TMI Blog1965 (1) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... he company on substantial grounds. If the debt was bona fide disputed, as we hold it was, there cannot be "neglect to pay" within section 434(1)(a ) of the Companies Act. If there is no neglect, the deeming provision does not come into play and the ground of winding up, namely, that the company is unable to pay its debts is not substantiated. Appeal allowed. - 515 AND 516 OF 1964 - - - Dated:- 8-1-1965 - P.B. GAJENDRAGADKAR, K.N. WANCHOO AND S.M. SIKRI, JJ. G. Vasanta Pai and J.B. Dadachanji for the Appellant. R. Ganapathy Iyer for the Respondent. JUDGMENT Sikri, J. These two appeals by certificate are directed against the judgment of the High Court of Madras, directing the winding up of the, appellant, the Amalgamated Commercial Traders Private Limited, hereinafter referred to as the appellant-company. The appellant-company was incorporated as a private company limited by shares on January 29, 1948. It had an issued and subscribed capital of Rs. 1,00,000 divided into 1,000 fully paid shares of Rs. 100 each. The company had the sole selling agency of the Indian Sugar and Refineries Ltd., Hospet, and of the Salar Jung Mills Ltd., A.C.K. Krishnaswami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... director of the company with effect from April 12, 1960. It appears that a compromise was arrived at between the parties to the petition under sections 397 and 398, and 216 shards of the appellant-company, registered in the name of A.C.K. Krishnaswami and or Factors Private Ltd. were sold at Rs. 800 per share to the party of Parasrampuria. Parasrampuria filed an affidavit withdrawing all allegations and so did Krishnaswami. The petition under sections 397 and 398 of the Companies Act was withdrawn and it was accordingly dismissed on April 20, 1960, but this was not the end of the dispute between the parties. On May 5, 1960, one M.R. Banka wrote to the company claiming dividend on the 216 shares alleged to have been purchased by him and requested that no payment be made to the previous registered holders. On May 17, 1960, Hariprasad wrote to the company demanding the payment of Rs. 1,750 as net dividend on the 25 shares held by him on December 30,1959. The managing director rplied to him, by letter dated May 24, 1960, that his letter would be replied after the receipt of minute books and other documents which were with A.C.K. Krishnaswami. He further mentioned that there was anot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es with all rights and liabilities attached to them, especially the dividend declared and not paid. He said that he had verified the position from Radheshyamji, who said that the price of Rs. 800 definitely included consideration for the dividend in question. On July 5, 1960, S.P. Parasrampuria finally repudiated the claim on the ground that the "company was advised that the resolution dated December 30, 1959, does not constitute a proper and valid declaration of dividend and no liability to pay dividend arises thereunder" It appears that the company had taken legal advice in this matter and a circular was sent to all the shareholders on July 22, 1960, stating "that the company had been advised that the shareholders' resolution dated 30th December, 1959, to the effect that a dividend of Rs. 100.00 per share (taxable) on the equity shares be paid to the shareholders, payment to be effected when the commission due from the principals are realised is not a declaration of dividend and/or does not constitute a proper and valid declaration of dividend and that no liability to pay any dividend arises thereunder. The company has acted on this advice and intimation thereof is given to you a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petition. He held that that sum of Rs. 7,6o5,62 was a disputed debt and that it would be proper to direct the petitioner to institute a suit to establish his claim in respect of this amount. Regarding the sum of Rs. 1,750, he came to the conclusion that the declaration of dividend at the general meeting held on December 30, 1959, was valid. He further held that although the company had failed to pay dividend within 21 days of the service of demand, the company should not be directed to be wound up because the company did not pay this amount not because it was financially unable to pay but because evidently of the legal advice it received. He held that section 434(1)( a ) of the Companies Act enacted only a rule of presumption and no more. He came to the conclusion on the facts that this statutory presumption was replaced by the factual position that the company was solvent and able to pay at least the sum of Rs. 1,750. As far as the contention of the four creditors who supported the petition, he held that they could not enlarge the ground on which the petition for winding up Was based. He, therefore, dismissed the petition as far as the prayer for winding up of the company on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven before the actual receipt of assets was valid; (7) That the resolution of the company dated December 30, 1959, did not contravene the provisions of section 207 of the Companies Act-; and (8) That the resolution dated December 30, 1959, in form and sub stance consisted of two parts, separable between themselves and that the invalidity of the second part that payment would be effected when the commission due from the principals was realised could not render the declaration of dividend itself void. In conclusion, as already stated, the Division Bench ordered that the company be directed to be wound up on the ground of its inability to pay its debts, subject to the direction that the order may be kept in abeyance. Mr. G. Vasanta Pai, the learned counsel for the appellant, raised the following points before us : (1) That Hariprasad is not a creditor within sections 434 and 439 of the Companies Act and is not entitled to present a petition for winding up as a creditor; (2) That non-payment of the dividend was due to the default of Hariprasad, when he was a director, and consequently he was disentitled from filing a petition under section 439 ; (3) That as the object of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell-settled that "a winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. A petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatized as a scandalous abuse of the process of the court. At one time petitions founded on disputed debt were directed to stand over till the debt was established by action. If, however, there was no reason to believe that the debt, if established, would not be paid, the petition was dismissed. The modern practice has been to dismiss such petitions. But, of course, if the debt is not disputed on some substantial ground, the court may decide it on the petition and make the order" (Vide Buckley on the Companies Acts, 13th edition, page 451). We are satisfied that the debt in respect of which notice was given under section 434 was bona fide disputed by the appellant-company. The appellant-company had received legal advice and it had acted on it. On the facts it seems to us clear that the appellant-company did not dispute the debt in order to hide its inability to pay debts. Further we are s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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