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Paramount Enterprises Vs. Reechem P. Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtAndhra Pradesh High Court
Decided On
Case NumberCompany Petition No. 3 of 1981
Judge
Reported in[1985]57CompCas200(AP)
ActsCompanies Act, 1956 - Sections 433, 434, 434(1), 439 and 439(1)
AppellantParamount Enterprises
RespondentReechem P. Ltd.
Respondent AdvocateHabeeb Ansari, Adv.
Excerpt:
company - winding up - sections 433, 434, 434 (1), 439 and 439 (1) of companies act, 1956 - petition for winding up of company on grounds that it was unable to pay the dues to petitioner firm - no dispute about amount due - no evidence to substantiate company's solvency or readiness to meet claim - held, company ordered to be wound up - official liquidator appointed to carry out the same. - motor vehicles act (59 of 1988)section 149 (2): [v. gopala gowda & jawad rahim, jj] insurers entitlement to defend the action joint appeal by insured and insurer - held, the language employed in enacting sub-section (2) of section 149 appears to be plain and simple and there is no ambiguity in it. it shows that when an insurer is impleaded and has been given notice of the case, it is entitled to.....seetharam reddy, j.1. m/s. paramount enterprise, a proprietary firm, is the pertioner and m/s. reechem private ltd. is the respondent company. 2. this company petition is filed under s. 439(1) of the companies act, 1956, for the winding up of the respondent-company on the ground that it is unable to pay the debt due to the petitioner-firm within the meaning of s. 433(e) read with s. 434(1)(a) of the companies act. 3. the relevant averment in the petition in brief are : the petitioner-firm carries on the business of manufacture and supply of fibre glass, fume exhaust system, and so on. the respondent-company, registered under the indian companies act, 1913, placed an order on the petitioners by its purchase order dated march 2, 1979, for designing, fabrication, erection and commissioning.....
Judgment:

Seetharam Reddy, J.

1. M/s. Paramount Enterprise, a proprietary firm, is the pertioner and M/s. Reechem Private Ltd. is the respondent company.

2. This company petition is filed under s. 439(1) of the Companies Act, 1956, for the winding up of the respondent-company on the ground that it is unable to pay the debt due to the petitioner-firm within the meaning of s. 433(e) read with s. 434(1)(a) of the Companies Act.

3. The relevant averment in the petition in brief are : The petitioner-firm carries on the business of manufacture and supply of fibre glass, fume exhaust system, and so on. The respondent-company, registered under the Indian Companies Act, 1913, placed an order on the petitioners by its purchase order dated March 2, 1979, for designing, fabrication, erection and commissioning of PVC/FRP/Fume Exhaust system for zinc chlorides as per the petitioners' quotation dated February 8, 1979, fixing the cost at Rs. 32,500. The petitioners completed the said works and sent the invoices dated April 14, 1979, and August 1, 1979, for Rs. 25,036.25 and Rs. 1,738.75, respectively, and requested the respondent-company to take delivery of the same as they were lying in the petitioners' factory. The delivery was to be against payment of the invoices. The respondent-company issued three cheques dated July 6, 1979, July 9, 1979, and July 11, 1979, each for sum of Rs. 3,000. When the said cheques were dishonoured, notice was given to the respondents and the respondents promised to pay case in lieu thereof and take delivery of the equipment. Since the respondent failed to make payment, the petitioners are entitled to interest at 18% per annum in accordance with the petitioners are entitled to interest at 18% per annum in accordance with the commercial practice for the delayed payment. The petitioners by their letter dated February 8, 1980, sent the statement of account and demanded payment by the respondents, of the principal sum together with interest accrued thereon amounting to Rs. 28,240.39, which the respondents faileds to meet. However, the respondents are also liable to pay demurrage at Rs. 200 per month for not taking delivery of the equipment lying in the factory premises of the petitioner. Hence, the respondent is due to the factory premises of the of the petitioner in a sum of Rs. 34.412.25, of which Rs. 23,775 represent the cost of manufacturing, Rs. 7,037.25 represents interest at 18% per annum from the date of invoice till the date of filing of the company petition and Rs. 3,600 towards demurrage at the rate of Rs. 200 per month till the date of filing of the petition.

