Chandrakantharaj Urs, J.
1. This is a petition under s. 433(e) and (f) and s. 434 of the Companies Act, 1956 (hereinafter referred to as 'the Act'), made by M/s. Mukand Iron and Steel Works Ltd., Bombay, praying for an order of this court to wind up the respondent company, Karnataka Steel and Wire Products Ltd., having its registered office situated at Hari Nivas, 36, Cunningham Road, Bangalore - 560052. Respondents Nos. 2, 3, 4, 5 and 6 are the directors of the company.
2. It is alleged in the petition that the first respondent company (hereinafter referred to as 'the respondent company') was incorporated in or about March, 1970, under the Act as a public company limited by shares, having its registered office at Bangalore. Respondent No. 2 is described as chairman of the company. Respondent No. 3 is stated to be a director nominated by the Karnataka State Industrial Investment and Development Corporation Ltd. and respondent No. 4 is stated to be a director nominated by the Karnataka State Financial Corporation and respondent Nos. 5 and 6 are elected directors of the respondent company. It is alleged that the authorised capital of the company is Rs. 1,00,00,000 (one crore) divided into 7,50,000 equity shares of Rs. 10 each and 25,000 9.5 per cent. redeemable cumulative preference shares of Rs. 100 each. The issued, subscribed and paid-up capital of the company is Rs. 65,00,000 divided into 5,00,000 equity shares of Rs. 10 each fully paid-up and 15,000 9.5 per cent cumulative redeemable preference shares of Rs. 100 each, fully paid-up. It is stated by the petitioner that the respondent company was established for manufacture and sale of steel and wire products as well as allied products as set forth in the memorandum of association of the company. It is alleged that the company is indebted to the petitioner in the sum of Rs. 25,87,532.38 as on June 30, 1978, as per the particulars of the amount claimed by the petitioner furnished at annexure-A to the petition. The petitioner has further claimed that the respondent company is due to pay interest at the rate of 20 per cent per annum from the 1st day of July, 1978, till payment on the sum of Rs. 11,85,891.03. It is stated by the petitioner that the amount is due and payable by the respondent company on account of supply made by the petitioner of wire rods at the price and on the terms mutually agreed upon and that the goods were duly delivered to the respondent company by the petitioner and the same were duly accepted by the respondent company without any objection as to the quality or quantity or the price thereof. It is alleged that the petitioner company used to draw hundies on the respondent company giving 45 days' credit and in that circumstance, it was agreed between the petitioner and the respondent company that in the event of the respondent company failing to pay the amount due on the hundi on its due date, the company would be liable to pay interest at the rate of 20 per cent annum. It is alleged that the petitioner from time to time prepared and submitted its invoices to the respondent company for payment and that the respondent company had indeed made payments towards petitioner's dues and also sent credit notes in respect of the aforesaid transactions. The invoices and hundies in respect thereof are particularised in annexure-B to the petition which also shows a sum of Rs. 14,01,641.35 as due by the respondent company. It is also alleged that, according to the accounts maintained by the petitioner as on March 31, 1976, a sum of Rs. 16,60,890.22 remained due and payable by the respondent company to the petitioner towards the price of the goods sold and delivered to the respondent company in the manner earlier stated. When the account was required to be confirmed by the respondent company by a letter of the petitioner dated May 27, 1976, the respondent company by its letter of June, 1976, admitted that according to the books of the respondent company, a balance of Rs. 16,53,961.38 was due and payable and that the respondent company was making efforts to locate the cause for the difference in the accounts maintained respectively by the petitioner and the respondent company. A letter dated August 20, 1976, was issued through their advocates for payment of Rs. 17,38,646.73 inclusive of interest as on June 30, 1976. The said letter was also asked to be treated as a statutory notice under the provision of s. 434 of the Act. There was another letter issued on March 10, 1977, calling upon the respondent company to confirm the amount mentioned in the letter. In reply thereto, the respondent company pointed out that there were certain errors in the statements of account furnished by the company and that the matter was being looked into. Along with the letter, a statement was forwarded admitting that a sum of Rs. 18,89,861.61 was due and payable by the company to the petitioner. The difference between the claim made by the petitioner company and the respondent company appears to be in the sum of Rs. 30 and no more at that point of time. A series of letters appear to have been exchanged between the parties and the respondent company by its letter dated June 10, 1978, admitted its liability but pleaded for time to make payment. That letter of June 10, 1978, issued by the respondent company is produced at annexure-F to the petition.
