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Petitioner: CREEK MARINA (PRIVATE) LIMITED VS Respondent: PAKISTAN DEFENCE OFFICERS' HOUSING AUTHORITY through Administrator
Court Name: Sindh High Court Judge(s): Munib Akhtar Title:CREEK MARINA (PRIVATE) LIMITED vs PAKISTAN DEFENCE OFFICERS' HOUSING
AUTHORITY through Administrator Case No.: Suit No,1352 of 2011 Date of Judgment:2012-05-21 Reported As: 2012 CLD 1525 Result: Application allowed Judgment ORDER ' MUNIB AKHTAR, J.---This application for interim injunctive relief raises the interesting and important question whether a person can be restrained from presenting a winding up petition against a company. The issue arises in the following circumstances. 2. The defendant ("DHA") entered into an agreement with Meinhardt (Singapore) Pte. Ltd. ("Meinhardt") on or about 27-9-2004, a company registered in Singapore, to develop a project by the name of "Creek Marina" on land owned by the defendant. The plaintiff, a Pakistani Company, was incorporated in terms, and for purposes, of the project. A number of agreements were entered into, one of which was a lease deed that was executed on 5-5-2005 between the plaintiff and the defendant ("Lease Deed"). Disputes subsequently arose between the parties (including Meinhardt), which led to litigation and several suits were filed. In particular, DHA filed Suit 525/2011 in this Court, in which the defendants were the present plaiptiff, Meinhardt and certain other persons. Certain applications for interim relief were also filed, and these were disposed of by me by means of an order dated 15-7-2011 ("Earlier Order"). As presently relevant, the following extracts from the Earlier Order may be reproduced (the defendants Nos.1 and 2 referred to therein being the present plaintiff and Meinhardt respectively):- "(2) The plaintiff is the Pakistan Defence Officers Housing Authority, otherwise known as DHA (and hereinafter so referred). It appears that on or about 27-9-2004 ["Main Agreement"], an agreement was entered into between the plaintiff and the defendant No,2... [T]his agreement was in relation to a high-end residential housing project, which was to be constructed on land belonging to the plaintiff and for which purpose; the plaintiff was to get certain consideration.... One of the provisions
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of the agreement was that the defendant No,2 would incorporate a special purpose vehicle (SPV) in Pakistan through which the project would be carried out. That SPV is the defendant No,1, which was incorporated on or about 7-2-2005. Thereafter, the lease deed dated 5-5-2005 was executed between the plaintiff, the defendant No,1 and the defendant No,2 whereby the plaintiff made available the land for the purposes of the housing project. On the same date, the Main Agreement was amended by an addendum (hereinafter referred to as the "First Addendum"). Subsequently, on or about 4-6-2009, the Main Agreement was amended yet again by another addendum (hereinafter referred to as the "Second Addendum").... (3) Learned counsel for the plaintiff submitted that pursuant to the Main Agreement and upon the land made available by the plaintiff as noted above, the housing project was launched by the defendant No,1 under the name of "Creek Marina Project" on or about 11-9-2005. The advertisement of the project expressly claimed that it was a DHA approved project. Learned counsel submitted that bookings for apartments in the project were made both in Pakistan and abroad and the project met with huge success, with the result that about 768 apartments, worth around Rs,3 Billion, were successfully booked by allottees.... The primary grievance of the plaintiff, as submitted by learned counsel, is that after the launch of the project, although work did begin, it has since stalled, and the milestones contemplated for the project were never met by the defendants. Learned counsel submitted that there were many grave and serious breaches of the Main Agreement and in particular, despite repeated efforts in this regard by the plaintiff, no proper accounting was ever given for the monies that had been collected from the general public on account of the apartments booked by them. Learned counsel contended that there was a grave and serious apprehension that there had been a siphoning off of the funds that had been obtained from the public and that, for all extents and purposes, the defendants (and in particular the defendants Nos.1 and 2) had abandoned the project. Learned counsel further submitted that a number of allottees had already filed suits against the defendants, which were pending adjudication in this Court. Learned counsel further submitted, that the audited accounts for the year ending 30-6- 2009, which is the last year for which such accounts of the defendant No,1 were available, showed that it had made huge losses and according to him, even a bare perusal of these accounts showed that grave and serious financial irregularities had been committed.... (4) Continuing with his submissions, learned counsel