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Petitioner: Abdullah Khan Usmani VS Respondent: Security & Exchange Commission of Pakistan JUDGMENT
Court Name: Lahore High Court Judge(s): Jawad Hassan Title:Abdullah Khan Usmani vs Security & Exchange Commission of Pakistan
JUDGMENT
Reported As: 2022 LHC 3962, 2022 CLD 821 Result: Petition Dismissed Judgment JUDGMENT "This case affords a vivid illustration of two important points. The first is that where evidence of pre-contractual negotiations, and/or post-contract cond uct is crucial, rectification may, in principle, be available where the interpretative process is unable to assist a claimant. However , and secondly , the remedy of rectification may, in an appropriate case, be withheld where the parties have sought by themselves to correct any relevant mistake in the underlying document by entering into a deed of rectification." MV Promotions Ltd and another v T elegraph Media Group Ltd and another [2020] EWHC 1357 (Ch) JAWAD HASSAN, J. This judgment will decide fourteen (14) years old controversy between the parties and their alleged dispute of rectification of registe r of Carvan-e-Labbaik Travels & Tour (Pvt.) Limited (the "Company" ), arose in year 2008 and brought before this Court in year 2018. Tersely , the Petitioner seeks the original jurisdiction of this Court being a Company Judge under Section 126 of the Companies Act, 2017 (the "Act" ) for the rectification of register of members of the Company , the transfer of 29,900 shares from the name of Respondents No.2 to 4 in his favour , enter his name as Director of the Company and to declare all proceedings conducted by the new management of the Company as illegal, without lawful authority and void ab-initio. 2. At the outset, the Hon'ble Supreme Court while deciding another matter in C.P.No.1202 of 2020 has directed this Court on 14.02.2022 to decide this petition expeditiously without giving unnecess ary adjournments to the parties; therefore, as per directions of the Hon'ble Supreme Court, the matter was placed before this Court on 10.03.2022 and this Court, after giving an opportunity of hearing to both the parties, proceeded to decide the case on 16.03.2022. I. FACTUAL BACKGROUND
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3. Brief facts of the case, as per petition, are that the Petitioner was one of the Directors of the Company having 29,900 shares out of 30,000 and was engaged in the business of Hajj & Umrah since 2005 to 2008; he submitted annual returns for the year 2006 and 2007 . By cause of financial crises, the Petition er went to UAE in year 2008 for the purpose of job in a travel agency and upon his return to Pakistan in year 2015, he gained knowledge about transfer of his 29,900 shares in the name of the Respondents No.2&3. As per version of the Petitioner , he approached the Security and Exchange Commission of Pakistan (the "SECP" ) and the new management of the Company , but they refused to extend any sort of help. Hence, this petition. II. ARGUMENTS OF THE PETITIONER 4. Mr. Muhammad Umer Qureshi, Advocate inter-alia contended that the Petitioner is still Director of the Company having 29,900 shares as these shares have illegally and unlawfully been transferre d by the Respondents No.2 & 3 declaring the Petitioner as resigned from the Directorship of the Company; that the name of the Petitioner has been omitted from the Register fraudulently without any sufficient cause and by submittin g bogus resignation without his signature before the SECP . Mr. Omar Tariq Shamim, Advocate next contends that the Respondents No.2&3 submitted fake, bogus and forged Form-21, Form-26, Form-7, Form-A, Form-3 with annual returns of years 2007 and 2008 which were submitted in year 2009; that the Petitioner visited the website of Ministry of Religious Affairs, Islamabad (the "Ministry" ) for verification of his status being a Director , from where he came to know that the Company still exists but surprisingly , it is being managed by the Respondents No.2 to 4 with different address of Office No.14, 1st Floor , Chauburji Point Plaza Chowk, Chauburji, Lahore; that the Respondents No.2&3 submitted annual returns till 2017 and managed to procure Hajj Quota from the Respondent No.5/the Ministry which was allotted to the Respondent No.4 who was having no concern with the affairs of the Company; that the alleged transfer of shares is clear violation of Section 74 of the Act as it is silent about the mode of transfer or instrument through which 29,900 shares were transferred in the name of the Respondents No.2&3; that at the time of alleged transfer , the Petitioner was not in the country as he left Pakistan on 23.10.2008 and returned on 03.11.2008 as is evident from his passport. III. ARGUMENTS OF THE RESPONDENTS (i) Arguments of Respondent No.1-SECP 5. Mr. Ibrar Saeed, Special Public Prosecutor/Director Law alongwith Mr. Ruman Bilal, counsel for the Respondent- SECP submitted report and parawise comments stating that the