4. The petitioners' statutory notice dated December 9, 1980, has been duly acknowledged by the respondent through their letter dated December 23, 1980. But, the respondent though failed and neglected to make payment to the reasonable satisfaction of the petitioners. There is no dispute about the amount due and the respondent-company is unable to pay its debt to the petitioners. Hence, it is prayed that; (a) the respondent-company be would up; (b) the official liquidator be appointed; and (c) the costs of the petition be provided for.

5. The respondent-company countered in its counter-affidavit as under : It is true that the respondent-company placed an order for fabrication, erection and commissioning of the exhaust system referred to for zinc chloride; that the respondent-company paid Rs. 3,000 as advance. The allegation that the petition-firm completed the works and sent the invoices dated April 14, 1979, and August 14, 1979, for Rs. 25,036.255 and Rs. 1,738.75 is not correct. The petitioner never erected and commissioned the exhaust system for zinc chloride. The respondent-company had stopped the working of the zinc chloride plant and it is interested in the erection and commissioning of the exhaust system and this fact was brought to the notice of the petitioner. Since the respondent-company has not taken delivery and the petitioner has not erected and commissioned the said exhaust system, there is no liability on the part of the respondent to pay any amount to the petitioner. The respondent-company did not make any arrangements for honouring the three cheques issued to the petitioner as there was no liability on the part of the respondent-company to pay the same to the petitioner. The allegation that the respondent promised to pay cash in lieu of the said cheques and take delivery of the equipment is not correct. The allegation that the petitioner is entitled to interest at 18% per annum is not correct. The respondent-company is not liable to pay demurrage at Rs. 200 per month, as it was made under clear to the petitioner that the equipment is no longer required from the respondent-company. Hence, the respondent-company is not due to the petitioner for the sum of Rs. 34,412.25, Further, the allegation that the respondent is unable to pay its debts is not correct. It is not correct to say that the amount is not disputed by the respondent. No amount is due to be paid to the petitioner by the respondent and, as such, the question of the respondent being unable to pay its debts does not arise. It is further countered that the petition under s. 433 (e) and (f) of the Companies Act is not maintainable any amount is due, a suit ought to have been filed and not a petition which is not maintainable.

6. On behalf of the petitioner firm, Iqbal Singh, the proprietor of the petitioner-firm, himself gave evidence and exs. A-1 to A-9 were marked, whereas on behalf of the respondent-company none has been examined.

7. The issues which arise in this petition are :

(1) Whether any amount of debt is due to the petitioner by the respondent-company and so, whether any dispute has been raised.

(2) Whether the respondent is unable to pay the debt.

Under Ex. A-1, the respondent-company placed an order for design, fabrication, erection and commissioning of PVC/FRP/Fume Exhaust system for zinc chloride, referring thereunder the quotation of the petitioner No. PE/30/79-80/1579, mentioning the rate at Rs. 32,500 and described under 'delivery' column - 'at the earliest'.

8. Under Ex. A-2, the first invoice No. 2608, dated April 14, 1979, referring to the order of the respondent-company dated March 2, 1979, was sent figuring out the total amount at Rs. 25,036.25, by the petitioner-firm. The invoice contains the words - 'For 95% value only 'and also 18% interest will be charged if the bill are not paid on presentation.' Ex. A-2(a) is the second invoice No. P. 2668 dated August 1, 1979, giving again the order number of the respondent-company. It mentions the amount due, which is 5% of the value at Rs. 1,738.75.

9. Under Ex. A-3 dated September 21, 1979, the petitioner-firm under the signature of P.W. 1, addressed a letter to the managing director of the respondent-company, giving reference to Order Number dated March 2, 1979, and alas the two invoices dated April 14, 1979, and August 1, 1979, furnishing a statement of account showing the next amount to be paid along with interest as on September 23, 1979, at Rs. 26,820.25.

