1997 PLP 1966 (MLD)

(b) if default is made in delivering statutory report to the Registrar or in holding the statutory meeting or any two consecutive annual general meetings; (c) if the company does not commence its business within a year from its incorporation or suspends its business for a whole year; (d) .............................. (e) if the company is unable to pay its debts; (f) .............................. (g) .............................. (h) if the Court is of opinion that it is just and equitable that the company should be wound up." Section 305 of the Ordinance provides the circumstances under which the company may be wound up by Court. Under clause (b) if default is made in delivering the statutory report to the Registrar or in holding the statutory, meeting or any two consecutive annual general meetings, it is liable to be wound up by this Court. Under clause (c) if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year, it is liable to be wound up. Under clause (e) if the company is unable to pay its debts, it is liable to be wound up. Under clause (h) if the Court is of opinion that it is just and equitable that the company may be wound up, it is liable to be wound up. A petition on the ground of clause (b) can be made by a member, Registrar of Companies and by a credit. The Court will not generally make an order of winding up in the first instance. The Court desires the company to file the statutory report or to hold the statutory meeting or to hold annual general meeting and extend the time therefor. If the company fails to comply with the order then the Court will wind up the company. The directors may be held personally liable for costs. From the facts and circumstances of the case, it appears that the company is unable to hold annual general meeting. In this view of the matter the petitioner has made out a prima facie case for the winding up of the company on this ground. Clause (c) of section 305 of the Ordinance provides that if a company, suspends its business for the whole year, then a discretion has been given to the Court in such a case to wind up the company. Even if the business is suspended for the whole year, this by itself does not entitle the petitioner to get the company wound up as a matter of right, but the question whether the company would be wound up or not in such a circumstance is entirely in the discretion of the Court depending upon the facts and circumstances of each case. In Halsbury's Laws of England, Fourth Edition, Volume 7, para. 998, the clause has been rightly construed as follows:‑‑‑ "

998. Non‑commencement or suspension of business. ‑‑‑Non -commencement of business within a year refers to business activities, not the mere allotment of shares. An order on this ground may be made even though the majority of the shareholders oppose it, brut an order will not be made where the company has commenced business abroad within the year and a genuine intention is shown to commence business in this country. An order will not be made on the ground that the company has suspended its business for a year if a petitioning shareholder is opposed by a large majority of the shareholders and there is a genuine intention to proceed with the business. A company does not cease to carry on business because it has given up part of its business. An order may be made even though nothing has been paid on the shares and there are no debts." The question is whether on this account an order for winding up the company should be passed. Clause (c) of section 305 of the Ordinance provides that the company may be wound tip if the company does not commence its business within a year or suspends its business for a whole year. The question as to what the expression 'suspends its business' means has been discussed in Re: The Tomlin Patent Horse Shoe Company Ltd. (1986) 55 L.T.R. 314) in which Chitty, J. said: "Although there may be a suspension of the business of a company for the space of one year, the Court will not make an order, under subsection (2) of section 79 of the Companies Act, 1962, to wind‑up the company unless it is satisfied that there has been an intention on the part of the company to abandon its business or inability to carry it on."

