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Petitioner: Mst. NEELOF'AR SHAH and anothers VS Respondent: Messrs OFSPACE (PVT.) LTD. through Company Secretary and 8 others
Court Name: Sindh High Court Judge(s): Munib Akhtar Title:Mst. NEELOF'AR SHAH and anothers vs Messrs OFSPACE (PVT.) LTD. through
Company Secretary and 8 others Case No.: J.M. No,31 of 2007 Date of Judgment:2012-07-05 Reported As: 2013 CLD 114 Result: Order accordingly Judgment ORDER ' MUNIB AKHTAR, J.---By means of this petition under section 290 of the Companies Ordinance, 1984, the petitioners seek relief against alleged acts of oppression by the respondents Nos,2 to 4 in relation to the affairs of the respondent No,1, Ofspace (Pvt.) Ltd. ("the Company"). The petition arises in the following circumstances. Learned counsel for the petitioners submitted that the Company was incorporated on 17-12-1997, It was set up for the purpose of constructing high end,. Top scale building projects, comprising of offices, which were to be let out and/or sold to select tenants or buyeRs, The income of the Company would arise from the rental payments and/or sale proceeds. At present, it appears that the Company has one project, which comprises of two office towers on plot No,St-8, Commercial Area, opposite Aisha Bawany School, Main Shahra-e-Faisal, Karachi ("the property")., The property was acquired by means of a registered sale deed executed on 21-1-1998 (pursuant to a sale agreement dated 7-1-1998), i,e,, contemporaneously ,with the registration of the Company itself and indeed, it is the case of the petitioners that the Company was set up specifically with a project on the property in mind. (Although the designation and numbering of the two towers has changed over time, for convenience I will refer to them as Tower I and Tower II.) Tower I is by far the larger of the two blocks, and learned counsel submitted that on 26-12-1997 a lease deed was entered into between the Company and IBM whereby the latter' agreed to take on lease Tower I or a substantial portion thereof (which was of course yet to be built on property, yet to be acquired) in terms as therein stated. 2. Learned counsel submitted that the Company and the project on the property were the brainchild of Mr. Nazeer Hussain Shah ("Mr. Nazeer"), who is respectively the husband and father of
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the two petitioneRs, Learned counsel submitted that Mr. Sher Asfandyar Khan ("Mr. Asfandyar"), the respondent No,2, was an old friend of Mr. Nazeer and he was brought on board the project by the latter. Learned counsel emphasized that the financing for the project and the initial outlays and expenditures were incurred entirely by Mr. Nazeer and/or other companies owned or controlled by him and his family. More specifically, Mr. Asfandyar did not contribute any capital to the Company or the project. A shareholders' agreement dated 14-1-1998 was drawn up ("the Main Agreement") to reflect the arrangement and understanding between the parties. This agreement was executed by Mr. Nazeer and Mr. Asfandyar, and witnessed, among others, by the respondent No,4 (who is the brother of Mr. Asfandyar) and the respondent No,5. Learned counsel submitted that the relationship between the parties was to be regulated by the Main Agreement, and it was, in part, a violation of the terms thereof that led to the filing of the present petition under section 290. Learned counsel submitted that the shareholding of the Company was divided between the "Shah group" (represented by Mr. Nazeer) and the "Khan group" (represented by Mr. Asfandyar). It was agreed that the Shah group would hold 44% of the shares, to be held by the wife and son of Mr. Nazeer. (i,e,, the present petitioners), who would hold 26% and 18% respectively. The Khan group would hold 26% of the shares, to be held by the respondent No,3, who is the sister of Mr. Asfandyar. Thus, the two groups taken together would hold 70% of the shares. The balance 30% would be held initially by the respondent No, 4, but. Only for a specific and limited purpose, i,e,, for the possible distribution of these shares among certain persons listed in the Main Agreement in the proportions as therein stated. These persons included the respondents Nos,5, 6 and 8. They would (if at all) be entitled to the shares on account of the assistance and other services (by way of consultancy, etc.) that were provided to the Company for the purposes of the project. 