Vijayalakshmi Art Productions vs Vijaya Productions Pvt. Ltd.

Jayasimha Babu, J.—This is a petition for the winding up of the respondent company u/s 433(e) and (f) read with sections 43(a) and 439(1)

(b) of the Companies Act, 1956. This petition was filed on April 8, 1994. The question of limitation looms large in this petition.

The petitioner, Sri Vijayalakshmi Art Production, a registered partnership firm, claims to have advanced to the respondent company between

July 2, 1985, and March 8, 1990, large sums of the money aggregating to Rs. 71,000,00. The petitioner has stated that the said sums were

advanced at the request of the respondent and were to carry interest at mutually agreed rates. The petitioner has, at para 5 of the petition stated :

The receipt of the above loan was acknowledged by the respondent under various correspondence, the last of which is dated January 21, 1994,

by the respondent''s chartered accountant on behalf of the respondent company, and by one of the directors of the respondent company on

January 24, 1994. Curiously in letter darted January 24, 1994, the respondent company confirmed only a sum of Rs. 19,03,500 standing to the

credit of the petitioner in the respondent''s books of account. Needless to state that this is in contravention of the earlier admission made by the

respondent company and it is clearly an act of afterthought.

According to the petitioner, "".... as on February 28, 1994, a sum of Rs. 71 lakhs by way of principal and Rs. 1,41,25,771 is due by way of

interest"". The petitioner thus claims to be a creditor of the company for a sum of Rs. 2,12,25,771.

The documents filed along with the petition were, apart from the copy of its registration certificate, copies of the legal notice sent by the

petitioner''s counsel on February 28, 1994, reply thereto on March 23, 1994, by the respondent''s counsel, the letter dated January 21, 1994,

from the respondent''s chartered accountant, and of the letter dated January 24, 1994, from the respondent. During the pendency of the petition,

the petitioner produced certain further documents on August 9, 1994. The documents so produced are copies of letters exchanged between one of

the partners of the petitioner firm, and the respondent between June 24, 1985, and April 2, 1990; receipts said to have been issued by the

respondent between July 2, 1985, and March 8, 1990, in favour of Venkataraju (5), Damu (5), Damu Productions (32) and the petitioner (22).

The petitioner also produced copies of the balance-sheet of the respondent for the years 1990, 1991 and 1992, copies of the assessment order

under the Income Tax Act made by the Assistant Commissioner of Income Tax made on March 30, 1992, regarding the respondent''s income for

the assessment years 1988-89, schedule of the respondent''s sundry creditors for the years ended March 31, 1991, and March 31, 1992, as also

copies of letters from the petitioner''s counsel to the respondent''s counsel sent between April 9, 1994, and September 14, 1994.

Between April 2, 1990, and January 24, 1994, there is no document to show the extent of the respondent''s indebtedness to the petitioner. It is

not the case of the petitioner that any sums were paid to the petitioner at any point of time prior to the institution of this petition by way of

repayment of any part of the loan or the amount of interest thereon, although according to the petitioner, it commenced advancing substantial sums

to the respondent in June, 1985, and for 5 years kept on advancing amounts till March, 1990, without receiving any interest on any part of the sum

so advanced. The agreement to pay interest at 24 per cent. is said to be contained in a letter dated June 24, 1985, from the respondent. The

petitioner relied on the statement of account annexed to the letter dated April 2, 1990, from the respondent wherein it is stated that a sum of Rs.

71 lakhs is due to the petitioner as on March 31, 1990.

The acknowledgment of liability to the petitioner thereafter is nowhere shown, in that sum of Rs. 71 lakhs. In the list of sundry debtors of the

company as on March 31, 1991, as also as on March 31, 1992, the amount due to the respondent is shown as Rs. 18,02,495 only. The amount

acknowledged by the respondent in the letter dated January 24, 1994, as also in the letter dated January 21, 1994, sent by its chartered

accountant is Rs. 19,03,500.

That sum of Rs. 19,03,500 was paid by the respondent to the petitioner by cheques the receipt of which was reported to the court, in these

proceedings, by the petitioner''s counsel on September 14, 1994.

The petitioner has not taken any action a period of 3 years from April 2, 1990 for enforcing its claim for Rs. 71 lakhs with interest thereon

against the respondent and there is no acknowledgment of the liability of the amount claimed by the petitioner, at any time subsequent to April 2,

1990. The only amount that was acknowledged by the respondent in January 1994, as due and payable to the petitioner was a sum of Rs.

19,03,500.

The petitioner would be entitled to maintain a petition for winding up the respondent company on the ground that it is not in a position to pay the

debts due to the petitioner only so long as amounts in excess of Rs. 500 are legally sue and payable to it by the respondent company. The

petitioner can claim the status as creditor of the respondent company only in respect of legally enforceable claims of the petitioner. The petitioner

cannot be regarded as a credit in respect of sums, the recovery of which is barred by limitation. As at the time of hearing of the petition for

admission after notice, there is no enforceable claim of the petitioner which need to be taken into account in determining the ability of the

respondent company to pay its debts.

