Lawyers Directory Listing
Chat with us free on WhatsApp — tell us your city and legal matter and our team connects you with the right lawyer. No form, no fee.
Civil Original No. 9 of 1959, decided on 23rd November 1959.
S. 213 (2)‑Voluntary winding‑up‑Court can remove liquidator for due cause, in substantial and real interest of liquidation.
Due cause for the removal of a liquidator is to be measured by reference to the real, substantial and honest interest of the liquidation, and to the purpose for which a liquidator is appointed of course, fair play to the liquidator himself is not to be left out of sight, but the measure of due cause is the substantial and real interest of liquidation.
Where real, substantial, and honest interest of liquidation and the purpose for which a liquidator was appointed had been defeated by the liquidator on account of his act of misfeasance, held that it was in the interest of winding‑up proceedings to order his removal.
There is no provision in section 213 (2) of the Companies Act that only a creditor can show due cause for the removal of a liquidator.
In re Eyton Ex‑parte Charlesworth (1887) 36 Ch. D. 299 rel. Parties in person.
Date of hearing : 9th November 1959.
Bharat Maha Lakhshami Bank Limited, which after Partition came to be known as the Asiatic Commercial Bank Limited (hereinafter referred to as the Bank), went into voluntary liquidation and by a resolution passed in the share‑holders' meeting on the 18th of September 1949, Mr. Muhammad Sharif, Advocate (respondent) was appointed its liquidator. Nearly ten years after the respondent's appointment, Muhammad Jamil‑ud- Dip Malik, Ex‑Managing Director of the bank has, on the 12th of June 1959, applied for his removal on the ground that so far the respondent has realised only the liquid assets of the bank most of which have been spent on his traveling allowance and commission etc., that only one anna in a rupee has been paid to the creditors in 1950 and nothing has been paid to them since then, that full amount .of the decretal debt owing from one Sayyed Altaf Hussain Gardezi has not been realised, and that no effective steps have so far been taken for realising the loans advanced to a large number of persons including one Abdul Jalil. Gardezi who owes Rs. 50,000 to Rs. 60,000 to the bank. Grievance was also made of the omission to convene meetings of the shareholders and creditors during the last nine years and it was concluded that there was no likelihood of the liquidation proceedings coming to an end so long as the respondent remained in charge of the respondent put in a written statement on the 3rd of July 1959, repudiating the aforementioned allegations and made counter allegations against the petitioner for his past acts of misfeasance. It was also pointed out that a similar frivolous and vexatious application made by the brother of the petitioner some time ago had been dismissed on merits.
2. As the allegations made in the petition were vague and of general nature, I directed the petitioner to give particulars of irregularities committed by the respondent, and on the 15th of September 1959 he filed year‑wise objections to the accounts submitted by the respondent. A lengthy reply covering as many as '23 pages and some annexures Here filed by the respondent on the 12th of October 1959, but some of the objections raised by the petitioner were not adequately answered by him. I, therefore, considered it expedient to examine the respondent to afford him an opportunity to render explanation for the alleged irregularities in the accounts. After the statement was concluded on the 19th of October .1959, I' allowed the respondent an opportunity to cross‑examine the petitioner to bring home the objections that the petition for his removal was mala fide and vexatious. The petitioner, was examined on the 2nd of November 1959 and after that the respondent placed some more documents on record to which reference will be made presently.
3. The allegations against the respondent are numerous and the reply to them is as prolix as it could be. It is, therefore, not necessary to burden this order with their repro duction at length which will serve no. useful purpose. Suffice it to say that according to the petitioner the respondent is conducting the liquidation proceedings for his personal benefit and so long as he remains in office, there is no hope of winding‑up the affairs of the bank. Pertinent objections were taken to expenditure incurred on establishment and law charges, traveling allowance and commission received by the respondent, non‑recovery of full amount of decretal debt from Sayyed Altaf Husain Shah Gardezi; failure to take steps to recover debts including a debt of over Rs. 50,000 from Abdul Jalil Gardezi and sale of the property of the bank at a nominal value. Needless to say all these allegations were denied by the respondent who vehemently maintained that be had conducted the winding‑up proceedings as best as could have been done in the circumstances of the case and that the petition was mala fide and vexatious.
