O/COMP/187/2013 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
COMPANY PETITION NO. 187 of 2013
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE R.M.CHHAYA
1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
MECH ENGINEERS PRIVATE LTD….Petitioner(s)
Versus
ARCOY BIO REFINERY PVT LTD….Respondent(s)
Appearance:
MR MM SAIYED, ADVOCATE for the Petitioner(s) No. 1
MR SI NANAVATI, SENIOR ADVOCATE with MRS VD NANAVATI,
ADVOCATE for the Respondent(s) No. 1
CORAM: HONOURABLE MR.JUSTICE R.M.CHHAYA
Date : 05/10/2017
ORAL JUDGMENT
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1. Heard Mr. M.M. Saiyed, learned advocate for the
petitioner and Mr. Sudhir Nanavati, learned
Senior Advocate assisted by Mrs. V.D. Nanavati,
learned advocate for the respondent.
2. By this petition under Sections 433 and 434 of
the Companies Act, 1956 (hereinafter referred
to as “the Act”), the petitioner has prayed for
winding up of the Company named Arcoy Bio
Refinery Pvt. Ltd.
3. It is the case of the petitioner that the
respondentCompany gave various purchase orders
for undertaking different job works at the
Company premises of the respondent situated at
Panoli GIDC Industrial Estate, Taluka
Ankleshwar, District Bharuch and the petitioner
has carried out and completed all such purchase
orders within time and to the satisfaction of
the respondentCompany. It is the case of the
petitioner that 8 such purchase orders have
remained unpaid. It is further the case of the
petitioner that no dispute has ever been raised
by the respondent and in fact part payment has
been made in an irregular manner and TDS has
also been deducted. It is further the case of
the petitioner that an amount is due and
payable as per the account which is on record
to the tune of Rs.43,33,750/. It is further
contended that as no payment was made, a
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statutory notice was given by the petitioner on
25.5.2013 and the same was sent through RPAD.
It is the case of the petitioner that neither
the notice was complied with nor any payment
was made as per the demand raised in the
statutory notice and therefore, the present
petition is filed.
4. The respondent herein has filed a detailed
affidavitinreply and has denied the
contentions and has taken contentions as
regards maintainability on the ground of
limitation. It is also contended that a Civil
Suit being Special Civil Suit no.134 of 2013
was filed by the petitioner against the
respondentCompany which has been dismissed by
the learned Principal Civil Judge, Ankleshwar
vide judgment and order dated 30.12.2016. It is
also contended in the said Suit, the Accountant
of the authorized person and Accountant of the
petitionerCompany has categorically admitted
in his crossexamination that nothing is due
and payable. Denying the contents of the
petition as well as statutory notice, it is
contended that the petition deserves to be
dismissed. It is contended that the accounts
have not been properly given by the respondent
and therefore, the respondent has disputed the
claim of the petitioner and has in fact
contended that the dues are disputed and
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therefore, winding up petition is not required
to be entertained. The petitioner has also
filed a rejoinder to the same and has denied
the contentions raised in the reply. The
respondent has also contended that the
respondentCompany is not a going concern and a
large amount of Rs.25 crores is due and payable
to State Bank of India which has taken actions
under the provisions of the Securitisation and
Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 and
since 2013, manufacturing activity of the
respondentCompany has come to a grinding halt
and therefore, submitted that this Court may
pass appropriate order of winding up.
5. Mr. Saiyed, learned advocate for the petitioner
has contended as under:
5.1 It is contended that though the statutory
notice was given, no reply was given and for
the first time before this Court, disputes are
being raised.
5.2 It is contended that since 2013, plant is
stopped and no manufacturing activities are
going on.
5.3 It is also contended that more than Rs.50
crores are due and payable to other creditors
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and the State Bank of India has already
resorted the proceedings under Securitisation
and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 and
therefore, the respondentCompany deserves to
be wound up as provided under Section 433(c)
and (e) of the Companies Act, 1956. It is
contended that in other matter, a statement was
made and amount has been paid and even the
bills which are annexed with this petition are
admittedly unpaid and therefore, the defence of
disputed amount raised by the respondent is
incorrect. It is also contended that the suit
proceedings of Special Civil Suit no.134 of
2013 has nothing to do with the present
petition filed under the provisions of the
Companies Act, 1956 and the deposition given by
the Accountant of the petitioner is being
decided and misused by the respondent as a
defence which should be discarded by this
Court. Mr. Saiyed has relied upon the judgment
of the Apex Court in the case of M/s. Vijay
Industries v. M/s. NATL Technologies Ltd. AIR
2009 SC 1695 to support his case. It is
therefore contended that the matter requires
consideration and the petition deserves to be
allowed.
