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TMI Blog1982 (8) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... s' quotation dated February 8, 1979, fixing the cost at Rs. 32,500., The petitioners completed the said works and sent the invoices dated April 14, 1979, and August 1, 1979, for Rs. 25,036.25 and Rs. 1,738.75, respectively, and requested the respondent-company to take delivery of the same as they were lying in the petitioners factory. The delivery was to be against payment of the invoices. The respondent-company issued three cheques dated July 6, 1979, July 9, 1979, and July 11, 1979, each for a sum of Rs. 3,000. When the said cheques were dishonoured, notice was given to the respondents and the respondents promised to pay cash in lieu thereof and take delivery of the equipment. Since the respondent failed to make payment, the petitioners are entitled to interest at 18% per annum in accordance with the commercial practice for the delayed payment. The petitioners by their letter dated February 8, 1980, sent the statement of account and demanded payment by the respondents, of the principal sum together with interest accrued thereon amounting to Rs. 28,240.39, which the respondents failed to meet. However, the respondents are also liable to pay demurrage at Rs. 200 per month for not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent-company is not liable to pay demurrage at Rs. 200 per month, as it was made clear to the petitioner that the equipment is no longer required for the respondent-company. Hence, the respondent-company is not due to the petitioner for the sum of Rs. 34,412.25. Further, the allegation that the respondent is unable to pay its debts is not correct. It is also not correct to say that the amount is not disputed by the respondent. No amount is due to be paid to the petitioner by the respondent and, as such, the question of the respondent being unable to pay its debts does not arise. It is further countered that the petition under section 433( e ) and ( f ) of the Companies Act is not maintainable and that it is filed to bring disrepute to the respondent-company. If really any amount is due, a suit ought to have been filed and not a petition which is not maintainable. On behalf of the petitioner firm, Iqbal Singh, the proprietor of the petitioner-firm, himself gave evidence and exs. A-1 to A-9 were marked, whereas on behalf of the respondent-company none has been examined. The issues which arise in this petition are : (1)Whether any amount of debt is due to the petitioner by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s our man has called on you but, every time you have been promising the payment at a later date and till date we have not received payment...We would request you to avoid this sort of unpleasant situation and we keep open for another week's time for you to make necessary arrangements for the payment". Ex. A-5 is the statutory notice, dated December 9, 1980, issued on behalf of the petitioners. It reads, inter alia : "Our clients sent you a statement of account and requested payment of the same. Thereafter, by a registered letter dated February 8, 1980, our clients once again demanded payment together with interest accrued thereon. You have neither replied to the said letters nor made the payments. We have been instructed.........to call upon you to pay to our clients or to us......within one week from the date of receipt of this notice the sum of Rs. 34,412.25 being the amount due as per our client's invoices, dated April 14, 1979, and August 1, 1979, together with interest accrued thereon till date calculated at the rate of 18% p.a. as also the demurrage, failing which, please note that our clients will be constrained to institute proceedings for winding up of the company u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not correct. In the cross-examination, to a suggestion, the witness stated : "It is not correct to say that the work is complete after erection and commissioning of the exhaust system". To another suggestion, he stated "It is not correct to state that I have not completed the work as per the purchase order, Ex. A-1".Witness adds :" As per the order which is based on our offer, they were supposed to make payment of 95% before taking delivery and the balance of 5% was to be paid after erection and commissioning. We intimated this offer as per invoice, Ex. A-2". It is further stated in the cross-examination : It is true that we stated in Ex. A-4 "under the circumstances, your non-compliance with the terms of contract will be treated as a breach of contract and with this stand we will be seeking legal proceedings". Further, "please note, if you fail to collect the material from our factory within 7 days from the date of receipt of this letter, we will have no other alternative but to dispose of the equipment and recover the amounts and the balance amounts will be payable by you". He further stated: "I could not dispose of them because there were no buyers. I reminded the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41 Comp. Cas. 174 (Cal.), wherein it is held (headnote) : "It is well settled that if there is a bona fide dispute with regard to the debt which forms the subject-matter of the winding-up proceeding, the court will not entertain any winding-up petition on the basis of the said disputed debt and will leave the parties to resolve the disputes in appropriate proceedings. Whether there is any bona fide dispute with regard to any debt claimed or not, will necessarily depend on the facts and circumstances of each particular case. Disputes raised or sought to be raised may not be bona fide and will not necessarily make the debt a disputed one. Merely seeking to raise certain disputes for putting off liability for payment of the debt or creating a kind of defence to the claim, will not make the debt a disputed one and disputes which appear to have been created or manufactured for the purpose of creating pleas to cover up the liability for payment of the debt can never be considered to be bona fide and will be of no avail in resisting a winding-up petition. Whether the disputes which are raised or sought to be raised are