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Petitioner: NADIR AKMAL KHAN LEGHARI and others VS Respondent: ASIM ARSHID and others
Court Name: Sindh High Court Judge(s): Muhammad Shafi Siddiqui Title: NADIR AKMAL KHAN LEGHARI and others vs ASIM ARSHID and others Case No.:Suit Nos. 222 and 293 of 2012Suit No,293 of 2012Suit No,222 of 2012Suit
No,293 of 2012Suit No,222 of 2012 Date of Judgment:2012-08-13 Reported As: 2012 CLD 1588 Result: Order accordingly Judgment ORDER ' MUHAMMAD SHAFI SIDDIQUI, J.---These two suits have been filed by the directors of the Company namely Sukkur Beverages (Pvt.) Limited (hereinafter referred to as the company"). The earlier suit i,e, Suit No,222 of 2012 was filed by one set of the directors against the other whereas the subsequent suit i,e, Suit No,29,3 of 2012 was filed by the defendant of the aforesaid suit against the plaintiff of the aforesaid suit. In both the suits the applications restraining the respective defendants have been filed. Another application bearing C.M.A. No,2846 of 2012 which is for vacation of ad interim ex parte order dated 21-3-2012 passed in Suit No,293 of 2012 has also been moved. ' Thus there are three applications which are to be decided by this common order i,e, (i) application bearing C.M.A. No,2721 of 2012 and (ii) application bearing C.M.A. No,2846 of 2012 in Suit No,293 of 2012 and (iii) application bearing C.M.A. No,1974 of 2012 in Suit No,222 of 2012. By consent of the counsel the suit bearing No,293 of 2012 was taken up first for hearing of C.M.A. 2846 of 2012 in Suit No,293 of 2012. ' Learned counsel for the defendants in Suit No,293 of 2012 who has moved C.M.A. No,2846 of 2012, submitted that the plaintiffs and the defendants are the directors and shareholders of the company which is a private limited company incorporated on 3-9-1974 under Companies Act, 1930. It has authorized capital of Rs,20 Million divided in 2 Million shares of Rs,10 each while its paid up capital is Rs,150 Million. This company continues to operate under the Companies Ordinance, 1984. The plaintiffs' and the defendants' shareholding in the Company are as under:- Asim Arshid (Plaintiff No.1) 2,04,500
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Shahzad Arshid (Plaintiff No.2) 1,70,000 Ali Arshid (Wife of Plaintiff No.1) 1,70,000 Umer Arshid (Son of Plaintiff No.1) 500 Nafeesah Shahzad (Wife of plaintiff No.2) 1,70,000 Nadir Akmal Khan Leghari (Defendant No.1)2,50,000 Sayeed Leghari (Defendant No.2) 2,50,000 Ayub Leghari 2,50,000 Total 15,00,000 ' The salient feature for which the company was incorporated is to carry on the business of making and bottling beverages including soft drinks and its distribution and sales. The Company owned the soft drink bottling plant in Sukkur since 1988 and pursuant to their aforesaid business entered into two exclusive bottling appointment agreements with PepsiCo Inc. And with Seven-up International which is a part of PepsiCo Inc. Group and both the above referred agreements were executed by PepsiCo Inc. ' Pursuant to the aforesaid agreements the company sells and distributes soft drink known and sold under the trademarks Pepsi, Pepsi Cola, Miranda, Team, Mountain Dew and Seven-up in the districts of Sukkur, Nawabshah, Nausheroferoze, Larkana' (including district of Jacobabad) and Kandhkot/Kashmore, Ghotki and to sub-divisions of Rahim Yar Khan and Sadiqabad in the Rahim Yar Khan district. ' Last time the agreement was executed on 1-4-2008 which was for five years and is due to expire on 31-3-2013. Thus the company is operated by two groups who holds 50% share each. By virtue' of these shareholdings each group is entitled to nominate two persons to company's board of directors and also by agreement of shareholders the nominee of one group act as Company's Chief Executive Officer and the nominee of the other group as a Chairman of the Company's Board of Directors. ' Learned counsel submitted that in the recent past and even now the company's Chief Executive Officer has been Asim Arshad while the Chairman of the Company's Board of Director has been Nadir Akmal Khan Leghari. Learned counsel submitted that the plaintiffs in Suit No,293 of 2012 are responsible for running the company's day to day affairs which responsibility he has failed to discharge to any degree of satisfaction whereas his client namely Nadir Akmal Khan Leghari, the defendant 'in Suit No,293 of 2012 has been responsible for dealing with the PepsiCo Inc. On behalf of the Company. ' Mr. Talibuddin submitted that although the relationship between the two groups of the company was cordial and no issue of any significance arose in the management of the company until 2002 when his client became the Minister in the Sindh Government. It was this point of time that gave feeling of jealousy and some degree of inferiority complex in the mind and heart of the other group. Learned counsel submitted that earlier the agreements were executed for a period of one year at a time and it is only on this occasion that the agreement for five years was executed. He submitted that instead of appreciating the efforts, the plaintiffs began to make false and baseless allegations against the defendants and also started a campaign of abusing the company's long standing employees and falsely accusing them of mismanagement. ' He submitted that the plaintiff in order to achieve his goal aired the so-called shareholder issue (which was largely baseless and of his own creation) before PepsiCo Inc. Through general manager of the Company on 5-10-2009 and requested for a meeting. The correspondence was exchanged and he took a complete departure with regard to the emails that has been discussed
