Skip to content


Newfinds (India) Vs. Vorion Chemicals and Distilleries Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai High Court
Decided On
Case NumberCompany Petition No. 27 of 1974
Judge
Reported in[1976]46CompCas87(Mad)
ActsCompanies Act, 1956 - Sections 433 and 434(1)
AppellantNewfinds (India)
RespondentVorion Chemicals and Distilleries Ltd.
Appellant AdvocateRow and Reddy and ;K. Venkatraman, Adv.
Respondent AdvocateA.S. Raman and ;V. Rangarajan, Advs.
DispositionPetition dismissed
Cases ReferredRajasthan Spinning and Weaving Mills Ltd. v. Texkool Company Ltd.
Excerpt:
.....admittedly had disputes with petitioner's client - disputes regarding payment and re-delivery bona fide and not to evade debt - respondent owes no debt to petitioner - petition dismissed. - - 43,343.90, being the value of goods supplied for formulation and repacking and delivery to the customers of the petitioning-creditor, which the respondent-company failed to do. rangarajan, learned counsel appearing for the petitioner, submits before me that this is clearly a case to which section 433(3) read with section 434(1)(a) would apply and there is a debt due by the company and merely because they have chosen to dispute, the court exercising company jurisdiction cannot throw out the petition for winding up, since the dispute relating to the debt must be bona fide. 9. in my view..........cannot throw out the petition for winding up, since the dispute relating to the debt must be bona fide. in support of his submission, he relies on the rulings in amalgamated commercial traders pvt. ltd. v. krishnaswami, and madhusudan gordhandas and co. v. madhu woollen industries pvt. ltd., : [1972]2scr201 . it is further submitted that debt does not mean any quantified sum and it is enough if it is capable of being ascertained.6. mr. a.s. raman, learned counsel for the respondent, in meeting this submission, argues that this is not a case where the goods were supplied to the company, nor were there any dealings between the petitioner and the company and in so far as the goods were supplied by gee aar traders to the respondent, they were re-delivered after formulation, it cannot.....
Judgment:

Mohan, J.

1. This is a petition under Sections 433(e), 434(1)(a) and 439(1)(b) of the Companies Act (hereinafter referred to as 'the Act') for winding up the respondent-company.

2. The allegations in the petition are, shortly, as follows : The respondent-company (Vorion Chemicals and Distilleries Ltd.) having its registered office at No. 114, Mowbrays Road, Royapettah, Madras-14, is a public limited company, established for processing Chemicals and other materials for industrial and agricultural purposes among other objects set out in the memorandum of association. The company was incorporated on December 26, 1966, and the company is due and owing to the petitioner-creditor a sum of Rs. 43,343.90, being the value of goods supplied for formulation and repacking and delivery to the customers of the petitioning-creditor, which the respondent-company failed to do. A lawyer's notice was issued on September 28, 1973, calling upon the respondent-company to pay the said sum of Rs. 43,343.90. The petitioner further understands that the company is heavily indebted to the tune of Rs. 40,000 to various other parties. Even though the subscribed capital is Rs. 7,33,382.50, calls unpaid by the directors and their groups beyond the stautory period came to Rs. 2,33,982. Hence, this petition.

3. In the counter-affidavit of the respondent, filed by one of the directors, who is also the joint managing director of the company, it is denied that the respondent-company is due and owing the petitioner any sum as claimed in the petition, much less the amount of Rs. 43,343.90. It is further denied that the petitioner delivered to the respondent any goods for formulation, repacking and delivery to the customers of the petitioning-company. Even before the notice dated 28th September, 1972, in reply to the notice dated 31st August, 1972, it was stated by the counsel for the respondent as follows:

'The allegations in paragraph 3 of your notice that your client entrusted BHC, Steattite and other stocks with M/s. Vorion Industries and Chemicals Ltd. is absolutely false. If proper accounting is to be taken regarding the various transactions between your client on the one hand and our clients, Mr. P. Govindasamy, Mrs. Raji Rangachari and M/s. Vorion Industries and Chemicals, on the other hand, they will reveal that, as on date, huge amounts are payable by your client to our clients. All the monies were paid for the entire stocks by M/s. Gee Aar Traders, of course under your client's firm's name known as 'Newfinds (India)'.

4. The goods were entrusted by Messrs. Gee Aar Traders for formulation which were delivered back and were properly accounted for. Instead of resolving the dispute or claims directly with the partners of Messrs. Gee Aar Traders or directly dealing with them, the petitioner is misusing the process of law by filing this petition mala fide alleging falsely that monies are due by the respondent-company to the petitioner-company. Hence, this petition is mala fide and is liable to be dismissed.

