Full Judgment Text & Judicial Ruling

2016 G B L R 266 [Supreme Appellate Court] Before Dr. Rana Muhammad Shamim, C.J., and Shahbaz Khan, J DENG XIAO BIN DIRECTOR PAK CHINA SOST PORT COMPANY (PVT.) LIMITED and another---Petitioners Versus REGISTRAR JOINT STOCK COMPANIES, GILGIT-BALTISTAN, GILGIT and 3 others---Respondents C. Appeal No. 35 of 2015, decided on 22nd June, 2016. Companies Ordinance (XLVII of 1984) [as amended by Companies Ordinance (Amendment) Act (C of 2002)]--- ----Ss. 290 & 170---Companies Act (VII of 1913), Preamble---Gilgit-Baltistan (Empowerment and Self-Governance) Order, 2009, Arts.60 & 71---Application for prevention of oppression and mismanagement of company---Powers of Registrar, Joint Stock Companies/Security Exchange Commission to call meetings of Board of Directors of the Company---Registrar Joint Stock Companies on the direction of the Chief Court, convened meeting of the Board of Directors of the company; petitioners had challenged the holding of said meeting, contending that after promulgation of Companies Ordinance Amendment Act, 2002 all the powers enjoyed by the Registrar of Companies had been assigned to the Securities and Exchange Commission and that the acts done by the Registrar in that regard were without authority---Validity---Convening of meeting of Board of Directors by the Registrar was not at his sweet will or an act under the influence of other respondents; rather the same was implementation of court order and due to non-establishment of Securities and Exchange Commission in Gilgit-Baltistan---Registrar Joint Stock Companies Gilgit-Baltistan exercised all powers including registration of companies and other corporate issues in Gilgit-Baltistan---Contention of counsel for the petitioners was that vide Companies Ordinance, 1984, as amended by Amendment Act, 2002, the Registrar of Joint Stock Companies Gilgit-Baltistan, had seized to exercise powers given under S.170 of the Companies Ordinance, 1984, as the same had been vested with the Security Exchange Commission---Validity---Companies Ordinance, 1984 was not applicable to Gilgit-Baltistan in the year 2002 rather the Companies Act, 1913 was in operation and neither the Gilgit-Baltistan Council nor Government of Gilgit-Baltistan established the Securities and Exchange Commission; as a result, the Registrar of the companies was still exercising the powers including the registration of companies---If there was mismanagement or complaint to the effect that the affairs of the company were not being properly conducted; or were likely to be conducted in an unlawful or fraudulent manner, or in a manner not provided for in its memorandum, then the responsibility would shift on the petitioners exclusively being the responsible managers and responsible for conducting all affairs of the company---Purpose of S.290 of the Companies Ordinance, 1984, appeared to keep company going well; while at the same time securing the interest of minor share holders from acts of oppression and mismanagement---Proceedings under S.290 of the Companies Ordinance, 1984, were to be resorted to when it was complained that affairs of the company were being conducted in an unlawful or fraudulent manner; or in a manner not provided for in memorandum and articles of association---Submission of present application by the petitioners, being the Directors and Managers of the company, before the Chief Court under S.290 of the Companies Ordinance, 1984 was against the spirit of the provision of law---Under S. 290 of the Companies Ordinance, 1984 only the members, creditors and the Registrar, were entitled to submit application before the Chief Court in case of any complaint against the management of the company---Section 290 of the Companies Ordinance, 1984, did not provide any statutory right to any Director, Board of Directors or the persons in management responsible for running affairs of the company, to file an application before the court; who himself was responsible for the management and administrative affairs of the company---Any member of Board of Directors, Director or Chief Executive of a company, did not fall under the scope of S.290 of the Companies Ordinance, 1984. Amjad Hussain, Advocate for Petitioners. Malik Shafqat Wali, Senior Advocate along with Rehmat Ali, Advocate-on Record for Respondents. Date of hearing: 17th May, 2016. JUDGMENT SHAHBAZ KHAN, J.---Facts on file reveal that the petitioners and respondents Nos.2 to 4 are subscribers and directors of Messrs Pak China Sost Port Company (Pvt.) Limited hereinafter referred as JV Company, having its head office situated at Sust Gojal Hunza. The parent company of petitioners namely SIONOTRANS Group Xingxiang Company Limited is a Company registered in China whereas, Messrs Silk Route Dry Port Trust is a locally registered Institution represented by the Chairman and Board of Directors. 