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Focus Advertising Private Ltd. Vs. Ahoora Blocks Private Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Case NumberAppeal No. 55 of 1974 (Company Petition No. 282 of 1973)
Judge
Reported in[1975]45CompCas534(Bom)
ActsCompanies Act, 1956 - Sections 433, 434, 447, 537 and 557
AppellantFocus Advertising Private Ltd.
RespondentAhoora Blocks Private Ltd.
Advocates:D.R. Dhanuka, Adv. for appellants-company, ;G.J. Desai, Adv. for respondents-original petitioners, ;G.J. Desai, Adv. for Wagle Process Studio & Press Ltd. -supporting creditors, ;C.M. Khorde, Adv.
Excerpt:
company - winding up - section 447 of companies act, 1956 - appeal against order of winding up - winding up petition opposed by majority creditors - opposition on ground of commercial solvency of company and faith of creditors reposed in management - material available to prove commercial solvency of company - order of winding up not maintainable. - indian succession act (39 of 1925), section 63: [s.b. sinha & cyriac joseph, jj] will validity - deceased, was a very wealthy person - he floated several companies - he left behind his daughters, s and j - he was suffering from various diseases including some neurological ones - for his treatment, he used to frequently visit united states of america accompanied by his wife and daughter - by reason of a will, he is said to have bequeathed.....mukhi, j.1. this is an appeal from the order of winding up passed by the learned company judge (vimadalal j.) whereby he ordered that the company, messrs. focus advertising private ltd., be wound up under the relevant provisions of the companies act, 1956, and that the official liquidator be appointed liquidator of the company and its assets. 2. the order was passed on the 14th of march, 1974, and just prior there to on a preliminary point taken up by the counsel for the company, the learned company judge passed a separate order rejecting the preliminary objection and that is how the hearing of the petition proceeded, resulting in the order of winding up being made. 3. being aggrieved by the two orders of the 14th of march, 1974, the company has filed this appeal. 4. it is to be noticed.....
Judgment:

Mukhi, J.

1. This is an appeal from the order of winding up passed by the learned company judge (Vimadalal J.) whereby he ordered that the company, Messrs. Focus Advertising Private Ltd., be wound up under the relevant provisions of the Companies Act, 1956, and that the official liquidator be appointed liquidator of the company and its assets.

2. The order was passed on the 14th of March, 1974, and just prior there to on a preliminary point taken up by the counsel for the company, the learned company judge passed a separate order rejecting the preliminary objection and that is how the hearing of the petition proceeded, resulting in the order of winding up being made.

3. Being aggrieved by the two orders of the 14th of March, 1974, the company has filed this appeal.

4. It is to be noticed that Focus Advertising Private Ltd. (hereinafter called 'the company') is, as disclosed by its very name, an advertising company and carries on its business with its registered office at Bombay and a branch office in Madras. The petitioning-creditor, Ahoora Blocks Private Ltd., by their solicitors' letter dated the 25th of June, 1973, called upon the company to pay to them a sum of Rs. 17,248.41 described by them to be a sum now remaining due and payable in relation to the company's orders for preparation of various blocks 'at the foot of their account'. This letter was also described at the foot thereof as a statutory notice under the provisions of the Companies Act. There is no dispute that this notice of demand was received by the company on the 27th of June, 1973, and it is also an admitted position that no written reply was sent by the company within the period prescribed.

5. It has been suggested that there were some discussions between the company's representative and a representative of the petitioners. But the fact remains that no written reply was sent by the company and there appears to have been no compliance with the notice of demand in the manner prescribed, i.e., either by the payment of the sum or by securing it or compounding for it to the reasonable satisfaction of the petitioning-creditor.

6. On the 19th July, i.e., almost immediately after the expiry of the twenty-one days' statutory period, the petitioning-creditor filed the petition for winding up, which is now before us in appeal.

7. It is contended by the company that even after the filing of the petition, there were discussion between the parties for an amicable settlement. The contention of the company appears to be that the several bills, on the basis of which the petitioning-creditor claimed the sum of Rs. 17,248.41 were required to be checked and it appears from the correspondence, which has been placed on record, that some of the bills were not available so that duplicates were produced and there was some dispute as to two amounts, that is to say, Rs. 1,337 in relation to 14 bills originally not produced, and Rs. 2,252 in respect of 15 challans. In other words, the utmost that can be said was that there was some necessity for verification of the various bills and vouchers before the petitioning-creditor's demand, as made, could be met and that there was some dispute as regards part of the claim, i.e., the aggregate sum of Rs. 3,589 was not admitted. It would follow that so far as the rest of the amount of Rs. 13,658 was concerned, the debt could not be said to be disputed as such.

