P L D 1973 Karachi 326 (PLP)

5. In the correspondence to which I have referred in the preceding paragraph it is important to note that there is no denial of liability on behalf of the company nor even a dispute setup as to when and how the payments were to be made. Indeed even the precise figure claimed by the petitioner is note denied. As I have said earlier it may be that a dispute might. hereafter arise between the parties to the amount payable in terms of Pakistan rupees because of the devaluation which has since occurred. It is to be remembered, however, that we are not dealing with a suit for a money decree ; the question of the indebtedness of the company to the petitioner is merely a reason although, of course, the most important reason in this case, for consideration on the issue whether a company is or is not able to pay its debts. For that purpose reliance is quite naturally, placed upon section 163 of the Companies Act which raises a presumption that a company is to be deemed to be unable to pay its debts when, among other things, it fails for three weeks after delivery of a statutory notice to pay the sum demanded or to secure or compound for it to the reasonable satisfaction of the creditor. The minimum of the sum in which the company should be indebted for the purpose of section 163 is Rs. 500.00 and it is obvious that the amount involved here is far in excess of that figure. The petition having been instituted upon that basis an application was made by the company asking for a stay under the provisions of section 34 of the Arbitration Act. The first question that arises, therefore, is whether section 34 of the Arbitration Act has indeed any application to proceedings under section 162 of the Companies Act and, if so, whether it applies in the circumstances of the case now before me. It would be profitable, therefore, to set out section 34 in extenso as much of the argument that has proceeded before me depends upon the language of the provision. Section 34 of the Arbitration Act reads thus : "

34. Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in the proceed ings, apply to the judicial authority before which the proceedings are pending to stay the proceedings ; and if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, such authority may make an order staying the proceedings."

6. The question that obviously and immediately arises is whether the phrase "any legal proceedings" in section 34 includes an application under the Companies Act for the winding up of a company. Learned counsel on both sides who have presented their respective cases with ability and commendable care have not been able to cite before me a single case which has considered the question and I, for my own part, have also not been able to discover that the question which has been canvassed, much less decided, in any reported case. The reason may well be and I say this with some diffidence‑that it might have been considered unarguable that the section has any application to such a petition at all. Of course such a reason, even if correct, is by no means conclusive and since learned counsel has raised the question it becomes necessary for me to consider it.

7. Now the expression "legal proceedings" if it stood alone would, I have no doubt, include a petition of the present kind ; If it was the intention of the Legislature to limit the application of section 34 to a suit nothing could have been simpler than to choose that word instead of the expression "any legal proceed ings" which are quite obviously wider than the word "suit". But the expression does not stand alone ; section 34 refers only to such legal proceedings as are commenced by a party to the agreement in respect of any utter agreed to be referred. A petition under section 162 of the Companies Act is not, in form at least, a proceeding to enforce a claim for money. Even where the petition is made under clause (v) of section 162 the petitioner does not claim a decree from the company for a specific debt ; the prayer is only that the company be wound up upon the ground that it is unable to pay its debts. It is true that, section 163 creates a presumption that a company is unable to pay its debt if the statutory notice is given and not complied with within three weeks but it does not by any means follow that that is the only mode of proving that a company is unable to pay its debts.

8. Nor do I think, even in substance, can a petition by a creditor relying upon clause (v) of section 162 and the presump tion under section 163 be regarded as being a proceeding intended to enforce the claim. It is true that, if and when a winding up is ordered by the Court, the petitioning creditor would be able to prove its claim before the liquidator and possibly realise it if the assets of the company suffice to meet its claim, but then so would any other creditor. A clause in an agreement between the parties to refer to arbitration would normally be to the effect that any matter in dispute between the parties arising out of the agreement and probably any claim for money made by either of the parties to the agreement should be referred to arbitration. Generally, therefore, I would not think that section 34 would be attracted to such proceedings, not because I think that the word "judicial proceedings" are either limited to suits or in some other manner impliedly exclude proceedings under the Companies Act, but because such proceed ings are unlikely in the contest of any given case to conform to all the other conditions laid down is section 34 of the Arbitration Act. If necessary, therefore, I would be prepared to dismiss the application under section 34 upon the ground that that provision is not attracted to proceedings under section 162 of the Companies Act.

