Winding Up of Company and Compulsory Buy-out of Shares

Winding Up of Company and Compulsory Buy-out of Shares Case Laws Corporate Corporate Law Industrials Knowledge – Corporate Law Lahore High Court Litigation & Arbitration Pendente Lite Privatization Ratio Decidendi Shareholding Agreement Shares Buy-out Sine Qua Non Solutions - Corporate Law Suo Motu Mr. Justice Shahid Karim in his judgment has decided the issue regarding winding up of company and compulsory buy-out of shares in Company Original No. 35 of 2006.

1. This is a petition under section 305, 309 and 290 of the Companies Ordinance, 1984 (Ordinance, 1984). It has multitudinous reliefs which are couched in the prayer clause in the following form:

a) “Admit the instant petition and order the winding up of the Respondent Company; b) Annul the so-called Notice dated 10th & 24 December, 2005 purportedly under section 86 of the Ordinance and all actions pursuant thereto and restrain the Respondents from making any further issue of capital; c) Direct that half of the shares unlawfully acquired by the Respondent Nos. 2 to 7 from the Ghee Corporation of Pakistan in October 2005 be transferred to the Petitioners; d) Make an interim order restraining the respondents from using including for voting purposes, in any way the shares acquired from GCP; e) Order the appointment of a liquidator with respect to the Respondent Company; f) Make an interim order appointing of a provisional manager with respect to the Respondent Company; g) Issue interim injunctions restraining the Respondent Company as well as the other Respondents from alienating any asset, whether corporate or personal, without the permission of this Hon‟ble Court; h) Make an interim order directing a financial audit be conducted by a reputable firm of chartered accountants of the affairs of the Respondent Company covering the last at least five years; i) Direct the Provisional Manager to trace the ill-gotten gains of the Respondents and to initiate all actions and prosecutions necessary to cause punishment of the wrong doers as well restitution of the unjust gains made at the expense of the Respondent Company; j) Make an interim order directing that all books of account and other statutory record of the Respondent Company be moved to the registered office of the Company at Lahore; k) Make an interim order making the Petitioner No.1 a co-signatory to the operation of all accounts of the Respondent Company; l) Make an interim order suspending the so-called Notice dated 24 December, 2005 purportedly under section 86 of the Ordinance and all actions pursuant thereto and restrain the Respondents from making any further issue of capital; and m) In the alternative, to pass any order in terms of Section 290 of the Companies Ordinance, 1984 deemed just fair and appropriate in the circumstances.

2. The United Industries Limited (UIL) is a Public Limited Company and was established in the year 1962. UIL owns and operates an Oil & Solvent Plant under the name of “Kashmir”. It is common ground between the parties that the manufacturing unit is a profitable unit. Both the parties rely upon the balance sheet of the previous two decades to assert the viability and profitability of the UIL. This fact will have an important bearing on the determination of this petition.

3. The UIL was nationalized in the year 1973 and till the year 1992 was a “managed establishment” of the Federal Government. In the year 1992, its shareholding was divested by Privatization Commission of Pakistan as per policy of the Federal Government at that point of time. A preemptive right was available under the privatization policy to the ex-owners/ successors and thus an association of persons under the name of “M. Akbar and Associates” was formed to offer a bid for the shares of UIL proposed to be divested by the Privatization Commission. There is a dispute regarding the true nature of M. Akbar and Associates which will be adverted to in the latter part of this judgment.

4. At the time of divestment by the Privatization Commission of the shares of UIL 10% shareholding was retained by the Privatization Commission to be offered to the employees of the UIL. Ninety percent of the shares were taken by the parties. Once again there is a dispute regarding the actual modes operandi in the allotment of the shares. However, the fact remains that the shares were divested in the name of M. Akbar and Associates. From the time the privatization took place, the petitioners and the respondents No.2 to 5 have been directors in UIL with four directors having been appointed by the petitioners and four directors from the respondents‟ side. M. Akbar Maggo, the respondent No.2 has been Chief Executive of UIL since the time of its privatization.

5. Arguments have been addressed by the learned counsel for the parties. These arguments will be taken up and dealt with in the course of the decision of the issues involved in the instant petition.

2% Shareholding:

6. This event it seems was the last straw in the simmering disputes between the parties. According to the learned counsel for the petitioners, the remaining 2% shareholding in the Company (upon 98% divestment by the GCP) was sought to be divested by the “Ghee Corporation of Pakistan” in the year 2005. M. Akbar Maggo bid for the 2% shareholding in 2005 in his personal capacity and transferred the shares in his name in the register of members. This, according to the learned counsel for the petitioners, was unlawful and contravened the tacit agreement between the parties with regard to the bid to be offered for shares intended to be divested by the Ghee Corporation of Pakistan and their devolution on pro rata basis on the petitioners as well as the respondents. The learned counsel for the petitioners states that the bid for the 2% shares was made by M. Akbar Maggo surreptitiously and without taking the petitioners on board. According to him, this could not have been done without the approval of the petitioners and could only have been achieved jointly as the shares were to be purchased in the name of the petitioners as well as the respondents and were to be allotted to them according to their current shareholding. In this regard, the learned counsel has referred to the letter of the Privatization Commission Board which accorded the approval of the sale of 110,000 shares of UIL to M/s M. Akbar and Associates @ Rs.70 per share. Further, according to the learned counsel, the shares were not transferred in the name of M. Akbar Maggo strictly by following the mandate of law and thus any such transfer is void. He has relied upon section 178 of the Ordinance, 1984 to contend that any transfer of shares has to have the approval of the Board of Directors. The basis of the learned counsel‟s arguments is that there was a theme which permeated the relationship between the shareholders according to which parity had to be maintained and this has been breached by M. Akbar Maggo by bidding for 2% shares on his own and having them allotted in his name. As explicated, the learned counsel relied upon section 76 and 77 for the proposition that a transfer of shares has to have the approval of the Board of Directors and on this basis it is asserted that the transfer was illegal and done in a clandestine manner.

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