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2004 DIGILAW 272 (GAU)

Ramdeo Ranglal v. Ghooronia Tea Co. (P. ) Ltd.

2004-04-09

B.BISWAS

body2004
ORDER D. Biswas, J. 1. This petition has been filed under Sections 433 and 434 of the Companies Act, 1956, hereinafter referred to as the Act, for winding up the respondent-company, namely Ghooronia Tea Co. Pvt. Ltd. and for appointment of Official Liquidator. 2. The petitioner is a registered partnership firm having its registered office at Dibrugarh, Assam and is engaged in the business of banking. The respondent-company have been borrowing monies from the petitioner-firm from time-to-time for the purpose of payment to the members of the staff and the workers and to meet other financial exigencies. The terms and conditions amongst others also include payment of interest at the rate of 24% and fixed monthly commission of Rs. 1,500. The respondent-company was not in default in repayment till 1996. By the letter dated 23-12-1997, the Company admitted their liability for repayment of Rs. 7,21,127.73 and promised to clear the same on or before 23-12-1997. Subsequent thereto, the respondent-company also issued six pay orders. Thereafter it defaulted and made no payment. The outstanding amount as on 30-4-2000 was Rs. 11,95,586. The petitioner-firm issued legal notice demanding payment of the outstanding amount within a period of three months. The Company failed to discharge their liability. 3. The Company in their affidavit-in-opposition categorically denied its liability and challenged the maintainability of the petition. It has been submitted that the petitioner-firm is engaged in the business of money-lending without registration under the provisions of the Money-Lenders' Act, 1934. Besides, allegations have been levelled that certain cheques issued by the respondent-company were not encashed and the petitioner-firm misused the said cheques. It is further submitted that the respondent-company agreed to pay an amount of Rupees 7,21,000 on threat of criminal prosecution posed by the petitioner-firm. There was no agreement for payment of any interest and the outstanding balance was liquidated in kind by delivery of 9,120 kgs of black tea worth Rs. 6,00,000. The respondent-company further averred that there is a complete change of the shareholding by transfer and sale, and the ownership and management of the Company has devolved upon new shareholders. The petitioner-firm is trying to make unlawful gain by taking advantage of this changed situation. The allegation that the Company is insolvent and unable to discharge its debts have been denied. The petitioner-firm is trying to make unlawful gain by taking advantage of this changed situation. The allegation that the Company is insolvent and unable to discharge its debts have been denied. It is specifically averred that the Company is a sound concern earning profit and, therefore, the question of winding up does not arise. 4. The petition was admitted for hearing by the order dated 19-9-2001 and notices were directed to be published in Form 48 in accordance with the provisions of Rules 96 and 24 of the Companies Rules. 5. M/s. Jain Hardware Stores and Assam Co-operative Apex Bank Limited intervened and filed application supporting the prayer for winding up. The case of M/s. Jain Hardware Stores is that the respondent-company is in default of payment of Rs. 12,37,741.35 on account of purchase of hardware goods. Building materials and machineries bought on credit. M/s. Jain Hardware Stores also instituted Money Suit No. 46 of 1997 in the Court of Civil Judge (Senior Division), Dibrugarh for realisation of the aforesaid amount. The Assam Co-operative Apex Bank Limited file its affidavit supporting the winding up petition wherein an amount of Rs. 4,70,06,198.64 has been claimed as outstanding. A Bakijai proceeding is also pending for recovery of the aforesaid loan amount. 6. In affidavit-in-reply, the respondent-company denied the claim of M/s. Jain Hardware Stores and submitted the balance sheet of the Company for preceding four years would show that the Company is in a position to carry on with the business earning profit. The respondent-company further pleaded that the Bank is a secured creditor and, therefore, it has no role to play in the winding up proceeding. The Money Suit and the Bakijai proceeding referred to above have been stayed by this Court till disposal of this petition. 7. The following questions are formulated for resolving the dispute :-- (i) Whether the petition is maintainable for non-registration of the petitioner-firm under the provisions of the Money Lenders Act, 1934? (ii) Whether the liabilities and claim made by M/s. Jain Hardware Stores are disputed? (iii) Whether the claim of the Assam Co-operative Apex Bank could be taken up in winding up proceeding since it is a secured creditor and a Bakijai case has been instituted by it against the Company for realization of the debts? (iv) Whether the Company is commercially insolvent and, therefore, liable to be wound up? 8. Mrs. (iii) Whether the claim of the Assam Co-operative Apex Bank could be taken up in winding up proceeding since it is a secured creditor and a Bakijai case has been instituted by it against the Company for realization of the debts? (iv) Whether the Company is commercially insolvent and, therefore, liable to be wound up? 8. Mrs. Millie Hazarika, learned counsel assisted by Ms. Aparna Ajitsaria, learned counsel appeared for the petitioner-firm and submitted that the outstanding amount due as on 30-4-2000 was around Rs. 12 lakhs and the demand for payment has been raised by the petitioner by a legal notice. The Company failed to liquidate the debt within three weeks and, as such, the Company is liable to be wound up as the requirement of Section 434 of the Companies Act have been duly fulfilled. It is further contended that the Company is not in a position to pay its debts because of mismanagement and there is also no sign of improvement of the business of the Company. 