Aluminium Corp. of India Ltd. v. Lakshmi Ratan Cotton Mills Co. Ltd. AIR 1978 All. 452

Case Summary

Full Case Details

This is a petition under Section 433 of the Indian Companies Act, 1 of 1956 filed by the
Aluminium Corporation of India Ltd. (Corporation), for winding up the Lakshmi Ratan
Cotton Mills Co. Ltd. (Company) in the circumstances detailed below.

2. The Company is one of the industrial and business concerns controlled by the Guptas
   of Kanpur. The Corporation is controlled by another prominent group of industrial magnates
   of Kanpur, the Singhanias. It appears that the Gupta and the Singhania groups were at one
   time jointly running the company as well as the Corporation. They were also jointly
   controlling a firm known as Firm Behari Lal Ram Chand (firm) so much so that the accounts
   of these three concerns were mixed and open to each other as though the three concerns were
   one. But, subsequently, as a result of differences between the two groups, they decided to
   part company. Their interests were separated under an award. The Corporation came to the
   share of the Singhanias exclusively. The Company and the Firm fell in the share of the
   Guptas. Accounting between the Corporation and the other two concerns indicated that the
   Company and Messrs. Behari Lal Ram Chand had certain claims against the Corporation
   which did not clear its accounts. Consequently, two civil suits had to be filed at Kanpur. Suit
   No. 63 of 1949 was filed by the Company against the Corporation, and Suit No. 65 of 1949
   was filed by the Firm against the Corporation, claiming amounts due to them. The suit filed
   by the Company was decreed, after going into accounts, for a sum of Rs. 2,82,734/11/3 with
   proportionate costs and pendente lite interest at 3 per cent per annum.
3. Among the pleas taken by the Corporation in the suit decreed against it was that the
   claim was barred by time. The Company relied upon an acknowledgement, contained in a
   letter sent by the Secretary of the Corporation to the Company, to extend the period of
   limitation. The trial Court held that the Secretary’s letter constituted an acknowledgement by
   an agent who had implied authority to make an admission of liability. But, when the case
   came up in a first appeal before this Court, a Division Bench of this Court held, in L.R.
   Cotton Mills v. Aluminium Corporation of India Ltd. [AIR 1967 All 391] that the so-called
   acknowledgement by the Secretary of the Corporation could not extend the period of
   limitation. This Court held the Secretary’s letter to be part of mere negotiation through an
   officer whose authority to make an acknowledgement of liability on behalf of the Corporation
   was not established. The Corporation’s appeal was, therefore, allowed by this Court.
4. The Corporation, without taking any steps to enforce the order of restitution by
   ordinary steps in execution, served a notice on 11.5.1967 calling upon the company to pay the
   sum of Rs. 4,11,554/- along with interest pendente lite at 6 per cent per annum within three
   weeks of the servicing of the notice. The Company replied disputing its liability to pay back
   and alleged that there was no question of its neglect or failure to pay. The Corporation then
   filed the winding up petition in this Court on 9-8-1967 on a number of grounds including the
   Company’s inability to pay its debts. The Company denied its inability to pay its debts and
   made counter allegations. The following issues, arising out of the assertions made by the two
   sides, were framed:

(1) Whether the Company is liable to be wound up on the ground that it is
commercially insolvent for the reasons mentioned in the petition as amended?
(2) Whether the Company has suspended its business for a whole year and is
liable to be wound up for this reason?
(3) Whether it is otherwise just and equitable to wind up the Company?
(4) Whether the petition is malafide and liable to be dismissed on that ground?

