P L D 1988 Lahore 1 (PLP)

Shahbazud Din Chaudhry, Khalid Shahbaz Chaudhry, Muhammad Saleem Asghar, the three directors and 25 shareholders of M/s Services Industries Textiles Limited, presently a Public Limited Company, filed this petition under sections 305 and 309 of the Companies Ordinance, 1984 for the winding up of the company or in the alternative to pass such orders as the Court may deem fit under section 290 of the Companies Ordinance, 1984 including bifurcation of the Mills/assets of the respondent Company and the removal of respondents Nos. 2 to 5 (the directors) from the management and sale of shares of the respondents and their group to the petitioners.

2. The case of the petitioners is that after formation of the company in 1962, one textile mill was set up by importing machinery against a sum of US $ 2,70,723 provided by Shahbazud Din Chaudhry and out of the earnings of this mill, the second unit (Mills No.2) was set up as an independent unit in the same compound; that the company was conceived in confidence, mutual respect and trust between the friends and the company was being managed by respondents Nos. 2 to 5 by associating the petitioners and their representatives in the management and affairs of the company but since about four months (the petition was filed firstly on 4th December, 1986 but was returned by the office with objections and then after removing the objections and making changes in the relief clause the petition was refiled on 21st December, 1986) the attitude of respondents Nos.2 to 5 has undergone a complete change and the respondents have been endeavouring to totally exclude and oust the petitioners from the management and affairs of the company. The grounds taken in the petition as well as in the replication may be summed up as under:‑‑ (i) Respondents Nos. 2 to 5 who represent the majority are conducting the business of the company in a manner oppressive to the minority shareholders and to the persons concerned with the formation and promotion of the company as Shahbazud Din Chaudhry petitioner No. 1, the promoter director was removed from the office of working director; the petitioners/directors who represent the minority were not allowed entry to the registered office by the armed guards posted by the respondents; they are not allowed access to the Books of the company and respondents Nos. 2 to 5 as constitute majority in the Board of Directors are taking decisions in the meetings unilaterally and to the exclusion of the petitioners; the petitioners have been excluded from participation in the management and profits of the company. (ii) There is a deadlock due to lack of mutual confidence which prevents the making of decisions in the Board of Directors and at a General meeting. It was urged that though the respondent Company has been incorporated as a Public Limited Company yet almost all the shareholding is owned and held by the two groups headed by petitioner No. 1 and respondent No. 2 respectively and as such the principle applicable to the winding up of a private limited company would apply to the respondent Company as well; (iii) the respondents Nos. 2 to 5 have been mismanaging and diverting the funds of the Company to its great financial prejudice. They have advanced huge amounts to Companies in which they hold substantial interest namely Prime Dairies Limited, a public limited company and to Prime Dairies lee Cream Limited, a private limited company. It was urged that no resolution exists authorizing the respondents to advance such huge amounts from time to time to the aforesaid two companies. The further plea taken in this respect is that the respondents Nos. 2 to 5 as hold majority shares in all these companies have acted recklessly and to the great disadvantage of the respondent Company in advancing these loans which are in serious jeopardy as the loanee companies are running in huge loss for the last, many years; (iv) the respondents Nos. 2 to 5 are managing and conducting the affairs of the respondent Company in illegal manner as they are guilty of violating the Companies Ordinance, 1984 in various respects:‑‑ (a) the loans advanced have not been recalled as required by section 195(3) of Companies Ordinance, 1984; (b) the shares are not being registered despite the fact that all requirements of law have been complied with; (c) respondent No. 2 is acting as Chief Executive and other respondents are acting as working directors and receiving remuneration and enjoying other financial benefits without valid appointment and authorization. In any case no valid authorization existed for acting in the said capacities for the period commencing from 19‑11‑1986 to 31‑3‑1987 as the resolution on objection raised was passed in this respect only on 31‑3‑1987 in the Annual General Meeting; (d) the respondents Nos. 2 to 5 failed to call the Meeting of the Board of Directors as and when requested by the representatives of the minority shareholders owning 40% of the share equity.

4. Mr. Aftab Ahmad Khan, Advocate, learned counsel for the petitioners argued that on the basis of the grounds urged and the documents available on record, the petitioners have made out a case for winding up of the respondent Company under clause (b) and sub‑clauses (iii) and (v) of clause (f) of section 305 of the Ordinance, 1984 even if the "just and equitable" clause is held to be inapplicable; and that in the alternative, bifurcation of the two Mills by allotting one mill. to each group and thereby dividing the assets of the respondent Company be directed in order to secure smooth running of the respondent Company and to advance the interest of the shareholders. Learned counsel for the petitioners lastly submitted that in case either of the two reliefs prayed for is not granted, then the petitioners are prepared to sell their shares or purchase the shares held by the respondents at fair value which may be got determined by constituting a Committee of Experts and that the report of valuation be then approved by the Court after hearing the parties.

5. The respondents, in the reply filed by them, have refuted all the assertions and allegations contained in the petition. According to them, petitioner No. 1 was neither the promoter member of the company nor the Companies Ordinance, 1984 recognizes the concept of groups particularly in listed public companies such as the respondent Company and so it is impermissible to introduce the concepts and doctrines applicable to partnerships. It was asserted that the petitioners are not entitled to the reliefs claimed in the petition as they have approached the Court with unclean hands and are also guilty of making misleading and false statements. In support of the aforenoted submissions, it was submitted that for several years uptil August, 1986, the petitioners were shareholders to the extent of only 16% whereas the respondents, directly and indirectly, held about forty per cent of the total paid‑up capital and the rest of the shareholding was owned by NIT, ICP and the public shareholders. The petitioners, in or about August, 1986 conspired amongst themselves to takeover the respondent Company in a clandestine manner through acquisition of its shares from NIT, other financial institutions and the open market. Because of the unusual increase of the share price in the stock market and the heavy transactions of Company's shares appearing in the newspapers, the respondents investigated the cause and found that petitioner No. 1 had made a consolidated effort to buy the shares with a view to obtain 50% of the shares and to reduce respondents No. 2 to 5 to a minority position and consequently ousting them from the management of the company. It was added that respondents, realizing the conspiracy and mala fide actions of the petitioners, also made efforts to buy shares in order to thwart the mala fide design of the petitioners and they succeeded in increasing their shareholding to 51%. The petitioners could thus obtain 39% of the shareholding only. The petitioners realizing that their scheme has been frustrated, started a campaign to harass and intimidate respondents No. 2 to 5 in a manner which is prejudicial to the interests of the Company. The case of the respondents is that the allegations of the petitioners should be seen in the light of the aforenoted background and that the purpose of this petition is to achieve the same result which they otherwise have failed to achieve through abortive takeover bid.

6. The reply of the respondents to the grounds taken by the petitioners may be summed up as under:‑‑ The respondent Company has treated the petitioners fully in accordance with law and Articles of Association of the Company and extended and faithfully complied with all their rights as shareholders and directors in the company. It was submitted that as a matter of fact the petitioners have started a campaign to harass and intimidate the respondents and that because of the malafide attitude of petitioner No. 1 after the abortive takeover bid, the majority of the directors of the Company moved to remove him as a working director of the Company in a Board Meeting held on November 20, 1986. It was explained that this action was taken competently under the law as a working director performing extra services to the extent of performing such extra services is an employee of the Company and under Articles of Associations of the Company, can be removed by the Chief Executive. It was urged that the removal of petitioner No. 1 as a working director had become necessary because of his obstructionist and malafide actions which were demoralizing the staff and impairing the efficiency of the Company management. The consequence of the removal was that petitioner No.1. remained no longer entitled to receive certain benefits, facilities and perquisites which he had earlier enjoyed because of the extra work he was doing for the respondent company. It was pointed out that petitioner No.1 had worked in total harmony with the respondent for several years and it was only after the frustration of their takeover bid and after his lawful removal as a working director on 20th November , 1986 that petitioner No 1 has starting finding faults in the working and affairs of the company. (ii) The respondents pleaded that a petitioner can, raise any objection to any alleged, illegality or irregularity meeting the management or affairs of the, company pertaining to, the period prior to the abortive takeover bid and his removal as a working director as in that period the Company was run without any dissent or opposition from the petitioners and in fact in the last two decades the petitioners and other directors were party to all such decisions and actions. The allegations pertaining to the period after 20th November, 1986 are part of the takeover bid and as such if viewed in this context, the petitioners stand disentitled to seek reliefs prayed for in the petition. (iii) The initial investment of all the petitioners was in the amount of rupees 13 lacs out of the total project cost of rupees 65 lacs. Out of the said rupees 13 lacs invested by all the petitioners, rupees 8 lacs were invested by petitioner No. 10 and rupees five lacs by petitioner No.

1. Petitioner No. I acknowledging the professional reputation of respondent No. 2 and his family made the investment in foreign exchange and it was at his request that he was made a small shareholder in the project. It was assorted that had the petitioners been backbone of the project as alleged, the respondents and the petitioners would have entered into promoters' agreement or some provision would have been made in the Articles of Association for safeguarding any specific minority rights or regulating their future relationship. It was averred that the non‑existence of such an agreement ‑and absence of such a provision in the Articles of Association of the Company would show that the petitioners were not to have any such right or to enjoy any such special privilege. iv) There are no legal groups recognized under the law or in the Articles of Association of the Company. The law and Articles ,of Association of the Company do not make it necessary for the majority directors to extend monetary benefits to such directors who are not contributing time or services, otherwise the respondent Company has treated the petitioners fully in accordance with law and the Articles of Association and extended and faithfully complied with all their rights as shareholders and directors in the respondent Company. The allegation of deadlock in the respondent Company is not true as the company is holding meetings according to law and deciding matters after discussion in accordance with its Articles of Association. Some of these meetings of the Board of Directors have taken place recently in the last two weeks. Deadlock presumes inaction and inability to take decisions in the interest of the company because of the equality of voting power in the Board or in the General Meeting. Such a situation has never existed in the Company as the respondents have majority in the Board of Directors as well as in the General Meeting. As regards the loans advanced by the respondent Company, the position taken is that loan to Prime Dairies Limited, which is, an associated undertaking of respondent Company, was authorized. The respondent Company had advanced certain amount to Prime Dairies Ice Cream Limited but on promulgation of Companies Ordinance, 1984 the amount advanced was returned as per requirements of law and now Prime Dairies Ice Cream Limited does not owe any amount whatsoever to the respondent Company since 1985. The investment in Prime Dairies Limited was approved by the shareholders as required and in accordance with the provisions of section 208, Companies Ordinance. It was urged that the petitioner directors having fully participated in the affairs of the company and having concurred in the decision to make these investments cannot now raise the objection that the investments were made unauthorizedly. The allegations that the affairs of the respondent Company were being conducted in an illegal manner and that respondent No. 2 and other respondents were unauthorizedly acting as chief executive and as working directors were refuted. It may be noted that the allegation as regards non‑ registration/ transfer of shares, was, however, not pressed by the learned counsel for the petitioners as transfers were duly recorded and made.

