TaxTMI 
TaxTMI 
2007 (9) TMI 404
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....nts to be broadcast on Star channels being run by the first appellant. The second appellant accordingly procures instructions for advertisements from advertisers for telecast on Star channels belonging to the first appellant. On October 25, 2001 and December 24, 2001, the respondent-company entered into two agreements with the second appellant for booking of commercial slots for telecasting its products on Star channels. As per the agreements, the respondent-company agreed to pay the invoice amounts within 30 days and in case of delayed payments interest at the rate of 2 per cent. p.m. In pursuance of the above agreements, the respondent-company's commercials were telecast on Star channels on selected dates, times and during selected programmes from November 2001 to June 2002. After telecast of the advertisements, the second appellant raised invoices from time to time for total amounts of Rs. 19,91,78,218 (Rs. 19.92 crores approx.). In June 2002 the respondent-company issued post-dated cheques in favour of the second appellant towards clearing of outstanding dues, out of which, the first five cheques were honoured, but the next two cheques were dishonoured and the next cheque draw....
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....pany to pay Rs. 20.25 crores (including Rs. 19.87 crores being the outstanding dues and Rs. 37 lakhs and odd amount being the interest accrued thereon up to September 30, 2002). The notice stated that in case of the respondent-company's failure to pay the said amount within 21 days from the date of receipt of the notice, the second appellant shall file a winding up petition against the respondent-company. The above notice was received by the respondent-company on October 21, 2002, but it neither complied with nor replied to the said notice. Therefore, the appellants filed the winding up petition on November 20, 2002. The company petition came up for preliminary hearing on November 25, 2002, when the learned company judge passed the following order : "Notice returnable on December 17, 2002." On December 14, 2002-advocates of the appellants issued a public notice in two Gujarati newspapers (as translated in English) which read as under: Public Notice Kunvar Ajay Designer Saree P. Ltd. The general public is hereby informed that, Kunvar Ajay Designer Saree P. Ltd. (company) having their registered office at B-1, Thakkar Palace, Race Course Road, Surat-395 002 and who have outstan....
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....ector that they were expecting loans from the banks and financial institutions against mortgage of the company's assets. The appellants, therefore, deemed it necessary to inform the members of the public about the claim of the appellants against the respondent-company so that the future multiple legal proceedings can be avoided and, therefore, with a bona fide and genuine intention, the appellants issued the above public notice dated December 14, 2002, in two Gujarati newspapers. It was submitted that the notice was informative and cautionary in nature, that the respondent-company had admitted its liability and thereafter failed to discharge the same and was also facing proceedings under section 138 of the Negotiable Instruments Act and, therefore, there was no defamation of the respondent-company. It was also submitted that reference to the winding up petition was not a notice of winding up, as alleged, and finally the appellants stated in paragraph 9 of their counter affidavit as under : "Without prejudice to the aforesaid and without admitting the applicant's (i.e., respondent-company herein) contention that the respondents (appellants herein) have abused the process of court, ....
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....that the directors of the respondent-company had also failed to remain present before the learned Magistrate's court due to which arrest warrants were issued and since the arrest warrants could not be executed, the police authorities of Ring Road police station, Surat, had submitted that report to the Metropolitan Magistrate's court at Andheri. Reliance is placed on several authorities, more particularly in Madhusudan Gordhandas and Co. v. Madhu Woollen Industries P. Ltd., AIR 1971 SC 2600; [1972] 42 Comp Cas 125 (SC) and in National Conduits P. Ltd. v. S. S. Arora [1967] 37 Comp Cas 786 (SC) ; AIR 1968 SC 279, in support of the submission that whether any act of the petitioning creditor would amount to abuse of the process of the court, would always depend on the facts of a given case, including the defence of the respondent-company on the merits of the dispute and that advertisement by itself would not amount to abuse of the process of the court if the surrounding circumstances do not support such an inference or if surrounding circumstances run counter to such an inference. On the other hand, Mr. Soparkar for the respondent-company has opposed the appeal and relying on certain....
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....n the filing of the petition, it shall be posted before the judge in Chambers for admission of the petition and fixing a date for the hearing thereof and for directions as to the advertisement to be published and the persons, if any, upon whom copies of the petition are to be served. The judge may if he thinks fit, direct notice to be given to the company before giving directions as to the advertisement of the petition." The position prevailing in England is explained as under in the Palmer's Company Law (para 15.235). "Advertisement of petition : Unless the court otherwise directs, every petition is to be advertised in the gazette not less than seven clear days (excluding Saturdays, Sundays and public holidays) after it has been served on the company and not less than seven clear days before the date fixed for the hearing . . . The court will restrain the issuing of the advertisements when the petition is an abuse of the process of the court, and may also decide to restrain advertisement when the petition debt is shown to be disputed. The court must exercise a judgment in this matter, based upon the particular circumstances made known to it, and will effectively balance the po....
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....presentation of the petition may be explained as having been carried out for the purpose of minimizing the risk of wasteful depletion of assets through the bank allowing the company's account to operate at a time when, by virtue of section 127 of the Act, the disposition of the company's property will be void. In that event, a more restricted notion of the meaning of 'advertisement' was adopted in SN Group plc v. Barclays Bank plc, confining it to the formal act of advertising the petition in the Gazette, as required by rule 4.11(1)." (emphasis supplied) Even where the English Courts have come to the conclusion that improper advertisement was an abuse of the process of the court, the courts have held that there is discretion vested in the court to decide whether or not to strike out the petition on that ground. For instance, Doreen Boards Ltd., In re [1996] 1 BCLC (Ch. D) 501, the court laid down the following principles : "Exercise of the discretion where there has been an abuse of process. In my view there has been here a serious abuse of process. In those circumstances the court has a discretion whether or not to strike out the petition at this stage. In deciding whether to ex....