4. The power Ito remove a liquidator appointed in voluntary winding‑up is contained in section 213 (2) of the Companies Act, which reads as follows :‑
" A Court may on cause shown remove a liquidator and appoint another ".
The scope of this provision was considered by acting Chief Justice A. R. Cornelius (now Judge Supreme Court) in his order dated the 13th of November 1951, dismissing the application of Abdus Salam for removal of the respondent and the follow ing observations of Brown L. J. in Re Eyton Ex parte Charlesguorth ((1887) 36 Ch. D 299) are cited in it with approval:‑--
" The due cause is to be measured by reference to the real, substantial, honest interest of the liquidation, and to A the purpose for which the liquidator is appointed, of course fair play to the liquidator himself is not to be left out off Jan sight, but the measure of due cause is the substantial and real interest of the liquidation ".
5. This is undoubtedly a correct criterion for removal of a liquidator and being in respectful agreement with this view I propose to adjudicate on the grounds raised by the petitioner for the removal of the respondent.
6. It has been noticed above that the respondent was appointed liquidator as far back as 18th of September 1949. More than ten years have passed since then and we have to see whether the respondent has conducted the liquidation pro ceedings during this period with honesty of purpose or not. If he has done his best to collect the assets of the bank and pay to the creditors as much as could be made available and expenditure has not been incurred for his personal benefit, then he is free from any blame though nothing may have been paid to the creditors so far. But if, to the contrary, it is found that the liquidation proceedings have all along been conducted for the personal benefit of the respondent and the interest of the creditors and share‑holders has been completely ignored, or if there are irregularities in the account and there are false entries of expenditure, then certainly it would be in the honest interest of liquidation to order the respondent's removal.
7. In order to properly appreciate the course which the liquidation proceedings in the hand of the respondent has taken so far, the following statement of accounts prepared from the audited accounts filed by the respondent will be helpful:
| Year. | Realisation and cash balance. | Expenditure. | Claim paid. |
|
| Rs. a. p. | Rs. a. p. | Rs. a. p. |
| 1949 & 1950 | 23,408 1 8 | 6,340 15 0 | 9,777 10 0 |
| 1951 & 1952 | 15,576 0 5 | 8,370 13 5 | 4,021 4 0 |
| 1953 | 30,821 0 0 | 7,824 0 0 | 1,342 0 0 |
| 1954 & 1955 | 29,141 10 6 | 5,734 0 0 | 1,685 15 6 |
| 1956 & 1957 | 28,394 5 9 | 4,342 0 0 | 698 11 0 |
| 1949 & 1950 to 31st of August 1959 | 23,809 4 6 | 6,304 6 0 | 10,952 100 |
The total realisation up to the 31st August 1959 comes to Rs. 68,907‑14‑3 out of which up to the date of the institution of the petition Rs. 17,525‑6‑0 were disbursed under the head " Claim paid ". On the 17th of June 1959, a second dividend, totalling Rs. 10,925‑10‑0 is shown to have been remitted to 94 creditors by means of cheques and money‑orders. This payment was thus made in the result of the petition for the respondent's removal and may be discounted from consideration while judging the merits of the case. As against the amount paid to the creditors up to the 12th of June 1959, the expenditure incurred by the respondent on his commission, establishment and law charges, travelling allowance and other miscellaneous heads comes to Rs. 38,915‑2‑0. So that even if the. amount of Rs. 10,952‑10‑0 paid as second divident at the rate of one anna in a rupee is taken into consideration, the expenditure incurred by the respondent far exceeds the amount paid to the creditors. It may be pointed out at this stage that bulk of the realizations made by the respondent was by sale of the property of the bank and proceeds of a decree which had been obtained before the respondent's appointment.
