2004 PLP 449 (CLD)

6. It is further alleged that A.D.B.P. by August, 1988 proceeded to place a ban on further financing to be provided by it for the harvesters which seriously hampered the business of respondent No. l like all other harvester importers in Pakistan. Also that floods in September, 1988 damaged the crop and the harvesting industry was very badly affected as a complete season of harvesting was lost. It is alleged that in order to still remain in business the petitioner made sincere efforts to make the project a success and in that regard made a number of proposals to the petitioner‑Bank which were declined by the petitioner Bank with mala fide intention. It is also alleged that in order to minimize the losses in the harvesting project, the respondent No.1 entered into an agreement for import of sugar at low rates with the consent of the petitioner‑Bank. However; again on the last moment the petitioner‑Bank backed out resulting in serious losses to respondent No.1 as by that time it had already invested a large sums of money in putting the sugar project together.

7. Therefore, according to respondent No.1 a civil suit for damages for the recovery of Rs.19,71,50,000 was filed against the petitioner‑Bank which was pending in the Court of Senior Civil Judge, Lahore. Respondent No.1 also claimed to have made payments of Rs.12 million against the financing provided by the petitioner from the proceeds of harvesters, allegedly by foregoing its own share of the profits. It is also informed that the petitioner‑Bank has filed a suit for recovery of the alleged debt against the respondent which is pending before the Banking Tribunal at Lahore.

8. On merits the execution of various documents securing the grant of financial accommodation detailed in para.6 is not denied. The trust receipt however, is claimed to be a forged document. It is also alleged that the guarantees executed by respondents Nos. 2 to 4 were demanded by the Bank and were given by respondents Nos.2 to 4 only for the purpose of fulfilling their own Banking requirements because the Bank was in fact a partner with the respondent No. l in the harvesting project. It is also alleged that the petitioner‑Bank wrongly made payments on a number of LCs despite instructions to the contrary made by respondent No.1 after finding that harvesters sent by the exporter suffered from a number of technical faults. Although the service of notice under section 306(a) of the Ordinance is accepted yet it is claimed that no amount whatsoever is due to the petitioner‑Bank against the Company and that the present petition is a counterblast to the civil suit for damages filed by respondent No.1 for the recovery of Rs.19,71,50,00,000 against the petitioner Bank on 6‑5‑1990. It is also claimed that the respondent‑Company is solvent and an ongoing project with assets worth more than Rs.10 crores. Lastly it is stated that the respondents Nos.2 to 4 Directors mortgaged their property situated at 36 Lawrence Road, Lahore, in favour of the petitioner‑Bank and the value of that property being well over 100 million it is enough to fulfil the alleged liability of the respondent‑Company and therefore, the petitioner‑Bank is fully secured in respect of the debt which is seriously disputed by the respondent Company.

9. During the pendency of the proceedings on 13‑5‑1992 the Court appointed a Local Commissioner to prepare the inventory of the assets of the respondent. On 12‑12‑1996 a restraint order was made against alienation of fixed assets of the Company. Another Local Commissioner was subsequently appointed due to the death of first Local Commissioner by this Court on 19‑2‑1997 who submitted his report on 12‑11‑1998. At the time of arguments the respondent at the request of the petitioner, was required to file its balance‑sheet during the last five years. It was accordingly done.

10. Heard the learned counsel for the parties. Learned counsel for the petitioner in support of his submissions that the substratum of the Company having gone it needs to be wound up without any further delay, relies upon re: Ali Woollen Mills v. I.D.B.P. PLD 1990 SC

763. Also points out that the balance‑sheet attached with the written statement for the period ending on June 30, 1994 sufficiently portrays the financial condition of the Company by declaring accumulated losses by that date at Rs.26,727,915 against the paid‑up capital of Rs.36,00,000 only. Further states that balance‑sheet of the Company as on 30‑6‑2002 filed during arguments shows accumulated losses at Rs.3,09,37,668 registering an increase when compared with these losses as on June 30, 2001 at Rs.30,568,

212. The financial condition of the Company according to the learned counsel can only be seen through its accounts. In support of the submission, he relies upon in re: PICIC v. National Silk and Rayon Mills PLD 1976 Lahore. 1538; re: Habib Bank Ltd. v. Hamza Board Mills PLD 1996 Lahore 633 and re: National Bank of Pakistan v. Punjab National Silk Mills PLD 1969 Lahore

194. He further states that the respondent admittedly having received the statutory notice and having failed to pay thereafter a presumption of inability arises against it. This submission is sought to be supported by two judgments of the Honourable Supreme Court of Pakistan in re: Platinum Insurance Co. Ltd. v. Daewoo Corporation PLD 1999 SC 1 and re: Sindh Glass Industries v. NDFC and others PLD 1996 SC 601.

