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Official Citation: 2025 LHC 2634
Court / Jurisdiction: Lahore High Court
Year of Decision: 2024
Decision Date: 2024-12-31
Parties: Imran Ahmed Malik and 2 others vs Sohawa Flour and General Mills (Pvt.) JUDGMENT
Ruling Summary: This decision was rendered by the Lahore High Court on 2024-12-31, officially reported as 2025 LHC 2634. In this matter between Imran Ahmed Malik and 2 others and Sohawa Flour and General Mills (Pvt.) JUDGMENT, the court adjudicated key questions of statutory construction, procedural regularity, and legal precedent under Pakistani law.
Core Holding: The honorable bench evaluated governing statutory provisions and judicial authorities to establish the rights of the parties, delivering the binding reasoning set out below.
Case cited as 2025LHC2634
Court Name: Lahore High Court Judge(s): Jawad Hassan Title:Imran Ahmed Malik and 2 others vs Sohawa Flour and General Mills (Pvt.)
JUDGMENT
Reported As: 2025 LHC 2634 Result: Petition Dismissed Judgment
Prima facie, companies' shares are freely transferable; as we have seen, it is this feature which constitutes one of the great advantages of an incorporated company. Unless the company's regulations provide otherwise, the shareholder is entitled to transfer to whom he will. But, as we have also seen, the company's regulations may place restrictions on the right to transfer and at present must do so if the company is a private one. These restrictions may take any form, but in practice they normally either give the existing members a right of pre-emption or first refusal, or confer a discretion on the directors to refuse to pass transfers. Gower's Principles of Modern Company Law (Fourth Edition) Chapter 19, Page 445, London Stevens & Sons 1979 JUDGMENT JAWAD HASSAN, J. This judgment will examine whether this Court can straightaway invoke its jurisdiction under Section 126(1)(b) of the Companies Act, 2017 (the "Act") or not? The Petitioners are invoking original jurisdiction of this Court being a Company Judge under Section 126 of the "Act" for rectification of register of shares of the Respondent No.1/Sohawa Flour and General Mills (Pvt.) Limited (the "Company") with the prayer to direct: The Respondents No.2 and 3 to record transfer of shareholding of the Petitioner No.2 and 3 in the "Company" Security and Exchange Commission of Pakistan (the "SECP") to record the correct shareholding of the "Company" into its record by incorporating the names of the Petitioners No.2 and 3 as shareholders in equal proportion in place of the Respondents No.2 and 3.
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I. CLAIM OF THE PETITIONERS 2. The basic claim of the Petitioners is that the Respondents No.2 and 3, vide agreements dated 02.01.2020 and 04.01.2021, have sold their entire shareholding in the "Company" in their favour but their shareholding has still not been transferred in the register of the "Company". II. PETITIONERS' SUBMISSIONS 3. Learned counsel for the Petitioners Sultan Mazhar Sher, ASC inter alia argued that the Respondent No.2 entered into an agreement dated 21.12.2019 with the Petitioner No.1 for sale of the "Company" for a total consideration of Rs.100,000,000/- out of which Rs.500,000/- were paid as token money on 21.12.2019 whereas remaining amount of consideration was decided to be paid with following stipulations:- a. Rs.40,000,000 in cash; b. Transfer of house registration No. LCR-2427 in lieu of Rs.22,000,000/- consideration amount; c. Commercial plot, registration No. SVCH-00012 in lieu of Rs.33,000,000/- consideration amount; d. One residential plot, corner, phase 8 Registration No.IDE-16232 in lieu of Rs.5,000,000/- consideration amount. Mr. Sultan Mazhar Sher, ASC stated that pursuant to aforesaid agreement, another agreement dated 27.12.2019 was executed between the parties expressly showing that above said consideration has been paid vide transfer of property, pay order and cheque; that the parties entered into agreement of sale on 02.01.2020, stipulations whereof clearly states (i) the flour mill including the "Company" has been sold to the Petitioner No.1; (ii) no outstanding issues are left between the parties; (iii), the "Company" has been transferred to the Petitioners; (iv) the Respondent No.2 requests regulatory bodies including SECP to transfer the "Company" in the name of the Petitioner No.1 in their record; that the Petitioners complained the "SECY" on 21.09.2021 but the same has not been replied so far; that the case of the Petitioners falls under Section 126(1)(b) of the "Act"' as unnecessary delay was made by the "Company" in entering the name of the Petitioners in the register as members due to default of the Respondents No.2 and 3 (old shareholders) in their obligation in terms of the agreements, referred to