P L D 1973 Lahore 60 (PLP)

Mumtaz Hussain for Respondent No.

6. Dates of hearing: 27th and 28th September 1971. A. R. SHEIKH, J.‑This judgment will dispose of three connected appeals (being Letters Patent Appeals Nos. 130, 131 and 129 of 1971) which have arisen out of the consolidated order of winding up passed on 26‑2‑71 by the learned Single Judge, under section 162 of the Companies Act, In re : Messrs Pak. Wheat Products Limited, Lahore, in Civil Original Nos. 14 of 1967, 88 of 1967 and 74 of 1969, moved by the United Bank Limited, the National Bank of Pakistan and the Muslim. Commercial Bank Limited, the contesting respondents in the three appeals, respectively. The appellants are Mian Naeem‑ud- Din and Mian Waheed‑ud‑Din (minors) sons of Mian Muzaffar ud‑Din, respondent No. 4 and brothers of Mian Moin‑ud-Din (respondent No. 2) and Mian Saleem‑ud‑Din (respon dent No. 3), through their mother Begum Rashida Khanum, as next friend. The learned Single Judge, after having considered the grounds urged by the aforesaid three creditors, as also another creditor, namely, the Commerce Bank Limited (which had been impleaded as a party in Civil Original No. 14 of 1967) that the Company was unable to pay its debts, that it had abandoned its business and that the substratum of the Company was gone, passed a detailed order under section 175 of the: Companies Act on the 9th of July 1969, appointing a provisional liquidator in the case. This interim order was appealed against by the Company through Mian Moin‑ud‑Din and Mian Saleem‑ud‑Din (respondents Nos. 2 and 3) by means of L. P. A. Nos. 297 and 298 of 1969, while L. P. A. No. 360 of 1969 was filed by the present appellants through their maternal uncle, as next friend. However, in all the three appeals, this Court refused to give interim relief by its order dated the 5th, of November 1969. Subsequently, Mian Muzaffar‑ud‑Din (respondent No. 4), the father of the appellants, as their natural guardian, along with Mian Moin‑ud‑Din and Mian Saleem -ud‑Din (respondents Nos. 2 and 3 respectively) moved an application before the learned Single Judge requesting that the Company be wound up. This prayer along with the facts and circumstances establishing a prima facie case for winding up was considered by the learned Single Judge and the winding up order appealed against was passed, when Major Jamil Akhtar Parvaiz (respondent No. 5), the provisional liquidator, was appointed to act as official liquidator.

2. The present appeals by the minor members of the Company are mainly grounded on three objections, namely (i) That the appellants, who are minors, were not implead ed as parties in the winding up proceedings. Not only that; their interest has not been kept in view while passing the winding up order as is envisaged in Order XXXII, rule 7, C. P. C. making it obligatory for the Court to apply its judicial mind; (ii) that the consent given by Mian Muzaffar‑ud‑Din (respondent No. 4) on behalf of the minor appellants is no consent in law because the former's interest was adverse to the appellants; (iii) that the reasons given for winding up, which have already been referred to above, are not present on the facts and in the circumstances of the case and, therefore, the winding up order is legally infirm. The contesting respondents have raised two preliminary objec tions to the maintainability of the appeals and the same may be attended to first.

3. The objection as to limitation is that the order for winding up having been passed on the 26th of February 1971, the period of twenty days prescribed under Article 151 of the Limitation Act, expired on the 18th of March 1971, and the appeals filed on the 26th of May 1971, are patently beyond time. It has been further contended that as no copy of the order is shown to have been applied for, the appellants are not entitled to any deduction of time for obtaining of copies under section 12 of the Limitation Act and the period from the 19th of March 1971 to the 26th of May 1971, remains unexplained. It is argued that assuming that the appellants had no knowledge of the passing of the order of winding up and they came to know of the same only on the 16th of May 1971, from public notice, even then the period of nine days between the 17th of May 1971, and the 25th of May 1971, has not been sufficiently explained to warrant indulgence of the Court under section 5 of the Limitation Act. The argument on behalf of the appellants that because they suffer from the disability of minority, the provisions of section 5 of the Limitation Act may be mere liberally construed in excusing delay has been met by learned counsel for the respondents by saying that the minors and their present next friend, the mother, had knowledge of the pendency of the liquidation proceedings, as she got L. P. A. No. 360 of 1969 filed through her brother against the order of appointment of the provisional liquidator, as is evident from the statement made by her, in para. 7 of the present grounds of appeal, and once the appellants, though minors, are held to have knowledge through their present next friend, they cannot turn round and say that they were ignorant of the subsequent proceedings and the winding up order passed on the concession of their father was not within their knowledge, especially when it is not the case of the appellants that their parents have fallen out or the next friend in the previous appeal had been negligent in discharging his obligation. The cumulative effect of all these facts, according to learned counsel for the respondents, is that the plea of absence of knowledge is not convincingly established, nor has there been any sufficient explanation for delayed approach to this Court after acquiring knowledge on the 16th of May 1971. The arguments of the respondents cannot be brushed aside lightly but in view of the minority of the appellants and the amount involved in the appeals being substantial, we consider it a fit case for condonation of delay and the objection is overruled.

