In Re: Bharat Vegetable Products Ltd.

Bachawat, J.—This is a petition for winding up of a company. Counsel for the petitioner moved me for admitting the petition, but I directed him to serve notice on the company, so that I could decide in the presence of the company whether or not I should admit the petition and, if so, on what terms. There has been discussion at the bar as to powers of the Court at the time when a petition for winding up is presented for admission, and I think it desirable to state my views on this point.

It is settled law that this Court has the inherent power in a proper case to prevent the abuse of its process. It is not disputed that after the admission of the petition for winding up and even before it is advertised and has come on for hearing, this Court in exercise of such power may direct that the petition be taken off the file or may order that the petition be kept on file, but that the hearing of the petition be adjourned until such time as the Court thinks fit and further may restrain the advertisement of the petition.

I have no doubt that I have similar powers at the time of the presentation of the petition. If a proper case is made out, the Court may at the time of the presentation of the petition for winding up (a) refuse to admit the petition or (b) may admit the petition and adjourn the hearing of the petition until such time as the Court thinks fit. This is a salutary power which this Court has and exercises for the same reason for which it may restrain the advertisement of the petition.

Macleod, J.

Pioneer Bank, Re (1) (39 Bom. 16) observed as follows: "There is no obligation whatever on the Court to admit a petition merely because it is presented. In the first place it must, as I have already stated, allege facts which, if proved, would justify an order for winding up a company and therefore perusal is necessary. But even if a petition does allege such facts, then the Judge has a discretion, since the admission of the petition must inevitably damage the credit of the company concerned, to consider whether it really is a bona fide one. Otherwise the door would be laid open to unlimited opportunities for blackmail, especially in times of financial panic......The procedure provided by the Act and the Rules on the presentation of petitions for winding up do not seem to my mind to be as clear as they ought to be, and I therefore take the opportunity of pointing out that, in my opinion, there as nothing in the Act or Rules which deprives the Court of the discretion which it has in every other case, so that the Court may, if it thinks fit, refuse to admit a petition, or as an alternative course, give the company concerned notice that a petition has been presented, so, that it may take proceedings to restrain the petitioner from proceeding with his petition."

With respect I agree with every word of these observations. Macleod, J., in that case said that the Court may refuse to admit a petition, or, as an alternative course, give the company concerned notice that a petition has been presented, so that it may take proceedings to restrain the petitioner from proceeding with his petition. I have no doubt that the Court has also the power instead of admitting the petition ex parte to direct service of notice on the company and to decide in the presence of both parties whether the petition should be admitted and, if so, on what terms and whether the Court should stay the further hearing of the petition. This procedure has the merit of simplicity and of avoiding multiplicity of litigation. The order for admission of the petition is a judicial order and such order may be made either ex parte or on notice to and in the presence of the party who is vitally affected by the order.

The Rules of our Court do not explicitly provide either for restraining the advertisement of the winding up petition or for service of notice before its admission. The Bombay rules were somewhat similar and were commented upon by Macleod, J., in the case which I have already cited. I have no doubt that nothing in the rules limits or otherwise affects the inherent powers of the Court.

Mr. S. Chaudhuri appearing on behalf of the petitioner with his usual frankness admitted that in dealing with the question whether or not I should admit the petition I am in the same position as J would be if an application for taking the petition off the file and for restraining the advertisement of the petition would have been made. Mr. R. Chaudhuri on behalf of the company contended that the petition is abuse of the process of the Court because (a) the debt on which it is founded is disputed bona fide, (b) it has been presented with ulterior motives.

I will deal with the merits of the case only so far as it is absolutely necessary for the present purpose. I decline to express any final opinion on the merits nor is it possible to do so on the present materials. [The materials on record were considered and it was held that on the materials on record there was a bona fide dispute as to the debt between the parties.]

