' By this petition under section 305 of the Companies Ordinance, 1984 (hereinafter referred to as the Ordinance) petitioner United Bank Limited seeks an order of winding up in respect of the respondent Golden Textile Mills Limited a public limited company.
2. At the request of the respondent-company petitioner sanctioned and granted foreign currency finance as well as finance for import of locally manufactured machinery, plant and equipment and for erection of the factory from time to time ranging between 1991 and 1994. In order to secure repayment of such finances with markup respondent-company executed a number of agreements for finance, demand promissory notes, deeds of hypothecation of plant, machinery and stocks of raw material and memorandum of deposit of title deeds.
3. It is the case of the petitioner that in order to meet the cost of releasing machinery imported from Japan, respondent negotiated a Bridge Finance of Rs,34.200 million with I.D.B.P. But failed to fulfill the terms and conditions thereof as to security with the result that I.D.B.P. Withheld the said amount. Accordingly sixth demand finance facility of Rs,35 million was sanctioned by the petitioner.
As the respondent failed and neglected to adjust and repay the finance as per undertakings in spite of repeated follow up petitioner addressed a notice dated 15-7-1996 for payment of the outstanding claim but it failed and neglected to pay the amount. The petitioner, therefore, filed three separate suits being Suits Nos.119 of 1996, 120 of 1996 and 121 of 1996 for recovery of amounts due before the Banking Tribunal No,II at Karachi. Lastly the petitioner sent statutory notice dated 8- 8-1996 to the respondent under the Ordinance demanding payment of Rs,589.12 million as on 31-7- 1996 within thirty days with further mark-up at 57 paisas per rupees one thousand per day from 1- 8-1996 till realisation but to no avail. This petition is, therefore, filed on the grounds inter alia that the respondent is unable to pay debt; that the respondent is commercially insolvent as its liabilities far exceed its assets; that sub-stratum of the respondent's business has disappeared and lastly that it is just and equitable under the circumstances that the company should be wound up.
4. Respondent-company filed a counter-affidavit of its Chief Executive with the averments that the petition has been filed for mala fide reasons in order to pressurize it. According to the respondent, petitioner has already instituted three suits which are based exactly on the same documents which for in the basis of the claim in this petition and are pending decision. Besides respondent has filed Suit No,637 of 1996 on 9-6-1996 against the petitioner for damages and accounts on the original side of this Court which is pending decision.
5. On facts, it is averred that the facilities granted to the respondent were based on "finance" as defined in the Banking Tribunals Ordinance, 1984 and free of interest on the basis of profit and loss, mark-up or mark down in the price; that agreements for finance were obtained from the respondent in blank; that the petitioner has been realising and debiting interest in the guise of markup at a fixed and invariable rate and charged mark-up on mark-up. Moreover, the petitioner failed to provide respondent with Bank statements regularly as required. It is urged that the petitioner has retained title documents of Commercial Plot No,4/3 Block-I, Clifton, Karachi admeasuring 2250 sq. Yds. Valued at approximately Rs,6,75,00,000 and Flat site F.L-9, Block-13, Gulistan-e-Jauhar, Karachi, admeasuring about 5000 sq. Yds valued at approximately Rs,4,00,00,000. These properties are neither mortgaged with the petitioner nor is there any equitable mortgage or lien in respect thereof but the owners/Directors of the company have been unable to take advantage of the ownership of these properties for five years. By reason of debiting interest, interest on interest, mark-up, mark-up on mark-up and other charges, petitioner having wrongfully realised from the respondent, such amounts are liable to be accounted for. As regards legal notice, it is pointed out that the petitioner has knowingly failed to mention the replies of the respondent to the notice dated 15-7-1996 as well as notice dated 8-8-1996 which were duly responded. Besides, he deliberately suppressed from this Court that Suit No,637 of 1996 filed by respondent is already pending against it. In reply to the first legal notice, the respondent referred to Suit No,637 of 1996 in which it has claimed damages of Rs,45,196,000 for illegal retention of documents, Rs,100,000,000 for loss of income and Rs,350 million for accounts. Petitioner's claim amounting to Rs,515.038 million is denied and in any event. Was subject to taking of accounts. In reply to the notice under section 306 of the Ordinance, respondent denied all allegations of the petitioner as spurious, misconceived and mischievous.
