Prime Finance and Investment Limited Vs. Delwar H. Khan and others, VII ADC (2010) 459

Case No: Civil Petition for Leave to Appeal No. 1844 of 2008

Judge: Mohammad Fazlul Karim ,

Court: Appellate Division ,,

Citation: VII ADC (2010) 459

Case Year: 2010

Appellant: Prime Finance and Investment Limited

Respondent: Delwar H. Khan

Subject: Company Matter,

Delivery Date: 2009-8-18

 
Supreme Court
Appellate Division
(Civil)
 
Present:
Mohammad Fazlul Karim J
Md. Joynul Abedin J
ABM Khairul Haque J
 
Prime Finance and Investment Limited
……………….....Petitioner
Vs.
Delwar H. Khan and others
……........Respondents
 
Judgment
August 18, 2009.
 
The High Court Division was very much conscious of the broad fact of huge loan liabilities of the Company and was of the view that the same has to be put at halt and also considering the provision of Section 241(v) (vi) of the Companies Act deemed it just and equitable that the Company should be ordered to be wound up. Accordingly allowed the application for winding up of the Company and appointed official receiver as the liquidator and passed other incidental orders. …… (36)
 
Lawyers Involved:
Khan Saifur Rahman, Senior Advocate instructed by Mrs. Sufia Khatun, Advocate-on-Record-For the Petitioner.
Not represented-the Respondents.
 
Civil Petition for Leave to Appeal No. 1844 of 2008.
(From the judgment and order dated the 4th day of June, 2007 passed by the High Court Division in Matter No.174 of 2006).
 
JUDGMENT
 
Mohammad Fazlul Karim J.
 
1. This Petition for Leave to Appeal is directed against the judgment and order dated the 4th day of June, 2007 passed by the High Court Division in Matter No. 174 of 2006 allowing the application for winding up of the pro-forma respondent No.2 Gonophone Bangladesh Limited.
 
2. The facts involved in the case, in short, are that the petitioner is a shareholder and director of the respondent No.1 company ("the Company") holding 40,22,000 (forty lac twenty two thousand) shares i.e. 66% of the total shareholding in the Company. The Company was incorporated in the year 2000 with the objects, inter-alia, of carrying on business as owner, proprietor and service provider in software develop­ment, telecommunications and all types of information communication services and also to carry on businesses of operating, managing and supplying data processing and information retrieval system, and inventing, designing, developing, manu­facturing, assembling, exporting and importing any telecommunication prod­ucts, equipments or services.
 
3. It is stated in the application that at the time the Company was incorporated the original shareholders of Company were as follows:
 
Name of Shareholders Nos. of Shares
Digitech Datalink Limited 43,500
Manik K. Bhattacharjee 22,000
Ziauddin Tariq Ali 8,000
Dr. S.M. Joglul A. Majumder 5,000
Mrs. Habiba Arshad 5,000
Nawed Iqbal 4,000
Kanu Chakraborty 4,000
Ehsan Karim 4,000
Subrata Gosh 2,500
Shaherul Haque Joarder 1,000
Arifur Rahman 1.000
Total shareholding 1,00,000
 
 
4. The face value of the shares was TK.10.00 per share.
 
5. Subsequently, the Company issued and allotted new shares in favour of Industrial Promotion and Development Company of Bangladesh Limited ("IPDC") and the petitioner. Thereafter, one of the share­holders Manik K. Bhattacharjee trans­ferred his entire shareholding of 22,000 shares in the Company in favour of the petitioner on 26.12.2002 and as a conse­quence thereof the petitioner acquired a total of 40, 22,000 (forty lac twenty two thousand) shares out of the total number of 61, 00,000 shares, which is approxi­mately 66% of the total shareholding in the Company. The Particulars of Shareholders dated 15.04.2003 filed by the Company before the office of the Registrar of Joint Stock Companies and Finance, the respondent No.2 (annexure-'B') show the share-holding position of the Company as follows:
 
Name of Shareholders No. of Shares
Digitech Datalink Limited 43,500
Delwar Hossain Khan 40,22,000
Ziauddin Tariq Ali 8,000
Dr. S.M. Joglul A. Majumder 5,000
Mrs. Habiba Arshad 5,000
Nawed Iqbal 4,000
Kanu Chakraborty 4,000
Shaherul Haque Joarder 1,000
Arifur Rahman 1,000
Ehsan Karim 4,000
Subrata Gosh 2,500
IPDC 20,00,000
Total shareholding 61,00,000
 
 
6. The shareholding position of the Company to date stands as it appears in the said Particulars of Shareholders dated 15.04.2003.
 
