1987 PLP 810 (PLC)

The respondents have totally denied the figures of losses and according to them the present application for closure of the establishment is filed mala fide and the same is liable to be dismissed. The applicant filed affidavit in evidence of Abdul Hameed who are cross‑examined extensively by Mr. Ali Amjad the learned advocate for respondents. The applicant examined Sardar Farooq Khan, Chartered Accountant in the firm "Farooq Ali & Co who was cross- examined by Mr. Ali Amjad Advocate for respondents. The respondents examined Nabi Ahmed as a witness on behalf of the respondents and the said Nabi Ahmed was cross‑examined by Mr. Mahmood Abdul Ghani appearing for applicants. I have heard Mr. M. A. Ghani the learned representative for the applicant and Mr. Ali Amjad the learned Advocate for respondents at length and perused the record and proceedings of the case. The applicant company approached this court for permission to close down the establishment. The burden to succeed is to satisfy this court that this is a fit case for grant of permission sought by the applicant company. The applicant company examined Abdul Hameed who deposed about the paid up capital and fall in production during the period of January, June 1985 as compared to previous years. In this connection he produced statement Annexure‑B to his affidavit. He also produced detailed statement Annex‑C to his affidavit showing finished goods stocks in the company as on 30th June, 1985 and gave complete details about reduced purchase of raw wool in 1984‑85 and complete details about fall in value of sales during 1984‑85 as compared to 1980‑

81. The witness filed Annex. Which is summary of comparative statement of sales and production during the year ending 30th June, 1981 onward up to 30th June, 1985. There is report of PICIC as Annex‑F, which is to the effect that there is surplus in the existing capacity of the production in the country as compared to the market requirement. Abdul Hameed in his affidavit has stated that private business enterprises are operated on the principle of public confidence, which bank creditors have in the company. In this connection, he produced two letters from foreign bank who have demanded the repayment of outstanding loan amounts which are given in million of rupees. These two letters are Annexure-I and to his affidavit. He has also produced Annexure‑I to his affidavit, which is a telex from PICIC demanding repayment of loans amount without further delay. Witness has also stated that according to sound accounting practice, ratio of current assets and current liabilities should be 2:1 but as against this in the applicant company current liabilities are more than the current assets. In the applicant company current liabilities exceed current assets by Rs.9,28,800/‑. Abdul Hameed has also filed supplementary affidavit in evidence in which he has produced audited accounts of the company for the year 1984‑85 as Annex., with the request that these accounts should also be read as part of his affidavit in evidence. According to witness the company keeping in view the aforesaid factors are even not in a position to meet its liabilities. There is hardly sale for its finished products. There is huge blockage of finished goods and raw material. The company is being pressed by its creditors to repay its loans. Interest on their liabilities is mounting and therefore, the company decided to apply for the closure so as to save this company from total liquidation. Abdul Hameed in his affidavit in evidence has produced minutes of the Board of Directors meeting Annex‑J appointing Mr. Saleem Anwar Khan as one of Directors in its resolution dated 15th August, 1985 and authorised Mr. Saleem Anwar Khan to apply to the Labour Court for the permission to close down the establishment. The witness has denied the allegation that application for the closure has been made with mala fide intention or for any consideration other than this mentioned by him. Abdul Hameed in his affidavit in evidence has denied the allegation that the company has advanced heavy loans to other sister concerns or directors have more interests in other sister concerns than the applicant factory. He has stated that company owes to M/s. Siddiqui & Sons against supply of raw wool payment of which is against this company. As regards the payment received from M/s. United Carpet Ltd. against the sale of woollen yarn, it is stated that these are trading accounts and not loans or advances. Share in International Floor Covering, according to witness was purchased against loans of Rs.15 million obtained by the company from Industrial Development Bank of Pakistan, on the security of Standard Chartered Bank Limited. Witness also explained that woollen yarn is at present available in the market @ Rs.32.00 per kg. whereas the manufacturing cost of yarn in the applicant company is Rs.42.00 per kg. Witness has also stated that 35000 kg of yarn