ORDER SHEET
HIGH COURT OF SINDH, KARACHI
J.M. No.10 of 2012
Date Order with signature of Judge
1.For hearing of CMA No.80/2012
2.For hearing of CMA No.81/2012
3.For hearing of CMA No.195/2012
4.For hearing of main petition.
Mrs.Syma Mahnaz Vayani & others………….Petitioners
Versus
Molasses Export Company Pvt. Ltd.………Respondent
Date of hearings 10.10.2012, 2.11.2012 & 06.11.2012
Mr.Ijaz Ahmed and Mr.Aijaz Shirazi, Advocates for the Petitioners.
Mr.Arshad M.Tayebaly, Advocate for the Respondent.
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MUHAMMAD ALI MAZHAR, J: The petitioners have filed this petition under Section 305 of the Companies Ordinance, 1984 with the prayer that the respondent company may be wound up and the official liquidator may be appointed with all the powers as to the administration of the assets of the respondent company and for further action according to the law. The petitioners have filed two Misc. Applications CMA Nos.80 and 81 of 2012 for injunction and appointment of Nazir to prepare inventory of assets of respondent, while the respondent has filed CMA No.195/2012 for vacating the ex-parte injunction granted on 10.4.2012 .
2. The brief facts as narrated in the petition are that late Noor Mohammad Vayani founded the respondent Company in 1964, and remained director and Chairman until he passed away in 2008. Noor Mohammad Vayani from time to time allotted and transferred shares in the names of his family members and appointed his three sons (1) late Mr. Abdul Majid Vayani (the predecessor of the Petitioners), (2) Mohammad Amin Vayani, (3) Mohammad Anees Vayani and Abdul Sattar Vayani as directors of the Respondent Company.
3. Late Noor Mohammad Vayani was a majority shareholder of the respondent along with his wife late Halima Vayani. Late Abdul Majid Vayani, Mohammad Amin Vayani and Mohammad Anees Vayani, had nearly equal shares in the respondent company.
4. The respondent was incorporated to run as a family business on the understanding that all family members will be beneficiaries of the respondent and male family members will actively participate in the management of the respondent Company.
5. The filing of the company returns was done by Mr.Iqbal Majeed, the Company Accountant and all share certificates and title deeds and other important documents remained under his lock and key until Late Abdul Majid Vayani’s demise, after which Mohammad Anees Vayani took possession of the share certificates of the respondent Company, as well as Molasses Trading and Export Company Private Limited, Premier Molasses Export Corporation Private Limited and Pakistan Shoe Corporation Private Limited.
6. Late Abdul Majid Vayani (predecessor of the Petitioners) was in charge of the foreign trading of molasses, thus he used to travel to meet the importers of Molasses, whereas Mr. Abdul Sattar Vayani, managed the local buying of molasses, with Sugar Mills as well as the transporters. The entire business of the respondent Company was being managed on trust between the family members. Any documents brought for the signature of the Petitioners late predecessor were simply signed without bothering to read the same as such was the trust and confidence that one reposed in the other.
7. Mr.Ijaz Ahmed, learned counsel for the petitioners referred to the grounds raised in the memo of petition for winding up the respondent company and argued that no formal annual general meeting of the respondent was held but the returns were filed at the end of each year on time. No AGM notice was ever issued. It was further averred that no minutes of board’s meeting were ever recorded because no meeting was ever held. He further argued that there was a requirement of two company Directors’ signatures to make any transaction or withdrawal of funds from the company account. Instead of paying dividends to the shareholders the individual shareholder drawing funds from the respondent company for their household expenses and payment of utility bills. After the death of Noor Mohammad Vayani and Mrs.Halima Vayani in the year 2008, Mohammad Anis Vayani continued to draw funds from the account of late Noor Mohammad Vayani without informing the other legal heirs and never accounted for the said funds. It was further averred that late Abdul Majid Vayani was responsible for bringing in order for export of molasses and such orders were based on advance payment or letter of credits and the local purchases were looked after by Abdul Sattar Vayani under the supervision of late founder of the company and after his death all matters were being dealt under the control of Abdul Sattar Vayani, but he started misappropriating the funds of the company in league with Mohammad Amin Vayani and Mohammad Anis Vayani. Abdul Majid Vayani died in the month of August, 2010 and the petitioners being his legal heirs filed Succession Misc. Application No.323 of 2010 for the letters of administration which was granted by this court with directions to Nazir to transfer the shares of Abdul Majid Vayani in the names of petitioners but the incumbent Directors refused to transfer these shares on different pretexts.
