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J.N. Roy Chowdhury (Traders) P. Ltd. Vs. Jainti Enterprises - Court Judgment

LegalCrystal Citation
SubjectCompany;Commercial
CourtKolkata High Court
Decided On
Case NumberOriginal Side Appeal No. 263 of 1982
Judge
Reported in[1987]61CompCas504(Cal),90CWN974
AppellantJ.N. Roy Chowdhury (Traders) P. Ltd.
RespondentJainti Enterprises
Appellant AdvocateS.B. Mookherjee, Adv.
Respondent AdvocateRuma Pal, Adv.
DispositionAppeal allowed
Cases ReferredThe Company v. Rameshwar Singh
Excerpt:
- .....barred by limitation and, thirdly, as to the merits, the respondent's alleged claim was disputed bona fide. 6. the learned trial judge held against the appellant on all the aforesaid submissions and admitted the respondent's petition for winding up of the appellant. 7. this appeal now comes up for final disposal. 8. mr. s.b. mookherjee, learned counsel appearing for the appellant, submits that there cannot be any question of deemed insolvency under section 434 of the companies act, 1956, when the entire claim of the respondent has been secured. he also argues that the alleged claim of the respondent was disputed bona fide and the company also raised a prima facie valid counter-claim. it is, therefore, his submission that the company raised a bona fide defence to the alleged claim of.....
Judgment:

Prabir Kumar Majumdar, J.

1. This appeal arises out of a judgment and order passed by a learned single judge of this court on August 3, 1982.

2. The respondent, Messrs. Jainti Enterprises, describing itself as a registered firm, presented a petition for the winding up of the appellant company. The case as made out by the respondent in its petition for winding up is that by an agreement dated November 28, 1975, the appellant agreed to sell dolomite to the respondent for a period of five years with an option for renewal upon the terms and conditions contained therein. Pursuant to the said agreement, the respondent had been buying from the appellant against advance payment from 1975 to 1977. After adjustment of accounts it was found, according to the respondent, that the appellant was indebted to the respondent for a sum of Rs. 24,062-42. It is alleged by the respondent that the statement of account between the parties was settled and confirmed wherefrom a sum of Rs. 24,062.42 remained due to the respondent from the appellant and was settled at Rs. 24,000. The respondent alleged that in confirmation of the said account, the appellant paid Rs. 6,000 in cash and issued four cheques for the balance sum of Rs. 18,000. The said cheques were, however, not presented for encashment and, as such, the said sum of Rs, 18,000 remained unpaid. The said sum of Rs. 18,000, remained due and owing to the respondent by the appellant. Hence, the said petition for winding up.

3. After presentation of the said petition for winding up, the appellant deposited a sum of Rs. 10,000 in cash by way of security with Messrs. T.K. Gupta and S. Brahmachari, the two advocates on record for the parties. On August 3, 1982, the said petition for winding up was admitted. The appellant, being aggrieved by the said order dated August 3, 1982, preferred the present appeal to this court and upon admission of the saidappeal, the court of appeal granted stay of operation of said order appealed from. Pursuant to the order of the court of appeal, the appellant deposited the balance claim of Rs. 8,000 in cash with the Registrar, Original Side, of this court.

4. The appellant's case was that in terms of the said agreement dated November 28, 1975, the appellant agreed to supply and the respondent agreed to purchase dolomite against advance payment to be made to the appellant. According to the appellant, it was, inter alia, provided in the agreement that the part payments to be paid by the respondent to the appellant against the price of dolomite would be adjusted against the fortnightly bills to be drawn by the appellant upon the respondent and the settlement of the final account was to be made quarterly. The said agreement, according to the appellant, further provided that if the respondent closed down its business, then a written notice thereof should be given to the appellant at least three months before. It was the allegation of the appellant that without any notice to the appellant, the respondent suddenly stopped placing any further order on the appellant for the purchase of the products since the middle of November, 1977, whereby the appellant suffered huge losses and damages to the tune of Rs. 4,52,250, particulars whereof were set out in annexure ' C ' to the affidavit filed on behalf of the appellant before the court of the first instance. Regarding the issuance of four cheques for the sum of Rs. 18,000, the appellant's case was that the appellant issued those cheques on the agreement between the parties that the said cheques would not be presented to the bank for encashment until the respondent's dues under the said agreement dated November 28, 1975, was settled. It was alleged by the appellant that in view of its claim to the tune of Rs. 4,52,250 against the respondent, nothing remained due and owing by the appellant to the respondent.

5. Three points urged by the appellant before the court of the first instance were, firstly by that the respondent not being a registered firm could not maintain the petition for winding up; secondly, that in any event, the alleged claim of the respondent was barred by limitation and, thirdly, as to the merits, the respondent's alleged claim was disputed bona fide.

