SHAHID KARIM, J.---This is a petition for winding up of respondent No.1 Messrs Essem Hotels (Pvt.) Ltd. (Essem) brought under sections 301, 302(1)(b)(c) read with sections 5 and 6 of the Companies Act, 2017.
2. The facts may be stated shortly . Essem was incorporated and set up to develop a five-star hotel in Islamabad as brought forth in clause III of the Memorandum of Association of the company . It was a special purpose vehicle created to achieve a sole object. Essem had an, authorized share capital of Rs.120,000,000/- divided into 1,200,000 ordinary shares of Rs.100 each. At the time of the filing of the petition, the paid up capital of the company stood at Rs. 115,080.300/-. The pattern of shareholding has been brought forth in paragraph 4 of the petition.
3. As adumbrated, Essem was incorporat ed as a special purpose vehicle to develop a five-star hotel at a property measuring 22222.22 square yards, Sector F-5/1, Islamabad. The plot was acquired by Essem from Capital Development Authority (CDA) vide allotment letter dated 30.09.1993 on 33 years lease extendable for two subsequent years for 33 years each. Subsequent to the allotment letter , a lease agreement dated 11.11.2004 was also executed between Essem and CDA . For the purpose of raising funds to achieve the sole object, Essem availed a Syndicated Long Term finance facility from respondents Nos.1 1 to 17. Initially , the Syndicated loan facility was for Rs.750.00 Million which was subsequently enhanced to Rs.900.00 Million and National Bank of Pakistan was appointed as Syndicate Agent for the benefit of all the financiers under the terms of Supplemental Syndicate Agency Agreement dated 06.05.2005. For the actual construction of the hotel project, Essem engaged the Fizza Developers and entered into a contract on 21.01.2008 for the construction and development of five-star hotel, shopping mall structure including dome and drive way in Islamabad for a lump sum amount of Rs.2,550,000,000/-.
Pursuant to the contract, the petitioner furnished a mobilization advance guarantee of 17.01.2008 for Rs.320,000.000/- through Bank of Punjab in favour of Essem. The amount of mobilization advance was recoverable from the running bills to be submitted by the petitioner under the contract. Upon commencement of execution of works, the petitioner submitted two running bills ag4inst work done. No payment was made against those bills as a result of which dispute arose between Fizza Developers and Essem. To cut the long story short, upon the relationship being strained durin g the course of the execution of the contract, the matter was referred to arbitration proceedings and two arbitrators were appointed, one nominated by each side. A split decision was given in the month of August, 2018 and accordingly vide letter dated 31.8.2018, the arbitrators served a notice of disagreement upon the Umpire and the parties under the provisions of the Arbitration Act, 1940, requested the Umpire to enter upon the matter and to issue a final award. The Umpire issued the award on 02.01.2019 in which he upheld the award of Karamat Ullah Chaudhry . The award was filed with this Court for making the rule of Court but was declined on the ground of territorial jurisdiction. A revision petition is pending against that order .
Additionally , Fizza Developers has filed three suits for recovery against Essem which are pending at various Courts and the details of which have been given in paragraph 11. The arbitral award was for an amount of Rs.713,456,500/-.
4. The primary ground for seeking the compulsory winding up of Essem is the making of the award in the Fizza Developers favour . Secondly , reliance has been placed on the following provisions of section 301 of the Act, 2017.
"301. Circumstances in which a company may be wound up by Court. ---A company may be wound up by the Court-- (a)...
(b)...
(c)...
(d) if the company has made a default in filing with the registrar its financial statements or annual returns for immediately preceding two consecutive financial years: or"
5. The making of the award is undisputed between the parties. However , learned counsel for the respondents stated that the argument on this basis raised by the petitioner could not prosper because the award had merely been announced by the Umpire and was yet to be made rule of Court so as to crystallize into a decree. There is no cavil with the proposition that merely the making of an award does not give rise to a cause of action for seeking the winding up of a company as this fact in itself does not imply that the company was financially unsound and was unable to pay its debts. The referral of the matter to the arbitrators merely shows that the parties were at dispute regarding certain payments allegedly owed to the petitioner and for which the reference was made to the arbitrators. As held in Messrs United Ethanol Industries Ltd. v. Messrs JDW Sugar Mills Ltd. through Chief Executive and another (2020 CLD 945), the provisions of the Companies Ordinance, 1984 could not be used as a vehicle of oppression and in case a bona fide dispute had been setup, there existed no cause for ordering winding up and the parties must be relegated to civil court for determination of respective rights. Fizza Developers has precisely done this firstly by approaching the arbitrators for the resolution of one of its disputes and in other case by filing their suits before the courts of plena ry jurisdiction. In none of these cases has a decree been passed by the court of competent jurisdiction.
