1998 PLP 474 (CLC)

(a) That this hon'ble Court be pleased to direct and ordered that the respondent‑company be wound up under the orders of this hon'ble Court. (b) That this hon'ble Court be pleased to appoint an Official Liquidator to take charge of the assets and properties, accounts and management of the respondent‑company with full powers under 'the Companies Ordinance, 1984 to liquidate the respondent‑company. (c) For such further and other reliefs/orders as the nature and the circumstances of the case may require and which this Hon'ble Court deems proper and necessary in the circumstances of the case. The respondent filed counter‑affidavit denying the facts as stated in the petition and took legal objections which inter alia are:‑‑‑ That the petition is barred under section 306 of the Ordinance for lack of statutory notice as required under the law. That the notice, dated 28‑9‑1991 was superseded by a subsequent Agreement between the parties in accordance with a proposal, dated 11‑2‑1992 submitted by the respondent and as a result additional securities were given by the respondent. That the respondent specifically denied that it is unable to repay its debts or that it is commercially insolvent. On the contrary, it claimed that the company is operating successfully and showed net profits from the year 1975 to 1991 and further that its shares price is still better than any other textile company in the country up to 1988 and paid dividends to its shareholders. That the amount claimed by the petitioner is disputed and that the respondent is capable of discharging its existing debts and liabilities. Mr. Ismail Merchant, the learned counsel for the petitioner, contended that the respondent has not denied the execution of the documents and that the respondent‑factory is closed for the last three years i.e. since 1993 when the present petition was filed. His next contention was that the debts of the respondent are more than the paid‑up capital and as such the respondent has become commercially insolvent and unable to pay its debts. He next contended that although an appeal was filed by the respondent and stay was granted but the Official Assignee was directed, to prepare an inventory and' in the circumstances it has been proved that the respondent is unable to pay its debts and as such the petition may be granted and the respondent‑company be wound‑up. In support of his contentions, he relied on the case of Park Davis & Co. Ltd. v. Bliss & Company Ltd. (PLD 1982 Kar. 941). In the said case the petitioner‑company had filed a suit for recovery of certain amounts against Bliss & Co. where there was no dispute as regard to the outstanding amount. But the same was not paid after the statutory notice was served. The company did not place on record any evidence i.e. Balance Sheet, Profit and Loss Account or statement of assets and liabilities as such it was concluded that the company was unable to pay its debts and, therefore, insolvent. It was observed that "it is settled law that when there is a failure to pay a debt in accordance with the statutory notice of demand, insolvency is to be presumed though no doubt it may also be proved in other ways". The fact of the case is not applicable to the present case. The second case relied upon by Mr. Merchant was that of Trade and Industry Publications Ltd. v. I.D.B.P. (PLD 1990 SC 768), wherein it was held that "a company can be wound‑up by the Court on any of the grounds mentioned in section 305 of the Companies Ordinance, 1984 and one of such grounds for which a company can be wound‑up is that the company is unable to pay its debts. " The next case relied upon by him was that of National Bank of Pakistan v. The Punjab National Silk Mills Ltd. and others (PLD 1969 Lah. 194), wherein it has been held that "there can be no dispute with the proposition that non‑payment of a disputed debt is not a proof of the fact that the company is insolvent. It is also well‑settled by authorities that a winding‑up petition is a legitimate method of enforcing payment of just debts. The creditor who is unable to obtain the payment of his debt has the right ex debito justitiae to winding‑up order. Mr. Muhammad Ali Sayeed, the learned counsel for the respondent, contended that no statutory notice was served by the petitioner as contemplated under section 306 of the Companies Ordinance as such the petition is not maintainable. His next contention was that statutory notice, dated 28‑9‑1991, Annexure 'G' to the main petition, mentions an amount of Rs.150,133,630.97 as due and payable by the respondent to the petitioner as on 25‑5‑1991 while in para. 9 of the petition the amount shown as due and payable from the respondent 'to the petitioner is Rs.129,228,104.33 as on 30‑9‑1992 while under notice, dated '28‑5‑1992 a demand of Rs.85,595,833.38 was made which shows the discrepancies in the amounts/claimed by the petitioner and the same are disputed by the respondent. According to him, as the amounts mentioned hereinabove are the disputed amounts, the same are to be adjudicated upon as to exactly how much amount is due and payable by the respondent to the petitioner. Next he pointed out that in the letter of the petitioner, dated 14‑5‑1992 the amount of Rs.175,113,500 has been shown as charge on the property but actually Form‑16, dated 11‑5‑1992, which is a registered document only indicates an amount of Rs.146,113,

