{"id":125448,"date":"2008-09-19T00:00:00","date_gmt":"2008-09-18T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/ms-vs-this-on-19-september-2008"},"modified":"2015-10-14T16:04:35","modified_gmt":"2015-10-14T10:34:35","slug":"ms-vs-this-on-19-september-2008","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/ms-vs-this-on-19-september-2008","title":{"rendered":"M\/S vs This on 19 September, 2008"},"content":{"rendered":"
Gujarat High Court<\/div>\n
M\/S vs This on 19 September, 2008<\/div>\n
Bench: D.A.Mehta And Bankim.N.Mehta, Bankim.N.Mehta<\/div>\n
  \n\t \n\t \n\t \n\t \n\t \n\t \n\t \n\t\n\n \n \n\n\n\t \n\nOJA\/6\/2007\t 16\/ 16\tJUDGMENT \n \n \n\n\t\n\n \n\nIN\nTHE HIGH COURT OF GUJARAT AT AHMEDABAD\n \n\n \n\n\n \n\nO.J.APPEAL\nNo. 6 of 2007\n \n\nIn\n\n\n \n\nCOMPANY\nPETITION No. 240 of 2004\n \n\nWith\n\n\n \n\nCIVIL\nAPPLICATION No. 13 of 2007\n \n\nIn\n\n\n \n\nO.J.APPEAL\nNo. 6 of 2007\n \n\n \n \nFor\nApproval and Signature:  \n \nHONOURABLE\nMR.JUSTICE D.A.MEHTA   Sd\/-\n \n\n \nHONOURABLE\nMR.JUSTICE BANKIM.N.MEHTA\nSd\/- \n \n=========================================================\n\n\n \n\t  \n\t \n\t  \n\t\t \n\t\t\t \n\n1\n\t\t\n\t\t \n\t\t\t \n\nWhether\n\t\t\tReporters of Local Papers may be allowed to see the judgment ?  NO\n\t\t\n\t\n\n \n\t  \n\t \n\t  \n\t\t \n\t\t\t \n\n2\n\t\t\n\t\t \n\t\t\t \n\nTo be\n\t\t\treferred to the Reporter or not ? NO\n\t\t\n\t\n\n \n\t  \n\t \n\t  \n\t\t \n\t\t\t \n\n3\n\t\t\n\t\t \n\t\t\t \n\nWhether\n\t\t\ttheir Lordships wish to see the fair copy of the judgment ? NO\n\t\t\n\t\n\n \n\t  \n\t \n\t  \n\t\t \n\t\t\t \n\n4\n\t\t\n\t\t \n\t\t\t \n\nWhether\n\t\t\tthis case involves a substantial question of law as to the\n\t\t\tinterpretation of the constitution of India, 1950 or any order\n\t\t\tmade thereunder ? NO\n\t\t\n\t\n\n \n\t  \n\t \n\t  \n\t\t \n\t\t\t \n\n5\n\t\t\n\t\t \n\t\t\t \n\nWhether\n\t\t\tit is to be circulated to the civil judge ? NO\n\t\t\n\t\n\n \n\n \n=========================================================\n\n\n \n\nM\/S.\nGEETA PRINTS LTD. - Appellant(s)\n \n\nVersus\n \n\nM\/S.\nFALCON INDUSTRIES - Opponent(s)\n \n\n===============================================================\nAppearance : \nMR\nD.D.VYAS, SENIOR ADVOCATE WITH MR DHAVAL D VYAS for Appellant(s) :\n1, \nMR AL SHAH WITH MR VIMAL M PATEL AND MR PS PURANI for\nOpponent(s) :\n1, \n=========================================================\n\n\n \n\t  \n\t \n\t  \n\t\t \n\t\t\t \n\nCORAM\n\t\t\t: \n\t\t\t\n\t\t\n\t\t \n\t\t\t \n\nHONOURABLE\n\t\t\tMR.JUSTICE D.A.MEHTA\n\t\t\n\t\n\t \n\t\t \n\t\t \n\t\t\t \n\nand\n\t\t\n\t\n\t \n\t\t \n\t\t \n\t\t\t \n\nHONOURABLE\n\t\t\tMR.JUSTICE BANKIM.N.MEHTA\n\t\t\n\t\n\n \n\nDate\n: 19\/09\/2008 \n\n \n\nORAL\nJUDGMENT<\/pre>\n
(Per
\n: HONOURABLE MR.JUSTICE D.A.MEHTA)<\/p>\n
1\tThis
\nAppeal challenges order dated 11.12.2006 made in Company Petition No.
