1. This is a petition for winding up Messrs Alliance Motors (Pvt.) Limited hereinafter referred to as the company) under sections 305, 306, 307 read with section 327/330 of the Companies Ordinance, 1984 (hereinafter referred to as the "Ordinance"). The petitioner being one of the directors of the company. The company was incorporated as Private Limited Company under the Ordinance vide Certificate of Incorporation NoX000027 of 1987 dated 14-7-1987. The registered office of the company is situated at Alliance Motors Building, Main University Road, near Subzi Mandi, Karachi.
2. The authorised capital of the company is Rs.50,00,000 (Rupees Five Million) divided into 50,000 shares of Rs.100 each. The subscribed arid paid-up capital of the company is Rs.400 as at date. The subscribers of the company were the petitioner and respondents 2, 1 and 4. The primary object of the company inter alia was to carry on the business as dealers in new and old cars, Mini Buses, Lorries, Motors Vans, Trucks, all kinds of accessories, Motor Cycles, Motor Scooters etc. The case as set out in the petition in that the business of the company, however, from its inception was to run Modaribah in accordance with Shariah and the investors used to receive profits, which varied and calculated according to the range of business by the company.
3. The petitioner has alleged that the collection of the said investment was entrusted to the respondent No.3, who used to control the investment and receive the monies. The company continued to pay a part of its profits to its numerous investors every month regularly and part of the profits as well investments received from time to time was utilized in financing the companies/firms. The petitioner has also annexed a provisional list as annexure ' B' to the petition.
4. The further case of the petitioner is that the modus operandi of receiving investment by the company was that investors /creditors used to come and deposit varying amounts either directly or through D.M. Dar Mudaribah, who had authority on behalf of the company to both collect investments as well as distribute profits to those investors/creditors.
5. The petitioner has alleged that the Government for ulterior, reasons propagated prejudice against investment companies of which the company was also unduly affected and this had adverse impact upon the creditors/investors with manifold resulting in stampede at the registered office of the company. This was aggravated by the misfeasance and malfeasance of the Directors of respondent company being respondents Nos.2,3 and 4 and thus the company at a moment's notice could not reply the infuriated investors. The respondents Nos.2 and 3 in order to absolve themselves illegally revived M/s: T.J. Ebrahim & Co. And caused respondent No.5 to sign an affidavit before Income Tax Authorities in the supposedly larger interest of investors, although the monies were received in the name of the company.
6. The petitioner has alleged that the respondents Nos.2 to 4 and their henchmen taking advantage of the crises climaxing in or about October, 1988 took away the 200 brand new Motor Cars, Vans, Coasters, etc. Belonging to the respondent Company which was at that time parked on the grounds of the Registered Office of respondent Company and thereafter furious investors/Creditors of the respondent Company came and ransacked its premises and destroyed records, furnitures and other assets belonging to the respondent Company because they failed to get their money back.
7. The petitioner has further alleged that the management of the respondent Company had to take shelter and hide themselves from the erroneous fury of the Creditors/Investors because the respondent Company had no cash liquidity. The petitioner and respondent No.5 on getting assurances emerged and get themselves released on bail whereas respondents Nos.2,3 and 4 are still in hiding and cannot face the Creditors/Investors at large on account of their misfeasance and malfeasance committed by usurping the movable and immovable properties belonging to the respondent Company.
8. The petitioner has further alleged that the respondent No.2 as Chief Executive of the respondent Company and in active collaboration with his brothers respondents Nos.6 and 7, invested most of the funds, so received from the investors/creditiors, in the name of their friends, relative and acquaintances as Benamidars, Provisional List has been annexed by the petitioner as Annexure ' C' to the petition.
9. The further case as set out in the petition that, the petitioner in this short space of time has been able to discover the aforesaid provisional list (Annexure 'C') regarding assets held by respondents Nos.2,3,4 and 7 and he is making efforts to search and trace out the other Benami holdings of the aforesaid respondents and craves liberty and permission to move appropriate applications on the discovery of new and other holdings both movable and immovable and things/chose in action held by the said respondents either in their personal name or in the name of their Benamidars.