3. Referring to the Main Agreement, learned counsel submitted that the Shah group was throughout referred to as the majority shareholders and the Khan group as the minority shareholdeRs, He submitted that it was agreed that Mr. Asfandyar, the respondent No,2, would be the chief executive of the Company for two consecutive terms (i.e, from 1997-2001 and 2001-2004) and thereafter the chief executive would be appointed as desired by the Shah group. Learned counsel contended that in gross violation of this condition, Mr. Asfandyar continued to hold the office of chief executive and hence control over the day to day management of the Company, and thus its affairs had been usurped by the Khan group. He also submitted that it was agreed that two directors on the board would be nominated by the Shah group and two by the Khan group, and the chairman of the board would be a Shah group nominee, specifically being Mr. Nazeer. Insofar as the 30% shares to be held by the respondent No, 4 were concerned, learned counsel submitted that the Main Agreement expressly provided that if the shares (or any portion thereof) were not to be issued to the persons specified therein, the same shall revert back to the majority .Shareholders (Shah family) and- the reasons for not issuing to the designated person are to be recorded in the relevant corporate registers". As will be seen, it is central to the grievance of the petitioners that, according to them, this condition has been grossly violated. Learned counsel also submitted that the Main Agreement expressly provided that the profits made by the Company were to be distributed among the shareholders only by way of dividends and that such a declaration could only be made by the chairman of the board with the concurrence of the board itself. 4. Learned counsel further submitted that along with the Main Agreement, and on the same date, another agreement ("the Second Agreement") was also executed between the parties (the executants being, as before Mr. Nazeer and Mr. Asfandyar). The Second Agreement related to Tower II, the smaller of the two towers that comprised the project on the property. It also expressly, recognized that the financial contribution and capital outlay in relation to the project had been undertaken by Mr. Nazeer and that the fninonty shareholders (the Khan group) were "professionals", who were "neither financial contributors towards the equity of the project till now,
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nor are they in a position to make any financial or material commitment towards the equity of the company". As such, the Second Agreement recorded that "the management shall maintain separate accounts regarding Expenses and Revenues of Tower-I and Tower-II, and submit a bi- annual summary of accounts and progress report to Mr. S. Nazeer H Shah" and that "all incomes from Tower-II shall be credited to bank account of S. Nazeer Shah". 5. The petitioners' case is that Mr. Nazeer has a long history of suffering from various ailments and infirmities, which had in the past required major medical treatment, including surgical operations. These problems continued to persist' such that sometime in January. 1999, Mr. Nazeer, accompanied by his family (including the petitioners) had to leave for the United States .For long term treatment. This ' resulted in his (and his family's) absence from Pakistan for a number of yeaRs, It is stated that they (or at least Mr. Nazeer) returned to the country on a permanent basis only around July 2006. Although Mr. Nazeer did visit Pakistan in between on at least three occasions, each time it was (it appears) only for a short duration and necessitated by some major crisis or bereavement in the family. Thus, for all effective purposes, the Shah group was out of the country for a number of years and the affairs of the Company were entirely in the hands of the Khan group, which of course (according to the petitioners) is led and masterminded by Mr. Asfandyar. Given the long standing relationship between Mr. Nazeer and' Mr. Asfandyar, there was complete trust and confidence that the affairs of the Company would be dealt with and managed in accordance with law and the agreed terms as per the two Agreements executed on 14-1-1998 referred to above. The petitioners' grievance is that it was only when Mr. Nazeer returned to Pakistan in 2006 and started probing into the affairs of the Company and how it was being managed that the true picture began to emerge and it became clear how badly the trust and confidence reposed in Mr. Asfandyar had been abused and betrayed. The petitioners' case is that 'these revelations and grievances led, directly to the filing of the present petition 6. When the submissions of learned counsel for the petitioners, and the pleadings of the parties are considered, it becomes clear that the petitioners' grievances fall under three heads. Firstly, the grievance is that in gross violation of the Main Agreement, the Khan group has grabbed the 30% shares that were meant for certain third parties as explained above. Pecifically, the grievance is that these shares were to be held by the respondent No, 4 in "safe custody" for the limited purposes permissible under the Main Agreement. Instead, these shares were purportedly transferred by. The respondent No,4 to Mr. Asfandyar (except for one qualifying share allegedly retained by the former) by means of a transfer that took place on 15-1-1999 and which was approved by the board at two meetings held on that date in Islamabad. The petitioners contend that no such meetings ever took place and the signature of the petitioner No,1 on