ORDER SHEET
HIGH COURT OF SINDH, KARACHI
Suit No.1458 of 2011
Date Order with signature of Judge
For hearing of CMA No.7010 of 2012
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Najamuddin Zia & another …………..…………….Plaintiffs
Versus
Mst.Asma Qamar & others .………………Defendants
Date of hearing 18.10.2012
Mr.Faisal Kamal, Advocate for the plaintiffs.
Mr.Sami Ahsan, Advocate for the defendant Nos.1, 2 & 4.
Mr.Khalid Dawoodpota, Advocate for the defendant No.3
Mr.Salman Hamid Advocate for Intervener.
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Muhammad Ali Mazhar, J: This order will dispose of an application moved under Order 7 Rule 11 CPC by the defendant No.1, 2 and 4. In the application learned counsel reproduced the prayer clauses and argued that under Sections 7 and 8 of the Companies Ordinance, 1984 this suit is not maintainable, but a Judicial Miss. Application under the Companies Ordinance, 1984 should have been filed before the company judge of this court. Learned counsel further argued that the court having jurisdiction under the Companies Ordinance is the high court having jurisdiction in the place in which the Registered Office of the Company is situated. Learned counsel then referred to Section 8 of the Companies Ordinance in which it is provided that in each high court company bench be constituted by the Chief Justice of the High Court to exercise the jurisdiction vested in the high court under Section 7.
2. It was further averred that it is manifestly clear from the prayer clauses made in the suit that the case of the plaintiff falls within the ambit and parameter of Sections 263, 290 and 292 of the Companies Ordinance in which the right course was available to move judicial misc. application under aforesaid provision of the Companies Ordinance to the company bench of this court constituted under Section 8 of the Companies Ordinance. Learned counsel also referred to Section 4 CPC in which it is provided that in the absence of any specific provision to the contrary, nothing in this code shall be deemed to limit or otherwise effect any special or local law now in force or any special form of procedure prescribed by or under any such law for the time being in force. The purpose of referring to Section 4 CPC was to make emphasis that proper remedy with special jurisdiction is provided under the Companies Ordinance, therefore, the suit is not maintainable and plaint is liable to be rejected.
3. In support of his arguments the learned counsel referred to an order of the Division Bench of this court passed in C.P.No.D-2241/2012 filed by the defendant No.4 against SECP which petition was dismissed in limine with the observation that under Sections 263 and 264 Companies Ordinance, recourse could not be made by filing a petition before a company judge, which is an adequate remedy in the facts and circumstances of the case. He referred to unreported order passed by learned Single Judge of this court in J.M.No.22/1997 in which Section 5 and Section 6 of the Arbitration (Protocol and Convention) Act, 1937 were under discussion and the controversy involved was that under Section 5 Sub-section (2) of the aforesaid Act, it is provided that the application moved shall be treated as a suit, while Rule 294 of Sindh Chief Court Rules (O.S) provides that application under Sections 3 and 5 of the Arbitration (Protocol and Convention) Act, 1937, made by petitioner shall be disposed of as misc. matter. After arguing and reconciling both the provisions the leaned Single Judge held that application seeking enforcement and award filed under Sections 5 and 6 of the Arbitration (Protocol and Convention) Act, 1937 shall be treated as suit. He further relied upon AIR 1932 Calcutta 714 (Jogesh Chandra Majumdar v. Durga Mohan Chakrabarty & others), in which it was held that a suit by shareholder under Section 42 of the Specific Relief Act, for declaration that allotment of new shares in consequence of resolution was in itself invalid deciding to increase the capital of the company by issue of new shares to certain persons is illegal and that they cannot act as shareholders of the company is not maintainable. Learned counsel also referred to AIR 1958 Punjab 190 (Karnal Distillery Co. v. Ladli Parshad), in which it was held that plaintiff’s right to obtain relief by way of a permanent injunction depends upon the provisions contained in Sections 54 and 56 of the Specific Relief Act. In suitable cases a suit by a Director against the other Director for an injunction restraining latter from committing illegal acts is maintainable in civil court. The question of court’s jurisdiction to entertain a suit is distinct from the question of whether having jurisdiction. It should exercise it in view of the circumstances of the particular case. It was further held that it is still open to the plaintiff to seek relief under Section 155 of the Companies Act, 1956, which is equivalent to Section 38 of the Companies Act, 1913. The court’s jurisdiction in the matter of rejection of registration is extensive and general. Learned counsel further referred to PLD 1996 S.C. 543 (Brother Steel Mills Ltd. & others v. Mian Ilyas Miraj & others), in which Section 7 of the Companies Ordinance, 1984 was dilated upon and the apex court held that while exercising such jurisdiction high court has the characteristics and attributes of original jurisdiction. The high court or a court empowered under section 7(1) of the Companies Ordinance, 1984 has been vested with the jurisdiction to entertain hear, try and decide the matters and cases arising under the Ordinance. Such jurisdiction has been conferred by the Ordinance. The proceedings under the ordinance are initiated in the High Court as a court of first instance. Learned counsel also referred 1983 CLC 162 (Haroon Ayoob Abdul Karim v. Sulleman Ahmed & others) and AIR 1941 Madras 354 and 2003 SCMR 132, which are not relevant to the present controversy.
