Sharma, J. - (1.) THIS is a petition by Rani Ajitkunvarba, Maharaj Digvijay Singh, and Rani Niranjan Kumari (to be hereinafter referred to as the first, second and third petitioner respectively) under sec. 162 of the Indian Companies Act for the winding up of the Company known as the Rajputana Cold Storage and Refrigeration Ltd. ( to be hereinafter referred to as "the Company".
(2.) THE facts, which are undisputed, are that the Company was registered at Jaipur under the Jaipur Companies Act in August, 1947. Its office is situate at Jaipur West. THE authorised capital of the Company is Rs. 10,00,000/-, which is composed of 4,000 5%, tax-free cumulative preference shares of Rs. 100/- each ( hereinafter to he referred to as preference shares ) and 60,000 ordinary shares of Rs. 10/- each. Out of the 4,000 preference shares 780 have been subscribed. On their account Rs. 75/- per share has been called up. Out of this amount Rs. 2,000/- remain in arrears, and, therefore, Rs. 56,5000/- have been paid up. Out of the 60,000/- ordinary shares, 36750 have been subscribed, and Rs. 7/8/- on account of each share have been called up. Out of this amount Rs. 23,000/-are in arrears, and therefore, the total Sum paid up on account of these shares is Rs. 2 52,625/ -. THE total of the paid up capital is Rs. 3,09, 125/ -. A total sum of Rs. 10,40,500/-, as follows, was deposited at 5% p. a. by Col. Maharaj Prithisingh, the husband of the first petitioner and the father of the second and third petitioners, (hereinafter to be referred to as the Maharaj), who was killed in an air-crash in 1950, and was the Chairman of the Board of directors of the Company : - On 25th August, 1948 . . . . . . . Rs. 35,000/- 30th Oct. ; 1948 . . . . . . . 3,500/- 4th Nov. , 1918 . . . . . . . 60,000/- 7th January, 1949 . . . . . . . 35,000/- 23rd April, 1949 . . . . . . . 7,000/- Rs. 140,500/- A further sum of Rs. 20,000/- was deposited through him on behalf of the third petitioners, The interest on this amount also was at 5-1/4% per annum. The Managing Agents of the Company were Messrs. Jath Brothers, of whom the Managing Partner was Shri G. S. Chandra. Rs. 799/4/- were credited to the first petitioner on account of the purchase and sale of potatoes through the Company. It is the petitioners' case that on or about the 7th of June, 1949, the Company authorised the Maharaj to arrange a loan on the security of the Company's assets with any bank or private party, and that on or about the 2nd of August, 1949, a loan was arranged by the Maharaj from the Bombay Mercantile Bank Ltd. (hereinafter to by referred to as the bank) of a sum of Rs. 1,50,000/- at 5% p. a. interest on a promissory note (to be hereinafter referred to as the pro-note) of the said amount and against certain collateral securities. After the death of the Maharaj the petitioners made enquiries from the Company regarding the aforesaid deposits, and they were informed by Mr. G. S. Chandra that they had been repaid on or about the 2nd August, 1949, out of the proceeds of the money received from the Bank. They were also informed that a sum of Rs. 25,000/- had been paid to the Maharaj on or about the 25th of April, 1950, and thus actually the account of the Maharaj was in debit at the time of his death, and accordingly the heirs of the Maharaj were not entitled to any of the deposits or interest thereon. On or about the 17th of October, 1951, the Bank duly endorsed the pro-note for Rs. 1,50,000/-cxecuted by the Company in favour of the Bank, to the first petitioner. Notice of demand on behalf of the first petitioner in respect of the aforesaid pro-note and interest thereon was served on the Company on or about the 7th of May, 1950, and another notice under sec. 163 of the Companies Act was also served on the Company on or about the 30th of July, 1952, in respect of the said amount but the Company failed and neglected to make payment, and has so far not made payment on the pro-note. In respect of the amount of Rs. 799/4/-, referred to above, also the petitioners say that a notice was served by the first petitioner's advocate on the Company on the 9th of October, 1949, for the payment of the said amount; but the same has not yet been paid. In respect of the pro-note amount of Rs. 1,50,000/- and its interest, the first petitioner brought a suit in the High Court of Judicature at Bombay, being summary suit No. 852 of 1952 (hereinafter to be referred to as the Bombay suit ). The Company was granted leave to defend that suit In that suit the Company contended that no such pro-note was ever executed on behalf of the Company, and that the Company received no consideration. The petitioners say that a fortiori from the said admission it was clear that there was no adjustment of the deposits made by the Maharaj and the third petitioner to the Company, and accordingly the petitioners were entitled, as legal representatives of the Maharaj, to these deposits and the third petitioner was entitled to a refund of Rs. 20,000/- made by her together with the accrued interest thereon. The petitioners say that the first