Star Textiles and Inustries Ltd. Vs. Olive Tea Plantations P. Ltd. (No. 2) - Court Judgment

Surinder Singh Nijjar, C.J.

1. This judgment will dispose of Appeal Nos. 277 of 2007 and 299 of 2007 as both the appeals are directed against the common judgment dated April 20, 2007 in Company Petition No. 531 of 2005 (Star Textiles and Industries Ltd. v. Olive Tea Plantations P. Ltd. (No. 1) [2009] 149 Comp Cas 68 (Cal)). For the purposes of this judgment we shall make reference to the facts as pleaded in Appeal No. 277 of 2007.

2. The company petition had been filed on the allegations that the company is indebted to the appellant in a sum of Rs. 1,15,59,525.86 along with further interest. It is alleged that initially in February, 2002 a short term temporary accommodation loan of Rs. 5,00,000 had been provided to the company. The company had agreed to pay interest at the rate of 15 per cent, per annum. Thereafter, on a request made by the company a further sum of Rs. 86,91,000 was paid on February, 2002, as temporary accommodation. A sum of Rs. 5,49,400 was repaid by the company on April 24, 2002. Thereafter, on August 26, 2002 a further payment of Rs. 70,000 was made to the company again as temporary accommodation loan. Over a period of time the company requested for further amounts as temporary accommodation loan which were accepted by the appellant. Consequently, between January 3, 2003 and October 17, 2003, the appellant had paid various amounts of money from time to time to the tune of Rs. 81,91,000. From time to time the company made part payments of small sums of money amounting to Rs. 49,400. Therefore, on the date of presentation of the winding up petition the outstanding was of Rs. 81,41,600. On the aforesaid amount the company was liable to pay interest in the sum of Rs. 34,17,925.86 till November 19, 2005, at the rate of 15 per cent, per annum as agreed by and between the parties. The appellant has failed to repay the aforesaid amount in spite of repeated requests, reminders and personal follow ups by the representatives of the appellant. The appellant called upon the company to make payment of the unpaid amount of temporary accommodation loan through a letter dated September 20, 2004, written by the advocates of the appellant. At the end of the letter it was mentioned that the same be also treated as a notice under Section 434 of the Companies Act, 1956.

3. On October 5, 2004, the company through its advocates denied the liability. According to the appellant the company had raised a baseless defence, creating an irrelevant and imaginary story. The appellant gave a reply to the company through its advocate on record on November 19, 2004. Since, in spite of repeated requests the company has failed to pay the amount due, it would be presumed that it is unable to pay its debts. Thus, a prayer has been made that the company be wound up under the provisions of the Companies Act, 1956.