7. The allegations, counter‑allegations and respective assertions having been enumerated,‑ it appears appropriate to take notice, at this stage, of certain salient facts about the formation and working of the respondent Company. These facts emerge from. the documents brought on record by the parties and were not controverted by the learned counsel for the petitioners when the attention of the Court was drawn to them by Dr. Pervaiz Hassan, learned counsel for the respondents. The salient features are:‑‑ (a) In 1941, Ch. Muhammad Saeed, respondent collaboration with Ch. Muhammad Hussain and Ch. Nazar Muhammad embarked upon business ventures and projects by floating different business concerns. The Textile Mill was established by floating Private Limited Company in 1962 and then in 1970, the Company was converted into a public limited company and 50% of the shareholding was released to public. The other Companies floated were Service Sales Corporation, Servis Shoes, Prime Dairies Limited and Prime Dairies Ice Cream Limited. The two Chaudharis namely Ch. Nazar Muhammad and Ch. Muhammad Hussain in 1983 entered into an arrangement of reorganization of their mutual business interests with Ch. Muhammad Saeed with the result that the latter withdrew his investment from Servis Shoes in lieu of disinvestment of the interest of the other two Chaudharis in Service Textiles. Ch. Muhammad Saeed, therefore, came to own 40% of the equity of the Service Textiles. Prior to that, the position of the shareholding of various persons in the Service Textiles was as under: ‑‑ Muhammad Saeed Nazar Muhammad Muhammad Hussain Shahbazud Din Ch. Haji Asghar Ali 8.42% 9.30% 8.04% 7.37% 8.96% (b) Haji Asghar Ali is father of petitioner No. 2 and the initial investment of Haji Asghar Ali and Ch. Shahbazud Din was of rupees eight lacs and rupees five lacs respectively. The disinvestment and reorganization took place with the consent and approval of Shahbazud Din Chaudhry, petitioner No. 1, as is apparent from documents available at pages 132‑135 attached with the replication. No special safeguard, right or privilege as regards management of the Company was provided or secured in favour of petitioner No. I either at the time of forming the company or on conversion into public limited of the respondent Company or reorganization of the Companies and disinvestment by the two main business partners of Ch. Muhammad Saeed, respondent No.

2. The respondent Company has in all 1,099 shareholders. It is listed on the Karachi and Lahore Stock Exchanges. The respondent Company has shown profits since 1980 and cash or stock dividends have been declared in five out of the last six years. The sales for the year ending 30th September, 1986 aggregated Rs.106,698,

737. The respondent Company has received financial assistance from Banks and other financial institutions and its loan portfolio is of Rs.30 million. It was claimed that loan as well as the interest are being repaid as per agreed schedule to the entire satisfaction of the banks etc. and that because of efficient and expert handling of the affairs of the company, its reserves have increased to Rs.11.5 million in 1986 and the position obtaining in the year ending September, 1986 is that sales rose to Rs.112 million, the highest in the history of the company and the profits are higher than the combined profits of the immediately preceding two years. (c) Despite the above‑claimed achievements, the rates of the shares of the face value of Rs.10 of the respondent Company quoted on the Lahore Stock Exchange as per its letter dated 22nd June, 1987 were as Date Rate. 30‑11‑1986 1‑12‑1986 2‑12‑1986 3‑12‑1986 4‑12‑1986 22‑6‑1997 44.50 43.50 43.50 42.20 42.20 31.00

8. From the documents available on record, it is apparent that since formation of the Company, and even after conversion of the Company into a Public Limited Company and despite disinvestment by the two Chaudharis in 1983 the petitioners and respondents Nos. 2 to 5 alongwith the nominees of I.C.P. and N.I.T. worked till November, 1986 together amicably with the status as to shareholding noted if one of the paras above. According to the own showing of the petitioner s' the differences or the disputes arose due to the purchase of the shares released by the financial institutions and or, account of the effort to obtain exclusive control of the Company. This was resisted, it, appears, successfully by respondents No. 2 to 5 by augmenting their shareholding from about 40% to 51% and as a consequence thereof Shahbazud Din Chaudhry, petitioner No 1 lost the office of working director to which he was appointed vide resolution, dated 30th March, 1982. He was removed by the Board of Directors vide Resolution dated 20‑11‑1986. The competition between the two groups which commenced in August, 1986 started showing effects in October with the lodging of transfer deeds seeking transfer of shares. As the position of the respective shareholding was not clear in October/ November, 1986 the respondents No. 2 t o 5, it appears, in order to foil any attempt of the petitioner to take over clandestinely the office of the company, took steps to discourage entry of petitioners No. 1 and

2. These inferences can reasonably be drawn from various actions taken by the parties such as the posting of the armed guard at the registered office, lodging of reports with the police, the repeated demands for calling the Board I meetings and the holding of the meetings of the Board of Directors not at the registered office but outside in the hotel. The petitioners obviously having failed in their take over bid filed three petitions for winding up of the three companies in which they held shares alongwith the respondents No. 2 to

5. These Companies are (i) The Services Industries (Textiles) Limited, the present company; (ii) The Prime dairies Ice Cream Limited and (iii) The Prime Dairies Limited. The winding up petitions respecting the two companies were disposed of in terms of the compromise whereby the petitioners sold their shareholding in these companies to respondents No. 2 to

5. The same arrangement could not be agreed upon in this matter as firstly the respondents No. 2 to 5 already hold in the respondent Company shares in excess of the prescribed limit and secondly the fair value of the shares could not be settled by the parties themselves. 9 . Now I propose to deal with the respective pleas of the parties. The petitioners claim in the first instance the winding up of the respondent Company by invoking clauses (b) and (f) (iii) & (iv) of section 305, Companies Ordinance, 1984:‑‑These clauses read as under: ‑‑ "S.

305. A company may be wound up by the Court (b) if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting or any two consecutive annual general meetings; (f ) If the company is‑‑ (iii) 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; (iv) run and managed by persons who fail to maintain proper and true accounts, or commit fraud, misfeasance or malfeasance in relation to the company;

10. Learned counsel for the petitioners argued that the respondent Company was conceived in confidence, mutual respect and trust between friends but now there is justifying lack of confidence in the probity of management and as the main group enjoying the majority is bent upon excluding the minority, the other main group of the shareholders, from the management and affairs of the company, the principle applicable to the winding up of a Private Limited Company would be applicable to the respondent Company though it is a Public Limited Company. He argued that whenever there is oppression of minority, the company is either wound up or corrective measures as envisaged by section 290 of the Companies Ordinance are taken by the Court. Reliance was placed on Ladli Parsad Jaiswal v. Karnal Distillery Co. Limited P L D 19.65 S C 221; Mansoor Ali Bandeali v. Marine Food Industries Ltd. 1985 C L C 1239; In Re: Companies Act, 1913 and others PLD 1983 Karachi 45; Needle Industries (India) Ltd. and others v. Nedle Industries Newey (India) Holding Ltd. and others A I R 1981 S C 1298; Loch v. John Blackwood Ltd. 1924 All. E.R 200; Re H.R. Harmer Limited (1958) 3 All. ER 689 and Ebrahimi v. Westbourn Galleries (1872) 2 All ER 492.

11. On the question as to what constitutes 'Oppression' and what measures are taken by the Courts in England under similar provisions of law reference was invited by Dr. Pervaiz Hassan, Advocate to Re: Bird Precision Bellows Limited (1984) 3 All ER 444; Re: A Company (1983) 2 All. ER 36; Clemens v. Clemens Bros. Ltd. (1976) 2 All ER 268; Re: Jermyn Street Turkish Baths Ltd. (1971) 3 All ER 184; Re: Five Minutes Car Wash Service, Ltd. (1966) 1 All. ER 242; Re: Lundie Brothers Ltd. (1965) 2 All ER 692; Re: Bellador Sil Ltd. (1965) 1 All ER 667; Scottish Co‑operative Wholesale Society Ltd. v. Mayer and another (1958) 3 All ER 66; Re: Yenidje Tobacco Co. (1916) 2 CH 426; Dominion Mills Company Limited v. Amyot and others (1912) Time Law Reporter 467; Menier v. Hooper's Telegraph Works (1874) L R 350.

12. In Pakistan the leading authority is of the Supreme Court in the case of Ladli Parsad. The relevant facts are that Kishori Lal was running a business of maufacture and sale of liquor in the name of Kishori Lal & Sons at Karnal and was owner of Karnal Distillery also. On his death, his three sons succeeded him and Durga Parsad as senior member of joint family took over management of the joint family business. He too died leaving behind two sons and a widow. Ladu Parsad being now the eldest male member continued joint family business till 1940 when joint family business was converted into a contractual partnership and later in 1941 the partnership was converted into a Private 'Limited Company. The shares were allotted in lieu of the assets of the shareholders in the partnership business of Kishori Lal and Sons and the Karnal Distillery. The Articles of Association further provided that the shareholders holding 2/3rd of the total share capital would have the power to compel the owners of the remaining 1/3rd shares to transfer their shares to the majority. Hamoodur Rehman, J. after reviewing the cases of Yenidje Tobacco Co. Ltd. and In re: Davis & Collet Limited (1935) 1 CH 693 wherein it was held that "where the capital of a private company is so owned as to make the company in substance a partnership and one director has purported by means of irregularities to acquire complete control of the company and to exclude the other director(s) from the management, it is just and equitable to wind up the company" concluded that the company in the case before him was in substance a partnership as no one else except the family of the Kishori Lal was interested in it and that feelings had become so embittered that conciliation was not possible and the directors were determined to exclude Ladli Parsad and had gone to the extent of forfeiting his shares. The principle laid down by Lord Cozen‑Hardy, Master of the Rolls, in the case of Yenidji Tobacco Company Limited was thus applied to the case. This very principle was applied in the two Karachi cases by Nasir Aslam Zahid, J. In Mansoor Ali Bandeali's case, the five real brothers were the shareholders of the Private Limited Company and on lifting the veil of incorporation, it was found that in reality it, was a partnership so it was held that it would be inequitable for the majority shareholders to exclude minority from management of the Company and that the minority would be entitled to maintain a petition for winding up under just and equitable clause of section 162, Companies Act, 1913.

