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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 8230 OF 2010
[Arising out of SLP (C) No. 886 of 2010]
M/s IBA Health (I) P. Ltd. .. Appellant
Versus
M/s Info-Drive Systems Sdn. Bhd. .. Respondent
JUDGMENT
K. S. Radhakrishnan, J.
1. Leave granted.
2. A Company Petition No. 41 of 2009 was filed by the
respondent herein under Sections 433(e) & (f), 434 and 439 of the
Companies Act, 1956 before the High Court of Karnataka at Bangalore
(hereinafter referred to as the Company Court) praying for winding up
of the appellant company on the ground that it had failed to pay a sum
of US$ 1,065,714.00 in terms of the Deed of Settlement entered into
by the parties on 19.12.2003 towards the fees for the marketing
services undertaken by the respondent for the appellant.
3. Prior to the filing of the company petition, a legal notice dated
16.8.2008 was served on the appellant under Section 434(1)(a) of the
Companies Act, 1956, calling upon the company to pay the amount
within twenty one days from the date of the receipt of that notice, failing
which the appellant was informed that appropriate legal proceedings
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would be initiated. Specific reference was also made to the deed of
settlement dated 19.12.2003 and the terms of the Compromise entered
into by the parties on 18.3.2006 in O.S. No. 9655 of 2005 before the
City Civil Court at Bangalore.
4. The appellant replied to the said notice vide its letter dated
28.8.2008 stating that it had not violated any of the terms and
conditions of the said deed of settlement or the compromise entered
into by the parties and that whatever amount received by the appellant
prior to 31.12.2006 from M/s Solutions Protocol Sdn. Bhd., a company
incorporated in Malaysia, was paid to the respondent. The appellant
also denied the liability to pay the amount demanded. The respondent
was advised not to indulge in any frivolous litigation against the
appellant which would be at their risk and costs.
5. The Company Judge, however, admitted the company
petition vide its order dated 17.9.2009 holding that the respondent
company has established a prima facie case and ordered that the
matter be re-listed for orders regarding advertisement to be published
in the newspaper. The Company Judge also referred to certain
clauses in the deed of settlement and the compromise petition and
concluded prima facie that the appellant had undertaken to make
future payments to the respondent. The Company Judge also directed
the parties to appear before the Mediation Centre at Bangalore for
amicably settling the dispute. Aggrieved by the above mentioned
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order, the appellant company filed OSA No. 36 of 2009 before the
Division Bench of the High Court of Karnataka which was dismissed
vide its judgment dated 21.10.2009 and hence, the present appeal
before this Court.
6. Mr. R. F. Nariman, learned senior counsel appearing for the
appellant company submitted that no grounds have been made out
even prima facie warranting interference by the Company Court and to
proceed further calling for an advertisement in the newspaper or
directing the parties to appear before the Mediation Centre for
amicably settling the dispute. Learned senior counsel submitted that
the Company Judge as well as the Division Bench have completely
misunderstood the terms and conditions of the deed of settlement
dated 19.12.2003 and the compromise entered into by the parties on
18.3.2006. The learned senior counsel also submitted that if at all the
respondent is aggrieved, the remedy open to the respondent is to
approach in the Civil Court and not by way of a winding up petition,
especially when there is substantial dispute between the parties.
Learned counsel also submitted that the company is commercially
solvent and capable of discharging its debts, if legally due.
7. Mr. R. S. Hegde, learned counsel appearing for the
respondent company submitted that the Company Court as well as the
Division Bench of the High Court have correctly came to the conclusion
that prima facie grounds have been made out under Section 433(e) &
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(f) read with Section 434 of the Companies Act. The learned counsel
submitted that the appellant company has failed to comply with the
terms and conditions of the deed of settlement dated 19.12.2003 and
the compromise entered into by the parties dated 18.3.2006. Learned
counsel submitted that the appellant company is not in a position to
pay off its debts and it is just and equitable that the appellant company
be wound up.
