1. By this petition moved under ss. 433, 434 and 439 of the Companies Act, the Universal Glass Ltd., seeks the winding up of the respondent company, namely, the Meerut Bottlers Pvt. Ltd.
2. The respondent company was incorporated in January, 1971, with the main object of carrying on business as brewers, distillers, manufacturers of aerated waters, etc. In the course of the same, the respondent obtained manufacturing and distribution rights from Parles, Bombay, for part of the territory of Uttar Pradesh. For the bottling of the aerated waters which were to be so marketed, the respondent required various quantities and qualities of glass bottles, and since the petitioner happened to be a concern manufacturing such bottles, orders for supplies were placed with it. Glass bottles were accordingly supplied by the petitioner from time to time, and a number of payments received from the respondents.
3. The petitioner's case is that a sum of Rs. 1,70,947.16 has been still due from the respondent from January 1, 1979, towards the supply of those bottles, and the same has remained unpaid in spite of repeated demands. Interest at the rate of 18% per annum is further, it is stated, payable on that amount. The respondent company had issued two cheques, one for Rs. 50,000 on November 18, 1979, and another for Rs. 20,947.16 but they on presentation were dishonoured. Subsequently, the respondent confirmed in February, 1979, that the balance outstanding due from it to the petitioner, as on December 31, 1978, was of Rs. 1,70,947.16.
4. This, however, was not cleared in spite of repeated demands by the petitioner. The respondent continued to make assurances, but without result. Finally, a statutory notice under the Companies Act, 1956, was served, but it too remained unreplied. Hence, the petition.
5. The respondent company has contested this petition, pleading that it is mala fide, abuse of the process of the court and meant to put pressure and coercion for an unconscionable demand. So far as the dealings between the parties under which the petitioner supplied glass bottles to the respondent they are not disputed. However, it is contended that there were excessive breakages in the consignments and the petitioner was duly informed of the same. On some occasions, the breakages went as high as 44.18% out of which 10% were in transit. The petitioner then in reply regretted that there had been excessive breakages and assured that they were tightening up their quality control so that this was not repeated in future consignments. Notwithstanding this, the breakages continued and the petitioner was duly apprised of them. The respondent has, in the circumstances, denied that the amount of Rs. 1,70,947.16 is due to the petitioner, or that interest at the rate of 18% per annum was at any time agreed upon. The percentage of breakages in each cycle has been mentioned as 5%, and since there used to be five diverse cycles involved in the process, the total breakage has been mentioned as around 25% of the total 21,000 crates of glass bottles supplied. An amount of Rs. 1,36,500 has, thereforee, been sought to be deducted from Rs. 1,70,947.16 towards breakages. The balance amount of Rs. 34,477, the respondent contends, can always be paid to the petitioner in order to settle the matter amicably and to maintain harmonious business relations. Rather it is added that an amount of Rs. 70,947 was offered in full and final settlement, but the petitioner did not accept the same.
6. The respondent has, thereforee, pleaded that there is a bona fide dispute between the parties about the amount actually due, and in the circumstances, the proper remedy for the petitioner is to have independent civil action for recovery. The present petition for winding up is pleaded to be misconceived.
7. As regards the dishonouring of the cheques, it is stated that the respondent was having certain problems with its bankers, and was trying in those days to arrange money to pay the outstanding amounts. It is, however, admitted that confirmation of the balance outstanding of Rs. 1,70,947.16 was given but this was subject to adjustment of claim for breakages, vide diverse communications.
8. The petitioner has in rejoinder reasserted the claim made in the petition, and has pointed out that in the bills pertaining to the supply of bottles, it was specifically mentioned that interest at the rate of 18% per annum would be charged on the outstanding amounts. As regards the breakages, the stand taken by the respondent it is pleaded, is mala fide, and without any basis as they had never quantified the amount of breakages before the filing of the petition, and had been generally indulging in vagaries. Besides no damaged goods were returned to the petitioner. In any case, it is pointed out that the respondent waived their rights towards breakages when they without reservation later confirmed the outstanding amount of Rs. 1,70,947.16. It has been denied that the respondent had at any time offered payment of Rs. 70,947 towards full and final settlement.
