Andhra HC (Pre-Telangana)
Psm Spinning Ltd., Hyderabad vs A.P. State Financial Corporation, ... on 5 April, 1999
Equivalent citations: 1999(3)ALD251, 1999(3)ALT244, [1999]98COMPCAS303(AP)
JUDGMENT
1. This is an application for revoking the order of admission passed in CP No.91 of 1997 dated 24-12-1998 or., in the alternative to defer the order of advertisement of admission of petition in two daily newspapers, pending disposal of CP No.91 of 1997.
2. The respondent-Corporation has filed an application under Section 473(e) of the Companies Act for winding up of the petitioner-Company. On 22-8-1997, notice before admission was ordered to be served on the petitioner-Company. Accordingly notice before admission was, served on the petitioner-Company. On 16-10-1997, the petitioner-Company had filed its counter. Thereafter reply to the counter was also filed. Arguments at length of the learned Counsel of both the sides were heard and on 24-12-1998 petition was admitted. It was ordered that admission of petition be advertised in two news papers as per rules. At the request of the learned Counsel for the petitioner to suspend the operation of the order on the ground that the petitioner-Company intends to prefer an appeal against the impugned order of admission, the operation of the impugned order was suspended to enable the petitioner to prefer an appeal and to bring stay order. The petitioner Company preferred an appeal in OSA No.2 of 1999. The appellate Court on 24-2-1999 dismissed the appeal at the admission stage observing that the Company Judge having been satisfied, prima facie, that the petitioner-Company is indebted to the respondent-Corporation, has admitted the petition, that no final order has yet been passed and at this stage there is no reason to entertain this appeal. It was also observed that it would be open to the petitioner to make an application for any relief whatsoever before the Company Judge and the dismissal of the appeal will not be taken into consideration by passing appropriate order in the facts and circumstances of the case and demand of justice.
3. The petitioner has alleged almost all the similar facts which have been mentioned in the counter filed in CP No.91 of 1997 and has pleaded that during the financial year 1996-97 as per the balance-sheet the assets of the petitioner-Company were Rs.,48 crores as against its liability of Rs. 34 crores and similarly for the financial year 1997-98 the assets of the petitioner-Company were Rs.50 crores as against its liability of Rs.37 crores and in addition to that there were huge reserves to the tune of Rs.31 crores and 36 crores for the aforesaid financial years respectively. The turnover of the petitioner-Company for the aforesaid financial year stood at Rs.120 crores and Rs.135 crores respectively. The petitioner-Company had paid Central Excise duty amounting to Rs. 17 crores and Income-tax amounting to Rs.59 crores financial year 1996-97 and Central Excise duty of Rs.16 crores and Income-tax amounting to Rs.8 lakhs towards financial year 1997-98 and, therefore, it cannot be said that the petitioner-Company is unable to pay its debt. It has also pleaded that if admission of the petition is published in the news papers, it would cause immeasurable hardship and loss to the petitioner's interest. M/s. Reliance Industries has issued certificate dated 18-1-1999 that the petitioner-Company had directly paid the price of the goods purchased by it from M/s. Reliance Industries through invoices in question and, therefore, no amount is due to be paid by the petitioner-Company to the respondent-Corporation under the Hundies in question. A serious question has to be decided during the trial and, therefore, admission of petition should not be advertised in news papers or else the business of the petitioner-Company shall badly suffer. It has been lastly pleaded that initiation of winding up proceedings of the petitioner-Company by the respondent-Corporation would be abuse of the process of the Court and, therefore, the order'of admission dated 24-12-1998 in question should be revoked or in the alternative the order of advertisement should be deferred pending disposal of CP No.91 of 1997.
4. The respondent-Corporation through its counter has alleged that after elaborate arguments made on behalf ofboth sides, elaborate order admitting the petition had been passed. The petitioner intends to drag the matter without allowing the paper publication. The relief of deferring the publication of admission of the petition cannot be granted because it is clear case of the petitioner inability to pay the debts and, therefore, application is liable to be dismissed.
5. In the reply affidavit, it is alleged that there are about 2500 employees working in the two units of the petitioner-Company and the plea of bona fide dispute can be adjudicated in the Civil Court, therefore, advertisement should be deferred till completion of trial.
6. At the outset, it is to be remarked that the learned Advocate appearing for the petitioner-Company has stated that the petitioner-Company does not press its plea for revocation of the order of admission dated 24-12-1998, but only press its demand for postponement of publication of the order of admission in news papers until the petition is decided on merits.
