1998 (9) TMI 461 - HC - Companies Law

Court orders winding-up petition admitted for Rs. 57,38,332 debt. Respondent liable for outstanding dues.

Ramdas & Co. Versus Kitti Steels Ltd.

The court admitted the winding-up petition, finding the respondent-company indebted to the petitioner-firm for Rs. 57,38,332. The court concluded that the ... Winding up - Company when deemed unable to pay its debts Issues Involved:1. Whether the respondent-company is indebted to the petitioner-firm.2. Whether the defence set up by the respondent-company is bona fide and probable.3. Validity of the winding-up petition under sections 433(e), 433(f), 434(1), and 439(1)(b) of the Indian Companies Act, 1956.4. Whether the respondent-company failed to pay debts despite statutory notice.5. Whether the respondent-company is liable for the debts of its associate concerns.6. Validity of the auditor's report and its implications on the dispute.7. Whether the running bills submitted by the petitioner-firm were certified and valid.8. Whether the deductions under TDS were properly handled.Detailed Analysis:1. Whether the respondent-company is indebted to the petitioner-firm:The petitioner-firm claimed an amount of Rs. 2,41,28,200 for works completed at various sites, including Ghatkesar, Nacharam, and Somajiguda. The respondent-company denied liability for the works at Nacharam and Somajiguda, asserting these were separate legal entities. However, evidence indicated that the respondent-company finalized rates, paid running bills, and deducted TDS for these works, suggesting a contractual obligation. The court concluded that the respondent-company was liable for the outstanding dues of Rs. 4,49,948 for works at Nacharam and Somajiguda.2. Whether the defence set up by the respondent-company is bona fide and probable:The court noted that a winding-up petition is not a legitimate means of debt recovery if the debt is bona fide disputed. The respondent-company's defence, based on the auditor's report, was found to be neither bona fide nor probable. The auditor's report was deemed incorrect and unreliable, particularly in its rebate calculations and exclusion of certain payments. Thus, the respondent-company failed to establish a valid defence.3. Validity of the winding-up petition under sections 433(e), 433(f), 434(1), and 439(1)(b) of the Indian Companies Act, 1956:The court examined the petition under the relevant sections. Despite the statutory notice not being served at the registered address, the court found sufficient grounds under section 434(1)(c) to consider the company unable to pay its debts based on the evidence presented.4. Whether the respondent-company failed to pay debts despite statutory notice:The petitioner-firm issued a statutory notice, which the respondent-company failed to comply with. The court noted that even without proper service of notice under section 434(1)(a), the company's inability to pay its debts could be established under section 434(1)(c).5. Whether the respondent-company is liable for the debts of its associate concerns:The court found that the respondent-company was liable for the debts incurred by its associate concerns, Integrated Engineers and Rajwant Hotels, for works at Nacharam and Somajiguda. This conclusion was based on evidence that the respondent-company finalized rates, paid running bills, and included these payments in its auditor's report.6. Validity of the auditor's report and its implications on the dispute:The auditor's report was scrutinized and found to be flawed. The court rejected the auditor's reasoning for granting a rebate and excluding certain payments. The auditor's incorrect calculations and failure to account for all relevant payments undermined the respondent-company's defence.7. Whether the running bills submitted by the petitioner-firm were certified and valid:The court addressed objections regarding the certification of running bills. It found that the bills were certified either by the architect or the owner's representative, as per the contract terms. The court dismissed the respondent-company's claim that certain bills were fabricated or uncertified.8. Whether the deductions under TDS were properly handled:The respondent-company withheld substantial amounts under TDS but failed to pay these to the income-tax authorities or release them to the petitioner-firm. The court deemed these deductions payable to the petitioner-firm, rejecting the respondent-company's contention that these were ad hoc payments.Conclusion:The court admitted the winding-up petition, finding the respondent-company indebted to the petitioner-firm to the extent of Rs. 57,38,332, based on corrected auditor's report and additional claims. The court ordered the petition to be advertised and suspended the order for two weeks to allow for an appeal.