NAIMUDDIN, J.--1. This is an appeal from the judgment of the High Court of Sindh dated 23rd January, 1989. By the impugned judgment the High Court had accepted the petition filed by the respondent fdr winding up of the appellant under section 305 of the Companies Ordinance, 1984 on the ground that the appellant was unable to pay the debt due to the respondent in spite of service of notice for payment of the dues on the expiry of statutory period.
2. The respondent's case was that it had granted besides local currency loan a foreign currency loan of D.M. 104,636 equivalent to Pak Rs. 4,98,000 under credit agreement dated 1st May, 1965 which was repayable with interest at the agreed rate on the terms and conditions mentioned therein.
3. One of the terms contained in clause 17 of the agreement provided as follows:- "Notwithstanding anything contained in this agreement to the contrary, the Bank may, if any of the following events happen, declare the principal of the Loan then outstanding against the Borrower(s) to be due and payable immediately in which case the security constituted by this and other Agreements, contracts and documents shall become enforceable and such principal and all other payments under this agreement shall become due and payable immediately by the Borrower(s) or give such other/further securities as the Bank may determine to further secure the fulfilment of the Borrower(s)' obligations:-
(i) the Borrower(s) make(s) default in the payment of principal, interest or any other charges payable under the terms of the Agreement.
(Clauses (ii) to (xi) need not to be quoted as they are not relevant here).
4. The respondent granted to the appellant a second foreign currency loan which was in Deutsche Marks. The appellant executed documents mentioned in para 10 of the petition at serial. Nos. (i) to (iv). The amount of this loan after enhancement was DM 8,96,009.50. The appellant did not utilise the loan till some time later and by then the rupee equivalent had gone up from Rs. 15,65,000 to Rs.
49,58,400. The appellant, therefore, executed a supplementary agreement dated 16th January, 1969. According to the learned counsel for the respondent the loan was fully utilised and was re- payable in 28 half-yearly instalments ending in the year 1984. This credit agreement also contained similar terms as contained in the first credit agreement and quoted hereinabove.
Under the second foreign currency loan the outstanding amount was in D.M. 24,13,542.65 and outstanding charges were Rs. 4,07,790.77 as mentioned in the petition.
5. In the petition under section 305 of the Companies Ordinance the respondent had inter alia stated that the respondent had suffered losses as per its annual report/ balance sheet as follows:- - YEAR MILLION 1980 1.161 1981 3.769 1982 3.558 1983 2.743 1984 1.622 The respondent further stated that the appellants had not declared any dividend. The respondent has also stated that according to the information gathered by the respondent the following were the holders of charge on the assets of the appellant and the following dues were then outstanding against the appellant in respect of the charge-holders pari passu other than the respondent:-
(i) NDFC Rs.51,90,996.37 As on 7.7.1985
(ii) HBL Rs.51,20,000.00
(iii) NBP Rs. 55,20,000.00
(iv) UBL Rs. 56,80,000.00
(v) MCB Rs. 3,69,000.00
(vi) ABL Rs. 1,90,000.00 As on 30.6.1985
(vii) ICP Rs. 6,14,000.00
(viii) HBL(again) Rs.32,07,000.00 Besides the above, there were amounts due to United Bank Ltd. And Habib Bank Ltd. In the total sum of Rs. 78,79,000:--
(i) UBL Cash Credit Rs. 70,26,000.00 LIM Rs. 1,41,000.00
(ii) HBL OD Rs. 7.12.000.00 Rs. 78,79,000.00
6. The main defence of the appellant, as discussed by the High Court in the impugned judgment, was that the loans were advanced on the basis of commitment and instructions of the Federal Government of Pakistan out of funds allocated under the Industrial Investment Schedule for Private Sector under the fourth and fifth five-year plans. The amount of loans, it was claimed, was thus in fact investment of the Government. It was further alleged that the investments were made and utilised for extension and modernisation of printing press of the appellant on the basis of promises, undertakings and assurances of Federal Government of Pakistan in the fourth and fifth five year plans but later Government committed breaches of their promises, assurances and undertakings by placing mala fide restriction in utilisation by appellant of their printing capacity and also creating parallel printing unit in Pakistan Security Printing Limited in spite of opposition and objections by the respondent and other financial institutions. The appellant had, therefore filed a suit, being Suit No. 201 of 1986 against the Federal Government of Pakistan and others including the respondent wherein the appellant sought relief of specific performance of promises, assurances and claimed rupees 90 million as compensation and damages against the Government of Pakistan.