13. In the case of In Re: A company, the allegations were that in making and filing criminal complaints and through other dealings and conduct, T.M. Yousuf was seeking to expropriate the holding of shares and to oust him from the Company and the said T. M. Yousuf by excluding the petitioners from directorship and running the affairs of the Company in prejudicial manner is wilfully and persistently committing breaches of agreement relating to management of the affairs of the company. Learned Judge after taking note of the provisions of section 44 of the Partnership Act, 1932, applied principles deducible therefrom to the case before him. Again in the case of Maqbool Elahi of Lahore High Court P L D 1970 Lah. 539 Late Justice Muhammad Akram observed that "the Company, though a private one, was conceived in friendship, mutual trust but after the death of Ghulam Rasool, one of the promoters, the mutual trust and reliance so essential for its smooth running was wanting and a deadlock was created so much so that directors could not meet for about a year. 11 It was held that "petition for winding up under clause (iv) of section 162 Companies Act, 1913 was tenable and that we ought to apply the analogy of the partnership law and to say that the company was now in a state which could not have been contemplated by the parties when the company was formed and which ought to be terminated as soon possible.

14. The "just and equitable" clause i.e. clause (f) of section 222 of the English Companies Act of 1948 (which is clause (h) of section 305 Companies Ordinance, 1924) with reference to the question "whether petitioner is entitled to winding up order where there is breach of good faith which parties owed to each other?" came to be considered by the House of Lords in the case of Ebrahimi v. Westbourne Galleries Ltd. and others (1972) 2 All ER

492. In this case the company was a private company formed in 1958 to takeover business carried on since 1945 by Ebrahimi appellant and Nazar respondent as partners equally sharing the management and profits. After Company's formation, George Nazar son of Nazar respondent was made a director and each of the two original shareholders transferred to him 100 shares. Under the Articles, shares could not be transferred without the consent of directors; Nazar s, father and son, had majority of votes, until the dispute all the shareholders were the directors; the‑ profits earned were distributed as directors remuneration and dividends were never paid. Ebrahimi was removed from the office of director by passing a resolution by the company in the general meeting. This led to the filing of petition for winding up. Lord Wilberforce in his judgment examined the authorities in order to see how far they support the respondent's propositions; "that too great a use of the partnership analogy had been made; that a limited company however small differs from partnership; that in case of a company, the right of its members are governed by the Articles of Association which have contractual force; that the Court has no power or at best ought not to dispense parties from observing their contracts; that in particular when one member has been excluded from the directorate or management, under powers expressly conferred by the Companies Act and the Articles, an order for winding up whether on the partnership analogy or under the 'just and equitable' provisions should not be made.

15. The analysis of the authorities as made by the Law Lord in the judgment is as under:‑‑ "The real starting point is the Scottish decision in Symington v. Symingtons Quarries Ltd. There had been a partnership business carried on by two brothers who decided to transfer it to a private limited company. Each brother was to hold half the shares except for a small holding for a third brother to hold the balance for voting. A resolution was passed in general meeting by the votes of one brother together‑ with other members having nominal interests that he should be sole director. The other two brothers petitioned for a winding up under the just and equitable provision and the Court so ordered. The reasons for so doing given by some of their Lordships of the First Division, are expressed in terms of lost substratum or deadlock‑words clearly used in a general rather than a technical sense. The judgment of Lord M Laren, which has proved to be the most influential as regards later cases, puts the ground more generally. He points out that the company was not formed by appeal to the public, it was a domestic company, the only real partners being the three brothers. Lord M Laren said: 'In such a case it is quite obvious that all the reasons that apply to the dissolution of private companies, on the grounds of incompatibility between the views or methods of the partners, would be applicable in terms to the division amongst the shareholders of this company'." In England the leading authority is the Court of Appeal's decision in Re Yenidje Tobacco Co. Ltd. This was a case of two equal director shareholders with an arbitration provision in the articles between whom a state of deadlock came into existence. It has often been argued and was so in this House, that its authority is limited to true deadlock cases. I could, in any case, not be persuaded that the words 'just and equitable' need or can be confined to such situations. But Lord Cozens‑Hardy MR clearly puts his judgment on wider grounds. Whether there is deadlock or not, he says‑‑ .....the circumstances are such that we ought to apply, if necessary, the analogy of the partnership law and to say that this company is now in a state which could not have been contemplated by the parties when the company was formed... . Warrington LJ adopts the same principle, creating deadlock as an example only of the reasons why it would be just and equitable to wind the company up. In 1924 these authorities were reviewed, approved and extended overseas by the Judicial Committee of the Privy Council in an appeal from the West Indian Court of Appeal (Barbados) Loch v. John Blackwood Ltd. The judgment of the Board delivered by Lord Shaw of Dunfermine clearly endorses, if not enlarges, the width to be given to the just and equitable clause. The case itself was one of a domestic company and was not one of deadlock. One of the directors had given grounds for loss of confidence in his probity and (a matter echoed in the present case) had shown that he regarded the business as his own. His Lordship quotes with approval from the judgments of Lord I M Laren in Symington v. Symington and Lord Cozens‑Hardy MR in Re Yenidje Tobacco Co. Ltd. I note in passing the Scottish case of Thomson v. Drysdale where a winding up was ordered under the just and equitable .clause at the instance of a holder of one share against the only other shareholder who held 1,501 shares, clearly not a case of deadlock and come to Re: Curthbert Copper & Sons Ltd. a case which your Lordship must consider. The respondent relied on this case which carries the authority of Simonds, J. as restricting the force of the just and equitable provision. The company was clearly a family company the capital in which belonged to a father and his two elder sons, After the death of the father, leaving his shares to his younger sons and appointing them his executors, his elder son exercising the powers given to directors by the Articles, refused to register the executors as shareholders and dismissed them from employment. The executors, petition for winding up of the company was dismissed. My Lords with respect for the eminent judge who decided it, I must doubt the correctness of this. Whether on the facts stated a case of justice and equity was made out is no doubt partly a question of fact on which even though my own view is clear enough, I should respect the opinion of the trial Judge but this matter apart, I am unable to agree as to the undue emphasis he puts on the contractual rights arising from the Articles over the equitable principles, which might be derived from partnership law for in the result the latter seem to have been entirely excluded in the former's favour. I think that the case should no longer be regarded as of authority. There are three recent cases which I should mention since they have figured in the judgment below. Re Lundie Brothers Ltd. was like the present, a decision of Plowman, J. This was a case where the petitioner, one of three shareholders and directors was excluded from participation in the management and from director's remuneration. Plowman, J. applying partnership principles made a winding up order under the just and equitable clause. If that decision was right it assists the present appellant. The Court of Appeal in the present case disagreed with it 'and overruled 4t In so far as it related to a winding up. The respondents argue that this was the first case where exclusion of a working director, valid under the Articles, had been treated as a ground for winding up under the just and equitable clause and that as such it was an unjustifiable innovation. Re: Expanded Plugs Ltd. was on the other hand, approved by the Court of Appeal in the present case. The case itself is a paradigm of obscure forensic tactics and as such of merely curious interest, its only importance lies in the statement, contained in the judgment, that since the relevant decisions were carried out within the framework of the Articles, the petitioner must show that they were not carried out bona fide in the interests of the company. I shall return, in so far as it limits the scope of the just and equitable provision, to this principle but I should say at once that I disagree with it In Re: K/9 Meat Supplies (Guildford) Ltd. there was a company of three shareholders /directors one of whom became bankrupt; ,the petitioner was his trustee in bankruptcy. It was contended that the company was a quasi‑partnership and that since S. 33 of the Partnership Act, 1890 provides for dissolution on the bankruptcy of one of the partners, a winding up order on this ground should be made. Pennycuick, J. rejected this argument on the ground that since the 'partnership' had been transformed into a company and since the Articles gave no automatic right to a winding up on bankruptcy, bankruptcy of one member was not a ground for winding up of itself. He then proceeded to consider whether the just and equitable provision should be applied. In my opinion, this procedure was correct and need not express any opinion whether on the facts, it was right to refuse an order. Finally, I should refer to the Scottish case of Lewis v. Haas (1970 SLT 67) where the two main shareholders/ directors each held 49 per cent of the shares, the remaining two per cent being held by a solicitor. Lord Fraser, in the Outer House, while accepting the principle that exclusion from management might be a ground for ordering a winding up did not find the facts sufficient to support the use of the just and equitable clause. This series of cases (and there are others: Re: Davis and Collett Ltd. (1935) All ER 315, Baird v. Lees 1924 S C 83 Elder v. Elder & Watson Ltd. (1952 S C 49); Re: Swaledale Cleaners Ltd. (1968) 3 All ER 619; Re: Fildes Bros Ltd. (1970) 1 All ER

923. Re: Leadenhall General Hardwaie, Stores Ltd. (an unreported case) amounts to a considerable body of authority in favour of the use of the just and equitable provision in a wide variety of situations including those of expulsion from office. The principle has found acceptance in a number of Commonwealth jurisdictions. Although these were not cited at the Bar I refer to some of them since they usefully illustrate the principle which has been held to under lie this jurisdiction and show it applicable to exclusion cases. In Re: Straw Products Pty Ltd. (1942) VLR

222. Mann, C.J. said:‑‑ ........ ..... All that Hinds has done in the past in exercise of his control has been within his legal powers. The question is whether he has used those powers in such a way as to make it just and equitable that Robertson should be allowed by the Court to retire from the partnership. The analogy of a partnership seems to me to clarify discussion." Re: Wondoflex Textiles Pty Ltd. (1951) VLR 458 was a case where again the company was held to resemble a partnership. The petitioner owner of a quarter share was removed from office as director by the governing director exercising powers under the articles. Thus the issue and the argument closely resembled those in the present case. The judgment of Smith, J. contains following passage: It is also true I think, that generally speaking a petition for winding up based upon the partnership analogy cannot succeed if what is complained of is merely a valid exercise of powers conferred in terms by the Articles .To hold otherwise would enable a member to be relieved from the consequences of a bargain knowingly entered into by him But this, think, is subject to an important qualification. Acts which, in law, are a valid exercise of powers conferred by the Articles may nevertheless by entirely outside what can fairly be regarded as having been in the contemplation of parties when they became members of the company; and in such cases the fact that what has been done is not in excess of powers will not necessarily be in answer to a claim for winding up. Indeed it may be said that one purpose of the just and equitable provision is to enable the Court to relieve a party from his bargain in such cases. The whole judgment is of value. In New Zealand, the Court of Appeal has endorsed the potential application of the principle to exclusion cases. Tench v. Tench Brothers Ltd. (1930) NZLR 403, See also Re Modern Tetreading Co. Ltd. also a case of exclusion from management and of Re: Sydney and Whitney Pier Bus Service Ltd. and Re: Concrete Column Clamps Ltd." After surveying the authorities as reproduced above, Lord Wilberforce observed as under:‑‑ "My Lord in my opinion these authorities represent a sound and rational development‑of the law which should be endorsed. The foundation of it all lies in the words 'just and equitable' and if there is any respect in which some of the case may be open to criticism, it is that the Courts may sometimes have been too timorous in giving them full force. The words are a recognition of the fact that a limited company is more than a mere judicial entity with a personality in law of its own; that there is room in company law for recognition of the fact that behind it or amongst it, there are individuals with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act, 1948 and by Articles of association by which shareholders agree to be bound. In most companies and in most contexts this definition is sufficient and exhaustive equally so whether the company is large or small. The 'just and equitable' provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company nor the Court to dispense him from it. It does as equity always does enable the court to subject the exercise of legal rights to equitable consideration; consideration that is of a personal character arising between one individual and another which may make it unjust or inequitable, to insist on legal rights or to exercise them in particular way . ........The just and equitable provision nevertheless comes to his assistance if he can point to and prove some special underlying obligation of his fellow member(s) in good faith, or confidence that so long as the business continues he shall be entitled to management participation, an obligation so basic that if broken, the conclusion must be that the association must be dissolved. And the principles on which he may do so are those worked out by the Courts in partnership cases where there has been exclusion from management (see Const v. Harris) even where under the partnership agreement there is a power of expulsion."

