ORDER Dr. D, Y. Chandrachud, J.
1. The present company petition came to be admitted by a Judgment delivered on 7th March. 2000. An appeal was preferred by the respondent Company against the order of admission which came to be heard and disposed of by an order of the Division Bench dated 5.6.2000. Before the Division Bench, it was argued on behalf of the respondent Company that the maintainability of the petition for winding up was sought to be contested on the ground that the winding up in the present case was sought in respect of the affairs of a registered partnership, something which according to the petitioner was not permissible under the provisions of Part X of the Companies Act, 1956. The maintainability of the petition had not been challenged at that stage before the learned single Judge and having regard to the question of law, which was pleaded, the Division Bench while allowing the appeal directed that the petition be heard afresh on all points including the point which was raised by way of amendment. In paragraph 6 of its order the Division Bench has clarified that the Court had no occasion to enter into the merits of the rival contentions and the order of the learned single Judge was set aside without investigating into the merits of the case. The petition has thus been placed for admission once again and has been argued for admission.
2. Before going into the merits of the case, it would be necessary to consider whether the petition is maintainable. An additional affidavit of 13.9.2000 has been filed on behalf of the Company in which it has been sought to be contended that the provisions of Part X of the Companies Act, 1956 apply to an unregistered Company and will not therefore apply to a firm which is duly registered under the Indian Partnership Act, 1932. It has been sought to be contended that under Section 583 of the Act only an unregistered Company may be wound up and the respondent which is duly registered under the Indian Partnership Act, 1932 is not an "unregistered Company" within the meaning of the expression used in the Companies Act. 1956.
3. It is common ground that the first respondent is a partnership which was registered under the provisions of the Indian Partnership Act, 1932. The question as to the maintainability of the petition which is being raised on behalf of the respondents would have to be considered with reference to the provisions of Part X of the Companies Act, 1956. The question is not bereft of authority as well as shortly pointed out, but the matter may be approached on the basis of first principles on the interpretation of the language contained in Part X itself. Part X of the Companies Act, 1956 is entitled "Winding up of Unregistered Companies". The marginal note to Section 582 is entitled "Meaning of 'Unregistered Company'." Section 582 of the Act provides thus :
"582. For the purposes of this Part, the expression "unregistered Company"-
(a) shall not include -
(i) a railway Company incorporated by any Act of Parliament or other Indian Law or any Act of Parliament of the United Kingdom;
(ii) a Company registered under this Act; or
(iii) a Company registered under any previous companies law and not being a company the registered office whereof was in Burma. Aden or Pakistan immediately before the separation of that country from India; and
(b) save as aforesaid, shall include any partnership, association or Company consisting of more than seven members (at the time when the petition for winding up the partnership, association or Company, as the case may be, is presented before the Court).
4. Clauses (a) of Section 582 specifies what shall not be included within the meaning of the expression "unregistered Company". Clause (b) specifies what shall be included. At the outset it must be noticed that the expression which is used in Section 582 is "Unregistered Company" and not "Unregistered Partnership". Section 582 provides as it were a statutory dictionary of what constitutes an unregistered Company for the purposes of Part X. Part X confers limited powers on the Court to wind up an unregistered Company in certain cases and the question in every case in which the provisions of the Part are sought to be invoked is as to whether the Company in question is an unregistered Company within the meaning of Section 582. Clause (b) of Section 582 provides that the expression 'unregistered Company' shall save as provided by the exclusion in clause (a) include any partnership, association or Company consisting of more than seven persons. In other words any partnership or association or Company which consists of more than seven members at the time when the petition for winding up is presented is regarded as an unregistered Company. Clause (b) is not circumscribed by the requirement that the partnership should be an unregistered partnership. In fact clause (b) contains no reference to a requirement as regards the registration of the partnership or association as the case may be. In these circumstances reading the statute as it stands, there is no substance in the contention that Part X has no application to the case of a winding up of a registered partnership firm.
