JUDGMENT RANA BHAGWAN DAS, J.--The petitioner is a corporation incorporated under the laws of South Korea with its branch office at Kote Ranjeet, Sheikhupura while the respondent is an Insurance Company incorporated under the Companies Ordinance, 1984 (hereinafter referred as the Ordinance) with its registered office at Karachi.
2. Petitioner filed this petition for winding up of the respondent company for the reason that the latter has been unable to pay its debts amounting to Rs. 3,14,00,000/- to the petitioner. The petitioner was awarded the contract for construction of Lahore-Islamabad Motorway Project by the Government of Pakistan required to be completed by the end of 1994. In connection with the construction of the aforesaid Motorway, petitioner gave certain portions of the work on subcontracts to various sub-contractors including Highway Bridges Constructors International (Pvt.) Limited Islamabad. It is the case of the petitioner that in accordance with the^ terms and conditions of the sub contract they were required to be paid mobilisation advance by the petitioner upon furnishing Bank Guarantees for the repayment of the mobilisation advance.
Likewise for proper and timely execution of the work, sub-contractors were required to furnish performance guarantees.
3. It is a common ground that the respondent company furnished mobilisation advance guarantee in the sum of Rs. 1,26,00,000/- whereupon the petitioner paid this amount to the sub-contractor by way of mobilisation advance. Conversely for the performance of the work, respondent company issued a performance bond guarantee in the sum of Rs. 1,88,00,000/- to the petitioner. Both the guarantees" were accepted and confirmed by the respondent company through its letters.
According to the petitioner both the mobilisation advance guarantees became due and payable on account of default on the part of the sub/- contractor whose contract was terminated by the petitioner company vide letter dated 6-2- 1994. Consequently the petitioner through its letter dated 12- 2-1994 called upon the respondent for encashment of the aforesaid guarantees but the respondent neither acknowledged nor encashed the aforesaid guarantees whereupon petitioner was constrained to issue a legal notice dated 26-3-1994 to the respondent who replied through their letter dated 6-4-1994. The petitioner thereupon issued notice under section 306 of the Ordinance calling upon the respondent to pay up the outstanding debt within 30 days but the respondent failed and neglected to pay the same, hence this petition.
4. Respondent in its para were reply took the position that mobilisation guarantee was issued on the assurance that besides the performance guarantee, the sub-contractor would furnish Bank Guarantee in respect of mobilisation advance. Besides the above sub-contractor for obtaining mobilisation advance from the petitioner executed a Letter of Hypothecation in respect of movable construction machinery valued at US $ 27.3 million by way of security. It is averred that mobilisation advance was given against Bank Guarantee and Hypothecation of machinery. According to the respondent mobilisation advance insurance guarantee was taken on the understanding that mobilisation advance was fully guaranteed by the Bank and by Hypothecation of the machinery. It is further stated that mobilisation advance was repayable by the sub-contractor on pro rata basis in accordance with his running bills. It is urged by the respondent that it is not shown as to how much amount was deducted from the running bills of the sub-contractor who is alleged to have performed 28% of the work thus the amount claimed against the insurance guarantee fs not correct and for this reason respondent is not liable for encashment of the mobilisation guarantee.
Besides performance bond guarantee is not encashable for the reason that the petitioner did not inform the respondent that the work was not being done according to the schedule. While referring to the terms and conditions of the guarantees as pointed out in the petition, the respondent maintained that only amount due could be paid and on the face of it exact amount being disputed only a civil suit is proper remedy whereas the purpose behind filing the petition is to bring undue pressure on the company to extract money which is not due and payable.