10. There is no doubt that prima facie evidence must accompany the petition itself in
    order to justify its entertainment at all. But I find no warrant for going further to hold that the
    essentially equitable jurisdiction of the Court, in considering a winding up petition, must be
    exercised only on evidence which accompanies the winding up petition. Such a view would
    run counter to the specific provisions relating to the procedure of this Court contained in
    Companies (Court) Rules for tendering of evidence after the filing of the winding up petition
    which is a representative action. Other creditors may file affidavits to support the petition by
    proving their claims existing at the time of making the petition, in addition to those set out by
    the petitioning creditor. The evidence given must no doubt be confined to the cases set up on
    which issues are framed. But, it cannot be said that the petitioner’s evidence must exhaust
    itself when the petition is filed. Indeed, the Company itself filed a Paper Book of this Court in
    the First Appeal mentioned above, and a copy of its petition for a certificate of fitness of its
    case for an appeal to the Supreme Court, even after the arguments which had closed but were
    reopened on the specific question for which the documents were relevant. If there could be a
    rule that the whole evidence of the petitioner must be filed with the petition. I see no reason,
    in justice, why there should not be a corresponding rule to prevent a company from filing any
    evidence after its affidavits in reply. I know of no such sweeping rules. I, therefore, overrule
    the company’s objection to the petitioner’s evidence tendered after the filing of the petition.
11. The petitioning creditor, having been met with a refusal to pay after it had served a
    registered notice on 11.5.1967 demanding payment of the amount declared to be due to it,
    claims the benefit of the deeming provision under Section 434(1)(a) of the Act. Its contention
    is that, once the statutory fiction or presumption is shown to operate in its favour, it becomes
    entitled ex debito justiae to a winding up order. It relies, in particular, on a passage, in the
    judgment of Lord Cranworth, in Bowes v. Hope Life Insurance and Guarantee Co., [(1865)
    11 HLC 389] where we find:
    “…. I agree with what has been said, that it is not a discretionary matter with the
    Court, when a debt is established and not satisfied, to say whether the company shall
    be wound up or not; that is to say, if there be a valid debt established, valid both at
    law and in equity.”
    It is urged that a creditor’s right to obtain a winding up order as a method of “equitable
    execution” is well recognised.
12. Although the power to wind up is discretionary, it has to be exercised judicially. This
    means that it is only where the balance of equities is shown by a petitioner to tilt appreciably
    in favour of a winding up order that it will be made “ex debito justitiae”. It is in this special
    sense that a petitioner relying on grounds contained in Section 433 can get a winding up order
    as a matter of right. It is issued as a matter of right when the proved contents of the right

produce a compelling effect. It is not granted mechanically as a matter of course on proof of
certain facts. In other words, equitable considerations have a decisive effect even when the
power to wind up a company is invoked under a clause of Section 433 other than the general
just and equitable Cl. (f) The provisions of Section 434(1) determine when the requirements
of Section 433(e) will be deemed to be fulfilled, but they do not lay down when a winding up
order must necessarily be passed. It is true that a creditor is not bound to wait and give time
to the company beyond the time prescribed after the statutory notice, before filing his petition.
But the Court may, if there are sufficient counter-balancing equitable grounds, deny an
immediate winding up order, or, in appropriate case even refuse it altogether in spite of the
proved inability of a company to pay its debts. Exercise of such discretionary power must
necessarily be governed by justice and equity.

18. The petitioner’s counsel urged, with some vehemence, that law and equity which are
    not separable in this country combine to carry a compelling force when the inability of a
    company to pay its debt is supported by an unsatisfied judgment debt followed by a failure to
    pay within the prescribed period after the statutory notice. It was pointed out that it has been
    held that even the filing of an appeal against a judgment proving a debt, which left no room
    for a bonafide dispute about liability to pay, could not ward off a winding up order unless a
    stay order was obtained from the appellate Court. It was, however, conceded that a stay order
    from the appellate Court would disable the creditor, against whom it was made, from relying
    upon any neglect or failure of a company to discharge the liability already adjudicated upon to
    prove liability of the company to meet its obligations.
19. In my opinion, learned counsel for the Company rightly pointed out, relying upon a
    recent decision of the Calcutta High Court. In re Steel Equipment and Construction Co. (P)
    Ltd. [(1968) 36 Com. Cas 82], where S.K. Dutta, J., has made a very comprehensive survey of
    all the authorities, both Indian and English, on the question that the principle that the
    existence of a bonafide dispute dispels the fiction or presumption contained in Section 434(1)
    of the Act is applicable to a decretal debt as well. The only difference is that the decree
    against the alleged debtor raises a strong presumption, as held by S.K. Dutta, J., that a genuine
    debt exists. The presumption can, however, be repelled where there are substantial grounds
    for questioning the validity of the decree. But, a debt simpliciter, which is not supported by a
    judgment to evidence it has to be proved by other evidence. The difference lies not in the
    principle applicable but in the type of evidence produced to prove a debt and its effect.
20. Learned counsel for the petitioner tried to confine the applicability of the principle of
    bonafide dispute, in cases of decretal debts, to cases where the decree was shown to have been
    passed either without jurisdiction or could be strongly suspected of being collusive or
    obtained fraudulently so that it could be null and void. Learned counsel for the petitioner
    contended that, in other cases, the existence of a decree for money, which has not been set
    aside, followed by a failure to pay within time after a statutory notice, was enough to give rise
    to the fiction or presumption laid down by Section 434(1) of the Act. I do not consider such a
    clear-cut or simple ground of distinction to be justified. The presumption that a judgment and
    decree are correct no doubt remains until they are set aside. But, there is no further
    presumption that their validity or correctness cannot be questioned on substantial grounds, to
    merely show that either an appeal has been filed or an allegation has been made that the