9. Before proceeding further and discussing the evidence that has been led by the parties on record, it is relevant to mention here what transpired on different hearings of this petition before the court. The record shows that on November 12, 1980, Anand J. recorded that the respondent company was admitting the liability to the extent of Rs. 70,947.12 as against the petitioner's claim of Rs. 1,70,000 odd besides interest. The respondent it was noted, had been disputing the balance claim on the ground of heavy breakages of bottles as was stated to be admitted in one of the petitioner's letters dated April 21, 1978. The respondent then gave cheques totalling Rs. 70,000, and agreed to give further cheques to cover up the entire admitted amount. The winding up petition was, thereforee, agreed to be dismissed with liberty to the petitioner to have it revived in case any of the cheques was dishonoured. It was further agreed that in case the respondent failed to pay the amount that might be decreed in a suit, or any award in arbitration, the petitioner would be entitled again to have the petition revived. The receipt by the petitioner of the admitted amount was to be without prejudice to the rival claims.
10. Of the cheques so given for the total amount of Rs. 70,947.12, one cheque of Rs. 25,000 alone was encashed, while the rest were dishonoured. As such, the winding up petition was revived.
11. On March 12, 1981, it was stated from the side of the petitioner that they were willing to consider going in for arbitration provided the respondent paid the admitted amount plus a bank guarantee for the balance amount including interest at the rate of 18% per annum, as claimed by the petitioner. The parties were given time to work out the compromise. The same, however, did not materialise.
12. An elaborate order was thereafter made by Kirpal J. on April 3, 1981, after hearing the parties and discussing the documentary evidence that had been placed by them on record. It was noted that there were in reality two contracts under which the petitioner supplied glass bottles to the respondent. Under the first contract, the entire payments were made by the respondent excepting an amount of Rs. 500 which remained due to the petitioner. This was the position on May 24, 1978, the tenure of the first contract having ended on May 18, 1978. Under the second the second contract dated May 24, 1978, supplies were effected from May 28, 1978, to July 5, 1978. A letter dated April 16, 1978, was written by the respondent to the petitioner in which mention of excessive breakages was made with respect to the supplies effected on 11th and 12th April, 1978. The petitioner in reply dated April 21, 1978, regretted that there were excessive breakages, and added that they were tightening up their quality control so that excessive breakages did not occur in future. Another letter was written by the petitioner on August 11, 1978, in which it was stated that the petitioner had carried out detailed checks on the bottles, and their glass composition had been analysed in the petitioner's factory and also by the Central Glass and Ceramics Institute, Calcutta. No abnormality had been found which could cause high breakages. The learned judge noted that the total value of the breakage as alleged in the letter dated April 16, 1978, would come to approximately Rs. 7,680. Reference was next made to a number of endorsements and letters subsequently written by the respondent in which the liability for the payment of Rs. 1,70,947.16 was without reservation admitted. As such it was observed that prima facie the dispute sought to be raised by the respondent in the reply affidavit was not bona fide. As regards the order dated November 12, 1980, of Anand J., it was observed that merely because the petitioner had agreed to accept the so-called undisputed amount of Rs. 70,947.12, it did not mean that in fact there was a bona fide dispute regarding the balance amount. The learned judge had no manner of doubt that the respondent had raised the dispute solely with a view to avoid the admission of the petition. The petition was as such admitted and citation issued in two newspapers and in the Delhi Gazette.
13. The parties thereafter were required to produce their evidence. On September 10, 1981, they obtained adjournment, stating that there was likelihood of a compromise. On April 26, 1983, Chawla J. recorded the following order :
'In the course of discussion, counsel for the respondent has said, after taking instructions from his client, that his client will pay a further sum of Rs. 45,000 within four weeks. He says, the remainder of the balance of Rs. 1,45,000 approximately will be paid within four months. As regards the remainder, I will give directions on the next date.
List this case for further orders on May 26, 1983.'
14. Nothing, however, was paid pursuant to this order by the respondent.
15. It is in this background that now I have finally heard the parties on the question whether the respondent company should be ordered to be wound up.
