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2016 (7) TMI 342 - GUJARAT HIGH COURT

2016 (7) TMI 342 - GUJARAT HIGH COURT - TMI - Winding up petition - non payment of dues - Held that:- In light of the fact that the dispute exists regarding the amount claimed by way of a statutory notice even for winding up, in opinion of this Court, a dispute exists between the parties and therefore, it cannot be said that the respondent has neglected to pay. - Considering the statutory notice and the reply given by the respondent-Company and so also, the other correspondence between the .....

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ted to be used as a substitute for deciding the bonafide dispute which can only be done by way of filing an appropriate Civil Suit before the competent Court. The petition is liable to be dismissed in limine and is hereby dismissed. - Company Petition No. 280 of 2016 - Dated:- 28-6-2016 - R. M. Chhaya, J. For the Petitioner : Mr Vivek N Mapara, Advocate ORDER 1. By way of this petition under Sections 433 and 434 of the Companies Act, 1956, the petitioner has prayed for winding up of the Company .....

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respondent-Company gave a subcontract to the present petitioner which is evident from the work order dated 6.8.2012. After the work was completed, the petitioner has raised his bill and it is important to note that the petitioner addressed a letter dated 8.7.2015 to the respondent-Company specifically raising and demanding the aforesaid sum of security deposit illegally and arbitrarily deducted by the respondent-Company from R.A. bills of the petitioner. Ultimately, the correspondences took pla .....

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e said statutory notice is reflected in paragraphs 11, 13 and 14 in particular. As averred in Paragraph 14, the petitioner Company has called upon the respondent through the learned advocate to make payment of ₹ 18,63,271/within a period of three weeks. The record indicates that the said notice was replied by the petitioner through his advocate, wherein the contentions raised in the notice and more particularly, demand of ₹ 18,63,271/raised by the petitioner particularly, on the assu .....

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s only limited to ₹ 18,63,271/is raised in the statutory notice which is in fact an additional deduction made by the respondent. Relying upon the covenant of the contract between the petitioner and the respondent-Company being covenant no.(b) at Page 47 of the paper book, it is contended by Mr. Mapara that such deduction cannot exceed 2.5% of the estimated cost put to tender as mentioned in the letter of acceptance of the tender. It is also contended by Mr. Mapara that contractually, the r .....

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by the respondent, the same has been replied in the earlier correspondence. 3. In light of the aforesaid submissions and on perusal of the correspondence which is brought on record, it cannot be said that the dues are admitted. On the contrary, it is evident from the correspondence between the parties, more particularly, a letter which is written without prejudice dated 20.7.2015 that the same is not admitted by the respondent Company. It is noteworthy that the respondent in its letter dated 20. .....

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ji 934.99 Excess payment made 73.36 From above it can be seen that in terms of contract provisions we have already overpaid you ₹ 73.36 lacs. This amount does not include recoveries to be made in respect of material reconciliation repairs to the faulty works ect.. Neither any recovery towards compensations for delay. Inspite of you being paid in excess of what was your legal dues, you have not cleared dues of your labours, vendors etc. From above it is very clear that the claim vide your l .....

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to ask loss of overhead & profit. This claim is thus considered unethical in terms of contractual provision & spirit, hence not agreed. 4. In the aforesaid set of facts therefore, it is evident that the amount claimed is highly disputed. 5. 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 dependi .....

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8) 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 .....

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decided. It must 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 k .....

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ds disputed the 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, a .....

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was unable to litigate 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, f .....

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ted 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 i .....

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se category. In 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 petiti .....

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f the petitioner. (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 th .....

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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 peti .....

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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. 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 in .....

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arred by limitation, 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 .....

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ent in failing 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 a .....

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e 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 .....

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erest @ 3% per 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 .....

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dismissed a 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 .....

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requiring the 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 .....

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ws : 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 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 inquire .....

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lowed to be utilized 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 well-settled that a winding-up 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 wind .....

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uired to be dismissed. 10. 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 .....

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ing 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 .....

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relevant not 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 li .....

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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 .....

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isputed 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 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 pu .....

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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 may go down in the market and it may also trigger a series of cro .....

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