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2015 (12) TMI 638 - BOMBAY HIGH COURT

2015 (12) TMI 638 - BOMBAY HIGH COURT - TMI - Winding up petition - petitioner has approached this court alleging that the company is indebted to the petitioner a sum of ₹ 4,69,42,986/- on account of outstanding dues payable for services provided by the petitioner for transportation of the company's equipments from one place to another in India - Held that:- Where a company has a bona fide dispute the petitioner cannot be regarded as a creditor of the company for the purposes of winding up .....

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editor. And that the defence is not moonshine.

The petitioner chose not to disclose the very important fact of dispute between the parties and the arbitration proceedings. The petitioner cannot be allowed to use the threat of winding up petition as a means of enforcing a company to pay a bona fide disputed debt. The petitioner chose to reduce this court as a debt collecting agency or means for bringing improper pressure on the company to pay the bona fide debts thereby abusing the jur .....

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imayatullah for the respondent. ORDER P. C. 1 The petitioner has approached this court alleging that the company is indebted to the petitioner a sum of ₹ 4,69,42,986/- on account of outstanding dues payable for services provided by the petitioner for transportation of the company's equipments from one place to another in India. Since 2006 the company has been availing the petitioners' services for the purpose of transportation of its equipments and in this regard from time to time .....

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ioner states that the company vide its e-mail dated 2.9.2014 acknowledged and confirmed that invoices listed therein for an aggregate amount of ₹ 1,42,84,471/- were outstanding. The petitioner therefore, has alleged that the company is unable to pay its debts in the normal and ordinary course of its business and hence is liable to be wound up. 3 The company's defence is that the petition is filed as a counter-blast to the respondents' claim in arbitration where the respondent had c .....

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rbitration. The petitioner fearing the outcome of the arbitration and apprehending that it will suffer an award against it, filed this petition belatedly as a pressure tactic to try and force the respondent not to pursue the claim in arbitration. At this stage, it is necessary to note that the notice invoking arbitration was sent by the company to the petitioner on 21.11.2013, whereas the first statutory notice was sent only on 25.6.2014. It is necessary also to note that the petitioner has chos .....

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mitted that in view of this, the defence of the company that they have to recover monies from the petitioner is a bonafide defence and on this ground alone the petition shall stand dismissed. 5 The counsel for the company also submitted that even assuming for the sake of argument that they have admitted, as alleged by the counsel for the petitioner, that the amounts claimed as invoice charges are payable to the petitioner still this cannot be used as a forum to recover amounts and it is not a ca .....

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ddressed to the company's Advocate and not to the company at their registered office. 7 The Apex court in 2010 (10) SCC 553 IBA Health (India) Private Limited Vs. Info-Drive Systems Sdn. Bhd., has analyzed the provisions of Sections 433 and 434. The Apex court has held that if there is a substantial dispute as to liability, the creditor cannot prefer an application for winding up for discharge of that liability. The court has to first examine whether the company has a genuine dispute to the .....

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ed on substantial ground, the court should dismiss the petition and leave the creditor first to establish its claim in action, less there is danger of abuse of winding up procedure. 8 Let us examine the petition. In the petition there is not even a whisper that the company had raised the issue of damage to cargo and denied their liability to pay the invoices. There is not a whisper that the company had already initiated arbitration on 25.11.2013, that is almost 11 months prior to filing the pres .....

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defence. The non-disclosure was deliberate. On this very ground of non-disclosure of these important facts, the petition requires to be dismissed. 10 In any event, the admitted position is that there is an award in favour of the company. The counsel for the petitioner stated that they have lodged a petition challenging the award and if the award is set aside, there will be no amount payable to the company and the entire amount claimed herein would become payable. The counsel wanted this court to .....

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be considered while hearing a company petition is totally different from the parameters while hearing an arbitration petition challenging an award. Therefore, I was not inclined to tag this petition along with the arbitration petition but decided to proceed with hearing of this petition. 11 Moreover, the pendency of the arbitration petition is irrelevant to examine whether the company is unable to pay its debts or not. In 1964 Company Cases Vol-xxxiv 963 Federal Chemical Works Ltd., decided by a .....

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ility to pay the debts claimed by the petitioner and hence cannot be deemed unable to pay its debts on account of any legal presumption arising under Section 434. The relevant passages from the judgment are quoted as under :- It is well settled that in order to raise the presumption under section 434(I) as to a company's inability to pay its debts, it is not sufficient to show merely that the company has omitted to pay the debt due to the petitioner despite service of the statutory notice : .....

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of the premises which he continues to occupy in spite of a notice to quit. If the company were to take legal proceedings for his eviction, some years would presumably elapse before possession could be obtained and by that time the accumulated rent would be equal to the entire amount standing to his credit in the books of the company. In such circumstances, it seems to me that the company has a reasonable excuse for not paying anything to petitioner No.I unless he agrees to vacate the premises. .....

