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In The Matter Of Secur Industries Ltd. - COMPANY PETITION No. 72 of 1997 [2005] RD-AH 3151 (20 September 2005)


This is an UNCERTIFIED copy for information/reference. For authentic copy please refer to certified copy only. In case of any mistake, please bring it to the notice of Joint Registrar(Copying).


Court No.9

Company Petition No.72 of 1997

Escorts Finance Limited Vs. Secur Industries Ltd.

Hon. Sunil Ambwani, J.

Heard Shri Ripu Daman Singh holding brief for Ms. Bharti Sapru and Shri R.P. Agrawal assisted by Shri Pawan Kumar, Adv.

This winding up petition was filed in the year 1997, to wind up Secur Industries ltd. for failing to pay Rs.5 lacs towards dishonoured cheque.  A statutory notice dated 20.7.96  sent to the respondent Company at its registered office, was served upon the respondent Company.

Counter affidavit, rejoinder affidavit and thereafter, supplementary  counter and rejoinder affidavit have been filed.

Briefly stated the facts of the case are that the petitioner- Company entered into an arrangement of bill discounting service by which it discounted the Hundis issued by the respondent Company towards supply of  materials.  Under this arrangement, the petitioner company agreed to discount the bills, and thereafter, to collect the amount on the presentation of  Hundis to the respondents Company after expiry of its period for payment.  A 90 days discounting facility was offered by the petitioner to the respondent Company.

In paragraph 6 onwards it is stated that the cheques issued by the respondent Company were dishonoured,    on presentation for want of sufficient funds. On 27.2.96, a liability of Rs.22,68,683/- acrued, which was admitted to the respondent Company.  A cheque bearing No.629549 dated 6.6.96 of Rs.5 lacs  was drawn on Bank of India, Asaf Ali Road, New Delhi Branch. It was dishonoured on 21.7.96 on which the  petitioner Company issued a notice of demand under Section 434 (1)  of the Companies Act for non-payment of Rs.5 lacs and then filed this petition to wind up the respondent- Company,  invoking deeming provision under Section 434 (1) of the Companies Act, 1956.

In the counter affidavit, the respondent Company has denied the liability of Rs.22,68,683/-  and has referred to its letter dated 27.2.96 to Escorts Finance Ltd.  It is stated that Hundis were never presented in due course after its expiry, and thus the question of dishonour does not arise.   The respondent Company has not given any reply to the acknowledgement dated 27.2.96 issued by Shri H.P. Agrawal, Managing Director of Secur Industries Ltd. The  payment of Rs.5 lacs by cheques and  his dishonor has been explained in par 18 (ii), which is as follows:

"That I am advised to state that the aforesaid cheque of Rs.5,00,000/- was issued by mistake and in ignorance of the legal provisions in as much as the said cheque was issued without obtaining back the accepted hundis and/or without ensuring that the petitioner continued to be the holder of the said hundis and without indorsing the fact of such payment on the said hundis."

Shri R.P. Agrawal has pointed out that under the Negotiable Instrument Act, 1938 unless Hundis are presented by its holder in due course after its maturity for payment, liability of payment does not arise.  The non payment of amount covered under the statutory notice only raises a presumption that the Company is unable to pay its dues, which can be rebutted by the respondent Company.  He submits that the respondent Company has chosen to demand only Rs.5 lacs.

He submits that cheques were issued by the respondent Company to the supplier, without giving reference of the payee, as a assurance and these cheques were handed over to the petitioner Company.  Without taking the respondent Company into confidence these cheques were presented and dishonoured.  According to Shri R.P. Agrawal the dishonor of cheque by State Bank of Indore on 11.8.98 much after filing of the winding up petition will not give cause of action to the petitioner to support the prayers in the petition.

The facts of the case call upon the Court to decide two issues namely (1) where a Company Petition is filed, notices under Section 434 (1)(a) of the Companies Act, 1956 for demand of the amount, which is lesser than the actual liability and that Court comes to conclusion that larger amount is due, the presumption under Section 434 (1) will arise or not; (2) Whether in the present case the Hundis were presented in due course after its maturity and were dishonoured to fasten liability on payment of respondent Company.  The documents filed along with the affidavit do not give dates to establish that the Hundis were dishonoured after their maturity.  The actual dates of presentation of these Hundis by the petitioner  have not been given.   I do not find any arrangement to show that petitioner Company was holder in due course of the Hundis, which were to be presented to the respondent Company for payment.  The guarantee given by Shri H.P. Agrawal to the petitioner Company, by way of affidavit for due payment of the amount, establishes that there was an arrangement of bill discounting.  The fact whether the petitioner Company was holder in due course of Hundis and that the Hundis were actually presented for payment, however,  has not been established on record.

The petitioner Company did not initiate the proceedings under Section 138 of the Negotiable Instrument Act, against the respondent Company,  for dishonour of the cheques of Rs.5 lacs for which statutory notice was given.  Further I find that there is no pleading nor there is any material  to show that the petitioner-Company after filing of this Company Petition made any claim for payment of Rs.22,68,683/- or took any legal proceedings to recover the amount.

