2016 (12) TMI 627 - HC - Companies Law

Winding up petition - inability to pay debts - Held that - From the facts and material on record, it is fully established that goods (HR Coils) were indeed supplied to the respondent-Company and admittedly receipted by it. Payment thereof by way of a cheque issued was not made for reason of the cheque being dishonoured. The respondent- Company vide letter dated 10-1-2013 undertook to make the requisite payment by 20-1-2013. The promised payment was not made. A debt thus obtained. As earlier held the said debt is not disputed on any substantial and bonafide grounds. The disputes to the debt due as raised in the reply to the winding up petition are a mere after thought and without substance. Aside of the aforesaid, in any event, admittedly goods receipted or part thereof retained was more than ₹ 1 lac. They were dishonestly not returned and instead disposed of in the market. The sale price was appropriated by the respondent company most dishonestly. The statutory notice under Section 432(1)(a) of the Act of 1956 was not replied to. The defence to the winding up petition is of no substance, wholly contrived, mere moonshine, a sham and not bonafide. On 27-5-2016, the respondent company was directed to file statement of affairs of the company. That has still not been filed. Thereafter vide order dated 16-9-2016 while deciding the application under Section 450 of the Act of 1956 the Official Liquidator attached to this court was appointed as provisional Liquidator of the respondent company with a direction to take possession of the assets, both movable and immovable, of the respondent company. The Official Liquidator was also authorised to exercise powers under section 457(1) of the Act of 1956. The respondent company was also directed to file statement of affairs of the company under pain of contempt. Even the said direction to file the state of affairs has again gone abegging. Thus the respondent company M/s. Shiv Mahima Ispat Private Limited is directed to be wound up. The Official Liquidator is appointed as the Liquidator of the respondent company under Section 448 of the 1956 Act. He shall take steps to take possession of the immovable and movable assets of the respondent company, if not so already done. The Directors of the respondent company are again directed to file statement of affairs of the respondent company before the Official Liquidator as statutorily required and also put on record their correct addresses.

Summary

Issues involved:
Petition for winding up under Sections 433(e) and (f), 434 and 439 of the Companies Act, 1956 based on non-payment of debt by respondent company, Respondent's preliminary objection to the maintainability of the winding up petition, Dispute regarding goods supplied and alleged set off by respondent company, Allegations of malafide defense and misuse of winding up provisions, Consideration of public interest and commercial morality in winding up proceedings, Compliance with statutory requirements for winding up, Appointment of Official Liquidator and direction for winding up of respondent company.

Analysis:

Issue 1: Petition for winding up under Sections 433(e) and (f), 434 and 439 of the Companies Act, 1956 based on non-payment of debt by respondent company:
The petitioner, Steel Authority of India Limited (SAIL), filed a petition seeking the winding up of M/s. Shiv Mahima Ispat Private Limited for failing to pay a debt owed for goods supplied. The respondent company's cheque for the payment was dishonored, leading to the petitioner alleging insolvency and seeking winding up under relevant provisions of the Companies Act, 1956.

Issue 2: Respondent's preliminary objection to the maintainability of the winding up petition:
The respondent raised a preliminary objection to the maintainability of the winding up petition, claiming it was an abuse of process to coerce payment of a disputed debt. The respondent argued that the matter was already subject to a money suit and disputed the debt due to alleged defective goods supplied and set off claims, challenging the necessity of the winding up petition.

Issue 3: Dispute regarding goods supplied and alleged set off by respondent company:
The respondent company contended that the goods supplied were not as per specifications and raised claims of set off against amounts due to the petitioner. The respondent alleged that the petitioner owed sums on account of credit notes, defective supplies, and other losses, which entitled it to a set off from the amount claimed by the petitioner.

Issue 4: Allegations of malafide defense and misuse of winding up provisions:
The petitioner countered the respondent's defense as contrived and malafide, arguing that the disputes raised were afterthoughts and lacked substance. The petitioner highlighted discrepancies in the respondent's contentions and emphasized the non-payment of the debt despite assurances and legal notices, portraying the respondent's defense as baseless.

Issue 5: Consideration of public interest and commercial morality in winding up proceedings:
The court considered public interest and commercial morality in the context of winding up insolvent companies to prevent detrimental consequences to creditors and the economy. Emphasizing the importance of limited liability companies honoring debts, the court found it just and equitable to wind up the respondent company for its failure to pay debts despite statutory notices.

Issue 6: Compliance with statutory requirements for winding up and appointment of Official Liquidator:
After admitting the winding up petition, the court directed the respondent company to file a statement of affairs, which was not done. Subsequently, the court appointed the Official Liquidator as the provisional Liquidator of the respondent company, directing the taking possession of assets and compliance with statutory obligations for winding up.

Issue 7: Direction for winding up of respondent company and publication of citation:
Based on the facts and non-compliance by the respondent, the court ordered the winding up of M/s. Shiv Mahima Ispat Private Limited and appointed the Official Liquidator as the Liquidator. The court directed the publication of the winding up citation in newspapers and the official gazette, with costs to be borne by the petitioner.

This detailed analysis covers the various legal issues involved in the judgment, including the grounds for winding up, objections raised, considerations of public interest, compliance with statutory requirements, and the final direction for winding up the respondent company.