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Petitioner: Mian WAQAR-UD-DIN and 3 others VS Respondent: Messrs UNITED INDUSTRIES LIMITED JUDGMENT
Court Name: Lahore High Court Judge(s): Shahid Karim Title:Mian WAQAR-UD-DIN and 3 others vs Messrs UNITED INDUSTRIES LIMITED
JUDGMENT
Reported As: 2017 CLD 696 Result: Order accordingly Judgment JUDGMENT SHAHID KARIM, J.---This is a petition under sections 305, 309 and 290 of the Companies Ordinance, 1984 (Ordinance, 1984). It has multitudinous reliefs which are couched in the prayer clause in the following form: a) "Admit the instant petition and order the winding up of the Respondent Company. b) Annul the so-called Notice dated 10th and 24 December, 2005 purportedly under section 86 of the Ordinance and all actions pursuant thereto and restrain the Respondents from making any further issue of capital. c) Direct that half of the shares unlawfully acquired by the Respondents Nos. 2 to 7 from the Ghee Corporation of Pakistan in October 2005 be transferred to the Petitioners. d) Make an interim order restraining the respondents from using including for voting purposes, in any way the shares acquired from GCP. e) Order the appointment of a liquidator with respect to the Respondent Company. f) Make an interim order appointing of a provisional manager with respect to the Respondent Company. g) Issue interim injunctions restraining the Respondent Company as well as the other Respondents from alienating any asset, whether corporate or personal, without the permission of this Hon'ble Court. h) Make an interim order directing a financial audit be conducted by a reputable firm of chartered accountants of the affairs of the Respondent Company covering the last at least five years. i) Direct the Provisional Manager to trace the ill-gotten gains of the Respondents and to initiate all
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actions and prosecutions necessary to cause punishment of the wrong doers as well restitution of the unjust gains made at the expense of the Respondent Company. j) Make an interim order directing that all books of account and other statutory record of the Respondent Company be moved to the registered office of the Company at Lahore. k) Make an interim order making the Petitioner No,1 a cosignatory to the operation of all accounts of the Respondent Company. l) Make an interim order suspending the so-called Notice dated 24 December, 2005 purportedly under section 86 of the Ordinance and all actions pursuant thereto and restrain the Respondents from making any further issue of capital. m) In the alternative, to pass any order in terms of section 290 of the Companies Ordinance, 1984 deemed just fair and appropriate in the circumstances. 2. The United Industries Limited (UIL) is a Public Limited Company and was established in the year 1962. UIL owns and operates an Oil and Solvent Plant under the name of "Kashmir". It is common ground between the parties that the manufacturing unit is a profitable unit. Both the parties rely upon the balance sheet of the previous two decades to assert the viability and profitability of the UIL. This fact will have an important bearing on the determination of this petition. 3. The UIL was nationalized in the year 1973 and till the year 1992 was a "managed establishment" of the Federal Government. In the year 1992, its shareholding was divested by Privatization Commission of Pakistan as per policy of the Federal Government at that point of time. A preemptive right was available under the privatization policy to the ex-owners/ successors and thus an association of persons under the name of "M. Akbar and Associates" was formed to offer a bid for the shares of UIL proposed to be divested by the Privatization Commission. There is a dispute regarding the true nature of M. Akbar and Associates which will be adverted to in the latter part of this judgment. 4. At the time of divestment by the Privatization Commission of the shares of UIL 10% shareholding was retained by the Privatization Commission to be offered to the employees of the UIL. Ninety percent of the shares were taken by the parties. Once again there is a dispute regarding the actual modes operandi in the allotment of the shares. However, the fact remains that the shares were divested in the name of M. Akbar and Associates. From the time the privatization took place, the petitioners and the respondents Nos.2 to 5 have been directors in UIL with four directors having been appointed by the petitioners and four directors from the respondents' side. M. Akbar Maggo, the respondent No,2 has been Chief Executive of UIL since the time of its privatization. 5. Arguments have been addressed by the learned counsel for the parties. These arguments will be taken up and dealt with in the course of the decision of the issues involved in the instant petition. 