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CASE NO.: Appeal (civil)  1811 of 2005

PETITIONER: Mediquip Systems Pvt. Ltd.                                

RESPONDENT: Proxima Medical System GMBH                       

DATE OF JUDGMENT: 17/03/2005

BENCH: Ashok Bhan & Dr. AR. Lakshmanan

JUDGMENT: J U D G M E N T (arising out of  Special Leave Petition (Civil) No. 22740 of 2003)    

Dr. AR. Lakshmanan, J.

Leave granted. This appeal is directed against the order passed by the Division Bench  of the High Court at Calcutta in appeal from an order passed under its  original civil jurisdiction being APOT No. 786 of 2002.  The Division  Bench of the High Court at Calcutta dismissed the appeal of the appellant as  well as the application for stay.  The short facts which are relevant for the purpose of disposal of this  appeal are as follows: The appellant-Company is engaged in business of import of medical  equipment and service thereof in general and ULTRA-SOUND  SCANNERS, in particular.  The respondent-Proxima Medical System,  GMBH, issued legal notice to the appellant-Company under Section 434 of  the  Companies Act mentioning that the appellant-Company is liable to pay  the respondent a sum of US $ 5000 and US $ 11000  aggregating to US $  16000.  The appellant replied to the said notice and denied the liability to  pay the amounts to the respondent.  The respondent-Company filed a  winding up petition being C.P. No. 316 of 2001 against the appellant- Company, inter alia , praying that the Company be wound up by the order of  the Court and Official Liquidator of the Court be appointed as Liquidator of  the Company to take charge of its assets.  It was alleged therein that despite  notice, the Company failed and/or neglected to refund US $ 5000 and US $  11000 which was allegedly remitted by the respondent-Company as partial  bid security in respect of two global tenders.  The appellant filed affidavit in  opposition to the winding up petition contending that the said amounts were  not payable to the respondent-Company and the appellant disputed its  liability.  The following documents were relied in support of the aforesaid  contentions: (i)     Intimation note issued by Vijaya Bank being  FTTI/NSC/73/99   dated  3.5.1999. (ii)    Foreign Inward Remittance Certificate No. 0014709 dated  6.5.1999. (iii)   Memorandum issued by Reserve Bank of India No. CA EC  357/09 46 0662/98-99 dated 30.6.1999. (iv)    Document issued by Deutche Bank showing the  name of  remitter as PAMEDA.  On 12.9.2002, the Company Judge disposed of the winding up  petition  holding,  inter alia,  that so far as  US $ 5000  is  concerned,  the appellant-Company has  disputed  the  amount  but in  so far  as  US $ 11000 is concerned,  the  same should be repatriated to remitter  (which  in the present  case is not the  respondent).  The learned   Judge   directed the Company to deposit  Rs.4,69,480/-  equivalent to  US $ 11000 to the Registrar, Original side of the High Court at  Calcutta.  It was further observed by him that: "Mr. Dutta has, however, seriously disputed the

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entitlement of the petitioner to recover this sum.  I have  not adjudicated any of these points and as and when the  petitioning creditor files a suit, it will be open to Mr.  Dutta’s client to take all points available to him.

It is made clear that it will be open to the Company  to take such defence as is available to them both on  points of fact and law.

In default of deposit of the aforesaid sum within  the stipulated period herein, this petition shall stand  admitted and it will be open to the petitioning creditor to  pray for direction for advertisement.

The money to be deposited shall remain to the  credit of the lawful beneficiary thereof.

Suit, if any, is to be filed by the petitioning creditor  within three months from the date of deposit and in  default of such, suit being  filed, it will be open to the  company to apply for refund of the money."

