1. ' This common order shall dispose of J.M. No, 37 of 1998 Mushtaq Ahmad v. Messrs Sana Textile (Pvt.) Limited and four others and J.M. No, 38 of 1998 Mushtaq Ahmad v. Messrs Texto (Pvt.) Limited and four others filed by petitioner Mushtaq Ahmad under sections 305/309/327/443 and 444 of the Companies Ordinance, 1984, as common points of law and facts are involved in both the petitions.
2. ' The facts in brief are that petitioner Mushtaq Ahmad claims to be one of the creditors of Messrs Sana Textile (Pvt.) Limited and Messrs Texto Products (Pvt.) Limited having invested Rs, 12,81,500 in the business of said companies and that such agreement was executed jointly with the petitioner.
3. The other creditors, namely, (1) Mst. Tahera Jabeen, (2) Shabahat Hussain, (3) Wajahat Hussain, (4)
4. Mst. Sakina Habib, (5) Mst. Shaheen, (6) Mst. Sakina Bibi and (7) Mir Sarfaraz Hussain have also invested various amounts through the petitioner as they were attracted to invest by the petitioner.
5. The respondent company issued the following cheques to the petitioner which were dishonoured as there was no amount in the bank account of the respondents:--- {{TABLE}} Cheque No,C/D. K 088884Dt.3-6-1990 Rupali Bank (Rs,1,00,000) ii) Cheque No,C/D. K 088885Dt.18-6-1990 Rupali Bank (Rs,1,00,000) iii) Cheque No,59676572 Dt.10-3-1988 United Bank Limited (Rs,2,00,000) iv) Cheque No,59676573 Dt.10-3-1988 United Bank Limited (Rs,1,00,000) {{TABLE}} ' The petitioner further contended that from the assets of the companies so raised from the creditors, business in different names and style has been started. Properties by name Tauhidi Arcade 657-C, Commercial Area, Block-2, PECHS, Karachi and another one bearing No 162-C, Sector-24, Korangi Industrial Area, Karachi, have been purchased. Both the said properties are mortgaged with Rupali Bank and United Bank Limited respectively. According to the petitioner the respondent-companies have purchased a number of vehicles and immovable properties on open transfer letters in the names of associates and relatives to run the business out of the amount invested by the investors/creditors. In order to gain confidence the respondent-company paid profit to the petitioner and other investors for few months but thereafter stopped paying profit and later on it was disclosed that the companies have sustained heavy losses on account of wrongful acts of respondents/directors. The petitioner stated to have approached the Director of respondent companies for return of the amount and payment of the profit as agreed but the respondent No,2 went on avoiding the same. Having no alternative the petitioner served a legal notice on 11-7-1998 demanding the payment of the entire amount alongwith profit thereon but the same also remained unresponded. The petitioner had also sent a statement of account prepared by a Chartered Accountant alongwith the legal notice. As per said statement of account the respondents have to pay a sum of Rs,1,93,05,694 to the petitioner as due, on 24-9-1988 after deducting the amount already paid to the petitioner as profit.
6. ' It is also the case of the petitioner that the respondent companies have ceased to function and it has become impossible to carry on the business of the companies on the basis of the subject for which the companies were formed. The companies have become unable to pay their debts and carrying on business not authorised by memorandum of articles. The petitioner further states to have approached the Directors of the companies but they have shown their inability and avoided the payment on various pretexts hence the petitioner filed these two petitions praying for winding- up and liquidation of the said two companies. The petitioner has prayed for appointment of Joint Official Liquidators to take over the control and management of the properties, business and assets of the said companies and to deal with the same and to act in accordance with law and submit accounts and finalise liquidation and winding-up. Alongwith each petition the petitioner has filed a copy of the agreement, dated 22nd January, 1990 executed by respondent No,2 Muhammad Irshad Director of both the companies. He has also filed eight receipts acknowledging to have received various amounts from the petitioner and other creditors, executed by respondent Muhammad Irshad as Director of the said companies. Out of the said eight receipts one is signed by respondents Muhammad Irshad and Muhammad Shamshad as Directors on 1-4-1987. Two copies of the cheques drawn on Rupali Bank Limited I.I. Chundrigar Road, Karachi with memo.
7. Issued by the Bank with the endorsement "not arranged for" have also been filed. Copies of two other cheques drawn on United Bank Limited Nursery Branch Karachi bearing same endorsement; copy of the legal notice dated 11-7-1998 addressed to the respondent companies alongwith a copy of the statement of account prepared by M. Iqbal Patel & Co., Chartered Accountants; copies of the memorandum and articles of association of both the companies, have also been filed alongwith the petition.
