Messrs ALI WOOLLEN MILLS Ltd. vs INDUSTRIAL DEVELOPMENT BANK OF PAKISTAN and 3 others

ORDER

1. NAIMUDDIN, J.---Industrial Development Bank of Pakistan, National Bank of Pakistan and United Bank of Pakistan are the creditors of the appellant. They granted various loans to the appellant but the appellant failed to pay the same. Therefore, the respondent served a joint notice under section 306 of the Companies Ordinance for payment of their dues but the appellant did not give any reply to the same. After awaiting for the statutory period the respondents filed a joint petition under section 305 of the Companies Ordinance for winding up of the appellant company on the ground that the appellant was unable to pay its debts and it was also just and equitable to wind up the company.

2. 2.The respondent in reply to the petition admitted the debts and all the averments made in paras.

3. Nos. 'I to 13, 15 to 20, 22 to 25, 27 and 28. However, in paras. Nos. 14 and 15 it was stated that break up of dues could not be admitted as the appellant had not been supplied with the account by the respondent. Regarding para. 29 the respondent has stated as under:-- "That the contents of para. 29 are repudiated. It is not just and equitable to wind up the respondent's company. It is also not correct that the respondent is insolvent and loyalties - exceeded the assets._ There is no reason to assume that the respondent cannot carry on the business. It is also wrong to allege that the respondent owes money to the other financial institutions and Banks. The Government of Balochistan has already taken steps for the progress of the business of the respondent. There are prospective buyers who are interested in the management and partnership of the respondent. It is, therefore, absolutely baseless to allege that the respondent's company be wound up. It is in the interest of justice and equity that the respondent be allowed to function to meet its liabilities."

4. 3.The High Court of Balochistan, by the judgment dated 3-8-1989 accepted the petition and ordered for the winding up of the company and appointed Mr. Muhammad Iqbal, Advocate, as liquidator of the Company.

5. 4.In respect of the amount due to the respondent No, 1 the High Court observed that the following amounts were outstanding against the appellant as on 30th September, 1988:- A /C No,P.N.Y.D.Overdues Rupee ChargeTotal.

6. 0065- A-0-- 150,473.49 207,513.18 Rs, 47,45,392.17 Total: Rs, 49,52,905.25 0065- B-7- - Rs, 23,16,654.10 Rs, 23,16,654.10 In respect of the debts owed to the respondent No, 2, the High Court found that the respondent executed two balance confirmation slips acknowledging the liability to pay Rs, 36,51,110 and Rs, 40,48,437 as on 30th June, 1986 and 31st July, 1987 respectively and a sum of Rs,50,39,192 was outstanding against the appellant as on 30-10-1988.

7. 5.So far as the respondent No, 3 was concerned the High Court stated that a sum of Rs, 31,891.37 fell due on 2-10-1988 and was payable by the appellant to the respondent No,

3. Apart from the failure of the appellant to pay the loans as per agreement and in spite of service of notice the High Court found that admittedly the mill was closed since the year 1983 and the appellant was not doing any business. The High Court noted that the only contention of the learned counsel for the appellant was that a company could not be wound up in each and every case and it is in the discretion of the Court to do so or not. The High Court also noted the submission of the learned counsel for the appellant that the appellant was negotiating with the Government for the smooth running of its mills.

8. ' The appellant did not give any reply to the notice under section 325 of the Companies Ordinance 1984 nor did they produce their annual balance sheet, and the profit and loss account, in rebuttal of the evidence that the appellant was plainly insolvent and their liabilities greatly exceeded their assets and they lacked iquidity. They also failed to produce any evidence in support of the evidence that the substance of the business had also disappeared and it was not reasonably possible for the appellant to carry on business except at a great loss. It is well .Settled that if the company is not commercially solvent nor is there any reasonable chance of its doing business in the near future at a profit then it is just and equitable to wind up the company. Sce In re: The Dinajpur Talkies Ltd. PLD 1959 Dacca 389; In re: The Punjab Flying Club Limited AIR 1933 Lah 301; Mahmood Ahmad v. Karachi Road Transport Corporation PLD 1970 Kar.

229. It is also well-settled that where the substratum of a company has gone, the winding up of the Company would be just and convenient. See Fida Ali Yusufali and others v. Grazait Refineries Ltd. PLD 1967 Kar. 637; In re: Haven Gold Mining Company (1882) 20 Ch. D 151; In re: Synthetic Chemical Co.

9. Ltd., Karachi PLD 1985 Karachi 193.

10. 7.Learned counsel for the appellant repeated the same argument which he advanced in the High Court, namely, that the Court was not bound in each and every case to wind up a defaulting company as it has discretion in the matter. There is no doubt the Court has discretion under section 314 subsection (2) of the Companies Ordinance to refuse to make an order for winding up of the Company if the petition is presented on the ground that it is just and equitable that the company should be wound up but for exercising discretion against a petitioner first the Court has to come to the conclusion that some other remedy is available to the petitioner and that they are acting unreasonably in seeking to have the company wound up instead of pursuing other remedy.

11. In this case the High Court has come to the conclusion, for the reasons stated in the judgment, that it was just and equitable that the appellant be wound up. The discretion has been properly exercised for the company was undisputedly running in loss year after year and the mills of the company was closed since 1983. Therefore, it was commercially insolvent. In re: Punjab Flying Club Ltd. AIR 1933 Lah. 301, it was observed that a company may be rich, yet it may be commercially insolvent. The real criterion is whether it could meet its liabilities and in this respect it was held in a petition under section 162 of the Companies Act, 1913 that the Court has to see whether the company is commercially insolvent i.e, whether it is unable to meet its current demands although the assets when realised may exceed its liabilities. If the company is commercially insovlent it may be wound up. Reference may also be made to People's Bank of India Ltd. v. Narain Das and others 31 PR 1914, wherein it was observed by Mr. Justice Rattigan, that "where a Banking Company has to admit that it has in all its branches suspended business, and that it must inevitably go into liquidation, and that its only hope of salvation is that a new Company may be formed to take its place, such Banking Company is not merely 'plainly and commercially' but also 'technically' insolvent and a Court would be fully justified in taking action under section 134 in appointing a Provincial Liquidator, notwithstanding that the petition for compulsory winding up was opposed by the Directors of the Company concerned."

12. 8.The substratum of the Company has gone, as the appellant's mill is closed since 1983 and it has been incurring losses year after year with no immediate prospects of reversing the position. It may be observed that the substratum of the company must be deemed to be gone so as to entitle the Court to pass a winding up order when the subject-matter of the Company is gone or the object for which it was incorporated has substantially failed, or it is impossible to carry on the business, of the company except at a loss or the existing or probable assets are insufficient to meet the existing liabilities. These are the tests laid down In re: Cine Industries & Recording Co. Ltd. AIR 1942. Bombay 231 and some of these tests are applicable to the present case.

13. 9.We, therefore, think the High Court was right in holding that the appellant was unable to pay their debts and it was just and equitable to wind up the appellant company. Accordingly we find no merits in this appeal and dismiss it, leaving the parties to bear their own costs.