2007 (9) TMI 420 - HC - Companies Law

Winding up - Whether, the learned company judge was justified in admitting the said company petition (Co. P. 157 of 2005) holding that the defence taken by the appellant (respondent therein) contesting the claim of the respondent-company (petitioner therein) was not bona fide ? Held that - The defence taken by the appellant-company is bona fide and one of substance and it is likely to succeed in law inasmuch as the respondent-company, having admitted the factum of return of some of the materials by the appellant-company, has not placed oft record any material to prima facie substantiate its case that the value of the said returned materials was deducted by the appellant from out of the amount payable to the respondent under any specific bill prior to the supply of further materials by it to the appellant under the bills mentioned in the company petition. In the result the impugned order is liable to be set aside and the said company petition is liable to be dismissed. Accordingly, this appeal is allowed, the impugned order is hereby set aside, and the said Company Petition No. 157 of 2005 is hereby dismissed.The respondent-company is at liberty to recover the amount claimed in the company petition from the appellant-company by resorting to such legal remedy as may be available to it under law and, in that event, the appellant-company would be at liberty to take all such defences as may be available to it under law. The appellant-company is permitted to withdraw the amount deposited by it in the said company petition

Issues Involved:
1. Justification of admitting the company petition.
2. Existence and nature of the dispute between the parties.
3. Bona fide nature of the appellant's defense.
4. Applicability of legal precedents and principles.
5. Discretion of the court under section 433(e) and (f) of the Companies Act, 1956.

Issue-Wise Detailed Analysis:

1. Justification of Admitting the Company Petition:
The core issue was whether the learned company judge was justified in admitting the company petition (Co. P. 157 of 2005). The respondent had filed the petition under section 433(e) and (f) of the Companies Act, 1956, seeking winding up of the appellant-company due to unpaid dues. The appellant contested the petition, claiming that the materials supplied by the respondent were of sub-standard quality, leading to a bona fide dispute over the payment. The learned company judge admitted the petition, directing the respondent to advertise the hearing date, which the appellant challenged, questioning the correctness of this order.

2. Existence and Nature of the Dispute:
The appellant and respondent companies had a commercial relationship where the respondent supplied adhesive materials to the appellant. The appellant admitted receiving materials worth Rs. 3,27,485 under four bills but claimed that some materials were sub-standard and returned, causing a loss. The appellant withheld payment, asserting a bona fide dispute. The respondent acknowledged the return of some materials but contended that the value of returned materials was already deducted from earlier bills. The court noted that neither party provided exact details of the returned materials' value, indicating a genuine dispute over the exact amount due.

3. Bona Fide Nature of the Appellant's Defense:
The appellant argued that the defense was bona fide, as it had deposited the disputed amount in court, demonstrating its ability to pay. The respondent contended that the appellant's defense was an afterthought, as it was raised only in the additional statement of objections and not in response to the initial legal notice. The court found that the learned company judge erred in deeming the defense not bona fide based solely on the timing of the appellant's response. The court emphasized that a bona fide dispute, even if raised later, should be considered if it is substantial and likely to succeed in law.

4. Applicability of Legal Precedents and Principles:
Both parties cited the Supreme Court judgment in Madhusudhan Gordhandas and Co. v. Madhu Woollen Industries P. Ltd., which held that a winding-up petition should be refused if the company's defense is bona fide and substantial. The court also referred to Divya Export Enterprises v. Producin P. Ltd., highlighting that a winding-up petition should not be used to enforce a disputed debt. The court agreed with these principles, noting that the appellant's defense was substantial and likely to succeed, thus warranting the dismissal of the winding-up petition.

5. Discretion of the Court under Section 433(e) and (f) of the Companies Act, 1956:
The court emphasized that the discretion under section 433(e) and (f) should be exercised judicially. The appellant's deposit of the disputed amount demonstrated its ability to pay, countering the claim that it was unable to pay its debts. The court reiterated that winding-up proceedings should not be used as a means to pressure payment of disputed debts. The court concluded that the learned company judge misapplied his discretion by admitting the petition without fully considering the bona fide nature of the dispute.

Conclusion:
The court set aside the impugned order admitting the company petition, allowing the appeal. The respondent was advised to pursue other legal remedies to recover the claimed amount, and the appellant was permitted to withdraw the deposited amount. The court clarified that its observations should not influence any future proceedings regarding the merits of the case. There was no order as to costs.

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