39. The learned Judge said that the phrase "suspends its business" did not mean the same thing as that "business has been suspended". He further said that upon the question of intention, the Court will have regard to the opinion of the majority of the shareholders. In the case of D.Davis & Co. Ltd. v. Brunswick (Australia), Ltd. and others AIR 1936 PC 114, the Honourable Judges of the Judicial Committee were considering the question as to whether it was just and equitable to wind up a company and observed:‑‑‑ ... that the decisive question must be the question whether at the date of the presentation of the winding up petition there was any reasonable hope that the object of trading at a profit with a view to which the company was formed, could be attained. In considering that question, the guarantee of the preference shares should be left out of sight, except in so far as it may have biased the evidence on either side. It should be observed that in this case there is no question of a deadlock, nor is there any question of shareholders who have the voting power using that power for their own commercial interests outside the Company in disregard of the interests of a minority. Not again, is there any question involved of an improper management of the Company by the directors who are in control. The problem involved is of the nature of a business problem. If there was at the relevant time a reasonable hope of tiding over the period of deep depression and of emerging, into a region in which the Company might reasonably expect to carry on at a profit, there would seem to be no sufficient reason why the Court, regard being had to be essential character of the bargain made between the parties on the formation of the Company, and considering the matter from much the same standpoint as if the Company were a private partnership, should wind up the Company under the just and equitable clauses." In respect of the question of the reasonable hope of trading at a profit in future, the Honourable Judges said:‑‑‑ "It s not the function of a Court to determine such a matter on its own views as to probable success or failure, but to form the best opinion it can upon the evidence given by persons with a practical knowledge of the trade in question and the local conditions where these affect the matter. " In a case reported in AIR 1920 Calcutta 722, the Company had suspended its business for sometimes and the question was whether it could be wound up on that ground. It was held that if the suspension of the business is satisfactorily accounted for it did not prove that the objects of the Company could not be fulfilled. In O.P. Basra and others v. Kaithal Cotton and General Mills Co. Ltd. AIR 1962 Punjab 151, the Company had done no active business of any kind till the date of the petition and the question was whether it should be wound up on that ground. Tek Chand, J. held as follows:‑‑‑ "Where the past delay is sufficiently accounted for and where the Court is satisfied that there is a likelihood of the business being resumed, it may not exercise its discretionary power against the company, but if the Court is satisfied that no business has been or is likely to be commenced, it should pass an order for winding up of the company on the petition of the shareholders. Suspension of a business for a whole year is usually deemed as an indication of absence of intention to carry on the business, unless suspension has been satisfactorily accounted for. " The company has not made appearance. Only respondent No.2 made an appearance through his counsel, Mr. Imran Ahmed. The learned counsel has stated at the Bar that the Company has suspended business for more than a year. In the instant case, the company has not satisfactorily accounted for the suspension of business and has not satisfied this Court that there is a likelihood of the business being resumed. It appears from the material placed on record that the directors have abandoned the business and no business has been or is likely to be commenced. According to Mr. Salim Karamally there is absolutely no possibility as matters stand now particularly iii view of the attitude of the directors. Mrs. Hafiz Abdul Baqi, the learned counsel for some of the investors submits that the investors have invested huge amounts and they had not been returned their investments with profits from May, 1988 onwards, and that the profits were continuously in arrears. According to the investors, though they would certainly be more anxious than the company itself about such revival, there is no possibility as matters stand now particularly in view of the attitude of the directors. Eversince May, 1988, the amounts were neither refunded to them nor the profits were paid to them, even a part of what was legitimately due to enable their families to survive. They plead that they may get some relief in the event winding up proceedings are not further protracted. It is the case of the petitioner that the company is unable to pay its debts and that it is just and equitable that the company should be wound up. The circumstances call for no proof of inability on the admitted facts. There are huge debts, which, as matters stand, are far beyond the means of the company to meet. Even so, a Court will exercise sound discretion in deciding whether to wind up a company or not and in doing so consider many relevant factors. It may be that despite the inability to pay its debts a company has still prospects of coming back to life and if the Court is told of any specific proposal, inclined to give a chance to resurrect the company. It should be the policy of the Court to attempt to revive though at the moment the company may not be solvent and may not be able to meet its obligations to its investors/creditors. But this should be only if it is shown that there is reasonable prospect for resurrection or revival. It may be easy for a Court when once it is shown that the company is unable to pay its debts to bury it and distribute whatever is available as distributable surplus. But it is the duty of the Court to welcome revival rather than affirm the death of the company and for that purpose the Court is called upon to make a direct exercise. On the facts of the case, I do not think there is any reasonable prospect of the company reviving its normal operations or business. I do not think that by prolonging these proceedings, the situation would, in any way, be improved and, therefore, I feel that putting off the final decision will only be putting off, the evil day and in the process putting the investors and creditors to further loss and difficulty. That would only tend to reduce the distributable surplus of the' company as necessarily passage of time would increase the liabilities of the company without there being any corresponding increase in the assets. In these circumstances, accepting the case of the petitioner and with consent of respondent No.2, the company shall be wound up in accordance with the provisions of the Ordinance. Therefore, the Court does hereby order that the respondent No. l company be wound up in accordance with law and the Provisional Liquidator, Mr. Bashir Ahmed Memon is hereby appointed as the Official Liquidator of the respondent No. l company. In the result, this Court directs that the petitioner to advertise the winding up order in the Daily Dawn and Daily Jang within three weeks from today. The respondent company as well as the respondents Nos.2,3,4 and the petitioner, who is also a director, do file the statement of affairs with the Official Liquidator as required under section.328 of the Ordinance. The Official Liquidator shall take all steps to recover the debts, other amounts due to the company from its debtors and recover all movable and immovable properties belonging to or standing in the name of the company in accordance with the details available in books and records of respondent No. l company which he has seized or otherwise taken possession of. The Official Liquidator shall exercise all the powers and discretion under the Ordinance to discharge his duties as Official Liquidator. The costs of Liquidator shall be come out of the funds of the company, realised from time to time. It is ordered accordingly. A.A./A‑72/K Order accordingly.