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Ramakrishna Setty Vs. Clarian Fisheries (P) Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany;Civil
CourtKarnataka High Court
Decided On
Case NumberCompany Petition No. 5 of 1984
Judge
Reported inILR1985KAR1102
ActsCompanies Act, 1956 - Sections 135, 433 and 446
AppellantRamakrishna Setty
RespondentClarian Fisheries (P) Ltd.
Appellant AdvocateS.P. Khanna, Adv.
Respondent AdvocateChaitanya Hegde, Adv. for R-1 and 4 and ;A.G. Holla, Adv. for R-2 and 3
DispositionPetition rejected
Excerpt:
.....out of a contract or obligations arising under an agreement. that court exercising its original civil jurisdiction has tried the suit on its merits and on the facts of that case came to theconclusion that the surety could not resist the claim of the bank, perhaps for what remained unsatisfied after the principal debtor had. failed to satisfy. 6. i have already expressed in cases like this where it is made out prima faice that the respondent-company may succeed in its defence the parties should be referred to the civil court for adjudication. 7. in that view of the matter, i am satisfied that this is not a case in which this court should interfere under the act to coerce the 1st respondent-company to pay its debt when it is not yet quantified or adjudicated upon by the competent civil..........under the companies act, particularly, section 433 of the act. that court exercising its original civil jurisdiction has tried the suit on its merits and on the facts of that case came to theconclusion that the surety could not resist the claim of the bank, perhaps for what remained unsatisfied after the principal debtor had. failed to satisfy.6. i have already expressed in cases like this where it is made out prima faice that the respondent-company may succeed in its defence the parties should be referred to the civil court for adjudication. it is not proper for this court to pronounce upon a defence validily set up, the ground for which cannot be said not to exist.7. in that view of the matter, i am satisfied that this is not a case in which this court should interfere under the act.....
Judgment:
ORDER

Chandrakantaraj Urs, J.

This is Petition under Section 433(e) and (f) read with Section 439(1)(b) of the Companies Act, 1956, (hereinafter referred to as the Act) made by one K. S. Ramakrishna Setty seeking an order of this Court Binding up the 1strespondent Clarions Fisheries Private Limited, a company incorporated under the provisions of the Act having its registered office at No. 45, Industry House, Fair-Field Road,Bangalore-1. It is alleged by the Petitioner that the former Directors of the 1st respondent-Company Shri N.C. Soundara Pandiyan and Shri Jayaram Balaram Singh approached him forfinancial assistance whereupon an agreement dated 28th February, 1982 was executed by them under which the Petitioner agreed to invest in the 1st Respondent Company by way of deposits as well as by purchase of equity shares not exceeding 1/3rd of the paid up capital and half of the deposits. Thatagreement forms Annexure-A to the Petition. Pursuant thereto, the Petitioner claims that he invested Rs. 1,95,500-00 which has been duly acknowledged by the 1st respondent Company in a subsequent agreement dated 21st day of June 1982 as well as by the earlier mentioned Directors. The details of the deposits made are furnished together with the rate of interest, such deposits carried. Thereafter by another agreement dated 20th September 1982 the said Directors who had jointliability with the Company transferred their rights and interest in the 1 stRespondent-Company together with their shares to new Directors -- T. R. Manjunath Hegde and I. M. Hiriyanna Gowda together with the liabilities. In the new agreement it is alleged, the new Directors undertook and agreed to take over the liabilities jointly and severally along with the 1stRespondent company, the liability to pay the Petitioner the sum of Rs. 1,95,500/- together with interest at 12 percent per annum. Despite demands made, the 1st Respondent-Company and the new Directors respondents 2, 3, and 4 have failed and refused to pay and discharge their liabilities towards the deposits made by the Petitioner and therefore the Petition. The statutory notice issued has been replied by the 1st respondent-Company and its Directors disclaiming theliability to pay. Therefore, the present Petition by the Petitioner as a creditor of the 1st respondent-Company seeking for an order winding up the 1st respondent-Company.

2. The Respondents have entered appearance and filed their statement of objections. The sum and substance of the resistance to the petition is that the 1st Respondent-Company is absolved of its liability on account of the conduct of the Petitioner and the past Directors. It is alleged that O. S. No. 2816/1982 was filed in one of the City Civil Courts at Bangalore and that suit came to be withdrawn as settled out of Court by the petitioner who was the plaintiff and some of the defendants though the Respondent-Company had remained unserved on the date the settlement was reported out of Court and the suit was withdrawn. It is in that circumstance, the Respondent, pressed into service the provisions of Section 135 of the Indian Contract Act alleging that any liability that the Company had under the last of the agreements when the new Directors took over the Company as a going concern were absolved of that liability in the light of the settlement reached behind the back of the Company by the Petitioner with the former Directors who were co-defendantsin, that suit.

