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Petitioner: Inam Ullah Khan. VS Respondent: AKSA Solutions Development Services Pvt. Ltd. Etc.
Court Name: Islamabad High Court Judge(s): Athar Minallah Title: Inam Ullah Khan. vs AKSA Solutions Development Services Pvt. Ltd. Etc. Case No.: C.O. No. 01 of 2014. Date of Judgment:2015-11-30 Reported As: 2019 CLD 355, 2015 IHC 41 Result: N/A
Judgment ATHAR MINALLAH, J:- The petitioner has invoked the jurisdiction of this Court under sections 290, 291 and 292 of the Companies Ordinance 1984 (hereinafter referred to as the "Ordinance") alleging that the conduct of the respondents no. 2, 3 and 4 is oppressive. 2. The relevant facts for consideration and deciding the instant petition are as follows:- (i) The respondent No.1 i.e. M/S AKSA Solutions Development Services Pvt. Ltd (hereinafter referred to as the 'Xbn ryl was incorporated under the Ordinance on 27-02-2000. The substantial objectives of the company as per the Memorandum of Association are, inter alia, to develop and provide on a commercial basis information technology (IT) and control instruments for the unmet needs of clients, both in the local and international markets. As on 24-10-2013, the authorized capital of the company was Rs.13 million. The petitioner was 50% share holder with total shares of 62292 out of 124.664 shares. The respondents No.2, 3 & 4 are Ch. Fazal Ahmed, his son and his brother respectively (hereinafter referred to as the "Respondent Group"). Collectively the 'Respondent Group' owns the remaining 50% of share holding. Can 24-10-2013, Ch. Fazal Ahmed i.e. The respondent No.2 owned 37,376 shares, respondent No.3 i.e Waseem Fazal owned 12,458 shares while respondent No.4, Ch. Noor Ahmad also owned 12,458 shares of the company. 27-09-2012; Notice through email informing that the Annual General Meeting shall be held on 22- 10-2012 and the business to be transacted was mentioned therein (i) to confirm the minutes of the Annual General Meeting held on 19-09-2012 (ii) to receive, adopt and consider the Audited Accounts (iii) to appoint auditors (iv) to transact any other business. 27-09-2013; The petitioner vide his email requested that the date be adjusted and informed that he
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would be available in the 2nd week of November, as he was out of the country. 30-09-2013; Through email dated 30-09-2013, the petitioner was informed that the meeting had been postponed and would be held on 31-10-2013. 02-10-2013; The Company Secretary communicated the notice for the "Extra Ordinary General Meeting" (hereinafter referred to as '~OM') to be held on 24-10-2013 at 11:00 a.m. To transit the business as mentioned therein, which included considering and approving the increase and authorized capital by passing a special resolution of the company from Rs.13 million to Rs.30 million. 03-10-2013; The petitioner, vide his email, again requested that the meeting be postponed and held in the month of November. 04-10-2013; The petitioner through email clearly expressed ' I want to attend I will not allow at this time to increase the capital as we partners are not in line to do so Inshallah I will be there soon then we can decide ....' 04-10-2013; The Company Secretary, in reply to the petitioner's email, informed that he had been advised not to postpone and the EOGM 'is going to be held under the law for the increase in authorised capital and no other business is being dealt except for the increase in authorised capital'. According to the petitioner, the notice of the EOGM was in violation of clause 55 of the Articles of Association as no Board meeting was convened on 02-10-2013, and the notice for the meeting was in violation of the Articles and law. It is also the case of the petitioner that no statement setting out the material facts concerning the business in the proposed meeting was annexed with the notice, nor were copies of the draft resolution, which was proposed for consideration in the meeting, annexed thereto. 24-10-2013; The meeting was held and a resolution to amend the Memorandum and Articles of Association of the company to increase the authorized share / capital from Rs.13 million to Rs.30 million was passed. 25-10-2013; A Circular under Section 86(3) of the Ordinance was received by the petitioner through email. The Circular, in its statutory format, was issued on 25-10-2013, and the last date for acceptance of the shares offered to the petitioner was mentioned as 04-11-2013. The mode of acceptance was not mentioned. 30-10-2013; The respondents filed a notice of the special resolution with the Securities and Exchange Commission of Pakistan (hereinafter referred to as the "Commission"), pursuant to Section 172 of the Ordinance, together with a notice of increase in nominal share. 