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Judicial Miscellaneous No. 25 of 1985; 15 and 18 of 1986, decided on 18th March, 1987.

‑‑‑Ss. 152, 170, 290 & 291‑‑Annual general meeting of Company and election of Board of Directors‑‑Scope of proceedings before Court in respect thereof is limited only for ordering of holding of annual general meeting of Company‑‑Dispute arising between parties with regard to title to shares, held, being a triable issue, could not be resolved in said proceedings‑‑Court issuing order for holding annual general meeting of Company with direction that only such person would be entitled to vote whose name appeared in the Register maintained by the Company.

Mansoor Ahmad Khan for Petitioners.

Khalid Anwar for Respondents.

This order will govern the disposal of above noted three Petitions which are filed against a Public Limited Company incorporated under the name and style of Kotri Textile Mills, under different sections of Companies Ordinance of 1984, seeking various reliefs against respondents No.l to 3 who are also the Directors of the Company. In J.M. No.25 of 1985 which is filed by four shareholders of the Company it is alleged that respondents No.l to 3 illegally and in contravention of the provisions of the Companies Ordinance shifted the office of the company from State Life Insurance Building No.6, 3rd Floor, Habib Square, M.A. Jinnah Road, Karachi to Farzana Building, Shaheed‑e‑Millat Road, Karachi. It is also alleged that respondents No.l to 3 have illegally ousted petitioners 1 to 4 from control and management of the Company and have illegally removed the record of the Company from the registered office to Farzana Building. The reliefs claimed in Petition No.25 of 1985 are for a direction to respondents 1 to 3 to restore all the record of the company at the registered office of the company, at Habib Square M.A. Jinnah Road, Karachi, not to interfere in the management, business and affairs of the company by the Chief Executive and the Board of Directors and for a direction to the respondent to render accounts of the company from 24th April, 1985 until handing back of the management to its true Directors. It may be mentioned here that during the pendency of this petition some intervenors who are now also petitioners in the other two petitions, namely J.M. 15 of 1986 and J.N. 18 of 1986, moved applications for being joined as a party in Petition No.25 of 1985 but their application has not yet been disposed of. In J.M.No.15 of 1986 and J.M. No.18 of 1986 which are filed by as many as 20 persons claiming themselves to be the shareholders of the company (which includes 17 intervenors of Petition No. 25 of 1985, two petitioners of Petition No.25/1985 and one son of the Petitioner No.l of Petition No.25/ 1985) the allegation generally are that the petitioners who are minority shareholders of the Company are suffering because of the difference and fight for the control of the management of Company between the two powerful groups of Directors of the Company. The prayer, however, in both these petitions is that a fresh election of the Board of Directors of the Company may be held under the, supervision of a neutral person at neutral place to be appointed by the Court. The respondents No.l to 3 in the above petition have denied the allegations made against them in the above petitions and their defence generally is that the 17 intervenors of Petitions No.25 of 1985 who are also petitioners in Petition No.15 of 1986 and 18 of 1986 are not the shareholders/ members of the Company, that the office of the company was shifted from Habib Square M.A. Jinnah Road, Karachi, to Farzana Building Shaheed‑e‑Millat Road, Karachi, in accordance with alleged decision of the Board of Directors of the Company and that they are in lawful control and management of the Company. It is, however, common case of all the parties that the Petitioners No.l to 4 and respondents No.l to 3 who were elected as Directors of the Company on 28th June, 1984 for a period of three years, their terms of office is expiring on 28th/29th March, 1987.

