COMP/153/1985 1/58 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD COMPANY PETITION No. 153 of 1985 WITH COMPANY PETITION No. 154 of 1985 COMPANY PETITION No. 155 of 1985 COMPANY PETITION No. 156 of 1985 WITH COMPANY APPLICATION No.233 of 1985 COMPANY APPLICATION No.234 of 1985 COMPANY APPLICATION No.235 of 1985 COMPANY APPLICATION No.236 of 1985 COMPANY APPLICATION No. 05 of 1986 COMPANY APPLICATION No. 58 of 1986 For Approval and Signature: HON'BLE MR.JUSTICE K.A.PUJ ===================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ===================================================== COMP/153/1985 2/58 JUDGMENT SAMAR MAN-MADE FIBERS PVT.LTD. - Petitioner(s) Versus ALAUKIK TRADING & INVESTMENT PVT. LTD. - Respondent(s) ===================================================== Appearance : MR ZUBIN F BHARDA for Petitioner No(s).: 1. MR PC KAVINA for Respondent No(s).: 1. ===================================================== CORAM : HON'BLE MR.JUSTICE K.A.PUJ Date : 10/08/2005 COMMON ORAL JUDGMENT 1. Since all these matters are inter-connected and since common pleadings and common arguments are made by the parties, they are being disposed of by this common judgment. 2. Company Petition No. 153 of 1985 is filed by Samar Man-Made Fibres Private Limited under Section 433 & 434 of the Companies Act, 1956 for winding up of the respondent Company on the ground that the respondent Company has failed and neglected to pay the dues of the petitioner amounting to Rs.30,28,422.79 being the aggregate sum of the principle amount of Rs.25,87,729/- COMP/153/1985 3/58 JUDGMENT and interest calculated thereon @ 21% p.a. upto the date of the petition. 3. Similar petitions were filed by Gaekwad Agencies Pvt. Ltd. being Company Petition No. 154 of 1985, Pratap Investment Private Limited being Company Petition No. 155 of 1985 and Anjana Dealers Private Limited being Company Petition No. 156 of 1985 against the very same respondent Company, namely, Alaukik Trading & Investment Private Limited. 4. The petitioners of all the four petitions have also filed Company Application Nos. 233 to 236 of 1985 praying for appointment of the Official Liquidator or some other fit and proper person as Provisional Liquidator of the respondent Company and further praying for an injunction against the respondent Company from dealing with, disposing of, alienating or in any manner encumbering any of the immovable properties held by or standing in the name of the respondent COMP/153/1985 4/58 JUDGMENT Company. 5. Company Application No. 5 of 1986 is filed by the petitioner in Company Petition No. 153 of 1985 seeking direction to the Official Liquidator or some other Officer of this Court and authorising him to take charge and custody of the Books of Accounts and Records etc. of the respondent Company described in Exh. G to the affidavit of Shri S.K. Thakker dated 11.01.1986 filed in support of the Judge's Summons in the said Company Application. 6. Company Application No. 58 of 1986 is filed by the respondent Company against Shri S.K. Thakker and Shri G.K. Thakker, the key persons of all the four petitioner Companies and also against all the four petitioner Companies seeking directions to the said Shri S.K. Thakker and Shri G.K. Thakker to produce the Books of Accounts and other Records, papers, files, vouchers, the common seal of the respondent COMP/153/1985 5/58 JUDGMENT Company and other documents and particulars etc. belonging to the Company lying in their possession. 7. Since Company Petition No. 153 of 1985 is first in point of time in number and all pleadings and arguments are made by the respective parties in this petition, the facts are taken from this petition. 8. It is the case of the petitioner that late Shri Fatesinghrao Pratapsinhrao Gaekwad, the erstwhile Maharaja of Baroda was the owner of several properties and at his instance, the respondent Company was got incorporated on 11.01.1971. Even at his instance, the petitioner Company was also got incorporated on 22.01.1971. By a declaration dated 31.01.1972, the said Shri Gaekwad has converted his properties in stock in trade of his business styled as Gaekwad Real Estate Traders, a Partnership Firm and he admitted the respondent COMP/153/1985 6/58 JUDGMENT Company and one Mr. P.C. Hathi, in his capacity as Trustee of Gaekwad Foundation, as partners of the said Partnership Firm. The said property accordingly became the assets of the said Partnership Firm of Gaekwad Real Estate Traders. Subsequently, under a Deed of Retirement dated 05.10.1974, the said Shri Gaekwad retired from the said firm. Shri P.C. Hathi also resigned as a Trustee of Gaekwad Foundation and ceased to be a partner in the said firm of Gaekwad Real Estate Traders, and in his place, one Shri P.U. Rana, a Trustee of Gaekwad Foundation was admitted as a partner in the said Firm. Ultimately, on or about 01.04.1978, the said P.U. Rana retired from the said firm of Gaekwad Real Estate Traders, which became the sole proprietary concern of the respondent Company. It is the say of the petitioner that all the shareholders of the Company have been and are nominees and/or benamidars of the said Shri Gaekwad. It is also their say that the shareholders of the petitioner were initially COMP/153/1985 7/58 JUDGMENT nominees and/or benamidars of the said Shri Gaekwad. 