1. ' By short order passed on the 25th October, 1993, I had dismissed this application. The following are the reasons for that order.
2. ' This application under section 3 of the Contempt of Court Act read with section 321 of the Companies Ordinance, 1984, has been made under the following circumstances.
3. ' In February, 1990, the Respondent Company filed a complaint against the petitioner before the Wafaqi Mohtasib. The complaint was signed by Syed Ali Azhar Naqvi, as Chairman, "For and on behalf of the company'.
4. ' While the complaint before the Wafaqi Mohtasib was pending the petitioner filed the present petition for winding up the company; and, on the 14th January, 1991, the company was ordered to be wound up and the Official Assignee was appointed its Official Liquidator. The Official Liquidator took over the possession of the factory of the company on the 26th January, 1991.
5. ' The order for winding up has been impugned in appeal before the Supreme Court and, by an interim order passed in the appeal, the Official Liquidator has been restrained from carrying on the business of the company till the appeal is decided. It is, however, a common ground that the interim order does not affect the order that the Company be wound up or the appointment of the Official Liquidator.
6. ' Notwithstanding the order of winding up, the Wafaqi Mohtasib, by his order, dated the 18th February, 1991, decided to continue the proceedings before him on the ground that the complaint had been filed prior to the petition for winding up; and Syed Ali Azha- Naqvi, the former Chairman of the Company, appeared before the Wafaqi Mohtasib on several occasions, including the 29th July, 1991, to prosecute the complaint allegedly on behalf of the Company.
7. ' Mr. Afsar Abidi, the learned counsel for the petitioner submitted that upon the order for winding up being made and Official Liquidator of the company being appointed, the directors, including the former Chairman of the Company, ceased to have any power to act on behalf of the company and their place is deemed to have been taken by the Official Liquidator by virtue of the Proviso to section 402 of the Companies Ordinance. He submits that in the circumstances Syed Ali Azhar Naqvi, in appearing before the Wafaqi Mohtasib to prosecute the complaint purportedly on behalf of the company has acted in clear and flagrant violation of the order of winding up and that such action on his part amounts to interference with due course of judicial proceedings.
8. ' Mr. Akhtar All Mahmood, the learned counsel for Syed Ali Azhar Naqvi, contends, on the other hand, that notwithstanding the order of winding up and appointment of the Official Liquidator, the former Chairman of the Company continues to have certain residuary powers. He relies on In re: Union Accident Insurance Co. Ltd. (1972) 1 WLR 460. He submits, in the alternative, that Mr. Naqvi is not appearing before the Wafaqi Mohtasib on behalf of the Company or as its Chairman but only as former Chairman and as promoter of the Company.
9. ' In England the position appears to have been accepted that an order of compulsory winding up of a company determines the powers of directors, effects their discharge or dismissal and puts an end to their employment. In the case of Measure Brothers Ltd. v. Measure (1910) 10 ch. 336 the defendant, who was a director of the plaintiff had entered into an agreement with the plaintiff- company to hold office for seven years at a fixed salary and covenanted that so long as he should continue to hold office and for seven years after ceasing to hold such office he would not carry on any business that would compete with the business of the company. Subsequently, a compulsory winding up order was made against the company and the defendant commenced to carry on business on his own account. In an action by the plaintiff company to restrain the defendant from carrying on business in competition with the company in breach of his covenant, Joyce, J. Held that the company was not entitled to such a relief because it was "well-settled that when a .1-onager is engaged by a company for a term of years... a compulsory order for winding up is a dismissal or discharge, whichever it may be called, of that manager; and that it is wrongful, or at all events is a dismissal not authorised by law as between the company and the manager." He went on to observe, at page 345,-- "Now, whether the defendant technically ceased to be director in name upon the making of the compulsory order to wind up or not I do not know, but he had no more work to do, and he had no more pay, and his employment ceased. It was fairly admitted and agreed by the other side, in fact it is a common ground, that in truth and substance he ceased to be a director."
