IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JAIPUR BENCH ORDER Shri Kanta Prasad Bajaj Vs. M/s. Ajanta Construction Private Limited (SB Company Petition No.11/2007) SB Company Petition under Sections 433, 434 and 439 of the Companies Act,1956 for winding up of respondent company M/s. Ajanta Construction Private Ltd. Date of Order: July 25, 2008. PRESENT HON'BLE MR. SHIV KUMAR SHARMA, J. Mr. Amol Vyas, for the Petitioner. Mr. N.K.Maloo, for the respondent. BY THE COURT: The petitioner has approached this court with the following prayer:- (a) to direct and order winding up of the respondent company M/s. Ajanta Construction Private Limited under the provisions of the Companies Act, 1956; (b) the Official Liquidator be appointed as Liquidator provisionally in respect of all assets, properties and affairs of the Company. (c) Pass any such order or direction as the Hon'ble Court may deem fit and proper in the facts and circumstances of the case.. 2. Upon failure to repay the amount of dues outstanding, the petitioner gave a statutory notice to the respondent company under section 434 of the Companies Act,1956 (for short `the Act'), demanding the dues with interest but the respondent company failed to make payment within statutory period, as a result of which the petitioner was led to file instant company petition for winding up under section 433, 434 and 439 of the Act. 3. It is averred in the petition that the respondent company is a private limited company incorporated under the provisions of the Act having its office at B-13, Industrial Estate, 22 Godown Jaipur. The respondent company was engaged in business of construction and Real Estate Agent such as purchase, take on lease or in exchange or acquire by sale or otherwise to deal layout develop, construct, erect, demolish, re-erect, alter, repair, remodel or do any work in connection with any lands, buildings, schemes, roads, sewers etc.and to take part in the constructions, maintenance, developments, working central and management thereof. The respondent company also improve, manage, cultivate, develop, exchange, let- out, lease out or otherwise mortgage, charge, sell, dispose off term of accounts grants, rights and privileges in respect of or otherwise deal with all or any part of the real and personal properties. The petitioner is an unsecured creditor of the respondent company. The petitioner from time to time advanced unsecured loan to respondent company. At the time of advancing loan it was agreed that interest as per prevailing bank rate would be payable on the outstanding amount of loan. The interest was regularly paid to petitioner by respondent company till March 31, 2000, thereafter the respondent company stopped to pay the interest and till March 31, 2007 an amount of Rs.22,49,009/- principal amount and Rs.64,59,969/- towards interest became due against the respondent company. The petitioner served legal notice on July 13, 2006 to pay the said amount along with interest. 4. The respondent company has raised various contentions against the winding up petition, which are as under:- (i) The petitioner himself was the Director of the company till June 28, 2007, when he ceased to be a director on not attending the board's meetings by virtues of Section 283(1)(g) of the Act. Information in this regard was sent to petitioner vide letter dated July 21, 2007. (ii) Although the company is registered as a private limited company, in fact, it is a partnership concern in which the petitioner was director till June, 28, 2007, beside his father Bajrang Lal Bajaj, mother Smt.Gita Devi, brother Ashok Bajaj and brother's wife Smt.Anupama Bajaj. Two directors joined on August 10, 2006 and further two directors joined on September 11, 2006, thus four directors are from the Bajaj family itself. (iii) All the shareholders of the company belong to the families of the petitioner and his father. It was the petitioner who was looking after the construction business, sale of the properties, legal matters and dealing with the bank. (iv) It is on account of misdeeds and mismanagement of the petitioner that the company suffered losses. Bajrang Lal Bajaj and other directors are trying to put the things right. (v) When the company suffered losses, the petitioner instead of shouldering and sharing responsibility for the losses wants to take away funds provided as working capital of the company which has been eroded by his innumerable wrong actions. (vi) The petitioner and his wife are also shareholders of the company. (vii) Even though the fund of the company, for accounting purposes may be termed as unsecured loan under specific advice of petitioner, but the father and mother of petitioner also provided funds. (viii) When the petitioner himself was director of the company till June 28, 2007, the submission of petitioner is surprising that the interest on principal amount in audited account has not been shown and the interest was not paid to him after March 31, 2000. Such action of petitioner itself shows his malafide and ulterior motive. (ix) Winding up petition can be filed only upon the existence of debt and not otherwise. In the instant case there is no existence of debt and there are no dues payable by respondent to the petitioner. (x) The claim of petitioner is vague and arbitrary. (xi) The respondent company cannot be made liable for any fault of petitioner, who himself is responsible for putting the company to suffer loss. (xii) The obvious collateral purpose of winding up petition is to damage the respondent company and economically coerce it in to subjugation which is sufficient for the court to throw out the winding up petition on this ground alone. (xiii) The petition is filed with oblique motive to pressurize the respondent company to make the payment of the amount as alleged to be due, while the petitioner and his wife also are shareholders of the respondent company. (xiv) The dispute involved is a bona fide dispute between the parties and winding up petition is not a legitimate means of seeking to enforce payment of the alleged amount, which is a bona fide dispute. 