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Election Petition, decided on 10th August, 1987.

‑‑‑Ss.68 & 62‑‑Houses of Parliament and Provincial Assemblies (Election) Order (5 of 1977), Arts. 11(2) & 10 (2) (b) (8) Companies Ordinance (XLVII of 1984), Sched.I‑‑Companies Act (VII of 1913), S.87‑‑Disqualification for membership of Provincial Assembly Election respondent challenged on ground of his being contractor with various Government Departments on date of filing nomination papers‑ Respondent's stance in contesting the petition was that he did not as a contractor in his individual capacity; was initially a partner the firm but was later Managing Director of same concern having been converted into a limited company; having transferred all his shares therein on 26‑12‑1984 as also resigned from the Directorship from that very date, and thus he was no more subject to incidence of disqualification‑‑Transfer of shares made by him having been approved by Board of Directors on 29‑12‑1984 and accepted on 30‑12‑1984, by which date, according to the respondent he had removed the so‑called disqualification‑‑Transfer of shares although not backed by "previous permission" as required by Articles of Association of Company, Board of Directors had approved it and such approval apparently being post facto would have effect of making transfer valid at least from date of approval‑‑Fact that transfer of shares did not conform to requirements of Articles of Association read with Sched. to Companies Ordinance, 1984 which were mere formalities would not go to the root of transfer‑‑Mere fact that transfer of shares was taking place between father and son would not necessarily make it sham‑‑Approval of Board of Directors removed all possible misgivings about it and it being a domestic affair no outsider could possibly have any serious objection‑‑Respondent and his witnesses were cross examined at length but nothing tangible was brought to limelight to show if resignation was spurious or the transfer of shares was in any way untenable‑‑Shares belonging to respondent having stood transferred to his son with approval of Board of Directors, there was nothing left for him in the assets of Companies ‑‑Dividends accruing from post transactions, held, would not constitute shares were merely a loan payable by the Company to the respondent and did not partake a disqualification under Art.10(2)(b)(8) of Order 5 of 197.

Government of Pakistan v. Messrs Indo‑Pakistan Corporation, Ltd.,, etc. P L D 1979 S C 723 and Maudud Ahmad Faruqi v. A min Fabrics Ltd. 1952 C L C 463 distinguishable.

Tanjore Permanent Fund Ltd. v. T. Sadasiva Rao A I R 1926 Madras Weekly Notes 429 and M.S.Ganesa Ayyar v. Indian Overseas Bank Ltd. A I R 1943 Madras 743 cited.

Muhammad Khan v. Syed Abdul Khaliq and others P L D 1986; S C 717 ref.

Sultan Muhammad Salah‑ud‑Din for Petitioner.

Ghulam Rasool for Respondent.

It is an Election Petition calling in question election of Respondent No.1 Ghulam Rasool to the Provincial Assembly from Constituency No.PP‑50. Mianwali‑I, held on the 25th of February, 1985. He secured 20887 votes whereas the petitioner could get only 15015. Respondents Nos.2 to 5 also contested the same but were, like the petitioner, defeated and have been arrayed as a matter of formality.

2. The main ground urged in support of the petition was that respondent No.1 was disqualified from being elected or from being a member of the Assembly on the date of filing of nomination paper and still continued to suffer the same for being a "contractor" in terms of Article 10 (2) (b) (8) of the Houses of Parliament and Provincial Assemblies (Elections) Order, 1977. It was asserted that working as a contractor with the Government, he executed major works like the Ghazi Ghat Bridge, the Darya Khan Fridge, the Rajanpur‑D.G. Khan Road, the Kalabagh‑Bannu Road; was executing,, an earth filling contract with the Irrigation Department involving Rs.6 crore, and additionally was holding a contract for collection of octroi with the Municipal Corporation, Multan. Besides this ground, a number of corrupt and illegal practices were attributed to him in the matter of the impugned election but those were all given up by the petitioner s counsel vide his statement dated the 25th of February, 1987. Thus, the only ground pressed to challenge the respondent's election was his being a contractor with the various Government Departments on the date of filing of nomination papers viz. the 20th of January. 1985.

