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Petitioner: NATIONAL BANK OF PAKISTAN VS Respondent: ITTFAQ FOUNDRIES (PVT.) LTD.
Court Name: Lahore High Court Judge(s): Umar Ata Bandial Title: NATIONAL BANK OF PAKISTAN vs ITTFAQ FOUNDRIES (PVT.) LTD. Case No.: C.O. No,63 of 1998 Date of Judgment:2014-05-27 Reported As: 2014 CLD 1068 Result: Order accordingly
Judgment ORDER ' UMAR ATA BANDIAL. C.J.---This petition under section 284 of the Companies Ordinance, 1984 ("Ordinance") was filed initially by eight financial institutions which are lenders and secured creditors of the respondent No,1, Messrs Ittefaq Foundries (Pvt.) Ltd. ("IFL") for the sanction of an arrangement arrived by such creditors in terms of an agreement dated 30-6-1998 entered with the management of IFL a family owned private limited company. The said agreement is signed on behalf of the eight secured creditors by their authorized representatives and by IFL through its Director and Chief Executive, Mr. Farooq Barkat. During the course of these proceedings, a ninth secured creditor of IFL Messrs ADBP (now ZTBL) joined the proceedings in support of the arrangement proposed in the petition. By order of the Court dated 8-7-1998 passed in this petition a meeting of the secured creditor petitioners was convened under the chairmanship of Mian Aftab Farrukh, Advocate. Also by the same order a Committee ("Sale Committee'9 was constituted by the Court to: assume charge and takeover possession of and preserve the properties of IFL; to make a complete inventory of such properties; and to examine the possibility of disposal of the assets of the said company. These orders were passed in the light of the abovementioned agreement dated 30-6-1998 arrived between the secured creditors and management of the company which is as follows:- , "THE TERMS OF THE ARRANGEMENT UNDER SECTION 284 OF THE COMPANIES ORDINANCE 1984 BETWEEN THE ITTEFAQ FOUNDRIES (PVT.) LTD 1ST FLOOR, SIMLA TOWER, 5-DAVIS ROAD, LAHORE AND THE CREDITOR-BANKS NAMELY (1) NATIONAL BANK OF PAKISTAN (2) HABIB BANK LTD (3) UNITED BANK LTD (4) AGRICULTURAL DEVELOPMENT BANK OF PAKISTAN (5) MUSLIM COMMERCIAL BANK LTD (6)
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PAKISTAN INDUSTRIAL CREDIT AND INVESTMENT CORPORATION (7) BANK OF PUNJAB (8) FIRST PUNJAB MODARBA. 'That the Creditor-Banks shall move the Lahore High Court, Lahore for sanction of this arrangement in terms of section 284 of the Companies Ordinance 1984. The Company will also be at liberty to apply to the High Court in this behalf. The terms of this arrangement are:-- "(a) That the liability of the Company towards the Creditor-Banks will be determined by the Court to which a request shall be made in this regard. (b) That the Company shall handover its Assets to the Creditor-Banks. These Assets consist of entire factory premises, including land, buildings, plant & machinery, stock in trade receivables, raw material and finished goods etc. These Assets shall also include the total Assets and liabilities of another dormant Company namely Ilyas Enterprises (Pvt.) Ltd., which was taken over by the Ittefaq Foundries (Pvt.) Ltd. The inventory of these Assets shall be prepared by the representatives of both the sides. (c) These Assets will be disposed of by a Board comprising a representative of the Banks and a nominee of the Court. The Board, shall be empowered to manage the property during the interregnum, if need be to develop the same, through a development scheme or otherwise and take all necessary steps, as deemed fit by it, to secure the maximum sale price. The Board shall have the authority to dispose of the property in such manner as considered proper by it. The Board may seek guidance from the Court, on any issue: Any difference of opinion between the members of the Board shall be resolved by the Court. All sales shall be subject to confirmation by the Court. (d) That the sale proceeds of the property, and the receivables on recovery thereof shall be distributed among the Creditor-Banks, in such ratio and in such manner, as mutually agreed upon by them. The court shall be moved and requested to enforce the recovery of the receivables. (e) If the sale proceeds of the Assets coupled with the realization of the receivables, are more than tht liability of the Company, the balance shall be paid to the Company. On the other hand, if such sale proceeds and ' the recovery of receivables, is less than the liability of the Company, the Court will be requested to: (a) determine such shortfall. (b) fix the responsibility to make good such shortfall, and (c) enforce the recovery in this behalf against the persons concerned. (f) On full satisfaction of the Bank's debts, the un-appropriated guarantees/ securities shall stand released. Such release may be made under the Orders of the Court even earlier. (g) That this arrangement is without