1989 PLP 1167 (CLC)

Ali Pirzada and Abrar Hussain for Petitioners A. Fazeel for Respondent. Dates of hearing: 8th and 21st April, 1979. This petition under section 162 of the Companies Act has been filed by M/s. Khyber Textile Mills Limited, in the following circumstances:‑ It is alleged that the petitioners, from time to time advanced various sum of money to the Allied Textile Mills and on 30‑9‑1973 the outstanding balance, stood at Rs.15,339.39. In pursuance of the decision of the Board of Directors dated 18‑12‑1973, a letter was issued to the respondents on 27‑1‑1974 demanding this sum, plus accretions, within 60 days of the receipt thereof. Actually on the 27th December, 1973, the respondents had addressed a letter to the National Bank of Pakistan, Larkana Branch, requesting them to grant a loan of Rs.30,00,000 for the clearance of these debts. However no payments were arranged, and on 29th March, 1974, the petitioner, through their lawyer, called upon the respondents to pay the petitioner a sum of Rs.37,33,750.10 that was due and payable, within three weeks, or in default, a petition for compulsory winding up was to be w filed. An evasive reply dated 19 4‑1974 was received. The petition goes on to say that the respondents were unable to pay their debts, as their liabilities were Rs.1,50,44,548 as compared to the current assets which were only Rs.94,99,290.90. The respondents had even failed to pay various Government taxes, including sales tax and excise duty, etc. which were also detailed. The company was showing no profit and even the amount distributed as dividend to the share holders, was out of the capital and, therefore, the very substratum had gone. The prayer, therefore, was that the respondents be ordered to be wound up.

2. The objections filed by the respondents disclosed that the two companies were associate undertakings the respondents having been incorporated in 1963 with a common head office, and even the administrative functions of the said companies were conducted by the Accountant employed by the petitioner. There used to be book transactions between both the companies which included cash receipts and payments, adjusting debits and credits, from persons, raising up debits and credits against each other in respect of various sales and services of the companies and other miscellaneous accounts. The Accountant in question was one Moinuddin Siddiqi who was also authorised to operate the bank accounts of the respondents, with the result that the accounts were in fact maintained as desired by the petitioner company and their accountant. The balance‑sheets and the reconciliation statements were also prepared under the control and instructions of the said Accountant. This position continued till about 1‑9‑1973 when differences arose between the two companies. All the same, the said Moinuddin Siddiqi continued to hold powers for operating the accounts of the respondents. The accounts and their reconciliation statements referred to earlier were, therefore, prepared during the tenure of the Accountant, under the control of the petitioners. On 4‑12‑1973, the petitioners suggested that their outstanding bills be liquidated by quarterly instalments of Rs.2,00,000 each beginning from 15‑12‑1973. This arrangement was agreed to by the respondents and the first instalment of Rs.2,00,000 was paid on 15‑12‑1973 by making certain payments directly to the petitioners, and some other payments on their behalf of other associate companies. This payment was duly acknowledged by letter dated 4‑12‑1973 from the petitioners. The letter to the National Bank also mentioned its liabilities to the petitioners but subject to final adjustment of accounts. The respondents had paid Rs.5,05,000 to share Investments Ltd. and Rs.2,40,000 to Abbasin Limited on behalf of the petitioners and a note was sent to the petitioners that these payments would be adjusted against the instalments payable to the petitioners in March, June and September, 1974. An entry of Rs.7,87,941 was also reversed as per annual report of the respondents company, as there was no liability for the same. There was, therefore, no need to take the loan of Rs.30,00,000 from the bank. The respondents had also called upon the petitioners to depute someone for reconciliation of, the accounts and as there was no response, it was done by their own staff and three debit notes in the .sum of Rs.5,53,631.56, Rs.7,87,940.62 and Rs.1,00,000 were sent by the respondents to the petitioners for adjustment as per letter dated 19‑4‑1974. Further discrepancies were revealed in the accounts, and it was found that it was the petitioners, who were liable to pay a sum of Rs.7, 525.01 to the respondents, instead of recovering any thing from them. This was notified to them by letter dated 27‑4‑1974 which however came to be denied by the petitioners. It was further alleged that the financial condition of the respondent company was sound, and its total assets were far in excess of its liabilities, the two being Rs.3,86,32,816 and Rs.2,67,44,161 respectively. It has also been declaring dividends. Actually it was making arrangements to expand its project and the PICIC was actively considering the grant of an additional loan to it. The petition for winding up was, therefore, mala fide and for ulterior purposes.

3. There is no gainsaying the fact that the late Zafrul Ahsan, was the dominant figure in both the companies. He was a director and also a partner of the Managing Agency. Moinuddin Siddiqi, the Chief Accountant of the petitioner, in his reply affidavit, though denying that the establishments were common, had however to admit that the Accountant of the petitioners used to operate the accounts of the respondent, though occasionally. It was authorized by their board of directors and for the sake of convenience. It was only after the promulgation of the President's Order, 1972,that the management of the petitioner company fell into the hands of the present board of directors, while the son and the son‑in‑law of the late Zafrul Ahsan were still, the executive director and director respectively of the respondents. Manifestly, there was some laxity in the administration, and the account keeping of the two companies, and fidelity of the records would not be scrupulously maintained.