petitioners is a creditor in the sum of : - (a) Rs. 799/4/- due on account of profit in potato trading; and (b) Rs. 1,50,000/- and interest thereon amounting to Rs. 1,73,645/- as a holder and endorsee of the pro-note dated 2nd August, 1949, executed for and on behalf of the Company in favour of the Bank and endorsed to her on 17th October, 1951, by the Bank. The second petitioner is a creditor in the sum of Rs. 1,15,000/- being the balance of the deposit account of the Maharaj. The third petitioner is a creditor in the sum of Rs. 20,000/ -. The petitioners further say that as these sums were not paid to them in spite of ordinary notices as well as notices under sec. 163 of the Companies Act within the time prescribed by sec. 163, and also because the demand liabilities of the Company were greatly in excess of its cash resources, the Company was commercially insolvent, and was unable to pay its debts. It has, therefore, been prayed that the Company be wound up and an official liquidator be appointed. Besides the grounds stated above, the following grounds have also taken : (a) The lands, buildings and machinery of the Company were purchased at a time when the prices were at peak level, and the value of the said assets, as shown in the Balance Sheet, is now merely illusory. (b) The Company made a call on its uncalled share capital as far back as 1950. but there has been very little response, and the shareholders have lost confidence in the management and financial stability of the Company inspite of window dressing and promises of the Managing Agents. (c) The Company has not paid any divided for two or three years, and there is a contingent liability on the cumulative preference shares amounting to roughly Rs. 30,000/ -. (d) The Company has not yet been able to write off the preliminary expenses amounting to about Rs. 11,000/-, Further grounds have been taken under clause (6) of sec. 162 of the Companies Act, which provides for the compulsory winding up of a company by Court, if it is of opinion that it is just and equitable that the company should be wound up. They are as follows : - (a) The Directors do not and have not in the past exercised any real control or supervision in respect of the business of the Company and over the acts and dealings of the Managing Agents, which firm although consisting normally of three partners is,by reason of its internal arrangements, entirely a one-man show. The affairs of the Company are run by Mr. G. S. Chandra, the working partner of the Managing Agents without control of the Directors. (b) Meetings of the directors, are not held for months and months at a time. (c) Mr. G. S. Chandra, Managing Partner of the Managing Agents, flouts the directors in the holding of meetings, raises loans and pledges the credit of the Company without sanction or authority of the directors of the Company, and lives on the premises with his family as if the entire business was his private property. (d) The Chairman of the Company is a lady, who, though possessing considerable wealth, has no business experience whatever, and is thus entirely in the hands of the Managing Agent, the said Mr. G. S. Chandra. (e) The Company has for several years defaulted in the compliance of the primary statutory duties of maintaining accounts properly, and does not maintain proper staff for the working of the office and keeping accounts. The accounts are not written up regularly, and have been in arrears for a year at a time. (f) Mr. G. S. Chandra and Rao Raja Dafle, Managing Agents of the Company, made allegations on oath in the Bombay suit regarding the loan from the Bank, which falsify the duly audited Statement of Accounts and Balance-Sheets for the years 1950 and 1951. (g) The directors and Managing Agents have, according to their own admissions, been party knowingly to the preparation of false and fraudulent balance-sheets not representing the true state of affairs of the Company. (h) The Company suffered substantial loss of Rs. 95,224/- in the year ending March, 1951, and carried forward a loss of over Rs. 82,000/-, and according to the Report of the Directors for 1951, they saw little prospect of profitable operation in the future. This petition was filed on the 15th of January, 1953, and along with it were filed copies of deposit receipts for the various amounts given above. They have been collectively marked as Ex. A. A copy of a letter dated 14th March, 1950, from Mr. S. S. Bhat-nagar, Secretary of the Company, to the first petitioner, and another letter from Mr. K. M. Punjabi on behalf of the first petitioner to the Company dated 9th October, 1951, regarding the potato amount of Rs. 799/4/-, marked as Exs. B and C respectively, were also filed along with the petition. A copy of the alleged pro-note of Rs. 1,50,000/- dated 2nd August, 1949, along with the endorsement thereon in favour of the first petitioner, dated 17th Oct. , 1951, was also filed and marked Ex. D. Copies of the notices under sec. 163, marked collectively as Ex. E, and a copy of the Balance-Sheet marked Ex. F, were also filed. The petition was also