9911796707
TMI Blog1992 (1) TMI 272X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to deposit a sum of Rs. 57,39,464 in this court or to direct TSRM Limited to furnish a bank guarantee for the said sum or, in the alternative, to appoint the official liquidator as provisional liquidator to take charge of its assets and affairs and be in charge of the same pending disposal of the main company petition. Company Application No. 2266 of 1991 was filed by TSRM Limited (respondent in Company Application No. 1028 of 1991) to revoke the order of admission in Company Petition No. 69 of 1991 dated August 2, 1991, and direct the same to be dismissed with costs. By consent of both parties, both the Company Applications Nos. 1028 and 2266 of 1991 were taken up for hearing. Sree Aravindh Steel Private Limited will be referred to as the petitioner and TSRM Limited who is the respondent in the main company petition and Company Application No. 1028 of 1991 and the petitioner in Company Application No. 2266 of 1991 will be referred to as the respondent in this order. According to the petitioner, a sum of Rs. 49,62,101 together with interest is outstanding from TSRM Limited towards supply of materials and, after serving statutory notice, the respondent TSRM Limited has faile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioner even though it has admitted the claim of the petitioner and that there is substance in the counter-claim of the respondent and that, therefore, the main company petition should be dismissed. Dealing with the facts of the case, Mr. T. Raghavan stated that the debt due to the petitioner as claimed is not in dispute but TSRM Limited is claiming more than the amount claimed by the petitioner and if TSRM Limited succeeds in its contention, then there would be no amount due to the petitioner but, on the other hand, the petitioner itself would owe money to TSRM Limited. Therefore, the question whether the petitioner is due to TSRM Ltd. is a relevant factor to decide whether TSRM Ltd. is bona fide disputing its liability to the petitioner or not. The sum and substance of the contention of the respondent that the petitioner owes money to the respondent can be summarised as follows : Mr. S.B. Shankar was the managing director of TSRM from 1974 up to January 30, 1991. His relatives and associates held 52% of the shares in TSRM. Similarly he and his associates were holding 90 per cent, of the shares in the petitioner and he had contemplated selling away the controlling interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A reading of the board's resolution passed on June 14, 1990, conveys an impression that the said board was giving consent prospectively to a trans-action and not for a transaction which had already taken place and, therefore, the consent accorded by the board is not a reasonable consent which should satisfy the requirement of section 297 of the Act. For this proposition, the decisions reported in : Walchandnagar Industries Ltd. v. Ratanchand Khimchand Motishaw [1953] 23 Comp Cas 343 (Bom) and M. C. Duraiswami v. Sahthi Sugars Ltd. [1980] 50 Comp Cas 154 (Mad) were cited by learned counsel. In Walchandnagar Industries' case [1953] 23 Comp Cas 343 , a Division Bench of the Bombay High Court consisting of Chagla C. J. and Shah J. held as under (headnote) : " 'Consent' implies knowledge of the necessary facts and materials which leads to the consent. Consent cannot be given in the abstract or in vacuo. Consent under section 86F of the Indian Companies Act can only be given in reference to the particular contract which a director intends to enter into. Therefore, the section requires that the board of directors should consider both the nature of the contract that the director wants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puting its liability to the petitioner as it has to recover a larger amount from the petitioner and, therefore, the winding-up proceeding initiated by the petitioner is misconceived. He made reference to the copy of the plaint in O. S. No. 480 of 1991 and also to the report of K. B. Subramaniam and Associates. He submitted that TSRM Ltd., the respondent-company had repudiated its liability even at the outset while replying to the demand notice dated June 10, 1991, of the petitioner by letter dated June 29, 1991. He further argued that Dr. Ghatte's Engineering and Metallurgical Company Private Limited report about the valuation of the machineries exchanged is inconclusive as it has taken into consideration only 14 gate passes. Mr. T. Raghavan, relied upon the decisions in Shadiram and Sons v. Southern Aviation P. Ltd. [1978] 48 Comp Cas 570 (Mad) and Amalgamated