' This is a petition under section 162 of the Companies Act for winding-up of the Company which runs a textile mills known as United Textile Mills at Fazal Abad, Multan.
2. The admitted facts are that PICIC advanced several loans to the respondent-Company vide agreements dated 20th May, 1961, 29th November, 1965, 26th November, 1970 (as amended by supplementary loan agreements dated 1st March, 1971 and 29th November, 1972). All these loans were in foreign currencies and were advanced for being utilized for implementation of investment project of the respondent. A loan of U. S. 3 2,50,000 was advanced vide agreement dated 20th May 1961, while under the loan agreement dated 29th November, 1965 (Exh. P. 2) as amended by supplementary agreement dated 28th October 1966 (Exh. P. 3) and 4th April, 1967 (Exh. P. 4) a sum of U. S. $ 321,300 was advanced. The loan under the loan agreement dated 26th November, 1970 (Exh. P. 5) as amended by the supplementary loan agreement dated 1st 4arch, 1971 (Exh. P.6) and 29th November, 1972 (Exh. P. 7) was to the tune of Italian Liras 621,678,500 and U. S. $ 33,979 20. All these loans were repayable on fixed instalments on specified dates in the same currency in which they were granted, convertible into Rupees on the date of payment, with interest U. S. Dollars loan at the rate of 7 per cent. And the interest on Italian Liras at 8 per cent. Per annum. The 1961 loan was payable on specific dates in 16 successive six-monthly instalments commencing from the 1st of January, 1962, and ending on 1st July 1969. Similarly the loan advanced as per agreement dated the 29th of November 1965, as amended from time to time was payable in 26 six-monthly instalments commencing from 1st July 1968, and ding on 1st January 1981. The third loan of 1970 advanced in Italian Liras and U. S. Dollars was payable in 20 six-monthly instalments commencing from 22nd December, 1973, and ending on22nd June,1983. It was agreed that in the event of any default in repayment of the principal, interest or other charge, or in the performance of any terms and conditions governing the loan or covenants under the agreement, the creditor (PICIC) had a right to declare the entire loan as due and payable immediately in lump sum. All these amounts were duly received by the respondent from time to time and utilized on the project of the United Textile Mills, Fatal Abad. The respondent also furnished to the petitioner on 12-6.1961, 29-11-1965 and 4-12-1972 the memorandum of deposit of title deeds detailed in Schedule I of the Memorandum.
They also furnished a deed of floating charge and letter of hypothecation.
' The respondent defaulted in payment of these loans and as per agreement they were declared to be payable immediately in lump sum.
3. According to the petitioner the respondent was liable to pay as on 1-6-1975 a sum of Rs, 1,55,13,277.37. A notice (Exh. P. 29) as required by section 163 of the Companies Act was served upon them to make the payment. On account of non-compliance with this notice the present petition was filed. In addition to the allegation that the respondent is unable to pay its debts some other allegations were also made about the acts of misconduct it the management of the Company and in allowing the property of the Company to be wasted and fettered away in fraud of the creditor. It was further alleged that on account of the inability of the Company to pay its debts even the electricity supply was ordered to be cut off. Reference was further made to some large amounts due to the Social Security Association and various other Government Departments.
4. The default is not denied in the written statement of the Company. It was explained that the default was caused on -ccount of prevailing policies governing export, labour and procurement of cotton. Crisis in the Textile Industry was pleaded as one of the reasons and it is explained that this crisis is due to the oil crisis in the international market as well as nationalization of industries in the country, Despite admission of the contents of the agreement the liability was denied by the respondent, and it was urged that the petition had been filed only to pressurise them. The suspension of the electricity by WAPDA was not denied. It was stated that it was done only for four days during which the work was carried on through the Company's generators. A written statement was filed by the Habib Bank who claimed that the Company was liable to pay a sum of Rs, 2,53.46,096.66 to the Bank, This was admitted at the time of arguments. This liability has also been admitted in the statement of accounts for the year ending 30th September, 1975, produced by the learned counsel for the respondent at the time of arguments.
5. Mr. Saeed-ur-Rahman Khan, Deputy Attorney-General who appeared on behalf of the Government stated that on the 8th October, 1976, the Tehsildar, Multan was about to auction the property of the Company for non-payment of Government dues to the extent of Rs, 6,60,000. He further stated that the Company had to pay a sum of R. 25,07,556.83 in addition to a sum of Rs, 21,00,000 due from the Company to the Federal Government as Excise and Customs Duty. This has also not been denied at any stage.
