Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: MANSOOR ALI BANDLA LI VS Respondent: MARINE FOOD INDUSTRIES Ltd. and others
Court Name: Sindh High Court Judge(s): Nasir Aslam Zahid Title: MANSOOR ALI BANDLA LI vs MARINE FOOD INDUSTRIES Ltd. and others Case No.: J.M. Nos.41 and 43 of 1979 Date of Judgment:1984-12-22 Reported As: 1985 CLC 1239 Result: Order accordingly
JUDGMENT
JUDGMENT ' This judgment will dispose of J.M. No. 41 of 1979 and J.M. No. 43 of 1979. These are Company matters and both the petitions have been filed by Mansoorali Bandeali in relation to Marine Food Industries Limited, a private limited company incorporated under the Companies Act, 1913 (hereinafter referred to as "the Company") on 17-8-1966. J.M. No. 41 of 1979 has been filed under section 162 of the Companies Act, 1913, seeking the winding-up of the Company. J.M. No. 43 of 1979 is a petition under section 38 of the Companies Act, 1913, wherein the petitioner seeks rectification of register of firm in relation to certain shares. I have heard Mr. J.H Rahimtoola, learned counsel for the petitioner and Mr. Nasim Ahmad Faruqui, learned counsel for the respondents. 2. As stated earlier, the Company was incorporated on 17-8-1966 as a private limited company under the Companies Act, 1913 and the main objects of the Company are to carry on all kinds of fishing and marine or sea food business. The nominal capital of the Company is Rs.5,00,000 divided into 50,000 shares of the face value of Rs.10 each and the amount of capital paid-up is Rs.4,00,000 divided into 40,000 shares of Rs.10 each. It is the case of the petitioner that the Company was promoted and got incorporated by the petitioner and the petitioner got associated with him in the Company all his brothers namely Abdul Hussain Bandeali (elder brother) and Abdul Malik Bandeali, Abdul Muhammad Bandeali and Baradali Bandeali (younger brothers of the petitioner). Paragraph 8 of J.M. No.41 of 1979 read as follows:- "The foundation or basis for promotion and working of the Company was that the petitioner shall give the lead and shall have vested in him direction of management of the Company and be the Managing Director and there be mutual respect, trust and confidence in the petitioner and in and among brothers as and being members of the same family and of the Company."
---
## Page 2
3. According to the petitioner, he made a study of requirements of the project of the Company building, plant and machinery, got prepared plans and layouts and then got constructed and supervised the buildings and construction If the Company and procured licences for import of its plant and machinery and then got installed the machinery and plant, engaged and supervised engagement of staff and labour and brought the Company into production and working to produce quality product marketable in foreign countries. According to the petitioner, the entire product of the Company is exported and sold abroad and it was the petitioner, who established the links with foreign companies so as to channellize the export of Company's projects: In short, the case of the petitioner is that the establishment of the Company and its projects are the results of his endeavours and supervision and that he had associated his brothers in this Company and that the Company has progressed and prospered due to the petitioner's efforts. In the books of the Company, the five brothers are shown as holders of 8,000 shares of the face value of Rs.10 each, fully paid-up. It is then averred by the petitioner that in 1971, the Company acquired the undertaking of Coral Fisheries Limited and the transaction of purchase of this undertaking was carried out by purchase and acquisition of all the shares of Coral Fisheries Limited, which shares were transferred in the names of the petitioner and his four brothers. The facts and reasons, which have led the petitioner to file the petition under section 162 of the Companies Act, 1913 for winding- up of the Company, have been detailed by the petitioner in paragraphs 14 to 20 of J.M. No. 41 of 1979 and for convenience of reference these paragraphs of J.M. No.41 of 1979 are reproduced hereunder:- "(14). The Company did not pay any dividends and out of profits and gains were paid to the petitioner and his brothers remuneration, allowances, etc., and they were provided amenities, facilities and benefits on ad hoc basis in the beginning and as from about 1973-74 in share or proportion of 30 per cent to Abdul Hussain being elder brother, 22 per cent to the petitioner, 18.50 per cent to Abdul Malik, 14.75 per cent to Abdul Muhammad and 14.75 per cent to Baradali and this proportion of percentage continued till May, 1977 whereafter it was revised to 33 per cent to the petitioner, 25 per cent to Abdul Malik, 21 per cent to Abdul Muhammad and 21 per cent to Baradali. (15). In about April/May, 1977, Abdul Hussain the elder brother stated and represented that he wanted to retire and withdraw from the Company and consistent therewith from Coral