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Petitioner: NAZEER AHMED KHAN VS Respondent: ADMORE GAS (PVT.) LIMITED, KARACHI and another
Court Name: Sindh High Court Judge(s): Munib Akhtar Title: NAZEER AHMED KHAN vs ADMORE GAS (PVT.) LIMITED, KARACHI and another Case No.: J. M. No. 37 of 2012 Date of Judgment:2014-06-26 Reported As: 2015 CLD 203 Result: Petition allowed
Judgment ORDER ' MUNIB AKHTAR, J.---The petitioner seeks the winding up of the respondent No.1 ("company") in the following circumstances. Learned counsel submitted that the petitioner owned the plot more particularly described in para 1 the petition ("Plot"). The petitioner was interested in developing the Plot so as to be able to obtain a steady income from it. The company is an oil marketing company engaged in the business, inter alia of operating petrol pump and CNC stations. The petitioner and the company entered into an arrangement whereby it was agreed that the petitioner would lease out the Plot to the company, which would construct the facilities for operating a petrol and CNG station thereon ("Filling Station"). The permissions and NOCs required for this purpose were the responsibility of the petitioner, who would be entitled to receive rental payments for the lease of the Plot and also certain payments for the operation or the Filling Station. Learned counsel submitted that an MOU was signed between the parties on or about 15-3-2006 stating the terms agrees upon. A sub-lease for the Plot was executed between the petitioner and the company on 16-3-2006. This provided for a monthly rental of Rs. 70.000 to be paid by the company for every following month after execution/registration of [the] lease deed". Although the lease deed provided that the rental amount was payable on a monthly basis a is not in dispute that the company paid three years' rent in advance on or about 18-5-2006. On 12-9-2006, the parties also entered into a Dispensing Pump and Selling Licence ("Licence Agreement"). 2. Learned counsel submitted that thereafter the petitioner made hectic efforts and obtained the necessary permissions, approvals and NOCs for operation of the Filling Station, but the company for one reason or another kept delaying matters despite repeated reminders from the petitioner.
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Finally, an agreement was entered into between the parties on 6-5-2008 ("Agreement"). While the relevant terms are considered in detail below, here it suffices to note that the petitioner's grievance is that no payment was made to him thereunder. The petitioner's case is that he was entitled to receive a total sum of Rs. 480,000 per month under the Agreement. This sum in fact comprised of two separate payments, each of Rs, 240,000. One was in respect of the operation of the petrol pump and the other in relation to the CNG facility. Learned counsel referred to the many reminders and letters that were written to the company for payment of the amounts outstanding from time to time, but to no avail. It suffices to refer to one such letter dated 22-7-2009. In this letter the petitioner made a claim of Rs. 31,20,000. This comprised of an amount of Rs.19,20,000 for the petrol pump business and Rs.12,00,000 on account of the CNG facility. (The difference between the two was because the petitioner computed the amount payable for the petrol business from a date earlier than that payable for the CNG facility.) This letter was followed almost immediately, on 23- 7-2009, by a legal notice served by the petitioner on the company. The company replied through counsel, denying any liability as claimed by the petitioner. It was contended that payments under the Agreement were only to be made from the commissioning of the Filling Station but that had not happened till then. Reference was also made to the three years" advance payment of rent under the lease deed. 3. Being dissatisfied with the company's reply, the petitioner filed a suit in this Court, being Suit 1789 of 2009 on or about 17-12-2009, which is still pending adjudication. The case made out in the present petition is the same as in the suit. The unpaid amounts that form the basis of the present petition are the same as those claimed in the suit. Learned counsel for the petitioner vehemently submitted that the company had defaulted in payment of the amounts due and must be held unable to pay its debts for purposes of the Companies Ordinance, 1984. It was therefore liable to be wound up. No plausible, good faith defense had been nut up. The debts in question were not bona fide disputed and the petitioner was entitled to an order of winding up ex debilo justitine. Learned counsel submitted that the Plot was the petitioner's sole substantial asset on which he had relied in vain as it turned out for a steady source of income by means of the arrangement with the company. The petitioner was a senior citizen, who essentially had no other source of income. The three years' advance rent had more or less all been consumed in obtaining the permissions, approvals and NOCs. Learned counsel also submitted that the filing of a suit was not fatal to the presentation of a winding up petition. Although some reference was made to other litigation, by way of recovery suits by financial institutions and other matters, against the company, the case sought to be made out was on the basis of the company's inability to pay the debts claimed by the petitioner. Learned counsel prayed accordingly. 