ARSHAD TANVEER, CHAIRMAN, SITE ASSOCIATION OF INDUSTRY, AWAN-E-SANAT, KARACHI Versus SINDH INDUSTRIAL TRADING ESTATES LIMITED, KARACHI

Petitioner No. l is the Chairman of the S. I. T. E. Association of Industry comprising of those business concerns which are the tenants of respondent No. 1, S.I.T.E. a company limited by guarantee. Both the petitioners are members of the respondent‑Company which according to the petitioners consist of 14 members.

2. By this petition under sections 152, 184, 187, 188, 199 and 305 of the Companies Ordinance, 1984 (hereinafter referred to as the Ordinance), the petitioners seek the winding up of the respondent‑Company in addition to the declarations that the Board of Directors of S.I.T.E. as constituted is illegal; that nomination of respondents Nos.2 to 6 is invalid and contrary to law; that respondent No.2 is illegally holding the office of the Chief Executive/Managing Director of the Company that respondents Nos.7 to 10 are not entitled to act or claim to be Directors of the Company; that the division of Diretorships between S.I.T.E., Hyderabad, Sukkur and Karachi is illegal and an order for rectification of the Register of Members by removing the names of respondents Nos.2 to 6 and 11 to 29.

3. It is the case of the petitioners that the respondent‑Company was incorporated as a company limited by guarantee in 1947 with an object to acquire land and after developing it by construction of roads, drainage, and provision of light to rent out to the Industrialists. Initially the company was envisaged for establishing trading estates at Karachi, Hyderabad and Sukkur but at present company also manages such estates at North Karachi, Nooriabad, Tando Adam and Kotri. Clause (1) of the objective clauses of the Company provides for the composition of it Board of Directors which is to consist of four Directors appointed by the Government of whom three shall be ex officio, Finance Secretary, the Secretary Agriculture and Industries and the Director of Industries, the fourth the Director designated as a Managing Director who shall be a Government servant. Besides these official Directors, three representatives of S.I.T.E. tenants are to be elected by them "on the one firm one vote principle". Such three Directors popularly known as tenant Directors are to be elected by such members of the company as are also its tenants. The aforesaid composition of the Board is reflected in clause (30) of the Articles of Association.

4. It is grievance of the petitioner that at 20th Annual General Meeting of the Company held on 24‑4‑1985, this clause was amended and maximum number of Directors increased from seven to nine. Of these inclusive of the Managing Director, five Directors are required to be appointed by the Government while remaining four are required to be tenants of the Company. While respondents Nos.2 to 6 are purported to be official Directors whereas respondents Nos.7 to 10 are purported to be tenants/Directors elected at 21st Annual General Meeting of the company held on 12‑7‑1990. Clause (5) of the Articles of Association of the Company provides that a person is to be admitted as a member of the Company only after being approved by the Directors at their discretion to admit any person to membership.

5. It is urged that no Annual General Meeting of the Company was held after 1985 till 1990 when a meeting was held as a result of a complaint to the Governor of Sindh. Besides the Directors elected in 1985 continued in their office despite the expiry of three years as stipulated by the Ordinance. In the Annual General Meeting of the Company held on 12‑7‑1990 most of the official members who were not present were allowed to cast their votes through proxies in favour of Managing Director of the Company. As a result of irregularities and (legalities committed' in the meeting respondents Nos.7 to 10 who were the outgoing Directors continue to remain on the Board of Directors. According to petitioners only tenants of the Company are eligible to participate in the election of tenant Directors but in fact a large number of ineligible votes were cast at the election. It is urged that the Company failed to follow the procedure laid down by section 178 of the Ordinance inasmuch as notice of the meeting at which elections were held simply stated that the meeting was being called to inter alia hold the election of tenant Directors; that it did not mention either the number of elected Directors nor the names of the retiring Directors. Even the contesting Directors names were not transmitted to the members in the prescribed manner. It is further complained that neither the Annual General Meeting was held as required by law nor were the accounts for each year laid before such meeting. Even auditors were not appointed for auditing the accounts of the companies, hence this petition.

6. Respondent‑Company filed a counter‑affidavit through its Secretary Mr. Mubarak Ali Hingorjo refuting various allegations in the petition. It is stated' in the counter‑affidavit that the respondent‑Company was established by Government of Sindh for rapid and orderly industrialization of the Province and on 29‑11‑1947 registered as a company limited by guarantee of the Government of Sindh with no share capital, making neither profit nor gain according to its Memorandum and Articles of Association. As regards the number of Directors, it is stated that initially there were seven Directors which was raised from time to time by special resolutions at present the membership being 38 with tenant Directors not only from Karachi but also from each of the outstation estates. In the elections held on 12‑7‑1990, of 60 votes cast, petitioner No.l secured seven votes, whereas petitioner No.2 secured only five votes and thus lost the election but instead of accepting the election results, they filed this petition for winding up without any locus standi. On this legal score maintainability of the petition has been seriously questioned.

7. Upon hearing learned counsel for the parties I find that the petitions admittedly are not the shareholders or creditors of the Company since the Company is limited by guarantee and not a Company with shareholding. Status of the petitioners is thus that of contributories only. Liability of the contributories for payment of debts arises only after making a winding up order by the Court when a Court may make an order on any contributory to pay in . manner directed by the order any money due from him or from the estate of the person whom he represents to the Company exclusive of any money payable by him or the estate by virtue of any call in pursuance of the Ordinance.

