' This petition under sections 305 and 306 of the Companies Ordinance, 1984 has been filed by a law firm against a public limited company for which they have been acting as counsel and legal advisors.
2. In the petition it is stated that the respondent-Company approached the petitioner in September, 1996 and engaged them on a monthly retainership fee of Rs,60,000 while it was decided that in Court cases professional fee shall be determined in respect of every case after negotiation. Also that the client Organization will bear the expenses for out of city visits. According to the petitioner, from October, 1996 to till the time of filing of the petition on 1-12-1997 they have been providing legal services to the company though it had stopped payment of every kind including retainer ship fee since May, 1997. Accordingly it is claimed that the respondent-Company owes them a sum of Rs,1,006,000 plus US $ 5000 which it had failed to pay despite notice under section 306. The failure on the part of the respondent-Company is stated to be one of several grounds for its winding up. As far other grounds, it is claimed that the company was conceived and brought forth for unscrupulous and fraudulent activities, usurping the money of the creditors and customers and that it was just and equitable that the company should be wound up.
3. The respondents in their written statement have described the petition to be vexatious, oppressive and abuse of the process of the Court; that the petitioner has not come to the Court with clean hands; that the claim of fee alleged to have been due to them does not fall within the definition of the word "debt" and that there being a bona fide dispute in relation to the liability to pay the aforesaid claim it cannot be a good ground for winding up. On merits it is submitted that the engagement of the petitioner as counsel and legal advisor on the aforesaid terms and conditions is not denied. It is, however, claimed that the respondent-Company in June, 1997 decided to discontinue its retainership with the petitioner on account of their dissatisfactory performance. Also it is emphatically controverted that any sum is due to the petitioner-firm either on account of retainership, Court cases or the visit abroad to England. It is further claimed that for filing of all Court cases the firm was duly paid the settled fee.
4. In the reply it is further stated that the respondent-Company was incorporated in the year 1994 with the sole object to set up an electric power project. The financial position of the company is claimed to be strong and till the time of filing of the winding up petition statedly it had not incurred any loan or other financial liability towards any creditor whatsoever. Lastly it is repeated that the petitioner having failed to show proper interest and due care the retainership was terminated in May/June, 1997 and till that time they were fully paid for their services as well as the retainership fee. It is claimed that the respondent-Company is a viable project and can easily meet all its obligations.
5. Heard the learned counsel for the parties. Mr. Shahzeb Masood, Advocate, appearing for the petitioner alleges that there is no bona fide dispute between the parties as after having admitted the factum of retainership the respondent-Company has failed to demonstrate that the relationship was discontinued in May or June, 1997 as claimed. Also states that at least two Constitutional petitions including Writ Petition No,5534 of 1997 were filed on the instructions of the respondent-Company in the month of July, 1999 which clearly demonstrates the continuation of relationship between the parties till that time. According to him the fee of the petitioner due on account of providing legal services amounts to debt as explained in Black's Law Dictionary, 6th Edition and Encyclopaedia of Banking and Finance by Charles, J. Woelfel, 10th Edition. To support his submissions, he relies upon the ratio settled in re: Registrar of Companies v. Kavita Benefit (Pvt.)
Limited (1978) 48 Company Cases 231 and re: Cherukuru Krishnaiah v. Rajah Sir (AIR 1958 AP 342).
Also places reliance upon re: Sharda Bhandari v. Ananya Electronics (1993) 78 Company Cases 167 to contend that where liability to pay is not disputed there could not be said to exist a bona fide dispute. According to him in the given situation, the respondent-Company has failed to demonstrate the termination of retainership arrangement as also the complete payment of the cases filed at their instructions. In support of the contention he relies upon in re: Paramount Enterprises v. Rechem (1985) 57 Company Cases 200 and re: M. Gordhandas & Co. v. M.W.
Industries (AIR 1971 SC 2600). Another two reported judgments are cited at the bar in re: Investment Corporation of Pakistan v. Messrs American Marble Products (1998 CLC 514) and re: O.P. Basra v.
Kiathal Cotton (AIR 1962 Punjab 151) to claim that the respondent-Company having admittedly failed to commence its business within the statutory period has lost its substratum, and therefore, it would be just and equitable that it should be wound up.
