Rangpur Tea Association Ltd. vs Bisseswarlal Sharma

S.K. Hazra, J.—This is an appeal against the winding up order passed by the learned Judge taking company matters.

The Appellant is Rangpur Tea Association Limited (I shall shortly call ''the company''). Before us, there is also a cross-objection under Order 41, Rule 22 of the CPC by one Bhabesh Chandra Guha Roy, a share-holder of the company.

The company was incorporated as a public limited company under the provisions of the Indian Companies Act, 1913 and is an existing company within the meaning of the Companies Act, 1956, having its registered office at 29A Ballygunge Place, Calcutta-13.

The company is the owner of a valuable tea garden known as Majhadabri Tea Estate at Alipurduar in Jalpaiguri. The authorised capital of the company is Rs. 5,00,000 divided into 10,000 equity shares of Rs. 50 each. The subscribed capital of the company is 5,000 fully paid up equity shares of Rs. 50 each amounting to Rs. 2,50,000 and 5,000 equity shares issued for consideration other than cash amounting to Rs. 2,50,000 aggregating to Rs. 5,00,000. The main object of the company, inter alia, is to produce raw tea and to sell the same.

On November 26, 1970, the Respondent No. 1, Bisseswarlal Sharma (I shall in short call him ''Sharma''), presented a petition for winding up of the said company. He filed a creditor''s petition for winding up claiming that the company was indebted to him in the sum of Rs. 2,92,914. I shall shortly indicate here the case of Sharma as laid in his petition.

He states that sometimes in July 1963, the company experienced temporary financial difficulties and with a view to obtain financial assistances approached and requested him to advance moneys to enable it to tide over the same, whereupon on or about July 10, 1963, an agreement in writing was made between Sharma and the company (hereinafter called the ''agreement'').

In the agreement Sharma has been described as financier and it is recorded that he has already advanced a sum of Rs. 1,83,000 in cash by way of loan from time to time and he has agreed to advance such further sum by way of loan as he will deem necessary according to its requirement. Certain clauses (terms) of the agreement are relevant and may be quoted here:

1(a) All sums borrowed and to be borrowed from the Financier by the Company shall be satisfied by payment to the Financier a commission at 25 np (twenty five naya paise) per kilogram of the Company''s tea sold at auction in Calcutta and at 20 np (twenty naya paise) per kilogram of such a* sold locally (that is ex-factory) during the period of currency of this deed).

(b)............

(c)............

(d) Whenever the funds of the company shall permit, the Financier shall be paid back his money as much as possible.

(e)............

(f) A quarterly statement of accounts relating to the loan advanced, the amounts repaid, if any, the sums due to the Financier and the volume and sales of sale proceeds to the Financier within a fortnight of the end of each quarter.

(g) The deed shall remain in force for 3 years certain with effect from date of signing this agreement and thereafter the Financier shall have the option of renewal on the same terms as above for two years more.

(g)...........

In his petition, Sharma states that the said option was duly exercised by him and "the agreement expired only in July 1968". He further states : "by mutual agreement, the rate of commission payable was reduced to 0.15 P. or 0.10 P. respectively with effect from January 1964". Then he states that pursuant to and in terms of the agreement he advanced further money as a result of which he became entitled to obtain commission on the sale proceeds of tea sold by the company aggregating to Rs. 1,37,713-50 P. From time to time he wrote letters to the company demanding from the company the particulars of the amounts which were payable by the company to him both as to the principal amount advanced as also on account of the commission payable to him on the sale proceeds of tea by the company. In response to his demand the company from time to time sent letters of confirmation and/or intimation to him informing the amount due and payable by the company to him. He annexed copies of certain letters to his petition. Sharma then states that the agreement remained in force for a period of three years as prescribed in Clause 1(g) of the agreement. By the letter dated June 13, 1968, Sharma''s Solicitor Shri M.N. Nandy addressed a letter to the company demanding a sum of Rs. 2,26,305-60 P.

On July 2, 1968, the Secretary of the company addressed a letter to Shri M.N. Nandy, the Solicitor for Sharma. Sharma states that the company did not dispute the claims made by him. He further states that the Managing Director addressed a letter on December 26, 1969, by which the company expressly admitted that a sum of Rs. 2,92,91409 P. became due and payable by the company to him. A statement of account was annexed with the said letter. Sharma states that the said letter was duly signed by the person competent to make acknowledgment on behalf of the company. By reason of the facts set out above, Sharma states that no part of his claim is barred by limitation. By letter dated July 2, 1970, Sharma gave second statutory notice u/s 434 of the Companies Act claiming Rs. 2,92.91409 P. with interest at 12% per annum. It is stated that the company received that notice, but failed and neglected to give any reply According to Sharma, the company is insolvent and is unable to pay its debts. Therefore, Sharma prays that the company may be directed to be wound up by this Court under the provisions of the Companies Act, 1956.

1 will note here certain facts and events which happened after the petition for winding up was presented by Sharma.

After the petition for winding up was posted before the learned Judge taking company matters and before publication of advertisements a share-holder of the company, namely, Bhabesh Chandra Guha Roy took out a Judge''s summons on February 2, 1971, inter alia, for stay of the winding up petition and also for stay of all interim orders and directions including directions for advertisements made in the said company petition.

Bhabesh Chandra Guha Roy (I shall shortly call him ''Guha Roy'') affirmed an affidavit on January 28, 1971, in support of his summons for stay of the winding up of the company. He states in the affidavit that between January 15, 1969 and June 12, 1969, he purchased 2115 shares of the said company. Similarly, one Shri Makhanlal Samaddar also purchased 2256 shares of the said company. They duly lodged their shares to the company for mutation of their respective names, but the company refused to mutate their names. Then they made two applications to this Court for rectification of the share register by mutating their respective names in the register. The company contested the applications. The matter was heard by Ramendra Mohan Datta J. The learned Judge allowed the petitions for rectification and directed that the share register of the company be mutated by registering their respective names. Even after the order, the company failed and neglected to register their names. His case is that the company having lost in the said applications has set up Sharma to present the winding up petition with mala fide intent to wind up the company.

The application of Guha Roy for stay of winding up was opposed by Sharma. On April 21, 1971, Sharma filed an affidavit-in-opposition to the stay application. The company also filed an affidavit through one Sudhansu Roy, a Director of the company, * denying that the company set up Sharma to present the petition for winding up the company. The said Sudhansu Roy stated in his affidavit that Sharma was acting in connivance with the said Makhanlal Samaddar. It is not necessary to go into the merits of the stay application here. The said application for stay of winding up petition was dismissed by Salil Kumar Roy Chowdhury J. by his judgment and order dated April 17, 1972 and the learned Judge gave directions for publication of advertisements.

An appeal was preferred by Shri Bhabesh Chandra Guha Roy against the said judgment and order dated April 17, 1972, by Salil Kumar Roy Chowdhury J. In the Court of appeal, both Sharma and the company were represented by their respective counsel. The appeal was very much contested. The judgment of the appeal Court was delivered by B.C. Mitra J. on February 5 and 6, 1973, to which Deb J. concurred. The learned Judges dismissed the appeal with costs.

Thereafter, advertisement was issued as per directions of the Court. On June 4, 1973, Makhanlal Samaddar, as constituted Attorney of Shri Bhabesh Chandra Guha Roy, filed his affidavit-in-opposition to the winding up petition. It is stated in this affidavit that Makhanlal Samaddar and Bhabesh Chandra Guha Roy are holders of 2368 and 2115 shares respectively. Thus, out of 10,000 fully paid up shares of the company Bhabesh Chandra Guha Roy and Makhanlal Samaddar held 4483 shares. It is further stated that the Applicant Sharma in fraud and collusion with the So-called Directors of the company made application for winding up knowing that they would no longer be able to be in the management of the company, because the said Bhabesh Chandra Guha Roy held such large number of shares and the said Directors held 160 shares only.

The company filed an affidavit-in-opposition to the winding up petition.

Thereafter, the winding up petition came up for hearing before Sabyasachi Mukharji J. By the judgment and order dated August 7, 1973, the learned Judge directed that the company should be compulsorily wound up and appointed the Official Liquidator as the liquidator of the company. Against this judgment and order of the learned Judge this appeal and cross-objection have been filed. The question in this appeal and in the cross-objection is whether the company should be wound up as directed by the learned Judge.

Mr. B.K. Bachawat with Mr. Sujit Sinha appeared for the company. After the appeal was opened, Mr. Sinha for the company made his submissions. I need not go into detail with regard to his submissions. I will only say that the arguments advanced on behalf of the company did not impress me very much.

