ABDULLAH KHAN USMANI vs SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN S

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ABDULLAH KHAN USMANI VS SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN S. 62---Shares certificate to be evidence---Scope---Share certificate specifying the shares held by a person shall be prima facie evidence of title of the person to such shares. "Fraud by abuse of position"---Connotation---Scope---Person is found to have committed Fraud by abuse of position if he occupies a position in which he is expected to safeguard or not to act against the financial interests of another person, and such a person dishonestly abuses that position and intends by means of that position to (i) make a gain for himself or another, or (ii) to cause loss to another or to expose another to a risk of loss---Person may be regarded as having abused its position even though his conduct amounted to omission rather than act. S. 286---application to Court---Scope---Where a petition is filed under S. 286 on the grounds that the affairs of the Company are being conducted in a manner that is prejudicial to the interests of the Company or its members, and that the affairs as conducted constitute oppression, then the Court under S. 286 of the Companies act, 2017 is empowered to order for the compulsory purchase of shares of any members by the other members---Purchase of share, in circumstances, is non-consensual, as it is solely made on the basis of the order of the Court ultimately however, if any such order is made by the Court, then such a transfer shall also be recorded by the Company and any change of shareholders/members shall also be duly added in the Register of Members. Ss. 74, 76 & 62---Transfer of shares and other securities---Restriction on transfer of shares by the members of a private company---Shares certificate to be evidence---Scope---Name of a shareholder can be added or omitted by the Board of Directors by way of passing an ordinary resolution specifying that the name of such a member be added or such a member be omitted where the mode is through the transfer of shares as mentioned in S. 76---Mode of adding or removing such a name from the register is where the Board of Directors as per S. 74 has received an application along with a duly executed instrument of transfer signed and stamped by the transferor and transferee for the registration of shares, it enters the name in the register or omits from the same---Instrument of transfer, as stipulated in the Act, is the share transfer deed and the title to the shares is established through the share certificate issued under S. 62 of the Act. S. 76---Restriction on transfer of shares by the members of a private company---Scope---Company cannot register transfer of shares i.e. cannot add the name of the transferee or omit the name of the transferor unless a proper instrument of transfer duly stamped and signed by the transferor and transferee has been delivered to the company along with the script. S. 76---Restriction on transfer of shares by the members of a private company---Scope---Process for transfer of shares as mentioned in S. 76 of the Act must be complied with i.e. a notice must be issued to the Board of Directors by the prospective selling member indicating an intention to sell the shares, the Board of Directors upon such a requisition shall offer the shares to all the shareholders in proportion to their existing shareholding, upon acceptance by the shareholders of the offer so made a duly recognized instrument of transfer shall be executed between the parties (a share transfer deed). S. 126---Power of Court to rectify register---Expression 'without sufficient cause'---Scope---Whilst interpreting the phrase 'without sufficient cause' in the context of S. 126 of the Companies Act, 2017, the question before the Court is whether a justifiable cause has been provided for the act of removing a member from the register of members or whether a justifiable excuse is provided for failing to enter the name of a member in the register. 'Sufficient cause'---Connotation---Scope---Sufficiency of a cause depends upon the facts and circumstances of each case and it is for the conscience of the Court to decide as to what constitutes sufficient cause. "Fraud by misrepresentation"---Explanation---Scope---Person is held to have committed fraud by misrepresentation if he dishonestly makes a false representation and intends by that misrepresentation to, (a) make a gain for himself, or (b) to cause a loss to another or to expose another to risk of loss---Representation is held to be false if, (a) it is untrue or misleading, and (b) the person making it knows that it is, or might be untrue or misleading. S. 126---Limitation Act (IX of 1908), Preamble---Power of Court to rectify register---Limitation---Limitation Act, 1908 is applicable on petition under S. 126 of the Companies Act, 2017 and the limitation starts to run from the time when the right to apply accrues and not from the date of knowledge. S. 17---Memorandum and Articles---Scope---If, in the event the money payable by a subscriber in pursuance of his undertaking in the Memorandum of Association against the shares subscribed is not paid within thirty days of incorporation of the Company, then in such circumstances the shares are deemed to be cancelled and the name of such a subscriber by virtue of law is to be removed from the Register of Members the consent of such a member is not required. Ss. 5 & 14---Civil Procedure Code (V of 1908), O. IX, Rr. 4 & 9---Expression 'sufficient cause', explained---Scope---In the context of sections 5 and 14 of the Limitation Act, 1908, 'sufficient cause' is interpreted narrowly in a sense that negligence or lack of due diligence on part of a party would render it unable to show that sufficient cause existed, this is so primarily owing to the phrase 'good faith' as used in S. 14 of Limitation Act, 1908---'Sufficient cause' as used in O. IX, Rr. 