AKM Abdul Latif Vs. Banani Metal Limited and others, 52 DLR (2000) 62

Case No: Company Matter No. 12 of 1995

Court: Appellate Division ,,

Advocate: Dr. Kazi Akter Hamid,,

Citation: 52 DLR (2000) 62

Case Year: 2000

Appellant: AKM Abdul Latif

Respondent: Banani Metal Limited and others

Subject: Company Matter,

Delivery Date: 1998-08-17

Supreme Court of Bangladesh
Appellate Division
(Civil)
 
Present:
Md. Fazlul Haque, J.
 
AKM Abdul Latif
………………Petitioner
Vs.
Banani Metal Limited and others
……………Respondents
 
Judgment
August 17, 1998.
 
Companies Act (VII of 1913)
Sections 152 & 163
The respondent Company not being a financial institution cannot take money as a loan and give interest there on. Under the company law if money is required it may take it by way of issuing debenture and pay interest, etc.
 
Lawyers Involved:
Dr Kazi Akhtar Hamid with Rafiqul Islam Mehedi, Advocates—For the Petitioner.
Shamsul Huda, Advocate—For the Respondent No. 2.
Abdur Rashid, Advocate—For the Respondent No. 4.
 
Company Matter No. 12 of 1995.
 
JUDGMENT
Md. Fazlul Haque J.
 
1.         This is an application for winding up of Banani Metal Limited, a Private Limited Company having its registered Office at 60/1, Purana Paltan, 1st Floor, Dhaka under sections 162 and 163 of the Companies Act, 1913.
 
2.         The petitioner’s case, in short, is that, he had executed an agreement on 26-10-89 and subsequently, another agreement was also executed on 13-11-89 between the respondent No.2 and the petitioner. The petitioner has contended that the respondent company entered into an agreement being agreed by all its directors that an amount of Taka 5,00,000.00 is needed to invest for development of designs of a few commercial items and the respondent No.2 requested the petitioner to give the said amount of loan and the petitioner agreed to finance Taka 5,00,000.00 on certain terms and conditions as laid down in the aforesaid agreement.
 
3.         The petitioner has stated that one of the conditions of the said agreement is that irrespective of loss and profit, the respondent No.2 will pay the petitioners a guaranteed profit of Taka 10,000.00 per month. In pursuance of the loan agreement the respondent-company paid profit of Taka 10,000.00 per month up to July, 1991 and thereafter stopped payment to the petitioner. In the aforesaid situation the petitioner requested the respondent No. 2 to repay his entire loan amount within three months’ time. The respondent No. 2 gave written assurance for the same but did not fulfill the assurance at all.
 
4.         On the request of respondent No.2, the petitioner went to the registered office of the said Company on 22-11-93 to settle the matter. But the respondent No.2 misbehaved with the petitioner and the petitioner being afraid of his life made GD Entry to the Motijheel Police Station. The petitioner has further stated that three years period as provided under the agreement expired on 25-10-92 and the petitioner continued to give written notices to respondent No. 2 under registered post regularly but having no result.
 
5.         The respondent-company having failed and neglected to make payment of this admitted indebtedness, the petitioner sent a statutory notice dated 9-7-94 under section 163 of the Companies Act calling upon the respondents to pay the petitioner the said amount of Taka 5,00,000.00 with outstanding business profit up to July, 1994, but the respondent-company refused to take delivery of the said statutory notice.
 
6.         The respondent-company has not paid the amount to the petitioner which stands at Taka 7,25,800.00 up to November, 1994 including arrear guaranteed profit and actual loan amount. The petitioner has further stated that the respondent-company has no capacity to pay the loan. Further, the petitioner has submitted that since the respondent-company has failed and is unable to pay the said amount of loan for more than three weeks as referred to in the demand notice dated 9-7-94, it is deemed that the respondent-company is unable to pay its debts or unwilling to settle the matter with the petitioner. On the basis of the aforesaid submission the petitioner has prayed that it is just and equitable that the respondent-company should be wound up.
 