Appearing for the Respondent Sharma, Mr. Prabir Sen with Mr. Ashutosh Law pointed out that the appeal should be dismissed on the preliminary point that the Appellant company did not comply with the order of the Court of appeal dated September 24, 1973. Mr. Sen pointed out that the Appellant did not include in the paper book all the list of dates relating to the question of limitation which should have been included in terms of the said order.

It appears that on September 24, 1973, this Court passed an order on the petition of the Appellant company granting leave to file the memorandum of appeal without certified copy of the order dated August 7, 1973, on condition inter alia that the Appellant should file the certified copy of the said order within the period of limitation and cause the said order to be drawn up and include the same in the paper book and also cause a list of dates relevant to the question of limitation to be prepared and include the same in the paper book.

It further appears from the last page of the paper book that the Appellant did not set out several dates relating to the question of limitation and some of the dates were kept blank. So the submission made by the Learned Counsel for Sharma are correct. The Appellant did not comply with the conditions contained in the order dated September 24, 1973. For the default in fulfilling the conditions imposed by the Court for filing the appeal, it seemed to me that the Appellant was disentitled to proceed with the appeal. This is a sufficient ground for dismissing the appeal filed by the Appellant and it seemed to me that we should dismiss the appeal on this ground alone. However, at this stage, Mr. Dipankar Ghose, Learned Counsel for Bhabesh Chandra Guha Roy, appearing with Mr. Jayanta Mitter, submitted that under Order 41, Rule 22 of the CPC if the original appeal was dismissed for default the cross-objection filed by Bhabesh Chandra Guha Roy might nevertheless be heard and determined. Mr. Dipankar Ghose contended that the cross objection had been filed by Guha Roy within time and should be heard. He further contended that the order of winding up of the said company should not have been passed in the instant case and the judgment and order of the learned Judge was not warranted by facts and law and should be set aside. We then decided to hear the arguments of Mr. Dipankar Ghose and Mr. Ghose made his submissions on the cross-objection filed by Bhabesh Chandra Guha Roy. I will shortly indicate here the points of his argument. He submitted as follows:

Serious questions of limitation arise in this appeal. The agreement dated July 10, 1963, between the company and Sharma records that the amount advanced by Sharma to the company on July 10, 1963, was Rs. 1,83,000. It also records that Sharma agreed to advanced by Sharma on February 14, 1964. No other amount was advance further amounts. Further amount of Rs. 8,000 was advanced by him to the company. The petition for winding up was filed on November 26, 1970. Therefore, the claim was prima facie barred as the period of limitation runs from the dates of the loan. It is true that the agreement provides that it shall remain in force for three years and thereafter, Sharma had the option for renewal for two years more. Five years'' period from the date of the agreement would be July 9, 1968. But the agreement does not say that the money is repayable after a certain date or on the termination of the agreement. On construction of the agreement the amounts advanced by Sharma was an existing liability of the company to repay the amounts so advanced. Therefore, time ran from the dates when the loans were made. Articles 19, 23 and 24 of the Limitation Act, 1963, would apply in the instant case. The manner of repayment or how the loan would be satisfied during the currency of the agreement has been set out in Clause 1(a). In Clause 1(d) it is stated that whenever the funds of the company permit Sharma shall be paid back his money as much as possible. Thus, on construction of agreement there was a present liability to repay the loan and time for such repayment ran from the dates when loans were made. He referred to Harakchand Tarachand v. Sumatilal Chunilal 33 Bom. L.R. 1200.

The agreement was initially for a period of three years. Thus the agreement initially terminated on July 9, 1966. Under the agreement there is an option for renewal for two years. The option was not exercised by Sharma. In para. 7 of the petition Sharma states that he duly exercised the option. But in this paragraph he also states that the agreement expires on ''June 1968''. This cannot be a correct statement, because three years'' period from the date of the agreement expired on July 9, 1966 and not on June 1968. Therefore, the date of exercise of the option is not consistent with the date of expiry of the agreement. He did not ^ say when he exercised his option. There is nothing to indicate that Sharma did exercise his option to extend the period. He did not write any letter to that effect. There is no resolution of the company for extension of the agreement. These are matters within his special knowledge, but he has not given any particulars.

With regard to the question of acknowledgment of liability, such acknowledgment of the liability must be by the company or by its agent duly authorised in this behalf and further, such acknowledgment must be made before the expiry of the period of limitation. But in the instant case, there is a gap in the link in the chain as the letter dated April 23, 1968, by which acknowledgment was sought to be made by the Secretary was not an acknowledgment by the duly authorised agent of the company. The Secretary of the company has no authority to bind the company. The letter of the Secretary dated April 23, 1968, cannot extend the period of limitation. He referred to Uma Shankar v. Gobind Narain and Anr. AIR 1924 All. 855 and Lakshmirattan Cotton Mills Co.Ltd. and Behari Lal Ram Charan Vs. The Aluminium Corporation of India Ltd., . The resolution of the Board of Directors dated May 4, 1968, also cannot save the period of limitation as the said resolution was passed beyond the period of three years from the letter of the Managing Director dated May 1, 1965. There is bona fide dispute on the questions of fact and law. He referred to Ofu Lynx Ltd. Vs. Simon Carves India Ltd., and Madhusudan Gordhandas and Co. Vs. Madhu Wollen Industries Pvt. Ltd., This dispute cannot be decided by argument from the Bar. There is no material on the basis of which the Court can decide this question one way or the other. If the Court finds a bona fide dispute the Court may relegate the parties to a suit.

There is also dispute as to quantum of the debt as also the liability of the company to pay as the claim is barred by limitation. As to quantum of debt the company is not liable to pay interest and commission which are included in the claim. So, there is dispute as to substantial portion of the debt.

The next branch of argument of Mr. Ghose is as follows:

In the instant case, the Board of Directors have borrowed in excess of the paid up capital of the company without consent of the company in a general meeting. Therefore, there is violation of Section 293, Sub-section (1)(d) of the Companies Act, 1956. Borrowing by the Directors was unauthorised and illegal and was not binding upon the company as the balance-sheets of the company show that the limits imposed by Section 293(1)(d) was exceeded and there was no sanction of the company in a general meeting. Further, there is no averment u/s 293(5) by Sharma.

On behalf of Sharma, Mr. Prabir Sen with Mr. Ashutosh Law submitted as follows:

Section 293 of the Companies Act, 1956, only applies in case where all the borrowings made after the commencement of the Act exceed the permissible limit. The person who is alleging that the loan is hit by Section 293(1)(d) has to bring his case under that sub-section A Director of the company or the company can take such a defence. But, it is not open to an outsider, namely, Bhabesh Chandra Guha Roy, who had no means of dealing with the company at the relevant time to take this point. The company has not taken the plea that the loan is invalid u/s 293(1)(d). In any event, the petitioning creditor Sharma is entitled to take the benefit of Section 293(5) that the loans were advanced by him in good faith and without knowledge that the limit imposed under Clause (d) of Section 293(1) had been exceeded. That the petitioning creditor Sharma did not know that there was any contravention of Section 293 would appear from letter dated April 10, 1963 and June 12, 1963. In any event, on the basis of the admitted correspondence and documents which passed between the parties there are enough materials to come to the conclusion that the act of the Board of Directors in contracting the loans was ratified by the company. He relied on the decision of Lakshmi Ratan Cotton Mills Co. Ltd. Vs. J.K. Jute Mills Co. Ltd., .

Mr. Sen very strongly relied on the judgment of the Court of appeal in the stay petition dated February 5 and 6, 1973 and contended that the decision of B.C. Mitra J. would operate as res judicata or principles analogous thereto. The effect of the decision of the appeal Court in the stay petition is that the points now raised by Mr. Ghose for Bhabesh Chandra Guha Roy have been decided against him and so the same cannot be raised again on the principles of res judicata or principles analogous thereto. The judgment of the appeal Court is binding on Bhabesh Chandra Guha Roy and in any event, this Court will also follow the judgment as a judicial precedent. He relied on Sahu Madho Das and Others Vs. Mukand Ram and Another, , Satyadhyan Ghosal and Others Vs. Sm. Deorajin Debi and Another, , Sheoparsan Singh and Ors. v. Ramnandan Singh L.R. 43 IndAp 91 and Arjun Singh Vs. Mohindra Kumar and Others, .