       Aggrieved by the order dated 12.9.2002, the appellant- Company   filed an appeal along with the application for stay.  The Division  Bench of   the   High   Court, on 25.10.2002, granted interim stay of issuance  of the advertisement, as  per  order   dated 12.9.2002 passed by the Company  Court, till 25.10.2002.  The Division Bench further, by order dated  28.10.2002,   directed  the  appellant to deposit  Rs.2 lakhs  instead  of Rs.  4,69,480/- and extended the stay up to 12.11.2002.  In compliance of the  aforesaid direction, the appellant deposited  Rs. 2 lakhs with the Registrar,  Original Side of the High Court at Calcutta on 11.11.2002.  Thereupon  the  Division Bench directed to list the stay petition for hearing as adjourned  motion four weeks from date.  Affidavits were required to be filed in the  meantime.  It was further directed that the stay granted earlier would  continue for a period of three months or till further order.  On 11.8.2003, the  Division Bench of the High Court passed the impugned order dismissing the  stay application as well as the appeal preferred by the appellant.  Aggrieved  by the said order, the appellant preferred  this appeal by way of special  leave.        We heard Mr. Dhruv Mehta, learned counsel appearing for the  appellant and Mr. Braj Kishore Mishra, learned counsel appearing for the  respondent.   Mr. Dhruv Mehta, learned counsel appearing for the appellant made  the following submissions: (a)     The  Division Bench passed the order without due  consideration of the documents on record  showing that  the remitter of US $ 11000 was not the petitioning creditor  but altogether a different company.  (b)     The order passed by the Division Bench failed to  appreciate that no debt is due and payable by the  appellant-Company to the petitioning creditor as they are  not the remitter of the subject sum of US $ 11000 and as  such the winding up proceedings is not maintainable by  the said alleged petitioning creditor. (c)     The Division Bench erred in dismissing the appeal of the  appellant from the order of the Company Judge summarily  on the finding that the appellant is not entitled to any stay. (d)     The Division Bench also erred in passing the order giving  liberty to the respondent-petitioning creditor to approach  the Company  Court for fresh direction including for  advertisement when the said petitioning creditor failed to  present any suit after deposit of Rs. 2 lakhs by the  Company in compliance of order of another Division  Bench and they cannot have any claim in respect of US $  11000.

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(e)     The Division Bench had acted with material irregularity in  passing the order  directing the Company to deposit the  balance security when no sum is prima facie due and  payable to the petitioning creditor as they are not the  remitter of US $ 11000.

Per contra, Mr. Braj Kishore Mishra, learned counsel appearing for the  respondent  submitted that the appellant was well aware of the fact that M/s  Pameda Medizinische Systems was a sister concern of the respondent- Company and that the appellant being fully aware of the said fact, has  admitted that the remittance was from the respondent in their reply to legal  notice of the respondent.  Therefore, he submitted that the contention of the  appellant  that the respondent-petitioning creditor was not the remitter of the  money, is not correct.  He would further submit that the appellant, in their  reply to the notice sent by the respondent, nowhere  claims that US $ 11000  was not refundable to the respondent.  Instead, the appellant accepts its  liability to refund the said amount for which it was stated that it is taking  steps to file a suit against its Bank which was not remitting the amount.   According to the learned counsel appearing for the respondent, the  High Court correctly held that the appellant had admitted that it was duty  bound to remit the amount to the respondent and had in fact obtained  permission from the Reserve Bank of India for the same.  In view of the said  fact, the appellant could not have been allowed to take advantage of its own  wrongs and the order passed by the High Court is justified. Arguing further, learned counsel appearing for the respondent,  submitted that once the stay was denied to the appellant, the appellant was  duty bound to deposit the amount of US $ 11000 with the Registrar of the  High Court.  The appellant had, admittedly, not done so even though the  liability was admitted by the appellant and, therefore, the consequences  mentioned in the order of the Company Court would automatically follow. It was further submitted that as per the direction of the Company Court,  the suit was to be filed by the respondent only after the deposit of the  amount of US $ 11000 by the appellant.  The appellant never deposited the  said amount of US $ 11000 but instead obtained a stay of the order of the  Company Court.  In these facts and circumstances, the respondent- petitioning creditor could not have had filed a suit for recovery of US $  11000. Concluding his arguments, learned counsel appearing for the  respondent, submitted that the appellant has denied its liability which it had  earlier admitted in no uncertain terms and, therefore, this appeal is liable to  be dismissed. In this background of the facts, the following questions of law would  arise for consideration of this Court:           (i)   Whether the Division Bench of the High Court at    Calcutta  justified in dismissing the appellant’s appeal summarily  holding, inter alia, that the appellant was not entitled to stay  of operation of the order passed by the company Judge under  appeal or, in other words, whether dismissal of connecting  stay petition could be justified reason alone for dismissing  appeal summarily which was based on cogent grounds? (ii)    Whether the appellant-Company can be said to be indebted to  the petitioning creditor/respondent in respect of US $ 11000  equivalent to INR 4,69,680/- when the said sum was not  remitted by the said petitioning creditor namely, Proxima  Medical Systems, GMBH? (iii)   Whether the winding up proceedings under the relevant  provisions of the Companies Act is maintainable against the  company by the said  petitioning creditor/respondent when it  is evident from the document issued by the Deutch Bank  (remitter’s banker) and Foreign Inland Remittance Certificate  (issued by Company’s banker) that US $ 11000 was remitted  by another company namely, Pameda Medizinische System,  GMBH and not by the petitioning creditor? (iv)    Whether the Division Bench and as well as the Company  Judge, in exercise of their jurisdiction under the Companies

