This petition under sections 162 and 166 of the Companies Act, 1913, filed by Parke Davis & Company Limited (hereinafter called the Creditors) against Bliss & Co. Ltd., (hereinafter called 'the Company') is for winding up ofcompany on the grounds that the Company is unable to Day its debt and that in the circumstances of the case, it will be just and equitable if the Company is wound-up.
2. In order to appreciate the ground mentioned in the petition it is necessary to state very briefly, the relevant facts which are as follows:- By an agreement dated 21-4-1972, between the creditors and the Company, the Creditors appointed the Company as their distributor for distribution in West Pakistan all the products manufactured locally by the Creditors. This agreement was for a period of 2 years with a provision for extention, by mutual consent, for a further period of 2 years ending on 20-4-1976, unless a notice in writing of 3 months, was given by either party to the other. Under clause 12 of this agreement payment for the goods supplied to the Company was to be made by it by not later than 30 days from the date of receipt of the stocks at Karachi depots and branches. Accordingly the creditors from time to time supplied the stocks, but the Company did not pay its dues.
3. It appears from the letter dated 1-4-1975 (Annexure 'B' to the petition) that as per terms of the agreement which entitles the Company only 30 days credit, the Creditors ought to have received from the Company a sum of Rs. 73,00,00 in December, 1974, but they received only Rs. 11.4 lacs.
According to this letter on 1-4-1975 a sum of Rs. 63.4 lacs was outstanding against the Company while the stocks supplied during the month of March, 1975, were of the value of only Rs. 3.1 lacs. Thus an amount of Rs. 60.3 lacs was over due from the Company on the date. The Company in its letter dated 7-4-1975 (Annexure 'C') did not dispute this outstanding amount but raised several other issues. It also appears that prior to the letter dated 1-4-1975, the Creditors by their letter dated 16- 10-1974 (Annexure 'C') had informed the Company that they would charge interest at the rate of 121 per cent. Per annum on the outstanding amount after 25-10-1974. The Company not only acknowledge this letter by its letter dated 21-10-1974 (Annexure'H') but also agreed to pay interest in the following words: "We confirm we are agreeable to payment of interest after the 25th October at the rate of 12 --% per annum as intimated in your letter."
Again the Creditors by their letter dated 5-8-1975 (Annexure 'M') informed the Company that as on July 25, 1975, the amount due to them for goods supplied to the Company was Rs. 62,29,142.36, which reflected more than 100 days outstanding as against agreed period of 30 days from the date of the receipt of the goods as contained in clause 12 of the agreement. The Company by its letter dated 22-9-1975 (Annexure 'C') among other letters replied to this letter and raised several other issues but did not dispute the amount outstanding and the claim that the same was outstanding for more than 100 days.
4. On failure of the Company to pay its debt the Creditors by the letter dated 29-10-1975 (Annexure `W') informed the Company that since it had not met its past due obligations by paying the outstanding, and since there was material default made in the contractual obligation. They were therefore, stopping the further supply of stocks until such time as all the outstanding obligations were brought current with the provisions of the agreement. The Company acknowledged the receipt of the letter by its letter dated 4-11-1975 (Annexure `X') but did not deny therein that it was not liable to the amount claimed from time to time but called upon the Creditors to immediately resume the supply of the goods.
5. Ultimately, the Creditors through their Advocates by their letter dated 12-12-1975. (Annexure `A') served a notice under section 163 of the Companies Act, 1913 (hereinafter called `the Act') on the Company requiring it to pay the sum of Rs. 63,35,511.96 due from it to them on account of the price of the goods supplied and Rs. 3,66,034.77 on account of interest, within the statutory period of 21 days of the receipt of the notice failing that the Company was informed, that the proceedings for winding-up of the Company would be initiated by the Creditors.
This letter was replied by the Company by the letter dated 16-12-1975 (Annexure `EE'). It may be convenient to reproduce this letter in extenso: Registered A. D. 16th December, .1975.
"Messrs Surridge & Beecheno, Finlay House.
1. I. Chundrigar Road, Karachi.
Dear Sirs, Ref. Your Registered A/Due letter No. P-2499/CC/537 dated 12-12-1975 Sub: Notice under section 163 of the Companies Act.