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above. He submitted that in view of the exchange of emails and oppressive behavior of the plaintiff towards the company's management, brought about a deadlock. ' He submitted that in these circumstances all shareholders came to the conclusion that they can no longer continue and it would be in the best interest, of all to sell their respective shareholdings in the company and consequently the defendant who was also representing his wife and his brother Ayub Leghari and the plaintiffs above named met PepsiCo Inc. On 30-3-2010 and confirmed about selling of their shareholding in writing on 8-4-2010 in terms of clause 8 of the agreement. However, the price was not mentioned in the said notification as there was neither any offer nor determination, though he attempted to have the fair market value of the company's share. The subsequent attempts of the determination of the market value of the shares by a chartered accountant were also resisted by the plaintiff. On 4-8-2010. The PepsiCo Inc. Wrote to the shareholders of the Company that in order to reach a fair determination of the market value of the shares any firm listed therein be appointed. Despite this the plaintiff continued to resist which caused inordinate delay to such evaluation. ' At this stage the PepsiCo Inc. Invited both the plaintiff and the defendant to attend a meeting at Karachi, however, the plaintiff remained absent and the PepsiCo Inc. Was disappointed, however, a fresh date of 11-4-2011 was given but the plaintiff showed his inability to attend the meeting on 11-4- 2011 and submitted that it may be held with the defendant which was accordingly attended by the defendant. Learned counsel submitted that in the said meeting the PepsiCo Inc. Was concerned that no attempt had been made by the shareholders to have their shares valued. The outcome of this meeting was conveyed to the plaintiff. Learned counsel submitted that the plaintiff insisted in arriving a negotiating price informally with PepsiCo Inc. With the object to extract agreement at a price far and excess of the realistic value of the share. ' The attempt to involve the family elders was also proved futile. Ultimately the defendant took the matter and engaged Messrs Earns and Young's to conduct the share valuation exercise and was accordingly conveyed to the plaintiff on 14-9-2011 to which the plaintiff did not respond. Again on 21-9-2011 the defendant wrote to the plaintiff regarding the evaluation of the shares as done by Messrs Earns and Young's. In the circumstances, the PepsiCo Inc. And Messrs Seven-up International served formal notices on the company that the current bottling agreements will not be renewed after its expiry on 31-3-2013. ' The aforesaid notices were forwarded by his client in October, 2011 which was replied on 25-10- 2011. However, except allegations nothing came out. He submitted that despite accusation, no reference of plaintiffs' request to have his share valued was made and the plaintiff always resisted vis-a-vis valuation on childish hope that the PepsiCo Inc. Would agree to find a buyer at such price. The defendants, however, denied all allegations made in the email dated 25-10-2011. He submitted that the defendant No,1's response with reference to contacting BMA with mutual consent for the purpose of valuing company's share is misleading as BMA is not a firm of Chartered Accountant and also with certain important information were not disclosed to BMA which were substantially important in arriving a fair value of the shares. Despite all above the defendants reluctantly agreed but on the basis of full disclosure. Even then exercise was not carried out by the plaintiff. Subsequently on 28-10-2011 PepsiCo Inc. Invited both the plaintiff and defendants on 1-11-2011 at Lahore and per learned counsel it was at this meeting that the plaintiff beseeched the PepsiCo Inca officials to have the company's shareholder and find a solution for them. The officials of the PepsiCo Inc., per learned counsel, disclosed that the representative of Pizza Hutt had contacted them and they are informed that the plaintiff had approached the owners of Pizza Hutt to find out if they would be interested in purchasing the company's shares. Per learned counsel this came as a complete surprise as this was not the approved procedure. Conclusively the PepsiCo Inc. Officials told both the plaintiff and the defendants to put the price in writing and the PepsiCo Inc. Would see
