TaxTMI 
TaxTMI 
2007 (8) TMI 462
X X X X Extracts X X X X
X X X X Extracts X X X X
....eing received and the company being ultimately sent into liquidation. The petitioner is incorporated in Singapore and claims to be part of the SKF group of concerns, headquarters in Sweden but having substantial operations in the manufacture and supply of bearings in India. The petitioner relies on an agreement of 14-2-2003, that was entered into on behalf of the SKF concerns through SKF Bearings India Ltd. with the company for supply and import of SKF products. The petitioner has relied on three invoices, all of December, 2003 for Euro 1153.52, Euro 2309.69 and Euro 453.26 for a combined claim that translates to a little over Rs. 2.20 lakhs at the present rate of exchange. 3. The statutory notice of 15-2-2005, was addressed to the company at its Marshall House address in Calcutta but the room or office number was indicated as 407. In the notice and the cause title to the petition, the registered office of the company has been indicated to be at 407, Marshall House, 25, Strand Road, Kolkata-700 001. The petitioner relied on the agreement of February 14, 2003, in the statutory notice and claimed that it exported goods to the company thereunder and that a principal sum of Euro 3916.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sfied with the usual sets of pleadings ordinarily filed in such proceedings. Instead of the usual three sets of papers that the court generally looks into to assess a claim and its defence, this bundle consists of seven sets. Upon the first round of pleadings-the petition, the opposition and the reply-having been exhausted, the parties obtained leave to file further pleadings. The company filed a supplementary affidavit running into 135 pages in February, 2007, to which the petitioner used a rejoinder of 16 pages in March, 2007. The petitioner thereafter realised that its rejoinder to the company's supplementary was thin in comparison and obtained leave to file another supplementary affidavit of 51 pages. The company has used a 17-page reply to the petitioner's supplementary affidavit. 6. At first flush, the company sought to resist the admission by asserting the following in its opposition :- (i)The arrangement between the parties was between two groups and not restricted to the eo nomine (sic)parties to the agreement of 14-2-2003. (ii)The two groups fell out by December, 2003 on account of poaching into the company/s (and its associates) domain by other distributors of SKF pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y insists that it is the totality of the arrangement that has to be seen and the individual notices sent by the individual entities in the SKF group cannot be separately addressed in isolated proceedings as one-off transactions. 8. In keeping with such tune that the company sang in its original affidavit in these proceedings, the company did not expend much effort in denying the substance of the petitioner's claim in the petition. That substance of the petitioner's claim is found at paragraphs 7 to 10 of the petition and such averments were dealt with by the company in paragraph 7 of its opposition, in what the petitioner describes as a cavalier and perfunctory treatment of the claim :- "7. With reference to paragraphs 7 to 10 of the said petition, save what are matters of record and what appears therefrom, I deny and dispute each and every allegation contrary thereto and/or inconsistent therewith." 9. The petitioner suggests that the company virtually admitted the claim in such ineffective denial and no amount of effort in its subsequent pleadings could detract from such apparent admission of the claim. The petitioner submits that the bills relied upon in the petition had not b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of paragraph 7 of the company's opposition, the company now clings on to the point of maintainability urged in its supplementary. The company says that section 434(1)(a) of the Companies Act gives rise to a legal fiction and the presumption of inability to pay, even though rebuttable, does not arise in the first place if the legal fiction does not come into play. Such legal fiction, according to the company, does not come into play till the provisions in clause (a) have been strictly and completely complied with. The notice has to be in writing, under the hand of the creditor or its agent and has to be delivered at the company's registered office for the presumption to arise. If any of the prerequisites were not met, the company suggests, the presumption does not arise. The company asserts that a creditor in such a case is not left without any remedy but it has then to fall back on the general insolvency of the company to seek its winding up but can no longer assert that the company was unable to pay that creditor's debt. 13. The company relies on a Division Bench judgment of this court of some vintage which defines principles applicable in proceedings of this nature. In the judgm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s, as contemplated by section 163(1)(i ) of the Act, is available to the Union. They are at liberty to prove still, in other ways that, in fact, the company was unable to pay its debts within the meaning of item (v) of section 162. On that question, we listened to an interesting argument from the Bar as to when a company could be held to be unable to pay its debts and as to what the nature of the dispute must be if cases of disputed debts were to be excluded. It seems to me, however, that in view of one special fact in the case, it is unnecessary for us to embark upon an examination of the question debated before us. As I have already said, the demand of the Union of India is for an amount in the neighbourhood of Rs. 6,00,000. Even if the demand of the Bengal Nagpur Railway be added, the total would not be more than Rs. 8,00,000. Yet, on the admission contained in the petition itself, there is an amount of Rs. 10,00,623 which belongs to the company and it must therefore be available for the payment of the company's debts, in those circumstances, it is quite impossible for the Union of India to contend that although the appellant-company has, according to its own case, a sum of Rs.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....held that the service of the notice could not be deemed invalid on account of it being served at any place other than the registered office provided the court was satisfied that such service was sufficient in other respects. The Division Bench found that reliance on such rule was misplaced as the rule related to service under the said rules and the service of a statutory notice under section 434 was not covered by the rules. The Division Bench opined that the fiction under section 434(1)(a) was not available to the petitioner and the petition was liable to be dismissed. 16. For similar effect, a judgment of a single judge of the Madras High Court in B. Vishwanathan v. Seshasayee Paper & Boards Ltd. [1992] 73 Comp. Cas. 136 , has next been placed by the company. In such case the notice was not only addressed to the managing director of the company, it was issued to an office other than the registered office and the court held that such notice was not in accordance with the mandatory requirements of section 434 and the presumption under that section would not be raised:- "Under section 434 of the Act, the deemed inability to pay the debts will arise when a creditor to whom the comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion of complying with a statutory pre-condition for a legal fiction to operate, there was no question of estoppel or acquiescence or waiver. 