We have today received your notice dated 12th December, 1975, on behalf of your clients, under section 163 of the Companies Act directing as to make payment of the alleged amount due from us.
We have been at pains to request your clients to sit across the table to determine and settle all the outstanding disputes, including the breaches of agreement committed by your clients. By our letter dated 1st December, 1975, we had also requested them to furnish us the particulars and break-up of the products manufactured locally in West Pakistan. Your clients have failed to give us the necessary information in order to avoid their liabilities. We even went to the extent of offering them to buy their future products in cash till all the outstanding disputes were determined and settled.
Your clients, to our knowledge, have taken some steps to assign the agency agreement to some body else, as we have lodged a legitimate claim for the past breaches committed by them. The demand made by your clients and notice under section 163 of the Companies Act. Through your letter referred to above, is without any legal basis. If your clients, in order to circumvent the provisions of the agreement and the breaches committed by them take any uncalled for step against us. We will defend the same, and reserve our right to claim such damages as we may be advised.
We are in the meantime handing over the papers to our legal Advisers for further action on the Notice under section 162.
Yours faithfully, for Bliss & Co. Ltd., (Sd.) General Manager."
It will be seen from the above-quoted letter that the Company has not denied the amount outstanding or disputed the claim though no doubt it raised several other issues therein. There was some other correspondence which I need not refer here for the sake of brevity.
6. Therefore, the Creditors filed the present petition which was allowed to be amended and consequently, the following additional grounds have been raised; "That the respondent's main business was distribution for the petitioner in Pakistan. The said business was terminated on 17-12-1975. Conse--quently the substratum of the respondent is gone.
The respondent has left its valuable premises and is transferring its assets to defraud its creditor."
7. It appears that the Company has also filed a suit in this Court, being Suit No. 48 of 1976, claiming a sum of Rs. 49,17,000 as damages for wrongful termination of the agreement and loss of business, etc. Which I propose to deal with later on.
I may also here mention that subsequently, in the year 1978, the Creditors have also filed a suit, being Suit No. 896 of 1978, against the Company its Directors. Bliss (Sales) Limited which is claimed to an associate concern of the Company and its Directors, wherein the Creditors have claimed a decree for the sum of Rs. 89,31,333.96 and Ether reliefs.
8. I have heard Mr. E. A. Nomani, Advocate for the Creditors and Mr. Afzal Nabi and Mr. Mushir Ahmed Pesh Imam, Advocates for the Company.
9. It is submitted by Mr. E. A. Nomani that since the Company has failed to pay the debt in spite of statutory notice, under section 163 of the Act, the Company is liable to be wound up on this ground alone. He has also submitted that even otherwise it is just and equitable to wind Lip the Company for the substratum of the Company has gone and as it has left its valuable premises and is transferring its assets to defraud its Creditors.
10. As regards the first ground there is no, doubt that the Company has not paid the amount claimed in spite of notice under section 163 of the Act. The amount claimed as would appear from the correspondence was never disputed by the Company. In fact the Company had agreed to pay interest on the outstanding amount. Otherwise what was the necessity to agree to pay interest when there was no provision whatever for payment of interest in the agreement.
11. Now, it is settled law that when there has' been a failure to pay a, debt in accordance with the statutory notice of demand, insolvency is to be presumed though no doubt it may also be proved in other ways. However,1 if any precedent is needed reference may be had to Bengal Luxmi Cotton Mills Ltd. And others v. Mahaluxmi Cotton Mills Ltd, and others AIR 1955 CaL.273Now in the instant case there appears to be no dispute as to the liability of Rs. 63,00,000 (Rs. 63 lacs) on account of stocks supplied but what is claimed is that the Company has filed a suit for recovery of Rs. 49,17,000 and it is, therefore, submitted by Mr. Afzal Nabi and Mr. Mushir Ahmad Pesh Imam learned counsel for the Company that there is a bona fide dispute. As regards the claim made in the suit filed by the Company, even if it is assumed that it would fully succeed in the suit, still there remains an amount of over Rs. 14,00,000 (Rs. 14 lacs) plus interest on Rs. 63,00,000 to be paid by the Company.
