P L D 1967 Karachi 44 (PLP)

QADEERUDDIN AHMED, J.-Letters Patent Appeals Nos. 98 and 100 of 1965 will be disposed of by this order.

2. These appeals have been filed against the judgment of our brother Kadir Nawaz S. Awan, J., dated the 8th of September 1965, by which he has confirmed his interim order appointing the Nazir of this Court to be the Receiver in the case. The order was made during the course of the proceedings which began with the presentation of a petition by Haji Abdul Ghani and his son Mohammed Amin under section 162 of the Companies Act (J. Misc. No. 68 of 1965) for winding up the Multiple Industries (Pakistan) Ltd. The petition was made against three shareholders of that Company namely Mohammad Arjumand Malik, Khalil Masood Mali and Javed M. Malik sons of Mohiuddin Malik without impleading the Company which was meant to be liqui dated. An interlocutory application was also made under Order XL, rule 1, C. P. C. with a prayer that the Nazir of this Court be appointed along with the petitioners or alone as the Receiver of the factory known as the Clifton Aerated Water factory, which is the sole business of the Company. The company is a private limited one in which the petitioners and the respondents were alleged by the petitioners to have the following shares: Rs. (1) Haji Abdul Ghani, applicant No. 1, 50 shares of Rs. 100.00 each of tae total value of 5,000.00 (2) Muhammad Amin, applicant No. 2, 450 shares of Rs. 100.(0 each of the total value of 45,000.00 (3) Muhammad Arjumand Malik, respondent No. 1, 300 shares of Rs. 100.00 each of the total value of 30,000.00 (4) Khalil Masood Malik, respondent No. 2, 200 shares of Rs. 1.00.00 each of the total value of 20,000.00 (5) Javed Mansoor Malik, respondent No. 3, 200 shares of Rs. 100.00 each of the total value of 20,000.00

3. The main petition and the interlocutory application were placed before a learned Single Judge with a note of the office who on the basis of that note ordered a notice to be issued to the respondents to show cause as to why the petition be not advertised terms of rule 701 of the Chief Court Rules (O. S.) but independently of the note appointed the Nazir to be the interim Receiver of the factory with full powers under Order XL, rule 1, C.P. C. and ordered that notice of the interlocutory application be sent to the respondents. These orders were made on the 21st of July 1965.

4. As a result of the above-mentioned notices the Multiple industries (Pakistan) Ltd., applied under Order I, rule 10, C. P. C. to be impleaded as a respondent and under Order XL rule 1 C. P. C. to get the Receiver removed. The Company submitted its reply to the main petition also. The three sons of Mohiuddin Malik, who were the respondents have also submitted their joint reply to the main petition as well as made an application under order XL, rule 1, C. P. C. for the removal of the Receiver. Since the interim appointment of the Receiver has been confirmed by the learned Single judge, the Company and the three sons of Mohiuddin Malik have separately preferred these Letters Patent Appeals,

5. The order which is the subject matter of these appeals can be said to consist of three parts. The first and main part of it deals with the objection of the present appellants that a Receiver could not be appointed because C. P. C. was not applicable to winding up proceedings. The second part deals with the objections that since the company was not impleaded as a party to the proceedings the petition was not maintainable. The third part deals with the prima facie merits of the main petition. Mr. G. H. Abbasi, who addressed the main arguments in support of these appeals, spent most of the considerable time that be took to press the proposition that the learned Single Judge could not appoint a Receiver because C. P. C. was not applicable to winding up proceedings which were governed by a special law known as the Companies Act, 191". In support of this contention he relied on sections 4 and 141 of C. P. C., on part (v) of the Companies Act, 1913 on "winding up" in general and on section 175 of that part in particular. We tried to find out from him if he would feel satisfied by a change in the designation of the Nazir who could be called a provisional liquidator and allowed to exercise control over the business if the circumstances of the case justified it. Counsel replied that the merits of the case could not be gone into because he had not addressed any arguments before the Single Judge on the merits of the case and had simply insisted that technically a Receiver could not be appointed. Such an appointment could not be made, according to him, even if C. P. C. applied because the terms of Order XL, rule 1, C. P. C. were not satisfied in this case. We drew the attention of counsel to the words "just and convenient" which occur in rule I of Order XL, C. P. C. to indicate that the considerations made relevant by these words involved some examination of the merits of the case but he replied that a Receiver could not be appointed because the company which was sought to be wound up was not a party to the proceedings. He was so reluctant to state the facts of the case that we requested Mr. Khalid Ishaq to do so, which he did satisfactorily. Perhaps Mr. Abbasi was over-confident of the correctness of his contention that C. P. C. could under no circumstances apply to winding up proceedings and was not very confident of the precise value of the facts that were alleged against his clients.

