2001 PLP 2019 (CLC)

9. At page 19 of the written statement, the respondents have placed the minutes of the meeting of 7‑2‑2001. In the said minutes, it has been noted that Mr. Muhammad Ghufran, Company Secretary informed the meeting that Mr. Abdul Aziz Sabri, who claimed to be the attorney of the petitioner, wanted to attend the meeting. However, the minutes of the meeting further record that Mr. Sabri was not allowed to attend the meeting, firstly, on the ground that his "proxy" had not been received by the company at least 48 hours before the time of the holding of the meeting and, secondly, because "... all documents i.e. power of attorney, etc. were fax copies and originals were not produced neither were these attested as required under the law and, therefore, (he was) not allowed to attend the meeting".

10. It has been asserted on behalf of the petitioner that the original of the power of attorney which, in fact, was being carried by Mr. Abdul Aziz 'Sabri from U.K., was presented to Mr. Muhammad Ghufran, Company Secretary. This assertion appears to be borne out from the minutes of the meeting even though the said minutes, as recorded, are somewhat contradictory. As noted above, while it has been recorded in the minutes that the original documents were not produced, it is further noted therein that the same were not attested as required under the law. From the minutes, as such, I can only conclude that the original of the power of attorney was, in fact, produced by Mr. Sabri. I also note that Mr. Abdul Aziz Sabri, who appears to be a resident of the U.K., had travelled to Pakistan as a representative of the, petitioner, specifically with the, object of attending the annual general meeting of the respondent‑company. This circumstance itself would strongly suggest that he was carrying with him the original instrument of his authority, a copy of which had earlier been faxed to the company. Here I would like to note that; it would have been justifiable for the company to require Mr. Sabri to produce a certificate of incumbency or other document to establish the authority of the signatory of his power of attorney to execute the same on behalf of the petitioner. However, this was not done, nor was the want of such document made the basis for disregarding Mr. Sabri's power of attorney.

11. It is further evident from the minutes of the meeting of 7‑2‑2001 that it was attended by two shareholders in person namely, Mr. Nadeem Elahi and Mr. Ayaz Akhtar, while Mr. Shahzada Khurram Elahi, Mrs. Sitara Naseem Elahi, Mr. Kari Ahmad, Mr. Aki Hussain and Messrs Shendi Holdings Limited were present through proxies purportedly issued by them in favour of Nadeem Elahi respondent No.2. The special business relating to the purported transfer of 994,000 shares from four shareholders, namely, Shendi Holdings Limited, Karl Ahmad, Aki Hussain and Shabban Uppal in favour of Nadeem Elahi respondent No.2 was approved by way of special business transacted at the aforesaid meeting of 7‑2‑2001.

12. Learned counsel for the petitioner pointed out that while the representative of the petitioner holding a duly executed power of attorney authorizing him to represent the petitioner, was excluded from participating in the annual general meeting on the grounds, noted in the minutes, the purported proxies issued by the various shareholders, whose names have been noted above, in favour of Nadeem Elahi, were accepted as valid even though the same were not in compliance either with the articles of association of the respondent‑company or with the provisions of the Companies Ordinance.

13. I have gone through the proxies, which have been placed on record at pages 35 and 37 of the written statement. At page 35, is a proxy form, purportedly executed by Shendi Holdings Limited in favour of Nadeem Elahi. The said document has been signed by Karl Ahmad on behalf of Shendi Holdings Limited. Likewise, at page 37, is a proxy form executed by Shabban Uppal, purporting to authorize Nadeem Elahi respondent No.2 to act on his behalf at the general meeting of the respondent‑company. The said document has also been signed by Karl Ahmad and not by Shabban Uppal. Although both of the above‑referred proxy forms have been signed by Karl Ahmad, respectively, on behalf of Shendi Holdings Limited and Shabban Uppal, there is nothing produced on record to show that Karl Ahmad had any authority to act on behalf of the two shareholders, named above. As discussed below, production of such authority is an express requirement of the Articles of Association of the respondent‑company.

