Delhi High Court
Bhagat Industrial Corporation Ltd. vs Ego Metal Works P. Ltd. on 23 May, 1975
JUDGMENT Rangarajan, J.
1. This is an application under Order 6, Rule 17, read with Section 151 of the Code of Civil Procedure to amend C. P. No. 70 of 1972, which is a petition for winding up. Rule 6 of the Companies (Court) Rules, 1959, framed by the Supreme Court under Section 643 of the Companies Act, 1956 (hereinafter called "the Act") which has not been specifically mentioned in the application has none the less to be considered.
2. A few facts leading to this application to amend the winding-up petition have to be stated. The applicant is M/s. Bhagat Industrial Corporation Ltd. (hereinafter called "the petitioning-company") which has sought, as a creditor of M/s, Ego Metal Works Private Ltd. (hereinafter called " the respondent-company "), to wind it up. According to the winding-up petition (C. P. No. 70 of 1972) the following two sums are due from the respondent-company to the petitioning-company. It was staled in paragraph 6 of the winding-up petition that a sum of Rs. 49,600 had been deposited with the respondent-company on August 1, 1969, as per receipt No. 279. The same was renewed, the respondent-company issuing receipt No. C. 305 dated March 15, 1971, for Rs. 49,600. The still earlier deposit of Rs. 40,000, to start with, as per receipt No. 214 dated June 12, 1967, was not mentioned. This amount is said to have been paid by cheque No. 474014, dated Jane 12, 1967, drawn by the petitioning-company in favor of the respondent-company and on the New Bank of India Ltd , Janpath.
3. According to paragraph 7, the petitioning-company had also deposited Rs. 1,24,000 with the respondent-company as per deposit receipt No. C. 280 dated November 30, 1969, for a period of 12 months. The said deposit was renewed by the petitioning-company and the respondent-company then issued receipt No. C. 306 dated March 15, 1971, for the said amount of Rs. 1,24,000 as being due and payable on November 30, 1971. The still earlier deposit of Rs. 1,00,000 as per receipt No. 231 dated November 30, 1967, was not mentioned.
4. On both the said sums, total amount of principal of Rs. 1,73,600, interest was due at the agreed rate of 1% per month; all the fixed deposits were to carry interest at that rate.
5. The fixed deposit receipts, both dated March 15, 1971, for Rs. 49,600 and Rs. 1,24,000 had, however, been filed along with the petition. It had also been endorsed on the former receipt by the managing director, Darshan Singh Chawla (hereinafter called "Chawla"), that the same was issued in lieu of fixed deposit receipt No. 279 dated August 1, 1969, that the interest was to run from June 12, 1970, and that the receipt was to mature on June 12, 1971. The latter fixed deposit receipt also mentions that it was by way of renewal, it contains an endorsement in manuscript by the same person that the receipt was issued in lieu of fixed deposit receipt No. 280 dated November 30, 1969, and that the receipt was to mature on November 30, 1971,
6. Photostat copies of FDR Nos. 279 and 280 bearing dates August 1, 1969, and November 30, 1969, respectively, were also filed with this petition. The former, for Rs. 49,600 bearing No. 279 and dated June 12, 1967, contains an endorsement on the top of it that the said receipt was issued in lieu of (the earlier) FDR No. 214 dated June 12, 1967, issued by the respondent-company in favor of the Punjab Distilling Industries Ltd. for Rs. 40,000 and that the interest which was to run for two years, from June 12, 1967, to June 11, 1969, at 12% per annum was Rs. 49,600. The latter (a similar FDR) for Rs. 1,24,000, also contains an endorsement in manuscript on top of it that the said receipt (C. 280) was issued in lieu of FDR No. 231 dated November 30, 1967, for Rs. 1,00,000 and that the interest for two years from November 30, 1967, to November 29, 1969, was Rs. 24,000, thus making a total of Rs. 1,24,000. The photostat copies bear what appears to be an endorsement of cancellation, obscuring from view the dates mentioned in both the receipts ; it is yet possible to see that the former was in the month of August, 1969, and the latter in November, 1969. Certain photostat copies of ledgers, etc., have been filed to which it is needless to refer at this stage.
