Gurdina Jiwatram Kukreja and Others vs Eastern Mining and Allied Industries Ltd.

A. K. Patnaik, J.—This is an application under Sections 433, 434 and 439 of the Companies Act, 1956, for winding up of Eastern Mining and Allied Industries Limited (hereinafter called the "company").

The case of the petitioners as stated in the petition is that pursuant to an advertisement and representation of the company, the petitioners applied for "rights issues" of the company in 1993 and along with right renounced forms deposited an amount of Rs. 4,87,200 by cheques dated March 24, 1993, in the account of the company in the State Bank of Indore at Mumbai, and by letter dated October 18, 1994, the State Bank of Indore certified that the cheques have been encashed in favour of the company. Despite receipt of said amount of Rs. 4,87,200, the company did not allot the shares in favour of the petitioners. The petitioners wrote various letters to the company and its directors and also personally visited the offices of the company at Mumbai, Delhi, and Shillong complaining of such non-allotment of shares. Shri T. S. Bareh, chairman of the company/ Shri M. S. Jairam, managing director of the company and Shri Sukhram Verma, director of the company partly settled the claim of the petitioners by making payment to four petitioners an amount of Rs. 1,90,400 by bank drafts dated October 16, 1996, drawn on Bank of Baroda, Parliament Street Branch, New Delhi. The said three officers of the company assured petitioner No. 1 that they would settle the entire claim of the petitioners within a period of two months thereafter. But despite such assurance, the balance amount of Rs. 2,96,800 paid as application money for the shares was not refunded to the petitioners. By notice dated April 22, 1998, the petitioners through their advocate called upon the company to pay the said balance amount of Rs. 2,96,800 together with interest at the rate of 24 per cent. per annum. In the said notice, the advocate of the petitioners stated that notice be treated as a statutory notice under Sections 433 and 434 of the Companies Act, 1956, and that in the event of non-payment within a period of 21 days from the date of receipt of the notice, petition will be filed for winding up of the company. By its letter dated May 13, 1998, to the advocate of the petitioners, the company denied that any amount was due and payable from the company to the petitioners. The petitioners have thus filed this application praying that the company be wound up by an order of this court on the ground that the company is unable to pay its debts.

An affidavit-in-opposition has been filed by Shri M. S. Jairam, the managing director of the company on behalf of the company denying liability of the company to the petitioners. It has been stated in the said affidavit-in-opposition that as per the advertisement payment for the "rights issues" was to be made in the account of the company "EML-Rights Issues A/C No. 62". But on investigation and enquiry made by the company it was revealed that some Sub-brokers and jobbers in connivance with some of the bank officials managed to open a current account (No. 63) in the name of the company in State Bank of Indore in the same branch in which "EML-Rights Issues A/C No. 62" had been opened. It has further been stated in the said affidavit-in-opposition that the said current account No. 63 was opened unauthorisedly and without the knowledge/consent of the company and many of the applications and connected subscriptions collected by the Sub-brokers found their way to that account but such amounts deposited in the said current account No. 63 were not received by the company. In the said affidavit-in-opposition it is further stated that Civil Suit No. 3879 of 1998 has been filed by the company in the Bombay High Court claiming some relief against the parties who had opened the said current account No. 63 and withdrawn the amounts and the said civil suit is pending before the Bombay High Court. The managing director of the company has denied that any amount was paid by or on behalf of the company by the officers of the company in part settlement of the claim of the petitioners and has further stated that the payments were made by one Shri T. S. Bareh who happened to be the chairman of the company from his personal account at the Bank of Baroda, Parliament Street Branch, New Delhi, and that the managing director of the company was not aware of the purpose for which such payments were made. The managing director of the company has further stated that no assurance was made by any authorised officer of the company to settle the amount alleged to be due to the petitioners. In reply to the notice dated August 22, 1998, of the advocate of the petitioners, a letter dated August 20, 1995, was sent by the company''s lawyer to the petitioners but was returned undelivered. An affidavit in rejoinder has been filed on behalf of the petitioners on April 19, 1999, stating, inter alia, that current account No. 63 was opened in the State Bank of Indore by a resolution of the board of directors of the company on March 23, 1993, and that the application for opening up of the said current account No. 63 was signed on behalf of the company by its director and that current account No. 63 was opened in accordance with the procedure of the bank. Further copies of certificates issued by Nava Jeevan Co-operative Bank Limited on July 1, 1994, have been annexed to the said affidavit in rejoinder to show that the cheques on the said bank have been paid to the State Bank of Indore. On August 9, 1999, an additional affidavit was filed on behalf of the company by the managing director of the company that current account No. 63 was an unauthorised account opened by one Vithal Jajoo and that the money which was deposited in that account was subsequently withdrawn in a fraudulent manner. Along with the said additional affidavit, copy of the indemnity bond said to have been executed by the said Vithal Jajoo on May 29, 1994, has been annexed whereunder he has undertaken to indemnify the company by making payment to the petitioners to the extent of Rs. 1,51,200.