17. The question of oppression and principles applicable for ordering purchase of shares under section 210 of 1948 Act (section 290 Companies Ordinance, 1984 closely follows the language of section 210) were also considered by the House of Lords in the case of Scottish Co‑operative Wholesale Society Ltd. v. Meyer (1958) All ER 66: In this case the appellant Company was accused of having committed acts of oppression against its subsidiary. It was held that the parent Company must, if it is engaged in the same class of business, accept as a result of having formed such a subsidiary, an obligation so to conduct what was in a sense its own affairs as to deal fairly with its subsidiary. Taking the dictionary meaning of the word 'oppression' Viscount Simonds said that the authority exercised by the society could justly be described as oppressive as the majority behaved towards the minority shareholders in an oppressive manner, that is to say, in a manner "burdensome, harsh and wrongful the learned Law Lord adopted the words of the Lord President Cooper which read as under:‑‑ "Section 210 warrants the Court in looking at the business realities of a situation and does not confine them to a narrow legalistic view. 11

18. Lord Keith in his judgment observed that the Company was in substance though not in law, a partnership consisting of society, Dr. Meyer and Mr. Lucas and whatever may be the other different legal consequences following one or other of these forms of combinations, one result followed the method adopted which is common to partnerships that there should be the utmost good faith between the constituent members. In his separate judgment Lord Denning observed, "that the affairs of a company can in my opinion, be conducted oppressively by the directors doing nothing to defend its interest when they ought to do something‑ just as they can conduct its affairs oppressively by doing something injurious to its interests when they ought not to do it".

19. On the scope and intent of section 210, Lord Denning commented as under:‑‑ "Now I quite agree that the words of the section do suggest that the legislature had in mind some remedy whereby the company, instead of being wound up might continue to operate. But it would be wrong to infer therefrom that the remedy under section 210 is limited to cases where the company is still in active business. The object of the remedy is to bring 'to an end the matters complained of' that is, the oppression and this can be done even though the business of the company has been brought to a standstill. If a remedy is available when the oppression is so moderate that it only inflicts wounds on the company while leaving it active so also it should be available when the oppression is so great as to put the company out of action altogether, Even though the oppressor by his oppression brings down the whole edifice‑ ‑destroying the value of his own shares with those of everyone else the injured shareholders have, I think, a remedy under section 210.... ...................... it is a new section designed to suppress an acknowledged mischief, should receive interpretation and be given such construction as should advance the remedy." On the question of fair price, Lord Denning observed:‑‑ "Fair price would be, I think, the value which the shares would have had at the date of the petition, if there had been no oppression. This section gives a large discretion to the Court and it is well‑exercised in making an oppressor to make compensation to those who have suffered at his hands."

20. The principles approved by the House of Lords in the above- cited case were followed in the later years. In Clemens v. Clemens Bros. Ltd. and another (1976) 2 All ER 268 Chancery Division applying the principle held that majority voting is to be subjected to the equitable consideration and aunt who holds 55% shareholding got the resolution passed so as to put into her and her fellow director's hands complete control of the company and to deprive her niece of her existing rights under the Articles and that the Court of equity will act to prevent the consequences arising from aunt's using her legal rights to vote in a way that she has, that is to say, to ensure not only that niece can never get the control of the company but to deprive her of what has been called her negative control. This very principle was also applied in Estamanco (Kilner House) Ltd. v. Greater London Council (1982) 1 All ER

437. In this case majority shareholders held 100% voting rights and the majority shareholder who was not a director of the company and owe no fiduciary duty to company using voting power to force company to discontinue action. The questions considered were whether majority shareholder is entitled to vote according to its own interest or whether majority shareholders' voting amounts to abusing or misusing the power or amounts to a fraud on the minority. It was held since majority vote would enable it to implement its new policy regardless of the breaches of the contract and vagaries to existing procedures that ensured, the vote amounted to a fraud on minority or an abuse of power. In Re: A Company (1983) 2 All ER 36, a deceased testator's minority shareholding in a private family company was held by his executors for the benefits of testator's two young children. The shareholding was the only asset to maintain and educate the children. The allegation made was that the company's affairs were being conducted in a manner which was firstly prejudicial to the interest of executors because the company's failure either to formulate a scheme of reconstruction or to purchase the shares under sections 46 and 47 of the 1981 Act, prevented the executors from realising the true value of the shares and was thereby prejudicial to the executor's interest. It was held that a company's conduct was 'unfairly prejudicial' to the interest of a member of the company, so as to make the company's conduct actionable under section 75 of the 1980 Act, only where the company's conduct resulted in the member being unfairly prejudicial in his capacity as a member and that section 75 was not intended to enable a minority shareholder to require the company to buy him out at a price which he considered adequately reflected the value of his shareholding.

21. In Re: Bird Precision Bellows Ltd. (1984) 3 All ER 444 the petitioners who held 26% of the issued share capital of the company incorporated in 1975, alleged that the company was a quasi‑partnership and that from the date of its incorporation there was an agreement or understanding that ‑they would participate in the conduct of the company's affairs. The assertion was challenged by the respondents who held the remaining 74% of the issued share capital. The petitioners were removed from the office as directors in April, 1981 and allegedly wrongfully excluded from the company's business. In October, 1981, the petitioners presented 4 petition under Section 75 of the Companies Act, 1980 alleging that the affairs of the company had been conducted in a manner unfairly prejudicial to their interests as members and sought an order under 8.45 (4) (d) of the Act that the respondents should purchase their shares. It was held that on the facts, the company was a quasi‑partnership, since it had been set up on the understanding that the petitioners would participate in the conduct of its affairs and although their conduct was not beyond reproach, they had not in the circumstances, acted so as to deserve their exclusion. Accordingly, it was appropriate that the price to be paid for their shares should be fixed on a pro rata basis without any discount to reflect the fact that the share constituted a minority holding .

22. It is pertinent to note that in all the above‑discussed Pakistani and English authorities the companies involved were Private Companies and were treated as domestic or family concerns or quasi‑partnerships. Even in Lock v. John Blackwood Limited (1924) All ER 200 the two main shareholders namely Mrs. Loch and Mr. Rodger included in the company Mr. Yearwood, Mr. Mclaren, the clerk and Mr. King, Solicitor of Mr. Rodger by transferring one share to each of them. After noting the aforestated position of shareholding, it was observed that although taking the form of a public company, the concern was practically a domestic and family concern. It will be seen that in strict legal sense this case was also not of a public company.

23. Most of the aforenoted English authorities were noted by the Indian Courts and the principles laid down were adopted (Section 397 of Indian Companies Act, 1956 closely follows S.210 of English Companies Act, 1948) in the following cases: (1) Needle Industries (India) Ltd. and others v. Needle Industries Newey (India) Holding Ltd. and others (A I R 1981 SC 1298), (2) Cosmosteels (Private) Ltd. Co. v. Jairam Das Gupta (AIR 1978 S.C. 375), (3) Shanti Prasad Jain ‑v. Kalinga Tubes Ltd. (AIR 1965 S.C. 1535), (4) Thakur Prem Singh ane another v. Thakur Hotel (Simla) Co. Private Ltd. (AIR 1962 Punjab 23), (5) In Re: Hindustan cooperative Insurance Company (AIR 1961 Cal 443).

24. The notable Indian judgments on "just and equitable" clause and or other grounds of winding up are: ‑ (1) Hindu Overseas Private Ltd. v. Raghunath Prosad Jhunjhunwalla and another (AIR 1976 S.C. 565), (2) Jagannath Gupta and Company Private Limited v. Mulchand Gupta (AIR 1969 Cal. 363), (3) In Re: Sulekha Works Ltd. (AIR 1965 Cal 98) and (4) Rajahmundry Electric Corporation Ltd. v. A. Nageshwara Rao (AIR 1956 S.C. 221). All these cases were of private companies except that of Needle lndustries, where a private company was converted into a public company under section 43‑A of 1956 Act which allowed such a company to retain certain characteristics of private companies including restriction to transfer shares to public.

25. The case of Shand Prasad Jain v. Kalinga Tubes Ltd. (AIR 1965 S.C. 1535) which deals with the question of oppression under Section 397 of the Act and the case of Rajahmundry Electric Corporation Ltd. v. A. Nageshwara Rao (AIR 1956 S.C. 221) on the question of winding up also pertain to public companies. These two cases may, therefore, be noticed in some detail. In the last mentioned case, petition for winding up under Section 162, clauses (v) and (vi) of the Companies Act, 1913 was filed on the grounds that the affairs of the company were being grossly mismanaged; the large amounts were owing to the Government; the directors had misappropriated the funds and that the directorate which had the majority in voting strength was riding roughshod over the rights of shareholders. In the alternative appropriate orders under section 153‑C were sought to protect the rights of the shareholders. The petition was opposed by Chairman of the company on the plea that the vice‑Chairman who was able for maladministration has been removed; that steps are being taken to call him to account and that there were no grounds for passing an order under section 153‑C. Learned Judge of the High Court on finding that charges made have been substantiated ordered winding up of the Company. The appeal to Supreme Court remained unsuccessful. In this case Indian Supreme Court accepted and approved the well‑recognized principle of Company Law namely that where nothing more is established than that the directors had misappropriated the company's funds unless such misconduct has produced insolvency, an order for winding up under "just and equitable" clause would not be made. The second principle approved was that the Courts will not intervene at the instance of shareholders in matters of internal management of the company by directors sol long as they are acting within the powers conferred on them by the Articles of the Company. The third principle approved was that the doctrine initiated in Loch's case (1924) All ER 200 namely that if a private company or in a public company which is in the nature of private company there is lack of confidence that would be the ground for an order for winding up but that lack of confidence must arise not because the aggrieved party is in minority but must arise from the lack of probity in the conduct of the affairs of the Company.