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by the company was not a bonafide dispute. The court concluded that it must be held that the company had a reasonable excuse for not making payment of the decree to the petitioners and that the company was not negligent. The court held that the word neglected used in Section 434 (1) (a) would mean that if there is a refusal to pay without any reasonable cause then it could be said that the company had neglected to pay the amount. Mere omission to pay is not a neglect to pay and if the company bo .....

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have been saved the trouble of going through the materials to find out whether the claim is a bona fide claim. The reason is that it is an admitted fact that there is already an award in favour of the company and against the petitioners for ₹ 55,000. Both these awards on the different contracts were made and published on one and the same day, viz., November 30, 1978. The arbitrators to the two awards were the same arbitrators, Mr.Shah and Mr.Tejkumar Sethi. Ordinarily, what the arbitrator .....

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is an award decree in favour of the petitioning creditor. That award decree has not been challenged and it has become final. Even before me in this winding up petition, the company has not challenged that there is a decree for ₹ 26,083.83 in favour of the petitioners, but what the company states is that the company has an award against the petitioners for a much larger amount, and that is of ₹ 55,000. Therefore, it cannot be said that the company has not a bona fide claim against th .....

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le to pay to the company, a much larger amount than the amount of the decree they hold. Merely because an appeal is pending and perhaps the award may be set aside, it is not a good reason for me not to hold today that the dispute raised by the company is not a bona fide dispute to the liability of the company. Since it is an admitted fact that there is already an award in favour of the company, the dispute must be held to be a bona fide dispute and, consequently, it must be held that the company .....

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wound up, the debt can be said to be bona fide disputed and the court will not order the winding up of the company. It is for the petitioner to show that the company has omitted to pay without a reasonable excuse and winding up proceedings are not intended to exploit as a normal alternative to the ordinary mode of debt realization. Paras-7, 9, 12 & 13 are read as under :- 7 On the basis of aforesaid admitted position, the question that falls for consideration is as to whether the respondent .....

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Company Cases 504. In that case the court after taking note of number of judgments held that where there are claims and cross-claims between a creditor seeking the winding up and a company sought to be wound up, the debt can be said to be bona fide disputed and the court will not order the winding up of the company. Whiding up proceedings are not intended to be exploited as a normal alternative to the ordinary mode of debt realisation. It would be worthwhile to mention that the counter claim set .....

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Award. It is not merely a claim pending adjudication. May be objections are filed against this Award. But this dispute raised by the petitioner would not make the claim of the respondent lacking in bona fides. Further, the claim before the Arbitrator was not an after thought but was filed much prior to the present petition filed by the petitioner against the respondent. Moreover the Supreme court has declined to grant any stay to the petitioner in the S.L.P. 13 From the facts of this case, it i .....

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rator, which means, the basis of counter-claim is the result of legal proceedings. Even if the SLP is pending that would not render the character of the counter-claim as frivolous. On the contrary till the Award is set-aside, the amount is payable in the said Award by the petitioner to the respondent. This petition is therefore, misconceived and is dismissed. (emphasis supplied) 14 Facts in the case before us and the facts in C.A.Galiakotwala (supra) and Jubilant Organosys Ltd. (supra) are also .....

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aragraphs-20, 21, 22, 23, 31 & 33 from IBA Health (supra). 20 The question that arises for consideration is that when there is a substantial dispute as to liability, can a creditor prefer an application for winding up for discharge of that liability? In such a situation, is there not a duty on the Company Court to examine whether the company has a genuine dispute to the claimed debt? A dispute would be substantial and genuine if it is bona fide and not spurious, speculative, illusory or misc .....

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ish 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. 21 In this connection, reference may be made to the judgment of this Court in Amalgamated Commercial Traders (P) Ltd. v. A.C.K. Krishnaswami and another (1965) 35 Company Cases 456 (SC), in which this Court held .....

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tries Pvt. Ltd. 1971) 3 SCC 632. The principles laid down in the above mentioned judgment have again been reiterated by this Court in Mediquip Systems (P) Ltd. v. Proxima Medical Systems (GMBH) (2005) 7 SCC 42, wherein this Court held that the defence raised by the appellant-company was a substantial one and not mere moonshine and had to be finally adjudicated upon on the merits before the appropriate forum. The above mentioned judgments were later followed by this Court in Vijay Industries v. N .....

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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. 24........ 25........ 26........ 27........ 28........ 29........ 30........ 31 Where the company has a bona fide dispute, the petitioner cannot be regarded as a creditor of the company for the purposes of winding up. Bona fide dispute implies the existence of a substantial ground for the dispute raised. Where the Company Court is satisfied that a debt up .....

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oncerned, there has been an attempt by the respondent company to force the payment of a debt which the respondent company knows to be in substantial dispute. A party to the dispute should not be allowed to use the threat of winding up petition as a means of enforcing the company to pay a bona fide disputed debt. A Company Court cannot be reduced as a debt collecting agency or as a means of bringing improper pressure on the company to pay a bona fide disputed debt. Of late, we have seen several i .....

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