above. III. SUBMISSIONS OF RESPONDENTS NO.1 AND 3 4. Barrister Usama Rauf, Advocate filed reply and objected to maintainability of the petition on the ground that this petition does not fall within the preview of Section 126 of the "Act" as factual controversy revolves between the Petitioners and Respondent No.2 in respect of alleged sale of land upon which the "Company" was built and established by the Respondents No.2 and 3. He inter alia argued that "Company" is a body corporate incorporated under the provisions of the "Act" and all of its rights, obligations and duties are controlled by the statute and its Memorandum and Articles of Association; that the "Company" is a separate legal entity other than its members and shareholders i.e. Respondents No.2 and 3 and are not legally bound to fulfill the commitments made by the Respondent No.2 with the Petitioner No. 1 unless the Board of Directors permitted to do so; that the Petitioners are claiming to be the owners of the "Company" pursuant to sale agreements dated 21.12.2019 and 02.01.2020 that were allegedly executed between the Petitioner No.1 and the Respondent No. 2 whereas the "Company" and the Respondent No.3 neither executed any agreements with the Petitioners nor authorized the Respondent No.2 to enter into any arrangements in respect of sale of its assets including machinery, fixtures, fitting, materials etc. lying inside the premises of the "Company"; that the transfer of shareholding is permissible under the "Act" but that is subject to duly stamped transfer deed between the transferor and the transferee in respect of the transfer of shares and in absence thereof, names of the shareholders could not be entered into the register maintained by the "Company"; that transfer of share in the "Company" is not permitted without the prior approval of the Board of the Directors of the "Company"; that there exists no contract between the Petitioner No.1 and the "Company" in respect
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of the sale as alleged by the Petitioners nor the Respondent No.3 sold her shareholding in the "Company" to the Petitioner No.1 therefore, the Petitioners are not entitled to rectify the register of the "Company" regarding the shares of the Respondent No. 3. IV. SUBMISSIONS OF THE RESPONDENT NO.2 5. Mr. Tariq Mehmood, ASC filed reply and also objected to maintainability of this petition. He inter alia argued that the alleged agreements are the result of fraud and misrepresentation, cancelation whereof has already been sought by the Respondent No.2 by filing suit before the court of competent jurisdiction; that factual controversy cannot be resolved in the summary proceedings filed under Section 126 of the "Act" thus this Court lacks jurisdiction to entertain and determine the question of title in respect of alleged sale of land by the Respondent No.2 in favour of the Petitioners; that rectification of register of the "Company" cannot be claimed by the Petitioners unless the sale transaction is completed and matured by executing sale deed or transfer deed in favour of the purchaser as the Respondent No.2 has not executed any transfer deed in respect of transfer of her share in the "Company". V. REPORT OF "SECP". 6. In response to the main petition, Ms. Fatima Shabbir, Advocate filed parawise comments by stating that the "SECP" has received a letter on 21.09.2021 from the Petitioners No.2 and 3 rather Respondents No.2 and 3. VI. DETERMINATION BY THE COURT 7. It is imperative to add that the Company Bench established under Section 5 of the "Act", has special civil jurisdiction to adjudicate company-related disputes; Section 4 whereof grants the "Act" overriding authority over other laws, making the Company Bench a specialized civil court as has been held by the Supreme Court of Pakistan in the case of "KAUSAR RANA RESOURCES (PRIVATE ) LIMITED and others versus QATAR LUBRICANTS COMPANY W.L.L. (QALCO) and others" (2025 SCMR 517) with the following observation: "11. The Court, i.e., a Company Bench of the High Court, established under Section 5 of the Companies Act, has been conferred specific jurisdiction to adjudicate disputes between individuals or entities concerning their civil rights and obligations relating to companies and matters connected therewith. Section 4 gives Companies Act an overriding effect over any other law. The jurisdiction conferred on the Court by the Companies Act is, therefore, civil in nature. Consequently, the Court established under the Companies Act qualifies as a civil court of special jurisdiction and may appropriately be referred to as a special civil court". It has further been held as under: "17. The dispute in the present case, as well as the subject matter of the reference to arbitration, pertains to the alleged fraudulent transfer of shares and the rectification