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....Noting the distinction between the position in the English law (where the creditor files the winding up petition, and the advertisement is to follow after the specified time limit from the date of service of the petition on the company, unless the company moves the company court and obtains an order of restraint against advertisement) and the Indian law (where the advertisement is to be issued after the order of the court), in National Conduits P. Ltd. [1967] 37 Comp Cas 786 (SC); AIR 1968 SC 279, a three judge Bench of the apex court considered the above quoted company court rules and laid down the following principles (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 and direct that the petition be served upon persons specified in the order. A....
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....ny, In re 94 SJ 369). Where however there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the court will make a winding up order without requiring the creditor to quantify the debt precisely, (see Tweeds Garages Ltd., In re [1962] 32 Comp Cas 795 ; [1962] 1 Ch. D 406). The principles on which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends. 22. Another rule which the court follows is that if there is opposition to the making of the winding up order by the creditors the court will consider their wishes and may decline to make the winding up order ... 30. Counsel on behalf of the company contended that the appellants presented the petition out of improper motive. Improper motive can be spelt out where the petition is presented to coerce the company in satisfying some groundless claims made against it by the petitioner." (emphasis supplied). Upon an analysis of the above statutory provisions, the deci....
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....etition without the order of the court because prima-facie- (i)the petitioner had no genuine claim and that the petitioner wanted to bring undue pressure on the company to coerce it to admit such claim and to pay up the disputed debt; or (ii)that the company's defence to the petitioner's claim was such that there was reasonable doubt whether the company court may or may not have admitted and advertised the petition and that the petitioner, therefore, wanted to harm the company's reputation by issuing such advertisement without waiting for the orders of the court. (f)It would not be possible for the court to dismiss the winding up petition only on the ground of improper advertisement or advertisement of a winding up petition without the orders of the court without first under taking at least a preliminary inquiry about genuineness of the petitioner's claim and the defence of the company as disclosed either in the conduct or correspondence of the company before the statutory notice, or in reply to the statutory notice, or in the reply affidavit, if any, filed before or along- with the application for dismissing the winding up petition on the ground of improper advertisement/advert....
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....e learned single judge of the Punjab and Haryana High Court in Vinod Krishan Khanna v. Amritsar Swadeshi Textile Corporation P. Ltd. [2006] 134 Comp Cas 828 , giving rise to the above appeal. The above company petition was filed under section 433(f) of the Companies Act to wind up the respondent-company. Notice of the petition was ordered to be issued to the company on April 27, 2006, to show cause why the petition should not be admitted. Alienation of the assets of the company, except in due course of the business of the company, during the pendency of the winding up petition, was ordered to be subject to the final order passed by the court. After the order was passed, the petitioners not only caused an advertisement to be published in the newspapers making a reference to the winding up petition, and the ad-interim order, but also wrote letters dated June 14, 2006 and August 4, 2006, to the Government of India (Director General of Foreign Trade) and the bankers of the company, respectively, making inter-alia the following misrepresentations and allegations against the company : (i)the winding up petition was admitted by the company court (in fact, the company court had only issue....
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....ia and the Director General of Foreign Trade completely misrepresenting the facts and distorting the order of the learned company judge. The petitioning creditor had referred to filing of the civil suit and its pendency although the civil suit was already withdrawn earlier. Similarly, the petitioning creditor had written letter to the bankers of the company describing the status of the winding up as having been admitted by the company judge (although only notice was issued by the company judge) and had described the company as a company borne out of fraud which had no existence in the eyes of law. All those communications are reproduced in the judgment of the Division Bench. In the facts of the case before it, the Division Bench of the Punjab and Haryana High Court held that there was material that the petitioning creditor had made false and misleading statements. It was on the basis of the above findings of fact that the Division Bench of the Punjab and Haryana High Court Amritsar Swadeshi Textile Corporation P. Ltd. v. Vinod Krishan Khanna [2008] 142 Comp Cas 362 made the following observations (pages 369 and 370 of 142 Comp Cas) : "In the instant case, the intention of the res....
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....ith the company for the purpose of giving loans or for taking over the respondent-company or for entering into amalgamation with the respondent-company, the appellants would file a claim against them also for recovery of their dues. After service of the notice on the winding up petition, the respondent-company had disclosed to the second appellant that it intended to borrow money to pay off the appellants' dues. When a winding up petition is allowed, it relates back to the date of filing the petition (section 441 of the Companies Act, 1956) and, therefore, the appellants wanted to claim priority for their dues over subsequent debts. The appellants had thus intended only to forewarn the public at large. We see no mala fide intent on the part of the appellants. At the most, it was a mistake not a wanton act. Hence it cannot be said that the appellants had abused the process of the court. In the facts and circumstances, it cannot be said on the basis of the material of the company petition that the appellants-petitioning creditors had any groundless or baseless claim or that the winding up petition was filed to coerce the company into admitting the groundless claim. In fact, the resp....