2021 CLD 7 | NADEEM KIANI Versus AMERICAN LYCETUFF (PVT.) LIMITED

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2021 C L D 7

2021 C L D 7

[Lahore]

Before Jawad Hassan, J

NADEEM KIANI---Petitioner

Versus

Messrs AMERICAN LYCETUFF (PVT.) LIMITED and others---Respondents

Civil Original No. 229608 of 2018, decided on 3rd December, 2020.

(a) Companies Act (XIX of 2017)---

----Ss. 286(1) & 286(2)---Companies Ordinance (XLVII of 1984), Ss. 290(1) & 290(2) [since repealed]---Application to High Court---Section 286 of the Companies Act, 2017 ('the Act') had substituted earlier S. 290 of the Companies Ordinance, 1984 ('the Ordinance') [since repealed]---Sections 286(1) & (2) of the Act were similar to earlier S. 290(1) & (2) of the Ordinance, which both laid down the requirements for filing petition to avail remedy from the High Court---Differences between S. 286 of the Act and S. 290 of the Ordinance highlighted.

Following are the three differences between section 286 of the Companies Act, 2017 ('the Act') and section 290 of the Companies Ordinance, 1984 ('the Ordinance') [since repealed]:

(i) Section 290 of the Ordinance required a member or creditor to hold not less than twenty percent (20%) shares or capital before making such an application before the Court; whereas section 286 of the Act reduced the required criteria to 10%;

(ii) Section 286(1) of the Act also empowered the Commission to make such application before the Court; and

(iii) The word 'unfairly' had been added in section 286 of the Act before the word 'prejudicial', which was a requirement to be shown/established by the party complaining.

(b) Companies Act (XIX of 2017)---

----S. 286---Application to Court---True intent and spirit of S. 286 of the Companies Act, 2017.

Section 286 of the Companies Act, 2017 ('the Act') was an alternative to the winding up of a company and had been incorporated in the law to safeguard the minority shareholders from oppression and mismanagement of majority shareholders and to ensure that the affairs of the company must be conducted in a lawful manner and strictly in accordance with the Memorandum and the Articles.

Dr. Muhammad Imran Qureshi and 2 others v. Muhammad Asif and others 2020 CLD 1060; Malik Aziz ul Haq and 14 others v. Messrs Crystal Line Chemical Industries (Pvt.) Ltd. through Chief Executive and 5 others 2016 CLD 970; Muhammad Ujaz Tahir v. Federation of Pakistan and others 2014 CLD 1683; Muhammad Fikree and 3 others v. Fikree Development Corporation Ltd. and 8 others 1992 MLD 668 and Najamuddin Zia and others v. Mst. Asma Qamar and others 2013 CLD 1263 ref.

To make an order under section 286 of the Act, Court had to be satisfied that the company's affairs were being conducted in a manner warranting exercise of such jurisdiction and winding up order would unfairly prejudice the members or the creditors. The Court had to be satisfied from the facts that the affairs of the company were being conducted, or were likely to be conducted, in (i) an unlawful manner, or (ii) fraudulent manner, or (iii) a manner not provided for in its memorandum, or (iv) a manner oppressive to any of the member(s) or creditor(s), or (v) a manner that was unfairly prejudicial to the public interest.

Mere allegation of certain irregularities committed by the company did not provide sufficient grounds or give rise to the justification of exercising powers under section 286 because those were in domain of the Securities and Exchange Commission to exercise its powers vested under the law in such regard.

In the present case, the petitioner and the respondent were only shareholders of the company with each one holding fifty percent (50%) shares equally. Therefore, even if it was presumed that the petitioner was well within his competence to make an application in accordance with section 286 of the Act because the petitioner held more than ten percent (10%) issued share capital of the company even then the petitioner had to fulfil the second and most important condition that the affairs of the company were being run and conducted in a manner which was not only unfair and illegal but also in contravention to the Memorandum and Articles of Association of the company and thus sufficient grounds existed requiring interference by the High Court. There was, however, nothing to materialize allegations and to substantiate concerns of the petitioner, and to establish that the respondent was conducting the business of the company in (i) an unlawful manner, or (ii) fraudulent manner, or (iii) a manner not provided for in its memorandum, or (iv) a manner oppressive to any of the member(s) or creditor(s), or (v) a manner that was unfairly prejudicial to the public interest.

