Companies Act Case Law Mediquip Systems Pvt. Ltd Vs Proxima Medical System GMBH

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
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.
(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
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
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 
(a).
(b).
(c).
(d).
(e) if the company is unable to pay its debts;
(f) ..
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
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.

 

 

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