Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: FARRUKH K. CAPTAIN VS Respondent: EXXON CHEMICAL PAKISTAN LTD. and 8 others
Court Name: Sindh High Court Judge(s): Haziqul Khairi Title: FARRUKH K. CAPTAIN vs EXXON CHEMICAL PAKISTAN LTD. and 8 others Case No.: Suit No,457 of 1991 Date of Judgment:1991-04-28 Reported As: PLD 1991 Karachi 441 Result: Application dismissed
JUDGMENT
JUDGMENT ' In this suit for declaration and permanent Injunction, the plaintiff Mr. Farrukh Captain has filed an application under Order 39, rules 1 and 2, C.P.C. Praying that pending final disposal of the suit, the defendant No,1 or any person acting for or on its behalf be restrained from acting in pursuance or furtherance of resolution dated 10-4-1991 as notified in daily "DAWN" of 12-4-1991 from holding election of directors on 30-4-1991 and to restrain defendants Nos.1 and 3 to 9 from refusing to allow him to attend meeting of Board of Directors of the defendant No, 1 or to exercise his rights and powers as Director of defendant No,1. 2. Briefly stated, the plaintiff's case is that he is a shareholder of Messrs Exxon Chemical Pakistan Limited, defendant No,1, which is a public limited company. Defendant No,2 is Messrs Exxon Corporation Inc., incorporated as corporation in accordance with the laws of U.S.A. Defendants Nos. 3 to 9 are Directors of defendant No,1. The plaintiff claims to have 11,376 shares of defendant No,1 company; whereas defendant No,2 owns and controls 75% of the issued and paid-up capital of defendant No,1. In February, 1991 while the plaintiff was abroad, he came to know that the defendant No,2 was disinvesting its entire shares in defendant No, 1 by transfer to its employees. He happened to meet there, one Mr. Morley Handford, an executive of defendant No,2 and expressed his desire to purchase Rs,10 million worth of shares on the same terms and conditions as was being offered by defendant No,2 to the employees of defendant No,1. The said Mr. Handford welcomed this proposal which was subsequently confirmed by the plaintiff in his letter of March 14, 1991. The local management of defendant No,1 comprising, inter alia, defendants Nos.3 to 9 were against the sale of shares to the plaintiff and reported to defendant No,2 that it would not be in its interest to sell its shares to the plaintiff or to other minority shareholders of defendant No,1. In the meanwhile,
---
## Page 2
nominations were called by defendant No,1 for election of its eight Directors at the Annual General Meeting to be held on 10-4-1991. The plaintiff had submitted his nomination and of Mr. Irfan Younus alongwith consent to act as Directors of defendant No,1. On 30-3-1991 the plaintiff wrote letters to defendant No,1 in Canada and U.S.A. That in view of their proposed disinvestment 6 out of 8 members of the new Board. On 2-4-1991 Mr. S. Osman Ali a retiring Director and one of the candidates at the election of directors died. On 7-4-1991, another candidate Mr. Irfan Younus withdrew his candidacy vide letter dated 7-4-1991. After the exclusion of the said two persons, only 8 candidates were left in the field for election of 8 seats and thus all of them including the plaintiff got elected on 7-4-1991 and in any case on 10-4-1991, when election of directors was to take place. ' It is alleged that on April 4, 1991 the plaintiff was informed that a move was in the offing for transfer of the said shares before the elections, so as to keep the plaintiff out of the Board of Directors of defendant No,1. The plaintiff as well as other minority shareholders accordingly served a notice dated 4-4-1991 on defendant No,1, whereafter defendant No,1 held conciliatory meetings with the plaintiff and it was agreed that the matter would be left in the hands of defendant No,2. Despite this understanding, without any prior discussion, a resolution was passed on 10-4-1991 at the said meeting to adjourn election of directors to 30-4-1991 and it was also resolved that further nominations be called for election of directors upto 14 days before the said adjourned meeting. This resolution was opposed by the plaintiff and her family members. 4 . In the daily "DAWN" of April 12, 1991 a notice appeared inviting further nominations for election of directors' of defendant No,1 to be filed by April 16, 1991 for the purported adjourned meeting to be held on 30-4-1991. It is contended vigorously by Mr. Abdul Hafeez Pirzada, learned counsel for the plaintiff that on 7-4-1991 when one Irfan Younus withdrew his candidacy for election, the remaining eight candidates got elected unopposed and there was no point to call for fresh/further nominations. He has also contended that the adjourned general meeting for election of Directors from 10-4-1991 to 30-4-1991 is illegal, contrary to the provisions of Companies Ordinance, 1984 as well as Articles of Association of defendant No,1 company. Similarly notice of adjourned meeting (Annexure 'K') appearing in the daily "DAWN" is no