26. In the case of Shanti Parsad Jain v. Kalinga Tubes Ltd. (supra) the shareholders of a public limited company originally consisted mainly of two groups A and B. Later on to meet the financial difficulties of the company, C agreed to supply finances on terms that he be allotted shares equal to those held by A and B group after increasing the share capital. The company was not a party to the agreement nor were the Articles of Association amended in order to incorporate the agreement. Later on the company converted itself into a public limited company in order to obtain advances from Industrial Finance Corporation and at this stage though Articles of Association were amended, yet the agreement was not incorporated therein. After the conversion fresh shares were issued and in the meeting of the Board of Directors, C suggested that the new shares should be issued in accordance with S.81 of the Act to the existing shareholders in proportion to the shares already held by them. The suggestion of A and B was that shares should be offered privately to those who were not shareholders, because they apprehended that if the shares were allotted to existing shareholders, C can purchase most of the shares and thus would get controlling hand over the affairs of the company as they themselves were not in a position to purchase the shares. The suggestion of A and B was accepted at the general meeting and the new shares were sold to outsiders who were neither benamidars nor stooges of A and B. C applied under S. 397 on the ground of oppression by the majority. It was held that the agreement between A, B and C did not mean that if in future there was any increase in capital that will be shared equally by the three and that the company, much less, the public limited company when it was formed, not being a party to the agreement, was not bound by it, consequently it was open to the public company in its general meeting to decide that new shares should not be issued to the existing shareholders but to others privately. It was further held that the resolution was in accordance with law as it stood when it was passed and that the matter complained of did not amount to oppression of minority shareholders are that the matter would have been different If the persons to whom the new shares were eventually allotted were benamidars or stooges of A and B groups, for in that case, it might be said that these two groups forming the majority in the general meeting had acted fraudulently and unfairly by depriving C of what he would have got under S.81 of the Act. It was also observed that law has not defined the term "oppression" for purposes of Section 397 and it is left to Courts to decide on facts of each case whether there is such oppression as calls for action under the Section and that the question in each case is whether the conduct of the affairs of a company by the majority shareholders was oppressive to the minority shareholders and that the answer to the question would depend upon the facts proved in a particular case. Learned Judge further observed that it is not enough to show that there is just and equitable cause for winding up the company, though that must be shown as preliminary to the application of Section 397 and that it must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be series of acts on the part of the majority shareholders continuing upto the date of petition showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority and minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company's affairs and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder" .

27. In England, after the decision of House of Lords in Scottish Co‑operative Wholesale Society's case a restricted interpretation seems to have been given to section 210 by the Court of Appeal in re: Jermyn Street Turkish Baths Ltd. (1971) 3 All ER 184 which invited criticism by writers on Company Law (See Palmer's Company Law 22nd Edition page 613). It was held in the said case:‑ "The affairs of a company could only be said to have been conducted in a manner oppressive to some part of the members of the company where shareholders having a dominant power in the company, either exercised that power to procure that something was or was not done in the conduct of the company's affairs or procured by an express or implied threat of an exercise of that power that something was not done in the conduct of the company's affairs; to amount to oppression such conduct must be unfair or burdensome, harsh and wrongful to the other members of the company or some of them and lack that degree of probity which they were entitled to expect in the conduct of the company's affairs; oppression which, was unfair to them as the result of some overbearing act or attitude on the part of the oppressor. P's position as majority shareholder had never had any bearing on her remuneration as a director nor was there any indication that it had been used to influence the petitioners in the way they had acted, the mere fact that a director drew remuneration to which he was not legally entitled or in excess of that to which he was legally entitled, would not in itself amount to oppression."

28. For answering the question whether the partnership analogy applies or any implied or express agreement amongst parties to hold shares in a given proportion or to control management can be enforced after conversion of the company into public limited company, reference will have to be made to the provisions of the Company Law and the Articles of Association of the Company as these will prevail and the relationship between the members and qua the directors will have to be regulated accordingly. With the removal of restriction on the right to transfer shares and by transfer and issue of new shares to the public the company naturally becomes broadbased. This in certain situations may result in disturbing the equilibrium in the shareholding and in exclusion of one group or the other from the management and control of the affairs of the company. So, after conversion into a public company or in a public limited company neither the terms of implied or express agreement can prevail nor the status existing prior to the change over ought necessarily be maintained in violation of the provisions of Company Law and the Articles of Association. Any valid and bona ride change in the status with reference to the shareholding cannot be complained of under 'just and equitable' clause as change in the management is inherent in the principle of transferability of shares and invitation to public to subscribe to shares.

29. Some of the important principles which clearly emerge from the precedents analysed above are that unwise, inefficient or careless conduct of a director in pursuance of his duties cannot give rise to a claim for relief under section 290 Companies Ordinance, 1984. The person complaining of 'oppression' must show that he has been constrained to submit to a conduct which lacks in probity or to a conduct which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as shareholder and not as a director or employee of the company. It is also clear that where the 'just and equitable' jurisdiction has been applied, the circumstances have always been such as to warrant the interference that there has been at least unfair conduct, abuse of powers and an impairment of confidence in the probity with which the affairs of the company were being conducted as distinguished from mere resentment on the part of minority at being out‑voted on some issue of domestic policy.

30. Moreover, in an application under Section 290 Pakistan Companies Ordinance, 1984 or Section 397 of Indian Companies Act, 1956 as under section 210 of the English Companies Act, 1948 before granting relief the Court has to satisfy itself that to wind up the company, will unfairly prejudice the members complaining of oppression but that otherwise the facts will justify the making of a winding up order on the ground that it is just and equitable that the company be wound up and that the circumstances relied on must exist at the date of hearing of the petition Re: Fildes Bros. Ltd. (1970) 1 All ER

923. The petitioner who is seeking equity must not himself be guilty of questionable conduct and must not be abusing the process of Court or for ulterior purpose see section 314 (2) Companies Ordinance, 1984.

31. Section 290 however is an improved version of section 210 of the English Companies Act, 1948 as some of the criticism made by the commentators have been met by enlarging the scope of the remedy and by providing additional grounds for seeking appropriate orders from the Court. A Court under Section 210 of English Act can exercise jurisdiction if the following requirements of the Section are satisfied:‑ (1) The matters complained of must affect the petitioner in his character as a member of the company; harsh or unfair treatment in any other capacity e.g. , as a director or creditor cannot entitle him to relief under the Section; (2) The matters complained of must relate to the conduct of the affairs of the company and (4) They must be such as not only to make the winding up of the company just and equitable but also lead to the conclusion that the affairs of the company are being conducted in a manner which can properly be described as oppressive of the petitioner and it may be, other members (See Palmer's Company Law, Volume‑I 22nd Edition Paras 57‑04 page 615 and the cases cited therein).

32. As against above, Section 290 of the Pakistan Companies Ordinance, 198 provides that power of the Court can be invoked by: (i) any member or members holding or less than twenty percent of the issued capital; or (ii) a creditor or creditors having interest equivalent in amount not less than twenty per cent of the paid‑up capital; or (iii) Registrar when he is of the opinion that grounds mentioned the section exist for seeking interference of the Court.

33. The matters which are to form basis of a complaint under section 290 are:‑ (a) the affairs of the company are or are likely to be conducted in an unlawful or fraudulent manner; (b) the affairs of the company are being conducted in a manner not provided for in its memorandum; (c) the affairs of the company are being conducted in a manner oppressive to the member (the petitioner) or any of the members or the creditor or creditors; (d) the affairs of the company are being conducted in a manner prejudicial to the public interest.

34. It will also be noted that though the Court before taking the corrective measures has to form the opinion whether to wind up the Company would unfairly prejudice the members or the creditors yet the grounds for invoking corrective powers of the Court under section 290 are wider in intent and scope than the provision relating to oppression contained in clause (f) of section

305. This section provides for the circumstances in which a Company may be wound up by the Court. Clause (f) thereof reads as under:‑ A company may be wound up:‑ (f) if the company is; (i) conceived or brought forth for, or is or has been carrying on unlawful or fraudulent activities. (ii) carrying on business not authorized by the memorandum; (iii) 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 of shareholders. iv) run and managed by persons whol fail to maintain proper and true accounts or commit fraud, misfeasance or malfeasance in relation to the company; or (v) managed by persons who refuse to act according to the requirement of the memorandum or Articles or the provisions of this Ordinance or fail to carry out the directions or decisions of the Court or the Registrar or the Authority given in the exercise of powers under this Ordinance.

35. The just and equitable clause has been provided as an additional ground under clause (h) of the Section. The thing to be noted is that in clause (f) (iii) above oppression of member or person concerned with formation or promotion of the company or the minority of shareholders has been mentioned whereas section 290 of the Ordinance, includes any member or members having the requisite shareholding or creditor holding requisite interest in the company or conduct prejudicial to public interest. The scope of intervention for taking corrective measures envisaged in the section has thus been enlarged. The oppression complained of need not necessarily be oppression of some part of the members including the petitioner himself in their on his capacity as members or member of the Company as such.

36. The scope and intent of Sections 305 and 290 of the Ordinance as well as the principles deducible from the precedent law having been determined, the question whether the petitioners have been able to make out a case for winding up or for any of the reliefs prayed for with reference to section 290 of the Ordinance, may now be considered.

37. The grounds urged in support of the reliefs claimed are that respondents No.2 to 5 are conducting business of the company in a manner oppressive to the promoters and minority shareholders and to the person concerned with the formation of the company namely Shahbazud Din‑ Chaudhry, petitioner No.1 as he has been removed from the office of working director and as the other two directors/ petitioners were not allowed to enter the registered office of the company by the armed guard, posted by the respondents. The respondents controverted the assertion that Shahbazud Din Chaudhry was z! promoter or the person concerned with the formation of the Company. The word 'Promoter' has not been defined in the Companies Ordinance,

084. It is not possible to lay down any general rule as to the circumstances in which a person would be deemed a 'promoter' mid the Courts have also not attempted to do so. In Palmer's Company Law Volume‑I 22r,(j Edition at page 166 it is stated:‑ "In each case it is a question. of fact whether or not a person is a promoter. Any person who undertakes to take part in forming a company, or who, with regard to a proposed or newly‑formed company, undertakes a part in raising capital for it, is prima facie a promoter of the company, for he has taken part in setting going a company formed with reference to a given object. Thus, a person may be 1k promoter though he has taken a comparatively minor part in the promotion proceedings. Anyone who assists in the promotion e.g. by obtaining a director, or agreeing to place shares or negotiating an agreement, or merely by putting a vendor in touch with persons who may form a company to exploit or purchase his goods, may find himself a promoter of any company which is consequently formed. 11

38. It will, therefore, be seen that in each case by producing evidence, it is to be established as any other question of fact that the person was a promoter of the company. In the present case except for producing the copies of letter of credit and the bank documents by which the foreign exchange was remitted, nothing else was produced. The respondents, however, produced certified copy of Memorandum and Articles of Association dated 11‑12‑1961 wherein the persons who subscribed their names as desirous of forming the company were Nazar Muhammad and Sh. Muhammad Nawaz. The documents pertaining to conversion of the company into public limited company were not brought on record. It was however admitted that Shahbazud Din Chaudhry made available foreign exchange for importing the machinery. This by itself is not sufficient for holding that Shahbazud Din Chaudhry was the person who brought into existence the venture and took various steps thereafter and thus brought about the incorporation of the company.

