2004 (8) TMI 684 - HC - Companies Law

Appeal Overturns Order for Winding-Up Petition; Defense Deemed Bona Fide; Proceedings Adjourned Pending Suit Outcome.

The appeal was allowed, overturning the Company Court's order admitting the winding-up petition. The court determined that the appellant's defense, though ... Winding up petition - remedy for enforcing payment of a just debt - discretionary order - whether the debt which is the subject-matter of the winding up notice is a bona fide disputed one or not - Power of Company Court for jurisdiction to call for security - HELD THAT:- The general view and also our view that the formation of the opinion of the Single Judge at the admission stage that the debt of the Company is indisputable, and the binding and final nature of that opinion, docs not really come in conflict with these dicta of the Division Bench. The reason is this; at the stage of admission the parties present before the Court are the company and the petitioning creditor. The decision of the Court that the debt of the company is final and binding binds them, and all other Courts in the same manner as a summary decree does. This is putting the matter on a very high pedestal, but it is, both logically and as matter of law already placed on that high pedestal. But at the stage of the hearing of the winding up petition, the company has already, to a certain extent split up into the creditors and the contributories who come and make representations on their own behalf and by themselves, even apart from the submission which might be made by the company. The parties are different and many more than were present at the stage of admission. After hearing all those parties the Company Court could, at the final stage, take different view as to the debt than it has taken at the stage of admission. The admission stage view bound the company and the petitioning creditor finally, but not the others, and therefore not the Company Court also, when hearing the matter finally. But this is an exclusive and sole prerogative of the Company Court only. This is so, because before no other Court the creditors or contributories of the company have a locus standi to make separate representations about the binding nature of a debt alleged to be owed by the company. The rule in Foss V. Harbottle would prevent such a separate representation. Therefore, until the company comes up for the decision whether it is to be wound up or not, and excepting during the process of that decision only, the final nature of the debt pronounced upon at the stage of admission of the winding up petition will bind the company for all purposes and before all forums and Courts. The rights of the parties decided at the final hearing of the winding up petition primarily mean the right of the company to stay alive. This is not finally decided at the admission stage, but only a prima facie view is taken, that it might have to die. We would thus respectfully interpret the above dicta of G.K. Mitter, J.[1966 (3) TMI 35 - HIGH COURT OF CALCUTTA], in the John Herbert case, mentioned. We have formed our opinion that the debt owed by the company cannot, just now, be pronounced as final, binding and indisputable, even as between the petitioning creditor and the company only. On this view, we have been unable to sustain the impugned judgment. The order under appeal is also, and as discussed, in the right view of the matter, not a discretionary order. There is no fiduciary relationship here as between the company and the petitioning creditor. Were the proof of the debt made indisputable, the Court would be compelled to admit the winding up petition. That it has been admitted by the first Court is not because of use of any discretion in this regard; it could be admitted only upon a finding that the debt is indisputable and the defence of the company is bogus, mala fide or moonshine. These words are not used, and the purport of His Lordship's judgment is not exactly, but only nearly the same. For the reasons given above we are, with all due respect, unable to agree with His Lordship. The appeal is allowed. The order under appeal is set aside. The winding up petition shall stand and remain adjourned until the disposal of the suit, i.e., the company's claim and the petitioning creditor's counter-claim. Costs both the Court below and before us will abide by the result of the suit. Issues Involved:1. Admissibility of the winding-up petition.2. Nature of the debt and whether it is bona fide disputed.3. Concurrent proceedings in the Company Court and Suit Court.4. The discretionary power of the Company Court in admitting the winding-up petition.Summary:1. Admissibility of the winding-up petition:The appeal challenges the receiving order passed by the Company Court admitting the respondent's petition for winding up of the appellant company and directing advertisements. The respondent claimed a debt of Rs. 52.33 lac for goods supplied, which the appellant disputed, arguing that the transactions were not straightforward sales but involved a commission-based arrangement for delivery orders from SAIL.2. Nature of the debt and whether it is bona fide disputed:The appellant admitted the outstanding amount but claimed damages for non-supply of agreed quantities of steel, asserting a counter-claim for breach of contract. The court examined whether the debt was bona fide disputed. The appellant's defense included allegations of oral agreements and lack of documentary evidence for the promised supplies and the claimed damages. The court emphasized that the company must show a reasonable ground for not paying the debt, and mere assertions without evidence do not suffice.3. Concurrent proceedings in the Company Court and Suit Court:Both parties had approached the Suit Court for reliefs before the judgment in the winding-up petition. The court discussed whether the petitioning creditor could pursue remedies in both forums. It was held that there is no bar in the Companies Act or Civil Code preventing concurrent proceedings. The Company Court has the power to stay its proceedings or restrain parties from proceeding elsewhere to avoid parallel adjudication of the same claim.4. The discretionary power of the Company Court in admitting the winding-up petition:The court clarified that the discretion in admitting a winding-up petition is exercised after determining whether the debt is bona fide disputed. The Company Court must find the debt to be indisputable before admitting the petition. The court found that the appellant's defense, although not positively good, could not be ruled out as bona fide at this stage. Therefore, the winding-up petition was not admitted, and the proceedings were adjourned until the disposal of the suit.Conclusion:The appeal was allowed, setting aside the order under appeal. The winding-up petition was adjourned until the suit's disposal, with costs to abide by the result of the suit.