TaxTMI 
TaxTMI 
2015 (11) TMI 132
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....om Punjab National Bank. In addition, service tax or previous bill of Rs. 30,000/- and penalty for default in honouring the contract/backing out amounting to Rs. 1,50,000/- is also payable. 3. It is further averred that the respondent used to avail professional services of the petitioner in matters of preparation of project reports, conducting audit, liaison with banks for term loans and working capital etc. and even company law matters. The petitioner also used to render such services on credit and also after taking some advance from time to time. The petitioner used to take instructions from the respondent on e-mail from its Managing Director as well as other officers of the company. Even information supplied for onward submission to various authorities/Bank was through e-mail. 4. It is further averred that the petitioner had been doing his work properly but suddenly problem started when the Managing Director asked the petitioner to show EPS of more than Rs. 15/- on a share of Rs. 10/- on the balance sheet of September, 2005 on annualized basis ( as per MD this was the minimum EPS wanted by MB). 5. In addition to this, the petitioner pointed out that: (i). the land bu....
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.... as agreed and additional Rs. 1,50,000/- being agreed advance will also be payable as penalty by the respondent in case the loan is not taken or company backs out at any stage. 8. It is further averred that no dues certificate was issued to enable the new auditors to take the assignment, but the respondent was asked not to put any date on that, because the auditors may have to sign the balance sheet as on 31.12.2005 in back date, as prospectus etc. has already been finalized and circulated. The petitioner looking at the time spent on the job including procuring Principal sanction from PNB, preparing various documents and taking over of or running business of firms, incorporation of the respondent company etc. accepted this. But by the time fresh papers were filed with PNB the time of validity of IPS was over, so the case had to be filed afresh by preparing fresh documents. 9. It is the further case of petitioner that respondent through MD and other staff continued to chase the petitioner on daily basis till final sanction on 23rd September, 2006. The petitioner handed over the bill for Rs. 12,06,580/- to the MD of the company on 26.9.2006 after final sanction of the loan. It ....
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.... question of facts, claim being time barred, dismissal for non-compliance of Section 434(1)(a) of the Companies Act, 1956, no legally recoverable dues payable by the respondent, non-performance of the contract etc. were raised. In paragraphs I, J and K of the reply, the respondent has made the following averments:- "I. that the respondent has paid all fees and expenses to the petitioner which has been duly admitted and acknowledged by them which is clear from the document filed b y the petitioner appearing at page No.70 of their paper book wherein it has been stated by them on 11.2.2006 that they acted as the Statutory Auditors of the respondent company till 14.1.2005. Further, it has been declared therein by the petitioner that they have received all the claims/dues from respondent for whatever work done by them for the respondent and no dues/claim is pending from respondent in respect of any matter whatsoever, whether in their professional or personal capacity. J. That it is most humbly submitted that the petitioner volunteered to the respondent to get them term loan and working capital limits of Rs. 23 crores sanctioned from Punjab National Bank on the condition that they ....
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....ir Merchant Bankers in August 2005 and filed RHP in SEBI by Feb, 2006. The petitioner was out of the whole IPO matter the day respondent appointed their Merchant Banker and EPS allegations of petitioner is nothing but a means to blackmail the respondent company. It is wrong and denied that the alleged work was done very fast as compared to the alleged expectations of the defendant during the alleged first assignment as alleged or otherwise. It is wrong and denied that the defendant was asked not to put any date on the No Dues Certificate as alleged or otherwise. Even otherwise, since it is a no objection to be given by the petitioner where is the question of asking defendant not to put a date on the same and especially when a date was already put on the same by the petitioner. It is wrong and denied that bill for Rs. 12,06,580/- was delivered by petitioner on 26.9.2006 as alleged or otherwise. It is denied that alleged last letter the petitioner got from the defendant regarding alleged work was on 12th Sept. 2006 as alleged or otherwise. On the other hand, no such alleged letter dated 12th Sept., 2006 was handed over by the respondent to the petitioner. It is wrong and denied that ....