FACTS IN BRIEF
8. The appellant [M/s IBA Health (India) Private Limited] was
originally incorporated as Medicom Solutions Private Limited. The
name of the appellant company was changed to M/s IBA Health (India)
Private Limited in December 2005 following its acquisition by IBA
Health (Asia) Holding Pte. Limited and IBA Health (Singapore) Pte.
Limited, both of which are entities incorporated in Singapore. The
paid up capital of the appellant company was in excess of Rs.10.06
crores at the end of 31.3.2009 and its fixed assets and investments
were in excess of Rs.23.83 crores. At the end of 31.3.2009, it had
made a profit of over Rs.15 crores and there were over 300 employees
working in the appellant company. The respondent is a company
incorporated in Malaysia which was originally incorporated as Bhari
Information Technology Systems Sdn. Bhd. and subsequently changed
its name to Info-Drive Systems Sdn. Bhd.
9. Pursuant to a Cooperation Agreement dated 18.2.2002
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entered into by the appellant and the respondent, the respondent
introduced the appellant to one M/s. Solutions Protocol Sdn. Bhd. for
the sale and supply of the appellant's Hospital Information Systems
(HIS) Software applications and for that service, the appellant
company agreed to pay the respondent company certain commission
charges as set out in the said agreement. The dispute arose between
the parties regarding the payment of the commission charges which
led the parties entering into a deed of settlement dated 19.12.2003,
pursuant to which the terms of the cooperation agreement were
superseded by the deed of settlement and the appellant agreed to pay
the commission charges due to the respondent in accordance with the
terms and conditions set out in the deed of settlement.
10. Alleging breach of the terms of the deed of settlement, the
respondent filed a civil suit being O.S. No. 9655 of 2005 before the City
Civil Court, Bangalore for restraining the acquisition of the appellant by
IBA Health (Asia) Holding Pte. Limited and IBA Health (Singapore) Pte.
Limited. The parties entered into a compromise on 18.3.2006,
pursuant to which both the parties agreed to adhere to the terms and
conditions of the deed of settlement dated 19.12.2003.
11. After the compromise petition was filed, the respondent
received an amount of RM1,069,583.29 on 20.3.2006 from the
appellant. Alleging that, despite receiving periodical payments from
M/s Solutions Protocol Sdn. Bhd., the appellant company had failed to
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honour its commitments as per the deed of settlement and the
compromise entered into by the parties, the respondent issued an
invoice dated 2.2.2007 to the appellant claiming an amount of US$
1,065,714.00 allegedly due towards fees for the marketing services.
Since the appellant declined to pay the amount demanded, the
respondent issued a legal notice dated 4.7.2007 calling upon the
appellant to pay the above mentioned amount within fifteen days from
the receipt of the notice, failing which the appellant was informed that
the legal proceedings would be initiated against it. Reference was also
made to various terms and conditions incorporated in the deed of
settlement.
12. Appellant replied to the said notice on 19.7.2007 stating that it
had not violated any of the terms and conditions of the deed of
settlement dated 19.12.2003 and pointed out that whatever amounts
received by the appellant from M/s Solutions Protocol Sdn. Bhd. were
paid over to the respondent. It was stated that the appellant company
had received no other payments till 31.12.2006 after they made
payment to the respondent on 20.3.2006. Further, it was pointed out
that the invoice dated 2.2.2007 had no basis as it has been issued to
M/s IBA Health Limited, a company incorporated in Australia and was
not a party to the Corporation agreement or the deed of settlement.
The respondent company was advised not to indulge in any frivolous
proceedings against the appellant, which it was stated would be at
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their risk and costs. The respondent company then issued a legal
notice dated 16.8.2008 under Section 434 of the Companies Act
calling upon the appellant to pay the amount demanded within twenty
one days from the date of receipt of notice, failing which the appellant
was informed that appropriate legal proceedings would be initiated.
