TMI Blog1990 (10) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to the respondent-company, exhibited as annexure C in the proceedings calling upon the respondent-company to pay the said amount to the appellant. The board of directors of the respondent-company passed another resolution on June 24, 1989, whereby it was resolved that the company should pay to the appellant the amount claimed in monthly instalments of Rs. 10,000. Even though such a resolution was passed, the company did not pay any amount to the appellant. Further, it is stated that the company owes an amount of Rs. 2.25 lakhs to the Kerala State Electricity Board and Rs. 50,000 to the Provident Fund Commissioner, Rs. 3 lakhs to debenture loan holders and over Rs. 3 lakhs to banks. It is also stated that the company has to pay to the directors and other individuals Rs. 5 lakhs. The definite case of the appellant is that the debts of the company exceeded its paid up capital and that the company is unable to pay even the salary to its staff and unable to meet the current demands. In the circumstances, the appellant submitted before the court that the company is commercially insolvent. It was also pointed out that another creditor, one K.A. Albert, took proceedings for winding u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id to the appellant by Dr. T. H. Paul in discharge of his personal liability to the appellant and not in discharge of the debt due from the company. The appellant admitted the payment of Rs. 25,000 after the filing of the company petition. The other averments were denied by the appellant. The allegation that he did not conduct himself properly as the managing director is without any foundation and the dishonest attempt of the company is to extricate itself from proceedings against the company under the winding up provisions of the Act. In short, by the reply affidavit, the appellant denied the allegation against him and reiterated the fact that the company is indebted to the appellant and that the company is unable to pay its debts. The learned single judge considered the materials placed before him and observed that the circumstances of the case revealed that till the company petition was filed on July 17, 1989, the company did not dispute the amount due to the appellant. It was emphasised by the learned single judge that even in the reply sent to the statutory notice (annexure F), there was no dispute regarding the amount claimed by the appellant. Further, the learned judge obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant Rs. 85,000 and the payment by Dr. T. H. Paul to the appellant of an amount of Rs. 80,000 is a payment by the company. This is an important and controversial point. It is significant that no mention of payment of Rs. 80,000 was adverted to in annexure F. It is also very relevant in the circumstances to note that annexure F is signed by Dr. T. H. Paul as managing director of the company. We feel that annexure F is not a casual reply as is evident from the tone and temper of that document. We have already adverted to the fact that in annexure F many instances of misconduct and misdemeanour of the appellant are pointed out and so, the omission to dispute the total amount due to the appellant as claimed by the appellant assumes great importance. Though the company is disputing now before the court the debt due to the appellant on the ground of discharge, it is difficult to perceive even a long shot pleading of discharge in annexure F. In the counter-affidavit it is clearly admitted that the respondent-company owed to the appellant as on March 31, 1989, a sum of Rs. 1,26,500 towards principal and a sum of Rs. 47,767.25 towards interest totalling Rs. 1,74,267.25. By givi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the Act. Section 433 of the Act deals with the circumstances in which a company may be wound up by the court. Clause ( e ) of section 433 provides that a company may be wound up by the court if the company is unable to pay its debts. Section 439(1)( b ) of the Act allows any creditor or creditors to file an application before the court for winding up of a company by presenting the petition subject to the provisions of section 439. Certainly, the ground for winding up raised in this case is that the company is unable to pay its debts. Section 434(1)( a ) of the Act tells us when a company shall be deemed to be unable to pay its debts thus : "If a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor". Annexure C is the notice. In annexure C, the appellant has stated that if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h settled practice the court can only exercise its discretion in one way, namely, by granting the order. It is profitable to note two more decisions, viz ., P J