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Syed Murtasa Ali Khan Vs. Stressed Concrete Constructions Private Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai High Court
Decided On
Case NumberO.P. No. 255 of 1958
Judge
Reported inAIR1960Mad254; [1961]31CompCas84(Mad)
ActsIndian Companies Act
AppellantSyed Murtasa Ali Khan
RespondentStressed Concrete Constructions Private Ltd.
Cases ReferredLtd. v. Mahaluxmi Cotton Mills Ltd.
Excerpt:
.....moment by assertion that debt is disputed one - no substantial ground for holding that there is bona fide dispute - respondent company mysteriously hinting at conspiracies and frauds in taking over of assets of rayalseema constructions and formation of present respondent-company - respondent did not examine anybody though opportunity given to respondent company - there is no bona fide dispute about debt - respondent company directed to be wound up under section 433 and official liquidator appointed as liquidator. - - (4) the law regarding disputed debts as a defence for not proceeding with a winding-up petition is well settled, both in england and in india under their respective companies act. it is now well settled that a petition for winding up with a view to enforcing payment..........companies act is practically based upon the english companies act, 1948.(5) in regard to this bona fide disputation of debts, the following extracts from the standard authorities on company law in england and india are apposite:england:palmer's company precedent, 16th edn. part 2, page 34, has the following to say:'it is now well settled that a petition for winding up with a view to enforcing payment of a disputed debt is an abuse of the process of the court, and should be dismissed with costs. but, of course, if it is shown that the alleged dispute is not a bona fide one, the objection to the petition fails. thus, it is not uncommon for a company after again and again begging for time, for payment of a debt, to spring on the petitioner, at the last moment the assertion that the.....
Judgment:

(1) This is a petition for winding up by court of the respondent-company, the Stressed Concrete Constructions Private Ltd.

(2) The respondent-company was formed to take over the assets, rights and goodwill of the business known as Rayalaseema Constructions. The petitioner is stated to have advanced a sum of Rs. 15,000 to the respondent-company by way of loan on 14-8-1953 carrying interest at six percent per annum. This has been acknowledged in writing by the Director incharge of the Respondent-company on 30-8-1955, showing the amount due to the petitioner as amounting to Rs. 13,807-12-0 as on 30-6-1955. The balance-sheets of the respondent-company for the years ending with 30th June 1954 to 1957 contain specific admissions of the amounts due and payable to the petitioner. On 13-11-1956 when the petitioner had sent a registered communication to the Managing Director of the respondent-company threatening legal action in default of payment, the Managing director by his letter dated 15-12-1956 requested the petitioner to stay his hand for sometime. On 10-1-1957 the petitioner made a further demand calling for payment of the amount due to him which was duly served on the respondent-company on 15-1-1957. On 17-2-1958 the petitioner had another notice sent to the respondent-company demanding payment and that notice also has been duly served on the respondent-company at its registered office by registered post on 19-2-1958. The respondent-company has not paid its debt due to the petitioner and therefore the petitioner has filed this petition for the winding up of the respondent-company.

(3) The respondent-company has come out with a long and involved story which it is very difficult to make out, viz., that they are now disputing this debt and that they are investigating and intending to establish in future that this debt and other debts taken over them are not genuine debts which they ought to have taken over. In short, they are hinting at conspiracies and frauds in the matter of the taking over the Rayalaseema Constructions and in the formation and floating of the respondent-company and which mysteries they hope to unravel on an unspecified future date. They say that if these questioned liabilities are omitted, their financial position would even improve.

(4) The law regarding disputed debts as a defence for not proceeding with a winding-up petition is well settled, both in England and in India under their respective Companies Act. In fact the Indian Companies Act is practically based upon the English Companies Act, 1948.

(5) In regard to this bona fide disputation of debts, the following extracts from the standard authorities on Company law in England and India are apposite:

England:

Palmer's Company Precedent, 16th Edn. Part 2, page 34, has the following to say:

'It is now well settled that a petition for winding up with a view to enforcing payment of a disputed debt is an abuse of the process of the court, and should be dismissed with costs.

But, of course, if it is shown that the alleged dispute is not a bona fide one, the objection to the petition fails. Thus, it is not uncommon for a company after again and again begging for time, for payment of a debt, to spring on the petitioner, at the last moment the assertion that the debt is a disputed one. Such a defence is naturally open to great suspicion, and meets with no favour from the court.............'

