2009 (3) TMI 576 - HC - Companies Law

Winding up - Circumstances in which a company may be wound up - Held that - As the debt due to the petitioner-company was duly established and it is a determined sum of money payable by the respondent. That apart, it has also been established that the respondent was unable to pay its dues. In fact, the liability to pay also was admitted by the respondent. A weak attempt was made to put up a defence which is not a substantial one and there is no bona fide dispute with regard to the sum payable towards the principal. Therefore, the petitioner can very well maintain the company petition.

Issues Involved:

1. Petition for winding up the company.
2. Respondent's financial difficulties and inability to pay debts.
3. Alleged breach of contract and rescheduling of payments.
4. Dispute over the quality of goods supplied.
5. Legal remedies and maintainability of the winding-up petition.
6. Admissibility of interest claims by the petitioner.
7. Court's discretion under section 433(e) of the Companies Act.
8. Legal precedents and principles governing winding-up petitions.

Issue-wise Detailed Analysis:

1. Petition for Winding Up the Company:
The petitioner, M/s. Phosphate Chemicals Export Association Inc., Illinois, U.S.A., filed a petition to wind up the respondent company due to non-payment of debts. The respondent had placed an order for 6,81,000 m.t. of Di-Ammonium Phosphate (DAP) under Export Sales Contract No. 01433 dated 27-6-2001. Despite accepting the shipments, the respondent failed to pay the total value of US $11,675,325.70 within the stipulated 180 days.

2. Respondent's Financial Difficulties and Inability to Pay Debts:
The respondent admitted to financial difficulties, citing issues such as the Government of India's recovery of fertilizer subsidies on an ad hoc basis and production constraints due to fund shortages. These factors led to under-utilization of plant capacities and increased production costs, resulting in temporary financial setbacks.

3. Alleged Breach of Contract and Rescheduling of Payments:
The respondent proposed rescheduling payments in seven installments beginning February 2002, which the petitioner initially accepted. However, the respondent defaulted on subsequent payments, leading to multiple revised payment plans, all of which were breached. The petitioner issued a statutory notice under section 434 of the Companies Act, 1956, demanding the outstanding payment with interest, which the respondent failed to honor.

4. Dispute Over the Quality of Goods Supplied:
The respondent alleged that the goods supplied were not as per the specifications prescribed by the Government of India, supported by a quality control laboratory report. This defense was raised belatedly and was not found to be bona fide by the court.

5. Legal Remedies and Maintainability of the Winding-Up Petition:
The respondent argued that the dispute was civil in nature and that the proper remedy for the petitioner would be to file a suit rather than a winding-up petition. The court, however, found that the petitioner had established the respondent's inability to pay its debts, making the winding-up petition maintainable.

6. Admissibility of Interest Claims by the Petitioner:
The respondent disputed the interest claim of 7% per annum, stating that there was no commitment to pay such interest. The court noted that the respondent had not even paid the principal amount, making their contention regarding interest untenable.

7. Court's Discretion Under Section 433(e) of the Companies Act:
The court emphasized that an order under section 433(e) of the Companies Act is discretionary. It must be shown that there is a debt due and that the company is unable to pay it. The respondent's inability to pay was established, and their defense was not substantial or bona fide.

8. Legal Precedents and Principles Governing Winding-Up Petitions:
The court referred to several precedents, including:
- *Pradeshiya Industrial & Investment Corpn. of Uttar Pradesh v. North India Petro Chemical Ltd.* [1994] 79 Comp. Cas. 835 (SC)
- *National Conduits (P.) Ltd. v. S.S. Arora* [1967] 37 Comp. Cas. 786 (SC)
- *Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P.) Ltd.* [1972] 42 Comp. Cas. 125 (SC)
- *Mediqup Systems (P.) Ltd. v. Proxima Medical System GMBH* [2005] 59 SCL 255 (SC)

These cases established that if the debt is bona fide disputed and the defense is substantial, the court will not wind up the company. However, in this case, the debt was undisputed, and the respondent's defense was not substantial.

Conclusion:
The court concluded that the petitioner had established the respondent's inability to pay its debts and that the winding-up petition was maintainable. The order was admitted, and the petitioner was directed to publish the company petition in specified newspapers and the Tamil Nadu Government Gazette. The order was suspended for two weeks to allow the respondent to appeal.

Order:
(i) Admit. Notice returnable by 28-4-2009.
(ii) Publish the petition in Malai Murasu, Deccan Chronicle, and the Tamil Nadu Government Gazette.
(iii) Provide at least fourteen days' advance notice.

The petition was called for on 28-4-2009.

← Previous Next →