7. The petition for winding up was preceded by a statutory notice under Section 434 of the Act stating that the above-said sums of Rs. 49..600 and Rs. 1,24,000 had been deposited; reference had been made to receipts Nos. C. 280 dated November 30, 1969, and C. 306 dated March 15, 1971 (in respect of the former) and receipt No, 279 dated August 1, 1969, and No. C. 305 dated March 15, 1971 (in respect of the latter). It was further noticed in the said notice that when the two deposits were (finally) renewed four post-dated monthly cheques with regard to the interest due on the said deposit at the agreed rate of 12% interest were issued, making a total of Rs. 20,832, but they had all been dishonoured by the company's bankers. The notice, therefore, demanded the total amounts to the petitioning-company by the respondent-company due under the said receipts within 21 days on receipt of the said notice by the company failing which an application for compulsory winding up of the company would be made in this court.
8. To the notice issued by this court to show cause why the petition should not be admitted, the new management of the board of directors of the respondent-company which had been elected, as a result of the order to hold a meeting ordered under Section 186 of the Act, replied that with reference to the claim of Rs. 49,600 the petition seemed to be " highly doubtful " and it appeared to be without any consideration. With reference to the sum of Rs, 1,24,000 it was pleaded that the said sum of Rs. 1,24,000 or any part thereof was not received by the respondent-company from the petitioning-company. Having regard to the facts set out no part of advance of Rs. 49,600 or even of Rs. 1,24,000 had been made at the time of the renewal of the two fixed deposit receipts in question.
9. The new board of directors contend that the shares held by the Punjab Distilling Industries in the capital of the respondent-company of the face value of Rs. 1,00,000 were transferred by the Punjab Distilling Industries to the late Chawla in the year 1967 for such consideration as was known to him. The amount payable by Chawla for the said transaction was not actually paid by him but he issued instead various deposit receipts in favor of the petitioning-company purporting to be receipts issued by the respondent-company against receipt of money which amount had actually not been transferred in favor of Chawla on October 29, 1967, and a receipt was issued by Chawla purporting to show receipt of money by the respondent-company on November 13, 1967, A sum of Rs. 1 00,000 was seen to have been deposited in the account of Chawla in the books of account of the respondent-company on December 31, 1967, the last date of the relevant accounting year of th^ respondent-company. It was, therefore, contended that no money had been received by the respondent-company and that the receipt was without consideration. The new board of directors further state they had not been able to find any resolution of the respondent-company whereby the said Chawla was authorised to complete the transaction in the above manner. Chawla, it is stated, owing to personal financial difficulties, was amenable to " some undue influence " of R.D. Bhagat, who styled himself as chairman and managing director of the petitioning-company. The fixed deposit receipt issued in 1967, in the circumstances mentioned above, was got renewed by the petitioning-company two years later under the hand and signatures of the late Chawla. The amount of the renewed fixed deposit receipt was Rs. 1,24,000, which appeared to have been arrived at by calculating two years' interest on the fixed deposit receipt issued in 1967 for Rs. 1,00,000. A fixed deposit receipt which had been renewed in 1969 for Rs. 1,24,000 was again renewed for the very same amount by Chawla in 1971.
10. By the present application for amendment the petitioning-company seeks to explain, by way of clarification, that on June 12, 1967, the petitioning-company had deposited a sum of Rs. 40,000 with the respondent-company with respect to which a fixed deposit receipt bearing No. 214 and dated June 12, 1967, was issued ; the petitioning-company had paid to the respondent-company the said amount by cheque No. 474014 dated June 12, 1967, drawn by the petitioning-company and payable at New Bank of India Ltd., Janpath, New Delhi--the bankers of the petitioning-company--in favor of the respondent-company, M/s. Ego Metals Works Pvt Ltd.; the said cheque was duly encashed. Since the respondent-company did not pay the agreed interest at 1% per month on August 1, 1969, the respondent-company issued a renewed fixed deposit receipt bearing No. 279 in favor of the respondent-company in the sum of Rs. 49,600 (Rs. 40,000 being principal and Rs. 9,600 as interest for a period of 2 years--from June 12, 1967, to June 11, 1969). This