P L D 1969 Lahore 194 (PLP)

(1) Paid‑up capital of the Company. (2) Balance‑sheet. (3) Cash deposited in the Bank, and the cash in hand. (4) Assets of the Company and its liabilities and their book value. (5) Names of the creditors and the amounts due to each creditor and whether they were secured or unsecured. (6) Reasons for not functioning for last three years. (7) You are accordingly requested to come prepared with answers to these particulars failing which, I am afraid, it will not be possible for me to appear in the Court on your behalf. The risk will be entirely yours." He expressed his ignorance in respect of all these matters stating that Mr. Muhammad Hussain although he had received the letter vide Annexure R/2 and R/3, did not acknow ledge its receipt or furnish any information. When asked to state the reasons for closing the business for three years, he relied on the statement made in paragraph 3 of the written statement. Sh. Mahboob Elahi, the learned counsel for the petitioner reiterated what was stated in the petition and further stated that the respondent‑company owed also to the Standard Bank Ltd., Rs. 54,266 00 and Rs. 36,936.26 to the Muslim Commercial Bank. Subsequently, on the 13th of July 1967, an affidavit of Mr. Muhammad Hussain was placed on the record during the course of the arguments. He did not furnish even in ibis affidavit any information on the points which were detailed in the letter dated the 13th of June of Mr. Dilawar Mahmood. He only stated that the assets of the company were worth Rs. 40,00,000.00, and it was able to meet its liabilities. He also stated that the company had started function ing since the 12th of June 1967. He did not controvert the allegation of the petitioner which were supported by the affidavit by the Controller of Branches of the petitioner‑bank, that they could not remove the pledged goods from the premises of the Mills on the objection of the Government that the excise duty had not been paid and also that the respondent had obstructed the petitioner in having an access to the stores in the city.

5. The facts which emerge are that the paid‑up capital of the company is rupees five lacs, but the respondent claims its assets at rupees forty lacs and that the respondent owes a debt of Rs. 6,99,899.73 to the National Bank of Pakistan, of Rs. 56,569.78 to the Commerce Bank Ltd., Rs. 54,266.00 to the Standard Bank Ltd., and of Rs. 36,936.26 to the Muslim Commercial Bank.

6. The learned counsel for the respondent contends that the petition under section 162 of the Act is mala fide and has been made to coerce the respondent to make the payment of the debt when it is not liable for it because it is barred by time. He relied on Muhammad Amin Bros. v. Dominion of India (A I R 1952 Cal. 323) where relying on Buckley on Companies Act, 11th Edition, page 356, it was observed that a "winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fade disputed by the company." It was further observed that a petition "for a winding up order but really to exercise pressure will be dismissed and under circumstances may be stigmatized as a scandalous abuse of the process of the Court." Reliance was also placed on In re : The London Wharfing and Warehousing Company (Limited) ((1865‑66) 147 Rev. Rep. 12) where it was observed that "if a company is able to pay, the fact of its disputing a debtor of not paying it, is no justification for a creditor to come by petition to wind it up." He also relied on Re : The Brighton Club and Norfolk Hotel Company Limited ((1865) 12 L T R 484) where it was held that a winding up order should not be made where there is a bona fide contested debt. It was, however, observed that "where the debt is contested, it is not enough for the company to say merely, 'We dispute the debt' they must state their reasons for so doing." There can be no dispute with the proposition that a non‑payment of a disputed debt is not a proof of the fact that the company is insolvent. It is also well established by authorities that a winding up petition is a legitimate method of enforcing payment of a just debt. A creditor who is unable to obtain the payment of his debt has the right ex debito justitiae to a winding up order. The case before me at the moment is not for the making up of the winding up order. I am only concerned whether at this stage a Provisional Liquidator should be appointed or not. The respondent‑company, however, has not brought anything to my notice that it is bona fide disputing the debt. It is true that the petitioner has filed a suit for the recovery of this debt, but the suit was filed on the 2nd of January 1967 after the petition for winding up of the respondent‑company had already made on the 23rd of December 1966. The fact that the respondent says that the debt is barred by time by itself is not a proof of its contention that it disputes the debts in a good faith and on sound, legitimate and substantial grounds. I am not pre judging the issue. It is admitted by the respondent that the loan was advanced to it on the pledge of its goods. The period of recovery of such debts is six years. Even if the period of limitation is computed from the first advance, the debt is prima facie within time. The petitioner has also in paragraph 10 of the plaint (Annexure R/I which has been placed on the record by the respondent), averred that the respondent made an acknowledgement of the debt on the 31st of December 1963. The respondent does not admit this acknowledgement. I, therefore, cannot place any reliance on this acknowledgement. In the statement of accounts, however, it is shown that the respondent made such payment of Rs. 5,000,00 on the 31st of March 1964 and previous to that the payment of Rs. 10,000.00 on the 21st of March 1964. The period of limita tion even if it is held to be 3 years, starts under section 20 from the date of the payment of the last instalment of the debt, and the suit, therefore, will be within time. Besides the National Bank of Pakistan, Commerce Bank Ltd., has also made an application under section

