Calcutta High Court
Manoj Kumar Singh vs New Hariyana Transport Company on 23 April, 2015
Author: Ashim Kumar Banerjee
Bench: Ashim Kumar Banerjee
Form No. J.(2)
IN THE HIGH COURT AT CALCUTTA
Civil Appellate Jurisdiction
Original Side
Present :
The Hon'ble Mr. Justice Ashim Kumar Banerjee
And
The Hon'ble Mr. Justice Shivakant Prasad
A.P.O. No. 235 of 2014
A.P.O. No. 236 of 2014
C.P. 349 of 2013
Manoj Kumar Singh
Vs.
New Hariyana Transport Company
For the Appellant : Mr. Sakya Sen, Senior Advocate
Mr. Aniruddha Mitra, Advocate
Mr. Rohit Mukherjee, Advocate
For the Respondent : Mr. Sailendra Jain, Senior Advocate
Mr. S.N. Pandey, Advocate
Heard on : April 10 & 16, 2015.
Judgment on : April 23, 2015.
ASHIM KUMAR BANERJEE, J.
BACKDROP:
Nampa Electricals Private Limited (hereinafter referred to as the said Company) engaged New Haryana Transport Company to act as their transporter. They were supposed to transport goods from various places on behalf of the company to the destination according to the instruction given by the company. Haryana Transport would claim, their four bills remained outstanding amounting to Rs.24,000, 11,000, 18,500 and 35,000 respectively aggregating to Rs.88,500. The Company initially asked the transporter to raise the fourth bill on the consignee Radha Strips Private Limited. They did so however, they were subsequently told; Nampa would pay the said bill, despite reminders the bills were not paid. Transporter issued a statutory notice of demand vide letter dated January 7, 2013 that the Company duly received. The Company neither paid the said sum nor replied to the statutory notice of demand that gave rise to the winding up proceeding initiated by the transporter being C.P. No. 349 of 2013. At the time of admission of the winding up proceeding, the Company appeared through advocate and contested the proceeding. The learned Counsel appearing for Nampa took the plea, subject bills were not received at all and the statutory notice was not served on the registered office. The learned Judge rejected the contention and admitted the winding up petition for the said sum of Rs.88, 500. While rejecting the contention of the Company, His Lordship observed, the change of registered office was not in the knowledge of the transporter. In reply, the Company did not raise such plea. On merit, His Lordship was of the view, had the bills not been received the contemporaneous objection should have been raised in the correspondence exchanged between the parties. Hence, such belated objection was without any basis. His Lordship also negated the plea that damage was caused to the materials during transportation that would be without any documentary evidence.
His Lordship directed payment of the said sum of Rs.88, 500 together with interest at the rate of 8% per annum. His Lordship however, permitted the Company to pay it off by four equal monthly installments. The Company did not pay. They filed an application for recall of the order. In the application for recall, the Company took a new plea. According to them, out of four bills, three bills had already been paid. The total transaction would involve several lacs of rupees and the transporter never raised any grievance with regard to non- payment. The payments were paid by cheque or RTGS. They give details of payments. With regard to the fourth bill, the Company denied their liability as it was raised on Radha Strips. The Company relied on a no due certificate issued by the transporter being Annexure-F to the said application. The learned Judge heard the application. With regard to the fourth bill, the Company could not deny existence of the letter dated July 11, 2011 sent by the transporter demanding payment. His Lordship dismissed the application. The Company preferred an appeal. The Division Bench dismissed the appeal. While doing so, the Division Bench observed, the order of admission was passed considering the rival contentions hence; there could be no scope for making any application for recall. The document sought to be placed on record were already in control and custody of the Company and could have been annexed in the affidavit. The Division Bench however, observed at the last, "it is however, well-settled that the observations made in the proceedings which were basically inter-locutary do not determine the final result of the proceeding". The matter appeared before the learned Judge again at the post advertisement stage. His Lordship directed affidavits to be exchanged. The learned Judge ultimately passed an order of winding up. From the order of winding up we find, the Company expressed its desire to secure the claim as according to them payments had already been made in full. The learned Judge observed, the defence was not taken in the affidavit-in-opposition at the admission stage. Their application for recall was dismissed. The Division Bench also dismissed the appeal. There was no change to the order of admission hence; such plea could not be accepted. The above two appeals would relate to the order of admission and the order of winding up respectively. The Division Bench, while admitting the appeal, directed deposit of the principal amount and stayed the order of winding up upon such deposit being made. We are told, deposits were made, and we heard both the appeals of the above mentioned dates.
CONTENTIONS:
Mr. Sakya Sen learned Counsel appearing in support of the appeals, would raise the plea, the learned Company Judge could not have ignored the dispute raised on merit at the post admission stage. The learned Judge was duty bound to deal with the contentions raised on merit even at the post advertisement stage. To support his contention, he would rely on the following decisions:
1. Air wings Private Limited Vs. Viktoria Air Cargo Gumbh Langer Kornweg reported in All India Reporter 1995 Page- 69.
2. SRC Steel Limited Vs. Bharat Industrial Corporation Limited reported in 2005 Volume- IV Calcutta High Court Notes Page-
343.