In the summary enquiry u/s 433 at the stage of admission before deciding as to whether winding up proceedings should be initiated the court to

ascertain whether, inter alia, the claim made by the creditor is barred by limitation or whether it is legally enforceable. If the claim made by the

creditor is on the face of it not one which can be enforced, it is unnecessary to examine as to whether the claim is a genuine claim, and as to

whether the respondent has a bona fide and reasonable defence on the merits to the claim. The right to apply for winding up u/s 439(b) is a right

conferred on the credits and not on any person, however anxious that person may be, to have the company wound up.

It is the duty of the court to dismiss claims made beyond the prescribed period of limitation, as provided in section 3 of the Limitation Act. If

on the basis of the case set up, and the documents relied upon by the petitioner, the claim is barred by time, the court is not required to adjudicate

on the merits of the same.

The respondent has in its counter at para 5, stated that the claim as made by the petitioner is barred by limitation. It is also stated that the

amount standing to the credit of the petitioner in the books of account of the respondent was only Rs. 19,03,500. On the merits also the

petitioner''s claim for any amount in excess of Rs. 19,03,500 has been disputed by the respondent as being collusive. The respondent has

contended that the petitioner has been colluding with the erstwhile managing director of the company, one B.N. Suresh Reddy, who has been

removed from that position, and that the documents signed by the said Suresh Reddy purporting to acknowledge liability to the petitioner as on

April 2, 1990, are not binding on the company, and that present petition is an abuse of the process of the court.

When this matter was taken up for hearing, after learned counsel for the petitioner had addressed arguments, he was asked to show as to how

the claim made by the petitioner was within the prescribed period of limitation. He sought time to examine the issue and the matter was thereafter

adjourned on several occasions at the request of the petitioner. Learned counsel for the petitioner has been unable to point out from the record as

to how the claim made by the petitioner in respect of the amount not acknowledged by the respondent, is within the period of limitation. After

taking several adjournments on various grounds, the petitioner came with an application C.A. No. 153 of 1995, on March 23, 1995, nearly a year

after the petition was filed, to issue subpoena to its own auditor for production of letter said to have been addressed to the petitioner''s auditor by

the erstwhile director of the respondent company, in which he is said to have undertaken to repay the debts due to the petitioner, on the ground

that the letter would indicate that the claim is within the period of limitation. The letter sought to be summoned is not referred to in any of the

pleadings filed by the petitioner.

The application is wholly lacking in bona fides. The document sought to be now introduced is allegedly in the custody of the petitioner''s own

auditor, and was always available to the petitioner, if that documents was in existence at the time the petition was filed. It is not the petitioner''s

case that there are any difference between the petitioner and its auditor and that the auditor has acted in an unprofessional manner and refused to

give to this petitioner a document which pertains to the petitioner''s business. That letter is said to have been given by the former director of the

respondent company who had been removed from that post long prior to the filing of this petition. That letter is not referred to in the notice sent by

the counsel, before the institution of this petition. In the application now filed, it is claimed that a letter was written on April 25, 1990, by which the

respondent undertook to pay the amount by March 31, 1992. It is obvious that such a document could only have been got for the purpose of

getting over the bar of limitation. That such a document was not in existence at the time the petition was filed is evident from the petition and other

documents produced by the petitioner none of which refers to such a letter. The affidavit filed in support of the application does not set out

anywhere as to why this document was not disclosed earlier. The reason can only be that it was not in existence when the petition was filed.

When a person claiming to be a creditor files a petition for winding up, the petitioner must place the requisite materials to establish his right as a

creditor, and cannot, one year after filing the petition, after having addressed arguments, and realising that a substantial portion of the claim as made

is barred by limitation, apply to court to gather evidence for him. C.A. No. 153 of 1995 for issue of subpoena is rejected.

Learned counsel for the petitioner contended that as the petitioner was a creditor as on the date of the filing of the winding up petition, at least

in respect of the amount which had been acknowledged by the respondent as payable to petitioner, the petitioner has a right to maintain this

petition and prosecute the same further, even though the amount acknowledged as payable to the petitioner has been paid subsequently.

For the respondent company, it has been stated that the financial position of the company is sound and that the company is fully capable of

repaying all its debts; the value of the assets owned by it is said it be not less than Rs. 23 crores; the company owns over 10 acres of valuable land

and buildings thereon at Vadapalani in the city of Madras; the company is profitably engaged in the business of making movies, and processing of

films, the annual receipts from the processing of the films as shown in the profit and loss account exceeding Rs. 3,00,00,000; and the cash profit

for the year ended March 31, 1994, is over Rs. 26 lakhs. The fact that the paid up share capital is only Rs. 6,00,000 by itself does not indicate

that the company is incapable of meeting its debts. counsel for the respondent rightly pointed out that no other person has come forward with a

petition for winding up on the ground of inability on the part of the respondent to pay its debts.

