SALMAN HAMID, J - Winding up petition under Section 305 read with Section 309 of Companies Ordinance, 1984 (Ordinance 1984) was filed by the Securities & Exchange Commission of Pakistan through its Additional Registrar Companies (SECP) on or about 14.12.2007 against Karim Silk Mills Ltd. (Respondent) on the various grounds mentioned in the body of the petition. Winding up order was passed by this Court against the Respondent in terms of judgment dated 10.10.2008. Operative part of the judgment reads as under:- "The Respondent Company has become nonfunctional since 1993. Lt has failed to maintain its accounts and submit statutory returns and that it sold its plant and machinery way back in 1999 and became dormant. All these facts have gone unchallenged. Hence it is a fit case where provisions of Section 305(c) and (f)(iv) read with Section 309 of the Companies Ordinance, 1984, be invoked for winding up of the Respondent Company, In the circumstances, this Petition is allowed. Let the Respondent Company be wound up. The Official Assignee of this Court is appointed Official Liquidator to initiate winding up proceedings. His fee shall be settled after taking into consideration the quantum of work that may entail in the process of winding up of the Respondent Company. "
2. The learned Official Assignee/Official Liquidator acting as such made correspondence with SECP for doing the needful i.e. Production of complete names and addresses of ex-directors of the Respondent and for pointing out its assets. The Official Assignee/Official Liquidator also issued letters to the ex-director of the Respondent to file statement of affairs alongwith statement of accounts, last audited report and bank accounts. However, this was not done in the first instance.
Subsequently a representation was made on behalf of the Respondent and time was sought for furnishing the requisite information, mentioned above. Official Assignee/Official Liquidator Reference No. 2 of 2009 dated 15.06.2009 would disclose that statement of affairs of the Respondent alongwith copy of latest audited accounts ended June 30, 2008 was filed. No assets were shown in the statement of affairs.
3. Present application under Section 319 read with Section 284 of the Ordinance 1984 has been made by one Mr. Muhammad, Idrees, a Member/director of the Respondent (Applicant) with a prayer to cancel the winding up proceedings of the Respondent for the reasons mentioned in the Memorandum of Understanding dated 16.10.2009 and the business plan for revival of the Respondent, attached therewith and entered into between him and Capital Securities (Pvt.) Ltd.,
(Apex) through its Managing Director, Mr. Naveed Gondii.
4. On the basis of the above, the learned counsel for the Applicant argued and pointed that the revival plan of the Respondent, amongst others, include that apex would purchase 742,942 shares of Rs. 100/- each of the Applicant in the Respondent and 41,973 shares of Rs. 10/- each of his other family members which represent 80.50% of the paid up capital of the respondent at a lump sum value of Rs. 20, 000/- if the revival plan is approved by this Court and SECP, It was also mentioned by the learned counsel that in terms of the revival plan apex would revive the Respondent by transfer of its (Apex's) running business of corporate brokerage house by merger into the respondent so that it (respondent) is able to finalize and present application for stay of winding up proceedings of the respondent, It was thus mentioned. That such having been done, present application has been filed.
5. The learned counsel also mentioned and argued that the revival plan further shows that Apex shall take necessary steps at their own costs and pay all dues, including listing fees etc. To get trade in shares of the Respondent resorted in the stock exchanges of Pakistan for which necessary cooperation vis-a-vis signing all documents essential for restoration of trading of Respondent's shares in the stock exchanges would be extended by the Applicant.
6. The revival plan further showed that presently the liability of the Respondent other than Directors' loan of Rs. 125,000/- and other liabilities of Rs. 129,288/- are nil, which will be settled by the Applicant, It is further provided in the revival plan that Apex shall immediately after permission of this Court allow the Respondent for its revival and complete all requirements, regarding change of management thereof, including getting necessary approvals from Karachi and Lahore Stock Exchanges and the SECP.
7. On the basis of above, it was the case of the Applicant that earlier in time since the Respondent failed to present any revival than its winding up order was passed. Now that the revival plan is in place, present application has been filed, It was further the case of the Applicant that all the statutory requirements of law have been complied with inasmuch as that the statement of affairs of the Respondent had been furnished to the Official Assignee/Official Liquidator, It was also mentioned that the promoter and Directors are not involved in any act contrary to the principles of law and fair play.
