was available under section 3 of the Law Reforms Ordinance, 1972, it is the final order only and that too in the context of the prohibitory clause that can be made appealable in the High Court and all other orders that may be passed by the learned Single Judge during the pendency of the proceedings for, winding up are not open to challenge in an Intra-Court Appeal. 13. He also submitted that the right of appeal conferred by section 202 of Companies Act stands impliedly repealed to the extent of orders of the nature as impugned in this Intra-Court Appeal. He went on to argue that this is an order which could be agitated again before the learned Single Judge through rehearing under section 202 of the Companies Act, but not the one which is
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appealable thereunder. He relied on the following cases in support of his above contention that only a final order is appealable under section 202 of the Companies Act :- (1)Lala Mulk Raj Bhalla v. Official Liquidator of the Peoples Bank of Northern India Ltd. AIR 1938 Lah. 658. (2)Sansar Chand and others v. Punjab Industrial Bank Ltd., Lahore I L R 10 Lab. 806; (3)Madan Gopal Doga v. Sochindra Nath Seth AIR 1928 Cal. 295; and (4)V. M. Abdul Rahman and others v. D. K. Cassim & Sons and another AIR 1933 P C 58. 14. Mr. Muhammad Arif, Advocate, learned counsel for the appellant in reply to the preliminary objection raised as stated above, submitted that section 202 of the Companies Act is the basic provision conferring the right of appeal on a party against any order made in the winding up proceedings. He contended that this section of the Companies Act is co-extensive with section 3 of Act VIII of 1972. He also submitted that the promulgation of Law Reforms Ordinance is a case of repeal of existing law, i,e, Letters Patent of 1919 and re-enactment thereof substantially with the same provisions. Referring to various amendments made in the Law Reforms Ordinance pertaining to the jurisdiction of the High Court to entertain Intra-Court Appeals made by various amending Ordinances and culminating finally in Act VIII of 1972, he submitted that a reading of these amendments would lead to the conclusion that all those amendments were being made for conferring jurisdiction and widening the scope of Intra Court Appeal. He also contended that in matters of appeals liberal interpretation has to be put on the language of the provision giving jurisdiction of hearing the appeals and not the interpretation which is restrictive. He went on to argue that the words "heard" and "had" used in section 202 of the Companies Act are only intended to mean the mode and manner pertaining to the hearing of the appeal and not that the right of appeal shall be governed by any other enactment. 15. He also advanced the argument that the right of appeal under section 202 of Companies Act, has been made available in the widest possible terms and is intended to cover situations arising under a special statute and that this right cannot be restricted and governed by reference to another provision. According to the learned counsel the right having been kept intact and there being no other forum of appeal available, the only inference that can be logically arrived at is that Intra-Court Appeal provisions have to be applied only for the form and procedure and not for the purposes of restricting the right of appeal. He also submitted that all orders made in the course of winding up proceedings are appealable provided such orders finally decide a dispute between the parties or deprive the appellant of a substantial and important right. Reliance was placed by the learned counsel on the following authorities in support of his contentions (1) Lala Mulk Raj Bhalla v. Official Liquidator of the Peoples Bank of Northern India Lid., Lahore AIR 1938 Lah. 658. (2) Seth Haribans Prasad Ajodhia Prasad v. National Sugar Mills Ltd. AIR 1931 Lah. 8, and (3) Suraj Mia v. The Pioneer Bank Ltd. 20 D L R 1206. 16. On the merits of the case the learned counsel for the appellants raised the following objections to the appointment of receiver (i) The receiver according to him could not be appointed under the scheme of Companies Act. (ii) The receiver cannot be appointed to run the affairs of the Company. (iii) If the learned Company Judge felt that it is a fit case for appointment of a provisional liquidator, then it was incumbent to have done so and there was no power left to appoint a receiver instead. (iv) Convenience is no ground and neither is preservation of assets a ground for appointmen of a receiver.
