MR. JUSTICE IFTIKHAR MUHAMMAD CHAUDHRY.-(1). This appeal is preferred by Hala Spinning Limited (Appellant) under section 10(1) of the Companies Ordinance, 1984 against its winding-up order, dated 23.12.1999 passed by learned Company Judge of Lahore High Court, Lahore in Civil Original No. 26 of 1996.
2. Facts relevant for disposal of the instant appeal are that respondent No. 1, International Finance Corporation (IFC) on March 26, 1996 instituted proceedings under sections 305/306 of the Companies Ordinance, 1984 before the Lahore High Court, Lahore praying for compulsory winding- up of appellant's company on averments that Financial Accommodation was extended by it to the appellant by way of loan for establishing new spinning plant having capacity of producing 3758 metric tons of yarn products annually at Bhai Pheru, District Kasur amounting to Rs. 156,823,876 equal to 461,510,000 Japanese Yen.
The Parties executed loan agreements/documents. However, from the Investment Agreement dated 4.2.1989 following conditions are reproduced hereinbelow being relevant for disposal of instant appeal:- "(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 28,844,475) only equivalent to nine million eight hundred and one thousand four hundred and eighty-seven rupees only (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 as 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 one, 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 payment in United States Dollars.
(5) The Company shall have obtained foreign exchange risk cover, through the State Bank of Pakistan's Foreign Exchange Cover Insurance Scheme, for the Loan and the Co- Lender's Senior Loan specified in section 2.02(b)."
3. The respondent IFC alleged the schedule of repayment was not adhered to by the appellant because up to 15th June, 1991 part payment of first instalment of loan with interest was made whereas the balance of the first instalment an subsequent thereto remaining instalments were not paid, therefore, respondent-company started insisting upon appellant to fulfil its commitments in terms of Investment Agreement (ibid) but no heed was paid. Consequently respondent was left with no option but to accelerate repayment of Financial Accommodation vide notice issued on 21st June, 1995 wherein it demanded following outstanding amounts from appellant:- "(1) Four hundred and thirty-three million five hundred and thirty-six thousand five hundred and thirty-four Japanese Yen (Y433,536,534) only equivalent to one hundred and forty- seven million three hundred and eighteen thousand two hundred and forty Rupees (Rs. 47,318,240) only;
(2) eighty-five million seven hundred and twenty-three thousand and three Japanese Yen (Y85,723,803) 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 (Y19,648,193) only equivalent to six million hundred and seventy-six thousand five hundred and seventy Rupees (Rs. 6,676,570) only."
4. It seems that despite receipt of notice no positive response was shown by appellant, consequently statutory notice under section 306(1) of the Companies Ordinance, 1984 was served by respondent wherein appellant was called upon to re-pay all outstanding amounts of loans as stood on 15th June, 1995 i.e. Amounting to 538,908,530 Japanese Yen equivalent to Rs. 183,124,258 within 30 days of the receipt of the notice. As on expiry of stipulated period the outstanding amount was not paid, therefore, respondent considered it proper to institute proceedings of winding-up of appellant company because in its consideration it was just equitable that the company should be wound up, as such petition under section 305/306 of the Companies Ordinance, 1984 was submitted in Lahore High Court, Lahore being C.O. No. 26 of 1996.
5. The appellant contested the petition inter alia contending that there exists honest dispute between them. However, categorically it asserted that company is commercially solvent and a running business concern. Its assets are more than the amount allegedly claimed by the respondent. Besides it there are other creditors of the company including IDBP who have substantial interest in the project and they do not want its winding-up therefore, on behalf of one of the creditors who does rank as principal creditor amongst CD, IDBP and NDFC who have also financed the project the petition is not competent. Appellant further asserted in written statement that cost of the project was estimated in the year 1988 with a target date of its completion on or before 31st December, 1989 but on account of conduct of IFC who obtained report from its consultant i.e. "Mauier" funds were not released in time, because finally Investment Agreement was executed on February 4, 1989 and for other reasons beyond its control the completion of the project delay due to which cost of the project increased resulting in causing financial disadvantage to It.
