2009 (7) TMI 777 - HC - Companies Law

Company Judge's Jurisdiction Overstepped; Winding-Up Order Recalled

The High Court found that the Company Judge exceeded jurisdiction by adjudicating detailed counter-claims in a winding-up petition. The appellant ... Winding up petition - Circumstances in which a company may be wound up - Held that:- The sum total of the amounts held to be valid counter-claims raised in his reply by the appellant would add up to 2,79,0275 which, if proved, would be over and above the debt claimed to be due to the respondent before us. In this conspectus, we are of the view that the appellant had successfully disclosed before the learned Company Judge that there was a defence to the claim ventilated in the winding up petition. The legal consequence ought to have been that the learned Company Judge should have directed the petitioner to prove its claim in a civil suit. In the light of the facts and circumstances of the present case, the winding up order shall stand recalled. The Appeal is, accordingly, allowed. Issues Involved:1. Admissibility of the winding-up petition.2. Validity and quantum of counter-claims raised by the appellant.3. Jurisdiction and scope of the Company Judge in winding-up petitions.Detailed Analysis:1. Admissibility of the Winding-Up Petition:The Company Appeal was directed against the judgment admitting the winding-up petition of the respondent, Deutshe Homeopathic Union DHU Arzneimittel GmbH & Co. KG. The learned Company Judge had deferred the publication of citations and the appointment of a provisional liquidator for two months to allow the respondent-company to pay the due amount of 9,87,044.97 along with interest. The appellant did not dispute the supplies made against the invoices but raised several counter-claims.2. Validity and Quantum of Counter-Claims:The appellant raised multiple counter-claims, which were evaluated as follows:- Commission Payable (2,19,243.45): The learned Company Judge found prima facie evidence supporting this claim.- Loss/Damages for CMS Eye Drops (9,32,500): The claim was deemed inflated and excessive, with only 1,82,500 considered a valid defence.- Defective Packaging (2,60,037): The claim was partially accepted, with only 75,000 for the year 2001 considered genuine, while other years' claims were deemed time-barred or afterthoughts.- Repurchase of Stock (3,50,717.55): The claim was rejected as no timely request was made within the stipulated three months.- Misdescription of Medicines (9,75,000): The claim was dismissed applying the doctrine of caveat emptor and as a belated claim.- Breach of Confidentiality (5,00,000 and 4,50,000): These claims were rejected as exorbitant and extortionate without substantial evidence.- Bad Faith (4,50,000): This claim was also dismissed as the appellant was a shareholder in the joint venture.- Debit Note (30,464.61) and Frozen Commission (52,815.37): These claims were rejected due to lack of supporting documents.The learned Company Judge allowed a total of 4,76,243.45 as substantial counter-claims and dismissed the rest as phoney.3. Jurisdiction and Scope of the Company Judge:The appellant argued that the learned Company Judge exceeded his jurisdiction by delving into the counter-claims in detail. The Supreme Court's principles in Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P.) Ltd. and Amalgamated Commercial Traders (P.) Ltd. v. A.C.K. Krishnaswami were cited, emphasizing that if a debt is bona fide disputed and the defence is substantial, the Court should not wind up the company. The winding-up petition should not be used to enforce payment of a disputed debt.The Division Bench of the Gujarat High Court in Tata Iron & Steel Co. v. Micro Forge (India) Ltd. reiterated that a winding-up petition is discretionary and should not be used to enforce a disputed debt. The Court should consider the wishes of creditors and avoid using winding-up as a debt recovery mechanism.The learned Company Judge was found to have overstepped by adjudicating the counter-claims in detail, which should have been left to a civil court. The counter-claims raised by the appellant required detailed adjudication, and the learned Company Judge should have stayed or rejected the winding-up proceedings.Conclusion:Applying the established legal principles, the High Court concluded that the learned Company Judge exceeded his jurisdiction by delving into the counter-claims. The appellant successfully demonstrated a substantial defence to the winding-up petition. Consequently, the winding-up order was recalled, and the appeal was allowed, directing the respondent to prove its claim in a civil suit. The parties were ordered to bear their own costs.