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TMI Blog1979 (5) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... equest, was permitted to withdraw the said petition with liberty to file a fresh petition and that is how this petition has come to be filed. I may at once say that there is no force in the contentions that the company is commercially insolvent or that it is otherwise just and equitable to wind up the company. In para. 12 of the petition it has been alleged : ( a )that the company had not filed its balance-sheet for the year ended on March 31, 1977, even up to the third week of May, 1978; and ( b )that from the balance-sheet of the company as at March 31,1976, it appeared that it had huge liabilities to the tune of about Rs. 50 lakhs by way of loans and tax liabilities. As against this, its movable assets were only of the book value of Rs. 34 lakhs and market value of about Rs. 24 lakhs and even the market value of these assets was dwindling from year to year; the value of its immovable assets were also dwindling and amounted only to Rs. 4.85 lakhs in 1976; the resources of the company had also dwindled from about Rs. 27 lakhs in 1971 to about Rs. 10.54 lakhs in 1978 and this figure was further drastic ally reduced in the next year by the withdrawal of a sum of Rs. 10.23 lakh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning-creditor. The contingent liabilities as on March 31, 1976, were Rs. 20.42 crores as against the issued limit of Rs. 28.23 crores; in other words they stood fully secured and there is no material to show that the company will not be in a position to pay off these liabilities if, as and when they mature for payment. I, therefore, find myself unable to find that the company is commercially insolvent and hence deserves to be wound up. The principal ground on which the winding-up is sought is very short. The company, it is said, had entered into a deed of guarantee on December 21, 1073, by which it stood guarantor for the payment to the firm, by the Thakur Paper Mills Ltd. (hereinafter referred to as "the mills for short), of a sum of Rs. 7,35,047 (which was the amount due to the firm by the mills as per the balance-sheet of the letter dated March 31, 1972, and such further sums as may be certified by the mills and to be due from the mills to the firm as on December 12, 1973. The mills bad to pay the amount in three installments: "( a ) 25% of the amount due as per the balance-sheet of December 31, 1972, at the time of change-over in the management of the mills (which took plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n December, 1973, were embodied in an agreement of December 12, 1973. The surety deed had also been entered into in pursuance of the said agreement. The present petition is not maintainable since the agreement dated December 12, 1973, envisages an arbitration of the disputes between the parties arising out of the agreement, and that also embraces the present dispute. This contention is without force. The agreement dated December 12, 1973, has not been placed before me though it is common ground that it contained an arbitration clause regarding the disputes arising thereunder. All that is relied upon are the recitals in the preamble to the deed of guarantee dated December 21, 1973, from which it appears: ( i )that the firm had been the managing agents of the mills and had advanced unsecured loans to the company which amounted to Rs. 7,35,047 as on December 31, 1972, but the amount of which as on December 12, 1973, was required to be ascertained and certified by the auditors of the mills; ( ii )that by an agreement dated December 12, 1973, one Shri M. M. Sharma had agreed to procure and sell 33,775 shares in the mills to the company and its friends on certain terms and conditions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the company to a creditor and the contention is that in the present case there was no "debt" owed by the company to the firm. According to him, no such debt could arise until the amount thereof is ascertained and a decree, on the basis of the deed of guarantee, is obtained against the company. He submits that the term "debt" is not defined in the Act but it should be understood in a practical and pragmatic sense as observed on Shadiram Sons v. Southern Aviation P. Ltd. [1978] 48 Comp. Cas. 570 (Mad.). In this context, he relied on Khunni Lal v. Bankey Lal, AIR 1934 All 449. There, one Khunni Lal had ebtained in 1928 a decree for Rs. 20,375 and, in 1930, the judgment debtors executed a possessory mortgage in favour of Bankey Lal for Rs. 65,000. Khunni Lal's plea was that Bankey Lal had actually advanced only Rs. 40,000; the balance of Rs. 25,000 had been, according to the deed of mortgage, left with the mortgagee for payment to one Nandlal. According to the decree-holder, this amount was neither due to Nandlal nor paid to him and so constituted a "debt" due by Bankey Lal to the judgment debtors and so he sought to attach this amount in execution of his decree. This a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. But no "debt" came into existence merely on the execution of the deed of guarantee because it was not a present liability but a contingent liability. The liability of the company to pay did not arise unless, ( a ) the mills defaulted in making the payments as scheduled, and ( b ) there was a request/notice calling upon the company to pay the amounts due. But the moment these contingencies happened, a present obligation arose resulting in the accrual of a "debt". Sri Jain argued that the firm had neither given any notice to the company till March 13, 1978, (which was the date of the statutory notice under section 434) nor had taken any steps against the mills till February 23, 1978, and he took me through the petition and the notices issued by the firm to the mills and the company to contend that the first notice issued by the firm was to the mills on February 23, 1978, followed by the company on March 13, 1978. If this had been really so, there would have been great force in the contention of Sri Jain for, as pointed out by me earlier, the contingent liability under the guarantee would get crystallised into a debt only on notice to the company under the agreement and