6. Per contra, Mr. S.I. Nanavati, learned Senior
Advocate for the respondent has opposed the
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petition and has relied upon the affidavitin
reply filed by the respondent. It is contended
that the suit being Special Civil Suit no.134
of 2013 is already dismissed by the Civil Court
and to the knowledge of the respondent, no
appeal is filed against the same. Mr. Nanavati
relying upon the crossexamination of the
authorized person and Accountant of the
petitionerCompany, contended that the said
witness has categorically stated in his cross
examination that the amount of Rs.43,34,750/
is not demanded in the suit as the same is not
due and payable. It is therefore contended that
as such there is no dues and therefore, the
petition deserves to be to be dismissed. It is
further contended as averred in the affidavit
inreply, without prejudice to any other
contentions even as stated in the affidavitin
reply, no dues are there and even if there are
any dues, the same are disputed for which the
winding up petition is not maintainable. It is
contended that on the contrary, the respondent
Company has to recover an amount of
Rs.29,28,026/ from the petitioner and
therefore, no case for winding up is made out
by the respondent under Section 433(c) and (e)
of the Act. It is therefore contended that the
petition deserves to be dismissed.
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7. No other or further contentions and/or
submissions are made by the learned counsel
appearing for the respective parties.
8. At this juncture, it would also be appropriate
to refer the ratio laid down by the Division
Bench of this Court, in the case of Tata Iron
Steel Company Ltd. vs. Micro Forge (India) Ltd.
reported in 2000 (2) GLR 1594, wherein this
Court has observed as under:
“Bonafide dispute over debt is a question
depending upon the factual scenario of a
given case. Where there is a bonafide
dispute, the company cannot be said to have
neglected to pay on a statutory demand. In
Palmer’s Company Law, 24th Edition, at page
1366, it has been clearly observed that a
petition for winding up with a view to
enforcing payment of a disputed debt is an
abuse of process of the Court and should be
dismissed with costs. This principle is,
succinctly, established in following
English Cases.
1. Imperial Silver Quarries (1868) 14
W.R. 1220;
2. Kings Cros Industrial Dwellings
Co. (1870) L.R. 11 Eq. 149;
3. London Paris Banking Corp. (1875)
L.R. 19 Eq. 44, 446;
4. Cadiz Waterworks Co. v. Barnett,
(1875) L.R. 19 Eq. 182;
5. Cercle Restaurant Castiglione Co.
v. Lavery (1881) 18 Ch. D. 555;
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6. Imperial Hydropathic Hotel Co.
(1882) 49 L.T. 147;
7. K.L. Tractors Ltd. In re (1954)
V.L.R. 505;
8. Bryanston Finance Ltd. v. De Vries
(No.2) (1976) Ch. 63 (C.A.)
9. Re Claybridge Shipping Co. S.A. the
Times, March 14, 1981 (C.A.); (1981) C.A.T.
143.
To fall within the general principle, the
controversy, really, must be bonafide in
both, subjective and objective sense. This
means that, it must be, honestly, believed
to exist and must be based on substantial
or reasonable grounds. ‘Substantial’ means
having substance and not frivolous or
vexatious and which the Court should
ignore. There must be so much doubt and
question about the liability to pay the
debt that the Court sees that there is a
question to be decided. It must also be
remembered that the onus is on the company
to bring forward a prima facie case, which
satisfies the court that there is something
which ought to be tried either before the
Court, itself or in an action or by some
other proceedings.
There are various factors and facets,
contours and chronicles emerging from the
facts of the case requiring consideration
before adjudicating upon the plea of
winding up by the Court. When the
petitioner is forcing payment of debt,
which it knows to be in substantial
dispute the evidence may support an action
by the company against the petitioner
for the tort of malicious
prosecution. No monetary loss or special
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damage to the company need be proved for
the presentation of the petition is, from
its very nature, calculated to injure the
credit of the company. It will be
interesting to refer to a decision in A
Company (No.003729 of 1982), (1984) 1
W.L.R. 1090, that even in a case where
the company in good faith and on
substantial grounds disputed the debt and
could not know the sum due but was willing
to pay a lesser amount, its omission to
pay either the statutory demand or the
lesser amount did not constitute ‘neglect’
within the meaning of section 123(1)(1) of
the Insolvency Act, 1986, which is
applicable in case of an issue of winding
up of a company in England and Wales.