7.         The respondent No. 2, Mosta Gausul Hoq, Chairman and Managing Director of respondent No.1 Company has filed affidavit-in-opposition and denied the allegations made in the petition for winding up of the company. The respondent No. 2 has stated in his affidavit-in-opposition that as per agreement, Annexure-A to the petitioner that the petitioner being the second party to the agreement would be included as a regular and permanent Director of the Industrial Unit by selling of 250 shares of Taka 100.00 each amounting to Taka 25,000.00. The respondent No.2 has further stated in his affidavit-in-opposition that in pursuance of the agreement as annexed to the petition another agreement was entered into between the respondent No. 2 and the petitioner and as per Clause 3 of the agreement dated 13-11-89 the respondent No. 2 being the Chairman and the Managing Director of the respondent No.1 company shall remain responsible personally to re-pay the loan. Further, as per agreement dated 13-11-89 the petitioner was assured to be paid Taka 10,000.00 per month to maintain his family. In Clause 4 it is provided that this loan agreement dated 13-11-89 shall remain valid for three years from the date of signing this agreement and on expiry of three years both the parties on mutual understanding may extend the time for further period or buy company’s shares of this loan amount and in this case the decision of second party (petitioner) will be final. It is also provided in Clause 5 that the first party (respondent No.2) shall repay the loan on three months’ notice in case of emergency. Therefore, the respondent No. 2 has stated that on different occasions he in his personal capacity has refunded Taka 1,75,000.00 out of principal dues and paid Taka 2, 60,200 up to 1-9-93 as interest which was agreed upon.
 
8.         It has further been stated by the respondent No. 2 that to clear up the principal dues of the petitioner the respondent No. 2 along with business partner Mr. Shahjahan Chowdhury gave the petitioner a power of attorney to sell a piece of land situated at Iswardi which the petitioner on the strength of the said power of attorney sold at a value of Taka 2, 50,000.00 which the petitioner had taken and asked the respondent No. 2 to adjust this amount against the principal amount of loan. The respondent No. 2, accordingly, adjusted the said amount of Taka 2,50,000.00. The respondent No.2 earlier paid Taka 1, 75,000.00. Therefore, the respondent No. 2 in all paid Taka 4, 75,000.00 to the petitioner.
 
9.         The respondent No.2 has further stated that as per terms and conditions of the agreement dated 26-10-89 the petitioner had to purchase shares for Taka 2,50,000.00 and was to pay Taka 5,00,000.00 as an extra loan to become regular Director of the Company. The petitioner paid Taka 5,00,000.00 and the respondent No. 2 being the Chairman and Managing Director of the respondent No.1 Company forwarded his name to the Shilpa Bank, Dhaka for their approval to co-opt him as Director. The Shilpa Bank accepted the proposal and sent the requisite forms which were needed to be signed and filled in by the petitioner. The petitioner received the letter of the Shilpa Bank along with the forms on 9-5-90 but did not comply with the requisite formalities as required by the Shilpa Bank and thus he could not be qualified to become a regular Director of the respondent No. 1 Company.
 
10.       The respondent No. 2 has stated that the alleged loan was converted into a personal loan to this respondent mutually and it was gradually repaid and if there is any dues outstanding that can be settled by proper accounting outside the Court and, as such, the application for liquidation of the company is not maintainable. The respondent No. 2 has denied flatly that the respondent No. 1 is unable to pay its debt.
 
11.       Bangladesh Shilpa Bank, who is respondent No. 4 in this petition, has also filed affidavit-in-opposition and denied there are any circumstances which calls for liquidation of the respondent No. 1-Company. The respondent No. 4, Bangladesh Shilpa Bank (hereinafter referred as BSB) has advanced loan Taka 1,93,70,000.00 to the respondent No. 1 Company against sufficient security by way of mortgage, hypothecation, etc. of the project assets of the Company. The respondent No. 4 is a secured creditor and his interest should not be jeopardised by an order of winding up passed by this Court. The respondent No. 4 has stated that it has advanced substantial amount of money by way of loan to the respondent No. 1 Company and BSB will be highly prejudiced if the winding up order is made for liquidation of the respondent No. 1 Company. The respondent No. 4 has specifically stated in paragraph-10 in reply to the paragraph 13 of the petition that mere allegation made against the respondent Company is not enough. The petitioner is required to prove and substantiate the allegation that has been levelled against the respondent No. 1 Company. Further, in paragraph 11 of affidavit-in-opposition the respondent No. 4 has stated that service of statutory notice does not give rise to presumption that the respondent Company is unable to pay its debts. The respondent No. 4 in substance has opposed the application for winding up of the company on the ground that they have advanced a huge amount of loan to the respondent No.1 Company and they have no complaint against the respondent No.1 Company and if the respondent No.1 Company is wound up the respondent No. 1 would be highly prejudiced.
 