4. The next objection is with regard to the locus standi of the appellants to bring these appeals. Lengthy arguments have been addressed by both sides as to the eligibility of a minor to become a member of a Company, public or private, when fully paid‑up shares are acquired by him, either directly or by way of assignment or transfer. The learned Single Judge has taken the view that such acquisition is not valid and he has further observed that because at the time Mian Moin‑ud‑Din (respondent No. 2) acquired interest in Messrs Pak Wheat Products Limited, his other brothers, namely, Mian Saleem‑ud -Din (respondent No. 3, who has since attained majority) and the present appellants were minors, in whose names the various shares had been transferred, the substratum of the Company was gone. Without being taken to have expressed any considered opinion on this aspect of the case, we find that the question of a person being or not being a member of the Company is one of fact, which has to be determined after the winding up order, at the time of settling of the list of contributories under section 184 of the Companies Act and this is not the stage to resolve that complexity. It may, however, be added that if Mian Moin‑ud‑Din alone had acquired the shares of the Company from the original members and had then assigned/ transferred the same by way of gift, as suggested, to his minor brothers including the appellants, the money having proceeded from Mian Moin‑ud‑Din, the minors would be merely benamidirs as held in In re: Muslim Bank of India Ltd. (in liquidation) Lahore (A I R 1939 Lah. 515) and in that case the number of members of this private Limited Company having been ‑reduced below two, its winding up became all the more necessary under clause (iv) of section 162 of the Companies Act. We would, therefore, assuming, without conceding, that the appellants are members of Messrs Pak Wheat Products Ltd., find that as they were not parties to the winding up proceedings because despite notices in accordance with law having been issued in the various petitions moved for winding up, they did not move the learned Company Judge for being impleaded as parties, and the argument that the learned Single Judge has misdirected himself in not impleading the appellants to the winding up proceedings has no force. According to the Rules framed by the High Court (appearing in Chapter 1, Volume II, High Court Rules and Orders) under section 246 of the Companies, Act and the provisions of the Companies Act itself, all the members of the Company are not necessary parties and only those persons are to be heard in the winding up proceedings, who express their intention to be impleaded as parties or desire to place their viewpoint before the learned Company Judge (Rule 8 refers). This having not been done by the appellants they cannot claim as of right to have locus standi to bring the present appeals. Be that as it may, there is another aspect of the case and that is that because the interest claimed by the present appellants is likely to be affected by the winding up order, they may be permitted to bring the present appeals in the special circumstances of the case. In this regard we respectfully follow the dictum of their Lordships of the Supreme Court in H. M. Saya & Co., Karachi v. Wazir Ali Industries Ltd: Karachi and another (PLD 1969 SC 65) which is an authority for the view that "a person who is not a party to a suit or a proceedings may prefer an appeal if he is affected by the judgment, decree or order of the trial Court provided he obtains leave from the Court of appeal. The test applied in granting leave to appeal, in such cases, is that if the person who wants to prefer the appeal might properly have been a party in the suit or proceeding, then he may obtain leave to appeal". The second preliminary objection in respect of absence of locus stands also fails and the appeals are held to be competent.

5. While dealing with the objection as to locus standi we have held above that it was not incumbent on the part of the Court to implead the appellants as parties to the winding up petition, without there being any petition on their behalf under Rule 8 of the Rules. On this view of the matter the objection as to absence of conscious application of the mind of the Court while recording a concessional statement of Mian Muzaffar‑ud-Din, as natural guardian of the appellants pales into insignificance. Similarly, the other objection as to the alleged adverse interest of Mian Muzaffar‑ud‑Din which has been suggested to have diminished the validity of the concessional statement of Mian Muzaffar‑ud‑Din is without merit, because the winding up order has not been founded on this statement of the directors/members of the Company alone; rather the basis of the winding up order are the conclusions detailed in the order of the 9th July. 1969, appointing the provisional liquidator, objections to which basis, we propose to deal with hereinafter.