decree is collusive or obtained by fraud. But, together with other facts, a bonafide dispute
either about the validity or about correctness of a decree may be established. The decision in
each case must turn on its own facts. n fact, the case of an alleged collusion or fraud generally
remains in the realm of prospective evidence to be produced. But, in the case of an appeal,
the evidence, the judgment or judgments, as the case may be, and the grounds taken in appeal
can be placed before the Court so that it may be easier to say whether a bonafide dispute
about liability to pay exists or not. The principle that a bonafide dispute will save the creditor
from the charge of neglect in paying applies to both types of cases.

24. In the instant case, the learned counsel for the petitioner had at first merely tried to
    show, from the judgment of the Division Bench itself, that the case on behalf of the Company
    was not properly and fully argued before the Division Bench in this Court. But, neither the
    facts stated in the judgment nor the fact that an appeal had been filed as a matter of right in
    the Supreme Court could prove that the judgment of this Court had been questioned on
    substantial grounds so as to establish a bonafide dispute. However, when the learned counsel
    for the company, perhaps realising the weakness in the evidence given by the Company on
    this aspect of the matter, had filed a copy of the paper book of the first appeal and the
    proposed grounds of appeal in the Supreme Court, it could not possibly be said that the
    grounds of appeal were not substantial. If there are two differing judgments and certain
    substantial grounds are shown to have been taken in a second appeal, which is pending in the
    Supreme Court, I think it could not be denied that there is a bonafide dispute about the
    existence of the Company’s liability to repay the amount which was initially decreed by the
    trial Court. I could come to this conclusion only after going through the judgments of the trial
    Court and of this Court and grounds of a proposed appeal on the facts of this particular case.
25. The proposition that even where there is an appeal involving substantial grounds for
    challenging a judgment under appeal, the judgment debtor must necessarily be held to have
    neglected to discharge his duty to pay, unless a stay order is granted by the appellate Court,
    seems to me to be too wide. A stay order from the appellate Court would certainly establish
    that there was no neglect, and, therefore, inability to pay, within the meaning of Section
    434(1)(a) of the Act, could not be presumed. But, where a bonafide dispute about the liability
    to pay is satisfactorily shown by an appellant, inability to pay could not be presumed simply
    because the judgment-debtor has failed or refused to pay in response to the statutory notice of
    the creditor under S. 434(1)(a). It may, however, still be presumed under Section 434(1)(b)
    when a process issued, in the course of execution, is shown to have been returned unsatisfied.
    A stay order is only indispensable in cases falling under Section 434(1)(b) of the Act because
    here the plea of a bonafide dispute is of no avail and is irrelevant.
26. In the instant case, the petitioner could only file and did file a restitution application
    under Section 144, Civil P.C. Such an application has been held, in M.M. Barot v. P.M.
    Gokul Bhai [AIR 1965 SC 1477], by the Supreme Court, to be an execution application. It
    was, therefore, contended, not without force, by the learned counsel for the company, that, in
    this case, no fiction or presumption arose under Section 434(1)(a) of the Act, although it
    could have arisen under Section 434(1)(b) of the Act provided some process had been issued
    on the strength of the restitution order and had been returned unsatisfied in whole or in part.
    Relying on an observation of Iqbal Ahmad, J., in [AIR 1936 All 840], with regard to the three

corresponding clauses of Section 163 of the Act of 1913, that it may be conceded that the
three clauses were mutually exclusive, learned counsel for the Company went on to submit
that, if the case could fall under Section 434(1)(b), it could not fall under Section 434(1)(a) of
the Act at all. But, in that case, it was also held that a presumption could arise simultaneously
under the first clause if the judgment-debtor had served the required notice. It was held there
that the case of a judgment-debtor is not ipso facto taken out of the purview of the first clause.
That, however, was not a case of a bonafide dispute about liability to pay.

