Orissa High Court
Bichitrananda Panda vs Orissa Construction Corporation Ltd. on 23 February, 1995
Equivalent citations: [1999]97COMPCAS345(ORISSA), AIR 1995 ORISSA 249, (1999) 97 COMCAS 345 (1996) 1 COMLJ 113, (1996) 1 COMLJ 113
Author: A. Pasayat
Bench: A. Pasayat
JUDGMENT Pasayat, J.
1. This is an application seeking for an order that Orissa Construction Corporation Ltd. (hereinafter referred to as the 'company') be wound up on the ground that it is insolvent and unable to pay its debts.
2. Background facts as indicated in the application are essentially as follows :
The company was incorporated on 22nd May, 1962 (wrongly described in the petition as "in the month of 22nd May, 1962") under the Companies Act, 1956 (in short, the 'Act') as a Public (Private) Company Limited by shares. The company is indebted to the petitioner for a sum of Rs. 16,000/- for, and interest admissible from the date of delay, till final payment. The amount is payable for professional services rendered and the details are given in Annexure-A to the petition. Petitioner asked the company for payment of his dues, by his notice of demand duly signed, which was served on the company at its registered office on 23-4-1987. But the company failed to pay the sum or any part thereof. It was accordingly stated that the company is insolvent and unable to pay its debts and therefore, should be wound up under the provisions of the Act.
3. From Annexure-A it appears that the petitioner, a qualified Chartered Accountant entered into partnership with one Mr. G. C. Panda, Chartered Accountant on 20-8-1983 after due intimation to the Institute of Chartered Accountants of India. The partnership between Mr. G. C. Panda and petitioner was being run in the name and style "M/s. G. C. Panda & Co., Chartered Accountants" (hereinafter referred to as 'firm'). On 29-8-1985 the firm was appointed by the company to report upon accounts of ten years (1976-86) of Upper Kolab Tunnel Project. Time was granted till 15-12-1986 and a consolidated sum of Rs. 42,000/- was fixed for fees and expenses. The firm asked the petitioner to take up the work with his team. In total a sum of Rs. 6,000/ - was paid by the company a week after professional bill was submitted. Balance sum of Rs. 36,000/- was not paid, and as such petitioner could not carry on profession for livelihood. On 2-4-1987, the petitioner applied to the Legal Aid and Advice Board for redress. On behalf of petitioner the Board sent a notice on 23-4-1987 to the company to make payment or offer reason for non-payment. There was no reply given by the company to the Board. However, on 4-8-1987 a sum of Rs. 10,000/-was paid. Petitioner's grievance relates to claimed balance of Rs. 18,000/- and interest admissible from the date of delay till payment is made.
4. Stand of the company is that on 12-10-1988, by letter No. 9634 the Financial Advisor and Chief Accounts Officer of the company intimated the firm that a consolidated remuneration of Rs. 42,000/- inclusive of all expenses and costs was stipulated to be paid on satisfactory completion of audit and submission of report in respect of all projects. However, on receipts of the report, a sum of Rs. 24,000/- was released in three instalments, and balance was withheld on several deficiencies in conducting internal audit were noticed. There were brought to the notice of the firm on 16-2-1987 and 30-4-1987, to which satisfactory reply was not received. After careful consideration of the matter with a view to settle the dispute, the Board of Management decided to pay a further sum of Rs. 10,000/- towards full and final settlement of the claim after getting an undertaking to that effect. However, petitioner's case is that withholding has been done on irrelevant and colateral considerations. Several details have been given which according to petitioner justify his claim.
5. Mr. B. S. Tripathy, learned counsel for petitioner states that there is no dispute about entrustment of the work to the firm and therefore, withholding of a part of agreed amount was with oblique motive. Learned counsel for company states that company has taken into consideration all relevant aspects and has decided that in view of deficiencies noticed a consolidated sum of Rs. 10,000/- in addition to what was paid earlier in full and final settlement would be just. There was dispute as to who was to be recipient of the amount, as petitioner has left M/s. G. C. Panda & Co. sometimes in 1987. It is further stated that petition is misconceived, because there is bona fide dispute about claim and powers of winding up are not to be exercised in such disputed case. It is also stated that a letter was received from M/s. G.C. Panda & Co., stating that petitioner has left the firm. On receipt of this letter, petitioner was informed by company in his new address to take necessary steps in the matter. Since petitioner had ceased to be partner of M/s. G. C. Panda & Co., without proper undertaking being given by other partners that payment to petitioner would be payment to the firm, there is no scope for making payment. In fact firm was advised by letter dated 11-12-1990 to send authorisation letter in favour of petitioner, authorising him to receive Rs. 10,000/-. Thereafter no action has been taken either by petitioner or by" the firm to comply with requirement of letter dated 10-11-1990, a copy of which is annexed as Annexure-E to the counter-affidavit filed.
6. To begin with it is noticed that petition itself is very confusing. Petitioner, who is a Chartered Accountant, has in paragraph-2 of the petition stated that company is a public (private) company. Such a situation is inconceivable in law. Notice of demand dated 23-4-1987, to which reference has been made at paragraph-2 of the application, is stated to have been signed by the petitioner. But subsequently in Annexure-A to the petition, it has been stated that said demand was made by Legal Aid and Advice Board and since the company did not choose to give any reply to the letter of the Board, that amounted to non-denial of claim. It is stated that the Board has sent notice on behalf of petitioner.
