2007 (2) TMI 319 - HC - Companies Law

Summary

Issues Involved:
1. Whether the petition for winding up of the respondent-company under section 433(e) of the Companies Act, 1956 is maintainable.
2. Whether the bills of exchange in question are accommodation bills without consideration.
3. Whether the petitioner-bank is a "holder" or "holder in due course" under the Negotiable Instruments Act, 1881.
4. Whether the respondent-company has a bona fide and substantial defense against the petitioner-bank's claim.
5. Whether the pending arbitration between the respondent-company and RR Group affects the petitioner-bank's claim.
6. Whether the respondent-company's conduct indicates a bona fide dispute or an attempt to evade liability.

Detailed Analysis:

1. Maintainability of the Petition for Winding Up:
The petitioner-bank filed the petition under section 433(e) of the Companies Act, 1956, seeking winding up of the respondent-company due to its inability to pay debts. It was argued that winding up petitions should not be used as a means to recover debt unless the debt is undisputed and the defense is not bona fide. The court noted that if the debt is undisputed and the defense is not genuine, the creditor is entitled to a winding up order.

2. Nature of the Bills of Exchange:
The respondent-company contended that the bills of exchange were merely accommodation bills issued to enable the RR Group to raise finance from the petitioner-bank and were without consideration. The court observed that the company did not dispute the signatures on the bills of exchange and acknowledged that the company was a party to the transaction, thus making it liable as an acceptor. The court found no merit in the company's contention that the bills were without consideration.

3. Status of the Petitioner-Bank as "Holder" or "Holder in Due Course":
The petitioner-bank argued that it was a "holder in due course" under the Negotiable Instruments Act, 1881, and thus entitled to recover the amount from the respondent-company. The court examined the definitions under sections 8 and 9 of the N.I. Act and concluded that the petitioner-bank, being in possession of the bills of exchange, was indeed a holder in due course and entitled to enforce the payment.

4. Bona Fide and Substantial Defense:
The court evaluated whether the respondent-company had a bona fide and substantial defense. The respondent's defense was primarily that the bills were accommodation bills and no goods were actually supplied. The court found this defense to be frivolous and an afterthought, noting that the company had acknowledged its liability by issuing cheques, which were dishonored. The court concluded that the company's defense was not bona fide.

5. Impact of Pending Arbitration:
The respondent-company argued that the dispute between it and the RR Group was pending arbitration, which should affect the petitioner-bank's claim. The court held that the arbitration dispute was irrelevant to the bank's claim as the bank was not a party to the arbitration. The bank, as a holder in due course, was entitled to recover its dues from the acceptor of the bills of exchange.

6. Respondent-Company's Conduct:
The court scrutinized the conduct of the respondent-company, noting that it had asked the petitioner-bank not to present the cheques for encashment and had assured payment. The court found that the company's conduct indicated an attempt to evade liability and dispose of its properties, supporting the petitioner's claim for interim relief.

Conclusion:
The court admitted the petition, ordered it to be advertised, and granted interim relief by restraining the respondent-company from disposing of its properties. The operation of the order was stayed for two weeks to allow the respondent-company to seek further legal recourse.