The only set of grounds taken by the petitioner in present petition were with regard to deadlock, non-convening of board meeting, inactions of the respondent, excluding the petitioner from management of the company; which co-jointly did not form substantial and necessary grounds justifying and necessitating interference by the High Court within the domain of section 286 of the Act. Constitutional petition filed by the petitioner was dismissed.

(c) Companies Act (XIX of 2017)---

----S. 286---Copyright Ordinance (XXXIV of 1962), Preamble---Application to Court---Scope---While dealing with an application under S. 286 of the Companies Act, 2017, the Court could not look into dispute inter se the parties---Section 286 could not be invoked for settlement of disputes in respect of intellectual property rights between the parties in which other forums were available under the relevant laws.

(d) Companies Act (XIX of 2017)---

----S. 286--- Companies Act, 2006 [United Kingdom], S. 994---Application to Court---Oppression and mismanagement by majority shareholders---Statutory law and principles in UK in relation to protection of members/minority shareholders from such oppression and mismanagement.

O'Neill and another v. Phillips and others citations [1997] 1 WLR 1092 = [1999] UKHC 24 ref.

(e) Companies Act (XIX of 2017)---

----S. 286--- Application to Court--- Oppression by majority shareholders---Word 'oppression'---Definition---In context of a company or corporation the word "oppression" was defined as unfair treatment to minority shareholders by those who controlled the corporation or the company.

Jermyn Street Turkish Baths Ltd [(1971) 3 All ER 184] ref.

(f) Companies Act (XIX of 2017)---

----S. 286---Companies Act, 2013 [India], S. 241---Application to Court---Oppression and mismanagement by majority shareholders---Statutory law and principles in India in relation to protection of members/minority shareholders from such oppression and mismanagement.

Needle Industries (India) Ltd. and others v. Needle Industries Newey (India) Holding Ltd. and others (1981) 3 Supreme Court Cases 333 ref.

(g) Companies Act (XIX of 2017)---

----S. 286---Companies Ordinance (XLVII of 1984), S. 290 [since repealed]---Application under S. 286 of the Companies Act, 2017 filed by Chief Executive Officer of the company---Maintainability---Section 290 of the Companies Ordinance, 1984 (now section 286 of the Companies Act, 2017) did not provide any statutory right to any Director, Board of Directors, Chief Executive Officer or any person in management responsible for running management and administrative affairs of the company, to file an application before the High Court under the said provisions.

Deng Xiao Bin Director Pak China Sost Port Company (Pvt.) Limited v. Registrar Joint Stock Companies, Gilgit-Baltistan, Gilgit 2016 GBLR 266 ref.

Muhammad Saqlain Arshad for Petitioner.

Barrister Umair Khan Niazi, Additional Advocate General, Ms. Sadia Malik, Assistant Attorney General, Barrister Mian Sultan Tanvir Ahmad, Advocate Supreme Court for the Respondent No.2 assisted by Usman Ali Cheema, Muazzam Akram and Hafiz Mubashar Ullah, Advocates for Respondents.

Hafiz Muhammad Talha, Advocate/Legal Advisor for SECP.

Date of hearing: 11th November, 2020.

JUDGMENT

JAWAD HASSAN, J.---This petition under sections 286 to 288 and 290 of the Companies Act, 2017 (the "Act") has been filed by the Petitioner with the following prayers:

a. To pass appropriate orders under section 286 of the Companies Act, 2017;

b. To pass such further order or orders to issue all consequential and necessary directions as this Hon'ble Court may deem fit and proper in the circumstances;

c. To pass an order by directing the Respondent No.3 Committee to immediately take measures to secure/defend lawful rights of the Company by filing appeal in Supreme Court of Pakistan against order of Registrar of Trademark and Sindh High Court and also file appeal at appropriate forum against Order dated August 07, 2018 of the Registrar of Copyright;

d. To pass an interim order restraining Respondent No.2 from taking any action prejudicial to the interest of the Company or its shareholders during pendency of the Petition.