500. According to him, the difference between the two amounts are because the petitioner had given an option to the respondent either to pay the outstanding amount or secure the same and as such the respondent offered more property to the petitioner to secure its debts. The upshot of Mr. Sayeed's contention was that seriously disputed dues cannot be subject of winding up proceedings. In support of his contention, the learned counsel relied on the case Aluminum Corporation of India Ltd. and another v. Lakshmi Ratan Cotton Mills Co. Ltd. and others (AIR 1970 Allahabad 452), wherein it was held that "the principle, that the existence of a bona fide dispute dispels the fiction of presumption contained in section 434(1) of the Act, is applicable to a decretal debt as well. The only difference is that the decree against the alleged debtor raises a strong presumption as held by S.K. Dutta, J. that "a genuine debt exists." But in the case of Aluminum Corporation of India the facts were different. During pendency of the appeal of the corporation the Court had passed orders with consent of the parties to deposit an amount of Rs.1,00,000 in the executing Court to be set off later against the claim. This amount was withdrawn by the company on furnishing security. After appeal was allowed the corporation filed a restitution application which was allowed and the company was directed to pay a sum of Rs.44,554 to the corporation by way of restitution. The corporation without filing any execution proceedings served the company with a notice calling upon it for payment. The company replied by disputing its liability to pay back the alleged amount. The corporation filed winding‑up proceedings on various grounds including the inability of corporation to pay its debts. The next case he relied on was that of Adage Advertising, Lahore v. Shezan International Ltd., Lahore (1970 SCMR 184). The facts in the case of Adage Advertising were that the petitioners were dealing with advertisement business and undertook publicity work on behalf of the respondent‑company. The service bills to be paid were for April to September, 1965. The outstanding amount was not paid by the respondent as the same were disputed as' having partly paid and it was observed that "the question always arises whether the respondent‑company is not in a position to pay its debts or whether the company concerned has bona fide dispute with the petitioner, who has come to the Court". He further relied on the cases of Hussain Can Co. Ltd. v. K.K. & Company (Private) Limited,(1992 SCMR 1006) and Pakistan Standard Insurance Company Limited (1986 MLD 2762). His next contention was that there is no evidence on the record to show that the respondent is unable to pay its debt or was insolvent at the time of filing of this petition. According to him, the very fact that the respondent raised security and charge was modified which satisfied the petitioner, itself is proof that the respondent is able to pay its debts. The company was earning profits till the year 1991 and was awarded best Export Performance Trophies and exported cotton yarn till 1991. He relied on the case of Cine Industries and Recording Company Limited (AIR (29) 1942 Bombay 231), wherein it was held that "the test for determining whether a company should be wound‑up is whether the company is commercially solvent on the date of the petition for winding‑up. The expression "commercially solvent" means that the existing assets and liabilities of the company are such as to make it presumably certain as to make the Courts satisfied that the existing and probable assets would be sufficient to meet the exiting liability". It was further held "commercially insolvent" means where the substratum of company must be deemed to have gone". He also relied on the case of Mullah Abdullah Bhai and 9 others v. Saria Rope Mills Ltd. (PLD 1971 Kar. 597), wherein it was held that "the creditors are clearly in error in entertaining the view that winding up proceedings are a substitute for a suit to recover their debt". Further, that "the reasons why an application for winding up is not substitute for a suit is that in a suit for the recovery of a debt the creditor has to prove what is due to him, whereas in winding‑up proceedings under section 162(v) he has also to establish that the "company is unable to pay its debts". The word "unable" does not mean "unwilling" and the word "debts" refers to all the creditors as a class and not separately to the interest of each individual creditor". His further contention was that there is no evidence on the record to show that the respondent owes to any other banking companies in Pakistan or if the assets of the respondents are less than its outstanding liability. According to him, the petitioners are also holding pledged cotton bales of the respondents, which are worth more than 150 millions. His further objection was that in spite of the request of the respondents the petitioners failed to supply the statement of account to the respondents. I have heard both the counsel and have considered the pleas raised and case‑law cited during the arguments. The present petition has been filed under sections 305 and 306 of the Companies Ordinance, 1984. Section 305 deals with the prevailing circumstances in which a company can be wound‑up by the Court. Section 305 (c) provides that "company may be wound‑up if it is unable to pay its debts and 305(h) provides that if the Court is of the opinion that it is just and equitable that the company should be "wound‑up" the orders may be passed accordingly." Section 306 provides that Company when deemed unable to pay its debts. ‑‑‑(I) A company shall be deemed to be unable to pay its debts‑‑‑ "(a) if a creditor, by assignment or otherwise to whom the company is indebted in a sum exceeding one per cent. of its paid‑up capital or fifty thousand rupees, whichever is less, than due, has served on the company, by causing the same to be delivered by registered post or otherwise, at its registered office, a demand under his hand requiring the company to pay the sum so due and the company has for thirty days thereafter, neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor; or (b)

