Case: Cotton Corporation Of India Vs. United Industrial Bank

disputed or the presentation of the petition is mala fide, actuated by an ulterior motive, or an abuse of the process of the court certainly the judge may decline to admit the petition and may direct the party presenting the winding up petition to prove its claim by a suit or in any other manner. It is undoubtedly true that a winding up petition is not a recognised mode for recovery of a debt and if the company is shown to be solvent and the debt is bona fide disputed, the court generally is reluctant to admit the petition. Therefore, the power is conferred on the judge before whom the petition comes up for admission to issue pre-admission notice to the company so that the company is not taken unawares and may appear and point out to the judge that the petitioner is actuated by an ulterior motive and presentation of the petition is a device to pressurise the company to submit to an unjust claim. This is a sufficient safeguard against mala fide action and the company would not suffer any consequences as apprehended, and the company can as well appear and ask for stay of further proceeding till the petitioner-creditor proves his debt by a regular suit. This is the jurisdiction of the company court and it cannot be restrained from exercising the same by some other court restraining the creditor from presenting a winding up petition. There is sufficient built-in safeguard in the provisions of the Companies Act and the Rules framed thereunder which would save the company from any adverse consequences, if a petitioner actuated by an ulterior motive presents the petition. This was taken notice of by this court in National Conduits (P) Ltd. v. S. S. Arora [1967] 37 Comp Cas 786; [1968] 1 SCR 430 , wherein this court set aside the order of the High Court of Delhi which was of the opinion that once a petition for winding up is admitted to the file, the court is bound to forthwith advertise the petition. This court held that the High Court was in error in holding that a petition for winding up must be advertised even before the application filed by the company for staying the proceeding for the ends of justice or to prevent abuse of the process of the court. This court held that the view taken by the High Court that the court must as soon as the petition is admitted, advertise the petition is contrary to the plain terms of r. 96 and such a view, if accepted, would make the court the instrument, in possible cases, of harassment and even of blackmail, for once a petition is advertised, the business of the company is bound to suffer serious loss and injury. This legal position effectively answers the apprehension voiced by Mr. Sen and even entertained by the High Court as it can be said with confidence that this must be the procedure which Pennycuick J. was in search of when in Bryanston Finance Ltd.s case [1976] 1 All ER 25, he said that it should be possible to devise some more apt form of procedure than to injunct a person from initiating the proceeding. In fact, the Kerala High Court in George v. Athimattam Rubber Co. Ltd., AIR 1964 Ker 212 ; [1965] 35 Comp Cas 17 (Ker), went to the extent of showing that when a pre-admission notice is issued to the company under r. 96, it would be open to the company to appear and ask for stay of proceedings or even revoke the admission on the ground that the petitioner was not acting bona fide in filing the petition and in the facts before the Kerala High Court it allowed the application of the company and the winding up petition was dismissed. We are, therefore, not disposed to accept the contention of Mr. Sen that the power to grant injunction restraining one from presenting a winding up petition must either be spelt out for the protection of the company or as held by decisions hereinabove quoted kept intact and should not be tinkered with to save the company from being harassed by persons actuated by ill will towards the company from presenting the petition.Turning to the facts of this case, let it be recalled that the learned single judge had declined to grant any temporary injunction against the present appellant, the Corporation, and in our opinion rightly. The Appellate Bench interfered with the order for the reasons which are far from convincing and it overlooked the provision contained in s. 41(b) and the effect thereof. Taking the most favourable view of the decision of the Appellate Bench and assuming that the Bench had in its mind the inherent power of the court to grant injunction despite statutory inhibition and consistent with the view taken by the courts in England, it had then in order to do justice between the parties first reach an affirmative finding that the winding up petition as and when presented by the Corporation-the creditor would be frivolous and would constitute an abuse of the process of the court or a device to pressurise the Bank to submit to an unjust and dishonest claim. It must also reach an affirmative conclusion that the debtor-Bank is sufficiently solvent to satisfy the claim as and when established. It has also to record an affirmative finding that the Corporation-the creditor-is not seeking bona fide to present a petition for winding up but is actuated by an ulterior motive in presenting the petition. Decisions in New Travellers Chambers Ltd. [1894] 70 LT 271, Charles Forte Investments Ltd. [1963] 2 All ER 940; [1964] 34 Comp Cas 233 (CA) and Bryanston Finance Ltd. [1976] 1 All ER 25 (CA), would require these findings to be recorded before an interim injunction can be granted. The decision of the Appellate Bench is conspicuously silent on these relevant points and for this additional reason also the appeal must succeed.13

