There have been instituted in this Court two applications under section 162 of the Companies Act (VII of 1913) (hereinafter called the Act), for winding up of a private limited company known as "Pak Wheat Products Limited", Lahore. One application was filed by the United Bank Limited on 16-3-1967 and bears Civil Original No. 14/ I 967. The other application was filed by the National Bank of Pakistan on 4-11-1967 and bears Civil Original No. 88/1967. The proceedings in both the applications were consolidated by my order, dated 23-5-1969. In the aforesaid main cases, there were then filed following six miscellaneous applications for the purposes shown against each of them.
Serial No. Of application Filed by For No.
1. C. Misc. 15/L-67 in The United Appointing a pro- C. Org. No. 14 of Bank Limited visional liquidator.
1967. Under sec-- petition 175(2) of the Companies Act.
2. C. Misc. 25/L-67 in Filed by the For taking into C. Org. No. 14/67. Commerce possession Com- Bank. Pany's record.
3. C. Misc. No. 26/L-67 The Industrial Claiming preference in C. Org. No. 14-Development with regard to its 1967.Bank of claim.
Pakistan.
4. C. Misc. No. 121/L- The Commerce For being appointed 68 in C. Org. Bank Limited as a provisional No. 14/67. Liquidator on the ground that it is the biggest creditor.
5. C. Misc. No. -125/L- National Bank Appointing a 68 in C. Org of Pakistan Provisional Liqui-- No. r 8/67.Under sec- dator. petition 175(2) of the Companies Act.
6. C. Misc. No. 128/L- Filed by Pak For staying the 68 in C. Org. Wheat Pro-proceeding sin No. 88/67.Ducts Limited, this Court on the Lahore through ground that the Saleem-ud-Din Company has filed one of the a civil suit Directors of against the the Company National Bank of Pakistan through Naseem-ud-Din etc. To restrain the National Bank of Pakistan from enforcing certain documents against the Company in which Civil Court has issued an ad interim injunction to that effect The present judgment will dispose of the aforesaid six miscellaneous applications.
2. The case of the United Bank Limited is that the respondent-company on the 12th of September 1965 took loan overdraft/cash credit limit from the Bank for Rs. 5,00,000.00 and on the same day in support thereof executed a promissory --note Annex. "B", letter of confirmation Annex. "C" ; letter of continuity Annex. "C/l"; letter of guarantee Annex. "C/2" and letter of hypothecation of goods to secure loan/cash credit/ overdraft account etc., on 13-9-1965, Annex. "D". In accordance with the provisions of sections 109 to 112 of the Companies Act, the Bank got the above charge registered under section 114 of the Companies Act with the Registrar, Joint Stock Companies and Annex. "E" is a certificate of registration dated 25-4-1966. According to the Bank, a sum of Rs. 3,86,777.55 was due from the Company on the 31st of January 1967, in support of which a certified copy of the account, in accordance with the Bankers Books Evidence Act, 1891, has been filed in this Court. The case of the Bank is that a demand notice was served on the Company on 1-2-1967, under section 163 of the Companies Act, but as the same was not heeded to, therefore, taking the Company as unable to pay these debts, the Bank prayed that it may be wound up.
3. The case of the National Bank of Pakistan in Civil Original No. 88/67, is that the Company obtained similar facilities, firstly, for Rs. 6,00,000.00, which was enhanced to Rs. 7,50,000.00 and then to Rs. 11,00,000.00. In connection with the aforesaid, the amount payable on the part of the company on 22-10-1967. Was Rs. 9,95,037.65, for which the company had executed usual banking documents and hypotheca--petition instruments. An additional factor to be taken note of is that on 23-1-1967, the company mortgaged by a duly registered deed, the premises etc., of the mills in Gulberg, Lahore with the Bank. Another document given to the Bank was a pronote of Rs.
9,50,000.00 which the Company had executed in favour of Mian Muzaffar-ud-Din, father of the shareholders who endorsed and negotiated the same in favour of the Bank. The Company also executed what is called by the Bank Form L in its favour. The Bank averred that the Company was indebted to other creditors also like the United Bank Limited (for rupees four lacs) ; Industrial Development Bank Ltd. (for rupees ten lacs) ; the Commerce Bank Limited (for rupees seventeen lacs) and the Muslim Commercial Bank Limited (for rupees two lacs). The petitioner-Bank served a notice under section 163 of the Act, on the Company for payment of its amount but as the same was not attended to, the Bank filed the above-mentioned application alleging that the Company was unable to pay its debts and, as such, should be put under liquidation. Some other grounds like suspension of the business of the Company etc., have also been urged in the petition.
