2016 (12) TMI 1915 - HC - Companies Law

Winding up of company - Whether the Respondent-Company is liable to repay the sum of Rs. 10, 00, 000/- to the Petitioner as a loan or if it was paid as demurrage charges on behalf of M/s. Indicaa Company? - HELD THAT - It is an admitted position that the statement of account did not disclose the said aspect but however such amounts are shown to have been received from the Petitioner. It is also not disputed that the demurrage charges and detention charges were otherwise payable by the Respondent-Company on the consignment supplied by the Indicaa Company. Once this aspect is not disputed it cannot be comprehended how the Respondent-Company is not liable to pay the said amount to the Petitioners. To verify the said fact this Court called upon the Respondent- Company to produce the books of Accounts and the learned Senior Advocate was unable to show any entry in the books of accounts which remotely show that the amounts received from the Petitioners were shown to have been received from M/s Indicaa Company. Even in the balance sheets and the books for the final year 2013-14 the Indicaa Company is not shown as the debtor of the Respondent- Company. On perusal of the financial statement of the year ending of March 2014 neither in the list annexed thereto M/s. Indicaa Company is shown as a debtor in connection with the subject transaction. Upon prima facie consideration of the material on record and taking note of the reluctance on the part of the Respondents in producing the complete financial records of the Respondent-Company it is opined that the matter requires consideration and is not liable to be summarily dismissed. Admittedly the amount has been received from the Petitioner by the Respondent-Company the claim that the amount has been received on behalf of Indicaa Company has not been established by the Respondents. In such circumstances it cannot be said that the Respondents have shown any bonafide dispuite with regard to the claim put forward by the Petitioners. The Respondent- Company received a notice and only sought documents from the Petitioner though the fact that the amount was received from the Petitioners by the Respondent- Company was clearly found from the books of account maintained by the Respondent. Conclusion - A company must demonstrate a bona fide dispute and provide substantial evidence to avoid winding up due to an inability to pay debts. Respondent-Company is directed to deposit in this Court Rs. 10, 00, 000/- within three months from today. Petition disposed off.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the sum of Rs. 10,00,000/- paid by the Petitioner to the Respondent-Company constitutes a legally enforceable debt.
Whether the Respondent-Company is liable to be wound up under the provisions of the Companies Act, 1956, due to its inability to repay the debt.
Whether there exists a bona fide dispute regarding the debt claimed by the Petitioner, which would preclude the winding up of the Respondent-Company.
What are the consequences if the Respondent-Company fails to repay the sum within the stipulated period?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legally Enforceable Debt

Relevant legal framework and precedents: The Companies Act, 1956, specifically Sections 433 and 434, which deal with the winding up of companies unable to pay their debts.
Court's interpretation and reasoning: The court examined whether the Rs. 10,00,000/- paid by the Petitioner was a loan or a payment towards demurrage charges. The Respondent's claim that the payment was made on behalf of Indicaa Company was not substantiated by any credible evidence.
Key evidence and findings: The court considered the books of account and financial statements of the Respondent-Company, which showed the amount as received from the Petitioner and not from Indicaa Company.
Application of law to facts: The court found that the Respondent-Company failed to demonstrate that the payment was made on behalf of Indicaa Company, thus establishing the debt as legally enforceable.
Treatment of competing arguments: The Respondent's argument of the payment being a demurrage charge on behalf of Indicaa Company was rejected due to lack of evidence.
Conclusions: The court concluded that the debt of Rs. 10,00,000/- was indeed a legally enforceable debt owed by the Respondent-Company to the Petitioner.

Issue 2: Winding Up of the Respondent-Company

Relevant legal framework and precedents: The court referred to precedents such as the case of M/s. Madhusudan Gordhandas & Co. vs. Madhu Woollen Industries Pvt. Ltd., which outlines conditions under which a company can be wound up for inability to pay debts.
Court's interpretation and reasoning: The court assessed whether the Respondent-Company's failure to repay the debt indicated an inability to pay its debts, warranting winding up.
Key evidence and findings: The Respondent-Company's financial records did not support its claims of financial health or bona fide dispute.
Application of law to facts: The court applied the legal principle that a company unable to pay its debts is liable to be wound up unless a bona fide dispute exists.
Treatment of competing arguments: The Respondent's claim of financial stability and lack of enforceable debt was not supported by the evidence.
Conclusions: The court found that the Respondent-Company was unable to demonstrate a bona fide dispute, thus supporting the Petitioner's case for winding up.

Issue 3: Bona Fide Dispute

Relevant legal framework and precedents: The court referred to the principle that a bona fide dispute must be substantial and supported by evidence to preclude winding up.
Court's interpretation and reasoning: The court examined the Respondent's claims and found them lacking in evidence and credibility.
Key evidence and findings: The Respondent-Company's failure to produce consistent financial records undermined its claim of a bona fide dispute.
Application of law to facts: The court determined that the Respondent failed to establish a bona fide dispute, as the debt was clearly acknowledged in its accounts.
Treatment of competing arguments: The Respondent's assertions were dismissed due to insufficient evidence.
Conclusions: The court concluded that no bona fide dispute existed, supporting the Petitioner's claim for winding up.

Issue 4: Consequences of Non-Payment

Relevant legal framework and precedents: The court considered the consequences of non-payment as outlined in the Companies Act and relevant case law.
Court's interpretation and reasoning: The court ordered the Respondent-Company to deposit the amount within three months, failing which the winding up petition would be admitted.
Key evidence and findings: The court relied on the established debt and lack of bona fide dispute to determine the consequences.
Application of law to facts: The court applied the legal principle that failure to pay an acknowledged debt can lead to winding up proceedings.
Treatment of competing arguments: The Respondent's plea for leniency was considered but ultimately rejected due to the clear evidence of debt.
Conclusions: The court set a clear timeline for payment, with specified consequences for non-compliance.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "Two rules are well settled. First, if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company... 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."
Core principles established: A debt must be undisputed and legally enforceable for a winding up petition to be sustained. A bona fide dispute must be substantial and supported by evidence to preclude winding up.
Final determinations on each issue: The court determined that the Rs. 10,00,000/- was a legally enforceable debt, that no bona fide dispute existed, and that the Respondent-Company must repay the amount within three months or face winding up proceedings.

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