TMI Blog2015 (10) TMI 411X X X X Extracts X X X X X X X X Extracts X X X X ..... n given by Court to a creditor against a company unable to pay its debts – Any creditor has a right to approach the Court pointing out that its admitted debt is not paid on which the Court then considers company needs to wind up or not - There is no warrant to deprive a creditor with a decree of foreign Court and the same can also file a winding up petition – it is clear that Respondent is unable to clear its debts and has neglected to satisfy the demand without any sustainable reasons thus petition is admitted with further directions given – Decided in favour of the Petitioner. - CP.No.350/2014 - - - Dated:- 30-4-2015 - MR. R.MAHADEVAN, J. For The Petitioner : Mr.J.Sivanandaraaj and Mr.Roshan Balasubramanian For The Respondent : Mr.A.Thiagarajan, SC for Mr.S.Ramesh Kumar ORDER The Petitioner, a Company registered in Australia, has filed this Company Petition for winding up, after securing a foreign award against the Respondent for non-payment of the consideration for supply of scrap. The Petitioner had also filed an Original Petition in O.P.No.56/2014 under Part II of the Arbitration and Conciliation Act 1996 to record satisfaction that the foreign award, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned senior counsel also contended that the provisions of Sections 433 (3) and 434(1) of the Companies Act can be invoked, only if the debtor company is unable to pay its debt and in the instant case, the refusal is on account of denial of liability. Hence, according to the learned senior counsel, the Company Petition for winding up is not maintainable. The learned senior counsel also contended that to enforce the award, it is incumbent upon the Petitioner to only file an execution petition and no permission was granted by this Court to file a winding up petition. The learned senior counsel also contended that the order in O.P.No.56/2014 has not become final and that the appeal in O.S.A SR.No 69044/14 has been preferred. The learned senior counsel, contending that there is no accepted liability, relied upon the decision of athe Honourable Supreme Court reported in 2010 (10) SCC 553 (IBA Health (India) P Limited Vs. Info Drive Systems SDN.BHD) and sought for dismissal of this Company Petition. 4. This court heard the learned counsel on either side and also perused the documents. 5. This court is inclined to take up the issue of maintainability of the petition as first i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. Raj Kumar Mittal), relied on by the learned counsel for the Petitioner, it is held as under:- 8. ... The Calcutta decisions cited by Mr.Sen, which I have mentioned above are all cases, where notice under Section 434(1)(a) has been served on the basis of a decretal debt and as such, the contention, which was sought to be raised by Mr.Sen that unless the decree is put into execution and it remains unsatisfied, then and then only the petitioning creditor can make an application for winding up and the deeming provisions under Section 434(1)(b) can be invoked cannot be accepted. I have already held in the unreported decision cited by Mr.Seth that the petitioning creditor has an option either to execute the decree and then come under the deeming provisions of Section 434(1)(b) or can serve a notice on the decretal debtor under Section 434(1)(a), at any stage, after the decree is obtained, whether the decree is put into execution and remains unsatisfied or without putting the decree in execution or at any intermediate stage. 9. In yet another decision reported in 1980 1 MLJ 443 (Seethai Mills Limited Vs. N.Perumalsamy and another), relied on by the learned counsel for the Peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s indebted in a sum exceeding five hundred rupees then due. Consequently, all that is necessary to be satisfied under Section 434(1)(a) is that there must be a creditor and to that creditor the company must be indebted in a sum exceeding ₹ 500 then due and that creditor must have served a notice on the company and the company had not complied with the demand within three weeks from the date of the service of the notice. Even a judgement debtor in respect of a money decree can be said to be indebted to the decree-holder, who would be a creditor. Consequently, in our opinion, there is no mutual exclusion between Section 434(1)(a) and 434(1)(b) of the Act and there is a region common, to both, which may be said to overlap. Hence we are of the opinion that even a decree-holder in respect of a money decree can institute proceedings under Section 434(1)(a) if the other requirements of that provision are satisfied. 