Shahid Karim, J. This judgment will also decide C.O No.29 of 2013.
2. The litigation in these two petitions seeks the winding up of two companies filed by Summit Bank Ltd. (Summit) and MCB Bank Ltd. (MCB) who claim to be the creditors of these companies viz. Tanveer Cotton Mills Ltd.
("Tanveer Cotton") and Tanveer Spinning and Weaving Mills Ltd. ("Tanveer Spinning") . These petitions were filed under the repealed Companies Ordinance, 1984. The only ground urged in these petitions is that the companies are unable to pay their debts and their operations are unsustainable as also it is just and equitable for these companies to be wound up.
Facts in C.O No.28 of 2013:
3. The MCB and Summit are banking companies and have extended finance facilities to Tanveer Cotton and Tanveer Spinning. Tanveer Cotton was established as a composite cotton mill and dyeing of different varieties of yarn. In 2006, Tanveer Cotton approached a syndicate of banks including Summit Bank Ltd. and MCB Bank Ltd. for finance facility which was extended throug h a Syndicated Term Finance facility of Rs.400,000,000/- and Syndicated Term Finance Agreement dated 7.9.2006 was executed. Through a novation agreement dated 28.12.2006 and supplemental Syndicated Term Finance Agreement of the same date, the exposure of MCB was reduced to the tune of Rs.125,000,000/-. Various security documents were executed, the details of which have been given in the contents of the petition. Subsequently , the original finance facilities extended to Tanveer Cotton were re-scheduled and restructured on 15.10.2009. Simply put, the case of the Summit Bank and MCB Bank is that there is a substantial amount outstanding against Tanveer Cotton. The amount which is claimed to be outstanding and is sought to be recovered by MCB is to the tune of Rs.199,875,521.85 (which keeps increasing exponentially on account of default by Tanveer Cotton) and in respect of Summit Bank the amount due is Rs.423,226,628.36. A notice of demand was served on Tanveer Cotton on 18.5.2013 in terms of section 306 of the repealed Ordinance. A similar notice of demand was served by Summit as well on 8.5.2013. Reliance has been placed on the directors' report for the year ending on 30.06.2012, auditors report dated 31.8.2012 and the serge report dated 8.8.2009.
Subsequently , C.M No.1 of 2020 was filed by the petitioners to place on record documents which are events which took place after the filing of the petitions. Firstly , letter dated 5.4.2018 has been relied upon by which Tanveer Cotton has offered to settle the liabilities. Audited accounts of Tanveer Cotton for the years 2015-2017 and letter dated 11.3.2020 by SECP confirming that audited accounts for the year 2013 having been filed by Tanveer Cotton, have also been made part of the record through this application.
4. Summit filed a recovery suit No.47 of 2014 before the Banking Court which was decreed on 7.2.2019. An appeal to the Division Bench of this Court RFA No.14559 of 2019 is pending adjudication. Similarly , MCB filed a suit of recovery in the banking jurisdiction which is pending adjudication and in which leave to appeal has been granted by the Sindh High Court on 02.1 1.2016.
Facts in C.O No.29 of 2013:
5. This petition entails similar facts. Tanveer Spinning availed finance facilities from Summit Bank Ltd. for the year 2007 comprising Running finance facility of Rs.45 Million, Cash finance facility (FIM) of Rs.250 Million, letter of credit for Rs.250 Million and letter of guarantee of Rs.12.34 Million. The overall amount of finance availed by Tanveer Spinning comes to Rs.307.348 Million. In 2010, Tanveer Spinning again applied to Summit for the enhancement and restructuring of existing finance facilities which was extended to Rs.573.234 Million. The letter of acceptance of offer for restructuring of finance facilities was executed on 29.05.2012. The facilities were secured by the execution of various security documents, the details of which have been given in the contents of the petition.