8. In the events that happened and very shortly after the filing of the petition, the petitioning-creditor and the company seemed to have arrived at a settlement and the negotiations even reached the stage of formal consent terms being drawn up for filing in court and signed by the respective attorneys of the petitioning-creditor and the company.

9. These consent terms show that the company admits the petitioning creditor's claim for Rs. 17,248.41 and that the two directors of the company, who are named in the consent terms, agreed to pay or cause to be paid the said sum of Rs. 17,248.41 by five monthly installments and the first four monthly installments were to be of Rs. 4,000 each and the last installment to be of Rs. 1,248.41. The first of such installment was to be paid on or before the 5th of September, 1973. The consent terms having been signed on the 4th of September, 1973. There was also a provision in the consent terms that if the first installment of Rs. 4,000 was not paid on the 5th to September, 1973. Or any installment thereafter the petition for winding-up would stand dismissed.

10. Now, a curious development appears to have taken place because on the 15th of September, 1973, the consent terms, which had already been signed, were not filed, and, we are told at the Bar, that they were not permitted to be filed by the court. But the counsel appearing for the company nevertheless made a statement before the learned company judge (Kania J.) that the company 'admits the claim of the petitioners mentioned in the petition', and then the petition was adjourned for one week.

11. It requires to be noticed that at that stage the petition had not yet been admitted; it had only been accepted and a notice issued to the company to show cause why it should not be admitted. Ultimately, however, the matter came up again before the company judge in chambers on the 12th of October, 1973, and this time the petition was admitted and an order advertising the petition was also made.

12. It may be mentioned that in between the above two dates a letter was addressed on the 6th of September, 1973, referring to the negotiations between the parties and it was therein stated that the court had declined to take the consent terms on file and that the company felt that they had been deceived by the petitioners and, therefore, the consent terms were not binding. In fact, the letter contains a request that the consent terms were not returned to the company for cancellation. There was, however, no reference to the fact that counsel for the petitioner had admitted the petitioner's claim as recorded by the company judge on the 5th of September, 1973, or how that admission was to be treated.

13. There were certain other developments thereafter in the sense that stay of advertisement was asked for and as ad interim stay was granted. There were also two orders passed by the company judge (Gandhi J.). By the order dated the 17th of November, 1973, the company was directed to deposit in court the sum of Rs. 17,748. By the second order dated the 19th of November, 1973, the petitioner were permitted to withdraw that amount from the court.

14. There was an appeal from the order dated the 19th of November, 1973, by the company but ultimately both the order dated the 17th of November, 1973, and the 19th of November, 1973, were set aside by the appellate court.

15. The contentions urged before the company judge, who heard the petition, were three in number. The first contention as raised by Mr. Dhanuka, counsel for the company, as a preliminary objection, was to the effect that the petition did not contain any particulars in respect of the alleged debt and that, therefore, the petition was not in accordance with the form prescribed by the Companies (Court) Rules, 1959, and thus not maintainable. It was then suggested that the petition would be dismissed for that reason. The learned company judge rejected the preliminary objection as he was of the view that in a case where a petition for winding up is based merely on a deemed inability to pay by reason of non-compliance with a statutory notice under section 434(a) of the Act there was no question of any particulars of the debt having to be given. According to the learned company judge, the cause or basis of any such petition is the failure to comply with the statutory notice. The learned company judge noted that the preliminary objection was taken before him on a demurer but in his opinion the petition could be said to have been properly framed if it merely set out :

(a) that the petition was by a creditor for a certain amount;

(b) that a statutory notice in respect of that claim had been served on a particular date; and

(c) that the company had for three weeks from the date of the service of the notice neglected to comply with the notice in the manner prescribed by section 434(a).

16. Mr. Dhanuka argued before us that if reference is made to the Companies (Court) Rules, 1959, and the forms (and he then referred to rules 6, 17 and 95 and to Form No. 46), it would at once become clear that the details required to be incorporated in the petition as per paragraph 6 of Form No. 46 having not been furnished, the petition as filed was not maintainable.

17. Now, rule 65 lays down that a petition for winding up of a company shall be in Forms Nos. 45,46 or 47, as the case may be, with such variations as the circumstances may require and shall be presented in duplicate.

18. Turning now to Form No. 46, which appears to be the appropriate form for a petition based on the failure of the company to comply with the statutory notice, we find that paragraph 6 of the form reads as follows :

'The company is indebted to the petitioner in the sum of Rs. ... for [state consideration for the debt, with particulars, showing that the debt claimed is due].'

19. There is an asterisk mark which refers to a note in the case of a debt which is due on an assignment, but we are not concerned with that aspect in this petition.

