2005 PLP 1098 (CLD)

MAULVI ANWARUL HAQ, J.

On 20-12-1988, respondent-Bank filed a suit for recovery of Rs.1,45,075.14 against the appellants. According to the plaint, the appellant No.2 is the sole proprietor of appellant No.1 and an account was opened in the said business name. A running finance facility limit of Rs.2,00,000 was also allowed against the securities mentioned in paras.5, 6 and 7 of the plaint. This finance was to be adjusted on or before 3-9-1986 but it has not been paid and the suit amount is due. In the first instance an ex parte decree was passed on 14-2-1989. An application for setting aside of ex parte decree was dismissed on 3-11-1994. However, an F.A.O. No.11 of 1995 filed by the appellant was allowed by this Court on 13-5-1999 and the case was remanded back for fresh decision of the said application. The decree was ultimately set aside on 3-4-2000. The appellant then filed an application for leave to defend the suit. Appellant No.2 objected that she had been wrongly described as wife of one Maqbool whereas she is unmarried. According to her, the entire amount of loan was adjusted. She then stated in detail that the Bank officers mentioned in the plaint used to take commission from her upon release of every consignment and on one occasion she failed to oblige them and they got a criminal case registered against her and got her arrested on 16-12-1985 under sections 420/406/506, P.P.C. and M.L.O. No.77 of 1986, registered vide F.I.R. No.530, Police Station, Mozang, Lahore. Learned Judge, Special Court, (Offences in Banks), Lahore held that no case stands made out and acquitted the appellant No.2 under section 265-K, Cr.P.C. vide order dated 31-1-1996. Her precise plea was that while the said case had been registered there was no occasion for Bank to have further allowed overdraft facility and she accordingly questioned the entries in the statement of accounts. This application was replied by the respondent-Bank. Learned Judge, Banking Court No.II, Lahore dismissed the application and decreed the suit as prayed for vide judgment and decree dated 13-9-2000.

2. The appellant in person has reiterated the grounds taken by her in her said application referred to by us above.

3. Learned counsel for the respondent-Bank has tried to support the impugned judgment and decree.

4. We have examined the trial Court records with the assistance of the learned counsel for the respondent-Bank. Now the respondent-Bank had appended statement of accounts with its plaint. It is present at pages 49 to 53 of the trial Court file. We do find that on 30-10-1985 Rs.2,00,000 were released as an overdraft. Thereafter balance remained in debit till 5-1-1986. On 9-1-1986, a sum of Rs.5,00,000 was credited and then on the said date a sum of Rs.770,884.80 was credited making credit balance of Rs.10,729,92.86. It was, thereafter that debit entry of Rs.1,350,122 was made making a debit balance of Rs.277,129.14. Final figures shown in this statement of account is the said suit amount.

5. Now the learned trial Court in the impugned judgment which is rather sketchy proceeded to throw aside the grounds in the application for leave to appeal and has apparently not even glanced at the said statement of account. He has referred to the said overdraft of Rs.2,00,000 and then has proceeded to observe that there is no proof regarding adjustment of finance facility whereas the said statement of accounts itself goes to show that a facility stood adjusted on 9-1-1986 and credit balance was recorded in the statement of the accounts. Because of non-reading of the statement of accounts, learned trial Court has brushed aside the very serious allegation supported by judicial records made in the said application for leave to defend by the appellant. Had the learned trial Court examined the said statement of accounts it was bound to call upon the bank to explain as to how an over draft was given after adjustment of the earlier facility to the appellant against whom a case had been registered a few days earlier by the same officer who had made entries in the statement accusing her of fraud and misappropriation. We leave the matters here lest it may prejudice any of the parties in the trial.

6. R.F.A. is accordingly allowed and the impugned judgment and decree dated 13-9-2000 passed by the learned Judge, Banking Court-II, Lahore is set aside. We grant leave to defend to the appellants who shall accordingly file their written statement. A copy of this judgment along with trial Court records be immediately remitted to the said Court who shall summon the parties and proceed further accordingly.

7. No orders as to costs. S.A.K./F-34/L Appeal accepted. 2005CLD 1101 [Securities and Exchange Commission of Pakistan] Before Etrat H. Rizvi, and Shahid Ghaffar, Commissioners KARIM SILK MILLS LIMITED

Appellant Versus COMMISSIONER (ENFORCEMENT AND MONITORING) SEC and another

Respondents Appeal No.1 of 2004, heard on 6th May, 2004. Companies Ordinance (XLVII of 1984)

Ss.305 & 309

Securities and Exchange Commission of Pakistan Act (XLII of 1997), S.33

Winding up of company

Appeal against

Appellant-Company had failed to hold 11 Annual General Meetings from 1992 onwards; its business had also been suspended since. 1993 and it had failed to comply with various other mandatory legal requirements

In the light of all said facts Additional Registrar concerned approached the Commission for grant of sanction in terms of S.309 of Companies Ordinance, 1984 for winding up of company

Commissioner, after hearing appellant granted sanction under clause (b) of S.309 of Companies Ordinance, 1984 for winding up of Company

