* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 29th November, 2013
% Date of Decision:17th January, 2014
+ CO.PET. 136/2005 WITH CO. APPL. Nos.898/2013 & 2159-
2160/2013.
MK MAHAJAN & ANR. ..... Petitioners
Through: Ms. Vibha Mahajan Seth, Advocate.
versus
INDO ROLLHARD INDUST. LTD. ..... Respondent
Through: Mr. Sarat Chandra with Mr. Manoj
Kumar Garg and Mr. Sachin
Chandra, Advocates.
CORAM:
HON'BLE MR. JUSTICE R.V.EASWAR
JUDGMENT
R.V. EASWAR, J.:
CO. APPL. Nos.2159-2160/2013
1. One M K Mahajan and another person filed CP No.136 of 2005 seeking winding up of the respondent-company. On 16.2.2009 the learned Company Judge passed an elaborate order. Paragraphs 45 and 46 of the said order are as follows :
"45. In view of the law discussed above and by carefully analysing the facts and records relied upon by both counsels, I am of the considered view that it is just and equitable to wind up the Company and allow this petition, under Sections CO. PET. 136/2005 Page 1 of 39 433(e), Section 433(f) & 433(c) read with Section 434 and 439 of the Act.
46. I, accordingly, admit this petition and direct that the respondent company be wound up. The official liquidator attached to this Court is appointed as the liquidator in respect of the respondent company. He shall forthwith take over all the assets and records of the respondent company and proceed according to law. Citation shall be published in the „Statesman‟ (English) and „Jansatta‟ (Hindi) for 16.03.2009. Petitioner may take steps accordingly."
2. Feeling aggrieved by the aforesaid order, the respondent-company filed an appeal to the Division Bench in Co. Appeal No.19/2009. By order dated 7th January, 2013, the Division Bench allowed the appeal and set aside the order of the learned Single Judge. The matter was remanded with the direction that the company petition be disposed of in accordance with law and with a further direction that in case an application is moved by the company under Rule 9 within 7 days, the same may also be decided in accordance with law.
3. On 27.2.2013, the matter was taken up by the learned Company Judge. It was submitted on behalf of the company that since the order dated 16.2.2009 was set aside in appeal, any steps taken pursuant to the said order were required to be undone, and in particular the possession of the premises and the records had to be returned to the company. This prayer was opposed on behalf of the petitioners on the ground that the CO. PET. 136/2005 Page 2 of 39 Division Bench did not disturb the direction given by the learned Company Judge in his order dated 16th February, 2009 to the effect that possession of the premises may be taken over by the official liquidator. The learned Company Judge was unable to accept the submission made on behalf of the petitioners as in his view the order passed by the Division Bench in appeal was unambiguous inasmuch as the order of the learned Company Judge was set aside which means that no part of the same survived. Nevertheless the petitioners were granted liberty to seek clarification from the Division Bench. Pursuant thereto, review petition No.116 of 2013 was filed by the petitioners before the Division Bench in which it was pointed out that the Division Bench had only questioned the procedure adopted by the learned Company Judge in passing a rolled-up order and had even granted liberty to the company to make an application within 7 days for dispensing with the requirement of advertisement of the citation and having regard to the tenor of the judgment of the Division Bench, the setting aside of the entire order of the learned Company Judge was not appropriate and that part of the order of the learned Company Judge admitting the petition for winding up should be sustained.
4. After hearing both the sides the Division Bench on 5.4.2013 passed the following order on the review petition :-
CO. PET. 136/2005 Page 3 of 39
"This Court has considered the submissions and also the judgment dated 16.02.2009. As is evident from the discussion in the final judgment of the Division Bench dated 7.1.2013, the point which persuaded the Court to set aside the earlier Single Judge‟s order (dated 16.2.009) was the rolled up procedure adopted by him in discussing the merits of the case, not advertising the proceedings, and straightaway directing winding up. The Court did not, however, comment and decide the merits of the observations of the Learned Single Judge which undoubtedly point to the fact that the petition needed to be admitted. In these circumstances, the final direction contained in paragraph-8 is clarified appropriately; it stands modified to the effect that the judgment and order dated 16.02.2009 to the extent it records findings and prima facie observations warranting admission of the petition would stand.
No further clarification is required. The said judgment dated 7.1.2013 shall be read in the light of the present clarification.
The Review Petition is disposed of in the above terms."
5. Thereafter on 24.5.2013, the learned Company Judge took up for consideration CA 898/2013 filed by the petitioners seeking appointment of the provisional liquidator and publication of the citation. The learned Company Judge issued notice on the application and also directed the official liquidator to file a status report disclosing the funds position of the Company. It was observed that the question of appointing the official liquidator as provisional liquidator will be considered after the pleadings in the application are complete and after hearing both the sides. The matter was accordingly directed to be listed on 25.10.2013. On that date, the CO. PET. 136/2005 Page 4 of 39 learned counsel for the respondent sought and was allowed 3 days' time to file a short affidavit with an advance copy given to the learned counsel for the petitioners. The short affidavit was filed and when the matter was being heard, the respondent moved CA Nos.2159 and 2160 of 2013 which were directed to be listed for hearing. CA 2159/2013 was for filing certain additional documents and CA 2160/2013 was for the attendance of M K Mahajan, petitioner No.1, in Court for cross-examination under Order XIX Rule 2 read with section 151 of the CPC and Rule 9 of the CCR, 1959. In the course of the hearing, the learned counsel for the respondent-company addressed arguments against the admission of the winding up petition and also addressed arguments in support of the two applications filed by the respondent-company. The learned counsel for the petitioners vehemently objected to arguments being addressed against the admission of the winding up petition, on the ground that as clarified by the Division Bench in its order dated 5.4.2013, the order of the learned Company Judge passed on 16.2.2009, to the extent it admits the winding up petition cannot be disturbed. She also vehemently objected to the very maintainability of the two applications and contended that no notices even can be issued to the petitioners in those applications which, according to her, have to be dismissed in limine.
