Sri Lanka Law Reports
(1999] 1 Sri LR.
COLOMBO ENGINEERING ENTERPRISES (PVT) LTD.AND OTHERSv.
HATTON NATIONAL BANK LTD.
COURT OF APPEALISMAIL, J. (P/CA)
CALA NO. 197/98
D.C. COLOMBO NO. 4767/SPL
SEPTEMBER 23, 1998
Companies Act, 17 of 1982 – S. 255 (e) – Companies Winding-up Rules 95 -15 (1), 15 (2) – Winding up Procedure – for an Order for winding-up – Canevidence be led – Civil Procedure Code S. 183 (A).
The District Court held that in making a winding-up Order court is only boundto consider the affidavit testimony and the oral submissions of parties.
Per Tilakawardane, J.
“Whilst expeditious procedure was no doubt intended by the legislature,courts must also be conscious that the winding-up of a company is a drasticremedy which may have far reaching consequences, financial and com-mercial and also consequences not only affecting the company but alsothose concerned with it . . .“
District Court in the exercise of its powers is vested with a discretion either
to allow or disallow viva voce testimony.
The District Judge has erred in so much as he has concluded that thewinding-up order must be determined on affidavit evidence alone, andconsequently he had no discretionary powers to entertain viva voce testimony.
APPLICATION for leave to appeal.
Cases referred to:
Re Travel and Holiday Clubs Ltd. – 1967 (2) ALL ER 602.
In Re Emma Silva Mining Company – 1875 Chan A. 1994.
A. B. C. Computer and Engineering Co., Ltd. – 1862 ALL ER 68.
Colombo Engineering Enterprises (Pvt) Ud. and Others
v. Hatton National Bank Ltd. (Shlranee Tilakawardane, J.)
Re Lympne Investments Ltd. 1972 Ch. Div – 385.
In Re Davis Investment (East Ham) Ltd. – 1961 ALL ER.
Shibly Aziz PC with Prassana Jayawardane and Ms. N. Buhary for the companysought to be wound-up petitioner.
S. Sivarasa PC with N. R. Sivendran and Arul Selvaratnam for petitioner-respondent.
S. Parathalingam, PC with Nihal Fernando and Chandimal Mendis for the creditor-respondent.
Cur. adv. vult.
December 11, 1998.
SHIRANEE TILAKAWARDANE, J.
At the hearing of this application, parties agreed that as the matterhad been argued exhaustively, that this court would determine theLeave to Appeal as well as conclude the final determination of thismatter in one and the same order. It was agreed that the recordneed not be called.
According to the facts disclosed in this case the respondent Bankhad sought a compulsory winding-up order in terms of section 255(e) of the Companies Act, No. 17 of 1982, in the circumstances thatthe petitioner company was unable to pay its debts.
Both parties to this application conceded that a sum ofRs. 9,452,835.53 was outstanding as payment from the company tothe Bank. Learned President's counsel for the petitioner companysubmitted that the debt was admitted and that they acknowledged andadmitted the liability to pay the said amount. However, the date onwhich the repayment of this amount due was disputed by thepetitioner company.
A verifying affidavit dated 11. 11. 96, together with the relevantdocuments was filed by the Creditor Bank in terms of rule 9, andan affidavit in opposition by the petitioner who was the company soughtto be wound-up, was filed of 19. 11. 96 in terms of rule 15 (1) ofthe Companies Winding Up Rules 1939. Affidavit in reply in termsof the aforesaid rule 15 (2) was filed on the 05. 12. 1996.
Sri Lanka Law Reports
[19991 1 Sri LR.
On 18. 6. 98, when the matter was fixed for submissions, anapplication was made by the petitioner company to be given theopportunity to cross-examine the deponents of the affidavits of therespondent Bank and to elicit the evidence of witnesses to be calledon behalf of the petitioner company. The Bank objected to thisopportunity being afforded, on the basis, that the procedure for anorder for winding-up was on affidavit evidence alone.
After hearing their submissions, the District Judge delivered theorder dated 13. 08. 98 refusing the application of the petitioners, andheld, that in making of a winding-up order the court is only boundto consider the affidavit testimony and the oral submission of parties.For this reason he has refused the above application of the petitioner.
Counsel for the petitioner company submitted that the courts hada discretionary jurisdiction to allow such an application, and shouldhave exercised it in their favour, specially in the circumstances thatthere was a doubt as to whether the monies were due immediately.
Counsel for the respondent Bank has contended that there is noprovision under the Companies Act to allow for such evidence to beled, and that legislature intended that the inquiry envisaged was onethat would be concluded expeditiously on affidavit evidence only.
English law, has recognized that the District Judge has a discre-tionary jurisdiction to allow evidence to be led under circumstanceswhere it was considered necessary, where the verifying affidavit waschallenged on material grounds.
Pennyquick, J. in the case of Re Travel and Holiday ClubsLtd.m considered this, and on the question of whether the evidencefiled (by way of affidavit) was not sufficient to support the chargescontained in the petition, it was held that : "The court would not inthe exercise of its discretionary jurisdiction, be satisfied with primafacie evidence but would require the petitioner to substantiate his casemore fully; that in such cases it would require, where practicable,the evidence of witnesses with direct knowledge of the matters onwhich they were testifying, and on which they could be cross-exam-ined, and which conformed to the ordinary rules of evidence”.
