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SRC Steel (P) Ltd. Versus Bharat Industrial Corporation Ltd.

2004 (8) TMI 684 - CALCUTTA HIGH COURT

APOT no. 398 of 2004, ACO No. 110 of 2004 and C.P. No. 351 of 2003 - Dated:- 11-8-2004 - Normal 0 false false .....

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OC Heading /> 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 approxi .....

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egate approximately ₹ 5.09 crore and they have given credit to the company for the payments made by it from time to time aggregating approximately ₹ 4.57 crore. 3. The petitioning creditor claimed the balance amount as price of goods sold and delivered. 4. The company filed an affidavit-in-opposition to which a reply was used by the petitioning creditor and thereafter the company used a supplementary affidavit also. Various documents of a very important nature were annexed to the sup .....

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pplies were taken on the basis of the delivery orders, the petitioning creditor raised bills on the company adding 2% commission of theirs, which percentage was calculated both on the ex-stockyard price and the 4% sales tax added thereto. The bills raised on the company represented the aggregate amount, i.e., the stock-yard price, the 4% sales tax and the 2% commission. 6. The challans and the delivery orders, of which numerous copies were annexed to the supplementary affidavit of the company, s .....

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e was that it had suffered damage 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 fi .....

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fidavit-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 statement, wherein it claimed the said identical amount of ₹ 52.33 lac and claimed for a decree. 10. Under Order 8 Rule 6 of the Code of Civil Procedure the counter-claim is almost identical to a plaint. 11. The position, therefore, is that both parties before the Comp .....

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opped. In fact the last date of supply and the last date of part payment is practically on the same date, i.e., 16/17.1.2003. The company's case was that 3000 metric tonnes of steel plates would have to be supplied within 31.3.2003. Only about half that quantity had been supplied. Yet there was not a single letter of demand. 13. His Lordship further held that although the company supposedly purchased materials from outside by paying five rupee per kilogram extra, not a single document was di .....

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T. Plate of SAIL not delivered thus suffered loss by itself in rate at the rate of ₹ 5/- per k.g." That risk purchase was made, even that is not stated with certainty. 14. Mr. Sen supporting the impugned judgment and appearing for the respondent petitioning creditor submitted with a lot of force that the figure of promised supply, i.e., 3000 metric tonnes of steel plates is a figure not based upon a single scrap of paper. Similarly the case that 1800 metric tonnes of H. R. Coils were .....

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nted 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 eviden .....

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es Act or in the general body of our Civil Code governing and regulating suits in Court, that a person is to put to a strict choice, Whether to pursue the remedy by way of a winding up petition or to pursue the remedy for recovery of its debt by way of a suit. 18. The Supreme Court has opined in the case of Harinagore Sugar Mills, reported at 1966(36) Company Cases 426 (noted and applied in 66 Company Cases. 634, the S.T.C. Case) that although winding up is not a normal alternative for the reali .....

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herjee's submission was that although Section 10 of the Code of Civil Procedure does not apply, perhaps in terms, in a situation of this nature, yet the Company Court has ample jurisdiction to stay or adjourn the hearing of the winding up petition pending the disposal of the suit. He drew our attention to the Company Court Rules Nos. 6 and 9, which respectively provide that the practice of the Courts and the Code will apply as far as practicable to company matters and that the inherent power .....

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nding up petition. Not all these powers are exercisable at the stage at which we are to day, i.e. the receiving stage. For example the power to wind up a company finally is not exercisable at this stage, 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 .....

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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 proceeding elsewhere. We do emphasise that it is, in general, not proper that the same claim be tried .....

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the other forum should either be stayed or the parties injuncted in such manner as practically to cause a stay of the proceedings to be made in any event. 22. In this regard, the inherent powers of the Court for granting stay for just and reasonable causes like the above is well-settled and beyond any doubt or dispute now. The case of Cotton Corporation, reported at might be referred to in that regard. The possibility of staying a winding up petition is most certainly envisaged there. That was .....