5. There is no doubt about the fact that in the case of a partnership registered under the Indian Partnership Act, 1932, the remedy for a dissolution of partnership is also provided in Chapter VI of the Act. The Indian Partnership Act, 1932 provides for a dissolution of a partnership firm in Section 39 and enunciates various modes of dissolution amongst them, in Section 40 a dissolution by Agreement, in Section 41 a compulsory dissolution, and in Section 44 a dissolution by the Court. Section 583 of the Companies Act, 1956 confers a power to dissolve an unregistered Company on the Court subject to the provisions contained in sub-sections (2) to (5) thereof. In order to attract the provisions of Section 583. the Company must be an unregistered Company within the meaning of Section 582. In the case of a partnership, with which we are concerned, there must be at least seven members at the time when the Petition for winding up is presented. Among the restrictions which have been laid down by the statute is the restriction in sub-section (3) of Section 583 to the effect that no unregistered Company shall be wound up voluntarily or under the supervision of the Court. Part VII of the Companies Act, 1956 deals with winding up. In the case of a Company governed by the provisions of the Companies Act, 1956 'the modes in which the Company may be wound up are specified in Section 425 of the Act. These modes are winding up (a) by the Court; or (b) voluntarily; or (c) subject to the supervision of the Court. Chapter II of Part VII consisting of Sections 433 to 483 deals with winding up by the Court. Chapter III of Part VII consisting of Sections 484 to 520 deals with voluntary winding up. Chapter IV of Part VII consisting of Sections 522 to 527 deals with winding up subject to the supervision of the Court. In the case of an unregistered company, however. Section 583(3) specifies that there shall be no winding up voluntarily or subject to the supervision of the Court. As regards the circumstances in which a Company can be wound up by the Court, Section 433 specifies in clauses (a) to (f) a list of those circumstances. However, the circumstances in which an unregistered Company may be wound up are prescribed by sub-section (4) of Section 583. These circumstances are :
"(a) if the Company is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs; or
(b) if the Company is unable to pay its debts; or
(c) if the Court is of opinion that it is just and equitable that the Company should be wound up."
For the purpose of considering when an unregistered Company shall be deemed to be unable to pay its debts, Section 583 provides a statutory fiction in sub-section (3) which partly corresponds to the provisions of Section 434 of the Companies Act.
6. What emerges from the provisions of section 583 is that the power of the Court to wind up an unregistered Company is restricted to an unregistered Company as defined in Section 582, on the grounds which are specified in Section 583 and subject to the restrictions contained therein.
The generality of the provisions of the Companies Act, 1956 in regard to winding up is thus circumscribed in application to the winding up of an unregistered Company. The limitations on the winding up of an unregis tered Company are as regards the qualifying conditions for being called an unregistered Company, the mode of winding up, and the circumstances in which winding up may take place.
7. As I said earlier, the position is not bereft of precedent. A learned single Judge of this Court considered the question in Vasantrao Dattaji Dhanwatay and another v. Shyamrao Dattaji Dhanwatay and others. It will be clear from para 2 of the judgment of this Court that the Court was considering the question of a partnership registered under the Indian Partnership Act, 1932. The question which was sought to be canvassed before the Court was that in the case of a registered partnership which consists of more than seven persons, the provisions of Part X of the Companies Act. 1956 would exclusively be attracted and the ordinary Civil Court will have no jurisdiction to entertain a suit for dissolution under the provisions of Chapter VI of the Partnership Act. 1932. This argument was repelled by a learned Single Judge of this Court who held on a review of the provisions of Section 583 that those provisions confer a limited remedy to seek winding up in specified circumstances and upon the fulfillment of specified conditions. The learned Single Judge referred to Section 590 of the Companies Act. 1956 which expressly contains a saving clause, saving the operation of any enactment which provides for any partnership, association or company being wound up. In paragraph 11 of the judgment, the learned Single Judge summarised the position in law in the following words :
"11. This brief review of the provisions of the Partnership Act along with the provisions of the Companies Act relevant for the purpose indicates that if there be a legal relationship of partners called "a Jinn" either registered or unregistered, such a relationship can be brought to an end by the process of dissolution contemplated by Chapter VI of the Partnership Act and nothing in Part X of the Companies Act affects that position. I have already indicated how Section 583 of the Companies Act by itself operates on a circumscribed sphere and contingencies. It is not a provision of universal application. Being a provision enacting specified remedy, it will have to be strictly construed and only applied to the matters expressly governed. Moreover, there is a provision of section 590 which clarifies by enacting a saving that the provisions with regard to dissolutions or winding up of partnership made by any other Act is not affected by anything enacted by Part X of the Companies Act."
