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Petitioner: Mrs. SYMA MAHNAZ VAYANI and others VS Respondent: MOLASSES EXPORT COMPANY PVT LTD
Court Name: Sindh High Court Judge(s): Muhammad Ali Mazhar Title:Mrs. SYMA MAHNAZ VAYANI and others vs MOLASSES EXPORT COMPANY PVT
LTD Case No.: J. M. No,10 of 2012 Date of Judgment:2013-01-31 Reported As: 2013 CLD 1229 Result: Petition dismissed Judgment ORDER ' MUHAMMAD ALI MAZHAR, J.---The petitioners have filed this petition under section 305 of the Companies Ordinance, 1984 with the prayer that the respondent company may be wound up and the official liquidator may be appointed with all the powers as to the administration of the assets of the respondent company and for further action according to the law. The petitioners have filed two Miscellaneous Applications C.M.As. Nos.80 and 81 of 2012 for injunction and appointment of Nazir to prepare inventory of assets of respondent, while the respondent has filed C.M.A. No,195 of 2012 for vacating the ex parte injunction granted on 10-4-2012. 2. The brief facts as narrated in the petition are that late Noor Muhammad Vayani founded the respondent Company in 1964, , and remained director and Chairman until he passed away in 2008. Noor Muhammad Vayani from time to time allotted and transferred shares in the names of his family members and appointed his three sons (1) late Mr. Abdul Majid Vayani (the predecessor of the petitioners), (2) Muhammad Amin Vayani, (3) Muhammad Anees Vayani and Abdul Sattar Vayani as directors of the respondent Company. 3. Late Noor Muhammad Vayani was a majority shareholder of the respondent along with his wife late Halima Vayani. Late Abdul Majid Vayani, Muhammad Amin Vayani and Muhammad Anees Vayani, had nearly equal shares in the respondent company. 4. The respondent was incorporated to run as a family business on the understanding that all family members will be beneficiaries of the respondent and male family members will actively participate in the management of the respondent Company.
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5. The filing of the company returns was done by Mr. Lqbal Majeed, the Company Accountant and all share certificates and title deeds and other important documents remained under his lock and key until Late Abdul Majid Vayani's demise, after which Muhammad Anees Vayani took possession of the share certificates -of the respondent Company, as well as Molasses Trading and Export Company Private Limited, Premier Molasses Export Corporation Private Limited and Pakistan Shoe Corporation Private Limited. 6. Late Abdul Majid Vayani (predecessor of the petitioners) was in charge of the foreign trading of molasses, thus he used to travel to meet the importers of Molasses. Whereas Mr. Abdul Sattar Vayani, managed the local buying of molasses, with Sugar Mills as well as the transporters. The entire business of the respondent Company was being managed on trust between the family members. Any documents brought for the signature of the petitioners late predecessor were simply signed without bothering to read the, same as such was the trust and confidence that one reposed in the other. 7. Mr. Ijaz Ahmed, learned counsel for the petitioners referred to the grounds raised in the memo of petition for winding up the respondent company and argued that no formal annual general meeting of the respondent was held but the returns were filed at the end of each year on time..No AGM notice was ever issued. It was further averred that no minutes of board's meeting were ever recorded because no meeting was ever held. He further argued that there was a requirement of two company Directors' signatures to make any transaction or withdrawal of funds from the company account. Instead of paying dividends to the shareholders the individual shareholder drawing funds from the respondent company for their household expenses and payment of utility bills. After the death of Noor Muhammad Vayani and Mrs. Halima Vayani in the year 2008, Muhammad Anis Vayani continued to draw- funds from the account of late . Noor Muhammad Vayani without informing the other legal heirs and never accounted for the said funds. It was further averred that late Abdul Majid Vayani was responsible for bringing in order for export of molasses and such orders were based on advance payment or letter of credits and the local purchases were looked after by Abdul Sattar Vayani under the supervision of late founder of the company and after his death all matters were being dealt under the control of Abdul Sattar Vayani, but he started misappropriating the funds of the company in league with Muhammad Amin Vayani and Muhammad 'Anis Vayani. Abdul Majid Vayani died in the month of August, 2010 and the petitioners being his, legal heirs filed Succession Miscellaneous Application No,323 of 2010 for the letters of administration which was granted by this court with directions to Nazir to transfer the shares of Abdul Majid Vayani in the names of petitioners but the incumbent Directors refused to transfer these shares on different pretexts. 