TMI Blog2007 (9) TMI 404X X X X Extracts X X X X X X X X Extracts X X X X ..... les a reply before the learned company judge on merits, because the company petition was filed in the year 2002 and the present OJ Appeal was filed in the year 2003; the dues are in respect of commercial advertisements which were telecast at the request of and for the benefit of, the respondent-company, between November 2001 and June 2002 and the respondent-company did not avail of the opportunity given by this court during pendency of this appeal to file its counter-affidavit on merits. It is, therefore, high time that the Company Petition No. 201 of 2002 is heard on merits at the admission stage at the earliest. The four years that the respondent-company has earned in this manner is also sufficient not to pass any further order of costs in their favour. Allow this appeal and set aside the judgment and order dated April 25, 20031, of the learned company judge dismissing Company Petition No. 210 of 2002. The company petition shall accordingly stand restored to the file of the learned company judge taking up company petitions as per the present roster. - O.J. APPEAL NO 51 OF 2003 IN COMPANY PETITION NO. 210 OF 2002 - - - Dated:- 5-9-2007 - M.S. SHAH AND K.A. PUJ, JJ. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the respondent-company had a meeting with the second appellant on August 14, 2002, at which the respondent-company agreed to pay a sum of Rs. 19.87 crores in full and final settlement of its dues in respect of advertisements telecast on Star network up to June 2002. This was also recorded in the letter dated August 19, 2002 (annexure-D to company petition). On September 2, 2002, the director of the respondent-company had another meeting with the second appellant and while confirming that a sum of Rs. 19.87 crores was owed by the respondent-company to the second appellant in respect of advertisements telecast up to June 30, 2002, the payment schedule was revised as under : ( a )Rs. 4 crores to be paid by December 31, 2002 ; ( b )Rs. 15 crores to be paid by 20 equal monthly instalments of Rs. 75 lakhs each commencing from September 2002 ; ( c )The final instalment would be of Rs. 87 lakhs and odd amount; This revised payment schedule as indicated at the meeting on September 2, 2002, was incorporated in the respondent-company's letter dated September 3, 2002 (annexure-E) to the second appellant. However, on September 27, 2002 (annexure-F), the respondent-company informe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove the criminal proceedings under section 138 read with section 142 of the Negotiable Instruments Act, 1881, for dishonour of cheque, our clients have also filed Company Petition No. 210 of 2002 against the company before the hon'ble High Court of Gujarat for winding up, for appointment of liquidator and other ancillary reliefs. If any person, financial institution and/or firm and/or association of persons and/or company enters into any transaction in any manner with the company to grant loan, make investment or any proceedings for taking over the company or for merger/amalgamation with the company and any other proceedings or transaction with the company in relation to its movable properties and/or immovable properties including the brand name/(names) Dandi Salt, Kunvar Ajay Sarees and Friendly Wash Detergent Powder, if any one makes any such deal then against such company my clients will file suit for making recovery, which they have filed before the hon'ble Gujarat High Court in Company Petition No. 210 of 2002. Accordingly on any kind of transaction, our clients will have their first claim. Dt. 14-12-2002 Kadam and Co. Advocates, 1st Floor, Pittale Prasad, 17, Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( i.e. , appellants herein) on account of grant of relief in favour of the applicant ( i.e. , dismissal of winding up petition), the same may be condoned by this hon'ble court." After hearing learned counsel for the parties, the learned company judge by judgment dated April 25, 2003, dismissed the winding up petition on the ground that the advertisement dated December 14, 2002, was an abuse of the process of the court. Hence, this appeal. Mr. S.N. Shelat, learned senior counsel with Mr. C.L. Soni for the appellants have made the following submissions : The advertisement in question was not and cannot be construed as an advertisement under rule 96 of the Companies (Court) Rules. In any case, there was no abuse of the process of the court. That the respondent-company had admitted its liability to pay Rs. 19.87 crores and failed to pay any amount against the said liability except Rs. 25 lakhs, and which correspondence was on the record of the winding up petition and the respondent-company did not reply to the statutory notice dated October 18, 2002 (which was served upon it on October 21, 2002) and the respondent-company chose not to file any reply on merits these facts were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that it was not necessary for the respondent-company to file any counter affidavit on merits either in the winding up petition or in the present appeal and that if at all the court considers it necessary that a counter affidavit should be filed on merits, the matter may be remitted back to the learned company judge for deciding this question afresh. In view of the last