The law confers a right upon a creditor to move for the winding up of a Company (Pvt Ltd or Public Ltd) if the Company without having just reasons, but refuses to pay the legitimate dues of the petitioning creditor. Winding up proceedings are maintainable against the Companies who are incorporated under the Companies Act, 1956 or Companies Act, 2013, wherein under certain circumstances set out under the said Act, the Company may be told to wind up its operations; and one of the grounds on which the Company may be wound up is, when it is unable to its debts
1. The legal process in the Court of law is initiated by the presentation / institution of a Case, whether in the form of a Suit, Petition, Application etc, in the competent court of jurisdiction.
2. Every litigation presupposes the accrual of “cause of action”, that is to say, reason for initiating legal action in the Court of law.
3. Accrual of cause of action implies and presupposes infringement of litigant’s some statutory right / fundamental right / equitable right / contractual right / or any other right recognized under the statutes or customs.
4. In order to commence a legal action, the person must have some real grievance, which is the foundation of any legal action. For having right to move the court of law, the right sought to be enforced should have already come into existence, and there should be an infringement of it, or at least a serious and imminent threat exist of its infringement.
5. The law confers a right upon a creditor to move for the winding up of a Company (Pvt Ltd or Public Ltd) if the Company without having just reasons, but refuses to pay the legitimate dues of the petitioning creditor.
6. However, the erstwhile regime of Winding up is now replaced by Insolvency Resolution Application. The Parliament of India in the year 2016 have enacted a historic legislation. Corporate Insolvency under Insolvency and Bankruptcy Code, 2016, which among other things, replaces the Winding up jurisdiction of High Courts, with "Insolvency Resolution Application" to be filed before National Company Law Tribunal (NCLT).
7. The proceedings lie against the Companies who are incorporated under the Companies Act, 1956 or Companies Act, 2013, wherein under certain circumstances set out under the said Act, the Company may be told to wind up its operations; and one of the grounds on which the Company may be wound up is, when it is unable to pay its debts.
8. The debts of the Company include every kind of dues which are payable by the Company, which includes unpaid salaries / wages of employees, unpaid dividends etc.
9. One of the main factors which weigh the minds of the Court whilst presiding over Winding up cases are, as if the Company is an ongoing concern having regular business and employment of employees. The effect of winding up would be of putting an end of the business or an industry or an entrepreneurship and, in turn, resulting into loss of employment to the several employees and loss of production and effect on the larger interest of the society; and the Court ordinarily grants time to come out of the temporary financial crisis or any other temporary difficulty, and order of winding up of the company is a measure of last resort.
10. If the debt is bonafidely disputed by the Company, the Company Court may simply refuse to exercise its extra-ordinary jurisdiction and would relegate the Petitioner to a traditional Civil Suit or any other remedy available under the law. Therefore, in every Winding up proceedings based on “inability of the company to pay”, the main issue before the Court is “whether the Company raises a bonafide dispute”.
11. One of the means to ascertain the bonafides of the contentions of the Company is to examine the conduct of the Company at the time of the concerned transaction and the period thereafter. The defense of the Company should not be in the nature of afterthought, i.e. a contention which has suddenly emerged after the filing of the winding up petition, or after the receipt of the statutory Notice, and which the company never took, which it should have taken at the accrued point of time.
12. The expression 'bonafide' would mean genuine, in good faith and when dispute raised, is based on substantial grounds or when defense is probable and with some substance.
13. The Apex Court in the case of Madhusudan Gordhandad and Co. versus Madhu Woolens Industries Pvt Ltd, 1971, have laid down a test to ascertain the bonafides of the contentions of the Company. The Court said – “two rules are well settled. First – if the debt is bona fide disputed and the defense is a substantial one, the court will not wind up the company. Where the debt is undisputed the court will not act upon a defense that the company has the ability to pay but chooses not to pay that particular debt. The principle on which the court act are – (1) that the defense of the company is in good faith and one of substance; (2) the defense is likely to succeed in point of law; (3) the company adduces prima facie proof of the facts on which the defense depends.
14. The amount of debt for which the new jurisdiction can be invoked: Rs.1.00 Lakh. (Section 4)
15. Who can file: Financial creditor, Operational creditor, or the Corporate debtor itself. (Section 6)
16. Accrual of cause of action: Where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself, may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided under this Chapter. (Section 6)
17. The place of filing: National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located.
18. Coming to deliverance and dispensation of justice, the Courts / Tribunals, in the exercise of adjudicating and declaring rights and obligation of respective parties which are before it, formulate its decision by employing laws of the land, the principle of equity, and customs & usages.