6. Since the liability had been denied I examined Mr. Mukhtar A. Sheikh, Chief Executive of the Company on the 11th June, 1976. He stated that an amount of Rs, 75,00,000 was due from the Company to the petitioner. In the statement of accounts which as stated above was produced by the learned counsel for the respondent during the arguments, the liability has been shown to be of Rs, 99,88,427.99 for the year ending September, 1975 and Rs, 90,23,456.06 for the year ending September, 19 4. There is a note by the Auditors that "The Company has filed a suit against PICIC disputing their valuation for conversion of foreign currencies of the loan to equivalent Pakistan Rupee. In view of this the balance of loan appearing in the books of the Company is contingent subject to final decision of the Court." The petitioner examined Mr. Mabmood All (P. W. 1), Mr. Mohibbe Hussain, Bar-at-Law, Chief Law Officer of the PICIC (P. W. 2) and Mr. Muhammad Ashiq Rajput (P. W. 3). The respondent examined only Mr. Ghulam Nabi Khan R. W.
1. He did not produce any other evidence despite adjournments. His evidence, consequently had to be closed on the 25th October, 1976.
7. The following issues were framed on the 7th of November, 1975 t-
(1) Whether the respondent-Company is unable to pay its debts.
(2) Ii so, with what effect in this case.
8. A complete statement of loans was proved by Mr Mahmood All as Exh. P/1. This document disproves the contention of the respondent about the quantum of loan and proves the case of the petitioner. It is proved by P. W. 3 that on his visits to the factory in the 1st week of August, 1975 and October, 1975 he found the Mills closed on account of non-payment of dues of the Company to the WAPDA. He proved a certificate Exh. P/33 dated 31st October, 1975 issued by WAPDA to this effect. He further proved a certified copy of the judgment of the National Industrial Relations Commission (Exh. P/34) to prove the conviction of the Chief Executive Officer and the Labour Officer on a complaint against the illegal closure of the respondent-Mill. The closure of the business of the Mill for almost one year was proved by Mr. Ghulam Nabi Khan; R. W/1 also.
9. R. W/1 has been produced to prove that the Government has set up an agency for rescheduling the repayment of loans obtained by the Textile Companies from different financing agencies. Ho stated that an application for rescheduling the payment has been made by the respondent Company also. He, however, admitted that the rescheduling was the responsibility of the financing agency itself.
10. It is established from the evidence on record that the respondent is liable to pay more than 15 Millions of rupees as loan to the petitioners about 25 Millions to the Habib Bank and about 4i Millions of rupees to the Government agencies. These are only those creditors whose claims have already been made in some form or other before this Court. It is further proved that notices under section 163 of the Companies Act Exhs. P/29 and P/30 were served upon the respondent vide acknowledgment receipts Exhs. P/31 and P/32. Despite these notices no payment has been made by the respondent to the petitioner.
11. In order to prove that there is a genuine dispute about the quantum of the debt as due from the respondent to the petitioner, the learned counsel for the respondent made a half-hearted attempt to show that the respondent could not be affected by the devaluation of the currency by the Pakistan Government. This is against the terms of the contracts. At the time of arguments, therefore, the learned counsel for the petitioner did not contest the amount of loan as proved on the record. He argued the case on the following points: (1)The default is not wilful. It is on account of the difficulty faced by the Company on account of crisis in the Textile business, otherwise the respondent had been paying the instalments satisfactorily up to 19-2-1972. The default during the slump period should not be visited with penalty of liquidation of the Company.
(2)All the loans are well-secured by equitable mortgage and hypothecation. For this reason also, the extreme step of winding-up of the Company should not be taken and the discretion should be exercised in favour of the petitioner. In relation to the discretion of the Court reliance was placed upon B. B. Light Rly. Co. v. Union of India AIR 1954 Cal. 499, Dawarkdas v. Dharam Chand AIR 1954 Cal.
583. It was urged on the basis of D. Davis & Company Ltd. v. Brunswick (Australia) Ltd. And others AIR 1936 P C 114, Sh. Muhammad Niaz Faruki v. Araco (Pak.) Ltd. PLD 1962 Kar. 71 and Abdul/ah Bhal and 9 others v. Shark Rope Mills PLD 1971 Kar. 597 that the petitioner cannot be allowed to bring pressure to bear upon the Company; and if there be any hope of the Company being able to tide over the difficulties created by period of deep depression, it should not be wound up. It was urged that in the present case there is no allegation that the Company is not solvent. The petition cannot be allowed for so long as it is not proved that the recovery of the debt was imperilled.
(3) Mere service of notice under section 163 of the Companies Act does not make it incumbent upon the Court to pass a winding-up order if the Company is otherwise solvent and there is a bona fide dispute about debt. Reliance was placed on W. T. Henley's Telegraph Works Co. Ltd., Calcutta v.