10. Ex. A-4 is the letter dated February 8, 1980, by the petitioner-firm addressed to the respondent-company. It states, inter alia :

'Even though it is more than 9 months over, you have not made the payment and the equipments are lying in our factory. Every time you have been promising the payment, but you have not taken any action. Even though you had issued some cheques, all of them bounced back and then you had confirmed that you will pay the cash in lieu of cheques which was not done. We are giving below the account statement as on February 11, 1980. (As per the account, the outstanding sum is Rs. 28,240.39).

Please note, if you fail to collect the material from our factory within 7 days from the date of receipt of this letter, we will have no other alternative but to dispose off the equipments and recover the amounts and the balance amount will be pay you. In this regard, we have reminded you through letters and on a number of occasions our man has called on you but, every time you have been promising the payment at a later date and till date we have not received payment ..... We would request you to avoid this sort of unpleasant situation and we keep open for another week's time you to make necessary arrangements for the payment.'

11. Ex. A-5 is the statutory notice, dated December 9, 1980, issued on behalf of the petitioners. It reads, inter alia :

'Our clients sent you a statement of account and requested payment of the same. Thereafter, by a registered letter dated February 8, 1980, our clients once again demanded payment together with interest accrued thereon. You have neither replied to the said letters nor made the payments.

We have been instructed ....... to call upon you to pay to our clients or to us ..... within one week from the date of receipt of this notice the sum of Rs. 34,412.25 being the amount due as per our client's invoices, dated April 14, 1979 and August 1, 1979, together with interest accrued thereon till date calculated at the rate of 18% p.a. as also the demurrage, failing which, please not that our clients will be constrained to institute proceedings for winding up of the company under section 439 of the Companies Act. ..........'

12. Ex. A-6 dated December 23, 1980, is the reply letter by the respondent-company, which reads :

'With reference to your letter dated December 9, 1980, we are surprised to note the contents.

Please clarify as to how have arrived at a sum of Rs. 34,412.25 being shown by you as due to you client, M/s. Paramount Enterprises. On receipt of your details, we shall do the needful.'

13. Ex. A-7, letter dated December 27, 1980, was sent on behalf of the petitioner-firm, which reads :

'We are interested to send herewith a statement of account wherein the principal amount, interest accrued from time to time and the payments made by you, as also the demurrage at the rate of Rs. 200 for 18 months, have been duly calculated and shown ......'

14. Ex. A-8 dated December 29, 1980, is in reply to the Ex. A-7, letter dated December 27, 1980. It reads :

'We would like to bring to your kind that an amount of Rs. 3,000 was paid advance towards the order/invoice No. 2608, dated April 14, 1979, on March 9, 1979, which was not shown in your statement of account. We request your goodselves to kindly contact you client regarding the same.'

15. Ex. A-9 dated January, 7, 1981, is in reply to Ex. A-8. It reads :

'Your attention is invited to our clients' invoice No. 2608, dated April 14, 1979. A perusal thereof would show that the sum of Rs. 3,000 paid on March 9, 1979, and Rs. 5,000 paid on March 29, 1979, have been claimed for payment. In the statement of accounts sent to you, you will find the sum of Rs. 25,036.25 mentioned opposite invoice No. 2608 as on April 14, 1979, being the amount due from you as on that date.

We request you kindly to settle the outstanding amount due to our clients and as demanded in our notice dated December 9, 1980, at an early date.'

16. P.W. 1, in his evidence, after the narrative events as brought out under Exs. A-1 to A-9, stated that the amount due to them from the respondent-company is Rs. 34,412.25 which amount includes interest at 18% per annum and also demurrage at the rate of Rs. 200 per month. The machinery manufactured by them for the respondents is as per the customer's requirement and cannot be sold outside. The allegation of the respondents that they informed them that they did not want the machinery is not correct.

