TaxTMI 
TaxTMI 
2007 (7) TMI 403
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....t as short-term loans, under the following receipts : (Rs.) a.Receipt No. 1503, dated 27-10-2003 5,00,000 b.Receipt No. 1504, dated 19-12-2003 1,50,000 c.Receipt No. 1506, dated 19-12-2003 1,80,000 Total 8,30,000 The petitioner would contend that, after receipt of money, the company had paid interest for a month and, thereafter, despite his repeated requests, no interest was paid, that interest accrued till August 31, 2005, was Rs. 2,66,843 and that the total amount due as on August 31, 2005, was Rs. 10,96,843. The petitioner sought for repayment of his debt, by a notice of demand dated June 9, 2005, sent through his counsel which was served on the respondent-company's registered office on June 17, 2005, despite which no payment was made. The petitioner submits that the respondent-company is heavily indebted to institutions like the IDBI, the State Bank of Hyderabad, etc., that it is insolvent and is unable to pay its debts. In the counter affidavit, filed on behalf of the respondent-company, it is stated that the respondent is a venture capital funded research and development based pharmac....
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....eny that the company had written and sought for financial assistance or received any deposit as interest liable short-term loan from the petitioner as alleged and submit that it had never promised, be it in writing or otherwise, payment of interest or refund of deposits on demand as alleged, that in reply to the petitioner's notice dated June 9, 2005, the respondent-company had requested him to submit relevant documents, if any, to substantiate the contents of the notice as its perusal and verification was necessitated because of the resignation of the finance manager of the respondent-company with effect from January 1, 2005, which was well before the petitioner's notice dated June 9, 2005, that the petitioner neither submitted any documents nor did he answer the reply notice sent by the respondent on June 29, 2005, that the respondent did not execute any document seeking advance, loans or deposit of any kind, that the alleged receipts referred to by the petitioner, in his petition, are subject to perusal, verification and check on authenticity to rule out ulterior motives and collusive acts on the part of the petitioner especially since one receipt is undated, another with a tamp....
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....of his brothers and friends to join the venture promising good returns on their investment and that his wife, her brother and three others were the directors of the respondent-company. The petitioner states that he retired from the survey of India in 1996, that Dr. C.C. Sahadev had requested him to invest his retiral benefits in the company on the promise of good returns, that as he had to perform his daughters' marriage the petitioner had extended short-term funds which were returned promptly though no receipts were passed on, that he was inducted as a paid director, that the respondent-company has not declared any dividend till date and that the factory is closed since 2000-01. The petitioner states that huge amounts were taken from IDBI and the State Bank of Hyderabad which were not repaid as per the conditions, that the banks had filed recovery suits, that banking transactions were closed with SBH, that Dr. C.C. Sahadev had issued post-dated cheques to many creditors including the State Bank of Hyderabad, that on October 26, 2003, he was informed by Dr. C.C. Sahadev that a cheque for Rs. 5 lakhs issued to the State Bank of Hyderabad was due for payment on October 27, 2003, and ....
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....t- company. In cross-examination, the petitioner stated that he had not received any medical support from Dr. C.C. Sahadev, that his wife owns some shares in the respondent-company and that, from 1995-96 till 1998-99, he was a director in the respondent-company. The petitioner admitted that up to December 27, 2000, he was shown as the director and in the annual general meeting he was reappointed as a director. The petitioner denied knowledge of the distinction between a deposit and a short-term loan. He stated that the original receipts, based on which the present petition was filed, has not been filed before this court, that he had made complaints to the State Bank of Hyderabad and to the IDBI, bringing to their notice the forgery committed by Dr. C.C. Sahadev by mortgaging the property of the petitioner's wife for availing loans, that the Reserve Bank of India, in its letter dated November 2, 2004, had examined the complaint and found that the charges made were without substance and had treated the matter as closed, that he had received a reply requiring him to furnish copies of bills and documents for verification, that he had handed over the documents to his advocate and, wh....