4. It is to be seen, that on the 27th of December, 1973, the respondents had addressed a letter to the National Bank of Pakistan, asking for loan, but in Annexure 'J' (filed with petition), it was made clear that it could be subject to adjustment and reconciliation of accounts. Later the demand was reduced by half. It is also not disputed that by letter dated 4‑12‑1973, the petitioners had agreed to accept quarterly payment of 2 lacs, from the respondents, commencing from the 15th of December. According to Annexure "2" filed with the objections, a cheque of Rs.35,551 was sent and the balance was allegedly paid on behalf of the petitioners to M/s. Khyber Insurance Company Share Investment Ltd. and Abbasin Enterprises Ltd. On the 20th December, 1973, these terms were accepted, and duly communicated by the Accountant to the respondents. It is further said that other payments were made to the last two concerns. Further the case of the respondents is that the reconciliation of accounts was perforce made by the respondents alone the petitioner not responding to the request for sending their representative and discrepancies were discovered. As a consequence, some entries had to be reversed. Shorn of details, the petitioners, through their counsel on 3‑9‑1974 demanded Rs.37,33,715.10. The respondents denied their liability and claimed a sum of Rs.7, 525.01 as their own dues. It is, however, said on behalf of the petitioners that the agreement referred to earlier, did not bind them as it was not duly authorised by the Board of Directors. Be that as it may, the .parties have filed suits before different Courts of law agitating their rival claims.

5. It is contended by Mr. Hyder Ali Pirzada, learned counsel for the petitioners that once the directors of the respondents had affixed their signatures on the balance sheet, accepting their liabilities in favour of the petitioners, it was an effective acknowledgement of the existence of the debts, on the date of the signature. Reliance was placed on Re: Gee & Co. (Woolwich) Ltd. (1974 A.E.L.R. 1149). Besides there was the letter to the National Bank of Pakistan. However, the agreement for the acceptance of the quarterly payment was subsequent thereto, and that would take care of a very sizable chunk of the amount payable. Then there was the reversal of certain entries.

6. The affairs of the two concerns as administered prior to 1973 present some very peculiar features. The repudiation is not on the footing where a man non‑challantly says "I dispute the debt" in a vain effort to try to escape through the keyhole when he finds the door closed upon him. Prima facie, there are some reasonable grounds which need examination, and are being examined before the Courts of law. Therefore, the two other cases the U.B.L. v. M/s. Pak Wheat Products Ltd. PLD 1970 Lah. 235 and Re: Tweeds Garages Ltd. 1962 (1) A . E . L. R . 121, cited by Mr. Hyder Ali Pirzada would be distinguishable.

7. The forum created under the Companies Act is not a substitute for a suit to recover debts, and as has been pithily remarked in Mullah Abdullah and another v. Sarya Rope Mills Ltd. PLD 1971 Kar. 759, "unable" does not mean "unwilling". The main object of these) proceedings, is to find out the solvency or the insolvency of the company, and not settle the claims of the creditors, (See P. Satyarazu v. Guntur Cotton, Jute & Papers Mill Co. Ltd. AIR 1925 M. 199 Mr. Ali Ahmad Fazeel has also referred to the case of In Re: Cine Industries and Recording Co. Ltd. AIR 1942 Bom. 231 wherein, on an analysis of the case of D. Devis & Co. Ltd. v. Brunswick (Australia) Ltd. E AIR 1936 P.C.114, the following tests were laid. Whether the subtratum of the company is deemed to be gone (b) the object for which it was incorporated, had substantially failed (c) whether it is impossible to carry on the business of the company except at loss, (d) that there is no reasonable hope that the object of the trading at a profit can be attained (e) or that the existing or probable assets are insufficient to meet the existing liabilities. All that need to be said in this context is, that there was a lay‑off of the workers only for the period from March 1976 to May, 1977. It is common knowledge that, because of the international stagflation, the majority of the industries specially in the developing countries, Pakistan being one of them had to pass through some trying period. The textile mills in particular presented a pathetic picture; quite a number of them earned the dubious distinction of being called sick mills. Prima facie, the respondents company had assets enough to meet its obligations, in case it is found later on to be liable for the same. Reliance was also placed by Mr. Ali Ahmad Fazeel on a number of authorities from these Courts and from foreign jurisdiction, in which the attempt by a creditor to bring pressure to bear upon its debtors to make them pay cheaply and expeditiously through winding up proceedings, has been depreciated as an abu6e of the process of the Court. It is not necessary to refer to them the principle being a settled one.

8. As a result, the petition stands dismissed. The parties will bear their own costs. M . Y . H . / K‑124/ K Petition dismissed.