is lying unsold and has been damaged by insects. The witness also produced certificate issued by PICIC in relation to outstanding loans as on 30th June, 1985 as Annex. P to his affidavit. Finally witness has explained that United Woollen Mills Ltd: are engaged in the manufacture of woollen and synthetic yarn whereas United Carpet Ltd. manufactures machine made carpets and other companies do not do the same type of business as that of United Woollen Mills Ltd. In his cross‑examination, witness Abdul Hameed stated that he is Chief Accountant of Group of companies i.e. United Woollen Mills Ltd. United Carpets and International Floor Covering Ltd. Witness explained that the company has now become. Public Limited company and that permission had not been given by the Controller of Capital Issues and Corporate Law Authority and that shares worth Rs.72,00,000/‑ has been referred for subscription to the public. The company has also issued advertisement in daily newspapers re-inviting general public to subscribe to their shares and that shares in the face value of Rs.10/‑ have been offered to public at Rs.13/‑. Witness has explained that the break-up value of the share depends upon the reserves and accumulated profits, and that the break-up value means that the total paid‑up capital divided by net assets. Witness has explained that the bonus shares when issued become part of the capital. Witness explained that there is condition laid down by the Government that no bonus shares are issued unless the company is converted into public limited company. Witness denied the suggestion that in the advertisement they had stated that the company was prosperous concern. He explained that since the matter was sub judice in the court, they did not inform the general public in the advertisement that they have applied for the closure of the establishment. The witness explained that since the company has not been listed in the Karachi Stock Exchange, it cannot be said to be public limited company in its strict sense. Witness explained that they have only received 10% which was offered to the public in the shares which company intended to give to the general public on its being converted into public Company. Witness has admitted that the union had applied to the Government for the audit of the company's accounts for the year 1980‑81, 1981‑82 and 1982‑

83. He has denied the suggestion that the auditors found material irregularities in the audit of the accounts of the company. Witness also stated that the Audited report for the accounting year 1983‑84 shows that their accounts were correctly maintained. The witness has admitted that the union has applied to the Government for their audit of the accounts for the year ending on 30th June, 1985 and that M/s. Naseem Akhtar & Co: Chartered Accountants have been appointed as Auditors to re‑audit the accounts. The witness has explained that woollen and synthetic yarn produced in United Carpets Ltd. issued to the United Carpets and is also sold to other agencies. He agreed with the suggestion that in 1977 the company made investment in United Carpets: but this investment was sold in the year 1980 and since there was no balance left, investment was not shown in the balance sheet of 1980. During the year 1981 United Woollen Mills Ltd. purchased the shares of United Carpets Ltd. from the market. Witness also stated that the company had also purchased the share of International Floor Covering. Witness also stated in his cross‑examination that in 1982‑83, the company had taken bank overdrafts of rupees two crores and eightynine lacs (Rs.2,89,00,000/‑) and in the year 1983‑84 bank overdraft taken of the amount of Rs.40,19,827.00. Witness categorically denied that huge loans that has been shown by the company were taken for the purposes of investment in sister concerns. Witness also denied the suggestion that between the year 1980 and 1984 no substantial addition of new machinery was made. For the accounting year ended on 30th June, 1980 the company invested Rs.5,32,789.00 for the purpose of machinery. During the year ending on 30th June, 1981 the company invested almost same amount. Again company invested Rs.1,23,000.0t for machinery for the year ending 30th June, 1982. Again the company has invested Rs.94,100.00 for the year ending on 30th June, 1982 and sum of Rs.26,730, and Rs.685.00 were invested in the year 1984. Finally witness stated that sum of Rs.3,18,304 were invested for machinery and other fixed assets for the year 1985. The management also examined Sardar Farooq Ali, Chartered Accountant in the firm of "Faruq Ali & Co." This witness stated that he is senior partner of the firm and that they were Chartered Accountant and Auditors of United Woollen Mills Ltd. since 1971. They were also Tax Consultants of the company. He produced Audited balance sheet of the company for the year ending June, 1983, June, 1984 & June, 1985 as Ex‑AW/1, AW/2 & AW/3. He identified