8. As defined in section 300 of the Ordinance, the term "contributory" means every person liable to contribute to the assets of a Company in the event of its being wound‑up and includes the holder of any shares which are fully paid-up; and, in all proceedings for determining, and all proceedings prior to the final determination of, the persons who are deemed contributories, includes any person alleged to be a contributory.

9. This definition has received judicial interpretation in the case of Consolidated Exports Ltd. v. Dyer Textile and Printing Mills Ltd. (PLD 1984 Karachi 541). While discussing the definition of a contributory it was held that a holder of paid‑up shares is a contributory. It has also been held that a member (shareholder) of a Company is clearly a contributory in Re: PI.R. Karishna Swami (AIR 1948 Madras 162). In Amar Nath v. Karnal, Electric Supply Company Ltd. (AIR 1952 Punjab 411) the Court was of the opinion that a person whose name is on the register of members must be treated as a contributory in the event of the Company's winding up, even though he is entitled to the shares only as a trustee. Indeed every shareholder of the Company is primarily liable to contribute, subject to proviso relating to amount which he can be called upon to pay being a holder of fully paid‑up share as a contributory.

10. The liability of a contributory began at the date when the contract was entered into whereby he became a member. It is a debt by specially which the heirs are bound. The same legal obligation binds members and contributories. But where the carrying of a business is ultra vires of the Company, the ultra vires transactions create no debt, either legal or equitable and the contributories are not liable to pay such debts. The statutory liability of a contributory can arise only under a call validly made by the Court and not by the liquidator himself. Section 301 of the Ordinance creates a debt, but it does not accrue due till the call is made.

11. Petitioners being admittedly members of the Company as contributory, there is an important hurdle in their way in maintaining this petition for winding up as proviso (a) to section 309 of the Ordinance provides that a contributory shall not be entitled to present a petition for winding up a company unless:‑‑

(i) either the number of members is reduced, in the case of a private company; below two, on in the case of any other company, below seven, or

(ii) the shares in respect of which he is a contributory or some of them either were originally allotted to him or have, been held by him and registered in his name for at least six months during the eighteen months before the commencement of the winding up, or have devolved on him through the death of a former holder.

12. Admittedly the number of members in the case of the respondent company is not reduced below seven. Necessary corollary emerging from the aforesaid position in law is that the petitioners have no locus standi to maintain this petition for winding up which is completely barred except on the ground specified above.

13. Even if the conditions in which a company may be wound‑up as laid down in section 305 are satisfied, a contributory cannot petition for the winding up of a company without satisfying the locus standi requirements of section 309 Robin Hollington in "Minority .Shareholders' Rights", Second Edition at pp. 29‑30 supports this view as under:‑‑

"Whether a proposed petitioner is or is not a contributory of the company within the meaning of sections 76 to 82 of the 1886 Act (The Insolvency Act, 1886) is unlikely to be of any significance, save in those rare cases falling within section 124(2)(a) of the 1886 Act. The principal locus standi requirement is that the proposed petitioners' shares either (1) were originally allotted to him, or (2) have been held by him and registered in his name for at least six months during the eighteen months before the presentation of the petition."

14. Sections 76 to 82 define a contributory and provide a list of persons who would fall under the definition of a contributory. Section 124(2)(a) provides that a contributory may petition if the number of members of a company has been reduced below two.

15. Section 439 of the Indian Companies Act is similar to section 309 of Companies Ordinance, 1984. The Courts have, however, held that a petition by a contributory must receive a closure scrutiny than a winding‑up petition filed .by a creditor, etc. It has been held that although under the English case‑law that a winding‑up would be refused where a contributory had no tangible interest in the liquidation of a company by reason of its liabilities exceeding its assets has no application under the Indian Act, yet the Courts in India may refuse a winding up order in such circumstances on "just and equitable ground". The Courts must, therefore, order winding up in such cases where it would be just and equitable to do so.

16. It has been held in Re: Bayswater Trading Company Ltd. (1970) 40 Company Cases 1196 and Virendra Singh Bhandari v. Nand Lal Bhandari & Sons Ltd. (1982) 52 Company Cases 36 that where a company is in insolvent circumstances in the sense that its liabilities exceed its assets a fully paid share holder as a contributory has no interest in the winding up as there will remain nothing to be paid by way of distribution of dividend to contributories and, therefore, such a contributory will not be entitled to present a petition for winding up.

17. In re: Guta Percha Corporation (1900) 2 Ch. 655 it was held that since the internal management of a company is its own concern a contributory to obtain a winding‑up order must make out a special case. If the majority shows confidence in the continuance of the business of the company the Court will not interfere.

18. For the Court to exercise its discretionary powers in favour of a contributory under section 433(f) corresponding to section 305(h) of the Ordinance, he must not only establish that the circumstances are such that not only winding‑up of the company is the only alternative but also that no other remedy is available. An order to wind‑up is, an extreme step. A heavy burden lies on a contributory to show clearly how he considers that the company has lost its substratum.

19. Having held above that the petitioners have no locus standi to maintain the petition for winding‑up in my view it is not necessary to deal with the other reliefs prayed for the reason that they are not the aggrieved persons within the meaning of the term. Moreover, petitioners having lost in the elections held on 12‑7‑1990 seem to have chosen to pressurise the respondent‑Company with this petition before this Court which is not a proper forum for resolution of election disputes.

20. In the result the petition fails and is hereby dismissed.

A.A./A‑76/K Winding‑up petition dismisses