5. Mr. Rangarajan, learned counsel appearing for the petitioner, submits before me that this is clearly a case to which Section 433(3) read with Section 434(1)(a) would apply and there is a debt due by the company and merely because they have chosen to dispute, the court exercising company jurisdiction cannot throw out the petition for winding up, since the dispute relating to the debt must be bona fide. In support of his submission, he relies on the rulings in Amalgamated Commercial Traders Pvt. Ltd. v. Krishnaswami, and Madhusudan Gordhandas and Co. v. Madhu Woollen Industries Pvt. Ltd., : [1972]2SCR201 . It is further submitted that debt does not mean any quantified sum and it is enough if it is capable of being ascertained.

6. Mr. A.S. Raman, learned counsel for the respondent, in meeting this submission, argues that this is not a case where the goods were supplied to the company, nor were there any dealings between the petitioner and the company and in so far as the goods were supplied by Gee Aar Traders to the respondent, they were re-delivered after formulation, it cannot be contended that there is any amount due to the company and, therefore, this is not a case where there is a debt. Even assuming that there is a debt, in so far as there is a bona fide dispute with regard to the petitioner-company delivering the goods for formulation, the petition for winding up cannot be maintained. He relies upon the ruling in Rajasthan Spinning and Weaving Mills Ltd. v. Textool Company Ltd., .

7. Section 433(e) of the Companies Act states that the company may be wound up by the court if the company is unable to pay its debts. ' As to when a company shall be deemed to be unable to pay its debts, Section 434 proceeds to state that if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor.

8. From a reading of the above, it is obvious that a debt must be a sum of money exceeding Rs. 500. But what is pressed into service is a definition of debt in Roland and Burrows' Words and Phrases meaning a sum payable in respect of a money demand recoverable by action. Another definition occurring in Stroud's Judicial Dictionary is also relied upon. 'Debts due' includes all liability.....................including unliquidated damages.

9. In my view neither of these definitions will be useful in construing the meaning of debt for the purpose of winding up of the company, since, as seen above, a statutory definition is contained in Section 434(1)(a) which clearly means a definite sum, viz., exceeding Rs. 500. Therefore, it cannot be contended that the debt also includes any unliquidated damages or a sum of money capable of being ascertained.

10. Turning to the point whether there is a debt due by the company, the following facts require to be noted:

11. There is the agreement dated 18th of May, 1970, between K. Ramaswami, the sole proprietor of the petitioner-company and P. Govindaswami. Clause 9 of that agreement states that in consideration of the financial assistance offered by P. Govindaswami, the petitioner-company would share the net profits at 60 : 40 basis. The notice dated 20th of August, 1972, states that the goods were entrusted to the respondent-company and that it is specifically denied by the notice dated 31st August, 1972. There was no such entrustment and that all the moneys were paid for the entire stocks by Messrs. Gee Aar Traders. As against this, learned counsel for the petitioner relies on Form No. 20 delivery notes, wherein the name of the respondent-company is found. A reading of that form does not show that the entrustment was by the petitioner. Added to this, the letter dated 17th March, 1972, stated: 'they have been left in the custody and in the premises of Messrs. Vorion Industries and Chemicals Ltd. under your instructions.'

12. From all the above, it is obvious that the contract was between the petitioner and Govindaswami, who had three roles to play, viz., (1) -as a financier, (2) as a power-of-attorney agent, and (3) as managing director of the respondent-company. But, as far as the present case is concerned, he was only acting as a financier and there is no material from which it could be said that the entrustment was by the petitioner to the respondent-company.

13. The decision in Amalgamated Commercial Traders Private Ltd. v. Krishnaswami, , sets out the following passage from Buckley on the Companies Acts, 13th edition, page 451 :

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

14. The decision in In re Steel Equipment and Construction Co. (P.) Ltd. lays down that there is a bona fide dispute regarding a debt where the dispute is based on a substantial ground. The bona fide dispute need not extend to the whole debt. It is sufficient if a substantial part of the claim is bona fide disputed.

15. These two decisions set out the propositions of law, but as to whether there is a bona fide dispute or not, will depend upon the facts and circumstances of each case. As has been laid down by Palaniswamy J. in Rajasthan Spinning and Weaving Mills Ltd. v. Texkool Company Ltd., that the question whether a dispute regarding a debt is bona fide or not depends upon the circumstances of each case. The test is, whether the dispute is raised only to avoid payment of the debt and not based on a substantial ground. Bona fide dispute means that the dispute is based on a substantial ground and if such a dispute is raised, the court should refuse to make an order of winding-up, even if only a part of the debt is disputed on substantial ground.

16. Since, as seen above, I have come to the conclusion that there has been no entrustment by the petitioner to the respondent-company, there cannot be any debt at all. Even otherwise, as to who paid for and whether the goods have been delivered back to Gee Aar Traders or the petitioner, are matters under dispute. Hence, there is undoubtedly a case of bona fide dispute.

17. Following the propositions laid down in the above two decisions of the Supreme Court and that of Palaniswamy J., I come to the conclusion that this petition is without any merit. Hence, it is dismissed. But there will be no order as to costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //