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Rajasthan Spinning and Weaving Mills Ltd. Vs. Textool Company Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai High Court
Decided On
Case NumberC.P. No. 70 of 1969
Judge
Reported in[1971]41CompCas66(Mad)
ActsCompanies Act - Sections 433 and 434
AppellantRajasthan Spinning and Weaving Mills Ltd.
RespondentTextool Company Ltd.
Appellant AdvocateA.S. Raman, Adv.;Subbaraya Aiyer, Sethuraman & Padmanabhan and ;N. Krishnamurthi, Adv. for supporting creditor
Respondent AdvocateKing & Partridge
DispositionPetition dismissed
Cases ReferredO.P. Mohta v. Steel Equipment and Construction Co.
Excerpt:
.....admitted contract but denied any liability for any due amount as claimed by petitioner - suit as to disputed amount pending in calcutta high court when present petition filed for winding up - facts and circumstances of case suggest that respondent-company indebted to petitioner - some other creditors have also taken out applications for winding up of respondent-company - same not sole criterion to decide winding up of respondent-company - petitioner could have waited till proceedings before calcutta high court came to finality - under such circumstances petition liable to be dismissed. - - 2,60,000 and that, in spite of demand, the respondent-company failed and neglected to pay the said amount. , or other causes of like nature beyond the control of the respondent-company...........rs. 13,463.01 being the interest thereon, and (3) rs 75,000 claimed as damages for non-delivery in terms of exhibit p-1. that suit was instituted after obtaining leave to sue under clause 12 of the letters patent. in that suit, the petitioner-company took out a judge's summonsfor passing a final judgment. the respondent-company opposed that application contending, inter alia, that the calcutta high court had no jurisdiction to try the suit. upon considering the objection, the learned judge sitting on the original side directed that the respondent should furnish security for a particular amount, that after such security was given the respondent-company could have leave to defend the suit, that in case of default in furnishing security, there will be a decree for rs. 2,60,000 and that the.....
Judgment:

Palaniswamy, J.

1. This petition is filed under Section 433(e) of the Companies Act to wind up the respondent-company, Textool Company Ltd., Coimbatore. The petitioner is Rajasthan Spinning and Weaving Mills Ltd. The case of the petitioner-company is that in pursuance of a contract for the manufacture of certain textile machinery, a certain sum was paid to the respondent-company, that the respondent-company supplied some defective machinery, that subsequently the respondent-company by a letter dated 29th August, 1967, acknowledged liability to the extent of Rs. 2,60,000 and that, in spite of demand, the respondent-company failed and neglected to pay the said amount. The respondent-company admits the contract, but denies its liability for any amount. According to the respondent-company, there was a subsisting dispute between the parties under the contract, and if accounts are verified, no amount would be found due to the petitioner-company. It is also its case that the petitioner-company committed default andrepudiated the contract and that, therefore, in view of this dispute the petition for winding up is unsustainable and should be dismissed.

2. In the above circumstances, the point for consideration is whether the petitioner-company has satisfactorily proved that the respondent-company is indebted to it in a sum exceeding Rs. 500 within the meaning of Section 434 of the Companies Act, and is unable to pay the same. Exhibit R-1 dated August 8, 1964, is an order placed by the petitioner-company with the respondent-company for the supply of certain machineries under the terms stipulated therein. The parties, inter alia, stipulated that no suit or other legal proceeding on that contract or in respect of any matter arising out of, or in relation to that contract, shall be instituted in any court or courts other than courts having territorial jurisdiction over Coimbatore. The parties also stipulated that the petitioner-company shall not be entitled to claim or recover from the respondent-company any compensation for loss or damage on account of delay in delivery or despatch or non-delivery or non-despatch, where such delay or non-delivery or non-despatch is occasioned by an act of State, war, civil commotion, riot, etc., or other causes of like nature beyond the control of the respondent-company. On August 29, 1967, the parties entered into a further contract and that is evidenced by exhibit P-1. Under the new contract, it was stipulated that the contract, exhibit R-1, for the supply of four of the items specified in exhibit P-1 was thereby treated as cancelled. It is further provided in exhibit P-1 that the rest of the machinery to be supplied under the contract, exhibit R-1, had been already supplied by the respondent-company and that the petitioner-company had accepted the same in terms of the contract. It is also declared that after adjusting all the accounts between the parties, a sum of Rs. 2,60,000 was payable by the respondent to the petitioner inclusive of interest and that the respondent shall pay interest on that amount at 9 per cent, per annum. Exhibit P-1 also refers to the placing of an order by the petitioner-company with the respondent-company. With regard to that order, exhibit/P-1 provides that the respondent-company shall commence the supply before a particular date. The parties mutually agreed that in case the respondent-company was unable to supply the machinery within the stipulated period, the contract shall stand terminated and that the petitioner-company would be under no obligation to accept delivery after the specified period.

