Case Note & Summary
The appellant, Prime Broking Company (India) Ltd., appealed against an order dated 28 June 2016 passed by the Company Judge admitting a winding up petition filed by the respondent, National Securities Clearing Corporation Ltd., and ordering advertisement. The appellant admitted an indebtedness of at least Rs.90.90 crores to the respondent but contended that it had a claim for damages of Rs.152.57 crores against the respondent, based on certain acts of omission and commission. The appellant had already instituted Suit (L) No. 939 of 2013 before the receipt of the statutory notice under Section 434 of the Companies Act, 1956, claiming the said damages. The appellant argued that this constituted a bona fide defence of substance, both in law and fact, and therefore the winding up petition ought not to have been admitted. The respondent argued that the counterclaim was not bona fide and was merely a device to avoid payment. The court, after hearing both sides, held that the existence of a pending suit for damages against the petitioning creditor, where the claim exceeds the admitted debt, can be a bona fide defence of substance. The court noted that the Company Judge had not properly considered this aspect and had erred in admitting the petition. The appeal was allowed, the impugned order was set aside, and the winding up petition was dismissed. The court clarified that the dismissal does not affect the respondent's right to pursue other remedies for recovery of the debt.
Headnote
A) Company Law - Winding Up - Bona Fide Defence - Section 434 Companies Act, 1956 - The court considered whether a pending suit for damages against the petitioning creditor, exceeding the admitted debt, constitutes a bona fide defence of substance to a winding up petition. Held that a bona fide counterclaim, even if not yet adjudicated, can be a valid defence if it is substantial and not a mere device to avoid payment. The appeal was allowed, setting aside the admission order. (Paras 1-23)
B) Company Law - Winding Up - Admission of Petition - Section 433, 434 Companies Act, 1956 - The court examined the principles for admission of a winding up petition when the company disputes the debt on the ground of a counterclaim. Held that the Company Judge must consider whether the defence is genuine and substantial, and if so, the petition should not be admitted. The impugned order was set aside. (Paras 2-23)
Issue of Consideration
Whether the Company Judge was justified in admitting the winding up petition and ordering advertisement despite the company having a pending suit for damages against the petitioning creditor, which exceeds the amount of the undisputed debt.
Final Decision
The appeal is allowed. The impugned order dated 28 June 2016 is set aside. The Company Petition No. 3 of 2015 is dismissed. However, this dismissal does not preclude the respondent from pursuing other remedies for recovery of the debt.
Law Points
- Winding up petition cannot be admitted if the company has a bona fide counterclaim exceeding the debt
- Bona fide defence of substance includes a pending suit for damages
- Section 434 of Companies Act
- 1956 requires inability to pay debts
- not mere existence of debt
Case Details
2017 LawText (BOM) (01) 3
APPEAL (L) NO. 259 OF 2016 IN COMPANY PETITION NO. 3 OF 2015
Dr. Manjula Chellur, C. J., M. S. Sonak, J.
Mr. Zal Andhyarujina, Mr. Nirav Mehta, Mr. Naushar Kohli for Appellant; Mr. Viraj Tulzapurkar, Sr. Advocate, Dr. Birendra Saraf, Mr. Sachin Chandarana, Mr. Pritvish Shetty for Respondent
Prime Broking Company (India) Ltd.
National Securities Clearing Corporation Ltd.
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Nature of Litigation
Appeal against order admitting winding up petition and ordering advertisement
Remedy Sought
Setting aside the order dated 28 June 2016 admitting the winding up petition and ordering advertisement
Filing Reason
The appellant company had a pending suit for damages against the respondent exceeding the admitted debt, which it claimed was a bona fide defence to the winding up petition
Previous Decisions
Company Judge admitted the winding up petition and ordered advertisement on 28 June 2016
Issues
Whether the company's pending suit for damages against the petitioning creditor constitutes a bona fide defence of substance to the winding up petition
Whether the Company Judge was justified in admitting the winding up petition despite the existence of such a counterclaim
Submissions/Arguments
Appellant: The company has a bona fide counterclaim of Rs.152.57 crores against the respondent, which exceeds the admitted debt of Rs.90.90 crores, and a suit has already been filed before the statutory notice. This is a defence of substance and the winding up petition should not have been admitted.
Respondent: The counterclaim is not bona fide and is merely a device to avoid payment. The company has admitted the debt and the petition was rightly admitted.
Ratio Decidendi
A winding up petition under Section 433 and 434 of the Companies Act, 1956 should not be admitted if the company has a bona fide defence of substance, including a counterclaim against the petitioning creditor that exceeds the amount of the admitted debt. The existence of a pending suit for damages, filed before the statutory notice, can constitute such a defence.
Judgment Excerpts
The appellant (company) appeals the order dated 28 June 2016 made by the Company Judge admitting the petition for winding up of the company and ordering the advertisement thereof in accordance with the provisions of the Companies Act, 1956 (said Act) and the Companies (Court) Rules 1959 (said Rules).
There is no dispute that the company is indebted to the respondent (petitioning creditor) in an amount of at least Rs.90.90 crores.
The company however contends that as against such undisputed dues, the company has a claim against the petitioning creditor in an amount of Rs.152.57 crores by way of damages on account of certain acts of omission and commission on the part of the petitioning creditor.
Procedural History
The respondent filed Company Petition No. 3 of 2015 seeking winding up of the appellant company. The Company Judge admitted the petition and ordered advertisement on 28 June 2016. The appellant filed the present appeal against that order. The appeal was heard and reserved on 2 December 2016, and judgment pronounced on 17 January 2017.
Acts & Sections
- Companies Act, 1956: Section 433, Section 434