Mr. Sen further contended : If this Court of appeal does not agree with the decision of the appeal Court in the stay petition, then this Court should refer the matter to the Full Bench under chap. 31A of the Original Side Rules.

Mr. Sen very strongly relied on the observations made by the appeal Court in the judgment delivered by B.C. Mitra J. and submitted that the findings in the judgment were binding on Bhabesh Chandra Guha Roy. All the points now urged on his behalf have been decided against him by the appeal Court and the same cannot be urged again. In any event, this Court will also follow the same as judicial precedent. The company must be wound up as all points now urged by the Learned Counsel on behalf of Guha Roy have been decided against him in the judgment of the Court of appeal in the stay matter.

He has submitted that there is no question of limitation as the period will start from the expiry of the period of five years from the date of the agreement. The loan was duly acknowledged. In any event, it is a case of deposit and the period of limitation is three years from the date of demand. So there is no question of limitation. He relied on Samjvi Errapa v. Rama Errapa ILR Mad. 290, Ram Janki Devi and Another Vs. Juggilal Kamlapat, and Bhattacharjee (Agency) and Co. Pvt. Ltd. Vs. Tarak Nath Banerjee, .

Mr. Sen then took the point that since the Appellant company has not fulfilled the conditions imposed by the appeal Court, not only the appeal should be dismissed but the cross-objection should also be dismissed. The cross-objection does not lie. If there is no proper appeal before the Court the cross-objection cannot be heard. He relied on Kashiram Senu Chaudhuri v. Rangilal Motilashet Matwadi AIR 1941 Bom. 242, Mohamed Oomar, Mohamed Noorullah v. S.M. Noorudin AIR Bom. 165, Commissioner of Income Tax and Others Vs. Santosh Debi Chamaria, , Malhati Tea Syndicate Limited Vs. Revenue Officer, Jalpaiguri and Others, and an unreported decision of S.C. Lahiri C.J. and Bachawat J. dated April 5, 1960, in the case of Ramgopal Lachminarayan v. Bansidhar Ghanshyamdas.

In reply for Bhabesh Chandra Guha Roy, Mr. Jayanta Mitter submitted as follows:

The judgment of the appeal Court in the stay matter is not res judicata. He relied on the observation of G.K. Mitter J. in the judgment of the Court of appeal in the case of John Herbert and Co. Pvt. Ltd. Vs. Pranay Kumar Dutta, and contended that the observations of B.C. Mitra J. in the stay matter are tentative findings. The scope of enquiry in stay application is different from the scope of enquiry in winding up petition. With regard to the question of res judicata in different stages of the same proceedings, he submitted that the nature and scope of the proceedings and the specific matters relating thereto are factors to be taken into consideration.

He further contended that the cases cited by Mr. Sen with regard to ratification are the cases under Reg. 73 of the of Companies Act, 1913. The language of Reg. 73 and Section 293(1)(d) is different. There is no pleading and no proof of the factum of ratification and therefore, this question should not be allowed to be raised. There is also no pleading in the matter of knowledge and good faith by Sharma to enable him to come within the exception in Sub-section (5) of Section 293. The winding up petition is not a legitimate means of seeking to enforce payment of debt which is bona fide disputed by the company. He referred to Amalgamated Commercial Traders Pvt. Ltd. v. A.C.K. Krishnaswami and Anr. 35 Com. Cas 456.

As to question of limitation and as to question of construction of the agreement, Mr. Mitter submitted that these matters could not be decided without taking evidence. The loans were either payable forthwith from the dates of advance or were payable after the expiry of a certain date. If payable forthwith then Article 19 of the Limitation Act, 1963, will apply. If payable on a specified date then Article 55 of the Limitation Act will apply. There is no specified date mentioned in the agreement. This question is not free from doubt and bona fide dispute arises.

With regard to question of acknowledgment, the acknowledgment by the Secretary dated April 23, 1968, is not valid acknowledgment and therefore, the claim of Sharma is barred by limitation.

With regard to the breach of condition by the appellate company, the breach was committed subsequently. The condition imposed by the order of the Court of appeal is a condition subsequent. The facts in Commissioner of income tax v. Santosh Debi Chamaria Supra are distinguishable.

The CPC will apply in cases where a company files an appeal and the cross-objection has been duly filed and should be heard and determined under the facts and circum stances of the instant appeal.

1 have noted the substance of the arguments of the Learned Counsel for the parties. I shall now set out my reasons and conclusions.

In a creditor''s petition for winding up on the ground that the company is unable to pay its debts, a winding up order will not be made on a debt which is bona fide disputed. But the Court must see that the dispute is on substantial grounds. This principle of law is well-settled. See Halsbury''s Laws of England (3rd ed., vol. 6, Article 1038, p. 538) and the decision of the Supreme Court in the case of Madhusudan Gordhandas and Company v. Madhu Woolen Industries Pvt. Ltd. Supra (2604). In Amalgamated Commercial Traders Pvt. Ltd. v. A.C.K. Krishnaswami Supra (463) the Supreme Court stated the principles of law on this point thus:

It is well-settled that a winding up petition is not a legitimate means of seeking to enforce payment of the 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 debt were directed to stand over till the debt was established by action. 11, however, there was no reason to believe that the debt, ii 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. (Vide Buckley on the Companies Acts, 13th ed., p. 451).

In that case the Supreme Court further said Supra (464):

If the debt was bona fide disputed, as we hold it was, there cannot be ''neglect to pay'' within Section 434(1)(a) of the Companies Act. If there is no neglect, the deeming provision does not come into play and the ground of winding up, namely, that the company is unable to pay its debts is not substantiated.

Thus if a debt is bona fide disputed and defence is substantial, the Court will not wind up the company. In such case there must be some reasonable grounds for disputing the debt. The ground must be substantial and bona fide and not frivolous or unsubstantial.

I will turn now to the questions of dispute regarding the debt raised before us on behalf of Guha Roy and also other questions raised on behalf of Sharma.

The first question raised on behalf of Guha Roy is the question of limitation. Was the debt of Sharma barred by limitation on the date of presentation of petition? With regard to this question the first point is what is the starting point of limitation. Admittedly, Sharma was a financier of the company for sometimes past before the agreement dated July 10, 1963, was entered into. It was recorded in the agreement that the total amount of loans advanced by him from time to time was Rs. 1,83,000. It appears from the letter dated June 12, 1963, of the Managing Director of the company to Sharma (which is included in the Supplementary Paper Book in the stay matter) that from April 12, 1963, upto June 10, 1963, total amount advanced by him was Rs. 1,77,000. There is nothing to indicate that he advanced further sums between June 12, 1963 and July 10, 1963, when the agreement was entered into. But it was expressly recorded in the agreement dated July 10, 1963, that the amount advanced by him was Rs. 1,83,000, so it cannot be disputed that on July 10, 1963, Sharma advanced the said sum to the company. After the said agreement he further advanced a sum of Rs. 8,000 on February 14, 1964. He did not make any other advance. The advances made by Sharma, as aforesaid, are stated as ''loans'' in the said agreement. In case of loans taken by the company the period of limitation for repayment is three years from the dates of the j respective loans. The agreement provides how and in what manner the loans taken from the financier Sharma would be repaid by the company. Clause 1(a) of the agreement says so. The language in the clause is:

All sums borrowed and to be borrowed from the Financier by the company shall be satisfied by payment to the Financier a commission....

The aforesaid words used in this clause that the sums borrowed would be satisfied by payment of commission are significant. These words indicate how the loans would be satisfied. This is by payment of commission at certain rate mentioned in the agreement. It is true that the word ''commission'' is used in this clause, but payment of commission under this clause is for satisfaction of the loan. The agreement does not say that the financier Sharma is entitled to commission separately or in addition to repayment of the amount advanced by him. All that he is entitled to under Clause 1(a) of the agreement is repayment of loan by payment of commission at the rate mentioned in the agreement. He will get this commission for repayment of loan for "the period of the currency of the deed", i.e., for the period of the agreement.

How long, at what rate and since which date Sharma will get this commission? Clause 1(a) of the agreement says that he will get the commission at 0-20 P. per kilogramme of the company s tea sold at auction at Gauhati and 0-20 P. per kilogramme of tea sold locally during the currency of the agreement. Under the said clause of the agreement whenever tea of the company is sold during the currency of the agreement Sharma will get the commission at the rate specified in the agreement in repayment of the loan. There is another clause in the agreement, namely, Clause 1, sub Clause (d) which says that whenever funds of the company shall permit, the financier shall be paid back his money as much as possible. The words ''his money'' indicate the amount lent by Sharma. So, whenever the funds of the company permit the amount lent by him should be paid back as much as possible. This clause also indicates that during the currency of the agreement Sharma will be entitled to be paid back his money, which was lent by him, whenever funds of the company permit. Mr. Dipankar Ghose argued that on construction of the agreement the liability of the company was an existing liability to repay the loan and the period of limitation started from the date when the respective loans were advanced, namely, from July 10, 1963 and February 14, 1964.

