1. Through these proceedings winding up of the respondent-company namely M/s. Electric Lamps Manufacturers of Pakistan Limited has been sought under section 305 of the Companies Ordinance, 1984 on the ground of its inability to pay debts.
2. Under an agreement dated 10-7-1976, the respondent-company was granted Foreign Currency Loan of French Francs 8,781,750. The amount of loan was subsequently increased to Frensh Francs 9,652,016.00 through Supplementary Loan Agreement dated 14-1-1978. The loan amount was fully utilized. The respondent-company had also executed various charge documents including memorandum of Deposit of Title Deeds. On account of default allegedly committed by the respondent-company in making repayments, notice of demand dated 12-5-1992 under section 30.6 of the Companies Ordinance was served upon the respondent-company through registered post A/D demanding payment of Rs.97,869,661.04 as the outstanding balance on 30th April, 1992 within 30 days from the notice. The respondent failed to respond to the notice with the result that the present proceedings were filed for winding up. The paid-up capital of respondent---company is Rs.10 million.
3. During hearing, the learned counsel for the petitioner has urged that the respondent-company has admitted that the loan was availed by it and the sole dispute raised is limited to the quantum of liabilities; the respondent--, company has failed to establish its capability of clearing its debts which, in any event, has to be presumed on account of the respondent's failure to respond to the Notice of Demand under section 306 of the Companies Ordinance. The inability to pay debts is recognized as one of the grounds for winding up a company under section 305 of the Companies Ordinance. Under section 306 of the said Ordinance a legal fiction has been created whereby a company is deemed to be unable to pay its debts if a creditor, to whom the company is indebted in a sum exceeding 1% of its paid-up capital or Rs. 50,000, whichever is less, has served on the company, by causing the same to be delivered by registered post or otherwise as its registered office, a demand under his hand requiring the company to pay the sum so due and the company has for 30 days thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor. On account of such legal fiction and the admitted failure on the part of the respondent---company, to reply to the notice under section 306 of the Companies Ordinance, the burden lies upon the respondent-company to show its ability to pay its debts. The respondent-company in the present case has apparently failed to discharge the burden and no material has been produced to show that it is commercially solvent. The learned counsel for the respondent-company has strenuously urged that the amount claimed by the petitioner has been disputed and, therefore, failure to make reply to the notice of demand cannot be termed fatal or lead to findings about inability of the respondent-company to pay its debts without further enquiry.
4. It is further urged by the learned counsel that the present proceedings have been filed merely to payment of exorbitant sum which is not due or outstanding. Reliance has been placed by the learned counsel for the respondent on the case of Hashim Can Company Limited v. K.K. & Co.
5. (Private) Limited (1992 SCM R 1006) wherein the following observation was made:-- "The conjoint reading of sections 305 and 306 makes it amply clear that the Company Judge has a discretion to order winding up of a company if it is unable to pay its debts and in spite of demand made by the creditors the debt remains unpaid. Obviously the same refers to the undisputed amounts payable by the company and not those which may be in dispute bona fide. Moreso when immediately on receipt of notices under section 306 the creditor is informed of the reasons why the alleged debt is disputed and the matter is taken on the Court of law for adjudication. Refusal for cause to pay such debts cannot be regarded as negligence to pay as contemplated under section
306. "
6. The circumstances which had given rise to the above-cited case were, however, totally different from the present matter. The Notice of Demand in the reported case was promptly replied and correctness of the accounts was disputed followed by proceedings for rendition of accounts. In the present case, however, the respondent had failed to respond to the Notice of Demand and has disputed the amount demanded by the petitioner for the first time through counter-affidavit filed in reply to the present proceedings. It further appears that the respondent-company after service of Notice of Demand had filed Civil Suit No. 84 of 1993 on the original side of this Court seeking following reliefs:- "(i) Declare that the agreement dated 10-7-1976 (Annexure 'A') read with supplementary agreement, dated 14-1-1978 (Annexure 'B') was and is illegal, void and unenforceable against the plaintiff to the extent of charging of interest at the rate of 11% on the principal amount and 4% being the penal interest and consequently the plaintiff is entitled to all adjustments for the amounts paid in that behalf as payment towards the principal. Alternatively to declare that the defendant is not entitled to charge any interest over and above the interest payable by the defendant under Credit No.VIII (1974-75).
