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All India General Transport Corporation Ltd. Vs. Raj Kumar Mittal - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberCompany Petition No. 353 of 1975
Judge
Reported in[1978]48CompCas604(Cal)
ActsCompanies Act, 1956 - Section 434 and 434(1)
AppellantAll India General Transport Corporation Ltd.
RespondentRaj Kumar Mittal
Advocates:Shyamal Sen, Adv. for the company;B.M. Seth, Adv.
DispositionPetition allowed
Cases ReferredAluminium Corporation of India Ltd. v. Lakshmi Rattan Cotton Mills Company Ltd.
Excerpt:
- .....and the same is not maintainable against thecompany. it appears that in the said city civil court suit, the companymade an application for interim injunction and on or about 13th ofaugust, 1975, the 8th judge, city civil court at calcutta, has issued a ruleupon the petitioning-creditor to show cause within seven days from thedate as to why the prayer for injunction shall not be granted. the saidrule was fixed for hearing on the 22nd of december, 1975. it is alleged,inter alia, that the question of validity of the decree passed by the barodacourt is now pending before the city civil court and a rule has beenobtained by the company to show cause why the petitioning-creditorshould not be restrained from executing the said decree. in these circumstances, it is alleged that there is a bona.....
Judgment:

Salil K. Roy Chowdhury, J.

1. This is a winding-up petition which was presented on 19th of November, 1975, and on the returnable date being 24th of November, 1975, direction was given to serve notice on the company and thereafter, on the 8th of December, 1975, directions were given for filing affidavits to the company to show cause, if any, as to why the winding-up petition should not be admitted and the petitioning-creditor was also given leave to file affidavit-in-reply and, thereafter, the matter was heard.

2. The petitioning-creditor obtained a decree dated the 18th of October, 1972, from the Second Joint Civil Judge (Junior Division) at Baroda in Suit No. 606 of 1971. The petitioning-creditor's claim arose out of the non-delivery of goods carried by the company which were alleged to be missing and damaged. Thereafter, the petitioning-creditor served a statutory notice of demand under Section 434 of the Companies Act, 1956, dated the 26th of March, 1975, on the company for payment of the said decretal amount of Rs. 6,060 with interest and costs. In reply to the said statutory notice the company raised the question of the decree being obtained by fraud and collusion by its advocate's letter dated the 24th of April, 1975, and the petitioning-creditor's advocate by his letter dated the 30th of May, 1975, denied such allegations. And, thereafter, on the 19th of November, 1975, the present winding-up petition was presented. The company filed an affidavit through one Sudarsan Kumar Arya, a director of the company, and alleged that there is a bona fide dispute as to the claim of the petitioning-creditor. The company admitted that the goods were delivered by the petitioning-creditor for carriage at the company's godownat Jorhat, Assam, to Baroda and alleged that it was to be carried entirelyat the owner's risk. It is alleged that after coming to know of the saiddecree passed by the Baroda court in favour of the petitioning-creditor,the respondent-company instituted a suit in the City Civil Court beingTitle Suit No. 1431 of 1975, against the petitioning-creditor for declarationthat the said ex parte decree passed by the Baroda court on the 18th ofOctober, 1972, has been obtained by practising fraud and the same is notbinding on the company, and the same is not maintainable against thecompany. It appears that in the said city civil court suit, the companymade an application for interim injunction and on or about 13th ofAugust, 1975, the 8th Judge, City Civil Court at Calcutta, has issued a ruleupon the petitioning-creditor to show cause within seven days from thedate as to why the prayer for injunction shall not be granted. The saidrule was fixed for hearing on the 22nd of December, 1975. It is alleged,inter alia, that the question of validity of the decree passed by the Barodacourt is now pending before the city civil court and a rule has beenobtained by the company to show cause why the petitioning-creditorshould not be restrained from executing the said decree. In these circumstances, it is alleged that there is a bona fide dispute and substantialdefence to the petitioning-creditor's claim and the winding-up petition isan abuse of the process of the court and should not be admitted. '