39. The other plea may now be noticed. The removal of Shahbazud Din Chaudhry from the office of working director, does not amount to oppression or exclusion of the minority shareholders from the management or control and affairs of the company. He was appointed as working director by virtue. of Board's resolution dated 3‑3‑1982 and was removed by passing resolution on 20th November, 1986. It may be mentioned that Shahbazud Din Chaudhry was elected lastly as the director of the company on 30th March, 1984 for three years and his tenure came to an end on 31st March, 1987. The grievance disclosed in this respect was that in the notice dated 15‑11‑1986 of the Board meeting, specific item regarding removal of Shahbazud Din Chaudhry from the office of working director was not included. Articles 79 and 80 of the Articles of Association do not require service of any former agenda. No doubt the item "any other business with the permission of chairman" which decorates an agenda generally, should not be used to spur a surprise on the absent members as under this item only routine matters should be brought in for discussion. In the present case, however, even if the notice to remove Shahbazud Din Chaudhry from the office of working director had been given, no difference would have arisen as in view of the majority in the Board, the said item would have been carried through. The rule of unanimity finds no mention in the Articles of Association and as such no such unanimity was breached. Moreover, a working director, as is apparent from Article 75 of Articles of Association, is a director who performs extra services and is to be paid remuneration for the performance of such extra services. This remuneration is to be determined by the directors or in the company's general meeting. It would be seen that non‑utilization of the services of a member for extra services does not amount to exclusion from the management and affairs of the company, particularly of a public limited company. The three petitioners are still the directors of the company and are free and legally entitled to exercise their right to participate in the capacity of directors in the management and affairs of the company.

40. In support of the above view reference may be made to the Scottish Supreme Court case Elder v. Elder and Watson Ltd. (1952) SC

49. In this case, it was averred that two of the petitioners, shareholders in a private limited company which was in effect a small family concern, had suffered oppression at the hands of other shareholders. They had used their combined voting power to remove the petitioners from their offices as directors and from their employment as secretary and factory manager respectively. It was further averred that this action had been taken against them at the instigation of a director who "had had serious differences with one of them and who had sought successfully in this way to obtain control of the company for himself and his nominees. There was no averment that the business had been mismanaged to the detriment of the shareholders. Before presenting the petition, the petitioners had sought unsuccessfully to dispose of their shares to the company at a price to be fixed by arbitration. It was held that section 210 was intended to meet the case of oppression members of a company in their character as such; that the matters complained of by the petitioners affected them solely in the character of director or employee of the company, and here were thus no relevant averments of oppression for the purposes of the section and that there were no facts averred which would justify a winding up order on just and equitable grounds and the petition was dismissed as irrelevant. Moreover, in the present case removal from the office of working director, is to be seen in the context of the abortive bid of the petitioners to take over the control and I management of the company. This must have led to resentment with consequential apprehension of causing obstructions in the smooth working of the directorate. The petitioners having failed in their attempt to purchase majority shares and to gain control of the company cannot expect the other group to continue reposing same degree of confidence which existed earlier between the two groups.

41. The next allegation was that the petitioners have been excluded from participation in the management and profits of the company as their directors were not allowed to enter the registered office and that the Board meetings as well as the annual general meetings are being held in a hotel and not in the registered office. As regards exclusion from the profits, nothing whatsoever has been brought on record. This assertion was even not pressed by the learned counsel during the arguments. It is pertinent to note that the other grievance arose on 24th November, 1986 when one of the directors was allegedly prevented from entering the office. The situation prevailing in the month of November has now come to an end with the majority of voting power remaining with the respondents group. In such' a situation, in my view the posting of guard to ward off the possibility of physical take over of the office, does not amount to exclusion from participation in the management and affairs of the company as it; was admitted that in the period between November, 1986 to April.; 1987 almost eight meetings of the Board of Directors were held and the three petitioners /directors were allowed opportunity to attend these meetings and thus to participate in the management and affairs of the company. These meetings were held on 14‑12‑1986, 7‑1‑1987, 1‑2‑1987, 17‑2‑1987, 29‑2‑1987, 13‑3‑1987, 9‑4‑1987 and 23‑4‑1987. The annual general meeting was held on 31‑3‑1987. It will, therefore, be seen that there is no force in the assertion that the petitioners have been excluded from management and profits of the company.

42. The allegation as to existence of deadlock due to lack of mutual confidence was however not pressed at the time of arguments as the respondents admittedly hold majority voting power. The grievance of the petitioners in this respect was that the company was conceived in mutual confidence and trust but respondents No.2 to 5 who hold majority in the voting power are taking decisions on their own without consulting the minority group. This grievance is also not well founded. Firstly there is neither any agreement providing unanimity in decisions or conferring special rights of management on the petitioners group nor anything was pointed out from the memorandum and Articles Association to claim any such rights. Moreover, in the conduct Of affairs of a public limited company, compliance of provisions of Companies Ordinance, Articles of Association and other applicable laws is insisted upon as faithful compliance of laws always advances public interest. Again the mere loss of confidence between different groups of shareholders would not come within the relevant clause of section 305 or section 290 unless it is shown that this lack of confidence has resulted as a consequence of the oppression of the minority in the management and affairs of the company and that there was at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. The petitioners have failed to bring on record, material to justify the conclusion that respondents No.2 to 5 had conducted themselves so as to cause oppression of the type and the kind envisaged in the relevant clauses of the aforenoted provisions of law.

43. The next plea of the petitioners was that respondents Nos. 2 to 5 have mismanaged the funds of the company by advancing huge amount of loan to Prime Dairies Ice Cream Limited and Prime Dairies Limited, the two companies in which respondents Nos. 2 to 5 hold substantial interest, without any security. it was added that the respondent Company Stands is no way benefited by advancing these loans and in fact this amount will have to be written off as a total loss. It Was also submitted that by resolution dated 22‑1‑I983 funds were invested in Prime Dairies without mentioning the amount of loan, the terms and conditions of the investment. It was averred that in the Board meetings held on 7‑1‑1987 and 24‑2‑1987 as well as in the annual general meeting held on 31st March, 1987, the petitioners in order to secure the interest of the company advised respondents Nos. 2 to 5 to recall the loans but majority acting in rough shod manner, overruled the petitioners and harped on their off‑repeated version that recalling of the loan would not serve the interest of the company as the investment made in Prime Dairies was likely to prove profitable in the coming years and that though the investment was without any security yet it was a good and safe investment because of the interlocking management and the potential of the project.

44. The legal plea raised, by Mr. Aftab Ahmad Khan, Advocate, learned counsel for the petitioners may be noticed now. He argued that the investment was unauthorized and in any case on the enforcement of the Companies Ordinance, 1984 the loan should have been recalled in view of the provisions contained in subsection (3) read with subsection (1) clauses (d) and (e) of section

195. He added that in any case the So‑called investment is prejudicial to the financial interest of the company as it is not receiving any income from the so‑called investment. As regard this last submission, it may be noted that certificate. of auditors Wag produced to show that as a matter of fact toe company was receiving interest at the rate of 14% per annum.

45. Dr. Parvez Hassan, Advocate in reply, submitted that loan to Prime Dairies Ice Cream has been admittedly paid back to the company and that it is very unfortunate that despite knowledge of this fact, the petitioners have thought it fit to make a false allegation. As regards the loan to Prime Dairies, the position taken was that this investment was neither unauthorized nor the loan was advanced recklessly nor the financial interest of the company was in any way jeopardised. It was urged that the three directors /petitioners cannot raise any such objection as they actively participated in all the affairs of the company and as they were party to the decision to make these investments and that for all these years till the raising of the present dispute the investment was considered good and. secure by the petitioners as they did not ever raise any such plea then. He referred to the minutes of the annual general meeting dated 4‑6‑1985 whereby the shareholders allowed lending of further sum of rupees two million in addition to rupees seven million already advanced. He also referred to the annual reports Of 1983, 1984, 1985 and 1986 wherein these very loans were reported to the shareholders.. Before submission these reports received the approval of the Board of Directors every year and either Khalid Shahbaz or Shahbazud Din Chaudhry or both of them attended these meetings and did not raise any such objection. Some of these reports were even presented to the shareholders b), Shahbazud Din Chaudhry, himself. These reports showing the loan and the charging of interest were confirmed and approved in the annual general meeting each year. The petitioners have raised this objection only when their attempt to take over the company has remained unsuccessful. They having participated actively in the affairs of the company and they being party to the decision of advancing the loan cannot now be heard to say that the loan was advanced to the ,prejudice of the financial interest of the respondent Company.

46. Now the question whether the management is guilty of violating subsection (3) of section 195 Companies Ordinance, 1984, may be dealt with. The relevant provisions of section 195 may be reproduced:‑ ..195 (1) Save as otherwise provided in subsection (2) no company, hereafter in this section referred to as "the lending company" shall, directly or indirectly, make any loan to, or give any guarantee or provide any security in connection with a loan made by any other person to, or to any other person by‑‑' (d) Any body corporate at. a general meeting of which not less than twenty‑five per cent of the total voting power may be exercised or controlled by any such director or his relative, or by two or more such directors together or by their relatives; (e) any body corporate, the directors or chief executive whereof are or is accustomed to act in accordance with the directions or instructions of the chief executive, or of any director or directors, of the lending company: Provided that a company May, with the approval of the Authority, make a loan or give any guarantee or provide any security in connection, with a loan, made by any other person to a director who is in the whole‑time employment of the company for the purpose of acquisition or construction of a dwelling house or land therefore or for defraying the cost of any conveyance' for personal use or household effects or for defraying any expense on his medical treatment or the medical treatment of any relative as are ordinarily made or provided by the company to its employees. (3) Where any loan made, guarantee given or security provided by a lending company and outstanding at the commencement of this Ordinance could not have been made, given or provided, if this section had then been in force, the lending company shall within six months from the commencement of this Ordinance enforce the repayment of the loan mace or, as the case may be of the loan in connection with which the guarantee was given or the security ‑ was provided, notwithstanding any agreement to the contrary: Provided that this subsection shall not apply where the loan made, guarantee given or security provided to a whole time director is approved by the Authority as provided in the proviso of subsection (1).