Appellant-Company admittedly had failed to hold its Annual General Meetings under both previous and new managements

Provisions of S.305 of Companies Ordinance, 1984 did not require that default committed by Company should be wilful

Though it was contended that management of Company intended to revive the Company, but no plan for such revival had been presented

Even management had accepted that Company existed only on paper

Holding of Annual General Meetings later on, could not be considered as rectifying the dire situation in which Company stood today

Order of winding up of Company passed by Commissioner being reasonable, was upheld and appeal against that order was dismissed. Muhammad Farooq, Director for Appellant. Mubasher Saeed, Joint Director SEC for Respondents. Date of hearing: 6th May, 2004. ORDER Through this order we intend to dispose off Appeal No.1 of 2004 filed under section 33 of the Securities and Exchange Commission of Pakistan Act, 1997 by Karim Silk Mills Limited (the "appellant-Company") against the order dated 31-12-2003 (the 'impugned order') passed by Commissioner (Enforcement and Monitoring):

1. The facts of the appeal are that the appellant-Company has failed to hold 11 annual general meetings from 1992 onwards. Its business has also been suspended since 1993 and it has failed to comply with various other mandatory legal requirements. The financial condition of the appellant-Company as shown by the last available annual accounts for year 1991 revealed that the accumulated losses of the appellant-Company stood at Rs.111,373,

432. Its fixed assets stood at Rs.18,232,558, current assets at Rs.18,489,430, whereas its current liabilities at Rs.138,184,

125. It was in light of all these facts that the Additional Registrar concerned approached the Commission for grant of sanction in terms of section 309 of the Companies Ordinance, 1984 ("Ordinance") for winding up the appellant-Company. A notice dated 11-08-2003 was issued by the Commissioner (Enforcement and Monitoring) to the appellant-Company and its management to show cause as to why the sanction may not be granted to the Registrar. After providing them an opportunity of hearing, the Commissioner (Enforcement and Monitoring) granted the sanction to the Registrar under clause (b) of section 309 of the Ordinance vide the impugned order.

2. The appellant has preferred this appeal before us against the impugned order, which was heard on 6-5-2004. Mr. Muhammad Farooq, director of the appellant appeared before us on the said date on behalf of the appellant-Company. Mr. Farooq contended that the default committed by the appellant-Company was not wilful and in fact due to circumstances which were beyond its control. He stated that the present management had sold the appellant-Company to a new management controlled by Haji Hashim Group in August, 1993, which continued to manage the appellant-Company till 1999 when the present management re-acquired it. He stated that the defaults had been committed by that new management. He further stated that the reason for reacquiring the appellant-Company was the indifferent attitude of that new management and the consequent loss to the appellant-Company and its shareholders. He stated that the Haji Hashim Group was only interested in acquiring the assets of the appellant-Company and not running it. He stated that after re-acquiring the appellant-Company, the present management bought the shares of the minority shareholders at a handsome premium when the market value of the said shares was less than Re.1 per share. This, he argued proves the honourable intentions of the present management. He stated that the appellant-Company had now held all 12 of its AGMs. He accepted that the company only existed on paper and had no assets whatsoever. He however contended that the appellant-Company had a goodwill and the management should be allowed to sell the company, or in the alternative wind it up voluntarily. He prayed that the impugned order may be set aside.

3. Mr. Mubasher Saeed, Joint Director appearing on behalf of Commissioner (Enforcement and Monitoring) contended that section 305 states that a company may be wound up by the Court, if inter alia, default is made in holding any two consecutive annual general meetings, and/or if the company suspends its business for a whole year. In the case at hand, the Company failed to hold 11 consecutive AGMs and has suspended its business for more than 11 years. He argued that even if the AGMs have now been held, the appellant-Company had still not started its business. He pleaded that the appeal should be dismissed and the impugned order be upheld.

4. We have heard both the parties in detail and considered their arguments. The appellant-Company has been in constant default as to the mandatory statutory requirements. Its business has been suspended since 1993 and it has not held its AGM or prepared its accounts for the past 11 years making it virtually impossible for the shareholders to know about the affairs of the Company. Mr. Farooq's contention that the default of not holding the AGMs was committed by the new management is not entirely correct as he himself has informed us that the present management had reacquired the appellant-Company in 1999, and the AGMs were not held till 2004. In any case the issue here is not about placing the fault. The appellant-Company failed to hold its AGMs under both the managements. And the requirement under section 305 being default in holding any two consecutive annual general meetings, and/or suspension of business for a whole year has been fulfilled. Moreover, section 305 does not require that the default committed by the company should be wilful. Although Mr. Farooq has contended that the management intends to revive the Company, however no plan for such revival has been presented. More importantly, even the management accepts that the appellant-Company exists only on paper, and it also foresees its eventual winding up. In these circumstances, the holding of AGMs now by the appellant-Company cannot be considered as rectifying the dire situation in which the Company stands today. We therefore, find no justification for the appellant-Company to continue existing as a shell company. The order of winding up passed by the Commissioner being reasonable in the situation is upheld. The appeal is dismissed. H.B.T./10/SEC Appeal dismissed.