CO. PET. 136/2005 Page 5 of 39
6. I heard arguments and reserved orders on 29.11.2013 on the preliminary questions (a) whether the respondent can raise arguments now against the admission of the winding up petition and (b) whether notices can be issued in CA 2159 and 2160 of 2013 filed by the respondent.
7. In my opinion, it is not open to the respondent-company to raise arguments now against the admission of the winding up petition. This is because of the order passed by the Division Bench on 5.4.2013 in the review petition No.116/2013 filed by the petitioners. In this order the Division Bench clarified the final direction contained in paragraph 8 of its earlier order passed on 7th January, 2013 in Company Appeal No.19/2009. In the order passed on the review petition it was clarified that the objection against the order passed by the learned Company Judge on 16.2.2009 was to the rolled-up procedure adopted by him in discussing the merits of the case and the direction for winding up without advertising the proceedings. It was further clarified that the Division Bench did not comment upon or decide the merits of the observations of the learned Single Judge which "undoubtedly point to the fact that the winding up petition needed to be admitted". In this view of the matter, the only modification directed by the Division Bench to its earlier order was to clarify that the judgment dated 16.2.2009 of the Company Judge "to the extent it records findings - prima CO. PET. 136/2005 Page 6 of 39 facie observations warranting admission of the petition would stand". The Division Bench was thus quite categorical in holding that the order passed by the learned Company Judge on 16.2.2009 would stand insofar as it admits the winding up petition. The order passed by the Division Bench in the review petition has undisputedly become final, no appeal having been preferred against it. It is also not denied that the respondent-company did not file any application before the Company Court under Rule 9 of the CCR within 7 days from the date on which the Company Appeal was originally disposed of, seeking dispensation of the advertisement of the winding up petition. The order passed by the Division Bench in the review petition having become final, it is not open to the respondent-company to re-agitate or try to reopen the order dated 16.2.2009 passed by the learned Company Judge insofar as it admits the winding up petition. To permit the respondent-company at this stage to do so would amount to not only ignoring the finality attained in the earlier proceedings, but also to throwing to winds the salutary principles of judicial discipline. A Single Judge of the Court is bound by the orders passed by the Division Bench of the same Court and this principle is non-negotiable. [see: Tribhovandas Purushottamdas Thakkar Vs. Ratilal Motilal Patel & Ors.(AIR 1968 SC
372)] CO. PET. 136/2005 Page 7 of 39
8. The learned counsel for the petitioners pointed out that the observations of the learned Company Judge made in the order dated 16.2.2009 are strong enough to justify the appointment of a provisional liquidator and publication of the citation. She further pointed out that the learned Company Judge also held that not only clause (e) of section 433, but also clauses (c) and (f) of the section were attracted. Clause (f) permits the company to be wound up if it is just and equitable to do so and Clause
(c) permits winding up of a company if its business stands discontinued. It is contended that in the light of the observations made by the learned Company Judge, which observations were preserved by the Division Bench in its order dated 5.4.2013 passed in the review petition, it was not open to the respondent-company to re-agitate the question and I am in agreement with the aforesaid submissions made by the learned counsel for the petitioners.
9. Mr Sarat Chandra, the learned counsel for the respondent-company however contends that the order passed by the learned Company Judge on 27.2.2013 has not been set aside till date and it still holds the field and therefore it has to be complied with. In the aforesaid order, which was passed by the learned Company Judge after the Division Bench disposed of the company appeal in the first instance vide order dated 7th January, CO. PET. 136/2005 Page 8 of 39 2013, some directions were given. The directions were that the OL will restore possession of the premises at 1-E/2, Jhandewalan Extn., New Delhi-110055 to the respondent along with any books of accounts and records and thereafter he will stand discharged. It was also directed that the respondent will be responsible thereafter for payment of all the arrears of rent and for settling the claims of the landlord. The direction on which the learned counsel for the respondent-company mainly relies is the one permitting the company to file a further reply to the main company petition within three weeks and the direction to the petitioner to file a rejoinder to the aforesaid reply before the next date of hearing. On the basis of this direction, the learned counsel contends that it cannot be taken that the company petition has been admitted, since the respondent has been given further liberty to file a reply in the main company petition. It is also argued that it is only on the basis of this direction that I had, on 25.10.2013, granted three days' time to the respondent-company to file a short affidavit. The contention is that in the light of the order dated 27.2.2013 and the further development pursuant to the order dated 25.10.2013, it cannot be said that the winding up petition has been admitted. This argument overlooks - conveniently, if I may say so without meaning any offence to anyone - the order passed by the Division Bench CO. PET. 136/2005 Page 9 of 39 in the review petition on 5.4.2013. Once the Division Bench has held that the findings and prima facie observations of the learned Company Judge in his order dated 16.2.2009 warranting admission of the company petition would stand, the directions given by this Court in its order dated 27.2.2013 directing the respondent-company to file a further reply and also directing the petitioners to file a rejoinder thereto, have to be read and understood only in the light of the clarification issued by the Division Bench vide its order dated 5.4.2013 passed in the review petition. The opportunity or liberty granted to the respondent-company by my order dated 25.10.2013 to file a short affidavit within three days therefrom, with an advance copy to the learned counsel for the petitioners was only in deference to the request made by the learned counsel for the respondent-company. The grant of such an opportunity and the availing of the same by filing the short affidavit cannot mean that the admission of the winding up petition was an open issue and had not been decided. It certainly cannot give a handle to the respondent-company to argue that the company petition cannot be said to have been admitted. To accept such an argument would be to overlook the order passed by the Division Bench in the review petition, a course which would be wholly opposed to the norms of judicial discipline and hierarchy.