In a recent decision in “ReBayoil SA
Seawind Tankers Corp. v. Bayoil SA,
reported in (1999) 1 All ER page 374, the
proposition of law is, again, very well
expounded and propounded in case of
compulsory winding up. It was decided on
31st July, 1998. It has been held in the
said case that when a Company had a genuine
and serious crossclaim which it had been
unable to litigate, the Court should, in
the absence of special circumstances,
dismiss or stay the winding up petition in
exercise of its discretion under section
125(1) of the Insolvency Act, 1986. In
that case, the crossclaim was genuine and
serious, it was one which the company
was unable to litigate and it exceeded the
amount of the petitioner’s debt. The fact
that no appeal lay in relation to the
interim award that the company’s P I club
had granted security for the company’s
claim and that there was no real
evidence that the award could be paid did
not amount to special circumstances which
made it inappropriate for the petitioner
to be dismissed or stayed. The appeal was,
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accordingly, allowed and windingup order
came to be discharged. Similarly, for
dismissal of winding up petition where the
company has a genuine defence or dispute or
a crossclaim, it has been observed in
Halsbury’s Laws (4th edn) (1996 reissue)
para 2212. 4 Halsbury’s Statutes (4th
edn) (1998 reprint) 821 succinctly
propounds the winding up issue in
similar cases when discretion is sought
to be exercised under section 125 of
the Insolvency Act, 1986.
The pith and substance of the observations
made in the Halsbury’s Laws, in this
connection, could be highlighted in
following terms:
A petition founded on a debt which is
disputed in good faith and on substantial
grounds is demurrable for the reason that
the petitioner is not a creditor of the
company within the meaning of section
224(1) at all and the question whether
he is or is not a creditor of the company
is not appropriate for adjudication in
winding up proceedings. In fact, in such a
situation, the dismissal of the petition is
not at any rate, initially, a matter of
discretion of the court. It is founded
on the petitioner’s inability to establish
the locus standi to present a petition
under what is now section 124(1) of the
Insolvency Act, 1986. The case of an
undisputed debt with a genuine and serious
crossclaim is different, in that the
dismissal or staying of the petition can
only be a matter for the discretion of the
court, albeit that its exercise may have
been narrowed by authority. So, there may
be two categories of cases, one
disputed debt category and another cross
claim case category.
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In the present case, there is a bonafide
dispute of debt and also substantial
dispute of counter claim. The principles,
which we have enunciated hereinabove, are
extensively, explored in catena of judicial
pronouncements. For short, we cannot resist
the temptation of referring the following
decided cases:
(1) Madhusudan Gordhandas Co. v.
Madhu Woolen Industries Pvt. Ltd, (1972) 42
Company Cases, 125 (SC), wherein, it is
held that one act of dishonesty on the part
of the petitioner is sufficient for
rejection of petition.
(2) Harinagar Sugar Mills v. Court
Receiver, H.C.Bombay, AIR 1966 SC 1707,
wherein it has been observed, relying on
Palmer’s Company Precedents that a winding
up order is not a normal alternative.
(3) Pradeshiya Industrial Investment
Corporation v. North India Petrochemicals
Ltd., (1994) 3 SCC 348, wherein it is held
that mere inability to pay debt without any
other evidence itself is not always
sufficient to exercise discretion in favour
of the petitioner.
(4) American Express Bank Ltd. v. Core
Health Care Ltd., (1999) 96 Company Cases,
841, wherein, this Court (Coram: R.Balia,
J.) has, lucidly, propounded the material
principles and important parameters to be
considered by the Court before adjudicating
and exercising discretionary powers under
section 433 of the Companies Act, 1956.
(5) Ashok Fashions v. Magdoot Acid
Chemicals, (Guj) (1998) 91 Company Cases,
655. Dealing with the procedural part,
also, as required under the Company Court
Rules, 1959, pertaining to winding up has
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laid down certain principles. What is the
requirement for being stated in the
petition under rule 95 in case of Creditors
petition prescribed requirements under
forms No.45, 46 and 47 are dealt with. It
is held that if the petition does not
disclose the financial status of the
respondent Company, which is mandatory in
case of a petition by the creditor, and
therefore, petition came to be dismissed on
that ground.”
9. It would also be advantageous to refer to the
judgment of the Apex Court in the case of
Madhusudan Gordhandas and Co., Vs. Madhu
Woollen Industries Pvt. Ltd., reported in
(1972) 42 Company Cases 125 (S.C.), wherein it
has been observed as under:
“Two rules are well settled. First, if the
debt is bona fide disputed and the defence
is a substantial one, the court will not
wind up the company. The court has
dismissed a petition for winding up where
the creditor claimed a sum for goods sold
to the company and the company contended
that no price had been agreed upon and the
sum demanded by the creditor was
unreasonable. (See London and Paris Banking
Corporation, In re [1875] LR 19 Eq.444).
