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Petitioner: MAHMOOD AHMAD VS Respondent: KARACHI ROAD TRANSPORT CORPORATION LTD.
Court Name: Sindh High Court Judge(s): Qadeer-ud-Din Ahmad Title: MAHMOOD AHMAD vs KARACHI ROAD TRANSPORT CORPORATION LTD. Case No.: Miscellaneous Application No. 7 of 1968 Date of Judgment:1969-05-06 Reported As: PLD 1970 Karachi 229 Result: Petition accepted
JUDGMENT
JUDGMENT On the 1 of April 1969, I had framed two issues, and directed that affidavits and counter-affidavits may be filed by way of proof. I had noticed that a request for producing witnesses was made, which apparently was only one of the series of attempts to prolong the proceedings. Affidavits and counter-affidavits were allowed to be filed by the 1 of May 1969, because great stress was laid on the allegation that winding up petition was mala fide. The company has filed two affidavits, one sworn by Mr. Muhammad Azam, a former Accountant of the Company, and the other by Mian Muhammad Akhtar, the Managing Director of the Company. Both of them are dated the 22nd of April 1969. The petitioner has submitted two counter-affidavits, and one supplementary affidavit. One of the counter-affidavits, dated the 28th of April 1969, is sworn by Malik Sanaullah, the Store Purchase Officer of the Company at the relevant time and the other by the petitioner. The latter is dated the 29th of April 1969. The supplementary affidavit is also of the petitioner, and is dated the 2nd of May 1969. Two affidavits in rejoinder have been filed by Mr. Muhammad Azam and Mian Muhammad Akhtar. 2. Mr. Sharaf Faridi says that one day before the date for which the case was fixed for hearing, that is to say, on the 30th of April 196 t, he had received information that his senior, Mr. Shaikh Ghias Muhammad, would not be able to come from Lahore, and had, therefore, requested for adjournment to the 5th of May 1969. Counsel is right, and I recall that I had adjourned the hearing according to the request. Day before yesterday, I received a trunk call from Mr. Shaikh Ghias Muhammad from Lahore, saying that he had to appear in two Letters Patent Appeals at Lahore; therefore, it was difficult for him to appear in this case at Karachi, and again asked for adjournment saying that he was free on the 7th and 8th of this month; therefore, could appear in this case onst st
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any of those two dates. His conduct does not impress me as calculated to show due deference to this Court. The request was also presum--ptuous in as much as counsel expected the hearing to be changed again and again, merely because suitability of dates was changing owing to his other engagements and conveniences. 3. Today, I have heard counsel for the parties. Mr. Sharaf Faridi took the stand he was expecting his senior to argue the case; therefore, he was not fully prepared. I do not think that this was a correct stand, because junior counsel who are engaged, are also expected to be ready to go on with the cases in which they are engaged. 4. He has given the entire history of the Company. I should reproduce it, because one contention which runs through all the arguments, defenses and affidavits, is that the Company has been unfortunate from its inception, because it was created in adverse circumstances. 5. Mr. Sharaf Faridi has informed me that originally a statutory Company called the "Karachi Road Transport Cor--poration, " was created in 1959, with a nominal capital of seven crores of rupees, and a paid-up capital of Rs. 1,70,00,000. The Central Government had taken up shares of the value of Rs. 1,35,42,130, and the rest of the paid-up capital was sub--scribed by the public. It commenced business in October 1959, and was able by December 1961 to build up a fleet of 456 single decker buses and 24 double decker buses. In 1960-61, according to counsel, it earned a profit of Rs. 24,53,065, and in 1961-62 a profit of Rs. 24,420. Bad days, however, soon fell on it, and in 1962-63, it incurred a loss of Rs. 63,85,539, with the result that it had to borrow Rs. 67,00,000 from the Central Government. According to Mr. Sharaf Faridi, the market value of the shares of the Corporation at that time was Rs. 4.50 as against their face value of Rs. 10; therefore, the Government conceived the idea of transferring the project exclusively to the private sector. For this purpose, in the words of Mr. Sharaf Faridi, Mian Muhammad Akhtar was induced to purchase the shares which were held by the Government at their face value. This was, according to counsel, the first adverse circumstance with which the new Company has been grappling throughout its existence. 6. A letter, Annexure R/8, was written on behalf of the Government on the 13th of June 1963, setting out the terms on which the shares of the Government were purchased by Mian Muhammad Akhtar. One of the terms was that a new Company would be floated under the Companies Act, 1913 and would take over the statutory corporation. Counsel said that at that time the fleet of buses belonging to the statutory corporation had badly depleted. There were only 211 single decker and 17 double decker buses which could be placed on the road after some repairs, but the rest of the fleet was beyond repair. This was realised by the Government ; therefore, it undertook to grant licenses to the new company to enable it to import new buses. 