2. That as per Articles of Association as well as Agreement made previously between SIONOTRANS Group Xingxiang Company and Silk Route Dry Port Trust incorporated a joint venture Private Limited Company in the name and style of Messrs Pak China Sost Dry Port Trust Company (Pvt.) Limited wherein 3 Directors and Chairman were to be nominated by SIONOTRANS Group Xingxiang Company and a Vice-Chairman and two Directors were to be nominated by Silk Route Dry Port Trust and its each and every meeting was to be convened by the Chairman and in case of his absence the Vice-Chairman having a quorum of at least three Directors, two from petitioners and one from respondents' side. 3. On the direction of the learned Chief Court G.B. given in judgment dated 07-05-2014 as a result of an application filed under section 290 of Companies Ordinance 1984 by the respondent No.2 vide case No. C. Misc. 228/2013, which was not challenged in appeal or otherwise the petitioners, chairman BOD or Managing Director being heads of management of the JV Company. The respondent No.1/Registrar Stock Companies G.B. convened 8th meeting of the BOD and in the said BOD meeting except petitioner No.1, other two directors from Chinese side did not participate therein, some decisions in respect of JV Company affairs were taken to be approved by the next meeting to be held within 21 days which in fact not held till date. The petitioners being the Directors and responsible for running and managing all administrative affairs of the Company, instead arranging BOD meetings and running affairs of the company as per law and directions of Chief Court, filed an application before the Chief Court GB under section 290 of Companies Ordinance 1984 which was dismissed hence the petitioners filed C.P.L.A. No.81/14 which has been granted and the same has been converted into appeal vide our order dated 02-11-2015. 4. The learned counsel for petitioners argued and sought declaring the BOD meeting and its decision illegal and void on the sole point that the respondent No.1 had no jurisdiction and authority under section 170, Companies Ordinance 1984 to issue directives and pass orders in this regard after promulgation of Companies Amended Ordinance, 2002 under which Registrar Joint Stock Companies has No powers except to Register a Company recommended by Security and Exchange, Commission of Pakistan (SECP). He further argued that even during the meeting of Board of Directors, the petitioner no. 1 present therein challenged and opposed the powers and authority of the respondent No.1 to convene the said meeting of BOD by the Registrar Joint Stock of Companies in absence of prior approval/authority from the Chairman of SECP under the referred law. 5. The Learned counsel for respondent forcefully defended the impugned judgment and order and argued that the petitioners being the directors and top management concerns were under obligation to convene BOD meetings regularly and run the affairs of the company smoothly as per legal requirement of the concerned provisions of Companies Ordinance 1984 and articles of association which the petitioners utterly failed to comply with. Thus as a result of Case No. 228/2013 filed by the Respondent No. 2 under section 290 of Companies Ordinance, 1984, the honourable Chief Court GB passed an order on 07/05/2014 to convene the meeting in this regard. The convening of 8th BOD meeting by respondent No.1 as Registrar Joint Stock Companies was an act of implementation of the directions of Chief Court GB referred above. He further contended that as per Articles of Association, resolution of the BOD passed in its 7th meeting in 2011 as well as agreements between parties made previously to be more specifically the Contract of Cooperative Business Cooperation of Pak China Sust Port Joint Stock Company (Pvt.) Ltd. dated 21/02/2002 both parties of China and Pakistan side are under legal obligation to act upon the provisions of Articles of Association in respect of rights, powers, positions and assigned role to be played in the joint venture company. As per Articles of Association, the elections and selection of chairman, vice chairman and directors of the BOD of the respective parties of JV Company is the internal affair of the respective party as such none of the parties have a right to object or oppose to the nominations of directors, chairman or vice chairman nominated by either side. He further argued that despite various requests the refusal of holding of meeting of BOD and non-acceptance of elected and nominated directors and vice chairman of the respondents Nos.1 to 4 by the petitioners is in violation of articles of association, agreements between the parties and the section 180 of Companies Ordinance, 1984. 6. The Petitioners have challenged the holding of 8th BOD meeting Dated 16th June, 2014 convened by the Registrar Joint Stock Companies GB and sought relief vide Petition under section 290 of Companies Ordinance 1984 and prayed as under: "it is therefore, humbly prayed that by accepting this petition, disputed meeting of BOD and decisions taken in the said meeting may very graciously be declared as unlawful and ab initio void in the interest of justice." 