4. Learned counsel for the company strongly opposed the petition. Learned counsel submitted that there was a distinction in law between being unable to pay a debt and being unwilling to do so. The company was solvent and in good financial shape and in a position to meet its debts. The debt claimed by the petitioner was strongly contested and bona fide disputed. Learned counsel submitted that the possession of the Plot was in dispute. Furthermore, the entire dispute between the parties, in all its aspects, was pending adjudication in Suit 1789 of 2009. The present petition was an afterthought and an abuse of the process. It was intended to put pressure on the company. It was contended that in fact the petitioner was in possession of the Plot and was carrying on some sort of business there. Therefore, his claim of financial distress was incorrect and denied. Learned counsel submitted that the correspondence being relied upon related to the period from 2006 to 2009. It was not denied by the petitioner that the company had paid three years' advance rent on the lease. The amounts claimed on the Agreement were not payable since the Filling Station was never commissioned for which the responsibility lay on the petitioner. Learned counsel submitted
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that in such circumstances no case for winding up on any ground was made out and the petition merited dismissal. 5. Learned counsel for the petitioner exercised his right of reply. It was submitted that the company was bound by the contracts entered into between the parties. There was a clear liability to make payment in terms thereof, which had admittedly not been done. The company was unable to pay its debts and the distinction between unable and unwilling sought to be made by learned counsel for the company was not applicable. The company was not a going concern and was liable to be wound up. At the conclusion of the heating, I gave permission to learned counsel to file synopses. Learned counsel for the petitioner filed copies of the case-law relied upon along with a brief description of the salient point in each decision. Learned counsel for the company tiled a written synopsis in which reliance was placed on certain cases. 6. I have heard learned counsel as above, examined the record and considered the case-law. As noted, winding up is sought on one ground alone, the company's inability to pay its debts to the petitioner. The debts claimed arise under two separate agreements, in each of which the petitioner's legal position is distinct. The first is the lease deed in respect of the Plot. Here, the petitioner appears as the lessor vis-a-vis the company. The company was to pay rent under the lease in terms that have been set out in Para 2 above. As noted, although the company was bound to pay rent on a monthly basis, it in fact paid three years' rent in advance. This is expressly admitted. That payment, made in Maya 2006, took the matter of the rental payments to May, 2009. Insofar as the second contract, the Agreement, is concerned, clause 3-a(i) related to payments and was as follows ("second party" meaning the company and "first party" referring to the petitioner):- "The Second party shall pay to the first party Rs. 480.000... On account of retail outlet, CNG and other allied services in which Rs. 240.000 ... Shall be paid from the date of commissioning of fuel (PMG and HSD) sales and Rs. 240,000 ... To be paid from the date of commissioning of CNG facility which be arrange[d] to install within 3 months i.e. 15th February, 2009 subject to delay from any Govt. Departments/Authority thus a lump sum fixed profit share of Rs. 480,000 ... To be paid to the first party on a monthly basis by 15th of every calendar month." ' Reference must also be made to clauses 3(1) and (h), which as presently relevant were as follows:-- "(f) This agreement shall be valid and binding upon the parties from the date of commissioning of the retail outlet which will not be later than 15th November, 2008 for a term of Twenty (20) years hereof. (h) In all circumstances the date of commissioning of retail outlet shall be 15-11-2008 positively, in case of any delay from any Govt. Agency/department or force majeure, both the parties will mutually decide the time period of completion." ' Retail outlet was a term defined in the first recital of the Agreement and essentially meant the Filling Station. From the claims made by the petitioner (of which one has been referred to in detail in Para 3 above) it appears that he regarded the petrol business (i.e., fuel sales) as having been commissioned from 15-11-2008 while the CNG facility was regarded as having been commissioned from 15-2-2009. As noted above, the company disputes this position: its case is that the Filing Station was not commissioned at all. It is to be noted that clause 1 of the Agreement provided that the petitioner was to hand over the retail outlet to the company, inter alia after having obtained all governmental approvals, permissions, etc. Clause 2 provided that the retail outlet would be constructed and/or completed by the company at its own expense. Finally, clause 2 also provided that the retail outlet would be run by the company itself or through a third party of its choice, with
