Star Textiles & Industries Ltd vs Olive Tea Plantations Private Ltd on 16 March, 2009

[Cites 5, Cited by 1]

Calcutta High Court

Star Textiles & Industries Ltd vs Olive Tea Plantations Private Ltd on 16 March, 2009

Bench: Surinder Singh Nijjar

In the High Court at Calcutta
Constitutional Writ Jurisdiction
Original Side

Present:

The Hon'ble Justice Surinder Singh Nijjar, Chief Justice
And
The Hon'ble Justice Biswanath Somadder

APO No. 170 of 2007
APOT No. 277 of 2007
ACO No. 122 of 2007
Star Textiles & Industries Ltd.
Versus
Olive Tea Plantations Private Ltd.
And
APO No.270 of 2007
APOT No.299 of 2007
ACO No.100 of 2007
Olive Tea Plantations Private Ltd.
Versus
Star Textiles & Industries Ltd.

For the Appellant in item No.3 & : Mr. S. N. Mukherjee, Sr. Adv.
Respondent in item No.4 Mr. Arindam Mukherjee,
Mr. Ratnko Banerjee
Mr. S.R. Kakrania

For the Respondent in item No.3 & : Mr. Pratap Chatterjee, Sr. Adv.
Appellant in item No.4 Mr. Abhrajit Mitra,
Mr. Jishnu Chowdhury,
Mr. Amit Agarwal

Heard on : 15.01.09, 05.02.09 & 11.02.09

Judgment on : 16.03.09
Surinder Singh Nijjar, C.J. : This judgment will dispose of Appeal No.277

of 2007 and 299 of 2007 as both the appeals are directed against the common

judgment dated 20th April, 2007 in Company Petition No.531 of 2005. For the

purposes of this judgment we shall make reference to the facts as pleaded in Appeal

No.277 of 2007.

The Company Petition had been filed on the allegations that the company is

indebted to the appellant in a sum of Rs.1,15,59,525.86 along with further interest. It

is alleged that initially in February 2002 a short term temporary accommodation loan

of Rs.5,00,000/- had been provided to the company. The company had agreed to pay

interest at the rate of 15% per annum. Thereafter on a request made by the company a

further sum of Rs.86,91,000/- was paid on February, 2002, as temporary

accommodation. A sum of Rs.5,49,400/- was repaid by the company on 24th April,

2002. Thereafter, on 26th August, 2002 a further payment of Rs.70,000/- was made to

the company again as temporary accommodation loan. Over a period of time the

company requested for further amounts as temporary accommodation loan which

were accepted by the appellant. Consequently, between 3rd January, 2003 and

October 17, 2003 the appellant had paid various amounts of money from time to time

to the tune of Rs.81,91,000/-. From time to time the company made part payments of

small sums of money amounting to Rs.49,400/-. Therefore, on the date of
presentation of the winding up petition the outstanding was of Rs.81,41,600/-. On the

aforesaid amount the company was liable to pay interest in the sum of

Rs.34,17,925.86 till 19th November, 2005 at the rate of 15% per annum as agreed by

and between the parties. The appellant has failed to repay the aforesaid amount in

spite of repeated requests, reminders and personal follow ups by the representatives

of the appellant. The appellant called upon the company to make payment of the

unpaid amount of temporary accommodation loan through a letter dated September

20, 2004 written by the advocates of the appellant. At the end of the letter it was

mentioned that the same be also treated as a notice under Section 434 of the

Companies Act, 1956.

On 5th of October, 2004, the company through its advocates denied the

liability. According to the appellant the company had raised a baseless defence,

creating an irrelevant and imaginary story. The appellant gave a reply to the company

through its advocate on record on November 19, 2004. Since, in spite of repeated

requests the company has failed to pay the amount due, it would be presumed that it

is unable to pay its debts. Thus a prayer has been made that the company be wound

up under the provisions of the Companies Act, 1956.
The company in its reply to the Statutory Notice had pleaded an elaborate

defence to the claim made by the petitioner. The company has stated that the

background of the matter is such that Mr. Harsh Bajoria who manages and controls

various companies including looking after the affairs of the petitioner had on false

representations induced Mr. Mohan Kumar More, father of Mr. Aditya More, who is

a director of the company to develop a Tea Garden jointly. According to the

company, Mr. Harsh Bajoria had defrauded the company to the tune of Rs.

