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Petitioner: INDUSTRIAL DEVELOPMENT BANK OF PAKISTAN VS Respondent: MESSERS LARKANA TEXTILE
Court Name: Sindh High Court Judge(s): Ajmal Mian, k.A Ghani Title:INDUSTRIAL DEVELOPMENT BANK OF PAKISTAN vs MESSERS LARKANA TEXTILE
JUDGMENT
Reported As: PLD 1982 Karachi 1 Result: appeal is accepted Judgment JUDGMENT K. A. GHANI, J.-This inter-Court appeal under section 3 of the Law Reforms Ordinance, 1972 read with section 15, C. P. C. (as amended) and section 202 of the Companies Act, 1913, is directed against the order of the learned Single Judge (Company Judge) passed on 21st September, 1981 in J. Misc. No. 14 of 1979, which is a petition for winding up of Larkana Textile Mills Ltd. 1.Briefly stated, toe facts are that the respondent No. 2 filed Petition No. J. Miscellaneous 1.4 of 1979 under sections 152 and 153 of the Companies Act, for winding up of the respondent No. 1 (Messrs Larkana Textile Mills Limited), ,wherein the official Assignee was appointed as the Provisional Liquidator. By an order subsequently passed on 22nd, May, 1979 the learned Company Judge ordered that the above-named Company be; wound up in view of the admitted p4asition that the .Said company was unable to pay its debts. The Official Assignee was appointed as Official Liquidator of the said Company with the directions that :- "The Official Liquidator shall have all the powers with -the sanction of the Court to do acts and things mentioned in section 179 of the Companies Act, ;1913." 2. The Official Liquidator appointed as above-submitted his preliminary report under section 1'77-B of the Companies Act, 1913. In the said report vide clause D, the assets of the Company as on 28-2- 1979 were stated to be as follows according to the statement filed by Mr. Saifur Rebman ex- Managing Director of the Company: Rs. 1. Building.23,22,392.82
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2. Plant and Machinery.3,24,05,733.43 3. Furniture, Fixture & Fittings.89,517.10 Inter alia, it was pointed out in the report that : "The main assets of the Company are the leasehold right, constructions and machineries at' Kotri which will be disposed of after seeking permission of the Honourable Court and with consent of the secured creditors. For the remaining liquid assets of the Company which are shown as balance in the Bank's notices have been issued to them to remit the amount." Though in the same record the Official Liquidator had prayed that in order to scrutinize the books and verify statement made by the Director it would be proper if professional auditor was engaged to audit account and that the Court allowed him to do so, but ultimately this was not done, as it was found that it would unnecessarily add to the expenditure. However by order passed on 1-3-1981 it was left open to Official Liquidator to make an application in that behalf at any future stage if thought necessary. 3. (i) The Official Liquidator vide reference dated 10th January, 1981 sought directions of the learned Company Judge for disposal of the assets of the Company on the ground that a sum of Rs. 3,000 per month was incurred on salaries of the Chowkidar and other miscellaneous expenses. (ii) By order passed on 1st. March, 1981 on the above reference dated 10th January, 1981 while granting permission to carry out certain repairs to the walls of the factory premises, the learned Company . Judge directed :- "Notice of the reference to ail the parties for a date in this month." (iii) On 29th, March, 1981 after notices had been served on all the parties, and in the presence Mr. Nizam Ahmad, Mr. A. L Chundrigar, Mr. S. Hassan Zafar, Advocates, and the Official Liquidator the learned Company Judge amongst others ordered;- "The prayer in paragraph 4 of the application is in regard to the disposal of the assets of the Company at Kotri. Such prayer is not opposed by any party, and I order accordingly." 4. The Official Liquidator thereafter advertised in the newspapers for the sale of the assets of the Company. In response to the said advertisement bids were received from four (4) parties on 8th July, 1981 which was the last date for submission of the bids. One of the parties who submitted bids, was the respondent No. 3 whose bid, for Rs. 2,25,00,000 thought belated, was the highest. ' The Official Liquidator made a reference dated 23rd, January, 1981 to the Court wherein while pointing out that the main assets of the Company consisted of land (leasehold rights from SITE, Kotri), constructions, textile machinery packed in wooden crates lying at factory premises he submitted the four bids received for orders of the Court. By order passed on 23rd August, 1981, the learned Judge rejected the bids received on the ground that they were low and directed that fresh bids be invited. 5. Accordingly public notices were issued in the newspapers inviting bids which were required to be submitted by 13th September, 1981. In the meantime on 9-9-1981 an application was submitted under rule 908 of the Sind Chief Court Rules (O. S.) read with section 151, C. P. C. By the present appellants I. D. B. P. To allow them to participate in the sale of the assets of the above-named Company and while doing so they made an offer of Rs. 500 lacs and "praying therein for adjustment set off the claim of I. D. B. P." It may be noted here that the Company is allegedly indebted to the extent of about Rs. 10 crores to I. D. B. P. Who are secured creditors. The learned Company Judge by order passed on 12th September, 1981 allowed I. D. B. P. To submit their bit but ordered that "the other conditions, attaching to the reception of the bids shall be the same as in case of other bidders."
