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TMI Blog2007 (2) TMI 337X X X X Extracts X X X X X X X X Extracts X X X X ..... ingdom and carried by road to Speke in containers. According to the petitioner, upon the cargo being discharged at Felixstowe, it was discovered that one of the containers was damaged and four others were found to contain more than the rated payload and three of the containers weighed more than the weight permissible in the country of discharge. The petitioner contends that following negotiations between the Chinese principal of the petitioner and the Company, the Company accepted that it would bear the additional charge for devanning at Felixstowe for further carriage by road to Speke upon maintaining the permissible limits. 4. A writing of 18-11-1997 executed by the Company has been relied upon. The writing refers to 7 x 40 containers and appears to be unconditional in the following assertion : "We accept responsibility and all/any costs which are incurred in any way in connection with stripping/delivery of cargo-any Government fine for overnight vehicle - as well as hold Choyang Line blameless in respect of any damage to cargo and the like - make their own arrangements in conjunction directly with receiver to deliver any cargo devanned from containers." Choyang Line referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The petitioner sought leave to rely on the Company's letter after serving a copy thereof on the company. 10. In the reply it was asserted on behalf of the company that inasmuch as freight for the shipment to Speke had been prepaid and would appear from the bills of lading of 11-9-1997, it was the petitioner's responsibility to deliver the goods in undamaged condition at Speke. The Company denied that any of the containers was overweight. The Company's grievance was contained the following two paragraphs before it proceeded to deny the petitioner's claim : "In such circumstances our client had to agree to unpacking of the containers alleged to be overweight for delivery to destination in as much Tea is a delicate and easily perishable commodity and its taste undergoes rapid deterioration with storage. Taking advantage of such a situation your client has started claiming an astronomical amount as alleged additional costs and expenses for devanning of the goods and other related matter completely oblivious of its obligation for free haulage of the goods to consignee's warehouse at Speke - charges in respect whereof has already been paid at Calcutta. In the premises aforesaid our c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ea from the plaintiff but since the delayed delivery of the said cargo and that too in partially damaged condition in or about October 1997 (presumably, October, 1998) has purchased till date only about 36,986 Kilograms of tea from the plaintiff." 13. Upon such averment, the petitioner assessed its loss at Rs. 23,71,511 of which Rs. 20 lakh was claimed on account of loss of business and Rs. 3,71,511 on account of loss of value of tea for the damaged container. 14. The suit appears to have been filed in March 1999 though the present company petition was instituted in January 1999 and notice thereof was issued by the petitioner to the company prior to the institution of the suit. 15. In the affidavit-in-reply, the petitioner has alleged that no steps have been taken by the Company to proceed with the suit. The petitioner has also pointed out that the Company had deliberately delayed the hearing of the present proceedings by taking repeated extensions of time to file its affidavit-in-opposition. It has been said that after several extensions and after suffering an order of admission of the petition and requiring the same to be recalled, the Company filed its affidavit in June 2005. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount which it claimed in the company petition. The learned Single Judge was of the view that the Company's defence was bogus as it was not supported by any document. The winding up petition was admitted, which the Company appealed. 20. Upon such facts, the Appellate Court recorded the following principles before proceeding to discuss the circumstances in which a creditor's winding up petition may be admitted : "(a). . . there is no bar either in the Companies Act or in the general body of our Civil Code that a person is put to a strict choice, whether to pursue the remedy by way of a winding up petition or to pursue the remedy for recovery of its debt by way of a suit." (Paragraph 17) (b)". . . although winding up is not a normal alternative for the realisation of debts yet it is a form of equitable execution." (Paragraph 18) (c)"It is well-settled law that a winding up petition is a perfectly proper remedy for enforcing payment of a just claim." (Paragraph 19) (d)". . . the petitioning creditor can file a winding up petition and at the same time present the counter-claim - the Company Court has both the power and the duty not to proceed with the winding up application until ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ltimately happens to get wound up and an order to that effect is passed all suits involving the Company would automatically come within the purview of the Company Court and it might or might not grant leave under section 446 of the Companies Act. If it has already opined about the genuine and indisputable nature of a debt owed by the Company, needless to mention, it will, almost as a matter of course, refuse to give leave to any party to proceed with a suit involving that very same indisputable claim. 26. If, on the other hand, the Company Court comes to the conclusion that the debt is not really of an indisputable nature, then again the problem, whether the winding up petition should go on or the suit should go on, does not arise. This is because in the case of a bona fide disputed debt the winding up petition itself would not be admitted and the problem of any party being restrained from proceeding with a suit would not present itself. 