31-10-2013; The petitioner, vide email, expressed reservations regarding the EOGM held on 24-10- 2013. However, he accepted the offer and confirmed to subscribe to any additional share issued by the company, so as to maintain his share holding. He also requested that another Extra Ordinary General Meeting be called after giving him 10 days notice, so that he could attend the meeting. 31-10-2013; The petitioner served legal notice. 05-12-2013; Board meeting was held, attended by the respondents No.2, 3 & 4. The petitioner's email dated 31-10-2013 was considered but rejected on the sole ground that he had failed to deposit any amount against additional shares. The reasons / justifications for increase of the share capital of the company were also recorded under agenda item No.3 of the minutes of the Board's meeting held on 05-11-2013. In the meeting dated 05-11-2013, the Board resolved to distribute the shares offered to the petitioner amongst the respondents No.1 & 2. Pursuant to the above decision, the share holding of the petitioner was reduced and diluted, thus he became a minority, while the majority share holding was vested in the 'Respondent Group'. The share holding of the respondent No.2 increased from 37,376 shares to 67,352 shares, increase in
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shares of the respondent No.3 was 62,484 from 12,458 shares, while respondent No.4 who had 12,458 shares went to 32,456 shares, while one Muhammad Alaram Sindhu continued to hold nominal shares of 100. The petitioner has, therefore, invoked the jurisdiction of this Court, alleging 'oppression' and has sought various reliefs under sections 290, 291 and 292 of the Ordinance. The learned counsel for the petitioner has contended that; the conduct of the respondents lacks probity and fair play; the share holding of the petitioner has been reduced and diluted as a result of acts and omissions, which amount to 'oppression'; the notice of the EOGM was in violation of Section 160(1)(b) read with Section 164 of the Ordinance, as no resolution was attached nor any explanation for increasing the authorised share capital was provided as required under the said provisions; the haste with which the respondents No.2 to 4 acted in increasing the share capital and then allotting the same to themselves was deliberate, so as to deprive the petitioner of his legal and proprietary rights; the respondents wrongfully went ahead and held the EOGM despite the requests made by the petitioner to postpone the meeting by three weeks; the Circular under section 86(3) for issuing of right shares was in violation of the Ordinance, as neither any Board meeting was held nor was the resolution approved through the circular; material information, particularly the mode of payment, was not mentioned; the respondents No.2, 3 & 4 breached their fiduciary duty by failing to disclose the interest of the respondent No.3, as is evident from the minutes of the Board meeting held on 05-11-2013, recorded under agenda item No.3; the respondents No.2, 3 & 4, exercising powers as Directors of the company, were acting for their own interest, rather than protecting the interests of the petitioner as a share holder; the acts and omissions are in violation of sections 21, 26, 28, 30, 31, 86, 160 and 164 of the Ordinance; a special resolution amending a memorandum is not effective without a notice to the affectees and without approval of the Commission. Reliance has been placed on "Taj Woolen Mills Ltd versus Muhammad Younas [PLD 1982 Lahore 664]; a special resolution is necessary for alteration of Articles, reliance is placed on "Muhammad Rafiq Moti versus Pakistan" [PLD 1983 Karachi 589]; vested rights cannot be alienated lightly and respondents No.2 to 4 were in breach of their fiduciary relationship with the company. Reliance has been placed on "Naseer A. Sheikh versus The Commissioner of Income Tax (Investigation)" [PLD 1992 S.C. 276]. Reliance has also been placed on "Mathalone and others versus Bombay Life Assurance Co." [AIR 1953 S.C. 385] and "Nanalal Zaver versus The Bombay Life Assurance Co." [AIR 1949 Bombay 56]; the object behind section 290 is that the affairs of the company must be conducted in a lawful manner, strictly in accordance with the provisions of the Ordinance, Memorandum and Articles of Association. Reliance has been placed on "Neelofar Shah versus Ofspace Pvt. Ltd."[2013 CLD 114], "Ch. Muhammad Hussain versus Khaali Paper and Board Mills" [2005 CLC 636], "National Bank of Pakistan versus Baluchistan Wheels Ltd." [2004 CLD 1100], "Associated Biscuits International Ltd. Versus English Manufacturers Ltd." [2003 CLD 815]; no board meeting was duly convened on 05-11-2013, so as to consider the issuance of shares; the offer made by the company to the petitioner was accepted as is evident from the minutes of the Board's meeting; the grounds for annulling the acceptance of the petitioner is not tenable in law. Reliance has been placed on the Contract Act, Shaukat Mahmood, 7th Edition, Chitty on Contracts, 24th Edition, Volume I: General Principles; during the pendency of the petition it came to the petitioner's knowledge that the respondents had perpetuated fraud through furnishing a personal guarantee on behalf of the petitioner without his knowledge and consent, for securing running finance facility for the respondent company; the signatures on the guarantee are forged and the same had been provided to the National Bank of Pakistan by the respondents; at the time when the personal guarantee in the name of the petitioner had been purportedly executed, the latter was out of the country. 5. The learned counsel for the respondents No.1 to 4 has argued that;
