APHC010782172018 IN THE HIGH COURT OF ANDHRA PRADESH (Special Original Jurisdiction) FRIDAY, THE TWO THOUSAND AND TWENTY FIVE THE HONOURABLE SRI JUSTICE NINALA JAYASURYA THE HONOURABLE SMT JUSTICE ORIGINAL SIDE APPEAL No: 10 of 2018 Between: Sreedevi Digital Systems Private Limited B.Ranga Rao Counsel for the Appellant: 1. Mr.A.TULSI RAJ GOKUL Counsel for the Respondent: 1. Mr.D.V.A.S. RAVI PRASAD 1 IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI (Special Original Jurisdiction) THE TWENTY FIFTH DAY OF APRIL TWO THOUSAND AND TWENTY FIVE PRESENT THE HONOURABLE SRI JUSTICE NINALA JAYASURYA THE HONOURABLE SMT JUSTICE SUMATHI JAGADAM ORIGINAL SIDE APPEAL No: 10 of 2018 Sreedevi Digital Systems Private Limited ...APPELLANT AND ...RESPONDENT Counsel for the Appellant: Mr.A.TULSI RAJ GOKUL Counsel for the Respondent: Mr.D.V.A.S. RAVI PRASAD IN THE HIGH COURT OF ANDHRA PRADESH [3494] THE HONOURABLE SRI JUSTICE NINALA JAYASURYA SUMATHI JAGADAM ...APPELLANT ...RESPONDENT 2 The Court made the following Judgment: (per Hon’ble Sri Justice Ninala Jayasurya) The present Original Side Appeal has been preferred against the orders of the learned Company Judge dated 15.06.2018 in Company Petition No.318 of 2016. 2. The appellant herein is the respondent in the said Company Petition filed under Section 433 (e) & (f), 434 (1) r/w Section 439(1)(b) r/w Rules 95 and 9 of the Companies (Court) Rules, 1959. Through the impugned order, the learned Company Judge admitted the Company Petition, however, ordered to defer the advertisement by eight weeks to enable the appellant / respondent-Company to settle the claim amicably. 3. Heard learned counsel for the appellant and the learned counsel for the respondent / petitioner. 4. For the sake of convenience, the parties are referred to as arrayed in the Company Petition. 5. The petitioner filed the above mentioned Company Petition, inter alia, stating that the petitioner and the Managing Director of the respondent Company are known to each other for the last more than 15 years and on the ground that there was some cash flow problem in the respondent Company, its Managing Director borrowed unsecured loans from the petitioner and promised to repay the same along with interest @ 12% p.a., that within a short period between 09.12.2013 to 12.03.2014, the respondent-Company received an amount of Rs.32,10,000/- for which, receipts acknowledging the amounts were issued and as the respondent-Company and its management are 3 postponing the repayment of loan, the petitioner got issued a legal notice on 04.05.2016 calling upon the respondent to pay the said amount of Rs.32,10,000/- within 21 days and notifying that in the event of failure, a petition for winding up of the company would be instituted. Inspite of the receipt of the notice, the respondent-Company had not paid the said amount and not even responded to the notice. Hence, the Company Petition. 6. The respondent – Company filed a counter-affidavit, inter alia, stating that the Company Petition is filed with a malafide intention, that the petitioner was an employee in the respondent –Company and suppressed the said fact for the purpose of filing of the Company Petition. While stating that the respondent-Company has got crores of rupees turn over and it is absolutely false that the Company borrowed a loan of Rs.32,10,000/- from the petitioner, it was alleged that the petitioner has no financial capacity to lend the loan and the receipts stated to have been issued acknowledging the amounts are manipulated. It is specifically averred that the unsecured loan of the petitioner is absolutely false and concocted for the purpose of fling of the Company Petition, that in view of the fraud committed by the petitioner, a complaint dated 03.11.2016 was lodged before the police and the investigation is pending. The respondent also pleaded that the Company Petition is not maintainable and accordingly prayed for dismissal of the same. 7. The learned Company Judge, after due consideration of the matter, while observing that the respondent-Company had, in fact, received the money from the petitioner through the Bank, which remains unpaid and that 4 prior to the respondent being served with the Company Petition, there is no complaint whatsoever against the petitioner, categorically opined that in the balance sheet signed by the Managing Director of the respondent-Company, there is an acknowledgment of debt in favour of the petitioner to the extent of Rs.32,10,000/-. The learned Judge after appreciation of the material placed on record, expressed the view that there is a debt due by the respondent – Company to the petitioner and admitted the Company Petition. The learned Judge had felt it appropriate to defer the advertisement by eight weeks, considering the submission that the respondent-Company is having turnovers running into crores of rupees. 