All India General Transport Corporation Ltd. Raj Kumar Mittal, In Re

1. This is a winding up petition which was presented on 19th of November, 1975, and on the returnable date being 24th November, 1975, direction was given to serve notice on the company and thereafter, on the 8th of December, 1975, directions were given for filing affidavits to the Company to show cause, if any, as to why the widing up petition should not be admitted and the petitioning creditor was also given leave to file affidavit-in-reply and thereafter, the matter was heard.

2. The petitioning creditor obtained a decree dated the 18th of October, 1972, from the Second Joint Civil Judge (Junior Division,) at Boroda in Suit No. 606 of 1971. The petitioning creditor's claim arose out of the non-delivery of goods carried by the company which were alleged to be missing and damaged. Thereafter, the petitioning creditor served a statutory notice of demand under S. 434 of the Companies Act, 1956, dated the 26th of March, 1975, on the company for payment of the said decretal amount of Rs. 6,060 with interest and cost. In reply to the said statutory notice the company raised the questions of the decree being obtained by fraud and collusion by its Advocate's letter dated the 24th of April, 1975, and the petitioning creditor's Advocate by his letter dated the 30th of May, 1975, denied such allegations. And thereafter, on the 19th of November, 1975, the present winding up petition was presented. The company filed an affidavit through one Sudarsan Kumar Arya, a Director of the company and alleged that there is a bona fide dispute as to the claim of the petitioning creditor. The company admitted that the goods were delivered by the petitioning creditor for carriage at the company's godown at Jorhat, Assam, to Boroda and alleged that it was to be carried entirely on the owner's risk. It is alleged that after coming to know of the said decree passed by the Boroda Court in favour of the petitioning creditor, the Respondent Company instituted a suit in the City Civil Court being Title Suit No. 1431 of 1975 against the petitioning creditor for declaration that the said ex parte decree passed by the Baroda Court on the 18th of October, 1972, has been obtained by practicing fraud and the same is not binding on the company, and the same is not maintainable against the company. It appears that in the said City Civil Court suit the company made an application for interim injunction and on or about 13th of August, 1975, the 8th Judge, City Civil Court at Calcutta has issued a Rule upon the petitioning creditor to show cause within seven days from the date as to why the prayer for injunction will not be granted. The said Rule was fixed for hearing on the 22nd of December, 1975. It is alleged inter alia that the question of validity of the decree passed by the Boroda Court is now pending before the City Civil Court and a Rule has been obtained by the company to show cause why the petitioning creditor should not be restrained from executing the said decree. In these circumstances, it is alleged that there is a bona fide dispute and substantial defence to the petitioning creditor's claim and the winding up petition is an abuse of the process of the Court and should not be admitted.

3. Mr. B.M Seth, appearing for the Petitioning Creditor, after placing the facts before me as stated in the winding up petition, submitted that already there is a decree passed by the Boroda Court which is not yet set aside in appeal or otherwise and the company has with mala fide intention instituted a frivolous and vexatious suit in the City Civil Court after the statutory notice of demand was served by the petitioning creditor on the company only to raise some sorts of dispute, if possible, in this application. The question whether a petitioning creditor who has obtained a decree from a Court of Law against the company without executing the said decree can serve a notice of demand under S. 434(i)(a) of the Companies Act, 1956, and the company can be deemed to be unable to pay its debt, if such claim is unsatisfied in spite of the said statutory notice. Mr. Seth cited an unreported decision of mine in Company Application No. 33 of 1974 in Company Petition No. 412 of 1973 Unique Card Board Box Manufacturing Company Limited delivered on the 5th of March, 1975, where the identical question arose as to whether after obtaining a decree against a company can the petitioning creditor serve a notice under S. 434(i)(a) of the Companies Act, 1956, and the company can be deemed to be unable to pay its debt if the decretal amount is not paid. I have held that it is not necessary that the decree has to be executed, as the petitioning creditor had the option either to execute the decree and thereafter, comes under S. 434(1)(b) or serve a notice under S. 434(1)(a) for payment of the decretal amount. Relying on the said decision Mr. Seth submitted that in the present case also it must be held that the petitioning creditor is entitled to present this winding up application on the basis of the decretal amount which has not been paid in spite of the statutory notice being served.

