P.C. Jain, J.
1. In this petition under Section 433 read with Sections 439B of the Companies Act, 1956, the petitioner, M/s. Hind Techno Machines Pvt. Ltd. has prayed that the respondent Company M/s. Jaipur Wire Industries Pvt. Ltd, be ordered to be wound up by this Court.
2. The facts of the case lie in a narrow compass and may be stated thus: The petitioner is a Pvt. Ltd. Co. registered and incorporated under the Companies Act, 1956. The petitioner company deals in wire rods. The respondent is also a company incorporated as a private limited Company under the Companies Act, 1956. The case of the petitioner is that in terms of the orders placed by the respondent company to the petitioner, the petitioner supplied different quantities of wire rods against bills as detailed below:
Bill No. 196-dated 21-1-1984; Bill No. 198-dated 24-1-1984;Bill No. 215-dated 4-2-1984; Bill No. 221-dated 15-2-1984;Bill No. 231-dated 28-2-1984; Bill No. 241-dated 12-3-1984;Bill No. 252-dated 22-3-1984; and Bill No. 274-dated 12-4-1984.
3. Supplies were made between 21st January, 1984 to 12th April. 1984. It was further the case of the petitioner that while the payments relating to the material supplied by the petitioner to the respondent Company against Bills No. 196 dated 21st January, 1984; No. 198 dated 24th Jan., 1984; No. 215 dt. 4th Feb., 1984; No. 221 dated 15th Feb., 1984; No. 231 dt. 28th Feb., 1984 and No. 241 dated 12th March, 1984 were cleared, though after a considerable delay between 10th Feb., 1984 and 4th April, 1984; but the respondent Company failed to clear the last two bills of the petitioner i.e. No. 252 dated 22nd March, 1984 for Rs. 52,857.34 and Bill No. 274 dated 12th April, 1984 for Rs. 22,920/- amounting to a total of Rs. 75,777.40. The petitioner has further averred that he repeatedly reminded the respondent Company for making payment, but the petitioner did not make the payment and, thereafter a written request was sent on 22nd Dec, 1984, for immediate payment of the outstanding bills. After receiving the said communication, the respondent Company vide letter dated 1st January, 1985, informed the petitioner that Bill No. 274 dated 12th April, 1984, was not available in the company's record. In the reply, the Company also made a statement that the petitioner had at no time reminded the respondent Company for making any payment. In the same reply, the respondent Company also urged that it was agreed between the parties that the respondent Company may adjust the outstanding amount against the losses suffered by them due to the alleged non-supply of 34.195 MT of MS Wire Rods by the petitioner out of the agreed quantity of 80 MT. As demanded by the respondent Company, a duplicate copy of Bill No. 274 was sent by the petitioner. It is also stated by the petitioner that apart from sending duplicate copy of Bill No. 274 dated 12th April, 1984, the petitioner also sent a copy of letter dated 21st April, 1984, received from the Standard Transport Corporation, through whom the consignment had been delivered, as the Company had disputed the liability on the ground of want of proof about delivery of the material relating to Bill No. 274. It is also stated by the petitioner in the petition that vide letters dated 24th January, 1985 and 15th Feb., 1985, the petitioner again requested for making payment of the outstanding dues. The petitioner vide letter dated 26th Feb., 1985 categorically denied any agreement between the petitioner and respondent Company for adjustment of outstanding dues against the alleged losses suffered by the respondent Company. After that also correspondence was exchanged between the parties. Ultimately, the petitioner had sent a notice under Section 434 of the Companies Act, 1956 on 9th October, 1986, whereby a request was made to clear the outstanding dues amounting to Rs. 1,17,644/- within a period of 21 days of the receipt of the notice. The respondent Company received the notice and replied to it. In short, the case of the petitioner is that there was no agreement between the parties for supply of any definite quantity of material and when the non-petitioner had failed to make the payment of the aforesaid two bills, he was under no obligation to deliver further material to the petitioner and that there was no agreement between the.parties to adjust the alleged losses suffered by the petitioner against the outstanding dues of the aforesaid two bills. It is also stated by the petitioner that he was ready and willing to supply the material, but the breach of contract was committed by the respondent Company by not making the payment of the aforesaid bills despite repeated requests. The petitioner also pleaded that the counter-claim made by the non petitioner is absolutely imaginary and without any foundation. It is also pleaded by the petitioner that the theory of counter claim has been cooked up to forestall the defence.
