Arzoo Textile Mills Limited vs .

Form No:HCJD/C-121

ORDER SHEET

IN THE LAHORE HIGH COURT

RAWALPINDI BENCH, RAWALPINDI

JUDICIAL DEPARTMENT

Case No: C.O.No.01/2026 Securities and Exchange Arzoo Textile Mills Limited Versus Commission of Pakistan

S.No. of order/ Date of order/ Order with signature of Judge, and that of Proceeding Proceeding Parties or counsel, where necessary.

23.06.2026 Mr. Makael Azmat Rahim, ASC on behalf of the Petitioner alongwith M/s Aasim Shafi and Syed Jawad Hassan, Advocates.

M/s Syed Farhan Shah and Boo Ali Khan, Advocates/SSP on behalf of the Respondent alongwith Syed Asad Haider, ED.

The Petitioner has filed this Company Petition under Sections 279, 280 to 283 and 285(5) of the Companies Act, 2017 (the “Act”) with the following prayer:

“It is respectfully prayed that this Honourable Court may be pleased to serve notice of instant petition on the Registrar of Companies, Companies Registration Office, Securities and Exchange Commission of Pakistan, and pass the following orders, if the requisite statutory majority of members of the Petitioner and requisite statutory majority of the Creditors have approved the Scheme of Arrangement at meetings called by the order of this Honourable Court on the Petitioner's application made under Rule 55 of the Companies (Court) Rules, 1997:

(a)an order under Section 279(2) of the Companies Act, 2017 sanctioning the Scheme of Arrangement as set forth in Annexure "C" hereto so as to make the Scheme of Arrangement binding on the Petitioner, and on all persons with respect to the Petitioner including, but not limited

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to, the shareholders and creditors of the Petitioner,

(b)an order directing the release of any security / charges over the assets of the Petitioner in the manner stipulated in the Scheme of Arrangement;

(c)all necessary orders under Section 282 of the Companies Act, 2017 to give effect to the Scheme of Arrangement, and

(d)make such further order(s) as this Honourable Court may deem fit.”

2.Mr. Makael Azmat Rahim, ASC submitted that the Petitioner/Arzoo Textile Mills Limited is a public company limited by shares, originally incorporated as Arzoo Textile Mills (Private) Limited on 10.04.1991, and later converted into a public limited company through special resolution dated 30.09.1993. He further submitted that the Petitioner is engaged in textile manufacturing and related activities and has been running its business continuously since its incorporation. He contended that this petition has been filed under Sections 279, 280 to 283, and 285(5) of the Act, seeking sanction of a Scheme of Arrangement between the Petitioner and its Creditors, who are holders of Sukuk certificates issued by the Petitioner. He argued that due to various financial constraints, the Petitioner faced difficulties in fulfilling its obligations under the Sukuk issue, leading to legal proceedings initiated by the creditors. He submitted that in order to protect and revive the business and to avoid winding up, which would be detrimental to all the stakeholders, the Petitioner entered into discussions with the creditors to settle the outstanding liabilities. He added that after the

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detailed consultation and approval by the Board of Directors through resolutions dated 27.08.2025, a Scheme of Arrangement dated 06.02.2026 was finalized and approved, providing a feasible and lawful mechanism for settlement of all liabilities and revival of the company as a going concern. He further argued that the proposed scheme has been approved by the statutory majority of the members as well as creditors, and satisfies the requirements of Sections 279 to 283 and 285(8) of the Act. He pleaded that the arrangement would benefit all stakeholders, allowing the creditors to recover certain amounts payable to them in full and final settlement, while also enabling the Petitioner to continue its operations and preserve employment and economic contribution. He contended that there are no investigation proceedings pending against the Petitioner under Sections 256 to 275 of the Act and that all the statutory requirements, including submission of audited financial statements and notices under Rule 19 of the Companies (Court) Rules, 1997 (the “Rules”), have been duly complied with. He urged that the Scheme of Arrangement is fair, just and equitable, and that the Petitioner has fulfilled all procedural and substantive conditions required under the law. He lastly prayed that in view of the circumstances and in the interest of justice, this Court may be pleased to sanction the Scheme of Arrangement as prayed, to make it binding on the Petitioner, its shareholders, and the creditors, and to pass all necessary orders under the Act to give full effect thereto.

