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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 ..... we in the United Kingdom 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 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." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse of 29-7-1998 has been referred to in the petition, no copy thereof was annexed thereto and the Company also did not deem it fit to append a copy of such reply in the affidavit it has used in these proceedings. 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 oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore considerably reduced its business activity with the plaintiff as a result of which the plaintiff suffered serious business loss. The said consignee in 1977-98 (presumably, 1997-98) purchased 6,95,850 Kilograms of tea 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f s claim in such suit was thereafter put forward to substantiate the Company s defence in the affidavit used in the Company proceedings. The petitioner filed its written statement in the suit and delivered a counter-claim therein, seeking a decree for the same amount 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether it should or should not entertain and receive the winding up application. 25. Even in the later stages of the proceeding, after it has assumed representative capacity after advertisement, the position is quite clear and there can be but only one course open. If the Company ultimately 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Lordships in the SRC Steels (P.) Ltd. s case ( supra ) made a distinction between the Suit Court passing a summary decree and the Company Court receiving a winding up petition. Such distinction appears at paragraphs 34 and 35 of the report : "34. Regarding furnishing of security, however, there is an extremely important 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 tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s going to be, when the dramatis personae in flesh and blood walk into the witness box one by one and answer question in examination and cross-examination. 48. It might be that one Lohriwalla for the Company will go into the box on behalf of the plaintiff and one Gupta will go into the box on behalf of the defendant/petitioning creditor. We might imagine Lohriwalla being cross-examined 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 wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to proceed. Consistency of approach leading to certainty in the litigation process is a virtue. Such guidance must not and cannot fetter the discretion. That was the concern of Edmund Davies LJ in the passage already cited by Nourse LJ from his judgment in Re LHF Wools Ltd. [1969] 3 All ER 882 at 891, [1970] Ch. 27 at 42, where he said : ". . . I am a little nervous, accordingly, about any decision 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 practi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntal element of the principle stated in Bayoil case in the following words of Nourse LJ : "I emphasise that. . . . . it (Company s cross-claim) must be one which the Company has been unable to litigate. . . . . ." It was held that the wider principle enunciated in Bayoil S.A. s case ( supra ) was that a cross-claim could be a ground for dismissing a winding up petition based on an undisputed debt. The petitioner s ground that the 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 cros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uit can be stayed or that the Company can be restrained from proceeding with it any further, are possibilities recognised in the SRC Steel (P.) Ltd. s case ( supra ). 37. In the Wanda Modes Ltd. s case ( supra ), the petitioner came to own a property which was let out to the Company. The tenancy agreement required the landlord to keep the exterior and the roof in good and tenantable repair and condition. The premises fell into disrepair and the landlord failed to carry out repairs. The Company tenant carried out the works and expended some 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 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 subsequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In re 56CWN 29 and an unreported judgment of the same Division Bench that rendered judgment in the SRC Steel (P.) Ltd. s case ( supra ) in ACO No....... of 2004, Dhariwal Steel (P.) Ltd. v. Bengal Rolling Shutters Engg. Works [CP No. 219 of 2003] . 42. In the first case a learned Single Judge of the Gujarat High Court has summarised the orders which may be passed in the following words : "(1) After considering the material on record, if the Court comes to the conclusion that the defence 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imply that merely because the petitioner is found, at the receiving stage, to be a creditor, his proceeding to have the company wound up at the final stage is a formality. Even a petitioner who is acknowledged by a company to be a creditor for an ascertained sum, may be resisted by the company from obtaining an order of winding up. That the debt is undisputed or indisputable is not the only consideration at the final stage. 44. In the practice that we follow in this Court, there is room for a conditional order of admission to be passed. Though 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , even then the Court might allow the trial of the suit, thinking in its mercy and surely in its discretion, that there yet might arise a contingency whereby the claim of the plaintiff might not wholly succeed and the Court might order furnishing of security. The test as to furnishing security, according to Dunlop India Ltd. s case ( supra ) does not require the strength of a defence at all. It has been held if the affidavit shows that there is a defence, however thin, which is arguable and is reasonable to go to trial, then unconditional leave to defend must follow. An order for payment 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 dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities that lay down that the binding effect of an earlier judgment, is confined to the matters which were in issue and the judgments, even of superior fora, are not to be read as enactments insofar as they contain observations on matters other than those in issue. That an order for security may be made in a creditor s winding up petition has been recognised by the Division Bench in the unreported judgment cited on behalf of the petitioner, passed a month or so after the SRC Steel (P.) Ltd. s case ( supra ) judgment. The following words in the unreported decision can be said to recognise the Company Court s jurisdiction to direct security : "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany petition is, thus admitted for the petitioner s principal claim of Rs. 7,34,526.40 (being the Indian equivalent at the rate prevailing on 24-12-1997 as claimed in the statutory notice) together with interest at the rate of nine per cent per annum from 24-12-1997. The petition will be advertised once in " The Statesman " and once in " Sanmarg ". Publication in the Official Gazette is dispensed with. The advertisements should indicate that the matter would be returnable on the next available Court day four weeks after the date of publication. 53. In the event the Company furnishes security by way of bank fixed deposit receipts in the name of the Registrar, Original Side, for the entire sum, inclusive of interest, and together with a margin of two per cent on such sum to provide for the Registrar s commission and expenses, if any, within a period of three weeks from date, the petition need not be advertised. In case such security is furnished, the entire proceeds therefrom, less the two per cent margin money and the interest accrued on such two per cent will be made over by the Registrar to the petitioner in the event no decree is passed in favour of the company in C.S. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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