2001 (1) TMI 866 - HC - Companies Law

Summary

Issues Involved:
1. Bona fide dispute regarding debt.
2. Privity of contract and liability.
3. Procedure for admission of winding-up petitions under Rule 96 of the Companies (Court) Rules, 1959.

Detailed Analysis:

1. Bona fide dispute regarding debt:
The appellant filed a petition under sections 434 and 433(e) and (f) of the Companies Act, 1956, seeking winding up of the respondent company for non-payment of a debt. The Company Judge dismissed the petition, stating that there was a serious dispute regarding the debt, and advised the appellant to approach the Civil Court. The appellant contended that the Company Judge erred in concluding there was a bona fide dispute based merely on the respondent's reply without examining the facts in detail and ignoring the lack of response to the statutory notice.

2. Privity of contract and liability:
The appellant is a Singapore-based company, and the respondent is incorporated under the Companies Act, 1956. The appellant claimed to have supplied equipment worth USD 67,636 to the respondent, who allegedly failed to pay despite repeated demands. The respondent denied any outstanding amount, stating that their books did not reflect any payable amount to the appellant. The documents produced by the appellant, including the purchase order and invoice, indicated that the order was placed on Synopsys Inc., USA, and the invoice was billed to GEC Plessey Semiconductors, UK, not the respondent. Therefore, there was no privity of contract between the appellant and the respondent, and the liability was rightly repudiated by the respondent.

3. Procedure for admission of winding-up petitions under Rule 96 of the Companies (Court) Rules, 1959:
The appellant argued that the Company Court should follow one of three courses upon filing a winding-up petition: issue a notice to the company, admit the petition and fix a hearing date, or admit the petition and order advertisement. The appellant cited the Supreme Court decision in Cotton Corpn. of India Ltd. v. United Industrial Bank Ltd. to support this contention. However, the Court clarified that Rule 96 allows the Company Court discretion to reject a petition at the threshold if it does not disclose a prima facie case. The Court emphasized that issuing a notice in a meritless petition would cause unnecessary tension and anxiety to the company's management.

The Court held that the documents presented by the appellant did not establish any liability of the respondent towards the appellant. The Company Court was justified in dismissing the petition without issuing a notice, as there was no prima facie case for winding up. The Court also noted that the Supreme Court decision cited by the appellant did not mandate issuing a notice in all cases, especially when the petition lacks merit.

Conclusion:
The appeal was dismissed with costs payable to the respondent. The Court clarified that the observations in the judgment were limited to the question of whether the winding-up petition should have been entertained and would not affect the appellant's right to establish its claim in a civil court.