This is an application under section 162 of the Companies Act, 1913, for winding up of respondent No. 1 on the ground that the company is not in a position to pay its liabilities and it in fact failed to pay back the petitioner's debt due despite legal notice. In its written statement the respondent company categorically denied the liability by saying that it never borrowed any money from the petitioner and that nothing is due from it.
2. As the contents of the petition were ambiguous and did not show as to how the amounts, claimed by the petitioner, were lent or made up the petitioner was asked to clarify the same. He made an application (C. M. 238-L-81) supplying the details. It is stated in para. 9 that the factory of the respondent company at. Sahiwal was at a stand still when a previous application for its winding up (C. O. 33-75) was made. Therein that petitioner on 28th May, 1976, made the following statement before this Court :- "The petitioner wants to withdraw the petition on account of change of circumstances. New investments have been made for making the company solvent. Respondent No. 2 has already entered into an agreement with the party investing the funds for transfer to him of the majority shares. New party has also made payments to the Labour Union with an understanding to pay them regularly. The company is also prepared to secure the other creditors so far as possible."
The above statement was accepted as correct by respondent No. 2 and the case was disposed of.
3. The case of the present petitioner, who was the investing party, referred to above, is that he in pursuance to the above agreement paid a sum of Its. 55,000 to the labour union in addition to 1 J months salary. According to para. 10 of the application it was agreed between the petitioner and the Directors that Agha Bashir respondent No. 2 shall sell his shares of more than three lacs with his salary as Managing Director for previous period -for Rs. 2,03,000 and Mr. F. Aleem respondent No. 3, shall sell shares of his two Japanese companies of the full value of four lacs and some other dues for Rs. 1,67,000. It is said to have been further agreed that the abovesaid transfers will be made after the withdrawal of the liquidation proceedings. An agreement is also said to have been drawn up and handed over to one Mr. Jamil but no copy of the same has been placed on record. It is in the performance of the abovesaid agreement that the petitioner is said to have paid a sum of Rs.
6,27,000 as detailed in para. 16 of the application and it is the non-payment of that amount for which this petition for a winding up order has been made.
4. The facts as given above would go to show that the petitioner had agreed with the Directors to become a shareholder of the company and it was with that understanding that he spent all that amount, if at all. In this view of the matter the petitioner would either be entitled to the shares in accordance with the agreement, if any, or in case the agreement has no been honoured the respective rights and liabilities of the parties thereunder shall have to be determined. It would thus show that there was no debt due as such. Again, the above two questions can be gone into only after evidence is led by the parties. This summary jurisdiction thus cannot be exercised in such matters. 'Identical questions have also been considered by various Courts and it will be useful to support my findings with their views.
5. In P. R. Dorais Swami Ayyar v. Coimbatore Easwara Sahaya Nidhi Ltd. (1) the allegation that the company had failed to pay its debts was not supported by any fact to enable the Court to come to the conclusion that the company was unable to pay its statutory demand and so the Court held:- "I cannot say that there is no bona fide dispute as to the company's liability to pay this debt. Courts will never allow creditors of a company to invoke the assistance of the Companies Act for getting payment of their debt. If there is a genuine dispute with regard to the debt then the creditors of the company must be referred to a suit."
