' This order shall dispose of Civil Miscellaneous No,674-L of 1995 in Civil Original No,88 of 1995 and Civil Miscellaneous No,724-L of 1994 in Civil Original No, 9 of 1994. In both these applications the question which arises for consideration is as to whether an application under section 34 of the Arbitration Act, 1940 can be moved to seek stay of proceedings in a petition for winding up under the Companies Ordinance, 1984.
2. In view of the limited nature of controversy before this Court, it is unnecessary to set out the facts in detail. Suffice it to say that by filing these petitions, the petitioners have invoked the jurisdiction of this Court under sections 305, 306, 309 and 319 of the Companies Ordinance, 1984 for compulsory winding up of the respondents which are Companies incorporated under the Companies Ordinance, 1984. One of the ground enumerated in each of the petition for winding-up is that the respondent is unable to pay its debts and mismanagement.
3. Instead of filing their replies, the respondents-companies have moved an applications under section 34 of the Arbitration Act, 1940 praying that in view of the arbitration agreement between the parties the disputes arising between them were required to be settled through arbitration, the proceedings in the winding up petitions be stayed. In Civil Original No,88 of 1995 in order to show the existence of arbitration agreement the respondent-Company has placed reliance on clause 29 of the loose agreement between the parties while in the other civil original, reference has been made to clause 100 of the Articles of Association.
4. The existence of arbitration agreement between the parties has not been disputed by the petitioners in their replies. They have, however, taken an objection that the proceedings for winding-up cannot be stayed under section 34 of the Arbitration Act, 1940.
5. In support of these petitions, the learned counsel appearing of the respondents-Companies has argued that section 34 of the Arbitration Act, 1940, applies not only to the suits but to all legal proceedings before a Court of law including these arising out of application for winding-up. On the other hand, learned counsel for the petitioners maintained that nature of proceedings for winding up of Company is such that it can only be tried in this Court and the dispute raised therein cannot be referred to arbitration.
6. Before proceeding to examine these contentions it appears appropriate to reproduce section 34 of the Arbitration Act, 1940 which reads as under:-- "Power to stay legal proceedings where there is an arbitration agreement.-Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in the proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceedings; and if satisfied that _ there is no sufficient reason why the matter should not be referred tin accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, such authority may make an order staying the proceedings."
7. It is true that section 34 speaks of stay of legal proceedings and not suits alone. Similarly it is also correct that there can be proceedings which may not be in the nature of a suit which if taken in derogation of arbitration agreement between the parties must be stayed. However, the wide amplitude of the words "legal proceedings" is hedged by one condition mentioned in the provision under discussion itself which is that the legal proceedings must be in respect of any matter agreed to be referred to the arbitration. The question which therefore, arises is as to whether winding up is a matter which can be referred to arbitration even if the parties so agreed. In the present cases, arbitration agreements did not specifically provide for reference to the dispute regarding winding up of the Companies to arbitration but even if there was such a provision in the arbitration agreements it would not have made any reference as I am of the view that by its very nature the winding-up is a matter which has to be decided by this Court in the exercise of its special statutory jurisdiction and cannot be subject matter of arbitration nor can order of winding up be passed by Arbitrator. Section 305 of the Companies Ordinance, 1984 confers exclusive jurisdiction to wind up a company, upon the Court, which according to the Ordinance means the High Court and not any other Court. Such a power cannot, therefore, be assumed by Arbitrator or any other Court.
8. Furthermore, the proceedings for winding up cannot be considered as proceedings to enforce any claim arising under an agreement. This is true, even in a case where the winding up is sought on the ground of failure of the Company to discharge its debts, for, in that event also no decree for recovery of any amount is passed in favour of the petitioner before the Court. On the other hand, as a consequence of the winding up order, the Court proceeds to settle the affairs of the Company by realising its assets, paying off the debts and the contributories, even if some of them are not parties before it.
9. In Pakistan Industrial Credit and Investment Corporation Ltd. v. Premier Rubber Belting and Manufacturing Co. Ltd. Karachi PLD 1973 Kar. 326 in which Tufail Ali A. Rehman, C.J. (as he then was) observed that application for winding up cannot be considered as being proceedings to enforce any claim under any agreement, even though the ground on which winding up was sought may be inability to pay the debts. This judgment was followed by my learned brother Munir A. Sheikh, J.
While dismissing Civil Miscellaneous No,321-L of 1993 in Civil Original No,66 of 1992 on 16-5-1995 taking the same view.
10. There are two cases from Indian jurisdiction to which reference may be made with advantage.
In the first case, William Jacks & Company (India) Ltd. v. Saraswati Industrial Syndicate Limited (1986) 59 Company Cases 876), a Division Bench of the Punjab and Haryana High Court observed that petition for winding up cannot be treated one for recovery of any amount due from the Company and that the powers to wind up a Company cannot be exercised by arbitrator. In the other case of Hind Mercantile Corporation (P.) Ltd. v. J.M. Revenue & Co. Ltd. (1971) 41 Company Cases 548, it was observed that relief claimed in the winding up petition cannot be said to arise out of or under the contract as to be referable under the arbitration.
11. It follows from the above that applications for winding up of the Companies filed under the Companies Ordinance, 1984 are not liable to be stayed under section 34 of the Arbitration Act, 1940 for the reason that though such applications might be considered to be legal proceedings within the meaning of section 34 of the Act but these proceedings cannot be said to be for enforcement of any claim under the arbitration agreement and that the petitions for winding up cannot be treated to be suits for recovery.
' In view of above, these applications are found to be without any force and are dismissed.