It seems to me that the argument of Mr. Ghose is tenable. On this point, however, Mr. P. Sen argued that the point of limitation would start from the date when the agreement expired. The agreement does not-clearly say that the loan made by Sharma would be repayable on the expiry of the date of the agreement. In view, however, of Clause 1(a) and 1(f) of the agreement and the arguments advanced by the Learned Counsel for the respective parties it seems to me that bona fide dispute has been raised as to the starting point of limitation. Even if I assume that Mr. Sen is right in his contention that the period of limitation would start from the termination of the agreement, question would arise when did the agreement terminate. The agreement was expressly for a period of three years, but it contained a clause that Sharma shall have the option of renewal on the same terms for two years more. This is an option of Sharma and not an option of the company. So, Sharma can either renew the agreement or not. What Sharma did? In the petition he has stated that the said option ''was duly exercised'' by him. Here the question is, when did he exercise the option and if so, how? On this point, Mr. Sen in course of his argument, referred to a letter dated February 22, 1968, by Sharma to the company. In this letter Sharma wrote:

the period is going to be expired on June 1968. I think you should refund my principal money on or before March 1968 or a fresh agreement should be made before the expiry of the date of the agreement.

In this letter Sharma did not indicate that he exercised his option of renewal of agreement. When and how he exercised his option is within his special knowledge. All that he stated in para. 7 of the petition is:

the said option was duly exercised by your Petitioner and the agreement expired only in June 1968.

In the affidavit-in-opposition on behalf of Guha Roy it is stated : there is no resolution of the company or Board of Directors for extending the period of the said agreement. In any event the Petitioner did not send any letter extending the period of agreement for another two years. The company also denied that the option was exercised by Sharma. But in his affidavit-in-reply Sharma did not say when and how he exercised his option. In my view, disputed question of facts arise as to this matter, because, Sharma is silent in his petition or in his affidavit, when he exercised, his option and how he did it. ''June 1968'' mentioned by him in the petition is not the date when the agreement expired. Did he exercise his option before the date of expiry of the agreement? If so, there is no letter by him in ''June 1968'' or on any other date to show that he exercised his option. It seems to me that these questions cannot be answered on the petition, affidavits, letters and correspondence before us.

In this connection, Mr. Sen invited our attention to the letters of the Secretary of the company dated January 31, 1968 and the letter of the Managing Director of the company dated December 26, 1968. In the said letters it is stated that commission for the years 1966 to 1969 was outstanding. Mr. Sen contended that the letters of the company indicate that the period of the agreement was extended. I cannot accept this contention of Mr. Sen, because, the said letters are not letters of Sharma. The option was given to Sharma. Under the agreement, by his unilateral act he could extend the period of agreement for further two years. The said letters did not indicate that Sharma exercised his option of renewal. So the disputed question of fact when and how Sharma exercised his option of renewal cannot be answered from the letters included in the paper book.

Now, as to the question whether the company acknowledged its liability for the loan, such acknowledgment must be made in writing before the expiry of the period of limitation by the company or by any person duly authorised on behalf of the company. On question of acknowledgment the following dates may be noted.

The loan of Rs. 1,83,000 was recorded in the agreement dated July 10, 1963. The second loan by Sharma of Rs. 8,000 was given on February 14, 1964. The Managing Director, S.C. Roy wrote a letter to Sharma giving a statement of the loan on March 14, 1964. (This letter was included in the paper book in stay matter). On May 1, 1965, the Managing Director S.C. Roy also gave a statement of the loan account to Sharma (p. 44 of the paper book). On April 23, 1968, the Secretary of the company B.N. Roy made an acknowledgment that a sum of Rs. 98,900 was due to Sharma as on December 31, 1966, (p. 16 of the paper book). On May 4, 1968, at a meeting of the Board of Directors of the company a resolution was passed and the Board was of opinion that the dues of Sharma should be paid as early as possible (p. 18 of the paper book). On December 26, 1969, the Managing Director S.C. Roy wrote a letter to Sharma and a statement of account was annexed to this letter. Thereafter, this petition was made on November 26, 1970. Prima facie, the aforesaid dates show that acknowledgments of liability by the company were made within the prescribed period of limitation. But it is contended before us on behalf of Guha Roy that the acknowledgment by the Secretary of the company by his letter dated April 23, 1968, was not an acknowledgment by duly authorised agent of the company.

In para. 16 of the affidavit-in-opposition on behalf of Guha Roy it is stated--

the alleged Secretary had no authority to write the said letter or acknowledge the liability.... I say that the Secretary had no authority to acknowledge the liability or agree to pay as alleged therein.... The Directors never authorized the Secretary to acknowledge the liability.

It is contended before us on behalf of Guha Roy that as a Secretary only B.N. Roy had no authority to bind the company by acknowledging the loan. Reference was made to the decision of the Supreme Court in the case of Lakshmiratan Cotton Mills Company Ltd. v. The Aluminium Corporation of India Ltd. Supra (1490). In the Supreme Court case similar question arose. In the judgment the Supreme Court held:

As a Secretary only, he would have no authority to bind the corporation by entering into contracts or other commitments on its behalf.

The Supreme Court in that case approved the principle of law laid down by the Allahabad High Court in Uma Shankar v. Gobind Narain ILR 46 All. 892 : AIR 1924 All. 855 and said:

But such a description of the functions and duties performed by him would not be complete.

On the question of authority of an agent to bind the principal Mr. P. Sen referred to the judgment of Lord Denning M.R. in Hely Hutchinson v. Brayhead Ltd. and Anr. (1967) 3 W.L.R. 1408. This is an appeal from the judgment of a Single Judge, Roskill J. (1967) W.L.R. 1312. The headnote of the report runs thus:

R, the chairman of the Defendant company, B, acted as its de facto Managing Director. He was the chief executive who made the final decision on any matters concerning finance. He often committed B to contracts without the knowledge of the Board and reported the matter afterwards. The Board knew of and acquiesced in that. In July 1964, the Plaintiff, the Chairman and Managing Director of a public company P, gave a personal guarantee to bankers for a loan of � 50,000 to P. Towards the end of 1964 P was sustaining losses and needed financial assistance. B was prepared to hold, with the intention eventually to obtain control of P. In January 1965, B bought 750.00 p. ordinary shares from the Plaintiff for over �1,00,000 and proposed to inject �1.50,000 into P. About the same time the Plaintiff became a Director of B, but did not attend any Board meetings until May 19, 1965. After that meeting, in an office outside, in a discussion between R and the Plaintiff, the Plaintiff agreed to put more money into P if B would secure his position. To that end R, on behalf of B as Chairman, signed two letters on B''s paper dated May 19, 1965 and addressed to the Plaintiff. In one, B purported to indemnify the Plaintiff against loss on his personal guarantee of �50,000 and in the other, B purported to guarantee to repay money lent by the Plaintiff personally to P. In reliance on those letters the Plaintiff advanced � 45,000 to P.

On Plaintiff''s claims under the indemnity to recover the amount advanced under the guarantee, the action (suit) was heard on evidence and the learned trial Judge held (22):

I have come to the conclusion that there was ostensible or apparent authority in Mr. Richards; that the Board of Bray-head knew of and acquiesced in Mr. Richards acting as de facto Managing Director of Brayhead:....

I will note here certain observation of Lord Denning M.R. on appeal. Lord Denning M.R. said Supra (1416):

...actual authority may be express or implied. It is express when it is given by express words, such as when a Board of Directors pass a resolution which authorises two of their number to sign cheques. It is implied when it is inferred from the conduct of the parties and the circumstances of the case, such as when the Board of Directors appoint one of their number to be Managing Director....

Ostensible or apparent authority is the authority of an agent as it appears to others:

On the principle laid down in the English decision, it seems to me that similar questions arise in the instant case also : Whether B.N. Roy had the authority to acknowledge? Whether such authority was express or implied? Whether his authority was actual or ostensible? These are complicated and serious questions which can only be decided on evidence and not merely from affidavits and correspondence. The English case was decided on evidence.

