NASIM SIKANDAR, J.--M/s. Deutsche Bank, AG, Lahore Branch a Banking Company has filed this petition for winding-up of respondent No. 1 M/s. Farm Aids (Pvt.) Ltd. Under Sections 305 and 306 of the Companies Ordinance, 1984.
2. According to the arguments made in the petition respondent-company approached the petitioner for a financial accommodation which was accordingly allowed. The petitioner-Bank on execution of relevant documents opened various letters of credit on different dates for different amounts in order to enable the respondent No! 1 to import "combined harvestors With spares" from the Peoples Republic of China. Allegedly on account of failure of respondent No. 1 to honour its obligations in making payments arising out these letters of credit on due dates the petitioner-Bank had to make payments to the foreign Banks in respect of four LC's on 22.6.1988, 3.11.1988, 7.12.1988 and 29.12.1988 respectively at" Rs. 1,793,209.20, Rs. 3,710,904.80, Rs. 7,545,528.07 and Rs. 522,380.24.
According to the petitioner-Bank it was forced to make payment to the foreign Bank on another three letters of credit opened by the petitioner amounting in all Rs. 1,09,66,325.05. The imported goods (harvesters) were however, handed over to the respondent No. 1 on execution of a trust receipt.
3. The total amount on availing the financial facilities from time to time according to the petitioner- Bank stood at Rs. 28,661,987.55 as on the date of filing of the petition on 2.10.1991 which the respondent-company failed to repay despite service of a notice on 4th December, 1990 under Section 306(a) of the Companies Ordinance, 1984. Besides the allegation of inability of the respondent-company to pay its debt the petitioner-Bank also alleges that substratum of the respondent-company has long disappeared; that assets of the company are being frittered away and the security of the creditors has been jeopardized and is in grave danger of being further depleted; that business of the respondent- company is being conducted unlawfully and fraudulently as respondents Nos. 2 to 4 its directors have failed to maintain proper and true accounts; that respondents Nos. 2 to 4 have refused to act according to the requirements of the Companies Ordinance, 1984; that existing assets of the company are grossly insufficient to meet the existing liabilities of the company and that it is impossible for the Company to carry on the business except at a loss.
4. Respondent No. 1 in' its written statement has not expressly denied availing of the aforesaid financial facilities. However, in para 1(b) of the preliminary objections it is alleged that respondent after receiving the approval of ADBP for import of Chinese harvesters approached the petitioner- Bank which liked the feasibility of the project and therefore, agreed to undertake the harvester project in partnership with the respondent No. 1. Further that the petitioner-Bank under the scheme was required to provide finance for the project while respondent No. 1 was to provide the expertise possessed by it and the required management skills.
5. The second objection advanced to the petition has been detailed in para 1 (f) of preliminary objection which reads as under:-- "That in June, 1988 the first lot of harvesters arrived in Pakistan, but on testing the said harvesters the respondent No. 1 found them to the defective and informed the manufacturer immediately, who promised to 'nave the same repaired, It is submitted that even after repairs the said harvesters did not operate' properly and, therefore, the manufacturer brought in a team of engineers to make the necessary's repairs. But instead of having the said harvesters repaired properly the manufacturer proceeded to ship the second consignment of the same model harvestors in November, 1988. Resultantly the respondent No. 1 filed a suit for permanent injunction against the manufacturer at the Civil Court at Lahore in order to restrain the manufacturer and the petitioner Bank from negotiating any further documentary credit until the manufacturer had repaired the defective harvesters or replace the same, It is submitted that a temporary injunction order was issued by the Civil Judge, First Class, Lahore on 5.12.1988, restraining the petitioner bank from encashing any documentary credit in favour of the Chinese manufacturer, It is submitted that the petitioner in complete disregarded of the said order 5.12.1988 proceeded to negotiate L/C No. 1007 on 7.12.1988. This unlawful action of the petitioner bank not only caused a major loss to the respondent company in respect of their ongoing negotiations with the manufacturer to replace the defective machines, but also put the respondent No. 1 in a disadvantageous position. Therefore, the respondent No. 1 had no other option but to import the remaining harvesters which had already been ordered and L/C's for the same had already been made operational."
6. It is further alleged that ADBP by August, 1988 proceeded to place a ban on further financing to be provided by it for the harvestors which seriously hampered the business of respondent No. 1 like all other harvesters- importers in Pakistan. Also that floods in September, 1988 damaged the crop and the harvesting industry was very badly effected as a complete season of harvesting was lost. It is alleged that in order to still remain in business the petitioner made sincere efforts to make the project a success and in that regard made a number of proposals to the petitioner Bank which were declined by the petitioner- Bank with mala fide intention, It is also alleged that in order to minimise the losses in the harvesting project, the respondent No. 1 entered into an agreement for import of sugar at low rates with the consent of the petitioner Bank. However, again on the last moment the petitioner Bank backed out resulting in serious losses to respondent No. 1 as by that time it had already invested a large sums of money in putting the sugar project together.