Again, a petition for winding up by a
creditor who claimed payment of an agreed
sum for work done for the company when the
company contended that the work had not
been done properly was not allowed. (See
Brighton Club and Norfolk Hotel Co.Ltd., In
re [1865] 35 Beav. 204).
Where the debt is undisputed the court will
not act upon a defence that the company has
the ability to pay the debt but the company
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choses not to pay that particular debt.
(See A Company, In re [1894] 94 SJ 369;
[1894] 2 Ch 349 (Ch D)). 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 Tweeds
Garages Ltd., In re [1962] Ch 406; [1962]
32 Comp Case 795 (Ch D)). The principles on
which the court acts are first that the
defence of the company is in good faith and
one of substance, secondly, the defence is
likely to succeed in point of law, and,
thirdly, 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 the making
of the windingup order by the creditors
the court will consider their wishes and
may decline to make the windingup order.
Under section 557 of the Companies Act,
1956, in all matters relating to the
windingup of the company the court may
ascertain the wishes of the creditors. The
wishes of the shareholders are also
considered, though, perhaps, the court may
attach greater weight to the views of the
creditors. The law on this point is stated
in Palmer’s Company Law, 21st edition, page
742, as follows :
This right to a windingup order is,
however, qualified by another rule, viz.,
that the court will regard the wishes of
the majority in value of the creditors, and
if, for some goods reason, they object to a
windingup order, the court in its
discretion may refuse the order.’
The wishes of the creditors will, however,
be tested by the court on the grounds as to
whether the case of the persons opposing
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the windingup is reasonable; secondly,
whether there are matters which should be
inquired into and investigated if a winding
up order is made. It is also wellsettled
that a windingup order will not be made on
a creditor’s petition if it would not
benefit him or the company’s creditors
generally. The grounds furnished by the
creditors opposing the winding up will have
an important bearing on the reasonableness
of the case. (See P J. Macrae Ltd. In re
[1961] 1 All ER 302; [1961] 31 Comp Case
424 (CA).
It is beyond dispute that the machinery for
winding up will not be allowed to be
utilized merely as a means for realising
its debts due from a company. In
Amalgamated Commercial Traders (P.) Ltd.
vs. Krishnaswami (A.C.K.)[1965] 35 Comp
Case 456, 463 (SC) this court quoted with
approval the following passage from Buckley
on the Companies Acts, 13th edition, page
451:
It is wellsettled that a windingup
petition is not a legitimate means of
seeking to enforce payment of the debt
which is bona fide disputed by the company.
A petition presented ostensibly for a
windingup order but really to exercise
pressure will be dismissed, and under
circumstances may be stigmated as a
scandalous abuse of the process of the
court.”
10. Similarly, a view has been expressed by the
Apex Court in the case of Pradeshiya Industrial
Investment Corporation of U.P. Vs. North
India Petrochemicals Ltd., reported in (1994) 3
SCC 348, wherein the Hon’ble Apex Court has
held that where there exists bonafide dispute
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and the dues are not admitted, the winding up
petition is required to be dismissed.
11. Similarly, the Apex Court in the case of IBA
Healt (India) Pvt. Ltd vs. InfoDrive Systems
SDN. BHD. Reported in (2010) 10 SCC 553, has
observed thus
“22. The above mentioned decision was
later followed by this Court in Madhusudan
Gordhandas and Co. v. Madhu Woollen
Industries Pvt. Ltd. (1971) 3 SCC 632. The
principles laid down in the above
mentioned judgment have again been
reiterated by this Court in Mediquip
Systems (P) Ltd. v.Proxima Medical Systems
(GMBH) (2005) 7 SCC 42, wherein this Court
held that the defence raised by the
appellantcompany was a substantial one
and not mere moonshine and had to be
finally adjudicated upon on the merits
before the appropriate forum. The above
mentioned judgments were later followed by
this Court in Vijay Industries v. NATL
Technologies Ltd.(2009) 3 SCC 527.
23. The principles laid down in the above
mentioned cases indicate that if the debt
is bona fide disputed, there cannot be
“neglect to pay” within the meaning of
Section 433(1)(a) of the Companies Act,
1956. If there is no neglect, the deeming
provision does not come into play and the
winding up on the ground that the company
is unable to pay its debts is not
substantiated and nonpayment of the
amount of such a bona fide disputed debt
cannot be termed as “neglect to pay” so as
to incur the liability under Section
433(e) read with Section 434(1) (a) of the
Companies Act, 1956.