7. Relying on the case of the National Conduits (P) Ltd. v. S.S. Arora, , it has been argued on behalf of the petitioner-Company that financial status of the petitioner-Company is very sound and about 2500 workers are employed in two units of the petitioner-Company and, therefore, admission of petition should not be advertised in the news papers until the Court records the finding that the petitioner-Company has failed to establish the bona fide dispute, particularly because in paragraph 15 of the order dated 24-12-1998 it has been observed that the defence taken by the petitioner-Company can be investigated only when the parties to the petition adduce oral evidence, because until that is done, it cannot be concluded that the defence of the petitioner-Company is bona fide or not; otherwise, the advertisement shall hit badly the business of the petitioner-Company. Reliance has aiso been placed on the judgment passed by the Division Bench of this Court in OSA No. 15 of 1996, dated 29-10-1996 in the case of Nucon Industries Pvt. Ltd. v. Vikas Jalan.
8. On the other hand, it has been urged on behalf of the respondent-Corporation that once the petition is admitted after hearing both sides the admission of petition has to be advertised in news papers as per Rule 96 of the Companies (Court) Rules, 1959.
9. The question that falls for determination is whether the admission ofpetition, where the petition has been admitted after hearing both the sides to the petition, has to be advertised in News Papers under Rule 96 read with Rule 24 of the Companies (Court) Rules, 1959.
10. Rule 96 of the Companies (Court) Rules, 1959 reads as under :
"Upon the filing of the petition, it shall be posted before the Judge in Chambers for admission of the petition and fixing a date for the hearing thereof and for directions as to the advertisement to be published and the persons, if any, upon whom copies of the petition are to be served. The Judge may if he thinks fit, direct notice to be given to the Company before giving directions as to the advertisement of the petition."
Rule 24 of the Companies (Court) Rules, 1959 which relate to the advertisement of the petition provides as under :
"(1) Where any petition is required to be advertised, it shall, unless the Judge otherwise orders, or these Rules otherwise provide, be advertised not less than fourteen days before the date fixed for hearing, in one issue of the Official Gazette of the State or the Union Territory concerned, and in one issue each of a daily newspaper in the English language and a daily newspaper in the regional language circulating in the State or the Union Territory concerned, as may be fixed by the Judge.
(2) Except in the case of a petition to wind up a Company, the Judge may, if he thinks fit, dispense with any advertisement required by these Rules."
11. The Apex Court in the case of S.S. Arora, (supra), considering the aforesaid Rules has observed that when the petition is filed before the High Court for winding up of the Company under the order of the Court, the High Court (i) may issue notice to the Company to Show-cause why the petition should be admitted; (ii) may admit the petition and fix a date for hearing and issue a notice to the Company before giving directions about advertisement of the petition; or (iii) may admit the petition, fix the date of hearing of the petition, and order that the petition be advertised and direct that the petition be served upon persons specified in the order. A petition for winding up cannot be placed for hearing before the Court, unless the petition is advertised; that is clear from the terms of Rule 24(2). But that is not to say that as soon as the petition is admitted, it must be advertised. In answer to a notice to show cause why a petition for winding up be not admitted, the Company may show-cause and contend that the filing of the petition amounts to an abuse of the process of the Court. If the petition is admitted, it is still open to the Company to move the Court that in the interest of justice or to prevent abuse of the process of Court, the petition be not advertised. Such an application may be made where the Court has issued notice under the last clause of Rule 96, and even when there is an unconditional admission of the petition for winding up. The power to entertain such an application of the Company is inherent in the Court and Rule 9 of the Companies (Court) Rules, 1959, which reads : "Nothing in these Rules shall be deemed to limit or otherwise affect the inherent powers of the Court to give such directions or to pass such orders as may be necessary for the ends of justice to prevent abuse of the process of the Court" reiterates that power.