9. Mr. B.M. Sharma, learned counsel representing the Creditor Bank submitted that the amount due on account of loan is not in dispute and the Company has not been able to liquidate the same. Mr. Sharma further pointed out that a Bakijai Case No. 6/1999 was instituted against the respondent-company for realization of a sum of Rs. 2,37,72,120.68 in the office of the Certificate Officer, Kamrup. Notice was also duly served under Section 7 of the Bengal Public Demand Recovery Act, 1913 on the respondent-company pursuant to which the Company filed application denying liability under Section 9 of the Act. Before the said application could be disposed of by the Certificate Officer, the Company filed W.P. (C) No. 5230 of 1999 under Article 226 of the Constitution challenging the maintainability of the Bakijai proceeding and this Court by an order passed on 11-10-1999 stayed further proceeding of the Bakijai case. The loan advanced by the Bank is fully secured by mortgage of block assets of the Tea Estate including land, buildings and machineries. The Bank intervened in this petition in response to an advertisement published in the newspaper on 28th September, 2001. 10. Mr. H. Roy, learned counsel appeared for the intervener/creditor M/s. Jain Hardware and submitted that the Company failed and neglected to pay the amount of Rs. The Bank intervened in this petition in response to an advertisement published in the newspaper on 28th September, 2001. 10. Mr. H. Roy, learned counsel appeared for the intervener/creditor M/s. Jain Hardware and submitted that the Company failed and neglected to pay the amount of Rs. 12,37,741.35 which was due on account of purchase of hardware goods, building materials, machinery parts etc. on credit and the Creditor filed Money Suit No. 46/97 in the Court of Civil Judge (Senior Division), Dibrugarh for realization of the aforesaid amount. The said suit is still pending. 11. Mr. G.N. Sahewalla, learned Senior Counsel for the respondent-company submitted that the petitioner-firm M/s. Ramdeo Ranglal is not entitled to recover the amount as it is engaged in money-lending business without formal registration as is required under the Assam Money Lenders Act, 1934. Besides, Shri Sahewalla submitted that the amount claimed by the petitioner-firm is highly disputed. The debt is not legally recoverable and, as such, the application for winding up of the Company would not lie. With regard to the claim of M/s. Jain Hardwares, Mr. Sahewalla submitted that the claim is barred by limitation. It is further pointed out that the Company has filed written statement in Money Suit No. 46 of 1997 denying its liability and existence of any debt. As regards the claim of the Creditor Bank, Mr. Sahewalla submitted that the loan advanced by the Bank is secured by hypothecation/mortgage of movable and immovable property of the Tea Estate, and the Bakijai proceeding initiated at the instance of the Creditor Bank has also been stayed by this Court in W.P. (C) No. 5230 of 1999. According to Mr. Sahewalla, the dispute raised in the aforesaid money suit and the writ petition are awaiting adjudication by competent legal Forum. Besides, Mr. Sahewalla further pointed out that the Company has submitted the balance sheet for the years 1999 to 2002 and the same would show that the Company is in a position to run the business properly and it has also earned profit despite change of the ownership because of transfer and sale of shares. Winding up of the Company at this stage will have devastating effect not only on the management but also on a large number of employees employed in the business who are receiving their pay and allowances regularly. 12. Winding up of the Company at this stage will have devastating effect not only on the management but also on a large number of employees employed in the business who are receiving their pay and allowances regularly. 12. In the context of the above argument, I would first like to deal with the claim of the petitioner-firm M/s. Ramdeo Ranglal. Section 7D of the Assam Money Lenders Act, 1934 reads as follows:-- "7D Suits to proceed without registration certificate, etc.--No suit for the recovery of a loan advanced by a money-lender shall proceed in a civil Court until the Court is satisfied that he holds a valid registration certificate or that he is not required to have a registration certificate by reason of the fact that he does not carry on the business of money-lending." 