162. The respondent does not dispute their debt and does not claim that it has discharged its liabilities. The proceedings for winding up at any rate will, therefore, be competent against the respondent.

7. The learned counsel for the respondent then contended that a Provisional Liquidator should not be appointed when ‑there is an opposition to it because by doing so the affairs of the company would be completely paralysed. He relied on the observations of Lord Romilly, the Master of Rolls in London, Hamburg and Continental Exchange Bank's case ((1866) L R 2 E C 231) at page 236, which are : "It is perhaps convenient that I should state what my practice is with reference to the appointment of Provisional Liquidators. Where there is no opposition to the winding up, I appoint a Provisional Liquidator as a matter of course on the presentation of a petition. But when there is an opposition to it, I never do, because I might paralyse all the affairs of the company and afterwards refuse to make the winding up order at all. But when the directors themselves apply or do not oppose the winding up, then I appoint the Provisional Liquidator." In re : Northern Airways Ltd., Lahore (A I R 1949 Lah. 9) ‑it was held that "the fact that very serious allegations are made by the petitioners against the company would not by itself justify a Court in making an order for the appointment of a Provisional Liquidator. The rule of practice is that where there is no opposition to the winding up, the Court should appoint a Provisional Liquidator as a matter of course on the presentation of the petition. But where there is an opposition to it no Provisional Liquidator should be appointed, because the Court might always paralyse all the affairs of the company, and afterwards refuse to make the winding up order at all. But when the Directors themselves apply or do not oppose the winding up then the Court should appoint the Provisional Liquidator." To the same effect there are observations made in Punjab Pictures Limited, Karnal v. Jhabar Mal‑Ganga Dhar (A I R 1949 Pb. 139) which read : "Serious, though some of the allegations contained .in the petition were, in my view, none of them justified the ,appointment of a Provisional Liquidator. It is not denied that the Company had all along been functioning and it was carrying on business in the ordinary course. Placing the entire manage ment and conduct of such a Company in the hands of Provisional Liquidator is in effect to put a stop to its business and it is well -settled law that before such drastic step can be taken the Court must be satisfied that it is absolutely necessary to do so." Learned counsel then relied on Gava Sugur Mills Ltd.'s case (A I R 1950 Pat. 237) where it was held: "Such an application is not ordinarily allowed except on the petition of a creditor who has been unable to obtain payment of his money, or unless the company asks for or agrees, to the appointment. The dangers involved in appointing a Provisional Liquidator and then finding that there is no justification for making a winding up order are obvious. The consequences to the company of the making of a wrong order in such a matter are far more serious than the granting of an injunction which has ultimately to be dissolved. The object in appointing a Provisional Liquidator is to ensure that there will be a fair distribution of the assets of the company and. that one creditor will not be permitted to benefit at the expense of the others": Learned counsel for the petitioner placed reliance on, Salah‑ud‑Din v. Frontier Sugar Mills and Distillery Ltd. (P L D 1951 Lah. 844),. where all these authorities were considered and it was observed that the "Courts generally have not appointed the Provisional Liquidators unless the Company is plainly, commercially and techni cally insolvent. If the Company suspends its business and refuses to pay to its creditors and no doubt whatsoever is left that it must go into liquidation, then it is plainly, commercially and technically` insolvent, and therefore, the appointment of a provisional liquidator is urgently called for." He also relied on People's Bank of India Ltd. v. Narain Das and others (31 P R 1914), where it was observed by Mr. Justice Rattigan, that "where a Banking Company has to admit that it has in all its branches suspended business, and that it must inevitably go into liquidation, and that its only hope of salvation is that a new Company may be formed to take its place, such Banking Company is not: merely 'plainly and commercially' but also `technically' insolvent and a Court would be fully justified in taking action under section 134, and appointing a Provisional Liquidator, notwith standing that the petition for compulsory winding up was opposed by the directors of the company concerned." In re: Punjab Flying Club Ltd. (A I R 1933 Lah. 301) it was observed that a company may be rich and yet it may be commercially insolvent, the real criterion is whether it could meet its liabilities, and in this respect it was held: "In petition under section 162,. the Court has to see whether the company is commercially insolvent, i.e., whether it is unable to meet its current demands although the assets when realised may exceed its liabilities. If the company is commercially insolvent it may be wound up."