Similarly , in 2004, PICIC (which merged in NIB and later with MCB Bank Ltd.) extended Term Finance Facility to Tanveer Spinning. Simultaneously , various other finance facilities were extended to Tanveer Spinning which included Cash Finance of Rs.100 Million, Running Finance of Rs.1.5 Million and letter of guarantee of Rs.1.5million. The finance facilities were renewed, restructured and enhanced but Tanveer Spinning failed to fulfill its contractual obligations and committed a default of Rs.72,809,501.67 as principa l and Rs.32,316,792.44 towards markup. Once again, Tanveer Spinning applied to MCB Bank for restructuring of the existing facilities which request was considered and a facility offer letter dated 15.6.2009 was delivered to Tanveer Spinning. The restructuring agreement was executed on 15.6.2009. For the third time, Tanveer Spinning made a request for rescheduling and restructuring of the finance facilities. The request of Tanveer Spinning was again approved by MCB vide facility offer letter dated 2.11.2010 whose terms were accepted by the competent officer on behalf of Tanveer Spinning.
Finance agreement dated 21.9.2010 was executed between the parties. Thus, cumulatively Tanveer Spinning is the defaulter to Summit for a sum of Rs.395,590,071.31 against funded liability while Rs.22,559,831.00 as a contingent liability as on 17.6.2013. Similarly , it is alleged to be a defaulter of MCB for a sum of Rs.439,737,927.90 as on 31.3.2013 under the restructuring agreement. The notices of demand were also served on Tanveer Spinning as they were served on Tanveer Cotton on 18.5.2013 which were not responded nor were the allegations denied.
Determination:
6. As adumbrated, the primary and only ground for seeking the winding up of Tanveer Cotton and Tanveer Spinning is that these companies have fallen in default of their contractual obligations towards their creditors and are unable to pay their debts. As a prefatory , it will be useful to refer to the rule vouched by respectable authority which governs matters of winding up of a company where the allegation is that the company is unable to pay its debts.
The principles have recently been brought out in Messrs United Ethanol Industries Ltd. v. Messrs JDW Sugar Mills Ltd. ( 2020 CLD 945 ) and the following observations may pertinently be reproduced:: "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 "M/s Adage Advertising" is the observation by the Supreme Court of Pakistan that if a company is financially sound, the provisi ons 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. M/s 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 M/s 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."
7. Similarly , in Saudi Pak Ltd. v. Chenab (C.O No.43 of 2011) the legal principles which must guide the courts have been culled out from the precedents of superior courts and encapsulated in the following words: "7. On the threshold, the rule relating to the manner in which a winding up petition is to be dealt with if it has been brought on the ground that a company is unable to pay its debts must be alluded to. The rule has been vouched by respectable authority and states that the unwillingness to pay a debt is not to be equated with inability to pay debts.
Inability to pay debt would presuppose that a company is commercially insolvent and its future financial viability is in serious doubt on the basis of documents and other material brought forth on record. Unwillingness to pay debt will take the case in the realm of a bona fide dispute to have been raised by the company based on substantial grounds as to the entitlement of the petitioner to the amount which has been demanded and on the basis of which a winding up order has been sought. Thus, if a company puts forth a good faith defence and disputes the amount to be due from it on substantial grounds, a winding up petition cannot be used as a tool for the recovery of an amount in case of which the normal remedy available to a petitioner would be filing a suit for recovery and not use the provisions of section 305 and 306 of the ordinance as a coercive measure to extract an amount in which a dispute is shown to exist. It is on the touchstone of this principle that the facts will have to be analyzed in the instant case."
"10. Significantly , the Auditors have drawn the attention of the members to the fact that Chenab had incurred huge operating losses and its current liabilities exceeded its current assets by Rs.3,624.179 Million. Therefore, the annual report 2010 paints a bleak picture of the financial viability and commercial health of Chenab on the basis of which Saudi Pak contends that there is no prospect of the company coming out of its financial crisis or fulfilling its current and future liabilities and ought to be wound up. The facts mentioned in the annual report 2010 lend credence to the statement made by learned counsel for Saudi Pak."
