9911796707
TMI Blog2002 (4) TMI 781X X X X Extracts X X X X X X X X Extracts X X X X ..... oner is a company incorporated under the provisions of the Companies Act, 1956, its registered office is situate at MSIL House, No. 36, Cunningham Road, Bangalore. The object of the company is as stated in the memorandum of association. Apart from others, to carry on all kinds of agency business and in particular to act as the manufacturer's representatives, selling agents, distributors, storekeepers, stock Its, business agents, organisers, canvassers, or local representatives of all products manufactured by the Government of Karnataka and/or the Government of India in their industrial undertakings and also by limited liability companies or other companies, factories, firms, corporations, whatsoever, industrial or otherwise. The respondent is a company incorporated under the provisions of the Companies Act, 1956, as a public limited company by shares. The object for which the respondent-company is established is to conduct and carry on business in brewery, winery, distillery, etc. According to the petitioner-company, the nominal capital of the respondent-company is Rs. 100 crores, divided into ten crore shares of Rs. 10 each. The petitioner-Mysore Sales International Limited (" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and Foreign Liquors) (Amendment) Rules, 1989, to deal in the products of all distilleries, breweries and wineries in the entire State of Karnataka, including the import and export of liquor with effect from September 30,1989. In the same communication, the petitioner-company was requested to make suitable preparatory arrangements in that behalf. Before the said Rules could be brought into force with effect from September 30, 1989, some of the manufacturers of liquor filed petitions before this court, inter alia , questioning the validity or otherwise of the amended Rules. A learned single judge of this court while entertaining the petitions by his order dated September 27, 1989, had stayed the operation of the amended Rules. The interim order was a short lived one. After hearing the parties to the its a Division Bench of this court by its order dated November 13, 1989, was pleased to dismiss the writ petitions. The State Government in exercise of its powers under sub-clause ( ii )( b ) of rule 3 of the Karnataka Excise (Sale of Indian and Foreign Liquors) Rules, 1989, notified M/s. MSIL (petitioner-company) for the purpose of the rule as "sole distributor" by publishing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f article 14 of the Constitution. The apex court while entertaining the special leave petitions filed by M/s. Khoday Distilleries Limited and others, was pleased to grant an order of stay of the judgment of this court subject to certain conditions and one such condition is as under : "In case ultimately the petitioners lose in the final hearing, provision should be made for the payment of compensation in favour of the third respondent namely, M/s. Mysore Sales International." The Supreme Court by its judgment dated December 15, 1995, since reported as Khoday Distilleries Limited v. State of Karnataka, AIR 1996 SC 911, was pleased to reject all the issues canvassed before it by the parties to the lis and was further pleased to declare that the amended Rules, 1968, as amended on September 13,1989 are valid, intra vires the Act and do not violate the constitutional provisions, specifically articles 14 and 19(1)( g ) of the Constitution. The court was further pleased to direct the appellants therein, to pay to MSIL the requisite commission amount on the basis of the dealings conducted by them in view of the interim orders made by the court. The directions issued are as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores seventy lakhs forty-nine thousand only) and accordingly had issued a statutory notice dated November 21,1998, calling upon the respondent-company to pay the entire arrears of commission with interest with effect from November 13, 1989, together with interest at 22 per cent, per annum within 21 days from the date of receipt of the notice, failing which legal action would be initiated for winding up the respondent-company. On December 29, 1998, the respondent-company had replied to the notice denying its liability to pay the amounts demanded in the statutory notice and also the "debt due". It was stated therein, that the claim of the petitioner-company is fanciful and doubtful and therefore, the petitioner-company is not entitled to take any action including filing the winding up petition. The petitioner-company asserts that the respondent-company is due and liable to pay a sum of Rs. 51,70,49,000 (rupees fifty-one crores seventy lakhs forty-nine thousand only) with further interest at the rate of 22 per cent, till the date of realisation of the entire amounts due. In view of the non-payment of the aforesaid amounts in spite of receipt of statutory notice, it must be pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores. The company is financially sound and is fully capable of meeting all its present and future obligations and liabilities. The company is commercially solvent and sound and therefore, the company is not liable to be wound up on the ground that it is unable to meet the current demands. Any order of winding up would prejudice and affect the entire body of shareholders and the same would be contrary to public interest. On the claim made by the petitioner-company, it is stated that the petition is based upon their alleged right to collect commission/margin at 5 per cent, on the sale of liquor/beer, based on the letter dated September 13, 1989, written by the Under Secretary to the Government of Karnataka, Home Department (Excise). According to the respondent-company, a perusal of the letter bears out that the petitioner-company was not entitled to claim commission/ margin and the letter merely enables the petitioner-company to charge reasonable margin not exceeding 0.5 per cent, on exports and 5 per cent, on the sale of liquor/beer within the State in respect of its operation as distributor. The petitioner-company is entitled to a reasonable margin and not a commission. Reasona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the petitioner-company has made my job easy by filing the synopsis of the case, list of events and dates, and the legal issues that requires to be considered and decided by this court in these company petitions. The issues raised are as under : (I)That the commission payable to MSIL by the respondent companies amounts to a "debt due" under section 433( e ) of the Companies Act, 1956. Elaborating on this, learned counsel would contend that the respondent-company has unjustifiably withheld the margin money payable right from August13, 1989, and has not paid any part of it in spite of repeated requests and demands. Therefore, it should be presumed that the respondent-company is unable to pay its debt. In support of this contention, learned counsel has relied upon the observations made by the Full Bench of the Calcutta High Court in the case of Bauchharam Majumdar v. Adyanath Bhattacharjee, JCR Cal 936, the decision of this court in the case of Kudremukh Iron Ore Co. Ltd. v. Kooky Roadways Pvt Ltd. [1990] 69 Comp Cas 178 , the