claim of the Petitioner is false and frivolous because he has not come to the Court with clean hand and has concealed the factum of pendency of civil suit regarding the same matter before the Civil Court. He further stated that as per Form-A made upto 31.10.2008, the shares held by the Petitioner were transferred in the name of the Respondent No.2/Asma Liaqat w.e.f 31.10.2008. He adds that as per record of SECP 100 shares of Mr. Muhammad Imran were also shown as transferred in the name of the Respondent No.3/Liaqat Ali w.e.f. 28.09.2009. Mr. Ibrar Saeed, Special Public Prosecutor/Director Law next adds that as per Form-29 dated 31.10.2008, the Petitioner resigned as Chief Executive/Director of the Company and on the same date, the Respondent No.2 was appointed as Chief Executive/Director of the Company . That the transfer of shares in a company being an internal matter is effectuated by the Company approved by its Board of Directors, as per law and procedure specified in Articles of Association and the SECP only maintains the record/information as reported by the companies under the Act through filing of statutory returns/forms prepared by the Company . (ii) Arguments of Respondents No.2, 3 & 7 6. Mr. Salman Mansoor , ASC, learned counsel for the Respondents No.2, 3 & 7 submitted report and parawise comments objecting to maintainability of petition on the ground that this petition is barred by time, and is therefore, liable to be dismissed. He inter alia argue d that the Petitioner is neither a sharehol der nor Director of the Company as he has not only transferred his 29,900 shares in favour of the Respondents No.2&3 through transfer deed but also resigned from the Board of Directors of the Company on 31.10.2008; that the Petitioner has withheld the fact of filing civil suits on the same subject regarding similar allegations as raised in the titled petition thus he has not come to the Court with clean hands; that the Petitioner has not disclosed his past business history as he had been blacklisted by the Ministry defrauding hajj pilgrims as a result whereof, he had to sell his business to settle the
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accounts. Mr. Salman Mansoor , ASC contends that the Petitioner has been doing his business activities in Pakistan during alleged period of being abroad as such his version regarding lack of knowledge is based upon fraud and misrepresentation; that the Petitioner does not possess DTS License because after transfer of his shares, the Company and its management has continuously been doing its business by getting DTS License renewed from the Department of Tourist Services, Government of Pakistan and for this purpose, the Company and its management had provided new bank guarantee; that the Petitioner has not fulfilled the mandatory requirement of law by filing income tax returns or paying any income tax of his own or on account of the Company till filing of this petition to prove his version that he is still a shareholder and Director of the Company (iii) Arguments of Respondents No.5&6 7. Ms. Sadia Malik, Assistant Attorney General submitted report and parawise comm ents on behalf of Respondents No.5&6 according to which the Ministry has not changed the management of the Company rather it was enlisted with the Ministry in 2012 and subsequently hajj quota was allocated to it in 2018 on merit. She has placed on record the criteria for assessment of profiles of new hajj companies issued by the Ministry alongwith certificate of recognition of the Company . (iv) Arguments of Amicus Curiae 8. Mr. Shezada Mazhar , Amicus Curiae submitted written arguments by highlightin g the concept of rectification of register under Section 126 of the Act in Pakistan as well as in foreign jurisdiction and that too the applicability of Limitation Act. He also shed light on the jurisprudence of the terms 'fraudulent' and "sufficient cause' as used in Section 126 of the Act. This is appreciated. 9. I have respectively taken into consideration arguments advanced by learned counsel for the parties and perused the record. IV. DETERMINA TION OF THE COURT 10. Out of divergent contentions of the parties, following moot points are necessary for determination: 1. Whether the Petitioner has fulfilled the criteria mentioned in Section 126 of the Act as well as other provisions of the Act for rectification of the register of members of the Company? 2. Whether the application of the Petitioner for rectification of register of members of the Company can be entertained after a period of approximately ten (10) years? MOOT POINT NO.1 (i) Pathology of Section 126 of the Act 11. Basically , the Petitioner has invoked Section 126 of the Act by making prayer to rectify the register of the Company and he has also made multifarious prayers; one of which is to declare the Respondents No.2 to 4 not entitled to get any quota of Hajj from the Ministry . This moot point requires the interpretation of Section 126 of the Act by discussing in detail the words used in it, including (i) fraudulent; (ii) sufficient cause; and (iii) omitted/entered. This Court will discuss in detail the Pathology and Anatomy of said Section with the Judicial Anthology of the case law in Pakistan, UK and India. Before proceeding further in this regard, Section 126 is reproduced hereunder for ready reference: "126. Power of Court to rectify register .