Commercial Traders P. Ltd. v. A. C. K. Krishnaswami [1965] 35 Comp Cas 456 (SC). He also invited my.attention to the passages from Palmer, 24th edition, page 1366, and Buchley, 14th edition, page 523 on Company Law, in which it has been mentioned that a counter-claim can also be put forward as a bona fide dispute. He also r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lure to pay a disputed debt would not constitute neglect within the meaning of section 434(1)(a). He relied on certain passages in Palmer's Company Law, para 88-06 pages 1366 and 1367, and Buckley on the Companies Acts, volume I, 14th edition, page 534. (f)A bona fide counter-claim which exceeds the debt due to the petitioning creditor would stand on the same footing as a disputed debt and would be an answer to the petition for winding up. (g)Genuine cross-claims result in dispute, where a genuine cross-claim overtops the petitioner's claim, winding up cannot be proceeded with. In support of this contention, Mr. T. Raghavan relied on the decision in Bharat Vegetable Products, In re [1952] 22 Comp Cas 62 (Cal) ; Federal Chemical Works Ltd., In re [1964] 34 Comp Cas 963 (All) and Euro Hotel ( Belgravia) Ltd., In re [1975] 3 All ER 1075, 1078, 1079 (Ch D) which refers to and follows L. H. F. Wools Ltd., In re [1969] 3 All ER 882 ; [1969] 39 Comp Cas 934 (CA). (h)A counter-claim in excess of the petitioner's claim is a good defence to a winding up action. For this proposition, he relied on in British India Banking Corporation Ltd. v. Sylhet Commercial Bank Ltd. [1949] 19 Comp Cas 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was presented has unequivocally avoided the arrangement under which its assets were transferred to the petitioner for a totally inadequate consideration. In reply to the above arguments of Mr. T. Raghavan, Mr. C. Harikrishnan contended as follows : According to him, the matter under consideration of the court is the application for dismissal of the company petition. He relied on the decision in National Conduits P. Ltd. v . S.S. Arora [1967] 37 Comp Cas 786 (SC) which clearly lays down that the question of dismissal of the petition would arise only if such a petition is an abuse of the process of court. There is a statutory presumption under section 434(1) of the Act in favour of the petitioner. Since the indebtedness of the respondent to the petitioner is admitted, there is no question of the petitioner abusing the process of the court in filing the present petition. Thus, Mr. C. Harikrishnan contended that the application for dismissal of the main company petition should be dismissed on this simple ground. Further, the court having admitted the petition, the matter is at the second stage of the proposition enunciated by the Supreme Court in National Conduits P. Ltd. v. S. S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank was written to TSRM Ltd. demanding payment of Rs. 49,62,101. By two letters dated May 3, 1991, one written to Indian Overseas Bank and another written to the petitioner, TSRM Ltd., respondent, replied to Indian Overseas Bank that it has a greater claim on the petitioner and, consequently, refused to pay and by the other letter to the petitioner stated that the petitioner owes Rs.78,83,422 odd. By a letter dated May 6, 1991, the respondent claimed payment or alternatively requesting the petitioner to deliver 60.395 mt. of shredded scrap. (7)By further letters dated May 16, 1991, and May 27, 1991, the petitioner demanded the amount again. The respondent stated that the petitioner's contention cannot be accepted. By letter dated June 10, 1991, the petitioner informed TSRM, respondent, that if the amount of Rs. 55,25,686 together with interest at 18% per month is not paid, it would take winding up proceedings. (8)Thereafter the respondent appears to have filed a suit on June 26, 1991, in the Sub-Court, Trichy, for a decree for Rs. 45 lakhs against the petitioner. The petitioner had filed a caveat on July 22, 1991, but the same was not served. On July 24, 1991, the respondent move ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a decision which interpreted the provisions of section 86F of the 1913 Act and that there is considerable difference between the present section 297 and the old section 86F. Further, in the case in Walchandnagar Industries Ltd. v. Ratanchand Kliimchand Motishaw [1953] 23 Comp Cas 343 , there was no consent but, in the present case, there is consent. Therefore, in my view, the decision in Walchandnagar Industries Ltd. v. Ratanchand Khimchand Motishaw [1953] 23 Comp Cas 343 is not applicable to the present case. In so far as the case in M. C. Duraiswamy v. Sakthi