4. It may at this stage be mentioned that the Company (as it shall hereinafter be called) consists of four brothers, namely, (i) Mueen-ud-Din, (fl) Saleem-ud-Din, (iii) Aleem-ud-Din and (iv) Waheed- ud-Din. It is claimed that out of these, only Mueen-ud-Din was major when all the above transactions were effected. Saleem-ud-Din, however, has now become major. The written- statements in the above cases were filed on behalf of the Company under signature of Saleem- ud-Din who pleaded that (a) the, company had no borrowing powers and, therefore, the loans taken by the two Directors Mueen-ud-Din and Saleem-ud-Din themselves were ultra vires, both as regards the Company as well as the Directors ; (b) Saleem-ud-Din being minor he could not bind the Company even acting as a Director or a co-Director with his brother Mueen-ud-Din ; (c) all the documents which have been executed by Mueen-ud-Din and Saleem-ud-Din were fictitious ; (d) some of the documents were got executed by the National Bank of Pakistan under coercion ; undue influence and promise of stifling a criminal case instituted at the Bank's instance against the brother shareholders ; (e) the Company received no money nor it utilised the same and nor has derived any benefit therefrom ; (f) that no amount was as such due from the company to anybody ; (g) United Bank has filed a civil suit in a civil Court ; (h) arrangements for the loan of Industrial Development Bank have already been made and (i) a similar suit by Commerce Bank is also pending. It may be pointed out that the written-statements in the case have been filed only by the Company and the other respondents have not cared to file their replies. Proceedings against Saleem-ud-Din on 10-5-1968, were directed to be ex parte, though later he appeared and joined in the proceedings.
5. On 30-5-1969, I directed Mueen-ud-Din (Director) to file a list of total assets and liabilities of the Company. He on 25th of June 1969, filed an incomplete list, and stated that the complete picture of assets etc., could not be shown as these documents were not with him. He also stated that all the documents executed in favour of various Banks bear his and his co-Director Saleem-ud-Din's signatures but, according to him, the said documents were quite blank when the signatures were put on them and that the blanks were filled in by the Banks concerned later on.
6. The first point argued by Raja Muhammad Akram learned counsel for the Company was that the Company according to its Memorandum of Association had no borrowing power and, therefore, any loan or amounts taken by the Directors of the Company in the name of the Company were ultra vires the powers of the Company itself and not binding on it. The learned counsel took me through the Memorandum of Association of the Company and in my opinion the said Memorandum instead of supporting the learned counsel goes against him. The following clauses of the Memorandum of Association are relevant in this behalf and are reproduced in extenso for facility of reference ---III. The objects for which the Company is established are all or any of the following (and in construing the following sub-clauses the scope of no one of such sub-clauses shall be deemed to limit or affect the scope of any other of such sub-clauses).
III (II).-To lease, let out or hire, mortgage, pledge, sell ox otherwise dispose of the whole or any part of the undertaking of the Company, or any lands, business, property rights or assets of any kind of the Company or any share or interest therein, in such manner and for such consideration as the Company may think fit and in particular for shares, debentures, or securities of any other corporation having objects altogether or in part similar to those of the Company".
III 12.-To pay any premium or salamis and to pay for any property, rights or privileges acquired by the Company, or for service rendered or to be rendered in connection with the promotion of the business of the Company, or to acquire any property for the Company, or otherwise, either wholly or partially, in cash or in shares, bonds, debentures, or other securities of the Company, and to issue any such shares either as fully paid-up or with such amount credited as paid-up therein as may be agreed upon, and to charge any such bonds, debentures or other securities upon all or any part of the property of the Company."
III 17.-To draw, make, accept, discount, execute and issue cheques, promissory-notes, bills of exchange and other negotiable or transferable instruments.
III 21.-To do all such other things as are necessary for or incidental or ancillary to the attainment of the above objects or any of them.--- The above provisions are to be read with the following Articles of Association of the Company ---(31) The Board may delegate any of their powers other than the powers to borrow and make calls, to committees, consisting of such member or members of their body, as they think fit. Any committee so formed shall, in the exercise of the powers so delegated, conform to any regulations that may, from time to time, be imposed on it by the Board.
(42) The Managing Agents, if appointed under Article 39, shall have the power to engage and dismiss manager, engineers, technical experts, artists, assistants, clerks, servants, workmen and other employees of the Company. The general manage--ment and superintendence of the business of the Company shall vest in the Managing Agents, with full power to do acts, matters, and things deemed by them necessary, proper or expedient for carrying on the business and concerns of the Company, and to make and sign and carry into effect all such contracts, and to make, draw, accept, endorse, sign and negotiate, on behalf of the Company, all such Bills of Exchange, Government of Pakistan and Promissory-notes, Hundis, Cheques, Drafts and other instruments, as shall be necessary, proper or expedient, for carrying on the business of the Company, and to make, conduct, defend, compound or abandon, any proceedings, by or against the Company, and also to compound and allow time for the payment or satisfaction of any debts due, and of any claims or demands, by or against the Company, to arbitration, and observe and perform the awards, and to exercise such of the powers of the Directors as may, from time to time, be delegated to them. All moneys belonging to the Company shall be retained by the Managing Agents in their own hands, or paid to such Bankers as the Managing Agents shall deem expedient, and all receipts for moneys paid to the Company, shall be signed by the Managing Agents or their authorised agents, whose receipts shall be an effectual discharge for the moneys therein stated to have been received. The said Managing Agents may, on their own responsibility, delegate all or any of their powers, to such persons, agents or other delegates as the said Managing Agents may deem expedient and revoke such delegation at pleasure. They may arrange for joint working with other concern or concerns if necessary, may grant pensions or gratuity or com--pensation to any employee or to his widow or her widower or children, subscribe to charities and may give indemnities to any person or persons necessary in the conduct of the business of the Company."
