Messrs International Finance Corporation, as international organisation established by Articles of agreement among its member countries (including Pakistan) having its headquarters at Washington D.C., United States of America has filed the present C.O. seeking compulsory winding up of the respondent-company inter alia on the ground of its inability to pay its debts.
2. The petition proceeds on the grounds that the share capital of the respondent-company is Rs.110,000,000 while the paid-up capital thereof is Rs.99,000,000. According to the petitioner the respondent-company was carrying on business of spinning cotton to a variety of yarn products and during the course of this business, the company undertook to construct at Bhai Pheru; District Kasur a new spinning plant capable of producing 3758 metric tons of yarn products annually. The respondent-company requested the petitioner for financial accommodation and received an amount of Japanese Yen 461,510,000 equivalent to Rs.156,823,786 only. The terms and conditions of the financial accommodation as agreed between the parties were reduced, into an Investment agreement dated 4-2-1989, the salient features whereof are described asunder:-- (1)Interest at the rate of six and one-half (6-1/2%) per annum is payable quarterly on the fifteenth (15th) day of March, June, September and December each year (section 3.02).
(2)Repayment was to be made in sixteen (16) equal instalments of twenty-eight million eight hundred and forty-four thousand three hundred and seventy-five Japanese Yen (Yen 28,844,375) only equivalent to trine million eight hundred and one thousand four hundred and eighty-seven rupees only (Rs.9,801,487) semi-annually starting from 15th June 1991 and ending 15th December, 1998 (section 3.04).
(3)Default in payment of the principal amount of the Financial Accommodation, and the interest thereon constitutes an event of default under Article VII. The petitioner in such eventuality has the right (section 7.01; to accelerate repayment of the Financial Accommodation by declaring the principal of, and all accrued interest on, the Financial Accommodation.
(4)The respondent-company is liable to pay all amounts owing to the petitioner pursuant to the Financial Accommodation in Japanese Yen (section 3.11) except technical appraisal fee which is payable in United States Dollars.
In consideration of having received the loan amount the respondent also executed the following documents in favour of the petitioner:-- (1)Memorandum of deposit of title deeds dated 12th September, 1989 (Annexure D-I alongwith the petition).
(2)Irrevocable general power of attorney dated 12th September, 1989 (Annexure D-2 alongwith the petition).
(3)Hypothecation Agreement dated 12th September, 1989 (Annexure D-3 with the petition); and (4)Mortgage deed dated 12th September, 1989 (Annexure D-4 with the petition).
The charge/mortgage created in favour of the petitioner was duly registered with CRO on 26-11- 1989. Apart from the documents referred to above, following agreements were also executed by the respondent as condition of disbursement of Financial Accommodation: (1)Project Funds Agreement dated 4th February, 1989 (Annexure F-I alongwith the petition). This Agreement was executed by and between the petitioner and the parties indicated therein, where under the Sponsors undertook to provide the respondent-company with such additional funds as may be needed to complete the Project.
(2)Share Retention Agreement dated 4th February, 1989 (Annexure F-2 alongwith the petition). This agreement was executed by and between the petitioner and the parties indicated therein whereunder the Sponsors undertook severally to retain the specified percentage of the respondent-company's share capital until the Financial Accommodation and all amounts outstanding under the Investment Agreement have been paid in full.
(3) Underwriting Agreement dated 12th June, 1989 (Annexure F-3 alongwith the petition). This agreement was executed by and between the petitioner, the respondent and the National Development Finance Corporation (NDFC) whereunder the respondent-company undertook to make a public offering of its share in accordance with the Financial Plan outlined in section 2.02 of the Investment agreement. NDFC agreed to underwrite three million and three hundred thousand (3,300,000) ordinary shares of the respondent to secure the funds needed for the Project.
(4) Share Option Agreement dated 4th February, 1989 (Annexure F-4 alongwith the petition). This Agreement was executed by and between the petitioner and the respondent whereunder the petition was granted the option to purchase shares of the respondent-- company up to ten per cent. (10 %) of the principal amount outstanding in favour of the petitioner from time to time either by (i) converting that portion of the Financial Accommodation into shares or (ii) paying the equivalent amount in cash in case of prepayment.
(5)Investors' Pari Passu Sharing Agreement (Annexure F-5 alongwith the petition). The respondent has also availed financial assistance from the Industrial Development. Bank of Pakistan (IDBP) and the Commonwealth Development Corporation (CDC) for the completion of the Project. The petitioner, IDBP, CDC (the "co---lenders") and the respondent executed this agreement whereunder the co-lenders have agreed, among others, that the charges created over the immovable and movable property of the respondent --company rank pari passu inter se the co- lenders.