of the register of members (shareholders) which falls exclusively within the jurisdiction of the Court established under the Companies Act. Accordingly, we accept the request of learned counsel for the parties and direct that the Award made by the Arbitrator be filed before the Company Bench for further proceedings in accordance with the Arbitration Act". Similarly, the Hon'ble Supreme Court has clarified this question in the case of "MIAN JAVED AMIR and others versus UNITED FOAM INDUSTRIES (PVT.) LTD., LAHORE and others" (2016 CLD 393 Supreme Court) and has held as follows: "17. .... Since the Ordinance was promulgated with an intent to amend the law relating to companies and certain other associations for the purpose of healthy growth of the corporate enterprises, protection of investors and creditors, promotion of investment and development of economy and matters arising out of or connected therewith, therefore, all matters relating to companies irrespective of the fact whether factual controversy involved or not are required to be tried by a Court having jurisdiction is under the Ordinance of 1984. Mere insertion of the term
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"summary procedure" does not debar the Company Judge from receiving evidence in cases where factual controversy is involved. The Court having jurisdiction under this Ordinance can receive evidence in cases it thinks appropriate in the circumstances of the case. 8. Primarily, the Petitioners are seeking rectification of shareholding register of the "Company" under Section 126(1)(b) of the "Act" and requesting the "SECP" to incorporate their names as shareholders in place of the Respondents No.2 and 3. The said section 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. (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 members 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 rectification 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). 9. Above provision of law makes it clear that any aggrieved person or any member of the company, or debenture-holder of the company, or the company may apply to the Court for rectification of the register in case name of any person is fraudulently or without sufficient cause entered in or omitted from the register of members in terms of Section 126(1)(a) of the "Act", or there is default or unnecessary delay in entering on the register of members the fact of the person having become or ceased to be a member in terms of Section 126(1)(b) of the "Act". Primarily, 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 sufficient cause" was entered in or omitted from said registers. Though the terms "member" and "shareholder" are often used synonymously, yet both are different. For a person to become a shareholder, allotment or purchase of shares from another shareholder is enough. However, a person may not be treated as a member of the company until his name is entered in the register of members of the company. For example, if a shareholder (whose name is entered as a member) sells his shares to another person, he will be treated as member until his name is replaced with the name of the purchaser in the register of members. In case a person subscribes to shares of a company, he may not be treated as a shareholder until the shares are actually allotted to him. After allotment, he will not be a member until his name is entered in the register of members. This Court has already passed a detailed
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judgment on Section 126(1)(a) of the "Act" elaborating the judicial anthology of words" fraudulently" and "sufficient cause" by referring foreign jurisdictions and discussing pathology and anatomy of the Section ibid by relying upon judgments of Hon'ble Supreme Court of Pakistan in the case of "ABDULLAH KHAN USMANI versus Security and Exchange Commission of Pakistan and others" (2022 CLD 821). Now the question arises whether the Petitioners who are seeking rectification of register of the "Company" in terms of Section 126(1)(b) of the "Act" are members, shareholders or debenture holders of the "Company". Learned counsel for the Petitioners, when confronted, he reiterated that unnecessary delay was made by the Respondents No.2 and 3 in entering the names of the Petitioners as members due to their default in fulfilling obligations in terms of the agreements. Pertinently, record is indicative of the fact that the "Company" was formed by the Respondent No.2 and 3 and same was registered with the "SECP" as per Certificate of Incorporation dated 26.04.2016. The whole case of the Petitioners is that the Respondents No.2 and 3 have sold their entire shareholding in the "Company" vide sale agreements dated 21.12.2019, 02.01.2020 and 04.01.2021 but neither the same has reflected in the register of shares of the "Company" nor shareholding has transferred in their favour thus their case falls under Section 126(1)(b) of the "Act"' as unnecessary delay was made by the Respondents No.2 and 3 in entering their names as members due to their default in fulfilling obligations in terms of the agreements, mentioned above. Whereas the said stance of the Petitioners has vehemently been refuted by the Respondents on the grounds that there exists factual controversy over the alleged sale agreements including the lands upon which the "Company" was built as the execution of alleged sale agreements, at the one hand, was denied while on the other hand, the "Company" being a legal entity, has not authorized the Respondents No.2 and 3 to enter into any agreements rather the transfer of shareholding is not permissible without approval of the Board and prerequisite envisaged under Section 74 of the "Act". In order to invoke original jurisdiction of this Court under Section 126(1)(b) of the "Act", there has to be a clear-cut case of default and unnecessary delay in entering on the register of members or register of debenture-holders the fact of person having become or ceased to be a member or debenture-holder and for constituting such default and unnecessary delay on the part of other members, debenture-holder or shareholders, he has to be a member, shareholder or debenture holder of a company in terms of Section 126(1)(a) of the "Act". However, if a person, outside the scope of member, debenture-holders or shareholders, believes that default or unnecessary delay has happened in registering members, shares, or debenture- holders affecting his claimed rights, he has certain options depending on his status which may include lodging of a complaint with the "SECP" (which can conduct an inspection, investigation or even can issue orders to a company to correct the defaults, if necessary) and may avail remedy in the Civil Court due to breach of a contract. In the case in hand, the agreements which are placed on record are primarily alleged to have been executed between the Petitioner No.1 and the Respondent No.2. Before proceeding further, it would be imperative to have a glance over these agreements. The agreement dated 21.12.2019 was executed between Muhammad Farooq (Respondent No.2) and Imran Malik (Petitioner No.1) with the following terms and conditions: Bare perusal of above stated terms reveal that the "Company" was allegedly sold for a consideration of Rs.100,000,000/- out of which Rs.5,00,000/- were paid as token money whereas the remaining amount was to be paid in lieu of properties bearing House No.LCR2427, commercial plot No.SVCH-00012, coroner plot in Phase-8 IDE-16232 and Rs.40,000,000/- were to be paid on 10.10.2020. Pertinently, neither proof of payments qua aforesaid alleged executed agreement was made part of this petition nor any document of validly transfer of shares in terms of Section 76 of the "Act" has been placed on record. The Court in terms of order dated 20.09.2022 sought report from the Deputy Commissioner, Rawalpindi qua ownership of the Petitioners' property mentioned
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in alleged agreements to sell; pursuant thereto, below mentioned reports were submitted which read as under: Reported submitted by District Collector, Rawalpindi on 05.11.2022 reads as follows The General Manager Bahria Town, Rawalpindi forwarded complete detail of properties mentioned in annexure of subject Company Original, where name of Petitioner Imran Ahmad Malik does not exist in any transaction. (Bahria Town report Annexed A). Furthermore, regarding verification of ownership of M/s Sohawa Flour and General Mills (Pvt) Ltd. This office has already submitted field staff report to District Food Controller, Rawalpindi and in Civil Court also. 10. Pertinently, three properties bearing House No. LCR-2427, commercial plot No. SVCH-00012, plot in Phase-8 IDE-16232 were mentioned in the alleged agreement dated 27.12.2019, ownership of members alongwith transfer details are depicted in letter dated 24.10.2022 of Bahria Town, Rawalpindi which reads as: Reported submitted by District Collector, Rawalpindi on 06.11.2022 reads as follows "It is important to submit here that petitioner No.2 submitted an application before Deputy Commissioner, Rawalpindi contending that report already submitted before this Honorable Court does not clarify the ownership of properties mentioned in the alleged agreement, whereas petitioner No.2 along with council Raja Muhammad Ali Advocate appeared before undersigned and admitted that name of the petitioner Imran Ahmed Malik does not exists in transfer of properties list. However the properties mentioned in alleged agreement were transferred as property No.LCR-2427 was transfer by Kaleem Rubani to Farhanda Farooq, whereas property No.SVCH-00012 