2004 PLP 1443 (SCMR)

IFTIKHAR MUHAMMAD CHAUDHRY, J.

The above noted appeals have been filed against the winding up order dated 20th October, 1996 passed by a Company Judge of the High Court of Sindh Karachi in J.Misc. No.38 of 1992. As in both the appeals same judgment has been assailed, therefore, both the appeals are, being disposed of jointly.

2. Briefly stating the facts of the case are that at the request of M/s Central Cotton Mills Limited (hereinafter referred to a appellant company"), Habib Bank Limited (hereinafter referred to as "respondent Bank") extended the Credit and Banking Facility to appellant-company. To avail such facility various documents were executed between the parties, details whereof is as under:-- (i) Demand Promissory Note dated 30-11-1989 for Rs.61,381,563. (ii) Facility letter dated 30-11-1989. (iii) Guarantee dated 30-1-1989. (iv) Resolution of Board of Directors of the appellant-company. (v) Letter dated 30-11-1989. Besides creating mortgage/charge by deposit of the title deeds of property owned by it, the said charge has been duly registered with the Registrar of the Joint Stock Companies in respect of different amounts. It is alleged that appellant-company after having fully availed the facility and utilizing its benefits failed to repay the amounts to the respondent-Bank due against it as a result whereof on 28th September, 1991 a total sum of Rs.150,133,630.97 was found outstanding against it, as such the respondent-Bank vide notice dated 28th September, 1991 called upon the appellant-company to make payment of its admitted liability to the 'tune of Rs.150,133,630.97 as it stood outstanding on 28th September, 1991 within thirty days of the date of receipt of notice, failing which it shall be deemed that the appellant-company is unable to pay its debts, therefore, it is liable to be wound up under the Companies Ordinance,' 1987 (hereinafter referred to as "Ordinance"). Despite of receipt of notice appellant-company failed to discharge its liability and during this period outstanding amount against it had increased to Rs.179,228,104.33 with mark-up. As the amount outstanding against it was not paid, therefore, towards the month of October, 1992- respondent-Bank preferred a petition under sections 305/306 of the Ordinance, seeking directions to wound up it and for appointment of official liquidator to take charge of the assets. property, accounts and of the management of the appellant-company. The petition for winding up was contested by the appellant-company, raising, inter alia, objection about non-service of the notice under section 306 of the Ordinance. Appellant-company also specifically denied its inability to repay its debts or that it is commercially insolvent. Contrary ii, its claim was that the factory is operating successfully and showed net profit from the year 1975 to 1991 and further that its shares price was still better than any other textile company in the country upto 1988 and paid dividends to its share holders. The Amount claimed in the petition of winding up was also disputed with added plea that it is capable of discharging its existing debts and liabilities. Learned Company Judge of the High Court of Sindh, Karachi vide impugned judgment accepted the application of respondent-Bank for winding up of appellant-company. Operating para. there from is reproduced hereinbelow:-- "Under the circumstances and taking into account the conduct of the post three years and the contingent and prospective liabilities of the company I hereby order to the winding up of the respondent-company. The disputed amount can meanwhile be adjudicated upon by the Court in suit proceedings. The Official Assignee, who has already prepared inventory is appointed as Official Liquidator to take over the company an proceed according to law. However, the claim of the petitioner will be finalized only after the dispute is adjudicated as to the outstanding dues."

3. Learned counsel for appellant-company contended that respondent-Bank in fact has instituted winding up proceedings for the recovery of its outstanding amounts but such proceedings could not be substituted for the recovery of amount. To elaborate his argument he contended that two suits bearing Nos.441 and 442 of 1994 had been filed by appellant-company claiming declaration, damages etc. prior to institution of winding up proceedings and respondent-Bank had also filed a suit for recovery of the amount claimed by it from the appellant company being incompetent was liable to be dismissed. Reliance was placed by him on Kamadenu Enterprises v Vivek Textile Mills Pvt. Ltd. (1984) 55 Company Cases 68 and Ambala Bus Syndicate P. Ltd. v. Bala Financiers P. Ltd. (1986) 69 Company Cases 838.

4. Learned counsel for respondent-Bank stated that in view of the judgment reported as Re. Dogulas (Griggs) Engineering Ltd. (All England Law Reports Vol. I, 498; Sindh Glass Industries Ltd. v. National Development Finance Corporation PLD 1996 SC 601 and Platinum Insurance Co. Ltd. v. Daewoo Corporation PLD 1999 SC 1, a suit for recovery of money and winding up proceedings can proceed simultaneously.