16. A number of documents have been placed on record which constitute the correspondence exchanged between the parties from time to time. So far as the claim about interest, it may, at the outset, be mentioned that in all the bills which the petitioner submitted while supplying bottles, there was specific mention that interest at the rate of 18% per annum would be charged on amounts unpaid after 30 days. The respondent accepted bottles under those bills, and, thereforee, cannot be now heard to plead that there was no such agreement about interest. There was also a specific term about the payment of interest in the contract.
17. The general conditions of sale printed on the reverse side of the contract, Ex. P-4 dated May 24, 1978, which had been arrived at between the parties, and there is no dispute that the first contract too was similarly worded, there was specific mention that the seller's risk ceased as soon as goods left this premises. The breakage in transit was also made the responsibility of the buyer.
18. The first letter in which the respondent highlighted the breakage was of April 16, 1978, in which it was mentioned that in the consignment sent on 11th and 12th April, 1978, the breakages had been exorbitant. In the first, they were to the extent of 44.18% including 10% in transit, and in the consignment sent on April 12, 1978, it was as high as 78 crates including about 12 crates' breakages in transit. It was also added that it appeared that the bottles were weak resulting in breakages at the filling point. The matter was, thereforee, required to be investigated, and reasons apprised. The respondent reserved the right to claim compensation. To this the petitioner replied on April 21, 1978, that they regretted that there had been excessive breakages in the said two consignments, and as apprised to the respondent over the telephone, they were tightening up their quality control so that it would not be repeated in future consignments. The respondent again wrote a letter dated July 12, 1978, to the petitioner in which it was rested that the bottles were weak resulting in too much of bursting at the filling stage. Cracks were also noticed at the bottom of bottles. The petitioner was, thereforee, required to look into the matter, and let the respondent know that steps were being taken in this regard. It was also stated that in case the quality was not improved the respondent would have to stop taking the bottles. This position was further stated in the letter dated August 1, 1978, and the petitioner was apprised that there were not only abnormal breakages at the respondent end, but in the market also, with the result that the respondent's agents and dealers were refusing to accept the single colour bottles. The petitioner was required to let the respondent know what action was being taken to compensate for the abnormal breakages. A letter was also addressed by the respondent on August 2, 1978, to M/s. Parle (Exports) Pvt. Ltd. in which reference was made to the bottles supplied by the petitioner, and that no improvement in the quality had taken place. There was, thereforee, request to confirm about the quality of the bottles supplied by the petitioner.
19. The petitioner replied by letter dated August 11, 1978, in which it was assured that every step had been taken to tighten quality control. It was also added that detailed checks had been carried out and the glass composition analysed in the petitioner's laboratory, and the sample also got analysed from the Central Glass and Ceramics Research Institute, Calcutta. No abnormality had been found which could cause high breakages. It was also mentioned that the chief glass technologist of the petitioner would visit the respondent's plant on August 14, 1978, for on the spot study to investigate the high incidence of breakage. The respondent was requested to associate their technical officer with the investigation. The respondent was also requested to depute their technical officer to the petitioner's factory to satisfy himself on the quality of the bottles being manufactured. The respondent in reply dated August 19, 1978, admitted the visit by the chief glass technologist of the petitioner at their factory on August 14, 1978. It was added that the respondent had no glass technologist or technical man of their own. A fresh consignment was required to be sent along with a glass technologist to verify the transit breakages as well as the bursting at the time of filling up of bottles. It was further added that the respondent had learnt from other bottlers that they were having abnormally high breakage percentage of the bottles supplied by the petitioner to them as well. To this the petitioner replied that they were looking forward to the order of one truck load for trial purposes in the presence of the petitioner's technical people. According to the petitioner, no such order was placed, and they were instead informed on telephone that the respondent was facing serious problem with their bankers. The petitioner informed the respondent on August 24, 1978, that the respondent could always send their technical representative to see that the printing and quality of the bottles were good.
20. The respondent by letter dated August 29, 1978, informed the petitioner that they were having some difficulties with their bankers, and as such sending of the consignment should be detained till such time the outstanding amount due to the petitioner was cleared.
