Monthly Archives: October 2016


winding up petition against companies due to non payment of dues or debt.

A winding up petition is, therefore, not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. The court is competent, in consideration of circumstances to refuse to pass an order of winding up even if the company is unable to pay its debts

Winding up is a process by which the affairs of the company come to an end. It has been described as “…a process whereby its life is ended and its property administered for the benefit of its creditors and members. An administrator, called liquidator, is appointed and he takes control of the company, collects its assets, pays its dues and finally distributes any surplus among the members in accordance with their rights”

The jurisdiction of the High Court under Section 433 is not that of a court which is essentially meant for settling money disputes between parties, but is to subserve the object of winding up of companies which have not paid their debts or which are unable to pay their debts3. Thus, the object of Section 433 is to provide a summary remedy and save the shareholders or creditors of a company, where a company is unable to meet its admitted liabilities.

Proceedings under Section 433 are not a substitute for a civil suit by a creditor against the company. The mere filing of a civil suit need not be an impediment to proceed with the company petition for winding up

Inability to Pay Debts by Companies.

Section 433(e) of the Companies Act, 1956 provides that in cases where the company is unable to pay its debts the court can order winding up. The expression ‘unable to pay its debts’ has to be taken in the commercial sense of being unable to meet current demands though the company may be otherwise solvent6. The fact that the liabilities exceed the assets does not necessarily mean that the company is unable to pay its debts. It may still be in a position to meet the demands of the creditor when made7. However, where the court is satisfied upon a general perusal of the balance sheet that the company cannot pay its debts i.e., its assets are not sufficient to satisfy its liabilities, the court may order the winding up of the company.

The inability to pay debts primarily arise under three circumstances,

  1. Where the company fails to clear the debt of the creditor (a sum exceeding five hundred rupees) within three weeks immediately preceding the date of demand for payment being made
  2. Where execution or other process issued on a decree or order of any court in favour of the company is returned unsatisfied in whole or part and
  3. Where it is proved to the satisfaction of the court that the company is unable to pay its debts.





Fair Practices in debt collection Laws in India(New Page)


(a) In the matter of recovery of dues, banks / NBFCs may ensure that they, as also their agents, adhere to the extant instructions on Fair Practice Code for lenders (circular DBOD. Leg. No. BC. 104 /09.07.007 / 2002–03 dated May 5, 2003) as also IBA’s Code for Collection of dues and repossession of security. In case banks / NBFCs have their own code for collection of dues it should, at the minimum, incorporate all the terms of IBA’s Code.

(b) In particular, in regard to appointment of third party agencies for debt collection, it is essential that such agents refrain from action that could damage the integrity and reputation of the bank / NBFC and that they observe strict customer confidentiality. All letters issued by recovery agents must contain the name and address of a responsible senior officer of the card issuing bank whom the customer can contact at his location.

(c) Banks / NBFCs / their agents should not resort to intimidation or harassment of any kind, either verbal or physical, against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude the privacy of the credit card holders’ family members, referees and friends, making threatening and anonymous calls or making false and misleading representations.

 Redressal of Grievances

  1. Generally, a time limit of sixty (60) days may be given to the customers for preferring their complaints / grievances.
  2. The card issuing bank / NBFC should constitute Grievance Redressal machinery within the bank / NBFC and give wide publicity about it through electronic and print media. The name and contact number of designated grievance redressal officer of the bank / NBFC should be mentioned on the credit card bills. The designated officer should ensure that genuine grievances of credit card subscribers are redressed promptly without involving delay.
  3. The grievance redressal procedure of the bank / NBFC and the time frame fixed for responding to the complaints should be placed on the bank / NBFC’s website. The name, designation, address and contact number of important executives as well as the Grievance Redressal Officer of the bank / NBFC may be displayed on the website. There should be a system of acknowledging customers’ complaints for follow up, such as complaint number / docket number, even if the complaints are received on phone.
  4. If a complainant does not get satisfactory response from the bank / NBFC within a maximum period of thirty (30) days from the date of his lodging the complaint, he will have the option to approach the Office of the concerned Banking Ombudsman for redressal of his grievance/s. The bank / NBFC shall be liable to compensate the complainant for the loss of his time, expenses, financial loss as well as for the harassment and mental anguish suffered by him for the fault of the bank and where the grievance has not been redressed in time

