JUDGMENT
Mahendra Bhushan, J.
1. This is an appeal against the order dated January 23, 1980, of the learned single judge (company-judge) admitting the petition of the respondent, United Asian Bank, Berhad, having its branch office at Penang, Malaysia (hereinafter referred to as “the bank”) for the winding up of the appellant, Premier Vegetable Products Ltd., Jaipur (hereinafter referred to as “the company”). It arises in the following circumstances.
2. The company, through its general power-of-attorney holder, Mr. M.P. Jaju, entered into a contract with M/s. Patel Holdings for the supply of 1,000 metric tonnes of Crude Canadian Rape Seed Oil for the value of 7,25,000 U.S. dollars, as is evident from annex. R-4 dated June 28, 1977 (at page 97 of the file No. 4/79). It was a c.i.f. contract, and payment was to be made on presentation of documents on 90 days D/P basis through the Bank of Rajasthan, Fort, Bombay. The said M/s. Patel Holdings drew a bill of exchange on August 12, 1977, for 7,25,000 US. dollars on the company, payable to the bank at sight. The said M/s. Patel Holdings negotiated the said bill of exchange with the bank, and handed over to the bank the original bill of lading, the invoice and other documents. The said Patel Holdings, as per the order placed by the company and referred to above, shipped 1,000 metric tonnes of Crude Canadian Rape Seed Oil to Bombay by “S.S. Tofuku Maru “. The company was intimated by M/s. Patel Holdings of the despatch of 1,000 metric tonnes of Crude Canadian Rape Seed Oil per ship, named above, and also forwarded copies of the documents with regard thereto. The ship “Tofuku Maru” arrived at Bombay on or about 19th August, 1977. The company received a notice through Bakshi & Co., agents of the owners of the said ship, that the goods had arrived and were ready for unloading. The bill of lading was endorsed by the holder thereof in favour of the bank, and the bank was holding the same. The company, after executing the deed of guarantee (indemnity bond), dated August 24, 1977, took delivery of the goods from the ship. That guarantee of the Bank of Rajasthan Ltd., which was furnished by the company on the authority of which delivery was taken is alleged to be forged. The company, through Shri M.P. Jaju, its duly constituted attorney, vide letter dated December 15, 1978, acknowledged its liability to pay an amount of 7,25,000 U.S. dollars, and several other amounts due against other consignments to the bank with whom Patel Holdings had negotiated the bill of exchange together with interest. The bank by their advocate’s notice dated March 3, 1979, addressed to the company called upon the company to make payment of the sum of 7,25,000 U.S. dollars or its equivalent in rupees ruling at the date of payment together with interest thereon at the rate of 9 3/4% per annum till payment within the statutory period of three weeks from the receipt thereof by the said company. But, in spite of the statutory notice, the company failed and neglected to pay the amount due or its rupee equivalent with interest thereon to the bank, although more than three weeks elapsed since the statutory notice was served upon the company. The bank filed a petition under Section 439 read with Sections 433 and 434 of the Companies Act, 1956 (hereinafter referred to as “the Act”) on the grounds mentioned in Section 433(e) and (f) of the Act, viz., that the company is unable to pay its debts, and it is just and equitable that the company should be wound up.
3. The company entered caveat, and also submitted a reply to the petition for the winding up of the company. The main ground taken by the company in its reply was that no cause of action arose against the company for the presentation of a winding up petition, because the bill of exchange was never presented and accepted by the company. The cause of action, as shown in the petition, was non-payment of the amount of 7,25,000 U.S. dollars on the bill of exchange, and because the same was not presented and accepted, there was no relationship of creditor and debtor between the bank and the company, and, therefore, the petition was not maintainable, as it did not show any cause of action against the company. So far as the letter dated December 15, 1978 of M. P. Jaju, duly constituted attorney of the company is concerned, it was stated that the company had no knowledge about this acknowledgement, and further that the authority of Mr. M.P. Jaju had been revoked on September 4, 1978, and the said Mr. Jaju, therefore, had no authority to acknowledge the liability on behalf of the company on December 15, 1978.
4. The learned company judge, after hearing the arguments of the parties, observing that prima facie the petition deserves to be admitted for hearing, admitted the petition for hearing.
5. The order of the company judge has been challenged in this appeal on behalf of the company on the ground that prima facie no cause of action can be said to have arisen against the company in respect of the alleged dues arising out of the bill of exchange dated August 12, 1977, because the same was neither presented for acceptance, nor accepted for payment, that the letter dated December 15, 1978, of Mr. M.P. Jaju does not amount to an acknowledgement of liability, because the defence raised by the company was bona fide and was in good faith and was one of substance, and as such was likely to succeed on the point of law, as there was lack of privity between the company and the bank.
