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Civil Petition No. 704 of 1983, decided on 2nd July, 1986.

(On appeal from the judgment, dated 7‑3‑1983 of the Lahore High Court, Lahore in I.‑C.A. No. 14 of 1982)

‑‑‑Art. 185(3)‑‑Companies Act (VII of 1913), S.162‑‑Private limited company‑‑Winding up‑‑Suspension of work‑‑Production of factory stopped and work remained suspended for couple of years‑‑Meetings of Directors not held, and statutory reports not filed‑‑Petitioner failing to re‑start work despite numerous opportunities given‑‑Registered office of Company also disappeared‑‑Poor financial situation‑‑Principles governing partnership applied‑‑Suspension of work of production itself being a ground upon which Company could be wound up, held, was legal and proper‑‑Leave to appeal refused‑‑High Court's order that winding up of company was just, equitable and proper in circumstances.

P L D 1965 S C 221; D. Davis & Co. Ltd. v. Brunswick (Australia) Ltd. and others A I R 1936 P C 114; In re: Cine Industries and Recording Co. Ltd. A I R 1942 Bom. 231; F.G. Robson and others v. Dawsons Bank Ltd. A 1 R 1932 Rang. 75; Ladli Prasad Jaiswal v. The Karnal Distillery Co. Ltd. P L D 1965 S C 221 and In re: Kruddson Limited, Karachi P L D 1972 Kar. 376 ref.

A. K. Brohi, Sernior Advocate Supreme Court and Fazal‑i‑Hussain, Advocate‑on‑Record for Petitioner.

Aftab Ahmad Khan, Advocate Supreme Court and Abul Asim Jaffry, Advocate‑on‑Record (absent) for Respondent No. 1.

Date of hearing: 29th June, 1986.

This petition for leave to appeal is directed against the judgment, dated 7‑3‑1983 passed by a Division Bench of the Lahore High Court in I.‑C.A. No. 14 of 1982.

The petitioner is a private limited company incorporated under the Companies Act. It has only two shareholders‑‑the Brush Electrical Engineering Company Limited and A. Rehman & Company (Pakistan) Limited. The total paid up the capital of this Company is Rs.12 lacs. The holding of A. Rehman & Company is of the value of Rs.9 lacs while the shares held by the respondent are of the value of Rs.3 lacs. The Company manufactured electric motors and it has a factory situated at Tezab Ehata, G.T. Road, Lahore, for this purpose.

The Company unfortunately on account of financial difficulties, had to suspend its business in 1978; as also all other matters connected therewith. Neither were its accounts got audited nor any general meeting held. The second shareholder, Brush Electrical Engineering Company Limited (which is a joint stock company incorporated in the United Kingdom), therefore, submitted an application under section 162 of the Companies Act, 1913 on 12‑6‑1980 seeking winding up of the Company. The grounds taken in the application were:‑

(i) the company had suspended its business since 1978 and there was absolutely no likelihood of the company reviving its only business;

(ii) the company had an acknowledged liability of Rs.8,00,000 towards the Grindlays Bank Ltd. which had filed a civil suit for the recovery of the same; the company did not have sufficient funds to honour this liability;

(iii) the company had not been able to have its accounts audited; similarly, its balance‑sheets had not been duly audited and approved by the Board of Directors;

(iv) the company had not held the annual general meetings in accordance with the provisions‑of section 76(1) of the Companies Act on account of the default of the majority shareholders, namely, A. Rehman and Company Limited."

The above application was resisted by Mrs. Zakia Rehman who claimed to be the Chairman of the Board of Directors of A.Rehman & Company. Although in her reply she did not dispute that the factory had not been in production since 1978 or that it was not indebted to the Grindlays Bank Limited or that no annual general meeting had been held nor the accounts audited; her case was that it was not "just and equitable" to wind up the company as it had built up a great reputation and had a big market for its motors and that it would be against the national interest to wind it up. She also submitted that the loan obtained from the Grindlays Bank was secured against the pledge of the stocks which, were of a higher value than the amount of loan. As regards the suspension of production she stated:‑

"It is correct that due to certain problems the work had been suspended for a short while but the same is likely to be resumed and the factory will come into production in about nine months time. It is incorrect that the substratum of the company is gone."

