Const.
Petition No.D-740-2011
Present
Mr. Justice Faisal Arab
Mr. Justice Aqeel Ahmed Abbasi.
Date
of hearing : 01.12.2011
Date
of judgment : 05.01.2012
Petitioner : Ofspace (Private) Limited through
Mr.Agha Faisal, Advocate.
Versus
Respondents. : The Federation of the Islamic
Republic
of Pakistan and others
Respondent
No.2 : The Securities
& Exchange
Commission of Pakistan
through Mr. Faisal Kamal
Respondents No.3 & 4:
Mrs. Neelofar Shah & another
through Mr. Ijaz
Ahmed,
Advocate.
JUDGMENT
Aqeel Ahmed Abbasi, J:- Instant petition has been filed by the
petitioner company through Shakeel Hassan, authorised officer of the
petitioner, wherein following relief has been sought:-
1. To declare the impugned order dated
4.3.2011 and/or any action taken pursuant thereto by the respondents and
unlawful, void and of no legal effect.
2. To direct the respondents to restrain from
taking any coercive action against the petitioner.
3. To issue any other declaration, directions
and/or relief as deemed appropriate and award the petitioner the cost of this
petitioner.
2. Brief facts as stated in the petition are
that the petitioner is a private limited company duly incorporated under the
law of Islamic Republic of Pakistan, whereas its shareholders are in dispute
regarding agreement dated 14.01.1998. J.M. No.31 of 2007 has been filed in
respect of aforesaid controversy and the petitioners therein have claimed to be
44% owners of the assets of petitioner and not shareholders of the petitioner
company itself. The petitioner has also filed Suit No.1272 of 2008, which is
pending before this Court. On 27.8.2010, an order under Section 468 of the
Companies Ordinance was passed by the respondents for de-registration of the
company in view of the complaint received by respondent. Such order was
assailed by the petitioner through C.P. No.2598 of 2010, wherein, as per
petitioner, interim order dated 6.9.2010 was passed and the operation of the
aforesaid order was suspended till next date of hearing. On 4th
March 2011, the respondent No.2 issued an order in terms of Section 231 of the
companies Ordinance, 1984, after confronting the petitioner with the violations
committed under the provisions of Companies Ordinance, 1984, appointed M/s
Muhammad Naeem Khan, Joint Registrar of Companies, Karachi and Osama Ahmed
Osmani, Assistant Registrar of Companies as Inspectors to determine the reasons
leading to delay in payment of dividends for the year ended 30th June, 2007 to the
complainants by inspecting the books of accounts and other books and papers of
the Company.
3. The petitioner has assailed the above said
order through instant petition on the ground that such order has been passed
malafidely by the respondents without issuing any show cause notice or
providing any opportunity of being heard to the petitioner. It is contended by
the learned counsel for the petitioner that all the requisite documents and
information were already provided to the respondents, whereas impugned order
was passed behind the back of the petitioner, who for the first time came to
know about such order through notice issued by the respondent seeking
inspection of accounts of the petitioner company. Learned counsel submitted
that the principles of natural justice warrant that while passing any adverse
order a show cause notice is required to be issued to the affected party so
that he may be allowed to explain his case, whereas in the instant case no such
opportunity has been provided to the petitioner while passing impugned order
under Section 231 of the Companies Ordinance, 1984.
4. Learned counsel for the petitioner has
also referred the letter dated 14th January 2009 written by Deputy
Registrar of Companies to Ms Neelofar Shah and Reza A. Shah, the Directors of
the Company, wherein it has been intimated that M/s Ofspace (Private) Limited,
petitioner in the instant case have forwarded cheque of Rs.12,15,000/- in
favour of Mr. Reza A. Shah and cheque of Rs.17,55,000/-in favour of Ms Neelofar
Shah, on account of dividend for the year 2007. It has been contended by the learned
counsel that since the dividend as on 30th June 2007 has already
been paid to the complainants, therefore, there was no need to pass order for
inspection of the accounts and record, on the basis of same allegation i.e.
delayed payment of dividend by the company for the period of 30th
June 2007. Per learned counsel, order under Section 231 and the proceedings
pursuant to such order initiated by the respondents under the circumstances are
based on mala-fides, hence liable to be struck down.
