In Re: of Ranjan Nanji and Sons Ltd; In Re: of the Companies Ordinance (Bankruptcy and Winding up Cause No. 23 of 1952) [1952] EACA 323 (1 January 1952)

$124$

BANKRUPTCY JURISDICTION

Before WINDHAM, J.

Re IN THE MATTER OF RANJAN NANJI AND SONS, LTD.

AND

IN THE MATTER OF THE COMPANIES ORDINANCE, 1934

Bankruptcy and Winding up Cause No. 23 of 1952

Company's Winding up—Petition opposed—Company's inability to pay its debts.

On a petition for winding up a company on grounds that it was unable to pay its debts and that the winding up was just and equitable the company opposed and filed a motion praying that the petitioner be restrained from further advertising the petition and that the petition should be dismissed and for an inquiry as to damages.

Petition and motion were argued together.

Objections were raised by the company that the Company's (Winding up) Rules, 1929, had not been complied with and also that the debt alleged in the petition is a disputed one.

Held (23-12-52).-(1) Rule 223 (1) cures irregularities unless the Court is of the opinion that substantial injustice has resulted which cannot be remedied by any order of the Court.

(2) There must be a bona fide dispute of the debt and it must appear what that dispute is and that the company by admission that its resources were Sh. 43/26 only had evidenced that it was unable to pay its debts.

Case cited: In re Flagstaff Silver Mining Co. of Utah, (1875) 20 Eq. 268.

Kean for petitioner.

D. N. Khanna for company.

ORDER.—The petitioner has brought a petition for the winding up of the respondent company, hereinafter referred to as the company. The company opposes the petition and has also filed a motion praying that the petitioner be restrained from further advertising the petition, and that the petition be dismissed, and for an inquiry as to damages. The ground covered by the petition and the motion is nearly identical and both have been argued together. I will now consider both.

The main ground for the petition is that the company is unable to pay its debts, and in particular a debt of Sh. $197,177/72$ said to be due to the petitioner. An alternative ground is that a winding up would be just and equitable. The petition, together with the supporting affidavits and copies of correspondence attached thereto, affords a very strong prima facie case of inability of the company to pay the sum said to be owing to the petitioner. A number of points have been raised in opposition and in support of the motion, however, which may be grouped under two main heads; first technical objections alleging noncompliance with the Companies (Winding up) Rules, 1929, or other pertinent legislation; secondly, a denial that the alleged debt to the petitioner is undisputed.

The first technical objection is that the verifying affidavit, and therefore the petition itself, is not properly before the Court because the verifying affidavit was sworn on 12th November, 1952, and filed on the same day as the petition was presented, namely 26th November, whereas rule 29 of the Companies (Winding up) Rules requires that affidavit must be sworn after the presentation of the petition. It is further objected that the petition and verifying affidavit were not served on the principal director of the company until 2nd December, thus leaving him barely one day in which to file an affidavit in opposition, by virtue of rule 35, which allows seven days for doing so after the filing of the verifying affidavit, which seven days would expire on 3rd December. In fact, however, his affidavit in opposition was filed on 5th December and no objection was taken to its lateness, and furthermore his affidavit in support of the company's motion to dismiss the petition which affidavit in fact sets out and deposes regarding all the grounds of opposition to the partition, was filed as late as 10th December. In these circumstances I hold that no injustice was done by any technical noncompliance with rule 29 of the Rules; and, applying the provisions or rule 223 (1), which lays down that no preceedings shall be invalidated by any formal defect or by any irregularity unless the Court is of the opinion that substantial injustice has resulted which cannot be remedied by any order of the Court, I hold that this objection must fail.

It is next objected that the petitioner has no status to bring this partition, in that she could only be entitled to bring it (if at all) in her capacity as administrator of a minor and not personally, and that she does not purport to bring it in that capacity. The answer to this objection is that the petitioner in her verifying affidavit swears that the company is indebted to her, and also that she is the sole proprietress of the Luigi Melotti Brewery to which this Sh. 197,177/72 debt was incurred. This allegation is not denied in the affidavit in opposition. The point must fail.

Thirdly, it is objected that the petitioner's verifying affidavit, which was sworn in Eritrea, was not sworn before a notary public but only before a commissioner of oaths, and that accordingly the Court should not take judicial notice of it because English courts would not do so and therefore, by reason of section 57 (6) of the Indian Evidence Act, the courts of Kenya should not do so either. This, however, is at worst another formal defect or irregularity to which rule 223 (1) must be applied, since no injustice has been caused by it. I would add that the commissioner of oaths before whom this affidavit was signed styles himself "Giudice" which is the Italian for judge. I am also informed from the bar by learned counsel for the petitioner, and I accept his word on the point. that there are no notaries public, so styled, in Eritrea. This objection must fail.

I turn now to the company's contention that the debt is a disputed one. Much argument has been addressed to the Court on this question. Now one thing is clear on all the decided authorities, namely that a bare denial of the company's indebtedness will not be held sufficient to defeat a petition for winding up, but there there must be a bona fide dispute of the debt, and it must appear what that dispute is. And a factor that the Court will always bear in mind in deciding on the bona fides of the "dispute" is this, that if a denial of the indebtedness is raised for the first time in the opposition to the petition for winding up, the Court will view it with grave suspicion, as touching its bona fides: vide Palmer's Company Precedents, 16th edition, volume 2, page 34.

The "dispute" of the indebtedness in the present case appears to be based on some allegation of agency, which is elaborated with far more diffuseness than clarity in the affidavit in opposition. After carefully perusing all the affidavits before me, on both sides, and the copies of all correspondence attached thereto, it seems clear to me that that company disputed their indebtedness to the brewery for the first time in their affidavit of 5th December, 1952, in opposition to the petition. It is contended for the company that their letter dated March, 1947, a copy of which is attached to that affidavit and marked "A", shows that the debt was disputed as early as then. But in my view it shows no such thing. And all the other correspondence, copies of most of which are attached to the affidavit of Mr. Sirley on behalf of the petitioner in reply to the company's two affidavits, shows to my mind clearly that the company, until the lodging of the petition, acknowledged the debt.

Certain further points emerge. First, it is alleged in paragraph 8 of the petition that "the assets of the company on the 9th day of October, 1951, amounted to Sh. $43/26$ only; as far as is known the position has not materially changed". Neither in the company's affidavit of 5th December in opposition to the petition, nor in that of 10th December, is paragraph 8 of the petition denied. Nor has it been denied at the bar. In short it must be taken to be admitted. Secondly, in a letter dated 24th July, 1951, from the company's then advocates to those of the petitioner there appears the following admission: "The company is no longer in business and its assets are negligible." In this connexion I would refer to the following passage in Palmer's Company Precedents, 16th edition, volume 2, at page 35, based on a decision in re Flagstaff Silver Mining Co. of Utah (1875) L. R. 20 Eq. 268: "Where a judgment creditor was told by the company's solicitors that there were no assets on which he could levy, it was held that this was evidence that the company was 'unable to pay its debts'."

On all the material before me I am satisfied that the company's belated denial of indebtedness to the petitioner is not made in good faith and I cannot accept it as genuine. In view of this and of the company's admission that its resources are in the neighbourhhood of Sh. 43/26 only, I find that the company is unable to pay its debts, in particular its debt of Sh. $197,177/72$ to the petitioner. Accordingly the petition is allowed with costs, the company's motion is dismissed with costs, and I order, under section 167 (e) of the Companies Ordinance (Cap. 288) that the company be wound up under the provisions of that Ordinance.