If the above provisions of the Memorandum and Articles of Association of the Company are construed together, the conclusion is inescapable that the Company did possess borrowing powers and the contention of the learned counsel is without any substance at its very face. The Company has the power to mortgage and pledge, which shows that it can incur loans because in mortgages the relationship is always of a debtor and a creditor. It has also power to acquire properties on securities of the Company. It can make ; draw ; accept and issue cheques and promissory-notes, bills of exchange or other negotiable or A transferable instruments. In promissory-notes and bills of exchange there is always undertaken a liability to pay money which show that the Company could incur such liabilities and incur loans and borrow amounts. Article 31 of the Memorandum of Articles shows that the buying power was to remain with the Directors and could not be delegated. Article 42 suggests that the Managing Agents could execute contracts and make, draw, accept, endorse, sign and negotiate on behalf of the Company bills of exchange ; promissory-notes; hundis, drafts and other instruments and could compound and allow time for the payment S or satisfaction of any debts due or of any claims or demands by or against the Company.
7. Another thing to be noticed is that the Company appear to be a "Trading Corporation" (within the well-understood meanings of this term in Company-Law), which has always an c implied borrowing power. The following passage from Halsbury's Laws of England, Volume 6 (1954), Third Edition, para. 887 at page 457, may be referred to :- ---A trading or commercial company has an implied power to borrow and to mortgage or charge all or any part of its property to secure the money so borrowed, although no express power to borrow or mortgage is given to it, provided that such borrowing or giving security is not expressly prohibited.--- Halsbury quotes the following cases in support of principle enunciated by him. See Re : Badger, Mansell v. Cobham (Viscount) ((1905) 1 Ch. 568), Re : Hamliton's Windsor Ironworks, Ex parte Pitman and Edwards ((1879) 12 Ch. D 707), Bank of Australasia v. Breillat ((1847) 6 Moo. P C C 152), Australian Auxillary Steam Clipper C V. Mounsey,( (1858) 4 K & J 733), Bryon v. Metropolitan Saloon Omnibus Co., Ltd., ((1858) 3 De G & J 123), Re : Patent File Co. Ex parte Birmingham Banking Co. ((1870) 6 Ch. App. 83), Gibbs and West's case ((1870) L R 10 E. q. 312) and General Auction Estate and Monetary Co. v. Smith ((1891) 3 Ch. 432). To the same effect is the passage occurring at page 360 of Palmer's Company Law (Twentieth Edition, with reference to Ex parte City Bank) ((1868) L R 3 Ch. App. 758).
8. The following provisions of the Memorandum of Associa--petition throws a great light on the nature of the Company :- "III (2).-To carry on the business of managing agents, secretaries, shipping agents, insurance agents, or manufacturers, mine-owners, mercantile agents, and any kind of commercial, financial and agency business, to manufacture surgical instru--ments, and jute goods.
III (5).-To buy, sell, manufacture and deal in minerals, plants, machinery, implements, conveniences, provisions and things capable of being used in connection with metallurgical operations or required by workmen and others employed by the Company."
III (8).-To buy, sell, import, manufacture, manipulate, treat, prepare and deal in merchandise, commodities and articles of all kings and generally to carry on business as merchants, importers and exporters."
These provisions show that the Company could carry on any kind of commercial and financial business. Financial business, c according to me, includes the business of borrowing and lending) money. From this point of view also it appears that the Company did possess borrowing powers and the contention of Raja Muhammad Akram cannot be accepted as there is nothing in the memorandum and Articles of Association of the Company to support him. I have quoted above the various clauses of the Memorandum of Association, each of which is a substantive provision by itself, because to excuse the repetition it is laid down in clause III that, "The objects for which the Company is established are all or any of the following (and in construing the following sub-clauses the scope of no one of such sub-clauses shall be deemed to limit or affect the scope of any other of such sub-clauses)". In Halsbury's Laws of England, Volume 6 ibid, in paragraph 800 at page 413, it is written that, "The ordinary rules applicable in construing documents apply to the construction of the object clauses of a Memorandum of Association . . . . . Where the Memorandum provides that the objects set out in each sub-clause of the object clause of the Memorandum of E Association are to be construed as separate objects and not limited by reference to any other clause or the name of the company, such a provision operates to make each of those objects intra vires." See Cotman v. Brougham ((1918) A C 514). To the same effect is a passage occurring at pages 88-91 of Palmer's Company Law, 1959 Edition, where it is written that :- ---A special rule of construction has in some cases been applied where the objects of a company are expressed in a series of paragraphs, and one paragraph (commonly the first) appears to embody the main or dominant object of the company, and all the other paragraphs have been treated as merely ancillary to this main object, and as limited and controlled thereby.--- "Sometimes the memorandum declares the intention to be that the objects specified in each paragraph of the clause shall, except where otherwise expressed in such paragraph, be in no wise limited or restricted by reference to or inference from the terms of any other paragraph or the name of the company. These words are obviously intended to exclude the application of any such rule of construction, and the Court is bound to give effect to the intention thus indicated." In support of this passage, the learned author quotes Cotman v. Brougham. Coupled with the above literature are Regulations Nos. 71 and 73 of Table A of the Companies Act, which has been adopted by Article 1 of the Articles of Association of the Company and which too establish the borrowing powers of the Company ; because if that power had not been there, the Articles of Association would have clearly laid down that the said Regulations were not to apply. As this has not been done, the conclusion is unavoidable that the borrowing power did vest in the Company and the loans incurred by the Company cannot be said to be ultra vires of its powers. As against all this, learned counsel for the Company submitted that the "main object clause" in a memorandum alone should be kept in view and the other clauses should always be kept subservient, subordinate or subsidiary thereto. He quotes Fida All Yusuf A.I and others v. Graxalt Refineries Ltd. (PLD 1967 Kar. 637) and Commissioner of Income-tax v. Messrs Habib Insurance Co. Ltd., Karachi (PLD 1969 Kar. 278), in support of his contention. The Rule advanced by the learned counsel is too general and has no application where the memorandum itself says that each clause is an independent clause and is not to be subordinate, subservient to or dependent upon the other. The authorities quoted by him do not say to the contrary and instead of supporting the learned counsel rather go against him because they do not lay law different from the principles hereinbefore elaborated by me." Moreover, in the instant case, there is no "main object clause" and all clauses are as independent as any other.