11. The case of re: Platinum Insurance Company (supra) is also referred to state that after receipt of statutory notice burden shifted to the respondent‑Company to show that it was commercially solvent and therefore, in a position to satisfy its liabilities. That burden in his view has not been discharged by the respondent‑Company. The aforesaid three cases in re: Platinum Insurance Company Ltd., re: Sindh Glass Industries (supra) and re: Hashmi Can Company Ltd. v. K. K. 8v Co. (Pvt.) Ltd. 1992 SCMR 1006 are again referred to explain commercial solvency. According to him solvency means that the company is in a position to meet it; current liabilities and that possession of sufficient assets base is no defence at all.

12. Again referring to the balance‑sheet for the year 1994, learned counsel relies on re: Ali Woollen Mills (supra) and another judgment of the Supreme Court of Pakistan in re: Punjab National Silk Mills v. N.B.P. 1986 SCMR 1126 to contend that there being a little chance of recovery after losses in all these years, there is no option but to wind up the respondent‑Company.

13. In re: Sindh Glass Industries (supra) is again referred to state that since the respondent is not in business for the last some years it has absolutely no earning capacity to pay its debts even in future and therefore, needs to be wound up to save the security of the creditors from further depletion. The case of Hala Spinning v. IFC (supra) is also mentioned to state that in absence of a reasonable chance of doing profitable business in future, the company cannot be allowed to remain alive.

14. Learned counsel for the petitioner refers to re: Messrs Hala Spinning (supra) and re: Punjab National Silk Mills (supra) to state that the fact that a debt is secured, is no defence to the winding up petition. Lastly he places a lot of stress on suspension of business by respondent No. l and in that regard again refers to two cases of the Honourable Supreme Court of Pakistan in re: Ali Woollen Mills (supra) and Punjab National Silk Mills (supra). The provisions of section 305(c) according to him need to be invoked in this case when the balance‑sheets of the company for the last many years clearly indicate lack of any business activity.

15. Learned counsel for the respondent No. l on his turn however, contends that in first place suspension of business has not been specifically pleaded in the petition nor according to him it is otherwise a good ground for winding up. To support the submissions he relied upon the ratio settled in re: Alliance Motors (Pvt.) Ltd. 1997 MLD 1966. Also states that there being a bona fide dispute with regard to debt in question and in view of the pendency of a civil suit filed by the petitioner a winding up order cannot be granted. These submissions are sought to be supported by two cases of the Karachi High Court in re: U.B.L. v. Golden Textile Mills PLD 1998 Karachi 330 and re: PICIC v Bawany Industries PLD 1998 Karachi

45. Another case re Khyber Textiles Mills v. Allied Textile Mills Ltd. 1989 CLC 1167, is relied upon to state that winding up order should not be made where the parties have filed cross‑suits and are in litigation before a Civil Court. Also refers to a‑case of Indian jurisdiction re: Krishna Lyer Sons v. New Era Manufacturing Co. AIR 1965 Ker. 24 to claim that occurrence of losses in the past is not by itself a sufficient ground to order winding up. It is further claimed that while looking at the financial condition of the Company its fixed assets cannot be ignored as the Company in the present case has sufficient assets to discharge its liabilities Reliance in that connection is made to in re: H.B.L. v. Golden Plastics (Pvt.) Ltd. NLR 1991 Civ 582 and re: Krishna Lyer Sons (supra). Learned counsel has also cited a number of judgments in support of the submission that there being a bona fide dispute between the parties an order to wind up cannot be made. The cases relied upon that regard include re: Messrs Adage Advertising v. Messrs Shezan International 1970 SCMR

184. As regards the notice under section 306(a) of the Companies Ordinance. 1984 he claims that no presumption arises if the creditor was informed of the reasons why the alleged debt was disputed. This argument is sought to be supported by the ratio settled by the Honourble Supreme Court of Pakistan in re: Hashmi Can Co. Ltd. v. K.K. & Co. (Pvt.) Lt 1992 SCMR 1006.

16. After hearing the learned counsel for the parties I am of the view that the petitioner has been over whelmingly successful in making out a case for acceptance of the prayer for winding up of the respondent Company. It needs to be noted, at the outset, that enjoyment of financial facilities has not been denied by the respondent. However, it has denied the liability to repay tip: three reasons. Firstly, that the petitioner‑Bank provide; finances to the harvest project as a partner and therefore, it is liable to share a loss like any other partner. Secondly, the petitioner‑Bank released funds to the exporters on A various LCs detailed in the petition despite instructions to the contrary by the respondent‑Company as also a restraint order from a Court. Thirdly, that the respondent has filed a suit for damages on account of failure of the petitioner‑Bank on account of their failure to have financed their sugar project after initially having agreed to provide funds for the same. This impliedly means that if the petitioner‑Bank had provided sufficient funds for the sugar project of the respondent‑Company, the respondent would have' earned sufficient funds not only to minimize the losses in the harvester project but would also have been in a position to pay back the petitioner‑Bank. All these defences, however, are not supported from the record.

