Rani Ajitkunvarba v. Rajputana Cold Storage Ltd. — 1953 DIGILAW 247 (RAJ)

Sharma, J.—This is a petition by Rani Ajitkunvarba, Maharaj Digvijay Singh, and Rani Niranjan Kumari (to be hereinafter referred to as the first, second and third petitioner respectively) under sec. 162 of the Indian Companies Act for the winding up of the Company known as the Rajputana Cold Storage and Refrigeration Ltd. ( to be hereinafter referred to as "the Company". 2. The facts, which are undisputed, are that the Company was registered at Jaipur under the Jaipur Companies Act in August, 1947. Its office is situate at Jaipur West. The authorised capital of the Company is Rs. 10,00,000/-, which is composed of 4,000 5%, tax-free cumulative preference shares of Rs. 100/- each ( hereinafter to he referred to as preference shares ) and 60,000 ordinary shares of Rs. 10/- each. Out of the 4,000 preference shares 780 have been subscribed. On their account Rs. 75/- per share has been called up. Out of this amount Rs. 2,000/- remain in arrears, and, therefore, Rs. 56,5000/- have been paid up. Out of the 60,000/- ordinary shares, 36750 have been subscribed, and Rs. 7/8/- on account of each share have been called up. Out of this amount Rs. 23,000/-are in arrears, and therefore, the total Sum paid up on account of these shares is Rs. 2 52,625/-. The total of the paid up capital is Rs. 3,09, 125/-. 3. A total sum of Rs. 10,40,500/-, as follows, was deposited at 5% p. a. by Col. Maharaj Prithisingh, the husband of the first petitioner and the father of the second and third petitioners, (hereinafter to be referred to as the Maharaj), who was killed in an air-crash in 1950, and was the Chairman of the Board of directors of the Company :— On 25th August, 1948 ....... Rs. 35,000/- 30th Oct.; 1948 ....... 3,500/- 4th Nov., 1918 ....... 60,000/- 7th January, 1949 ....... 35,000/- 23rd April, 1949 ....... 7,000/- Rs. 140,500/- A further sum of Rs. 20,000/- was deposited through him on behalf of the third petitioners, The interest on this amount also was at 5-1/4% per annum. 4. The Managing Agents of the Company were Messrs. Jath Brothers, of whom the Managing Partner was Shri G.S. Chandra. Rs. 799/4/- were credited to the first petitioner on account of the purchase and sale of potatoes through the Company. 5. 4. The Managing Agents of the Company were Messrs. Jath Brothers, of whom the Managing Partner was Shri G.S. Chandra. Rs. 799/4/- were credited to the first petitioner on account of the purchase and sale of potatoes through the Company. 5. It is the petitioners case that on or about the 7th of June, 1949, the Company authorised the Maharaj to arrange a loan on the security of the Companys assets with any bank or private party, and that on or about the 2nd of August, 1949, a loan was arranged by the Maharaj from the Bombay Mercantile Bank Ltd. (hereinafter to by referred to as the bank) of a sum of Rs. 1,50,000/- at 5% p. a. interest on a promissory note (to be hereinafter referred to as the pro-note) of the said amount and against certain collateral securities. After the death of the Maharaj the petitioners made enquiries from the Company regarding the aforesaid deposits, and they were informed by Mr. G. S. Chandra that they had been repaid on or about the 2nd August, 1949, out of the proceeds of the money received from the Bank. They were also informed that a sum of Rs. 25,000/- had been paid to the Maharaj on or about the 25th of April, 1950, and thus actually the account of the Maharaj was in debit at the time of his death, and accordingly the heirs of the Maharaj were not entitled to any of the deposits or interest thereon. On or about the 17th of October, 1951, the Bank duly endorsed the pro-note for Rs. 1,50,000/-cxecuted by the Company in favour of the Bank, to the first petitioner. Notice of demand on behalf of the first petitioner in respect of the aforesaid pro-note and interest thereon was served on the Company on or about the 7th of May, 1950, and another notice under sec. 163 of the Companies Act was also served on the Company on or about the 30th of July, 1952, in respect of the said amount but the Company failed and neglected to make payment, and has so far not made payment on the pro-note. In respect of the amount of Rs. 163 of the Companies Act was also served on the Company on or about the 30th of July, 1952, in respect of the said amount but the Company failed and neglected to make payment, and has so far not made payment on the pro-note. In respect of the amount of Rs. 799/4/-, referred to above, also the petitioners say that a notice was served by the first petitioners advocate on the Company on the 9th of October, 1949, for the payment of the said amount; but the same has not yet been paid. 6. In respect of the pro-note amount of Rs. 1,50,000/- and its interest, the first petitioner brought a suit in the High Court of Judicature at Bombay, being summary suit No. 852 of 1952 (hereinafter to be referred to as the Bombay suit). The Company was granted leave to defend that suit In that suit the Company contended that no such pro-note was ever executed on behalf of the Company, and that the Company received no consideration. The petitioners say that a fortiori from the said admission it was clear that there was no adjustment of the deposits made by the Maharaj and the third petitioner to the Company, and accordingly the petitioners were entitled, as legal representatives of the Maharaj, to these deposits and the third petitioner was entitled to a refund of Rs. 20,000/- made by her together with the accrued interest thereon. The petitioners say that the first petitioners is a creditor in the sum of :— (a) Rs. 799/4/- due on account of profit in potato trading; and (b) Rs. 1,50,000/- and interest thereon amounting to Rs. 1,73,645/- as a holder and endorsee of the pro-note dated 2nd August, 1949, executed for and on behalf of the Company in favour of the Bank and endorsed to her on 17th October, 1951, by the Bank. The second petitioner is a creditor in the