TaxTMI 
TaxTMI 
2009 (3) TMI 573
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....hich it was paid by the Petitioner to the company in view of the first defence viz., that the said amounts were paid as security deposit and not as an advance/trade deposit. 4. In or about 1986 the company appointed the petitioner as its exclusive distributor/promoter for the alcoholic branded/products manufactured by it in the State of Karnataka. 5. By a letter dated 7-9-2004 the company thanked the Petitioner for responding to its call for an urgent meeting on 30-8-2004 and stated that during the discussion the company had explained to the Petitioner its problems on account of the skyrocketing prices of molasses, highly costs and certain unforeseen liabilities fastened on the company and that under the circumstances, to tide over the abnormal requirements of large working capital finances for continuing the business operation to service the petitioners requirements in an effective manner it had requested the Petitioner to place with it an unsecured interest-free trade deposit of Rs. 50 lakhs for a period of twelve months. The company stated that with these amounts, it would be in a position to procure a large quantity of molasses to effectively service the orders placed by ....
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....arded by the Petitioner to the company regarding the various amounts deposited from time to time aggregating to Rs. 4 crores as the receipt thereof is not denied by the company. Suffice it to state that a sum of Rs. 25,00,000 was paid on 11-10-2004, another sum of Rs. 25,00,000 was paid on 9-12-2004, a sum of Rs. 50,00,000 was paid on 22-11-2005 and a sum of Rs. 3 crores was paid in three instalments of Rs. 1 crore each on 19-6-2006, 1-7-2006 and 4-8-2006. 10. This brings me to the next defence. Mr. Dwarkadas contended that an amount far in excess of the said sum of Rs. 4 crores is to be recovered by the company from the Petitioner as the Petitioner had allegedly fraudulently over the years, recovered amounts far in excess of what it was entitled to and had also recovered amounts it was not entitled to. He submitted that it is for this reason that the company had caused to be issued a public notice stating that the services of the Petitioner had been discontinued by it effective from 16-8-2007 and informing the public that they should not deal with the Petitioner in respect of the company's products in any manner. 11. The Petitioner through its advocates addressed a notice....
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.... as alleged. In fact, from the records, it is evident that your clients have not only claimed commission from the sale of our client's products, but claimed and recovered exorbitant expenses under various heads viz freight, insurance charges, financial charges and other expenses from our clients. With regard to excise duty, our clients state that, your clients have defrauded our clients by claiming the cost of money provided by your clients towards excise duty remission and interest and further charged and claimed exorbitant financial charges and costs from your clients. Your clients, over the years, have not only over charged our clients but duped our clients for crores of rupees. Our clients vehemently deny that, for your clients accounting purpose, you used to split the commission amounts towards commission, the sales promotion expenses and freight charges under different heads as alleged by you. (v) With reference to para 8 of your notice, our clients state that Manufacturing Agreement between our clients and Ugar Sugar Works Limited expired on 30-6-2007, due to efflux of time. Upon expiry of the term of the said Manufacturing Agreement, our clients Managing Director repeate....
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.... 1 of this letter it is alleged that it had come to the knowledge of the company that the Petitioner had duped the company on various counts. There are no particulars as to how the same had come to the knowledge of the company. There are no particulars as to when the same had come to the knowledge of the company. There is no explanation as to why if these allegations had come to the knowledge of the company, the company had not even recorded the same in any correspondence prior to the issuance of the said notice on behalf of the Petitioner. 15.In the affidavit in reply, it is alleged that after an investigative audit conducted by the company in August 2007 the company came to know about the various fraudulent activities of the Petitioner which resulted in a huge loss to the company. As rightly pointed out by Mr. DeVitre, the audit report is dated 30-8-2008. This audit report could therefore never have been the basis on which the company alleged in the said letter dated 12-10-2007 that it had come to its knowledge that the Petitioner had duped it. No other report by an auditor or otherwise is relied upon. No other information as the source of the alleged knowledge is referred to.....
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....against the Petitioner and the former Managing Director of the company as if that was sufficient to establish any fraud against the Petitioner. Throughout the report, all that is stated is that there appears to be a possibility of certain financial irregularities. It is difficult to understand under what authority these chartered accountants directly contacted the Petitioner's auditor and adviser. Apart from the question of the propriety of such a step, admittedly, even that did not evidence anything against the Petitioner. The report read as a whole, I am cons-trained to say, has been prepared not on an independent professional basis but only at the behest and as per the dictates of the company. 19. It is important to note that the amounts due in respect of each allegation in the audit report were not even quantified before me. If what is stated in the report is true, it constitutes serious lapses on the part of the auditors of the company during the past eight years. It is important to note that nothing is stated as to whether and, if so, what action has been taken by the company against its internal and statutory auditors for not having detected and reported the alleged lapse....
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.... and counterclaim. 23. Mr. Dwarkadas submitted that the fact that the Petitioner had earlier filed a suit to recover the said amounts, itself established that there were bona fide disputes between the parties. I do not agree. 24. Merely because a party first files a suit against the company does not warrant an inference that there is an admission on the part of such party that there are bona fide disputes between the company and itself. Considering the backlog in suits and the possibility of appeals, there is nothing unusual or unnatural in a party filing a suit in addition to a winding up petition on the ground that the company is unable to pay its debts. 25. It is true that normally, as a practice, parties first file a petition for winding up and thereafter depending upon the order passed therein, decide whether or not to file a suit. That however is only a matter of practice and there is nothing in law which prevents a creditor from first filing a suit and thereafter a petition for winding up. Indeed, this may be the more prudent course in many cases such as where it is necessary for a party to protect its claim from being barred by the law of limitation. Even if limita....