A. BRIEF FACTS

2. Brief facts of the case are that the Petitioner was married to the Respondent No.2/Ms. Zeeshan Zia Raja and during their matrimonial relationship, they established "American Lycetuff (Pvt.) Limited" (the "Company") under the Companies Ordinance, 1984 (the "Ordinance") and both are equal shareholders of the Company. The nuptial tie between the Petitioner and the Respondent No.2 came to an end in year 2017 on the basis of Khula. Consequently, disputes with respect to moveable and immoveable properties including intellectual properties pertaining to the Company arose and both the parties initiated civil and criminal litigation before different courts and authorities, including the High Courts (Sindh + Punjab + Islamabad), Civil Courts and Criminal Courts. The basic issue is concerning "Goodwill" of the Company regarding which the matter is pending before Intellectual Property Organization ("IPO"). The Respondent No.2 filed application before the Registrar Copyright for correction/alteration of copyright register. The Copyright Registrar vide order dated 07.08.2018 passed order in her favour. The said order was assailed by the Petitioner through W.P. No.9629 of 2019 wherein he prayed for setting-aside of order dated 07.08.2018. However, in aforesaid petition, this Court through separate order directed the Ministry of Commerce, Government of Pakistan to constitute Copyright Board for the sake of providing the Petitioner an appellate forum as per Section 45 of the Copyright Ordinance, 1962 (the "Copyright Ordinance") to prefer an appeal against the order of the Registrar under Section 76 of the Ordinance.

B. ARGUMENTS OF THE PETITIONER

3. Mr. Muhammad Saqlain Arshad, Advocate for the Petitioner contended inter alia that the Respondent No.2 conducted the affairs of the Company in an illegal and fraudulent manner which are contrary to Memorandum (the "Memorandum") of Association and Articles of Association (the "Articles") of the Company and detrimental to the business as well as upon the rights of the Petitioner; that due to inactions of the Respondent No.2, the Petitioner has been excluded from the management of the Company; that the Petitioner and the Respondent No.2 are only Directors of the Company having equal shareholding of the Company and acts of the Respondent No.2 are prejudicial to the Petitioner's rights of business coupled with right to due process.

C. ARGUMENTS OF THE RESPONDENTS

4. Report and parawise comments were submitted by the Respondent No.3/the Committee of Directors wherein it was stated that the Respondent No.3 was constituted through a Director's Agreement dated 16.03.2017 with mutual consent of the Petitioner and the Respondent No.2 was given power to look after the administrative as well as allied affairs of the Company. Barrister Mian Sultan Tanvir further stated that the Committee have been successfully running the affairs of the Company and its decisions are being complied with by the Petitioner and the Respondent No.2.

5. The Additional Registrar of Companies, Companies Registration Office, Lahore in response to the main petition filed report and parawise comments on behalf of Securities and Exchange Commission of Pakistan (SECP) by stating that the Company filed Form-A made upto 31.10.2016 wherein 25,000 shares of the Petitioner were shown to have been transferred to Mrs. Zeeshan Nadeem with effect from 26.05.2016. It was further stated that Ms. Zeeshan Zia Raja, Director of the Company, had lodged a complaint with the Commission/Answering Respondent that her signatures on circular under Section 86(3) of the Ordinance dated 29.04.2013 are fake, original circular and corresponding Form-3, dated 02.05.2013 are in custody of FIA, Islamabad for verification of signatures from handwriting expert.

D. NUB OF THE MATTER.

6. After hearing the parties at length, the only moot point arising out of instant proceedings and requiring determination of the Court is that whether the Petitioner has fulfilled the requirements to avail remedy of Section 286 of the Act from this Court?

E. Requirements under Section 286(1) of the Act:

7. The Petitioner has made a prayer to pass order under Section 286 of the Act which is reproduced in the beginning of the judgment. For the purpose of clarity, the said Section is reproduced hereunder:

"286. Application to Court.---(1) If any member or members holding not less than ten percent of the issued share capital of a company, or a creditor or creditors having interest equivalent in amount to not less than ten percent of the paid up capital of the company, complains, or complain, or the Commission or registrar is of the opinion, that the affairs of the company are being conducted, or are likely to be conducted, in an unlawful or fraudulent manner, or in a manner not provided for in its memorandum, or in a manner oppressive to the members or any of the members or the creditors or any of the creditors or are being conducted in a manner that is unfairly prejudicial to the public interest, such member or members or, the creditor or creditors, as the case may be, the Commission or registrar may make an application to the Court by petition for an order under this section.