6. The learned trial judge held against the appellant on all the aforesaid submissions and admitted the respondent's petition for winding up of the appellant.

7. This appeal now comes up for final disposal.

8. Mr. S.B. Mookherjee, learned counsel appearing for the appellant, submits that there cannot be any question of deemed insolvency under Section 434 of the Companies Act, 1956, when the entire claim of the respondent has been secured. He also argues that the alleged claim of the respondent was disputed bona fide and the company also raised a prima facie valid counter-claim. It is, therefore, his submission that the company raised a bona fide defence to the alleged claim of the petitioner creditor, and the winding up being a discretionary relief cannot be granted in the facts and circumstances of the case.

9. Mr. Mookherjee in this appeal has not pressed the other two points urged by the appellant in the court of the first instance, namely, the point of maintainability of the petition and the question of limitation.

10. Mr. Mookherjee argues that mere omission to pay is not a neglect to pay within the meaning of Section 434 of the Companies Act, 1956, butsuch omission should be without reasonable excuse. It is, therefore, his submission that when the company bona fide disputed the debt and refused to pay, then it cannot be said that the company neglected to pay on demand the alleged claim of the respondent.

11. Mr. Moohkerjee, in support of his aforesaid submission, has relied on a Bench decision of this court in the case of The Company v. Rameshwar Singh [1919] 23 CWN 844 ; AIR 1920 Cal 1004. It has been observed in this case that negligence in paying a debt on demand is omitting to pay without reasonable excuse, but mere omission by itself does not amount to negligence.

12. Next case relied on by Mr. Mookherjee is the case of Bharat Vegetable Products, In re [1952] 22 Comp Cas 62; [1952] 56 CWN 29. This court held in that case that the presentation of a petition for winding up was an abuse of the process of the court if the debt on which the petition was founded was disputed bona fide. It further held that the court would not allow the process of winding up to be used as an instrument for extorting a claim which was disputed bona fide.

13. Mr, Mookherjee has also referred to the decision of the Supreme Court on the point in the case of Amalgamated Commercial Traders P. Ltd. v. A.C.K. Krishnaswami [1965] 35 Comp Cas 456. It is observed by the Supreme Court that it is settled that 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. It is further observed that if a debt is bona fide disputed, there cannot be a ' neglect to pay ' within the meaning of Section 434(1)(a) of the Companies Act, 1956.

14. Mr. Mookherjee contends that in the instant case, the statement of account was not a final account but a quarterly account. He has referred us to Clause 7 of the said agreement dated November 28, 1975, entered into between the parties. The said clause provided that part payments to sellers, i.e., the company, against the price of dolomite would be adjusted against fortnightly bills and settlement of the final account between the parties was to be made quarterly. According to Mr. Mookherjee, the said agreement was for a period of five years and the settlement of final account between the parties was to be made every quarter in the said period of five years. He contends that the said sum of Rs. 24,000 was settled till the quarter ending November, 1977, and it cannot be a final adjustment of accounts as the said agreement was still running. Further, such settled amount was subject to further adjustment and/or settlement in subsequent quarters. It is the argument of Mr. Mookherjee that the said amount could not be transformed into a debt until a final adjustment of accounts between the parties was made either at the termination of the agreement or at the end of the contract period. Therefore, according to Mr. Mookherjee, there was no question of any indebtedness of the appellant to the respondent.

15. Mr. Mookherjee has next argued that the appellant has a valid counterclaim in excess of the claim of the petitioner creditor, i.e., the respondent. Mr. Mookherjee submits that if there is a prima facie valid counter-claim, then the existence of such a valid counter-claim would constitute reasonable excuse for non-payment. Mr. Mookherjee submits that the appellant's case is that the respondent wrongfully, illegally and without any notice to the appellant, suddenly stopped placing any further order on the appellant since November, 1977, and closed the business without any notice. The appellant, as a result, suffered huge losses and damages, amounting to Rs. 4,52,250. Mr. Mookherjee contends that the contract between the parties was for a period of five years and there was no notice of termination of the said agreement by either party. The respondent committed a breach of the said agreement by not placing order on the appellant in terms of the said agreement and, as a result, the appellant was entitled to damages.

16. Mr. Mookherjee referred to the following decisions in The Company v. Rameshwar Singh [1919] 23 CWN 844; AIR 1920 Cal 1004, [1902] 6 CWN 29 and In re Federal Chemical Works Ltd. [1964] 34 Comp Cas 963 (All). Relying on those decisions, Mr. Mookherjee contended that assuming that the respondent's alleged claim was admitted, in view of the appellant's counterclaim, it should be held that the debt of the petitioning-creditor was disputed and there could not be any failure nor neglect to pay the alleged dues of the petitioning-creditor.