17. In the cross-examination, to suggestion, the witness stated :

'It is not correct to say that the work is complete after erection and commissioning of the exhaust system'. To another suggestion, he stated 'It is not correct to state that I have not completed the work as per the purchase order, Ex. A-1.' Witness adds : 'As per the order which is based on our offer, that were supposed to make payment of 5% before taking delivery and the balance of 5% was to be paid after erection and commissioning. We intimated this offer as per invoice, Ex. A-2.'

18. It is further stated in the cross-examination : It is true that we stated in Ex. A-4 'under the circumstances, you non-compliance with the terms of contract will be treated as a breach of contract and with this stand we will be seeking large proceedings'. Further, 'please note, if you fail to collect the material from our factory within 7 days from the date of receipt of this letter, we will have not other alternative but to dispose of the equipment and recover the amounts and the balance amounts will be payable by you.' He further stated : 'I could not dispose of them because there were no buyers. I reminded the respondent-company about the payment. I did not intimate the respondent-company in writing about the non-availability of the buyers.'

19. What emerges from the evidence on record in that the amount due, including the interest and demurrage as on December 9, 1980, is Rs. 34,412.25, after giving due deductions towards the advance payment of Rs. 8,000 made by the respondent-company. So, the dispute regarding this amount has been raised. Under Ex. A-8, which is very crucial, the respondent-company, except stating that the amount of Rs. 3,000 said to have been paid as advance towards the first invoice towards the first invoice dated April 14, 1979, was not shown in the statement furnished through the letter dated December 27, 1980, did not raise the figures out any (sic); nor was any specific objection raised either with regard to the term of the contract, viz, that order, or that the petitioner-firm cannot make any demand when it was already stated in the notice dated February 8, 1980, issued by the petitioners that if the respondent failed to collect the material from the petitioner's factory within 7 days from the date of receipt of the said letter, they will have no other alternative but to dispose of the equipments and recover the amounts and the balance amount will be payable by the respondents. So, the only dispute was with regard to the sum of Rs. 3,000 paid by the respondents and whether the sum was given due credit for. This was clarified eventually on behalf of the petitioners under Ex. A-9, that not only the said sum of Rs. 3,000 but also Rs. 5,000 paid on March 29, 1979, have been amount of Rs. 25,036.25 has been claimed for payment. After receipt of this letter, there was no reply whatsoever from the respondents. If that be so, there cannot be said to be any dispute outstanding in respect of the amount due. Since there was no response to Ex. A-9, it ipso facto follows that the respondent company is unable to pay the debt within the meaning of s. 433(e) read with s. 434(1)(a) of the Companies Act, as the respondent-company is unable to pay the debt within the meaning of s. 433(e) read with s. 434(1)(a) of the Companies Act, as the respondent-company 'neglected to pay the sum due.'

20. The two issue involved in this company petition could be disposed of together.

21. The learned counsel for the petitioner relied on the decision in Ofu Lynx Ltd. v. Simon Carves India Ltd. [1971] 41 Comp Cas 174 (Cal), wherein it is held (headnote) :

'It is well settled that if there is a bona fide dispute with regard to the debt which forms the subject-matter of the winding-up proceeding, the court will not entertain any winding-up petition on the basis of the said disputed debt and will leave the parties to resolve the disputes in appropriate proceedings.

Whether there is any bona fide dispute with regard to any debt claimed or not, will necessary depend on the facts and circumstances of each particular case. Disputes raised or sought to be raised may not be bona fide and will not necessarily make the debt a disputed one. Merely seeking to raise certain disputes for putting off liability for payment of the debt or creating a kind of defence to the claim, will not make the debt a disputed one and disputes which appear to have been created or manufactured for the purpose of creating pleas to cover up the liability for payment of the debt can never be considered to be bona fide and will be of no avail in resisting a winding-up petition. Whether the disputes which are raised or sought to be raised are bona fide or not and whether the same have been manufactured for the purpose of resisting a case for winding up of the company will have to be considered and determined by the court on the basis of the facts of each particular case and on the basis of the materials that may be available to the court at the time the court is called upon to decide the question.

