1960 (4) TMI 85 - HC - Companies Law

Appeal Dismissed: Lack of Credibility and Evidence in Winding-Up Order

Ram Kumar Agarwala and Anr. Versus Buxar Oil and Rice Mills Ltd. and Anr.

The appeal was dismissed with costs as the appellants failed to prove their status as creditors. The court emphasized the necessity of clear evidence of a ... - Issues Involved:1. Validity of the debentures and the debenture trust deed.2. Allegations of fraudulent transactions by the company.3. Opposition to the winding-up order by an unsecured creditor.4. The appellants' credibility and conduct.5. Procedural aspects and the court's discretion in winding-up petitions.Detailed Analysis:1. Validity of the Debentures and the Debenture Trust Deed:The appellants claimed that the company issued 300 debentures of Rs. 1,000 each, secured by a debenture trust deed dated 1-3-1954. They argued that interest since June 1955 was in arrears, making the security enforceable. The company was served a statutory notice under Section 434 of the Indian Companies Act, but it failed to pay the dues, leading to the winding-up petition. However, the respondent, Sitaram Bhartia, contended that the debentures and the trust deed were fictitious and issued without consideration to defraud creditors. The court found a serious dispute over the validity of the debentures and the trust deed, which could not be resolved on affidavits alone. The appellants' credibility was questioned due to inconsistent statements and actions regarding possession of the mortgaged properties and recognition of the lease.2. Allegations of Fraudulent Transactions by the Company:The company executed a lease on 9-8-1956 in favor of Shahabad Industries (Private) Ltd., which was alleged by Sitaram Bhartia to be a collusive transaction to obstruct the execution of his decree. The court noted that the lease appeared to be a paper device, with directors of the lessee company being closely related to the company's chairman. The appellants initially recognized the lease by accepting rent but later challenged it as bogus. The court found the company's conduct and the timing of transactions suspicious, suggesting an intent to defeat creditor claims.3. Opposition to the Winding-Up Order by an Unsecured Creditor:Sitaram Bhartia, an unsecured creditor with a decree for Rs. 76,600, opposed the winding-up order. He argued that the debentures and the trust deed were fraudulent. The court acknowledged his right to oppose the petition, noting that any creditor could challenge the validity of the petitioning creditor's claim. The court emphasized the need for the petitioners to affirmatively prove their status as creditors.4. The Appellants' Credibility and Conduct:The court scrutinized the appellants' conduct, finding their testimony unreliable. They made contradictory statements about possession of the mortgaged properties and initially supported the lessee's objections in court. The court was not prepared to accept their affidavits as proof of valid debentures and a trust deed. The appellants' failure to bring independent evidence of consideration for the debentures further undermined their credibility.5. Procedural Aspects and the Court's Discretion in Winding-Up Petitions:The court highlighted its discretionary power to adjourn or dismiss a winding-up petition if the debt was disputed and could not be resolved on affidavits. The court agreed with the trial judge's decision to dismiss the petition, leaving the appellants to enforce their rights through other proceedings. The court rejected the argument that a prima facie case of being creditors was sufficient for a winding-up order, insisting on affirmative proof of creditor status.Conclusion:The appeal was dismissed with costs, affirming that the appellants failed to establish their status as creditors. The court emphasized the need for clear proof of a valid debt before granting a winding-up order and highlighted the appellants' lack of credibility and the suspicious nature of the transactions involved.