sum of Rs. 1,15,000/- being the balance of the deposit account of the Maharaj. The third petitioner is a creditor in the sum of Rs. 20,000/-. The petitioners further say that as these sums were not paid to them in spite of ordinary notices as well as notices under sec. 163 of the Companies Act within the time prescribed by sec. 1,15,000/- being the balance of the deposit account of the Maharaj. The third petitioner is a creditor in the sum of Rs. 20,000/-. The petitioners further say that as these sums were not paid to them in spite of ordinary notices as well as notices under sec. 163 of the Companies Act within the time prescribed by sec. 163, and also because the demand liabilities of the Company were greatly in excess of its cash resources, the Company was commercially insolvent, and was unable to pay its debts. It has, therefore, been prayed that the Company be wound up and an official liquidator be appointed. 7. Besides the grounds stated above, the following grounds have also taken : (a) The lands, buildings and machinery of the Company were purchased at a time when the prices were at peak level, and the value of the said assets, as shown in the Balance Sheet, is now merely illusory. (b) The Company made a call on its uncalled share capital as far back as 1950. but there has been very little response, and the shareholders have lost confidence in the management and financial stability of the Company inspite of window dressing and promises of the Managing Agents. (c) The Company has not paid any divided for two or three years, and there is a contingent liability on the cumulative preference shares amounting to roughly Rs. 30,000/-. (d) The Company has not yet been able to write off the preliminary expenses amounting to about Rs. 11,000/-, Further grounds have been taken under clause (6) of sec. 162 of the Companies Act, which provides for the compulsory winding up of a company by Court, if it is of opinion that it is just and equitable that the company should be wound up. They are as follows :— (a) The Directors do not and have not in the past exercised any real control or supervision in respect of the business of the Company and over the acts and dealings of the Managing Agents, which firm although consisting normally of three partners is,by reason of its internal arrangements, entirely a one-man show. The affairs of the Company are run by Mr. G. S. Chandra, the working partner of the Managing Agents without control of the Directors. (b) Meetings of the directors, are not held for months and months at a time. (c) Mr. The affairs of the Company are run by Mr. G. S. Chandra, the working partner of the Managing Agents without control of the Directors. (b) Meetings of the directors, are not held for months and months at a time. (c) Mr. G. S. Chandra, Managing Partner of the Managing Agents, flouts the directors in the holding of meetings, raises loans and pledges the credit of the Company without sanction or authority of the directors of the Company, and lives on the premises with his family as if the entire business was his private property. (d) The Chairman of the Company is a lady, who, though possessing considerable wealth, has no business experience whatever, and is thus entirely in the hands of the Managing Agent, the said Mr. G. S. Chandra. (e) The Company has for several years defaulted in the compliance of the primary statutory duties of maintaining accounts properly, and does not maintain proper staff for the working of the office and keeping accounts. The accounts are not written up regularly, and have been in arrears for a year at a time. (f) Mr. G. S. Chandra and Rao Raja Dafle, Managing Agents of the Company, made allegations on oath in the Bombay suit regarding the loan from the Bank, which falsify the duly audited Statement of Accounts and Balance-Sheets for the years 1950 and 1951. (g) The directors and Managing Agents have, according to their own admissions, been party knowingly to the preparation of false and fraudulent balance-sheets not representing the true state of affairs of the Company. (h) The Company suffered substantial loss of Rs. 95,224/- in the year ending March, 1951, and carried forward a loss of over Rs. 82,000/-, and according to the Report of the Directors for 1951, they saw little prospect of profitable operation in the future. 8. This petition was filed on the 15th of January, 1953, and along with it were filed copies of deposit receipts for the various amounts given above. They have been collectively marked as Ex. A. A copy of a letter dated 14th March, 1950, from Mr. S. S. Bhat-nagar, Secretary of the Company, to the first petitioner, and another letter from Mr. K. M. Punjabi on behalf of the first petitioner to the Company dated 9th October, 1951, regarding the potato amount of Rs. 799/4/-, marked as Exs. A. A copy of a letter dated 14th March, 1950, from Mr. S. S. Bhat-nagar, Secretary of the Company, to the first petitioner, and another letter from Mr. K. M. Punjabi on behalf of the first petitioner to the Company dated 9th October, 1951, regarding the potato amount of Rs. 799/4/-, marked as Exs. B and C respectively, were also filed along with the petition. A copy of the alleged pro-note of Rs. 1,50,000/- dated 2nd August, 1949, along with the endorsement thereon in favour of the first petitioner, dated 17th Oct., 1951, was also filed and marked Ex. D. Copies of the notices under sec. 163, marked collectively as Ex. E, and a copy of the Balance-Sheet marked Ex. F, were also filed. The petition was also accompanied by three affidavits of the second petitioner. 