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Ofu Lynx Ltd. Vs. Simon Carves India Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberC.A. 183 of 1968 and C.P. No. 144 of 1968
Judge
Reported inAIR1970Cal418,[1971]41CompCas174(Cal)
ActsCompanies Act, 1956 - Section 434(1)
AppellantOfu Lynx Ltd.
RespondentSimon Carves India Ltd.
Appellant AdvocateS.C. Sen, Adv.
Respondent AdvocateSankar Ghosh, Adv.
DispositionPetition allowed
Cases ReferredCardiff Preserved Coal and Coke Co v. Norten
Excerpt:
- ordera.n. sen, j.1. this is an application by ofu lynx limited (hereinafter referred to as the company) for an order that the petition for winding-up of the company pre-sented by the respondent simon carves india limited also a company (and hereinafter referred to as the respondent) be dismissed and/or stayed permanently.2. the respondent claims to be a creditor of the company for a sum of rupees 8,32,400.43 paise, the respondent had caused a notice to be served on the company under section 434 of the companies act, 1956 demanding payment of the said sum of rs. 8,32,400.43 paise together with interest. on the expiry of the prescribed period of three weeks the respondent has presented, the petition for the winding-no of the company on the allegation that the company is unable to pay its.....
Judgment:
ORDER

A.N. Sen, J.

1. This is an application by Ofu Lynx Limited (hereinafter referred to as the company) for an order that the petition for winding-up of the company pre-sented by the respondent Simon Carves India Limited also a company (and hereinafter referred to as the respondent) be dismissed and/or stayed permanently.

2. The respondent claims to be a Creditor of the company for a sum of Rupees 8,32,400.43 paise, The respondent had caused a notice to be served on the company under Section 434 of the Companies Act, 1956 demanding payment of the said sum of Rs. 8,32,400.43 paise together with interest. On the expiry of the prescribed period of three weeks the respondent has presented, the petition for the winding-no of the company on the allegation that the company is unable to pay its debts. After the petition presented by the respondent for the winding-up of the company has been admitted by this Court, the company has made this application for an order that the said petition presented by the respondent be dismissed or permanently stayed. The company has obtained an interim order of stay of further proceedings of the said petition for winding-up.

3. The main ground oa which the company has made this application is that the winding-up petition presented by the respondent is an abuse of the process of this Court and is not maintainable, as there is no debt due and payable by the company to the respondent. It is contended on behalf of the company that the claim made by the respondent is seriously in dispute and there is a bona fide dispute with regard to the claim of the respondent. It is the contention of the company that as there is a genu-ine dispute with regard to the claim of the company and the alleged debt of the company is disputed bona fide by the company, the petition for the winding-up of the company cannot be entertained. It has also been contended that the respondent has presented the winding-up petition mala fide with the intention of humiliating the company which is a rival of the respondent in its trade. Mr. S. C. Sen, learned Counsel appearing in support of this application has submitted that the alleged claim of the plaintiff arises in respect of works of construction done on the basis of contracts between the parties. He has submitted that although on the basis of the value mentioned in the contracts between the company and the respondent the company has to pay a sum of about Rupees 12 Lakhs in respect of the works covered by the contracts between the parties, the company has already paid about Rupees 13 Lakhs to the respondent. It is his submission that the claim for the further sum of Rs. 8,32,400,43 paise is absurd, excessive and exorbitant and the company has no liability to pay the said sum or any portion thereof to the respondent. He has argued that in any event the sum claimed by the respondent is disputed bona fide by the company and so long as the claim of the company is not properly established in appropriate proceedings it cannot be said that there is any debt due to the respondent and that there has been any failure or neglect on the part of the company to pay any debt due and payable to the respondent. He has drawn my attention to the contracts which were entered into between the parties and he has contended that the very nature of the contracts indicates that there is every likelihood of honest disputes and differences arising between the parties in the matter of execution of the same; and it is his contention that as disputes and differences are embedded in the contracts and contemplated by the parties themselves, the contracts provide the method as to how such disputes and differences are to be resolved by arbitration. Mr. Sen has argued that in the instant case there is a dispute with regard to the quality of works done, the quantity of works done, the rates on the basis of which bills have been made out, apart from the question of non-completion or the work by the respondent and the loss and damage suffered by the company in consequence thereof. He has argued that in the instant case out of the claim of over Rupees 8 lakhs made by the respondent, over Rupees 5 lakhs is alleged by the respondent to be payable in respect of extra works done. It is the argument of Mr. Sen that the entire claim of over Rupees 5 lakhs in respect of extra works done is disputed and there can really be no doubt with regard to the existence of a bona fide dispute of a very serious nature with regard to the same. It is Mr, Sen's contention that a claim made by the respondent on its own calculation end basis of any sum for alleged extra works done does not make the claim a valid one and does not cast any, liability upon the company to meet the same. With regard to the claim of the respondent for the remaining sum of over Rupees 3 lakhs on the basis of the bills submitted, Mr. Sen has argued that the said claim made by the respondent is bona fide disputed by the company, Mr. Sen argues that the nature of the disputes and the particulars thereof have been fully set out in the affidavit and in the annexures thereto. Mr. Sen contends that it cannot be said that the disputes which have been raised by the company, giving necessary particulars in details, are mala fide or manufactured for the purpose of resisting the claim of the respondent. Mr. Sen submits that there is no admitted claim of the respondent and the fact that the company had not raised these disputes when the respondent had been making demands, does not go to show that there were no disputes or that the claim of the respondent was being admitted by the company. He has commented that when the letters demanding payment were being written to the company by the respondent, there was normal business relationship between the parties and the company was expecting that cordial business relationship between the parties would continue till the end and the entire works would be done and the whole transaction would be completed to the satisfaction of the parties. Mr. Sen has drawn my attention to the letter dated the 8th o July, 1967 from the company to Mr. P. S. Vanchi, Dy. Managing Director of the respondent and points out that even at that point of time the company has stated that 'Your bills are under verification and we are ascertaining the payments due to you'. Mr. Sen has also pointed out that in reply to the statutory notice served on the company, the company has clearly and categorically raised the disputes with regard to the claim made. It is Mr. Sen's contention that whether there is any bona fide dispute to the claim of the respondent has to be judged on the merits of the case now before the Court. Mr. Sen in fact has sought to argue that in case of any land of a claim arising out of any building contract or a contract involving works of construction, there is always room for bona fide disputes between the parties and unless all such disputes are properly and satisfactorily resolved, there cannot be any debt due or payable in respect of such works of construction done and it is Mr. Sen's contention that in any such cases, a winding-up petition for any such alleged claim, should not be encouraged by Court. Mr. Sen, therefore, submits that the debt alleged by the respondent is disputed bona fide and therefore no order for winding-up of the company should be made.