27. The learned counsel for the petitioner has contended, as already indicated, that, as no
    appeal had been filed against the restitution order, an additional liability to pay immediately
    under that order came into existence and that this could also be enforced by means of a notice
    under Section 434(1)(a) of the Act. Even if this doubtful proposition could be technically
    correct, I do not think that compelling equities can arise in favour of the petitioner unless
    further steps to execute the restitution order are shown to have been taken unsuccessfully.
    The better view seems to be that, as a restitution order is a step in the course of execution, the
    particular mode contemplated by law for obtaining the benefit of the deeming provisions of
    Section 434(1) of the Act, in the case of a restitution order, is to proceed with the execution,
    to take further appropriate steps for executing the restitution order, and to show that these
    have not resulted in full satisfaction of the decree. Such steps include, it has to be
    remembered, even appointment of a Receiver, in a suitable case, as provided in Section 51,
    Civil P.C. Even if the submission that no property of the Company was available against
    which execution could be levied, as all its assets are already hypothecated, were correct
    Section 434(1)(b) could not apply until conditions laid down there are shown to have been
    fulfilled.
28. The petitioner has, however, submitted that it has also proved, as required by Section
    434(1)(c), that the Company is actually insolvent. It is a little difficult to understand how a
    deeming provision or a legal fiction could be said to apply to a state of actual proof of
    insolvency until one looks at the corresponding English provisions on which ours are based.
    One finds that the English provisions were meant to define inability to pay debts or
    insolvency both commercial and general or complete. Thus, we find in Buckley On
    Companies Acts (13th ed, p. 460) that the provisions of Section 223 (a) and (b) of the English
    Act, corresponding almost exactly to our Section 434 (1)(a) and (1)(b), “are instances of
    commercial insolvency, that is of the company being unable to meet current demands upon
    it”. We also find here:
    “In such a case it is useless to say that if its assets are realized there will be ample to
    pay twenty shillings in the pound; this is not the test. A company may be at the same
    time insolvent and wealthy. It may have wealth locked up in investments not
    presently realizable; but although this be so, yet if it have not assets available to meet
    its current liabilities it is commercially insolvent and may be wound up.”
    It is also pointed out here that S. 223 (d), corresponding exactly to S. 434(1)(c) of our
    Act, read with Section 222(e) of the English Act, corresponding exactly to Section 433 (e) of
    our Act “expressly authorises winding up in the case of another kind of insolvency, that is to
    say, if the existing and probable assets will be insufficient, taking into account not only
    liabilities presently due but those which are contingent and prospective.” This is the complete

insolvency of a kind which was formerly dealt with in England (that is, before express
provision was made for it) under the “just and equitable” clause. The test for this kind of
insolvency is, as indicated above, more comprehensive. It is not enough to show existing
indebtedness. Contingent and prospective liabilities can be added to it. And, after this has
been done, it has to be shown that all these liabilities put together could not be satisfied by the
existing and probable or prospective total assets.