8. In this case, the entire reliance of the Summit and MCB is on the auditors reports and the observations in the audited accounts starting from the year 2012 and stretching into the year 2018. There is a common thread running through these reports and which will be alluded to by reference to these reports . In respect of continuous loss argument, Summit and MCB relied upon audited accounts of the companies which clearly depict that the companies are suffering a continuous loss since 2008. The audited accounts for the years 2008 to 2018 have been placed on record and it is apparent from their perusal that both the companies are accumulating losses over the years and the negative equity of these companies has continued to accrue through this period. There is a consistent observation of the auditors regarding the current liabilities exceeding the current assets and the accumulated losses by the two companies to accrue over the years. A chart prepared by the petitioners (and not denied by either Tanveer Cotton or Tanveer Spinning) would give a bird's eye view of the accumulated losses which the companies have suf fered starting from the year 2012 till date: Year Loss Suf fered Accumulated Loss Negative Equity Current Liabilities exceed Current Assets by 2012 Rs.191,100,732/- (@Page 174 of the main file)Rs.206,045,303/- (@Page 174 of the main file)Rs.26,045,303/- (@Page 174 of the main file)Rs.494,068,695/- (@Page of the main file)
2013 (filed on 01.12.2020 (@ Page 139 of Amendment Reply) 65.163 Million (@Page 140 of Amended Reply) 624.814 Million (@Page 140 of Amended Reply)
2014 Rs.125.914 Million (@ Page 1 1 of C.M. No.1/2020)Rs.667.321 Million (@ Page 1 1 of C.M.
No.1/2020)Rs.667.321 Million (@ Page 11 of C.M.
No.1/2020)
2015 Rs.85.315 Million Rs.21 1.228 Million Rs.31.228 Million (@ Page 1 1 of C.M.
No.1/2020)Rs.745.176 Million (@ Page 11 of C.M. No.)
2016 Rs.49.222 Million (@ Page 34 of C.M. No.1/2020)Rs.379.442 Million (@ Page 34 of C.M. No.1/2020)Rs.199.442 Million (@ Page 34 of C.M. No.1/2020)Rs.967.656 Million (@ Page 34 of C.M.
No.1/2020)
2017 Rs.106.823 Million (@ Page 58 of C.M. No.1/2020)Rs.486.265 Million (@ Page 58 of C.M. No.1/2020)Rs.306.265 Million (@ Page 58 of C.M. No.1/2020)Rs.1099.735 Million (@ Page 58 of C.M.
No.1/2020)
2018 (filed on 01.12.2020 @ Pg. 139 of Amended Reply 454.224 Million (@ Pg. 82 of Amended Reply274.224 Million (@ Pg. 82 of Amended Reply)1058.948 Million (@ Page 82 of Amended Reply)
9. When these petitions were filed, the entire reliance was placed on the directors report (in the case of Tanveer Cotton) for the year ended 30th June, 2012 which makes the following observations: "The company made huge losses this year due to exceptional inventory losses on stocks of cotton and yarn losses of fall in cotton prices by more than fifty percent. Such losses were encountered by all textile mills holding stocks.
As a result company was unable to make repayment to banks. Company management is under rescheduling negotiation with bank. Although apparently going concern question has been raised, but the management of the company has alternate financing arrangement with lending entities to secure the company's operation. We assure smooth running of the Company's operations in future."
10. In the auditors report for the same year, the auditors had the following observ ations to make in respect of the viability of Tanveer Cotton: "a) the company has incurred a gross loss of Rs.28,165,670/- and net loss of Rs.191,100,732/- during the year ended June 30, 2012 and as application for leave to contest that date, accumulated losses comes to Rs.206,045,303/- resulting in negative equity of Rs.26,045,303/-. Further , its current liabilities exceed its current assets by Rs.494,068,695. These factors, alongwith matter mentioned in paragraph "b" below , indicate a material uncertainty which may cast significant doubt on the company's ability to continue as a going concern and therefore it may be unable to realize its assets and discharge its liabilities in the normal course of business. The financial statements, however , do not disclose this fact and any adjustment to that effect."