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ng the pendency of the suit, the winding up petition to proceed. 23. The inherent power of the Court to grant injunctions in situations of this nature not covered exactly by the Code or by any other specific written enactment has long been recognised. In the case of Rameshwar Singh, reported at 23 CWN page 844 a Division Bench of our High Court opined to the same effect. That was also a case where there was a winding up petition and also claims in suits made by the company. It was said at page 8 .....

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n 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 indisputab .....

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its primary and basic problem as to whether it should or should not entertain and receive the winding up application. 25. Even in the later stages of the proceeding, after it has assumed representative capacity after advertisement, the position is quite clear and there can be but only one course open. If the company ultimately happens to get-wound up and an order to that effect is passed all suits involving the company would automatically come within the purview of the Company Court and it migh .....

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ition should go on or the suit should go on, does not arise. This is because in the case of a bona fide disputed debt the winding up petition itself would not be admitted and the problem of any party being restrained from proceeding with a suit would not present itself. 27. Accordingly, in our case if the winding up petition is not to be admitted both the claim of the company and the counter-claim of the petitioning creditor will naturally be adjudicated upon by the Suit Court. On the other hand .....

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is whether the debt which is the subject-matter of the winding up notice is a bona fide disputed one or not. 29. The nature of the defence raised by the company is one of the type of confession and avoidance. It has admitted or practically admitted that the sum of ₹ 52.33 lakh is the aggregating balance of the bills which arc still outstanding. It has stated, however, that the said sum is not payable as it is entitled to recover more than that sum from the petitioning creditor by way of d .....

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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 i .....

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page 253. We are of the opinion, that the situations of a Company Court admitting a winding up petition and of the Suit Court passing a summary decree are practically identical. Each has to decide whether an order causing final and irretrievable prejudice to the defendant or the company, as the case might be, is to be passed, there and then, and only upon affidavits. In the one case, the prejudice is caused by the passing of the decree and in the other case by giving directions for advertisemen .....

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vit does not positively and immediately make it clear that he had a defence, yet, shows such a state of facts as leads to the inference that at the trial of the action he may be able to establish a defence to the plaintiffs claim the plaintiff is not entitled to judgment and the defendant is entitled to leave to defend but in such a case the Court may in its discretion impose conditions as to the time or mode of trial but not as to payment into Court or furnishing security." 34. Regarding f .....

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ssing 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 o .....

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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 creditor. 36. We are not concerned with the question of ordering any security here as, upon instructions, learned Counsel for the Company had submitted before the first Court that the company was not prepared to furnish security for the petitioning creditor's claim. We have not heard any contrary submission before us during the long a .....

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in good faith, or has a defence in law which likely to succeed (fine distinctions of slightly likely or very likely are not to be made, just likely will do) or adduces sufficient prima facie proof of the defence it seeks to raise, then and in that event the winding up petition would not be admitted and advertisements would not be directed. 39. In the case of Amalgamated Commercial, a Supreme Court decision, reported at 35 Company Cases 456, a defence of a legal nature entitled the company to res .....

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the other side of the picture there is a famour case of Imperial Hydropathic, reported at 49 Law Times 147 where Sir George Jessel, Master of the Rolls stated in a long and beautiful passage as to what is not a disputed debt. His Lordship opined that a debt does not become disputed merely the company states that the company disputes it. If the Company Court comes to the conclusion that the company is merely amusing itself by weaving some cobwebs than the winding up petition will be admitted, The .....

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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 .....

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accordingly is the company's suit a bogus suit or is there some reasonable ground, however thin, but still reasonable, on the basis of which the suit can be opined to be not really a bogus one ? 45. The arguments in favour of the suit being a bogus one have already been noted and acted upon by the learned Judge in the Court below. The company made no demands for the making up of the alleged short supply of goods, not a single document is disclosed. The company's damage suffered by reaso .....

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for 1526 MT of steel plates were not forwarded by the petitioning creditor and the figure becomes 1536 in paragraph 9. There is not a scrap of paper to show that the petitioning creditor had finally undertaken to supply 3,000 MT of steel plates and 1800 MT. of H.R. Coils in the financial year 2002-03. The petitioning creditor's case before us was that the plaint is nothing but weaving cobwebs by the company Court-fees of ₹ 50,000/- have been paid on the plaint for the purpose of takin .....