The Judgment of the learned Single Judge of this Court was carried in Appeal to the Supreme Court. The judgment of the Supreme Court in Vasantrao and another v. Shyamrao and others. In paragraph 4 of its judgment the Supreme Court held as follows :
"4. As the marginal note to this section indicates, this is a saving provision.
It leaves unaffected the operation of any enactment (a) which provides for any partnership, association or Company being mound up, or (b) which provides for any partnership, association or Company being wound up as a Company or as on unregistered Company under the Indian Companies Act, 1913 or any Act repealed by that Act. An enactment means the whole Act or a part of it. The proviso which contains a rule of construction of references in any such enactment to any provision in the Indian Companies Act. 1913 or any Act repealed by that Act is not relevant for the present purpose, it is clear that the provisions for winding up of the affairs of a firm which Chapter VI of the Indian Partnership Act contains besides provisions for the dissolution of partnership are left untouched by Section 590 of the Companies Act, 1956. The cases cited in support of the respective contentions of the parties are not really on the point under consideration except the decision of the Mysore High Court in Pattada Utiayya v. Pattada Somayya, to which counsel for the appellants referred. The Mysore case contains an observation on Section 271 of the Indian Companies Act, 1913 which corresponds to Section 590 of the Companies Act. 1956. The learned single Judge who decided the case held that there was nothing In Section 271 or In the words "any unregistered Company may be wound up" appearing in that section to indicate that the aggrieved party had an option to institute a suit for winding up of an unregistered Company. This decision does not take note of sub-section (2) of section 271 which is similar to Section 590 of the Companies Act, 1956 leaving unaffected the operation of other enactments providing for any partnership, association or Company being wound up."
Therefore the remedy to seek a dissolution of a registered partnership under the provisions of the Indian Partnership Act, 1932 is not ousted by the provisions of Part X of the Companies Act. 1956. Equally, the existence of the remedy under the Indian Partnership Act, 1932 to seek dissolution does not bar the remedy to apply for winding up under Part X of the Companies Act, 1956 subject to the due fulfilment of the special requirements of that Part.
8. It may be noted that the same view which was taken by the learned single Judge of this Court and which was affirmed by the Supreme Court was taken by a learned single Judge of the Karnataka High Court in Bangalore Timber Industries and others v. Madras Sapper Ex-Servicemen's Rehabilitation Association and another. The learned single Judge of the Karnataka High Court while construing the term 'association' used in Section 582 of the Companies Act held that the expression had to be understood in its general sense and not with reference to the provisions of Section 11 of the Indian Companies Act 1956 prohibiting a partnership or association consisting of more than twenty persons from carrying on any business in matters more particularly mentioned in section 11(2) of the Act. The learned single Judge concluded by holding that there can he no bar to maintain a petition for winding up against an association which was duly registered under the Societies Registration Act, as an unregistered Company.
9. Therefore, in conclusion so far as the maintainability of the petition is concerned, I am of the view that it will not be correct to restrict the operation of Part X of the Companies Act, 1956 only to an unregistered partnership, where the winding up is sought in respect of the affairs of a partnership. No such distinction between a registered and unregistered partnership is made by Section 582 and so long as the partnership consists of more than seven members and the winding up is sought on one of the grounds, specified in Section 583, the petition would be maintainable. In fact it must be stated in fairness that the learned counsel appearing on behalf of the respondents argued the question as to the merits of the petition for winding up first and the question of maintainability was only faintly pressed upon at the concluding stage of the submissions.