3,54,50,000/-. After setting out the details of the alleged fraud committed by Mr.

Harsh Bajoria, the company claims that he was in complete control of the company

and was also looking after the development of the Tea Estate belonging to the

company. He had extracted huge amounts of money from Mohan Kumar More, Mr.

Aditya More, Mrs. Lily More and their family members for the ostensible reason of

developing the Tea garden. Ultimately, when Mores were unable to loan any further

amount, Mr. Harsh Bajoria persuaded Mr. More and its family members to take a

loan from the Central Bank of India. It is categorically stated that the loan amount,

which was taken from Central Bank of India, was all disbursed to the companies

controlled and managed by Mr. Harsh Bajoria. In the meantime Mr. Harsh Bajoria

had also opened a number of Bank accounts in the name of the company with various

banks which were not reflected in the books of the company nor were the same

disclosed to the More family. This was allegedly done by Mr. Harsh Bajoria for
adjustment of the profits of his other companies to evade tax and to play a fraud on

the authorities concerned. It is also stated that Mr. Harsh Bajoria was trying to

launder his money through the company's accounts which were opened, maintained

and operated by Mr. Harsh Bajoria, his son Mr. Shalakia Bajoria and his other

employees. Mr. Harsh Bajoria did not even stop at this. He had even passed journal

entries between the other companies managed and controlled by him and the

company so as to create a huge debt in the books of the company. This was done, so

that Harsh Bajoria could siphon off the money from the companies owned and

controlled by him. When the true state of affairs of the company came to the notice

of the appellant, Mr. Harsh Bajoria was informed that, in view of the grave situation

the company may be constrained to initiate legal proceedings against him. It is also

the case of the company that the claim made by the appellant is a part of the money

syphoned off fraudulently by Bajoria. The amounts taken from the appellants had

been used for payment to Fast-track Real Estate (Rs.56,80,000/-) and Mitsubishi

(Rs.22,90,000/-). All the three companies namely, the appellant, Fast-track and

Mitsubishi belong to Harsh Bajoria or by persons who were directly under his

control. It is stated that there is no debtor or creditor relationship between the

appellant and the company. Transactions are just manipulations which have been

created by Harsh Bajoria to defraud the company. The company therefore demanded

that the amounts which have been fraudulently misappropriated from the books of
the company be returned, failing which legal steps may be taken. The aforesaid

defence in the notice is reiterated in the affidavit-in-opposition to winding up

petition. In addition it is stated that the company has filed Civil Suit No.316 of 2004

in this Court claiming a decree in the sum of Rs.3,54,50,000/- against the appellant

and other defendants. The company also seeks a declaration that no money is due or

payable by the company to defendants No.8 to 14. We may notice here that appellant

is impleaded as defendant No.8 in the Civil Suit. The company also seeks a

declaration that no money is due or payable to defendant No.7 and in the alternative

if at all any amount is due or payable mandatory injunction directing defendants No.1

and 6 to make such payment to defendant No.7. The company has also prayed for a

perpetual injunction restraining the appellant and the other defendants from

interfering with the management, control and affairs of the company. Interim relief is

also sought for payment of interim interest on judgment at the rate of 24% per annum

payment of receiver and grant of interim injunction.

Apart from the plaint, the company also relied on the supplementary affidavit

filed by Aditya More, plaintiff No.3, in the aforesaid Civil Suit. In this affidavit it is

stated that defendant No.1, Harsh Bajoria, was in control of the company till March

2004. It is also stated that the appellant held the shares in the company through his

nominees, Arnav Securities (P) Ltd., and Shree Kunj Securities (P) Ltd., both these
companies held shares till 16th of August, 2004. Till December, 2002 the Directors of

the company's were all nominees of Harsh Bajoria. Even after December 2002 till

early 2004, the active Directors were all nominees of Harsh Bajoria. Shalakia

Bajoria is the son of Harsh Bajoria. He was the authorized signatory of all the Banks

accounts of the company. He continued to be authorized signatory in respect of the

Bank accounts at Central Bank of India even at the time the supplementary affidavit

was affirmed. It is further pleaded that upon taking up the management of the

company it was discovered that compliance certificate had not been filed since 2002.

Numerous other irregularities were discovered, details of which are pleaded in the

affidavit.

