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Petitioner: RAUF B. KADRI VS Respondent: STATE BANK OF PAKISTAN and another
Court Name: Supreme Court of Pakistan Judge(s): Javaid Iqbal, Rana Bhagwan Das, Sardar Muhammad Raza Khan Title: RAUF B. KADRI vs STATE BANK OF PAKISTAN and another Case No.: Civil Appeal No,1213 of 2001 Date of Judgment:2002-04-25 Reported As: PLD 2002 Supreme Court 1111 Result: Appeal dismissed
JUDGMENT
JUDGMENT RANA BHAGWANDAS, J.---This appeal under Article 185(2) of the Constitution read with section 10(1) of the Companies Ordinance, 1984 (hereinafter referred as the Ordinance, 1984) arises out of judgment dated 18-4-2001 of a learned Single Judge in the Sindh High Court, acting as Company Judge under the provisions of the Ordinance, 1984 whereby he ordered the liquidation of the "Bankers Equity Limited" (hereinafter called the Company) registered under the provisions of the Ordinance, 1984 as well as Banking Companies Ordinance (LVII of 1962) (hereinafter referred to the Ordinance, 1962) with consequential appointment of Official Liquidator for winding-up proceedings. 2. A petition under section 305 of the Ordinance, 1984 was initially filed for winding-up of the Company by Karachi Electric Provident Fund on the ground that the Company, in spite of service of notice in terms of section 306 of the Ordinance, 1984, was unable to pay its debts in that the Company after expiry of 30 days from the service of notice neglected to pay the debts or secure or compound for debts to the reasonable satisfaction of the creditors. According to the petitioner a sum of Rs,124,479,084 was due and payable by the Company as on 26-1-2000. On 30-4-2000 gross amount, inclusive of profit on the certificates issued by the Company, was worked out as Rs,131,449,301. 3. Statutory notices were issued to the petitioner-Company, State Bank of Pakistan arrayed as respondent No,2 as well as Registrar Joint Stock Companies in addition to publication of notice in the Gazette of Pakistan in terms of section 284 read -with section 287 of the Ordinance, 1984. Publication of notice was also effected in daily Dawn, Karachi dated 24-6-2000 and daily Nawa-i- Waqt, Karachi dated 26-6-2000 but the appellant or anyone else on behalf of the Company did
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not enter appearance to oppose the prayer for winding-up. Averments made in the winding-up petition, inter alia, were that due to gross violation of the Banking law, Company's management was substituted by the respondent State Bank of Pakistan; that the Company was presumed to be commercially insolvent, unable to pay the huge debts to the petitioner and other creditors, thus, it was just and equitable to wind-up the Company. 4. In its counter-affidavit, State Bank of Pakistan as respondent No,2, stated that Board of Directors of the Company was superseded by the State Bank in exercise of the powers under section 41-B of the Ordinance, 1962 in the public interest. It was averred that new Board of Directors was independently exercising all the powers vested in it under the Charter of the Company; that the facts squarely proved inability of the Company to pay the creditors' money; that the Chief Executive and the Board of Directors were substituted by the State Bank in exercise of its authority, which did not, in any manner, change the corporate status of the Company; that the company was not a commercial Bank, therefore, State Bank exercised limited supervisory jurisdiction over its operations and its powers to provide financial assistance to the Company were restricted. On factual plane, it was asserted that the Company had not enough assets to raise funds from the market and to repay the debts. After the subsection of the previous management, State Bank had appointed an independent Auditors Firm, whose report revealed that it was not a going concern and was indeed an insolvent institution. Referring to the finding in the Auditors' Report, it was pointed out that the Company had incurred losses over Rs,4 billion against its capital of Rs,0.656 billion. 5. It may be observed that on 16-1-2001, original petitioner moved an application for permission to withdraw the petition, as it did not wish to proceed with the matter. In this scenario, on 23-1-2001, respondent-State Bank moved an application in terms of Order 1, rule 10 read with section 151, C.P.C. For its transposition. The prayer was opposed through a counter-affidavit by two Officers of the Company but allowed by the High Court vide order, dated 21-3-2001. Copy of the order has, however, not been placed on record for the reasons best known to the appellant. Transposition of State Bank of Pakistan as petitioner was seriously criticized by the learned counsel for the appellant but we do not feel persuaded to subscribe to his submission, which is wholly misconceived and fallacious on the face of the record. 