TMI Blog1969 (3) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... the company has been admitted by this court, the company has made this application for an order that the said petition presented by the respondent be dismissed or permanently stayed. The, company has obtained an interim order of stay of further proceedings of the said petition for winding up. The main ground on which the company has made this application is that the winding-up petition presented by the respondent is an abuse of the process of this court and is not maintainable, as there is no debt due and payable by the company to the respondent. It is contended on behalf of the company that the claim made by the respondent is seriously in dispute and there is a bona fide dispute with regard to the claim of the respondent. It is the contention of the company that, as there is a genuine dispute with regard to the claim of the company and the alleged debt of the company is disputed bona fide by the company, the petition for the winding-up of the company cannot be entertained. It has also been contended that the respondent has presented the winding-up petition mala fide with the intention of humiliating the company which is a rival of the respondent in its trade. Mr. S.C. Sen, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the parties has referred the disputes to arbitration and the respondent-company has also appointed its arbitrator. Mr. Sen has contended that the respondent should not be permitted to proceed with its winding-up petition in breach of the said arbitration agreement between the parties, as the same will have the effect of permitting the respondent to circumvent the provisions of the agreement between the parties. It is Mr. Sen's contention that the existence of such an arbitration agreement in the contracts between the parties in respect of which any claim is made, should be considered to be a bar to any winding-up proceeding and a party to such an agreement should not be allowed to present a winding-up petition till the disputes are resolved in the manner agreed upon by the parties. In support of his contention that there cannot be any winding-up order of any company in a case where there is a bona fide dispute with regard to the debt, Mr. Sen has referred to various authorities. Mr. Sen has next contended that there cannot be any winding-up order in the instant case as the statutory notice under section 434 of the Companies Act is invalid and not in order. It is Mr. Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad, as the company has no liability to pay the said sum stated in the notice and as such there can be no question, according to Mr. Sen, of any failure or neglect to pay the sum claimed in the notice and there can therefore be no presumption of inability to pay the debt. In support of the contention Mr. Sen has referred to the following decisions : Japan Cotton Trading Co. Ltd. v. Jajodia Cotton Mills Ltd. AIR 1927 Cal. 625 In re Janbazar Manna Estate Ltd. [1931] 1 Comp. Cas. 243; ILR 58 Cal. 716; AIR 1931 Cal. 692, In re Jambad Coal Syndicate Ltd. [1936] 6 Comp. Cas. 397 ; AIR 1936 Cal. 628 , The Company v. Rameswar Singh [1920] 23 CWN 844 ; AIR 1920 Cal. 1004 and In re Bengal Flying Club Ltd. [1967] 71 CWN 38 (Cal.) Mr. Sen has submitted that the respondent is a rival of the company in the same line of business and the respondent has made the application of winding-up of the company mala fide because of the business rivalry. Mr. Sankar Ghosh, learned counsel appearing on behalf of the respondent has submitted that there is no bona fide dispute with regard to the debt of the company to the respondent. He has argued that the company is seeking to raise cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d only with the view of resisting the winding-up petition presented by the respondent. It is his argument that there is no bona fide dispute with regard to the debt. He submits that the claim of the respondent company in respect of extra works done amounting to about rupees 5 lakhs may be said to be disputed in the sense that the said amount is not agreed upon and may have to be settled either by agreement of the parties or through appropriate proceedings. He has argued that a huge sum, of course, will be found due and payable by the company in respect of the extra works done, but it may be said that the exact claim of the respondent on this account is yet to be finally settled. He contends that there is, however, no dispute with regard to the clarions of over Rs. 3 lakhs for works done on the basis of the contract and in respect of which bills were duly submitted to the company and the bills have been duly accepted by the company. He points out that in respect of this claim of over Rs. 3 lakhs the company never raised any dispute at any earlier stage before the statutory notice under section 434 of the Companies Act was served on the company. He has drawn my attention to the cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e device for resisting this application and not for settlement of any real dispute between the parties. Mr. Ghosh points out that after the said reference had been made by the company the respondent also appointed its arbitrator without prejudice to the pending application for winding up of the company presented by the respondent with a view to prevent the arbitrator appointed by the company from acting as the sole arbitrator and to stop any ex parte arbitration in the interest of the respondent. Mr. Ghosh, however, comments that no further steps have been taken by the company in the matter of the said arbitration thereafter. Mr. Ghosh has next contended that the statutory notice under section 434 served on the company in the instant case is perfectly valid and in order. He