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P L D 1985 Karachi 193
Before Naimuddin, J
In re : SYNTHETIC CHEMICALS Co. LTD.
KARACHI-Petitioner
J. Miscellaneous No. 40 of 1979, decided on 15th January, 1984.
-- S. 162(i)(vi)-Winding up of company by Court-Special resolution passed by company for its winding up by Court as company had incurred heavy losses and thus substratum of company was gone-Company stating that its business was at standstill and main plants had not been operating since, several years-Company throughout its operation had incurred losses both in private management and public management--Paid-up capital of company was totally wiped up Company indebted to various Banks to extent of Rs. 121.8 millions besides dues of Government and Government agencies up to Rs. 28.45 millions-High level Commission set up by Government opining that sizable losses even to secured creditors were inevitable even if project could be revived-Committee consisting of experts as set up by Government recommended that company was on the verge of collapse, productive fixed assets of company should be disposed of on best available price and thereafter company should be wound up-Held: Provisions of S. 162(i)(vi), Companies Act, 1913, were attracted in circumstances.
-- S. 162(iv)(vi)-Winding up of company by Court-Substratum of company when deemed to be gone.
Substratum of a company must be deemed to be gone when (a) the subject-matter of the company is gone, or (b) the object for which it was incorporated has substantially failed, or (c) it is impossible to carry on the business of the company except at a loss, or (d) the existing and probable assets are insufficient to meet the existing liabilities.
In re : Cine Industries and Recording Co. A I R 1942 B. 231 ref.
-- S. 162(vi)-Substratum of company having gone, winding up of Company, held, would be just and equitable.
Fida Ali Yusufali and others v. Graxait Refineries Ltd. P L D 1967 Kar. 637 ; In re : Haven Gold Mining Company (1882) 20 Ch. D 151 and In re : Greman Date Cofee Company (1882) 20 Ch. D 169 ref:
S. 162(vi)-Power of Court under cl. (iv), S. 162 not confined to causes in which there are grounds analogous to those mentioned in other part of S. 162.
Davis & Co. Ltd. v. Brunswick (Australia) Ltd. and others A I R 1936 P C 114 and Loch and another v. John Blackwood Ltd. 1924 A C 783 ref.
S. 162(vi)-Ground for winding up that object for which company was incorporated had substantially failed, held, not confined to causes in which there were grounds analogous to those mentioned in other part of S. 162.
Davis & Co. Ltd. v. Brunswick (Australia) Ltd. and others A I R 1936 P C 1.1.4 and Loch and another v. John Blackwood Ltd. (1924) A C 783 ref.
S. 162(vi)-Winding up of company by Court-Allegation in petition that business of company was at stand still and its main plants have not been operating since several years-Ground for winding up "that object for which company was incorporated had substantially failed", held, could not be made basis of an order for winding up of company when supported by said allegation-Allegation did not amount to the same thing as "the company" suspending its business for a whole year.
-- Arts. 3 & 4-Companies Act (VII of 1913), Ss. 155 to 178-Provisions of Order (1 of 1972) override provisions of Companies Act, 1913 Such over ridding is limited to only those provisions which relate to Management of "the company" or powers and functions of Board of Directors and not otherwise-Application of Ss. 155 to 178, Companies Act, 1913 relating to winding up of companies, held, not impliedly or expressly restricted by Order (1 of 1972).-[Interpretation of statutes].
P L D 1980 Kar. 401 ref. .
-- Arts. 4, 5, 7-B & 7-C [as amended by Economic Reforms (Amendment) Ordinance (XXVIII of 1973]-Federal Government acquiring only 58 per cent. shares in the company-Ownership of company, held, did not vest in Government--Status of a company as a corporate body was, therefore, not changed.
-- S. 162-Winding up of company by order of Court-Liquidator to act in accordance with directions of Court that are given or may be given or in the absence of any such direction in accordance with law.
-- Ss. 155 to 247-Martial Law Regulation, 1972 [C. M. L. A.'s] No. 125, para. 1-M. L. R. 125, held, not in conflict with or contrary to provisions of Chap. V, Companies Act, 1913-Provisions of Chap V, Companies Act, 1913, therefore, not impliedly repealtrd.