It is an admitted fact that though the Company's authorised capital is Rs. 20 lacs, its ,paid-up capital is only 5,00,300. Thus, even if it is assumed that the Company would succeed in its suit for damages and would get a decree for the whole amount, and such a contingency could be taken into consideration in a winding-up petition, still there is no explanation why the Company did not at least pay the amount of over Rs. 14 lacs which is more than 2J times of the paid-up capital of the Company. This is without taking into consideration the amount of interest on Rs. 63 lacs which is also claimed by the Creditors. Apart from the presumption the Company has not placed on record any balance-sheets, Profits and Loss Accounts or Statement of Assets & Liabilities showing what assets it has and whether it is earning any profits or not. The Company has also not stated anywhere what are its assets and liabilities. It was open to the Company by proceeding its Balance-Sheets for the last several years and the Profit & Loss Accounts and/or by some other evidence to show that the Company is otherwise solvent, but no such evidence has been brought on record: I have therefore, to conclude that the Company is unable to pay its debt and therefore insolvent.
12. It is submitted by Mr. Pesh Imam that since the Company and the Creditors have filed separate suits, no order for winding-up of the Company, in such circumstances, may be passed.
13. So far as the suit of the Creditors is concerned it was filed in :October, 1978, about 2 years 9 months after the winding-up petition was filed, obviously in order to save the claim from being defeated by the law of limitation.
14. As regard the suit filed by the Company I have already observed that even if it is assumed that it would succeed and get a decree for the whole amount claimed therein still a claim of over Rs. 14 lacs remains unsatisfied. In my opinion the pendency of this suit should not come in the way of passing an order of winding-up as the Creditors have been able to establish that- the Company is unable to pay its debt and . Is therefore, insolvent. I may here refer to Re Douglas (Griggs)
Engineering Ltd. (1962)1 A E R 498). In this case it was observed by Pennycuick, J. "the prima facie right of the petitioning creditor to a winding-up order based on the judgment of November 14; 1961, was, not displaced merely, by showing that the Company had a disputed claim against the petitioning creditor which was the subject of litigation in other proceedings". In this case reliance was placed on Re Amalgamated Properties of Rhodesia (1913), Ltd. ((1917) 2 Ch. 115), wherein the Court of Appeal upheld the winding-up order made .Notwithstanding that there was current an appeal by the Company against the judgment on which the winding---up order had. Been made.
15. Similar plea was raised in the United Bank Ltd. v. Messrs Pak. Wheat Products Ltd. And others PLD 1970 Lah. 235). In this case Karam Elahi Chauhan, J. While dealing with plea at page 256 of the report observed .As follows: - "Lastly, the learned counsel for the Company argued that since the various suits herein before 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 makin3 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 (underlining' is mine for emphasis) and all that the Court has to see is that the 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 bon4 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 case.".
16. As regards the ground that it is a just and equitable to wind up the Company, the argument advanced by Mr. E. A. Nomani is that the main business of the Company was distribution of the products of the Creditors and with the termination of the. Distribution agreement on 17-12-1975 the substratum has gone. However, in reply to this ground it is pleaded by the Company that it is also doing distribution business on behalf of Alcon Universal Limited and Messrs Bliss Industries Ltd. The Company has in support of this statement filed a certificate from F. R. Merchant & Company, Chartered Accountant, presumably their auditors, stating that the Company last year did business in the amount of Rs. 57,07,957.91. In view of this certificate which was held only yesterday this ground was not further pressed by Mr. E. A. Nomani. He, however still made grievance that the registered office of the Company has been shifted and the valuable tenancy rights have been transferred and that the Company actually sold the stocks which were obtained from the Creditors on credit and has failed to pay the sale proceeds to Creditors.
17. So far as the last point is concerned the reply of the Company, which I find satisfactory, is that the stock was sold in the normal course of business, therefore, this plea does not furnish any additional ground, besides the first ground which I have already dealt with. The other points it is agreed, could be more properly dealt with by the liquidator at appropriate stage of the proceedings.
