2015 (6) TMI 369 - HC - Companies Law

Non payment of dues - Notice sent under section 433 read with 434 of the Companies Act 1956 - Maintainability of winding up petition - Charges of sub-standard goods - Held that - It is no doubt true that a winding up petition cannot be equated to a suit for recovery of money. It is however, equally true that neglect in payment of debt due as statutorily defined without a bonafide dispute or substantial defence entails the consequence of winding up of a company in default. That is the conclusion from reading of Section 434(1)(a) read with 433(e) of the Act of 1956. Refer Apex court case of Vijay Industries v. NATL Technologies Ltd. 2008 (12) TMI 404 - SUPREME COURT OF INDIA . No steps under the Sale of Goods Act, 1948 either to reject the supposedly sub-standard goods or seek a diminution of their price appears to have been taken by the respondent company. Obviously the goods in issue as supplied being consumed, they were not sub-standard. A belated half-hearted dispute indicates that the allegation of goods supplied being sub-standard was /is not bonafide and the respondent company has no substance in its defence at all. The defence set up in the reply dated 29.10.2011 to the notice under section 434 of the Act of 1956 was/ is vague and quite apparently is belated one incapable of any credibility. - Decided in favour of appellant.

Summary

Issues:
Claim for outstanding payment for supplied goods, Notice under Companies Act 1956, Allegation of goods quality, Winding up petition, Bonafide dispute defense.

Analysis:
The petitioner company supplied Agro Chemicals to the respondent company between 1.4.2009 to 31.8.2011 as per purchase orders. Despite receiving goods worth Rs. 5,84,131, the respondent company only paid Rs. 30,773. A notice under section 433 read with 434 of the Companies Act 1956 was sent for the outstanding amount of Rs. 5,53,398 along with interest. The respondent company alleged the goods were of substandard quality in its reply, despite having used them without objection initially. The court noted that the respondent company's defense was belated and lacked credibility as no steps were taken under the Sale of Goods Act, 1948 to reject or seek compensation for the goods, indicating they were not substandard. The court emphasized that neglecting to pay a debt without a genuine dispute can lead to winding up under section 433(e) of the Act of 1956.

The court referred to the case of Vijay Industries v. NATL Technologies Ltd. (2009) 3 SCC 527, highlighting considerations for a winding up petition: prima facie debt, neglect to pay, bonafide dispute, and substantial defense. In this case, the commercial relationship between the parties was established through documents, including the respondent company's partial payment for the goods supplied. The court found the respondent company's belated claim of substandard goods unconvincing, especially since the objection was raised long after the goods were supplied and used. The court admitted the company petition, ordering publication for citation and giving the respondent company eight weeks to pay the debt with interest; failing which, the winding up order would be enforced.

In conclusion, the court emphasized the importance of genuine disputes in debt payment matters and highlighted the consequences of neglecting to pay a debt without substantial defense. The judgment underscored the need for parties to act promptly and in good faith in commercial transactions to avoid legal repercussions such as winding up proceedings.