Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: PAKISTAN STATE OIL COMPANY LIMITED VS Respondent: PAKISTAN OIL PIPELINES LIMITED and JUDGMENT
Court Name: Sindh High Court Judge(s): Haziqul Khairi Title:PAKISTAN STATE OIL COMPANY LIMITED vs PAKISTAN OIL PIPELINES LIMITED and
JUDGMENT
Reported As: PLD 1993 Karachi 322 Result: Petition accepted Judgment JUDGMENT ' M/s. Pakistan State Oil Company Limited has filed this petition under section 309 of the Companies Ordinance, 1984 seeking winding up of respondent No,1, namely, The Pakistan Oil Pipelines Limited, a public company limited by shares (hereinafter called the 'Company') incorporated on 12-7-1990 having its registered office at Villa No, C-33, Daraks.Han Scheme Defence Housing Society, Phase V, Karachi. Respondents Nos. 2 to 6 are five out of its seven directors and respondent No,7 is M/s. Allied Bank of Pakistan, the bankers of the Company. ' The nominal capital of the company is Rs,500,000,000 (Rupees five hundred million) divided into 50 million shares of Rs,10 each. The paid-up capital of the Company is Rs,3 million comprising 300,000 shares of Rs,10 each. The objects among others as set forth in the Memorandum of the Association of the Company are as follows:-- "To construct, own, operate and maintain pipelines for the transfer, movement and transportation of all kinds of Petroleum and Petroleum Products, oils, gas, hydrocarbons, petrochemical, asphalt, bituminous substances, chemicals and their products and by-products, to transport such liquids and gases by means of such pipelines and to utilize, sell and supply these products to others, to store the same in tanks or otherwise, and to lay, buy, lease, sell and operate pipelines, tanks and other facilities." ' The petitioner is a marketing company managed in accordance with the provisions of the Markting of Petroleum Products (Federal Control) Act, 1974. The respondent No,1 was incorporated for the purpose of implementing a project developed by the petitioner for the installatioin and operation of an oil pipeline for the transmission of furnace oil from Port Qasim to Jamshoro which is
---
## Page 2
to be completed by June, 1990. This project was sanctioned by the Ministry of Petroleum and Natural Resources on 26-6-1990 requiring the petitioner to implement the project through a separate public limited company under the name of Pakistan Oil Pipeline Limited. This proposal also envisaged equity participation in the share capital of the company to the extent of 25% by the petitioner, 25% by the private group and 50% by the general public and foreign investors, pursuant to which a meeting of the Board of Directors was held on 22/24-7-1990, the minutes of which, inter alia, state: "--The company had allotted and issued 3 Lacs shares of Rs,10 each in nearly equal proportions to the petitioner and its nominees and the private group namely respondents Nos.2 to 5. ' --Respondent No,2 would be the Chief Executive. ' --there would be 7 Directors of whom 4 would be from the private group. ' --bank account of the Company will be operated upon by three Directors, namely, respondent No,2, respondent No,6 and Mr. Qaiser A. Maggoon but any two of them would be empowered to draw cheque." ' It is averred by the petitioner that since there is no participation by the general public and foreign investors, the Company remains substantially an equal partnership between the petitioner and the private group. ' After the incorporation of the company, the contract for establishment of the furnace oil pipeline as aforesaid from Port Qasim to Jamshoro was awarded to the Company, but no progress was made by the Company nor would it be made within the time allowed i,e, up to June, 1991 or within any reasonable period thereafter. It is alleged by the petitioner that the company is no longer capable of laying the pipeline for which it was incorporated. It has not negotiated any contracts nor it has taken any steps for acquisition of the land required for the pipeline. Although the project requires financing of over Rs,860 millions in local and foreign currency, nothing has been done so far. The financial condition of the Company is also such as would not induce public and foreign investment in the Company's share capital. No meeting of the directors or shareholders has been held since 24-7-1990. Besides the appointment of Syed Amjad Hussain, respondent No,6 as Managing Director of the petitioner was terminated by the Federal Government by a notification dated 4-9-1990, who now in collusion with Amiruddin Rahu, respondent No,2 had withdrawn almost the entire cash at the Company's Bank account with respondent No,7 even before the commencement of business. Similary the said respondent No,6 in collusion with the private group without the approval of the petitioner has taken on rent the residential house of his wife for the registered office of the Company. Despite the removal of respondent No,6 as managing director of the petitioner, he has not resigned as Director of the Company nor he has taken any steps for transfer of his share to the petitioner. It is not possible for the petitioner being a Public Sector Company under the control and management of the Federal Government to associate itself with respondents Nos.2 to 6 in whom the petitioner has no confidence on account of their misconduct and misfeasance. The continuance of the Company in such circumstances can only result into prolonged acrimony and litigation between the petitioner and the private group and between the petitioner and its former Managing Director, the respondent No,6. It is further alleged that on the 3rd September, 1990 the Assistant Director F.I.A. Crime Circle 1 had seized from the office of the petitioner all papers concerning the affairs of the Company and the pipeline project as the Company had committed fraud, misfeasance and malfeasance and had failed to maintain proper and true account. Further, the Company has also failed to hold a statutory meeting, deliver the statutory report and carry on business within one year of its incorporation. It has failed to pay its debts. It cannot carry on business save at loss. The very object for which the Company was incorporated is not tenable, its substratum has gone. As such, it would he just and equitable that the Company may be wound up.