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if anything could be done at this stage. Mr.. Salman Talibuddin submitted that on 1-11-2011 both the plaintiff and defendant No,1 agreed to notify the PepsiCo Inc. a requisite price though negotiable for the entire shares of the company. This asking price, per learned counsel, was held to be unrealistically high for the PepsiCo Inc. And according to the learned counsel PepsiCo Inc. Informed that no purchaser could be found in such price. He then submitted that the PepsiCo Inc. Gave three following options:-- (a) Both groups of shareholders should attempt to resolve their differences and a buy-out at the price notified to PepsiCo or any other price agreeable to them; (b) If the first option was not acceptable, PepsiCo Inc. Would try and assist in the sale of SBL's assets after 31 March 2013 at a 10 to 15% premium over their audited value; or (c) If neither the above options are exercised on or before 16 January 2012, PepsiCo would go ahead with its plans for the post 31 March, 2013 scenario in the territory in which the plaintiffs would be assigned a significant role. ' The defendants, however, agreed to opt the third option and to assume the role with PepsiCo Inc. In post 31-3-2013 scenario. However, the PepsiCo Inc. Provided the time until 16-1-2012 in arriving a marketable price of the shares. ' On 16-1-2012 nothing was notified to the PepsiCo Inc. By the plaintiff and PepsiCo Inc. Asked the plaintiff and defendants to attend a meeting at Bangkok on 10-2-2012 to discuss the affairs. In the meantime a common friend also approached the plaintiff to have them arrive at an acceptable solution and during this intervention the plaintiff agreed to buy the shares held by the defendants and his family members at the price of Rs,1.3 Billion for their entire shares and the amount that would have been payable by the plaintiff to the defendants would be Rs,220,000,000. With this background both the plaintiff and defendants proceeded to Bangkok, however, the plaintiff did not mention anything regarding this understanding and the meeting was ended on a sour note and the PepsiCo Inc. Informed that by 17-2-2012 the parties should inform their options to be adopted. The learned counsel for the defendants submitted that the plaintiff No,1 acting in consort with the plaintiff No,2 has not only deceived and flouted his commitment to purchase the defendants' share but is also adamant on preventing the defendants from the legitimate exercise of third option put on the table by the PepsiCo Inc. On 6-1-2012. ' Hence, learned counsel submitted that the plaintiffs should be permanently restrained in maliciously maligning the defendants with the sole aim of preventing him from entering into arrangement with PepsiCo Inc. For the post 31-3-2013 period as he would suffer irreparable loss which cannot be compensated in terms of money. Learned counsel submitted that the ad interim order passed on 21-3-2012 by this Court was in fact obtained on false and fabricated facts and proceedings have been instituted in bad faith and are vexatious and oppressive and hence an abuse of the process of this Court. The order was obtained by concealment and misrepresentation of material facts and hence are not entitled to any equitable relief. Learned counsel in support of his application bearing C.M.A. No,2856 of 2012 submitted that the ad interim orders dated 21-3-2012 thus as an interim measure may kindly be varied in the manner which protects the legitimate interest of the defendants as well as the plaintiffs. ' Learned counsel further submitted that there appears to be interim orders in both the suits which, according to the learned counsel, are overlapping and perhaps to certain extent clashing with each other. Learned counsel submitted that ad interim order passed in Suit No,222 of 2012 dated 1- 3-2012 is in conflict with the order dated 21-3-2012 passed in Suit No,293 of 2012. Learned counsel submitted that the parties, are at dragger's end and unless the orders of 21-3-2012, referred to above, is varied or modified to safeguard interest of both the plaintiffs and the defendants, the rights and interests of defendants in Suit No,293 of 2012 shall be seriously prejudiced. Learned counsel submitted that he had moved an application bearing C.M.A. No,1974 of 2012 in Suit No,222
