1. ' This is an application under sections 305 and 306 of the Companies Ordinance, 1984 seeking winding up of Messrs Ghandhara Nissan Limited, respondent herein, on the ground of inability to pay its debts.
2. ' Briefly the facts stated in the petition are that the petitioner Messrs Manhattan Communications Limited, a private limited company, engaged in the business of advertising, during the period from June 1997 till filing of the petition, at the instance of respondent company Messrs Ghandhara Nissan Limited, rendered services to them as their advertising agent in respect of their product "Nissan Sunny Cars". Such services were rendered by the petitioner company according to agreed policy of APNS and invoices of the services so rendered to the respondent were regularly and periodically dispatched to them. On this account a sum of Rs,46,93,656.50 and a further sum of Rs,4,93,065 totalling Rs,51,86,721.50 become due against the respondent up to 10th July, 1999. The petitioner repeatedly reminded the respondent for payment of this amount and the respondent in their various replies even acknowledged such dues but failed to clear the same due to their current financial constraints. On 18-9-1999 petitioner sent a notice under sections 306 and 307 of Companies Ordinance, 1984 through registered post A/D to the respondent calling upon them to pay their dues but the respondent failed and neglected to pay. The petitioner prayed for winding up order of respondent-company on the grounds that due to heavy financial losses and liabilities substratum of respondent-company has disappeared, Directors of Company have committed serious defaults and breaches in performance of their duties, dues of the petitioner have remained unpaid which constitute breach of trust, negligence and misfeasance and that there is no likelihood of saving the assets and properties of the respondent-company except by winding up of the company.
3. ' After service of notice, on behalf of respondent-company Mirza Khalid Baig, Finance Manager of respondent, tiled his counter-affidavit raising preliminary objections as to the maintainability of the petition on the grounds that the sum claimed by the petitioner is a disputed claim and proceedings of winding up are not proper remedy, the petition is mala tide and malicious as proper remedy by way of suit is available to the petitioner, and the petition has not been filed by an authorised person. In parawise reply, the respondent denied the status of the petitioner as their advertising agent, as according to them such service for some specific occasion did not constitute agency. They also denied the claim of the petitioner as it was highly inflated, unlawful and unagreed addition of interest/mark-up was made in it. The respondent also denied the allegations that they are unable to pay their debts and asserted that the respondent is a running concern manufacturing vehicles and had recently launched a new model. Referring to the notice under sections 306 and 307 served by the petitioner they stated that they are ready and willing to pay the genuine claim of the petitioner and had informed the petitioner accordingly in their reply. The respondent admitted that they had suffered financial losses but denied the allegations that substratum of the company has disappeared or that the respondent has failed to achieve their object due to insufficient funds. The representative of the respondent further stated that previous management was cause of major financial crisis because of mismanagement and the petitioner was in league with the previous management, who illegally approved their claim.
4. ' In the affidavit in rejoinder tiled on behalf of the petitioner on 30-9-2000, Finance Director of the Company categorically denied that there was any real dispute over the outstanding dues of the petitioner against the respondent and in this regard made reference of two letters, dated 16-1-1998, 20-5-1999 and also reply to notice under section 306 received by the petitioner to show that not only the claim of the petitioner was admitted but the respondent had expressed in clear words that due to their current financial constraints their company was unable to pay the dues of the petitioner. Regarding plea of illegal claim of interest raised by the respondent the petitioner submitted that the figures of 21 % referred in the letter, dated 16-1-1998 and 18% in the letter, dated 20-5-1999 are in respect of mark-up which is permissible in law and thus such objection is also ill- founded. The petitioner further averred that winding up petition has been filed by the. Managing Director of the petitioner-company, Mr. Anees Khan, who was duly authorised by the Board of Directors of the company vide resolution passed in the meeting held on.29th October, 1999.