20. Paragraph 6 of this form, i.e., Form No. 46, clearly shows that, apart from the amount of the debt, two other matters must be mentioned, namely :

(a) the consideration for the debt with particulars; and

(b) there must also be an affirmative statement that the debt claimed is due.

21. Rule 6 provides that the practice and procedure of the court and the provisions of the Code of Civil Procedure are to apply as far as applicable and rule 17 contains a general liberty that the forms set out in Appendix I shall be used with such variations as circumstances may require.

22. The rules, which we have noticed, in our view, predicate that the petition itself must disclose the basis on which it is filed. If the basis is non-compliance with the statutory notice delivered to the company, then it must be set out in the petition, as mentioned in paragraph 7 of From No. 46. But it is implicit that a statutory notice can only proceed when there is a debt in existence. It would follow that the petition must contain the necessary particulars from which the court can ascertain that there was in fact a debt (for which there was a consideration and that the debt was presently due); that a statutory notice of demand was served; and that there had been a default.

23. When a petition is based on non-compliance of a statutory notice, then it only means that by a legal fiction the company is deemed to be unable to pay its debts, without any further proof that the company is really commercially insolvent. But the question remains : How is the court to ascertain that there was in existence a debt That is why paragraph 6 of Form No. 46 assumes importance. If the requirements of paragraph 6 are not met, then unless the company appears and shows cause, the court would not be able to ascertain even the prima facie validity of such a debt in relation to which a statutory notice of demand has not been complied with. A debt without consideration or a debt which is not presently due may not be sufficient to form the basis of a statutory notice of demand and then of a petition for winding up under section 433(e) of the Act.

24. Mr. Dhanuka has argued, and in our view there is some substance in the argument, that the petition must itself disclose a cause of action in the sense that there is a debt and notwithstanding a statutory notice the debt has not been paid or secured or compounded for to the satisfaction of the creditor.

25. It is true that paragraph 7 of Form No. 46 indicates that there will be some information as to wen the statutory notice was issued and served on the company. But it is to be noticed that paragraph 7 is not required to indicate the nature of the debt or even the amounts of the debt. All that is required is that the petitioner must say that a notice was served on the company and that the company has failed and neglected to pay the amount or any part thereof. It is possible to contend that it may not be necessary to give the particulars in paragraph 6 of Form No. 46 itself if it could be shown that the statutory notice of demand which is invariably annexed contains the necessary information.

26. In any event the petition must contain all the relevant information and it does not matter if the information is to be found in paragraph 6 or in the statutory notice annexed to the petition. In other words, the petition for winding up must really be a speaking petition so that by reading the petition itself the basis on which it has been filed may be immediately discerned by the court. If that were not to be so, then it would mean that where a petition for winding up is filed on the basis of a statutory notice given and not complied with and the company fails to appear, the court would not be able to ascertain whether there was in fact a valid debt, the payment of which was demanded for by the statutory notice which was demanded for by the statutory notice which was then not complied with.

27. It is, of course, a matter of prudence that when a company received a demand under section 434(a) of the Companies Act, it should send a reply, but it is also to be realised that there may be a notice of demand which is so ridiculous or fantastic that the proper things for the company may well be to ignore it. It is common knowledge that every letter written by a crank does not require to be replied to. Merely not replying to a notice can never be a reason for assuming that a debt in fact exists. A particular notice of demand purporting to be under section 434(a) of the Companies Act may contain a claim so untenable that a company may feel justified in treating it with the contempt it deserves. In fact, such a notice may contain anything from honest error to deliberate mischief.

28. In our view, it is necessary that particulars of the debt must be given either in paragraph 6 of Form No. 46 or in the notice itself or at any other place in the petition so that in the event of the petition being heard ex parte, the court would have before it sufficient material to make a proper order. In the case before us it is not disputed that there was no reply although there was suggestion of some oral representation having been made. Although in the present case the company has appeared, it is clear that if the company had not appeared, then the court would have been faced with a petition from which it could not be prima facie ascertained that there was a valid debt which could be claimed. The relevant paragraph of the petition as well as the notice, exhibit A, is couched in vague words and speaks of certain bills having been sent, some payment having been received in respect of certain bills and a balance of Rs. 17,248.41 being found due and, therefore, claimed. As we have noticed, there was some dispute as to some of the bills which were not said to have been received by the company at all.

29. The notice, exhibit A, also speaks of the sum of Rs. 17,248.41 being 'payable by you at the foot of your account', but there is no statement of account annexed. We doubt if the company judge would have been able to make a valid order on this petition if the company judge would have been able to make a valid order on this petition if the company had not appeared. However, in the case before us, the fact that the petition does not contain this information has no longer any relevance because, as we have mentioned, on the 5th of September, 1973, counsel for the company made statement before the company judge that the company admitted the claim of the petitioner as mentioned in the petition.