Gorakhpur Electric Supply Co. Ltd., Allahabad AIR 1936 All.
840.
(4) If the majority does not want winding-up, the Company should not be liquidated, provided the assets of the Compaq exceed its debts.
(5) The interest of the creditor was already safeguarded by the hypothecation and mortgage.
12, Except the last point which may require some consideration, the other points do not arise in the circumstances of this case. I agree with the argument that it there had been a genuine dispute about the quantum of debt, it could be urged that this petition has been filed with an ulterior motive. No argument was addressed on that question nor is there any genuine dispute whatsoever. It was also not denied that if the loan as due in foreign exchange is converted into rupees at the present rate of interest, the amount of loan will exceed 15 Millions of rupees. The shoe is, therefore, on the other foot. It is the Company which has raised a dispute which is not genuine and which it could not prove at all.
13. As regards the solvency, the closure of the Company for about a year is sufficient to negative that contention. If the Company had been solvent, its business would not have been closed. It is established that the business is closed on account of the cutting of the supply of electricity by WAPDA. The Company which cannot pay for the daily supply of electriety and has to remain closed for almost an year on that basis cannot claim to be solvent.
14. The learned counsel tried to argue that the assets of the Company exceed its debts. Raja Muhammad Akram appearing for the petitioner had agreed to consider the report of the auditors as a proof of the value of the assets. The statement of Accounts prepared for the year ending 30th September, 1975 was, therefore, placed on record at the time of argument, but this document does not prove the respondent's contention. The fixed assets as shown in the account is valued at Rs, 2.74,73,793.68. The current assets on the same date were valued at Rs, 3,22,05,876.60. These included the stock worth Rs, 2,03,65,363.40 and cash amounting to Rs, 1,10.842. There is no evidence that the stock is still lying in the factory. The value of the fixed assets can only be taken into consideration. It is much less than the debts, since the debts including the debts duo to the other creditors as apparent from the claims already filed exceed 54 Millions of rupees. The basis of the argument is, therefore, lost even by this document. It may be stated that the learned counsel for the respondent found it difficult to understand this document and to give a correct figure of the loans or of the assets.
15. The only question that remains to be considered is whether the hypothecation or mortgage can be a satisfaction to the petitioner to deprive it of its right to apply for liquidation of the Company. In this connection reliance was placed upon section 163 of the Companies Act by the learned counsel for the respondent. Subsection (1) of this section which is relevant is as follows:- "163.-(1) A Company shall be deemed to be unable to pay its debts-
(I) if a creditor, by assignment or otherwise, to whom the Company is indebted in a sum exceeding five hundred rupees then 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 three weeks thereafter neglected to pay the sum, or to secure or compound for It to the reasonable satisfaction of the creditor;.
' The learned counsel for the respondent laid emphasis upon the words *underlined by me in clause (i) of subsection (1) of this section. The argument is that since it is open to the respondent to secure a debt after receipt of a notice under that section, it would rot be necessary for it to secure it, if it is already secured. The argument though attractive is without force. Here the contingency of securing the loan is subject to the reasonable satisfaction of the creditor. The presence of hypothecation or mortgage already made is not sufficient. As regards the argument that the petitioner can file a suit and get the property sold, it will be sufficient to say that it is hardly an argument to deprive the petitioner of his right to approach this Court for winding-up. If the claim is genuine and if the motive is also genuine, the liquidation of the Company cannot be denied simply on the ground of another remedy being open. In the present case, however, this question hardly arises in view of the fact that the Company i3 not doing any business at all nor is it likely to carry on its business in view of the considerable debts outstanding against it. In these circumstances the winding-up can be better a remedy in which the creditors of the Company in accordance with priorities laid down in section 230 of the Companies Act can have a better chance of getting their debts satisfied. I, therefore, allow this petition with costs and direct that the Company be liquidated.
16. Next is the question of appointment of an Official Liquidator. The learned counsel for Habib Bank stressed in this respect that the Back being the biggest creditor, the liquidator should be one of its choice so that its interest may be safeguarded. The Bank has now submitted an application that the total amour t due to the Bank from the Comnany amounts to more than 27 millions of rupees and as such the liquidator should be of its cl-c ice. It has suggested two names for appointment, namely, Mr. Mohsin Ansari, Advocate, and Mr. S. M. Zamir Zaidi, Advocate. I consider this request to be reasonable. I am of the view that there should be two joint Liqeidaters of this Company. One of the Liquidators should be from among the panel submitted by the Bank. I, therefore, appoint Mr. S. M. Zamir Zaidi and Mr. Fazal-e-Miran Chauhan, Advocates, as the Official Liquidators.