10. Coming to the merits of the case, the dispute in the present case arises out of certain premises consisting of Unit Nos. 112 and 113 situate on the first floor of a building known as 'Nlrman Kendra' situate at Dr. E. Moses Road, Mahalaxmi, Mumbai 400 013. By and under an agreement dated 22.6.1995 the respondent Company, which is the owner of the aforesaid premises agreed to and granted a licence to the petitioner of the premises for a period of 60 months commencing from 15.7.1995. The agreement of licence provided expressly in clause (1) that the petitioner herein who was the licensee shall not claim any tenancy rights in respect of the premises and shall only have a right to use and occupy the premises for a period of 60 months. Under clause 2 the licence fee was Rs. 22,500/ - per month, and under clause 3 a provision was made for furnishing a security deposit in the amount of Rs. 1,60,00,000/-. The security deposit was liable to be refunded against the licensee removing himself in accordance with the terms and conditions of the licence. Clause 3 in so far as is material provided as follows :
"The licensee has agreed to deposit with the Licensor and keep deposited with the Licensor and keep deposited with them a further sum of Rs. l,60,00,000/-(Rupees One crore and sixty lakhs only) as and by way of security deposit during the period of this licence.
it is expressly agreed by and between the parties hereto that the said sum of Rs. 1,60,00,000/- shall not carry any interest and the same shall, subject to such deductions therefrom as may be permissible hereunder and subject to the right of the Licensor to forfeit the said deposit as set out more particularly hereinafter be refunded to the Licensee on termination of this Agreement or sooner determination thereof against the Licensee removing itself, and all its articles and effects from the said premises in accordance with the terms and conditions of this Licence."
Clause 4 of the licence confers a right upon the petitioner to renew the period of licence for a further term of five years, the option being required to be exercised at least three months prior to the expiry of the licence. Under clause 9 it is provided that upon termination or earlier determination of the licence, it will be open to the licensor to remove the licensee in the event of the licensee not removing himself. Clause 12 empowers the licensor to terminate the agreement in case of a breach of the terms of licence upon 15 days' notice. Under clause 13 the licensee was permitted to terminate the licence after the expiry of thirty months by giving two months' prior notice in writing. In such a case, it was provided, that the licensor shall refund the deposit of Rs. 1,60,00,000/- subject to his right to make a deduction therefrom upon the licensee handing over vacant and peaceful possession.
11. On 1.7.1995 two further documents came to be entered into between the parlies. Before setting out the terms of the said agreements, it will be necessary to state that all the three agreements, namely the licence agreement which was entered into on 22.6.1995, as well as the two agreements of 1.7.1995 were prepared and drawn up by the respondents' Attorneys M/s. Mulla & Mulla & Craigie Blunt & Caroe. This has not been disputed on the part of the respondents, and the docket of the said agreements, bears the name of the aforesaid firm of Attorneys. On 1.7.1995 by the first agreement which was entered into between the parties, the respondent as licensor agreed in clause (1) of the agreement not to exercise the right of termination of the licence as stipulated in clauses 9 and 12 of the earlier agreement. By clause 2, the licensor permitted the licensee to carry out any alteration in the premises subject to obtaining the approval of the Municipal Corporation. By the second agreement which was entered into also on 1.7.1995 the petitioner was given an option to purchase the premises from the respondent at and for a consideration of Rs. 1,75,00,000/ -. Clause 1 of the said agreement provides thus :
"1. In the event of the Purchaser not exercising its option to extend the period of licence as provided in the said Leave and Licence Agreement, the Purchaser shall have an option to purchase from the vendors the said premises at or for a total price of Rs. 1,75,00,000/- (Rupees One crore and Seventy-five lacs only). This option shall be exercisable by the Purchaser at any time during the last three months of the licence period i.e. during the period 15thApril, 1999 to 14th July, 1999."
Thus under the terms of the aforesaid clause the parties gave to the petitioner an option to purchase subject to the condition that (1) the term of the earlier licence was not extended by the petitioner and (2) the option will have to be exercised between 15.4.1999 and 14.7.1999. Clause 3 of the agreement provided that the necessary permission of the Income Tax Authorities under Chapter 20-C of the Income Tax Act, 1961 will have, upon the exercise of the option to be obtained. By clause 5 it was provided that if the petitioner fails or neglects to exercise the option strictly within the period of three months, the option shall automatically lapse and shall not be available thereafter to the petitioner.
