tanganyika plywood ltd vs amboni paints co ltd 2022 tzhccomd 112 6 may 2022

IN THE HIGH COURT OF TANZANIA (COMMERCIAL DIVISION) AT PAR ES SALAAM MISC. COMMERCIAL CAUSE NO. 19 OF 2021 IN THE MATTER OF THE COMPANIES ACT [CAP 212 R.E. 2002] AND IN THE MATTER OF WINDING UP ORDER AGAINST AMBONI PAINTS COMPANY LIMITED BETWEEN TANGANYIKA PLYWOOD LIMITED................................... PETITIONER AND AMBONI PAINTS COMPANY LIMITED........................... RESPONDENT Date of Last Order: 27/04/2022 Date of Ruling: 06/05/2022 JUDGEMENT MAGOIGA, J. The petitioner, TANGANYIKA PLYWOOD LIMITED under the provisions of sections 281, 279 and 279 (1) (d) of the Companies Act, 2002, petitioned for winding up order against AMBONI PAINTS COMPANY LIMITED on one account that, the company is unable to pay its debts and prayed that this court be pleased to grant the following orders, namely: 1. An order winding up order against AMBONI PAINTS COMPANY LIMITED be granted by the court under the provisions of the Companies Act. i 2. That the Company/Respondent to be ordered to pay its creditors according to the proven claims; 3. That AMBONI PAINTS COMPANY LIMITED be placed under liquidation by the court under the provisions of the Companies Act, 2002 and that Mr. Biseko Nyagabona (Advocate) of SNB Attorneys be appointed as Liquidator; 4. That such other order may be made as the court thinks fit. Upon being serviced, the respondent filed an answer to petition denying to have any agreement with the petitioner and denied to have issued cheques to the petitioner at all and as such prayed that this court be pleased to dismiss the petition with costs. Upon this petition being advertised in the Government Gazette No. 24 dated 11th June 2021 and Mwananchi news paper - a widely circulated news paper in Tanzania dated 23rd June, 2021 respectively, no one filed notices of appearance as required under Rule 104 of the Companies (Insolvency) Rules, 2005 (to be referred in this judgement as the 'Rules'). The learned advocate for the petitioner filed certificate of compliance and affidavit of service as require by law. 2 The background to this petition albeit in brief is imperative to know. It is alleged that in November, 2019 the petitioner signed an agreement with the respondent for provision of 18mm and 12mm Marine Plywood worth TZS.40,000,000/=. In consideration, the respondent issued five cheques to the petitioner but which were all dishonoured, save for one of TZS.400,000/=. Further it is alleged that under the same agreement, the respondent deposited TZS. 16,900,000/= into the account of the petitioner making total payment to the tune of TZS. 17,300,000/= leaving unpaid balance of TZS.23,100,000/=. The petitioner's efforts to have the unpaid balance paid were in vain, hence, this petition for winding up order on account of failure to pay debts, hence, this judgement. At all material time the petitioner has been enjoying the legal services of Mr. Biseko Nyagabona, learned advocate. The respondent has always enjoyed the legal services of Mr. Kasaize Andrew Kasaize, learned advocate. When this petition was called for hearing, briefly Mr. Nyagabona told the court that the petitioner supplied the respondent goods on credit worth TZS.40,000,000/= but only TZS. 17,300,000/= was paid for leaving unpaid balance of TZS.23,100,000/=. According to Mr. Nyagabona, the respondent issued cheques but which were all dishonoured. Mr. Nyagabona went on to 3 submit that the efforts by the petitioner to have the respondent paid the balance were all in vain, hence, this petition for winding up order against the respondent for its inability to pay its debts. Mr. Nyagabona prayed the cheques issued by the respondent to form part of his submissions and same were collectively admitted as exhibit Pl in this petition. On that note, Mr. Nyagabona urged this court to grant all prayers as contained in the petition. On the other hand, Mr. Kasaize for the respondent adopted the contents of reply to petition and told the court that they strongly oppose the petition. According to Mr. Kasaize, no contract was tendered here nor annexed in the petition to establish the alleged but disputed relationship between parties and the claims therein. Mr. Kasaize pointed out that failure to bring in the alleged written contract, which was not only annexed but was not tendered leaving the instant petition unproved and hang with no terms and condition of such contract. Mr. Kasaize went on to argue that, in their reply they strongly disputed the existence of such contract and no rejoinder was filed to negate such fact as such invited the court to find that parties are bound by their 4 pleadings. In this, he cited the case of YARA TANZANIA LIMITED vs. CHARLES ALOYCE MSEMWA AND ANOTHER, COMMERCIAL CASE NO.5 OF 2019 (HC) DSM (UNREPORTED) in which it was held parties are bound by their pleadings. Another case cited in support of the above position is the case of MASUNGA MBEGETA AND 784 OTHERS vs. AG AND ANOTHER, CIVIL APPLICATION NO. 173/1 OF 2019 CAT (DSM) (UNREPORTED). According