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of 2012 wherein he has prayed that the defendants therein (plaintiffs in Suit No,293 of 2012) be restrained from addressing false and baseless and malicious communication to PepsiCo Inca and be restrained from taking any step that are intended to or shall have the effect of removing or hampering the plaintiff (in Suit No,222 of 2012) from entering into arrangement with PepsiCo Inc. For a period after 31-3-2013 when company's current exclusive bottling appointment agreements will expire. Learned counsel submitted that under the facts and circumstances of the case stated above, he has .All legitimate rights to enter into such negotiations or agreements as there is no likelihood of the renewal of bottling agreement after 31-3-2013. Learned counsel submitted that the ' fiduciary relationship of the defendants would not come in the way in entering into post 31-3-2013 scenario as there is no likelihood of continuing the relationship between the company and the PepsiCo Inc. ' Learned counsel in support. Of his contentions has for the assistance of this Court filed Companys' Duties, Liabilities and Remedies by "Simon Mortimore" wherein the role and duties of the directors of the company were highlighted. He also submitted the Companies Act 2006 of England which highlighted the changes to legislation and also describes the general duties of the directors. He also submitted the extract of section 86(h) of the Companies Act 1913 and sections 214 and 217 of the Companies Ordinance 1984 along with case reported in PLD 1995 Lahore 264. ' Learned counsel in support of his contentions has also submitted the text of International Review of Law, a judgment of Island Export Finance Limited v. Umunna and another of Queen's Bench Division, Baiston Limited and another v. Headline Filters Limited and another (in the High Court of Justice - Chancery Division), Foster Bryant Surveying Limited v. Bryant, Savernake Property Consultants Limited ([2007] EWCA Civ 200), Thermascan Ltd. v. Norman (Chancery Division), Vaishnav Shorilal Puri and others v. Kishore Kundanlal Sippy and others and lastly a judgment from Supreme Court of Canada i,e, Can. Aero v. O'Malley ([1974] SCR 592). Thus, the learned counsel submitted that in the light of the above submissions and the law, the application for modification of the order dated 21-3-2012 is liable to be allowed, as prayed. As against this learned counsel for the plaintiffs in Suit No,293 of 2012 briefly submitted that the plaintiffs and defendants control the shares (50% shares each) of the company which bottles and supplies Pepsi under Agreement with PepsiCo Inc. Since 1983. The last agreement was renewed on 1-4-2008 and is due to expire on 31-3- 2013. During the last five years disagreement between the plaintiffs and the defendants started which is reflected from the correspondence exchanged, between them. However, the company is by and large performing its functions normally without any serious problems relating to Its business activities and PepsiCo Inc. Does not have any issue with the performance of the Company: ' Learned counsel submitted that the plaintiff No,1 is the Chief Executive of the company, the defendant No,1 has all along been dealing with PepsiCo Inc. On behalf of the company. The plaintiffs had no problems with that., The problem started when the defendant No,1 started feeding misleading information about the disputes between the shareholders to scare PepsiCo Inc. With the object of getting rid of the 50% shares held by the plaintiffs. Learned counsel submitted that defendant No,1 also misled the plaintiffs and falsely conveyed to PepsiCo Inc. That plaintiffs want to sell their shareholding. It is submitted that neither the plaintiffs want to sell their shareholding nor they want to buy the 50% shares controlled by defendants. Both parties can continue as 50% shareholders. ' Learned counsel further submitted that the plaintiffs urged the defendant No,1 that since the agreement with PepsiCo Inc. Is due to expire on 31-3-2013, the defendant No,1 should negotiate with PepsiCo Inc. For renewal of the agreement as without the agreement renewed, the company will come to standstill after 31-3-2013. It is submitted by the learned counsel that as the company needs renewal of the agreement for its survival after 31-3-2013, PepsiCo Inc. Also equally needs the
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company and its bottling plant and infrastructure for its survival in that particular market as otherwise PepsiCo Inc. Products cannot be supplied in this region and there is no other bottling plant in Sukkur region. Thus, if the shareholders and directors of the company i,e, . The plaintiffs and the defendants remain steadfast and solely committed and loyal to the company, PepsiCo Inc. Would have to renew the agreement after 31-3-2013. ' Learned counsel further submitted that the defendant No,1, though a director and being in a fiduciary relationship of trust with the company, started to feed false and misleading information with the objective of persuading PepsiCo Inc. To deal with him directly and not extend agreement with the company of which he remains a director and shareholder. He assured PepsiCo Inc. That if it informs the company about its intent of non-renewal of agreement after 31-3-2013, the plaintiffs would be compelled to surrender and sell their shares at pittance whereafter the defendant No,1 may run the new business alone. The plaintiffs did not fall in this trap, and refused to be blackmailed into selling their shares. PepsiCo Inc. Vide letter dated 12-10-2011 conveyed its intent of non-renewal of contract. This