4 & 9, C.P.C., is interpreted rather liberally so even in circumstances where a party has acted with negligence or failed to exercise due care, the Court may still decide that sufficient cause exists to allow the restoration of a suit or allow a party to pay the requisite court fee, as the circumstances may be. "Fraud"---Connotation. "Sufficient cause"--- Connotation--- Scope--- "Sufficient cause" means a good cause, a just cause, a lawful cause, and there is no hard and fast rule and no absolute criteria can be set forth as to what constitute 'sufficient cause'---What is a 'sufficient cause' always depends upon the facts of the case, however a party must show a legally sufficient reason as to why a request should be granted or the inaction/omission should be excused, i.e. the judicial conscience of the Court must be satisfied with justifiable reasons. Ss. 74, 75, 76 & 126---Transfer of shares and other securities---Board of Directors not to refuse transfer of shares---Restriction on transfer of shares by the members of a private company---Power of Court to rectify register---Scope---Executed instrument of transfer, as per S. 74, shall after completion of procedure detailed in S. 76 be submitted to the company to register the same and to add and omit the name of the transferee and the transferor as the case may be---Subsequently, when a duly executed transfer deed signed and stamped by the transferor and transferee is tendered to the Board of Directors of a private limited company, then in such circumstances the Board as per Ss. 74 & 75 of the Act is bound to register the transfer of shares i.e. to add and omit the name of the transferee and the transferor respectively and failure of the Board to register the same shall grant the aggrieved party the right to move the Court under S. 126 for rectification of the Register of Members. 'Sufficient cause'---Connotation---Scope---Ultimately the discretion lies with the Court to decide based upon the facts of the case as to whether such satisfactory or acceptable reasons/justifications have been provided so as to constitute a 'sufficient cause'. Ss. 119, 183 & First Sched., Table A, Reglns. 47 & 50---Register of Members---Powers and duties of Board of Directors and Directors---Scope---Requirement to maintain a Register of Members is provided under S. 119 of the Companies Act, 2017, which provides that a company shall maintain a Register of all Members of the company---As per Regulations for management by a company, contained in the First Schedule Table-A, of the Act, Regln. 47 thereof provides the duties and responsibilities of a director of the company according to which the directors of the company may exercise all such powers of the company as are not specifically required to be exercised in a general meeting including the business of the company---Further, Regulation 50 provides that the directors shall comply with all the provisions of the Act pertaining to the Register of Directors and Members---Although S. 119 of the Act itself does not stipulate any express requirement to the scope that a register shall be maintained or names shall be entered or omitted only through a general meeting, thus as per S. 183 of the Act, such powers must be exercised by the Board of Directors of the company who may authorize any officer of the company to maintain the register and as such make addition or omission from the same and the same power would be exercised by the directors of the company or any person authorized by the Board of Directors with prior authorization through a Board resolution---Basic position arises that usually name of a member is only added or omitted where a transfer of shares has taken place and in such a situation a name of a member (the transferor) is omitted whilst the name of the new member (the transferee) is added---Mode of adding or omitting a member from the register shall then be in compliance with the requirements of Ss. 74, 76 & 77 of the Act. "Fraudulent alienation"---Connotation. S. 126---Limitation Act (IX of 1908), Art. 181---Power of Court to rectify Register---Limitation---Scope---Petitioner being one of the Directors of the company had 29,900 shares out of 30,000, he proceeded abroad for a few years and upon his return he gained knowledge about the transfer of his 29,900 shares in the name of respondents, as such, he sought rectification of the Register of Members---Respondents produced minutes of Board of Director's meeting, whereby it was resolved that the petitioner had voluntarily resigned from his post and the transfer deed was also produced---Validity---Held, it could not be said that petitioner's 29,900 shares were transferred fraudulently or without sufficient cause and no valid reason or evidence was provided by the petitioner to substantiate his claim---Application filed by petitioner after a period of ten years from the date of transfer i.e. accrual of right to file application was time barred---Petitioner at one point was Director of the company who had submitted annual returns and at that stage, his contention that he had gained knowledge of alleged transfer through the website of a Ministry, was not convincing in the sense that the petitioner was not a layman---Law itself had given several directions for a Director to keep in touch with the company record, inspect registers of directors and documents, file statutory annual returns once in each year which then became public record---Company registers were open to inspection by members under Ss. 74(4) & 124 of Companies Act, 2017 (of the Act)---Under S. 130 every company was bound to prepare and file an annual return once in each year---Under S. 205 of the Act changes in the names of Directors were to be duly notified to Securities and Exchange Commission of Pakistan (SECP)---Petitioner's company ran a Pakistan business of travel agency which required a yearly licence but nothing was placed on record by the petitioner---Respondents had proved that they were