Bombay High Court
Manipal Finance Corporation Ltd. vs Crc Carrier Ltd. on 11 July, 2001
Equivalent citations: [2001]107COMPCAS288(BOM)
Author: R.J. Kochar
Bench: R.J. Kochar
JUDGMENT R.J. Kochar, J.
1. The petitioners have prayed for an order under Sections 433 and 434 read with Section 439 of the Companies Act, 1956, to get wound up the respondent-company alleging failure of the company to pay the debt to the petitioners to the tune of Rs. 1,77,43,273 inclusive of interest as set out in the particulars of claim and further interest on the aforesaid amount at the rate of 36 per cent. per annum from January 22, 2000, till payment and/or realisation.
2. From the averments in the petition, it appears that the petitioners are a finance company and have entered into a hire-purchase agreement with the respondent-company dated August 21, 1997, whereunder the respondent-company agreed to take on hire the machinery and to pay to the petitioners hire charges in 36 monthly instalments. It is the case of the petitioner-company that the respondent-company had executed a demand promissory note on the same date in favour of the petitioners for a sum of Rs. 2,08,50,000. The respondent-company had also executed personal guarantees of Shri G.D. Agarwal, Mrs. Shanthi Devi Radhakrishna Agarwal and Mr. M.P. Mehrotra. The guarantors had guaranteed the due and punctual payment to be made by the respondent-company to the petitioners under the agreement, further the respondent-company had issued various post-dated cheques towards the instalments with an undertaking to honour the said cheques on presentation by the petitioners. It further appears that the petitioners had got deposited the documents of title from Mrs. Agarwal creating an equitable mortgage of the property to secure the due and punctual payment to be made by the respondent-company to the petitioner-company.
3. It is the case of the petitioners that the respondent-company failed and neglected to pay the hire charges under the aforesaid agreement from March, 1998, and therefore, the petitioner-company had terminated the agreement by its letter dated January 22, 2000, and requested the company to make payment of the hire charges and compensation/interest to the tune of Rs. 1,77,43,273. In addition to the aforesaid amount the petitioner-company also sought compensation from the company towards the value of the hire purchase machinery as the respondent-company had failed to return the same on and after the date of termination of the agreement. The petitioners have filed the present petition seeking winding up of the respondent-company as it had failed and neglected to pay the said debt in spite of the receipt of the statutory notice. The respondent-company however had replied to the statutory notice disputing the liability to pay the debt demanded by the petitioner-company as incorrect, inflated, arbitrary and without justification. It had also disputed the quantum of the hire-purchase instalments.
4. Shri Colabawala, learned counsel for the petitioners, has submitted that the above petition should be admitted and advertised as the debt in any case would be more than Rs. 500 which the respondent-company was unable to pay. He has further submitted that in the affidavit in reply filed by the respondent-company there is no dispute of the liability and the points which have been raised are not bona fide disputes. It is further pointed out in reply to the point taken by the respondent-company that arbitration proceedings initiated by the petitioners and the present winding up petition can both be proceeded with simultaneously and there is no bar for the present company petition to be admitted during the pendency of the arbitration proceedings for the same cause of action. Learned counsel has further submitted that whatever may be the dispute in no case the debt would be less than Rs. 500 and therefore the respondent-company deserves to be wound up. In support of his contention Shri Colabawala, learned counsel for the petitioners has relied on the following judgments:
Seksaria Cotton Mills Ltd., In re [1969] 39 Comp Cas 475 (Bom) ;
Pfizer v. Usan Laboratories P. Ltd. [1985] 57 Comp Cas 236 (Bom);
Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd. [1999] 97 Comp Cas 683 (SC).
