TaxTMI 
TaxTMI 
2009 (1) TMI 495
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....ea on behalf of the respondent to various customers. They were also maintaining a running account. The respondent also used to borrow money on a regular basis from the petitioner to meet their fund requirement and the petitioner was also advancing monies periodically to the respondent to meet such requirements. It is further averred in the petition that the respondent had accumulated huge dues and in respect of consignment coffee supplied by the respondent, there was a short supply and in that regard also, amounts were due to the petitioner. The petitioner after crediting certain payments made by the respondent, got execution of pronotes in their favour by the respondent. 3. The petitioner further averred that in the year 1997, a reconciliation statement was preferred after verification of the accounts of both the petitioner and the respondent. Thereafter, it was agreed by the respondent that a sum of Rs. 73,32,810.05 was due and payable by them to the petitioner and the respondent also agreed to pay interest at the rate of 24 per cent, per annum on the above said amount. The respondent confirmed and accepted a sum of Rs. 99,47,312.67 due and payable as on November 27,1997 to the ....
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....oupled with carry forward losses to the extent of Rs. 2,38,65,494 and the loss transferred to the balance-sheet as on March 31, 1999 is Rs. 2,83,10,574. Therefore, the above figures given in the balance-sheet clearly establish that the respondent-company has become commercially insolvent and the petitioner and other creditors will not be able to recover anything from the assets. Hence, for the said reasons, the petitioner herein prayed for winding up of the respondent-company and appointment of the official liquidator to proceed further in the matter. 7. The respondent has filed its counter. In the counter statement, it has been averred that the respondent-company is financially very sound and that there is no debt due to the petitioner but on the contrary, the petitioner owes the respondent a sum of Rs. 37,36,292.62 as per the revised statement of accounts. It is further averred in the counter that the present management took over the respondent-company from the previous management. In the previous management, two of the partners of the petitioner were directors till December 12, 1997 and as such, there was a collusion between them and the previous management of the respondent. I....
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....nding up. 10. The petitioner has filed its reply to the counter statement stating among other things that the transaction between the petitioner and M/s. Wood-briar Estates Ltd., has absolutely no connection with the respondent-company. It is further averred in the reply statement that the respondent requested the petitioner who had a bank account at Coonoor to deposit the cheques pertaining to the transaction with the Tamil Nadu Tea Brokers Ltd. Accordingly, the cheques were deposited in the accounts of the] petitioner and later on a sum of Rs. 15,17,402.45 received by the petitioner from the Tamil Nadu Tea Brokers Ltd., has been transferred to the respondent in terms of the above said understanding except a sum of Rs. 535.80. The respondent has also acknowledged the same vide their letter dated February 3, 1997. The petitioner further denied the allegation that certain personal loans given by the petitioner to the managing director of the respondent were included. 11. The learned judge after consideration of the averments made in the petition, counter and reply, held that there is a bona fide dispute as regards the existence of the debt and it is for the petitioner to prove by ....
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....ng the balance on November 27, 1997, on the face of it unsustainable as the said amounts are insignificant and irrelevant to adjudicate the issue with regard to the bona fide dispute of the amount payable. (d)There is no bona fide dispute with regard to the balance of principal amount due and payable and assuming that there is a dispute on the quantum of interest, the same cannot be against the claim of the appellant. (e)With regard to the dispute in respect of payment by M/s. Wood- briar Estates Ltd., it is an independent transaction with another company and the respondent-company has nothing to do with the said payment. There is no question of any adjustment between the payments and receipts with regard to the M/s. Woodbriar Estates Ltd., as they are two different and independent transactions in two different companies. (f)The agreement dated December 12, 1997, read with letter of confirmation dated November 27, 1997 are prima facie sufficient to constitute an admitted liability on the part of the respondent. (g)The former managing director as well as the new managing director had admitted the liability and the said admission has been made on behalf of the respondent-company ....
