The Bengal Builders and Traders Private Limited vs Orissa Textile Mills Limited

R.N. Misra, J.—This application for winding up of M/s. Orissa Textile Mills Limited (hereafter referred to as the �Company�) u/s 433 of the Companies Act (hereafter referred to as the �Act�) has been filed before this Court on 30th of March, 1976 by M/s. Bengal Builders and Traders Private Limited (hereafter referred to as the �Creditor�). On 25th of June, 1976, the application was admitted and notice thereof was directed to be published. On 30th of June, 1976, when the case was placed for direction regarding fixing of a date of appearance, the Company appeared and applied for stay of publication of the notice and for dismissal of the application itself and stay of publication was ordered. Affidavits and further affidavits have been filed by either side thereafter and the matter was adjourned several times at the request of parties. Ultimately it was heard on 19-8-1977 and at the request of parties, was further adjourned to 2-9-1977, when the hearing was completed and orders were reserved.

The short facts leading to the making of the application are these: The Company was incorporated as a Public Company limited by shares on 25th of January, 1946, and has its registered office at Choudwar in the district of Cuttack within this State. Its nominal capital is Rs. 1,25,00,250/- and its subscribed capital is above Rs. 74,00,000/-. The Creditor, a Private Company with its registered office at Calcutta, Works as a Contractor for erection of buildings, sheds etc. In 1972, the Creditor undertook certain constructions including wood work, steel work, excavation and earth work and other ancillary works as alleged by it for extension of the auto-loom shed of the Company�s factory. The Company appointed M/s. Gherzi Eastern Limited as the Architect/Consultant. According to the Creditor, the work under the first phase was completed by April 30. 1973 and under the second phase by June 15. 1974. As against total dues of Rs. 10,72,477.41, the Creditor had received a sum of Rs. 9,27,656.81 leaving a balance of Rs. 1,44,820.60 payable to the Creditor. According to the Creditor, a meeting was held on 11th of August, 19.75, at the office of the Company in which representatives of the Company and the Creditor and the Architect participated and a joint memorandum of agreed rates was prepared. In terms thereof the Company paid a sum of Rs. 10,000/- on 15th of January, 1976, by cheque leaving an outstanding amount of Rs. 1, 02,569.04,. which including interest stood at Rs. 1,12,958.75 as per particulars given in paragraph 33 of the petition. The Creditor alleges that a notice as required u/s 434 of the Act has been given and notwithstanding the admitted liability, the Company has failed to satisfy the debt. Accordingly it has been alleged that the Company is commercially insolvent and unable to pay its debt and it is just, equitable and convenient that the Company may be wound up.

The Company does not dispute the Creditor�s allegation that the latter undertook execution of contracts. It has been pleaded by the Company that though the work was for stipulated sum of Rs. 7,85,000)/- they (the creditor) had already been paid an extra sum of more than a lakh and forty-five thousand rupees and the claim raised by the Creditor for the excess dues had never been agreed upon and the matter was yet or be appropriately dealt with by the Company. The allegation of the Creditor that pay ability of the amount was beyond dispute has been seriously challenged and several correspondences have been placed to show that bona fide and reasonable disputes to the claim of the Creditor have long been raised and it cannot be said that the amounts claimed by the Creditor are due to it. The Company alleged that an untrue and incorrect copy of the proceedings dated 11-8-1975 marked as Annexure-P to the petition had been furnished and the allegation that there was an agreement as to the dues was wholly untenable. The true endorsement in Annexure-P was "rates accepted subject to terms of payment to be agreed upon" while the Creditor has filed the document stating "Rates accepted subject to agreed terms of payment". The Company alleged that it was one of the most solvent Companies and its assets far exceeded its liabilities. It has been alleged by the Company that the Creditor has resorted to this method of coercing the Company to undertake payment of dues which it does not owe to the Creditor by this process of blackmailing through a winding up petition.

No dispute has been raised as to maintainability of the objection by the Company at this stage in view of the decision of the Supreme Court in the case of The National Conduits (P) Ltd. v. S.S. Arora AIR 1968 S.C. 272. It is, therefore, unnecessary to deal with the sustainability of the objection in law.

Having heard learned Counsel for both sides at length, I am of the view that the dues of the Creditor have nowhere been admitted as such. It is true that the Creditor has laid claim for additional payments for extra work done by it. It is also true that the Creditor maintains that a part of its dues under earlier bills are still awaiting payment. The stand of Mr. Patnaik for the Company is that over and above the agreed amount, payments have been made. Even if the Creditor�s entitlement to extra payment is found, adjustments are necessary and what exactly the Company would be owing to the Creditor is yet to be ascertained. Be has relied upon the arbitration clause in the agreement which runs thus:

All disputes and differences arising out of or in connection with the contract, whether during the progress of work or after completion shall be referred to and settled by arbitration by two arbitrators one to be nominated by the Proprietor and one to be nominated by the contractor. In the event of the arbitrator; disagreeing, it shall be referred to an umpire to be nominated by the two arbitrators. The decision of the umpire shall however be final and binding on both the parties.

Since the Company relied upon the arbitration clause and contended that it was open to the Creditor to ask for arbitration of the differences arising out of the claim, at the hearing of the application, I asked the learned Counsel for parties that the matter may be referred to arbitration. While Mr. Patnaik for the Company agreed, Mr. Mohanty for the Creditor was not inclined that the dispute should be referred to arbitration.

It is long settled in law that a winding up petition is not an appropriate mode of enforcing payment of a debt which is bona fide disputed and is an abuse of the process of Court. (See Gold Hill Mines (1813) 23 Ch D. 210. To the same effect is the decision of the Calcutta High Court in the case of Bukhtiarpur Bihar Light Railway Co. Ltd. v. Union of India and Anr. AIR 1964 Cal. 499. In the case of Amalgamated Commercial Traders (P) Ltd. v. A.O.K. Krishnaswami and Anr. (1965) 35 Comp Cas 456, the Supreme Court pointed out that it is well-settled that a winding up petition is not a legitimate mode of seeking to enforce payment of a debt which is bona fide disputed by the Company. The petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed and under circumstances may be stigmatised 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. If, however, there was no reason to believe that the debt, if established, would not be paid, the petition was dismissed. The modern practice has been to dismiss such petitions. If the debt was bona fide disputed, there cannot be neglect to pay within the meaning of Section 431(1)(a) of the Act. If there was no neglect, the deeming provision does not come into play and the ground of winding up, namely that the Company was unable to pay its debt was not substantiated.

Having heard learned Counsel at length and having read the petition and the several affidavits as also the documents accompanying them, I am inclined to agree with Mr. Patnaik for the Company that there is a bona fide dispute regarding the payability of the sum of money said to be due to the Creditor and until the debt is established, it cannot be said that the Company has neglected to pay the debt.

There was some amount of dispute as to whether the statutory notice of demand had been issued, but since that aspect has been contentious and without receiving evidence it may be difficult to come to a finding, I have not entered into it.

I am satisfied on the materials placed before me to which cursory reference has been made above that this is not an application which should be entertained. I would accordingly recall the order of publication and direct that the petition for winding up by the Creditor do stand dismissed. I am not inclined at this stage to make any direction for costs.

Ordered accordingly.