The appellant submitted that the pleadings in the supplementary affidavit are

wholly unbelievable. The suit had been filed only to ward off the proceedings

initiated by the appellant. It was stated that Mores were firmly in control of the

company even before financial year 2002-03. It was claimed that the case pleaded in

the supplementary affidavit was a myth. The company had also raised the issue of

limitation. This was also denied by the appellant on the ground of part payments

having been made by the company.

The learned Single Judge notices the submission made on behalf of the

appellant as follows : (1) That even though there are no documents in support of the
transactions that it claims, there is no denial by the company of having received the

funds. (2) That even if a petitioning creditor is required to affirmatively establish its

claim on the basis of the papers appended to its petition, once an affidavit is used by

the company, the defence put forth is required to be tested against the claim made by

a petitioner in a winding up petition. In other words the plausibility of the defence

has to be evaluated rather than the unimpeachable character of the documents relied

upon by the alleged creditor. Thus in case company fails to file an affidavit-in-

opposition, the Court will evaluate only the case pleaded in the petition. But, in case

the company files an affidavit-in-opposition to the winding up petition the case set up

in the affidavit is to be scrutinized more closely without the petitioner being required

to prove its own case. (3) That the defence pleaded by the company is bogus, sham

and moonshine. It has been taken only to delay the proceedings in the Company

Court. (4) That the suit could not be treated as a counterclaim being cited.

On the other hand it was submitted by the company : (1) That complicated

issues of fact could not be pronounced upon in summary proceedings by the

Company Court. Therefore, the Company Court ought not to receive the winding up

petition prior to the conclusion of the trial and the judgment of the Trial Court. (2)

That the case of the petitioner has to be evaluated only on its own strength. The

falsity of the defence of the company could only be of corroborative value. (3) That
transactions involving crores of rupees ought to have been substantiated by primary

documents by the appellant. The weakness in the company's defence cannot be used

by the appellant in support of its own claim. (4) That suit filed by the company

would amount to a counter claim being cited. (5) That part payment would not keep

alive a claim otherwise barred by limitation. In support of this submission the

company relied on a judgment of the Supreme Court in the case of Sanat Lal

Mahton vs. Kamla Prasad & Ors., reported in AIR 1951 SC 477.

