CENTRAL COTTON MILLS LIMITED Versus NAVEED TEXTILE MILLS LIMITED
ORDER
In this suit for declaration, consequential relief of permanent injunction and for rectification of Register of Members in respect of 5,17,400 shares, plaintiff a public limited company seeks an order restraining the contesting defendants from exercising the voting rights in respect of 5,17,400 shares in all meetings of defendant Naveed Textile Mills Ltd. and from crating any hindrance in exercising the voting rights by plaintiff in respect of the aforesaid shares.
2. The plaintiff holds 7,76,100 shares in the share capital of defendant No. l amounting to 39.80% of the share capital. It is the case of the plaintiff that on or about 1st February, 1990, it transpired that 6,82,900 of those shares were missing and were not found and that upon inspection of the Register of Members on the 1st February, 1990, it appeared that 5,17,400 of the missing shares had been fraudulently transferred by defendant No. l to defendants Nos. 2 to 6 on 27‑1‑1990. It is maintained that the transfer of aforesaid shares was completely unauthorised, illegal, malicious, mala tide as also fraudulent and without cause or consideration and a nullity in law. Upon these averments, the plaintiff sought, inter alia, the following reliefs in the suit:‑‑
(i) to declare that the transfer of 5,17,400 shares as stated hereinabove in the name of the defendants Nos.2 to 6 has been made fraudulently and without sufficient cause and their names in the Members Register wrongly and incorrectly entered and the name of the plaintiff wrongly eliminated, whereby in respect thereof, the title of the plaintiff was wrongfully deleted;
(ii) to direct the Directors of the defendant NO.1 to rectify its Members Register by deleting the names of the defendants Nos.2 to 6 and each of them in respect of the 5,17,400 shares in question and substituting in their place by way of reinstatement/restitution the name of the plaintiff whose name has been wrongfully removed in respect of the said share;
(iii) to direct defendants Nos.2 to 6 to deliver up all the 5,17,400 shares, registered in their names to the plaintiff, failing which to give suitable and effective directions to the defendant No. l and its Directors to issue duplicate shares of all the 5,17,400 ordinary shares, in the name of the plaintiff in the event the defendants Nos.2 to 6 fail/refuse neglect to deliver up all the said shares within 30 days of the Court's order.
3. Alongwith the suit filed on 20th February, 1991 the plaintiff filed C.M.A. No.917 of 1991 for appointment of Receiver and a temporary injunction to restrain the defendant No.l from taking any steps, including issuance of right share that would result in diluting the equity interest and for directing the defendant No.1 to deposit the dividends on the shares in Court. .
4. At the hearing of the aforesaid application for injunction and appointment of a Receiver was seriously contested by defendants and disposed of vide order dated 13‑5‑1992 in the following terms:
(i) The defendant No. l may implement the resolutions set out in the notice, dated the 9th April, 1992, published in the daily 'Morning News'.
(ii) The defendants shall not, pending the hearing and disposal of the suit, sell, transfer, alienate, pledge or encumber the 7,76,100 shares in question in this suit. ,
(iii) The defendant No. l shall deposit in this Court all dividends due in respect of the aforesaid 7,76,100 shares.
(iv) The defendant No. l shall give to the plaintiff notice in writing of its intention to pass any special resolution at least fifteen days before the date on which such resolution is intended to be passed.
Last part of the order at Serial No.(iv) above was passed by the learned Single Judge for the following reasons:
"Since the apprehension of the plaintiff is not that its interests would be jeopardised by majority decisions taken by defendant No. l but that the defendant No. l might, by passing special resolutions, irrevocably affect the plaintiff's rights, the plaintiff would be adequately protected if the defendant No. l were required to give notice to the plaintiff of intention to pass any special resolution well in time to enable the plaintiff to take such steps as may be considered by it necessary to protect its interest."