if thus the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt under a special contingency policy. However, a perusal of these authorities shows that the conclusion in each of these cases was arrived at on a consideration of the facts and circumstances of a particular case before the court. Decisions have held that while a petition for winding up can be utilised even as "a form of equitable execution" and "a perfectly proper remedy for enforcing payment of a just debt" (See Harinagar Sugar Mills Co. Ltd. v. Court Receiver [1966] 36 Comp. Cas. 426 (SC)), it "is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the company" (vide Amalgamated Commercial Traders ( P. ) Ltd. v. Krishnaswami [1965] 35 Comp. Cas. 456 (SC)). The question, therefore, is whether, in this case, the company has any bona fide and arguable ground of defence against the firm's claim or whether it is a case where the company has failed and neglected to pay a debt which is admitted or clearly due for no ostensible or justifiable reason. And, while on this point, it is necessary to emphasise that we are at the stage of admission of the winding-up petition and what is called for is only a prima facie assessment base ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated, the liability of the company also arose on the notice given by the firm. It is then argued that the mere allegation of non-payment of the debt by the mills on the stipulated date would not suffice and that the liability of the guarantor should be strictly proved. Reference is made to the decision of the Bombay High Court in Shree Meenakshi v. Ratilal Tribhovandas, AIR 1941 Bom. 108, where it has been held: "The liability of a guarantor must depend on the true construction of the guarantee which he has given. A guarantor is prima facie entitled to have the debt proved as against him. The fact that the principal debtor has admitted the debt, or that a judgment or award has been given against him for the debt, does not bind the guarantor, unless he was a party to the proceedings in which the judgment or the award was given, or was party to the admission of the principal debtor. If the guarantor merely guarantees payment of the debt of the principal debtor, then he is entitled to require the debt to be proved as against him in accordance with the ordinary law, that is, in this case, under the Evidence Act. If, on the other hand, the principal debtor has agreed that as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t cannot disentitle the petitioner to a winding-up order at least at the stage of admission. Regarding the second point, I have already pointed out that the petitioner has alleged that it has sent repeatedly notices of demand to the mills and the company and that this allegation remains uncontroverted. So far as the third point is concerned, it is well settled that mere forbearance on the part of the creditor to sue the principal debtor will not discharge the surety. In regard to this plea, Sri Bhatt referred to a term of the guarantee deed which is in the following terms: "Any alteration of the terms of repayment or other consideration given by the beneficiaries to the company shall not be considered to act in any manner prejudicial to the right or interest of the guarantors and this guarantee shall have full force notwithstanding any such consideration or alteration of the terms aforesaid". This clause is no doubt of limited scope but it covers the present argument that the liabilities of the surety is discharged because of the "consideration given" by the firm to the mills in the sense of the postponement of action by the firm against the mills. According to the petitioner, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The reply merely extracts the language of section 135 of the Contract Act and alleges vaguely that the contract is discharged because the firm promised to give or had given time to the mills for payment and by its subsequent conduct. Sri Jain referred to a reply sent by the mills on September 22, 1978, to the firm's notice, alleging that the claim was "even not legally enforceable in so far as the same was barred by limitation and estoppel". This itself is very vague and does not even spell out a specific plea of limitation or estoppel. The company has also not further alleged any collusion between the firm and the mills or any agreement between them which would discharge the terms of the surety. All that is said is that the firm had agreed not to enforce the claim against the mills; the mills in their reply is equally vague and alleges that the firm "had agreed long ago" not to enforce payment. There is, in my opinion, no force in the contention that this court should not exercise its powers of winding up (except where a guarantee debt is crystallised into a decree) because in a suit, the creditor would be obliged to make the principal debtor and surety, parties and that would f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company filed C.A. No. 36 of 1979. It was stated therein that the firm had since filed a suit (Suit No. 5/79) against the mills and the company in this court for realisation of the debts alleged to be due under the deed of guarantee. In view of this development it was submitted that the company petition deserved to be dismissed. It was contended that this showed that there was a bona fide dispute between the parties and it was urged that two parallel proceedings on the same issues should not be encouraged. It was further argued that all the issues between the three parties could be satisfactorily disposed of in the suit while if this petition were admitted and eventually the suit was decided in the company's favour it would have suffered irreparable injury. There was also a possibility that the suit may be decreed but the winding-up petition dismissed or vice versa and such a situation of conflicting decisions of the same court in the same matter should be avoided. Sri Jain referred to the decisions in Rajasthan Spinning and Weaving Mills Ltd. v. Textool Company Ltd. [1971] 41 Comp. Cas. 66 (Mad.) and in Aluminium Corporation of India Ltd. v. Lakshmi Ratan Cotton Mills ..... X X X X Extracts X X X X X X X X Extracts X X X X
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