CO. PET. 136/2005 Page 10 of 39
10. Mr Sarat Chandra, the learned counsel for the respondent-company urged that it is open to me to go behind the order passed by the learned Company Judge on 16.2.2009 admitting the winding up petition and refuse to admit the same if the facts so warrant. He drew my attention to the facts stated in the additional affidavit filed by the respondent-company pursuant to the permission granted by this Court on 25.10.2013. Ms Mahajan, the learned counsel for the petitioners vehemently opposed the same by submitting that the additional affidavit does not contain any new fact and what has been stated therein already finds place in the counter affidavit/reply filed by the respondent-company originally filed to the company petition. She sought to demonstrate this by comparing the annexures to the additional affidavit with the averments in the counter affidavit/reply filed originally by the respondent-company, in the following manner :
Sl.No. Annexure to the additional Same as annexure to the
affidavit counter affidavit/reply
1 Annexure R-1 Page 40, Annexure E
2 Annexure R-6 Annexure D
3 Annexure R-2 Annexure R II
4 Annexure R-3 Annexure III
5 Annexure R-4 Order of this Court
6 Annexure R-5 On record in the company appeal
(which is annexed to the
petitioner's rejoinder in CA
84/2013)
CO. PET. 136/2005 Page 11 of 39
7 Annexure R-7 R-V
8 Annexure R-8 Part of the company petition
(dealt with by the learned
Company Judge in his order
dated 16.2.2009)
9 Annexure R-9 to 12 (4 orders Annexure R-1 to R-3 in the reply
of the Institute of Chartered in CA 84/2013
Accountants of India)
In addition to the aforesaid, the learned counsel for the petitioners also submitted that the statement of the respondent-company in paragraph 11 of the additional affidavit that R-1 to R-8 were not considered by the learned Company Judge while disposing of the company petition by order dated 16.2.2009 is incorrect. According to her, these annexures were considered in the aforesaid order and by including these annexures in the additional affidavit, the respondent-company was merely seeking a review which is impermissible. These findings were not challenged by the respondent- company in the appeal before the Division Bench. My attention was also drawn to the order passed by the ICAI, referred to in para 15 of the additional affidavit, in which the petitioner Mr M K Mahajan has not been found guilty of any misconduct. It is further pointed out that there are two petitioners in the company petition and petitioner No.2 is a shareholder and therefore, even assuming that petitioner No.1 cannot sustain the company CO. PET. 136/2005 Page 12 of 39 petition in view of the orders passed by the ICAI, the second petitioner can certainly maintain the winding up petition as a shareholder.
11. On a careful consideration of the matter, I am of the view that the submissions of Ms. Mahajan, the learned counsel for the petitioners, should prevail. She has been able to demonstrate not only that the additional affidavit does not contain any new facts or material, but she has also been able to show that annexure R-1 to R-8 in the additional affidavit have been considered by the learned Company Judge in the order passed by him on 16.2.2009. I have gone through para 11 of the additional affidavit. The averments based on annexures R-1 to R-8 in the additional affidavit have been dealt with by the learned Company Judge in paragraphs 7 to 9 of the aforesaid order. These paragraphs are as follows :
"7. Learned Counsel for the respondents, on the other hand contends that the petitioner is not a creditor of the Company. It is submitted that the entries in the books of the Company are the result of manipulations by the petitioner in connivance with the then Statutory Auditor of the Company, who is also the real brother of the petitioner. It is also claimed that the petitioner is a partner in the said Auditing concern, namely, Mahajan & Co., which audited the accounts of the respondent-Company up to 23.02.2003.
8. The respondents also submit that Annexure-F to the petition viz. the acknowledgment of debt of Rs. 9,50,000/- as on 31.03.2004, is a forged document and does not match the letter head of the Company. An affidavit of Mr. CO. PET. 136/2005 Page 13 of 39 Gulshan Gandhi, director of the Company to whom the said acknowledgement is attributed, dated 16.10.2006, has been relied upon, in which Mr.Gandhi has categorically stated that he never signed the document i.e. Annexure-F and that the signature on the said document appears to be forged. The letter head of this document does not match the regular letter head of the Company.
9. Learned Counsels for the respondents also contended that the petitioners have contradicted themselves on several occasions by claiming Rs. 59,06,780/- in the petition (as being outstanding due owed to petitioner No. 1 and his various companies) and later in additional affidavit filed on 30.8.2006, stating that Rs. 7,50,000/- is the outstanding amount, and then again in notice of demand, Annexure-F, by claiming Rs. 9,50,000/-. He stresses that this indicates the malicious and ill founded story by the petitioner. With regard to notice of demand, Annexure-F, the respondents have admitted receiving an envelop but state that the contents of the envelop were waste paper. It is alleged that when the explanation for this action was sought from the petitioners, no reply was given to the same by the petitioners. Further, the respondents allege that petitioners have deliberately filed an incomplete Memorandum Of Association of the company, as the missing pages would have revealed that petitioner No. 1 was an ex director and a partner in the firm which Audited the accounts of the Respondent Company. Learned Counsel for the respondent further submits that several irregularities have been observed in the tax returns filed by the respondent company, and thus they cannot be relied upon by the Court."