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.... recovery including winding up petition as alleged or otherwise. It is wrong and denied that upon this, MD threatened with alleged dire consequences as alleged or otherwise. It is wrong and denied that purported bill for alleged services was sent on 26th Sept. 2006 and the limitation fall on 26.09.2009 as alleged or otherwise. It is most humbly submitted that contents of para D of the reply may also form part and parcel of the present para." All the other averments, as contained in the petition were denied. 15. The petitioner filed rejoinder, reiterating the submissions made in the petition and the contrary submissions made in the reply were denied. 16. This Court on 14.3.2014 had heard detailed arguments whereafter the judgment was reserved. But, before the judgment could be pronounced, the learned counsel for the petitioner moved an application for placing on record the documents relating to the public issue for which the services of the petitioner had been engaged by the respondent-Company for sanctioning the loan from the Punjab National Bank. 17. In this application, it is alleged that the prospectus for public issue was published by the respondent-Company and even....
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....rd learned counsel for the parties and also gone through the records of the case carefully and meticulously. 21. The following point arises for determination:- "Whether in the given facts and circumstances the respondent-Company is required to be wound up having failed and ignored to make payments of the outstanding amount being unable to pay its debts." 22. In a petition for winding up of a company on the basis that the company is unable to pay its debts, apart from the merits of dispute, the sincerity of the respondent-Company in raising the same is also relevant. In such a situation, where the company disputes the claim and the said dispute appears to be bonafide, it naturally follows that the company has declined to pay the claim on account of a dispute and not on account of its inability or negligence to pay the debts. The assumption that the company is unable to pay its debts can only be made in a situation where the debt is undisputed or an illusory and a sham defense is sought to be raised towards the liability. In both these cases, the company is liable to pay the debt and the fact that it has failed and neglected to pay the same despite a notice under Section 434....
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....im 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 see Re. Tweeds Garages Ltd 1962 Ch 406. 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 adduces prima facie proof of the facts on which the defence depends". 26. In the case of Pradeshiya Industrial and Investment Corporation of Uttar Pradesh Vs. North India Petro Chemical and Another reported in 1994 (79) Company Cases 835, the Hon'ble Supreme Court has held that an order under Section 433(e) is discretionary and there must be a debt due and the company must be unable to pay the same and the debt must be a determined or definite sum of money payable immediately or at a further date and inability u/S.433(e) should be taken in the commercial sense. 27. In the matter of Mediquip Systems (P) Ltd. Vs. Proxima Medical System GmbH reported in 2005(7) SCC 42 Hon'ble Supreme Court has reiterated the principles relevant for passing winding up order by holding as follo....
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....nd honest entitlement and must not be a mere wrangle. It is settled law that if the creditor's debt is bonafide disputed on substantial grounds, the court should dismiss the petition and leave the creditor first to establish his claim in an action, lest there is danger of abuse of winding up procedure. The Company Court always retains the discretion, but a party to a dispute should not be allowed to use the threat of winding up petition as a means of forcing the company to pay a bonafide disputed debt." 30. From the aforesaid judgments, the following broad legal principles can be deduced: 1. If the debt is bonafide disputed and the defense is a substantial one, the Court will not wind up the company. Conversely, if the plea of denial of debit is moonshine or a cloak, spurious, speculative, illusory or misconceived, the Court can exercise the discretion to order the company to be wound up. 2. A petition presented ostensibly for winding up order, but in reality to exert pressure to pay the bonafide disputed debt is liable to be dismissed. 3. Solvency is not a stand alone ground. It is relevant to test whether denial of debt is bonafide. 4. Where the debt is undisputed ....
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....y's insolvency may be a useful aid in deciding whether the refusal to pay is a result of the bonafide dispute as to liability or whether it reflects an inability to pay, and in such a situation, solvency is relevant not as a separate ground. It was held as under: "24. The appellant Company raised a contention that it is commercially solvent and, in such a situation, the question may arise that the factum of commercial solvency, as such, would be sufficient to reject the petition for winding up, unless substantial grounds for its rejection are made out. A determination of examination of the company's insolvency may be a useful aid in deciding whether the refusal to pay is a result of the bona fide dispute as to liability or whether it reflects an inability to pay, in such a situation, solvency is relevant not as a separate ground. If there is no dispute as to the company's liability, the solvency of the company might not constitute a stand alone ground for setting aside a notice under Section 434(1)(a), meaning thereby, if a debt is undisputedly owing, then it has to be paid. If the company refuses to pay on no genuine and substantial grounds, it should not be able to avoid the s....