8. Learned counsel also pointed out paragraph 15 of the petition which shows that after the death of Noor Mohammad Vayani his wife Mrs.Halima Vayani and Abdul Majid Vayani the petitioners have inherited 16.72% shares in the respondent company, but the present directors have refused to transfer the shares. This has been done with the sole intention to deprive and exclude the petitioners from the management and benefit of the respondent company. The respondent company has also stopped the monthly payments in accordance with family arrangement to the petitioners as well as other shareholders. He further argued that the respondent has sold out major assets i.e. commercial plot in Clifton, shares of Fazal Textile Ltd. and a hut situated at Sandpit and all such sales were conducted without informing or consulting the petitioners and other shareholders of the company and the profits were also not accounted for or distributed among the shareholders. Learned counsel further argued that the petitioners have a pre-eminent interest in the proper and transparent administration of the respondent company. The petitioners have also discovered that the funds of the company are being siphoned off and are being used for the personal interest of the remaining Directors. The present Board of Directors have failed to maintain proper accounts and even not allowing the petitioners to inspect the books of accounts of the respondent company. The respondent directors are also negotiating to sell the leasehold rights of another major asset of the company situated at Oil Installation Area Keamari and the sale of this plot will amount to winding up of the respondent company in practical terms. The learned counsel vehemently argued that export of the respondent company when it was being managed under the control and supervision of founder Chairman was approximately 650,000 tons and the present export of the company is less than 80,000 tons. As such respondent company has lost its substratum. Learned counsel concluded that the present Board of Directors have failed to perform their duties and the lack of transparency, negligence and misappropriation of funds made it clear that the company has become commercially insolvent and lost its substratum, therefore, it would be appropriate and expedient to wind up the respondent company. In support of his arguments learned counsel relied upon the following case law:-
(1) PLD 1965 S.C. 221 (Ladli Prasad Jaiswal v. The Karnal Distillery Co. Ltd.). In this case the hon’ble Supreme Court held that in the case of private limited company the tendency of the courts has uniformly been to treat it more or less as a partnership and to apply the same principles in the winding up of a private limited company as would entitle a partner to have a partnership firm dissolved. Commonly the exclusion of a partner from the management of the firm, the existence of a state of deadlock between the partners or the justifiable lack of confidence in the management have been regarded as just and proper grounds for dissolving a private limited company.
(2) 1987 CLC 2263 (M/s.Nagina Films Ltd. v. Usman Hussain & others). In this case the leaned Division Bench of this court referred to the judgment of hon’ble Supreme Court rendered in Ladli Prasad case, reported in PLD 1965 S.C. 221, Yenidji Tobacco Company Limited 1916 Chancery Division 426, Loch and another v. John Blackwood Limited 1924 Appeal Case No.783, Davis and Collect Limited 1935 Chancery Division 693, Lundie Brothers Limited, Privy Council Chancery Division (1965) 1051 and Ebrahimi v. Westbourne Galleries Limited reported in (1972) 2 All E.R. 492 and laid down as under:-
(i) That in a particular case the principles of dissolution of partnership may be applied if the apparent structure of the company is not the real structure and on piercing the veil it found that in reality it is a partnership.
(ii) That generally the exclusion of a partner from the management of the firm, existing of a state of dead lock between the partners or justifiable lack of confidence in the management have been regarded as just and proper grounds for dissolving a private limited company.
(iii) That when the members of a Company had entered into membership of the Company on the basis of personal relationship involving mutual confidence or an understanding as to the extent to which each of the member was to participate in the management of the company, exclusion of any member from the management in breach of the above understanding would entail the grant of winding up petition.
(iv) That if a Company is floated by more than one family or several friends and relations in the absence of agreement for active participation of the members who are sought to be excluded from the management, the principles of dissolution of partnership cannot be liberally invoked but in the case of agreement for the active participation in the management by all the members of all the groups, the exclusion from the management of any group will attract the application of the principles of dissolution of partnership of a firm.
(v) That in case where a family partnership is converted into a private limited company, the Court will be more inclined to apply the principles of dissolution of a private partnership firm in case any member of the family is excluded from the management of the Company be the other member of the family holding majority shares.
(vi) That simpliciter the factum that some Directors had preponderating voting power and have not allowed the other shareholders to join in the management of the Company is no ground to wind up the Company.
(vii) Where one Director purports by means of irregularities to acquire complete control of the company and to exclude other director/or Directors from the management, it may be just and equitable that the Company be wound up.
(viii) That the ground just and equitable is not controlled by the grounds preceding to the above ground in Section 162 of the Act and is also not confined to cases in which there are grounds analogous to those mentioned earlier.
(ix) That the position of a director and a partner is analogous if the appointment of a Director is for a fixed period otherwise he can be removed by an extraordinary resolution under section 86-G of the Companies Act.
(x) That in the absence anything contrary in a partnership deed every partner is entitled under the Partnership Act to share the management of the firm but a shareholder generally in a company is in the absence of a pre-incorporation agreement/understanding cannot claim any right to manage the company.
(xi) That if a shareholder brings a petition for winding up of a company, the court will inter alia consider the factum whether majority of shareholders and large number of creditors are opposing the petition
(xii) That while considering a petition for winding up the ground of lack of probity must be against the interest of the Company itself and on behalf of the company and not in relation to the public exchequer.