10. ' The decision of Joyce, J. Was upheld on appeal (reported in (1910) 2 ch. 248, wherein Cozens -- Hardy, M. R. Observed:-- " the plaintiffs, who are seeking equitable relief by way of injunction, cannot obtain such relief unless they allege and prove that they have performed their part of the bargain hitherto and are ready and able also to perform their part in the future. The consideration which the defendant was to receive for his convenant from the company was (1) the position of a director of the company,
(2) salary....; and a contingent share of profits. The plaintiffs have not given, and cannot in future give, the defendant this consideration. The contract on their part has been broken. It is not necessary that the breach should be wilful in the sense of being intentional. It suffices that by an act brought about by the company's own default, namely,the omission to pay debts incurred by the company, the contract has been broken."
11. ' The principle that the services of a servant or a manager are determined by an order of compulsory winding up was applied to the case of a managing director in In re: R.S. Newman, Limited Raphael's Claim -- (1916) 2 ch. 309, where it was held that the contract between the company and its managing director was broken by an order of compulsory winding up.
12. ' The question of the position of directors in the event of a company being compulsory wound up also arose in the case in In re: Farrow's Bank -(1921) 2 ch.
164. In that case the company was granted p lease of a property with the covenant not to assign the demised premises without the consent of the lessor. A Provisional Liquidator of the company was thereafter appointed and the question was whether he could assign the demised premises without the consent of the lessor; and it was held that assignment by the liquidator would be on behalf of the company and, if made without the lessor's consent, would be breach of the convenant.. Lord Sterndale, M.R. Referred to the powers of the liquidator under the Companies Consolidation Act, 1908, i,e, to bring and defend actions, to carry on business etc., and observed-- "But the whole of these powers given to him are to do acts on behalf of the company. There is no express provision in the Act in the case of a compulsory liquidation as there is in the case of a voluntary liquidation, that the powers of the directors shall cease on the appointment of a liquidator but they do in fact cease on the appointment of a liquidator in a compulsory liquidator.
13. In that case the liquidator is imposed upon the company compulsorily by the Court to do acts on behalf of the company and to carry on the business of the company so far as it shall be necessary for the purpose of the winding up. It is quite true that the company does not choose him; he is put there by the Court; but he is put there to do the acts which the directors of the company did before their powers ceased."
14. ' In the case of In re: Mawcon Ltd. -- (1969) 1 WLR 188, Pennycuick, J. Held that "upon the appointment of a provisional Liquidator the powers of the directors to act as such are determined and they could not be revived so long as the Provisional Liquidator remained in office.
15. ' Following the English cases, it has been held in India that a consequence of a winding up order is that there is, in effect, a dismissal of the directors and managing directors who, for all practical purposes (though not for the purpose of appealing from the order of winding up itself) cease to hold their office and cannot carry on the business of the company. See Jawala Prasad v. Jawala Bank AIR 1957 All.
16. 143.
17. ' The principle that for all practical purposes and in effect an order for compulsory winding up of a company has the effect of determining the powers, of, and dismissing or discharging, the directors is founded not on any statutory provision -- for there was none in the relevant statutes -- but on the fact that upon such an order being made the liquidator, by virtue of the statutory provisions in that behalf, has the powers to do various acts and to act on behalf of.The company. The same principle would have applied in Pakistan when the Companies Act, 1913, was in force; but now express provision has been made in this regard by the Companies Ordinance, 1984, section 402 of which provides-- "A company being wound up shall continue to be a company for all purposes till its final dissolution in accordance with the provisions of this Ordinance and, unless otherwise specified, all provisions and requirements of this Ordinance relating to companies shall continue to apply mutatis mutandis in the case of companies being wound up: ' Provided that from the date of commencement of winding up of a company, the Official Liquidator or the Liquidator shall be deemed to have taken the place of the directors, Chief Executive and managing agents of the company, as the case may be."
