Bennet Coleman And Co. Ltd. vs Rsa Fox Advertising Private Ltd.
2001 Latest Caselaw 685 Bom

JUDGMENT

R.J. Kochar, J.

1. The petitioners have prayed for an order of winding up of the respondent-company under Sections 433 and 434 of the Companies Act, 1956, alleging that the respondents have failed and neglected to pay the debt to the tune of Rs. 7,56,205 arising from the business transaction between them. From the averments in the petition it appears that the claim is based on the orders placed by the respondent-company with the petitioners for releasing certain advertisements in their publication from time to time. All such release orders appeared in exhibit B (page 17 of the paper book). It appears that the respondents are advertising agents for advertisements on behalf of their customers in various publications of the petitioners-company. According to the petitioners, the respondents have failed to make payment to the petitioners for certain release orders. The petitioners therefore issued statutory notice under Sections 433 and 434 of the Companies Act, 1956, calling upon the respondents to make payment of the balance amount to the tune of Rs. 5,21,830 with interest at the rate of 24 per cent. per annum from the respective due dates of the outstanding invoices till payment and/or realisation. It appears that the total debt due to the respondents was Rs. 10,02,723 out of which the petitioners had received an amount of Rs. 4,65,479 under the arrangement between the parties through the Indian Newspaper Society of which both were members and there appears to have been an understanding that in the case of failure of a member to make payment to another member the defaulter would be liable to get his bank guarantee with the Indian Newspaper Society encashed in favour of the creditor. We are not concerned with the said arrangement here. I have merely stated this fact to place on record that the petitioners have recovered the aforesaid amount of Rs. 4,65,479 through the Indian Newspaper Society and the balance principal amount is to the tune of Rs. 5,21,830. The petitioners have filed this petition for recovery of the said amount from the respondent-company. Shri P.D. Shah, learned counsel for the petitioners, has submitted that the respondents have unequivocally admitted the debt in their letter dated November 12,1998, which includes the liability under the alleged two fake release orders. He further adds that even in the suit filed by them against the third party they have included this claim of the petitioners. Shri Shah submits that the confirmation of the debt by the respondents is the end of the dispute and they have no bona fide dispute in respect of the debt arising out of the invoices which were raised on the respondents. Shri Shah prays for admission of the petition on an additional ground that another winding up petition has been admitted by the appeal court (Appeal No. 641 of 2000) on September 20, 2000, against the very same respondent-company. He has however, not pointed out any provision of law or any other binding precedent that if one winding up petition is admitted each and every subsequent such petition must get admitted as a matter of course regardless of the disputes raised by the respondent-company and ignoring the provisions of law and the binding precedents of the Supreme Court. Besides, in the petition before the appeal court there was no dispute of the liability and therefore the appeal court had admitted that petition. The facts before me are different and the respondents have disputed the debt alleging fake release orders which were not issued by them. I am therefore not able to accept the submission of learned counsel.

2. In reply to the statutory notice the respondents have set out their memorandum of understanding (MoU) with a company, viz., Time and Space Media Entertainment Promotions Ltd. (third party) for sale of the respondent-company. It is mentioned in the said reply that the said company had not fulfilled its part of the contract and therefore certain proceedings were instituted against them to recover the debt of the respondent due from the said company. It is mentioned that in that suit the debt of the petitioner-company is also included. It is further stated in the reply to the statutory notice that actually the release orders for advertisements were not issued by the respondents but were issued by the said Time and Space Media Entertainment Promotions Ltd. On this basis the respondent-company has denied its liability to pay the said amount to the petitioners. In rejoinder the petitioners have factually denied the allegations made by the respondents. They have also expressed that they were not concerned with their internal dealings with the said third party. According to the petitioners, all the contentions raised by the respondents are false. They have finally fixed the liability on the respondent-company alone.

3. In reply to the company petition the respondents have filed an affidavit repeating more or less the same contentions. It was emphasised that the release orders at items Nos. 7, 8, 9, 10, 15, 16, 17, 18, 19, 20 appearing in exhibit B to the petition were fake and were not released by the respondents. It is mentioned in the said affidavit that they were cheated by M/s. Time and Space Media Entertainment Promotion Ltd. and that criminal proceedings were filed by it against the said third party. Further the respondents have alleged that the petition was filed in collusion with the said company by the petitioners though it was known to the petitioners that the said company was liable to make payment and not the respondents.

4. By an order dated August 23, 2000, this court (Smt. K.K. Baam J.) admitted the above petition and had observed that the defence of the respondents that the release orders were fake was a dishonest defence. The petition was ordered to be advertised as usual. The respondents had carried the said order before the appeal court. The appeal court by its order dated June 7, 2001, heard the appeal and quashed and set aside the order observing that the defence of fake release orders was not correctly decided. According to the appeal court the defence ought to have been carefully scrutinised from the facts on record. The petition was restored and remanded for admission in accordance with law. To be precise the appeal court has set aside the order of admission of the petition and has "restored it for admission in accordance with law," I am therefore, once again required to hear this petition for admission and appreciate the defence.

