Major N. Radhakrishnan (Retd.) vs Acme Decor India Pvt. Limited
2003 Latest Caselaw 122 Del

JUDGMENT

Mukul Mudgal, J.

1. This winding up petition is based on notice under Section 434 issued on 22nd May, 1998. The crux of the notice under Section 434 and indeed this winding up petition is a short term deposit said to be given by the petitioner to the respondent company from time to time totalling Rs. 3,25,000/-. This deposit was said to carry interest @ 18% p.a. The notice was served on the respondent. There is some dispute by the respondent company regarding the service which prima facie is not capable of belief and I proceed on the presumption that notice under Section 434 was served on the respondent company. Accordingly, it is necessary to look at the contents of the reply of the respondent company filed in this Court. The essence of reply of the respondent company is that there was an arrangement of the petitioner for securing work for the respondent company which did the work of interim decoration and the petitioner forwarded the said payment some time received in cash to the petitioner company as a result of which payment was made to the respondent company and since the petitioner was a serving Army Officer, these payments were made by cheque. The instance given by the respondent company is the instance of the work of Modern Medical Institute, Raipur, M.P. It has been averred that for the work procured from the said Institute for the respondent company, the petitioner made a commission/profit of Rs. 1 lac paid by a demand draft to him in 1996. The respondent has annexed the bills raised against the Raipur Institute. While not disputing that sum of Rs. 3,25,000/- is shown in the balance sheet to the credit of the petitioner, the respondent has sought to contend that this entry alone cannot form the basis for maintaining the winding up petition particularly when such entry was part of the transanction of the Raipur Institute referred to above. He has relied upon the judgment of this Court in Charanjit Singh Grewal & Another vs. Trillenium Technologies Ltd. & Ors. reported as 2002 VI AD (DELHI) 637 to contend that the demand raised in this petition is disputed bonafide. In fact the reply states that prior to the filing of the winding up petition, a civil suit No. 241 of 1998 was filed in respect of another firm of which the petitioner's wife was a promoter Director owing to her disputes with the Directors of the Respondent Company and this winding up petition is filed after the summons in the said suit No. 241/1998 was served on the petitioner's wife and the petitioner and appearance was entered in the said suit in June, 1998.

2. The reply also avers in paragraph No. 5 that the petitioner being a Army Officer did not have access to such sources of money. It is contended that the source of money had not been indicated clearly though the learned counsel for the petitioner states that the documents filed and the bank statements showed that the deposits were made.

3. Considering the entire gamut of facts, it is clear that transaction between the parties is not so clear so as to attract the jurisdiction of this Court in winding up. Apart from the amount shown in the balance sheet, there is no document of any kind whatsoever with the petitioner to indicate the nature and the manner of deposits including the claim of interest @ 18% p.a. on advances by the petitioner. It is not acceptable that a senior serving army officer would invest Rs. 4,00,000/- as a short term deposit with a company without any document containing any agreement whatseover. Furthermore, there being no written agreement, the averment about 18% interest is entirely based on an oral plea. In fact the petitioner does not even have a receipt indicating the factum and nature of the deposit. The respondents' averment that the petitioner received a commission/profit of Rs. 1 lac by bank draft from the Modern Medical Institute has not been denied in the rejoinder filed by the petitioner. Similarly, there is other litigation pending between the parties which has been referred to by the respondent company in para 7 of the reply. Thus there are disputes in a sister concern i.e. M/s Acme Forms Pvt. Limited which arise from the relations between the directors of the respondent company and the wife of the petitioner which eventually led to the filing of a Civil Suit No. 241/98 in May, 1998. It was not disputed by the counsel for the petitioner that this winding up petition was filed after the summons in the said suit were served on the petitioner and the petitioner's wife. The pleadings disclose that the company is otherwise financially solvent. Furthermore, the counsel for the respondent is right in relying upon the judgment of this Court in Charajit Singh Grewal's case (supra) to contend that the liability shown in the balance sheet is disputed bonafide. In the present case the respondent company has given a reasonable explanation for the receipt of the said amount and its version cannot be discounted at this juncture in the winding up proceeding.

4. The learned Single Judge in Charanjit Singh's case (supra) has after a comprehensive and felicitous summation of principles of law which govern winding up proceedings laid down the following position of law :

"(i) If there is a bonafide dispute and the defense is a substantial one, the Court will not wind-up the company.

(ii) Where the debt is undisputed the Court will not act upon a defense that the company has the ability to pay the debt but the company chooses not to pay it.

(iii) Where the defense of the company is in good faith and one of substance, and the defense is likely to succeed in point of law, and the company adduces prima facie proof of the facts on which the defense depends, the petition should be rejected.

(iv) The Court may consider the wishes of creditors so long as these appear to be justified.

(v) The machinery of winding-up should not be allowed to be utilised merely as a means of Realizing its debts.

(vi) if the stance of the adversaries hangs in balance it is always open to the company Court to order the Responent Company to deposit the disputed amount. This amount may be retained by the Court and be held to the credit of the suit, if any.

(vii) Generally speaking, an admission of debt should be available and/or the defense that has been adopted should appear to the Court to be dishonest and/or moonshine, for proceedings to continue. There is insufficient material in favor of the petitioners. The disputes appear to be essentially between the Petitioners and Respondents No. 2 and 3, and such disputes can be properly adjudicated in a regular civil suit. It is extremely helpful to draw upon the analogy of a summary suit under Order xxxvII of the Code of Civil Procedure. If the Company Court reaches the conclusion that, had it been exercising ordinary original civil jurisdiction it would have granted unconditional leave to defend, it must dismiss the winding up petition.

For laying down preposition (i) to (v) above the learned Single Judge has followed the judgments:

"Pradeshiya Industrial and Investment Corporation of Uttar Pradesh vs. North India Petro-Chemicals Ltd. and Another, (1994) 2 Comp LJ 50 (SC) in which the observation in Amalgamated Commercial Traders (P) Ltd. Vs. Krishnaswami, [1965] 35 Comp. Cases 456 (SC) and Madhusudan Gordhandas and Co. Vs. Madhu Woollen Industries (P) Ltd. [1972] 42 Com. Cases 125 (SC) have been paraphrased.

Preposition (vi) is dervied from Civil Appeal No. 720 of 1999 arising out of SLP (c) No. 14096 of 1998 - M/s Nishal Enterprises Vs. Apte Amalgamation Ltd., decided on February 5, 1999.

Proposition (vii) has been formulated by Justice Vikramajit Sen. In my view the anology derived from principles underlying Order xviii of CPC is apposite and is an acceptable test which ought to be employed in winding up proceedings. I therefore respectfully concur with the view taken in the above judgment by Vikramajit Sen, J. Accordingly, I am satisfied that there are bonafide disputed questions of facts not amenable to adjudication under the winding up jurisdiction of this Court. Accordingly this petition is dismissed.