30. The next contention of Mr. Dhanuka, the learned counsel for the company, was that there was a bona fide dispute in the sense that one Vaishnav had gone to see one Yusuf, a representative of the petitioning-creditors, and there had been negotiations between the petitioning-creditors, and there had been negotiations between the parties and the company's request was that the various bills and invoices should be shown them so that the amount, if due, could be ascertained. Mr. Dhanuka has argued that because there were cordial relations between the parties a formal written reply was not given to the statutory notice of demand.

31. Now, assuming that some of the bills had not been received or that there was a dispute in respect of two sums of Rs. 1,337 and Rs. 2,352, the company has clearly failed to explain how it can be maintained that there was any dispute, far from being a bona fide dispute, with regard to the balance amount which is, in any event, in excess of the statutory figure of Rs. 500. We have already stated that when the petition came up for admission before the company judge on the 5th of September, 1973, an express and unqualified admission of the petitioner's claim was made by the company through its counsel and this admission was duly recorded by the company judge. We have also mentioned that certain consent terms were arrived at between the parties and were signed by the concerned attorneys but were not taken on record. Whatever may have been the reason for this clear admission of the liability which followed, we find it difficult to entertain any argument that there was any dispute, much less a bona fide dispute, so as to affect the ground on which the petition for winding up was filed. In these circumstances, we must hold that the petitioning-creditor has proved its case against the company for a winding up order. But whether an order for winding up should be made or not is another matter.

32. That takes us to the third and only point which requires to be considered in the appeal before us and that is : whether the right of the petitioning-creditor should give way to the wishes of other creditors that the company should not be wound up.

33. Section 557 of the Companies Act, 1956, provides that in all matters relating to the winding up of a company, the court may, among other things, have regard to the wishes of the creditors or contributories of the company as proved to it by any sufficient evidence. The section also contains a supplementary power of the court to direct meetings of the creditors or contributories to be called if the court deems if fit for the purpose of ascertaining those wishes.

34. On the basis of the legal position as obtaining, it has been contended by Mr. Dhanuka that the majority in number and value of the creditors are opposing the winding up and that the wishes of those creditors should be given due regard by the court and the company should not be ordered to be wound up, even if the petitioning-creditor may have proved its case for a winding up order ex debito justitiae.

35. it would appear from the judgment of the learned company judge that at the hearing of the petition affidavits were filed and eight creditors with claims of the aggregate value of Rs. 7,68,000 supported the company and opposed the winding up, as against some creditors with aggregate claims said to total Rs. 3,03,862.07 who were in favour of winding up of the company, including the petitioning-creditor.

36. Now, before we consider this aspect of the matter, we may at once point out that the figure of Rs. 3,03,862.07 appears to have been based on a list hurriedly prepared by one of the counsel appearing for one of the creditors and handed in. On a correct appraisal we find that those creditors, including the petitioning-creditor, who are pressing for the winding up of the company, do not have claims aggregating to the value shown.

37. We shall first take those creditors, or those who claim to be creditors, wish to press for a winding up order.

38. Perhaps, the most vocal of the creditors supporting the petition for winding up is a company by the name of Turner Hoare & Company Ltd. and by an affidavit dated the 20th of September, 1973, filed on their behalf, they have set out the basis of a debt said to be due to them from the company. No specific amount has been mentioned in the affidavit, but it transpires that from 1966 there has been litigation between Turner Hoare & Company Ltd. and L. A. Stronach & Company (India) Ltd., who are monthly tenants of a portion of the building known as Wavel House, Ballard Estate, Bombay. It would appear that some time in 1972 the company (Focus Advertising private Ltd.) was impleaded as a party to those proceedings in the Small Causes Court and a consent decree was passed between Turner Hoare & company Ltd. and the company (Focus Advertising private Ltd). By reason of the consent decree, the company was required to pay a certain sum, viz., Rs. 6,001 per month, as the aggregate compensation for the use and occupation of a portion of the premises and it was provided that, if such payments were made, the execution of the decree for possession against the company would be stayed till the 31st of December, 1975. On this footing Turner Hoare & Company Ltd. claimed to be the creditors of the company (Focus Advertising Private Ltd.) to the extent of Rs. 90,000. There is no material on record to show how this sum of Rs. 90,000 has been arrived at, but this is the figure entered in the list which was hurriedly prepared by one of the counsel for one of the creditors and handed over to the company judge at the trial. Mr. Dhanuka says that there are several proceedings pending in the Small Causes Court and, according to him, a sum of Rs. 60,000 has already been deposited there. It is not necessary for the purpose of this case to go into details as to what is the exact amount due or not due from the company to Turner Hoare & Company Ltd., but we will assume for the purpose of this petition that Turner Hoare & Company Ltd. are creditors of the company to some extent and entitled to support the petition for winding up.

