HARIOM FIRESTOCK LIMITED Vs. SUNJAL ENGINEERING PVT LTD

JUDGEMENT

(1.) THIS is a proceeding under Section 433 of the Companies Act, 1956, and the petitioners contend that the respondent-company is liable to be wound up, the principal ground being that a substantial amount of money that was claimed from the respondents is outstanding, the respondents having failed to pay it should be deemed to have become commercially insolvent and, therefore, disqualified from continuing to do business. The facts are hardly material because the two learned counsel who have argued the case with a high degree of skill and have been of considerable assistance to me, have basically proceeded on points of law. The petitioners claim that in the year 1987, they had advanced a sum of Rs. 6,00,000 to the respondent-company and that the amount being outstanding, they were required to institute a recovery suit in the civil court at Ahmedabad, since the claim was getting time-barred. According to them, the fact that the respondents have not responded to the statutory notice served on them to pay up the amount and complied with the requisition contained therein is prima facie evidence of their commercial insolvency and that consequently, apart from the recovery proceedings pending in the civil court, it is in the public interest that the company be wound up as otherwise, several other vulnerable parties can also run into avoidable difficulties. I need to mention here that the defence pleaded on behalf of the respondents is that their company is not only running but that it is perfectly solvent that it is showing substantial turnover but that the reason for the non-payment is because the company maintains that the amount is not repayable by it. Briefly stated, their defence is that one Sri Khaithan had negotiated with the petitioners, which position is admitted, for securing finances to various companies of his group one of which is the respondents and, according to the defence, even some amount was paid in Bombay. They dispute the liability on the ground that this was a personal debt of the person who borrowed it and, secondly, on the ground that the company is not liable to repay the amount as it was not received by the company and used by it. I refrain from making any comment with regard to the contentions raised on both sides because the dispute is subjudice before the civil court and neither of the parties are either to be benefited or, prejudiced by the observations made in the company proceedings.

(2.) MR. Kolar, learned counsel who represents the petitioners, has taken me through the averments in the petition and he submits that unless and until the respondents are able to demonstrate to the court that they have discharged the debt, refusal to pay on the ground of all sorts of specious defences is only a cover-up for inability to meet the liability and he submits that the necessary ingredients having been made out under Section 433 of the Companies Act the consequences must follow. I need to record here that Mr. Krishnamurthy, learned counsel who represents the respondents, has taken up a two-fold plea. Firstly, he contends that this petition is not maintainable because this court ought to accept the position that the respondents have presented a bona fide defence the merits of which will have to be examined and that the civil court is seized of the matter and, therefore, the first ingredient under Section 433, namely, that the company court must be satisfied that the liability is undisputed or beyond dispute is not satisfied. In view of the importance, of the law point involved, I shall discuss this issue separately. The second limb of the argument is that this petition will have to be dismissed on the ground that according to learned counsel there was no enforceable debt in existence in the year 1995, when the present petition was presented. What is contended is that the transaction was of the year 1987, and if the petitioners contend that the loan was not repaid the law would bar further action after the expiry of three years and that, therefore, the present proceeding instituted in the year 1995, is one commenced at a point of time when the original loan has become time-barred and, therefore, unenforceable. The submission is that if there is no liability in existence then the ingredient that is condition precedent for the institution of winding up proceedings is also non-existent and that this proceeding is virtually still born and would have to fail on this ground.

(3.) WITH regard to the first head, Mr. Kolar pointed out to me from the documents produced that a summary suit was filed by his clients before the civil court because the claim was getting time-barred. He has demonstrated to me on the basis of case law that the law does certainly take cognizance of dual proceedings of this type and his argument was that if the object of the companies Act winding up proceedings is to stop the operations of insolvent companies, as far as the recovery of the amounts that are due is concerned, the law does permit the institution of appropriate recovery proceedings in a civil court and that the two remedies are not mutually exclusive. This argument advanced is not only tenable but correct but I need to add one rider, namely, that the situations in which the courts have permitted such a course of action have been in cases where the winding up proceedings have commenced first and the party, thereafter approached a civil court and not vice versa as has happened in the present case. Secondly, Mr. Kolar submitted that the court has got to take a realistic view of what transpires in summary suits. Learned counsel pointed out to me that almost all summary suits are defended and that an affidavit-in-reply invariably makes out some sort of a defence and he was quick to point out that it is in a microscopic number of cases that the civil courts straightaway pass a decree in a summary suit and that invariably the moment a defence is pleaded, the civil court grants leave to defend and transfers the case to the list of contested cases. The thrust of the argument proceeds on the footing that merely because a defence is pleaded that the case is mechanically transferred to the list of contested cases this is absolutely no ground or indication of the fact that there is any substance in that defence and that, therefore, this court must independently evaluate whether the defence pleaded before this court which is the same one as the one pleaded before the civil court, is worthy of any credibility. Learned counsel pointed out that the order granting leave to defend does not bind this court and that the evaluation has to be independently done and he, therefore, made his submissions with regard to the merits of the defence for purposes of indicating to me that it is absolutely sham and that therefore, the winding up proceedings ought to be entertained and proceeded with.