5. Order dated March 2, 2000, passed by a learned single judge (S.S. Nijjar J.) in C. P. No. 235/99 (unreported).
6. The respondent-company in its affidavit has asserted that under the hire-purchase agreement the petitioner-company was at liberty to take possession of the machinery (8 trolleys) valued at Rs. 1,62,00,000 as soon as there were defaults in the payment of the hire charges by the respondent-company. It is pointed out that the petitioner-company were also holding the duplicate switch keys of the trolleys and they could have taken away the said trolleys. In that case the respondents would not have been liable to make payment of the hire charges as soon as the petitioners had taken away the trolleys. Secondly it is submitted that in view of the three personal guarantees and security by way of mortgage of a flat there was no case for the petitioner-company to seek winding up of the respondent-company on the ground of inability of the respondent to pay the debt of the petitioner-company. According to the respondents, the petitioners were fully secured and they had no reason to seek winding up of the petitioner. Thirdly it is pointed out that the petitioner-company has already commenced the arbitration proceedings on the ground that there existed disputes and differences between the parties. The respondent-company has appeared before the arbitration proceedings and have raised a preliminary objection regarding the arbitrator in person as he was not only appointed by the petitioners unilaterally but he had also acted as an arbitrator for the petitioner in 118 arbitration references. The respondent had alleged bias of the arbitrator of vested interest in the petitioner-company and they had requested the arbitrator to decide that point and withdraw from the arbitration. The arbitrator has not yet decided the question raised by the respondents in their letter dated January 30, 2001. Shri Parmar, learned counsel for the respondents has repeated the aforesaid points of defence and has submitted that in view of the aforesaid bona fide points of dispute between the parties the present company petition should not be admitted. Shri Parmar further submitted that the sole intention of the petitioners is recovery of the debt and therefore such petition deserves to be dismissed. In his submission in view of the pendency of the arbitration proceedings initiated by the petitioner-company there is no question of admission of such a company petition. Shri Parmar has also submitted that the transaction was not entirely a hire-purchase transaction but it amounted to a loan agreement and that dispute will have to be resolved in the arbitration proceedings or in a regular civil suit. On this point according to learned counsel both the parties will have to adduce oral and documentary evidence. Shri Parmar has submitted that in view of the full security furnished by the respondent-company to the petitioners there is no question of inability on the part of the respondent-company to pay the alleged debt of the petitioner-company. The petitioners having not discharged the guarantees or having not given up the security they are fully secured and as such the present petition should not be entertained. Shri Parmar further pointed out that the guarantors would be adversely affected if the petitioner succeeds in getting the respondent-company wound up finally and in the absence of the guarantors the company petition deserves to be dismissed for want of impleading necessary and proper parties.
7. Shri Parmar has relied on the following judgments in support of his case :
Pradeshiya Industrial and Investment Corporation of U. P. v. North India Petro Chemicals Ltd. [1994] 74 Comp Cas 835 (SC) ; 3 SCC 348 ;
State Industrial and Investment Corporation of Maharashtra v. Hargovind Vithaldas [1990] MLJ 74 Bom.
8. There is absolutely no doubt in my mind that the petitioners have filed the present petition to get wound up the respondent-company as pressure tactics for recovery of its dues under the hire-purchase agreement with the respondent-company. Admittedly there has been a dispute and difference between the parties in respect of implementation of the hire-purchase agreement, the petitioners have therefore resorted to the arbitration clause and referred the disputes though unilaterally for arbitration which is pending at Udupi, Karnataka State. The respondent-company has even questioned the correctness of the alleged debt demanded by the petitioner-company. It is significant to note that in the present proceedings the debt demanded is to the tune of Rs. 1,77,43,273 while in the notice of reference to arbitration the petitioners have put their claim to the tune of Rs. 2,37,45,378. In view of the aforesaid very large difference in the claims it is clear that the debt has not crystallised or been ascertained even approximately and the fact that the respondents have disputed the correctness of the claim is to be accepted. All the disputes and differences between the parties would be finally resolved in the arbitration proceedings when both the parties would adduce their respective evidence. In the following decisions of the Supreme Court in the cases of (1) Hind Overseas Pvt. Ltd. v. Raghunath Prasad Jhunjhunwalla . Paragraphs 36 and 37 of the said decision, the law on the point is clearly laid down (page 106) :
"Section 433(f) under which this application has been made has to be read with Section 443(2) of the Act. Under the latter provision where the petition is presented on the ground that it is just and equitable that the company should be wound up, the court may refuse to make an order of winding up if it is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.
Again under Sections 397 and 398 of the Act there are preventive provisions in the Act as a safeguard against oppression in management. These provisions also indicate that relief under Section 433(f) based on the just and equitable clause is in the nature of a last resort when other remedies are not efficacious enough to protect the general interests of the company."
emphasis' is given by me) (2) Amalgamated Commercial Traders (P.) Ltd. v. A.C.K. Krishnaswami [1965] 35 Comp Cas 456 (page 463) :
"It is well settled that 'a winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. A petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatised as a scandalous abuse of the process of the court. At one time petitions founded on disputed debt were directed to stand over till the debt was established by action. If, however, there was no reason to believe that the debt, if established, would not be paid, the petition was dismissed. The modern practice has been to dismiss such petitions. But, of course, if the debt is not disputed on some substantial ground, the court may decide it on the petition and make the order.' (vide Buckley on the Companies Acts, 13th edition, page 451) (emphasis is given by me).
We are satisfied that the debt in respect of which notice was given under Section 434 was bona fide disputed by the appellant-company. The appellant-company had received legal advice and it had acted on it. On the facts it seems to us clear that the appellant-company did not dispute the debt in order to hide its inability to pay debts. Further we are satisfied that the question whether the declaration of dividend dated December 30, 1959, is valid or not raises a substantial question as to the interpretation of Section 207 of the Companies Act. Further, whether the declaration dated December 30, 1959, is severable or not is also a substantial question. We do not propose to decide whether the declaration of dividend was valid or not or whether it was severable or not, because in these proceedings we are only concerned with the question whether the debt was bona fide disputed by the company on substantial grounds. If the debt was bona fide disputed, as we hold it was, there cannot be 'neglect to pay' within Section 434(1)(a) of the Companies Act. If there is no neglect, the deeming provision does not come into play and the ground of winding up, namely, that the company is unable to pay its debts is not substantiated."