prejudice to the rights of the Creditor-Banks and the Company under the law." 2. Pursuant to the order of the Court dated 8-7-1956 a public notice was published in the Daily 'Business Recorder" on 22-7-1998 and in the Daily Wawa-i-Waqt" on 23-7-1998 for convening a meeting of the creditors of IFL on 30-7-1998 at the company's registered office in Lahore. The report dated 18-8-1998 filed by Mr. Aftab Farrakh, Advocate, chairman of the creditors' meeting narrates that the creditors meeting was held on 30-7-1998, the minutes of which were separately recorded. All persons attending the meeting were apprised of the contents of the arrangement as contained in the agreement dated 30-6-1998 reproduced above and "no one has raised any objection, rather accorded their approval". 3. The IFL is a private limited company engaged in the business of steel re-rolling and manufacturing of allied products. It is owned by seven brothers and their family members. The different families constituting membership of IFL are given in the following chart:-- Family No.Name% of shareholding 1. Sharif14.08%
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2. Shafi14.90% 3. Miraj14.29% 4. Siraj12.44% 5. Barkat15.43% 6. Aziz 14.29% 7. Bashir14.37% 4. It appears that the creditors' arrangement proposed in the petition did not have the backing of all the family shareholders of IFL. As a result on 19-8-1998, Family No,2 filed an application hearing C.M. No,1151-1998 for their impleadment in the proceedings. Thereafter Family No,1 filed an application bearing C.M. No, 2069/L of 1999 offering payment of its 1/7th share of the amount claimed by creditor banks in cash or through property and seeking its release from the said claims. On 24-9-1999, the Court issued notices in the said application to the other six families who constituted the remaining membership of IFL to state their response on the offer made by the applicant. It is in the said context that all families that are shareholders of IFL became parties to the instant proceedings and expressed their opinion on the creditors' proposed arrangement as well as other proposals that were tabled by shareholders of the company. 5. The petitioner banks seemingly lost interest in the creditors' arrangement proposed in the petition after political events forced the members of the Family No,1 into imprisonment late in the year 1999. This is evident from the Court's order dated 30-6-2000 which is reproduced below:-- "Learned counsel for the petitioner seeks another adjournment in order to obtain instructions. It has been noted that at the request of the learned counsel for the petitioner the case is being adjourned for last more than 6 months. In the interest of justice a last and final opportunity is allowed to the petitioner to either proceed with the case or to make a statement about settlement." ' The said disinterest by the petitioner banks is reflected in subsequent orders passed by the Court. Reference may be made to order dated 15-4-2003 which is reproduced below:- "Learned counsel for Bank of Punjab stated that in some of the meetings, National Bank of Pakistan and Habib Bank Limited conveyed that in order to streamline the dispute, they may not pursue these matters any more. Learned counsel appearing on behalf of applicant bank sought one month's time to obtain fresh instructions in the matter. He also stated that he will consult his clients on possibility of having a creditors' meeting in this matter." 6. Meanwhile, in exercise of powers conferred by the order of Court dated 8-7-1998 the Sale Committee proceeded to dispose of raw materials and other moveable assets of IFL. On 27-1-2000 the said Sale Committee was reconstituted upon the demise of its Member (Legal), namely, Ch. Muhammad Sadiq, Advocate who had been appointed by the Court. In his place, with the consent of all parties concerned, Mr. Iqbal Hameed-ur-Rehman, Advocate was appointed as Member of the Sale Committee. The actions taken by the Sale Committee and the progress made by it in the case is recounted, inter alia, in its Report No,20 dated 7-7-2004. This report gives an account of the movable assets of the company that were realized through auction and sale. In particular, the report mentions the efforts made by the committee for arranging a buyer for the fixed assets ("Offered Assets" of the IFL and two other group companies Messrs Brothers Steel Pvt. Ltd. And Messrs Brothers Pvt. Ltd. Whose assets under separate agreements also form part of the arrangement proposed by the petitioner banks. The different bidders that approached the Sale Committee for purchasing the Offered Assets include: Star Cotton Corporation (Pvt.) Ltd., Usman Traders, Ahmad Steel Consortium of Companies and Mian Muhammad .Ilyas Miraj, Family No,3. The said parties tendered bids for the offered assets but these were found to be inadequate.