5. During the pendency of the petition, respondent company moved C.M.A.736/1995 under Section 151 C.P.C, for stay of proceedings till the Companies Ordinance Case No. 4/1994 filed by the petitioner against the sub-contractor i.e. Highway Bridges Constructors International (Pvt.) Limited before Rawalpindi Bench of Lahore High Court is decided. Aforesaid case by the petitioner against the sub-contractor was filed before the Lahore High Court for winding up of the Highway Bridges Constructors International (Pvt.) Limited for its inability to pay its debt to the tune of Rs. 79.9 million and for restraining the said company from transferring any of its assets during the pendency of the liquidation. This application was seriously contested by the petitioner and came up for hearing before me on 20-2-1997 when the counsel for the petitioner and Mr. Riazul Hassan, advocate for respondent argued out it. At the request of Mr. Riazul Hassan further arguments and final orders were reserved as he requested for time to obtain instructions from the respondent for the reason that at the hearing, petitioner did not press the debt on account of performance guarantee worth Rs. 18.8 million and confined its claim to mobilisation advance guarantee in the sum of Rs.
1,26,00,000/-. On the subsequent date of hearing Mr. Abdul Rauf, advocate appeared and filed power on behalf of the respondent company with a request for adjournment.
6. In the meanwhile he filed C.M.A. No. 495/1997 under Section 151 C.P.C, which is argumentative in nature and says that the respondent is prepared to assign the decree obtained in Suit No. 852/1994 against Highway Bridges Constructors International (Pvt.) Limited in the sum of Rs. 3,15,98,483/- in favour of the petitioner in satisfaction of its claim. Without making any prayer the respondent asserted that it is in a position to make the payment of all claims of the petitioner after the share of the claim is received from the Reinsurers. This C.M.A, came up for hearing on 27-3-1997 when Mr. Abdul Rauf, Advocate did not press the earlier C. M.A. No. 736/1995 for stay of proceedings and since the petitioner had filed a counter-affidavit to C.M.A. 495/1997 declining to accept the offer of the respondent for assignment of the decree against the sub-contractor in its favour, further hearing was adjourned at the request of Mr. Abdul Rauf, Advocate. Although on that day C.M.A. No. 736/1995 was disposed of as not pressed, inadvertently office listed the said application for further orders under the wrong impression that C.M.A. No. 495/1995 stood disposed of as not pressed. On 10- 4-1997 however this application was heard along with the main petition and the judgment reserved. In the meanwhile respondent had moved another application under section 309 of the Ordinance, a copy whereof was supplied to other side in advance who filed a para were counter- affidavit to it in Court on 10-4-1997 when this application which was not numbered by the office was also heard.
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7. Mr. Abdul Rauf, learned counsel for the respondent with reference to the, documents filed along with his application in connection with Companies Ordinance case filed before the Lahore High Court contended with all emphasis at his command that in fact the. Petitioner had advanced mobilisation advance to the respondent on the basis of Bank Guarantee furnished by the sub- contractor which was subsequently found to be forged and not on the basis of mobilisation advance guarantee issued by the respondent company. It may be observed that this guarantee is dated 10- 2-1993 and was valid up to 9-7-1994. Mr. Abdul Rauf referred to the affidavit by petitioner's Director Mr. Y.K.Kim filed in Companies Ordinance Case No. 4/1994 before the Lahore High Court stating that the Highway Bridges Constructors International (Pvt.) Limited and its Chief Executive had not only acted fraudulently in preparing and fabricating the forged Bank Guarantees but had also caused the petitioner company to make payment on the basis of such guarantees causing wrongful loss to the company. He also referred to para-4 of the affidavit in which the petitioner's Director stated that the respondent had committed breach of contract by obtaining fraudulently mobilisation advance by giving forged and fabricated Bank Guarantees. Learned counsel also referred to the averments in the aforesaid affidavit admitting that the mobilisation advance was given to the sub-contractor against the Bank Guarantee and denied that the mobilisation advance was to be paid on the basis of insurance guarantee only furnished by the sub-contractor. By such references learned counsel attempted to persuade this Court that since the mobilisation advance was given by the petitioner to the subcontractor on the basis of Bank Guarantee and not on the basis of mobilisation advance guarantee issued by the respondent company, it was absolved of its liability and the proper course for the petitioner was to proceed against the sub-contractor on the basis of the Bank Guarantee which was found to be fraudulent and fabricated. Suffice to say, the mobilisation advance guarantee issued by the respondent company dated 10th February, 1993, Annexure-A to the petition very clearly-says that whereas the contractor has agreed to pay to the sub-contractor on the sub-contractor furnishing an irrevocable insurance guarantee, a mobilisation advance in the sum of Rs. 1,26,00,000/- to enable the subcontractor to mobilise for the construction of the said works and the sub-contractor has requested respondent company to issue the said guarantee for the amount of the above-stated mobilisation advance M/s. Platinum Insurance Company Limited (hereinafter called the Surety) hereby guarantee irrevocably and unconditionally to pay forthwith to the contractor without any reference to the sub-contractor oh the contractor's first demand in writing that the said mobilisation advance or any part thereof is due and has not been paid by the sub-contractor notwithstanding any contestation by the sub-contractor such sum not exceeding Rs. 1,26,00,000/-.