9. The next point argued by the learned counsel for the Company was that even if the Company possessed borrowing powers, the Directors who borrowed money in this case themselves had no power to do so. The first objection related to the loan being ultra vires the Company, whereas the present objection relates to the ultra vires or excessive actions of the Directors themselves. Mueen- ud-Din, it may be stated, was the Managing Director of the Company. He had under Article 43 of the Articles of Association of the Company and the provisions of the Companies Act, the power to act for and on behalf of the Company and in its name. Mueen-ud-Din has not filed any written- statement to state that he was not the Managing Director. He made a statement in Court while proving certain documents and there too he did not aver any such thing. Rather the signatures on various documents which he axed himself describe him as the Managing Director. The written statements, which have been filed in these cases on behalf of the Company are signed by his brother Saleem-ud-Din, but he too has nowhere pleaded that Mueen-ud-Din was not the lawfully appointed Managing Director;. In that view of the matter, objection regarding excessive exercise of power by the Managing Director is totally out of place. No other plea on factual or legal plan has been advanced before me to show as to how the acts of Mueen-ud-Din, the Managing Director, were in excess of his authority. In these circumstances, I have no option but to repel the aforesaid plea of the learned counsel for the Company. An additional point to be noticed in this behalf is that various documents are signed both by Mueen-ud-Din and Saleem-ud-Din. It is not stated (as already observed by me) that they were not the co-Directors. Raja Muhammad Akram has stated that Saleem-ud-Din at the relevant time was a minor and that he attained the majority only in November 1966. According to him, the acts of the said minor Director cannot bind the Company.
The contention cannot be accepted for multifarious reasons. Firstly, the various documents involved in this case are not signed by Saleem-ud-Din alone but by Mueen-ud-Din the Managing Director as well. The minority of Saleem-ud-Din, (if any) therefore, is of no consequence. Secondly, the two brothers never disclosed this fact to the Banks and rather by freely signing documents in Banks' favour impliedly represented that they had the capacity to execute those documents.
Thirdly, as the accounts produced by the Banks show the monies withdrawn, went into the Company's funds and were further utilised by the Company itself through its aforesaid Directors etc. In other words, the Company having derived benefit from the amounts received by it, is responsible both in law and equity to refund that amount which was not given to it by the Banks gratuitously. Fourthly, the fact whether Saleem-ud-Din was minor is yet to be established and unless this matter is proved as a fact, it cannot be given any serious credence. The learned counsel has placed on record a School certificate of Saleem-ud-Din to show that in School Register, his date of birth is recorded 12-11-1948. Keeping that matter open at the moment (because his father did not describe him as such while executing documents hereinafter following), I am not prepared at the moment to attach any importance to it in the peculiar circumstances of the present case when the conduct of the brother-members has not impressed me. Fifthly, even according to this certificate, Saleem-ud-Din attained majority on 11-11-1966. After attaining majority, he executed the following documents in favour of the Bank (i) a registered deed of collateral mortgage, dated 23-1- 1967, which was attested by the father of the family and in which the amount then outstanding was acknowledged as Rs. 9,49,900.00. (ii) Resolution, dated 21-1-1967 in which the liability was again admitted and all actions were ratified. This resolution is also attested by the father of the family who recorded an endorsement to the effect that, "Mian Naeem-ud-Din and Mian Waheed-ud-Din (minor share-holders) through their natural guardian and father Mian Muzaffar-ud-Din". (iii)
Pronote, dated 23-1-1967 ; (iv) D. P. Note Delivery letter and (v) Form L-Agreement for Cash Credit " hypothecation of debts and assets.