notice in the eyes of law. Reference was made to Articles 80 of the Articles of Association of defendant No,1 which states that if the number of candidates for election as directors is more than the number of the directors fixed under Article 79 there will be an election, but since total number of candidates in the field on April 10, 1991 was 8 and the number of directors fixed by the company under Article 79 was also 8, all the said persons being defendants Nos.3 to 9 and the plaintiff stood elected on 10-4-1991. Reference was also made to Article 83 of Articles of Association which allows adjournment of general meeting if the places of vacating directors are not filled up. It was urged that there is no provision either in the Ordinance or in Articles of Association for calling of further nominations in the case of death of any of the candidates. Even in the cases covered under Article 83, the meeting has to be adjourned for 7 days. This resolution, is tainted with mala fides and is an abuse of the process of internal management of defendant No,1. No notice whatsoever of the intention to move such a resolution was given to the minority shareholders. As the adjourned meeting can only be a continuation of meeting dated 10- 4-1991, in the interim period, no change in the status quo regarding the candidacy for election can be made and their move to invite fresh nominations was mala fide to subvert the process of law and to seek ouster of the plaintiff from the management of the defendant No,1. 5. The case of the defendants No,1 and 3 is that defendant No,2 has disinvested or closed down its fertiliser plants in several countries including Holland, Greece, Philippines and Malaysia and has only two remaining fertilizer plants one in Canada and the other in Pakistan. On the other hand, the defendant No,1 is in the process of undertaking an expansion of its fertilizer manufacturing and other related facilities which would double its existing capacity. If the transaction of disinvestment is not completed by April 30, 1991, the defendant No,1 will not be able to undertake the proposed
---
## Page 3
expansion project because of the deadline imposed by the equipment supplier and in the result the defendant will become liable for huge penalties, apart from the loss of an attrative growth opportunity. Neither the plaintiff nor any other shareholder of defendant No,1 has any right to demand that he or they be considered as possible purchasers of the shares which the defendant No,2 may wish to disinvest. Besides, defendant No,2 own more than 10% of the shares in defendant No,1 and any offer by it for sale of shares to its minority shareholders numbering about 3,800 would be construed as an offer for sale of shares to a section of the public and as such an offer of sale of shares to the public-at-large and not restricted to the existing shareholders. This would necessarily require the approval of the Corporate Law Authority to the issue of a prospectus and the entire process being techincal and complicated, would take at least six months beyond the time limit for completion of the disinvestment transaction, involving International and Pakistani currency loan upto April 30, 1991 and is extricably linked with the proposed expansion of the defendant No,1. Giving details of disinvestment, it is stated that 32.5% of the shares in the defendant No,1 will be purchased by the International Finance Corporation, an affiliate of the World Bank, The Common Wealth Development Corporation and Asin Development Bank. As consideration for such purchase, the said institution has agreed to provide substantial loan for the amount of US $ 51 million, to the defendant No,1 for the proposed expansion. Further, the National Development Finance Corporation, Pak-Kuwait Investment Company and Cres Bank have agreed to purchase between them about 14.5% of the shares of the defendant No,1 being disinvested by defendant No,2 in part consideration thereof. They have agreed to advance loans totalling about Rs,395 million available to defendant No,1 for purposes of implementing the expansion project. Further an opportunity to purchase the shares is also provided to the employees and annuitants of the defendant No,1 numbering about 550 through a Trust established by defendant No,1, who would finance them by way of loans through Banks to purchase shares of defendant No,2. The shares being offered to foreign Pakistani financial institutions, investors and employees of defendant No,1 are being sold by the defendant No,2 at the same price which is a preferential price compared to current market price of the shares. 