\n240 of 2004 whereby the petition filed by respondent herein(original
\npetitioner) has been admitted against the Appellant herein (original
\nrespondent) and an order made for publication of advertisement.
\nHereinafter, for sake of convenience, the parties shall be referred
\nto as per their respective description in the petition.\n<\/p>\n
2\tThe
\npetitioner preferred Company Petition  No. 240 of 2004 claiming that
\nan amount of Rs.11,04,332\/, comprised of principal sum of
\nRs.7,62,500\/- plus interest to the tune of Rs.3,41,820\/- was due and
\npayable by the respondent company to the petitioner. A further sum of
\nRs.6,61,100\/- was also claimed as being recoverable towards ‘C’ form
\nliabilities. The petitioner made the claim on the basis of invoices
\navailable at page Nos. 12 to 46 of the Company Petition. According to
\nthe petitioner, on 3.3.2004 the petitioner had confirmed the Accounts
\nand hence there was no question of any dispute on this count.\n<\/p>\n
3\tIt
\nwas further submitted on behalf of the petitioner that despite
\nstatutory notice the respondent  company had failed to make payment
\nwithin the prescribed period of 21 days, and in fact there was no
\nreply even to the statutory notice. Placing reliance on provisions of
\nSection 433 read with Section 434(1)(a) of the Companies Act, 1956
\n(the Act) the petitioner prayed for admission of the petition and
\nultimately an order for winding up of the respondent Company.\n<\/p>\n
4\tOn
\nbehalf of the respondent Company the petition  was  disputed firstly
\non the ground that the petition  was not maintainable, the statutory
\nnotice having been issued to one Geeta Prints Private Limited while
\nthe petition was filed against Geeta Prints Limited, a Public
\nCompany. That debts of the private company could not be claimed
\nagainst the public company. That the pubic company had thereafter
\nceased to exist and hence, in absence of existence of the company
\nthere was no question of ordering winding up of a non-existent
\ncompany. It was further submitted that  the respondent Company  had
\nraised disputes with regard to the  debts prior to the point of time
\nthe statutory notice was issued  and this plea was based on
\ncommunication dated 24.5.2004. It was further submitted that  the
\nremedy available to the petitioner would be to prefer a Civil Suit.
\nFurther contention was to the effect that the respondent  company
\nwas in good financial  position  and winding up proceedings were not
\nthe correct  remedy, and even  assuming that any amount was due from
\nthe respondent company to the petitioner, the same could be recovered
\nby filing  a Civil Suit for recovery. It was further submitted that
\nthe petition was not in prescribed form being Form No. 46 read with
\nRule 95 of the Company Court Rules in absence of relevant averments
\nas required by Column No.8 of the Form.\n<\/p>\n
5\tThe
\nlearned Company Judge vide impugned order has not accepted any of the
\ndefences raised by the respondent company and ordered admission of
\nthe petition and publication of advertisement for the reasons stated
\nin the impugned order. At the time of admission of this Appeal, the
\noperation of the order has been stayed.\n<\/p>\n
6\tHeard
\nlearned  Senior Advocate appearing for the Appellant  i.e.  the
\nrespondent company. All the contentions which were raised before the
\nlearned Company Judge have been reiterated. In support of the
\nsubmissions made, reliance has been placed on decision of this Court
\nin case of  Tata Iron & Steel Company Ltd. Vs.