-- Doctrine of implied repeal should not be lightly inferred-Provisions of one enactment cannot be treated as cutrailed or repealed by implication by a subsequent enactment.
Babu Khan v. The Crown 1970 S C M R 107 and S. A. Matin and another v. Province of Sind and others P L D 1976 Kar. 36 ref.
Kamal' Azfar, A. 1. Chundrig r and S. M. Noorul Hasan for Appellant.
Hassan A. Shaikh, A. A. Ansari, Liaguat Merchant, Mansoorul Arfin and S. Inayat Ali for kespondents.
Date of hearing : 15th January, 1984.
This petition under section 166 of the Companies Act, 1913, filed on 11-10-1.979, by Synthetic Chemical Company Limited, formerly known as Valika Chemical Industries Ltd. (hereinafter called the Company') is for
its winding-up on the grounds
(a) that by special resolution dated 25-9-1979, passed at the Extraordinary General Meeting of the shareholders of the company, it was decided that the company be wound up and an application be made to the High Court of Sind for the winding up of the Company by the Court ;
(b) that the business of the Company has remained suspended for more than one year ;
(c) that the substratum of the Company has gone ;
(d) that it is just and equitable that the Company be wound-up.
2. According to the petition between the years 1965 and June 1972, when the company was under private management and control it operated intermittently, and always at a loss and from year to year it incurred heavy financial losses.
3. Following the promulgation of the Economic Reforms Order, 1972, (President's Order I of 1972) (hereinafter for convenience sake called Order. I), the Federal Government in exercise of the powers conferred by Article 4 of Order 1, took over the management of the Company'. At the time of taking over the management of the Company' by the Federal Government, the accumulated losses were about Rs. 6.5, crores as against paid-up capital of Rs. 2.82 crores. Thus, the paid-up capital of the Company was totally wiped out.
In support of these averments reliance is placed by the Company' amongst other documents on the Special Resolution which states that the Company' throughout its operation has incurred losses .both in private management and public management, on the extracts from the Directors' Annual Reports for the years 1966 to 31-3-1972, to the Annual General Meetings of shareholders (Annexures "F" to "K") which state following losses
(a) For the year ending on 31-3-1966 Rs. 31,241,48.
(b) For the year ending on 31-3-1967 Rs. 67,622.60.
(c) For the year ending on 31-3-1968 Rs. 84,31,107.44.
(d) For the year ending on 31-3-1969 Rs. 40,27,292.67.
(e) For the year ending on 31-3-1970 Rs. 1.1.4. lacs.
(f) For the year ending on 31-3-1971 Rs. 113.9 lacs.
(g) For the year ending on 31-3-1972 Rs. 134 lacs.
4. For the year ending immediately before filing of the present petition the total accumulated loss was Rs. 17,89,41,120 as shown in the balance-sheet of the Company for the year 1977-78 (Annexure "L").
5. The Company was indebted to the Industrial Development Bank of Pakistan, the Muslim Commercial Bank and the United Bank Limited to the extent of Rs. 121.8 millions. The outstanding Government and Government Agencies dues amounted to Rs. 28.45 millions, employees and other creditors dues were to the extent of Rs. 44.24 millions. The total indebtedness of the Company as on 30-6-1978, was Rs. 195.49 millions.
6. It appears that a commission was set-up under the Chairmanship of Ex-Finance Minister Mr. Uqailee to review the performance of 'the Company'. In the report submitted by the said Commission it reached the conclusion that 'the Company' throughout its operation incurred losses both under private and public managements. The main plant was then shut down. The report further states the bulk of the investment is in the Polyethelene manufacturing plant which is based on obsolete technology, and sizable losses even to the secured creditors were inevitable even if the project could be revived.
7. It further appears that a Committee called "Implementation Committee" was set up under the chairmanship of Mr. H. U. Beg, Secretary, Planning, Government of Pakistan, for the purposes of implementing the recommendations of the Commission headed by Mr. Uqailee. The report of the Implementation Committee concerning the Company was as follows
"Considering that Synthetic Chemicals Company Limited is on the verge of collapse, Committee recommends that the productive fixed assets of the Company should be disposed of on the best available price and thereafter the Company should be wound-up."
