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Petitioner: AZHER WALI and others VS Respondent: BELL HELLICOPTER TEXTRAN INC. and others
Court Name: Sindh High Court Judge(s): k.A Ghani, Muhammad Zahoor-ul-Haq Title: AZHER WALI and others vs BELL HELLICOPTER TEXTRAN INC. and others Case No.: High Court Appeals Nos.45 and 50 of 1986 Date of Judgment:1986-12-02 Reported As: 1987 MLD 1336 Result: Appeals allowed
JUDGMENT
JUDGMENT ' K.A.GHANI, J.--This appeal has been preferred against the order dated 9-2-1986 passed in Suit No.419 of 1985 whereby a learned Single Judge (O.S.) of the Court on the two applications filed by the respondents/plaintiffs under Order XXXIX, Rules 1 and 2, C.P.C. Granted the reliefs reproduced below:- the injunction to restrain the third defendant from carrying on business under the name of Messrs Muhammad Bakhsh International Limited." The injunction granted as above however was suspended by the learned Single Judge: "for a period of one month to enable it to take necessary steps to change its registered name." It was further ordered:- "The ad interim order passed on the 3rd December, 1985 will continue, I appoint Mr.Syed Abbas Zia as Receiver and direct him to make inventory and initial the books, papers, account books, ledger books and documents including the statutory books and also get complete information from the third defendant as well as their chartered accountants specially all past, current and subsisting business, transactions, contracts and supplies made by the defendants 1, 2 and 3 I direct the Directors, Secretary and the Chartered Accountant to obey and carry out all orders of the Receiver. The seventh defendant is directed not to make any payment to the first and third defendants till the disposal of the suit and to deposit with the Receiver. I also direct the twelfth defendant to disclose all the informations regarding establishing letters of credit through it. The Receiver will be at liberty in case of any doubt, difficulty or dispute to apply before this Court with notice to all the parties for appropriate direction and orders whenever he thinks it fit and necessary. The remuneration of the Receiver will be paid out of the funds of the Company."
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The ad interim order passed on 3-12-1985 which by the impugned order was continued (with which none of the parties are aggrieved) for sake of reference is reproduced below:- "In the interest of justice I appoint Mr. Syed Abbas Zia Advocate as Receiver to take over all books of accounts and records of plaintiff No.1. The defendants Nos.1 and 2 are directed to hand over all the books of accounts, records, documents to the receiver. The receiver is further directed to probe into all the contracts entered into by the defendant No.1 on behalf of the plaintiff No.1 during the period 2-7-1982 upto 30-5-1983. The plaintiffs are directed to pay tentatively Rs.5,000 as Receiver's fee." 2. (i) In order to appreciate the arguments advanced by the learned counsel for the parties at the hearing of this appeal it would be relevant to refer here briefly to the facts leading to the filing of the suit by the respondents. Admittedly the plaintiff No.1, a private company, was set up with a capital of Rs.40,000 divided into 4,000 shares, each of the nominal value of Rs.10, which were owned by the following persons "S.No. Name of the. First Share Holders No of shares held and Directors. (1) Aziz Wall Muhammad the plaintiff 1,000 Na.2 (2) Azhar Wali Muhammad the defen- dant No.1. 1,000 (3) Zafar Ara Begum the defendant No. 2. 1,000 (4) Chaudhry Chiraghdin (the deceased). 1,000" The shares held by Chaudhry Chiraghdin, on his death, were inherited by his heirs and consequent to subsequent transfers in. June, 1976, the share holdings of the parties in the plaintiff No.1 company were as follows:- (i) The appellants Nos.1 and 2............................... 75% Shares. (ii) The respondent No.2/ i.e. The plaintiff No.2 ... . . 25% Shares. The business of the plaintiff No.1 company consisted mainly of developing and promoting of business agencies and to act as agents of local and foreign principals and in particular to effect defence and other supplies. (ii) Differences arose between the share-holders which finally were resolved by agreement dated 2-7-1982. This agreement, between the parties continues to subsist and governs the relations between the parties thereto. Pursuant to and acting upon the said agreement, the defendant (i.e. The appellants Nos.1 and 2):- (i) handed over possession of the immovable properties bearing No.23, West Wharf Road, Karachi, and No.30-A Pakistan Employees Co-operative Housing Society Karachi to the plaintiffs. (ii) Almost all the liabilities of plaintiff No.1 totalling Rs.30,94,869 (except to the extent of a meagre amount) Rs.67,000 were cleared by the defendants Nos.1 and 2. (iii) Purusant to the same agreement dated 2-7-1982, the appellants Nos.1. And 2 (defendants Nos.1 