Case: Exposure Insurance Services Limited A Public Limited Company Vs. M/S Larsen &amp; Toubro Limited A Public Limited Company

suitably amended to bring it to its present form by the Companies (Amendment)Act, 1960. The amendment obviated the need of filing of suits by the liquidator (which are prolix and expensive) to realize and recover the claims and subsisting debts owed to the company; and instead, provided a cheap and summary remedy by conferring the required jurisdiction on the company court.We are, therefore, of the view that the approach to be adopted in this regard by the company court does not deserve to be put in a straight jacket formula. The discretion to be exercised in this regard has to be depended on the facts and circumstances of each case. While exercising this power we have no doubt that the company court would also bear in mind the rationale behind the enactment of Recovery of Debts Due to the Banks and Financial Institutions Act, 1993, to which reference has been made above. We make the same observation regarding the terms which a company court should like to impose while granting leave. It need not be stated that the terms to be imposed have to be reasonable, which would , of course, vary from case to case. According to us, such an approach, would maintain the integrity of that secured creditor who had approached the civil court or desires to do so, and would take care of the interest of other secured creditors as well which the company court is duty bound to do. The company court shall also apprise itself about the fact whether dues of workmen are outstanding; if so, extent of the same. It would be seen whether after the assets of the company are allowed to be used to satisfy the debt of the secured creditor, it would be possible to satisfy the workmens dues pari passu. Usefully a reference can also be made to a judgment of the Karnataka High Court in the case of T. Srinivasa vs Flemming (India) Apotheke Pvt Ltd, 1990 (68) Company Cases 506, which dealt with the scope of the winding up petition at some length and observed that the procedure under section 433(e) of the Companies Act being a summary procedure and whenever the court is of the opinion that the defence raised is bonafide and is likely to succeed in the civil court, it would constitute sufficient reasons for rejecting the winding up petition and relegating the parties to file a civil suit. The tests stated in the above judgments are fully satisfied in the present case. The defence raised by the respondents in the company petition was prima facie bonafide. The pleas raised are relating to facts as well as law. Furthermore undue delay in invoking the provisions of law even upon maturity of the bills of exchange by the petitioners is a relevant consideration, which has been rightly noticed by the company court while exercising its discretion. In light of the above principle, we may now revert back to the facts of the present case. There is no dispute that the bills of exchange were executed and were payable as on 15th March 2003. According to the respondents these bills of exchange were rendered inconsequential and ineffective vide letter dated 27th February 2003 wherein the Sky Impex Limited had informed the appellant company as follows:This is to inform that goods supplied by us to yourselves under contract No.SKY/L&T/ALPET/2002 dated September 15th 2002 and against our Invoice No.560 T dated 15th December 2002 and Bill of Exchange for US$ 980,000 dated 15th December, 2002 have been received back by ourselves at Dubai. Hence no outstanding are due from Larsen & Toubro Limited to Sky Impex Limited, against the above mentioned Invoice and Bill of Exchange. 6. The above letter clearly shows that the beneficiary of the bills of exchange had issued no claim in relation to these bills of exchange and, therefore, their endorsement per-se would not justify the undisputed claim by the appellant company in the present petition. In a winding up petition the delay itself is a relevant consideration and no justification whatsoever has been rendered by the appellant company as to the circumstances or reasons for which the company took no steps for recovering its amount, particularly before invoking the limited jurisdiction of the court under section 433 of the Companies Act. The stand taken by the respondent in reply to the company petition raises genuine and bonafide dispute and at least prima facie offers proper explanation in law for its plea of no liability. This would certainly require a regular trial and parties may be called upon to lead evidence in support of their respective pleadings. The issues raised are certainly complex as according to the respondents, the claim itself is fraudulent and motivated one. It may be useful to notice at this stage that the learned Company Judge has also adverted to the financial status of the respondent company. With that kind of financial status there is hardly any possibility to conclude at the stage of the petition that the company has wilfully defaulted to pay its debt. In addition to such stand it was also argued before the Company Court that the two bills of exchange stated to be endorsed in favour of the appellant company show particularly with reference to the reverse of the bills of exchange that they have been forged. This controversy can hardly be properly examined in a winding up petition. The order relegating the petitioner to take recourse to legal remedy of filing a civil suit cannot be faulted with. Thus the judgment under appeal neither suffers from any factual or jurisdictional error. There is also merit in the contention raised that the notice dated 4th February 2005 was withdrawn by a subsequent notice dated 13th February 2005. The language of the subsequent notice as also recorded by the company court, besides being similar, could lead to a reasonable conclusion that the appellant company did not intend to pursue the claim any further to its first notice.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 0

Reasoning from the judgment:
0[ds]In light of the above principle, we may now revert back to the facts of the present case. There is no dispute that the bills of exchange were executed and were payable as on 15th March 2003. According to the respondents these bills of exchange were rendered inconsequential and ineffective vide letter dated 27th February 2003 wherein the Sky Impex Limited had informed the appellant company as follows:This is to inform that goods supplied by us to yourselves under contractdated September 15th 2002 and against our Invoice No.560 T dated 15th December 2002 and Bill of Exchange for US$ 980,000 dated 15th December, 2002 have been received back by ourselves at Dubai. Hence no outstanding are due from LarsenToubro Limited to Sky Impex Limited, against the above mentioned Invoice and Bill of Exchange.The above letter clearly shows that the beneficiary of the bills of exchange had issued no claim in relation to these bills of exchange and, therefore, their endorsementwould not justify the undisputed claim by the appellant company in the present petition. In a winding up petition the delay itself is a relevant consideration and no justification whatsoever has been rendered by the appellant company as to the circumstances or reasons for which the company took no steps for recovering its amount, particularly before invoking the limited jurisdiction of the court under section 433 of the Companies Act. The stand taken by the respondent in reply to the company petition raises genuine and bonafide dispute and at least prima facie offers proper explanation in law for its plea of no liability. This would certainly require a regular trial and parties may be called upon to lead evidence in support of their respective pleadings. The issues raised are certainly complex as according to the respondents, the claim itself is fraudulent and motivated one. It may be useful to notice at this stage that the learned Company Judge has also adverted to the financial status of the respondent company. With that kind of financial status there is hardly any possibility to conclude at the stage of the petition that the company has wilfully defaulted to pay its debt. In addition to such stand it was also argued before the Company Court that the two bills of exchange stated to be endorsed in favour of the appellant company show particularly with reference to the reverse of the bills of exchange that they have been forged. This controversy can hardly be properly examined in a winding up petition. The order relegating the petitioner to take recourse to legal remedy of filing a civil suit cannot be faulted with. Thus the judgment under appeal neither suffers from any factual or jurisdictional error. There is also merit in the contention raised that the notice dated 4th February 2005 was withdrawn by a subsequent notice dated 13th February 2005. The language of the subsequent notice as also recorded by the company court, besides being similar, could lead to a reasonable conclusion that the appellant company did not intend to pursue the claim any further to its first notice.