47. The answer of Dr. Parvez Hassan, Advocate to the legal question raised was that Prime Dairies Limited is an associated company and on the enforcement of the Companies Ordinance 1984, the investment made in this associated company was got regularized by passing a resolution in the Extraordinary General Meeting as provided by section 208 of the Ordinance. The relevant provisions of section 208 read as under: ‑ S.208: Investment in associated companies and undertakings: ‑ (1) A company shall not make any investment in any of its associated companies or associated undertakings except under the authority of a resolution which shall indicate the nature and amount of investment and terms and conditions attaching thereto. No change in the nature of an investment or the terms and conditions attaching thereto shall be made except under the authority of a resolution. (3) The resolution referred to in subsection (1) or subsection (2) shall be a resolution passed by a majority of not‑ less than sixty per cent of such members entitled to vote as are present in person or by proxy at a general meeting of which not less than twenty‑one days notice specifying the intention to propose the resolution has been duly given. (4) In the case of a listed company, the notice of general meeting in which a resolution referred to in subsection (1) or subsection (2) is to be considered shall in addition to its being sent in normal course, be published at least in one issue each of a daily newspaper in English language and daily newspaper in Urdu language having circulation in the Province in which the stock exchange on which the company is listed is situate. Learned counsel for the respondents. submitted that the petitioner Company being a listed company after due notice in its extraordinary general meeting held on 4‑6‑1985 passed a resolution by the requisite majority so as to validate the investment made in Prime Dairies Limited in terms of section 208 of the Ordinance. It was argued that the investment having thus been made under section 208 of the Ordinance, was valid in law and in the circumstances, the provisions of section 195 of the Ordinance are inapplicable and as such the assertion, a to non‑compliance of subsection (3) of section 195 by the management is without merit.

48. Mr. Aftab Ahmad Khan, Advocate, learned counsel for the petitioners in reply to the aforesaid plea, took the position that the loan should have been recalled first in compliance with the provisions of 'subsection (3). of section 195 and then the investment could be made by the company in accordance with the provisions of section 208 of the Companies Ordinance, 1984. 1 have considered the pleas of the parties. The respondent Company holds 49.62% shares of the Prime Dairies Limited. The resolution dated 22n4 January, 1983 reads as under:‑ "Resolved that tile Service Industries Textiles Limited be and is hereby authorized to invest money or lend to the Prime Dairies Limited for time to time such funds as are required necessary to set up the Dairies Project."

49. Thereafter, or. enforcement of the Companies Ordinance 1984 with effect from 1st January, 1985, the resolution dated 4‑6‑1985 was passed for the purpose of section 208 of the Ordinance as under:‑ "Resolved that the company be and is hereby authorized to further lend Rs. two million in addition to Rs. seven million already lent to its associate company Prime Dairies Ltd thereby authorizing overall lending of Rs. nine million at the rate of 14% per annum resolved to authorise the directors to convert these lending into shareholding of company whenever they consider feasible to do so. 11

50. The mandate to the Directorate of the company, therefore, was to convert the lending into shareholding of the company as anti when considered feasible. The argument that the loan should have been recalled and after receiving time same in the coffer, of the company, then the question of investment should have been considered, has not impressed me. The purpose of sections 195 and 208 of the Ordinance is to secure the funds of the company and to curb the abuse of powers by the directors who hold interest in more than one company. . The explanation added to section 208 provides that term investment used in the ordinance are to be taken in business sense of laying out of money for earning income or profit. The term 'investment' includes the application of money in the purchase of some property from which the income or profit is expected and property is purchased in order to be held for the sake of income which it will yield.

51. The dictionary meaning of the term 'loan' on the other hand is, "a sum of money lent to another on the understanding that it shall be returned or equivalent given". It will, therefore, be seen, that the expression 'investment' is a term of wider connotation than the term 'loan'. The Companies Act 1913 did not contain a provision similar to the one contained in section 195 of the Companies Ordinance. 1984 and it was for this reason that subsection (3) was added which' provides that the loan made, guarantee given or security provided by a lending company and outstanding at the commencement of the 'Ordinance which could not have been made, given or provided had these provisions then been in force, the lending company shall within six months from the commencement of the Ordinance enforce the repayment of the loan etc. Section 208 of the Ordinance at the same time provides that a company shall not make any investment in any of its associate companies or undertakings except under the authority of a resolution, indicating the nature, the amount of investment anti the terms and conditions attached thereto, passed by majority of not less than 60% of the members. Thus, applying the rule of harmonious construction, I am of the view that it is open for a lending company either to enforce the repayment of the loan under section 195(3) or have the investment made regularized by passing a resolution with the requisite majority, under section 208 of the Ordinance. The respondent Company chose the second could and passed a resolution to which the petitioners are party as the Extraordinary general meeting dated 4‑5‑l985 was attended by the two petitioners /directors namely Shahbazud Din Chaudhry and Khalid Shahbaz. the petitioners are estopped to challenge the action of advancing the, loan to Prime Dairies Limited as firstly the shareholders including the representatives of the petitioners for years together approved the accounts of the company and secondly the representatives of the. petitioners namely the petitioners /directors were party to both the resolutions whereby the loan was resolved to be advanced and then was regularized in the terms of section 208 of the Ordinance. Even otherwise no illegality or irregularity appears to have been committed by the respondent/ ,directors or by the majority of the shareholders which may furnish, the petitioners a ground to seek winding up of the respondent Company.

53. Now the allegations of mismanagement, illegal conduct or alleged violations of the Companies Ordinance may be noticed. The first allegation in this respect was that the shares were not transferred in the name of the petitioners. This allegation was, however, not pressed as during pendency of the petition, all the shares submitted were properly recorded and registered. The other allegation was that respondent No.2 acted as Chief Executive and respondents Nos.3 to 5 acted as working directors without valid authorisation and as such they have been receiving remuneration and enjoying other benefit illegally and unauthorised without valid appointment. It was urged that in any case the three respondents acted in the said capacity without any valid authorization from 19‑11‑1986 to 31‑3‑1987. It is pertinent to state here that a specific resolution was passed in this respect on 31‑3‑1987 'in the Annual General meeting, most probably for the reason that objection in this regard was raised for the first time on 19‑11‑1986. The case of the respondents was that the objection was not only an afterthought but also reflected mala fides of the petitioners and assuming that there was any technical lapse in this respect, the same admittedly stands ‑rectified by the shareholders by passing a resolution in the Annual General Meeting.

54. Learned counsel for the 'respondents submitted that Ch. Muhammad Saeed respondent was appointed as the Managing Director by a resolution appearing at page 132 of the replication and the amended Articles of Association under Article 63 itself provided that the present Chief Executive of the Company was Ch. Muhammad Saeed (respondent No.2) who shall hold the post upto the term of hi appointment. He also referred to the various letters written b Shahbazud Din Chaudhry, petitioner No.1 to Muhammad Saee Chaudhry, respondent No.2 wherein the latter was addressed as the Chief Executive and Chairman of the Company. It is apparent from record that Muhammad Saeed Chaudhry respondent continued to ac throughout this period in the said capacity and no objection was ever raised in this respect by the petitioners. In the Annual Genera Meetings for the year 1984 and 1986, Muhammad Saeed Chaudhry respondent described himself as the Chief Executive. Even in letters dated 30‑11‑1984 and 4‑11‑1986, Shahbazud Din Chaudhr addressed Muhammad Saeed Chaudhry as Managing Director an Chairman. He was again appointed as Chief Executive in the meeting of Board of Directors held on 9‑4‑1987.

55. Coming to the other objection as to the working of the other respondents as working directors it will be noticed that the directors were so appointed vide resolution dated 3‑3‑1982. This action was then confirmed in the Annual General Meeting, dated 31‑3‑1982. Reference to Annual Report for the year 1983 would show that the working directors were provided with free accommodation and free use of cars owned and maintained by the company. No specific resolution was, however, cited to appoint those directors as working directors but they worked as working director and received remuneration etc. and the payments so made are reflected in Annual Accounts passed by the shareholders each year, The petitioners have not produced any evidence to show that ‑this lapse had caused any prejudice to them or to the shareholders or to the company. It has already been noticed that the expenses incurred by these working directors were approved every year by the shareholders in. the Annual General Meeting. The petitioners raised this objection only when they have fallen out with the respondents. In these circumstances, the irregularity if any stood rectified or condoned with the tacit approval of the petitioners themselves.

56. Now the allegation that the respondents failed to call meeting of the Board of Directors as and when called may be considered. This grievance also arose in the month of November, 1986. The company on 26‑11‑1986 received a telegram of petitioner No.3 requesting to convene a meeting on 25‑11‑1986. In pursuance thereof notice of the Board meeting for 4‑12‑1986 was issued and then on the plea that the majority of the directors 'were not available on 4‑12‑1986, the meeting was re‑scheduled for 14‑12‑1986. On this date, petitioner No.1 requested for adjournment and the meeting was accordingly adjourned. It was not denied that thereafter nine meetings were held fill 23‑4‑1987. The reason given for postponing the meeting to 14‑12‑1986 was that there would have been no quorum respondent /directors were out of Lahore and so no meeting could possibly be held on that date. The petitioners, however, challenged this explanation. Whether the explanation given by the respondents is correct or not, the fact remains that within about five months, 9 meetings were held and these meetings were attended by the representative of the petitioners. This is sufficient to controvert the plea of the petitioners that they are not being associated with the affairs of the company or that they are not being provided opportunity to attend the Board meetings.

57. The net result of the above discussion is that the petitioners have not been able to make out a case for winding up of the respondent Company.

58. Now the pleas of the petitioners with reference to section 290 of the Companies Ordinance, 1984 may be examined. The first plea in this regard was that as there was justifying lack of confidence between the two groups and as respondents Nos. 2 to 5 have started managing the company as if they were its full and exclusive owners, each group be assigned one mill out of the two owned by the company. According to petitioners, these two mills can be bifurcated easily because‑of the position obtaining at site. The respondents controverted all the allegations in the reply filed by them and added that the entire mill of the respondent‑Company is located in one and the same compound, all plants are contiguous to each other and that both the units are under one roof and are supported by common facilities such as godowns for raw material and finished goods, workshop, boiler, water‑supply, administrative block workers colony and officers colony. The site plan placed on record by the petitioners lends support partly to the petitioners and partly to the respondents. Whatever may be the position obtaining at the site, the fact remains that the location or the two units and the other facilities is only one of the factors amongst others which requires to be considered while determining the advisibility or otherwise of the reconstruction or bifurcation of a company. one more important factor is the economic viability of the two units to be created through bifurcation. Nothing was brought on record to even prima facie show that the two companies so created by allotting one unit each to them will be able to preserve their status as public company or whether the bifurcation is economically possible or will otherwise be beneficial to the majority of shareholders. If bifurcation is to result in destruction of the company, then that will serve no one's purpose as the object of any scheme of reconstruction is to preserve the company in an altered form so that all interested persons continue to take interest in the reconstructed company and work it out to success. As sufficient material has not been made available, the matter of bifurcation and its effect on the 'very existence of the respondent Company cannot, be satisfactorily dealt within the circumstances, it will not be advisable to examine the question whether in a petition under section 290, order regarding reconstruction, bifurcation or amalgamation of the companies can be passed or not.