(2) If, on any such petition, the Court is of opinion-

(a) that the company's affairs are being conducted, or are likely to be conducted, as aforesaid; and

(b) that to wind-up the company will unfairly prejudice the members or creditors;

the Court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit, whether for regulating the conduct of the company's affairs in future, or for the purchase of the shares of any members of the company by other members of the company or by the company and, in the case of purchase by the company, for, the reduction accordingly of the company's capital, or otherwise. ." (emphasis added)

8. Perusal of the above-quoted provisions clearly manifests that the basic requirement for seeking intervention of this Court by a member or creditor of a company under Section 286 of the Act is to be a member having not less than ten percent (10%) of issued share capital of a company or be a creditor having not less than ten percent (10%) of the paid-up capital of a company. Moreover, the next requirement is that such a member or creditor makes an application and satisfies this Court that the affairs of the company are being conducted, or are likely to be conducted, in (a) an unlawful manner, or (b) fraudulent manner, or (c) a manner not provided for in its memorandum, or (d) a manner oppressive to any of the member(s) or creditor(s), or (e) a manner that is unfairly prejudicial to the public interest. If the Court is of the opinion that the affairs of the company are being conducted, or are likely to be conducted, as aforesaid and winding up of the company will unfairly prejudice the members or creditors, the Court may make any order it thinks fit with respect to (a) regulating the conduct of the company's affairs in future, or (b) the purchase of the shares of any members of the company by other members of the company or by the company

9. It is to be noted that section 286 of the Act has substituted earlier section 290 of the Ordinance. If we compare the wording of section 286(1) and (2) of the Act with earlier section 290(1) and (2) of the Ordinance, Section 286(1) and (2) of the Act is similar to earlier section 290(1) and (2) of the Ordinance, which both lay down the requirements for filing petition to avail remedy from this Court. There are following three differences in both sections:-

(1) The earlier section 290 required a member or creditor to hold not less than twenty percent (20%) shares or capital before making such an application before the Court; whereas section 286 of the Act reduced the required criteria to 10%.

(2) Section 286(1) of the Act also empowers the Commission to make such application before the Court; and

(3) The word 'unfairly' has been added in section 286 of the Act before the word 'prejudicial', which is a requirement to be shown/established by the party complaining.

10. The jurisprudence of the commercial law developed by the superior Court of Pakistan on the above-mentioned sections is very clear. The requirement of section 286 of the Act is to be met with before any order is passed by a Company Judge. In a recent case law reported as "Dr. Muhammad Imran Qureshi and 2 others v. Muhammad Asif and others" (2020 CLD 1060 (Sindh)), the Sindh High Court has held as follows:

"18. . To make an order under section 286 the Court has to be satisfied that the Company's affairs are being conducted in a manner warranting exercise of such jurisdiction, and secondly, that the facts justify passing of a winding up order on the ground that it was just and equitable that the Company should be wound up; and lastly, that the winding up order would unfairly prejudice the petitioner and other members, whereas, at the same time it is also not necessary to establish any personal prejudice for seeking any relief under section 286 ibid.

21. One needs to understand the true intent and spirit of this provision i.e. section 286 ibid. It has been incorporated as an alternative to a winding up order; rather is a substitute for the Court by avoiding a winding up order. The fact that a Company is prosperous and makes substantial profits is not always an obstacle to its being wound up, if the facts and circumstances so warrant and the Court has come to such conclusion. However, by means of section 286 ibid, an alternative is available so as not to order for a winding up of a Company. And this is for good of all shareholders and members of the Company. . In private Companies the relationship is similar to that of a partnership and this was precisely what has been argued by the learned counsel for Respondent No.1, when he placed much stress on the case of Ladli Prasad (Supra). Under the law of partnership, utmost goods faith is due form every partner towards every other partner, and if any dispute arises between them in respect of any business transaction, then the partner at the receiving end will be required to show not only that he had acted in accordance with law; but that his conduct will bear to be tried by the highest standard of honor."