The learned Company Judge allowed time to the majority shareholders for restarting the factory. However, despite the expiry of the period of nine months‑‑the time claimed for restarting production‑‑and even long thereafter, this expectation could not be fulfilled. Consequently, the learned Company Judge, vide order, dated 13‑10‑1982, directed the winding up of the company. His reasons for doing so are contained in paragraph 10 of his order which reads as follows:‑

"The position as it boils down to is that the factory is lying closed since 1978‑79. It has not been restarted even though the respondent was allowed time to do so on her own asking. The company has not held any annual general meeting since then and no accounts have been audited. No return have been filed either as required by law. Even the registered office seems to have been abandoned as no notice could be served on the company, as said above. In view of this position, it is just, equitable and proper that the respondent‑company be wound up and I order accordingly."

An Intra‑Court Appeal was filed against this order. This was heard by a Division Bench of the High Court but no ground for interference was found to exist by the learned Judges of the said Bench and, accordingly, the appeal was dismissed. While rejecting the appeal it was observed:‑

"The case before us is of a private limited company. The Courts have uniformly treated such a company to be more or less a partnership and applied the same principles in its winding up as would entitle a partner to have a partnership dissolved (PLD 1965 S C 221) . Admittedly, the factory stopped production in 1978 and all the employees were discharged with effect from 25‑5‑1978. At the instance of Mrs. Zakia Rehman the learned Company Judge allowed time to her to restart the factory but no steps were taken in this regard till the day when the order for winding up was made. The learned Single Judge was, therefore, justified in taking the view that there was no likelihood of the factory going into production in the near future."

The learned Judges also went on to observe:‑

"There is also no explanation why a meeting of the Board of Directors was not held and the statutory reports not filed. Even though the factory was not in production the majority shareholders owed a duty to the minority shareholders in informing them of the reasons why the business of the company had come to an end and of the steps which were being taken to remove the difficulties faced in this connection. After all the minority shareholders had their capital locked up in the company. Instead of keeping the minority shareholders to be informed of the real state of affairs the registered office of the company also disappeared as, according to the learned Company Judge, no notice could be served on the company at the said address. In the circumstances the learned Company Judge was justified in holding that it was just, equitable and proper that the company should be wound up."

This petition for leave to appeal has been filed against the aforesaid order and judgment of the I.‑C.A. Bench of the Lahore High Court.

Mr. A.K. Brohi, learned counsel for the petitioner, has drawn our attention to section 162 of the Companies Act and has submitted that in the instant case the Company involved was a private limited company but the learned Judges ordering its winding up appeared not to be conscious of this important circumstance. The learned counsel pointed out the circumstances relied upon, namely, that the statutory report had not been submitted by the company nor it had held its statutory meeting were of no significance. In this connection, he drew our attention to the fact that the holding of the "statutory meetings" was provided for in section 77 of the Companies Act but clause (11) thereof itself stated that this section shall not apply to a private company. It was further argued that the winding up of the Company appeared to have been ordered under clause (vi) of section 162 of the Companies Act, which provided that a Company may be wound up if the Court is of the opinion that it was "just and equitable" to do so. This phrase, in a large number of judicial decisions, was invoked where the substratum of the Company had disappeared but this would not be the case if there was a reasonable hope that the Company could trade at a profit in the future. In this connection, he drew our attention to D. Davis & Co. Ltd. v. Brunswick (Australia) Ltd. and others AIR 1936 P C 114, Cine Industries and Recording Co. Ltd. A I R 1942 Bom. 231 and F.G. Robson and others v. Dawsons Bank Ltd. A I R 1932 Rang. 75.

So far as the view taken by the learned Judges of the High Court that the principles governing partnerships would apply in a case of a Private Limited Company, on the authority of this Court's decision in Ladli Prasad Jaiswal v. The Karnal Distillery Co. Ltd. P L D 1965 SC 221 is concerned, it was contended that the said authority had been explained and elaborated in a decision of the Sind High Court, namely, Kruddson Limited, Karachi P L D 1972 Kar. 376 which was apposite in the circumstances of this case.

Mr. Aftab Ahmad Khan, learned counsel for the respondents, in reply, submitted that suspension of the work of production was itself a ground upon which a company could be wound up and in this connection drew our attention to clause (iii) of section 162 of the Companies Act which reads as follows:‑‑

(iii) if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year."

After having carefully considered the submissions of the parties we do not think we can fault the judgments of the High Court. It is an admitted position that the Company had suspended its business in 1978 and the business stands suspended till this day despite numerous opportunities given to the petitioner to recommence production. This has not been possible principally on account of its poor financial situation. The order of the winding up of the company is clearly referable to the provisions of clause (iii) of section 162 of the Companies Act and cannot, therefore, be held to be illegal or improper.

No ground for interference has been made out.

This petition must, accordingly, be dismissed and it is so ordered.

M . I . Petition dismissed.

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