59. The other reliefs claimed by invoking section 290 'of the Ordinance was that respondents Nos. 2 to 5 be removed from the management and they be directed to sell their shares to the petitioners or to purchase the shares of the petitioners at fair value which may be got determined by constituting a committee of experts. Apparently the purpose is to achieve, through the intervention of the Court what the petitioners were unable to obtain through the purchase of shares from the financial institutions and the open market i.e. control over the affairs of the company. It is also obvious that respondents Nos. 2 to 5 were able to frustrate the move of the petitioners. The petitioners cannot complain that now they are not being treated the same way as they were accustomed to prior to the take over bid. There cannot be any complaint of lack of business ethics when the ,dominant motivation is to acquire control of a company and the groups of shareholders are trying to grab the maximum benefit for themselves. The petitioners having failed in their adventure to grab the control cannot dislodge the respondents from the company through Court. In: other words they want that either they should be given control if they are made to stay on in the company or they be given best price for their holding if they are to quit the company. The sale of the shares of the respondents to them cannot be ordered as it would be too inequitable and unjust to the respondents. 60. 1 am also not inclined for the same reason to direct the respondents to purchase the shares held by the petitioners as it is ,not only a listed but a publicly held public company and there is no restriction on the sale of its shares. The petitioners having on their own decided to augment their shareholding by purchasing shares from financial institutions and open market are free to sell the same in the open market. Respondents Nos. 2 to 5 already hold shares it excess of the permissible limit. They on this score also cannot be asked to purchase further shares. I am aware that in the authorities cited sale of shares on fair price was directed by Courts wherever minority was able to establish oppression or where it was found necessary to make such a direction in the interest of smooth running of the company. But in the instant case, neither the oppression the kind which would justify adoption of such a course could be established nor it would be appropriate to give such a direction in the matter of a publicly held public company. Such a direction, if made, would encourage adventurers to indulge in such like takeover bids with the satisfaction that in case of failure to take over the control of the company, they can make the company to purchase their shares. In this event they may even receive better price than the one for which they may have purchased the shares as they would insist for receiving the price which was prevailing at the time of institution of the petition. At that time the value of the share might have arisen due to heavy purchases made by such adventurer and which may not thus be reflecting the normal market price of the shares. It will, therefore, be seen that encouragement of such, adventurers would create in the share market conditions prejudicial to the interest of the shareholders and genuine investors. More over nothing was brought on record to show as to what would be the effect on the capital of the company, if a direction is given to the company to purchase the shares of the petitioners. For these reasons, it will not be in public interest to give direction to any party to se, or purchase each others shares or to the company to purchase the shares of the petitioners.

61. The only question that remains to be examined is whether in the circumstances of the case, any other direction need be passed in order to secure and advance the public interest. In other words, has the majority conducted itself in a manner prejudicial to the public interest so as to justify taking of corrective measures under section 290 of the Companies Ordinance, 1984. The respondent Company, it has come on record, has invested substantial amount in the Prime Dairies Limited and on the amount lent, interest at the rate of 14% per annum is being charged. It will be recalled that under section 290 of the Ordinance, the persons entitled to initiate proceedings may also complain if the affairs of the company are being conducted in a manner prejudicial to public interest. This expression has no been defined by the Companies Ordinance. What ' is then the connotation of the expression "public interest" used in section 290 of the Ordinance? Obviously the context in which the term has been used would provide the guideline.

62. One of the meanings assigned is to the following effect: "A matter of public or general interest does not mean that which is interesting as gratifying curiosity or a love of information or amusement but that in which a class of community have a pecuniary interest, or some interest by which their legal rights or liabilities are affected (See Stroud's Judicial Dictionary Volume 4 Fourth Edition)." Under Company Law In cases of reconstruction of companies, Court has to consider and ascertain amongst other material the question whether the proposed scheme will serve the public interest In the matter of Bharathy Central Bank Ltd. (I L R (1949) 1 Cal: 127) it was observed that one of the principal items on which the Court has to receive satisfaction is, whether considerations of public interest. ought, in the opinion of the Court, to override the decision of the creditors or shareholders" and that "the Court has also to consider S the fact that the large number of employees and their families stand to gain and this will be in the public interest if the scheme was successfully 'worked.

63. In the case of Telescriptor Syndicate (1903)2 CH 174 It was observed that the Court has to be satisfied whether it would be conducive to commercial morality or not to sanction the scheme. Now when the Objectives Resolution forms substantive part of the Constitution of Islamic Republic of Pakistan the "public interest" lies in creating conditions whereby Muslim citizens are enabled to order their lives in the individual and collective spheres in accordance within the requirements of Islam as set out in the Holy Qur an and Sunnah. In this perspective the question whether investment for deriving interest income is conducive to public interest, is to be answered. So, reference will have to be made to the Holy Quran and Sunnah.

64. The clear and unequivocal commandments of the Holy Quran on the subject of elimination of Riba (interest) are as under:‑ (1) First Revelation (Surah al‑Rum, verse 39) That which you give as interest to increase the peoples' wealth increases not with God; but that which you give in charity, seeking the goodwill of God, multiplies manifold (30:39). (2) Second Revelation (Surah al‑Nisa, verse 161) And for their taking interest even though it was forbidden for them, and their wrongful appropriation of other peoples, property, We have prepared for those among them who reject faith a grievous punishment (4:161). (3) Third Revelation (Surah Al‑Imran, verses 130‑2) O believers, take not doubled and redoubled interest, and fear God so that you may prosper. Fear the fire which has been prepared for those who reject faith, and obey God and the Prophet so that you may receive mercy (3:130‑2). (4) Fourth Revelation (Surah al‑Baqarah, verses (275‑81) Those who benefit from interest shall be raised like those who have been driven to madness by the touch of the Devil: this is because they say: 'Trade is like interest' while God has permitted trade and forbidden interest. Hence those who have received the admonition from their Lord and desist, may have what has already passed their case being entrusted to God; but those who revert shall be the inhabitants of the fire and abide therein for ever (275). 0 believers, fear God, and give up the interest that remains outstanding if you are believers. (278). If you do not do so, then be sure of being at with God and His Messenger. But if you repent, you can have your principal. Neither should you commit injustice nor should you be subjected to it (279). If the debtor is in difficulty, let him have respite until it is easier, but if you forego out of charity, it is better for you if you realise (280).

65. On this very subject some of the Traditions of the Holy Prophet .(p.b.u.h.) may also be quoted:‑ (1) From Jabir: The Prophet, (way peace be on him) receiver and the payer of interest, the one who records it and the two witnesses to the transaction and said: 'They are all alike (in guilt). (Muslim, Kitab ul‑Musaqat, Bab lalni akit al‑riba wa mulkilihi, also in Tiruddhi and Musnad Ahmad). (2) Jabir ibn 'Abdatiah, giving a report on the Prophet's Fareweli rugrimage, said: The Prophet (peace be on him) addressed the people and said 'All of the riba of Jahiliyyah is annulled. The first riba that I annul is our riba, that according tu 'Abbas 1bu Aba al‑Muttalib (the Prophet's uncle); it is being cancelled completely (Muslim, Kitab at‑Hajj, Bab Hajjati al‑Nabi, may peace be on him, also in Musnad Ahmad), (3) From Abdallah ibn Hanzalah; The Prophet (peace be on him) said: "A dirham of riba which a war, receives Knowingly Is worse than committing adultery thirty‑six times" (Mishkat al‑Masabih Kitab al‑Buya, Bab al‑riba, on the authority of Ahmad and Daraqutni). Bayhaq, has also reported the above hadith in Shulab al‑iman with the addition that 'Hell befits him whose flesh has been nourished by the unlawful' Obid). (4) From Abu Hurayrah; The Prophet (peace be on him) said: 'On the night of Ascension I came upon people whose stomachs were like houses with snakes visible from the outside. I asked Gabriel who they are. He replied that they were people who had received interest', Obn Majah, Kitab al‑Tijarat, Bab al‑taghlizift al‑riba, also in Musnad Ahmad). (5) From Abu Hurayrah: The Prophet (peace be on him) said 'Riba has seventy segments, the least serious being equivalent to a man committing adultery with his own mother: (Ibn Majah, ibid). (6) From Abu Hurayrah; The Prophet peace be on him, said 'There will certainly come a time for mankind wheri everymie will take riba and if he does not do so its dust will reach him' (Abu Dawud Kitab al‑Byuu, Bab D ijtinabi al‑shubuhat; also in Ibn Majah). (7) From Abu Hurayrah,, The Prophet (peace be on hit,,) said 'God would be justified in not allowing four persons to enter paradise or to taste its blessings; he who drinks habitually, he with takes riba, he who usurps an orphan's property without right and he who is undutiful to his parents' (Mustacirak al‑Hakim al‑Byua).

66. In view of the aforenoted Injunctions contained in Holy Quran and the Traditions of the Holy Prophet (p.b.u.h.) elimination of Riba from the Society and from the economy is the bounden duty V of the State. The Courts while remaining within their domain and limits of jurisdiction are also under constitutional mandate in view of the inclusion of Article 2‑A in the Constitution, to act in accordance with the Injunctions of the Holy Quran and Sunnah. Section 290 of the Companies Ordinance, 1984 confers power on the Court to give appropriate order and to initiate corrective measures wherever a company is acting in a manner prejudicial to the public interest. The receiving of interest on the money lent and investment made in view of the clear and unequivocal Injunctions of the Holy Quran and Sunnah is not conducive to public interest and as such corrective measures are required to be taken by the respondent Company. The mode of investment ' as such will have to be changed. The shareholders of the company have already given mandate to the directors to convert the lending into share holding of the company. The respondent company, already holds 49.62% of the shares. The other to form of investment approved by the Islamic Law is through Mudarabah or Shirkah, financing. Respondents Nos. 2 to 5, are, therefore, directed to work, out arrangement with the loanee company so as to eliminate interest and instead to enter into arrangements to make investment on the lines of Mudaraba or Musharaqa financing. The arrangement of investment so worked out shall then be put up for approval of the shareholders in extraordinary general meeting to be called in accordance with the provisions of the Companies Ordinance.

67. The net result of the above discussion is that except for the direction made above, this petition fails and is hereby dismissed. The parties are, however, left to bear their own costs. Petition dismissed. M.B.A./S‑137/L