1997CLC 230 (PLP)

(e) if the company is unable to pay its debts; ,

306. Company when deemed unable to nay its debts‑‑(1) A company shall be deemed to be unable to pay its debts‑‑ (b) if execution of other process issued on a decree or order of any Court or any other competent authority in favour of a creditor of the company is returned unsatisfied in whole or in part; or (c) if it is proved to the satisfaction of the Court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the Court shall take into account the contingent and prospective liabilities of the company."

6. It was argued by Mr. M.A.M. Namazi, that since the amount claimed by the petitioner is bona fidely disputed by the respondent, therefore, the company is not liable to be wound up and secondly that the proceedings amount to abuse of process of law as the petitioner is seeking recovery of so‑called dues through execution of an award passed at Saudi Arabia, which cannot be executed unless and until it is made rule of the Court or a judgment is passed on such foreign decree. He has strenuously contended that the company has a good financial status; it has no other liability and therefore it cannot be wound up. In support of his submissions, he has referred to the following cases:‑‑ (i) Abdul Malik Badruddin v. Grosvenor Casino Limited PLD 1993 Kar. 449; (ii) Messrs Adage Advertising, Lahore v. Messrs Shezan International Ltd. 1970 SCMR 184; (iii) Hashmi Can Company Limited v. K.K. & Co. (Private) Limited 1992 SCMR 1006. (iv) Mulla Abdullahbhai and 9 others v. Saria Rope Mills Ltd. PLD 1971 Kar. 597; and (v) Ulbricht's Wwe. Ges M.B.H., Austria v. Ulbricht's (Pakistan) (Private) Ltd. PLD 1992 Karachi 249.

7. Mr. Gulzar Ahmed has referred to the case of PICIC v. Indus Steel Pipe 1993 MLD 94 in support of his contention that once a statutory notice is served upon a company by its creditor to pay the debts and in response, if the company fails to pay the same this is sufficient ground to attract the provisions of section 306 ‑ of the Companies Ordinance, 1984. But, this is not the only condition for passing an order of winding up. In my view, there are other factors which are to be considered before passing an order for winding up of a company which were also discussed in the case of PICIC. The questions whether there exists any bona fide dispute regarding the debts of a company and whether the petition for winding up is filed with the object of putting pressure upon a company to pay its debt are also relevant factors to be considered by a Court while passing winding up order. The object is not to coerce a Company to make payment to an unpaid creditor, but to secure discontinuation of the functions of a Company, which has ceased to be commercially solvent. (For reference see the case of Federation of Pakistan v. The Standard Insurance Co. Ltd. PLD 1986 Karachi 409, M/s. Madhusudan Gorhandas & Co. v. Madhu Woollen Industries Pvt. Ltd. AIR 1971 SC 2600 and Bengal Luxuri Cotton Mills Ltd. and others v. Madhuluxmi Cotton Mills Ltd. and others AIR 1955 Calcutta

273. In this regard Mr. Namazi has also referred to the two cases, Mulla Abdullahbhai PLD 1971 Karachi 597 and Ulbricht's Wwe. PLD 1992 Karachi

249. For further reference please see the following cases:‑‑ (i) P. Satyarazu v Guntur Cotton, Jute and Paper Mills Company Ltd. AIR 1925 Madras 199; (ii) Federation of Pakistan v. The Standard Insurance Company Ltd. PLD 1986 Karachi 409; (iii) Khyber Textile Mills Ltd. v. Allied Textile Mills Ltd. 1989 CLC 1167; (iv) Trade and Industry Publication Ltd. v. I.D.B.P. PLD 1990 SC 768; and (v) I.D.B.P. v. Modern Poultry Farm 1990 CLC 1030.