8. Learned counsel also pointed out paragraph 15 of the petition which shows that after the death of Noor Muhammad Vayani his wife Mrs. Halima Vayani and Abdul Majid. Vayani the petitioners have inherited 16.72% shares in the respondent company, but the present directors have refused to transfer the shares. This has been done with the sole intention 'to deprive and exclude the petitioners from the: management and benefit of the respondent company. The respondent company has also stopped the monthly payments in accordance with family arrangement to the petitioners as well as other shareholders. He further argued that the respondent ha's sold out major assets i.e, commercial plot in Clifton, shares of Fazal Textile Ltd. And a but situated at Sandpit and all such sales were conducted without informing or consulting the petitioners and other shareholders of the company and the profits were also not accounted for or distributed among the shareholders. Learned counsel further argued that the petitioners have a pre-eminent interest in the proper and transparent administration of the respondent company. The petitioners have also discovered that the funds of the company are being siphoned off and are being used for the personal interest of the remaining Directors. The present Board of Directors have failed to maintain
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proper accounts and even not allowing the petitioners to inspect the books of accounts of the respondent company. The respondent directors are also negotiating to sell the leasehold rights of another major asset of the company situated at Oil Installation Area Keamari and the sale of this plot will amount to winding up of the respondent company in practical terms. The learned counsel vehemently argued that export of the respondent company when it was being managed under the control and supervision of founder Chairman was approximately 650,000 tons and the present export of the company is less than 80,000 tons. As such respondent company has lost its substratum. Learned counsel concluded that the present Board of Directors have failed to perform their duties and the lack of transparency, negligence and misappropriation of funds made it clear that the company has become commercially insolvent and lost its substratum, therefore, it would be appropriate and expedient to wind up the respondent company. In support of his arguments learned counsel relied upon the following case-law:- (1) PLD 1965 SC 221 (Ladli Prasad Jaiswa l v. The Karnal Distillery Co. Ltd.). In this case the Hon'ble Supreme Court held that in the case of private limited company the tendency of the courts has uniformly been to treat it more or less as a partnership and to apply the same principles in the winding up of a private limited company_ as would entitle a partner to have a partnership firm dissolved. Commonly the exclusion of a partner from the management of the firm, the existence of a state of deadlock between the partners or the justifiable lack of confidence in the management have been regarded as just and proper grounds for dissolving a private limited company. (2) 1987 CLC 2263 (Messrs Nagina Films Ltd. v. Usman Hussain and others). In this case the learned Division Bench of this court referred to the judgment of Hon'ble Supreme. Court rendered in Ladli Prasad case, reported in PLD 1965 SC 221, Yenidji Tobacco Company Limited 1916 Chancery Division 426, Loch and another v. John Blackwood Limited 1924 Appeal Case No,783, Davis and Collect Limited 1935 Chancery Division 693, Lundie Brothers Limited, Privy Council Chancery Division (1965) 1051 and Ebrahimi v. Westbourne Galleries Limited reported in (1972) 2 MI E.R. 492 and laid down as under:- (i) That in a particular case the principles of dissolution of partnership may be applied if the apparent structure of the company is not the real structure and on piercing the veil it found that in reality it is a partnership. (ii) That generally the exclusion of a partner from the management of the firm, existing of a state of dead lock between the partners or justifiable lack of confidence in the management have been regarded as just and proper grounds for dissolving a private limited company. (iii) That when the members of a Company had entered into membership of the Company on the basis of personal relationship involving mutual confidence or an understanding as to the extent to which, each of the member was to participate in the management of the company, exclusion of any member from the management in breach of the above understanding would entail the grant of winding up petition. (iv) That if a Company is floated by more than one family or several friends and relations in the absence of agreement for active participation of the members who are sought to be excluded from the management, the principles of dissolution of partnership cannot be liberally invoked but in the case of agreement for the active participation in the management by all the members of all the groups, the exclusion from the management of any group will attract the application of the principles of dissolution of partnership of a firm. (v) That in case where a family partnership is converted into a private limited company, the Court will be more inclined to apply the principles of dissolution of a private partnership firm in case any member of the family is excluded from the management of the Company be the other member of the family holding majority shares.
