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Petitioner: Sh. MAQBOOL ELLAHI AND 3 Other VS Respondent: RASOOL & Co. LTD. AND 2 Other
Court Name: Lahore High Court Judge(s): Muhammad Akram Title: Sh. MAQBOOL ELLAHI AND 3 Other vs RASOOL & Co. LTD. AND 2 Other Case No.: Civil Miscellaneous No. 7/L in Civil Original No. 4 of 1969 Date of Judgment:1969-10-24 Reported As: PLD 1970 Lahore 539 Result: Application accepted
JUDGMENT
JUDGMENT MUHAMMAD AKRAM, J.---This is an application by Sh. Maqbool Elahi and others against the respondents under section 175 of the Companies Act VII of 1913 (hereinafter called the Act) for the appointment of a Provisional Liquidator for Sh. Fazal Elahi (Lyallpur) Limited, pending their main petition (C. O. 4 of 1969) made under section 162 of the Act for winding-- up of this Company. 2 Sh. Fazal Elahi (Layallpur) Limited (hereinafter called the Company) is a private limited Company. It is named after the father of Sh. Maqbool Elahi petitioner No. 1. It was registered on the 31st of October 1957, with a nominal capital of Rs. 1,00,00,000.00 (one crore) divided into two lass shares of Rs. 50.03 each. It is a manufacturing concern founded by the parties and their predecessor. 3. The main petition under section 162 of the Act for the winding up of the Company is based on the following allegations in brief:- "There are in all five shareholders of this Company holding the following shares:- Rs. Rs. (i) Sh. Maqbool Elahi, petitioner No. 1. 3,250 x 50 1,62,500.00 (ii) Mst. Khalida Khanum (wife of petitioner No. 1) petition--er No. 2. 1,250 x 50 62,500.00 (iii) Javed Maqbool (son of petitioner No. 1) petitioner No. 3. 250 x 50
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12,500.00 (iv) Latif Khanum (mother-in-law of petitioner No. 1) peti--tioner No. 4. 250 x 50 12,500.00 (v) Rasool & Co. Ltd., respondent No. 1. 5000 x 50 2,50,000.00 Total 5,00,000.00 (i) Sh. Fazal Elahi (Layallpur) Ltd., a Private Limited Company, (ii) Fazal Nylon Mills Ltd., as a public limited company, and (iii) Rasool Maqbool Ltd., as a private limited company. There were the following four Directors in this Company at the time of the death of Mian Ghulam Rasool 9n London on the 12th of December 1966:- (i) Sh. Maqbool Ahmad, petitioner No. 1, (ii) Mst. Khalida Khanum, petitioner No. 2. (iii) Mian Ghulam Rasool, deceased, and (iv) Mian Mukhtarul Jalil, respondent No. 2. After the death of Mian Ghulam Rasool, the Directors met on the 26th of May 1966, and respondent No. 3, Mr. Ziaul Jalil was co-opted as a Director in place of his deceased father. 4. Thereafter disputes and differences arose between the parties. It is alleged that according to the Articles of Association the two groups in the Company were placed at par with each other and are associated together in this venture as equal partners, so that they must always act jointly. Neither the shareholders nor the Directors in the two groups could act without the presence and association of each other. The petitioner has further alleged that the Company has obtained a loan of Rs. 8,25,000.00 from PICIC on the personal guarantees furnished by petitioner Nos. 1 and 2 on the express stipulation that "Sh. Fazal Elahi (Lyallpur), Ltd., will not change its management". However, according to the petitioners it has become impossible for the Company to function in accordance with its Articles of Association for a number of reasons set out in the petition. The last meeting of the Board of Directors of the Company was held on the 26th of May 1966, and thereafter no meeting could be held due to the disputes and differences between the Directors of the Company, evenly divided between the two groups and not in a position to sit together to form the necessary quorum of at least three. But that the respondents Nos. 2 and 3 have falsely claimed that the petitioners Nos. 1 and 2 have ceased to be directors of this Company for their failure to attend a meeting summoned for the 15th of November 1968, and that in their place they have co- opted their own brother Akhtarul Jalil as a Director in the Company contrary to the Articles of Association. He was not even qualified for his appointment as a director of the Company. The petitioners have also alleged that in this state of affairs so far even the accounts for the years 1965-66, 1966-67 and 1967-68 have not been adopted and there was no Annual General Meeting of the Company held after the 13th of December 1965. Even if a General Meeting was held it is likely to remain inconclusive under the circumstances. The petitioners have asserted that the registered office of the Company is situated at Shama Cinema Building, Lahore and its factory at Nishatabad in Layallpur. But in the absence of petitioner No. 1, on tour outside Pakistan, all the statutory books of the Company were removed from the registered office of the Company by the respondents. The petitioners have expressed the apprehension that the respondents have indulged in the wholesale fabrication of the registers and records of the Company. The Company was also indebted to the Habib Bank Ltd., Layallpur, in the sum of Rs. 5,00,C00.00 against the security of stocks of nylon chips and Gut worth Rs. 14,84,444.00. But on the 10th of September 1968, respondents illegally managed