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..... 15. The judgment reported in Master Nitin Goel v. Raj Synthetic (Poly chem) [1994] 3 Comp. LJ 438 came to be decided on the facts of the case as the High Court of Delhi in the said decision found that debt has been admitted and proved and therefore ordered winding up of the company. 16. In [1999] 95 Comp. Cas. 172 (Cal) (Ashoka Agencies and Business Forms Ltd., In re), the petition for winding up was filed against the respondent company on the ground of its failure to pay the balance of Rs. 24,32,416.01 on a running account which was acknowledged by the said company by its communication dated September 21, 1992. The company raised defence, that the said communication was not a promise to pay and at the most, it was an acknowledgement of a time-barred debt. The Calcutta High Court on the facts of the said case held that in the light of the petitioner's affidavit that there was continuous and running transactions ; there could be no presumption that the acknowledgment was of a time-barred debt. The High Court of Calcutta citing the said reasons, ordered issuance of advertisement. 17. In TDICI Ltd. v. Neptune Inflatables Ltd. [1999] 1 Comp. LJ 240, this court on the facts of the ....
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....d.), wherein the balance-sheet of the company showed that the total realisable assets of the company was over Rs. 6.00 lakhs as against the liabilities of over Rs. 11 lakhs and none of the directors, responded to the statutory notices issued under section 439(5) of the Companies Act, 1956. The Allahabad High Court on a perusal of the material on record found that the company had become financially unsound and was unable to carry on its business. Therefore, the company should be wound up. 22. In [2002] 3 MLJ 750 (Imperian Corporate and Services (P.) Ltd. v. Aruna Sugars and Enterprises Ltd.), this court has placed reliance upon the decision of the hon'ble Supreme Court of India, reported in [1972] 42 Comp. Cas. 125 (SC) ; (1971 Manu SC 33) (Madhusudan Gordhandas and Co. v. Madhu Woollen Industries (P.) Ltd.), and in the said decision, it has been held as follows (page 131 of 42 Comp Cas) : "20. Two rules are well settled. First, if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company and the company contended that ....
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....ionary and records. (b)As per the agreement dated December 12,1997, it has been stated that a sum of Rs. 60,00,000 was due to the appellant and if there is any balance due, the same will be paid to the appellant within sixty days. The appellant after receipt of Rs. 60,00,000, had transferred all share certificates pledged with them as security, to the new management of the respondent and this was done due to the reason that the entire liability had been cleared and if anything was found to be due, it was only a meagre amount. Any prudent person will not transfer all share certificates pledged, in the absence of full and final settlement of amounts due. The same is evidenced from the letter dated November 27, 1997 and the statement of accounts even dated. (c)The statement of accounts produced by the appellant would reveal the date of last transaction was on February 25, 1997 and it was signed by one Mr. K. A. Narayanan in his capacity as the managing director of the respondent who was part of the old management. The balance-sheet and statement of accounts ending up to March 31,1997, was furnished by the old management at the time of take over and as per the statement of accounts, ....
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....999, denying the entire claim. (g)The appellant had sent a legal notice dated September 18, 1999, wherein for the first time, made a claim for a sum of Rs. 60.47 lakhs and in the said letter, confirmation of balance as on November 27, 1997, has also been referred to and the same would clearly exhibit that the document evidencing confirmation of balance dated November 27, 1997, has been put into service for the purpose of issuing statutory notice. (h)The respondent in response to the statutory notice, had sent a reply dated October 4, 1997, specifically disputing the liability and also made a counter claim. The reply sent by the respondent to the statutory notice has been deliberately suppressed by the appellant at the time of filing of the winding up petition and since the appellant has failed to approach this court with clean hands, it is not entitled to any relief. (i)As regards the counter claim made by the respondent, learned counsel appearing for the respondent would submit that the said counter claim was made as early as on February 7, 1998 and it is also substantiated by the documents produced by them. (j)In reply to the submission made by learned counsel appearing for t....
