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Petitioner: MUHAMMAD SALEEM And 8 Others VS Respondent: ALLIED BANK OF PAKISTAN LTD. And 13 Others
Court Name: Sindh High Court Judge(s): Syed Hassan Azhar Rizvi Title:MUHAMMAD SALEEM And 8 Others vs ALLIED BANK OF PAKISTAN LTD. And 13
Others Case No.: Suit No.376 and C.M.As. Nos. 2797 to 2799 and 4065 of 2011 Date of Judgment:2011-05-06 Reported As: 2011 YLR 2515 Result: Applications dismissed Judgment ORDER SYED HASAN AZHAR RIZVI, J.---By this order I intend to dispose of the above mentioned three applications listed at Serials Nos.1 to 3, which have been filed in this suit by the plaintiffs. 2. C.M.A. No.2797 of 2011 under Order XXXIX Rules 1 and 2, C.P.C. At Serial No.1 is for grant of interim injunction seeking suspension of operation of the Agenda No.7 of Special Business, as contained the Notice of 65th Annual General Meeting of defendant No.1, whereby funds from the share premium account are being utilized to extend bonus shares and further restraining the defendants, their officers and agents from taking any further action in pursuance to the said Agenda No.7 of Special Business and from acting upon any bonus shares so approved or issued till disposal of the suit; C.M.A. No.2798 of 2011 at Serial No.2, under section 151, C.P.C., seeking suspension the operation of Agenda No.3 of Ordinary Business, as contained in the Notice of 65th Annual General meeting of defendant No.1 whereby cash dividend @ 20% is being paid till disposal of Suit No.778 of 2007, and C.M.A. No.2799 of 2011 at Serial No.3, under section 151, C.P.C. With the prayer to restrain the defendants, their officers, agents and ci lies from issuing any rights shares, bonus or any, other shareholding or from declaring any dividends in respect of the authorized capital sought to be raised through the impugned notice to the defendants or any other persons except the plaintiffs Nos.1 to 6 till disposal of the suit. 3. This suit for cancellation, declaration and permanent injunction has been filed by plaintiffs against the defendants. The plaintiff No.1 filed this suit in his personal capacity, as the director of plaintiff No.6 and on behalf of plaintiffs Nos.2 to 5 as their duly constituted attorney. Plaintiffs Nos. 7 and 8 are claiming to be the members of public at large and the plaintiff No.9 being the account holder of the defendant No. 1.
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4. It is the case of the plaintiffs that at the relevant times the plaintiffs Nos.1 to 6 held about 16% share of the total shareholding of the defendant No.1. It is averred in the plaint that the defendant No.1 malafidely and without jurisdiction attempted to sell the above shares of the plaintiffs in response to which the said plaintiffs filed Suit No.790 of 2004, wherein an application for interim injunction and some other applications are still pending. It is also averred that the defendants No.2 to 14 hatched a conspiracy to acquire the defendant No.1 as a result of which they in collusion with the Government functionaries illegally sold the shares of the plaintiffs Nos.1 to 6 during the pendency of Suit No.790 of 2004 and the application for injunction is also pending therein. The said defendants illegally borrowed funds from other Financial Institutions and utilized the same to acquire 325 millions shares of defendant No.1, which is in violation of the Prudential Regulations. The plaintiffs have challenged the above illegalities on the part of the defendants in Suit No.778 of 2007 in which vide order dated 4-7-2008 parties were directed to maintain status quo and the present defendants No.2 to 14 were restrained from trading the shares claimed by the plaintiffs, that suit is still pending. 5. It is further averred in the plaint that defendants have issued a notice of the 65th Annual General Meeting published in the Business Recorder dated 23-2-2011, which was scheduled to take place on 16-3-2011 at 11-00 a.m., the agenda listed at Serial No.7 under the heading of Special Business, reads as under:- "To consider and approve issuance of bonus shares by utilizing share premium account @ 10% i.e. One share for every ten shares as recommended by the Board of Directors of the Bank for the year ended 31-12-2010." 6. It is also averred that Agenda No.3 falling under Ordinary Business in the impugned notice of the 65th Annual General Meeting seeking approval of cash dividends at 20% in addition to interim dividends at 20% already paid for the year 2010 is a classic case of fraud and further siphoning of and embezzlement of funds aimed at fundamentally weakening the defendant No.1. The defendants Nos.2 to 14 laid a mala fide strategy to purchase free shares, but on top of that will acquire/acquired cash dividends and interim dividends, which action is fraudulent and in violation of law and procedures, so also good governance. It is urged that the entire design on the part of the defendants in this regard is to raise authorized share capital and then issue the same to themselves or to their cronies, which also dilute the shareholding of the plaintiffs Nos.1 to 6 in the defendant No.1 and cause grave loss to the public. 