7. It is stated in the application that the Company applied on 16.04.2000 to Ministry of Posts and Telecommunications of the Government of Bangladesh for a Licence as required under the Telegraph Act, 1885 for the Dhaka Zone. The Ministry of Post and Telecommunications vide its Memo No. Pt/Sec-5/ISP (GONOPHONE) 38/2000-138 dated 02.05.2000 issued the Licence for providing Internet Service within the Dhaka Zone.
 
8. At the time the Company started its business it entered into an agreement with Navana Real Estate Limited for purchase of an office space of 1320 sft. at Navana Tower situated at Plot No. 45, Gulshan Avenue, Gulshan-1, Dhaka. The price of the office space was fixed at TK.41,28,960.00. On 17.07.2000 the Company paid TK. 16,51,58400 as book­ing advance for the said office space. The rest of the amount of TK. 24,77,376.00 was payable in eight equal installments of TK. 3,09,67200 each to be paid on 07.08.2000, 07.09.2000, 07.10.2000, 07.11.2000, 07.12.2000, 07.01.2001, 07.02.2001 and 07.03.2001. The Company failed to stick to the payment schedule and still owes Navana certain amounts on account of the office space.
 
9. The Company executed a Loan Agreement on 08.05.2000 with Industrial Promotion and Development Company of Bangladesh Limited ("IPDC") for availing a local currency loan of TK.4,50,00,000 (Taka four crore, fifty lac only). The Company executed a Deed of Hypothecation in favour of IPDC on 16.05.2000 pursuant to the said Loan Agreement. Under the Deed of Hypothecation the Company created a first floating charge over all movable assets both present and future including all plant, machineries and equipments, stocks of raw materials, work in progress, fin­ished goods, stock in transit, receivables and all documents of title, all insurance and proceeds of insurance. The sharehold­ers of the Company also executed person­al guaranties dated 08.05.2000 to secure the loan. IPDC thereafter further invested TK. 2,00,00,000.00 (Taka two crore) in the equity of the Company and pursuant to Subscription Agreement dated 25.05.2000 the Company issued 20, 00,000 (twenty lac) shares in favour of IPDC for the said amount.
 
10. The Industrial Development and Leasing Company Limited ("IDLC"), vide Agreement No. D000492A dated 18.05.2000 advanced TK.11,33,000,00/-(Taka eleven lac thirty three thousand only) as lease finance for office equipment and vehicles and a sum of TK. 14,14,830.00 (Taka fourteen lac four­teen thousand eight hundred and thirty only) to be repaid in 36 installments. The IDLC vide Agreement No.D0000492B dated 31.05.2000 advanced a further sum of TK.16, 50,000.00 (Taka sixteen lac fifty thousand only) as lease finance for office equipments and vehicles and a sum of TK.20, 60,150.00 (Taka twenty lac sixty thousand one hundred and fifty only) was to be repaid in 36 installments.
 
11. The Company entered into another agreement with the Havana Real Estate Limited on 23.07.2000 for purchasing roof top space measuring 525 sft. of the said Navana Tower for installation of antenna and equipment for providing ISP services. The total agreed price of the roof top space was TK.7,87,500.00 (Taka seven lac eighty seven thousand five hundred). The Company has failed to make the payment.
 
12. It is further stated in the application that with a view to seeking business opportunities outside Dhaka the Company applied to the Ministry of Post and Telecommunications on 22.10.2000 for ISP licenses to carry on its business in Chittagong and Sylhet. The Ministry of Post and Telecommunication vide Memo Nos. PT/Sec-ISP (Gonophone)-98/2000-508 and PT/Sec-5/ISP (Gonophone)-99/2000-509 both dated 30.11.2000 issued licenses for extending the business of the Company in Chittagong and Sylhet.
 
13. The Company commenced its business in the year 2000. The accounts of the Company up to 31.12.2000 were audited by M/s. M. J. Abedin & Co., Chartered Accountants. The said firm of Chartered Accountants submitted its audit report on 12.03.2001 which shows that the Company had incurred a loss of TK.4, 29,072/-that year.
 
14. The Company also obtained credit facilities from International Leasing and Financial Services Limited ("International leasing"). International Leasing vide sanc­tion letter dated 21.03.2001 advanced lease finance of TK. 2,00,00,000.00 (Taka two crore only) for procurement of equip­ments to be repaid subject to the terms and conditions contained therein.
 
15. The United Leasing Company Ltd. is also a financier of the Company. The Company under a loan Agreement No.214/2001 dated 18.06.2001 borrowed a sum of TK.90, 80,352.00 (Taka ninety lac eighty thousand three hundred and fifty two only) for purchase of equipments and machineries.
 
