P. C. Jain, J.
1. This is a petition for winding up of the non-petitioner Company-M/s Jagatia Paper Mills Pvt. Ltd, filed by the UCO Bank.
2. Briefly stated, the facts of the case are that the petitioner--UCO Bank is a nationalised Bank and the non-petitioner Jagatia Paper Mills Pvt. Ltd., is a Company incorporated under the provisions of the Companies Act, 1956 (here in after referred to as the non-petitioner Company). The non-petitioner Company entered into a banking transaction with the Branches of the petitioner Bank at Bhilwara, Jauhari Bazar, Jaipur and Singapore and the Divisional Office at Jaipur. The non-petitioner Company requested the petitioner Bank for giving cash credit facility to it at Bhilwara Branch in the year 1983. This facility was sanctioned in the sum of Rs. 6 lacs. The non-petitioner accordingly executed necessary documents by way of security and collateral security for the purpose of payment of such outstanding as may remain unpaid. These documents were renewed on 29th June, 1985. At the time of renewal, the petitioner Bank bad executed on 29th June, 1985, confirmation letter acknowledging and admitting the balance as on 29th June, 1985, for a sum of Rs. 9,07,843.18 in favour of the petitioner Bank. By this letter, the respondent Mills also admitted as having given by way of hypothecation securities in respect of the properties as mentioned in Schedule A, to the said letter. There was also a letter of hypothecation by which the non-petitioner Mills agreed to hypothecate the goods and the movable property mentioned in the Schedule for the purpose of securing payment of any outstanding that may remain due and payable by it in favour of the petitioner Bank in the cash credit account. It is further stated by the Bank that as per the account books a debit balance of Rs. 6,19,854.34 remained outstanding against the respondent Company as on 1st January, 1986. Apart from the cash credit account, which the non-petitioner Company opened at Bhilwara Branch, it also applied for establishing letters of credit account at Singapore with one M/s Ringler PTE Limited, Suit 15D, Stamford House; 39, Stamford Road, Singapore 0617, as beneficiaries for the purpose of importing waste paper from Singapore with Ringler PTE Limited as Exporter Two letters of credit were established on the applications having been moved by the non-petitioner Company. One such application was moved by the non-petitioner Company on 22nd February, 1985, by which the non-petitioner Company requested the Bhilwara Beanch to arrange for establishing the letter of credit account, inter alia, with the following conditions:
8.1 Valid for final settlement March 31, 1985,
8.2 Negotiation until April 15, 1985,
8.3 Available by draft at 180 days from the date of Bill of Landing/ sight drawn at the said Mills for 100 percent of Invoice cost, which was supposed to be accompanied by certain documents including the bill of lading.
3. The Bhilwara Branch forwarded the request vide letter dated 22nd February, 1985, to Jauhari Bazar Branch requesting for a letter of credit to be opened in favour of M/s Ringler PTE Limited, Singapore in the sum of Singapore Dollers 87,000. After receving the intimation the from Jauhari Bazar Jaipur Branch, the petitioner Bank at Bhilwara established a letter of credit a Singapore No. RPER/8/85 dated 26th February, 1985 for 85,500 Singapore Dollars (C&R; Bombay). The respondent Company submitted certain documents including the bill of lading and bill of exchange and invoice along with certain other documents, the details of which have been given in the petition and are marked as Annexures 9 to 14. These documents were encashed by the Singapore Branch on or about 26th March 1985 It is further the case of the petitioner Bank that the said documents were strictly in terms of credit. The said documents were there after forwarded to the Jauhari Bazar Branch. After receipt of the documents with the bill of exchange the respondent Company notified its acceptance on the face of the bill on 6th April, 1985. The acceptance was made by one Shri Gulab Chand Jagatia Managing Director of the respondent Company, on behalf of the respondent Company. By this acceptance, the amount as mentioned in the bill of exchange, namely 85,476 Singapore Dollars, were to be paid on the expiry of 180 days from the date of the bill of lading by the respondent company in the Indian currency at the exchange rate prevailing on that date along with charges and interest. The non-petitioner Company, thus became entitled to receive the delivery from the shipping company at Bombay Port of the imported material. The case of the petitioner Bank is that it became entitled to receive the payment on the expiry of 180 days of the bill of exchange It is contended by the petitioner in the petition that this amount has not been paid to