5. The aforesaid order was impugned by the plaintiff in High Court Appeal No.78 of 1992 which was dismissed in limine and the plaintiff's petition for leave to appeal was dismissed by the Supreme Court. Subsequently plaintiff filed C.M.A. No.2825 of 1993 for a direction to the Directors of the defendant No. l company to hold election of its Directors on the basis of the share register as on 31‑3‑1993, under the supervision of an independent person to be nominated by this Court. This relief was sought for the reason that the plaintiff was informed that defendant No. l was delaying the holding of elections of Directors till such time that they are able to issue right shares and thus succeed in diluting the plaintiffs proportion of equity in the said company and defeat the plaintiff's chances of getting their representatives into the Board even in respect of the undisputed quantum of shares held by the plaintiffs. This application was, however, dismissed by G.H. Malik, J. (as he then was) vide order dated 3‑5‑1993.
6. Election of the Directors of defendant No. l company was held on 8‑3‑1990 for a term of three years from 1‑4‑1990 to 31‑3‑1993 whereafter Annual General Meeting of the defendant No. l company was scheduled to be held on 29‑6‑1993. Plaintiff Company, however, filed J. Misc. No.47 of 1993 for a direction that a list of members as on 31‑3‑1993 be presented before this Court so as to form the basis of election of Directors; that election of Directors be held under the supervision and chairmanship of a Returning Officer appointed by this Court; that the names of members alongwith their shareholding as their specimen signatures be verified by the Returning Officer before the proposed election who should also verify the correctness of share transfers by and in favour of the respondents since the last election of Directors including the proxies received by respondent No.1 and the petitioners allowed to exercise voting rights in respect of 7,76,100 shares covered by Suit No. 227 of 1991.
7. In J. Misc. No.47 of.1993 respondents sought an order to restrain the respondents from holding elections to the Board of Directors at their A.G.M. scheduled to be held on 29‑6‑1993 whereupon this Court appointed the Official Assignee to inspect the books, registers and other records of the respondent No. l company from time to time and to sign the same in token of such inspection and more specifically the proxies and the shareholders' register etc. It was ordered that A.G.M. shall take place under the supervision of the Official Assignee who shall submit a report indicating the position of proxies received and the genuineness thereof and detailed position of shareholders of the register .of the company as on 31‑3‑1993 as also the corresponding position on 28‑6‑1993 besides indicating the precise difference. In the ultimate end the A.G.M. fixed for this date in relation to election of directors only was adjourned to 18‑8‑1993 and ultimately held on 30‑8‑1993 by subsequent order of the Court. By another order dated 26‑8‑1993 result of that meeting was ordered to be withheld subject to the decision of the petition which was ultimately dismissed on 21‑8‑1995 as infructuous.
8. Later J. Misc. No.67 of 1993 was filed for a declaration that the proceedings of adjourned annual general meeting held on 30‑8‑1993 are invalid i a direction to hold fresh A.G.M. in accordance with law under the chairmanship of a neutral person appointed by this Court. Both the J. Miscellaneous were disposed of by my learned colleague Majeda Razvi, L through a consolidated order dated 12‑6‑1996 declaring the proceedings taken in both the meetings as invalid. Respondent Naveed Textile Mills Limited and their Directors were directed to immediately take steps in accordance with the Ordinance, Memorandum and Articles of Association of the Company to call for annual general meeting under the supervision of Official Assignee. Accordingly Annual General Meeting was scheduled for 23‑9‑1996 but in High Court Appeal No. 108 of 1996 Division Bench directed that the said meeting shall now be held within two months under the Chairmanship of the Official Assignee.
