2000 PLP 364 (CLC)

SAIYED SAEED ASHHAD, J.‑‑‑This High Court Appeal has been filed against the order of the learned Company Judge, dated 14‑5‑1997 in J.M. No.70 of 1991 whereby two applications being C:M.A. No.3332 of 1991 under sections 314 and 325 of the Companies Ordinance and C.M.A. No.93 of 1996 under section 290 of the Companies Ordinance were disposed of. The petitioners have challenged the order of the learned Company Judge relating to dismissal of C.M.A. No.93 of 1996. The brief facts leading to the aforesaid High Court Appeal are that the appellants and respondents Nos. l, 2, 4, 5, 6 and 9 are the Directors of respondent No.3, Messrs Shan Hospital for Women and Children (Pvt.) Limited, which is a hospital providing medical facilities to about 60 indoor patients and to hundreds of outdoor patients. Appellants and respondents Nos.4 to 9 own 65.5 % shares of the company while the remaining 34.5 % are hold by respondents Nos.l and 2, who visit the hospital daily. Differences arose between the appellants and respondents Nos.4 to 9 and respondents Nos.1 and 2 in the management and administration of the affairs of respondent No.3 leading to in filing or winding up position by respondents Nos. l and 2 on the ground that the appellants and respondents Nos.4 to 9 on the strength of majority shares were running the affairs of the company in an oppressive and illegal manner, not allowing respondents Nos. l and 2 to participate therein by taking over control of entire general administration, finance, accounts, income tax, electric, general staff and medical administration, nursing, laboratory, X‑Ray, chemist store and out door patients matters. Respondents Nos. l and 2 also challenged the appointment of petitioner No.1 Tasneem Arif as Medical Director on the ground she was neither a doctor nor conversant with the medicines but was being paid salary of Rs.5,000 per month, which from time to time was raised to Rs.18.000 per month. Respondents Nos. 1 and 2 further averred in their winding up petition that the appellants and respondents Nos.4 to 9 violated the provision of the Memorandum and Articles of Association and also proposed alterations; amendments therein to suit their aforestated designs. Respondents Nos. l and 2 further averred that by resort to the aforesaid illegal, mala fide and oppressive actions and designs the appellants clearly expressed their intention to illegally acquire or annex the company completely and to oust respondents Nos. 1 and 2 from the same. During the pendency of the above winding up petition appellants submitted an application under section 290 of the Companies Ordinance praying therein that respondents Nos. l and 2 be directed to sell their share to the appellants and respondents Nos.4 to 9 all of whom were willing to purchase the same, in proportion to their present shareholdings at a price to be fixed by the auditors of the company. This application being C.M.A. No. 189 of 1992 was disposed of by the learned Company Judge vide order, dated 1‑8‑1993 as, modified by order, dated 6‑12‑1993 by consent of the appellants and respondents Nos.4 to 9 and respondents Nos. l and 2 and Messrs Sandhu & Co. and Messrs Ferguson & Co. Chartered' Accountants were appointed respectively to fix the value of the shares of respondent No.3. Messrs Sandhu & Co. on behalf of the appellants fixed the value of the shares at Rs.13.08 per share, while Messrs Ferguson & Co., appointed by respondents Nos. l and 2 valued the share at Rs.22.08 without goodwill and Rs.29.54 with goodwill. After submission of the value of the share of respondent No.3 the aforesaid C.M.A. No.93 of 1996 came up for hearing before the learned Company Judge and the same was dismissed as aforestated. The reasons advanced by the learned Company Judge for dismissal of the said application was, that in the first place the two Chartered Accountants respectively appointed by the two erring parties were not unanimous in fixing the value of the share of respondent No.3 and the value fixed by them enormously offered. The other ground stated by the learned Company Judge was that during the course of hearing of the aforesaid Miscellaneous Application learned counsel for respondents Nos.] and 2 had submitted that respondents Nos. l and 2 were willing to purchase the shares held by the appellants and respondents Nos.4 and 9 at Rs.70 per share. The learned Company Judge, therefore, held that in the circumstances it was not possible to determine or fix a proper value of the share of respondent No.3 and dismissed the application under section 290 of the Companies Ordinance. We have heard the arguments of Mr. Muhammad Ali Saeed, learned counsel for the appellants and respondents Nos.4 and 9 and Mr. A.I. Chundrigar, learned counsel for respondents Nos. l and