3. The petitioner had further alleged that in spite of the demand made on several occasions, the company has failed to pay the cost of the wire rods supplied and delivered to the respondent company together with interest due, in the sum of Rs. 25,87,532.38 as on June 30, 1978. The petitioner has further alleged that it has learnt on inspection of the balance-sheet of the respondent company for the accounting year 1975-76 available in the records of the Registrar of Companies that the respondent company has lost the whole of its share capital and admitted loss in the sum of Rs. 2,14,81,135.69 as per the said balance-sheet. In that circumstance, it is alleged that the company is commercially insolvent and the company is unable to pay its debts to its secured and unsecured creditors, which, therefore, calls of interference of this court under ss. 433(e) and (f) and 434 of the Act by passing an appropriate order winding up the respondent company.
4. The petition was filed on December 15, 1978, and was actually numbered by this court as Company Petition No. 8 of 1979 probably in the month of January, 1979, due to the intervening Christmas vacation and also due to certain objections raised by the office. Notice was ordered on January 23, 1979, to the respondents. Respondents Nos. 1, 5 and 6 entered appearance, took several adjournments to file the statement of objections and finally filed the statement of objections on August 10, 1979. The respondents in the statement of objection have denied all the assertions made by the petitioner company. The respondent company has denied that it is liable to pay interest at the rate of 20 per cent per annum on the unpaid hundis issued by the petitioner company. It also has denied that as on March 30, 1976, a sum of Rs. 16,60,890.22 remained due and payable to the petitioner or on any other date. With reference to its correspondence, the petitioner company has stated that it has raised a genuine dispute regarding the amount which is due and payable by the respondent company to the petitioner. In that circumstance, it is asserted that there being a bona fide dispute regarding the liability of the respondent company, the matter would require an elaborate enquiry and, therefore, the appropriate forum for such enquiry would not be the company court, but the petitioner having an alternative forum in civil courts, should seek his remedy there. The respondent company in very vague terms has stated that it is commercially solvent. In fact, it is alleged that part payments have been made from time to time which the petitioner has admitted and that established that the first respondent company had been quite serious in settling its legitimate outstandings and disputed only the untenable claims made by the petitioner. It is also alleged that the last balance-sheet filed for the year ending 1975-76 of the company in itself did not indicate that the company is not commercially solvent. But for these very bald denials, there is nothing in the statement of objections which requires to be noticed other than the assertions made by the respondent that on account of hostile labour problems, the company had stopped its production in or about June, 1975, and since then it had been making its best efforts to recommence its production at its factory and make arrangements to settle with all the creditors. It is also asserted that at a meeting of all creditors called and held at the State Bank of Mysore and at which meeting a representative of the petitioner company was present, the resolution adopted at that meeting provided settlement by instalments to all creditors and, therefore, the claim of the petitioner for a winding up order could not be made by this court.
5. Strangely, the respondent company has not denied its correspondence with the petitioner to which reference has already been made.
6. A reply has been filed by the petitioner company denying the assertions made in the objections statement of the respondent company and its directors.
7. After hearing the parties, I made an order on February 22, 1980, giving a final chance to respondents' counsel to put up proposals by which the creditors of the company would be paid the amounts due to them as also the proposal for rehabilitation of the company with a conditions that a scheme of repayment or payments as well as the proposal for rehabilitation should be accompanied by a bank guarantee for at least 50 per cent of the debts disclosed in the petition and other brought to the notice of the court by several company applications made by the State Bank of Mysore and the Tamil Nadu Water Supply and Drainage Board which appears to have obtained a decree against the respondent company in the sum of Rs. 2,52,406.22 and which is pending in execution in one of the City Civil Courts in Execution Case No. 209 of 1978. The Tamil Nadu Water Supply and Drainage Board, Madras, in its application has prayed for treating that application as an application of a creditor-supporter.
8. But the direction issued by this court on February 22, 1980, was not complied with by the respondent company or the other respondents. In that circumstance, the petition was admitted and advertisement was ordered to be published in Deccan Herald of Bangalore on or before April 29, 1980, fixing the date of hearing on May 29, 1980. Accordingly, due publication was effected by the petitioner in Deccan Herald of Bangalore on April 16, 1980, and the matter was further heard thereafter.