2. When the above petitions came up for hearing before me on 19th February, 1987, Mr. Mansoor Ahmed Khan the learned counsel for the petitioners in the above petitions made a very fair suggestion that as the terms of the office of all the Directors is expiring next month, the Court may order for a fresh election of the Board of Directors of the Company under its supervision and in that event it may not be necessary for the Court to decide the controversies in the above petition. This suggestion of the learned counsel for the petitioners which was not oily just but also equitable in the circumstances of the case was promptly accepted by Mr. Khalid Anwar, the learned counsel for Respondents No.l to 3. However, the learned counsel could not agree on the list of the members of the Company who will be entitled to vote at the annual general meeting of the Company. In these circumstances on 19th February, 1987. I directed both the parties to produce the shares/Members Register of the Company in their respective possession at 12 0'Clock which they accordingly produced. Thereafter, the matter was heard on 19th February, 1987, 26th February, 9th March, 1987 and 16th March, 1987 at length and the parties also produced the original records. After hearing the learned counsel for the parties, it became clear, that in so far the list of members of the Company as on 15th June, 1985, filed by the petitioner in J.M. 25 of 1985 was concerned, the respondents did not dispute correctness thereof except one entry relating to shares of Rizwan Khalid. I will, therefore, adopt for the purposes of these cases the list referred to above as the correct list of members/ shareholders of the Company as on 15th June, 1985, except the entry relating to shares of Rizwan Khalid. In the above referred list 29196 shares are shown as belonging to M/s. United Bank Limited. There is a very serious dispute with regard to these 29196 shares between the petitioners and respondents 1 to 3.

3. The petitioners claim that these 29196 disputed shares which were held by United Bank Limited were sold by U.B.L. through a Stock Exchange broker Tahir Shafiq to several persons including the 17 petitioners in Petitions No.15 and 18 of 1986 and that after such sale these shares were duly transferred in their names in the books of the members by the Company. In support of this assertion the petitioners rely on the original share scripts in their possession which has now been surrendered by them to Official Assignee under orders of this Court, the transfer deeds and the entries showing transfer of these shares in the names of petitioners in the share Register produced by the petitioners. Learned counsel for the respondents on the other hand contends that these disputed 29196 shares which were held by the United Bank Limited were sold by them to late Sadiq Monnoo, the father of petitioners No.l and 2 and respondent No.l in J.M. No.25 of 1985 in the year 1980 through the same Stock Exchange broker, Tahir Shafiq and that these shares have been transferred in the share register of company after the death of late Sadiq on 1st July, 1985 in the names of the heirs of deceased Sadiq Monnoo in proportion to their respective shares of inheritance according to Shariat. It is, however, not disputed by the learned counsel for the respondents that the transfers of these 29196 shares was effected in the member's book of the Company on 1st July, 1985 only on the basis of a letter from U.B.L. wherein it was confirmed by the bank that these shares were sold by the bank to Late Sadiq Monnoo in the year 1980 and that at the time of effecting these transfers neither the original shares scripts nor the transfer deeds were produced before the Company. The learned counsel for the petitioners contends that the entries with regard to transfer of these shares on the demise of late Sadiq Monnoo in the share register produced by the respondents is wholly unauthorised as late Sadiq Monnoo had already Jisposed of these shares through the above named Stock Exchange broker as now confirmed by U . B . L. in a recent letter addressed by them to the petitioners. It is, therefore, quite clear that there is a :riable issue between the parties with regard to the title of these 19196 shares which cannot be resolved in these proceedings and must 3e left to be decided finally in appropriate proceedings under the companies Ordinance, 1984. For the purposes of holding Annual general Meeting and election of Directors of the Company in that meeting, in my view, the entries existing in the members' register of he Company may be followed subject to such rectification which may )e ordered in accordance with the law in respect of these entries. Vow the question which remains to be resolved in these cases is that which of the two sets of share‑holders registers should be adopted is the base for holding of Annual General Meeting of Company and action of Board of Directors. In order to determine this issue it is necessary to refer here the facts and circumstances leading to the present litigation. It is an admitted position that until 24th April, '985 the company was functioning at its registered office at Habib Square M.A. Jinnah Road, Karachi. It is on this date that the office >f the Company was allegedly shifted illegally by the respondents to sarzana Building Shaheed‑e‑Millat Road, Karachi. The petitioners in petition No.25 of 1985 challenged this action of respondents before lass III Civil Judge, Karachi in a declaratory Suit No.2124 of 1985 'fled on 13th June, 1985. They made the following statement in paragraph 3 of the plaint in the above suit:‑