11. Similarly, in another case titled "Malik Aziz ul Haq and 14 others v. Messrs Crystal Line Chemical Industries (Pvt.) Ltd. through Chief Executive and 5 others" (2016 CLD 970), the Court held as follows:

"It is clear that the affairs of the Company are not being conducted in an unlawful or fraudulent manner or in a manner not provided for in its memorandum. Nor has anything been brought forth which would bring home the fact that the affairs of the Company are being conducted in a manner oppressive to the members. The contentions made by the learned counsel for the petitioners merely give rise to certain irregularities committed by the Company at worst and fully falls within the domain of SECP to exercise the powers vested in SECP by law in this regard. There is no stopping the SECP from proceeding in the matter of any aspect which in the opinion of the SECP falls within its jurisdiction and of which the Company has fallen in breach".

12. Furthermore, it has been held in the case of "Muhammad Ujaz Tahir v. Federation of Pakistan and others" (2014 CLD 1683) that "Court under sections 290 and 291 of the Companies Ordinance, 1984 could not look into a dispute inter se as the parties. Allegations made by the Petitioner did not amount to oppression and mismanagement under section 290 of the Companies Ordinance, 1984. Petition under section 290 was held to be not maintainable". Likewise in "Muhammad Fikree and 3 others v. Fikree Development Corporation Ltd. and 8 others" (1992 MLD 668) it was held that "section 290 of the Companies Ordinance, 1984 cannot be invoked by any party for settlement of disputes between the parties inter se, but the only object behind section 290 appears to be that the affairs of the Company must be conducted in a lawful manner and strictly in accordance with the Memorandum and Articles of Association of the Company."

13. Moreover, similar view was taken in "Najamuddin Zia and others v. Mst. Asma Qamar and others" (2013 CLD 1263) by holding that:

" . Provisions of section 290 of the Ordinance could not be invoked for settlement of disputes between the parties inter-se as said provision essentially intended to control and prevent oppression of rights of minority shareholders and mismanagement by majority shareholders .".

It was further held that:

"In order to invoke the jurisdiction of Company Judge of High Court under section 290, Companies Ordinance, 1984 it must be made out that the company's affairs are being conducted in a manner prejudicial to the public interest or oppressive to any member or members of the company, which may justify the winding up order. The provisions are essentially intended to control and prevent oppression of the rights of the minority shareholders and mismanagement by majority shareholders. The word "oppression" must be given its ordinary sense. "Oppression" complained of should involve visible departure from the standard of fair dealing and the violation of conditions of fair play on which every shareholder, who entrusts his money to a company, is entitled to rely. The term "oppression" has not been defined in the Companies Ordinance, 1984, and it is left to the court to decide on the facts of each case whether there is a case of "oppression" or not, which calls for action under section 290, Companies Ordinance, 1984."

14. The above discussion clearly shows that if we look at the true intent and spirit of section 286 of the Act, it is an alternative to the winding up of a company and has been incorporated in the law to safeguard the minority shareholders from oppression and mismanagement of majority shareholders and to ensure that the affairs of the Company must be conducted in a lawful manner and strictly in accordance with the Memorandum and the Articles. To make an order under Section 286 of the Act, Court has to be satisfied that the Company's affairs are being conducted in a manner warranting exercise of such jurisdiction and winding up order would unfairly prejudice the members or the creditors. The Court has to be satisfied from the facts that the affairs of the company are being conducted, or are likely to be conducted, in (a) an unlawful manner, or (b) fraudulent manner, or (c) a manner not provided for in its memorandum, or (d) a manner oppressive to any of the member(s) or creditor(s), or (e) a manner that is unfairly prejudicial to the public interest. Mere allegation of certain irregularities committed by the Company do not provide sufficient grounds or give rise to the justification of exercising powers under this Section because those are in domain of the Commission to exercise its powers vested under the law in this regard. While dealing with an application under this Section, the Court cannot look into dispute inter se the parties and this Section cannot be invoked for settlement of disputes in respect of intellectual property rights between the parties in which other forums are available under the relevant laws.

F. REQUIREMENTS IN OTHER JURISDICTIONS

15. As far as statutory law in U.K. regarding the principle incorporated under this provision is concerned, the concept of protection to members from oppression and mismanagement is provided in all three legislations (i.e. section 210 of the Companies Act, 1948 replaced by section 459 of the Companies Act, 1985 and then section 994 of the Companies Act, 2006). These sections are reproduced herein below:

Companies Act, 1948 (U.K.)

"210.-(1) Any member of a company who complains that the affairs of the company are being conducted in a manner oppressive to some part the members (including himself) or, in a case falling within subsection (3) of section one hundred and sixty-nine of this Act, the Board of Trade, may make an application to the court by petition for an order under this section.