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..... v. Proxima Medical System GmbH) ; (12)(12) [2008] 144 Comp. Cas. 446 (Mad) ; [2008] 6 MLJ 633 (Narsey Brothers v. Nithyalakshmi Textiles Mills (P.) Ltd.). 26. In [1965] 35 Comp. Cas. 456 (Amalgamated Commercial Traders (P.) Ltd. v. A. C. K. Krishnaswami) , the hon'ble Supreme Court of India on the facts of the case found that there was a bona fide dispute with regard to the debt and further held as follows (page 463 of 35 Comp Cas) : "It is well-settled that 'a winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. A petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatized as a scandalous abuse of the process of the court. At one time petitions founded on disputed debt were directed to stand over till the debt was established by action. If, however, there was no reason to believe that the debt, if established, would not be paid, the petition was dismissed. The modern practice has been to dismiss such, petitions. But, of course, if the debt is not disputed on some substantial ground, the court may decide it on the....
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....3 Comp. Cas. 337 (Delhi) (Kalra Iron Stores v. Faridabad Fabricators (P.) Ltd. (No. 2)), the defence was raised in respect of a petition for winding up by contending that fraud has been committed at the time of issuance of predated cheques and it has been held that in view of the allegations of fraud, the civil court is the competent forum to adjudicate the issues and not the company court. 32. In [1996] 85 Comp. Cas. 586 (P & H) (Malhotra Steel Syndicate v. Punjab Chemi-Plants Ltd.), the winding up petition was filed on the basis of the amount due and payable under the dishonoured cheque and on the facts of the case it was held that there was a bona fide and substantial dispute, which can be adjudicated only by a civil court. Learned counsel appearing for the respondent submits that the ratio laid down in the said decision, is ipso facto applicable to the case on hand. 33. In [2001] 104 Comp. Cas. 533 (Tata Iron and Steel Co. v. Micro Forge (India) Ltd.), the High Court of Gujarat has laid down the following principles at the time of ordering winding up of the company (pages 539 to 543) : "It cannot be gainsaid that winding up of a company is a process in which the life span of....
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.... the stage of admitting the petition, unlike other petitions, the company court has to be very alive to the relevant aspects and is obliged to consider many circumstances. Certain important chronicles and contours to be kept in the mental radar, before reaching the conclusion in a winding up petition can be articulated as under : (1)The remedy under section 433 in general and under clause (e) in particular is not a matter of right; as such, and it is the discretion of the company court. It does not confer any right on any person to seek an order that the company should be wound up. It is a provision empowering the court by a statutory provision to pass an order of winding up in an appropriate case. (2)Merely because any one of the circumstances enumerated in section 433 of the Companies Act exists, the court is not bound to order winding up of the company. Nobody can aspire to wind up the company as a matter of course. The court has wide powers and discretion. In this connection, inability to pay debts is required to be judged from various sets of facts and circumstances. It may also be stated that inability to pay debts in all cases, ipso facto, could not be construed as an app....
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....of the case, after admission, exist from the record already placed before the court, it would be a sound exercise of discretion to reject the petition instead of admitting it. This view is very much celebrated. (9)Inability to pay debts in terms of section 433(e) read with section 434(1) (a), demand of the debt would raise a presumption as to inability to pay its debts. But such a presumption is rebuttable. Such a presumption may be rebutted on existing material and what evidence is sufficient depends on the facts and circumstances of the case. (10)If the company has shown considerable growth in a reasonable span and is a growth oriented enterprise, even in a case of temporary inability would not be sufficient to drive it to winding up. (11)Though, ordinarily, an unpaid creditor may aspire for an order of winding up, the 'ex debito justitiae' rule is not of inflexible mandate, but is, as such a matter of discretion of the court. (12)Section 433 is also indicative of the fact that even if one or more grounds mentioned in section 433 exist, it is not obligatory for the court to make an order of winding up. The court has discretionary power. The court must in each case exercise it....
