TARIQ IQBAL MALIK vs MULTIPLIERZ GROUP PVT — 2022 CLD 468 LAHORE-HIGH-COURT-LAHORE

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TARIQ IQBAL MALIK VS MULTIPLIERZ GROUP PVT. LTD. Preamble---Scope---Legislative intent of the Companies Act, 2017---Such intent is clear and obvious from the Preamble to the Act that it has been enacted to reform company law with the objective of facilitating corporatization and promoting development of corporate sector, encouraging use of technology and electronic means for protecting interests of shareholders, creditors, other stakeholders and general public, inculcating principles of good governance and safeguarding minority interest in corporate entities and providing an alternate mechanism for expeditious resolution of corporate disputes and matters arising out of or connected therewith. Ss. 256 & 257---Investigation of company's affairs in other cases---Scope---Power conferred on (Securities and Exchange Commission of Pakistan) to investigate a company's affairs under S. 257 of the Companies Act, 2017 is without prejudice to its powers under S. 256---Although Ss. 256 & 257 are closely tied in, the power flows out of entirely different circumstances for the Commission to start an investigation---Section 256 is engaged on the happening of an event; either on an application by members (holding certain threshold voting power) or on a report compiled under S. 221(5) or by the Registrar under S. 254(6)---Thus, if at all the Commission seeks to investigate into the affairs of a company on an application, it must be an application made by one of the persons or entities mentioned in S. 256 and none else---Section 257 envisages formations of opinion by the Commission as a pre-condition and that opinion must be based on the Commissions' own inquiry and by application of independent mind---Cardinal feature of any exercise of power under S. 257 is that a fact specific balancing exercise is to be conducted by the Commission uninfluenced by an external source---Even the cognizance of a matter relating to investigation cannot be taken by a circuitous route, that is, by firstly receiving a complaint and thereafter (upon finding it to be outside the ambit of S. 256) invoking its powers under S. 257, whimsically and unreasonably, to serve a notice---To reiterate, any power to be exercised by the Commission under S. 257 has to be preceded by formation of an opinion and thereafter a show cause notice giving the company an opportunity of hearing can be issued. Ss. 257 & 256---Investigation of company's affairs in other cases---Intertwined, doctrine of---Scope---Petitioner sought direction to the SECP (Securities and Exchange Commission of Pakistan) to start investigation into the affairs of the respondents under S. 257(1)(a)(ii) of the Companies Act, 2017 ('the Act')---Held, that petitioner, under the 'doctrine of intertwined', had to fulfill the requirements of S. 256 regarding locus standi of being member, qualification of member and company against whom the relief was being sought---Petitioner had no nexus with the respondents' companies, not being member of any of the company---Petitioner had filed the petition solely under S. 257 of the Act without fulfilling its preconditions---In case parties/persons having no link or nexus to the affairs of a company (by way of either membership/shareholding/holding office) were allowed to invoke the provisions of both Ss. 256 & 257 and other related provisions of the Companies Act, 2017 to have the affairs of a company investigated on account of matters that purely pertained to their commercial and business dealings with such a company, would in turn not only open flood-gates of litigation, but would also lead to; (i) a situation where the affairs of any company would be investigated in every such instance where there was an alleged breach of contract by the company in its business dealings with third party and; (ii) disputes in the normal course of business between a company and third party would end up requiring investigations into the affairs of a company, and; (iii) the laws and statutes dealing with and providing for legal remedies based on contract, sale of goods, specific performance etc. would more or less be rendered redundant---Petitioner had not approached the Commission to address any grievance and had directly knocked on the doors of the Court for issuance of direction without showing any proof of allegations or establishing himself to be member of such company---Petition was dismissed. Ss. 256 & 257---Investigation of company's affairs in other cases---Scope---Bare perusal of Ss. 256 & 257 of the Companies Act, 2017 ('the Act') reveals that by and large protection is afforded to the rights and interests of the members of the company and it is necessary to collate S. 257 with S. 256 as the powers in these provisions are closely tied in and seemingly overlap---Investigation into the affairs of a company is a serious matter and entails consequences both financial and ones relating to goodwill of a corporate entity and these powers cannot be lightly used by the High Court---Therefore, the Commission (Securities and Exchange Commission of Pakistan), when deciding whether to order investigation into the affairs of the company under Ss. 256 & 257, may have to consider and weigh multiple factors, which inter alia includes the nature of the complaint and its source---Such exercise of discretion by the Commission has to be guided/determined by the facts and circumstances of the case and has to be exercised in good faith, without any bias, prejudice or ulterior motives---However, in terms of clause (a) of subsection (1) of S. 257, the Commission is obligated to appoint inspectors for conduct of investigation, if ordered by the Court of competent jurisdiction or upon passing of special resolution by the company---Accordingly, the power to appoint an Inspector under Ss. 256 & 257, vests with the Commission on an application by a member of the company or the Registrar of the Commission. Ss. 256 & 257---Investigation of company's affairs in other cases---Scope---Sections 256 & 257 of the Companies Act, 2017 being intertwined with one another, cannot be read in isolation to one another---Both sections are in pari materia and thus must be construed together---Ultimate outcome of the provisions being intertwined with one another leads to the conclusion that in order to invoke S. 257, it is mandated that any complainant must have some form of link or nexus to the affairs of a company---Section 256 categorically clarifies that the link or nexus required to have the affairs of any company investigated is the holding of membership in such company in the manner as is categorically mentioned in S. 256 of the Act.

TARIQ IQBAL MALIK vs MULTIPLIERZ GROUP PVT — 2022 CLD 468 LAHORE-HIGH-COURT-LAHORE

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