' SALEEM AKHTAR, J.-These three direct appeals were filed against the judgment of the learned Judge in Chamber whereby winding up petitions filed against the appellant by different creditors were allowed.
2. In Appeal No,1-K of 1991, M/s. National Development Finance Corporation had filed petition against the appellant for winding-up under sections 305, 306, 290 and 292 of the Companies Ordinance, 1984. It was pleaded that the respondent granted to the appellant a foreign currency loan of US 6,067,000 pursuant to a credit agreement dated 1-2-1984, which was to be repaid in consecutive semi-annual instalments commencing from 1-3-19a7 and ending on 1-9-1994. Within the said sum, an amount of US 1,00,000 was the responsibility of Industrial Development Bank of Pakistan (IDBP). This loan was repayable by the appellant. The appellant acknowledged liability and by way of security for repayment, executed several documents including promissory note, memo. Of deposit of title deeds, undertaking to create mortgage, hypothecation, certificate of registration of mortgage, irrevocable general power of attorney, pledge agreement, undertaking signed by Syed Ali Azhaar Naqvi for himself and his wife and power of attorney executed by him.
Subsequently at the request of the appellant four additional bridge loans of Rs,59,00,000 each were advanced for which separate agreements were executed and similar documents as stated above were also furnished. At the request of the appellant, four bridge loans together with accrued interest and other charges aggregating Rs,2,31,88,000 were converted into long term finance on mark-up basis and accordingly an agreement was executed between the parties and as a result of conversion the mark-up price amounting to Rs,6,04,17,152 was to be repaid by the appellant in 16 half-yearly instalments commencing from 1-3-1987. Again fresh documents of security as stated above were executed by the appellant. Subsequently, an additional bridge finance of Rs,81,10,000 was granted to the respondent. An additional local currency finance in the total sum of Rs,6,26,00,000 was also granted, which was to be paid before the dates specified in it commencing from 1-2-1989. The appellant failed to pay the loan advanced to it. According to the respondent on 15-2-1990 a sum of Rs,29,24,09,635.58 was due and payable. A notice for repayment of the amount due was served on the appellant, but as it did not pay any heed, petition for winding-up of the company was filed showing a debt of Rs,31,41,14,963.95 as on 19-3-1990. The liability of the appellant in C.A.2-K. Of 1991 and C.A.3-K of 1991_ was Rs,1,61,78,439.05 and Rs,62,93,750 respectively and on the appellant failing to pay it, the respondents filed petitions for winding-up of the company, which were allowed by the impugned judgment. The learned Judge-in-Chamber, after disposing of several preliminary objections, which have not been raised here, came to the conclusion that no evidence was produced on behalf of the appellant to establish that it was commercially solvent. Its business had been closed from the year 1989 and from the very inception it was operating in loss and that it owed large sums of money not only to the single creditor, but many creditors and four of them had filed petitions against it.
3. Mr. Akhtar Ali Mehmud, learned counsel for the appellant contended that the petitions were mala fide and were intended to frustrate the proceedings launched by the appellant before the Ombudsman and that there are sufficient assets for which if a working capital is provided, the company can restart and pay its debt. The main emphasis of the learned counsel was that the winding up proceeding was mala fide and the real object was to deprive the appellant from taking proceedings against the respondent before any other forum. Reference was made to various disputes between the parties from which it seems that a civil suit was filed by the appellant for specific performance of the contract as payment of the entire loan was not made and also that F.I.R. Was lodged by the respondent against the appellant. There seems to be a compromise between the parties whereby the suit and F.I.R. Both were withdrawn. However, one important aspect of the case is that the appellant does not deny that the huge amount is due and payable to the respondents in each of the three appeals and that presently it is not possible for it to make the payment.
4. The petitions were filed under sections 305, 306, 290 and 292 of the Companies Ordinance, 1984.
Under section 305 of the Ordinance, the Court is empowered to wind up a company on a petition filed by a creditor on the ground that the company is unable to pay its debt. Section 306 provides the meaning of the words "unable to pay its debt" and reads as follows:- "306. Company when deemed unable to pay its debt.--(1) A company shall be deemed to be 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, 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 subsection (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, or in the case of a firm if it is signed by such agent or legal adviser or by any member of the firm on behalf of the firm."