17. There is no document worth the name which could directly or indirectly establish that the petitioner‑Bank advanced loans or financed LCs as a partner and not as a banker. The contention that promissory notes and hypothecation agreements detailed in para.6 of the petition were executed only to observe a formality and that these were not meant to be acted upon does not find support from any material or evidence whatsoever. At least seven promissory notes executed between August 15, 1987 to May 1, 1989 as also the hypothecation agreement dated August 15, 1987 alongwith a supplementary hypothecation agreement dated 9‑2‑1988 were duly registered with the Registrar of the Companies as per requirement of law. These documents without an iota of doubt witness as loan based upon a mark‑up to be repaid in terms contained therein. Therefore, the oral assertion that these agreements were not meant to be implemented is neither here and nor there. The allegation that the petitioner‑Bank paid the foreign suppliers against the instructions of the petitioner again is a wild assertion. In my considered view any instruction to the contrary cannot be executed by a Bank after having issued a letter of credit in favour of a foreign exporter. Secondly, the respondent in its reply has not detailed either the alleged order of the Court not they have in any manner established that .the restraint order dated 5‑12‑1988 was duly conveyed to the petitioner‑Bank when it honoured the documents in favour of the exporter on 7‑12‑1988. The respondent has not denied to have received harvesters imported under the said letters of credit. Therefore, the petitioner as banker was not concerned with any alleged fault in these harvesters. Also having received the delivery of the harvesters under the said trust receipt any misprint or wrong entry of a date in the trust receipt is hardly of any significance. The pendency of a suit for damages alleged to have been caused in relation to another request for grant of a loan facility again has no nexus whatsoever with the liabilities which the respondent had already incurred qua the petitioner‑Bank. Therefore, the pendency of a civil suit in that regard is totally immaterial as far the claim of the petitioner for recovery of admitted financial liability availed by the respondent is concerned.

18. The submission of respondent No. l that there has been a bona fide dispute between the parties is therefore, totally devoid of any force. The availing of financial accommodation as well as service of notice under section 306(a) of the Companies Ordinance, 1984 having not been denied a heavy burden laid upon the respondent Company to justify non‑payment to the petitioner‑Bank.. 'However, as noted earlier, neither that burden has been discharged nor any mentionable reason has been stated for non‑payment of the debt owed towards the petitioner. Therefore, it is not mere unwillingness but an inability to pay the debt.

19. Learned counsel for the petitioner is also correct in pointing out that the balance‑sheets of the respondent Company since the year 1994 till date amply demonstrate that the respondent‑Company is totally non‑functional much less to say of its being commercially active and, therefore, a solvent entity. The brought forward losses for the period ending on 2002 stand at Rs.3,09,37,668 as against the meagre paid‑up capital at Rs.36,00,000 which has already eaten up the equity basis of the Company. The fact that the value of the property mortgaged for the repayment of loan far exceeds the loan liability will not by itself make the project an on‑going concern or the one having hope of making profits in the near future. The movable or immovable assets of the Company again are not any assurance that it is in a position to repay the debts.

20. The other fact of the defence that the imported harvesters suffered from technical faults or that there has been unforeseen calamity of floods in September, 1988 again does not answer the claim of the petitioner that the respondent is not in a position to pay its debts. That defence in a way is rather indicative of the acceptance of the contention qua inability to pay. Likewise the pendency of a suit for recovery of damages before a Civil Court or the suit of the petitioner for recovery before the Banking Court again does not materially affect the prayer made in this petition.

21. The claim of the respondent that it is a solvent Company possessing assets worth more than Rs.10 crore is also hardly of any avail if even after having been served with a notice under section 306(a) of the Companies Ordinance it has not been able to discharge the liability.

22. The fact that the respondent‑Company is not in business for the last quite some years is clearly supported from the balance‑sheets submitted during the arguments. It is otherwise not denied that the Company is riot doing any business. It is correct that the occurrence of losses in the past is not by itself a sufficient ground to order winding up of a company. This defence, however is available only to a company which is still in business; is moving forward with sufficient working capital and credibility in the market and the ability to produce for higher profits in the future. None of these conditions is answered in the case of the present respondent‑Company.

23. Accordingly, I will hold that the respondent Company is unable to pay its debts. Also that not being in business for quite some years by how, it has no chances of recovery to discharge its liabilities. And that in case it is not directed to be wound up, its losses will increase resulting in further depletion of the security of the creditors. Therefore, the Company/ respondent No. l Messrs Farm Aids (Pvt.) Ltd. is directed to be wound up forthwith.

24. Mian Farzand Ali and Mr. Fakhar‑uz‑Zaman Tarar, Advocates, 62 Mozang Road, Lahore are appointed liquidators. They will immediately take over the assets and books of account of the Company and proceed with the liquidation. In order to facilitate the initial steps the Bank will contribute a sum of Rs.50,000 to the liquidation account to be opened in Messrs PICIC Commercial Bank, Egerton Road, Lahore.

25. To come up on 18‑2‑2003 for further proceedings. S.A. K. / D‑52 / L Petition allowed.