8. The Company has also stated in paragraph 11 of the petition that its business is at stand still and its main plants have not been operating since several years.
9. From the above stated facts which have not been controverted, it is clear that the provisions of clauses (i) and (vi) of section 162 of the Companies Act, 1913, are attracted as there is already a Special Resolution passed by 'the Company'. resolving for its winding-up by the Court and as the Company has incurred heavy losses from year and year and the accumulated losses of 'the Company' are almost six times of its paid-up capital and thus the substratum of 'the Company' is gone: It may be' stated that the substratum of a - company must be deemed to be gone when (a) the subject-matter of the company is gone, or (b) the object for which it was incorporated has substantially failed, or (c) it is impossible to carry on the business of the company except at a loss, (d) the existing and probable assets are insufficient to meet the existing liabilities. See In re : Cine Industries & Recording Co. (1). (1) A I R 1942 B. 231
10. Under clause (vi) of section 162 of the Companies Act, 1913 it isl considered just and equitable to wind-up a Company, if substratum of the Company has gone. Reliance is placed on Fida Ali Yusufali and,
11. It may be stated that it has been laid down by the Judicial Committee of the Privy Council that the power of the Court under clause (vi) (ibid) is not confined to causes in which there are grounds analogous to those mentioned in the other part of the section : see D. Davis & Co. Ltd: v. Brunswick (Australia) Ltd. and others ( A I R 1936 P C 114), and also Loch and another v. John Blackwood Ltd. ((1924) A C 783 ).
12. I may, however, state that ground (b), as stated, cannot be made the basis of an order for winding-up of the Company' for in support of this ground the allegations made in paragraph 11 of the petition are that, the business of the Company' is at stand still and its main plants have not been operating since several years. These allegations do not amount to the same thing as the Company' suspending its business for a whole year. This ground is, therefore, not available to 'the Company',
13. However, I have to consider the objections of Mr. Hasan A. Shaikh to this petition. He has raised two-fold objections. The first objection is that on promulgation of Order I, 'the Company' ceased to exist as such and has become a department of the Government. The second objection is that the President of Pakistan pursuant to the provisions of Martial Law Regulation 125 has already directed payment of compensation to his client as contained in the letter, dated 21-6-1979, from Mr. Sajjad Hassan, Chief (income-tax), to Mr. Kamruddin, Fakhruddin, Valibhai Kamrud din which reads as follows
"(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 this 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 matetrial date should be 1-1-1972 and not 31-3-1972 ;
(c) The value of assets should be the market 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, an estimated value which may be somewhere between the cost and the depreciated value may be adopted ;
(d) The value of the 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 representatives frog Production Division, Finance and C. B. R. may work out the amount payable to Valika Group. The repayable amount worked out by the group will be subject to approval by the Finance Minister."
14. In support of the first objection the learned counsel relied on the provisions of Articles 4 and 5 of Order I and argued that since the Federal Government has appointed a Managing Director of the Company' pursuant to the provisions of clause (1) of Article 4 of Order I and since the powers and functions of the Board of Directors to manage the Company' has ceased to exist in view of the provisions of clause (2) of Article 4, the provisions of the Companies Act have ceased to apply. He has also relied on the provisions of Article 3 of Order I which provides that the provisions thereof shall have effect notwithstanding anything contained in the Provisional Constitution Order, 1979, or any other law for the time being in force or in any agreement or contract. There is no doubt that the provisions of Order I override the provisions of the Companies Act 1913, but this is limited to only those provisions which relate to management of the Company' or the powers and functions of the Company's Board of Directors, and not otherwise. There is no provisions in Order . I which, expressly or impliedly, restrict the application of sections 155 to 178 of the Companies Act which relate to winding-up of companies. The management or control of the Company' was taken over by the Federal Government under Order I. I had the occasion to deal with the same objection though in somewhat different circumstances in relation to 'the Company' in an order passed on an application under Order XXXIX, rules 1 and 2, C. P. C. filed in Suit No. 912 of 1979, Prrvez Aslam Mian Muhammed Aslam v. Syethetic Chemical Co. Ltd., Karachi arid another inter alia questioning the Special Resolution whereby the Company' decided to move this Court for winding-up, which is reported in P L D 1980 Kar. 401, as follows:
"The learned counsel for the plaintiff has not pointed out any provision in the order which prohibits the winding-up of defendent No. 1 under the conditions in which the resolution has been passed."