9. In reply an affidavit was filed on behalf of the Company by Mr. G. S. Chandra (hereinafter to be referred to as Mr. Chandra), one of the partners of the Managing Agents of the Company, of the 25th of February, 1953. Many objections have been taken to the petition, but in view of the order I propose to make all of them need not be noticed at this stage. It is enough to consider the following objections at present:— Mr. Chandra does not admit that the pro-note was executed by the Maharaj or that any consideration passed to the Company under it. He says that even if the Maharaj executed the pro-note he had no authority to do so on behalf of the Company. He admits that entries were made in the Companys books crediting the amount of the pro-note to the Bank and debiting the said amount in the deposit account of the Maharaj, but says that it was under the influence of the Maharaj who was the then Chairman of the Board of Directors of the Company, without the knowledge or consent of Mr. Chandra or of other directors of the company, and that as soon as the director attention was drawn to the aforesaid action of the Maharaj, they took exception to the same. He says that the liability under the pro-note had been repeatedly repudiated by the Company and that the first petitioner, in fraudulent collusion with the Bank, got it endorsed in her favour on the 17th of October, 1951. "without recourse to" the Bank. He says that the liability under the pro-note had been repeatedly repudiated by the Company and that the first petitioner, in fraudulent collusion with the Bank, got it endorsed in her favour on the 17th of October, 1951. "without recourse to" the Bank. He admits that the Bombay suit was filed by the first petitioner for the recovery of the alleged balance on the pro-note under the Summary Procedure on Negotiable Instruments, but says that the Company obtained unconditional leave to defend the suit. He says that the dispute raised by the Company in respect of the pro-note is a bonafide dispute and, therefore, non-compliance with the notice of the first petitioner under sec. 163(l)(c) of Companies Act within the prescribed period of three weeks does not entitle the first petitioner to file the present petition. As regards the deposit account standing in the name of the Maharaj and third petitioner, he says that according to the petitioners case in the petition itself as well as the first petitioners case in the Bombay suit, these deposits have been paid up and that the claim under the pro-note and the claim about the deposits are inconsistent. He says that the deposits were made on behalf of Rani Bijou, the junior wife of Maharaj, as a consideration for her being taken as a partner in the Managing Agents firm, and are not repayable to the petitioners. He also pleads the bar of limitation in respect of the deposits. As regards the sum of Rs. 799/4/- on potato account he admits it, but says that the Company has always been willing to pay it, and that the only reason for its non-payment so far was that the account of the Maharaj was in debit and she had been asked if it could be credited in the said account, but she did not care to reply. He says that the Company is ready to deposit it in Court by leave of the Court, which is necessary under the Companies Act in the present circumstances. He denies that the Company is commercially insolvent and is unable to pay its debts. The only reason for the non-payment is that the main claim is bonafide disputed, and unless the dispute is settled in the Bombay suit, the Company does not feel justified in paying any of the deposited sums to the petitioners. 10. He denies that the Company is commercially insolvent and is unable to pay its debts. The only reason for the non-payment is that the main claim is bonafide disputed, and unless the dispute is settled in the Bombay suit, the Company does not feel justified in paying any of the deposited sums to the petitioners. 10. The only point for determination at this stage is as follows:— Whether there is a bona fide dispute about the amounts claimed by the petitioners, and if so, what is its effect upon the petition ? 11. I have heard Mr. K. L. Gauba on behalf of the petitioners and Mr. Purshottam Trikamdas on behalf of the Company and C.L. Agrawal on behalf of a number of shareholders. The case was argued on both sides with very great ability on facts as well as on law. 12. It may be mentioned that quite a number of affidavits as also a lot of documentary evidence, mostly from the file of the Bombay suit, have been filed by the parties in this case, and almost all the documents filed here were referred to by one counsel or the other. 13. I may say at the outset that so far as the deposits by the Maharaj are concerned, it is not the case of the petitioners that those deposits are still due. Their main case is that the pro-note was executed on behalf of the Company, and out of its proceeds those deposits were paid off. The deposits have been relied upon only as a second string to the petitioners bow, in case the pro-note is found to be invalid or it is held that no consideration passed under it. 14. Under sec.162 of the Companies Act, a company can be wound up by Court, if the company is unable to pay its debts, and under sec. 163 (1) a company shall be deemed to be unable to pay its debts if, upon a service of notice by its creditor, to whom the company is indebted in a sum exceeding five hundred rupees, requiring the company to pay the sum so due, 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. It was argued by Mr. Gauba on behalf of the petitioners that notices under sec. It was argued by Mr. Gauba on behalf of the petitioners that notices under sec. 163 (1) were served on the company in respect of the pro-note as well as the amount of the deposits mentioned in the petition; but the Company failed to pay up those amounts for three weeks after the notice, and so the Company should be deemed to be unable to pay its debts, and the petitioners were entitled to an order for the winding up of the Company. It has been admitted on behalf of the Company that such notices were served, but it was argued that the Company cannot be said to have neglected to pay any of the said sums or to secure or compound for them to the reasonable satisfaction of the petitioners, as according to the petitioners themselves the claim for deposits did not arise on account of the execution of the pro-note, and with respect to the pronote there was a bona fide dispute, and the first petitioner had herself brought the Bombay suit for the recovery of the said sum, and the Company had raised sound and legal objections with respect to her claim. The petition was filled mala filed simply with a view to coerce the company into paying the said disputed amount and should therefore, be dismissed. Quite a number of authorities were referred to on behalf of the respondents in order to show that in case a debt is bonafide disputed the company cannot be said to have neglected to pay its debts simply because after demand the company had not paid the sum demanded within three weeks from the date of service of notice under sec. 163 (1). I shall refer to these rulings one day one in chronological order. 