7. At this stage it may be stated that in the suit specific performance of promises, assurances, and undertakings was claimed against the Federal Government of Pakistan and a direction was sought to the Federation of Pakistan and to the Secretary to the Government of Pakistan to pay all amounts claimed by the respondent and other creditors and also prayed for an injunction against respondent and other creditors from making any claim or taking any action, or proceedings in respect of their claim against the appellant. Dealing with this aspect the High Court in the impugned judgment observed as follows:- "I have perused the plaint in suit. A perusal of plaint would show that there is no allegation of any breach against the petitioner (respondent herein). In paragraph '13' of the plaint it is categorically stated that the breach by Government of Pakistan of its promises and assurances was protested by the petitioner. A perusal of the plaint would show that prima facie neither the breach of assurances by the Government of Pakistan concerns the petitioner (respondent herein) in any manner nor it is the case of the respondent (appellant herein) that, the aforesaid breach was the result of any connivance or inducement on the part of the petitioner. Secondly, if this suit, which is pending, succeeds, the respondent-company will be entitled to the relief of specific performance or alternative relief of compensation/ damages awarded in the decree, that may be passed against the claim of the petitioner. But 1 fail to see how the mere fact that a claim has been put forward against the Government of Pakistan and which is pending adjudication by the Court can make the claim of the petitioner, which arises out of credit agreements; agreement to create mortgages, a disputed debt. If is no doubt alleged in the affidavit/counter-affidavit filed by the respondent-company that a suit is pending, but it is well settled that a mere fact that a suit is pending does not prevent the debt from being made the foundation of a winding up petition unless stay is obtained pending disposal of the suit."
8. Under section 305 of the Companies Ordinance a company can be wound up by the Court on any of the grounds mentioned therein. One of the grounds for which a company be wound up is that the company is unable to pay its debts A company is deemed unable to pay its debts:-
(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding one per cent of its paid-up capital or fifty thousand rupees, whichever is less, than 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.
9. It is not disputed by the learned counsel for the appellant that the respondent served a notice of demand to pay the dues of the respondent and the appellant failed or neglected to pay the dues.
It is, however, submitted by Mr. Rahimtoola, learned counsel for the appellant that firstly, the first foreign currency loan was re-paid in full and the second foreign currency loan was not yet matured as it was payable in 1994, secondly, the petition for winding up was not bona fide as it was made to coerce the appellant to meet the undue demands of the respondent. In this regard he further submits that if any amount was due to the respondent it should have filed an application under section 38 of the Industrial Development Bank of Pakistan Ordinance for its recovery.
10. Now, so far as the first submission is concerned, namely, that the appellant had paid in full the first foreign currency loan, Mr. Rahimtoola submitted that a loan equivalent to Rs.4,98,000 was taken and against this a total sum of Rs. 15,00,000 was paid to the respondent but Mr. Chundrigar has pointed out that according to the statement of account a sum of Rs...... Is still outstanding in that account. He has pointed out that the Pakistani currency was devalued in 1972 and since the loan was re-payable in foreign currency convertible into Pakistani currency on the date of payment, the amount of loan had considerably increased. However, we are not required to determine in the present appeal the exact amount due from the appellant. Yet we entertained no doubt that some dues are still outstanding in this account. It was open to the appellant to produce or place on record the copies of statement of account showing the amounts received from the respondent, interest charged and the amounts paid, but it failed to do so.
11. As regards the contention that the second foreign currency loan was payable in 1994, it may be stated that the submission is not correct. It is not denied by the learned counsel for the appellant that the loan was re-payable in half yearly instalments, the last instalment being payable in 1994.
This loan was also granted on the conditions quoted in para 3 herein above. Therefore, on default being committed by the appellant in payment of 1st loan in full and the instalments of the second loan the whole amount of second foreign currency loan could be re-called. Therefore, the first submission of the appellant has no force.
12. As regards the second submission that the petition for winding up of the appellant was not bona fide as it was made to coerce the appellant to meet the undue demands of the respondent, learned counsel referred to appellant's suit filed against the Government of Pakistan. Learned Judge in chamber, has dealt with this submission in the impugned judgment. However, it may be pointed out that in the suit no relief against the respondent except that of injunction was claimed.
Indeed, in the suit a prayer was made in para 44, clause (b) of the plaint for a direction to the Government of Pakistan to satisfy inter alia the claim of the respondent. The caluse reads as follows:- "orders directing the defendants Nos. 1 and 2 to pay ail claims made by or amounts claimed by defendants. Nos. To 12 including those shown in schedule and all such amounts or claims as may be payable in law and to compensate and indemnify the plaintiffs in respect of them or any of them."
It may be stated that defendants Nos. 5 to 12, mentioned above are the financial institutions who lended mony to the appellants which included the respondent who is arrayed in the suit as defendant No. 5. It is also worth noting here that in this very suit in the plaint the appellant have stated that they have suffered loss of Rs. 90,00,000 which supports the plea of the respondent as noticed in para 5 of this judgment that from 1980 to 1984 the appellants have suffered a loss of Rs.
1,28,53,000 against the paid up capital of the appellant of Rs, 47,99,130.
13. It was, however, submitted hy learned counsel for the appellant that the assets of the company were more than the liabilities. We asked how they could be when the appellant had suffered losses of over a crore rupees which amount is more than double of the capital of the appellant. The learned counsel submitted that if the assets are re-valued then their value would be more but he fairly stated that no such revaluation was ever made. Indeed, the appellant not only failed to reply to the notice served under section 306 of the Companies Ordinance but also failed to produce their annual balance-sheets and profit and loss accounts.