Mr. Sen argues that in any event it is a case of deposit and not a loan and so the amount deposited is payable not within three years from the date of the loan, but the period of three years will run from the date when the demand was made. He referred to Article 21 of the Limitation Act. Now, the question is whether the amount advanced by Sharma to the company was a deposit or a loan. In the agreement dated July 10, 1963, it is stated that Sharma has advanced money to the company by way of loan from time to time. In the petition it is stated that Sharma advanced money by way of financial assistance to the company. It is not stated by him that the amount was deposited with the company. A case of deposit is something more than mere loan of money. It will depend upon the facts of each case. When the transaction is clothed with the character of deposit it must be so pleaded. There is no pleading in the petition that it is a case of deposit, on the other hand, pleading indicates that it is a case of loan. Mr. Sen referred to the decision of the Supreme Court in Ram Janki Devi and Anr. v. Mrs. Juggilal Kamlapat Supra. In that case, the entire controversy was whether it was a case where money was deposited under an agreement or it was payable on demand as ordinary loan. The Supreme Court held:

It will depend on the facts of each case whether the transaction is clothed with the character of a deposit of money, The surrounding circumstances, the relationship and character of the transaction and the manner in which parties treated the transaction will throw light on the true form of the transaction.

Mr. Sen also refers to Bhattacharjee (Agency) and Company Pvt. Ltd. v. Tarak Nath Banerjee Supra where it is held that in ascertaining whether a debt is a loan or a deposit the intention of the parties and all circumstances of the case have to be considered. These points if raised will certainly mean that disputed questions arise for consideration. In Bhattacharjee (Agency) and Company Pvt. Ltd. v. Tarak Nath Banerjee Supra this Court said:

The distinction between loan and deposit is to some extent difficult to ascertain.

Therefore, the argument of Mr. Sen on this point gives rise to series questions of fact and law.

The other aspect of the matter relates to the question raised before us, namely, whether Section 293 of the Companies Act, 1956, is attracted. The Board of Directors has no power to borrow after the commencement of the Act where the money to be borrowed together with money already borrowed by the company will exceed the aggregate of the paid up capital of the company and its free-reserves except with the consent of the company in a general meeting. This will appear from Section 293(1)(d) of the Companies Act, 1956. The lender, however, can get relief under Sub-section (5) of that section if the lender proves that he advanced the loan (a) in good faith and (b) without knowledge that the limit imposed by that clause has been exceeded. Otherwise, the debt incurred by the company in excess of the limit imposed by Clause (d) of Sub-section (1) of that section shall be invalid or ineffectual.

In the affidavit filed on behalf of Guha Roy it is stated : It further appears from the balance-sheet of the company for the year 1963 that the secured loan of the company was about Rs. 9,26,981-99 P. and it further appears that the unsecured loan of the company was Rs. 70,102-50 P. So the total amount of debt is Rs. 9,97,094-04 P. which exceeds the total subscribed capital of the company which amounts to Rs. 5 lakhs. In the premises, the Board of Directors of the company could not without sanction of the company at a General Meeting borrow any money from the Petitioner, so the alleged loan of the Respondent from the Petitioner is unauthorised, illegal and not binding on the company.

The case of Guha Roy is that the loan from Sharma is in contravention of the provisions of Section 293(1)(d) of the Companies Act. There is nothing to indicate before us that the consent of the company in a general meeting was taken before the advance in excess of the aggregate paid up capital of the company as alleged by Guha Roy.

Our attention was drawn to the balance-sheet and profit and loss account of the company for the year 1964, notice given by the company for the annual general meeting of the share-holders and the resolution which was proposed to be passed as special resolution and the explanatory notes (annexed to the supplementary, paper book in the stay matter). From the papers and documents before us it does not appear that any previous sanction of the company was obtained before the debt was incurred by the company from Sharma.

The submission of Mr. P. Sen is that Sharma comes within the exception of Sub-section (5) of that section, namely, that Sharma has advanced the loan in good faith and without knowledge that the limit imposed u/s 293(1)(d) has been exceeded. His further submission is that in any event the company has ratified the loan or advance. But there is no specific pleading by Sharma on these points. In any event, if these points are allowed to be raised complicated questions of fact and law will arise.

Mr. Sen relied very much on the decision of the Privy Council in the case of AIR 1938 159 (Privy Council) .

The Privy Council case is on Companies Act, 1913, Schedule I, Table A, Article 73 (Reg. 73). Regulation 73 reads:

The amount for the time being remaining undischarged or moneys borrowed or raised by the Directors for the purposes of the company (otherwise than by the issue of share capital) shall not at any time exceed the issued share capital of the company without the sanction of the company in general meeting.

The language of Regulation 73 and Section 293(1)(d) is different. These are all questions which cannot be decided in this appeal. I will only say that substantial questions of fact and law have been sought to be raised on behalf of Sharma before us as to the question whether loan by Sharma to the company was ratified by the company.

On the question of ratification Mr. Sen invited our attention to certain letters of the company before the agreement was entered into. The letter dated April 10, 1963, (which is included in the supplementary paper book in the stay matter) was written by Suhendu Roy to the Board of Directors where it is stated that the company received offer from a financier who is agreeable to finance the company according to its requirements from time to time. On June 12, 1963, the company wrote a letter to Sharma confirming that a sum of Rs. 1,77,000 was received by it as per details stalled in that letter.

Mr. Sen also referred to the balance-sheets. It does not appear from the balance-sheets, notices of annual general meeting or the special resolutions passed by the company (annexed with supplementary paper book in stay matter) that the company ratified the loans advanced by Sharma. Mr. Sen contended that there was implied ratification. There is no such pleading'' of implied ratification. In any event, if these questions are raised then there is no doubt in my mind that complicated and disputed questions of fact and law would arise for decision. Again, if Sharma says that he comes within exception of Sub-section (5) of Section 293 of the Act he has to plead good faith and also his lack of knowledge in respect of the limit imposed under that section. He must say so. But as there is no such pleading, question of proof of these matters does not strictly arise in the petition of Sharma, Mr. Sen argued that the undisputed documents are enough to bring the case of Sharma within the exception of Section 293(5) of the Act. I do not accept the submission of Mr. Sen on this point. Question of ratification or good faith and whether Sharma had the knowledge or not are important questions of facts which cannot be decided except by taking evidence and on further materials. The points taken by the counsel for Sharma in a this respect give rise to disputed questions of fact and law regarding the debt of Sharma.

Mr. P. Sen relied very strongly on the decision of the Allahabad High Court in Lakshmi Ratan Cotton Mills Company Ltd., Kanpur v. J.K. Jute Mills Company Ltd., Kanpur Supra. In the Allahabad case, a suit was instituted for recovery of money by the Plaintiff-Respondent against the Defendant-Appellant. The decree was passed by the trial Court on September 17, 1955. Therefore, both the suit and the decree were before coming into force of the Companies Act, 1956. In the suit, the Plaintiff''s case was that it lent Rs. 1,50,000 to the Defendant company. The defence was that no loan could be taken as no resolution sanctioning the loan was passed. Burden of proving that no resolution was passed by the Board of Directors lay on the Defendant. But the minute books were not produced. One Gulab Chand Jain acted on behalf of the Defendant company, but he did not come in the witness-box to say that no such resolution was passed by the company. It was admitted that Gulab Chand Jain was a Director of the company. On appeal from the judgment the Allahabad High Court held:

There is also no doubt that the Plaintiff creditor was throughout proceeding in a bona fide manner.... (Page 313).

Then at para. 22 the High Court held:

Moreover, it is not alleged by the Defendant that Sri Gulab Chand Jain, the Director, had acted in fraud of the company. (Page 315).

On the facts of the above case the learned Judges were of opinion:

...the admitted facts are enough to sustain the Plaintiff''s case based on this plea. (Pages 315 16).

Then at para. 30 there are certain observations of the learned Judges:

In the present case, therefore, even supposing for a moment that the action of the Director was unauthorised the Defendant company would be liable because it is admitted by the Defendant company that it did come into possession of the money advanced by the Plaintiff and the said money had gone into its coffers. (Page 316).

The said observation at para. 30 is obiter dictum. In headnote (b) of the judgment set out it is stated so. In my view, the Allahabad judgment must be read on the facts of that case. In any event, the question at issue was tried on evidence in a suit and was determined in a first appeal from the decree of the trial Judge. This distinguishes the Allahabad case from the instant appeal where we have before us only the petition and affidavits.