The contention of the respondent-company, adverted to in para 7, has been dealt with in para 12 of the order. The learned Company Judge noted that the balance sheet of the respondent-company as on 31.3.2000 showed a closing balance of Rs.9,50,000/- outstanding in favour of petitioner No.1 CO. PET. 136/2005 Page 14 of 39 and that the said balance sheet was signed by the then Managing Director of the respondent-company. With regard to the defence of the respondent- company that the brother of petitioner No.1 was a partner of the firm which acted as the statutory auditors of the company till March, 2003, it was held by the learned Company Judge that this defence "does not explain the conduct of the Managing Director in signing the balance sheet as on 31.3.2000 which showed an outstanding amount of Rs.9,50,000/- payable to the petitioner No.1" and it was further held that "the accounts are maintained by the company. The auditor merely audits the accounts as maintained by the company". The alleged discrepancy in the claim made by the petitioner in the petition has been dealt with by the learned Company Judge in para 14 of the order. In this paragraph, the learned Company Judge has noticed that the claim of Rs.59,06,780/- mentioned in the petition was the amount due to the petitioner No.1 and his various other concerns, by the respondent-company and the break-up of the said amount has been given in the rejoinder filed by the petitioner. In the additional affidavit filed by the petitioner, the amount outstanding from the respondent-company was stated to be Rs.7,50,000/- after giving credit for Rs.2 lakhs paid during the financial year 2002-03, against the original amount of Rs.9,50,000/-.
CO. PET. 136/2005 Page 15 of 39
12. The learned Company Judge thus held that there is no discrepancy in the amount claimed to be due by the respondent-company. Thus the allegations made on the basis of annexure R-1 to R-8 were effectively dealt with by the learned Company Judge in his order dated 16.2.2009. The appeal against the said order did not challenge these findings, the challenge being limited to the rolled-up procedure followed by the learned Company Judge in admitting the winding up petition, appointing the provisional liquidator and ordering the publication of the citation in an all-in-one order. It is therefore, not permissible or even necessary to look into the additional affidavit filed by the respondent-company pursuant to the order dated 25.10.2013 passed by me.
13. In the appeal before the Division Bench the respondent-company did not question the admission of the winding up petition on merits and therefore the same cannot be questioned now. The order passed by the learned Company Judge on 16.2.2009, on the merits of the company petition and on the question whether the petition deserves to be admitted is elaborate and it deals with all substantive contentions raised by the petitioners as well as the respondent-company. The winding up petition was admitted not only under clause (e) of section 433 of the Companies Act but it was also admitted under clauses (c) and (f) of the section. Under CO. PET. 136/2005 Page 16 of 39 clause (c), if the business of the company is suspended for more than a year, it may be directed to be wound up. Under clause (f), a company can be wound up if it is just and equitable to do so. The learned Company Judge has devoted more than 15 paragraphs on the question whether it is just and equitable to wind up the company. After noticing the rival submissions on facts and after adverting to the mutual allegations by both the sides, the learned Company Judge held that "the fact that the business of the company has been carried on in a non-transparent and clandestine manner is clearly evident from contradictory stand taken by the company". He found that the claim of the respondent-company that the sale proceeds of some lands in Nangloi were used to purchase the Mundka land was not correct and that there was no explanation as to how the sale proceeds were utilized. The learned Company Judge pointed out that manipulation and fraud on the part of the respondent-company were clearly established. The learned Company Judge also noticed that there was no satisfactory explanation as to how the proceeds of the sale of land situated at Nangloi, Mundka and Bahadurgarh were appropriated and that satisfactory records were not produced before the Court. In the absence of the annexures to the balance sheets of the company for the year 2001 onwards, the learned Company Judge drew the adverse inference that if those annexures had CO. PET. 136/2005 Page 17 of 39 been produced, they would have further established misappropriation of the funds of the company by its directors. Thus, according to the learned Company Judge, there was lack of probity in the conduct of the company's affairs.
14. As to the question regarding the discontinuance of the business, the learned Company Judge found that even the directors of the Company in their report presented along with the annual accounts for the year ended 31.3.2006 "have categorically admitted that the production has come to a standstill and they do not foresee any breakthrough in its operations." The income of the company was found to have nose-dived to a dismal figure of Rs.20,204/- for the year ended 31.3.2006, compared to the income of Rs.1.78 crores four years earlier. The balance sheets were showing losses year after year without any improvement. It was on the basis of these facts that the learned Company Judge came to the conclusion that the business of the company was discontinued for more than one year and it was therefore to be wound up.
15. It is thus seen from the order of the learned Company Judge passed on 16.2.2009 that all the pleas taken by the respondent-company against the petition were discussed threadbare and prima facie observations were made justifying the admission of the winding up petition. These CO. PET. 136/2005 Page 18 of 39 observations have attained finality in view of the order passed by the Division Bench in the review petition filed by the petitioners. The findings of the learned Company Judge and his prima facie observations on the admission of the company petition were upheld by the Division Bench. It would thus appear that in the additional affidavit filed by the respondent- company on 30.10.2013 along with the additional documents, the same issue i.e., admission of the winding up petition, is sought to be reargued or reopened. This is not permissible.