\nMicro Forge (India) Ltd.,2002 GLR 1594 with special
\nreference to the observations made in paragraph  Nos. 15, 16 and 17
\nof the said judgment. The next judgment which was cited was
\nAshok Fashions Ltd. Vs. Meghdoot Acid And Chemicals (1998) 91 Company
\nCases 655 followed by case of  Wimco Ltd.\n<\/p>\n
Vs. Sidvink Properties (P) Ltd. (1996)86 Company Cases 610
\nand the last decision that was cited  was in case of IN
\nRE M\/s. Rishi Enterprises 1991 (2) GLR 1213. On the basis
\nof the aforesaid case law, it was contended that whether a company
\nshould be wound up or not, had to be determined on facts and
\ncircumstances of each case and the concept of inability to pay debts
\nhad to be considered in context of the fact that any order of winding
\nup  would result in economic death of the company. It was submitted
\nthat the statutory presumption which is available under Section
\n434(1)(a) of the Act was a rebuttable presumption and once the
\nrespondent company had raised various disputes, pointed out financial
\nsoundness of the company, the Company Court ought to have come to the
\nconclusion that the presumption was rebutted  and in exercise of
\ndiscretion  vested in the Company Court ought not to have entertained
\nthe petition. It was therefore submitted that merely because
\nstatutory notice was not replied by the respondent company, the
\npetition could not be entertained without anything more. For
\nestablishing that the company was a going concern various averments
\nmade in Affidavit-in-Reply and Further Affidavit-in-Reply were
\nreferred to and read extensively. It was therefore urged that  the
\npetition was required to be allowed and impugned order dated
\n11.12.2006 was required to be quashed and set aside.\n<\/p>\n
7\tOn
\nbehalf of the original petitioner – respondent herein, it was pointed
\nout that the contention regarding status of the company having
\nundergone change was a dishonest defence considering the provisions
\nof Section 43A(1A) of the Act because the Registration number of the
\ncompany remained the  same and only by virtue of deeming fiction the
\nname of the company underwent change without any change in the
\npersonality of the company. In support of the submission, certificate
\nof incorporation which was annexed to the Affidavit-in-Rejoinder was
\npointed out to emphasise the fact that the word \u00fdSPrivate\u00fd\u00fd
\n stood deleted in light of Section 43(1A) of the Act as recorded
\ntherein.  It was further contended that no dispute  as such was
\nraised considering the fact that the petitioner had produced not only
\nthe acknowledgment of account but also the fact of having supplied
\nthe goods as narrated in Affidavit-in-Rejoinder which remained
\ncontroverted. That the petitioner had supplied the goods  which had
\nbeen received by the respondent company and utilised in its
\nmanufacturing process. That in fact communication dated  24.5.2004 on
\nwhich reliance was placed by respondent did not raise any dispute as
\nsuch, but only  sought reconciliation of accounts as could be seen
\nfrom the subject matter of the communication. Therefore, subsequent
\naverments made in Affidavit-in-Reply that no order had been placed
\nwith the petitioner for supply of goods  or that the goods had not
\nbeen supplied could not be given credence in light of admission of
\nthe respondent company itself.  In so far as applicability  of
\nSections 433 and 434 of the Act are concerned, it was submitted that
\nunder section 433(e) of the Act, the Company Court was entitled to
\nwind up a company if the company was unable to pay debts  viz. where
\nthat fact was established. Whereas the requirement of Section
\n434(1)(a) of the Act was based on a deeming fiction; that a company
\nshall be deemed to be unable to pay  its debts if the company does
\nnot comply with the requirements stipulated in clause (a) of
\nsub-section(1) within the statutory period. That in such an
\neventuality capability of the company to pay had no role to play and
\neven if a company was financially sound, if there was statutory
\ndefault envisaged by provisions of Section 434(1)(a) of the Act, the
\nCompany Court in exercise of its discretion could always proceed
\nahead in a winding up petition and there was no prohibition in law.