7. In response to the notice issued to the defendants, the defendant No.1 caused their appearance through its counsel and filed written statement as well as counter-affidavits to the above noted listed applications. The defendant No.1 vehemently denied the contents of listed applications and affidavits filed in support thereof being misconceived, false, baseless, inconsistent with and contrary to the averments of the defendant No.1, having no substances and truth. At the outset the defendant No.1 raised the following preliminary objections:-- (a) None of the plaintiffs has any locus standi or cause of action to file the title suit. None of the plaintiffs is a shareholder of the defendant-bank and as such can have no concern with nor raise any grievance with respect to the affairs of the defendant-bank which are being run in accordance with the law. The position admitted in paragraphs 2 and 3 of the plaint is that plaintiffs No.1 to 6 had held certain shares of the defendant-bank in the past which were pledged with the defendant- bank as security for the liabilities of plaintiff No.6. Not all of the shares held by the plaintiffs were reflected in the defendant's bank shareholders' register and their ownership remains subject to determination. Through a notice dated 23-6-2004 the defendant bank had proposed to sell the shareholding of the plaintiffs. The said plaintiffs filed Suit No.790 of 2004 before this Hon'ble Court along with an application for an interim restraining order against the sale of the shares of plaintiffs. However, no restraining order as prayed for was granted and consequently sale of the shares of
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the defendant bank held by plaintiffs was duly made on 23-7-2004 to Messrs Askari Commercial Bank Limited with the approval of the State Bank of Pakistan. The fact of that sale was duly recorded by the share Registrar and was also reflected in, the relevant Central Depository Company account. (b) The plaintiffs Nos.7 and 8 admit to not being shareholders of the defendant bank and claim to have filed the titled suit as members of the public at large. It is submitted that members of the public at large have no standing to file the titled suit before this Hon'ble Court. (c) That plaintiff No.9 claims to have filed the title suit as an account holder of the defendant bank. Account holders have no standing to urge the so-called grievance made in the titled suit with respect to the share premium account maintained by the defendant bank." 8. It is stated that the shares previously held by the plaintiffs having been sold and the said sale having been reflected in the relevant CDC Accounts, there is no possibility of any reversion of the shares previously held by plaintiffs Nos.1 to 6, as such the plaintiffs cannot maintain the titled suit, or urge any grievance available to the shareholders of the defendant bank. It is also stated that several issues of bonus and right shares have taken place since July, 2004, including the one approved by the shareholders of the defendant No.1 in the 65th Annual General Meeting held on 16- 3-2011, are made to existing shareholders in the' same ratio as their present shareholding. Therefore, the proposed issue of bonus shares will not cause any -change in the relative holding of the various shareholders of the defendant No.1 bank and the so-called grievance raised in the plaint that the proposed issue of bonus shares would cause a dilution in the shareholding of the plaintiffs Nos.1 to 6 is an assertion that is meaningless as a matter of law and logic. In any case the said plaintiffs are not shaieholders of the defendant No.1 bank. It is further urged that plaintiff No.1 has not been authorized by plaintiffs Nos.2 to 5, 7 and 8 to file the titled suit as the Special Power of Attorney relied upon by plaintiff No.1 on the basis of his authority to file the titled suit were executed in April, 2007 for the purpose of the suit that was proposed to be filed at that time, so also the resolution of the Board of Directors of plaintiff No.6 dated 5-5-2007 was passed earlier for the purpose of filing Suit No.778 of 2007. As such, the plaintiff No.1 has not been authorized by plaintiff No.6 to institute the titled suit. It is further averred that the shares held by the plaintiffs were pledged with the defendant No.1 as security for the various liabilities of plaintiff No.6. The number of shares claimed by the plaintiffs is denied, being subject to determination. It is also averred that plaintiff No.6 admittedly committed default and accepted its liability through a consent decree dated 29-8-2002 passed in Suits Nos.B-14 and B-32 of 2002. The plaintiff No.6 despite consent decree committed default in the discharge of its obligations forcing the defendant No.1 to exercise its rights as pledgee. It is stated that the defendant No.1 through a public notice published in the national