and 2) after 31-5-1983, started business dealing as agents in respect of agencies/business mentioned in Annexure 'B' to the said agreement. These defendants alongwith other share-holders formed a company on 24-10-1982 which company since after 31-5-1983 is carrying on the business of agencies with the foreign principals as shown in Annexure 'B' to the above agreement. (iii) To the knowledge of the plaintiffs the business of agencies with the principals named in Annexure 'B' to the agreement dated 2-7-1982 was continued to be carried on since after 31-5-1983 by the appellant No.3 (Muhammad Bakhsh International Limited) which was formed in October, 1982 but no objection to the same was taken by the respondents or any of them for almost over two years. None of the parties also took any step for the winding up of the plaintiff No.2 (company namely,
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Muhammad Bux & Sons Ltd.) wherein all the shares in May 1984 stood transferred to the plaintiff No.2/his nominees. (iv) For the first time, however, on 6-7-1983 i.e. After almost a year- of making of the agreement of 2-7-1982 the plaintiff No.1 through his Advocate served notice upon the appellant No.1, wherein after giving history of the formation of the respondent No.2 company and various agreements culminating in the execution of the agreement dated 2-7-1982 and referring to some of the differences called upon the appellant No.1/defendant No.1 as follows:- "I, therefore, through this letter request you to specifically perform your obligations under the agreement dated 2nd July, 1982 within 30 days from the receipt of this letter failing which my client shall be constrained to institute proceedings before the competent Court of law as well as inform the F.I.A., State Bank and other agencies for the violation of laws committed by you at your risk as to cost and consequences which may please be noted." In spite of the harshly worded legal notice and the knowledge of the fact that the appellants Nos.1 and 2 (alongwith other share-holders) had already formed the new Company (the appellant No.3) and were carrying on business with principals named in Annexure 'B' and continued to earn commission, the respondent No.1 and/or the respondents did not call upon the appellants or any of them to stop doing business in the name of the newly-formed Company (the appellant No.3) and/or dealing with the agencies mentioned in Annexure 'B' to the agreement dated 2-7-1982. On the contrary the grievance made about business of agencies was that the appellant No.1:- "..... Failed to hand over the agencies/business to my client as stated in the Annexure 'C' to the Agreement." (v) Here notice may be taken of a further development which took place. The appellants Nos.1 and 2 on 22-5-1984, informed the respondent No.1 as a director, that they had agreed to resign from the respondent No.1 company and accordingly requested him to forward the necessary share certificates by mail for transfer of the shares to respondent No.2/or his nominee subject to execution of 'agreement of amendment' which was enclosed with the said letter. The said Agreement of Amendment, expressly provided that the terms and conditions of agreement dated 2-7-1982 shall remain in force fully operative and effective without change or amendment whatsoever except and to the extent provided therein (i.e. The Agreement Amendment). The partial amendment made by the said Agreement (which recited that it was with the consent of all the persons who were parties to the agreement dated 2-7-1982) provided that: "Mr.Azhar Wall Muhammad and Mrs.Zafar Ara Begum will resign from the Company known as Muhammad Bakhsh & Sons Ltd., 23 West Wharf Road, Karachi with effect from 1st July, 1984." This agreement duly signed by Azhar Walt Muhammad and Mrs.Zafar Ara Begum was delivered to the defendant No.1 who however, did not return the said deed executed by him but got the shares transferred in his own name or names of his nominees. (vi) However, no differences and/or disputes and/or objections on account of any alleged non- performance of any obligation on behalf of the appellants Nos.1 and 2 and/or to the formation of the new company (appellant No.3) and/or to its carrying on separate business by the appellants with the principles named in Annexure 'B' to the agreement of 2-7-1982, were raised. At this stage it can be said that prima facie from the respondent No.1 company the appellants Nos.1 and 2 had withdrawn their interest and that this was pursuant to the agreement dated 2-7-1982, as amended by agreement dated 23-5-1984. 3. After the events briefly narrated above had taken place, it appears that the parties continued with their own separate businesses to the knowledge of each other, the appellants having acquired exclusively the agencies as per Annexure 'B' to the agreement dated 2-7-1982 while to the respondent belonged exclusively the agencies/ business as per Annexure 'C' to the said agreement.