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7. Another bidder Al-Rehmat Group is reported to have offered an aggregate amount of Rs,2.15 billion as price of the offered assets in the bid dated 9-2-2004. The petitioner's secured creditors considered the said bid and decided to accept the same. On the basis of the said support given by the creditor banks, the Sale Committee recommended acceptance of the bid to the Court in its report No,20 dated 7-7-2004. The said report was taken up for consideration by the Court when notices thereon were issued to the parties on 9-9-2004. Objections to the said proposal were filed by certain families constituting shareholders of the group companies. 8. According to the order dated 13-10-2004 the objections and replies to report No,20 were argued on behalf of Families Nos. 1 to 3. Family No,3 disputed the bid by Al-Rehrnat Group and sought permission to match the same. Family No,7 objected that receivables of the three group companies should not be included in the sale bid as a result of which the price offered by Al- Rehmat Group stood diminished. The proceedings were adjourned to 14-10-2004 when one of the secured creditors, the Bank of Punjab, also objected to the acceptance of the bid by Al-Rehmat Group. In view of the objections raised by persons belonging to the class of secured creditors as well as by Family shareholders of the three group companies, the learned Company Judge also ordered for draft terms and conditions of advertisement for sale of assets to be proposed by consensus of the parties, secured creditors and shareholders. 9. As the matter became contentious, on 22-10-2004 Family No,1 also came out squarely against the offer made by Al-Rehmat Group and sought competitive bidding after public notice of sale. The said position is noted in the order dated 22-10-2004 passed in these proceedings. In the circumstances, by consent of both secured creditors and the shareholders of the three group companies owning the offered assets, the aforenoted order charts a roadmap to the following effect: all the parties agree to the interim sale of the offered assets by Sale Committee on the basis of jointly agreed terms and conditions; the interim sale shall not prejudice the objections to the scheme of arrangement proposed by the creditor banks under section 284(2) of the Ordinance which objections shall be adjudicated by the Court upon finalization of the interim sale; thirdly, that the modes and modalities for settlement of claims against the three group companies shall also be dealt with after finalization of sale of the offered assets and collection of their sale proceeds. 10. Pursuant to the foregoing terms of the consent order dated 22-10-2004, draft terms of public sale of the offered assets were approved by Court in its order dated 2-12-2004. The bid price of Rs,2.15 billion offered by Al-Rehmat Group was directed to be treated as a reserve price. An amount of Rs,50.0 million already deposited by the said bidder was treated as requisite pre-deposit by all bidders in terms of Article 6(i) of the public notice of sale. 11. Report No,22 filed by the Sale Committee mentions that the advertisement of sale of the offered assets was published in Daily Khaleej Times (U.A.E.) on 13-12-2004 and in Daily Jang (U.K.) on 14-12- 2004. Such notices were also published in four local newspapers on 11-12-2004. Seven bids were received. Before the bids could be opened by the Sale Committee, an intra court appeal titled Mian Mira/-udDin etc. v. NBP etc. Bearing I.C.A. No,16-L of 2004 was filed by a member of Family No,3 against the aforenoted order dated 22-10-2004 by the learned Company Judge. It was challenged that the impugned order wrongly directed the interim sale of the offered assets without deciding the objections to the maintainability of the present petition under section 284(2) of the Ordinance. On 22-12-2004 a learned Division Bench of this Court ordered that sealed tenders received by Sale Committee shall not be opened. That restraint was relaxed by order dated 3-1-2005 to allow the opening of bids but restraining confirmation of sale until 13-1-2005. Accordingly, tile bids were opened, after negotiations, Messrs MAS-TECH Steel Industries raised its bid of Rs,2.151 billion to Rs,2.48 billion to become the highest bidder. Accordingly, report No,22 recommends to the Court sale in favour of the said highest bidder.