The notice was replied by the appellant company vide letter dated
28.8.2008 denying its liability. Further, it was also pointed out that any
attempt to initiate proceedings under Section 433(e) of the Companies
Act, 1956 has to fail as there is no debt payable by the appellant.
13. We are, in this case, primarily concerned with the terms and
conditions of the deed of settlement followed by the terms of the
compromise entered into by the parties on 18.3.2006 in O.S. No. 9655
of 2005. In order to examine the rival contentions raised by the
parties, it is useful to refer to the terms and conditions incorporated in
the above mentioned documents. The relevant terms and conditions
of the deed of settlement dated 19.12.2003 are as follows:
"1. MEDICOM has agreed to pay and BITECH has agreed to accept
up to the maximum amount of Ringgit Malaysia Eight Million Six
Hundred Thousand (RM 8,600,000) only as full and final settlement
subject to terms and conditions hereinafter contained (hereinafter
referred to as the "Settlement Sum").
2. The Parties hereto agreed that the Settlement Sum is formulated
based on the following proportions of the total amounts of
MIDICOM produce license fee and/or all other payments received
by MEDICOM from SP and/or SP/JV by virtue of the HICT
Package I Contract:
i. Eleven (11%) percent of the MEDICOM HIS software
applications produce license fee, subject to a maximum
of Ringgit Malaysia Six Million Two Hundred Thousand
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(RM 6,200,000) only;
ii. Subject to a maximum of Ringgit Malaysia Two Million
Four Hundred Thousand (RM 2,400,000) only:
a. Twelve (12%) percent for implementation and
business process re-engineering fees only, for
payments received by MEDICOM on or before
31st December, 2003;
b. Five (5%) percent for implementation and
business process re-engineering fees only, for
payments received by MEDICOM after 31st
December, 2003;
iii. The Settlement Sum as indicated in sub-paragraphs (i)
and (ii) above is only towards the amount received from
SP and/or SP/JV for any of the 13 named hospitals along
with scope of modules/deliverables agreed as part of
HICT Package I Contract. BITECH shall not be entitled
to any amount in respect of any new hospitals added to
HICT Package I Contract or replacement hospitals to
HICT Package I contract or change in methodology and
scope of supply;
iv. BITECH shall have no claims either now or anytime in
future on payments received by MEDICOM from SP
and/or SP/JV on any other items of deliverables not
specified in Clause 2(i) or Clause 2(ii) above, howsoever
designated, including Software Maintenance, Annual
Maintenance Charges (AMC), customization, per diem
charges, local expenses, airfare & travel expenses,
accommodation expenses and the like.
3. The Settlement Sum shall be valid for payments received by
MEDICOM from SP and/or SP/JV under the HICT Package I
Contract and/or the HIS software applications modules contracted
for the HICT Package I Contract with SP/JV only and it is
conclusively agreed to that BITECH shall not in any circumstances
whatsoever be entitled in law or otherwise for any payment for any
other contracts including contracts involving MEDICOM and
Solutions Protocol from the Government of Malaysia or otherwise,
whether in Malaysia or any other country.
4. The Parties hereto hereby acknowledge that the obligation of
MEDICOM to pay BITECH the Settlement Sum shall always be
subject to MEDICOM (or its representatives or nominees) having
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received payments of sufficient value from SP and/or SP/JV to
enable the payment of up to the maximum amount of the
Settlement Sum to be made on or before 31st December, 2006
(hereinafter referred to as the "Cut-Off Date") and in the event that
such payments are not received on or before the Cut-off Date, the
Parties agree that BITECH shall receive a proportion of the total
value of payments received by MEDICOM (or its representatives or
nominees) to be calculated in accordance with Clause 2(i) and (ii)
above.
