2001 (3) TMI 922 - HC - Companies Law

Seller's claims for resale loss, interest, and charges after contract breach held not 'debt due'; winding-up set aside.

In a winding-up petition premised on inability to pay debts, the dominant issue was whether the sums claimed by the seller for loss on resale, interest ... Winding up - seeking an order to wind up the first appellant-company - Loss incurred by the Board on resale (on account of difference between the price at which coffee was sold to the company and the price realised on resale) - coffee exporter - company committed breach by failing to make payment and take delivery and as a consequence - Whether the Board has made out prima facie, the existence of a ‘debt’ due by the company to the Board. - HELD THAT:- It is now well-settled that where the amount claimed is damages, either for breach of a contract or in tort, it is not a ‘debt’ due and, therefore, a company petition will not be maintainable. We may briefly refer to the decisions of various courts on this aspect. In this case there is no adjudication by either a civil court (or by any Arbitrator) that the company committed breach and incurred pecuniary liability. As noticed above, the amount claimed by the Board is not in regard to either a loan advanced or as price of any goods supplied nor on account of failure to pay any sum which was agreed to be paid by the company. On the other hand, the amounts claimed are by way of reimbursement of several losses allegedly incurred by the respondent Board as a consequence of breach committed by the appellant-company. The first claim is loss incurred on resale, that is the difference between contract price and resale price. This is nothing but a claim for damages, as per clause 16, based on the alleged breach by the company. The second part of the claim is interest on the sale price from the respective dates of auction sales till the date of resale by the Board. This again is a claim for damages. The basis for the claim is that if the buyer had paid the sale price on the date of sale, the seller would have had the benefit of such amount; and as the buyer did not pay the price, and the goods were resold much later, until realisation of the price on resale, the buyer should make good the loss on account of non-availability of the money (that is sale price) by way of interest. The claim presupposes that there was a breach by the appellant-company in not paying the price and taking delivery of goods. On the other hand, the appellants’ contention that it could not take delivery and pay for the goods for reasons which do not amount to breach. Thus entitlement to interest will depend on a decision whether the appellant committed breach. The claim for insurance charges and godown rent are referable to clause 16. The claim for extension charges for non-shipment is not based on any specific provision in the terms and conditions of sale. These are claimed on the assumption that there is breach. Whether there is a breach by the company, and whether there was loss and if so to what extent and whether the Board took steps to mitigate the loss are all matters which will have to be decided by a competent civil court in a suit for damages. Even if the claims on account of godown rent or insurance charges are assumed to be not in the nature of damages, but ascertained sums due, it is seen that they aggregate to Rs. 5,87,142.87. The Board has already encashed the bank guarantee for Rs. 7.50 lakhs and adjusted the amount towards the said dues. As the amount claimed is not a ‘debt’ but damages, we hold that the petition for winding up of the company is not maintainable, even though the amount claimed is calculated in terms of the contract. The only ground urged by the Board was that the company is unable to pay its debts. No other ground is urged. In the result, we allow this appeal and set aside the order. Issues Involved:1. Maintainability of the winding-up petition.2. Existence of a debt.3. Nature of damages and their classification as debt.4. Prima facie findings required for admitting a winding-up petition.5. Summary of relevant legal precedents.Summary:1. Maintainability of the winding-up petition:The respondent filed a petition u/s 433(e) and (f) of the Companies Act, 1956, seeking an order to wind up the appellant-company. The company court admitted the petition, prompting the company to appeal u/s 483 of the Act, arguing that the amount claimed is not a 'debt' and thus the petition is not maintainable.2. Existence of a debt:The company participated in export auctions, failed to make payment and take delivery of coffee, leading the Board to resell the coffee and claim losses. The company had furnished bank guarantees, which the Board enforced, leaving a balance of Rs. 48,96,805.03. The Board issued a notice demanding payment and filed a winding-up petition when the company failed to pay.3. Nature of damages and their classification as debt:The company denied liability, arguing the coffee was of inferior quality and that the Board did not mitigate losses. The company court held that the amounts claimed by the Board were ascertainable and thus a debt. The appeal contended that damages are not a debt unless adjudicated by a competent court.4. Prima facie findings required for admitting a winding-up petition:The court must find that the petitioner is a creditor to whom the company owes an ascertained sum, the debt is within limitation, and the company's defense is not bona fide. The court held that the Board's claim was a seriously disputed claim for damages, not a debt.5. Summary of relevant legal precedents:- Cotton Corpn. of India Ltd. v. United Industrial Bank Ltd.: A winding-up petition is not for debt recovery; if the debt is bona fide disputed, the court is reluctant to admit the petition.- Hind Overseas (P.) Ltd. v. Raghunath Prasad Jhunjhunwalla: Admission of a petition can cause immense injury if dismissed later.- Pradeshiya Industrial & Investment Corpn. of U.P. v. North India Petro Chemicals Ltd.: Admission without advertisement can still have serious consequences.- Iron & Hardware (India) Co. v. Firm Shamlal & Bros.: Damages do not constitute a debt until adjudicated by a court.- Union of India v. Raman Iron Foundry: A claim for damages becomes a debt only after a court awards it.Conclusion:The court held that the Board's claim was for damages, not a debt, and thus the winding-up petition was not maintainable. The appeal was allowed, and the order admitting the winding-up petition was set aside, resulting in the dismissal of Company Petition No. 96 of 1992.