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Act, erred in directing the company to deposit Rs.4,69,480/-  to secure the alleged claim of the petitioning creditor when  the petitioning creditor was not the remitter of the said  amount and such was seriously disputed before the Company  Judge and the Company Judge did not adjudicate the disputes  at controversy and directed the petitioning creditor to file suit  in respect thereof? (v)     Whether the Division Bench in passing the order under  appeal was justified to direct the company to deposit the  balance amount when an earlier Division Bench by an  interim order reduced the quantum of deposit from  Rs.4,69,480/- as directed by the Company Judge to Rs. 2  lakhs in compliance whereof the company had duly deposited  Rs. 2 lakhs on 11.11.2002 and the petitioning creditor failed  to present any suit within three months thereof as per  direction of the Company Judge? (vi)    Whether the Division Bench is justified in passing the order  under appeal by dismissing the stay application, on  extraneous considerations, when an earlier Division Bench  by an interim order granted stay of advertisement subject to  appellant’s depositing Rs. 2 lakhs which was duly deposited  by the Company to the satisfaction of the Court?    We have carefully considered the rival submissions made by the  counsel appearing on either side.  It is a matter of fact that the appellant- Company had duly deposited Rs.2 lakhs in compliance of the direction given  by another Division Bench of the High Court on 28.10.2002  when the  interim stay of the advertisement was granted and the said sum of Rs. 2  lakhs is now in the custody of the Registrar, Original Side, of the High Court  at Calcutta. In our opinion, the High Court has failed to appreciate that there is a  bona fide dispute concerning US $ 11000.  While the learned single  Judge  has held that the dispute concerning US $ 5000 is a bona fide dispute, he has  erred in not holding that the dispute concerning US $ 11000 also is bona  fide.  The High Court, on the one hand, has held that the Company has  admitted in no uncertain terms that US $ 11000 should be repatriated to the  remitter on the other hand, the learned judge failed to appreciate that the  petitioning creditor in the instant case was not the remitter and was not  entitled to the said sum of US $ 11000.  It is not in dispute and as admitted  by the respondent-petitioning creditor that the remitter of the sum of US $  11000 was one M/s Pameda Medizinische Systems and not the petitioning  creditor and that because of the discrepancy in the name of the remitter, the  Reserve Bank of India had initially withheld permission.  In our view, the  prima facie case has been made out by the appellant for not remitting the  Indian amount equivalent of US $ 11000 as admittedly the petitioning  creditor was not the remitter and cannot have any claim in respect of US $  11000.  In our opinion, the learned Judges of the High Court have erred in  directing  the Company to deposit a sum of Rs. 4,69,480/- with the Registrar,  Original side of the High Court at Calcutta.  The question of the company  depositing the same with the Registrar, Original side, did not and could not  arise since the petitioning creditor was not the remitter.  A reading of the  order of the High Court would show that the learned Judges themselves had  doubt  regarding lawful entitlement of the petitioning creditor and erred in  directing the appellant-Company to deposit the amount and in default  directing admission of the appeal.   We have carefully perused the order.  There is no clear cut finding by  the learned Single Judge that a debt is prima facie due and payable by the  Company to the petitioning creditor.  In our opinion, the impugned orders  have been passed in a purported exercise of jurisdiction not vested with the  Court sitting in the Company Court for an application for winding up of the  company, the Company Court had no jurisdiction to direct the company to  deposit the amount payable to third party or to a party other than the  petitioning creditor.