fact, it may be recalled, was mentioned on the said fixed deposit receipt itself. Thereafter, the respondent-company issued another renewed FDR No. 305 dated March 15, 1971, for Rs. 49,600 in favor of the petitioning-company and the fact of its being a renewal in the aforesaid manner was also endorsed on the said receipt. It is explained that the petitioning-company was originally known as the Punjab Distilling Industries Ltd, and, therefore, the original FDR No. 214 dated June 12, 1967, had been issued in favor of the said Punjab Distilling Industries Ltd. Thereafter, the name of the petitioning-company was changed to M/s. Bhagat Industrial Corporation Ltd., and as such the said FDR No. C. 279 dated August 1, 1969, and the said FDR No. 305 dated March 15, 1971, were both issued in favor of M/s. Bhagat Industrial Corporation Ltd., Khasa. The last mentioned FDR No. 305, on which interest at the agreed rate of interest at 12% per annum was payable from June 12, 1970, had not been redeemed by the respondent-company; no payment had been made towards the principal amount. Then details were mentioned concerning the cheques, totalling Rs. 20,832, which were given towards interest, but which had been dishonoured. It was further stated that shares of the face value of Rs. 1,00,000 in the capital of the respondent-company had been sold by the petitioning-company to Chawla for Rs. 1,00,000 and were transferred in his favor in the records of the respondent-company. Thereafter, Chawla requested the petitioning-company that the said amount of Rs. 1,00,000 which was payable by Chawla to the petitioning-company be got deposited by the petitioning-company with the respondent-company as a fixed deposit carrying interest at 1% per month. The petitioning-company agreed to this proposal and Chawla got a sum of Rs. 1,00,000 deposited with the respondent-company to the credit of the petitioning-company on November 30, 1967, and for the same amount the respondent-company issued its fixed deposit receipt No. 231 dated November 30, 1967, in the sum of Rs. 1,00,000 carrying interest at 12% per annum in favor of the petitioning-company. Successive renewals which were made, as noticed above, details of which have been mentioned, are also sought to be incorporated in the winding-up petition by way of amending the same.
11. With reference to the said sum of Rs. 49,600 also the further renewals and the payments of interest are also sought to be incorporated explaining how the principal sum of Rs. 1,73,000 (in respect of both) as well as interest due thereon at the rate of 1 % per annum together with future interest from May 5, 1972, are due. It is stated that the said amendment setting out these details have been sought only for the purpose of " clarifying " the position and to bring out the real matters in issue between the parties.
12. The amendment is opposed on various grounds, such as the following : there being no power to amend a winding-up petition ; if any amendment was necessary the petitioning-company might withdraw the petition filed already and file a fresh petition containing the necessary particulars. Since a substantial part of the alleged claim made in the winding-up petition is bona fide disputed no amendment shall be allowed especially when the respondent-company could claim immunity from liability on the ground of lapse of time in respect of the transactions alleged. No claim with regard to the sum of Rs. 40,000 or of Rs. 1,00,000 was made in the notice of demand dated January 18, 1972. The contentions in the reply, filed in response to the show-cause notice, are repeated : they bear on the merits of the winding-up petition. The application for winding up itself is said to be mala fide because under a scheme of arrangement the petitioning-company is seeking to take control over the respondent-company.
13. Despite the long narration of relevant facts, to bring out clearly and fully the scope of the original petition, the respondent-company's defense to it, and the nature and scope of the amendment which has been sought, it will be seen that the crux of the matter is shortly this : the petitioning-creditor had, both in the notice of demand as well as in the winding-up petition, mentioned only the amounts due to the petitioning-creditor at an intermediate stage and not what it was to start with; the petitioning-company is only seeking to make it clear that the sums of Rs. 49,600 and Rs. 1,24,000, which had been mentioned in respect of the two FDRs, the respective amounts were to start with only Rs. 40,000 and Rs. 1,00,000. Some more details are also mentioned, which are evidentiary, in support of this position. The question is whether an amendment of this kind, which does not add any fresh claim or introduce a new cause of action but only explains the approach to the claims made already, could be allowed.