Upon consideration of the pleadings and the submissions made on behalf of

the parties the Trial Court held as follows :-

"There is no black and white answer to the argument that the petitioner
makes and which the petitioner uses as its legs to carry it beyond the sparse
details found in the petition: that once a company uses an affidavit, it is the
defence which is to be tested as much as the initial case run by the petitioner.
At the one end of the spectrum there could be a case where a petition or the
claim therein is demurrable, yet the company admits it in its affidavit. Surely,
such generosity of the company cannot resurrect the claim. At the other end of
the spectrum there could be a one-line, unsubstantiated and improbable claim
that is also greeted by an admission in the company's affidavit. The company
court will then not look beyond the admission. But these are the unlikely, and
somewhat theoretical, situations. The company judge is confronted daily with
matters that lie in between. And in these in-between cases, the clarity of the
debt has ordinarily to be apparent from the petition rather than the vagueness
of, or inconsistencies in, the company's response.
There is now the more engaging matter of the petitioner's claim and the
company's defence that needs to be gone into. Before a company can be sent
to liquidation, it must be found that it is unable to pay its debts. This would
presuppose an existing debt and the company's inability to discharge it. A
creditor who cannot obtain payment of his debts is entitled, as between himself
and the company ex debito justitiae to an order for winding up if he brings his
case within Sections 433(e) and 434(1)(a) of the Companies Act, 1956. But he
must first establish that there is a debit owing and then satisfy the court that
the company is unable to pay the same, before his petition is received. The
court is entitled to investigate whether a dispute has been manufactured in
order to delay and defeat the realisation of petitioner's dues and whether the
defence is merely a cloak for the company's inability to pay its just debts. But
for such inquiry to be answered in favour of the petitioner, he must establish
that the company "neglects to pay" its debts without any justifiable cause.
Mere omission to comply with a demand may not amount to "neglect" within
the meaning of the phrase in the Act if the company cites reasonable cause for
the omission. But before the reasonableness of the cause preferred by the
company is ascertained, the petitioner needs to establish his debt.
The earliest assertion of the petitioner's claim here is found in its
statutory notice which is greeted by a prompt denial and a counter-claim. The
Company does not deny receipt of the payments but seeks to show that it
retained little of it and the most part seeped through, at the instance of the
petitioner's alter ego then in control, to other agencies of Bajoria. In the
accounts relied upon by the company, all of the funds that were parked in the
company by the petitioner is shown to have found its way to Fastrack
Realestate Corporation Private Limited and Mitsubishi Trading Private
Limited save a sum of Rs. 1,71,600/- which stood transferred to the garden
account of the company. The petitioner has made little attempt to disown
Fastrack Realestate Construction Private Limited and Mitsubishi Trading
Private Limited as being part of the group to which it belongs.
The petitioner's attempt to blow away the company's defence on the
strength of the company's application for loan to the bank in May, 2003 has to
be discounted on account of the minor mention of the third security offered in
that document by the company. Such third security, and of considerably more
value than the personal worth of the two Mores, was the corporate guarantee
of one Arnab Financial Services Private Limited. Such proposed corporate
guarantor appears to be another in the Bajoria fold. If, indeed, Bajoria and
his nominees were no longer associated with the company in May, 2003, as the
petitioner suggests, there would be no need for a Bajoria concern to stick its
neck out and bear the maximum exposure for the company obtaining a loan.
Just as there is merit in the petitioner's contention that the accounts at
pages 79-80 of the company's affidavit show that money was received from the
petitioner and the petitioner has remained unpaid in respect of its principal
claim, there is also the company's counter-claim that has to be appreciated.
The Company's simplistic stand that money sieved through it from one set of
Bajoria entities to a second and to a third, does not fit in with the indisputable
dates of the payments having made by the petitioner and undeniably received
by the company. Yet, it is equally true that Bajoria was in control of the
company and may be the person lurking behind the facade of the petitioner.
However, improbable the company's claim in its suit, it is not impossible that
a decree may be passed. The grey area between what is improbable and what
is impossible belongs to the company. Once a company can show that there is
likelihood of the defence succeeding, never mind the degree thereof, it
succeeds in resisting winding up as there is no longer any inability to pay on
its part within the meaning of the test in that regard set in the applicable
provisions of the Companies Act. The mere filing of a suit is not adequate
defence, a show of a possibility of success in such suit, is. And when there is
doubt, there can be no security directed to be furnished.
There is only a thin distinction between the facts obtaining in a case that
warrants admission of the petition and the facts obtaining in a case which
calls for conditional rejection of the petition subject to furnishing of security.
In either case, the defence has to be found to be moonshine or sham, no less
would do. Despite finding that a defence was moonshine, there may be other
considerations that could weigh with company judge to permit the petitioner's
claim to be relegated to a suit on condition of security being furnished by the
company. But here, that part of the petitioner's loan hat the company shows
had crept into the coffers of Fastrack Realestate Construction Private Limited
and Mitsubishi Trading Private Limited is not so free from doubt that would
call for weighing the option of admission or security."

The Trial Court also found that since the petitioners claim for Rs.1,71,600/-

had been admittedly transferred to the garden account of the company it is free from

doubt. The Trial Court has relegated the appellant to a Civil Suit for the entire

amount claimed excepting Rs.1,71,600/-. The petition is admitted for the aforesaid

sum. The balance claim of the petitioner, for the principal sum of Rs.79,70,000/-, has

been relegated to a suit. Both the appellant and the company have challenged the
aforesaid judgment in these two connected appeals being Appeal Nos.277 of 2007

and 299 of 2007. In the appeal filed by the company it is stated that the Trial Court

has failed to appreciate that the entire issue is pending in the Civil Suit and,

therefore, could not be adjudicated in the Company Court. Number of other grounds

are also pleaded against some of the incidental observations made by the learned

Trial Judge.

We have heard the learned counsel for the parties at length.

Mr. S.N. Mukherjee, learned Sr. Counsel for the Appellant submits that :

1) The defence of the company should be disbelieved on the basis of

the documents disclosed;

2) Even if the defence of the company is 100% correct, it does not

wipe away the liability of the company to the appellant, as the payments made

to Fast-track and Mitsubishi has reduced the company's liability.

3) In reply to the statutory notice the company has admitted the

receipt of the money. Therefore the suit has been filed, by impleading a Bank,

challenging the credits and loans taken from the Bank. The statutory notice is

dated 21st September, 2004. Reply given by the company is on 5th October,

2004. Thereafter in December 2004, the company filed the suit. Prior to this
there was no claim by the company against the appellant. There was no

counterclaim.