4. A notice to show cause was issued to the respondent Company as to why the petition be not admitted and published. In response to the show cause notice, the non-petitioner filed a reply in which it is contended that no case is made out by the petitioner for filing a petition for winding up of the Company. It is also stated that the petitioner is not a creditor; but in fact, the respondent Company has claimed a sum of Rs. 1,53,667.25 from the petitioner. It is also pleaded that the respondent Company has already filed a civil suit against the petitioner in the Court of District Judge, Jaipur City, Jaipur on 19th March, 1987, in respect of the said transaction, which is the subject matter of winding up petition. The respondent Company has further pleaded that the petitioner had agreed to pay the balance of the claim money after adjusting the losses incurred by the answering respondent and even after such an understanding the petitioner did not pay the balance amount of losses incurred by the respondent Company. It is specifically pleaded by the respondent Company that 80 MT of mild steel wire rods were to be supplied, but out of the said quantity 45.805 MT was only supplied. It is further pleaded that as the petitioner has failed to pay the dues as per the terms of the agreement dated 4tb February, 1984, the respondent Company has filed a civil suit against the petitioner. The respondent Company also claims to have the balance supply of 34.195 MT from the petitioner in addition to the amount claimed in the civil suit. Thus, the sum and substance of the defence raised by the respondent Company is that as the petitioner failed to supply the material the respondent Company had a right to adjust Rs. 75,777.40 against the loss suffered due to non-supply of the mild steel wire rods by the petitioner as per the agreement. In the affidavit filed along with the reply, the respondent Company has stated that a civil suit has been filed for the recovery of Rs. 77,889.85 against the petitioner Company, and the petitioner company claims 34.195 MT of wire rods being the balance of the contracted material.
5. The reply was filed by the respondent Company on 8-5-1987. After filing of the reply the case was put up for admission of 15th May, 1987. Again, on 15th May. 1987, the case was adjourned for admission on 22nd May, 1987 & later on 3rd July, 1987 & again on 17th July, 1987. Ultimately, the petition was heard for admission on 17th July, 1987. At that time, Shri Sharma, learned Counsel for the respondent Company desired to file an additional affidavit in support of the reply. The additional affidavit was filed on 21st August, 1987. In the additional affidavit of Shri Ganeriwala, a Director of the respondent Company, it was stated that Shri Sanjeev Sarda Director of the petitioner Company had agreed with him to supply 80 MT of mild steel wire-rod and for that purpose he executed an agreement on 4th February, 1984. It was also deposed that as per the contract between the petitioner and the respondent Company, the petitioner did not supply the contracted goods within time, though the respondent Company made the payment well within 25 days in terms of the contract. It was stated by Shri Garieriwala in the affidavit that 15.615 MT of the contracted goods Were supplied in breach of the terms of the agreement. He has further deposed that losses of the order of Rs. 1, 53,667,25 were adjusted on account of breach of the contract by the petitioner Company due to late supply of goods as well as for non-supply of the balance of the contracted goods. He has further deposed that a debit note was sent to the petitioner company on account of delay in supply of the contracted goods, vide Bills Nos. 252 and 274.
6. An additional affidavit was also filed by Shri S.L. Dhanuka, Director of the petitioner company affirming the contents of the affidavit filed by Shri K.C. Ganeriwala. In reply to the affidavit filed by Shri K.C. Ganeriwala, Shri Sanjeev Sarda also filed an affidavit, wherein he categorically denied all the contents made, by Shri Ganeriwala in his affidavit.
7. From the above narration of facts it is clear that the defence raised by the respondent company is that it suffered heavy losses on account of delay in supplying the material of Bill No. 252 dated 22nd March, 1984 and Bill No. 271 dated 12th April, 1984 and also because of non-supply of 34.195 MT MS Wire-rods, for which a civil suit has already been filed by the respondent Company in the Civil Court.
8. From the narration of the above facts, two things are very clear-firstly, that the agreement on which reliance is being placed by the respondent Company, which is dated 4th February, 1984 in which it is stipulated that supply will be made upto 20th March, 1984 and the payment will be made within 25 days from the date of despatch, was not filed by the respondent Company with the reply for the reasons best known to it. Secondly, it is to be noted that the respondent Company claimed losses on account of non-supply as well as late supply of material agreed to be supplied by the petitioner Company. Though, the pleadings in this regard, were not specific and categorical as in para 9 of the reply, the respondent Company has pleaded that it had rightly adjusted a sum of Rs. 75,777.40 against the losses suffered due to non-supply of the mild steel wire rods by the petitioner as per the agreement. The defence of late supply was not very specifically taken in the reply, though, this defence was raised in the additional affidavit. There is a serious dispute between the parties that there was an agreement dated 4th Feb., 1984. On the one hand, there is an affidavit of Shri Ganeriwala that the alleged agreement dated 4th Feb. 1984, was executed by Shri Sarda, Director of the petitioner and Shri Sarda through his affidavit has categorically denied the said allegation by stating that the agreement (Annx. R/2) is a fabricated document and any such agreement was never written by him. Incidently, it may also be stated here that as per the admitted facts the supplies were made prior to 4th February, 1984, by the petitioner Company to the respondent Company as would be evident from the first bill that was sent on 21st January, 1984. Thus, there is a serious dispute about the existence of the agreement dated 4th February, 1984.