4. Mr. Sen has also submitted that the claim of the respondent is disputed is also borne out by the fact that the company in terms of the arbitration clause contained in the contract between the parties has referred the disputes to arbitration and the respondent company has also appointed its arbitrator. Mr. Sen has contended that the respondent should not be permitted to proceed with its winding-up petition in breach of the said arbitration agreement between the parties, as the same will have the effect of permitting the respondent to circumvent the provisions of the agreement between the parties. It is Mr. Sen's contention that the existence of such an arbitration agreement in the contracts between the parties in respect of which any claim is made, should be considered to be a bar to any winding-up proceeding and a party to such an agreement should not be allowed to present a winding-up petition till the disputes are resolved in the manner agreed upon by the parties.

5. In support of his contention that there cannot be any winding-up order of any company, in a case where there is a bona fide dispute with regard to the debt, Mr. Sen has referred to various authorities.

6. Mr. Sen has next contended that there cannot be any winding-up order in the instant case as the statutory notice under Section 434 of the Companies Act is invalid and not in order. It is Mr. Sen's contention that the said notice mentions a sum of Rupees 8,32,400.43 paise together with interest and in any event the said sum can never be due and payable and a much lesser sum, if any, would be due and payable upon proper adjustment, calculation and valuation and settlement. Mr. Sen contends that the said claim of Rs. 8,32,400.43 paise includes claims of various extra works alleged to have been done by the respondent and other claims about which there is no ascertained amount and there can be no ascertained amount till the said amount is either settled by the parties or adjudicated upon in proper proceedings. It is Mr. Sen's contention that the notice under Section 434 of the Companies Act must state and mention the exact sum due and payable by the company and if the exact amount is not mentioned in the notice, the notice must be considered to be a bad notice and no effect can be given to such a notice. Mr. Sen has argued that this statutory notice, tile service of which, gives rise to a presumption of inability to pay debts, must be strictly construed. It is his argument that there may be either insolvency of the company in fact and such fact must be established by necessary or proper materials. He has argued that as it is difficult for any creditor of a Company to establish 'factual insolvency of the company, the legislature has provided that the statutory notice under Section 434 for payment of the debt and the service of a proper notice in accordance with the statute will give rise to a statutory presumption of insolvency and the company will be deemed to be unable to pay its debts on the expiry of the prescribed period after the service of the statutory notice. Mr. Sen contends that a notice which has the effect of creating such important statutory presumption must necessarily be strictly construed and any creditor who intends to have the benefit of this statutory presumption and the deeming provisions OB inability to pay debts must comply strictly with the provisions contained in the statute He contends that the statute clearly contemplates that the definite and exact sum must be stated in the notice and the failure or neglect to pay the said exact sum within the prescribed period can only give rise to the presumption. If the notice does not state the exact sum and demands payment of a sum which is in excess of the debt payable by the company, the notice is bad, as the company has no liability to pay the said sum stated in the notice and as such there can be no question, according to Mr. Sen, of any failure or neglect to pay the sum claimed in the notice and there can therefore be no presumption of inability to pay the debt. In support of the contention Mr. Sen has referred to the following decisions:--

Japan Cotton Trading Co. Ltd. v. Jajodia Cotton Mills Ltd. : AIR1927Cal625 ; In Re: Janbazar Manna Estate Ltd. : AIR1931Cal692 ; In Re: Jambad Coal Syndicate Ltd. : AIR1936Cal628 ; The Company v. Rameswar Singh, 23 Cal WN 844 = (AIR 1920 Cal 1004); In Re: Bengal Flying Club Ltd., (1967) 71 Cal WN 38.