16. The Company obtained another loan on 24.06.2001 for a sum of TK.2,00,00,000.00 (Taka two crore only) for purchasing of ISP capital machinery under a lease finance from Prime Finance and Investment Limited ("Prime Finance"). Prime Finance vide its sanction letter dated 24.06.2001 advanced the said sum of TK.2,00,00,000.00 (Taka two crore) to the Company which was to be repaid in 36 installments.
 
17. Other credit facilities enjoyed by the Company include lease finance from International Leasing on 03.09.2001 for TK. 16,65,000.00 (Taka sixteen lac sixty five thousand only) for procurement of vehicles; a sum of TK. 1,00,00,000.00 (Taka one crore) from Prime Finance on 15.11.2001 to be repaid within 6 months; a loan of TK. 5,87,000.00 (Taka five lac eighty seven thousand only) for procure­ment of vehicles from International Leasing on 24.11.2001 and a credit facili­ty of TK.35.00 lac under a term finance agreement dated 23.01.2002 from Uttara Finance and Investments Ltd. ("Uttara Finance").
 
18. Having suffered a net loss of TK.4, 29,072.00 (Taka four lac twenty nine thousand seventy two only) in the year ending 2000 the Company could not improve its business position in subse­quent years. M/S. T. Hussain & Co., Chartered Accountants audited the accounts of the Company for the year ended 31.12.2001. The firm submitted its' audit report for the period ended 31.12.2001 on 15.03.2002 which shows that the Company suffered loss of a sum of TK. 29,75,850.00 (Taka twenty nine lac seventy five thousand eight hundred fifty only). On the other hand, the Company had to take huge amount of loans and credit facilities from various financial institutions, in the year 2001 for purchas­ing equipments and other investments.
 
19. The Company in the course of its busi­ness obtained further loan from Uttara Finance on 22.05.2002 for purchase of erection and connection of radio link con­nectivity. Uttara Finance vide its sanction letter No. UFIL/G-22/2002 dated 22.05.2002 sanctioned a term finance of TK. 40,000,00 (Taka forty lacs) for pur­chase of radio link connectivity. The Directors of the Company extended per­sonal guarantees and corporate guarantees respectively against the loan sanctioned by Uttara Finance.
 
20. In the meantime the Company default­ed in making payments against its loans from Prime Finance. Prime Finance rescheduled the loan amounts totaling a sum of TK. 1,11,98,612.00 on 30.06.2003.
 
21. Eastern Bank Ltd. ("EBL"), allowed credit facilities to the Company in the year 2002 vide sanction letter dated 18.05.2002 for a sum of TK. 20,00,000.00 (Taka twenty lac only).
 
22. M/S. T. Hussain & Co., Chartered Accountants, also audited the accounts of the Company for the year ended 31.12.2002. They submitted the audit report for the period ended 31.12.2002 on 22.03.2003. In the year 2002 the Company suffered an accumulated loss of TK. 94,59,124.00 (Taka ninety four lac fifty nine thousand only hundred and twenty four only).
 
23. The Company initially obtained ISP licenses from the Ministry of Telecommunications for running busi­nesses at particular places of Dhaka, Chittagong and Sylhet. It was thought that if the periphery of business of the said Company is extended the Company might be able to convert itself into a profitable one/Therefore, the Company applied to Bangladesh Telecommunication Regulatory Commission (BTRC) for Nationwide ISP license. The BTRC vide Memo No. BTRC/N.W.ISP (8)/Gonophone / (Dhaka)/2002-13 dated 11.10.2003 issued a license for Nationwide Internet Service Provider ISP in favour of the Company. The license was issued for a period of five years with effect from 30.11.2002 renewable from year to year. Having obtained the license for Nationwide ISP Service on 11.10.2003, the Company expanded its business, but Company's profit continued to dwindle.
 
24. Since the Company has been incurring continuous loss each year it was not able to continue repayment of installments against the various credit facilities obtained from International Leasing. The lease finance and credit facilities were consolidated into one account and rescheduled with an acquisition cost of TK. 2,50,42,638.00 (Taka two crore fifty lac forty two thousand six hundred and thirty eight).
 
25. On request of the Company the amounts payable by the Company to Uttara Finance under term finance agree­ment dated 23.01.2002 were rescheduled on 15.12.2004. The Company owed Uttara Finance a sum of TK. 95,19,880.00 (Taka ninety five lac nineteen thousand eight hundred and eighty) as on 01.10.2006.
 