7. Therefore, according to respondent No. 1 a civil suit for damages for the recovery of Rs.
19,71,50,000.00 was filed against the petitioner Bank which was pending in the Court of Senior Civil Judge, Lahore. Respondent No. 1 also claimed to have made payments of Rs. 12 million against the financing provided by the petitioner from the proceeds harvesters allegedly by foregoing its own share of the profits, It is also informed that the petitioner-Bank< has filed a suit for recovery of the alleged debt against the respondent which is pending before the Banking Tribunal at Lahore.
8. On merits the execution of various documents securing the grant of financial accommodation detailed in para 6 is not denied. The trust receipt however, is claimed to be a forged document, It is also alleged that the guarantees executed by respondents Nos. 2 to 4 were demanded by the Bank and were given by respondents Nos. 2 to 4 only for the purpose of fulfilling their own banking requirements because the Bank was in fact a partner with the respondent No. 1 in the harvesting project, It is also alleged that the petitioner- Bank wrongly made payments on a number of LC's despite instructions to the contrary made by respondent No. 1 after finding that harvesters sent by the exporter suffered from a number of technical faults. Although the service of notice under Section 306(a) of the Ordinance is accepted yet it is claimed that no amount whatsoever is due to the petitioner- Bank against the company and that the present petition is a counter-blast to the civil suit for damages filed by respondent No. 1 for the recovery of Rs. 19,71,50,000.00 against the petitioner Bank on 6.5.1990. It is also claimed that the respondent-Company is solvent and an on- going project with assets worth more than Rs. 10 Crores. Lastly it is stated that the respondents Nos.
2 to 4 directors mortgaged their property situated at 36 Lawrence Road, Lahore in favour of the petitioner Bank and the value of that property being well over 100 million it is enough to fulfil the alleged liability of the respondent company and therefore, the petitioner Bank is fully secured in respect of the debt which is seriously disputed by the respondent-company:
9. During the pendency of the proceedings on 13.5.1992 the Court appointed a Local Commissioner to prepare the inventory of the assets of the respondent. On 12.12.1996 a restraint order was rr. Ad
10. Heard the learned counsel for the parties. Learned counsel for the petitioner in support of his submissions that the substratum of the company having gone it needs to be wound-up without any further delay, relies upon re: Ali Woolen Mils v. I.D.B.P. (PLD 1990 SC 763). Also points out that the balance sheet attached with the written statement for the period ending on June 30, 1994 sufficiently portrays the financial conditions of the company by declaring accumulated losses by that date at Rs. 2,67,27,915/- against the paid up capital of Rs. 36,00,000/- only. Further states that balance sheet of the company as on 30.6.2002 filed during arguments shows accumulated losses at Rs. 3,09,37,668/- registering an increase when compared with these losses as on June 30, 2001 at Rs. 3,05,68,212/-. The financial condition of the company according to the learned counsel can.
Only be seen through its accounts, In support of the submission, he relies upon in re: PICIC v.
National Silk and Rayon Mills (PLD 1976 Lahore 1538), re: Habib Bank Ltd. v. Hamza Board Mills (PLD 1996 Lahore 633) and re: National Bank of Pakistan v. Punjab National Silk Mills (PLD 1969 Lahore 194). He further states that the respondent admittedly having received the statutory notice and having failed to pay thereafter a presumption of inability arises against it. This submission is sought to be, supported by two judgments of the Hon'ble Supreme Court of Pakistan in re: Platinum Insurance Co. Ltd. v. Daewoo Corporation (PLD 1999 SC 1) and re: Sindh Glass Industries v. NDFC and others (PLD 1996 SC 601).
11. The case of re: Platinum Insurance Company (supra) is also referred to state that after receipt of statutory notice burden shifted to the respondent-company to show that it was commercially solvent and therefore, in a position to satisfy its liabilities. That burden in his view has not been discharged by the respondent-company. The aforesaid three cases in re: Platinum Insurance Company Ltd., re: Sindh Glass Industries (supra) and re: Hashmi Can Company Ltd. v. K.K. & Co.
(Pvt.) Ltd. (1992 SCMR 1006) are again referred to explain commercial solvency. According to him solvency means that the company is in a position to meet its current liabilities and that possession of sufficient assets base is no defence at all.