Fisheries Limited and made stipulations which he discussed and negotiated with Abdul Malik and Abdul Muhammad on behalf of the brothers and all of them stated and represented and it was agreed that Abdul Hussain, the elder brother be given or made over: (a) Rs.6,00,000 in shares, securities and cash; (b) a Launch; (c) running businesses which held agencies of Premier Tobacco Industries Limited and Ameejee Valeejee and Company for Mekran Coast and sub-agency of Maldive Shipping Lines; (d) Properties in Mekran and plot measuring 1,000 square yards in Clifton held in name of Abdul Hussain; and Abdul Hussain do make over and transfer 8,000 shares held by him in the Company and 1,000 shares held in his name in Coral Fisheries Limited, to the petitioner and his younger brothers so that out of the aforesaid 8,000 shares of the Company 5,334 shares be transferred to the petitioner, 1,000 shares to Abdul Malik Bandeali, 833 shares to Abdul Muhammad Bandeali and 833 shares to Bandeali Bandeali and as to 1,000 shares in the name of Abdul Hussain Bandeali in Coral Fisheries Limited, 667 shares be transferred to the petitioner, 125 shares to Abdul Malik Bandeali, 104 shares to Abdul Muhammad Bandeali and 104 shares to Baradali Bandeali. (16) In accordance with contract, consideration aferesaid was paid, made over and transferred to Abdul Hussain Bandeali and the said elder and all the said younger brothers have time and again promised and assured that shares held by and in the name of Abdul Hussain Bandeali shall be transferred as agreed as aforesaid but the same is still not done and the petitioner submits that all
---
## Page 3
the brothers have joined hands to deceive and play fraud upon the petitioner and they have combined to act in fraud of his rights, shares and dues in and in respect of the Companies. (17) Remuneration, allowances, benefits, etc., paid and provided to the petitioner and his brothers were partly shown in books and partly not shown and were out of books of the Company and this arrangement continued throughout. (18) The Company in 1976 made a declaration of Rs.10,00,000 as income or profits not shown in books being part of its such profits or income. (19) As from June, 1977, the petitioner was paid as remuneration in accordance with proportion explained in para. 14 above, Rs.7,000 per month of which Rs.3,000 was shown in books and was provided amenities and facilities and benefits of car, petrol, maintenance, telephone and insurance, which were paid and provided to the petitioner uptil January, 1979. (20) In about March, 1979 Abdul Malik and Abdul Muhammad drew cash cheques to totalling Rs.3,95,916.60 from bank account of the Company which they appropriated or misappropriated among themselves, admitting Baradali and possibly also Abdul Hussain to shares therein and upon the petitioner protesting, the said brothers made common cause and excluded and cut off the petitioner from his remuneration and benefits and also excluded and cut him off from exercising officer of Managing Director and Director of the Company, not permitting matters and papers of the Company to come to or be placed before the petitioner, not permitting him to take decisions or give directions and denying him access to files, papers, books and documents of the Company, disregarding his requests and refusing to supply him copies and behind his back and without notice to him purporting to pass resolutions intended to and effect of which is to vest control in themselves to the exclusion of the petitioner and on the basis thereof they are committing the Company to loans and indebtedness created by them, as security for which they are mortgaging and hypothecating the properties, plant, machinery and assets and also pledging securities, goods and movable property of the Company and they are creating and as from March, 1979 increasing the liability of the Company from what it was before the said date." 4. According to the petitioner, the aforesaid acts of his brothers are contrary to the basis upon which the Company was incorporated and founded and upon which the Company had worked from the time of 'its incorporation. According to the petitioner, in the facts and circumstances it is just and equitable that the Company be wound-up and dissolved. It may be observed here that according to the petitioner all the brothers held 8,000 shares in the Company, but later on through an oral agreement the elder brother Abdul Hussain, agreed to transfer his 8,000 shares in the Company to the petitioner and his younger brothers and out of the aforesaid 8,000 shares it was agreed that 5,334 shares be transferred to the petitioner but the elder brother and the other three younger brothers of the petitioner went back upon the agreement. The petitioner has claimed that he is entitled to 5334 shares which were held by elder brother Abdul Hussain but these have not been transferred in the books of the Company in the name of the petitioner and for rectification of the register of Company in relation to the aforesaid shares, J.M. No.43 of 1979 has been filed by the petitioner under section 38 of the Companies Act, 1913. 