TaxTMI 
TaxTMI 
2008 (12) TMI 404
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.... by the respondent. The invoices of the credit bills attached with each of the supply contained a clause relating to payment of interest in the following terms :- "amount must be paid within seven days or you are liable to pay 2 per cent interest per month." 4. It is not in dispute that at the foot of each credit bill an officer of the respondent-company had put its signatures as a token of acceptance. 5. Appellant is said to have adjusted the amount first towards interest at the stipulated rate and balance against the principal amount. As despite demand the amount due and owed to it was not paid by the respondent, a legal notice was served upon it claiming interest on the said sum. It was stated that the appellant had appropriated account of payments made by it against the interest and balance, if any, against the principal amount. On the basis thereof, a demand for a sum of Rs. 64,58,457 together with future interest at the rate of 2 per cent per month was raised. The said legal notice was replied by the respondents, stating :- "We have received a legal notice from Sri Rao Raghunandan, Advocate dated 6-1-2003. You are aware that after making payment of Rs.....
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....r month." 8. A sum of Rs. 8 lakhs was paid in between the period 19-4-2003 to 11-7-2003. As evidently, the appellant refused to make further supplies, a meeting took place, the minutes whereof reads, thus:- "As per the discussion regarding the old outstanding and for the continuity of the Business at present, Vijaya Industries is rotating, One Tanker load for the payment arrangement towards old outstanding. The Representatives of NATL Technologies Ltd. have agreed to arrange payment for the values of 2 truck loads of Castor Oil in the month of December. Against the above payment, the Company representative Sri Jagadish Prasad agreed for supply of Three Tanker loads including the existing One Tanker load which is already supplying. Basing on the convenience and as per the discussions from time to time NATL have agreed to square up the old outstandings and bring in to the system for the rotation. Also in principle agreed to compensate Vijaya Industries for the delay in payment on account of earlier supplies after clearing the entire old dues." 9. As the said agreement between the parties arrived at in the said meeting was not adhered to, on 23-12-2003 a legal ....
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....dred and sixty eight only), drawn on State Bank of India, Commercial Branch, Secunderabad, in favour of the petitioner company in Court today. Learned counsel for petitioner has received the Demand Drafts, without prejudice to the claim of the petitioner for interest and seeks time for getting instructions from his client regarding cheques. Post on 9-7-2004." 15. The learned Single Judge, in view of the stand taken by the parties, while admitting the company petition by an order dated 10-11-2004 held that a prima facie case has been made out therefor having regard to the correspondences passed between the parties, the credit bills and also the minutes of the meeting. 16. Aggrieved by and dissatisfied therewith, the respondent preferred an appeal. By reason of the impugned judgment, the Division Bench has allowed the said appeal. 17. Mr. Gourab Banerji, learned senior counsel appearing on behalf of the appellant, would at the outset bring to our notice that there is a difference of opinion on the issue amongst the different High Courts; one taking a liberal view and another a strict view. We have noticed hereinbefore that the defence of the respondent was :- ....
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....ale of Goods Act, 1930 would not be attracted, stating :- "From a reading of section 61(2)(a) of the Sale of Goods Act, it is revealed that it is the discretion of the Court to award interest at such rate as it thinks fit on the amount of price to the seller from date of tender of goods or from the date on which the price was payable and under section 3 of the Interest Act, at a rate not exceeding the current rate of interest. If the proceedings relate to a debt payable by virtue of a written instrument at a certain time from the date when the debt is payable to the date of institution of the proceedings and if the proceedings do not relate to any such debt, then, from the date mentioned in this regard in the written notice given by the person entitled to the date of institution of the proceedings. These provisions refer to the sole discretion of the Civil Court to award interest in a suit for recovery of money. Therefore, the concerned creditor is not at all entitled to interest until the Court so orders. In other words, it cannot be said that the creditor is entitled to interest as a matter of right before the institution of the proceedings in the Court. Before that, the....
