SHAHID KARIM, J.---This is a petition under section 305 read with section 314 of the Companies Ordinance, 1984 ("the Ordinance, 1984") for seeking a compulsory winding up of the respondent No.1 Company, Messrs JDW Sugar Mills Ltd. (JDW).
2. The relevant facts are that the petitioner-Company claims to be a creditor of JDW and the primary basis for seeking a winding up of JDW is that JDW is unable to pay its debts. The facts have been brought forth in the petition and it is not necessary to refer in greater detail to the facts forming the basis of this petition. In a nub, the petitioner company alleges that JDW had agreed to supply molasses (used by the petitioner for the production of industrial alcohol) at the agreed rate ranging from Rs.2,000/- to Rs.3,000/- per metric ton. Under the said arrangement, JDW supplied 25,655 MT molasses to the petitioner company and the particulars have been given in paragraph 4(a) of the petition. The petition further alleges that the petitioner company paid the amount of. Rs.135,989,861/- to JDW as price of the molasses supplied by it and gave payment orders/cheques for further supply of the molasses to the petitioner company. Further that a net amount of Rs.72,755,400/- was paid by the petitioner company to JDW as advance for the supply of molasses during the season 2007-08. JDW, according to the contents of the petition was under an obligation to supply 24,251.80 MT of molasses during the crushing season 2007-08 which obligation went a begging and the supply of molasses was not made by the JDW. A promise was made to supply the above quantity of molasses during the next crushing season of 2008-
09. However, the supply of the molasses never came about and thus JDW, according to the learned counsel for the petitioner company, fell in default of its obligations and is, therefore, liable to be wound up for its inability to pay its debts.
3. JDW has denied its liability set up in the petition by the petitioner company. The entire facts have been controverted in great detail by JDW which has retorted by setting up a counter claim against the petitioner company. It has been stated in the reply that a civil suit is pending against JDW for the recovery of the alleged amounts which are the subject matter of the instant petition in which evidence is due to be recorded, pro and contra. In a word, JDW denies its inability to pay its debts as also that any amount is due to the petitioner company.
4. On the threshold, it may be iterated that from the contents of the petition it seems that the case is not one of a certain amount to be due to the petitioner company. The case set up by the petitioner company is evidently under the Sales of Goods Act for the supply of the molasses allegedly contracted to be supplied by JDW to the petitioner company. This is evident from a reading of the contents of the petition and in particular paragraph 3(f) of the petition which seeks the supply of 24,251.80 MT of molasses and the payment of a sum of Rs.169.762.600/- by way of an alternate relief.
5. It is also not the case of the petitioner company that JDW is insolvent or is commercially unviable. The petition does not mention or allege that operations of JDW have come to a halt and it is not a running commercial concern. It is also common ground between the parties that counter suits are pending before the civil court and having been filed by both the parties against each other. This has been brought forth in the contents of the petition as also the reply filed by JDW. It is also admitted on all hands that the petitioner company has filed a suit for the recovery of the alleged amount which suit is pending before the civil court for adjudication and evidence is in the process of being recorded.
6. From the cluster of case law that has been cited by the learned counsel for the parties as also other precedents on the subject and which authoritatively lay down the principles governing such matters, it can be gleaned that in matters seeking winding up order on the ground of inability to pay debts, such an order cannot be passed in case the respondent-company shows bona fide dispute to exist and that it is a commercially solvent entity. These are the key factors which determine the outcome of a winding up petition on the basis of inability to pay debts.
7. In Hala Spinning Mills Ltd. v. International Finance Corporation and another (2002 SCMR 450), the Supreme Court of Pakistan held as under: "...It is to be observed that whenever a case of Winding-up of a running company is placed before a Company Judge or the Appellate court they should examine such matter differently other than a company which is not in a running condition. In this behalf efforts should be made by the judicial forums to adopt such a device so the project may remain continue running commercially so its financial liabilities start reducing gradually..."
"18...It may be noted that whenever proceedings under section 305 of the Ordinance are instituted against a company same are normally defended on the pretext that there is bona fide dispute with regard to debts outstanding against it, therefore, winding up order cannot be passed against it. This Court in the case of Messrs Sindh Glass Industries Ltd., Karachi v. Messrs National Development Finance Corporation and 2 others (PLD 1996 SC 601) while dealing with the question relating to bona fide dispute between the parries in a winding up case referred to the following extract from the Palmer's Company Law and Pennington in Company Law."