5. Opposing both the petitions, Abdul Hussain (elder brother) Abdul Malik and Abdul Muhammad have filed several affidavits/counter--- affidavits. In reply rejoinders have been filed by the petitioner. The oral agreement for transfer of the 8,000 shares of Abdul Hussain has been denied by the respondents. According to the respondents, each of the five brothers owns 8,000 shares in the Company and the Company is in sound condition, possessed of a very favourable growth rate and the creditors are properly secured. It has been denied that the Company and its projects were established/set up by the sole efforts of the petitioner and that all the brothers have actively participated in the business of the Company which was being carried on for the common weal of all the five brothers. According to the respondents, no action has been taken by them which could
---
## Page 4
give any ground to a minority shareholder of 1/5th share of the Company to seek its dissolution. According to the respondents, it was the joint efforts of all the brothers which contributed towards the establishment and development of the Company to its present stage of prosperity and solvency. According to the respondents, the petitioner merely wants preferential privileges which were not agreed to by the other shareholders/directors/brothers. It has been denied that any amount has been misappropriated as alleged by the petitioner. It has further been averred on behalf of the respondents that the accounts of the Company have been properly maintained and have been regularly audited by a reputed firm of auditors and all the shareholders have full access to the accounts and have approved the same and the Income-tax Authorities have also without exception accepted the trading results of the Company. The allegation of the petitioner that he has been excluded has been denied. It is averred that the petitioner has been allowed full access to the Company's records and papers and in fact he has participated in the deliberations in regard to the Company's affairs and suggestions had been adopted and that Board meetings had been held after notice to the petitioner and other directors. 6. In support of the petition under section 162 of the Companies Act, 1913, that it is just and equitable that the Company be wound-up, Mr. J.H. Rahimtoola, learned counsel for that petitioner, has canvassed the following grounds:- (a) Exclusion of the petitioner from the management of the Company: According to the learned counsel for the petitioner, the petitioner was first physically excluded and this physical exclusion was later on followed by the purported legal exclusion of the petitioner from the management of the Company. (b) Lack of probity and diversion of the funds of the Company by the respondents. (c) Increase of liability of the Company by the respondents since taking over management of the Company to the exclusion of the petitioner. (d) The use of the Company and its properties by the respondents as their own personal properties. 7. The petitioner became Managing Director of the Company in 1966 since its incorporation and remained so till 1979. This has been admitted by the respondents. According to the petitioner, he had been paid his remuneration till January, 1979, but thereafter disputes started between the parties. According to the petitioner, Abdul Malik and Abdul Muhammad used cash cheques of the amount of Rs.3,95,916.60 and misappropriated this amount and when the petitioner protested, he was removed from directorship as well as from the post of Managing Director. Initially this removal was physical, according to Mr. J.H. Rahimtoola, learned counsel for the petitioner, as no resolution was passed to this effect. According to the petitioner, he was not allowed access to books and papers of the Company and when copies of the Company papers were asked for by the petitioner, these were not supplied. In short, according to the petitioner, the respondents physically excluded the petitioner from the management of the Company and that later on they passed a resolution behind the back of the petitioner for his exclusion. Various vouchers of the Company have been filed by the parties and they show that upto January, 1979, vouchers have been signed by the petitioner but from March, 1979, onwards vouchers ha'e been signed on behalf of the Company by Abdul Malik. According to the petitioner, on 24-2-1979, instructions were given to the banks, in which the accounts of the Company were maintained, that henceforth the account will be operated by two directors and cheques should not be honoured unless they were signed on behalf the Company by two directors. Previously any one director could sign the cheques and operate the account on behalf of the Company. According to the petitioner, this was done without a resolution of the Board of Directors of the Company. However, this has been denied on behalf of the respondents who have averred that a meeting of Board of Directors was held on 24-2-1979, in which such a resolution was passed. According to the petitioner, this resolution was made up later