39. The second 'creditor' who is supporting the petition is a company by the name of Estrella Batteries Ltd. and the affidavit dated the 17th of January, 1974, made on their behalf by one, Mr. A.M. Ladak, makes curious reding. This is how paragraph 3 of the affidavit reads :

'A sum of Rs. 87,563.59 is due and payable by the company to the applicants in respect of the excess payments recovered by the company and for non-delivery of certain articles and things to the applicant. In addition to the said claim, the applicants have also a claim against the company for non-delivery of art works, blocks, film prints, etc., of the value of Rs. 1,69,151.42. Despite repeated demand, the company has failed and neglected to pay the said amount or to deliver the said articles and things.'

40. The affidavit does not disclose a debt, it merely talks of a claim for excess payments said to have been made and for non-delivery of certain articles and things. There is a further claim for non-delivery of art works, blocks, film prints, etc., and, they are stated to be of the value as mentioned. We have not understood how on these averments and on the basis of this single affidavit, without any details and without any particulars, it can be argued that Estrella Batteries Ltd. are the creditors of the company and, therefore, entitled to support the petition for winding up. It requires to be noticed that as a matter of fact a petition for winding up of Estrella Batteries Ltd. itself has been filed by the company and which is pending, wherein a sum of Rs. 3,00,000 has been shown as a debut due to the company from Estrella Batteries Ltd. In these circumstances, it is not possible to consider Estrella Batteries Ltd. as the creditors entitled in these proceedings to support the winding-up petition and we shall, therefore, ignore them.

41. The next creditor who supported the petition at the trial i.e., Commercial Art Engravers (Private) Ltd., claim a sum of Rs. 25,189.30 and it is no longer disputed that this is a valid claim and has been admitted by the company. This creditor is not represented in the appeal before us.

42. Wagle Processed studio and Press Ltd. have appeared as a creditor supporting the petition and claimed a sum of Rs. 4,500, which is also an admitted debt.

43. Two further creditors by the name of Rational Art and Press Private Ltd. with a claim of Rs. 18,616 and Unique Blocks for Rs. 6,478 have not appeared, but they claim these amounts and these amounts appear to have been included in the list prepared by the counsel to which we have already referred.

44. In addition to the above creditors, who support the petition for winding up, we must also take cognizance of three other creditors because they have themselves filed petitions for winding up and, therefore, it must be presumed that they are supporting this petition for winding up. In fact, some of them have also appeared in these proceedings either at the trial stage or in the appeal to support the petition for winding up. Now, these are as follows :

In Company Petition No. 316 of 1973 : Gulam M. Tinwala claiming Rs. 47,398.47.

In Company Petition No. 416 of 1973 : Ms. Film Media claiming Rs. 75,875.07.

In Company petition No. 253 of 1974 : Selves Syndicate claiming Rs. 3,230.

45. It requires to be noticed that there is a further petition and that is Company Petition No. 26 of 1974, filed by Commercial Art Engravers Private Ltd., claiming Rs. 25,195 and to whom we have already referred.

46. Now, if we take all these debts into consideration, excluding only Estrella Batteries and Turner Hoare & Company Ltd., then the aggregate claim of the creditors who wish to press for winding up comes to about Rs. 1,75,000. If we add the amount claimed by Turner Hoare & Company Ltd. up-to-date (say Rs. 60,000) the total may come to about Rs. 2,35,000, which is also substantially less than the amount taken into consideration at the trial by the company judge at Rs. 3,30,862.07.

47. As against these creditors who have pressed for winding-up, there are eight creditors, whose debts are of the aggregate value of Rs. 7,68,000, and they are supporting the company and opposing the winding-up. These creditors include the prestigious Indian and Eastern Newspaper Society Ltd., who are creditors in the sum of Rs. 6,00,000.

48. It is in the light of these figures that we will have to consider the wishes of the creditors as proved before us by sufficient evidence and how far regard should be paid to those wishes for the purpose of deciding whether a winding-up order should or should not be made.

49. There can be no doubt that the discretion granted to the court is unfettered, although it must be exercised on judicial considerations.

50. It is for the court to take into consideration the relevant factors and then decide whether the right of the petitioning-creditor (after it has proved its debt) to a winding-up order must give way to the wishes of the creditors who are opposing the petition, due regard being had to the interests of the company's creditors generally.

51. It is important to notice that, if the wishes of those creditors who are opposing the petition for winding up is based on grounds which the court considers reasonable, then due regard must be given to those wishes. In In re A. B. C. Coupler & Engineering Co. Ltd., it was observed that :

'...... if it is thought right to take account of the wishes of them majority of the creditors, and if those wishes are reasonable, then the court can properly refuse at their request to make a winding-up order.'