The right given to a credit u/s 433(e) of the Companies Act to seek winding up of the company is to enable such creditor to realise the

amounts due to the creditor along with all other creditors of the company. Such action by a creditor is for the benefit of all the creditors. After the

petitioner ceased to be a creditor by reason of the amount lawfully due to the petitioner having been paid, the petitioner has no further right in

relation to the affairs of the company, and no enquiry need to be made into the company''s finances or its conduct in other matters for the purpose

of deciding as to whether the winding up order is warranted. A winding up order cannot be made at the instance of the person who himself is not a

creditor at the time the winding up order is to be made, by reason of the acknowledged debt having been paid to such a creditor. The scheme of

the Companies Act to provide for continued operation of the company except in the circumstances indicated in the Act. The Company is not to be

wound up unless it is essential to do so.

Learned counsel for the petitioner then contended that as the petitioner has also invoked section 433(f) and having regard to the financial

position of the company it us just and equitable to wind up the company.

After the petitioner has ceased to be a creditor, the winding up petition at the instances of such person either on the ground of inability to pay

its debts, or on the ground that it is just and equitable to wind up, will not lie. Moreover, a petition on just and equitable grounds will not be

entertained when an adequate alternative remedy is available to the petitioner. If the petitioner has a legally enforceable claim against the

respondent, If the petitioner to resort to remedies in civil courts which he is entitled to do. The petitioner cannot, merely by asserting that it has a

claim even though the claim is barred by limitation, further assert that it is just and equitable to wind up the company. A case for winding up on the

grounds that it is just and equitable to do so has also not been made out in the petition. In any event, the petitioner cannot be heard at this stage to

contend that the company should be wound up on that ground.

Learned counsel for the respondent submitted that the petitioner has failed to furnish any of its documents such as its accounts and ledger

books, etc., even though the respondent has called upon the petitioner to do so. Such failure to produce its books considered along with the

alleged accounting of the loans in benami and fictitious names, and the admitted inaction in enforcing its claim for any part of the alleged advances

or interest thereon during the period of 9 years between 1985 and 1994, would indicate, as rightly contended by the respondent, that the claim

now made for a sum of over Rs. 2 crores is a speculative claim. The conduct of the respondent in failing to disclose the true extract of its income

for purposes of taxation, though condemnable, does not create a right in the petitioner to claim that the amounts which had been shown by the

respondent as loans received from fictitious persons, are amounts belonging to the petitioner and lent by it to the respondent. The petitioners have

not made any such claim before the Income Tax authorities. The alleged loans have been treated by the Income Tax Department as income of the

petitioner and tax has been levied thereon. Having regard to the nature of the claim, and the objections thereto raised by the respondent and the

conduct of the parties, the debt claimed, except to the extent admitted besides being barred by limitation must be held to be a bona fide disputed

debt for which the company has a prima facie defence. The petitioner in the circumstances is only seeking to pressurise the company to pay a

disputed debt. A winding up petition for such a purpose for such a purpose will not lie.

The fact that the respondent has acknowledged liability on January 24, 1994, for a sum of Rs. 19,03,500 and paid the same in September,

1994, does not extend the period of limitation for the remaining part of the petitioner''s claim. This acknowledgment as also the payment was after

the expiry of a period of three years from April 2, 1990 - date of the acknowledgement relied on by the petitioners.

Counsel for the respondent in this context referred to and relied on the decision of this court in the case of K.M. Muhammad Sultan Rowther

v. K.H.M. Muhamed Nurdin [1963] 1 MLJ 301, wherein it was held that ""whether a particular acknowledgement amounts to an

acknowledgement of liability in law so far as to save limitation within the meaning of section 19 of the Limitation Act is no doubt to be decided in

each case from a proper inference from the facts and circumstances and the intention of the debtor. But even in cases of acknowledgments where

a claim was for a particular amount but the debtor acknowledges his liability for a smaller amount such acknowledgement cannot enable the

creditor to claim the entire amount. The acknowledgement can be used to save limitation only with respect to the amount acknowledged.

The petitioner having been paid the amount of the acknowledged liability, the petitioner cannot claim to be a creditor in respect of a claim

which is barred by limitation. The claim so made, to the extent not admitted considered in the light of the conduct of the parties, the documents

produced and the objections raised by the company, is also such that the petitioner should first establish that claim in a civil court.

This company petition is therefore dismissed. In the circumstances of this case, there will be no order as to costs.