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Case Number

Co. Application No. 3 of 2007

Advocates

Sanjeev Sachdeva
Sanjay Jain
Rajiv Sawhney
Preet Pal Singh
Kamal Sharma
Amol Dixit

Judges

Vikramajit Sen
Rajiv Shakdher, JJ.

Acts

Sections 433(e), 433(f), 434 read with Section 439 of the Companies Act, 1956 (hereinafter referred to as the Act)
FOREIGN TRADE DEVELOPMENT AND REGULATION ACT
Rule 21 of the Companies (Court) Rules, 1959.
Section 433(e) and 434

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Smart Summary

Structured Summary of the Opinion (Vikramajit Sen, J.)

Factual and Procedural Background

The appeal challenges the Judgment and Order dated 20.11.2006 of the learned Company Judge that admitted a winding up petition filed by Deutshe Homeopathic Union DHU Arzneimittel Gmbh & Co. Kg (the respondent). The Company Judge admitted the petition but deferred publication of citations and appointment of a provisional liquidator for two months to enable the respondent to pay €9,87,044.97 with interest. That amount was calculated by setting off a counterclaim of €4,41,438.67 (held genuine by the learned Company Judge) from a total outstanding amount of €14,28,003.44 said to be due by the appellants on account of eight undisputedly supplied orders.

The appellants are an Indian company (referred to as the appellants) who were the sole selling agent for Dr. Willmar Schwabe GmbH & Co. KG in India. A contract dated 24.6.1998 governed the relationship and was to run till 31.3.2003 and was extendable; it stood prolonged for one year to 31.3.2004. Between 19 May 2003 and 6 October 2003 the appellants placed eight orders; respondent raised invoices for these supplies, which the appellants do not dispute were made.

The appellants raised multiple counter-claims (variously quantified) in reply and in pending civil suits; the learned Company Judge evaluated each counter-claim and allowed certain parts, ultimately finding counter-claims totaling €4,76,243.45 to be substantial. The Company Judge nevertheless admitted the winding up petition subject to the deferred payment direction noted above. The appellants appealed against the admission and the Court below's detailed treatment of counter-claims.

Legal Issues Presented

Whether, in a winding up petition under Sections 433(e), 433(f), 434 read with Section 439 of the Companies Act, 1956, the Company Court may go into detailed quantification and minute adjudication of counter-claims or whether the scope is restricted to a prima facie inquiry into whether counter-claims are bona fide and substantial.
Whether a winding up petition can legitimately be used as a method to enforce payment of a debt that is bona fide disputed by the company (i.e., whether the petition is an abuse of process when the debt is disputed and requires civil adjudication).
Whether the learned Company Judge, by evaluating and quantifying counter-claims in detail, exceeded jurisdiction and misapplied judicial discretion in admitting the winding up petition.

Arguments of the Parties

Appellant's Arguments

The learned Company Judge exceeded his jurisdiction in winding up proceedings under Sections 433(e), 433(f), 434 read with Section 439 of the Companies Act, 1956 by ascertaining the amounts of the appellant's counter-claims and by holding that evidence was not placed on record for certain counter-claims.
The proper scope of inquiry in a winding up petition is limited to a prima facie determination of whether a counter-claim is bona fide and substantial; the learned Judge impermissibly ran into a detailed trial-like evaluation of each counter-claim.
The winding up petition was being used as a means to enforce payment of a disputed debt; such use is illegitimate and a petition presented to exert pressure should be dismissed because the rival allegations require appreciation of evidence in a civil suit, not summary determination in winding up proceedings.