14. At this point, while I was dictating this order, learned counsel for the petitioner produced yet another proxy form, purportedly executed by the petitioner, whereby, the petitioner appears to have appointed Karl Ahmad to act as proxy on behalf of the petitioner. I do not see the relevance of this document because the same pertains to an extraordinary general meeting of the respondent‑company to held in the calendar year 1999. Even if the petitioner had appointed Karl Ahmad to attend such extraordinary general meeting, the said proxy could not have been used for the purpose of the meeting held on 7‑2‑2001, firstly, because the purported proxy is expressly limited to the extraordinary general meeting to be held in 1999 and, secondly, because the authorised proxy, namely, Karl Ahmad did not attend the meeting held on 7‑2‑2001.

15. Learned counsel for the petitioner contended that the power of attorney executed on behalf of the petitioner was a valid instrument, authorizing Mr. Abdul Aziz Sabri to participate in the annual general meeting of the respondent‑company. He argued that the power‑ of attorney in favour of Mr. Sabri was on a different footing from a proxy form executed by a natural person. The petitioner being a body corporate could be represented at a general body meeting of the respondent‑company by any person having authorization on behalf of the petitioner. So much is, recognised by the Companies Ordinance and also by Articles 19 and 20 of the Articles of Association of the respondent‑company which provide as under:‑‑ "Article 19 (a) Votes may be given, either personally or by proxy or attorney or representative subject to the provisions of the Ordinance. (b) No person shall be appointed a proxy who is not member of the Company and qualified to vote save that a corporation or an organisation being a member of the Company may appoint as its representative any person whether a member of the Company or not. An attorney of a member need not himself be a member. Article

20. The instrument appointing a proxy, and every power of attorney or other authority (if any) under which it is signed, or a notarilly certified copy of that power or authority shall be deposited at the registered office of the Company, not less than 48 hours before the time for holding the meeting, otherwise the instrument of proxy shall not be treated as valid."

16. The respondent‑company was obviously under the misconception,' firstly, that the petitioner could only be represented at the general meeting through a proxy and, secondly, that the power of attorney in favour of Mr. Sabri was a form of proxy. The power of attorney, as noted above, was not a proxy nor was a proxy required from the petitioner, which is a body corporate. The power of attorney, prima facie, conferred proper authority on Mr. Abdul Aziz Sabri to represent the petitioner at the general meeting.

17. Learned counsel for the respondents, however, pointed out that the company was justified in excluding Abdul Aziz Sabri from the meeting. He contended that the power of attorney in favour of Mr. Sabri, as compared to another power of attorney issued in his favour subsequently, for the purpose of filing the present petition, would show, firstly, that the earlier power of attorney does not bear the signatures of A. Bravo, Solicitor, even though it purports to have been signed in his presence. Secondly, the earlier power of attorney, whereby, Mr. Sabri was authorized to attend the annual general meeting of 7‑2‑2001 as a representative of the petitioner, was not attested by a Counsular Officer of the Pakistan High Commission in London as is the case with the later power of attorney.

18. The aforesaid objections to Mr. Sabri's authority appear to be an afterthought to justify his exclusion. The only objection of his power of attorney, which has been asserted in the pleadings (as set out in paragraph 12 .of the written statement), is that the petitioner failed to give timely 'intimation to the company " .... as regard to its use of proxy and, therefore, an the absence of such legal permission/authorization the representative (of the petitioner) was not allowed to attend the meeting" held on 7‑2‑2001. The respondents cannot be allowed to go beyond the scope of their pleadings and to assert new grounds during arguments. It may well be that Mr. Sabri's power of attorney was deficient in the particulars pointed out by learned counsel for the respondents as noted in the preceding paragraph. This, however, is not why he was excluded from the meeting of the company held on 7‑2‑2001. The circumstances discussed below justify the conclusion that Mr. Sabri's exclusion was not based on any consistently applied principle, but was motivated by the mala fide intent of the respondent No.2.

19. The grievance of the petitioner is not only that its representative was wrongly excluded from the annual general meeting but also that the petitioner was not dealt with fairly and even‑handedly. As noted above, the proxy, purportedly executed on behalf of Shendi Holdings Limited in favour of Nadeem Elahi, was allowed to be used at the aforesaid general meeting without the measure of scrutiny which was applied in respect of Mr. Sabri's power of attorney. Learned counsel for the respondents was unable to justify the discriminatory attitude adopted by the respondents, particularly, in view of the fact that Nadeem Elahi did not produce any document as is required by Article 20, to show that Karl Ahmad had authority to execute the instrument of proxy on behalf of Shendi Holdings Limited.