5. Conversely, Mr. Faisal Kamal, learned
counsel for the respondent No.2 has opposed the contention of the counsel for
the petitioner and raised preliminary objection as to maintainability of the
instant petition on the ground that the person, who has sworn affidavit for
filing instant petition claiming to be duly authorized officer has not produced
any Board’s Resolution passed by the legitimate board of directors. It has been
further objected that Section 231 of the Companies Ordinance, 1984 relates to
the inspection of books, books of accounts and paper of every company, whereas
it does not require issuance of any show cause notice as alleged by petitioner.
It has been further contended by the counsel for the respondent that the
petitioner cannot invoke the extra ordinary constitutional jurisdiction of this
Court, whereas efficacious and appropriate remedy is available in terms of
Section 484 of the Companies Ordinance, 1984 and under Section 33 of the
Securities & Exchange Commission of Pakistan Act, 1997. Learned counsel for
the respondent has submitted that the petitioners have committed certain
violation of the provisions of the Companies Ordinance, 1984, whereas
complaints have been received from its shareholders on which the Commission has
responded in accordance with law to ensure compliance of the provisions of
Companies Ordinance, 1984 and to protect the interest of the shareholders of
the company. Learned counsel further submitted that the Registrar of the
Companies is the custodian of the record maintained by the companies and has
ample power under the Companies Ordinance, 1984 to inspect and examine the
accounts of any company in order to verify as to whether such company is
functioning in the interest of shareholders by discharging its legal
obligations under the Companies Ordinance, 1984. Learned counsel for the
respondent has read out Section 231 of the Companies Ordinance, 1984 and
submitted that there is no provision for issuance of any show cause notice
while invoking Section 231, whereas no order has been passed which adversely
affects the petitioner. Per learned counsel, an order under Section 231 is
essentially an administrative order which is merely a fact finding process,
whereas no show cause notice is required as no action at this stage against the
company was contemplated. It has been stated that show cause notice would be
issued to the petitioner only when the respondent intends to take some adverse
action. Per learned counsel, in the instant case admittedly, a prior intimation
has been sent to the petitioner’s address informing them that the Inspectors
are appointed who will inspect the record, whereas, the petitioner, instead of
assisting Inspectors in examining the record, have filed instant constitution
petition, which reflects upon the evasive attitude of the petitioner, who is
not allowing the Inspectors to examine their books of accounts and other
relevant documents. Learned counsel further stated that a self contained
mechanism has been provided under the Companies Ordinance for seeking redressal
of grievances emanating from the proceedings initiated under the Companies
Ordinance in terms of Section 484 of the Companies Ordinance and in terms of
Section 33 of the Securities & Exchange Commission of Pakistan, whereas the
petitioner has directly approached this Court, by passing the forum and the
remedy available under the law, without any lawful excuse or justification, Per
learned counsel, in view of hereinabove facts, instant petition, besides being
premature, is not maintainable, hence liable to be dismissed in limine with
cost. In support of his contention, he has placed reliance on the case of New Jubilee Insurance Company Ltd., Karachi
v. National Bank of Pakistan, Karachi PLD 1999 SC 1126, Commissioner of Income
Tax and others v. Messrs Media Network and others PLD 2006 SC 787 and Humayoon
Muhammad Khan and another v. Province of Sindh 2009 CLC 1473.
6. On the other hand, Mr. Aijaz Ahmed, learned
counsel for the respondents No.3 and 4 has also vehemently opposed the
maintainability of the instant petition and submitted that the petitioner is in
the habit of filing frivolous proceedings in order to escape the legal
consequences, which may follow in view of default committed by the
petitioner. Learned counsel submitted
that the respondents have made a complaint to the Securities & Exchange
Commission of Pakistan for the violations committed by the petitioner,
including the delayed payment of dividend for the year ending on 30th
June 2007, whereas there are other complaints as well against the petitioner by
other shareholders of the company. Per learned counsel, there is also dispute
with regard to shareholding in the company and the said dispute is pending
before this Court in J.M.No.31 of 2007 as well under other proceedings. Learned
counsel further argued that the petitioner is acting against the interest of
the company and its shareholders and there are serious allegations against
their conduct, whereas by filing frivolous proceedings the petitioner is
avoiding the legal consequences provided under the Companies Ordinance, 1984.