6 . With regard to the plaintiff's claim that he was duly elected unopposed as director of defendant No,1, it is vehemently denied that the plaintiff is the holder of 11,376 shares in the defendant No,1. According to the shares Register the plaintiff is the joint holder of 11,276 shares in defendant No,1 and has only 100 shares in his name and as such he does not have requisite qualification under the Articles to contest at the election of Directors and his nomination was not valid. It is admitted by defendant No,1 that 10 nomination papers were received for the election of Directors which were to be filed latest by 7-4-1991. However, before this date, Mr. S. Osman Ali, one of its Directors, who had offered himself for re-election died on 2-4-1991. Subsequently, the plaintiff prevailed upon one Irfan Younus and induced him to withdraw his nomination which he withdrew by his letter dated 7-4- 1991. However, on April 10, 1991, the members present at the General Body Meeting on a show of hands by overwhelming majority on account of the death of Mr. S. Osman Ali adjourned the meeting to 30-4-1991 for election of Directors. The only shareholders who opposed the resolution for adjournment were the plaintiff and his sister. In the said General Meeting, it was also resolved that further nomination of candidates of election as director may be filed with the defendant No,1 upto 14 days before April 30, 1991. It is specifically stated that the defendant No,3 being the Chairman of defendant No,1 presided over the Annual General Meeting of the defendant No,1 held on April 10, 1991 and proposed resolution for adjournment for reason of demise of the said S. Osman AIL The shareholders present were asked if there were any question to the proposed adjournment, but no shareholder including the plaintiff raised any question or sought any explanation or made any protest at that time. Subsequently, on show of hands, the said resolution was passed, when the plaintiff and his sister voted against the said resolution. It is emphatically denied that the plaintiff
---
## Page 4
got elected unopposed by virtue of the Articles of Association or the Company Law or pursuant to any rule of common law or equity. According to them Article 43 of the Articles of Association dealing with adjournment expressly empowers defendant No,3 and the general body to adjourn the meeting from time to time. Defendant No,2 namely M/s. Exxon Company incorporated in U.S.A. Besides adopting objections raised by defendants 1 and 3 in strong terms have controverted the alleged claim of the plaintiff to purchase their shares in defendant No, 1 company. It is strenuously denied by them that the plaintiff represents 10% of public share-holding in defendant No,1 as according to his own showing vide Annexure T he could only muster support of 400 share-holders out of 4,000 representing the said 10%. As to his own shareholding, it was but a friction of the entire share-holding of the company. With regard to the adjournment of election, it is contended that it was entirely legal, just and fair on account of unforeseen and sudden death of Mr. Osman Ali, their nominee at the election. The invitation for further nominations for election of Directors was also entirely in accord with the Articles and the Companies Ordinance. ' With this background, Mr. Abdul Hafeez Pirzada, contended before me that he will not deal with the proposed scheme of transfer of shares by the defendant No,2 at this stage but for purposes of hearing of the injunction application, his case firstly would be, that the resolution passed at the general body meeting was ultra vires of the Articles of Association of the defendant No,1 and of the. Companies Ordinance, 1984 as on 7-4-1984 i,e, three days before the date of the general meeting, the eight candidates including the plaintiff for election of eight Directors, got automatically elected unopposed upon the withdrawal of nomination paper by Mr. Irfan Yousuf and in the circumstances the plaintiff was entitled to temporary injunction. Secondly, it was urged that the resolution of the general body for inviting further nominations and postponement of election of Directors to 30-4- 1991 by its very nature a special business necessitating a special resolution which calls for 21 days notice under section 2(36) of Companies Ordinance as follows:-- "Special Resolution" means a resolution which has been passed by a majority of not less than three-fourths of such members entitled to vote as are present in person or by proxy at a general meeting of which not less than 21 days notice specifying the intention to propose the resolution as a special resolution has been duly given, provided that, if all the members entitled to attend and vote at any such meeting so agree, a resolution may be proposed and passed as a special resolution at a meeting of which less than 21 days notice has been given." ' It was argued that the proviso to section 2(36) of the Companies Ordinance could have been invoked only when all the members entitled to vote had agreed to less than 21 days notice which admittedly was not the position. Again under Article 43 of the Articles of Association of the Company, the general body is not empowered to adjourn its meeting to more than 7 days. Further section 160 (1) of the Ordinance contemplates