13. The provision incorporated in Section 7D clearly shows that money-lending business is prohibited unless the lender holds a valid registration certificate or a certificate to the effect that he is not required to hold such a certificate for carrying on the business of money-lending. It is an admitted position that the petitioner-firm does not hold such certificate. Mrs. Millie Hazarika submitted that the petitioner-firm is not engaged in the business of lending money in regular course and that the firm is lending money to the respondent-company to meet its immediate necessity in terms of agreement executed by them. It is further submitted that whether the debt is barred or not is immaterial in a proceeding for winding up of a Company. It would be enough if it is shown that the requirements of Section 433 of the Companies Act have been duly fulfilled. According to the learned counsel the respondent-company having failed to liquidate the debt or having neglected to liquidate the debt is liable for winding up. Ms. Hazarika also referred to the definition of "Money lender" in Section 2(1) of the Assam Money Lenders Act, 1934 and argued that a person who in regular course of business advances a loan is a money-lender and the petitioner-firm does not fall within this category. 14. Above argument in my opinion, does not hold good in the sense that the petitioner-firm has been regularly advancing monies to the respondent-company on condition of payment of interest at the rate of 24 per cent. 14. Above argument in my opinion, does not hold good in the sense that the petitioner-firm has been regularly advancing monies to the respondent-company on condition of payment of interest at the rate of 24 per cent. The statements in paras 1, 2, 3 and 4 of the Company Petition clearly indicate that the petitioner-firm has been lending monies to the respondent-company regularly for the purpose of staff payment, labour payment etc. Question would have been altogether different had the monies being advanced on a very few exceptional occasions to meet the emergent situation. The statement in para 1 of the Company Petition to the effect that the petitioner-firm carried on the business of banking in itself reflect the nature of the business of the petitioner-firm i.e., lending money. The business of banking cannot be undertaken by any person in any manner whatsoever without permission from the appropriate authority. The word "banking" indicate money-lending in usual course and, therefore, the claim of the petitioner-firm is hit by the provisions of Section 7D of the Assam Money Lenders Act, 1934. However, this observation is made for the purpose of this Company Petition and shall not in any way be binding on any legal Forum if a lis is instituted in future. 15. The outstanding amount of Rs. 11,95,586 as claimed by the petitioner has been disputed by the respondent-company. As already stated hereinbefore, the Company has taken the plea that it has delivered 9,120 Kgs. of black tea worth Rs. 6 lakhs against the outstanding amount. A winding-up proceeding cannot be legally maintained where the amount claimed is in controversy. In the instant proceeding, the claim of the petitioner-company stands controverted in so far the outstanding amount is concerned. In Hindustan Ciba Geigy Ltd. v. Bharat Wood Works (P.) Ltd. 1990 (2) GLR 164, a learned single Judge of this Court held that a winding up petition is not a legitimate means to secure payment of debt which is in bona fide dispute. A petition for winding up cannot be entertained as a means to exercise pressure for payment. The element "neglect to pay" cannot be imputed where a bona fide dispute is made out within the meaning of Section 434(1)(a) of the Companies Act. In the given situation, no presumption can be drawn that the Company is unable to pay its debt. 16. The element "neglect to pay" cannot be imputed where a bona fide dispute is made out within the meaning of Section 434(1)(a) of the Companies Act. In the given situation, no presumption can be drawn that the Company is unable to pay its debt. 16. The case of M/s. Jain Hardware Stores is that the Company is in default of payment of Rs. 12,37,741.35 against purchase of hardware goods, building materials, etc., on credit. It appears that M/s. Jain Hardware Stores also instituted Money Suit No. 46 of 1997 in the Court of Civil Judge (Senior Division), Dibrugarh for realization of an amount of Rs. 20,06,601.75 with interest and costs. According to M/s. Jain Hardware Stores, the Company also confirmed the balance, but neglected to liquidate the acknowledged amount. Besides, it is submitted that the Company is highly indebted to other financial institutions and is, therefore, not in a position to pays the debt. The plea taken by the respondent-company is that the claim is sub judice in the money suit filed by the creditor. The debt is barred by limitation and, as such, cognizance thereof cannot be taken for the purpose of this proceeding. It is submitted that the Company has submitted its written statement denying its liability and existence of any debt in the aforesaid money suit and, therefore, no presumption can be raised by this Court that the company is unable to pay its debts till the disposal of the money suit. 17. There is no dispute with regard to above factual position that written statement has been filed by the Company denying the existence of the debt along with the plea that the claim of M/s. Jain Hardware Stores is barred by limitation. Therefore, it cannot be said that the omission to pay the debt by the Company is devoid of any reason. In a proceeding where the Company takes the plea that a particular claim is barred by limitation and awaits a decision thereof by the appropriate legal Forum, it cannot be said that non-payment of the debt is without any reasonable excuse. This otherwise leads to the conclusion that the element "neglect to pay" cannot be imputed to the Company. 18. The Creditor Assam Co-operative Apex Bank instituted a Bakijai proceeding for realisation of the amount due. The said proceeding has been stayed by this Court in W.P. (C) No. 5230 of 1999. This otherwise leads to the conclusion that the element "neglect to pay" cannot be imputed to the Company. 