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Supply Co. India Vs. Rafiulla Tea and Industries P. Ltd. and anr. - Court Judgment

LegalCrystal Citation
Subject;Company
CourtGuwahati High Court
Decided On
Case NumberCompany Petition No. 1 of 1977
Judge
ActsCompanies Act, 1956 - Sections 433, 434, 434(1) and 439
AppellantSupply Co. India
RespondentRafiulla Tea and Industries P. Ltd. and anr.
Appellant AdvocateJ.N. Sarma and B.L. Agarwalla, Advs.
Respondent AdvocateS.C. Das and P. Prasad, Advs.
DispositionApplication dismissed
Prior history
Lahiri, J.
1. This is an application under Sections 433, 434 and 439 of the Companies Act, 1956, (hereinafter referred to as ' the Act'), for winding up of M/s. Rafiulla Tea & Industries Private Ltd. (hereinafter termed as ' the company ').
2. According to the petitioner, the company was incorporated on September 20, 1972, as a private limited company. The nominal capital of the company is Rs. 75 lakhs divided into 75,000 equity shares of Rs. 100 each. The amount of capital paid up or tr
Excerpt:
.....contract. according to the counsel, by virtue of the deeming provisions contained in section 434(1)(a) of 'the act',the company having failed to pay the sum of rs. i have heard as well the learned government advocate appearing on behalf of the state. ' (buckley on the companies acts, 13th edition, page 452.) 11. i am fully satisfied that the debt in respect of which notice was served under section 434 of 'the act' was bona fide disputed by the company. 12. i hold on the materials at my disposal that (1) the defence of the company is in good faith and is one of substance ;(2) the defence disclosed in the sworn affidavit shows that it is likely to succeed and (3) the company has adduced prima facie proof of the facts on which the defence depends (vide paragraphs 2 and 3 of the affidavit..........petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. a petition presented ostensibly for a winding-up order, but really to exercise pressure will be dismissed, and under circumstances may be stigmatized as a scandalous abuse of the process of the court at one time petitions founded on disputed debt were directed to stand over till the debt was established by action. if, however, there was no reason to believe that the debt, if established, would not be paid, the petition was dismissed. the modern practice has been to dismiss such petitions. but, of course, if the debt is not disputed on some substantial ground, the court may decide it on the petition and make the order.' (buckley on the companies acts, 13th.....
Judgment:

Lahiri, J.

1. This is an application under Sections 433, 434 and 439 of the Companies Act, 1956, (hereinafter referred to as ' the Act'), for winding up of M/s. Rafiulla Tea & Industries Private Ltd. (hereinafter termed as ' the company ').

2. According to the petitioner, the company was incorporated on September 20, 1972, as a private limited company. The nominal capital of the company is Rs. 75 lakhs divided into 75,000 equity shares of Rs. 100 each. The amount of capital paid up or treated as paid up is Rs. 10,52,000 divided into 10,520 equity shares of Rs. 100 each. The objects of the company, inter alia, are to establish, develop, manage, maintain, cultivate or acquire by purchase, lease or own for the purpose of the company or any other purpose, lands, forest areas, citronella plantations, coffee estates and to manufacture, market wood products of all kinds, and so forth. ' The company ' is the sole proprietor of the firm styled as Messrs. Ply Boards India. On or about 16th October, 1976, it is alleged by the petitioner, there was an agreement between the petitioner and ' the company ' where-under the petitioner had agreed to purchase and ' the company ' in the said business, namely, Messrs. Ply Boards India, had agreed to sell 7,000 sheets of commercial plywood of sizes 120 cm X 120 cm X 3 mm thickness at the agreed rate of Rs. 7'60 per sq. metre. It was also agreed that the materials supplied were to conform to the standard prescribed under ISI-303 in respect of bonding and that the goods should be supplied in two consignments by the end of November, 1976, and that the petitioners were to advance a sum of Rs. 10,000 to ' the company '. According to the terms of the said agreement, the petitioner paid a sum of Rs. 10,000 by way of advance to 'the company ' in its business of Messrs. Ply Boards India. But, however, ' the company ', in breach of the said agreement, failed and neglected to deliver the goods within the stipulated time. However, long after the expiry of the date fixed for delivery of the goods, 'the company ' offered to deliver the said goods and had asked for ' delivery instruction ' from the petitioner. As the company had failed and neglected to deliver the goods within the stipulated time, the contract stood terminated in view of the breach of the terms thereof and as such, according to the petitioner, they were entitled to get refund of the said sum of Rs. 10,000 which amount was advanced by the petitioner to ' the company '. However, the company did not make payment of the amount in question. In para 12 of the petition it is stated as under :

' The company is wrongfully claiming that your petitioner has committed breach of contract and that the company has forfeited the said sum of Rs. 10,000. Your petitioner denies and disputes the said wrongful contention on the part of the company. Your petitioner has not committed any breach of contract as wrongfully alleged or at all. It is the company which has failed and neglected to deliver the said goods within November, 1976, as agreed and specified in the contract. ' [Underscored* by me]

3. It appears from the petition itself as contained in para. 12 thereof that long before the date of presentation of this application, namely, July 11, 1977, ' the company ' had claimed that there was breach of contract by the petitioner and that the amount stood forfeited in view of the breach. As such, it appears from the petition itself that some disputes and differences were continuing between the parties as to the claim of refund of the advance amount. There is no averment in the petition that the claim of forfeiture made by ' the company ' was a cloak or cover or a camouflage. However, in the petition the petitioner has claimed that there was no breach of contract made by it and the amount was not liable to be forfeited.