Therefore, uptil 31st December, 1990 the project could not be completed and this delay caused increase in the cost of the project both on account of general price increases in the cost of equipment civil works as well as on account of withdrawal/lapse of certain tax exemptions that would have been available had the project been completed in time. Report also stated that as per the assertion of appellant company on the one hand on account of delay in completion of project it was suffering colossal losses and on the other hand respondent-company pressed into service Condition No. 3.04 of the Investment Agreement without realizing that the payment dates had been negotiated and agreed upon the fundamental assumption that the repayment would not start for at least 18 months after the project becomes operational. In this sequel respondent agreed in the year 1994 to provide an unconditional bank guarantee to enable the appellant to arrange working capital finance from local banks and financial institutions but this commitment was also not fulfilled and abruptly notice was issued to appellant on 16th October, 1995 indicating its desire to file winding-up proceedings.
6. The respondent filed a detailed rejoinder to the written statement of the appellant repudiating the assertions made therein in pursuant whereof the respondent-company was being blamed to be responsible for non-completion of the project in time and also for sustaining colossal loss because it failed to provide financial validity of conditional bank guarantee in favour of appellant to arrange working capital from the local banks.
7. It is also to be observed that in the winding-up petition other creditors of appellant-company originally were not joined particularly IDBP who is said to be major creditor of the appellant. A perusal of judgment finds mention that at. Initial stages IDBP was reluctant to support winding-up proceedings but subsequently it also conceded prayer of the respondent for winding-up of the company.
8. Learned Company Judge of Lahore High Court vide impugned order, dated 23.12.1999 accepted the petition filed by respondent, as such instant appeal has been filed.
9. Learned counsel for appellant contended that:-
(i) Whether a running company be wound up at the instance of a creditor without establishing its debt when the debts are contrary to law and public policy?
(ii) Can the opinion of the Auditor constitute a decisive ground to wind-up the company?
(iii) Whether a foreign company can invoke the jurisdiction of Pakistani Courts for winding-up of a company contrary to provisions of section 456 of the Ordinance as well as without satisfying the requirements of section 451, 452 etc., of the Ordinance?
(iv) Wether the statutory forum meant for revival of sick industrial units should not be given an opportunity to find out solution to keep the appellant-company a running commercial concern?
10. Learned counsel for respondent argued that undoubtedly appellant company is a running concern but it is no more a viable commercial concern as its liabilities have increased more than its paid-up capital and share of equity of the sponsors. In fact the financial liabilities of appellant- company are increasing 'day by day as per the reports of the auditors, therefore, to save the project from further financial deterioration it is just and proper that if the order of its winding-up is maintained. In addition to it appellant legitimately could not raise a bona fide dispute relating to its liability on the pretext that the loan advanced to it by the respondent IFC is contrary to law and public policy. To ascertain the financial condition of a public limited company the auditors' report is considered most authentic in view of the law laid down by the Superior Courts, therefore, it does constitute a decisive ground to ascertain whether the company is in a position to clear its financial liabilities or it should be wound-up in interest of creditors.
The respondent is not company within the meaning of Ordinance but is an establishment which has been created under the International Finance Corporation Act, 1956 (XXVIII of 1956) as such arguments put forward by appellant's counsel in this behalf have no force.
The Statutory Committee for revival of sick industrial units did consider the case of appellant's company but now it has been dropped because one of the creditors i.e. Industrial Development Bank of Pakistan Limited under the advice of its management has not approved its restructuring and rescheduling.