8. Keeping this broad picture in view I now turn to the specific objections raised by the petitioner. Firstly, the bank had obtained a compromise decree against Sayyed Altaf Husain Shah Gardezi of Multan for a sum of Rs. 30,000 with the condition that if the judgment‑debtor failed to pay the amount by the 1st of July 1949, he will be liable to pay full amount claimed in the suit, i.e., Rs. 47,796‑10‑6, with costs. There was a default in the payment of the decretal amount and as such the judgment‑debtor was liable to pay to the bank the full amount of the decree, but according to the audited accounts for the year 1953 the respondent realised from Sayyed Altaf Husain Shah a sum of Rs. 27,500 and gave up the claim for the balance of Rs. 20,000 odd. When asked to explain why he gave up such a large claim of the bank, the respondent gave the following reply :
" The bank had not impleaded the vendee of the mortgaged property as a party to the suit for recovery of the said. amount and the compromise did not authorise the bank to proceed against the mortgaged property. Thus I was left with a simple money decree and the execution proceedings went on for a long time and there was no hope of recovery of more money from him. I, therefore, compromised with the judgment‑debtor on the same terms on which the Bank had earlier come to a compromise. I had also consulted some of the creditors as to whether I should proceed further with the execution or settle the matter, and one of them suggested that I should accept eight annas in the rupee ".
No attempt was made by the respondent to substantiate this explanation although he knew from the very start that the petitioner had taken strong exception to the giving up of this amount. He could have summoned the execution file which alone would have shown whether any serious attempt was made by the respondent to realise full amount of the decree or not and whether he was justified in the conclusion that there was no hope for the recovery of the remaining decretal amount. Further, the respondent had no legal authority to give up the bank's claim whatever his own views in the matter. At first he took up the position that the claim was given up in accordance with 'the wishes of the creditors and that his action was approved by them in a meeting. But when asked to produce the resolu tion, he had to admit that there ‑was no such minute. The authority to compromise and give up the decretal amount in question was next claimed to have been conferred on him on the resolution of his appointment but its perusal did not bear out the contention. In these circumstances I do not think that there was any good cause for the respondent to have given up the doubt in question and in doing so he has caused a loss of over Rs. 20,000 to the bank.
9. The next objection was to the propriety and correctness of the expenditure incurred by the respondent on various heads referred to above. One regular item of expenditure during the last ten years has been establishment charges and rent of the premises in which the winding‑up work has been done. The establishment charges include salary of a part‑time clerk and peon. When asked to describe the nature of his engagement in connection with the winding‑up work which had necessitated the employment of a clerk and a peon for ten years, the respondent gave the following reply :‑
" Sometime was taken in fighting the litigation in which my appointment was challenged and I found it necessary to employ a clerk and a peon to prepare the brief. During the litigation concerning my appointment, the High Court had stopped me from performing some of the important functions of the Liquidator, but in spite of it a lot of office work was to be done, I had to spend a great deal of labour in tracing the shareholders of the company whose particulars are mentioned in the register Exh. P. 5 and my main difficulty was that the record of the company was not properly maintained ".
The questions and answers which follow may also be reproduced with advantage to judge the correctness of the respondent's case on this point :‑
" Q.‑Will you point out any account books or registers maintained by the clerk during the last ten years
A.‑There are many books in my office which are partly written by the clerk and partly by me.
Q.‑Can you give particulars of the registers lying in your office in which there are entries in the handwriting of your clerk
A.‑For instance, ledger Exh. B. 6 was partly written by Ikram Ullah Mufti and partly by another clerk whose hand writing is not identifiable by me ".
Q.‑How many clerks were engaged by you during the last ten years
A.‑I cannot answer this question, because I do not know their names "
As noticed above, the activities of the respondent during the past ten years had been confined to sale of a few items of property of the bank and supervising the conduct of some case instituted through other lawyers for realisation of debts and payment of dividend of one anna in a rupee to 94 creditors. In view of this, there was certainly no scope for engaging a part‑time clerk and a peon if there was an honesty of purpose in conducting the winding‑up proceedings. The monthly expendi ture incurred on this item may appear to be small but the total for the last ten years runs into thousand of rupees, and the respondent could not point out to me more than a few entries in the handwriting of one of the clerks in the ledger book Exh. B. 6 in justification of employing a part‑time clerk. I, am, therefore, of the view that the expenditure on the employment of a clerk and a peon, if at all incurred by the respondent, was not justified in the interest of the winding‑up proceedings.