2. We have also perused the material on record, the relevant provisions of Companies Ordinance and the case‑law referred to us by the learned counsel for the parties. Mr. Muhammad Ali Saeed vehemently attacked the impugned order of the learned company Judge and submitted that tire learned company Judge in dismissing the C.M.A. No.93 of 1996 (application under section 290 of the Companies Ordinance) praying for orders for sale of the shares held by respondents Nos. l and 2 in favour of the appellants and respondents Nos.4 to 9 did not take into consideration the object and the purpose of section 290 of the Companies Ordinance which is to save the company from being wound up if by having recourse to the provisions of section 290 of the Companies Ordinance it was possible to allow the company to carry on its business and affairs. He further submitted that one of the methods which can be adopted under section 290 of the Companies Ordinance for allowing the company to carry on its business and affairs is to provide the majority share‑holders to acquire full control of the company by purchasing the shares of minority share‑holders so that the company may continue to function and perform its business, while the minority share‑holders feeling aggrieved or dissatisfied with the management and running of affairs of the company would have their grievance redressed after receiving money for the shares held by them. In this connection he referred us to the case of Chander Krishan Gupta v. Pannalal Girdhari Lal (Private) Ltd., and others, (1984) 55 Company Cases

702. Another ground on which Mr. Muhammad Ali Saeed, assailed the impugned order is that the learned Company Judge completely lost sight of the fact that both the erring parties by consent had agreed to refer the matter to two Chartered Accountants, to be appointed by each of them for the purpose of fixation of the value of the share of respondent No.3. He further submitted that both the erring parties had agreed to get the value of the share fixed after submission of the application under section 290 of the Companies Ordinance wherein the appellants had prayed for direction either for purchase of the shares of respondents Nos.l and 2 by respondent No.3 with permission to correspondingly reduce the share capital of respondent No.3 or of the appellants and respondents 4 to 9 in accordance with the proportion of the shares held by each of them. He further submitted that respondents 1 and 2 having agreed to appoint the Chartered Accountant on their behalf to fix the value of the share of respondent No.3 impliedly agreed or consented to the disposal of the application under section 290 of the Companies Ordinance in terms of the reliefs prayed for by the appellants, otherwise there was no purpose for their agreeing/consenting to the proposal for fixation of the value of the share of respondent No.3. Mr. Muhammad Ali Saeed, further submitted that in view of the above, respondents 1 and 2 could not wriggle out of the consent for valuation of share which clearly and unambiguously was indicative of their intention to sell/dispose of the shares held by them either to respondent No.3 or to the appellants and respondents 4 to

9. According to him this was the obvious inference which could be had from the conduct of respondents 1 and 2 in appointing a Chartered Accountant on their behalf for fixing the value of the share of respondent No.3. In the circumstances, he submitted that it was not open to respondents 1 and 2 to make an offer in Court for purchasing the shares held by the appellants and respondents Nos.4 to 9 or to raise the value of the share of respondent No.3 by bidding in Court during the hearing of C.M.A. No.93 of 1996. In support of his above agreements he referred us to the case of Muhammad Aslam v. Member, Board of Revenue and others, reported in PLD 1980 SC 45 and Muhammad Bibi and others v. Abdul Ghani, reported in PLD 1973 Kar.

444. Mr. Muhammad Ali Saeed, finally submitted that in the presence of the above facts the learned Company Judge should have allowed C.M.A. No.9't of 1996 in terms of the reliefs prayed therein. Mr. A.I. Chundrigar, the learned counsel for respondents 1 and 2 fully supported the impugned order and submitted the same was proper, valid and in accordance with the facts and circustances of the case. He further submitted that the appellants alongwith respondents 4 to 9 by running the management and affairs of respondent No.3 were not only acting against the interest and rights of respondents 1 and 2 which was causing oppression v) them but were also violating the provisions of the memorandum and Articles of Association as well as of the Companies Ordinance and, if they hid been allowed to purchase the shares held by respondents 1 and 2 for taking over complete management and affairs of respondent No.3, they would continue to run the affairs, management and business of respondents No.3 in an illegal and mala fide manner in violation of the provisions of law. He further submitted that a Court of law could not be a party to acts which were illegal, ultra vires and mala fide which it would have become if C.M‑A No.93 of 1996 was allowed in terms of the reliefs prayed by the appellants. With regard to the contention that respondents 1 and 2 had implied by consenting to dispose of their share‑holdings either in favour of respondent No‑3 or the appellants and. respondents 4 to 9, Mr. A.I. Chundrigar, submitted that from a bare perusal of the two orders dealing with the appointment of the Chartered Accountants for fixation of value of the share of respondent No.3, it could not be presumed or inferred that the said exercise was being undertaken for the purpose of sale of the shares held by respondents l and 2 in favour of the appellants and respondents 4 to