6. The learned counsel for the parties concede for the present purposes that no cause of action can be based on the bill of exchange, because unless it was accepted, no liability can be fastened on the basis of it on the drawee, and rightly so in view of Jagjiwan Mavji Vithlani v. Ranchoddas Meghji, AIR 1954 SC 554, in which it has been held that it is the acceptance of a bill of exchange that establishes privity on the instrument between the payee and the drawee, and unless there is such acceptance, no action on the bill is maintainable by the payee against the drawee. It is contended by the learned advocate for the company that the original petition was based on the alleged liability of the company on the bill of exchange, and because it did not show any cause of action, the bill not having been accepted for payment, it could not have been admitted. He contends that only in the rejoinder the bank came out with a case that the acceptance and taking delivery of the goods, which could only be against the document itself, would establish privity, and there is an obligation on the part of the company to pay for the goods ordered and taken delivery of. He submits that the case set up in the rejoinder could not have been looked into, and the petition has to be decided on the case as set up in it. It is further contended by him that the bank filed a claim against the owner of the ship “Tofuku Maru” in the year 1978 for damages, for conversion and/or breach of contract and/or breach of duty and/or negligence of the owners of the ship, their servants or agents in respect of nondelivery of the goods, and got the ship arrested in Malaysia under a warrant of arrest by the High Court of Republic of Singapore. Thereafter, the bank compromised the claim for a sum of 6,80,000 U. S. dollars in full and final settlement of their claim, and, therefore, no cause of action, even if there was any, survives against the company. According to the learned advocate, the goods were taken delivery of against an indemnity bond, and the only liability of the company is to indemnify the bank or to pay the owners of the ship from whom the delivery was taken and at any rate it is a bona fide dispute, and, therefore, the learned single judge should not have admitted the petition to wind up the company.
7. The learned advocate for the bank, on the other hand, contends that the petition was not only based on the liability of the company on the bill of exchange, but was also based on the acknowledgement of Mr. M.P. Jaju dated December 15, 1978, which in itself is sufficient to fasten the liability, being a fresh agreement between the parties, and the rejoinder was only submitted to explain the various circumstances and nothing new was stated therein. He submits that the conduct of the company has been such as should also be taken into consideration while deciding as to whether the application should be admitted for hearing or not, and though the company was not the consignee of the goods and was not holding the bill of lading, yet still it was wrongly mentioned in the indemnity bond that they are the consignees of the goods, and further undertook to produce and deliver to the owners of the ship the bills of lading for the goods duly endorsed, as soon as those documents arrived. The company could only take delivery of the bill of lading after paying 7,25,000 U.S. dollars, the price of 1,000 metric tonnes of crude Canadian oil.
8. Before we take up the rival contentions of the learned counsel, it is necessary to examine the scope of an appeal against an order of admission of winding up of the company by the learned company judge. In Western India Theatres Ltd. v. Ishwarbhai Somabhai Patel [1959] 29 Comp Cas 133 it has been held (p. 137):
“Now, we wish to make this position clear. It is one thing to say that an order is appealable ; it is another thing to say that the court of appeal would ordinarily interfere with the discretionary order passed by the learned judge under Rule 751. It would seem to us that except in a very gross case where the petition was not clearly maintainable, the court of appeal would be loath to interfere with the discretion exercised by the learned judge, because all that the learned judge says at this stage is that he has considered the matter and it appears to him that there is a prima facie case and it requires further inquiry and investigation. In that sense it may be said that the learned judge has not made up his mind. He has taken a prima facie view of the petition and the materials before him and he has felt that the materials before him would not justify him in summarily dismissing the petition but that more materials, more inquiry and more investigation were necessary before he ultimately made up his mind whether the petition should be allowed or should be dismissed. Therefore, as we were just saying, it would require a very strong case indeed to induce the court of appeal to interfere with the discretion exercised by the company judge in-ordering advertisements under Rule 751.”
9. To us, it appears that all that is expected of the court at the time of admission of the petition for winding up of the company is, as to whether prima facie a case has been made out by the petitioner (bank) that the company is unable to pay its debts. It is not expected of the court to examine the merits and demerits of the case, and if the defence of the company appears to the court to be in good faith and one of substance, and is likely to succeed in point of fact or law, then it cannot be said that the company is unable to pay its debts, and as such should be wound up. It can also be said that if no prima facie case is made out, and if the court is of the opinion that the application for the winding up of the company has been filed to coerce the company to pay all the liabilities and is not bona fide, then the application for the winding up of the company should not be admitted and should be dismissed.
10. First of all, we will see as to whether the petition as originally framed shows any cause of action or not. A statement of law has been given in Buckley on the Companies Acts (12th Edn., at page 473) that the winding up order could be made only secundum allegata et probata. This statement of law was considered by A. N. Ray J., as he then was, in Jagannath Gupta & Co. v. Moolchand [1969] 39 Comp Cas 262 (Cal) and he observed (p. 274) : "In my opinion, the petition for winding up is to be confined to the grounds set out in the petition and the petitioner, except with the leave of the court, should not be allowed to travel outside the petition."