16. Mr Sarat Chandra however drew my attention to the judgment of the Kerala High Court George Vs. Athimattam Rubber Co. Ltd. (AIR 1964 Kerala 212) and the judgment of the Punjab High Court in Lord Krishna Sugar Mills Vs. Smt. Abnash Kaur (AIR 1961 Punjab 505). It is submitted on the basis of the judgment of the Kerala High Court (supra) that even after the Court has admitted a winding up petition, it can on being moved for the purpose by the company or some other interested person, stay proceedings and revoke the admission. On the basis of the judgment of the Punjab High Court (supra) it is argued that since advertisement of a winding up petition filed by a creditor on the ground that that company is unable to pay its debt may have serious consequences, it can be suspended for the time being, at least until the petition for CO. PET. 136/2005 Page 19 of 39 revoking the order of admission and for rejection thereof on the ground that it was filed mala fide, has been disposed of. In the Kerala judgment, which is of a learned single judge, it is however seen that on facts, there was no admission of the winding up petition. This factual position in that case was not disputed by Mr Sarat Chandra. Though the broad proposition of law that the company court can stay proceedings and revoke the earlier order of admission in an appropriate case is true, the applicability of that proposition to a particular case largely depends on the facts of that case. There cannot obviously be a universal rule that once a request or prayer for revoking or suspending the earlier order of admission is made, the company court is bound to accept the prayer. It is also true that, as held by the Punjab High Court (supra), the question whether the advertisement of the petition may be suspended for the time being is one which must be considered having regard to the grave consequences that are likely to follow. These are authorities which recognise the power of the company court to revoke or suspend the earlier order of admission and the power to suspend the advertisement of the petition for a variety of reasons. The facts presented before me in these proceedings do not justify the suspension or revocation of the earlier order of admission. I have already shown as to how the further documents sought to be introduced now have CO. PET. 136/2005 Page 20 of 39 been considered by the learned Company Judge in the earlier proceedings which resulted in an order of admission passed on 16.2.2009. It is not open to me now to sit on review of the earlier decision on the very same facts and submissions which have all been considered by the learned Company Judge. It is also noticed that in the Punjab High Court judgment (supra) the earlier order of admission was made without giving any opportunity to the company of being heard. This is not the case herein. The petitioners and the respondent-company were heard at length and the learned Company Judge had passed an elaborate order on 16.2.2009 running into 27 pages. The other two judgments cited by Mr Sarat Chandra also seem to be distinguishable. IBA Health (India) (P) Ltd. v. Info-Drive Systems Sdn. Bhd., [(2010) 10 SCC 553] was a case of a bona fide dispute raised by the respondent-company. The Supreme Court therefore held that advertisement of the petition for winding up will tarnish the image of the company and its reputation and on these grounds reversed the judgment of the High Court admitting the winding up petition. It is not a case of the same Court taking a second call as to whether the company petition was rightly admitted or not, on the same facts and averments. This judgment of the Supreme Court cautions the company courts against not considering the substantive nature of the defence put up by the respondent- CO. PET. 136/2005 Page 21 of 39 company in answer to the winding up petition. This judgment of the Supreme Court is therefore not relevant to the dispute which has arisen in the case before me. The judgment of the Bombay High Court in Aggarwal Industries Ltd. Vs. Golden Oil Industries (P) Ltd. (AIR 1999 Bombay
362) is a case in which it was found by the company court that the order of winding up was passed ex-parte and it was obtained by fraud. Where an order of a Court is obtained by fraud it is certainly a serious matter with drastic consequences and therefore the Bombay High Court found no difficulty in expressing its displeasure and in imposing heavy costs. In that case it was noticed that the petitioner suppressed material facts in the winding up petition. This judgment does not apply to the present case, as can be seen hereafter.
17. I now turn to the application in C.A. No.2160/2013 filed by the respondent-company seeking to bring petitioner No.1 i.e. Mr. M.K. Mahajan to the Court for cross-examination in terms of Order XIX, Rule 2 of the CPC read with Section 151 of the CPC and Rule 9 of the CCR, 1959. The contention of Mr. Sarat Chandra is that the petitioner has filed a false affidavit in the company petition and has not come to this Court with clean hands. According to the learned counsel, the petitioner is motivated by the desire to grab the premises at No.1-E/2, Jhandewalan Extension, CO. PET. 136/2005 Page 22 of 39 New Delhi-110055 which is the registered office of the company, a part of which is occupied by the petitioner No.1 for the purposes of his profession (Chartered Accountant). On the authority of the judgment of the Supreme Court in S.R. Ramaraj vs. Special Court, Bombay : (2004) 120 Comp. Cas. 150, it is submitted that a company cannot be liquidated on a false affidavit. It is further submitted on the authority of the judgment of a learned Single Judge of this Court in Sanjeev Kumar Mittal vs. State, (2011) 121 DRJ 328, that perjury can be committed by filing a false pleading; in the present case petitioner No.1 has committed perjury by filing a false affidavit with false averments. It is also contended on the basis of Amar Singh vs. UOI & Ors., (2011) 7 SCC 69 that any person who comes to Court and makes allegations should be careful, circumspect and should file a proper affidavit in support of its averments in the petition; he cannot prevaricate and take inconsistent stands because "law is not a game of chess". Mr. Sarat Chandra further contended that in an application for the winding-up of a company under the just and equitable clause, the allegations in the petition are of primary importance, having regard to the fact that even the admission of a petition for winding-up, leading to advertisement of the proceedings, is likely to cause immense injury to the company if the petition is ultimately dismissed. He further CO. PET. 136/2005 Page 23 of 39 contends that it is not proper to encourage hasty petitions under the just and equitable clause. These submissions are founded on the judgment of the Supreme Court in Hind Overseas P. Ltd. vs. Raghunath Prasad Jhujhunwala, (1976) 46 Com. Cas. 91. Support is also taken from the judgment of the Supreme Court in Seth Mohan Lal and Anr. vs. Grain Chambers Ltd., AIR 1968 SC 772, in which it was held that where the petition alleges discontinuance of the business of the company and thereby the disappearance of the substratum of the company, the Court will consider the interest of the shareholders and the creditors; the substratum will be held to have disappeared when the object for which it was incorporated has substantially failed or it is impossible to carry on the company's business except at a loss. The submission is that the respondent-company can be revived, and that its business has come to a standstill only because of the long drawn litigation which started sometime in 2004 or 2005. Attention was also drawn to the judgment of a Division Bench of this Court in Bhaskar Stoneware Pipes Private Ltd. and Others vs. Rajinder Nath Bhaskar and Another, (1988) 63 Comp. Cas. 184, in which it was held that where the just and equitable clause of Section 433 is invoked, the crux of the question is whether there was a breach of a basic mutual understanding and not whether there was any illegal act. CO. PET. 136/2005 Page 24 of 39
18. Despite the aforesaid contentions, I did not hear the learned counsel for the respondent-company making any specific submission as to any false averment in the company-petition or in the affidavit or pointing out how the petitioner No.1 committed perjury by making a false pleading before the Court. In the application in C.A. No.2160/2013, however, I find that the following averments have been made: -
(a) That the petitioner resigned as Director on 08.07.1999 from the company and in the intimation filed before the ROC in Form No.32, he forged the signature of Mr. Gulshan Gandhi, one of the Directors; Mr. Gulshan Gandhi filed an affidavit dated 16.10.2006 before this Court denying his signature. A criminal complaint has also been filed against petitioner No.1.
