1995 (11) TMI 310 - HC - Companies Law

Summary

Issues Involved:
1. Whether the respondent-company had a bona fide dispute regarding the quality of adhesives supplied by the appellant.
2. Whether the respondent-company admitted the amount due to the appellant.
3. Whether the winding-up petition was an appropriate remedy for the appellant.

Issue-wise Detailed Analysis:

1. Bona Fide Dispute Regarding Quality of Adhesives:

The appellant, Chem-Crown India Ltd., supplied adhesives to the respondent, Sports Equipment (P.) Ltd., from April 1988 to July 1991. The respondent utilized these adhesives in shoe manufacturing without any initial complaints. However, disputes arose in August 1991 when the respondent alleged bond failures in shoes due to sub-standard adhesives. The appellant countered that the supplied adhesives had a solid content of 16% and 12%, which had been satisfactory for years. The appellant also indicated that Liberty Footwear received adhesives with 19% solid content at a higher price and with a bond failure guarantee. The respondent's claim of sub-standard adhesives was not substantiated by any test reports or prior complaints during the three years of transactions. The court found that the respondent's objections were raised long after the adhesives were consumed and were not bona fide.

2. Admission of Amount Due:

The appellant claimed an outstanding amount of Rs. 1,34,146 as of August 24, 1992, which was reflected in both parties' account books. The respondent issued cheques for part payments, some of which were dishonored. The court noted that the respondent did not dispute the amount due until May 23, 1992, when it vaguely stated that the amount was "much less" without specifying how much less. The court inferred that the respondent initially acknowledged the amount due but later raised disputes to avoid payment.

3. Appropriateness of Winding-Up Petition:

The learned Company Judge dismissed the winding-up petition, stating that winding-up procedures should not be used for debt recovery where bona fide disputes exist. The court referred to the Supreme Court's decision in Amalgamated Commercial Traders (P.) Ltd. v. A.C.K. Krishnaswami, emphasizing that winding-up orders are inappropriate if there is a bona fide dispute. However, the appellate court found no bona fide dispute and noted that the respondent's financial instability and failure to pay the admitted amount justified the winding-up petition. The court concluded that the appellant had made a case for admitting the petition and issuing a citation.

Conclusion:

The appellate court set aside the learned Company Judge's order, finding that the respondent did not raise a bona fide dispute and admitted the amount due. The court allowed the winding-up petition to be admitted and issued a citation, giving the respondent four weeks to pay the due amount before further proceedings. The company appeal was disposed of accordingly.