5. The contentions raised by the learned counsel for the parties have been examined in light of the judgments relied upon by them. It may be noted that in the case of M/s Sindh Glass Industries Ltd. (ibid), cited by learned counsel for respondent-Bank, this Court has ruled that "pendency of the suit is no bar to filing a petition for winding-up unless it is proved that it has been filed merely to pressurize the debtor and without bona fide intention", whereas in the case of Platinum Insurance Co. Ltd. (ibid) same principle has been reiterated in the following terms:-- "That the factum that a creditor has other or alternate remedy under general law or a special law, does not debar him from pressing in aid the provision of section 306 read with section 309 of the Ordinance for seeking the winding up of the debtor company: " The above expressed view is well-recognized in the European countries as well, as held in Re. Dogulas (Griggs) Engineering Ltd. (All England Law Reports Vol. I, 498 that "the winding up proceedings cannot be rendered incompetent on the strength of the objection of the other side that the dispute is going on in some different proceedings between the same parties for determining liabilities of each other and despite of such other proceedings the Company Judge is competent to pass a winding up order because in terms of section 305, it has to base its judgment for winding up of a company on the circumstances noted therein including non-payment of debts by it". In the instant case the learned Company Judge on having taken into consideration the fact that commercially appellant-company is not a viable unit, therefore, on allowing the petition, winding up order was passed.

6. Learned counsel failed to demonstrate that the appellant company i.e. M/s Central Cotton Mills presently is in a functional condition and is making profits, neither we were made to satisfy that it is capable to discharge its liabilities. It is important to note that despite of our insistence, learned counsel failed to point out the debts owed by it to the respondent-Bank as per the record of the company nor he come out with the statement that to prove bona fides of the appellant-company, how much amount can be deposited by it to discharge the liabilities of respondent-Bank. In the written statement as well no specific denial has been made regarding its liabilities towards the respondent-Bank, therefore, for such reason, notwithstanding the facts that civil suits are pending between the parties against each other, particularly the one which has been filed by the Bank for recovery of the amount of the loan, the Company Judge on having coming to the conclusion that appellant: company is not commercially viable unit, rightly continued proceedings of winding up.

7. It is contended by learned counsel for appellant-company that in pursuance of notice dated 28th September, 1991, appellant-company has enhanced the security amount and this factum was notified by the respondent-Bank to the Registrar of the Joint Stock Companies, as such in accordance with the provisions of section 306(1)(a) of the Ordinance, once an amount, due outstanding against the Central Bank, stands secured, proceedings for winding up cannot be initiated. To elaborate his arguments, he contended that the respondent-Bank issued notice on 28th May, 1992 demanding discharge of liabilities by the appellant-company, therefore, issuance of this notice would be deemed to be in supersession of the earlier notice dated 28th September, 1991, which was issued in terms of section 306 of the Ordinance, as such the proceedings for winding up were not competent. Learned counsel further contended that in pursuance of notice dated 28th September, 1991, appellant-company was required to pay the due amount or to secure or to compound for-it to the reasonable satisfaction of the creditor.

8. Admittedly till the expiry of the 30 days period, no further security was furnished. As far as notice dated 28th May, 1992 is concerned, it was not issued in terms of section. 306(1)(a) of the Ordinance because as per its contents only 15 days time was given from the date of receipt of the notice to make the payment of outstanding dues, failing which the goods held by the bank were to be disposed of and to appropriate the proceeds towards partial adjustment and thereafter suit was to be filed for recovery of the remaining outstanding amount, therefore, this notice has not superceded to the earlier notice issued by the Bank under section 306(1)(a) of the Ordinance.

9. We have examined the contents of both the notices i.e. dated 28th September, 1991 and 28th May, 1992. A perusal whereof makes clear distinction, so far as their substance is concerned. Former notice contains a demand requiring the company to pay the sum of Rs.150,133,630.97 within 30 days from the date of issuance of letter. Is is further stipulated that failing which appellant-company shall be deemed to be unable to pay the dues and, therefore, liable to be wound up under the Ordinance. It may be noted that instead of discharging liabilities the notice was replied on 22nd October, 1991 wherein not only the liability was disputed but it is also informed to the respondent bank that if in the meantime any legal adventure is launched against the appellant-Company, the same shall be defended etc. So far as the contents of latter notice i.e. dated 28th May, 1992 are concerned, it contains the demand from appellant-Company to make the payment of Rs.85,595,833.38 with all the further mark-up and liquidated damages @ Rs.20% till the date of payment within 15 days from the date of receipt hereof. It also finds mention in the notice that failing which the respondent-Bank shall be constrained to dispose of the goods held by it in their pledges towards the partial adjustment. This notice is absolutely different from the former notice, as it speaks regarding the amount which would be obtained after assailing the goods pledged by appellant-Company with the respondent-Bank and to divert the proceedings towards the liability of Rs.85,595,833.38, therefore, latter notice would not superced to the earlier notice dated 28th September, 1991.