4. The company in its reply to the statutory notice had pleaded an elaborate defence to the claim made by the petitioner. The company has stated that the background of the matter is such that Mr. Harsh Bajoria who manages and controls various companies including looking after the affairs of the petitioner had on false representations induced Mr. Mohan Kumar More, father of Mr. Aditya More, who is a director of the company to develop a tea garden jointly. According to the company, Mr. Harsh Bajoria had defrauded the company to the tune of Rs. 3,54,50,000. After setting out the details of the alleged fraud committed by Mr. Harsh Bajoria, the company claims that he was in complete control of the company and was also looking after the development of the tea estate belonging to the company. He had extracted huge amounts of money from Mohan Kumar More, Mr. Aditya More, Mrs. Lily More and their family members for the ostensible reason of developing the tea garden. Ultimately, when Mores were unable to loan any further amount, Mr. Harsh Bajoria persuaded Mr. More and its family members to take a loan from the Central Bank of India. It is categorically stated that the loan amount, which was taken from Central Bank of India, was all disbursed to the companies controlled and managed by Mr. Harsh Bajoria. In the meantime Mr. Harsh Bajoria had also opened a number of bank' accounts in the name of the company with various banks which were not reflected in the books of the company nor were the same disclosed to the More family. This was allegedly done by Mr. Harsh Bajoria for adjustment of the profits of his other companies to evade tax and to play a fraud on the authorities concerned. It is also stated that Mr. Harsh Bajoria was trying to launder his money through the company's accounts which were opened, maintained and operated by Mr. Harsh Bajoria, his son, Mr. Shalakia Bajoria and his other employees. Mr. Harsh Bajoria did not even stop at this. He had even passed journal entries between the other companies managed and controlled by him and the company so as to create a huge debt in the books of the company. This was done, so that Harsh Bajoria could siphon off the money from the companies owned and controlled by him. When the true state of affairs of the company came to the notice of the appellant, Mr. Harsh Bajoria was informed that, in view of the grave situation the company may be constrained to initiate legal proceedings against him. It is also the case of the company that the claim made by the appellant is a part of the money syphoned off fraudulently by Bajoria. The amounts taken from the appellants had been used for payment to Fastrack Real Estate (Rs. 56,80,000) and Mitsubishi (Rs. 22,90,000). All the three companies namely, the appellant, Fastrack and Mitsubishi belong to Harsh Bajoria or by persons who were directly under his control. It is stated that there is no debtor or creditor relationship between the appellant and the company. Transactions are just manipulations which have been created by Harsh Bajoria to defraud the company. The company therefore demanded that the amounts which have been fraudulently misappropriated from the books of the company be returned, failing which legal steps may be taken. The aforesaid defence in the notice is reiterated in the afhdavit-in-oppo-sition to winding up petition. In addition it is stated that the company has filed Civil Suit No. 316 of 2004 in this Court claiming a decree in the sum of Rs. 3,54,50,000 against the appellant and other defendants. The company also seeks a declaration that no money is due or payable by the company to defendants Nos. 8 to 14. We may notice here that appellant is impleaded as defendant No. 8 in the civil suit. The company also seeks a declaration that no money is due or payable to defendant No. 7 and in the alternative if at all any amount is due or payable mandatory injunction directing defendants Nos. 1 and 6 to make such payment to defendant No. 7. The company has also prayed for a perpetual injunction restraining the appellant and the other defendants from interfering with the management, control and affairs of the company. Interim relief is also sought for payment of interim interest on judgment at the rate of 24 per cent, per annum, payment of receiver and grant of interim injunction.

5. Apart from the plaint, the company also relied on the supplementary affidavit filed by Aditya More, plaintiff No. 3, in the aforesaid civil suit. In this affidavit it is stated that defendant No. 1, Harsh Bajoria, was in control of the company till March, 2004. It is also stated that the appellant held the shares in the company through his nominees, Arnav Securities (P.) Ltd., and Shree Kunj Securities (P.) Ltd., both these companies held shares till August 16, 2004. Till December, 2002 the directors of the company were all nominees of Harsh Bajoria. Even after December, 2002 till early 2004, the active directors were all nominees of Harsh Bajoria. Shalakia Bajoria is the son of Harsh Bajoria. He was the authorised signatory of all the bank accounts of the company. He continued to be authorised signatory in respect of the bank accounts at Central Bank of India even at the time the supplementary affidavit was affirmed. It is further pleaded that upon taking up the management of the company it was discovered that compliance certificate had not been filed since 2002. Numerous other irregularities were discovered, details of which are pleaded in the affidavit.

6. The appellant submitted that the pleadings in the supplementary affidavit are wholly unbelievable. The suit had been filed only to ward off the proceedings initiated by the appellant. It was stated that Mores were firmly in control of the company even before financial year 2002-03. It was claimed that the case pleaded in the supplementary affidavit was a myth. The company had also raised the issue of limitation. This was also denied by the appellant on the ground of part payments having been made by the company.