10. The further case of the petitioner is that the company was managed by Chief Executive, respondent No.2 in collusion with respondent Nos.3 and 4 who have failed to maintain proper and true accounts and have committed fraud upon the petitioner as well as the respondent No.5 and thereby committed misfeasance and malfeasance in relation to the company and took away over 50% of the assets of the company resulting in the company unable to contingent and prospective liabilities. The petitioner has stated that Suit No.879/88 for recovery of Rs.2,53,648 has been filed against the company in this Court. Suit No.244 of 1988 for recovery of Rs.2,99,31,716 has also been filed in this Court.
11. The petitioner has raised the following grounds for winding up of the company:----
(1) The company has defaulted by not holding, two consecutive Annual General Meetings as envisaged under section 305(b) of the Ordinance.
(2) The company has suspended the business for more than a whole year.
(3) It is just and equitable that the company be ordered to be wound up at the present there is no other remedy available to the petitioner other than its being wound up.
(4) The company is unable to pay its debts.
12. This Court admitted the petition and notice was ordered to be served at the registered office of the company. The notice was returned unserved. The substituted service was ordered and also by affixing copy of notice on the registered address as well as on the conspicuous place of Court notice.
13. The notice was published in the newspaper. The company has not entered appearance. Mr. Imran Ahmed, Advocate undertook to file Vakalatnama on behalf of respondent No.2.
14. Mr. Saleem Karamally has pressed the above grounds for winding up of the company.
15. Mr. Imran Ahmed, the learned counsel for the respondent No.2 has fairly conceded that the company has suspended the business for more than a year and it has committed default in holding two consecutive Annual General Meetings. He has no objection if the respondent Company is being wound up.
16. I have duly considered the arguments of the learned counsel. It is not disputed that the company has suspended its business for more than a year. It is also not disputed that it has committed default in holding any two consecutive annual general meetings. It is also not disputed that the company is unable to pay its debts.
17. "305. Circumstances in which company may be wound up be Court.----A company may be wound up by the Court---
(a) .............................
(b) if default is made in delivering statutory report to the Registrar or in holding the statutory meeting or any two consecutive annual general meetings;
(c) if the company does not commence its business within a year from its incorporation or suspends its business for a whole year;
(d) ..............................
(e) if the company is unable to pay its debts;
(f) ..............................
(g) ..............................
(h) if the Court is of opinion that it is just and equitable that the company should be wound up."
18. Section 305 of the Ordinance provides the circumstances under which the company may be wound up by Court. Under clause (b) if default is made in delivering the statutory report to the Registrar or in holding the statutory, meeting or any two consecutive annual general meetings, it is liable to be wound up by this Court. Under clause (c) if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year, it is liable to be wound up. Under clause (e) if the company is unable to pay its debts, it is liable to be wound up.
19. Under clause (h) if the Court is of opinion that it is just and equitable that the company may be wound up, it is liable to be wound up.
20. A petition on the ground of clause (b) can be made by a member, Registrar of Companies and by a credit. The Court will not generally make an order of winding up in the first instance. The Court desires the company to file the statutory report or to hold the statutory meeting or to hold annual general meeting and extend the time therefor. If the company fails to comply with the order then the Court will wind up the company. The directors may be held personally liable for costs.
21. From the facts and circumstances of the case, it appears that the company is unable to hold annual general meeting. In this view of the matter the petitioner has made out a prima facie case for the winding up of the company on this ground.
22. Clause (c) of section 305 of the Ordinance provides that if a company, suspends its business for the whole year, then a discretion has been given to the Court in such a case to wind up the company. Even if the business is suspended for the whole year, this by itself does not entitle the petitioner to get the company wound up as a matter of right, but the question whether the company would be wound up or not in such a circumstance is entirely in the discretion of the Court depending upon the facts and circumstances of each case.
23. "998. Non-commencement or suspension of business. ---Non---commencement of business within a year refers to business activities, not the mere allotment of shares. An order on this ground may be made even though the majority of the shareholders oppose it, brut an order will not be made where the company has commenced business abroad within the year and a genuine intention is shown to commence business in this country.
24. An order will not be made on the ground that the company has suspended its business for a year if a petitioning shareholder is opposed by a large majority of the shareholders and there is a genuine intention to proceed with the business. A company does not cease to carry on business because it has given up part of its business. An order may be made even though nothing has been paid on the shares and there are no debts."
25. The question is whether on this account an order for winding up the company should be passed.
26. Clause (c) of section 305 of the Ordinance provides that the company may be wound tip if the company does not commence its business within a year or suspends its business for a whole year.