3. It is unnecessary to refer to other details averred in the statement of objections. It is now well settled by the numerous decisions of the High Courts and the Supreme Court in this Country as well as the Courts of United Kingdom that a creditor's petition could be entertained and relief given on being satisfied of the need for making a winding up order only when the creditor-debtor's relation-ship is established oris, not disputed by the Company said to be a debtor. Undoubtedly, the law as laid down states that such resistance must be founded onbona fide grounds and on a legally tenable defence. In this context, it will be useful to refer to the view expressed by Venkatachaliah, J., in C. A. No. 17/1976 disposed of on the 18th day of November, 1976, sitting as the Company Judge of this Court then. He has expressed himself as follows :

'It is well settled that a winding up Petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the Company. A Petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed, and under circum-stances may be stigmatised as ascandalous abuse of the process of the Court. If a debt is bona fide disputed there cannot be 'neglect- to pay' within the meaning of Section 434(l)(a) of the Companies Act. 1956. If there is no neglect, the deeming provision does not come into operation, and the ground of winding up, namely, that the Company is unable to pay its debts, is not substantiated. The debt, the alleged inability on the part of the Company to pay which, is the foundation for a Petition under Section 433(e) of the Companies Act, the Court will not wind up the company if the debt is bona fide disputed and the defence is a substantial one. The principles on which the Court acts are 'First that the defence or' the Company is in good1. East West Hotel -v.- T. S. Purushotham and H. Ramaswamy.faith and one of substance; secondly, the details is likely to succeed in point of law, and thirdly, the Company adduce prima facie proof of the facts on which the defence depends.'

If that explanation of the law should hold the field then this Petition should be rejected. However, Mr. S. P. Khanna, Learned Counsel for the Petitioner, contends that the last of the agreements which is at Annexure-C to the Petition is read, there is a clear admission of the debt owed to the Petitioner and on that basis this Court should have no hesitation to come to the conclusion that the Petitioner has established the relationship of creditor and debtor and therefore entitled to a winding up order. It is true, the agreement atAnnexure-C to the Petition does no more than to decide the mutual obligations of the contracting parties. It is also true that the obligation undertaken to pay off the Petitioner under the terms agreed to in Annexure-C has not beendischarged. That the Original Suit mentioned in the course of this order was indeed filed by the Petitioner though not for realising the amounts in deposit together with interest but to restrain the Company from effecting transfer of all assets including the letter of intent and also taking on to its Board any additional Directors and that the suit was withdrawn is not disputed. This Court is not enlightened as to the terms of the settlement reached between the petitioner and some of the defendants. Mr. Khanna has not disputed that the Company had remained unserved at the time the suit was withdrawn. It is this latter circumstance that compels this Court to take the view that the defence now put forward in this case is a tenable bona fide defence.

4. The Company Court under the provisions of the Act cannot convert itself into a Court of original jurisdiction settling civil disputes including drawing up of a decree in favour of one or the other of the parties in proceedings under Section 433 of the Act. It is true the Company Court does have original jurisdiction to settle claims of all kinds when it exercises its power under Section 446 of the Act. But the nature of jurisdiction and the nature of power exercised under the two Sections are widely different. Under the latter Section jurisdiction is acquired only . if an order is made under Section 433 of they Act and not otherwise. If there is no order under Section 433 of the Act, including the appointment of a provisional liquidator then there is no jurisdiction acquired by the Court under Section 446 of the Act. If this is borne in mind then Section 433 of the Act which is normally a discretionary jurisdiction shouldnecessarily be so understood only when the Court is fully satisfied that it is called upon to examine the merit of the need of a winding up order and not settling the disputes of civil nature that may arise out of a contract or obligations arising under an agreement. In fact, I will go to the extent of stating that even if a company is sought to be wound up on the basis of a promissory note, if the Company disputes either receipt of consideration or the execution thereof, then this, Court would be compelled to refer such a petitioner to the Civil Court for obtaining the necessary decree before he can move the Company Court for a winding up order. In other words the test would be whether this Court should first grant a decree for an alleged debt and then convert itself into a kind of executing Court by passing the winding up order That should be avoided.

5. Mr. Khanna drew my attention to the decision of the Delhi High Court in the case of Citi bank N. A., New Delhi-v.- Juggilal Kamlapat Jute Mills Company Ltd., Kanpur in that decision it has been held that in a suit by the Bank against the principal debtor and subsequent sale after decree of the properties in execution would not absolve a surety , from his liability to the Bank. As a broad proposition of 2. : AIR1982Delhi487 of law one need not disagree with the ruling but in every case where the benefit of Section 135 of the Contract Act could be extended to the surety would depend very much on the facts of that case. In otherwords, it requires the examination of such evidence, interpretation of such documents as the parties may place before the Court. In any event, that decision was rendered in a original suit instituted in that Court and not in proceedings arising under the Companies Act, particularly, Section 433 of the Act. That Court exercising its original civil jurisdiction has tried the suit on its merits and on the facts of that case came to theconclusion that the surety could not resist the claim of the Bank, perhaps for what remained unsatisfied after the principal debtor had. failed to satisfy.

6. I have already expressed in cases like this where it is made out prima faice that the Respondent-Company may succeed in its defence the parties should be referred to the Civil Court for adjudication. It is not proper for this Court to pronounce upon a defence validily set up, the ground for which cannot be said not to exist.

7. In that view of the matter, I am satisfied that this is not a case in which this Court should interfere under the Act to coerce the 1st Respondent-Company to pay its debt when it is not yet quantified or adjudicated upon by the competent Civil Court.

8. Therefore, the Petition is rejected with liberty reserved to the Petitioner to seek the remedy in the Civil Court.


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