Interestingly , except for the amounts, the exact same observations found mention in the Directors' report of Tanveer Spinning for the year ended 30th June, 2012.
11. Three factors have been flagged in the auditors report, firstly that the companies had incurred a gross loss of Rs.28,165,670/- during the year ended June, 2012 and the accumulated losses come to Rs.206,045,303/- which resulted in negative equity of Rs.26,045,303/-. Secondly , the current liabilities exceed the current assets by Rs.494,068,695/-. Surely and more significantly the auditors cast a doubt on the companies' ability to continue as a going concern and that they may be unable to realize their assets and discharge their liability in the normal course of business. Further , in the auditors report, it was specifically mentioned that in the opinion of the auditors, 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 did not conform with approved accounting standard as applicable in Pakistan. It is not necessary to refer to the auditors report for the following years which reflect a similar picture. It is also not necessary to allude to the auditors report for Tanveer Spinning since apart from difference in amounts, similar observations have been made by the auditors in respect of Tanveer Spinning as well.
12. The annual report 2019 for Tanveer Cotton as well as Tanveer Spinning has been filed with the amended reply filed by these companies. It is accompanied by independent auditors report which paints a picture not dissimilar to the auditors report for the year 2012. Therefore, no significant change has occurred either in the current liabilities of the companies, in the position of their negative equities as well as the aspect of current liabilities exceeding the current assets which compromises the ability of these companies to continue as a going concern. Firstly , it may be stated that the financial statements and accounts of a company are prepared by the internal auditors of the company itself. The external auditors merely review those accounts and financial statements and make a report as independent auditors to the Board of Directors and Members of the company . In respect of statement of financial position as at June 30, 2019, the auditors gave their qualified opinion to the following ef fect: "Long term financing amounting to Rs.525.198 million (2018: Rs.515.302 million), short term borrowings amounting to Rs.478.197 million (2018: Rs.474.863 million) and deferred markup amounting to Rs.457.340 million (2018: Restated Rs.407.524 million) remains unconfirmed / un-reconciled in the absence of direct balance confirmation and relevant information.
The Company is in litigation with various banks that have extended long and short term financing to the company and against some cases, court has granted decree. The matter is still under litigation as the company has filed appeals there against. Keeping this in view, the company has classified the loan and accrued markup amount in non-current liabilities instead of current liabilities which in our opinion is not in accordance with the requirements of paragraph 74 of IAS 1 "Presentation of Financial Statements". Had the correct classification been made in these financial statements, the long term financing and deferred markup would have been decreased by Rs.525.198 million and Rs.457.340 million respectively while short term borrowings, accrued markup and current portion of long term financing would have been increased by Rs.9.896 million, Rs.457.340 million and Rs.515.302 million, respectively ."
13. Thus, the auditors gave a qualified opinion on the financial statements prepared by the companies in which true depiction regarding finance facilities towards the creditor banks was brought forth. While forming a qualified opinion, it was stated by the auditors that the long term financing, short term borrow ing as well as deferred markup remained unconfirmed/ un-reconciled in the absence of direct balance confirmation and relevant information. This only means that these figures were not confirmed by creditor banks nor were they verified by the auditors from their own calculations. This led the auditors into giving a qualified opinion on this aspect of the matter . Further , the auditors referred to the litigation with the creditor banks and the decrees which had been issued by the court of competent jurisdiction. It took exception to the act of the companies which had classified the loan and accrued markup in non-current liabilities instead of current liabilities and it was opined by the auditors that this was not in accord with the requirements of internatio nal standards of auditing. Clearly , the companies thought that they should be part of non-current liabilities but the auditors were of a different opinion and cited the relevant provisions of international standards of auditing in this regard. Crucially , the auditors gave their opinion on the ability of Tanveer Cotton as a going concern in the following observations: "We draw attention to Note 2, which indica te that as at balance sheet date, the accumulated losses are Rs.208.502 million, and the company is defendant / petitioner in various law suits as mentioned in Note 21 to the financial statements. These factors along with matters discussed in "Basis of Qualified Opinion" section of our report indicate a material uncertainty which may cause significant doubt on the company's ability to continue as a going concern. However , these financial statements have been prepared on "going concern basis" in consideration of mitigating factors mentioned in Note 2 of these financial statements. Our opinion is not modified in respect of this matter ."