12. On 12.6.1999 the petitioner addressed a letter to the respondent Company stating that it was not desirous of continuing the use and occupation of the licensed premises. Consequently, the petitioner purported to terminate the licence agreement on the expiry of two months' notice. which was required under the terms of the licence. The Respondent was called upon to take vacant and peaceful possession of the licensed premises at site on 12.8.1999 against the simultaneous handing over of the security deposit of Rs. 1,60,00,000/-. The petitioner stated that if the security deposit was not handed over, they shall not hand over possession of the premises and shall continue to remain in possession thereof without being required to pay any licence fee and maintenance charges. The petitioner also stated that they will claim interest at the rate of 18% per annum if the security deposit was not refunded. By a further letter dated August 12, 1999 the petitioner recorded that the respondent had failed to refund the security deposit and that in view thereof the petitioner would continue to be in the use and occupation of the premises.
13. The defence of the respondent was made out in their Attorney's letter dated 31.8.1999, a copy whereof is annexed at Exhibit 'G' to the petition. The defence of the respondent was that within a few days of the execution of the licence agreement, a representative of the petitioner, Mr. Cawas Patel promised the respondent that the petitioner had decided that on the termination of the licence period the petitioner would not claim a refund of the security deposit or enforce the provisions of the agreement relating to surrender of the premises and recovery of the amount. According to the respondent, the petitioner was treated virtually as the purchaser and it was on this basis that the petitioner had been permitted to carry out structural alterations in the premises. The letter of the respondent's Attorneys made no reference to the agreement dated 1.7.1995, by which an option to purchase had been given to the petitioner. This fact was adverted to in the reply dated 8.10.1999 addressed on behalf of the petitioner to the respondent.
14. On 29.9.1999 a statutory notice for winding up under the provisions of section 583(5)(a) of the Companies Act, 1956 was issued by the petitioner, which was replied to on 20.10.1999 on behalf of the respondent. According to the Petitioner, on the termination of the licence by the Petitioner, the Company is bound to refund the security deposit of Rs. 1.60 crores. This amount constitutes a debt payable by the Company and the failure of the Company to pay the debt constitutes a ground for winding up under subsections 4 and 5 of Section 583.
15. A perusal of the agreements which were entered into between the parties would show that by the first agreement entered into on 22.6.1995 the petitioner came to be accepted as the licensee of the premises for a term of 60 months. The security deposit of Rs. 1,60,00,000/- was provided for and paid in pursuance of the licence agreement. The petitioner had an option to renew the licence under clause 4 of the agreement for a further term of five years. On 1.7.1995 the respondent entered into two agreements with the petitioner. By the first of those agreements, the respondent agreed not to terminate the licence and agreed to permit the petitioner to carry out alterations in the premises. According to the respondent this agreement was entered into in view of the negotiations which took place between the parties by which the petitioner expressed a desire to purchase the premises. The second agreement which was executed on 1.7.1995 expressly confers an option to purchase the premises upon the petitioner. Clauses 1 and 5 of the agreement of 1.7.1995 make it abundantly clear that the option of purchase could be exercised only (i) if the period of licence itself was not extended and (ii) provided the option was exercised during the period between 15.4.1999 and 14.7.1999. Unless the option was so exercised, the right to purchase the premises which was conferred upon the petitioner would lapse and come to an end. Even upon the exercise of the option by the petitioner, necessary steps were required to be taken under the provisions of Chapter XXC of the Income Tax Act, 1961.
16. In the present case, the admitted fact is that the option to purchase the premises was not exercised by the petitioner. The petitioner similarly did not renew the term of the licence and. in fact, by its letter dated 12.6.1995. the petitioner sought to terminate the licence upon the expiry of two months in terms of the right given to the petitioner by clause 13 of the agreement of licence. Upon the termination of the licence, the security deposit of Rs. 1,60,00,000/- was clearly refundable to the petitioner. The respondent failed to refund the security deposit.