6. Coming to merits, the main attack of the learned counsel for the appellants is that according to the provisions of the Companies Act, the Court is to find out whether the Company is unable to pay its debt on the date when a petition for winding up is moved, and ‑as no definite finding in that regard has been given in the case, the order is bad in law. Learned counsel has pointed out that at the time, the first petition (Civil Original No. 14 of 1967) was made on the 16th of March 1967, there were two debts owing from the Company; one was of the Industrial Development Bank, repayable by installments in fifteen years and the other was of the National Bank of Pakistan (respondent No. 1 in L. P. A. No. 131 of 1971) repayable in twelve years, and, therefore, in the case of these two creditors, the Company could not have been considered to be a defaulter. It is argued that a suit is pending between the appellants and the National Bank of Pakistan challenging the availability of the documents executed by Mian Moin‑ud -Din (respondent No. 2) in his personal capacity against the assets and the property of the Company and for that reason also to say that the Company was no longer solvent is incorrect. Learned counsel has referred us to some decisions which support the view that the financial position of the Company at the time of the making of the application should be taken into consideration, but these decisions in no way indicate that the learned Company Judge is to refute to take into consideration subsequent events and the subsequent financial liabilities of the Company being brought to his notice. When this aspect of the case was pointed out to learned counsel, he did not press the argument further. He, however, contended that the amount of rupees nineteen lacs claimed by the Commerce Bank is not the debt of the Company as is evident from the plaint (a copy of which was produced before the Court) and to include such an unauthorised liability on the debts of the Company, to show that its financial position is not sound, is not justifiable. It has also been stressed that because Mian Moin‑ud‑Din (respondent No. 2) had contracted the debts from the various creditors in the first instance in his personal capacity, the documents of these debts cannot be used against the property of the Company and the liability of the Company is being inflated without any legal basis. The argument does not stand the test because we find that the debts contracted by Mian Moin‑ud‑Din, whether from the Industrial Development Bank, the National Bank of Pakistan, the United Bank Limited or the Commerce Bank, have been utilized by the Company and the Company has not denied its liability in response to notices issued to it by the various creditors. Once we come to the conclusion that the debts incurred were for the benefit of the Company and were utilized by the Company, the argument loses its force.

7. The next contention is that the Company had not" suspended its business of its own volition and, therefore, winding up on that ground is erroneous in law. It has been argued that the Company functioned right up to September 1965, when hostilities broke out between Bharat and Pakistan. Thereafter, orders were passed by the Provincial Government on the 8th of December 1965, for declaration of wheat stocks and taking advantage of this situation, the National Bank of Pakistan got registered false cases against the Directors of the Company on the 10th of December 1965, which resulted in suspension of the food-grain license of the Company on the 19th of December 1965. The Company was obliged to approach this Court and ultimately succeeded in getting the food-grain license revived on the 10th of April 1968, and the interim period from 6th September 1965 to April 1968, was of inaction, if at all, for reasons beyond the control of the Company and it cannot be said that the Company had suspended its business so as to attract the penalty of winding up. We, however, find that even after the 10th of April 1968, the Company has done 0o business and all that it did was to lease out the mills on a paltry sum of Rs. 9,000.00 a month to third parties and it was not doing business according to its aims and objects and teat the registration of cases in which the two directors of the Company were involved was sufficient indication of mis management of the Company. It made third parties afraid of dealings with a Company, directors of which concern had made fraudulent representations to the creditor‑Banks in respect of pledging of their goods, and if the Government felt that a food-grain license should not be given to a Company having shady deals, it cannot be urged with success that the Company had not suspended its business deliberately. The argument of suspension of business under stress of circumstances is, therefore, not available.

8. We now take up the last objection as to the Company being commercially insolvent. It is contended that in the absence of proof that the objects of the Company as set out in the memorandum cannot be fulfilled in other ways or by the employment of other agencies, the principle of "substratum gone" cannot be applied. According to learned counsel, the substratum of a Company must be deemed to be gone when (a) the subject‑matter of the company is gone, or (b) the object for which it was incorporated has substantially failed, or (c) it is impossible to carry on the business of the company except at a loss, or (d) the existing and probable assets are 'insufficient to meet the existing liabilities. He argues that when none of these tests can be applied to the facts of the case, the Company cannot be wound up. In re: Cine Industries and Recording Co. Ltd. (A I R 1942 Bom 231) has been relied on. However, we find that no books of accounts are available right from the time the Company was taken up by Mian Moin-ud‑Din (respondent No. 2) from the previous management, no balance sheets have been prepared, or accounts got audited and even no such accounts or balance‑sheets were placed before the learned Company Judge when specific orders in this regard were passed. We further find that since the change over of shareholding from Khawaja Abdur Rahim and ten others to Mian Moin‑ud‑Din (respondent No. 2), the Company has D practically shown no activity except of contracting heavy loans from various Banks and other aid‑giving institutions and then squandering the same. There is no denying the fact that in the instant case the Company has almost ceased to function. It is impossible to carry on the business of the Company except at a loss. The existing and probable assets are insufficient to meet the existing liabilities. It is, therefore, difficult to hold that the principle of "substratum gone" cannot be applied. We may further add that the appellants appear to be carrying on the battle of their father and their brothers and these appeals are in the nature of collusive litigation and we are not impressed by the bona fides of the appellants.

9. For the reasons given above, we find no merit in these appeals and dismiss the same with costs. K. B. A. Appeals dismissed.