press dated 23-6-2004 invited bids for the sale of 16,376,106 shares of ABL pledged by plaintiffs Nos.1 to 6. It is also stated that in order to defeat the sale of pledged shares, the plaintiffs Nos.1, 2 and 6 filed Suit No.790 of 2004 seeking an injunction against the proposed sale, but they have not succeeded any interim order and the sale of pledged shares was duly made. It is stated that after completion of the said sale of ABL's shares the plaintiffs ceased to be the shareholders of the defendant No.1 and now they cannot raise any grievance available to the shareholders of defendant No.1. It is also denied that any shares owned by plaintiffs Nos.1 to 6 were sold illegally by the defendants nor any illegality was committed with respect to the acquisition of 325 million shares of defendant No.1 or any violation of any of the Prudential Regulations was made. 9. It is denied by the defendant No.1 bank that the notice issued for the 65th Annual General Meeting of the defendant No.1 suffered from any lack of jurisdiction, mala fides or illegality. The AGM of the defendant No.1 took place on 16-3-2011 wherein Agenda Item at Serial No.7 under the heading "Special Business" was duly approved by the shareholders/members of the defendant No.1 and all
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premium above the face value received by the defendant No.1 on its issue of shares has been duly credited to the share premium account in accordance with section 83 of the Companies Ordinance, 1984. It is also averred that the plaintiffs have deliberately misstated the scope and intent of section 83 of the Ordinance and submitted that section 83(2)(d) expressly allows the issue of bonus shares against adjustments to the share premium account without confirmation by the Court under sections 96 and 97 of the Ordinance of 1984. 10. It is further denied that the proposal for the issuance of bonus shares was illegally recommended by the Board of Directors of the defendant No.1 or that it was put up before the 65th AGM on the basis of mala fides or without any required sanction of the Hon'ble Lahore High Court. It is submitted that no sanction of the Court is required for the issuance of bonus shares against funds available in the share premium account. It is also denied that the utilization of funds in the share premium account maintained by the defendant No.1 is subject to the settlement of any claims on the part of the plaintiffs. The issuance of bonus shares against funds in the share premium account is a routine matter and such issues are made from time to time in order to equally benefit all existing shareholders and that the issuance of bonus shares as approved in the 65th AGM of defendant No.1 is hit by the status quo order dated 4-7-2008 granted in Suit No.778 of 2007. It is also denied that defendants Nos.2 to 14 borrowed any funds from the financial institutions in violation of the Prudential Regulations to purchase the shares of defendant No.1. 11. It is also denied that any show cause-notice was required to be issued to the plaintiffs prior to the proposed issuance of bonus shares. It is denied that any cause of action against the defendants and in favour of the plaintiffs has arisen or that any cause of action continues as the registered office of the defendant No.1 is situated at Lahore and the 65th AGM was also held at Lahore, so also the other defendants arrayed in the titled suit are residents of Lahore, therefore, this Court lacks territorial jurisdiction. 12. Affidavits-in-Rejoinder have been filed by the plaintiffs reiterating the facts as stated in the plaint and the affidavits in support of their respective applications and have denied the objections and pleas raised in the counter-affidavits. 13. I have heard Dr. Muhammad Farogh Naseem learned counsel for the plaintiffs and Mr. Salman Akram Raja learned counsel for the defendant No.1 in support of their respective contentions as raised in the interlocutory applications. 14. Dr. Muhammad Farogh Naseem learned counsel for the plaintiffs in support of their applications has argued that the plaintiffs. Nos.1 to 6 held 16% of the total shareholding of the defendant No.1 at the relevant time, but the defendant No.1 malafidely and illegally attempted to sell the said shares of the plaintiffs for which the said plaintiffs filed Suit No.790 of 2004 along with application for interim injunction which is still pending. He contended that the defendants Nos.2 to 14 hatched a conspiracy to acquire the defendant No.1 as a result of which they in collusion with the Government functionaries illegally sotd the shares of the plaintiffs Nos.1 to 6 during the pendency of Suit No.790. Of 2004 when application for injunction is also pending therein and the said defendants i11 ally borrowed the funds from other Financial Institutions and utilized the same to acquire 325 millions shares of defendant No.1, which is in violation of the Prudential Regulations. He contended that the plaintiffs have challenged the above illegalities on the part of the defendants in Suit No.778 of 2007 in which vide order dated 4-7-2008 parties were directed to maintain status quo and the present defendants Nos.2 to 14 were restrained from trading the shares claimed by the plaintiffs, that suit is still pending. 15. Learned counsel for the plaintiffs after narrating the brief history of the litigation pending between the plaintiffs No.1 to 6 and defendant No.1 has argued that the plaintiffs came to know recently about the issuance of illegal and mala fide notice of the 65th Annual General Meeting