9. He further submitted that at the most it could be deduced that respondents 1 and 2 only consented or agreed that .the value of the shares of respondent No.3 be fixed but in no way they agreed or consented either expressly or by implication that they intended to dispose of/sell their share‑holdings to the appellants and respondents 4 to

9. Mr. A. I. Chundrigar, further submitted that in a situation where the erring parties are related to each other and there is complete lack of confidence between the erring parties the proper course is' to wind up the company and not to resort to the provision of section 290 of the. Companies Ordinance by ordering sale of the shares of the minority share‑holders to the majority share‑holders as such an order would perpetuate illegality, mala fide acts and violation of law by the majority share‑holders. In support of his above contention, he referred us to the cases of, (1) Ladli Prasad Jaiswal v. The Karnal Distillery Co. Ltd. reported in PLD 1965 SC 221, (2) Brush Rehman Ltd. v. Brush Electrical Engineering Co. Ltd., reported in 1986 SCMR 1612, (3) In re; Kruddson Ltd., Karachi PLD 1972 Kar. 376, and (4) Iqbal Alam and another v. Plasticraftors (Pvt.) Ltd. and others reported in 1991 CLC

589. We have thoroughly considered the arguments advanced by the learned counsel for the parties and have also minutely examined the relevant provisions of law and the case‑law referred to us by the parties. Before proceeding to consider the respective arguments of the learned counsel for the parties, we think it desirable to reproduce the relevant sections from the Pakistani and Indian Companies Laws, which are as under‑‑‑ Companies Ordinance, 1984:‑‑‑ (a) Section

290. Application to Court. (1) if any member or members holding not less than twenty per cent of the issued share capital of a company, or a creditor or creditors having interest equivalent in amount to not less than twenty per cent of the paid up capital of the company, complains or complain, or the Registrar is of the opinion that the affairs of the company are being conducted or are likely to be conducted, in an unlawful or fraudulent manner or in a manner not provided for in its memorandum, or in 6 manner oppressive to the member or any of the members or the creditors or any of the creditors or are being conducted in a manner prejudicial to the public interest, such member or members or the creditor or creditors, as the case may be, the Registrar may make an application to the Court by petition for an order under this section. (2) If, on any such petition, the Court is of opinion‑‑ (a) that the company's affairs are being conducted, or are likely to be conducted, as aforesaid; and (b) that to wind up the company would unfairly prejudice the members or creditors; the Court may, with a view . to bringing to an end the matters complained of, make such order as it thinks fit, whether for regulating the conduct of the company's affairs in future, or for the purchase of the shares of any members of the company by other members of the company or by the company and, in the case of purchase by the company, for the reduction accordingly of the company's capital or otherwise." Companies Act. 1956:‑‑‑ (b) Section

