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TMI Blog1959 (8) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... o the respondent-company by way of loan on August 14,1953, carrying interest at six per cent. per annum. This has been acknowledged in writing by the director in charge of the respondent-company on August 30, 1955, showing the amount due to the petitioner as amounting to Rs. 13,807-12-0 as on June 30,1955. The balance-sheets of the respondent company for the years ending with 30th June, 1954 to 1957, contain specific admissions of the amounts due and payable to the petitioner. On November 13, 1956, when the petitioner had sent a registered communication to the managing director of the respondent-company threatening legal action in default of payment, the managing director by his letter dated December 15, 1956, requested the petitioner to st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Act is practically based upon the English Companies Act, 1948. In regard to this bona fide disputation of debts, the following extracts from the standard authorities on company law in England and India are apposite: England: Palmer's Company Precedents, 16th Edition, Part 2, page 34, has the following to say : "It is now well settled that a petition for winding up with a view to enforcing payment of a disputed debt is an abuse of the process of the court, and should be dismissed with costs. But, of course, if it is shown that the alleged dispute is not a bona fide one, the objection to the petition fails. Thus, it is not uncommon for a company after again and again begging for time, for payment of a debt, to spring on the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... established, but to whom they bona fide believe they are not indebted. In such a case, on writ issued by the company, an injunction will be granted to restrain the creditor from presenting a petition. If a petition has been presented which the court finds to be an abuse of process, the court may on motion stay all proceedings under it or dismiss it." Topham's Company Law, 12th edition, at page 297, sums up: "A creditor whose debt is disputed on some substantial ground cannot generally get a winding-up order. The court may either order the petition to stand over until the validity of the debt can be determined or may dismiss the petition, and may even restrain the creditor by injunction from bringing a threatened petition." India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s based on a substantial ground, that is, if the defence set up (to a creditor's winding up petition) is that the petitioner's claim is disputed, it must be shown that the dispute existed before the presentation of the petition and is a real one and not merely got up to meet the petition. ' A creditor ' said Sargant, J., 'is prima facie entitled ex debito justitiae to a winding up order, and it seems to me to be impossible to displace that prima facie position without the very strongest proof that the petition is' being improperly made use of for some ulterior motive.' Where the debt is undisputed, it is futile for the company to say, 'We are able to pay our debts, but we do not choose to pay this particular debt.' The court will not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a debt is bona fide disputed by the company no order for winding up will be made and the petition will be dismissed. Where a petition against a company is presented ostensibly for a winding up order but really for another purpose such as putting pressure on the company, the court has an inherent jurisdiction to prevent such an abuse of process and will do so, without requiring an action to be commenced, by restraining the advertisement of the petition and staying all proceedings upon it. But if the debt is not disputed on some substantial ground, the court may decide it on the petition and make the order. Where a company has a bona fide defence, the petition should be dismissed ; but it is otherwise if the petitioner would in the circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1955 Rajasthan N.U.C. 4045 , Tulsidas Lalubhai v. Bharatkhand Cotton Mills Co. Ltd. [1915] I.L.R 39 Bom. 47, Satyaraju v. Guntur Cotton Jute and Paper Mills AIR 1925 Mad. 199, Narayananv. Alleppey Chamber of Commerce AIR 1952 T.C. 435 , In re A Company [1894] 2 Ch. 349 , King's Cross Industrial Dwellings Co. In re [1870] L.R. 11 Eq. 149, Vanaspati Industries Ltd. v. Prabhu Dayal Hari Ram [1950] 20 Comp. Cas. 311 , Coal Fields of Burma Ltd. v. Johnson AIR 1925 Rang. 128, Russian and English Bank Ltd. In re [1932] 2 Comp. Cas. 424, Bengal Laxmi Cotton Mills Ltd. v. Mahalaxmi Cotton Mills AIR 1955 Cal. 273, Welsh Brick Industries Ltd. In re [1946] 2 All E.R. 197 (CA). Bearing these principles in mind, if we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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