(xiii) That there is a marked distinction between a private partnership firm at will, of which dissolution can be sought by a partner as a matter of right and a private limited company, of which winding up cannot be contained by a shareholder without any recognized justifiable ground.
(3) 1996 CLC 1863 (Mst.Khursheed Ismail & others v. Unichem Corporation (Pvt.) Limited. Learned Single Judge in this case while dilating upon the judgment delivered in the cases of Ladli Parsad and Nagina Films held that Company would be would up on just and equitable grounds where company was family concern analogous to partnership firm and respondents had committed several acts of commission and omission rendering the company liable under various provisions of Section 305 of Companies Ordinance where partners were excluded from the management of company and there was complete deadlock among the parties.
(4) 1985 CLC 1239 (Mansoor Ali Bandeali v. Marine Food Industries Ltd. and others). This case is based on Ladli Parsad and Nagina Films cases. Learned Single Judge of this court held that the grounds which were available to a partner for having a partnership firm dissolved were available to a shareholder for winding-up a private limited under the just and equitable clause i.e. exclusion of a partner from the management of a firm, the existence of a state of deadlock between the partners. Justifiable lack of confidence in the management . It was further held in this case that majority in a private limited company has not only the right to overrule minority in all decisions on behalf of company but also right to exclude minority for taking part in management of company, subject to provision of Companies (Managing Agency and Election of Directors) Order, 1972. It was further held in this case that mere increase of the liability of the company by itself is no ground for winding up of the company. What has to be established in this regard is that it is impossible to carry on the business of the company except at a loss or that the existing assets are insufficient to meet the existing liabilities.
(5) Ebrahimi v. Westbourne Galleries Ltd. and others (1973 Appeal Case No.361 House of Lords). This case was also discussed in the case of Nagina Films Ltd. The house of lords in this case set aside the judgment of court of appeal and held that the company may be wound up by the court if the court is of the opinion that if it is just and equitable that the company should be wound up. The words “just and equitable” appear in the Partnership Act, 1892, Section 25, as a ground for dissolution of a partnership and no doubt the considerations which they reflect formed part of the common law of partnership before its codification. The importance of this is to provide a bridge between cases under section 222(f) of the Act 1948 and the principles of equity developed in relation to partnerships. The winding up order was made following a doctrine which has developed in the courts since the beginning of this century. As presented by the appellant, and in substance accepted by the company are in substance partners, or quasi-partners, and that a winding up may be ordered if such facts are shown as could justify a dissolution of partnership between them. The common use of the words “just and equitable” in the company and partnership law supports this approach.
(6) Lundie Brothers Ltd. (1965 I.W.L.R. 1051) Chancery Division. In this case it was held that if the parties had been partners the termination of the petitioner’s employment as a working director, being an unjustified exclusion of him from the affairs of the partnership, would have been a ground for ordering dissolution; and that, as this private company was in substance a partnership, it was just and equitable to order, and it was accordingly so ordered, that the company should be would up under section 222(f) of the Companies Act, 1948 .
9. Mr.Arshad Tayebaly, learned counsel for the respondent argued that the petitioners are not the registered shareholders of the respondent, hence they cannot file winding up petition. This petition has been filed by the petitioners in the capacity of legal heirs of late Abdul Majid Vayani, Noor Mohammad Vayani and Mst.Halima Vayani. The main grievance of the petitioners is that the shareholdings of the above deceased persons have not been transferred in the names of petitioners for which the remedy is available to them under Section 152 of the Companies Ordinance 1984, but instead of invoking proper remedy available under the law they have filed this petition for winding up with mala fide intention on misleading and fabricated averments. It is further contended that the assertion of the petitioners that the company has lost its substratum is misconceived. Neither the company has lost its substratum nor it is commercially insolvent. The company is being run and managed in a fair and transparent manner for the last several years. It was further averred that late Abdul Maid Vayani died in October, 2010 but in his lifetime he never raised any objection against the present board of directors. The respondent company was never operated as family business but functioning as limited company in accordance with Companies Ordinance and its memorandum and article of association. The shareholding of the respondent is duly recorded with Security and Exchange Commission of Pakistan and there was no understanding that all family will participate in the management of the respondent. He further argued that the respondent is ready and willing to transfer the shares of late Abdul Majid Vayani in favour of his legal heirs, but the petitioners failed to return the original share certificates. He argued that late Abdul Majid Vayani used to handle the foreign export of the company products, who siphoned off the funds and diverted to his personal account in various foreign bank accounts including but not limited to those in Switzerland, Dubai and U.K. for which the respondent has already filed Suit No.614/2012 for recovery against the petitioners in this court. In relation to the allegation of siphoning off the company funds by late Abdul Majid Vayani, learned counsel argued that the present management discovered various e-mails and letters written to foreign purchaser, importers whereby he instructed to divert the sugar premium payable to respondent to his personal account and in the account of his wife.
