Find a Lawyer

Judicial Miscellaneous No. 40 of 1979 and Civil Miscellaneous Application No. 231 of 1981, decided on 12th July, 1982.

‑ S. 171 read with Provisional Constitution Order (P. O. 1 of 1981), Art. 9‑Applicant praying for leave to prosecute writ petition filed by him against inter alia Limited Company (under Liquidation) Writ petition seeking enforcement of direction/order/approval of President of Pakistan/Chief Martial Law Administrator‑ Reliefs sought in writ petition prima facie cannot be dealt with by winding up court and constitutional jurisdiction not vested in any other court‑Winding up court cannot entertain writ petition and grant relief under Art. 9 of Provisional Constitution Order, 1981‑Held, proceedings under‑ writ petition not proceeding within contemplation of S. 171.

S. N. Mukherjee v. Krishna Dassi and others A I R 1933 Cal. 433 ; Messrs The Kashmir Theatres Limited, Lahore (in Liquidation) and 2 others P L D 1964 Lah. 326; V. S. T. Shaik Mansoor v. Government of United State of Travancore & Cochin and others A I R 1952 Trav.‑Co 14 ref.

Governor‑General‑in‑Council v. Shiromani Sugar Mills Limited (in Liquidation) A I R 1946 S C 16; The State of U. P. and another v. Mahendra Pratap Pitamah and others A I R 1956 All. 585 ; Abdul Aziz Ansari v. The State of Bombay A I R 1958 Born. 279 ; Hussain Bakhsh v. Settlement Commissioner, Rawalpindi and others P L D 1970 S C 1 ; Chowdhry Muhammad Din v. The National Commercial Bank Ltd., Karachi P L D 1972 Kar. 287 distinguished.

Qamar Hasnain, Noorul Hassan, Mansoorul Arfin, Asghar Ansari, H. A. Shaikh, A. I. Chundrigar and G. M. Malik for Petitioner.

By this application under section 171 of the Companies Act, 1913, Qamaruddin Fakhruddin Valibhai, prays for leave to prosecute Constitution Petition No. D‑1444 of 1979 filed by him against the Federal Government of Pakistan. Central Board of Revenue, and the Synthetic Chemical Company Limited (in Liquidation).

In the petition the applicant has prayed for a direction to respondents to carry out, implement and give effect to the order/direction/approval of the President of Pakistan and Chief Martial Law Administrator contained in Annexure "G" to the petition and determine the amount of loan repayable to the petitioner in accordance with the order/direction/approval contained therein and to pay the loan to the applicant after adjustment of alleged income‑tax dues amounting to Rs. 1,90,00,000 and for a further direction to release the properties of the applicant and his family members from attachment pursuant to the alleged income‑tax claim against them amounting to Rs. 1,90,00,000.

The direction/order/approval which is sought to be enforced through the constitution petition is contained in the letter dated 21‑6‑1979, addressed by Sajjad Hussain Chief (Income‑tax) to the applicant and the relevant portion thereof reads as follows:‑

"2. I am directed to inform you that the President is pleased to approve following principles for determining the repayable loan:‑

(a) The Valika Family are not entitled to full repayment of the loan because the (Company Synthetic Chemicals Limited) did not have at the time of take over sufficient assets to repay the loan;

(b) The Company was taken over by the Government with effect from 1‑1‑1972. Therefore, if the quantum of loan repayment is to be linked to net assets on which the loan could have lien, then the material date should be 1‑1‑1972 and not 31‑3‑1972;

(c) The value of assets should be the value as on 1‑1‑1972 and not the book or written down value. Since the determination of market value at this stage will be difficult as estimated value which may be somewhere between the cost and the depreciated value may be adopted.