7. The new company was incorporated on the 5th of September 1964 and the statutory Corporation was dissolved by West Pakistan Ordinance No. XXIV of 1964, on the 17th of December 1964. A copy of the memorandum and articles of the new Company is Annexure R/A/4. 8. Counsel said that the balance-sheet relating to the period beginning from the 1st of July 1964 ending on the 30th of June 1965, was prepared and shoved a loss on the 30th of June 1964, to be Rs. 73,27,400. From that date, up to the 5th of September 1964 when the new Company was incorporated, a further loss of Rs. 7,58,393 was incurred. Thus at the time at which the new Company came into existence, it was already under the burden of a debt of Rs. 80,85,793. The loss continued to mount until on the 30th of June 1965, according to counsel, a further loss of Rs. 34,34,744 was incurred, thus making the total loss to be Rs. 1,15,20,537. In addition to this loss, Mr. Sharaf Faridi pointed out, the Company had- the burden of a loan of Rs. 67,00,000 which it had taken from the Central Govern--ment. Counsel further said that one of the misfortunes of the Company was that a number of its buses were burnt down by the public during the Presidential elections because the public were under the impression that they belonged to the Government.
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The misfortune of the Company was aggravated, according to counsel, when war broke out in 1965 between India and Pakistan. 9. In order to overcome the fast deteriorating condition of the Company, it started negotiations with the Commerce Bank Ltd., who studied the financial state of affairs of the Company as well as the possibility of putting it back on its feet. Two feasibility reports were prepared, one dated the 26th of April 1966, Annexure R/A/6, and the other dated the 3rd of May 1966, Annexure R/A/7. The reports show that it was possible to tide over the misfortune of the Company if Rs. 54,00,000 were borrowed from the National Bank of Pakistan, Rs. 65,00,000 from Messrs Mack Trucks Ltd., and Rs. 12,00,000 from the Commerce Bank, making a total of Rs. 1,32,00,000. The reports were prepared under the directions of the Commerce Bank Ltd., which had agreed, vide Annexure R/A/8 dated the 20th of January 1967 to run and manage the business of the Company. This condition was fulfilled by handing over the Management to the Industrial Management Limited, which was a nominee of the Commerce Bank Ltd. The nominee took over the Manage--ment of the business with effect from the 31st of January 1967. 10. It appears that the situation did not improve as a result of the entrustment of the affairs of the Company to the nominee of the Commerce Bank Ltd. In consequence, the Company filed a suit on the 18th of August 1967, being Suit No. 24 of 1967 against the Central Government for specific performance of its undertaking that licenses would be granted to the Company for importing buses. At that time, the Manage--ment of the Company was with the Industrial Management Limited. Mr. Sharaf Faridi says that on the 22nd of August 1968, the Commerce Bank Ltd. Terminated its contract with the Company and the Industrial Managements Limited relinqui--shed its charge of the company on the 10th of December 1968, when, according to Mr. Sharaf Faridi, the Commerce Bank filed Suit No. 249 of 1968 against the Company as well as the guarantors for the recovery of the crore of rupees. The Company in its turn filed a suit against the Commerce Bank Ltd. Being Suit No. 119 of 1969, in March 1969, for rendition of account, damages and recovery of its assets. All the three suits are yet pending on the original side of this Court. 11. The above is the general background and history of the Company. Let me note here that on its incorporation on the 5th of September 1964, with a nominal capital of Rs. 7 crores, it was able to receive Rs. 1,00,220 only as subscribed capital. From the 1st of September 1969, up to the 31st of August 1966 the petitioner supplied to the Company parts for the buses of the Company, of the total value of Rs. 2,74,733. Supply of the parts is not denied by counsel on behalf of the Company, but disputes were raised on the basis of an allegation that the Company has over-paid the price. The burden of proving this allegation is on the Company. 