14. A reference to the auditors report in respect of financial statements of 2018 would show that similar observations have been made and the auditors clearly indicated that: "...These factors, along with matters mentioned in paragraphs (b) and (c) below , indicate a material uncertainty which may cast significant doubt on the company's ability to continue as a going concern and therefore, it may be unable to realize its assets and discharge its liabilities in the normal course of business. The financial statements, however , do not disclose this fact and any adjustment to that effect."
15. In the opinion of the auditors set out above, there was a material uncertainty which cast significant doubt on the companies' ability to continue as a going concern and so it may be unable to realize its assets and discharge its liabilities in the normal course of business. The learned counsel for Tanveer Cotton and Tanveer Spinning tried to controvert the arguments made on the independent auditors report by referring to the financial statements prepared by the companies. Suffice to say that when the independent auditors report is juxtaposed with the financial statements prepared by the companies, greater weight must be assigned to the report prepared by the independent auditors in this regard.
16. As explicated, it is unnecessary to refer to the case of Tanveer Spinning independently as not only the contents of the auditors report but also other docu ments are precisely of the same nature and the arguments in respect of Tanveer Cotton can validly be raised in respect of Tanveer Spinning as the two companies follow a similar pattern not only in accumulating loss, negative equity but also in the observations of the independent auditors regarding their ability as a going concern.
17. On the threshold, the learned counsel for the respondents took objection to the maintainability of these petitions for winding up on the ground that since suits for recovery have been filed by both Summit and MCB, these petitions ought to be dismissed as proper remedies under the law for the recovery of sums allegedly due to them have been availed. In a nub, the contention is that both the remedies cannot be simultaneously availed. However , this objection cannot prosper . In a cluster of judgments of the superior courts it has been settled by now that both the remedies can simultaneously be availed. This will however remain subject to the conditions which have been brought forth in the two judgments cited above to the effect that unwillingness to pay debts is not to be equated with inability to pay debts. Inability to pay debts is an independent cause of action and must be predicated on the material brought on record which would show that the company is commercially insolvent and its future financial viability is in serious doubt. However , unwillingness to pay debts will take the case in the realm of bona fide dispute which the company sought to be liquidated has raised on substantial grounds. Thus, if a company puts forth a good faith defence and disputes the amount to be due on substantial questions of law and fact, a winding up petition cannot be used as a tool for the recovery of an amount for which a normal remedy available to the petitioner would be the filing of a suit for recovery and the provisions of the Companies Act, 2017 cannot be used as an engine of coercive measures to extract an amount regarding which a dispute is shown to exist. In short, the object of winding up petition is to gauge factors regarding solvency or otherwise of a company and not to settle claims of creditors.
For the purpose, the court will look at all attending circumstances apart from the claim brought by a petitioner regarding a debt due. Thus, simultaneous use of both the remedies is permissible with the only rider that the court will not be restricted to the narrow scope of the claim made of a petitioner in respect of an amount due but will look at the totality of circumstances in determining whether the company is unable to pay its debts or not. The term 'unable to pay its debts' is a term of art and will not be interpreted within the narrow confines of a bilateral dispute brought by a petitioner in a particular case but will have to be looked at in its proper perspective to encompass the inability of a company to pay its debts generally and to conclude that it would be just and expedient to wind up a company owing to the fact that looking at the statements of accounts, the financ ial statements and the auditors reports it can safely be concluded that a company is not a going concern and thus is a commercially unviable corporate entity . In order to ascertain this aspect, the provisions of section 302 of the Companies Act, 2017 can be referred to which provide that: "302. Company when deemed unable to pay its debts.-- (1) A company shall be deemed to be unable to pay its debts:
(a) if a creditor , by assignment or otherw ise, to whom the company is indebted in a sum exceeding one hundred thousand rupees, then due, has served on the company , by causing the same to be delivered by registered post or otherwise, at its registered office, a demand under his hand requiring the company to pay the sum so due and the company has for thirty days thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor; or
(b) if execution or other process issued on a decree or order of any Court or any other competent authority in favour of a creditor of the company is returned unsatisfied in whole or in part; or
(c) if it is proved to the satisfaction of the Court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the Court shall take into account the contingent and prospective liabilities of the company .
