2007 (9) TMI 404 - HC - Companies Law

Winding up - whether advertisement in question was not covered by rule 96? - Power of Tribunal/CLB on hearing petition - Held that - 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 respondent-company had already admitted the claim of the appellant-petitioning creditors to the tune of ₹ 19.87 crores in their correspondence prior to the statutory notice.In view of the above findings, it is not necessary to express any opinion on the first contention of the appellant that the advertisement in question was not covered by rule 96. We have proceeded on the demur that it was. We are not inclined to accede to the request that this court may remand the matter to the learned company judge for deciding the question of abuse of the process of the court after the respondent-company files a reply before the learned company judge on merits, because the company petition was filed in the year 2002 and the present OJ Appeal was filed in the year 2003; the dues are in respect of commercial advertisements which were telecast at the request of and for the benefit of, the respondent-company, between November 2001 and June 2002 and the respondent-company did not avail of the opportunity given by this court during pendency of this appeal to file its counter-affidavit on merits. It is, therefore, high time that the Company Petition No. 201 of 2002 is heard on merits at the admission stage at the earliest. The four years that the respondent-company has earned in this manner is also sufficient not to pass any further order of costs in their favour. Allow this appeal and set aside the judgment and order dated April 25, 20031, of the learned company judge dismissing Company Petition No. 210 of 2002. The company petition shall accordingly stand restored to the file of the learned company judge taking up company petitions as per the present roster.

Issues Involved:
1. Whether the advertisement published by the petitioning creditors was an abuse of the process of the court.
2. Whether the respondent-company had a bona fide defense to the winding-up petition.
3. Whether the winding-up petition was filed with an improper motive.
4. Whether the respondent-company should be given another opportunity to file a reply on merits.

Issue-wise Detailed Analysis:

1. Whether the advertisement published by the petitioning creditors was an abuse of the process of the court:
The appellants published a notice in newspapers about the winding-up petition without the court's direction. The respondent-company argued this harmed their reputation and amounted to an abuse of the court's process. The appellants contended that the advertisement was informative and cautionary, aiming to prevent future legal complications. The court noted that under English law, improper advertisement could be an abuse of process, but each case must be judged on its facts. The court concluded that the advertisement, while improper, was not an abuse of process because it did not contain misleading statements and was intended to forewarn the public about the appellants' claim.

2. Whether the respondent-company had a bona fide defense to the winding-up petition:
The respondent-company admitted its liability to pay Rs. 19.87 crores in various correspondences and did not reply to the statutory notice or the winding-up petition. The court emphasized that a defense must be in good faith, substantial, likely to succeed in law, and supported by prima facie proof. The respondent-company's failure to file any reply on merits indicated a lack of bona fide defense. The court found that the respondent-company had no substantial defense to the petitioner's claim.

3. Whether the winding-up petition was filed with an improper motive:
The court examined whether the petition was intended to coerce the company into paying a disputed debt. It found no evidence of improper motive or mala fide intent on the part of the appellants. The appellants' claim was genuine, and the respondent-company had admitted the debt. The court concluded that the petition was not filed to harass or pressurize the respondent-company but to recover a legitimate debt.

4. Whether the respondent-company should be given another opportunity to file a reply on merits:
The respondent-company requested the matter be remanded to the company judge for filing a reply on merits. The court noted that the petition was filed in 2002, and the respondent-company had ample opportunity to file a reply but chose not to. Given the long delay and the respondent-company's failure to utilize previous opportunities, the court decided not to remand the matter. Instead, it directed the company judge to hear the petition on merits at the earliest.

Conclusion:
The court allowed the appeal, set aside the judgment dismissing the winding-up petition, and restored the petition for hearing on merits. The respondent-company was given one last opportunity to file a reply on merits. The court emphasized the need for expeditious resolution given the prolonged delay.

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