21. The correspondence which followed thereafter did not mention of any breakages or the claim for compensation on that score by the respondent. They rather show that the petitioner had been apprising the respondent of the outstanding bills, and the respondent assuring that they would be cleared as early as possible. The respondent continued stating that they were having some financial difficulties. In the letter dated October 6, 1978, the respondent assured that 50%of the outstanding would be cleared by the 15th of that month, and the rest towards the end of the month. Another letter was written on October 16, 1978, by the respondent that they were expecting enhancement of limit from their bankers, and would clear the petitioner's account by the end of the month. A cheque for Rs. 50,000 dated November 18, 1978, was given by the respondent to the petitioner, but this was dishonoured.
22. A categorical confirmation was given by the respondent to the petitioner on February 11, 1979, that the amount of Rs. 1,70,947.16 was due to the petitioner from them when a confirmation of the same was sought by the petitioner for the purpose of audit of their accounts. Still another confirmation to the same effect was given by the respondent on August 20, 1979.
23. The petitioner wrote a letter dated April 27, 1979, to the respondent mentioning that the amount of Rs. 1,70,947.16 was due from the respondent and the same should be cleared. In reply to this, the respondent did not dispute that amount, and rather expressed an apology for not clearing the outstandings. It was assured that the same would be cleared by June 30, 1979. By another letter dated July 5, 1979, the respondent again assured that the outstanding dues would be cleared in Installments of Rs. 20,000 every week, starting from April 1, 1979, and that a draft for that amount would be sent on every Saturday. This too was not honoured.
24. By letter dated July 13, 1979, the petitioner informed the respondent that its cheque for Rs. 20,947.16 had been dishonoured. An amount of Rs. 20,000 was, thereforee, requested to be sent by a demand draft. The respondent in its letter dated July 24, 1979, again expressed financial difficulties in not clearing the outstandings.
25. This later correspondence thus shows that the respondent had been admitting its liability for payment of Rs. 1,70,947.16 and did not assert any claim towards breakages which had been mentioned in the earlier correspondence which took place from April to August, 1978. In fact, the claim for breakages stopped when the petitioner apprised the respondent of the analysis that they had obtained from their laboratory and the Central Glass and Ceramics Research Institute, Calcutta, and their willingness to send their chief glass technologist at the respondent's premises, and to have their technical officer at their own factory.
26. Before the filing of the present petition, a statutory notice was as well issued to the respondent demanding the amount of Rs. 1,70,947.16 with interest. The respondent did not care to reply.
27. The petitioner had examined its marketing manager, V. Dayal, as P.W. 1. He stated that out of the claim of Rs. 1,70,947.16, Rs. 25,000 only have been paid in court. The following cheques issued by the respondent were stated to have been dishonoured :
--------------------------------------------------------------------Date Cheque No. Amount Remarks--------------------------------------------------------------------Rs8. 8.78 28,616.50 Unpaid 24.8.7821.08.78 28,616.50 Unpaid 7.9.7810.11.68 233306 50,000.00 Unpaid29. 6.79 988549 20,947.16 Unpaid7.12.80 693706 20,000.00 Unpaid7.12.80 693710 947.00 Unpaid7. 2.81 693708 25,000.00 Unpaid--------------------------------------------------------------------
28. In cross-examination, he stated, M/s. Parle had also not renewed the contract with the petitioner for the supply of bottles, but this, according to him, was because they wanted double coloured bottles while the petitioner was manufacturing single coloured bottles. He denied that the reason for not renewing the contract was that they had complained that the bottles were weak. As regards the petitioner agreeing before the court to receive a sum of Rs. 70,000 and to go in for arbitration with regard to the balance, he stated that this was in order to accommodate the respondent. However, the respondent even failed to abide by the same, and the cheque issued were dishonoured. He admitted that after the revival of the winding up petition, the respondent offer to pay the balance amount of Rs. 45,000, but this was not accepted as the petitioner wanted to go ahead with the winding up petition as the cheques which had been given through the court had been dishonoured. He further stated that occasionally complaints were received from some purchaser regarding breakages but they had never been found to be correct, and till this date they had not paid any money by way of compensation on this ground. Last year, the value of bottles supplied was said to be from rupees 30 to 40 lakhs.