the minutes of one of those meetings (which show both her attendance at the meeting and approval for the transfer of the shares) is a forgery. The transfer was also questioned by SECP (the respondent No,9) inasmuch as it asked for certain details in respect thereof, but no reply was ever given by the Company. Learned counsel contended that not merely was this purported transfer illegal, but it changed the very complexion of the shareholding as after this unlawful grab, the Khan group effectively became the majority shareholders (holding both their actual entitlement of 26% and the unlawfully acquired 30%). This obviously has a material and fundamental effect on the control and management of the Company's affaiRs, 7. Secondly, the petitioners' grievance is that the Second Agreement has never been acted upon. The revenues and income received from Tower H, which was to go to the Shah group (through Mr. Nazeer) has been unlawfully usurped and grabbed by the Khan group. No accounting has ever been given of these funds. The third grievance is that the petitioners have been completely ousted from the affairs of the Company. Although they continue to be shown, pro forma, as directors of the Company, no accounts have been given to them, nor any, access to the Company's records as is
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their entitlement both in law and in terms of the Mafn Agreement. No notices of meetings, whether of the board or the shareholders, have been given even after the return of Mr. Nazeer to Pakistan and there is a complete blackout insofar as the petitioners are concerned. It is alleged that the revenues and income of the Company are being grossly misused and siphoned off by the Khan group for their own purposes, and have been illegally utilized by them to start several "spinoff businesses which they control and from which they alone benefit. Thus, it is alleged that blatantly illegal acts of misfeasance and fraud have been committed. No information is at all being given to the petitioners (acting at all material times through Mr. Nazeer) despite their best efforts. Even the dividends to which the petitioners are entitled on the basis of their shareholding of record (44%) are being denied to them. Thus, the grievance of the petitioners is that although the Shah group was instrumental in the incorporation of the Company and the financing of the project, towards which the Khan group contributed nothing in money terms, the benefits accruing from the Company's operations have been illegal usurped and grabbed by the latter to the complete detriment and ouster of the former. Learned counsel for the petitioners contended that these acts (both in the past and as continuing up to the filing of the petition and its hearing) constituted acts of oppression within the meaning of section 290 of the Companies Ordinance and the petitioners were therefore entitled to suitable relief accordingly. 8. Learned counsel for the Company (respondent No,1) as also learned counsel for the respondents Nos,2 to 4 (the Khan group as identified by the petitioners) strongly contested the petition and opposed the grant of any relief to the petitioneRs, Since the submissions by both learned counsel were along the same lines and the pleadings were also substantially the same, I shall (without intending any disrespect) take them up together and without differentiating between them. Learned counsel rejected all allegations made by the petitioneRs, The Main Agreement and the Second Agreement were repudiated as forgeries and fabrications.. Without prejudice to this stand, learned counsel contended that the Agreements executed on 14-1-1998 were between two persons (Mr. Nazeer and Mr. Asfandyar) who were not members or shareholders of the Company as on that date, i,e,, were strangeRs, It was also pointed out in particular that admittedly Mr. Nazeer never became a member of the Company. Thus, the Agreements could not in any manner amount to any arrangement or relationship for laying out a roadmap as to how the affairs of the Company were to be regulated and dealt with. It was also contended that in effect, the present petition sought specific performance of the two Agreements and had a suit been brought for such purpose, it would have to be dismissed as being barred by limitation. Learned counsel contended that Article 181 of the first schedule to the Limitation Act applied also to matters under the Companies Ordinance and the relief sought by the petitioners was hopelessly time barred. In the alternative, it was contended that in any case, the petitioners were disentitled to any relief on the ground of laches. The petition had been filed in 2007, whereas the so-called illegal grab (vehemently denied) of the 30% shareholding had occurred in January 1999. In any case, the petitioners had approved the transfer and/or were fully aware of the same throughout and could not now raise any such grievance or objection. Certain correspondence, which I will consider later, was relied upon in this regard. 9. Learned counsel also totally rejected all allegations that the Company's affairs were being (or had at any time been) run or managed in a fraudulent manner or that any illegality had been committed. It was submitted that the allegations made in this regard involved disputed and complicated questions of fact that were being hotly contested and these could not be determined in the present proceedings, since the Companies Ordinance mandated tin section 9) that a summary procedure be adopted in the hearing of all petitions. The' petition merited dismissal on this ground alone. It was strongly denied that the petitioners had been dealt with in any manner save and except in accordance with law. They were fully aware of all material facts and