Macrae Ltd., In re [1961] 1 WLR 229 (CA); Southard and Co. Ltd., In re [1979] 1 WLR 1198 (CA). A reading of these two decisions would emphasise the fact that the principles stated in Bowes v. Directors of Hope Mutual Life Insurance and Guarantee Co. [1865] 11 HL Cas 389 and Pritchard, In re [1963] Ch 502 (CA) can be reconciled on the basis that although the matter is 'a complete and unfettered judicial discretion' the discretion is exercised in accordance with certain established principles, but the principles do not bind the court in an all or nothing way. In accordance with these principles, the creditor has a prima facie right to a winding up order which is subject to certain exceptions". See Krasnapolsky Restaurant and Winter Garden Co., In re [1892] 3 Ch 174 and P J Macrae Ltd., In re [1961] 1 WLR 229 (CA). Certainly, we are aware of the thrust of the permissive words of section 433 of the Act "a company may be wound up by the court". The exceptions to the petitioning creditor's right to an ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inally, after decocting the principles from a large number of decisions, viz ., London and Paris Banking Corporation, In re [1874] LR 19 Eq 444 ; Doraiswami Ayyar ( P. R. ) v. Coimbatore Easwara Sahaya Nidhi Ltd., AIR 1929 Mad 265 ; Mohammed Amin Bros. Ltd. v. Dominion of India, AIR 1952 Cal 323 ; Rani Ajit Kunuarba v. Rajputana Cold Storage Ltd., AIR 1955 NUC (Raj) 4045 ; Tulsidas Lalubhai v. Bharatkhand Cotton Mills Co. Ltd. [1915] ILR 39 Bom 47 ; AIR 1914 Bom 251 ; P. Satyarazu v. Guntur Cotton, Jute and Paper Mills Co. Ltd., AIR 1925 Mad 199 ; T. K. Narayanan v. Alleppey Chamber of Commerce, AIR 1952 Trav-Coch 435 ; A Company, In re [1894] 2 Ch 349 ; King's Cross Industrial Dwellings Co., In re [1870] LR 11 Eq 149 ; Vanaspati Industries Ltd. v. Firm Prabhu Dayal Hari Ram [1950] 20 Comp Cas 311 ; AIR 1950 East Punj 142 ; Coalfields of Burma Ltd. v. H. H. Johnson, AIR 1925 Rang 128 ; Russian and English Bank Ltd., In re [1932] 1 Ch 663 ; [1932] 2 Comp Cas 424 ; Bengal Luxmi Cotton Mills Ltd. v. Mahaluxmi Cotton Mills Ltd., AIR 1955 Cal 273 ; 58 CWN 689 ; Welsh Brick Industries Ltd., In re [1946] 2 All ER 197 (CA), the court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no material to show that the petitioning creditor was in any way connected with the alleged fraud and collusion which are not only very serious charges but without any material particulars trying to create some suspicion and doubt in the mind of the court if possible. The said allegations appear to be not only absurd and highly improbable but if it is encouraged in this winding up petition, it will be disastrous and open the flood-gates of fraud and collusion and the companies will set up the said plea to defeat the bona fide claims of the petitioning creditors, being merchants and traders, of their money being the price of goods sold and delivered and it will become very easy for any company to set up collusion with the petitioner and the employees of the company in respect of supply of the goods and dispute the claim". In Durgapur Projects Ltd., In re [1983] 53 Comp Cas 320 (Cal), the question of the bona fide nature of the plea was considered. The court observed thus (at page 326) : "I am afraid that I cannot accept the position from the conduct of the respondent-company. It is clear that the said dispute has not been raised in good faith but only on frivolous and u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saying that the dispute is bona fide and so, the application is liable to be dismissed even though the company court has made sufficient safeguards for the petitioning creditor to realise the amount if he is entitled to it in a normal appropriate action. We are of opinion that the plea of discharge is a plea which enjoins the person who takes such a plea to adduce evidence and materials before the court at least to satisfy the court prima facie that the plea is bona fide. In this case, as we said earlier, nothing has been brought before the court in spite of the fact that such a plea has not been raised specifically in reply to the statutory notice. The materials placed before the learned single judge persuaded His Lordship to hold that "prima facie the dispute raised is not bona fide". Counsel for the respondent submitted that though that finding is detrimental to the respondent, the court would not have arrived at such a finding if some more materials were placed before the court. The respondent has got the accounts and other materials with them. They have not placed it before the court and they must be given an opportunity to place them before the learned single judge so as t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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