2014 (1) TMI 1167 - HC - Companies Law

Winding-up petition admitted, Official Liquidator appointed

The court admitted the winding-up petition filed by M/s Grandeur Collection against M/s Shahi Fashions Pvt. Ltd., appointing the Official Liquidator as ... Winding up of company - Inability to pay debts - Payment not made for consignment received - Held that:- there is a specific averment that the respondent company is unable to make the payment and is commercially insolvent. The defences taken by the respondent company are without any substance and appear to be mere moonshine. In these circumstances, I am satisfied that the respondent company is unable to pay its debts to the petitioner and therefore should be wound up - OL attached to this Court is appointed as the Provisional Liquidator ('PL') of the Respondent. The OL is directed to take over all the assets, books of accounts and records of the Respondent forthwith. The OL shall also prepare a complete inventory of all the assets of the Respondent before sealing the premises in which they are kept. He may also seek the assistance of a valuer to value the assets. He is permitted to take the assistance of the local police authorities, if required - Decided in favour of Petitioner. ISSUES PRESENTED AND CONSIDERED 1. Whether the statutory notice under section 433(e) read with section 434 of the Companies Act must be physically served on the respondent company, or whether sending the notice to the company's registered office and to the e-mail address intimated to the Registrar of Companies suffices. 2. Whether the company is 'unable to pay its debts' within the meaning of the Companies Act, on the basis of admitted account statements, e-mail acknowledgments of indebtedness and non-payment, such that a winding up petition should be admitted. 3. Whether complaints about alleged inferior quality of supplied goods, raised by the company as a defence, constitute a valid rebuttal to a claim based on admitted indebtedness. 4. Whether appointment of a Provisional Liquidator and directions for immediate custody of assets, inventory, valuation and compliance with section 454 and Rules (statutory production of statement of affairs and financial records) are appropriate incident orders upon admission of a winding up petition. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of service of statutory notice Legal framework: Section 434(1)(a) (statutory notice requirement) and section 433(e) (ground for winding up by creditor) govern requirement to give a statutory demand/notice before presenting a winding up petition. Form and mode of sending statutory notices are governed by the conditions in the Act and relevant procedural practice. Precedent Treatment: The Court follows a previously decided authority of a learned Single Judge of this Court (Hotline Teletubes & Components Ltd. v. A.S. Impex Ltd.) holding that it is not necessary that the statutory notice be physically served personally on the company; it is sufficient that the notice was sent to the registered office of the company. Interpretation and reasoning: The Court accepts that sending the statutory notice to the registered office (and to the e-mail address intimated to the ROC) satisfies the statutory requirement. The lack of actual physical receipt by a company officer is irrelevant where the registered office address is correctly used and the company's own filings (Form-32) identify the e-mail used. The Court reasons that the statutory scheme contemplates notice to the company at its registered office and through channels the company has itself notified to authorities; therefore non-receipt does not defeat the statutory requirement. Ratio vs. Obiter: Ratio - sending the statutory notice to the company's registered office and to the e-mail address intimated to the Registrar of Companies satisfies the statutory notice requirement under section 434(1)(a) for the purpose of presenting a winding up petition. Conclusion: The statutory notice was properly sent; the respondent's contention of non-receipt at the registered office is of no consequence. Issue 2: Determination that the company is unable to pay its debts Legal framework: The statutory ground under section 433(e) is that the company is unable to pay its debts. Evidence of indebtedness can include invoices, account statements, admissions of debt, and failure to discharge the debt after statutory notice. Precedent Treatment: The Court applies ordinary principles of proof for indebtedness in winding up petitions (admissions and account statements being probative). No precedent is overruled or distinguished beyond reliance on the authority on notice addressed in Issue 1. Interpretation and reasoning: The petitioner produced account statements for the relevant period and correspondence reflecting an acknowledgment by the company of the balance due (first at a stated figure, later at the adjusted figure). The respondent did not dispute the registered office, did not reply to the statutory notice sent by e-mail, and in the petition itself averred commercial insolvency. The Court finds that specific averments in the petition that the respondent is unable to make payment, together with documentary admissions of debt and non-payment after notice, constitute sufficient proof that the respondent is unable to pay its debts. Ratio vs. Obiter: Ratio - an admission in account statements and subsequent e-mail acknowledgment of a balance due, unexplained and unrefuted after statutory notice, supports a finding that the company is unable to pay its debts and justifies admission of a winding up petition under section 433(e). Conclusion: The Court is satisfied that the respondent is unable to pay its debts and admits the winding up petition. Issue 3: Relevance of defence alleging inferior quality of goods Legal framework: Defences to a creditor's claim in winding up may include bona fide disputes as to liability or set-offs; where a genuine triable issue exists, the Court may refuse winding up and direct alternative remedies. Precedent Treatment: The Court treats the asserted defence as requiring substance and proof; absent concrete pleaded particulars and evidence creating a real dispute, mere assertions are insufficient to defeat the creditor's claim. Interpretation and reasoning: The respondent pleaded that goods were of inferior quality and that complaints were made; however, the respondent failed to produce evidence of a genuine and substantial dispute or to answer the statutory notice. The Court describes the defence as 'without any substance' and 'mere moonshine,' implying that the defence did not raise a bona fide triable issue to preclude winding up. Ratio vs. Obiter: Ratio - where allegations of defective goods are not substantiated and do not create a bona fide triable dispute, they will not prevent admission of a winding up petition founded on an admitted debt. Conclusion: The quality defence is rejected as insubstantial and does not preclude winding up. Issue 4: Appropriateness of provisional liquidation and ancillary directions Legal framework: Upon admission of a winding up petition, the Court may appoint a Provisional Liquidator and make orders necessary to preserve assets, require directors to furnish statements of affairs under section 454 and relevant rules, and seek inventory, valuation and custody of company records. Precedent Treatment: The Court applies standard remedies and procedural requirements attendant on admission of a winding up petition - appointment of a Provisional Liquidator, sealing premises, inventory and valuation, and compelling directors to file statements and produce books and accounts. Interpretation and reasoning: Given admitted indebtedness, non-payment and the risk of dissipation of assets, the Court directs immediate appointment of the Provisional Liquidator to take control of assets, books and records, to prepare inventory and arrange valuation, and to seek police assistance if necessary. Directors are ordered to comply with statutory obligations (statement of affairs, filing of financials and bank statements for the preceding three years) within specified timeframes to enable proper administration. Ratio vs. Obiter: Ratio - upon admission of a winding up petition on the ground of inability to pay debts, appointment of a Provisional Liquidator and directions for preservation and disclosure of assets and records are appropriate and may be ordered forthwith. Conclusion: The Provisional Liquidator is appointed and directed to take immediate custody and inventory; directors must furnish prescribed statements and financial records within specified time periods; the Court directs standard onward procedural steps and lists the matter for further hearing. Cross-references: Issues 1 and 2 are interlinked - proper service of the statutory notice (Issue 1) is a precondition considered in determining inability to pay debts (Issue 2). Issue 3 bears on Issue 2 insofar as a bona fide dispute could have altered the conclusion on insolvency. Issue 4 follows as the consequential court remedy upon conclusions reached under Issues 1-3.