8. The learned counsel for the respondent-Company, assailing the said order of the learned Company Judge, made elaborate submissions. He contends that the impugned order is not sustainable as the learned Judge failed to consider the matter in the correct perspective. He submits that the petitioner was an employee of the Company, but suppressed the said fact including that the petitioner left the Company in 2015. He submits that the learned Company Judge erred in not appreciating that there was never any demand for repayment of monies allegedly borrowed by the respondent until the petitioner left the respondent-Company and the same is a clear indication that the claim is not genuine. He contends that the respondent had disputed the debt, more specifically by denying the receipts alleged to have been issued acknowledging the amounts, which are manipulated and the complaints lodged against the petitioner. He submits that as the respondent has raised a bonafide dispute, the petitioner cannot be regarded as a creditor 5 of the respondent–Company for the purpose of winding up. He contends that when there is a bonafide dispute for non-payment of amount, the winding up petition cannot be entertained. It is his submission that a party to the dispute should not be allowed to use winding up petition as a means of seeking to enforce the payment of a bonafide disputed debt and the Company Court cannot be reduced to a debt collecting agency. 9. The learned counsel also submits that mere reference of unsecured loan of Rs.32,10,000/- in the balance sheet would not amount to acknowledgment of debt and mentioning of all deposits, unsecured loans etc., is only to meet the statutory requirements. He submits that the respondent has the paying capacity. In fact as is evident from the Letter dated 15.12.2016 (Page No.192), he submits that an amount of Rs.50,00,000/- was paid towards unsecured loan, which is a proof positive about the financial position of the respondent, but the learned Company Judge failed to appreciate these relevant aspects. He submits that in the light of the said payments, the respondent-Company cannot deemed to be, not in a position to pay its debts and therefore, no conclusions can be arrived at, that the debt, if established would not be paid. The learned counsel also contends that the learned Company Judge erred in admitting the Company Petition without examining the relevant aspects, much less, by recording the prima facie view that the respondent is not solvent enough or has no capacity to pay the alleged debt. He submits that no finding that there is no bonafide dispute has been recorded and in the absence of the same, the learned Company Judge was not right in admitting the Company Petition. 6 10. Referring to Section 433 (1)(a) of the Companies Act, the learned counsel further contends that if the debt is a bonafide dispute, the issue of ‘neglect to pay’ in terms of the said section does not arise and the learned Company Judge, however, went wrong in not appreciating the said aspect. He also contends that the order of winding up can be passed, only if it is just and equitable as provided under Section 433(1)(f) of the Companies Act, that too by exercising the discretion and the order under challenge is not tenable, as the same are lacking. Making the said submissions and placing reliance on the decisions in 1) Bangasri Ice and Cold Storage Ltd., v. Kali Charan Banerjee1, 2) Kotak Mahindra Bank Ltd., v. Eastern Spinning Mills & Industries Ltd., 2 , 3) M/s.Madhusudan Gordhandas & Co., v. Madhu Woollen Industries Pvt.Ltd.3, 4) M/s.Mechelec Engineers & Manufacturers v. M/s.Basic Equipment Corporation4, 5) Cotton Corporation of India Limited v. United Industrial Bank Limited & Others5 and 6) IBA Health (India) Private Limited v. Info-Drive Systems SDN.BHD 6 , the learned counsel urges for allowing the appeal by setting aside the order under challenge. 11. On the other hand, the learned counsel for the petitioner made submissions to sustain the order passed by the learned Company Judge. He submits that the petitioner in view of the long association / friendship with the Managing Director of the Company / respondent, lent monies to the 1 1962 SCC OnLine Cal 38 2 2013 SCC OnLine Cal 2454 3 (1971) 3 SCC 632 4 (1976) 4 SCC 687 5 (1983) 4 SCC 625 6 (2010) SCC 553 7 respondent by borrowing sums from his relatives. Referring to Page No.90 of the material papers, he submits that there is no dispute that the respondent is taking long term and short terms loans, including unsecured loans and the balance sheet of the respondent-Company fortifies the case of the petitioner, that the respondent owes an amount of Rs.32,10,000/-. He submits that before invoking the provisions of the Companies Act, admittedly a statutory notice was issued by the petitioner and the respondent did not choose to issue any reply notice to the same. In such circumstances, the question of dispute, much less, a bonafide dispute as sought to be projected does not arise and the contentions advanced in this regard are not tenable. He submits that the learned Company Court, while taking the relevant aspects including the balance sheet of the respondent referring to the debt of Rs.32,10,000/- etc., as also the other factors, had rightly felt that it is a fit case for admission. He submits that the various contentions made on behalf of the respondent based on factual aspects, merits no consideration and, in fact, have to be agitated before the learned Company Judge, after the trial which is in progress, is concluded. The learned counsel submits that the matter is at the stage of cross examination of the petitioner’s witnesses and only with a view to avoid the proceedings before the learned Company Judge, the present appeal is filed and that there are no merits in the same. Making the said submissions and placing reliance on the decision in Vidyasagar Prasad v. UCO Bank & Another (Civil Appeal No.1031 of 2022 dated 22.10.2024), the learned counsel seeks dismissal of the appeal. 8 12. This Court has considered the submissions made and perused the material on record. 