52. The Supreme Court had occasion to examine section 557 of the Companies Act, 1956, and how far the wishes of the creditors may be considered in Madhusudan Gordhandas & Co. Ltd. v. Madhu Woollen Industries Pvt. Ltd. The court observed :

'Another rule which the court follows is that if there is opposition to the making of the winding-up order by the creditors the court will consider their wishes and may decline to make the winding-up order. Under section 557 of the Companies Act, 1956, in all matters relating to the winding-up 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 winding-up 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 good reason, they object to a winding-up 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 winding up is reasonable; secondly, whether there are matters which should be inquired into and investigated if a winding-up order is made. It is also well-settled that a winding-up order will not be made on a creditor's petition if it would not benefit him or the company's creditors generally. The grounds furnished by the creditors opposing the winding-up will have an important bearing on the reasonableness of the case. (See In re P.&J.; Macrae Ltd.).'

53. In the case before us, the eight creditors, including the Indian & Eastern Newspaper Society, have by affidavits filed on their behalf submitted that the court should not wind up the company. Now, this statement obviously expressed the wish of these creditors. But the creditors then proceed to give the grounds and reasons for their wish that the company should not be wound up.

54. The first ground given is that they are satisfied from a consideration of the balance-sheets and various other statements of accounts that the company is commercially solvent. Secondly, that they have full faith and confidence in the management of the company, and, thirdly, that, according to them, there are prospects that the company would be able to make payments in the near future. This is followed by another statement that the winding-up of the company would not be in the interest of the creditors generally.

55. It is true that each of the affidavits filed by the eight creditors is in similar language, but we are unable to see how they can be brushed off as 'stereotyped affidavits' in the manner done by the learned company judge even if they are couched in the same language. There is no logic in saying that every creditor in order to express a similar wish and give similar reasons should have used different language. In out view, it is the substance that will sound and not the form.

56. The learned company judge seems to have been of the view that the reasons which we have set out on the basis of which the eight supporting creditors have expressed their wish that the company should not be wound up are mere statements and cannot be of any avail for the purpose of overriding the petitioner's right to an order for winding-up.

57. Now, the words of section 557 of the Companies Act, 1956, are to out mind very clear. The court has to have regard to the wishes of the creditors and those wishes must be proved to the court by any sufficient evidence. We have before us affidavits of these eight creditors who have indicated in no uncertain terms that their wish is that the company should not be wound up. It is, therefore, now for the court to determine if the wishes of the creditors are based on grounds which may be considered to be reasonable.

58. There can be no dispute that the court must have regard to these wishes if they are based on good and valid grounds. It is not as if there has to be a head count. The number of such creditors and value of the debts do not by themselves matter. But, before the views of the minority of creditors can claim to override the wishes of the majority, they must at least show some good reasons for the attitude they have adopted.

59. It has been argued that mere statements made by the supporting creditors are not sufficient but in addition to expressing their wishes they must give adequate reasons for justification of these wishes. This would be true in a sense, but the real question is not whether the creditors themselves provide the reasons but whether such reasons exist and can be ascertained from the material on record.

60. Now, we have seen that the creditors have given three reasons in their affidavits and the first and foremost reason given by them is that, according to them, the company is commercially solvent and this fact they have ascertained from the balance-sheet and other statements of accounts of the company. The learned company judge found this statement insufficient and he has in his judgment said that such a statement can be of no avail. But we have on record sufficient material to come to a finding that the company appears to be commercially solvent. It does not matter whether this material has been placed on record by the creditors or by the company. What is important is that the material is there. Now, the relevant material is to be found in the affidavit of Derek Freitus, managing director of the company, in reply to the petition dated the 21st of January, 1974. In exhibit C annexed to the affidavit the assets of the company in the form of book debts amounting to about Rs. 13,00,000 have been set out and a list of the persons from whom the debts are due have been set out. There is nothing to show that these outstanding will not in due course be realised. Then, there is a reference to payments made during the period from April, 1973, to December, 1973, and these show that a sum of Rs. 8,43,761 was paid to the press; Rs. 4,75,623 was paid to various suppliers; and Rs. 5,65,807 were expended for salaries and other expenses.

61. Exhibit S to the affidavit shows that a sum of nearly Rs. 19,00,000 were received as payments from the company's clients during the period from April to December, 1973, and exhibit P to the affidavit shows that the billing of the company was nearly Rs. 23,00,000.

62. We have also now before us the balance-sheet of the company for the period ending 31st March, 1973, which has been filed along with an affidavit as directed by this court on the 14th of March, 1974. The trial balance for the year ended 31st March, 1974, has, however, not been filed.