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12. The order dated 22-12-2004 passed in I.C.A. No,16-L of 2004 records that the appellant Family No,3 claimed that it was a 50% shareholder of the three group companies and without passing any order of winding up, this Court had ordered sale of the offered assets at the interim stage without final decision of the petition. For present purposes, it may be noted that apart from the interim order dated 3-1-2005 that restrains confirmation of sale by the Court, the learned Division Bench did not pass any order in the said appeal to stay the proceedings in the present petition. 13. On objections filed by other bidders in the present proceedings on 10-1-2005, this Court restrained post bid-negotiations by the Sale Committee. A spate of applications followed thereafter which prevented the consideration of the highest bid by this Court. Ultimately, on 29-7- 2005 this Court ordered that the decision of the appeal bearing I.C.As. No,16-L of 2004 and 17-L of 2004 be awaited. The present proceedings then remained dormant for nearly five years to await the outcome of the said intra court appeals. On 16-2-2010 this Court examined the ad interim orders, passed in the said I.C.A. No,16-L of 2004 to consider their effect on the present proceedings. It was accordingly noted that the interim order dated 22-12-2004:-- "restrains the opening of bids for the property under sale; it does not restrain proceedings of this Court. Learned counsel for the parties submit that a compromise under section 284 of the Companies Ordinance, 1984 has been arrived which has not yet been sanctioned by the Court. They shall assist the Court on the merits of that compromise which forms the basis of the present proceedings." (emphasis added) 14. The order dated 16-2-2010 accordingly revived the dormant proceedings in the present petition. On 10-5-2010 the Court examined the record to note that all pending objection applications against the sale of offered assets had been dismissed on 22-10-2004. That orders passed in I.C.As. Nos.16-L and 17-L, of 2004 did not injunct the sanction of the creditors' resolution dated 30-7-1998 pursuant to the agreement entered on 30-6-1998. It may be recalled that in I.C.A. No,16-L of 2004 learned Division Bench of this Court had on 3-1-2005 modified its interim order dated 22-12-2004 and directed that "process of sale, including opening of bids, may continue but the sale of assets to any bidder shall not be confirmed till 13-1-2005." Consequently, this Court ordered the parties to the lis, namely, secured creditors, respondent group companies and auction purchasers to assist the Court on how the proceedings under section 284(2) of the Ordinance could progress further. 15. One of the members of Sale Committee since 1998, namely, Kh. Abdul Qadeer, Chartered Accountant filed applications before the Court bearing C.M: Nos.230 and 242 of 2010 claiming his past remuneration with effect from 15-12-2005. The background to the relief prayed in the applications is that whilst this petition was lying dormant, the Court had ordered on 15-12-2005 that the members of Sale Committee would not receive any remuneration but may collect expenses incurred on the security guards and utility bills. The creditor banks opposed the payment of the claimed remuneration in C.M. Nos.230 and 242 of 2010. None of the two remaining members of the Sale Committee prayed for the said relief. Also except for safe keeping no work had been done by the Sale Committee during the dormancy of the petition. Therefore the applications were placed on a back burner. Nevertheless, the applicant member who was sole signatory of the bank account of the Sale Committee filed yet another application bearing C.M. No,29 of 2011 for the same relief. This was decided on 28-1-2011 ordering the removal of the said applicant/member of the Sale Committee. He was directed to hand over charge of the books of account and records of the committee to the creditors' appointed member of Sale Committee, namely, Mr. Saleem Ansar of NBP. Whereas the ousted member, Kh. Abdul Qadeer, was sole signatory to such bank account, the nominated member of Sale Committee requested for such account to be operated jointly by the remaining two members till further orders. The said request was allowed. But the two members of the Sale Committee expressed reservation to take charge of books of account of the Sale Committee prepared by its ousted member unless their audit was first conducted.