With regard to the quantum of debt, Mr. Ghose raised a dispute with regard to substantial portion of the debt. In answer Mr. P. Sen rightly submitted that dispute as to precise amount of debt was no defence to a winding up petition. But here the dispute raised on behalf of Guha Roy is not as to precise amount of the debt but substantial portion of it. He also raised dispute as to its validity u/s 293 of the Companies Act and further, that the loan is barred by the law of limitation.

With regard to the dispute as to the substantial portion of the debt, it is clear that the claim made by Sharma in the petition that the company is indebted to him in the sum of Rs. 2,92,914 cannot be correct. It is true that in the letter dated December 26, 1969, by the Managing Director B. Roy Chowdhury to Sharma a statement of account has been annexed and in that statement of account the total amount shown to be due to Sharma was Rs. 2,92,914. But it appears to me that in the statement of account which is annexed to that letter, large amounts have been shown to be due to Sharma as interest on the principal of Rs. 98,900 at 12% per annum for the years 1968 and 1969 and also on account of commission from 1963 to 1967 and also on account of interest on commission. It is difficult to follow how the Managing Director could give such a statement of account including in the account very large amounts for interest and commission and interest on commission when the said agreement does not say that Sharma will get inertest on loan or that he will get commission in addition to the loan or interest on commission. I will note in this connection that in the affidavit filed on behalf of Guha Roy it has been specifically stated:

It is very significant that B. Roy Chowdhury in this letter admitted liability for interest or commission amounting to Rs. 20,017-32 P. and Rs. 16,524 and also interest amounting to Rs. 24,758-57 P. on the alleged loan of Rs. 98,900 at 12% per annum for 1968-69. There is no provision in the agreement for interest on the sum advanced or any interest on commission.

It is also stated by him that the company is not bound to pay in terms of the letter of the alleged Managing Director and the letter is a fraudulent letter. These are again serious allegations.

In Ofu Lyns Ltd. v. Simon Carves India Ltd. Supra (424) the main question which fell for determination before A.N. Sen J. was whether there was bona fide dispute to the debt on the basis of which the winding up petition was presented. The learned Judge said:

There can also be no doubt there is a bona fide dispute with regard to a major part of the debt amounting to over Rs. 5 lakhs claimed for extra works done out of the debt of over Rs. 8 lakhs on the basis of which the Respondent has presented the winding up application. In fact, Mr. Ghosh did not and would not seriously contend on behalf of the Respondent that there was no bona fide dispute with regard to the claim of over Rs. 5 lakhs for extra works said to have been done by the Respondent and Mr. Ghosh confined his arguments to the claim of over Rs. 3 lakhs in respect of which, according to Mr. Ghosh, there is no bona fide dispute. It is, therefore, clear that there is, in any event, a bona fide dispute with regard to a very substantial part of the debt claimed.

In the instant case also, Mr. Sen did not dispute that Sharma was not entitled to interest on the loan or interest on commission although he included the same in the amount claimed by him in the petition for winding up. I will note here the view expressed by A.N. Ray J. (as he then was) in In Re: Bengal Flying Club Limited, . In the headnote of the report it is stated:

The Company Court will forbear from deciding a dispute which can be more conveniently investigated in a regular action. That should be so, even if the dispute is not in respect of the whole debt, if the grounds on which the liability was disputed are bona fide and substantial.

I agree with the view of the learned Judge. I have no doubt in my mind that substantial amount of the claim alleged by Sharma is very rightly disputed by Guha Roy as the same did not come within the scope of the agreement.

I have considered in which sense the debt of Sharma is disputed. In my view, the disputes raised by Guha Roy are bona fide and substantial.

In view of the above matter it is difficult for me to accept the opinion and conclusion of the Court of first instance that the company should be wound up on the petition of Sharma.

I will now deal with the argument of Mr. P. Sen on behalf of Sharma on the point of res judicata. He contended all the points or issues now raised on behalf of Guha Roy for disputing the debt of Sharma were raised on his behalf before the Court of appeal in the stay matter and were decided against him by the judgment of the Court of appeal. So, according to him, these points or issues could not be raised again as the same are barred by res judicata or principles analogous thereto. The question before us is how far the principles of res judicata will apply in this case.

AS to the meaning of res judicata I will quote here a passage from Halsbury''s Laws of England, (3rd. ed., vol. 15, Article 357, p. 184):

357 : Meaning of res judicata. Where res judicata is pleaded by way of estoppel to an entire cause of action, it amounts to an allegation that the whole legal rights and obligations of the parties are concluded by the earlier judgment, which may have involved the determination of questions of law as well as findings of fact.

In the instant case, there is no pleading of res judicata by Sharma; but this point has been argued by the Learned Counsel on behalf of Sharma as a point of law. His argument is that by reason of the judgment given at the prior stage of the same proceeding there is an estoppel by judgment. According to him, Guha Roy is estopped to urge the same points again which were decided against him by the judgment of the Court of appeal in the stay matter.

To understand the contention of the Learned Counsel on behalf of Sharma it is necessary to consider the scope and effect of the judgment of the Court of appeal in the stay matter.

In Arjun Singh v. Mohindra Kumar Supra (1000) the Supreme. Court held:

But where the principle of res judicata is invoked in the case of the different stages of proceedings in the same suit, the nature of the proceedings, the scope of the enquiry which the adjective law provides for the decision being reached, as well as the specific provisions made on matters touching such decision are some of the material and relevant factors to be considered before the principle is held applicable.

In the instant case, Guha Roy took out a Judge''s summons for stay of winding up petition presented by Sharma. The petition of Guha Roy was made before advertisements of the winding up petition were published. There is no section in the Companies Act for stay of winding up petition before advertisement. But if a petition for winding up is an abuse of the process of the Court, then the Court may in its inherent power stay the proceedings or dismiss it. In re Gold Hill Mines 23 Ch.D. 210 it was held:

Where a petition to wind up is improperly filed the Court has jurisdiction on motion to stay all proceedings under it, or to dismiss it; that the present petition was an abuse of the process of the Court being brought to compel payment of a small debt which was bona fide disputed and being unsupported by any evidence that the company was insolvent; that the petition therefore must be dismissed with costs.

In Re: Bharat Vegetable Products Ltd., Bachawat J. (as he then was) observed:

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 instant case, the application for stay of winding up was made by Guha Roy at the initial stage. The matter in issue before the Court in that application was whether the winding up petition was improperly filed by Sharma or, in other words, whether the petition for winding up the company by Sharma was an abuse of the process of the Court and as such, should be stayed in the exercise of the inherent power of the Court. To decide that question, the Court considered whether the debt of Sharma was bona fide disputed or not. The findings made by the Court of appeal at that stage were only with a view to answer the question whether stay ought to be granted or ought not to be granted. The findings were prima facie findings. The Court of appeal came to the conclusion that stay should not be granted. The petition of winding up came up for hearing at a later stage after advertisements were issued. I will quote here the observation of the Supreme Court in National Conduits (P) Ltd. Vs. S.S. Arora, . The Supreme Court held:

A petition for winding up cannot be placed for hearing before the Court, unless the petition is advertised; that is clear from the terms of Rule 24(2). But that is not to say that as soon as the petition is admitted, it must be advertised. In answer to a notice to show cause why a petition for winding up be not admitted, the company may show cause and contend that the filing of the petition amounts to an abuse of the process of the Court. If the petition is admitted, it is still open to the company to move the Court that in the interest of justice or to prevent abuse of the process of Court, the petition be not advertised.

Now, what is the scope and effect of the decision in the stay application? The answer has been given by the Bench decision of this Court in John Herbert and Company Pvt. Ltd. v. Pranay Kumar Dutta Supra (519). G.K. Mitter J. delivering the judgment of the Division Bench observed:

It is quite clear, therefore, that the Court will entertain an application for stay of winding up at the initial stage only with a view to find out whether the petition for winding up amounts to an abuse of the process of the Court and as such, ought to be restrained. In rejecting such an application the Court merely decides that there is a prima facie case for enquiry. It cannot then and does not in fact adjudicate upon the rights of the parties. Whether the company will be wound up or not can only be decided after the petition is advertised and persons who are against the winding up come forward and affirm affidavits in support of their contentions.

The learned Judge further said in the last part of the judgment:

Any observation then made will not however bind the learned Company Judge ultimately hearing the application.