accompanied by three affidavits of the second petitioner. In reply an affidavit was filed on behalf of the Company by Mr. G. S. Chandra (hereinafter to be referred to as Mr. Chandra), one of the partners of the Managing Agents of the Company, of the 25th of February, 1953. Many objections have been taken to the petition, but in view of the order I propose to make all of them need not be noticed at this stage. It is enough to consider the following objections at present: - Mr. Chandra does not admit that the pro-note was executed by the Maharaj or that any consideration passed to the Company under it. He says that even if the Maharaj executed the pro-note he had no authority to do so on behalf of the Company. He admits that entries were made in the Company's books crediting the amount of the pro-note to the Bank and debiting the said amount in the deposit account of the Maharaj, but says that it was under the influence of the Maharaj who was the then Chairman of the Board of Directors of the Company, without the knowledge or consent of Mr. Chandra or of other directors of the company, and that as soon as the director' attention was drawn to the aforesaid action of the Maharaj, they took exception to the same. He says that the liability under the pro-note had been repeatedly repudiated by the Company and that the first petitioner, in fraudulent collusion with the Bank, got it endorsed in her favour on the 17th of October, 1951. "without recourse to" the Bank. He admits that the Bombay suit was filed by the first petitioner for the recovery of the alleged balance on the pro-note under the Summary Procedure on Negotiable Instruments, but says that the Company obtained unconditional leave to defend the suit. He says that the dispute raised by the Company in respect of the pro-note is a bonafide dispute and, therefore, non-compliance with the notice of the first petitioner under sec. 163 (l) (c) of Companies Act within the prescribed period of three weeks does not entitle the first petitioner to file the present petition. As regards the deposit account standing in the name of the Maharaj and third petitioner, he says that according to the petitioners case in the petition itself as well as the first petitioners case in the Bombay suit, these deposits have been paid up and that the claim under the pro-note and the claim about the deposits are inconsistent. He says that the deposits were made on behalf of Rani Bijou, the junior wife of Maharaj, as a consideration for her being taken as a partner in the Managing Agent's firm, and are not repayable to the petitioners. He also pleads the bar of limitation in respect of the deposits. As regards the sum of Rs. 799/4/- on potato account he admits it, but says that the Company has always been willing to pay it, and that the only reason for its non-payment so far was that the account of the Maharaj was in debit and she had been asked if it could be credited in the said account, but she did not care to reply. He says that the Company is ready to deposit it in Court by leave of the Court, which is necessary under the Companies Act in the present circumstances. He denies that the Company is commercially insolvent and is unable to pay its debts. The only reason for the non-payment is that the main claim is bonafide disputed, and unless the dispute is settled in the Bombay suit, the Company does not feel justified in paying any of the deposited sums to the petitioners. The only point for determination at this stage is as follows: - Whether there is a bona fide dispute about the amounts claimed by the petitioners, and if so, what is its effect upon the petition ? I have heard Mr. K. L. Gauba on behalf of the petitioners and Mr. Purshottam Trikamdas on behalf of the Company and C. L. Agrawal on behalf of a number of shareholders. The case was argued on both sides with very great ability on facts as well as on law. It may be mentioned that quite a number of affidavits as also a lot of documentary evidence, mostly from the file of the Bombay suit, have been filed by the parties in this case, and almost all the documents filed here were referred to by one counsel or the other. I may say at the outset that so far as the deposits by the Maharaj are concerned, it is not the case of the petitioners that those deposits are still due. Their main case is that the pro-note was executed on behalf of the Company, and out of its proceeds those deposits were paid off. The deposits have been relied upon only as a second string to the petitioner's bow, in case the pro-note is found to be invalid or it is held that no consideration passed under it.