(b) Though the petitioner No.1 claimed to have resigned from the Directorship on 08.07.1999, some vital documents such as the board resolutions and the Director's report passed/ prepared after the aforesaid date as well as the notices for the AGM, loan agreement with the Bank, etc. were signed by him.
(c) The petitioner No.1 swore in his affidavit dated 29.08.2006 that he never signed any audited accounts/ balance sheet of the CO. PET. 136/2005 Page 25 of 39 respondent-company. This is false because he has signed the audited accounts of the company from incorporation till 1989.
(d) Petitioner No.1 has stated in the affidavit that the firm M/s.
Kumar Mahajan & Co., Chartered Accountants, in which he was a partner, were the statutory auditors of the company till September, 2001. The truth, however, is that the aforesaid firm gave their resignation letter on 22.03.2003 only.
(e) Petitioner No.1 did sign the board resolution on 01.10.1999 regarding disposal of the Nangloi property and also admitted the same before the ROC on 26.05.2005 but falsely stated in the affidavit that he did not sign the board resolution.
(f) The petitioner forged the signature of Gulshan Gandhi, one of the Directors, in the certificate containing the acknowledgement of the debt of Rs.9,50,000/-. The letter-head of the company incorporating the certificate was fabricated and forged. These facts were brought to the attention of this Court by Gulshan Gandhi vide his affidavit dated 16.10.2006.
(g) Though petitioner No.1 had stated in the affidavit that he and his associates held 37% shares in the respondent-company, in the disciplinary proceedings before the committee constituted by the CO. PET. 136/2005 Page 26 of 39 ICAI, he stated that he and his family members held 20% of the shares.
(h) In the income tax returns filed by the petitioner No.1 for the financial years 1997-98 to 1999-2000 he has shown income only of a few thousands whereas the loans alleged to have been given by him to the respondent-company and to other companies amounted to more than Rs.11,00,000/- in each of them. The petitioner did not explain how he could advance loans amounting to lakhs of rupees when his income was only in a few thousands.
19. It is further stated in the company application that there are several other occasions in which the petitioner No.1 furnished false or untrue facts and evidence and, therefore, there is a dire necessity to cross-examine him. This is the basis on which the respondent-company has filed the C.A. 2160/2013 under Order XIX Rule 2 read with Section 151 of the CPC and Rule 9 of the CCR.
20. Ms. Mahajan, learned counsel for the petitioner submitted that all the pleas taken in the present application, including the plea based on Order XIX Rule 2, were taken before the learned Company Judge in the first instance who found no merit in them. She, therefore, opposed the CO. PET. 136/2005 Page 27 of 39 application and submitted that no notice should be issued and that the application should be rejected in limine.
21. I am in agreement with the submissions made by Ms. Mahajan on behalf of the petitioners. Under Order XIX, Rule 2 of the CPC it is the discretion of the Court to order the attendance of the deponent for cross- examination, as is evident from the use of the word "may" in sub-rule (1). The power of the Court under this rule should be exercised only if the Court is convinced that in the interest of justice such a course is necessary. It is also necessary for the Court to be satisfied that the application made under the aforesaid rule is bona fide. Ordinarily, the Court should refuse to call the deponent for cross-examination where it appears clear that the purpose of the application is to prolong the case and delay the termination of the proceedings. The power is discretionary and should be exercised after examining the facts of the case. Bearing these principles evolved by the Courts in mind, I have examined the facts of the present case to find out whether the discretion should be exercised in favour of the applicant. The first impediment in the exercise of the discretion in favour of the applicant (respondent-company) is the long delay in making the application invoking the discretionary power of this Court. The application refers to the alleged false statement made by petitioner No.1 in CO. PET. 136/2005 Page 28 of 39 the affidavit dated 29.08.2006 filed by him pursuant to the order passed on 31.07.2006 by this Court. In the aforesaid order this Court directed as under: -
"The petitioners will file an affidavit stating when and how the amount was advanced to the respondent company. It shall be also stated whether the petitioners were the statutory auditors of the company under liquidation at any time. Affidavit along with copy of the income-tax returns of the petitioner for the period ending 31st March, 1998, 31st March, 1999 and 31st March, 2000 be filed within three weeks from today.
List on 29th September, 2006."