4. Mr. Shyamal Sen, appearing from the Company, fistly submitted that the decree has been obtained by fraud and the company has already filed a suit in the City Civil Court for setting aside the said ex parte decree obtained by fraud and an application for injunction is pending in that Court. Further, Mr. Sen submitted that the claim is disputed on bona fide ground and there, is substantial defence to the claim of the petitioning creditor and lastly, Mr. Sen submitted that the petitioning creditor having obtained a decree has not executed the same and, therefore, the present application is not maintainable unless the said decree was put to execution and remain unsatisfied thereafter within the meaning of S. 434(1)(b) of the Companies Act, 1956. In support of his various said contentions Mr. Sen cited several decisions being that of S.K Datta, J., in Om Prakash Mohta v. Steel Equipment and Construction Company Private Limited 1967 (1) CLJ 172 where a company petition was presented on the basis of a decretal debt on which statutory notice of demand was served under S. 434(1)(a) on the company and the company thereafter filed a suit for declaration that the decree was nullity being tainted with illegality inter alia on the ground that the Managing Director who gave guarantee on behalf of the Company was not empowered to submit to a consent decree and such act was ultra vires and illegal. It was held that the jurisdiction of the winding up Court is very wide and although the interim injunction in the suit filed by the company for declaration of the decree being null and void, was refused the company Court may come to a different finding after hearing the parties and further, it was held that the suit in which the compromise decree was obtained was without jurisdiction as the Court had no territorial jurisdiction over the immovable property which were the subject matter of the suit and such the decree was a nullity and in the fact of that case it was held that the contentions in the suit cannot be said to be not bona fide and the dispute raised by the company was held to be substantial. Therefore, the Court adjourned the winding up application till the disposal of the suit filed by the Company for setting the decree which was the basis of the claim in the winding up petition.

5. The next decision cited by Mr. Sen was that in the matter of Kokula Limited AIR 1953 Calcutta 387 where P.B Mnkherjee, J. as he then was, that although a judgment of a Court is a very strong presumptive evidence that the debt exists, it is not conclusive in a bankruptcy court and the Court will go behind a judgment debt in a proper case on proper grounds being shown that the decree or judgment debt is tainted with fraud or collusion. The allegation must be pleaded with such particulars as will not only amount to a proper averment in law, of fraud but also show a prima facie case of fraud requiring investigation. Even the petition for winding up is allowed to stand over, the company should undertake and bring an action to set aside the decree on which the debt is claimed by the petitioning creditor. But in the fact of that case the Court was satisfied that the company was unable to pay its debt after the statutory notice was served and the winding up order was passed in that case.

6. The next decision cited by Mr. Sen is an Allahbad decision in W.T Henly Telegraphs Works Company Limited v. Gorokhpur Electricity Supply Company Limited AIR 1936 Allahabad 840 where the Court merely referred to the well-known principles to be followed by winding up Court and considered whether a debt is bona fide disputed and whether a company is said to be unable to pay its debt and in the fact of that case the Court passed a winding up order.

7. In the last decision cited by Mr. Sen was that in the Alluminium Corporation of India Limited v. Laxmi Ratan Cotton Mills Company Limited AIR 1970 Allahabad 452 where M.H Beg, J. upon the consideration of the totality of the fact and circumstances of that case held that the long adjournment of hearing of the winding up petition or postponement of the final order for one year will serve the interest of justice. The period was allowed to enable the parties to obtain a possible decision of the pending appeal in the Supreme Court which will finally decide the question whether the disputed debt has to be discharged or not. In the fact of that case the winding up petition was based on a decretal claim of the petitioning creditor from which decree an appeal was pending. Mr. Sen also relied on the general principles that the winding up is not an alternative to file a suit for realisation of debt and when the debt is bona fide disputed and there is substance in the defence, the Company Court should not admit the winding up petition and hold that the winding up petition is an abuse of the process of the Court. He also referred to the well known decisions laying down the said principles including the latest Supreme Court's decision in Madhu Woolen case in AIR 1971 SC 2600. In these circumstances, Mr. Sen submitted that the winding up petition should be taken off the file and dismissed with costs.

8. Considering the respective contentions very carefully, I am of the view that the petitioning creditor who has obtained a decree against the company is not required to put in execution the said decree and then come before the Court after the decree remains unsatisfied and avail of the deeming provisions under S. 434(1)(b) of the Companies Act, 1956, but he has an alternative course left after he obtains a decree to serve a statutory notice for payment of the decretal amount under S. 434(1)(a) of the Companies Act, 1956, and if the company fails to pay the decretal amount within 21 days of the service of the notice, the deeming provisions of the company being unable to pay its debt within the meaning of S. 433(e) read with S. 434(1)(a) of the Companies Act, 1956, comes into operation immediately provided the statutory requirements are complied with i.e the notice is served at the registered office of the company and inspite of being served, the company has failed and neglected to pay a debt which is a legal due and has not been bona fide disputed and there is no substantial defence to the claim of the petitioning creditor. The Calcutta decisions cited by Mr. Sen which I have mentioned above are all cases where notice under S. 434(1)(a) has been served on the basis of a decretal debt and as such the contention which was sought to be raised by Mr. Sen that unless the decree is put into execution and it remains unsatisfied, then and then only the petitioning creditor can make an application for winding up and the deeming provisions under S. 434(1)(b) can only be invoked cannot be accepted. I have already held in the unreported decisions cited by Mr. Seth that the petitioning creditor has an option either to execute the decree and then come under the deeming provisions of S. 434(1)(b) or can serve a notice on the decree debts under S. 434(1)(b) at any stage after the decree is obtained whether the decree is put into execution and remains unsatisfied or without putting the decree in execution or at any intermediate stage.