7. Mr. Sen has submitted that the respondent is a rival of the company in the same line of business and the respondent has made the application of winding-up of the company mala fide because of the business rivalry.

8. Mr. Sankar Ghosh, learned Counsel appearing on behalf of the respondent has submitted that there is no bona fide dispute with regard to the debt of the company to the respondent. He has argued that the company is seeking to raise certain false and frivolous disputes to resist the application made bona fide by the respondent for the winding-up of the company. Mr. Ghosh does not dispute that if there is a bona fide dispute with regard to any claim or debt on the basis of which a winding-up petition is presented, the winding-up petition must fail and the dispute must be resolved in appropriate proceedings. Mr. Ghosh, however, contends that merely seeking to raise a dispute does not make the dispute a bona fide one and does not make the debt a disputed debt. It is his argument that only in a case where the Court is satisfied that there is a bona fide dispute with regard to the debt on the basis of which the winding-up petition is presented, the Court will refuse to make any order on the said application for winding-up. He contends that it is the duty of the Court to consider the nature of the disputes sought to be raised, to examine the same and, if necessary, to scrutinise the same for the purpose of deciding whether the disputes sought to be raised are bona fide or not. He does not contend that Court can or should finally adjudicate upon the disputes sought to be raised by any company in any winding-up proceeding, but it is his contention that the Court has to examine the facts and circumstances of each particular case and the nature of the dispute sought to be raised to come to a prima facie conclusion as to whether there is any bona fide dispute with regard to the debt or the disputes sought to be raised are mala fide ana being manufactured for the purpose of resisting the application for winding-up. In support of his contention that it is the duty of the Court to examine the nature of the disputes and to scrutinise the disputes sought to be raised by way of defence to a winding-up petition on the basis of such debt Mr. Ghosh has referred to and relied on the following decisions:--

Bangasri Ice and Cold Storage Ltd. v. Kali Charan Banerjee, : AIR1962Cal613 ; In Re: Welsh Brick Industries Ltd., (1946) 2 All ER 197; ID Re: The Imperial Hydropathic Hotel Co., Blackpool Ltd., (1882) 49 LT 147; Harinagar Sugar Mills Co. Ltd., Bombay v. M. W. Pradhan, Court Receiver, High Court, Bombay, : [1966]60ITR508(SC) .

9. Mr. Ghosh has argued that in the facts of the instant case the disputes sought to be raised by the company are clearly mala fide and have been engineered only with the view of resisting the winding-up petition presented by the respondent. It is his argument that there is no bona fide dispute with regard to the debt. He submits that the claim of the respondent company in respect of extra works done amounting to about Rupees 5 lakhs may be said to be disputed in the sense that the said amount is not agreed upon and may have to be settled either by agreement of the parties or through appropriate proceedings. He has argued that a huge sum of course, will be found due and payable by the company on respect of the extra works done, but it may be said that the exact claim of the respondent on this account is yet to be finally settled. He contends that there is, however, no dispute with regard to the claim of over Rs. 3 lakhs for works done on the basis of the contract and in respect of which bills were duly submitted to the company and the bills have been duly accepted by the company. He points out that in respect of this claim of over Rs, 3 lakhs the company never raised any dispute at any earlier stage before the statutory notice under Section 434 of the Companies Act was served on the company. He has drawn my attention to the correspondence that passed between the parties before the respondent served the statutory notice on the 28th of November, 1967. He has drawn my particular attention to the letters dated the 19th April, 1967, 4th May, 1967 and 15th May, 1967 all addressed by the respondent to the company and annexedto the affidavit in opposition affirmed byAshoke Kr. Sinha Roy on the 12th ofAugust, 1968 in this proceeding and to theletters of the 9th May, 1967 and 8th July,1967, addressed by the company to the respondent and also annexed to the said affidavit and to various other letters annexed tothe said affidavit of Ashoke Kr. SinhaRay. Relying on the said letters in particular and the correspondence generally thathad passed between the parties before anylegal action had been taken, Mr. Ghosh submits that it is obvious from the same thatthere was no genuine dispute with regardto the claim of the respondent for the sumof over Rs. 3 lakhs and the company wasnot in a position to pay the sum due tofinancial difficulty and the company had infact pleaded financial difficulty for being unable to meet the said bills of the respondentMr. Ghosh contends that in this background when the company has practicallyadmitted its liability and has asked for timeto make the payments, the disputes nowsought to be raised cannot be said to bebona fide and no reliance should be placedby the Court on the said disputes nowsought to be raised. Scrutinising the natureof the disputes raised in answer to the statutory notice and in the affidavits, Mr. Ghoshsubmits that a scrutiny of the said disputessought to be raised clearly indicates that thesaid disputes have been manufactured forthe purpose of resisting the winding-up application of the company.

