TaxTMI 
TaxTMI 
2005 (10) TMI 574
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.... P. No. 129 of 1999, OSA No. 39 of 2002 in Co. P. No. 41 of 2000, OSA No. 40 of 2002 in Co. P. No. 126 of 1999, OSA No. 41 of 2002 in Co. P. No. 96 of 1999, OSA No. 42 of 2002 in Co. P. No. 97 of 1.999, OSA No. 43 of 2002 in Co. P. No. 46 of 1999, OSA No. 44 of 2002 in Co. P. No. 65 of 1999, OSA No. 45 of 2002 in Co. P. No. 64 of 1999, OSA No. 46 of 2002 in Co. P. No. .1.45 of 1999, OSA No. 47 of 2002 in Co. P. No. 146 of 1999, OSA No. 48 of 2002 in Co. P. No. 63 of 1999, OSA No. 49 of 2002 in Co. P. No. 242 of 1999, OSA No. 50 of 2002 in Co. P. No. 66 of 1999 and OSA No. 51 of 2002 in Co. P. No. 141 of 1999 N.K. Sodhi, C.J. and S. Abdul Nazeer, J. For the Appellant: V.A. Mohta,Sr. Adv. and B.G. Sridharan, Adv.in all OSA in Company Petitions, For the Respondent: Javaji Srinivasalu, Adv., Udaya Holla, Sr. Adv., Madhusudhan R. Naik,, Adv., A. Jagannath Shetty, Adv., Bhuvan and Company, Veeresh B. Patil, Adv., D.N. Nanjunda Reddy, Adv., R. Nagendra Naidu, Adv., G.V. Shantharaju,Sr. Adv. for Kesvy andCompany i, D.S. Ramachandra Reddy, Adv.for Kesvy andCompany, S.V. Subraniamyan, Adv., P.S. Dinesh Kumar, Central Government Standing Counsel and N. Dovadas,Additional Solicitor Ge....
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.... clause shall be substituted, namely.-- "(11) Distributor Licence.--(a) A licence shall be granted by the Excise Commissioner for the whole of the State or any part thereof to deal in the products of all distilleries or breweries or wineries in the State or to import liquor from outside the State for the purpose of distribution or sale within the State or as the case may be or part thereof or to export liquor outside the State. The licensee shall establish not less than one depot in each district within the State or, as the case may be, within the part of the State, as the Excise Commissioner may specify in this behalf. (b) The licence under this clause shall be issued only to such Company owned or controlled by the State Government as the State Government may specify. (c) The licence shall be in Form CL-11 and shall be subject to renewal each year at the discretion of the Excise Commissioner. (d) The Excise Commissioner may also permit the licensee to sell foreign liquor. Notwithstanding anything contained in this clause, the licences under this clause granted for the year 1989-90 shall be valid until ....
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....ditions of the licence were also amended by the Rules, the sole distributor had to purchase liquor only from distillerios/brewerics/wineries located within the State of Karnataka or could import liquor from outside the State. It had to sell liquor only to a person who was holding CL-1 licence in the State or export liquor to a person outside the State who was holding a valid licence to deal in liquor. Some other set of Rules had also been amended and it had been made obligatory for all manufacturers of liquor within the State of Karnataka to sell their liquor only to MSIL the sole distributor in the State. In other words, MSIL as the sole distributor of liquor had to purchase the same only from the manufacturers from within the State and sell it to the wholesalers. 3. By a letter dated 13-11-1989, the Commissioner and Secretary to the Government, Home Department communicated to MSIL that it had been specified as the Company wholly owned and controlled by the Government for purposes of issue of distributor's licence under the powers vested with the State Government under Sub-clause (b) of Clause (11.) of Rule 3 of the Rules. MSIL had also been informed that it will deal in al....