Sugars Ltd. [1980] 50 Comp Cas 154 (Mad) is concerned, it is the contention of Mr. Harikrishnan that the said decision arose in dealing with section 399 of the Act which has nothing to do with the purport and intent of section 297 of the Act. Sections 399 and 297 deal with two different situations. My attention was drawn to the provisions of section 193 of the Act which say that it is enough if a fair and accurate summary of the decision of the board is kept and so long as there is a resolution relating to the matter in question, it would satisfy the requirement of consent under section 297 of the Act. Mr. C. Harikrishnan ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under section 297 of the Act. (13)Looking from all angles, the arguments of Mr. T. Raghavan relating to section 297 of the Act in my view are not justified. It may also be seen that the contention of TSRM Ltd. in this regard at the time of hearing had not been raised in the form submitted, in the pleadings of TSRM Ltd. before this court. (14)Dealing with the contentions that TSRM's dispute is bona fide, Mr. C. Harikrishnan, counsel for the, petitioner, replied that nothing special could be inferred from the filing of the suit. If filing of a suit can be considered bona fide, every company can just file a suit on unsustainable contentions and with that they can prevent valid winding up proceedings. Counsel particularly emphasised the fact that a mere reading of the plaint would itself establish that TSRM Ltd. is not acting bona fide. I feel that the suit is based only on boosted figures just for making TSRM's claim to be in excess of the claim made by the petitioner. I think the figures have been arrived at on the basis of replacement cost and the working of depreciation back-wards. In my view, there seems to be no basis for such figures. The cause of action for the suit of T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e report was not based on any gate passes and was prepared only on the personal inspection by Mr. Vade along with the geneal manager of TSRM of the machineries exchanged. The contention that Dr. Ghatte's report was based on 14 gate passes is an afterthought. The said report was available to the new management even as early as March, 1991. No such contention was ever put forward by TSRM Ltd. up to the filing of the counter in the present proceedings. TSRM was only contending that, in compiling the report, the representative of the new management was not associated. (17)Counsel for the petitioner submitted that K. B. Subramanian's report is very vague and unacceptable and appears to be one got up for the occasion. Though the report was said to have been given on April 26, 1991, a copy of the said report was not filed along with the suit nor even mentioned anywhere in the affidavits filed on behalf of TSRM Ltd., in these proceedings. The report itself admits that it was not based on any inspection of the machineries nor had the author taken pains to verify the actual state of the machineries exchanged. On the other hand, the report says that that would be the replacement cost and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y but one "neglected to pay". Neglect to pay cannot arise when the liability is under dispute. A particular debt may be admitted by the company but if the creditor owes the company on some other transaction, there would be no neglect to pay by the company. A valid counter-claim can also be construed as one falling under disputed liability. In support of his contention, he read passages from Palmer on Company Law and proceeded to cite the following decisions : (i) Virendrasingh Bhandari v. Nandlal Bhandari and Sons Pvt Ltd. [1979] 49 Comp Cas 532 (MP) ; ( ii) London, Hamburg and Continental Exchange Bank, In re [1866] LR 2 Eq 231 ; (iii) Euro Hotel (Belgravia ) Ltd., In re [1975] 3 All ER 1075 (Ch D) ; (iv) Shadiram and Sons v. Southern Aviation P. Ltd. [1978] 48 Comp Cas 570 (Mad) ; (v) L. H. F. Wools Ltd., In re [1969] 39 Comp Cas 934 ; [1969] 3 WLR 100 (CA) ; (vi) C.A. Galiakotwala and Co. P. Ltd., In re [1984] 55 Comp Cas 746 (Bom) ; (vii) J.N. Roy Chowdhury (Traders) P. Ltd. v. Jainti Enterprises [1987] 61 Comp Cas 504 (Cal); (viii) Thakar Gobind Singh v. Merchant Mohani Flour Mills Ltd. [1944] 14 Comp Cas 184 (Lahore) and [1949] 19 Comp Cas 47 (sic). He further argued that M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of the documents, contended that the former managing director of TSRM Ltd., viz., Mr. S. B. Shankar and the said financial manager were hand in glove and have brought about a fraudulent transaction of exchange to benefit the petitioner. In the words of Mr. Raghavan, the