to Mr. Kasaize, what is called proof of this petition came from the oral arguments made by Mr. Nyagabona, which by themselves are not evidence to prove an application of this nature. Application for petition for winding up order is proven by affidavit, and not oral submissions from the bar, insisted Mr. Kasaize. Another point argued is that, the affidavit in support of the application is defective for want of verification, hence, cannot stand without proper verification support this petition. On the cheques issued and admitted, Mr. Kasaize argued that were not issued by the respondent and even the amount said to have been paid was not proved at all. No evidence was tendered to show how much was paid and the 5 I remaining balance. Also was the argument of Mr. Kasaize that no contractual relationship has been established so far between the two companies. In the totality of the above, Mr. Kasaize submitted that the winding up order is a very serious order that cannot lightly be given but only upon proof of the alleged relationship and proof of the claimed amount but which are all missing here. In rejoinder, Mr. Nyagabona admitted that there was no formal written agreement and what is stated in paragraph 5 was an error. As to defectiveness in verification, the learned advocate for the petitioner sees nothing wrong with verification. On cheques issued but dishonoured, Mr. Nyagabona argued that much as are in the name of the respondent and the variance in figures alone do not fatter the fact that were issued by the respondent. On that note, Mr. Nyagabona reiterated his earlier prayers. This marked the end of hearing of this petition. The task of this court now is to determine the merits or otherwise of this petition. However, before going into the determination, I find it apposite to state that under the provisions of section 279(1) (a) to (e) a company may be 6 wound up by the court, if one or more of the five conditions set out in the I I section are proved to the satisfaction of the court. For easy of reference, the said provision provides as follows:- Section 279 (1) A company may be wound up by the court if - (a) The company has by special resolution resolved that the company be wound up by the court; (b) That the company does not commence its business within a year from its incorporation or suspends its business for a whole year; (c) The number of members falls below two; (d) The company is unable to pay its debts. (e) The court is of the opinion that it is just and equitable that the company should be wound up (2) a body corporate may also be wound up by the court if incorporated outside Tanzania and carrying on business in Tanzania and winding up proceedings have been commenced in respect of it in the country of its incorporation or in any other country in which it has established a place business. . 7 More so to note, section 280 defines instances that a company may be considered to be unable to pay its debts. For easy of reference the said section provides Section 280- A company shall be deemed to be unable to pay its debts- (a) If a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding fifty thousand shillings or such other amount as may from time to time be prescribed in regulations by the Minister, then due has served on the company, by leaving at the registered office of the company, a written demand requiring the company to pay the sum so due and the company has for twenty one days thereafter neglected to pay the sum or to secure or compound of it to the reasonable satisfaction of the creditor; or (b) If execution or other process issued on a judgement, decree, or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part; or ju 8 (c) If it is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due; or (d) If it is proved to the satisfaction of the court that the value of the company's assets is less than the amount of its liabilities, taking into account the contigent and prospective liabilities of the company. For purpose of this petition, the only reason for its institution is as stipulated in paragraph (d) of sub section 1 to section 279. As a general rule, in my considered opinion, going by the provisions of the law as stated above, it is not automatic that the phrase "unable to pay its debts" is applied in absolutism. Much as the word used in the section is 'may', then, by virtue of section 53 (1) of the Interpretation of Laws Act, [Cap 1 R.E. 2019] the court is enjoined to be satisfied by the petitioner to its satisfaction that, indeed, all considered, the company is unable to pay its debts. The test, therefore, in my opinion, to be applied, is whether it is commercially insolvent in the sense that it is unable to meet its day to day liabilities in the ordinary course of business. Or in other words it can be said that whether or not it has liquid assets or readily releasable assets available to meet its liabilities as they fall due to be met in the ordinary course of business and thereafter to be able in a position 9 to carry on normal trading. Or if it is proved that the