In considering the question whether the dispute in respect of any debt is bona fide or not and whether the debt is bona fide or not and whether the debt is bona fide disputed or not, the court has not only to consider and examine the nature of the disputes raised but should consider all the facts and circumstances of the case. The conduct of the parties may be and is a relevant factor which is also taken into consideration by the court in determining this question.

In given cases, on a proper consideration of all materials, the court may come to the conclusion that there is a bona fide dispute with regard to the debt on the basis of which the petition for petition fro winding up has been presented and the court in such cases will refuse to entertain the said application. If, on the other hand, in the facts of particular cases, the court comes to the conclusion that disputes sought to be raised are not bona fide and have only been manufactured or created for the purposes of resisting the application, the court will refuse to grant any stay of the winding-up petition and will proceed with the same. If in particular case the court is in some doubt as to whether the disputes are bona fide or not and is not in a position to come to any definite conclusion that the disputes are mala fide and manufactured only to create a defence to the winding up petition, the court may stay the winding up proceeding, and relegate the parties to an action on terms as to security or otherwise; the court may direct the company to furnish security to prove its bona fides and solvency and relegate the claimant to suit on such security being furnished and the court may stay the winding-up proceeding.'

22. Further held (headnote) :

'The statutory notice does not become bad if the debt mentioned in the notice is not the exact or correct sum which may be held to be payable by the company, provided that the sum stated in the notice exceeds the amount of Rs. 500 and includes the claim which forms the subject-matter of the winding-up petition, although the amount stated in the notice may not be exactly the correct amount which may be held to payable by the company.

But it is insufficient to show that some other debt is due or even though that there is something over Rs. 500 due in respect of the claim made, if that was not the sum claimed. The law requires that a demand must be made for a debt that is due, and it is not permissible to support a petition by alleging that something else is due.

The notice under section 434 of the Companies Act is serious matter and the same is fraught with gave consequences. The effect of a notice validly given under the provision is to raise under a presumption under the statute as to the a presumption under the statute as to the inability of the company to pay the debt and its insolvency rendering the company liable to the extreme penalty of loading its very existence and being compulsorily wound up by the court. Such a notice has necessarily to be strictly construed and the notice must comply with the requirements of the statute. On this aspect, all that the statute requires is that the notice must be in respect of an existing and presently payable debt which exceeds the sum of Rs. 500. If the amount stated in the notice is some reason found not to be exactly the correct amount payable by the company, but is in respect of a debt existing and presently payable exceeding the sum of Rs. 500, there will be sufficient compliance with the provisions of the statute and the notice will be a valid one.

In this case as the court was satisfied that there was a bona fide dispute about the debt on which the winding-up petition was based, the court ordered stay of the winding-up petition for three months to enable the creditor to establish his claim against the company and issued an injunction against the company restraining it from dealing with, transferring or encumbering the assets of the company except in the usual course of carrying on its business for a period of three months.'

23. The contention of the learned counsel appearing for the respondent-company is that there is no completed contract, as the contract and the terms thereof being produced, excepting the invoices through which the entire transaction is sought to be proved. Therefore, it is a case where the petitioner failed to establish any amount being due by the respondent and the claim is thus disputed bona fide. Reliance was placed on the following decisions :

Bengal Builders & Traders v. Orissa Textile Mills Ltd. [1978] Tax LR 1862, wherein it is held (headnote) : 'Where the creditor's claim is bona fide disputed, company's failure to pay does not amount to 'neglect to pay ' within the meaning of section 434(1)(a) of the Companies Act and, therefore, the company cannot be said to be unable to pay its debt. A proceeding ostensibly for winding up of the company is not an appropriate made of enforcing payment of a debt and will be an abuse of the process of the court.'