3. Mr. B.M. Seth, appearing for the petitioning creditor, after placing the facts before me as stated in the winding-up petition, submitted that already there is a decree passed by the Baroda court which is not yet set aside in appeal or otherwise and the company has with mala fide intention instituted a frivolous and vexatious suit in the City Civil Court after the statutory notice of demand was served by the petitioning-creditor on the company only to raise some sort of dispute, if possible, in this application. The question is whether a petitioning-creditor who has obtained a decree from a court of law against the company without executing the said decree can serve a notice of demand under Section 434(1)(a) of the Companies Act, 1956, and the company can be deemed to be, unable to pay its debt, if such claim is unsatisfied in spite of the said statutory notice. Mr. Seth cited an unreported decision of mine in Company Application No. 33 of 1974 in Company Petition No. 412 of 1973 (since reported as Unique Card Board Box Mfg. Co. Ltd. [1978] 48 Comp Cas 599) delivered on the 5th of March, 1975, where the identical question arose as to whether, after obtaining a decree against a company, can the petitioning-creditor serve a notice under Section 434(1)(a) of the Companies Act, 1956, and the company can be deemed to be unable to pay its debt if the decretal amount is not paid. I have held that it is not necessary that the decree has to be executed, as thepetitioning creditor had the option either to execute the decree and, thereafter, come under Section 434(1)(b) or serve a notice under Section 434(i)(a) for payment of the decretal amount. Relying on the said decision Mr. Seth submitted that in the present case also it must be held that the petitioning-creditor is entitled to present this winding-up application on the basis of the decretal amount which has not been paid in spite of the statutory notice being served.

4. Mr. Shyamal Sen, appearing for the company, firstly, submitted that the decree has been obtained by fraud and the company has already filed a suit in the* city civil court for setting aside the said ex parte decree obtained by fraud and an application for injunction is pending in that court. Further, Mr. Sen submitted that the claim is disputed on bona fide ground and there is substantial defence to the claim of the petitioning-creditor and, lastly, Mr. Sen submitted that the petitioning-creditor having obtained a decree has not executed the same and, therefore, the present application is not maintainable unless the said decree was put to execution and remained unsatisfied thereafter within the meaning of Section 434(1)(b) of the Companies Act, 1956. In support of his various said contentions Mr. Sen cited several decisions first being that of S.K. Dutt J. in Om Prakash Mohta v. Steel Equipment and Construction Co. (P.) Ltd. [1968] 38 Comp Cas. 82 ; [1967] I CLJ 172, where a company petition was presented on the basis of a decretal debt on which statutory notice of demand was served under Section 434(1)(a) on the company and the company thereafter filed a suit for declaration that the decree was a nullity being tainted with illegality, inter alia, on the ground that the managing director who gave guarantee on behalf of the company was not empowered to submit to a consent decree and such act was ultra vires and illegal. It was held that the jurisdiction of the winding-up court is very wide and, although the interim injunction in the suit filed by the company for declaration of the decree being null and void, was refused, the company court may come to a different finding after hearing the parties and further, it was held that the suit in which the compromise decree was obtained was without jurisdiction as the court had no territorial jurisdiction over the immovable property which were the subject-matter of the suit and as such the decree was a nullity and on the facts of that case it was held that the contentions in the suit cannot be said to be not bona fide and the dispute raised by the company was held to be substantial. Therefore, the court adjourned the winding-up application till the disposal of the suit filed by the company for setting aside the decree which was the basis of the claim in the winding-up petition.

