(Per : HONOURABLE MR.JUSTICE RAVI R.TRIPATHI) 1. The present appeal is filed by the respondent company against the petitioner company who had filed a Company Petition No.186 of 2004 seeking winding-up Order of the present appellant company.
2. Heard learned Advocate Mr. Ashok L. Shah for the appellant company, who invited the attention of this Court to the facts leading to the present appeal.
3. Learned Advocate for the appellant company submitted that, earlier management of both the companies i.e. the petitioner as well as respondent was one and the same but later on, there was a change of management of the respondent company.
4. Learned Advocate for the appellant submitted that, on the basis of the certified balance sheet, the new management was assured that there is no amount due and payable to the petitioner company by the respondent company.
5. Learned Advocate for the appellant invited the attention of this Court to page no.127, which is the balance sheet of the appellant company showing the financial position as on 31.03.2002. Therein, in the schedule item no.8 pertains to “Current Liabilities and Provisions”. There the details of “Sundry Creditors for goods” are set-out. The name of the petitioner company – 'Polyline Limited' is shown as a creditor for an amount of Rs.23,27,831.00.
In a subsequent balance sheet, which is to show the financial position as on 31.03.2003, against the name of the petitioner company, so far as 31.03.2002 is concerned, the aforesaid amount is shown but so far as the financial position as on 31.03.2002 is concerned, the amount shown is 'nil'. Thus, as per this balance sheet, the petitioner company was not the creditor of the respondent company.
6. Learned Advocate for the appellant also invited attention of the Court to a certificate issued by Chartered Accountant 'M. R. Barchha & Co.' dated 30.09.2003 which certifies that, “This is to certify that the Accounts of M/S.POLYLINE LTD, U.K was settled during the years 2001-2002 and 2002-2003 as per the enclosed statement of Account of the above company with M/S.POLYREE PROCESSORS PVT LTD. During the year 2001-2002 a sum of Rs.32,70.034/-, and in the year 2002-2003 an amount of Rs.15,43,031/- were written off as per unanimous decision by the Directors and subsequently raising the required Debit Notes against M/S.POLYLINE LTD, U.K, as the material supplied by them was not of the standard required for the processing and accordingly their accounts was squared off and settled.
We have verified the above and the Statement of Accounts of M/S.POLYLINE LTD from the Books of Accounts and records produced to us and we found the same to be true and correct to the best of our information and explanation given to us”.
7. Learned Advocate for the appellant also submitted that, besides the aforesaid documentary evidence, the learned Company Judge ought to have taken into consideration an additional fact that there was no formal request by the creditor. He submitted that, if the petitioner company was really a creditor then, if not earlier, at-least along with the filing of the petition for winding-up, would have filed a suit for recovery of debt, so that, the debts do not become time bar in the event the winding-up petition fails. Learned Advocate submitted that, till date, the petitioner company has not filed any suit against the present respondent company.
8. Learned Advocate for the appellant also submitted that, except the statutory notice demanding the debt, there is no correspondence produced on record to show that the petitioner company was required to be paid the amount in question.
9. Learned Advocate for the appellant submitted that, it is a normal practice, of which judicial notice can be taken, namely 'a creditor sends a notice of demand to the debtor'. No such notice of demand except the statutory notice which is a basis for filing of winding-up petition has come on record.
10. Learned Advocate for the appellant also invited attention of the Court to the affidavit filed by the present appellant – respondent company in reply to the Company Petition No.186 of 2004 and made good that the winding-up petition is nothing but twisting of arms after the petitioner company had change in management.
11. Learned Advocate for the appellant invited attention of the Court to para 6 of the affidavit-in- reply, where, it is mentioned that, “No specific letter of demand has even been referred to in the Petition since there was none. It is submitted that no amount is due by the Respondent Company to the Petitioner. It is submitted that the Petitioner in collusion with the old management of the Respondent Company (both the Companies then having common management and Directors) is trying to perpetrate fraud on the Respondent Company. The Respondent Company is a going concern and has been regularly paying to all its creditors and employees”.
(emphasis supplied)
12. Learned Advocate for the appellant – respondent company also invited attention of the Court to para 7 of the affidavit-in-reply, which is reproduced as under for ready perusal, “In order to blackmail and pressurise the new management of the Respondent Company, the Petitioner had filed against the Respondent Company a Petition under Section 237 of the Companies Act, 1956. This Hon'ble Court (Coram: Hon'ble Shri K. A. Puj, J.) in its order dated 4- 2-2005 passed in Company Petition No.17 of 2005 observed as under :-
“In reply to the statutory notice issued by the Petitioner, the Respondent Company has raised a contention that in the Balance Sheet of 2001- 2002 an outstanding of 23,27,831/- towards the Petitioner Company was shown. However, in the Balance Sheet of 2002-2003, the balance was shown Nil and in the reply it was stated that the said amount was written off. The subsequent Balance Sheet are necessary to appreciate the defence raised by the Respondent Company. While considering the point in winding up Petition filed by the Petitioner against the Respondent Company, this very issue was raised and time was sought for to produce the Balance Sheets.
During the course of arguments, it appears that the petitioner has filed this Petition under Section 237 of the Companies Act, 1956 as well as winding up Petition only after the management of the Respondent Company was changed. Though the transactions were said to have been entered into in January 2002 to March 2002, the Petitioner has neither disputed the entries made in the Balance Sheet nor initiated any proceedings against the Respondent Company. It has been done only after the management is changed. It, therefore, appears that the Petitioner intends to take action against the new management. The Court has, therefore, asked to clarify as to whether the Petitioner has any relation with the Directors of the old management of the Company.