The opinion does not contain a detailed account of the respondent's legal arguments in this appeal.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Madhusudan Gordhandas & Co. v. Madhu Woollen Industries P. Ltd. ([1971) 3 SCC 632 / AIR 1971 SC 2600]	Sets out principles: if debt is bona fide disputed and defence is substantial, court will not wind up; if debt undisputed, winding up may proceed; where exact amount disputed, court may still make order; criteria include good faith, substance, prima facie proof.	The Court relied on these principles to frame the scope of inquiry in winding up petitions and to assess whether the learned Company Judge erred by going beyond a prima facie inquiry into counter-claims.
Amalgamated Commercial Traders (P) Ltd. v. A.C.K Krishnaswami (1965 (XXXV) Comp Cas 456)	Holds that winding up is not a legitimate means to enforce payment of a bona fide disputed debt; petitions used to exert pressure should be dismissed; summary handling of disputed facts is inappropriate.	The Court applied this authority to support the proposition that disputed debts and substantial counter-claims should be adjudicated in a civil forum and that the winding up petition should not be sustained where there is a bona fide dispute.
Tata Iron and Steel Co. v. Micro Forge (India) Ltd. ([2001] 104 Comp Cas 533 (Guj))	Explains that winding up is discretionary, disputed debts should be adjudicated in civil court, and petitions filed to enforce disputed debts are an abuse of process; cites Bayoil S.A.	The Court cited this Division Bench decision to reinforce that disputed claims and plausible counterclaims justify dismissal of a winding up petition and that the Company Court should not be used to enforce disputed debts.
Bayoil S.A. ([1999] 1 All ER 374)	Authority referenced in Tata Iron & Steel discussion about treatment of disputed debts and counterclaims in winding up contexts.	Used as part of the jurisprudential backdrop for the proposition that bona fide disputes and plausible counterclaims counsel against winding up orders.
In re L.H.F Wools Ltd. ([1969] 3 W.L.R 100)	Illustrates that where parallel foreign proceedings exist concerning counterclaims, it may be appropriate to stand the petition over until foreign action progresses.	The Court referred to this authority to show established practice that competing substantive disputes are better left to appropriate forums rather than decided in winding up petitions.
Pradeshiya Industrial & Investment Corporation of Uttar Pradesh v. North India Petro-Chemical Ltd. ((1994) 2 Comp LJ 50 (SC))	Paraphrases earlier Supreme Court authorities on winding up; supports established propositions about bona fide disputes and abuse of winding up procedure.	Invoked to summarize settled propositions (e.g., cannot use winding up to realise disputed debts) which the Court applied in evaluating the learned Company Judge's approach.
Ambala Bus Syndicate Pvt. Ltd. v. Bala Finance Pvt. Ltd. ((1983) 2 SCC 322)	Supports the practice that where positions are balanced the court may order deposit of disputed amounts to be held pending adjudication.	The Court cited this as an available remedy where dispute hangs in the balance, as an alternative to making final winding up orders.
Nishal Enterprises v. Apte Amalgamations Ltd. (Civil Appeal No. 720 of 1999)	Similar to Ambala Bus Syndicate—authority for depositing disputed amounts pending adjudication.	Referred to as an example of the Company Court ordering deposits where appropriate rather than proceeding to wind up amid substantive disputes.
Re Tweeds Garages Ltd. (1962 Ch. 406)	Indicates that if debt is owed but exact amount disputed the court may make a winding up order without precise quantification.	Quoted as part of the doctrinal framework on how courts treat disputed quantification; the Court used it to delineate boundaries of permissible inquiry.
Re. A Company (94 SJ 369)	Referenced for the proposition that where debt is undisputed court will not accept the defence that company can pay but chooses not to pay particular debt.	Used in the Court's exposition of established rules governing when winding up may properly proceed.
Re. Brighton Club and Norfolk Hotel Co. Ltd. ((1865) 35 Beav. 204)	Historical example where winding up petition was refused because the company contended work was not properly done—supporting the rule that bona fide disputes preclude winding up.	Relied upon as part of the historical authorities illustrating that disputed claims should not be resolved by winding up orders.
London and Paris Banking Corporation ((1874) 19 Eq. 444)	Historical example where petition for winding up was dismissed because price for goods was disputed—illustrating long-standing principle against winding up where debt is bona fide disputed.	Invoked to support the Court's statement of established principles that a bona fide dispute prevents winding up.