397. Application to Court for relief in cases of oppression ‑‑‑ (1) Any members of a company who complain that the affairs of the company (are being conducted in a manner prejudicial to public interest or) in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Court for an order under this section, provided such members have a right so to apply in virtue of section 399.‑ (2) If, on any application under subsection (1), the Court is of opinion:‑‑‑ (a) that the company's affairs (are being conducted in a manner prejudicial to public interest or)' in a manner oppressive to any member or members; and. (b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound‑up; the Court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit." Repealed Indian Companies Act; 1913:‑‑‑ (c) Section 153‑C. Prevention of mismanagement or oppression of members.‑‑‑ (1) If any member or members holding not less than one‑tenth of the issued share capital of a company complains or complain, or the Federal Government is of the opinion, that the affairs of the company are being conducted in an unlawful or fraudulent manner, or in a manner not provided for its memorandum, or in a manner oppressive to the member or any of the members, or are being conducted in a manner prejudicial to the public interest, such member or members or, as the case may be, the Federal Government may make an application to the Court by petition; and the Court may make such order as it thinks fit in the circumstances for regulating the conduct, of the affairs of the company and matters ancillary thereto. (2) Where an order is made under subsection (1) on the application of any member or members, the company in relation to which the order is made shall cause a certified copy thereof to be delivered to the Registrar for registration within fourteen days after‑ the completion of the order, and if default is made in complying with this subsection, the company and every officer of the company, who is knowingly and wilfully in default shall be liable to a fine not exceeding five thousand rupees and to a further fine not exceeding five hundred rupees for every day during which the default continues. Mr. A.1. Chundrigar, submitted that in the facts and circumstances of this present case application under section 290 of the Companies Ordinance was not maintainable and the only solution of the dispute was in winding up of the company. This contention does not carry weight. A plain reading of section 290 of the Companies Ordinance is sufficient to suggest that an application under section 290 of the Companies Ordinance could be made by any of the parties to the winding up petition if the requirements of subsection (1) of section 290 are in‑existence and also ' empowers the Court to make such order as may be deemed fit with a view to bring an end to the matters complained of either by regularizing the affairs of the company in future or directing the purchase of shares of the oppressed members of the company either by the company or by other members if the winding up of the company would unfairly prejudice the share‑holders and creditors of the company. WP may also refer here to the case of Rajahmundrv Electric Supply Corporation Ltd. v. A. Nageshwara Rao and others reported in AIR 1956 SC

