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2016 (6) TMI 538 - GUJARAT HIGH COURT

2016 (6) TMI 538 - GUJARAT HIGH COURT - TMI - Winding up petition petition - non existence of bonafide disputed debt - Held that:- Considering the the record of the petition, including the statutory notice and the reply given to the earlier notice by the respondent Company, affidavits, counteraffidavits it appears that the debt is not an admitted debt and bonafide disputes are raised by the respondent Company and on the basis of the aforesaid, it cannot be said that nonpayment of bonafide disput .....

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MR SA DESAI, ADVOCATE FOR THE RESPONDENT : MR HARSHIT S TOLIA, ADVOCATE, MR PARTH S TOLIA, ADVOCATE ORAL JUDGMENT 1. Heard Mr. S.A. Desai, learned counsel for the petitioner and Mr. Harshit Tolia, learned counsel for the respondent. 2. By this petition under Sections 433, 434 and 439 of the Companies Act, 1956 (hereinafter referred to as the Act ), the petitioner has prayed for winding up of the respondent Company, viz., Shaligram Laminates Pvt. Ltd. and for other consequential prayers. 3. It is .....

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; 85,356/. It is further the case of the petitioner Company that again the respondent Company placed a further order of 100 tons of kraft paper by mail dated 11.06.2008 for which a bill of ₹ 26 lakhs plus sales tax as applicable ex Kolkata was raised by the petitioner Company. It is further the case of the petitioner Company that the respondent Company issued two post dated cheques being cheque no.050185 and cheque no.050186 for an amount of ₹ 13,39,000/each. It is further the case o .....

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be dishonoured. It is contended that after continuous followup, the respondent Company made payment of ₹ 7 lacs on 10.12.2008. However, the balance amount of ₹ 10,09,403/remained unpaid in spite of repeated requests. The record also indicates that the petitioner Company has also resorted to the proceedings under section 138 of the Negotiable Instruments Act, which are pending before the competent Court. The record indicates that thereafter, the petitioner issued a statutory notice t .....

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er dated 23.07.2013 passed by this Court (Coram : K.M.Thaker,J.). After that the present petition is filed wherein notice came to be issued. 4. On notice being issued, the respondent Company has filed affidavit. It is contended that on receipt of the statutory notice, the respondent Company gave reply to the same by reply dated 05.05.2009, which is not placed on record. It is the case of the respondent Company that two consignments sent under bill no.21 dated 03.07.2008 amounting to ₹ 3,99 .....

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replace the goods on the basis of long standing business relationship. It is contended that the amount claimed in this petition is a disputed amount and is not a legally enforceable debt and the very claim is subjudiced before the criminal court at Calcutta and therefore, the petition deserves to be dismissed. It is further reiterated in the reply that the damaged goods have not been replaced till date. It is also contended that the respondent company is a running concern with six employees and .....

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not contain the name or stamp of the respondent Company. The respondent Company has contended in its reply that no transaction at all has taken place between the parties after February, March 2009. The respondent Company has also denied the veracity of the account produced before this Court and has pointed out that the debts are not admitted debts. It is also contended that the respondent Company is a going concern and commercially solvent and hence, the petition deserves to be dismissed. Relyi .....

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is also contended that is a settled legal position that Company Court is not competent court for deciding the disputed question of facts and such disputed question of facts can be resolved through trial which can be conducted by a competent civil court. On the aforesaid basis, the respondent Company has prayed that the petition is not maintainable and the same is without any merits and deserves to be dismissed. 5. The record indicates that the petitioner has also filed a rejoinder and has conten .....

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ated the contentions raised. The learned counsel for the petitioner has reiterated the contentions raised in the petition and the affidavitinrejoinder and the learned counsel for the respondent Company has relied upon the reply as well as the documents. 7. No other or further submissions are made by the learned counsel appearing for the respective parties. 8. The aforesaid facts clearly establish that there was a business relationship between the petitioner Company and the respondent Company. Th .....

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to refer to the said notice, wherein in paras 4, 5 and 6, it is averred as under: 4. That on the last occasion as per the order you have sent goods of Kraft Papers to my client vide Bill No.21 dated 3/7/2008 amounting of ₹ 3,99,789/Bill No.29, dated 11/8/2009 amounting of ₹ 4,08,143/respectively but upon delivery of said goods same found humid and substandard upon receiving the same my client has informed you for the same and demanded credit note with regard to the said goods. At th .....