(2) The demand referred to in clause (a) of sub-section (1) shall be deemed to have been duly given under the hand of the creditor if it is signed by an agent or legal adviser duly authorised on his behalf."
18. The further contention of the learned counsel for Summit and MCB is that since suits have been filed and at least in one of those suits decree has been passed by the court and thus a new cause of action accrues for inviting this Court to wind up the company . Suffice to refer to clause (b) of sub-section (1) of section 302 which states that a company shall be deemed to be unable to pay its debts if execution or other process issued on a decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part. Therefore, the law presumes that in order for a court to deem that a company is unable to pay its debts it must await the result of a process issued on an execution for the satisfaction of a decretal debt. That stage has yet to arrive and thus the mere fact that a decree has been passed by a court of original jurisdiction will not compel this Court to wind up the companies.
19. However , clause (c) of sub-section (1) of section 302 empowers this Court to presume that a company is unable to pay its debts if otherwise it is proved to the satisfaction of the court that the company is unable to pay its debts by taking into account the contingent and prospective liabilities of the company . These powers have been vested on this Court to analyze independently upon consideration of the material brought on record relating to the company' s financial sustainability and from which it may be gathered whether the company is unable to pay its debts on account of contingent and prospective liabilities having existed upon a certain threshold. This is a template that this Court will use in coming to any conclusion regarding winding up of the companies in the instant case.
20. From the contents of the reply , the companies do not deny the financial relationship between the parties as also that there are certain obligations which arise out of that financial relationship yet the only stance taken by the companies is that those obligations have been discharged regularly and on time. The financial statements of the companies have been referred hereinabove which clearly show a trend starting from the year 2012 till the filing of the annual report for 2019 that the auditors have given an adverse opinion regarding financial statements prepared by the companies. In the opinion of the auditors, the statements of financial position, statements of profit or loss, statements of comprehensive income and the statements of cash flows do not conform with the standards as applicable in Pakistan and do not give the information required by the Ac of 2017 . Also that the companies have continued to accumulative losses which have seen a rising trend each year resulting in negative equity which also continues to rise with the result that the companies' current liabilities have exceeded their current assets for each successive year. For example, in respec t of the annual report for the year 2018, the current liabilities exceeded current assets by Rs.1,058.948 Million. However , the auditors have consistently rendered an opinion that various factors taken together indicated material uncertainty which cast serious doubt on the companies' ability to continue as going concern. Apart from this, according to the auditors: "(b) The Company has not carried out any review at the balance sheet date in order to determine recoverable amount of its tangible operating assets and recognized impairment loss (if any) and net realizable value of closing stock. Hence, financial impact is impracticable to determine.
(c) Long term financing amounting to Rs.515.302 million (2017: Rs.565.302 million), short term borrowing amounting to Rs.9.896 million (2017: Nil) and accrued markup/ interest amounti ng to Rs.574.249 million (2017: Rs.585.607 million) remains unconfirmed/ un-reconciled in the absence of direct balance confirmation and relevant information."