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a fully reliable and consistent case. When the company raised the point that the petitioning creditor never made direct supplies or deliveries 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- .....

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ggregate 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 importance to us in our own minds. We had also spoken this out aloud so that we had the advantage of hearing learned Counsel on this aspect also. Our thought process is .....

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imagine Lohriwalla being cross-examined on the lack of documents. We might imagine Gupta sticking to his guns and saying that there was no commitment for any supply beyond the supplies actually made. But one is not entitled to make out the result of examination and cross-examination from out of his head. That result will only be as shall be taken down in shorthand script in open Court examination. That some oral discussion was there, it is impossible to deny. Supplies could not have started with .....

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, and although the superexcellent arguments of Mr. S.B. Mookherjee (in no manner detracting from the equally able arguments of Mr. Sen) certainly played a lot of part in our forming this conclusion, the defence of the company cannot be ruled to be not bona fide at this stage. It comes within the third test of S.R. Das, J. as His Lordship then was, i.e., although the defence of the Company cannot be said to be positively good now, we cannot say that it shall never be pronounced to be positively g .....

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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 .....

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eanour and thus forming an opinion on their credibility, but by looking at affidavit evidence only. In such cases the Appeal Court re-assesses the fact itself and it can, perfectly properly, and in accordance with law, make a different assessment from the one made by the Trial Court. The Trial Court might find on affidavits that the defence is not bona fide. The Court of Appeal might find on the same affidavits that the defence is, or might be, bona fide. This is not like reversing the first Cou .....

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nature of the debt, it would be inequitable for the petitioning creditor to present a petition for winding up. The Company Court is a Court of equity. Special fiduciary relationships or other relationships of trust or confidence might exist as between the company and the petitioning creditor which might make it inequitable for the petitioning creditor to commence a process which might result ultimately in the civil death of the company. We are not concerned with such situations, but we are conc .....

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Section 433 states that under certain circumstances the Court may wind up a company. That section is, therefore, clearly discretionary. Rule 95 states in what form the winding up petition shall be; rule 96, what will be done upon filing of the petition; rules 97 and 98 lay down certain steps to be taken in regard 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 serv .....

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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 form .....

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rt have opined in Company Matters that the stage of admission of the winding up petition is a prima facie stage. There are dicta to the effect that the finding of the Company Court at this stage of admission is a prima facie finding. So, for example, in the case of Pandam Tea, the observations of Ghosh J., as His Lordship then was, in 45 Co. Cas. 67 at 72 and 75, and the affirming judgment of the Appeal Court, and its observation in 47 Co. Case 15 at page 19. 58. In the case of Bangasri Ice and .....

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authorities, the view formed at the stage of admission of the winding up petition is a prima facie view only. There is at least another Division Bench decision of the Calcutta High Court which was referred to by Mr. Sen, but not actually cited, as the point, although serious and important in itself, did not assume the place of primary importance in our case. It is the case Rangpur Tea, where, if we understood Mr. Sen correctly, a view was taken that the finding at the stage of admission is not .....

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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 spl .....

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r finally, but not the others, and therefore not the Company Court also, when hearing the matter finally. 62. But this is an exclusive and sole prerogative of the Company Court only. This is so, because before no other Court the creditors or contributories of the company have a locus standi to make separate representations about the binding nature of a debt alleged to be owed by the company. The rule in Foss V. Harbottle would prevent such a separate representation. Therefore, until the company .....

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facie view is taken, that it might have to die. We would thus respectfully interpret the above dicta of G.K. Mitter, J., in the John Herbert case, mentioned above. 64. The learned Single Judge was, as we respectfully read His Lordship's judgment, somewhat under the impression that His Lordship was forming a prima facie view as to the nature of the debt of the company. As we have explained, that is not so. His Lordship had to decide finally whether the debt owed by the company could there and .....

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