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te that the cheque in question was given you towards the security purposes but you have use it/adjusted it my clients outstanding which is not fair on your part. 9. The aforesaid fact which is not denied as such by the petitioner Company establishes the fact that from the beginning the dispute as regards the humid and substandard goods supplied vide Bill No.21 dated 3/7/2008 amounting of ₹ 3,99,789/Bill No.29, dated 11/8/2009 amounting of ₹ 4,08,143/was raised by the respondent Compa .....

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6 employees and about 19 wagers. The aforesaid facts clearly therefore would lead to the conclusion that the amount claimed by the petitioner Company is disputed debt and the respondent Company is a commercially viable company. 10. At this juncture, it would also be appropriate to refer the ratio laid down by the Division Bench of this Court, in the case of Tata Iron and Steel Co. (Supra), wherein this Court has observed as under: Bonafide dispute over debt is a question depending upon the fact .....

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2. Kings Cros Industrial Dwellings Co. (1870) L.R. 11 Eq. 149; 3. London & Paris Banking Corp. (1875) L.R. 19 Eq. 44, 446; 4. Cadiz Waterworks Co. v. Barnett, (1875) L.R. 19 Eq. 182; 5. Cercle Restaurant Castiglione Co. v. Lavery (1881) 18 Ch. D. 555; 6. Imperial Hydropathic Hotel Co. (1882) 49 L.T. 147; 7. K.L. Tractors Ltd. In re (1954) V.L.R. 505; 8. Bryanston Finance Ltd. v. De Vries (No.2) (1976) Ch. 63 (C.A.) 9. Re Claybridge Shipping Co. S.A. the Times, March 14, 1981 (C.A.); (1981) .....

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t also be remembered that the onus is on the company to bring forward a prima facie case, which satisfies the court that there is something which ought to be tried either before the Court, itself or in an action or by some other proceedings. There are various factors and facets, contours and chronicles emerging from the facts of the case requiring consideration before adjudicating upon the plea of winding up by the Court. When the petitioner is forcing payment of debt, which it knows to be in su .....

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debt and could not know the sum due but was willing to pay a lesser amount, its omission to pay either the statutory demand or the lesser amount did not constitute 'neglect' within the meaning of section 123(1)(1) of the Insolvency Act, 1986, which is applicable in case of an issue of winding up of a company in England and Wales. In a recent decision in "ReBayoil SA Seawind Tankers Corp. v. Bayoil SA, reported in (1999) 1 All ER page 374, the proposition of law is, again, very well .....

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itigate and it exceeded the amount of the petitioner's debt. The fact that no appeal lay in relation to the interim award that the company's P & I club had granted security for the company's claim and that there was no real evidence that the award could be paid did not amount to special circumstances which made it inappropriate for the petitioner to be dismissed or stayed. The appeal was, accordingly, allowed and windingup order came to be discharged. Similarly, for dismissal of .....

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terms: A petition founded on a debt which is disputed in good faith and on substantial grounds is demurrable for the reason that the petitioner is not a creditor of the company within the meaning of section 224(1) at all and the question whether he is or is not a creditor of the company is not appropriate for adjudication in winding up proceedings. In fact, in such a situation, the dismissal of the petition is not at any rate, initially, a matter of discretion of the court. It is founded on the .....

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the present case, there is a bonafide dispute of debt and also substantial dispute of counter claim. The principles, which we have enunciated hereinabove, are extensively, explored in catena of judicial pronouncements. For short, we cannot resist the temptation of referring the following decided cases: (1) Madhusudan Gordhandas & Co. v. Madhu Woolen Industries Pvt. Ltd, (1972) 42 Company Cases, 125 (SC), wherein, it is held that one act of dishonesty on the part of the petitioner is sufficie .....

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. (4) American Express Bank Ltd. v. Core Health Care Ltd., (1999) 96 Company Cases, 841, wherein, this Court (Coram: R.Balia, J.) has, lucidly, propounded the material principles and important parameters to be considered by the Court before adjudicating and exercising discretionary powers under section 433 of the Companies Act, 1956. (5) Ashok Fashions v. Magdoot Acid & Chemicals, (Guj) (1998) 91 Company Cases, 655. Dealing with the procedural part, also, as required under the Company Court .....

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mi Art Productions (supra), the Madras High Court has observed thus: The right given to a creditor under section 433(e) of the Companies Act to seek winding up of the company is to enable such creditor to realise the amounts due to the creditor along with all other creditors of the company. Such action by a creditor is for the benefit of all the creditors. After the petitioner ceased to be a creditor by reason of the amount lawfully due to the petitioner having been paid, the petitioner has no f .....