13. On an appreciation of the rival contentions, the point that arise for consideration by this Court is : Whether the order under challenge warrants interference, in the facts and circumstances of the case? 14. At the outset, it may be appropriate to mention that the trial in the Company Petition had already been commenced and the same is posted for cross examination of one of the petitioner’s witnesses. Though several contentions were advanced by the learned counsel for the respondent- Company, this Court deems it appropriate not to delve much on the factual aspects, which may perhaps be examined by the learned Company Judge, during the course of the trial. Suffice to state that the learned Company Judge having gone through the matter, merely admitted the Company Petition. Whether an order of winding up has to be passed or not depends upon appreciation of oral and documentary evidence and the contentions that may be advanced before the Company Court. However, in the light of the submissions made by the learned counsel for the respondent as to the admission of the Company Petition with reference to the decisions referred to above, this Court proposes to refer to the same. 15. In the decision of Bangasri Ice and Cold Storage Ltd., a learned Division Bench of Calcutta High Court was dealing with an appeal filed against the order of the learned Company Judge. The respondent before the Division Bench, filed an application for winding up of the appellant company, which 9 was admitted and directions for advertisement were issued. Upon receipt of the notice for winding up, the appellant company filed an application for stay of the proceedings of winding up and injunction restraining the respondent / creditor from advertising. Initially, interim orders restraining the respondent- creditor for advertising the petition for winding up until the disposal of the said application were granted, subject to certain conditions. Subsequently, the learned Company Court, dismissed the application, against which, the matter was carried by way of appeal. While referring to Clause (a) of sub-section (1) of 434 of the Companies Act, which provides that if a creditor to whom a Company is indebted in a sum exceeding Rs.500/- then due, has served on the company, a demand for payment thereof and the company has for three weeks thereafter been unable to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor, then a presumption will arise that the Company is unable to pay its debts and opining that under Section 433 or section 434, if the debt is disputed bonafide, then in that case there is neither inability nor negligence to pay, the learned Division Bench ultimately held that the Court is entitled to investigate the question as to whether a dispute has been manufactured in order to delay and defeat the realization of dues of the creditor and is merely a cloak for the inability of the company to pay its just debts. 16. Another Division Bench of the Calcutta High Court in Kotak Mahindra Bank Limited (referred to supra) after examining the appeal filed against the Judgment and Order of the learned Company Court, declined to admit the winding up petition and set aside the said order. It opined that “a creditor who 10 has unpaid dues could only be reasonably satisfied if company has means to pay. When the creditor serves the notice upon the company asking them to pay off the dues the company has option either to pay off or dispute same. Even if the company has means to pay and does not pay without any reasonable cause, it would be liable to be wound up.” The Hon’ble Division Bench ultimately concluded that “the petition by a creditor would be maintainable on both counts. Once the creditor established his right to claim the amount more than Rs.500/-, the onus would shift on the company to rebut such claim by raising bonafide dispute. Once the bonafide dispute is raised, it would weaken the chance to have admission of the winding up petition, otherwise admission is an obvious consequence”. 17. In Madhusudan Gordhandas’s case, the appellant before the Hon’ble Supreme Court is one of the creditors, who filed a petition for winding up of the respondent-Company on the ground of indebtedness. It is the case of the appellants that the respondent-Company failed and neglected to show certain sums of money in the books of account. The respondent-Company disputed the claims of the appellants and the learned Single Judge refused to pass winding up orders of the respondent-Company and asked the company to deposit the money into the Court. The said order was confirmed on appeal. The Hon’ble Supreme Court held that if the debt is bona fide disputed and the defence is a substantial one, the Court will not wind up the company. 