At the hearing of this matter Mr. R. Chaudhuri on behalf of the company offered to furnish security to the satisfaction of the Registrar for the full amount of the claim of the petitioner so that the petitioner may be assured of realising its dues after disputes are adjudicated upon and the amount, if any, due to the petitioner is established beyond doubt. Mr. S. Chaudhuri on behalf of the petitioner after taking full instructions refused to accept this offer. In coming to the conclusion that the debt upon which the winding up petition is founded is disputed bona fide, I have taken into account the fact that this offer was made and rejected. Mr. S. Chaudhuri contends that as a matter of law I am not entitled to take this offer into consideration. I do not agree with his contention. I think the offer is very material evidence of the bona fides of the company.

It is well settled that the presentation of a petition for winding up is an abuse of the process of the Court if the debt on which the petition is founded is disputed bona fide. The Court will not allow its process of winding up an insolvent company to be used as an instrument for extorting a claim which is disputed bona fide. The Court will at least stay the hearing of the petition even where there is ground for supposing that there is bona fide dispute as to a substantial part of the claim.

In The The Company Vs. Sir. Rameshwar Singh , Chief Justice Sanderson observed as follows:--"There is no doubt that the Court has inherent jurisdiction to stay proceedings where they amount to an abuse of its process: this is a well-recognised principle.

And it was argued that in this case the company had not ''neglected'' to pay the sum demanded within the meaning of sec. 163(1) of the Indian Companies Act. Reliance was placed upon the judgment of Sir G. Jessel, M. R., Re London and. Paris Banking Corporation (3) (19 Eq. Cas. 444, 446) in which case he was dealing with the English statute which is in similar terms to the Indian Act and in which he said ''negligence'' is a term winch is well known to the law. Negligence in paying a debt on demand, as I understand if, is omitting to pay without reasonable excuse..........Now in this case we do not think it necessary for us to decide finally whether there is a disputed claim in fact : it is sufficient for us to say that it appears to the Court (1) that on the materials before it there is ground for supposing that there is a bona fide dispute as to a substantial part of the debt on which the winding up petition was based and (2) that the company was solvent.

In that case the Company had instituted a suit against the petitioning creditor for the recovery of a large sum of money on account of damages for neglect of duty as an ex-director of the company. The respondent then instituted a suit against the company for the recovery of an admitted deposit and later on presented a petition for winding up. Greaves, J., dismissed a petition by the company for stay of all proceedings in connection with the winding up petition but the Appeal Court ordered the stay of the winding up proceedings until the determination of the two suits.

Sir John Romilly, M. R., in Re Brighton Club and Norfolk Hotel Company Ltd. (35 Beav. 204) observed as follows :

Suppose the company said, We are now willing to pay the debt then this question would arise; what is the debt, what is really due to the petitioner on the claim ? I must then take the accounts and do the very thing which cannot be done except by bill, unless in cases where there is fraud and collusion, and I should thus take complicated and contested accounts, between solvent persons, under the powers of an Act of Parliament which meant to do nothing but to wind up insolvent companies and to make them pay their debt, so, far as their assets would extend. Far from being insolvent this company is carrying on a thriving business which I am asked to stop merely because there is a quarrel between the company and their contractor as to what is due to him.

In Mohammed Amin Bros. Ltd. Vs. Dominion of India and Others, the company was assessed to income tax for a heavy Sum and appeals were pending from those assessments. Pending the final decision of the appeals Mr. Justice Sinha made an order for winding up of the company. The Appellate Court set aside the order and directed that the petition for winding up be kept on the file but that its hearing be adjourned sine die. My Lord the Chief Justice discusses the case-law on this point and bases his judgment upon the well-known principle that where the Court is satisfied that the debt, upon which a petition for winding up is founded, is disputed bona fide, the Court ought not to make a winding up order based on such debt.