6. There is no doubt that a winding up petition can be based on an award which has a special significance. It is equally settled that the court does not enforce the award but merely goes into the question as to whether a debt is presently payable and to find whether the dispute raised on behalf of the company is prima facie a bona fide one or not. Also that the award is relied upon by way of an additional piece of evidence of the debt due to the party .
(Dalhousie Jute Co. Ltd. v . Mulehand Lakshmi Chand (1983 53 CompCas 607 Cal.)
7. The learned counsel for Fizza Developers also relied upon a judgment of the Sindh High Court reported as Hafiz Muhammad Abdullah and 5 others v. Hafiz Muhammad Adnan and 3 others (2018 CLC 827) for the proposition regarding pendency of an award and its binding force even if the award has not yet been made a rule of court.
However , this precedent was not with reference to winding up proceedings and cannot be relied upon to seek the winding up of a company on that basis. Yet section 302(1)(c) provides that: "301(1)(c) if it is proved to the satisfact ion of the Court that the company is unable to pay its debts, and, in determining whether a company is unab le to pay its debts, the Court shall take into account the contingent and prospective liabilities of the company ."
8. Undeniably , a decree has been passed against Essem in COS No. 169 of 2011 in favour of HBL, one of its creditors. Respondent No. 13 has also filed a suit for recovery (COS No.2 of 2011) which is pending before this Court. This coupled with the passing of the award against Essem makes it a case within the mischief of the above provision. The decree already passed against Essem and cases for recovery of debts filed by the creditors is enough proof to satisfy this Court regarding the contingent and prospective liabilit ies of Essem and its inability to pay its debts.
9. The challenge based on section 301(d) is more valid and potent and as set out above, the provision makes a company liable to be wound up if it has made the default in filing with the registrar its financial statements or annual returns for immediately preceding two consecutive financial years. This petition was filed in February , 2019. With regards to these objections, the SECP has this to say in its reply: "(g) In response to the corresponding para, it is submitted that the latest Annual Audited Accounts filed with the office of Respondent No.10/Answering Respondent are for the year ended on 30-06-2010, which are attached as (Annexure-M)."
10. Therefore, admittedly , according to the SECP which is the regulator in such matters, the last annual audited accounts/financial statements were filed for the year ended on 30.06.2010. It makes it evident that till the filing of the present petition, no financial stateme nts had been filed for the previous years. Further , in reply to ground the following statement has been made by SECP: "It is also submitted that the respondent No. 1 Company has submitted its Annual Returns for the year 2018 (For-A made up to 26-10-2018) and Form-29 dated 26-10-2018). Form-29 is attached as (Annexure-N)."
11. Thus, according to the reply reproduced above, the financial statements for the years 2015-18 were submitted on 7.8.2019 i.e. after the filing of the present petition. However , the learned counsel for SECP was quick to point out that Essem has not yet filed financial statements for the year 2011-14. Notwithstanding the above, the learned counsel for Essem has not placed on record these documents so as to compel this Court to look at them and to form an opinion. Secondly these docume nts have been sought to be placed on record subsequent to the filing of the petition and is a clear attempt to divert the course of this petition on the misplaced notion that Essem is in compliance of its statutory obligations.
12. The learned counsel for Fizza Developers also referred to two paragraphs from the audited accounts of 2010 which provide that: "1. The Company has ceased construction work during the year on account of reasons as given in note 1.1 to the financial statements. The ability of the Company to continue as a going concern is dependent on the ability of the management to succeed in the completion of the construction project and negotiations with bankers for restructuring of existing debts. We have not been furnished evidence in support of the management's assertion that they shall succeed in their efforts. If the management do not succeed in their effort s and the sponsor shareholders do not provide the required financial support, the going concern basis would not be valid and adjustments would have to be made for any gain or loss arising on realization of the Company's assets and settlement of liabilities." "c) due to the significance of the matte rs stated above in our opinion and to the best of our information and according to the explanations given to us, the balance sheet, profit and loss account, statement of comprehensive income, cash flow statement and statement of changes in equity together with the notes forming part thereof do not conform with approved accounting standards as applicable in Pakistan, and, do not give the information required by the Companies Ordinance, 1984, in the manner so required and respectively do not give a true and fair view of the state of the Company's affairs as at June 30, 2010 and of the loss, its comprehensive loss, cash flows and changes in equity for the year then ended."