9. Without deciding the question as to whether the parties had entered into an agreement in terms of Annexure R/2, dated 4th February, 1984. where by it was agreed between the parties that the goods would be supplied by 20th March 1984, and payment will be made after 25 days from the date of despatch and the total quantity to be supplied was 80 MT. For the decision of this petition, I assume that this agreement was entered into in order to judge whether on the basis of this agreement, the defence raised by the respondent Company is bonafide. The main contention of the respondent Company is that there was delay in supplying the material and further losses had occasioned on account of non-supply of the balance quantity of 34.195 MT MS Wire Rods. As regards the delay, the contention of the respondent Company is that all the material ought to have been supplied by 20th March, 1984, but the supplies were made vide Bill No. 252 dated 22nd February, 1984, instead of 20th February, 1986 and vide Bill No. 374 supply was made on 12-4-1984 and, as such, there was delay of near about two days in the first consignment and delay of 23 days in the case of another consignment. It is am admitted position that balance quantity of material was supplied. It is in these premises the Court is required to determine the bonafides of the contentions for the defence raised by the petitioner in this winding up petition.
10. In the alleged agreement dated 4th February, 1984, it is only mentioned that delivery of the entire consignment is to be made by 20th March, 1984. There is no indication from the contents of the agreement dated 4th February, 1984 that the parties agreed that the time was the essence of the contract. In the reply also, the respondent Company has not pleaded that time was the essence of the contract. Section 36 of the Sale of Goods Act deals with rules as to delivery'. Sub-section (2) of Section 36 provides that where under the contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable time. It, thus, makes it clear that if any time is agreed upon the vendor fails to comply with the agreement the vendee will not be bound to accept for compliance with the terms of agreement time is considered an essential consideration of the bargain. Taking the rule as such and admitting this fact for the sake of this case that parties had agreed that the goods will be supplied by 20th March, 1984. Thus in this case there was delay in supply of material and the vendor has committed breach of contract. It cannot be denied that in case the vendor commits breach of contract the vendee is entitled to compensation.
11. Before dealing with the problem it may be seen that after supplies were made by the petitioner vide Bills No. 252 dated 22nd February, 1984 and 274 dated 11th December, 1984 the goods were accepted by the petitioner without reserving any right of rejection and without claiming any damages, and the goods were appropriated. As such, I have to examine as to what is the effect of this conduct of the respondent Company. Section 55 of the Contract Act reads as under:
55. Effect of failure to perform at fixed time, in contract in which time is essential: When a party to a contract promises to do a certain thing at or before a specified time, or certain thing at or before a specified times, and fails to do any such thing at or before the specified time the contract, or so much of it as has not been performed becomes voidable at the option of the promise, if the intention of the parties was that time should be of the essence of the contract.
Effect of such failure when time is not essential-If it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do such things at or before the specified time; but the promise is entitled to compensation from the promisor for any loss occasioned to him by such failure.
Effect of acceptance of performance at time other than that agreed upon: If, in case of a contract voidable on account of the promisor's failure to perform his promise at the time agreed, the promise accepts performance of such promise at any time other than that agreed, the promisee cannot claim compensation for any loss occasioned by the non performance of the promise at the time agreed, unless, at the time of such acceptance, he gives notice to the promisor of his intention to do so.
12. A close reading of Section 55 of the Indian Contract Act would indicate that a party accepting performance after the due date should give notice that it intends to claim compensation and if he does not do so, he is deemed to have waived the right to claim compensation. In this case, admittedly, the respondent Company did not give notice to the petitioner company of his intention to claim compensation. The facts of the case would disclose that the petitioner Company demanded payment of its bills firstly orally and then through giving a notice. The first written request was made by the petitioner Company on 2nd December, 1984, for payment of the bills. Even the respondent Company by that time did not intimate to the petitioner Company that on account of delay in delivery they would be claiming the compensation. Further the conduct of the respondent Company shows that for one reason or another they were unable to trace out the bills and demanded duplicate copy of the same. They even did not admit the receipt of the goods and the petitioner had to send a copy of the delivery memo of the carrier to the respondent Company.