Internal control and monitoring systems

With a view to ensuring that the quality of customer service is ensured on an on-going basis in banks / NBFCs, the Standing Committee on Customer Service in each bank / NBFC may review on a monthly basis the credit card operations including reports of defaulters to the CIBIL, credit card related complaints and take measures to improve the services and ensure the orderly growth in the credit card operations. Banks / NBFCs should put up detailed quarterly analysis of credit card related complaints to their Top Management. Card issuing banks should have in place a suitable monitoring mechanism to randomly check the genuineness of merchant transactions.

 Use of DSAs / DMAs and other agents

  1. When banks / NBFCs outsource the various credit card operations, they have to be extremely careful that the appointment of such service providers do not compromise with the quality of the customer service and the bank / NBFC’s ability to manage credit, liquidity and operational risks. In the choice of the service provider, the bank / NBFCs have to be guided by the need to ensure confidentiality of the customer’s records, respect customer privacy, and adhere to fair practices in debt collection.
  2. The Code of Conduct for Direct Sales Agents (DSAs) formulated by the Indian Banks’ Association (IBA) could be used by banks / NBFCs in formulating their own codes for the purpose. The bank / NBFC should ensure that the DSAs engaged by them for marketing their credit card products scrupulously adhere to the bank / NBFC’s own Code of Conduct for credit card operations which should be displayed on the bank / NBFC’s website and be available easily to any credit card holder.
  3. The bank / NBFC should have a system of random checks and mystery shopping to ensure that their agents have been properly briefed and trained in order to handle with care and caution their responsibilities, particularly in the aspects included in these guidelines like soliciting customers, hours for calling, privacy of customer information, conveying the correct terms and conditions of the product on offer, etc.

 Protection of Customer Rights

Customer’s rights in relation to credit card operations primarily relate to personal privacy, clarity relating to rights and obligations, preservation of customer records, maintaining confidentiality of customer information and fair practices in debt collection. The card issuing bank / NBFC would be responsible as the principal for all acts of omission or commission of their agents (DSAs / DMAs and recovery agents).

Right to privacy

  1. Unsolicited cards should not be issued. In case, an unsolicited card is issued and activated without the consent of the recipient and the latter is billed for the same, the card issuing bank / NBFC shall not only reverse the charges forthwith, but also pay a penalty without demur to the recipient amounting to twice the value of the charges reversed.
  2. Unsolicited loans or other credit facilities should not be offered to the credit card customers. In case, an unsolicited credit facility is extended without the consent of the recipient and the latter objects to the same, the credit sanctioning bank / NBFC shall not only withdraw the credit limit, but also be liable to pay such penalty as may be considered appropriate.
  3. The card issuing bank / NBFC should not unilaterally upgrade credit cards and enhance credit limits. Prior consent of the borrower should invariably be taken whenever there are any change/s in terms and conditions.
  4. The card issuing bank / NBFC should maintain a Do Not Call Registry (DNCR) containing the phone numbers (both cell phones and land phones) of customers as well as non-customers (non-constituents) who have informed the bank / NBFC that they do not wish to receive unsolicited calls / SMS for marketing of its credit card products. The DNCR should be set up within two (2) months from the date of this circular and wide publicity should be given to the arrangement.
  5. The intimation for including an individual’s telephone number in the Do Not Call Registry (DNCR) should be facilitated through a website maintained by the bank / NBFC or on the basis of a letter received from such a person addressed to the bank / NBFC.
  6. The card issuing bank / NBFC should introduce a system whereby the DSAs/ DMAs as well as its Call Centers have to first submit to the bank / NBFC a list of numbers they intend to call for marketing purposes. The bank / NBFC should then refer to the Do Not Call Registry (DNCR) and only those numbers which do not figure in the Registry should be cleared for calling.
  7. The numbers cleared by the card issuing bank / NBFC for calling should only be accessed. The bank / NBFC would be held responsible if a Do Not Call Number (DNCN) is called on by its DSAs / DMAs or Call Centre/s.
  8. The card issuing bank / NBFC should ensure that the Do Not Call Registry (DNCR) numbers are not passed on to any unauthorised person/s or misused in any manner.
  9. Banks / NBFCs/ their agents should not resort to invasion of privacy viz., persistently bothering the card holders at odd hours, violation of ‘do not call’ code etc.