12. Again referring to the balance sheet for the year 1994, learned counsel relies on re: Ali Woollen Mills (supra) and another judgment of the Supreme Court of Pakistan in re: Punjab National Silk Mills v. N.B.P. (1986 SCMR 1126) to contend that there being a little chance of recovery after losses in all these years, there is no option but to wind-up the respondent-company.
13. In re: Sindh Glass Industries (supra) is again referred to state that since the respondent is not in business for the last some years it has absolutely no earning capacity to pay its debts even in future and therefore, needs to be wound-up to save the security of the creditors from further depletion. The case of Hala Spinning v. IFC (supra) is also mentioned to state that in absence of a reasonable chance of doing profitable business in future, the company cannot be allowed to remain alive.
14. Learned counsel for the petitioner refers to re: M/s. Hala Spinning (supra) and re: Punjab National Silk Mills (supra) to state that the fact that a debt is secured, is no defence to the winding-up petition. Lastly he places a lot of stress on suspension of business by respondent No. 1 and in that regard again refers to two cases of the Hon'ble Supreme Court of Pakistan in re: Ali Woollen Mills (supra) and Punjab National Silk Mills (supra). The provisions of Section 305(c) according to him need to be invoked in this case when the balance sheets of the company for the last many years clearly indicate lack of any business activity.
15. Learned counsel for the respondent No. 1 on his turn however, contends that in the first place suspension of business has not been specifically pleaded in the petition nor according to him it is otherwise a good ground for winding-up. To support the submissions he relies upon the ratio settled in re: Alliance Motors (Pvt.) Ltd. (1997 MLD 1966). Also states that there being a bona fide dispute with regard to debt in question and in view of the pendency of a civil suit by the petitioner a winding-up order cannot be granted. These submissions are sought to be supported by two cases of the Karachi High Court in re: UBL v. Golden Textile Mills (PLD 1998 Kar. 330) and re: P/C/C v.
Bawany Industries (PLD 1998 Karachi 45). Another case re. Khyber Textiles Mills v. Allied Textile Mills Ltd. (1989 CLC 1167), is relied upon to state that winding-up order should not be made where the parties have filed cross suits and are in litigation before a Civil Court. Also refers to a case of Indian jurisdiction re: Krishna Lyer Sons v. New Era Manufacturing Co. (AIR 1965 Ker. 24) to claim that occurrence of losses in the past is not by itself a sufficient ground to order winding- up. It is further claimed that while looking at the financial condition of the company its fixed assets cannot be ignored as the company in the present case has sufficient assets to discharge its liabilities.
Reliance in that connection is made to in re: HBL v. Golden Plastics (Pvt.) Ltd. (NLR 1991 Civ. 582) and re: Krishna Lyer Sons (supra). Learned counsel has also cited a number of judgments in support of the submission that there being a bona fide dispute between the parties an order to wind-up cannot be made. The cases relied upon in that regard include re: M/s. Adage Advertising v. M/s. Shezan International (1970 SCMR 184). As regards the notice under Section 306(a) of the Companies Ordinance, 1984 hd claims that no presumption arises if the creditor was informed of the reasons why the alleged debt was disputed. This argument is sought to be supported by the ratio settled by the Hon'ble Supreme Court of Pakistan in re: Hashmi Can Co. Ltd. v. K.K. & Co. (Pvt.)
Ltd. (1992 SCMR 1006).
16. After hearing the learned counsel for the parties I am of the view that the petitioner has been over-whelmingly successful in making out a case for acceptance of the prayer for winding-up of the respondent-company, It needs to be noted, at the outset, that enjoyment of financial facilities has not been denied by the respondent. However, it has denied the liability to re-pay for three reasons. Firstly, that the petitioner-Bank provided finances to the harvest project as a partner and therefore, it is liable to share a loss like any other partner. Secondly, the petitioner-Bank released funds to the exporters on various LC's detailed in the petition despite instructions to the contrary by the respondent- company as also a restraint order from a Court. Thirdly, that the respondent has filed a suit for damages on account of failure of the petitioner-Bank on account their failure to have financed their sugar project after initially having agreed to provide funds for the same. This impliedly means that if the petitioner-Bank had provided sufficient funds for the sugar project of the respondent-company, the respondent would have earned sufficient funds not only to minimise the losses in the harvester project but would also have been in a position to pay back the petitioner-Bank. All these defences, however, are not supported from the record.