submitted that one fact which in particular had required the immediate filing of the suit, and the seeking of interim relief, was that the defendant No,1 had developed certain disputes and differences with the contractors who had been appointed for the project. The contractors had given three bank guarantees in favour of the defendant No,1 and when the latter sought encashment of the same the contractors filed a suit in this Court. Although it appears that initially certain interim orders were made, the said orders were eventually amended or modified to the extent that two of the guarantees, amounting to over Rs,750 million, could be encashed. [The decision is now available at PLD 2011 Karachi 304] The guarantees were duly encashed and the proceeds deposited in the first instance in the account of the defendant No,1 with the defendant No,5, Habib Bank Ltd. Learned counsel for the plaintiff contended that instead of using these funds for the purposes of the project, the defendants instead intended to spirit away the same by taking the money offshore. Necessary instructions in this regard had already been given to the defendant No,5, and the situation had only been saved in the nick of time on account of ad interim orders made by the Court in this suit. Learned counsel contended this spoke volumes about the status of the project and the fraudulent and unlawful manner in which the defendants were conducting themselves. He submitted that there was a grave and serious apprehension that the project would never be completed by the defendants to the manifest loss, harm and injury of the plaintiff and the allottees....
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(6) Learned counsel for defendants Nos.1 and 2 strongly opposed the grant of any interim relief to the plaintiff, and prayed, in support of the application moved by him, that the ad interim orders be recalled.... [Llearned counsel denied that there had been any violation of the terms of the Main Agreement. He submitted that when the relevant provisions thereof were read along with the two amending agreements, the correct position became abundantly clear. His case was that the reason for the delay in the completion of the project was on account of the plaintiffs non- cooperative attitude, which had been made public, and as a result of which the public at large had, without justification, lost faith in the project. Thus, according to learned counsel, the blame in this regard lay squarely at the plaintiff s door. Learned counsel further submitted in this context that it was clearly contemplated that bank financing would be obtained for the project, and that the defendants had lined up such financing to the tune of about Rs,2 billion, but it could not materialize on account of the plaintiffs attitude. Learned counsel further contended that by reason of the negligence and failure of third party contractors, the project had been materially affected and a huge loss had been sustained. Learned counsel's case was that despite all these factors, the defendants were committed to the project and to the completion thereof and he denied altogether any contention that the project had been abandoned. As regards the allegation of the siphoning off of the funds, learned counsel submitted that the audited accounts for the defendant No,1 for 2010 had been prepared and would be duly dispatched to the plaintiff. His case however, was that even in respect of the accounts for the year 2009, which had been relied on by the learned counsel for the plaintiff, the correct position was that the said accounts had not been qualified in any manner by the auditors who were a well-known and reputable firm. Learned counsel submitted that the inferences and conclusions drawn by the plaintiff from the accounts were entirely unwarranted. No specific example or instance had been given of the alleged siphoning off of funds and only vague and generalized assertions had been made in this regard. As regards the amount received on encashment of the contractors' bank guarantees, learned counsel candidly conceded that instructions had indeed being given to transfer this amount from the account of the defendant No,1 to that of the defendant No,3 [an associated company]. However, he submitted that as was clear from the remittance instructions given in this regard, and placed on record, the funds were being transferred to an onshore rupee account. He candidly stated that the reason for this was to protect the money from being blocked on account of any interim orders that may be made in any pending litigation, and the reason for that, according to learned counsel, was that the defendant No,1 desired to have the money freely available for purposes of utilizing it on the project. He stated on instructions that the defendants would be satisfied with any interim arrangement that may be made by the Court with regard to this money, as long as it could be utilized for the project. Learned counsel denied absolutely any abandonment of the project by the defendants...." ' After considering the matter, I gave