20. It, therefore, does appear that the action of the respondents was motivated by the personal interest of respondent No.2, who was controlling the affairs of the respondent‑company. This establishes a lack of good faith and fairness on the part of the respondents in dealing with a shareholder of the respondent‑company and also in the context of the contention between the parties, it demonstrates conduct which is oppressive to the petitioner as a minority shareholder.

21. It is evident from the record that Nadeem Elahi was keen on the acquisition of the entire outstanding shares of the company. It appears that after a deal to buy‑out the petitioner fell through (as noted in paragraphs 27 to 29 below) he resorted to oust the petitioner from participating in the affairs of the company through other means, fair and foul.

22. Nadeem Elahi it appears, had a specific reason for excluding Mr. Sabri from participating in the meeting held on 7‑2‑2001. The articles of association of the respondent‑company were amended by means of a special resolution passed by the company on 20‑4‑1999. As a result, Article 6 as originally framed was substituted by a new Article 6 reading as under:‑‑ "Transfer of shares shall not be made or registered without approval through a special resolution. "

23. It is, therefore, clear from the articles of association, .as amended, that if the petitioner's representative had been allowed to participate in the annual general meeting and at the same time Shendi Holdings Limited, whose instrument of proxy is clearly invalid, had been excluded there from, the proposed transfer of shares in favour of Nadeem Elahi respondent No.2, as recorded in the minutes of the meeting of 7‑2‑2001, would not have been possible without the votes of the petitioner, on account of lack of the requisite 75% majority necessary for passing a special resolution. The exclusion of the petitioner from participation in the annual general meeting of the respondent‑company was thus, in my opinion, oppressive and mala fide and was meant to enable Nadeem Elahi respondent No.2 to acquire shares in violation of the articles of association of the respondent‑company.

24. I now advert to another aspect of the case on which great stress was placed by learned counsel for the petitioner. He contended that Nadeem Elahi respondent No.2 had diverted a sum of Rs. 9,901,000 from the funds of the respondent‑company to his personal account. In support of this contention, learned counsel drew the attention of the Court to page 46 of the written statement, which contains the ledger entries relating to Nadeem Elahi's loan to the respondent‑company. He also adverted to para. 15 of the written statement wherein the aforesaid allegations against Nadeem Elahi have been spelt out.

25. In response to the said allegations contained in the petition, it has been averted in the written statement that Nadeem Elahi had invested more than his due share to fund the company. It has further been stated therein that a sum of Rs. 25,300,000, which had been deposited by the company by way of security with P.T.C.L., was received by the company. A sum of Rs. 22,000,000 out of the said amount was paid to Nadeem Elahi as an adjustment of his loan. This assertion in the written statement is, however, inconsistent with the account ledger produced on record. It is clear from the ledger entries relating to Nadeem Elahi's loan account that a sum of Rs. 12,098,000 was due and payable by the respondent‑company to Nadeem Elahi on 21‑4‑2000. However, an amount of Rs.22,000,000 was, in fact, paid by the company to Nadeem Elahi on that date. As such a sum of Rs.9,901,000 was diverted from the funds of the company to Nadeem Elahi being the amount in excess of the loan which allegedly was payable by the respondent‑company to Nadeem Elahi.

26. Learned counsel for the respondents was unable to give any satisfactory answer to the allegation of the petitioner that Nadeem Elahi had diverted the funds of the company to his personal account. He was not in a position to deny that Nadeem Elahi had taken out more money from the account of the company than was due to him for repayment of his loan. He merely stated that Nadeem Elahi subsequently advanced further monies to the respondent‑company, which were more than the amount which was diverted to his personal account. This can hardly be a basis for justifying the serious illegality committed by Nadeem Elahi or to defend the cavalier approach to the funds and the affairs of the company adopted by Nadeem Elahi. This demonstrated lack of probity on the part of Nadeem Elahi in conducting the affairs of the company is, by itself, sufficient to justify the passing of a winding‑up order as prayed for in the petition.

27. In reply to the arguments advanced by learned counsel for the petitioner, learned counsel for the respondents has mainly stressed the fact that the respondent No.2 had entered into agreements to purchase the entire share holding of the respondent‑company. According to him, while respondent No.2 was able to purchase 75% of the issued shares of the company, he was unable to complete the agreement in respect of the 25% share holding of the petitioner. He contended that it was the petitioner who had backed out from such agreement and had now filed the present petition with the object of exerting pressure on respondent No.2 to compel him to buy out the petitioner at a higher price.

