1. This is a winding-up petition under sections 433 and 434 of the Companies Act, 1956.
2. The case of the petitioners as set out in the petition, is briefly follows : One Everkeen Blade Company Ltd. drew eight bills of exchange all dated 17th June, 1975, the particulars whereof are given in the petition, for valuable consideration, upon the company in favour of the petitioners. The company accepted each of the said bills and undertook to pay the amount under the same. These bills were duly presented to the company on maturity, namely, on or about 18th September, 1975, for payment and payment was demanded. The company, however, failed and neglected to pay the amount of the said bills or any part of the same. The said bills were again presented to the company for payment at the company's office on 19th November, 1975. One A. Krishnamurthy, a director of the company, refused to pay the amount due under the said bill stating that he was willing to pay, 'but at present there are no sufficient funds'. The presentation and non-payment of the said bills was duly noted and protested under the seal of a notary, Maharashtra State. After this, the company paid to the petitioners a sum of Rs. 49,140 being the amount due under one of the bills, viz., bills No. 19. This payment was made by the company by a cheque which was forwarded by the company to the petitioners along with a letter dated 30th December, 1975. This letter will be discussed in some detail later. As per the company's directions the petitioners have appropriated the said payment of Rs. 49,140 against the amount due under the said bill No. 19. The company, however, failed and neglected to pay to the petitioners the balance of the amount. By their attorney's letter dated 25th August, 1976, the petitioners recorded the facts and called upon the company to pay a sum of Rs. 3,03,132.50 being the aggregate amount claimed by the petitioners under the remaining seven bills. By the same letter, the petitioner also called upon the company to pay interest. This notice was expressly issued under the provisions of section 434 of the Companies Act. The company has failed and neglected to comply with the requisitions contained in the said notice. The petitioners claim that they are creditors of the company in the sum of Rs. 3,24,569.75, as per particulars, exhibit A to the petition. They further allege that the company is unable to pay its debts. The petitioners have also alleged that in the last balance-sheet filed by the company with the Registrar of Companies, only the position of the company as on 31st March, 1975, is shown and that from this balance-sheet it appears that company's position is commercially unsound.
3. In the affidavit in reply filed on behalf of the company by one S. V. Nabar, a director of the respondent-company, it is denied that the company owes to the petitioners the sum of Rs. 3,24,569.75 or any other sum. In this affidavit, it is admitted that the company accepted the said eight bills of exchange but it is alleged that this acceptance was pursuant to an agreement and understanding between the petitioners, the said Everkeen Blade Company and the company that the amounts of the said bills would be paid by the company only if there were sufficient outstanding credits in favour of the Everkeen Blade Company with the company and not out of the company's own funds. This was because the company had supplied machineries on hire to the Everkeen Blade Company in respect of which an amount of Rs. 5,09,331.54 was due by the Everkeen Blade Company to the company and the Everkeen Blade Company, in its turn, had supplied to the company blades worth about Rs. 3,03,132.50. It is alleged that the Everkeen Blade Company had, at the time of acceptance of the said bills, no amount outstanding in credit with the company. No further supplies were made by them to the company thereafter, and hence no amount was payable by the company to the Everkeen Blade Company. In view of this the company was under no obligation to make the payment of the amounts due under the said bills to the petitioners and the payment of the said bills was refused for want of sufficient or any funds or amounts of the Everkeen Blade Company in the company's hands. It is alleged in the said affidavit that the payment of the sum of Rs. 49,140 was made by the company to the petitioners at the request of the Everkeen Blade Company and on their agreeing to arrange for sufficient funds or supplies to convert their debit account into a credit account. The Everkeen Blade Company had already made some payments towards the debt under the said bills of exchange. It is admitted by the company that the letter of 25th August, 1976, was duly received by the company, but it is alleged that no reply was sent thereto because, to the knowledge of the petitioners, the company was not liable to pay the amount claimed therein. In a further affidavit filed by R. D. Kharkar, a director of the company, reference is made to the letter dated 24th September, 1976, addressed by the manager of the Aurangabad Branch of the petitioners to the Everkeen Blade Company. In this letter, it is stated, inter alia, that a cheque for Rs. 40,000 was sent by the Everkeen Blade Company in payment of the overdue bills, which, it can be seen from the letter, are the bills of exchange referred to in the petition. In the affidavit of one N. R. Patkar, divisional Manager of the petitioners, in reply to the said further affidavit of Kharkar, it is averred that the Everkeen Blade Company had two accounts with the petitioners, viz., a bills discounting account and a cash credit hypothecation account. The said amount of Rs. 40,000 referred to in the aforesaid letter was initially directed to be appropriated towards the bills discounting account. Thereafter, the petitioners realised that if such a credit was given it would be a mistake and this could not be allowed, because the said sum of Rs. 40,000 represented the price of the goods sold to M/S. Vikari Brothers who had issued the cheque for Rs. 40,000 and that these goods were out of the goods hypothecated by the Everkeen Blade Company with the petitioners. In these circumstances, the said amount was ultimately credited to the case credit hypothecation account, as should have been done.
