1998 (9) TMI 470 - HC - Companies Law

Court admits winding-up petition under Companies Act due to non-payment for newsprint - defense not bona fide.

Fibrex Inc. Versus A. BK Publications Ltd.

The court admitted the winding-up petition under sections 433(e), 434(1)(a), and 439(b) of the Companies Act, 1956, due to the respondent-company's ... Winding up - Circumstances in which a company may be wound up Issues Involved:1. Application for winding up under sections 433(e), 434(1)(a), and 439(b) of the Companies Act, 1956.2. Dispute over the price and quality of newsprint supplied under contracts 0094A, 0094B, and 0094C.3. Bona fide dispute and the company's inability to pay.4. Pending civil suit and its impact on the winding-up petition.5. Commercial insolvency and loss of substratum of the respondent-company.Issue-wise Detailed Analysis:1. Application for Winding Up:The petitioner-company filed an application under sections 433(e), 434(1)(a), and 439(b) of the Companies Act, 1956, seeking the winding up of the respondent-company for non-payment of dues related to the supply of newsprint.2. Dispute Over Price and Quality:The respondent-company placed an order for 2,000 metric tonnes of newsprint, divided into three consignments (0094A, 0094B, and 0094C). The dispute arose over the price and quality of the newsprint supplied. The petitioner-company claimed that the respondent-company failed to pay the balance price for the first consignment (0094A) and sold the remaining consignments to others due to non-payment. The respondent-company argued that there was a single contract for 2,000 mts. of newsprint, with a price reduction agreed upon in a meeting, and raised complaints about the quality of the newsprint supplied.3. Bona Fide Dispute and Inability to Pay:The court emphasized that a bona fide dispute would be a valid excuse for non-payment, and inability to pay would not be inferred if the company produced prima facie proof of facts supporting its defense. The respondent-company's defense regarding the poor quality of newsprint and the alleged price reduction was scrutinized. The court found that the respondent-company accepted and consumed the newsprint without protest regarding delayed delivery and did not claim compensation for defective supplies. The court concluded that the defense of the respondent-company did not appear bona fide or probable.4. Pending Civil Suit:The respondent-company argued that the winding-up petition should be dismissed as a civil suit (O.S. No. 980/97) was pending in the Civil Court of Ahmedabad for the recovery of the balance amount, interest, and damages. The court noted that the civil suit was filed subsequent to the winding-up petition and that the suit included claims for damages for breach of contract for the remaining consignments. The court held that the pendency of a civil suit does not preclude the winding-up petition, as it is not an invariable rule of law.5. Commercial Insolvency and Loss of Substratum:The court stated that the question of whether the respondent-company had lost its substratum or become commercially insolvent should be decided during the inquiry stage, not at the time of admission of the petition.Conclusion:The court admitted the winding-up petition, directing that the advertisement be made in the prescribed form and published in specified newspapers. The court found that the respondent-company failed to establish a bona fide dispute regarding the quality of the newsprint and the price reduction, and the defense appeared neither bona fide nor probable. The pendency of the civil suit did not bar the winding-up petition, and the issue of commercial insolvency would be examined during the inquiry.