29. From the side of respondent G. R. K. Chaturvedi, its managing director, was examined. According to him, several of the customers of the petitioner had complained about the quality of the bottles supplied by the petitioner. None of them, however, has been examined, nor any letter written by them produced. He also added that he was ready to pay the balance amount of Rs. 70,947 after adjustment of Rs. 25,000, and further that he was ready to go to arbitration in term of the arbitration clause in both the contracts. In cross-examination, he admitted that the breakages which were referred to in letter dated April 16, 1978, would be worth around Rs. 7,000. He also admitted that he had never quantified the breakages in bottles supplied under the second contract in any of the letters addressed to the petitioner. He, however, added that Rs. 1,36,000 are due to the respondent as compensation towards breakage. As regards the signing of the confirmation, he stated that this was because he was told that the auditors would not otherwise sign the audit report. He admitted that there was no letter written by the petitioner assuring that they would pay any compensation for breakage. In the account books of the respondent also, nothing is reflected towards compensation due from the petitioner. He admitted that he had no document to show that in the months of October and November, 1979, he had offered to make payment of Rs. 70,947.
30. The respondent's managing director further admitted that the claim of Rs. 1,70,000 pertains to the second contract, and also added that before the filing of the present petition, the respondent never wrote to the petitioner that Rs. 1,36,000 were payable to them toward breakages. The damaged bottles were also not returned to the petitioner as this, according to him, is not the trade practice. He next admitted after 1978, the respondent company has no audited balance-sheet, and that the Oriental Bank of Commerce has instituted a suit for the recovery of rupees 62 lakhs odd. The respondent's factory has been attached in that suit. M/s. Jain Construction Company has also filed a suit against the respondent and two criminal cases under s. 420 of the Indian Penal Code have also been filed against him personally because of the dishonour of cheques. He further admitted that the salary of the employees of the respondent have not been paid from February, 1981, and the proceedings in this regard are pending in the Labour Court, Meerut. An award too has been given in the same. The sales tax authorities have also raised a demand of rupees 17 lakhs against the respondent of which rupees 5 lakhs odd is accepted by the respondent and the rest is being disputed in the Allahabad High Court. An amount of Rs. 1,07,000 is also being demanded by the Central Exercise from the respondent about which stay has been obtained. According to him, no bonus to the employees has been paid since 1980, nor any deposits under the Employee's State Insurance and provident fund contribution effected. From November, 1980, the factory of the respondent is not working.
31. The aforesaid in all is the evidence on record, and I have given my careful consideration to the same, and heard the parties' counsel. It is now well settled that if there is a bona fide dispute about a debt and the defense is a substantial one, the court would not order winding up. Such defense should be in good faith and one of substance. If the defense is likely to succeed on a point of law, and the company adduces prima facie proof of the facts on which the defense depends, no order of winding up would be made. The power of winding up has to be exercised judiciously and with circumspection. (See in this regard Madhusudan Gordhandas & Co. v. Madhu Woollen Industries Pvt. Ltd. : 2SCR201 and Aluminium Corporation of India Ltd. v. Lakshmi Ratan Cotton Mills Co. Ltd.  40 Comp Case 259. In Om Prakash Mohta v. Steel Equipment and Construction Co. (P.) Ltd.  38 Comp Case 82, the Calcutta High Court observed that a bona fide dispute need not extend to the whole debt. It is sufficient if a substantial part of the claim is bona fide disputed. Similarly, the Allahabad High Court in Aluminium Corporation of India Ltd. v. Lakshmi Ratan Cotton Mills Co. Ltd. : AIR1970All452 , has observed that a winding up order need not be made on the ground of closure of a cotton mill for over a year where there is sufficient reason for closure and a reasonable prospect of restarting and earning profits.
