2005 (1) TMI 400 - HC - Companies Law

Summary

Issues Involved:
1. Non-payment of principal amount and interest by the company.
2. Entitlement to interest under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993.
3. Bona fide dispute regarding the liability to pay interest.
4. Appropriate forum for recovery of interest.

Detailed Analysis:

1. Non-payment of Principal Amount and Interest by the Company:
The petitions were filed under sections 433, 434, and 439 of the Companies Act, 1956, seeking the winding up of Orient Paper and Industries Ltd. due to non-payment of dues. The petitioners supplied goods to the company based on purchase orders that stipulated payment terms and overdue interest rates. Despite supplying the goods, the company failed to pay the principal amounts and the stipulated interest. Notices were served to the company, but payments were not made, prompting the petitions for winding up. During the pendency of the petitions, the company paid the principal amounts but disputed the liability to pay interest.

2. Entitlement to Interest under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993:
The petitioners argued that as small scale industries, they were entitled to interest under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993. The purchase orders also stipulated overdue interest rates of 16% and 18% per annum, respectively. The petitioners cited case laws where courts held that company judges could determine the entitlement to interest even if the principal amount was paid.

3. Bona Fide Dispute Regarding the Liability to Pay Interest:
The company contended that a winding up petition could not be used to enforce payment of a debt that was bona fide disputed. It argued that while the principal amount was admitted and paid, the liability to pay interest was bona fide disputed. The company cited Buckley on The Companies Acts and Supreme Court judgments to support its claim that a bona fide dispute regarding interest should be resolved in a civil court, not through a winding up petition.

4. Appropriate Forum for Recovery of Interest:
The petitioners cited decisions where company judges were deemed appropriate forums for determining interest entitlement. However, the company argued that section 6 of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993, required disputes regarding interest to be resolved through suits or other proceedings, not through winding up petitions. The court examined whether the company's defense against paying interest was in good faith, substantial, and likely to succeed in law.

Court's Findings:
- The court noted that the petitioners were small scale industries entitled to interest under the 1993 Act.
- It held that the company's liability to pay interest was not affected by any agreement or other laws, as per sections 4 and 5 of the 1993 Act.
- The court found that the company's defense was not bona fide and lacked substance.
- The court referenced the Supreme Court's criteria for determining bona fide disputes and concluded that the company's defense did not meet these criteria.

Conclusion:
The court opined that the company was liable to be wound up for non-payment of interest under the 1993 Act. However, it provided the company an opportunity to pay the interest or settle with the petitioners before finalizing the winding up order. The matters were adjourned for two months to allow for payment or settlement.

Order Accordingly.