12.       The petitioner has also filed supplementary affidavit and has stated in paragraph 9 that the Investment Corporation of Bangladesh (ICB), a major creditor of the respondent No.1 Company has already filed a title suit No.5 of 1993 in the Court of Subordinate Judge and Artha Rin Adalat No. 2, Dhaka for realisation of Taka 31,95,000.00 and the said case is pending for hearing.
 
13.       The petitioner has also stated that the matter was placed before Mr. Mozibur Rahman, an Arbitrator on 28-5-98 who has given an award in respect of the dispute between the parties and another award was given by Arbitrator. Mr Abdus Salam, Advocate and the same has been marked as Annexure-H.
 
14.       Mr. Kazi Akhtar Hamid, the learned Advocate appearing on behalf of the petitioner, submits that the petitioner paid Taka 5,00,000.00 to the respondent No. 1 Company under an agreement dated 26-10-89 and the agreement has been marked as Annexure-A to the petition. In pursuance of the aforesaid agreement the petitioner received Taka 10,000.00 regularly till 1993 and thereafter the petitioner is not getting any money whatsoever from the respondent No.1 Company.
 
15.       The learned Advocate for the petitioner submits that another agreement dated 13-11-89 was entered into between the respondent No.2 and the petitioner wherein the self same terms was provided inasmuch as the respondent No.2 shall pay to the petitioner Taka 10,000.00 per month for maintaining his family expenditure irrespective of loss and profit of the respondent No.1 Lastly, the learned Advocate for the petitioner submits that the respondent No.2 and/or the respondent No.1 Company has defaulted paying either the amount of Taka 10,000.00 per month to the petitioner and/or defaulted in returning the entire loan of Taka 5,00,000.00 to the petitioner, and, as such, it is just and equitable that the respondent 1 Company should be wound up.
 
16.       Mr. Md. Shamsul Huda, the learned Advocate appearing on behalf of the respondent No. 2 Mosta Gausul Hoq, Chairman and Managing Director of the respondent No.1 Company, submits that the respondent No. 2 took loan of Taka 5,00,000.00 from the petitioner and he has paid in all Taka 4,75,000 on different dates and the respondent No. 2 has also paid a considerable amount of money to the petitioner by way of interest. The learned Advocate submits that perusal of the agreement dated 13-11-89 would show that this was a personal loan agreement and the respondent No. 2, in fact, has paid a substantial amount to liquidate his liability. Therefore, the application for winding up of the respondent Company is liable to be rejected.
 
17.       Mr. Abdur Rashid, the learned Advocate appearing on behalf of the respondent No. 4, Bangladesh Shilpa Bank, submits that they have advanced a huge amount of loan of Taka 1,93,70,000.00 to the respondent No.1 Company. If the company is wound up their interest will be highly prejudiced and they will suffer irreparable loss and injury. In view of the above the learned Advocate submits that they oppose the application for winding up of the respondent No. 1 company.
 