was done merely to push the plaintiffs out of the company. In the meantime the defendant No,1 was secretly negotiating with the PepsiCo Inc. For bottling agreement with him directly i,e, outside the company. When the plaintiffs discovered this they tried to contact PepsiCo Inc. So as to give them the true picture and inform that the company has absolutely no performance problems or issues. The defendants rushed and filed suit and got stay order against the plaintiffs' approaching PepsiCo Inc. ' Learned counsel further submitted that it is well settled principle of law that a director such as defendant No,1 stands in fiduciary relationship with the company which is akin to that of a trustee. While still being a director he must be absolutely candid, honest and completely devoted and committed to the company and only act for the benefit of the company. He cannot lawfully enter into any agreement or transaction with may adversely affect the business/interests of the company. If the defendant No,1 wants to negotiate with PepsiCo Inc. And enter into any agreement, such agreement must be for the benefit and interests of the company and not outside the company as is now being done by the defendant No,1. Rather than making efforts to have the agreement with PepsiCo Inc. Renewed for n period after 31-3-2013, the defendant No,1 is secretly negotiating and wants to enter into agreement for his own benefit at the expense of the company and its shareholders. This, per learned counsel, is absolutely prohibited under the law and this is exactly what the Court directed him to do vide order dated 21-3-2012. ' Learned counsel in support of his contentions referred to Articles 3(1) and (2), 23, 55, 56 of Memorandum and Articles of the company. He has also placed reliance on the cases reported in PLD 1992 SC 276, 1986 MLD 1870, (1972) 2 AER 162 and (2012) B.C.C. 72 and prayed that it .May be held that while still being a director of the company the defendant No,1 stands in a fiduciary relationship with the company and must act as per the Articles of the company and with the sole objective of promoting and extending the business and interests of the company and that the defendant No,1 is free to negotiate with PepsiCo Inc. To seek renewal agreement after 31-3-2012 for the benefit of the company only and not for himself personally or any party other than the company as is being admitted by the defendant No,1 and prayed that the ad interim order dated 21-3-2012 passed by this Court be confirmed. 'Mr. Taha Ali Zai, learned counsel for defendants in Suit No,222 of. 2012, though on general adjournment but appeared as the matter was proceeding at the request of other learned counsel who have shown urgency. Mr. Taha adopted the arguments of Mr. Khalid Jawed Khan as clients of Mr. Taha are plaintiffs in Suit No,293 of 2012 and defendants in Suit No,222 of 2012 and who were ably represented by Mr. Khalid Jawed Khan. ' I have heard the learned counsel for the parties and perused the record. The core issue involved in terms of the pleadings and arguments is that since the parties are at draggers end and there is no
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hope of the continuance of relationship of company with PepsiCo Inc. The directors would be free from their duties and responsibilities and the effect of fiduciary relationship would not be that significant under the circumstances stated above. It is for this reason that. Mr. Salman Talibuddin has moved an application bearing C.M.A. No,2846 of 2012 for the vacation of the ad interim ex parte order dated 21-3-2012 whereby his client was restrained from entering into any separate/private agreement or arrangement with PepsiCo Inc. Except for the benefit of the company. ' In order to understand the relationship of directors with the company and the effect of fiduciary relationship the relevant provisions of the Companies Ordinance, 1984 such as sections 214-217 are reproduced hereunder:-- "214. Disclosure of interest by directors.---(1) Every director of a company who is in, any way, whether directly or indirectly, concerned or interested in any contract or arrangement entered into, or to be entered into, by or on behalf of the company shall disclose the nature of his concern or interest at a meeting of the directors: ' Provided that a director shall be deemed also to be interested or concerned if any of his reldtives as defined in the Explanation to subsection (1) of section 195 is so interested or concerned. (2) The disclosure required to be made by a director under subsection (1) shall be made,-- (a) in the case of a contract or arrangement to be entered into, at the meeting of the directors at which the question of entering into the contract or arrangement is first taken into consideration or if the director was not on the date of that meeting, concerned or interested in the contract or arrangement, at the first meeting of the directors held after he becomes so concerned or interested; and in the…
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