4. The learned counsel for the plaintiff argued that the plaintiffs have filed the suit for declaration, injunction and damages. He further argued that most of the allegations made in the plaint are against the defendant Nos.1 and 2, who are neither Directors nor the shareholders, but were employees of defendant No.3. It was further averred that defendant No.4 is the real father of the plaintiffs. The defendant No.3, Ahmed Foods Pvt. Ltd. was established in the year 1958 and due to untiring sincere efforts of the family members the defendant No.3 and its products have established good name, reputation and goodwill. The defendant Nos.1 and 2 took undue advantage of deteriorating health of the defendant No.4 and gradually attempted to take control of the defendant No.3 and due to their undue position even employees of senior positions were also compelled to follow their arbitrarily and unauthorized instructions. They also adopted unethical and un-business like practices. The plaintiffs are major shareholders and Directors in the defendant No.3 company, but verbal instructions were issued to block their access to official Software (ERM) of defendant No.3, which made difficult for the plaintiffs to communicate with customers, suppliers and distributors and even their access was blocked to the companies premises also. On the instigation of the defendant Nos.1 and 2 mis-leading correspondences were circulated even to foreign clients, which is a trade liable.
5. It was further averred that the defendant No.1 syphoned off huge amount of defendant No.3 and established a sole proprietorship under the name and style of A.Q. Enterprises and running parallel business, which is in competition with the business of defendant No.3. The learned counsel pointed out various paragraphs of plaint including paragraph Nos.6,7,8,9 and 13. He further argued that keeping in view all the contents of the plaint it is crystal clear that the plaintiffs had not approached this court for claiming any relief under Sections 263, 290 or 292 of the Companies Ordinance, 1984 and if the contents of entire plaint is taken into consideration it will become crystal clear that the plaintiffs have cause of action against the defendants and they have rightly approached this court in its original side. It was further argued that the plaintiffs have also claimed damages against the defendant Nos.1 and 2, which is not possible to be claimed under the provisions of Companies Ordinance. He particularly referred to Section 293, which provides that where an order of the court made under Section 290, terminates, set-aside or modifies an arrangement, the order shall not give rise any claim against the company for damages or compensation for loss of office or any other respect either in pursuance of the agreement or otherwise. He further argued that there is no bar, which prevents the plaintiffs from filing the present suit. It was further contended that for the purpose of rejection of plaint only the contents of the plaints are to be looked into.
6. In support of his arguments, learned counsel referred to P.L.D 1968 S.C 381 (M/s.Chalna Fibre Co. Ltd. Khulna & others v. Abdul Jabbar & others). This matter pertains to Companies Act, 1913, but the hon’ble Supreme Court also discussed Section 9 of CPC and held that the Managing Director had absolute power with regard to its administration and management under the Articles of Association. For some time thereafter, he was placed under detention under the East Bengal Public Safety Ordinance and during the period of his detention some of the members of the company manufactured a letter purporting to have been written by M.D. and stating that he had resigned from the post of Managing Director. On the basis of this letter they reconstituted the company and changed its name. On his release from detention, M.D. coming to know of the mischief filed a civil suit seeking declaration that (i) his removal from the post of Managing Director was fraudulent; and (ii) that the reconstitution and change of name of company was illegal. On the question whether the reliefs prayed for could not be granted under the Companies Act, 1913 and whether the suit was entertainable and triable by a civil Court under section 9, C.P.C., the Supreme Court held that the civil suit was competent and not hit by any provisions of the Companies Act, 1913. It was further held that ouster of jurisdiction of a civil Court in respect of a civil suit is not to be readily inferred, unless that jurisdiction has been either expressly or impliedly taken away by some other law it will continue to vest in the civil Court. He further referred to 1998 CLD 237 (Muhammad Yasin Fecto v. Muhammad Raza Fecto & others) in which it was held that Courts would not be competent to interfere in day-to-day working of any company on the doctrine of indoor management. Such bar, however, was not absolute and there were situations where Directors or shareholders of a company could bring case before Court against company and its Directors. Court would be justified to interfere; where majority had acted in depriving the minority of their lawful and legitimate rights; acts complained of were ultra vires of memorandum and Articles of Association of the company; Directors had acted mala fidely and against the interest of the company; there was violation of principle of natural justice; and the acts complained of amounted to fraud and misrepresentation.
