The Karim Silk Mills Limited ("Company") was converted into a public limited company on July 23, 1962 and got listing on the Karachi Stock Exchange (Guarantee) Limited in 1964. Its registered office as notified to the Registrar of Companies, Karachi under the Companies Ordinance, 1984 ("Ordinance") is situated at Karachi. The main objects of the Company are manufacturing, processing and sale of fabrics. The authorized and paid up capital of the Company as per the annual accounts for the year ended June 30, 2006 stood at Rs.10 million and Rs.9.750 million respectively.
2. The Additional Registrar of Companies, Companies Registration Office, Karachi has approached the Commission for grant of sanction in terms of Proviso (b) of Section 309 of the Ordinance in order to enable him to present a petition before the Honorable Sind High Court for winding up of the Company which has been based on the following grounds;
(a) The Company had sold its entire assets in 1999 while its business had been suspended since 1993.
(b) The auditors' of the Company have given an adverse opinion on the annual accounts for the year ended June 30, 2006 wherein it has been stated that the balance sheet, profit & loss account, cash flow statement, and statement of changes in equity together with notes forming part thereof do not conform with approved accounting standards as applicable in Pakistan and respectively do not give a true and fair view of the state of the Company's affairs as at June 30, 2006 and of the loss, its cash flows and changes in equity for the year then ended.
3. The aforementioned defaults stated above attract the provisions of Sub Section (c) & (f) (iv) of Section 305 of the Ordinance which provide that a company may be wound up by the Court if it does not commence its business within a year from its incorporation, or suspends its business for a whole year or if it is run and managed by persons who fail to maintain proper and true accounts, or commit fraud, misfeasance or malfeasance in relation to the company.
4. Under the provisions of Section 309 of the Ordinance the registrar shall not be entitled to present a petition for the winding up of a company unless the previous sanction of the Commission has been obtained to the presentation of the petition provided that no such sanction shall be given unless the Company has first been afforded an opportunity of making a representation and of being heard.
5. Accordingly, before granting the requisite sanction, a show cause notice under the provisions of Section 309 read with Section 305 of the Ordinance was served on March 29, 2007 to the Company.
In order to provide an opportunity of making a representation and of being heard, the case was fixed for hearing on April 16, 2007. On the date of the hearing Muhammad Siddique, Company Secretary appeared before the undersigned on behalf of the Chief Executive of the Company and made submission vide his letter dated April 16, 2007 wherein it was stated that sponsors directors of the Company are trying to transfer their majority shareholdings with the intention to revive the Company. It was further stated that the Company has been approached by a very sound and reputable party who has shown its interest to take over the control of the management of the Company. It has also been stated that if the Company fails to acquire desired fresh investment till the end of this year then the Company will opt for its voluntary winding up under the provisions of the Ordinance.
6. Before proceeding further, it would be necessary to look at certain important past happenings in connection with the winding up of the Company. The Commissioner (CLD), SECP vide its Order dated December 23, 2003 authorized the concerned Additional Registrar to initiate winding up proceedings against the Company as it had failed to hold eleven consecutive AGMs and its business had been suspended since the year 1993. The Company against the said Order filed an appeal before the Appellate Bench, which dismissed its appeal and maintained Order passed by the Commissioner (CLD) .
7. The concerned Registrar was advised to file winding up petition in the Honorable Sind High Court which was not materialized due to the following;
(a) Company opted for voluntary winding up and passed a resolution in its 32nd AGM held on October 29, 2004, however, due to non-complying with the mandatory requirement of Section 362
(2) of the Ordinance, the said resolution was without any legal effect.
(b) Company has shown interest in the revival of the Company, however, failed to provide any future projections and date of resumption of business.
8. Meanwhile, the Company in its 31st AGM held on April 29, 2004 adopted all the previous overdue accounts from the years 1992 to 2003 in addition to electing directors for the next three years term.
Thereafter, the Company also held its AGMs for the years 2004, 2005, 2006 and also filed accounts for the said years, however, certain formalities as required under SECP's Circular # 5 of 2002 were not complied with. Further, the Company failed to honor its commitment for the revival of the Company. At present the Company's financial position as on June 30, 2006 shows that its total assets stood at Rs.83,738/- (Eighty three thousands seven hundred & thirty eight only) whereas its accumulated losses stood at Rs.10,098,710/- (Ten million ninety eight thousand seven hundred & ten only) which transform shareholders' equity into negative of Rs.68,050/- (Sixty eight thousand & fifty only).
9. Based on the changed circumstances, a fresh show cause notice under provisions of Section 309 read with Section 305 of the Ordinance was issued to the Company. The management of the Company again repeated its old stance that they are interested in the revival of the Company and are in negotiations in this regards with a very sound party for sale of the majority shareholdings of the Company. Such an effort has not been materialized to date. In these circumstances, the holding of AGMs, filing of accounts, and election of directors cannot be considered as rectifying the situation in which the Company stands today.
10. Section 305 of the Ordinance provides that a company may be wound up by the Court if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year and if the company is run and managed by persons who fail to maintain proper and true accounts, or commit fraud, misfeasance or malfeasance in relation to the company. In the instant case, the Company's business had been suspended since 1993 and auditors' of the Company have given an adverse opinion on the annual accounts for the year ended June 30, 2006 wherein it has been stated that the financial statements of the Company together with notes forming part thereof do not conform with approved accounting standards as applicable in Pakistan and respectively do not give a true and fair view.
The failures of the Company's management to start its business or to make efforts to revive the Company indicate that the management has no intention of carrying on its business operations.
11. Under the present circumstances and based on the aforementioned facts, I am of the opinion that it would be appropriate to initiate winding up proceedings against M/s Karim Silk Mills Limited.
I, therefore, in exercise of the powers conferred on me under Section 309 of the Ordinance, hereby authorized the Additional Registrar CRO, Karachi to file a winding up petition in the Honorable Sind High Court for winding up of M/s Karim Silk Mills Limited.