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(v) Appointment of Receiver was in any case not called for as the parties had agreed to the appointment of a Local Commissioner to work in consultation with both the parties. (vi) No opportunity was given to show cause against the appointment of a Receiver. 17. In support of the contentions raised by the learned counsel as at Nos, (i), (ii) and (iii) above, reliance was placed by him on Kailash Chandra Datta v. Sadar Munsif Silchar (1), In re: Kharkharee Collies Ltd. ,(2) and Radha Kanta Pal v. Benode Behari Pal and others (3). 18. The learned counsel for the respondents referring to sections 170, (1) AIR 1925 Cal. 817 (2) AIR 1932 Cal. 76 (3) A 1 R 1934 Cal. 444 175 and 246 of Companies Act and section 141 of C. P. C. Contended that conjunctive reading of these provisions establishes beyond any shadow of doubt the powers of the Court to appoint a receiver during the winding up proceedings. He in this regard relied upon Muhammad Arjumund Malik and others v. Haji Abdul Ghani and another (1), Ratan Lal v. Jagadhri Light Railway Company (2), Haribans Prasad Aydhya Prasad v. The National Sugar Mills, Dehli (3), as also on Ladli Prasad Jaiswa l v. The Karnal Distillery Company Ltd. (4) and Sh. Munir Ahmad v. Muhammad Ismail and 2 others (5). 19. The learned counsel for the respondents further submitted that the appointment of a receiver by the learned Single Judge is the most beneficial order that could be made in the circumstances attending the case and that the said order is in the interest of all concerned. He submitted that the misappropriation of funds, the preparation of false accounts, tampering with the minute books of the Company and inserting therein fictitious resolutions and also tampering with the register of members and keeping in view the fact that Appellants Nos, 2 and 3 had made no investment, the only course to save the Company from being completely annihilated by appellant No, 2 was to appoint a receiver till the matter was finally decided by the Court. As to the grievance that no opportunity was given to the appellants for showing cause against the appointment of a receiver, the learned counsel submitted that the same is wholly misconceived. He argued that the case was heard at length and all aspects of the matter had been fully debated by both the parties. He in this regard referred to paras. 11 to 15 and paras. 24 to 27 of the impugned judgment. 20. The learned counsel for the appellants in reply to the arguments of the learned counsel for the respondents submitted that finding on disputed matters such as forgeries, misappropriation, illegal taking over of Company's assets, insolvency and benami holding of shares have been made the basis for appointing a receiver. He submitted that if those were the findings it could not be a receiver that could be appointed, but a Provisional Liquidator and that a Provisional Liquidator could be given directions to perform existing contracts for which power is available under rule 39 of the Rules framed by the High Court under the Companies Act. 21. When asked as to whether the appellants would be satisfied if the designation of the appointed receiver is changed as Provisional Liquidator, but the functions remain the same, the learned counsel submitted that he objects to the very appointment of receiver. 22. It may be observed that the relevant provision pertaining to appeals from orders passed in the matter of winding up of a Company is embodied in section 202 of the Companies Act. The section is reproduced hereunder for facility of reference. "202. Appeals from orders.-Rehearings of, and appeals from, any order or decision made or given in the matter of winding up of a company by the Court may be had in the same manner and subject to the same conditions in and subject to which appeals may be had from any order or decision of the same Court in cases within its ordinary jurisdiction." 23. As is plain from the language employed in this section, its scope isI4 very wide. Having regard to its amplitude there can be no doubt that an (1) PLD 1967 Kar. 44 (2) AIR 1946 Lab. 194
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(3) I L R 14 (1933) Lah. 68 (4) PLD 1964 SC 221 (5) 1971 SCMR 666 order regarding the appointment of, a Receiver in the course of winding up proceedings would be appealable. The question, however, is whether the provisions of section 3(3) of the Law Reforms Act, 1972 operate to take away that right of appeal. For facility of reference, subsections (1) and (3) of section 3 of Law Reforms Act, 1972 can with advantage be reproduced below :- "3.-(1) An appeal shall lie to a Bench of two or more Judges of a High Court from a decree passed or final order made by a Single Judge of that Court in the exercise of its original civil jurisdiction. (2) . (3) No appeal shall lie under subsection (1) or subsection (2) from an interlocutory order or an order which does not dispose of the entire case before the Court." 24. As is clear from the wording of subsection (3) of section 3 of the Law Reforms Act reproduced above, it embodies the inhibition against appeals from certain orders mentioned therein, i,e, interlocutory orders or an order which does not dispose of the entire case. But the inhibition will be attracted only to cases which fall under subsection (1) or subsection (2 of the said section 3 of the Law Reforms Act as is obvious from the opening sentence of the subsection. In a case, therefore, which does not fall under subsection (1) or subsection (2) the inhibition embodied in subsection (3) will not operate. 