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the condition that if the latter option was exercised the petitioner would have the 'right of first refusal to operate the outlet "on prevailing market rates". 7. It will be noted that there was a period of about six months from the execution of the Agreement (6-5-2008) till 15-11-2008, when clauses 3(f) and (h) became applicable. In my view the proper interpretation and application of the Agreement is that while the parties expected that the retail outlet could be commissioned earlier, it would in any case be regarded as having been commissioned from 15-11-2008 onwards, with the CNG facility being regarded as installed from 15- 2-2009. Thus, learned counsel for the company was not quite correct when he submitted that the payment of the amounts under the Agreement was conditional on commissioning. It was, but this was subject to the outside limit of 15-11-2002 set by the Agreement itself. In other words, if the retail outlet was commissioned prior to 15-11-2008 then the amounts under the Agreement would become payable from that date. But in any case, they would become payable from 15-11-2008 and 15-2-2009 onwards in respect of the fuel sales and CNC, facility respectively. Thus, the effect of the conditionality was actually the reverse of what was submitted by learned counsel. Of course, if there was any event of force majeure or any delay on account of any government department or authority, these deadlines could be reset. However, no such event has been pleaded nor has it been shown that there was any delay of the nature contemplated. It is important also to note that as specifically provided in clause 2 the construction and/or completion of the retail outlet and the operation of the Filling Station, either by the company or through some third party, was in the hands of the company. Viewed from the foregoing perspective, the "deemed" commissioning of the retail oulet from 15-11-2008 and 15-2-2009 for purposes of payments under clause 3-a(i) makes commercial sense. The petitioner was entitled to a return on account of the operation of the retail outlet. The exact point in time that the retail outlet became operational (i.e., was commissioned) was entirely in the hands or the company, save that it was clear that it could not be commissioned immediately; However the company could (but I do no ascribe any bad faith to it) delay or be unable to commission the retail outlet for a prolonged or even an indefinite period. Thus, while the petitioner was not entitled to immediate payment of the amounts under clause 3-a(i), the date of commencement of payment could not also be left wholly indeterminate. The Agreement balanced the needs of the company and the petitioner by providing a period of around six months to the company to enable it to start operations but imposed 15-11-2002 (read with 15-2-2009) as the final date from which amounts under clause 3-a(i) would become payable. It follows that in my view the petitioner was correct in claiming that he was emitted to the monthly payments for the fuel sales from 15-11-2008 and the payments for the CNG facility from 15-2-2009. As provided in clause 3-a(i), these payments would become due by the 15th day of each month. 8. Learned counsel has however submitted that the company was in any case not obliged to make the foregoing payments, for two reasons; firstly, the possession of the Plot is in dispute and secondly, the petitioner has already filed Suit 1789 of 2009, claiming the same amounts on exactly the same basis. As to the first point, I am not satisfied that this has been established by the company. In the objections taken by the company to the winding up petition, it is averred that "physical possession of the site has not been with the respondent Company since many years". The use of the word "since" is revealing and significant. It is further averred that the petitioner is "operating a bus stand and a service station at the site" and copies of certain photographs have been annexed to the objections to substantiate this assertion. However, the date stamped on the photographs shows that they were taken on 30-4-2013. As will presently become clear in my view the crucial period for purposes of the present petition is up to the date of the filing of the suit, which was instituted on 17-12-2009, i.e., several years prior to the photographs. In the suit (which was before me during the hearing, and was fixed along with the petition by order of 3-5-2013), the company was debarred firm filing its written statement by the Additional Registrar (OS) on 12-8-