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the petition is not maintainable as there is no case of 'oppression' and mismanagement; the petitioner has come to this Court with unclean hands; the actions of the respondents No.2 to 4 are in legitimate exercise of their rights and in no manner prejudicial to the interests of the company; the petitioner, having foreclosed the statutory remedy available to him under section 160(A) of the Ordinance, could not have invoked the jurisdiction under section 290 read with section 291 of the Ordinance; no case of 'oppression' can be made out with alleged isolated breach of provisions of the Ordinance; the increase of authorized capital and subsequent right issue was in accordance with law and in the interest of the respondent No.1 / company; the intent of the petitioner is to obstruct the smooth running of the affairs of the company and to cause unnecessary interference; the petitioner is not a working Director of respondent No.1, which is against the spirit and object of section 290; the increase of the authorized capital of the company was to meet the financial needs and to execute the upcoming projects; the petitioner was fully on board, was given due notice at all times and, therefore, was well informed regarding the performance of respondent No.1; the petitioner declined the offer for additional shares by failing to deposit consideration in lieu of additional shares on or before the expiry date of the offer, and the said refusal led to the allotment and issuance of the declined and unsubscribed shares to respondents No.2 to 4 in accordance with law; the petitioner had made no contribution in promoting the business of the company, while the respondents No.2 to 4 have turned around the company from a 'dead investment' into a profitable venture; notice of the EOGM was given to the petitioner in accordance with the statutory requirements, for assuring the attendance of all Directors; the request of the petitioner to postpone the EOGM meeting to the 2nd week of November could not be acceded to because the meeting could not have been postponed beyond 31-10-2013, as that would have resulted in the lapse of time frame of four months required for conducting the AGM under the law and for making necessary filings with the respondent No.5; the email dated 03-10-2013 had clearly disclosed that the increase in capital was considered necessary to meet the urgent and immediate cash requirements / needs of the company; the notice was accompanied with the draft resolution, which contained material information under section 160(b); the required information prescribed under the law and the necessary documents were filed with the respondent No.5 on 24-10-2013; the Circular under section 86(3) of the Ordinance was sent to the petitioner through email and post; the material information was sent to the petitioner vide notice accompanying the draft resolution dated 02-10-2013; it was for the petitioner to have inquired about material information he required for the purpose of acceptance of the offer; the petitioner, while accepting to subscribe to any additional share so as to maintain his share holding, did not meet the pre-requisites of a valid acceptance by failing to deposit consideration for his proportionate share on or before the expiry period of the offer, stipulated under section 86(3) Circular; the plea of the petitioner regarding his forged signatures on his personal guarantees submitted to the Bank, apart from being baseless and false, is totally irrelevant and is of no consequence; the petitioner had full knowledge of finance facilities being availed by the respondent No.1; the assets of respondent No.1 were primary security, while secondary security was given by the respondent No.2 against his personal property; the petitioner was not at risk at all; the allegation of forged guarantee does not prejudice the petitioner in any manner in exercise of his legal and proprietary rights of a share holder; all legal formalities in the context of the EOGM had been fulfilled; the reply filed by the Commission also supports the respondents' case; non service of notice and resolution of circular for issuance of right share is of no relevance; passing of such a resolution is envisaged and is valid in terms of clause 92 of the Articles of Association; such a resolution could be passed by a majority of directors present, and clause 90 of the Articles expressly discharges the requirement of the notice to the directors living outside Pakistan. Reliance has been placed on "Shahbazud din versus Services Industries" [PLD 1988 Lahore 1]; no form is prescribed for the offer envisaged under section 86(1) of the