detailed directions to the parties and to the extent presently relevant, those directions (contained in pare 18 of the Earlier Order) were as follows:-- "(a) The funds lying in the account of the defendant No,1 with the defendant No,5 [the bank, Habib Bank Ltd.] shall continue to remain in the said account and shall be dealt with as hereinafter stated. (b) ............... (c) By the 20th of each month the defendant No,1 shall submit a budget for the next coming month in respect of expenditures and outlays to be incurred and made by it in respect of the project and shall identify the sources (including the bank accounts herein referred) from which such expenditures and outlays are to be met and such budget shall be certified by the auditors of the defendant No,l. (d) By the 25th of each month the plaintiff shall communicate to the defendant No,1 any objections to any item in the proposed budget and shall also specify exactly why, according to the plaintiff,
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the proposed outlay or expenditure is not for the purposes of the project and all such objections shall be certified by a reputable firm of chartered accountants to be engaged by the plaintiff at its own cost for the time being, but the plaintiff may be reimbursed by the defendants Nos.1 and 2 if the Court subsequently so deems appropriate. (e) In case any objection is taken as above, the auditors of the defendant No,1 and the chartered accountants acting for the plaintiff, and the concerned officers of the plaintiff and the defendant No,1 shall meet immediately to resolve the situation. In case they are unable to do so, then a reference may be made to the Court, but the parties are put to notice that heavy costs, payable immediately, will be imposed in respect of each objection (such costs being not less than Rs,25,000 for each objection) on the party found, as the case may be, to have raised or resisted the same without reasonable cause. (f) On and from the first day of the month for which the budget has been proposed and scrutinized as above, the defendant No,1 may make payments from the accounts referred to herein above (payments in respect of outlays objected to being subject to the foregoing), and shall in respect of each such payment provide to the plaintiff details of the same duly certified by its auditors and supported by copies of bank statement(s) by the 7th of the next succeeding month. (g) If any payments in respect of any monthly budget are to be made to the defendants Nos.2 to 4 or to any entity controlled by any of these defendants or associated with them then such payments shall be made into a special foreign currency account to be opened onshore with the defendant No,5 by the defendant No, 1 and disbursement from this account shall not be made without the prior orders of the Court. (h) The defendant No,5 shall, in respect of the last mentioned account, and on a monthly basis, file a statement showing the inflows into such account and, in the case of any outflows, shall certify that the same were made only after receipt of the written orders of the Court. (i) - (1) ...... 3. Learned counsel for the plaintiff submitted that the plaintiff was faithfully adhering to the directions given as above, making all efforts to proceed with and complete the project. However, the defendant kept raising frivolous objections to the budgets presented by the plaintiff, taking issue with almost every item thereof. Learned counsel submitted that an amount in excess of Rs, 1 Billion was still lying with Habib Bank Ltd. In the account referred to above, which was to be, and was being, utilized for purposes of the project. 4. Learned counsel further submitted that the defendant served a , notice under section 306 of the Companies Ordinance, 1984 on the plaintiff on or about 15-9-2011. The notice relied on the second addendum to the agreement dated 27-9-2004 (as noted in para 2 of the Earlier Order, reproduced above), and in particular, the following addition that was made to the latter agreement by means of the said addendum:-- "CMPL shall buy back 75% of DHA's share of sellable area by payment of PKR One Billion to DHA from its own resources which is to be affected upon finalization of financing agreement after collateralization of the Land in accordance with this Second Addendum to Agreement. Clause 1 of the Lease Deed dated 5th May, 2005 regarding 15% sellable area would also be read in conjunction with this clause." "CMPL" referred to the plaintiff, which was party to the second addendum. The second addendum also provided that the plaintiff was to pay the aforesaid amount of Rs,1 ' Billion to the defendant "within 18 months of date of signing of this Second Addendum to Agreement dated 27th September, 2004". The second addendum was executed on or about 4-6-2009. It is to be noted that clause 1 of the Lease Deed stated that the land was being given on lease by the defendant to the plaintiff in consideration of the premium and the ground rent as therein specified, as also "15% of the net floor area in CM Project".