10. Learned counsel further argued that since the present petitioners are not shareholders of the company, therefore, no notice for AGM was required to be served upon them. So far as holding of AGM is concerned, the learned counsel submits that AGM is being held regularly. He further referred to paragraph 17 of the petition in which property of Sandpit Hut is mentioned. Learned counsel argued that this Hut was sold out in open market to liquidate the debt of the respondent, which were accumulated due to petitioners’ predecessor’s unlawful siphoning off the funds. The sale proceed of the Sandpit Hut was accounted for and paid into the account of respondent and this transaction was authorized by the board of directors. So far as the shares of Fazal Textile Ltd. are concerned, he argued that the same were pledged with Soneri Bank Ltd. and the same were sold out through bank to reduce the outstanding liabilities of the respondent. It was further contended that the commercial plot in Clifton measuring 544 sq.yards was not owned by the respondent, therefore need not to reply. Learned counsel further argued that plot No.26 Oil Installation Keamari is being sold in accordance with the decision of the board of directors against valuable consideration to repay the loan of the respondent as the sale proceed will extinguish the liability one of its largest creditors Soneri Bank Limited. The sale agreement of this property is being executed through Soneri Bank Ltd., hence, the allegation of any misappropriation are misconceived. Learned counsel further referred to three terminals namely Modern Terminal, Steel Tank Terminal and RCC Terminal with plot numbers and argued that Modern Terminal is being used for storage and export of molasses with latest pumping facility, in which the respondent stores 400,000 metric tons of molasses per annum and in Steel Tank Terminal the respondent can store 100,000 metric tons molasses per annum while the RCC Terminal is major asset having large storage capacity along with pipeline and pumping facility on the berth which is the only water front facility and the respondent’s Head Office is also located there and the current exports of the respondent are being carried out through three terminals as mentioned above which is sufficient. Learned counsel also argued that the petitioners have given wrong figure of export and in paragraph 42 of the reply to the main petition substantial figures of export have been shown from 2009 to 2011 and he further pointed out that in the rejoinder the petitioners evasively denied this fact and failed to controvert the export figures. Learned counsel further contended that the decrease in export in the year 2011 occurred due to substantial increase in regulatory duty levied on export of the product and export of molasses has decreased throughout the country. He further argued that it would not be just and equitable to wind up respondent which is a going concern.
11. Learned counsel referred to legal notice dated 20.01.2012, which was sent by the petitioners to the present directors in which the petitioners called upon the respondent to transfer the shares of late Noor Mohammad Vayani, late Mst.Halima Vayani and late Abdul Majid Vayani and also claimed their due shares in the sale proceeds of respondent’s assets and they also called upon the respondent not to sell the plot No.26. The main grievance is against the non-transferring of shares for which remedy was available in the Companies Ordinance itself. He further argued that no SMA was ever filed in relation to the estates of Noor Mohammad Vayani and Mst.Halima Vayani. Learned counsel next referred to affidavit in rejoinder of the petitioners in which they have attached a summary of payments which were made by the respondent to some persons. The summary is available with the rejoinder in which names of 29 persons with details of payments are mentioned. The learned counsel argued that late Abdul Majid Vayani died on 9.8.2010 and the dates mentioned in the summary clearly shows that the alleged payments were made in his lifetime so the petitioners cannot accuse the respondents. Learned counsel further pointed out Annexure D-17, attached with the reply of main petition which was written by Abdul Majid Vayani to give instructions to various companies to transmit the payments of respondent in his personal account and in the account of his wife i.e. petitioner No.1. He further argued that the winding up petition is based on frivolous allegations. The Security and Exchange Commission of Pakistan never took any action rather in their comments the SECP clearly stated that the respondent has been filing statutory returns regularly including election of directors till 2010. In support of his arguments learned counsel for the respondent referred to following case law:-
(1) 2003 CLD 1429 (Muhammad Hussain v. Dawood Flour Mill & others). The learned division Bench of this court held that the term ‘member’ used in the Section 305(f) refers to a person who is a member on the day he files the application meaning that the person owns at least one share of the company and his name appears in the Register of shareholders of the company but he does not refer to a person whose name was borne on the Register some times in the past prior to the date of the filing of the application. Admittedly Hussain did not own a single share in the company on the day he filed the application. Application was therefore, not found maintainable. The aforesaid section also states that the application may be filed by minority shareholders for winding up of the company. The explanation II to the said section clearly states that ‘minority shareholders’ together holding not less than 20% of equity share capital of the company.
(2) 2004 CLD 1064 (Aminuddin v. M/s.Azad Friends & Co.). Learned Single Judge of this court held that Section 320 of the Companies Ordinance, 1984 requires this court to have regard to the wishes of the creditors and contributors in all matters relating to the winding up a company. In the present case none of the creditors and shareholders (other than the petitioner himself) has supported the winding up petition. It was further held that it is difficult to prefer the wishes of one shareholder as opposed to the remaining shareholders having an overwhelming majority nearly 69%. To conclude it would not be just and equitable in the present case to wind up the company. Petition was dismissed interim orders were vacated.