- (1) If - (a) the name of any person is fraudulently or without sufficient cause entered in or omitted from the register of members or register of debenture-holders of a company; or (b) default is made or unnecessary delay takes place in entering on the register of members or register of debenture-holders the fact of the person having become or ceased to be a member or debenture-holder; the person aggrieved, or any member or debenture-holder of the company , or the company , may apply to the Court for rectification of the register . (2) The Court may either refuse the application or may order rectification of the register on payment by the company of any damages sustained by any party aggrieved, and may make such order as to costs as it in its discretion thinks fit.
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(3) On any application under sub-section (1) the Court may decide any question relating to the title of any person who is a party to the application to have his name entered in or omitted from the register , whether the question arises between members or debenture-holders or alleged member s or debenture-holders , or between members or alleged members, or debenture-holders or alleged debenture-holders, on the one hand and the company on the other hand; and generally may decide any question which it is necessary or expedient to decide for rectificat ion of the register . (4) Where the Court has passed an order under sub-section (3) that prima facie entry in or omission from, the register of members or the register of debenture-holders the name or other particulars of any person, was made fraudulently or without sufficient cause, the Court may send a reference for adjudication of offence under section 127 to the court as provided under section 482 (emphasis added). (ii) Anatomy of Section 126 of the Act 12. The learned counsel for the Petitioner argues that his case falls under Section 126(1)(a) of the Act because the name of the Petitioner has been omitted by the Respondents No.2 to 4 from the Register fraudulently without any sufficient cause by submitting bogus resignation without his signature before the SECP . Literal study of Section 126(1)(a) of the Act provides a right to make an application before the Court for the purposes of rectification of register of members or register of debenture holders of a company in a case where name of a person "fraudulently" or "without suf ficient cause" was entered in or omitted from said registers. (1) Judicial Anthology of Fraud/Fraudulent/ Fraudulently 13. Prior to reaching any conclusion on the point No.1, it will be relevant to ascertain the meaning of word "fraudulent", which is grammatically descriptive of something which results from a fraud i.e. the word Fraudulent is an adjective that attributes the noun 'Fraud', essentially characterizing an act that is based on Fraud. Thus, in deciphering the definition of Fraudulent, the definition of 'Fraud' shall suf fice. 14. The term 'Fraud' is defined in Black' s Law Dictionary 1 1th Edition in the following terms: '1. A knowing misrepresentation or knowing concealment of a material fact made to induce another to act to his or her detriment. Fraud is usu, a tort, but in some cases (esp. when the conduct is willful) it may be a crime.' '2. A reckless misrepresentation made without justified belief in its truth to induce another person to act. 3, A tort arising from a knowing or reckless misrepresentation or concealment of material fact made to induce another to act to his or her detriment. Additional elements in claim for fraud may include reasonable reliance on the misrepresentation and damages resulting from this reliance. 4. Unconscionable dealing; esp., In contract law, the unfair use of the power arising out of the parties relative positions and resulting in an unconscionable bargain. See DEFRAUD. - fraudulent, adj "[Tjhe use of the term fraud has been wider and less precise in the chancery than in the common-law courts. This followed necessarily from the remedies which they respectively administered. Common law gave damages for a wrong, and was compelled to define with care the wrong which furnished a cause of action. Equity refused specific performance of a contract, or set aside a transaction, or gave compensation where one party had unfairly by the other . Thus, 'fraud' at common law is a false statement...: fraud in equity has often been used as meaning unconscientious dealing - 'although, I think, unfortunately ,' a great equity lawyer has said." (William R. Arson, Principles of the Law of Contract 263 (Arthur L. Corbin ed., 3d Am, ed. 1919)) Whilst the term 'fraudulent act' has been defined in the following terms: "1. Conduct involving bad faith, dishonesty , a lack of integrity , or moral turpitude. 