the signature of his partner on Ex‑AW/1 and‑ A/3 whereas he claimed that he has signed Ex‑AW/2. Witness stated that these accounts reflect correct financial position of the company. Witness explained that CBA had applied for the re‑audit of the accounts of the company for the year 1979‑80 onward, and that he has no knowledge of such audit. Witness was confronted with report Ex‑AW/2 given by M/s.Riaz Ahmed & Co. for the year ending on 30th June, 1980. He explained that he formulated his comments and based‑ his comments upon which the company had addressed letter to the Provincial Government Ex‑AW/4. Similarly Ex‑A/2 was not correct assessment according to observation of this witness. According to this witness in this connection, he had prepared his comments Ex‑A /4 and on the basis of his comments, the company addressed letter to the Secretary Labour, Government of Sind which is Ex‑AW/5. As regards audited accounts for the year ending 30th June, 1983 the re‑audit report of M/s. Sagheer Ahmed & Co. is Ex‑AW/6. Witness also explained that disputed year 1979‑80 became assessment year 1980‑81 under the Income Tax Act and in this connection he has produced Income Tax Assessment Order Ex‑AW/7 to prove that the audit report of the company as prepared by him were accepted by Income Tax Authorities. The witness also produced Assessment Order for the year 1980‑81 as Ex‑AW/9 in which the Income Tax Department had relied upon the audited accounts of the company. That Sardar Faruq, Chartered Accountant also claimed in his evidence that as Tax Adviser, and Auditor of the company he was consulted for the conversion of the company from private limited company to public limited company. According to this witness since assets exceeds rupees three crores therefor, the Monopoly Control Authority conducted investigation and had directed the company to be converted into public limited company. This order is Ex. AW/9. In pursuant thereof, legal formalities for permission were initiated and Karachi Stock Exchange Ltd. was requested for the enlistment of the company. However, Karachi Stock Exchange Ltd. refused to list United Woollen Mills Ltd. as public limited company and in this connection, he filed letter issued by Karachi Stock Exchange Limited as Ex‑AW/10. Witness also explained that bonus shares are issued when the company has no sound liquidity position but still want to pay dividend. The company under such circumstances issue bonus shares instead of paying cash. Witness also claimed that he was Auditor and Tax consultant of United Carpets Ltd. and that the shares of United Carpets were sold by the woollen mills and is for this reason that amount of investment was not shown in the year 1980. Witness explained that United Woollen Mills Ltd. have re‑purchased the shares and therefore this amount was again shown in the balance sheet of the company for the year 1981. In his cross‑examination witness explained that he is connected with United Woollen Mills Ltd. since 1971, denied the suggestion that before 1983 only for one year the company suffered losses. Bonus shares according to this witness is capitalisation of profits. The company was enjoying tax Exemption under section 15‑BB of Income Tax Act and that amount so suffered was available for capitalisation and capital expenses. This amount was available to the company in addition to the amount available for capitalisation bonus shares. The bonus shares, according to this witness was issued in December, 1985. Witness explained that capital reserves means abnormal profits and capital gains. Depreciation according to the witness is charged to the amount in the year and there is no accumulated depreciation. Witness stated that he did not inform the Income Tax Department that accounts of the company have been re‑audited. According to the witness Assessment order produced by him are based on self -assessment scheme. This self‑assessment return is accepted on the ground that 20$ more profit is shown over the last return. Witness also admitted that in 1981 and 1983 the company suffered loss on two financial years. Finally witness denied the suggestion that he has given this evidence at the instance of the company. The Union examined one witness namely Nabi Ahmad. He has stated in his affidavit that the application filed by the management for the permission to close down the establishment was not bona fide and was meant as counterblast of the dispute raised by the union and that company wants to get rid of and terminate the services of the workmen and to replace them by contractor labour. He also stated that the management have raised industrial dispute and that in the re‑audit of the accounts conducted for the year 1979‑80 the Auditors have found discrepancies and that the audited accounts of the company a cannot be relied upon. Witness also claimed that the company has made considerable gross profits and in this connection produced Ex‑R/3. Finally witness