2014 (4) TMI 831 - HC - Companies Law

Winding up of company - whether the jewellery was manufactured from out of the gold supplied by the respondent or from out of its own gold by the petitioner - Held that - there is no dispute about the manufacturing of jewellery by the petitioner at the request of the respondent and exporting the same to the designated customer of the respondent at Dubai. The value of jewellery exported by the petitioner and received by the respondent s customer is also not in dispute - Such a dispute would not have arisen if there were clear terms of understanding between the parties. The petitioner filed a copy of the MOU, a perusal of which would show that the same is bereft of essential terms such as the quantity of jewellery that was agreed to be exported and whether the jewellery has to be manufactured from out of the gold supplied by the respondent or from out of the petitioner s own gold. This Court is at a loss to know as to the reason for such a cryptic MOU between the parties while dealing with a very valuable subject matter of the contract, namely; manufacturing and exporting of gold ornaments. Under Section 433 read with Section 434 of the Act, a company cannot be ordered to be wound up, unless either the debt is admitted or the dispute as to the debt raised by the respondent is not bona fide. In the absence of a clear understanding between the parties stipulating that the petitioner will manufacture the jewellery from out of its own gold or at least any contemporaneous correspondence between the parties unequivocally proving the claim of the petitioner that it has manufactured the jewellery from out of its own gold and that the respondent has not supplied the gold, it is not possible for this Court to hold that the denial of the debt by the respondent is not bona fide. The respondent has filed purported vouchers in order to substantiate its plea that it has supplied its own gold under the said vouchers to the petitioner. However, the petitioner raised a plea that these vouchers are fabricated. This Court, while exercising its jurisdiction under the Act, will not adjudicate on this disputed issue - Company petition does not deserve to be admitted, as it has not satisfied the requirements of Sections 433 and 434 of the Act - Decided against appellant.

Summary

Issues:
Petition filed for winding up of respondent company under Companies Act, 1956 for non-payment of debt due to the petitioner.

Analysis:
The petitioner, a partnership firm, entered into a Memorandum of Understanding (MOU) with the respondent, a private limited company engaged in the manufacture and sale of gold jewellery. The petitioner alleged that it exported gold jewellery to a customer in Sharjah, UAE, on behalf of the respondent based on the MOU. The petitioner claimed that the respondent owed them a substantial sum of money, including interest, which the respondent failed to pay despite issuing dishonored cheques. The petitioner initiated legal proceedings under the Negotiable Instruments Act and sent statutory notices to the respondent demanding payment. The respondent contested the petitioner's claims, arguing that the transaction was for manufacturing jewellery out of its own raw material, not for payment of the alleged debt. The respondent claimed that the cheques issued were related to a different agreement regarding the purchase of the petitioner firm. The respondent denied liability and alleged that the petitioner wrongfully presented the cheques for payment before the agreed conditions were met.

The court noted that while there was no dispute regarding the manufacturing and export of jewellery, the core issue was whether the jewellery was made from the respondent's gold or the petitioner's own gold. The court observed that the MOU lacked essential terms regarding the source of the gold used for manufacturing the jewellery, leading to a dispute between the parties. As per the Companies Act, a company cannot be wound up if the debt is disputed in good faith. Without clear evidence or understanding between the parties regarding the source of the gold, the court could not determine the bona fides of the respondent's denial of the debt. The respondent provided vouchers to support their claim of supplying gold, which the petitioner alleged were fabricated. The court declined to adjudicate on this disputed issue.

The respondent raised a limitation objection to the maintainability of the company petition, which the court did not address due to the genuine dispute over the debt. Consequently, the court dismissed the company petition, stating that it did not meet the requirements of the Companies Act. The petitioner was granted liberty to pursue other legal remedies for recovering the alleged dues from the respondent.