ADDITIONAL REGISTRAR OF COMPANIES Versus MUBARAK TEXTILE MILLS LIMITED

SHAHID KARIM, J.--- This is a petition under Section 301 read with section 304 of the Companies Act, 2017. It seeks the winding up of M/s. Mubarak Textile Mills Ltd. ( Mubarak Textiles ). It has been stated in the petition that upon examination of annual audited accounts of Mubarak Textiles as well as other record, it was observed that Mubarak Textiles had suspended its business for more than a year and this was evident from the Annual Reports for the years 2016 and 2017. In view of these observations, C.R.O, Lahore sent a reference to Executive Director, Corporate Supervision Department SECP, Islamabad seeking prior sanction of the Commission in terms of section 309 (b) of the Repealed Companies Ordinance 1984 to file a petition for winding up of the company. Upon consideration of the reference, a show-cause notice dated 17.05.2017 was issued to Mubarak Textiles delineating the circumstances given in that show cause notice which is Annexure L . The representative of Mubarak Textiles did not appear before the Commission and while proceeding ex-parte, the Executive Director CSD, SECP granted permission to file a petition before this Court for winding up of Mubarak Textiles. The primary ground taken in this petition set out as ground a states that:

2.In order to support the ground taken above, the learned counsel for the petitioner referred to annual report 2016 of Mubarak Textiles and in particular the Directors report which stated as follows:

Due to non-favorable working conditions prevailing in the Industry, energy crises and tight liquidity position, the management could not involve in any business activity and just relied on the rental income so earned and to meet the necessary / immediate obligations. The management is looking for the better conditions / opportunities for the business to restart / re-run and make feasible the project.

3.Regarding going concern management of the Company have view that currently revenue being earned from rental income are sufficient to meet the immediate obligations of the Company. For future obligations the management is working on trading in the field of textile products and hope be successful and will be meeting its obligations and there will be no doubt to be a going concern .

3. It is evident from the portion of Directors report reproduced above that the company earned profit before taxation of Rs.192,966/- after meeting all administrative and financial charges. It is however conceded in the report that on account of non-favourable working conditions generally prevailing in the industry, the management could not carry on the business activity of the composite knitting unit which was established by Mubarak Textiles yet continued to rely on rental income in order to meet its obligations, immediate as well as the deferred. From this it has been inferred by the Commission that since the company has suspended its primary business since 2011, therefore, it ought to be wound up under clause (m) of section 301 of the 2017 Act, which provides that:

4.A reading of the above provision makes a company liable to be wound up in case it suspends its business for a whole year. In this regard, a reference to various clauses of Memorandum of Association of Mubarak Textiles would clearly show that although the object for which the company was formed was to establish, own and manage a composite knitting unit yet in order to accomplish the said objective, the company was also authorized to:

5.Clearly, the above objective authorizes the company to let out on hire, sell or otherwise dispose of any undertaking of the company or any land, business, property or assets of any kind of the company and the facts stated in the Directors' report upon which reliance has been placed by the petitioner clearly shows that the company is merely undergoing a lean financial period and in order to meet its contingencies seeks to rely upon clause III (i) of its Memorandum of Association which brings its business within the confines of permissible objectives and not beyond that. In a way, it augurs better business sense to make use of one of the objectives mentioned in the Memorandum of Association while the primary objective is difficult to sustain. If a company carries on business activities which do not offend the objective given in the Memorandum of Association, it cannot be alleged that that company has suspended its business and must be wound up. The novelty and diversification should be lauded rather than punished for it leads not only to sustenance but also employment opportunities for a member of people. Culling a corporate entity has a spiraling effect which impacts those whose fortunes are tied to it. It should be the exception and not the norm.

6.Learned counsel for Mubarak Textiles relied upon section 26 of the 2017 Act, which provides that:

7.The above provision stipulates that a company may carry on or undertake any lawful business or activity. It does not state that the only lawful activity a company may carry on should be the principle line of its business as mentioned in the MoA. There is an explanation regarding the term principle line of business given in section 26 which refers to the business in which substantial assets are held or likely to be held or substantial revenue is earned or likely to be earned by a company. It is not the case of the petitioner that the business of managing a composite knitting unit does not hold the substantial assets of Mubarak Textiles which have either been depleted or liquidated towards any other business which was not initially the principle line of business of Mubarak Textiles. If Mubarak Textiles and its Board of Directors have chosen to earn revenue out of substantial assets of Mubarak Textiles by letting out any of its property or assets that does not detract from the fact that the principle line of business has been deviated from. Clause i of the proviso to section 26 merely provides that principle line of business of the company shall be mentioned in the memorandum of association of that company and will always commensurate with the name of the company. Therefore, reliance of the company on principle line of business is only towards the name of company and there is no prohibition in section 26 regarding ancillary or incidental business to be carried out by a company or undertaken as a lawful business. In a nub, the mere fact that a company has, for the time being, diverted its business activity to an incidental purpose or objective given in the memorandum of association would not entitle the petitioner to bring a petition for its winding up. This Court cannot lose sight of the general trend prevailing in the textile industry which is under tremendous financial stress on account of various factors which are common knowledge and need not be adverted to in detail.

8.Subsection (2) of section 308 of the Act provides that:

9.One of the grounds taken in the instant petition (ground d ) states that it is just and equitable to wind up Mubarak Textiles. The provision, set out above, empowers the Court to refuse to make an order of winding up if it is of the opinion that some other remedy is available to the petitioner. Clearly, if Mubarak Textiles has failed to comply with the mandatory provisions of section 301, the petitioner, SECP, may compel Mubarak Textiles to comply with those provisions under the powers conferred upon it by various provisions of the Act. The circumstances spelt out in this petition do not warrant the winding up of Mubarak Textiles.

10.In view of the above, this petition is dismissed . It is however made clear that Mubarak Textiles shall inform the relevant officer of SECP regarding letting out of its property under compelling circumstances as also will comply with the requirements of various provisions of the Act.

UN/A-23/L Petition dismissed.