28. Learned counsel has referred to an agreement between certain shareholders of the company (other than the petitioner) and respondent No.2, whereby, the former had agreed to sell their shares to respondent No.2. This agreement, which is dated 24‑11‑2000, has been placed on record at page 47 of the written statement. I note that the said agreement has been executed by Shendi Holdings Limited, Karl Ahmad, Shabban Uppal and Aki Hussain as sellers and by Nadeem Elahi respondent No.2 as purchaser.

29. It is to be noted that the petitioner, namely, Integrated Technologies & Systems Limited was not a party to the said agreement. However, learned counsel for the petitioner drew my attention to another agreement, which is at page 80 of the written statement. It bears a handwritten endorsement on its title page that it was not executed. It does not bear a specific date although October, 2000 has been mentioned at the beginning of the agreement. This agreement has been signed by the petitioner and by Shendi Holdings Limited, Karl Ahmad and AM Hussain as sellers. It has, however, not been signed by Nadeem Elahi as purchaser. It appears that this agreement was abandoned by Nadeem Elahi who thereafter entered into the agreement, dated 24‑11‑2000 referred to in the preceding paragraph.

30. Great Emphasis was laid by learned counsel for the respondents on some dispute between the petitioner and Nadeem Elahi respondent No.2 in respect of the aforesaid agreement which remained unexecuted. It is not necessary for me in these proceedings to decide whether or not there was any agreement between the petitioner and Nadeem Elahi or if there was such agreement, whether the same was enforceable at law.

31. Whatever the dispute between the petitioner and Nadeem Elahi relating to the aforesaid agreement and the proposed sale of shares, the fact remains that the petitioner never sold its shares of Nadeem Elahi. It therefore, continues to remain a shareholder of 25% of the issued capital of the respondent‑company and is, as such, entitled to all the rights and privileges attaching to such shares as are available to the shareholders of the respondent‑company. It is beyond the remit of this Court in the present proceedings to apportion responsibility between the parties for their failure in completing the above‑referred agreement or to determine their respective rights thereunder. In these proceedings seeking the winding‑up of the respondent‑company, the respondents have to address the serious allegations levelled against them in this petition.

32. In the circumstances, learned counsel contended that the allegations, contained in para.7 of the petition that respondent No.2 had styled himself as the Chief Executive of the company and had usurped control of the company, .was not entirely correct. He drew my attention to a special resolution dated 25‑11‑1999 passed by the respondent‑company in which, among other things, it was resolved that Nadeem Elahi will be appointed as the Chief Executive Officer of the company. He also referred to a letter, dated 26‑11‑1999 addressed to the Chairman, P.T.C.L. by Karl Ahmad, stating therein that Nadeem Elahi had been appointed as the new Chief Executive Officer of the respondent‑company, From these documents it does appear that Nadeem Elahi was duly appointed as Chief Executive of the company and was not a usurper as alleged in the petition. I should note that although such allegation has been made in the petition, learned counsel for the petitioner did not press the same during his submissions in Court.

33. Learned counsel for the respondents next contended that failure to maintain proper accounts could, at most, be visited with the consequence of the penalty prescribed in section 230(7) of the Companies Ordinance and not by winding‑up of the company. This argument is misconceived. The fact that a penalty has been prescribed for an act cannot be construed as limiting the power of the Court to wind‑up a company on account of the commission of such impermissible act. He also stated that the failure of the company to hold two consecutive annual general meetings within the prescribed statutory period would only result in the penalty prescribed in section 158(4) of the Companies Ordinance. He, therefore, contended that the winding‑up of the company on this ground would not be justified. For the reasons noted above, this argument is also devoid of merit.