was transfer from Muhammad Imtiaz Khan to Farhanda Farooq and property No.IDE- 16232 from Muhmmad Idrees to Muhammad Farooq. Underlining for emphases 11. It is astonishing to note that the alleged agreements, referred to above, were allegedly executed by the Petitioner No.1 namely Imran Ahmed Malik whose name is neither reflected in the transaction qua sale/purchase of the properties allegedly owned by him rather the relief is being sought for transferring of shareholding of the "Company" in favour of the Petitioner No.2 and 3 who had neither executed any agreement nor they ever remained members of the "Company". Though the Petitioners have attached partnership agreement dated 01.01.2020 (page 45 of the petition) showing the transfer of 12 kanals land shamlat by the Respondent No.2 in favour of the Petitioners No.2 and 3 yet perusal of record reveals that it merely speaks about transfer of alleged land but not about the mode and manner of transferring of share regardless of the fact that multiple civil litigation is pending before the court of competent jurisdiction as is evident from the reports submitted by the District Collector, Rawalpindi. This Court in the "CH. SHAUKAT ALI NOON and another versus TEHZEB BAKERS (PVT.) LIMITED and others" (2024 CLD 113) has already held that partnership agreement has no relevance to the transfer of shares. It has been held in the case of "ALLIANCE TEXTILE MILLS LIMITED and 8 others versus Mrs. NAHEED KAYANI and 9 others" (2015 CLD 1532) that "register of members could not have been changed on the basis of a disputed agreement dated 21.04.1993 and that the appellants would have to prove their claim before the appropriate forum before they could seek rectification under section 152 of the Ordinance". Even otherwise, the Petitioners have not brought on record any document/evidence qua payment of token money or the remaining amount to be paid. Furthermore, the Petitioner No.1, in the alleged agreement dated 27.12.2019, has claimed the ownership of the land but no transfer deed or any instrument of transfer of shares has been produced which is mandatory requirement of Section 74 of the "Act" according to which, the execution of transfer shall be submitted to the "Company" to register the same and to add and omit the name of the transferee and the transferor as the case may be. Subsequently, when a duly executed transfer deed signed and stamped by the transferor and transferee is tendered to the Board of Directors of a private limited Company, then in such
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circumstances the Board as per Sections 74 and 75 of the Act is bound to register the transfer of shares i.e. to add and omit the name of the transferee and the transferor respectively, and failure of the board to register the same shall grant the aggrieved party the right to move the Court under Section 126 for rectification of the register of members. The process for transfer of shares as per Section 76 must be complied with i.e. a notice must be issued to the Board of Directors by the prospective selling member indicating an intention to sell the shares, the Board of Directors upon such a requisition shall offer the shares to all the shareholders in proportion to their existing shareholding, upon acceptance by the shareholders of the offer so made a duly recognized instrument of transfer shall be executed between the parties (a share transfer deed). In the case in hand, the sale of shares has not expressly been made vide alleged agreements as was held in "KHURSHID AHMED KHAN versus PAK CYCLE MANUFACTURING COMPANY LIMITED" (PLD 1987 Lahore 1). With regard to stance of the Petitioners qua payment of consideration for the transfer of shares in terms of the alleged agreements, is also not present in this case. In I.C.A.No.3 of 2005, titled "Haji Abdur Rehman versus Umar Farooq Miankhel and others", decided on 13.02.2018, the Hon'ble Mr. Justice Yahya Afridi, (the then Chief Justice of Peshawar High Court, Now Chief Justice of Pakistan), while deciding the questions relating to jurisdiction of the Company Judge and transfer of shares discussed various provisions of the Companies Ordinance, 1984 that are pari materia to the provisions of the "Act" holding that: "The ratio decidendi of the above case finally resolved, firstly; that the Company Judge could adjudicate complicated disputed questions of facts by recording oral and documentary evidence, and secondly, that the Company Judge, if competent to decide a matter, was not to delegate the same to the Commission". It has further been held that 10. A separate forum of redressal before the Commission, for those whose request for transfer of shares is refused, was created by inserting Section 78 A of the Ordinance vide Companies…
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