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to take delivery of the stock worth Rs. 6,29,700.00 from the Company without making any payment in order to cause embarrassm ent to petitioner No. 1 and bringing him in disrepute with his bankers". The petitioners have, therefore, submitted that it was just and convenient that this Company may be ordered to be wound up. 5. In their joint written statement, the respondents have denied all the material allegations. They have asserted that this petition is mala fide. The petitioners in collusion with their relations have involved them in a number of proceedings with a view to harass them and to impede the smooth working of the Company. They have alleged that the issued paid-up capital of the Company is Rs. 5,50,000.00 (five lac fifty thousand) consisting of eleven thousand shares of Rs. 50, held as under:- Rs. (i) Rasool & Company Ltd. 5,500 x 50 2,75,000 (ii) Rasool Jalil Corporation Ltd. 500x 50 25,000 (iii) Sh. Maqbool Elahi (petitioner No. 1). 3,250 x 50 1,62,500 (iv) Mst. Khalida Khanam (petitioner No. 2). 1,250 x 50 62,500 (v) Javed Maqbool (petitioner No. 3). 250 x 50 12,500 (iv) Mst. Latif Khanam (petitioner No. 4). 250 x 50 12 Total 5,50,000 According to the respondents, petitioners Nos. 1 and 2 have already ceased to be and are no more the Directors of the Company under Article 68(5) and (7) of the Articles of Association of the Company. It is alleged that the present Directors of the Company are:- (i) Mian Mukhtar-ul-Jalil, respondent No. 2. (ii) Mian Zia-ul-Jalil, respondent No. 3. (iii) Mian Akhtar-ul-Jalil, their brother. The respondents have admitted that at first their father Ghulam Rasool and petitioner No. 1 were partners in the firm known as Sh. Fazal Elahi & Company, Sialkot. In the year 1956 the firm got a licence for the import of machinery for the installation of a Nylon Monofilament Plant (Gut) worth Rs. 1,53,000.00. How--ever, after the import of the Plant it was transferred to this Company formed in the year 1957. The Plant was actually installed by Sh. Fazal Elahi (Lyallpur) Ltd. And was started in January 1960. Afterwards it was decided to expand this business to include manufacturing of Nylon, Chip and Yarn. For this extension of the business of the Company, the technical know how possessed by respondent No. 2 was all important. It was as a result of the plans prepared by and on the application submitted by him that the PICIC sanctioned a loan of Rs. 24,25000.00 in the name of the Company for the import of the machinery for Polymerisation of Nylon Chips and Spinning of Nylon Yarn and Twine due to his ceaseless labour and efforts. Thereafter this business was split up to be carried as under:
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(i) Manufacture of Nylon Chips and Guts by Sh. Fazal Elahi (Lyallpur) Ltd. (ii) Spinning of Nylon Yarn and Twine by Fazal Nylon Ltd. Floated as a public limited Company in 1962. The two manufacturing Companies have independent premises and they are in no way dependent on each other. The respon--dents have vehemently denied the allegation that for any valid reason it has become impossible for the shareholders and the Directors in this Company to function. They have denied that the Company was liable to be wound up for any valid reason. 6. I have heard the learned counsel for the parties on this application under section 175 of the Companies Act, 1913 for the appointment of the Provisional Liquidator in the light of the above allegations and counter-allegations made by the parties. It is admitted before me that to start with there were only five shareholders in the Company, comprised of the tour petitioners led by Sh. Maqbool Elahi petitioner No. 1, representing one group holding shares of the value of Its. 2,50,000.00 and respon--dent No. 1, represented by the family of Mian Ghulam Rasool holding shares of the equal value of Rs. 2,50,003, in the capital of the Company. Also that there were in all four directors of the board, two each from each group within the Company. There was this parity between the shareholders and Directors of the Company. Under Article 55 of Articles of Association of this Company, . No business shall be transacted at any General Meeting unless a quorum of members be present. Two members present in person or by proxy shall be a quorum for a General Meeting. However, more than 50 percent of the share capital must be represented". Prima facie this stipulation in this behalf was inserted to ensure that the representative of both the groups are associated together in the deliberations of the shareholders of the Company. Article 57 provides that: "Until otherwise determined by the Company in General Meeting the number of Directors shall be not less than two not more than four including the ex officio Directors, if any. Each Company holding 30 per cent. Or more shares of the Company will be represented proportionately in the Board of Directors. If such representative, Director or Directors retire, his or their substitutes must be taken on the Board of Directors before the Board conducts further busi--ness. The election of all Directors should be by unanimous vote." According to Article 72 of the Articles the quorum necessary for the transaction of the business of the Directors may be fixed by them and unless so fixed shall be three. These provisions have been made with a view to secure proportionate representation on the Board of Directors of the Company and also to see that a representative of each group is allowed to participate in the Meetings of the Board. 