2015 (3) TMI 584 - HC - Companies Law

Winding up petition - Non payment of legally recoverable dues by the company - Recovery matter disputed before civil court - Held that - The winding up petition should be allowed when the debt is crystallized clear and undisputable and not when the dispute is bona fide and requires to be adjudicated before the Civil Court. The defence of the Company should be in good faith and one of substance and every possibility to sustain in law.The Apex Court in case of Pradeshiya Industrial 1994 (2) TMI 267 - SUPREME COURT OF INDIA interpreted the expression unable to pay its debts in commercial sense to mean that the existing liabilities of the Companies is more than its assets. It is undisputed that the transaction between the parties continued for several years. The agreement provides the deposit of money in the bank account after deduction of the commission, taxes and other expenses. It is not an allegation of the petitioning creditor that the Company has violated any of the terms and conditions embedded in the agreements. The termination came because of the change in the policy and it cannot be said at this stage that the remedy of the Company is not available in seeking the damages for illegal and wrongful termination. The Company has approached the Bombay High Court by filing the civil suit for recovery of money on account of damages though there has been some admission on the part of the Company for such an amount payable to the petitioner but the same has been adjusted against the claim made in the said suit. The adjustment of an amount when the claim made is much more, is not impermissible under the law. It does not invite the Company Court to pass an order for winding up of the Company as the liability is admitted. The same views were confirmed in case of Smt. Vijayalakshmi 1999 (3) TMI 477 - HIGH COURT OF ANDHRA PRADESH . Therefore, the plea of adjustment is not unrecognized in law provided the amount for which it is adjusted is legally sustainable and/or recoverable. It is essentially a question of evidence and the winding up petition should not be allowed as the liabilities are admitted. Furthermore, the petitioning-creditor have made a counter-claim including the amount admittedly adjusted against the claim made in the suit which cannot be said to be unreal, undisputable and moonshine. The Company has raised a bona fide defence and the parties have already approached the Bombay High Court making claim and counter-claim and, therefore, this Court does not find that it is such an open and shut case where the Company appears to be commercially insolvent and there is no reasonable cause or excuse to pay its debts. The Company petition shall remain permanently stayed. - Winding up petition dismissed.

Issues Involved:
1. Non-payment of legally recoverable dues by the Company.
2. Validity of the winding up petition in light of the ongoing civil suit.
3. Bona fide dispute regarding the debt.
4. Company's right to adjust amounts against claims.
5. Applicability of Section 221 of the Contract Act.
6. Commercial solvency of the Company.

Detailed Analysis:

1. Non-payment of legally recoverable dues by the Company:
The winding up petition was initiated by the petitioning creditor due to the non-payment of dues by the Company, which were related to the value of goods held by the Company, money receivable from various customers, and the amount collected from the sales of the petitioning creditor's products. An agreement dated February 18, 1998, outlined the terms of stock transfer, sales, commission, and remittance of sale proceeds. The agreement was modified on April 10, 2001, and eventually terminated on August 2, 2010, due to a change in management and policy by the petitioning creditor.

2. Validity of the winding up petition in light of the ongoing civil suit:
The Company filed a suit before the Bombay High Court on November 8, 2010, claiming damages and other expenses. The petitioning creditor issued a statutory notice of winding up on December 8, 2010, which was denied by the Company, citing a lien on the stock against the claim made in the suit. The High Court noted that the suit for recovery of money and the winding up petition can run simultaneously and cannot act as a deterrent against each other. The suit filed by the Company was deemed a bogus suit intended to thwart the winding up petition.

3. Bona fide dispute regarding the debt:
The defence taken by the Company included the filing of a suit for money against the petitioning creditor, denial of any admission of the alleged amount, adjustment of amounts received or receivable, and a lien on the stock. The Court held that if the dispute is bona fide and substantial, the winding up petition should not be admitted, and the parties should pursue their remedy in the civil suit. The Court found that the Company's defence was bona fide and not a mere moonshine or illusory.

4. Company's right to adjust amounts against claims:
The Company claimed to have adjusted amounts received or receivable against the claims made in the suit. The Court acknowledged that the adjustment of an amount when the claim made is much more is not impermissible under the law. The plea of adjustment is recognized in law provided the amount for which it is adjusted is legally sustainable and/or recoverable.

5. Applicability of Section 221 of the Contract Act:
The petitioning creditor argued that Section 221 of the Contract Act is not applicable when there is no dispute on account of commission, disbursement, and services. The Court did not find this argument persuasive, given the context of the case and the ongoing dispute.

6. Commercial solvency of the Company:
The Court considered the commercial solvency of the Company as a relevant factor. It was noted that the Company's assets and existing liabilities should be such that it can reasonably meet its liabilities. The Court found that the Company was commercially solvent and that the refusal to pay was due to a bona fide dispute rather than an inability to pay. The winding up petition was not intended as a means to recover debts in an ordinary mode of debt recovery and should not be used to pressurize the Company to make payments.

Conclusion:
The Court concluded that the winding up petition should not be allowed as the Company had raised a bona fide defence and the parties had already approached the Bombay High Court with their claims and counter-claims. The petitioning creditor's claim was not undisputable, and the Company was not commercially insolvent. The winding up petition was permanently stayed with no order as to costs.

← Previous Next →