Court's Reasoning and Analysis

The Court began by delineating the proper scope of inquiry in a company winding up petition where the petitioner relies on inability to pay debts and the respondent sets up counter-claims as defence. Drawing on a line of authorities (notably Madhusudan Gordhandas, Amalgamated Commercial Traders, Tata Iron and Steel, and others), the Court summarized settled principles:

If the debt is bona fide disputed and the defence is substantial, the court should not wind up the company.
Where a debt is undisputed, the court will not usually be swayed by a claim that the company can pay but chooses not to pay a particular debt.
When exact quantification is disputed, a winding up order may nonetheless be made in some cases, but the defence must appear prima facie to be in good faith, of substance, and likely to succeed in law; the company must produce prima facie proof for the defence.
The machinery of winding up must not be used merely as a device to realise disputed debts and, where positions hang in balance, the court can require deposits or direct adjudication in a civil forum.

Applying these principles to the facts, the Court found that the learned Company Judge had gone beyond the permissible frontiers of jurisdiction for winding up petitions by conducting minute and detailed admissibility and quantification of the appellants' counter-claims (which is the province of a civil court). The Court examined the learned Judge's treatment of specific counter-claims and observed:

The first counter-claim for commission (claimed €2,19,243.45) had been allowed in toto by the learned Company Judge on a prima facie basis; the appellate court considered that detailed quantification should be left to a civil forum.
The substantial counter-claim regarding defective CMS eye-drops (claimed €9,32,500) had documentary support filed before the petition (correspondence, photographs, and a Government certificate of destruction). These documents were sufficient to raise a prima facie valid and substantial counter-claim and the Company Judge erred in dismissing it as baseless or excessive without civil adjudication.
The repackaging/relabeling counter-claim had supporting correspondence (letters of demand) and the Single Judge erred in admitting only part of this claim (€75,000) while rejecting the rest, since quantification should be left to the civil court.
The claim for repurchase of stock under Clause IX of the agreement was held by the Single Judge to be invalid because the first letter asking for repurchase was dated 24.11.2004 (after lapse of eight months). The appellate Court held that the rival claims required full adjudication and so the Single Judge should not have conclusively rejected the claim in winding up proceedings.
A counter-claim alleging misdescription of origin of medicines (claimed €9,75,000) was declined by the Single Judge applying caveat emptor and because it was belated; the appellate Court held this too was a matter for civil adjudication and should not have been finally decided in the company petition.
Some counter-claims were refused by the Single Judge for lack of documentary support at that stage; the appellate Court noted that for five of the counter-claims necessary documentation had been filed only in the appellate proceedings and therefore avoided making observations on those in detail.

The appellate Court aggregated the amounts it considered the appellant had shown as valid counter-claims on a prima facie basis and observed that they would total €27,90,275 which, if proved, would exceed the debt claimed by the respondent. On that foundation, and applying the settled principles that winding up should not be used to enforce disputed debts and that substantial counter-claims require civil adjudication, the Court concluded that the learned Company Judge had erred by proceeding to admit the winding up petition instead of directing civil adjudication or otherwise staying/rejecting the petition.

Holding and Implications

Holding: The appeal is allowed and the winding up order, as made by the learned Company Judge on 20.11.2006, is recalled.

Implications:

The direct effect is that the winding up order admitted by the learned Company Judge has been set aside and the petition cannot proceed on the basis as admitted; the dispute over the disputed debts and counterclaims should be adjudicated in an appropriate civil forum.
The Court emphasized that the learned Company Judge exceeded jurisdiction by engaging in minute adjudication and quantification of counter-claims in winding up proceedings; this serves as a reminder that winding up machinery should not be used to realise disputed debts and that substantial counter-claims ordinarily require trial in a civil court or appropriate procedural directions (for example, deposit of disputed amounts).
The Court ordered that the parties shall bear their own costs.

Appeal allowed.