25. Reverting to subsection (1) of section 3, it is obvious that its scope is confined to orders passed in the exercise of "original civil jurisdiction". ' In order to appreciate the meaning of the words "original civil jurisdiction", we have to see what is the nature of jurisdiction of the High Court in the matters falling under the Companies Act and what provisions govern this subject. 26. Subsection (3) of section 2 of the Companies Act defines the Court as under :- " 'The Court' means the Court having jurisdiction under this Act." ' In section 3, the jurisdiction of the Court is given. It reads as under :- "The Court having jurisdiction under this Act shall be the High Court having jurisdiction in the place at which the registered office of the Company is situate. ' Provided that : ' The Central Government may by notification in the official Gazette and subject to such restrictions and conditions as it thinks fit, empower any District Court to exercise all or any of the jurisdiction by this Act conferred upon the Court, and, in that case, such District Court shall as regards the jurisdiction so conferred, be the Court in respect of all companies having their registered offices in the District." ' Sections 162 onward deal with the winding up by Court. Section 166 of the Companies Act provides that an application to the Court for winding up of a company shall be by petition presented. Then sections 184 to 194 of the Act give the ordinary powers of the Court, whilst sections 194 to 198 give the extraordinary powers of the Court. Sections 199 to 202 relate to the enforcement of order and right of appeal from orders passed under the Act. Again, section 246 of the Act gives powers to the High Court to make rules. 27. It would not be out of place to mention here that the High Court in the present context of legislation has been invested with various types of jurisdictions. The jurisdiction conferred upon it under the Constitution is called the "Constitutional jurisdiction". The High Court has the "extraordinary civil jurisdiction" under which it transfers to itself for trial any case of civil nature pending before a subordinate Court. Then there is the jurisdiction of the High Court conferred uncle various statutes, for example, the jurisdiction under the Companies Act, under the Insurance Act and jurisdiction as was vested in it under section 21 of the Displaced Persons (Land Settlement) Act, 1958. Such type of jurisdictions are termed as "statutory jurisdictions".
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28. With the above background of the very out provisions of the Companies Act it will be seen that the powers of the High Court under the Companies Act are not that of a Court of "original civil jurisdiction", but are, in fact, powers of a statutory nature conferred on the High Court as such by a special statute. 29. The expression "original civil jurisdiction" has been the subject of judicial interpretation in a judgment of the Supreme Court Ahmad Khan v. The Chief Justice and the Judges of the High Court, West Pakistan (1) . It has been held in the said judgment that this expression was confined to the trial F of suits arising within the local limits of that jurisdiction. The relevant portion of the aforementioned judgment as it appears at page 181 is reproduced hereunder :- "Speaking with great respect, the mere fact of a matter coming directly before the High Court under a law would not suffice to bring it within the ordinary original civil jurisdiction, however, frequent such occasions may be, if the words in clauses 12 and 13 of the relevant Letters Patent be given their full effect. The ordinary original civil jurisdiction was confined to the trial of suits arising within the local limits of that jurisdiction. The extraordinary original civil jurisdiction was given for the removal and trial of suits pending or falling within the jurisdiction of Courts subordinate to the High Court. Every other jurisdiction of a civil nature conferred by the Letters Patent would, as contended by the learned Attorney-General, be statutory jurisdiction, since some of those jurisdictions were to be exercised under existing statutes. In the case of the Lahore High Court, there was no power to receive suits in the ordinary original civil jurisdiction, there being no provision in the relevant Letters Patent in that behalf. The Lahore High Court had testamentary and intestate jurisdiction to be exercised in accordance with law, and matrimonial jurisdiction exercisable under its own law. The jurisdiction of a general nature that it possessed was that conferred by clause 9 and described as extraordinary original jurisdiction, which was confined to power to remove and try suits pending before the subordinate Courts." 30. Inasmuch as the orders passed, in winding up proceedings under the Companies Act cannot be described as having been passed in exercise of original civil jurisdiction within the meaning of subsection (1) of section 3 G of the Law Reforms Ordinance, the inhibition against maintainability of appeals from certain orders as contained in subsection (3) will not operate in bar of an appeal against orders passed under the Companies Act. 31.…
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