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16. Accordingly, on 15-2-2011 it was ordered that audit of the Sale Committee books be carried out by a chartered accountant firm from the date of the committee's appointment on 8-7-1998 until handing over of the books of accounts by the ousted member. From time to time in 2012 the auditor pointed out various lapses in the supporting documentation provided by the ousted member of the Sale Committee. Finally, the draft audit report of the Sale Committee's books of account has recently been presented to the Court. It highlights a discrepancy of Rs,46.577 million in the books of account in respect of unvouched expenses and disbursements made by the ousted member. Proceedings have been initiated against Kh. Abdul Qadeer, the ousted member of the Sale Committee for obtaining his explanation and, if so indicated, for recovery of the amount of unsubstantiated expenditure. 17. Although this petition was revived in the year 2010, yet, the I.C.A. No, 16-L of 2004 and I.C.A. No,17-L of 2004 have continued to suffer from disinterest of the parties to that lis. The appeals are still pending and the operative injunction dated 3-1-2005 restraining finalization of sale of offered assets still governs the field_As the matter has remained pending since 1998, the Court made efforts to revive the stalled proceedings to the extent permissible in the light of the, injunctive order made by the learned Division Bench. The Sale Committee submitted draft terms of notice of sale of the offered assets of the three group companies on 10-1--2(411. Learned counsel for the creditors and the Family shareholders of the three group companies were invited to file their comments or objections in writing to the said notice. 18. Whilst the matter of propriety and sufficiency of the terms of notice of sale was under consideration, this Court emphasized the fairness and transparency of the proposed sale process. During the proceedings on 26-6-2011 it was pointed out by the members of Sale Committee that machinery forming part of the offered assets was lying in disuse for over a decade. For the sale of offered assets on "as is where is basis", to be fair it was necessary that a reliable inventory thereof was available to facilitate due diligence by potential bidders. Accordingly, physical inspection and survey of the offered assets belonging to the three group companies was ordered. It was conducted by three PBA approved valuers, namely, SURVAL Lahore, EXCELL Enterprises Lahore and BFA (Pvt.) Ltd Lahore. Their survey reports were submitted in Court on 23-12-2011. In order to secure the transparency of sale of the offered assets and to facilitate due diligence by potential bidders, by order dated 30-1-2012, the Court directed the establishment of a data room, announcement of a schedule for physical inspection of the offered assets, provision of due diligence materials and data, assistance on the terms and conditions of sale so that adequate information is made available to potential bidders to facilitate their assessment of value of the assets. Based on reports and information provided by the Sale Committee, on 12-7-2012 the Court directed that the reserve price for the offered assets be fixed at Rs,6.0 billion. The matter was adjourned to 18-9,2012 after the summer vacation for further proceedings. 19. Immediately upon the reopening of the Court after summer vacation, C.M. No,365 of 2012 filed by Family No,3 came up for hearing before the Court on 10-9-2012. The said application opposed approval by the Court of the proposed notice of sale of offered assets submitted by the Sale Committee. The ground of objection was that the said notice included for sale private properties belonging to the objector-applicant. These properties could not be sold to discharge the liabilities of the three group companies. After hearing the learned counsel for the parties, C.M. No,365 of 2012 was dismissed on 27-9-2012. A direction was also given to the Sale Committee to proceed with the due diligence measures mentioned above. 20. The said order was appealed in I.C.A. No,9 of 2012 titled Mian Muhammad 11 as Mera' and 5 others v. Messrs Ittefaq Foundries (Pvt.) Ltd. And 9 others. A learned Division Bench of this Court passed ad interim injunction dated 10-12-2012 suspending the operation of the impugned order dated 27-9-2012 passed by the Court. The said ad interim order remained in effect until I.C.A. No,9
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of 2012 was dismissed on 17-2-2014. The said appellate judgment was again challenged before the Hon'ble Supreme Court in C.P. No,462 of 2014 titled Mian Muhammad Iluas. Mira) and others v. Messrs Ittefaa Foundries (Pvt.) Ltd and others. However, that petition was dismissed as withdrawn vide order of the Hon'ble Supreme Court dated 7-4-2014. 21. The dismissal of the I.C.A. No,9 of 2012 on 17-2-2014 proved to be a watershed in the progress of the present petition. It appears that the disputant families, amongst the sponsors/shareholders of the three group companies owning the offered assets for sale, entered into a settlement on their differences. That settlement has been reported to but not been placed on the record in the present proceedings. However, the material consequence of the said settlement on the present proceedings is that all living family members/shareholders of the three group companies have filed their letters of consent in support of the arrangement under section 284 of the Ordinance proposed by the secured creditors, including settlement of their outstanding dues from the sale of the offered assets on as is where is basis at a price of Rs,6.0 billion in favour of Messrs Al-Rehmat Group. 22. Eight out of 36 shareholders of the three group companies have passed away. From the last corporate returns filed with SECP by the three group companies, it appears that the deceased members owned shares equal to 29.65% of total voting power in the three group companies. Obviously, NOCs could not be filed by the deceased members, nevertheless their heirs have to the extent of 18.65% voting power in the said companies have given their NOCs in support of the arrangement and sale in favour of Al-Rehmat Group at its enhanced bid of Rs,6.0 billion. The net result is that roughly 89% of the total shareholding/voting power of the three group companies, owning the offered assets for sale, support the arrangement under section 284 of the Ordinance proposed by the petitioner banks and also the sale of the offered assets to…
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