7. Mr.Khalid Dawoodpota, Advocate for the defendant No.3 adopted the arguments of Mr.Faisal Kamal and also supported the case of the plaintiffs.
8. Heard the arguments. In paragraph 14 of the plaint the plaintiffs have raised various allegations against the defendant Nos.1 and 2 that they are grouping within the defendant’s company detrimental to its interest. The plaintiffs are being stopped from exercising their powers and functions as Directors and around 70 workers abruptly laid off, who sit in at the factory gate and misbehaved the plaintiff No.2. The factory premise at SITE has almost been shut down, which is causing losses of millions of rupees. The bank accounts are not being operated according to prudential regulations. The salary of employees for the month of November, 2011 could not be paid, which plaintiffs themselves paid in order to avoid any untoward incident. The defendant Nos.1 and 2 superstitiously transferred the production from SITE factory to their own undertaking located in Karachi Export Processing Zone, so that the revenue may be diverted to defendant No.1 and 2. It is further stated that if the defendant Nos.1 and 2 are not restrained they will cause irretrievable loss and damages to the defendant No.3 company and to its shareholders and Directors including the plaintiffs. The plaintiffs have also challenged some correspondence allegedly made by defendant Nos.1 and 2 regarding the reconstructing of units. The defendant Nos.1 and 2 are also stopped the access of the plaintiffs from participating into the affairs of management of defendant No.3, company. It is further averred that the defendant Nos.1 and 2 are taking advantage of the illness of the defendant No.4. The plaintiffs have also claimed the damages against the defendant Nos.1 and 2 and also claimed the appointment of Receiver to take over the associated undertaking of the defendant No.3 i.e. Ahmed Foods International and Ahmed Import and Export House.
9. While arguing the application under Order 7 Rule 11 CPC, counsel for the defendant Nos.1 and 2 mainly focused Section 7 and Section 8 of the Companies Ordinance, 1984, in which it is provided that the court having jurisdiction under the Companies Ordinance, 1984 shall be high court having jurisdiction in the place at which the registered office of the company is situated while under Section 8 it is provided that there shall in each high court be one or more benches each to be known as a company bench to be constituted by the Chief Justice of the High Court exercise the jurisdiction vested in the high court under Section 7 of the Companies Ordinance, 1984. So far as the aforesaid Sections of the Companies Ordinance, 1984 are concerned there is no second opinion and the provisions are very much clear beyond any shadow of doubt. It is well settled principle that each case is to be decided on its own facts, so in order to resolve this controversy whether the proper remedy available with the plaintiffs to file Judicial Misc. Application under the provisions of the Companies Ordinance, 1984 or the suit filed by them in this court in its original side is maintainable, it is necessary to see the cause of action and the contents of the plaint. There is no doubt that the defendant Nos.1 and 2 are not Directors in defendant No.3 company and the allegations leveled against them are more particularly discussed in the preceding paragraphs.
10. The arguments of learned counsel that the proper remedy was to file petition under Section 263 or 290 of the Companies Ordinance, 1984, and the plaintiffs have filed civil suit on misconceived notion. Let me first take up Section 263 of the Companies Ordinance, 1984, which pertains to the investigation of affairs of company on application by members or report by registrar, in which the SECP may appoint one or more persons as Inspectors to investigate the affairs of the company. The plaintiffs have not raised any such ground in which they may be asked to avail the remedy under Section 263 of the Companies Ordinance, 1984 instead of approaching this court. So far as the Section 290 is concerned, it is clear that in order to invoke the jurisdiction of company judge under Section 290 it must be made out that the company’s affairs are being conducted in a manner pre-judicial to the public interest or oppressive to any member or members of the company, which may justify the winding up order. The provisions are essentially intended to control and prevent oppression of the rights of the minority shareholders and mismanagement by majority shareholders and wining up provisions. The word “Oppression” must be given its ordinary sense. The oppression complained of should involve visible departure from the standard of fair dealing and the violation of conditions of fair play on which every shareholder who entrusts his money to a company is entitled to rely. The terms “Oppression” has not been defined in the Companies Ordinance, 1984 and it is left to the court to decide on the facts of each case whether there is a case of “Oppression” or not, which calls for action under Section 290. The provisions of Section 290 cannot be invoked for settlement of disputes between the parties inter see. In the case of Registrar of Companies v. Pakistan Industrial & Commercial Leasing Ltd. & others reported as 2005 CLD 463, it was held that Section 290 of the Companies Ordinance can only be made when the petition does not raise any disputed questions of fact and highly complex matters. An order under Section 290 can only be made in the clearest of cases.
