Case: Amalgamated Commercial Traders Private Limited Vs. A C K Krishnaswami and Another

petition in respect of the dividends declared for the year 1959(6) That the declaration of dividend even before the actual receipt of assets was valid;(7) That the resolution of the company dated December 30, 1959, did not contravene the provisions of section 207 of the Companies Act; and(8) That the resolution dated December 30, 1959, in form and substance consisted of two parts, separable between themselves and that the invalidity of the second part that payment would be effected when the commission due from the principals was realised could not render the declaration of dividend itself void6. In conclusion as already stated, the Division Bench ordered that the company be directed to be wound up on the ground of its inability to pay its debts, subject to the direction that the order may be kept in abeyanceMr. G. Vasanta Pai, the learned counsel for the appellant, raised the following points us[1] That Hariprasad is not a creditor within section 434 and 439 of the Companies act and is not entitled to present a petition for winding up as a creditor[2] that non payment of the dividend was due to the default of Hariparad, when he was director, and consequently he was disentitled from filing a petition under section 439[3] That as the object of the petition was to make the appellant company give up its pleas regarding the invalidity of the resolution dated December 30. 1959 the petition was an abuse of the process of court[4] That the High court should have ascertained the wishes of the other creditors and contributories;[5] That section 433, read with section 434, gives a discretion to the court to wind up a company or not and the Division Bench should not have, on the facts of the case, ordered the winding up of the appellant company and;[6] That on the facts of the case it is clear that the debt was bona fide disputed by the appellant company and that there were substantial questions about the invalidity of the resolution dated December 30, 1959, and the Division Bench should have dismissed the petition on this ground alone7. As there is substance in the last contention of Mr. Pai, it is not necessary to deal with the others contentions. Mr. Pai put his case thus, section 207 of the Companies Act, at the relevant time, required a company to pay a dividend which had been declared within three months form the date of the declaration. it is obvious, he says, that a company cannot declare a dividend to be payable beyond three months. If it does, that the declaration would be a nullity. He further contends that such a resolution would not be servable. he then says that that is what has happened in this case. The resolution of December 30, 1959, declaring a dividend, made the payment of the dividend contingent on the receipt of the commission from the Indian sugar and Refineries Ltd. and the Salar Jung Sugar Mills. The commission was not received till May 1960 i.e. more than three months from the date of the declaration. he urges that this was a bona fide dispute. The appellant company had obtained legal advice to this effect and had no option but to act upon it. No shareholder was treated differently. It payment had been made to the petitioner after the statutory notice under section 434 of the Companies act, the appellant company would have had to pay to all the shareholders in disregard of the legal advice. Non payment of the dividend was not a cloak to hide the inability of the company to pay its debts for the company was a flourishing concern. Rs. 10, 000 were deposited in court when Veeraswami J. Directed it to deposit this sum as a condition for obtaining adjournmentIt is well settled 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 but really to exercise pressure will be dismissed, and under circumstances may be stigmatized as a scandalous abuse of the process of the court. At one time petitions founded on disputed debt were directed to stand over till the debit was established by action. If, however, there was no reason to believe that the debt, if established, would not be paid, the petition was dismissed. The modern practice has been to dismiss such petitions. But, of course, if the debt is not deposited on some substantial ground, the court may decide it on the petition and make the order Vide buckley on the Companies ACts, 13th edition, page 451]8. We are satisfied that the debt in respect of which notice was given under section 434 was bona fide disputed by the appellant company. The appellant company had received legal advice and it had acted on it. On the facts it seems to us clear that the appellant company did not dispute the debt in order to hide its inability to pay debts. Further we are satisfied that the question whether the declaration of dividend dated December 30, 1959, is valid or not raises a substantial question as to the interpretation of section 207 of the Companies act. Further, whether the declaration dated December 30, 1959, is servable or not is also a substantial question. We do not propose to decide whether the declaration of dividend was valid or not or whether it was servable or not, because in these proceedings we are only concerned with the question whether the debt was bona fide disputed by the company on substantial grounds. It the debt was bona fide disputed, as we hold it was, there cannot be neglect to pay within section 434[1] [a] of the Companies ACt. If there is no neglect, the deeming provision does not come into play and the ground of winding up, namely, that the company is unable to pay its debts is not substantiated

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

Explanation:
1[ds]8. We are satisfied that the debt in respect of which notice was given under section 434 was bona fide disputed by the appellant company. The appellant company had received legal advice and it had acted on it. On the facts it seems to us clear that the appellant company did not dispute the debt in order to hide its inability to pay debts. Further we are satisfied that the question whether the declaration of dividend dated December 30, 1959, is valid or not raises a substantial question as to the interpretation of section 207 of the Companies act. Further, whether the declaration dated December 30, 1959, is servable or not is also a substantial question. We do not propose to decide whether the declaration of dividend was valid or not or whether it was servable or not, because in these proceedings we are only concerned with the question whether the debt was bona fide disputed by the company on substantial grounds. It the debt was bona fide disputed, as we hold it was, there cannot be neglect to pay within section 434[1] [a] of the Companies ACt. If there is no neglect, the deeming provision does not come into play and the ground of winding up, namely, that the company is unable to pay its debts is not substantiated