6. In addition to the aforesaid counter-affidavit on 20-12-1997 respondent-company filed an affidavit in opposition under rule 82 of the Companies (Court) Rules, 1997 reiterating the position taken earlier and producing a copy of the plaint in the suit filed by respondent against the petitioner as well as Draft In-Depth Study and Financial Restructuring and Reorganization Report in respect of the company prepared in October, 1997 by Khalid Majid Hussain Rehman, Chartered Accountant reflecting the affairs of the company including its financial viability.
7. No affidavit-in-rejoinder was, however, filed.
8. During the pendency of the petitions, Civil Miscellaneous Application 1600 of 1996 for appointment of Provisional Liquidator and Civil Miscellaneous Application 1601 of 1996 for interim injunction were moved which were resisted by the company. At the hearing, prayer for appointment of Provisional Liquidator was declined whereas injunction application was allowed by consent of the respondent's counsel that the company shall not alienate any property mentioned in the inventory prepared by the Official Assignee under the orders of this Court.
9. The fact that the respondent requested for sanction of finance facilities in local as well as foreign currency for the Project is not in dispute. It is however vigorously contended that the debt claimed by the petitioner in the notice under section 306 of the Ordinance is neither due nor payable and in fact the amount actually due is the subject-matter of suit for rendition of accounts and damages filed by the respondent long before the institution of this petition. A reference is also made to the three Banking suits filed by the petitioner against the respondent for recovery of specific amounts being contested by the company before the Banking Court since Banking Tribunals in the meanwhile have been abolished. With regard to the legal notice dated 15-7-1996 it may be observed that the notice demanding Rs,515.038 million together with mark-up was issued subsequent to the suit filed by the respondent. This notice in fact was promptly replied but the petitioner quite conveniently made no mention thereof in the lengthy petition spread over 30 pages and comprising as many as 59 paragraphs. Admittedly statutory notice in terms of section 306 of the Ordinance issued to the respondent too was promptly responded but petitioner omitted to make a mention thereof in the petition and in the meanwhile filed three Banking suits for recovery before filing this petition for winding up.
10. Main thrust of the petitioner for winding up of the company is founded on section 305 of the Ordinance and more particularly clause (e) thereof which enables this Court to order winding up of a company if it is unable to pay its debts. As to when is a company deemed to be unable to pay its debts is more particularly highlighted in section 306 of the Ordinance which may be reproduced for the sake of convenience and appreciation of various aspects of the case in their proper perspective: "306. Company when deemed unable to pay its debts.--(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."
11. In the wake of aforesaid legal provision, it is contended that debt claimed by the petitioner is not due and payable by the company. Quite evidently it is bona fide disputed by the respondent and is subject to taking of accounts between the parties and already sub judice in Suit No,637 of 1996 on the original side of this Court. Much emphasis is laid on the expression ."debt due and payable". In the circumstances of this petition, it is urged with utmost vehemence that the debt is neither determined nor definite and that after filing of three suits for recovery against the respondent, petitioner has invoked summary jurisdiction of this Court under the provisions of the Ordinance in order to coerce and pressurise the respondent to accept unlawful and exorbitantly inflated claim of the petitioner-Bank. Reliance is placed on the cases reported as Habib Bank Limited v. Golden Plastic Limited (1991 MLD 124), Federation of Pakistan v. Standard Insurance Company Limited (PLD 1986 Karachi 409) and Hashmi Can Company Ltd. v. K.K. & Co. (Pvt.) Limited (1992 SCMR 1006).
12. On the other hand learned counsel for the petitioner was at pains to establish from the various letters acknowledging liability and requesting the petitioner-Bank for restructuring, re-scheduling of outstanding finance as well as for sanction of more facilities thereby tending to show _that the respondent though admitted its liability to repay the debt had been unable to pay the debt due. It is further urged% that pendency of a suit for recovery is no bar to a petition for winding up of a company and lastly that the company having lost its commercial viability, it would be just and equitable to direct winding up of the respondent-company. Learned counsel has referred to Parke Davis & Co. Limited v. Bliss & Company Limited (PLD 1982 Karachi 94), Ali Woollen Mills v. IDBP (PLD 1990 SC 763), Trade and Industry Publications Limited v. I.D.B.P. (PLD 1990 SC 768) and Sindh Glass Industries v. National Development Finance Corporation (PLD 1996 SC 601).