9. In response to the paper publication, the State Bank of Mysore Mahatma Gandhi Road Branch, has disclosed that it is a secured creditor in a total sum of Rs. 1,25,08,053.28 as on January 18, 1980, and further interest was due from January 18, 1980, till date of realisation. It also made clear that the State Bank of Mysore was willing to participate in the liquidation proceedings for realisation of the shortfall in the event of its enforcing its security resulting in such shortfall by sale of the hypothecated movables and immovables of the respondent company. Similarly, Dena Bank, K.G. Road Branch, Bangalore, also made a statement before the court that certain wire rods, zinc ingots and lead ingots were hypothecated to that bank and the same was technically in its custody in the factory premises of the respondent company. It is also disclosed that it has filed a suit in the court of the then Civil Judge, Bangalore District, Bangalore, to recover all the sums due to it - about Rs. 2 crores and 69 lakhs. Similarly, the Karnataka State Financial Corporation, Bangalore, also filed a statement saying that it was also a secured creditor and a sum of Rs. 23,82,000 was advanced to the respondent company for erection of its factory and that a sum of Rs. 37,62,427.28 as on April 14, 1980, was due to that Corporation. Similarly, a former employee, one B. R. Kamte of Kongeri Town near Bangalore City also filed an affidavit supporting the winding-up proceedings claiming that the respondent company was due to pay the arrears of salary to him under an award made by the Industrial Tribunal by which the said Kamte was directed to be reinstated in the company's employment giving continuity of service and all back wages. Similar applications and affidavits have been filed by the former employees seeking to support the winding-up petition for one or the other reason stated by them therein. All of them have obtained awards from the Labour Court in their favour and the award is similar to the one made in favour of the afore-mentioned Kamte.
10. It is useful to mention that one P. K. S. Menon, who is none other than the father of the fifth respondent-director of the respondent company in his capacity as a partner of Vijay Trading Company has filed an affidavit stating that he is a creditor of the respondent company and that he would oppose the winding-up proceedings of the respondent company. He has filed another affidavit in his capacity as the managing director of Multiweld Wire Co. (P.) Ltd., Bombay, stating that he is a creditor of the respondent company and that he would oppose the winding-up proceedings. One D. T. Mahajan, a partner of M/s. Peddington Chemical Industries (India), who is also a creditor of the respondent company has filed an affidavit opposing the winding-up proceedings.
11. After the newspaper publication, several adjournments were taken by parties on one or the other ground. But the petitioner company made an Application No. 55 of 1979 for appointment of a provisional liquidator of the company. The objections were filed by the respondent company and its directors who had entered appearance in the main petition. After hearing the parties, this court appointed the official liquidator of this court as the provisional liquidator of the company with appropriate directions by order dated November 28, 1980, in C.A. No. 55 of 1979. After the provisional liquidator took charge of the assets of the company and submitted a detailed report to this court, the court felt that having regard to the potential, the company should be rehabilitated without winding up. Therefore, by an order made on February 25, 1981, the provisional liquidator was directed to give wide publicity all over India inviting entrepreneurs to come forward with proposals for payment of debts to creditors secured and unsecured as well as for rehabilitation and resurrection of the company which admittedly had not gone into production since 1975. Though two feasible schemes among others were given by entrepreneurs, they showed no interest whatsoever as they failed to achieve any reasonable terms and settlement with the secured creditors, financial institutions, the Dena Bank, the State Bank of Mysore and the Karnataka State Financial Corporation.
12. Left with no alternative, the counsel for parties were heard on merits. Mr. T. Subba Rao, learned counsel appearing for the respondent company and its directors who entered appearance, in substance contended that there was a bona fide dispute as to claim of the petitioner company and that the company though not in production, being a viable unit, should not be wound up. He has relied upon numerous decisions of the Indian courts and English courts to support the above propositions. I do not think any useful purpose will be served in referring to those decisions in the light of the facts I have already narrated and in the light of the reason I intend giving. It is well settled now that the respondent company the winding up of which is sought by the petitioner should have a genuine and bona fide dispute and a tenable defence in regard to the claim of the creditor-petitioner and in that event the court after satisfying itself as to the genuiness of the dispute and the bona fide nature of the defence would direct the parties to a civil court for adjudication of such bona fide dispute with tenable defence which prima facie established. Otherwise, there is no bar for the company court to proceed to wind up the company which is otherwise found to be unable to pay its debts of continue to function commercially for the object for which it had been incorporated.
