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Main-family of Mustafa Centre caught in legal entanglement with step-family

A lawsuit has been filed against the family of the founder of the iconic Mustafa Centre at Syed Alwi Road, Mr Mustaq Ahmad, by his step-family.

It was alleged that Mr Mustaq, 67, who is also a shareholder and director of Mohamed Mustafa & Samsuddin Company Pte Ltd (MMSCPL), had "diluted the interests" of his step-family as the "beneficiaries of the Mustafa estate" through "two share allotments" that have increased Mr Mustaq's stake in the company.

The Plaintiffs cited, as an example, that "the 2001 share allotment exercise saw Mr Mustaq's share portion grow to 61.25 per cent of 13,340,000 MMS shares from 42.57 per cent of nine million shares, while the Mustafa estate's share fell from 22.07 per cent to 14.89 per cent".

The Plaintiffs also alleged that Mr Mustaq, who was referred to in the court papers as "the 1st Defendant", and his wife Ishret Jahan, had carried out the company's affairs in multiple other ways that they had deemed to be "oppressive" towards them as "minority shareholders".

Mr Mustafa Majid Khan, the family patriarch, died intestate, or without leaving a will, on July 17, 2001.

He was survived by his second wife Asia and their five children, as well as Mr Mustaq.

Mr Mustafa's six children and Madam Asia are beneficiaries of the Mustafa estate in varying portions under a Syariah Court Inheritance Certificate, and Mr Mustaq is the sole administrator and trustee of the estate.

Prior to MMS, Mr Mustaq said the business started in 1963 with him selling handkerchiefs in Campbell Lane at the age of 12. A partnership named Mohamed Mustafa and Shamsuddin Company (MMSC) was then formed on 11 July 1973 between Mr Mustafa and Mr Shamsuddin, of which Mr Mustaq was also named as a partner on 12 September the same year.

On 21 February 1989, Mr Mustafa and Mr Shamsuddin, a cousin of Madam Momina, the first wife of Mr Mustafa, had converted MMSC into a company "that each would hold shares in".

Later that year, Mr Mustafa became a shareholder and director, holding 19 per cent of the one million shares in the company.

In the same year, Mr Mustafa and Mr Shamsuddin, in the absence of the Mr Mustaq, had executed the Memorandum of Association and Articles of Association of MMSCPL (“MMSCPL Constitution”) to "govern their commercial relationship".

Article 7 of the MMSCPL dictates that "unless otherwise provided by special resolution, all unissued shares must first be offered for subscription to all shareholders in proportion to their existing shareholding before being issued".

The Plaintiffs believed that Mr Mustafa had intended an equal distribution of his shares in MMSCPL between the Plaintiffs and Mr Mustaq upon Mr Mustafa's death.

However, the Plaintiffs claimed that the Mustafa estate, together with Mr Shamsuddin and his estate after his death in April 2011, remained a minority shareholder in MMS.

The Plaintiffs have also alleged that the Mr Mustaq and his wife had engaged in "misappropriation of funds and assets" of the company by using "their controlling power at the MMS annual general meetings" to "pay themselves directors' fees amounting to an average of 51 per cent of the MMSCPL's net profits per year between 2001 and 2014".

The Plaintiffs also claimed that no dividends were paid to them between 2000 and 2013, and that the profits from the company had gone to Mr Mustaq and his wife, and not to any of the stakeholders, including the Plaintiffs.

Subsequently, it was alleged that the Defendants had attempted to misappropriate the company’s funds by "proposing substantial dividend payments in 2014, 2015, and 2016" in an attempt to “placate and buy off the Plaintiffs” before "contriving to stretch out the payments over twelve months to place pressure on the Plaintiffs to give up their claims”.

The Plaintiffs have also alleged that "between 2000 and 2015, the Defendants caused MMSCPL to extend multiple unsecured and interest free loans with no fixed terms of repayment [...] to themselves".

On top of the alleged loans, the Plaintiffs alleged that Mr Mustaq had “concocted sham transactions backed by sham invoices” to "create the false impression that MMSCPL was indebted to B.I. Distributors Pte Ltd, a company wholly owned by himself" and his wife in order to "siphon funds out of MMSCPL for his personal use".

It was also alleged by the Plaintiffs that Mr Mustaq had caused the company to "overstate the salaries of its employees in its applications for their work passes", which resulted in the difference from the "declared salaries" and the actual salaries being pocketed by Mr Mustaq "for his own benefit".

