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TMI Blog1985 (6) TMI 167X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent for a sum of Rs. 24,062.42. It is alleged by the respondent that the statement of account between the parties was settled and confirmed wherefrom a sum of Rs. 24,062.42 remained due to the respondent from the appellant and was settled at Rs. 24,000. The respondent alleged that in confirmation of the said account, the appellant paid Rs. 6,000 in cash and issued four cheques for the balance sum of Rs. 18,000. The said cheques were, however, not presented for encashment and, as such, the said sum of Rs. 18,000 remained unpaid. The said sum of Rs. 18,000, remained due and owing to the respondent by the appellant. Hence, the said petition for winding up. After presentation of the said petition for winding up, the appellant deposited a sum of Rs. 10,000 in cash by way of security with Messrs. T.K. Gupta and S. Brahmachari, the two advocates on record for the parties. On August 3, 1982, the said petition for winding up was admitted. The appellant, being aggrieved by the said order dated August 3, 1982, preferred the present appeal to this court and upon admission of the said appeal, the court of appeal granted stay of operation of said order appealed from. Pursuant to the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w comes up for final disposal. Mr. S. B. Mookherjee, learned counsel appearing for the appellant, submits that there cannot be any question of deemed insolvency under section 434 of the Companies Act, 1956, when the entire claim of the respondent has been secured. He also argues that the alleged claim of the respondent was disputed bona fide and the company also raised a prima facie valid counter-claim. It is, therefore, his submission that the company raised a bona fide defence to the alleged claim of the petitioner creditor, and the winding up being a discretionary relief cannot be granted in the facts and circumstances of the case. Mr. Mookherjee in this appeal has not pressed the other two points urged by the appellant in the court of the first instance, namely, the point of maintainability of the petition and the question of limitation. Mr. Mookherjee argues that mere omission to pay is not a neglect to pay within the meaning of section 434 of the Companies Act, 1956, but such omission should be without reasonable excuse. It is, therefore, his submission that when the company bona fide disputed the debt and refused to pay, then it cannot be said that the company ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ettlement in subsequent quarters. It is the argument of Mr. Mookherjee that the said amount could not be transformed into a debt until a final adjustment of accounts between the parties was made either at the termination of the agreement or at the end of the contract period. Therefore, according to Mr. Mookherjee, there was no question of any indebtedness of the appellant to the respondent. Mr. Mookherjee has next argued that the appellant has a valid counterclaim in excess of the claim of the petitioner creditor, i.e ., the respondent. Mr. Mookherjee submits that if there is a prima facie valid counter-claim, then the existence of such a valid counter-claim would constitute reasonable excuse for non-payment. Mr. Mookherjee submits that the appellant's case is that the respondent wrongfully, illegally and without any notice to the appellant, suddenly stopped placing any further order on the appellant since November, 1977, and closed the business without any notice. The appellant, as a result, suffered huge losses and damages, amounting to Rs. 4,52,250. Mr. Mookherjee contends that the contract between the parties was for a period of five years and there was no notice of terminat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts that while admitting the petition for winding up, the court has to determine whether the company has a bona fide dispute as far as the petitioning-creditor's debt is concerned. Mrs. Pal places reliance on a Supreme Court decision in the case of Madhusudan Gordhandas and Co. v. Madhu Woollen Industries P. Ltd. [1972] 42 Comp. Cas. 125. It is observed by the Supreme Court that (headnote): "Where the petition for the winding up is based on the ground of inability of the company to pay its debts, it is well settled that if the debt is bona fide disputed and the defence is a substantial one, the court will not order winding up. The principles on which the court acts are first, that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and, thirdly, the company adduces prima facie proof of the facts on which the defence depends." Mrs. Pal then refers to a decision of the Bombay High Court in Seksaria Cotton Mills Ltd., In re [1969] 39 Comp. Cas. 475 , wherein it has been observed that (headnote) "if a company fails to comply with a statutory notice under section 434(1)( a ) of the Companies Act, 1956, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such plea of the appellant and alleged that the appellant committed breach of the said agreement by appointing another party for selling dolomite and reserves its right to claim damages. Learned counsel for the appellant has contended that the said claim of Rs. 18,000 was not a debt or a sum certain but subject to further adjustment in subsequent quarters. He contends further that the appellant has laid a satisfactory foundation for its counter-claim against the respondent. Admittedly, the contract was for five years and, according to the appellant, the respondent stopped placing further orders resulting in loss and damages due to the aforesaid breach. In our opinion, these are disputes which cannot be resolved on affidavits but in a regular action. On a consideration of all the facts and circumstances of the case, it cannot be said that the defence sought to be raised by the appellant in the instant case is frivolous or mala fide . In substance, the defence of the company appears to be that the said amount of Rs. 24,000 was not crystallised into a debt giving rise to an indebtedness of the company and further by reason of the respondent's stopping to place any further order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the parties, as in the instant case, "the winding up proceedings are not intended to be exploited as a normal alternative to the ordinary mode of debt realisation". In our opinion, the questions sought to be raised in the instant case are questions which, if established, may constitute a valid case for the company. Whether the company will succeed in establishing its case or not will naturally depend on the result of the suit. We are fully convinced that the petitioning-creditor's debt has been disputed bona fide and there is a prima facie case for the appellant's counter-claim. In view of such claims and cross-claims by the parties, we are of the opinion that the learned judge was not right in admitting the petition for winding up and in giving directions for advertisement. As we are satisfied that the appellant has raised a bona fide counterclaim against the respondent and there is no neglect to pay the alleged debt of the petitioning-creditor, the winding up proceedings cannot be allowed to proceed. The appellant will be at liberty to take such steps as the appellant may be advised for establishing its claims against the respondent. If within three months from the da ..... X X X X Extracts X X X X X X X X Extracts X X X X
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