7. The learned single judge notices the submission made on behalf of the appellant as follows: (1) That even though there are no documents in support of the transactions that it claims, there is no denial by the company of having received the funds. (2) That even if a petitioning creditor is required to affirmatively establish its claim on the basis of the papers appended to its petition, once an affidavit is used by the company, the defence put forth is required to be tested against the claim made by a petitioner in a winding up petition. In other words the plausibility of the defence has to be evaluated rather than the unimpeachable character of the documents relied upon by the alleged creditor. Thus, in case company fails to file an affidavit -inopposition, the court will evaluate only the case pleaded in the petition. But, in case the company files an affidavit-in-opposition to the winding up petition the case set up in the affidavit is to be scrutinised more closely without the petitioner being required to prove its own case. (3) That the defence pleaded by the company is bogus, sham and moonshine. It has been taken only to delay the proceedings in the company court. (4) That the suit could not be treated as a counterclaim being cited.

8. On the other hand it was submitted by the company: (1) That complicated issues of fact could not be pronounced upon in summary proceedings by the company court. Therefore, the company court ought not to receive the winding up petition prior to the conclusion of the trial and the judgment of the trial court. (2) That the case of the petitioner has to be evaluated only on its own strength. The falsity of the defence of the company could only be of corroborative value. (3) That transactions involving crores of rupees ought to have been substantiated by primary documents by the appellant. The weakness in the company's defence cannot be used by the appellant in support of its own claim. (4) That the suit filed by the company would amount to a counter claim being cited. (5) That part payment would not keep alive a claim otherwise barred by limitation. In support of this submission the company relied on a judgment of the Supreme Court in the case of Sanat Lal Mahton v. Kamla Prasad 0043/1951 : [1952]1SCR116 .

9. Upon consideration of the pleadings and the submissions made on behalf of the parties the trial court held as follows (see pages 79, 80 and 81 supra):

There is no black and white answer to the argument that the petitioner makes and which the petitioner uses as its legs to carry it beyond the sparse details found in the petition: that once a company uses an affidavit, it is the defence which is to be tested as much as the initial case run by the petitioner. At the one end of the spectrum there could be a case where a petition or the claim therein is demurrable, yet the company admits it in its affidavit. Surely, such generosity of the company cannot resurrect the claim. At the other end of the spectrum there could be a one-line, unsubstantiated and improbable claim that is also greeted by an admission in the company's affidavit. The company court will then not look beyond the admission. But these are the unlikely, and somewhat theoretical, situations. The company judge is confronted daily with matters that lie in between. And in these in between cases, the clarity of the debt has ordinarily to be apparent from the petition rather than the vagueness of, or inconsistencies in, the company's response.

There is now the more engaging matter of the petitioner's claim and the company's defence that needs to be gone into. Before a company can be sent to liquidation, it must be found that it is unable to pay its debts. This would presuppose an existing debt and the company's inability to discharge it. A creditor who cannot obtain payment of his debts is entitled, as between himself and the company ex debito justitiae to an order for winding up if he brings his case within Sections 433(e) and 434(1)(a) of the Companies Act, 1956. But he must first establish that there is a debit owing and then satisfy the court that the company is unable to pay the same, before his petition is received. The court is entitled to investigate whether a dispute has been manufactured in order to delay and defeat the realisation of petitioner's dues and whether the defence is merely a cloak for the company's inability to pay its just debts. But for such inquiry to be answered in favour of the petitioner, he must establish that the company 'neglects to pay' its debts without any justifiable cause. Mere omission to comply with a demand may not amount to 'neglect' within the meaning of the phrase in the Act if the company cites reasonable cause for the omission. But before the reasonableness of the cause proffered by the company is ascertained, the petitioner needs to establish his debt.

The earliest assertion of the petitioner's claim here is found in its statutory notice which is greeted by a prompt denial and a counterclaim. The company does not deny receipt of the payments but seeks to show that it retained little of it and the most part seeped through, at the instance of the petitioner's alter ego then in control, to other agencies of Bajoria. In the accounts relied upon by the company, all of the funds that were parked in the company by the petitioner is shown to have found its way to Fastrack Real Estate Private Limited and Mitsubishi Trading Private Limited save a sum of Rs. 1,71,600 which stood transferred to the garden account of the company. The petitioner has made little attempt to disown Fastrack Real Estate Private Limited and Mitsubishi Trading Private Limited as being part of the group to which it belongs.