6. Order I, rule 10, C.P.C. Is very wide in its scope. The power to transpose is derived, amongst others, from the aforesaid provisions, which has always been interpreted liberally in the interest of complete adjudication of all the questions involved in lis and in order to avoid multiplicity of the proceedings. This power is invariably exercised generously and technical hurdles are always bypassed for considerations of effectual adjudication and inexpensive access to justice. For reference see Said Alam v. Raja Sohrab Khan (1970 SCM R 639), Central Government of Pakistan v. Suleman Khan (PLD 1992 SC 590) and Uzin Export Import Enterprises v. Union Bank of Middle East Ltd. (PLD 1994 SC 95). 7. In the amended memo. Of petition, State Bank of Pakistan as petitioner claimed the following amounts as due and payable by the Company:-- (i) State Bank's exposure under LMM scheme as on December 31, 2000 being Rs,3,577.80 million. (ii) LTFCs holding of the State Bank in BEL is Rs,282.390 million. (iii) State Bank's deposits with BEL are Rs,263.436 million. 8. It was asserted that these amounts were payable on various dates but the Company failed to repay any amount to the State Bank of Pakistan. Various instances of gross violation of Banking laws and State Bank Prudential Regulations on the part of the Company were enumerated tending to suggest that the Company was commercially insolvent and totally unable to discharge its liabilities.
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9. At the hearing before the High Court, learned Company Judge was deeply impressed by the stance of the respondent-Bank that the Company was unable to pay its debts; that the Company had incurred losses over Rs,4 billion and did not possess sufficient securities to raise finances from the market, which fact per se was sufficient in the opinion of the Company Judge to form an opinion that in such circumstances it was just and equitable to wind-up the Company. 10. In pursuance to the notice of this appeal as of right, respondent has filed a counter-affidavit reiterating the averments made before the High Court and also relied upon Chartered Accountants (Sidat Hyder Qamar & Company) Report for the year ended 30th June, 1999, Report of the Standing Committee on the affairs of the Company dated 25-8-1999; three judgments by Accountability Court No,1, Karachi convicting and sentencing appellant Rauf B. Kadri in three different references instituted by National Accountability Bureau on charges of corruption and corrupt practices committed by him as Chairman of the Company. 11. Mr. Rizwan Ahmad Siddiqui, learned Advocate Supreme Court for the appellant contended firstly that the respondent-Bank illegally took over control and management of the Company after its privatisation and purchase by LTV Consortium; that the learned Company Judge wrongly acted under section 50 of the Ordinance, 1962 while winding-up the Company though the petition was filed under section 305 of the Ordinance, 1984; that transposition of the State Bank of Pakistan as petitioner was improper and illegal and; that without with service of statutory notice under section 306 of the Ordinance, 1984, petition could not be maintained at law; that various foreign investors were interested to inject huge finances but the State Bank of Pakistan abruptly took over the control and management of the Company in utter disregard of the guarantees envisaged by section 7 of the Protection of Economic Reforms Act, 1992 and lastly, that the Company is still fit enough to survive after injection of the huge foreign investment. 12. Conversely, Mr. G.H. Malik, learned Advocate Supreme Court for the respondent State Bank of Pakistan strenuously controverted the submissions of Mr. Siddiqui. According to him, these grounds were not agitated before the High Court as spelt out from the impugned order. However, mere citation of a wrong provision in the winding-up order would not vitiate the liquidation of a Company. In his view, winding-up order shall be deemed to have been passed within the contemplation of section 305 of the Ordinance, 1984. 