29. The first difficulty in the way of considering a case of complete insolvency of the
    Company is that the petitioner has based its case of insolvency of the Company in its petition
    on alleged commercial insolvency only. The case of complete insolvency, as explained above,
    has not been taken anywhere in the petition. The first 21 paragraphs of the petition are
    concerned with facts relating to the particular debt of Rs. 4,11,454 of the petitioner which has
    been considered above. Paragraph 22 sets out a number of debts of the company only in order
    to prove “that the company is not commercially solvent.” Paragraphs 25 to 45 deal with
    alleged mismanagement, fraudulent acts of the directors, closure of the mills due to its alleged
    financially precarious position, and the condition of its machinery which was said to be
    outmoded and incapable of producing goods in such a way as to yield profits. In the last
    paragraph 49 of the petition it is only asserted that it is just and equitable for the Company to
    be wound up as the company is “commercially insolvent and unable to pay its debts.” A great
    deal of attention has been paid by the petitioner to the total liabilities of the company but only
    some assets are mentioned incidentally when dealing with the alleged outmoded machinery of
    the Company. An amendment application, filed on 21.8.1967 and allowed on 24.10.1967,
    sought only to introduce more facts relating to the liabilities of the company and alleged acts
    of fraud and breach of trust by its office bearers. Even the very detailed interrogatories,
    consisting of 94 questions, some of which were ordered to be answered by the company, do
    not seem to contain any question asking what the total assets of the company are. This must
    be so because they exceed total liabilities. The highest estimate submitted in the form of a
    chart by the petitioner’s counsel of total liabilities of the Company puts these at Rs.
    2,57,72,476.87. According to the Company, they do not exceed Rs.1,82,72,790. Even taking
    the figure of Rs. 3,44,58,632 for total assets of the company, shown in its balance sheet of
    1964, this exceeds the total liabilities estimated by the petitioner for 1967. But, according to
    the Company, its total assets had risen to Rs. 7,13,36,267 in 1967 due to additions and rise in
    prices. However, as the case of total insolvency was not taken in the petition, no issue was
    framed on it, and no decision on the question is called for.
30. Thus, if Section 434(1)(c) were meant for proof of cases of total insolvency only, the
    petitioner could not rely on it. The language of Section 434(1)(c) is, however, wide enough to
    cover cases of commercial insolvency as well as of complete insolvency. But, contingent and
    prospective liabilities are meant to be taken into account only when the total liabilities are to
    be weighed against total realizable assets. For a case of “commercial insolvency,” in the
    sense that the company is “unable to meet current demands upon it,” only the current
    liabilities, of which payment is actually due, have to be examined. It was urged, not
    unreasonably, that, if any particular properties are charged with payment of any current
    liabilities, these liabilities, although current, could be set off, in equity, against properties
    which are charged with their payment. In other words, the contention on behalf of the

company was that, in considering the sufficiency of liquid or easily realizable assets to meet
current demands, only the unsecured debts should be weighed against current assets because
the interests of secured creditors are not jeopardised. And, as some of the current assets of the
Company are also pledged against bank advances although they exceed in value, by far, these
advances, it was urged that this excess should still be treated as current assets which could
counter-balance the remaining current liabilities.

31. As there was considerable controversy on what was to be included or excluded from
    current liabilities and assets and the evidence of these was rather scattered, parties filed
    affidavits, under orders of this Court, about their respective stands on this specific question.
    According to the petitioner’s affidavit, current liabilities add up to Rs.1,70,30,960 whereas
    current assets are estimated at Rupees 1,08,79,640 only. It disputes, without being able to
    disprove, the correctness of some of the items shown by the company among current assets
    and alleges that the current liabilities have been increasing. On the other hand, according to
    the company, current liabilities add up to Rs. 1,27,89,561 and current assets are shown at
    Rupees 1,97,69,497. Included in the current liabilities is a debt of Rs. 74,72,117 to the State
    Bank, the principal creditor, for the payment of which goods in stock, valued at Rs.
    1,18,32,496 shown among current assets are pledged. As these were pledged their value, to
    the full extent, should be, according to the corporation, deducted from the company’s current
    assets. There is incontestable evidence on record, in the form of certificates from the State
    Bank, that this liability has been reduced from nearly 75 lacs to about 10 lacs only in April
32. The resulting enormous excess in the value of the stock in trade over the liabilities for
    the satisfaction of which they are pledged could be used for counter-balancing the remaining
    current liabilities because the hypothecation does not diminish the market value of goods so
    that, if they were sold, they will fetch far more than the charge created. If this excess is, as it
    should be, used for counter-balancing current liabilities, the company is still commercially
    solvent. Although stock in trade cannot be easily used to liquidate current liabilities as ready
    cash or bank balances, yet it could quite properly fall within the following definition of
    “current assets” given in Mr. William Pickles’ book on Accountancy (3rd ed. p.125):
    “Floating or Current Assets may be regarded as those assets which are made or acquired and
    merely held for a short period of time. With a view to sell at a profit in the ordinary course of
    business; that is to say, they are easily convertible into cash.”
33. I find that two creditors of the company, Messrs. Preston Electric Co. and Messrs.
    Kambo Dyes (P) Ltd. with claims of Rs. 40,190/09 and Rs. 45,524/50, which came forward to
    support the petition, have withdrawn as they have been paid off. The only alleged creditor
    which remained to support the petition is the Textile Labour Association. It put forward the
    case that the company was indebted to its workmen to the extent of Rs.4,85,000 payable on
    account of non-payment of wages and illegal deductions from wages. The Company, in reply,
    questioned the locus standi of the association to represent its workmen and stated that all its
    disputes with its workmen on this score had been settled by an agreement dated 25/26 July,
34. Apart from this agreement, the aggrieved workmen, whose names are not revealed by
    the Association, have a more effective alternative machinery for enforcing their claims under
    the Payment of Wages Act. Unlike ordinary creditors, the employees of the Company are
    likely to suffer by a winding up order and not gain as they may lose their employment.