(3) 2004 CLD 640 (Shahamatullah Qureshi v. Hi-Tech Construction Pvt. Ltd.). In this case relying upon the judgment of Nagina Films Ltd. and AIR 1976 SC 565. It was held that when a shareholder brings a petition for winding up of a company, the court will, inter alia, consider the factum whether majority of shareholders and large number of creditors are opposing the petition. While considering a petition for winding up the ground of lack of probity must be against the interest of the company itself and on behalf of the company and not in relation to the public exchequer. There is a marked distinction between a partnership firm-at-will, of which dissolution can be sought by a partner as a matter of right and a private limited company, of which winding up cannot be obtained by a shareholder without any recognized justifiable ground.
12. The Security and Exchange Commission of Pakistan has also filed its parawise comments, through its Joint Registrar in which the date of incorporation was confirmed. It is further stated that late Noor Mohammad Vayani founded the company and remained director till 2008 and time to time transfer shares to the following directors:-
(1) Abdul Majid Vayani
(2) Mohammad Amin Vayani
(3) Mohammad Anis Vayani
(4) Abdul Sattar Vayani
So far as the allegations leveled in paragraphs 7 and 8 of the winding up petition, SECP submitted no comments for want of knowledge except that the respondent company has been filing statutory returns with the SECP regularly. It is further stated that as per record maintained by SECP the company has filed statutory returns regularly including election of directors till 2010 except annual accounts under Section 242 of the Companies Ordinance.
13. In rebuttal Mr.Ijaz Ahmed learned counsel for the petitioner contended that the respondent company is family business concern and the company has become insolvent, therefore, debts are being paid by selling properties. He referred to Section 79 of the Companies Ordinance which provides that transfer of shares of a deceased member or holder to his lawful nominee successor-in-interest shall be made on application by such nominee successor duly supported by document evidencing nomination. In response to the arguments of the learned counsel for the respondent that AGM notice was not issued to the petitioners because they are not registered shareholders and still the shares of their predecessor-in-interest have not been transferred, the learned counsel for the petitioners referred to Section 160 of the Companies Ordinance which provides the provision as to meetings and votes in which sub-clause (ii) of clause (a) of sub-section (1) provides that notice of meeting shall be given to any person entitled to share in consequence of death of a member if the interest of such person is known to the company. He then referred to sub-clause (ii) of clause (a) of proviso attached to Section 309 of Companies Ordinance, 1984 which according to him gives right of filing winding up petition to a person if the shares in respect of which he is contributory or some of them either were original allotted to him or have been held by him and registered in his name for at least six months during the 18 months before commencement of winding up or have devolved on him through the death of former holder.
14. Learned counsel relied on the case of Bayswater Trading Co. Ltd. reported in (1970) 1 All.E.R. 608 in which it was held that on the true construction of Section 353 of the Companies Act, 1948 the personal representative of shareholder is entitled to present petition for a winding up of a company although not on the register of shareholders. So far as the allegation that Abdul Majid Vayani siphoned off the companies fund and or given instructions to transmit the funds in his account or personal account of his wife are concerned the learned counsel for the petitioners argued that this was a family arrangement which was done with the consent of all the directors. Learned counsel argued that the case law relied upon by the learned counsel for the respondent are distinguishable and not attracted to the facts and circumstances of the case.
15. Heard the learned counsel. The object of winding up the company is to release the assets of the company and pay its debts in accordance with law. It is also well settled principle that in the winding up cases utmost endeavor should be made for survival of corporate sector rather than to dismantle it. A company may be wound up on any of the ground mentioned under Section 305 of Companies Ordinance. The conjoint effect of Sections 305 and 306 of the Companies Ordinance made it clear that the court has discretion to order or not to order winding up of a company after taking into consideration of relevant facts. Winding up proceedings cannot be used as lever for pressuring a company to pay its disputed debts. For winding up a company the court has to consider whether the substratum of the company is gone, the object for which it was incorporated had substantially failed, whether it is impossible to carry on the business except at loss, and no reasonable hope that the object of trading at profit can be attained and the existing or probable assets are insufficient to meet the liabilities.
16. The initial grievance of the petitioners in this case is that after the death of Noor Mohammad Vayani, Mst.Halima Vayani and Abdul Majid Vayani, 16.72% shareholding is devolved on them and the aforesaid shareholding inherited by them should have been transferred in their name but the respondent company failed to transfer the shares despite obtaining succession certificate for the estate of Abdul Majid Vayani from this court. Section 305 of the Companies Ordinance provides different grounds for winding up of company by the court. One of the grounds is that if company is conducting its business in a manner oppressive to any of its members or persons concerned with the formation or promotion of the company or the minority shareholders. The Explanation-II defines minority shareholders means shareholders together holding not less than 20% of the equity share capital of the company. On their own showing the petitioners have 16.72% shareholding which has still not been transferred in their names. Neither the petitioners have pleaded the case of winding up on the allegation that the company is conducting its business in a manner oppressive to its members nor on this ground the petitioners have filed winding up petition. So far as the question of transfer of shares is concerned, this is not the available ground for the winding up under Section 305, however, the proper procedure is provided under Section 79 of the Companies Ordinance, which provides that transfer of shares from a deceased member or holder to his lawful nominee successor-in-interest shall be made on an application by such nominee successor and in case of refusal by nominee to register the name of a member he had a right of appeal but in my view the power to entertain the appeal is not unrestricted being an alternative to the right to approach the court under Section 152. In order to lodge this grievance, remedy under Section 152 of the Companies Ordinance, 1984 is available and for the redress of this grievance, the petitioners could have filed an application under Section 152 of the Companies Ordinance and on filing such application the court could have issued instructions for rectification of members’ register.