submission, this court specifically called upon learned counsel for the respondent-company to state whether it was agreeable to go back to the learned company judge for a fresh decision on the question whether there was an abuse of the process of the court and on the further question whether the company petition deserves to be dismissed on that ground after filing an affidavit-in-reply on merits. Learned counsel, however, stated that the respondent-company would prefer to invite the decision of this court on the contentions raised by it which had appealed to the learned company judge and that if at all this court were to hold that the question could be decided only after filing of reply on merits, the matter may go back to the learned company judge for a fresh decision on the question whether there was any abu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tition against a solvent company as a means of putting pressure on it to pay a debt which is bona fide disputed, and the court may issue an injunction restraining presentation of the petition where other forms of procedure ought first to be utilized. However, when a winding up petition has been properly presented and is not challenged, and there is no countervailing administration petition pending, or any undertaking that one will be presented, it is very doubtful whether a judge has power to order that the winding up petition should not be advertised. Where the debt itself was undisputed and there was merely an untested cross-claim against the petitioner by the company, this was held not to amount to an abuse of process on the part of the petitioner, and the court refused to restrain advertisement. Where part of a debt was disputed on bona fide grounds, but an undisputed balance remained which was well in excess of the prescribed minimum figure, the petition was allowed to be presented. If the petition is not duly advertised in accordance with rule 4.11 of the 1986 Rules, the judge may order that it shall be removed from the file. Where a winding up petition is advertised pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e out would serve a useful purpose. Signland Ltd., In re [1982] 2 All ER 609 (Ch. D) Slade J. held that there was an abuse but in the special circumstances of that case declined to strike out. He gave leave for the substitution of an alternative petitioner. He also ordered the petitioner to pay both the company's and the other creditor's costs. It may be that if a case where the advertisement has been very limited in scope and has had no impact on the company it would be appropriate for the court to register its disapproval in costs alone." (emphasis supplied) Court registering its disapproval in terms of costs alone is what the Chancery court did in A Company, In re ( No. 00687 of 1991 ) [19921 BLCC 133 (Ch. D), after observing that though the advertisement of the petition (in spite of the order that no advertisement of the petition should be made) was an unwise act, it was "not a wanton act which would warrant the court's displeasure ; it is a mistake and a mistake in breach of ah order, but not, as I say, contumelious". Signland Ltd., In re [1982] 2 All ER 609 (Ch. D) referred to in the above case of Doreen Boards Ltd., In re [1996] 1 BCLC 501 (Ch D) Slad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as soon as the petition is admitted, it must be advertised. In answer to a notice to show cause why a petition for winding up be not admitted, the company may show cause and contend that the filing of the petition amounts to an abuse of the process of the court. If the petition is admitted, it is still open to the company to move the court that in the interest of justice or to prevent abuse of the process of court, the petition be not advertised. Such an application may be made where the court has issued notice under the last clause of rule 96, and even when there is an unconditional admission of the petition for winding up. The power to entertain such an application of the company is inherent in the court, and rule 9 of the Companies (Court) Rules, 1959, which reads : 'Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the court to give such directions or pass such orders as may be necessary for the ends of justice to prevent abuse of the process of the court', iterates that power. In A Company, In re [18941 2 Ch. D 349 it was held that if the petition is not presented in good faith and for the legitimate purpose of obtaining a winding u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted out of improper motive for harassing the company to satisfy some groundless claims made against it by the petitioning creditor, such a petition is not to be entertained. For arriving at this conclusion, the court has to apply the following three principles ( i ) the defence of the company is in good faith and one of substance, ( ii ) the defence is likely to succeed in point of law, and ( iii ) the company adduces prima facie proof of the facts on which the defence depends. ( b )The court will restrain (or not permit) the advertisement of a winding up petition where the petition is not presented in good faith and for legitimate purpose of obtaining a winding up order, but for other purposes such as putting pressure on the company. ( c )Every citizen has a right to litigate his cause and to seek justice from a court of law. To use this right