11. We have considered the arguments put forward on behalf of parties' counsel and we first of all consider it proper to deal with the last-mentioned contention of appellant's counsel namely the Statutory Committee for revival of sick industrial units must get a chance of rescheduling and restructuring the debts of appellant. It may be seen that on March 29, 2001 learned counsel for appellant got adjourned case because he has approached the Committee for revival of sick industrial units in order to settle the disputed questions but subsequent thereto no progress was shown to have been made as per available record. Learned counsel during arguments insisted time and again that at the behest of appellant as well as IDBP to whom he designated to be the Principal Creditor the Committee is still ceased with the matter. Learned counsel for respondents vigorously contested such stand of appellant's counsel and contended that the object of raising such contention is nothing except to cause delay in disposal of the appeal for one or the other reason. To substantiate his plea learned counsel contended that initially IDBP was not interested in the winding-up of appellant's company but as per the observations of learned Company Judge of Lahore High Court the IDBP also shown interest in winding-up of the company. He made a statement at the Bar that though he is not holding brief on behalf of IDBP but according to him its representative remained present in the Court during hearing and had also shared with him the stand point of Management of IDBP in not approving the restructuring and rescheduling loans of appellant. It is to be observed that whenever a case of winding-up of a running company is placed before a Company Judge or the Appellate Court they should examine such matter differently other than a company which is not in a running condition. In this behalf efforts should be made by the judicial forums to adopt such a device so the project may remain continue running commercially so its financial liabilities start reducing gradually. The business trend in the market is that if running concern is put to sale it fetches high price of its assets which can substantially clear proportionate liability of the creditors. There is no iota of doubt that appellant-company is under heavy debts but still it is struggling for its survival by adopting different devices including restructuring and rescheduling of its debts by approaching the Statutory Committee of revival of sick industrial units.
It is an admitted fact that the Committee took cognizance for its revival and had also made deliberations as it is indicative from letter, dated. 3rd May, 2001 which was produced in the Court during hearing when on our query learned counsel for the respondent contacted Chairman of the Committee to let the Court informed about the progress in this behalf but ill-luck of the appellant that the Management of IDBP did not approve restructuring and rescheduling of the loans. It has been observed hereinabove that the IDBP independently had never remained interested in winding-up of appellant's company but as now the winding-up order has been passed by learned Company Judge of Lahore High Court perhaps due to this reason its management is reluctant to cooperate with appellant.
12. At this moment competence of respondent No. 1 IFC to invoke jurisdiction of a Company Judge for winding-up of appellant-company under the Ordinance has also gained pivotal importance.
On having gone through section 2(7) of the Ordinance which provides definition of "Company" i.e. a Company formed and registered under this Ordinance or an existing company we are of the opinion that respondent IFC does not fall within the definition of a company who has got its registered office in Pakistan. Thus question is whether as per the mandate of section 456 of the Ordinance the respondent- corporation has a right to affect its liabilities under the contract. As per requirement of this section any failure by a foreign company to comply with any of the requirements of section 451 or section 452 shall not affect the validity of any contract, dealing or transaction entered into by the company or its liability to be sued in respect thereof but the company shall not be entitled to bring any suit, claim any set-off, make any counterclaim or institute any legal proceedings in respect of any such contract dealing or transaction until it has complied with the provisions of section 451 and section 452 of the Ordinance. As far as the first part of this provision is concerned it needs no further elaboration so far its latter portion is concerned on basis of it a foreign company cannot institute legal proceedings without fulfilling the requirements of section 451 and 452 of the Ordinance. We think that in the instant case the respondent- corporation was not required to complete formalities as have- been envisaged by section 451/452 of the Ordinance because as it has been observed hereinabove that the respondent is not a company duly registered in Pakistan or in foreign but is a statutory corporation which has its recognition in Pakistan by Act XXVIII of 1956 of the Parliament. The scheme of which demonstrates that it enjoys the status of the corporation possessing full juridical personality particularly empowered:--
(i) to contract;
(ii) to acquire and dispose of immovable property;
(iii) to institute legal proceedings.
It may be noted that all legal proceedings for winding-up of a company registered under the Ordinance can be initiated by creditor by assignment or otherwise to whom the company is indebted in a sum exceeding one per cent of its paid-up capital or fifty thousand rupees whichever is less than due, under section 306(l)(a) of the Ordinance. Admittedly respondent is the creditor of appellant and it has extended credit to it which is more than Rs. 50,000, therefore, after completing the formalities it has a right to pray for the winding-up of the appellant-company. Thus objection raised in this behalf by the appellant being without substance is overruled.