"3. That the Company started a Textile Mill at Dhabaji and did all kind of business incidental thereto but in conformity with the aims and objects outlined in its Memorandum of Association. The Company also maintained its accounts regularly at its office and its accounts were checked and audited by its Auditors and the Directors of the Company and its Share Holders were kept informed according to law by September, 1984. Some time in the month of April, 1985 the Defendant broke open the lock of the office of the Company and removed there from all the books of accounts and other papers relevant to the affairs of the company and shifted its office unauthorisedly in E/3, Farzana Building, Blocks 7 and 8, K.C.H.S. Union Limited, Shaheed‑e‑Millat Road, Karachi‑8, and did not care to consult or take the approval of plaintiff directors. To add insult to the injury the defendant decided to hold Annual General Meeting of the Company on 15th June, 1985, through Office Secretary."

This suit was followed by Petition No.25 of 1985 which was presented in this Court on 30th September, 1985, seeking reliefs under section 290 of the Companies Ordinance against respondent. In paragraph 2.01 of Petition No‑25 of 1985 the petitioners alleged that except the common seal of the company, minute book of the company containing Minutes of Directors Meetings on one side and of those of AGMs on the other side. Members/ Shareholders Register, files containing Shares Transfer Deeds and a file containing correspondence with the Registrar of Joint Stock Companies, all other record concerning the company were removed or taken away by the respondents from the registered office of the Company. It may further be stated here that both in their suit as well as in Petition No.25 of 1985 the petitioners did not dispute that after the alleged illegal removal of the record of the Company from registered Office by the respondents as aforesaid they have assumed the management and control of the affairs of company to the exclusion of petitioner, though illegally. It is, therefore, quite clear that from 25th April, 1985, the respondents carried on the management of company to the exclusion of petitioners and the affairs of the company are carried on at Farzana Building, Shaheed‑e‑Millat Road, Karachi. In this background I will now examine that which of the two sets of the share‑holder Registers produced by the parties have probative value for being accepted as the Company's share Register for these proceedings. The petitioners have produced three Registers claiming that they are genuine and contains entries of the transactions in relation to shares of Companies upto date. Out of these 3 Registers produced by the petitioners two are very old and one is quite new and contains entries from June, 1985 onward. Mr. Khalid Anwar, learned counsel for respondent 1 to 3 admitted before me that the two old Registers produced by the petitioners are genuine registers of the Company containing entries only upto 1973 and thereafter the entries shown in the new Register opened by the petitioner from June, 1985 is quite unauthorised as admittedly the respondents 1 to 3 are Managing the Company from 25th April, 1985 as alleged by the petitioners themselves. In reply to the above submission of Mr. Khalid Anwar. Mr. Mansoor Ahmed Khan urged that there was another Register of share‑holders of Company showing entries between 1973 to. April, 1985 which was removed illegally by respondent in April, 1985 alongwith other record of the Company. It may be mentioned here that in the suit filed by the petitioner the stand taken was that all the record of Company was removed by the respondents Nos. 1 to 3. However, when Petition No.25 of 1985 was filed in this Court it was claimed that the common seal of the company, minutes books of the company members/ shareholders register, file containing shares transfer deeds and a file containing correspondence with the Registrar, remained in possession of petitioner while rest of the record was taken away by the respondents while illegally shifting the office from registered office at Habib Square, M.A. Jinnah Road to Farzana Building, Shaheed‑e‑Millat Road, Karachi. It is significant that neither in the suit nor in Petition No. 25 of 1985 there was any allegation on behalf of the petitioners that only one of the shareholders registers was removed or taken away by the respondents while removing the other connected record of the company. The respondents 1 to 3 on the other hand have produced shareholders/ members register which contained details of transactions relating to shares of the company upto date. They also produced 11 share transfer Registers in which the details of transactions relating to shares are shown. Mr. Mansoor Ahmed Khan, the learned counsel for the petitioners though disputed the genuineness of the members /shareholders registers produced by the respondents but categorically admitted the genuineness of the share transfer Registers (11 in Number) produced by the respondents. It is not denied by the petitioners that the entries in the members/ shareholders Register produced by the respondents correspond to the entries in the share transfer Registers, also produced by respondents. In fact, Mr. Mansoor Ahmed, in support of his contention that the shareholder/ member register produced by the respondents is not genuine, contended that the respondents were able to prepare the same as they were in possession of share transfer registers of the Company. In the above stated circumstances, I am of the view that the probative value of the shareholders/ members Register, produced by the respondent with regard to entries from 1973 upto date is much more than the value of the register produced by the petitioner showing transactions/entries relating to shares of Company after 15th June, 1985. Mr. Mansoor Ahmed very strenuously urged that at least with regard to 29196 shares of the Company, there is a prima facie case that the entries in relation thereof in the share registers produced by the respondent is without justification. This contention of the learned counsel may be true but as earlier pointed out by me the scope of present proceedings did not cover adjudication with regard to disputed title to the shares for which specific procedure is laid down under the Companies Ordinance. It is, therefore, quite unnecessary in these proceedings to make any observation in this regard. Needless to say that as and when such a dispute is brought before this Court in appropriate proceedings it will be dealt with in accordance with the law. For the present as the scope of these proceedings is limited only for ordering of holding of the Annual General Meeting of the Company for the year 1985‑86, I am of the view that in accordance with the definition of "member" as given in section 2(21) of the Companies Ordinance, 1984, only such person will be entitled to vote in the Annual General Meeting whose name appears in the register maintained by the Company. As I have reached the conclusion that in the circumstances of the case, the shares/ members register in possession of the respondents is to be accepted, I direct that in the Annual General Meeting of the Company for the year 1985‑86 all those persons will be entitled to vote whose names appear as shareholder of the Company in the agreed list of members is on 15th June, 1985 filed in J. M. No.25 of 1985 subject to the condition that if there is any change recorded in the members register of the Company after 15th June, 1985 the same shall be given effect to. It is, however, clarified once again that any observations made in this order will 'not in any manner and in no way come in the way of any person who is aggrieved by any entry or omission thereof in :he share/member register of the Company and who wishes to initiate appropriate proceedings for rectification of the register in accordance with the law. For the purposes of convening the annual general meeting of the Company for the year 1985‑86 I appoint the Official assignee as a Commission to take immediate steps for holding of the above annual general meeting which will be presided over by him, in accordance with the provisions contained in the Memorandum and articles of Association of the company. The following matters will be transacted in the aforesaid annual general meeting:‑

