2000 (12) TMI 867 - HC - Companies Law

Court sets aside security requirement in winding-up petition, allows unconditional defense. Disputes to be resolved in suit.

The court held that directing the appellant to furnish security was not justified as the issues required evidence and should be resolved in a suit, not ... Winding up - Circumstances in which a company may be wound up Issues Involved:1. Whether the trial court was justified in directing the appellant to furnish security despite relegating the case to a suit.2. Whether the petitioning creditor's claim should lead to the winding up of the company based on the alleged debt.Issue-wise Detailed Analysis:1. Justification of Security Direction by Trial Court:The question before the court was whether the trial court was justified in directing the appellant, Peerless Consultancy Service (P.) Ltd., to furnish security despite relegating the case to a suit. The court noted that it is well settled that in applications for judgment upon admission under Order 12, Rule 6 of the Code of Civil Procedure, or under Order 37, or Chapter XIIIA of the Original Side Rules, the court may impose conditions of security to test the bona fides of the defaulting party. However, the court found that the trial judge had already determined that the issues raised could only be decided after adducing evidence and that the claim should be relegated to a suit. Consequently, the court held that the imposition of security was not justified, as a company petition is not a process for the recovery of money but for winding up under sections 433, 434, and 439 of the Companies Act, 1956. The court emphasized that a company petition cannot be used as a weapon to secure a disputed claim that should be resolved in a suit. The principles from the Supreme Court case Mechalec Engineers & Mfrs. v. Basic Equipment Corpn. were applied, leading to the conclusion that the appellant should be granted unconditional leave to defend, without the condition of furnishing security. Thus, the appeal (APO 564 of 2000, ACO 93 of 2000) was allowed in part, setting aside the portion of the order directing the appellant to furnish security.2. Winding Up Petition and Bona Fide Dispute:The petitioning creditor, Ashoka Agency, argued that the company owed a sum more than the minimum required for a winding up petition under sections 433, 434, and 439, and that the company's inability to pay its debts justified winding up. The court noted that section 433 does not confer a right to seek winding up but grants the court discretion to pass such an order in appropriate cases. The court examined the specifics, including the balance confirmation dated 18-4-1991 and the disputed bills. The appellant contended that the sums claimed were paid and that no further supplies were made after 31-12-1990. The court found that there were substantial disputes regarding the authenticity of the claims and the payments made, which could only be resolved through a regular suit. The court also considered the principle that a winding up petition is not a legitimate means to enforce a disputed debt, as established in cases like Sulekha Works Ltd., In re, and G. Claridge & Co. Ltd. v. Nav Bharat Investment Ltd. The court concluded that the trial judge had correctly applied discretion in relegating the matter to a suit and found no infirmity in the order, except for the condition of furnishing security. Therefore, the appeal (APO 572 of 2000, ACO 95 of 2000) by the petitioning creditor was dismissed.Conclusion:The disputes between the parties were to be resolved through a suit, without any conditions imposed by the trial court. The order of injunction preventing the filing of a suit was extended for six weeks from the date of communication of this order.