13. There is no doubt about the proposition that where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery. It is also not disputed that when a contract to deliver goods is broken, the proper measure of damages, in general is the difference between the contract price and the market price of such goods at the time when the contract is broken because the purchaser having the money in his hands may go to the market and buy. Section 57 of the Sale of Goods Act and Section 73 of the Indian Contract Act make this position absolutely clear. Section 73 of the Indian Contract Act also gives right to claim damages in case the contract is breached by the other party and stipulates that compensation or damage that a party claims will be the difference between the contract price and the market price at the time of delivery. If no time is fixed for delivery, the market price has to be taken on the date when the contract is broken.
14. Now, again, reverting back to the facts of the case The case of the petitioner is that the respondent Company did not make the payment of the bills even after appropriating the goods to its own use and, therefore, the petitioner Company is entitled to claim price of the goods, and the case of the respondent Company, as stated above is that there was delay in supply of the goods and further the petitioner Company failed to supply the balance material. The case pleaded by the petitioner Company further is that when the respondent Company had neglected to make the payment of the bills, it was under no obligation to supply the goods. It is the material dispute. In view of the proposition of law stated above, solution to the dispute would determine the fate of the case.
15. In my opinion, in view of Section 55 of the Indian Contract Act and in view of the fact that the respondent without any objection appropriated the goods to its own use and did not reserve any right to claim compensation with regard to delay in delivery of the material, it will be deemed that the respondent Company has waived the right to claim compensation. In this case, after appropriating the goods, the respondent company did not make the payment when in view 6f the provisions of the Sale of Goods Act, the petitioner was bound to make the. payment of the contracted goods, if the delivery of the goods is made to the buyer In this case the delivery of the goods was effected and the respondent Company made payment; but after some time it was with regard to the last two consignments that the payment was not made, even after repeated requests. In my opinion, in such circumstances where payment is in arrears to a considerable extent, the seller is not under an obligation to supply the goods. He is well within his right to stop supply of the goods and to claim for the recovery of the unpaid price. Thus, even if the facts alleged by the respondent Company are taken to be true, no case is made out to claim any damages on account of delay in delivery. The same consequence would also follow with regard to compensation as claimed by the respondent-Company on account of non-delivery of the remaining goods. In the entire case, either in the pleadings or in. the affidavit filed by the respondent Company, no where it is pleaded as to what was the market price when the breach was committed. In fact neither the date of commission of the breach of the contract has been stated nor the petitioner has stated that if was on account of rise in price of the goods that the petitioner Company failed to discharge its obligation to supply the goods. The petitioner Company supplied the goods on 12th April, 1984, i.e. after the alleged date of supply and he supplied it at the contracted price. There is nothing on the record to prove that the prices have gone high. In this view of the matter, the question arises as to how the respondent company can claim damages. have repeatedly asked the learned Counsel for the non-petitioner to substantiate by citing any law or a ruling as to on what basis the respondent Company has claimed compensation and damages. The learned Counsel for the respondent. Company was how ever unable to substantiate his contention by any authority or law Shri Sharma, learned Counsel for the petitioner, how ever, placed reliance on (1) J.N.Roy Chowdhary (Traders) P. Ltd. v. Jainti Enterprises 1987 (61) Comp. Cases 504 and contended that where there are claims and cross-claims between the creditor seeking the winding up and the company sought to be wound up, the debt can be said to be bonafide dispute and the court will not order the winding up of the Company. Winding up proceedings are not intended to be exploited as a normal alternative to the ordinary mode of debt realisation Shri Sharma has also placed reliance on Kamadenu Enterprises v. Vivek Textile Mills Pvt. Ltd. 1984 (55) Comp. Cases 68 On the basis of these authorities, the learned Counsel contends that when a claim or debit is disputed, the proper forum for that is a civil court.
16. I have gone through the aforesaid authorities In the case of J.N. Roy Chowdhary (Traders) P. Ltd. v. Jainti Enterprises (supra), the Calcutta High Court after considering the cases of both the parties held that the defence was bonafide. While considering the defence, it was observed by that Court that on consideration of facts of the case, it cannot be said that the defence sought to be raised by the appellant in the instant case is frivolous or mala fide. While considering that case, reference was made to a judgment of the Supreme Court in the case of Madhusudan Gordhandas and Co. v. Madhu Woollen Industries P Ltd (1972) 42 Comp Cases 125 (SC). In that case, it was observed by the Supreme Court that where a petition for the winding up is based on the ground of inability of the company to pay its debit, it is well settled that if the debit is bonafide disputed and the defence is a substantial one, the court will not order winding up. The principles on which the court acts are first, that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and. thirdly, the company adduces prima facie proof of the facts on which the defence depends.
