9911796707
TMI Blog1985 (3) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the pendency of the proceedings, Sardari Lal Sons, claiming to be the creditors of the company, and the present petitioner, in the name of his business style, Naresh Fabs, sought substitution under rule 101 of the Companies (Court) Rules, 1959, by C.A. No. 189 of 1983 and C.A. No. 385 of 1983 respectively. These applications were resisted by the company primarily on the ground that rule 101 was inapplicable at the show-cause stage and before the admission of the petition. Khanna J., who heard the applications, by an order of September 5, 1983, ruled, on an examination of the provision of rule 101 and the scheme of the Chapter in which the said rule occurs, and relying on an earlier unreported decision of this court in C.P. No. 84D of 1966, decided by H.R. Khanna J., as he then was, on January 27, 1967, that the operation of the rule was not dependent on the admission of the petition and if at the show-cause stage, the requirements of the rule were satisfied, the substitution would be in order. Khanna J. further found that the application of Sardari Lal Sons, C.A. No. 189 of 1983, was earlier in point of time than that of the present petitioner and, therefore, directed the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mere failure to pay a debt would not be inability to pay a debt, but section 434 introduces the fiction of deemed inability even where the company may be solvent and able to pay its debts. Now, it is true that the deemed inability is dependent not only on a notice to the company of a claim but also on the expiry of a requisite period after company has notice of the claim. Neither the Act nor the Rules provide for the form of a notice nor would anything turn on form alone. It is axiomatic that the essence of a matter is the substance and not the form unless there is something mandatory in the form in which an act must be done. There is no doubt that in the present case, the petitioner did not give a specific notice to the company before knocking at the door of this court, much less a notice specifying the requisite period for payment. But I do not see any reason why the form of the notice should be allowed to defeat the object of the provision or to frustrate the substance of the matter. When the present petitioner sought substitution by C.A. No. 385 of 1983, the petitioner set out in the application the particulars of its claim specifying the amount it claimed from the company as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the company would be liable to be wound up because of its deemed inability to pay such deemed inability is not to be confused with a state of commercial insolvency. Two states are clearly distinguishable. The material on record, therefore, would not justify the admission of the petition on the ground of commercial insolvency. That leaves for consideration the question as to the deemed inability of the company to pay and the further question if the petition would deserve admission on that ground. It is not in dispute that the petitioner and the company have been having business dealings since March, 1981, or even earlier and the books of accounts of each of the parties have folios for the other reflecting the various transactions between the parties over the years indicating the supply of goods by the petitioner to the company and payments by the company to the petitioner from time to time, either against the individual bills or in account. C.A. No. 385 of 1983 was the first occasion when the petitioner quantified its claim against the company at Rs. 93,000 towards the price of fabrics and garments supplied by the petitioner to the company, which was said to have remained un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay interest was also denied. It was claimed that whatever business was transacted between the parties, payment had been made by the company from time to time and attention was invited to the two bills which were said to have been cleared in the month of July, 1983, for a sum of Rs. 19,966 on July 13, 1983, and another for Rs. 15,000 on July 28, 1983. With the reply, the company, however, did not file copy of the account of the petitioner in the books of accounts of the company nor did the company file copies of any correspondence that it may have had with the petitioner. There was also no mention in the reply that the goods supplied by the petitioner to the company had been rejected by the importers or that the importers had made any claim in relation to it against the company. In his order of May 25, 1984, Khanna J. noticed that the company had taken "indefinite and vague stand as to the extent of goods received and payments made". He further observed that a copy of the account of the petitioner in the books of account of the company had also not been filed. The company was accordingly directed to file a copy of the account of the petitioner in the books of account of the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and was not a copy of the folio or of the account. The company was accordingly directed to file a copy of the account of the petitioner in the books of account of the company up-to-date covering the main account and the letter of credit account. The matter was heard further after the copy of the account was filed by the company. I scrutinised the rival accounts with the assistance of counsel for the parties and found that besides a minor discrepancy, the accounts, by and large, converged and the only dispute that emerged was with regard to the interest component of the claim of the petitioner. At this stage, it was urged on behalf of the company that there were disputes between the parties with regard to the "quality" of goods and the rate differential on account of which the company claimed a credit of Rs. 35,000 odd. It was then claimed by the company that the parties had exchanged correspondence in relation to this aspect of the dispute. The company sought and was given an opportunity to file copies of the correspondence that the company may have had with the petitioner with regard to the complaint about the quality of the goods, etc ., and the credit in relation thereto to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim of credit on account of "differences in rate" and "inferior quality of goods", the claim is prima facie equally lacking in bona fide as well as substance because the documents filed by the company do not show that there was any reply from the petitioner, which would prima facie confirm the contention of the petitioner that these letters were in fact never sent to the petitioner and had now been manufactured to bolster up a false defence. The company also never raised this question of "rate" and "quality" at the earlier stage of the proceedings except en passant and filed these documents at a late stage when it found that its claim of credit to offset the claim of the petitioner was not holding any ground. There is also no indication from the letter said to have been sent by the company to the Consulate of India that these related to the goods or fabrics supplied to the company by the petitioner. The claim of the petitioner to the principal amount is also squarely confirmed by the auditor's letter at least to the extent of the amount confirmed therein and in view of the confirmation of the auditors, the dispute appears to be tainted. What then is the course to be followed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company court would provide the necessary protection to the company and compel the petitioner to seek his remedy by an ordinary civil action, even while putting the company to terms in a fit case. Where, however, a claim has two components, one of which is bona fide disputed on the basis of a substantial defence, while the dispute with regard to the other is neither made in good faith nor based on substantial defence, it would be open to the court to direct admission of the petition, even while giving option to the company to have the petition deferred pending payment of part of the amount and adequate security in respect of the balance. It is necessary in such cases to strike a reasonable balance between the desirability that the company, in the absence of unusual features, meets its legitimate claims, and the imperative that the proceedings are not allowed to become an instrument of illegitimate pressure. I would, therefore, admit the petition and direct notice of the petition to the company for May 27, 1985. The notice would be published in the Delhi Gazette and in the Statesman and Navbharat Times, for the said date. This is, however, subject to the condition that if ..... X X X X Extracts X X X X X X X X Extracts X X X X
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