15. Mr. Hasan A. Shaikh sought support from the provisions of section 5 of the Banks Nationalization Act which provide that the provisions thereof shall not affect the status of Banks as corporate bodies and submitted that there is no provision in Order I similar to section 5 of the Banks Nationalization Act, and therefore, he argued that the Company' has ceased to exist.
16. Before dealing with this argument it is necessary to note that under the Economic Reforms Order, 1972, as amended by the Economic Reforms (Amendment) Ordinance, 1973 (Ordinan:e No. XVIII of 1973), by virtue of the provisions of Articles 7-B and 7-C, the Federal Government, if it considers necessary in the public interest is empowered as follows
(a) in the case of an establishment which is a Company or an establishment owned by a company
(i) acquire the entire shares held in the company by the sponsors and directors of the previous Management thereof, the family members of such sponsors and directors and the associated undertakings and Managing agents of the Company at the time at which a Managing Director was appointed in respect thereof and the whole or a portion of the shares from all or any of the shareholders of such company and, as from the date of such order, the shares so acquired shall vest in the Federal Government ; or
(ii) acquire the whole or a portion of the proprietary interests of such company in such establishment and, as from the date of such order, the interests so acquired shall vest in the Federal Government ; and
(b) in the case of an establishment owned by a person, acquire the whole or a portion of the proprietary interests of such person and as from the date of such order, the interests so acquired shall vest in the Federal Government Provided that no order shall be made under this Article for the acquisition of the shares held in an establishment by a foreign investor or an institution owned, managed or controlled by the Federal Government
Provided further that in the case of an establishment which is a company or an establishment owned by a company, the Federal Government may, by notification in the official Gazette, exempt from acquisition shareholdings of any shareholder up to such maximum amount as may be specified in the notification.
Explanation.-In this clause.
(a) "associated undertakings" has the same meaning as in the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970 (V of 1970) ;
(b) "family members", in relation to a sponsor or director, means the spouse, lineal ascendants and descendants and brothers and sisters of the sponsor or director ; and
(c) "previous management", in relation to a company means a person, body of managing agency in whom the management of the Company vested immediately before the appointment of a Managing Director in respect of such Company or the establishment owned by it.
(2) Where the Federal Government makes an order under clause (1) in respect of the shares of any company, no dealings or business relating to such shares shall be transacted on any stock exchange for a period of ninety days from the date of such order.
7-C. Acquisition of shares.-Where, under Article 7-B, the Federal, Government acquires the whole or a portion of the shares of the shareholders of any company or of the proprietary interests of a company or other person in an establishment, the Federal Government shall, within a period of ninety days, pay such compensation as may be determined by it on the basis of the principles set out in the Second Schedule."
Accordingly, by notification, dated 29-11-1973, the Federal Government had acquired 58 % shares mentioned in schedule thereto. Thus, the ownership of 'the Company' as such never vested in the Federal Government.
17. It will therefore, be seen that under the Banks Nationalization Act, 1974 not only the management and control of all Banks stood transferred to or vested in the Federal Government but also the ownership while under the Economic Reforms Order the ownership of 'the Company' has not vested. Therefore, under the Banks Nationalization Act it became necessary to provide for continued existence of the Banks as corporate bodies for otherwise in consequence of the vesting of the ownership of the Banks in the Federal Government, they as corporate bodieswould have ceased to exist. But under Order I as amended by Ordinance No. XVIII of 1973, the ownership of the companies as such did not vest in the Government. Therefore, it was nut necessary to make a similar provision therein. Accordingly, from the absence of similar provisions as contained in section 5 of the Banks Nationalization Act, it could not be inferred that the status of a company as a body corporate under the Companies Act, 1913, was changed.