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....n dated 13-11-1989 (Annexure-F with the Company petition) but also on the interim order granted by the Supreme Court it is necessary to reproduce the same for facility of reference. It reads as under: ORDER Special leave granted. List these matters for final hearing on 15-2-1990 before Bench of three Hon'ble Judges. In the meantime there will be stay in terms of the prayer (b)(i), (ii) and (hi) of the stay petition subject to the following.-- (1) This will not operate as a stay of licence granted in favour of M/s. Mysore Sales International Limited; (2) Manufacturers and wholesalers will be free, if they want, to deal with M/s. Mysore Sales International Limited; (3) By virtue of this order the existing licence holders will be free to operate their licences upto the end of June 1990; (4) Mysore Sales International Limited may appoint its Officers at the Distilleries for the purpose of labelling and supervising the verification of stock. The said officers posted will be supervising the _ labelling of excise adhesive; (5) For the purpose aforesaid M/s. Mysore bales International may appoint such officers as may be nec....
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....nts were also directed to keep separate accounts of their dealings and supply a copy of the same, inter alia, to MSIL. Some of the appellants have accordingly supplied statements of account to MSIL. Those who have not supplied such statements are directed to supply the same to MSIL within eight weeks from today. The appellants are directed to pay to MSIL the requisite commission amount on the basis of the dealings conducted by them within twelve weeks from today". It appears that M/s. Khoday Distilleries Limited which was one of the appellants before the Supreme Court did not pay the amount which, according to MSIL, had become due to it on the basis of the interim order and also in terms of the directions issued in para 21 of Khoday Distilleries case. A contempt petition was moved in the Supreme Court by MSIL alleging violation of the Court order by Khoday Distilleries and in that petition the Supreme Court directed the alleged contemn or to make payment of the entire amount claimed by MSIL within four weeks from the date of the order. It is admitted before us that Khoday Distilleries made the payment to MSIL in pursuance to that direction. 6. MSIL claims that responden....
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....n paid to MSIL it served a legal notice dated 1-1-1997 on the Company M/s. United Breweries Limited informing the latter that it was bound to sell its liquor only to the former and in that event MSIL would have sold the same to the wholesalers holding CL-1 licence and in the process it would have received the margin money. MSIL called upon the Company to submit true and correct statement of accounts regarding direct transactions carried on by it with effect from 13-11-1989 upto the date of receipt of notice and pay 5% on the basis of the dealings it had with other distributors and wholesalers within the State of Karnataka and 0.5% on exports and interest at 18% on that amount had also been claimed. The Company did not bother to send a reply to this notice. It appears that MSIL approached the Department of Excise, Government of Karnataka and collected some information from the department regarding the transactions of sale effected by the Company with effect from 13-11-1989 till the final decision of the case by the Supreme Court on 15-12-1995 and after calculating the 5%; margin money on the sales effected within the State of Karnataka called upon the Company by a registered notice ....
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.... is sold. Reference has been made to instances where MSIL acted as a distributor for many manufacturers but it did not collect any commission/margin from the manufacturer. Reference has also been made to the correspondence exchanged between MSIL and the Company to contend that the former had clearly understood that 5% margin money was recoverable only from the wholesaler to whom liquor was sold. The Company in its reply has also referred to the prevalent trade practice constantly followed according to which the manufacturer sells liquor to the distributor/wholesaler at a fixed price and the distributor/wholesaler in turn sells it to the retailer/consumer after adding its margin thereto. The retailer in turn adds his margin to the price and sells liquor to the consumer. It is the case of the Company that according to the trade practice the manufacturer does not pay any margin money. It is also averred that the petition is based on a totally fanciful claim made by MSIL against the Company and that no amount is due. The claim is said to be based on a misreading of the Government letter. As regards the orders of the Supreme Court it is stated that the Company was not a party in any of ....