also produced Ex‑R/4 to the effect that there is no abnormal stocks in the company. In his cross‑examination, the witness admits that United Workers Federation of which he claims to be General Secretary is not registered Federation. He also admits that he is not office‑bearer of United Woollen Mills Workers Union. He also admits that on no occasion, he had remained the employee of United Woollen Mills nor was he ever employed in the United Woollen Mills Ltd. He also admits that United Carpets W/Union is not affiliated with his Federation. Witness does not know the names of the Directors of the United Woollen Mills Ltd. He also admits that the industrial dispute raised by United Woollen Mills Ltd. was subsequently withdrawn by the Management. The witness also admits having gone through the audited accounts and balance sheet of the company and says that for the year ending on 30thJune, 1982 the company suffered financial losses according to the balance sheet. Witness also admits that the union have asked the Provincial Govt. for the re‑audit of the accounts for the year ending on 30th June, 1982 but does not know if the auditors have certified that the company has suffered losses. He also admits that the union had not made out any effort to find out as to what is the report of M/s. Sandhu & Co. for the financial year in question. Nabi Ahmed also admits in his cross‑examination that the union had applied for the re-audit of the accounts of the applicant company for the year 1982‑83 and that the Provincial Govt. had appointed M/s. Sagheer Ahmed & Co. Chartered Accountant to re‑audit the accounts. The witness produced report of M/s. Sagheer Ahmed & Co. as Ex. l dates 25‑6‑1985, he also admits that the union had withdrawn the request for re‑audit of the accounts for the year ending on 30th June, 1984. That Nabi Ahmed, in his cross‑examination has further admitted that he has not read the Article of Association and Memorandum of Association of company. He also admits that the settlement dated 17‑2‑1985 was not signed by him but claims that it was negotiated in, his presence. He also admits in his cross‑examination that there is no mention in the balance sheet in which year the applicant company made any investment in United Jute Mills Ltd. Nabi Ahmed admits in his cross‑examination that according to balance sheet, shares of United Carpets Ltd. and International Floor Covering were purchased by the applicant company. The witness shows his ignorance about the audited balance sheet of the company for the year 1984‑85 on the ground that he has not seen the balance sheet and therefore, according to him he cannot say if any loan or advance by the company is given to his sister concern. Nabi Ahmed in his cross‑examination admitted that due to mistake he mentioned in Annexure‑R/3 an amount of Rs.54,47,823/ to be amount due to United Carpets Limited. Nabi Ahmed further admitted that in the balance sheet for the year 1981‑82 at page 4 under the heading "INVESTMENT" total amount shown was Rs.5, 35, 88,254/‑. It is not in the personal knowledge of this witness as to what is the total balance of yarn in the Godown of the company. According to this witness entire sale of the company is sent to its sister concern M/s. Siddique & Saeed Company from where sales goes to the market or to United Carpets Limited. According to Nabi Ahmed United Woollen Mills Ltd. was converted into public limited company and is listed in the Karachi Stock Exchange Limited. He does not know if Karachi Stock Exchange refused to enlist the applicant company as public Limited company. The respondent did not examine any other witness of the union to substantiate the case of the respondents that there is no A loss or .accumulation of stock and that the Management applied for permission for closure merely to victimise the workers. On the basis of this evidence brought on record Mr. Mahmood Abdul Ghani contended before me that applicant, company has established that it is running in losses and the Board of Directors have decided to request this court for the permission to close down the establishment. The learned counsel relied upon various Authorities in support of his case that this is a fit case where this court shall grant permission to the Management to close down the establishment. Mr. Ali Amjad Advocate for respondent on the other hand urged before me that the applicant company have given huge advances and loans to the sister companies and concerns in which Directors are interested and made huge investment therein. According to Mr. Ali Amjad those companies are purchasing the major shares of these companies out of the funds of the applicants. According to learned counsel the applicant have miserably failed to show that the applicant company is suffering continuous losses to entitle them to close down the establishment. The learned counsel relied upon the Indian Authority of Bombay High Court reported as 1985 (50) F.L.R.