Per contra, Mr. Sailendra Jain learned Counsel appearing for the creditor would submit, it would be too late in the day to raise dispute on merit, the Company got the opportunity at the pre-admission stage. They contested the claim on merit and lost. Their application for recall stood dismissed. Their appeal was unsuccessful hence; the learned Company Judge was right in rejecting the contention on merit raised at the post advertisement stage. OUR VIEW:
The decision cited at the bar would not have any conflict at all. The conflict so sought to be raised at the bar was unfounded and without any basis. In the case of Kotak Mahindra Bank Limited Vs. Eastern Spining Mills & Industries Limited reported in Volume- 177 Company Cases Page-15, the Division Bench considered all the relevant decisions on the issue. In the said case an additional issue was also involved as to whether a secured creditor could maintain a winding up petition. The view expressed by the Division Bench in paragraph 28-32 is reproduced below:
"A creditor who has unpaid dues could only be reasonably satisfied if company has means to pay. When the creditor serves the notice upon the company asking them to pay off the dues the company has option either to pay off or dispute the same. Even if the company has means to pay and does not pay without any reasonable cause it would be liable to be wound up. However, this question may not be relevant here as the record shows; the company was in involved circumstances due to its precarious financial condition. In our view, His Lordship should have admitted the winding up petition and directed advertisement of notice making the said proceeding a representative action. Emphasis was placed on the advertisement of notice of demand. The petitioning creditor claimed, they did not receive back the acknowledgement due card. It would have been proper, if the appellant would enquire from the postal authorities about the fate of such undelivered packet, or the acknowledgement due card. They took no step in this regard. However, this ground alone would not be sufficient to deny admission of petition. This irregularity could not be presumed as mala fide as erroneously held by his Lordship.
If we go by His Lordship's views per se on section 434 (1) (a) we might agree with the ultimate result. However, the right of a creditor, secured or unsecured, to maintain the winding up petition would lie both under section 434 (1) (a) as well as 433 (e) and (f). Mr. Mookherjee contended, it was not argued. The learned judge however mentioned about the other aspect particularly the issue of commercial insolvency and such recording, unless confronted before His Lordship, must be taken as sacrosanct.
We thus conclude, the petition by a creditor would be maintainable on both counts. Once the creditor established his right to claim the amount more than Rs 500/- the onus would shift on the company to rebut such claim by raising bona fide dispute. Once the bona fide dispute is raised it would weaken the chance to have admission of the winding up petition, otherwise admission is an obvious consequence. Even if we accept the view of His Lordship on the interpretation of section 434 (1) (a) we would not be in a position to agree with the ultimate finding as we find enough material to hold, the petition was maintainable in terms of sections 433 (e) and (f) read with sections 439 (1) (b) and 439 (2)."
Often we mix up the remedy when a creditor sues the Company for unpaid debt. If it is a civil suit for recovery of the claim, the adjudication on the claim must be final before a decree is passed. However, a special statutory right is given to a creditor of a Company limited by shares and registered under the Companies Act, inter-alia, to pray for its winding up on the ground of insolvency. To prove that the Company is insolvent, the creditor would have to raise a demand on the Company under Section 434 and if the notice is not dealt with in accordance with the provisions contemplated under Section 434 the presumption of insolvency would be in favour of the creditor. In the case of Harinagar Sugar Mills Company Limited Vs. M.W. Pradhan reported in Volume- 36 Company Cases page-426, the Apex Court observed, process of winding up was an equitable mode of execution that gave a good handle to the creditors to realize the debt by utilizing the tool of winding up. However, the main and the only relief in the winding up would not help the creditor to use such tool for recovery. Even if at the instance of a creditor, if a Company is wound up, the creditor ipso facto would not be entitled to realize the debt through sale of assets. He would have to go through a process under which the Official Liquidator would settle his claim and pay him pro-data dividend following the provisions of Section 529, 529A and 530 of the said Act of 1956. An unsecured creditor would have a remote possibility to realize its debt after winding up as he would have to wait till the priority creditors are paid off and a rest and residue would become available for his payment. In a civil suit this long drawn complex process would not be there, a creditor can simply sue its debtor even if it is a Company and on final adjudication, he would get a decree from Court that he would be entitled to put to execution. Such simple process would help him to recover the dues. The process of adjudication in a civil suit and a winding up proceeding would be totally different from each other. As observed hereinbefore, the creditor would be entitled to file a winding up proceeding based on the presumption of insolvency in case his notice is not attended to, in the manner prescribed in law. However, such presumption is not the last word, the Company would still be entitled to rebut such presumption contesting the proceeding and such rebuttal could only be done by raising a bona fide dispute. Once a dispute is raised, the Court adjudicates on the dispute and such adjudication may not have to go through the strict process of proof in accordance with the provisions of the Evidence Act. Once such adjudication is made and such adjudication goes against the Company, it is final between the Company and the creditor. In case the Company does not challenge the same higher up, such adjudication would only help the creditor to proceed further with his winding up proceeding. Once such adjudication is made and the petitions are admitted it takes the representative character upon public advertisement of the notice. Such public advertisement would bring all connected with the Company being its creditors, workers, share-holders, contributors and others whose interest would be in jeopardy in case the winding up order is made or not made. Even if we consider Rule 100 and 101 of the Company (Court) Rules 1959 we would find, the statutory rule would also permit others to carry on with the proceeding in case the original petitioning creditor was reluctant meaning thereby, at the post admission stage even if the petitioning creditor's claim is paid off privately, his exclusion from the proceeding would be of no consequence in case others would agree to carry the flag till the last. The Karnataka decision in the case of Air Wings (supra), would however permit the Company to raise dispute on the claim even at the post admission stage. We are unable to accept such situation. We do not know under what circumstance, the Karnataka Division Bench observed so. In our High Court there is a full hearing on the claim at the pre-admission stage and the adjudication after considering the rival contentions, would seal the fate of the parties on the adjudication of claim. It can be re-opened at the post advertisement stage by others questioning the locus of the petitioning creditor however, adjudication between the creditor and the Company at the pre-admission stage would remain as final unless it is challenged higher up. Any decision of a Court of law, upon hearing the rival contentions is final and binding upon the parties to the lis otherwise there would be no sanctity to such adjudication disturbing the finality on the issue. It is true, learned Judge gave directions for affidavits at the post advertisement stage. Such direction would permit the Company to oppose the winding up proceeding with the handicap; they would be entitled to raise all other issues except the dispute on merits of the claim.
