2015 (10) TMI 2670 - HC - Companies Law

Winding up proceedings - proof required by the petitioning creditor to prove his case in the winding up application - Held that - The standard of proof required by the petitioning creditor to prove his case in the winding up application is the same standard that is required to prove a plaintiff s case in a summary suit. (see SRC Steel Pvt. Ltd. Vs. Bharat Industrial Corporation Ltd. - 2004 (8) TMI 684 - CALCUTTA HIGH COURT). The company must be in a completely defenceless position. It would suffice if the company raised a triable issue, for relegation of the winding up application to a civil forum. From all the discussion it is absolutely clear that the company has been able to prima facie establish a strong case that the goods that the petitioning creditor shipped were in fact in lieu of payment for the goods shipped to them by Concast Bengal in 2009. Both the shipments have been proved by invoices, delivery, payment of VAT and so on. But there is no evidence of either party making payment of the price. There is also strong evidence produced by the company to show that each of the companies of the Concast Group was a part of one entity and carried on business as one entity. Shipment of goods by the petitioning creditor in 2011 was sufficient to extinguish its liability for the goods that it received in 2009. The argument regarding equitable set off is premature, in my opinion. It has to be seen, upon scrutiny of the evidence at the trial whether the arrangement between the parties was such that the setting off took place at the time of the transaction or was it pleaded for the first time in the affidavits in opposition. That would determine whether the set off was legal or equitable and whether it could be claimed. Having advanced a substantial defence there is no question of a winding up order being passed. The defence is so substantial that I am not even inclined to ask the company to provide security. This winding up applications are disposed of, by refusing to admit the same and relegating the petitioning creditor to a civil remedy as available to it. The period during which these winding up applications have been pending in this Court may be excluded to compute limitation under Section 14 of the Limitation Act, 1963.

Summary

Issues Involved:
1. Whether the winding up applications under Sections 433, 434, and 439 of the Companies Act, 1956, are maintainable.
2. Whether the sale transactions between the petitioning creditor and the company justify a winding up order.
3. Whether the defense raised by the company regarding set-off of debts is valid.
4. Whether the companies involved should be treated as a single entity or separate entities for the purpose of adjudicating liabilities.

Detailed Analysis:

1. Maintainability of Winding Up Applications:
The winding up applications were filed under Sections 433, 434, and 439 of the Companies Act, 1956. The applications are based on sale transactions that took place between July 2011 and August 2011, where the petitioning creditor sold and delivered iron and steel materials to the company. The company failed to pay the invoice value of Rs. 6,18,91,744/- and did not respond to the statutory notice dated 11th December 2013, leading to a presumption of insolvency under Section 434(1)(a) of the Act. The total claim in the winding up petition is Rs. 10,41,13,301.99, inclusive of interest.

2. Justification for Winding Up Order:
The petitioning creditor presented evidence of the sale and delivery of goods, including invoices and VAT returns. The company admitted the transaction in its Affidavit in Opposition but argued that the price receivable by the petitioning creditor was set off against the price receivable by the company for a previous sale in 2009. The company provided a confirmation of account dated 31st December 2011, showing a balance of Rs. 2,17,17,439/- due from the petitioning creditor. The court noted that the cross transactions appear to be real, and there is no evidence that the petitioning creditor made any payment for the goods supplied by Concast Bengal Industries Ltd. in 2009.

3. Validity of Set-Off Defense:
The company argued that the transactions between the petitioning creditor and Concast Bengal Industries Ltd. in 2009 should be set off against the transactions with Concast Exim Ltd. in 2011. The petitioning creditor contended that the transactions with Concast Exim Ltd. were separate and should not be clubbed with those involving Concast Bengal Industries Ltd. The court observed that the set-off defense needs to be scrutinized at trial to determine whether it was legal or equitable and whether it could be claimed. The court found that the company had established a prima facie case that the goods shipped by the petitioning creditor in 2011 were in lieu of payment for the goods shipped to them in 2009.

4. Treatment of Companies as Single Entity or Separate Entities:
The court considered whether the companies involved should be treated as a single entity or separate entities. The petitioning creditor and the company are part of different groups of companies, controlled by different individuals. The court noted that the concept of "Lifting of the Corporate Veil" may be applied to determine the real arrangement between the parties. The court found prima facie evidence that Concast Exim Ltd. and Concast Bengal Industries Ltd. were part of the same group and controlled by the same person. The court concluded that the arrangement between the parties could only be established on affidavit and required further investigation.

Conclusion:
The court held that the company had advanced a substantial defense, making it inappropriate to pass a winding up order. The court refused to admit the winding up applications and relegated the petitioning creditor to a civil remedy. The period during which the winding up applications were pending in court would be excluded for computing limitation under Section 14 of the Limitation Act, 1963. All findings and observations were to be taken as prima facie.