18.       I have perused the application for winding up of the respondent No.1 company, supplementary affidavit filed by the petitioner, affidavit-in opposition filed by the respondent No. 2 as well as the affidavit-in-opposition filed by the respondent No. 4, BSB. It appears from the application for winding up of the Company that the respondent No. 2 and the petitioner had entered into an agreement on 26-10-89 for sale and purchase of 250 shares of Taka 100.00 each in order to induct the petitioner as regular Director of the respondent No.1 Company. It also appears from Clause 2 of the said agreement that the respondent No. 2 proposed to the petitioner to give cash loan of Taka 5,00,000.00 to invest the same in the respondent No. 1 company. Accordingly, the petitioner agreed and paid the amount on assurance given by the respondent No. 2 that the payment of this loan will get priority over all other loans of the respondent No. 1 company. It was agreed between the respondent No. 2 and the petitioner that the respondent No. 2 will pay Taka 10,000.00 per month with effect from 16-10-89 on account of this loan to maintain the family expenditure of the petitioner. It was further provided that the respondent No. 2 agreed to execute a separate loan agreement for the said amount of Taka 5,000.00 for a period of three years and on the expiry of three years both the parties on mutual understanding would extend the time for further period or buy Company’s shares to the tune of loan amount of Taka 5, 00, 000.00 only.
 
19.       It is admitted that the respondent No. 2 and petitioner made another agreement on 13-11-89 wherein it is provided in clause 3 that the respondent No. 2 shall remain responsible legally to repay the loan. Further, in Clause 4 it is provided that the petitioner will get a guaranteed business profit of Taka 10,000.00 per month to maintain his family irrespective of the loss and profit of the respondent No. 1 Company. However, in clause 5 it is provided this loan agreement shall remain valid for three years from the date of signing of the agreement and on expiry of three years both the respondent No. 2 and the petitioner on mutual understanding shall extend the time for further period or buy Company’s shares of this loan amount and in this case the decision of the petitioner will be final. It is also clear from the supplementary affidavit filed by the petitioner that there is an arbitration clause and the Arbitrator has given an award, wherein it is indicated that the petitioner entered into an agreement on 26-10-89 to become a Director of the respondent No. 1 Company and the proposal was accepted by the respondent No. 2, Managing Director of the Company on certain terms and conditions. It is provided that AKM Abdul Latif the petitioner will buy 250 shares of 100.00 each from the respondent No.1 Company for Taka 25,000.00. The petitioner will further pay Taka 5, 00,000.00 to the respondent No.1 Company as against that the respondent No.1 Company shall pay a guaranteed business profit of Taka 10,000.00 per month for three years from the date of signing of the aforesaid agreement and accordingly, the second agreement was signed between the petitioner and the respondent No. 2 on 13-11-89. The respondent No. 2 received a loan amount on 13-11-89 and obtained necessary permission from BSB, the respondent No. 4 for co-option of the petitioner as a Director of the Company. The petitioner received the permission letter along with relevant papers on 9-5-90 for necessary action at his end. The petitioner subsequently declined to be a director of the Company and refused to buy the shares allotted to him. In fact, the petitioner failed to comply with the terms and conditions of the agreement. On the other hand, the petitioner took back the part of the loan money on the date stated against each transaction from respondent No. 2 which clearly means that the loan amount was converted into a personal loan of the respondent No. 2. The petitioner received back the money on different dates between 31-12-90 till 19-5-93. However, in the said Arbitration proceedings the petitioner claimed Taka 10,67,9 16.00 which included principal amount, cost of public notice, Advocates fee, incidental cost including TA and DA of the petitioner, interest @ 20% and penal interest @ 20%. It appears that the Arbitrator requested the petitioner to explain the basis of his claim as made out by him, which he failed to do so.
 
20.       In the meantime another Arbitrator certified a claim of Taka 14,00,545.00 on 5-1-98 which also included interest and penal interest. The petitioner was asked to explain why he failed to comply with the terms and conditions of agreement dated 26-10-89 and 13-11-89. The petitioner failed to explain as to why he could not comply with the terms and conditions of the aforesaid agreements. However, the Arbitrator opined on scrutiny that Mr Mosta Gausul Hoq, the respondent No. 2, took Taka 500,000.00 as a loan from the petitioner and out of the total amount he paid back a sum of Taka 4,08,904.00 to the petitioner, leaving an amount of Taka 91,096.00 being the balance amount to be paid by the respondent No. 2 to the petitioner.
 