bona fide or not and whether the same have been manufactured for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yable by the company. But it is insufficient to show that some other debt is due or even though that there is something over Rs. 500 due in respect of the claim made, if that was not the sum claimed. The law requires that a demand must be made for a debt that is due, and it is not permissible to support a petition by alleging that something else is due. The notice under section 434 of the Companies Act is a serious matter and the same is fraught with grave consequences. The effect of a notice validly given under the provision is to raise a presumption under the statute as to the inability of the company to pay the debt and its insolvency rendering the company liable to the extreme penalty of losing its very existence and being compulsorily wound up by the court. Such a notice has necessarily to be strictly construed and the notice must comply with the requirements of the statute. On this aspect, all that the statute requires is that the notice must be in respect of an existing and presently payable debt which exceeds the sum of Rs. 500. If the amount stated in the notice is for some reason found not to be exactly the correct amount payable by the company, but is in respect of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e liabilities is no ground for winding up". In Mohammad Hasan Khan v. Ahmad Hafiz Ali Khan, AIR 1957 Nag 97, the scope and the meaning of "debt" has been explained. It is held (p. 97): "Section 43 (M.P. Abolition of Proprietary Rights (Estates, Mahals, Alienated Lands) Act (1 of 1951)) provides for exemption of Sir and not of Khudkasht from attachment or sale in execution of any decree for the recovery of a debt. The term debt' has not been defined in the Act, but evidently it is independent of the liability created by the decree itself. In the absence of any specific definition, it has to be given the ordinary connotation of a loan, which, as commonly understood, is an advance of money or in kind at interest. The normal connotation of the word 'debt' does not include a claim for damages but a liquidated money demand. Section 4( e ) is not, therefore, a bar to the sale of Sir and Khudkasht, nor is the attachment or sale of Sir affected by execution of the decree when it is for recovery of damages for breach of a contract of sale of dhan and not of any debt". In D. S. Gill v. Arpor Acres Farm ( India ) Ltd. [1972] Tax LR 2375, the Delhi High Court held : "The wind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the debtor-company. Any such investigation which would involve the determination of the quantum and quality of the liability would certainly raise a reasonable presumption that it is a disputed debt. Once such a lingering doubt arises in the mind of the company court that the debt is not a sure debt but a debt which could only be ascertained and determined after an investigation into the facts and circumstances of the case, then, unless there is demonstrative mala fides on the part of the company concerned, the company court cannot undertake the examination as to the quantum of the liability or the nature of the indebtedness of the company in question to the claimant in a petition under section 433( e ) of the Act". In Amalgamated Commercial Traders ( P. ) Ltd. v. A. C. K. Krishnaswami [1965] 35 Comp. Cas. 456 , the Supreme Court held (headnote): "It is, well settled that a winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the company. A petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatised as a scandalous abus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the foot of which this petition for winding up was filed under section 433( e ) of the Companies Act was not sustainable. This was because there was a bona fide dispute about the existence of the debt and its quantum". Where the claim or the debt, is disputed bona fide , the courts should be circumspect and chary to order the winding up proceedings; the parties instead should take recourse to a civil suit. In determining the debt, whether disputed bona fide or mala fide , the conduct of the parties, the character of the pleas and the circumstances which will be peculiar to each case, will be the contributing factors. Should there, however, be any doubt or difficulty in determining the animus, the court must stay the winding up proceedings and relegate the claimant, on furnishing security, to a suit. The statutory notice under section 434 of the Companies Act is a very serious matter, as it leads to the presumption, if the claim is held established, that the company is unable to pay the debt and so is insolvent, thereby rendering the company to be thrown out lock, stock and barrel the inevitable consequence of compulsory winding up of the company. We may now analyze ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the invoices dated April 14, 1979, and August 1, 1979, it is clearly laid down that interest at 18% per annum will be charged, if the bills are not paid on presentation. The communication and receipt by the respondent of these two invoices are not in dispute, nor the calculation made under Ex. A-3 and reiterated in Ex. A-4, are in dispute either. Thereafter, under Ex. A-5, the interest aspect was reinforced further. But, in Ex. A-6, which is a reply to Ex. A-5, no specific protest has been made with regard to either charging of the interest or of the demurrage, excepting to seek a clarification as to how the sum of Rs. 34,412.25 has been arrived at, which was immediately clarified under Ex. A-7 showing there-in the demurrage being worked out at the rate of Rs. 200 per month for 18 months, and, therefore, the amount of Rs. 34,412.25 as due. To that in reply under Ex. A-8, which is last of the communication made by the respondent, neither the interest nor the demurrage has been objected to, the only objection being, as stated earlier, only in regard to the amount of Rs. 3,000 paid as advance on March 9, 1979, towards the invoice dated April 14,1979. Hence the claim in regard to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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