11. The question, therefore, is, as to whether the petition was based on the alleged liability of the company on the bill of exchange, which did not exist, because the bill of exchange was not accepted for payment, or is also based on any other cause of action. It is also to be seen, as to whether the court granted permission to the bank to take any additional ground in its rejoinder, and, therefore, any additional ground can also be looked into. A look at the petition for winding up, as originally framed, will show that it is mentioned in para. 6 of the petition that the company has already taken delivery of the goods. It is further mentioned in para. 8 of the petition that the company in its letter dated December 15, 1978, addressed to the bank has admitted that it has to pay to the bank the amount of 7,25,000 U.S. dollars. It can, therefore, be said that the petition, as originally framed, was based also on the acknowledgement dated December 15, 1978 of Mr. M.P. Jaju, duly constituted attorney of the company, as well as on the ground that the company has taken delivery of the goods from the ship. The learned company judge allowed the advocate for the bank to file a rejoinder to the reply of the company to the petition of its winding up, within four weeks, and this rejoinder was filed. The rejoinder gives the various events and sequence, as they happened, and, as already mentioned in the petition, the company has taken delivery of the goods, and it was further stated that it has an obligation to pay its price. Therefore, we are of the opinion that the contention of the learned advocate for the appellant-company that the petition was only based on the alleged liability of the company on the bill of exchange, which does not exist in view of its not having been accepted, has no force. It was the company which had placed an order and had entered into a contract through Mr. M.P. Jaju with M/s. Patel Holdings, for the supply of 1,000 metric tonnes of crude Canadian oil. It having taken delivery of a consignment ordered by it is under an obligation to pay its price to the bank, which was the endorsee of the bill of lading, which is undisputedly a document of title, and as such were the owners of the goods. We are of the opinion that prima facie the bank was the owner of the consignment, and for the present purpose we will assume it, and this assumption is based on a document, warrant of arrest (Rule 6) (at page 99) relied upon by the company itself.
12. A look at the letter dated December 15, 1978, of Mr. M.P. Jaju, will show that the liability of the company to the extent of 7,25,000 U.S. dollars was admitted by Shri Jaju, and he also admitted that the said amount was outstanding along with interest and is payable to the bank. Prima facie, to us it appears to be an acknowledgement of liability by the duly constituted attorney of the company, Mr. M.P. Jaju, who had entered into the contract, had signed the alleged indemnity bond, and had also taken delivery of the consignment of 1,000 metric tonnes crude Canadian oil from the ship, “Tofuku Maru”. Prima facie, we do not find any substance that the authority of the said attorney, Mr. Jaju, had been revoked on September 4, 1978, because there is no material on the record for the present, and the learned advocate for the company has not been able to show any to us that the revocation was ever communicated to Mr. Jaju or to Patel Holdings.
13. The law can be said to be settled that if the debt is such as is bona fide disputed by the company, then the petition for winding up should not be admitted. In re B.I. General Insurance Company [1970] 40 Comp Cas 554, it has been observed in para. 9, as follows (p. 559) :
“Circumstances relating to inability of the company to pay its debts are now well-settled. It is unnecessary to refer to the various cases on this point. It will be enough if reference is made to the decision of the Supreme Court in Amalgamated Commercial Traders Pvt. Ltd. v. Krishnaswami [1965] 35 Comp Cas 456 (SC) wherein the Supreme Court has approved of the law laid down in Buckley on the Companies Acts, 13th edition p. 451. It is there observed ;
‘It is well-settled that a winding-up petition is not a legitimate means of seeking to enforce payment of a 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 debts were directed to stand over till the debt 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 disputed on some substantial ground, the court may decide it on the petition and make the order’.”
14. A reference may also be made to Madhusudan Gordhandas & Co. v. Madhu Woollen Industries [1972] 42 Comp Cas 125 (SC), wherein their Lordships dealing with a bona fide dispute of the debt by the company have observed (at p. 131) :
“The principles on which the court acts are : first, that the defence of the company is in good faith, and one of substance, secondly, the defence is likely to succeed in point of law, and, thirdly, the company adduces prima facie proof of the facts on which the defence depends.”