has argued that if any claim is made in the notice in excess of what may be actually held to be payable by the company, the notice does not become bad or defective, so long as the debt mentioned in the notice exceeds the sum of Rs. 500 and includes the claim on the basis of which the notice is served. He argues that to hold to the contrary would render the provisions contained in section 434 of the Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that if there is a bona fide dispute with regard to the debt which forms the subject-matter of the winding-up proceeding, the court will not entertain any winding-up petition on the basis of the said disputed debt and will leave the parties to resolve the disputes in appropriate proceedings. This legal position is so firmly and universally established that I do not consider it necessary to refer to any authority in support of this proposition. This position necessarily follows from the provisions contained in section 434 of the Companies Act. When there is a bona fide dispute with regard to any debt claimed, it cannot be said that there is in fact any debt till the disputes are resolved and there cannot be any question of any failure or neglect to pay unless the debt is established to be due and payable. Whether there is any bona fide dispute with regard to any debt claimed or not will necessarily depend on the facts and circumstances of each particular case. Disputes raised or sought to be raised may not be bona fide and will not necessarily make the debt a disputed one. Merely seeking to raise certain disputes for putting off liability for payment of the debt or crea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication, the court will refuse to grant any stay of the winding-up petition and will proceed with the same. If in particular cases the court is in some doubt as to whether the disputes are bona fide or not and is not in a position to come to any definite conclusion that the disputes are mala fide and manufactured only to create a defence to the winding-up petition, the court may stay the winding-up proceeding and relegate the parties to an action on terms as to security or otherwise. In other words, in any case where the court entertains some doubt as to the bona fides of the dispute sought to be raised and has suspicion about the true nature thereof, the court may direct the company to furnish security to prove its bona fides and solvency and relegate the claimant to a suit on such security being furnished and the court may stay the winding-up proceeding. The legal position, to my mind, appears to be well established and I do not, therefore, consider it necessary to refer to the various authorities cited from the Bar on this aspect. In the facts of the present case, I am unable to accept the contention of the respondent that there is no bona fide dispute to the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er into any controversy at that stage and to wait till the entire work was done for final settlement. It is also not unlikely that the points of dispute might have arisen or have been discovered subsequently. In any event, in the facts of the instant case, I am unable to come to the conclusion that the disputes sought to be raised are all mala fide and created for the purpose of this application only because no reference had been made to them in the said correspondence relied on by Mr. Ghosh. The nature of the disputes with particulars have been set out in the affidavit of Raghunath Harihar Putran affirmed on the 1st of July, 1968, on behalf of the company in support of the present summons and in the annexures thereto. It cannot be said, in my opinion, at this stage that the disputes raised or sought to be raised are all false, frivolous and mala fide . It is an admitted fact that the respondent has so far been paid over Rs. 12 lakhs by the company and it is also an admitted fact that the respondent has not completed the work under the contract. Whether the respondent was justified in stopping the work is a question which may have to be adjudicated upon in appropriate proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same. As already noted, Mr. Sen has contended that a statutory notice to be valid must state the exact amount of debt and it has been the contention of Mr. Sen that, if the exact debt is not correctly stated in the notice, the notice becomes invalid and inoperative. In essence, Mr. Sen's contention has been that if the amount claimed in the notice is not exactly the correct amount of the debt payable or if it appears to the court that the amount claimed in the statutory notice is not the exact debt which should be payable by the company because of any mistake in calculation or otherwise or because of any bona fide disputes raised with regard to any portion thereof, the notice becomes invalid and ineffective ; and no presumption of any inability to pay the debt on the part of the company or any insolvency of the company can arise under section 434 of the Companies Act. Mr. Ghosh, on the other hand, has contended that the statutory notice does not become bad, if the debt mentiond in the notice is not the exact or correct sum which may be held to be payable by the company, provided that the sum stated in the notice exceeds the amount of Rs. 500 and includes the claim which for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usion that a demand by the solicitor of a creditor was not sufficient for the purpose of section 163. Rankin C:J., who delivered the judgment, observed at page 626 : "But it is clear that ' under his hand ' has some special purpose in this connection ; and in view of the fact that a consequence so serious is attached to non-compliance with the notice I am not of opinion that there is here nothing