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....ondent's defence, disputing the debt, is not bona fide. Learned counsel would submit that, at the stage of admission, this court has only to consider whether a prima facie case has been made out for admission and that the question, whether or not the respondent-company should be wound up can only be decided after evidence is let in by both the parties after the company petition is admitted and advertised. Learned counsel would also point out that, if there was any dispute with regard to receipt of money from the petitioner, nothing prevented the respondent from specifically stating so in their counter-affidavit and that, except for vague insinuations, no specific denial, with regard to receipt of the amounts from the petitioner is to be found in the counter of the respondent. Learned counsel would submit that though an opportunity was given to the respondent to let in evidence, while, initially an affidavit in lieu of chief examination was filed, the managing director of the respondent-company chose not to subject himself to cross-examination and had informed the court that they were not pressing for examination of the respondent. Sri Srinivas Mantha, learned counsel for the res....
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....-that is to say, that its assets are such, and its existing liabilities are such, as to make it reasonably certain-as to make the court feel satisfied-that the existing and probable assets would be insufficient to meet the existing liabilities' " (European Life Assurance Society, In re [1869] LR 9 Eq 122, 128 ; V. V. Krishna Iyer & Sons v. New Era Mfg. Co. Ltd. [1965] 35 Comp. Cas. 410 , 422 (Ker.); [1965] 1 Comp. LJ 179 (Ker.)). In Mediqup Systems (P.) Ltd. v. Proximo Medical System GmbH [2005] 124 Comp. Cas. 473 ; [2005] 7 SCC 42 the Supreme Court observed (page 481) : "This court in a catena of decisions has held that an order under section 433(e) of the Companies Act is discretionary. There must be a debt due and the company must be unable to pay the same. A debt under this section must be a determined or a definite sum of money payable immediately or at a future date and that the inability referred to in the expression 'unable to pay its debts' in section 433(e) of the Companies Act should be taken in the commercial sense and that the machinery for winding up will not be allowed to be utilized merely as a means for realising debts due from a company." The mere fact....
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....s Ltd. [1998] 91 Comp. Cas. 646 (Kar.) and Pradeshiya Industrial and Investment Corporation of Uttar Pradesh v. North India Petro Chemical Ltd. [1994] 79 Comp. Cas. 835 ; [1994] 3 SCC 348). A petition presented ostensibly for a winding up order but really to exert pressure will be dismissed and, under circumstances, may be stigmatized as a scandalous abuse of the process of the court. (Amalgamated Commercial Traders P. Ltd. v. A. C. K. Krishnaswami [1965] 35 Comp. Cas. 456 (SC) and Buckley on the Companies Act, 13th edition, page 451). Where there are serious disputes between the parties on each essential fact which necessitates a trial in appropriate civil proceedings, and the defence raised by the company is genuine and bona fide, a petition for winding up is not the remedy. (Ram Kishan v. Kanwar Papers P. Ltd. [1990] 69 Comp. Cas. 209 (HP)). If the debt is bona fide disputed, there cannot be "neglect to pay" within the meaning of section 434(l)( a) of the Companies Act, 1956. If there is no neglect, the deeming provision does not come into play and winding up on the ground that the company is unable to pay its debts is not substantiated. A debt the liability to pa....
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....ill lead to advertisement of the winding up proceedings is likely to cause immense injury to the company if ultimately the application has to be dismissed. The interest of the applicant alone is not of predominant consideration. The interests of the shareholders of the company as a whole, apart from other interests, has to be kept in mind at the time of consideration as to whether the application should be admitted on the allegations mentioned in the petition. (Hind Overseas P. Ltd. v. Raghunath Prasad Jhunjhunwalla [1976] 46 Comp. Cas. 91 (SC) ; AIR 1976 SC 565). While a detailed inquiry at the preliminary stage of admission should be avoided, the courts should nonetheless consider the dispute raised by the company. This can be achieved by assessment and appreciation of the affidavit evidence before the court at the stage of the admission. It is for the limited purpose of arriving at a conclusion whether a bona fide, serious and substantial dispute arises or not, that the court examines the matter. The court looks out for a prima facie case. If a petitioner makes out a prima facie case, then the court would exercise its discretion. The remedy afforded is an equitable one. (P.G.....
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....nding out whether prima facie case is made out by petitioning creditor on the aforesaid two aspects. Ordinarily, in such summary enquiry whatever documentary evidence is offered by both the sides would be sufficient. But in exceptional cases if the court so feels necessary even oral evidence can be permitted to be led by the contesting parties. The findings arrived at in such summary enquiry would be prima facie and tentative in nature and can be re-examined in greater details at the stage of trial of the petition if required and found necessary. We may, however, add a rider. Even in the case of a company which is a going concern, if the court finds after hearing the petitioning creditor and the evidence led by it that there is an ascertained amount of debt which is due by the company to the petitioning creditor and such a debt is not time-barred and that presumption arises under section 434(1)(a) or (b) that the company is unable to pay its debts, then in such a case, the court may admit the petition ex parte without issuing notice to the company. However, as a company is a going concern, before ordering advertisement, a notice has to be issued to such a company for deciding wh....