14. Mr. Mahinder Narain, learned counsel for the respondent-company, has drawn my attention to Cox & Kings (Agents) Ltd. v. Phoenix Oil Co. (India) Ltd. , where Kapur J. observed that the second amendment, which had been allowed by the lower court in that case, was unnecessary if it was only for clarifying what had already been said and should not have been allowed; it was, he pointed out, an additional ground of attack introducing a case by taking away a legal right vested in the opponent which should not have been allowed at that stage. With due respect it seems to me that such an approach, putting the petitioner seeking amendment in the horns of a dilemma, is much too restrictive and seems opposed to the more liberalised approach to such matters indicated by the Supreme Court in later decisions. The present application for amendment seeks more to enlarge upon facts already stated by introducing an additional approach to the facts already pleaded (though it is stated to be mere clarification) than to introduce any substantially new fact which cannot be gathered even from the petition and the documents filed with it,
15. Mr. Mahinder Narain relied upon A.K. Gupta and Sons v. Damodar Valley Corporation , where A. K. Sarkar J. referred to the still earlier decision of the Supreme Court in L.J. Leach & Co. v. Jardine Skinner & Co. , as well as some other cases and explained that as a general rule the party would not be allowed to set up a new case or a new cause of action, particularly when a suit on a new cause of action is barred, by way of amendment. But it is also well recognised that where the amendment does not add a new cause of action or set up any new case, but it amounts to no more than presenting a different or additional approach to the facts already on the record, the amendment will be allowed even after the expiry of the statutory period of limitation (vide observations made by S.K. Das J., speaking for the Supreme Court, in P.H. Patil v. K.S. Patil ). In a very recent decision of the Supreme Court in Shanti Kumar R. Canji v. Home Insurance Co. of New York , upon which Mr. Mahinder Narain relied, the legal position was reiterated by A.N. Ray C.J, : when the proposed amendment takes away from the defendant the defense of immunity from any liability by reason of limitation it would not be allowed ; but there could be exceptional cases where amendment could be allowed despite lapse of time. It seems to me that introducing an additional approach to facts already stated would be one of such exceptional cases to which no question of limitation would apply. Ray C.J. has pointed out that if an amendment merely allowed the plaintiff to state a new cause of action, or ask a new relief, or to invoke a new ground or relief it would not be a case of deciding whether the contentions are right and hence it would not be a judgment within Clause 15 of the Letters Patent. Only if the amendment took away from the defendant any defense of immunity from liability by means of limitation would it become a judgment under Clause 15 of the Letters Patent, This may be a somewhat different aspect with which we are concerned in the present case at the moment, but I fail to see how any immunity from any liability, by reason of limitation, arises in the present case on the facts noticed above. The petitioning-company had already mentioned that two amounts were due to it; it had also made a demand for the entire amounts due to it explaining how the four postdated cheques issued towards interest were dishonoured, how the petitioning-company was not even paid the interest accruing on them and making a demand for payment of the said two amounts with interest coupled with a further statement that if they were not so paid within 21 days of the receipt of the said notice by the respondent-company an application for winding up would be made. The antecedent facts pertaining to the execution of the later fixed deposit receipt, in both casts, had no doubt not been fully stated either in the notice or even in the winding-up petition, but the amounts claimed from the company had been set out with particularity ; the documents from which such antecedent facts could bo gathered, as noticed above, had not only been filed with the petition but the respondent-company had dealt with them in the reply. The proposed amendment seeks to explain how the two amounts claimed became payable tracing the entire history of the monetary transactions between the petitioning-company and the respondent-company. What has been stated in both the cases was not the amounts deposited to start with but what they were when the fixed deposit receipts were renewed at a later stage. It is worth emphasising, by way of repetition, that the respondent-company had set out in its reply its own version of the monetary transactions between the parties. Hence, I am unable to visualise any possibility of prejudice to the respondent-company by the amendment being allowed--the amendment, on the other hand, seems necessary for determining the real question in controversy between the parties. The question whether in the light of the facts pleaded by the respondent-company there is a bona fide dispute or not will have to be gone into later. No new cause of action is thus sought to be introduced ; no new case is being sought to be made out. As pointed out by S.K. Das J. in P.H. Patil's case , all amendments ought to be allowed which satisfy the two conditions: (a) not working injustice to the other side, and (b) necessary for the purpose of determining the real questions in controversy between the parties.