5. The petitioner filed rejoinder to the reply reiterating the facts stated in winding up petition. Learned counsel for the petitioner made following submissions:- (i) The dues of the petitioner are admitted, determined and have no dispute hence it does not require any adjudication, trial or production of evidences regarding admitted debt. The debt have not been paid by respondent company with malice intention and specifically the respondent company has been negligent to pay the debts. (ii) The object behind the petition of the petitioner is not primarily to misuse the provisions of the Act or in any way to recover his dues but to exercise the rights provided to him under the specific legislation and to stand at part with other creditors during the process of liquidation of the company so long as mobilization of dues are concerned. (iii) Since the respondent company is not an industrial company, as such the petitioner has no remedy under the Sick Industrial Companies (Special Provisions) Act, 1985. Further the petitioner, being an unsecured creditor, has no remedy under the Securitizations Act,2002. (iv) The intention of respondent company is to diver the case from winding up proceedings to recovery proceeding under civil suit and let the creditor undergo with a lengthy civil procedure intending eventually to siphon out the inflows of award anticipated shortly from the State Government under Arbitration proceedings by the time civil decree is awarded by Civil Court. Even after the decree of civil court the petitioner would be compelled to approach the Hon'ble court for enforcement of the decree. (v) Learned counsel for the petitioner placed reliance on Abnah Kaur Vs. Lord Krishna Sugar Mills [ILR 1972 Delhi 413], Rishi Enterprises Vs. [(1991)2 GLR 1213] and P.K. Varghese Vs. JTV Metal Finishers (P) Ltd. (Vol.63 Company Cases 644). 6. I have given anxious consideration to the rival submissions. It is well settled that provisions of Section 433 of the Act could not be invoked to coerce a company to make payment of loan. In P.K. Varghese Vs. JTV Metal Finishers (P) Ltd. (Vol.63 Company Cases 644) Karnataka High Court held that Section 433 of the Act could not be made use of to coerce a company to make payments, not immediately due, even though the liability was admitted. The petitioner had not taken any steps to recover the loan advanced by filing a suit, and had waited for some time before filing the petition, which must, therefore, on the facts be construed as a petition filed to coerce the repayment of any amount which was not immediately due to be paid to the petitioner. No evidence had been led to support the petitioner's assertion that there was no agreement reached on June 4, 1986, in regard to the repayment in the manner indicated, and it could not be said that the company's defences were untenable. The petitioner was bound to wait out the period of two years under the agreement and recover his dues. If there was unreasonable delay in the commencement of production, he was free to take legal steps to attach the assets of the company in order to secure repayment of his loan. 7. In Mediquip Systems Vs. Proxima Medical System (2005)7 SCC 42, the Apex Court indicated as under:- (Para 18) “This court in a catena of decisions has held that an order under Section 433(e) of the Companies Act is discretionary. There must be a debt due and the company must be unable to pay the same. A debt under this section must be a determined or a definite sum of money payable immediately or at a future date and that the inability referred to in the expression “unable to pay its debts” in Section 433(e) of the Companies Act should be taken in the commercial sense and that the machinery for winding up will not be allowed to be utilised merely as a means for realising debts due from a company.” 8. In M/s.Madhusudan Gordhandas Vs. Madhu Woollen Industries (1971)3 SCC 632, their Lordships of the Supreme Court had occasion to consider the circumstances under which the court is justified in ordering winding up of the company. It was indicated in paras 20 and 21 thus:- “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 had 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) LR 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 Horfold 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 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. The principles on which court should act in disposing winding up petition may be deduced thus:- (i) If the debt is not disputed on some substantial ground the court may make the order. (ii) If the debt is bona fide disputed, there can not be “neglect to pay” within the meaning of Section 433 (1)(a) of the Act and petition for winding up is not maintainable. (iii) Dispute with regard to payment of interest is not a bona fide dispute. (iv) The defence of respondent company should be in good faith, one of substance and likely to succeed in point of law. 10. Bearing these principles in mind if I examine the facts of this case, I find that there exists a bonafide dispute between the parties. The petitioner and his wife are the shareholders of the company. The petitioner was Director of company till June 28, 2007 and all the shareholders of the company belong to the family of the petitioner and his father. The respondent company stated in the reply that the father and mother of the petitioner also provided funds. When the petitioner himself was Director of the Company till June 28, 2007, how can he say that interest on principal amount in audited account has not been shown and interest was not paid to him after March 31, 2000. This averment of petitioner itself shows his malafide and ulterior motive. It appears to me in the facts and circumstances of the case that the petitioner is also responsible for putting the company to suffer loss. Thus it cannot be held that the respondent company neglected to pay alleged dues within the meaning of Section 433(1)(a) of the Act. 11. For these reasons, I find no merit in the petition and same stands accordingly dismissed without any order as to costs. (Shiv Kumar Sharma)J. arn/