4. The submission of Mr. Mody, the learned advocate for the petitioners, is that from all these affidavits it is clear that the dispute regarding the debt raised by the company is not a bona fide dispute at all and has been raised merely with a view to gain time. As against this, the contention of Mr. Chinoy, the learned advocate for the company, is that the dispute raised by the company is a serious bona fide dispute. It is urged by him that the claim of the petitioners to be the creditors of the company is hotly contested and in a case where such a claim is hotly contested, the testing of the defence cannot be done in a winding-up petition. It is contended by Mr. Chinoy that the provisions of the Companies Act cannot be availed of for the adjudication of a right to obtain payment of the amount where the establishment of such a right would require a lengthy investigation.
5. In order to examine these contentions it would not be out of place to refer to certain authorities. Strong reliance was placed by Mr. Chinoy on the decision in Tulsidas Lalubhai v. Bharatkhand Cotton Mills Co. Ltd. : AIR1914Bom251 . A creditor of a joint stock company by assignment demanded payment of his moneys. The company declined to pay on the ground that the demand was in respect of a claim which the company honestly believed to be a fraudulent claim and unsustainable at law. The creditor thereupon applied to the court to wind up the affairs of the company. It was not alleged by the creditor that the company was not able to pay his claim in full. The lower court rejected the application of the creditor. On appeal, it was held that the application was rightly dismissed, for the creditor's object seemed to be to bring pressure of insolvency proceedings to bear upon the company in order to make it pay cheaply and expeditiously a heavy debt which it desired to dispute in the civil court. In my view, there can be no doubt that where there is a bona fide and honest dispute raised by the company regarding its liability for the debt claimed and investigation of such dispute would require an elaborate inquiry, such a dispute cannot be determined in winding-up proceedings and a winding-up petition is not a proper remedy for the adjudication of such a dispute. This decision, however, nowhere, lays down that even if the company raises a dispute which does not appear to be bona fide or honest, still, merely because a dispute is raised by the company, it should not be adjudicated upon in a winding-up petition. In this regard, reference may be made to the decision of Kantawala J. (as he then was) in In re British India General Insurance Co. Ltd. . It was held in this case that where the defence is that the debt is disputed all that the court has to see first is whether the dispute on the face of it is genuine or merely a cloak for the company's real inability to pay just debts. It may be mentioned that the decision in Tulsidas's case : AIR1914Bom251 has been considered by Kantawala J. and the aforesaid ratio was laid down after the consideration of that decision. Kantawala J. has held that a company can be wound under section 434(1)(a) read with section 433 of the Companies Act on a petition of a creditor only if it is unable to pay its just debts. The inability is indicated by its neglect to pay after a proper demand and the lapse of three weeks. Such neglect must be judged on the facts of each case. With respect, I am in full agreement with the ratio laid down in this decision. Reference may also be made here to the decision of the single judge of the Calcutta High Court in Ofu Lynx Ltd. v. Simon Carves India Ltd. : AIR1970Cal418 , where it has been held that it is well settled that if there is a bona fide dispute with regard to the debt which forms the subject-matter of the winding-up proceeding, the court will not entertain any winding-up petition on the basis of the said disputed debt and will leave the parties to resolve the dispute in appropriate proceedings. Whether there is any bona fide dispute with regard to any debt claimed or not will necessarily depend on the facts and circumstances of each particular case. Merely seeking to raise certain disputes for putting off liability for payment of the debt or creating a kind of defence to the claim, will not make the debt a disputed one and disputes which appear to have been created or manufactured for the purpose of creating pleas to cover up the liability for payment of the debt can never be considered to be a bona fide and will be of no avail in resisting a winding-up petition.
6. It is in the light of these principles that I must examine whether on the affidavits the dispute raised by the company regarding the claim of the petitioners appears to be a genuine or bona fide dispute. If I come to the conclusion that the dispute is genuine or bona fide I must either dismiss the petition leaving the petitioners to establish their claim in appropriate proceedings or adjourn the petition till the petitioners establish their claim in such proceedings. If, however, I find that on the affidavits the dispute raised by the company appears not to be bona fide but merely raised with a view to cover up its liability to pay its just debts or to put off its liability to pay the same there is no reason why the petition should not be proceeded with.