6. We propose now firstly to set out in outline the case of the petitioners and to reproduce the relevant provisions of law and in the second place to examine whether the petition for winding up the company is maintainable under the Companies Act, 1913, or not. If the petition is considered to be maintainable then only the question of appointing a Receiver or a provisional liquidator as an interim relief can arise: Thus in the third place we shall examine the applicability of C. P; C. to winding up proceedings. If C. P. C. is found to be applicable then in the fourth place it will be necessary to see whether the requirements of Order XL, rule 1, C. P. C. are or are not satisfied in this case.

7. In order to examine the maintainability of the petition it is proper to give here an out-line of the facts which are stated is the in petition, particularly because reliance has been placed on its contents in paragraph 5 of the interlocutory application that was made under Order X1., rule 1, C. P. C. Paragraphs 1 to 9 of the petition are not relevant for our purpose. Paragraph 10 contains an allegation that before the formation of the company the previous partners of the factory had conspired with Mohiuddin Malik the father of the three respondents, and borrowed Rs. 10,000 from the National Commercial Bank Ltd. whose General Manager Mohiuddin Malik is- "as the first step to burden the said concern with encum brances and to create conditions for introducing three sons of Mohiuddin Malik in the business of the partnership." No facts have been alleged to establish any connection between the previous partners and the father of 'tie respondents. Those partners retired (para. 11) and then Mohiuddin Malik allegedly persuaded the petitioners (para. 12) to borrow another Rs. 10,000 from the same Bank, with the object of creating further encumbrances and liabilities. With this object Mohiuddin Malik and the Chairman of the Bank namely Ali hasan Mangi allegedly (para. 13) proposed on 10-8-1960 that the partner ship of the petitioners be converted into a private limited company with 3 sons of Mohiuddin Malik as shareholders and that petitioner No. 1. "being the .head of the family will be given Rs. 1,000 monthly out of the profits by way of remuneration of Chairmanship of the proposed company." In paragraphs 14 and 15 it is stated that the partnership was consequently dissolved. its property was transferred by an unregistered deed to the newly formed company and that the shares of the company were allotted as set out in paragraph 2 above. Paragraphs 16 and 17 contain allegations that the Memorandum and Articles of Association, which in several respects do not confirm the above allegations, were not explained to the applicants. Paragraph 18 shows that Rs. 1,000 per month were not paid to petitioner No.

1. Mr. Abbasi has explained that varying amounts were paid to him from time to time. The total amount that was thus paid to him, according to paragraph 18 was Rs. 27,

000. These amounts, according to the same paragraph, were to be "technically treated as loans by the National Commercial Bank for the time being".

8. The above allegations constitute the background of the formation of the Company. They are intended to disclose that there was a fraud inasmuch as the petitioners were induced- "(i) to borrow money, . (ii) to form a private limited for taking the three sons of Mohiuddin Malik as shareholders in it, and (iii) to expect that petitioner No.1 will be the Chairman of the Company and will be paid Rs. 1,000 per month "being the head of the family." They do not disclose that there is anything wrong with the working or finances of the company.

9. In paragraph 19 of the application it is alleged that no meeting of the company was called, no statements of account were published, do accounts were shown and no profits were distributed. Simply an allowance of Rs. 100 was paid to petitioner No. 2 as the Resident Director. We may mention hire that according to paragraph 25 "the value of the Company's holding has increased manifold." The contents of paragraphs 19 and 25 of the petition read together do not prima facie establish that the company needs to be wound up for any reasons of business or finance.

10. As the value of the holdings has increased and there is no allegation of misuse of the property of the company, the allegations as to technical omissions can at best prove technical mismanagement. Paragraphs Nos. 20 to 24 contain allegations to show that the liability of repaying the loan of Rs. 27,000 was transferred from the National Commercial Bank to the Industrial Urban Co-operative Bank. This was allegedly done by persuad ing the petitioners to visit the Industrial Urban Co-operative Bank and there to pledge their shares in the company by signing documents in its favour. As a result of this transaction the latter Bank had given a cheque of Rs. 27,000 to the petitioner which was utilized by Mohiuddin Malik for paying the debt of the National Commercial Bank. Thereafter no payments were made to petitioner No.