(i) The passing of the audited accounts for the years 1985‑86.

(11) Appointment of auditors for the subsequent years.

(iii) Election of the Board of Directors.

The Company is directed to deposit a sum of Rs.5,000 (five thousand) tentatively towards the fee of the Official Assignee. The meeting will be held at E‑3, Farzana Building, Shaheed‑e‑Millat Road, Karachi, but it is clarified that the direction with regard to the holding of the Annual General Meeting of Company at Farzana Building will neither confer any legitimacy to the shifting of the Registered Office of the Company to that place if it was not authorised by law nor it will prejudice the petitioner in their contention that the shifting of the Registered Office of the Company to Farzana Building was unauthorised act on the part of respondents. It may also be stated here that the reason which pursuaded me to make the order for holding of annual general meeting at Farzana Building was solely that most of the record of the company is available at that place. The petitions are disposed of in terms of the above order.

4. After I dictated the order the learned counsel for the parties suggested that the record lying with the Official Assignee may be returned to the parties after it is initialled by him. However, I have left decision of this matter with the Official Assignee who may retain the record produced before him by the parties or such part thereof, as may be required by him in connection with his appointment as aforesaid and in case he did not need the whole or any part of it he may return the same to the party who produced it after initialling the same.

M . Y . H . / M‑90/ K Order accordingly

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