401. According to him the losses incurred by the applicant company was not their reason for the proposed closure. There were admittedly no continuous losses for years and therefore this court is competent to refuse the permission sought by the applicant. I have carefully considered the contentions advanced before me. In order to appreciate the legal provisions, I would like to reproduce provisions of S.O. 11‑A of West Pakistan Industrial and Commercial Employment (Standing Orders) Ordinance 1968, which reads as under:‑ 11‑A. Closure of Establishment "Notwithstanding anything contained in Standing Order 11, no employer shall (terminate the employment of more than fifty per cent of the workman or) close down the whole of the establishment without prior permission of the Labour Court in this behalf, except in the event of fire, catastrophe, stoppage of power supply, epidemics or civil commotion." The law imposed the condition of the closure of the establishment) and made this conditional upon the necessary permission being granted Court. There is no criterion laid down under the law by the labour as to what are the conditions under which such permission can be I Labour Court. The established law which. I will discuss is this that the applicant company has to prove and convince the labour court about truth as well as the reasonableness of the grounds on which the closure is sought. The applicant company to establish the bona fides of approaching the Labour Court, has also for the closure of the establishment. In the case of Textile Corporation of Pakistan Limited v. Presiding Officer, Sind Labour Court No.6, Hyderabad and another (1982 P I. C page 22 at 26) Karachi Bench of High Court, in the matter pertaining to application for permission to close down the establishment on the basis of losses, was pleased to observe as under:‑‑ "It cannot be gainsaid that a company has a general right in law to close down its business. In interest of better relations between the industry and the workers the legislature has made laws relating to industrial employment and under the Standing Orders Ordinance 1968 has put the condition that no employer shall close down without prior permission of the Labour Court. The evidence on record however, about continued losses year by year, and despite change in Management cannot be overlooked as due to the same it was no longer feasible or profitable to continue to operate the mill; under the circumstances, it is hereby declared that the order dated 15th Sept. 1979 passed by the Presiding Officer Labour Court No.6 is contrary to law and of no legal effect and that the petitioner is entitled to close down its mill in accordance with law. The petition is allowed accordingly with no order regarding costs." That in case of Labour Union v. Rachna Textile Mills Ltd. Gujar Khan 1984 P L C 1136 in the matter pertaining to the closure of the mills, the Hon'ble Punjab Labour Appellate Tribunal was pleased to make the following material observations:-- "In the absence of any evidence of the motive, the stand taken by the respondent is to be accepted that on account of losses the electricity bills of some months were not paid resulting in disconnection of the electricity. Since the electricity was disconnected the mills was not in a position to run. The management, in these circumstances, therefore, was compelled to close it. The order of the learned Lower Court, therefore, appears to be correct." In the case of Byron & Company, Calcutta v. Byron Mazdoor Punchayat, Factories Journal Report, Vo1.II page 400 at page 404), the Hon'ble Labour Appellate Tribunal of India, discussing the criticism on audited balance‑sheet repelled the objections with the following material observations: "The criticism advanced before us were mostly vague and unwarranted. The entries in the balance sheets must be presumed to be correct until the contrary is shown by positive evidence. Audited balance sheets should not be thrown away merely on speculation and surmises as incorrect and fictitious. This tribunal has repeatedly held that an audited balance‑sheet should not be rightly discharged and that it should be presumed to be correct, unless the contrary is established by positive evidence. That in the case of South British Insurance Employees Union v. Sind Labour Court No.4 & others (1975 S C M R at page 51), their Lordships of Supreme Court of Pakistan were pleased to lay down the principle as under:‑ "It will be seen that the Standing Order does not stipulate that the application to the Labour Court for permission to close down should be the first step in the process. All that it prescribes is that no employer shall close down the whole of its establishment without prior permission of the Labour Court in this behalf. Thus the Labour Court's permission might indeed be the last step in the process of closing down, or an application in this behalf may be made by the employer simultaneously with any other step that he may have to take to wind up his business and close down his establishment. The Standing Order does not appear to us to spell out any sequence in which the various steps for closing down an establishment have to be taken by an employer, and, therefore, no question arises of the respondents having committed any illegality in this behalf." In the case of Pakistan Textile Workers Union v. Textile Corporation of Pakistan Ltd. and another, constitutional petition for Special Leave to Appeal No.K‑229/84 decided on 5th December, 1981 Full Bench of Supreme Court of Pakistan, in the matter pertaining to application under Standing Order 11‑A of the West Pakistan Industrial & Commercial Employment (Standing Orders) Ordinance 1968, was pleased to observe as under‑ "Learned Counsel submits that the losses suffered by the mill prior to 18‑12‑1978 were not relevant because a new management had come into the scene, and that even during the pendency of the application the mill had been leased out to new party. A fear was also expressed that the application was a device