17. Lastly, Mr. Mookherjee has contended that a winding-up order being a discretionary relief, such discretion may not be exercised on the facts and circumstances of the case even when inability of the company to pay its debts is proved. He argues that when the entire claim of the petitioning creditor has been secured by the orders of this court, the winding up petition should not have been admitted. He refers to an unreported Benchdecision of this court in Appeal No. 122 of 1979 (Eastern Paper Mills Ltd. v. Susil Kumar Saraogi and Co.), the judgment being delivered on January 24, 1980.

18. Mrs. Ruma Pal, learned counsel appearing for the respondent, contends that if the company does not have bona fide defence, then the peti-tioning-creditor is entitled to an order for winding up. She contends that for the purpose of deciding the question whether there is a bona fide dispute or not, the question of the claim being secured is wholly immaterial.

19. On the question of counter-claim, Mrs. Pal argues that mere raising of a counter-claim is insufficient. According to her, such a claim must be boda fide, substantial and it should be likely to succeed. She submits that the court has to investigate the counter-claim to determine whether the dispute has, been manufactured to defeat and delay the realisation of the dues of the petitioning-creditor. (Mrs. Pal referred to certain) decisions of this court Bangarsi Ice and Cold Storage Ltd. v. Kali Charan Banerjee, : AIR1962Cal613 and Sarkar Estates P. Ltd. v. Kusumika Iron Works P. Ltd., : AIR1961Cal439 .

20. Mrs. Pal submits that while admitting the petition for winding up, the court has to determine whether the company has a bona fide dispute as far as the petitioning-creditor's debt is concerned. Mrs. Pal places reliance on a Supreme Court decision in the case of Madhusudan Gordhandas and Co. v. Madhu Woollen Industries P. Ltd. [1972] 42 Comp Cas 125. It is observed by the Supreme Court that (headnote): ' Where the petition for the winding up is based on the ground of inability of the company to pay its debts, it is well settled that if the debt is bona fide disputed and the defence is a substantial one, the court will not order winding up. The principles on which the court acts are first, that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and, thirdly, the company adduces prima facie proof of the facts on which the defence depends.'

21. Mrs. Pal then refers to a decision of the Bombay High Court in Seksaria Cotton Mills Ltd., In re [1969] 39 Comp Cas 475, wherein it has been observed that (headnote) 'if a company fails to comply with a statutory notice under Section 434(l)(a) of the Companies Act, 1956, and the court comes to the conclusion that there is no bona fide dispute in regard to the petitioner's debt, the creditor is entitled to a winding up order ex debito justitiae. The fact that the company is not commercially insolvent is immaterial.' Mrs. Pal also cites another Bombay decision in Advent Corporation P. Ltd., In re [1969] 39 Comp Cas 463. Mrs. Pal also referred to a decision in Welsh Brick Industries Ltd., In re [1946] 2 All ER 197 (CA).

22. Therefore, it is the submission of Mrs. Pal, learned counsel for the respondent, that since there was no bona fide dispute nor was there any foundation in the appellant's alleged counter-claim, the court had no discretion but to admit the petition, and in her submission the court had rightly exercised the discretion in admitting the petition in the facts and circumstances of the case.

23. Now, the question in this appeal is whether there is bona fide dispute or in other words whether the company merely declines to pay without reason.

24. As we have noticed earlier, the settlement of the final account between the parties was to be made quarterly. By a letter dated November 15, 1977, the respondent forwarded a final statement of account as on November 15, 1977, i.e., for the quarter ending on November, 1977. The appellant confirmed the said account. According to the respondent, the appellant paid Rs. 6,000 leaving a balance sum of Rs. 18,000. As it would appear from the letter dated December 4, 1978, from the respondent to the appellant, the said claim was a running claim. The appellant by its letter dated January 2, 1979, addressed to the respondent, stated that the terms of the said agreement dated November 28, 1975, enjoined the respondent to guarantee advance payment to the appellant every week and settlements of final accounts were to be made quarterly. Further, the appellant pointed out in the said letter that the respondent stated that the said claim for Rs. 24,000 was made for the purpose of resolving the quarrels between the partners of the respondent firm. The appellant in the said letter dated January 2, 1978, also claimed compensation to the tune of Rs. 75,000 on account of heavy losses suffered by the appellant for the failure of the respondent to give notice of the closure of business in terms of the said agreement. The respondent, however, by its letter dated February 16, 1979, disputed such plea of the appellant and alleged that the appellant committed breach of the said agreement by appointing another party for selling dolomite and reserves its right to claim damages.