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2010. Against this order the company has filed an application, C.M.A. 9933 of 2011, which is contested by the petitioner and is pending adjudication. In the said application, in para 4, it is stated that during the same period, the defendant [i.e.. Tile company] was in financial crises and was struggling to complete his incomplete projects including the site in dispute". The preceding paras of the application show that the "same period" referred to was the period up to at least 7-4- 2010. Thus, the company was in possession of the Plot till at least the filing of the suit and thereafter. Even in the written synopsis filed by learned counsel for the company, it is staled that possession of the Plot was with both the company and the petitioner under the Licence Agreement. It is further stated' there that the company "invested huge amount of money in building the structure of the petrol/gas station". Although it is asserted that "due to global recession, the said structure could not be completed" and it is alleged that the petitioner taking advantage of the situation, started the aforementioned business of bus parking and service station, the crucial point as regards the company's possession, i.e. Up to the filing of the suit is undeniable. In my view the first point taken by learned counsel cannot therefore be accepted. 9. I turn to the second point, which requires some detailed consideration. However, before I embark on this exercise, it is necessary to ascertain in greater detail the debts claimed by the petitioner as relevant for purposes of the petition: As noted above, these debts arise out of two agreements, the lease deed and the Agreement. Now, in the suit the petitioner has sought a number of reliefs, which include a declaration that the agreements between the parties be rescinded. Thus, by the institution of the suit and at least from the date thereof, it is the petitioner's own case that the agreements came to an end. In my view, this means that for purposes of the present petition the debts that the petitioner can plead for the winding up are only those due and payable up to the institution of the suit. Thereafter, the petitioner's claim sounds only in damages. Even if the measure of damages (if any) is ultimately found to be the same as the basis on which amounts were payable under the agreements, they cannot be taken into consideration. I turn therefore to consider what amounts, if any, were due and payable as on the date of institution of the suit. As regards the lease deed the company had admittedly paid three years' rent in advance, up to May 2009. This meant that the rent for June till November 2009 was payable at the time the suit was instituted. (The suit was filed on 17-12-2009, i.e., after the rent for November had become due). This rent has admittedly not been paid, and the total comes to Rs. 420,000. Insofar as the Agreement is concerned I have, for the reasons stated above, accepted the petitioner's case that he was entitled to payments in respect of fuel sales from 15-11-2008, and for the CNG facility from 15-2-2009, onwards. Since these payments were due by the 15th of each month, the company was liable on both counts also up to November 2009 by the time the suit was filed. These payments came to Rs. 31,20,000 for the fuel sales (13 months) and Rs.24,00,000 (10 months) for the CNG facility. In grand total therefore, insofar as the present petition is concerned, the amount owed by the company to the petitioner comes to Rs. 59,40,000. 10. Learned counsel for the petitioner submitted that the law was well settled that the pendency of a suit or other such proceedings to recover the same debt as formed the basis of the winding up petition was no bar to the latter, and the company could be wound up if a case was otherwise made out. He relied on a number of decisions, which will be considered presently. With respect, in my view, the principle is stated too broadly. It ought to be regarded as more nuanced. This is so because it must be kept in mind that ultimately the making of a winding up order is discretionary: section 305 uses the word "may" in relation to all of the grounds given therein, and not "shall". It is well settled that even if the Court concludes that a company is unable to pay its debts within the meaning of the Companies Ordinance it may yet, in its discretion, refuse an order of winding up. Now, company law is in many respects the child of equity. The discretionary powers conferred on the Court ought generally to be exercised consistently with, and should certainly be informed by,