Moreover, the nature of the allegations made by the Association against members of the
Gupta family personally so closely resemble the nature of and even the language of the
petitioner’s allegations against the Guptas, in an evident spirit of unnecessary hostility and
acrimony, that the motives of this alleged interested party seem questionable. I am inclined to
agree with the submission on behalf of the company that the application by the Association
seems inspired by improper motives and could be instigated by some other party. In any case,
the Association has not established its locus standi as a creditor. It has not even stated that it
is a creditor as no sum from the company is due to the association itself.

33. Although the existence of several large amounts among the current liabilities of the
    company, which it has not yet met, may indicate the inability of the company to satisfy its
    liabilities as they arise, yet, it is quite clear that the Company has been able to liquidate large
    amounts of debts and to pay up every creditor, with an undisputed claim, who has come
    forward to support this petition. This shows that the company can pay its creditors when
    pressed even though it may be in financial difficulties. As the petitioners have not been able
    to prove that the current assets of the company are less than current liabilities and that the
    company will not be able to pay up its debts from the profits it is said to be making, I do not
    think, that a winding up order can be made under Section 433(e) because the case cannot fall,
    at present, under any of the provisions of Section 434(1) of the Act.
34. Taking up the second issue next I find that it is not denied by the company that the
    mills were closed from 6.9.1966. But, one whole year had not elapsed during which the mills
    remained closed, when the corporation filed the winding up petition on 9.8.1967. It was
    asserted on behalf of the company that the mills were likely to start in about three weeks’ time
    from the filing of the counter-affidavit on 28.9.67 after the work of cleaning, oiling, greasing,
    tuning, and adjusting the machinery which had already begun had been completed. It was
    also stated that a notice for restarting the mills had already been posted at the gate of the mills
    on 19.9.1967 and that the maintenance staff was busy working at the mills. In the reply,
    given in paragraph 43 of the counter-affidavit, the specific statements made on behalf of the
    company have not been denied, but the petitioner alleged that the company lacked funds to restart business and was, therefore, negotiating for a loan of Rs. 40,00,000 from the
    Government of Uttar Pradesh. In fact, the petitioner had filed an application for an injunction
    by this Court, after the filing of the winding up petition, to prevent the company from taking a
    loan from the Government so as to start working the mills. If the Government was prepared
    to give or had given a loan of forty lacs to the company, it indicated that the company was in
    a position to operate the mills. And it is asserted that the mills are now working.
35. Coming to the third issue relating to the question whether it is just and equitable, apart
    from commercial insolvency and suspension of business for more than a year, that the
    company should be wound up, provisions of Section 443(2) have to be borne in mind. It is
    laid down here: “Where a petition is presented on the ground that it is just and equitable that
    the company should be wound up the Court may refuse to make an order of winding up if it is
    of opinion that some other remedy is available to the petitioners and that they are acting
    unreasonably in seeking to have the company wound up instead of pursuing that other
    remedy.”