9. I am not all inclined to admit the present petition as the petitioners ought to resort to a civil remedy and they cannot be allowed to take recourse to this extreme remedy for their doubtful debt which is yet to be crystallised. It is not the case of the petitioners that there are many other creditors who are knocking at the doors of the company and that the liabilities of the respondent-company have exceeded its assets and that it has lost its' substratum so that the company should be permanently extinguished from its existence. The petitioners are trying to force the respondent-company to surrender to the petitioner in spite of being fully secured under the personal guarantees of three guarantors and having security of a flat which would be worth of Rs. 1,50,00,000 as submitted by Shri Par-mar. The concept of inability of paying the debt cannot be applied in the case where the creditors are fully secured and they have in fact nothing to do with the alleged inability of the company to pay its debts. A secured creditor can always realise his securities to satisfy his debt. He cannot say that the debtor is unable to pay the debt.
10. In the case of Pradeshiya Industrial and Investment Corporation of U. P. v. North India Petro Chemicals Ltd., [1994] 74 Comp Cas 835, the Supreme Court has clearly laid down the following law in paragraphs 29 and 30 of the said judgment, which read as under (page 844) :
"It is beyond dispute that the machinery for winding up will not be allowed to be utilised merely as a means for realising its debts due from a company. In Amalgamated Commercial Traders (P.) Ltd. v. A.C.K. Krishnaswami [1965] 35 Comp Cas 456, 463 (SC), this court quoted with approval the following passage from Buckley on the Companies Acts, (13th edition p. 451) :
'It is well settled that a winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. A petition presented obstensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatised as a scandalous abuse of the process of the court.' Examined in the light of the above, we are unable to uphold the judgments of the court below on the facts narrated above. Our reasons are as under :
(1) The basis of the claim of the first respondent for Rs. 72.50 lakhs is the promoters' agreement dated July 1, 1988. This agreement has been cancelled by the appellant by notice dated October 51, 1992. Though the learned single judge of the High Court referred to this aspect he had not pursued it further. He has not considered as to what would be the consequence. Unfortunately, the Division Bench has overlooked this aspect when it held thus :
'In the present case, there is an allegation in the petition that there was an agreement between the company and Dalmia Dairy Industries for promoting the petitioner-company and that under the terms of that agreement the company had to pay certain amounts. There is nothing on record to suggest that such an agreement was not entered into.' (2) The first respondent is not a creditor, the appellant is not a debtor because it is a financial institution for an amount which is agreed to be subscribed. Neither the learned single judge nor the Division Bench has decided this important question whether there is a debt and the company has either neglected or is unable to pay.
(3) The same claim is the subject-matter of arbitration which is pending adjudication. Therefore, there is no definiteness about it.
(4) In view of all these, there is no prima facie dispute as to the debt.
(5) The defence raised is a substantial one and not mere moonshine. We find it difficult to appreciate the reasoning of the learned single judge when he holds that there are arguable issues and, therefore, the winding up petition has to be admitted. On this aspect the courts below failed to note that the admission of the winding up petition is fraught with serious consequences as far as the appellant is concerned."
(emphasis is given by me)
11. In view of the law clearly pronounced by the Supreme Court I find no substance in the present petition. There is no dispute about the pendency of the arbitration proceedings for the same cause of action. Therefore, the present petition cannot be entertained and the same deserves to be dismissed. As observed by the Supreme Court in the aforesaid judgment of Amalgamated Commercial Traders P. Ltd. v. A.C.K. Krishnaswami [1965] 35 Comp Cas 456, the winding up petition is not a legitimate means to seek to enforce payment of the debt which is bona fide disputed by the company. I have no doubt in my mind that the present winding up petition is really to exercise pressure on the respondent-company and the petitioner wants the respondent-company to fight on two fronts simultaneously. It is sheer abuse of process of law.
12. In view of the above-stated clear legal position settled by the Supreme Court I do not think it necessary to refer to the other judgments of our High Court cited by learned counsel for the petitioners. In the judgment of the Supreme Court in the case of Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd. [1999] 97 Comp Cas 683 (SC), however, the facts and issues were totally different. In that case the company court had referred the winding up petition to the arbitration under Section 34 of the Arbitration Act, 1940. The claim in that petition for winding up was not for money. The Supreme Court held that an arbitrator notwithstanding the agreement between the parties would have no jurisdiction to wind up the company and therefore the company court could not have directed the arbitrator to decide the winding up petition. I fail to understand how this judgment would help the petitioner-company.
13. In the aforesaid circumstances the petition fails and the same is dismissed with quantified costs as Rs. 5,000.