7. I propose now to discuss whether the dispute raised by the company is bona fide or genuine. In this regard certain facts must be taken note of. It is admitted that the aforesaid eight bills of exchange have accepted by the company. On the face of the said bills there is nothing to show that the acceptance was in any manner conditional as allied by the company. It is significant that although in the affidavit in reply of Nabar it is alleged that there was an agreement and understanding that the acceptance was conditional as set out earlier, there are no particulars given of such agreement. It is not set out between which persons the said agreement was arrived to have entered into the same. It is not stated as to when the said agreement was arrived at or where it was arrived at. On 20th August, 1977, on the application of Mr. Chinoy the hearing of the petition was adjourned to enable the company to put on record the original letter dated 24th September, 1976, which the company has, in fact, one by the said affidavit of Kharkar dated 31st August, 1977. Mr. Chinoy had then stated that, if possible, the company would also furnish in the said affidavit particulars of the aforesaid alleged agreement, viz., as to the persons between whom it was arrived at and where it was arrived at. It is curious that no such particulars have been given in the affidavit field. In the absence of such particulars it very difficult to place any reliance on the averments made in the affidavit in reply regarding the alleged agreement. Moreover, if such an agreement was arrived at, I fail to understand why it is for the first time in the affidavit in reply that the company has chosen to record in writing that such an agreement was arrived at. If the story of the company was true one would have excepted that it would have alleged such an agreement when the aforesaid bills were present for payment. I should have excepted that the company would have strongly protested by writing a letter to the petitioners objecting to the presentation of the said bills for payment and setting out the said agreement. The company could have recorded in writing that such an agreement was arrived at when the bills were posted for non-payment as aforesaid. Even in the company's letter dated 30th December, 1975, along with which the aforesaid cheque of Rs. 49,140 was sent, there is no reference to such an agreement. In fact, it is stated that the said cheque was sent in the payment of one of the said bills, viz., bill No. 19, and that as far as the remaining bills were concerned the company would make payment of the same within a short time. The explanation of the company that this letter was sent and the payment made merely at the request of the Everkeen Blade Company is unbelievable. Even in on receipt of the statutory notice the company has not sent a reply setting out the alleged agreement. Quite apart from the aforesaid circumstances there is one other circumstance also which indicates that the story of the company regarding this agreement is unbelievable. It the company was a creditor of the Everkeen Blade Company, as alleged by the company, one failed to see why the company should have accepted the bills to the tune of over three lakhs of Rupees dawn by the Everkeen Blade Company on the company and in favour of the petitioners on the basis of such an agreement as is set up by the company. What could normally be excepted is that the company would have set off the amount due by the company to the Everkeen Blade Company against the larger amount due by the Everkeen Blade Company to the company. It is common ground that the Everkeen Blade Company and the company are closed connected. In my view, the story of the company regarding this alleged agreement is utterly improbable and can be believed only by one who believes in the dictum, 'trusts is stranger than fiction'. The dispute raised by the company rereading the debt, on the basis of conditional acceptance of the said bills, in my view, is not a bona fide dispute but a dispute raised to cover up the company's inability to pay. As far as the payment of Rs. 49,140 made by the Everkeen Blade Company to the petitioners, as set out in the letter dated 24th September, 1976, addressed by the manager of the Aurangabad branch of the petitioners, is concerned, it is true that the petitioners' said manager in the letter has stated that this payment would be treated as against the amounts overdue under the bills discounting account. The affidavit of Patkar which is filed in reply to this states that this payment was ultimately credited to the cash credit hypothecation account and not to the bills discounting account. This question, however, is not of much reliance in this petition, because even assuming that the said amount was liable to be credited to the bills discounting account, the only result would be that the claim of the petitioners would be reduced by that amount. In spite of such reduction the major part of the claim of the petitioners would still survive. In fact, the claim still would be over rupees two lakhs, and hence the petition cannot be dismissed on that ground.
8. As I was of the view that on the affidavits of the dispute raised by the company did not appear to be bona fide, I asked Mr. Chinoy as to whether he desired to learn any evidence to support the case of the company. Mr. Chinoy frankly stated that he did not desire to lead any evidence.
9. In the result, there will be an order in terms of prayer (a) of the petition. The costs of the petitioners to come out of the assets of the company.