12. After hearing the aforementioned Rules and the law laid down in S.S. Arora case (supra), it has been held in the case of Soujanya Hotels (P) Ltd. v. N. Satya-narayana Murthy, (DB), that if notice is issued before admission of the petition, the Company may appear and also show-cause as to why the Company Petition should not be admitted and also may establish that the Company Petition filed is intending to abuse of the process of Court and is not bona fide and it was filed with mala fide intention to pressurise the Company to pay the amounts which are otherwise disputed bona fide. It is to be further noticed that "this procedure and the discretion is vested in the Company Court for the reason that the Company Petition is primarily for winding up of the Company and it is not the recognised mode of recovery of a debt. The remedy for recovery of a debt is primarily by way of a suit. All these facts can be placed before the Company Court, if notice before admission is given on the Company Petition, to the Company. That is the reason why a discretion is conferred on the Company Court to issue notice before either admitting the Company Petition or before directing the advertisement of the admission of the Company Petition, if it is admitted. The most important thing to be kept in mind is that in a given case, if ultimately the Company Court comes 'to the conclusion that the petition itself is riot bona fide and actuated by an ulterior motive, and dismissed the application, if the admission of the petition is already advertised, the damage done to the Company cannot be undone. That is the reason why the learned Judges clearly held in the said decision of S.S. Arora (supra) and in the decision reported in Cotton Corporation of India Ltd. v. United Industrial Bank Ltd. & others, Vol. 55-1984 Comp.Cas. 423, that there is 'sufficient' built-in safeguard in the provisions of the Companies Act and the rules framed thereunder, which would save the Company from any adverse consequences. The built-in safeguards are the ones referred to by us in the foregoing paragraphs."
It has also been observed in the case of Soujanya Hotels (supra) that Rule 9 ofthe Companies (Court Rules) 1959 enjoins "the Company Court to give such directions or pass such orders as may be necessary for the ends of justice to prevent abuse of the process of the Court. The inherent power preserved by this Rule enables either party and in particular, the Company against which this petition is filed, to file an application for revoking the admission and also in a given case to stay the order directing the advertisement. All these facts and circumstances are stated to be the built-in safeguards, which enable the prevention of abuse of the process ofthe Court."
13. Relying on the case of S.S. Arora (supra), the Division Bench of the Gowhati High Court in the case of MVI. Ahmadur Rahman v. Registrar of Companies, (1973) 43 Comp.Cas. 502, has held that the petition for winding up of Company cannot be placed for hearing before the Court unless the petition has been advertised as required under the Rules.
14. In the case of Falcon Gulf Ceramics Ltd. v. Industrial Designs Bureau, , a Division Bench of Rajasthan High Court relying on the case of S.S. Arora (supra) has held that compliance of the Rule 96 of the Company (Court) Rules, 1959 is a must before any order of compulsorily winding up is made.
15. In the case of M/s. Nucoti Industries Pvt. Ltd., (supra), the Company Petition was admitted and before advertising the petition in newspapers, all the evidence had been recorded by the Company Judge on the orders of the appellate Court and thereafter the Company Judge had ordered for the advertisement of the petition in newspapers before passing orders on merits. The respondent-Company had alleged that the debt was not genuine. Under the aforesaid peculiar circumstances of the case, the Division Bench of this Court had directed the Company Judge to examine and record the finding as a preliminary issue as to whether infact there was debt due to the respondent-Company from the petitioner-Company and if it was found genuine one, further proceedings, publication of winding up application, should be gone through and the matter be decided in accordance with law. It is pertinent to note that the question whether the Court is bound to advertise the admission of petition which petition has been admitted after hearing both sides to the petition or not, it appears, was neither raised nor decided by the Division Bench of this Court and as noted above, a preliminary Issue was directed to be framed in view ofthe fact that all the evidence has already been recorded by the time the appeal had come for final hearing. Such is not the case here. The trial is yet to begin.
16. The position of law, as gathered and gleaned from the decision ofthe Apex Court as also from the decision of this Court and decisions of Gowhati and Rajasthan High Courts, is that where the High Court admits the petition and thereafter issues notice to the Company before giving directions about advertisement ofthe petition or when the High Court admits the petition and simultaneously orders that petition be advertised and directs that petition be served on the persons specified in the order; the respondent-Company is competent to move the Court that in the interests of justice or to prevent the abuse of the process of Court, the petition should not be advertised. Similarly, when the High Court issues show-cause notice to the Company as to why the petition should not be admitted, the respondent-Company may show-cause that petition should not be admitted and submit that filing of the petition is abuse of process of Court and it should be dismissed. But wherein answer to the show-cause notice to the respondent-Company before admission of petition, both sides are heard before admission and, thereafter petition is admitted for hearing; Advertisement of petition in News Papers is mandatory because petition for winding up cannot be placed for hearing before the Court unless the petition is advertised under Rule 96 read with Rule 24 of the Companies (Court) Rules, 1959, particularly in the light of sub-rule (2) of Rule 24 bid. The advertisement in the last course is the requirement of law.