34. It was next contended by learned counsel for the petitioner that the first and only annual general meeting of the company, had been delayed beyond the prescribed period. No permission, either from this Court in respect of the said annual general meeting or from the Corporate Law Authority for holding the second annual general meeting, which is also overdue, has been obtained by the respondents. On this basis, he contended that the only annual general meeting of the company held to‑date was wholly invalid and as a consequence, all business transacted and all resolutions passed at such meeting was of no legal consequence. There is merit in this submission of learned counsel, which is borne out by the provisions of section 158 of the Companies Ordinance and also has the support of authority. It has been held in re: Messrs K.S.B. Pumps Co. Ltd. Lahore's case PLD 1974 Lah. 362 that ex post facto approval cannot be accorded to an annual general meeting held by a company after the expiry of the statutory period prescribed for the holding of such meeting. This circumstance also substantiates the ground urged in support of this petition that the company has failed to hold two consecutive annual general meetings.

35. Learned counsel for the respondents also argued that the petitioner had an alternate remedy, which it had availed by moving a complaint before the Securities and Exchange Commission of Pakistan ("SECP") under section 263 of the Companies Ordinance setting out the same grievances as have been agitated in the present petition. According to learned counsel the SECP was already seized of the complaint and could, if found appropriate by it, order an investigation into the affairs of the respondent‑company. The SECP could also initiate winding‑up proceedings in this Court under section 275 of the Ordinance if it found such course of action to be justified on the basis of the investigation conducted by it. Learned counsel for the respondents, therefore, contended that in view of an alternate remedy having been availed, winding‑up of the company ought‑ not to be ordered prior to the conclusion of the aforesaid proceedings before the SECP. Learned counsel for the petitioner, however, argued that the complaint before the SECP was not filed on behalf of the petitioner and, in any event, the proceedings under sections 263 to 275 of the Ordinance did not constitute an alternate remedy. This is, indeed, so. The relief prayed for in this petition can only be granted by this Court and not by the SECP. There is no basis, statutory or otherwise for limiting the scope of section 305 of the Ordinance, in the manner suggested by learned counsel for the respondents.

36. Based on the above discussion, I find that the petitioner has successfully demonstrated the existence of circumstances justifying the making of a winding‑up order. However, I have been informed that the respondent‑company is fully operational and has undertaken very substantial projects, which are being executed in Pakistan and also that substantial sums, by way of direct foreign investment, have been arranged by the respondent company for financing and completing the aforesaid projects. I am not unmindful of the fact that the making of a winding‑up order is likely to prejudice the shareholders of the respondent‑company, including the petitioner, and also possibly the creditors of the respondent‑company and those having dealings with it. In the circumstances, I find that this is a fit case in which the Court should exercise its powers under section 314(4) of the Ordinance to pass an order which can result in bringing to an end the matters complained of by the petitioner without straightaway ordering the winding‑up of the company. After discussing this matter with learned counsel for both sides. I have decided to make an order, providing for an alternative to winding‑up, which potentially can enable the respondent company to continue functioning as a viable entity. While considering the terms of the order under section 314(4) of the Ordinance, I have taken into account that the price of the shares of the respondent‑company freely negotiated between the petitioner and Nadeem Elahi (as set out in the unexecuted agreement of October, 2000 referred to above) was US cents 10 per share.

37. It is, therefore, ordered:‑‑ (i) That the respondent‑company shall, subject to the other terms of this order, be wound‑up by the Court. This winding‑up order, however, shall remain suspended until 24‑9‑2001 and shall stand recalled in the event there is an agreed buy‑out between the petitioner and Nadeem Elahi as per terms set out in this order. (ii) Within this period ending on 24‑9‑2001, Nadeem Elahi and the petitioner shall be entitled to buy each other out in accordance with the terms set out in this order. (iii) Subject to the minimum price of US cents 10 per share, either of the above parties may offer to the other a price which may be acceptable to the other party in which event such price will be the buy‑out price. (iv) If either party does not agree, to the price offered, it may make a counter‑proposal of a higher price per share which tray either be accepted by the other party or the other party may raise the price further by means of a counter‑offer until such time as the highest price acceptable to both parties, is agreed upon. (v) During the period until the next date of hearing, the respondent company shall not, without the approval of the Court, raise ail/ further loans/finance, nor shall it do any such act, which is not iii the ordinary course of its business. (vi) The terms contained in paragraph 2 of the interlocutory order, dated 20‑6‑2001 shall continue in force until the next date of hearing. (vii) The matter shall be listed for hearing on 24‑9‑2001 for the passing of such orders as are necessitated in the light of the situation emerging consequent upon this order. M.B.A./I‑68/L Order accordingly.