26. M/S. Dhar & Co.,Chartered Accountants, submitted the audited report for the period ended 31.12.2003 on 12.12.2004 from which it appears that the Company incurred a total loss of TK. 1,52,53,562.00 (Taka one crore fifty two lac fifty three thousand five hundred and sixty two). By this time the Company had obtained a huge amount of loan from various financial institutions and banks. The Company has failed to repay the loans.
27. IPDC is the biggest creditor of the Company. The total amount payable to IPDC as on 31.03.2005 stood at TK.7,55,61,093.00 (Taka Seven crore fifty five lac sixty one thousand ninety three). After persistent default, IPDC vide Deed of Agreement dated 04.06.2005 resched­uled the outstanding amount of TK. 7,55,61,093.00 (Taka Seven crore fifty five lac sixty one thousand ninety three).
 
28. By the end of 2004 loses of the Company were mounting. This state of affairs of the Company was reflected in the audit report for the year ended 31.12.2004 submitted by M/S. Dhar & Company, Chartered Accountants. The Company suffered a loss of TK. 1,17,55,769.00 (Taka one crore seven­teen lac fifty five thousand one hundred and sixty nine) during the period ended 31.12.2004. The accumulated loss of the Company up to the end of year 2004 had reached TK. 2,70,08,731.00.
 
29. The Company's loans from International Leasing which stood at TK. 2,79,56,822/- were transferred to a term loan account to be repaid in 60 monthly installments with effect from 20.06.2005. The Company failed to con­tinue payment of the installments with the leasing company. The total amount out­standing in the account is TK. 3,44,97,639.00. The Company had also defaulted in its payments to IPDC and other creditors. The total amount outstand­ing with IPDC is TK.9,31,23,161.00. An amount of TK.29,27,627.00 is outstanding and payable to United Leasing Company. The total outstanding against two lease finances advanced to the Company by Prime Finance stood at TK.3,88,72,074.00 as on 30.09.2006. The amounts payable to Uttara Finance and Investments stood at TK.95, 19,880.00 as on 1.10.2006. The Company failed to pay its loans and owes a sum of TK. 19,98,155.13 to Eastern Bank Limited which prompted the Bank to file a suit being Artha Rin Suit No.219 of 2006 before the Artha Rin Adalat No.3, Dhaka against the Company and others for recovery of the said amount. In the mean­time the nationwide ISP licence of the Company expired on 29.11.2006 as the company failed to come up with the renewal fee. The Company is no longer the holder of the ISP licence.
 
30. The total amounts payable to various creditors of the Company are as follows:
 
IPDC 9,31,23,161.00
Prime Finance 3,88,72,074.00
International Leasing 3,44,97,639.00
Uttara Finance and Investments Ltd. 95,19,880.00
United Leasing Company Ltd. 29,27,627.00
Eastern Bank Limited 19,98,455.13
Navana Real Estate Limited 11,15,366.00
IDLC 1,1 6,087.00
Total Tk. 18,21,70,289.13
 
 
31. Pursuant to an order of this Court dated 11.12.2006 notices were issued upon the respondents and notices of pres­entation of this application were published in the "Bangladesh Today" and "The Daily Prothom Alo" on 24.12.2006 and "The Bangladesh Gazette” on 14.01.2007. The petitioner filed an affidavit in compli­ance on 24.01.2007.
 
32. The United leasing Company, the Uttara Finance and Investments Ltd., the International Leasing and Financial Services Limited, and Prime Finance and Investment Limited, all creditors of the respondent company filed applications for being added as parties in the instant Company matter and were added as respondents No.3, 4, 5, and 6 respectively.
 
33. This petition is opposed by an affidavit-in-opposition filed by Uttara Finance and Investment Limited, the added respondent no.4 where it is stated that the respondent No.1 Company had availed of credit facilities from them to the extent of Taka 75,00,000.00 and that the liability of the Company in the said account stood at Taka 1,50,42,925.00 as on 31.04.2007. It is alleged that the peti­tioner using the respondent Company as front had borrowed crores of taka from different leasing and financial institutions by fraudulent means and misappropriated the Company funds. It is further stated that although the money was procured for pur­chasing of machinery and other equip­ments there is no evidence that the Company had procured the same. Although the Industrial Promotion and Development Company of Bangladesh Limited (IPDC) had not filed an applica­tion for being added as a party they filed an affidavit-in-opposition stating therein that the Company had obtained a Term Loan and an Equity Investment Loan from them for a sum of TK. 4,50,00,000.00 (Taka Four Crore Fifty lac and) and TK. 2,00,00,000/- (Taka Two Crore) respectively. It is stated that the IPDC is the largest creditor of the respondent Company and that the petitioner has admitted and acknowledged the liabilities. It is further stated that the IPDC has filed a suit before the Artha Rin Court No.2 being Artha Rin Suit No. 206 of 2006 against the company and its shareholders for realization of sum of TK. 19,50,00,000.00 (Taka Nineteen Crore Fifty Lac only). This does not include the Term Loan and the Equity Investment loan. In fact the Company is liable to pay IPDC the total sum of TK. 27,46,14,667.00 (Taka Twenty Seven Crore Forty Seven Lac Fourteen Thousand Six Hundred and Sixty seven) including the Term Loan and the Equity Investment loan.
 