Learned counsel for the company submitted that these documents were executed under coercion ; undue influence and for the purpose of stifling prosecution into which the two Directors had been in the meantime involved (on the charge of stealing away the pledged goods) and, therefore, the said documents were not valid in law. I cannot readily accept this plea. All the documents has been attested by their father who also acted as natural guardian of the two shareholders whom alone he described as minors and, therefore, the plea raised cannot be given any serious consideration at its face value. Moreover, there is always a distinction between the motive to a transanction on the one hand and its object or consideration on the other hand. Again, cases where there is already a pre-existing civil liability which is simply reiterated in a fresh agreement, are distinguishable from cases where the position is otherwise. See Contract Act by Mian Muhammad Shafi 1950 Edition discussion on pages 214 to 2t5. Sixthly, section 86 of the Companies Act clearly lays down that the acts of a Director Shall be valid notwithstanding any defect in his qualification or appointment. Seventhly, on the Authority of Royal British Bank v. Turquand ((1856) 6 E & B 327), a person dealing with a Company is not concerned with its "indoor management" and may assume that all is being done regularly. Thus where the Articles give power to borrow, a lender who relies on this power need not enquire into whether any sanction was given to the Director concerned to do so or not. He may assume that it has and- if he is acting bone fide, he will, even though sanction has not been obtained, stand in as guarded a position as it had been given. Again as held in Biggerstajf v. Rowatt's Wharf ((1896) 2 Ch. 93), where the Articles provides that a Managing Director may be appointed and the Directors may delegate their powers to him, and a Managing Director is in fact appointed a person dealing with him may assume that he has the ordinary powers of a Managing Director. Similarly as held in Dey v. Pullinger Engineering Co. ((1921) 1 K B 77), where the Articles stated that the Managing Director may be authorised to draw a bill on behalf of the Company, the Company was bound by a bill drawn by him without authority. The same applies as held in Country of Gloucester Bank v. Redry, etc., Company ((1895) 1 Ch. 629), in the case of a mortgage taken from the Company. On the same principle a person dealing with a Company is entitled to assume that the Directors who carry on its business are Directors de jure and have been duly appointed.
See Mahony v. East Holyford Mining Co. ((1875) L R 7 H L 869).
10. In the earlier passages of this judgment, I have observed at occasions that the money involved in this case was received and utilised by the Company. This can be amply demonstrated inter alia from the following material and circumstances which have been brought on the record. (i) Statements of accounts duly certified under the Bankers Books Evidence Act, have been filed by the various creditor Banks. These copies carry a presumption of truth. A careful perusal of these accounts will show that almost all the amounts have gone to or to the account of the Company ; (ii) Managing Director while making his statement deposed that he did sign the relevant documents in favour of the Banks concerned.
Many of these documents contain admissions regarding the receipt of money by the Company. His plea was that certain blanks in these documents were not filled at that time and that they were filled afterwards by the Banks. The contention cannot be accepted at this stage nor can any serious consideration be given to it ; because the limits of cash/credit/loan, are to be fixed in advance and it is only thereafter that the withdrawals are to start. He is a literate person belonging to an educated family and it cannot be believed that the amounts and terms etc., were not settled when he executed documents in favour of the Banks and started withdrawals ; (iii) even if the blanks were not filled up still to me it appears that his signing the documents was an authority enough for the Banks to fill in the blanks, especially, when (iv) it is not his case that the agreement was to fill a matter different from the one which was filled in those blanks (v) bulk of these documents are printed or typed forms and the blanks which have been filled in them are in ink and in various documents, the fillings are merely of a formal character ; as for example, the name of the concern, the extent of the over-draft and the duration for which the over-draft was to continue etc. Etc. It is not the case of the Company or the Director that in the blanks the Banks wrote down a different amount than what was agreed upon or showed a different rate of interest or a different period of account. The plea of signing blanks ; though ingenious is thus of no avail to the Company and its Directors etc ; (vi) various remittances in the accounts are to the official agencies or bodies and it is not the case of the Company that the said agencies or bodies did not receive any amounts from the Banks concerned in the Company's account or for the Company or on behalf of the Company. The Managa, Director admitted in his deposition that when loan/cash; 'credit/over- draft account was opened with the National Bank, he was issued a Cheque Book which he duly operated. See Ex. Respdt. 2/2. The facts hereinbefore indicated are thus in my opinion sufficient to prima facie show for the purposes of the matters which are being dealt with in this judgment, that the Company did receive money and utilise the amount taken from the Banks.
II. Stage has now reached to examine as to whether a Provisional Liquidator should be appointed in view of the facts and circumstances of the present case. My answer is in the affirmative and apart from the observations already mace in the previous paragraphs of this judgment my reasons for so holding are as follows :-
(a) The amounts having been received acid utilised by the Company, it is liable under law to pay the same to the Banks concerned. The petitioner Banks pleaded in their petitioners that they did serve a notice of demand on the Company under section 162 of the Companies Act. The receipt of notice has not been denied in the written statements. The Company having failed to pay the debts due against it, it has become, within the meaning of section 163, unable to pay its debts read with section 162 of the Companies Act. At this stage, Raja Muhammad Akram, strenuously argued that since the liability of debts is being disputed by the Company, therefore, sections 162 and 163, are not attracted. I-Ifs contention is that if there is a dispute about debt or a liability then it cannot be said that the Company has become unable to pay the debts, especially, when the aim of the creditor is simply to pity, pressure on the Company. He cited Tulsidas Lallabai v. The Bharat Khand Cotton Mill Company Limited (I L R 39 Bom. 47), In re : Jambad Coal Syndicate Ltd. (6 Coy. Cas. 397), Coalfields of Burma Limited v. H. H. Johnson (AIR 1925 Rang 128), Gajram Sngh and others v. Lala Kalyan Mal (AIR 1929 Mad. 265), W. T. Henley's Telegraph Works Co. Ltd., Calcutta v. Gorakpur Electric Company Ltd. (AIR 1936 All. 840), British India Banking Corp. Ltd. v. Sylhet Commercial Bank Limited Opposite-- Party (AIR 1949 Asam. 45), Muhammad Amin Bros. Ltd v. Dominion of India and others (AIR 1952 Cal. 323) and Chellaradh & Co. Ltd. v. M. V. K. Sundaram and another (26 Coy. Cas.