15. The earliest English case is that of Cadiz Waterworks Company vs. Barnett (l). In that case a contractor had entered into a contract with a company for the execution of certain works for the sum of £290.000, of which £200, 300 was to be paid in cash, and the rest in paid-up share. The contractor had received £203,000 in cash and a large number of shares, but he claimed to be en-titled to a further sum of £ 30,000. He disputed the claim, and alleged, on the contrary, that the contractor had been largely overpaid. The contractor had received £203,000 in cash and a large number of shares, but he claimed to be en-titled to a further sum of £ 30,000. He disputed the claim, and alleged, on the contrary, that the contractor had been largely overpaid. The contractor threatened to present a petition to wind up the company, and served on the company a demand under section 80 (same as sec. 163 of the Indian Companies Act) of the Companies Act, 1862. It was held that there being no proof of the company being insolvent, and the alleged debt of the contractor being bona fide in dispute, the contractor must be restrained from presenting a petition to wind up the company. 16. The next case, which is also an English case, is In re Gold Hill Mines(2). There a dismissed servant or a company claimed £15 for arrears of salary and £95 damages for alleged wrongful dismissal. This claim was disputed by the company, and it was held, by the court of appeal, that where a petition to wind up was improperly filed the court had jurisdiction on motion to stay all proceedings under it, or to dismiss it. It was found that the petition in that case was an abuse of the process of the court, being brought to compel payment of a small debt which was bona fide disputed, and beings unsupported by any evidence that the company was insolvent. The petition was, therefore, dismissed. 17. Coming to the Indian cases, referred to by learned counsel for the respondent, the earliest in date is that of Tulsidas Lalubhai vs. Bharatkhand Cottan Mills Co., Ltd.(3) In that case a notice was given to the company, and the company replied that the alleged demand was in respect of a claim which the company honestly believed to be a fraudulent claim and unsustainable at law. The creditor thereafter filed a petition for the widing up of the company, and it was held that where a credi-tors demand was in respect of a claim which the company honestly believed to be a fraudulent claim and unreasonable at law, and in filing a winding up application, his object was to bring the pressure of insolvency proceedings to bear upon the company in order to make it pay cheaply and expeditiously a heavy debt which it desired to dispute in the civil courts,the petition for insolvency of the company must be dismissed. 18. The next case is The Company vs. Rameshwar Singh of Darbhanga(4). In that case also after considering the provisions of secs. 162 as well as 163 of the Companies Act, it was held that when a debt was bona fide disputed by debtor company, it could not be said to have neglected to pay the debt within the meaning of sec. 163(1). In that case, pending decision of the two suits in which the disputed amounts were involved, the proceedings for winding up were stayed. 19. The third case is a Madras case, viz., P. Satvarazu vs. Guntur Cotton, Jute and Paper Mills Co., Ltd.(5), wherein it was held that where the object of a petition to wind the company was to bring pressure upon the company in order to make it pay the petitioner cheaply and expeditiously which the company desired to dispute in the civil court, the petition was an abuse of the process of the court and should be dismissed. On this view the petition was dismissed. 20. Then there is a Rangoon case, Coalfields of Burma, Limited vs. H.H. Johnson(6) There the creditor filed an application under sec. 162(5) for the winding up of the company after serving a notice under his hand requiring the company to pay to him a sum of Rs. 31,494, being balance of salary at Rs. 2000 per month due under an agreement and other sums. The company had for three weeks thereafter neglected to pay the sum or to secure or compound for it in his reasonable satisfaction. 31,494, being balance of salary at Rs. 2000 per month due under an agreement and other sums. The company had for three weeks thereafter neglected to pay the sum or to secure or compound for it in his reasonable satisfaction. A dispute was raised by the company that the debt was not presently due, for it was one of the terms of his agreement that he should not draw his salary, thought it was to be credited to him monthly, until the company was beyond the proving stage and earning revenue. It was held that the dispute was a bona fide dispute, and the petitioner should file a suit for the enforcement of his alleged debt within six months. The order for winding up was stayed rending such suit, and it was ordered that it no suit was filed within six months, the petition for winding up would tand dismissed. 21. There is another case of the Madras High court, viz, P.R. Daraiswami Ayyer vs. Coimbatore Easwera Sahaya Nidhi Ltd.