2015 (11) TMI 1317 - HC - Companies Law

Winding up petition - settlement of accounts - whether having regard to the emails exchanged it cannot be said that the company is not indebted to the petitioner? - Held that - Both the agreements namely, the Distributorship Agreement 2009 and the Distributorship Agreement- Princeton 2011 clearly state that the company is a non-exclusive distributor of the petitioners. The company accepts that the said agreements are on a principal to principal basis and the company would be required to pay the price of the books sold and delivered at a discounted price. Moreover, nowhere in the agreements is it mentioned that the number of distributors that Random House could have was required to be limited, nor has there been any definition given to the semi-exclusive distributor . The allegation made by the said company that contracting with more distributors in the north and eastern zone, where they were conducting their distributorship is untenable. Terming this to be a premeditated conduct on the part of the petitioners to injure the business of the company and thus causing breach of contract amounting to a loss of 15 crore has no reasonable foundation. The matter regarding return of book s i.e. the RHI books which are in possession of MB at its warehouse in Delhi and Kolkata, has been duly considered by the petitioner in the legal notice issued by the attorney of the petitioner to the said company dated August 4, 2013. In the said notice, a solution has been suggested to SK Mehra with respect to the same. It is however seen that there has not been any confirmation received by the said company when in 2014 email, again the matter of sending the books back to RHI is asked by the company. However, despite the fact that both the distributorship agreements had already terminated owing to the failure or default in making timely payment, and that has also been acknowledged by the said company, the reason to wait for the confirmation of the petitioner seems groundless. . Prior to the issuance of the winding up notice there has been no contemporaneous document and material to show that the company has denied its liability and claimed damages. It has also been seen that the demand notices have been issued by the petitioner with respect to both Distributorship Agreement and Distributorship-Agreement-Princeton on June 17, 2013. In its reply the aforementioned allegations have been made. The said company has not been able to place any material, or document to substantiate any of the allegations later made by it. The said allegations are clear afterthought and made in order to avoid its liability. It can, therefore, be logically inferred that the disputes raised by the respondent company have been raised as afterthought and that the disputes were not raised contemporaneously. Thus, these are neither reasonable nor bona fide disputes and do not form substantial defence. The said company in any event has no defence for the amount admitted. The defence set up is illusory. The disputes sought to be raised by the said company is in the nature of afterthought and lacks bona fide and so in the present case the objection and contention cannot be sustained. In the present case it is evident that the denial by the company is motivated by an intention to evade payment. It is relevant to note that in the case of Ficom Orgarnics Ltd v. Laffans Petrochemicals Ltd. reported at (1998 (10) TMI 440 - HIGH COURT OF GUJARAT), after reaching the conclusion that the dispute raised by the respondent company against the petitioner s claim was not bona fide, time was granted to the company to pay the petitioner the claim amount. Having regard to the nature of the defence disclosed there cannot be any doubt that at least a sum of ₹ 1.38 crores was due and payable by the company to the petitioner. The company did not even raise any dispute contemporaneously and what emerges from the facts is that the defence raised and the claim made in defence to the action initiated by the petitioner were never raised at the relevant point of time or until the statutory notice was served upon the company. However, considering the plea that if in the arbitration proceeding the company is able to establish return of some books and adjustment thereof admit the petition for a sum of ₹ 60 lakhs. This amount is ascertained on a generous allowance being given to the company of all its grievances for rebate and SOR. The company has not been able to demonstrate before this Court that the Company is solvent enough to pay off the debts assessed in this winding up petition. Thus direct the company to furnish security for a sum of ₹ 60 lakhs to the satisfaction of the Registrar, Original Side, High Court, Calcutta on or before 15th December, 2015 which shall remain valid till the disposal of the arbitration proceeding

Summary

Issues Involved:
1. Existence of Debt
2. Bona Fide Dispute
3. Breach of Contract
4. Return of Books
5. Quantum of Debt
6. Winding Up Petition

Detailed Analysis:

1. Existence of Debt:
The petitioner, Random House Publishers India Pvt. Ltd., claimed that Mehras Books Pvt. Ltd. owed an outstanding amount of approximately Rs. 1.38 crores. The petitioner provided evidence of unsettled accounts and multiple demands for payment. The company acknowledged the debt in emails, indicating an intention to pay by August 15, 2013.

2. Bona Fide Dispute:
The company argued that the debt was contingent upon the receipt of payment from its customers and claimed that the property in the goods did not pass to them unless sold. The court examined whether the company's defense was bona fide and substantial. The company raised issues about the credit notes and alleged that the petitioner supplied books without their assent and dumped non-marketable books in their warehouse. However, the court found these defenses vague and unsupported by contemporaneous evidence.

3. Breach of Contract:
The company alleged that the petitioner breached the contract by creating parallel supply channels and delaying the release date of new titles, causing significant losses. The court noted that the distributorship agreements did not limit the number of distributors and found no substantial evidence supporting the company's claim of breach.

4. Return of Books:
The company attempted to return unsold books, but faced delays or failures in confirmation from the petitioner. The court observed that the company did not provide convincing evidence to support its claim about the return of books and noted that the petitioner had suggested a plan for payment and reconciliation.

5. Quantum of Debt:
The court emphasized the need to establish the quantum of debt conclusively. The company admitted to owing Rs. 1.38 crores in emails but later disputed the amount. The court found that the company's defenses were an afterthought and lacked bona fide. The court directed the company to furnish security for Rs. 60 lakhs, considering all grievances for rebate and SOR.

6. Winding Up Petition:
The court referred to various legal principles and precedents, including Mechelec Engineers and Manufacturers vs. Basic Equipments Corporation, Madhusudan Gordhandas & Co. vs. Madhu Woollen Industries Pvt. Ltd., and others. The court concluded that the company's defenses were illusory and intended to evade payment. The court admitted the winding-up petition for Rs. 60 lakhs and directed the company to furnish security. If the security is furnished, the petition will remain permanently stayed; otherwise, it will be advertised.

Conclusion:
The court found that the company owed a debt to the petitioner and that the defenses raised were not bona fide or substantial. The winding-up petition was admitted for Rs. 60 lakhs, and the company was directed to furnish security to stay the petition.