7. In order to determine the validity of the
impugned order, we would examine the scope of section 231 of the Companies
Ordinance, 1984 and would further ascertain as to whether the impugned order
has been issued in conformity with the provisions of section 231 of the
Companies Ordinance, 1984 or not. It will be advantageous to reproduce the
impugned order as well as section 231 of the Companies Ordinance, 1984,
hereunder:-
“SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN
(COMPANY LAW DIVISION)
(REGISTRATION DEPARTMENT)
In the matter of M/s. Ofspace (Pvt.)
Limited
Order under section 231 of the
Companies Ordinance, 1984
A complaint against M/s. Ofspace (Pvt.)
Limited (the Company) was received from its directors/shareholders. Mr. Reza A.
Shah and Ms. Neelofar Shah the(complainants), regarding delay in payment of
dividend for the year ended June 30, 2007 in violation to the provisions of
sections 250 and 251 of the Companies Ordinance, 1984 (the Ordinance). A delay
of one year, one month and twenty six days was committed by the Company in
payment of dividend of Rs.1,215,000/- and Rs.1,755,000/-, respectively, to the
aforesaid complainants. Besides other proceedings, the matter was taken up with
the Company by the registrar concerned vide a notice under section 261 of the
Ordinance, calling for requisite information/documentary evidence and
clarification, pertaining to the issues underlying the complaint. Based on the
information received, the registrar concerned submitted a report to the
Commission, pointing out non-provision of the information pertaining to the
aforesaid matter.
In view of the above, it needs to be
determined as to whether the Company intentionally delayed the payment of
dividends to the complainants, by failing to ensure compliance with the
requisite statutory requirements. For the purpose, it has been decided that
inspection of the books of accounts and books of papers of the Company may be
carried out under section 231 of the Ordinance, primarily to ascertain the
circumstances leading to the delay in the payment of dividend to the
complainants, as per attached terms of reference.
Now, therefore, in view of the
foregoing, and in exercise of the powers conferred under sub-section (1) of
section 231 of the Ordinance. I hereby authorize Mr. Mohammad Naeem Khan, Joint
Registrar of Companies, Karachi and Mr. Osama Ahmed Osmani, Assistant Registrar
of Companies, Karachi, (the inspectors) to determine the reasons leading to
delay in payment of dividends for the year ended June 30, 2007 to the
complainants by inspecting the books of accounts and other books and papers of
the Company, and as per the attached terms of reference.
The aforesaid inspectors shall complete
the inspection and submit their report to the Commission within thirty days
positively.
I, needs to be emphasized that in terms
of the provisions of sub-section (3) of Section 231 of the Ordinance, it is the
duty of every director, officer or other employee of the Company to provide all
assistance to the inspectors in connection with the inspection, and any
contravention thereof is punishable under section 232 of the Ordinance.
The inspection order dated February 25,
2011 issued in the subject matter is hereby withdrawn.”
Sd/-
Announced (Nazir Ahmed Shaheen)
Islamabad March 4,2011 Executive Director (Registration)”
”231. Inspection
of books of account by registrar, etc. – (1) The books of account and books
and papers of every company shall be open to inspection by the registrar or by
any officer authorised by the Commission, in this behalf if, for reasons to be
recorded in writing, the registrar or the Commission considers it necessary so
to do.
(2) It
shall be the duty of every director, officer or other employee of the company
to produce to the person making inspection under sub-section (1) all such books
of account and books and papers of the company in his custody or under his
control, and to furnish him with any such statement, information or explanation
relating to the affairs of the company, as the said person may require of him
within such time and at such place as he may specify.
(3) It
shall also be the duty of every director, officer or other employee of the
company to give to the person making inspection under this section all
assistance in connection with the inspection which the company may be
reasonably expected to give.