(2) If on any such petition the court is of opinion-

(a) that the company's affairs are being conducted as aforesaid; and

(b) that to wind up the company would unfairly prejudice that part of the members, but otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up; the court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit, whether for regulating the conduct of the company's affairs in future, or for the purchase of the shares of any members of the company by other members of the company or by the company and, in the case of a purchase by the company, for the reduction accordingly of the company's capital, or otherwise."

Companies Act, 1985 (U.K.)

"459 Order on application of company member

(1) A member of a company may apply to the court by petition for an order under this Part on the ground that the company's affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of some part of the members (including at least himself) or that any actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.

(2) The provisions of this Part apply to a person who is not a member of a company but to whom shares in the company have been transferred or transmitted by operation of law, as those provisions apply to a member of the company; and references to a member or members are to be construed accordingly."

Companies Act, 2006 (U.K.)

PROTECTION OF MEMBERS AGAINST UNFAIR PREJUDICE

"994. Petition by company member

(1) A member of a company may apply to the court by petition for an order under this Part on the ground-

(a) that the company's affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or

(b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.

(2) The provisions of this Part apply to a person who is not a member of a company but to whom shares in the company have been transferred or transmitted by operation of law as they apply to a member of a company."

16. Section 290 of our Companies Ordinance and section 286 of the Act are quite similar to the legislation of UK. The English Courts have repeatedly interpreted these provisions as a safeguard for the minority from the oppression and mismanagement in the hands of majority and those who are managing the company.

17. In this regard the literal interpretation of the word "Oppression" given in the Black's Law Dictionary (10th Edition) (P-1267) is important which define it as "The act or an instance of unjustly exercising authority or power so that one or more people are unfairly or cruelly prevented from enjoying the same rights that other people have". When it comes to concept of the company or corporation the word oppression is defined as unfair treatment to minority shareholders by those who control the corporation or the company.

18. The question was addressed by the House of Lords while interpreting section 210 of the Companies Act, 1948 in the case of Jermyn Street Turkish Baths Ltd. [(1971) 3 All ER 184] in the following manners:

"---The affairs of a company could only be said to have been being conducted in a manner oppressive to some part of the members of the company where shareholders, having a dominant power in the company, either exercised that power to procure that something was or was not done in the conduct of the company's affairs or procured by an express or implied threat of an exercise of that power that something was not done in the conduct of the company's affairs."

19. Likewise, in a case O'Neill and another v. Phillips and others citations [1997] 1 WLR 1092 = [1999] UKHC 24, Lord Hoffmann of the House of Lords emphasized about substantial grounds to prove unfairness majority and minority shareholder concept and also held as follows:

"---However, the mere fact that trust and confidence between the parties had broken down was not sufficient. In the instant case, since the judge had found that P had made no promises, there was no basis, consistent with the principles of equity, for a court to hold that P had behaved unfairly. It followed that there was no basis for the Court of Appeal's finding that O had been driven out of the company. Accordingly, the appeal would be allowed and the petition dismissed---"

20. The English Courts have used the parallel statutory provisions in the cases of complaints of shareholders who are not part of the management and oppressed or being prejudiced by the majority and those who are managing the affairs of the company.

21. In India, the concept of prevention of minority oppression and mismanagement was contained in section 397 of the Companies Act, 1956. Later this provision was replaced by section 241 of the Companies Act, 2013. Both sections are reproduced hereunder:

Companies Act, 1956 (India)

CHAPTER VI: PREVENTION OF OPPRESSION AND MISMANAGEMENT

A. Powers of Tribunal

"397. APPLICATION TO TRIBUNAL FOR RELIEF IN CASES OF OPPRESSION

(1) Any members of a company who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Tribunal for an order under this section, provided such members have a right so to apply in virtue of section 399.

(2) If, on any application under subsection (1), the Tribunal is of opinion-

(a) that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members; and

(b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up ; the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit."

Companies Act, 2013 (India)

PREVENTION OF OPPRESSION AND MISMANAGEMENT

"241. Application to Tribunal for relief in cases of oppression, etc.-

(1) Any member of a company who complains that-

(a) the affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company; or

(b) the material change, not being a change brought about by, or in the interests of, any creditors, including debenture holders or any class of shareholders of the company, has taken place in the management or control of the company, whether by an alteration in the Board of Directors, or manager, or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class of members, may apply to the Tribunal, provided such member has a right to apply under section 244, for an order under this Chapter.