273), in support of his contention. On the other hand, learned counsel for the Banks cited Tikam Chand v. Harish Chandra and others (I L R 11 Lah. 80) and In re : Companies Act V1 of 1882 and In re : Pioneer Bonk Lid. (I L R 39 Bom. 16), to show that institution of winding up proceedings in such, circumstances was not barred. The proposition as put forward by Raja Muhammad Akram is in too general a form and is not wholly correct. The true test is to see as to whether there is a bona fide dispute or the denial is merely a cloak and in this respect each case must depend upon its own facts. This was so clarified by Beaman, J., in Tulsidass Lallu Bhai v. The Bharat Khand Cotton Mill Company, Limited, quoted by both sides before me where the learned Judge held :- ---if any general rule is to be laid down at all, it is easily obtained from the Statute Law. The principle upon which a Company is to be wound up, for all the purposes with which we are now concerned is simply its inability to pay its just debts and that inability is said to be indicted by its neglect to pay after proper demand made and the lapse of three weeks. It is quite clear, however, that any such neglect must be judge by reference to the facts of each particular case, and that, where the defence is that the debt is disputed, all that the Court has first to see is whether that dispute is on the face of it genuine or merely a cloak of the Company's real inability to pay just debts.--- Reference may also be made to Re : Imperial Hydropathic Hotel Co. (49 L T 147), where Jessel, M.R., observed as follows :- ---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. Then we have to consider what is the meaning of a debt being undisputed. As 1 Have said in this case, there was reasonable excuse for refusing to pay this debt or neglecting to pay it ; but was thereunder a mistake in law, a bona fide dispute, something which, should have prevented him from presenting the winding up petition': I do not think there was. I have looked through the correspondence and I must say I have come to the conclusion that the writers of the letters on the part of those who dispute the claim of Mr. Batty had no clear idea of their position. They stated in one letter one thing, and in another letter, but none of the letters appears to me to amount to this ; we dispute your debt on any one of these grounds. They said in one letter, `You did not lend it to our clients.' In another letter, `We have received no notice of your claim and cannot admit any claim against these persons without evidence in support of it.' Then they ask for particulars, but, when we come to the facts, we find this, that the creditor knew that they had a balance-sheet with his name in it and with the amount in that they had paid him interest in April receiving this demand in May for --500 from the very people and of course he would naturally think they were trifling with hint and that they knew the particulars. Besides that, he tells them this, and I think he might reasonably believe that they were playing with him. That is the view I take of the correspondence, and I am by no means unprepared to say this that if they had put all those shadowy claims together in a letter, in the most distinct terms, the creditor would still have been entitled to think, to use a common phrase, making game of him that they could not be serious in such a line of defence. Then he is entitled to say, My claim is not bona fide disputed. You are amusing yourselves by weaving some cob-webs ; but you do not intend to pay and you know that this is nonsense, and that it is a mere excuse for non-payment or for obtaining delay. `It is not because a man says I dispute the debt' that makes it a disputed debt. He must give some reasonable ground and if he writes a series of non-sensical propositions it appears to me the creditor is entitled to say: `You are merely amusing yourself by trying to put me off with vague and frivolous excuses, you do not see any ground to dispute it in law.' It appears to me that this was not a case for which the creditor had notice of a bona fide dispute as to his debt, which would compel him to refrain from attempting to recover payment of what is really an undisputed debt, an undefended demand, by means of a winding up petition, and the result is, in my opinion, that he is entitled to succeed."
Applying these tests to the facts and circumstances of the present case, I have no hesitation in saying that here too the position is not dissimilar. The Company and the Director are not sure of their stand. Sometimes it is said that no amount was borrowed by the Company, though opening of account is admitted ; sometimes it is pleaded that signatures we a put on various documents when some portions thereof were blank ; sometimes it is averred as deposed to by Mueen-ud-Din in his statement that he should be told the particulars of the various cheques issued by him or amount received by him. Plea is also taken that the money borrowed did not go to the Company. In this background is to be noticed the fact that when the Banksi issued statutory notices claiming payment, no reply was sent to them which shows that the respondents were not sure of their stand.