8. ' Comments were called from Joint Registrar of Companies, Karachi in both the petitions. It has been stated in the comments with reference to J.M. No, 37 of 1998 that a charge of Rs,7,00,000. In favour of United Bank Limited, PECHS, Karachi was registered on 4-8-1987 and was satisfied in full on 5th November, 1987 as per record and the company has not filed statutory returns since 1987 in spite of various notices issued to the company. Details of the mortgage made/charges created in respect of the assets of company were intimated. It was also stated that since 1987 this company has also not tiled statutory returns despite notices issued repeatedly. Comments were also filed in J.M. No, 38 of 1998 in respect of Messrs Texto (Pvt.) Limited stating therein as under:--- "The following mortgage/charges are registered on the assets of the company,, as per record of Answering Respondent:--- {{TABLE}} S.No, Name of creditors Amount Registered on 1.. United Bank Ltd., Rs,3,500,000 16-4-1987 Nursery Branch Karachi.
2. Rupali Bank Ltd., 1.1..
9. Chundrigar Road, Rs,2,000 million Karachi. 14-10-1987 {{TABLE}} ' It was further stated that, this company as well has not tiled any statutory returns since 1987 in spite of various notices issued.
10. ' Notices were ordered to respondents in each petition .Which remained unserved hence publication was ordered and in response to that the respondents Nos.1 and 2 filed their objections/counter-affidavits. In J.M. No, 37 of 1998 respondent No,2 claims himself to be Managing Director of respondent No,1 Messrs Sana Textile (Pvt.) Limited. Preliminary objection regarding maintainability of the petitions was taken and the liability of the companies to pay was denied. It was further stated in each matter that the Company is doing business and had been running normally and earning profits in the course of its business. It is manufacturing garments for export and has been leased out to other persons for regular income purpose. It was denied that any borrowing was made from the petitioner and others for investment. Each company under its memorandum has no such objects as parts of its business. It was further . Pleaded that there is no cause for filing the petitions and, in fact, the petitioner is a money lender operating without any licence and is liable to be prosecuted under the relevant law. Again it was categorically denied that any amount was invested by the petitioner or other alleged creditors. All the allegations were denied. Signatures on agreement, dated 22-1-1990 were also denied and its admissibility in evidence was questioned. The agreement was termed to be vague. It was also stated that the said agreement was not a valid acknowledgement having been jointly executed by two companies with reference to the actual amount borrowed/invested by the petitioner. It was also stated that the said agreement was executed by respondent No,2 in his personal capacity and not for and on behalf of the company. Admissibility of receipts was also questioned. The same were denied to have been executed by or on behalf of respondent No,1 but said to have been signed by respondent No,2 in his personal capacity. Receipt Annexure 'I' dated 1-4-1987 was stated to be related to Messrs Sana Textile (Pvt.) Limited and legal plea regarding the claims being time-barred was also taken. It was also stated that the petitioner has no locus standi to plead the cause of other creditors. Again it was stated that respondent No,2 had borrowed some money from petitioner personally and the said amounts were repaid from his personal share out of the income of the companies. Issue of cheques dated 30-6-1990, 19-6-1990 and 10-3-1988 was not denied but a plea was taken that the amount has been paid in cash subsequently. It was also stated that respondent No,2 has repaid Rs, 10,66,000 by cash and Rs,6,16,5000 by cheques to the petitioner who has charged exorbitant rate of interest at 40% per annum and he never issued receipt for the amount of Rs,16,82,500. It was also stated that petitioner filed Suit No, 877 of 1998 in this Court for recovery of Rs,8,50,000 on the basis of cheques and the suit has been decreed as the respondent No,2 failed to furnish security as per directions in the leave order and that an appeal is pending against the decree in that suit. It was further contended that respondent No,; is an exporter of garment and never imported any goods hence the plea of the petitioner that respondent No,2 had taken that amount for clearance of some consignment is false. The respondents further stated that petitioner is also a tenant of respondent No,2 in respect of shops bearing Nos. 4 and 5 in Central Commercial Area, PECHS, Karachi at a monthly rent of Rs,600 and he has committed default in payment of rent and electricity bills. Rent Case No,489 of 1998 in the Court VII-Senior Civil Judge and Rent Controller, Karachi, has been filed. According to the respondents the petitions were filed in order to bring pressure upon the respondents with mala fide intentions. Purchase of any immovable property or vehicles as alleged by the petitioner has been denied. In order to rebut the allegation that the companies have suffered losses and stopped business, income tax returns have been filed. The respondents Nos.1 and 2 have, therefore, prayed that the petitions are liable to be dismissed.
