2015 (6) TMI 857 - HC - Companies Law

Court admits winding-up petition due to inconsistent denial of liability for dishonored cheque.

The court found the respondent's denial of liability inconsistent and lacking bona fides. The dishonored cheque prima facie proved the debt owed. The ... Application for winding up - Default in repayment of debt - Held that:- The law is well-settled that the jurisdiction under section 432 of the Act is a special jurisdiction conferred only on the High Courts. One of the grounds for ordering winding up 433(e) read with section 434(1)(a) of the Act. It is the specific case of the petitioner that cheque bearing No. 944769 was issued in the name of M. Venkat Rao for ₹ 8,60,03,488 towards the bills payable to the petitioner and that the same was dishonoured. When the petitioner has caused legal notice issued to M. Venkat Rao on November 23, 2009, in this regard, a reply notice was issued both on behalf of M. Venkat Rao and also the respondent. This reply notice is significant for it contains a clear and categorical admission of liability and the intention of the respondent to settle the bills of the petitioner. With regard to the cheque, the stand of the respondent is brazenly inconsistent. Having claimed that the cheque leaves were stolen by the managing director of the petitioner in reply to its notice dated December 29, 2009, in its counter-affidavit the respondent has abandoned the said stand and admitted that the cheques were issued to the petitioner by M. Venkat Rao, the erstwhile proprietary concern. In the face of this admission that the cheque was issued by M. Venkat Rao and the same was dishonoured, the burden heavily lies on the respondent to explain the circumstances under which the cheque was issued. The statement of account dated April 30, 2008, which was not controverted by the respondent by any contemporaneous correspondence coupled with the fact that M. Venkat Rao, the erstwhile proprietary concern, has issued the cheque which was admittedly dishonoured, would prima facie prove the debt of the petitioner owed by the respondent. In the light of the legal position discussed and the finding that the respondent has admitted its liability to pay the bills to the petitioner rendered above, the mere pendency of arbitration proceedings does not constitute a ground to reject the petition for winding up. The company petition is therefore admitted. Issues Involved:1. Non-payment of alleged debt2. Issuance and dishonor of cheque3. Dispute over the final bill and completion of work4. Allegations of forgery and theft5. Admission of liability and subsequent denial6. Applicability of arbitration proceedings7. Grounds for winding up under Section 433(e) and Section 434 of the Companies Act, 1956Issue-wise Detailed Analysis:1. Non-payment of Alleged Debt:The petitioner sought the winding up of the respondent company for non-payment of an alleged debt amounting to Rs. 7,52,11,528. The debt arose from sub-contracts awarded to the petitioner by the proprietary concern of M. Venkat Rao, which was later converted into the respondent company.2. Issuance and Dishonor of Cheque:The petitioner claimed that the respondent issued a cheque for Rs. 8,60,03,488, which included the principal amount and interest. This cheque was dishonored due to insufficient funds. The petitioner issued a legal notice under Section 138 of the Negotiable Instruments Act, 1881, following the dishonor.3. Dispute Over the Final Bill and Completion of Work:The respondent argued that the final bill was yet to be raised due to the non-completion of balance works. They stated that the petitioner's bills would be settled once the final bill was settled by the employer, Karnataka State Highways Improvement Project (KSHIP). The respondent also mentioned that any damages levied by the employer for delay would be passed on to the petitioner.4. Allegations of Forgery and Theft:The respondent alleged that the managing director of the petitioner had stolen and misused a cheque by forging the respondent's signature. They claimed that the cheque book containing the disputed cheque was missing from their site office.5. Admission of Liability and Subsequent Denial:The respondent had initially admitted liability in a reply notice dated December 29, 2009, stating that the petitioner's bills would be settled after the final bill was settled by the employer. However, in the counter-affidavit, the respondent denied any agreement with the petitioner and claimed that the petitioner was executing the work on a job work basis, thereby denying any outstanding amount.6. Applicability of Arbitration Proceedings:The respondent argued that the petitioner had already invoked the arbitration clause, indicating a serious dispute regarding the debt. They contended that the arbitration proceedings demonstrated that the debt was not undisputed.7. Grounds for Winding Up under Section 433(e) and Section 434 of the Companies Act, 1956:The court examined whether the petitioner had made out a case for winding up under Section 433(e), which allows for winding up if a company is unable to pay its debts. Section 434 explains what constitutes the inability to pay debts, including the neglect to pay a debt exceeding Rs. 500 after a demand notice and the return unsatisfied of execution or other process issued on a decree.Judgment Analysis:The court found that the respondent had admitted its liability to settle the petitioner's bills in the reply notice dated December 29, 2009. The respondent's subsequent denial of liability in the counter-affidavit was deemed inconsistent and lacking bona fides. The court noted that the cheque issued by M. Venkat Rao, which was dishonored, prima facie proved the debt owed by the respondent.The court held that the pendency of arbitration proceedings did not constitute a ground to reject the petition for winding up. The liability to pay a debt is different from the liability to pay an ascertained debt. The court concluded that the denial of debt by the respondent was not bona fide and that there was no substantial defense to justify non-payment.Conclusion:The company petition was admitted, and the petitioner was permitted to issue advertisements in specified newspapers. The case was posted for filing proof of publication on a later date. The court emphasized that the respondent's denial of liability was a cloak to avoid payment of the debt and that the petitioner had made out a case for admission of the company petition.