18. There is no doubt that the Legislature can forge a sledge-hammer capable of cracking open-the corporate shell, and the Courts are also entitled to do so, Fauji Foundation and another v. Shahimur Rehman (PLD1983SC457 ), but the principle is not attracted in the present case as admittedly the Federal Government has acquired only 58 per cent shares in the Company' and except taking action under Articles 4 and 5 of Order I has done nothing. Therefore, even if the veil of the corporation is lifted nothing would emerge which could show loss of character of the Company' as corporate body.
19. The learned counsel has relied on The Commissioner of Incometax, Punjab and N.-W. F. P. and Bahawalpur v. Mrs. E. V. Miller and others (PLD1959SC219) ; The President-Referring Authority v. Mr. Justice Shaukat Ali (P L D 1971 S C 585), Fauji Foundation and another v. Shamimur Rehman ; Thal Engineering Industries Ltd. v. Bank of Bahawa1pur and another (N L R 1979 Civ. Lah. 544) and P. 1. D. C. Karachi v. Commissioner of Income-tax (1979 P T D 431). But these are of no help for the aforesaid reason.
20. The learned counsel's second objection is that the President of Pakistan pursuant to the provisions of Martial Law Regulation 125 has already directed payment of compensation by the Company' as contained in the letter, dated 21-6-1979, from Mr. Sajjad Hassan, Chief (Income-tax), to Mr. Kamruddin Fakhruddin, Valibhai Kamruddin, the contents whereof have already been reproduced, and which is the subject matter of C. P. No. D-1444 of 1979, pending in this Court.
21. It is submitted by Mr. Shaikh that if the Company' is wound-up it will in effect amount to questioning that order of the President which is nor permissible under the provisions of the Martial Law Regulation 125 which prohibits the calling in question in any Court including the High Court and Supreme Court anything done or any action taken or purporting to be issued or taken thereunder. It was argued that the President had directed the payment of the loan as mentioned above by virtue of the powers contained in clause 4(i). I need not consider the effect of the order of the President in these proceedings for that is the subject-matter of the constitution petition. However, I must say that if the Company is ordered to be wound-up, and it will be for the liquidator to act in accordance with the directions of this Court that are given or may be given in the constitution petition or in the absence of any such direction in accordance with law. It was also argued that the Martial Law Regulation 125 repealed the Companies Act in its application to 'the Company'. In regard to. this argument it would suffice to say that the provisions of the Martila law Regulation 125 in view of clause (1) thereof shall prevail, but they are not in the matter in conflict with or contrary to the provisions of Chapter V of the Companies Act, 1913. Therefore, the question of any implied repeal does not arise. It is settled rule of constructions of statutes that the doctrine of implied repeal should not be lightly inferred. It is also settled rule of construction that the provisions of one enactment cannot be treated as curtailed or repealed by implication by a_ subsequent enactment. Reliance is placed on Babu Khan v. The Crown (1970 S C M R 107) and S. A. Matin and another v. Province of Sind and others (P L D 1976 Kar. 36.), to which reference .was made by Mr. Kamal Azfar.
In the Supreme Court case it was ruled as follows
"Unless expressed words are used, the provisions of one enactment cannot be treated as curtailed or repealed by implication by a subsequent enactment and this is all the more so if it is -found that the later enactment is auxiliary in character or of a limited scope
This case can be applied with full force to the rejection of the arguments of Mr. Shaikh.
In the Karachi case Abdul Kadir Shaikh, J. (as his Lordship then was) sitting in Division Bench at page 51 observed as follows
"The Courts do not look with favour upon implied repeals, and the presumption is always against the intention of the Legislature to repeal legislation by implication."
Accordingly, I do not find any force in both the objections and overrule the same.
18. Consequently, I grant the petition and order that 'the Company' be wound up. The question who should be appointed as liquidator will be considered in the presence of the counsel for the parties on 29-1-1984, as some of the counsel are not present today.
Parties are left to bear their own costs.
Petition granted.
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