Minority of one of the co-Director is also pleaded (which I have already dealt with) and no plea is such which may be said to be bona fide or inspire confidence, that it is being said in good faith and not for the sake of merely raising a dispute. As elaborated above, it is not because a man says, "I dispute the debt", that will make it a disputed debt. Each case will have to be seen carefully and then the position is to be assessed from an overall point of view. My view is that there are no bona fide pleas and the various obstacles, which have been put up, have no prima facie merit and are merely a cloak to resist a just demand of the creditors.
(b) The company has most of the time (since the respondent --brothers became its members) according to its own showing been consisting of four share-holders ; three out of whom are alleged to be minors. If this plea is correct, then if not to the outside world at least to the brothers- share-holders this fact was very well known. The substratum of the Company was thus lost at the time when this family crept into it. In "Law & Practice of Private Ltd., Companies" by Gauba, Suri, and Iyer (2nd Edition) at page 62 is contained an interesting passage on the "subject of the Membership of a company how acquired" which is reproduced below "(1) Membership of a company how acquired.-The signatories to the memorandum are deemed to have agreed to become members of the company and in the registration of the company shall be entered as members in the register of members.
(2) Persons agreeing with the company to take shares and being placed on the register of members.
(3) Persons taking transfer of shares or share and being placed on the register of member.
(4) Persons obtaining registration on succession to a deceased member.
(5) Persons allowing their names to be on the register of members or otherwise holding themselves out or allowing themselves to be held out as members.
It was noticed already that a company is registered on the presentation on a printed memorandum duly signed by the subscribers. Nothing more is necessary from these subscribers to become members of the company. No allotment is necessary in their case. On being placed on the register of members, they become members of the Company. But persons coming under category No. 2, must agree to become members. The offer to take shares in the company may be either written or oral or may be in any form. An application for shares which is in the nature of an offer only, must be followed up by allotment which is in the nature of an acceptance. But unless an acceptance is communicated, there can be no concluded contract and the allotment must therefore be communicated within reasonable time. Otherwise there would be no concluded contract to take shares. In this connection, the law of Contracts particularly relating to offer and acceptance, is applicable. As such an offer must be made by a person competent to contract, it follows that a minor cannot be an applicant for shares. Certain restrictions are imposed in the matter of allotments but these restrictions do not apply to private companies. But under section 104, even a private company has to submit a return of allotments in the prescribed form within a period of 30 days from the date of allotment. This period can be extended by the Registrar of Joint Stock Companies. Otherwise the delay has to be condoned by the Court. This obligation is covered by section 104."
On page 63, the subject is continued in the following way :- ---There is difference between transfer and transmission. Where a person acquires rights by an act intervivos, it is the case of a transfer but when a person acquires rights by operation of law, we have an instance of transmission. The law relating to this aspect may not assume much importance in a private company as the right to transfer shares is restricted. A person is compelled to sell his shares to the share-holders, on some principle expressly contained in the Articles.
Where a member dies, his legal representative, in the same manner is compelled to transfer tile stares to a person approved by the directors as contained in the Articles. If the directors are not able to get somebody to purchase the shares, then only the sale can be made to strangers.
The transfer of the share must be on a stamp paper of the proper value as prescribed by the Stamp Act. The Articles also usually require the transfer to be in a prescribed form.
The last mode contains the principle of estoppel contained in section 115 of the Indian Evidence Act.
Where a company allots shares, it is required under section 108 to complete and have ready for delivery the certificates of all shares etc., and default of the same is penalised."
(c) Conversely, even in the interest of the admittedly minor share-holders, it is just, fair and equitable to put the company under the charge of a Provisional Liquidator ; because front the pleadings of the parties I gather that all the brothers are levelling accusations against one another.
Saleem-ud-Din has in the written-statement filed on behalf of the Company, challenged the acts of his brother Mueen-ud-Din as well as his own. Oil the other hand, even though he did not file a written-statement but it is not Mueen-ud-Din's case that the amounts which he withdrew from the Banks were embezzled or mis-appropriated by him and as was pleaded at the Bar lie spent the amounts in the affairs of the Company and not on his ownself. This is the po3ition of the share- holders who claim to be major. The position of the other two minors is still in turmoil, Probably, they accept the leadership of none. This points out a dead-lock, solution of which is nothing but winding up.
(d) No balance-sheets have been prepared for the last four years. The Managing Director was not in a position to state the present financial position of the Company. While making his own statement, he stated since the matter was under scrutiny of the auditors, he could not throw any light on it. I was not impressed by his aforesaid reply. He was a responsible person who had been at the helm of the Company's affair. He Could Have given us the approximate assessment of the company's assets and liabilities, but he thought it advisable to take shelter under a technicality.
The position of the Company's assets, to put in other words, is not certain on the record.
(e) Mueen-ud-Din and Saleem-ud-Din were prosecuted in a case under section 454/380 of the P.