17. On behalf of the respondent the defence which has been set out is found principally in paragraphs 2.2 to 2.7 of the affidavit in reply. According to the respondent, the petitioner had discussed two options with the respondent, the first relating to the outright purchase of the premises, and the second which was that after the initial taking of the premises on leave and licence, the purchase would take place subsequently. The case of the respondent is that after a few days of the execution of the agreement of licence, a representative of the petitioner, Mr. Cawas Patel informed the respondent that the petitioner be treated as an outright purchaser and the respondent would not be required to refund the said deposit of Rs. 1,60,00,000/-.
18. Even if the facts set out in the aforesaid paragraphs of the reply are accepted as correct as they may be for the purpose of a winding up petition, the real issue which arises is as regards the execution of the agreement dated 1.7.1995 by which the petitioner was given an option to purchase the property. The respondent stands by the option agreement and it is not the case of the respondent that the said agreement was not to be acted upon. In fact in paragraph 2,7 of the affidavit in reply, the respondent has stated that the option agreement "Broadly recorded the understanding between the parties." Having regard to this situation, in my view even if the negotiations which took place between the parties prior to the execution of the agreement dated 1.7.1995 are as pleaded by the respondent, inter alia in paras 2.2. and 2.5 of the reply to petition, the execution of the written agreement thereafter on 1.7.1995 gave to the petitioner an option whether or not to purchase the property. The petitioner not having exercised the . option to purchase the property within the period which was prescribed by the agreement (15.4.1999 to 14.7.1999) the option necessarily came to an end. The petitioner terminated the licence agreement. In fairness, it must be stated that it has not been the contention of the respondent that there was an oral agreement which was in any manner inconsistent with the agreement dated 1.7.1995 or that would detract from the terms of the agreement. No such submission would in any event be countenanced in view of the provisions.of Sections 91 and 92 of the Evidence Act. The learned counsel appearing on behalf of the respondent laid stress on the fact that the petitioner was treated as unit purchaser. Reliance was also placed on the correspondence exchanged between the parties and with the cooperative society in relation to the maintenance charges, which were being raised by the co-operative society. In my view, whether or not the respond-
ent treated the petitioner "virtually" as a unit purchaser is besides the point. The agreement between the parties clearly postulates that the petitioner had an option to purchase the property which had to be exercised between 15.4.1999 and 14.7.1999 and in the absence thereof the option would come to an end. There has been no exercise of the option by the petitioner. Clearly it is not open to the respondent to refuse to refund the security deposit of Rs. 1,60,00,000/-. Finally, it may be pointed out that it was sought to be submitted that the petitioner has not handed over possession of the premises to the respondent and cannot claim a refund of deposit. There is no substance in this defence. The petitioner while terminating the licence by the notice dated 12.6.1999 required the respondent to take possession of the premises on 12.8.1999 against a refund of the security deposit. Clauses 3 and 13 of the agreement of licence mandate that the amount of security deposit was to be refunded against handing over of possession. The submission urged at the Bar that the petitioner ought to have first handed over possession and thereafter, followed its remedies, if any, to recover the security deposit is without any basis and substance.
19. In a petition for winding up the primary, if not, sole issue to be considered is whether there is any substantial or bona fide defence. Equally, it is well settled that the remedy for winding up is not to be utilised as a means to enforce the payment of a debt, which is bona fide disputed by the Company. The principle of law has been enunciated in the judgment of the Supreme Court in Amalgamated Commercial Traders Pvt. Ltd. v. Krishnaswami, Reference may also be made to the judgment of this Court in In the matter of British India General Insurance Co. Ltd. The Division Bench of this Court in Pfizer Ltd. v. Usan Laboratories Pvt., has held that merely because there was a dispute as to the liability to pay interest, that would not render a statutory notice invalid or result in the dismissal of the winding up petition.
20. In the present case I have come to the conclusion that there is no bonafide defence and all that has occurred is a deliberate and wilful neglect on the part of the respondent to refund the security deposit which is due and payable to the petitioner. In the circumstances, the petition is admitted and fixed for hearing on 6.4.2001. The petition to be advertised in Free Press Journal, Janma Bhoomi and Maharashtra Government Gazette. Petitioner to deposit Rs. 2,000/- with the Prothonotary & Senior Master, within four weeks from today. On the request of the learned counsel for the respondent Company the issuance of the advertisement is stayed for a period of four weeks from today. Respondents waive service.