63. Mr. Korde, appearing for Turner Hoare & Company Ltd., made a brave attempt to show to us that this balance-sheet itself demonstrated that the company was commercially insolvent. We have gone through the various items which were shown to us, but we find ourselves unable to agree with such a view. In fact, what Mr. Korde wanted to show to us was not that the company was insolvent but that the company assets fell short of the company's liabilities. Now, the fact that the company's liabilities exceed the assets does not necessarily show that the company is unable to pay it debts. It may still be in a position to meet the demands of the creditors as and when due.

64. Mr. Korde was attempting to show that the company was in such a bad financial situation that the wishes of the creditors that the company should not be wound up is not reasonable. We are unable to agree. On our reading of the company's financial position and on consideration of the material on record, we find that it is not unreasonable for the creditors who have nearly Rs. 7,60,000 at stake to say that the company should not be wound up.

65. It requires to be stated that our discussion as to the financial condition is not for the purpose of ascertaining whether the company is liable to pay its debts. Where a petition is based on non-compliance with a statutory notice such a question does not arise. But if, as we have found, the company is commercially solvent, then if furnishes a ground, among others, for the wishes of the creditors that such a company should not be wound up.

66. An analysis of the wishes of the creditors who include the Indian & Eastern Newspaper Society Ltd. really shows that what these creditors wish is that the company should continue because it is still in a viable position and these creditors have full faith and confidence in the management of the company and because of that they expect that, if the company is allowed to continue and do its normal business, there is a reasonable expectation that, in the near future, the creditors will receive full payment of the amounts now due to them.

67. In this view of the matter we find not only that the wishes of these creditors who have a sufficiently large stake in the company appear to be reasonable but that their wishes are supported by evidence on record.

68. The learned company judge ought not, on the facts of this case, to have made a winding-up order. He was, in our view, in error when he considered the reasons given in the affidavits of these creditors as mere statements without any justification.

69. If the reason given by the creditors that the company is commercially solvent is borne out by the record, then we are unable to agree that it is a bare statement.

70. As to the question of 'full faith and confidence in the management of the company', it requires to be noticed that in a conceivable case where the shareholders and creditors of the company lose faith in the management and it is shown to the court that there is a lack of probity, then it would furnish a ground for the winding up of the company under the just and equitable clause. (See Rajhamundry Electric Supply Corporation Ltd. v. Nageswara Rao).

71. We do not see why an expression of faith in the management should not be a reason and a justifiable reason for a creditor to say that the court should allow the company to continue its business and not wind it up. A mere wish of this type may not always be enough, but it is a factor which must be considered by the court in the light of the facts and evidence placed on record.

72. It is also to be remembered that the Supreme Court has laid down in Madhusudan Gordhandas & Co. v. Madhu Woollen Industries Pvt. Ltd. that one of the consideration before the court is the interest of all concerned and if the court comes to the conclusion, on the circumstances of each case, that it would not benefit the petitioning-creditor or the company's creditors generally if the company is ordered to be wound up, the court can refuse to order a winding up. The learned company judge was also in error in not taking this factor into consideration at all.

73. We are satisfied that the wishes of the eight creditors to whom the company is indebted in the sum of Rs. 7,80,000 have been proved to the court by sufficient evidence on record. They are based on valid grounds and clearly enable the court to come to the conclusion that due regard be given to these wishes.

74. It was observed by Wilmer L.J. in In re P.&J.; Macrae Ltd. :

I have no doubt that, where a majority of creditors do for good reason oppose a petition for the winding up a company, then, prima facie, they are entitled reasonably to expect that their wishes will prevail, in the absence of proof by the petitioning-creditor of special circumstances rendering a winding up order desirable in spite of their opposition. But I am certainly not prepared to accept the view that the bare fact of the opposing creditors being in a majority is of itself sufficient, still less conclusive.'

75. It requires to be noticed that the creditors who have supported the petitioning-creditors and pressed for a winding up have not come out with any special circumstances which would render the winding up order desirable in spite of the opposition of the eight creditors who have indicated their wish that the company should not be wound up. In fact, no special circumstance has even been alleged by those who seek to support the petition.