18. It was further submitted by Mr. Afzal Nabi that the winding. Up petition has been filed in order to coerce the Company to pay the dues without settling the claim of the Company. In this regard the learned counsel relied on Messrs Madhusudhan Gordhandas & Co. v. Mahdu Woolen Industries Private Ltd. (AIR 1971 SC 2600), P. Satyarazu v. Guntur Cotton, Jute & Paper Mills Co. Ltd. (AIR 1925 Mad. 199and Bengal Luxmi Cotton Mills Ltd. And others v. Mahaluximi Cotton Mills Ltd. And others AIR 1955 Cal. 273
19. In the first case it has been laid down by the Indian Supreme Court "where .The debt is bona fide disputed and the defence is substantial one, the Court will not wind up the company. In the second case it was held that "where the object of a petition to wind up of the Company is to bring pressure upon the company in order to make it pay the petitioner cheaply and expeditiously which the Company desires to dispute in the civil Court the petition is an abuse of the process of the Court and should be dismissed". In the third case it is laid down "a winding up order will not be made, if there is a bona fide dispute". There cannot be any quarrel with the proposition laid down in the above-cited cases. In fact following cases were cited before Karam Elahi Chauhan, J. In the United Bank Ltd. v. Messrs Pak. Wheat Products Ltd. And others cases in support of proposition that if there is a. Dispute about the debt or liability then it cannot be said that the Company has become unable to pay its debts, especially, when the aim of the Creditors is simply to put pressure on the Company. Tulsidas Lalubai v. The Bharat Khand Cotton Mill Co. Ltd: (1 L R 1939 Bom. 47), In re: Jambad Coal Syndicate Ltd. (6 Coy. Cas. 397), Coalfieldt of Burma Ltd. v. H. H. Johnson (AIR 1925 Rang. 128), Gairam Singh and others v. Lal Kalyan Mal (AIR 1929 Mad. 265), W. T. Henley's Telegraph Works Co. Ltd., Calcutta v. Gorakpur Electric Co. Ltd. (AIR 1936 All. 840), British India Banking Corpn. Ltd. v. Sylhet Commercial Bank Ltd. (AIR 1949 Assam 45), Muhammad Amin Bros.
Ltd. v. Dominion of India and others (AIR 1952 Cal. 323) and Chellaradh & Co. Ltd. v. M. V. K.
Sundaran and another (26 Coy. Cas. 273). Dealing with the proposition it was observed by Karam Elahee Chauhan, J. At page 250 of the report as follows :- "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 'acts. This was so clarified by Beaman, J., in Tulsidas Lallu Bhai v. The Bharat Khand Cotton Mill Co. Ltd., quoted by both sides before me where the learned Judge held :- If any general rule is to be laid down at ail, 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 indicated 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 judged 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 I have said in this cage, 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 anyone of these grounds. They said in one letter, "You did not lend it to our client." 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 him and that they knew the particulars. Besides that, he tells them this, and 1 think he might reasonably believe that they were playing with him. That is the view I take of the correspon--dence, 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 cobwebs; 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-sensible 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 were 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 Banks 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-Directors 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 "demand have no prima facie merit and are merely a cloak to resist a just demand of the creditors."
20. I have already observed hereinbefore that the claim of the Creditors with regard to the outstanding amount was not disputed in the entire correspondence between the Creditors and the Company. The Company bad raised various other disputes and has now claimed under vaious heads damages amounting to Rs. 49,17,000 in the suit filed by it in this Court. A copy of the plaint that finds place on record of this case shows that the Company has claimed the following amounts as damages; 1.Rs. 18,94,000 on account of compensation for the loss of business on account of mala fide and illegal termination of the distribution agreement.
2.Rs. 8,50,000for the loss suffered on account of frustrated Bulk Bonus Scheme.
3.Rs. 6,73,000for maintain depots, salaries of the staff etc. 4.Rs. 15,00,000 on account of diversion of stocks to Messrs Warner-Lambert.
21. I should not discuss these claims in detail lest it might prejudice the case of either of the party to the suit. However, I would examine them very briefly in the context how far and to what extent prima facie the claims can be said to have been bona fide made.
