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

1. This company appeal is directed against the order passed by the Learned Company Judge on 21st March 2007. The appellant company had filed a winding up petition against the respondent company on the ground that the respondent company is unable to pay its debts. The pleaded case of the appellant company is that it was holder in due course of two bills of exchange dated 15th December 2002 for an amount of US $ 2,165,000.00. They were endorsed in favour of the appellant company on 28th January 2003. The bills of exchange were payable on 15th March 2003. Thus the appellants invoked the jurisdiction of the Company Court on the basis of the endorsed bills. The respondents in their defence pleaded that nothing was payable in respect of the two bills of exchange as the supplier had issued two credit notes dated 27th February 2003 to the appellants; that the goods supplied had been received back and consequently there was no amount outstanding against the invoices and bills of exchange. The respondent company then also pleaded that the notice dated 4th February 2005 had been withdrawn by the petitioner company and as such no cause of action subsists. The claim of the appellant company was fraudulent and even a belated one in as much as the bills were to be presented on 15th March 2003, the maturity date was 15th March 2005 and thus no action was taken by the claimants nearly for about 2 years.Keeping in view the above stand of the parties, the learned Company Judge, vide the impugned order, dismissed the company petition relegating the appellants to invoke the proper jurisdiction of filing a civil suit. The relevant finding in the impugned judgment reads asthese circumstances, the defence of the company that the goods were returned to the original suppliers who had issued credit notes and that the claim that has been now set up in the company petition is vitiated by fraud cannot be brushed aside. It cannot be said that there is a debt due and payable and a certain sum of money is due and payable to the petitioner. Photocopies of the two bills of exchange have been produced before the court and it has been submitted that the endorsement in favour of the petitioner on the reverse of the bills of exchange is ex facie, even upon a bare perusal, forged. These are obviously disputed questions which will have to be addressed on the basis of evidence at the trial of a suit. Suffice to state, that no case for the exercise of the jurisdiction for winding up is made out. That apart, the attention of the court has also been drawn to the financial status of the respondent and the following averment in that regard is contained in paragraph 3(c) of the affidavit in reply:The reserves of the respondent are to the tune of Rs.4613 crores and the assets employed are t the tune of Rs.6094 crores. The sales and other income of the respondent was Rs.13748.26 crores in the yearand have increased to Rs.15198.63 crores inThe respondent had made a profit before tax and extraordinary items of Rs.1286.14 crores in the yearwhich has increased to Rs.1313.65 crores in the yearThis respondents net worth in the yearwas Rs. 4640 crores and its General Reserves for the yearore considered from any perspective, this is an appropriate case where the petitioner must be relegated to the remedy of establishing its claim in a civil suit before an appropriate court of jurisdiction. The company petition is accordingly dismissed.3. The correctness of the aforesaid finding is questioned in the present appeal, primarily on the ground that the claim of the appellant company could not be termed as fraudulent as the bills of exchange had been endorsed in their favour and apparently no payments had been made. The letter dated 27th February 2003 had no bearing and the claim of the appellant was based on the bills of exchange and the defence raised by the respondents was a sham one, as such the winding up petition ought to have been admitted. It is also argued that the bills of exchange was never cancelled and gave rise to a subsisting cause of action in favour of the appellants.

Court's reasoning:
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.