---
## Page 3
' Respondents Nos.1 to 3, 5 and 6 have jointly filed a reply, vehemently opposing the petition for winding up. At the outset, they raised a preliminary objection that the petition is vexatious, oppressive and in abuse of the process of the Court inasmuch as it has been motivated with a view to further extraneous objects of the petitioner which has no relevance to the interest of the Company or its members. The matter complained of relates to internal management of the Company for which there is an alternate remedy available under law. As to the other allegations it is denied that the sole or main object of the Company was to implement an oil pipeline project for the transmission of the furnace oil and failure to attain this object would call for an order of the winding up of the Company. According to them, the Company was formed for various objects and each of the objects is to be read disjunctively, separately and independently as provided in clause 3 of the Memorandum of Association of the Company which declares as follows:-- "That in the interpretation of this clause the power conferred on the Company by each paragraph shall be separate and independent and shall not be restricted by reference to or influenced from any other paragraph and that in the event of ambiguity this clause and every paragraph hereby shall be constructed in such a way as to widen and not to restrict the power of the Company." ' It is denied that the substratum of the Company has disappeared or that the object for which the Company was formed is no more in existence or that the business of the Company cannot be carried on except at loss. It is denied that the statutory meeting was not held and statutory report was not submitted to the Registrar, Joint Stock Companies. It is alleged that the petition was motivated by the petitioner for the sole purpose to obtain, undertake and exclusively execute the pipeline project themselves so as to deprive the Company of any profits. There were no grounds for winding up of the Company under the just and equitable clause as there was no deadlock on the Board of Directors nor principles of partnership are applicable, the Company being a public limited company formed with a view to offer its shares to general public. The alleged illegalities and irregularities are bare and vague having no nexus with reality. ' Giving the background of the case it is stated by the said respondents that the said project was first offered to the petitioner, who refused to undertake it whereupon the planning commission advised the Oil and Gas Development Corporation (OGDC) to undertake the said project for transportation of crude oil from Badin to Karachi. Accordingly a proposal was put up to execute it through a joint venture comprising of the petitioner and OGDC, which due to objections raised by the major financier, namely, Asian Development Bank was abandoned. The matter lingered on for quite some time till 26-6-1990 when through the good offices of respondent No,6, the Board of Investment, Ministry of Petroleum and Natural Resources approved the said project. After the approval from the Board of Investment, the private group at its own expense went ahead and incorporated the Company and on 22-7-1990 the first Directors of the Company were elected for one year till the holding of first annual general meeting and respondent No,2 was appointed as its Chief Executive. On 5-8-1990, the Registrar, Joint Stock Companies, Karachi issued a certificate of commencement of business to the Company but the very next day i,e, 6-8-1990, the National and Provincial Assemblies were dissolved and a care-taker Government was appointed for the Federation and for provinces, as well. The Federal Government with a view to find out any illegality or irregularity which may have been committed by the previous regime made enquiries against various departments, agencies and corporations of the Federal Government. As a result, the Bank Account of the Company under the instructions of F.IA. Was frozen preventing farther sums being deposited or withdrawn in it. Despite this, the affairs of the Company remained untarnished. The Company also established an office at Islamabad of which one year's rent was paid. The Company was able to negotiate for a loan of U.S. $ 56 million on very favourable terms and in this respect the Company had written to Ministry of Petroleum and Natural Resources as well as the Ministry of Finance. Further, the support of the Government of Sindh was also obtained vide their letters
---
