1951 (4) TMI 19 - HC - Companies Law

Winding up - Company when deemed unable to pay its debts, Cost and expenses payable out of assets in a winding-up by Court and Company when deemed unable to pay its debts

Issues Involved:
1. Powers of the court at the time of presentation of a winding-up petition.
2. Bona fide dispute regarding the debt.
3. Allegation of ulterior motives in presenting the petition.
4. Defective verification of the petition.

Detailed Analysis:

1. Powers of the court at the time of presentation of a winding-up petition:
The court has the inherent power to prevent the abuse of its process. This includes the power to refuse to admit a petition, to adjourn the hearing of the petition, and to restrain the advertisement of the petition. It is settled law that the court can exercise these powers to avoid damage to the credit of the company and to prevent misuse of the winding-up process for ulterior motives. MacLeod J. in In re Pioneer Bank Ltd. stated, "There is no obligation whatever on the court to admit a petition merely because it is presented." The court may refuse to admit a petition or give notice to the company to restrain the petitioner from proceeding. This procedure avoids multiplicity of litigation and ensures that the order for admission of the petition is a judicial order made either ex parte or on notice to the affected party.

2. Bona fide dispute regarding the debt:
The court held that there was a bona fide dispute as to the debt. The company offered to furnish security for the full amount of the claim, which the petitioner refused. The court considered this offer as material evidence of the company's bona fides. It is well settled that the presentation of a petition for winding up is an abuse of the process of the court if the debt is disputed bona fide. The court will not allow its process to be used as an instrument for extorting a claim that is disputed bona fide. In The Company v. Rameswar Singh, it was observed that the court has inherent jurisdiction to stay proceedings where they amount to an abuse of its process.

3. Allegation of ulterior motives in presenting the petition:
The company contended that the petition was presented with ulterior motives to put pressure on the company and extort money. Vaughan Williams J. in In re A Company stated, "if I am satisfied that a petition is not presented in good faith and for the legitimate purpose of obtaining a winding up order, but for other purposes, such as putting pressure on the company, I ought to stop it if its continuance is likely to cause damage to the company." The court noted that the rejection of the security offer and the unwillingness to face trial indicated possible mala fides. However, the court declined to express a final opinion on this matter due to pending litigation.

4. Defective verification of the petition:
The company pointed out that paragraphs 8 and 9 of the petition were not verified, and the petition did not allege that the company is unable to pay its debts, making it demurrable. The petitioner admitted the affidavit was defective and applied for leave to re-verify the petition. The court held that the petitioner should be liable for the costs of the hearing.

Conclusion:
The court ordered that the petition be admitted and kept on file, but the hearing be adjourned sine die. The petitioners must pay the costs of the hearing. The court declined to make it a condition for the company to furnish security due to the petitioner's refusal. The court also noted that if the petitioner had agreed, the hearing of the pending suit could have been expedited.

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