service of notice of a general meeting on every member of the Company in a manner provided under section 50 which was violated mala fide and instead a public notice relating to the adjourned meeting was given in the Daily "Dawn", Karachi. ' Next it was maintained by Mr. Abdul Hafiz Pirzada that the General Body passing a resolution for inviting fresh nominations for election of Directors acted arbitrarily and highhandedly as it tantamounts to removing the plaintiff and seven others who got elected unopposed as Directors on the withdrawal of Mr. Irfan Yousuf. In doing so, the General Body clearly violated the mandatory provisions of section 181 of the Companies Ordinance which provides the manner in which a Director may be removed by a General Body. Lastly, it was urged that it was a case of victimisation and oppression of minority share-holders by the majority shareholders and calls for indulgence by a Court of law. In support of his contention he placed reliance on Muhammad Arif Effendi v. Egypt Air 1980 SCM R 588. ' Mr. Sharifuddin Pirzada, learned counsel for the defendants No,1 and 3 on the other hand, maintained that the entire grievance of the plaintiff is, as to why, the defendant No,2 has been
---
## Page 5
taking steps for transferring its shares to the foreign and Pakistani financial institutions and employees of defendant No,1 and not to him. Although he holds himself out as a champion and defender of rights of minority shareholders, he is manifestly motivated by his selfish interest, detrimental to the interest of defendant No,1 Company, its share-holders and investors. According to him neither the business relating to election of Directors was a 'special business' as alleged nor the resolution of postponement of election and of inviting fresh nominations "a special resolution". The text of section 160(b) of the Ordinance expressly excludes the business relating to "the election of Directors" from the definition of "Special Business". To meet a situation such as this Article 43 of the Articles of Association of the Company provides as follows:-- "43. The Chairman may, with the consent of any meeting at which a quorum is present (and shall if so directed by the meeting), adjourn the meeting from time to time and place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a meeting is adjourned for twenty-one days or more, seven clear days' notice at the least of the adjourned meeting shall be given specifying the place and the time of the meeting as in the case of an original meeting, but it shall not be necessary to specify in such notice the nature of the business to be transacted at the adjourned meeting. Save as aforesaid it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting." ' In the instant case, it was argued by Mr. Sharifuddin Pirzada, there was adjournment for less than 21 days as such, it was not necessary to give any separate notice of the adjourned meeting or of the business to be transacted at such adjourned meeting. The Chairman of the meeting viz. Defendant No, 2, however, in keeping with the provisions of the said Article 43, adjourned the meeting which was opposed only by the plaintiff and his wife. ' Further it was maintained by Mr. Sharifuddin Pirzada that after the death of Mr. Osman Ali, the election process had to start de novo and the General Body as Supreme Body in exercise of its inherent and implied power, invited further nominations for election of Directors. Although, neither the Companies Ordinance, 1984, nor the Companies Act, 1913 nor the Company Law anywhere speak of a situation arising from the demise of a candidate for election of Directors, the power is vested with the General Body. Speaking generally, the election laws anticipate this situation and provide forthwith termination of election proceedings and the entire process of election starts de novo. In support of his contention, the learned counsel first referred to section 18 of the Representation of People Act, 1976 which deals with the election of National and Provincial Assemblies as follows: "18. Death of a candidate after nomination.--(1) If a contesting candidate dies before the day 'Mr taking of the poll, the Returning Officer shall, by public notice, terminate the proceedings relating to that electipn. (2) Where the proceedings relating to an election have been terminated under subsection (1), fresh proceedings shall be commenced in accordance with the provisions of this Act, as if for a new election: ' Provided that it shall not be necessary for the other contesting candidates to file fresh nomination papers or make a further deposit under section 13. ' Next, reference was also made to section 16 of the Senate (Election) Act, 1975 which contains a similar provision and also to section 52 of India's Representation of People Act, 1951. It was pointed out that in Parliamentary elections in England even if polling has started, the death of a candidate causes a fatal blow to the entire election process which would be recalled as under : "If at a contested election proof is given to the satisfaction of the returning officer before the result of the election is declared that one of the persons named or to be named as a candidate in the ballot papers has died, then at a parlimentary election the returning officer must countermand