The petitioner's attempt to blow away the company's defence on the strength of the company's application for loan to the bank in May, 2003 has to be discounted on account of the minor mention of the third security offered in that document by the company. Such third security, and of considerably more value than the personal worth of the two Mores, was the corporate guarantee of one Arnab Financial Services Private Limited. Such proposed corporate guarantor appears to be another in the Bajoria fold. If, indeed, Bajoria and his nominees were no longer associated with the company in May, 2003, as the petitioner suggests, there would be no need for a Bajoria concern to stick its neck out and bear the maximum exposure for the company obtaining a loan.

Just as there is merit in the petitioner's contention that the accounts at pages 79-80 of the company's affidavit show that money was received from the petitioner and the petitioner has remained unpaid in respect of its principal claim, there is also the company's counter-claim that has to be appreciated. The company's simplistic stand that money sieved through it from one set of Bajoria entities to a second and to a third, does not fit in with the indisputable dates of the payments having made by the petitioner and undeniably received by the company. Yet, it is equally true that Bajoria was in control of the company and may be the person lurking behind the facade of the petitioner. However, improbable the company's claim in its suit, it is not impossible that a decree may be passed. The grey area between what is improbable and what is impossible belongs to the company. Once a company can show that there is likelihood of the defence succeeding, never mind the degree thereof, it succeeds in resisting winding up as there is no longer any inability to pay on its part within the meaning of the test in that regard set in the applicable provisions of the Companies Act. The mere filing of a suit is not adequate defence, a show of a possibility of success in such suit is and when there is doubt, there can be no security directed to be furnished.

There is only a thin distinction between the facts obtaining in a case that warrants admission of the petition and the facts obtaining in a case which calls for conditional rejection of the petition subject to furnishing of security. In either case, the defence has to be found to be moonshine or sham, no less would do. Despite finding that a defence was moonshine, there may be other considerations that could weigh with company judge to permit the petitioner's claim to be relegated to a suit on condition of security being furnished by the company. But here that part of the petitioner's loan that the company shows had crept into the coffers of Fastrack Real Estate Private Limited and Mitsubishi Trading Private Limited is not so free from doubt that would call for weighing the option of admission or security.

10. The trial court also found that since the petitioners claim for Rs. 1,71,600 had been admittedly transferred to the garden account of the company it is free from doubt. The trial court has relegated the appellant to a civil suit for the entire amount claimed excepting Rs. 1,71,600. The petition is admitted for the aforesaid sum. The balance claim of the petitioner, for the principal sum of Rs. 79,70,000, has been relegated to a suit. Both the appellant and the company have challenged the aforesaid judgment in these two connected appeals being Appeal Nos. 277 of 2007 and 299 of 2007. In the appeal filed by the company it is stated that the trial court has failed to appreciate that the entire issue is pending in the civil suit and, therefore, could not be adjudicated in the company court. Number of other grounds are also pleaded against some of the incidental observations made by the learned trial judge.

11. We have heard learned Counsel for the parties at length.

12. Mr. S.N. Mukherjee, learned senior counsel for the appellant submits that:

(1) The defence of the company should be disbelieved on the basis of the documents disclosed;

(2) Even if the defence of the company is 100 per cent, correct, it does not wipe away the liability of the company to the appellant, as the payments made to Fastrack and Mitsubishi has reduced the company's liability.

(3) In reply to the statutory notice the company has admitted the receipt of the money. Therefore the suit has been filed, by impleading a bank, challenging the credits and loans taken from the bank. The statutory notice is dated September 21, 2004. Reply given by the company is on October 5, 2004. Thereafter in December 2004, the company filed the suit. Prior to this there was no claim by the company against the appellant. There was no counterclaim.

(4) In any event the counterclaim story has been discarded by the learned single judge.