10. The next item of expenditure is of Rs. 25 per month paid as rent since 1953. The office of the respondent was said to be located in No. 136 Anarkali, Lahore, belonging to Beja Mal Mela Ram evacuees. He was already its tenant since 1936 at a monthly rent of Rs. 50 and in 1950 his brother Muhammad Saeed was a sub‑lessee of a portion of the premises under the respondent for which he paid him Rs. 25 per month as rent. It is clear that Muhammad Saeed was neither a lessee under the landlords, nor a co‑ lessee with the respondent, for he paid his share of the rent to the respondent and not to the landlords. In 1950, the respondent asked Muhammad Saeed to vacate the portion of the premises in his possession to enable him to set up the office of the bank in it which he did to oblige him. According to the written statement Muhammad Saeed did not charge any rent for the first three years on account of personal regard but from 195 onwards he has paid him rent at Rs. 25 per month and the averment is supported by receipts purporting to have been executed by Muhammad Saeed from time to time some of which include payment of electricity charges at the rate of Rs. 5 per month to Muhammad Saeed. There are also separate receipts to that effect. The statement made by the respondent in Court, however, gave the impression that when he asked Muhammad Saeed to vacate the portion of 136 Anarkali in his possession in 1950, he agreed to pay him rent at Rs. 25 per month from the very start and that he had paid the rent up to date. The arrangement between the two brothers regarding this transaction can best be appreciated by reproducing the following questions and answers from the statement of the respondent:‑--
" Q.‑Where was the office of the Asiatic Commercial Bank (in liquidation) (hereinafter referred to as the Bank) set up by you after your appointment as Liquidator
A.‑At No. 136, Anarkali, Lahore.
Q.‑To whom did this property belong
A.‑To Beja Mal Mela Ram
Q.‑Did you rent it out for the first time for the purposes of using it as an office of the Bank
A.‑No. I was already a tenant of it since 1936 along with my brother Muhammad Saeed although the tenancy was in my name alone. In 1950 the portion occupied by my brother was taken over by me and I set up office of the Bank in it and agreed to pay him at Rs. 25 per month as rent. I have paid him rent at this rate up to date.
Q.‑Did your brother pay any rent to Beja Mal Mela Ram directly
A.‑No, he paid his share of the rent through me.
Q.‑Did you physically pay Rs. 25 per month as rent to your brother
A.‑Yes.
Q.‑Did he then hand back this money to you for payment to Beja Mal Mela Ram
A.‑Yes.
Q.‑Where are the receipts showing payment of this rent
A.‑The same have already been handed over along with the remaining record to this Court.
Q.‑What was the rent which you paid to Beja Mal Mela Ram for the entire premises
A.‑Rs. 50 per month.
Q.‑Where are the receipts showing payment of rent by you to Beja Mal Mela Ram since 1950
A.‑I am not certain whether they are available with me or not though I have been taking receipts off and on.
Q.‑To what date have you paid rent to Beja Mal Mela Ram
A.‑Payment of rent is in arrears since the last year. Till then I had paid the total amount of rent to the aforesaid landlords.
Q.‑To whom did you pay rent
A.‑Sometimes to Puran Chand, a representative of the land lords, and sometimes to one Hidayat Ali.
Q.‑Have you any knowledge that the property of Beja Mal Mela Ram has been declared evacuee and allotted to various persons since long
A.‑No.
Q.‑Since you have not paid any rent to the landlords for the last one year, why have you charged rent from the Bank
A.‑Because it is due and the amount is lying with me in trust for payment to landlords ".