The court after hearing learned counsel for the petitioners and the company passed orders on July 25, 2000, holding that from the materials on record there is no dispute that the company received Rs. 4,87,200 being the value of shares and out of that a sum of Rs. 1,90,400 was refunded to the petitioners by bank drafts dated October 16, 1996, and that liability of the company to refund the balance amount is subsisting and the company has refused or neglected to refund the amount to the petitioners. The court further held that there is no substantial defence on the part of the company nor is there any bona fide dispute regarding its obligation to discharge the debt and that the company had at one stage agreed to pay but finally neglected to pay. The court also held that it was prima facie of the view that the amount claimed in the petition was due to the petitioners from the company and the company has failed/ neglected to pay the same. By the said order dated July 25, 2000, the petition was admitted and ordered to be advertised and the company was ordered not to make any disposition of the property of the company and transfer the shares of the company and was restrained from making any alteration in the status of its members.

Pursuant to the said order, the petition for winding up was advertised and in response to the said advertisement, the State Bank of India claiming to be a secured creditor of the company has filed an affidavit-in-opposition on November 13, 2000. In the said affidavit-in-opposition, the State Bank of India-has contended inter alia that the proper forum for the remedy of the petitioners was the civil court more particularly when admittedly the claim related to the period 1993. The State Bank of India has further stated in the said affidavit-in-opposition that the company was liable to the State Bank of India to pay a sum of Rs, 2,51,91,796.96 and the company has furnished security in favour of the State Bank of India by creating charge over their properties and that the said charge was registered in the office of the Registrar of Companies, Shillong, and further the State Bank of India has filed O. A. No. 42 of 2000 in the Debt Recovery Tribunal at Guwahatl on July 31, 2000 for recovery of the said amount of Rs. 2,51,91,796.96. On May 21, 2001, an affidavit-in-reply has been filed by the company raising a plea in para. 5 thereof that the company petition was barred by the law of limitation. On June 28, 2001, the petitioners have filed a rejoinder contending that since the company has made part payment and has assured for payment of the balance amount along with interest, the subject-matter of the petition was not barred by the law of limitation.

At the hearing Mr. Sahewala, learned counsel for the petitioners, submitted that it will be clear from the letter dated October 18, 1994, of the State Bank of India to the petitioners annexed to the petition as exhibit A that cheques for Rs. 4,87,200 which were given by the petitioners have been credited to the account of the company. He further submitted that it will be clear from the letter dated November 30, 1996 of the State Bank of Indore to the petitioners that out of the said amount of Rs. 4,87,200, Rs. 4,31,200 has been deposited in current account No. 63 and Rs. 56,000 has been deposited in the rights issues account of the company. Mr. Sahewala submitted that exhibit 8 series annexed to the affidavit-in-rejoinder of the petitioners are certificates issued by the Nava Jeevan Co-operative Bank Limited on July 1, 1994, which would show that all the cheques for different amounts totalling to Rs, 4,87,200 drawn on Nava Jeevan Co-operative Bank Limited in favour of State Bank of Indore have been paid to State Bank of Indore in the account of the company. According to Mr. Sahewala, therefore, the company received the entire amount of Rs. 4,87,200. He referred to exhibit C annexed to the petition to show that four bank drafts drawn on Bank of Baroda, Parliament Street, New Delhi, for different amounts totalling to Rs. 1,91,400 were in fact refunded by the company to the petitioners in October, 1996, but the balance amount was not refunded to the petitioners. He vehemently argued that the ground taken by the company before this court is that cheques for an amount of Rs. 4,31,200 were deposited in current account No. E-63 and that the said current account No. E- 63 was an unauthorised account but it will be clear from the documents annexed to the affidavit-in-rejoinder filed by the petitioner in exhibit A that the said current account was opened in State Bank of Indore by a resolution of the board of directors of the company adopted on March 23, 1993. He further submitted that the signature of the chairman in the true copies of the resolution of the board of directors of the company adopted on March 23, 1993, in exhibit A annexed to the affidavit-in-rejoinder tallies with the signature of the chairman of the company in the true copies of the resolution of the board of directors of the company adopted on January 5, 1993, annexed as exhibit E to the affidavit-in-rejoinder of the petitioners. Mr. Sahewala further pointed out that an amount of Rs. 20,47,060 has in fact been transferred from the Rights Issues Account No. E-62 to the current account No. E-63 of the company and thus the contention of the company before the court that the current account No. E-63 was unauthorisedly opened and that the amounts paid into the said account No. E-63 were not received by the company should not be accepted. He further argued that the averments in paragraphs, 11,12 and 13 of the petition as well as paragraph 14 of the affidavit-in-opposition filed by the State Bank of India would show that the company is commercially insolvent and is unable to pay its debts including the debt of Rs. 2,51,91,796.96 to the State Bank of India.