CAColombo Engineering Enterprises (Pvt) Ltd. and Others
v. Hatton National Bank Ltd. (Shiranee Tiiakawardane, J.)75
The right to cross-examine in these proceedings was also recog-nized in the case. In Re Emma Silva Mining Company where it washeld that : "The petitioner had a right to the production of theCompanies books, papers on the cross-examination of the secretaryfor the purpose of testing the evidence, but for no other purpose".
Recognizing the right to cross-examine witnesses and lead evi-dence, in the case of A B C Coupler and Engineering Co., Ltd.®Buckley, J. held that, "where the learned Judge decided that wheregrave charges were levelled against individuals the court would notin the exercise of its discretionary jurisdiction be satisfied with primafacie evidence but require the petitioner to substantiate his case morefully; that in such cases it would require where practicable the evidenceof witnesses with direct knowledge of the matters to which they weretestifying and on which they could be cross-examined and whichconformed to the ordinary rules of admissibility".
Whilst no doubt the verifying affidavit is always a necessarydocument, in all cases it may not always be sufficient to verify thethe petition. In such cases the Judge clearly has a discretion to allowthe testimony of witnesses and their cross-examination. It may appearto be contradictory to the statutory provisions which provide thataffidavits should in ordinary circumstances be sufficient prima facieevidence of the statements of the petition, but where the verifyingaffidavit is not sufficient, then and only then must opportunity beafforded for the adducing of evidence and/or cross-examination of thedeponent witnesses.
Whilst expeditious procedure was no doubt intended by the leg-islature, courts must also be conscious that the winding-up of acompany is a drastic remedy which may have far-reaching conse-quences, financial, and commercial and also consequences not onlyaffecting the company but also those concerned with it, and the courtsshould act only after having a careful consideration of the statutingaffidavits and where they are insufficient material matters allow v/vavoce evidence.
It has been specifically, held that where the company iswound -up on a debt that has been incurred by the company it isalso important to ascertain on the affidavits whether the debt isdisputed on substantial and material grounds. In the case of Re
Sri Lanka Law Reports
 1 Sri LR.
Lympne Investments Limited41 Meggary, J. in a case where the disputewas "not trivial” or “insubstantial” held that where the debt wasdisputed on substantial grounds and where it was not a debt wherepayment had been neglected that the evidence should be led as towhether the debt was due.
The point is that was made that in a winding-up on a debt incurredby the company the courts must carefully peruse the sufficiency ofthe verifying affidavit and the other material placed before the courtbefore allowing an order for winding-up. (In Re Davis Investment (EastHam) Ltd5'.
Counsel for the petitioner company has submitted that the courtsshould not even have entertained this application for a winding-up ona single debt. However, though as winding-up procedure is not ameans of debt collecting nor a means for bringing improper pressureon a company, nevertheless it has been held that a winding-up ordercould be made even for a single debt.
It was also submitted by the counsel for the respondent Bank thatin the absence of a statutory provision permitting cross-examinationand the leading of evidence the District Judge should not permit thesame. However, counsel for the petitioner correctly pointed out thatthere was no statutory bar to the leading of evidence. The severalcases referred to above bear out that evidence has been permittedto be led. These case authority also establish that winding-up ordersare not solely made upon the affidavits.
Furthermore section 183 (A) of the Civil Procedure Code readsas follows:
Where any person is required under the provisions of this code,or under any other law for the time being in force, to make an affidavit,then-
where the action is brought by or against the Attorney-General,any officer of the State, and
where the action is brought by or against a corporation, board,public body or company, any secretary, director or other principalofficer of such corporation, board, public body or company; and
CAColombo Engineering Enterprises (Pvt) Ltd. and Others
v. Hatton National Bank Ltd. (Shiranee Tilakawardane, J.)77
where any party to the action is absent from Sri Lanka, hisattorney duly authorized to bring, conduct or defend the action,as the case may be; and
where any party to the action or where there is more than oneparty to the action such of the parties as are Sri Lanka, or whensuch attorney of the parties as is just above-mentioned, is orare unable, for want of personal knowledge or bodily or mentalinfirmity, to make the required affidavit, any recognized agentof such party.
may make an affidavit in respect of these matters, instead of the partyto the action:
Provided that in each of the foregoing cases the person who makesthe affidavit instead of the party to the action, must be a person havingpersonal knowledge of the facts of the cause of action, and must inhis affidavit swear or affirm that he deposes from his own personalknowledge of the matter therein contained and shall be liable to beexamined as to the subject-matter thereof at the discretion of theJudge, as the party to the action would have been, if the affidavithad been made by such party.
In this circumstance the District Court in the exercise of its powersis vested with a discretion either to allow or disallow viva vocetestimony.
The District Judge in his order referred to above has erred in somuch as he has concluded that the winding-up order must bedetermined on affidavit evidence alone and consequently he had nodiscretionary powers to entertain viva voce testimony.
Accordingly leave to appeal is allowed. The order of the DistrictJudge dated 13. 08. 98 is set aside and the matter is sent back,to the learned District Judge to hold a fresh inquiry as to whetherhe should or should not exercise his discretion in favour of thepetitioner company.
We make no order for costs.
ISMAIL, J. (P/CA) – I agree.
COLOMBO ENGINEERING ENTERPRISES (PVT) LTD. AND OTHERS v. HATTON NATIONAL B