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(vi) That simpliciter the factum that some Directors had preponderating voting power and have not allowed the other shareholders to join in the management of the Company is no ground to wind up the Company. (vii) Where one Director purports by means of irregularities to acquire complete control of the company and to exclude other director/or Directors from the management, it may be just, and equitable that the Company be wound up. (viii) That the ground just and equitable is not controlled by the grounds preceding to the above ground in section 102 of the Act and is also not confined to cause in which there are grounds analogous to those mentioned earlier. (ix) That the position of a director and, a partner is analogous if the appointment of a Director is for a fixed period otherwise- he can be removed by an extraordinary resolution under section 86-G of the Companies Act. (x) That in the absence anything contrary in a partnership deed every partner is entitled under the Partnership Act to share the management of the firm but a shareholder generally in a company is in the absence of a pre-incorporation agreement/ - understanding cannot claim any right to manage the company. (xi) That if a shareholder brings a, petition for winding up of a company, the court will inter alia consider the factum whether majority of shareholders and large number of creditors are opposing the petition. (xii) That while considering a petition for winding up the ground of lack of probity must be against the interest of the Company itself and on behalf of the company and not in relation to the public exchequer. (xiii) That there is a marked distinction between a private partnership firm at will, of which dissolution can be sought by a partner as a matter of right and a private limited company, of which winding up cannot be contained by a shareholder without any recognized justifiable ground. (3) 1996 CLC 1863 (Mst. Khursheed Ismail and others v. Unichein Corporation (Pvt.) Limited. Learned Single Judge in this case while dilating upon the judgment delivered in the cases of Ladli Parsad and Nagina Films held that Company would be would up on just and equitable- grounds where company was family concern analogous to partnership firm and respondents had committed several acts of commission and omission rendering the company liable under various provisions of section 305 of Companies Ordinance where partners were excluded from the management of company and there was complete deadlock among the parties. (4) 1985 CLC 1239 (Mansoor All Bandeali v. Marine Food Industries Ltd. And others). This case is based on Ladli Parsad and Nagina Films cases. Learned Single Judge of this court held that the grounds which were available to a partner for having a partnership firm dissolved were available to a shareholder for winding-up a private limited under the just and equitable clause i.e, exclusion of a partner from the management of a firm, the existence of a state of deadlock between the partners. Justifiable lack of confidence in the management. It was further held in this case that majority in a private limited company has not only the right to overrule minority in all decisions on behalf of company but also right to exclude minority for taking part in management of company, subject to provision of Companies (Managing Agency and Election of Directors) Order, 1972. It was further held in this case that mere increase of the liability of the company by itself is no ground for winding up of the company. What has to be established in this regard is that it is impossible to carry on the business of the company except at a loss or that the existing assets are insufficient to meet the existing liabilities. (5) Ebrahimi v. Westbourne Galleries Ltd. And others (1973 Appeal Case No,361 House of Lords). This case was also discussed in the case of Nagina Films Ltd. The house of lords in this case set aside the judgment of court of appeal and held that the company may be wound up by the court if the
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court is of the opinion that if it is just arid equitable that the company should be wound up. The words "just and equitable" appear in the Partnership Act, 1892, section 25, as a ground for dissolution of a partnership and no doubt the considerations which they reflect formed part of the common law of partnership before its codification. The importance of this. Is to provide a bridge between cases under section 222(0 of the Act 1948 and the principles of equity developed in relation to partnerships. The winding up order was' made following a doctrine which has developed in the courts since the beginning of this century. As presented by the appellant, and in substance accepted by the company are in substance partners, or quasi-partners, and that a winding up may be ordered if such facts are shown as Could justify a dissolution of partnership between them. The common use of the words "just and equitable" in the company and partnership law supports this approach. (6) Lundie Brothers Ltd. (1965 I.W.L.R. 1051) Chancery Division. In this case it was held that if the parties had been partners the termination of the petitioner's employment as a working director, being an unjustified exclusion of him from the affairs of the partnership, would have been a ground for ordering dissolution; and that, as this private company was in substance a partnership, it was just and equitable to order, and it, was accordingly so ordered, that the company should be would up under section 222(f) of the Companies Act, 1948. 