It is asserted that the schedule of repayment of loan as agreed between the parties was not adhered to by the respondent-company, who defaulted in respect thereof excepting the payment of part of 1st instalment. The only payment made by the respondent-company was Japanese Yen 234,588 equivalent to Rs.79,714 and another amount of Japanese Yen 27,738,880 equivalent Rs.9,425,833. The aforestated payments were respectively made on 25-11-1991 and 17-6-1992. the outstanding liability was, however, acknowledged by the company vide their letter dated 3-7-1995 which also finds support from the balance-sheet of the company as on 30th September, 1994 as reflected in the Annual Report of 1994. According to the petitioner reasonable time and opportunity was given to the respondent-company to honour its commitments in terms of investment agreement thereby suggesting ways and means to pay off its liability but the respondent failed to respond to the proposals of the petitioner despite correspondence in this behalf. The petitioner then accelerated its loan to the respondent-company thereby demanding the following amounts: (1)Four hundred and thirty-three million five hundred and thirty-six thousand five hundred and thirty-four Japanese Yen (Yen 433,536,534) only equivalent to one hundred and forty-seven million three hundred and eighteen thousand two hundred and forty rupees (Rs.147,318,240) only.
(2)Eighty-five million seven hundred and twenty-three thousand eight hundred and three Japanese Yen (Yen 723,803) only equivalent to twenty-nine million one hundred and twenty-nine thousand four hundred and forty-eight rupees (Rs.29,129,448) only; and (3)Nineteen million six hundred and forty-eight thousand one hundred and ninety-three Japanese Yen (Yen 19,648,193) only equivalent to six- million six hundred and seventy six thousand five hundred and seventy Rupees (Rs.6,676,570) only.
The respondent-company, however, did not respond to the loan acceleration notice thereby frustrating another chance of an amicable settlement.
A statutory notice under section 306(a) of the Companies Ordinance, 1984 was ultimately issued by the petitioner which was served on the respondent-company whereafter another notice was issued by the petitioner through its local counsel at Lahore which too was served on the respondent-company. In the said notice, the respondent-company was called upon to pay an amount of Japanese Yen 538,908,530 equivalent to Rs.183,124,258. The said notice was ultimately responded by the company who instead of offering to pay the loan sought to set up a counter- claim against the petitioner on the grounds enumerated therein. The said reply was termed to be mala fide and as it tantamounted to refusal on the part of the respondent-company, therefore, the petition for winding up of the respondent-company on the ground that inter alia of its inability to pay its debts. It was asserted that the paid-up capital of the company being Rs.99,000 000 while 'its long terms secured loans are in excess of Rs.347,000,000, the respondent-company is suffering from perennial losses. The accumulated losses as on 30th September, 1994 are over Rs.295,000,000 as reflected in the annual report of 1994, while the abovesaid financial state of the respondent- company has worsened in the subsequent period. In 'the circumstances, it was maintained that the respondent-company has defaulted in repayment of its loan not only to the petitioner but also to the several other lenders and further that the amounts due from the respondent-company are higher than the paid-up capital thereof, thus, it is clear that the substratum of the company has gone and the probable assets of the company are insufficient to meet the existing liability. It was, thus, maintained that the company is unable to pay its debts, therefore, it is just and equitable to wind up the same.
3. The petition was resisted by the respondents inter alia on the ground that it has not been filed or signed by a duly authorised person; the petitioner is estopped by its conduct to file the present petition; the proceedings for winding up of a company are not meant to recover any alleged debt rather-the petitioner is required under the law to prove that the company is unable to pay its debts and not only its own debts but also the debts of all the creditors and for the purposes .of application of section 305 of the Companies Ordinance, 1984 there must exist firstly a debt, secondly it should not be subject to honest dispute and thirdly the company should be unable to pay it. It was submitted that in view of the serious acts and omissions on the part of the petitioner which has caused colossal losses to the company, which the company is entitled to claim and offset against the amounts advanced by the petitioner. The amount of loan was termed to be subject-matter of a bona fide dispute between the parties, therefore, it was submitted that the same was not due nor the company could be said to be unable to pay the same. It was admitted that the petitioner is an International Finance Organisation and one of its avowed objects is to aid and assist projects in developing countries. .The project of the company was first of its nature in Pakistan and the target, date of its completion as contemplated was 31-12-1989 while the estimated costs in Pakistan -was $ 19,070,000 inclusive of working capital of $ 870.000. It was then submitted that in order to give effect to the project the company arranged a group of financiers including the petitioner. The other financiers are Commonwealth Development Corporation, IDBP and National Development Finance Corporation. The project is stated to have contemplated that the sponsors of the company would contribute $ 3.83 million towards the equity and further $ 1,910,000 would be raised by way of public subscription. The equity contribution of $ 7.54 was almost 30% of the total project cost. The remaining cost of, $ 3.33 million was financed as follows:--.
