1989 PLP 374 (MLD)

(iii) An Agreement to create mortgage on Future Assets dated 1‑5‑1965. It is the further case of the petitioner that in respect of the said foreign currency loan under 2nd / 3rd German Credit, the respondent executed a Letter of Continuity dated 1‑5‑1965 in favour of the petitioner, after having deposited in advance with the petitioner various title deeds in respect of plot of land bearing No. 14 measuring 1105.55 square yards situated at West Wharf Road, Karachi, and structures already constructed thereon or to be constructed thereon and plant and machinery existing on the said plot or to be added/affixed later on. It is the further cast; of the petitioner that it granted to the respondent a second foreign currency loan which was in German DM. The respondent executed documents mentioned in paragraph `10' of the petition as (i) to (iv) The second foreign currency loan was to be DM 861,000 but the loan was enhanced to DM 895,009.50. The respondent executed documents mentioned in para `l1' of the petition. The loan was not utilised till later and by then the rupee equivalent had gone up from Rs. 45,65,000 to Rs. 49,88,400 and therefore the respondent executed an amended agreement dated 16‑6‑1979. It is the further case of the petitioner that because of defaults by the respondent in repayment, the petitioner and the respondent executed an agreement dated 2‑11‑1983 whereby certain concessions were given to the respondent. ??????????????????????? The case of the petitioner is that the net losses of the respondent company rose from 1.16 million in 1880 to 1.622 million in 1984. No dividends were declared by the respondent company during the period 1980 to 1984. The respondent is also indebted to other financial institutions and other banks. The Petitioner through legal notice dated 8‑3‑1986 called upon the respondent company to make payment of the entire dues. The statutory notice of demand has not been complied with and, therefore, the respondent company has neglected to pay. Hence this petition filed by the above petitioner. The petition has been resisted on the ground that the alleged loans were advanced on the basis of commitments and instructions of the Federal Government of Pakistan from out of funds allocated under the Industrial Investment Schedule for private; sector under the fourth and fifth five‑year plan. The amount of alleged loan was thus in fact investment of the Government. The case set out in the affidavit that the alleged investments were made and utilised? for extension and modernization of printing of the respondent on the basis of? undertakings and assurances of the Federal Government of Pakistan in promises, he fourth and fifth five‑year plans but later Government committed breach of their promises, assurances and undertakings by placing mala fide restriction to their utilization by respondent of their printing capacity and also creating parallel rinsing unit in Pakistan Security Printing Limited in spite of opposition and printing by the petitioner and other financial institutions. The respondent filed Suit No. 201 of 1986 against the Federal Government of Pakistan and others including the petitioner. The respondent sought relief of specific performance of promises, assurances and claimed rope 90 million as compensation and damages against the Government of Pakistan. Mr. Rahimtoola contended that the debt is bona fide disputed by the Mr. respondent. company and, therefore, petition for winding up is liable to be dismissed relegating the petitioner to seek its remedy by way of a suit. ??????????? I have duly considered with the factual aspect of the case, it will be appropriate to deal with legal position. It is well‑settled that if a debt is bona fide disputed by a company, the proper remedy for the creditor is not to present petition for its winding up. It can establish its debt .in a civil action. In case it moves a petition for winding up, that is liable to be dismissed. But if the debt is not bona fide disputed, the Company Court may decide it in the petition and make an order of winding up. The reason for winding up order is that in its failure to pay a debt after a statutory notice, the presumption arises that the company is insolvent. On the other hand, the reason for dismissing the petition for winding up on the ground that the debt is disputed bona fide, is that a solvent company is likely to suffer a great damage if a petition is presented by an unscrupulous creditor whose debt the company is willing to pay if he establishes the same. In the aforesaid view I am fortified by the observations from Buckley on the Companies Act, 11th edition. The following observations at pages 356 and 357 may be read with advantage:‑‑ "A winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the company. A petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatised as a scandalous abuse of the