1. On the contrary repayment of the amount advanced to him by Industrial Urban Co-operative Bank was demanded. Notices were received by petitioner No. 1 on or about the 17th of May 196-1, and on the 3rd of June 1964, threatening the auction of his shares but Mohiuddin Malik assured petitioner No. 1 that there was no reason to be afraid of them. On the 23rd of March 1965, the petitioners saw an advertisement in the Morning News that their shares were going to be auctioned. The significance of all the machinations that had allegedly taken place before the formation of the company as well as subsequently became suddenly clear to the petitioners when this notice was seen. The description of this realization is given in paragraph 23 (b) of the petition as follows: . "Suddenly the Petitioners realised the crushing nature of the fraud that had been practised on them. When they too k the advertisement to the respondents, the Respondents took up an attitude as if they were looking upon the Petitioners for the first time; and refused to discuss the problem raised by them at all. When the Respondent No. 2 who is a Resident. Director on paper approached the factory, he found to his dismay that the Chowkidar had been instructed to stop him from entering and if the Petitioner No. 2 should enter, he be thrown out by force, apparently this instruction was given on the assumption that the shares must have been auctioned. It is only when the Respondents 1-3 and their father learnt that auction of shares has been stopped that attempt to stop the petitioners from entering the premises was discontinued. That the Petitioners realized the Magnitude of the well- planned scheme to deprive them of their property when they suddenly realized that the giving of the initial loan by Mohiuddin Malik was to set stage for introduction of his sons in the company.

11. The above allegations relate to the circumstances in which the petitioners were about to lose their shares in the company but the loss of their interest in the company cannot be considered to be impairment of the company itself; therefore these facts are not relevant for deciding whether the company should be wound up or not.

12. In order to appreciate the legal value of the above allegations for winding up the company, it is proper to have a look at the relevant sections of the Companies Act. Section 162 of it is as follows :- "A company may be wound up by the Court-- (i) if the company has by special resolution resolved that the company be wound up by the Court: (ii) if default is made in filing the statutory report or in holding the statutory meeting: (iii) if the company does not commence its business within a year from it incorporation, or suspends its business for a whole year; (iv) if the number of members is reduced, in the case of a private company, below two or, in the case of any other company, below seven; (v) if the company is unable to pay its debts; (vi) if the Court is of opinion that it is just and equitable that the company should be wound up." The following part of section 166. of the Act may also be seen: "An application to the Court for winding up a company shah be by petition presented, subject to the provisions of this section, either by the company, or by any creditor or creditors (including any contingent or prospective creditor or creditors), contributory or contributories or by all or any of those parties, together or separately or by the Registrar."

13. It will be noted that clauses (i) to (v) of section 162 of the Companies Act, 1913 do not apply to this case; therefore, all that is necessary to examine here is the applicability of clause (vi) of section 162 and that part of section 166 which has been reproduced above. Clause (vi) of section 162 of the Companies Act, 1913 provides that justice and equity of winding up a company should be examined. Most of the consideration which have been held to constitute the proof of the existence of a just and equitable situation have been put together by K. M. Ghosh in his Commentary on the Companies Act, 1913 at Page 468 (6th edition) as follows-- "It was formerly held that the words in this clause should be read as being ejusdem generic with the words in the preceding clauses Anglo-Greek Steam Co. (1866) 2 Eq. 1.; Suburban Hotel (Supra); Re Amalgamated Syndicates (1897) 2 Ch. 600; Re: Pioner Bank (Supra). Now it has been authoritatively laid down by the Judicial Committee that the power of the court under this clause is not confined to cases in which there are grounds analogous to those mentioned in other parts of the section D. Davis & Co. v. Brunswick (Australia) Ltd. (1936) P C 114', 161 1 C 539 ; Loch v. John Blackwood Ltd. (1924) A C

783. P C : see also Newbridge S. S. Laundry Co. (1917) 1 I R 67; B. Cowasji v. Nath Singh Oil Mill Co. (1921) 59 I C 524 ; Standard Aluminium & Brass Works (1929) B. 8,

30. Bom. L R 1509; Yenidjie Tobaco Co. (1916) 2 Ch.

426. Thus it is just and equitable to wind ups a company when its substratum is gone Haven Gold Mining Co. (1882) 20 Ch. D 151; German Date Coffee Co. (1882) 20 Ch. D 169, although the majority of the shareholders desire to continue to carry on the business Haven Gold Mining Co. (1882) 20 Ch. D 151 ; German Date Coffee Co. (1882) 20 Ch. D 169 or where the company is a 'Bubble' Company Anglo-Greek Steam Navigation Co. (Supra), or where there is a complete deadlock in the managment of the company's business Sailing 'Ship 'Kentmere' & Co. (1897) W N 58 unless the deadlock is only temporary Yenidjie Tobaco Co. (Supra); Furriers' Alliance Ltd. (1907) 51 Sol. Jo. 172, or where the company was formed to carry on an illegal business. International Securities Corpn. (1908) 99 L T 581, or where the company was conceived and brought forth in fraud Yenidjie Tobacco Co. (Supra), or if the particular circumstances of a case require it Mumtaz Bank (1932) L 571, 138 I C 344.