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

Explanation:
1[ds]We have meticulously gone through the appellate judgment and we find not the slightest reference to the invocation of the inherent power of the court in granting the order of injunction now under challenge. Not only that, but the court has not held that the contention of the Corporation is frivolous or untenable or the claim is mala fide. This becomes clear from the observation of the court that the order passed by it is not founded on the merits of the Banks case or lack of merit in any claim which the Corporation may have against the plaintiff-Bank and it would be open to the Corporation to file a regular suit or summary suit against the plaintiff-Bank in which appropriate orders would be passed by the court seized of the matter as and when the occasion arises for the same. We find it very difficult to appreciate this approach of the court because the court has not rejected even at the stage of the consideration of prima facie case or on balance of convenience that the claim of the Corporation is frivolous or untenable or not prima facie substantiated. On the contrary the court leaves it open to the Corporation to file a suit if it is so advised. The High Court only restrains the Corporation from presenting a winding-up petition. We again see no justification for this dichotomy introduced by the court in respect of various proceedings which were open to the Corporation to be taken against the Bank leaving some open and some restrained by injunction. Neither in statute law nor in equity, we find any justification for this dichotomy.Mr. Sen, however, urged that the presentation of winding-up petition coupled with advertisement thereof in newspaper as required by law has certain serious consequences on the status, standing, financial viability and stability and operational efficiency of the company. Mr. Sen further urged that where the debt is bona fide disputed, a petition for winding up is not an alternative to the suit to recover the same, but may be a pressure tactic to obtain an unfair advantage and, therefore, despite the provision contained in s. 41(b) the court must spell out a power in appropriate cases to injunct a person from filing a winding-up petition. Most of the decisions in England hereinabove discussed at length have been influenced by this aspect. This approach, however, clearly overlooks various statutory safeguards against admission, advertising and publication of winding up petitions. Section 433 ofthe Companies Act, 1956, sets out circumstances in which a company may be wound up by the court, one such being where the company is unable to pay its debts. Section 434 sets out the circumstances and situations in which a company may be deemed to be unable to pay its debts. Such a deeming fiction would arise where a notice is served upon the company making a demand of a debt exceeding Rs. 500 then due and requiring the company to pay the same and the company has for a period of 3 weeks neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor. Rule 95 of the Companies (Court) Rules, 1959, provides that the petition for winding up a company shall be presented in the Registry. Then comes r. 96 which is very material. It provides that:" upon the filing of the petition, it shall be posted before the judge in Chambers for admission of the petition and fixing a date for the hearing thereof and for directions as to the advertisements to be published and the persons, if any, upon whom copies of the petition are to be served. The judge may, if he thinks fit, direct notice to be given to the company before giving directions as to the advertisement of the petition."It would appear at a glance that the petition has to come up in Chambers before the company judge and not in open court, and the rule confers a discretionary power on the judge not to give any directions at that stage but merely issue a notice to the company before giving directions. If upon receipt of such notice the company appears and satisfies the judge that the debt is bona fide disputed or the presentation of the petition is mala fide, actuated by an ulterior motive, or an abuse of the process of the court certainly the judge may decline to admit the petition and may direct the party presenting the winding up petition to prove its claim by a suit or in any other manner. It is undoubtedly true that a winding up petition is not a recognised mode for recovery of a debt and if the company is shown to be solvent and the debt is bona fide disputed, the court generally is reluctant