meant only to get rid of the existing employees. The fact that the mill had been running continuously at a loss for the last many years is relevant to the application (see British Insurance Employees Union v. The Sind Labour Court No.4 and others, 1975 S C M R 49). The Management had placed material to show that the losses had grown to a size many times that of the assets and that it was no longer economical to run the mill. In the circumstances the High Court was justified in permitting the Management to close down the mill. The petition does not raise any question of law such as would warrant an interference with the decision of the High Court. Leave to appeal is therefore refused." The case of the Management is that they are suffering financial losses on the basis of the audited accounts. There is decline in business and huge accumulation of stocks. They have taken heavy loans from the banks and financial institution who are insisting on C repayment. Contrary to this the case of the respondent is that there are no loss or accumulation of stock and continuous loss but the management applied for permission to victimise the workers. In the light of these submissions it is to be determined whether the applicant company has convinced this court, of the truth of their grounds and reasonableness of the grounds. The applicants have brought on record documentary proof to' show that they are suffering financial losses on the basis of audited accounts. The advocate of the respondents cross‑examined both the witnesses of the applicant company at great length. It is proved from the documentary evidence that applicant, company suffered financial losses on the basis of audited accounts. The applicant company established through documentary evidence that there is decline in business and huge accumulation of stock. That applicant company convinced this court from documents that they have taken heavy loans from financial institution and according to applicant company they are not in position to repay loans taken by them. Therefore, the applicant company considered it expedient to close down the establishment, The law pertaining in closure of establishment and the right of employer to close down the establishment is reported in different authorities. In the case of Colony Textile Mills Ltd. v. Industrial Court of West Pakistan reported in 1964 P L C page 605 and the principle pertaining to the closure of the establishment is as under:‑ "It is the unqualified right of an employer to stop or to discontinue his industry at any time if he does not feel satisfied with its prospects and the Management cannot in law be compelled to continue it against its wishes. The workers have no say in the matter and they cannot object to the closure stoppage or discontinuance of his business by the employer." The respondents laid great stress upon the second audit. Admittedly the respondents had not examined the second auditor. Sardar Farooq Chartered Accountant who had audited the account of the company filed his comments Ex‑A/4 & AW/5 to point out the anomalies in the observation of the second Auditors. Sardar Farooq gave evidence and according to him the accounts audited by him were submitted to the Income Tax Authority and assessment orders by the Income Tax Authority are passed on the said accounts audited by him. The respondents failed to examine any auditor of M/s. Riaz Ahmed & Co. who had given the second audit report. I am therefore, not prepared to accept second audit reports. It is further apparent from the record that the Applicant company was converted to public limited company. The shares of the company were floated in the general public for subscription. There was poor response. The Karachi Stock Exchange Limited vide their letter Ex.AW/10 refused to enlist the company as public limited company. According to the Authority relied upon by the respondents the loss incurred by the mill were not real reasons for proposed closure. The facts of the authority are distinguishable from the facts of this case. It is a fact that there was no continuous losses from 1977‑78 till 1984‑85 but audited balance sheet clearly shows that the company suffered huge losses. The loss is Rs. One million eight hundred seventy‑two thousand and eighty‑six and seventy paisa. There is huge accumulation of stock and there is decline in the sales. The company has to meet demands of its creditors. Despite the fact that there were no continuous losses for years together but at the same time it is proved beyond reasonable doubts that the applicant Co. is unable to run the establishment any more. It is fundamental right of every citizen to pursue profession or business of his choice. The representative of the applicant company placed reliance upon various Authorities of the Superior Courts ante according to these Authorities the Superior Courts are of the opinion that employer is entitled to close down the establishment, provided the employer satisfied the Labour Court that closure is bona fide and such a permission is granted by the Labour Court. There is not a single Authority cited before me of Pakistani Courts wherein Superior Courts rejected any application of closure. The applicant company has satisfied this court that it is not practicable for them to continue with the business started by them. The employer cannot therefore be forced to continue the business against his wishes as this shall be clearly contravention of the Constitution of Pakistan. I am therefore convinced that this is a fit case for grant of permission to the applicant to close down the establishment which is known as United Woollen Mills Ltd. located at E/15 SITE, Karachi. This is however subject to the payment to the workers/ employees all their legal dues, admissible under law. The applicant company is directed to give preference to the present workers for employment in case it starts similar type of business within period of 12 months. With these observations the application stands allowed as M.Y.H./ 979/Lb.S Petition accepted.