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4. However, after a lapse of 3 years of the making of the agreement of 2-7-1982, the respondents filed Suit No.419/85 wherein after referring to the agreement dated 2- 7-1982, the validity of which was not disputed, alleged that the appellants Nos. 1 and 2 had committed breach of various covenants of the said agreement dated 2-7-1982 as mentioned in paras 4.01 to 4.02 and further pleaded that the appellants who had neglected, refused and failed to perform the solemn obligations/covenants under the agreement dated 2-7-1982 and that "it transpired" that the defendants Nos.1 and 2 had channelised in persuading, collusive association with all the principals of the plaintiff No.1/appellant No.1 managed to get the appellant No.3 registered as supplier/contractor/tenders with the defendants Nos.4 to 6 (Defence Stores Purchase Organisation). It was also pleaded that the registration as supplier of the appellant No.3 was in breach of regulations of defendants Nos.4 to 6 and ab inito illegal. It was therefore, pleaded that all business of the appellants Nos.1 to 3 with defendants Nos.4, 5 and 6 not permitted by regulatiors of Government of Pakistan and the law, such business are liable to be restrained forthwith by the Court. Inter alia it was also alleged that defendants Nos.7 to 11 have colluded with appellants Nos.1, 2 and 3 and rare liable to render accounts of all> supplies made, contracts entered into, business otherwise transacted and payments by way of commission made or due or payable to the respondent No.1 as the amounts shall be deemed to have been paid in trust for the plaintiff No.1/appellant No.1 and that the said defendants Nos.7 to 11, are liable to render accounts since the beginning of 1973 until date and hereafter in respect of any or all payments due, payable or made on account of any reason to the appellant No.1/and or defendants Nos.1, 2 and 3 (i.e. The appellants Nos.1 to 3) and how and to whom and when, such accounts/amounts are to remain payable to the appellant No.1 and if paid are deemed to be received in trust by the appellants for the plaintiffs/respondents. In the plaint in para 9.06 the respondent claimed various declarations inter alia as to their right to be agents of all the foreign suppliers (defendants Nos.7 to 11) and those also mentioned in the list annexed to the agreement dated 2-7-1982, referred in para 16 of the said agreement. Prayer was also made for grant of direction that the foreign suppliers, as per list Annexure 'B' may not appoint any other person or company as their agent in Pakistan and keep in force the exclusive agency with the plaintiff No.1/appellant No.1. Reliefs have also been claimed for rendition of accounts. It may be noted here that though the allegations in the plaint as well as reliefs claimed were in exhaustive terms, neither any plea of nor any relief on the basis of alleged "passing off" in any manner was made or prayed for in the plaint nor any direction or injunction was sought in the plaint so as to restrain the carrying on of any business in the name of the appellant No.3. 5. Alongwith the plaint on 1-7-1985 an application (CMA.No.2053/85) was filed under Order XXXIX,Rules 1 and 2, CPC, Order 40 Rule 1 read with Section 151, CPC wherein prayer was also made directing the defendant No.12/National Bank of Pakistan to stay the operation of all L/Cs opened by the defendants Nos.4 to 6 or any of them in favour of defendants Nos.7 to 11 or any of them, restrain the said bank from making any payment of commission and/or any other payment to the appellant in respect thereof. Injunction was also sought to restrain the appellant from entering, into any contract, transaction of business with the Defence Purchase Department of the Government of Pakistan through the defendants No.4 to 6 or otherwise in respect of the goods and/or supplies or manufacture of the principals of the respondent No.1, namely, the defendants No.7 to 11 in the list annexed to the agreement dated 2-7-1982 by reference to para 16 of the said agreement. A number of other prayers have also been made in the application one of which was for the appointment of Receiver of the appellant No.3 inter alia in respect of all its past/present/future business as also the business of the appellants No.1 and 2 and direct the appellants No.1 to 3 to hand over all the books and records of the plaintiff No.1/respondent No.1 and the defendant No.3/the appellant No.3 to the Receiver appointed hereunder with all powers under Order 40, C.P.C.