As under Section 128 of the Contract-Act the liability of the surety is co-extensive with that of the principal debtor, unless otherwise provided by the contract, the respondent cannot be heard to say that since the sub-contractor had furnished a Bank Guarantee and mobilisation advance was granted on the strength of the said guarantee the petitioner cannot seek winding up of the respondent for its inability "to pay the debt, A reference may be made to section 137 of the Contract Act which postulates .That mere forbearance on the part of the creditor to sue the principal debtor or to enforce any other remedy against him does not in the absence of any provision in the guarantee, to the contrary, discharge the surety. Likewise section 140 of the Contract Act provides remedy to the surety on performance of his obligation against the principal debtor. For the sake of advantage this provision may be reproduced hereunder which reads as follows: "Where a guaranteed debt has become due, or default of the principal debtor to perform a guaranteed duty has taken place, the surety, Upon payment or performance of all that he is liable for, is invested with all the rights which the creditor had against the principal debtor."
8. Analysis of the aforesaid legal position tends to show that the liability of the surety does not come to an end simply for the reason that the debtor has furnished some other security or guarantee for repayment of the debt. Indeed liability of the surety is co-extensive with that of the principal debtor and he cannot be absolved of his legal liability to discharge his obligation towards the creditor. In case the contention of the learned counsel is accepted, it may give rise to serious legal complications and leave the creditor with no remedy against the surety in the event of inability of the debtor to discharge his legal obligation. This argument canvassed in this respect is neither sound nor logical for it negates the statutory provisions of law and seriously offends the sanctity of a contract which must be adhered to at all costs.
9. It was next contended that under Section 126 of the Contract Act, there are three parties to the contract i.e. Surety, principal debtor and the creditor. Learned counsel submitted that the period of sub-contract was spread over 18 months whereas it was terminated by the petitioner corporation after 13 months and during this period sub- contractor must have carried out substantial amount of work and his running bills must have been adjusted against the mobilisation advance. He urged that in terms of the provision of law referred to- above, liability of the surety if at all any would be to the extent of actual amount due and outstanding against the principal debtor i.e. Highway Bridges Constructors International (Pvt.) Limited and not to the extent of entire amount of mobilisation advance guarantee. In this connection learned counsel referred to National Bank of Pakistan v.
Muhammad Tufail (PLD 1975 Karachi 671) and M.A Qadir Khan v. Bank of Bhawalpur (PLD 1984 Karachi 211). In PLD 1975 Karachi 671, Mushtaq Ali Kazi, J. (as he then was) dealing with a case relating to liability of the surety in terms of section 126 observed that the liability of the surety was coextensive with that of the principal debtor, if the liability of the principal debtors was not enforceable in law and did not exist there could not be any liability under a contract of guarantee.
In M.A Qadir's case which arose out of a suit for recovery of money in the context of a second appeal in terms of section 133 of the Contract Act, Salim Akhtar, J. (as he then was) expressed the view that a contract of guarantee implies the existence of three parties, creditor, principal debtor and surety and also a contract between the creditor and principal debtor which is the foundation of contract of guarantee. The surety would be liable and held bound to things he has guaranteed.