24. In Registrar of Companies v. Ajantha Lucky Scheme and Investment Co. P. Ltd. [1973] Tax LR 2107; [1973] 43 Comp Cas 314 ( P & H), it is held (headnote of Tax LR) :

'A 'debt' really means an amount which is due and can be claimed by the creditor, so that if the demand, when made, is not met by the company, it can certainly be said to be unable to pay its debts within section 433.

Unless a debt becomes due, no demand can be made. The fact that certain liabilities would accrue and become due in near future (which in aggregate amount to more than the present assets of a chit fund company) does not show that the company is 'unable to meet is liabilities' .... The mere fact, therefore, that the company's present assets are less than its probable liabilities is no ground for winding up.'

25. In Mohammad Hasan Khan v. Ahmad Hafiz Ali Khan, AIR 1957 Nag 97, the scope and the meaning of 'debt' has been explained. It is held (p. 97) :

'Section 43 (M.P. Abolition of Proprietary Rights (Estates, Mahals, Alienated Lands) Act (1 of 1951) provides for exemption of Sir and not of Khudkasht from attachment or sale in execution of any decree for the recovery of debt. The term 'debt' has not been defined in the Act, but evidently it is independent of the liability created by the decree itself. In the absence of any specific definition, it has to be given the ordinary connotation of a loan, which, as commonly understood, is an advance of money or in kind at interest. The normal connotation of the word 'debt' does not include a claim for damages but a liquidated money demand. Section 4(e) is not, therefore, a bar to the sale of Sir and Khudkasht, nor is the attachment or sale of Sir and Khudkasht, nor is the attachment or sale of Sir affected by execution of the decree when it is for recovery of damages for breach of a contract of sale of dhan and not of any debt.'

26. In D. S. Gill v. Arpor Acres Farm (India) Ltd. [1972] Tax LR 2375, the Delhi High Court held :

'The winding up of a running concern is not a matter to be dealt with lightly and a creditor cannot be allowed to bring about the extinction of a running business, unless it can be shown that the company is really unable to meet its current demands. Mere increase in liability in a particular year does not mean that the company become commercially insolvent.'

27. In U. V. Shenoy v. Karnataka Engineering Products Co. (P.) Ltd. [1981] 51 Comp Cas 116 (Kar), it is held (headnote) :

'It was not a fit case in which the court should exercise its discretion under s. 433 to make an order for the winding up of the company since the company has a tenable defence against the claim made by the petitioner and the matter on merits can more appropriately be agitated in a suit than in this summary proceeding.'

28. In Martin Burn Ltd. v. Bhagirath Murarka [1982] 52 Comp Cas 127 (Cal); [1981] Tax LR 2469 a Division of the Calcutta High Court held (headnote of TLR) :

'Companies Act (1 of 1956) s. 433 - Winding up petition on ground of non-payment of debt - Practice and procedure - before ordering admission and directing advertisement, court should carefully look into nature of the transaction of loan and particularly the agreement between creditor and company, which is the foundation of the claim.

Non-payment of disputed debt - Winding-up petition by creditor for non-payment of loan of Rs. 10 lakhs alleged to be advanced by him under agreement to Martin Burn Ltd., who disputed creditor's claim - Correspondence between creditor and M/s. Saggar Lines (India) Pvt. Ltd., showing that said loan had in fact been advanced under agreement to Saggar Lines Ltd. and not to Martin Burn Ltd. - Held dispute of company regarding debt was bona fide and petition for winding up was an abuse of process of court.'