2% Shareholding: 6.This event it seems was the last straw in the simmering disputes between the parties. According to the learned counsel for the petitioners, the remaining 2% shareholding in the Company (upon 98% divestment by the GCP) was sought to be divested by the "Ghee Corporation of Pakistan" in the year 2005. M. Akbar Maggo bid for the 2% shareholding in 2005 in his personal capacity and transferred the shares in his name in the register of members. This, according to the learned counsel for the petitioners, was unlawful and contravened the tacit agreement between the parties with regard to the bid to be offered for shares intended to be divested by. the Ghee Corporation of Pakistan and their devolution on pro rata basis on the petitioners as well as the respondents. The learned counsel for the petitioners states that the bid for the 2% shares was made by M. Akbar Maggo surreptitiously and without taking the petitioners on board. According to him, this could not have been done without the approval of the petitioners and could only have been achieved jointly as the shares were to be purchased in the name of the petitioners as well as the respondents and were to be allotted to them according to their current shareholding. In this regard, the learned
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counsel has referred to the letter of the Privatization Commission Board which accorded the approval of the sale of 110,000 shares of UIL to M/s M. Akbar and Associates @ Rs,70 per share. Further, according to the learned counsel, the shares were not transferred in the name of M. Akbar Maggo strictly by following the mandate of law and thus any such transfer is void. He has relied upon section 178 of the Ordinance, 1984 to contend that any transfer of shares has to have the approval of the Board of Directors. The basis of the learned counsel's arguments is that there was a theme which permeated the relationship between the shareholders according to which parity had to be maintained and this has been breached by M. Akbar Maggo by bidding for 2% shares on his own and having them allotted in his name. As explicated, the learned counsel relied upon sections 76 and 77 for the proposition that a transfer of shares has to have the approval of the Board of Directors and on this basis it is asserted that the transfer was illegal and done in a clandestine manner. 7. The learned counsel for the petitioners has in this regard relied upon historical relationship between the parties. He concedes that there is no written agreement between the parties to the effect that any bidding for the shareholding divested by the Privatization Commission will be made by and on behalf of the shareholders/directors. Since the learned counsel for the petitioners does not rely upon a written agreement in this regard, the question, therefore, is in the realm of disputed, controversial and competing set of facts for which evidence is required. It is pertinent to mention that one of the reliefs prayed for in the instant petition is for this Court to "direct that half of the shares unlawfully acquired by the Respondents Nos. 2 to 7 from the Ghee Corporation of Pakistan in October 2005 be transferred to the Petitioners." ' This is a prayer which merely requires that half of the shares be transferred to the petitioners. As adumbrated, no basis has been put forth by the petitioners for making such a prayer. The caption of the petition does not reflect that the petition is for the rectification of register of members. The prayer reproduced does not request for rectification of register of members to be made as well. 8. The learned counsel for the respondents, on the other hand, has taken me through various documents in order to unravel the true nature of the entity called M. Akbar Maggo and Associates. According to him, it was formed merely for the purposes of bidding of the shares of UIL. It is denied by the learned counsel for the respondents that any Memorandum of Understanding (MOU) or an agreement or any other document was executed on which the relationship was formalized between the parties. According to him, it is a mere name and cannot be termed as a formal legal entity and comprised of sponsors of the Company or their successors. This, according to him, was a condition of privatization and could not be deviated from, He submits that the petitioners No,1 and 3 were never part of the actual bidding in the year 1992 and thus the assertion that there were two separate groups is a mere delusion and is divorced from reality. Learned counsel submits that there was only one group and that comprised of the successors of the original sponsors. No proof is forthcoming from the petitioners side establishing any link with M. Akbar Maggo and Associates or that funds were made available by the petitioners. 