21. Thus, the company has not carried out any review at the balance sheet date to determine recoverable amount of its tangible operating assets and recognized impairment loss. A common refrain in the auditors report is regarding the long term financing as well as the short term borrowing and the accrued markup in respect of which it has been observed that these remain unconfirmed/ un-reconciled in the absence of direct balance confirmation and relevant information. This confirmation and relevant information is continued to be withheld from the auditors by the company . In order to circumvent this observation, the companies in their annual report for 2019 classified the loan and accrued markup amount in non-current liabilities instead of current liabilities and in respect of which the auditors reported that this was not in accord with the International Standards on Auditing. Therefore, by an act of gimmickry the company prepared its financial statements in order to drastically reduce its current liabilities. It is plain and clear that the companies are unable to pay their debts by taking into account their contingent and prospective liabilities. The factors which have been flagged by the auditors report s clearly shows that there is no prospect of the companies extracting themselves out of their financial crisis or fulfilling their current and future liabilities. Since the year 2012, the losses have continued to accumulate and rise and the margin between the current liabilities and the current assets has also increased manifold. Thus, for the last three years the companies have failed to turn a corner or to record any profits nor have they paid off any substantial portion of the decretal debt in favour of either Summit or MCB. It is apprehended that if the companies are permitted to continue to operate, the directors will further deplete the current assets of the companies and they will not be able to meet the liabilities which are on the rise and continue to pile up.
22. As brought forth in the preceding paragraphs, the company has now taken to financial fudging by preparing its financial statements in such a manner which flout the international standards of auditing and which have been so blatant that the auditors were compelled to give a qualified opinion regarding financial statements. There is no doubt that the companies have become unsustainable and unviable. The negative equity which has also continued to rise leads to the ineluctable conclusion that the substratum of the companies has been lost. Also since the auditors report over the years has shown that the companies' current liabilities exceed its current assets, this circumstance is sufficient to make out a strong case that it is just and equitable that the companies be wound up.
No documents such as audited accounts, annual reports or financial statements have been placed on record by the companies in order to establish that the solvency of the companies has shown a positive outlook over the years or that the companies have not only reduced their losses but are also making profits. The companies have had sufficient time on their hands (these petitioners have been pending for eight years) to resuscitate their fortunes in order to compel this Court to believe in their future prospects as also to have trust in the good faith of the sponsors/ directors to continue to revive these companies into profitable undertakings. Nothing of the kind has been demonstrated to this Court and it is evident that the continuance of the operation of Tanveer Cotton and Tanveer Spinning in the management of present managers will be potentially disastrous. It was held by the Supreme Court of Pakistan in Hala Spinning Mills v. International Finance Corporation etc. (2002 CLD 1487 ) that where it is impossible for a company to carry on its business except at a loss and there was no reasonable hope that the object of trading on profit can be achieved, the winding up of the company becomes inevitable.
23. In view of the above, these petitions are allowed. Consequently , Tanveer Cotton Mills (Pvt.) Ltd. and Tanveer Spinning and W eaving Mills (Pvt.) Ltd. are ordered to be wound up.
24. Mr. Rohail Mustafa, Advocate, Office No.39, 1st Floor , C.M. Centre, 1-Mozang Road, Lahore (0300-4136992) and Hina Hafeezullah Ishaq, Advocate, H.No.142, Block-A, New Muslim Town, Lahore (0300-4027555) are appointed as Official Liquidator for Tanveer Cotton and M/s Kamal Ali Haider , Advocate, Office No.M2, Mezzanine Floor , Opposite High Court, Back Gate, Atif Center , 1-Turner Road Lahore (0300-4166070) and Gohar Mustafa Qureshi, Advocate, 9-Upper Mall Scheme, The Mall Lahore (03008482841) are appointed for Tanveer Spinning.
The official liquidators 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 Of ficial Liquidator and the Registrar . The remuneration of the Of ficial Liquidator shall be settled later .
Initially , they shall be paid an amount of Rs.200,000/- each to be shared equally by MCB and Summit. It is informed that the industrial units owned by these companies are functional. Their continued operation shall be ensured by the Of ficial Liquidators through the existing employees.
25. 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.
26. Adjourned to 20-07-2021 .