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6. Pursuant to the advertisements, only two parties submitted their bids viz. Messrs Fatima Enterprises Limited and Messrs Gulistan Textile Mills Limited. (i) Messrs Gulistan Textile Mills Limited the Respondent No. 5 their offer to purchase the assets for a total price of Rs. 3,50,00,000, stated that their bid was subject to settlement of terms with Industrial Development Bank of Pakistan for transfer of loan to them. They also expressed that the Industrial Development Bank of Pakistan would have to write off apart of the loan amount and that this subject would be negotiated with Industrial Development Bank of Pakistan and whatever loan amount was agreed to be transferred to them shall be reduced from the total price offered and the balance amount would be paid by them in cash. They have also claimed the transfer of Insurance Policy in respect of the machinery and entitlement to receive all claim amount from the Insurance Company. Alternately they, offered to purchase the assets on cash down price of Rs. One crore only. (ii) The other bid submitted by the respondent No. 4 Messrs Fatima Enterprises Limited was for Rs. 2,31,00,001. (iii) The Official Liquidator submitted his reference report dated 14th September, 1981 along with the bids received, for orders of the Court. Copies of this reference were supplied by the Official Liquidator to the parties concerned (including Mr. Chundrigar, Advocate for I. D. B. P.)?, On the aforesaid reference the Additional Registrar (O. S.) passed order on 15-9-1981 directing :- "Notice to creditors and intending purchasers." However, on the same date without cancelling the earlier order, the Additional Registrar further ordered :- "Notice before Court for 20-9-1981." It is evident from the record that in spite of the above-mentioned orders of the Additional Registrar for issuing notices to creditors and intending purchasers, no notice was issued to Mr. Chundrigar above for appellants creditor by the office, though notices pursuant to the said order were issued by the office for hearing of the Official Liquidators reference dated 14-9-1981 to (1) Mr. Nizam Ahmad, Advocate, (2) Mr. Khalilur Rehman, Advocate, (3) Mr. Aziz Munshi, Advocate, (4) Mr. Liaquat, Advocate and (5) Mr. Mansoorul Arfin, Advocate representing some of the creditors. Notices were also to the intending purchasers. We would like to mention here that on earlier occasions notices for hearing of references made by Official Liquidator were given to Mr. Chundrigar, worth mentioning is the Official Liquidators reference dated 18-1-1981 (C. M. A. No. 60 of 1981) whereby permission was sought from the learned Company Judge for disposal of the assets of the aforementioned Company. It was after notice to and hearing, amongst others Mr. Chundrigar, Advocate for 1. D. B. P. The appellants, the learned Company Judge on 29th August, 1981 ordered the sale of the assets of the Company which is the subject-matter of this appeal. 7. The Official Liquidator's aforementioned reference in the circum--stances came up before the Court on 20-9-1981 but it was shown in the cause list circulated among the Advocates in the cases fixed "For Orders" before the learned Company Judge. According to Mr. Aboo Bakar I. Chundrigar, the learned counsel for the appellants noticing the case in the cause list he appeared in the Court and submitted that he bad neither received any notice of the Reference, nor the cause list indicated that the case was fixed for hearing. He further submitted that since the case had appeared in the cause list "For Orders", he had made appearance and requested that as the case was not listed for hearing and that he had not received any notice, the Court may order that notices be issued to the creditors and time may be allowed to him to prepare the case in advance for arguments. 8. The learned Single Judge, however, rejected the above pleas of Mr. A. 1. Chundrigar, Advocate, with the observation :-