5. BITECH may designate a nominee to receive payments from
MEDICOM constituting the Settlement Sum, the identity and
address of which shall be communicated MEDICOM and Solutions
Protocol in writing upon the execution of this Deed of Settlement.
xxx xxx xxx
xxx xxx xxx
7. The Settlement sum shall be initiated for the process of payment
by MEDICOM to BITECH in the following manner:
i. For all or any amounts received by MEDICOM up to 31
December 2003, MEDICOM shall issue and establish an
irrevocable Letter of Credit (LC) to BITECH in the
proportions set out in Clause 2(i) and (iia) within 10 working
days from 31st December, 2003; and
ii. For any amounts received by MEDICOM from SP/JV after
31 December 2003 onwards, MEDICOM shall issue and
establish an irrevocable Letter of Credit (LC) to BITECH in
the proportions set out in Clause 2(i) and (iib) within 21
working days from the date the payment is received by
MEDICOM.
xxx xxx xxx
xxx xxx xxx
19. This Deed of Settlement shall be governed by and construed in
accordance with the law of India and the parties hereto submit to the
exclusive jurisdiction of the courts of Bangalore, India."
14. Following the above deed of settlement, we have already
indicated that the parties had entered into a Compromise on 18.3.2006
in O.S. No. 9655 of 2005. Reference may also be made to clauses 2
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to 6 of the said Compromise deed, which are extracted hereunder:
" xxx xxx xxx
xxx xxx xxx
2. The Defendant has agreed that it will provide report once in two
months to plaintiff, of defendant's invoices raised on M/s Solution
Protocol Sdn. BHD, Malaysia and reports once in two months, of
payment effected by M/s. Solutions Protocol Sdn. BHD, Malaysia
in favour of the defendant pertaining to the transactions under
HICT Package I Contract as referred in Clause 2(i)(ii) & (iii) of the
Deed of Settlement. Plaintiff assures that it will make reasonable
efforts to persuade M/s. Solutions Protocol to settle the invoices of
the defendant at the earliest.
3. The Defendant agreed to make future payments to the plaintiff as
per Plaintiff's entitlement and as per the defendant's obligation
under the Deed of Settlement.
4. The Defendant, based on transactions pertaining to the Deed of
Settlement has paid the amount having become due and payable
to the Plaintiff as on date. The Plaintiff accepts that it has received
all payments due to it as on date from the defendant as per the
terms of the deed of settlement.
5. The Defendant has already disclosed the right of the Plaintiff in
respect of Deed of Settlement mentioned in the suit, to M/s IBA
Health Limited, Australia in the understanding entered with them.
6. This compromise shall be binding on the parties and shall not be
construed as creating an executable decree.
xxx xxx xxx
xxx xxx xxx"
15. The respondent company in company petition alleged that the
appellant had failed to comply with the terms and conditions of the
deed of settlement and since no payment was forthcoming from the
appellant company and, it was under such circumstances, that a legal
notice legal notice dated 16.8.2008 was issued on the appellant
reminding of its obligations under the deed of settlement. Further, it is
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also stated that the respondent had reliably learnt that substantial
payment had been received by the appellant from M/s Solutions
Protocol Sdn. Bhd. and, in spite of that, the appellant company had
failed to honour its commitments under the deed of settlement.
Reference was also made to clause (4) of the deed of settlement.
16. Appellant company in its statement of objections stated that it
had paid the amount of RM 1,069,583.89 to the respondent company
in due compliance with the terms of the deed of settlement. Further it
was pointed out that the appellant company had not received any
amount from M/s Solutions Protocol Sdn. Bhd. since its payment in
March 2006. Further, it is also pointed out that the appellant company
had no subsisting commercial dealings with M/s. Solutions Protocol
Sdn. Bhd. and that the respondent company should be put to strict
proof with regard to the transactions completed before 31.12.2006 and
also the payments effected by M/s Solutions Protocol Sdn. Bhd. to the
appellant company. Further, it was pointed out that the documents
Annexure J1 to J9 did not pertain to the appellant company and it had
not received any payment thereunder. Further, it was pointed out that
the allegations raised by the respondent company are totally frivolous
which would require detailed investigation, recording of evidence and
adjudication of the rights and obligations of third-party entities and
would fall beyond the scope of enquiry to be conducted by the
Company Court under Sections 433, 434 and 439 of the Companies
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Act, 1956 and if, at all, the respondent is aggrieved, the remedy open
is to approach the Civil Court for adjudication of its claims.