(d) The value of net assets of the company as worked out on the above basis may be reduced by the amount of secured loans as on 1‑1‑1972 and the balance may be apportioned pro rata between unsecured creditors;

(e) Based on the above principles, a Committee consisting of represen tatives from Production Division, Finance and C. B. R. may work out the amount repayable. Amount worked by the group will be subject to the approval by the Finance Minister;

(f) The amount repayable to Valika Family may be entitled to the Income‑tax Department for adjustment against tax dues of the Group."

To understand the background of the application for leave to proceed with the constitution petition, it may be stated, that the applicant's case in the petition is that the applicant and his family members were holding shares in Valika Chemicals Limited which was renamed as Synthetic Chemicals Limited', after promulgation, of, the Economic Reforms Ordinance, 1973 and taken over of the said company thereunder. According to the applicant, the Federal Government of Pakistan, after promulgation of the Economic Reforms (Amendment) Ordinance 1973 (Ordinance XVIII of 1973), and Economic "Reforms (Acquisition & Compensation) Rules, 1973 decided to issue Compensation bonds to the shareholders of the Company at Rs. 5.13 in lieu of each paid up share of Rs. 10, but issuance of certificate of entitlement' for compensation at Rs. 5.13 for each share of Rs. 10 to the applicant and his family members was withheld for years. However, some compensation bonds were released to the petitioner and his family in July 1977, after the present Government came into power.

Now, the first question that requires consideration in this case is, whether any leave under section 171 of the Companies Act is required to proceed with the constitution petition

The answer to the question will depend on the further question whether the proceedings under Article 9 of the Provisional Constitution Order, 1981, or for that matter under Article 199 of the Constitution of 1973, are also the proceedings within the contemplation of the provisions of section 171 of the Companies Act, 1913, which reads as follows:‑

"171. Suits staved on winding‑up order.‑When a winding‑up order has been made or a provisional liquidator has been appointed no suit or other legal proceeding shall be proceeded with or commenced against the company except by leave of the Court, and subject to such terms as the Court may impose."

One of the tests to find out whether any proceedings are hit by the above provisions, in my opinion, would be, whether the winding up Court has jurisdiction to grant the relief claimed in the other proceedings.

I have already stated that by the constitution petition the applicant is seeking to enforce the alleged direction/order/approval of the President of Pakistan contained in the letter dated 21‑6‑1972. The reliefs sought in the constitution petition are prima facie such in nature that they could not be t dealt with by a winding up court and therefore are outside its jurisdiction. I may look it from another angle. Under. Article 9(1) (a) of the Provisional Constitution Order, 1981, which is relevant to the reliefs sought in the constitution petition, a High Court is empowered, if it is satisfied that no other adequate remedy is provided by law, on an application by the aggrieved party to make an order (i) directing a person performing, within the territorial jurisdiction of the court, functions in connection with the affairs of the Federation, a Province or a local authority, to refrain from doing anything he is not permitted by law to do, or to do anything he is required by law to do, or (ii) declaring that any act done or proceeding taken within the territorial jurisdiction of the court by a person performing functions in connection with the affairs of the Federation, a Province or a local authority has been done or taken without lawful authority and is of no legal effect. This Constitutional jurisdiction is not vested in any other court including a winding‑up court. Therefore, if a winding‑up court cannot entertain a constitution petition and grant the relief which could be granted under Article 9 of the Provisional Constitution Order, 1981, then the proceedings in the nature of a constitution petition could not be the proceeding within the contemplation of the provisions of section 171 of the Companies Act, 1913.

Further, the object of the provisions of section 171 of the Companies Act appear to safeguard the Company's assets against wasteful or expensive litigation in regard to matters which are capable of determination more expeditiously and more cheaply in the winding‑up. See S. N. Mukherjee v. Krishna Dassi and others (A I R 1933 Cal. 433) followed by S. A. Mahmood, J. in In the matter of Messrs The Kashmir Theatres Limited, Lahore (in Liquidation) and 2 others (P L D 1964 Lah. 326). Therefore both the winding‑up Court and constitutional Court have concurrent jurisdiction to entertain the dispute and grant the relief claimed, the provisions of section 171 of the Companies Act, 1913, in my opinion, cannot be held to be attracted.

