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TMI Blog2016 (7) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... before the competent Court. The petition is liable to be dismissed in limine and is hereby dismissed. - Company Petition No. 280 of 2016 - - - Dated:- 28-6-2016 - R. M. Chhaya, J. For the Petitioner : Mr Vivek N Mapara, Advocate ORDER 1. By way of this petition under Sections 433 and 434 of the Companies Act, 1956, the petitioner has prayed for winding up of the Company named M.V. Omni Projects (India) Limited. As can be seen from the record of the petition and as stated by the petitioner himself, the respondent-Company is engaged in the business of real estate and infrastructure development. The record indicates that the respondent-Company was awarded a project of Construction of 18 Minors of Block No.51 of Jhinjhuwada Branch Canal and their O M (Earthwork, C.C. Lining Structures) by Sardar Sarovar Nigam Limited. It appears from the record that the respondent-Company gave a subcontract to the present petitioner which is evident from the work order dated 6.8.2012. After the work was completed, the petitioner has raised his bill and it is important to note that the petitioner addressed a letter dated 8.7.2015 to the respondent-Company specifically raising an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the petitioner falls within the parameters of Section 433(e) of the Act and therefore, this Court may exercise its discretion and be pleased to issue notice. Mr. Mapara further added that what has been claimed by way of counter claim is ₹ 73.36 lacs, in further reply given by the respondent, the same has been replied in the earlier correspondence. 3. In light of the aforesaid submissions and on perusal of the correspondence which is brought on record, it cannot be said that the dues are admitted. On the contrary, it is evident from the correspondence between the parties, more particularly, a letter which is written without prejudice dated 20.7.2015 that the same is not admitted by the respondent Company. It is noteworthy that the respondent in its letter dated 20.7.2015 has averred thus: Based on the facts and figures available with us, we have paid to you an excess amount of ₹ 73.38 lacs, the details of which are as under. Rs. lacs Cumulative Certified Work value of Balaji (before abandonment of site) 1118.48 Add. PE amount 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has been clearly observed that a petition for winding up with a view to enforcing payment of a disputed debt is an abuse of process of the Court and should be dismissed with costs. This principle is, succinctly, established in following English Cases. 1. Imperial Silver Quarries (1868) 14 W.R. 1220; 2. Kings Cros Industrial Dwellings Co. (1870) L.R. 11 Eq. 149; 3. London Paris Banking Corp. (1875) L.R. 19 Eq. 44, 446; 4. Cadiz Waterworks Co. v. Barnett, (1875) L.R. 19 Eq. 182; 5. Cercle Restaurant Castiglione Co. v. Lavery (1881) 18 Ch. D. 555; 6. Imperial Hydropathic Hotel Co. (1882) 49 L.T. 147; 7. K.L. Tractors Ltd. In re (1954) V.L.R. 505; 8. Bryanston Finance Ltd. v. De Vries (No.2) (1976) Ch. 63 (C.A.) 9. Re Claybridge Shipping Co. S.A. the Times, March 14, 1981 (C.A.); (1981) C.A.T. 143. To fall within the general principle, the controversy, really, must be bonafide in both, subjective and objective sense. This means that, it must be, honestly, believed to exist and must be based on substantial or reasonable grounds. 'Substantial' means having substance and not frivolous or vexatious and which the Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al evidence that the award could be paid did not amount to special circumstances which made it inappropriate for the petitioner to be dismissed or stayed. The appeal was, accordingly, allowed and windingup order came to be discharged. Similarly, for dismissal of winding up petition where the company has a genuine defence or dispute or a crossclaim, it has been observed in Halsbury's Laws (4th edn) (1996 reissue) para 2212. 4 Halsbury's Statutes (4th edn) (1998 reprint) 821 succinctly propounds the winding up issue in similar cases when discretion is sought to be exercised under section 125 of the Insolvency Act, 1986. The pith and substance of the observations made in the Halsbury's Laws, in this connection, could be highlighted in following terms: A petition founded on a debt which is disputed in good faith and on substantial grounds is demurrable for the reason that the petitioner is not a creditor of the company within the meaning of section 224(1) at all and the question whether he is or is not a creditor of the company is not appropriate for adjudication in winding up proceedings. In fact, in such a situation, the dismissal of the petition is not at any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatus of the respondent Company, which is mandatory in case of a petition by the creditor, and therefore, petition came to be dismissed on that ground. 