TMI Blog2004 (8) TMI 684X X X X Extracts X X X X X X X X Extracts X X X X ..... ormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin-top:0cm; mso-para-margin-right:0cm; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0cm; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-fareast-language:EN-US;} <![endif]--> A N RAY AND A K MITRA, JJ. JUDGMENT Ajoy Nath Ray, A.C.J. 1. This is an appeal from a receiving order passed by the Company Court on the 22nd of July, 2004, whereby the respondent's petition for winding up of the appellant company was admitted and directions for advertisement were given. 2. The statutory notice dated 31st July, 2003 had been served on the appellant company for a debt of ₹ 52.33 lac approximately. The case of the respondent in the statutory notice as well as in the winding up petition was put very simply. According to them during the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because of a breach of contract made by the petitioning creditor. According to the company the petitioning creditor had agreed to supply to it during the financial year 2002-03 3000 metric tonnes of steel plates and 1800 metric tonnes of H.R. Coils. However, the full supplies were not made. More than 1500 metric tonnes of steel coils agreed to be supplied, only 443 metric tonnes were actually obtained by the company. The company claimed damages at the rate of five rupees per kilogram for the unsupplied items. Needless to mention, 1000 kilograms made one metric tonne. 8. In the answer to the statutory notice which was given on the 16th of August, 2003 these details were not given in extenso but a reference was made by the company to a suit which it has filed more than two months before the date of the statutory notice, to be precise, on the 23rd of May, 2003, in the plaint of which the company had put forward the claim for damages as mentioned in its affidavit-in-opposition. 9. The petitioning creditor took, in that suit, the step of praying for an extension of time for filing a written statement and then on the 12th of August, 2003 delivered a counter-claim in its written st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. Mr. Mukherjee appearing for the appellant company submitted in this regard that although the transactions were of the order of several crores of rupees, yet there are no papers, agreements or correspondence or any writing of any sort in respect of these transactions excepting of the challans, delivery orders and the bills. According to him all discussion was oral. He pointed out that there is not a single letter of demand from the petitioning creditor before the service of the statutory notice. 16. The fact of the case is that challans, delivery orders and bills apart, the first writing which, in the transactions of the parties, saw the light of the day was the plaint filed by the company. In these circumstances, Mr. Mukherjee invited us to opine that the suit is not a bogus suit, that oral evidence in the suit has to be given and what the result of oral evidence will be is not possible to predict on affidavit evidence. 17. On this short but sufficient description of the basic facts of the case, the legal position and the different legal points might be discussed. The first point which arose before us was whether the petitioning creditor was entitled to pursue the rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but will become exercisable, if at all, after advertisements have been duly published. But the various other powers, including the residuary powers given in Section 443 are quite sufficient for the Company Court, should it be of such opinion, to stay the hearing of the winding up petition until the suit is disposed of, even at this stage. 21. In our opinion, both Mr. Mukherjee and Mr. Sen are right in their submissions in this regard. It is both true that the petitioning creditor can file a winding up petition and at the same time present the counter-claim audit is also true that in fit and appropriate cases the Company Court has both the power and the duty not to proceed with the winding up application until the suit has been disposed of. Similarly, we are also of the opinion that the Company Court could, in appropriate cases, proceed with the winding up petition in preference to the suit and in that case, should it so think fit, restrain the parties from proceeding with the same claim or claims in the Suit Court. In short, the Company Court can stay its own proceedings which are pending before it, or, in the alternative, restrain the parties who are appearing before it from pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law being this, the question before us today would be, do we stay the winding up petition, or do we restrain the parties from proceeding with the suit? In our opinion, the answer to this question, at least in our case, would be, as would also be in most of the other cases, answered by first answering the question, whether the winding up petition itself is a properly presented and a properly constituted one or not. If the Company Court is satisfied that the winding up petition should proceed, then and in that event, such satisfaction positively most arise upon the primary and preconditional finding of the Company Court that the nature of the debt put forward by the petitioning creditor is indisputable. Once that finding is reached it would be within the power and also the duty of the Company Court to restrain parties before it, in the very large majority of ordinary cases, from proceeding with any adjudication of that very claim, which has been found by the Company Court to be indisputable, in the Suit Court or practically before any other forum. The problem of whether to go up with the winding up application or with the suit, thus gets solved at the same time when the Company Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the said sum is not payable as it is entitled to recover more than that sum from the petitioning creditor by way of damages for non-supply. That this type of counter-claim by the company pertakes of the character of a bona fide defence in a winding up application is well-settled by law. It suffices for us to refer to only two cases, apart from the case of Rameshwar Singh already mentioned above which is also an authority for this proposition. The reference of Rameshwar's case is 23 CWN 844. 30. There are passages also to this effect, in the case of Federal Chemical reported at 34 Company Cases page 963 and also in the Single Bench judgment of our Court given in the case of Bhart Vegetable, reported at 56 CWN page 29. 