32. The perusal of evidence placed on record shows that of the two contracts, the respondent cleared all dues towards the first contract excepting Rs. 500. Had there been any disputes about breakages or the respondent was claiming any compensation towards them, it would not have proceed to clear payments of the supplies received and then further enter into a fresh contract. The respondent's managing director in his evidence has thus admitted that the claim of Rs. 1,70,000 pertains to the second contract. Of course, the letter dated April 16, 1978, in which the respondent for the first time made mention of breakages was issued when the first contract was still in operation, and the second contract had not come into being. This gas been the only letter on record in which there was mention of specific quantities of breakages, and as already noted above, their value came to about Rs. 7,680. The respondent's managing director has conceded this in his cross-examination. The other letters which followed from the respondent were generalised and mentioned of breakages and called for their rectification. However, no specific quantification of the value of such breakages was brought out. The petitioner had first replied that they were tightening up their quality control and regretted the excessive breakages in the two consignments as had been intimated by the respondent. However, the petitioner by its letter of August 11, 1978, unwittingly in formed the respondent that the technical analysis carried out by them at their laboratory and at the Central Glass and Ceramics Research Institute, Calcutta, had revealed no abnormality which could cause high breakages. The petitioner also sent their chief glass technologist to the respondent's factory. No technologist or specialist was kept by the respondent of their own. The respondent at one time asked the petitioner to send a truck load along with their technologist to verify the transit breakages as well as the bursting at the time of filling up of the bottles. The petitioner agreed to the same but the respondent later backed out and stated that the truck load be not sent because they were having financial difficulties.
33. It is significant to note that after this letter of the petitioner of August 11, 1978, the respondent entirely stopped complaining of any breakages or putting up any claim in that direction. The course of conduct thereafter shows that the respondent started admitting their liability for the entire claim of over Rs. 1,70,000 of the petitioner. This was not only reflected in the two confirmations which they issued in February and August, 1979, but also in the letters which they addressed to the petitioner assuring to clear the amounts by Installments. Had, thereforee, any semblance of claims for breakages been left to be settled with the petitioner, the respondent would not have conceded the liability in such clear terms. In the respondent's own account books, this liability is shown and there is no mention in them of the amount due from the petitioner towards breakages.
34. The respondent has been stating that bottles supplied by the petitioner to some other concerns also suffered from high breakages. None of those concerns has been examined, nor any letter written by them to this effect produced. The petitioner, however, has stated that they had never at any time paid any compensation towards breakages although they made supplies worth over rupees 30 lakhs last year.
35. The first time when the respondent quantified the claim for damages was in reply to the present petition for winding up. This has, thereforee, to be treated as a defense sought to be belatedly made out to the otherwise bona fide claim of the petitioner. The only quantification as mentioned above was of Rs. 7,680 in the letter of April 16, 1978.
36. All this apart, even during the course of the winding up proceedings, the respondent though initially tried to raise the dispute of breakages, and Anand J. provided them facility to pay the so-called admitted amount of over Rs. 70,000, and get the rest determined through a suit or arbitration, did not honour the commitment, and excepting one cheque of Rs. 25,000, the rest were dishonoured. Having experienced this, the petitioner was justified in declining fresh offers. Thereafter, the respondent had been conceding the liability of Rs. 1,70,000 during these proceedings. In fact on April 26, 1983, before Chawla J. they sought Installments and time to pay the entire amount of Rs. 1,90,000 which included the interest, but failed to abide.
37. I have, thereforee, little hesitation in holding that the claim of the petitioner for the amount due from the respondent excepting perhaps Rs. 7,680, is genuine and the defense set up by the respondent is male fide, false and motivated to delay and thwart the claim of the petitioner. The respondent company is thus clearly liable to be wound up.
38. Even otherwise, I find that the respondent company has become commercially insolvent, and has lost its substratum. Its factory is lying closed from November, 1980, and no Explanationn worth the name has been brought out which can be treated as sufficient justification for closure. It has failed to pay the salaries and bonus to the employees from 1980, and has also not deposited the amounts due towards the Employees' State Insurance and the provident fund contribution. Oriental Bank of Commerce has instituted a suit for the recovery of rupees 62 lakhs against it. There is another suit as well brought by a different party and two criminal litigations have also been set in motion against the directors for dishonouring of cheques. Large amounts are also due to the sales tax authorities and Central Excise department.
39. The result, thereforee, is that I order the winding up of the respondent company. Let the official liquidator take over its assets and proceed with the winding up. Citation be issued of this winding up in the newspapers 'The Hindustan Times' and Hindustan (Hindi) as well as in the Official Gazette. The Registrar of Companies be informed.