((-1-)) IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY PETITION NO.7 OF 2005 Ravinder K. Nayar Petitioner versus M/s.Nayar Electronics Pvt.Ltd. Respondents Mr.Shah for petitioner. Mr.s.P.Kanuga for respondents. CORAM : S.C.DHARMADHIKARI, J. DATE : 6th July 2006 PC : 1. Heard Shri Shah appearing for the petitioner and Shri Kanuga for respondent. The petitioner is instituting this petition under sections 433 and 434 of the Companies Act on the plea that respondent company is unable to pay its debt. 2. The company is indebted to the petitioner according to him in a sum of Rs.18,23,077.33 Ps. which is an amount crystalised as on 31st March 2003. The particulars of claim are listed at Annexure-A and they read thus :- ((-2-)) "Being the amount of loans and advances due and payable by the said company to the Petitioner as per the balance sheet of the said company dated 31st March, 2003 :- Rs.18,23,077.33 together with future interest thereon at the rate of 18% p.a. from the date of the Petition till payment and/or realisation." 3. In para 7 of the company petition this is what is averred :- "7. At the request of the said company the Petitioner had provided financial assistance to the said company from time to time by way of loans and advances. The Petitioner says and submits that on account of the aforesaid loans and advances an aggregate amount of Rs.18,23,077.33 P. has become due and payable by the said company to the Petitioner as on 31st March, 2003 as reflected in the balance sheet of the company dated 31st March 2003. Hereto annexed and marked EXHIBIT-B is a copy of the balance sheet of the company." 4. In para 8 of this company petition the averment is that the petitioner recently learnt that the petitioner company is in a difficult financial situation and has large amount of accumulated losses. The business and affairs are mismanaged by the directors causing adverse effect to the financial position of the said ((-3-)) company. In these circumstances, on 18th March 2004 an advocate’s notice was sent and the reply thereto by the company’s advocate is that the claim of the petitioner is ex-facie time barred. Apart from this it is also stated that the company has sought for certain financial assistance and the money was paid but was to be treated as non refundable loan. 5. The petitioner has replied to this company’s letter and has not denied the fact that the amount is not reflected in any books and save and except stating that the claim is not barred and that the amount was due and payable because it was reflected in the balance sheet for the year, copy of which is annexed as Annexure-B, the reply says nothing. 6. Shri Shah appearing in support of this petition contends that once the company has admitted its liability and that amount is reflected as a loan in the balance sheet, then the objection raised by the aforementioned provisions of the Companies Act has not been rebutted and this is a fit case for admitting the company petition. More so, when the liability is not disputed and further that the company is ((-4-)) incurring losses. 7. Shri Kanuga invites my attention to the affidavit in reply and states that father of the petitioner to help his two sons being the petitioner and one Kuldeep Kumar Nair set up the company. The entire share capital was owned by the late father of the petitioner, his sons and daughter in laws. These are family concerns and there are disputes in the family. The financial institutions had refused to lent further amounts and therefore, the company became sick. Reference was made to the BIFR.. A package was mooted and MSFC implemented the same. Thereafter the financial institutions refused to provide any further help and family members got together and raised funds. In para 10 of the affidavit in reply this is what is stated :- "10. I say that the family members got together and made efforts to raise funds. Despite efforts the family members who were shareholders could not bring any amount from their cash flows and therefore decided to sell an immovable property of HUF of shareholders and utilize the receipts from sale proceeds to pay of loans to the above three financial institutions. First, the term loan of SICOM was paid from the sale proceeds and by 1996 term loans of MSFC and SCB was repaid from the sale of HUF property and sale of machinery unit. The ((-5-)) sale proceeds were notionally apportioned among Petitioner, myself, our father and other family members and brought in company’s account in the name of share holders as loans to pay to the lenders of term loan as it was not possible for cost purposes to raise share capital. Everyone of us understood that it was contribution of shareholders to liquidate loan liabilities of family concern which was equally the responsibility of shareholders and to maintain dignity and the honour of the Nayar family. The bringing in of funds by the shareholders to pay off the financial institutions is annexed hereto and marked as EXHIBIT-A. The balance sheet extract showing the term loan is annexed hereto and marked EXHIBIT-B." 8. Hence apart from raising a plea of limitation, it is additionally urged that there are disputes between family members. The petitioner is avoiding settlement of the same. It is something which cannot be said to be a liability as a part of the business of the company. It is not that any debt was incurred in the sense the company petition sets out the same. 9. In my view, there is no explanation forthcoming as to when the amount was lent, in what manner and how the bar of limitation is saved by a stray entry in the balance sheet annexed to the company petition. None are disputing that an order admitting the company petition has serious consequences. An order ((-6-)) admitting the company petition for winding up ought not be made casually but should be made upon satisfaction of a strong prima facie case. In the circumstances that the petition has been filed it appears to be a matter where the member of the family is projecting the dispute as if it is a debt due to him by the company and has instituted present company petition. This Court made attempts to settle all the family disputes but it appears that the mediation of the Chartered Accountant of the company has not succeeded. The claim of petitioner does not appear to be within limitation to me prima facie. Secondly, the liability arose in the circumstances which have been set out in the affidavit in reply. It has not been disputed before me that the company is a family concern. In such circumstances, it would not be appropriate to admit this company petition, aware as I am of the submission with regard to the financial position and assets of the company raised by Shri Shah. The entire background in which the petitioner along with other family members put in the funds cannot be ignored. The above reproduced statement in the affidavit in reply would show that there is a bona fide dispute raised by the company. The understanding ((-7-)) of the family members is corroborated by the fact that there is no demand made by the petitioner till 2004. 10. Mr.Shah was at pains to point out that the company has been incurring losses and therefore, the petition deserves to be admitted. In my view, for the purposes of admitting a company petition based upon a statutory notice u/s 433, it must be pointed out that the company is unable to pay its debt. The debt must be legally due and payable. When I am in doubt as to whether the claim of the petitioner is within time and there being bona fide dispute or defence, then it is not necessary for me to go into the averments with regard to the financial position. 11. As a result of the above discussion, the company petition is dismissed. All observations are made for the purposes of disposal of the company petition and shall not prevent the petitioner from making appropriate submissions in proceedings for recovery of the amounts as also while seeking the settlement and adjudication of family disputes. Petition dismissed. 12. The decision brought to my notice of Gujarat ((-8-)) High Court reported in AIR-1964-Guj-208 (Ambica Mills Ltd. Vs. Commissioner of Income Tax, Gujarat) by Shri Shah pertains to acknowledgement by the company, before Gujarat High Court during the course of hearing of the Income Tax reference, of liability pertaining to wages. It is in the light of the peculiar facts and pertaining to the wages, that observations in para 6, which are heavily relied upon, have been made. It is, therefore, clearly distinguishable on facts. Petition dismissed. (S.C.DHARMADHIKARI, J.)