He cannot be held bound for things he has not contracted. It was further observed that once a variation in a contract between the creditor and principal debtor is made, their obligations are to be governed by the new terms and unless the surety has consented to such a variation there is nothing for which he can be bound because the obligation of the principal debtor would be different from what he had guaranteed.
9- A. To my mind both the cases referred by the counsel are of no assistance to him for the reason that I am not called upon to determine the liability of the surety in a suit. I am only concerned with the liability of the respondent company for its inability to pay its debt for its obligation towards the petitioner in the back-ground of a petition for winding up under section 305 read with Sections 306 & 309 of the Ordinance.
10. After the close of the arguments in the Court but before the dictation of the judgment, learned counsel has chosen to submit short notes of his arguments in office behind the back of the petitioner's counsel in which he also cited Habib Bank Limited v. Waheed Textile Mills Limited (PLD 1989 Karachi 371) which is a suit decided by Mamoon Kazi, J. (as he then was) brought by Habib Bank Limited against the debtor and guarantor under Order XXXVII rules 2 & 3 C.P.C, and Section 7(2) of the Banking Companies (Recovery of Loans) Ordinance, 1979. Learned counsel has placed reliance on paragraph .(C) dealing with a contract of indemnity which has been defined by Section 124 of the Contract Act as "a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person..". A contract of guarantee on the other hand, has been defined by section 126 of the Contract Act as: "a contract to perform the promise, or discharge the liability, of a third person in case of his default.
The person who gives the guarantee is called the 'Surety', the person in respect of whose default the guarantee is given is called the 'Principal Debtor', and the person to whom the guarantee is given is called the 'Creditor'."
In this cape learned Single Judge presently Chief Justice of this Court expressed the view that a contract of indemnity, therefore, contemplates only a promisor and a promisee. Furthermore, in a contract of indemnity there is no privity of contract between the surety and the debtor while in the case of the contract of guarantee, surety, creditor and principal debtor are all parties to the contract. On a plain reading of the case which arose out of suit by a Banking Company against the borrower and a guarantor application of Section 124 of the Contract Act relating to the contract of indemnity in the facts of the case in hand may be completely out of context. I have already dealt with the liability of the surety in the context of Section 126 of Contract Act in the foregoing paragraphs. Suffice to say, the case does not seem to be relevant to the defence plea raised by the respondent company. Undisputedly, after executing irrevocable and unconditional guarantee for repayment of the advance on petitioner's first demand without any reference to the principal debtor and notwithstanding any contest by the said debtor, respondent has hardly any case to say that it is not liable to pay the debt particularly when this guarantee was confirmed in writing by its letters dated 16th February, 1993 and 24th January, 1994, Annexures-C & D to the petition which have not been assailed.
11. I am also not impressed by the point raised on behalf of the respondent that the mobilisation advance granted by the petitioner company was adequately guaranteed by Letter of Hypothecation in respect of machinery in the sum of US $ 27.3 million. The petitioner in the event of default on the part of principal debtor should have sold out the machinery belonging to the debtor. Learned counsel was not able to convince me as to how and under what authority could the petitioner without reference to a Court law dispose of the machinery belonging to the sub-contractor. It is not known whether such machineries are available in the custody of the petitioner company and at any rate no principle of law or authority has been shown to exist to authorise the petitioner to dispose of such properties in the event of default. The argument on the face of it is preposterous and unconvincing. The only remedy for a creditor in such cases seems to be a petition for winding up which has since been filed against the sub-contractor before Lahore High Court. At least I doubt whether the creditor in the given circumstance is authorised by law to dispose of movable properties of a debtor without recourse to Court of law.