27. Accordingly, in our case if the winding up petition is not to be admitted both the claim of the Company and the counter-claim of the petitioning creditor will naturally be adjudicated upon by the Suit Court. On the other hand, if we come to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portant distinction between the Suit Court passing a summary decree and the Company Court receiving the winding up petition. In passing a summary decree or refusing to pass it, the Court has express power under Order 37, and also usually express power given in other provisions for the passing of as summary decree, so as to allow the defendant to defend on terms. Even if such express conditions are absent, the practice of the Suit Court in passing summary decree has now become too established to be questioned, and that practice is that in some of the appropriate cases, the Court calls upon the defendant to secure the claim of the plaintiff, sometimes even wholly, before it grants leave to defend. This is a way of the Suit Court for testing the bona fides of the defendant and its intention to put up a genuine defence which will naturally delay the suit for a long time. 35. The Company Court's position is different. A Division Bench of our Court has opined thus in the case of Dunlop India Ltd. 1994 (1) CHN 409. The decision in that case is that the Company Court has no jurisdiction to call for security; it can either admit the winding up petition or not admit it. It has to come to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mined on the lack of documents. We might imagine Gupta sticking to his guns and saying that there was no commitment for any supply beyond the supplies actually made. But one is not entitled to make out the result of examination and cross-examination from out of his head. That result will only be as shall be taken down in shorthand script in one Court examination. That some oral discussion was there, it is impossible to deny. Supplies could not have started without some sort of understanding. Supplies could not have ended without some sort of communication. What these are, we do not yet know. We cannot say, on this basis, that the suit is bound to fail because the witnesses are bound to say this, this and this on behalf of the Company and that, that and that on behalf of the petitioning creditor. It would be a theoretical way of dismissing the suit. That is not reasonable." 28. Two other aspects that arise in such matters were also highlighted on behalf of the Company in the present case. The first is, where a Company had a genuine cross-claim which it had been unable to litigate, in an amount exceeding the amount of the petitioner's debt, the Court should in the absence of special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which appears to lay down almost as a statement or proposition of law that discretion has to be exercised in any particular direction." The guidance which may be given serves therefore to establish the principle by which the discretion is generally to be exercised, recognising, however, that the rule is always subject to the exception that, in order not to fetter the discretion, special circumstances, which the Judge should explain if his exercise of discretion is to be upheld on appeal, will always justify a departure from the rule. Secondly, I am satisfied that, when subjecting Re Portman Provincial Cinemas Ltd. & Re LHF Wools Ltd. to close analysis, such as Nourse LJ has subjected them to, there is authority of this Court, from which we should not depart, that the practice is not to allow the winding up where there is a genuine cross-claim except in special circumstances. Thirdly, were the matter before me de novo, I would arrive at the same conclusion. The practice in the disputed debt case is well established. I appreciate that in that case the petition is dismissed because the petitioner cannot properly claim to be a creditor. That said, there seems to me to be little pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company delayed before bringing proceedings against him to claim damages in respect of its cross-claim, was repelled, thus : "(33) In the circumstances I do not consider that I am bound by what Nourse LJ said to reject WML's argument on the ground that it could have litigated its cross-claim against Mr. Montgomery but had not done so. As a matter of principle I would not myself think it right to decide against WML on that ground. I do not think that there is anything objectonable in a Company which believes that it has a claim against another party holding back from pursuing it, but then, if the other party starts to threaten it with winding-up proceedings if it does not pay a debt owed in the other discretion, deciding that it must pursue its cross-claim after all. A decision in favour of Mr. Montgomery on this issue would have the undesirable effect of penalising a company for refraining from litigating an issue when it first could have done, and encouraging parties to litigate their possible claims sooner rather than later." 