(i) As regards the amount of Rs. 18,94,000 claimed as damages on account of alleged mala fide and illegal termination of the distribution agree--ment, the claim is made on the basis that the agreement was to expire on 20-4-1978. While the agreement entered into on 21-4-1972 was for 2 years extendible for a further period of 2 years without any further provision. Thus the agreement was to expire on 20-4-1976, but the losses have been claimed up to 20-4-1978. I may however mention here that the Creditors' case is that they had terminated the agreement in accordance with the provisions of clause 14 of the agreement which provides that the same could be terminated immediately by either party on breach of the conditions contained therein, because the Company did not pay the dues within the credit period of 30 days as provided in clause 12 of the agreement or even otherwise.
(ii) So far as the amount of Rs. 8,50,000 is concerned it is claimed on account of frustration bulk bonus scheme. While in paragraph 10 of the plaint the Company has pleaded as follows :- .
"That the plaintiffs have throughout acted in accordance with the terms and conditions of the said agreement and have always kept the defendants informed of the trade difficulties for mutual discussion solution. While the plaintiffs were still trying to settle all outstanding disputes, the defendants unilaterally started Bulk Bonus Scheme on the pretext of reaching new sales target of Rs. 1,80,00,000 (One crore-eighty lakhs). Defendants in starting the said Bulk Bonus Scheme acted against the undertaking given by the defendants representatives to the plaintiffs from time to time."
Now, this claim prima facie is not based on breach of any terms of the distribution agreement but is based on alleged undertaking given by the Creditors representatives to the Company from time to time. But no such undertaking in writing has been brought to my notice.
(iii) Regarding the amount of Rs. 6,73,000 on account of maintaining depots and salaries of the staff etc. The same is claimed in spite of the amount of Rs. 18,94,000. Nowhere it is stated in the plaint that it is in addition to the amount of Rs. 18,94,000.
(iv) With regard to the amount of Rs. 15,00,000 on account of diversion I may state that the Company itself in paragraph 5 of the plaint states as follows :- "That this Distribution Agreement apparently was being implemented till the middle of 1973 when the defendants diverted about 40 % of their locally manufactured products to Messrs Warner- Lambert and others and the plaintiffs continued to be deprived of their legitimate commis--sion on such products in violation of clause (1) of the Distribution Agreement. The defendants contend that there has been no diversion of their products to Messrs Warner-Lambert and that they have only been manufacturing products for Warner-Lambert. The plaintiffs, without prejudice to the submission made above, submit that this action of the defendants was in violation of the agreement and the plaintiffs were made to suffer huge losses while the defendants were themselves earning huge profits by utilising their production, capacity in manu--facturing goods for Messrs Warner-Lambert. The plaintiffs protested against this action of the defendants."
22. The question whether under the agreement the Creditors could not allow the utilization of their plant for the manufacturer of the products of another person is one of interpretation of the agreement dated 21-4-1972.
23. I have only mentioned the nat-re of the claims without giving my findings thereon for those are matters to be decided as issues in the suit but prima facie I am of the opinion,. That on account of these claims the Company cannot have any justification to withhold payment of the price of the stocks supplied and, in any case, there was no justification whatever, for not paying the amount of difference between the amount claimed in this suit filed by the Company and the amount due to the Creditors for which the Creditors have subsequently filed the suit.
24. I may here state that Mr. Posh Imam expressed Company's willing--ness to give an undertaking for the amount of difference but that would not in my opinion be sufficient to withhold the order that I propose to pass just now, till the. Decision of the suit filed by the Company for in any case, prima facie the Company may not have a .Decree beyond the amount claimed in its suit.
25. I, therefore, allow this petition and direct the Company be wound-1 up. The Official Assignee shall be the liquidator to wind up the Company.
26. Mr. Pesh Imam and Mr. Afzal Nabi, Advocates request that the operation of this order may be stayed to enable the Company to file appear against this order. Though no provision in the Act has been bought to m notice, however, Mr. Afzal Nabi relies on Order XLI, rule 5, sub-rule (2) read with section 141, Cr. P. C. 1 think it would be appropriate, if I stay the operation of this order for 10 days.
According1Y I stay the operation of this) order for 10 days.