7. Although the allegations in the written statement are altogether vague and not sufficiently clear, yet it transpires from the minute books of the Company produced by the respondents, on the applications made by the petitioners and their affidavits, that they have by a series of actions taken by them purported to disturb this balance of power between the two groups within the Company, in their favour. Their is a serious dispute between the parties concerning their validity. Clause (7) of Article 68 of the Articles of Association provides that every Director shall vacate his office, if he absents himself from three consecutive meetings of the Directors. In this connection clause 5 of this Article further lays down that he shall also vacate office if he or any firm, of which he is a partner, without the sanction of the Company in general Meeting accepts or holds any office of profit under this Company, Relying on these provisions it is alleged by the respondent's that Mst. Khalida Khanam petitioner No. 2 had ceased to be a Director of the Company after she had absented herself from the three consecutive Meetings of the Board and had become a partner in Messrs Thapar & Brothers, Sialkot one of the sole agents of this Company. In this case I find that the minutes for the meetings of the Board and the shareholders are not entered in a regularly bound register or book. They are recorded on loose papers pasted or attached in a register kept for the purpose. But no adverse inference can be drawn from this circumstances because the genuineness of some of these proceedings in their existing condition is admitted by the petitioners.
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8. These minutes of the Meetings produced by the respon--dents purported to show that respondent No. 2 had successively called three meetings of the Board of Directors for the 9th of December 1967, 12th of June 1968 and 7th of November 1968, inter alia, to consider the matter about these disqualification incurred by Mst. Khalida Khanam and for the appointment of a new Director in her place. But on each occasion only two Directors, Mian Mukhtar-ul-Jalil and Mian Zia-ul-Jalil respon--dents Nos, 2 and 3, had attended and consequently all the three meetings were adjourned for want of quorum without transacting any business, Allegedly the notices of the agenda for these meetings was sent by the Company to the petitioner by post under postal certificate. Be that as it may so far there is nothing to prove that they were properly addressed to petitioners Nos. 1 and 2 on their correct address. They have denied the receipt of the alleged notices by them. In the meantime it appears that Sh. Abdul Aziz, father-in-law of petitioner No. 1, brought a suit in the civil Court at Sialkot against Sh. Fazal Elahi (Lyallpur) Limited impleading all the four Directors (petitioners Nos. 1 and 2 and respondent Nos. 2 and 3) as parties. During the course of the hearing in that suit, on the 6th of November 1968, two separate and contrary written statements were filed on behalf of the Company in the trial Court. To resolve this impasse the Court directed that all the four Directors should meet together and decide about their representation for the Company in the suit. Consequently petitioners Nos. 1 and 2 are alleged to have called a meeting of the Directors for the 13th of November 1968 and sent notices to respondents Nos. 2 and 3 under registration post. But they failed to attend and the meeting was adjourned in the absence of a quorum without transacting any business. 9. However, according to the version of the respondents, and this is a main bone of contention between the parties, respondent No. 2 had also called a meeting of the Directors to be held at the office of the Mill premises for the 15th of November 1968, at 9 a.m, Notice of this meeting was published in the "Pakistan Times" dated the 3rd of November 1968. Notices are also stated to have been despatched to petitioners Nos. 1 and 2 under postal certificates, But they failed to attend and in their absence the respondents Nos. 2 and 3, the remaining two Directors, passed a resolution to the effect that both of there have vacated their respective offices under Article 68 of the Articles of Association and Mian Akhtar-ul-Jalil was appointed as a Director to fill in the vacancy in accordance with the provisions of Article 89, fable A of the Companies Act applicable to the Company. They decided to meet again and hold another meeting in the evening at 9 p.m. The second meeting was attended by the respondents Nos. 2 and 3 and their third brother as the Directors of the Company. They are stated to have resolved to shift the registered office of the Company from Shama Cinema Building, Lahore, to the Mill's premises at Nishatabad, Lyallpur. 