8. Lt was also the case of the Applicant that the Revival plan will be beneficial to the business activities of the Respondent and its trading of shares in the stock exchanges will also be for the advantage and benefit of the minority shareholders of Respondent and its creditors as that they will be able to trade in shares of the Respondent which will only improve their financial position by getting returns on their investments, It was also urged that the revival of Respondent and its merger will save time and costs of incorporating a company and then having it listed at the stock exchanges in Pakistan, It was also brought to the knowledge of this Court that the time involved for incorporation of a company until its listing at stock exchanges takes about two years and costs around more than Rs. 200,000,000/-. Lt was thus argued that by merger of Apex with the Respondent, this long cumbersome and expensive procedure would be curtailed inasmuch as that apex already have a paid up capital of 100 million and that it is presently running profitable business and with the merger the Respondent will start getting income instantaneously after the value of its shares would go up in the market.
9. Lt was also categorically mentioned that the revival plan of the Respondent would be subject to the approval of SECP and after compliance of necessary requirements of law. Lt was thus forcefully argued that the application be granted as prayed.
10. On the other hand. This application was seriously objected to and resisted by the learned counsel for the SECP, It was argued that the application has been filed incompetently and that too after the winding up order has been passed, It was further argued that in terms of memorandum of understanding the Respondent's Director i.e. The Applicant will sell only 784,935 shares to Apex belonging to him and his family members and out of 742,962 shares, claimed by the Applicant in his name only 207,988 ordinary shares are accorded in his name. There is no proof of ownership of remaining 534,974 shares.
11. Lt was further argued that as per audited accounts of Respondent for the year ended June 30, 2008, it only holds 207,988 shares and that 51% shares of the Respondent are owned by one Mr. Haji Muhammad Karim. On the basis of this, it was argued that the Applicant is neither a majority shareholder nor authorized by the Respondent to file present application. The claim of the majority shareholding of the Applicant was also disputed by arguing that no verified pattern of shareholdings of the Respondent was produced.
12. Lt was also argued that as per memorandum of association of Respondent it was established for purpose of textile goods manufacturing and allied purposes whereas apex is actively engaged in brokerage business and is a corporate member of Karachi Stock Exchange. On the basis of this, it was argued that the Respondent and Apex are engaged in totally two different businesses and that there is no consent of the members of both the companies to engage in two totally unrelated businesses.
13. Absence of objective justifications and consent of the members of both the companies i.e. The Respondent and Apex shows nothing but delaying the winding up process. According to learned counsel for the SECP the revival plan is though ambitious but not approved by the members of Respondent and that of Apex and therefore such plan cannot be taken into consideration.
14. Lt was also emphatically argued that the financial condition of Apex was not sound inasmuch as that un-appropriated loss of Rs? 6,945,566/- as per its unsigned quarterly accounts for the period ended September 30, 2009, was shown, It was also mentioned that no annual audited accounts of Apex have been provided in order to ascertain the financial condition and capacity to acquire the Respondent.
15. Lt was finally urged that the revival plan being followed by merger of Respondent and Apex therefore the acquisition of majority shares of the Respondent would place other shareholders in a disadvantageous position, It was also argued that shares of industrial companies cannot be acquired without first complying with the requirements of Listed Companies (Substantial Acquiring of Voting Shares and Takeover) Ordinance, 2002.
16. Lt was also emphasised that amalgamation of two companies can only take place through scheme of arrangement to be presented before this Court through the Official Liquidator of the Respondent. This was not done.
17. In rebuttal, it was argued that the Applicant being a member/contributory of the Respondent, holding 76.199% shares in the entire share capital of the Respondent was duly competent to file the present application which was for the benefit of shareholders of the Respondent, It was thus argued in rebuttal that the Applicant being in such a position, entered into memorandum of understanding and for revival of Respondent for its approval by this Court.
18. The objection of pattern of shareholding was met by reiterating that the Applicant is a lawful owner of 742,962 shares in the respondent and that 534,974 shares have not been lodged with the Respondent to record the transfer thereof from the name of the previous owner, It was pointed out that indeed Annexure B to the application showing the pattern of shareholding was attached, In this regard reliance was placed on the case of Grindlays Bank Ltd. v. Murree Brewery Co. Ltd. (PLD 1954 Lahore 745) and Siddique Muhammad Malik & 4 Ors. v. Immad Ifthikhar Malik & Ors. (2000 CLC 477).
19. As to the maintainability of the application, it was urged that the paramount objective is the benefit of all the shareholders of the Respondent which is proposed to be achieved through merger of Apex which is a running brokerage house, It was also argued in rebuttal that in terms of memorandum of understanding and revival plan of the Respondent, the meeting of the members of Respondent and the applicant to approve the scheme of merger will be compiled with by such two companies to safeguard the interest of the members of both the companies.
20. Lt was also disputed and denied that the applicant in terms of its supplementary audited report ended September 30, 2009 was going in loss. A copy of unaudited accounts of Apex for the period ending 30.09.2009 was attached with affidavit in rejoinder as Annexure "B", showing profit of Rs.
