livelawpk.com - Non-Compliance with Corporate Governance Rules, such as fail

Non-Compliance with Corporate Governance Rules, such as failing to properly convene a meeting, renders any decisions or documents resulting from such meetings invalid --- Lahore High Court

4 months
71

Non-Compliance with Corporate Governance Rules, such as failing to properly convene a meeting, renders any decisions or documents resulting from such meetings invalid --- Lahore High Court

Islamabad 19-08-2024: In a significant ruling, the Lahore High Court has invalidated the Extraordinary General Meeting (EOGM) of Shahid Mahmood & Company (Pvt.) Limited, held on December 31, 2020, after finding serious procedural lapses and non-compliance with the Companies Act, 2017. The Court’s decision came in response to a petition filed by Shahid Mahmood & Company and two other petitioners, challenging the legality of the EOGM and subsequent corporate actions.

The petitioners, represented by Advocate Bilal Kashmiri, argued that the EOGM never took place and that the respondents, Zahid Mahmood and others, fabricated documents to exclude them from the management of the company. The petitioners claimed that mandatory provisions of the Companies Act, 2017, particularly sections 55, 133, 158, and 159, were violated, as no notices were issued, and no proper meeting was convened. These alleged violations led to the filing of backdated and fraudulent documents with the Securities & Exchange Commission of Pakistan (SECP).

The respondents, in defense, argued that the EOGM was valid and that the petition was filed beyond the statutory 30-day period allowed under sections 136 and 160 of the Companies Act, 2017, for challenging corporate actions. However, the Court, presided over by Mr. Justice Sultan Tanvir Ahmad, rejected this defense, noting that the statutory time limit applies only if a valid meeting or election has occurred.

In his judgment, the Court emphasized the importance of strict compliance with statutory requirements for convening meetings and issuing notices, as mandated by the Companies Act, 2017. He pointed out that the respondents failed to provide any evidence of notices being issued or a meeting being held, thereby supporting the petitioners’ claims of procedural fraud.

Citing precedents from the Sindh High Court and Lahore High Court, the judgment underscored that non-compliance with corporate governance rules, such as failing to properly convene a meeting, renders any decisions or documents resulting from such meetings invalid.

As a result, the Court declared the EOGM of December 31, 2020, and all associated actions, including the appointment of directors, as invalid. The Court directed that a fresh general meeting be held in accordance with the law, under the supervision of an SECP officer, to ensure proper compliance with the statutory requirements. The Court clarified that the ruling does not affect any third-party transactions or actions taken by the company outside of this dispute.

This ruling reaffirms the judiciary’s commitment to upholding corporate governance standards and ensuring that statutory procedures are rigorously followed in the conduct of company affairs.