22. The aforesaid affidavit was filed in Court by the petitioners and the response was filed on 26.09.2006. The respondent-company in its response affidavit dated 26.09.2006 has taken the same pleas which it has taken in C.A. No.2160/2013 (the present application). The following pleas find place in both the affidavit filed by the respondent-company on 26.09.2006 and in the present company application: -
(a) The petitioner No.1 falsely claimed that he resigned from the respondent-company as a Director on 08.07.1999.
(b) The petitioner No.1 could not explain as to how he could make huge investment in the respondent-company and two other companies, (amounting to Rs.11 lakhs or more in each of them) CO. PET. 136/2005 Page 29 of 39 even though in the returns of income filed by him he disclosed income of only a few thousands.
(c) The petitioner No.1 falsely stated that M/s. Kumar Mahajan & Co., Chartered Accountant were the statutory auditors of the respondent-company only up to September, 2001, whereas they resigned as statutory auditors vide their resignation letter dated 22.03.2003.
23. In addition to the above allegations which are common in the reply affidavit dated 26.09.2006 filed by the respondent-company and the present application there are certain embellishments in the present application which are as follows: -
(a) That the signature of Mr. Gulshan Gandhi, a Director of the respondent-company in Form No.32 was forged by petitioner No.1;
(b) The petitioner No.1 claimed in the affidavit that he did not sign any audited accounts of the respondent-company, whereas he has in fact signed the audited accounts of the company since incorporation till 1989;
(c) Petitioner No.1 falsely claimed in the affidavit that he did not sign the board resolution dated 01.10.1999 regarding disposal of Nangloi property whereas he had admitted his signature before the CO. PET. 136/2005 Page 30 of 39 ROC. The certificate stated to have been given by Mr. Gulshan Gandhi, Director of the respondent-company acknowledging the debt of Rs.9,50,000/- is forged and written on a fabricated letter head;
(d) The petitioner No.1 has given wrong figures relating to the percentage of the shareholding in the respondent-company. In the affidavit he has claimed 37% ownership whereas before the disciplinary committee of the ICAI, he has claimed that he and his family members held 20% of the shareholding of the respondent-
company;
24. What I find from the order passed by the learned Company Judge on 16.02.2009 is that the allegations made in the reply affidavit filed by the respondent-company on 26.09.2006 have been considered and dealt with by him in considerable detail, if I may say so with respect. It is only after considering them that the learned Company Judge has admitted the company petition under clauses (c), (e) and (f) of Section 433 of the Companies Act, 1956. While holding in paragraph 12 that there was an admission by the respondent-company that it owed Rs.9,50,000/- to the petitioner No.1 as on 31.03.2000, the learned Company Judge has taken note of the allegation of the respondent-company, noted in para 8 of the CO. PET. 136/2005 Page 31 of 39 order, that the certificate said to have been issued by Mr. Gulshan Gandhi on behalf of the respondent-company acknowledging the debt of Rs.9,50,000/- as on 31.03.2004 is a forged document and does not match the letter head of the company. There is no finding that the acknowledgement certificate was a forged document and it need hardly be stated that the learned Company Judge would not have admitted the winding-up petition if he was convinced that the winding-up petition was, inter alia, founded on a forged document. The learned Company Judge has also dealt with the claim of the respondent-company that there are contradictions in the amount of the claim made by the petitioners. After examining the relevant accounts, including the income tax returns filed by the petitioners, the learned Company Judge held that the explanation furnished by the petitioner for the discrepancy is satisfactory; the learned Company Judge has also accepted the breakup of the claim of Rs.59,06,780/- made in the winding-up petition. In paragraph 15, the learned Company Judge referred to the argument of the petitioner that the petition was prepared only on the basis of the documents/ statements maintained by the respondent-company and provided to the petitioner and proceeded to record that on a comparison of the statements/ tabulations, it was clear that the discrepancy in the amount claimed to be due to CO. PET. 136/2005 Page 32 of 39 petitioner No.1 has arisen "on account of an error of accounting on the part of the company itself". Eventually in paragraph 18 it was found by the learned Company Judge that there was a bona fide debt to the extent of Rs.7,50,000/- payable to petitioner No.1. It needs to be emphasised that this finding was arrived at by the learned Company Judge not merely on the basis of the company petition, but also after getting the counter- affidavit of the respondent-company on record and also after getting an additional affidavit from the petitioner together with the reply filed by the respondent-company on 26.09.2006 to the said additional affidavit. All the allegations made in the additional affidavit as well as reply of the respondent thereto have therefore been duly considered by the learned Company Judge while passing the order on 16.02.2009, including the allegations of forgery and fabrication made by the respondent-company as also the claim of the respondent-company that the petitioner No.1 has made false statements with regard to the resignation from the respondent- company as Director and the statements made with regard to the signing of the annual accounts of the respondent-company.
25. The allegation in the present application filed by the respondent- company that the petitioner No.1 made a false statement in the affidavit that he did not sign the board resolution dated 01.10.1999 regarding CO. PET. 136/2005 Page 33 of 39 disposal of Nangloi property appears to me to be an afterthought. The respondent-company states in the application that the petitioner No.1 himself admitted and identified his signature in the board resolution before the ROC on 26.05.2005. If that is so, nothing prevented the respondent- company from raising this point in its counter affidavit dated 13.01.2006 filed in response to the company petition or in its reply affidavit dated 26.09.2006. The allegation in the present application that there were discrepancies in the percentage of the shareholding of the petitioner No.1 in the respondent-company, which is said to be reflected in the order dated 17.10.2011 passed by the disciplinary committee of the ICAI is inconsequential and does not seem to have affected the outcome of the winding-up proceedings nor is it of much relevance to those proceedings.