4) In any event the counterclaim story has been discarded by the

learned Single Judge.

5) The defence about the payment to Mitsubishi is false. According

to the claim made by the appellant in paragraph 12 of the petition, the total

amount paid to the company is a sum of Rs.1,85,000/- till 6th March, 2003.

Therefore, Rs.17,08,800/- claimed to have been paid by the company to

Mitsubishi on 22nd May, 2003, can not be accepted. Same reasoning applies to

the alleged payment of Rs.7,81,000/- on 22nd May, 2003.

6) No documents have been shown so far the payments to Fast-track

are concerned.

7) Various contradictions in pleadings of the plaint, makes it clear

that the suit is bound to fail.

8) The test adopted by the Trial Court that the grey area between the

improbable and the impossible belongs to the company is incorrect. Once the

Trial Court has found that it may be improbable that a decree will be granted

in the suit, the defence could not be given any credence, on the reasoning that

though improbable it may not be impossible that a decree would be granted.

The appellant had only to establish the existence of a debt which the company
has failed or neglected to pay. Learned Sr. counsel relies upon a judgment of

the English Court of Appeal in the case of Re Welsh Brick Industries Ltd.,

1946(2) AELR 197; wherein the winding up petition was admitted even

though unconditional leave had been granted to the company to defend the

summary suit instituted by the petitioning creditor. Learned Senior counsel

then relies on the judgment of the Supreme Court in the case of M/s.

Madhusudan Gordhandas & Co. vs. Madhu Woollen Industries Pvt. Ltd.,

reported in 1971 (3) SCC 632, in support of the submission that the winding

up petition can only be successfully resisted in case the company is able to

show that the debt is bona fide disputed and the defence is a substantial one.

The company according to Mr. Mukherjee has miserably failed on both counts.

9) In case the test of improbable, impossible be accepted, no

winding up petition would proceed beyond admission.

10) The Trial Judge concludes that mere filing of the suit is not

sufficient but erroneously proceeds to admit the petition for a meager amount

of Rs.1,71,600/-.

On the other hand Mr. Pratap Chatterjee, learned senior advocate and Mr.

Abhrajit Mitra submits that :
1) The Civil Suit was filed before the company petition. Therefore it

cannot be said to be a counterblast.

2) Mores took over the control of the company in March 2004. Prior

to that Bajoria was in control, as is evident from the development agreement

signed by him on 6th April, 2002.

3) Liability is not admitted. This is accepted by the learned Trial

Judge.

4) Appellant is relying only on the documents given by the company

and the statement of account prepared by the appellant. The Bills attached with

the plaint were to show how money was syphoned off by Bajoria.

5) Judgment in Re Welsh Brick Industries Ltd. case (supra) is not

applicable in this case. The company has not admitted the loan. The money

was being routed through the company.

6) If the test in Madhusudan case (supra) is applied to the facts of

this case, the petition had to be dismissed.

7) The learned counsel have also relied upon Mediquip Systems (P)

Ltd. vs. Proxima Medical System GMBH reported in (2005) 7 SCC 42. It

is submitted that in this case trappings of a debt are missing in the claim of the

appellant. There is no Agreement. The company was merely a conduit.

The learned counsel also relies upon :
1) Mannesmann Rexroth (India) Ltd. Vs. National Engineering

Industries Ltd. 2006 (4) CHN 76

2) SRC Steel (P) Ltd. Vs. Bharat Industrial Corporation Ltd. 2005 (4)

CHN 343

Mr. Pratap Chatterjee submits that the law in India is different from the

principle laid down in Re Welsh Brick Industries Ltd. (supra). The situation

between a winding up petition and a summary suit is practically identical.

Complicated questions of fact can only be adjudicated in a Civil Suit. A Division

Bench judgment of this Court in the case of M/s. Dhariwal Steel Pvt. Ltd., vs. M/s.

Bengal Rolling Shutters & Engineers Works decided on 01.04.2004 is relied upon

in support of this submission.

Mr. S.N. Mukherjee, learned Sr. counsel says that the judgments cited by Mr.

Chatterjee are distinguishable. In this case there is no dispute that the amount has

been received by the company. There is no question of selection of remedy in this

case. The only ground, on which the Trial Court, did not admit the petition for the

entire amount is on the test of "improbable and impossible". Impossible is not

permissible as the debt has to be bona fide disputed.
We have anxiously considered the submissions made by learned counsel. We

have also perused the entire paper book with the aid of the learned counsel for the

parties. In our opinion the findings of the Trial Court are in consonance with the law

laid down by the Supreme Court in the case of Mediquip Systems (P) Ltd. (supra).