2. Conduct satisfying the elements of a claim for actual or constructive fraud..." Fraudulent Alienation is also described in the following terms: "1. The Transfer of an interest in property with an intent to defraud others, esp. creditors and lienholders. See Fraudulent Conveyance (2), 3. The transfer of an estate asset by the estate' s administrator for little or no consideration." 15. Thus, a perusal of the above reflects that in plain ordinary terms, the word 'Fraudulent' connotes conduct that is based on Fraud. Fraud itself, is defined as making a false representation or concealment of a fact which causes a loss or risk of loss to another . It also includes conduct that is unconscionable and even a reckless
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misrepresentation or omission shall suffice to fit in the definition of Fraud or Fraudulent. It may also be characterized by dishonest conduct, something that includes moral turpitude or generally considered as an act or omission in bad faith. 16. The definition of 'Fraud' is also provided in Section 17 of the Contract Act of 1872 states as follows: "17. Fraud means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into contract;- (1) The suggestion, as of a fact, of that which is not true, by one who does not believe it to be true; (2) The active concealment of a fact by one having knowledge or belief of the fact; (3) a promise made without any intention of performing it (4) any other act fitted to deceive; (5) any such act or omission as the law specifically declares to be fraudulent. In this regard, it would also be advantageous to reproduce hereunder Section 25 of the Pakistan Penal Code, 1860: "Fraudulently". A person is said to do, a thing fraudulently if he does that thing with intent to defraud but not otherwise. 17. The Hon'ble Supreme Court of Pakistan in "ALLAH WASAYA and 5 others Versus IRSHAD AHMAD and 4 others" (1992 SCMR 2184) has held that "fraud means and includes, inter alia, the suggestion as a fact of that which is not true, by one who does not believe it, to be true, and the active conc ealment of a fact by one having knowledge or belief of the fact". In "Mst. ZULAIKHAN BIBI through LRs and others Versus Mst. ROSHAN JAN and others" (2011 SCMR 986), the Hon'ble Supreme Court has held that "fraud vitiates all solemn acts and any instrument, deed, or judgment, or decree obtained through fraud is a nullity in the eye of law and can be questioned at any time so much so that they can be ignored altogether by any court of law before whom they are produced in any proceedings". In another case cited in "HABIB AHMAD Versus MEEZAN BANK LIMITED and 5 others" (2016 CLC 351), the learned Division Bench of this Court has observed that "allegations of fraud require specific evidence establishing unequivocally malfeasance or a misrepresentation made with a design to get benefit for oneself or misleading the other into a course of action, detrimental to its rights". 18. Thus, a summary of the above jurispr udence of the Hon'ble Supreme Court is that Fraud encompasses all acts and omissions whether by suppression of truth or suggestion of fact, which are deliberate and intended to cause benefit to oneself and to cause the other to suffer a loss or the risk of loss. It includes the element of intent and the actual act or omission which follows from such an intent. However , in circumstances there may not be a deliberate intent, yet the act or omission may be so reckless so as to constitute Fraud. Where allegation of Fraud is raised, such an allegation must be specific and must be proved by the party alleging such a Fraud. (a) Fraud in UK Jurisdiction 19. Fraud is defined under the Fraud Act 2006 which provides three different instances of Fraud; (i) Fraud by misrepresentation, (ii) Fraud by failing to disclose information and (iii) Fraud by abuse of position. These terms are then further defined in the Act. Firstly , a person is held to have committed fraud by misrepresentation if he dishonestly makes a false representation and intends by that misrepresentation to (i) make a gain for himself or (ii) to cause a loss to another or to expose another to risk of loss. Further , a representation is held to be false if (i) it is untrue or misleading and (ii) the person making it knows that it is, or might be untrue or misleading. Under Section 2(3) of the Act, a Representation is defined as any representation of fact or law including a representation as to state of mind of (i) the person making the representation or (ii) any other person, Subsection (4) further provides that a representation may be regarded as made (either express or implied) if it is submitted in any form to any system or device designed to receive such communication (with or without human intervention). 20. Thus, under the second heading a person is found to have committed Fraud by abuse of position if he occupies a position in which he is expec ted to safeguard or not to act against the financial interests of another person, and such a person dishonestly abuses that position and intends by means of that position to (i) make a gain for himself or another or (ii) to cause loss to another or to expose another to a risk of loss. Subsection (2)