\nThat in such a case winding up petition was a mode of recovery. In
\nsupport of submissions made reliance has been placed on following two
\ndecisions :\n<\/p>\n
[1]\tAIR
\n1966 SC 1707 \u00fd  Harinagar Sugar Mills Co. Ltd. Vs. M.W.Pradhan (now
\nG.V.Dalvi) Court Receiver.\n<\/p>\n
[2]\t(2006)133
\nCompany Cases 130(AP) Enernorth Industries  Inc. Vs. VBC Ferro Alloys
\nLtd., wherein the Apex Court decision in case of
\nMadhusudan Gordhandas and Co. Vs. Madhu Woolen Industries P. Ltd.
\n[1972] 42 Comp.Cases 125 (SC) has been extracted  at page
\nNos. 143 and 144 of the said reports. Inviting attention to averments
\nmade in paragraph Nos. 13, 15 and 16 of the petition  it was
\nsubmitted that even the requirement prescribed  by Rules and
\nstatutory form stood complied with.  The learned Advocate therefore
\nsubmitted that no interference was warranted in the impugned order
\nmade by the Company Court and the Appeal was required to be
\ndismissed. Lastly it was submitted that before the Division Bench
\ncould take up the Appeal and Stay Application against the operation
\nof the impugned order, advertisement had already been published as
\ndirected by the Company Court.\n<\/p>\n
8\tThe
\nfacts are not in dispute. When the petitioner issued notice calling
\nupon  the respondent company to make payment, admittedly, the
\nrespondent company did  not reply to the statutory notice.  That gave
\nrise to statutory presumption that respondent company was unable to
\npay its debts considering the fact that not only no reply was
\ntendered but no arrangement was made by the respondent company to pay
\nthe sum or secure the sum to the reasonable satisfaction of the
\ncreditor.  Albeit the presumption  is a rebuttable presumption.
\nHence, the record will have to be considered  as to whether the said
\npresumption is rebutted. Thereafter, it will have to be examined
\nwhether  the discretion exercised by the learned Company Judge is in
\naccordance with the legal requirements.\n<\/p>\n
9\tBut
\nbefore that one may consider the scope of section 434(1)(a) of the
\nAct. Under the section before a company shall  be deemed to be unable
\nto pay its debts two conditions must be satisfied, namely, (i) the
\ncreditor shall have delivered a demand in the prescribed manner on
\nthe company to pay the sum due to him; and (ii) the company has for
\nthree weeks thereafter neglected to pay the same, or to secure or
\ncompound for it to the reasonable satisfaction of the creditor. After
\nthe statutory notice the Company could pay the sum demanded or secure
\nor compound for it to the reasonable satisfaction  of the creditor.
\nThe section does not confer a right on a debtor but only gives  him
\nan opportunity to discharge the debt in one or other of the ways
\nmentioned therein. The debtor could  secure or compound  for a debt
\nonly where  the circumstances under which the  demand is made permit
\nsuch a mode of discharge.   In the present case  all the requirements
\nof the provision stand satisfied. Operation of this section has
\nnothing to do with ability to pay. Once the neglect to pay stands
\nestablished statutory  presumption arises.\n<\/p>\n
10\tFor
\nascertainment of the fact as to whether the statutory presumption
\nstands rebutted or not one can take clue from clause (c) of
\nsub-section (1) of Section 434 of the Act, which indicates that for
\ndetermining whether a  company is unable to pay its debts or not, the
\nCompany Court shall take into account the contingent and prospective
\nliabilities of the company. In the facts of the present case,  even
\nif one accepts the averments made in the Affidavit-in-Reply and the
\nFurther Affidavit-in-Reply to be correct, there is nothing on record
\nto show as to what were the contingent and prospective liabilities of
\nthe respondent company, apart from the existing liabilities.
\nTherefore, prima facie, it is not possible to accept the submission
\non behalf of the respondent company that the company is in a sound
\nfinancial position and is in a position to discharge its existing
\nliabilities. Merely from the figures of turnover, various expenses
\nincurred by the company, the amount of Income tax refund received by
\nthe company, it is not possible to ascertain the financial health of
\nthe company in absence of any corroborative evidence in this regard.
