Delhi High Court
Mk Mahajan & Anr. vs Indo Rollhard Indust. Ltd. on 17 January, 2014
Author: R.V. Easwar
* 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
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
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 :-
"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
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.
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
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)]
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,
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
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.
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)
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
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.
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
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/-.
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
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
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
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
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
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-
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,
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
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.
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
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
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
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
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)
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
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
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
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
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
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.
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
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.).
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."
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