8. The case of Allahabad High Court (W.T. Henley's Telegraph Works Company Ltd., Calcutta) referred by Mr. Gulzar Ahmed goes against the case of petitioner as in the said case, a learned Single Judge of Allahabad High Court has held that mere service of notice for payment of debt by a creditor on a solvent company does not entitle the creditor to a winding up order, if the company bona fidely disputes the existence of the debt. The cases cited by Mr. Namazi are fully attracted in the circumstances of the present case. The case of M/s. Tag Advertising, Lahore 1970 SCMR 184 pertains to section 162 of the repealed Companies Act, 1930 which is para materia to section 305/306 of the present Companies Ordinance, 1984. In this reported case, the principle laid down in Halsbury's Laws of England was referred and it was held that where a company has a bona fide dispute with the petitioner, order for winding up is not warranted. It was further held that the provisions of the Companies Act, 1930 are not vehicle of oppression and it is always discretionary with the Court to pass an order for winding up of a company. Recently, Hon'ble Supreme Court of Pakistan in the case of Hashmi Can Co. Ltd. 1992 SCMR 1006 again held ' that it is discretionary with the Company Judge to order winding up of a Company. The term debts used in sections 305 and 306 were interpreted in the following manner: "The conjoint reading of sections 305 and 306 makes it amply clear that the Company Judge has a discretion to order winding up of a company if it is unable to pay its debts and in spite of demand made by the creditors the debt remains unpaid. Obviously the same refers to the undisputed amounts payable by the company and not those which may be in dispute bona fide. Moreso when immediately on receipt under section 306 the creditor is informed of the reasons why the alleged debt is disputed and the matter is taken to the Court of law for adjudication. Refusal for cause to pay such debts cannot be regarded as negligence to pay as contemplated under section

306. Both the lower forums had the discretion to allow or disallow winding up of the company and we have not been convinced that the lower two forums have exercised their discretion illegally or with material irregularity."

9. It was also argued by Mr. Namazi that the Award given by the Head and two members of the Commercial Circle Bureau of Grievance, Kingdom of Saudi Arabia has no legal sanctity and cannot be executed in Pakistan through the Courts of law. It is not disputed that these Awards were not made rule of the Court in Pakistan nor any decree was obtained .in Pakistan on this award. In this matter, reference to the case of Abdul Malik Badruddin PLD 1993 Karachi 449 by Mr. Namazi is very relevant. In this reported case, a learned Division Bench of this High Court has held that a foreign judgment or decree does not operate proprio vigori in this country and is not capable of automatic execution by the Pakistani Courts. In the instant case, the petitioner has based its claim on an Award passed by a foreign Tribunal and not a judgment or decree passed by foreign Courts as defined in sections 2(6) and 13 of the C.P.C. No argument was advanced that such Award can be executed through Courts of Pakistan without adopting the procedures as prescribed in the Arbitration (Protocol and Convention) Act, 1937. All these circumstances suggest that the petitioners have filed the present proceedings for winding up of respondent company in order to pressurise it to recover the debts. The petitioner to show that the respondent company has become incapable of paying its debts tote other creditors or is heading towards insolvency cited no other instance. Mere unwillingness on the part of a company to pay its debts does not mean inability. (See Khyber Textiles Mills 1989 CLC 1167).

10. Resume of all the above case‑law indicates that where a company persistently failed to pay its debts, only then it is liable to be wound up at the instance of its creditors. But where the claim of the petitioner is doubtful and where the respondent is disputing such claim bona fidely then in such circumstances a creditor is not entitled to seek liquidation of company on the ground as provided in subsection (a) to section 305 of the Ordinance, 1984. I may also add here that under subsection 1(b) to section 306 of the Companies Ordinance, 1984, it is clarified that where execution or other process issued after a decree passed by a Court in favour of the creditor of the company remains unsatisfied then an order for winding up is to be passed.

11. In the instant case, the petitioner was required to show that the Award, passed at Saudi Arabia, has a legal sanctity and legally binding on the respondent and that the execution of such Award was returned unsatisfied'. The further requirement to grant an order of winding up is the presence of bona fide and genuine debt on the part of the Company which element is not present in the instant case. All that can be concluded is that the petitioner is trying to use this proceeding to pressurise the respondent for payment of its time‑barred debts which clearly amounts to abuse of process of law. I do not see any reason to order for the winding‑up of the company. Accordingly, J. Miscellaneous No.29/1993 is dismissed with no order as to costs. A.A./M‑124/K Application dismissed.