12. It was then contended that under Sections 305 & 306 of the Ordinance, surety is liable to pay the liability of the principal debtor but the condition for invoking such jurisdiction is that the debt of the principal debtor must be undisputed and admitted. Argument proceeds on the assumption that if the debt is denied and disputed by the principal debtor, surety cannot be held liable for the amount mentioned in the guarantee. In this connection learned counsel vainly attempted to refer to a plain copy of the written statement purportedly filed on behalf of the sub-contractor against the petitioner in the company case pending before the Lahore High Court. Notwithstanding the defence raised by the sub-contractor in the winding up petition filed against it before the Lahore High Court. I am of the considered view that the respondent as surety and guarantor for repayment of the debt is neither discharged nor absolved of its liability to pay on demand the debt to the petitioner company which even if disputed is not a valid and sound defence in the case in hand. So called bona fides of the respondent company can be inferred from the circumstance that the company did not care to reply to the statuary notice issued by the petitioner and in response to the earlier notices it took a completely evasive and irresponsible stand. At any rate, despite my repeated queries, learned counsel was unable to state as to how much amount according to the respondent company is payable by it. It may j be observed that in February, 1997 Syed Riazul Hassan, previous counsel for the respondent had sought adjournment to Obtain instructions from the company but surprisingly he was replaced by Mr. Abdul Rauf who went on filing applications one after the other, after seeking a short adjournment to address the Court on the merits of the petition. In his additional notes of arguments, learned counsel has referred to the judgments reported in PLD 1971 Karachi 597, PLD 1986 Karachi 409, PLD 1992 Karachi 249 and 1993 , CLC 1540. It is not necessary to refer to such cases in view of the authoritative judgments reported as Pakistan Industrial Credit and Investment Corporation v. Kalyal Kashmir Tenneries (1995 CLC 1483), Ali Woolen Mills u. Industrial Development Bank of Pakistan (PLD 1990 SC 763) and Sindh Glass Industries Limited v. National Development Finance Corporation (PLD 1996 SC 601).
13. To my mind, respondent has failed to raise a bona i.e and genuine dispute about its indebtedness and by virtue of Section 306(1) (a) I am justified in raising a strong presumption that the respondent company is unable to pay its debt. No doubt this presumption of law is always rebuttal but the respondent company has failed to negate the presumption arising against it.
Indeed the respondent has failed to bring forth sufficient material on record to dispute the debt outstanding against it.
14. Learned counsel finding him on weak wicket, lastly maintained that the respondent is an Insurance Company and it undertakes Marine, Fire and Miscellaneous insurance business. In addition the insurance company undertakes to issue performance bonds and guarantees as would be evident A from Annexures-C, D, E & F attached to CMA 495/1997. These annexures are photostat copies from certain Registers indicating the names of insured showing the particulars of value, premium, receipt numbers, date of payments and dates of expiry. Such statements are neither authenticated nor certified public documents. Be that as it may, the contention proceeds on the premises that entire business of the company is compulsory reinsured with Pakistan Insurance Corporation and under Section 26 of the Pakistan Insurance Corporation Act, 1952 the said corporation is bound to contribute in settlement of the claims to the extent of reinsurance.
While admitting that the said corporation does not accept the performance bonds and guarantee business as a matter of policy, learned counsel submitted that the respondent company has reinsured the bond and guarantee to the extent of 100% with foreign Reinsurance Companies. Be that as it may, the argument is completely misconceived and hardly relevant in the circumstances of the case. At any rate, I am least impressed by this submission which appears to be unique in its nature. Assuming for the sake of argument that the normal business of the respondent company is reinsured with foreign companies as suggested, petitioner cannot be advised to seek the settlement of claim against such foreign companies.
15. For the aforesaid facts and reasons and in the light of the case-law on the subject, I am of the confirmed view that the respondent company is hopelessly unable to pay its debt and the circumstances of the case fully justify to hold that it is just and convenient to direct the winding up of the company. Accordingly petition is accepted and company ordered to be wound up. With the decision of the main petition, two CMAs heard along with the petition stand disposed of. Official Assignee of Karachi is appointed as Official Liquidator to take over the affairs of the company with all powers under the law.