10. Mr. Ghosh has next argued that the fact that the company has sought to refer the disputes to arbitration and has appointed an arbitrator is not of any consequence. According to Mr. Ghosh, this fact on the other hand goes to show the mala fide conduct of the company. Mr. Ghosh points out that the said disputes were referred to arbitration only at the time of making this application and not at any time before that and he submits that that was so done only with the intention of creating grounds for this application. Mr. Ghosh has argued that the said reference to arbitration by the company has been intended to be used as a mere device for resisting this application and not for settlement of any real dispute between the parties. Mr. Ghosh points out that after the said reference had been made by the Company, the respondent also appointed its Arbitrator without prejudice to the pending application for winding up of the company presented by the respondent with a view to prevent the Arbitrator appointed by the company from acting as the sole Arbitrator and to stop any ex parte arbitration in the interest of the respondent, Mr. Ghosh, however, comments that no further steps have been taken by the company in the matter of the said arbitration thereafter.

11. Mr. Ghosh has next contended that the statutory notice under Section 434 served on the company in the instant case is perfectly valid and in order. He has argued that if any claim is made in the notice in excess of what may be actually held to be payable by the company, the notice does not become bad or defective, so long as the debt mentioned in the notice exceeds the sum of Rs. 500 and includes the claim on the basis of which the notice is served. He argues that to hold to the contrary would render the provisions contained in Section 434 of the Companies Act absolutely nugatory. He does not dispute that the notice being a statutory notice should be strictly construed and he submits that even on a strict construction of the said section it is not imperative that the exact amount has to be mentioned. With regard to the cases cited by Mr, Sen, : AIR1927Cal625 and in : AIR1931Cal692 Mr. Ghosh has submitted that those decisions were perfectly justified as the notice in the case in : AIR1927Cal625 was by a Solicitor and not under the hand of the creditor and in view of the language used in the section, such a notice by Solicitor was then not permissible. Mr. Ghosh, however, points out that the said provision has since been amended and a notice by Solicitor is now in order. With regard to the other case of Janbazar Manna Estate in : AIR1931Cal692 Mr. Ghosh points out that the notice in the said case was not served at the Registered Office of the company as required under statute, and was therefore held to be bad. With regard to the amount of the claim, Mr. Ghosh has argued that all that section 434 requires that the claim must exceed Rs. 500 in value and it is his argument that claim for a bigger sum necessarily includes a claim for the lesser sum. He argues that if for any reason it appears to the Court that the claim for the sum stated in the notice is prima facie not tenable or correct and it appears that a claim for a lesser sum exceeding the sum of Rs. 500 is not in dispute and remains payable by the company and has remained unpaid after the service of the notice claiming a larger sum, the notice cannot be said to be bad and the winding up petition cannot be rejected on that ground. In support of this contention, Mr. Ghose has relied on the following decisions:--

Cardiff Preserved Coal and Coke Co v. Norten, (1867) 2 Ch App 405; In re: Tweeds Garages Ltd., (1962) 1 All ER 121; Un-reported decision of Ghose, J., in Com. Petn. No. 179 of 1967, (Cal) In Re: Amritlal Ojha, and Co. (P) Ltd.

12. The main question which falls for determination in the present case is whether there is a bona fide dispute to the debt on the basis of which the winding up petition has been presented in the instant case. 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 disputes in appropriate proceedings. This legal position is so firmly and universally established that I do not consider it necessary to refer to any authority in support of this proposition. This position necessarily follows from the provisions contained in Section 434 of the Companies Act When there is a bona fide dispute with regard to any debt claimed, it cannot be said that there is in fact any debt till the disputes are resolved and there cannot be any question of any failure or neglect to pay unless the debt is established to be due and payable. 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. Disputes raised or sought to be raised may not be bona fide and will not necessarily make the debt a dispute one. 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 or the debt can never be considered to be bona fide and will be of no avail in resisting a winding up petition. Whether the disputes which are raised or sought to be raised are bona fide or not and whether the same have been manufactured for the purpose of resisting a case for winding up of the company will have to be considered and determined by the Court on the basis of the facts of each particular case arid on the basis of the materials that may be available to the court at the time the court is called upon to decide the question. To come to any conclusion as to whether the disputes raised or sought to be raised are bona fide or not it is certainly open to the Court to consider the nature of the disputes, to examine the same and, if necessary, to scrutinise the items of disputes. The Court considers the nature of the dispute and examines and scrutinises the same not for the purpose of adjudicating upon the same or coming to any final conclusion in respect of the said dispute, but to satisfy itself whether the said disputes appear prima facie bona fide and make the debt a disputed one In considering the question whether the dispute in respect of any debt is bona fide or not and whether the debt is bona fide disputed or not, the Court has not only to consider and examine the nature of the disputes raised but should consider all the facts and circumstances of the case. The conduct of the parties may be and is a relevant fact which is also taken into consideration by the Court in determining this question. The answer to this question must therefore necessarily depend on the facts and circumstances of each particular case. In given cases on a proper consideration of all the materials the Court may come to the conclusion that there is a bona fide dispute with regard to the debt on the basis of which the petition for winding up has been presented and the Court in such cases will refuse to entertain the said application. If, on the other hand, in the facts of particular cases, the Court comes to the conclusion that disputes sought to be raised are not bona fide and have only been manufactured or created for the purposes of resisting the application, the Court will refuse to grant any stay of the winding up petition and will proceed with the same. If in particular cases the court is in some doubt as to whether the disputes are bona fide or not and is not in a position to come to any definite conclusion mat the disputes are mala fide and manufactured only to create a defence to the winding up petition, the court may stay the winding up proceeding and relegate me parties to an action on terms as to security or otherwise. In other words, in any case where the Court entertains soma doubt as to the bona fides of the disputes sought to be raised and has suspicion about the true nature thereof, the Court may direct the company to furnish security to prove its bona fides and solvency and relegate the claimant to a suit on such security being furnished and the Court may stay the winding-up proceeding. The legal position, to my mind, appears to be well established and I do not, therefore, consider it necessary to refer to the various authorities cited from the Bar on this aspect.