Buckley on the Companies Act, 13th Edn. (1957) page 451:--

'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 circumstances may be stigmatised as a scandalous abuse of the process of the court. At one time petitions founded on disputed debt were directed to stand over till the debt was established by action. If, however, there was no reason to believe that the debt, if established, would not be paid, the petition was dismissed. The modern practice has been to dismiss such petitions. But, of course, if the debt is not disputed on some substantial ground the court any decide it on the petition and make the order. The fact that the company has obtained unconditional leave under R. S. C. Order 14 to defend an action for debt does not preclude the court, when considering a petition for winding up the company founded on the debt, from finding on the evidence that the debt was owing and that the company could not pay its debts.

Great damage might obviously be done to a solvent company by a winding up petition presented by an unreasonable creditor, whose debt the company we are able to willing to pay if established, but to whom they bona fide believe they are not indebted. In such a case, on writ issued by the company, an injunction will be granted to restrain the creditor from presenting a petition. If a petition has been presented which the court finds to be an abuse of process, the court may on motion stay all proceedings under it or dismiss it.'

Topham's Company law, 12th Edn. at page 297 sums up:

'A creditor whose debt is disputed on some substantial ground cannot generally get a winding-up order. The court may either order the petition to stand over until the validity of the debt can be determined or may dismiss the petition, and may even restrain the creditor by injunction from bringing a threatened petition.'

India:--

Rustomji's Company Law, 2nd Edn. page 375, has the following to say:--

'If the court sees a petition to wind-up presented, not for a bona fide purpose of winding-up the company, but for some collateral and sinister object, on that ground it will be dismissed. It is the inherent right of the court to dismiss and disregard mala fide petitions for winding-up. A person who threatens to present petition which, if presented, would amount to an abuse of the process of the court, will be restrained by injunction from so doing. Thus, in the case of disputed debts, intending petitioners have been restrained from presenting petitions in respect of such debts. In these cases the court has jurisdiction to interfere, because the mere representation of a petition would amount to irreparable damage.

Where a petition against a company is presented ostensibly for a winding up order, but really for another purpose, such as putting pressure on the company, the court has an inherent jurisdiction to prevent such an abuse of process, and will do so, by restraining the advertisement of the petition, and staying all proceedings upon it. A creditor of a solvent company, whose debt is bona fide disputed, will be restrained from presenting a petition for winding up the company. Winding up proceedings are not to be had recourse to for the purpose of recovering a debt which is bona fide disputed, especially when the company appears to be solvent, but the court must see that the dispute is based on a substantial ground, that is, if the defence set up (to a creditor's winding up petition) is that the petitioner's claim is disputed, it must be shown that the dispute existed before the presentation of the petition and is a real one and not merely got up to meet the petition.

'A creditor' said Sargant J. 'is prima facie entitled ex debito justitiae to a winding up order, and it seems to me to be impossible to displace that prima facie position without the very strongest proof that the petition is being improperly made use of for some utlerior motive.' Where the debt is undisputed, it is futile for the company to say 'We are able to pay our debts, but we do not choose to pay this particular debt.' The Court will not listen to such a defence.'

K. Venkoba Rao's Commentaries on the Companies Act, 1956, Vols. II and III, at page 611:

'Where there is a substantial and bona fide dispute as to the debt, a winding up order will not be made; so also where there is no dispute as to the existence of the debt but there is a bona fide dispute as to the maturity of the claim and as to the company's liability for immediate payment. Mere fact that unconditional leave to defend an action relating to the debt has been given does not make it a disputed debt. If the debts are actually paid before the winding up petition is filed into court no winding up can be ordered. As to case where Government agreed to make grants to Flying Club and it was held the winding up petition presented by Government was not made with a view to escape this liability. See In re, Punjab Flying Club Ltd, AIR 1933 Lah 301. As between himself and the company, a creditor is entitled to obtain an order on this ground but not as between himself and other creditors. Assets 10 lakhs, debts 4 lakhs, does not come within the sub-clause (e). Court's power is discretionary: Dwarkadas Agarwalla v. Dharam Chand : AIR1954Cal583 : see also Chellaradh and Co. Ltd. v. M. V. K. Sundaram AIR 1955 Mys 122; T. K. Narayanan v. Alleppey Chamber of Commerce. AIR 1952 Trav Co. 435; Discount Bank of India Ltd. Delhi v. Triloki Nath .' K. M. Ghosh's Company law, 10th Edn. part II, pp. 27-28:

'When a debt is bona fide disputed by the company order for winding up will be made and the petition will be dismissed. Where a petition against a company is presented ostensibly for a winding up order but really for another purpose such as putting pressure on the company, the court has an inherent jurisdiction to prevent such an abuse of process and will do so, without requiring an action to be commenced, by restraining the advertisement of the petition and staying all proceedings upon it. But if the debt is not disputed on some substantial ground, the court may decide it on the petition and make the order. Where a company has a bona fide defence, the petition should be dismissed; but it is otherwise if the petitioner would in the circumstances be left without a remedy. Where the court is satisfied that the debt is a knotty contested debt and doubtful, then the court would not pass a winding up order. Non-payment of a disputed debt is no proof of insolvency.' 'The principle upon which the court will forbear from deciding the dispute as to liability from for immediate payment and making a winding up order in case it decides it against the company, is that winding-up proceedings are not intended to be exploited as a normal alternative to the ordinary mode of debt-realisation, and that it is more convenient that claims should be investigated and decided in a regular action. Even though there is no dispute as to the existence of the debt, where there is a bona fide dispute as to the company's liability for immediate payment, no winding up order can be made till the dispute is decided. If it finds the issue regarding bona fides in favour of the company, it will ordinarily not proceed further and decide the dispute itself, or it will either dismiss the petition for winding up or keep it pending till the creditor has established his claim in a regular action.' (6) These principles will be found embodied in the following English and Indian decisions: In re, London and Paris Banking Corporations, 1875 19 EQ 444; Doraiswami v. Coimbatore Easwara Sahaya Nidhi Ltd. : AIR1929Mad265 , Muhammed Amin Bros Ltd. v. Dominion of India : AIR1952Cal323 ; Rani Ajit Kunuarba v. Rajputana Cold Storage Ltd. AIR 1955 NUC (Raj) 4045; Tulsidas Lalubhai v. Bharatkhand Cotton Mills Co. Ltd. : AIR1914Bom251 ; Pyda Satyaraju v. Guntur Cotton Jute and Paper Mills Co. : AIR1925Mad199 Re a Company, 1894 2 Ch. 349; King's Cross Industries Dwellings Co. 1870 11 EQ 149; Vanaspati Industries Ltd. v. Firm Prabhu Dayal Hari Ram AIR 1950 EP 142; Coal-fields of Burma v. H. H. Johnson, AIR 1925 Rang. 128; In re, Russian and English bank, 1932 1 Ch. 663; Bengal Luxmi Cotton Mills, Ltd. v. Mahaluxmi Cotton Mills Ltd. (S) : AIR1955Cal273 : In re, Welsh Brick Industries, Ltd. 1946 2 All ER 197 C. A.

(7) Bearing these principles in mind, if we examine the facts of this case, we find that this is not a case of a bona fide disputed debt. The debt due to the petitioner has been acknowledged till the present winding-up petition has been filed. The respondent company after again and again begging for time for payment of the debt, has sprung upon the petitioner on the last moment the assertion that the debt is a disputed one. But even now there are no substantial grounds for holding that there is a bona fide dispute. On the other hand, the respondent-company, is mysteriously hinting at conspiracies and frauds in the taking over of the assets of the Rayalaseema Constructions and the formation of the present respondent-company and in regard to which they did not examine either Mr. C. P. Venugopal or Mr. Moraka, though opportunity was given to the respondent-company to examine them, if so advised. Therefore, I hold that this is not a case of bona fide disputed debt.

(8) The respondent-company is directed to be wound up under S. 433 of the Indian Companies Act. I appoint the Official Liquidator as the liquidator. The petitioner will get his costs of this petition from the assets of the respondent-company. The respondent will take out his costs from the company. Advocate's fee Rs. 500 on each side.

(9) Before parting with this appeal, I must acknowledge my indebtedness to Messrs. V.C. Gopalaratnam, A. R. Krishnaswami and V. V. Raghavan for placing all the relevant authorities before me.

(10) Winding up ordered.


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