7. The record reveals that the respondents Nos. 2 to 4 became directors and the respondent No. 2 as chairman of Silk Route Dry Port Trust Sost as a result of an election process held in 2013 thus became legally entitled to represent the Silk Route Dry Port Trust in the JV Company as ex officio directors and the vice chairman as per Articles 17 and 18 of Articles of Association of the JV company. As a result of elections of the Silk Route Dry Port Trust, the ex chairman of Dry Port Trust Mr. Ali Afsar handed over the charge of the Silk Route Dry Port Trust to the respondent No. 2 on 25/08/2013 but avoided to leave post of Vice Chairman of the Dry Port Trust JV Company. As per above referred Articles of Association of JV Company, there is a term of three years tenure for a director, the Chairman and Vice-Chairman accordingly. Despite lapse of five years as directors, Mr. Al Afsar and two other Directors did not bother to leave the vice Chairmanship and directorship of the JV Company and kept on representing the Silk Route Dry Port Trust therein illegally despite the fact that they had already handed over the management and affairs of Pakistan side Silk Route Dry Port Trust to the present Respondents 2-4. As a result, the present Respondent No. 2 moved an application under section 290 of Companies Ordinance, 1984 before Chief Court GB against the management and BOD members and sought restraining of illegal functioning of said Vice-Chairman and directors representing Silk Route Dry Port Trust in the JV company whose term was lapsed but they were holding the post illegally and allowing the respondent No. 2 to function as vice chairman of Sost Dry Port Trust JV Company, which was allowed by the Chief Court Gilgit in its judgment dated 07/05/2014 of the case No. C. Misc. 228/2013 wherein the learned Chief Court directed the Respondent No.2 Registrar Joint Stock Companies Gilgit-Baltistan as under: "In the light of above discussions the Registrar Joint Stock Companies Gilgit Baltistan is directed to convene the Board meeting of Joint Company within one month of this order." It is to be noted here that the Chairman BOD and Managing Director fully represented in the above case on behalf of JV Company and contested in the title case No. C. Misc. 228/2013 but did not file any appeal, revision or writ petition against the said order of Chief Court giving the verdict a finality in the eyes of Law. 8. That the respondent No. 1 acted upon the directions given by the Honorable Chief Court GB and convened the meeting of BOD of the JV Company on 16th June, 2014 and made some decisions therein to be approved by the next BOD Meeting to be held within next 21 days. The petitioners/Management of JV Company instead of holding 9th BOD meeting within 21 days accordingly, challenged the holding of 8th BOD meeting though the C. Misc. 170/2014 before the learned Chief Court which has been straightaway dismissed and remarked as under in the impugned order: "The undue interference by the Party A besides relaxed attitude of the Registrar Joint Stock Companies GB in the presence of clear cut orders of the Court is the reflection that the Company can only be run on the wishes and whims of the problem creators instead of clearly provided Articles of Association. The Petition No. 170/2014 is nothing except to delay the transition of the affairs of the company and to defeat the ends of justice which is dismissed accordingly. The Registrar Joint Stock Companies is strictly directed to ensure that each and every person connected with the company should take over their own function within thirty days of this order." 9. That the case file reveals that the BOD Meeting in dispute was not convened by the Respondent No. 1 in exercise of powers given under section 170 of Companies Ordinance 1984 at his own sweet will or under influence of the any other respondent as alleged in para No. 4 of the memo of petition for leave to appeal rather the meeting was convened on the directions of the learned Chief Court GB given in the judgment dated 07/05/2014 referred above against which the representative head of JV Company the Chairman BOD and Managing Director being party to same case fully participated and contested the case but interestingly did not challenge it by filing any kind of appeal or revision against the same thus the contention raised by the learned counsel for petitioners based on a presumption is not tenable. 