5. ' Mr. A.I. Chundrigar, Advocate for petitioner praying for an order of winding up of respondent- company, strongly contended that the assertions of the petitioner that the respondent-company due to financial losses has lost its substratum, it is, commercially insolvent and unable to pay its current debts, have been proved by the respondent themselves by filing various documents. In this context he specifically referred to the Annual Report 2000, which goes to show that the long term loans of respondent-company have gone up from Rs,57,925 thousands to Rs,91,687 thousands from the years 1999 to 2000 and the auditor in its report, dated 7th December 2000 has stated that the company has incurred net loss of Rs,137.532 million during the year ending on 30th June, 2000, which facts are more than sufficient to paint a gloomy picture of the financial affairs of the respondent company. With reference to the allegations of the respondent regarding disputed claim of the petitioner, learned counsel referred to the letters, dated 16th January, 1998 and 20th May, 1999 to show that the claim submitted to the respondent vide their letter, dated 12th August, 1999 was acknowledged and confirmed by the respondent much earlier and therefore, now they are estopped for disputing this position. Alternatively, Mr. Chundrigar contended that in case an order of winding up of respondent company is passed, claim of the petitioner will be verified by the Official Assignee, and therefore, once commercial insolvency of the company is proved and respondent is unable to pay its current dues/debts, such allegations will not justify withholding of an order of winding up. Lastly learned counsel contended that share value of the respondent- company has gone down, restructuring of loan as alleged by the respondent-company and nonpayment of loan of other creditors are additional factors to prove that substratum of company had been lost and it is commercially insolvent. In such circumstances an order of winding up of respondent-company is inevitable. To fortify his contentions, learned counsel placed reliance on the following case law:
(1) PLD 1976 Lahore 1538
(5) PLD 1990 SC 763
(6) PLD 1990 SC 768
(7) PLD 1997 SC 601
(8) PLD 1999 SC 1 ' Conversely, Mr. Asim Mansoor, Advocate for respondent contended that the previous management of the respondent-company was in league with the petitioner and for this reason an intlated and exaggerated claim of the petitioner was entertained and conceded by them. Referring to various invoices filed by the petitioner he contended that number of such invoices are not even signed by any authorised officer of the respondent-company, and therefore, no claim on such invoices was entertainable. Learned counsel referred to the reply of respondent-company to the notice under sections 306 and 307 issued by the petitioner to show that such reply was duly served on the petitioner-company before filing of this petition but this fact was suppressed by them which reflects mala fide on their part. Learned counsel also contended that the respondent-company no doubt has suffered heavy financial losses during last several years but now is under the process of its revival and recently it has sold 94 units of its new model car and in such circumstances neither respondent-company is commercially insolvent nor it has lost its substratum so as to justify an order of winding up in the present petition. Mr. Asim contended that when the claim of the petitioner against respondent-company is genuinely disputed, proper course available to the petitioner is to file a suit for recovery of such amount and to establish its claim before the Court of law and not to seek an order of winding up of respondent-company. Referring to the documents filed by the respondent, learned counsel submitted that the assets of respondent-company are more than sufficient to meet its liabilities and in such circumstances an order of winding up will not be justified. At the stage of arguments, learned counsel for respondent alongwith statement, dated 19-3-2001 also placed on record several documents in an attempt to show that respondent- company is still commercially solvent and has not lost its substratum. In support of his contentions learned counsel placed reliance on the following cases:
(3) PLD 1998 Karachi 41
(5) 1992 SCMR 1006
(6) 1998 CLC 543
(8) 1997 MLD 149
(9) 1997 CLC 230 ' I have carefully considered the arguments advanced by the learned counsel for the parties and perused the relevant record specially the annual report of the respondent-company for the year 2000.
6. ' In the case of Platinum Insurance Company Limited v. Daewoo Corporation, PLD 1999 SC 1, Ajmal Mian, C.J. (as he then was) after examining the relevant provisions of the Companies Ordinance, 1984 regarding winding up of a company and referring to sufficient number of cases on the subject of winding up proceedings, including the cases of Indian jurisdiction, summarised the following legal position: "(i) That if a debtor company is merely unwilling to pay its debts but otherwise is commercially solvent, then the normal remedy available to a creditor is a suit for the recovery of the amount and not a petition for winding up.
(ii) That if the Court finds that the negligence on the part of the debtor company to pay the sum demanded in terms of clause (a) of subsection (1) of section 306 of the Ordinance is not on account of want of commercial solvency, but because of bona fide dispute based on a substantial ground as to the entitlement of the creditor to the amount demanded, application under section 306 read with section 309 of the Ordinance will not be sustainable.
(iii) That clause (a) of subsection (1) of section 306 of the Ordinance raised a presumption as to the fact that the debtor company is deemed to be unable to pay its debts, if in spite of the receipt of demand in terms of the above clause, the debtor company neglects to pay the sum demanded within thirty days of the receipt of notice of demand, or neglects to secure or to compound for it to the reasonable satisfaction of the creditor. But this presumption is rebuttable by the debtor company, if it can show that it is commercially solvent and is in a position to meet its liability on due dates.
(iv) That the object of sections 305 and 306 of the Ordinance is not to coerce a debtor company to make payment to an unpaid creditor, but to secure discontinuation of functioning of such company which has ceased to be commercially solvent.
(v) That though under section 9(3) of the Ordinance it is permissible to adopt summary procedure, but the procedure adopted should be fair and just which may ensure equal opportunities to the contesting parties.
(vi) That the effect of lack of proof of service of a demand notice by a creditor in terms of clause
(a) of subsection (1) of section 306 of the Companies Ordinance is that the presumption that the debtor company shall be deemed to be unable to pay its debts will not be available to the creditor in a petition for winding up, but the creditor will be at liberty to prove that, in fact, the company is unable to pay its debts within the meaning of clause (c) of subsection (1) of section 306 of the Ordinance by other evidence.