213. In this case the Supreme Court of India while examining the provision of section 153‑C of the repealed Indian Companies Act, 1913, which were analogous to the provisions of section 290 of the Companies Ordinance, observed that while proceedings under section 162 of the repealed Companies Act, 1913 for making an order for winding up of the company, which provision were analogous and similar to the provision of section 305 of the Companies Ordinance, if a liquidator could be appointed to manage the affairs of the company when an order for winding up was to be made under section 162, then an administrator could also be appointed to manage its affairs. We may also refer here to the case of K.R.S. Narayana Iyengar and others v. T.A. Mani and others, reported to AIR 1960 Madras 338, wherein provisions of sections 397 and 398 of the Indian Companies Act, 1956 relating to the powers of the Court to deal with the case of oppression of the minority or mismanagement was examined and it was observed that the object of these provisions .was intended‑to avoid winding up, if possible, and keep the company alive and running while at the same time relieving the minority share‑holders from acts of oppression and m1s management. It was further observed that the Court would have the power to impose upon the parties whatever settlement the Court would consider to be just and equitable in the circumstances of a particular case. The provision of section 290 of the Companies Ordinance are similar to the provisions of sections 397 and 398 of the Indian Companies Act, 1956. It follows that if the Court instead of ordering winding up of a company and appointing a Liquidator has the power to appoint an administrator to run and manage the company as winding up would not be just and equitable, the Court would. also have the power to take action in the nature of directions for sale of the share‑holdings of minority members to the majority share‑holders for keeping the company alive and to continue to run its affairs provided that such action is in the interest of the majority share‑holders, creditors and the persons having dealings with the company. In the circumstances, the contention of Mr. A.I. Chundrigar that in a situation where the two erring parties are relating to each other and have lost confidence in each other on account of mismanagement and oppression the only solution would be to wind up the company by having recourse to section 290 of the Companies Ordinance is without any substance and merits no consideration. It is pertinent to note that respondent No.3 is a hospital. It is providing in‑door facilities of 60 beds and two hundreds of out‑door patients who are treated every day. In a city where medical facilities are scarce and limited, respondent No.3 is playing a very important role in providing medical facilities and health care both to the in‑door and out‑door patients. Winding up of respondent No.3 which is managing and running the hospital would result in stoppage of work of hospital which in return would deprive thousands of persons of the medical facilities and health care being provided by respondent No.3. It would be in the interest of patients admitted in the hospital as &ell as of the general public who attend the hospital for medical treatment that some solution or via media be found out which would enable respondent No.3 to continue to run and manage the hospital. It is also to be noted that appellant No.2 is a qualified pediatrist and heads the National Institute and Children Hospital attached to Jinnah Post Graduate Medical Centre. By rendering his services to the hospital of respondent No.3, he is imparting highly specialised and expert treatment to the children visiting Shan Hospital, of which the children would be deprived of if respondent No. 3 is wound up. In view of the factual position stated above as well as the observation made by the Indian Supreme Court in the case of Rajahmudry Electric Supply Corporation Ltd. v. A. Nageshwara Rao and others, reported in AIR 1956 SC 213 and the Madras High Court in the case of K.R.S. Naryana Iyengar and others v. T.A. Mani and others, reported in AIR 1960 Mad. 388, we are of the view that winding up of respondent No.3 Shan Hospital will neither be in the interest of the appellants and respondents 4 to 9 who are providing their time and rendering services to the hospital for providing medical facilities and health care to hundreds of patients every day nor in the interest of the general public and the persons suffering from diseases and ailments and it would be appropriate, in the interest of justice and in accordance with the spirit of section 290 of the Companies Ordinance that the minority share‑holders be directed to sell their share‑holdings in favour of the appellants and respondents 4 to 9 so that they would continue to manage and run the affairs of the Hospital for the benefit of the sick and ailing people as it is a matter of record that the Hospital is being managed and run exclusively by the appellants and respondents 4, 5, 6 and 9 while respondents 1 and 2 have no role in the management and working of the Hospital. The case‑law relied upon by Mr. A.I. Chundrigar in support of his contention that winding up of respondent No.3 Shan Hospital was the only remedy in the facts and circumstances of the case is of no assistance to respondents 1 and 2 as the question of providing medical facilities and health care was not in issue therein, which in our view is a very important factor going against the winding up of respondent No.3 Shan Hospital. Even, otherwise the cases relied upon by Mr. A.I. Chundrigar do not support his contention that winding up of a company would be the only solution when the members/directors have formed groupings and there was complete lack of confidence between the different groups so formed. In the case of Ladli Prasad Jaiswal PLD 1965 SC 221, it was observed that section 153‑C of the repealed Companies Act, 1913, corresponding to section 290 of the Companies Ordinance, furnished. a remedy alternative to winding up of company but the Court could not enforce a person to resort to remedy under section 153‑C, who had already applied for winding up. In the case of Brush Rehman Limited (1986 SCMR 1612) the winding up order of company of the High Court was upheld by the Supreme Court as, it was found to be just, equitable and proper in the circumstances. The issue relative to the remedy alternative to winding up was not at all considered by the Honourable Supreme Court. In the case of in re: Kruddson Ltd. Karachi PLD 1972 Kar. 376 again the issue of the alternate remedy provided by section 153‑C of the repealed Companies Act, 1913 was neither involved nor considered. In the case of lqbal Alam and another 1991 CLC 589 a learned Single Judge of this Court ordered winding up of the company as it was found to be justified on account of the affairs of the company. The order of winding up was to take effect after expiry of specified period within which both the parties were given the option either to purchase shares of other party or bifurcate the company on terms to be mutually agreed between them. The observations made to the above effect in this case are helpful to the case of the appellants and respondents 4 to 9 rather than being of any assistance to the case of respondents 1 and

2. A study of the case‑law relied upon Mr. A.I. Chundrigar reveals that the observations and pronouncements made therein do not support or advance the case of respondents 1 and