34. While the principles laid down in the two English cases cited on behalf of the Company are salutary, the tests to be applied are more appropriately fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carry out repairs. The Company tenant carried out the works and expended some GBP 61,000 for the purpose. Upon the petitioner coming to be the owner and the Company's landlord, he sought a rent review and was awarded costs of GBP 6,517.36 by the County Court. The Company failed to pay the amount and in the winding up proceedings that followed, the Company opposed it on the ground that it had cross-claimed for damages which exceeded the amount of the petitioner's debt. Prior to the petitioner being awarded costs by the County Court in that case, the Company had commenced an action against the petitioner's predecessor-in-title for damages and the petitioner was added as the second defendant to those proceedings subsequent to the award for costs being made in the petitioner's action against the Company. The petitioner urged that the Company's cross-claim was not genuine and motivated by the anticipated winding-up petition as the petitioner had been impleaded as the second defendant in the Company's suit after the award for costs was made in favour of the petitioner. 38. While enunciating the principle that a Company's decision to not rush to Court in support of its claim till it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce raised by the company is not only bona fide, but the defence is reeking of mala fides or the company's conduct leading to the dispute (in respect of which the Company's defence is found to be not bona fide) was dishonest, the Court would admit the petition and pass an order for advertisement; (2) Where the Court comes to the conclusion that the defence is not bona fide (as distinguished from the conclusion that the defence is mala fide), the court may give the company an opportunity to pay the debt to the petitioner within the stipulated time-limit. If the debt is not paid, the Court would ordinarily admit the petition, unless a strong case is made out for not admitting the petition. The Court may in its discretion even pass a conditional order of admisssion without an order for advertisement while giving the finding that the company's defence is not bona fide; (3) Where the Court gives only a prima facie or tentative finding that the Company's defence is not bona fide, before admitting and advertising the petition the Court must also give a prima facie or tentative finding that the company is commercially insolvent, that is, the company is unable to pay its debts as going con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the adjudication of indebtedness and the quantum thereof is tentative at the admission stage, it is mere firm and less tentative as to the indebtedness and quantum of debt than what a prima facie view would connote. In principle there is no bar to the company demonstrating at the final stage that the prima facie view earlier taken ought to be varied on the strength of further material that the company may produce. The company is afforded a chance on the post-advertisement stage to use a second affidavit to the same petition for winding up. However, inasmuch as there is only an order of admission which is passed at the first stage, the exercise of discretion as to whether the company should be wound up notwithstanding its palpable indebtedness, is left for the second stage. 45. The admission of a winding up petition is completed in two phases; the first is the order of admission itself to facilitate the passage of the winding up petition to the next stage; and, the second is the publication of advertisements to make it a representative action. It is in between the two that a conditional order operates. In exercise of the Court's discretion, the Court may admit the petition and yet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment of security can be made, as was laid down in that case, only when the defendant shows no issue whereby he might be able to resist the claim at the trial. But still the Court entertains some doubt, and thus feels some mercy, and desists from passing a decree there and then but passes instead of an order for security. The Ofu Lynx dictum of testing the strength of the defence even when the Company Court finds that there is an issue to go to trial, was found to be unacceptable. This was the Ofu Lynx test that was overruled: "If in particular cases the Court is in some doubt as to whether the disputes were bona fide or not and is not in a position to come to a definite conclusion that the disputes are mala fide and manufactured only to create a defence to the winding up petition, the Court may stay the winding up proceeding and relegate the parties to an action on terms to security or otherwise". 47. This is the same test, in different words, which has been laid down as the fifth criterion in the Gujarat case and, therefore, cannot be accepted. But the related question is whether upon the Ofu Lynx test being found inappropriate the Company Court is precluded from directing secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : "However, if we apply the decisions as to when a summary decree is to be passed, we find that Mr. Sen's clients (the petitioners) are certainly entitled to succeed. The case of the company is moonshine and unacceptable. It tried to wipe off its admitted debt by alleged sales of goods which are totally fictitious. Even in these circumstances, the Court in its mercy and its discretion might permit full security to be furnished and thereupon relegate the petitioning creditor to a suit, treating the security as security in the suit. . . ." (At page 14 of the authenticated copy of the dictated order). 49. The discussion as to the Company Court's jurisdiction to offer the Company a chance to secure the claim is in the light of the order that is proposed. 50. In its affidavit-in-reply, the petitioner alleged that the Company had not taken any step to prosecute its suit. The parties did not indicate, in course of submission, whether the petitioner had filed its written statement to contest such suit. It is also unclear as to whether the writ of summons has been served or, if not served yet, whether it can be served any further. If the suit can proceed no further for want of diligence ..... X X X X Extracts X X X X X X X X Extracts X X X X
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