9. Mr. Arshad Tayebaly learned counsel for the respondent argued that the petitioners are not the registered shareholders of the respondent, hence they cannot file winding up petition. This petition has been filed by the petitioners in the capacity of legal heirs of late Abdul Majid Vayani, Noor Muhammad Vayani and -Mst.Halima Vayani.- The main grievance of the petitioners is that the shareholdings, of the above deceased persons have not been transferred in the names of petitioners for which the remedy is available to them under section 152 of the Companies Ordinance 1984, but instead of invoking proper remedy available under the law they have filed this petition for winding up with mala fide intention on misleading and fabricated averments. It is further contended that the assertion of the petitioners that the company has lost its substratum is misconceived. Neither the company has lost its substratum nor it is commercially insolvent. The company is being run and managed in a fair and transparent manner for the last several years. It was further averred that late Abdul Majid Vayani died in October, 2010 but in his lifetime he never raised any objection against the present board of directors. The respondent company was never operated as family business but functioning as limited company in accordance with Companies Ordinance and its memorandum and article of association. The shareholdings of the respondent is duly recorded with Security and Exchange Commission of Pakistan and there was no understanding that all family will participate in the management of the respondent. He further argued that the respondent is ready and willing to transfer the shares of late Abdul Majid Vayani in favour of his legal heirs, but the petitioners failed to return the original share certificates. He argued that late' Abdul Majid Vayani used to handle the foreign export of the company products, who siphoned off the funds and diverted to his personal account in various foreign bank accounts including but not limited to those in Switzerland, Dubai and U.K. For which the respondent has already filed Suit No, 614 of 2012 for recovery against the petitioners in this court. In relation to the allegation of siphoning off the company funds by late Abdul Majid Vayani, learned counsel argued that the present management discovered various e-mails and letters written to foreign purchaser, importers whereby he instructed to divert the sugar premium payable to respondent to: his personal account and in the account of his wife. 10. Learned counsel further argued that since the present petitioners are not shareholders of the company, therefore, no notice for AGM was required to be served upon them. So far as holding of AGM is concerned, the learned counsel submits that AGM is being held regularly. He further referred to paragraph 17 of the petition in which property of Sandpit Hut is mentioned. Learned counsel
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argued that this Hut was sold out in open market to liquidate the debt of the respondent, which wereaccumulated due to petitioners' predecessor's unlawful siphoning off the funds. The sale proceed of the Sandpit Hut was accounted for and paid into the account of respondent and this transaction was authorized by the board of directors. So far as the shares of Fazal Textile Ltd. Are concerned, he argued that the same were pledged with Soneri Bank Ltd. And the same were sold out through bank to reduce the outstanding liabilities of the respondent. It was further contended that the commercial plot in Clifton measuring 544 sq. Yards was not owned by the respondent, therefore need not to reply. Learned counsel further argued that plot No,26 Oil Installation Keamari is being sold in accordance with the decision of the board of directors against valuable consideration to repay the loan of the respondent as the sale proceed will extinguish the liability one of its largest creditors Soneri Bank Limited. The sale agreement of this property is being executed through Soneri Bank Ltd., hence, the allegation of any misappropriation are misconceived. Learned counsel further referred to three terminals namely Modern Terminal, Steel Tank