13. It is well-settled that law leans in favour of adjudication on merits and in winding-up cases, utmost endeavour should be made for survival of the corporate sector rather than to dismantle it. Since the winding-up proceedings against the Company have been pending for that last more than two years; we find it just, proper and expedient in the interest of justice to decide the appeal on merits rather than to remand it to the High Court after such delay. Even otherwise, the object and spirit of the Companies Ordinance appears to be to dispose of such cases with utmost promptitude and an appeal before this Court is required to be finally decided within a time of ninety days. 14. At the very outset we have serious reservations whether the appeal, on behalf of Mr. Rauf B. Kardi, as ex-Chairman of the Company and claiming to be authorised representative of LTV, can be legally maintained in law. Since order of winding-up was passed against the Company, Company alone as a juristic person or an aggrieved creditor can appeal for its survival rather than a former Chairman of the Company, who was lawfully superseded by State Bank of Pakistan and is now a convict by a competent Court of law in three references instituted by NAB. Interestingly, before the institution of this appeal on 7-6-2001, appellant was prosecuted in three references by NAB and he was convicted and sentenced in Reference No,20 of 2000 on 21-5-2001. In the title of the appeal he claimed to be ex-Chairman of the Company and authorised representative of LTV Consortium but surprising enough he has not produced a copy of the resolution passed by Board of Directors of LTV Limited authorising him to file this appeal on behalf of the Company. He has also
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not disclosed his pecuniary or any other legal interest in the Company. We are in no manner of doubt that in his personal capacity, appellant is not competent to assail the winding-up order without authorisation of the Company. As far as filing of appeal by ex-Chairman is concerned, to our mind, after the suppression of the BEL by the State Bank on Pakistan, his connections with the company were completely severed. It was he who brought the company to the state of liquidation due to his mismanagement and corrupt practices which landed the company in such state of affairs. His conviction under three references by the NAB unless set aside by this Court, would be an ample proof of his disqualification. The appeal as constituted is, thus, liable to dismissal on this score alone. 15. Adverting to the first contention of Mr. Siddiqui, learned Advocate Supreme Court stated at the Bar that the State Bank of Pakistan took over control, management and administration of the Company on 31-8-1999 under sections 41-A and 41-B of the Ordinance, 1962. Learned counsel referred to the show-cause notice issued by the respondent-Bank under section 41-A of the Ordinance, 1962, as reflected in the order dated 20-9-1999 passed by the Governor, State Bank of Pakistan under sections 41-A and 41-B and Report dated 25-8-1999 of the Standing Committee as a part of the show-cause notice. It may be observed that, this document was not placed in the original paper book and was filed through an additional paper book filed in the office only yesterday without affidavit of service of a copy on the learned counsel for the respondent and without leave of this Court. 16. As regards the absence of statutory notice by the State Bank of Pakistan under section 306 of the Ordinance, it would be appropriate to state, at the very outset, that the latter became party on its transposition/substitution after the withdrawal of Karachi Electric Provident Fund. Said notices, as reflected from the judgment, were already given by the Electric Company. Having failed to respond to the notices issued by the Karachi Electric Company, petition for winding-up was filed. After transposition of the State Bank of Pakistan as petitioner, it was not necessary for it to start afresh by issuing notice under section 306 of the Ordinance. Apart from this, reading of section 306 of the Ordinance makes it simple clear that the Legislature has provided self-contained provisions to judge the viability of the Company. It would be appropriate to reproduce the provisions of the Ordinance itself which are as under:-- "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 Courts shall take into account the contingent and prospective liabilities of the company. (2) The demand referred to in clause (a) of sub-section (1) shall be deemed to have been duly given under the hand of the creditor if it is signed by an agent or legal advisor duly authorised on his behalf, or in the case of a firm if it is signed by such agent or legal adviser or by any member of the firm on behalf of the firm." 17. A reading of aforesaid provisions of the Ordinance clearly demonstrates that they are independent and self-explanatory. The Legislature for that purpose has used the word "or" which