3. Alleging that the respondent-company committed breach of the contract, the petitioner-company instituted Suit No. 822 of 1968 (Commercial Cause) in the High Court of Calcutta, claiming (1) Rs. 2,60,000 covered under exhibit P-1, (2) Rs. 13,463.01 being the interest thereon, and (3) Rs 75,000 claimed as damages for non-delivery in terms of exhibit P-1. That suit was instituted after obtaining leave to sue under Clause 12 of the Letters Patent. In that suit, the petitioner-company took out a judge's summonsfor passing a final judgment. The respondent-company opposed that application contending, inter alia, that the Calcutta High Court had no jurisdiction to try the suit. Upon considering the objection, the learned judge sitting on the original side directed that the respondent should furnish security for a particular amount, that after such security was given the respondent-company could have leave to defend the suit, that in case of default in furnishing security, there will be a decree for Rs. 2,60,000 and that the suit would proceed as regards the rest of the claim of the petitioner-company. Against that order, the respondent-company has preferred an appeal, and the same is pending before the Calcutta High Court. During the pendency of these proceedings, the petitioner-company has come forward with this petition for winding up the respondent-company.

4. Mr. Raman, appearing for the petitioner-company, relying upon the terms of exhibit P-1, contended that under the said document, the respondent-company unconditionally accepted its liability for the sum of Rs. 2,60,000 with further liability to pay interest at 9 per cent, per annum thereon and that the objections raised by the respondent-company before the Calcutta High Court are frivolous and untenable and that, therefore, there is no room to hold that the dispute raised by the respondent-company is bona fide. On the other hand, it is contended on behalf of the respondent-company that the rights and obligations of the parties have to be adjudicated upon not only on the basis of exhibit P-1 but also upon the terms contained in exhibit R-1, that under the terms of exhibit R-1 the courts at Coimbatore alone have jurisdiction and that the suit instituted in the Calcutta High Court is incompetent. It is further contended on behalf of the respondent-company that upon the terms of exhibit R-1 accounts have got to be looked into, that the liability of the respondent-company to supply some portions of the machinery was due to causes beyond the control of the respondent-company and that this is a matter which will have to be enquired into in appropriate proceedings. It is, therefore, submitted that the dispute raised by the respondent-company is bona fide and that this petition for winding up should be dismissed. An examination of the terms of exhibits R-1 and P-1 shows that the contention of the respondent-company is not without substance. Exhibit P-1 states that the first contract, exhibit R-1 was treated as cancelled only with regard to certain specified items of machinery. It is not stated in exhibit P-1 that all the terms of exhibit R-1 were treated as cancelled. While stating in exhibit P-1 that the rest of the machinery had been supplied by the respondent-company and accepted by the petitioner-company under the terms of the contract, it is not stated that with regard to that supply the contract, exhibit R-1, was completely fulfilled. Exhibit R-1 provided not only for supply of machinery but also for erection. In connection with such erection, the partiesstipulated certain terms in exhibit R-1. On this aspect, exhibit P-1 is silent. In the absence of an express recital in exhibit P-1 to the effect that the contract, exhibit R-1, was completely performed or cancelled, the matter has got to be examined as to whether any more rights and obligations of the parties have to be considered in terms of exhibit P-1.

5. The question whether a dispute is bona fide or not depends upon the circumstances of each case. The test is whether the dispute is raised only to avoid payment of the debt and not based on a substantial ground, Bona fide dispute means that the dispute is based on a substantial ground and if such a dispute is raised, the court should refuse to make an order of winding-up even if only a part of the debt is disputed on substantial ground : vide O.P. Mohta v. Steel Equipment and Construction Co. , [1968] 38 Comp. Cas. 82

6. In view of the controversies existing between the parties with regard to the matter pending before the Calcutta High Court, I am of the opinion that the dispute raised by the respondent-company is bona fide and that till it is clearly established that the respondent-company is indebted to the petitioner-company, it is not just or proper to wind up the respondent-company. It is true that some other creditors have also taken out applications for winding up the respondent-company. But that is not the sole criterion to decide that the respondent-company is liable to be wound up, in this case, at the instance of the petitioner-company. The petitioner-company could have waited till the proceeding before the Calcutta High Court came to a finality, and I do not think that the petitioner-company was well advised in rushing up to this court with this petition for winding up. In this view, I dismiss the petition. But, in the circumstances, the parties will bear their respective costs.


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