2. On the contrary the pronouncements made in the cases of Ladli Prasad Jaiswal PLD 1965 SC 221 and Iqbal Alam and another 1991 CLC 589 negate the contention of Mr. A.I. Chundrigar that provisions of section 290 of the Companies Ordinance would have no application to the case in hand. . The question which now requires determination relates to the fixation of the price/value of the share of Shan Hospital. Both the erring parties had by consent appointed their respective Chartered Accountants for fixation of the value of Shan Hospital. The Chartered Accountants acting on behalf of the appellants declared the value at Rs.13.08, while the Chartered Accountant acting on behalf of respondents Nos. l and 2 had fixed the value/price of the share at Rs.22.60 and at Rs.29.54 with goodwill. Mr. Muhammad Ali Saeed, submitted that the appellants and respondents 4 to 9 were carrying on the affairs and management of Shan Hospital on no loss no profit basis and that it was not in the nature of a profit earning or commercial activity so as to have goodwill. He, however, submitted that the appellants and respondents 4 to 9 were willing to purchase the shares held by respondents I and 2 at Rs.29.54. Mr. A.I. Chundrigar vehemently controverted the arguments of Mr. Muhammad Ali Saeed and submitted that from the material on record it was not possible to determine a fair price or value of the share of respondent No.3 Shan Hospital in view of three different prices/values given by the two Chartered Accountants. In this connection he submitted that even the price of Rs.22.06 calculated by the Chartered Accountant of respondents 1 and 2 without taking into consideration the goodwill of respondent No.3 Shan Hospital showed a difference of Rs.8 as compared to the price of Rs.13.08 calculated by the Chartered Accountant of the appellants. He further submitted that apart from the fact that three different prices were fixed, respondents 1 and 2 had offered to purchase the share‑holding of the appellants and respondents 4 to 9 at Rs.70 per share and, if in view of the facts and circumstances of the case winding up of respondent No.3 is not found just and equitable then the appellants and respondents 4 to 9 should be asked to purchase the share holdings of respondents 1 and 2 at Rs.70 per share. The argument advanced by Mr. A.I. Chundrigar is devoid of force in view of the fact that respondents 1 and 2 had consented to have the price or the value of the share of Shan Hospital fixed by the two Chartered Accountants appointed by each of the erring parties, whereby they had consented to accept the price/value of the share determined or fixed by the two Chartered Accountants Admittedly both the Chartered Accountants had not arrived at one and the same value and had valued the share differently. This fact would not deter the Court from itself determining a fair value/price of the share. The Chartered Accountant appointed by respondents 1 and 2 had valued the shares of Shan Hospital at Rs.22.06 and Rs.29.58 without and with goodwill respectively. Even if, Mr. Muhammad Ali Saeed, had not stated that the appellants were willing to purchase the share‑holdings of respondents l and 2 ., !:,. 29.58 per share,, we would have directed respondents 1 and 2 to dispose of their share holding to the appellants and respondents 4 to 9 at Rs.29.58 which represented the highest price/value determined or fixed by the Chartered Accountant appointed by respondents 1 and 2 for this purpose. As to the contention of Mr. A.I. Chundrigar that respondents 1 and 2 had offered to purchase the share‑holdings of the appellants and respondents 4 to 9 at Rs.70 per share, we can only say that such a course was not open to the respondents 1 and ,2 inasmuch as no bidding could be made by any party in Court, for fixing the value/price of the share of Shan Hospital and further that the price bid on behalf of respondents 1 and 2 was without any basis, foundation or mode for valuing the share of a joint stock company and further that respondents 1 and 2 having agreed and consented to a procedure for determining/fixation of the value of the share of Shan Hospital by appointment of two Chartered Accountants could not avoid or wriggle out of the consent given by them. The two Chartered Accountants had determined the price/value of the share of Shan Hospital in accordance with the consent 8 of the parties and in spite of differences in the value/prices fixed by the two Chartered Accountants their findings could not be said to ‑be unfair, unjust and improper so as to discard or ignore them. We may refer to the case of Muhammad Aslam v. Board of Revenue and others, PLD 1980 SC 45 wherein the Supreme Court refused to grant leave to appeal against the judgment of a Division Bench of High Court refusing to proceed with an appeal against the order of a Single Judge passed with consent of the parties. It will be appropriate to reproduce the relevant portion from the judgment as under:‑‑‑ "But there would be nothing wrong with the order of the learned Judges of the Division Bench refusing to proceed with an appeal against the ord6r of a Single Judge passed with consent of the parties, if the order is otherwise fair, just and proper. Another reason is that when a consent order is passed the parties have indeed nothing to appeal against. " Upon the above discussions, we are satisfied that the appellants have succeeded in making out a case for a direction for sale/transfer of the shares held by respondents 1 and 2 in favour of the appellants/ respondents 4 to 9 at the rate of Rs.29.58 per share. Accordingly, we allow C this appeal, set aside the impugned order and direct respondents 1 and 2 to dispose of/sell their share‑holdings to the appellants/respondents 4 to 9 as aforestated. , Q.M.H./M.A.K./T‑48/K Appeal allowed.