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....nufacturers were free to sell their liquor to other distributors though they could sell the same to MSIL as well. The case set up by MSIL is that the Company was required to process its sale transactions only through MSIL and had it done so, MSIL would have undoubtedly collected the margin money of 5% from the wholesalers and since it did not do so it was liable to compensate MSIL in this regard for the loss suffered by it (MSIL) Reliance is placed on the judgment of the Supreme Court in Khoday Distilleries case. The precise plea taken by MSIL in its rejoinder may be reproduced hereunder: "Had only the respondent-Company supplied the quantities to the wholesalers through the petitioner-Company, the petitioner-Company would have undoubtedly collected the margin from the wholesalers. Since he did not do so, the respondent-Company is liable to compensate the petitioner-Company in this behalf and this point is fully covered by the decision of the Hon'ble Supreme Court in the case of M/s. Khoday Distilleries Limited v. State of Karnataka,: AIR1996SC911 .... However, the fact remains that the respondent Company has failed to supply the quantities of liquor to petitione....
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.... All that the letter said was MSIL was entitled to charge reasonable margins not exceeding 0.5% on exports and 5% on sales within the State in respect of its operations as a distributor. The letter only prescribes the maximum that could be charged but it did not prescribe the amount that was actually to be charged. Some person or authority had to decide how much was to be charged. Assuming MSIL decides to charge the maximum of 5% as margin money, it is open to the Company to dispute the same and contend that something lesser was payable. It is thus clear that whatever amount MSIL is seeking to recover on the basis of this letter is a disputed amount and cannot be said to be a debt due from the Company. 13. The learned Senior Counsel appearing for the Company strenuously urged that the State Government while appointing MSIL as the sole distributor did not authorise it to claim and collect the margin money from the manufacturers of liquor and that the amount that is sought to be recovered on the basis of the letter dated 13-11-1.989 is disputed and that the dispute is bona fide. According to the learned Senior Counsel the Company petition raised triable issues for consideration an....
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....evidence and in the very nature of things such issues could not be decided on summary proceedings in a winding up petition and the learned Company Judge was right in dismissing the Company petition. 15. Sri V.A. Mohta, learned Senior Counsel appearing for MSIL laid great stress on the interim order passed by the Supreme Court and also on the final order dated 15-12-1995 in Khoday Distilleries case and urged that these orders were orders in rern and were binding on all those who took benefit thereunder including the Company even though it was not a party in the appeal before the Supreme Court and therefore it was not only required to maintain its accounts as directed by the Supreme Court but on the dismissal of the appeals on 15-12-1995 it became liable to pay compensation to MSIL in terms of the direction contained in para 21 of the judgment. We are not impressed with this contention. The interim order passed by the Supreme Court was not an order in rem but it was an order in personam. It is true that when the operation of the Rules was ordered to be stayed during the pendency of the appeals in the Supreme Court the Company and several others took advantage of the same even thou....
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....arned Company Judge was right in doing so. 17. A winding up petition is not a legitimate means of seeking to enforce payment of an amount which is bona fide disputed by the Company. A petition which is presented ostensibly for a winding up order but is really meant to exert pressure on the Company to pay a debt which is disputed, has to be dismissed. In Amalgamated Commercial Traders (Private) Limited v. A.C.K. Krishnaswami, (1965)35 Comp. Cas. 456 (SC) the Supreme Court quoted with approval the following passage from Buckley on the Companies Act (13th Edition, page 451); which sums up the law aptly: "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 petitio....
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....depends". In view of our aforesaid discussion we hold that in the case before us the Company is bona fide disputing the amount claimed by MSIL and that the denial of its liability is not a pretext to hide its inability to pay. The Company is in fact a solvent one having reserves and is cash rich. The defence taken by it is one of substance and in good faith which is likely to succeed in point of law. We are, therefore, of the view that the winding up petition filed by MSIL was misconceived and the same has been rightly dismissed. 18. Lastly, it was urged by the learned Senior Counsel appearing for MSIL that it was just and equitable to wind up the Company under Clause (f) of Section 433 of the Act. Elaborating the argument it was contended that the Company owns huge sum of money to MSIL which is a Public Sector undertaking and in view of the fact that the Company is not making payment of public dues it should be wound up. We cannot accept this contention for at least two reasons. Firstly, no such plea has been raised in the Company petition and therefore MSIL cannot be allowed to urge this ground. Secondly, even if it were to be assumed that the Company is withholding public ....