1998 (4) TMI 449 - HC - Companies Law

Summary

Issues Involved:
1. Maintainability of the petition under Rule 21 of the Companies (Court) Rules, 1959.
2. Respondent's indebtedness and inability to pay debts.
3. Binding nature of the compromise agreement before the Company Law Board.
4. Financial soundness of the respondent company.
5. Appropriateness of using a winding-up petition for debt recovery.

Issue-wise Detailed Analysis:

1. Maintainability of the Petition:
The respondent raised a preliminary objection regarding the maintainability of the petition, arguing that it was contrary to Rule 21 of the Companies (Court) Rules, 1959, as S.K. Nigam, who verified the petition, was neither a director, secretary, nor principal officer of the petitioner company. The court examined the resolution authorizing P.K. Bhargava, the managing director of the petitioner, to execute a power of attorney in favor of S.K. Nigam for filing the petition. The court found that the petition was filed by an authorized person, thereby rejecting the preliminary objection.

2. Respondent's Indebtedness and Inability to Pay Debts:
The petitioner claimed that the respondent company owed Rs. 1,30,50,000 along with interest and had failed to pay despite statutory notice. The respondent admitted the debt but contended it was payable at their convenience. The court noted that the respondent had issued a cheque for the amount, which was dishonored, indicating the debt was due. The court found the respondent's defense not bona fide and held that the company had neglected to pay its debt, thus making a prima facie case for admitting the petition.

3. Binding Nature of the Compromise Agreement:
The respondent argued that the compromise agreement before the Company Law Board was not binding as the company was not a party to it. The court observed that the agreement was signed by the joint managing director and a director of the respondent company, acknowledging the liability and agreeing to repay by April 30, 1996. The court held that the agreement was prima facie binding on the respondent company, especially since it had issued a cheque pursuant to the agreement.

4. Financial Soundness of the Respondent Company:
The respondent claimed financial soundness, citing profits, dividends, and substantial payments of taxes and excise duties. The petitioner countered, arguing that the financial health was camouflaged and the company had substantial liabilities. The court did not delve deeply into the financial statements but noted that even a solvent company cannot refuse to pay its debts. The court emphasized that the respondent's defense was not in good faith.

5. Appropriateness of Using a Winding-Up Petition for Debt Recovery:
The respondent contended that a winding-up petition should not be used as an alternative to a suit for debt recovery. The court referred to the Supreme Court's ruling in Madhusudan Gordhandas and Co. v. Madhu Woollen Industries (P.) Ltd., which allows winding-up petitions if the debt is not bona fide disputed. The court found that the respondent's defense lacked substance and was not bona fide, thus justifying the use of a winding-up petition.

Conclusion:
The court decided to admit the petition and consider advertising it, subject to the respondent company depositing Rs. 75 lakhs in three installments. The court set deadlines for these deposits and stated that failure to comply would result in the petition being advertised. The case was scheduled for further orders on May 22, 1998.