2021 (4) TMI 320 - SC - Companies Law

Winding up of Company - it was a specific case of the appellant, that on account of the defective material supplied by the respondent, the appellant had suffered huge losses and as such, it was the appellant who was entitled to receive the damages from the respondent - satisfaction of respondent s claim to the extent mentioned in the order impugned in the appeal - HELD THAT - It is therefore well settled, that if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. It is equally well settled, that where the debt is undisputed, the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt. It is equally settled, that the principles on which the court acts are first, that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends - As to whether the defence of a Company is in good faith or as to whether it is of a substance and as to whether it is likely to succeed in point of law and as to whether the company adduces prima facie proof of the facts on which defence depends, would depend upon the facts of each case. Both the learned Company Judge as well as the Division Bench upon appreciation of the materials placed on record have found, that the defence as sought to be raised by the appellant with regard to the quality of the material supplied by the respondent being defective was by way of an afterthought. The Division Bench found, that when the appellant raised a dispute about the quality, the same was acknowledged by the respondent and it was reflected in its conduct by the grant of credit. It observed, that the respondent had fairly acknowledged the defects when there were any and it was reasonable to presume, that if there were any other defects, it would have recorded the same in some manner or the other. The Division Bench further found, that it was difficult to accept the case of the appellant, that the discussions with regard to defective material were only oral. In the present case, the Division Bench has not issued a direction to grant the interest as claimed by the respondent. On the contrary, it has declined to enter into the question, as to whether the appellant was also liable to pay the interest since the learned company judge had not referred to the said issue. The Division Bench therefore, while dismissing the appeal, has done so without prejudice to the respondent s contention regarding interest which may be claimed either by way of an application for clarification before the learned judge or by way of an appeal or by any other proceeding. The defence of the appellant could not be said to be bona fide, in good faith and of substance. - Appeal dismissed.

Summary

Issues Involved:
1. Admissibility of the Company Petition for winding up.
2. Bona fide nature of the appellant's defense regarding defective goods.
3. Liability for interest on delayed payments.

Issue-wise Detailed Analysis:

1. Admissibility of the Company Petition for winding up:
The appeal challenges the judgment of the Division Bench of the Punjab & Haryana High Court, which upheld the Company Judge's decision to admit the Company Petition for winding up the appellant due to its inability to pay admitted debts. The appellant argued that the defense raised was bona fide and substantial, thus the petition should not have been admitted. However, the Company Judge found the appellant's defense to be an afterthought and not supported by any documents, leading to the conclusion that the debt was not bona fide disputed.

2. Bona fide nature of the appellant's defense regarding defective goods:
The appellant contended that it suffered losses due to defective material supplied by the respondent and was entitled to damages. However, the Company Judge and the Division Bench found that the appellant's defense was not bona fide. The appellant failed to provide any communication or document to support its claim of defective goods. The Division Bench noted that the appellant's reply to the statutory notice did not mention any oral agreement regarding compensation for defective goods, which contradicted the defense raised later. Additionally, the appellant had utilized the raw material and did not provide evidence of any damages suffered due to defective goods.

3. Liability for interest on delayed payments:
The Division Bench did not delve into the issue of interest liability, as the Company Judge had not addressed it. The dismissal of the appeal was without prejudice to the respondent's right to claim interest through other legal avenues. The appellant argued that there was no agreement for interest on delayed payments, and thus the direction to consider the respondent's claim for interest was legally unsustainable. The Supreme Court noted that the Division Bench had not directed the payment of interest but had left the issue open for further proceedings.

Conclusion:
The Supreme Court dismissed the appeal, affirming the findings of the Company Judge and the Division Bench that the appellant's defense was not bona fide and that the debt was not disputed in good faith. The Court held that the principles for winding up a company include the requirement that the defense must be in good faith, substantial, and likely to succeed in law, which the appellant failed to demonstrate. The Court also clarified that the issue of interest on delayed payments was not adjudicated and left open for further proceedings.