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IN THE MATTER OF M/S SHREE KRISHNA TRADING CO. versus M/S JUGGILAL KAMLAPAT JUTE MILLS CO. LTD.

High Court of Judicature at Allahabad

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In The Matter Of M/S Shree Krishna Trading Co. v. M/S Juggilal Kamlapat Jute Mills Co. Ltd. - COMPANY PETITION No. 30 of 2001 [2006] RD-AH 13619 (18 August 2006)

 

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).

HIGH COURT OF JUDICATURE OF ALLAHABAD

Court No. 9

COMPANY PETITION NO. 30 OF 2001

M/s Shree Krishna Trading Co. - Petitioner

Versus

M/s Juggilal Kamlapat Jute Mills

Co. Limited - Respondents

Hon'ble Sunil Ambwani, J.

1. This is creditor's-winding up petition to wind up M/s Juggilal Kamlapat Jute Mills- the respondent company. No one appears for petitioner-company. Learned counsel for respondent-company has been elevated to the bench.

2. This petition was filed after giving a statutory notice under Section 434 (1) (a) of the Companies Act 1956,  to the registered office of the respondent-company demanding a sum of Rs. 2, 24, 689.18 with 18% interest towards the supplies of various types of cloths beginning from 12.2.1999 to 7.9.2002.

3. In the counter affidavit apart from the plea that the BIFR has approved the rehabilitation scheme on 6.12.1995 to be operative for 10 years upto 2004-05, it is stated in para-9 and 9 (a) as follows;

"9. That the contents of para 6 of the petition are admitted to the extent that the bills mentioned therein were received by the respondent company. These bills were, however, passed after making deductions wherever warranted. It is denied that a sum of Rs. 2, 24, 679. 18 is due by the respondent company to the petitioner. The petitioner owes to the respondent company a sum of Rs. 2 lacs, which the respondent company claims as a set off in view of the fact that the petitioner failed to return to the respondent two import form, namely Form No. 31. In respect of this, the petitioner has written two letters to the petitioner company-one on 20.7.2001 which is addressed to M/s Jute machinery

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company, a sister concern of M/s Shree Krishna Trading Company.

(a) That having received the registered notice, the respondent company has also written letter on 19.9.2001 giving entire break-up of the amount, which is admittedly due to the respondent company, which is a sum of Rs. 12, 750/-. The amount of Rs. 2 lakh, which the respondent company is seriously claiming as a set off for the losses, which may incur to the Government in case of loss from misuse of the two form, which have been wrongly withheld by the respondent company. Thus, as on the present date the respondent company admits a debt of Rs. 12, 750/- only, which it is ready and willing to pay to the petitioner company immediately. The respondent company also states that the respondent company seriously apprehends that the government may take action against the respondent company against the two forms which have been withheld by the petitioner as the taxing authorities have already taken note of the facts that these forms have not been supplied. The entire debts have been set out in the letter dated 19.9.2001."

4. In the rejoinder affidavit of Shri S.N. Jagnani, the reply to para-9 and 9(a) is as follows;

"12. That the contents of paras 9 and 9 (a) of the counter affidavit are incorrect, hence not admitted as stated. The sum of Rs. 2, 24, 679.18 p. is due by the respondent company, it is stated that the petitioner did not return the two import forms i.e. Form No. 31. It is mentioned here that if the forms were misplaced in transit or in any way and the respondent-company did not receive the said forms, then he would have opted the manner prescribed for obtaining the said forms in duplicate. It was the duty of the respondent company to publish the loss of the said form in the news paper and then thereafter the duplicate form would have been obtained. The respondent company cannot claim Rupees Two Lacs as a set off in view of Form No. 31. The letters were duly replied by the petitioner-company and it is not out of place to mention here that the printed matter regarding loss of form is not to be taken as Guaran for Acceptance and as such no counter claim can be made in the petitioner petition."