SUBSTANTIAL DISPUTE - AS TO LIABILITY
17. The question that arises for consideration is that when there
is a substantial dispute as to liability, can a creditor prefer an
application for winding up for discharge of that liability? In such a
situation, is there not a duty on the Company Court to examine
whether the company has a genuine dispute to the claimed debt? A
dispute would be substantial and genuine if it is bona fide and not
spurious, speculative, illusory or misconceived. The Company Court,
at that stage, is not expected to hold a full trial of the matter. It must
decide whether the grounds appear to be substantial. The grounds of
dispute, of course, must not consist of some ingenious mask invented
to deprive a creditor of a just and honest entitlement and must not be a
mere wrangle. It is settled law that if the creditor's debt is bona fide
disputed on substantial grounds, the court should dismiss the petition
and leave the creditor first to establish his claim in an action, lest there
is danger of abuse of winding up procedure. The Company Court
always retains the discretion, but a party to a dispute should not be
allowed to use the threat of winding up petition as a means of forcing
the company to pay a bona fide disputed debt.
18. In this connection, reference may be made to the judgment of
this Court in Amalgamated Commercial Traders (P) Ltd. v. A.C.K.
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Krishnaswami and another (1965) 35 Company Cases 456 (SC), in
which this Court held that "It is well-settled that 'a winding up petition is
not a legitimate means of seeking to enforce payment of the debt
which is bona fide disputed by the company. A petition presented
ostensibly for a winding up order but really to exercise pressure will be
dismissed, and under circumstances may be stigmatized as a
scandalous abuse of the process of the court."
19. The above mentioned decision was later followed by this
Court in Madhusudan Gordhandas and Co. v. Madhu Woollen
Industries Pvt. Ltd. 1971) 3 SCC 632. The principles laid down in the
above mentioned judgment have again been reiterated by this Court in
Mediquip Systems (P) Ltd. v. Proxima Medical Systems (GMBH)
(2005) 7 SCC 42, wherein this Court held that the defence raised by
the appellant-company was a substantial one and not mere moonshine
and had to be finally adjudicated upon on the merits before the
appropriate forum. The above mentioned judgments were later
followed by this Court in Vijay Industries v. NATL Technologies Ltd.
(2009) 3 SCC 527.
20. The principles laid down in the above mentioned cases
indicate that 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
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pay its debts is not substantiated and non-payment of the amount of
such a bona fide disputed debt cannot be termed as "neglect to pay"
so as to incur the liability under Section 433(e) read with Section
434(1)(a) of the Companies Act, 1956.
COMMERCIALLY SOLVENT
21. Appellant company raised a contention that it is commercially
solvent and, in such a situation, the question may arise that the factum
of commercial solvency, as such, would be sufficient to reject the
petition for winding up, unless substantial grounds for its rejection are
made out. A determination of examination of the company's
insolvency may be a useful aid in deciding whether the refusal to pay is
a result of the bona fide dispute as to liability or whether it reflects an
inability to pay, in such a situation, solvency is relevant not as a
separate ground. If there is no dispute as to the company's liability,
the solvency of the company might not constitute a stand alone ground
for setting aside a notice under Section 434 (1)(a), meaning thereby, if
a debt is undisputedly owing, then it has to be paid. If the company
refuses to pay on no genuine and substantial grounds, it should not be
able to avoid the statutory demand. The law should be allowed to
proceed and if demand is not met and an application for liquidation is
filed under Section 439 in reliance of the presumption under Section
434(1)(a) that the company is unable to pay it debts, the law should
take its own course and the company of course will have an
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opportunity on the liquidation application to rebut that presumption.
