TMI Blog1967 (11) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... he company included Ram Rattan, Ramji Das and Parshotam Pershad. The company now owns two sugar mills, one at Maholi, District Sitapur and the other in Belari, District Moradabad. The respondent-company was incorporated in 1942. The promoters included Ram Rattan and Ramji Dass. Still another company, Seth Brothers Private Limited, had come into existence. Ram Rattan and Parshotam Pershad above named were the directors of the company. Seth Brothers Private Limited were appointed as managing agents of the respondent-company. The managing agency agreement, which has not been placed before us, entitled the managing agents to a certain remuneration. Most of the directors of the three companies were either common or related to each other. The amount of remuneration and certain amount on account of the value of the redeemed shares due from the respondent-company to the managing agent company had not been drawn by the latter, but were placed to the credit of the managing agent company in the books of the respondent-company. The interest accrued due on the said amounts was also credited to the managing agent company's account with the respondent-company from time to time. In the books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amji Dass himself was present in the meeting. A copy of the resolution passed by the board of directors of the appellant-company on that day (exhibit P-8) shows that the board confirmed the insolvency notice, exhibit P-7, and noted the reply of the respondent-company, dated October 17, 1963, and also made note of the fact that Seth Ramji Dass opposed the action contemplated under section 434 and suggested that a period of two years be given to the respondent-company, but that the board did not agree to this suggestion and it was resolved that an application as stated in the notice be moved in the High Court. Admittedly no part of the amount demanded in the notice was paid by the respondent-company to the appellant-company. It was in the above circumstances that the appellant, on March 10, 1964, filed a petition for winding up of the respondent-company under section 433(e) of the Act on the ground that the respondent-company was unable to pay its debts. The petition was contested by a group of shareholders led by Ramji Dass. During the pendency of the petition a general meeting of the respondent-company was held under supervision of the court in December, 1964. In the election of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust 2, 1965, the learned liquidation judge has proceeded to dismiss the petition for winding up on the ground that there was a bona fide dispute as; to the liability of the respondent company to pay the amount mentioned in the insolvency notice on the date of the receipt of the notice, and that in the presence of a bona fide dispute it could not be held that the respondent-company had neglected to pay the amount claimed in the notice, within the meaning of clause ( a ) of sub-section (1) of section 434 of the Act. Not satisfied with the judgment of the learned single judge, the appellant-company has come up in appeal. Mr. Bhagirath Dass, the learned counsel for the appellant-company, has fairly and frankly conceded that his clients' case under clause ( e ) of section 433 is confined to the allegations relevant of clause ( a ) of sub-section (1) of section 434, and that it is not his case that the respondent-company is otherwise unable to pay its debts as referred to in clause ( c ) of sub-section (1) of section 434. He has also conceded that the debt for the non-payment of which the claim for winding up is being pressed is confined to the amount which was the subject-matter of tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date of service of the notice. This is apparent from the words "then due" qualifying the phrase "the company is indebted in a sum exceeding Rs. 500". If the sum exceeding Rs. 500 is not due at the time of the service of the insolvency notice and the company neglects to pay the same or to secure or compound the debt, the case does not fall within the mischief of section 434(1)( a ). In order to invoke the provisions of that clause, the creditor has to show, amongst other things, that the appropriate debt in question was due at the time of the service of the notice. The acknowledgment said to be contained in the balance-sheet, exhibit R.W.1/3, does not, in my opinion, amount to an admission to the effect that the amount in question was recoverable on October 15, 1963. Even if the entry in the balance-sheet can possibly be construed as showing that the amount was recoverable on the date when the balance-sheet was passed (a proposition to which I am not prepared to subscribe without further deliberation) it cannot possibly be construed to convey that the amount was due about fourteen months before the passing of the balance-sheet, i.e. , on October 15, 1963. There is another aspec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and not a deposit. Prima facie it does not appear to be possible to agree with this contention. " Liability " is the genus of which at least two species are, ( i ) loan and ( ii ) deposit. The respondent-company has not disputed that the payment of the amount in question is liability on it. It is not correct for the appellant-company to submit that the liability in question could be classed as a loan. A loan necessarily implies the subject-matter of something which has been lent by the creditor to the debtor, something which has been received from the lender. It is nobody's case that the respondent took the amount in question from the managing agent company as a loan. At the same time the mere fact that the liability in question is not for payment of a loan, would not automatically mean that the amount in question in the hands of the respondent-company is necessarily of the nature of a deposit. "Deposit" is not a word of art. Mr Bhagirath Dass submitted that "deposit" necessarily implies money in question being given by the depositor to the depositee. We do not think that this is a conclusive test. A person may give the money for safe custody or for earning interest to a banker ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the depositor and depositee. Keeping in view the object of clause 22 of the agreement between the respondent-company and the Finance Corporation, i.e. , not to allow directors or managing agents of the respondent-company to draw the money due to them till the amount of the Finance Corporation is paid out and also keeping in view the fact that the management of the respondent-company was itself in the hands of Messrs. Seth Brothers Private Limited who could normally, if they wanted, draw out the remuneration due to them from time to time, and further that the amount in the hands of the respondent-company was earning interest in favour of the managing agents, it does appear that the argument of the respondent-company that the debt in question was in the nature of a deposit is not frivolous. We are not called upon to finally pronounce on this aspect of the case. All that we are concerned with is to answer the question whether the dispute regarding the debt not being payable on October 15,1963, is of such a frivolous nature as cannot be called bona fide or if the debt in question can be treated as "bona fide" disputed one because of the above said controversy. For the reasons alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existence of a debt. The learned judge after referring to the judgment of the Allahabad High Court proceeded to hold that in the case before the Supreme Court there was no bona fide dispute as to the existence of the debt. The ratio of the judgment of the Supreme Court does not at all help in solving the controversy involved in the present case. It is settled law that in the case of existence of a bona fide dispute regarding the liability of the company in question to pay the debt on the date of the notice, non-payment of the same by the company does not amount to "neglect" to pay the amount within the meaning of clause ( a ) of sub-section (1) of section 434 of the Act. The basic case on which this branch of law is founded, is In re London and Paris Banking Corporation [1874] LR 19 Eq. 444 . Mr. Bhagirath Dass took exception to the observations in the judgment of the learned single judge to the effect that the transfer in question had been effected merely in order to bring pressure on the Ramji Dass group in connection with the dispute between the two groups. In the view we have taken of the dispute raised by the respondent-company about the liability to pay the amount of deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e hands of the debtor "a deposit". At the same time it is clear that "a loan" and "a deposit" are not necessarily mutually exclusive. A deposit is not confined to a bailment of specific currency to be returned in specie. Nor does a deposit necessarily involve the creation of a trust, though it may certainly involve the creation of the relationship of a debtor and a creditor. One distinction which is also noticed in the Schedule to the Limitation Act is that whereas a deposit which is not for a fixed term does not impose an immediate obligation on the depositee to seek out the depositor and repay him, a legal duty is enjoined on a debtor, in the absence of a stipulation to the contrary, to seek the creditor. Whereas time under the Indian Limitation Act for instituting an action for recovery of the amount of a deposit does not normally run from any date prior to the one on which a demand for the payment is made, limitation for filing a suit for an amount which is due otherwise than as a deposit, commences from the day when the payment becomes due under the various relevant articles in the Schedule to the Limitation Act ; ( v ) in a winding-up petition under section 433( e ) read ..... X X X X Extracts X X X X X X X X Extracts X X X X
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