Harakchand Mansraj vs Emerald Woollen Milles Pvt. Ltd. and another

S.C. Pratap

After this petition for winding up was admitted and advertised, the company paid in full all its creditors without exception. Thereafter, however, the present applicant claiming to be creditors of the company, have come forward for substitution in place of the original petitioners.

Now, substitution, though permissible, is a matter in the discretion of the court. It is not automatic. It does not follow ipso facto upon a mere application in that behalf on the mere allegation, unsubstantiated even if it be that a company is unable to pay its debts, Much depends on the facts and circumstances which would vary from case to case. Discretion, as all judicial discretion, must be exercised one way or the other not arbitrarily or mechanically but for sound and good reasons. The court must see whether a case for substitution is made out and the paramount test is whether the applicant for substitution is one who could have made out a case for admission of a petition for winding up if independently filed. I do not see how the ruling of the Patna High Court in Thakur paper Mills Ltd., In re [1969] 39 Comp CAs 47 to which may attention was invited by counsel Mr. Dharmadhikari, helps the applicants here. Indeed the said ruling itself indicated that discretion vest in the court under rule 101 of the companies (court) Rules, 1979, whether or not to grant substitution. My attention was also invited to a ruling of this court in Kewal P. Kashyap v. J.H. Jagtiani, AIR 1979 Bom . That however, was a case under the Presidency Towns Insolvency Act and as rightly submitted by the company''s learned counsel Mr. Cooper, altogether different is the position and procedure under the said Act. This ruling also, therefore, hardly assists the applicants here.

Returning then to the basic question whether this court should, in its discretion, permit substitution, let us see the merits. The applicant''s claim rests at the foot of accounts. Though dealings between the parties had, as per the applicants'' own case, ceased as early as in February,1985, no claim was ever made by them against the company. Not even a simple demand notice, much less a notice u/s 434 of the Companies Act. It is no less significant that, as per th company''s statement of accounts annexed to the affidavit in reply, nothing is due to the applicants, but on the contrary, an amount of Rs. 7,900 odd is due from them to the company. This statement of accounts sent to the applicants as far back as in April, 1987, remained uncontroverted. Despite reminders, there was no reply ther to, much less any denial thereof.

In the circumstances, there is serious doubt as to the validity and authenticity of the applicant''s claims set up for the first time now while claiming substitution. Speaking prima facie, the applicants are not the creditors of the company. In any event, there is, between the parties, a serious and bona fide dispute in this behalf. This is also not in the least a case where one can even remotely infer that the company is unable to pay or is neglecting to pay. Indeed, as already indicated, the company hs paid in full all its creditors. In sum, therefore, though there is power to grant substitution, this is pre- eminently a case where this court should, in its judicial discretion, decline the said the relief. Request for substitution is thus rejected.

The main petition, being compnay Petition No. 517 of 1986, be now placed before the court taking up company matters for appropriate orders thereon.