As of 2013, the company's net assets totalled to $308.23 million, with cash and bank balances at $40.26 million, while accumulated profits stood at $147.4 million.

Based on this 2013 total of $495.89 million, the Mustafa estate's value of 14.89 per cent was estimated to be around $74 million. 

In terms of redress, the Plaintiffs have sought:

(a) Declarations that the 1995 and 2001 Share Allotments are void and orders that they be set aside.

(b) An order that an independent expert be appointed to assess the losses allegedly suffered by MMSCPL as a result of the Defendants’ conduct.

(c) A declaration that the Defendants are jointly and severally liable to account to MMSCPL for all sums they wrongfully misappropriated and/or all benefits they wrongfully obtained pursuant to the acts set out at [11(b)] above.

(d) An order that MMSCPL be wound up.

In their defence, Mr Mustaq and his co-defendants claimed that "shares in MMS allotted to Mr Mustafa and Mr Shamsuddin after the partnership was incorporated were fully paid by Mr Mustaq".

The Defendants argued that Mr Mustaq "is in truth the “absolute and sole owner of all the shares in [MMSCPL]” and that "Mr Mustafa had only been given shares in MMSCPL "out of respect and goodwill".

The Defendants also held the position that Mr Mustaq had carried out the company's affairs on the basis of the aforementioned "1973 Common Understanding", which they have interpreted as Mr Mustaq being "the beneficial owner of all the shares in MMSCPL, notwithstanding that a number of those shares are registered in the names of Mr Mustafa and Mr Shamsuddin".

Consequently, they have made a counterclaim that an official declaration is made to reflect this, and for the subsequent rectification of the "share register of MMSCPL" to reflect the same.

The Defendants have also denied the aforementioned allegations raised by the Plaintiffs.

The Defendants have also added that due process was followed in the 1995 and 2001 share allotments, and said that the Plaintiffs had not made any objection to his conduct of affairs regarding to the Mustafa estate until 2016.

Mr Mustafa, Mr Shamsuddin and the Plaintiffs did not contribute financially to the defendants' businesses or MMS and merely treated MMS as "their personal cash machine", the Defendants added.

Assistant Registrar, Scott Tan, in delivering his judgement at the High Court Registrar on 4 July 2018, said in reference to the Plaintiff's grounds for filing the summons against Mr Mustaq and his co-Defendants:

Read fairly and in context, the “real injury” that the Plaintiffs complain of is not the financial losses arising from the misappropriations per se (if it were so, it would be debatable if this could be characterised as a personal claim, as these losses would accrue only to MMSCPL). Instead, the wrongful misappropriations have been relied on as evidence of the systemic nature of the abuse which they say, taken as a whole, signifies the Defendants’ wanton disregard of the Mustafa’s Estate’s interests as a minority shareholder and constitutes serious commercial unfairness (see Ng Kek Wee at [69]).

The essential remedy the Plaintiffs seek is that MMSCPL be wound up, which is relief that is only available under s 216 of the CA. While they did pray for restitutionary orders against the defendants (namely, orders that the defendants account for all sums allegedly misappropriated), these support, rather than supplant, the winding up order, as their object is to ensure that all sums belonging to MMSCPL are returned in order that there might be a proper account to all shareholders upon the company’s dissolution (see Sakae [CA] at [128]).

When viewed in this light, it is clear that the Plaintiffs’ “true complaint” is that the Defendants have used their positions in MMSCPL to cause the company’s assets to be diverted for their personal benefit (or, as the Plaintiffs put it rather more forcefully in their written submissions, that they have “treated MMSCPL as [their] personal piggybank”).

This has been described in a leading treatise as “the most singularly censurable form of oppressive conduct”, as it “disregards the common interests of the corporate participants and offends the basic expectation of the corporate participants to share in the assets and profits of the enterprise”.

The Plaintiffs were then ordered to "provide the Defendants with a copy of their proposed amended pleadings within two weeks" upon the date of the judgement for a separate hearing on "the propriety of the proposed amendments", on top of dealing with the "issue of costs".

Separately, on 10 July, Mr Mustaq has failed to strike out his step-family's lawsuit against him and his co-Defendants at the High Court, which indicates that the case will go on to be tried fully unless the assistant registrar decides to reverse the decision in the event that an appeal is made, according to The Straits Times.