9. In order to embark upon a determination of the 2% shareholding, which is the bone of contention between the parties, it would be necessary as a first step to ascertain the nature of M. Akbar Maggo and Associates. The learned counsel for the respondents Nos.1 to 7 has placed on record in the shape of book No,1 various documents in order to demonstrate that the petitioners Nos.1 and 3 were not part of the company at any stage. In this regard, a pedigree table has been produced which is not in dispute between the parties. According to this table, there were two brothers in the first place, Hameed Maggo and Hanif Maggo, from whom the progeny descended. Both Hameed Maggo and Hanif Maggo died and the wife of Hameed Maggo, Begum Perveen Maggo is the petitioner No,2 whereas Sultana Tajammul Chaudhry, the daughter of Hameed Maggo is the petitioner No,4. On the other hand, Begum Safia Hanif Maggo, the wife of Hanif Maggo is the
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respondent No,4 whereas M. Akbar Maggo and Jahangir Maggo sons of Hanif Maggo are respondents Nos.2 and 3. Afshan Maggo and Samina Maggo and Ayesha daughters of Hanif Maggo are respondents Nos.5, 6 and 7. According to the pedigree table, the petitioner No,1 is not part of Maggo family and is the brother of the wife of respondent No,2 whereas the petitioner No,3 is the wife of petitioner No, 1. The first document in the line of documents, produced by the learned counsel for the respondents Nos.1 to 7, is a bidding document for UIL submitted to the Privatization Commission. It does not contain the names of the petitioners Nos.1 and 3. This, according to the learned counsel for the respondents, is the composition of M. Akbar Maggo and Associates of which the petitioners Nos.1 and 3 are not a part. The sale agreement dated 21.05.1992, executed between Ghee Corporation of Pakistan through the Privatization Commission is also executed with Mian M. Akbar Maggo and Associates. This according to him has been signed on behalf of M. Akbar Maggo and Associates by Mian M. Akbar Maggo. The learned counsel has then referred to the Form XXIX dated 17.2.1992 of Oil Trade (Pvt.) Ltd. of which the respondents were directors. A special power of attorney was also executed by the successors of the sponsors (excluding petitioners Nos.1 and 3) in the name of Mr. M. Akbar Maggo to be the attorney to bid for the shares with the Privatization Commission. These documents, according to the learned counsel, bring home the ineluctable fact that M. Akbar Maggo and Associates was one group, comprising of the successors of the original sponsors of the petitioner No,1 and 3 were not part of it. 10.From the facts adumbrated, it is evident that the learned counsel for the petitioners has not been able to place on record a document of unimpeachable character which will establish that there were in fact two groups which conjoined together to bid for the shares of UIL from Privatization Commission. M. Akbar Maggo and Associates comprising of certain individuals who claim to be the successors of original sponsors seems to be the only group vying for shares from GCP and whose names can be ascertained from the bidding document placed before the Privatization Commission in the year 1992. It is difficult therefore to hold that there were two groups and that there was an understanding with regard to the transfer of shareholding between those two groups. As stated above, this is a controversy which cannot be resolved in the summary jurisdiction of this Court. 11.The entire foundation of the learned counsel for the petitioners for the setting aside the allotment of 2% of shareholding in the name of M. Akbar Maggo is based on the premise that there existed an oral agreement between the parties for the allotment of shares in certain ratio which were divested by the Privatization Commission. Since no formal agreement has been produced in order to establish the fact it is otiose to assert that 2% shareholding ought to be distributed in like manner and on the basis of earlier shareholding. On a parity of reasoning, and conversely, it could be argued by the respondents that any such agreement came to an end or was modified, at a later stage though the arrangement is vouched by the history of share allocations. In short, the claims and its rebuttal can only be brought home by evidence pro and contra, and not otherwise. The learned counsel for the petitioners submitted that the transfer could not have taken place without the approval of the board of directors. According to the learned counsel for the respondents, there was no requirement for the shareholding to be transferred with the approval of the board of directors as, the transfer has already taken place and the register of members now includes the transferred shareholding of 2% in the name of M. Akbar Maggo. 12.As adumbrated, no shareholding agreement has been placed on record for the allotment of shareholding on proportionate basis to the petitioners as well as the respondents. Also no condition has been shown in the privatization agreement of 21.5.1992 for the acquisition or subsequent sale of 2% shares on that basis. The shares were held by the Ghee Corporation which was the exclusive owner and which could sell without any restriction or condition and ostensibly no exception can be taken to the sale of the shares by the Ghee Corporation to any person or a group