4. Besides the above allegations some other allegations have been made in the petition, but the learned counsel for the petitioner did not press home the 'said points. According to the learned counsel for the petitioner ' the company ' should be wound up by the court as the company ' is unable to pay its debts ' as contemplated under Section 433 of the said Act. According to the counsel, by virtue of the deeming provisions contained in Section 434(1)(a) of ' the Act', the company having failed to pay the sum of Rs. 10,000 due, the company must be deemed to be unable to pay the said amount even after service of notice under Section 434 of the Act and has made itself liable to be wound up by an order of this court.

5. The company entered its appearance on receipt of the notice and contested the claim and countered the claim of the petitioner para-wise. A reference to the statements made by it as contained in paragraphs 2 and 3 of the affidavit-in-opposition (filed by the company) reveal the ground on which they claimed forfeiture of the amount in question. In para. (3) of the affidavit-in-opposition the company has stated that on May 21, 1977, it brought an action (Money Suit No. 29 of 77 in the court of the Assistant District Judge, Dibrugarh, Assam) against the petitioner claiming a sum of Rs. 18,729.70 together with future interest or in the alternative a sum of Rs. 8,729.70 after due adjustment of the forfeited amount of Rs. 10,000 paid as advance and by way of earnest money by the petitioner

6. Therefore, in the instant case the sole question is whether the company should be wound up under Section 433(a) of ' the Act' in view of the provisions contained in Section 434(1)(a) of the said Act.

7. I have heard the learned counsel for the parties. I have heard as well the learned Government advocate appearing on behalf of the State.

8. The indubitable position is that the company has 61ed the Money Suit claiming forfeiture as far back on May 21, 1977, whereas the petitioner has come forward with the application for winding up of the company about two months after the institution of the suit. The company has also stated in the affidavit that the petitioner had received summons of the suit but did not file any written statement in the suit. These averments made by the company stand unrebutted. Therefore, I am constrained to hold that the company had filed the civil suit before it had an inkling of the present application and in the said action the company had claimed that the amount stood forfeited in view of the breach of the contract committed by the petitioner and further claimed damages for the breach.

9. I have perused very carefully the contents of paras. 2 and 3 of the affidavit-in-opposition. The statements have been made on oath and they stand unchallenged, unrebutted and unrefuted. On a perusal of the contents of the affidavit-in-opposition it is hardly possible to reject the claim of the company as an unfounded, mala fide or camouflaged one. I hold that there are bona fide contentions of the company and it has a prima facie case to go to trial. The dispute no longer remains at the stage of a mere dispute or difference but has changed its character as a civil action pending before a court of law. The suit is sub-judice. On a perusal of the affidavit filed by the company I am constrained to hold that the company has a prima facie case to go to trial and the contentions are bona fide and substantial.

10. It is settled law that ' a winding-up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. A petition presented ostensibly for a winding-up order, but really to exercise pressure will be dismissed, and under circumstances may be stigmatized as a scandalous abuse of the process of the court At one time petitions founded on disputed debt were directed to stand over till the debt was established by action. If, however, there was no reason to believe that the debt, if established, would not be paid, the petition was dismissed. The modern practice has been to dismiss such petitions. But, of course, if the debt is not disputed on some substantial ground, the court may decide it on the petition and make the order.' (Buckley on the Companies Acts, 13th edition, page 452.)

11. I am fully satisfied that the debt in respect of which notice was served under Section 434 of ' the Act' was bona fide disputed by the company. The action brought by it was not to cover up its inability to pay debts. In my opinion, if the debts were bona fide disputed, as I hold it were, there cannot be 'neglect to pay ' as contemplated under Section 434(1)(a) of the Act. If there is no neglect, the deeming provision is not attracted and the basis or foundation of winding-up, viz., that the company is unable to pay its debts falls through.

12. I hold on the materials at my disposal that (1) the defence of the company is in good faith and is one of substance ; (2) the defence disclosed in the sworn affidavit shows that it is likely to succeed and (3) the company has adduced prima facie proof of the facts on which the defence depends (vide paragraphs 2 and 3 of the affidavit and documents 1 to 7 filed along with it). These are the basic principles on which the court acts while considering an application for winding-up of a company for non-payment of disputed debts. Vide (1) Madhwsudan Gordhandas & Co. v. Madhu Woollen Industries Ltd. [1972] 42 Comp Case 125 (SC) and (2) Amalgamated Commercial Traders (P.) Ltd. v. A. C. K. Krishnaswami [1965] 35 Comp Cas 456(SC).

13. In the result the application stands dismissed. However, I leave the parties to bear their respective costs.


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