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German Homoepathic Distributors Pvt. Ltd. v. Deutsche Homeopathic-Union Dhu - Arzneimittel Gmbh & Co. Kg

Vikramajit Sen, J.— The present Company Appeal is directed against the impugned Judgment and Order of the learned Company Judge dated 20.11.2006 admitting the winding up petition of Deutshe Homeopathic Union DHU Arzneimittel Gmbh & Co. Kg, the respondent in the present appeal. Publication of citations and appointment of provisional liquidator had been deferred for a period of two months so as to enable the said respondent company to pay €9,87,044.97 along with interest at the rate of five per cent per annum from the date of filing of the petition till payment. The amount of said €9,87,044.97 has been reached by the learned Company Judge by setting-off €4,41,438.67, the counterclaim that was held to be genuine, from €14,28,003.44 which is the total outstanding amount due on the German Homeopathic Distributors Private Limited (hereinafter referred as appellants) on account of eight different orders for purchase of homeopathic medicines, which were undisputedly duly supplied.

2. The appellant is an Indian Company which was the sole selling agent for Dr. Willmar Schwabe Gmbh & Co. KG in India of which the respondent is an affiliate. The last Contract dated 24.6.1998 was agreed between the appellant and Dr. Willmar Schwabe Gmbh & Co. KG to be current till 31.3.2003, automatically extendable from year to year. Either party had the right to terminate it by six months advance notice of initial or any extended period of the Agreement. The said Agreement stood prolonged for one year, that is, upto 31.3.2004 It was from May 19, 2003 to October 6, 2003 that the appellant placed eight orders for purchase of Homeopathic medicines in respect of which the respondent has raised Invoices bearing numbers 10560, 11970, 09530, 17110, 17140, 17210, 19650 and 19860.

3. The appellant has not disputed that supplies were made against the Invoices raised and amount due and payable under the Invoices raised by the respondent herein. However, they have sought to raise counterclaims against the respondents, which are pending adjudication in civil cases filed by them. It is contended that these are substantial, bona fide and are in excess of the claims of the respondent.

4. The appellant has raised its counter-claims against the respondent on several grounds. Firstly, the appellant claims an amount of €2,19,243.45 against the commission payable under the Agreement dated 24.6.1998 The learned Company Judge has, in respect to this claim held that prima facie evidence in support has been filed by the appellant. Secondly, an amount of €9,32,500.00 has been claimed against the loss/damages and the expenses incurred in removing the adverse impression of quality of CMS Eye Drops and obtaining approval including arranging, air freight, demurrage, storage charges, custom duty, testing charges, etc. for the new CMS Eye Drops from the Authorities. The learned Company Judge has, on a prima facie view, held the claim to be inflated and excessive as no documents have been filed, justifying or supporting the quantum claimed. He has, however, treated an amount of €1,82,500 as a defence to the debt claimed.