Even a cursory glance at the above statement will disclose the fraudulent nature of the transaction by means of which the respondent has so far charged more than Rs. 2,000 as rent. Although I doubt the correctness of the respondent's statement that Muhammad Saeed was a sub‑lessee under him, but assuming it to be correct as soon as Muhammad Saeed surrendered possession of the portion of the premises in his possession, he ceased to have any connection with or interest in it. He was not a lessee under the landlords holding lease for a fixed period in which case he could have sub‑let the premises and charge rent for it but that is not the case. It may be asked why did the respondent resort to this device instead of charging the rent himself. The answer appears to be that (he) had not paid any rent to the landlord who had become evacuees long ago, or to the Rehabilitation Department. He professed ignorance of the fact that Beja Mal Mela Ram. Had become evacuees and their properties allotted to others and produced an application made by him to the Rehabilitation Officer (Commercial), Civil Lines, Lahore, in original on which there is an endorsement dated the 1st June 1952 that rent of 136 Anarkali may be paid to the Hindu landlords. Under what circumstances the respondent obtained this order remain to be enquired into later on, but there is no evidence that thereafter he paid any rent to Beja Mal Mela' Ram or their authorised agents. Having himself paid no rent to the landlords, it became necessary for the respondent to set up his own brother as landlord and prepare fictitious receipts showing payment of rent and electricity charges to him. The tenor of the receipts showing payment of rent and electricity charges is calculated to create the impression that Muhammad Saeed was the owner of the premises a portion of which had been rented for setting up the office of the liquidator and that Muhammad Saeed paid electricity charges to the, Public Works Department and the respondent paid him Rs. 5 at a flat rate as his contribution for consumption of electricity in his office. This is confirmed by the following averment made in the written statement :‑
"Rs. 25 paid to Mr. Muhammad Saeed is not a gift given to him.
The Liquidator was duty bound to open a Liquidation Office immediately after winding‑up on written authority signed and executed by the objector himself, confirmed by the body of creditors (vide copy attached). Rs. 25 are paid against the possession of the premises given by him at a great inconvenience to himself.
Rs. 25 is a nominal rent, considering the scarcity of space in Lahore and the locality where the office accommodation is situated. Rs. 25 is about one‑third of the amount which can be demanded for such an accommodation.
For the years 1950‑51, 1952 and 1953 no rent was paid by the Liquidator nor demanded. on account of personal regards shown by Mr. Muhammad Saeed. The respondent is nor afraid that if in the face of such objection, he might demand rent for previous period, the Liquidator will be under an obligation to pay which he otherwise might not have demanded at all."
Thus distinct attempt had been made in the matter to conceal the fact that the premises in question belonged to Beja Mal Mela Ram and the respondent its original lessee. It was only after the petitioner had made an application that No. 136, Anarkali Lahore was the evacuee property belonging to Beja Mal Mela Ram that the respondent had to admit in his statement that Muhammad Saeed was not the owner of the premises for which he had been paid rent during the last seven years. In view of these facts, I am left in no doubt that the respondent has paid no rent or electricity charges to Muhammad Saeed, the receipts placed on record showing this payment are false and in this manner he has mis‑appropriated a sum of over Rs. 2,000.
11. The next objection raised by the petitioner is that valuable property of the bank had been fraudulently sold by the respondent for a nominal price. Four specific instances have been mentioned (1) sale of two plots of building sites situated in the Main Bazar, Multan, for Rs. 9,500, (2) sale of 86 pairs of new shoes for Rs. 216, (3) sale of five ceiling fans with regulators for Rs. 200 and (4) sale of eight maunds of old record for Rs. 12‑8‑0. The petitioner has not led satisfactory evidence to show what was the real market value of these properties and in its absence the objection cannot sustain.
12. The next objection taken up by the petitioner is that no effective steps have been taken by the respondent to recover debts from various parties including non‑Muslims whose properties were under mortgage with the bank. My attention was drawn in this connection to the inventory of the record handed over by the petitioner to the respondent in which a number of loan files of Muslims and non‑Muslims evacuees are mentioned. According to the petitioner, all these loans were secured and the respondent had omitted to bring suits or take other suitable action for the recovery of the debts with the result that the remedy of the bank had now become barred both by virtue of the provisions of the Limitation Act and on account of acquisition of all evacuee property by the West Pakistan Government under the provisions of Displaced Persons (Compensation and Rehabilitation) Act. The amount of these loans runs into lacs of rupees and admittedly no action has been taken by the respondent to recover it on the short ground that there were no non‑Muslim debtors of the bank. In this he is, however, contradicted by the entries in the aforementioned inventory which is signed by him. One more specific instance of a similar omission is the case of one Abdul Jalit Gardezi of Multan. He owned the bank a sum of over Rs. 60,000 against the mortgage of his immovable property situated in Multan. The file of this case along with others came into the hands of the respondent in 1950 but the suit for the recovery of the debt has been filed only recently. The petitioner claimed that the suit was filed after the 12th of June 1959 but according to the respondent it had been filed some time in 1958 and he produced copies of the correspondence that had been going on between him and Mr. Gut Jahania Shah, Advocate of Multan, regarding the institution of the suit. The correspondence begins with a letter dated the 12th of September 1957, and ends with a letter dated the 3rd of April 1958 from the respondent to Mr. Gut Jahania Shah, Advocate, by which time the suit had not been filed. This five years were wasted in nursing the brief whereas it should not have taken more than a couple of days or a week at the most to prepare the plaint and lodge the suit. I, therefore, find force in the objection raised by the petitioner that the respondent has not acted with due diligence in realising the assets of the bank.