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5. The defendant's notice stated that more than 18 months had passed since the signing of the second addendum, but the amount of Rs,1 Billion still remained unpaid. The plaintiff was called upon to pay this amount (as also certain other amounts referred to in the notice) within 30 days, failing which a winding up petition would be presented against the plaintiff by the defendant. 6. Learned counsel for the plaintiff submitted that a reply was given to the defendant's notice on or about 14-10-2011, in which the various allegations made were denied, and it was specifically denied that there was any liability to pay the amount claimed by the defendant. Thus, the defendant was not a creditor of the plaintiff in any manner, including in particular, for the purposes of a winding up petition. Learned counsel submitted that the notice under section 306 was a mala fide abuse of statutory provisions, and the notice had been served with the ulterior motive of putting pressure on the plaintiff. The amount claimed was in any case bona fide disputed, and the matter could not be resolved by means of the summary procedure that applied under the Companies Ordinance. The notice and threatened winding up petition were a gross abuse of the legal process, which was completely unwarranted, and the plaintiff was entitled to suitable injunctive relief, enjoining the defendant from presenting any such petition. Learned counsel relied on several decisions from various jurisdictions, considered below, to contend that the Court had ample jurisdiction and powers to restrain a party from presenting a meritless winding up petition. Learned counsel submitted that the mere presentation of such a petition would effectively destroy the plaintiff and completely eliminate any possibility of the project being completed by it He contended that this was in fact the real purpose behind the threatened winding up: to deliberately create and engineer such a situation that would allow the defendant to pretend that the plaintiff had failed to fulfill its obligations in respect of the project and enable the defendant to take it over for its own mala fide purposes. 7. Learned counsel for the defendant opposed the grant of any relief to the plaintiff. He submitted that the grant of interim relief to the plaintiff would be tantamount to decreeing the entire suit, which was impermissible. In this regard, he referred to the prayer clause of the suit. He also submitted that the Court had no jurisdiction to restrain the presentation of a winding up petition, since the plaintiff (which would be the respondent therein) would be able to raise all its objections and take all the grounds as taken in the suit in the winding up proceedings. Learned counsel submitted that the liability to pay the Rs, 1 Billion within the stipulated period was clear and undeniable, and admittedly, the plaintiff was in default and breach thereof. He denied that the debt was, or could be, bona fide disputed. Learned counsel further submitted that the various illegalities that had been committed by the plaintiff, and for which the defendant had been constrained to institute its aforementioned Suit 525/2011 were well established. The plaintiff was a company specifically established by agreement between the defendant and Meinhardt for purposes of the Creek Marina project, and thus the defendant was a person concerned with, and interested in, its formation and continuance. Learned counsel submitted that this gave the defendant an additional basis on which to present a winding up petition. In other words, its case was not limited simply to the amount of Rs,1 Billion being claimed by it. Learned counsel contended that no grounds had been shown as to why the defendant should be restrained from presenting a winding up petition, and the present application therefore merited dismissal. 8. I have heard learned counsel as above, examined the record with their assistance and considered the case-law relied upon. The first matter that requires consideration is whether this Court, on its original side, has the jurisdiction to restrain a person from presenting a winding up petition. Learned counsel for the plaintiff referred to a nuniber of decisions from different jurisdictions to submit that this question Ought to be answered in the affirmative. He started with English law and referred to Cadiz Waterworks Company v. Barnett (1874) LR 19 Eq.