29. In G. Loganayaki v. Moolangudi Chit Funds (P) Ltd. [1979] 49 Comp Cas 644 (Mad) it is held (headnote) :

'It is fundamental that in order to sustain a winding-up of an incorporated company on the ground that it is unable to pay its debts, the debt which is the substratum of the action either under s. 433(e) of the Companies Act on its own or under s. 433(e) read with s. 434(1)(a) is not a disputed debt or a debt which could be found after an investigation and adjudication on the claims made inter see between the so-called creditor and the debtor-company. Any such investigation which would involve the determination of the quantum and quality of the liability would certainly raise a reasonable presumption that it is a disputed debt. Once such a lingering doubt arises in the mind of the company court that the debt is not a sure debt but a debt which could only be ascertained and determined after an investigation into the fact and circumstance of the case, then, unless there is demonstrative mala fides on the part of the company concerned, the company court cannot undertake the examination as to the quantum of the liability or the nature of the indebtedness of the company in question to the claimant in a petition under s. 433(e) of the Act.'

30. In Amalgamated Commercial Traders (P.) Ltd. v. A. C. K. Krishnaswami [1965] 35 Comp Cas 456, the Supreme Court held (headnote) :

'It is well settled that a winding up petition is not legitimate means of seeking to enforce payment of a debt which is bona fide dispute 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 stigmatised as a scandalous abuse of the process of the court.

If a debt is bona fide disputed, there cannot be 'neglect to pay' with-in the meaning of section 434(1)(a) of the Companies Act, 1956. If there is of winding up, namely that the company is unable to pay its debts, is not substantiated.'

31. In Shadiram & Sons v. Southern Aviation P. Ltd. [1978] 2 MLJ 369; [1978] 48 Comp Cas 570 (Mad), Divisions Bench of the Madras High Court held (headnote of MLJ) :

'As the company court could not be sought by the creditor for realisation of the debt due or for its enforcement under the guise of a petition for winding up, caution should be observed in a case where the main objection to the petition to wind up was that the debt was disputed. A given case might present a slight complication if the debt was admitted but discharge was pleaded. Undoubtedly, in case where the allegation was that the debtor-company was indebted unable to pay its debts, the initial was on the petitioning creditor who alleged the existence and reality of such a debt. But when the debtor-company admitted the debt and raised a plea of discharge either in part or in whole of the debt claimed then the burdan of proof normally shifted to the debtor-company to prove such a discharge at least to the extent pleaded so as to satisfy the court that the debt as claimed was not due and that, therefore, there was bona fide dispute by the company regarding the existence of such debt. In such circumstance, it was for the company court to discover through a reasonable line of investigation whether the plea of discharge was totally unfounded and was utterly baseless and was only a ruse to abuse the winding up provisions provided for by the statute or whether there was any substratum of truth in it.

The existence of the debt alone might not be sufficient, as in the instant case the defence was one of discharge. If a plea of discharge was set up and if it was prima facie established, it implied that the debt as claimed was disputed. The jurisdiction to wind up company incorporated under the Companies Act was discretionary and all the circumstance had to be considered by the company court before it exercised its judicial discreation to efface the existence of a corporate body. The debt as claimed by the petitioner creditor and on the foot of which this petition for winding up was filed under section 433(e) of the Companies Act was not sustainable. This was because there was a bona fide disput about the existence of the debt its quantum.'

32. Where the claim or the debt, is disputed bona fide, the court should be circumstance and chary to order the winding up proceedings; the parties instead should take recourse to a civil suit.

33. In determining the debt, whether disputed bona fide or mala fide, the conduct of the parties, the character of the pleas and the circumstances which will be peculiar to each case, will be the contributing factors.

34. Should there, however, be any doubt or difficult in determining the animus, the court must stay the winding up proceedings and relegate the claimant, on furnishing security, to a suit.

35. The statutory notice under s. 434 of the Companies Act is very serious matter, as it leads to the presumption, if the claim is held established, that the company is unable to pay the debt and so is insolvent, thereby rendering the company to be thrown out lock, stock and barrel - the inevitable consequence of compulsory winding up of the company.