---
## Page 6
notice of the poll or, if polling has begun, direct that the poll be abandoned, and at a local government election or a poll consequent on a parish or community meeting the returning officer must countermand the poll or, if polling has begun, direct that the poll be abandoned. ' Halsbury's Law of England Volume 15, Fourth Edition page 35. ' Learned counsel for the defendants next brought to my notice para 3 of counter-affidavit wherein Mr. Shaukat Raza Mirza, defendant No,3, President and Chief Executive of defendant No,1, specifically stated that as per share register of defendant No,1, the plaintiff holds no share in his own name, but is the joint holder of 11,276 shares and as such he did not have the requisite qualification under the Articles to contest for election of Directors. Reference then was made to Article 62 of the Articles of Association which reads as follows:- "Article 62. ' The qualification of a Director shall be his holding shares of the nominal value of Rs,25,000 at least in his own name and not jointly with any other person or his nomination in writing by a Member or Members holding shares of the nominal value of Rs,25,000 or more, as his or their representatives. A Member or Members holding shares of the nominal value of Rs,25,000 or more may nominate as his or their representatives one Director for each group of shares of a nominal value of Rs,25,000 held by him or them. A person so nominated shall be eligible for election as a Director under Articles $0 and 83 and for appointment as a Director under Article 84. In the event of such election or appointment such person shall require no share qualification. ' The plaintiff in para (5) of rejoinder has vehemently denied not having requisite qualification shares and referred to letter dated 30-3-1991 from the defendant No,4 stating that his nomination was valid. However, in support of his contention, Mr. Sharifuddin Pirzada referred to the case of Spencer v. Kannedy, (1925) All E.E. Rep. 135, in which it was held: "On construction of the Articles of Association "qualified person" meant a person who was at the time of his appointment holding the necessary share qualification, although at the board meeting of Nov.14 H.M. And F.M. Acquired an absolute right to have their shares registered they did not become members of the company or qualify as directors until the transfers were registered on Nov. 16, and, therefore, their election as directors on Nov. 14 was not valid." ' Learned counsel brought to my notice Article 52 of the Articles of Association under which an objection as to the qualification of a voter can be raised at a General meeting or an adjourned General meeting. While opposing injunction application, he placed reliance on PLD 1989 SC 166, in which the Supreme Court of Pakistan despite holding that the action of the President of Pakistan to dissolve the National Assembly was illegal refused to order its restoration and ordered in public interest the holding of fresh elections in the country. ' Mr. Fateh Ali Vellani, learned counsel for defendant No,2, further to the arguments advanced by Mr. Sharifuddin Pirzada laid special emphasis on the fact that the plaintiff is an undesirable person for the position of a Director and has earned the hostility of the majority representing 96% of the share-holding of the company by his misconduct and nefarious activities and in the circumstances of the case, he is not entitled to injunction. He first referred to Bainbridge v. Smith 1889, 41 Chancery Division 462 in which injunction was dissolved as the shareholders did not desire one Herbert William Bainbridge to act as Managing Director. It was held:- "But I think it right to say that in my opinion, and I believe that my learned Brother agrees with me, if the company says that even if the plaintiff has the qualification they do not desire him to act as one of their managing directors, we should not grant any injunction, because, it would be contrary to the principles on which this Court acts to grant specific performance of this contract by compelling this company to take this gentleman as managing director, although he was qualified so to act, when they do not desire him to act as such."
---
## Page 7
' Mr. Fateh Vaklani, next referred to Harben v. Phillips, 1882 Chancery Division 38 (1882 H 5055) which refers to a situation like this, extracts from which may be advantageously reproduced as follows:- "The position of persons coming here as shareholders on behalf of themselves and others is not such as ' a my opinion should induce the…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.