(1) Petitioner (IFC) ... U.S. $ 3.80 million
(2) Commonwealth Development Corporation (CDC)... U.S. $ 2.33 million
(3) IDPB ... U.S. $ 5.72-million
(4) Commercial Bank (NDFC) ... U.S. $ 0.93 million
(5) Custom debentures ... U.S. $ 0.55 million Total: ... U.S. $ 13.33 million The above cost of the project was firstly estimated and based upon clear understanding that timely disbursement to be made by the financiers and the project would be completed by 31-12- 1989. whereafter it was narrated as to how the company entered into various loan agreements with IDBP, CDC and NDFC thereby obtaining financial assistance for the installation and working of the project of the company.
The main defence taken by the respondent-company was to the effect that it was because of the delay caused by the petitioner organisation as also the other and the intervening circumstances beyond the control of the company, the project could not be completed by the target date i.e. 31- 12-1989 with the result that the cost of the project was increased, both on account of general price- hike as well as on account of withdrawal or lapses of certain tax exemptions that would have been available to the company had the project been completed in time. In this regard, reference was also made to the total estimated cost of project as on 31-5-1990 as per deficiency notice of the petitioner to the tune of Rs.438.155 million as against 328.975 million, therefore, the petitioner was required by the respondent-company to fulfil its commitments in terms of section 2.02 of Article-II of the Investment Agreement. It was submitted that the petitioner wrongfully, insisted that sponsors of the company must arrange proportionate share to be contributed by them and the petitioner would thereafter contribute their share and that based upon this promise of the petitioner, the respondent-company from time to time generated further sum of Rs.26.400 million through sponsors. It was also alleged that sponsors of the respondent-company depleted their entire finance resources for making contribution of the costs overruns with the result that the petitioner, on a second thought about viability of the project and having made their unfounded unilateral appraisal of non-viability of the project, reneged on their contractual commitment to provide addition finance proportionate to the agreed equity debt ratio and although the respondent- company had undergone financial constraints on the basis of promise of the petitioner, yet the petitioner demanded repayment of the loan, on strict application of the provisions of 3.04 of the investment agreement in complete disregard of the fact that the payment dates had been negotiated and agreed upon the fundamental assumption that the payment would not start for at least 80 months after the project would become operational. It was further maintained that the company would have not undertaken the project except for inducement on part of the petitioner to bear their pro-rata share of project overruns. The respondents had relied on the project costs estimates and its viability based on preferential advice received from technical experts nominated by the petitioner while the respondents invested additional funds through their sponsors based upon the promise that the petitioner would abide by its promise and obligations to advance which proved to be fiasco. The direct consequence of the default of the petitioner in providing additional funds was that the respondent-company was unable to run the project in an optimum manner with the result that for the first years since the completion of project till 30th September, 1995 they suffered accumulated losses in excess of Rs.419,044,726 which the company is legally entitled to recover from the petitioner. The respondent-company stated to have suffered ,losses to the tune of Rs.67.700 million because the petitioner failed to mitigate the losses of project and to procure the foreign exchange risk cover out of the promised additional finance. It was further maintained that in spite of evaluation carried out by the technical experts of the respondent-company, the petitioner appointed a Swiss Consultants "Maurer" to evaluate the project, .who produced a massive report containing 62 pages which resulted into delay of one year and thereafter the petitioner took another year and radically changed the project in scope and style. This sanction was ultimately given in January, 1988 which caused serious prejudice to the company. The project cost was doubled and so was the debt burden. The change effected by the petitioner was from simple spinning mills to a mill specialised in producing value added yarn and due to this cost overrun which was not shouldered by the IFC with the result that the increased burden was put on the project. The delay in launching the project was voiced giving different reasons and it was submitted that throughout the company had been starving for working capital and had been requesting the petitioner to provide the same as it was its duty to do so being the major financier of the project while the petitioner has been delaying on one, pretext or the other and because of refusal to restructure the loan by the petitioner, the limit of 10 million of the UBL was cancelled as the company could not meet the Prudential Regulations of the State Bank of Pakistan. All possible allegations were levelled against the petitioner for the failure of the project coupled with certain difficulties in obtaining the registration of foreign private loans under buyers creditor to submit that Article 11 section 2.01 of Investment Agreement clearly states "the estimated project completion date is 31st December. 