We acted for a majority shareholder of a well-known textile manufacturing company in defending a petition brought in the Sindh High Court by a minority shareholder under section 286 of the Companies Act, 2017 (the Act), alleging oppression and mismanagement.
We raised a preliminary issue of standing before the High Court, contending that the petitioners did not cumulatively hold the minimum 10% shareholding in the company required to maintain the petition. The petitioners argued that they held the necessary shareholding by virtue of the general principle of Islamic inheritance law, under which a person’s estate devolves upon the legal heirs in proportion to their respective shares immediately upon death.
As the Act is relatively new legislation, most of the available reported judgments on minimum shareholding are related to the period when the corresponding provision, section 290 of the Companies Ordinance, 1984, was in force. These judgments held that the shareholding threshold had to be strictly enforced and could not be treated as a mere technicality. We also argued that the general principle of Islamic inheritance law was overridden by section 78 of the Act, under which shares of a deceased member can be transferred to legal heirs only upon an application to the company duly supported by a succession certificate or lawful award.
The High Court ultimately dismissed the petition, holding that the minimum shareholding requirement had to be applied strictly and that the petitioners did not have the minimum shareholding required to maintain the petition. The High Court agreed with our argument that section 78 of the Act was a special law and, therefore, over rode the general principle of Islamic inheritance law that the estate devolves on legal heirs immediately on death.
The decision underlines how important it is for legal heirs of shareholders to complete the procedure for transfer of shares prescribed in section 78 of the Act so that they can invoke their statutory rights as company members.
Our team for this matter comprised Pakistan Partner Omer Soomro and Associate Zahid Ali Sahito.