process of the Court". ?? "Great damage might obviously be done to a solvent company by a winding up petition presented by an unreasonable creditor, whose debt the company are able and willing to pay if established, but to whom they bona fide believe they are not indebted". Two rules are well‑settled. First, if the debt is bona fide disputed and the defence is substantial one, the Court will not wind up the company. The Court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable (See London and Paris Banking Corporation (1874) 19 Eq. 444=23 WR 643). Again, a petition for winding up by a creditor who clamed payment of an agreed sum for work done for the company when the company contended the work had not done properly was not allowed. (See Re Brighten Club and Norfolk Hotel Co., Ltd. (1865) 35 Beav 204 = 5 ER 873). . Where the debt is undisputed the Court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt. (See Re: A company 94 SJ 369). Where however, there is no doubt that the company owes a creditor a debt entitling him to a winding‑up order but the exact amount of the debt is disputed, the Court will make a winding‑up order without requiring the creditor to quantity the debt precisely (See Re: Tweeds Garages Ltd., 1962 Ch. 406 = (1962) 2 WLR 38). The Principles on which the Court acts are first that the defence of the company is it good faith and one of substance. Secondly, the defence is likely to succeed it Point of law and thirdly the company adduces prima facie proof of facts on which the defence depends. In the present case the claims of the petitioner are disputed on the ground that the respondent instituted Suit No. 201 of 1986 against the Government of Pakistan and eleven others. The respondent has claimed relief of specific performance. The relief of specific performance against the Government of Pakistan is founded on the allegation that it had held out certain promises, assurances and inducements in its fourth and fifth five‑year plans and acting on them the respondent company incurred heavy financial liabilities to modernize their business but subsequently the Government committed breach of these promises/assurances and commitments thus creating collosal losses to the respondent company. In these promises, Mr. Rahimtoola contended that the petitioner being the functionaries/corporations of the Government of Pakistan are equally liable for the breach on the part of Government of Pakistan and as such the claim in the suit instituted by the respondent should be treated in the nature of a counter claim against the petitioner. The contention is devoid of force for more than one reason. I have perused the plaint in suit. A perusal of plaint would show that there is no allegation of any breach against the petitioner. In paragraph `13' of the plaint it is categorically stated that the breach by Government of Pakistan of its promises and assurances was protested by the petitioner. A perusal of the plant would show that prima facie neither the breach of assurances by the Government of Pakistan concerns the petitioner in any manner nor it is the case of the respondent that aforesaid breach was the result of any connivance or inducement on the part of the petitioner. Secondly, if this suit, which is pending, succeeds, the respondent company will be entitled the relief of specific performance or alternative relief of compensation/damages awarded in the decree, that may be passed against the claim of the petitioner. But I fail to see how the mere fact that a claim has been put forward against the Government of Pakistan and which is pending adjudication by the Court can make the claim of the petitioner, which arises out of credit agreements, agreement to create mortgage, disputed debt. It is no doubt alleged in the affidavit/counter‑affidavit ` filed by the respondent company that suit is pending, but it is well‑settled that a mere fact that a suit is pending does not prevent debt from being made the foundation of a winding‑up petition unless stay is obtained pending disposal of the suit. Mr. Chundrigar rightly pointed out that the scope of the two proceedings namely the suit instituted by the respondent and the winding up petition filed by the petitioner is totally different and the relief claimed by the petitioner in the present proceedings cannot be granted by the Court in the above suit. ??????????? Mr. Rahimtoola contended that the petitioner presented the petition out of improper motive. Improper motive can be spelt out where the petition is presented to coerce the company in satisfying some groundless claim against it by the petitioner. The facts and circumstances of the present case do not indicate the motive. The petitioner granted credit facilities which were availed by the respondent company. Mr. Rahmitoola referred to the English cases namely Mann v. Goldstein (1968) 2 AER 769, and Re Lympne Investments Ltd. (1972)2 AER