17. It is an admitted position that at present the petitioners are not the shareholders of the company, but they pleaded that 16.72% shareholding have been devolved on them through the death of a former holder therefore, under Sub-clause (ii) of Clause (a) of Section 309 of the Companies Ordinance they are entitled to file this winding up petition. In support of this contention, the learned counsel for the petitioners also referred to case of Bayswater Trading Co. Ltd. (supra) in which it was held that the personal representative of the shareholder is entitled to present petition for winding up of company although not on the register of shareholder. In the Bayswater Co. Ltd. case (supra) the Chancery Division referred to Section 215 and Section 224 of Companies Act, 1948. Section 215 of Companies Act 1948 is similar and identical to Section 302 of the Companies Ordinance, 1984 and Section 430 of the Indian Companies Act, 1956. In all three laws with variation in section numbers it is clearly provided that if a contributory dies either before or after he has been placed on the list of contributories, his legal representative shall be liable in due course of administration, to contribute to the assets of the company in discharge of his liability and shall be contributories accordingly. Similarly, Sub-section (1) clause (a) (ii) of Section 224 of the Companies Act, 1948 includes a proviso similar to sub-clause (ii) of clause (a) of proviso attached to Section 309 of our Companies Ordinance, 1984 which is identical to clause (b) of Sub-section (4) of Section 439 of the Indian Companies Act, 1956. In aforesaid sections of three laws on the same subject it is clearly provided that a contributory shall not be entitled to present a petition of winding up a company unless the shares in respect of which he is contributory or some of them either were originally allotted to him or have been held by him, and registered in his name, for at least six months during the 18 months before the commencement of a winding up or have devolved on him through the death of former holder. After reconciling all aforesaid provisions similar to each other in three laws on the same subject it is clear that the petitioners can maintain winding up petition as held in Bayswater case. Learned counsel for the respondent relied upon 2003 CLD 1429, facts of which are distinguishable as in this case winding up petition was filed by the existing member Mohammad Hussain and while dilating upon Section 305(f) the learned Division Bench of this court held that Hussain did not own a single share of the company on the date, he filed the application and the petition was not found maintainable.
18. Learned counsel for the petitioners also raised the point that the respondent company has stopped to pay the monthly payment or disbursement in accordance with the family arrangement to the petitioners as well as other shareholders. Let me clarify first that except the petitioners who are still to be brought on record as shareholders, neither any other shareholder has come forward nor this is a valid ground for winding up, if there was any family arrangement to release any monthly payments or disbursement to the petitioners by the respondent and default if any in this regard cannot be considered a ground of winding up a company.
19. Learned counsel for the petitioners relied upon the cases of Ladli Prasad Jaiswal and Nagina Films supra and all subsequent case law cited by him is mostly based on the dictum laid down in the cases of Ladli Prasad Jaiswal and Nagina Films. The hon’ble Supreme Court in Ladli Prasad Jaiswal case held that in the case of private limited company the tendency of the courts has uniformly been to treat it more or less as a partnership and to apply the same principles in the winding up of a private limited company. It was further held that commonly the exclusion of a partner from the management the existence of a state of deadlock or the justifiable lack of confidence in the management have been regarded as just and proper grounds for dissolving a private limited company and in the Nagina Films case while dilating upon various case law the learned Division Bench held that the principle for dissolution of partnership may be applied if the apparent structure of the company is not the real structure and personal relationship involving mutual confidence to the extent through which each of the member was to participate in the management of the company and exclusion of any member from the management would entail the grant of winding up. No such ground is available in this case and keeping in view the present status of petitioners, it cannot be said that petitioners have been excluded from the management and there exist state of dead lock or justifiable lack of confidence in the management, which may be treated just and equitable ground for dissolving the respondent. At the same it is also necessary to see the grounds provided under Section 305 of the Companies Ordinance for winding up a company which are also lacking in the case in hand.
20. Being fortified by the dictum laid down in Ladli Prasad Jaiswal and Nagina Films, I have no doubt in my mind and it is well settled that in the case of private limited company the tendency of the courts has uniformly been to treat it more or less as a partnership and the same principles may be applied for winding up the private limited company but for that there must be some reasonable grounds to pass the order for winding up keeping in view also Section 305 of Companies Ordinance. The counsel for the petitioners further argued that no A.G.M. notice was ever issued in response to it the learned counsel for the respondent rightly argued that the since the petitioners are not registered member there was no occasion to issue any A.G.M. notice to them.