13. Last objection raised by the petitioner is that the respondent had not convened shareholders and creditors' meeting, nor placed before them the audited accounts during the past nine years. In reply, the respondent had produced 49 postal receipts showing despatch of letters to the shareholders or creditors but what were the contents of these letters the certified copies could not reveal. Tile proper evidence to prove issue of agenda for these meetings was the despatch register which has not been produced and no explanation rendered for this omission. Necessity for holding periodical meetings of the shareholders and the creditors is obvious because unless they are posted with the financial state of affairs of the bank and the steps taken by the liquidator to realise its assets, they cannot be in a position to judge whether the winding‑up proceedings are being conducted honestly and efficiently or not. A reference to the minute book, which begins with the creditors' meeting held on the 7th of January 1951 and ends with the meeting held on the 10th of October 1958, shows that with the exception of one or two meetings not a single creditor or shareholder turned upto attend anyone of the meetings. Why 107 creditors whose particulars are given in the minute book lost all interest in the winding‑up affairs to such an extent that in nine years none of them turned up to attend a single meeting passes one's comprehension when it was in their interest to watch the winding‑up proceedings. I, am, therefore, inclined to accept the allegation that the respondent in order to keep the shareholders and creditors of the Bank ignorant of his acts of misfeasance did not convene any meeting during the past nine years and the entries in the minute book that such meetings were called and no one turned up are incorrect.
14. At the close of the proceedings, the respondent raised an objection that the petitioner has no locus standi to apply for his removal as he was not a creditor of the bank and this was a case of creditors' winding‑up. In the first instance the petitioner is one of the creditors but even if he were not, there is no substance in the contention because section 213 (2) of the Companies Act does not provide that only a creditor can show a due cause for the removal of a liquidator.
15. On account of the findings recorded above, I feel, convinced that the real, substantial and honest interest of the liquidation and the purpose for which a liquidator is appointed has been defeated by the respondent on account of his more than one act of misfeasance and it is in the interest of winding‑up proceedings to order his removal. This petition is accordingly allowed and the State Bank of Pakistan is appointed liquidator of the bank to complete the winding‑up proceedings within as short a time as possible. The respondent shall hand over all the assets of the bank, its record, and other properties under his charge to the Deputy Registrar of this Court forthwith for being made over to the newly‑appointed liquidator.
16. I further direct the issue of a notice to the respondent to show cause as to why he should not be prosecuted under section 409, P. P. C. for misappropriation of the amount of rent and electricity charges shown to have been paid by him to his brother Muhammad Saeed as the landlord of the premises in which the office of the bank was located, and for preparing or causing to be prepared false and fictitious receipts showing payment of the said amount and producing them in these proceedings as genuine. Since I have already expressed my opinion in this matter, I would not like to try the notice case and request my Lord the Chief Justice to nominate another Bench for its hearing.
17. This will dispose of two applications by some of the creditors being Civil Originals Nos. 57/L and 59/ of 1959; opposing the removal of the respondent. The petitions were made after the proceedings in Civil Original No. 9 of 1959 had terminated and only judgment remained to be announced. It was, therefore, not possible to associate the petitioners with the proceedings in this case because that would have resulted in re‑opening the pro ceedings. The petitions, therefore, stand dismissed without any order as to costs.
K.M.A. Liquidator removed.
Dealing with a matter like this? Connect with a verified advocate in your city — free on SJP Lawyers Directory.
🔍 Find a Lawyer