31. The problem is not a problem of law, when we decide whether the counterclaim of the company is a valid defence in law or not. The problem is the problem of assessment and determination of the bona fide nature of the company's counter-claim, which happens really to be the claim in the suit. 32. The law as to how far the company has to go, to establish the bona fide nature of its defence, has been expounded in many cases. Some of the cases show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractice of the Suit Court in passing summary decrees has now become too established to be questioned, and that practice is that in some of the appropriate cases, the Court calls upon the defendant to secure the claim of the plaintiff, sometimes even wholly, before it grants leave to defend. This is a way of the Suit Court for testing the bona fides of the defendant and its intention to put up a genuine defence which will naturally delay the suit for a long time. 35. The Company Courts position is different. A Division Bench of our Court has opined thus in the case of Dunlop India Ltd., reported at 1994(1) CHN 409. The decision in that case is that the Company Court has no jurisdiction to call for security; it can cither admit the winding up petition or not admit it. It has to come to a conclusion whether the debt is bona fide disputed or whether it is not bona fide disputed. Fine distinctions of more or less bona fide dispute or so, on the basis of which the Court calls for either full security or a large percentage of it, are not to be made by the Company Court. Security is an appropriate remedy which a plaintiff might obtain but which is not available to the petitioning credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t must have some reasonable ground. 41. In our respectful opinion this is the final test. Does the company have some reasonable ground ? Is the company's defence or counter-claim, in any reasonable view of the matter, arguable ? 42. The same celebrated Judge in another root case again mentioned this criterion, i.e. whether the company has some reasonable ground for not paying the claimed debt of the petitioning creditor. This is the case of London and Paris Banking Corporation, reported at 19 Equity Cases 444 and an important passage of the Master of the Rolls is quoted in Rameswar Singh's case mentioned above; the passage would be found at page 446 of 19 Equity Cases. The quotation given in Rameswar Singh's case is at 23 CWN, at page 857 left column. 43. Sir George Jessel said that a company cannot be held to have failed and neglected to pay a debt, if it has a reasonable ground for not paying it. In such a case, no doubt the company fails to make the payment as claimed by the petitioning creditor, but it cannot be said that it has also neglected to pay it. There is no negligence in the company in not paying a debt, if it is withholding payment on a reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eliveries to it, these were denied by the petitioning creditor. The company had to annex to the supplementary affidavit numerous documents to show how it had lifted the steel items directly from SAIL ex the Dankuni Storeyard. The company makes the case that the assurance/for the supply of 3,000 and 1800 MT was an oral assurance. The rising steel prices and the non-supply in spite of assurances caused loss to the company. It is not that the balance debit of about ₹ 50,00,0007- arose for the first time in January, 2003 when the supplies stopped. Even in March, 2002 there was a debit balance to that extent. The lack of documentary evidence is there on both sides. There is no paper to substantiate that the petitioning creditor would be entitled to its 2% commission. It has to be worked out from the delivery orders by calculating that percentage on the aggregate of the ex-stockyard price sales tax thereon. The agreement being oral, evidence would also be oral. The suit cannot be said to be absolutely bogus just yet. 47. On the basis of the above arguments, we have thought out the matter in the following way. Although this thought process is short, it has proved to be of crucial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscretionary order and, therefore, the Appeal Court should not interfere with the exercise of that discretion unless some material fact has been left unconsidered by the first Court, or some extraneous matter has been given weight, or there has been a misdirection of oneself on a point of law. Mr. Sen submitted that none of these has occurred. We totally agree. All the material facts were considered by His Lordship, and the law on the subject was perfectly laid down and adverted to and His Lordship's short summary of the judgments cited is, with respect, a good model as to how a painstaking judgment should be written. 51. Should we then, not interfere with the exercise of His Lordship's discretion? The confusion which occurs, occurs at this stage. The admission of a winding up petition is a discretionary order no doubt, but the stage of exercise of that discretion comes, after and only after a finding of the bona fide nature of the company's defence has been arrived at. The finding of the bona fide nature of the defence is made on affidavits and although it is a mixed question of law and fact, it is primarily a fact finding and fact assessing procedure. That finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd to a winding up petition; rule 99 is about advertisements. 54. There is no rule which states that upon proof of any indisputable debt of a sufficiently large amount and on proof of service of statutory notice the Company Court either shall, or may, receive a winding up petition and direct its advertisements. Section 433(1)(a) of the Companies Act only raises a compulsory presumption about the company's inability to pay debt, if a good statutory notice is not complied with. That the Company Court has a discretion in the matter of admission of the winding up petition even after the proof of debt and the proof of the company's neglect to pay is a law which is nonetheless a good and as well-settled as the express provisions of the Companies Act or the framed rules made by the Supreme Court. 55. There is yet another more point which is to be mentioned about the impugned judgment. It is a carefully and painstakingly written judgment but, with respect, it contains a certain view, which requires correction and clarification. It is quite a serious point in Company matters. 56. His Lordship proceeded to admit the company petition on the basis that His Lordship was forming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, docs not really come in conflict with these dicta of the Division Bench. The reason is this; at the stage of admission the parties present before the Court are the company and the petitioning creditor. The decision of the Court that the debt of the company is final and binding binds them, and all other Courts in the same manner as a summary decree does. This is putting the matter on a very high pedestal, but it is, both logically and as matter of law already placed on that high pedestal. 61. But at the stage of the hearing of the winding up petition, the company has already, to a certain extent split up into the creditors and the contributories who come and make representations on their own behalf and by themselves, even apart from the submission which might be made by the company. The parties are different and many more than were present at the stage of admission. After hearing all those parties the Company Court could, at the final stage, take different view as to the debt than it has taken at the stage of admission. The admission stage view bound the company and the petitioning creditor finally, but not the others, and therefore not the Company Court also, when hearing th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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