7. Section 425 of the Act provides for modes of winding up; which can be by any of the three modes viz. (a) by Court or (b) Voluntary or (c) subject to supervision of Court. So far as winding up by Court is concerned, Section 433 of the Act deals with it. I A company may be wound up by Court under any of five circumstances enumerated, one of which is if company is unable to pay its debts, as provided in Clause (a) of Section 433. A debt is a sum of money which is now payable or will be payable in future by reason of a present debiture in preasenti solvendum in future. The term 'debt' refers to a definite sum and does not include any claim for liquidated damages of a sum of money which is capable of being ascertained. A debt in other words, is a determined or definite sum of money payable immediately or at a future date.
8. At this juncture, it is necessary to take note of Section 434 of the Act, which deals with situations when a company is deemed to be unable to pay its debt. Clause (a) of Subsection (1) of Section 434 is relevant. It provides that a company shall be deemed to be unable to pay its debt if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor. Sub-section (2) provides that the demand referred to in Clause (a) of Sub-section (1) shall be deemed to have been duly given under the hand of the creditor if it is signed by any agent or legal advisor duly authorised on his behalf, or in the case of a firm, if it is signed by any such agent or legal adviser or by any member of the firm.
9. Machinery for winding up is not to be utilised as merely means for realising debts' due from a company. (See Amalgamate Commercial Traders Pvt. Ltd. v. A. C. K. Krushnaswamy (1965) 35 Company Cases 456 : 1965 SC (Notes) 14 (SC)). As observed by Buckley on the Company Act (13th edition page 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 company. A petition presented ostensibly for winding up order but really to exercise pressure will be dismissed and under circumstances may be stigmatised as a scandalous abuse of process of the Court. At one time petitions founded on disputed debt were directed to stand over till debt was established by action. If however, there was no reason to believe that debt if established would not be paid, the petition was dismissed. Modern practice has been to dismiss such petition. But, of course, if debt is not disputed on some substantial ground, Court may decide it on the petition and make the order, if the debt was bona fide disputed, as I find in the present case, there cannot be "neglect to pay" within Section 434(1)(a) of the Act. If there is no neglect the deaming provision does not come into play, and the ground of winding up namely that the company is unable to pay its debt is not suslantiated. On a combined reading what has been stated in paragraph-7 of the petition and statement made in Annexure-A, it appears that according to petitioner, Legal Aid and Advice Board's letter dated 23-4-1987 constituted demand. The said Board cannot be said to be an agent or legal adviser of petitioner. Therefore, there was no demand in the eye of law. Additionally, in view of facts situation as indicated above, there can be no manner of doubt that there was bona fide dispute regarding the claim.
10. Two rules are well settled. First is the debt is bona fide disputed and defence is a substantial one, the Court will not wind up the company. Where the debt is undisputed the Court will not act upon a defence that the company has the ability to pay the debt but chooses not to pay that particular debt (See In re A company (1894) 2 Ch 349). 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 In Re Tweed' Garages Ltd. 1962 Ch 406 : (1962) 32 Com Cas 795). The principles on which the Court acts are (1) that the defence of the company is in good faith and one of substance; (2) the defence is likely to succeed in point of law; and (3) the company adduces prima facie proof of the facts on which the defence depends. Another rule which the Court follows is that if there is opposition to making of the winding up order by the creditors, the Court will consider their wishes and may decline to make the winding up order. Under Section 557 of the Act, in all matters relating to the winding up of the company the Court may ascertain the wishes of the creditors. These aspects have been highlighed in Madhusudan Gordhandas & Co. v. Madhu Woolen Industries Private Ltd., AIR 1971 SC 2600 : (1972) 2 SCR 201. A question arises as to what is a bona fide dispute. The expression "bona fide" in common English parlance means genuine, good faith. A bona fide dispute is a dispute based on a substantial ground. If there is a dispute about the debt, the Court has to consider all the facts placed before it, and arrive at a decision whether the dispute is genuine and has been raised bona fide. An order under Clause (e) of Section 433 of the Act, being discretionary is, as a general rule, made only when it is shown that the company is commercially insolvent. The Court has to decide whether it would be in the interest of justice to wind up the company.
11. The expression "neglects to pay the sum demanded" in Section 434(1)(a) of the Act is not equivalent to the word "omitted". Neglect to pay a debt on demand is omission to pay without reasonable cause when a debt is bona fide disputed by the alleged debtor, there is no neglect to pay. According to Mr. Tripathy, dispute is not bona fide because company has accepted to pay Rs. 10,000/-. Letter of the company, copy of which is annexed as Annexure-B to the counter affidavit, clearly indicates that balance amount was withheld as several deficiencies in conducting internal audit was noticed. Those were indicated by letters dated 16-2-1987 and 30-4-1987 of the company to the firm and no satisfactory reply was received. Further question as to whom amount would be paid has remained unsolved. I do not consider this to be a fit case for accepting prayer for winding up. There is no material to show that the company has reached a stage of commercial insolvency and is unable to pay its debts. On the other hand, as elaborately discussed above, there is bona fide dispute about claim of petitioner. However, the accepted position is that the company has agreed to pay Rs. 10,000/- on submission of requisite authorisation by the firm and comply with other requirements as indicated by the company to the petitioner as well as the firm. I have no doubt on compliance with the requirements the amount shall be paid.
The petition is devoid of merit and is dismissed.