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of persons. If this were the case, a challenge could be laid to the privatization process and divesting of the shares by the Ghee Corporation which has not been done by the petitioners and a prayer in the instant petition for allocation of half of its shares to the petitioners in fact goes to the root of the divestment made by the Ghee Corporation which ought to be set aside in the first instance so as to clothe the petitioners with any right to the allotment of those shares. According to the record, an independent agreement of sale was made with the respondent No,2 in terms of which the 2% shareholding was divested in favour of the respondent No,2 in lieu of price which was made over by the respondent No,2 admittedly. 13.There are two facets to the challenge to 2% shareholding by the petitioners. One part of the challenge attacks the legality of M. Akbar Maggo to acquire those shares alone from GCP to the exclusion of the petitioners. This is premised on some shareholders' agreement which allegedly authorised M. Akbar Maggo to bid on behalf of all the parties, including the petitioners. That agreement has not been produced on record with the petition. The' petition alludes to and makes a reference to an 'agreement and firm understanding' (para 2) but no document is forthcoming in this regard. Again, in paragraph 12, the petitioners state that: "It is submitted that as of right the offer of GCP Shares should have been communicated to the Petitioner Shareholders by Respondent No,2 so as to allow the Petitioners an opportunity to acquire a proportion equal to their original shareholding (50%) out of these shares. It is submitted that the Petitioner Shareholders were and are entitled to 50% of the GCP Shares and are ready and willing to acquire their entitlement upon payment of the sale consideration due. The action of the Respondents Nos. 2 to 7 in seeking to exclude the Petitioners from the acquisition of their entitlement in these shares is unlawful and amounts to gross bad faith." 14.This can hardly form a ground for staking a claim to GCP shares divested by it. The petitioners' claim is based on a purported historical understanding reached in the year 1992. That is not in issue in this petition. That has come to pass. What is in issue is whether there was an agreement to acquire 2% shares by the parties in' proportion equal to their original shareholding in the year 2005. M adumbrated, no document evidences such an alleged agreement and this makes the case one of further enquiry eminently fit for a regular trial and outside the summary jurisdiction of this Court. The onus was on the petitioners to prove an agreement to exist in respect of 2% shareholding. Certainly, the divestment was not made in vacuum by GCP nor is it the case of the petitioners that the procedural formalities had gone a begging. By the year 2005, the relations between the parties, as per the petitioners' own showing, were at rock bottom and there was a gaping trust deficit amongst them. It is thus incredulous to think that the petitioners still held the belief that the respondent No,2 would act on their behalf too, honestly and diligently. The petitioners were certainly guilty of naivety if nothing else. 15.The second facet of the challenge relates to the transfer of shares (2%) in the name of respondent No,2 in the Register of members without the approval of the board of directors: The learned counsel for the petitioners invokes provisions of section 76 and section 193 to canvass the proposition that the approval of the board to transfer the shares is a sine qua non. 16.Firstly, the challenge on this basis revolves around the plea of illegality to have pervaded the transaction and thus that the waters were sullied from the very inception. If, as held above, that plea has gone a begging for want of proof, the rest of the challenge must fall too. The respondents have retorted that all procedural formalities were met in making the transfers. SECP in its reply vouches that Form 'A' under section 156 was duly filed reflecting the transfer of 2% shares in the name of respondent No,2. A holistic reading of the petition would bring forth that no frontal attack has been made to the transfers on the ground of lack of approval by the board. In paragraph 17, however, a reference has been made to the absence of the board's approval in authorizing the sale of shares in the name of M. Akbar Maggo.