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"As it is, the auction was first set aside in the month of June, and fresh bids were again invited. The auctions were widely advertised. No creditor objected to the auction, nor submitted a bid. It is not easy to understand the import of Mr. Aboo Bakar I. Chundrigar's objection, but it is surely easy to understand that inviting the creditors to object at this juncture, when none had objected earlier, would only lengthen in the process and further mount up the liabilities of the Company in liquidation , as the huge loans that are outstanding will result in further interest being added to it. What is more that no creditor seems to be having any genuine interest in the disposal of the assets of the Company in liquidation. Mr. Nizam Ahmad and Mr. S. Hassan Zafar, who are also appearing for some of the creditors, have not joined Mr. Aboo Bakar 1. Chundrigar in making this objection. I do not think any notice to the creditors is necessary." Having rejected the request of Mr. Chundrigar, the learned Single Judge proceeded to consider the two bids and for the reasons stated in the impugned order, accepted the bid of Rs. 2,31,00,000 offered by Messrs Fatima Enter--prises Limited, the respondent No. 4, by the impugned order. 9. Against the aforesaid order, this appeal has been preferred by the Industrial Development Bank of Pakistan. 10. The first point which has arisen for consideration is as to the maintainability of the appeal in view of objection raised by Mr. Fazeel the learned counsel for the respondent No. 4. In support of his plea that the appeal is competent Mr. S. Sharifuddin Pirzada, the learned counsel for the appellants, relied upon section 202 of the Companies Act, which provides as follows :- "202. Appeal from orders. -Rehearings of and appeals from, any order of decision made or given in the matter of the winding up of a company by the Court may be had in the same manner and subject to the same conditions in and subjects to which appeals may be had from any order or decision of the same Court in cases within its ordinary jurisdiction." Reference may also be made here to section 3 of the Law Reforms Ordinance XII of 1972, as amended by Law Reforms (Amendment) Ordinance, 1972 (Ordinance XXXIV of 1972) on which the learned counsel for the appellants relied, which reads as follows :- "3. Appeal to High Court in certain cases.-(1) An appeal shall lie to a Bench of two or more Judges of a High Court from a decree passed or final order made by a Single Judge or that High Court in the exercise of its original civil jurisdiction." The learned counsel, relying upon the above-mentioned provisions of law, submitted that the impugned order, which finally disposed of the Reference, dated 14th September 1981, resulting in alienation of valuable property was ,appealable not only under section 202 of the Companies Act, which is wide enough to cover appeals against any order made in the matter of winding up, but also under section 3 of the Law Reforms Ordinance X?T of 1972 (as amended), which has been reproduced hereinabove. 11. In support of his arguments, the learned counsel cited the case of Mirza Abdul Ghafoor Beg v. Registrar, Joint Stock Companies, Karachi and another PLD 1975 Kar. 85. The facts briefly of the said case, relevant for the purposes of this case, may be stated. The said case arose out of proceedings for winding up of an undesirab'.e Company within the meaning of the Undesirable Companies Act, 1958. The Official Assignee was appointed as the Official Liquidator and the procedure was governed by the provisions of the Companies Act, 1913. During the proceedings, the Official Liquidator filed an application under section 185 of the Companies Act, and one of the payments recommended by him to the Court in his application was for payment of Rs. 200 per month to the appellant therein, namely, Mirza Abdul Ghafoor Beg who had claimed Rs. 920 p.m. For the management of the Company in liquidation as provided by its Articles for the period after 21st October, 1957. The learned Company Judge, fixed his remuneration at Rs. 500 per month, and thus a total sum of Rs. 500 was directed to be paid to the appellant. Emboldened by his success in