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3.During the course of arguments, upon a specific query from the Court as to whether the proposed Scheme of Arrangement had received the consent of all the secured creditors, Mr. Makael Azmat Rahim, ASC fairly submitted that the only reservation pertains to the dissenting vote cast by the National Bank of Pakistan Limited (the “NBP”), which has neither voted in favour of the Scheme nor issued the No Objection Certificate (the “NOC”). He, however, contended that the absence of the NBP's consent or NOC is not a legal impediment to the sanction of the Scheme because the same has been approved by the requisite statutory majority prescribed under Section 279(2) of the Act. He further submitted that any concern regarding the NBP's dissent or the protection of its security interests can adequately be addressed by this Court through appropriate directions while sanctioning the Scheme, without defeating the commercial arrangement approved by the overwhelming majority of the stakeholders. In support of his submissions, he has placed reliance on the law laid down in the cases of Paramount Spinning Mills Limited and others: in the matter of J.C.M. Petition No.5 of 2019 (2020 CLD 1443) [Sindh], Novatex Limited and another: in the matter of Judicial Miscellaneous Petition No.1 of 2022 (2023 CLD 1161) [Balochistan] and In the Matter of the Companies Act, 2017 and Beach Luxury Holdings (Private) Limited, Spencer and Company (Private) Limited and Physons (Private) Limited (2025 CLD 1438) [Sindh].

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4.Pursuant to the order dated 17.02.2026, the Chairman convened and conducted the meetings of the members and secured creditors of the Petitioner in accordance with Section 279(1) of the Act read with Rules 55, 57 and 61 of the Rules. Thereafter, the Chairman submitted his report before this Court on 18.03.2026 under Rule 57 of the Rules. The report confirms that due notices of the meetings alongwith requisite explanatory statement and copies of the proposed Scheme of Arrangement, were duly issued and served upon all the concerned stakeholders, including the Securities & Exchange Commission of Pakistan (the “SECP”) and all secured creditors of the Petitioner. The meetings were held in accordance with law and the voting was conducted after providing all stakeholders an opportunity to participate in the deliberations relating to the proposed Scheme. The Chairman has further certified that the Scheme of Arrangement was approved by the statutory majority prescribed under Section 279(2) of the Act, whereupon the following resolution was duly passed: “RESOLVED THAT the Scheme of Arrangement dated February 6, 2026, prepared under the provisions of Sections 279 to 283 and 285(8) of the Companies Act, 2017, for, inter alia, there structuring, settlement and payment of the existing financial obligations/liabilities of Arzoo Textile Mills Limited towards certain secured creditors, along with all ancillary matters thereto, placed before the meeting for consideration and approval, be and is hereby approved and adopted, along with any modifications/amendments required, or

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conditions imposed, by the creditors of the company or the Honourable Lahore High Court, Rawalpindi Bench, subject to sanction by the Honourable Lahore High Court, Rawalpindi Bench, in terms of provisions of the Companies Act, 2017. ” The Chairman's report further reflects that the requisite statutory majority, both in value and number as contemplated by the Act, voted in favour of the proposed Scheme. Consequently, the mandatory procedural requirement envisaged under Section 279(2) of the Act for seeking sanction of the Scheme by this Court stands fulfilled.

5.Pursuant to the notice issued by this Court, the SECP also submitted its report and parawise comments on 20.06.2026 by stating therein that the Commission has not objected to the Scheme of Arrangement on account of any procedural irregularity or violation of the provisions of the Act or the Rules. Rather, it has observed that the proposed Scheme may be considered by this Court strictly in accordance with law. However, the Commission has expressed reservation concerning the position of the NBP, one of the secured creditors covered by the proposed Scheme. According to the SECP, since the NBP did not vote in the Scheme during the creditors’ meeting and has not issued its NOC, this Court may consider directing the Petitioner either to obtain the consent/NOC of the NBP or otherwise satisfy the Court that the sanction and implementation of the proposed Scheme would neither prejudice nor

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adversely affect the NBP's contractual rights, security interests, or legal remedies, particularly with reference to the proposed release or discharge of securities contemplated under the Scheme. The SECP has, therefore, left the matter to the judicial satisfaction of this Court while emphasizing that adequate safeguards should exist to ensure that the proprietary and secured rights of the dissenting creditor are not impaired contrary to law.