36. We may now analyse, bearing in mind the aforesaid guidelines, the points raised herein.

37. Admittedly no evidence, oral or documentary, has been let in by the respondent-company. The plea of the respondent-company that the amount will not become unless the exhaust system as ordered by it is erect and commissioned at the site, is not only belated but is for the first taken in the counter. Therefore, in the absence, of any denial of the claim or resistance to it by means of any communication at a time when the demand was made, the plea becomes stale, sterile and is, therefore, not available. On the contrary, through Ex. A-6, the respondent has only sought the clarification as to how the petitioner has arrived at the sum of Rs. 34,412.25, and by the ultimate line in the letter, which reads, 'on receipt of your details we shall do the needful', there is a concession of the claim though only halting with regard to the quantum. Likewise, under Ex. A-8, the demur is only in respect of the advance amount of Rs. 3,000 made towards the invoice dated April 14, 1979, and nothing else, and when it was clarified, no further communication was made, indication, by irresistible implication, the admission of the claim. If that be so, debt cannot be said to be dispouted mush less fide.

38. Yet another aspect. The respondents' counsel contended that when once the petitioner, under Ex. A-4, made it clear that within seven days from the date of receipt of the said letter if the respondent did not respond positively to the letter, the petitioner shall dispose of the equipment and remainder, if any, shall be recovered from the respondent, there is no more obligation on the part the of the respondent to pay the amount claimed. The contention is no doubt attractive and has some force, but it cannot sustain for the simple reason that a few month after the despatch of Ex. A-4, when again the claim was laid by the petitioner under Ex. A-5, there was no demur on the part of the respondent to the effect to the effect that the petitioner was no more entitled to claim, nor was the respondent under any obligation to pay. On the contrary, a positive responses was shown towards the payment and thereby acceded to the claim made by the petitioner. Hence the claim cannot be sought to be opposed on this ground, which is non est.

39. Now coming to the interest as well demurrage aspects, it may be stated that under both in invoices dated April 14, 1979, and August 1, 1979, it is clearly laid down that interest at 18% per annum will be charged, if the bill are not paid on presentation. The communication and receipt by the respondent of these two invoices are not in dispute, nor the calculation made under Ex. A-3 and reiterated in Ex. A-4 are in dispute either Thereafter under Ex. A-5, the interest aspect was reinforced further. But, in Ex. A-6 which is a reply to Ex. A-5 no specific protest has been made with regard to either charging of the interest or of the demurrage, excepting to seek a clarification as to how the sum of Rs. 34,412.25 has been arrived at, which was immediately clarified under Ex. A-7 showing there-in the demurrage being worked out at that rate of Rs. 200 per month for 18 months, and, therefore, the amount of Rs. 34,412.25 as due. To that in reply under Ex. A-8, which is last of the communication made by the respondent, neither the interest nor the demurrage has been objected to, the only objection being, as stated earlier, only in regard to the amount of Rs. 3,000 paid as advance on March 9, 1979, towards the invoice dated April 14, 1979. Hence the claim in regard to the debt as well as the quantum of the same in the shape of liquidated amount, is clearly established without any equivocality whatsoever.

40. The only question now remains is whether the respondents is 'unable to pay the debt.' It is not in dispute that no accounts have been produced by the respondent-company before court. Once if it is shown, as it is done in this case, that the company has failed to pay the amount due when the demand was made, the inability of the company to pay is established unless it is diminished by accepted evidence by the debtor company that it has neither neglected to pay, nor is unable to pay as the onus is on that company. Admittedly, in this case, no evidence has been let in by the respondent-company to substantiate its solvency or readiness to meet the claim. Hence, it is axiomatic that the company i unable to pay the debt.

41. The foregoing, therefore, manifests and I have no hesitation or difficulty in holding that the respondent-company is due in the sum of Rs. 34,412.25 to the petitioner and the dispute both in regard to the debt as well as the quantum raised by the respondent is not bona fide, as it is only manufactured to harass the petitioner.

42. In the result, the respondent-company is ordered to be wound up and the official liquidator is appointed to carry out the same. The company petition is accordingly allowed with costs. This order shall be published in the 'Deccan Chronicle' and 'Andhra Bhoomi'.


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