13. In the facts of the present case, I am unable to accept the contention of the respondent that there is no bona fide dispute to the claim of the respondent and the company has manufactured the disputes and sought to create them only for the purpose of resisting the winding up application. The provisions in the contract and the nature of the works done on the basis of which the claim of the respondent arises, indicate, to my mind, that there is sufficient scope for honest difference of opinion and genuine disputes in respect of the claim made. In my opinion, there seems to be a good deal of force in the contention of Mr. Sen that in building contracts of this nature 'disputes' to quote the expression used by Mr. Sen 'are built in the contracts themselves' and it is in consideration of the fact that disputes are very likely to arise between the parties in relation to the same, provision is usually made in the contracts themselves as to how such disputes are to be resolved. In my opinion, the Court should not normally entertain a winding up petition on the basis of a claim arising out of a contract of this nature, unless the Court is satisfied beyond doubt on the materials available that the claim is Firmly established and there is no room for any genuine dispute with regard to the same. The correspondence on which Mr. Ghosh has relied do support to some extent his contention that the company had not raised any dispute with regard to the claim of over Rs. 3 lakhs at mat time. It is, however, not inconceivable in the facts of the present case and particularly in view of the nature of the works done that genuine disputes might arise in respect thereof at a later stage. It has also to be noted that although the company did not raise any dispute at the time when the correspondence had passed, there is also no admission on the part of the company as to any exact amount being due and payable by the company to the respondent. On the other hand, the company in its letter of the 8th July, 1967 has specifically stated that the bills of the respondent are under scrutiny. I have also to bear in mind that at the time when these letters passed, the work was in progress and there was normal business relationship between the parties. In view of the fact that work was being done by the respondent and the respondent had to be paid for the works they were doing and in view of the nature of the business relationship between the parties, it is not unreasonable and improbable that the company might prefer not to enter into any controversy at that stage and to wait till the entire work was done for final settlement. It is also not unlikely that the points ol dispute might have arisen or have been discovered subsequently. In any event, in the facts of the instant case, I am unable to come to the conclusion that the disputes sought to be raised are all mala fide and created for the purpose of this application only because no reference had been made to them in the said correspondence relied on by Mr. Ghosh. The nature of the disputes with particulars have been set out in the affidavit of Raghunath Harihar Putran affirmed on the 1st of July, 1968 on behalf of the company in support of the present summons and in the annexures thereto. It cannot be said, in my opinion, at this stage that the disputes raised or sought to be raised are all false, frivolous and mala fide. It is an admitted fact that the respondent has so far been paid over Rs. 12 lakhs by the company and it is also an admitted fact that the respondent has not completed the work under the contract Whether the respondent was justified in stopping the work, is a question which may have to be adjudicated upon in appropriate proceedings; but the fact remains that the entire work under the contract has not been done by the respondent. There can also be no doubt that there is a bona fide dispute with regard to a major part of the debt amounting to over Rs. 5 lakhs, claimed for extra works done out of the debt of over Rs. 8 lakhs on the basis of which the respondent has presented the winding, up application. In fact, Mr. Ghosh did not and could not seriously contend on behalf of the respondent that there was no bona fide dispute with regard to the claim of over Rs. 5 lakhs for extra works said to have been done by the respondent and Mr. Ghosh confined his arguments to the claim of over Rs. 3 lakhs in respect of which, according to Mr. Ghosh, there is no bona fide dispute. It is, therefore, clear that there is, in any event, a bona fide dispute with regard to a very substantial part of the debt claimed. Bacha-wat, J. in Re: Bharat Vegetables Products Limited, (1952) 56 Cal WN 29 observed at p. 32 'It is well settled that the presentation of a petition for winding up is an abuse of the process of the Court if the debt on which petition is presented is disputed bona fide. The Court will not allow its process of winding up an insolvent company to be used as an instrument for extorting a claim which is disputed bona fide. The Court will at least stay the hearing of the petition even when there is ground for supposing that there is bona fide dispute as to a substantial part of the claim'. Ray, ft in the case of (1967) 71 Cal WN 38, after a review of various authorities, also expressed the same view. In the facts of the instant case, I am further of the opinion that the disputes sought to be raised with regard to the remaining part of the debt claimed, cannot be said to be mala fide and to have been manufactured for the purpose of resisting the winding up application. The entire debt on the basis of which the wind-ing up petition has been presented is, to my mind, in dispute.