\nThe submission that the same is not disputed cannot be considered
\nfor the simple reason  that  the financial soundness of the company
\nhas to be considered by the Court while exercising discretion and
\nwhen the company makes a positive averment it is the respondent
\ncompany who has to establish such averment. Factually also, paragraph
\nNo.11 of the Affidavit-in-Rejoinder categorically calls upon the
\nrespondent company  to prove the averments made in paragraph Nos. 5
\nto 9 of the Affidavit-in-Reply originally filed, despite which except
\nthe further Affidavit no evidence has come on record.\n<\/p>\n
11\tThe
\nfactum of so called dispute as pleaded by the respondent company also
\ndoes not merit acceptance because as can be seen from communication
\ndated 24.5.2004, the subject matter pertained to reconciliation  of
\naccounts and the first sentence of the said communication is in
\nrelation to various invoices  issued by the petitioner. The said
\nletter further goes on to state that the rates stated in the invoices
\nare exaggerated and not commensurate with the items and the quality
\nof the items. Thereafter, the respondent company informs upon the
\npetitioner that the respondent shall do the needful upon final
\nverification of the contents of the invoices and consider the same
\nfor payment. There is not a single sentence in the said communication
\nto the effect that no orders were placed with the petitioner or that
\nno goods were received by the respondent company from the petitioner.
\nTherefore, the averments made in Affidavit-in-Reply to the said
\neffect are not borne out by records and do not inspire confidence and
\ncannot be taken at face value. This is more so in light of the fact
\nthat no such defence was raised in response to the statutory notice.\n<\/p>\n
12\tThe
\ncontention regarding non compliance with statutory rules and the
\nprescribed form also does not merit acceptance considering what is
\nstated in the petition. Similarly the change in status of the company
\nwould not make any material difference and the finding of the Company
\nCourt on this count does not warrant any interference.\n<\/p>\n
13\tIn
\nlight of the various principles enunciated by the decisions cited by
\nboth the sides, it becomes apparent that the present is not a case
\nwhere prima facie one can say that a frivolous petition has been
\npresented and entertained. In fact, on facts the impugned order made
\nby the Company Court is in consonance with requirements of law and
\ndoes not require to be interfered with.\n<\/p>\n
14\tIn
\nthe result, the Appeal is dismissed. Interim relief granted in Civil
\nApplication No.13 of 2007 vide order dated  17.1.2007 shall stand
\nvacated. The Company Court shall proceed with hearing of the Company
\nPetition from the stage at which the impugned order was under
\nchallenge.\n<\/p>\n
15\tAt
\nthis stage, learned Counsel for respondent company prays for
\nextension of  interim relief. In light of the facts which have come
\non record the request is rejected.\n<\/p>\n
 O.J.\n<\/p>\n
Civil Application No. 13 of 2007.\n<\/p>\n
In
\nlight of the order made today in main Appeal this Civil Application
\nis rejected. Rule discharged.\n<\/p>\n
 Sd\/-\t\t\t\tSd\/-\n \n\n\n                (D.A.Mehta,\nJ.)   (B.N. Mehta, J.)\n \n\n \n \n\n\n \n\n\n M.M.BHATT\n \n\n \n \n\n\n\n\n\n<\/pre>\n","protected":false},"excerpt":{"rendered":"
Gujarat High Court M\/S vs This on 19 September, 2008 Bench: D.A.Mehta And Bankim.N.Mehta, Bankim.N.Mehta OJA\/6\/2007 16\/ 16 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD O.J.APPEAL No. 6 of 2007 In COMPANY PETITION No. 240 of 2004 With CIVIL APPLICATION No. 13 of 2007 In O.J.APPEAL No. 6 of 2007 For Approval and […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[16,8],"tags":[],"class_list":["post-125448","post","type-post","status-publish","format-standard","hentry","category-gujarat-high-court","category-high-court"],"yoast_head":"\nM\/S vs This on 19 September, 2008 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/ms-vs-this-on-19-september-2008\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"M\/S vs This on 19 September, 2008 - 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