or (c) if it is proved to the satisfaction of the Court that the company is unable to pay its debts, and, in determining whether a company is unable to pay debts, the Court shall take into account the contingent and prospective liabilities of the company. " In the present case while arguing the matter, Mr. Ismail Merchant, the learned counsel for the petitioners stated that the bank has already filed a suit against the respondents for recovery of its dues. He also stated that some of the other financial institutions are also taking steps to recover its dues from the present respondent. It is an admitted position that the company is closed for the last three years since the filing of the petition and that the Official Assignee was appointed to prepare an inventory. There is no cavil to the proposition that where the amounts are disputed, the same are to be adjudicated upon to enable the debtors to pay the same. In the present case after the statutory notice, dated 28‑9‑1991 was served on the respondent, the contents of the said notice were not denied. The respondent on the other hand offered more securities and charge was modified to Rs.175,113,500 on 23‑5‑1992. Further as already stated hereinabove, it is a fact that the company is closed for last more than three years and the respondents have not been able to raise funds to get the release of its cotton stock from the petitioners to get the mill/factory working. During the re‑hearing granted on 15‑9‑1996, I had specifically asked Mr. Muhammad Ali Sayeed as to how he proposes to run the factory in the existing circumstances and his reply was that if the cotton bales are released by the, petitioner, he will be able to start the functioning of the mill and consequently be able to start repaying the outstanding liability. This suggestion, however, was repelled by the learned counsel for the petitioner. As according to them, there is no possibility of any compromise between the parties. Sections 305 and 306 are also discretionary provisions as it has been left to the Court if it is satisfied that the company is unable to pay its debts or if in its opinion it is just and equitable that the company be wound‑up. In the case of Sindh Glass Industries v. N.D.F.C. (PLD 1966 SC 601), it was held by the hon'ble Supreme Court that if several creditors file separate petition for winding‑up against the debtor‑company it does not reflect mala fides. In all the decided cases the principle of discretion of the Court in deciding the winding‑up petitions has been recognized. In the case of Aluminum Corporation of India it was observed where balance of equity is shown by the petitioner to tilt appreciably in favour of a winding‑up order that it will be made "ex debito justitiae". In the case of Fazal Sugar Mills v. N.D.F.C. Civil Appeal No.35‑K/1990 (unreported) the hon'ble Supreme Court has observed that under the Companies Ordinance, 1984 the Court dealing with winding‑up proceedings has been given very wide powers and discretion to pass an order which is just and proper in the circumstances of that case. It was held that:‑‑‑ "to pass an order of winding‑up or not or pass any other order as demanded in the circumstances of that case, is within discretion of the Court but that discretion is to be exercised on judicial principles. If the Company raises bona fide dispute with regard to the debt, then it has to be considered. If dispute is subject‑matter of separate suit, then, if considered proper and convenient, finding in the suit requiring recording of evidence be waited and passing of winding‑up order be delayed or postponed. Of course it is open to the Court dealing with winding‑up petition to go into that question and if it comes to the conclusion that order of winding up is to be passed then and there and without waiting for decision in the suit, such order would be within discretion of the Court as validly passed if supported by sound reasons. This can be rationalised on the ground that every, case has different facts and if peculiar facts of that case justify passing of such order for valid stand in the way of the Court as impediment in passing order of winding up." The respondents, who though have disputed outstanding amount but seemingly have been unable to pay even to the extent of undisputed amount The valuation certificate issued by M/s. Iqbal A. Nanjee & Company in respect of the mortgaged property is Rs.169,717,

000. There is no denial of the fact that the company has assets but the amount of liability is increasing everyday with the accruing interest and if the respondent could not manage the affairs of the company and start working since last three years there seems to be bleak possibility of doing so in future. Further it is not known as to, the extent of liability of the respondent to other Banks or financial institution. The lending institutions have a right to proceed against the borrowers. The money advanced by the banks is a public money and the Courts have a duty to protect and safeguard the public interest Aongwith the interest of the shareholders. Under the circumstances and taking into account the conduct of the past three years and the contingent and prospective liabilities of the company, I hereby order for the winding‑up of the respondent‑company. The disputed amount can meanwhile be adjudicated upon by the Court is suit proceedings. The Official Assignee, who has already prepared inventory is appointed as Official Liquidator to take over the company and proceed according to law. However, the claim of the petitioner will be finalised only after the dispute is adjudicated as to the outstanding dues. A.A./H‑25/K Order accordingly