(2) The Central Government, if it is of the opinion that the affairs of the company are being conducted in a manner prejudicial to public interest, it may itself apply to the Tribunal for an order under this Chapter."

22. The Section 397 of the Companies Act, 1956 was quite similar to section 290 of the Companies Ordinance, 1984 (presently section 286 of the Act). The Supreme Court of India, in a case titled Needle Industries (India) Ltd. and others v. Needle Industries Newey (India) Holding Ltd. and others, reported as {(1981) 3 Supreme Court Cases 333}, refused to grant relief under this provision where the conduct of both parties/groups of members were not above board, holding that equity by aggrieved group cannot be sustained. It has also been held in the said case that every illegality is not covered within the scope of "Oppression".

G. APPLICABILITY IN PRESENT CASE

23. In the case in hand, the Petitioner and the Respondent No.2 are only shareholders of the Company with each one holding fifty percent (50%) shares equally. Therefore, even if it is presumed that the Petitioner is well within competence to make an application in accordance with Section 286 of the Act because the Petitioner holds more than ten percent (10%) issued share capital of the Company, even then the Petitioner must have to fulfil the second and most important condition that the affairs of the Company are being run and conducted in a manner which is not only unfair and illegal but also in contravention to the Memorandum and Articles of Association of the Company and thus sufficient grounds exists requiring interference by this Court. There is, however, nothing to materialize allegations and to substantiate concerns of the Petitioner, and to establish that the Respondent No.2 is conducting the business of the Company in (a) an unlawful manner, or (b) fraudulent manner, or (c) a manner not provided for in its memorandum, or (d) a manner oppressive to any of the member(s) or creditor(s), or (e) a manner that is unfairly prejudicial to the public interest. Although the Petitioner has taken specific grounds that the Respondent No.1 is conducting the affairs of the Company in an illegal and fraudulent manner, yet this Court is unable to agree with his stance which is non-substantiating, vague and lacks support from any material provided by the Petitioner and as such he has failed to satisfy this Court about allegations that the Respondent No.2 is conducting the affairs of the Company in any manner described herein above.

24. The only set of grounds taken by the Petitioner in this petition are with regard to deadlock, non-convening of board meeting, inactions of the Respondent No.2, excluding the Petitioner from management of the Company; which co-jointly does not form substantial and necessary grounds justifying and necessitating interference by this Court within the domain of section 286 of the Act. It is noted that the documents annexed with this petition do not show that the affairs of the Company are being conducted in an unlawful and fraudulent manner because the annexed documents includes agreements of the Company, judgments of Sindh High Court and the order of IPO dated 26.07.2018; hence the Petitioner has not brought on record anything which would constitute and lead to the conclusion that the affairs of the Company are being conducted in violation of Section 286 of the Act. It has already been observed that mere certain irregularities do not give rise to the grounds and justification for exercising powers under this Section.

25. Admittedly, the Petitioner himself is the Chief Executive Officer of the Company which was appointed as per Article 21 of Articles of Association. Under its Article 33, the whole business and affairs of the Company, subject to the control and supervision of the Board of Directors, are managed and controlled by him. We may obtain guidance from the Supreme Appellate Court of Gilgit Baltistan, which decided the case titled "Deng Xiao Bin Director Pak China Sost Port Company (Pvt.) Limited versus Registrar Joint Stock Companies, Gilgit-Baltistan, Gilgit" (2016 GBLR 266 (Supreme-Appellate-Court)) and held that submission of application by the Directors and Managers of the company under section 290 of the Companies Ordinance was against the spirit of the provision of law. Under section 290 of the Companies Ordinance, only the members, creditors and the Registrar (now the Commission has also been added in section 286 of the Act), are entitled to submit application before this Court in case of any complaint against the management of the company. It is to be noted that Section 290 of the Companies Ordinance (now section 286 of the Act) did not provide any statutory right to any Director, Board of Directors, Chief Executive Officer or any person in management responsible for running affairs of the company, to file an application before this Court; who himself responsible for the management and administrative affairs of such Company and does not meet the strict requirement of the said Section. Therefore, the Petitioner, being the Chief Executive of the Company having 50% shareholding and a dispute with the Respondent No.2, is not entitled to relief under section 286 of the Act especially when the allegations raised are not supported by any material on record, as discussed above because this petition is without any supporting documents, action or act of the Respondents.