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....rival versions of the petitioning creditor and the company and they would be purely tentative and prima facie findings which can be re-examined if the need arises in greater details at the stage of trial of the company petition before passing the final order of winding up, if any, after hearing the rival parties including the parties that might have appeared at the stage of trial pursuant to the advertisement. We, however, make it clear that the prima facie nature of summary enquiry before admission or even after admission and before advertisement would be for arriving at a finding on the aforesaid points in a summary manner. It is also clarified that for arriving at such prima facie findings on the aforesaid points after summary enquiry as indicated above, it is not necessary for the court to write a detailed order like a final judgment but the order of the court should be sufficiently speaking so as to enable anyone who reads the order to find out as to what were the reasons which weighed with the court for arriving at the said prima facie findings. Such a reasoning must at least briefly indicate the view of the learned judge on the concerned evidence led by the respective partie....
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..... Further, the managing director of the respondent-company while initially filing an affidavit in lieu of the chief-examination, did not choose to make himself available for the cross-examination and gave up his evidence. The unrebutted evidence of the petitioner reveals, atleast prima facie, that a sum of Rs. 5,00,000 was deposited by him in the State Bank of Hyderabad in favour of the respondent-company. The requirements, of the debt being in excess of Rs. 500 service of notice demanding payment thereof on the registered office of the respondent-company, and failure of the respondent to make payment within three weeks thereafter, are satisfied. Since the amount of Rs. 5 lakhs was deposited in the State Bank of Hyderabad, on October 27, 2003, and the company petition has itself been filed well within three years thereafter, the debt is also not time-barred. The next question which necessitates examination is whether the defence put forth by the respondent, for its failure to make payment, can be said, prima facie, to be bona fide, in good faith and of substance. The respondent did not choose to plead or produce any evidence to show that it did not receive the amount or that its....
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....he State Bank of Hyderabad was due for payment on October 27, 2003, and it would bounce, that Dr. C.C. Sahadev had begged him for help, that he went along with Dr. C.C. Sahadev and two other relatives and had deposited Rs. 5 lakhs with the State Bank of Hyderabad, Punjagutta branch on October 27, 2003, and that the counterfoil of the State Bank of Hyderabad was being produced as a proof of payment. He further deposed that Dr. C.C. Sahadev came and met him at 7.00 a.m. on December 12, 2003, informed him that a warrant of arrest had been issued to Humayun Nagar police station from Kerala police in a cheque bounce case filed by M/s. Cochin Exports, Kerala, and that there were pressures from workers for wages, ESI, PF, Central excise duty, etc., the petitioner further deposed that Rs. 8.3 lakhs had been given by him to the company in cash as the company had no running bank account, that the company was closed and neither were annual general body meetings held nor balance-sheets supplied to the promoters. While it is no doubt true that the petitioner did not file the latest balance-sheet to show that the company is commercially insolvent he had orally deposed that, to his knowledge, the....
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....te, as may be fixed by the judge. Rule 24(2) provides that, except in the case of a petition to wind up a company, the judge may, if he thinks fit, dispense with any advertisement required by these rules. While Sri Srinivas Mantha, learned counsel for the respondent, would seek that the advertisement atleast be deferred, it is well to remember that deferment of advertisement is not to be ordered as a matter of course, more so in the case of a petition for winding up. In National Conduits P. Ltd. [1967] 37 Comp. Cas. 786 ; AIR 1968 SC 279, the Supreme Court observed (page 788) : "When a petition is filed before the High Court for winding up of a company under the order of the court, the High Court (i ) may issue notice to the company to show cause why the petition should not be admitted ; (ii) may admit the petition and fix a date for hearing, and issue a notice to the company before giving directions about advertisement of the petition ; or (iii) may admit the petition fix the date of hearing of the petition, and order that the petition be advertised arid direct that the petition be served upon persons specified in the order. A petition for winding up cannot be placed for hea....