5. The next decision cited by Mr. Sen was that in the matter of Ko Ku La Ltd. [1953] 23 Comp Cas 81, where P. B. Mukharji J., as he then was, held that although a judgment of a court is a very strong presumptive evidence that the debt exists it is not conclusive in a bankruptcy court and the court will go behind a judgment-debt in a proper case on proper grounds being shown that the decree or judgment-debt is tainted with fraud or collusion. The allegation must be pleaded with such particulars as will not only amount to a proper averment in law, of fraud, but also show a prima facie case of fraud requiring investigation. Even if the petition for winding up is allowed to stand over, the company should undertake and bring an action to set aside the decree on which the debt is claimed by the petitioning-creditor. But on the facts of that case the court was satisfied that the company was unable to pay its debt after the statutory notice was served and the winding-up order was passed in that case.

6. The next decision cited by Mr. Sen is an Allahabad decision in W.T. Henley's Telegraph Works Co. Ltd. v. Gorakhpur Electric Supply Co. Ltd., AIR 1936 All 840, where the court merely referred to the well-known principles to be followed by a winding-up court and considered whether a debt is bona fide disputed and whether a company is said to be unable to pay its debt and on the facts of that case the court passed a winding-up order.

7. The last decision cited by Mr. Sen was that in Aluminium Corporation of India Ltd. v. Lakshmi Rattan Cotton Mills Company Ltd. [1970] 40 Comp Cas 259 (All), where M.H. Beg J., upon the consideration of the totality of the facts and circumstances of that case, held that the long adjournment of hearing of the winding-up petition or postponement of the final order for one year will serve the interest of justice. The period was allowed to enable the parties to obtain a possible decision of the pending appeal in the Supreme Court which will finally decide the question whether the disputed debt has to be discharged or not. On the facts of that case, the winding-up petition was based on a decretal claim of the petitioning-creditor from which decree an appeal was pending. Mr. Sen also relied on the general principles that the winding-up is not an alternative to file a suit for realisation of debt and when the debt is bona fide disputed and there is substance in the defence, the company court should not admit the winding-up petition but hold that the winding-up petition is an abuse of the process of the court. He also referred to the well-known decisions laying down the said principles including the latest Supreme Court's decision in Madhu Woollen's case [1972] 42 Comp Cas 125 (SC). In these circumstances, Mr. Sen submitted that the winding-up petition should be taken off the file and dismissed with costs.

8. Considering the respective contentions very carefully, I am of the view that the petitioning-creditor who has obtained a decree against the company is not required to put in execution the said decree and then come before the court after the decree remains unsatisfied and avail of the deeming provisions under Section 434(1)(b) of the Companies Act, 1956, but he has an alternative course left after he obtains a decree to serve a statutory notice for payment of the decretal amount tinder Section 434(1)(a) of the Companies Act, 1956, and if the company fails to pay the decretal amount within 21 days of the service of the notice, the deeming provisions of the company being unable to pay its debt within the meaning of Section 433(e) read with Section 434(1)(a) of the Companies Act, 1956, comes into operation immediately provided the statutory requirements are complied with i.e., the notice is served at the registered office of the company and in spite of being served, the company has failed and neglected to pay a debt which is legally due and has not been bona fide disputed and there is no substantial defence to the claim of the petitioning-creditor. The Calcutta decisions cited by Mr. Sen which I have mentioned above are all cases where notice under Section 434(1)(a) has been served on the basis of a decretal debt and as such the contention which was sought to be raised by Mr. Sen that unless the decree is put into execution and it remains unsatisfied, then and then only the petitioning-creditor can make an application for winding up and the deeming provisions under Section 434(1)(b) can be invoked cannot be accepted. I have already held in the unreported decision (see p. 599 supra) cited by Mr. Seth that the petitioning-creditor has an option either to execute the decree and then come under the deeming provisions of Section 434(1)(b) or can serve a notice on the decretal debtor under Section 434(1)(a) at any stage after the decree is obtained whether the decree is put into execution and remains unsatisfied or without putting the decree in execution or at any intermediate stage.