19. The principles of natural justice forms the corner stone of every judicial decision and it postulate that both the litigating parties must have equal and sufficient opportunity to deal with the allegations made against them.
20. A Judicial decision must be a self contained document from which it should appear as to what the facts of the case were and what was the controversy, which was tried to be settled by the Court / Tribunal.
21. The process of reasoning by which Court came to a particular conclusion and decreed or dismissed the case, should clearly be reflected in the decision. 22. The decision should be on the basis of evidence on record and in accordance with law.
23. The fate of Justice is tied to the thread of reason: Reasoned decisions are inescapable in the entire scheme of administration of Justice, as explained decision breathes life into court order. Reasons disclose how the mind was applied to the subject matter and reveals a rational nexus between the facts considered and conclusions reached.
Recording of reasons is also an assurance that the judicial authority has applied its mind to the facts on record. The reasons employed not only be logical / conceivable but which will also deal with the substantial points which have been raised.
An unreasoned Order presupposes the non consideration of evidences and submissions on record made by the Party therein and the opportunity of affording due hearing would be rendered meaningless and empty formality and thus in essence occasion the frustration of principles of natural justice for the prejudiced party.
The giving of satisfactory reasons is required by the ordinary man’s sense of justice. Reasoned decisions are vital for the purpose of showing that one is receiving justice.
24. Having said all this, and to say that reasons must be given for decisions, what we really expect from the judicial authority.
Reasons are appreciation of such facts and evidences which are on record, and from which the judicial authorities are entitled to draw inferences and results.
Then comes the question, what is appreciation of facts and evidences.
Appreciation of facts and evidences is, drawing natural and logical inferences, drawing natural and logical results, which necessarily flow from those facts and evidences [the facts would mean those facts which are self evident or are admitted, or facts which are reasonably proved, disproved or not proved].
Appreciation of facts and evidence is an exercise wherein the proved existence of certain facts, provokes or persuades the decision maker to reach a certain conclusion.
And to put it further straight, Reasons are those statements, whereby the decision maker will tell you, WHY your submissions to claim certain reliefs, or WHY your submissions to deny reliefs claimed, are meritorious or if are meritless; or to say, the decision maker will tell you, WHY you are entitled to the reliefs or WHY you are not entitled to the reliefs, claimed or prayed for.
25. I am hasten to add here the notable observations of the Apex court in the case of State Of Uttaranchal Versus Sunil Kumar Vaish .
Para 18: Judicial determination has to be seen as an outcome of a reasoned process of adjudication initiated and documented by a party based, on mainly events which happened in the past. Courts' clear reasoning and analysis are basic requirements in a judicial determination when parties demand it so that they can administer justice justly and correctly, in relation to the findings on law and facts. Judicial decision must be perceived by the parties and by the society at large, as being the result of a correct and proper application of legal rules, proper evaluation of the evidence adduced and application of legal procedure. The parties should be convinced that their case has been properly considered and decided.
Para 19: Judicial decisions must in principle be reasoned and the quality of a judicial decision depends principally on the quality of its reasoning. Proper reasoning is an imperative necessity which should not be sacrificed for expediency. The statement of reasons not only makes the decision easier for the parties to understand and many a times such decisions would be accepted with respect. The requirement of providing reasons obliges the judge to respond to the parties’ submissions and to specify the points that justify the decision and make it lawful and it enables the society to understand the functioning of the judicial system and it also enhances the faith and confidence of the people in the judicial system.
No adverse Order if No adverse findings
1. It is typical for Courts and Judges, whilst passing Orders and decisions, (to commit basic and elementary mistakes, and most of the times consciously) outright overlooking some of the very material facts and evidences / submissions / Judgments cited, by the losing Party; and drive themselves to irrelevant consideration of facts.
2. Before discussing the aforesaid expression “No adverse Order if No adverse findings”, let us first broadly look at the decision making process.
3. Broadly, the decision making is a process wherein, having regard to the Reliefs claimed, the presiding Judge – (a) examine the (legality) of facts alleged, (b) examine the (legality) of stand of the adversary, (c) examine the materials and the evidences which are placed before him in support of the facts alleged by both the sides; (d) would record his reasoned finding (prima facie or conclusive) as to the existence or the non existence of the facts alleged.
4. The process of recording finding of facts is, having regard to the applicable laws and precedents, testing of facts and evidences, and drawing natural, logical and legal inferences and outcomes, which necessarily flows from those facts and evidences [the facts would mean those facts which are self evident or are admitted, or facts which are reasonably proved, disproved or not proved]. Appreciation of facts and evidence is also an exercise wherein the existence of certain facts and evidence, provokes or persuades the decision maker to reach a certain conclusion.
5. Once findings as to facts are arrived at, the decision follows, either granting the reliefs claimed for, or the denial of.