1989". It means that the agreement was clearly based on 17.5 months production period before fall of first repayment of the petitioner loan but the project was delayed and completed on 31-12-1990 as it started its commercial production on 1st January, 1991. This delay of 12 months reduced the operational period to 5.5 months from 17.5. months before first repayment fell due. This reduction of operational period clearly resulted into cutting down the financial level of the company to meet its commitment on time. Another aspect was lapse of duty exemption on import of machinery for Chaunian Industrial Estate and the Government of Pakistan had further imposed regulatory duty on some of the machinery in the budget for the financial year 1990-91. As far the issuance of deficiency notice regarding overruns and asking the sponsors to meet the overruns and costs, the sponsors stated to have injected further sum of Rs.26.400 million to meet the immediate short falls but the petitioner did not come forward to provide funds to import machinery for some of the special features of the project i.e. mercerising, reeling and dyeing etc. Having narrated the difficulties aforesaid, it was maintained by the respondent-company that the sponsors kept the trill in operation since it started on 1-1-1991 by injecting funds from their own sources as also from associated companies. It was submitted that till date, the sponsors and associated companies have injected about Rs.65,000 million and had also arranged some working capital but the same could not be materialised because of the Prudential Regulations of the State Bank of Pakistan. This part of the written statement was summed up with the plea that there are various reports of IFC and its consultants (extracts whereof are given in Schedules A and B of this petition) wherefrom it is manifest that IFC and its consultants "Maurer" badly misread the economic situation for they could not foresee (a --withdrawal of duty exemption by the Government of Pakistan; (b) reluctance by the Government of Pakistan; (c) pending depression in the textile industry, and (d) the crop failure of 1993-94. The proceedings for winding up were termed to be arbitrary, unwarranted and mala fide for the reason that on one hand all efforts were to be collectively made to revive the textile sector and for that matter re-scheduling, restructuring and providing more capital limits to the mills were being given to the textile units and even the State Bank of Pakistan had relaxed its Prudential Regulations to help the textile industry to the unprecedented crises but the petitioner is bent upon in ruining the company with oblique objects.
Coming to the portion of written statement allocated to the merits, it may be noted that by and large the preliminary objections were repeated with slight variations of the figures and it was submitted that there were serious lapses, acts of omission and commission on the part of the petitioner who violated not only the terms of the agreement but also failed in its duty as major financer of the project that has caused substantial losses to the company, thus, the company is entitled and the petitioner is bound to compensate the company. In answer to the plea that reasonable opportunity was given to the petitioner to pay back the amount of loan, it was submitted that no such opportunity was given nor any sufficient time was allowed to settle the matter. The demand of the alleged loan amount was stated to be unreasonable and arbitrary and it was maintained that it was neither a debt nor due and that as a matter of fact it was the petitioner who was in breach of its obligations to contribute additional money after the sponsors had done so in terms of section 2.02 (2) of the loan agreement. The reply of the notice was not accepted to be unsatisfactory or mala fide and it was asserted that the company had genuinely suffered losses on account of acts and omissions of the petitioner and they have every right in law to claim the compensation from the petitioner. It was vehemently maintained that the company is viable running concern and is commercially solvent and that the allegations that they have suffered losses by itself is no ground to wind up the company. It was maintained that the company is not a defaulter nor its substratum had vanished or that the assets of the company are insufficient to meet its liability. It was finally urged that the petitioner is not entitled to claim the alleged amount as the same is yet to be determined in view of claim of the respondent-company.
4. Before entering upon any discussion on merits, it would be relevant to mention here that initially IDBP did not join the petitioner in seeking winding up of the' respondent company but has ultimately conceded the prayer of the petitioner meaning thereby that all the creditors are now seeking winding up of the respondent-company.
5. The total burden of the written statement apart, which has been by and large recapitulated hereinab6ve. it is admitted position of fact on the record that respondent-company having asked for financial assistance from the petitioner had received/obtained the same and although .a schedule of repayment was settled between the petitioner and the respondent-company and the loan was also accelerated yet admittedly no repayment of the khan was made. This is also admitted that the company is suffering from perennial losses and the accumulated losses suffered up to 30th September, f995 were Rs.419,044,726 which have also been admitted in preliminary objection No.4.J of the written statement filed by the respondent. The said losses continuously swelled and the same were calculated to be Rs.703,688,392 as per annual report of the respondent-company for the year 1998. There is no hope or even possibility of getting working capital and there is complete depletion of financial resources as reflected in the preliminary objections Nos. 4-f and k of the written statement. According to the petitioner, the amount outstanding against the- respondent-company' is Japanese Yen 538,908,539 equivalent to Rs.183,124,258 and the amount owing to the petitioner as on 16-3-1998 is Japanese Yen 68.2 million.
Similarly, the respondent-company owns Pound Sterling 2,617,122,.43 equivalent to Pak Rs.170,112,958.
It may be added here that there has been official devaluation of over 8 % since the filing of this petition and additionally the rupee has slided against the Japanses Yen and Pound Sterling. The abovesaid aspects coupled with the fact that no payment had been made to the petitioner in the last 6 years despite notice under section 306 of the Companies Ordinance, 1984 are pointer to the financial status of the company. The other creditor i.e. CDC is also supporting the winding up petition while the restructuring plan proposed by IDBP was rejected by the petitioner as also CDC and now the IDBP has also joined two other foreign creditors in seeking winding up of the respondent-company.