5. The averments made in the affidavit clearly demonstrate that there is a bonafide dispute with regard to the return of import form i.e. Form-31. The respondent company is without admitting the dues claiming a set off.

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6. 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.

7. 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.

8. 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.

9. The presumption that the Company had not paid its adverted dues, 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.  

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10. 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.  

11. 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.

12. In Mediquip Systems (P) Ltd. Vs. Proxima Medical System GMBH, (2005) 7 SCC 42, the Supreme Court quoted with approval the following judgments, which have reiterated these principles:

13. The Bombay High Court has laid down the following principles in Softsule (P) Ltd., Re: (Comp Cas pp.443-44)

Firstly, it is well settled that a winding-up petition is not legitimate means of seeking to enforce payment of a debt which is bonafide disputed by the company.  If the debt is not disputed on some substantial ground, the court/Tribunal may decide it on the petition and make the order.

Secondly, if the debt is bona fide disputed, there cannot be "neglect to pay" within the meaning of Section 433 (1) (a) of the Companies Act, 1956.  If there is no neglect, the deeming provision does not come into play and the winding up on the ground that the company is unable to pay its debts is not substantiated.

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Thirdly, a debt about the liability to pay which at the time fo the service of the insolvency notice, there is a bona fide dispute, is not "due" within the meaning of Section 434 (1) (a) and non-payment of the amount of such a bona fide disputed  debt cannot be termed as "neglect to pay" the same so as to incur the liability under Section 433 (e) read with Section 434 (1) (a) of the Companies Act, 1956.

Fourthly, one of the considerations in order to determine whether the company is able to pay its debts or not is whether the company is able to meet its liabilities as and when they accrue due.  Whether it is commercially solvent means that the company should be in a position to meet its liabilities as and when they arise.

14. The Madras High Court in Tube Investments of India Ltd. v. Rim and Accessories (P) Ltd., Comp LJ at p. 326 has evolved the following principles relating to bona fide disputes:

(i)if there is a dispute as regards the payment of the sum towards the principal, however small that sum may be, a petition for winding up is not maintainable and the necessary forum for determination of such a dispute existing between parties is a civil court;

(ii)the existence of a dispute with regard to payment of interest cannot at all be construed as existence of a bona fide dispute relegating the parties to a civil court and in such an eventuality, the Company Court itself is competent to decide such a dispute in the winding-up proceedings; and

(iii)if there is no bona fide dispute with regard to the sum payable towards the principal, it is open to the creditor to resort to both the remedies of filing a civil suit as well as filing a petition for winding up of the company.

15. The rules as regards the disposal of winding-up petition based on disputed claims are thus stated by this Court in Madhusudan Gordhandas & Co. V. Madhu Woollen Industries (P) Ltd.  The Court  held that if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company.  The principles on which the court acts are:

(i)that the defence of the company is in good faith and one of substance;

(ii)the defence is likely to succeed in point of law; and

the company adduces prima facie proof of the facts on which the defence depends.

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16. The pleadings clearly demonstrate a bonafide dispute on the claim between the parties. The amount due is denied and  a set off is claimed for not returning the two import forms, to the extent of Rs. 2 lacs. The respondent-company has admitted a debt of only Rs. 12750/-. There is however nothing to show that the respondent-company is unable to pay this amount and shall pay over the same with 6% interest within a month. Further, the respondent company has stated in paragraph-19 that it is smoothly running its business, timely paying its liabilities and employing 400 workers. In the facts and circumstances, the Court does not propose to interfere in the matter or to issue any citation under Rule 24 of the Companies (Court) Rule 1959. The pendency of the scheme before BIFR cannot be pleaded a bar to dismiss winding up petition where the petitioner is not able to establish that the respondent-company has failed to pay its dues without reasonable excuse.

17. The company petition is accordingly dismissed.

Dt. 18.8.2006

RKP/-


Copyright

Reproduced in accordance with s52(q) of the Copyright Act 1957 (India) from judis.nic.in, indiacode.nic.in and other Indian High Court Websites

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