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published in the Business Recorder dated 23-2-2011 by the defendants, which is scheduled to be held on 16-3-2011 at 11-00 a.m. To consider the agenda mentioned in the notice. He contended that the plaintiffs being aggrieved with the item at Serial No.3 under the heading of Ordinary Business and item at Serial No.7 under the heading of Special Business, which reads as under:-- "(3) To consider and approve Cash Dividend @ 20% (i.e. Rs.2 per share) as recommended by the Board of Directors in addition to. Interim Dividend of 20% already paid for the year 2010." "(7) To consider and approve issuance of Bonus Shares by utilizing Share Premium Account @ 10% i.e. 1 share for every 10 shares as recommended by the Board of Directors of the Bank for the year ended 31-12-2010." 16. In the above context learned counsel for the plaintiffs has made reference to section 83 of the Companies Ordinance, 1984, which provides that "where a company issues shares at a premium, whether in cash or otherwise, a sum equal to the aggregate amount or the value of the premiums on those shares shall be transferred to an account, to be called 'the Share Premium account'; and the provisions of this Ordinance relating to the reduction of the share capital of a company shall, except as provided in this section, apply as if the share premium account were paid-up capital of the company." He contended that in the present case the per value of share was Rs.10 whereas the sale price of the share was Rs.43.69 per share, which means that the difference between the share price at par and the selling price of the said share was Rs.33.69 per share. As such, for 325 million shares an amount of Rs.10,949,250,000 was to be credited to the share premium account as per the mandate of section 83 of the Ordinance. He further contended that section 83 does not permit issuance of bonus shares by way of dividend to existing shareholders against the balance in the share premium account without the sanction of the High Court in terms of sections 96 and 97 of the Ordinance, 1984. He also contended that some scheme for the issuance of bonus shares is required other than the proposal placed before the shareholders of the company for their approval. He also challenged the vires of section 83(2)(d) of the Ordinance of 1984. 17. Learned counsel has taken me to section 24 of the Banking Companies Ordinance, 1962, which provides restriction on loans and advances. For convenience sake, section 24 is reproduce below:- "24. Restriction on loans and advances.-- (1) No banking company shall,--- (a) make any loans or advances against the security of its on shares; or (b) grant unsecured loans or advances to, or-make loans and advances on the guarantee of, -- (i) any of its directors; (ii) any of the family members or any of its directors; (i.e) any firm or private company in which the banking company or any of the persons referred to in sub-clause (i) or sub-clause (ii) is interest as director, proprietor or partner; or (iv) any public limited company in which the banking company or any of the persons as aforesaid is substantially interested. (2) No banking company shall make loans or advances to any of its directors or to individuals, firms or companies in which it or any of its directors is interested as partner, director or guarantor as the case may be, without the approval of the majority of the directors of that banking company, excluding the director concerned." 18. Dr. Muhammad Farogh Naseem, Advocate for the plaintiffs contended that any contract which is against the law is void. He has made reference to section 23 of the Contract Act, which provides that every agreement of which the object or consideration is unlawful is void and that the
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consideration or object of an agreement is lawful unless, inter alia, it is of such nature that, if permitted, it would defeat the provision of any law or the Court regards it as opposed to public policy. Learned counsel in support of his above submissions has placed reliance upon the following cases:-- 1998 SCMR1921, 1991 CLC 1591 PLD 2001 Karachi 264, 2001 MLD 1351, 1995 MLD 1714 19. Learned counsel for the plaintiffs further contended that though the meeting was convened and agenda, which illegally recommended by the Board of Directors, was approved is illegal, mala fide and without the permission of the High Court. He submitted that it is the elementary principle of Companies Law that the all pending dues are to be first settled or liquidated before any scheme of utilization from the share premium account could be sanctioned. He, therefore, argued that the action taken on the part of the defendants is also illegal as it hit by the order of status quo dated 4-7-2008 granted in Suit No.778 of 2007. He submitted that the entire arrangement whereby the defendants Nos.2 to 14 and their cronies are attempted to benefit from the above illegal device can be appreciated from the following:-- (a) the said defendants Nos.2 to 14 borrowed huge funds from the financial institutions in violation of the Prudential Regulations to purchase shares of the defendant No.1; (b) shares of the plaintiffs were illegally brought under jeopardy; (c) if the amount taken from the share premium account is utilized to accord bonus shares to the defendants Nos.2 to 14, this will amount to further augmenting illegality, falling nothing short of a day time dacoity, in that the whole premium on the shares are being given back to the purchasers of these shares, completing hoodwinking the depositors, the people at large so also the plaintiffs. Thus, the said defendants will have virtually acquired the bank by paying nothing or literally just peanuts. 20 Learned counsel for the plaintiffs next contended that the sale of 16.376 millions shares made to Askari Commercial Bank Limited on 2-7-2004 be considered prima facie unlawful and on this basis plaintiff No.2 be treated as a deemed shareholder of defendant No.1 and if bonus shares are to be issued they be issued only to plaintiff No.2 and the Fateh Group. He also contended that until the matter pertaining to the sale of the aforesaid 16.376 million shares is decided defendant No.1 be restrained from issuing bonus shares to its existing shareholders. 21. Dr. Farogh Naseem in response to the objection taken by the defendant No.1 in the counter- affidavits with regard to the locus standi of the plaintiffs, he has placed reliance on the case of LADLI PRASAD JAISWAL V. THE KARNAL DISTILLERY CO. LTD. (PLD 1965 SC 221), wherein it has been held that rights of parties must be adjudged according to the legal position prevailing at time of institution of petition for winding up and not on basis of changes introduced pendente lite unilaterally by other shareholders without consent of shareholder who had instituted proceedings for winding up. He also made reference to the case of BROTHERS STEEL LTD. AND OTHERS V. MIAN MIRAJUDDIN AND OTHERS (PLD 1995 SC 320), 22. On the other hand, Mr. Salman Akram Raja learned counsel for the defendant No.1 has argued that no cause of action has arisen to the plaintiffs at Karachi as the registered office of the defendant No.1 is at Lahore and the impugned resolutions were passed at Lahore in the 65th Annual General Meeting. He urged that the suit has been filed on the basis of Special Power of Attorney executed in April, 2007, which has already been filed in Suit No.778 of 2007 before this Court. He also urged that members of the general public and depositors have no locus standi to file the titled suit. He further urged that the management of defendant No.1 has been transferred in July,
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2004 when the defendant No.1 was privatized. He contended that since seven years dividends was paid, without objection and now for the first time the plaintiffs have objected the same malafidely with ulterior motives and they have succeeded to obtain interim ex parte order dated 16-3-2011 by partial reading of section 83 of the Companies Ordinance, 1984. He submitted that at the time of obtaining the interim order the attention of the Court was not drawn to section 83(2)(d) of the Ordinance which expressly allows the issue of bonus shares against the balance available in the share premium account. He submitted that entire section 83(2) takes effect notwithstanding anything contained in section 83(1) and therefore sanction of this Court in terms of sections 96 and 97 is not required prior to the issuance of bonus shares in terms of section 83(2)(d). He made reference to section 78(2) of the Indian Companies Act, 1956 and stated that section 83(2) of the Ordinance of 1984 is para materia to the said Section. He submitted that language of section 83(2) of the Ordinance is. Sufficient to reject the contention that any sanction under sections 96 and 97 of the Companies Ordinance is requited to issue of bonus shares. 23. In support of above contentions he has placed reliance on the judgment of Andra Pradesh High Court in the case of HYDERABAD INDUSTRIES LTD. Reported as 2005 Company Cases (123) 458, which clearly indicates that no sanction of the Court is required prior to the issuance of bonus shares against the balance available in the share/securities premium account. He also made reference to the treatise on Company Law by C.R. Datta (Sixth Edition at page 1705) wherein the provisions of section 78(2) (para material to section 83(2) of the Ordinance of…
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