(7). In that case also, a notice was served by the creditor under sec. 163 (l) of the companies Act. The company objected that the money was with it in fixed deposit and that it was entitled to a claim against this money because under the Articles of Association and rules of the Company, that money was deposited as security as it were for the conduct of the depositor, the Secretary in the case, and that where a director had negligently recommended client to the Bank, the Bank was entitled to claim against that director any loss occasioned by such recommendation. It was found that the dispute was a bona fide dispute, and the creditor could not be allowed to invoke the assistance of the Companies Act for getting payment of such debt. The petitioner was referred to a suit, and the petition was dismissed on condition that the company paid the amount claimed in court within one week after the reopening of the court, because the amount was an admitted amount. The creditor was directed to come to court with a fresh application if money was not paid into the Court by the company within the time fixed. 22. Then there is an Allahabad case, viz. W. T. Henleys Telegraph Works Co. Ltd. vs. Gorakhpur Electric Supply Co. Ltd.(8), where a notice was served by the creditor under sec. The creditor was directed to come to court with a fresh application if money was not paid into the Court by the company within the time fixed. 22. Then there is an Allahabad case, viz. W. T. Henleys Telegraph Works Co. Ltd. vs. Gorakhpur Electric Supply Co. Ltd.(8), where a notice was served by the creditor under sec. 163 (1) of the Companies Act, and after the company failed to pay the amount he brought a petition for winding up under sec. 162i 5). In that case the petition was allowed on the ground that the dispute was not a bona fide dispute, but it was held all the same that. "If a company is solvent and there is a genuine dispute about an alleged debt, the resort by the creditor to the summary proceeding of serving of the company a notice under sec. 162, and following the same by petition for winding up, is ordinarily referable to a desire on the part of the creditor to bring pressure on the company in order to induce the company to pay the debt, without having the dispute settled by the civil court, by which court the dispute ought to be ordinarily settled. To make an order for winding up in such a case would deprive the company of its right to, have the question between it and the petitioning creditor decided in the normal way by the civil court constituted for the purpose, and this would be opposed to public policy. An application for winding up in such a case must, therefore, be regarded as a vehicle of oppression and an abuse of the process of the Court and be dismissed". 23. Then there is a recent case of the Assam High Court, viz., British India Banking Corporation Ltd. vs. Sylhet Commercial Bank Ltd.(9), in which also a petitioner for winding up was filed by the petitioner after notice under sec. 163 of the companies Act and non-payment by the company within the time prescribed from the date of its service. 23. Then there is a recent case of the Assam High Court, viz., British India Banking Corporation Ltd. vs. Sylhet Commercial Bank Ltd.(9), in which also a petitioner for winding up was filed by the petitioner after notice under sec. 163 of the companies Act and non-payment by the company within the time prescribed from the date of its service. The company raised the objection that the demand draft on which the claim was founded was obtained by fraud, and the Manager of the petitioner Bank was a part to the fraud and the petitioner Bank was not a bona fide transferee of the demand draft, but was a person who was in conspiracy with the holder of the demand draft and offered cheque to the opposite party Bank, which were subsequently dishonoured. It was held that the demand draft was obtained by fraud, and the petitioner. Bank was party to the fraud, and the opposite party Bank did believe, rightly or wrongly that it was justified in refusing to make the payment. The dispute was held to be a real dispute as to the liability of the company to pay the alleged debt, and not merely a, clock to held the companys liability to pay its debts. On this finding the petition was not admitted and was rejected. 24. The latest case in that of T.K. Narayanan vs. Alleppey Chamber of Commerce(l0) In that case the company raised a dispute about the debt, and it was held that the dispute was a bona fide dispute. On this finding the appeal against the dismissal of the petition under sec, 162 for winding up the company was dismissed. 25. In the Halsburys Laws of England, Halisham Edition of 1949, Volume V, page 612, it has been given that— "A winding-up order will not be made on a debt which is bona fide disputed by the company ; but the Court must see that the dispute is based on a substantial ground. If there is a genuine dispute, the petition may be dismissed or stayed, and an injunction may be granted restraining the advertisement of the petition." 26. On these authorities, it is clear that a winding-up order will not be made on the application of a creditor, whose debt is bona fide disputed. Even Mr. If there is a genuine dispute, the petition may be dismissed or stayed, and an injunction may be granted restraining the advertisement of the petition." 26. On these authorities, it is clear that a winding-up order will not be made on the application of a creditor, whose debt is bona fide disputed. Even Mr. K. L. Gauba did not argue that in spite of there being a bona fide dispute about a debt, on the application of the creditor of such debt winding-up order should be made. His main argument was that the present dispute was not a bona fide dispute, and the fact that unconditional leave to defend the Bombay suit had been given by the Bombay High Court was not conclusive of the fact that the debt was a bona fide debt. He relied upon an English case viz., Re Welsh Brick Industries. Ltd.