10. That the main contention of Learned Counsel for petitioners is based on the sole point that after promulgation of Companies Ordinance Amendment Act, 2002, all the powers enjoyed by the Registrar have been assigned to Commission thus the acts done by Registrar in this regard are without authority. As discussed before, firstly the convening of meeting of BOD by Registrar was not a sweet will or an act under the influence of other respondents rather the same was implementation of Court order and secondly due to non establishment of Securities and Exchange Commission in Gilgit-Baltistan yet, the Registrar Joint Stock Companies Gilgit-Baltistan exercises all powers including registration of Companies and other Corporate issue in GB. 11. That it is interesting here to note that all the corporate matters including the registration of companies have been undertaken in GB under the provisions of Companies Ordinance 1984 since long in absence of enforcement of the same in GB. Factually the Companies Ordinance 1984 was enforced and adapted by the Ministry of KANA Islamabad vide Notification No. F.2(1)/2005-NA-1 Dated 17th February, 2007 in the name of Northern Areas Companies Ordinance (Adaptation and Enforcement) Order, 2007 as under: No. F. 2(1)/2005-NA-I Government of Pakistan Kashmir Affairs and Northern Areas, Division Islamabad the 17th Feb. 2007 AN ORDER To adapt, apply and enforce the Companies Ordinance, 1984 to the Northern Areas. WHEREAS, it is expedient to adapt, apply and enforce the Companies Ordinance 1984 (XLVII of 1984) in the Northern Areas and for matters connected therewith and ancillary thereto. NOW THEREFORE, in exercise of the powers conferred by section 17-B of the Northern Areas Council Legal Framework Order 1994 read with entry 3 of S. No. 19 of Schedule-II to the Rules of Business 1973 the Government of Pakistan is pleased to make the following order:- 1. Short Title and Commencement: (1) This Order may be called the Northern Areas Companies Ordinance (Adaptation and Enforcement) Order, 2007. 2. It extends to the whole of Northern Areas. 3. It shall come into force at once. 3. Enforcement of the Companies Ordinance 1984:- The Companies Ordinance, 1984 (XLVII of 1984) shall as in force immediately before the commencement of this order, and all rules, notifications and orders made or issued there-under mutatis mutandis and as far as practicable apply to the Northern Areas. No.F.2 (1)/2005 NA-I) Sd/xxxxxxxxxxxx (Muhammd Akhtar Khan) 12. The above notification makes it clear that the Companies Ordinance 1984 has been enforced and applicable in Gilgit-Baltistan since 17th February, 2007 vide above notification and prior to it factually the Companies Act, 1913 was enforced in GB as the same was made applicable to Northern Areas vide Notification No.Reg-H.C.NTF 15/71, dated 27-7-1971. It would be not appropriate at the moment to touch or discuss the legitimacy of all actions including the registration of hundreds of companies made under Companies Ordinance 1984 by the Joint Stock Companies Northern Areas prior to its adaptation and enforcement in GB, we restrict ourselves to the instant case and discuss the corporate history of GB for an academic discussion. 13. Instead of establishing an independent Institution of Joint Stock Companies in GB after promulgation of Companies Act, 1913, the Ministry of KANA Islamabad assigned this task to Planning and Development Department Gilgit by appointing the then Additional Commissioner now the Secretary Planning as Registrar and the Assistant Chief as Assistant Registrar vide notification No.D-7(5)/83 dated 21/02/1983 which states as under: GOVERNMENT OF PAKISTAN KASHMIR AFFAIRS AND NORTHERN (AREAS) DIVISION 'R' BLOCK IST FLOOR Islamabad , the 21st February 1983 No.D-7 (5)/83 ORDER In exercise of the powers conferred by subsection (2) of section 248 of the Companies Act, 1913 (VII of 1913), the Government of Pakistan is pleased to appoint the Additional Commissioner (Development) Northern Areas, and the Assistant Chief in the office of the Additional Commissioner and Assistant Registrar to be the Registrar and Assistant Registrar respectively of Joint Stock Companies for the Northern Areas. Sd/xxxxxxxx (Akbar Hayat Khan) Deputy Secretary to the Government of Pakistan Naturally, the Respondent No. 1, in addition to his departmental work as Secretary P&D, have to perform their dual work as Registrar Joint Stock Companies as well, thus cannot give proper time and attention to regulate and monitor the corporate sector issues properly as a result such kind of situation erupt that even foreign companies are functioning in Gilgit-Baltistan openly without going through the legal formalities and even they avoid to follow and abide by laws of the land. Such kind of corporate regulatory system exists nowhere in the world as a result "Big Board" like scandals happened in this region resulting looting of hundreds of poor families. The learned Chief Judge Chief Court GB has rightly observed in impugned judgment about the results of non-establishment of an independent institution of Joint Stock Companies and its impacts however instead of suggesting the GB Government to take up the matter with G.B. Council to establish Security Exchange Commission in GB as a result of promulgation of Northern Areas Security and Exchange Commission Act (Adaptation and Enforcement) Order, 2007 vide notification issued by No.F.2(1)/2005-NA-1, dated 