12. According to Mr. Sayeed A. Shaikh, the sale of the parts is evidenced by invoices, which were certified by the Company to be correct. The invoices are Annexures B/1 to B/33, and the certificates appear on them. There was correspondence between the parties about the payment of price, with the result that on the 27th of June 1967, the petitioner gave a notice to the Company under section 163 of the Companies Act, 1913. It is Annexure P/4. The petitioner, who comes from Lahore, was requested to call at the Company's office at Karachi, vide the letter of the Company, Annexure P/5. He visited Karachi on the 1st of August 1967, but was paid Rs. 5,000 only. On the 7th of August 1967 he filed a petition to wind up the Company, being Petition No. J. M. 51 of 1967. The Company obtained 2 or 3 adjournments of hearings and thereafter, the parties entered into a compromise, which is con--tained in two agreements, both of the 14th of October 1967. In one of them, which is Annexure "A" the Company admitted its liability to pay Rs. 1,37,000 by 23 instalments, and also agreed that in the event of default in the payment of any in--stalment, the whole amount would become due. Twenty-three cheques of agreed dates were executed by the Company and handed over to the petitioner with the object that they should be presented for encashment on due dates of the instalments. Two of the cheques for Rs. 10,003 each. Were honoured, but the rest were
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returned by the drawee, according to Mr. Sharaf Faridi, with the endorsements that their payment was stopped. In the second agreement, Annexure `D' it was provided " As to the balance amount of Rs. 1,37,733.00 the Parties of the First and Second Part hereby agree that any payments said to have been made by the First Party, other than those sown in the statement of account of the Party of the Second Part, shall be ascertained by them and if any such payments are established to have been made the same will be adjusted against the amount of Rs. 1,37,733 and after such adjustment of account, the amount found due to the Party of the Second Part shall be paid `to him. The verification of account shall be done within three months." On the basis of this compromise, the petitioner withdrew the petition to wind up the Company on the 30th of October 1967. 13. On the 7th of December 1967, the petitioner demanded payment of the admitted amount, but no reply was given by the Company. He therefore, gave another notice on the 20th of December 1967, under section 163 of the Companies Act, 1913 for winding up the company, but the Company gave no reply to its either. In consequence, the present petition to wind up the Company was presented on the 3rd of February 1968 and a notice was issued to the Company to show cause why the petition should not be advertised. The Company submitted its counter-affidavit on the 4th of May 1968, and on the 7th of May 1968, it was ordered that the petition would not be advertised if the Company deposited in cash or furnished security in the form of a Bank-guarantee for the total amount claimed by the petitioner. The Company did not furnish the security but, according to counsel, went in Letters Patent Appeal. The Letters Patent Bench refused to admit the appeal, unless a Bank-guarantee for the admitted amount namely Rs. 1,37,000 was furnished within three weeks' time. The Company did not fulfill that condition, with the result that the petition for winding the Company was advertised on the 24th of January 1969. 14. On the 17th of March 1969, the Company filed objections to the main petition, supported by an affidavit of Mian Manzoor Hussain, Chairman of the Company and an affidavit in rejoinder was filed by the petitioner on the 28th of March 1969. On the 1st of April 1969, Mian Muhammad Akhtar, the Managing Director of the Company, filed a supple. Mentary affidavit in which the misfortune of the company was attributed to the conditions in which it was born, the failure of the Central Government to fulfill its commitments and mismanagement of its affairs by the nominee of the Commerce Bank Ltd. On the same day, the following issues were framed by me "1 (a) Is the claim of the petitioner disputed by the company bona fide, or (b) The petition has been submitted by the petitioner with a mala fide intention to abuse the process of the Court. (2) Is it just and equitable to wind up the company on the grounds that the company has not replied to the demands of the petitioner, not honoured the agreements dated 14-10-1967, allowed its cheques to be dishonoured, handed over its control and Management to the Commerce Bank Ltd., allowed its business to become defunct as well as in view of the circumstances set out in the supplementary affidavit of the company dated the 1st of April 1969." The parties were allowed to submit affidavits and counter-- affidavits, because Mr. Sheikh Ghias Muhammad said that he wanted to produce oral evidence to prove that the petition was mala fide. Time was given up to the 1st of May 1969, to produce affidavits and counter-affidavits to enable me to understand the nature of the evidence that was in the mind of Mr. Sheikh Ghias Muhammad. They have accordingly been produced, as mentioned in the first paragraph of this order. I find no justification for allowing oral evidence to be produced in this case. Apart from being time consuming, it will be fruitless also, because all allegations and counter-allegations have been placed on the record by the parties, and there is no difficulty in deciding on their basis whether the Company should be ordered to be wound up or not. This is not a suit for the recovery of a debt, and should not be treated by the Company as such. See my order of the 1st April 1969, in this case. The petition is to be decided on the basis of the provisions contained in section 162 of the Companies