6. Our attention was drawn to the decision of a single Judge of the Delhi High Court in Madhuban Pvt. Ltd. v. Narain Dass Gokal Chand [1971] 41 Comp Cas 685 at 692-693. It would appear that in that case, a similar argument was urged before the learned judge and the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emedy only under Section 434(1)(b) of the Act. We are of the opinion that there is no such mutually exclusive dichotomy between Section 434(1)(a) and Section 434(1)(b) of the Act. From the very language of Section 434(1)(b), it may be stated that it does not even contemplate a money decree or order for payment of money and it generally uses the expression if execution or other process issued on a decree or order of any court in favour of a creditor of the Company . Therefore, the decree or order that is contemplated by Section 434(1)(b) is not confined only to a money decree or an order for payment of money. On the other hand, it is general in nature. However, what we have to concentrate on is, whether a person who had obtained a decree for money against a Company will cease to be a creditor because of that fact, so as to take his case out of Section 434(1)(a) of the Act. We are of the opinion that there is no warrant for such a contention. A creditor, who has instituted a suit and obtained a decree against the Company, will still be a creditor of the Company to whom money is due by the Company. It may be that the original debt had merged in the decree and the person, who was orig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Foreign Exchange Regulation Act (FERA). The learned Single Judge negatived these contentions. The learned Judge held that obligation to obtain permission of the RBI, if it was required to be obtained, was upon the company and the company cannot take this as a ground to avoid to discharge its obligation. The learned Single Judge also held that non-executability of the decree of the Court in UK would be at the most considered in the execution proceedings and it cannot be a ground to refuse to entertain a petition for winding up. The learned Single Judge held that in view of clear liability, the defences taken were not genuine. The relevant passages from the judgement are reproduced below :- 9. It was lastly contended by Mr.Sanjanwala, learned counsel appearing for the Respondent Company that the decree of Court of England is non-enforceable in India as per the provisions of Section 13B and 13D of CPC and it was submitted that the remedy for enforcement for execution of such decree of the Courts of UK is as per Section 44A of CPC since the UK being a country of reciprocating territory, but in view of the fact that such decree is non-executable as per Section 13 of CPC, and if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reditor for the purpose of maintaining petition for winding-up. There is no warrant to make a distinction between creditors on the basis of decree of which Court they hold. The Apex court in the case of Rajah of Vizianagaram vs. Official Receiver and Official Liquidator of Vizianagaram Mining Co. Ltd., observed as under:- 11. Section 166 provides for an application to the court for the winding up of a Company. Any creditor or contributory is entitled to apply for the winding up of the Company. No distinction is made between the creditors resident in India or outside India. Section 167 specifically states that an order for winding up of a Company shall operate in favour of all the creditors and of all the contributories of the Company as if made on the joint petition of a creditor and of a contributory. It is not possible, therefore, to urge successfully, that the order of winding up of an unregistered Company, does not operate in favour of all the creditors and of all the contributories of the Company. All the creditors of the Company can take advantage of the winding up of the Company as operating in India, when it has ceased to carry on business there. There is no reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a foreign decree, it cannot be said that the petitioner has ceased to become a creditor of the Company. 11. The consensus of judicial decisions is that the decree holder can also file a winding up petition, despite having the option of enforcing the decree by filing an execution petition. 12. This court is in full consonance with the above views. A decree holder would not cease to be a creditor. The liability is only crystallized in the form of a decree or award. A creditor has a right to invoke the provisions of the Companies Act. This court is of the view that a decree holder can only be in a better position. He will have a right to either execute a decree or file an application for winding up. 13. The learned senior counsel for the respondent has contended that the respondent has filed an appeal against the order in O.P.No.56/2014. The learned counsel for the petitioner has relied upon the judgement of the Honourable Supreme Court reported in 2011 (8) SCC 333 cited supra to contend that the appeal under the Letters Patent Act is not maintainable. 