2002 PLP 166 (CLD)

‑‑‑‑S.305(e)‑‑‑Winding up petition on ground of default in payment of debt‑‑‑Maintainability‑‑‑Petitioner, in winding up petition had admitted that due to some defects in the construction work carried out by it, the Company did not pay remaining amount of contract, therefore, debt claimed could not be held as contemplated under S‑305(e) of Companies Ordinance, 1984, to become a valid reason for winding up petition‑Petitioner had brought this petition just to coerce a payment against a company, which at least, since the time of filing of such petition, was earning substantial profits‑‑‑Winding up proceedings being summary in nature could riot be granted to force a small payment, which was seriously disputed‑‑‑Winding up petition was dismissed as petitioner had no case at all. Pakistan Industrial Credit and Investment Corporation Limited

4. Messrs Indus Steel Pipe Limited PLJ 1993 MLD 94; Muzaffar Abbas Malik and 2 others v. Messrs Pakistan P.V.C. Limited PLD 1998 Kar. 71; Messrs Khyber Textile Mills Limited v. Messrs Allied Textile Mills Limited 1989 CLC 1167 and Messrs Bankers Equity Limited and 5 others v. Messrs Balochistan Coaters Limited PLD 1997 Kar. 416 ref. Syed Taffaz‑ul‑Haider Rizvi for Petitioner. Miss Iram Ahsan and Syed Mansoor Ali Shah for Respondents. Date of hearing; 5th October, 2001. The petitioner in this Civil Original No.75 of 1995 under section 305 of the Companies Ordinance, 1984 is a company limited by shares and, at the relevant time engaged itself in construction work as architects, civil engineers, technical and sanitary engineers, surveyors, decorators, painters arid furnishers etc.

2. It is alleged that on 1‑12‑1987 it entered into an agreement with the respondent, a Public Limited Company, for construction of their Jute Mills in terms and conditions evidenced by the agreement. After completion of the work and handing over of the project, according to the petitioner, a final bill of Rs.6,85,264 was submitted to the respondent on 12‑3‑1 X

388. The respondent after making part payments of Rs.4, 50, 000 lastly on 28‑3‑1991, defaulted as far the balance was concerned. According to the petitioner when the claim was pressed, the respondent ?company for the first time came up an objection against the quality of work carried out by it. The remaining amount of the bill amounting to Rs.2,35,264 was not paid till the date of filing of this petition on 16‑8‑1995.

3. The petitioner has sought the winding up of the respondent‑company inter alia on the grounds that it is not in a sound final position and is unable to pay its creditors; that its accounts lack the disclosure requirements prescribed under law; that it was persistently going in losses; that it was not holding its Annual General Meetings as required under section 158 of the Companies Ordinance and lastly that it was no more a viable project inasmuch as it was unable to pay its debts.

4. The respondent has controverted the factual submissions made in the petition. It is claimed that the petition is a recovery suit in the garb of winding up petition. Also that the respondent‑company is running since 1984 being one of the major suppliers of jute bags to the Food Department of the Government of Punjab. On facts it is explained that the petitioner‑company failed to fulfil the terms and conditions of the construction contract and, therefore, the respondent‑company had to get the construction completed through another contractor after incurring huge losses. It is also claimed that the last payment of. Rs.2 lacs was made on 28‑3‑1991 on the request of the petitioner‑company that being short of cash flow they will complete the remaining work if some funds were released to them. However, according to the respondent, the petitioner‑company never came up to its commitments. Accordingly the prayer for winding up is resisted.

5. Learned counsel for the petitioner relies upon a number of judgments to support the maintainability of the petition and to repel the objection that in such situation the suit for recovery and not a winding up petition is the remedy. In re: Pakistan Industrial Credit and Investment Corporation Limited v. Messrs Indus Steel Pipe Limited PLJ 1993 MLD 94, it was held that the fiction created by the provisions of section 306(1) read with section 305(1) of Companies Ordinance, 1984 had to be given full effect. In re: Muzaffar Abbas Malik and 2 ‑others v. Messrs Pakistan P.V.C. Limited PLD 1998 Kar. 71, another Division Bench of the Karachi High Court, expressed the view that the word 'unable" did not necessarily mean "unwilling" and that the word "debt" referred to all creditors as a class. In the third case Habib Bank Limited v. Hamza Board Mills and others PLD 1996 Lah. 633; the Company Bench of this Court concluded that mere availability of other remedy did not have an adverse effect on maintainability of winding up petition. In the last case relied upon by the petitioner National Bank of Pakistan v. The Punjab National Silk Mills Limited and others PLD 1969 Lah. 104, a Single Bench of this Court was of the view that the argument that the debt in question was time‑barred was not by itself a proof of contention that it was disputed bona fide and on sound legitimate and substantial grounds.