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developments in relation to the. Company throughout. It was contended that admittedly Mr. Nazeer had visited Pakistan more than once during the period that he and the petitioners were stated to be in the United States, but no attempt had been made to visit the Company or "discover" the (allegedly) "true" state of affairs as was now being contended. It was also denied that the transfer of 30% shares from the respondent No,4 to Mr. Asfandyar was in any manner illegal, whether as being violative of the Main Agreement as alleged or otherwise. It was also denied that SECP had sought information from the Company in this regard. It was vehemently denied that there had been any oppression of the Shah group or any mismanagement of the affairs of the Company. It was submitted that dividend payments had been duly made to the petitioners and all corporate filings with SECP, as required by law, had been regularly made. These filings had not been challenged by the petitioners at any stage prior to the filing of the present petition and being public documents, they must be regarded as having full knowledge of the same at all material times. They could not now belatedly raise objections and grievances in relation thereto. It was the petitioners themselves who had refused to accept payment of the dividends, simply in order to create a fallacious ground for purposes of the present petition. Without prejudice to the other contentions, learned counsel also submitted that even if the transfer of shares from respondent No, 4 to Mr. Asfandyar could be impugned in any manner, a single act (and certainly not that act) could not be regarded as constituting oppression, within the meaning of section 290. It was therefore prayed that the petition be dismissed. 10. Learned counsel for the respondents Nos,5 and 6 supported the case put forward by learned counsel for the petitioneRs, Learned counsel for the. Respondent No,8 adopted the submissions by learned counsel for respondents Nos,5 and 6. It will be recalled that respondents Nos,5, 6 and 8 are those persons who, according to the petitioners, could be entitled to a certain shareholding in the Company in terms of the Main Agreement, the said shares to come from the 30% shares held by the respondent No,4 in "safe custody" but subsequently transferred to Mr. Asfandyar. Learned counsel for the respondents Nos, 5 and 6 submitted that although the said respondents (and of course respondent No,8 as well) were not shareholders of the Company, they did have a grievance and were entitled to be heard by reason of their position in terms of the Main Agreement. The impugned acts of the Khan group were not merely oppressive of and towards the Shah group but also these respondents as well, and the illegal grab of the 30% shares directly affected their interests. In fact, two of these respondents (Nos,5 and 8) had filed suits in the civil courts (of district Karachi South) seeking enforcement of the Main Agreement in their favour, i,e,, for them to be granted the shares as per their entitlement in terms thereof. The Company then filed transfer applications under section 24, C.P.C. For these suits to be transferred to this Court, and by order dated 25-2-2009, the said suits have been so transferred. 11. Learned counsel for the Company and learned counsel for the respondents Nos, 2 to 4 strongly contested the claim put forward by the respondents Nos, 5, 6 and 8. It was denied that these respondents were in any manner claimants in respect of any shares in the Company or otherwise interested in its affairs and certainly not for purposes of a petition under section 290. Learned counsel contended that they had been impleaded as parties simply in order to give some credence to the otherwise frivolous and utterly vexatious case sought to be made out by the petitioneRs, 12. Learned counsel for the petitioner, exercising his right of reply, submitted that the law of limitation did not apply. To matters under the Companies Ordinance. Furthermore, there had been no delay in the filing of the petition, which accordingly was not hit by laches. Really speaking, the petitioners discovered the true state of affairs, and the full extent of the defalcations and other illegalities committed by the Khan group only in 2006 on the permanent return of Mr. Nazeer to Pakistan. Furthermore, the petition did not seek specific performance of the two Agreements