6. The authorised capital of the respondent-company is Rs.11,00,00,000 and the paid-up capital is Rs.99,000,000 while the respondent owes the following loans:-- Petitioner loan Japanese Yen 461,510,000 CDC Loan Pound Sterling 1,600,000 NDFC Rs.32,621,136 IDBP Rs.115,440,216 The balance-sheet as contained in the annual reports of the respondent --company shows the following: As per Annual Report. 1996 (From profit and loss account).
(1) Operating loss Rs.25,800,236
(2) Loss for the year Rs.128,041,870
(3) Accumulated loss carried forward Rs.549,949,096 As per Annual Report. 1997 (From profit and loss account)
(1) Operating loss Rs.38,341,813
(2) Loss for the year Rs.152,41 1,833
(3) Accumulated loss carried forward Rs.703,688,392 As far the repayment it has already been observed that no repayment has been made either to IFC or CDC in the last six years and the same is the position with IDBP. The abovesaid financial position of the respondent would show that it has a negative equity of Rs.644,091,507. In the circumstances aforenoted, the auditors of the company have constantly opined as follows:-- "In the face of the factors aforenoted there are substantial doubts of the company's ability to continue as going concern."
The opinion of A.F. Ferguson, Chartered Accountant for the year 1997 were not a bit change in the year 1998 by the new Chartered Accountant i.e. Salman Chaudhry & Company who also opined that "in the prevailing circumstances, where the respondent has a negative equity, there are substantial doubts about the company'-s ability to continue as a going concern". In spite of financial status of the company as afore-referred it has survived in the field and is a running concern at the moment, hence, the question: should a running concern be wound up in view of the fact that it is running into losses and the amount of losses is far exceeding its assets and the defence that there is a bona fide dispute as to repayment of the 'loan amount. In order to appreciate the total burden of pleas of the petitioner for winding up of the respondent-company, it would be necessary to take into account the balance-sheet of the company so as to adjudge as to whether there is any hope of its survival and not only that of its survival but also its capacity to pay back the loans and in the even that it is found that the A company is unable to pay its debts for no plausible reason such as there being no bona fide dispute the company should ordinarily be wound-up. Reliance in this behalf could be placed on Ali Woollen Mills v. IDBP PLD 1990 SC 763, PICIC v. National Silk and Rayon Mills PLD 1976 Lahore 1538, U.B.L. v. Pak Wheat Products Ltd. PLD 1970 Lahore 235, National Bank of Pakistan v. Punjab National Silk Mills PLD 1969 Lahore 194, Sindh Glass Industries v. NDFC and others PLD 1996 SC 601, Habib Bank Limited v. Hamza Board Mills PLD 1996 Lahore 633, Park Davis v. Bliss & Company PLD 1982 Karachi 94, Messrs Bankers Equity Limited v.
Balochistan Coasters Limited PLD 1997 Karachi 416. In all the cases afore--noted, various aspects of commercial insolvency of a company were considered such as failure or refusal to pay the loan amount to the creditors after statutory notice, whether debt is more than paid-up capital, that there is no earning capacity to pay the debts in present or in future and that balance- e sheet of the company sought to be wound up was considered and having found that the company was running into losses without there being any hope of its revival the company was ordered to be wound up. The aspects afore--noted as discussed are manifestly available in the present case, therefore, respondent-company should in the normal course be wound up. The question as to bona fide dispute about the repayment of loan did also come into consideration in the cases of U.B.L. v. Pak Wheat Products--PLD 1970 Lahore 235, Punjab National Silk Mills v. National Bank of Pakistan 1986 SCMR 1126 and Sindh Glass Industries v. N.D.F.E. and others PLD 1996 SC 601. In the last-mentioned case Hon'ble Mr. Justice Saleem Akhtar, who spoke for the Bench reproduced an extract from the Palmer's Company Law, as follows:-- "Almost the only answer open to the company is to how that the debt claimed is bona fide disputed, in which case a winding up petition is not ,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 the same judgment another celebrated another was quoted as under: -- 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. Honourable Judge went on to say that the inability to pay its debt 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". Applying the abovesaid principle as also the statement of learned counsel for the appellant in that case 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 debts in five years, the plea of bona fide dispute was repelled and the petition for winding up as granted by the Company Bench of the High Court was upheld by the Hon'ble Supreme Court. In the earlier mentioned case i.e. U.B.L. v. Pak Wheat Products noted (supra) it was held as follows:-- "The true test is- to see as to whether there is a bona fide dispute or the denial is merely a cloak and in this respect each case must depend upon its own facts.--The record indicated that the company was actually indebted and money borrowed has been utilised for the purpose of company: there was no definite stand or defence on behalf of the company, the plea of disputed debt was, in the circumstances rejected."