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182. It was there observed that if the court "sees a petition to wind up presented, not for a bona fide purpose of winding up the company, but for some collateral and sinister object, on that ground it will be dismissed with costs" (pg. 196), and it was held that a person could be restrained in such circumstances from presenting a petition for winding up. Learned counsel also referred to Ross & Craig v. Williamson [2006] EWHC 880 (Ch), Re a Company (No,8735 of 2006) [2006] EWHC 3299 and Moorside Investments Ltd. v. DAG. Construction Ltd. [2007] EWHC 3490 (Ch). In all of these cases, the defendant was restrained from presenting a winding up petition on the ground that the debt was bond fide disputed and the petition would be an abuse of the process. Reference may also be made to Mann v. Goldstein [1968] 2 All ER 769 and ICS Incorporation Ltd. v. Michael Wilson & Partners [2005] EWHC 404. In the first mentioned case, it was observed as follows (pp. 771 and 775):-- "It is well established that this court has jurisdiction to restrain the presentation or advertising of a winding-up petition and restrain all further proceedings on it. That jurisdiction is a facet of the court's inherent jurisdiction to prevent an abuse of the process of the court. It will be exercised where a winding-up application is presented, or prosecuted otherwise than in accordance with the legitimate purpose of such process. ' For my Part I would prefer to rest the jurisdiction directly on the comparatively simple propositions that a creditor's petition can only be presented by a creditor, that the winding-up jurisdiction is not for the purpose of deciding a disputed debt (that is, disputed on substantial and not insubstantial grounds), since, until a creditor is established as a creditor he is not entitled to present the petition and has no locus standi in the Companies Court; and that, therefore, to invoke the winding-up jurisdiction when .The debt is disputed (that is, on substantial grounds) or after it has become clear that it is so disputed is an abuse of the process of the court. ... Indeed, the prevention of the abuse of the process of the court is the very essence of the whole of this court's jurisdiction to restrain the presentation of a winding-up petition." ' In the second case, it was observed as follows:-- "87. The principles I have to apply are not in doubt. Where there is a substantial dispute as to the whole of the debt (or, in other formulations, a bona fide dispute or a dispute on substantial grounds), the court will not normally make a winding-up order, and I ought to restrain presentation of a winding-up petition, even if (in the context of a summary judgment application) the defence could be regarded as "shadowy." This is so even if it is otherwise shown that the company is insolvent." There can therefore be no doubt that the jurisdiction to restrain the presentation of a winding up petition is well established in English law. 9. Learned counsel also referred to Metalform Asia Pte Ltd. v. Holland Leedon Pte Ltd. [2007] SGCA 6; [2007] 2 SLR (R) 268, a decision of the Singapore Court of Appeal, where Mann v. Goldstein was cited with approval at pg. 287 (para (62]). However, it is to be noted that this was a case where the company's defence was that it had a cross claim against the creditor for an amount greater than the latter's claim. That of course is not the situation at hand. The facts of the cited case were therefore rather different. 10. Learned counsel also referred to two decisions from Malaysia, being Westforrn Far East Sdn Bhd v. Connaught Heights Sdn Bhd and others [2010] 3 MIJ 459; [2009] MYCA 68 (Court of Appeal) and Multimedia Development Corp. Sdn Bhd v. Pembinaan Purcon Sdn Bhd [2006] 2 MIJ 653 tHigh Court). Learned counsel referred to the observations at pp. 487 to 489 of the Court of Appeal decision. But, with respect, that is from the judgment of Hishamudin, JCA, who partially dissented. The majority decision was by Suriyadi, JCA (with whom Azhar Ma'ah, JCA agreed), who stated as follows (pp. 474-5 and 479):--
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"[26] To rehash on the issue before us, it is the right of a would-be petitioner to apply for a winding up order in appropriate circumstances, as that is a statute conferred right. It may be restrained only in certain circumstances. To succeed, an injunction applicant must establish that the presentation of a winding up petition would be an abuse of the process of court. From the point of view of the presiding judge, before granting the injunction, he must address the issue whether he is satisfied that the evidence adduced before him has established a prima facie case ,of an abuse of the process of the court e.g. The debt is disputed... If the applicant of the injunction fails to establish that prima facie case then no injunction is granted. On the above reasoning, the guidelines of American Cynamide Co. v. Ethicon Ltd and Keet Gerald Francis v. Mohd Noor therefore would be out of sync with the current application, which seeks to stop proceedings in limine. It is my view too that the above principle would apply equally in an ex parte application for an injunction. [27] Granting of an injunction very much depends on the exercise of the discretion of the judge. Whether the adduced prima facie evidence is sufficient for the court to exercise that discretion will depend on whether the grounds are clear and persuasive enough to satisfy the threshold level of a prima facie…
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