it. and on calculation in the Indian currency, the amount payable to the Bank as on 8th October, 1985, came to Rs. 4,91,900/-, excluding interest The petitioner Bank has further contended that the non-petitioner Company further requested for opening another letter of credit account with Ringler PTE (for short Ringler) as beneficiary. Respondents Nos. 2 and 3, who are Managing Director and Director of the respondent Company, respectively renewed their personal guarantee on 29th June, 1985, whereby they agreed and undertook to save the Bank harmless and keep it indemnified from and against all claims, demands, damages, losses, etc. It is further pleaded by the petitioner Bank that the non-petitioner Company and its directors played serious fraud on the petitioner Bank by not intimating the Bank of non-receipt of the goods covered by the said letter of credit for which bill of exchange (Annx. 9) bill of lading (Annx. 10) and invoice (Annx. 11) had been received by the Jauhari Bazar Branch and which had been made over to the respondent Company and the respondent Company had given its acceptance by signing on the face of the bill of exchange (Annx. 9). The claim of non-arrival was absolutely based either on a conspiracy hatched between the respondent Company and the Ringler without informing about the non delivery or non-arrival of the goods. Another letter of credit was obtained in the sum of Singapore Dollar 1,97,100 requesting another letter of credit was made by the non-petitioner Company on 19th March, 1985 and in pursuance thereof, the letter of credit was established on 4th June, 1985, with Ringler as beneficiary. The non-petitioner Company failed to make payment of bill of exchange on the expiry of 180 days from the date of bill of lading, which was due on 14fh September, 1985 and the petitioner Bank, thus, claims a Rs. 4.91.900/-. It may further be mentioned here that the petitioner Bank has also pleaded that under the second letter of credit, the non-petitioner Company wrote a letter on 18th July, 1985 informing the Bhilwara Branch of the petitioner Bank that the goods relating to the second letter of Credit are likely to reach Bombay on 10th July, 1985. The respondent Company also informed the Bhilwara Branch that the documents had not been received by the Jauhari Bazar Branch till the date of writing the letter dated 18th July, 1985 and therefore, in order to save demurrage of Rs. 15,000/- per day, a Bank guarantee be given by the Bhilwara Branch in order to facilitate the delivery of the imported goods covered by the second letter of credit from the Shipping Company. Along with the letter the respondent Company produced a number of documents, which included invoice, packing list etc. A letter from respondent No 4 Samarth Shipping and Marine Company (Private) Ltd., Bombay was also enclosed, whereby respondent No. 4 informed the respondent Company that the goods were likely to arrive by 10th July, 1985. All these led the Manager, Bhilwara Branch to believe that the request of the non-petitioner Company was genuine and, therefore, on the basis of a counter-guarantee given by the non-petitioner Company on 18th July, 1985, executed a deed of surety on the back of the Indemnity Bond executed by the non-petitioner Company. On the basis of the indemnity bond and the surety bond the non-petitioner Company managed to get delivery orders from the Shipping Company without production of the documents relating to the goods covered by the second letter of credit. It is also pleaded by the petitioner Bank that there was complicity of the Shipping Company and the non-petitioner Co. as the Shipping Company did not take any steps for ensuring deliveries as the obvious intention appears to be to mislead and to cheat the petitioner Bank. It is, thus, submitted by the petitioner Bank that the petitioner Bank is entitled to recover from the non-petitioner Company a sum of Rs. 16,19,155/-along with other sums and interest etc. The petitioner Bank has also mentioned that the Shipping Company has filed a suit against the petitioner Bank on the basis of the guarantees given by the Bank for a sum of Rs. 14,27,152.55 The petitioner Bank has served notice on the non-petitioner Company on 3rd January, 1986, demanding the payment as mentioned above and summarised as follows:
(1) In cash credit account Rs. 6,19,854.34/-(2) In First letter of Credit A/c Rs. 5,13,325.11/-(3) In 2nd Letter of Credit A/c Rs. 16,19,155 00/-____________________Rs. 27,52,334.45/-
4. It is, thus, submitted by the Bank that the non-petitioner Company is unable to pay its debt within the meaning of Section 434 of the Companies Act and, therefore, it is liable to be wound up. The petitioner Bank has also stated that the non-petitioner Company has lost complete substratum of its business and, there fore, also it is liable to be wound up.