running the business activities after renewal of its licence---Petition was dismissed. Ss. 74, 75, 62, 126 & 127---Transfer of shares and other securities---Board of Directors not to refuse transfer of shares---Shares certificate to be evidence---Power of Court to rectify register---Punishment for fraudulent entries in and omission from register---Scope---Legal title to the shares is conferred by entry of the name in the Register of Members, whereas beneficial ownership is conferred when share certificates are issued---Consent of the members is seemingly evident, since the act of adding or omitting is merely being done on the basis of a consensual agreement submitted by the members---Powers of the Board to arbitrarily add or omit the names is further made subject to the provisions of S. 126 of the Act, which provides that a member may move the Court to have register rectified where his name has been added or omitted without a sufficient cause or fraudulently---Thus, inherently the power of the Board to alter the register is greatly curtailed, since on account of removing a member without any justifiable reason or fraudulently, the Directors may be exposed to the penal provisions of S. 127 of the Act and although the Board may practically do such an act, it would albeit be considered as illegal---In the normal course of business the name of a member cannot legally be removed without his consent. S. 5---Extension of period in certain cases---Condonation of delay---Sufficient cause---Scope---Sufficient cause means circumstances that are beyond the control of the parties. S. 126---Power of Court to rectify Register---Expression 'without sufficient cause'---Scope---Litigant is merely required to show that his name was removed 'without sufficient cause', and no express provision stipulates that a litigant must have acted in 'good faith'. S. 285---Power to acquire shares of members dissenting from scheme or contract---Scope---Where a scheme or contract involving the transfer of shares of any class of shares in the Company to another Company has been approved by shareholders of the selling company, then the Company purchasing the said shares may issue a notice to the dissenting shareholder refusing to sell his shares with the intention to acquire such shares and the transferee Company shall be entitled and bound to acquire the shares as per the terms of the scheme or contract and the Securities and Exchange Commission may order that the said shares be transferred to the transferee company---Name of the dissenting shareholder shall be omitted from the register without his consent and the name of the transferee company added, in circumstances. Sufficient cause---Connotation---Scope---Sufficient cause means something that is a satisfactory explanation for the Court for an action or some omission, it may be a justifiable reason, a cogent reason, a reason which satisfies the Court that a certain action should have been taken or a certain omission was justifiable/excusable---Whether sufficient cause is shown for an act or an omission depends upon the facts of the case and it is at the discretion of the Court to decide whether it is satisfied that sufficient cause has been shown for an action or a justifiable excuse is provided for an inaction. "Fraudulent purpose"---Meaning---Scope---Intention to go beyond the bounds of what ordinary decent people engaged in business would regard as honest. 'Sufficient cause'---Connotation---Scope---Sufficient cause connotes a justifiable excuse, cogent reasoning, convincing reasoning, reasoning that in the opinion of the Court is satisfactory for a certain act or a justifiable explanation for an omission. "Fraudulent act"---connotation. Ss. 74 & 126---Transfer of share and other securities---Power of Court to rectify Register of Members---Fraudulent transfer---Scope---Where a transfer deed is executed with the forged signatures of a transferee and then presented to the company for registration in the register; in such case, the company cannot question the genuineness or validity of the transfer deed, unless there is an apparent defect in the same, thus where the transfer deed so presented bearing the forged signatures of the transferee is presented to the company and the company proceeds to omit the name of the transferee shareholder and adds the name of the transferor on the basis of this fraud, then in such circumstances the name of the transferee member would have been omitted without his consent and snatched his legal title from him---Such a member shall have the remedy to appear before the appropriate forum, for cancellation of such a fake and bogus transfer deed and for rectification of the register under S. 126 of the Act. "Fraud by failing to disclose information"---Scope---Person is considered to have committed fraud by failing to disclose information if he dishonestly fails to disclose to another person information which he is under a legal duty to disclose and intends by failing to disclose such information (i) to make a gain for himself or another, or (ii) to cause loss to another or to expose another to risk of loss. S. 126---Power of Court to rectify Register---Expression 'without sufficient cause'---Scope---Expression 'without sufficient cause' connotes that in the opinion of the Court a good or justifiable reason was not provided for removing the name of a member from the Register of the Members. S. 126---Power of Court to rectify Register---Scope---Literal study of S. 126(1)(a) of the Companies Act, 2017, provides a right to make an application before the Court for the purposes of rectification of Register of Members or Register of Debenture holders of a company in a case where name of a person "fraudulently" or "without sufficient cause" was entered in or omitted from said Registers.

ABDULLAH KHAN USMANI vs SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN S — 2022 CLD 821 LAHORE-HIGH-COURT-LAHORE

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