9. It is the further say of the petitioner that in respect of the properties which were converted by said Shri Gaekwad into stock in trade, a sum of Rs.1,25,00,000/- was lying to the Credit of the said Gaekwad with the said Firm which subsequently became the sole proprietary concern of the respondent Company. 10. By a Deed of Gift dated 30.03.1973, the said Shri Gaekwad made an onerous gift to the petitioner of a sum of Rs.30,00,000/- out of the said sum of Rs.1,25,00,000/- lying to his credit with the said firm. In consideration of the said gift, the petitioner, inter alia, covenanted to pay certain amounts to Sir Sayajirao Gaekwad Charities, a Public Charitable Trust set up by the said Shri Gaekwad, regularly for a period of 55 years as set out in the said Deed of Gift. Pursuant thereto, the said sum of COMP/153/1985 8/58 JUDGMENT Rs.30,00,000/-, out of the said sum of Rs.1,25,00,000/- lying to the Credit of the said Gaekwad was transferred to the credit of the petitioner Company in the Books of the said Partnership Firm in which the respondent Company was also a Partner. Simultaneously, with the said Deed of Gift, similar onerous gifts were made by the said Shri Gaekwad of different amounts out of the balance amount lying to his Credit with the said Partnership Firm to certain other associated companies, who are the petitioners in other three petitions, where under the said other associated Companies covenanted to pay certain amounts to certain Public Charitable Trusts set up by the said Shri Gaekwad, regularly for a period of 55 years as set out in the concerned Deeds of Gift. 11. After dissolution of the firm of Gaekwad Real Estate Traders, all its assets and liabilities including the Firm name was taken over by the Company as sole proprietor thereof. Prior to COMP/153/1985 9/58 JUDGMENT the dissolution, the said Firm had paid to the petitioner an aggregate sum of Rs.56,000/- only towards the said gift of Rs.30,00,000/-. Hence, from 01.04.1978, the entire liability to pay the balance of Rs.30,00,000/- gifted by the said Gaekwad from his credit balance with the said firm became the liability of the respondent Company. The petitioner and other associated Companies have, therefore, been shown as Creditors of the Company in the Audited Balance- sheets for the period commencing from 01.04.1978 onwards. It is alleged by the petitioner that some of the properties were sold by the Company and out of the sale proceeds, only a small amount of Rs.3,56,271/- was paid by the respondent Company to the petitioner in part payment and towards the said Gift of Rs.30,00,000/- and similar small amounts were paid by the respondent Company to the other associated Companies in part payment and towards their respective gifts whereas substantial portion of the sale proceeds of such properties COMP/153/1985 10/58 JUDGMENT was taken away by the said Gaekwad personally. Since the payments were not made by the respondent Company to the petitioner and other associated Companies, they could not discharge their obligation to make payments to the said Public Charitable Trusts. The disputes and differences were started amongst the said Shri Gaekwad and his family members on the one hand and Shri S.K. Thakker and G.K. Thakker on the other hand and as a result thereof, the petitioner issued a notice on 04.01.1985 to the respondent Company, inter alia, demanding the payment of the balance sum of Rs.25,87,729/- due and payable by the Company to the petitioner. The said Shri S.K. Thakker thereafter resigned as Director of the respondent Company with effect from 10.01.1985. It is also alleged in the petition that in the Balance-sheet of the Company for the period commencing from 01.04.1978 and also in all subsequent audited and signed Balance Sheets of the Company for each year and lastly, the Balance-sheet of the COMP/153/1985 11/58 JUDGMENT Company as on 31.03.1983, a sum of Rs.25,87,729/- was acknowledged as due and payable by the Company to the petitioner. 