5. The defence taken by the respondent-company is that the release orders were fake and bogus and that they had not issued them but the same were issued by the aforesaid Time and Space Media Entertainment Promotions Ltd. As a matter of law the transaction was strictly between the petitioner-company and the respondent-company and therefore prima facie the release orders which were placed by the respondent-company cannot be concluded to be fake or bogus unless there is sufficient evidence to that effect. The petitioners are not concerned with the transactions or business relations of the respondent-company with any other company. It would be their internal affair with which the petitioners would really be not concerned. The respondents however will have to prove the fact and the allegation that the release orders were really not issued by them or on their behalf. They will also have to prove that the two release orders of the same numbers as stated in paragraph 3, for the items Nos. 7, 8, 9, 10, 15, 16 to 20 for which separate bills have been drawn on the same day and that the release orders were unsigned etc. These facts cannot be decided in the company petition. Even the petitioners will have to prove that they had correctly and rightly accepted the release orders in good faith issued by the respondent-company and that they had no concern with the company with which the respondent had alleged relationship. In my opinion, the point of defence would require evidence whether the respondents had actually released the said orders for advertisement.

6. Ms. Rao, the learned advocate for the respondents has drawn my attention to a serious discrepancy between the claim of Rs. 10,02,723 and the claim as shown in the particulars of claim exhibit B which reflects an amount of Rs. 5,74,787. Such a difference, prima facie, gives credence to the defence of the company that they have paid more than the dues. If finally the respondent-company proves that the release orders were not issued by it the admission and advertisement of the petition would be gravely injurious to it. Admittedly some of the release orders are said to be not traceable by the petitioner and some invoices are not produced. The petitioners would have to fully prove these facts. It is also pertinent to note that the respondent-company has sued the said third party and has claimed from it the dues including the dues of the petitioner-company among other dues. It is not that the respondents have taken this defence for the first time in the affidavit in reply. In its reply to the notice also it has said so. According to the respondents release orders at exhibit C were not signed by them and therefore, they were fake and fraudulent. They have explained their admission of the liability in the letter dated November 12, 1998, having been written before confirming the alleged fake orders which were actually not issued by them but by the third party. This conduct shows the honesty and bona fides of the respondent-company. It accepted the liability at the first instance but on scrutiny it found that the third party had cheated it, the company explained and denied its liability. It has filed criminal complaints against the third party. In these circumstances, I am satisfied that the respondent-company has bona fide disputed the debt. Such disputes cannot be decided in the summary proceedings of the winding up petition. It would require full-fledged adjudication and it cannot be decided on the basis of the affidavits. The petitioners will have to file a regular civil suit for recovery of their alleged debt. It would be the legitimate remedy for the petitioners and not the petition for winding up under Sections 433 and 434 of the Companies Act, 1956. In my opinion the petitioners have filed this petition for recovery of their alleged debt to pressurise them. It cannot be allowed to do so as the respondents have bona fide disputed the debt. The petitioners have the remedy of a civil suit wherein all the disputed questions can be decided on the basis of evidence. They are acting unreasonably in seeking to have the company wound up instead of pursuing the civil suit remedy. Section 443(2) fully controls the provisions of Sections 433 and 434 of the Companies Act, 1956. It reads as under :

"443.(2) Where the petition is presented on the ground that it is just and equitable that the company should be wound up, the court may refuse to make an order of winding up, if it is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy."

7. It is therefore, crystal clear that if there is "some other remedy" available the company court would be justified to refuse to exercise its jurisdiction under Section 433 of the Act. This power is an extraordinary power vested in the company court to be exercised only under extraordinary situations when there is no other remedy available. It is certainly not contemplated by the Legislature that every such running concern should be ordered to be wound up merely because it does not pay its debt arising from the commercial or trading transactions for which normal civil remedies are available. The remedy under Section 433 and Section 434 is certainly not an alternative remedy for the normal civil remedies provided for. This fact has been clarified by Section 443 of the Act. This is the Laxman Rekha defining the just and equitable jurisdiction of the company court under the aforesaid provisions of the Act. Section 445 has delimited the exercise of powers under Section 433 of the Act.

8. The petitioners have filed this petition for recovery of their dues from the respondents. In my opinion as observed by the Supreme Court in the judgment of Hind Overseas Pvt. Ltd. v. Raghunath Prasad Jhunjhunwalla , the petitioner cannot take recourse to the remedy under the Companies Act, and such attempt amounts to an abuse of the process of the law. They ought to have filed a civil suit for recovery of their debt. Paragraphs 36 and 37 of the said judgment read as under (page 106):

"Section 433(f) under which this application has been made has to be read with Section 443(2) of the Act. Under the latter provision where the petition is presented on the ground that it is just and equitable that the company should be wound up, the court may refuse to make an order of winding up if it is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.

Again under Sections 397 and 398 of the Act, there are preventive provisions in the Act as a safeguard against oppression in management. These provisions also indicate that relief under Section 433(f) based on the just and equitable clause is in the nature of a last resort when other remedies are not efficacious enough to protect the general interests of the company."

9. In the aforesaid circumstances, I am not inclined to admit the petition. The petition stands dismissed with costs quantified at Rs. 15,000.