(ii) Declare that the offer of conversion dated 13-5-1990, the acceptance by the plaintiffs by their letter dated 29-5-1990 and the consequent amalgamation of the interest and penal interest in the principal amount and charging of 14% interest on the principal and or interest and or penalty interest was illegal and void and also amounted to contracting out of law and the claim based thereon is not enforceable to the extent of interest.
(iii) Direct the defendant to render full and correct accounts separately indicating the original principal amount and the interest charged by the defendant from time to time and the rate thereof from the commencement of the disbursement, whether in the form of simple, compound, additional extra and/or penalty interest so as to determine the liability of the plaintiff, if any, according to the Injunction of Islam as well as in terms of law declare through judicial pronouncement in that behalf.
(iv) Restrain the defendants from perusing and/or enforcing any of their claims against the plaintiff as contained in their notice, dated 12-5-1992 till such time the accounts are rendered by them and settled by this Hon'ble Court in order to determine the liability of the plaintiff if any.
(v) Any other relief/reliefs as-this Hon'ble Court may deem fit and proper in the circumstances of the case.
(vi) Costs of the suit."
7. The respondent-company has significantly failed to assert that it is commercially solvent and to substantiate such plea through balance-sheet. It is admitted before me by the learned counsel for the respondent that the factory run by the- respondent-company, in relation to which the loans were availed, has been lying closed for the last over five years. Indeed, the learned counsel for the petitioner submits that the factory is so closed since April, 1990.
8. The learned counsel for the petitioner, on the other hand, has placed reliance on the- case of PICIC v. M/s. Indus Steel Pipe Limited (1993 M LD 94) wherein the following principles, after reference to plethora of case-law, have been laid down:-- "On the general principle, enunciated in the above cases, therefore, the company in this case must be treated as being insolvent notwithstanding that it may not in fact be so; and it has, indeed, been held in several cases that where a notice such as the one provided for in section 306 of the Companies Ordinance is given and not complied with by the company, it must, without more, be held to be unable to pay its debts. "
9. "It is clear that the object of the Legislature in enacting section 306(1)(a) of the Ordinance was to create a fiction for determining when a company was to be considered unable to pay its debts.
10. The fiction so created has to be given full effect. In the present case, the company having failed to pay or secure or compound the debt within thirty days after receipt of the statutory notice, falls within the terms of that provision and must, therefore, be treated as unable to pay its debts even though it may in fact not be insolvent."
11. The learned counsel has further contended that although the liability due to it is fully secured, such cannot be a ground for refusing winding up of the respondent-company and what is to be seen is if the respondent-company is able to meet the current demand. The assertion that the respondent-company has assets far in excess of its liabilities, according to the learned counsel, isnot sufficient to presume that the company is commercially solvent. In this behalf reliance has been placed by the learned counsel on judgment in Habib Bank Limited v. Hamza Board Mills and others (PLD 1996 Lab. 633) wherein the following dictum has been laid:-- "In yet another case reported as M/s. A.I Woollen Mills Ltd. v. Industrial Development Bank of Pakistan and 3 others (PLD 1990 SC 763) it was held that in a case where a Company was unable to meet current demand though on realization the assets of the same may be in excess of the liabilities, it is presumed to be commercially insolvent. In another case reported as Punjab National Silk Mills v. National Bank of Pakistan and others (1986 SCM R 1126) it was held that a secured creditor could also maintain a petition for winding up and merely because the debt has been secured was held to be no ground to hold that the winding up of the company at the instance of such a creditor could not be maintained."
12. The learned counsel for the respondent has not been able to meet the contentions raised by Mr. Arfeen nor has been able to show that a bona fide dispute exists in relation to the amount claimed by the petitioner. The extent of liabilities and/or propriety of petitioner's claim can validly be probed by the Official Liquidator. The respondent, as indicated by the prayer contained in its Suit No.84 of 1993, merely wants to evade its liabilities under the, Finance Agreement dated 10-7-1976 and the Supplementary Agreement dated 14-1-1978.