17th February, 2007, has directed the authorities to establish a Joint Stock Companies perhaps due to having no knowledge of promulgation of the above law in GB. The above referred notification reads as under: No.F.2 (1)/2005-NA-1 Government of Pakistan Kashmir Affairs and Northern Areas Division Islamabad the 17th February 2007 AN ORDER To adapt, apply and enforce the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997) in the Northern Areas. WHEREAS, it is expedient to adapt, apply and enforce the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997) in the Northern Areas and for matters connected therewith and ancillary thereto. NOW THEREFORE, in exercise of the powers conferred by section 17B of the Northern Areas Council Legal Frame Work Order, 1994 read with entry 3 of serial No.19 of Schedule-II to the Rules of Business 1973 the Government of Pakistan is pleased to make the following order:- 1. Short title, extent and commencement:- (1) This order may be called the Northern Areas Security and Exchange Commission Act (Adaptation and Enforcement) Order, 2007. 2. It extends to the whole of Northern Areas. 3. It shall come into force at once. 2. Enforcement of the Securities and Exchange Commission Act, 1997. The Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997) shall, as in force immediately before the commencement of this Order, and all rules notification and orders made or issued there under, mutatis mutandis and as far as practicable, apply to the Northern Areas. No.F.2(1)/2005.NA-I) Sd/xxxxxx (Muhammad Akhtar Khan) Deputy Secretary ( NAs) 14. Coming to the point of learned counsel for Petitioners that vide Companies Ordinance Amendment Act, 2002, the Registrar of Joint Stock Companies GB seizes authority to exercise his powers given under section 170 of the Companies Ordinance, 1984 as the same have been vested with the Security Exchange Commission. It is pertinent here to mention that in 2002, the Companies Laws Ordinance, 1984 was not applicable in Gilgit-Baltistan rather the Companies Act, 1913 was in operation. However it is true that after promulgation of Northern Areas Companies Ordinance (Adaptation and Enforcement) Order, 2007 dated 17/02/2007 and Northern Areas Securities Exchange Commission Act (Adaptation and Enforcement) Order, 2007 dated 17/02/2007, theoretically all the powers covered under section 170 should be exercised by the "commission" provided the same is in existence. Although the law of NAs Security Exchange Commission was applicable in GB since 2007, but neither the Gilgit-Baltistan Council nor Government of Gilgit-Baltistan bothered to establish the Commission till date. As a result, the Registrar of Companies is still exercising the powers including the registration of companies and their ancillary matters as per past practice which is understandable. Thus if the contention of the learned counsel for petitioners is strictly followed then the legitimacy of the hundreds of companies as well as petitioners own JV Company Pak China Sost Port Company (Pvt.) Limited itself suffers as the same has been registered in 2004 by the Registrar Joint Stock Companies GB. No doubt there is a vacuum in respect of the existence of commission in GB thus in absence of such institution the acts done by the Registrar of Joint Stock Companies cannot be thrown away and declared as illegal and unlawful in toto. Until and unless an independent institution of Security Exchange Commission is established in GB, the Registrar of Joint Stock Companies GB is justified to follow the past practice. 15. The representative of Joint Stock Company Mr. Sajjad Haider Assistant Registrar stated at bar that keeping in view of present situation, a summary has been moved to Chief Minister GB to ask the Security Exchange Commission of Pakistan to take over the affairs in GB as well. We hold that such an attempt would be illegal and unlawful as the Security Exchange Commission of Pakistan being a federally legislated institution functions under Security Exchange Commission of Pakistan Act, 1997 having jurisdiction to function and operate in the territorial limits of Pakistan defined in Article 1(2) of Constitution of Pakistan and not beyond those limits such as Gilgit-Baltistan and Azad Jammu and Kashmir. It is an admitted fact that the Gilgit-Baltistan is not constitutional part of Pakistan and does not fall under the territories defined in the Constitution of Pakistan as mentioned above and the people herein have no representation in the parliament of Pakistan as well as other constitutional institutions as such any law legislated by the Federal Parliament does not become applicable to Gilgit-Baltistan until and unless the same is adapted or enforced in Gilgit-Baltistan by Ministry of K & GB Islamabad as Government of Pakistan with certain amendments and modifications through executive orders. Thus the extension of jurisdiction of Security Exchange Commission…

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