to seek remedy by misuse of the judicial process is, to abuse the process of the court. "Abuse of the process of the court" would, therefore, involve mens rea. To strike out the winding up petition on this ground, the court must come to a conclusion that the act complained of was a wanton act reeking with mala fide s. ( d )Whether a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany were telecast on Star channels between November 2001 and June 2002. The respondent-company had issued post-dated cheques in favour of the second appellant out of which five cheques were honoured, but the cheque for a sum of Rs. 1.10 crores was dishonoured on June 26, 2002. Thereafter, on August 19, 2002, the respondent-company agreed to pay Rs. 19.87 crores to the appellants and by letters dated September 3, 2002 (annexure "E"), September 27, 2002 (annexure "F") and October 16, 2002 (annexure "G") confirmed the same. In view of this material on record, it is clear that the respondent-company had admitted the dues of the appellants to the extent of Rs. 19.87 crores. When the appellants sent a statutory notice to the respondent-company, which was received by it on October 21, 2002, the respondent-company chose not to give any reply to the said notice. Even after service of the winding up petition, the respondent-company did not file any reply to the petition. In fact, by our order dated July 25, 2007, we had given an opportunity to the respondent-company to file an affidavit in reply on merits of the disputes between the parties by August 6, 2007. Even then, the company did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the assets of the company (in fact the company court had only directed that alienation of the assets, except in the usual course of business would be subject to the final decision); ( iii )the petitioning creditor had filed a civil suit for declaration that the incorporation of the company was illegal and fraudulent (in fact counsel for the petitioning creditor had already stated before the company court on April 27, 2006, that the civil suit will be withdrawn within one week and the suit was withdrawn on May 5, 2006); ( iv )there was overwhelming evidence about the illegality and fraud in incorporation of the company and there was every likelihood of the court decision going against the fraudulently formed company and that any decree/registration of charge on a company based on fraud was rendered void-ab-initio ; The respondent-company in that case filed an application contending that the advertisement without any direction of the court as required under rule 96 of the Companies (Court) Rules, 1959 and the subsequent letters to the Government and the bankers were an abuse of the process of the court and that on account thereof, the company had suffered huge losses. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... got the publication made in the newspapers and wrote subsequent letters to the Government of India, Ministry of Commerce and Industry, Export Promotion Council and the Union Bank of India and tried to project non-existent proceedings and orders of the court. Their conduct, both prior to and after the presentation of the petition for winding up, is deplorable and has resulted not only in abuse of the process of the court, but has also caused immense damage to the appellant. The order of the learned company judge, to our mind, is erroneous as despite the affirmative material before him, he failed to record any finding regarding the abuse of the process of court which was manifestly clear from the above mentioned conduct of the respondents, as also the communications written by them, which are on record . . . We are also of the view that the learned company judge failed to return any finding regarding the conduct of the respondents which was material and imperative in view of the categorical stand of the appellant and also in view of the specific material which established gross abuse indulged into by them. The learned company judge went on to accept the apology and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im of the appellant-petitioning creditors to the tune of Rs. 19.87 crores in their correspondence prior to the statutory notice. In view of the above findings, it is not necessary to express any opinion on the first contention of the appellant that the advertisement in question was not covered by rule 96. We have proceeded on the demur that it was. As regards the contention of Mr. Soparkar that this court may remand the matter to the learned company judge for deciding the question of abuse of the process of the court after the respondent-company files a reply before the learned company judge on merits, We are not inclined to accede to this request because the company petition was filed in the year 2002 and the present OJ Appeal was filed in the year 2003; the dues are in respect of commercial advertisements which were telecast at the request of and for the benefit of, the respondent-company, between November 2001 and June 2002 and the respondent-company did not avail of the opportunity given by this court during pendency of this appeal to file its counter-affidavit on merits. It is, therefore, high time that the Company Petition No. 201 of 2002 is heard on merits at the admissi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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