11. The bare bones of the matter demonstrate that the plaintiffs have raised various allegations and disputed questions of facts, which require lengthy inquiry and evidence and the same could not be the subject matter of the proceedings under Section 290 of the Companies Ordinance, 1984. So far as the implication of Section 305 of the Companies Ordinance, 1984 is concerned, no case is before me for winding up defendant No.3. The plaintiffs have also claimed damages, which of course cannot be decided without recording evidence.
12. The learned counsel for the defendant Nos.1 and 2 relied upon AIR 1932 Calcutta 714, in which the plaintiff filed the suit for declaration that allotment of new shares in consequence of resolution was itself invalid deciding to increase the capital of the company by issue of new shares. This suit was found not maintainable but under the present case no such controversy is involved, therefore, the case law cited above is distinguishable and another case reported in AIR 1958 Punjab 190, in which it was held that the plaintiff’s right to obtain relief by way of a permanent injunction depends upon the provisions contained in Sections 54 and 56 of the Specific Relief Act. In fact in this case it was held that in suitable cases a suit by a Director against other Director for injunction restraining the latter from committing illegal acts is maintainable in civil court. Learned counsel also referred to PLD 1996 S.C. 543, in this case the hon’ble Supreme Court dilated upon the Section 7 of the Companies Ordinance and held that under Section 7(1) of the Companies Ordinance the high court is empowered and vested with the jurisdiction to hear, try and decide the matters and cases under the Companies Ordinance. There is no cavil to the dictum laid down by the hon’ble Supreme Court but the facts remains that in order to reject the plaint on the touchstone of Sections 7 and 8 of the Companies Ordinance, 1984, it is necessary for the court to reach a positive conclusion that from the contents of the plaint it appears that the proper remedy is to invoke the provisions of the Companies Ordinance, 1984 rather than to file civil suit.
13. On the contrary, learned counsel for the plaintiffs relied upon PLD 1968 S.C. 381, in which the hon’ble Supreme Court discussed Section 9 of CPC. In this case the Managing Director challenged his removal form the post of M.D. on the ground of fraud and also challenged the writ jurisdiction and change of name of company. The hon’ble Supreme Court held that the suit filed in the civil court is competent and not hit by provisions of Companies Act, 1913. It was held that ouster of jurisdiction of civil court in respect of civil suit is not to be readily inferred, unless that jurisdiction has been either expressly or impliedly taken away by some other law. In another case reported in 1998 CLD 237, it was held that the courts would not be competent to interfere in day-to-day working of any company on the doctrine of indoor management, however, such bar is not absolute and there were situations where Directors or shareholders of a company may bring case before court against company and its Directors.
14. In the case law cited by learned counsel for the plaintiffs the courts have held that the civil suits are maintainable and unless there is specific bar the proceedings may be initiated in the civil court and in this perspective the jurisdiction of civil court conferred under Section 9 of CPC was also discussed. If I look into the contents of the plaint in totality I am of the view that the relief(s) claimed by the plaintiffs are such which cannot be decided under the provisions of Companies Ordinance, 1984 and disputed questions of facts raised can only be decided after recording evidence including the claim of damages whether the plaintiffs are entitled to claim or not.
15. The plaintiffs have claimed multiple reliefs and the plaint cannot be rejected in piece meal. Had the suit or the reliefs claimed under it strictly restricted and confined within the parameters, scope and domain of Sections 263 and 290 or 305 of the Companies Ordinance, 1984 this court was left with no other option but to reject the plaint with the directions to file proper proceedings in accordance with the Companies Ordinance, 1984. But the position before me is totally different keeping in view the contents of the plaint, allegations and reliefs claimed by the plaintiffs it would not advance the cause of justice to reject the plaint with the direction to approach the company judge when the controversy involved does not germane to the parameters of Section 263 and Section 290 of the Companies Ordinance, 1984.
16. The bone of contention between the parties as recounted in the plaint and written statement shows the substantial dispute which is a mix question of law and facts and require evidence. The rejection of the plaint on technical ground amounts to deprive a person from his legitimate right of availing legal remedy in undoing the wrong done in respect of such right. This is a settled principle of law that in case of substantial question of facts or law the provisions of Order 7 Rule 11 CPC cannot be invoked rather the proper course for the court in such cases is to frame issues on such questions and decide the same on merits in the light of evidence. Reference can be made to my own judgment reported in 2011 CLC 88 (Mst.Bano alias Gul Bano & others v. Begum Dilshad Alam & others).
17. For the foregoing reasons, the application filed under Order 7 Rule 11 CPC is dismissed.
Karachi:- Judge
Dated.7.12.2012