Systems Pvt. Ltd. Vs. Proxima Medical System Gmbh  Insc 191 (17 March 2005)
Bhan & Dr. Ar. Lakshmanan
out of Special Leave Petition (Civil) No. 22740 of 2003) Dr. AR. Lakshmanan, J.
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.
short facts which are relevant for the purpose of disposal of this appeal are
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:
Intimation note issued by Vijaya Bank being FTTI/NSC/73/99 dated 3.5.1999.
Foreign Inward Remittance Certificate No. 0014709 dated 6.5.1999.
Memorandum issued by Reserve Bank of India No. CA EC 357/09 46 0662/98-99 dated
Document issued by Deutche Bank showing the name of remitter as PAMEDA.
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
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.
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.
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.
money to be deposited shall remain to the credit of the lawful beneficiary
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
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.
heard Mr. Dhruv Mehta, learned counsel appearing for the appellant and Mr. Braj
Kishore Mishra, learned counsel appearing for the respondent.
Mehta, learned counsel appearing for the appellant made the following
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
this background of the facts, the following questions of law would arise for
consideration of this Court:
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?
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,
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?
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?
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
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.
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.
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.
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.
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.
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.
433 of the Companies Act says , "A company may be wound-up by the Court (a).
the company is unable to pay its debts;
the above it follows:
There must be a debt; and
The company must be unable to pay the same.
order under clause (e) is discretionary.
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.
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.
Bombay High Court has laid down the following principles in Softsule(P) Ltd.
Re, (1977) 47 Com.Cases 438 (Bom):
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.
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.
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.
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
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:
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;
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
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 .
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
the defence of the company is in good faith and one of substance ;
defence is likely to succeed in point of law; and
company adduces, prima facie proof of the facts on which the defence depends.
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.
High Court is directed to refund the same to the appellant on production of a
certified copy of this judgment.
view of all these, there is no prima facie dispute as to the debt.
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.