company assets having been valued, far exceeds its liabilities taking into account the contingent and prospective liabilities. This is what provided for under section 280 (c) and (d) and the petitioner is legally enjoined to prove to the satisfaction of the court for the existence of the two factors by evidence and not oral submissions from the bar. In this petition, nothing was put forward to the satisfaction on the inability if the company to pay its debts. All the above considered, in my view, if proved, then a winding up order is imperative. The rationale behind the court to consider the application of this point seriously is what was stated by the court when faced with similar application for winding up in the case of DANGOTE CEMENT LIMITED vs. NSK OIL AND GAS LIMITED, MISC. COMMERCIAL APPLICATION NO. 8 OF 2020 (HC) ARUSHA (UNREPORTED) in which it was observed that the winding up of a company amounts to legally killing and burying of the company. In this petition I hasten to add that for the court to grant the winding up order there must exists genuine or sound grounds relating to the complete affairs of the company before the court to be compelled to issue an order winding up a company. I further add that High Court should be diligent io enough not to be turned into debt collection agents of the creditors. This is not what the parliament intended under the provisions of sections 279 (1) and 280 of the Companies Act, 2002. Now back to the instant petition, having carefully considered the rival arguments of the learned trained minds of the parties on grant or not to grant and having gone through the impugned documents in support of the petition, and the case laws cited, I have noted that the genesis of this petition, is the alleged debt arising from the provision of 18mm and 12 mm Marine Plywood worth Tshs.40,000,000/= which was alleged to have been give on credit to the respondent and in consideration thereof, the respondent issued 5 cheques which four of them were dishonoured. It is further alleged, the respondent was able to deposit Tshs. 17,300,000/= leaving unpaid balance of Tshs.23,100,000/=. However, the instant application has to fail for the following reasons One, much as I agree that the law allows where it can be established to the satisfaction of the court that unable to pay debts can be ground for the court to order winding up order but as held above, but the order has to be based on sound or genuine reasons and the conditions set out in section 280 have to be proved to the satisfaction of the court. In this petition as rightly argued by ii Mr. Kasaize nothing was put forward to prove any relationship between parties to create a debt that is the basis of this petition. In this petition, the written agreement alleged parties entered into, was denounced by Mr. Nyagabona not to be there. Second, the cheques tendered to prove debt in dispute proved Tshs.40,000,000/=, hence, at variance to what was claimed Tshs.23,100,000/=. Three, nothing was submitted to the satisfaction of the court that company is indeed, unable to operate its daily business and the fact that it has engaged an advocate to defend its interest is a clear that the company is not unable to pay its debts. With due respect to Mr. Nyagabona, I equate the instant application as an application intended to use the court as collection agent of its debts. This is unacceptable. Four, in a winding up petition on account of unable to pay its debts from what I gathered which is requirement of the law under section 280(d) is that the petition must contain all relevant information about the debt, disclose the assets of the company supported by valuation if they are sufficient to meet 12 liabilities taking into account the contingent or prospective liability of the company. This is wanting in this petition. Five, to raise a presumption of inability to pay its debts, in my own view it is not enough to merely to show that the company has omitted or declined to pay the debt despite service of statutory notice, but the petitioner must show and prove that the company declined to pay without reasonable excuse and conditions of insolvency in the commercial sense exits. This is not the case in our petition here. With due respect to the counsel for petitioner, he took things for granted and failed to meet the test of section 280(c) of the Companies Act, 2002 for the court to exercise its powers under the above mentioned provision. From the foregoing reasons, and much as the learned advocate for the petitioner correctly cited the provisions of the company law for winding up order but utterly failed to take into account what is legally expected of him in proof of the petition based on inability to pay its debts ground, this petition is akin to fail. x-ffl 13 With that note, I associate myself with Mr. Kasaize that, the instant application is found wanting of material facts relevant for the prayers sought. In the vein, this petition must be and is hereby dismissed with costs. It is ordered. Dated at Dar es Salaam this 06th dav of Mav, 2022. 14