26. By perusing the prayer, grounds and contents of the petition, it seems that the Petitioner has only filed this petition focusing on the intellectual property of the Company and the order of the Registrar in favour of the Respondent No.2. It may also be noted that the issue of intellectual property right has already been dealt with by the Registrar, IPO in which the Petitioner has filed appeal and directions have been issued to concerned authority to decide the matter. The issue regarding IP has already been discussed by this Court in "Presson Descon International Pvt Limited and others v. Joint Registrar of Companies" (2020 CLD 1128 + PLD 2020 Lahore 869), therefore, in order to ascertain this issue, the Court on 19.11.2020 appointed Mr. Muhammad Safdar, Chartered Accountant of Messrs Tariq Abdul Ghanni Maqbool and Co. to submit evaluation report of the Company on the following points:

i. Goodwill of Messrs American Lycetuff Pvt. Ltd by the value of its name in the education market/sector.

ii. Evaluate/point out the moveable and immoveable properties, its yearly growth and expansion.

iii. Ownership of its Intellectual Property Rights (Copyrights, Trademark, Tradename) and who basically owns it and comparison with the market survey as well as the Market Association of Pakistan to determine its value.

iv. Rating volume amongst its competitors/schools with the excellent result of the students.

v. Demand of the Company's Franchises agreement based upon the increase by yearly demand.

vi. Statement of accounts showing the increase of per yearly profit.

27. Pursuant to order dated 19.11.2020, the Chartered Accountant submitted its report on 21.01.2020 with the following conclusion:

"This report determines the ownership of Trademark/Copyrights of "American Lycetuff" with regards to Messrs American Lycetuff (Pvt.) Limited, Mst. Zeeshan Zia Raja and Mr. Nadeem Kiani according to record of Intellectual Property Organization (IPO) Trade Mark Registry and record provided by the Contesting parties.

A. OWNERSHIP OF COPYRIGHT "AMERICAN LYCETUFF JUNIOR AND UPPER SCHOOL".

1. Mr. Zeeshan Zia Raja is first owner of Copyright American Lycetuff Junior and Upper School" vide Certificate No.13515-Copr dated 04.08.2004.

2. The copyrights Certificate bearing ref No.13515-copr under the title "American Lycetuff Junior and Upper School" was transferred in the name of M/s American Lycetuff (Pvt) Ltd on dated 28.10.2009 vide assignment deed dated 23.10.2009 which was subsequently expunged on 07.08.2018 and revised in the name of Ms. Zeeshan Zia Raja. However, this revision is suspended by the Hon'ble Lahore High Court, Lahore on 19.02.2019 in W.P.No.9629/2019.

3. At present, there is no Copyright registered in the name of Messrs American Lycetuff (Pvt.) Ltd according to the record of Intellectual Property Organization (IPO) registry and records provided by the parties.

4. At present there is no copyright registered in the name of Mr. Nadeem Kiani according to record of IPO.

B. OWNERSHIP OF TRADEMARK "AMERICAN LYCETUFF"

1. Ms. Zeeshan Zia Raja is first user of Trademark of "American Lycetuff" vide application No.271306 according to the trademark registry record.

2. The Registered Trademark No. 259666 in the name of Messrs American Lycetuff (Pvt) Ltd has been expunged/removed on application of Ms. Zeeshan Zia Raja.

3. At present, there is no trademark registered in the name of Messrs American Lycetuff (Pvt.) Ltd according to the record of Intellectual Property Organization (IPO) registry and records provided by the parties.

4. At present there is no trademark registered in the name of Mr. Nadeem Kiani according to record of IPO."

Above said report reveals that presently, there exists no trademark and copyright in the name of the Respondent No.1 or either of the parties as per record of IPO. It may also be noted that the appeal of the Petitioner is pending which will be decided by the competent forum. A detailed order, in this respect, has already been passed by this Court in W.P. No.9629 of 2019 on 11.11.2020.

28. In view of above, this petition is without any merits and is, therefore, dismissed.

MWA/N-27/L Petition dismissed.