Under section 306(1)(a), if a creditor serves a notice for repayment of the amount due as specified in this provision, by registered post, demanding it to pay the sum due and the company refuses or neglects to pay for 30 days thereafter or to secure or compound to the reasonable satisfaction of the creditor, then the company shall be deemed to be unable to pay its debt. In such circumstances, presumption will be that the company is unable to pay its debt. This would be a sufficient proof of company's inability to pay its debt, but such presumption is rebuttable 'and if the company is able to show that it has sufficient assets to pay the debts, then the Court will inquire into it to satisfy itself whether it is unable to pay the debts. In order to discharge this burden, the company cannot by mere denial of liability avoid winding up action under this provision. It is the first and foremost duty of the creditor to show that an amount as required by law is due and the company is indebted in a sum of money presently due and payable. The inability to pay an undisputed debt as a rule may lead to a conclusive proof of the fact that the company is unable to pay, debts, however, when the company disputes any debts, it should bring forth sufficient material to rebut-the presumption arising from section 306 (1)(a) that the debt is either not due or there is a bona fide dispute. Mere flat denial without showing that there exists bona fide and genuine dispute about the indebtedness will not displace the presumption of inability to pay. In re: Bryant Investment Company Ltd. (1972) 2 All England Law Reporter 683, it was held that "neglect to pay after a demand by a creditor is cogent evidence that the company is unable to pay its debts, but a company will not be deemed unable to pay its debts where the relevant debts are not yet due for repayment". A dispute as to the precise sum owing to a creditor if it does not extinguish the debt was held in Re: Tweeds Garage Ltd. (1962) 1 All England Law Reporter 121 not to be a genuine and legitimate dispute. In Man (1968) 2 All England Law Reporter 679, it was observed that where the existence of ,debt on which winding up petition is founded is disputed on grounds showing a substantial defence requiring investigation, the creditor/petitioner was held to have no locus standi and Companies Court was not a proper forum for decision. Therefore, the company, in order to defend a winding-up petition should raise legitimate and bona fide issue disputing the liability to pay. Any debt which cannot be disputed on legitimate and bona fide grounds, the same shall, if the company is unable to pay, would furnish a ground for winding-up. In Palmer's Company Law, Volume I, 22nd Edition, the principles in this regard have been set out in the following words:-- "Almost the only answer open to the company is to show that the debt claimed is bona fide disputed, in which case a winding-up petition is not a proper mode of enforcing it. Where the debt is undisputed, it is futile for the company to say, We are able to pay our debts, but we do not choose to pay this particular debt. The Court will not listen to such a defence. Similarly, where there is no doubt that the company owes the creditor a debt entitling him to a winding-up order and only the precise amount of the debt is disputed, the Court will make a winding-up order without requiring the creditor to quantify his debt precisely. Where the debt is undisputed, but the company has a genuine cross-claim against the petitioning creditor, it is a matter for the discretion of the Court whether a winding-up order should be made, although the normal practice would be to dismiss the petition or stand it over until the cross-claim has been heard."
' In Trade & Industry Publications Ltd. v. Industrial Development Bank of Pakistan PLD 1990 SC 768, Naimuddin, J. Made the following observation:-- "As regards the submission that the respondent should have proceeded under section 38 of the I.D.B.P. 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 that he is in a position to pay the debts, the plea is not of such 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 Bangal 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: Loughlas (Griggs) Engineering Ltd., 1962 All ER 498.
' In this case it was observed by Penny quick, 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 November 14, 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."
' Similar view was also expressed in Pak Davis & Co. Ltd v. Bliss & Co. Ltd. PLD 1982 Karachi 94 and Industrial Development Bank of Pakistan v. Modem Poultry Farm Ltd. 1990 CLC 1030.
5. Pennington in Company Law writes that if the Company contends that it is not liable to him (creditor) and can satisfy the Court that it has a substantial and reasonable defence to plead, the Court will hold that it is not in default and would refuse to make a winding up order.