## Page 4
addressed to the Ministry of Petroleum and Natural Resources as well as the Company. As to the removal of Syed Amjad Hussain respondent No,6 and former Managing Director of the petitioner by the Federal Government and the appointment of Mr. M.M. Farid in his place it is contended that it was an attempt to frustrate execution of the pipeline's contract in respect of which the company has gone far ahead. In case the petitioner should continue with its uncooperative and intransigent attitude it may transfer its shares to any third party or the respondents. In para. (0) of the reply it is stated that the Company has started negotiations with other local companies to induct them as partners in place of the petitioner company. ' Keeping in the mind the allegations and counter-allegations as well as other facts and circumstances of the case, let us examine if the various grounds urged by the petitioner for winding up of the Company under section 305 of the Companies Ordinance, 1984 would be available to them or not. ' At the outset Mr. Fateh Ali W. Vellani learned counsel for the petitioner contended that clause (f) (iii) to section 305 of the Companies Ordinance, 1984 furnishes a new ground for winding up covering cases where the business of a Company is being run in a manner oppressive to some members or persons associated with the formation or promotion of the Company or the minority shareholders. ' The word 'oppression' is defined in Black's Law Dictionary, Sixth Edition at page 1093 as follows:-- "The misdemeanor committed by a public officer who under colour of his office, wrongfully in flints upon any person any bodily harm, imprisonment, or other injury. An act of cruelty, severity, unlawful exaction, or excessive use of authority. An act of subjecting to cruel and unjust hardship; an act of domination." ' In Shahbazuddin Chaudhary v. Service Industries Textiles Limited, PLD 1988 Lahore 1, a learned Judge of High Court of Lahore while examining oppression of the minority by the majority observed: "Again the mere loss of confidence between different groups of share- holders would not come within the relevant clause of section 305 or section 290 unless it was shown that this lack of confidence had resulted as a consequence of the oppression of the minority in the management and affairs of the company and that there was at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. The petitioners failed to bring on record, material to justify the contention that respondents had conducted themselves so as to cause oppression of the type and the kind envisaged in the relevant provisions of law." ' Section 290 of the Companies Ordinance also envisages that a member holding not less than twenty per cent. Of the issued share capital of a company may make an application to the Court that affairs of the company are being conducted or likely to be conducted unlawfully or in fraudulent manner or in a manner not provided for in its memorandum in which case also the Court if satisfied that the allegations are correct and winding up order would unfairly prejudice the members or creditors, may order (i) regulating the conduct of the affairs in future or (ii) purchase of the shares of any member by other member or by the Company. In case of purchase by the latter, the Court may further order as to reduction of capital or otherwise. The contention of Mr. Sarmad Usmani, learned counsel for respondents, that a similar order may also be resorted to in view of the above facts and circumstances is not justifiable. Although there was no formal agreement between the petitioner and the private group there is no dispute they had agreed to equally participate in the said project in terms of investment, which was subsequently acted upon as reflected by the minutes of the meeting dated 24-7-1990. However, by subsequent development Syed Amjad Hussain respondent No,6 Director of the Company who happened to be the Managing Director of the petitioner and the brain behind the project was removed by the Federal Government which brought about drastic change on the Board of Directors and in the voting power of shareholders as he crossed over to the Private group and declined to resign as Director of the
---