In the aforesaid case the Supreme Court has clearly stated the principles with regard

to the exercise of discretion by the Company Court while considering a petition for

winding up under Sections 433(e) and 434(a) of the Companies Act, 1956. In order

to make the matter absolutely clear we may reproduce here the relevant observations

of the Supreme Court:-

"18. This Court in a catena of decisions has held that an order under
Section 433(e) of the Companies Act is discretionary. There must be a debt
due and the company must be unable to pay the same. A debt under this
section must be a determined or a definite sum of money payable immediately
or at a future date and that the inability referred to in the expression "unable
to pay its debts" in Section 433(e) of the Companies Act should be taken in the
commercial sense and that the machinery for winding up will not be allowed to
be utilised merely as a mean for realising debts due from a company.

.... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...

21. The debt under Section 433 of the Companies Act must be a
determined or a definite sum of money payable immediately or at a future date.
We are informed that the financial position of the appellant is sound.

... ... ... ... ... ... ... ... ... ... ......
24. The Madras High Court in Tube Investments of India Ltd. Vs. Rim
and Accessories (P) Ltd, Comp LJ at p. 326 has evolved the following
principles relating to bona fide disputes :

(i) if there is a dispute as regards the payment of the sum towards
the principal, however small that sum may be, a petition for
winding up is not maintainable and the necessary forum for
determination of such a dispute existing between parties is a civil
court;
(ii) the existence of a dispute with regard to payment of interest
cannot at all be construed as existence of a bona fide dispute
relegating the parties to a civil court and in such an eventuality,
the Company Court itself is competent to decide such a dispute in
the winding-up proceedings; and
(iii) if there is no bona fide dispute with regard to the sum payable
towards the principal, it is open to the creditor to resort to both
the remedies of filing a civil suit as well as filing a petition for
winding up of the company.

25. The rules as regards the disposal of winding-up petition based on
disputed claims are thus stated by this Court in Madhusudan Gordhandas &
Co. v. Madhu Woollen Industries (P) Ltd. This Court has held that if the debt
is bona fide disputed and the defence is a substantial one, the court will not
wind up the company. The principles on which the court acts are :
(i) that the defence of the company is in good faith and one of
substance;
(ii) the defence is likely to succeed in point of law; and
(iii) the company adduces prima facie proof of the facts on which the
defence depends."

In our opinion, the Trial Court evaluated the case of the appellant as well as

the company in accordance with the established principles of law. We do not find

any substance in the submission of Mr. Mukherjee that the Trial Court had not

examined the defence of the company in its true perspective. Upon examination of

the petition and the material presented in support thereof the Trial Court has clearly

observed : "On such scanty material as its own statement statutory notice and the

company's response thereto, the petitioner founds its claim." In spite of the aforesaid

expressed opinion the Trial Court was cautious enough to examine the defence put

forward by the company in view of the submissions made by the learned counsel for

the petitioner based upon the judgment of the Court of appeal in the case of Re

Welsh Brick Industries, Ltd. (supra). We may now sum up the factual and the legal

opinion recorded by the Trial Court as under :-

Facts :

(1) That the petitioner has presented scant material and sparse details to even prima facie show that the amounts claimed were given by the petitioner to the Company as loan.

(2) Instead of presenting the material with the petition, the petitioner has sought to build up its case on the basis of the inconsistencies in the affidavit of the company.

(3) There is no agreement in writing that is relied upon by the petitioner. (4) There is no demand made by the petitioner prior to the statutory notice. (5) There is no acknowledgement of indebtedness by the company or even a writing where the transaction has been referred to in passing. (6) The appellant has relied on a statement furnished by it. Its demand contained in the statutory notice and what it claims to be the baseless denial of the company's liability in response of October 5, 2004. Law (1) That the clarity of the debt has to be apparent from the petition rather than the vagueness of, or inconsistencies in, the company's response. (2) Before a company can be sent to liquidation it must be found that it is unable to pay its debt. This would pre-suppose an existing debt and the company's inability to pay it.

(3) A creditor is entitled to an order of winding up under Section 433(e) and 434(1)(a) of the Companies Act, 1956, ex debito justitiae on establishing that there is a debt owing and the company is unable or has neglected to pay the same.