---
## Page 5
on to fill up the legal infirmity in the action of the respondents and in any case no notice was given to the petitioner about the holding of this meeting. According to Mr. J. H. Rahimtoola, this action was taken by the respondents deliberately to exclude the petitioner from operating the. bank accounts of the Company. It is further the complaint of the petitioner that books and papers of the Company were made inaccessable to the petitioner and when requests for copies of certain documents were made by the petitioner copies were not supplied to him and it was, however, when an order was passed on 13-12-1981 in J.M. No.41 of 1979, that copies of the documents were made available to the petitioner. It was also argued that the petitioner was physically not allowed to participate in the meetings of the Board of Directors. 8. On the point of the legal exclusion of the petitioner from the Board of Directors of the Company and from the post of Managing Director of the Company by the board resolution dated 24-2-1979, learned counsel for the petitioner relied upon Article 39 of the Articles of Association of the Company which reads as follows:- "39. The directors may from time to time appoint one or more of their body to the office of the Managing Director for such term and on such remuneration (whether .by way of salary or commission or participation in profits or partly in one way and partly in another) as they may think fit, and a Director so appointed shall not, while holding that office, be subject to retirement by rotation, or be taken into account in determining the rotation of retirement of Directors, but his appointment shall be subject to determination ipso facto if he ceases for any cause to be a Director or if the Company in General Meeting resolve that his tenure of office as Managing Director be determined." 9. According to Mr. J.H. Rahimtoola, the petitioner was admittedly elected as a Managing Director by the Board of Directors and he was not subject to retirement by rotation according to Article 39 of the Articles of Association of the Company and there were only two ways in which he could cease to be a Managing Director and that was if he ceased for any cause to be a Director or if the Company in General Meeting resolved that his tenure of office as Managing Director be determined. According to the learned counsel for the petitioner, as in law the petitioner continues to be a Director and no resolution has been passed' by the General Meeting of the Company to determine the office of the petitioner as Managing Director, the purported action of the respondents determining the petitioner's Managing Directorship is illegal and accordingly it is a case of legal exclusion of the petitioner from the management of the Company. 10. On the allegation of physical exclusion of the petitioner from the management of the company, it was submitted by Mr. Nasim A. Faruqui, learned counsel for the respondents, that there was no exclusion and the material on record does not indicate at all that there was any physical exclusion of the petitioner from taking part in .the management of the Company as one of the directors. It was submitted that so long as he remained a director, he attended the meetings of the Board whenever he wanted and no restrictions were placed upon him by the respondents to exercise his rights and powers as a director. It was further submitted that the petitioner had access to the records of the Company as a director. On the point of purported legal exclusion, Mr. Nasim A. Faruqui submitted that whatever actions that were taken by the respondents as directors and shareholders of the company, were strictly in accordance with law and no illegality was committed by them. It was contended that legal exclusion by itself does not entitle the petitioner to an order for winding-up of the company. It was submitted that the petitioner continued to be director till he voluntarily decided not to seek re-election. It was then submitted that regular meetings of the Board of Directors were held and even minute matters which were discussed or on which decisions were taken by the Board are reflected in the minutes of the meetings of the Board and that the minutes do not show that any agreement or decision was arrived at for transfer of shares held by the eldest brother Abdul Hussain, as wrongly alleged by the petitioner. About operation of the bank
---