6. Mr. Raza Farooq, Advocate, learned counsel for the respondent on the other hand repeats the submissions earlier made in the written statement. He claims that in view of the provisions of section 4 of the Legal Practitioners (Fees) Act, 1926 the petitioner-firm is obliged to file a suit for recovery and that this petition in fact is addressed to that purpose only. According to the learned counsel, a winding up petition cannot be a substitute for a suit for recovery. Therefore, states that this petition needs to be rejected on this ground alone. To support the submissions he relies upon re: Messrs Khyber Textile Ltd. v. Messrs Allied Textile Mills Ltd. (1989 CLC 1167), re: Investment Corporation of Pakistan (ICP) v. Messrs Noor Silk Mills Ltd. (1998 CLC 543), re: Mullah Abdullah and 9 others v. Saria Rope Mills Ltd. PLD 1971 Kar. 597) and Federation of Pakistan v. The Standard Insurance Company Ltd. (PLD 1986 Karachi 409). Also submits that the company having expressly denied its liability to pay any sum of money to the petitioner after June, 1997 it cannot be argued that no bona fide dispute exists between the parties. The factual controversy as to the time of termination of the arrangement, alleged non-payment of part fee due on filing of Court cases and balance payment on account of visit to England, according to the learned counsel are pure factual controversies which cannot be resolved in summary proceedings under the Companies Ordinance, 1984. It is further submitted that on a petition by an alleged creditor most important question to be addressed is if the respondent-Company is not in a position to pay its debts and secondly, if the company has a bona fide dispute with the petitioner. To support the proposition he relied upon re: Messrs Adage Advertising, Lahore v. Messrs Shezan International Ltd. (1970 SCMR 184). He claims that although the company has not yet commenced any business due to certain legal formalities it is a viable project which is amply demonstrated from its audited account and balance sheets completed since its incorporation till date. He states that mere unwillingness to pay cannot be taken to be an inability of the company to pay the alleged debt. According to him on a petition by an alleged creditor the Court is required to see if the company is commercially viable project and can be "deemed insolvent only if it is unable to pay its liabilities as these arise in ordinary course of business. In support of the submissions learned counsel has relied upon re: Messrs Metito Arabia Ltd. v. Messrs Gamoon (Pakistan) Ltd. (1997 CLC 230), re: Muzaffar Abbas Malik and 2 others v. Messrs Pakistan PVC Ltd. (PLD 1998 Karachi 71) and re: United Bank Ltd. v. Golden Textile Mills Ltd., (PLD 1998 Karachi 330). Lastly he relies upon re: Messrs Platinum Insurance Company v. Daewoo Corporation, Sheikhupura (PLD 1999 SC 1) to stress that the company being commercially solvent, the petitioners are required to approach a Civil Court for recovery of the amount and that this petition for winding up is totally misconceived. The allegation of formation of company to undertake fraudulent and illegal activities is also denied. He stated that on the date of filing of the petition the respondent-Company had not incurred any loan liability, and therefore, there was no question of operating against their interest by manipulating the facts as alleged in the plaint. He pleads as a fact that the Constitutional petition filed in the month of July in respect of which the claim of part payment of Rs,2 lacs is being made was never prosecuted and argued by the petitioners as counsel. The fee for the drafting of the petition, according to the learned counsel, was duly paid at Rs,1 lac as agreed between the parties at the relevant time of drafting.
13. After hearing the learned counsel for the parties I am in agreement with the submissions made at the bar for the respondents that the petitioner only seeks recovery of their alleged professional fee which has been guised in the form of a petition for winding up. In the first instance I have my reservations if the alleged fee due could at all be taken to be a "debt" as mentioned in sub-clause
(e) of section 305 to be a ground for winding up of the company. Learned counsel for the respondent has rightly referred to section 4 of the Legal Practitioners (Fees) Act, 1926 under which a legal practitioner is entitled to institute and maintain legal proceedings for the "recovery" of any fee due to him under the agreement In the present case as observed earlier, the petitioner has sought the winding up of a company which has yet to go in operation. The purpose to seek a winding up by a creditor is invariably to see that whatever is left of the assets it may not further diminish before an actual recovery is effected. In other words a ground for winding up of a company comes into existence only when it is unable to pay its debts and the creditors are of the view that if the matter is left any further either their security will diminish or the amount due to them will further be reduced. A winding up petition for the sole purpose of recovery of an alleged amount is not at all contemplated under the law.
14. In company law different grounds for winding up available to different categories of petitioners as contemplated in section 305 have a nexus. An alleged creditor having provided legal service or for that matter having provided any other service has no business to claim that the company was incorporated for fraudulent activities and that it was operating against the interest of its creditors when in fact there was no creditors at all.
15. I will also agree with the learned counsel for the respondent that the alleged liability having been denied cannot possibly be taken as a ground for winding up. It is correct that retainership arrangement between the parties is admitted. However, the issue as to when it terminated or that total fee for a particular petition was paid earlier to the termination are pure questions of fact which cannot be resolved without recording of evidence. Learned counsel for the respondent is also correct in pointing out that nothing worth mentioning has been brought on record to show the inability of the respondent-Company to pay the alleged debt. In the given situation it is also not correct to suggest that no bona fide dispute as to the entitlement of the petitioner exists between the parties. A defence to a claim cannot be false or ingenuine merely for the reasons that in all probability no documentary evidence to support the same could be produced. The raising of a dispute to challenge or deny a liability is not conditional to the availability or the veracity of an evidence which is likely to be introduced in support thereof. To wit, in the present case the petitioner claims that its senior counsel visited abroad for a period of 10 days at the request of the respondent-Company and was promised 500 pounds per day as personal allowance. The respondent-Company having denied to owe any liability on that score it cannot be said that there is no bona fide dispute between them. The fact that possibly no documentary evidence will be brought forth from either side is of no relevance at this stage or when it comes to decide that a dispute does or does not exist. The resolution of factual controversies without any doubt is germane only to regular recovery proceedings and winding up proceedings under the Companies Ordinance is no answer to such situation.
16. The "debt" contemplated by the provisions of section 305 needs to be understood in the manner it is used in business community. It means that the alleged unpaid debt must have some relation with the business of the company to become a ground for winding up. The real import of word being that the inability of the company to pay a certain sum has rendered it as unviable business concern. If the company is commercially viable it cannot be permitted to be wound up merely for the reason that it is not willing to pay a certain amount allegedly due on account of services provided. The omnibus sub-clause (h) of section 305, therefore, needs to be read and interpreted in that context. The non-payment of alleged fee of the petitioner has no direct relation with the business of the respondent-Company. Their claim having been denied, it needs to be proved, through a process which is possible only before a Court of Civil Jurisdiction in recovery proceedings. The respondent-Company is very much in existence and there is nothing to show that it is unable to pay its debts or it is otherwise just and equitable that it should be wound up. The petitioner in the given situation can establish through evidence that the respondent-Company actually owes it the aforesaid sums. Once they succeed in doing so before a competent Court of civil jurisdiction and their claim is converted into a decree, it is only then that they are in a position to claim that the respondent-Company owes it a debt. The question if it is unable to pay that debt will arise thereafter.
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