11. ' Rejoinder has been filed by petitioner Mushtaq Ahmed in each petition reiterating the facts as stated in the petition. It has been further stated that income-tax demand notices, assessment order and banks certificates filed alongwith counter-affidavit by the respondents Nos.1 and 2 pertain to year 1990 and prior to that. It has been further stated that respondent No,2 has started a new business in the name of "Taxmal Corporation" from the assets of respondent companies and further set up business in the name of "Tauhidi Corporation Limited and Gold Leather Apparels (Pvt.) Limited" out of huge amount collected from the innocent persons. It has also been stated that following cases are pending against the respondents in Banking Courts:---
(i) Banking Court No,1.
12. ' Suit No, 359 of 1997 Execution No, 130 of 1998 (Suit for Rs,7,61,348) I.F.C.I. Bank v. Sana Textile (Pvt.)
13. Ltd. And Texto Products (Pvt.) Ltd.
(ii) Banking Tribunal No, III ____ ' Suit No, 2313 of 1994 1st Appeal No, 95 of 1997 (Suit for Rs, 57,48,266) and Rupali Bank v. Sana Textile (Pvt.) Ltd. And Texto Products (Pvt.) Ltd.
(iii) In the High Court of Sindh at Karachi ' Suit No, 126 of 1994 Execution No, 41 of 1998 (Suit for 7,28,000) Khursheed Ahmed Siddiqui v. Messrs Texto Product (Pvt.) Ltd. And Muhammad Irshad.
(iv) Suit No, 877 of 1998 Execution No, 120 of 1999 (Suit for 8.50,000) Mushtaq Ahmed v. Muhammad Irshad.
14. ' It is also sated that false statement as Annexure 'I' has been filed. Payment of Rs, 6,72,000 towards profit has been admitted by respondents so also that the cheques of Rs,5,00,000 were dishonoured. It was further contended in rejoinder that the respondents were black listed by the Department of Export Promotion Bureau in 1988 whereafter they changed the name as "Tax Mall Corporation". It was categorically denied by the petitioner that he is a money lender. It was stated that he is running his own business and pays income tax. He was attracted by the respondents Nos.
15. 1 and 2 to invest with them and now they want to deprive him and other innocent investors/creditors of their investment and the profit hence it is a fit case for winding up of the companies and appointment of the Official Liquidator.
16. ' In support of his contentions the learned counsel for the petitioner has relied upon the case of National Development Finance Corporation v. Fazal Sugar Mills Limited 1993 CLC 642 where an order for winding-up of the company was passed because the respondents had failed to run their business without obtaining further loans from their creditors and it was unable to return the amount of loan received from the creditors. The learned counsel has also relied upon the case of Muzaffar Abbas Malik and two others v. Messrs Pakistan P.V.C. Limited PLD 1998 Kararchi 71.
17. Interestingly this authority has also been relied upon by the learned counsel for the respondents Nos. 1 and 2. Rana Baghwan Das, J. (as he then was) after considering a number of authorities had summed up the principles for winding-up or otherwise of a company which are reproduced as below:--- "From the resume of the case law discussed above, following principles are spelt out:
(i) Winding-up proceedings are not a substitute for suit to recover a debt.
(ii) Expression 'unable' does not necessarily mean 'unwilling' while word 'debt' refers to all creditors as a class.
(iii) Basic object of scrutiny in winding-up proceedings is to ascertain solvency or insolvency of a Company and not to investigate into truth or otherwise into claims of creditors.
(iv) Winding-up proceedings filed with intention to pressurize the Company to settle disputed debts amount to abuse of process of law.
(v) Presumption arising under sections 305 and 306 of the Ordinance that a Company is unable to pay its debts would not arise in the event of bona tide dispute as to liability.
(vi) Where liability to pay debt was not denied but allegations of mala tide were raised against the petitioner, heavy burden lay on the Company to establish the allegations.
(vii) Any debt which cannot be disputed on legitimate and bona fide grounds, in the event of inability to pay, would furnish a valid -ground for winding-up."
18. ' Learned counsel for respondents Nos. 1 to 3 has also referred to the case of Arshad Tanweer Chairman SITE Association of Industry. Awan-e-Sanat, Karachi and another v. SITE Karachi and 28 others 1997 CLC 456 where the locus standi of the petitioners to file a petition for winding-up, who were contributories, was considered and discussed and it was held that the conti ibutories have no locus standi to file a petition under section 305 of the Companies Ordinance, 1984. However, this case has no applicability as the petitioner does not claim to be a contributory.