(5) The defence about the payment to Mitsubishi is false. According to the claim made by the appellant in paragraph 12 of the petition, the total amount paid to the company is a sum of Rs. 1,85,000 till March 6, 2003. Therefore, Rs. 17,08,800 claimed to have been paid by the company to Mitsubishi on May 22, 2003, cannot be accepted. Same reasoning applies to the alleged payment of Rs. 7,81,000 on May 22, 2003.

(6) No documents have been shown so far the payments to Fastrack are concerned.

(7) Various contradictions in pleadings of the plaint, makes it clear that the suit is bound to fail.

(8) The test adopted by the trial court that the grey area between the improbable and the impossible belongs to the company is incorrect. Once the trial court has found that it may be improbable that a decree will be granted in the suit, the defence could not be given any credence, on the reasoning that though improbable it may not be impossible that a decree would be granted. The appellant had only to establish the existence of a debt which the company has failed or neglected to pay. Learned senior counsel relies upon a judgment of the English Court of Appeal in the case of Welsh Brick Industries Ltd. In re [1946] 2 All ER 197, wherein the winding up petition was admitted even though unconditional leave had been granted to the company to defend the summary suit instituted by the petitioning creditor. Learned senior counsel then relies on the judgment of the Supreme Court in the case of Madhusudan Gordhandas and Co. v. Madhu Woollen Industries P. Ltd. : [1972]2SCR201 , in support of the submission that the winding up petition can only be successfully resisted in case the company is able to show that the debt is bona fide disputed and the defence is a substantial one. The company according to Mr. Mukherjee has miserably failed on both counts.

(9) In case the test of improbable, impossible be accepted, no winding up petition would proceed beyond admission.

(10) The trial judge concludes that mere filing of the suit is not sufficient but erroneously proceeds to admit the petition for a meagre amount of Rs. 1,71,600.

13. On the other hand Mr. Pratap Chatterjee, learned senior advocate and Mr. Abhrajit Mitra submits that:

(1) The civil suit was filed before the company petition. Therefore, it cannot be said to be a counterblast.

(2) Mores took over the control of the company in March, 2004. Prior to that Bajoria was in control, as is evident from the development agreement signed by him on April 6, 2002.

(3) Liability is not admitted. This is accepted by the learned trial judge.

(4) Appellant is relying only on the documents given by the company and the statement of account prepared by the appellant. The bills attached with the plaint were to show how money was siphoned off by Bajoria.

(5) Judgment in Welsh Brick Industries Ltd. In re case (supra) is not applicable in this case. The company has not admitted the loan. The money was being routed through the company.

(6) If the test in Madhusudan case (supra) is applied to the facts of this case, the petition had to be dismissed.

(7) Learned Counsel have also relied upon Mediquip Systems P. Ltd. v. Proxima Medical System GmbH : AIR2005SC4175 . It is submitted that in this case trappings of a debt are missing in the claim of the appellant. There is no agreement. The company was merely a conduit.

14. Learned Counsel also relies upon:

(1) Mannesmann Rexroth (India) Ltd. v. National Engineering Industries Ltd. : 2006(4)CHN76

(2) SRC Steel P. Ltd. v. Bharat Industrial Corporation Ltd. : 2005(4)CHN343 .

15. Mr. Pratap Chatterjee submits that the law in India is different from the principle laid down in Welsh Brick Industries Ltd. In re (supra). The situation between a winding up petition and a summary suit is practically identical. Complicated questions of fact can only be adjudicated in a civil suit. A Division Bench judgment of this Court in the case of Dhariwal Steel P. Ltd. v. Bengal Rolling Shutters and Engineers Works decided on April 1, 2004 is relied upon in support of this submission.

16. Mr. S.N. Mukherjee, learned senior Counsel says that the judgments cited by Mr. Chatterjee are distinguishable. In this case there is no dispute that the amount has been received by the company. There is no question of selection of remedy in this case. The only ground, on which the trial court, did not admit the petition for the entire amount is on the test of 'improbable and impossible'. Impossible is not permissible as the debt has to be bona fide disputed.