8. The position in the present case however I think is made even clearer if one examines the language of the clause in the agreement between the parties which provides for arbitration. It reads thus "Article X.‑Settlement of disputes.‑Any controversy or claim arising out of or relating to this Agreement which shall not be determined by agreement of PICIC and the Borrower shall be referred to the arbitration of a single Arbitrator to be appointed by consent of PICIC and the Borrower or failing such consent by a Court of competent jurisdiction. The Arbitration Act, 1940 (Act X of 1940) or any statutory modifica tion or re‑enactment thereof for the time being 9n force or rules issued thereunder shall be applicable to such arbitration."

9. It will be seen that what is required to be referred to arbitration is any controversy or claim arising out of or relating to the agreement which is not itself determined by an agreement .of the PICIC, that is, the petitioner. Mr. Nasim Faruqui, learned counsel for the company, laid great stress upon the word "controversy" claiming that it was wider in terms than the word "dispute". It is, however, difficult to see what difference this can make since counsel is not contrasting it with the use of the word "dispute" used anywhere else either in a relevant provision of law or in the agreement itself. I have also quoted from the relevant correspondence between the parties and it will be seen, as learned counsel for the petitioner quite rightly emphasises, that there has been at no stage any controversy or dispute between the parties as to the liability of the company even as to the precise figure due at any particular time including the material time.

10. However, what learned counsel for the company could with greater advantage emphasize, and did in fact emphasize, is that the Article in question also uses the expression "claim". I think learned counsel is quite right in saying that, even if there is no dispute between the parties there is still a claim by one side for money and that the claim arises out of the agreement and ought, therefore, to be referred to arbitration. I have a little earlier stated my reasons for thinking that section 34 of the Arbitration Act will probably not apply to any proceedings under section 162 of the Companies Act. I now consider the more specific question whether in the present case and in the light of the clause relating to arbitration, Section 34 of the Arbitration Act is indeed attracted. Now the language of section 34 makes it clear that it applies not wherever there is an arbitration agreement but only where the legal proceedings in question are in respect of any matter agreed to be referred by the agreement for arbitration. The main petition before me is for winding up of the company and is based upon the alleged inability of the company to pay its debts and upon the ground that it will be just and equitable that the company should be wound up. Nowhere in the arbitration clause has it been provided that the question where the company should be wound up is to be referred to arbitration. Nor does the clause say anything about the questions which arise under the two clauses of section 162 of the Companies Act upon which the petition is based. It is true that the ground taken under the former of these clauses is sought to be supported by the presumption under section 163 which itself arises out of the failure of the company to pay its debts to the petitioner. That, however, is a mere presumption and, as I have stated earlier, it would be open to the petitioner to prove that a company is unable to pay its debt by any other method. I am quite unable therefore, to hold that the present proceedings are in respect of any matter agreed to be referred under the agreement In question. I have, therefore, come to the conclusion that this application for stay under section 34 of the Arbitration Act must be dismissed.

11. Learned counsel for the company endeavoured to satisfy me by reference to the balance‑sheet of the company that the company is not unable to pay its debt but is in fact financially solvent and viable. These are matters, however, which would have to be gone into, if at all, during the main petition and are not things which I can properly take Into consideration at the moment. All I am deciding just now is whether section 34 applies and whether on that account, a stay ought to be granted pending reference to Arbitration.

12. Various other matters were also argued before me, for instance, Mr. Haider Mota, learned counsel for the petitioner, claimed that the company was not, when the proceedings were commenced, ready and willing to do all things necessary to the proper conduct of the arbitration as is required by section

34. Having regard to the view I have taken as to the applicability of section 34 I do not consider it necessary to discuss these or other points raised before me by either side.

13. This application for stay is accordingly dismissed and the main matter will now proceed in the normal manner. K. B. A. Petition dismissed.