5. This Court vide order dated 4th April, 1986, admitted the petition and issued notices to the non-petitioner Company to show cause as to why the petition should not be published. In reply thereof, the non-petitioner Company filed its reply. In the reply, the non-petitioner has pleaded that so far the cash credit amount of Rs. 6,19,854 34/- is concerned, it was in the course of regular transaction with the petitioner Bank and the same is secured and the goods pledged with the petitioner Bank are of more value than the amount claimed. Regarding the first letter of credit account, the non-petitioner Company has denied its liability and has submitted that since the liability is disputed and it is required to be determined and adjudicated, therefore, this cannot be the subject matter of winding up petition. To clarify the position, it is pleaded that M/s. Ringler agreed to send 300 MT of waste paper worth 85,000 Singapore Dollars by shipment. Accordingly the petitioner Bank issued the letter of credit, 8/85 dated 26th Feb., 1985 in favour of M/s Ringler As per the information given by M/s Ringler only 284.92 MT waste paper had been sent instead of 600 MT and the documents were drawn on the non-petitioner on 18th March, 1985. The drafts for payment of 85,476 Singapore Dollars were accepted by the non-petitioner because the documents were seemingly in order and the same had been negotiated. It is further pleaded that the normal period of ship coming from Singapore to Bombay is 15 days and the schedule of arrival of Thaistar was given as 8th April, 1985. The non-petitioner Company was in constant touch with the Crystel Shipping Company, Bombay and despite all efforts, it could not locate the vessel Thaistar. It was in these circumstances, it had categorically instructed the petitioner Bank that no payment will be made to Ringler against the L.C. No. 8/85. Despite this notice, dated 2nd August, 1985, which was received by the petitioner on 12th August, 1985, the payment was made even before the acceptance of bills, the due date of which was 14th September, 1985. It is also asserted by the petitioner Bank that the Branch of the UCO Bank at Singapore committed breach of the conditions of letter of credit and the petitioner is only trying to protect the wrong action of its branch at Singapore. It was, therefore, despite the injunction order of the High Court at Singapore, the UCO Bank at Jaipur made the payment to the UCO Bank Branch at Singapore. The non-petitioner Company had filed a regular suit before the High Court of Singapore. It was, therefore despite the injunction order of the High Court at Singapore, the UCO Bank at Jaipur made the payment to the UCO Bank Branch at Singapore. The non-petitioner Company had filed a regular suit before the High Court of Singapore. It is also contended that this material fact has been suppressed by the petitioner Bank in the winding up petition. Regarding second letter of credit pertaining to LC No. 44/85, Rs. 16,90,155.00, the non-petitioner has submitted that the petitioner has admitted that the shipping company bad filed a suit against the petitioner Bank for the recovery of value of goods covered by the guarantee on the basis of two guarantees and that this suit is for a sum of Rs. 14,27,155.55. Thus, it is a case of a prospective and contingent liability, if any, and this cannot be a subject matter of winding up petition. The non-petitioner Company has also submitted in the reply that the FDR of Rs. 5,30,000/- is already there with the petitioner Bank and in the account of the non-petitioner Company. There is a cash deposit of Rs. 1,75,000/-in the name of Director namely Shri C.M. Jagatia and raw material of over Rs. 8.5 lacs is already there with the Bank and therefore they can hardly make any grievance. In the circumstances, the non-petitioner has submitted that the winding up petition is absolutely vexacious and has been filed to put an undue pressure on the non-petitioners for the recovery of those amounts which are no liabilities against the non-petitioners.