8. It is clear from a reading of Hala Spinning Mills case, reproduced above, that in case there is a bona fide dispute with regard to debts outstanding against it, winding up order cannot be passed. In The Pakistan Industrial Credit and Investment Corporation Limited v. Messrs Electric Lamp Manufacturers of Pakistan Limited (2001 MLD 1885) the same principle was reiterated by the Karachi High Court and the winding up order was passed only after it was established that the respondent-company had failed to show that a bona fide dispute existed in relation to the amount claimed by the creditor.
9. Faysal Bank Limited through Attorney v. Iram Ghee Mills (Pvt.) Ltd. through Chief Executive (2006 CLD 227) was referred to by the learned counsel for the petitioner. However, in this case, the order for winding up was passed only after it was concluded that the respondent-company was commercially insolvent and was unable to pay its debts. It was further held that a simple denial of liability in an evasive manner would nor give rise to a bona fide dispute. Messrs Central Cotton Mills Ltd. v. Habib Bank Limited (2004 SCMR 1443) was a case in which the winding up order was passed after it was clear that the respondent-company was not in a running condition nor was it a commercially viable entity as it had failed to show profits for me purpose of discharging its debts/loans.
10. The basic judgment which lays down the guiding principles to be followed in such matters is Messrs Adage.
Advertising Lahore v. Messrs Shezan International Ltd. Lahore (1970 SCMR 184) and the following observations in this regard: "...In all cases where an application under section 162 of the Companies Act is based on the allegation that the respondent-company is unable to pay its debt, the question always arises whether the respondent-company is not in a position to pay its debt and whether the Company concerned has a bona fide dispute with the petitioner who has come to the Court. This point was considered at length by the learned Judges of the High Court and on the facts of the present case they have come to the conclusion that there is a bona fide dispute between the parties about the amount due to the petitioner from the respondent..."
"...It is in evidence that the respondent-company is financially sound. In our 'opinion, the provisions of the Companies Act are not vehicle of oppression. In these circumstances, the High Court was perfectly justified in refusing to exercise its discretion to wind up the respondent-company."
11. The above said judgment was the harbinger for the subsequent jurisprudence development over the years.
The conclusion at the heart of the Messrs Adage Advertising is the observation by the Supreme Court of Pakistan that if a company is financially sound, the provisions of Companies Ordinance cannot be used as vehicle of oppression. Also, in case a bona fide dispute has been set up, there is no cause for ordering the winding up of a company and the parties must be relegated to the civil court for the determination of their rights.
12. Messrs Platinum Insurance Co. Ltd. Karachi v. Daewoo Corporation, Sheikhupura (PLD 1999 SC 1) is an authority for the proposition that if a debtor-company was merely unable to pay its debts but was otherwise commercially solvent, then the normal course available to a creditor was a suit for the recovery of the amount and not a petition for winding up. Again Messrs Khyber Textile Mills Ltd v. Allied Textile Mills Ltd. (1989 CLC 1167) settled the principles that the Object of a winding up petition was to find out the solvency or otherwise of a company and not to settle claims of creditors.
13. Applying the facts of the present case to the rule settled by respectable authority referred to above viz. the existence of a bona fide dispute and the solvency of the JDW, it is clear that this petition must fail on both these counts. It is not denied that the petitioner-company has already instituted a civil suit for the recovery of the amount in dispute which was filed prior to the filing of the instant petition. Thus, by its own showing, the petitioner-company concedes that there is a bona fide dispute to be settled by the civil court and is for the recovery of an amount. Also there are suits filed by JDW against the petitioner-company which too are pending adjudication. The petitioner-company does not take issue with the fact that the JDW is commercially sound and solvent company and this is also evident from the contents of annual report for the year ended 30 September, 2015 and the directors' report annexed with the annual report according to which the profit before tax of JDW is 2,045 Millions. Thus, no case has been made out by the petitioner-company for proceeding with the instant petition and for ordering the winding up of JDW.
14. In view of the above, the instant petition is without merit and is, therefore, dismissed.