Similarly in the case of Punjab National Silk Mills noted (supra) it was held that mere fact that objection was taken to the claim of creditor on the point of limitation would not render winding up proceedings to be incompetent. The fact that mounting liabilities both secured and unsecured, disputed and undisputed and conduct of the managing director was also considered to conclude that winding up of the company as ordered by the High Court was justified.
7. The plea of bona fide dispute has been raised on the basis of a tetrad submission that the project was delayed by one year for the petitioner wanted its own experts to evaluate the same who after examining the feasibility suggested that it should be turned into a project producing quality yarn and thereafter some further delay was also caused by the petitioner with the result that the tax facilities as were available to the respondent in Chunian Industrial Estate did not remain available to the respondent. Secondly, the working capital was not provided even in spite of request in this behalf while the petitioner-company insisted that respondent should raise their equity by arranging funds from their own sources. Thirdly, the financial assistance was not provided in time and fourthly the petitioner-company having promised to provide further financial assistance, provided the respondent-company was able to raise their equity, but despite the promise aforenoted the petitioner --company did not come forward to provide the financial assistance, resultantly, the limit of 10 million as agreed by the U.B.L. was also cancelled for the respondent could not fulfil the Prudential Regulation of the State Bank of Pakistan. It would be seen that the basic theme of the plea of bona fide dispute rested on the plea of delay. In amplification of the abovesaid plea it was argued that the .petitioner wanted to get the project re--assessed and obtain feasibility report from its own expert and in that regard they had not relied on the feasibility report prepared by the experts of the respondent-company. In hiring the Swiss expert "Maurer" and obtaining his report, the company did not remain mindful of the fact that the tax holiday granted in the Chunian Industrial Estate came to an end as also the allied factors such as constant devaluation of Pak Rupee against Japanese Yen and Pound Sterling with the result that the respondent-company had to suffer losses on. both ends. While it may be true as an aspect of fact, it is equally true that the petitioner-company did make it clear by endorsing on the report of "Maurer" that IFC does not accept the responsibility for the accuracy or completeness of this report.
Not only the IFC did not accept the accuracy of report above-referred they also wrote a letter, dated 19th June, 1997 whereby the report prepared and produced by "Maurer" was considered to be consultants' view only which could not be taken to reflect IFC's position in the matter. IFC did not stop there for they also invited comments, if any from the respondent7company on the report afore-referred. It would be seen that the respondent-company did not raise a single finger as to obtaining of report from "Maurer" as also the event .subsequent thereto. Rather it accepted the position as such and went alongwith the petitioner, therefore, it is hard to believe that delay was caused by the petitioner alone. Admittedly, the petitioner being a foreign investor could have been told by the respondent that the tax facilities available in Chunian Industrial Estate would remain no more available if the time is allowed to go by. There is nothing on the record to suggest or even argued at the bar that such a course. was adopted. As far the plea of non-supply of working capital by the petitioner is concerned, suffice it to refer fo section 2.02(b) of the Project Funds Agreement dated 4th February, 1989 which in its terms lays down that it is the responsibility of the sponsors to provide funds in case of deficiency of the funds during and after the completion of the project. The section aforequoted if read in conjunction with section 2.01 of the Project funds agreement, the intention is manifest that such funds were to be provided by the sponsors of the company and not by the petitioner. Coming to the third limb of the basis of bona fide dispute whereby it is submitted that the financial assistance was not provided in time, it may be noted that the financial assistance was provided as per the agreement entered into between .the parties and it was provided on and from the time that the project was agreed to be installed by both the parties. The time frame having already elapsed, Hala people did consent or at least acquiesced in the delay caused in that regard. As far the 4th alleged basis of a bona fide dispute, it would-be noted that the petitioner-company asked the respondent to raise its own equity and did not promise to extend any other p financial assistance except the one already rendered, therefore, if - the respondent-company has been expecting some assistance from the petitioner company it was a futile expectation, therefore, the respondent's failure to fulfil the State Bank's. Prudential Regulation cannot be imputed to the petitioner-company. All in all, it would be seen that the plea of bona fide dispute is an after thought which probably struck the respondent-company after the lapse of six years. The plea was raised and followed by a suit particularly when the loan had already been utilised by installing project of the mill. Learned counsel appearing on behalf of the respondent-company also tried to demonstrate from the record that the delay was the result of negligent advice of IFC, therefore, the respondent-company is entitled to set off those amounts against the claim being put forth by the IFC. The advice part has already been attended to and at the most that can be referred here is the report of the "Maurer" which was allegedly, insisted upon by the IFC but again it would be seen that on the face of the said report it carries an endorsement by the petitioner thereby declaring that it does not take the responsibility about the said report. The ancillary argument that it was part of the agreement that the IFC would give advice as to the feasibility and profitability of the project, is not backed by any document nor shown at the bar that it was in fact the responsibility or even part of the agreement between the loaner and the loanee that the loaner would advise the loanee. The project of the mill having been delayed for a year, it was for the Hala not to have taken the loan thereby burdening themselves with the changed circumstances such as withdrawal of exemption which was previously given to project located in Chunian Industrial Estate and the other tax facilities.
