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TMI Blog2015 (3) TMI 584X X X X Extracts X X X X X X X X Extracts X X X X ..... policy and it cannot be said at this stage that the remedy of the Company is not available in seeking the damages for illegal and wrongful termination. The Company has approached the Bombay High Court by filing the civil suit for recovery of money on account of damages though there has been some admission on the part of the Company for such an amount payable to the petitioner but the same has been adjusted against the claim made in the said suit. The adjustment of an amount when the claim made is much more, is not impermissible under the law. It does not invite the Company Court to pass an order for winding up of the Company as the liability is admitted. The same views were confirmed in case of Smt. Vijayalakshmi [1999 (3) TMI 477 - HIGH COURT OF ANDHRA PRADESH]. Therefore, the plea of adjustment is not unrecognized in law provided the amount for which it is adjusted is legally sustainable and/or recoverable. It is essentially a question of evidence and the winding up petition should not be allowed as the liabilities are admitted. Furthermore, the petitioning-creditor have made a counter-claim including the amount admittedly adjusted against the claim made in the suit which cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01, the earlier agreement was modified as certain dues, responsibilities and activities entrusted upon the Company was withdrawn and to be performed and/or observed by the petitioning-creditor. The petitioning-creditor underwent in change of management and ownership and the new management adopted policies, which resulted into a discontinuance of the agreement. Ultimately, the agreement was terminated on August 2, 2010, by giving three months time to the Company. In reply to the letter of termination, the Company issued raised in objection to unilateral termination citing the long-standing relation. The petitioning-creditor reverted back to the Company and confirmed to their stand that because of the change policy, the agreement with the Company cannot be continued further. The Company filed a suit being Suit No. 2943 of 2010 before the Bombay High Court on November 8, 2010 praying a decree for a sum of ₹ 23,83,84,62,001.41 (Rupees Two thousand three hundred eighty three crores eighty four lacs sixty two thousand one and paisa forty one), broadly on account of damages, loss of good will, managerial and staff expenses, wasted expenditure, Court cases claims for C and F F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 534 of 2011 which was disposed of on 24 November, 2011 relegating the parties to the Trial Court with further direction upon the Company to prepare the statement of stocks lying in their hand and to hand over the same to the learned Advocate on record of the petitioning-creditor. The petitioning-creditor subsequently withdrew the said writ petition with the liberty to file afresh which was duly granted. Subsequently the petitioning-creditor served a fresh statutory notice under Section 434 of the Companies Act, 1956 and filed the instant winding up petition before this Court. The defence taken in the affidavit-in-opposition is adumbrated as below: (a) The Company has filed a suit for money against the petitioning-creditor before the Bombay High Court wherein a counter-claim covering the amount claimed in the winding up petition is filed by the petitioning-creditor and, therefore, the instant winding up petition is liable to be dismissed. (b) There is no admission either made in the earlier winding up petition or otherwise as to the alleged amount by the respondent Company. (c) Certain amounts, which were admittedly received by the Company or receivable from its cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts that Company is otherwise solvent which could be ascertained from the annual report and, therefore, the Court should not direct the winding up of the Company. By refuting the contention of the petitioning-creditor, he submits that the winding up of the Company is the discretionary relief as it is not meant for recovery of the money for which the Civil Court is competent. He thus submits that the plaintiff is entitled to adjust and/or set off against his claim made in the civil suit which, in fact, has been done and, therefore, it cannot be said that because of the admission made otherwise, the winding up petition should be allowed. As per Mr. Tiku, if the defence is debatable and the rights of the parties are to be decided on evidence, the parties should be relegated to the civil suit instead of directing the winding up of the Company. In other words, he submits that the defence in the winding up petition cannot be said to be moonshine or illusory but a bona fide one, which does not invite, the Company Court to adjudicate upon on the basis of the affidavits. He concludes with a submission that the winding up petition has come up after the suit is filed by his client