In reply, Mr. D. Baruah, learned counsel for the company, submitted relying on the affidavit-in-opposition filed on behalf of the company that out of the amount of Rs. 4,87,200 only Rs. 56,000 worth of cheques were in favour of EML-Rights Issues Account No. 62 in State Bank of Indore and accordingly shares worth Rs. 56,000 were issued in favour of the petitioners, but the balance amount of Rs. 4,31,000 was paid by cheques in favour of the current account No. 63 of the company in State Bank of Indore and this current account No. 63 was opened unauthorisedly by some Sub-brokers and jobbers in connivance with the bank officials. He further submitted that the said '' amount of Rs. 4,31,000 paid into the current account No. 63 has been withdrawn and has not been utilised by the company in any manner. Mr. Baruah vehemently argued that as per the advertisement for the rights issues the cheques were required to be made out in favour of EML-Rights Issues No. 62 in State Bank of Indore and cheques worth Rs. 4,31,000 of the petitioners were not made out in favour of EML-Rights Issues No. 62 of the company in State Bank of Indore, and, therefore, the company has no liability whatsoever either to allot shares in favour of the petitioners or to repay the said amount of Rs. 4,31,000. Regarding part payment of Rs. 1,90,400 by bank drafts dated October 16, 1996, drawn on the Bank of Baroda, Parliament Street, New Delhi, to the petitioners, Mr. Baruah submitted that the said amount has not been paid out of the funds of the company or by the company but by the chairman of the company Shri T. S. Bareh from his personal account and the managing director of the company was not aware of the purpose for which the said payment was made. Mr. Baruah submitted that the company bona fide disputes the debt claimed by the petitioners in this case and it has been held by courts that where there is a bona fide dispute relating to the debt claimed by the '' creditor, the court will not order winding up of the company. In support of this submission, Mr. Baruah cited the decision of the Supreme Court in Madhusudan Gordhandas and Co. Vs. Madhu Wollen Industries Pvt. Ltd., He further argued that in any case the amount of Rs. 4,87,400 was paid in March, 1993, and the limitation provided under Article 24 of the Schedule to the Limitation Act, 1963, for filing a suit for recovery of the amount is three years from the date of receipt of the said amount by the company, but no such suit was filed and instead the petition for winding up has been filed long after expiry of the said limitation period on October 30, 1998, which should be dismissed by the court on the ground that the recovery of the debt is barred under the law of limitation. In support of this contention, Mr. Baruah cited the decision of the Punjab and Haryana High Court in Sham Lal Gupta v. Hamco Industries Pvt. Ltd. [1999] 97 Comp Cas 399 . In reply to submission of Mr. Sahewala that the company is commercially insolvent, Mr. Baruah submitted that it has been held by the High Court of Andhra Pradesh in State of Andhra Pradesh Vs. Hyderabad Vegetable Products Co. Ltd., Hyderabad, that the expression "commercial insolvent" means that the assets of the company are such and the existing liabilities are such as to make the court feel satisfied that its existing and probable assets would be insufficient to meet its existing liabilities. Mr. Baruah explained by referring to the balance-sheet of the company filed in court that the company has sufficient assets to pay off its existing liabilities. Regarding the suit filed by the State Bank of India, Mr. Baruah submitted that the loans granted by the State Bank of India are all secured by mortgage of the properties of the company, the value of which is more than the alleged dues towards the loans. According to Mr. Baruah, the company cannot be said to be commercially insolvent.

Mr. L. Talukdar, appearing for the State Bank of India relying on the affidavit filed by the State Bank of India submitted that the State Bank of India is a secured creditor of the company and has filed O. A. No. 42 of 2000 in the Debt Recovery Tribunal at Guwahati for recovery of Rs. 2,51,91,796.96 on July 31, 2000. He cited a recent decision of the Supreme Court in the case of Allahabad Bank v. Canara Bank [2000] 101 CompCas 64 : AIR 2000 SC 1535, in support of his submission that the Debt Recovery Tribunal at Guwahati constituted under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, has exclusive jurisdiction to decide the said O. A. No. 42 of 2000 notwithstanding the provisions of the Companies Act, 1956.