Mr. Hassan A. Shaikh himself brought to my notice, a Single Bench decision of Travancore & Cochin High Court in V. S. T. Shaik Mansoor v. Government of United State of Travancore & Cochin and others (A I R 1952 Trav‑Co. 14) wherein a similar question arose. In this case two notifications published by the Government one under sections 11 and 14 of the Travancore Salt Act, 1888, closing down a salt factory and the other under section 11 of the said Act establishing a Government Salt factory on the premises of the salt factory closed down, were impugned and the applicant also prayed for issuance of another writ in the nature of prohibition, prohibiting the Government from taking any further steps by way of implementing these notifications. It appears that at the relevant time the company was in liquidation. One of the preliminary objections raised by the Advocate‑General on behalf of the Government was that the writ petition was not maintainable without the leave of the winding‑up Court. Repelling the objection it was observed by the learned Judge . . . . . nor am I able to appreciate how matters which are sought to be made the subject of such extraordinary writs as Certiarari and prohibition' can be adjudicated upon by the winding‑up Court as that the aggrieved party may prefer an appeal to this Court.

I have already referred S. N. Mukhet jee v. Krishna Dassi and others which is a Division Bench decision of Calcutta High Court. h, this case a dispute arose as to the possession of land of which lease was given by the Company under liquidation to one Krishna Dassi, before the winding‑up order. Proceedings were taken under section 145, Cr. P. C. The matter was taken in Revision to the High Court. One of the points raised was that the Magistrate had no jurisdiction to draw up proceedings against the liquidator without first obtaining the permission of the High Court.

Dealing with the point Pearson, J. with whom Patterson, J. agreed, observed as follows:

"This argument is based on section 171, Companies Act, which provides that when a winding‑up order has been made no suit or other legal proceeding shall be proceeded with or commenced against a company except by leave of the Court. That is a provision intended to safe guard the company's assets against wasteful or expensive litigation in regard to matters which are capable of determination more expeditiously and more cheaply in the winding‑up. It would hardly seem reasonable to suggest that a prohibition of that kind is meant to override an express enactment in section 145, Criminal P. C. by which a Magistrate, if satisfied that a dispute likely to cause a breach of the peace exists, is bound to call on the parties to attend his court and put in their claims as regards actual possession (the words axe mandatory). If it were so, the result would be that in such cases the Magistrate would be powerless to prevent a breach of the peace. It is not a question of making an order disturbing the possession of the liquidator and consequently open to interference by the company Court on that ground.

This case leads to the conclusion that it is not every proceeding to which a company in liquidation or liquidator is a party that the leave of the company Court is required.

However, Mr. Qamar Hussain referred to the following cases:‑

(1) Governor‑General‑in‑Council v. Shiromani Sugar Mills Limited,(in Liquidation) A I R 1946 S C 16.

(2) The State of U. P. and another v. Mahendra Pratap Pitamah and others A I R 1956 All 585.

(3) Abdul Aziz Ansari v. The State of Bombay A I R 1958 Bom. 279.

(4) Hussain Bakhsh v. Settlement Commissioner Rawal indi and others PLD 197 SC 1.

(5) Chowdhry Muhammad Din v. The National Commercial Bank Ltd., Karachi P L D 1972 Kar. 287.

'In none of the above‑mentioned cases the question whether leave is required to proceed with a constitution petition came up for consideration and therefore, these cases are not of much help to the point under consideration.

I therefore, held that no leave is required o proceed with the 'constitution petition, and accordingly dismiss this application. But to the circumstances of the case I leave the parties to bear their own costs.

K. M. A. Application dismissed.

Find a Lawyer Near You

Dealing with a matter like this? Connect with a verified advocate in your city — free on SJP Lawyers Directory.