2006 (3) TMI 323 - HC - Companies Law

Court dismisses petition to wind up company over non-payment dispute. Debt dispute lacked evidence; company financially stable.

The court dismissed the petition filed by M/s. Tubecon Products (P.) Ltd. seeking to wind up the respondent-company due to non-payment of a commission. ... Winding up - Circumstances in which a company may be wound up Issues Involved:1. Claim for commission by the petitioner.2. Status of the respondent-company as an agent.3. Existence of a debt and the respondent's liability.4. Applicability of statutory presumption under Section 434 of the Companies Act.5. Bona fide dispute and the winding-up petition.Issue-wise Detailed Analysis:1. Claim for Commission by the Petitioner:The petitioner, M/s. Tubecon Products (P.) Ltd., filed a petition under sections 433(e), 434(1)(a), and 439 of the Companies Act, 1956, seeking to wind up the respondent-company and appoint an Official Liquidator. The petitioner claimed that the respondent-company had agreed to pay a commission of 5% on the ex-factory value of equipment supplied by its principal, M/s. ECH Wills GmbH, for a project procured from Tamil Nadu News Print and Papers Limited (TNPL). Despite the petitioner's efforts and the respondent's receipt of the sale consideration, the respondent failed to pay the agreed commission. The petitioner sent multiple reminders and a statutory notice, which went unanswered, leading to this petition.2. Status of the Respondent-Company as an Agent:The respondent-company contested the claim, stating it was not an accredited agent of M/s. ECH Wills GmbH but only rendered some services. The respondent argued there was no documentary proof of its status as an agent and denied any involvement of the petitioner in procuring the TNPL order. The respondent claimed the petitioner did not render any services related to the tender submitted by the German company and that the letter dated 16-9-2002, relied upon by the petitioner, was misinterpreted and related to a different transaction with Hindustan Paper Corporation Limited.3. Existence of a Debt and the Respondent's Liability:The court examined the documents and found no evidence linking the TNPL order to the petitioner-company's efforts or the respondent-company acting as an agent. The letter dated 16-9-2002, did not specify that the commission was for procuring the TNPL order. The court concluded that the petitioner failed to prove the existence of a debt arising from the alleged commission agreement.4. Applicability of Statutory Presumption under Section 434 of the Companies Act:The petitioner invoked Section 434 of the Companies Act, arguing that the respondent's failure to answer the statutory notice implied an inability to pay the debt. However, the court noted that the statutory presumption under Section 434 is rebuttable. The court must determine the existence of a debt and the respondent's inability to pay. Given the bona fide dispute and lack of evidence of a debt, the court found the statutory presumption inapplicable.5. Bona Fide Dispute and the Winding-Up Petition:The court considered the respondent's financial status, noting it was a profit-making company with substantial reserves. The court referenced several legal precedents, including Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P.) Ltd., which emphasized that winding-up petitions should not be used merely to recover debts, especially when the company is financially sound and there is a bona fide dispute. The court concluded that the respondent's defense was in good faith and substantial, and the petitioner's claim lacked prima facie proof.Conclusion:The court dismissed the petition, finding no evidence of a debt or the respondent's inability to pay. The court emphasized that winding-up proceedings should not be used as a debt recovery mechanism, particularly when there is a bona fide dispute and the company is financially stable. The petition was dismissed with no order as to costs.