13. But for the bald denial in regard to payment of interest, etc., there is no specific defence put forward by the respondent company which could be called a tenable defence in an appropriate civil court. The truth of the correspondence which is to be found at annexure-E to the petition is not disputed by the respondent company. In the letter dated March 16, 1977, written by the respondent company, it has admitted certain amounts to be due as per the statement enclosed thereto and, according to that statement, the net balance due to the petitioner company is shown at Rs. 18,89,891.61 as on November 30, 1976. No doubt in the statement nothing is shown as interest payable but in the light of the claim of the original price of the goods supplied, the admission of the balance due, as on November 30, 1976, without further supply of goods, as the respondent company had stopped its production in June itself, is clearly indicative that the respondent company took into account whatsoever interest that was agreed to be paid to arrive at the figure Rs. 18,89,891.61. If that statement concerning the petitioner company enclosed with the letter of March 30, 1976, is not denied, them it is a clear admission that the amount indicated in the statement was due by the respondent company to the petitioner. In the absence of any denial of the statement appended to the petition, it is difficult to accept Mr. Subba Rao's contention that there is a bona fide dispute as to the amounts due to the petitioner company. It is true that in these proceedings it is difficult to decide the exact amount due on a given date. But some amount was due, at no point of time, has been denied by the respondent company. Opportunities were given to reach settlement with the petitioner company and they have not been utilised by the respondent company.
14. The offer made to the court that it will reach a settlement with creditors itself amounts to an admission which the court cannot ignore, having regard to the memos filed by the respondent company on October 7, 1980, while the petition was pending in this court. In the memo, it was stated that the respondent company is due and liable to pay a sum of Rs. 11,85,891.03 and it will pay the same in instalments of Rs. 30,000 per month commencing from November, 1980, and such instalments shall be paid on or before 10th of the each month following the month for which it is due. But the petitioner was not agreeable for such a settlement. In the face of the memo filed, it will not be open now to the respondent company to plead that it has a tenable defence. That tenable defence only relates to payment of interest and other inaccuracies in the accounts maintained by each of them. But it cannot be of any assistance to deny its liability to the extent of Rs. 11,85,891.03.
15. In this circumstance, it is unnecessary for this court to embark upon further investigation but hold that admittedly the respondent company is due in the afore-mentioned sum to the petitioner company and it is unable to pay of demand. Therefore, I am unable to see how this court having regard to the facts set out earlier as to the extent of its liability to financial institutions mentioned in the course of this order avoid passing an order winding up the company in public interest.
16. Several adjournments were taken on the ground that the Government of Karnataka was interested in rehabilitating the company and declaring it as a sick unit under the provisions of the Karnataka Relief Undertaking (Special Provisions) Act, 1977 (Act No. 24 of 1977). But no such notification has been issued by the Government so far under the said Act nor was any rehabilitation done by the State Government. Therefore, even the argument that it is a viable unit and, therefore, should not be wound up is a doubtful proposition. The efforts made by the court also did not result in any successful resurrection of the respondent company's activities
17. For the above reasons, this court is left with no choice but to direct the winding up of the respondent company. The provisional liquidator is appointed as the liquidator of the company. All persons liable to account for the management and affairs of the company are required to file the statement of affairs if not already filed, within 21 days from today. Earlier orders permitting the respondent company to use the office premises and also the fifth respondent-director to use one of the cars in hereby recalled and the official liquidator shall take possession of all records and books of account which he has not already taken possession of.
18. A copy of this order shall be furnished to the official liquidator free of cost and the official liquidator shall communicate the order to all the directors of the company as well as the Registrar of Companies in accordance with law.
19. The petitioner is directed to file a certified copy of this order with the Registrar of Companies within 30 days from today. The financial institutions which were directed to furnish some funds to the provisional liquidator in order to maintain security of the factory premises and to safeguard the articles pledged with them would continue to comply with the directions of this court.
20. The petitioner shall also advertise the winding up order in the Deccan Herald as well as in the Indian Express within two weeks from today.
21. Company Application No. 382 of 1982 is filed by one of the directors seeking condonation of delay in filing the statement of affairs with the provisional liquidator and the said application is allowed and the statement of affairs may be accepted by the provisional liquidator, if the same is in order.
22. Similarly, C.A. No. 1764 of 1981 filed by the Karnataka Light Metal Industries Ltd. is disposed of separately by an order made today.
23. Ordered accordingly.