16. Mr. Mahinder Narain relied upon the decisions in In re Cuthbert Cooper & Sons Ltd. [1937] 2A11 ER 466; [1938] 8 Comp Case 131 (Ch D), In re Lundie Brothers Ltd. [1965] 2 All ER 692; 35 Comp Case 827 (Ch D) as well as In re East Kajoria Collieries P. Ltd. [1965] 35 Comp Case 180 (Cal) for the position that if the petition for winding up does not contain sufficient grounds fresh evidence could not be admitted to enable the petitioner to obtain an order of winding up. But these cases do not touch the question whether an amendment could be allowed or not even on a winding-up application. It is well settled, as a matter of procedure in civil proceedings, that evidence will not be permitted on an aspect not pleaded and that even if there is any evidence without the necessary pleading in that respect the same could not even be looked into. But this does not even touch the question, which is distinct, whether the pleadings can be allowed to be amended
17. Mr. Mahinder Narain next contended that a winding-up petition must bear some such analogy to the insolvency law and relied, in this connection, upon the decision of Abdur Rahman J. in Palaniappa Chettiar v. Chidambaram Chettiar AIR 1938 Mad 53, where it was pointed out that an amendment of a petition to adjudge a debtor insolvent should not be allowed if a new cause of action was sought to be substituted thereby and the debtor would be prejudiced. Those are different considerations. The same learned judge also observed that the court could liberally allow amendments in insolvency proceedings just as in the case of other cases to which the Civil Procedure Code applied.
18. Mr. Mahinder Narain finally contended that winding-up petitions could not be allowed to be amended at all and that he had been unable to come across even a single case of a winding-up petition having been allowed from the reported decisions either in England or in India which he has been able to study. I am not aware of the practice, Rules and directions of the English courts in this respect; Mr. Mahinder Narain said that he had not investigated that affect. It seems sufficient to refer to the specific rule which had been framed by the Supreme Court under Section 643 of the Act, after consulting the High Courts, as follows :
" 6. Practice and procedure of the court and provisions of the Code to apply.--Save as provided by the Act or by these Rules, the practice and procedure of the court and the provisions of the Code so far as applicable, shall apply to all proceedings under the Act and these Rules. The Registrar may decline to accept any document which is presented otherwise than in accordance with these Rules or the practice and procedure of the court."
19. These rules came into force with effect from October 1, 1959, and were, as already noticed, framed under Section 643 of the Act, which reads as follows:
" 643. (1) The Supreme Court, after consulting the High Courts,--
(a) shall make rules providing for all matters relating to the winding up of companies which, by this Act, are to be prescribed; and may make rules providing for all such matters as may be prescribed, except those reserved to the Central Government by Sub-section (5) of Section 503, Sub-section (3) of Section 550, Section 552 and Sub-section (3) of Section 555 ; and
(b) may make rules consistent with the Code of Civil Procedure, 1908,--
(i) as to the mode of proceedings to be had for winding up a company in High Courts and in courts subordinate thereto......"
20. The above Rule 6 is wide enough to enable a court to order amendment even on a winding-up petition if the circumstances of the case warrant the same.
21. After I had dictated this judgment and set it down for being pronounced I noticed from the digest of cases prepared by the High Court that T.P.S. Chawla J. had taken the same view as I have done of amending pleadings in proceedings under the Companies Act, relying on Rule 6 which had made the Civil Procedure Code, including Order VI, Rule 17, applicable to such proceedings (vide Inder Kumarjain v. Osra Bottling Co. (P.) Ltd. [1977] 47 Comp Case 194 (Delhi)). My attention had not been drawn to the above-said decision of Chawla J., which I have since perused. He had referred to the decision in Bastar Transport and Trading Co. v. Court of Wards, Bastar [1955] 25 Comp Case 108 (Nag) for coming to the conclusion that if the court did not have the power to amend the pleadings in proceedings under the Companies Act it would lead to the '' astonishing result" that such a pleading could never be amended. I am bound by the said decision; I respectfully concur in it.
22. Since I was not aware of the said decision when I reached the conclusion I did in this case, the above decision fortifies me in the view I have taken. In the Nagpur case, amendment of a winding-up petition was allowed, relying on Section 141 of the Code of Civil Procedure and even without rule 6, which did not exist then.
23. Whether there is a bona fide dispute concerning the debts claimed by the petitioning-company is one which can be gone into after admitting the petition and recording the evidence. I find that such a course was adopted in In re Welsh Brick Industries Ltd. [1946] 2 All ER 197 (CA). All that is being decided at this stage is the propriety of allowing the amendment sought for. It seems to me that the amendment has, in the interest of justice, to be allowed. The petitioner will file an amended petition on or before the 15th of July, 1975, with a copy of the same to the respondent-company who will file further reply, if any, in addition to the one already filed within two weeks thereafter. The application for amendment is allowed subject to the payment of costs of Rs. 250. Time for payment of costs till 15th July, 1975. The main petition to be listed on 18th July. 1975.