2014 (4) TMI 944 - HC - Companies Law

Winding up of company - inability to pay debts - whether the defence raised by the respondent is a bonafide defence - Held that - winding up petition is admitted and the petitioner is directed to publish the citations in the Statesman (English) and Veer Arjun (Hindi) for a hearing to be held on 12.08.2014. The Official Liquidator is also appointed as a Provisional Liquidator to take charge of the assets and the books of accounts of the respondent company. The Directors of the respondent company will file the Statement of Affairs within 21 days of the appointment of the Provisional Liquidator coming into effect. The respondent company is restrained from selling, transferring, encumbering or in any manner alienating any of its assets - However, in order to enable the respondent to make arrangements to discharge its dues and to arrive at an amicable settlement with the petitioner, the directions for publication of citations and for appointing the Official Liquidator as a Provisional Liquidator will not come into effect for a period of four weeks from today. The order admitting the winding up petition is also kept in abeyance for a period of four weeks. In the event, the respondent is able to discharge its debts to the petitioner or arrive at an amicable settlement for repayment of the same within the period of four weeks, the directions as stated above will not come into effect. In the event the parties are unable to arrive at an amicable settlement for discharge of the dues of the petitioner, the counsel for the petitioner shall inform the Official Liquidator, who shall on receipt of such communication proceed to take the necessary steps in accordance with law and in conformity with the directions as issued herein - Decided conditionally in favour of assessee.

Issues Involved:
1. Whether the defense raised by the respondent is bona fide or a sham defense.
2. Whether the petition for winding up the respondent company should be admitted.

Detailed Analysis:

Issue 1: Whether the defense raised by the respondent is bona fide or a sham defense.

The petitioner company filed a winding-up petition under Sections 433(e) and 434 of the Companies Act, 1956, alleging that the respondent company failed to pay a sum of Rs. 8,45,89,296/- along with interest for goods supplied. The respondent denied the debt, claiming a bona fide dispute regarding the amount.

The court examined whether the respondent's defense was bona fide or merely a sham. The petitioner supplied goods to the respondent under a Commodity Trade Finance Agreement dated 27.01.2010. The respondent issued cheques towards part payment, which were dishonored, leading to proceedings under Section 138 of the Negotiable Instruments Act, 1881.

The respondent argued that it continued to accept goods and make payments even after 31.03.2011, and the balance amount outstanding was Rs. 6,56,51,469.97. The respondent also claimed overcharging by the petitioner due to currency premium and losses due to delayed supply during Diwali seasons.

The court noted that the respondent's disputes were raised belatedly and appeared to be an afterthought. The respondent's acknowledgment of the debt and the absence of any dispute at the material time indicated that the defense was not bona fide. The court found that the disputes regarding currency premium and losses were neither substantial nor bona fide.

Issue 2: Whether the petition for winding up the respondent company should be admitted.

The court held that proceedings under Section 433(e) of the Companies Act, 1956, are not for debt recovery but to determine the company's ability to pay its debts. The court found that the respondent's net worth was significantly lower than the amount of dishonored cheques, indicating the company's inability to pay its debts.

The court referred to the Supreme Court's decision in IBA Health (India) Pvt. Ltd. v. Info Drive Systems SDN. BHD, which emphasized that a genuine dispute must be bona fide and not spurious, speculative, illusory, or misconceived. The court concluded that the respondent's defense was not substantial or bona fide and admitted the winding-up petition.

The court directed the petitioner to publish citations in specified newspapers and appointed the Official Liquidator as a Provisional Liquidator to take charge of the respondent's assets and books of accounts. The respondent was restrained from alienating any assets. However, the court provided a four-week period for the respondent to settle its dues or reach an amicable settlement with the petitioner before the directions for publication and appointment of the Provisional Liquidator would take effect.

The case was listed for a hearing on 12.08.2014, and the respondent was required to file the Statement of Affairs within 21 days of the Provisional Liquidator's appointment. The court disposed of CA No. 1209/2012 in light of the above directions.

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