(vii) That though clause (a) of subsection (1) of section 306 of the Companies Ordinance seems to be independent of clause (c) thereof, but the conjoint reading of sections 305 and 306 makes it amply clear that the Company Judge has a discretion to order, or not to order, winding up of a company after taking into consideration all the relevant facts. The approach should be to see that a commercially insolvent company ceases to operate and not to provide a forum for the recovery of certain due amounts to a particular creditor.
(viii) That in order to determine whether a debtor company is commercially insolvent, the value of such assets without which it could not carry on its business should not be taken into account, but the amount available to the debtor company, or which may become available in normal course of business without disposing of the above assets will have to be taken into consideration.
(ix) That the factum that a creditor has other or alternate remedy under general law or a special law, does not debar him from pressing in aid the provision of section 306 read with section 309 of the Ordinance for seeking the winding up of the debtor company.
(x) That a debtor company is unable to pay debts can be demonstrated from the company's contingent and prospective liabilities and the debts which are immediately payable."
7. ' The above exhaustive judgment of the Supreme Court covers almost all crucial points which are to be taken into consideration for deciding the fate of a winding up petition.
8. ' Reverting to the facts of the present petition, a careful study of annual report of the respondent- company for the year 2000, reveals following important features about the financial affairs and working of the company:
(a) Throughout the year company faced severe threats from creditors, bankers and principals due to its financial crises.
(b) The plants production capacity, which is 6000 units per year, remained under utilized due to lack of working capital and despite introduction of new model the company could manufacture only 82 and sale 94 units only. Thus, the production of the company was less than 1.5% of its production capacity.
(c) Due to low production volume the overhead expenses of the factory remained unabsorbed.
(d) The financial restructuring of the company w as made by sale of shares of 2.9 million, by rescheduling of loans and other debts and by increasing the paid up capital.
(e) The company could not pay the engineering and technical fee to Nissan Motor Company and Tomen Corporation, who claimed a mark-up of Rs,19.22 million on this account.
(d) Outstanding loan of Pak-Kuwait Investment (Pvt.) Limited, was paid by the Company by disposing of its shareholding to Al-Zamin Leasing Company Limited.
9. ' The Auditor Report which is part and parcel of annual report reveals that the long term loans of the company increased from 57,925 thousands in the year 1999 to 91.687 thousands in the year 2000. The Auditor in his remarks further observed as under:---
(g) Without qualifying our opinion we draw attention to note 2 to the financial statements. The company has incurred a net loss of Rs,137.532 million during the year ended 30th June, 2000 and as of that date, the company's current liabilities exceeded its current assets by Rs,236.451 million and its total liabilities exceeded its total assets by Rs,269.433 million.
10. ' The statement of profit and loss account which is also part of such report reveals that the company suffered a loss of 137532 thousands in the year 2000 and thus, accumulated loss of the company carried forward increased to Rs,660,164 thousand as against 522632 thousand during the year 1999.
11. ' The above stated facts about the financial and working condition of the respondent-company, gathered from their own documents, are more than sufficient to show that the company is commercially insolvent, it has lost its substratum and is unable even to pay its current debts.
12. ' As regard to the contention of Mr. Asim that this is not a case where the company is unable to pay its debts but it is only due to some bona fide dispute with the petitioner about the actual amount or debt that the matter could not be settled, it may be observed that apart from the two letters, dated 16th January, 1998 and 20th May, 1998, wherein respondent clearly admitted their liability regarding the claim of the petitioner, the respondent even in their reply to the notice under sections 306 and 207 of the Companies Ordinance, 1984, dated 23rd October, 1999, did not deny that dues of the petitioner-company are outstanding against them and have not been paid as yet. It is well-settled legal principle that the debtor has to find his/its creditor, and in such circumstances it was the duty of the respondent to have approached the petitioner for verification and settlement of their claim and its payment. Present petition is already pending before this Court for more than one year but during this period too respondent remained negligent in doing so. Noncompliance of notice under sections 305 and 306 of the Companies Ordinance, 1984, within the time specified by law itself gives a presumption that the company is unable to pay its debt and in the instant case the respondent-company has failed to rebut this position. The pleas of introduction of new model and financial restructuring of the company advanced by the learned counsel for the respondent also seem to be an eyewash, as the liabilities of the company, which are already more than its assets, are increasing day by day and a company, which during the whole year have undertaken production to the extent of less than 1.5% of its production capacity cannot survive long in this manner.
13. ' In the facts and circumstances discussed above and following the ratio of judgment in the case of Platinum Insurance (supra), it is ordered that the respondent-company be wound up. The Official Assignee is appointed as the Liquidator of the company, he shall take over the charge of respondent-company and to proceed further in accordance with law. The petitioner is directed to deposit tentatively Rs,25,000 with the Official Assignee to meet the initial expenses of such proceedings.