(3.) UNDER sec. 162 of the Companies Act, a company can be wound up by Court, if the company is unable to pay its debts, and under sec. 163 (1) a company shall be deemed to be unable to pay its debts if, upon a service of notice by its creditor, to whom the company is indebted in a sum exceeding five hundred rupees, requiring the company to pay the sum so due, the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it, to the reasonable satisfaction of the creditor. It was argued by Mr. Gauba on behalf of the petitioners that notices under sec. 163 (1) were served on the company in respect of the pro-note as well as the amount of the deposits mentioned in the petition; but the Company failed to pay up those amounts for three weeks after the notice, and so the Company should be deemed to be unable to pay its debts, and the petitioners were entitled to an order for the winding up of the Company. It has been admitted on behalf of the Company that such notices were served, but it was argued that the Company cannot be said to have neglected to pay any of the said sums or to secure or compound for them to the reasonable satisfaction of the petitioners, as according to the petitioners themselves the claim for deposits did not arise on account of the execution of the pro-note, and with respect to the pronote there was a bona fide dispute, and the first petitioner had herself brought the Bombay suit for the recovery of the said sum, and the Company had raised sound and legal objections with respect to her claim. The petition was filled mala filed simply with a view to coerce the company into paying the said disputed amount and should therefore, be dismissed. Quite a number of authorities were referred to on behalf of the respondents in order to show that in case a debt is bonafide disputed the company cannot be said to have neglected to pay its debts simply because after demand the company had not paid the sum demanded within three weeks from the date of service of notice under sec. 163 (1 ). I shall refer to these rulings one day one in chronological order. The earliest English case is that of Cadiz Waterworks Company vs. Barnett (l ). In that case a contractor had entered into a contract with a company for the execution of certain works for the sum of £290. 000, of which £200, 300 was to be paid in cash, and the rest in paid-up share. The contractor had received £203,000 in cash and a large number of shares, but he claimed to be en-titled to a further sum of £ 30,000. He disputed the claim, and alleged, on the contrary, that the contractor had been largely overpaid. The contractor threatened to present a petition to wind up the company, and served on the company a demand under section 80 (same as sec. 163 of the Indian Companies Act) of the Companies Act, 1862. It was held that there being no proof of the company being insolvent, and the alleged debt of the contractor being bona fide in dispute, the contractor must be restrained from presenting a petition to wind up the company. The next case, which is also an English case, is In re Gold Hill Mines (2 ). There a dismissed servant or a company claimed £15 for arrears of salary and £95 damages for alleged wrongful dismissal. This claim was disputed by the company, and it was held, by the court of appeal, that where a petition to wind up was improperly filed the court had jurisdiction on motion to stay all proceedings under it, or to dismiss it. It was found that the petition in that case was an abuse of the process of the court, being brought to compel payment of a small debt which was bona fide disputed, and beings unsupported by any evidence that the company was insolvent. The petition was, therefore, dismissed. Coming to the Indian cases, referred to by learned counsel for the respondent, the earliest in date is that of Tulsidas Lalubhai vs. Bharatkhand Cottan Mills Co. , Ltd. (3) In that case a notice was given to the company, and the company replied that the alleged demand was in respect of a claim which the company honestly believed to be a fraudulent claim and unsustainable at law. The creditor thereafter filed a petition for the widing up of the company, and it was held that where a credi-tor's demand was in respect of a claim which the company honestly believed to be a fraudulent claim and unreasonable at law, and in filing a winding up application, his object was to bring the pressure of insolvency proceedings to bear upon the company in order to make it pay cheaply and expeditiously a heavy debt which it desired to dispute in the civil courts,the petition for insolvency of the company must be dismissed. The next case is The Company vs. Rameshwar Singh of Darbhanga (4 ). In that case also after considering the provisions of secs. 162 as well as 163 of the Companies Act, it was held that when a debt was bona fide disputed by debtor company, it could not be said to have 'neglected to pay' the debt within the meaning of sec. 163 (1 ). In that case, pending decision of the two suits in which the disputed amounts were involved, the proceedings for winding up were stayed. The third case is a Madras case, viz. , P. Satvarazu vs. Guntur Cotton, Jute and Paper Mills Co. , Ltd. (5), wherein it was held that where the object of a petition to wind the company was to bring pressure upon the company in order to make it pay the petitioner cheaply and expeditiously which the company desired to dispute in the civil court, the petition was an abuse of the process of the court and should be dismissed. On this view the petition was dismissed. ;