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executed on 14-1-1998. Rather, the petitioners had invoked the statutory remedy provided by section 290 for a redressal of their grievances with regard to the affairs of the Company. There were no disputed questions of fact such as could not be ascertained by the Court in the present proceedings and for purposes of the present petition. The objections taken by the contesting respondents were entirely without any merit and the petition ought to be allowed. 13. Learned counsel for all the respective parties also referred to case-law in support of their submissions, which I will consider below to the extent as is necessary and relevant. 14. I have heard learned counsel as above, gone through the record with their assistance and considered the case-law relied upon. Before proceeding further, it would be convenient to set out the shareholding in the Company as per the corporate filings made by it (as at the time of the filing of the petition). The Company has an authorized capital of Rs,10 million divided into 100,000 shares of a par value of Rs, 100 each. The paid up share capital is Rs,2.5 million comprising 25,000 shares, and the holdings on the record as filed are as follows:-- Shareholder Shares Percentage Mrs. Neelofar Shah (petitioner No.1)6500 26 Mr. Raza Shah (petitioner No.2)4500 18 Mrs. Sajida Naeem (respondent No.3)6500 26 Mr. Asfandyar (respondent No.2)7499 30 Mr. Alamgir Shah (respondent No.4)1 -- Total 25000 100 ' The shareholdings of the petitioners, totaling 44% of the paid up capital, and the shares held by the respondent No,3 (26%) are of course not in dispute. What is disputed is the 30% held by Mr. Asfandyar, which was originally allotted to the respondent No,4, to be held by him, as claimed by the petitioners and denied by the contesting respondents, for the specific purpose stated in the Main Agreement. These shares (other than one qualifying share) were transferred to Mr. Asfandyar on 15-1-1999, a transfer strongly contested by the petitioners as illegal and defended by the contesting respondents as being entirely in accordance with law. (By contesting respondents, I mean of course the Company and the respondents Nos,2 to 4.) 15. The two agreements, the Main Agreement and the Second Agreement, are of course central to the petitioners' case and it is the alleged non- implementation and violation of these agreements that forms the core of their grievances. These agreements are denied as forgeries and fabrications by the contesting respondents. This defense is linked to the larger issue raised by them, namely that the present petition requires determination of disputed and complicated questions of fact, which is not possible in terms of the summary procedure to be applied to petitions under the Companies Ordinance. Learned counsel for the contesting respondents referred to a number of decisions in this regard. Among the cases cited were: (1) Lahore Race Club v. Raja Khush Bakht-ur- Rehman PLD 2008 SC 707, (2) Yousuf v. Valika Textile Mills Ltd. PLD 1964 Kar 31 (SB), (3) Manzoor Ahmed Bhatti and others v. Haji Noval Khan 1986 CLC 2560 (SHC; SB), (4) Zakir Latif Ansari and another v. Pakistan Promoters Ltd. And others 1988 CLC 1541 (SHC; SB), (5) Engro Chemical Pakistan Ltd. v. Muhammad Hussain Dawood and others 2003 CLD 293 (SHC; SB), (6) Shah Mushtaq Ahmad v. Shoukat Soap Factory and others 1987 CLC 2079 (LHC; SB), (7) Khurshid Ahmad Khan and another v. Pak Cycle Manufacturing Company Ltd. And others PLD 1987 Lah. 1 (SB), (8) Salaintddin Khan v.
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Al-Mansoor Ltd: and others PLD 1987 Lah. 569 (SB), (9) Muhammad Aslam Javed and another v. Malik Ijaz Ahmad and another 2003 YLR 2150; 2003 CLD 1442 (LHC; SB), and (10) Rohail Hashmi and others v. Nabeel Hashmi and others 2003 CLD 201 (LHC; SB). (It will be noticed that other than the Supreme Court decision, the others are all single bench decisions of this Court or the Lahore High Court.) Now, the factual element common to all of these decisions is that they involved issues relating to the rectification of the members' register of the company concerned, i,e,, with regard to whether the petitioner (or plaintiff, since some of the cases in fact were or originated in suits) was entitled to relief under section 152 of the Companies Ordinance (or section 38 of the precedent legislation, the Companies Act, 1913). This was in fact, the crux of the dispute in all the cases. The cases, other than the Supreme Court decision, involved companies limited by shares, and hence the issue before the Court was as to the ownership or title to shares, it being well established that shares in a company are a form of property, which is owned by the member concerned. (The Supreme Court decision involved a company limited by guarantee, and the question was whether the claimant was its member.)…
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