6. There are other respondents. Respondent Nos. 2 and 3 are Managing Director and Director respectively, of the company. Respondent No. 4 is M/s Samrath Shipping and Marine Company Pvt. Ltd., who has filed a civil suit in the Bombay High Court against the petitioner Bank. Respondents Nos. 5 and 6 are secured creditors, Respondent No. 5, Rajasthan State Industrial Development and Investment Corporation Ltd. Jaipur has filed reply, wherein the Corporation has complete ignorance about the transaction between the petitioner Bank and non-petitioners Nos. 1, 2 and 3 as pleaded in the winding up petition. The case of non-petitioner No. 5 is that it has jointly with the Rajasthan Financial Corporation non-petitioner No. 6, granted secured financial assistance to M/s Jagatia Paper Mills Pvt. Ltd. and its outstanding claim comes to Rs. 59,70,326/- Non-petitioner No. 5 has opposed the winding up petition and has asserted that the petitioner Bank can recover its debt through movable assets given in security as also from the guarantors of their loan by filing a regular suit against them. Non-petitioner No. 6 has also opposed the winding-tip petition. Non-petitioner No. 6 has also taken the same defence as has been taken up by non-petitioner No. 5 by contending that non-petitioner No. 6 has jointly with non-petitioner No 5 guaranteed secured financial assistance to the non-petitioner Company and the dues against the non-petitioner No. 6 as on 1st April, 1986 was of Rs. 49,61,45/-. Non-petitioner No. 5 has also pointed out that as secured creditors with non-petitioner No. 5, they are entitled to realise their dues by selling the assets of the Company forming security of their loans independent of the winding up proceeding in terms of Section 529 of the Companies Act, 1956
7. On behalf of non-petitioner No. 4, Shri B. P. Agrawal appeared and on 29th August, 1988, he raised an objection that respondent No. 4 has wrongly been impleaded as a party to the petition. He has also filed a written reply in this regard, wherein he has prayed that the name of respondent No. 4 be struck out from the array of parties. An application for appointment of provisional liquidator was also filed by the petitioner Bank On this application, it was ordered that arguments will be heard at the time of hearing the petition. On 20th Feburary, 1987. Shri Gulab Chand Jagatia, Managing Director of the Mills was present in person and submitted that he has no objection if the bank guarantees which are with the petitioner he encashed by the petitioner Bank and may be adjusted against the outstanding bills. He further declared that the pledged goods/hypothecated goods be sold and the sale proceeds be also adjusted against the account of the non-petitioner Company. He has also made a statement that the goods which are in possession of the Rajasthan Financial Corporation may be taken possession by the Bank and the same may be sold. The Court vide order dated 20th February, 1987, directed the non-petitioner Company to take proper steps to sell the goods and it was further directed that the sale-proceeds shall be paid to the petitioner Bank who will adjust the same against the outstanding dues. This Court also directed the parties to see that the pledged/hypothecated goods are disposed of and non-petitioner No. 1 shall take every step to bring the purchasers. On 27th March, 1987, a complaint was made by non-petitioner No. 1 that in pursuance of the order of this Court dated 20th Feburary, 1987, the Company advised the parties to purchase the pledged/hypothecated goods, but the Bank did not deliver the goods against payment. A direction was given to the petitioner Bank to comply with the order of this Court, dated 20th Feb., 1987., On 15th May, 1987, Shri Narendra Sharma, Financial Controller of the Jagetia Paper Mills Pvt. Ltd. appeared in person and he stated that the Company would approach the petitioner Bank and the representatives of the RFC assured that the entire quantity of material, which is under hypothecation will be delivered to the representative of the non-petitioner Company against payment. On 24th July, 1987, this Court discovered that there was serious dispute between the parties regarding delivery of goods. Non-petitioner company made a complaint that the petitioner Bank was not delivering the goods against payment and, Shri Garg appearing on behalf of the petitioner submitted that the petitioner Bank has delivered the entire goods which were in its possession. This dispute continued between the parties. Ultimately, arguments were heard on 29th April, 1988, 6th May, 1988 and 19th August, 1988 and on that day after conclusion of the arguments, order was reserved.
8. Shri C.K. Garg, appearing on behalf of the petitioner Bank, has submitted that on account of various liabilities pointed out in the winding up petition, it is evident that the non-petitioner Company has failed to make the payment and substantial amount is outstanding against the non-petitioner Company which had failed to make payment inspite of statutory notice under Section 434 of the Companies Act, 1956 and, thus, the Company is commercially insolvent and is liable to be wound up. In order to support his contention, Shri Garg has placed reliance on Syndicate Bank v. Southern Oils and Extractors Ltd 1985, 57 Comp. Case 8; Paramount Enterprises v. In Re. (1985) 57 Comp Case 200; Universal Glass Ltd. v. Meerut Bottlers Pvt. Ltd (1985) 58 Comp Case 68. Anil Vasudev Salgaonkar v. Kermeen Foods P. Ltd. (1985) 58 Comp Case 156, Smt. Bhag Kaur and Ors. vs Roopnagar Credit and Investment P. Ltd., [(1984) 56 Comp Case 414], New Swadeshi Mills of Ahmedabad v. Dyechem Corporation (1986) 59 Comp Case 183, Premier Vegetable Products vs. United Asian Bank, [(1980) 50 Comp Case 680] and other cases. The sum and substance of his argument is that if a Company becomes commercially insolvent and there is on record a proof about the failure to make payment of debt, inspite of notice of demand, the Company should be wound up. Without referring to the cases individually, 1 may state that the cases referred to above are distinguishable on facts and none of the case supports the case of the petitioner. In the Syndicate Bank's case (supra), the circumstences were that the Financial Corporation had taken over the possession of the Company and its business and it was proved that the Company was not carrying on its business. It was in those circumstances that an order of winding up was passed by the Karnataka High Court. In Paramount Enterprises vs. Reechem P. Ltd. (supra), the Andhra Pradesh High Court observed that there was evidence in the case to prove that the Company was insolvent and Reechem would not make payment of the claims. The Court, therefore, inferred that the Company was not able to pay its debt. In Universal Glass Ltd (supra), the defence put up by the Company was found to be malafide and false and motivated to delay the claim of the petitioner. In Bhag Kaur's case (Supra), the Company Judge relied upon the statement of the Managing Director and came to the conclusion that the Company was unable to pay its debt, and appropriate order was passed by that Court. In Premier Vegetable's case (Supra), this Court observed that at the time of admission, all that is required to be seen by the Court is, whether prima facie case has been made out by the petitioner and that the Company is unable to pay its debt.
