The statutory unfair prejudice remedy for minority shareholder protection in Pakistan. Difficulties of section 290 of the Companies Ordinance 1984

Publication Date28 December 2012
Pages67-87
DOIhttps://doi.org/10.1108/13590791311287373
AuthorKhurram Parvez Raja
SubjectAccounting & finance
The statutory unfair prejudice
remedy for minority shareholder
protection in Pakistan
Difficulties of section 290 of the Companies
Ordinance 1984
Khurram Parvez Raja
Abu Dhabi University, United Arab Emirates
Abstract
Purpose The unfair prejudice remedyas contained in s.290 of the Companies Ordinance 1984 entitles
a member with a shareholding of twenty percent or more to petition to the court for suitable and
appropriate court orders in circumstances where the member has been unfairly prejudiced. The major
difficulties and complexities emerging from the examination of s.290 relates to (but not limited to)
locus standi, high cost of litigation due to the length and complexity of the unfair prejudice litigations,
lacunas in share valuation, cumbersome court procedures, low quality of pleadings, unethical conduct of
lawyers, etc. The purpose of this paper is to shed light on these topical questions. It is contended that the
legislature and the courts will have a strong role to play in providing clarity and certainty to the law.
Design/methodology/approach – The first part provides a brief overview of the statutory unfair
prejudice remedy contained in s.290. The second part discusses the concept of unfair prejudice in the
United Kingdom and its difficulties. The third part provides a framework of the unfair prejudice
remedies available under s.290 and discusses the inefficiencies and shortcomings of the remedy.
Findings – This article concludes that the statutory unfair prejudice remedy in Pakistan is inefficient
and inadequate to redress personal and corporate wrongs in an unfair prejudice petition. The
deficiencies of the statutory unfair prejudice remedy pose a challenge to the minority shareholders and
the overall corporate governance and corporate law regime in Pakistan.
Originality/value – This article sheds light on the complexity and difficulty of the statutory unfair
prejudice remedy, as contained in s.290 of the Companies Ordinance 1984 from a comparative law
perspective.
Keywords Pakistan, Legislation, Shareholders,Minority shareholders, Unfairlyprejudicial conduct,
Prejudicial tothe public interest, Courts powers,Summary proceeding, Remedies, Comparative law
Paper type Research paper
The statutory unfair prejudice remedy in Pakistan: introduction
In Pakistan, the broadly worded s.290 unfair prejudice remedy has been at the forefront
of the remedies available to safeguard the rights and interests of minority shareholders
(Payne, 2005). The unfair prejudice remedies in ss.994-996 in UK cover a wide variety
of acts of misconduct and give the courts extensive discretion to grant remedies.
Minority shareholder remedies also exist in other common law jurisdictions such as
Malaysia[1], Singapore[2], Hong Kong[3], Australia[4], New Zealand[5] and Canada[6].
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1359-0790.htm
This article is a revised version of part of the author’s PhD thesis entitled “Corporate governance,
minority shareholders’ rights and remedies in Pakistan (a comparative study)”. It was written
while the author was a PhD student at the School of Law, Lancaster University, UK.
Section 290 of
Companies
Ordinance 1984
67
Journal of Financial Crime
Vol. 20 No. 1, 2013
pp. 67-87
qEmerald Group Publishing Limited
1359-0790
DOI 10.1108/13590791311287373
The scope of shareholder remedies under the Pakistan Companies Ordinance 1984 is
substantially broad. The provision contained in s.290 provides general protection from
oppression for minority shareholders. There is a risk that companies operate entirely in
the interests of controlling shareholders and the interests of minority shareholders are
frequently ignored. The unfair prejudice remedy entitles a member with a shareholding
of twenty percent or more to petition to the court for suitable and appropriate court
orders in circumstances where the member has been unfairly prejudiced. This article
attempts to examine the Pakistan statutory unfair prejudice remedy, as contained in
s.290 of the Companies Ordinance 1984, from a comparative law perspective.
The first part of the article provides a brief overview of the statutory unfair prejudice
remedy contained in s.290. The second part discusses the concept of unfair prejudice in
the UK and its difficulties. The third part provides a framework of the unfair prejudice
remedies available under s.290, discusses the inefficiencies and shortcomings of the
remedy to redress personal and corporate wrongs in an unfair prejudice petition,
highlights the deficiencies of the remedy in the context of locus standi, length and
complexity of the unfair prejudice proceedings, lacunas in share valuation, cumbersome
court procedures, low quality of pleadings, unethical conduct of lawyers, courts
reluctance to exercise its power to award damages and interests and finally, courts
reluctance to conduct summary proceedings in order to curtail the lengthy procedure s
provided under the Civil Procedure Code. It is therefore contended that in order to
protect the rights and interests of minority shareholders, the legislature and the courts
will have a major role to play in the development of unfair prejudice remedy in Pakistan.
Unfair prejudice remedy: overview of the legislation Statutory provisions
Unfair prejudice petitions
In the UK, the statutory unfair prejudice remedy has provided the principal remedy for
minority shareholder oppression[7]. Previously one of the most dormant areas of company
law, due to the strict requirement laid out in s.210 of the Companies Act 1948[8], the
adoption of the language “unfair prejudice”[9] within the current version of the statutory
protection was a purposeful attempt “to free the court from technical considerations of
legal right and to confer a wider power to do what appeared just and equitable.”[10]
In Pakistan, Companies Ordinance 1984, s.290 provide members with an unfair
prejudice remedy to protect the rights and interests of minority shareholders. This
mechanism was derived from the language of s.210 of the Companies Act 1948[11]. S.290
provides the statutory basis for the unfair prejudice remedy. A “complainant” can
invoke the power of the court:
(1) If any member or members holding not less than twenty percent of the issued share capital
of a company, or a creditor or creditors having interest equivalent in amount to not less than
twenty percent of the paid-up capital of the company, complains, or complain, or the 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 prejudicial to the public
interest, such member or members or, the creditor or creditors, as the case may be, the
registrar may make an application to the court by petition for an order under this section[12].
The language of s.290 is considerably different from the equivalent UK provisions for
two reasons: first, the scope of the Pakistan minority shareholders protection remedy
JFC
20,1
68

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