2014 (6) TMI 54 - HC - Companies Law

Winding up of company - Inability to pay debts - Goods supplied but payment not made - respondent alleges that goods supplied by the petitioner were defective, hazardous and substandard and the petitioner is not entitled to any payment in respect thereof - Held that - defense raised is clearly unsustainable and has been raised at a later date only to avoid the payments due to the petitioner. Indisputably, the orders for the goods had been placed by the respondent on the petitioner. The goods had, thereafter, been dispatched and also cleared by the respondent. There is no possible explanation as to what compelled the respondent to place the order for the goods and thereafter, accept the same by clearing the goods from customs and accepting the delivery of the same. Having accepted the delivery of the goods it is not open for the respondent to contend that the goods had been thrust upon the respondent against its will. This is clearly not a defense which is sincere or bonafide. The fact that the respondent had requested for deliveries to be deferred was only for the reason that the respondent wanted to test the products in the market. The fact that the respondent was not successful in reselling the goods was attributed by the respondent to high prices and local competition. These defenses are certainly not available for a purchaser to avoid payments of the goods purchased by him. The petitioner is certainly not responsible for the inability of the respondent to resell the goods or any difficulty faced by the respondent in its business. The fact that respondent has not initiated any action for recovery of the amount claimed in the said notice also indicates that the respondent was not serious in respect of the claims made in the said notice - Decided in favour of appellant.

Issues Involved:
1. Whether the respondent company failed to pay the petitioner company for supplied goods.
2. Whether the goods supplied by the petitioner were defective, hazardous, and substandard.
3. Whether the defense raised by the respondent is bona fide.
4. Whether the petition for winding up the respondent company is maintainable.
5. Whether there is a substantial and genuine dispute regarding the debt owed.

Detailed Analysis:

Issue 1: Failure to Pay for Supplied Goods
The petitioner company filed the petition under Sections 433(e) and 434 of the Companies Act, 1956, seeking the winding up of the respondent company due to non-payment of USD 534,696.20 for supplied goods. The petitioner and respondent had an agreement dated 01.04.2007 for the supply of goods, and the petitioner raised invoices totaling USD 537,226.52 for goods supplied between 31.08.2007 and 29.04.2008. Despite shipment and receipt of goods, the respondent failed to clear the payments. The petitioner contended that the respondent acknowledged the debt through various emails, including one dated 10.11.2008.

Issue 2: Allegation of Defective, Hazardous, and Substandard Goods
The respondent disputed the amount due, alleging that the goods supplied were defective, hazardous, and substandard. The respondent claimed that the petitioner was liable for customs duty and storage charges and was entitled to recover substantial amounts from the petitioner. The respondent referred to emails dated 18.08.2007, 30.04.2008, and 18.03.2009, indicating concerns about product quality and safety.

Issue 3: Bona Fide Defense
The court examined whether the defense raised by the respondent was bona fide. The respondent's defense was scrutinized in the context of the agreement and the communication between the parties. The court noted that the respondent had accepted the goods and made partial payments without raising quality issues initially. The respondent's later complaints about the goods being defective and hazardous were viewed as an afterthought to avoid payment.

Issue 4: Maintainability of Winding Up Petition
The court reiterated the principle that a winding up petition is not a legitimate means of enforcing a disputed debt. However, a sham and spurious defense would not prevent a creditor from maintaining a winding up petition. The court's inquiry was limited to examining the bona fides of the dispute raised by the respondent.

Issue 5: Substantial and Genuine Dispute
The court found that the respondent's allegations of defective and hazardous goods were not supported by the initial communications, which focused on market competition and high prices as reasons for not accepting further shipments. The respondent's request for price discounts and offers to return unsold goods indicated that the primary issue was marketability, not product quality. The court concluded that the respondent's defense was neither substantial nor bona fide.

Conclusion:
The court admitted the winding up petition, finding that the respondent's defense was not genuine and was raised to avoid payment. The case was relisted for considering the aspect of advertisement on the petition on 21.03.2014.

← Previous Next →