2012 (9) TMI 782 - HC - Companies Law

Winding up petition u/s 433 r.w.s. 434 of the Companies Act, 1956 - non-payment of creditor - respondent contended that goods were defective and coupled with the fact that the Commission Agent has filed his affidavit supporting the stand of the respondent that the defective goods had been promised to be lifted by the petitioner clearly shows that a dispute has arisen on facts which cannot be cannot be entertained in a winding up petition - Held that - Admittedly there is no communication on record to show that the defect which the respondent had allegedly noticed in the goods supplied by the petitioner had ever been communicated to the petitioner. It is also relevant to note that in the first affidavit the Commission Agent has not mentioned any date when the petitioner would lift the so called defective material but in the later affidavit, he has made a substantial improvement that the petitioner had agreed to lift the defective material in March, 2009 and that is how the C Form came to be issued on 17.03.2009. The defence of the respondent largely based on these affidavits clearly appears to be suspect. Considering all the aforenoted aspects, this Court is satisfied that the respondent owes a debt to the petitioner; despite service of the statutory notice by the petitioner to the respondent, it has failed to liquidate the demand of the petitioner. Petition is accordingly admitted. Respondent directed to make the payment with interest within stipulated time - Decided in favor of petitioner

Summary

Issues:
- Winding up petition under Section 433 read with Section 434 of the Companies Act, 1956.
- Dispute over non-payment for supplied goods and alleged defective quality.
- Validity of 'C' Form as proof of sale and acceptance of goods.
- Reliance on Commission Agent's affidavits and their credibility.
- Communication of defects in goods and timing of such communication.
- Consideration of legal precedents in similar cases.

Analysis:

The petitioner sought winding up of the respondent company for non-payment of Rs. 39,98,754/-, the balance due for 386.140 metric tons of sponge iron lumps supplied. The respondent claimed the goods were defective, containing only 50% FE instead of the required 77.80% FE, rendering them unusable. The respondent alleged the petitioner failed to lift the defective goods despite assurances, leading to the issuance of Form 'C' by the Central Sales Tax Department.

The petitioner contended that the liability was clear as goods were supplied, and the 'C' Form acknowledged the receipt of goods worth Rs. 62,22,401/-. Legal precedents were cited to support the position that the respondent's defense of defective goods was a sham to avoid payment. The respondent argued that disputed questions of fact and law regarding the quality of goods should not be addressed in a winding up petition.

The Court noted that the transaction was admitted, and the 'C' Form was a proof of sale and acceptance of goods. It observed that the respondent's defense of defective goods was raised only after the winding up petition, with no record of communication of defects to the petitioner. The Commission Agent's affidavits were scrutinized, with discrepancies highlighted to question their credibility. The Court found the respondent's defense to be suspect and illusory, akin to a previous case where a similar defense was rejected as an afterthought to avoid winding up.

Ultimately, the Court was satisfied that the respondent owed the debt to the petitioner and ordered payment of the outstanding amount with interest. The petition was admitted, with publication deferred for two weeks to allow the respondent to make the payment; failure to comply would result in publication in specified newspapers and the official gazette.

In conclusion, the judgment upheld the petitioner's claim for payment based on the clear evidence of goods supplied and the lack of credible communication regarding defects in the goods. The Court emphasized the importance of timely and bona fide communication in commercial transactions to avoid disputes and upheld the principles established in prior legal precedents.