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IN THE HIGH COURT AT CALCUTTA
Prabir Kumar Majumdar & Ajoy Nath Ray, JJ.
Dunlop India Limited
Vs.
Anamika Udyog
Civil Appeal No. 287 of 1990 in Company Petition No. 45 of 1990
Decided on : November 26, 1992
COMPANY LAW - WINDING UP - SECURITY - PRINCIPLES FOR ORDERING SECURITY IN WINDING UP PETITIONS - DOUBT AS TO CLAIM, NOT DEFENCE, JUSTIFIES ORDER FOR SECURITY - ORDER FOR SECURITY IN CASE OF DOUBTFUL DEFENCE MILITATES AGAINST PRINCIPLE OF DISPUTED DEBTS NOT BEING SUBJECT TO WINDING UP - COURT SHOULD NOT WEIGH STRENGTH OF DEFENCE AT ADMISSION STAGE - ORDER FOR SECURITY CAN BE MADE ONLY WHEN DEFENDANT SHOWS NO DEFENCE BUT COURT FEELS SOME MERCY - TESTS REGARDING SECURITY AND GRANT OF LEAVE TO DEFEND IN SUMMARY SUITS ARE SAME AS THOSE IN COMPANY MATTERS - SECURITY NOT TO BE ORDERED TO CALL UPON COMPANY TO SHOW BONA FIDES OR SOLVENCY - SECURITY TO BE ORDERED WHEN COURT ENTERTAINS SOME DOUBT AS TO CLAIM OF PETITIONING CREDITOR, EVEN IF NOT RAISED BY COMPANY'S PLEADINGS.
Fact of the Case:
Petitioner, a creditor, filed a winding-up petition against the respondent company, Dunlop India Ltd., for an unpaid debt of over Rs. 1 crore. The company disputed the claim, alleging that the contract for which the debt was incurred had been terminated and that the payments made to the petitioner were in full satisfaction of the services rendered. The petitioner argued that the payments were only part payments and that the contract had been orally extended.
Finding of the Court:
The court held that the winding-up application should be permanently stayed as the company had disclosed facts that could potentially constitute a complete defense at trial. The court found that the payments made by the company to the petitioner could be interpreted as either full satisfaction of the services rendered or as part payments for work undertaken under an orally extended contract. The court also held that the principles for ordering security in winding-up petitions are the same as those for granting leave to defend in summary suits, and that security should not be ordered where the company has disclosed a possible defense, even if it is doubtful.
Issues: 1. Whether the company had disclosed facts that could potentially constitute a complete defense at trial. 2. Whether the principles for ordering security in winding-up petitions are the same as those for granting leave to defend in summary suits.
Ratio Decidendi: 1. The court held that the company had disclosed facts that could potentially constitute a complete defense at trial. The court found that the payments made by the company to the petitioner could be interpreted as either full satisfaction of the services rendered or as part payments for work undertaken under an orally extended contract. The court also held that the principles for ordering security in winding-up petitions are the same as those for granting leave to defend in summary suits, and that security should not be ordered where the company has disclosed a possible defense, even if it is doubtful.
Final Decision: The court allowed the appeal and set aside the order of the lower court directing the company to furnish security. The winding-up application was permanently stayed.
Ajoy Nath Ray, J.:
This is an appeal from a receiving order in a winding-up petition whereby the petitioner has been directed to be advertised unless the company, i.e. M/s. Dunlop India Ltd., furnishes a security to the extent of Rs. 50 lakhs.
2. The learned Judge in the Court-below proceeded on the basis that his Lordship had some doubt as to the defence raised by the company and thus his Lordship proceeded to secure partly the claim of the petitioning creditors on the basis of a certain dictum in the case of Ofu Lynx Ltd. vs. Simon Carves India Ltd. reported in AIR 1970 Cal. 418, a decision of a single bench of this Court.
3. A few facts are necessary before we pass on to the law of the matter, regarding the circumstances under which a Company Court would be justified in ordering security for receiving a winding-up petition in default.
4. On February 4, 1987 M/s. Dunlop India Ltd. agreed with the petitioning creditor to obtain their services for the purpose of procurement of an order from one Neyveli Lignite Corporation Ltd. The value of the order ultimately turned out to be above Rs. 22 crore, and the commission for such procurement at the agreed 4½% would come to more than a crore of rupees. We accept that in today's commercial world such contracts are not immediately to be inferred as contrary to the law or contrary to public policy, but might well be accepted as one of the realities of modem trade.
5. The time period for the contract was fixed by a writing of February 4, 1987 to expire with December 1987. On November 4, 1987 the petitioning creditor wrote that they were unable to proceed with their job and sought for termination. Again, by a letter dated December 23, 1987 the petitioner sought for time extension till 31.3.88, which M/s. Dunlop India Ltd. refused by their letter of 4.1.88.
6. The matter should have ended there. But the matter did not end there. In spite of these letters showing an apparent cessation of the contract, M/s. Dunlop India Ltd. did go on to pay to the petitioning creditor, M/s. Anamika Udyog, a sum of Rs. 3 lakhs on July 11, 1988 and a sum of Rs. 7.41 lakhs on September 19, 1988. The letter of intent from Nayveli had been received in May, 1988. The parties have disputed as to whether these were payments in full satisfaction of services rendered by M/s. Anamika Udyog for the period from February 4, 1987 till November 4, 1987, or whether these were merely part payments for the procurement work which had actually been undertaken by M/s. Anamika Udyog, though without a subsisting written contract to that effect. The case of the petitioning creditor further was, that though the letter of intent was received by Dunlop in May, 88, the same was conditional, and subsistence of the contract during fulfilment of these conditions also required the prop of the petitioner's liaison services.
7. The documents produced before us do not speak with a uniform voice. A voucher dated July 29, 1988 in respect of the sum of Rs. 7.41 lakhs definitely calls this as the final payment and the same is signed by Surendra Jain of M/s. Anamika Udyog. On the other hand, there are two confirmations of 26.9.89 signed by M/s. Dunlop India Ltd., wherein bill numbers of M/s. Anamika Udyog are mentioned and these copy-bills as produced by M/s. Anamika Udyog, would rather go to support the case that the two payments were not final payments. Surprisingly, the two confirmations signed by the financial accountant of Dunlop are both dated after the statutory notice. Dunlop has denied the receipt of the bills of Anamika, but has not satisfactorily explained why their officer's signature appears on two confirmations mentioning the two bills of Anamika.
8. The statutory notice dated September 5, 1989 was answered on November 28, 1989. In the answer thereto, Dunlop took the high and mighty stand that no claim by M/s. Anamika Udyog was entertainable, because claims of such nature, meaning presumably the claims for procurement agency comm
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