I respectively agree with the view of the learned Judges in John Herbert and Company''s case Supra. I will note here that in John Herbert and Company''s case the learned Judges also took the view that the decision in the stay application was not a judgment under Clause 15 of the Letters Patent and as such, was not appealable. But the later view of the Calcutta High Court in Jagannath Gupta and Co. Private Ltd. Vs. Mulchand Gupta, , following the decision of the Supreme Court in Shankarlal Aggarwal and Others Vs. Shankarlal Poddar and Others, , is that appeal lies as the petition for stay is made in the matter of winding up of a company. But the said observations of the learned Judges in John Herbert and Company''s case Supra as to the scope and effect of the decision in the stay matter are not dissented from.

The doctrine of res judicata will apply when the issue directly and substantially involved was directly and substantially in issue in a former litigation in a Court competent to try the same and such issue was heard and finally decided by such Court. The principle of res judicata has been applied for the purpose of finality of litigation. It also applies as between two stages in the same litigation. But in such a case question would arise whether the former decision was final in the strict sense of the term. This principle was laid down by the Supreme Court in Satyadhyan Ghosal v. Sm. Deorajin Debi Supra. Applying the said principle on the points raised before us question would arise whether the points in issue in the appeal was finally decided by the judgment of the Court of appeal in the application for stay of winding up made by Guha Roy. Would the decision, finding or observation of B.C. Mitra J. in that appeal, be treated as final and conclusive between the parties? If so, to what extent? In my view, the decision of the appeal Court in the stay matter is final so far as it decided that there would not be stay of the winding up petition by Sharma. It is not final in the strict sense of the term as to the question whether the debt is disputed debt or not.

The matter can be looked at from another point of view. Section 433 of the Companies Act, 1956, says that a company may be wound up by Court if a company is unable to pay its debts. The Court hears the winding up petition only after issue of advertisements. Before the advertisements, winding up petition cannot be placed for hearing before the Court. It is clear from Rule 24(2) of the Companies'' Court Rules. Powers of the Court on hearing of the petition for winding up are set out in Section 433 of the Companies Act, 1956. This section says:

On hearing a winding up petition the Court may

(a) dismiss it, with or without costs; or

(b) adjourn the hearing conditionally or unconditionally; or

(c) make any interim order that it thinks fit; or

(d) make an order for winding up the company with or without costs or any other order that it thinks fit.

Thus, the Court which hears the winding up petition has been given specific powers enumerated in Section 433 and the Court will exercise such powers as the Court thinks fit on hearing the winding up petition. The word ''may'' in Section 433 and also in Section 443 shows that the Court has been given discretion to decide whether the company will be compulsorily wound up and what powers the Court will exercise. In deciding what powers the Court will exercise in such cases the Court goes into the question whether the debt is bona fide disputed or not. Can the Petitioner for winding up of the company say at the hearing of the winding up petition that the Court cannot go into the question whether the debt is bona fide disputed or not; because, prior to advertisements, this question was raised in a petition for stay of winding up and the same was finally decided. I think not. But this is exactly the effect of the argument of Mr. P. Sen on behalf of Sharma. If I accept the argument of Mr. Sen I have to hold that by reason of the decision of the Court of appeal in the stay matter prior to advertisements, the question whether the debt was bona fide disputed was finally decided and so, the company has to be wound up. I cannot accept this argument of Mr. P. Sen.

In my view, the observation, finding and decision of the appeal Court are not final or conclusive between the parties in the strict sense of the term and the same can be raised again and considered by this Court in order to give its decision as to the question involved in this appeal, namely, whether the company should be wound up or not.

In reference to the argument of Mr. P. Sen it seems to me, from another point of view, that the principles of res judicata is not applicable in this case. The decision of the Court of appeal in the stay matter in the instant case could operate as res judicata if that Court was competent to try the issue which now arises for consideration by this Court. I will quote here the observation of the Privy Council in Gokul Mandar and Anr. v. Pudmanund Singh and Ors. L.R. 29 IndAp 196 (202):

...a decree in a previous suit cannot be pleaded as res judicata in a subsequent suit unless the Judge by whom it was made had jurisdiction to try and decide, not only the particular matter in issue, but also the subsequent suit itself in which the issue is subsequently raised.

There is no doubt that the learned Judges of the appeal Court hearing the stay matter were not competent to decide the issue which is now arising before us at that stage, because winding up petition can only be heard after the advertisements are published. Therefore, the principles of res judicata cannot apply in this case as urged by the counsel for Sharma.

The next submission of Mr. P. Sen is that we should follow the judgment of the Court of appeal in the stay matter and the observations made therein as a judicial precedent and if we differ from the view expressed by the Court of appeal in stay matter we should refer the same to the Full Bench. I do not agree to this submission. A judgment must be read in the light of the facts of the case in which it is delivered.

I will quote here the speed of Lord Halsbury in Quinn v. Leathan (1901) A.C. 495 (506) where the learned Judge said:

A case is only an authority for what it actually decides. I entirely deny that it can be quoted for a proposition that may seem to follow logically from it.

The ratio decidendi is alone binding as a precedent.

In Halsbury''s Laws of England (3rd. ed., vol. 22, Article 1682, p. 796) the law has been stated thus:

This underlying principle is often termed the ratio decidendi, that is to say, the general reasons given for the decision or the general grounds on which it is based, detached or abstracted from the specific peculiarities of the particular case which give rise to the decision. The concrete decision alone is binding between the parties to it, but it is the abstract ratio decidendi, ascertained on a consideration of the judgment in relation to the subject-matter of the decision, which alone has the force of law and which, when it is clear what it was, is binding; but; if it is not clear, it is not part of a Tribunal''s duty to spell out with difficulty a ratio decidendi in order to be bound by it and it is always dangerous to take one or two observations out of a long judgment and treat them as if they gave the ratio decidendi of the case. If more reasons than one are given by a Tribunal for its judgment, all are taken as forming the ratio decidendi.

The distinction between ratio decidendi and obiter dictum is an old one. I will quote here a passage from Halsbury''s Laws of England (3rd ed., Article 1683, vol. 22, p. 797) as to the meaning of dicta.. Statements which are not necessary to the decision, which go beyond the occasion and lay down a rule that is unnecessary for the purpose in hand (usually termed dicta), have no binding authority on another Court, though they may have some merely persuasive efficacy.

In my view, the Court of appeal while deciding the stay application of Guha Roy did not decide the question that there was no bona fide dispute as to the debt of Sharma as an abstract proposition of law, but only decided that question so far as it was necessary for the purpose of deciding whether stay would be granted or not. I cannot read the judgment of the Court of appeal in the stay matter as a conclusive pronouncement on the points of law or fact as to the question whether the debt was bona fide disputed or not. I do not think that the decision or observation made by the learned Judges in the stay matter as to the question whether the debt of Sharma is bona fide disputed, is binding upon us while deciding this appeal. Therefore, there is no question of referring this matter to the Full Bench as urged by Mr. P. Sen.

Mr. P. Sen relied on the decision of the Supreme Court in Sahu Madho Das v. Mukand Ram Supra. The relevant headnote runs thus:

Where the Privy Council had construed a certain document, namely a Will, though the decision is not binding on a person not a party to that litigation, yet the decision operated as a judicial precedent.

In that case, the Will of the testator was construed by the Privy Council and the said Will came up for construction in a different case before the Supreme Court. The Supreme Court reached the same conclusion as that of the Privy Council and observed that the previous decision on question of construction of a Will operated as judicial precedent. I do not think that the principle laid down in the Supreme Court case referred to by Mr. Sen will apply under the facts and circumstances of the present appeal. Here we have to consider whether the company should be wound up and in coming to a decision on that point we have to decide the question whether the debt is bona fide disputed or not. We have to construe the agreement for the purpose of deciding this question which is now involved in this appeal and this question before us was not before the Court of appeal in the stay matter.

I shall now deal with the last point raised by Mr. P. Sen. His submission is that as the Appellant company did not comply with the order dated September 24, 1973, appeal is not properly before this Court and the cross-objection cannot be heard. I will note here that this point was not urged By Mr. Sen at the first instance when Mr. Ghose on behalf of the cross objector began his argument. But he took this point after Mr. Ghose made his arguments for several days and concluded the same. However, since this point has been raised and several decisions have been placed, I shall consider the same.

On the argument of Mr. Sen, the question is whether we can hear and determine the cross-objection of Guha Roy at all. Under Order 41. Rule 22, Sub-rule (4) where the original appeal is withdrawn or dismissed for default, the objection so filed may nevertheless be heard and determined.