6. Similarly, in the case of Vijayalakshmi Art Productions (supra), the Madras High Court has observed thus: The right given to a creditor under section 433(e) of the Companies Act to seek winding up of the company is to enable such creditor to realise the amounts due to the creditor along with all other creditors of the company. Such action by a creditor is for the benefit of all the creditors. After the petitioner ceased to be a creditor by reason of the amount lawfully due to the petitioner having been paid, the petitioner has no further right in relation to the affairs of the company, and no enquiry need be made into the company's finances or its conduct in other matters for the purpose of deciding as to whether the winding up order is warranted. A winding up order cannot be made at the instance of the person who himself is not a creditor at the time the winding up order is to be made, by reason of the acknowledged debt having been paid to such a creditor. The scheme of the Companies Act is to provide for continu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities. The alleged loans have been treated by the Incometax Department as income of the petitioner and tax has been levied thereon. Having regard to the nature of the claim, and the objections thereto raised by the respondent and the conduct of the parties, the debt claimed, except to the extent admitted besides being barred by limitation must be held to be a bona fide disputed debt for which the company has a prima facie defence. The petitioner in the circumstances is only seeking to pressurise the company to pay a disputed debt. A winding up petition for such a purpose will not lie. 7. In the case of Jay Bharat Credit Ltd. (supra), the Bombay High Court has observed thus: 21. The distinction between articles 36 and 37 of the Limitation Act has been well brought about by the Allahabad High Court in Arjun Sahai v. Pitamber Das AIR 1963 All 278, where it is specifically held that the mere fact that a bond contains a default clause of that nature would not necessarily make article 75 (old) applicable, and that article applied only to those cases where the provision relating to default clause laid down that on default being made in payment of one or more instalment, the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will make a winding up order without requiring the creditor to quantify the debt precisely. (See Tweeds Garages Ltd., In re [1962] Ch 406; [1962] 32 Comp Case 795 (Ch D)). 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. Another rule which the court follows is that if there is opposition to the making of the winding-up order by the creditors the court will consider their wishes and may decline to make the windingup order. Under section 557 of the Companies Act, 1956, in all matters relating to the windingup of the company the court may ascertain the wishes of the creditors. The wishes of the shareholders are also considered, though, perhaps, the court may attach greater weight to the views of the creditors. The law on this point is stated in Palmer's Company Law, 21st edition, page 742, as follows : This right to a windingup order is, however, qualified by another rule, viz., that the court will regard the wishes of the majority in value of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the defence raised by the appellantcompany was a substantial one and not mere moonshine and had to be finally adjudicated upon on the merits before the appropriate forum. The above mentioned judgments were later followed by this Court in Vijay Industries v. NATL Technologies Ltd.(2009) 3 SCC 527. 23. The principles laid down in the above mentioned cases indicate that if the debt is bona fide disputed, there cannot be neglect to pay within the meaning of Section 433(1)(a) of the Companies Act, 1956. If there is no neglect, the deeming provision does not come into play and the winding up on the ground that the company is unable to pay its debts is not substantiated and nonpayment of the amount of such a bona fide disputed debt cannot be termed as neglect to pay so as to incur the liability under Section 433(e) read with Section 434(1) (a) of the Companies Act, 1956. COMMERCIALLY SOLVENT 24. 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 reje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pressure on the company to pay a bona fide disputed debt. Of late, we have seen several instances, where the jurisdiction of the Company Court is being abused by filing winding up petitions to pressurize the companies to pay the debts which are substantially disputed and the Courts are very casual in issuing notices and ordering publication in the newspapers which may attract adverse publicity. Remember, an action may lie in appropriate Court in respect of the injury to reputation caused by maliciously and unreasonably commencing liquidation proceedings against a company and later dismissed when a proper defence is made out on substantial grounds. A creditor's winding up petition implies insolvency and is likely to damage the company's creditworthiness or its financial standing with its creditors or customers and even among the public. PUBLIC POLICY CONSIDERATIONS 34. A creditor's winding up petition, in certain situations, implies insolvency or financial position with other creditors, banking institutions, customers and so on. Publication in the Newspaper of the filing of winding up petition may damage the creditworthiness or financial standing of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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