12. Despite receipt of the statutory notice, no payment has been made by the respondent Company and hence, the present petition is filed by the petitioner in October, 1985 through their advocate Shri G.N. Shah. 13. On notice being issued by this Court and on service being effected on the respondent Company, an appearance was filed and affidavit- in-reply was filed on 24.01.1986. The respondent Company has raised several objections against the maintainability of the winding up petition. It is contended that the amounts claimed as due and payable from the respondent Company is not 'debt' within the meaning of the Companies Act, 1956 as the same cannot be considered as actionable right or an enforceable claim. It is also contended that the amount COMP/153/1985 12/58 JUDGMENT claimed by the petitioner Company is merely on account of the amount transferred in favour of the petitioner Company, merely by way of an accounting entry and does not represent any amount claimed by the petitioner in terms of any actual or factual transaction, such as dues in respect of goods sold and supplied and/or any amount due and payable under a current, mutual and open account etc. It is also contended that the amount mentioned in the petition is not the correct amount in as much as the petitioner has not given a set-off nor an adjustment in respect of the amount claimed by the respondent Company against the petitioner. Both the petitioner as well as the respondent Company were under the common and effective management of Shri S.K. Thakker and Shri G.K. Thakker at relevant times and these two persons during the relevant period of their management of the respondent Company have committed various conscious and pre-planned acts of mismanagement for personal reasons and for ulterior motives, merely with a view to COMP/153/1985 13/58 JUDGMENT ventilate their grievances against Shri Fatesinghrao Gaekwad and although the petitioner Company claimed that the debt was due and payable in or about the year 1978, the management of the petitioner Company did not take any legal proceedings until the present petition in the year 1985 was filed. A contention was also raised about the sound financial position of the respondent Company. Certain allegations were also made against Shri S.K. Thakker and Shri G.K. Thakker in respect of the modus operendi adopted by them when they were in charge of the affairs of the respondent Company. 14. A detailed affidavit-in-rejoinder was filed on behalf of the petitioner Company on 04.04.1986 wherein it is emphatically stated that all the allegations, claims and contentions made in the reply are false, untenable, imaginary and contrary to the provisions of law and liable to be rejected. It is contended that there is no COMP/153/1985 14/58 JUDGMENT dispute much less bonafide dispute as to the amount due and payable to the petitioner Company. Since the payment has not been made despite the service of the statutory notice, the respondent Company was commercially insolvent and unable to pay its debts and liabilities which arose in the ordinary course of business and consequently liable to be wound up. It is further contended that even the Company's own admission that the respondent Company is in financial difficulties only on account of lack of liquidity, the respondent Company is liable to be wound up as this admission would amount to commercially insolvency. It is further contended that the respondent Company has no cash funds immediately available for payment to the petitioner which would warrant winding up. Though Shri S.K. Thakker was the Chairman of the respondent Company, the real executive powers were vested in the said Shri Gaekwad. It is also contended that the said Shri S.K. Thakker has not kept the custody of the books of COMP/153/1985 15/58 JUDGMENT accounts of the Company. On the contrary, Company Application No. 5 of 1986 was filed before this Court seeking direction to the Official Liquidator to take charge of the books of accounts as neither the said Shri Gaekwad nor any other Director have come forward to take charge of the Books of Accounts and other statutory records of the respondent Company. It was, therefore, contended that the winding up petition was required to be admitted and after public advertisement, necessary order for winding up was required to be passed. 15. On behalf of the respondent Company, additional affidavit in opposition was filed on 11.04.1986 and several legal issues were raised. 