to admit the petition. Therefore, the power is conferred on the judge before whom the petition comes up for admission to issue pre-admission notice to the company so that the company is not taken unawares and may appear and point out to the judge that the petitioner is actuated by an ulterior motive and presentation of the petition is a device to pressurise the company to submit to an unjust claim. This is a sufficient safeguard against mala fide action and the company would not suffer any consequences as apprehended, and the company can as well appear and ask for stay of further proceeding till the petitioner-creditor proves his debt by a regular suit. This is the jurisdiction of the company court and it cannot be restrained from exercising the same by some other court restraining the creditor from presenting a winding up petition. There is sufficient built-in safeguard in the provisions of the Companies Act and the Rules framed thereunder which would save the company from any adverse consequences, if a petitioner actuated by an ulterior motive presents the petition. This was taken notice of by this court in National Conduits (P) Ltd. v. S. S. Arora [1967] 37 Comp Cas 786; [1968] 1 SCR 430  , wherein this court set aside the order of the High Court of Delhi which was of the opinion that once a petition for winding up is admitted to the file, the court is bound to forthwith advertise the petition. This court held that the High Court was in error in holding that a petition for winding up must be advertised even before the application filed by the company for staying the proceeding for the ends of justice or to prevent abuse of the process of the court. This court held that the view taken by the High Court that the court must as soon as the petition is admitted, advertise the petition is contrary to the plain terms of r. 96 and such a view, if accepted, would make the court the instrument, in possible cases, of harassment and even of blackmail, for once a petition is advertised, the business of the company is bound to suffer serious loss and injury. This legal position effectively answers the apprehension voiced by Mr. Sen and even entertained by the High Court as it can be said with confidence that this must be the procedure which Pennycuick J. was in search of when in BryanstonFinance Ltd.s case [1976] 1 All ER25, he said that it should be possible to devise some more apt form of procedure than to injunct a person from initiating the proceeding. In fact, the Kerala High Court in George v. Athimattam Rubber Co. Ltd., AIR 1964 Ker 212  ; [1965] 35 Comp Cas 17 (Ker), went to the extent of showing that when a pre-admission notice is issued to the company under r. 96, it would be open to the company to appear and ask for stay of proceedings or even revoke the admission on the ground that the petitioner was not acting bona fide in filing the petition and in the facts before the Kerala High Court it allowed the application of the company and the winding up petition was dismissed. We are, therefore, not disposed to accept the contention of Mr. Sen that the power to grant injunction restraining one from presenting a winding up petition must either be spelt out for the protection of the company or as held by decisions hereinabove quoted kept intact and should not be tinkered with to save the company from being harassed by persons actuated by ill will towards the company from presenting the petition.Turning to the facts of this case, let it be recalled that the learned single judge had declined to grant any temporary injunction against the present appellant, the Corporation, and in our opinion rightly. The Appellate Bench interfered with the order for the reasons which are far from convincing and it overlooked the provision contained in s. 41(b) and the effect thereof. Taking the most favourable view of the decision of the Appellate Bench and assuming that the Bench had in its mind the inherent power of the court to grant injunction despite statutory inhibition and consistent with the view taken by the courts in England, it had then in order to do justice between the parties first reach an affirmative finding that the winding up petition as and when presented by the Corporation-the creditor would be frivolous and would constitute an abuse of the process of the court or a device to pressurise the Bank to submit to an unjust and dishonest claim. It must also reach an affirmative conclusion that the debtor-Bank is sufficiently solvent to satisfy the claim as and when established. It has also to record an affirmative finding that the Corporation-the creditor-is not seeking bona fide to present a petition for winding up but is actuated by an ulterior motive in presenting the petition. Decisions in NewTravellers Chambers Ltd. [1894] 70 LT 271, Charles Forte Investments Ltd. [1963] 2 All ER 940; [1964] 34 Comp Cas 233 (CA) and Bryanston Finance Ltd. [1976] 1 All ER 25would require these findings to be recorded before an interim injunction can be granted. The decision of the Appellate Bench is conspicuously silent on these relevant points and for this additional reason also the appeal must succeed.