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With direction to submit them to the Chartered Accountants namely M/s.Rafiq Tumbi Associates. A number of other directions have also been sought in the application to compel the appellants and other defendants to disclose to the Receiver all past, present and subsisting business, contracts, transactions supplies made or to be made by the appellants or any of them or through them to any person, company, Government, organization or any other since the inception of plaintiff No.1/respondent No.1 and the appellant No.3 to disclose their local and foreign bank accounts and give a statements of commission received or receivable. 6. After notice to the appellants No.1 to 3 of the above application (CMA No.2053/85) the learned Single Judge on 3-12-1985, on conclusion of the arguments, reserved the order to be announced, and while doing so th'e learned Judge appointed Mr.Syed Abbas Zia as Receiver to take over all the books of accounts and records of the respondent No.l. The appellants No.1 and 2 were also directed to hand over all the books and records to the said Receiver who was directed to probe into all the contracts entered into by the respondent No.1 on behalf of the plaintiff No.1/respondent No.1 during the period 2-7-1982 upto 30th May, 1983. Before the order could be announced another application CMA No.4508/85 was moved on behalf of the respondent on 12-12-1985 which was described as supplementary/additional application under Order 39 Rules 1 and 2, CPC read with Order 40 rule 1 and Section 151, CPC, wherein after referring to the ad interim order passed on 3-12-1985 a new plea was raised that the appellant No.3 had been fraudulently promoted, incorporated and established and was making fraudulently dealings and that it was given a similar name to pass off for the original/real company namely, the respondent No.1/plaintiff No.1 and that such fraudulently similar name and promotion of such device of fraud was by the directors of the respondent No.1; namely, the appellants No.1 and 2 while working and holding the office of the directors of the respondent No.1/plaintiff No.1, and making various other allegations prayed that the Receiver be empowered and directed to take charge of the business, management and affairs of the appellant No.3/defendant No.3 and the powers of the Board of the Director/ Directors/Managing Director of the defendant No.1, and the appellant No.3 be made subordinate to the Receiver and to hand over all the records of the appellant No.3/defendant No.3 to the Receiver in respect of all its dealings. Prayer was also made that the defendant Nos.4 to 6 be restrained from making any payment or to accept any order from the appellants No.1 to 3 or any of them in respect of orders placed or intended to be placed on defendants No.7 to 11 or any of them and to restrain the defendants No.7 to 11 from accepting any order from the appellants or any of them. 7. After hearing the learned Advocates for the appellants and respondents No.1 and 2 but without any notice to any of the other defendants, the learned Judge (O.S.) passed the impugned order which has been reproduced above. 8. Being aggrieved by the impugned order the appellants No.1 to 3/defendants No.1 to 3 have filed High Court Appeal No.45/86. A separate High Court Appeal No.50/86 has also been filed by M/s. Bell Hellicopter Textron Inc. The defendant No.7. Both these appeals have been ordered to be heard together and accordingly were fixed before us for disposal. 9. We have heard the learned Advocates appearing in both the appeals and after going through the impugned order and the records we are disposing of both the appeals. 10. In the impugned order the learned Single Judge has reiterated the following principles based upon the case-law cited before him:- "(i) ...There exists a sort of fiduciary relationship between the directors and the company and that the law requires the directors to deal with the monies and properties of the company as trustees. (ii) ....That the Court will, as with trustees, not allow a director to retain any profit which he may make by virtue of the fact that he is a director. He will be liable to the company for that profit." .