17. We have anxiously considered the submissions made by learned Counsel. We have also perused the entire paper book with the aid of learned Counsel for the parties. In our opinion the findings of the trial court are in consonance with the law laid down by the Supreme Court in the case of Mediquip Systems P. Ltd. (supra). In the aforesaid case the Supreme Court has clearly stated the principles with regard to the exercise of discretion by the company court while considering a petition for winding up under Sections 433(e) and 434(a) of the Companies Act, 1956. In order to make the matter absolutely clear we may reproduce here the relevant observations of the Supreme Court (page 481 to 483 of 124 Comp Cas):

18. This Court in a catena of decisions has 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 debts' 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 utilised merely as a mean for realising debts due from a company.

21. 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.

24. The Madras High Court in Tube Investments of India Ltd. v. Rim and Accessories P. Ltd. [1990] 3 Comp LJ 322 at page 326 has evolved the following principles relating to bona fide disputes:

(i) if there is a dispute as regards the payment of the sum towards the 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.

25. The rules as regards the disposal of winding up petition based on disputed claims are thus stated by this Court in Madhusudan Gordhandas and Co. v. Madhu Woollen Industries P. Ltd. 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.

18. In our opinion, the trial court evaluated the case of the appellant as well as the company in accordance with the established principles of law. We do not find any substance in the submission of Mr. Mukherjee that the trial court had not examined the defence of the company in its true perspective. Upon examination of the petition and the material presented in support thereof the trial court has clearly observed (see page 71 supra): 'On such scanty material as its own statement statutory notice and the company's response thereto, the petitioner founds its claim.' In spite of the aforesaid expressed opinion the trial court was cautious enough to examine the defence put forward by the company in view of the submissions made by learned Counsel for the petitioner based upon the judgment of the court of appeal in the case of Welsh Brick Industries Ltd., In re (supra). We may now sum up the factual and the legal opinion recorded by the trial court as under:

Facts:

(1) That the petitioner has presented scant material and sparse details to even prima facie show that the amounts claimed were given by the petitioner to the company as loan.

(2) Instead of presenting the material with the petition, the petitioner has sought to build up its case on the basis of the inconsistencies in the affidavit of the company.

(3) There is no agreement in writing that is relied upon by the petitioner.

(4) There is no demand made by the petitioner prior to the statutory notice.

(5) There is no acknowledgment of indebtedness by the company or even a writing where the transaction has been referred to in passing.

(6) The appellant has relied on a statement furnished by it. Its demand contained in the statutory notice and what it claims to be the baseless denial of the company's liability in response of October 5, 2004.

Law:

(1) That the clarity of the debt has to be apparent from the petition rather than the vagueness of, or inconsistencies in, the company's response.

(2) Before a company can be sent to liquidation it must be found that it is unable to pay its debt. This would pre-suppose an existing debt and the company's inability to pay it.

(3) A creditor is entitled to an order of winding up under Section 433(e) and 434(1)(a) of the Companies Act, 1956, ex debito justitiae on establishing that there is a debt owing and the company is unable or has neglected to pay the same.

(4) Upon being satisfied that there is a debt owing, the court is entitled to investigate whether the dispute put forward is bona fide or it has been manufactured in order to delay and defeat the realization of petitioner's dues. The court will also enquire as to whether the defence is merely a cloak for the company's inability to pay its debt. Even at that stage the petitioner has to establish that the company has neglected to pay its debt without any justifiable cause. But the pre-condition for examination of reasonableness of the cause preferred by the company the petitioner needs to establish a clear debt owed by the company.