## Page 6
accounts of the company jointly by two directors and not singly, it was argued that this decision was taken in a lawful manner at a meeting of the Board of Directors in the larger interest of the Company and the shareholders. In regard to managing directorship, it was argued by Mr. Nasim A. Faruqui that reliance on Article 39 of the Articles of Association of the Company was misplaced as at the time the Company was incorporated in 1966, the Companies (Managing Agency and Election of Directors) Order, 1972, was not in force and provisions of the 1972 Order override Article 39 of the Articles of Association of the Company. ' Mr. Nasim A. Faruqui also took objection to reliance by Mr. J.H. Rahimtoola on certain facts and events subsequent to the filing of the winding-up petition. It was argued that the winding-up petition must be framed in such a manner as to make up a prima facie case under section 162 and that the Court will not permit a winding-up petition to be converted into a fishing expedition and allow the petitioner to make references to and rely upon events subsequent to the filing of the winding-up petition. Reply of Mr. J.H. Rahimtoola was that there is no bar to reliance on subsequent events and that a petitioner is at liberty to take support from subsequent facts and events. ' Mr. Nasim Faruqui also denied the charges of the petitioner that the respondents had been using the Company and its properties as if these were their personal properties or that the Company's financial position had deteriorated or that funds of the Company were being diverted by the respondents for their personal benefit. It was argued that the petitioner had failed to prove his allegations. According to Mr. Nasim Faruqui no case was made out for winding-up of the Company. 11. At this stage I may briefly refer to the case-law on which reliance was placed by the two learned counsel. Mr. J.H. Rahimtoola cited the following reported judgments in support of the petitioner's case:- (i) Ladli Prasad Jaiswa l v. Karnal Distillery PLD 1965 SC 221 (ii) In re: Yenidje Tobacco Company Limited (1935) 2 Ch. 426 (iii) Re: Lundi Brothers Limited (1965) 2 A E R 692 (iv) Ebrahim 'v. Westbourne Galleries Limited (1973) A C 360 (v) In re: Nagina Films Limited PLD 1983 Kar. 45 ' It may be mentioned here that the judgment in Nagina Films case was delivered by me and in that judgment the above-mentioned four cases of Ladli Prasad, Yenidje Tobacco, Lundi Brothers and Ebrahim have been discussed and considered. I may reproduce here the following passages from my judgment in Nagina Film case which appear at pages 57-59 of the report:- "It is now well-established, and also confirmed by the Supreme Court in PLD 1965 SC 221, that the following grounds, which are available to a partner for having a partnership firm dissolved, are also available to a shareholder for the winding-up of a private limited company under the just and equitable clause:- (i) exclusion of a partner from the management of a firm; (ii) the existence of a state of deadlock between the partners; and (iii) justifiable lack of confidence in the management. ' In relation to the ground relating to the exclusion of a majority from the management of a private limited company it may be observed that this does not mean a right to manage any part of the company's business exclusively and that the right of the minority shareholder is to participate by the exercise of his voting right in the management of the company and further that it is not necessary that a part of the business of a Company, proportionate to the complainant shareholder's shareholding, must be separated and put under his exclusive control PLD 1972 Kar. 376. It was further held in this Karachi case that winding-up of a Company cannot be claimed by a minority shareholder on the ground that they had been excluded from managing a part of business of the company.
---
## Page 7
' When a private limited company is formed, there is generally a prior arrangement or agreement between the promoters, who may be representing different groups. Such agreement or under - standing may be reflected in the Memorandum and Articles of Association of a company that is formed and/or by a separate agreement between the promoters. It is also possible that the agreement or understanding may not be available in writing either as a separate document or expressed in precise terms in detail in the Memorandum and Articles of Association of the Company that is formed, but it may be possible to infer the major points of agreement or understanding between the promoters from the Memorandum and Articles of Association of the Company or from other documents. Strictly speaking once a company has been incorporated, its character, that is, the Memorandum and Articles of Association, govern the relationship, rights and obligations of the shareholders inter se and as between the shareholders and the company, but in equity it would be wrong for the majority shareholder or shareholders to disregard the terms of the agreement or understanding on the basis of which the promoters floated the private limited company. As held by the House of Lords in Ebrahim's case, a limited company was more than a legal entity, and the rights, expectation and obligations of the individuals hehind it inter se were not…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.