18. The Creditor Assam Co-operative Apex Bank instituted a Bakijai proceeding for realisation of the amount due. The said proceeding has been stayed by this Court in W.P. (C) No. 5230 of 1999. The Bank is a secured creditor against movable and immovable property of the respondent-company. The legality and validity of the said Bakijai proceeding has been challenged in W.P. (C) No. 5230 of 1999 and the Court also granted a stay. In such a situation, it will be premature to conclude that the Company is unable to pay or has neglected to pay the debt of the Creditor Bank. This observation appears to be relevant particularly when the loan amount is secured by hypothecation/mortgage of movable and immovable properties of the respondent-Company. 19. In a case for winding up of a Company, it has to be satisfied that there is an undisputed debt, the respondent-company is financially insolvent to pay the debt or that it is solvent but neglecting to pay the debt. The situation emerging out of the circumstances discussed above apparently run contra to the claim of the creditors that the Company be wound up. The requirements of Section 434 of the Companies Act, in my opinion, are absent in the instant proceeding. 20. While dealing with a winding up proceeding, the Court is required to take care of the interest of the creditors but not in total negation of the interest of the Company as a whole. There is a change in the management of the respondent-company because of transfer and sale of shareholding. A large number of employees are working in the respondent-company and they are being paid regularly. The balance sheets for the year i.e., 1999 to 2002 filed by the respondent-company also indicate that the business of the respondent-company is in the process of revival. The interest of a large number of employees cannot be obliterated by an order of winding up only to satisfy the claim of the creditors. The Company is earning profit and is in a position to manage its affairs. In a situation like the one at hand, it would be appropriate to leave the creditors to pursue their remedies in an appropriate Forum for recovery of their debts in accordance with the provisions of law. 21. The Company is earning profit and is in a position to manage its affairs. In a situation like the one at hand, it would be appropriate to leave the creditors to pursue their remedies in an appropriate Forum for recovery of their debts in accordance with the provisions of law. 21. I have also taken care of the decisions in Madhusudan Gordhandas & Co. v. Madhu Woolen Industries (P.) Ltd. AIR 197] SC 2600 and in Pradeshiya Industrial Investment Corporation of U.P. v. North India Petrochemicals Ltd. AIR [1994] SCW 2495 relied upon by Mrs. Hazarika, learned counsel for the petitioner-firm. In para 20 of the judgment in Madhusudan Gordhandas & Co.'s case (supra), it has been clearly held that if the debt is bona fide disputed and the defence is a substantial one, the Court will not wind up the Company. The ratio available in Pradeshiya Industrial and Investment (supra) is also of no consequence since the order for winding up could only be passed if the Company is found unable to pay its determined debt. No order for winding up is permissible in a case where the debt is disputed. The decision in First National Bank Ltd. v. Seth Sant Lal AIR 1959 P&H 328 , of the Punjab High Court that a debt does not cease to be a debt because its recovery barred by statute of limitation cannot improve the case of creditors M/s. Jain Hardware Stores since the Company has denied existence of any debt due to it in the written statement filed in the money suit which is still pending. In an application for winding up the prayer is definitely not for enforcing any judgment or order for payment. The prayer is for declaring the Company as insolvent K.T.S. (Singapore) PLC Ltd. v. Associate Forest Products (P.) Ltd.). A company can be declared insolvent only when it is found that its liability exceeds the assets and there is no chance of revival of the Company. The situation at hand is, however, completely different. The ratio available in Ram Bahadur Thakur & Co. v. Sabu Jain Ltd. [1981] 51 Comp. Cas. 301 (Delhi); Kesoram Industries Cotton Mills Ltd. v. CWT and in Harinagar Sugar Mills Co. Ltd., v. M.W. Pradhan (Now G.V. Dalvi) Court Receiver, High Court, Bombay are also in the same footing. 22. The situation at hand is, however, completely different. The ratio available in Ram Bahadur Thakur & Co. v. Sabu Jain Ltd. [1981] 51 Comp. Cas. 301 (Delhi); Kesoram Industries Cotton Mills Ltd. v. CWT and in Harinagar Sugar Mills Co. Ltd., v. M.W. Pradhan (Now G.V. Dalvi) Court Receiver, High Court, Bombay are also in the same footing. 22. I have also taken care of the decisions in Seth Mohan Lal v. Grain Chambers Ltd. and in Madhusudan Gordhandas & Co. v. Madhu Woolen Industries (P.) Ltd. relied upon by Mr. G.N. Sahewalla, learned Senior Counsel for the respondent-company. In the aforesaid judgments, the law for winding up a Company has been interpreted with reference to the provisions in Sections 433 and 434 of the Indian Companies Act, 1951. There is no dispute with regard to the provisions of law of winding up. It is the factual matrix on which the said provisions are required to be examined and applied. In the fact situation of the case, as narrated hereinbefore, this Court is of the opinion that no order for winding up of the Company is warranted in the instant proceeding. 23. In the result, the company petition is dismissed.