Terminal and RCC Terminal with plot numbers and argued that Modern Terminal is being used for storage and export of molasses with latest pumping facility, in which the respondent stores 400,000 metric tons of molasses per annum and in Steel Tank Terminal the respondent can store 100,000 metric tons molasses per annum while the RCC Terminal is major asset having large storage capacity along with pipeline and pumping facility on the berth which is the only water front facility and the respondent's Head Office is also located there and the current exports of the respondent are being carried out through three terminals as mentioned above which is sufficient. Learned counsel also argued that the petitioners have given wrong figure of export and in paragraph 42 of the reply to the main petition substantial figures of export have been shown from 2009 to 2011 and he further pointed out that in the rejoinder the petitioners evasively denied this fact and failed to controvert the export figures. Learned counsel further contended that the decrease in export in the year 2011 occurred due to substantial increase in regulatory. Duty levied on export of the product and export of molasses has decreased throughout the country. He further argued that it would not be just and equitable to wind up respondent which is a going concern. 11. Learned counsel referred to legal notice dated 20-1-2012, which was sent by the petitioners to the present directors in which the petitioners called upon the respondent to transfer the shares of late Noor Muhammad Vayani, late Mst. Halima Vayani and late Abdul Majid Vayani and also claimed their due shares in the sale proceeds of respondent's assets and they also called upon the respondent not to sell the plot No,26. The main grievance is against the non-transferring of shares for which remedy was available in the Companies Ordinance itself. He further argued that no SMA was ever filed in relation to the estates of Noor Muhammad Vayani and Mst. Halima Vayani. Learned counsel next referred to affidavit in rejoinder of the petitioners in which they have attached a summary of payments which were made by the respondent to some persons. The summary is available with the rejoinder in which names of 29 persons with details of payments are mentioned. The learned counsel argued that late Abdul Majid Vayani died on 9-8-2010 and the dates mentioned in the summary clearly shows that the alleged payments were made in his lifetime so the petitioners cannot accuse the respondents. Learned counsel further pointed out Annexure D-17, attached with the reply of main petition which was written by Abdul Majid Vayani to give instructions to various companies to transmit the payments of respondent in his personal account and in the account of his wife i.e, petitioner No, 1. He further argued that the winding up petition is based on frivolous allegations. The Security and Exchange Commission of Pakistan never took any action rather in their comments the SECP clearly stated that the respondent has been filing statutory returns regularly including election of directors till 2010. In support of his arguments learned counsel for the respondent referred to following case-law:--
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(1) 2003 CLD 1429 (Muhammad Hussain v. Dawood Flour Mill and others). The learned Division Bench of this court held that the term 'member' used in the section 305(f) refers to a person who is a member on the day he files the application meaning that the person owns at least one share of the company and his name appears in the Register of shareholders of the company but he does not refer to a person whose name was borne on the Register some times in the past prior to the date of the filing of the application. Admittedly Hussain did not own a single share in the company on the day he filed the application. Application was therefore, not found maintainable. The aforesaid section also states that the application may be filed by minority shareholders for winding up of the company. The explanation II to the said section clearly states that 'minority shareholders' together holding not less than 20% of equity share capital of the company. (2) 2004 CLD 1064 (Afninuddin v. Messrs Azad Friends & Co.). Learned Single Judge of this court held that section 320 of the Companies Ordinance, 1984 requires this court to have regard to the wishes of the creditors and contributors in all matters relating to the winding up a company. In the present case none of the creditors and shareholders (other than the petitioner himself) has supported the winding up petition. It was further held that it is difficult to prefer the wishes of one shareholder as opposed to the remaining shareholders having an overwhelming majority nearly 69%. To conclude it would not be just and equitable in the present case to wind…
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