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Act, 19 1 3 ordinarily with the help of affidavits submitted in accordance with statutory rules. This cannot be disputed. What has sometimes been disputed on the contrary is the power of the Court to record oral evidence. In this connection, the following observations of a Division Bench of the Madras High Court in Veeramachineni Seethiah v. Bode(AIR 1949 Mad. 675), at page 678 may be quoted with advantage: "From these observations it is sufficiently clear that both in England and in this country there is no inflexible rule or practice prohibiting the adducing of oral evidence or the cross-examination of the deponents of affidavits in matters like the present." At page 680: "In Chapel House Colliery Co. (1883) 24 Ch. D 259 at p. 267 (52 L J Ch. 934), it is stated that the Court will not, as a B rule, order a petition to stand over for a lengthened period as it would not be just to the Company. Expedition is the very essence of winding up proceedings, and the interests not only of the company but an element of public policy in regard to commercial morality also, should be considered in the disposal of winding up petitions." 15. I have heard counsel for the parties in support of their respective points of view. Mr. Sharaf Faridi has argued in respect of issue No. 1 that the petition is mala fide, because the petitioner has in fact no claim against the Company. Counsel's stand was that at the time of executing the two agree-- ments-dated the 14th of October 1967, Annexures "C" and "D"-the company was not aware of the true financial situation because its Management and control was with the Industrial Managements Limited; therefore, the admissions contained in the agreement Annexure "C" that the Company was liable to Rs. 1,37,000 was the result of a mistaken notion of the real situation, and not binding on the Company. The amount, which was the subject-matter of the second agreement, namely Rs. 1,37,733 and which was to. Be ascertained could, according to counsel be checked only after the necessary documents were received back by the 'Company from the nominees of the Commerce Band Ltd. Some of them were received back after the 1st of January 1969, when the Industrial Managements Ltd., relinquished its charge, and some in April 1969. The Commerce Bank Ltd., had permitted its nominee to return them to enable the Company to file the affidavits which were allowed by the Court to be submitted before the 1st of May 1969. The affidavit of Muhammad Azam, a former Accountant, dated the 22nd of April 1969, was filed after examining the second lot of documents. Counsel says that the documents, which were received by the Company in April 1969, proved that the peti--tioner had over-paid Rs. 1,02,258.02. Thus nothing was, nor is due to the petitioner after that payment. On the contrary, the over-paid amount is recoverable from him. 16. From the point of view of the plea of over-payment the affidavit of Muhammad Azam is the main document. According to paragraph 7 of it, even goods of the value of Rs. 2,54,733 were not received by the Company, because the Company had received the goods of the value of Rs. 1,04,168/48 only. Mr. Sharaf Faridi has explained that the receipt of goods of this value only is shown in the Store Ledger, but the name of the petitioner is not mentioned with respect to goods of the value of Rs. 42,464/95 out of the total amount ; therefore, in paragraph 9 of the affidavit, it is stated that even if the receipt of this latter amount of goods is attributed to the petitioner, he has been over-paid by Rs. 59,793.07. The over payments are mentioned in detail in paragraph 8 of the affidavit in which it is stated that payment of a total amount of Rs. 66,926.50 was made in addition to the amounts admitted by the petitioner to have been received by him. This is the entire case of the Company in support of the allegation of over payment and mala fides of the claim of the petitioner. 17. In reply to the above case of the Company, Mr. Sayeed A. Sheikh has pointed out that the Company admitted its liability to pay Rs. 1,37,000 vide agreement Annexure "C" dated the I 4th of October 1967. There was no doubt expressed about that liability although a doubt was expressed at that time with respect to the other part of the claim for Rs. 1,37,737. The plea that necessary