(11), In that case it was found that the company did not dispute that it had the money of the petitioner with it but an objection was made that the money was not repayable until and unless the petitioner first satisfied his full obligation to finance the companys operations to the extent of £5ooo, An action had also been brought by the petitioner for the recovery of the said sum,and in that action the company had been given unconditional leave to defend. No other evidence was placed by the company in the winding-up case to show that the dispute was a bona fide dispute, and it relied only upon the fact that unconditional leave to defend had been given to it. It was held that mere unconditional leave to defend would not be a proof conclusive of the fact that the dispute was a bona fide dispute. This suling would have applied to the present case, if there were no other evidence except that of the unconditional leave to defend the Bombay suit by the Bombay High Court. Let us see if there is any evidence in this case, besides the unconditional leave to defend the Bombay suit, upon which it might be held that the dispute wish respect to the loan under the pro-note is a bona fide dispute. In case there is such evidence on the record, the ruling cited by the learned counsel for the petitioners would not apply. 27. In case there is such evidence on the record, the ruling cited by the learned counsel for the petitioners would not apply. 27. On behalf of the Company reliance was placed inter alia, upon the following documents, which have been placed on the record of this case:— (1) Letter Ex.3 dated 3rd October. 1949, from the Maharaj to Mr. Laxman Swaroop. (2) Letter Ex. 4, dated 6th February, 1951, from Mr. Laxman Swaroop Advocate to the Bank. (3) Letter dated 6th February, 1951, from the Bank to Mr. Laxman Swaroop Advocate. (4) Letter dated 19th February, 1951, from Mr. Laxman Swaroop to the Bank. (5) Letter dated 27th February, 1951, from Mr. Laxman Swaroop to the Bank. (6) Letter dated 12th March, 1951, from Messrs. Mulla & Mulla to Shri Laxman Swaroop, Advocate. (7) Letter dated 19th March, 1951, from Mr. Laxman Swaroop to the Bank. (8) Letter dated 29th June, 1951, from the Bank to the Company. (9) Letter dated 30th June, 1951, from the Bank to the Company. (10) Letter dated 24th July, 1951, from Mr. Laxman Swaroop to the Bank. (11) Letter dated 4th August, 1951, from the Bank to Mr. Laxman Swaroop. (12) Letter dated 4th September, 1951, from Mr. Laxman Swaroop, to the Bank. (13) Letter dated 27th May, 1952, from Mr. Laxman Swaroop to Mr. K. L. Gauba. (14) Letters dated 3rd and 4th June, 1952, from Mr. K. L. Gauba to Mr. Laxman Swaroop. (15) Letter dated 30th July, 1952, from Mr. K. L. Gauba to Mr. Laxman Swaroop. (16) Letter from Mr. Laxman Swaroop to Mr. K. L. Gauba, dated 19th August, 1952. (17) Resolution of the Company dated 9th March, 1951, Ex. 6. (18) Letter Ex. 7 dated Nth June, 1951, from Mr. K. M. Punjabi to Mr. Chandra. (19) Document Ex. 9 dated 2nd August, 1949, charging the property to the Bank for the pro-note debt. (20) Affidavit of Raja of Jath in the Bombay suit. (21) Affidavit of Shri Keshavdev R. Poddar in the Bombay suit. (22) Letter Ex. 2 dated 17th October, 1951, from the first petitioner to the Bank. (23) Resolution Ex. AA dated 7th June, 1949, of the Company. (24) Written statement and affidavit of Mr. Chandra in the Bombay suit. (25) Articles of Association of the Company—Arts. 125 read with 123 and 140 (4). 28. (22) Letter Ex. 2 dated 17th October, 1951, from the first petitioner to the Bank. (23) Resolution Ex. AA dated 7th June, 1949, of the Company. (24) Written statement and affidavit of Mr. Chandra in the Bombay suit. (25) Articles of Association of the Company—Arts. 125 read with 123 and 140 (4). 28. On the basis of all these documents it was argued that in fact the "pro-note transaction was bogus, and the Maharaj, even if he executed the pro-note, had no authority on behalf of the Company to execute it. It was further argued that on cash consideration came to the company, and the entries were merely paper entries. The directors of the company or even its Chairman had no power to execute any pro-note on behalf of the company, and that it was the Managing Agents who had the power to do so. It was further argued that in no case the uncalled up capital could be given as security for the pro-note under the Articles of Association of the company. 29. I have considered the arguments of learned counsel for the respondents. It would appear from the resolution Ex. AA, dated 7th June, 1949, that Maharaj Prithi Singh was authorised to arrange with any Bank, firm or individual for advance the Company by way of loan and to charge any of the Companys property, uncalled capital as security thereof. It was argued on behalf of the respondent that by this resolution the Maharaj was not authorised to draw the loan himself and to execute a pro-note or other document for it, and that the only authority which was given to him was to arrange a loan. No particular amount is mentioned in this resolution. More-over, it has been resolved that the Maharaj could charge any of the Companys properties including the uncalled capital as security for the loan. So far as the clause relating to the uncalled capital being given as security is concerned, it was outside the power of the Directors, and to this extent the resolution was ultra vires. For this reliance was placed upon Art. 140(4) of the Association. 30. It is correct to say that according to the said clause the directors had no power to mortgage or charge the uncalled capital. It is also correct to say that no specific authority was given to the Maharaj by the resolution Ex. AA. For this reliance was placed upon Art. 140(4) of the Association. 