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obtaining payment for services which were prohibited by the said Act, the appellant advanced fresh claims, which were put up before the same learned Judge who on further consideration of the matter found that the directions given for payment for Rs. 21,500 to the appellant were in contravention of the mandatory provisions of section 4 of the said Act. The Official Liquidator who in the circumstances was directed to submit a fresh Report, filed an application under Order XLVII, rule 1, C. P. C. For review of the earlier orders passed by the learned Company Judge. By his order, dated 21st August, 1967, the learned Company Judge held' that he was competent to review his earlier orders. He further held that he was entitled to set aside the orders both under section 202 of the Companies Act and under section 151, C. P. C. And also because the orders sought to be reviewed were only administrative orders. As the appellant in that case was thus deprived of the payment of Rs. 21,500, which had earlier been sanctioned to him, . He filed Letters Patent Appeal against the said order. While dealing with the question of maintainability of the appeal, and as to whether the impugned order passed was merely an administrative order, and thus not appealable the learned Division Bench in the judgment vide opinion delivered by Mr. Justice Dorab F. Patel (as he then was) held as follows :- "11. The only other ground given by the learned Single Judge for reviewing his earlier orders was that those orders were administrative orders and could therefore be reviewed at any time without regard to the question of limitation.. Mr. Sharifuddin Pirzada submitted that the learned Single Judge had overlooked the rule of locuspoenitentiae. I agree that this rule would be attracted if the orders reviewed were administrative orders. But the question is whether they were administrative orders. No doubt the procedure for determining claims in winding up proceedings may not be as elaborate as that. For example, in a suit on the Original Side of this Court, Nonetheless, these claims are decided after hearing the parties concerned and after recording evidence, if necessary, and I may point out here that there is a whole chapter in the rules of this Court about winding up proceedings including elaborate provisions for notice to the creditors, contributories, etc., therefore the Judge "who sits as the liquidation Judge is not distributing largesse but is administering justice according to law, and if his order is illegal, it must be challenged in appeal ; and here I must confess my inability to understand how an appealable order can be described as an administrative order." The learned Judge, after considering the arguments and reasons given, further proceeded to hold that it has never been held by any Court that a judgment finally disposing of a suit for accounts is an administrative order or that merely because the earlier order was passed without proper notice and thus suffered from illegality would not render the said orders as administrative orders. 12. Mr. Sharifuddin Pirzada, the learned counsel also relied upon the case of Re: Oriental Bank Corporation (56 L T R 868The said case arose out of an order, whereby the assets of the Company in liquidation were provisionally sold by the Official Liquidator and which sale was confirmed by the learned Company Judge, the question arose, whether an appeal was com--petent. While holding that an appeal lies from the exercise of discretion by a learned Company Judge in granting the sanction/affirming a provisional contract entered into by the Official Liquidator, the learned Judges proceeded to hold that the Court of appeal will only interfere if certain facts and circumstances, discussed therein were satisfied. As we are presently discussing the question of maintainability of the appeal, it is not necessary to go into the other details, but would revert to the same at the appropriate stage. Mr. S. Sharifuddin Pirzada then referred to the case of Gordhandas Chunilal Dakuwala v. L Sirman Kanthimathinatha Pillai and others (AIR 1921 Mad. 286) where an appeal was entertained against an order sanctioning a sale by the Official Liquidator in a case arising out of winding up proceedings of a company.
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Reliance was also placed on the case of The Premier Insurance Co. Ltd. Madras and others v. Davanagere Cotton Mills Ltd. And others (AIR 1961 Mys. 1) where dealing with a similar question as to maintainability of an appeal against the order of a Single Judge affirming sale by the Official Liquidator, the learned Judges of the Mysore High Court, relying upon the observations made in the case of Bachharaj Factories Ltd. v. Hirjec Mills Ltd. AIR 1955 Bom. 355), held that an appeal was competent against such an order. The observations of the Bombay High Court upon which reliance was place may use fully be re--produced hereinbelow :- "The first part of S. 202 (section dealing with appeals under the old law) confers substantive- right upon a party aggrieved by an order made or a decision given by a company Judge in winding up. The second part of section 202 does not in anyway cut down or impair the substantive right already conferred by the first part of section 202. The second part which deals with the manner and the conditions in which an appeal may be preferred only refers to the procedural aspect of an appeal and the forum to which the appeal would lie." 13. The last case relied upon by the learned counsel for the appellants is reported as Shankarlal Poddar v. Gobinda Prosad Nath and others (AIR 1959 Cal. 324where the learned High Court, of Calcutta also held that such orders are appealable under section 202 of the Companies Act, on the principle that once it is shown that the dispute between the parties has to be judicially determined, such an order made by the Court should be reasonably construed as a judicial order, and not an administrative order, and once that conclusion is reached, it was a judgment within the meaning of clause 15 of the Letters Patent. Though we are not dealing with an appeal under the Letters Patent, yet the principle which determines whether an order is judicial order, and not an administrative order, and thus subject to appeal, under section 202 of Com--panies Act and section 3 of Law Reforms Ordinance of 1972, would be fully applicable to present case. 14. Mr. A. A. Fazeel, the learned counsel for the respondent No. 4, on the other hand relied upon Rule 844 of the Sind Chief Court Rules (O. S.), and submitted that the sale affected by the Official Liquidator was subject to the directions of the Court, and thus not liable to appeal. We are in agreement with him that though the proposed sale was subject to the directionsof the Court, which included' the power of the Court to affirm or ; made, but that would not lead to the inference. That order of the nature under consideration whereby the rights in valuable property have been finally determined and which order is likely to result in substantial loss to the appellants and deprive them of valuable rights is a mere formal or inter--locutory order. Reference may also be made here to the case of Re : Oriental Bank Corporation where observations have been made that a duty and trust is imposed to take care that the assets of the Company shall be applied in discharge of its liabilities, and any order of the nature in question which was going to directly affect the rights and interest of the creditors of the Company in liquidation, if exercised on wrong principles or that there has been great loss to some and or other by clearly erroneous exercise of discretion the Court of appeal has jurisdiction to interfere. 15. In view of the above discussions and finding that by the questions involved in the case under consideration were required to be judicially determined and that the impugned order has the effect of finally disposing of the property worth crores of rupees, terminating the rights in the assets A both moveable and immovable of the Companies and the valuable rights of the creditors, we, have no hesitation in holding that the impugned order is a judicial order and subject to appeal both under section 202 of the Companies Act, 1913 and section 3 of Law Reforms Ordinance, 1972. 16. The second question which arises in this case for consideration is, whether the appellant was entitled to a notice, and if the learned Company Judge in the circumstances was justified to proceed with the hearing of the Reference on 20th September, 1981 which resulted in the passing of the impugned order, dated 21st September, 1981.
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The grievance of the learned counsel for the appellants is that the Official liquidator had filed his reference, dated 14th September, 1981 in the office (Original side) as already noted above, whereupon the Additional Registrar on 15th September, 1981 ordered for issuance of notices to thei8 creditors and intending purchasers. The effect of this order would have been, that the case in the ordinary course was to be fixed first before the Additional Registrar (O. S.) who after his satisfaction that notices as ordered had been served upon the creditors and intending purchasers, would have given a date of hearing of the Reference in Court. However, by a subsequent order of the same date, the Additional Registrar directed that notice be given for 20-9-1981 before the Court. The learned Counsel for the appellants submitted that there was no justification for the modification of the earlier order by the Additional Registrar. His further submission with which we are in agreement, was that these two orders should be read together and as such their effect was that though the venue of the proceedings was changed but the requirement of giving notice, to the creditors and Intending purchaser remained effective and that this inference is fortified by the fact that such notices were in fact given to the intending purchaser as well as to the creditors (though there was omission on the part of the office to give such a notice to Mr. Chundrigar alone). The learned counsel for the appellant, further contended that pursuant to the above orders of the Additional Registrar (Original Side), and even otherwise notices ought to have been given to the Advocate for the appellants, who were vitally interested in the case, they having the single, largest claim against the Company amounting to over Rs. Ten crones. The learned counsel further submitted that the necessity of issuing the notice to the appellants/creditor already appearing though out in the proceedings, was absolute. There is no denial of the fact that notices o: other References including that of the Reference, dated 18th January, 1981 which was heard on 29th March 1981, which was given to Mr. Aboo Bakar, I. Chundrigar for the appellant, when the -Court after hearing him and others directed that the assets of the Company which are subject-matter of this appeal, be disposed of. 17. Apart from the necessity of issuing a notice to Mr. Aboo Bakar I Chundrigar for 20th September, 1981 as per order of the Additional Registrar dated 15th September, 1981 as discussed above the learned…
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