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brings us to an irresistible conclusion that these paragraphs are disjunctive in nature and independent of each other. The Company would be deemed to be unable to pay its debts if any of the courses provided in the above section is adopted. As already stated, Karachi Electric Company issued the statutory notice as envisaged under section 306 of the Ordinance and in the face of the report enumerated in paragraph 10 of the judgment, it cannot be stated that company was in a position to pay its debts. At the cost of repetition, it may be stated as the same has come on record that the company has incurred losses over four billions of rupees against capital of Rs,0.656 billion. Had the company been solvent, there was no question of its suppression by the State Bank of Pakistan and, as reflected from the judgment, none of its previous members raised any finger against its suppression. Assuming, without deciding that notice under section 306 of the Ordinance, 1984 was not given by the State Bank, it would not be fatal to the petition as a whole as it is directory in nature and leads to a presumption of inability to pay debt in case demand is not secured or debt not settled. Reference may be made to Sindh Glass Industries Limited v. National Development Finance Corporation (PLD 1996 SC 601) and Platinum Insurance Company Limited v. Daewoo Corporation (PLD 1999 SC 1). 18. The State Bank of Pakistan enjoys supervisory power under the Ordinance, 1962, over the financial institutions and for that reason in the exercise of its power under the above Ordinance, it can remove the Directors and other managerial persons according to law. If such a power is admitted H as given by the Ordinance, how can it be said, that in the interest of financial institutions and the public at large the State Bank of Pakistan cannot step into the arena to save the creditors. Even otherwise, as reflected from the judgment, the Courts have got vast powers under Order I, rule 10, C.P.C. To allow transposition. It has been held time and again by this Court that the procedures are meant only to regulate and foster the cause of justice and not to thwart the same. In this regard, it would be apt to make a reference to the rule laid down in Manager, Jammu and Kashmir, State Property v. Khuda Yar (PLD 1975 SC 678) where it was held as under:-- ''The proposition could hardly be disputed that the principal object behind all legal formalities is to safeguard the paramount interest of justice. In fact while considering the importance of legal technicalities and rules of procedure in the administration of justice, it is inevitable to recall the various evolutionary stages in the transition from justice without law of primitive society to justice in accordance with law of modern society and the conflict between equity and law in judicial history.. It cannot be denied that legal precepts were devised with a view to impart certainty, consistency and uniformity to administration of justice and to secure it against arbitrariness, errors of individual judgment and mala fide." 19. The learned Judges further reiterated the proposition earlier incorporated in Imtiaz Ali v. Ghulam Ali (PLD 1963 SC 382). At page 399 of the report observations by late Kaikaus, J. Are reproduced as under:-- "I must confess that having dealt with technicalities for more than forty years, out of which thirty years are at the Bar, I do not feel much impressed with them. I think the proper place of procedure in any system of administration of justice is to help and not to thwart the grant to the people of their rights. All technicalities have to be avoided unless it be essential to comply with them on ground of public policy. The English system of administration of justice on which our own is based may be to a certain extent technical but we are not to take from that system its defect. Any system which by giving effect to the form and not to the substance defeats substantive rights is defective to that extent. The ideal must always be a system that gives to every person what is his." 20. Though not necessary for decision of this appeal, we have gone through the provisions of sections 41-A and 41-B of the Ordinance, 1962. While section 41-A enumerates powers of the State Bank of Pakistan to remove Directors and other managerial persons from the office for reasons to be recorded in writing and after giving a reasonable opportunity of hearing to the Chairman or
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Director or Chief Executive of the Company, section 41-B highlights the powers of the State Bank to supersede a Board of Directors of the Banking Company. Strictly speaking the action taken by the State Bank of Pakistan as aforesaid may not tantamount to taking over control and management of the affairs of the Company but it is restricted to suppression of the Board of Directors by their removal and substitution in the discretion of the Bank. By suppression and substitution of the Board of Directors of a Company, State Bank of Pakistan does not acquire itself any proprietary or controlling powers in the assets or affairs of the Company, which are to be run and administered by the newly-appointed Board of Directors under the Articles of Association and Bye-laws of the Company and subject to law. Much emphasis was laid on gross violation of section 7 of the Protection of Economic Reforms Act, 1992, which reads as under:-- "Protection of transfer of ownership to private sector.