9. Now the next question whether in the facts of this case can it be said that a bona fide dispute has been raised to the claim made by the petitioning creditor being the decretal debts due against the company. Only the fact that the company has filed a suit in the City Civil Court for declaration that the said decree is null and void and obtained by fraud, in my view, is not enough for the court to hold there is a bona fide dispute. If it is to be accepted, in that event in all cases where the decretal debt is the basis of the statutory notice and consequently, the winding up petition. A company can very well start a frivolous, vexatious and harassing suit alleging the decree has been obtained by fraud and collusion and frustrate the winding up proceeding altogether. It is true that the company can always challenge the decree, if it has valid ground for doing so on proper materials from which prima facie the Court can come to a conclusion that there is some substance in the company's allegations and there is a possibility of the same being substantiated in law and fact. The decision of P.B Mukherjee, J. in Kokula Limited AIR 1953 Calcutta 387 lays down the said principle very clearly. Therefore, the whole question is that, the Court has to examine the facts very carefully and to see whether there is really any basis in the contentions of the company challenging the validly of the decree on the ground of fraud or illegality or jurisdiction as the case may be. After examining it very carefully in the light of the facts of this case and the materials before me, I am unable to find that there is any bona fide in the company's contentions raising a dispute as to the validity of the decree or the claim of the petitioning creditor. The company's conduct and attitude is wholly mala fide and the petitioning creditor is being harassed unnecessarily by the company who is trying to prevent the petitioning creditor from realising his legitimate dues which is now a decretal debt in all possible ways. This is not a case where the court should exercise its discretion to adjourn the winding up petition till the disposal of the City Civil Court suit which has been instituted by the company long after the statutory notice of demand has been served on the company for payment of the decretal dues of the petitioning creditor. The statutory notice is dated the 26th of March, 1975, and the decree is dated the 18th of October, 1972, which was the basis of the statutory notice and the petitioning creditor's claim and it is only on the 13th of August, 1975, the company instituted the suit for the declaration that the said decree passed by Second Joint Civil (Junior Division) Court at Boroda being Suit No. 606 of 1971 is null and void and was obtained by fraud and collusion is not only an after though but wholly mala fide, vexatious and frivolous suit and filed with the sole intention of raising some sorts of disputes, if possible, in this application relying on certain observations in the decisions cited by Mr. Sen from the Bar. But I am satisfied that on facts the company has no defence and neither the dispute has been raised bona fide or there is any possibility of the Company's defence being substantiated in law or fact. In my view, the tests laid down in the Supreme Court decision in Madhu Woolen Mills Case in AIR 1971 SC 2600 are fully satisfied in this case. The Court should entertain a winding up application when the defence is not raised in good faith and there is no likelihood in the contentions of the company being substantiated in law or in fact. In my view, the contention of the company appears to me to be dishonest and prima facie, untenable. In that view of the matter, I cannot hold that in the facts and circumstances of this case, the present winding up petition is an abuse of the process of this Court. Now it is well settled that the winding up petition is a legitimate mode of equitable execution of a claim of a petitioning creditor and, therefore, the harassed petitioning creditor is quite justified in presenting this winding up petition against the company after he has obtained the decree from the Boroda Court. Moreover, it appears to me that the suit in the City Civil Court which has been filed by the company is not maintainable as that Court has no jurisdiction to entertain the said suit.

10. Therefore, I am making the following Order:

11. The winding up petition is admitted. But I will give the company a chance if they are so inclined to be honest and maintain the commercial morality and probity of a Transport Company and pay the petitioning creditor's Advocate the sum of Rs. 6,060/- together with interest thereon at the rate of six per cent per annum from 1st of October, 1972, until payment and assessed cost mentioned in the said decree dated the 18th of October, 1972, within 16th of February, 1976, together with an assessed cost of this application being 30 G.Ms, the winding up petition would remain permanently stayed. In case the company fails to pay the said amounts as directed the winding up petition will be advertised once in Amrita Bazar Patrika once in Basumati and once in Calcutta Gazette after 16th February, 1976, and the matter to appear in the list on the 29th of March, 1976.

Application admitted.