6. However, what is witnessed in many Orders of the Courts is – either (a) In the process of finding of facts, findings on significant material fact are not recorded at all, by overlooking all the materials and evidences and submissions of the losing party, which are placed on record; the evidences and submissions, which had a direct bearing on the decision of the Court; or (b) whilst recording finding as to material fact, some of the material facts agitated / evidences / submissions / Judgments cited are not dealt with. The situation (a) mainly occurs in discretionary jurisdiction Orders/ Interim /Ad-Interim Orders / and Orders passed at Appellate stage; and situation (b) occurs in Orders passed in original proceedings. [Material facts would mean such facts which naturally arises in the nature of legal proceeding and nature of reliefs claimed]
7. In wealth of judgments, the Apex Court and High Courts have insisted upon recording of reasons whilst arriving at findings of facts and law. In a case (AIR 2011 SCW 5486) before it, the Apex Court have observed to say that Judicial decisions must in principle be reasoned and the quality of a judicial decision depends principally on the quality of its reasoning, on law and facts.
8. Therefore, IF it is contempt of the Court, if reasoned findings are not recorded, then it is regressive and aggravated contempt, to not to record findings at all.
9. Can we really compel the Courts to record finding of fact in their decisions? At least the Apex Court in a case before it [(2006) 9 SCC 222], have said Yes. The Apex Court have held that before subjecting a party to the adverse decision, adverse findings must be recorded against it.
The Apex Court in the aforesaid case, have set aside the Order of the High Court on the grounds that, the High Court, before directing the Defendants to “clear the encroachment”, should have recorded the findings that “Defendants had entered upon the suit land and put up construction subsequent to the undertaking given to the trial court”.
It was a case where the Defendant in a Suit gave undertaking to the trial Court that Defendants will not interfere with the possession of the Plaintiff’s land. The Suit was disposed of on the basis of above undertaking. Thereafter, the Plaintiff moved Execution Application under O.21 R.32 before the trial Court alleging that Defendants have constructed some structure on the Suit land. The trial Court dismissed said Execution Application. The Plaintiff challenged trial Court’s Order before High Court. The High Court directed the Defendants to clear the encroachment effected by them on the suit land. In this backdrop, the Apex Court set aside the Order of the High Court on the grounds that, the High Court, before directing the Defendants to “clear the encroachment”, should have recorded the findings that “Defendants had entered upon the suit land and put up construction subsequent to the undertaking given to the trial court”.
10. The Illustration: To illustrate the proposition of “Findings”, agitated hereinabove, therefore, in a Writ Petition, the High Court, before refusing to exercise its writ jurisdiction on the grounds of availability of alternate remedy, and depending upon the nature of facts alleged, must record a prima facie finding that, having regard to the facts on record, (a) fundamental rights of the Petitioners are not infringed; and / or (b) principles of natural justice have not been infringed; or (c) the Authority / Subordinate court / Tribunals have acted within their respective jurisdiction. This is because, there are ample judgments of Apex Court, wherein it is held that, on the existence of any of the aforesaid grounds in the case, notwithstanding availability of alternative remedy, the High Courts must exercise their Writ Jurisdiction under Article 226 of the Constitution of India. [AIR 1970 SC 645; AIR 2010 SCW 7184; AIR 1999 SC 22; AIR 2012 SCW 616; AIR 2003 SC 2120; AIR 2005 SC 3936; AIR 1958 SC 86 (Constitution Bench Judg); (2011) 5 SCC 697; AIR 1969 SC 556; (2015) 6 All MR 35 (BHC)]
Similarly, in an Application for Anticipatory Bail, the Session Judge / High Court, before rejecting Anticipatory Bail must record a prima facie finding that, having regard to the facts on record, (a) the Applicant is not cooperating in the investigation; (b) custodial interrogation of the Accused is essential; or (c) There is a apprehension of tampering of the witness by the Applicant; or (d) There is a possibility of the Applicant to flee from justice; or that there is a possibility of the Accused's likelihood to repeat similar or the other offences.
11. The necessity of recording of finding on material facts, would take away the arbitrary and whimsical discretion of the Courts, for, they have to record findings, based on facts and evidences which are explicitly placed on record. And when the facts / evidence are seen large, the Courts may abstain from recording illogical findings, which are contrary to facts / evidence placed on record, and seen large.
This is how the captioned proposition should come into play, that is, “No adverse Order if No adverse findings”.
The concentrated view which emerges runs to the effect that every decision / Order of the court, be interim or final, must be based on findings of facts recorded by it, whether prima facie or conclusive, on such facts which naturally arises in the nature of legal proceeding and nature of reliefs claimed.
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