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peration of the company except in the circumstances indicated in the Act. The company is not to be wound up unless it is essential to do so. Learned counsel for the petitioner then contended that as the petitioner has also invoked section 433(f) and having regard to the financial position of the company it is just and equitable to wind up the company. After the petitioner had ceased to be a creditor, the winding up petition at the instance of such person either on the ground of inability to pay .....

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tion, further assert that it is just and equitable to wind up the company. A case for winding up on the grounds that it is just and equitable to do so has also not been made out in the petition. In any event, the petitioner cannot be heard at this stage to contend that the company should be wound up on that ground. Learned counsel for the respondent submitted that the petitioner has failed to furnish any of its documents such as its accounts and ledger books, etc., even though the respondent had .....

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to disclose the true extract of its income for purposes of taxation, though condemnable, does not create a right in the petitioner to claim that the amounts which had been shown by the respondent as loans received from fictitious persons, are amounts belonging to the petitioner and lent by it to the respondent. The petitioners have not made any such claim before the incometax authorities. The alleged loans have been treated by the Incometax Department as income of the petitioner and tax has been .....

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Bharat Credit Ltd. (supra), the Bombay High Court has observed thus: 21. The distinction between articles 36 and 37 of the Limitation Act has been well brought about by the Allahabad High Court in Arjun Sahai v. Pitamber Das AIR 1963 All 278, where it is specifically held that the mere fact that a bond contains a default clause of that nature would not necessarily make article 75 (old) applicable, and that article applied only to those cases where the provision relating to default clause laid do .....

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month. There is no clause suggesting that whole of the amount would become due and recoverable on a single or more defaults. I respectfully agree with the law laid down in the above mentioned ruling. 22. The end result of all this discussion would be that a suit would clearly be barred by limitation on the date on which the petition under section 433 of the Companies Act was filed. In that view, the petition itself would be of no consequence and will be required to be dismissed as there is a va .....

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petition for winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable. (See London and Paris Banking Corporation, In re [1875] LR 19 Eq.444). Again, a petition for winding up by a creditor who claimed payment of an agreed sum for work done for the company when the company contended that the work had not been done properly was not allowed. (See Brighton Club and Norf .....

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e creditor to quantify the debt precisely. (See Tweeds Garages Ltd., In re [1962] Ch 406; [1962] 32 Comp Case 795 (Ch D)). The principles on which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law, and, thirdly, the company adduces prima facie proof of the facts on which the defence depends. Another rule which the court follows is that if there is opposition to the making of the windingup ord .....

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t to a windingup order is, however, qualified by another rule, viz., that the court will regard the wishes of the majority in value of the creditors, and if, for some goods reason, they object to a windingup order, the court in its discretion may refuse the order.' The wishes of the creditors will, however, be tested by the court on the grounds as to whether the case of the persons opposing the windingup is reasonable; secondly, whether there are matters which should be inquired into and inv .....

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ilized merely as a means for realising its debts due from a company. In Amalgamated Commercial Traders (P.) Ltd. vs. Krishnaswami (A.C.K.) [1965] 35 Comp Case 456, 463 (SC) this court quoted with approval the following passage from Buckley on the Companies Acts, 13th edition, page 451: It is wellsettled that a windingup petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. A petition presented ostensibly for a windingup order but .....

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smissed. 15. Similarly, the Apex Court in the case of IBA Healt (India) Pvt. Ltd vs. InfoDrive Systems SDN. BHD. Reported in (2010) 10 SCC 553, has observed thus 22. The above mentioned decision was later followed by this Court in Madhusudan Gordhandas and Co. v. Madhu Woollen Industries 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, wherei .....

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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 nonpayment 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. COMMERCIALLY SOLVENT 24. Appellant company raised a contention that it is c .....

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as a separate ground. If there is no dispute as to the company's liability, the solvency of the company might not constitute a stand alone ground for setting aside a notice under Section 434 (1)(a), meaning thereby, if a debt is undisputedly owing, then it has to be paid. If the company refuses to pay on no genuine and substantial grounds, it should not be able to avoid the statutory demand. The law should be allowed to proceed and if demand is not met and an application for liquidation is .....

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here 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 .....

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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 instances, where the jurisdiction of the Company Court is being abused by filing winding up petitions to pressurize the companies to pay the debts which are substantially disputed and the Courts are very casual in issuing notices and ordering publication in the newspapers which may attract adverse publicity. Reme .....

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9;s winding up petition, in certain situations, implies insolvency or financial position with other creditors, banking institutions, customers and so on. Publication in the Newspaper of the filing of winding up petition may damage the creditworthiness or financial standing of the company and which may also have other economic and social ramifications. Competitors will be all the more happy and the sale of its products may go down in the market and it may also trigger a series of crossdefaults, a .....

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