(4) Upon being satisfied that there is a debt owing, the Court is entitled to investigate whether the dispute put forward is bona fide or it has been manufactured in order to delay and defeat the realization of petitioner's dues. The Court will also enquire as to whether the defence is merely a cloak for the company's inability to pay its debt. Even at that stage the petitioner has to establish that the company has neglected to pay its debt without any justifiable cause. But the pre-condition for examination of reasonableness of the cause preferred by the company the petitioner needs to establish a clear debt owed by the company.

It is by now too well-established that a company's defence can be ignored if it falls within the realm of "moonshine". In other words, the defence is sham and has been pleaded only to defeat the claim put forward by the petitioner. This view of ours will find support from a Division Bench judgment of this Court in the case of M/s Dhariwal Steel Pvt. Ltd. (supra). In the aforesaid judgment the Division Bench has held that the company Court would receive a winding up petition when the company fails to raise any bona fide dispute or is merely weaving cobwebs. On the other hand, the raising of a reasonable triable issues would entitle the company to have a permanent stay of the winding up petition. Since the company Court examines the entire issue on affidavits only the Court must, in appropriate cases, see through the affidavits and documents and reject such documents put forward by the company as are bogus or moonshine. In our opinion, the Trial Court has examined the defence put forward by the company in the correct perspective as required under the law. The principles on which the company Court acts have already been culled out from the judgment of the Supreme Court in M/s. Madhusudan Gordhandas & Co. (supra) in the judgment in Mediquip System (P) Ltd. (supra). We may, however notice certain observations which would clearly show that the Trial Court has considered the entire matter in accordance with the law and procedure and the criticism made by the learned counsel for the petitioner is wholly unjustified. In the aforesaid case the Supreme Court observed as follows :-

"20. Two rules are well settled. First, if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable. See London and Paris Banking Corporation [(1874) LR 19 Eq 444]. Again, a petition for winding up by a creditor who claimed payment of an agreed sum for work done for the company when the company contended that the work had not been properly was not allowed. See Re. Brighton Club and Horfold Hotel Co. Ltd. [(1865) 35 Beav 204].

21. Where the debt is undisputed the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt, see Re. A. Company [94 SJ 369]. Where however there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the court will make a winding up order without requiring the creditor to quantify the debt precisely see Re. Tweeds Garages Ltd. [1962 Ch 406]. The principles which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends."

Such being the settled law we fail to see how the conclusions arrived at by the Trial Court could be open to doubt at this stage. We are also of the opinion that the judgment of the Court of appeal in Re Welsh Brick Industries Ltd. (supra) would not be applicable in the facts and circumstances of this case. In that case the petitioner creditor had issued a writ in the King's Bench Division for the recovery of certain sums advanced by him to the company. Thereafter he presented, in the county court, a petition, based on the same debt for winding up of the company on the ground that it was unable to pay its debts. When the petition came up for hearing, the county court Judge found on the evidence before him that the debt was owing and that the company could not pay its debts, and he made a winding up order. The company appealed from the order. It was contended that the Judge should have dismissed the petition because the order of the Registrar giving the company unconditional leave to defend the action for repayment of the debt was in itself conclusive of the fact that there was a bona fide dispute. Therefore, the winding up proceedings were not the appropriate procedure. The Court of appeal, however, held as follows :-

Lord Greene, M.R. :

"...........I do not think that there is any difference between the words "bona fide disputed" and the words "disputed on some substantial ground". I cannot accept the proposition that, merely because unconditional leave to defend is given, that of itself must be taken as establishing that there is a bona fide dispute or that there is some substantial ground of defence. The fact that such an order is made is no doubt a matter which the winding-up court will take into consideration and to which the winding-up court will in due course pay respect, but I cannot regard it as in any way precluding a winding up judge from going into the matter himself on the evidence before him and considering whether or not the dispute is a bona fide dispute, or, putting it in another way, whether or not there is some substantial ground for defending the action. ............"