(4) The
person making the inspection under this section may, during the course of
inspection.-
(i) make or cause to be made copies of books of account and other
books and papers, or
(ii)
place or
cause to be placed by marks of identification thereon in token of the
inspection having been made.
(5) Where
an inspection of the books of account and books and papers of the company has
been made under this section by an officer authorised by the Commission, such
officer shall make a report to the Commission.
(6) Any officer authorised to make an inspection under this section shall have all the powers that the registrar has under this Ordinance in relation to the making of inquiries.”
8. From perusal of the provisions of Section
231 of the Companies Ordinance, 1984, it is seen that through instant provision
of law, the registrar or any officer authorized by Commission has been
empowered to inspect the books of accounts and, books and papers of every
company which shall be kept open to inspection by every company. It has been
further provided that every director, officer or employee of the company shall
be duty bound to produce to the person making inspection of such books of
accounts and books and papers of the company in his custody or under his
control and to furnish him with any such statement, information or explanation
relating to the affairs of the company. After conducting inspection of the
books of accounts and books and papers of the company, the authorized officer
is required to make a report to the Commission. It may be further noted that
the officer authorized to make an inspection under this section has been given
such powers, that the registrar has under the Companies Ordinance, in relation
to the making inquiries. It appears that the exercise of powers under section
231 of the Companies Ordinance, 1984 by registrar or the authorized officer by
the Commission is administrative in nature and limited to the extent of
inspection and conducting an inquiry into the affairs and accounts of a
company, whereas no adverse action is visualized under this section. It is
further seen that before invoking the provisions of section 231, no provision
for issuance of show cause notice has been provided by the legislature nor the
same could be read into this section as no adverse action is stipulated in this
section. We are of the view that, in appropriate cases and by assigning
reasons, in writing, the registrar or any authorized officer by Commission can
invoke the provisions of section 231, to inspect the books of accounts and
other books and papers required to be kept and maintained by a company under
law, and to ensure the compliance of the provisions of Companies Ordinance,
1984.
9. From perusal of the impugned order dated 4th
March 2011, it is seen that reasons in writing have been assigned for the
purposes of appointing Inspectors to conduct inspection of the books of
accounts and papers of the company, which in our view, is in conformity with
the language as incorporated in section 231 of the Companies Ordinance, 1984.
10. We may further observe that in case of
violation and non-compliance of the provisions of the Companies Ordinance,
1984, there are several consequential provisions, which can be invoked to
ensure compliance or to proceed against the defaulting company. However, before
invoking any such consequential provision or initiating any proceedings, which
could adversely effect the interest or rights of a company, it is entitled to a
show cause notice and/or right of hearing, to explain its view point. Whereas,
mere issuance of some administrative order or inspection of accounts by the
registrar or authorize officer, does not require any show cause or hearing as
claimed by the petitioner in the instant matter. We are of the view that mere
inspection of the books of accounts does not amount to an adverse action
against the company. It can be termed as an administrative action for
inspection and conducting preliminary inquiries into the affairs and books of
accounts and papers of the company, hence no show cause notice is required to
be issued before resorting to such provisions. The respondent No.2 initiated
action on the written complaint of respondents No.3 and 4 i.e.
shareholders/directors in accordance with the provision of Section 231 of the
Companies Ordinance, 1984. The action by respondent No.2 is inconsequence to
the statutory provision, which cannot be termed as malafide act on the part of
respondent No.2.