17. In State Bank of India v. Hegde & Golay Ltd. 1987 (62) Comp. Cas. 239, the Karnataka High Court had the occasion to consider the case of Madhusudan Gordhandas & Co v. Madhu Woollen Industries (P) Ltd. (supra) and after consideration had observed that the respondent Company must place sufficient material before the Court in proof of tenability of its defence in civil suit. In my opinion, the respondent Company has failed to place any material except the plea in the written statement from which the bonafides of the respondent Company may be inferred, or from which it may be inferred that the defence raised by the respondent Company is likely to succeed in the point of law, or the defence is of substantial character. And there is absolutely no proof of the facts on which the defence depends. What ever compensation has been claimed is without any substance and the respondent Company has failed to substantiate the same in point of law. The damages claimed are remote and cannot be claimed by the respondent Company in view of Section 73 of the Indian Contract Act, which gives right to a party to claim damages on the basis of difference of the market price only which the respondent Company has completely failed to plead and prove the same. There is no law to substantiate the contention of Shri Sharma, learned Counsel for the respondent Company that since the respondent Company has filed a suit in the Court and the questions are being agitated therein, the winding petition should be thrown away. It may be stated that the two proceedings are quite different and have different purposes. It is well settled as observed in Amalgamated Commercial Traders (P) Ltd. v. A.C.K. Krishnaswami and Anr. (1965) 35 Comp. Cas 456, that a winding up petition is not a legitimate means of seeking to endorse payment of a debt which is bonafide disputed by the company. In that case, the Supreme Court also observed that 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. It is also well settled that the fact that the debit has not been paid is prima facie circumstance that the Company is insolvent. If the Company is not in a position to meet its current liabilities, it is commercially insolvent and liable to be wound up, though it may have valuable assets, not presently realisable. As already stated above, the Supreme Court in Madhusudan's case (supra) has clearly laid down that two rules are well settled; firstly, if the debit is bonafide disputed and the defence is substantial one, the Court will not wind up the Company and secondly, where the debit is undisputed the Court will act upon the defence that the company has ability to pay the debit but chooses not to pay that particular debit. In the instant case, the respondent Company accepted the goods even after the expiry of the period of delivery on 22nd March, 1984 and without any objection. The Company sent another consignment which was also received by the respondent Company on 20/22nd April. 1984. Both the bills were accepted. The goods were appropriated and property in goods passed to the buyer. The respondent Company did not raise any claim with regard to the delay in delivery of the goods. Further in spite of repeated demands the respondent Company failed to make payment and insisted for further supplies and charged petitioner Company for nondelivery of the material. As I have discussed above, when the two bills remained unpaid after the appropriation of the goods, it was well with in the right of the petitioner not to effect further deliveries. I have also held that no loss was caused to the respondent Company for delay in delivery and, further also no case has been made out for paying any compensation or damages.
18. In the various circumstances discussed above, it is clear that the defence has not been raised in good faith, but only on frivolous and untenable pleas. The plea raised by the respondent Company is not tenable both in fact and in law. The respondent Company has admitted the receipt of the goods under the above mentioned two bills and it has also admitted that the amount has not been paid. In the circumstances, if the defence is not believed the inability of the respondent Company to pay its debit after the expiry of the period of statutory notice, proves the commercial insolvency of the respondent Company to pay the debt of the petitioning creditor. In this view of the matter, I cannot but hold that the present winding up petition is not an abuse of the process of the Court and the Company commercially insolvent as it is unable to pay its debt and is trying to create cloud fey raising frivolous issues and weaving a cobweb if possible. I have no other alternative but to make the following order:
The winding up petition is admitted and be advertised once in the Times of India, Jaipur Edition and once in Rashtradoot and once in the Rajasthan Gazette. How ever to give an opportunity to the respondent Company to settle the dispute, the advertisement be not published before 30th Nov, 1988. If the respondent satisfies the claim of the petitioning creditor before 30th November. 1988, the winding up petition would remain permanently stayed and compliance of Rule 2& of the Companies (Court) Rules, 1959, is dispensed with. In case of default, the company petition would be advertised as indicated above and the case will be listed for further orders.
Put upon 16th December, 1988.