In a Single Bench decision one of us (Banerjee, J.) in the case of SRC Steel Limited , however, observed, such adjudication was prima facie in nature. The judgment was carried in appeal. The Division Bench in the case of SRC Steel Limited (supra), upset the said decision and held, such adjudication was conclusive. I frankly admit, I have become wiser after going through the reasoning given in the Division Bench decision in the case of SRC Steel Limited (supra). The Karnataka decision in the case of Air Wings (supra) would hold otherwise, it observed, but after advertisement even after creditors can show or even the Company itself can show at the stage of trial that despite the prima facie finding which has resulted in admission and advertisement of the petition, there is no case for winding up. Such observation was made in a different context. If we read the judgment as a whole we would find, the question arose at what stage the enquiry on merits would be done. The Division Bench observed, a pre-admission hearing was the need of the hour. While deciding the procedural aspect, the Division Bench also prescribed the scope of enquiry and while doing so the Division Bench observed so as referred to above. Our High Court has been doing so for a pretty long time and may be the pioneer in the field of setting the procedure for a winding up proceeding. In our considered view, paragraph 22 and 23 of the said Karnataka decision could not be read in isolation. We would however, not be in a position to agree, even after a contested hearing there would still have room for further consideration on the adjudication of the claim of the creditor at the instance of the Company.
Hence, in our view, the learned Judge was right in not going into the merits of the matter at the post admission stage. We have discussed the law on the subject as the same was raised by Mr. Sen. The facts would however, not in any way change the situation even if we hold otherwise. The creditor had a claim on four unpaid bills. Initially, the Company contended, they suffered loss because of mishandling of the consignment hence; they were not obliged to pay. The learned Counsel subsequently took the plea, bills were not received, the fourth bill was not at all payable as it was raised on Radha Strips. A third round of defence was sought to be raised at the post admission stage. The Company would contend, three bills had already been paid hence; there could be no claim at all. It is settled proposition of law; a claim, if bona fide disputed, would successfully resist a winding up proceeding. Three different lines of defence indicated above, would run contrary to each other, they would however, draw a common interference, those were cooked up only to stall the process of winding up. On one defence, the Company tried to resist, they were unsuccessful. They did not challenge the same contemporaneously. They filed the application for recall with a new plea that would be totally contrary to the former. They lost again. Their appeal was unsuccessful. They did not go higher up. If we do not draw finality, there would be no sanctity to the decision of the Court of law. Their third line of defence at the post admission stage, again would run contrary to the former two, would thus not be available to them. If a Company is unable to pay its debts, it has to suffer the consequence including the winding up process. It is also true, if a Company purposely and deliberately avoids a claim irrespective of the fact whether they had means or not to pay off the same, they would suffer the consequence of winding up as "failure" and "neglect" would also attract the mischief of the winding up process. We do not find any fault with the judgment and order impugned, both at the pre- admission stage as well as the post advertisement stage. We dismiss both the appeals without however, any order as to costs.
At the initial stage, the Division Bench directed deposit of the principal amount that the Registrar Original Side is now holding as we are told. Let the Registrar continue to hold the same for two weeks after the summer vacation. We grant liberty to the appellant to approach the learned Company Judge for stay of the winding up proceeding under Section 466 after and in case they would agree to transfer the said sum along with interest to the respondents. In case such an application is made, the learned Company Judge may direct payment of the deposited sum to the creditor and then consider the prayer for stay dispassionately and without being influenced by the past conduct of the appellant and various judgments and orders of this Court passed in the proceeding so far.
Shivakant Prasad J. :
I agree.
(ASHIM KUMAR BANERJEE, J.) (SHIVAKANT PRASAD J.)