3. The petition was seriously opposed. Respondent No.1 denied to have been a contractor in his individual capacity or to have executed the aforementioned contracts/works as such. He, however, explained that he was one of the seven partners of a contracting firm initially working under the name and style of Messrs Ghulam Rasool Khan and Company registered with the Registrar of Firms since the 19th of July, 1967 (Annexuxe 'R/1') and also with the Income Tax Department vide demand notice (Annexure 'R/2'). Later, this concern on his showing converted itself into a private limited company from the 13^th of March, 1984, under the style of Messrs Ghulam Rasool and Company Limited with the respondent as its Managing Director vide a certificate (Annexure 'R/3'). The Memorandum and Articles of Association of the limited company as such were Annexure 'R/4'. This concern was admitted to have had executed some of the projects mentioned above exclusively while others under the style of Messrs Mark Rasool Joint Venture. It was denied if the collection of octroi at Multan was held by this concern. Instead, Messrs Hasnain Construction Company, Jhang, was holding the same vide Annexure 'R/6'. He further pleaded that he submitted his resignation as Managing Director of the Company on the 26th of December, 1984, by transferring away his hundred shares worth Rs. 1 Lac to Mr. Abaid Ullah Khan vide transfer deed of even date against cheque No.095417 drawn in his favour on the 3rd of January, 1985, at Allied Bank Limited, Hussain Agahi Branch, Multan, that not only the same was approved by the Board of Directors on the 29th of December, 1984, but also his resignation was accepted from the 30th of December, 1984, and that by giving intimation about this change to all Departments, he removed the so‑called disqualification much before the crucial date. Supporting the plea of having transferred his shares to Abaid Ullah Khan, his own son, he averred that the latter had his own means of income being a partner of Messrs Nasrullah Khan Association, Lahore, since 1974 vide Annexure 'R/7' paying income tax as per Annexures 'R/8' and 'R/9'. Lastly, he submitted that since no objection was raised before the Returning Officer‑‑when he filed his nomination papers, the petitioner was estopped to raise the same now.

We are dealing with election to Provincial Assembly and one of the disqualifications therefor is provided in Article 11 read with Article 10 (2) (b) (8) of the Houses of Parliament and Provincial Assemblies (Election) Order, 1977. According to it, except for a few situations, a person is disqualified from being elected or chosen as a Member if he, whether by himself or by any person or body of persons in trust for him or for his benefit or on his account, has any share or interest in a contract, for supply of goods to, or for execution of any contract or performance of any services undertaken by Government. The main plank in this case was that on the date of filing nomination papers this disqualification was attracted to the petitioner as he was a contractor dealing with various Departments of the Government in executing "contracts" or for that matter works. The respondent's stance in nutshell was that he did not act as a contractor in his individual capacity; was initially only a partner of the firm dealing with those contracts; was later a Managing Director' of the same concern converted by the time into a limited company, and lastly having transferred all his shares therein on 26‑12‑1984 has also resigned from the Directorship from that very date, was no more subject to the incidence of the disqualification. His case further was that the transfer of shares made by him was approved by the Board of Directors on 29‑12‑1984 and likewise his resignation from Directorship was accepted on 30‑12‑1984 by which date he had removed the so‑called disqualification.

On behalf of the petitioner considerable stress was laid on the fact that the transfer of shares by the respondent as also his resignation were all sham, bogus and manipulated between himself and his son, in complete violation of the provisions of Article 37 of the Articles of Association of the Company which stipulated a month's notice in writing to the Company of the wish to resign and then wait till its expiry to get the office vacated by him. On this plane, it was argued that resignation, if at all, rendered on 26‑12‑1984 did not become effective till after the expiry of a month's period counted therefrom and that in the meantime the respondent continued to occupy the office of Director of the Company. The nomination papers were filed on 20‑1‑1985 whereas the respondent remained to be Director of the Company till 26‑1‑1985 and apparently was hit by the disqualification. But this was not all about it. The respondent relied also upon transfer of his shares in. the Company to his son. It took place on 26‑12‑1984 (Annex: R/10) and was approved by the Board of Directors on 29‑12‑1984 (Minutes PP.55‑57). An intimation in regard to this change was also made to the Bank which acknowledged its receipt vide Annex: R/11 dated 1‑1‑1985. By showing these documents .the respondent maintained that besides having resigned the office of Director, he, had relinquished all interest in the Company by transferring "his shares on 26‑12‑1984 to his son and that thereby had rendered him ineligible to continue as Director by virtue of Article 35 ibid making it obligatory for him to hold shares of the nominal value of Rs.10,000. Assuming that his resignation was not effective for non‑compliance with Article 37, it was debated on his behalf that by having sold even the minimum required shares, he had disqualified. himself under Article 28, to remain a Director of in other words had ceased to hold the office.