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17.A word regarding the assertion by the learned counsel as to the lack of approval by the directors. This is a nuanced argument and does not take into consideration the various businesses of the company and fails to distinguish between day to day affairs of the company and the business to be transacted by the directors in terms of section 196. The theme of the law is that where duties are cast upon the directors, a specific mention has been made as in sections 233, 234 and 234 which are cited as an illustration. These provisions cast a duty on the directors and lay a penalty for non-compliance. Section 76 does no such thing. It is a ministerial act to be performed by the officers of the company. The provision addresses the company and not the directors. We will bear in mind that the directors are only obliged to meet once in a quarter of a year (section 193(2)) and no more. Also the enumerated powers are given in section 196 and that does not include the specific power to approve the transfer of shares. It ineluctably follows that an approval by the board is not a necessary precondition to a valid transfer and no illegality would afflict the said transfer on this basis alone. The only requirement is that the deed of transfer be lodged with the company for the deed shall not have any effect so as to put the transferee into the position of the transfer until it has been lodged with the company and accepted by it. Until the lodgment, the transfer shall be effective between the transfer and the transferee and nothing detracts from that fact. The registration of the transfer in the register of members makes the transferee a shareholder in the full and true sense of the term with all the rights of a shareholder. The mutation in the register of members is a ministerial and clerical act. The board of directors will only be called upon to act in the case of subsection (2) where the transfer deed is lost or mutilated and the directors have to be satisfied before any transfer is effected and approved. However, notwithstanding the correct legal position, it is not clear whether the petition seeks the rectification of register of members or is merely part of the salvo for seeking winding up of the company. If it is the former, then a separate petition under section 152 of the Ordinance, 1984 ought to have been filed in order to lend seriousness to the challenge. In the latter case, an alleged fraudulent transfer of shareholding has never been considered a bona fide and valid ground for seeking a winding up order. Two judgments viz. Muhammad Hussain v. Dawood Flour Mill and others (2003 CLD 1429) and Shahamatullah Qureshi v. Hi-Tech Construction (Pvt.) Ltd. (2004 CLD 640) may be cited for the proposition. 18.In any case, respondents have brought on record documents which reflect the holding of the meeting of the board of directors on 10.10.2005 'to consider and approve the transfer of 1,10,000 shares transferred by GCP'. Thus, prima facie, the transfer was duly approved by the board. This was intimated to SECP by filing of Form 'A' on 30.11.2005 by the company (filed with the report of SECP submitted in Court). This should take care of the objection raised by the learned counsel for the petitioners on this basis. Petition under section 305: 19.The parties are on common ground with regard to the fact that the Company is a profit making entity generating a healthy revenue and contributing substantially to the exchequer. It provides livelihood to a large number of employees. In a nub, the Company is far from being insolvent and its production figures run into billions of rupees. Likewise, the company has paid substantial amount towards taxes and thus prima facie the company is a viable and solvent legal entity. It is clear from the order sheet of this Court that during the pendency of the present petition, substantial amounts of dividends have been paid to the share-holders including the petitioners and the respondents. 20.The learned counsel for the petitioners, however, asserts that there is a deadlock between the shareholders and affairs of the company have come to an impasse. He, therefore, contends that the affairs of the company cannot be run in accordance with the provisions of the Ordinance, 1984 and thus it is a fit case for the winding up of the company. In such circumstances, any company in
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the position of UIL ought to be wound up. The primary reliance of the learned counsel for the petitioners is on the judgment of the Supreme Court of Pakistan reported as Ladli Prasad Jaiswal v. The Kornai Distillery Co., Ltd. (PLD 1965 SC 221). This judgment, according to the learned counsel, lays the rule to be applicable in the present situation. The Supreme Court of Pakistan has held that the ineluctable conclusion is for a company to be wound up in case the deadlock between the shareholders makes it well-nigh impossible for it to be run effectively and free of hiccups. The learned counsel for the petitioners has referred to the subsequent conduct of the affairs of the company after the filing of the instant petition. The company, according to him, has been run on the orders of this Court and there is no board of directors of the company in place. The audited accounts of the company have not been undertaken since the year 2005 and whatever audits have taken place, have been on the orders of this Court. A reference has been made to the order of this Court passed on 27.6.2011 as also the order dated 01.07.2011 whereby this Court gave an opportunity to the parties to break the deadlock and to come to an…
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