14. The above finding is sufficient for the disposal of this application and in view thereof, it does not become necessary to decide the other contentions raised. As however, considerable arguments have been advanced from the bar on the question of the validity of the statutory notice. I consider it desirable to express my views on the same.

15. As already noted Mr. Sen has contended that a statutory notice to be valid must state the exact amount of debt and it has been the contention of Mr. Sen that if the exact debt is not correctly stated in the notice, the notice becomes invalid and inoperative. In essence, Mr. Sen's contention has been that if the amount claimed in the notice is not exactly the correct amount of the debt payable or if it appears to the court that the amount claimed in the Statutory notice is not the exact debt which should be payable by the company because of any mistake in calculation or otherwise or because of any bona fide disputes raised with regard to any portion thereof, the notice becomes invalid and ineffective; and no presumption of any inability to pay the debt on the part of the company or of any insolvency of the company can arise under Section 434 of the Companies Act. Mr. Ghosh, on the other hand, has contended that the statutory notice does not become bad. If the debt mentioned in the notice is not the exact or correct sum which may be held to be payable by the company, provided that the sum stated in the notice exceeds the amount of Rs. 500 and includes the claim which forms the subject-matter of the winding up petition, although the amount stated in the notice may not be exactly the correct amount which may be held to be payable by the company.

16. Before I deal with the respective contentions of the parties it will be convenient to set out Section 434 of the Companies Act and to discuss the cases cited from the bar on this question. Section 434 of the Companies Act 1956 reads as follows:

'434. Company when deemed unable to pay its debts, (1) A Company shall be deemed to be unable to pay its debts -- (a) If a Creditor, by assignment or otherwise to whom the company is indebted in a sum exceeding Rs. 500 then due, has served on the company, by causing it to be delivered at its Registered Office, by registered post or otherwise, 'demand' under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the same, or to secure or compound foi it to the reasonable satisfaction of the Creditor; (b) If execution or other process issued on a decree or order of any court in favour of a Creditor of the company is returned unsatisfied in whole or in part; or (c) If it is proved to the satisfaction of the court that the company is un-able to pay its debts, and, in determining whether a company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company.

(2) The demand referred to in Clause (a) of Sub-section (1) shall be deemed to have been duly given under the hand of the Creditor if it is signed by any Agent or legal Adviser duly authorised on his behalf or in the case of a firm, if it is signed by any such Agent or legal Adviser or by any member of the firm.'

17. The first case that has been relied onby Mr. Sen is the case of : AIR1927Cal625 .In this case the Court was concerned withthe construction of Section 163 of the Companies Act, 1913 and the relevant portionof the said Section 163 was to the followingeffect:--

'If a Creditor, to whom the company is indebted in a sum exceeding Rs. 500 then due, has served on the company a demand under his hand requiring the company to pay the sum so due.....'

On a construction of the said section the Court of Appeal came to the conclusion that a demand by the Solicitor of a Creditor was not sufficient for purpose of Section 163 Rankin, C. J., who delivered the judgment observed at p. 626. 'But it is clear that 'under his hand' has some special purpose in this connection: and in view of the fact that a consequence so serious is attached to non-compliance with the notice I am not of opinion that there is here nothing to prevent the general common law principle from being applied. That being so, the two notices founded upon this petition as being statutory notices are not sufficient.' It is to be noted that there was no provision in Section 163 of the Companies Act of 1913 corresponding to Section 432(2) of the Companies Act of 1956 and the said decision was arrived at on the basis of the language used in Section 163 of the Companies Act, 1913. The next decision that has been relied on by Mr. Sen is the decision in the case of Janbazar' Manna Estate : AIR1931Cal692 . In this case the statutory notice was beld to be bad as the same was not served at the Registered office of the company as required under the statute. It is to be noted that the decision in this case was also based on the clear language used in the statute and it was held that in view of the express provision in the statute, the notice to be effective must be served at the Registered office of the company. The other case that has been relied on by Mr. Sen is the decision of Remfry J. in : AIR1936Cal628 . In this case a petition for the winding up of the company had been presented on the ground that after the statutory notice, the company had failed to pay a debt of about Rs. 72,000 due for royalties and rent. The company had taken two main objections to the said petition. The first objection of the company was that there was a claim by a third party who was alleged to have a title paramount to that of the petitioning Creditor and this objection was found not to be a very serious one. The other objection of the company was upheld by the learned Judge and in view thereof the learned Judge dismissed the said petition for winding up. The other objection and the grounds on which the same was upheld by the learned Judge may best be stated in the language of the learned Judge himself. The learned Judge observed at p. 629 'The other point is more difficult. It appears that by a consent decree in 1927 the Syndicate, as the company is called, agreed to take a new lease and surrender the old one. This lease has been executed by all the parties and as the affidavit states: The lease was registered by the company and the Syndicate and various parties. Registration has not been completed by four persons who executed the document, and summons have been issued to compel registration. These four persons appear to be interested in the Syndicate. It may be that under Section 35, Registration Act, the company could have completed the registration as regards the parties attempting execution, but that has not been done. The delay in preparing the lease has been caused by difficulties in the company's title. In a winding up order the debt must be presently payable and the title of the petitioner complete. Clearly it is insufficient to show that some other debt is due or even though that there is something over Rs. 500 due in respect of the claim made, if that was not the sum claimed. The law requires that a demand must be made for a debt that is due, and it is not permissible to support a petition by alleging that something else is due. The company, therefore, cannot rely on any admission that Rs. 13,000 and not Rs. 72,000 is due under the former lease if it is in force, nor is it sufficient to allege that Rs. 60,000 is due under the the old lease. The demand was not made for rent or royalties under the old lease.' Mr. Sen has also referred to the decision in the case of 23 Cal WN 844 = (AIR 1920 Cal 1004) and also to the decision in the case of (1967) 71 Cal WN 38.