25. Learned counsel for the appellant has contended that the said claim of Rs. 18,000 was not a debt or a sum certain but subject to further adjustment in subsequent quarters. He contends further that the appellant has laid a satisfactory foundation for its counter-claim against the respondent. Admittedly, the contract was for five years and, according to the appellant, the respondent stopped placing further orders resulting in loss and damages due to the aforesaid breach.

26. In our opinion, these are disputes which cannot be resolved on affidavits but in a regular action. On a consideration of all the facts andcircumstances of the case, it cannot be said that the defence sought to be raised by the appellant in the instant case is frivolous or mala fide. In substance, the defence of the company appears to be that the said amount of Rs. 24,000 was not crystallised into a debt giving rise to an indebtedness of the company and further by reason of the respondent's stopping to place any further order or for closure of business without any notice in terms of the agreement, the appellant had suffered loss and damages. By reason of such breach, there was a prima facie case for the appellant's counter-claim. Therefore, in our opinion, it cannot be said that a such a claim is frivolous or made with an intention to defeat the claim of the respondent or without any merit. The respective cases as made out by the parties require thorough investigation which is only possible in a regular action.

27. In the case of The Company v. Rameshwar Singh [1919] 23 CWN 844 ; AIR 1920 Cal 1004, the debt due to the petitioner was admitted and only a counter-claim for damages was set up and the appeal court held that the debt of the petitioner was disputed.

28. In the case of Federal Chemical Works Ltd., In re [1964] 34 Comp Cas 963 (All), it is observed that (headnote): ' In order to raise the presumption under Section 434(1) of the Companies Act, 1956, as to the company's inability to pay its debts, it is not sufficient to show merely that the company has omitted to pay the debt due to the petitioner despite service of the statutory notice ; it must be shown that the company has omitted to pay without reasonable excuse. It is also observed that the existence of a valid counter-claim would clearly constitute a reasonable excuse for nonpayment. '

29. In the case of Amalgamated Traders (P) Ltd. [1965] 35 Comp Cas 456, the Supreme Court has observed that 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. It proceeds to observe that if the debt is bona fide disputed, there cannot be neglect to pay and if there is no neglect to pay, the deeming provision as contained in Section 434(1) of the Companies Act, 1956, will not come into play.

30. It has also been held in a Bench decision of this court, Bengal Luxmi Cotton Mills' case : AIR1955Cal273 , that if the grounds on which the liability was disputed were substantial and if the dispute in that sense bona fide, the court would not proceed further to decide the dispute and determine whether or not the debt existed. This court further held that in such a case, the claims should be investigated and decided in a regular action.

31. In the light of the aforesaid decisions, we feel that where there are claims and cross-claims by the parties, as in the instant case, ' the winding up proceedings are not intended to be exploited as a normal alternative to the ordinary mode of debt realisation '.

32. In our opinion, the questions sought to be raised in the instant case are questions which, if established, may constitute a valid case for the company. Whether the company will succeed in establishing its case or not will naturally depend on the result of the suit. We are fully convinced that the petitioning-creditor's debt has been disputed bona fide and there is a prima facie case for the appellant's counter-claim. In view of such claims and cross-claims by the parties, we are of the opinion that the learned judge was not right in admitting the petition for winding up and in giving directions for advertisement.

33. As we are satisfied that the appellant has raised a bona fide counterclaim against the respondent and there is no neglect to pay the alleged debt of the petitioning-creditor, the winding up proceedings cannot be allowed to proceed. The appellant will be at liberty to take such steps as the appellant may be advised for establishing its claims against the respondent. If within three months from the date, the appellant chooses to take any appropriate steps for establishing its claim against the respondent, the Registrar, Original Side of this court, and the said advocates-on-record, Messrs. T.K. Gupta and S. Brahmachari will hold the said sums of Rs. 8,000 and Rs. 10,000 as held by them by way of security respectively under orders of this court until further orders. In the event of a suit being filed or any other proceedings being initiated by the appellant against the respondent for establishing its said claim, then the respondent may raise a claim for the said sum of Rs. 18,000 by way of counter-claim or set off as it may be advised. If no such steps are taken by the appellant for establishing its claim within the said period of three months, the respondent will be at liberty to apply for withdrawal of the money held by the said advocates-on-record and the Registrar, Original Side, which, we have been told, has been invested in short-term fixed deposits with a nationalised bank and the interest accrued on the said sums in satisfaction of its claim against the appellant company.

34. In the premises, we allow the appeal and set aside the judgment and order dated August 3, 1982. There will be no order as to costs.

P.N. Pyne, J.

35. I agree


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