8.Learned counsel for the respondent-company built up the whole case on the basic plea that it was part of financing by the petitioner to advise the respondent-company but also argued in the alternative that theory of liability is tortuous for i' was argued that IFC was responsible for negligent decision thereby causing failure on the part of respondent-company to repay its debts in that it was submitted:-- "delay in approval of novel concepts employed in the installation of the project of mill, which has been at the root of Halla's problem ever since. Again he fell back upon his original argument that the consortium negligent advice caused delay hence the consortium is responsible for all consequential losses and Hala has a right to set off those losses against consortium's claim, therefore, the amounts are disputed, hence the result that no winding up petition could be maintained. Case of Woods v. Martins Rank (1958) 3 All ER 166 was referred to argue where advice on financial issues is part of bank's business, bank was held liable for damages resulting from negligent advice. Hedley Byrne & Co. Ltd. v. Helier & partners Ltd. (1963) 2 All ER 575 was also relied wherein the -rule of law is to the following effect. "Duty of care can arise where there is a contractual relationship, fiduciary relationship or relationship equivalent to contract. The underlying idea being that special relationship leads to reliance on a person with specialised knowledge". The rule as laid down in the judgments aforenoted is not applicable in the facts and circumstances of the case. It would be noted that it was not the exclusive responsibility of IFC to render advice to Hala in installing the project nor there is a contract which go to show that the Hala people solely relied on such advice. Rather, on the contrary, the one report obtained at the behest of IFC was from 'Maurer" and on the said report also it was endorsed that the report of course represent the consultant's view and cannot be taken to reflect IFC's decision in the matter. It goes on to say "we have yet to fully review this report and also take other steps necessary, to complete our appraisal". It would be seen that the advice on the technical side of the issue was not the part of the petitioner's business nor it was rendered in that respect rather IFC also asked for the advice from a third party i.e. "Maurer" which too was not imposed on the Hala people, therefore, it could not be successfully argued that the IFC was responsible for giving advice. Again the advice as mentioned in the said judgment is on financing issues. Similarly, it was held in the case of Henderson v. Merrett (1994) 3 All ER 506 that where a person assumes responsibility to perform professional or quasi-professional services for others who relied on its services, the relationship between the parties was itself sufficient, without more, to give rise to a duty on the part of person providing the service to reasonable skill and care in doing so. In the instant case it is not shown on the record that either contractually or even otherwise such a responsibility was taken by the petitioner or that the respondent relied on the same. Reference was also made to Michael Hawing Book titled The F Banks Liability as Manager and Advisor in Corporate Finance, re--organisation and insolvency wherein the said author at page 225/226 has opined as follows:-- "Under securing the specific liabilities previously referred to is the general duty of the bank as Manager and Advisor to exercise its duties with reasonable care and skill having regard to all the circumstances. Such a duty would be owed both in contract and tort". At page 226 had further opined:---"Further notes that discussion are fiduciary duty of banks have become fashionable but no general test can be laid down for as to when fiduciary relationship arises. Instead situations where a fiduciary duty arises include where the bank having a lending relationship with the customer also proffers advice". The opinion aforenoted was sought to be strengthened with the rule 'laid down in Abdul Rahim and 2 others v. Messrs United Bank Ltd. of Pakistan PLD 1997 Karachi 62 wherein it has been held that Banks have fiduciary relationship with their customers. It was argued on the basis of abovesaid rule that even if there be no contract providing that a bank would advise the customers the liability in the tort would arise because of fiduciary relationship of the bank with their customers. The reliance is misconceived in the face of facts of the present case.
It is matter of record that Hala has obtained a feasibility report from a third party and so was the case with the petitioner, who obtained such a report from "Maurer" but endorsed its disclaimer on the face of the said report making it so obvious that they are not prepared to take. any responsibility about the feasibility/technicality of the project right from its installation. The departure aforenoted was conscious and was clearly understood by both the parties, therefore, it could not be imputed that IFC leas obliged to give any advice in installing the project or they proffered any. In any case, it was open to both the parties that the report of "Maurer" having been furnished to decide as to whether to go ahead with the project or not and in this regard Hala was free to obtain financing from any, other source if they felt that IFC conditions. for financing were unreasonable and inappropriate in view of their alleged 'intended goals. The request for re- scheduling is another factor to prove that the company was prepared to go alongwith the project rather than to dispute the debt on theground of bona fide dispute. The refusal to re-schedule the loan cannot again be taken as suggestive of a bona fide dispute. It has been held in Messrs Platinum Insurance Company v. Daewoo Corporation, Sheikhupura PLD 1999 SC 1 that the plea of winding up of a company on the basis of inability to pay its debts can successfully be resisted if the dispute is bona fide based on a substantial around as to the entitlement of the creditors to the amount demanded. No such substantial grounds appear to exist in the instant case, therefore, the rule laid down in the said judgment would not be applicable in the facts and circumstances of the case. Learned counsel for the petitioner has very aptly relied on the case of State Bank of India v.