to prevent the general common law principle from being applied. That being so the two notices founded upon in this petition as being statutory notices are not sufficient". It is to be noted that there was no provision in section 163 of the Indian Companies Act of 1913, corresponding to section 432(2) of the Companies Act of 1956, and the said decision was arrived at on the basis of the language used in section 163 of the Indian Companies Act, 1913. The next decision that has been relied on by Mr. Sen is the decision in the case of Janbazar Manna Estate [1931] 1 Comp. Cas. 243 ; ILR 58 Cal. 716 ; AIR 1931 Cal. 692 . In this case the statutory notice was held to be bad as the same was not served at the registered office of the company as required under the statute. It is to be noted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permissible to support a petition by alleging that something else is due. The company, therefore, cannot rely on any admission that Rs. 13,000 and not Rs. 72,000 is due under the former lease if it is in force, nor is it sufficient to allege that Rs. 60,000 is due under the old lease. The demand was not made for rent or royalties under the old lease". Mr. Sen has also referred to the decision in the case of The Company v. Rameswvar Singh [19201 23 CWN 844; AIR 1920 Cal. 1004 and also to the decision in the case of Bengal Flying Club Ltd., In re [1967] 71 CWN 38 (Cal.). Mr. Ghose has relied on the decision in the case of Cardiff Preserved Coal and Coke Co. v. Norton [1867] 2 Ch, App. 405 and has placed particular reliance on the following observations of the Lord Chancellor, at page 410 : "It was contended that the winding-up order was bad because Mr. Hill had demanded a sum of 628, and it appeared that he was entitled only to 411 7s. 9d ; and the 67th and 68th sections of the Act make a company liable to be wound up only when a demand is made of a certain sum, and the company neglect to pay such sum, which in this case they were not bound to pay. But the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning-creditor, although the exact amount of the indebtedness was in dispute. It was held that where there was no doubt that the petitioners were creditors for a sum which would otherwise entitle them to a winding-up order, a dispute as to the precise amount owed was not a sufficient answer to the petition. After analysing the relevant provisions of the English Companies Act, Plowman J. observed at page 124 : "From those provisions it appears that the only qualification which is required of the petitioners in this case is that they are creditors and about that, as I have said, there is really no dispute. Moreover, it seems to me that it would, in many cases, be quite unjust to refuse a winding-up order to a petitioner who is admittedly owed moneys which have not been paid merely because there is a dispute as to the precise amount owing. If I may refer to an example which I suggested in the course of argument, suppose that a creditor obtains judgment against a company for 10,000 and after the date of the judgment something is paid off. There is a genuine bona fide dispute whether the sum paid off is 10 or . 20. The creditor then presents a petition to have the company wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 434 of the Companies Act is a serious matter and the same is fraught with grave consequences. The effect of a notice validly given under the said provision is to raise a presumption under the statute as to the inability of the company to pay the debt and its insolvency rendering the company liable to the extreme penalty of losing its very existence and being compulsorily wound up by the court. Such a notice has necessarily to be strictly construed and the notice must comply with the requirements of the statute. I have already set out the provisions of the said section 434 of the Companies Act. On this aspect, all that the statute requires, to my mind, is that the notice must be in respect of an existing and presently payable debt which exceeds the sum of Rs. 500. If the amount stated in the notice is, for some reason, found not to be exactly the correct amount payable by the company, but is in respect of a debt existing and presently payable exceeding the sum of Rs. 500, there will be, in my opinion, sufficient compliance with the provisions of the statute and the notice will be a valid one. The statute requires a creditor to whom the company is indebted in a sum exceeding Rs. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly because of the fact that the amount of debt mentioned in the notice may not be exactly the correct amount of the debt due, provided the amount mentioned in the notice includes the debt due and exceeds the sum of Rs. 500. I may incidentally point out in this connection that in case of a bona fide dispute to the debt or a substantial portion thereof a winding-up petition is refused not because of invalidity of the notice, but because of the fact that there is no failure or neglect to pay on the part of the company in view of the disputes. In case of such disputed debts, there cannot be any question of neglect or failure to pay, till the disputes are resolved in appropriate proceedings; and in such cases, even though the notice may be otherwise a valid one, there cannot arise any statutory presumption as to insolvency or inability to pay the debt, as the other conditions laid down in the section for giving rise to such presumption are not satisfied. As in the instant case I am satisfied that the debt claimed is disputed bona fide by the company, the winding-up proceeding cannot be allowed to proceed. This application succeeds and there will be an Order in terms of prayer ( a ..... 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