2007 (7) TMI 416 - HC - Companies Law

Winding up Circumstances in which company may be wound up by Tribunal - Held that - The stand taken by the respondent in reply to the company petition raises genuine and bona fide dispute and at least prima facie offers proper explanation in law for its plea of no liability. This would certainly require a regular trial and parties may be called upon to lead evidence in support of their respective pleadings. The issues raised are certainly complex as according to the respondents, the claim itself is fraudulent and motivated one. It may be useful to notice at this stage that the learned company judge has also adverted to the financial status of the respondent-company. With that kind of financial status there is hardly any possibility to conclude at the stage of the petition that the company has wilfully defaulted to pay its debt. In addition to such stand it was also argued before the company court that the two bills of exchange stated to be endorsed in favour of the appellant-company show particularly with reference to the reverse of the bills of exchange that they have been forged. This Controversy can hardly be properly examined in a winding up petition. The order relegating the petitioner to take recourse to legal remedy of filing a civil suit cannot be faulted with. Thus, the judgment under appeal neither suffers from any factual or jurisdictional error. There is also merit in the contention raised that the notice dated February 4, 2005, was withdrawn by a subsequent notice dated February 13, 2005. The language of the subsequent notice as also recorded by the company court, besides being similar, could lead to a reasonable conclusion that the appellant-company did not intend to pursue the claim any further to its first notice. Appeal dismissed.

Issues Involved:
1. Validity of the winding up petition due to alleged inability to pay debts.
2. Allegation of fraud and forgery concerning the bills of exchange.
3. Relevance of the financial status of the respondent company.
4. Jurisdiction and discretion of the company court in winding up petitions.
5. Delay in invoking legal provisions by the appellant.

Detailed Analysis:

1. Validity of the Winding Up Petition Due to Alleged Inability to Pay Debts:
The appellant-company filed a winding up petition against the respondent-company based on two bills of exchange endorsed in their favor. The respondent argued that no debt was due as the goods were returned and credit notes issued. The company court dismissed the petition, stating no debt was due and payable, and suggested the appellant pursue a civil suit. The court cited that the jurisdiction to admit a winding up petition is special and limited, requiring an inability to pay debts coupled with wilful default.

2. Allegation of Fraud and Forgery Concerning the Bills of Exchange:
The respondent claimed the bills of exchange were fraudulent and the endorsements forged. The court found these to be disputed questions requiring evidence, suitable for a civil suit rather than a winding up petition. The court noted that the appellant's claim was vitiated by fraud and could not be brushed aside.

3. Relevance of the Financial Status of the Respondent Company:
The respondent's financial status was highlighted, showing substantial reserves and profits, indicating no wilful default. The court emphasized that the financial strength of the respondent negated the claim of inability to pay debts. This was a significant factor in the court's decision to dismiss the winding up petition.

4. Jurisdiction and Discretion of the Company Court in Winding Up Petitions:
The court reiterated that winding up jurisdiction is equitable and discretionary, often relegating complex disputes to civil suits. It referenced several Supreme Court judgments, emphasizing that winding up is not a normal alternative to debt recovery and is reserved for clear, undisputed debts. The court must consider the bona fide nature of the defense and the complexity of the issues.

5. Delay in Invoking Legal Provisions by the Appellant:
The court noted the appellant's delay in taking action, which was a relevant consideration. The bills of exchange matured on March 15, 2003, but the appellant took no steps for nearly two years. This delay contributed to the decision to dismiss the petition, as it indicated a lack of urgency and possibly undermined the credibility of the appellant's claim.

Conclusion:
The appeal was dismissed, with the court affirming the company judge's decision to dismiss the winding up petition and relegating the appellant to a civil suit. The court found no factual or jurisdictional error in the judgment and emphasized that the observations made would not influence any subsequent civil suit filed by the appellant. The decision was based on the disputed nature of the debt, allegations of fraud, the respondent's strong financial status, and the appellant's delay in pursuing the claim.

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