In the instant case, memorandum of appeal by the company was filed in time. The cross-objection of the Respondent Guha Roy was also filed in time. The appeal was argued for several days on behalf of the Appellant. Then the Learned Counsel on behalf of Sharma took the point that the Appellant did not comply with the order dated September 23, 1973, as the Appellant did not set out certain dates in the list of dates in the paper book. We found that the Learned Counsel for Sharma was right in his contention. The Appellant partly complied with the order and caused a list of dates relevant to the question of limitation to be prepared without putting in certain dates. He also filed a copy of the order dated August 6, 1973, in the supplementary paper book. The Appellant failed to set fully in terms of the conditions imposed by the order dated September 24, 1973. There was no doubt, in my mind, that the Appellant defaulted to perform the obligation imposed upon it and the appeal should be dismissed on this ground. So, this is not a case of withdrawal of the appeal by the Appellant. Here the question is whether this would be a case of dismissal of the appeal for default of the Appellant.

As to the meaning of the word ''default'' it seems that this word is understood differently in different context. Several meanings can be attributed to this word. In Stroud''s Judicial Dictionary (3rd ed., vol. I, p. 757) it is stated:

''Default'' is a French word and default is legally taken for nonappearance of Court.

''Default'' would seem to embrace every failure by the Defendant to perform his contract unless prevented by superior force over which he had no control, such as stress of weather.

''Default'' is a purely relative term, just like negligence. It means nothing more, nothing less, than not doing what is reasonable under the circumstances; not doing something which you ought to do, having regard to the relations which you occupy towards the other persons interested in the transaction.

The meaning of the word ''default'', according to Oxford Dictionary, is "failure to perform some legal requirement or obligation". In my view, the Appellant did not perform the obligation imposed upon it by the order of this Court. Leave was given to the Appellant to file the appeal on certain conditions. The conditions imposed upon the Appellant are conditions which could be fulfilled subsequent to the filing of the memorandum of appeal. These are conditions subsequent. All the conditions were not fulfilled by the Appellant. The Appellant could fulfil such conditions but did not. Therefore, this is nothing but a case of default on the part of the Appellant and that is why cross-objection may be heard. Therefore, in my opinion, cross-objection was properly heard by us.

Mr. Sen invited our attention to a decision of the Bombay High Court in Kashiram Senu Chaudhuri v. Rangilal Motilalshet Matwadi AIR 1941 Bom. 242 (244). What happened in that appeal was that when the appeal came up for hearing, preliminary objection was taken that the memorandum of appeal was insufficiently stamped. The appeal Court upheld the objection and gave time to the Appellant to pay the deficit court-fees. This was not done by the Appellant. Question arose in that appeal with regard to cross-objection whether the cross-objection of the Respondent could be heard. Beaumont C.J. said:

Cross-objection under Order 41, Rule 22 is a method by which the Respondent may himself complain against the decree appealed from, but the right to lodge cross-objection is only given the Respondent on an appeal and if the appeal is rejected, there can be no Respondent and no cross-objections. Sub-rule (4) of Rule 22 provides that when an appeal is withdrawn or dismissed for default, cross-objection may be proceeded with but where an appeal is rejected, it cannot, in my opinion, be said to be withdrawn or dismissed for default.

The Bombay decision seems to me to be clearly distinguishable. In the Bombay case, the appeal could not be entertained without payment of court-fees and the appeal was rejected. Therefore, cross-objection could not be heard under Order 41, Rule 22, sub-rule (4) of the Code, as the appeal was not withdrawn or dismissed for default. But this is not the case in the present appeal. In the instant case, memorandum of appeal was duly stamped and filed. The appeal was heard for sometimes. The cross-objection was also duly filed. During the hearing of the appeal it was brought to our notice that the Appellant did not fulfil certain conditions imposed by the order of the appeal Court. As the Appellant defaulted in complying with the order of the appeal Court, the appeal could not be allowed to be proceeded with and has to be dismissed on this ground. But the cross-objection filed in the appeal can be heard under Order 41, Rule 22, sub-rule (4) of the Code as this is a case for dismissal of the appeal for default.

The next case relied upon by Mr. Sen on this point is Malhati Tea Syndicate Limited Vs. Revenue Officer, Jalpaiguri and Others, . In that case, appeal was filed by a company in its former name even after change of name. Delivering the judgment of the appeal Court, B.C. Mitra J. observed:

In that case, the memorandum of appeal had been filed by the company in its former name, namely Malhati Tea Syndicate Ltd., which was no longer on the Register of the Joint Stock Companies. We are, therefore, of the view that the appeal itself is incompetent, as it has been purported to be filed in the name which is no longer there on the Register of the Joint Stock Companies.

The learned Judge said in his judgment that the company could not commence the appeal in its former name at a time when such name has ceased to be on the Register of the Joint Stock Companies and a new name had been put on the Register. Question arose in that appeal whether cross-objection should be treated as competent and dealt with by the Court accordingly. The learned Judge observed (33):

We are unable to accept this contention either. This is not a case of dismissal of the appeal for default, nor a case of withdrawal of the appeal. The appeal itself being incompetent the cross objection arising out of the same must also fail.

It seems to me that the decision in Malhati''s case (33) is also clearly distinguishable. Because, in that case the appeal was incompetent for reasons stated in the judgment but the instant appeal is not incompetent.

Mr. Sen invited our attention to a recent decision of this Court in Commissioner of Income Tax and Others Vs. Santosh Debi Chamaria, . What happened in this case was that the Appellant did not comply with the undertakings given to the appeal Court at the time of obtaining leave to file memorandum of appeal.

One of the conditions was that the Appellant should file the certified copy of the order appealed against within the period of limitation and include the same in the paper book to be filed. The Appellant did not include the same in the paper book. The Appellant obtained order to file supplementary paper book within certain time, but no supplementary paper book was filed on or before the time allowed in this respect. Delivering the judgment of the appeal Court Sankar Prasad Mitra C.J. dismissed the appeal with costs. There was no cross-objection filed in that appeal and the question whether Order 41, Rule 22, sub-rule (4) of the Code of Will apply did not arise for consideration.

Mr. Sen submitted that in the judgment there is an observation by the learned Judge (34):

the paper book cannot in the circumstances be accepted by this Court and there is no competent appeal before this Court.

It is true that the learned Judge used the expression "there is no competent appeal before this Court", but the learned Judge said that "paper book cannot in the circumstances be accepted" and ''dismissed'' the appeal. As I read the judgment it seems to me that the learned Judge dismissed the appeal for default of the Appellant as the undertaking given by the Appellant for filing memorandum of appeal was disregarded. It appears from the judgment that the learned Judge followed an unreported decision of a Division Bench of this Court in Ramgopal Lachminarayan v. Bansidhar Ghanshyamdas Appeal No. 36 of 1969. Mr. Sen relied on this unreported decision and submitted that the learned Judge in the unreported decision ''rejected'' the appeal. The judgment in that case was delivered on April 5, 1960, by Lahiri CJ. In that appeal objection was taken that the appeal was barred by limitation and the list of dates printed in the paper book did not show when the draft order was returned by the Appellant''s Attorney and there was no explanation why a period of three months elapsed between the date on which office copy of the order was ready for delivery and the date on which it was actually filed. For these reasons, the learned Judge observed:

The Appellant has not carried out the condition upon which leave was granted to it to file the memorandum of appeal without a certified copy of the order because the Appellant has not supplied us with a list of all the dates relevant to the question of limitation and the list of dates which has been prepared by the Appellant also does not satisfy us on the question whether the certified copy was filed by it within the period of limitation.

Then the learned Judge said:

...only order we can pass now is that the memorandum of appeal should stand rejected.

It seems to me that the reason why appeal was rejected in the unreported case is that the learned Judges were not satisfied that the appeal was filed within the period of limitation for filing the appeal. But in the instant appeal before us, there is no question of limitation. It is not disputed that the instant appeal was filed within time.

In view of the above matter, the instant appeal before us is dismissed for default of the Appellant company for not complying with the order dated September 24, 1973 and not on merit. But the cross-objection of Guha Roy is allowed. The judgment and order of the Court of first instance is set aside. I am of opinion that winding up order of the company could not be passed on the petition of Sharma. The winding up petition is dismissed.

On the facts and in the circumstances, the Appellant company must pay two sets of costs; one to the Respondent Sharma and the other to the Respondent Guha Roy.

All interim orders passed by the Court below will stand vacated. Certified for two counsel. If any application is made by the company for withdrawal of the security money, that shall be made on 7 days'' notice to the Respondents.

Ghose, J.

I agree.