6. There was some substance in the argument that by transferring his shares on 26‑12‑1984 the respondent had removed the disqualification of being an elected or chosen member of the Assembly. Transfer of shares was governed by Article 7 of the Articles of Association of the Company. The only condition imposed upon such transfer was that it should have the "previous permission" of the Directors. Admittedly in this case the transfer of shares taking place on 26‑12‑1984 vide Annex: R/10 was not backed by any previous permission of the Directors, but then the fact remains that the Board of Directors had approved it by their Minutes dated 29‑12‑1984 (PP.55‑57). This approval although apparently post facto will have the effect of making the transfer valid at least from that date. The expression "previous permission" at best made the transfer void in its absence. The corollary, of course will be that as and when accorded, it shall make the transfer quite effective. In a way it can be styled as "previous permission" inasmuch as its presence made the transfer of shares valid at east prospectively. An objection was raised that transfer of shares by respondent was bad in law as it did not conform to the requirements of Articles 8, 10 and 11 of the Articles of Association read with Schedule‑I of the Companies Ordinance, 1984. What these Articles require was, payment of fee not exceeding fte.1.00 on each transfer and accompaniment of the certificate of shares with the instrument of transfer. It will be appreciated that these were mere formalities not. having the effect of going to the root of the very transfer. Once the Board of Directors approved the same, mere omission to comply with the trivial matters mentioned above, will have no place. Reliance was placed on Government of Pakistan v. Messrs Indo‑Pakistan Corporation Ltd, etc. (P L D 1979 S C 723) and Maudud Ahmad Faruqi v. Amin Fabrics Ltd. (1982 C L C 463) to support the view that in case of defective transfer, the original member shall continue to be the shareholder of the Company. I am afraid these cases rested on their own facts, particularly in the context of the provisions of Section 28 of the Companies Act, 1913, which makes shares transferable in a manner provided by the "Articles of the Company". The only embargo against the transfer of shares put by Articles 7‑11 of the Articles of Association of the present Company is the previous sanction of the Directors. Non‑payment of fee or non‑accompaniment of the certificate of shares or non‑payment of calls or other money for the time being due, do not themselves make the transfer invalid. In the case sanction of the Board of Directors was there although stricto sensu not being previous, had yet validated the transfer at least prospectively. Genuineness of the transfer of shares was seriously assailed. I do not think the objection had any substance. The mere fact that it was taking place between father and son would not necessarily make it sham. After all the son issued a cheque dated 3‑1‑1985 and the same was encashed in favour of the father‑transferor on 14‑1‑1985. Further, the transferee‑son already having an independent business had, for all purposes, sufficient resources to purchase the shares. Articles 7‑11 ibid do not contemplate any special treatment in the matter of transferring shares by a father to a son. The approval of the Board of Directors would remove all possible misgivings about it, for that was the only material checkmate against such 'transfers. Article 7 indeed authorised the Directors to decline such permission without assigning reason. It could not be shown if in this case they were so minded although they had ample authority to refuse the permission. Moreover, it was claimed to be a domestic affair to which no outsider could possibly have any serious objection. Reliance in this behalf was placed on Tanjore Permanent Fund Ltd. v. T. Sadasiva Rao (AIR 1926 Madras Weekly Notes 429) and PI. T1. Thenappa Chettiar by Agent M.S. Ganesa Ayyar v. Indian Overseas Bank Ltd. (AIR 1943 Madras 743).

7. Changes in the Directors or shareholders had to be intimated to the Registrar, Joint Stock Companies in Form‑12 within the specified period of fourteen days. It was conceded that in this case such intimation was made four months after the due date, but the same could not have‑any adverse effect Section 87 of the Companies Act, 1913, made such a lapse punishable with a fine of Rs.50, but did not go to the extent of totally nullifying the change itself. The lapse May be attributed to the Company's staff and the transferor may not be individually punished.

Counsel for the petitioner argued though lukewarmly that proper evidence about the resignation or the transfer of shares was not produced. A novel procedure for trial of election petition was provided by the Election Commission under Section 62 of the Representation of t1lo People Act, 1976 (Act No.LXXXV of 1976). In accordance therewith detailed particulars of resignation as also transfer of shares were given in the relevant affidavits. The respondent and his witnesses were cross‑examined at length, but nothing tangible was brought to limelight to show if the resignation was spurious or the transfer of shares was in any way untenable. The documents Annex: R/10 and the minutes of the meeting of the Board appended to it at PP.55‑57 themselves formed a sheet‑anchor to turn the tables. Thus, even other documents were not formally proved or exhibited, the petition could be safely disposed of on the basis of those documents alone. Last but not the least, a sum of Rs.6,73,000 was said to be still due from the Company to the respondent and was shown to represent share or interest in its assets sufficing to disqualify him from being chosen as member. Since all shares belonging to the respondent stood transferred to his son with the approval of the Board of Directors a per Annex: R/10, there was nothing left for him in its assets. The so‑called sum was said to be dividends payable to him by the Company accruing from past transactions. Such dues do not constitute shares, but were merely a loan payable by the Company to the responder, and did not partake a disqualification under Article 10 (2) (b) (8 ibid. In Muhammad Khan v. Syed Abdul Khaliq and others (P L B 1986 S C 717) accumulation of such accretions was held to be no disqualification.

For the foregoing reasons, the petition is dismissed.

S.Q/17/E Petition dismissed.

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