2013 (1) TMI 473 - HC - Companies Law

Winding up petition - Company approached respondents for financial accommodation - company acknowledged its liability but failed to pay - Company raised a plea that respondents overcharged by raising inflated invoices - Whether winding up petition against company in acute financial stringency for non payment of acknowledged dues was to be admitted ? - Held that - Company should not have taken dishonest approach as if a company was in difficulty they should be frank and candid before the Court of Law. The Judge recorded that the company wanted to pay off the dues to the extent Rs. 6.05 crores & company did not go back to the Judge by making application for correction of the judgment on that score. Once it was not done it is very difficult to go behind the acknowledgment of liability that too, not disputed at the relevant time. In course of hearing, respondents handed over an auction notice wherefrom it is found, the properties belonging to the respondents were put up for sale. Defence raised was a mala fide approach as there is no plausible dispute that could resist the winding up petition. The amount involved in the petitions would certainly satisfy the test of applicability of sections 433, 434 and 439. The winding up petition of a creditor could only be resisted through a bona fide dispute and nothing else. From the facts it would be clear the parties with their eyes wide open, agreed to the terms and conditions stipulated in the agreement. From the facts it is clear, the company was in financial stringency and their regular suppliers were reluctant to continue supply in view of huge outstanding. At that juncture the company approached the respondent for financial support. No commercial people would agree to support another party without any commercial gain. If the rate charged by the respondent was higher than the market rate the company was free to refuse to accept supply, they did not do so. The company would contend, they came to know at a later stage. It cannot be believed. In any event, when the respondent agreed to give rebate, the company did not raise any protest. Their protest came when the respondent insisted payment and threatened legal action. The defence so advanced was not bona fide. Thus where appellant company was in acute financial stringency, defence of over pricing raised by it when respondent insisted payment was mala fide to resist winding up petition.

Summary

Issues:
Claim by respondents against the company for financial accommodation and supply of newsprint, Company's failure to clear dues leading to winding up petitions, Disputed amount and fraudulent activity alleged by the company, Company's plea for settlement and rejection by the court, Company's inability to pay the offered settlement amount, Rival contentions and arguments regarding the outstanding amount, Court's analysis of the situation, Company's defense and court's rejection, Charging of interest on interest by the respondent, Dismissal of appeals and possibility for the company to propose a repayment scheme.

Analysis:
The judgment by the High Court of Calcutta dealt with three appeals related to a claim made by respondents against a company engaged in publishing news daily. The company faced financial stringency, leading to outstanding dues to the respondents for newsprint supply. The company acknowledged the dues but later disputed the amount, alleging overcharging and fraudulent activity by the respondents. The court rejected the company's plea and directed payment of the admitted sums with interest. Despite the company's offer for settlement, the court found it insufficient and dismissed the appeals, emphasizing the company's lack of candid approach and financial difficulty as no excuse for dishonesty.

The court assessed the situation, considering the company's financial strain and the respondents' claim for outstanding dues. It highlighted the company's lack of a plausible defense and rejected its contention of overcharging by the respondents. The court emphasized that the company should have been frank and candid in its dealings, especially in financial distress, and criticized its attempt to resist winding up proceedings through a mala fide approach. The court found the company's defense not bona fide and its offer for settlement lacking sincerity, leading to the dismissal of the appeals.

Regarding the charging of interest on interest by the respondents, the court noted it as a questionable practice but did not intervene due to the company's failure to offer payment of the principal amount with simple interest in installments. The court dismissed the appeals but left room for the company to propose a repayment scheme with simple interest instead of compound interest in the future, subject to the court's consideration. The judgment concluded with no order as to costs, indicating the court's stance on the matter.

In summary, the court's detailed analysis focused on the company's lack of candor, its disputed claims against the respondents, and the insufficiency of the offered settlement amount. The judgment emphasized the importance of honesty and transparency in financial dealings, ultimately leading to the dismissal of the appeals while allowing the company a chance to propose a suitable repayment scheme in the future.