Though the Respondent was supposed to make the payment within 45 days from the date of receipt of the goods, the payment was not allegedly made till the filing of the Petition and till today. Whether the Petitioner has made any claim earlier or entered into any correspondence with the Respondent Company or not ? The said documents are also required to be produced on record.”
To comply with the said requirement by the said order dated 4-2-2005 the Petitioner sought time which was granted till 8-2-2005. Even on 8- 2-2005 the Petitioner could not produce any document though directed by this Hon'ble Court by its order dated 4-2-2005. The Petitioner, therefore, had no option but to withdraw the said Company Petition No.17 of 2005. Annexed hereto and marked Exhibits “E” and “F” are copies of this Hon'ble Court's orders dated 4-2-2005 and 8- 2-2005 passed in Company Petition No.17 of 2005.
13. Learned Advocate for the appellant next invited attention of this Court to the Order impugned. The learned Advocate for the appellant submitted that the learned Company Judge has erred in not accepting the submissions made by the appellant – respondent Company in the affidavit and Admitting the matter and ordering that the 'hearing of the matter be advertised in “Indian Express”, English Daily (Gandhidham edition) and “Kutch Maitri”, Gujarati daily (Gandhidham edition)'.
14. Learned Advocate for the appellant submitted that, as the advertisement is not published in the official gazette and as the learned Company Judge has not passed any Order dispensing with the publication of Order in the official gazette, the Order has not become effective.
15. Learned Advocate Mr. A. R. Gupta appear for the respondent in this appeal. The respondent is the original petitioner company. The learned Advocate could not convince this Court on the point that, this case will fall within clause – (E) of Section 433 of the Companies Act, 1956. Under clause – (E), it is provided that, if the Company is unable to pay its debt, the Order of winding-up can be passed. In the present case, the amount, which is shown as debt in the notice, is disputed by the appellant – original respondent company. In the considered opinion of this Court, 'the amount cannot be said to be undisputed', and therefore clause – (E) of Section 433 cannot be invoked.
16. Learned Advocate for the appellant invited attention of the Court to a decision in the matter of IBA HEALTH (INDIA) PRIVATE LIMITED V/s. INFO-DRIVE
SYSTEMS SDN. BHD. reported in (2010) 10 Supreme Court Cases 553. The Observations made by the Hon'ble Apex Court with regard to question of liability in para 20, was as under,
“A dispute would be substantial and genuine if it is bona fide and not spurious, speculative, illusory or misconceived. The Company Court, at that stage, is not expected to hold a full trial of the matter. It must decide whether the grounds appear to be substantial. The grounds of dispute, of course, must not consist of some ingenious mask invented to deprive a creditor of a just and honest entitlement and must not be a mere wrangle. It is settled law that if the creditor's debt is bona fide disputed on substantial grounds, the Court should dismiss the petition and leave the creditor first to establish his claim in an action, lest there is danger of abuse of winding up procedure. The Company Court always retains the discretion, but a party to a dispute should not be allowed to use the threat of winding up petition as a means of forcing the company to pay a bona fide disputed debt...”. (emphasis supplied)
17. In the opinion of this Court, the aforesaid observations applies with full force to the facts of the present case.
18. Learned Advocate for the appellant invited attention of this Court to the observations made by the Hon'ble Apex Court in para 33 and para 34 of the aforesaid Judgment, which reads as under, “33. We may notice, so far as this case is concerned, there has been an attempt by the respondent Company to force the payment of a debt which the respondent Company knows to be in substantial dispute. A party to the dispute should not be allowed to use the threat of winding up petition as a means of enforcing the company to pay a bona fide debt. A Company Court cannot be reduced as a debt collecting agency or as a means of bringing improper pressure on the company to pay a bona fide disputed debt. Of late, we have seen several instances where the jurisdiction of the Company Court is being abused by filing winding-up petitions to pressurise the companies to pay the debts which are substantially disputed and the Courts are very casual in issuing notices and ordering publication in the newspapers which may attract adverse publicity. Remember, an action may lie in appropriate Court in respect of the injury to reputation caused by maliciously and unreasonably commencing liquidation proceedings against a company and later dismissed when a proper defence is made out on substantial grounds. A creditor's winding-up petition implies insolvency and is likely to damage the company's creditworthiness or its financial standing with its creditors or customers and even among the public.
34. A creditor's winding-up petition, in certain situations, implies insolvency or financial position with other creditors, banking institutions, customers and so on. Publication in the newspaper of the filing of winding-up petition may damage the creditworthiness or financial standing of the company and which may also have other economic and social ramifications. Competitors will be all the more happy and the sale of its products may go down in the market and it may also trigger a series of cross-defaults, and may further push the company into a state of acute insolvency much more than what it was when the petition was filed. The Company Court, at times, has not only into the interest of the creditors, but also the interests of the public at large”.
19. In view of the aforesaid discussion, the appeal deserves to be allowed. The Order dated 03.05.2006 passed by the learned Company Judge is hereby quashed and set-aside.
(Ravi R. Tripathi, J.)
Sunil W. Wagh
(N. V. Anjaria, J.)