13. Now we would advert towards the objection raised by the learned counsel namely; should a running company be .Wound-up at the instance of a creditor without establishing its debts which are contrary to law and public policy. Learned counsel contended that appellant-company is a viable commercial concern as it has been discharging its financial liabilities from 1989-90 to 1997- 98 as per the extract from the Auditor's reports pertaining to this period inasmuch as it had also re- paid long term Financial Accommodation of respondent-corporation up to 1991-92, therefore, it would be unjustified to allege that the company is not in a position to discharge its liabilities. He further contended that respondent IFC was under an obligation to provide assistance to appellant to manage working capital as per the financial plan mentioned in Article 2 of the Investment Agreement dated 4.12.1989 but it did not cooperate with appellant because in 1994 respondent made a commitment to stand guarantor on appellant's behalf but later on failed to do so and issued notice indicating its desire to file winding-up petition. He further stated that respondent is an investor with appellant and when the investment is being made by it, it becomes its duty to strictly adhere to the conditions of the agreement to ensure that the appellant-company may achieve its object conveniently.
14. On the other hand learned counsel for respondents has drawn our attention towards Article 2(b) of Investment Agreement which shows proposed source of financing of project. It reads as under:- "(b) Under the Financial Plan, the proposed source of financing are as follows TABLE Local Foreign P. Rs.
000Total $ Million Equivalent Equity 66.000 --- 66.000 3.83 Sponsors & Friends/Relatives 33.000 --- 33.000 1.91 Public Subscription Debt Industrial Development 8,600 90,000 98,600 5.72 Bank of Pakistan Customs Debentures 9,548 --- 9,548 0.55 Commercial Banks 15,972 --- 15,972 0.93 IFC --- 65,550 65,550 3.80 Co-Lender --- 40,305 40,304 2.33 34.120 195,855 229,975 13.33 Total Financing. 133.120 195,855 328,975 19.07"
In view of above different Finance Accommodation learned counsel explained that share of respondents is more than appellant as well as I.D.B.P. According to him respondent-corporation had a commitment with the appellant to make the deficiency good to the extent of its share, as per Article 2 of Project Fund Agreement dated February, 1989 if such a request is made during the call period but as the appellant failed to complete the project during the call period, therefore, respondent-corporation was neither under obligation to provide working capital nor to inject further finance to meet with the efficiency on pro rata basis. Moreover it had no obligation to cooperate with appellant in getting further loans from local Financial Institutions for the purpose of arranging working capital etc.
15. A perusal of section 2.02 of Investment Agreement dated February 4, 1989 indicates that total estimated cost of the project was shown to be US $ 19,070,000 including not less than the equivalent of US $ 870,000 for working capital. As per the break-up of the cost of the project working capital has been shown in the local currency equal to 0.87 million US$. It is noteworthy that Financial Accommodation by IFC was to the extent of foreign currency i.e. Japanese Yen which means that to provide working capital respondent IFC has no obligation nor this agreement indicates that IFC was bound to furnish guarantee to Local Financial Institutions on behalf of appellant to get working capital. A perusal of footnote under Article 2(b) of Investment Agreement reveals that in the event that the actual costs of equipment is different from the estimate set forth in section 2.03(a), or if there are refinements in other items of Project cost, the Financial Plan will be revised accordingly on a pro rata basis between equity and debt. It is also to be observed that respondent IFC was liable to make up the deficiency in the completion of the project of such demand has been made during the call period defined under Article 1(b) of Project Fund Agreement, which means "Call Period" "the period beginning on the date of this agreement and ending on that date which is ninety days after the date on which IFC shall have received financial statements -in respect of a period which ends on the Project Completion date, such financial statements to be prepared and audited in accordance with the provisions of section 6.01(e) of the IFC Investment Agreement except that the period covered need not be a Financial Year". As per Investment Agreement dated 4th February, 1989 Article 2, section 2.01 the estimated project completion date is December 31, 1989. Admittedly the project was completed after the said date, therefore, the respondent- corporation had no binding commitment to inject more funds on pro rata basis for the completion of the project nor it has any other obligation to arrange Working Capital because no such request was made by the appellant during 'Call Period' and if any alleged commitment was made by appellant in 1994 to furnish guarantee on behalf of appellants to Local Financial Companies it was beyond the purview of Investment Agreement thus had no binding effect.