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documents were not available to the Company, cannot be genuine because even if the Company was managed by the Industrial Managements Limited, it was an organization about which there is no allegation of non--cooperation in this respect. Moreover, it was equally interested in reducing the claims of the creditors. The allegations that some documents were received after the 1st of January 1969, and some in April 1969, are not satisfactory because in April 1969, according to counsel himself, it was the co-operation of the Commerce Bank Ltd., which enabled the Company to produce the documents. If the company really felt the need of examining documents, there is nothing to show that there were obstacles in the way of the Company. Not only that the Company unconditionally admitted its liability to pay Rs. 1,37,000 in agreement, Annexure " C ", but the agreements were also admitted by the Company in its counter-affidavit of the 4th of May 1968, as well as in the objections dated the 17th of March 1969. Mr. Sharaf Faridi says that in paragraph 7 of the counter-- affidavit and in paragraph 4 of the objections it was stated that over-payment was made. 18. The above reply of Mr. Sharaf Faridi raises the question as to what is the value of such a vague and general statement made in those two counter-affidavits when the necessary details were supplied by Muhammad Azam only in his affidavit of the 22nd of April 1969. In order to appreciate this aspect of the case, it should be noted that the agreements were executed by the Company as a compromise to ward off the decision of the first petition made by the petitioner to wind up the Company in 1967. Having obtained the agreement of the petitioner to withdraw that petition, and having executed 23 post-dated cheques towards the payment of the admitted amount in the first agreement and payment of two cheques, a summersault was taken by the Company without supplying or disclosing any details and explanations in support of the subsequent claim of over- payment, right up to April 1969. 19. Here it may be noted that the facts which have been stated by Muhammad Azam in his affidavit dated the 22nd of April 1969, do not very much advance the case of the Company for purposes of this petition, because the petitioner has explained in reply that all the payments to which Muhammad Azam has referred, are included in the petitioner's own statement of account. 20. Turning to the second issue, Mr. Sharaf Faridi has argued that the claim of the petitioner is not bona fide; there--fore, the defenses which have been raised by the company should be considered to be adequate for dismissing the petition for, winding up the Company and leaving the petitioner to file a suit to establish his claim. This contention could have force if the Company had not admitted its liability in writing and obtained an advantage by getting the previous petition to wind it up dismissed on that basis, or at least it had submitted some satis--factory explanation to show as to why from the 14th of October 1967, up to the 22nd of April 1969, it was not able to give the details on which the affidavit of Muhammad Azam is based. The plea that the company was under the Management of Industrial Managements Limited, is no good excuse at all firstly, because it was Company's own doing that its Management passed over to the Industrial Managements Limited, and secondly because the Industrial Managements Limited was a friendly and not an antagonistic organization of the Company, so much so that the interest of the Industrial Managements Limited and the Company in respect of disproving the claims of the creditors was common. I am, therefore, not able to see any mala fide motive in the conduct or the claim of the petitioner. Mr. Sharaf Faridi has referred to Ust. Pranlachhi Kuer v. Jageshar Sahi (1061 C 423), Coalfields of Burma Ltd. v. H. H. Johsnson (AIR 1925 Rang. 128), Muhammad Amin Pros. Ltd. v. Dominion of India and others (AIR 1952 Cal. 323), in support of the proposition that a petition of a creditor to wind up a company should be dismissed if the Company is able to disclose a plausible defence. It is unnecessary to refer to the facts of each of the judgments, because they differ materially from the facts of this case. What is important in this case to note, is that far from the
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defenses raised by the Company in this petition being plausible, they do not even appear to be conceived in good faith. 21. Mr. Sharaf Faridi has further argued that a Company should not be wound up merely in deference to the desire of one of the creditors, because it is necessary under section 174 of the Companies Act, 1913 to ascertain the wishes of the creditors and contributors. In support of this proposition, he has referred to Greenwood & Co. ((1900) 2 Q B 306) and In re : Chapel House Colliery Company ((1883) 25 Ch. D. 259). In order to appreciate this contention, it will be proper to reproduce section 174 of the Companies Act, 1913 here. It is as follows: "The Court may, as to all matters relating to a winding up, have regard to the wishes of the creditors or contributors as proved to it by any sufficient…
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