8. In my opinion, it is not necessary for the Court before appointing a Provisional Liquidator to come to a definite finding that the company must ultimately "go into liquidation". The matters which the Court has to take into consideration at the time of the appointment of the Provisional Liquidator are not necessarily the same which it has to consider for the winding up of the company. The petition for the appointment of Provisional Liquidator has, moreover, to be decided on affidavits whereas whether or not the winding up order should be passed depends on the evidence which the parties may produce. It is for this reason that any observation which is made in an order appointing the Provisional Liquidator will have no bearing on the order which is ultimately to be passed on a petition for winding up. The Provisional Liquidator is appointed under section 175(2) of the Companies Act. It gives the power to the Court to appoint a Provisional Liquidator. It does not lay down any circumstances and situations in which a Provisional Liquidator may be appointed. It is left to the discretion of the Court which it is always expected to exercise in a judicial manned, after giving due consideration to the facts and circumstances of each case. The Provisional Liquidator should not be appointed merely because serious allegations are made in the petitions. The Court must look into the allegations and the position taken up by the company and come to its own conclusion whether in the circumstances there is any apprehension of the assets of the company being wasted or that if an order appointing a Provisional Liquidator is not made, some creditors may have advantage over the others. The real purpose is to take over the possession of the property for its proper management and to ensure that in case an order of winding up is passed, the interests of the creditors and the share‑holders remain protected. In Halsbury's Laws of England, Vol. 5 (Third Edition), it is observed at page 559 as:‑ "The Court may appoint a Provisional Liquidator to take possession of and protect the assets of the company at any time after the presentation of a winding up petition and before the making of a winding up order." A Provisional Liquidator is not ordinarily appointed and the Court must always bear in mind that the appointment is not only provisional but also contingent in this sense that it operates to protect the property for an equal distribution only in the event of an order for compulsory winding up being made, and if no such order be made then the appointment ought not to interfere with the rights of third persons Re: Dry Docks Corpn. of London ((1888) 39 Ch. D 306 at p. 314).

9. In the present case, the company has admittedly not worked for more than three years. The respondent‑company has suspended its business for the last three years. It is alleged that it has started functioning from the 12th of June 1967, but nothing has been placed on the record to show the nature and the extent of the business which it has commenced. On its behalf, an attempt was made to justify the suspension of its‑ work for three years by stating that the Import Licences of Art Silk Yarn (Raw Material) was suspended by the Government and the import of Art Silk Yarn was put on the Bonus Voucher list; and that there was shortage of the electric power. Subject to what the respondent proves by evidence, it could hardly be a ground for suspending the business, because, if it was so, all the factories working in art silk yarn would have suspended their business. The shortage of the electric power could be a ground for provisional suspension of the business but not for the complete suspension. I can, however, take judicial notice of the fact that the shortage of the electric power only took place in the year 1966 and there was no shortage of electric power in the year 1964 when the company, suspended its business.

10. The paid‑up capital of the company is Rs. 5,00,000.00 anal the debts of which I am cognizant at the moment are those which the company owes to the National Bank of Pakistan, Commerce Bank Ltd., Standard Bank Ltd., and to the Muslim Commercial Bank Ltd. These debts exceed its paid‑up capital. On behalf of the company, it t was, however, contended that the assets are worth Rs. 40,00,000

00. This fact could have been best verified from the balance‑sheets. The respondent has not put in any balance‑sheet. It has only placed on record the report dated the 12th of April 1967 of Mr. K. A. Azeez, Sole Proprietor of the Modern Builders, Architects Engineers, and Survevors Modern Interior Decorators, 5, McLeod, Road, Lahore. According to this, the value of the land is Rs. 19,40,000.00 and the value of the building is Rs. 10,76,983.00. The petitioner‑Bank has, however, placed the balance‑sheets for the year ending the 30th of June 1958, 30th of June 1959 and the 30th of June 1960. These are the balance sheets, which, Mr. Mahboob Elahi states, were furnished by the respondent‑company at the time the loan was advanced. According to the balance‑sheets, the total assets of the company on the 30th of June 1958 were Rs. 5,65,692‑2‑3; (b) 30th of June 1959 were Rs. 6,00,770‑9‑6 and (c) 30th of June 1960 were Rs. 6,41,526‑13‑