6.I have heard the learned counsel for the parties at considerable length, examined the record with their able assistance, perused the report submitted by the Chairman under Rule 57 of the Rules, the report and parawise comments filed by the SECP as well as the Scheme of Arrangement proposed under Sections 279 to 283 and 285 of the Act.

7.The jurisdiction of this Court while considering a petition for sanction of a Scheme of Arrangement is not to substitute its own commercial wisdom for that of the stakeholders, but rather to examine whether the statutory requirements prescribed by the Act and the Rules have been duly complied with; whether the meetings of the members and creditors were convened and conducted in accordance with law; whether the statutory majority has approved the Scheme; whether the Scheme is fair, reasonable and bona fide; whether it is free from fraud, coercion or illegality and whether its implementation would be contrary to any provision of law or public policy. Once these conditions stand satisfied, the Court

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ordinarily accords sanction to the commercial arrangement approved by the overwhelming majority of stakeholders unless the Scheme is shown to be manifestly unfair or oppressive to any class of creditors or members.

8.The record shows that all procedural formalities contemplated under Sections 279 to 283 and 285 of the Act read with the Rules, have been complied with. Separate meetings of the members and secured creditors were duly convened after issuance of requisite notices and explanatory statements. The Chairman has categorically certified that the proposed Scheme of Arrangement has been approved by the statutory majority required under Section 279(2) of the Act. The SECP has also not pointed out any procedural illegality or statutory non-compliance which may impede the sanction of the Scheme. Furthermore, it has not been shown that any investigation or proceedings under the relevant provisions of the Act are pending against the Petitioner which may disentitle it from seeking relief under the aforesaid provisions.

9.Moreover, the proposed Scheme seeks to restructure the outstanding financial obligations of the Petitioner towards its secured creditors with the object of reviving the company as a going concern, preserving its business operations, safeguarding employment and maximizing recovery of outstanding liabilities. The Scheme appears to have been negotiated after extensive deliberations between the Petitioner and its

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creditors and reflects a commercially viable mechanism for settlement of liabilities in preference to liquidation or winding up, which would likely result in substantially lesser realization for all stakeholders. This Court finds nothing on the record to suggest that the Scheme is unfair, unconscionable or opposed to law or public policy. The only reservation expressed before this Court pertains to the absenting vote by the NBP, which has neither voted in favour of the Scheme nor issued its NOC. In this regard, it is noteworthy that the legislative intent underlying Section 279 of the Act is that once the prescribed statutory majority approves a Scheme of Arrangement and the same receives the sanction of the Court, the Scheme becomes binding upon all creditors or members of the concerned class, including those who voted against it or abstained from voting. The purpose of the statutory majority requirement is to ensure that the commercial decision of the class as a whole is not frustrated by the dissent of an individual creditor, provided that such creditor is treated fairly and its legal rights are not unjustly prejudiced. Consequently, while sanctioning the Scheme, it is considered appropriate to clarify that the implementation of the Scheme shall operate so as to extinguish and release any specific rights of the creditors strictly in accordance with the terms of the sanctioned Scheme and applicable law. In case any difficulty arises during implementation of the Scheme, the Petitioner may approach this Court for obtaining

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appropriate orders in light of the case laws/judgments already discussed above. This clarification sufficiently safeguards the legitimate interests of the dissenting secured creditor without frustrating the implementation of the Scheme approved by the requisite statutory majority.

10.For the foregoing reasons, this Company Petition is allowed. Resultantly, the Scheme of Arrangement dated 06.02.2026, placed on record as “Annexure-C”, is hereby approved under Section 279(2) of the Companies Act, 2017 and shall be binding upon the Petitioner, its shareholders, creditors, including the dissenting secured creditor, and all other persons concerned in accordance with Sections 279 to 283 and 285 of the Act. If the Petitioner has any difficulty in implementation of the Scheme, it can approach this Court under the provision of the applicable law. The Petitioner shall submit a certified copy of this order with the SECP as required under Section 279(3) and 282(7) of the Act.

(JAWAD HASSAN)

JUDGE

*Mãjîd