16. It was next contended by learned counsel for the appellant that in terms of Article 5(h) of Investment Agreement respondent-corporation was bound to have obtained foreign exchange risk cover for the loan through the State Bank of Pakistan's Foreign Exchange Cover Insurance Scheme but respondent-corporation did not insist for compliance of this clause as a result whereof the rate of interest tremendously increased from 6.50% to 300% due to devaluation of Pakistani rupee and if the rate of interest is charged on the lean in view of West Pakistan Usurious Loans Ordinance (XVIH of 1959) the liability of the appellant towards the respondent-corporation will decrease substantially, payment of which of course would not be difficult for it.
17. Learned counsel for respondent contended that the plea now being raised by appellant was not agitated before learned Company Judge, therefore, as per the practice of the Supreme Court appellant's counsel cannot be allowed to argue the same. Alternatively he stated that appellant- company was responsible for providing foreign exchange risk cover to the loan which it has obtained from the respondent. Admittedly no steps were taken by it to obtain foreign exchange risk cover, therefore, respondent- corporation cannot be blamed for it. Moreover West Pakistan Usurious Loans Ordinance, 1959 will have no application on the proceedings which have been initiated under section 305 of the Ordinance. According to him non-obtaining of foreign exchange risk cover will not solely given rise to honest and bona fide dispute between the parties forbidding the Court to pass order of winding-up of appellant's Company.
18. It may be noted that whenever proceedings under section 305 of the Ordinance are instituted against a company same are normally defended on the pretext that there is a bona fide dispute with regard to debts outstanding against it, therefore, winding-up order cannot be passed against it. This Court in the case of M/s. Sindh Glass Industries Ltd., Karachi v. M/s. National Development Finance Corporation and 2 others (PLD 1996 SC 601) while dealing with the question relating to bona fide dispute between the parties in a winding-up case referred to the following extract from the Palmer's Company Law and Pennington in Company Law. The extracts are reproduced hereinbelow:- PALMER'S COMPANY LAW "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 to dismiss the petition or stand it over until the cross-claim has been heard."
PENNINGTON IN COMPANY LAW "If the company contends that it is not liable to him (creditor) and can satisfy the Court that it has 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."
19. Examining the case of appellant in view of above extracts we are inclined to hold that the plea so raised by appellant does not give rise to a honest I bona fide dispute firstly for the reasons that this plea was not agitated before learned Company Judge in pleadings or at the time of arguments; secondly as per the provisions of Article 5(h) of the Investment Agreement it was the duty of appellant-company to have obtained foreign exchange risk cover for the loan which it had obtained from respondent- corporation. Undoubtedly the Corporation has also not insisted for enforcement of this clause strictly but merely for this reason it is not possible for us to hold that the condition has been waived by the respondent because in an agreement executed between the parties to fix their obligation and liabilities there are such conditions which are to be enforced unilaterally by one of the parties thirdly in relation to a winding-up proceedings the provisions of West Pakistan Usurious Loans Ordinance, 1959 cannot be pressed into the service. Thus we are of the opinion that the plea so raised by the learned counsel is not sufficient to | conclude that appellant has successfully raised an honest/fo?a fide dispute to defend winding-up proceedings against it.