6. The value of the building in the balance‑sheer ending the 30th of June 1958 was stated to be Rs. 1,12,462‑7‑0; in the balance‑sheet ending the 30th of Jane 1959 it was stated to be Rs. 1,07,904‑14‑0, and in the balance‑sheet ending the 30th of June 1960 the value of the building is stated to be R s. 1,02,643‑14‑

0. So far as the value of the land is concerned, in the balance‑sheet ending the 30th of June 1958 it is shown as Rs. 50.00 and there is no reference to the value of the land in the subsequent balance‑sheets. It appears that the land had not been purchased by the respondent‑company by the time these balance‑sheets were prepared. It the land was subsequently purchased, it was for the respondent to prove which it could do by the production of the balance‑sheets or the original documents. It has not done so. If 1 do rapt accept the evaluation of the laud and the building as has been claimed by the respondent‑company, the assets of the company are considerably reduced. In a case, however, where the company has suspended its business and also refused to pay its debts, then at least it is prima facie established that it is commercially insolvent.

11. The arguments in the application for the appointment of Provisional Liquidator were concluded on the 17th of July 1967, but I did not pass any order because the case was fixed for evidence of the parties on the 20th of July 1967. The onus of all the issues was on she respondent, and I thought it might lead evidence to explain certain facts which militated against it to which reference has already been made. The respondent, however, did not lead any evidence and again sought an adjournment. The case was adjourned. Subject to what may transpire through evidence, it is prima facie established that the company has incurred debts which are more than its paid‑up capital, it has refused to pay the debts which necessitated the institution of suits by the National Bank of Pakis tan, the Commerce Bank, the Standard Bank and the Muslim Commercial Bank and that it has not functioned for more than three years without any plausible reason. Its stocks are pledged with the petitioner‑Bank which it could always get released on proportionate payment of the amount. The company made no attempt to have the stocks released nor it is its case that it was prepared to deposit the amount, but the Bank refused. The position taken up on behalf or the bank that it wanted to remove the stocks from the premises of the respondent- company, but it could not do so because the duty had not been paid by the respondent, is not controverted. The allegation of the petitioner. Bank supported by the affidavit of the Controller of Branches, as it is, is that it cannot have access to the stores of the respondent in the city. This allegation has also not been controverted. In these circumstances, it is just and proper that a Provisional Liquidator should be appointed who should take over the management and the assets of the company. He shall also prepare the list and the inventory of the stocks which are lying in the stores whether they are pledged or not. Its case the stocks are pledged, the inventory shall be made in the presence of a representative of the creditors and the respondent‑company.

12. The parties are agreed to the appointment of Sh. Maqbool Ahmad, Advocate (retired District and Sessions Judge: as the Provisional Liquidator, although Mr. Manan says that it will be without prejudice to the right of the respondent to challenge the order in Letters Patent Appeal. He is an experienced person and is, therefore, appointed as a Provisional Liquidator. As to his remunerations, my attention has been drawn to an order of Mr. Justice S. A. Mahmood in Lyallpur‑Jhang Transport Company Limited, Lyallpur (Civil Misc. No. 20/L/64 in C. O. No. 12 of 1964) where he appointed Sh. Muhammad Rafiq, a retired District and Sessions Judge as Provisional 'Liquidator, on payment of Rs. 1,000.00 per month. The amount is reasonable. Since the respondent‑company has not furnished any statement to show if it is in possession of any liquid assets, the interim liquidator, if he is not able to disburse himself from the company, shall be paid Rs. 1,030.00 as his monthly remunerations. Sh. Mahboob Elahi, learned counsel for the petitioner‑Bank undertakes that the National Bank of Pakistan will pay this amount to him every month. The Bank, however, will pay Rs. 1,000.00 to him towards his fee and also Rs. 500.00 as his expenses immediately, for which the Provisional Liquidator will render accounts. The amount to be paid by the bank as the remunerations etc., shall be debited to the account of the company. The Provisional Liquidator will furnish security in the sum of Rs. 5,000.00 (Rupees five thousand) to the satisfaction of the Deputy Registrar of this Court. A. B. Provisional Liquidator appointed.