ENGLISH BISCUITS MANUFACTURERS PRIVATE LIMITED (EBM), KORANGI INDUSTRIAL AREAS, KARACHI vs ASSOCIATED BISCUITS

Fields are extracted from the reported citation and judgment text. Where a detail is not stated in the record, it is not shown.

ENGLISH BISCUITS MANUFACTURERS PRIVATE LIMITED (EBM), KORANGI INDUSTRIAL AREAS, KARACHI VS ASSOCIATED BISCUITS INTERNATIONAL LIMITED (ABIL) Ss. 86, 92(3) & 290---Dispute regarding valuation of shares---Fiduciary duties of directors---Scope---Respondent-company had a 40% shareholding in appellant-company---Company "C" was subsidiary of appellant-company, in which it held 51% shares, while the remaining 49% shares in company "C" were held by Directors of appellant-company---When a conflict of interest arose between the appellant-company and respondent-company, it was decided that appellant-company would buy/acquire the 49% shares in company "C" held by the shareholders/Directors of appellant-company---To finance such purchase it was decided to increase the paid-up capital of appellant-company through a right issue of shares, and the respondent-company was offered to subscribe to the right Issue to the extent of its entitlement---Dispute arose between the appellant and respondent companies with respect to valuation of right shares---Held, that the right shares which the Board of Directors of appellant-company had decided to issue by increasing its paid-up capital were basically meant for acquiring 49% shares of company "C" belonging to the same shareholders/Directors of appellant-company and primarily held by the family of two of the Directors---Thus, the valuation of shares of company "C" was of prime importance vis-a-vis issuing of right shares of appellant-company and the factor that had(rightly) influenced the courts below was that there should not be any element of self-enrichment by shareholders/Directors of appellant-company in purchasing their own 49% shareholding in company "C" to the detriment of the respondent-company, which had to acquire the right shares by making payment---Consequence of not acquiring the right shares by the respondent-company would have relegated it from a position of holding 40% shares in the appellant-company to that of mere 13%, therefore, the court below in considering the issue of right shares of appellant-company had directly related the same to the valuation of shares of company "C"---Appellant-company and its shareholders/Directors themselves gave in on the issue of valuation of shares of company "C", which amounted to an admission from their side that there was no fair and transparent valuation of the shares and the decision of Board of Directors of fixing the value of shares of company "C" was also not a fair one---Conduct of appellants during whole of the proceedings had been that of not supporting the valuation of shares of company "C" given by the auditors and they conceded to its revaluation---Directors of the company exercised fiduciary powers and were required to exercise such powers bona fide and in the interest and benefit of the company and its members without causing oppression---Such fiduciary powers in the facts and circumstances of the present case as per record were not exercised bona fide by the Directors of appellant-company, inasmuch as they themselves did not support the valuation of shares of company "C"---Once such fact stood established, there was hardly any reason or justification for the appellants to argue that respondent-company had forfeited its right to acquire right shares or that the right shares had been disposed of by the Directors and their property stood transferred---Appeal was dismissed in circumstances.

ENGLISH BISCUITS MANUFACTURERS PRIVATE LIMITED (EBM), KORANGI INDUSTRIAL AREAS, KARACHI vs ASSOCIATED BISCUITS INTERNATIONAL LIMITED (ABIL) Ss — 2021 CLD 863 SUPREME-COURT

Case information

Judgment text as reported

Other judgments reported in 2021 CLD