17. There is no document worth the name which could directly or indirectly or indirectly establish that the petitioner Bank advanced loans or financed LC's as a partner and not as a banker. The contention that promissory notes and hypothecation agreement detailed in para 6 of the petition were executed only to observe a formality and that these were not meant to be acted upon does not find support from any material or evidence whatsoever. At least seven promissory notes executed between August 15, 1987 to May 1, 1989 as also the hypothecation agreement dated August 15, 1987 alongwith a supplementary hypothecation agreement dated 9.2.1988 were duly registered with the Registrar of the Companies as per requirement of law. These documents without an iota of doubt witness as loan based upon a mark-up to be repaid in terms contained therein. Therefore, the oral assertion that these agreements were not meant to be implemented is neither here and nor there. The allegation that the petitioner bank paid the foreign suppliers against the instructions of the petitioner again is a wild assertion, In my considered view any instruction to the contrary cannot be executed by a bank after having issued a letter of credit in favour of a foreign exporter. Secondly, the respondent in its reply has not detailed either the alleged order of the Court nor they have in any manner established that the restraint order dated 5.12.1988 was duly conveyed to the petitioner-Bank when it honoured the documents in favour of the exporter on 7.12.1988. The respondent has not denied to have received harvesters imported under the said letters of credit. Therefore, the petitioner as banker was not concerned with any alleged fault in these harvesters. Also having received the delivery of the harvesters under the said trust receipt any mis-print or wrong entry of a date in the trust receipt is hardly of any significance. The pendency of a suit for damages alleged to have been caused in relation to another request for grant of a loan facility again has no nexus whatsoever with the liabilities which the respondent had already incurred qua the petitioner-Bank. Therefore, the pendency of a civil suit in that regard is totally-immaterial as far the claim of the petitioner for recovery of admitted financial liability availed by the respondent is concerned.
18. The submission of respondent No. 1 that there has been a bona fide dispute between the parties is therefore, totally devoid of any force. The availing of financial accommodation as well as service of notice under Section 306(a) of the Companies Ordinance, 1984 having not been denied a heavy burden laid upon the respondent-Company to justify non-payment to the petitioner-Bank.
However, as noted earlier, neither that burden has been discharged nor any mentionable reason has been stated for non-payment of the debt owed towards the petitioner. Therefore, it is not mere unwillingness but an inability to pay the debt.
19. Learned counsel for the petitioner is also correct in pointing out that the balance sheets of the respondent- Company since the year 1994 till date amply demonstrate that the respondent Company is totally non-functional much less to say of its being commercially active and, therefore, asolvent entity. The brought forward losses for the period ending on 2002 stand at Rs. 3,09,37,668/- as against the meagre paid up capital at Rs. 36,00,000/- which has already eaten up the equity basis of the Company. The fact that the value of the property mortgaged for the repayment of loan far exceeds the loan liability will not be itself make the project and on going concern or the one having hope of making profits in the near future. The moveable or immovable assets of the company again are not any assurance that it is in a position to repay the debts.
20. The other facet of the defence that the imported harvesters suffered from technical faults or that there had been unforeseen clamaity of floods in September, 1988 again does not answer the claim of the petitioner that the respondent is not in a position to pay its debts. That defence in a way is rather indicative of the acceptance of the contention qua inability to pay. Likewise the pendency of a suit for recovery of damages before a Civil Court or the suit of the petitioner for recovery before the Banking Court again does not materially effect the prayer made in this petition.
21. The claim of the respondent that it is a solvent company possessing assets worth more than Rs.
10 crore is also hardly of any avail if even after having been served with a notice under Section 306(a) of the Companies Ordinance it has not been able to discharge the liability.
22. The fact that the respondent-Company is not in business for the last quite some years is clearly supported from the balance sheets submitted during the arguments, It is otherwise not denied that the Company is not doing any business, It is correct that the occurrence of losses in the past is not by itself a sufficient ground to order winding-up of a company. This defence, however, is available only to a company which is still in business, is moving forward with sufficient working capital and credibility in the market and the ability to produce for higher profits in the future. None of these conditions is answered in the case of the present respondent-company.
23. Accordingly, I will hold that the respondent Company is unable to pay its debts. Also that not being in business for quite some years by how, it has no chances of recovery to discharge its liabilities. And that in case it is not directed to be wound up, its losses will increase resulting in further depletion of the security of the creditors. Therefore, the Company/respondent No. 1 M/s. Farm Aids (Pvt.) Ltd. Is directed to be wound-up forthwith.
24. Mian Farzand Ali and Mr. Fakhar-uz-Zaman Tarar, Advocates, 62-Mozang Road, Lahore are appointed liquidators. They will immediately take over the assets and books of account of the company and proceed with the liquidation, In order to facilitate the initial steps, the Bank will contribute a sum of Rs. 50,000/- to the liquidation account to be opened in M/s. PICIC Commercial Bank, Egerton Road, Lahore.
25. To come up on 18.2.2003 for further proceedings.