1999 PLP 1909 (CLC)

(ii) Even otherwise the question of company enable to pay its debts is to be resolved not from the stain point of the value of its assets but 'from its capacity to settle current demand and liabilities; (iii) Mere pendency of civil litigation between the creditor and the borrower Company does not by itself bar the entertainment or grant of a winding up petition; (iv) If the claim of the creditor is genuinely disputed by the company and, in the event of pending litigation, a bona fide defence raising triable issue is pleaded an application for winding up may not be granted and such application could be treated as an attempt to coerce the company to settles an unwarranted claim; (v) On the other hand if the defence raised is considered to be sham or a mere cloak to avoid payment the petition may be readily granted.

4. Mr. Arshad Tayyebally, learned counsel for the petitioner has argued that in failing to settle the petitioner's claim pursuant to the notice, dated 25‑8‑1996 the respondents were required to be treated as being unable to pay their debts in terms of the provisions of sections 305 and 306 of the Companies Ordinance. He further argued that even otherwise, in their reply to the aforesaid notice contained in the letter from their Director Finance addressed to the Chief Manager of the petitioner, such inability in fact, has been acknowledged in the following terms:‑‑ (a) Sindh Sugar Corporation Limited (SCL) through earlier correspondence with your bank has explained the factual position for the present liquidity crisis being faced. This has resulted for non‑payment/ settlement of overdue financial liabilities to Banks/D.F.L(s), including your bank. (c) That liquidity crisis which has cropped up because of non‑profitable operation of Dadu Sugar Mills, as it has sustained huge losses. This has resulted in non‑payment of essential requirements i.e. sugar‑cane bills to growers against cane supplied in 1995‑96 season, Government dues, utility bills and salaries to workers. (d) In case of Thatta Sugar Mill‑, the position has also gone worse due to .non‑compliance of the terms of memorandum of understanding and Tender Documents by its previous management Messrs Mehran Sugar Mills Limited, accepted to your organization. The clear violation has also resulted in accumulation of all liabilities and multifarious problems to SSCL/Government of Sindh, Bank and D.F,L(s), other creditors and workers‑of mills,

5. Mr. M.A. Isani, learned counsel for the respondent on the other hand, contended that a bona fide dispute existed between the parties as to the respondent's liability to pay the amount claimed by the petitioner, He has referred to the defence raised in the written statement to this petition and Suit No, 531 of 1996, he has placed strong reliance on a judgment of this Court in the case of Federation of Pakistan v. Standard Insurance Company PLD 1986 Kar, 409, wherein a petition for winding up was dismissed by Saeeduzzaman Siddiqui, J, (as his Lordship then was) after recording the following conclusion:‑‑ "After examining the above material which has been placed by the ,parties before me, I am of the view that the denial made by the respondent is based on triable issues and is neither frivolous nor is merely a cloak to avoid payment under the first bond." Respectfully following the above dictum and several other pronouncements of the superior Courts the only question to be considered is whether the defence raised by the respondent to the petitioners' claimed for payment is bona fide or merely a cloak to avoid payment. Admittedly the finance agreement in between the parties is in the standard form of interest‑free loans contemplating purchase and buy‑back prices, There is also a provision stipulating payment of liquidated damages by the customer at the rate of 209 of the amount demanded by the Bank and not paid, It has been contended in the suit as well as this petition that the petitioner have claimed the principal amount, mark‑up and liquidated damages, whereas the respondents are only required to pay the amount of liquidated damages and nothing else. 7, While Mr. Arshad Tayebally has candidly conceded that the claim for liquidated damages is not sustainable in view of a judgment of this Court, Mr. M:A. 14ani insisted that the respondent can only be held liable to pay the amount of liquidated damages on the unpaid amount and nothing else in view of section 74 of the Contract Act. This is the only defence raised in the petition as well as the suit,

8. I regret to say that apart from the fact that such defence was never set up during the protracted the correspondence between the petitioner and the respondent and was raised for the first time during litigation, the contention on its very face is patently misconceived, Section 74 of the Contract Act, no doubt, stipulates that when an agreed sum is payable in, the event of breach of contract the non‑breaching party is entitled to receive reasonable commendation not exceeding the amounts so claimed. It is quite clear, however, that a maximum limit has been placed on the quantum of compensation payable for breach of a contract and does not relieve the, defaulting borrower from paying the amount required to be paid under the contract. This contention would lead to be absurd consequence that while conscrentous borrower abiding by the terms of the contract would be required to pay the principal amount alongwith mark‑up a defaulter would be relieved of all obligations by only paying a smaller percentage of the amount. I am, therefore, constrained to observe that the defence, which is based on a pure question of law, is ex facie, frivolous and can only be treated as a cloak to avoid payment. I am satisfied that the company seems unable to pay its debts.

9. For the foregoing reasons I am of the view that the case for grant of winding up order is made out. I would, therefore, direct that the respondent company be wound up and the Official Assignee is appointed as liquidator for proceeding further in accordance with law, H.B.T./H‑53/K Petition allowed.