## Page 5
Company or transfer the share in his name to the petitioner. In fact he became inimical and hostile to the petitioner and its interest. It would be useful to reproduce the letter R/26, dated 24-11-1990 sent by him to Dr.R. Shardella Commercial Director of the Company which reads as follows:- "Ref: POPL/3/90 ' Dated 24th Nov., 1990. ' Dr.R. Shardella, ' Commercial Director, ' Bonatti S.P.A. ' PARMA. ' Dear Sir, ' Kindly accept my regrets for not being able to write to you earlier. The last four months in Pakistan have been so disturbed that' the business and commercial activities had come to a halt and I was not in a position to contact you and to develop and proceed with our project in a meaningful manner. ' Things are now settling down and I hope we will be able to start work on the pipeline project but with a little difference from our original plans. ' I have the necessary approvals for the project in my hands and will have to proceed with the work in the name of Pakistan Oil Pipelines Ltd. Independently of P.S.O. The new person who has taken over control of P.S.O. Does not want to cooperate with your Company and therefore we cannot accept involvement of P.S.O. In the project other than of a silent partner/shareholder having 25% equity in the Company. ' I would appreciate if you work out for future programme on the basis of execution of work by Pakistan Oil Pipelines Ltd. As an independent private sector Company excluding any involvement. Of P.S.O. In either flanking or implementation of work. This will require changes in, commercial contract and Joint Venture Agreement and I hope the new set of documents will be prepared by you and sent to me at your earliest. ' With kind regards. Yours truly, (Sd.) (SYED AMJAD HUSSAIN)." ' Reference here may now be made to R/25 filed by the respondents Nos.2 to 6 which is a letter from the successor of the said respondent No,6, namely Mr. M.H. Farid addressed to the Secretary, Ministry of Patroleum and Natural Resources, Government of Pakistan, Islamabad which inter alia states as follows:- "PSO'S PROPOSAL FOR THE IMPLEMENTATION OF THE PROJECT ' The project of laying pipeline from Karachi to Jamshoro is at present sanctioned in favour of POPL in which PSO is a partner. Due to changed circumstances in view of FIA investigation in respect of POPL the fate of the company has become uncertain and may cause considerable delays in the implementation of the project. In this regard we may add that the FIA office at Karachi has seized the few documents that were available with us. We, therefore, suggest that Government of Pakistan may consider PSO to undertake this project." ' The record of the Company as maintained by respondents Nos.2 to 6 shows that the petitioner is the holder of 149997 shares of Rs,10 each, whereas Mr. Qaiser M. Maqsoom, Mr. Amanullah Shaikh and respondent No, 6 from the petitioner's group held one share each. With the exit of respondent No, 6 as aforesaid, the petitioner's group was left with 1,49,997 shares as against 15,001 shares held by the reconstituted private group comprising respondents Nos.2 to 6. It is inconceivable that the respondent No,6 would have been allotted a share by the Company or named a promotor/Director had he not been the Managing Director of the petitioner.
---
## Page 6
' With the ouster of respondent No,6 from the petitioner's group began an era mistrust and misunderstanding between the petitioner and the private group which is now headed by none else but respondent No,6. With a so-called majority of two votes in the general body tilting in favour, of respondents Nos.2 to 6 and having five directors as against two of the petitioners in the Board, the former have taken complete control over the affairs of the Company and have acted ruthlessly against the interest of the petitioner tantamount* to oppression on their part. What may be added here is that the oppression is not of merely 20% or somewhat more of the shareholders but to quote the words of respondents (para. 24 of reply) or almost 50% shareholders'. A working arrangement as envisaged under section 290 of the Companies Ordinance may not be pressed into service in such a situation. An attempt to oust the petitioner or to induct any third party in its place behind the petitioner's back by itself is an act of oppression which cannot be overlooked and must be given effect to by ordering winding up of the Company. The said respondents have also indulged in other activities as would not be lawful in any manner and may be termed as oppressive, fraudulent or collusive. Suffice to state that the reply filed by the respondents Nos.2 to 6 and R/26 supra are glaring examples as to how they aimed at ousting the petitioner in collusion with third parties. The minutes R/15 of alleged meeting of the Board dated 5-8-1990 disclose that an amount of Rs,21,50,000 was withdrawn by the respondent No,6 for furnishing Company's Islamabad office and for arranging a plot of land at Super Highway for setting up store and camp office for pipeline work. This was done with the blessings of the Private group as reflected from the minutes of the meeting which according to the petitioner was never held nor any notice thereof was