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....r which provides some services; (b)it would throw out of employment numerous persons and result in gross hardship to the members of families of the employees ; (c)loss of revenue to the State by way of collection of taxes which otherwise should have been collected, on account of customs, excise duties, sales tax, income-tax, etc. ; (d)scarcity of goods and diminishing of employment opportunities. (20)A winding up petition has to be submitted in the prescribed form highlighting all the facts and emphasising the inability of the company to pay its debts. The form prescribed under the Companies (Court) Rules, clearly, indicates that the petitioner should provide all the necessary material particulars. The petitioner is obliged to show that the financial status or the monetary substratum or the commercial viability of the company has gone so low and down that winding up is obviously, and evidently, unavoidable. (21)It is a settled proposition of law that a winding up petition is not a legitimate means of seeking to enforce the payment of a debt which is disputed by the company, bona fide. A winding up petition ought not to be aimed at pressurising the company to pay the money. Suc....
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....ts and the power under section 433 is discretionary. It has been further held that if there is any bona fide dispute, it is to be resolved by approaching the civil court. 38. This court in the decision reported in [2008] 144 Comp. Cas. 446 (Mad); [2008] 6 MLJ 633 (Narsey Brothers v. Nithyalakshmi Textiles Mills (P.) Ltd.), on the facts of the case found that in spite of factual positions, there were earlier notices and replies have been sent and that the amount as well as the quantum is in dispute and hence the winding up petition cannot be made as a device, to pressurise the respondent to make payment as per the demand raised. 39. The court has carefully considered the submissions made by learned senior counsel appearing for the appellant and learned counsel appearing for the respondent and also perused the materials available on record in the form of typed set of documents and also taken into consideration, the principles laid down in the decisions cited by the respective counsels. 40. A perusal of the agreement dated December 12, 1997, would reveal that a sum of Rs. 60,00,000 was paid to the appellant herein and an undertaking was given to ensure payment of the balance amount....
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....e suit is not laid for recovery of money and no leave under Order 2, rule 3 of CPC was obtained while instituting the suit. 43. The respondent after perusal of accounts, had sent a letter dated February 7, 1998, stating among other things that there was strike in the factory from September 8, 1997 to December 26, 1997 and hence it was paying a sum of Rs. 60,00,000 without due verification of the accounts and that the accounts were also not ready on the date. It is to be pointed out at this juncture that a counter claim for a sum of Rs. 22,00,000 was also made by the respondent against the appellant and in response to the said letter, there is no reply from the appellant. The respondent also sent one letter dated July 27, 1999, claiming a sum of Rs. 31.86 lakhs as the amount due and payable by the appellant and therefore, the legal notice dated July 20, 1999, was sent on behalf of the appellant calling upon them to settle the liability. A perusal of the legal notice would reveal that no admission for the outstanding amount has been made even though according to the appellant, Mr. K. A. Narayanan on behalf of the old management had acknowledged the liability of Rs. 1,00,14,850. In r....
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....t is a profit making concern having huge assets employing 800 persons and it is also the second largest manufacturer of tea. It is further submitted by learned counsel appearing for the respondent that the loss incurred by the old management of the respondent-company is being wiped out and provisions have also been made. In this connection, learned counsel appearing for the appellant has invited the attention of this court to the revised statement of accounts as on May 10, 2005, in support of his submissions. 48. We have also gone through the judgment cited by learned senior counsel appearing for the appellant and we find in most of the cases, liability claimed was not disputed and in one case it was found the defence raised by the respondent therein was found to be frivolous. 49. In [1971] 3 SCC 632 ; AIR 1971 SC 2600 ; [1972] 42 Comp. Cas. 125 (Madhusudan Gordhandas and Co. v. Madhu Woollen Industries (P.) Ltd.), in our considered opinion is squarely applicable to the facts of the case. It is trite law that the rule for winding up a company on a petition by creditor is that if there is a bona fide dispute about the debt and the defence is substantial one, the defence of the com....