76. It was suggested by Mr. Dhanuka on behalf of the company that the petition for winding up was filed mala fide at the instigation of Turner Hoare & Company Ltd. It was argued that this could be spelt out from the fact that there were disputes and litigation between Turner Hoare & Company Ltd. and the company in relation to certain premises at Ballard Estate and that Turner Hoare & Company Ltd. were actuated by a collateral motive to ensure that the company was wound up. Now, we do not think that the material on record is really sufficient to prove mala fides of the petitioning-creditors or Turner Hoare & Company Ltd., even though there is some litigation between the parties which is being fought out. In any event, as held by this court in Bachharaj Factories Ltd. v. Hirjee Mills Ltd., the motive of the petitioners in presenting the application for winding up of the company is irrelevant, provided the necessary materials have been placed before the court which would satisfy the court that the petitioners have made out a case. In the matter before us the petitioning creditors had given a notice under section 434(a) of the Companies Act, 1956, which was not even replied to. In these circumstances, the petitioning creditors were at least entitled in law to approach the court by filing a petition for winding up. Even if the petitioning-creditors have the support of Turner Hoare & Company Ltd., for the reasons alleged or otherwise, it would not later the situation.

77. Now, we have already held that the wishes of the eight creditors that the company should not be wound up are based on good and reasonable grounds in the circumstances of the case and we are also of the opinion that it would not be to the benefit of either the petitioning-creditor or the company's creditors generally that the company should be wound up. This is particularly so because each of the supporting creditors is to be immediately paid off or provided for.

78. Indeed, from the very beginning we asked Mr. Desai, the learned counsel for the petitioners, how a winding up order would benefit the petitioners. He was unable to give any cogent reason except to say that if the debt was admitted then an order for winding up must go.

79. It is necessary to mention now that after this appeal was filed on the 22nd of March, 1974, a notice of motion was taken out on the 22nd of March, 1974, by the appellant-company asking for the stay of the order passed by the learned company judge (Vimadalal J.) and the Division Bench directed the appellant-company to deposit a sum of Rs. 2,00,000. Between the 5th April, 1974, and the 18th of July, 1974, an aggregate sum of Rs. 2,00,000 was deposited and is now lying in deposit with the court. It may be mentioned that an offer to make a deposit was also made before the company judge at first.

80. Apart from the fact that this also shows that the company cannot be said to be commercially insolvent as the creditors supporting the petitioning-creditor would have us hold, this sum of money is immediately available for paying the debts of all the creditors who have either filed their own petitions or have supported this petition.

81. There can be few arguments more persuasive to show that it is not in the interests of the petitioning-creditor and those supporting the petition to wind up the company than the argument that the petitioning-creditor and the supporting creditors are to be paid their debts in full immediately, which can never be the situation if a winding up order was to be made.

82. In the result, we decline to make an order of winding up and we, therefore, allow the appeal and set aside the order passed by the learned company judge dated the 14th of March, 1974, and dismiss the petition.

83. As the company has already admitted its liability to pay the claim of the petitioning-creditor as mentioned in the petition, the following order is made by consent of the petitioners and the company.

84. The petitioners be paid a sum of Rs. 21,500 (rupees twenty-one thousand five hundred) which includes the debt, interest thereon and the costs of this petition from out of the deposit of Rs. 2,00,000 lying with this court in full and final satisfaction of the petitioner's claim in this petition.

85. Mr. Dhanuka states that a sum of Rs. 18,616 is due and payable to Rational Art Press Private Ltd., a sum of Rs. 6,478 is due and payable to Unique Blocks; and a sum of Rs. 4,500 is due and payable to Wagle Processed Studio and Press Ltd.

86. By consent of the company we direct that these parties be paid their respective sums from out of the said deposit lying in court in full and final settlement of their claims against the company.

87. There will be no order as to costs so far as creditors who have appeared in support or in opposition to this petition for winding up.

88. At this stage Mr. Korde, appearing for Turner Hoare & Company Ltd., applies for stay of the operation of this order on the ground that his clients are party to this petition under section 447 of the Companies Act, 1956, because the order for winding up of the company, which we have now set aside, operated (when it existed) in favour of all the creditors and of all the contributories of the company. Mr. Khorde adds that a stay of four weeks will cause no prejudice to any of the other parties.

89. We do not think that it would be appropriate or even proper on the application of Turner Hoare & Company Ltd. to stay the operation of this order. Mr. Khorde's application is, therefore, rejected.

90. On the undertaking of Mr. Desai, appearing of behalf of the petitioner to draw up the order, the Prothonotary and Senior Master is directed to act on the certified copy job the minutes of the order and to make the payments out of the amount deposited with the court to the respective attorneys for the parties concerned.

91. After the payments ordered to be made from out of the deposit of Rs. 2,00,000 in this appeal and separately in Company Petitioner Nos. 282 of 1973, 316 of 1973, 253 of 1974 and 26 of 1974, the balance, if any, remaining, may be paid to the attorneys for the company.

92. On the undertaking of Mr. D. R. Dhanuka, appearing on behalf of the appellant-company to draw up the order, the Prothonotary and Senior Master is directed to act on the certified copy of the minutes of the order and to make payment of the balance amount standing to the credit of the appellant-company, to the attorneys of the appellant-company.


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