TMI Blog2016 (6) TMI 538X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the case of the petitioner that the respondent Company placed orders for kraft paper with the petitioner Company in the month of March 2008 and on the basis of such order, the petitioner Company had supplied 23 tons (approx.) of paper through different challans and invoices at different rates aggregating to ₹ 13,40,890/. It is specifically the case of the petitioner Company that the respondent Company paid an amount of ₹ 12,55,534/, however did not pay the remaining amount of ₹ 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll date, the same is not replaced and the same is lying in the godown of respondent Company. It is the case of the respondent Company that because of cordial relationship between the parties, intimation was given by way of telephonic talk and the respondent Company was repeatedly given assurance to 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 wagers are maintained by the respondent Company. The respondent Company has also denied the factum that the respondent Company has failed to make payment of ₹ 10,09,403/. It is contended by the respondent Company that in fact, two cheques were given earlier for ₹ 13,39,000/, which have been utilised by the petitioner Company inspite of making payment of ₹ 7 lakhs, which was reall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade 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. The record of the petition indicates that different bills were raised by the petitioner Company for the goods supplied. The record clearly indicates that on receipt of the notice dated 16.04.2009, the respondent Company gave reply to the petitioner Company, which is not brought on record by the petitioner Company. The said reply dated 05.05.2009 has been received by the petitioner Company as per the Acknowledgment Due receipt, which is forming part of the record of this petition. It is appropriate 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 sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be dismissed with costs. This principle is, succinctly, established in following English Cases. 1. Imperial Silver Quarries (1868) 14 W.R. 1220; 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) C.A.T. 143. To fall within the general principle, the controversy, really, must be bonafide in both, subjective and objective sense. This means that, it must be, honestly, believed to exist and must be based on substantial or reasonable grounds. 'Substantial' means having substance and not frivolous or vexatious and which the Court should ignore. There must be so much doubt and question about the liability to pay the debt that the Court sees that there is a question to be decided. It mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal was, accordingly, allowed and windingup order came to be discharged. Similarly, for dismissal of winding up petition where the company has a genuine defence or dispute or a crossclaim, it has been observed in Halsbury's Laws (4th edn) (1996 reissue) para 2212. 4 Halsbury's Statutes (4th edn) (1998 reprint) 821 succinctly propounds the winding up issue in similar cases when discretion is sought to be exercised under section 125 of the Insolvency Act, 1986. The pith and substance of the observations made in the Halsbury's Laws, in this connection, could be highlighted in following 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 petitioner's inability to establish the locus standi to present a petition under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. Similarly, in the case of Vijayalakshmi 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 further right in relation to the affairs of the company, and no enquiry need be made into the company's finances or its conduct in other matters for the purpose of deciding as to whether the winding up order is warranted. A winding up order cannot be made at the instance of the person who himself is not a creditor at the time the winding up order is to be made, by reason of the acknowledged debt having been paid to such a creditor. The scheme of the Companies Act is to provide for continued operation 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. Lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the nature of the claim, and the objections thereto raised by the respondent and the conduct of the parties, the debt claimed, except to the extent admitted besides being barred by limitation must be held to be a bona fide disputed debt for which the company has a prima facie defence. The petitioner in the circumstances is only seeking to pressurise the company to pay a disputed debt. A winding up petition for such a purpose will not lie. 12. In the case of Jay 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 down that on default being made in payment of one or more instalment, the whole amount has to fall due. It would not apply in cases where a default may exist in a different form, for example, where the right of brining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 order by the creditors the court will consider their wishes and may decline to make the windingup order. Under section 557 of the Companies Act, 1956, in all matters relating to the windingup of the company the court may ascertain the wishes of the creditors. The wishes of the shareholders are also considered, though, perhaps, the court may attach greater weight to the views of the creditors. The law on this point is stated in Palmer's Company Law, 21st edition, page 742, as follows : This right 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 wish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he merits before the appropriate forum. The above mentioned judgments were later followed by this Court in Vijay Industries v. NATL Technologies Ltd.(2009) 3 SCC 527. 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 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 commercially solvent and, in such a situation, the question may arise that the factum of commercial solvency, as such, would be sufficient to reject the petition for winding up, unless substantial grounds for its rejection are made out. A determination of examination of the company's insolvency may be a useful aid in deciding whether the refusal to pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt 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. Remember, an action may lie in appropriate Court in respect of the injury to reputation caused by maliciously and unreasonably commencing liquidation proceedings against a company and later dismissed when a proper defence is made out on substantial grounds. A creditor's winding up petition implies insolvency and is likely to damage the company's creditworthiness or its financial standing with its creditors or customers and even among the public. PUBLIC POLICY CONSIDERATIONS 34. A creditor'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 ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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