2004 PLP 1733 (CLD)

The cases reported in PLD 1990 SC 768; 1990 CLC 1030; PLD 1973 Lah. 60; PLD 1985 Kar. 193; 1989 MLD 374 were referred to support the above contentions.

6. Conversely it was contended on behalf of the respondents that the application for winding up by creditor was not a substitute for a suit for recovery of debts. It was further contended that the main object of the winding up proceedings is to find out solvency or insolvency of company and not to settle claims of creditors. It was next argued that winding up could not be allowed where the object of creditor in applying for winding up was to bring pressure on debtor company as the same would be abuse of legal process. It was further argued that nothing was due and payable by the respondent‑Company and that the dues claimed by the petitioner were bona fide disputed, the proceedings were thus, rendered untenable. In support of above arguments reliance was placed on 1970 SCMR 184, 1997 CLC 230; 1992 SCMR 1006; PLD 1992 Kar. 249; 1989 CLC 1167; PLD 1971 Kar. 597, besides other citations. It was next contended that the petition was not competently instituted as no document was placed on record to show that the petitioners being body corporates, thus, juristic persons, have initiated the instant proceedings through their recognized agents. In support of above contention reliance was placed on PLD 1971 SC 550; PLD 2003 Kar. 156; 2002 CLD 1665 and PLD 1991 Lah. 381.

7. The arguments rendered on behalf of parties have been anxiously considered, and tested on the touchstone of the relevant case‑law. Besides the material available on record has been scrutinized.

8. At the outset it must be stated with due regard and respect, that the principles of law enunciated in the relevant case‑law, cited on behalf of both the parties are well‑established thus, inescapable, and need no discussion. The decision of present petition is based on factual aspects.

9. Undisputedly the winding up of the respondent is being sought by the creditors on the sole ground that it is unable to pay its debts. As provided under clause (e) of section 305 of the Companies Ordinance, 1984 a company may be wound up by the Court "if the company is unable to pay its debts". Section 306 of the Ordinance defines the conditions deeming the company unable to pay its debts. It will be advantageous to reproduce hereinunder the provision of section 306 of the Companies Ordinance:‑‑ "(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding one percent. 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) if execution or other process issued on a decree or order of any Court or any other competent authority in favour of a creditor of a company is returned unsatisfied in whole or in part; 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 its debts, the Court shall take into account the contingent and prospective liabilities of the company."

10. In re: Imperial Hydropathic Hotel Co. 49 IT 147 it was observed as under:‑‑ "The rule is no doubt, that when the debt is undisputed and is of sufficient amount, then he has a right to obtain payment by winding up petition, if he has given statutory notice."

11. In Trade and Industries Publication Limited v. Industrial Development Bank of Pakistan reported in PLD 1990 SC 768, above view was fortified by the Apex Court, by observing as under:‑‑ "Now it is well‑settled that when there has been a failure to pay a debt in accordance with the statutory notice of demand, insolvency is to be presumed through no doubt it may also be proved in other ways."

12. In Hashmi & Company Limited v. K.K. & CO. (Pvt.) Limited reported in 1992 SCMR 1006 it was held as under:‑‑ "The conjoint reading of sections 305 and 306 makes it amply clear that the Company Judge has a discretion to order winding up of a company if it is unable to pay its debts and in spite of demand made by the creditors the debt remains unpaid. Obviously the same refers to the undisputed amounts payable by the company and not those which may be in dispute bona fide. Moreso when immediately on receipt of notice under section 306 the creditor is informed of the reasons why the alleged debt is disputed and the matter is taken to the Court of law for adjudication."

13. From the above, it could be deduced that failure on the part of the company to pay it's debts which are undisputed, within a period of thirty days, for which it has been served with a notice of demand are conditions precedent for passing an order of winding up of a company on the ground that it has failed to repay it's debts as required under clause (e) of section 305 of the Companies Ordinance, 1984.

14. The petitioners in para. 10 of the petition have pleaded that a legal notice dated 6‑12‑1992 was served on the respondent under section 306 of the Companies Ordinance, 1984 at its registered address calling upon the respondent‑Company to pay to the petitioner an amount of Rs.5.952 million outstanding as on 30‑6‑1993 within 30 days from the date of receipt of the notice. But in the counter‑affidavit the respondents denied the above assertion of the petitioner. It was averred that it is falsely alleged that Rs.5.952 million are due or outstanding against the respondents company. It was however, stated that the petitioners failed to render the correct account and the figures appeared to be factious and mala fide. It was further stated that a copy of the demand notice has not been supplied to the respondents, hence the same cannot be commented upon.

15. Scrutiny of the petition reveals that though the legal notice is mentioned in the list of documents filed with the petition as Annexure "R", and it also finds similar mention in the body of the petition. But the same is conspicuously missing. I have minutely examined the paging. Annexure "Q" starts from page 421 and ends at page

525. Immediately afterward attached there, is a document marked as S‑1, which is at page No.527. Thus, it leaves no doubt that the `legal notice' as pleaded and referred in the petition was never filed with the petition, hence the same is not available on the record. Besides no postal receipt to that effect or any proof of service of notice has been pleaded or produced along with petition. In view of clear- cut denial on the part of the respondents it was incumbent upon the petitioners to have proved the service of notice but the respondents miserably failed to file a copy of the notice or any proof of service thereof.

16. It is quite obvious that a statutory notice as required under section 306(a) of the Companies Ordinance, 1984 is a highly formal and important document. It may further be stated that section 306(a) of the Ordinance envisage notice which on the face of it must be clear and unambiguous and should unequivocally state that the person sending the notice is a creditor of the company demanding a specific amount of money from the company. Any defect in the notice or lack of service of notice will render the winding up proceedings on this ground ab initio defective, for a logical reason that it imposes a penal obligation upon the company and therefore, has to be strictly construed. The above discussion would lead to a definite conclusion that no notice of demand was ever served upon the company by the creditors. Thus, the petition has been rendered untenable.

17. Besides the company has also disputed the amount alleged to be due claiming that they have repaid the amount in excess. The point was expressly examined in re- European Life Assurance Society (1869) TX IR (equity cases) 122 and it was held as follows:‑‑ "Inability to pay debts must refer to debts absolutely due that is to say, debts for which a creditor may go, at once to the company's office and demand payment." Keeping in mind the above proposition of law, it could not be held that the company was unable to pay its debts, as stipulated under section 306(1)(a), of the Companies Ordinance, 1984.

18. Apart from above, the petition is additionally marred by an inherent infirmity. The petitioners are Banking Companies. None of the signatories to the petition claiming, to be the officers of the respective petitioner banks have filed a single document to show that any decision was taken by the Board of Directors of the Banks to initiate the proceedings against the company. Even there is no evidence to show that the signatories to the petition were duly authorized person's having authority of whatever kind to sign the, petition, to verify the pleadings and to institute the instant petition on behalf of the petitioner banks.

19. The petition is thus, not maintainable and liable to be dismissed. The same is accordingly dismissed.

20. Before parting, let it be made clear, that the petitioners would not, in any manner be prevented from pursuing other/further remedies available to them under the law in appropriate forum. S.A. K./I‑15/K Petition dismissed.