2004 PLP 437 (CLD)

Mr. Bashir Ahmed Khan, learned counsel for the petitioners, states that the provisions of section 305(c) of the Companies Ordinance, 1984 are attracted even in a case where a company suspends its business for a period of one year while in the instant case the business of the Company has been , suspended for more than the prescribed period. Learned counsel for the petitioners relied on the following cases: (1) Punjab National Silk Mills Ltd. v. National Bank of Pakistan and another (1986 SCMR 1126): (2) IN re: Synthetic Chemicals Co. Ltd. (PLD 1985 Kar. 193); (3) Investment Corporation of Pakistan and others v. American Marble Products Ltd. (1998 CLC 514); (4) Pakistan State Oil Company Ltd. v. Pakistan Oil Pipelines Limited and others (PLD 1993 Kar. 322); (5) Qamar Lone and others v. Kashmirian (Pvt.) Ltd. and others (PLD 1997 Kar. 376); (6) Sh. Maqbool Ellahi and others v. Basul & ' Co. and others (PLD 1970 Lahore 539), and Mrs. Sabiha Shahid Raza v. Ahmad Construction Company (Pvt.) Ltd. (PLD 1990 Kar. 191). Mr. Nadeem Azhar, learned counsel for the respondent‑Company, vehemently opposes the contention. He contended that since other remedies are available to the petitioners, winding‑up of the Company on the ground it is "just and equitable" is not called for. Reliance was placed on the case of Mirza A Rustom v. Karim Silk Mills Ltd. (PLD 1975 Karachi 40). He also submitted that the Court was not bound in each and every case to wind up a defaulting company as it has discretion either to order, or refuse, winding‑up of a company. He relied on the case of Ali Women Mills Ltd. v. I.D.R.P. (PLD 1990 SC 763). However, the learned counsel for a respondent Company was not able to cite a single case where application for winding‑up of a company has been refused in a case where the Company has remained out of business for a period of several years. Be that as it may, the statutory ground of suspension of business by a company for more than a year, and continuous incurring of liability, is a sufficient ground for passing of a winding‑up order in respect of such a company. In the present case, the Company, admittedly, is not doing any business for the last about five years. The case‑law relied upon by the learned counsel for the respondent does not support the case of the respondent‑Company. On the contrary, it calls for winding -up of a company as in the case of Ali Woolen Mills (supra) it has been held that 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 proper to wind up the Company. Since the Mill of the Company was closed for about six years prior to the presentation of winding‑up petition, the Company was held to be commercially insolvent and order of the winding‑up of the Company was maintained and leave to appeal was refused by the Hon'ble Supreme Court. In the case of Mirza A. Rustom (supra), it was held that a petition for winding‑up under "just and equitable" rule, Mr. Justice Tufail Ali Abdur Rehman, the then Chief Justice of the Sindh High Court, held as under:‑‑ "Surely the expression "just and equitable" must have reference to the legitimate interest of persons concerned in the matter which would presumable be, in general, the shareholders and/or the creditors of the Company." In view of the admission in paragraph 17 of the counter‑affidavit filed on behalf of the Company, that there is non‑cooperation between the different groups of shareholders and that the business of the Company is suspended for last several years, the Company is not commercially solvent nor is there any reasonable chance of its doing business in the near future at a profit and that the affairs of the Company in view of the estranged relationship between the two groups on the one hand and one group on the other hand have reached a point where they cannot sit together and work for the benefit of the Company, there is no option left but to order winding‑up of the Company. In the case of Punjab' National Silk Mills Ltd. (supra), a Full Bench of the Hon'ble Supreme Court, held as under:‑‑ ' "Taking an overall view of .the case, in particular, the prolonged non‑functioning of the Company, its mounting liabilities both secured and unsecured, disputed and undisputed and the conduct of the Managing Director, all justified the conclusion of the High Court that Company is in a morbid state with little or no chance of its recovery and rehabilitation and a winding‑up order was eminently a just and proper order." In the case of In re: Synthetic Chemicals Co Ltd. (supra), Naimuddin, J.‑, as he then was, has stated the circumstances in which it would be deemed 38‑02 that the substratum of a company has, gone, which are as follows; (2) that 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, (d) the existing and probable assets are insufficient to meet the existing liabilities. In the case of Investment Corporation of Pakistan (supra), the Company was unable to start its production and pay its debts and consequently it was held that the substratum of the Company has gone and it was ordered to be wound‑up. In the case of Pakistan State Oil Co. Ltd. (supra), it was found that the petitioner, who were 50% share holders of the Company, were being replaced by a third party behind their back and it was held to be an act of oppression. Further the Court held that there indeed is exclusion of the petitioner from the management of the Company and there also exists a state of deadlock and justifiable lack of confidence in the management of the Company, and the Company was ordered to be wound‑up on the ground that it is just and equitable. In the case of Qamar Lone (supra), also a case involving knitting and export of carpets, the facts were that the two contesting parties set up the Company and after the expiry of one‑of the sponsor directors, rifts surfaced between the shareholders who were all related inter se. One of the respondents was alleged to have started slowly and steadily pilfering the funds and assets of the Company. It was alleged that the respondents are utilizing the funds of the Company to their exclusion and that there is complete lack of confidence in the management of the Company resulting in a total deadlock which is equally shared by the petitioners. In this case also the Court ordered the respondent 'Company to file balance‑sheets 38‑02 for the last three years which were not filed as ordered. The learned Judge held that "I am of the considered view that a fit case for winding‑up of the Company has been made out on several grounds amongst others that there is complete deadlock in relation to the conduct of affairs of the company between the parties of a considerable period of time" and it is just and equitable that the Company should be wound‑up." ' Admittedly, in the case in hand, the business of the Company is suspended for the last many years and it suffered financial losses and there is no possibility of carrying on the business of the Company except in losses as it has been stated at the bar that the Company is engaged in the business of carpets manufacture and' exports which is at a standstill for the last many years. However, this ground alone is not the turning point in this case. It is admitted that the various groups of the shareholders are not enjoying good relations with each other creating a deadlock in the affairs of the Company. It is alleged that one group of directors are not allowed to participate in the affairs of the Company. I have carefully gone through the averments in the pleadings of the parties and examined the reports filed by the counsel for the respondents‑Company as well as the arguments advanced before me. It is clear that the relationship between the parties are estranged thereby causing a deadlock in the management of the Company, the Company has suspended its business for the last five years, there is no possibility; to carry on the business of the Company except at a loss. Thus, it is just and proper to pass a winding‑up order in this case. In view of the above, I allow this petition and order winding‑up of respondent‑Company‑‑Messrs Cossar Carpets (Pvt.) Limited. Official Assignee is appointed as Official Liquidator to take over all the assets and management of the Company and to proceed according to law. The petitioners arc directed to deposit, for the time being, Rs.25,000 towards the expenses. S.A.K./A‑8/K Petition allowed.