The Rawalpindi bench of the Lahore High Court (LHC) issued a significant ruling on Tuesday, redefining certain elements of partnership in a family business.

The decision came in response to a petition filed by two brothers, Shaukat Ali Noon and Arshad Ali Noon, against the control and ownership of a business outlet managed by their three siblings.

The petitioners approached the LHC, seeking either the liquidation of the family business or a court decree granting them an equal share in it.

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The case involved the family’s business journey, starting with a bakery in Rawalpindi in 1947 and evolving into Rahat Bakers, later renamed Tehzeeb Bakers due to legal disputes among the family members.

As per the petition, the deceased father of the petitioners and respondents initiated the business, and after his demise, joint business efforts commenced.

The dispute arose when the petitioners claimed that they were entitled to a 20 per cent share in the business based on partnership deeds dating October 29, 1994, October 28, 2002, and December 2, 2011.

They alleged that the respondents changed the business name and registration with the Securities and Exchange Commission of Pakistan (SECP) without providing them their due share.

During the court proceedings, Saqib Shafique, advocate for the petitioners, argued that the business, generating daily sales revenue exceeding Rs40 million, was not honoring the agreed-upon shares.

On the other side, Advocate Kashif Ali Malik, representing Khalil, countered that the petitioners were never legitimate members or shareholders and presented allegedly forged documents.

The court, in its observation, highlighted the requirements for intervention under Section 286 of the Companies Act, emphasizing the need for a member with at least 10 per cent of the issued share capital and a demonstration that the company’s affairs are being conducted unlawfully.

Moreover, the next requirement is that such a member or creditor has to satisfy the court by making an application that the affairs of the company are being conducted unlawfully.

The court pointed out that the law defines the modes of becoming a member of a company, firstly by subscribing to a memorandum; secondly by allotment of shares, and thirdly by entering their name in the register of members of a company in terms of Section 119 of the Companies Act.

It pointed out that the documents provided did not establish unlawful conduct, and thus, the petitioners couldn’t be declared partners due to a lack of compliance with the legal prerequisites.

The court’s ruling sets a precedent in defining the criteria for partnership claims in family businesses and emphasizes adherence to legal requirements in such disputes.

Companies Act 2017

Section 119 – Register of members.—(1) Every company shall keep a register of its members and any contravention or default in complying with requirement of this section shall be an offence punishable under this Act.
(2) There must be entered in the register such particulars of each member as may be specified.
(3) In the case of joint holders of shares or stock in a company, the company’s register of members shall state the names of each joint holder. In other respects joint holders shall be regarded for the purposes of this Part as a single member and the address of the person named first shall be entered in the register;
(4) A person guilty of an offence under this section shall be liable to a penalty of level 1 on the standard scale.

Section 286 – Application to Court.—(1) If any member or members holding not less than ten percent of the issued share capital of a company, or a creditor or creditors having interest equivalent in amount to not less than ten percent of the paid up capital of the company, complains, or complain, or the Commission or registrar is of the opinion, that the affairs of the company are being conducted, or are likely to be conducted, in an unlawful or fraudulent manner, or in a manner not provided for in its memorandum, or in a manner oppressive to the members or any of the members or the creditors or any of the creditors or are being conducted in a manner that is unfairly prejudicial to the public interest, such member or members or, the creditor or creditors, as the case may be, the Commission or registrar may make an application to the Court by petition for an order under this section.