13. Thus, according to Essem's own showing, the company had ceased construction work during the year on account of reasons as given in Note 1.1. It was further stated by the auditors of the company that the ability of the company to continue as a going concern was dependent on the ability of the management to succeed in the completion of the construction as well as negotiations with the bankers for restructuring of existing debts. Further the auditors pointed out that they had not been furnished evidence in support of the management's assertion that they shall succeed in their efforts. Till this day, no evidence has been brought on record of this Court as well which would show that the management of Essem had succeeded in fulfilling the twin conditions pointed out in paragraph 1 by the auditors. Therefore, it seems that there is no likelihood for Essem to come out of its financial predicament and to complete the project for which it had been set up. On this basis, it is expedient that Essem be wound up.
Apart from this, the winding up order is justified on the basis of breach of the provisions of section 301(d) of the Act, 2017 as admittedly Essem has failed in its ,statutory obligation of filing financial statements for immediately preceding two consecutive financial years. Furthermore, one of the grounds taken in the petition is that the business operations of Essem have remained suspended during the last decade. This assertion has gone unrebutted in the reply and no material has been placed on record to show that Essem is actively pursuing its goal as spelt out in its Articles and is a viable business concern capable of executing the project for which it was conceived and incorporated. This leads to the ineluctable conclusion that the circumstance mentioned in section 301(i) is triggered and this Court is of the opinion that it is just and equitable that Essem be wound up.
14. The learned counsel for SECP submitted that although the financial statements have been submitted to SECP belatedly , they have been placed on record and this does not signify that SECP has condoned the act of Essem in being grossly negligent in fulfilling its obligations.
15. The learned counsel for the respondent raised a threshold objection regarding maintainability of this petition on the basis of section 304, which so far as relevant, provides that: "304. Provisions as to applications for winding up.---An application to the Court for the winding up of a company shall be by petition presented, subject to the provisions of this section, either by the company , or by any creditor or creditors (including any contingent or prospective creditor or creditors), or by any contributory or contributories, or by all or any of the aforesaid parties, together or separately or by the registrar or by the Commission or by a person authorised by the Commission in that behalf:"
16. According to the learned counsel, the basic objection is that Pizza Developers is not covered by any of the persons or entities envisaged in section 304 to bring a. petition for winding up. Suffice to say that on the basis of the facts above. Fizza Developers is a creditor or at least a prospective creditor and it cannot be denied that one of the basis of this petition is the inability of Essem to pay it debts due to Fizza Developers. Even if no decree had been passed in favour of Fizza Developers, an independent claim has been made in this petition for the payment of the debt due to the petitioner and inability of Essem to do so. The execution of the contract between Fizza Developers and Essem has not been denied by Essem and so it cannot be alleged that Fizza Developers is neither a creditor nor a prospective creditor and is constricted by section 301 from bringing this petition. Learned counsel for the respondent-Essem also argued with vehemence that a lesser order may be passed and the drastic course of winding up should not be resorted to. This is not an argument which has any basis in law and if from the facts and circumstances of the case, it is apparent that a company is liable to be woun d up, there is no impediment in the way of the Court to do so.
17. In view of the above, this petition is allowed. Consequently , Essem is ordered to be wound up.
16(sic.) Mr. Adnan Tariq, Advocate, Galaxy Chambers, 1 Turner Road, Lahore (0300-0189189) is appointed as Official Liquidator . The official liquidator shall forthwith start the performance of his duties and functions in relation to the respondent-company and shall continue to perform such duties and functions till the conclusion of the winding -up proceedings. The security to be furnished by the official liquidator in terms of section 315(8) of the Companies Act, 2017 is hereby dispensed with. All the consequences enumerated in the Act, 2017 which follow the order of the winding up of a company shall be applicable to the instant case as well. The intimation of the winding up orders shall be sent to the Official Liquidator and the Registrar . The remuneration of the Official Liquidator shall be settled on the next date of hearing.
17(sic.) In terms of section 320 of the Act, 2017 there shall be made out and submitted to the official liquidator a statement as to the affairs of the compa ny containing the particulars mentioned in the said section. The official liquidator shall, in terms of section 321 of the Act. 2017, submit a preliminary report to the Court with regard to the matters spelt out in section 321 of the Act, 2017.
18. Adjourned to 28.01.2021.