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further provides that a person may be regarded as having abused its position even though his conduct amounted to omission rather than act. 21. Lastly , a person is considered to have committed fraud by failing to disclose informatio n if he dishonestly fails to disclose to another person information which he is under a legal duty to disclose and intends by failing to disclose such information (i) to make a gain for himself or another or (ii) to caus e loss to another or to expose another to risk of loss. 22. Thus, on a plain reading of the Fraud Act 2006, it transpires that two elements exist in defining Fraud i.e. (i) the intention of the party to commit the fraud as defined in the Act, and (ii) is the actual act or omission of committing the Fraud. The definition of fraud as provi ded in the Fraud Act 2006 was further interpreted by the Queen Bench of the Honorable High Court of England and Wales in a decided case reported as [2019] EWHC 1349 (QB) in the case of Frank Kofi Otuo v . Watch T ower Bible and T ract Society of Britain , in the following terms: "Fraud is the intentional use of deception, trickery or perversion of truth for the purpose of inducing another to part with some valuable right or thing belonging to him or to give up a legal right." 23. The Supreme Court of the Ireland had also held that fraud is proved when it is shown that a false representation has been made knowingly or without belief in its truth or recklessly , careless whether it be true or false. In the case of Superwood Holdings Plc vs Sun Alliance (1995) 3 IR 303, the following dictum was observed by the Courts: - "First, in order to sustain an action of deceit, there must be proof of fraud, and nothing short of that will suffice. Secondly , fraud is proved when it is shown that a false representation has been made (1) knowingly , or (2) without belief in its truth, or (3) recklessly , careless whether it be true or false." In the case of Derry vs Peek (1889) 14 App Cas 337 , Lord Herschell observed as follows: - "'Fraud in ordinary speech means the using of false representations to obtain an unjust advantage ... Likewise in law 'fraud' is proved when it is shown that a false representation has been made knowingly or without belief in its truth, or recklessly , careless whether it be true or false." 24. In addition to the above, Section 993 of the Companies Act 2006 (UK) stipulates the offence of Fraudulent trading, which provides that if any Company is carried on with the intent to defraud creditors of the Company or creditors of another person, or for any fraudulent purpose, then every person who is a party to carrying on the Company in such a manner commits the offence of fraudulent trading. It is further defined that a trader intends to defraud a creditor where he intends to do something which if he agreed to do it, would render them guilty of conspiracy to defraud. There are thus three types of activities which would constitute the carrying on of business with intent to defraud (i) putting traders' existing creditors at risk of not being paid (ii) causing people who are not his existing creditors to become his creditors at a time when he is, or is likely to become, insolvent and (iii) doing things that give rise to causes of action sounding in damages against him, in favor of people who are not his existing creditors [1978] Ch. 262 / [1978] 2 W .L.R. 866. The offence of Fraudulent trading is however , not limited to solely defrauding creditors as it includes the term 'any other fraudulent purpose' . Fraudulent purpose has been defined as an intention to go beyond the bounds of what ordinary decent people engaged in business would regard as honest [1984] 2 W .L.R. 815 (b) Indian Jurisdiction 25. In terms of jurisprudence in India, similar definition as provided in Section 17 of the Contract Act 1872 and Section 25 of the Pakistan Penal Code 1890 are present in the corresponding Indian Legislations. However , a subsequent definition of Fraud is provided in the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations 2003. Secti on 2 (1) (c) of the regulations is thus reproduced hereinbelow: "fraud" includes any act, expression, omission or concealment committed whether in a deceitful manner or not by a person or by any other person with his connivance or by his agent while dealing in securities in order to induce another person or his agent to deal in securities, whether or not there is any wrongful gain or avoidance of any loss, and shall also include-
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