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O/COMP/187/2013 JUDGMENTMALICIOUS PROCEEDINGS FOR WINDING UP
33. We may notice, so far as this case is
concerned, there has been an attempt by
the respondent company to force the
payment of a debt which the respondent
company knows to be in substantial
dispute. A party to the dispute should not
be allowed to use the threat of winding up
petition as a means of enforcing the
company to pay a bona fide disputed debt.
A Company Court cannot be reduced as a
debt collecting agency or as a means of
bringing improper pressure on the company
to pay a bona fide disputed debt. Of late,
we have seen several instances, where the
jurisdiction of the Company Court is being
abused by filing winding up petitions to
pressurize the companies to pay the debts
which are substantially disputed and the
Courts are very casual in issuing notices
and ordering publication in the newspapers
which may attract adverse publicity.
Remember, an action may lie in appropriate
Court in respect of the injury to
reputation caused by maliciously and
unreasonably commencing liquidation
proceedings against a company and later
dismissed when a proper defence is made
out on substantial grounds. A creditor's
winding up petition implies insolvency and
is likely to damage the company's
creditworthiness or its financial standing
with its creditors or customers and even
among the public.PUBLIC POLICY CONSIDERATIONS
34. A creditor's winding up petition, in
certain situations, implies insolvency or
financial position with other creditors,Page 16 of 19
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O/COMP/187/2013 JUDGMENTbanking institutions, customers and so on.
Publication in the Newspaper of the filing
of winding up petition may damage the
creditworthiness or financial standing of
the company and which may also have other
economic and social ramifications.
Competitors will be all the more happy and
the sale of its products may go down in
the market and it may also trigger a
series of crossdefaults, and may further
push the company into a state of acute
insolvency much more than what it was when
the petition was filed. The Company Court,
at times, has not only to look into the
interest of the creditors, but also the
interests of public at large.35. We have referred to the above aspects
at some length to impress upon the Company
Courts to be more vigilant so that its
medium would not be misused. A Company
Court, therefore, should act with
circumspection, care and caution and
examine as to whether an attempt is made
to pressurize the company to pay a debt
which is substantially disputed. A Company
Court, therefore, should be guarded from
such vexatious abuse of the process and
cannot function as a Debt Collecting
Agency and should not permit a party to
unreasonably set the law in motion,
especially when the aggrieved party has a
remedy elsewhere."12. In facts of the case and as per the record of
the petition, the picture which emerges is that
there are serious disputes as regards the debt
and therefore, it is not an admitted debt.
Thus, if the debt is not an admitted debt but a
disputed debt, the petitioner cannot bePage 17 of 19
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O/COMP/187/2013 JUDGMENTpermitted to force payment of the debt which is
substantially disputed, for which, it cannot be
said that the respondentCompany has neglected
to pay any statutory demand. Therefore only,
because the proceedings under the
Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest
Act, 2002 is taken and the plant is closed, the
respondentCompany cannot be ordered to be
wound up at the instance of the present
petitioner. In addition to that, as the record
indicates, in the suit which was filed by the
petitioner being Special Civil Suit no.134/13
which is already dismissed, the authorized
person and Accountant of the petitionerCompany
has categorically stated that an amount of
Rs.43,34,750/ is not demanded as the same is
not due and payable. Such deposition adds to
the disputes as regards the debt in question.
In facts of the case, the judgment of the Apex
Court in the case of M/s. Vijay Industries
(supra) would not be applicable. In the case on
hand, the respondent has raised a bonafide
disputes as regards to the debt and in facts of
the case, the proceedings under Sections 433
and 434 of the Companies Act, 1956 is not an
alternative method of recovering debt which is
disputed only because the plant of the
respondentCompany is closed and therefore, it
cannot be said that the respondentCompany has
neglected to pay on a statutory demand asPage 18 of 19
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O/COMP/187/2013 JUDGMENTdecided by this Court in the case of Tata Iron
Steel Company Ltd. (supra).13. Considering the aforesaid facts of the case and
considering the ratio relied upon by the Apex
Court as well as this Court, the affidavits and
counter affidavits, it appears that the debt is
not an admitted debt and bonafide disputes are
raised by the respondentCompany and on the
basis of the aforesaid, it cannot be said that
nonpayment of bonafide disputed debt would
amount to neglect to pay so as to make liable
under Sections 433 and 434 of the Act and thus,
the present case would not fall under the same.14. For the foregoing reasons, the petition fails
and is accordingly dismissed. Notice
discharged. Parties to bear their own costs.(R.M.CHHAYA, J.)
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