Mr. S. Chaudhuri on behalf of the petitioner contended that the debt cannot be said to be disputed where the debt is in substance admitted but a counter-claim is set up. This contention is unsound. If the counter-claim is good the petitioner having the amount of the counter-claim in its hands ought to satisfy it as a claim to that extent and in that sense its debt is disputed. In The Company v. Rameswar Singh (23 C. W. N. 814) the debt due to the petitioner was admitted and only a counter-claim for damages was set up and yet the appeal court held that the debt of the petitioner was disputed. Besides in this case the claim of the company arises out of the same contract under which the petitioner claims the price of goods supplied and may be pleaded in defence as an equitable set off. Indeed part of the company''s claim, viz., the claim for rebate on account of excess charges and director''s salary is strictly a plea for the reduction of the claim of the petitioner for the price of the goods and director''s salary and in substance is a plea that the claim of the petitioner is inflated.

It is impossible to say on the present materials what is the sum, if any, due to the petitioner. Supposing the company honestly intended to pay off the debt due to the petitioner it could not do so without ascertaining the precise amount of the debt. Under the circumstances, it cannot be said that there is a failure or neglect to pay off the dues of petitioner and the provisions of section 163 of the Indian Companies Act have been Satisfied.

Mr. R. Chaudhuri also contended that the petition has been presented mala fide with the improper object of putting pressure on the company and with a view to extort money from his client. This is a ground somewhat different from the plea of disputed debt and is so treated by the Appeal Court in The Company Vs. Sir. Rameshwar Singh .

Mr. Justice Vaughan Williams in Re A Company [(1894) 2 Ch. 349, 351] observed as follows :--"In my judgment, if I am satisfied that a petition is not presented in good faith and for the legitimate purpose of obtaining a winding up order, but for other purposes, such as putting pressure on the company, I ought to stop it if its continuance is likely to, cause damage to the company."

Mr. R. Chaudhuri asked me to infer mala fides from the following facts : (a) The rejection of the offer as to security and the unwillingness of the petitioner to face the trial of an action show that the object of the petitioner is to put pressure on the company and that its real object is not to wind up the company. The action can be heard within a short time and if the claim of the petitioner is genuine the realization of the dues will be delayed for some time but the petitioner''s claim on being fully secure the petitioner has nothing else to lose, (b) Disputes had arisen lung prior to the presentation of the petition and there were prolonged negotiations for settlement. While I feel that there is some force in this contention J decline to express any final opinion. There is a pending litigation and it is not desirable to say more than what is necessary.

Mr. R. Chaudhuri on behalf of the company pointed out that paragraphs 8 and 9 of the petition are not verified at all. He contended that I must proceed on the footing that the petition did not allege that the company is unable to pay its debts and the petition is therefore demurrable. Mr. S. Chaudhuri on behalf of the petitioner did not dispute that the affidavit was defective. At the conclusion of the argument he orally applied for leave to reverify the petition and left the question of costs to me. I think the petitioner should be made liable for the costs of the hearing.

Having regard to my finding that the debt is disputed there are two courses open to me. I may either refuse to admit the petition or admit it and at the same time adjourn its hearing. I prefer to adopt that it should not be advertised. It is not seriously disputed that the inevitable result of the advertisement will be to damage the credit and reputation of the company which is actively carrying on business. I therefore, order that the petition be admitted and be kept on the file but the hearing of the petition is adjourned sine die. The matter will be heard by the Judge taking Company Matters after the final determination of the pending suit No. 1443 of 1951, Bharat Vegetable Products Ltd. v. George Scott Son (London) Ltd. The petitioner must pay to the company the costs of the hearing. Certified for counsel Mr. S. Chaudhuri declines to accept any security for his client''s claim as offered by the company and contends that without his consent I have no jurisdiction to make that order. In the face of this argument I am powerless and I am unable to make it a condition of this order that the company would furnish security to the satisfaction of the Registrar. Furthermore, if the petitioner had agreed I would have expedited the hearing of the pending suit. If the petitioner desired to have the carriage of the proceedings it could institute a suit immediately and I could expedite the hearing of such suit and adjourn the hearing of the petition until the final decision of such suit. The petitioner, however, is not agreeable either to institute a suit or to have the hearing of the pending suit expedited.