21.       It also appears from the award given by the Arbitrator that the petitioner made a complaint against the respondent No. 2 to BSB. The respondent No. 2 explained the facts to the Managing Director of BSB. Thereafter, BSB informed the petitioner vide their Memo No. 21-1-90/62 dated 12-4-94 that the loan was a personal loan of Mr Mosta Gausul Hoq, respondent No. 2 and that he would pay back the same. In view of the aforesaid facts and circumstances of the case the learned Arbitrator gave the following award:
               “That the loan of Taka 5, 00,000.00 by Mr. Mosta Gausul Hoq from Mr. AKM Abdul Latif is a personal loan of Mr. Mosta Gausul Hoq. Out of the above amount a sum of Taka 4, 08,904.00 (Taka four lac eight thousand nine hundred four) only was paid back to Mr. Latif. Balance amount of Taka 91,096.00 (Taka ninety-one thousand ninety-six) will be paid by Mr. Mosta Gausul Hoq in easy installments. Since Mr. AKM Abdul Latif caused huge financial loss by complaining to Bangladesh Shilpa Bank, no further amount shall be payable to Mr. Latif as profit/interest to compensate in part the financial loss.”
 
22.       It also appears that one Mr Abdus Salam on 5-1-98 calculated total claims of Mr. AMM Abdul Latif, up to 31-13-96 on the basis of information gathered from Mr. Mosta Gausul Hoq, Managing Director of the respondent No.1 Company wherein the Arbitrator summarised the claim of the petitioner.
 
23.       I have duly considered the aforesaid agreement dated 26-10-89 and the agreement dated 13-11-89. On scrutiny it appears that the respondent No. 2 was/is personally liable for payment of the loan. Further, in view of Annexure-J to the supplementary affidavit that the Arbitrator clearly opined after scrutiny of various papers that this was personal loan of the respondent No. 2. In view of the above it is difficult to accept the contention of the learned Advocate for the petitioner that the loan was given to the respondent No.1 Company, who failed to pay the same even after the service of the statutory notice as provided under the Companies Act, Further, it also appears from the affidavit-in opposition filed by the respondent No. 2 that because it was a personal loan of respondent No. 2 he has already made payment of Taka 408,904.00 to the petitioner and the petitioner has not denied it.
 
24.       Moreover, Bangladesh Shilpa Bank being the loan giving agency to the respondent No. 1 Company does not support the application for winding up of the company. It is the definite case of the BSB that they have advanced loan of Taka 1,93,70,000.00 and if the respondent No.1 Company is wound up they will be seriously prejudiced and suffer irreparable loss and injury and, as such, they are seriously opposing the application for winding up of the respondent Company.
 
25.       In view of the foregoing evidence on record which have been annexed to the petition as well as to the supplementary affidavit filed by the petitioner. I am of the opinion that the respondent No.1 company did not take any loan rather, the loan was taken by the respondent No. 2, who has made payment of substantial amount to the petitioner.
 
26.       Therefore, the question of default in making payment of the loan amount by the respondent No.1 Company even after service of the statutory notice as contemplated under Companies Act does not arise. In fact, respondent No.1 did not take any loan from the petitioner. So, there has been no default in making payment of loan amount by the respondent No.1 Company.
 
27.       Further, the agreement dated 26-10-89 as well as agreement dated 13-11-89 are not legally enforceable agreements. The respondent No.1 Company not being a financial institution cannot take money as a loan and give interest in this manner and fashion. Under Company Law if money is required by the Company it may take it by way of issuing debenture and pay interest, etc. The company cannot make payment either by way of interest or otherwise unless sanctioned by law. Therefore, the agreements providing payment of Taka 10,000.00 per month to the petitioner is illegal. This is not the case of the petitioner that the respondent Company issued debentures at a fixed premium.
 
28.       Further, the petitioner has failed to make out a case that it is just and equitable that the respondent No.1 Company should he wound up. Under the aforesaid facts and circumstances of the case and the evidence on record I am inclined to hold that the respondent company did not take any loan from the petitioner, and the question of default in making the payment does not arise.
 
        The application for winding up of the respondent Company is, accordingly, rejected.
 
Ed.