11. We are fortified in our view by an order of
Division Bench of this Court authored by one of the Senior Member of this Bench
namely, Fasail Arab, J, in the case of Beema
Pakistan Company Ltd., v. The Securities & Exchange Commission of Pakistan
and others (Const. Petition No.D-445 of 2007), wherein, while examining the
validity of appointment of Inspector under Section 231 of the Companies
Ordinance, 1984, it has
been held as under:
“A bare reading of Section 59 of the
Insurance Ordinance shows that the Commission is empowered to investigate into
the affairs of the insurer when it is of the opinion that the insurer has
contravened any provision of the Ordinance or of the Rules made therein. This
decision does not provide that before such opinion is formed and an
investigation is ordered, an opportunity of hearing should be accorded to an
insurer. The inspection or inquiry only facilitates Respondent No.1 to identify
contravention if any committed by an insurer and only then insurer could be
called upon to respond to specific allegations of contravention against it. Therefore
the question as to the right of hearing arises only when specific allegations
of any contravention are made against an insurer and this could only be done
when requisite inspections and inquiry has been carried out. Therefore, we are
of the opinion that Respondent No.1's power to conduct inspection or inquiry is
not subject to first providing opportunity of hearing to the insurer. This
right emerges only when respondent No.1 intent to take any adverse action
against the insurer for which a show cause notice is required to be first
issued.”
12. In the case of Commissioner of Income Tax and others v. Messrs Media Network and
others PLD 2006 SC 787, while examining the validity of the policy
guidelines issued by the Board for the purposes of selecting the returns for
audit upto 20% for the year 2002-2003 on the touch stone of the principles of “due process of law” and the “principles of natural justice” has held
as under:
“Depending upon the
facts and circumstances of each case, there is no mandatory requirement of
natural justice that in every case the other side must be given a notice before
preliminary steps are taken. It might suffice if reasonable opportunity of
hearing is granted to a person before an adverse action or decision is taken
against him. However, it is not possible to lay down an absolute rule of
universal application governing all situations as to the exclusion or otherwise
of the audit alterm partem rule during the course of preliminary inquiries or
investigations.”
In the above cited judgment,
while placing reliance in the case of Pearlberg v. Varty (Inspector Taxes)
(1972) 2 All England Reports 7) the Hon’ble Supreme Court has further held as
follows:-
27. The application or otherwise of the
principles of natural justice at preliminary stage of administrative
proceedings was examined in various jurisdictions by way of judicial review. In
Pearlberg v. Varty (Inspector Taxes) (1972) 2 All England Reports 7) the
Income-tax Authorities made an application to the Commissioner under the provisions
of section 6(1) of the Finance Act of 1964 for leave to make assessment on a
taxpayer for the years 1946-47 and 1950-51. The permission was granted without
giving the taxpayer an opportunity to be heard. The taxpayer claimed that those
assessments were invalid on the ground that the Commissioner had acted ultra
vires in granting leave without giving him an opportunity of hearing. The House
of Lords observed that the Commissioner was not required to give the taxpayer
an opportunity to be heard as his decision to give leave would not tantamount
to any final determination of the rights of the taxpayer.”
13. Similarly, in the case of New Jubilee Insurance Company Ltd., v.
National Bank of Pakistan, Karachi PLD 1999 SC 1126, the Hon’ble Supreme
Court has summarized the term “due
process of law” in the following manner;
(i) A
person shall have notice of proceedings which affect his rights.
(ii) He
shall be given reasonable opportunity to defend.
(iii) That
the Tribunal or Court before which his rights are adjudicated is so constituted
as to give reasonable assurance of his honest and impartiality; and
(iv) That it
is a Court of competent jurisdiction.
14. The Companies Ordinance, 1984 provides that
in case if a person is aggrieved by an order, other than an order under section
476 passed under the Companies Ordinance, 1984 can challenge the same by filing
revision under section 484 of the Companies Ordinance, 1984, before the
Commissioner within sixty days from the date of such order. In appropriate
cases the statutory remedy provided under the Companies Ordinance, 1984 can be
invoked by the aggrieved person, however, such person cannot be allowed to
abandon, or bye-pass such statutory remedy without any lawful excuse or
justification.
15. In view of hereinabove, we do not find any
merits in the instant petition, which is accordingly dismissed. The respondents
are directed to complete the inspection of the books of accounts, books and
papers of the petitioner company within a reasonable period and submit report
to the Commission. It may be clarified that, pursuant to such inspection, if
any adverse action is likely to be taken against the petitioner, an opportunity
of being heard may be provided and the matter may be disposed of strictly in
accordance with law.
JUDGE
JUDGE