In our opinion these observations are of no consequence in the present case as the company has presented its defence on affidavits before the company Court. There is no suit filed by the petitioning creditor seeking summary judgment against the company. On the contrary, a suit has been filed by the company claiming a decree in the sum of Rs. 3,54,50,000/- against the petitioner and other defendants. The company has also made very serious allegation of fraud against the moving spirit Mr. Harsh Bajoria behind the corporate veil of all the sister concerns. The Trial Court has clearly come to the conclusion that Bajoria was in control of the company and may be the person lurking behind the façade of the petitioner. In such circumstances it would be difficult to accept the submissions of Mr. Mukherjee that the company has not bona fide disputed the debt. We may notice here that in the civil suit the company has given elaborate details of the fraud allegedly perpetrated by Harsh Bajoria and others. Such serious allegations can hardly be put in the realm of a moonshine defence. What is pleaded in the civil suit is also pleaded in the defence to the winding up petition. We may also notice here that the civil suit is filed before the petition for winding up was presented in the company Court. In such circumstances, it would not be possible to ignore the very relevant fact that a civil suit regarding the same transaction is pending between the same parties. Admittedly, the defence taken by the company to the winding up petition is identical to the plea raised in the civil suit. Such being the position, the learned Trial Judge, in our opinion, cannot be said to have erred in exercise of his discretion to relegate the petitioner to the Civil Court.

As noticed above the Trial Court after clearly stating the applicable principles of law, still examined the defence set up by the company to see if it was sham or bogus. In our opinion, that occasion would have only arisen in case the petitioning creditor had been able to prima facie show that the loan was given; the receipt of the amount was either admitted as a loan or was shown to have been received as a loan. In the present case the petitioner has miserably failed to show that the amounts claimed had actually been given as loan to the company. There is no admission of liability by the company, rather the company puts forward the defence that it has been misused by Mr. Harsh Bajoria and other persons under his control by using the company as a conduit. The Trial Court, in our opinion, correctly relegated the petitioner to the remedy of a civil suit.

We are, however, unable to agree with the learned Single Judge that the claim of the company would fall within the grey area of improbable and impossible. We are of the opinion that the claim put forward by the company is not so far fetched that it could be put in the grey area of improbable and impossible. It would be inappropriate at this stage to come to a conclusion that the claim made by the company is improbable. There is sufficient material on the record to show that Bajoria was running the show. There were a number of other players in the game, but totally subordinate to and in control of Bajoria. Further it is not even disputed by the appellant that Fast-track and Mitsubishi are controlled by Bajoria. There is no material on the record that the plea of the company that no development work was done by Bajoria on the Tea Garden, is false. The loan is not shown in the accounts of the appellants. There is no independent documentation to show the payment of the money as claimed. On the other hand, the company claims that it has been defrauded. It claims that the entire company affairs were neither reflected in the statutory accounts of the company, nor were the directors of the company even taken into confidence. Therefore, it would not be possible to discard the explanation of the company that it was used as a conduit to syphone off the money belonging to the company by Bajoria.

For these reasons the suit filed by the company cannot easily be discarded. The allegations made against Bajoria are very serious. There are allegations of falsification of accounts, forgery and embezzlement. The Company Court is hardly equipped in its summary jurisdiction to form a fair opinion on these matters. These are matters best left to the Civil Court to be determined in a Civil Suit. It is not unknown that Civil Suits thought to be wholly without merit have concluded in decrees being granted.

We are of the considered opinion that the appellants (the petitioning creditors) have failed to make out the very basic requirement for a company petition to be received. Therefore, the Trial Court, in our opinion, was not required to elaborately examine the merits of the defence. In spite of this legal position, the Trial Court examined the defence and on such examination did not find the defence to be moonshine. We are also of the opinion that the defence put up by the company is not so far fetched as to be discarded as sham, bogus or moonshine. In fact, the Trial Court holds that it falls in the grey area between improbable and impossible. But we are of the opinion that the defence put forward by the company is possible as well as probable. Parties are yet to lead oral as well as documentary evidence. This cannot possibly be evaluated by the Company Court in the summary proceedings.

We, therefore, see no merit in this appeal.

So far as the claim of Rs.1,70,000/- is concerned, the company cannot complain at this stage, as the amount was credited to the company's accounts.

Both the appeals are dismissed.

(Surinder Singh Nijjar, C.J.) I agree.

(Biswanath Somadder, J.) Later on After the judgment is pronounced, as prayed for, by the learned advocate appearing on behalf of Olive Tea Plantations Private Ltd, leave is granted to pay a sum of Rs. 1,70,000/- as directed by the Company Court by tomorrow.

(Surinder Singh Nijjar, C.J.) (Biswanath Somadder, J.)

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