served on them. This allegation finds support by the fact that none of the two other nominated directors of the petitioner representing their interest were present at the said meeting. There is also no resolution either to borrow RS.4,00,000 or to make advances of Rs,6,80,000, Rs,3,74,000 and Rs,1,13,512.50 respectively to various persons nor there is any resolution of the Board to take on rent the house of respondent No,6's wife to be used as office of the Company at Karachi. What, however, is pertinent to note is that respondent No,6 who was a nominee director of the petitioner acted in collusion with the Private group detrimental to the interest of the petitioner. After his removal on 4- 9-1990 as Managing Director of the petitioner he could not have acted as Director or Chairman of the Board or held any share in his name. The respondents have admitted in their counter-affidavit that both the groups had held equal shares. The claim of respondent No,6 that he had made cash payment of Rs,10 for his one share also stands rebutted as the entire share amount of Rs,15,00,000 was paid by the petitioner vide payee A/c Cheque dated 23-7-1990, Annexure 'M' which is an admitted document. Although the petitioner has not been able to satisfactorily establish that the respondents Nos.2 to 6 have not properly maintained the accounts of the Company, the facts enumerated above clearly reveal that they were in collusion with one another and had committed fraud, misfeasance and malfeasance in relation to the company as contemplated under section 305(f)(iv) of the Companies Ordinance, 1984. Learned counsel for the petitioner has not been able to show as to what was the defect in delivering the statutory report to the. Registrar in terms of section 305(b) of the Companies Ordinance. Similarly no satisfactory evidence was brought on record to establish the grievance of the petitioner, that no statutory meeting was held or that no notice of it was served upon them. The ground that the Company has failed to commence its business within a year from its incorporation as required under section 305(c) of the Companies Ordinance, 1984 is premature as the Company was incorporated on 12-7-1990 and the winding up petition was filed before the expiry of one year on 7-3-1991. Hence this ground would fail. ' Now the other two grounds taken by the petitioner for winding up of the Company are that the Company is unable to pay its debt and that it is just and equitable that the Company should be
---
## Page 7
wound up. On these questions learned counsel for the parties took me through a large number of the following case-law and books on the subject: ' Ladli Prasad Jaiswa l v. The Karnal Distillery Co. Ltd. PLD 1965 SC 221, Ebrahimi v. Westbeurne Galleries Ltd. (1972) 2 All ER 492, Syed Abul A'ala Maududi v. State Bank of Pakistan and others PLD 1%9 Lahore 908; Ghosh on Company Law, 1951 Edition, pages 333-334; Halsburys Laws of England, 4th Edition, Volume 7(1), Articles 656, 687, 971 and 972; M. Monir on Law of Evidence pages 1180, 1181 and 1206; Rajahumundry Electric Supply Corporation Ltd. v. A. Negeshwcra Rao and others AIR 1956 SC 213; Synthetics Chemical Ltd. PLD 1985 Kar. 193; O.P. Basra v. Kaithal Cotton and General Mills Co. Ltd. AIR 1962 Punjab 151; Palmer's Company Law, 24th Edn., 61.01; 63.02, 63.04 and 63.06; Parmeshwari Prasad Gupta v. The Union of India AIR 1973 SC 2389; Re: Hyenidje Tobacco Co. Ltimited (1916-17) All ER 1050; Louch v. John Blackwood Ltd. (1924) All ER 200; Sh. Maqbool Ellahi and others v. Rasul & Co. Ltd. And others PLD 1970 Lahore 539; State v. Mayurbhanj Spinning and Weaving Mills AIR 1963 Orissa 1; Re: Ambica Textiles Ltd. AIR 1950 Cal. 491; Re. National Motor Mail Coach Co. Ltd. Clintons Claim 99 Law Times 632; Income Tax Ordinance, 1979, Sections 12 & 24; In Re: Haven Gold Mining Co. C.A. (1882) Vol. XX, Chancery Division at 152, In re: Crown Book (1890) Chancery Division Vol. XVIV at 634, Re: Kitson & Co. Ltd., CA. Feb, 1946/435; Re: Suburban Hotel Co. (1867) Chancery Appeal, Vol. II at page 739; Shahbuzzuddin Chaudhry and 27 others v. Messrs Services Industries Textiles Limited PLD 1988 Lahore 1; Angle Greek Cream Co., Equity Cases (1866) p.1. ' With regard to the ground that the Company is unable to pay its debts, learned counsel for the petitioner placed heavy reliance on the statutory report Annexure 'T' to the petition showing that the entire capital base of the Company stands destroyed and frittered away and that the Company has an outstanding loan of Rs,4,00,000 against which it has only Rs,50,000 in the Bank. But this will not reflect…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.