5. Thirdly, an amount of €2,60,037 has been claimed against alleged defective packaging and cost of additional labelling incurred by the appellant. It is the case of the appellant that the packaging of the medicines supplied by the respondent neither conformed to the requirements of INCOTEMS nor the mandatory requirements of the Standards of Weights and Measures (Packaged Commodities) Rules and Foreign Trade (Development and Regulation) Act. To conform with the requirements of the law, the appellant was required to affix additional labels on the bottles and the outer packaging, for which the appellant had to incur heavy costs. The learned Company Judge, while adjudicating on this claim, had perforce to refer to the correspondence made between the parties and not the Agreement because the learned Judge held the same to be inconsequential for this claim as the Agreement dated 24th June, 1998 stood expired by the efflux of time. It was further held that the parties had settled the claim at an amount of €75,000 for the year 2002 and €65,000/- for the year 2003. The claim for the year 2000 has been held to be time barred and that of the year 2004 to be an afterthought and not bona fide. The learned Judge only held claim of €75,000/- for the year 2001 to be a genuine counter-claim. Fourthly, an amount of €3,50,717.55 has been claimed towards the stock which, according to them, was bound to be purchased back by the respondent as per Clause IX of the Agreement dated 24.06.1998 limited to three months requirement. The learned Company judge has held that the first letter written by the respondent company for repurchase was on 24th November, 2004, that is, after lapse of nearly eight months. Further, he held that neither in the letters nor in the pleadings the respondent company has pointed out or stated “the three months requirement” nor was any letter written within the three months period. Thus, the claim was ex facie not held to be valid and substantial. Fifthly, counter-claim of €9,75,000 has been raised as a reimbursement of loss suffered by the appellant on account of misdescription on the medicines supplied between the years 2003 and 2004 which wrongly indicated its manufacturing to be “made in Germany” though the same were, in fact, manufactured in Czechoslovakia. The learned Company Judge has declined to consider the claim applying the doctrine of caveat emptor (buyer beware) and being a belated claim. Sixthly, €5,00,000 have been counter-claimed on account of breach of the Confidentiality Clause by the appellant for supplies of medicines in the year 2003 to its own associate, Dr. Willmar Schwabe India (P) Ltd. at a discounted price. Seventhly, €4,50,000/- has been claimed towards breach of Confidential Clause. Eighthly, claim has been made towards Bad Faith on account of starting a new company. These three claims were dealt cumulatively by the learned Company Judge and brushed aside simultaneously. It has been held by the learned Judge that these counter-claims are exorbitant and extortionate and that the respondent before him failed to satisfy the Court that there is some material and basis for making these claims and the quantum claimed is based on sound and intelligible grounds. Also on incorporation of competitive company by the respondent, the learned Judge remarked that the appellant before him was itself shareholder of the said company which was, in fact, a joint venture. Thus, the appellant had given its tacit consent in its incorporation and cannot now after indirectly participating in its incorporation cry and shed tears. Besides, the claims made towards the investments made by the appellant towards the Joint Venture were held to be mutually exclusive of the present dispute and not maintainable under the guise of counterclaim in that petition. Ninthly, claim of €30,464.61 with regard to Debit Note dated 7.2.2003 has been raised and Tenthly €52,815.37 have been claimed towards frozen commission. Both these counter-claims were refused to be looked into by the learned Company Judge on the ground that no documents or materials in support were filed by the appellant. Evaluating all the counter-claims, the learned Judge held a total of €4,76,243.45 to be a substantial counter-claim and rest of the counter-claim to be a phony claim.

6. The appellant has also raised Objections to the Affidavit filed in support of the petition on the premise that the same was not signed by the person mentioned under Rule 21 of the Companies (Court) Rules, 1959. The learned Company Judge has disregarded the same, holding it to be an irregularity which can be cured.

7. It has been vehemently argued by Mr. Sawhney, learned Senior Counsel for the appellant that the learned Company Judge has exceeded the jurisdiction vested on him in a winding up petition under Sections 433(e), 433(f), 434 read with Section 439 of the Companies Act, 1956 (hereinafter referred to as the ‘Act’) and misapplied jural discretion by ascertaining the amount of the counter-claim of the appellant and holding that evidence has not been placed on record for certain counter-claims. In a Company Petition the scope of inquiry is limited to prima facie determining whether the counter-claim raised is in good faith and is one of substance and not mala fide. It has been the pivotal contention of the appellant's Counsel that the winding up petition is not a legitimate or legally permissible method of seeking to enforce payment of a debt or an alternative to the ordinary mode of debt realization. It is argued that the allegations of both the adversaries require appreciation of evidence and cannot be decided in a company petition for winding up.

8. Before running the marathon of analyzing each and every counter-claim like the learned Company Judge has diligently done, we would analyse the scope of enquiry required to be made by a Company Court in case of a winding up petition filed under Section 433(e) and 434 on the ground that the Company is unable to pay its debts and where a counter-claim or cross-claim is set forth as a defence by the respondent. The Supreme Court, in the celebrated case of Madhusudan Gordhandas and Co. v. Madhu Woollen Industries P. Ltd., [1972] 42 Comp Cases 125 : (1971) 3 SCC 632 : AIR 1971 SC 2600 : (1971) 3 SCC 632, has laid down the following principle:

20. 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, (1874) 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 properly was not allowed [see Re. Brighton Club and Norfolk Hotel Co. Ltd., (1865) 35 Beav. 204].

21. 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 chooses not to pay that particular debt [see Re. A Company, 94 SJ 369]. 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 Re Tweeds Garages Ltd., 1962 Ch. 406]. 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.