6. In W. T. Henley's Telegraph Works Co. Ltd. Calcutta v. Gorakhpur Electric Supply Co. Ltd.
Allahabad (2) the Court held that a mere service of a notice of demand of debt, by a creditor, on a solvent company, does not entitle the creditor to a winding up order, if the company bona fide disputes the existence of a genuine debt. The following observations made be reproduced with advantage :-
(1) AIR 1929 Mad. 265(2) AIR 1936 All. 840 "There is abundant authority for the proposition that the mere service of a notice by a creditor on a solvent company does not entitle the creditor to a winding up order if the company bona fide disputes the existence of the debt : vide (1874-75) 10 Eq. 182, Cadiz Waterworks Co. v. Barnett), (19 Eq. 444-London and Paris Banking Corporation), (39 Born. 47-Tulsidas Lallubhai vBharat Khand Cotton Mill Co. Ltd. (23 C. `N. N. 844--Company v. Rameswar Singh), and Satyaraju v. Guntur Cotton Jute & Paper Mills & Co. 48 Madras 267). The reason for this rule is obvious. If a company is solvent and there is a genuine dispute about an alleged debt, the resort by the creditor to the summary proceedings of serving on the company a notice under section 162, and following the same by petition for winding up, is ordinarily referable to a desire on the part of the creditor 1Q bring pressure on the company in order to induce the company to pay the debt, without having the dispute settled by the Civil Court, by which Court the dispute ought to be ordinarily settled. To make an order for winding up in such a case would deprive the company of its right to have the question between it and the petitioning creditor decided in the normal way by the civil Court constituted for the purpose, and this would be opposed to public policy. An application for winding up in such a case must, therefore, be regarded as a vehicle of oppression and an abuse of the process of the Court and be dismissed."
7. In Industrial Development Bank of Pakistan v. Sattar & Sons Ltd. (1), the Court held that where there are bona fide disputes relating to the existence of the debt, there a winding up order is not `called for. A debt, in order to be a foundation of the order for winding up of a company, has to be a debt which does not suffer and which cannot be disputed on legitimate and bona fide grounds. In case where debt is contested on acceptable grounds, there the petitioner has to bring an appropriate proceedings for establishment of such debt, before the same can be utilized as a foundation for securing a winding up order from this Court. It is to be noted that the learned Single Judge relied on the following judgments in this case :- (1)L R (1932) 1 Ch. D 670 (2)(1946)2 All ELR 197 (3)AIR 1929 Mad. 265
8. In M. A. Kureshi v Argusfootwear (2) the Court refused to pass a winding up order holding that a demand signed by the creditor's agent was not a demand under section 163(1) of the Companies Act. This was a case in which an agent of the company entered into an agreement with Dr. Kureshi to purchase 1,290 shares in the company at Rs. 10 per' share. The demand for 500 shares was to be made on or before 15th January, 1930, and the balance of the value of Rs. 7,900 on or before 31st March, 1931. It was also provided that Dr. Kureshi should advance as a loan to the company a sum of Rs. 4,000 without interest and that the company should refund the same after six months or earlier. Dr. Kureshi advanced a sum of Rs. 3,000 only not in cash but in goods and in cash and it was the same amount which was to be paid by the company. The Court dismissed the appeal and maintained the order of the learned Single Judge on the ground that the appellant was under an obligation to provide a sum of Rs. 7,500 for the balance of the shares which had been agreed with the agent and that the application for winding up was not made bona fide as he was avoiding his obligation.
9. In Mulla Abdullabha% v. Sarla Rope Mills Ltd. (3), the Court held that a creditor who thinks that winding up proceedings are a .Substitute for a suit to recover their debt is in error. In re : Jambad Coal Syndicate Ltd. (4) the petitioner was demanding rent due in pursuance to an unregistered lease deed. The company had not denied the possession of the property as a tenant. The Court, however, dismissed the application for winding up for the reason that in view of the non- registration of the lease deed, the debt was not presently payable.
(1) 1969 D L C 596 (2) AIR 1931 Rang. 306
(3) P L 1) 1971 Kar, $97(4) (1934) 62 Cal. 294
10. The Supreme Court in Adage Advertising, Lahore v. Messrs shezan International Ltd. Lahore 1970 SCMR 184,held that in all cases where an application under section 162 of the Companies Act is based on the allegation that the res--pondent company is unable to pay its debts, the Court has to consider the question whether the company concerned has a bona fide dispute with the petitioner who has come to the Court. In case it comes to a conclusion that there was a bona fide dispute, the application has to be dismissed. In that case it was proved that though a sum of Rs.
58,933.72 was due to the petitioner yet the respondent disputed to pay the entire amount on the ground that it had paid a large amount out of it to the principals of the creditors. It was therefore, held that the matter may be taken to the civil Court for derision.
In view of the above. This petition cannot be decided in this jurisdiction and is consequently dismissed with no order as to costs. revisions by the competent authorities. Therefore, it is advisable to consult the official sources or legal professionals for the most up-to-date and accurate information.