Case: Evans Fraser (India) Limited Vs. Trig Detectives Private Limited

faith nor based on substantial defence, it would be open to the court to direct admission of the petition, even while giving option to the company to have the petition deferred pending payment of part of the amount and adequate security in respect of the balance. It is necessary in such cases to strike a reasonable balance between the desirability that the company, in the absence of unusual features, meets its legitimate claim, and the imperative that the proceedings are not allowed to become an instrument of illegitimate pressure."12. In the case of The Pradeshiya Industrial & Investment Corporation of Uttar Pradesh v. North India Petro Chemical Ltd. & Anr., JT 1994 (1) SC 579 , the Supreme Court reiterated the principle that the machinery for winding up of a company cannot be utilised merely as a means of realising of the debt. The court has to determine the correctness of the debt and inability of the company to pay such a debt despite notice. A party is expected to elect its remedy in terms of filing of a petition for winding up of the company as opposed to filing of suit for such recovery. This election is a conscience exercise of decision by a person who invokes the remedy of filing petition for winding up and thus, the burden is upon a person approaching for such relief to establish the ingredients of section 433 of the Companies Act.13. In the present case, the defence raised by the appellant-company was bonafide and cannot be said to be a sham defence taken in abstract, dehors the correspondence between the parties. Most of the payments were made against bills or at least for the dues relatable to the month in which the security guards services were provided. The photo copies of the receipts, seen in the light of the statement of account and correspondence exchanged between the parties and the fact that the appellant company had disputed at the very outset their liability towards any debt and in fact had raised claims against the respondent company in reply to the legal a notice served upon the appellant company in terms of Section 433 of the Act are indicative of the fact that the defence raised by the appellant company is supported by prima facie material and, therefore, is bona fide. The legal and factual issues raised by the appellant company show bona fide disputes in relation to the debt claimed by the respondent company. We have noticed 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 to exert pressure on the other side would tantamount to improper exercise of special jurisdiction and as such would not be liable to be admitted. The admission of the petition and consequential appointment of a Liquidator jeopardises the interests of the company to a great extent. Winding up of a company would even amount to a civil death of the Company. Wherever the company has not been able to show any bona fide dispute to an apparently payable debt, the matters may be different. But where there are disputes raised bona fide and that too of a serious nature and parties would have to lead complex evidence, documentary and oral, to substantiate their claim or counter claim, it may not be proper to admit the company petition.The respondent company sat quiet for a considerable time i.e. from the year 2004 and served the legal notice after a lapse of nearly two years i.e. 3rd February, 2006, and the petition for winding up was filed in November 2006. It is not even the case of the respondent company in its pleading that appellant company is incapable of paying its debts stricto senso. In response to the legal notice served on the appellant company, the company had disputed the claim. There is no document on record to show that the appellant company had even admitted the debt payable to the respondent company. Once a bona fide dispute is raised by the company which appears to be genuine, the order of winding up should not be passed. The previous litigation between the parties also indicates that the stand taken by the company in the winding up petition is not without any basis. The basic defence raised in the winding up petition is bona fide. Of course, we are not commenting upon the counter claims raised by the appellant company. They appeared to be vague but that itself would not be a sufficient ground to reject the principal plea of the appellant company which, in our opinion, raises a bona fide dispute. In the case of Pradeshiya Industrial (supra) the Supreme Court had clearly spelled out the principle that the jurisdiction under Section 433(e) of the Act is discretionary and there must be a debt due and the Company must be unable to pay the same. A debt under this Section must be determined for a definite sum of money payable. It is also evident that the discretion of the Company Court under this provision is normally guided by the principles viz. (i) that the defence of the company is in good faith and is one of some substance; (ii) the defence is likely to succeed in point of law; and (iii) the company produced prima facie proof of the facts on which the defence depends.14. Examining the factual matrix of the present case in light of the above principles, we have no hesitation in coming to the conclusion that these principles have not been correctly applied by the Court in admitting the winding up petition as the appellant company had raised a bona fide dispute which can more appropriately be gone into by leading cogent and detailed documentary or oral evidence by the parties. It would be difficult to determine these questions prima facie on the basis of the documents placed on record.