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(iii) I find no provision in the Companies Act which excludes the jurisdiction of a Court to appoint a Receiver, though since the Companies Act, 1913 and the Companies Ordinance, 1984 make provision for dealing with circumstances in whi in thech a company is mismanaged, it should not be necessary vast majority of cases to appoint a Receiver. It might even be improper to do so in certain circumstances. My attention has been drawn to a number of instances in which receivers have been appointed... (iv) ...There is case-law to indicate, that if a company has already been registered it can be restrained from carrying on business in the registered name......................... There are numerous other cases wherein similar injunctions have been granted. In case, an injunction is granted against a limited company which has already been registered time is given as a matter of course........................................ To get its name changed. Otherwise, the injunction is usually in the form of a restraint order............................... not to carry on business under the impugned name................. " The 'legal principles reproduced above have not been disputed uy the learned counsel for the appellant. Applicability of these principles to the present case however has been disputed. 11. We accordingly proceed to consider propriety and legality of the impugned order on which the learned Advocates for the parties have addressed us. (i) The learned Single Judge passed ad interim order on 3-12-1985 whereby Mr.Syed Abbas Zia Advocate was appointed as Receiver with powers to take over all the books of accounts and records of plaintiff No.1/respondent No.1 and the appellants No.1 and 2 were directed to hand over the said books of accounts, records, documents to the said Receiver. Receiver was further directed to probe into all the accounts entered into by the defendant No.1/appellant No.1 on behalf of the plaintiff No.1/respondent No.1 during the period 2nd July 1982 to 30th May, 1983. To the above order and directions, given in the ad interim order dated 3-12-1985, Mr.Khalid Anwar, counsel for the appellants stated that his clients have no grievance. The learned counsel, further stated that in obedience to the direction thus given was obeyed and whatever books of accounts and records of the respondent No.2 were with the appellants have already been handed over to the Receiver and that the same are lying with him, and that the appellants would have no objection even if the Receiver probes into the said accounts and that if any information is required in respect of the said accounts the appellants shall have no objection to co-operate. His plea was that there is nothing worth to be looked into as the matter stood finalised, yet the appellants are not contesting the directions given as above. (ii) The directions 'given in the impugned order:- "...To restrain the third defendant (now the appellant No.3) from carrying on business under the name of Messrs Muhammad Bakhsh International Ltd." have been challenged as not justified on the material on record. We have considered the arguments advanced and we find that no relief by way of permanent injunction has been claimed in the suit for restraining the defendant No.3/the appellant No.3 (company) from carrying on business in its own name (i.e. Messrs Muhammad Bukhsh International Ltd). Mansoor Ahmed Khan, the learned Advocate for the respondents was expressly called upon by us to point out if any such prayer for grant of permanent injunction has been made in the plaint against the appellant No.3. He was unable to do so. In such state of facts, we may usefully refer to the case of Marghub Siddiqi v. Hamid Ahmed Khan and 2 others (1974 SC M It 519), wherein the Hon'ble Supreme Court of Pakistan was pleased to lay down the following principle:- "...That in a suit where no perpetual injunction is claimed no question of granting ad interim injunction can possibly arise."
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Having observed as above it was held:- "In the a present case, the application for ad interim injunction should have failed on this ground alone." In the light of the principle laid down as above by the Hon'ble Supreme Court of Pakistan we find no justification to the grant of temporary injunction restraining the appellant No.3 from carrying on business under the name of Muhammad Bukhsh International Ltd. As no perpetual injunction has been claimed in the suit. For the above reasons alone injunction granted as above is liable to be vacated. We are also of the opinion that on the principle laid down in the case of Marghub Siddiqui (ibid) the direction given to the appellant No.3 to change its registered name cannot be sustained. We may also refer here with advantage to the case of Ghazi Naseeruddin v. Hashim Dawood and others PLD 1962 Kar. 55 wherein the learned Judge (Mr.Justice Wahiduddin as he then was) observed that temporary injunction cannot be issued which goes beyond the reliefs claimed in the suit. It may be observed here in the case of Marghub Siddiqui v. Hamid Ahmed Khan (ibid) the Honourable Supreme Court observed that the trial Court in that case exceeded its jurisdiction by deciding the question of validity of the resolution finally. The injunction granted as directions given to the appellant No.3 in our opinion put an end the Company/appellant No.3 finally at the interlocutory stage, which is not justified on the facts and law. (iii) Appointment of Receiver. The learned Advocate for the respondents in support, of the relief granted appointing the Receiver with the directions as given in the impugned order, reiterated his arguments advanced before the learned Single Judge and submitted that the Court has jurisdiction to appoint Receiver of a Company and referred to the fallowing observations of the learned Single Judge wherein after observing that there is no provision in the Companies Act which excludes the jurisdiction of a Court to appoint a Receiver it was observed:- "...Though since the Companies Act, 1913 and the Companies Ordinance, 1984 make provision for dealing with circumstances in which a company is mismanaged, it should not be necessary in the vast majority of cases to appoint a receiver. It might even be improper to do so in certain circumstances. My attention has been drawn to a number of instances in which Receivers have been appointed, and althrough…
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