21. Learned counsel for the petitioners also raised the ground that no formal annual general meeting of the respondent was held but the return was filed at the end of each year on time. In this regard, I would like to refer to the comments of SECP in which they have clearly stated that the respondent is filing statutory returns regularly including election of directors till 2010 except annual accounts. This allegation is also found incorrect in view of SECP comments.
22. The powers of the court for winding up are provided under Section 314 of the Companies Ordinance and under sub-section (3) it is clearly provided that on the ground of default in delivering the statutory report or in holding statutory meeting or any two consecutive annual general meetings, the court may, instead of making a winding up order can direct that the statutory report shall be delivered or that a meeting shall be held, and under the same section vide powers are conferred upon the court in which the court may refuse to make an order for winding up if it is of the opinion that some other remedy is available to the petitioners. The petitioners also raised various other allegations but failed to produce any evidence. It was further argued that the present directors of the company have sold out major assets including commercial plot in Clifton and shares of Fazal Textile Ltd. and a Hut situated at Sandpit without informing or consulting the petitioners. Again I would like to observe that at present neither the petitioners are shareholders nor in the board of directors and for claiming their participation in the management and or board of directors it is necessary that first the shares of their predecessors be transferred in their names. Another grievance has been made that the petitioners have not been allowed to inspect the books of accounts. In this regard again I would like to observe that the books of accounts can only be opened for inspection of members/shareholders of the company and as and when the petitioners will become the members shareholders of the company through transfer of shares of their predecessor, they will be entitled for all benefit and privileges for which any member/shareholder of the company is entitled under the Companies Ordinance.
23. The learned counsel further argued that the respondent company has lost its substratum for the reasons that when the respondent company was being managed under the control and supervision of its founder chairman the export of company was approximately 650,000 tons while at present the export is less than 80,000 tons. The respondent stated that in the year 2011 the export figure was 70456 M.T. which was not disputed with any cogent material except an evasive denial in rejoinder. It is not the case of the petitioners that the company is closed down and not a going concern and if the export is 70456 M.T., it cannot be said that the company has lost its substratum. The substratum of the company is deemed to be gone when the subject matter of the company is gone or the object for which company was established has substantially failed or there is no reasonable hope that the object of trading at profit can be attained or existing and probable assets are insufficient to meet the existing liabilities. Court would lean in favour of a company to be a going concern. The increase or decrease and or ups and down in any business is a common phenomenon, sometime company earns a lot and sometime it sustains losses or reduction in export or manufacturing, which cannot be considered that the company has lost is substratum and become commercially insolvent in this particular case.
24. Learned counsel also raised the ground that the properties were sold out, it was responded by the counsel for the respondent that the sale proceed of Sandpit Hut was utilized to liquidate the debts of the company, Shares of Fazal Textile Ltd. were pledged with Soneri Bank Ltd. and the same were sold out through Bank and the plot No.26 Oil Installation Keamari is being sold in accordance with the decision of the board of directors to repay the loan of the Soneri Bank. In my view if winding up order is passed all creditors will otherwise approach and lodged their claims including Soneri Bank Ltd. which is being done by the company by its own to pay the major debts of its creditors and this fact cannot lead to any conclusion that company cannot pay its debts or become commercially insolvent or it is impossible to carry out the business except at a loss and that existing assets are insufficient to meet the existing liabilities.
25. So far as the allegations that the present directors are siphoning off the funds of the respondent, first of all nothing has been produced to prove this allegation, on the contrary the counsel for the respondent argued that in fact the predecessor of the petitioners siphoned off the funds for which the respondent has also filed Suit No.614 of 2012 for recovery against the petitioners, which is pending in this court and he also pointed out some documents in which the deceased gave instructions for transferring the amount in his bank account and in the personal account of his wife. In view of the allegations and counter allegations this ground can be treated as valid ground for winding up. The jurisdiction to wind-up a company is circumscribed by limitation laid down under Section 314 of the Companies Ordinance and usually this discretion is exercised in extreme cases and the court in the first instance try to find ways and means to remedy the wrong and pass such orders as may be appropriate and may be deemed just to regulate the conduct and affairs of the company, however, when petition for winding up is made to obtain an unfair advantage over other creditors at a time when the company is not known to be insolvent amount to an abuse of process. It is also provided under Section 320 of the Companies Ordinance that the court shall, as to all matters relating to a winding up have regard to the wishes of the creditors or contributors as proved to it by any sufficient evidence.