22. An examination of the company's solvency may be a useful
aid in determining whether the refusal to pay debt is a result of a bona
fide dispute as to the liability or whether it reflects an inability to pay.
Of course, if there is no dispute as to the company's liability, it is
difficult to hold that the company should be able to pay the debt merely
by proving that it is able to pay the debts. If the debt is an
undisputedly owing, then it should be paid. If the company refuses to
pay, without good reason, it should not be able to avoid the statutory
demand by proving, at the statutory demand stage, that it is solvent.
In other words, commercial solvency can be seen as relevant as to
whether there was a dispute as to the debt, not as a ground in itself,
that means it cannot be characterized as a stand alone ground.
23. We have gone through various terms and conditions of the
deed of settlement as also the compromise agreement and the
allegations raised in the company petition and the objections filed by
the appellant company. Both the parties are in agreement that they
are bound by the terms and conditions of the deed of settlement. The
respondent maintained the stand that substantial payments have been
released by M/s Solutions Protocol Sdn. Bhd. in respect of various
invoices raised by the appellant on or before 31.12.2006, this is the cut
off date mentioned in the deed of settlement. The appellant company
categorically denied that it had received payments on or before
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31.12.2006, except the amount already received from M/s Solutions
Protocol Sdn. Bhd. had been paid over to the respondent. Clause (2)
of the deed of settlement states that the parties had agreed that the
settlement sum was formulated based on the following proportions of
the total amounts of MEDICOM produce license fee and/or all other
payments received by MEDICOM from SP and/or SP/JV by virtue of
the HICT Package I Contract. Further, it is stated therein that the
settlement sum shall be valid for payments received by MEDICOM
from SP and/or SP/JV under the HICT Package I Contract and/or the
HIS Software applications modules contracted for the HICT Package I
Contract with SP/JV only and it was conclusively agreed to that
BITECH shall not in any circumstances whatsoever be entitled in law
or otherwise for any payment for any other contracts including
contracts involving MEDICOM and Solutions Protocol from the
Government of Malaysia or otherwise, whether in Malaysia or any
other country. Further, Clause (4) also stipulated that the parties have
acknowledged that the obligation of MEDICOM to pay BITECH the
settlement sum shall always be subject to MEDICOM (or its
representatives or nominees) having received payments of sufficient
value from SP and/or SP/JV to enable the payment of upto the
maximum amount of the settlement sum to be made on or before
31.12.2006, which is the Cut-off date. Further, it is seen that one of
the terms of the compromise was that the respondent would make
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reasonable efforts to persuade M/s. Solutions Protocol to settle the
invoices of the appellant at the earliest.
24. On a detailed analysis of the various terms and conditions
incorporated in the deed of settlement as well as the compromise deed
and the averments made by the parties, we are of the considered view
that there is a bona fide dispute with regard to the amount of claim
made by the respondent company in the company petition which is
substantial in nature. The Company Court while exercising its powers
under Sections 433 and 434 of the Companies Act, 1956 would not be
in a position to decide who was at fault in not complying with the terms
and conditions of the deed of settlement and the compromise deed
which calls for detailed investigation of facts and examination of
evidence and calls for interpretation of the various terms and
conditions of the deed of settlement and the compromise entered into
between the parties. A company petition cannot be pursued in respect
of contingent debt unless the contingency has happened and it has
become actually due. In the absence of any evidence, it is not
possible to conclude that M/s. Solutions Protocol Sdn. Bhd. had in fact
paid any amount to the appellant company towards commission
charges due to the respondent company before the cut off date. A
legal notice prior to the institution of the company petition could be
served on the company only in respect of a debt (then due) and a
company could be wound up only if it was unable to pay its debts. In
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this case, there is a bona fide dispute as to whether the amount
claimed is presently due and if, at all, it is due, whether the appellant
company is liable to pay the sum unless they have received the same
from M/s. Solutions Protocol Sdn. Bhd. Where the company has a
bona fide dispute, the petitioner cannot be regarded as a creditor of the
company for the purposes of winding up. "Bona fide dispute" implies
the existence of a substantial ground for the dispute raised. Where the
Company Court is satisfied that a debt upon which a petition is
founded is a hotly contested debt and also doubtful, the Company
Court should not entertain such a petition. The Company Court is
expected to go into the causes of refusal by the company to pay before
coming to that conclusion. The Company Court is expected to
ascertain that the company's refusal is supported by a reasonable
cause or a bona fide dispute in which the dispute can only be
adjudicated by a trial in a civil court. In the instant case, the Company
Court was very casual in its approach and did not make any endeavour
to ascertain as to whether the company sought to be wound up for
non-payment of debt has a defence which is substantial in nature and
if not adjudicated in a proper forum, would cause serious prejudice to
the company.