38. It is true that the powers under the just and equitable clause are wide and are not to be
    construed ejusdem generis with matters mentioned in previous clauses of Sec. 433 as has been
    repeatedly held. Nevertheless, there are well recognised types of cases illustrating what justice
    and equity in this clause means. Instances of these are given in Buckley, “On Companies
    Acts” (13rd ed. page 455) under the following heads: (1) substrarum gone; (2) deadlock; (3)
    fraud or illegality; (4) mismanagement or misapplication of the company funds; (5) bubble
    company; (6) insolvency; (7) business carried on for the benefit of the debenture holders; and
    (8) rights given by provisions of the Articles. Cases considered under each head show that
    proved facts of the case must establish that a sufficiently grave situation exists to warrant a
    winding up order which is an extreme measure. Thus, we find that a fraud not connected with
    the formation or promotion of a company but against third parties would not ordinarily
    provide a ground for a winding up order.
39. Further details of the alleged mismanagement and dishonesty of the Gupta group,
    which is said to be thoroughly unreliable, given by the petitioner are:
    (1) Transfer of personal properties to the company without executing a proper
    conveyance and in order to “fritter away” the funds of the company. On behalf of the
    company, it was explained that, as disputes are still pending about these properties, a deed
    could not be executed for the sale of the properties of Gupta family to the company. But,
    it is asserted that it is an advantageous transaction from which the company benefits.
    Reliance is placed on Section 53-A of the Transfer of Property Act to show that the right
    and title of the vendee cannot be questioned by the vendors. It is too early to say that the
    transaction must necessarily injure and not benefit the company.
    (2) Purchases of overwhelmingly large quantities of cotton by the company from
    particular sources of supply under the control of the Gupta group. It is difficult to
    conceive how this could be mismanagement. It is, however, alleged that this is a device
    for enabling the Guptas to take advantage of fall in the prices of cotton and enabling the
    Guptas to pocket the funds of the company. The correctness of such an inference is
    strongly denied on behalf of the company. No loss to the company or its shareholders has
    been proved from the investment of funds in other concerns in which the Guptas are
    interested.
    (3) The control of the investment of funds in other concerns in which the Guptas are
    interested. In reply, it is urged that investment in particular concerns could not constitute
    mismanagement unless loss to the company from it is shown. No loss attributable to it
    was proved.
    (4) Payment of brokerage to the firm of sole selling agents, B.R. & Sons, in which the
    Guptas are interested. This was alleged to be a device for misappropriating the funds of
    the company. In reply, the company asserts that B.R. & Sons of Bombay, were properly
    appointed selling agents of the company who passed on the commission to the brokers so
    that the insinuations against the Gupta family personally were baseless.
    (5) Payment by the company of sums up to Rs. 25,000: “being arbitration fee and
    other expenses of arbitration proceedings which should have been paid by Messrs. B.R. &
    Sons Limited.” The company justified the payment as one made under the terms of a
    properly made award. Nothing illegal or improper was proved about it.

(6) Indulgence in speculative transactions which had resulted in losses amounting to
Rs. 35,00,000 to the company. In reply, the company asserts that the transactions were
within the purview of the authorised objects of the company and it was contended that
losses are part of the ordinary risks and incidents of business.

40. None of the above-mentioned grounds, taken either separately or together, appears to
    me to take a winding up order imperative in the interests of the creditors. Several of the
    allegations made look like attempts at mud-slinging in the hope that some of it would slick.
    The equities which the petitioner can properly invoke as a creditor must relate to the interests
    of the creditors which a petitioning creditor represents in a winding up proceedings. The test
    in such a case should be: Will the interests of creditors be better served by a winding up
    order? If the debts of the creditors can be liquidated more easily by taking proceedings other
    than those for the liquidation of the company itself, I do not think that a winding up order
    could be said to be absolutely necessary.
41. If the petitioner’s debt, about which I have found that a bonafide dispute exists
    between the parties, was the only claim against the company, I may have followed the line
    indicated by a recent English case (not cited by the parties) Mann v. Goldstein, [(1969) 39
    Comp. Cas. 353]. There, it was held that to invoke the winding up jurisdiction, after it had
    become clear that the petitioner’s debt was disputed on substantial grounds, so that the
    petitioners’ locus standi was questionable, was an abuse of the process of the Court. In the
    instant case, a judgment in favour of the petitioner entitles the petitioner to claim the benefit
    of the presumption that the judgment in its favour is correct so that the petitioner has a locus
    standi or right to petition until it could be shown that the decree in its favour has been actually
    set aside in appeal. This distinction, on facts, is there. Nevertheless, if the correctness of the
    judgment has been questioned on substantial grounds by a pending appeal, the debt is still
    disputed. The proper order to pass, if the petitioner was the sole creditor, would, in my
    opinion, have been to postpone a decision on this petition until the appeal against the
    petitioner was decided. In this case, however, the existence of a large amount of other
    indebtedness has also been proved.
42. The result is that, in exercise of the power of this Court under Section 443 (1)(b) of
    the Act, I postpone the final decision on this petition for one year on condition that the parties
    will take such steps to assert their claims within this period as to establish a clear balance of
    equities either in favour of or against a winding up order.