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Ordinance; the Circular under Section 86(3) contained all material information, including the amount of proposed issue; shares having been offered proportionately, the date by which offer was to be accepted i.e. 04 11-2013; the shares issued other than in cash have to comply with the Companies (Issue of Capital Rules 1996); in the absence of such procedure being applied the general rule is that mode of acceptance is cash; hence there was no ambiguity regarding the mode of acceptance; the cheque/draft had to be issued in the name of the Company and the petitioner cannot plead ignorance regarding such information; the petitioner sought no clarification in relation to the issue of right shares in his email dated 31-10-2013; the acceptance conveyed by the petitioner was conditional and not absolute; for holding of the EOGM on 24-10- 2013, notice via email and via post were sent on 02-10-2013; the petitioner's main aim is to obstruct the smooth running of the affairs of the company and extort valuable pecuniary settlement from the respondents; the contribution of the respondents is far more than that of the petitioner; relief under section 290 of the Ordinance is equitable, while the conduct of the petitioner is dubious and, therefore, not entitled to any relief; there is no lack of probity on the part of the respondents, and the mere fact that the directors derive benefit by reason of the exercise of their fiduciary power to issue shares does not vitiate the exercise of that power; reliance has been placed on "Needle Industries India Ltd. Versus Needle Industries Newey (India) 1981 AIR 1298; the petitioner is a disinterested director, and the respondents had acted out of legal compulsion precipitated by the obstructive attitude of the petitioner; the case law cited on behalf of the petitioner is distinguishable in the facts and circumstances of the present petition; "M/S Shaheen Foundation versus Capital F.M. Ltd." [2002 CLD 188], "Nanamuddin Zia versus Asma Qamar" [2013 CLD 1263], "Registrar of Companies versus Pakistan Industrial and Commercial Leasing Ltd." [2005 CLD 463. The learned counsels have been heard and the record perused with their able assistance. Section 290 of the Ordinance is a special provision providing remedy to various categories of persons mentioned therein, inter alia, to a member who holds not less than twenty percent of the issued share capital of a company and complains that the affairs of the company are being conducted or are likely to be conducted in an unlawful or fraudulent manner, or in a manner not provided for in its memorandum or " in a manner oppressive to the member or any of the members or the creditor or any of the creditors" or are being conducted in a manner prejudicial to the public interest. The section, read with sections 291 and 292, vests wide powers in the Court for bringing to an end the matters complained of. Subsection 1 of section 290 provides that the Court may make such orders as it may think fit for achieving the objects as mentioned therein. The crucial expression is; affairs of the company being conducted in an oppressive manner to the member or any of the members or the creditors or any of the creditors. This phrase is distinct from other expressions used in the section, such as affairs conducted in an unlawful and fraudulent manner or in a manner not provided for in the memorandum. What amounts to affairs of a company being conducted in a manner oppressive to a member, or in other words what is the meaning and scope of the word 'oppression'? The expression 'oppression', or conducting affairs of a company in an 'oppressive' manner in the context of the Ordinance is not defined ibid. The earliest interpretation is found in the words of Lord Cooper in the case of Elder versus Elder & Whatson Ltd. (1952) SC 49, as "the conduct complained of should at lowest involve a visible departure from the standards of fair dealing and a violation of the conditions of fair play on which every share holder who entrusts his money to the company is entitled to rely". In Scottish Cooperative Whole Sale Society Ltd versus Meyer (1958) 3 All ER 66, Lord Keith interpreted the expression as "lack of probity and fair dealing in the affairs of a company to the prejudice of some portion of its members or to public interest". In same case Viscount Simonds, taking the dictionary meaning of 'oppression', said that it meant exercise of authority in a manner that is 'burdensome, harsh and wrongful'.