6. The inability to pay its debts can be demonstrated from the Company's contingent and prospective liability and the debts which are immediately payable. The insolvency of the company is established if it is unable to pay debts due and payable from the realisable assets in hand and the fact that the debts can be paid out of the assets over a lengthy period of time will be immaterial. According to Pennington, "the company will also be unable to pay its debts if it has no reasonable prospect of paying all of them, both accrued and prospective, by a steady realisation of all its assets, and in this case it will be immaterial that it can pay its accrued debts out of its liquid resources".
7. Applying these principles to the facts of the present case, we find that the indebtedness has not been denied, but it has been alleged that the winding up petition is not bona fide. If a party challenges bona fides, it must state facts to show that the action taken against it suffers from mala fides. Mere statement that I it was intended to frustrate the proceedings before the Ombudsman can hardly demonstrate mala fide of the respondent because considering the nature of jurisdiction Ombudsman exercises, this plea can hardly sustain. Even otherwise, the Ombudsman had heard the case and decided it, which is not of much help to the appellant.
8. The next ground to prove mala fides was that the respondent had appointed Sh. Mahmood as the Chief Executive and he had closed the factory. According to the appellant, the entire administration and the factory had been taken over and run by the respondent through Sh.
Mahmood. The facts on record belie such contention. Sh. Mahmood was appointed with the consent of the appellant under an agreement consisting of many other conditions to effectively run the factory but it seems that Mr. Naqvi did not allow him to function inasmuch as he offered to resign because there were threats to his life and safety. The record also shows that pledged stocks were surreptitiously removed and disposed of. All these facts do not justify the contention of the learned counsel for the appellant. A winding up action which lacks bona fides and is intended to pressurise the company to pay the debt cannot succeed. In Mulla Abdullabhai and 9 others v. Saria Rope Mills Ltd. PLD 1971 Kar. 597, Qadeeruddin Ahmed, C.J. Had observed that the winding-up petition is not a substitute for a suit. If, on the other hand, the object of a creditor applying for winding up a debtor-company is to bring pressure on it, then it is an abuse of legal process and by itself sufficient to displace the prima facie position that a, creditor is entitled ex debito justitiae to a winding-up order. See Nawabzada Captain Syed Murtaza Ali Khan v. Stressed Concrete Construction (Private) Ltd. (1906) 2 Chancery Division 327. It is wrong to unnecessarily resort to winding up proceedings because there is an implied threat in them to bring disaster to the company and because an odium is also attached to such proceedings".
9.The 'eared counsel for the appellant admitted that the appellant has no working capital and if Rs,62 million is provided, then it would be in a position to manage the affairs and pay the debt in five years. This clearly shows that tut appellant is not a commercially solvent company and that on furnishing working capital, which is a huge amount, will be reorganised and steadily pay in times to come. Such grounds can hardly be considered for defeating the winding-up petition.
10. So far Civil Appeal No,2-K of 1991 is concerned, the same contentions discussed earlier were raised. Additionally it was contended that respondent No,1, namely, Investment Corporation of Pakistan is not a creditor, and therefore, the petition for winding-up could not have been filed. This contention was not raised by the appellant in the High Court nor it finds place in the memo. Of appeal. From the impugned judgment it is clear that the appellant had acknowledged its indebtedness, and therefore, at this stage a plea which is contrary to the stand taken earlier cannot be allowed to be agitated.
11. In Civil Appeal No,3-K of 1991 besides the contentions raised in Civil Appeal No,1-K of 1991, the only objection raised was that the petition was mala fide as B.C.C.I. Had filed a suit in the High Court and during its pendency the winding up petition was filed. The respondent along with Investment Corporation of Pakistan and National Development Finance Corporation had jointly financed the appellant and as both the financers had filed winding-up petitions, if the respondent joined their hands and filed separate petition, it does not reflect their N mala fides. Moreover, the pendency of the suit is no bar to filing a petition for winding-up unless it is proved that it has been filed merely to pressurise the debtor and without bona fide intention as discussed above. The appellant has (I failed to establish that the petition for winding-up was filed mala fide. All the three appeals are dismissed.