27. The question as to what the expression 'suspends its business' means has been discussed in Re: The Tomlin Patent Horse Shoe Company Ltd. (1986) 55 L.T.R. 314) in which Chitty, J. Said: "Although there may be a suspension of the business of a company for the space of one year, the Court will not make an order, under subsection (2) of section 79 of the Companies Act, 1962, to wind-up the company unless it is satisfied that there has been an intention on the part of the company to abandon its business or inability to carry it on."
39. The learned Judge said that the phrase "suspends its business" did not mean the same thing as that "business has been suspended". He further said that upon the question of intention, the Court will have regard to the opinion of the majority of the shareholders. ---... That the decisive question must be the question whether at the date of the presentation of the winding up petition there was any reasonable hope that the object of trading at a profit with a view to which the company was formed, could be attained. In considering that question, the guarantee of the preference shares should be left out of sight, except in so far as it may have biased the evidence on either side. It should be observed that in this case there is no question of a deadlock, nor is there any question of shareholders who have the voting power using that power for their own commercial interests outside the Company in disregard of the interests of a minority. Not again, is there any question involved of an improper management of the Company by the directors who are in control. The problem involved is of the nature of a business problem. If there was at the relevant time a reasonable hope of tiding over the period of deep depression and of emerging, into a region in which the Company might reasonably expect to carry on at a profit, there would seem to be no sufficient reason why the Court, regard being had to be essential character of the bargain made between the parties on the formation of the Company, and considering the matter from much the same standpoint as if the Company were a private partnership, should wind up the Company under the just and equitable clauses."
28. "It s not the function of a Court to determine such a matter on its own views as to probable success or failure, but to form the best opinion it can upon the evidence given by persons with a practical knowledge of the trade in question and the local conditions where these affect the matter. "
29. "Where the past delay is sufficiently accounted for and where the Court is satisfied that there is a likelihood of the business being resumed, it may not exercise its discretionary power against the company, but if the Court is satisfied that no business has been or is likely to be commenced, it should pass an order for winding up of the company on the petition of the shareholders.
30. Suspension of a business for a whole year is usually deemed as an indication of absence of intention to carry on the business, unless suspension has been satisfactorily accounted for. "
31. The company has not made appearance. Only respondent No.2 made an appearance through his counsel, Mr. Imran Ahmed. The learned counsel has stated at the Bar that the Company has suspended business for more than a year.
32. It is the case of the petitioner that the company is unable to pay its debts and that it is just and equitable that the company should be wound up. The circumstances call for no proof of inability on the admitted facts. There are huge debts, which, as matters stand, are far beyond the means of the company to meet. Even so, a Court will exercise sound discretion in deciding whether to wind up a company or not and in doing so consider many relevant factors. It may be that despite the inability to pay its debts a company has still prospects of coming back to life and if the Court is told of any specific proposal, inclined to give a chance to resurrect the company. It should be the policy of the Court to attempt to revive though at the moment the company may not be solvent and may not be able to meet its obligations to its investors/creditors. But this should be only if it is shown that there is reasonable prospect for resurrection or revival. It may be easy for a Court when once it is shown that the company is unable to pay its debts to bury it and distribute whatever is available as distributable surplus. But it is the duty of the Court to welcome revival rather than affirm the death of the company and for that purpose the Court is called upon to make a direct exercise.
33. On the facts of the case, I do not think there is any reasonable prospect of the company reviving its normal operations or business. I do not think that by prolonging these proceedings, the situation would, in any way, be improved and, therefore, I feel that putting off the final decision will only be putting off, the evil day and in the process putting the investors and creditors to further loss and difficulty. That would only tend to reduce the distributable surplus of the' company as necessarily passage of time would increase the liabilities of the company without there being any corresponding increase in the assets.
34. Therefore, the Court does hereby order that the respondent No. l company be wound up in accordance with law and the Provisional Liquidator, Mr. Bashir Ahmed Memon is hereby appointed as the Official Liquidator of the respondent No. l company.
35. The Official Liquidator shall take all steps to recover the debts, other amounts due to the company from its debtors and recover all movable and immovable properties belonging to or standing in the name of the company in accordance with the details available in books and records of respondent No. l company which he has seized or otherwise taken possession of. The Official Liquidator shall exercise all the powers and discretion under the Ordinance to discharge his duties as Official Liquidator.
36. The costs of Liquidator shall be come out of the funds of the company, realised from time to time. It is ordered accordingly.