16. On behalf of the respondent, further affidavit was filed on 17.06.1998 for the limited purpose of placing on record certain relevant facts, which were occurred subsequent to the filing of the present petition and according to the COMP/153/1985 16/58 JUDGMENT petitioner, it was absolutely relevant and has a great bearing for the purpose of proper appreciation of the present dispute. It is stated in the additional affidavit that during the pendency of the present petition before this Court, Special Civil Suits have been filed in the Court of Civil Judge (S.D.) at Baroda by Sir Sayajirao Gaekwad Charities, a Public Charitable Trust, restraining the respondent Company from making any payment to the petitioner. By an order dated 26.09.1995 passed by the Division Bench of this Court in Civil Application No. 42 of 1995 in O.J. Appeal No. 6/1995 in Company Petition No. 151 of 1991, the respondent Company was restrained from raising its share capital and was further restrained from undertaking any sale or purchase of fixed assets/investments without placing the agenda to that effect before the Board of Directors and without holding the meeting presided over by an independent Chairman Mr. Justice C.T. Dighe. By an order dated 10.06.1997 passed by the Company Law Board in COMP/153/1985 17/58 JUDGMENT C.P. No. 32/96 and C.A. No. 173/96, the respondent Company was directed not to sell, transfer or alienate any of the properties of the Company without placing such proposal before the Board of Directors through an agenda item and without obtaining sanction of the independent Chairman appointed by this Court. It is stated that by an order dated 01.10.1996 passed by the Company Law Board, New Delhi, all the Accounting documents, account books and other relevant records of the Company have been ordered to be sealed in a cup-board. The respondent Company has placed all these orders along with this additional affidavit on record of this Court. 17. Based on the aforesaid pleadings and after hearing the learned advocates appearing for the respective parties, this Court has passed an order on 17.06.1998 wherein it is observed that while the matter was being heard for admission during the course of hearing for admission, it COMP/153/1985 18/58 JUDGMENT was put to learned Counsel for the Company that when its liability was not disputed and the solvency of the Company was asserted, what was the hitch in discharging this liability within reasonable time ? After seeking instructions, it was informed by learned Counsel for the Company by way of further affidavit that beneficiaries to whom the amount claimed by the petitioners was ultimately to reach have filed Civil Suits for recovery of the said sum by impleading petitioner as well as respondent Company as parties thereto and decision in that regard that if the Company was accepting the liability, whether it was willing to discharge the same to the petitioners or to those who are the ultimate beneficiaries could be taken by the Board in a duly convened meeting for that purpose as for discharge of the alleged debt, the Company might have to sell or mortgage the fixed assets/investments for the purpose of raising funds, through a properly convened board meeting. The time was therefore sought for to COMP/153/1985 19/58 JUDGMENT enable the Company to convene the Board meeting to take a decision thereof and inform the Court about the same. The Court has also directed the respondent Company to take necessary steps to convene the Board Meeting by putting the question of discharging liability referred to in all these petitions in its agenda. 18. Subsequent to the aforesaid order, one more affidavit was filed on behalf of the respondent Company on 03.08.1998 wherein it is stated that the independent Chairman Mr. Justice C.T. Dighe, Former Judge, Bombay High Court, has undergone a bye-pass surgery about two weeks before the date of the said affidavit and hence, meeting could not be convened. 19. The matter was rested there for quite sometime and it is only when it was listed before this Court on 01.07.2003, the petition was admitted and notice of admission was ordered to be published in Indian Express & Sandesh – both COMP/153/1985 20/58 JUDGMENT Baroda edition within six weeks from the date of the said order. Pursuant to this order, advertisements were published and affidavit of publication was filed on 16.10.2003. 20. Against this order of admission and advertisement, the respondent Company has preferred O.J. Appeal No. 170 of 2003 before the Division Bench of this Court and the said Appeal is still pending for decision. During the pendency of the O.J. Appeal before the Division Bench, all these matters are listed on several occasions. However, the appeals were not ripe for hearing and hence, at the joint request, these petitions and applications are taken up for final hearing. All these petitions as well as applications are of the year 1985 and 1986. When they have reached to the stage of final hearing, advocates of both sides are changed. 21. Mr. Zubin F. Bharda, learned advocate appears for the petitioner and Mr. P.C. Kavina, learned COMP/153/1985 21/58 JUDGMENT advocate appears for the respondent Company. 