MALICIOUS PROCEEDINGS FOR WINDING UP
25. We may notice, so far as this case is concerned, there has
been an attempt by the respondent company to force the payment of a
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debt which the respondent company knows to be in substantial
dispute. A party to the dispute should not be allowed to use the threat
of winding up petition as a means of enforcing the company to pay a
bona fide disputed debt. A Company Court cannot be reduced as a
debt collecting agency or as a means of bringing improper pressure on
the company to pay a bona fide disputed debt. Of late, we have seen
several instances, where the jurisdiction of the Company Court is being
abused by filing winding up petitions to pressurize the companies to
pay the debts which are substantially disputed and the Courts are very
casual in issuing notices and ordering publication in the newspapers
which may attract adverse publicity. Remember, an action may lie in
appropriate Court in respect of the injury to reputation caused by
maliciously and unreasonably commencing liquidation proceedings
against a company and later dismissed when a proper defence is
made out on substantial grounds. A creditor's winding up petition
implies insolvency and is likely to damage the company's
creditworthiness or its financial standing with its creditors or customers
and even among the public.
PUBLIC POLICY CONSIDERATIONS
26. A creditor's winding up petition, in certain situations, implies
insolvency or financial position with other creditors, banking
institutions, customers and so on. Publication in the Newspaper of the
filing of winding up petition may damage the creditworthiness or
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financial standing of the company and which may also have other
economic and social ramifications. Competitors will be all the more
happy and the sale of its products may go down in the market and it
may also trigger a series of cross-defaults, and may further push the
company into a state of acute insolvency much more than what it was
when the petition was filed. The Company Court, at times, has not
only to look into the interest of the creditors, but also the interests of
public at large.
27. We have referred to the above aspects at some length to
impress upon the Company Courts to be more vigilant so that its
medium would not be misused. A Company Court, therefore, should
act with circumspection, care and caution and examine as to whether
an attempt is made to pressurize the company to pay a debt which is
substantially disputed. A Company Court, therefore, should be
guarded from such vexatious abuse of the process and cannot function
as a Debt Collecting Agency and should not permit a party to
unreasonably set the law in motion, especially when the aggrieved
party has a remedy elsewhere.
28. In the above mentioned facts and circumstances of the case,
we are of the view that the order passed by the Company Court
ordering publication of advertisement in the newspaper would definitely
tarnish the image and reputation of the appellant company resulting in
serious civil consequences and, hence, we are inclined to allow this
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appeal and set aside the order passed by the Company Court dated
17.9.2009 in Company Petition 41 of 2009 and the judgment of the
Division Bench of the High Court of Karnataka dated 21.10.2009
passed in OSA No. 36 of 2009, and we order accordingly. However,
we make it clear that the observations and findings rendered by this
Court in this proceeding will not prejudice the parties in approaching
the appropriate forum for redressal of their grievances and, in the
event of which, that forum will decide the case in accordance with law.
.................................CJI
(S. H. KAPADIA)
....................................J.
(K. S. RADHAKRISHNAN)
New Delhi,
September 23, 2010