14. Upon perusal of the records, it can be seen that the Respondent has raised all the defences available to them under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and honest entitlement and must not be a mere wrangle. It is settled law that if the creditor's debt is bona fide disputed on substantial grounds, the court should dismiss the petition and leave the creditor first to establish his claim in an action, lest there is danger of abuse of winding up procedure. The Company Court always retains the discretion, but a party to a dispute should not be allowed to use the threat of winding up petition as a means of forcing the company to pay a bona fide disputed debt. 23. The principles laid down in the above mentioned cases indicate that if the debt is bona fide disputed, there cannot be neglect to pay within the meaning of Section 433(1)(a) of the Companies Act, 1956. If there is no neglect, the deeming provision does not come into play and the winding up on the ground that the company is unable to pay its debts is not substantiated and non-payment of the amount of such a bona fide disputed debt cannot be termed as neglect to pay so as to incur the liability under Section 433(e) read with Section 434(1)(a) of the Companies Act, 1956. Malicious Proceedings for Winding Up:- 33. We may notice, so far as this case is concerned, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly disputed. A Company Court, therefore, should be guarded from such vexatious abuse of the process and cannot function as a Debt Collecting Agency and should not permit a party to unreasonably set the law in motion, especially when the aggrieved party has a remedy elsewhere. 16. Repudiating the arguments of the learned senior counsel for the Respondent, the learned counsel for the Petitioner has contended that the plea of claim is unsustainable and is only for the purpose of evading payment. The learned counsel has relied upon the following judgements in support of his contention. (a) In AIR 1961 Cal 439 (Sarkar Estates (P) Limited Vs. Kusumika Iron Works (P) Limited and others), it is held as under:- 5. It was also faintly argued that the petitioning creditors' debt is a disputed debt and so cannot form the foundation of a winding up petition. The argument is that the Appellant Company has filed a suit against the Respondent Company claiming over three lacs of rupees and if this suit, which is pending, succeeds, the Appellant Company will be entitled to set off the amount of the decree that may be passed against the claim of the Respondent Company. But, I fail to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... An examination of the Company's solvency may be a useful aid in determining whether the refusal to pay debt is a result of a bona fide dispute as to the liability or whether it reflects an inability to pay. Of course, if there is no dispute as to the Company's liability, it is difficult to hold that the Company should be able to pay the debt merely by proving that it is able to pay the debts. If the debt is an undisputedly owing, then it should be paid. If the Company refuses to pay, without good reason, it should not be able to avoid the statutory demand by proving, at the statutory demand stage, that it is solvent. In other words, commercial solvency can be seen as relevant as to whether there was a dispute as to the debt not as a ground in itself, that means it cannot be characterized as a stand alone ground. 17. As laid down by the Honourable Supreme Court, in one of its earliest decisions rendered in the case of MadhusudanGordhandas Co. vs. Madhu Woollen Industries Pvt. Limited {(Vol.42) 1972 Company Cases Page 125 (SC)}, this Court will not order winding up, if the debt is bona fide disputed and the defence is a substantial one. The test to be applied by the Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under section 433, the Respondent has to establish that the dispute raised by them is bona fide and that there is a possibility for them to succeed in law. Upon perusal of the documents, this court is of the view that the claim of the Respondent is surreal. From the documents submitted by the Respondent, which are e-mails relating to the transactions in 2008, it is seen that there was disagreement with regard to the quality of materials supplied by the Petitioner based on an independent contract. Though there are numerous mails, a legal notice seems to have been issued only on 23.04.2013 after the award. However, no proceedings either in the form of arbitration or suit has been initiated by the Respondent. Further, the claim has nothing to do with this award. Upon perusal of the contract between the parties, there is no provision to withhold any payments for disputes under other contracts. If the claim was genuine, the Respondent would have raised a counter claim before the Arbitrator or initiated proceedings against the petitioner. As held above, the award has become final and no dispute can be raised against the award. It is settled law that the dispute must be bona fide and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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