2009 (3) TMI 573 - HC - Companies Law

Winding up - Circumstances in which a company may be wound up - Held that - Do not find there to be a bona fide dispute regarding the said sum of ₹ 4 crores. Interest at 18 per cent per annum was claimed from 7-5-2008. In fact the company would be bound and liable to pay interest from 21-9-2007 i.e., the date of the first statutory notice wherein interest at 18 per cent per annum was claimed. However, as the particulars of claim at Exhibit A to the petition claims interest only from 7-5-2008, I will restrict my order accordingly. If the company deposits a sum of ₹ 4,21,00,000 on or before 30-6-2009 the same shall be transferred to the credit of the suit filed by the Petitioner in the Court of City Civil Judge at Bangalore being suit No. O.S. 8311 of 2007. In that event, an application for an order of investment may be made by the parties in that suit. In the event of the company failing to deposit the said amount, the petition shall stand admitted and shall be advertised in the Free Press Journal, Maharashtra Times and Maharashtra Government Gazette. The Petitioner to deposit an amount of ₹ 10,000 with Prothonotary and Senior Master of this Court within four weeks from the date of default.

Issues Involved:
1. Whether the respondent company is unable to pay its debts.
2. Whether the sum of Rs. 4 crores was paid as a trade deposit or a security deposit.
3. Whether there are bona fide disputes between the petitioner and the respondent company regarding the alleged fraudulent activities and overcharges by the petitioner.
4. Whether the filing of a suit by the petitioner affects the winding-up petition.
5. Whether the respondent company's allegations of fraud and overcharging are substantiated.

Detailed Analysis:

1. Whether the respondent company is unable to pay its debts:
The petitioner sought an order to wind up the respondent company on the grounds of its inability to pay debts, specifically a sum of Rs. 4,21,00,000. The respondent did not dispute the payment of Rs. 4 crores by the petitioner but argued it was a security deposit, not a trade deposit. The court found that the respondent's letters and other documents clearly established that the amount was a trade deposit, not a security deposit, and the company had agreed to refund this amount within twelve months.

2. Whether the sum of Rs. 4 crores was paid as a trade deposit or a security deposit:
The court examined the circumstances and manner of payment. Letters from the respondent to the petitioner referred to the amounts as "unsecured interest-free trade deposits" meant to assist the company in procuring molasses and meeting liabilities. These letters contradicted the respondent's claim that the amounts were security deposits. The court concluded that the petitioner's case of the amounts being advanced as trade deposits was clearly established.

3. Whether there are bona fide disputes between the petitioner and the respondent company regarding the alleged fraudulent activities and overcharges by the petitioner:
The respondent alleged that the petitioner had fraudulently overcharged and duped the company, causing significant financial loss. However, these allegations lacked substantiation and were raised only after the petitioner issued a statutory notice. The court noted the absence of supporting documents and particulars regarding how and when the company discovered the alleged fraud. An audit report prepared by the respondent's chartered accountants was found to be based on limited details and did not inspire confidence. The court found these allegations to be unsubstantiated and likely raised to deny the petitioner's claim.

4. Whether the filing of a suit by the petitioner affects the winding-up petition:
The respondent argued that the petitioner's earlier filing of a suit to recover the amounts indicated bona fide disputes. The court disagreed, stating that filing a suit does not imply an admission of bona fide disputes. It is common for parties to file suits to protect their claims from being barred by limitation. The court held that the filing of a suit does not affect the winding-up petition.

5. Whether the respondent company's allegations of fraud and overcharging are substantiated:
The court found no evidence to support the respondent's allegations of fraud and overcharging by the petitioner. The audit report relied upon by the respondent was prepared by its own chartered accountants and lacked independent verification. The report's findings were based on limited documentation and hypothetical scenarios. The court noted that the respondent had not taken any action against its internal and statutory auditors for failing to detect the alleged fraudulent activities, further weakening the credibility of these allegations.

Conclusion:
The court concluded that there was no bona fide dispute regarding the sum of Rs. 4 crores, which was established as a trade deposit. The respondent's allegations of fraud and overcharging were unsubstantiated and appeared to be raised to deny the petitioner's claim. The court ordered the respondent to deposit Rs. 4,21,00,000 by a specified date, failing which the winding-up petition would be admitted and advertised.

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