26. In the judgments reported in 2004 CLD 1064 and 2004 CLD 640 it was held that none of the creditors and shareholders other than the petitioners supported the winding up petition, in this case according to the petitioners they have 16.72% shareholdings which they have inherited and liable to be transferred. Even the above shareholding is transferred in their names they will not be treated in majority and court has to regard the wishes of 83.28% shareholders, who have not supported or filed any winding up petition. So far as the ground that the respondent failed to file the accounts in terms of Section 242 of the Companies Ordinance 1984, the SECP may take action in accordance with law for which provision of fine/penalty is already available under sub-section 4 of Section 242 of the Companies Ordinance.
27. After considering the pros and cons I have reached to an irresistible conclusion that no case of winding up is made out, however, the court can consider whether the petitioners can be given any other relief than the winding up, the court would do so and since the main grievance of the petitioners is that the shares are not transferred in their names hence, this court in the same petition can direct the respondent company under Section 152 of the Companies Ordinance to transfer the shares in the name of petitioners forthwith.
28. During the course of arguments I raised a query whether the requirement of advertisement of main petition in terms of Rule 76 read with Rule 19 of the Companies (Court) Rules, 1997 may be dispensed with. The matter was placed before the learned Single Judge on 10.4.2012 when in the first instance notice through registered post and bailiff was issued to the respondent and ad-interim order was passed to the effect that the respondent’s company may continue its business in their ordinary course, but shall not create any third party interest on its assets. Rule 76 of the Companies (Court) Rules 1997 provides that upon filing of the petition it shall be placed before the Judge for admission and fixing a date for hearing and for directions as to the advertisements to be published and the Judge may if he thinks fit, direct notice to be given to the company before giving directions as to the advertisement of the petition, while Rule 19 of the Companies (Court) Rules, 1997 clearly provides that when any petition is required to be advertised it shall, unless the judge otherwise orders or these rules otherwise provide, be advertised not less than 14 days before the date fixed for hearing in one issue of the official Gazette and in one issue each of a daily newspaper in English and Urdu having circulation in the Province in which the registered office of the company is situate. Under sub-rule (2) of Rule 19 it is further provided that except in the case of a petition to wind up a company, the Judge may, if he thinks fit, dispense with the advertisement required by these Rules. At the same time Rule 3 of the Companies (Court) Rules, 1997 gives inherent powers to the court and provides that nothing in these Rules shall be deemed to limit or otherwise effect the inherent powers of the court to give such direction or pass such orders as may be necessary for the ends of justice or to prevent abuse of process of the court. Though sub-rule (2) of Rule 19 provides that except in a case of a petition to wind up a company, the Judge may, if he thinks fit, may dispense with the advertisement required by these Rules but at the same time under Rule 3 wide powers are given to the court to give such direction or pass such orders as may be necessary for the ends of justice or to prevent the abuse of process of the court. In this regard learned counsel for the respondent referred to the case of Kerala State Industrial Development Corporation Ltd. v. Poonmudi Tea Pack Ltd. (1988 Company Cases 575), in which the Kerala High Court in the case of winding up held that question of advertisement and direction regarding advertisement will arise only when the court makes up its mind to admit petition. Especially when the petition is filed by a contributory, it is the duty of the court, before admitting the petition to satisfy itself that there are prima facie grounds for winding up the company. The advertisement of winding up proceedings is likely to cause serious injury to the company, if ultimately the application has to be dismissed. The interest of the applicant alone is not the predominant consideration. The interest of the shareholders of the company as a whole also will have to enter the area of judicial satisfaction before a verdict is given on the question of admission. In the case of National Conduits (P.) Ltd. v. S.S. Arora (1967 Company Cases 786), the Supreme Court of India observed that the view taken by the High Court that the court must as soon as the petition is admitted, advertise the petition is contrary to the plain terms of Rule 96. Such a view, if accepted, would make the court an instrument, in possible cases of harassment and even of blackmail, for once a petition is advertised the business of the company is bound to suffer serious loss and injury. Keeping in view the aforesaid Rules provided under the Companies (Court) Rules, 1997 and judgments, it is clear in my mind that in the winding up cases the court may dispense with the requirement of advertisement on case to case basis at the time of admission of petition and since in this case learned Single Judge had dispensed with the requirement at the time of its admission on 10.4.2012, which quite permissible under Rule 3, therefore, keeping in view the facts and circumstances of the case no advertisement was issued which would have caused possible case of harassment and the business of the company was bound to suffer serious injury. Counsel for the petitioners did not oppose the contention of the learned counsel for the respondent in this regard nor he insisted that advertisement should have been made in terms of Rule 76 of the Companies (Court) Rules, 1997 at the time of its admission or before disposing of this petition rather both the learned counsel argued the whole case and made a request that the winding up petition be disposed of along with interlocutory applications.
29. For the foregoing reasons this winding up petition is dismissed, along with pending applications, however, the respondent’s company is directed under Section 152 of the Companies Ordinance, 1984 to transfer the shares of the predecessor in interest of the petitioners in the name of petitioners forthwith and until and unless the shares are transferred no assets of the respondent’s company shall be disposed of.
Karachi-
Dated. 31.1.2013 Judge