9. In Amalgamated Commercial Traders (P) Ltd. v. A.C.K Krishnaswami, 1965 (XXXV) Comp Cas 456, the Supreme Court has enunciated the law in these words:

13. It is well settled that a winding up 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 winding up order but really to exercise pressure will be dismissed and under circumstances may be stigmatized as a scandalous abuse of the process of the Court. At one time petition founded on disputed debt were directed to stand over till the debt was established by action. If, however, there was no reason to believe that the debt, if established, would not be paid, the petition was dismissed. The modern practice has been to dismiss such petitions. But, of course, if the debt is not disputed on some substantial grounds, the Court may decide it on the petition and make the order. In the instant case, I find that the facts are disputed and there is case and counter case and in that view of the matter, in my opinion, in view of the ratio laid down by the Supreme Court in Amalgamated Commercial Traders (supra) this petition for winding up is not sustainable and it must be dismissed.

10. The law of winding up has been succinctly and elaborately discussed by the Division Bench of the Gujarat High Court in Tata Iron and Steel Co. v. Micro Forge (India) Ltd., [2001] 104 Comp Cas 533 (Guj) : (2000) 2 GLR 1594, where our learned Brothers have articulately covered all contours and aspects of this subject. It was opined that a claim to an order of winding up is not a matter of right, but it is the discretion of the Court to grant or to reject. Secondly, if a disputed debt has been disclosed, it should be adjudicated by a competent civil Court. Thirdly, a petition for winding up with a view to enforcing payment of a disputed debt is an abuse of the process of the Court and should be dismissed with costs. After applying Bayoil S.A, [1999] 1 All ER 374, the Division Bench, noting the existence of a bona fide dispute of debt, as also the existence of a plausible Counterclaim, dismissed the winding up petition.

11. We are also reminded of In re. L.H.F Wools Ltd., [1969] 3 W.L.R 100 : [1969] 39 Comp. Cas. 934 where the three-Judge Bench of the Court of Appeals was confronted with a situation similar to what obtains before us. A petition for winding up had been admitted since the petitioner had obtained a decree against the debtor company which had filed a Counter-claim in Belgium. This counter-claim would not have been entertained in England but was certainly sustainable in Belgium. The Court of Appeals opined that “the proper order to make is that the petition should stand over generally with liberty to either side to restore, until we can see what progress is made with the action in Belgium, and I would so hold”.

12. In winding up proceedings it is necessary to keep the following principles in perspective—

(i) If there is a bona fide dispute and the defence is a substantial one, the Court will not wind-up the company;

(ii) 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 chooses not to pay it;

(iii) Where the defence of the company is in good faith and one of substance, and the defence is likely to succeed in point of law, and the company adduces prima facie proof of the facts on which the defence depends, the petition should be rejected;

(iv) The Court may consider the wishes of creditors so long as these appear to be justified;

(v) The machinery of winding up should not be allowed to be utilised merely as a means of realising its debts [For the above propositions see Pradeshiya Industrial and Investment Corporation of Uttar Pradesh v. North India Petro-Chemical Ltd., (1994) 2 Comp LJ 50 (SC) in which the observation in Amalgamated Commercial Traders (P) Ltd. v. Krishnaswami, [1965] 35 Comp. Cas 456 (SC) and Madhusudan Gordhandas v. Madhu Woollen Industries (P) Ltd., [1972] 42 Comp. Cas. 125 (SC) have been paraphrased];

(vi) If the stance of the adversaries hangs in balance it is always open to the Company Court to order the respondent company to deposit the disputed amount. This amount may be retained by the Court and be held to the credit of the suit, if any [see Ambala Bus Syndicate Pvt. Ltd. v. Bala Finance Pvt. Ltd., (1983) 2 SCC 322 and Civil Appeal No. 720 of 1999 arising out of SLP (C) No. 14096 of 1998, Nishal Enterprises v. Apte Amalgamations Ltd., decided on February 5, 1999];

(vii) Generally speaking, an admission of debt should be available and/or the defence that has been adopted should appear to the Court not to be dishonest and/or a moonshine, for proceedings to continue. If there is insufficient material in favour of the petitioners, such disputes can be properly adjudicated in a regular civil suit. It is extremely helpful to draw upon the analogy of a summary suit under Order 37 of the Code of Civil Procedure. If the Company Court reaches the conclusion that, had it been exercising ordinary original civil jurisdiction it would have granted unconditional leave to defend, it must dismiss the winding up petition.