19. ' Learned counsel for respondents Nos. I to 3 also relied upon the case Syed Mubarak Ali v. Inayat Hussain and another PLD 1980 Karachi 254 in order to show that the petitioner is a money lender within the meaning of West Pakistan Money Lenders Ordinance, 1960 wherein it was held by Abdul Hayee Qureshi, J. (as he then was) that it is not every transaction relating to lending of money that makes the lender a moneylender within the meaning of West Pakistan Money-Lenders, Ordinance, 1960 for what is provided is that the money-lender is the person who carries on the business of advancing loans. It was further held as under:--- "On a consideration of the various connotations of the word 'business' it would seem that the relevant considerations are the instances of money-lending proved, the period over which those are spread, the variety of persons to whom amounts have been lent, the relationship between the money-lender and the borrower, the profits accruing to the borrower. No person could be said to carry on business of moneylending, with or without interest, by a mere fact of having advanced money to one person on one or two occasions or conversely to two or three persons on one occasion each. Indeed it will be perilous to lay any rule to the contrary for in that case any person advancing any money even with the noble instinct of helping another would run the risk of being dubbed as a money-lender and in the transaction lose not merely the instinctive reward of having helped another man but also his own money. It cannot be said better than what Farewell, J. Said that it is a question of fact to which may be added the word 'deducible from the circumstances of each individual case' ."
20. ' Keeping in view the above referred dictum, it can be deduced that it is very easy to allege that a creditor is a money-lender but it is difficult to prove the same in the absence of sufficient material, which is lacking in this case.
21. ' I have heard the learned counsel for the petitioner and respondents Nos.1 to 3 and gone through the various documents filed in support of their respective contentions and the case law cited at the bar.
22. ' The case for winding-up of the company is to be examined on the touchstone of various principles laid down in PLD 1998 Karachi 71 (Supra). From the facts of this case it appears that various amounts were borrowed by respondents Muhammad Irshad and Muhammad Shamshad from the petitioner as well as other creditors as named in the petition. A number of documents including receipts in support of his contention have been produced by the petitioner including the agreement signed by respondent Muhammad Irshad as. Managing Director of Texto (Pvt.) Limited and the cheques issued by respondents Muhammad Irshad and Muhammad Shamshad which were dishonoured. The legal notice sent by the petitioner to the respondents also remained unresponded. The evasive replies in the counter-affidavit also show the act of borrowing on the part of respondents Muhammad Irshad and Muhammad Shamshad. A defence has been set-up that the said amounts were borrowed by respondents Muhammad Irshad and Muhammad Shamshad in their personal capacity and companies are not responsible for the same. Article 42 of the Article of Associations of the Companies clearly shows that "the Directors may from time to time raise or borrow any sum of money for and on behalf of the company from the members or other persons, companies or banks", etc. The borrowing of the amounts, issuance of receipts on the letter heads of the companies and the cheques issued bearing the seal of the company signed by the Directors Muhammad Irshad and Muhammad Shamshad leave no room for doubt that the petitioner and others as named in the petition are the creditors of the respondents.
23. ' Now, the point which requires consideration is, whether simply being a creditor is sufficient to seek winding-up of a company. Out of various requirements of law for the purpose, one of the most important requirement is that the company should be "unable" to pay rather than being "unwilling" to pay the debt. Moreover, the proceedings for winding-up should not be a substitute for a suit to recover the debt and the purpose of filing the same should not be to pressurise the company to settle disputed debts' which act on the part of any petitioner in winding-up proceedings has been considered to be abuse of the process of law. It is also necessary that it should be an "undisputed debt". A demand and failure to pay a debt which is not otherwise payable does not amount to an "inability" to pay the said debt and, therefore, cannot support an application for winding-up brought on that ground. See AIR 1936 Calcutta 628. Similarly, if on the date of application for winding-up of a company, the claim of petitioning-creditor against the company, is time-barred, the petition based on the notice of demand for payment and failure to comply with it, is not maintainable. See AIR .1964 Madras 191.
24. ' While deciding the case of Mulla Abdullabhai and nine others v. Saria Rope Mills Limited PLD 1971 Kar. 597 late Qadeeruddin Ahmed, C.J. (as he then was) after taking into consideration relevant case law defined the words "unable", "unwilling" and "debts". His Lordship came to the conclusion that if there is mere unwillingness to pay the debts, the normal remedy is a suit. Moreover, what is further required is that the debt should be undisputed. In the present case the amount of debt is not undisputed and there is a plea of the alleged claim being time-barred as well.
25. ' Consequently, I have come to a conclusion that no case for winding-up of the company is made out and, as such, both the petitions are dismissed. However, there will be no order as to costs.