Hagde and Golay Ltd. 62 Indian Company Cases 239, wherein while allowing the petition for winding up it was held as follows:-- "That a mere plea of counter-claim or of damages sustained on account of any lapse on the part of a bank was untenable defence when the company has fully utilised the loan facilities. Since there was an admission that there was some money in excess of Rs.500 was owed by the company, which was unpaid in spite of service of notice, that was sufficient to give jurisdiction to company Court to proceed with the winding up. Where the exact amount of debt was disputed the Court could proceed with the winding up order without requiring the creditor to quantify debts precisely."
The rule aforenoted if read in conjunction with the rule laid down in the cases of Sindh Glass Industries v. N.D.F.C. and others and U.B.L. v. Pak Wheat Products Limited, noted (supra) would make it abundantly clear that the company having already utilised the loan from the petitioner is raising the plea of counter-claim or that of damages as a cloak only, which is untenable, therefore, the plea of bona fide dispute as to repayment of loan is hereby repelled.
9. The question of bona fide dispute having decided as aforenoted, the, ancillary question. that equitable set off could be claimed may not be gone into.
10. The plea that it was a consortium financing and that Circular No.19. of the State Bank of Pakistan would be attracted in the facts and circumstances of the case is also not well based. Consortium has been defined in the Black's Law Dictionary as joining, of several persons as parties to one action. It would be noted that the investment agreement as concluded between the parties were separate which was also executed on separate dates. Similarly, the security documents of all the lenders were separate. It is admitted position of fact (para.4-b of the reply filed by Hala refers) that Hala had to arrange the other creditors and it would not be out of place to mention here that the petitioner did not approach the other creditors for extension in loan facilities to Hala. Again separate charge registration was made and then it is well-accepted that one of the lenders bank is to be made a lead bank or an agent for other consortium members to represent the members of the consortium which is a condition missing in the. instant case. Additionally, the suit which has not been filed by the respondent-company is against IFC alone and no other creditors have been joined as parties to the said suit. All these factors go to show that the agreement entered into between the petitioner and respondent-company remained a separate and independent agreement, the terms whereof manifestly suggest that it was not a consortium agreement, therefore, Circular No. 19 of the State Bank of Pakistan is inapplicable to the petitioner. It was also argued by the learned counsel for the petitioner that said circular would not be applicable in the case of IFC for it is not a banking company as per the definition of banking company or creditor as incorporated in the Banking Companies Ordinance, 1962. Needless to observe here that the only other creditor which opposed the winding up of the respondent-company is the IDBP and he being not the largest lender of the respondent-company could not negotiate a settlement pursuant to paragraph 6(4) of the Circular of State Bank of Pakistan and now that IDBP has also joined the petitioner in their prayer for winding up, therefore, the argument is utterly untenable at this stage.
11. The last argument that it is discretionary with the Court .to order or not to order winding up of the respondent-company. It goes without , saying that it is really not necessary for every company to be liquidated and that 1 before liquidating any company, it may also be considered as to what is to the best interest of the country for it is not intended that the economic activity be stopped or clogged. The abovesaid situation can be appreciated from the auditor's report which has been discussed in extenso in the earlier part of this judgment, it is stated therein "in the face of factors aforenoted, there are substantial doubts of the company's ability to continue as a going concern" and this opinion is rendered not only by one auditor but by the two auditors appointed by the company. In view of the serious doubts expressed by the auditors about the running and functioning of project of the company coupled with the fact that the total amount of debt has not been paid by it, there is no use in carrying on with the project of the company. I 'am also mindful of the fact that Hala is a running concern and that it is producing quality yarn but obviously with no profitability there is no use adding up interest on the loan which is increasing day by day and the clock is i further ticking, therefore, even this argument of learned counsel for .the . respondent fails.
12. In the circumstances, the company aforenoted is compulsorily wound up, Messrs Khalid Mehmood, Advocate, Link Faridkot Road, Lahore, M. Hamid Khan, Advocate, 1-Moxang Road, Lahore and S. Shahid Hussain, Advocate; Shah Charagh Chambers, Lahore are appointed as JOLs, who shall immediately assume the charge of the company and proceed with the winding up thereof.
The petitioners are directed to deposit sum of Rs.1,00,000 in the, liquidation account. This order shall be' notified as required under the law. Now to come up for the report of JOLs on 21-1-2000.