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....dge failed to allow the company petition for winding up the company for payment of the Interest. . . ." (p. 324) However, on the facts of that case, there was nothing to show that prior to the issuance of the statutory notice by the appellant, any claim was made in respect of the payment of interest and furthermore the respondent had filed a counter affidavit to the said petition denying and disputing the said assertion of the appellant that an order of winding up of the company was not passed only for payment of the interest which had been disputed bone fide. 24. We may furthermore notice that even in Kitply Industries Ltd. v. Hari Narain & Sons (P.) Ltd. [1998] 91 Comp. Cas. 715 a similar view was taken by the Rajasthan High Court. The learned Judge upon holding that the principles enumerated in various decisions referred to therein must be applied in each and every case having regard to the facts thereof, rejected the claim for payment of interest, stating :- "... In my opinion, in the absence of any agreement between the parties, the dispute which the respondent has raised regarding its liability to pay interest cannot be treated as a fictitious or frivolous disp....
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....money, a competent court or arbitrator has determined the liability to pay interest, then non-payment of interest (whether with principal or interest alone) may amount to inability to pay debts. (c) Interest cannot be awarded merely on the basis of a term in a bill or invoice, unless the creditor proves that such provision is based on a contract or agreement on the part of the purchaser to pay interest. This is because a credit bill or an invoice is a unilateral demand by the supplier and is neither a bilateral agreement nor a promise by the purchaser to pay interest. Interest can be awarded on the basis of a provision in a bill/invoice, if it is supported by an agreement or promise to pay interest by the purchaser. Such agreement may be established with reference to correspondence, or by countersigning of the bill by the purchaser, or by acceptance by the purchaser of the term in the bill relating to interest. Where in the absence of an agreement or contract for payment of interest on the value of goods supplied, a notice of demand is sent by the supplier requiring payment of the value of goods supplied with interest thereon and a reply is sent by the purchaser in general....
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....d under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor;" 29. On a plain reading of the aforementioned provisions, it is evident that what is necessary for invoking the said provision is that despite service of notice, the company which was indebted in a sum exceeding one lakh rupees then due failed and/or neglected to pay the same within three weeks thereafter or to secure or compound for it to the reasonable satisfaction of the creditor. 30. The fact that despite receipt of a legal notice dated 23-12-2003, no payment has been made to liquidate the debt on the part of the company is not in dispute. Admittedly, appellant had been supplying Castor Oil to the respondent. The fact that the respondent did not pay the price of the said supplies, on presentation of the invoices, is also not in dispute. It also stands admitted that the parties negotiated as regards the manner in which the payments could be made. In a meeting held on 25-11-2003, promises were made to square up the old outstanding dues and bring it into the system....
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....hen the company contended that the work had not been properly was not allowed. (See Re. Brighton Club & Horfold Hotel Co. Ltd.) [1865] 35 BEAV 204." (p. 638) The court furthermore opined :- (i) Where the debt is undisputed, the court will not act upon a defence that the company has the ability to pay the debt but did not choose to pay that particular debt. (ii) Where, however, there is no dispute that the company passed the creditor a debt entitled him to a winding up order but the exact amount of the debt is disputed, the court will make a winding up order without requiring the creditor to quantify the debt precisely. (iii) The principles which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and, thirdly, the company adduced prima facie proof of the facts on which the defence depends. 33. Section 433 of the Companies Act does not state that the debt must be precisely a definite sum. It has not been disputed before us that failure to pay agreed interest or the statutory interest would come within the purview of the word 'debt'. It is one thing ....
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....interest, the winding up petition cannot be thrown out on that ground alone. Pfizer Ltd.'s case (supra) has been followed by the Bombay High Court in Ispat Industries Ltd., In re [2005] 58 SCL 485 . Pfizer Ltd.'s case (supra) was a case of principal plus interest. 35. Our attention, however, has also been drawn to a recent decision of this Court in Mediquip Systems (P.) Ltd. v Proxima Medical System Gmbh [2005] 7 SCC 42^1 wherein the questions of law which fell for consideration before this Court inter alia were :- "(i) Whether the Division Bench of the High Court at Calcutta was justified in dismissing the appellant's appeal summarily holding, inter alia, that the appellant was not entitled to stay of operation of the order passed by the Company Judge under appeal or, in other words, whether dismissal of connecting stay petition could be justified reason alone for dismissing appeal summarily which was based on cogent grounds? (ii) Whether the appellant Company can be said to be indebted to the respondent petitioning creditor in respect of US$ 11,000 equivalent to INR 4,69,480 when the said sum was not remitted by the said petitioning creditor, namely, Proxima ....