17. In the case on hand as noted above notice before admission was served on the respondent-Company, which was filed a detailed counter disputing its liability to pay any amount to the petitioner-Company. After hearing the learned Counsel of both sides at length and after perusal of the record what was found has been mentioned in Paragraphs 9 and 10 of the impugned order, which reads as under:
''9. The Minutes of the Board of Directors of the respondent-Company dated 30-11-1995 reveal that the respondent-Company had decided to purchase polyester stable from the manufacturers/agents on 90 days credit basis, and had authorised two of its Officers to accept the bills of exchange drawn by the polyester fibre manufacturers/agents. The letter dated 16-12-1995 addressed to the State Bank of Hyderabad contains the specimen signatures of the Officers of the respondent-Company as the signatures were required in connection with the acceptance of Hnndies drawn by their raw material suppliers. On 10-1-1996, the Agent of Reliance, i.e., Srinivasa Fibre, had forwarded the balance-sheets of the respondent-Company for permitting it to discount the bills of the respondent-Company which in turn on 25-1-1996 had sanctioned the bill discounting facilities to the respondent-Company. The various invoices which are on record reveal that they were accepted by the respondent-Company and the respondent-Company had accepted all the six sets of Hundies from time to time which were payable to the petitioner-Corporation. The respondent-Company has also from time to time addressed letters evidencing receipt of material in good condition supplied by Srinivasa Fibre against various invoices. One such letter is dated 31 -5-1996.
10. From the aforesaid material on record, prima facie, it appears that raw material was supplied from time to time by Reliance through its agent Srinivasa Fibre to the respondent-Company which had, after issuing letter of acceptance of raw material in good condition, accepted the various sets of Hundies payable to the petitioner-Corporation. The respondent-Company has not filed any document in an attempt to show that the arrangement of distribution of loan obtained under the bills discounting facility had been disturbed between Srinivasa Fibre and the respondent-Company in the ratio of 60:40, was within the knowledge of the petitioner-Corporation. There is 110 document on record which shows that the respondent-Company has directly paid the amounts shown in the invoices to Reliance against the goods delivered to it. These questions may, however, be decided during the course of enquiry if the parties to the petition adduce oral evidence in support of their rival contentions. Therefore, on the basis of the aforesaid material on record, it is difficult to conclude at this stage of the proceedings that the respondent-Company had not accepted the Hundies for consideration, that is to say, not against the goods purchased on credit through Srinivasa Fibre. True that as per one of the terms of the sanction letter dated 25-9-1995, the petitioner-Corporation had a second charge over the goods but it is of no help to the petitioner-Corporation because this again, prima facie, shows that the bill discounting facility was provided to Srinivasa Fibre against the goods transacted and it was not a simple money transaction."
18. The defence of novation of contract was also not accepted for the reasons stated in the Paragraph 11 of the impugned order. Then in paragraph 15 of the impugned order, it was found that prima facie it appears that the respondent-Company is indebted to the petitioner-Corporation. There was no document on record which showed that distribution of loan under the bills of discount facility between M/s. Srinivasa Fibre Company and the respondent-Company was in the ratio of 60:40 and it was within the knowledge of the creditor Company. Therefore, it was observed that the allegation of the respondent Company (Petitioner in this application) that it was liable to pay only 40% of the total liability cannot be decided conclusively until oral evidence is recorded. However, for the purpose of admission of the petition for final hearing it was prima facie found that the Company was indebted to the Corporation. The question whether the financial position of the respondent-Company is sound or not and 2500 workers would become jobless if the winding up order is passed, are the questions to be considered at the time of hearing the petition. As noted above until petition is advertised, it cannot be fixed for hearing.
19. There appears to be no need to refer various decisions cited and relied by the learned Counsel appearing for the petitioner-Company for the simple reason that it has been observed in those cases as to what are the considerations which should be looked into at the time of deciding the winding up petition on merits after the enquiry is held as has already been observed in para 14 of the impugned order dated 24-12-1998. Since enquiry is yet to begin in this case, cases cited by the learned Counsel of the petitioner-Company are of no assistance. On a careful consideration of the aforesaid facts and circumstances, it cannot be said that the respondent-Corporation has abused process of the Court by filing the winding up petition. Pritna facie, it has been found that the petitioner-Company is indebted to the respondent-Corporation. After publication is made, other creditors of the petitioner-Company, if any, may come to the Court either to support or to oppose the winding up petition, and similarly workers through their Union may also support or oppose the petition and their wishes may be considered at the time of passing he final order.
20. For the foregoing reasons, the application to defer the order of publication of the admission of petition in news papers is dismissed.