6. Learned counsel for the respondent on the other hand has placed on record the balance‑sheets of the respondent‑company showing net profit of Rs.52,75,088 and Rs.2,21,65,934 for the financial years 1998‑99 respectively. The Auditors' report for. the aforesaid two years is also referred to. She has also placed on record the audited accounts for the latest two years viz. 1999‑2000 which show accumulated profit brought forward for the two years respectively at Rs.5,29,03,998 and Rs.7,50,69,

931. Also she relies upon re: Messrs Platinum Insurance Company Limited, Karachi v. Daewoo Corporation, Sheikhupura PLD 1999 SC

1. Their Lordships in that case held that if a debtor‑company was merely unable to pay its debts but was otherwise commercially solvent, then the normal remedy available to a creditor was a suit for recovery of the amount and not a petition for winding up. In re: Messrs Khyber Textile Mills Limited v. Messrs Allied Textile Mills Limited 1989 CLC 1167, a Single Bench of the Court held the view that the object of a winding up petition under the Companies Act, 1913 was to find out solvency or insolvency of the company and not to settle claims of creditors. In the third case relied upon by the counsel for the respondent‑Company, re: Messrs Bankers Equity Limited and 5 others v. Messrs Balochistan Coasters Limited PLD 1997 Kan 416, it was held that while determining the question if a company is able to pay its debts or not, the vital point to see is if the Company is commercially solvent, that is to say whether it is able to meet its current demands. In the next case re:. Messrs Sindh Glass Industries Limited, Karachi v. Messrs National Development Finance Corporation, Karachi and 2 others 1996 SCMR 645, a Full Bench of the apex Court expressed the view that a company could defend a winding up petition by raising legitimate and bona fide issues disputing the liability to pay. According to their lordships it was only a debt which could not be disputed on legitimate and bona fide grounds, which could furnish a basis for winding up.

7. Having heard the parties and on consideration of the case‑law relied upon by them, I am of the considered view that the petitioner has no case at all as far the prayer of winding up is concerned. It is patently incorrect, as suggested in the petition that the respondent is either unable to pay or had admitted the debt. The fact of the matter is that in para.9 of the petition it has been admitted that the remaining amount was not paid by the respondent‑Company due to their objection that there were some defects in the construction carried out by the petitioner. It is accordingly clear that the petitioner had admitted on the date of filing of the petition that the claimed debt was not the one contemplated under section 305(e) of the Companies Ordinance, 1984 to become a valid reason for winding up petition.

8. The proposition as advanced at the bar, by the petitioner that mere availability of an alternate remedy or the debt having become barred by limitation in the facts discussed in the judgments appear to be settled beyond doubt. There is also no cavil to the proposition that where liability to pay is not disputed or whereafter having been called upon, the Company fails to pay the debt, a petition for winding up becomes maintainable. However, as indicated above, in the situation in hand the petitioner cannot succeed merely for the reason that a company having accumulated brought forward profits of Rs.5,29,03,998 is not paying a paltery sum of Rs.2,35,664 allegedly due against it. The ratio settled in the two Supreme Court judgments relied upon at the bar by the learned counsel for the respondent re: Messrs Platinum Insurance Company Limited, Karachi (supra), re: Messrs National Development Finance (supra) settle unequivocally that in a winding up petition under section 305(e) of the Companies Ordinance, 1984 the issue would mainly remain if the respondent Company is a viable project and is not merely unwilling to, pay its debts. Mere lack of willingness on the part of a respondent‑Company which is otherwise commercially solvent, the remedy of winding up petition is not available to the alleged creditor.

9. From the facts as emerge from the pleadings of the parties it appears almost certain that the petitioner has brought this petition only in order to coerce a payment against a company which, at least since the year 1995 when this petition was filed is earning substantial profits. Therefore, as noted earlier, the petitioner has no case at all and the winding up proceedings which are necessarily summary in nature cannot be granted to force a small payment which is seriously disputed.

10. Petition dismissed S.A.K./M.A.K./P‑59/L??????????????????????????????????????????????????????????????????????? Petition dismissed.