4,475,898/-.
21. Lt was also denied that the revival plan and/or the merger would be to the disadvantage of the shareholders: In rebuttal, the benefits likely to accrue to the stakeholders upon proposed merger, it was mentioned that the trading of Respondent's share which is suspended since 2000 shall stand revived and that the minority shareholders as well as the financial institution, lying dormant will become active and tradable in the stock exchange; that with the transfer business of assets and running profitable of Apex, the Respondent shall start generating revenues and profits thereby increase the market price of Respondent's share which again will be to the benefit of the shareholders thereof; that the merger would also make possible the payment of dividends to the shareholders, It was also argued that with the merger of Apex with the Respondent and change of status from private limited company to listed company, business shall increase tremendously which will in turn increase the price of shares to the benefit of shareholder of Respondent; that the business of the company would increase;, that the Karachi Stock Exchange and government will get overdue fees and taxes etc.; that the financial institutions i.e. NIT, ICP, Adamjee Insurance Co.
And State Life Corporation who have about 5% shareholding in the Respondent would be able to get the value for the shares in the Respondent, if they continue to hold their shareholdings in it.
22. Lt was reiterated that the legal requirements to be complied with in the connection of proposed merger of Apex with the Respondent can only be complied with within the terms of applicable laws, subject to permission of this Court as winding up proceedings of the Respondent are. Pending adjudication before it, therefore, it was reiterated that it will be in the interest of justice that the application be allowed as prayed.
23. Heard.
24. Above narration would show that presently . Liability of the respondent other than Director's loans are nil and that in terms of the memorandum of understand and revival plan, the Directors loans of Rs. 125,000/- and Rs. 129,288/- would be settled by the Applicant at the time of revival and/or merger of the Respondent with Apex.
25. Lt has also come on record that with the merger of the respondent with Apex, which is a running profit earning concern as evident from Annexure B to the rejoinder, it would only increase the share value of Respondent's members which would be to their advantage and benefit as the trading of shares of the Respondent would commence, which at present is suspended.
26. To the understanding compromise/arrangement as the one in hand would only revive a dead project into a going concern which would only be in the interest of national economy and would only be in the interest of national economy and would create jobs, It is well-established by now and also a legal position that during winding up, a company cannot be treated as a dead unit; it remains alive. Since prima facie the revival plan and the merger is for the good of the Respondent and for Apex and for the benefit of their members which will ultimately be in the best interest of already ailing economy of this country, it would be just and proper that an attempt is made for the revival of the Respondent as it would be in realm of corporate and commercial wisdom.
27. Under the provisions of Section 320 of the Ordinance 1984, the Court shall, as to all matters relating to a winding up, have regard to the wishes of the creditors or contributories whereas in terms of Section 421 of the Ordinance, 1984, the liquidator is empowered to exercise certain powers, subject to sanction of the Court that is to say during winding up, he, may make compromise or enter into arrangement with the creditors or persons claiming to be creditors or having or alleging themselves to have any claim present or future. Similarly under Section 422 of the Ordinance, 1984 again this Court in all matters relating to the winding of a company shall have regard to the wishes of the creditors or contributories and may, if thinks fit to ascertain those wishes direct meetings of the creditors or contributories to be called and for such purpose may appoint a person to act as Chairman of any such meeting and to report the result thereof to the Court.
28. Looking at the fact that the Respondent, through the Applicant and Apex have expressed their eagerness that the revival will be subject to the approval of SECP and' after complying with all the legal requirements, and the fact that SECP has essentially raised an objection that the revival scheme has not been got approved by the members of Respondent, in the first instance it is ordered that the Respondent and Apex call special general meeting of the creditors and contributories/members in accordance with the provisions of the Ordinance 1984 and place the scheme of revival before such special general meeting for its approval. To meet the ends of justice, the official liquidator and the Additional Registrar, SECP shall also attend the referred meeting for which requisite notice be served well in advance. The Nazir of this Court, as required under sub- clause (c) of sub-section (1) of Section 422 of the Ordinance, 1984 is appointed as Chairman. The Chairman, Official Liquidator and the Additional Registrar are directed to submit their separate reports in this regard for further consideration. Needful be done within a period of 60 days from the date of receipt of this order by the respective persons mentioned above. The Official Liquidator shall also make compliance of the provision of sub-section (2) of Section 319 of the Ordinance 1984 at the time of submission of his Report, as visualized under Sections 421 and 422 of the Ordinance, 1984 mentioned above.
29. Adjourned to be fixed after the period mentioned herein above and the Reports are filed.