9. I have referred some of the cases. It is a well settled proposition of law that if the debt is bonafide disputed and the defence raised by the Company to be wound up is a substantial one, the Court will not wound up the Company. It is also settled that where the debt is in dispute, the Court will not act upon the defence that the Company is able to pay its debt, but it has chosen not to pay a particular debt. In the circumstances, for deciding the winding up petition, I am required to consider whether the debt is bonafide disputed by the non-petitioner Company and that the defence raised by it is of a substantial character. It is not disputed in this case, that the Company is a running concern and the secured creditors are not opposing the winding up petition. It is also clear from the record that the non-petitioner Company is trying its best to liquidate the claim as would be evident from the fact that various FDR's have been put at the disposal of the Bank for encashing the same and the Company has clearly expressed that the goods pledged/hypothecated be sold and the money realised may be adjusted against any liability outstanding against the Company. Thus, in respect of claim No. 1 i.e. cash credit account. I am of the view that the petitioner Bank is in a position to liquidate the debt which it claims against the non-petitioner Company and the defence, thus, raised in this regard cannot be said to be malafide. rather, I am of the opinion that the defence is bonafide and is of a substantial character.
10. As regards claim under two letters of credit, I am of the opinion that the defence raised by the non-petitioner Company is also bonafide and is a substantial one. It is not disputed between the parties, that a suit is pending in the Court at Singapore, which had been filed against Ringler and there is another suit which is pending before the Bombay High Court filed by the Shipping Company, respondent No 4 against the Bank. In both the suits, the questions raised are, as to whether the petitioner Bank acted against the terms of the letter of credit, or it is the respondent Company who has violated the terms of the agreement. Whatever may be the position, the suits between the parties are pending where in allegations have been made by or against the parties.
11. I have gone through the plaint filed by non-petitioner No. 4, Samrath Shipping and Marine Company (Pvt.) Ltd. against the UCO Bank in the Bombay High Court, and I am of the view that the contentions raised by the petitioner against the UCO Bank cannot be said to be frivolous or based on extraneous grounds or malafide. Here, in the case, the petitioner Bank has levelled allegations of breach of contract against the non-petitioner Company and the non-petitioner Company has alleged that it is not liable to pay any amount to the petitioner Bank and the liability is yet to be adjudicated upon by some agency. The non-petitioner has even gone to the extent of alleging that the winding up petition is vexatious and has been filed to put an undue pressure on the non-petitioners for the recovery of the amount. As already observed, there is a suit pending before the Bombay High Court with regard to the second letter of credit filed by non-petitioner No. 4. It is true that in that case, non-petitioner Company has not been made a party, but what ever may be the position, the plaintiff in that suit is claiming in view of the guarantees given by the petitioner Bank. There is no dispute that a suit is pending in the High Court at Singapore, bearing No. 90 4/85, wherein an interim injunction order was passed by that court on 11th September, 1985. The suit was filed against Ringler and Ors. . In view of the defence raised by the non-petitioner Company and the defence raised by the other non-petitioners, which is of a substantial character and which has not been proved to be malafide by the Bank on any ground, thus, 1 am of the opinion that the debt is bonafide disputed.
12. In the premises aforesaid, there is no merit in the winding up petition and the same is dismissed with no order as to costs.
13. Since the Company Petition for winding up has been dismissed by this order, the Company Petition No. 27 of 1987 filed under Sections 442 and 446 of the Companies Act, 1956 and other miscellaneous applications on which no order has been passed by this Court, shall stand dismissed.