18. The petitioner places reliance on a judgment in Kadex Systems Ltd. v. R.K. Swamy/BBDO Advertising Ltd. 2000 WBLR 256 (Cal.) and an unreported judgment of 28-8-2002, passed in C.P. No. 284 of 2000 in the matter of Kusum Marketing Ltd. & Dhanraj Abhani; both rendered by single judges of this court. In Kadex Systems Ltd.'s case (supra) a notice was issued on 2-4-1996, to the administrative office of the company which was followed by another demand on 6-4-1996, also issued to the administrative office. The company offered to make some payment but upon its failure, a fresh statutory notice of 6-1-1997, was issued, addressed to the managing director of the company at its administrative office. The company replied to such statutory notice through its advocates. It does not appear that the advocates expressed any reservation in the reply on the ground of the invalidity of the notice. In resisting the winding up petition, the company urged such ground and despite judgments being cited in support of the challenge to the notice, it was held as follo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the same cause of action as in this petition. In its reply to the statutory notice sent by advocate for the company no objection was taken in respect of the service of the statutory notice of demand and, therefore, it would be deemed that the company had full knowledge of both as to its debt and the consequence of failure to pay within the allotted time. Having full knowledge of the contents of the statutory notice of demand and having made it over to its advocates with instructions to reply the intentions of the Legislature had been fully satisfied and the mischief they had sought to protect had been protected. As regards the allegations that the petition was lacking in material particulars, in respect of the bills, and that the bills had not been annexed of the petition nor produced before this court, I am afraid that such allegations were mere afterthought and with an intent to avoid payment of lawful dues of the petitioner. In the two letters dated 25-6-1996 and 18-12-1997, the company while admitting the claim and assuring the petitioner of payment did not mention anything about its alleged lack of knowledge as to the bills, or particulars of the claim. Significantly, there ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Kadex Systems Ltd.'s case (supra), it was held as follows :- "20. To maintain a winding up petition a creditor has to show that he has a just debt due which the company is unable to pay. The company is deemed unable to pay in case notice under section 434 is given at the registered office of the company and the company has failed and neglected to pay such sum within 21 days from the date of receipt. Such presumption of insolvency is a rebuttable one and the company is entitled to rebut such presumption by raising bona fide dispute. In the instant case the petitioner admittedly served notice at a place which was not the registered office of the company. Hence, the petitioner was not entitled to take the plea of deemed insolvency under section 434 of the said Act. Hence, the plea that there had been an appropriate notice served by the petitioner was not tenable and the Single Bench decision of this Court reported in Kadex Systems Ltd. judgment [2000] WBLR 256 was not a good law and with all humility I am unable to agree with His Lordship." (p. 678) 21. In view of the binding Division Bench precedent in the Bukhtiarpur Bihar Light Railway Co. Ltd.'s case (supra ), which was not not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....section 434(1)(a) of the Act. The expression "a demand under his hand" also in clause (a) has been understood to include a demand made by an authorised agent of the creditor. If the test for the invocation of the legal fiction were to be as strict as the company suggests, there could have been no relaxation of such other limb of section 434(1)(a). 24. It is the substance of the defence which has to be tested upon the technical objection having failed. The petitioner present the claim in simple terms goods were supplied, bills were raised, there was no dispute on quality or rate and the company has raised no dispute in respect of the transactions. If such were the only facts relevant for the purpose of adjudication, the petitioner would be entitled, as of right, to have the petition admitted. In the two stage system followed in creditors' winding up petitions in this court, upon an indisputable claim being established, there is little room for discretion and the matter must progress to the next stage. 25. The consequence of a petition being permitted to proceed to the second stage has to be appreciated. Upon a creditor's petition being admitted, the court ordinarily permits the co....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the company's indebtedness to the petitioning creditor is thus more firm and less tentative than the expression "prima facie" generally connotes. The order of admission, in a sense, pushes the company to the brink. The advertisement is slur on its reputation. It is an invitation to other creditors to jump on the bandwagon. It has a suffocating effect on the company, affecting its goodwill and commercial credibility. Yet, it is only a prima facie view of the company's indebtedness to the particular creditor that is taken at the receiving stage so that, upon further material being produced by the company at the next stage, such view can be dislodged; or, the court exercises its discretion to not send the company into liquidation on other considerations. Technically, though, there is no bar to the claim being agitated afresh at the second stage without any additional material, but in practice few companies consider it worth their while to undertake such exercise. 28. The company here emphasises that the petitioner relies on the same agreement that is the subject-matter of the suit filed by the company's associates against the Indian SKF. The company reminds that the petitioners c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e into play in a creditor's winding up action. On the one hand, the company court cannot be used as a debt collecting court; on the other, a company cannot deny payment merely upon the company citing a dispute without establishing the bona fides thereof. The company court can shoo a creditor away if it finds that the company's inability to pay is on account of the creditor's conduct. Courts have frowned upon creditors arm-twisting companies in such proceedings and have branded them as scandalous. There is no doubt that the petitioner in this case has been able to establish that supply of the goods was effected, bills were raised and there was no disputes as to quality or quantity or rate. And yet there would be at least three grounds on which this petitioner can be stopped in its tracks. The first is the undeniable impression from the papers relied upon that the petitioner's supply to the company was but a part of the overall transactions between the two groups of concerns. The second is the Premier group's claims for incentives and other receivables; in substance, a defence that accounts had not been taken and that the petitioner's claim could not be isolated without apportionment....