13. In Habib Bank Limited v. Golden Plastic Limited, it was held that it is well-settled principle that the petition for winding up can be refused when the claim of the petitioner is bona fide disputed by the company. Where the petition is filed out of improper motives to coerce the company and for satisfying some groundless claim made against it by the petitioner the Court will refuse to pass an order. When a debt becomes absolutely due in the sense that the creditor is entitled to claim its payment "presently" it will be a debt within the meaning of clause (e) of section 305 of the Ordinance. In addition, the Court is bound to take into account contingent and prospective liabilities of the company for that is the express requirement of section 306(1)(c). It follows therefore that the Court has to examine the company's inability to pay its debts with reference to the date when it became absolutely due for payment along with contingent and prospective liabilities of the company. A company shall be called commercially insolvent, if it is unable to pay its debts or liabilities as they arise in the ordinary course of business. Fixed assets, plant and machinery are not to be ignored in assessing the solvency of the company. For deciding the question whether the company is commercially insolvent, it is to be determined whether it is unable to pay its current demands.
14. In Federation of Pakistan v. Standard Insurance Company (supra) Saiduzzaman Siddiqui, J. (as his lordship then was) observed as follows: "The object of the present proceedings initiated by the petitioner is to secure from the Court an order of winding up of the respondent on account of its inability to pay its debts, which means that the respondent has ceased to be commercially solvent and viable, and its continuation will be prejudicial to its creditors and the shareholders. In such proceedings, the principal question before the Court is, whether the debt, for which the inability is imputed, is disputed or not, and, if the debt is disputed by the company, then such a dispute by the company is based on substantial ground. If the Court, after examining material placed by the company, reaches the conclusion that the denial of the liability by the company to a particular debt is based on substantial ground, then' it will refuse to make an order of winding up, as the object of these proceedings is not to coerce the company to make payment to an unpaid creditor, but to secure discontinuation of the functioning of a company which has ceased to be commercially solvent."
15. Following rule was laid down by their lordships of the Supreme Court of Pakistan in Hashmi Can Company Limited (supra): "The conjoint reading of sections 305 and 306 makes it amply clear that the Company Judge has a discretion to order winding up of a company if it is unable to pay its debts and in spite of demand made by the creditors the debt remains unpaid. Obviously the same refers to the undisputed amounts payable by the company and not those which may be in dispute bona fide. More so, when immediately on receipt of notice under section 306 the creditor is informed of the reasons why the alleged debt is disputed and the matter is taken to the Court of law for adjudication.
Refusal for cause to pay such debts cannot be regarded as negligence to pay as contemplated under section 306."
' Abdullah Bhai v. Saria Rope Mills Limited (PLD 1971 Karachi 597) is another relevant case in which late Qadeeruddin, C.J. In the backdrop of a winding up petition held that the creditors are clearly in error in entertaining the view that winding up proceedings are a substitute for a suit to recover their debt. Late Chief Justice further observed that if a debtor is merely unwilling to pay his debts then the normal remedy is a suit. If a creditor instead of instituting a suit against a creditor company files an application for winding up, it is an abuse of legal process by itself sufficient to displace the prima facie position that a creditor is entitled ex debito justitiae to a winding up order.
16. In Alliance Motors (Pvt.) Ltd. (1997 MLD 1966) Haider Ali Pirzada, J. (as he then was) made an elaborate observation expressing the view that it may be easy for a Court, once it is shown that the company is unable to pay its debts, to bury it and distribute whatever is available as desirable 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.
17. Quite recently in Metito Arabia Industries Ltd. v. Gamon Limited (1997 CLC 230) a learned Judge of this Court held that the question whether there exists any bona fide dispute regarding the debts of a company and whether the petition for winding up is filed with the object of putting pressure upon a company to pay its debt are also relevant factors to be considered by a Court while passing winding up order. The objection is not to coerce a company to make payment to an unpaid creditor but. To secure discontinuation of . The functions of a company which is ceased to be commercially solvent. Identical view was taken by me in PICIC Limited v. Bawani Industries Limited (PLD 1998 Karachi 45).