P. C. And even though they had been discharged (not acquitted), the allegations are so serious that one has to think twenty times before reposing any further confidence in theist. I would act oil the safe side of putting the Company under the charge of a Provisional Liqnidator rather than let the same family run its affairs. This is more so when Mueen-ud-Din has tried to give an impression that he and his brother Saleem-ud-Din are of such types that they could sign blank papers indiscriminately without caring to see how the blanks are to be lined. As a matter of fact, the learned counsel for tile company himself (while pointing oat the distinction between tile Company and its share-holders)--emphasised that the active members have trot been quite fair towards the Company and towards (at one tune three now two minor share-holders and that they had been taking loans in the name of the Company, executing and drawing promissory-notes, mortgage deed or deeds, acknowledging liabilities and doing all sorts of fishy dealings in collaboration or at the instance of the lower level officials of tile Banks if this is so, it is all the more justified to appoint a Provisional Liquidator.
(f) The amount of debts payable by the Company corms to Rs. 36,68,584.00 (National Bank Rs.
13,81,811.C0 ; United Bank Rs. 3,86,777.55 and Commerce Batik Rs. 19,00,000.00). Mueen-ud-Din Managing Director has stated that the not income of the Company is between Rs. 10,000.00 to Rs.
15,000.00 a month. It is thus clear that the Company has neither enough fund; nor enough earning capacity to pay the debts in presenti. At the aforesaid rate, the Company needs a time of over thirty years to clear its present liabilities. Learned counsel for the company submitted that its factory ; building; and site are very valuable and; therefore, if they are taken into account, the value of the Company's assets is very high. I do not agree. The so-called high price and value can be obtained only when the Company is dissolved ; sold away or otherwise its assets are converted into something else. It was held in National Batik of Pakistan v. The Punjab National Silk Mills etc. (PLD 1969 Lah. 194), and In re : Dinajpur Talki s Ltd. (PLD 1959 Dacca 389), that it is not to be seen, as to whether a Company after conversion will be worth how much, but real point to be taken note of is as to whether the r company can meet its current demands. Respectfully following the said principle, I hold that since the Company is unable to meet its current demands, it is from this point of view also unable to pay back debts and it is just, equitable and fair to place it in the charge of a Provisional Liquidator.
(g) The circumstances of the case show that the conduct of the Directors and of the Officers of the Company in this case needs investigation. That purpose, it has never been doubted can only be obtained in winding up through Court. See, Halsbury's Laws of England (Third Edition) Volume VI, paragraph 1035 at pages 534-535.
(h) The Company suspended its business for about two years on and re-started only on 1-1-1968.
Raja Muhammad Akram argued that this happened because licences for food-grains etc., were cancelled by the Government. Be that as it may, since food-grains was not the only business which the Company could undertake, there was no justification to suspend its working altogether.
(f) The Company, as was conceded by its learned counsel, was not doing the work of grinding the flour itself or at its own account. It had placed the responsibility of running the mills on certain lessee or lessees and was itself working under or for those lessees. The Directors or its present management therefore, is not the Company's own management but the management of the lessee or lessees. This further shows that the Company is unable to carry on the business itself due to the lessees' rights by which it has been handed over and parted in favour of the lessees etc.
12. Lastly, the learned counsel for the Company argued that since the various suits hereinbefore mentioned are pending in Civil Courts, the proceedings in this Court should be stayed, especially, when a Civil Court has restrained the National Bank of Pakistan by means of an ad interim injunction from acting upon the documents (which have been challenged in the said suit) in making any recoveries. The pleas advanced by the Company in the various suits are the same which have been hereinbefore attended to by me. It is well-settled that pendency of civil suit is no bar to a petition for winding up and all that the Court has to see is that the dispute which is being raised by the Company is a bona fide dispute and not merely a cloak. I have already held earlier that the pleas, which are being advanced by the Company as against its liability, are frivolous and appear to be just a cloak. I am not impressed with the bona fides of the defence taken by the Company. In that view of the matter, the civil suits can have no effect on the petitions for winding up filed in this Court. Even otherwise it is well settled that notwithstanding the civil suits, order for winding up can be passed in appropriate cases. Similarly, the temporary injunction granted by the Civil Court has no effect on the proceedings which had already been instituted for winding up of the Company much prior to the issuance of the said injunction. In section 5, p of the Specific Relief Act, it is clearly laid down that an injunction cannot be issued by a Civil Court to stay any judicial proceedings or to stay proceedings in superior Courts. Moreover, all that the injunction issued by the Civil Court does is that it retrains the National Bank of Pakistan from enforcing the various documents. It may be pointed out that in various documents the Bank has b.-en given power to privately sell the assets of the Company. The aim of the injunction is to restrain the Bank from doing that. It has no effect to stop the winding up proceedings pending in this Court.
13. Taking a dispassionate view of the entire matter, I am fully convinced that this is a fit case for the appointment of a Provisional Liquidator. I appoint Mr. Rafiq Ahmad Khan Bangash, Advocate, as a Provisional Liquidator to take charge of the Company and proceed with the same in accordance with law under instructions from this Court. He can take into custody the necessary books and the records of the Company. I have not appointed the Commerce Bank Limited as the Provisional Liquidator ; because it is in my opinion not safe to give charge of the Company to one of the creditors.
14. As regards the prayer of Industrial Development Bank of Pakistan for claiming preference in the matter of the clearance of its dues, the question will be examined at the time when the assets are collection and the stage for fixing priorities and making distribution arises. The application of Industrial Development Bank of Pakistan is premature and is accordingly disposed of.
Provisional Liquidator appointed.