1969 (9) TMI 67 - HC - Companies Law

Summary

Issues Involved:
1. Nature of the insurance policy (indemnity vs. special contingency).
2. Obligation of the company to pay Rs. 65,000.
3. Applicability of the arbitration clause.
4. Company's alleged inability to pay its debts under Section 434(1)(a) of the Companies Act, 1956.

Detailed Analysis:

1. Nature of the Insurance Policy:
The core issue revolves around whether the policy issued by the company is a contract of indemnity or a special contingency policy. The petitioner argued that the policy was a special contingency policy, not a contract of indemnity, and upon the occurrence of the specified event (cancellation of the M.C.C. Test match), the company was obligated to pay Rs. 65,000 without inquiring into the actual loss. Conversely, the company contended that the policy was a contract of indemnity, requiring the petitioner to prove actual loss incurred due to the cost of printing advertisements. The court noted that the policy's operative part used the phrase "the company shall indemnify the insured," indicating a contract of indemnity, which necessitates proof of loss by the insured.

2. Obligation of the Company to Pay Rs. 65,000:
The petitioner claimed that upon the cancellation of the M.C.C. Test match, the contingency specified in the policy materialized, thus entitling him to Rs. 65,000. The company disputed this, arguing that the sum mentioned was the maximum amount claimable and that the petitioner had not incurred any costs towards printing advertisements. The court emphasized that the policy's terms and the representations made by the petitioner at the time of obtaining the policy were crucial in determining the company's liability. The court also highlighted the need to ascertain whether the policy was a valued policy or if the sum of Rs. 65,000 was merely the upper limit of liability.

3. Applicability of the Arbitration Clause:
The policy included an arbitration clause, stipulating that any disputes regarding the amount of loss or damage must be referred to arbitration, and an award must be obtained before any right of action or suit could be pursued. The company argued that this clause made arbitration a condition precedent to any claim, thus invalidating the statutory notice under Section 434. The court concurred, noting that the petitioner's failure to secure an arbitration award precluded him from claiming the amount under the policy through a winding-up petition.

4. Company's Alleged Inability to Pay Its Debts:
The petitioner argued that the company's failure to pay Rs. 65,000 despite a statutory notice indicated its inability to pay debts under Section 434(1)(a) of the Companies Act, 1956. The company countered, asserting that the debt was bona fide disputed, and the winding-up petition was an abuse of the court's process. The court referred to established legal principles, emphasizing that a winding-up petition is not a legitimate means to enforce a disputed debt. The court found that the company's refusal to pay was based on substantial grounds, not frivolous or vexatious reasons. Furthermore, the petitioner conceded that the company was not commercially insolvent, as evidenced by its substantial cash reserves.

Conclusion:
The court dismissed the petition, concluding that the company's refusal to pay was based on substantial grounds, and the petitioner's attempt to resolve the dispute through a winding-up petition constituted an abuse of the court's process. The court directed that the costs of the petition be quantified at Rs. 500, to be borne by the petitioner if arbitration proceedings or a suit were not commenced within 12 weeks.