Section 20 of CPC :Subject to the limitations aforesaid, every suit shall be instituted in Court within the local limits of whose jurisdiction-

(a) the defendant, or each of the defendants where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain; or

(b) any of the defendants, where there are more than one, at the time of the commencement of the suit actually and voluntarily resides, or carries on business, or personally works for gain, provided that in such case either the leave of the Court is given, or the defendants who do not reside, or carry on business, or personally work for gain, as aforesaid, acquiesce in such institution; or

(c) the cause of action, wholly or in part, arises.

1[* * *]

2[Explanation].-A corporation shall be deemed to carry on business at its sole or principal office in 3[India] or, in respect of any cause of action arising at any place where it has also a subordinate office, at such place.

Section 20 C. P. C provides for two different grounds each of which can be availed of by the plaintiff to file his suit. A Court gels jurisdiction under Section 20 C.P.C. to try the suit if:–

 The defendant resides or carries on business or personally works for gain within the local limits of its jurisdiction, or

 The cause of action arises wholly or in part within such local limits.

 Since the shuit is against the Union of India as represented by the Western Railway Administration first question to be considered is whether Indore run be considered to be a place where the Union of India represented by Western Railway Administration can be said to carry on business at Indore.

 Explanation(II) under Section 20 C.P.C. provides that corporation shall be deemed to carry on business at its sole or principal office in India or in respect of any cause of action arising at any place where it has also a subordinate office, at such place II therefore follows from this Explanation that in case the Western Railway Administration can be called a Corporation within the meaning of the term as used in Explanation (II) then Indore cannot be the place where it can be said to carry on its business as the principal office of the Western Railway is situated at Bombay and not at Indore. In P.C. Biswas v. Union of India. (S) AIR 1956 Assam 85 at 94 it was bold that just as in the case of a private corporation carrying on business of transport the head office from which it categories on administration would be its principal place of business and not any place in the entire area to which its operations extend. The Union of India through a Railway Administration should be taken or deemed as carrying on business only where its head office is situated and not at all places where any activity connected with transport by rail is carried on This case was approved by the Supreme Court in a case reported in Union of India v Ladulal Jain, AIR 1963 SC 1681 Their Lordships pointed out that the principle behind the provisions of Clauses (a) and (b) of Section 20 C.P.C. is that the suit be Instituted at a place where the defendant be able to defend it without undue trouble. It considered the expression ‘carries on business as used in Section 20 C.I.C. and held that the Union of India carries on business of running railways and can be sued in a Court within whose territorial jurisdiction the head quarter of a Railway Administration is situated. It is implicit in this judgment that the Union of India represented by a Railway Administration is in the position of a Corporation and Explanation (II) at the fool of Section 20 C.P.C. applies to it. The decision clearly indicates that in as much as Indore is not a Head Quarter of Western Railway. Indore Court could not be made a place of suing on the ground that the Railway Administration carries on business at Indore


Madhya Pradesh High Court
Maniklal Mittal vs The Union Of India (Uoi) on 20 February, 1964
Equivalent citations: AIR 1966 MP 243
Author: V Newaskar
Bench: V Newaskar

ORDER V.R. Newaskar, J.