SC and HC Judgments Online at MyNation

Judgments of Supreme Court of India and High Courts

4 Whether This Case Involves A … vs Arcoy Bio Refinery Pvt Ltd on 5 October, 2017

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

Page 1 of 19

HC-NIC Page 1 of 19 Created On Sat Oct 07 15:18:03 IST 2017
O/COMP/187/2013 JUDGMENT

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 

Page 2 of 19

HC-NIC Page 2 of 19 Created On Sat Oct 07 15:18:03 IST 2017
O/COMP/187/2013 JUDGMENT

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 

Page 3 of 19

HC-NIC Page 3 of 19 Created On Sat Oct 07 15:18:03 IST 2017
O/COMP/187/2013 JUDGMENT

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 

Page 4 of 19

HC-NIC Page 4 of 19 Created On Sat Oct 07 15:18:03 IST 2017
O/COMP/187/2013 JUDGMENT

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 

Page 5 of 19

HC-NIC Page 5 of 19 Created On Sat Oct 07 15:18:03 IST 2017
O/COMP/187/2013 JUDGMENT

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. 

Page 6 of 19

HC-NIC Page 6 of 19 Created On Sat Oct 07 15:18:03 IST 2017
O/COMP/187/2013 JUDGMENT

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;

Page 7 of 19

HC-NIC Page 7 of 19 Created On Sat Oct 07 15:18:03 IST 2017
O/COMP/187/2013 JUDGMENT

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 

Page 8 of 19

HC-NIC Page 8 of 19 Created On Sat Oct 07 15:18:03 IST 2017
O/COMP/187/2013 JUDGMENT

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, 

Page 9 of 19

HC-NIC Page 9 of 19 Created On Sat Oct 07 15:18:03 IST 2017
O/COMP/187/2013 JUDGMENT

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.

Page 10 of 19

HC-NIC Page 10 of 19 Created On Sat Oct 07 15:18:03 IST 2017
O/COMP/187/2013 JUDGMENT

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 

Page 11 of 19

HC-NIC Page 11 of 19 Created On Sat Oct 07 15:18:03 IST 2017
O/COMP/187/2013 JUDGMENT

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 

Page 12 of 19

HC-NIC Page 12 of 19 Created On Sat Oct 07 15:18:03 IST 2017
O/COMP/187/2013 JUDGMENT

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 

Page 13 of 19

HC-NIC Page 13 of 19 Created On Sat Oct 07 15:18:03 IST 2017
O/COMP/187/2013 JUDGMENT

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 

Page 14 of 19

HC-NIC Page 14 of 19 Created On Sat Oct 07 15:18:03 IST 2017
O/COMP/187/2013 JUDGMENT

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. 

Page 15 of 19

HC-NIC Page 15 of 19 Created On Sat Oct 07 15:18:03 IST 2017
O/COMP/187/2013 JUDGMENT

MALICIOUS 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

HC-NIC Page 16 of 19 Created On Sat Oct 07 15:18:03 IST 2017
O/COMP/187/2013 JUDGMENT

banking 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   be 

Page 17 of 19

HC-NIC Page 17 of 19 Created On Sat Oct 07 15:18:03 IST 2017
O/COMP/187/2013 JUDGMENT

permitted 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   as 

Page 18 of 19

HC-NIC Page 18 of 19 Created On Sat Oct 07 15:18:03 IST 2017
O/COMP/187/2013 JUDGMENT

decided 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.)
mrp

Page 19 of 19

HC-NIC Page 19 of 19 Created On Sat Oct 07 15:18:03 IST 2017

Leave a Reply

Your email address will not be published. Required fields are marked *


Not found ...? HOW TO WIN 498a, DV, DIVORCE; Search in Above link
MyNation Times Magzine


All Law documents and Judgment copies
Laws and Bare Acts of India
Landmark SC/HC Judgements
Rules and Regulations of India.

Recent Comments

STUDY REPORTS

Copyright © 2024 SC and HC Judgments Online at MyNation
×

Free Legal Help, Just WhatsApp Away

MyNation HELP line

We are Not Lawyers, but No Lawyer will give you Advice like We do

Please read Group Rules – CLICK HERE, If You agree then Please Register CLICK HERE and after registration  JOIN WELCOME GROUP HERE

We handle Women Centric biased laws like False Sectioin 498A IPC, Domestic Violence(DV ACT), Divorce, Maintenance, Alimony, Child Custody, HMA 24, 125 CrPc, 307, 312, 313, 323, 354, 376, 377, 406, 420, 497, 506, 509; TEP, RTI and many more…

MyNation FoundationMyNation FoundationMyNation Foundation