34. Mr. Khan Saifur Rahman, learned Counsel, appearing for the petitioner sub­mitted that the High Court Division ought to have considered that the loans dis­bursed to the company were secured and further thereto, the directors of the compa­ny furnished personal guarantees to the lender institutions including the petitioner for repayment of the loans and in such premises, the winding up of the company is neither warranted nor can it be solution either for the company itself or on the question of paying off its creditors propor­tionately and as such, the winding up of the company which is being used as a shield by some delinquent persons to secure their pilferage has been unwarrant­ed and in that view of the matter the impugned judgment and order is liable to be set aside; that after deliberate and fraudulent acts and omissions of respon­dent No. 1 and his cohorts in the company pushing it at the verge of its legal death resulting in consecutive yearly financial losses, the purposes of taking loans from the petitioner and other financial institu­tions and failing to utilizes/invest the same for running a prospective business like that of the company are palpably to misap­propriate and pilfer the public money and evidently the farce to get the company wound up had been devised and aimed at clearly to meet that end a long time ago by respondent No.1 and his cohorts and as such, the High Court Division ought not to have allowed the winding up of the com­pany allowing respondent No.1 and others getting away with the misappropriation and pilferage of such a huge amount of public money and in that view of the mat­ter. The learned Counsel further submitted that the High Court Division missed to notice that the respondent No.1 filed the application for winding up of the pro-forma respondent No.2 company without complying with or fulfilling any of the conditions as laid down in Section 241 of the Companies Act, 1994; that the respon­dent No.1 Delwar H. Khan being 66% share holder of the pro-forma respondent No.2 company and having full control over the management of the said company ought not to have obtained loan of crores of taka from as many as eight companies by suppressing facts during the period when the said company carrying on a very prospective business was shown to have gone through financial loss; that the pro forma respondent No.2 company was actually a one man show where the respondent No.1, Delwar H. Khan was the pioneer with 66% share who from the very commencement of his so-called business proceeded in an unfair manner so as to misappropriate public money and the High Court Division having come to a finding that it is indeed outrageous that huge amounts of money had been borrowed by the company from various financial institutions and no reasonable steps were taken to liquidate the debts. Serious questions arise as to the compe­tence and/or integrity of the persons who were involved in the management of the affairs of the company, the High Court Division ought not have allowed the said application for winding up respondent No.2 company while it is transparent that the respondent No.1 who misappropriated such a huge amount of public money. The learned Counsel finally submitted that the respondent No.1 with mala fide intention staidly while the ISP license of the compa­ny required renewal on payment of renew­al fee which expired on 29.11.2006 for default to render the company dysfunc­tional and get the company wound up and run away after misappropriating such a huge amount of public money.
 
35. It appears that huge amounts of money had been borrowed by the Company from various financial institutions and no rea­sonable step was taken to liquidate the debts. Serious question arise as to the competence and/or integrity of the persons who were involved in the management of the affairs of the company. However, the fact remains that the loan liabilities of the Company is in excess of TK. 18,21,70,000.00 (Taka eighteen crore twenty One lac and seventy thousand only) and that the Company is unable to pay its debts. Further the nationwide ISP Licence of the company having expired on 29.01.2006 the company has been ren­dered dysfunctional. The High Court Division considering the admitted position that the Company is unable to pay its debts coupled with the fact that in the absence of the ISP Licence the Company cannot carry on its business.
 
36. The High Court Division was also very much conscious of the broad fact of huge loan liabilities of the Company and was of the view that the same has to be put at halt and also considering the provision of section 241(v) (vi) of the Companies Act deemed it just and equitable that the Company should be ordered to be wound up. Accordingly allowed the application for winding up of the Company and appointed official receiver as the liquida­tor and passed other incidental orders.
 
37. In view of the above, we find no sub­stance in the submissions of the learned Counsel for the petitioner.
 
38. Accordingly, the petition is dismissed.
 
Ed.