18. In Cotton Corporation of India Limited’s case, the Hon’ble Supreme Court was examining a question as to whether, in view of the provision 11 contained in Section 41 (b) of the Specific Relief Act, the Court has jurisdiction to grant an injunction restraining any person from instituting any proceeding, in a Court not subordinate to that from which the injunction is sought. One of the contentions advanced on behalf of the respondent-Bank was that where the debt is bona fide disputed, a petition for winding up is not an alternative to the suit to recover the same, but may be a pressure tactic to obtain an unfair advantage and therefore, despite the provision contained in Section 41 (b) of Specific Relief Act, the Court must spell out a power in appropriate cases to injunct a person from filing a winding up petition. The Hon’ble Supreme Court referring to Section 433 and 434 of the Companies Act, inter alia opined that there is a sufficient built-in safeguard in the provisions of the Companies Act and the Rules framed thereunder which would save the Company from any adverse consequences. It also opined that the winding up petition is not a recognized mode for recovery of debt and if the company is shown to be solvent and the debt is bona fide disputed, the Court generally is reluctant to admit the petition. In the facts of the said case, the Hon’ble Supreme Court allowed the appeal. 19. In IBA Health (India) Private Limited’s case, the learned Company Judge of Karnataka High Court, admitted the Company Petition filed by the respondent-Company before the Hon’ble Supreme Court. The issue before the learned Company Judge is that certain payments in terms of the Deed of Settlement between the appellants and the respondent were not made. The learned Company Judge directed the parties to appear before the mediation centre at Bangalore for amicably settling the dispute and the said order was 12 confirmed by the Division Bench. One of the contentions advanced before the Hon’ble Supreme Court on behalf of the appellant-Company was that if at all the respondent is aggrieved, the remedy open to the respondent is to approach the Civil Court and not by way of winding up petition, especially when there is substantial dispute between the parties. It was also contended that the Company is commercially solvent and capable of discharging its debts, if legally due. With regard to substantial dispute, at Para No.20, the Hon’ble Supreme Court inter alia held as follows: “20.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 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.” 20. The Hon’ble Supreme Court in the facts and circumstances of the said case, was inclined to set aside the orders of the High Court inter alia opining that the Company Court was very casual in its approach and did not make any endeavour to ascertain as to whether the appellant-Company sought to be wound up for non-payment of debt has a defence, which is substantial in 13 nature and if not adjudicated in a proper forum, would cause serious prejudice to the Company. 21. 21. On a close reading of the above referred decisions, this Court is of the view that whether the dispute raised by the respondent / appellant in the present case is bona fide, whether it is solvent enough so as to discharge its debts and no order of winding up is warranted etc., are well within the realm of the learned Company Judge and a decision may be arrived at on the basis of the evidence adduced by the parties herein in support of their respective stand. At this juncture, it may also be relevant to refer to the decision in Vidyasagar Prasad (referred to supra) on which reliance is placed by the learned counsel for the petitioner. In the said case, the Hon’ble Supreme Court was examining the order passed by the National Company Law Appellate Tribunal (NCLAT), affirming the Order of the Adjudicating Authority admitting an application under Section 7 of the Insolvency and Bankruptcy Code for initiating Corporate Insolvency Resolute Process, against the corporate debtor. The Hon’ble Supreme Court examining one of the contentions with reference to the entries in the balance sheet of the corporate debtor acknowledging the debt owed to the UCO Bank / respondent, upheld the findings of the Adjudicating Authority as well as the NCLAT “that the entries in the balance sheet amount to clear acknowledgment of debt.” 22. Though in the light of the said judgments of the Hon’ble Supreme Court, the contention advanced by the learned counsel for the respondent / appellant with reference to the entries in the balance sheet falls to ground, the other 14 aspects as to whether an order of winding up by allowing the Company Petition has to be granted, in the light of the other contentions raised on behalf of the respondent / appellant, are required to be considered by the learned Company Judge. It is also pertinent to note that though the learned Company Judge has not used the expression ‘prima facie’ in the order while admitting the Company Petition, a reading of the same discerns that the learned Judge recorded his satisfaction with due reasoning that the Company Petition deserves admission, more particularly in view of the acknowledgment of the debt in the balance sheet of the respondent-Company. Therefore, the contention raised in this regard, merits no appreciation and the same is accordingly rejected. Point is answered accordingly. 23. This Court, in the light of the conclusions arrived at supra, is of the opinion that the impugned order warrants no interference. Accordingly, the appeal is dismissed, however, the learned Company Judge shall decide the matter, in accordance with Law, without being influenced by any of the observations made by this Court for the limited purpose of deciding the present appeal. No order as to costs. Consequently, the Miscellaneous Applications pending, if any, shall also stand dismissed. _____________________ NINALA JAYASURYA, J ____________________ SUMATHI JAGADAM, J BLV Dt. 25.04.2025. 15 THE HONOURABLE SRI JUSTICE NINALA JAYASURYA THE HONOURABLE SMT. JUSTICE SUMATHI JAGADAM O.S.A.No.10 of 2016 Date: 25.04.2025 BLV