9. Now, the next question is whether on the facts of this case can it be said that a bona fide dispute has been raised to the claim made by the petitioning-creditor, being the decretal debts due against the company. Only the fact that the company has filed a suit in the city civil court for declaration that the said decree is null and void and obtained by fraud, in my view, is not enough for the court to hold that there is a bona fide dispute, if it is to be accepted, in that event, in all cases where the decretal debt is the basis of the statutory notice and, consequently, the winding-up petition, a company can very well start a frivolous, vexatious and harassive suit alleging that the decree had been obtained by fraud and collusion and frustrate the winding-up proceeding altogether. It is true that the company can always challenge the decree, if it has valid grounds for doing so on proper materials from which prima facie the court can come to a conclusion that there is some substance in the company's allegations and there is a possibility of the same being substantiated in law and fact. The decision of P.B. Mukharji J. in Ko Ku La Ltd. : AIR1953Cal387 lays down the said principle very clearly. Therefore, the whole question is that the court has to examine the facts very carefully and to see whether there is really any basis in the contentions of the company challenging the validity of the decree on the ground of fraud or illegality or jurisdiction, as the case may be. After examining it very carefully in the light of the facts of this case and the materials before me. I am unable to find that there are any bona fides in the company's contentions raising a dispute as to the validity of the decree or the claim of the petitioning-creditor. The company's conduct and attitude is wholly mala fide and the petitioning-creditor is being harassed unnecessarily by the company who is trying to prevent the petitioning-creditor from realising his legitimate dues which is now a decretal debt in all possible ways. This is not a case where the court should exercise its discretion to adjourn the winding-up petition till the disposal of the city civil court suit, which has been instituted by the company long after the statutory notice of demand has been served on the company for payment of the decretal dues of the petitioning-creditor. The statutory notice is dated the 26th of March, 1975, and the decree is dated the 18th of October, 1972, which was the basis of the statutory notice and the petitioning-creditor's claim, and it is only on the 13th of August, 1975, the company instituted the suit for the declaration that the said decree passed by Second Joint Civil (Junior Division) Court at Baroda, being Suit No. 606 of 1971, is null and void and was obtained by fraud and collusion which is not only an after-thought but wholly a mala fide, vexatious and frivolous suit and filed with the sole intention of raising some sort of disputes, if possible, in this application relying on certain observations in the decisions cited by Mr. Sen from the bar. But I am satisfied that on the facts the company has no defence and neither the dispute has been raised bona fide nor is there any possibility of the company's defence being substantiated in law or fact. In my view, the tests laid down in the Supreme Court decision in Madhu Woollen Industries case [1972] 42 Comp Cas 125 (SC) are fully satisfied in this case. The court should entertain a winding-up application when the defence is not raised in good faith and there is no likelihood of the contentions of the company being substantiated in law or in fact. In my view, the contention of the company appears to me to be dishonest and prima facie untenable. In that view of the matter, I cannot hold that, in the facts and circumstances of this case, the present winding-up petition is an abuse of the process of this court. Now, it is well settled that the winding-up petition is a legitimate mode of equitable execution of the claim of a petitioning-creditor and, therefore, the harassed petitioning-creditor is quite justified in presenting this winding-up petition against the company after he has obtained the decree from the Baroda Court. Moreover, it appears to me that the suitin the city civil court which has been filed by the company is not maintainable as that court has no jurisdiction to entertain the said suit.

10. Therefore, I am making the following order :

The winding-up petition is admitted. But I will give the company a chance if they are so inclined to be honest and maintain the commercial morality and probity of a transport company and pay the petitioning creditor's advocate the sum of Rs. 6,060 together with interest thereon at the rate of six per cent. per annum from 1st of October, 1972, until payment and assessed cost mentioned in the said decree dated the 18th of October, 1972, within 16th of February, 1976, together with an assessed cost of this application being 30 G. Ms., the winding-up petition would remain permanently stayed. In case the company fails to pay the said amounts as directed, the winding-up petition will be advertised once in Amrita Bazar Patrika, once in Basumati and once in the Calcutta Gazette after 16th of February, 1976, and the matter to appear in the list on the 29th of March, 1976.


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