Shri R.P. Agrawal submits that in case Hundis were in possession of Petitioner Company, and were presented for payment after its maturity and dishonoured, the facts should have been pleaded.  In this regard the pleadings are quite vague.  For example in paragraph 13 it is stated by the petitioner that bills/hundis were not honoured on maturity and then in Supplementary Rejoinder Affidavit it is stated in paragraph 9, quoted as below:

"It would also be pertinent to note that the respondent company had sought to raise the plea that the Hundis were not presented for encashment to the respondent and as such the question of  their dishonoring does not arise.  To this effect it may also be submitted that the said Hundi were presented for encashment.  However, the same have now been dishonoured inasmuch the respondent has not paid the amount in respect thereof."

Counsel for the petitioner could not explain the term `have now been dishonoured'

The Company, which is unable to pay its debts may be wound up by the Court.  The discretion, however, conferred under Section 433 (e) of the Companies Act, 1956  must be exercised on the settled principles of law.   Where a creditor, after giving statutory demand notice under Section 434 (1) (a) of the Act, applies to wind up the respondent Company, the Court has a duty to investigate and to find out whether the conditions of insolvency in the commercial sense are indicated.  The proceedings under Section 433 of the Act are not to be used for the purposes of enforcement of an agreement or for recovery of the amount.  The objection of the proceedings is to find out whether the Company is in a position to meet its current liabilities.  If it is commercially insolvent it is liable to be wound up, though it may have very valuable assets, which are not immediately realisable.

In H. Dhoot Papeshwar Sales Corporation (P) Ltd. (1972 42 Company Cases 139 (Bombay) it was held that `commercially insolvent' means, unable to pay its debts or liabilities as they arise in the ordinary course of business.

The presumption under Section 434 (1) (a) of the Companies Act, 1956, of the inability to pay, is not to be raised where the Company has omitted to pay the debt despite of service of statutory notice of demand.  It must be further shown that the Company has omitted to pay, without reasonable excuse.  A debt may be admitted, there may, however,  be a valid counter claim or a good reason not to pay.  It is only when omission to pay, is coupled with the fact that the Company is unable to meet its current demands or its assets are insufficient to meet its liabilities, and Company is heavily indebted, that the Court may deem that it is unable to pay its debts.

The presumption that the Company had not paid its adverted dues exceeding Rs.500, even after expiry of three weeks of service of demand notice by registered post or otherwise at the registered office of the Company, is not sufficient to wind up the Company under Section 433 (e) of the Act.   The requirement of the demand notice, as for the purposes of due information with regard to the currency of the debt, the respondent Company may, given an opportunity explain the circumstances in which the demand was not met.  

The purpose of demand, and its non-compliance gives a right to the creditor to institute proceeding for winding up of the Company.  The consequences can be avoided by showing reasonable cause.  There may be various circumstances, namely, that there is a bonfide dispute, the debt is time barred or was deferred with the consent of the creditor, or that there was some arrangement for payment in due course.  It is not appropriate to lay down the circumstances in any detail, which may constitute reasonable excuse for not paying the debt.   Where, however, the Court finds that the defence taking is moon shine, in that there is nothing to establish a bonfide dispute or reason or substantial ground not to pay the debt, the Court may investigate into the commercial insolvency and proceeded to take steps to wind up the Company.  

In the matters of delay, or failure to pay for the materials supplied or work carried out for the respondent Company, the Court would be slow to interfere, as there may be several reasons for non-payment.  Though the Court may not enter into a process of adjudication, the defence must be examined to exercise discretion.  There may be case where the Court may  on the request of the respondent Company or otherwise  grant some time to the Company to satisfy the debt.  But in any case the proceedings should not be substituted for the ordinary process of law for realisation of debt.

In all the cases the enquiry must be confined only to find out whether there is any reasonable excuse for non payment of the admitted debt.    Where the refusal to pay is coupled with a false defence, dishonoured cheque or promissory note, breach of undertaking, failure to pay taxes on the transaction etc., the Court will be justified in taking strict stand and refuse to exercise its discretion in favour of the borrower.

From the aforesaid discussion I find that at the time of  winding up petition only Rs.5 lacs were  due towards dishonoured cheque.  Hundis were not presented for payment.   Dishonor of the cheque has been sufficiently explained by the respondent Company. I further find that in fact Hundis were either kept by the petitioner Company or were endorsed to some other parties and that is why the dates of presentation of these Hundis to the respondent Company was not given.   It is also clear  that the Company Petition was filed only on dishonor of the cheque of Rs.5 lacs as it is alleged that the Hundis were presented subsequently and dishonoured.

The record, therefore, does not clearly establish the liability to the respondent Company.  On the documents furnished on record it cannot be said that the respondent Company was liable and the amount claimed was due to, proceed further with winding up petition.

The Company Petition is accordingly dismissed.




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