18. Mr. Ghose has relied on the decision in the case of (1867) 2 Ch App 403 and has placed particular reliance on the following observations of the Lord Chancellor at p. 410 'It was contended that the winding up order was bad because Mr. Hill had demanded a sum of 628, and it appeared that he was entitled only to 411-7s. 9d; and the 67th and 68th sections of the Act make a company liable to be wound up only when a demand is made on a certain sum, and the company neglect to pay such sum, which in this case they were not bound to pay. But the liability of a company to be wound up under these provisions arises when a creditor, to whom the company is indebted above 50, serves a demand requiring the company to pay the sum so due, and the company for a certain time neglect to pay such sum. In this case there was a debt of more than 50 due to Mr. Hill. He made, it is true, a demand upon the company for payment of more than what was due, but of course the amount due was known to the company, and was included in the demand, and the company neglected to pay 'such sum', which means not the sum demanded, but the sum due, which they might have paid, and so have prevented the order being made. The construction contended for would make every winding up order bad where the Creditor had demanded the smallest sum above what was actually due to him.'

19. The next case that has been relied on by Mr. Ghosh is the case of (1962) 1 All ER 121. In this case a petition was presented by a Creditor of the company for the winding up of the company by the Court under the provision of the Companies Act, 1948 on the ground that the company was insolvent and unable to pay its debts and that it was just and equitable that the company should be wound up. The company carried on the business of Garage proprietor and Car Dealers. The petition alleged that the company was indebted to the petitioner in the sum of 20,039-19s.3d. in respect of Higher Purchase and credit transactions on the sale of Motor Cars, the sales being financed by the petitioning Creditor and guaranteed by the company. It was alleged that sum of 20,039-19s. 3d. comprised (a) 19,619 which was alleged to be the subject of a settled account on a particular date and (b) 420-19s. 3d. which was alleged to have become due since that date. The winding up petition was supported by another Creditor who was in the employ of the company and who claimed to be a creditor for 95 in respect of wages due to him when he was employed by the company and who was said to have since beea paid. The petition was also supported by another creditor who had obtained against the company judgment for 114, against which it was alleged that the company proposed to appeal. From the facts of the case it was clear that the company was at all material times heavily indebted to the petitioning Creditor, although the exact amount of the indebtedness was in dispute. It was held that where there was no doubt that the petitioners were Creditors for a sum which would otherwise entitle them to a winding up order, a dispute as to the precise amount owed was not a sufficient answer to the petition. After analysing the relevant provisions of the English Companies Act Plowman, J. observed at p. 124 'From those provisions it appears that the only qualification which is required of the petitioners in this case is that they are Creditors, and about that, as I have said, there is really no dispute. Moreover, it seems to me that it would in many cases be quite unjust to refuse a winding up order to a petitioner who is admittedly owed moneys which have not been paid merely because there is a dispute as to the precise amount owing. If I may refer to an example which I suggested in the course of argument, suppose that a Creditor obtains judgment against a company for 10,000 and after the date of the judgment something is paid off. There is a genuine bona fide dispute whether the sum paid off is 10 or 20. The Creditor then presents a petition to have the company wound up. Is the company to be entitled to say:-- 'It is not disputed that you are a Creditor but the amount of your debt is disputed and you are not, therefore, entitled to an order?' I think not. In my judgment, where there is no dispute (and there is none here) that the petitioner is a Creditor for a sum which would otherwise entitle him to a winding up order, a dispute as to the precise sum which is owed to him is not of itself a sufficient answer to his petition.' The other judgment that has been referred to is the judgment of S. C. Ghose, J., (unreported) in Com. Petn. No. 179 of 1987 (Cal) in which Bengal Coal Co. Ltd. was the petitioner, delivered on 6th of June, 1968. In this case a similar contention had been raised before Ghose, J. The learned Judge referred to the decision in (1962) 1 All ER 121 and observed that the provisions of the English Statute were similar to the corresponding provisions of the Companies Act of 1958 and the learned Judge negatived the said contention.

20. The cases relied on by Mr. Sen do not appear to be of any great assistance on the question involved in the present case, In the case of : AIR1927Cal625 and also in the case of Janbazar Manna Estate : AIR1931Cal692 the notices were held to be bad because they were not in conformity with the express provisions of the statute. In the case of Jambad Coal Syndicate Ltd. : AIR1936Cal628 , the decision of the Court, to my mind, appears to be that the notice must be in respect of an existing debt presently payable and cannot be availed of to include some other debt not included in the notice, even though the said other debt exceeds a sum of Rs. 500 and has not been paid. These decisions, however, establish, to my mind, that the notice has to conform to the provisions of the statute and must be strictly construed. The other decisions referred to by Mr. Sen relate mainly to the questions of disputed debts and do not appear to have any material bearing on this question,

21. The decisions relied on by Mr. Ghosh clearly support his contentipn and necessarily therefore, are against the contention of Mr. Sen.

22. The notice under Section 434 of the Companies Act is a serious matter and the same is fraught with grave consequences. The effect of a notice validly given under the said provision is to raise a presumption under the statute as to the inability of the company to pay the debt and its insolvency rendering the company liable to the extreme penalty of losing its very existence and being compulsorily wound up by the Court. Such a notice has necessarily to be strictly construed and the notice must comply with the requirements of the statute. I have al-ready set out the provisions of the said Section 434 of the Companies Act. On this aspect, all that the statute requires, to my mind, is that the notice must be in respect of an existing and presently payable a debt which exceeds the sum of Rs. 500. If the amount stated in the notice is for some reason, found not to be the exactly correct amount payable by the company, but is in respect of a debt existing and presently payable exceeding the sum of Rs. 500, there will be, in my opinion sufficient compliance with the provisions of the statute and the notice will be a valid one. The statute requires a Creditor to whom the company is indebted in a sum exceeding Rs. 500 then due to serve a notice of demand requiring the company to pay the sum so due. If for some reason or other, the demand is in respect of a sum which may be in excess of the debt due, the sum due remains included in the demand and if the sum due exceeds the amount of Rs. 500, the notice will be a valid notice, as the company is required to pay the amount which is due ana which is included in the notice. To hold otherwise may have the effect of rendering the provision of Section 434 of the Companies Act, 1956 nugatory in very many of the cases, for any minor discrepancy in the amount mentioned in the notice for reasons of mistake in calculation or otherwise, will have the effect of rendering the notices bad. If the construction contended for by Mr. Sen is to be accepted, then the Court may be compelled to dismiss a winding up petition presented on the basis of a notice in respect of a debt, say, for Rs. 5 lakhs, if it appears to the Court that Rs. 100 out of the said sum of Rs. 5 lakhs stated in the notice is not payable by the company and even if it appears to the court that the sum of Rs. 4,99,900 is presently payable by the company and has not been paid in spite of the notice. As Plowman, J., points out in his Judgment in the case of (1962) 1 All ER 121, such a construction may have the effect of rendering every notice bad, if there be a very minor dispute with regard to the amount mentioned in the notice and 'it would in many cases be quite unjust to refuse a winding up order to a petitioner who is admittedly owed moneys which have not been paid merely because there is a dispute as to the precise amount owing.' The observations of Lord Chelmsford, L. C., in the case of (1867) 2 Ch App 405, which I have quoted earlier, support, to my mind, the view I take. Ghose J., in the case of Amritlal Ojha and Co (P) Ltd., Com. Petn. No. 179 of 1967 (Cal) (unreported) has expressed the view that a notice does not become bad only because the exact amount has not been correctly mentioned in the notice. I respectfully agree with the view expressed by Ghose J., and in any event it is considered to be my duty to follow the same. I, therefore, hold that a notice under Section 434 of the Companies Act, 1956 will not be rendered invalid only because of the fact that the amount of debt mentioned in the notice may not be exactly the correct amount of the debt due, provided the amount mentioned in the notice includes the debt due and exceeds the sum of Rs. 500. I may incidentally point out in this connection that in case of a bona fide dispute to the debt or a substantial portion thereof a winding up petition is refused not because of invalidity of the notice, but because of the fact that there is no failure or neglect to pay on the part of the company in view of the disputes. In case of such disputed debts, there cannot be any question of neglect or failure to pay, till the disputes are resolved in appropriate proceedings; and in such cases, even though the notice may be otherwise a valid one, there cannot arise any statutory presumption as to insolvency or inability to pay the debt, as the other conditions laid down in the section for giving rise to such presumption are not satisfied.

23. As in the instant case I am satisfied that the debt claimed is disputed bona fide by the company, the winding up proceeding cannot be allowed to proceed. This application succeeds and there will be an order in terms of prayer (a) of the summons, staying permanently the Company Petition No. 144 of 1968, being an application for winding up of the company. The respondent will be at liberty to take such steps as the respondent may be advised for establishing the claim of the respondent against the company. If within three months from date the respondent chooses to take any appropriate steps for establishing the claim of the respondent against the company, the costs of this application and also of the winding up petition presented by the res- pondent which is being permanently stayed, will be costs in the said proceedings. If no such steps are taken by the respondent within the time aforesaid, each party will pay and bear its own costs of this application and also of the winding up petition. In the facts of this particular case and taking into consideration the largeness of the claim alleged I make an order of injunction against the company from dealing with, disposing of, transferring or encumbering the assets of the company except in the usual course of business for a period of three months from date. I, however, make it clear that this order of injunction will not prevent the company from carrying on its business in the usual course and from dealing with all its assets in the usual course of business and I also make it clear that this order of injunction will be limited in duration for a period of three months to enable the respondent to take such steps as the respondent may be advised in the meantime.


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