20. Now coming towards the next limb of appellant's argument that the opinion of the Auditor of a company does not constitute a decisive ground to wind-up the Company. In this behalf reference to section 230 of the Ordinance is necessary according to which every company is obliged to keep at its registered office proper books of account, details of which is as under: ~ "(a) all sums of money received and expended by the Company and the matters in respect of which receipt and expenditure takes place;
(b) all sales and purchases of goods by the company;
(c) all assets of the company;
(d) all liabilities of the company;
(e) in the case of a company engaged in production, processing, manufacturing or mining activities, such particulars relating to utilization of material or labour or to other inputs or items of cost as may be prescribed, if such class of companies is required by the Authority by a general or special order to include such particular in the books of account."
As per subsection (7) of section 230 of the Ordinance every Director including Chief Executive and Chief Accountant of the Company is bound to comply with directions provided under subsections
(2) to (6) of the Ordinance. As per Explanation attached to subsection (7) the term "Chief Accountant" has been defined to include the Chief Accountant or any other person by whatever name called who is charged with the responsibility of maintaining books of accounts of the company. As per section 233(3) of the Ordinance the balance-sheet and the profit and loss account or income and expenditure account shall be audited by the Auditor of the Company appointed under section 252 of the Ordinance. The careful examination of these provisions led us to draw inference that either the Director or the Chief Accountant are bound to maintain account books and whatever figures are mentioned therein are required to be audited by the Auditor of the company. It is significant to note that under section 234 of the Ordinance the balance-sheet of a company shall give a true and fair view of the state of affairs of the company at the end of its financial year.
21. From above provisions of law importance of books of account to be kept at the registered office of the company as well as preparation of Annual Accounts and balance-sheet can be well- imagined. As under section 305(e) of the Ordinance a company can be ordered to be wound up if it is unable to pay its debts, therefore, to expel the impression that company is not unable to clear its debts the statement of accounts and balance-sheet duly prepared and audited by the Auditor of the company can furnish strong defence. This Court in the case of M/s. Ali Woolen Mills Ltd. v.
Industrial Development Bank of Pakistan (PLD 1990 SC 763) = PTCL 1990 CL. 1080 noted the importance of the annual balance-sheet and the profit and loss account in the context that these two documents can be produced in rebuttal of the evidence that the company was plainly insolvent. From such observations in the judgment it can be deduced that proper maintaining of accounts and preparation of statement of account as well as balance-sheet duly audited by the Auditor of the Company in terms of section 230/233 of the Ordinance can be considered material documents to exercise the discretion either to allow petition for winding-up or to reject it subject to true depiction of financial condition of the company. Thus on the basis of statement of account and balance-sheet duly audited by the Auditor of the Company opinion can be formed that the company is financially solvent to clear its liability or otherwise. As a consequence whereof winding- up petition can be disposed of accordingly.
22. In instant case appellant neither in reply to the notice under section 306(a) of the Ordinance nor in rejoinder to the petition for winding-up under section 305 of the Ordinance referred to any of the statements of account or balance-sheets to rebut the assertion of the respondent-corporation inasmuch as during pendency of proceedings before the Company Judge as well as before this Court duly audited statement of accounts and balance-sheets have not been filed to canvass that appellant- company is commercially solvent and it has financial capacity to clear its liability, therefore, discretion be exercised in its favour by rejecting petition for winding-up. However, learned counsel for respondent-corporation for our perusal had placed on record copies of statement of account/balance-sheets duly audited by the auditor of appellant's company. After having gone through the balance-sheets carefully no other opinion can be formed except that appellant-company is not financially sound enough to clear its liabilities which have gone up to Rs.
85 Crores against total investment of the appellant. Factually the appellant-company instead of doing profit is running into loss which is increasing day by day. It may be noted that this Court in number of judgments reported in M/s. Ali Woollen Mills Limited v. Industrial Development Bank of Pakistan (PLD 1990 SC 763) = = (PTCL 1990 CL. 1080), Trade and Industry Publications Limited v.
Industrial Development Bank of Pakistan (PLD 1990 SC 768), = (PTCL 1990 CL. 1080), M/s. Sindh Glass Industries Limited, Karachi v. National Development Finance Corporation, Karachi and.2 others (PLD 1996 SC 601), M/s. Sindh Technical Industries Limited v. M/s. Investment Corporation of Pakistan (1998 SCM R 1533) after detailed discussion has held that if it is impossible to carry on business of the company except at loss and there is no reasonable hope that the object of trading at profit can be achieved and probable assets are insufficient to meet the existing liability then winding-up of the Company becomes inevitable.
23. In the case in hand as far as liability of outstanding debts of the appellant is concerned that had not been denied at all, rather to the contrary in the rejoinder to the petition losses incurred by it had been admitted inasmuch as non-availability of working capital has been set forth to be one of the reasons of running the company into loss. Therefore, for such situation where a company is even not in a position to arrange a Working Capital how hopes can be attached with it that if it is allowed to run- in the same situation it will be in a position to make profits after clearing the liabilities. In the case of M/s. Sindh Glass Company Limited (ibid) this Court has made following observations while interpreting section 306 of the Ordinance which reads thus:- "4. The petitions were filed under sections 305, 306, 290 and 292 of the Companies Ordinance, 1984.
Under section 305 of the Ordinance, the Court is empowered to wind-up a company on a petition filed by a creditor on the ground that the company is unable to pay its debt. Section 306 provides the meaning of the words 'unable to pay its debts' and reads as follows:- "306. Company when deemed unable to pay its debt.-(l) A company shall be deemed to be unable to pay its debts-
(a) if a creditor by assignment or otherwise to whom the company is indebted is a sum exceeding 1 % of its paid-up capital or fifty thousand rupees, whichever is less, than due, has served on the company, by causing the same to be delivered by registered post or otherwise, at its registered office, a demand under his hand requiring the company to pay the sum so due and the company has for thirty days thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor; or
(b) if execution or other process issued on a decree or order of any Court or any other competent authority in favour of creditor of the company is returned unsatisfied in whole or in part; or
(c) if it is proved to the satisfaction of the Court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the Court shall take into account the contingent and prospective liabilities of the company.
(2) The demand referred to in clause (a) of subsection (1) shall be deemed to have been duly given under the hand of the creditor if it is signed by an agent or legal advisor duly authorised on his behalf, or in the case of a firm if it is signed by such agent or legal advisor or by any member of the firm on behalf of the firm."
Under section 306(1 )(a) if a creditor serves a notice for repayment of the amount due as specified in this provision, by registered post, demanding it to pay the sum due and the company refuses or neglects to pay for thirty days thereafter or to secure or compound to the reasonable satisfaction of the creditor, then the company shall be deemed to be unable to pay its debt. In such circumstances, presumption will be that the company is unable to pay its debt. This would be a sufficient proof of company's inability to pay its debt, but such presumption is rebuttable and if the company is able to show that it has sufficient assets to pay the debts then the Court will inquire into it to satisfy itself whether it is unable to pay debts. In order to discharge this burden, the company cannot by mere denial of liability avoid winding-up action under this provision. It is the first and foremost duty of the creditor to show that an amount as required by the law is due and the company is indebted in a sum of money presently due and payable. The inability to pay an undisputed debt as a rule may lead to conclusive proof of the fact that the company is unable to pay debts, however, then the company disputes any debts it should bring forth sufficient material to rebut the presumption arising from section 306(1)(a) that the debt is either not due or there is a bona fide dispute. Mere flat denial without showing that there exists bona fide and genuine dispute about the indebtedness will not displace the presumption of inability to pay. In re: Bryant Investment Company Limited (1972) 2 All England Law Reporter 683, it was held that "neglect to pay after a demand by a creditor is cogent evidence that the company is unable to pay its debts, but a company will not be deemed unable to pay its debts where the relevant debts are not yet due for payment". A dispute as to the precise sum owing to the creditor if it does not extinguish the debt was held in Re: Tweeds Gorge Limited (1962) 1 All England Law Reporter 121 not to be genuine and legitimate dispute. In Man (1968) 2 All England Law Reporter 679, it was observed that where the existence of debt on which winding-up petition is founded is disputed on grounds showing up a substantial defence requiring investigation, the creditor/petitioner was held to have no locus standi and Companies Court was not a proper forum for decision. Therefore, the company in order to defend a winding-up petition should raise legitimate and bona fide issue disputing the liability to pay. Any debt which cannot be disputed on legitimate and bona fide grounds, the same shall if the company is unable to pay, would furnish a ground for winding-up." The principle of law discussed by this Court in the above judgment fully supports the case of respondent IFC, therefore, failure on the part of appellant to establish the honest and bona fide dispute persuades us to hold that it is in the interest of the creditors of the appellant that it should be wound up.