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....a direction to the company to make payment to a third party. Holding that such a jurisdiction is not vested in the Company Court, it was held :- "18. This Court in a catena of decisions has held that an order under section 433(e) of the Companies Act is discretionary. There must be a debt due and the company must be unable to pay the same. A debt under this section must be a determined or a definite sum of money payable immediately or at a future date and that the inability referred to, in the expression 'unable to pay its debts' in section 433(e) of the Companies Act should be taken in the commercial sense and that the machinery for winding up will not be allowed to be utilised merely as a means for realising debts due from a company. *** *** *** 21. The debt under section 433 of the Companies Act must be a determined or a definite sum of money payable immediately or at a future date. . . ." (p. 49) 36. It is, however, of some interest to note that the Division Bench referred to a decision of the Madras High Court in Tube Investments of India Ltd. v. Rim & Assessories (P.) Ltd. [1990] 3 Comp. LJ 322 where the following principles relating to bona fide....
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....it be said that the respondent neglected to pay the debt particularly when the respondent is disputing the liability of payment of interest on the delayed payments and when there is no such written agreement in between the parties for such payment of interest." 38. The Division Bench upon noticing the fact of the matter formulated the question "as to whether the respondent is liable to pay interest at 2 per cent per month on delayed payments and what that is being disputed would it constitute prima facie a valid ground for admission of the company petition?" It was held :- "... The petitioner seeks to rely upon the invoices which according to him contain at the foot a clause for payment of interest on delayed payments. Such a clause, even assuming is there, since it has not been placed by means of any cogent evidence in this case, in view of the judgment of the Rajasthan High Court in Kitply Industries' case (supra), cannot constitute an agreement between the parties for payment of interest. The legal position, thus, seems to be obvious. Before seeking a company to be wound up on the ground that it is unable to pay its debts, it must be shown before the Court that the d....
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....003 specifically mentioning that the payments had been adjusted towards interest first and balance, if any, shall be adjusted towards the principal. Thus, a prima face case was made out. 41. This brings us to the question as to why an interest is payable. An interest is inter alia payable by way of restitution. In Clariant International Ltd. v. Securities & Exchange Board of India [2004] 8 SCC 524^1, this Court held :- "25. A direction in terms of regulation 44 which was in the interest of securities market indisputably would have caused civil or evil consequences on the defaulters. Clause (i) of Regulation 44, however, does not provide for any penal consequence. It provides for only civil consequences. By reason of the said provision, the power of the Board to issue directions is sought to be restricted to pay the amount of consideration together with interest at a rate not less than the interest payable by banks on fixed deposits. Both the Board and the Tribunal have proceeded on the basis that the interest is to be paid with a view to recompense the shareholders and not by way of penalty or damages. Such a direction, therefore, was for the purpose of protecting th....
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....e of 12 per cent per annum also pay to the appellant interest at the same rate on the aforesaid interest from the date of payment of instalments by the appellant to the respondent till the date of refund of this amount, and the entire amount mentioned above must be paid to the appellant within two months from the date of this judgment." (p. 547) 42. Interest is also payable in terms of the provisions of section 62(1)(a) of the Sale of Goods Act. Interest may be held to be payable in terms of section 3 of the Interest Act, 1978 as also in terms of sections 5 and 6 of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993. In Krishna Chemicals v. Orient Paper and Industries Ltd. [2005] 128 Comp. Cas. 72^1, the Orissa High Court held :- "The interest amounts as claimed by the petitioners in the two cases against the respondent company however, may not be in accordance with the provisions of sections 4 and 5 of the Act, 1993. The fact that the exact amount of interest claimed by the petitioners against the company is disputed can be no ground to dismiss the petition for winding up for non-payment of the interest so long as the lia....