30. It is correct to say that according to the said clause the directors had no power to mortgage or charge the uncalled capital. It is also correct to say that no specific authority was given to the Maharaj by the resolution Ex. AA. to raise a particular amount or to execute any pro-note or any other document for the loan. It also requires serious consideration whether under the resolution the Maharaj could himself arise the loan or could only negotiate for it. From the letter Ex. 4, dated 5th February, 1951, it would appear that Mr. Laxman Swaroop on behalf of the Company wanted to inspect the pro-note. In reply to this letter the Bank wrote to Mr. Laxman Swaroop resenting the tone of the letter, but saying nothing as to whether they were prepared to give inspection of the document or not. It was simply mentioned that the Company knew that the pro-note amount had been advanced to the Company by the Bank. Then in the letter of 19th February addressed by the Company to the Bank all the defences that have been raised to this petition with respect to the loan find place. The objections to the alleged loan mentioned in the said letter are as follows: — 1. Directors had neither authority to delegate nor did they in fact delegate their powers to actually borrow money. To authorise the negotiation of a loan is obviously quite a different thing than to raise it in fact. 2. The directors are actually prohibited from raising loans on the security of uncalled capital, much less could they delegate power which they themselves did not possess. 3. The endorsement on the document purporting to create the security is not even signed. 4. The loan had been authorised to be negotiated for the expansion of the Company and not to wash out simple money liability which the Company had towards its Chairman, partly directly towards him and partly in fact towards him though benami towards another and which liability arose out of an investment which had to be kept as a consideration for keeping the nominee of the Chairman as a partner in the Managing Agency. 5. 5. That no amount was ever paid to the Company by the Bank, not even a pie and everything to be found is a mere paper transaction, noted merely on assurances that everything was in order. 6. It is yet to be shown as to how much money, if any, the Bank actually paid even to the Maharaj, These are the very defences which have been made in the Bombay suit as well as in the present case. The Company raised these objections so far back as the 19th of February, 1951, long before the Bombay suit was filed. The letter dated 19th February was followed by another letter from Mr. Laxman Swaroop on behalf of the Company to the Bank. This letter is dated 27th February, 1951. In this letter Mr. Laxman Swaroop complained to the Bank for their not giving any reply to the letter dated 19th February, and said that that raised doubt about the genuineness of the transaction evidenced by the pro-note. He expressed the readiness of the Company to pay if the Bank afforded satisfaction that the transaction was valid and genuine. The points mentioned in the above two letters were not met by the Bank and all that was done was to send a letter dated 12th March, 1951, wherein a request was made for supplying the memorandum and articles of association of the Company. Mr. Laxman Swaroop promptly replied by letter dated 19th March, 1952, again complaining against not giving any satisfactory reply to the letter of the 19th February and said that the Articles of Association and the Memorandum of the Company had already been supplied the Bank, yet he was advising the Company to send another copy. The Bank still made no attempt to reply to points raised by Mr. Laxman Swaroop, but sent a statement of account with letter dated 29th June, 1951, and asked the Company to confirm the balance. To this Mr. Laxman Swaroop replied by letter dated 24th July, 1951, again repeating the complaint about the Bank not replying to the letters dated 19th and 27th February, 1951, and not complying with the request made therein and adding that the Articles and Memorandum of Association were sent. Complaint was also made against the demand under circumstances. A reply was sent on behalf of the Bank to Mr. Complaint was also made against the demand under circumstances. A reply was sent on behalf of the Bank to Mr. Laxman Swaroop by letter dated 4th August, 1951, and it was stated that Mr. Chandra had been the Bank authorities, and that the loan was in order. Mr. Laxman Swaroop again sent a letter dated 4th September 1951, saying that it was wrong that Mr. Chandra had been the Bank authorities and added that even if Mr. Chandra had seen the Bank authorities, he was not the Company which was a limited Company. It was added that instead of Mr. Chandras seeing the Bank authorities, Mr. Poddar of the Bank had seen Mr. Chandra on the 4th August, 1951, but left as soon as he saw the writer of the letter (Mr. Laxman Swaroop). When a demand was made on behalf of the first petitioner for a loan from the Bank through Mr. K. L. Gauba, letter dated 27th May, 1952, was addressed by Mr. Laxman Swaroop, and the same objection which had been raised in the letter dated 19th February, 1951, was raised to the loan. It was asserted that no amount was ever paid to the Company, and it was added that although the writer had been to Bombay in February, 1951, and asked for inspection of the pro-note, yet no inspection was given to him by the Bank. Complaint about not replying to the letters of February; 1952, mentioned above, was also made. It was added that Rani Ajitkunvarba, her son-in-law, or other relations knew fully well that the Company was objecting to the validity or geuniness of the loan. After this letter, by a letter dated 3rd June, 1952, Mr. K. L, Gauba informed Mr. Laxman Swaroop that the petitioner No. 1 did not know that the Company was taking objection to the validity or genuineness of the loan. It was also added that the petitioner No. I was not in the know or any correspondence between Mr. Laxman Swaroop on behalf of the Company and Messrs. Mulla and Mulla on behalf of the Bank. By another letter dated 4th June, 1952, Mr. K. L. Gauba complained to the Bank that the first petitioner was not informed about the objections of the Company to the loan at the time of endorsement. Again, there is a letter of 19th August, 1952, from Mr. Laxman Swaroop to Mr. Mulla and Mulla on behalf of the Bank. By another letter dated 4th June, 1952, Mr. K. L. Gauba complained to the Bank that the first petitioner was not informed about the objections of the Company to the loan at the time of endorsement. Again, there is a letter of 19th August, 1952, from Mr. Laxman Swaroop to Mr. K. L. Gauba, in which objections have been raised to the genuineness and validity of the loan. When Mr. K. L. Gauba sent a letter to Mr. Laxman Swaroop making a demand of Rs. 1,73,645/- on the basis of the pro-note, Mr. Laxman Swaroop disputed the loan as in previous letters. 