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]There is no dispute that the respondent company had submitted its offer dated 16th March, 2000 to the appellant company for providing security guard personnel at the stated rates to the appellant Company. The appellant company vide its letter dated 13th April, 2000 had agreed to the terms and conditions and had modified the rates as stated. The total amount payable per month was Rs.inclusive of reliever duty charges and service charges. This was operative for a period of six months initially. The payments were increased from time to time which is also evident from the documents placed on record includingThe amounts in excess of agreed amounts were also charged. Further, it is also clear that the security guard services were provided from 2000 to 2004. The ledger accounts of the respondent company had also been placed on record to show and substantiate the plea that it was a running account. These accounts show that the last payment of Rs. 1,50,600/was made by cheque on 27th October, 2003 in relation to Bill No. 203440 and thereafter no payment has been made by the appellant company to the respondent company. The appellant company has also placed on record, even in winding up petition, their accounts to show that each bill was being treated as separate transactions between the parties and payment against that bill was being made. The respondent company also produced before us the photo copies of the receipts issued by them in favour of the appellant company wherein they referred to particular payments and stated that full payment was made against the bill and/or that the monthly amount due and payable by the appellant Company.We have already noticed that the statement of account filed on behalf of thedoes not show any credit payment after October, 2003 though it claims to have raised number of bills thereafter on the basis that it was a running account of mutual interest. The payment was also made in the court under the directions of the court for a sum of Rs.5,35,791. Thereafter, except service of the legal notice and reply thereto, there is no correspondence between the parties which would substantiate that there was mutuality of account and any payments had been made on behalf of theThe learned Single Judge in the impugned judgment noticed that neither there is specific denial of the petitioners claim nor a specific defence is taken on the point of limitation in the reply affidavit. Thus, the plea of limitation was liable to be rejected. It was further noticed that part payment in lumpsum from time to time were made and not against the bills. On this premise, the learned Company Judge rejected the plea of limitation. These findings are challenged on the ground that they are contrary to the record and in fact, are not supported even by the documents produced on behalf of thefind some substance in the submission made. Certainly, evidence was required to show that there is mutuality in the running account and that the payments were not made bill to bill but on account. It has already been noticed that as per the statement filed by thethe payments were being made against the bill as demonstrated by Exhibit 6. That the statement of account does not show any payment or raising of a bill subsequent to August, 2004 while the statement of account filed by thebefore this court again reflects no payment of credit after October, 2003. These were the matters which ought to have been established by leading cogent oral and documentary evidence and the plea could not be rejected summarily in the manner in which it has been rejected under the impugned order. Furthermore, the order passed by the Division Bench of this court in Civil Writ Petition No. 3050 of 2003 also to a great extent supports the plea/defence taken by thethat it is not sham but is bonafide. In the said writ petition, thewas a party and no pleadings even were filed on their behalf to show that the amounts were due to theny. On the contrary, parties to the writ petition felt satisfied by the order of the court in directing theIt is a settled principle of law that, in a winding up petition, unless the disputes raised are without substance, it must be apparent from the record that, before the winding up petition is admitted, the company is unable to pay its debt. The petition for winding up cannot be equated with a petition simplicitor for recovery of money.In the present case, the defence raised by thewas bonafide and cannot be said to be a sham defence taken in abstract, dehors the correspondence between the parties. Most of the payments were made against bills or at least for the dues relatable to the month in which the security guards services were provided. The photo copies of the receipts, seen in the light of the statement of account and correspondence exchanged between the parties and the fact that the appellant company had disputed at the very outset their liability towards any debt and in fact had raised claims against the respondent company in reply to the legal a notice served upon the appellant company in terms of Section 433 of the Act are indicative of the fact that the defence raised by the appellant company is supported by prima facie material and, therefore, is bonapetition, presented ostensibly, for a winding up order to exert pressure on the other side would tantamount to improper exercise of special jurisdiction and as such would not be liable to be admitted. The admission of the petition and consequential appointment of a Liquidator jeopardises the interests of the company to a great extent. Winding up of a company would even amount to a civil death of the Company. Wherever the company has not been able to show any bona fide dispute to an apparently payable debt, the matters may be different. But where there are disputes raised bona fide and that too of a serious nature and parties would have to lead complex evidence, documentary and oral, to substantiate their claim or counter claim, it may not be proper to admit the companyis no document on record to show that the appellant company had even admitted the debt payable to the respondent company. Once a bona fide dispute is raised by the company which appears to be genuine, the order of winding up should not be passed. The previous litigation between the parties also indicates that the stand taken by the company in the winding up petition is not without any basis. The basic defence raised in the winding up petition is bona fide.Examining the factual matrix of the present case in light of the above principles, we have no hesitation in coming to the conclusion that these principles have not been correctly applied by the Court in admitting the winding up petition as the appellant company had raised a bona fide dispute which can more appropriately be gone into by leading cogent and detailed documentary or oral evidence by the parties. It would be difficult to determine these questions prima facie on the basis of the documents placed on record.