members of the earlier board were all people accustomed to act in accordance with the directions of Mr. S. B. Shankar as he was still the deciding mind in respect of TSRM Ltd. by virtue of his holdings in TSRM Ltd. With the aforesaid submissions, learned counsel wanted me to allow the application for revoking the admission of the company petition. In view of the new points raised in reply, Mr. C. Harikrishnan was permitted to reply to the same. Mr. C. Harikrishnan said that he would reply only to the additional new points as he had already dealt with the points raised by Mr. Raghavan and it is not necessary to repeat. In so far as the contention based on the said decision referred to by Mr. Raghavan is concerned, it was the contention of Mr. C. Harikrishnan that, in those cases, the decisions were rendered after contest and as a final disposal of the case. None of the cases is apt or appropriate at this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of an explanation as to what happened to the original, the respondent, TSRM Ltd., would not be justified in producing the xerox copy of the document. Secondly, TSRM Ltd. has not pleaded anywhere about the existence of this document. Thirdly, it was not stated by anybody on behalf of TSRM Ltd. as to when this document was discovered. Fourthly, it is highly artificial to contend that where a confidential document was written by a loyal employee suggesting that the document should be destroyed after reading, a xerox copy was made and conveniently kept for the new management to discover. Fifthly, Mr. Srinivasan continued in the employment of TSRM Ltd. even after the new management took over and he could have been made to write such a document. Sixthly, there is not even an affidavit from Mr. Srinivasan as to when he prepared the said document and on whose directions. Seventhly, the document itself is unintelligible and does not convey any meaning and, lastly, if the contents of the documents are true, the present contention of TSRM Ltd. that machineries can be valued at Rs. 78 lakhs in May, 1991, must be an absolute falsehood. On the aforesaid reasons, Mr. C. Harikrishnari said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present, then it can be done only on terms. For this proposition, he relied upon the decision in Madhusudan Gordhandas and Co. v. Madhu Woollen Industries Pvt. Ltd. [1972] 42 Comp Cas 125 (SC) and the unreported decision of Shanmugham J. in C. P. No. 92 of 1984 in which it was clearly decided that the company cannot make use of the admitted amount and get away. TSRM Ltd. should be directed to deposit the amount due as on date with interest in the account of the petitioner with Indian Overseas Bank, Abishekapuram, Trichy. Mr. C. Harikrishnan also stated that the petitioner can even ask its bankers, Indian Overseas Bank, to give a letter of undertaking that, in the event of TSRM Ltd. succeeding in the suit, the bank would pay whatever amount that it has received from TSRM Ltd. There is no need to refer in detail to the various decisions cited and relied on by Mr. T. Raghavan in the view which I propose to take in this case. Further, all the cases relied on by learned counsel deal with the merits of the winding up petition at the time of final hearing and no case has been cited which has considered an application of this nature. The principal ground raised in support of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of admission because when notice was ordered on August 2,1991, after admitting the winding up petition, this court was fully satisfied that the debt claimed by the petitioner was bona fide. Even now, there is no dispute about the debt of the respondent-company to the petitioner to the tune of Rs. 45,12,420.23. Hence, it is not open to the respondent to ask for revocation of admission, when there is no dispute about the debt claimed in the company petition. The bona fide nature of the counter-claim raised by the respondent cannot be decided at this stage. Strong reliance was placed on the judgments in National Conduits P. Ltd. v. S.S. Arora [1967] 37 Comp Cas 786 (SC) and George v. Athimattam Rubber Co. Ltd. [1965] 35 Comp Cas 17 (Ker) which are not of any assistance to the respondent. The ratio of the decision of the Supreme Court in National Conduits P. Ltd. v. S.S. Arora [1967] 37 Comp Cas 786 is only that, even after the admission of the petition, it will be open to the respondent-company to pray that the company petition be not advertised in the interest of justice or to prevent the abuse of process of court. The appeal before the apex court arose out of the order pas ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