13. As regards the prima facie proof of a bona fide character of a counter-claim, the burden lies on the party who sets up the counter-claim, which burden can be discharged by producing sufficient material in support. The adequacy of the material cannot be objectively defined but it should convince the learned Company Judge that the counter-claim requires to be adjudicated in detail by a Civil Court.

14. Applying these findings of law to the facts of the present case, we cannot but reach to the conclusion that the learned Company Judge has travelled beyond the frontiers of jurisdiction in winding up petitions by going into the counter-claim in minute detail. The learned Company Judge has allowed the first counter-claim of the appellant for the commission payable in toto. As regards the second counterclaim regarding the supply of defective CMS eye-drops which had to be destroyed, the appellant had filed the correspondence made between the parties in December, 2002, much before the filing of winding up petition as Annexure R-9 along with the photographs of medicines being run down by a bull-dozer and a Certificate granted by the Government of India signed by Deputy Drugs Controller, certifying that the medicines were, in fact, destroyed. The documents are adequate to prima facie raise a valid and substantial counter-claim. The learned Company Judge could not, in the summary manner, which intrinsically governs and modulates winding up proceedings, have come to the conclusion that the claims were baseless and excessive. Assuming that the counter-claim was “excessive”, it was not expected of the Company Judge to quantify the amount due since that is the province of the civil Court. Similarly, as regards the third claim regarding repackaging of the medicines, the learned Company Judge erred in admitting the claim of €75,000 and declining the rest despite the Letters of Demand filed by appellant as Annexure R-12. As regards the fourth counter-claim regarding re-purchase of medicines after the termination of contract, the learned Single Judge ought not to have concluded that the appellant failed to request the respondent to repurchase the medicines within the stipulated three months period. Since the rival claims required adjudication, the Company Judge ought to have stayed, if not rejected the proceedings pending before him. Another counter-claim regarding the medicines, which were not manufactured by Doctor William Schwabe in Germany but by another company in Czech Republic, was raised which was declined by the learned Company Judge. The merits of this counter-claim are also subject matter of civil adjudication and could not have been dismissed by the learned Company Judge in a winding up petition.

15. The contract between the parties was concluded by Schwabe by letter dated October 27, 2004. The appellant in the reply to the petition has filed a letter dated November 5, 2004, Annexure R-18, wherein, along with other claims against the respondent, the appellant had requested the respondent to repurchase the medicines in transit and also those in stock with the appellant. The Agreement required the respondent to have bought back these medicines within a stipulated time period which the respondent allegedly has not done. The arguments in favour and against this claim would appropriately be considered by a civil Court for complete adjudication. It seems to us that this stand of appellant should be seen as a valid counter-claim. As regards the claim towards medicines alleged to have been made outside Germany but sold as being made in Germany, appellant had filed letters of correspondence filed as Annexures 21 and 30 where the respondent was called upon to settle the pending dispute. The learned Company Judge has held the claim of the appellant to be prima facie exorbitant, but its rejection outrightly ought to have been avoided since that tantamounts to a complete adjudication of disputed questions of fact. Similarly, the aspect of wrongly frozen commission, for which the claims were raised through letter/correspondence by the appellant, also requires adjudication in a civil Court. In respect of the remaining five counter-claims, since necessary documentation had been filed only in the appellate proceedings, we will avoid making any observations. However, these will obviously be substantiated in the civil suit pending on the original side of this Court.

16. The sum total of the amounts held to be valid counter-claims raised in his reply by the appellant would add up to €27,90,275 which, if proved, would be over and above the debt claimed to be due to the respondent before us. In this conspectus, we are of the view that the appellant had successfully disclosed before the learned Company Judge that there was a defence to the claim ventilated in the winding up petition. The legal consequence ought to have been that the learned Company Judge should have directed the Petitioner to prove its claim in a civil suit. In the light of the facts and circumstances of the present case, the winding up order shall stand recalled. The appeal is accordingly allowed. Parties to bear their own costs.