14. In these proceedings the only ground that has been alleged to make the case fall within the above-mentioned scope is that "the company was conceived and brought forth in Fraud." The other considerations are not applicable because, the company according to the petitioner is prima facie in good shape in so far as its business, assets and finances, are concerned. It will not be "just and equitable" to wind it up merely for the reason that technical requirements of law have not been or are not being satisfied because it is a private limited company and the parties are looking upon it as a partnership rather than a join stock company. Their interest in its existence and progress is prima facie unabated in spite of their personal disputes. This is proved by the stand taken by Mr. Khalid Ishaq on behalf of the petitioners before the learned Single Judge who has recorded the views of counsel as follows:-- "Lastly it was urged by Mr. Khalid Ishaque the learned counsel for the petitioners that he had not applied for the appointment of the Liquidator, as he was anxious to see that company should exist and be a running concern and secondly there would have been flood of creditors approaching this Court." The above stand further indicates that, even according to the petitioners, there is no final deadlock in the business of the company, nor do they attribute any illegality to the business that is carried on by it.

15. The allegations of fraud need a closer examination...see Yenidje Tobacco Company Limited, in re: (1916) 2 Ch.

426. That examination will be done when the case proceeds further before the learned Single Judge who may or may not find, no further evidence, the alleged fraud or any other ground for winding up the company, to be adequate in spite of the position taken by, Mr. Khalid Ishaque during his address before the learned Single Judge that he was anxious to see that the company existed as a running concern and that the demands of other creditors were not allowed to shatter its existence. The chances of further development of the case of the petitioner in respect of initial fraud leads us to the conclusion that for the time being this petition for winding up the company could be taken as maintainable under the companies Act, 1913. We, may mention here that the objection that the company was in the beginning not a party to the proceedings has lost its importance because it has appeared, defended the proceedings and has been impleaded as a party or has been treated as such.

16. The next question is as to whether C. P. C. is at all applicable to the winding up proceedings. Mr. G. H. Abbasi contended that it was not. He relied, on sections 4 (1) and 141 C. P. C. in support of this contention. Those provisions are as follows:- "Section 4 (1).-In the absence of any specific provision to the contrary, nothing in this Code shall be deemed to limit or otherwise affect any special or local Law now in force or any special jurisdiction or power conferred, or any special form of procedure prescribed, by or render any other law for the time being in force."' "Section 141.

The procedure provided in this Code in regard suits shall be followed, as far as it can be made applicable, in all proceedings in any Court of Civil Jurisdiction." He argued that C. P. C. was applicable to other proceedings than suits only "as far as it, can be made applicable" but it could not be applied at all if its application could be "deemed to limit or otherwise affect any special or local law." Since the Companies Act, 1913 is a special law and contains provisions relating to all phases of winding up proceedings, it should be deemed, according to counsel to be limited or otherwise affected if C. P. C. is applied to such proceedings.

17. We tried to explain to him that the provisions of the Companies Act, 1913, could not be deemed to be limited or otherwise affected by the application of C. P. C. to winding up proceedings if there was a phase of such proceedings to which no provision of the Companies Act, 1913 was applicable an that phase, was dealt with under the provisions of C. P. C. Two such illustrations could be found in the present case itself. Firstly, there is no provision in the Companies Act, 1913 relating to the impleading of parties to winding up proceedings; therefore, Mr. G. H. Abbasi himself successfully applied under Order I, rule 10,C.P.C. for getting the company impleaded as a respondent in the winding up proceedings. Secondly, his own stand has been that a provisional liquidator could not be appointed in the proceedings by the learned Single Judge at the time at which he appointed a Receiver because under subsection (2) of section ,175 of the Companies Act, 1913, he could do so only after giving, a notice to the company or recording reasons for dispensing with such a notice but no such notice had been given to the company and no order dispensing with such notice could be made because the company was not ,a party to the proceedings. We may, emphasise here that the notice contemplated by subsection (2) of section 175 of the Companies Act, 1913 for appointing an official liquidator is intended to be given to the company and not to contributories or creditors whereas under Order XL, rule 1 C. P. C. such notice is not a condition precedent for appointing a Receiver provided such appointment is found to be "just and convenient". This protective remedy is provided by sub-rule (2) of rule 1 of Order XL, C. P. C. against third parties also excepting against. "any person whom any party to the suit (or proceeding) has not a present right so to remove." In this case the allegation was that petitioner No. 1 was the Resident Director, yet he was for sometime stopped from enter ing the factory . . . . see paragraph 20 (b) of the petition. In an affidavit submitted to support the application for the appointment of a Receiver, Muhammad A. Subban, an estate broker, has deposed that Malik Mohiuddin had offered to sell the factory. Taking all of these circumstances as a whole we -are led to decide that C. P. C. cannot be said to be inapplicable:

18. References were made before us to subsection (6) of section 175 and section 118 of the Companies Act, 1913, in support of and against the legality of the appointment of a Receiver in winding up proceedings but we dismiss them as utterly irrelevant. Many cases were cited in support of and against the applicability of C. P. C. to winding up proceedings. In Kailash Chandra Datta v. Sadar Munsif, Silchar (A I R 1925 Cal. 817) a Division Bench observed that: "I must say that it is the first time that I have heard of a Court assuming jurisdiction to appoint a Receiver to conduct the, business of a Company unless the Receiver is appointed in a debenture-holders section when the business and assets of the Company have been charged with payment of the claims of the debenture-holders. Apart from that in my opinion there is no jurisdiction in a Court to, appoint a Receiver of a Company. If it is necessary to protect the assets of a company other means must be sought which are provided by the provisions of the Companies Acts." The above observation was indirectly considered in Ratan Lal v. Jagadhri Light Railway Co. (A I R 1946 Lah. 193) by a. Division Bench of the Lahore, High Court as follows: "It is wrong to say that the appointment of a Receiver is unheard of to conduct the business of a company except in a debenture-holders' action. Several cases can be visualize when a company judge may exercise such a power under the provisions of O. XL, r.1 read with section 141, Civil P. C. or ex debito justitiae. It is possible in suitable cases under the Companies Act to appoint a Receiver who may take up the business of the company and the management of its property and its affairs pending the decision of the Court in a litigation." The following view of a Division Bench of the Madras High Court was expressed in Sivaprakasa v. Samarapuri (A I R 1950 Mad. 116) with reference to the same view of Calcutta. "We find no provision in the Companies Act which excludes the jurisdiction of a Court to appoint a receiver; though since the Companies Act makes provision for dealing with circum stances in which a company is mismanaged, it should not be necessary in the vast majority of cases to appoint a receiver. It might even be improper to do so in certain circumstances." Mr. Abbasi argued that the last mentioned two Judgments were not delivered in winding up proceedings, but this makes no difference to the principle that where a set of circumstances does not for the time being attract the provisions of the Companies Act, 1913 but attracts the provisions of Order XL, rule 1, C. P. C. there can be no objection to applying the latter provision.

19. The fourth aspect of this case (see paragraph 6 above) is no longer of importance in view: of the foregoing discussion of the facts and law. The requirements of Order XL, rule 1 C. P. C. were satisfied when the interim order appointing the Receiver was made. But we see no justification for insisting that a Receiver be continued arid a provisional liquidator not be appointed. The Nazir was appointed to be the Receiver in this case. The same Officer is now the official Liquidator also. We therefore, convert his appointment from that of a Receiver to Provisional Liquidator by removing him from receivership and hereby making his appointment under section 175 (2) of the Companies Act, 1913. No separate notice of this order to the parties is called for because this question has been agitated and discussed before us by other coun4el and because this appointment means a formal change only. The provisional liquidator should have all the necessary powers under section 179 of the Companies Act, 1913 for doing his job. We may add by way of clarification that his continuance in this office, his performance of duties, his exercise of powers and the supervision of his work will be subject to and in accordance with the orders of the learned Single Judge. The Receiver is liable to render account etc. Upto this date.

20. We may add that the decision of this case would have been more satisfactory from the beginning if Mr. G. A. Abbasi had not shown a complete disinclination to weigh and examine the facts and had not pressed his proposition of complete exclusion of C. P. C. from winding up proceedings with an assiduity that blurred all other aspects of the case.

21. We dismiss these appeals subject to the modification that a Provisional Liquidator and not a Receiver is now to be in charge of the affairs of the company and its business. The parties are left to bear their own costs. K. B. A. Appeal dismissed.