22. Mr. Bharda has submitted that there is no dispute about the fact that the amount as claimed in the petition is due and payable. There is also no dispute about the fact that the respondent Company has failed and neglected to pay the said amount to the petitioner. From the reply filed by the respondent Company, it becomes obvious and there is clear cut admission that the amount is due and payable by the respondent Company. Only technical objections were raised which have no substance. Despite these objections, earlier this Court has directed the respondent Company to convene Board Meeting and take the decision with regard to discharge of the liabilities by making payment either to the petitioners or to the ultimate beneficiaries and since it has not been done, this Court has admitted the petition and passed the order of advertisement. Mr. Bharda has further submitted that there is no substance in COMP/153/1985 22/58 JUDGMENT the issue raised by the respondent Company with regard to the limitation. Neither the petition nor the debt of the petitioner is barred by limitation. In support of his submission, he relied on the decision of Punjab & Haryana High Court in the case of Lahore Enamelling And Stamping Co. Ltd. V/s. A.K. Bhalla and Others, [1958] 28 Company Cases 216 wherein it is held that entries in the balance-sheet of a Company as regards amounts due to Creditor constitute an acknowledgment of debts due to them within the meaning of Section 19 of the Indian Limitation Act. 23. Mr. Bharda has further relied on the decision of this Court in the case of Ambica Mills Ltd., Ahmedabad V/s. Commissioner of Income-tax Gujarat, Ahmedabad, A.I.R. 1964 Gujarat 208 wherein Company acknowledging in its Balance- sheets unpaid wages every year was sought to be brought to taxes under Section 10(2A) of the Income Tax Act on the ground that the COMP/153/1985 23/58 JUDGMENT liabilities having been time barred were extinguished, this Court has held that the liability of the assessee Company to pay the unpaid and unclaimed wages could not be said to be barred by limitation on account of the yearly acknowledgments thereof in the balance-sheets and obviously, therefore, these amounts could not be said to have been fictionally stamped with the character of profits and gains as all along they retained the character of liabilities owing to the annual acknowledgments made by the assessee company. These acknowledgments were not in respect of time barred debts and would not, therefore, require a fresh promise to pay under Section 25(3) of the Contract Act. The unclaimed wages could not, therefore, be added back under S. 10(2A). 24. Mr. Bharda has further relied on the decision of the Karnataka High Court in the case of State Bank of India V/s. Hedge & Golay Ltd., [1987] 62 Company Cases 239 wherein acknowledgment of a COMP/153/1985 24/58 JUDGMENT debt in the Balance-sheet constituted acknowledgment in writing within the meaning of section 18 of the Limitation Act, 1963 and, therefore, the petition, presented on 11.04.1980 to enforce a liability of the Company acknowledged in the balance-sheet for the year ending on 30.06.1979 was indisputably held to have been filed within time. Mr. Bharda has, therefore, submitted that since the respondent Company has acknowledged in its Balance-sheet for the year ended on 31.03.1983 under the head “current liabilities and provisions” an amount of Rs.25,87,729/- due and payable to the petitioner, it is an acknowledgment in writing and it will bring the petition within the period of limitation. Mr. Bharda has also placed on record the Balance-sheet of the respondent Company for the year ended on 31.03.1979 wherein also the respondent Company has acknowledged its liabilities. Thus, there is no substance in the plea that the subsequent acknowledgment of time barred debt is no acknowledgment and, therefore, COMP/153/1985 25/58 JUDGMENT promise to pay under Section 25(3) of the Limitation Act is required. 25. Mr. Bharda has further relied on the decision of the Hon'ble Supreme Court in the case of Syndicate Bank V/s. R. Veeranna and others, [2003] 2 Supreme Court Cases 15 wherein it is held that unqualified acknowledgment of liability by a party not only saves the period of limitation but also gives a cause of action to the plaintiff to base its claim. 26. Mr. P.C. Kavina, learned advocate appearing for the respondent Company has mainly addressed the Court on the preliminary objections to the maintainability of the petition. The first preliminary objection was raised by him that the petition has not been filed in the manner in which it is required to be filed under the Provisions of the Companies (Court) Rules, 1959. Under Rule 18 of the Companies (Court) Rules, 1959, every affidavit shall be signed by the COMP/153/1985 26/58 JUDGMENT deponent and sworn in the manner prescribed by the Court or by the Rules and Practice of the Court, whereas in the instant case, no such affidavit has been filed and one Shri Gautam Thakkar has just