before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts and the Code will apply as far as practicable to company matters and that the inherent powers of the Court are not affected by the rules at all, According to Mr. Mukherjee, proceeding in two forums is not to be encouraged. The petitioning creditor having chosen the remedy of filing a counter-claim, and having not abandoned such choice even until date, the petitioning creditor should be held to that choice. Mr. Mukherjee also showed us the provisions of section 443 of the Companies Act which lays down the various powers of Court and the orders which might be passed by it on hearing a winding up petition. Not all these powers are exercisable at the stage at which we are to day, i.e. the receiving stage. For example the power to wind up a company finally is not exercisable at this stage, but will become exercisable, if at all, after advertisements have been duly published. But the various other powers, including the residuary powers given in section 443 are quite sufficient for the Company Court, should it be of such opinion, to stay the hearing of the winding up petition until the suit is disposed of, even at this stage. The winding up petition shall not be put at halt after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etition is not intended as a means to recover debts in an ordinary mode of debt recovery. It is not a substitute to ordinary procedure of law which provides the remedy before the Civil Court to recover the debts and, therefore, cannot be said to be an alternative mechanism for debt realizations as held in case of ITC Ltd; (supra) in the followings: It is well-settled that a winding up petition should not be allowed to be taken recourse of as a means to recover debts from a company. It is not a legitimate way to enforce payment of debts which are bona fide disputed by a company and cannot be sued as a weapon to pressurise and coerce the company to make payments. This clear position of law also flows from the authorities relied upon at the Bar and thus, in truth, it is not necessary for me to advert to such authorities. I may, however, make a brief reference to some of them, namely, to J. Enterprises case [ 1987] 61 Comp Cas 504 (Cal), wherein the Court held that winding up petitions are not intended to be exploited as a normal alternative to the ordinary mode of debt realisation and further, that the claim should not be a running claim but one which is crystallised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... na Iyer Sons -v- New Era Mfg. Co. Ltd. ( 1965) 35 Comp Cas 410, 422 (Ker). The solvency of the Company is one of the aid in determining whether unability to pay the debt is a result of the bona fide dispute or not. In this regard, the reliance could be safely made on the judgment of the Supreme Court rendered in case of IBA Health (I) (P) Ltd. -v- Info-Drive Systems Sdn.Bhd., reported in (2010) 10 SCC 553 wherein it is held that in case of refusal to pay on a bona fide cause or excuse, the commercial solvency of the Company is one of the relevant factors but not in case where their exist no dispute to the liability in these words: 24. The appellant Company raised a contention that it is commercially solvent and, in such a situation, the question may arise that the factum of commercial solvency, as such, would be sufficient to reject the petition for winding up, unless substantial grounds for its rejection are made out. A determination of examination of the company s insolvency may be a useful aid in deciding whether the refusal to pay is a result of the bona fide dispute as to liability or whether it reflects an inability to pay, in such a situation, solvency is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r but the same has been adjusted against the claim made in the said suit. The adjustment of an amount when the claim made is much more, is not impermissible under the law. It does not invite the Company Court to pass an order for winding up of the Company as the liability is admitted. The Andhra Pradesh High Court in case of Smt. Vijayalakshmi -v- Hari Hara Ginning Pressing reported in (1999) 96 Company Cases 723 held: Thus, even if a part of the liability is admitted, that itself will not constitute an admitted amount due which a company is unable to pay nor can it be inferred that the company s liabilities are more than its assets and the Company is not able to discharge its liability or it requires the protection of the debtors by admitting the company petition for liquidation. Thus, we find no ground to interfere with the order of the learned single Judge in order to come to a conclusion that the summary proceedings under section 433 be initiated to admit the petition for winding up. Reliance can further be placed to a judgment rendered by Madhra Pradesh High Court in case of State of M.P. -v- Raja Balbhadra Singh reported in AIR 1964 MP 231 on the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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