2016 (3) TMI 1254 - HC - Companies Law

Winding up petitions - whether the respondent companies could claim adjustment of goods sold and delivered by Concast Bengal to the appellant petitioning creditor, assuming that Concast Bengal had actually supplied goods to the petitioning creditor, as claimed by the respondent companies? - Held that - The question is whether there was any arrangement by which a right to adjustment can be claimed. This is a factual issue which may have to be decided on the basis of evidence, documentary as also oral. The learned Company Court rightly held that a company would be liable to be wound up if it was unable to pay its debts. The question posed by the learned Court was how the Court could adjudge if a company was unable to pay its debts. The learned Company Court drew an analogy between the circumstances in which a Court trying a summary suit could grant a decree or grant leave to defend and held that the principles would apply to winding-up proceedings. In Madhusudan Gordhands & Co. vs. Madhu Woollen Industries P Ltd. 1971 (10) TMI 49 - SUPREME COURT OF INDIA relied upon by the learned Company Court, the Supreme Court held that if a company raised a defence in good faith or a defence which was likely to succeed or prima facie likely to succeed at the trial, in that event the winding-up application would fail. Industries Corporation Ltd. 2004 (8) TMI 684 - CALCUTTA HIGH COURT where a Division Bench of this Court presided over by Ajoy Nath Ray, A.C.J., opined that in a winding-up application, the Court had to come to the conclusion that the claim of the petitioning creditor was indisputable. This determination had to be final and not prima facie, at both stages of winding up, the admission stage and the trial stage. At the admission stage it was final and conclusive as between the petitioning creditor and the company, but at the final stage it was conclusive between the petitioning creditor, the company, the creditors and all other persons who joined the winding-up. In SRC Steel Pvt. Ltd. 2004 (8) TMI 684 - CALCUTTA HIGH COURT held that the standard of proof required by the petitioning creditor to prove his case in the winding-up application was the same standard that was required to prove a plaintiff s case in a summary suit. The learned Company Court rightly concluded that the company must be in a completely defenceless position, for it to be wound up. It would suffice if the company raised a triable issue for relegation of a winding-up application to a civil forum, the defence is a completely sham defence, the Court may direct the company to be wound up. If, however, the defence raised by the company in the winding-up proceedings is not a sham defence but a plausible one, the Court ought not to direct winding-up of the company. We find no infirmity whatsoever in the order of the learned Company Court which calls for interference in appeal.The appeals and the connected applications are, therefore, dismissed. We, however, make it clear that the period during which the appeals have been pending in this Court, shall also be excluded for computation of limitation under Section 14 of the Limitation Act, 1963.

Issues Involved:
1. Whether the respondent companies could claim adjustment of goods sold and delivered by Concast Bengal to the appellant petitioning creditor.
2. Whether there was an agreement for the adjustment of the price of goods supplied.
3. Whether the claims of Concast Bengal were barred by limitation.
4. Whether the respondent companies could seek set-off of supplies made by Concast Bengal.
5. Whether the principles for granting a decree in summary suits apply to winding-up proceedings.
6. Whether the respondent companies raised a bona fide defense to avoid liquidation proceedings.
7. Whether the learned Company Court's decision to relegate the petitioning creditor to a civil remedy was appropriate.

Detailed Analysis:

1. Adjustment of Goods Sold:
The respondent companies contended that Concast Bengal had sold goods to the petitioning creditor, and there was an agreement for adjusting the price of goods supplied by the petitioning creditor against the dues to Concast Bengal. The petitioning creditor disputed this claim, arguing that the documents supporting the supply of goods were forged and fabricated. The court noted that whether the documents were forged or fabricated could not be decided in summary winding-up proceedings and required a regular suit in the appropriate civil court.

2. Agreement for Adjustment:
The petitioning creditor argued there was no agreement for the adjustment of the price of goods. The court observed that the pleadings suggested a proposal for such an arrangement, but whether it fructified into an agreement required evidence. The court emphasized that agreements need not always be in writing and could be oral if proved.

3. Claims Barred by Limitation:
The petitioning creditor argued that Concast Bengal's claims were barred by limitation, as there had been no acknowledgment of outstanding dues since 2009. The court acknowledged that equitable set-off debts are payable only if they arise out of the same transaction and cited relevant case law to support this principle.

4. Set-off of Supplies:
The petitioning creditor contended that the respondent companies could not set off supplies made by Concast Bengal against supplies made by the petitioning creditor. The court noted that equitable set-off requires mutual debts and credits or cross-demands to arise out of the same transaction or be connected in nature and circumstances.

5. Principles for Granting Decree in Summary Suits:
The court referred to the analogy drawn by the learned Company Court between summary suits and winding-up proceedings. It held that the principles for granting a decree or leave to defend in summary suits apply to winding-up proceedings. The court emphasized that a company must be in a completely defenseless position for it to be wound up.

6. Bona Fide Defense:
The court referred to the Supreme Court's decision in Madhusudan Gordhands & Co. vs. Madhu Woollen Industries [P] Ltd., which held that if a company raised a defense in good faith or a defense likely to succeed at trial, the winding-up application would fail. The court found that the respondent companies had raised a plausible defense, and the petitioning creditor's claims were not indisputable.

7. Relegation to Civil Remedy:
The court upheld the learned Company Court's decision to relegate the petitioning creditor to a civil remedy, as the respondent companies had raised a triable issue. The court found no infirmity in the learned Company Court's order and dismissed the appeals and connected applications.

Conclusion:
The court dismissed the appeals and upheld the learned Company Court's decision to refuse the winding-up petitions and direct the petitioning creditor to seek a civil remedy. The period during which the appeals were pending was excluded for computing limitation under Section 14 of the Limitation Act, 1963.

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