18. ' According to Chamber's Twentieth Century Dictionary, the expression "to take some one's place" means "to act as substitute for, or successor to, some one". A "substitute", according to the same disctionary, means "a deputy" one nominated in reminder: one put in place of another"; and, according to Black's Law Disctionary, it means "one who or that which stands in the place of another". The word "succeed", according to Chamber's Twentieth Century Dictionary, means "to come after: to follow up or in order: to take the place of esp. In office, title or possession: to inherit"; and, according to Black's Law Disctionary "Successor" means "one that succeeds or follows; one who takes the place that another has left, and sustains the like part or character".
19. The object of appointing a liquidator and his functions, including carrying on the business of the company, is to take steps to wind up the company with a view to its eventual dissolution. That object can be achieved by the liquidator, as such, exercising the powers of the directors. It, therefore, does not appear that the legislature intended that the liquidator should "succeed" the directors in the sense of assuming or sustaining the office of directors. However, it is not necessary to decide that question for the That being so, Syed Ali Azhar Naqvi has no power to act for, or appear on behalf of the company before the Wafaqi Mohtasib. Mr. Akhtar Ali purpose of the present application because it is clear that, on either view, the directors are, upon an order for winding up being made, divested of all powers to act on behalf of the company.
20. ' Mahmud, however, contended that, notwithstanding the Proviso to section 402, directors continue to have residuary powers which they can exercise, although he was unable to say what those residuary powers might be. The only basis on which the argument was advanced is the judgment in the case of In re: Union Accident Insurance Co., Ltd. -- (1972) 1 WLR 640,-- wherein it was held that notwithstanding the appointment of a provisional liquidator on a winding up, the board of directors of a company retained the residuary power to instruct solicitors and counsel to oppose the petition and to appeal against the order, and also to act in interlocutory proceedings; including a motion to discharge the provisional liquidator. That case, however, obviously has no relevance to the facts and circumstances of the present case. Plowan, J., there suggested that whether the directors continued to retain any particular power may be determined by inquiring whether the power which the directors are said to have lost is one which can be said to have been assumed by the liquidator; and if the answer is that it cannot, that may be a good reason for saying that the directors still retain it; and held that a motion to discharge the provisional liquidator on the ground that he ought never to have been appointed clearly falls within that category. In the present case it could not be and was not suggested that the Official Liquidator cannot be said to have assumed the power to prosecute the proceedings before the Wafaqi Mohtasib; but Mr. Akhtar All Mahmud said that the Official Liquidator would not be interested in prosecuting those proceedings. That, however, does not alter the position that Mr. Naqvi has no power.
21. ' Faced with this situation, Mr. Akhtar Ali Mahmud stated that Mr. Naqvi is prosecuting the complaint as a former Chairman and promoter of the company. It is clear that he cannot prosecute the complaint; as a former Chairman on behalf of the company. As for prosecuting the complaint as a promoter of the company, no facts showing that Mr. Naqvi was a promoter have been brought to my notice; but, assuming that Mr. Naqvi was a promoter, his claim in the counter-affidavit that the complaint was initiated by him as a promoter is obviously not correct; and, in any case, a promoter cannot possibly have any right to act on behalf of the company. He also appears to have taken the stand in his counter-affidavit that he is prosecuting the complaint concerning his rights as a promoter. In the first place, the stand is belied by the complaint itself; and, secondly, one cannot imagine what right Mr. Naqvi has, as a promoter of the company, against the petitioner in this case.
22. The question then is whether Mr. Naqvi, in continuing, after the order of winding up, to prosecute the complaint of the company before the Wafaqi Mohtasib has committed contempt of Court. Mr. Abidi submitted that he has, because he has thereby violated the order of winding up and interfered with due course of judicial proceedings. I am, however, satisfied that the order of winding up has not been violated and no interference in the winding up proceedings has been caused by Mr. Naqvi prosecuting the complaint before the Wafaqi Mohtasib. In any case, Mr. Akhtar All Mahmud stated categorically that Mr. Naqvi is not representing the company before the Wafaqi Mohtasib and Mr. Abidi said that he was satisfied with the statement.