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equitable principles. Of course, it is a fundamental rule that discretionary power is not exercised in an arbitrary, perverse or capricious manner, but is guided by sound judicial principles. At the same time, it must also be remembered that the hallmark of equity jurisdiction is the flexibility inherent in the discretionary nature thereof - flexibility and discretion, that is, to decide the case after taking into consideration "all relevant matters that tend towards the justice or injustice of granting the remedy that is sought such as hardship, laches, unfairness, the lack of clean hands, and so on, and by weighing them against each other in order to decide whether the particular relief that is in question should be granted in an absolute, partial or conditional form or else refused" (Equitable Remedies by Dr. I.C.F. Spry, 9th ed. (2014), Pg.4). 11. In my view, it is in the foregoing context that the principle relied upon by learned counsel for the petitioner is to be understood and applied, if the winding up petition cannot be dismissed simply on account of a suit having earlier been filed on the same debt, the fact that such a suit was filed cannot also be ignored altogether. It must he taken into consideration by the Court while deciding whether to exercise its discretion to wind up the company. In my view, three factors in particular ought to be regarded in this context: (a) the nature of the earlier proceedings and the stage reached therein by the time the winding up petition comes to be heard: (b) the length of time that elapsed between the filing of the earlier proceedings and the institution of the winding up petition and (c) any acts or developments that occurred in the intervening period (or the absence of any such), particularly as between the creditor and the company as the court ought to regard as relevant, especially in explaining or justifying any delay or the need to file the winding up petition. Of course, a case for winding up must otherwise be made out. In the present case, I have concluded that for purposes of the petition, the debts owed by the company come to Rs. 59,40,000. The only ground, other than the one under consideration, for not paying this amount has been examined and found wanting. The submission by learned counsel for the company that it is only unwilling, and not unable, to pay its debts to the petitioner cannot be accepted. To be given any, consideration, such unwillingness must be backed by some cogent reason acceptable to the Court. A mere statement can never be enough; otherwise hardly any company would ever be wound up on the basis of inability to pay its debts. Such reason is missing in the present case. In the written synopsis, learned counsel relied on Platinum Insurance Co. Ltd. v. Daewoo Corporation PLD 1999 SC 1 and Muzaffar Abbas Malik and others v. Pakistan PVC Ltd. PLD 1998 Karachi 71 (SB) in support of the foregoing submission. In the first mentioned case, it is pertinent to note that a conditional order of winding up was made/maintained. The specific passage cited by learned counsel was from that part of the judgment where the various propositions of law laid down in earlier cases were collated. With respect, the actual application of any given principle depends on the facts and circumstances before the Court; a somewhat abstract reference to a legal principle or an observation in a judgment does not assist. In the second cited decision also, a learned Singh Judge made a conditional order of winding up. It is clear that this order was made taking into account all the relevant factors and then exercising the discretionary power of the Court. Again, the actual passage cited (from para 14 of the judgment) is a collation of the principles derived by the learned Single Judge from the cases cited before him. It is the actual application of those principles that is crucial. In the present case, in my view, it has been shown by learned counsel for the petitioner that the company is unable to pay its debts to the petitioner. The only question therefore is whether, by reason of the earlier filed suit, the Court in exercising its discretion should grant relief absolutely or conditionally or refuse it altogether. I turn to consider whether, and if so how and to what extent, any of the factors described above that ought, in particular, to be regarded in this context is applicable. 12. Insofar as the first factor is concerned, the earlier filed proceedings are by way of an ordinary civil suit for recovery of amounts due, damages and various declaratory and injunctive reliefs. As
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noted above, the company was debarred from filing its written statement on 12-8-2010. The suit was thereafter fixed for final disposal and the petitioner has filed his affidavit in ex parte proof. The company has filed an application against the aforementioned order, but only on 3-10-2011, i.e., after more than one year. This was the stage of the proceedings in the suit when the petition came to be heard. In my view, this state of affairs can and ought to be taken into consideration, but it is not of such significance and weight that it…
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