1993 (1) TMI 243 - HC - Companies Law

Circumstances in which a company may be wound up Winding up - Company when deemed unable to pay its debts Restrictions on payments Contracts in evasion of Act

Issues Involved:
1. Commercial Insolvency of the Company
2. Defective Goods and Entitlement to Discount
3. Losses and Damages Due to Non-Execution of Contracts
4. Limitation of the Petitioning Creditor's Claim
5. Violation of the Foreign Exchange Regulation Act (FERA)
6. Novation of Contract
7. Previous Legal Proceedings and Triable Issues

Issue-wise Detailed Analysis:

1. Commercial Insolvency of the Company:
The petitioning creditor filed for the winding up of the company on the grounds of commercial insolvency. The company had failed to make payments for goods received from the petitioning creditor despite several agreements and acknowledgments of debt.

2. Defective Goods and Entitlement to Discount:
The company claimed that the goods supplied were defective and not as per specification, entitling them to a 50% discount. The petitioning creditor allegedly admitted to the defects and agreed to a 25% discount. However, the court found serious doubts regarding the genuineness of the telexes relied upon by the company. The company had not taken any steps to assert its right to a discount or recover losses, and its unconditional acknowledgment of liability in subsequent documents falsified this defense.

3. Losses and Damages Due to Non-Execution of Contracts:
The company argued that the petitioning creditor failed to execute several contracts, resulting in losses amounting to USD 87,703. The court found this defense unsubstantiated, as the company had not taken any action to recover these alleged losses. The company's acknowledgment of debt in subsequent documents also contradicted this claim.

4. Limitation of the Petitioning Creditor's Claim:
The company contended that the claim was barred by limitation since the goods were received in 1986. However, the court held that the claim was kept alive by the company's repeated acknowledgments of liability in 1988 and 1989. Therefore, the winding-up petition filed in 1990 was within the limitation period.

5. Violation of the Foreign Exchange Regulation Act (FERA):
The company argued that the transaction was illegal under FERA and that payment to United Lubricants was violative of section 9 of FERA. The court rejected this defense, stating that the prohibition under section 9(1) of FERA was not absolute and payments could be made with the Reserve Bank's permission. The company had not made any bona fide attempts to obtain such permission. The court also noted that the winding-up proceedings were legal proceedings under section 47(3) of FERA and did not require prior permission for the petitioning creditor to recover its debt.

6. Novation of Contract:
The company claimed that there was a novation of the contract, making United Lubricants the party entitled to receive payments. The court found no merit in this defense, as the company itself had acknowledged that payments to United Lubricants were on behalf of the petitioning creditor. The document dated May 24, 1989, also clearly indicated that the debt was owed to the petitioning creditor.

7. Previous Legal Proceedings and Triable Issues:
The company argued that a previous court had allowed leave to defend to Pradip Saraf in a related suit, indicating a triable issue. The court rejected this argument, stating that the nature of consideration in summary proceedings under Order 37 is different from that in winding-up proceedings. The court is called upon to determine the actual bona fides of the defense in winding-up proceedings, which it found lacking in this case.

Conclusion:
The court found the company's defenses to be without substance and displayed a lack of bona fides. The presumption of insolvency under section 434 of the Companies Act was not rebutted. The winding-up petition was admitted, and the company was ordered to pay the petitioning creditor the amount of Rs. 13,17,554.50 with interest and costs. The petition was to be advertised in The Telegraph and The Statesman, and the matter was returnable in six weeks. The court granted a stay of the judgment for two weeks and continued the injunction restraining the petitioning creditor from filing any suit in respect of the subject matter of the claim.

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