14. As regards the submission that the respondent should have proceeded under section 38 of the Industrial Development Bank of Pakistan Ordinance and not by way of a petition for winding up, it may be stated that unless a. Debtor bona fide disputes the claim of the creditor or is able to show that notwithstanding the dispute he is in a position to pay his debts, the plea is hot of much substance. Now it is well settled 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. Reliance is placed on Bengal Luxmi Cotton Mills Ltd. And others v. Mahaluxmi Cotton Mills Ltd. And others AIR 1955 Cal. 273. Reference may also be made to In re: Doughlas (Griggs) Engineering Ltd. (1962) All ER 498. In this case it was observed by Pennycuick, J:~ "It seems to me that thus the prima facie right of the petitioning creditor to a winding up order based on the judgment of 14th November, 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 Lh.
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. Reference may also be had to United Bank Ltd. v. Messrs Pak Wheat Products Ltd. And others PLD 1970 Lah. 235 wherein Karam Elahi Chauhan, J. (when he was in the High Court) dealing with a similar 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 making 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 is not merely a clock. 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 clock. I am not impressed with the bona 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."
Reference may also be made to Re: Imperial Hydropathic Hotel Co. 49 LT 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 case, 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 another, but none of the letters appears to me to amount to this; we dispute your debt on any one 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 L-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 I think he might reasonably believe that they were playing with him. That is the view I take of the correspondence, 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-sensical 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."
15. The appellant's main plea in defence in the High Court was that it had filed a suit against the Federal Government of Pakistan. But in this very suit it had sought a direction to the Federal Government to pay all the claims made by the respondent and other creditors arrayed as defendants No. 5 to 12 to the suit.
16. Mr. J.H. Rahimtoola has, however, relied on three English cases, namely, (1) Mann and another v.
Goldstein and another (1968) 1 Weekly Law Reports 1091) (2) In re: Bryant Investment Company Ltd.
(1974) 1 Weekly Law Reports 826), and (3) In re: Lympne Investments Ltd. (1972) 1 Weekly Law Reports 523). These cases are distinguishable.
17. In the first case it was held:- "(1) That a creditor's winding up petition could only be presented by a creditor and since the debts upon which both the defendants founded their petitions were substantially disputed, neither of the petitioners were established as "creditors" of either of the two companies; and that, accordingly, neither was entitled to present a petition as neither had any locus standi in the Companies Court.
(2) That even though it appeared from the evidence that the companies were insolvent, as the debts were substantially disputed the defendants ought to be restrained from proceedings on their petitions".
In the second case, namely In re: Bryant Investment Co. Ltd. Company's assets exceeded liabilities although it had no liquid assets. The debt was not presently due. On these facts it was held that:~ "the words 'is indebted' and 'then due' followed by a reference to payment of the sum "so due" in section 223(a) of the Act were not appropriate to a debt which was not yet due; that, on the evidence, there was a dispute whether the debt claimed was presently due and that, accordingly a winding up order should not be made."
18. In the case of In- re: Lympne Investments Ltd. The facts as noted in the headnote of the report were:- "On 4th November, 1971, the petitioner served a demand under section 223 of the Companies Act, 1948 on the company for payment of a debt of 13,500. The company denied indebtedness and asserted that the 13,500 was a payment for shares in I Ltd. Which were to be held by the company in trust for the petitioner. On 25th November, 1971, at 12.05 p.m. The petitioner presented the petition for the winding up of the company on the ground that it had failed to comply with the statutory demand, that it was insolvent and that it was just and equitable that it should be wound up. There were such allegations of fraud or dishonesty that they could not be resolved without proper pleadings and cross-examination of witnesses."
On the questions whether the company had for three weeks after the service of the demand neglected to pay within the meaning of section 223(a) and whether a petition should be stood over for the disputed matters to be resolved in other proceedings or dismissed, it was held:-- "that the general rule in the computation of periods of time was that unless there was sufficient indication to the contrary, fractions of a day should be ignored and that the day on which the initial even occurred should be excluded; that November 5 was the first complete day and November 25 was the twenty-first day and when the petition was presented just after noon on November 25, the company had only had 20 days and a fraction of another day and there had been no neglect for three weeks to pay the sum demanded, within the section; and that, accordingly, the company was not for that reason to be deemed to be unable to pay its debts.
(2) That when a petition was based on a debt which was disputed, as in the present case, the petitioner was not a creditor within section 224(1) of the Act of 1948 who had the locus standi requisite for the presentation of a petition even if the company was in fact, insolvent; that the existence of a dispute on substantial grounds as to the existence of any debt defeated the contention that the company had, within section 223(a), "neglected" to pay the sum required by the statutory demand and that, accordingly, the petition should in accordance with the modern practice be dismissed."
19. Even if there was some dispute regarding the balance amount due in respect of the first foreign currency loan there was no bona fide dispute regarding the second foreign currency loan as not a single half-yearly instalment was ever paid though many had become over due and, therefore, the whole amount of the second loan could be recalled under the terms of the loan agreement, which was duly demanded. Indeed, the appellant was unable to pay the debts. We are, therefore, convinced that the high Court has rightly passed the order of winding up of the appellant company. We, accordingly, find no merits in this appeal and dismiss it, leaving the parties to bear their own costs. These are the reasons for the short order passed earlier.