385. It was observed in Mann's case (supra) that when the debt is disputed by the company on some substantial ground and the company is solvent, Court will restrain the prosecution of a petition to wind up the company. Similar is the ratio in Re: Lympne Investment Ltd's case (supra). Now it is to be seen whether the company is bona fide disputing the debts of the petitioner. It is not disputed that the petitioner granted foreign loans to the respondent company. It is not disputed that the loans were disbursed to the respondent‑‑company. It is also not disputed that the respondents availed those credit facilities. It is not disputed that the claim is being made by the petitioner on the basis of these foreign loans. From the aforesaid circumstances, it is clear that there is no bona fide dispute regarding the debt and prima facie there is no defence at all. There is another angle from which the matter may be examined. It is, if the Court comes to a finding that the defence is a camouflage to cover the insolvency of the company, the defence may be rejected and the Court may proceed with the proceedings of winding up. The point to decide is: Is the respondent company to be wound up for being unable to pay its debts? Undoubtedly, the power to be exercised under section 305 of the Ordinance is a discretionary one and it is competent for the in consideration of the circumstances in a given case to refuse to pass an order of winding up even if the respondent company is unable to pay its debts. It is equally open to the Court in its discretion to make a conditional order. It is appropriate that at this stage reference is made to precedents. At page 893 of Palmer's Company Law, 22nd edition, referring to the corresponding provision in section 223 of the English Act, it has been stated:‑ "The Court is invested with a wide jurisdiction in the interests of commercial morality;" In Re: Great Western (Forest of Dean) Coal Consumers' Company (1882) 21 LIZ Ch. D. 769 (Ch. D.), the Court found it appropriate to deal with the adverse circumstances of the coal trade in England. In Re: Greenwood and Co., (1900) 2 QB 306 (DB) winding up was refused when it was found that a particular creditor was anxious to bring about statutory liquidation with a view to recovering some money due to it. In Re: Tweeds Garages Ltd. (1962) AER 121: 32 Comp Cas 795 (Ch.D.) Plowman J., laid down that where there was no doubt that the petitioners were creditors for a sum of money which would otherwise entitle them to a winding up order, a dispute as to the precise amount owed was not a sufficient answer to the petition and, therefore, directed the debtor company to be wound up. In Mann v. Goldstein (1968) 2 AER 769, the principle laid down in the aforesaid case was approved. While these are the special features to be taken note of, I cannot lose sight of the fact that the respondent company has not been able to satisfy the demands of the creditors for many years and definitely for more than two and half years after statutory demand. There is considerable dispute as to whether the assets of the respondent company exceed its liabilities or, otherwise said, the respondent company is on the verge of insolvency. I do not think a detailed I examination of this aspect of the dispute needs to be undertaken. The outstanding feature that even during the two and half years that this petition has been pending in Court, the respondent has not been able to offer to pay. up the amount offers sufficient basis to hold that the respondent company is not able to pay up the dues of the petitioner. The petition of the petitioner is not mala fide one. Admittedly, huge amount is due to the petitioner for more than eleven years now. Merely because the company was not in a situation does not mean that the petitioner should not be paid its dues and even when the company is in default, an order for winding up is not to be made. On the other hand, I think it appropriate to direct the winding up of the company but to stay its enforcement for a period of six months from today in order to enable the respondent 'company to pay up the dues of the petitioner company or to obtain stay or to expedite the disposal of the suit. I have not come across a case where a long period has been given, but in the peculiar facts of the case I think it appropriate and in the interest of justice to grant such a long time to enable the respondent company to pay up its dues or to obtain stay of the proceedings. If the debts are not satisfied or stay is not obtained within the time indicated, the winding up proceedings shall proceed in accordance with law on the application of the petitioner. In the peculiar facts of the case, I direct the parties to bear their own costs of these proceedings. H.B.T./I‑68/K????????????????????????????????????????????????????????????????????????????????????? Order accordingly.