In our opinion, the Division Bench is not justified in dismissing the  appeal summarily holding that the appellant was not entitled to stay of the

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operation of the order passed by the Company Judge under appeal. This Court in catena of decisions held that an order under Section  433(e) of the Companies Act  is discretionary.  There must be a debt due and  the company must be unable to pay the same.  A debt under this section  must be a determined or a definite sum of money payable immediately or at  a future date and that the inability referred to in the expression ’unable to  pay its dues’ in Section 433(e) of the Companies Act should be taken in the  commercial sense and that the machinery for winding up will not be allowed  to be utilized merely as a means for realising debts due from a company.  The respondent is not a creditor and the appellant is not a debtor in so  far as US $ 11000  is concerned.  The defence raised by the appellant is a  substantial one and not mere moonshine which is to be finally adjudicated  upon on merits before the appropriate Forum.  Section 433 of the Companies Act says , "A company may be wound-up by the Court \026 (a)\005\005\005\005\005\005. (b)\005\005\005\005\005\005. (c)\005\005\005\005\005\005. (d)\005\005\005\005\005\005. (e) if the company is unable to pay its debts; (f) \005\005\005\005\005\005\005.. From the above it follows: (1)     There must be a debt; and (2)      The company must be unable to pay the same. An order under clause (e) is discretionary.         The debt under Section  433 of the Companies Act must be a  determined or a definite sum of money payable immediately or at a future  date.  We are informed that the financial position of the appellant is sound.         This apart, both, the learned single Judge and the Judges of the  Division Bench have granted interim relief which can be granted only in aid  of, and as ancillary to the main relief which may be available to the party on  final determination of its rights in a suit or proceedings. The Bombay High Court has laid down the following principles in  Softsule(P) Ltd. Re, (1977) 47 Com.Cases 438 (Bom): "Firstly, it is well settled that a winding up petition is  not legitimate means of seeking to enforce payment of a debt  which is bona fide disputed by the company.  If the debt is not  disputed on some substantial ground, the Court/Tribunal may  decide it on the petition and make the order.

Secondly, if the debt is bona fide disputed, there cannot  be "neglect to pay" within the meaning of Section 433(1)(a) of  the Companies Act, 1956.  If there is no neglect, the deeming  provision does not come into play and the winding up on the  ground that the company is unable to pay its debts is not  substantiated.

Thirdly, a debt about the liability to pay which at the  time of the service of the insolvency notice, there is a bona fide  dispute, is not ’due’ within the meaning of Section 434(1)(a)  and non-payment of the amount of such a bona fide disputed  debt cannot be termed as "neglect to pay" the same so as to  incur the liability under Section 433(e) read with Section  434(1)(a) of the Companies Act, 1956.

Fourthly, one of the considerations in order to  determine whether the company is able to pay its debts or not  is whether the company is able to meet its liabilities as and  when they accrue due.  Whether it is commercially solvent   means that the company should be in a position to meet its  liabilities as and when they arise." The Madras High Court in Tube Investments of India Ltd. vs. Rim  and Accessories (P) Ltd. (1990) 3 Comp LJ 322, 326 (Mad) has evolved  the following principles relating to bona fide disputes: (i)     If there is a dispute as regards the payment of the sum

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towards principal however small that sum may be, a  petition for winding up is not maintainable and the  necessary forum for determination of such a dispute  existing between parties is a Civil Court; (ii)    The existence of a dispute with regard to payment of  interest  cannot at all be construed as existence of a bona  fide dispute relegating the parties to a Civil Court and in  such an eventuality, the Company Court itself is  competent to decide such a dispute in the winding up  proceedings; and (iii)   If there is no bona fide dispute with regard  to the sum  payable towards the principal, it is open to the creditor to  resort to both the remedies of filing a civil suit as well as  filing a petition for winding up of the company .   

The Rules as regards the disposal of winding up petition based on  disputed claims are thus stated by this Court in Madhusudan Gordhandas  & Co. vs. Madhu Woollen Industries Pvt. Ltd. (1972) 42 Com Cases 125  : AIR 1971 SC 2600. This Court has held that if the debt is bona fide  disputed and the defence is a substantial one, the Court will not wind up the  company.  The principles on which the Court acts are: (i)     that the defence of the company is in good faith and one of  substance ; (ii)    the defence is likely to succeed in point of law; and  (iii)   the company adduces, prima facie proof of the facts on  which  the defence depends.   In view of the judgment now passed, the appellant will be entitled for  refund of the sum of Rs. 2 lakhs deposited by them in compliance of the  direction given by the High Court when the matter was pending before it.   The High Court is directed to refund the same to the appellant on production  of a certified copy of this judgment.  

In view of all these, there is no prima facie dispute as to the debt.   Thus we find no justification whatsoever for admitting the winding up  petition.  Accordingly, the judgment passed by the learned single Judge and  of the Division Bench are set aside.  The Civil appeal stands allowed.  No  costs.