19. It is by now too well-established that a company's defence can be 1 ignored if it falls within the realm of 'moonshine'. In other words, the defence is sham and has been pleaded only to defeat the claim put forward by the petitioner. This view of ours will find support from a Division Bench judgment of this Court in the case of Dhariwal Steel P. Ltd. (supra). In the aforesaid judgment the Division Bench has held that the company court would receive a winding up petition when the company fails to raise any bona fide dispute or is merely weaving cobwebs. On the other hand, the raising of a reasonable triable issues would entitle the company to have a permanent stay of the winding up petition. Since the company court examines the entire issue on affidavits only the court must, in appropriate cases, see through the affidavits and documents and reject such documents put forward by the company as are bogus or moonshine. In our opinion, the trial court has examined the defence put forward by the company in the correct perspective as required under the law. The principles on which the company court acts have already been culled out from the judgment of the Supreme Court in Madhusudan Gordhandas and Co. (supra) in the judgment in Mediquip System P. Ltd. (supra). We may, however notice certain observations which would clearly show that the trial court has considered the entire matter in accordance with the law and procedure and the criticism made by learned Counsel for the petitioner is wholly unjustified. In the aforesaid case the Supreme Court observed as follows (page 131 of 42 Comp Cas):

20. Two rules are well settled. First, if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable, (see London and Paris Banking Corporation [1874] L.R. 19 Eq. 444). Again, a petition for winding up by a creditor who claimed payment of an agreed sum for work done for the company when the company contended that the work had not been done properly was not allowed, (see Brighton Club and Norfolk Hotel Co. Ltd. In re [1865] 35 Beav 204).

21. Where the debt is undisputed the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt, (see A Company, In re [1894] 94 SJ 369 (Ch. D)). Where, however, there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the court will make a winding up order without requiring the creditor to quantify the debt precisely (see Tweeds Garages Ltd. In re [1962] 32 Comp Cas 795 (Ch. D) : [1962] Ch 406). The principles which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends.

20. Such being the settled law we fail to see how the conclusions arrived at by the trial court could be open to doubt at this stage. We are also of the opinion that the judgment of the Court of Appeal in Welsh Brick Industries Ltd. In re (supra) would not be applicable in the facts and circumstances of this case. In that case the petitioner creditor had issued a writ in the King's Bench Division for the recovery of certain sums advanced by him to the company. Thereafter he presented, in the county court, a petition, based on the same debt for winding up of the company on the ground that it was unable to pay its debts. When the petition came up for hearing, the county court judge found on the evidence before him that the debt was owing and that the company could not pay its debts, and he made a winding up order. The company appealed from the order. It was contended that the judge should have dismissed the petition because the order of the Registrar giving the company unconditional leave to defend the action for repayment of the debt was in itself conclusive of the fact that there was a bona fide dispute. Therefore, the winding up proceedings were not the appropriate procedure. The Court of Appeal, however, held as follows:

Lord Greene, M. R. (page 198 of [1946] 2 All ER):.I do not think that there is any difference between the words 'bona fide disputed' and the words 'disputed on some substantial ground'. I cannot accept the proposition that, merely because unconditional leave to defend is given, that of itself must be taken as establishing that there is a bona fide dispute or that there is some substantial ground of defence. The fact that such an order is made is no doubt a matter which the winding-up court will take into consideration and to which the winding-up court will in due course pay respect, but I cannot regard it as in any way precluding a winding up judge from going into the matter himself on the evidence before him and considering whether or not the dispute is a bona fide dispute, or, putting it in another way, whether or not there is some substantial ground for defending the action....