31. An argument has been advanced On behalf of the respondent that the letter Ex 3, dated 21st October, 1949, was addressed by the Maharaj after the pro-note is said to have been executed, and in that letter it has been stated that the loan had not till then come through. On behalf of the Company it is argued that this letter itself shows the bogusness of the pro-note which is said to have been executed a few months before it. I do not want to express any opinion on this point, as it will be a point properly to be considered by the Bombay High Court in the Bombay suit. All that I can say is this that the last argument coupled with other argument certainly raise a bonafide dispute about the pro-note amount. Thus besides the fact that unconditional leave has been given by the Bombay High Court to the Company to defend the Bombay suit, there is other evidence mentioned and discussed above, which goes to show that the dispute is not altogether without substance, and is a bona fide dispute. 32. It was argued Mr. K. L. Gauba on behalf of the petitioners that the very account books and balance sheet of the Company show that the debt was genuine, as it was mentioned therein. To this reply has been given by the affidavit of Mr. Chandra, and it has been explained under what circumstances these entries were made. 32. It was argued Mr. K. L. Gauba on behalf of the petitioners that the very account books and balance sheet of the Company show that the debt was genuine, as it was mentioned therein. To this reply has been given by the affidavit of Mr. Chandra, and it has been explained under what circumstances these entries were made. It would be for the Bombay High Court to examine, if the explanation is correct; but for me whose duty it is to find only if there is a bona fide dispute about the loan, it is sufficient to say that this last argument of the learned counsel for the petitioners is also not without reply on behalf of the respondents. 33. It was argued by Mr. K.L. Gauba that the company was altogether insolvent because its liquid assets were not sufficient to meet the demands on the company. This question will properly arise at the time of the final decision of the petition, but I may only say at this stage that there is a substantial amount which still remains unpaid on subscribed shares, and there are other liquid assets which may be converted into case without any difficulty, if a situation arises that the Company has to pay an amount equivalent to what is claimed by the petitioners. So far as the liabilities to word other creditors are concerned, they are either directors or partners in the Managing Agency firm, and they have shown that they are not anxious at present to call for their dues from and they Thus, at this stage it cannot be said that the Company has become so insolvent that it is necessary to wind it up even though a substantial amount of its liabilities is bona fide disputed. Under the circumstances, it would not be proper to allow the application for winding up. 34. So far as the amount of Rs. 799/4/-is concerned, there is no doubt that the Company admits it; but no notice under sec. 163(1) was served on the Company in respect of it. Moreover, it is such a small amount that it cannot be said that the Company is unable to pay it. Moreover, the Company has deposited this amount in Court during the pendency of this petition. 163(1) was served on the Company in respect of it. Moreover, it is such a small amount that it cannot be said that the Company is unable to pay it. Moreover, the Company has deposited this amount in Court during the pendency of this petition. Therefore, simply on account of that debt remaining unpaid before the winding-up petition was filed, order for winding-up can not be given. 35. The question that the remains to decide is as to what is the proper course for this Court to follow under the circumstances of this case. Two courses are open—either to dismiss the petition or to stay it, pending the decision of the Bombay suit. In some of the rulings which have been discussed above petitions were dismissed, while in one or to they were stayed. To my mind it should depend upon the circumstances of each particular case as to which of these two courses to follow. In the present case I find that the amount which is in dispute is very substantial, that is. about a lakh and a half rupees. The Company has not clearly denied its liability for the amount of deposits made by the Maharaj but has simply said that they are not at present payable because the deposits were made in consideration of Rani Bijou, the junior wife of the Maharaj, having been admitted as one of the partners of the Managing Agents Firm, and that it could not be paid to the petitioners, I do not wish to express any opinion on this point, because as has been said above, until any final decision is given about the pronote amount, the question about these deposits does not arise. But I do think that the question about the depo-sits may have to be enquired into in case the pro-note is found to be invalid or without consideration. Under the circumstances I do not think it proper to take the drastic step of dismissing the petition I think it just and proper that the disposal of the petition be stayed pending the Bombay suit. 36. The decision of the petition is stayed pending the suit filed by the first petitioner Bombay.