1980 (5) TMI 98 - HC - Companies Law

Summary

Issues Involved:
1. Presentation and acceptance of the bill of exchange.
2. Acknowledgment of liability by the company's attorney.
3. Bona fide dispute regarding the debt.
4. The company's conduct and representations.
5. The bank's settlement with the ship owners.
6. The balance sheet acknowledgment.

Detailed Analysis:

1. Presentation and Acceptance of the Bill of Exchange:
The primary contention from the company was that no cause of action arose because the bill of exchange was never presented and accepted by the company. The court observed that the bill of exchange, unless accepted, does not establish privity between the payee and the drawee. This principle is supported by the precedent set in Jagjiwan Mavji Vithlani v. Ranchoddas Meghji, AIR 1954 SC 554, which states that liability on a bill of exchange arises only upon its acceptance. The court agreed that no cause of action could be based solely on the bill of exchange.

2. Acknowledgment of Liability by the Company's Attorney:
The company argued that the acknowledgment of liability by Mr. M.P. Jaju, its attorney, in a letter dated December 15, 1978, was invalid as his authority had been revoked on September 4, 1978. The court found no prima facie evidence of the revocation being communicated to Mr. Jaju or Patel Holdings. The letter from Mr. Jaju was deemed a valid acknowledgment of the company's debt to the bank, which constituted a fresh agreement and was sufficient to fasten liability on the company.

3. Bona Fide Dispute Regarding the Debt:
The court referenced the principle that a winding-up petition should not be used to enforce a debt that is bona fide disputed. The court cited the Supreme Court's decision in Amalgamated Commercial Traders Pvt. Ltd. v. Krishnaswami [1965] 35 Comp. Cas. 456 (SC), which emphasizes that petitions based on disputed debts should be dismissed. The court found that the company's dispute over the debt was not bona fide and appeared to be manufactured to escape liability.

4. The Company's Conduct and Representations:
The court scrutinized the company's conduct, noting that it had taken delivery of the goods by falsely representing itself as the consignee and promising to produce the bill of lading, which it never did. The company had paid only Rs. 10,50,000 to the ship owners, far less than the value of the consignment. This conduct suggested that the company's dispute over the debt was not genuine.

5. The Bank's Settlement with the Ship Owners:
The company argued that since the bank had settled its claim with the ship owners for 6,80,000 U.S. dollars, no cause of action remained against the company. The court noted that the settlement with the ship owners was a separate cause of action and did not absolve the company of its liability to the bank, especially given the acknowledgment of debt by Mr. Jaju and the company's conduct.

6. The Balance Sheet Acknowledgment:
The court examined the company's balance sheet, which showed an adjustment for the cost of imported oils on a provisional basis due to non-payment to Patel Holdings. This acknowledgment in the balance sheet further supported the bank's claim that the company owed the debt.

Conclusion:
The court concluded that the petition for winding up was rightly admitted by the learned company judge. The appeal was dismissed with costs, as the court found no bona fide dispute regarding the debt and deemed the company's conduct and representations as lacking substance.