21. In our opinion these observations are of no consequence in the present case as the company has presented its defence on affidavits before the company court. There is no suit filed by the petitioning creditor seeking summary judgment against the company. On the contrary, a suit has been filed by the company claiming a decree in the sum of Rs. 3,54,50,000 against the petitioner and other defendants. The company has also made very serious allegation of fraud against the moving spirit Mr. Harsh Bajoria behind the corporate veil of all the sister concerns. The trial court has clearly come to the conclusion that Bajoria was in control of the company and may be the person lurking behind the facade of the petitioner. In such circumstances it would be difficult to accept the submissions of Mr. Mukherjee that the company has not bona fide disputed the debt. We may notice here that in the civil suit the company has given elaborate details of the fraud allegedly perpetrated by Harsh Bajoria and others. Such serious allegations can hardly be put in the realm of a moonshine defence. What is pleaded in the civil suit is also pleaded in the defence to the winding up petition. We may also notice here that the civil suit is filed before the petition for winding up was presented in the company court. In such circumstances, it would not be possible to ignore the very relevant fact that a civil suit regarding the same transaction is pending between the same parties. Admittedly, the defence taken by the company to the winding up petition is identical to the plea raised in the civil suit. Such being the position, the learned trial judge, in our opinion, cannot be said to have erred in exercise of his discretion to relegate the petitioner to the civil court.

22. As noticed above the trial court after clearly stating the applicable principles of law, still examined the defence set up by the company to see if it was sham or bogus. In our opinion, that occasion would have only arisen in case the petitioning creditor had been able to prima facie show that the loan was given; the receipt of the amount was either admitted as a loan or was shown to have been received as a loan. In the present case the petitioner has miserably failed to show that the amounts claimed had actually been given as loan to the company. There is no admission of liability by the company, rather the company puts forward the defence that it has been misused by Mr. Harsh Bajoria and other persons under his control by using the company as a conduit. The trial court, in our opinion, correctly relegated the petitioner to the remedy of a civil suit.

23. We are, however, unable to agree with the learned single judge that the claim of the company would fall within the grey area of improbable and impossible. We are of the opinion that the claim put forward by the company is not so far fetched that it could be put in the grey area of improbable and impossible. It would be inappropriate at this stage to come to a conclusion that the claim made by the company is improbable. There is sufficient material on the record to show that Bajoria was running the show. There were a number of other players in the game, but totally subordinate to and in control of Bajoria. Further, it is not even disputed by the appellant that Fastrack and Mitsubishi are controlled by Bajoria. There is no material on the record that the plea of the company that no development work was done by Bajoria on the tea garden, is false. The loan is not shown in the accounts of the appellants. There is no independent documentation to show the payment of the money as claimed. On the other hand, the company claims that it has been defrauded. It claims that the entire company affairs were neither reflected in the statutory accounts of the company, nor were the directors of the company even taken into confidence. Therefore, it would not be possible to discard the explanation of the company that it was used as a conduit to siphon off the money belonging to the company by Bajoria.

24. For these reasons the suit filed by the company cannot easily be discarded. The allegations made against Bajoria are very serious. There are allegations of falsification of accounts, forgery and embezzlement. The company court is hardly equipped in its summary jurisdiction to form a fair opinion on these matters. These are matters best left to the civil court to be determined in a civil suit. It is not unknown that civil suits thought to be wholly without merit have concluded in decrees being granted.

25. We are of the considered opinion that the appellants (the petitioning creditors) have failed to make out the very basic requirement for a company petition to be received. Therefore, the trial court, in our opinion, was not required to elaborately examine the merits of the defence. In spite of this legal position, the trial court examined the defence and on such examination did not find the defence to be moonshine. We are also of the opinion that the defence put up by the company is not so far fetched as to be discarded as sham, bogus or moonshine. In fact, the trial court holds that it falls in the grey area between improbable and impossible. But we are of the opinion that the defence put forward by the company is possible as well as probable. The parties are yet to lead oral as well as documentary evidence. This cannot possibly be evaluated by the company court in the summary proceedings.

26. We, therefore, see no merit in this appeal.

27. So far as the claim of Rs. 1,70,000 is concerned, the company cannot complain at this stage, as the amount was credited to the company's accounts.

28. Both the appeals are dismissed.

Biswanath Somadder, J.

29. I agree.

Later on:

30. After the judgment is pronounced, as prayed for, by the learned advocate appearing on behalf of Olive Tea Plantations Private Ltd. leave is granted to pay a sum of Rs. 1,70,000 as directed by the company court by tomorrow.