26. In the aforesaid conspectus of the facts and in my perception it seems to me that the present application filed under Order XIX, Rule 2 of the CPC read with Rule 9 of the CCR, 1959 is an afterthought and has been filed only to prolong or delay the proceedings relating to the winding- up. No case has been made out by the respondent-company as to why the Court should exercise the discretion in its favour. I have considerable doubt regarding the bona fide of the respondent-company in filing the present application in C.A. No.2160/2013. It has made the same or CO. PET. 136/2005 Page 34 of 39 substantially the same allegations which it made in the winding-up proceedings resulting in the admission order passed on 16.02.2009. No such pleas or allegations were made in the appeal filed against the admission order dated 16.02.2009 which appeal in any case was only against the rolled up procedure followed by the learned Company Judge, and which did not question the admission order on merits. The order of the Division Bench dated 05.04.2013 passed in the review petition filed by the petitioners attained finality; this Court clarified that the admission order made by the learned Company Judge would remain undisturbed and it was only the question of appointing the provisional liquidator and advertisement of the winding-up proceedings that will have to be decided by the learned Company Judge. Thus even after the merits of the admission order became final, the respondent-company is making a last ditch or desperate attempt to stall the proceedings by making the present application seeking to enforce the attendance of petitioner No.1, taking advantage of some orders passed by the disciplinary committee of the ICAI in the case of the petitioner No.1. Such a conduct on the part of the respondent-company cannot be countenanced.
CO. PET. 136/2005 Page 35 of 39
27. For the aforesaid reasons I do not think I would be justified in issuing notice to the petitioners in C.A. No.2159/2013 and 2160/2013 filed by the respondent-company. The applications are dismissed in limine. CO. APPL. No.898/2013
28. C.A. No.898/2013 filed by the petitioners contains the following prayers: -
"(i) re-call the order dated 27.02.2013 passed by this Hon‟ble Court in Co. Appls. No.84 of 2013 & 90 of 2013;
(ii) direct the Provisional Liquidator attached to this Court to take over the possession of all the assets of the Respondent Company, including the registered office of the Company, that is, 1-E/2, Jhandewalan Extension, New Delhi-110055;
(iii) direct the Respondent Company to advertise/ publish the citation for the admission of the present winding up petition;
(iv) any other or further order(s) that this Hon‟ble Court may deem fit in the facts & circumstances of the present case."
29. I could not hear complete arguments from either side in respect of the aforesaid application. To put the record straight, initially arguments in C.A. No.898/2013 were commenced by Ms. Mahajan, learned counsel for the petitioners. Her main submissions were that the observations made by the learned Company Judge in the order dated 16.02.2009 admitting the CO. PET. 136/2005 Page 36 of 39 winding-up petition were strong enough to justify appointment of a provisional liquidator and publication of the citation, that the winding-up petition was admitted on three grounds i.e. inability to pay the debt, under the just and equitable clause and on the ground that the business of the company remained discontinued for more than a year, that Mr. Anil Kaushal, the managing director of the company had even written to the official liquidator on 15.04.2009 that the business of the company has come to a standstill, that the substratum of the company had disappeared without any scheme for revival, that as per the status report No.84/2013 submitted by the OL the statement of affairs filed by the company was defective and remained to be corrected and that in these circumstances, this Court should pass orders appointing a provisional liquidator and directing publication of the citation. In support of these submissions, Ms. Mahajan had relied strongly on the following authorities: -
(i) Darshan Anil Kumar Patel vs. Geeta Neel Hotels Pvt. Ltd. & Ors., (1994) 81 Comp. Cas. 805 (Bom.);
(ii) Bharti Telecom Ltd. vs. Altos India Ltd., (1999) 4 Comp. LJ 283 9P&H);
(iii) Brunton and Company Engineers Ltd., in re, (1988) 63 Comp.
Cas. 299 (Ker.).CO. PET. 136/2005 Page 37 of 39
30. These submissions were countered by Mr. Sarat Chandra, learned counsel for the respondent-company who submitted that it was open to him even then to argue that the winding-up petition ought not to have been admitted and, therefore, there was no question of appointment of a provisional liquidator or publication of the citation. He also referred to several authorities some of which have been adverted to in the earlier part of this order. His main concern was that a hasty publication of citation would be injurious to image of the company, if ultimately his argument that the winding-up petition ought not to have been admitted was accepted. It was while these arguments were being addressed, that Mr. Sarat Chandra wanted to file a short affidavit for which liberty was granted. Thereafter, in the course of the arguments - on 19.11.2013, to be precise - he brought to my notice that certain applications have been filed by the respondent- company which have to be heard before the C.A. No.898/2013 is disposed of. These applications are C.A. Nos.2159-2160/2013 which have been dealt with and disposed of supra. The applications were heard at length and finally on 29.11.2013, the following order was passed by me: -
"Arguments heard on the preliminary question whether the respondent can raise arguments now against the admission of the winding-up petition and whether notices can be issued in Company Application Nos.2159-2160/2013 filed by the respondent."CO. PET. 136/2005 Page 38 of 39
31. It would thus appear that the arguments were inconclusive in C.A. No.898/2013 when orders were reserved on the preliminary questions on 29.11.2013. It is, therefore, necessary in the interest of natural justice that C.A. No.898/2013 should be heard fully, since the preliminary questions on which orders were reserved on 29.11.2013 have been decided against the respondent-company. I, therefore, direct that the aforesaid C.A. No.898/2013 be listed for directions before the Company Court on 03.02.2014.
(R.V. EASWAR) JUDGE JANUARY 17, 2014 vld/hs CO. PET. 136/2005 Page 39 of 39