2000 (1) TMI 796 - HC - Companies Law

Dismissal of Winding Up Petition due to Bona Fide Defence

Meenakshi Paper Mills (P.) Ltd. Versus Sattarsons Packaging (P.) Ltd.

The court dismissed the petition for winding up the respondent-company under sections 433(e) and (f) and 439 of the Companies Act, 1956. The court found ... Winding up - Circumstances in which a company may be wound up Issues Involved:1. Petition for winding up under sections 433(e) and (f) and 439 of the Companies Act, 1956.2. Allegations of non-payment and dishonour of cheques.3. Dispute over the quality of goods supplied.4. Allegations of commercial insolvency and loss of substratum.5. Filing of a civil suit for damages and return of post-dated cheques.Issue-wise Detailed Analysis:1. Petition for winding up under sections 433(e) and (f) and 439 of the Companies Act, 1956:The petitioner filed a petition for winding up of the respondent-company under sections 433(e) and (f) and 439 of the Companies Act, 1956, read with rule 95 of the Companies (Court) Rules, 1959. The petitioner claimed that the respondent-company was unable to pay its debts and had become commercially insolvent. The petition was based on the alleged non-payment of dues amounting to Rs. 15,68,600 for the supply of paper.2. Allegations of non-payment and dishonour of cheques:The petitioner supplied thirty-three consignments of paper to the respondent between 3-7-1998 and 24-9-1998. The respondent issued eighteen cheques totaling Rs. 8,15,670, which were dishonoured due to stop payment instructions. The petitioner served a legal notice under section 138 of the Negotiable Instruments Act, 1881, and a notice under section 434 of the Companies Act, demanding the outstanding amount with interest and differential tax. The respondent admitted receiving the supplies but disputed the quality of the paper, claiming damages and adjusting the balance amount.3. Dispute over the quality of goods supplied:The respondent contended that the paper supplied by the petitioner had excess moisture, affecting the quality of the corrugated boxes manufactured by the respondent. This issue was communicated to the petitioner in October 1998. The respondent claimed that 99.9% of the boxes made from the supplied paper were rejected by their customers, leading to a loss of reputation and future orders. The respondent requested the petitioner to settle the quality dispute before presenting the cheques.4. Allegations of commercial insolvency and loss of substratum:The petitioner argued that the respondent's non-payment indicated commercial insolvency and loss of substratum. However, the respondent provided evidence of sufficient funds in their bank account to meet the cheque amounts on the due dates. The court noted that the respondent had paid Rs. 5,18,700 as admitted liability and had filed a civil suit for damages and return of cheques. The court found no evidence of commercial insolvency or loss of substratum.5. Filing of a civil suit for damages and return of post-dated cheques:The respondent filed a civil suit (O.S. No. 391 of 1998) before the III-Senior Civil Judge, City Civil Court, Secunderabad, seeking a direction for the return of post-dated cheques and claiming damages. The court observed that the petitioner filed the winding up petition as a counterblast to the civil suit. The court emphasized that a winding up petition is not a legitimate means to enforce payment of a bona fide disputed debt, as held in Amalgamated Commercial Traders (P.) Ltd. v. A.C.K. Krishnaswami and Madhusudan Gordhandas & Co. v. Madhu Woollen Industries.Conclusion:The court concluded that the respondent's defence was bona fide and substantial. The respondent had made a timely claim regarding the defective quality of the paper and had sought to resolve the dispute amicably. The court found that the petitioner had not established that the respondent was commercially insolvent or had lost its substratum. Consequently, the petition for winding up was dismissed, and the court emphasized that the winding up petition was not a legitimate means to enforce payment of a disputed debt.