---The ownership, management and control of any banking, commercial, manufacturing or other company, establishment or enterprise transferred by the Government to any person under any law shall not again be compulsorily acquired or taken over by the Government for any reason whatsoever." 21. A glance at the abovesaid provision of law would tend to show that spirit and object of the law being to create a liberal environment for savings and investments and lawful protection of economic reforms introduced by the Government in order to create confidence in economic policies introduced by Government, it was intended'to protect ownership, management and control of any banking, commercial or other company, establishment or enterprise transferred by the Government to any person under any law with the understanding that it shall not be compulsorily acquired or taken over by the Government for any reason whatsoever. Real intention and object behind this provision of law seems to be that after disinvestment of an establishment or enterprise by the Government through Privatisation Commission or any other agency, Government shall not re-acquire or take over the ownership, management and control of such establishment. It is not disputed that the company was privatised and transferred in favour of LTV consortium but there is hardly any acquisition of interest or compulsory taken over. Fact of substitution of its Board of Directors by the State Bank of Pakistan would not in any sense of the term amount to compulsory acquisition or take over of the privatised company by the Government as misunderstood. Notwithstanding overriding effect of the provisions of this Act, as spelt out from section 3 thereof, powers of the State Bank under the Ordinance, 1962 can neither be abridged nor curtailed or taken away by intendment. At any event, provisions of Act, 1992 by themselves do not come in conflict with the provisions of sections 41-A and 41-B of the Ordinance, 1962 and the rule of harmonious interpretation of statutes requires that both the statutes would operate in their respective fields without any overlapping. 22. Adverting to another submission of the learned counsel, suffice it to observe that mere wrong citation of a provision of law in the order, would not per se vitiate the judgment. As learned Company Judge in the High Court was not properly assisted and because certain provisions of the Ordinance, 1962 were applicable to the Bankers' Equity Limited by reason of section 3-A inserted in the Ordinance, 1962 by amendment through Act No, XIV of 1997 section 50 was inadvertently written in the order. Moreover, as the Company Judge was duly authorised to act under the provisions of section 305 of the Ordinance, 1984 and the petition as such was filed on the original side of the High Court under the Ordinance, 1984, mere reference to section 50 of the Act, 1962 in the winding-up order pales into insignificance as it is nobody's case that the learned Judge acted without lawful authority. Reference may be Made to Lahore Improvement Trust v. Custodian, Evacuee Property West Pakistan (PLD 1971 SC 811) and Baigan v. Abdul Hakeem (1982 SCM R 673). 23. Last but not the least, it may be appreciated that there is nothing on record to sustain the argument of the learned counsel that there were likely huge investments in the Company after its privatisation nor has any material document been placed on record. Facts and circumstances of
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the case, coupled with independent Auditor's Report, clearly tend to support the view of the respondent-Bank that the Company has completely lost its substratum and is neither viable nor commercially solvent to discharge its huge liabilities. Indeed there is nothing on record except bald statement of the learned counsel in an appeal on behalf of an unauthorised person to suggest that winding-up order suffers from any illegality or factual and legal infirmity. In our view, learned Company Judge was perfectly justified in arriving at the conclusion that it was just and equitable to order the winding-up of the Company. It may not be out of context to refer Municipal 0 Corporation of Pakistan v. Sindh Technical Industries. Ltd. (1999 M LD 2609), Sindh Glass Industries Ltd. v. National Development Finance Corporation (PLD 1996 SC 601), Platinum Insurance Company Ltd. v. Daewoo Corporation (PLD 1999 SC 1) and Hala Spinning Mills Ltd. v. International Finance Corporation (2002 SCM R 450) on this behalf. 24. In view of what has been stated above, the appeal is devoid of any merit. It is accordingly dismissed with the modification that Official Assignee of Karachi shall act as Official…
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