15. We are of the opinion that if there is a bona fide dispute with regard to the debt, which forms the subject-matter of a winding-up proceeding, a petition for winding-up on the basis of such disputed debt should not be entertained by the court, and the parties should be left to resolve their disputes in appropriate proceedings. The law is so well settled and so evident that it hardly needs reference to any authority. We have only referred a few out of many cited at the bar. It will depend on the facts and circumstances of each case, and the court will always have to consider them to come to a conclusion, as to whether the dispute is a bona fide one or is only manufactured, or raised and the conduct of a party is also one of the relevant considerations to determine the question, as to whether the dispute about the debt is bona fide or not. If the court on examining the facts of a case comes to the conclusion that there does exist a bona fide dispute with regard to the debt on the basis of which the winding-up petition has been presented, then the court has to refuse to entertain the petition. On the other hand, if the court comes to the conclusion that the dispute sought to be raised is not bona fide, and is only manufactured or created for the purpose of resisting the application, it is the duty of the court to refuse to grant any relief to the company sought to be wound up and to admit the petition.
16. It is contended by the learned advocate for the company that delivery of the consignment was taken under the indemnity bond, which was furnished by the Rajasthan Bank and not under the bill of lading, and the liability, if any, of the company to the owners of the ship, to whom a sum of Rs. 10,50,000 had already been paid, and the liability, if any, is to the bank, which stood guarantee and the company owes no liability to the bank (sic). It is further contended that as the bank has already finally settled the claim for 1,000 metric tonnes crude Canadian oil, with the owners of the ship, “Tofuku Maru,” and has received a substantial amount, which is 6,80,000 U.S. dollars, there no more remains any cause of action even for the balance of the amount against the company. According to the learned advocate, therefore, the payment of debt on which the petition for winding-up is based is in fact and law, disputed and, therefore, through the medium of winding-up proceeding, the bank should not be allowed to coerce the company to pay the disputed debt. The learned advocate for the bank made an admission at the bar that the bank has received 6,80,000 U.S. dollars which fully discharged them, from the owners of the ship, “Tofuku Maru,” but according to him, it was a separate cause of action, and the company is liable on the basis of its acknowledgement of liability under the letter of Mr. Jaju, duly constituted attorney, dated December 15, 1978, and also on the ground that having taken delivery of the consignment on false representation that the company is the consignee of the goods, which it was not, and on the representation that it will hand over the documents, bill of lading, invoice, etc., immediately after receipt. He, therefore, submits that at least for the remaining value of the goods, which also runs into lakhs of rupees, the company is indebted to the bank, and having failed to pay the same, after the expiry of the statutory notice, it can be said that it has, failed to pay its debt, and the dispute raised by the company, in the facts and circumstances of this case, cannot be said to be bona fide.
17. Apart from the acknowledgement of liability, contained in the letter of Mr. Jaju, duly constituted attorney, dated December 15, 1978, a look at the balance-sheet of the company (A.R. 4) (Schedule F) will show that under item 16, “Imported Oils “, it has been clearly mentioned that the company has adjusted Rs. 1,49,18,758.19, in respect of cost of various imported oils on provisional basis, as the exact foreign exchange rate could not be ascertained due to non-payment to M/s. Patel Holdings Pvt. Ltd., Singapore, till the date of the balance-sheet. Interest liability amounting to Rs. 6,49,035.62, for non-payment to the above party had also been adjusted on provisional basis. Therefore, to us it appears that even in the balance-sheet of the company, the liability to pay to M/s. Patel Holdings has been shown. We have already shown above that the bank is the endorsee of the bill of lading. It had also negotiated with Patel Holdings, and had paid the value of the consignment to Patel Holdings. Therefore, we are of the opinion that the dispute about the debt at least to the extent of the remaining U.S. dollars, i.e., 45,000 U.S. dollars and interest on which also the petition for winding-up is based does not appear to be bona fide, though it is yet to be finally decided, it appears to have been manufactured by the company, for escaping its liability. We will also observe here that the conduct of the company is such, which cannot be lost sight of. It placed the order with Patel Holdings for 1,000 metric tonnes of crude Canadian oil. Copies of the bill of lading and other documents were sent to it. It was not the consignee or the endorsee of the bill of lading. It could have only taken the delivery after it could have come in possession of the bill of lading, which it could have only done after paying 7,25,000 U.S. dollars. It wrongly mentioned in the indemnity bond that the company is the consignee of the goods. But, for the false representation of the company, that it was the consignee of the goods, and will produce and deliver to the owners of the ship the bill of lading for the goods duly endorsed as soon as it will arrive, the delivery could not have been given to the company. It has only paid a sum of Rs. 10, 50,000 to the ship owners, and not the entire value of 7,25,000 U.S. dollars, which will exceed Rs. 60 lakhs, though more than three years have elapsed. It has, therefore, neither paid to the ship owners, nor to the holders of the bill of lading, i.e., the bank, nor to Patel Holdings with whom the order was placed. The conduct of the company also goes to show that prima facie the dispute about the debt of at least a balance amount of 45,000 U.S. dollars along with interest is not bona fide, and prima facie there appears to be no substance in it.
18. We find no substance in this appeal and it is hereby dismissed with costs.