10. Learned counsel appearing for appellant-Company attempted to persuade us about the non-competency of the winding up proceedings by emphasizing that to secure the alleged outstanding amount, the appellant Company provided additional security, after the issuance of the notice dated 28th September, 1991 and the respondent-Bank itself had notified this fact to the Registrar of the Joint Stock Companies.

11. We have gone through the acknowledgment of the filing of the security dated 23rd May, 1992, issued by the Deputy Registrar of the Joint Stock Companies. A perusal whereof indicates that Information No. 16 dated 11th May, 1992 filed on 14th May, 1992 for modification of charge from Rs.146,113,500 million to Rs.175,113,500 million in favour of respondent-Bank, but this document itself would not make the proceedings to be based on notice dated 28th September, 1991 because as per the contents of this notice, the demand of the respondent-Bank, requiring the company to pay the same, which was due, was neither fulfilled, nor the security was enhanced within the period of 30 days, therefore, on completion of period of 30 days, notwithstanding any development which had taken place later on, including the furnishing of the security, would render the proceedings of winding-up which have been initiated, after furnishing the security, because it is construing strictly to the provision of section 306(1)(a) of the Ordinance and the cause of action had accrued to the respondent Bank for initiating proceedings of the winding up, therefore, the arguments so raised in this behalf by the learned counsel for appellant Company has no substance.

12. It is also argued by learned counsel appearing for appellant Company that according to the survey report, got prepared by the respondent-Bank's own surveyor, the assets of the appellant-Company are more than the alleged outstanding dues, therefore, winding up proceedings could not be directed.

13. On the other hand learned counsel appearing for respondent Bank argued, that the appellant-Company is lying closed and its production has stopped therefore, its winding up has rightly been ordered by the learned Company Judge. He also relied upon the judgments reported as Punjab National Silk Mills Ltd. v. National Bank of Pakistan and another 1986 SCMR 1126; Brush Rehman Ltd. v. Brush Electrical engineering Co. Ltd. 1986 SCMR 1612 and Ali Woolen Mills Ltd. v. I.D.B.P. PLD 1990 SC 763.

14. It is to be noted that the in the instant proceedings only one creditor is before this Court and it is not known as to how many other Creditors are there, having their claims for recovery of liability against the appellant-Company, therefore, in absence of such material the argument so advanced by the learned counsel for appellant-Company on its behalf is not entertainable. Besides it, learned counsel for appellant Company has failed to controvert the stand taken by the learned counsel appearing for respondent-Bank about the non-functioning/non-running and making production by the appellant-Company except stating that it had been winning a trophy continuously for seven years being one of the major exporter of the cotton. In the case of Ali Woolen Mills (ibid) it has been held that if the company was closed and was not in running condition, the Court was justified in coming to the conclusion that it was just and proper that the company be wound up. In this very judgment it has also be observed that "a company may be rich, yet it may be commercially insolvent. The real criterion is whether it could meet its liabilities". "If a company is not commercially solvent nor is there any reasonable chance of its doing business in the near future at a profit then it is just and equitable to wind up the company''. Applying this test on the case in hand; we may conclude that, subject to all just exceptions, appellant-Company may be having assets more than the liabilities which it owed to the respondent-Bank but fact remains that it is not in a C running condition nor is commercially viable because it could not show profit for the purpose of discharging its debts/loans obtained by it from the bank.

15. Mr. Abu Bakar Chundigar, learned ASC in support of Civil Appeal No. 1793 of 1996 argued that learned Company Judge in the concluding para. while directing for winding up of appellant-Company has imposed a condition that disputed amount can be, in the meanwhile, adjudicated upon before the Court in such proceedings and according to learned counsel after winding up of the company, suit is liable to be stayed under section 316 of the Ordinance.

16. Suffice to observe in this behalf that appellant-Company may approach for clarification/passing of appropriate orders in accordance with law to the Company Judge because we are of the opinion that this question can appropriately be decided by the said Court itself, in view of the relevant provisions of law.

17. No other point was argued by the learned counsel for the parties. Thus, for the foregoing reasons, listed appeals are dismissed, leaving the parties to bear their own costs. M.H./C-5/S Appeal dismissed.