24. Learned counsel for appellant also contended that besides the respondent-corporation there are other creditors of the company including IDBP being the principal creditor and they have not approached the Company Judge with request of winding-up.
25. Learned counsel appearing for IFC contended that CDC (Common Wealth Development Corporation) and NDFC are also interested for winding-up of the company because their liabilities have also not been cleared. He further stated that as far as IDBP is concerned though initially it was not interested because appellant had been re-paying its debts but now IDBP had also become interested in winding-up of the appellant-company as per the observations by learned Company Judge in impugned order as well as the letter, dated 3rd May, 2001 filed by the Chairman of the Committee for the Revival of Sick Industrial Units. He further stated that appellant-company had made itself liable for a criminal action as well for re-paying debts of IDBP fraudulently during pendency of liquidation proceedings against it.
26. Section 306(l)(a) of the Ordinance confers a right upon a creditor by assignment or otherwise to whom the company is indebted in a sum exceeding one per cent, of its paid-up capital or fifty thousand rupees whichever is less than due has served notice on the company by causing the same to be delivered by registered post or otherwise at its registered office, under his hand requiring the company to pay the sum so due and the company had for thirty days thereafter neglected to pay the same the proceedings of winding-up can be initiated against it. Therefore, we are of the considered opinion that joining hands by all the creditors of the appellant to move an application for its winding-up was not required under the law because respondent- corporation IFC in its independent capacity had acquired a right as a creditor to move application against the appellant for its winding-up because its debts are more than fifty thousand rupees in any case.
Moreover on receipt of notice as contemplated under section 306(l)(a) of the Ordinance the appellant instead of clearing its liability attempted to raise bom fide dispute which could not be established because the above detailed discussion {leads us to draw inference that there was not a bom fide dispute but merely a clog, therefore, contention raised in this behalf by the appellant has no force.
So far as the question of criminal liability against appellant-company through its Director for making re-payment to IDBP during liquidation proceedings it is left for determination by the learned Company Judge subject to relevant provisions of law.
27. Learned counsel contended that the winding-up petition against appellant was premature in view of Circular No. 19 (Banking Policy and Regulation Department) because under the Scheme introduced through this Circular appellant had an opportunity to settle its outstanding dues with interference of State Bank of Pakistan, therefore, for this reason the process of winding-up of the company was liable to be deferred for a considerable time. Suffice it to observe that conditions of Circular No. 19 legally cannot be considered a document to override the provisions of section 305 of the Ordinance and on account of issuance of Scheme under the Circular the proceedings under section 305 of the Ordinance initiated by respondent- corporation (IFC) against the appellant were not liable to be postponed.
28. Summing up the above discussion we observe that the appellant-company is not a commercially solvent concern notwithstanding the fact that presently it is in a running condition but as per up-to-date reports of auditor it is running in a loss and its liabilities are increasing day by day, therefore, it is not a position to clear its liabilities which it owes towards IFC and remaining institutions who have provided financial accommodation to it from time to time because the financial assistance obtained from IFC is fully covered under relevant provision of law, therefore, its facility cannot be termed against the public policy. In these circumstances the opinion formed by learned Company Judge vide impugned judgment that it is just and equitable to wound up appellant company admits no interference in appeal by this Court.
As a result of foregoing conclusion appeal fails with costs.