Since the claim of the petitioners has been disputed by the company, the plea of the company that the claim of the petitioners was barred by law of limitation has to be considered first. The case of the petitioners in paragraph 6 of the petition is that the entire amount of Rs. 4,87,200 was paid by the petitioners by cheques dated March 24, 1993, to the company. It has been held by the Punjab and Haryana High Court in Sham Lal Gupta v. Hamco Industries Pvt. Ltd. [1999] 97 CompCas 399 cited by Mr. Baruah that Article 24 of the Schedule to the Limitation Act, 1963, is the provision which governs such a case as the amount was paid to the company for the use of the petitioners, i.e., for the allotment of shares in their names. According to this Article 24, the period of limitation was three years from the date money was received. Hence the period of limitation for filing a suit for recovery of the said amount of Rs. 4,87,200 expired on March 24, 1996. The petitioners have, however, pleaded in paragraph 8 of the petition that Shri T. S. Bareh, the chairman of the company, Shri M. S. Jairam, the managing director of the company and Shri Sukhram Verma, the director of the company have partly settled the claim of the petitioners by issuing four demand drafts dated October 16, 1996, for Rs. 1,90,400. Acknowledgment of liability in writing or payment of debt by such demand drafts dated October 16, 1996, would not extend the period of limitation under Sections 18 and 19 of the Limitation Act, 1963, because under the said Sections 18 and 19 acknowledgment of liability or payment of part of the debt has to be before the expiration of the prescribed period of limitation. As indicated above, the period of limitation for filing a suit for recovery of Rs. 4,87,200 expired on March 24, 1996, whereas the acknowledgment of liability or payment of part of the debt by the demand drafts pleaded in the petition took place only on October 16, 1996, beyond the prescribed period of limitation. Hence the payment of Rs. 1,90,400 in part settlement of the claim of the petitioners, even if accepted by the court, would not have the effect of extending the period of limitation for filing a suit for recovery of the balance amount by the petitioners under Sections 18 and 19 of the Limitation Act, 1963. Section 25(3) of the Contract Act, however, provides that an agreement made without consideration is void unless it is a promise made in writing and signed by the persons to be charged therewith, or by his agent generally or specially authorised in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law of limitation. In other words, even where a debt is barred by the law of limitation, a fresh contract by the debtor containing a promise to pay the creditor can be enforced by the court if such a contract is in writing and proved to be signed by the debtor or his agent generally or specially authorised in that behalf. In the instant case, although the petitioners have pleaded in paragraph 9 of the petition that three officers of the company assured petitioner No. 1 for settling the entire claim within a period of one or two months therefrom, no such assurance or promise in writing and signed by the officers of the company duly authorised on its behalf has been filed in the court to make out such a contract for payment of the debt barred by the law of limitation within the meaning of Section 25(3) of the Contract Act. The present claim of the petitioners thus appears to be barred under the law of limitation and the court ought not to order the winding up of the company for enforcing such a prima facie time-barred debt. But it is always open for the petitioners to recover the amount alleged to be due to them through any other remedy in accordance with law. In view of this conclusion, it is not necessary for the court to examine the contentions of the parties on whether or not the amount claimed by the petitioners in the petition was due from the company.

The next question is whether the court should order winding up the company on the ground that it is commercially insolvent. Section 434(1)(c) of the Companies Act, 1956, provides that a company shall be deemed to be unable to pay its debts if it is proved to the satisfaction of the court that the company is unable to pay its debts, and in determining whether the company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company. As has been held in State of Andhra Pradesh v. Hyderabad Vegetable Products Co. Ltd. [1962] 32 Comp Cas 64 by the Andhra Pradesh High Court, the court has to be satisfied that the assets of the company are such and its existing liabilities are such as to make it reasonably certain that the existing assets would be insufficient to meet the existing liabilities. I have perused the 13th annual report of the year 1997-98 produced before the court on behalf of the company by Mr. Baruah and after having gone through the balance-sheet of the company as on March 31, 1998, I am unable to hold that the assets of the company are such as would be insufficient to meet the liabilities of the company. Of course, the State Bank of India appears to have filed O. A. No. 42 of 2000 in the Debt Recovery Tribunal at Guwahati for recovery of a sum of Rs. 2,52,91,796.96, but the case of the State Bank of India in the said O. A. No. 42 of 2000 is that the dues have been secured by the company by hypothecation of goods and mortgage of immovable properties including 1,000 acres of land by depositing title deeds and as such the secured creditor has the right to recover its dues from the company through the said proceedings in the Debt Recovery Tribunal in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The State Bank of India also does not support the prayer of the petitioners that the company should be ordered to be wound up and has instead contended that proper remedy for the petitioners is a civil suit and not a petition for winding up of the company.

For the aforesaid reasons, I am not inclined to pass an order for winding up of the company in this case and I accordingly dismiss the petition.