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The Sindh High Court in Mst. Neelofar Shah and another versus M/S Ofspace Pvt. Ltd. And others [2013 CLD 114] has succinctly elucidated the scope of 'oppression' in the context of section 290 of the Ordinance. It has quoted a passage from the decision of the Court of Appeal in Re: Jermyn Street Turkish Baths Ltd. (1971) 3 All ER 184, 199 and the same is as follows: ".... Oppression occurs when shareholders, having a dominant power in a company, either; (1) exercise that power to procure that something is done or not done in the conduct of the company's affairs; or (2) procure by an express or implicit threat of an exercise of that power that something is not done in the conduct of the company's affairs and when such conduct is unfair or, to use the expression adopted by Viscount Simonds in Scottish Co- operative Wholesale Society Ltd. Versus Meyer (1958) 3 All ER 66 at p 71: 'burdensome, harsh and wrongful' to the other members of the company or some of the, and lacks that degree of probity which they are entitled to expect in the conduct of the company's affairs: see Scottish Cooperative Wholesale Society Ltd. Versus Meyer and Re HR Hammer Ltd. (1958) 3 Al ER 689. We do not say that this is necessarily a comprehensive definition of the meaning of the words 'oppressive'in section 210 for the affairs of life are so diverse that it is dangerous to attempt a universal definition. We think, however, that it may serve as a sufficient definition for our present purpose. Oppression must, we think, import that the oppressed are being constrained to submit to something which is unfair to them as the result of some overbearing act or attitude on the part of the oppressor. If a director of a company were to draw a remuneration to which he was not legally entitled to or in excess of the remuneration to which he was legally entitled, this might no doubt found a misfeasance proceedings or proceedings for some other kind of relief, but it would not, in our judgment, of itself amount to oppression. Nor would the fact that the director was a majority shareholder in the company make any difference, unless he had used his majority voting powers or retain the remuneration or to stifle proceedings by the company or other shareholders in relation to it." Likewise in the same judgment of Sindh High Court a passage from the judgment in "Shahamatullah Qureshi versus Hi-tech Construction Pvt. Ltd." [2004 CLD 640] has also been reproduced and the same is as follows: "The term 'oppression'has not been defined. It is left to the Court to decide on the facts of each case whether there exists oppression that may be called as ground of winding up. Whether the conduct and affairs of the company by shareholders is oppressive or not depend upon facts of particular case. To make out a case for winding up order, it must be established that there is some lack of probity or fair dealing towards the one or more members. Acts of misappropriation and mismanagement cannot be the grounds to support an application for winding up. The denial of right of inspection or other rights of shareholders or failure to comply with formalities required in the matter of giving notice of general meeting or refusal to declare more profit or the dividend even if profit earned justified a higher rate may not be taken by themselves as amounting to oppression. Mere ilegal or irregular acts unless they are oppressive or prejudicial to the interest of the company or to the public interest will not support petition for winding up." The Sindh High Court in Mrs. Neelofar Shah supra, therefore, concluded as follows: "In my view, it cannot be said that a single act of misfeasance or other ilegality can never amount to oppression. As is clear from the case law (including the two cases cited above), much depends on the facts and circumstances of the particular case. Oppression is not a concept that has been or perhaps even should be exhaustively defined, and this is certainly the view of the Court of Appeal. Depending on its nature, gravity and consequences, (both actual and / or potential) even a single act may amount to oppression". 12. This Court is in complete concurrence with the above view taken by the Sindh High Court in the case of Mrs Neelofar Shah supra. It would also be relevant to refer to some other judgments cited at the bar;
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In the case Ch. Muhammad Hussain versus Khaali Paper and Board Mills (2005 CLD 636), it was held; "For a relief under section 290 of the Companies Ordinance, 1984, it has to be shown that the conduct of the management lacked in probity and it was prejudicial to the interest of the petitioner in the exercise of the legal and proprietary rights as share holders." In the case National Bank of Pakistan versus Balochistan Wheels Ltd. (2004 CLD 1100), it was held: "It is, worth mentioning that the object and scope of section 290 of the Companies Ordinance, 1984 is that the affairs of the company must be conducted in a lawful manner and strictly in accordance with the memorandum and articles of association of the company and it cannot be invoked by any shareholder or creditor of the company." (ii) In the case Associated Biscuits International Ltd. Versus English Manufacturer Ltd. (2003 CLD 815) it was held: "In order to invoke the jurisdiction of the company Judge under section 290 it must be made out that the company's affairs are being conducted in a manner…
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