HASHMI CAN COMPANY LIMITED vs K.K. & CO. (PRIVATE) LIMITED

1. ' WALI MUHAMMAD KHAN, J.--- Leave to appeal is sought against the judgment, dated 15-9-1991 passed by a Division Bench of the Peshawar High Court in I.CA. No,1 of 1991, whereby the appeal filed by the petitioner, against the judgment of Company Judge, dated 15-6-1991 dismissing their petition under section 305 of Companies Ordinance, 1984, for winding up the respondent- company, was dismissed.

2. ' We have heard Mr. Mansoorul Arfin, Advocate, for the petitioner and have perused the record of the case. The learned counsel for the petitioner strenuously argued that under section 305(e) of the Companies Ordinance, 1984, a company is liable to be wound up if it is unable to pay its debts.

3. According to him, a notice under section 306 ibid was issued by the petitioner to the respondent- company to pay them the outstanding amount of Rs,15,10,840 failing which the petition for winding up of the respondent-company shall be instituted besides the realisation of the dues Outstanding against them. Alongwith the notice the statement of accounts was also annexed. The reply to the notice (page 20) is available at page 25 of the paper book wherein the correctness of accounts has been disputed on the ground that the cans supplied in the year 1989 by the petitioner were defective and of substandard quality resulting in huge losses to the respondent which was assessed at Rs,1,97,541/47. It was specifically mentioned in reply that the respondent had approached the competent Court with a suit for rendition of accounts. The learned Company Judge rejected the application of the petitioner for winding up of the respondent company on the ground that the part of the alleged debt was not only disputed but also the case was sub-judice before a competent Court of law and the first appellate Court finding no flaw therein maintained the same through the impugned judgment.

4. Section 305 of the Companies Ordinance, 1984, confers a discretion on the Company Judge to order winding up of a company under certain circumstances enumerated therein, one of them being 'if the company is unable to pay its debts'. Section 306 thereof provides as follows:-- "306. Company when deemed unable to pay its debts. --- (1) 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 in a sum exceeding one per cent 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 a 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."

5. The conjoint reading of sections 305 and 306 makes it amply clear that the Company Judge has a discretion to order winding up of a company if it is unable to pay its debts and in spite of demand made by the creditors the debt remains unpaid. Obviously the same refers to the undisputed amounts payable by the company and not those which may be in dispute bona fide. Moreso when immediately on receipt of notice under section 306 the creditor is informed of the reasons why the alleged debt is disputed and the matter is taken to the Court of law for adjudication. Refusal for cause to pay such debts cannot be regarded as negligence to pay as contemplated under section

306. Both the lower forums had the discretion to allow or disallow winding up of the company and we have not been convinced that the lower two forums have exercised their discretion illegally or with material irregularity.

6. ' Resultantly, finding no merit in the instant petition, the same is dismissed and leave to appeal is refused.