1993 (4) TMI 248 - HC - Companies Law

Court rejects novation defense, upholds winding-up petition due to financial difficulties, factory closure, and debt acknowledgment.

Karam Chand Thapar and Bros. (Coal) Sales Ltd. Versus Acme Paper Ltd.

The court rejected the respondent's defense of novation of contract and liability for payment, emphasizing the continued liability to pay for goods ... Circumstances in which a company may be wound up, Winding up – Company when deemed unable to pay its debts Issues:- Claim for price of goods sold and delivered- Novation of contract and liability for payment- Maintainability of winding-up petition when a civil suit is pendingClaim for price of goods sold and delivered:The petitioner filed a winding-up petition against the respondent based on unpaid dues for coal supplied. The respondent had financial difficulties, leading to the closure of its factory. Despite assurances and promises to pay, no payment was made. The respondent neither paid for the coal nor returned it to the petitioner. The respondent's defense of novation of contract due to an offer to return the goods was rejected by the court. The court noted that the respondent's liability to pay remained, especially as the respondent failed to return the goods and the plea of novation was raised belatedly.Novation of contract and liability for payment:The respondent argued that an offer to return the goods and its acceptance constituted novation of the contract, absolving them of payment liability. However, the court found that the offer to return the goods was a concession to the respondent, which became unenforceable due to external factors beyond their control. The court emphasized that the respondent's repeated assurances to pay, even after failing to return the goods, indicated their continued liability. The court dismissed the novation defense raised by the respondent.Maintainability of winding-up petition when a civil suit is pending:The respondent contended that the winding-up petition was not maintainable as a civil suit had been filed for the recovery of the amount. Citing legal precedents, the court held that the pendency of a civil suit did not bar the continuation of winding-up proceedings. The court highlighted that a winding-up petition serves the interests of all stakeholders, and the mere filing of a civil suit does not automatically stay the winding-up process. The court relied on previous judgments to support the decision that the winding-up petition could proceed despite the existence of a civil suit.In conclusion, the court admitted the winding-up petition, noting the respondent's inability to pay its debts, the prolonged closure of its factory, and the repeated acknowledgments of the debt by the respondent. A citation was ordered to be published, with a provision for avoiding publication if the respondent paid the amount within a specified period.