1 hey also decided to inform all the different bankers of the Company to the effect that petitioners Nos. 1 and 2 had ceased to be the Directors of the Company and cannot operate on its accounts. In the meeting it also was resolved that Javed Maqbool petitioner No. 3 should be dismissed from his position as the Manager of the Company for his mis-handling the affairs of the Company. After this the three brothers appear to have convened another meeting of the Board of Directors of the Company at 7-30 --a.m. On the 16th of November 1968, at the Mill's premises. They decided that the paid-up capital of the Company should be raised by Rs. 50.000.00 OR Rs. 1000 x 50 each) and notices ordered to be sent to the existing shareholders by post requiring them to inform the Company within 15 days if they wanted to purchase were shares in proportion to their existing holdings in the Company. According to the respondents, in spite of the notices issued to the petitioners they failed to exercise their option for the purchase of these shares within time. In these circumstances the Board of Directors, comprised of the three brothers again met on the 17 of December 1968 at 12-30 p.m. And- made the following allotment of these additional shares in the Company:--- Rs.th
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(i) Rasool & Company Ltd.500 x 5025,000 (ii) Rasool Jalil Corporation, Ltd.,500 x 5025,000 Lahore, a sister concern belonging to the respondents. 10. With regard to the meetings of the shareholders, the respondents maintain that a general meeting of the Company was duly held on 30-12-1966. This was attended by Javed Maqbool, petitioner No. 3, who is alleged to have initialled the proceedings in token of his presence. In this meeting the annual balance-sheet and profit and loss account of the Company for the year ending 30-4-1966 was stated to have been unanimously approved. The respondents are also stated to have convened two Annual General Meetings on the 4th of January 1969 in which the annual accounts of the Company for the years ending 30-4-1967 and 30-4-1968 were passed. 11. Before me the learned counsel for the petitioner has very --vehemently challenged the bona fides of all the aforesaid meeting of the Board of Directors and the shareholders allegedly convened by the respondents in the absence of she petitioners. It was contended that all these proceedings were false, fictitious and have been fabricated fraudulently with a view to deprive the petitioners of their legitimate status and position in the Company. Petitioner No. 1, Sh. Maqbool Elahi, in his sworn affidavit dated the 28th of March 1969, has affirmed that no general meeting of the Company was held in the years 1966, 67, 68 or 69. Neither he, nor his wife, Mst. Khalida Khanam or his son Javed Maqbool or his mother-in-law Mst. Latif Khanam, the four petitioners in the case, convened a general meeting during these years and nor did they receive any notices from any of the respondents for any such meetings. The minutes produced by the respondents go to show that a general meeting was held on the 30th of December 1966, and two general meetings on the 4th of January 1964. But none of the four petitioners have ever received any notice of these meetings alleged to have been convened by the respondents. Petitioner No. 1 has further affirmed that whenever the meetings of the Company were held, during his stay in Pakistan, he always used to attend and preside on almost all those meetings. From the 22nd of December 1958 to the 26th of May 1966, in all about 40 meetings of the Board of Directors were held. Five of these by circulation and of the remaining 35 meetings he attended all the meetings. He has asserted that there never was any reason for any of the petitioners to have absented from any of these meetings stated to have been summoned by the respondents. He has further deposed that no Directors meetings was ever called for the 9th of December 1967, 12th of June 1968, 7th of November 1968 and 15th of November 1968 by the respondents. He has affirmed that he and his wife, Mst. Khalida Khanam have continued to remain as the Directors all along, receiving their due remuneration as such paid to them till October 1968. He has denied that they have ceased to be the Directors of this Company for any reasons. The deponent has further affirmed that at no stage any of the petitioners received any intimation for the issue of additional shares which were never offered to them for the purchase. Had any offer been made in this respect, they would have willingly accepted the same and purchased the additional shares. The petitioner has affirmed that the story for the issue of the further shares of the value of Rs. 50,000.00 in November 1968 the Directors had decided to recommend the payment 10% dividend which would consume Rs. 50,000.00 thus raised by the Company. Had this need for cash existed in November 1968, the Company could have utilised its other resources including the dividends then undeclared. In the above connection the deponent has further affirmed that he, his wife and son are living in Peeli Kothi, Naseer Road, Noorpura, Sialkot. But the respondents are alleged to have despatched their notices addressed to them at "Ahmadpura" or (Nasser Road), Sialkot. This was obviously an insufficient and misleading address knowingly supplied by the respondents. Before 1958 the petitioner used to live at "Ahmadpura", but he gave up that residence in the year 1958. "Ahmadpura" is to the east of Sialkot Fort while Nasser Road is to the West of Sialkot Fort at a
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distance of more than one mile from "Ahmadpura". The petitioners have been corresponding with the respondents at their address care of Sh. Fazal Elahi & Co. Ltd., Charan Das Road also known Mojahid Road, Sialkot City. 12. In connection with the above, the learned counsel for the respondents has stoutly defended the much controverted resolution dated 15-11-1968 and all the subsequent resolutions in question, passed by the Board of Directors, and the Company and has asserted that all actions taken by the respondents upto--date on behalf of the Company were fully justified and unex--ceptionable. On the other hand, the learned counsel for the petitioners has vehemently questioned and criticised the bona fides and the validity of all these resolutions. He maintains that no notices of those alleged meetings were even sent to the petitioners and the plea raised by the respondents to the effect that they were despatched to them under the postal certificates, was altogether false and a fabrication to deceive this Court. The learned counsel has also challenged the appointment of Akhtar-ul-Jalil as an additional director on the board in place of petitioners Nos. 1 and 2. According to him he was not even qualified for the appointment at the time. He has further asserted that no such appointment could be made except with their consent by a unanimous vote .In accordance with the Article 57 of the Articles of Association of the Company. The learned counsel has argued that by these subterfuges the respon--dents have managed to illegally and fraudulently oust tae petitioners from their share of the management of the company usurped by them. These are certainly some of the big and serious questions raised before me at the hearing. The respon-- dents have still to justify all their actions taken in this behalf after an adequate opportunity for the evidence has been allowed to them. At this stage, in the absence of any evidence led by the parties, I have advisedly refrained from expressing any considered opinion in this behalf. However, for the purpose of this application, it still remains to be seen as to whether or not the petitioners have otherwise disclosed a case for an order under clause (vi) of section 162 of the Companies Act on the ground that it is just and equitable to wind up this Company. 13. In the leading case in Re: Yenidje Tobacco Co. Ltd. (1916 Ch. D 426), there were only two Directors in a private Company and they were not on speaking terms. The so-called meetings of the Board of Directors had been almost a farce or comedy, and the Directors would not speak to each other on the board, and some third person bad to convey communications between them which ought to go directly from one to the other. In these circumstances in the opinion of the Court there was no way out except by means of a compulsory order. In this connection, Lord Cozen-Hardy M. R. Observed:- "If ever there was a case of deadlock I think it exists here; but, whether it exists or not, I think the circumstances are such that we ought to apply, if necessary, the analogy of the partnership law and to say that this company is now in a state which could not have been contemplated by the patties when the company was formed and which ought to be teranmated as soon as possible. We are told that we ought not to do it because the company is prosperous, making large profits, rather large profits than before the disputes became so acute . . . . "It is contrary to the good faith and essence of the agree--ment between the parties that the state of things which we find should be allowed to continue." This case was followed with approval in Re: Davis and Collett: Ltd. (1935 All. E R.315) Crossman, J. Observed that. In considering whether it was just and equitable that the company should be wound up the Court was left in the widest possible terms to consider what justice and equity required; as the petitioner and the respondent held the…
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