9. Learned counsel for the plaintiff apart from the points raised in the suit and affidavit in support of this C.M.A. referred to the finding recorded by G.H. Malik, J. in his order, dated 13th May, 1992 disposing of 'C.M.A. No.917 of 1991 relied upon the following observations:‑‑
"I would, therefore, h6ld that, prima facie, the transfer of shares is in violation of the provisions of section 76 of the Companies Ordinance, 1984 and Article 26 of the Articles of Association of the defendant No.1, and therefore, not valid ------------------It would, thus, appear that the plaintiff has established prima facie, that the transfer of 5,17,400 shares of the plaintiff to defendants Nos.2 to 6 is not valid. "
10. It may be observed that the abovesaid order has been reported as Central Cotton Mills Ltd. v. Naveed Textile Mills Limited (1993 MLD 42). In the light of the aforesaid finding upheld in High Court Appeal as well as. in Petition for Leave to Appeal by the Supreme Court of Pakistan it is maintained that, the defendants, in the circumstances cannot be legally permitted to exercise the right of voting in respect of disputed shares which admittedly were owned by the plaintiff before the unlawful and unauthorised transfer in favour of defendants Nos.2 to 6 by defendant No.l. It is, therefore, urged that the plaintiffs have made out strong prima facie case for the exercise of equitable discretion in their favour for the grant of interim injunction. Besides it is contended that in case the interim injunction asked for is not granted plaintiff's interests shall be adversely affected as the defendants would thereby dilute the equity of the plaintiffs to their utter disadvantage and derive unlawful gain from their unauthorised and illegal act. On the other hand, defendants evidently shall not be put to inconvenience in case they are restrained from exercising their right of vote on the basis of disputed shares prima facie found to be wrongly transferred in their names. As a necessary corollary, plaintiff's learned counsel strenuously argued that it is the plaintiff Company who shall suffer an irreparable loss rather than the defendants in the event of interim injunction being refused, because by utilising the disputed shares defendants would be in a position to jeopardise valuable interest of the plaintiff in their shareholding in the defendants company.
11. On the other hand, Mr. Maqbool Baqar, learned counsel for the defendants contended with vehemence that in fact prayer made in this C.M.A. is not only barred by the doctrine of "res judicata" but also beyond the scope of the suit and made mala fide. In support of his submissions, learned counsel referred to the averments made in paragraphs 9, 10, 11 and 12 of the High Court Appeal No.142 of 1992 filed by the plaintiffs. He also referred to the order dated 3‑5‑1993 passed on C.M.A. No.2825 of 1993 to urge that in fact that prayer made in the present application was finally heard, adjudicated and decided against the plaintiffs who are precluded from raising the same point once again.
12. Strictly speaking doctrine of "res judicata" may not apply to the decision of C.M.As. yet broad principles thereof must be attracted in case it is shown that the issue for consideration has been finally heard and decided by a competent Court between the same parties in earlier proceedings. After examination of the memo. of High Court Appeal and perusal of the orders passed earlier on plaintiff's application, I am unable to pursuade myself to hold that the point raised at the Bar was already decided. There is no warrant for the finding that the present application is barred by the principle of "res judicata"‑ or beyond the scope of the suit. Reliance upon Manzoor Ahmed Khan v. Maqsood Ali (PLD 1975 Lahore 1521) in this regard is completely misplaced. Needless to observe transfer of disputed shares in favour of defendants Nos.2 to 6 by defendant No.1 having been found prima facie unauthorised, illegal and in violation of the provisions of the Ordinance, Memorandum and Articles of Association of the defendant Company, I am of the considered view that plaintiffs have made out a fit case for the grant of injunction praying to restrain the defendants from exercising the voting rights in respect of 5,17,000 shares in the meeting of the defendant company. Needless to observe, balance of convenience lay in favour of the grant of injunction rather than its refusal. To my mind, it is the plaintiff who shall suffer an irreparable loss muchless the defendants in case the restraint order asked for is not passed. ,
13. Having held above it is to be seen whether in the given circumstances plaintiffs can be permitted to exercise the right of vote on the strength of aforesaid disputed shares. Simple answer to the question is in negative for the equity demands that pending the final determination of the issue once defendants are restrained from dealing with these shares and from exercising their right of a vote in respect of these shares, it would neither be just nor equitable to permit the plaintiffs to take advantage of these shares before the final decision of the suit. In case the plaintiffs are conferred upon this extraordinary right to exercise their voting rights in respect of these shares, it would tantamount to impliedly decreeing the suit as prayed which is neither warranted by the circumstances nor in the larger interest of justice.
14. For the aforesaid facts and reasons both the parties are restrained from exercising the right to vote on the basis of disputed shares till the decision of the suit.
A.A./C‑8/K Order accordingly.