18. Adverting to the cases cited on behalf of the petitioner in Parke Davis & Co. Limited v. Bliss & Company (supra) late Naimuddin. J. Ruled that it is settled law 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. In the reported case there was a categorical admission as to the liability of Rs,63,00,000 on account of stocks supplied and there was no bona fide dispute. The case is hardly of any assistance.
19. In All Woollen Mills Ltd, (supra) the view expressed was that if a company is not commercially solvent nor is there any reasonable chance of its doing business in the near future at a profit then it is just and equitable to wind up the company.
20. In the facts of the case in hand, it is not disputed that the company is in the state of smooth functioning; that it has huge valuable assets; that its business is not closed; and that there is nothing concrete on the record of the petition to hold that it is commercially insolvent. Auditor's report filed along with counter-affidavit of the company furnishes a complete answer to the plea raised at the Bar.
21. In Trade & Industry Publications Limited (supra) rule laid down in PLD 1982 Karachi 94 was reiterated. While expressing the view that petition for winding up of company on the ground that the company was unable to pay' the debts due to it in spite of service of notice for payment of dues on the expiry of statutory period, it was held that unless a debtor bona fide disputed the claim of the creditor or was able to show that notwithstanding the dispute he was in a position to pay the debts, the plea that IDBP should have proceeded under section 38 of IDBP Ordinance and not by way of a petition for winding-up of company is not of much substance. Without the least cavil for the proposition of law enunciated by the apex Court, it may be observed that petitioner-Bank itself has invoked the jurisdiction of Banking Court for recovery of amounts due by filing three separate suits which is most appropriate and effective remedy to recover the debt rather than to seek an order for burial of a company which is prima facie able to survive and practically operative.
22. Sindh Glass Industries Limited case is again a more comprehensive and elaborate authority on the subject taking into consideration pros and cons of sections 305, 306, 290 and 292 of the Ordinance. This judgment no doubt lays down that where the indebtedness has not been denied but allegation was levelled that winding up petition was not bona fide burden to prove, such allegation was on the party alleging the mala fides. It fortifies my view that a winding up action which lacks bona fides and is intended to pressurise the company to pay the debt cannot succeed.
Salim Akhtar, J. (as his lordship then was) who authored the judgment stated in unequivocal terms that the winding up petition is not a substitute for a suit. If on the other hand, the object of creditor applying for winding up the 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. 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 odium is also attached to such proceedings.
23. In the facts and circumstances of the petition in hand in which partial availment of the finance facilities is not disputed: the company is smoothly functioning but perhaps making not sufficient profits owing to the crisis in textile industry for quite some time; that a suit for rendition of accounts and damages on account of acts of commission and omission is pending adjudication against the petitioner; that three suits for recovery .Of finance are already filed and being defended; that a substantial cause is demonstrated for not discharging the liability regarding which a bona fide dispute has been raised, it cannot be said by any stretch of reasoning that this is a glaring case of inability to pay debt. From the record it is not established if the respondent-company is rendered commercially insolvent and not able to meet its prospective demands in its day to day affairs. No other creditor has come forward with a claim against the company. Obviously the petitioner suppressed material facts from this Court with regard to the replies received from the company in relation to legal notice as well as statutory notice as also the institution of its suit for rendition of accounts. Seemingly, the petitioner did not approach this Court with clean hands. Filing of the petition in the wake of pending litigation on the original side of this Court and under the Banking laws jurisdiction tends to reflect that the petition is not filed bona fide and is rather brought with dishonest motive to blackmail and pressurise the company. It is, therefore, highly difficult to subscribe to the view of the petitioner that there is a presumption of indebtedness on the part of the company; that it has lost its sub stratum or that it is just and equitable to direct winding up of the company.
24. For the aforesaid facts and reasons, there is no manner of doubt that no case for winding order is made out. The petition is accordingly dismissed.
Winding up .