observations made by the apex court in the case of Kesoram Industries and Cotton Mills Ltd. v. CWT [1966] 59 ITR 767; AIR 1966 SC 1370, Ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Raghunath Prasad Jhunjhunwala [1976] 46 Comp Cas 91 ; AIR 1976 SC 565, the observations made by the Orissa High Court in the case f State of Orissa v. Mayurbhanj Spinning and. Weaving Mills, AIR 1963 Orissa ; State Bank of India v. Hegde and Golay Ltd. [1987] 62 Comp Cas 239 (Karn.), the decision of this court in the case otjagadale and Sons v. State of Karnataka, AIR 1990 Kar 251 ; [1991] KLJ 18. (IV)The debt need not be precisely quantified to maintain a petition under section 433( e ) of the Act. (V)In view of the observations made by the apex court in Khoday Distilleries Limited v. State of Karnataka, AIR 1996 SC 911, the respondent-company is bound to pay margin/commission to the petitioner-company. Since there is non-payment of debts due to the petitioner-company, the respondent- company requires to be wound up by this court. (V)The contention of the respondent-company that the petition is barred by limitation is erroneous and untenable, and lastly, (VI)that the contention of the respondent-company that the petitioner-company should approach the civil court is erroneous and untenable. In that, it is stated, where there are no factual issues involve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmary jurisdiction is not competent to decide that question and it requires to be decided only by a civil court, if for any reason, the petitioner-company files any suit for the recovery of so called debt due from the respondent-company. Fourthly, the respondent-company is commercially solvent and is able to meet all its liabilities and commitments and therefore it is not just and proper to proceed to wind up the respondent-company, even if it is found that the debt is due and payable by the respondent-company to the petitioner-company. The margin money requires to be collected only from the wholesaler/ purchaser and not from the manufacturer as admitted by the petitioner-company in its rejoinder and therefore, the claim with regard to the debt due from the respondent-company has no basis whatsoever. The claim made by the petitioner-company is wholly imaginary, doubtful and fanciful and the claim is not only disputed but also denied. When a company has over 7,000 shareholders and public financial institutions possess shares in the company whose market value is over Rs. 22 crores and the company is paying excise duty, sales tax and other taxes and cess aggregating to over Rs. 80 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the company petition as the company petition is still at the stage of admission, since the admission and advertisement of the company petition is fraught with serious consequences. Before a petition is admitted and advertised, the nature of enquiry that quires to be made by this court is explained by a Division Bench of this court in the case of Airwings Pvt. Ltd. v. Viktoria Air Cargo GmbH [1994] ILR Karn 2560 ; [1995] 84 Comp Cas 688 . The court has observed (pages 720-22): "II. When a winding up petition is filed seeking winding up of the company under section 433( e ) of the Act and from the material available from the petition and any other additional material which the court may require the petitioning-creditor to furnish if it is found that the respondent-company is a going concern and its commercial-cum-manufacturing activities are not suspended or are only temporarily suspended and it is employing number of workmen, then before admitting and advertising the petition, the following procedure is required to be adopted by the court : ( a )The court may hold a summary enquiry, after issuing notice to the respondent-company giving it an opportunity to file its obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so go into the question at least prima facie as to whether the respondent-company is demed to be unable to pay its debts on account of facts that may emerge on the record of such summary enquiry for bringing the company within the fold of deeming fiction envisaged by section 434(1)( a ), and/or section 434(1)( b ) of the Act. If such deeming fiction is found to arise in the light of the evidence available on record during such preliminary enquiry, then in the light of the tentative findings reached by the court on issues ( a )( i ) and ( a )( ii ) and also keeping in view such deeming fiction that may have arisen on record for arriving at prima facie finding on point No. ( a ) ( iii ) the court may admit the petition and direct issuance of advertisement of the company petition. ( d )However for arriving at prima facie finding on point No. ( a )( iii ) if it is found to be a case where there is no evidence at the stage of such preliminary enquiry about raising of deemed fiction under section 434(1)( a ) and /or ( b ), then the court may also enquire, of course, prima facie, as to whether there is scope for raising deeming fiction as contemplated under section 434(1)( c ). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he scope of section 433( e ) of the Act and the enquiry that requires to be done before admitting and advertising a winding up petition. In that, the court has stated (at pages 702, 703, 704) : "Under section 433( e ) of the Companies Act, a company may be wound up by the court if the company is unable to pay its debts. .The provision vests a discretion in the court. But the discretion has to be exercised in the manner any other judicial discretion is to be exercised ;it is a judicial power warranting a proper exercise to grant relief in appropriate cases. If the respondent-company pleads defense in good faith and puts forth a substantial case against the petitioner's claim, the petition for winding up will be rejected. A mere assertion of a debt payable by the respondent-company is not sufficient to attract the discretion of the court in favour of the petitioner . . . Whenever the respondent-company comes forward and sets forth its defence, this court has to examine the nature of the respective cases pleaded by the parties and if a prima facie case is made out by the petitioner, the respondent should shoulder the onus of disproving it, by showing that its defence is in good fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that particular order to proceed with the matter. If a petition is filed on the ground that the company is unable to pay its debt, by complying with the provisions of section 434, the issuance of notice is not a matter of course. If from the material disclosed in the petition and reply to the notice, a prima facie case of existence of a bona fide and reasonable dispute is spelt out, the court would be justified in dismissing the petition in limine at the threshold. Likewise, even after notice has been issued to the respondent-company before admitting the petition, it cannot be said that thereafter the court would not be considering the question whether a case is made out for not making a winding up order to proceed further notwithstanding the acknowledgment of debt to the petitioner, and, the court must agree to advertise the public notice thereof, sending a word about the winding up to all concerned, inviting objections and then alone consider the matter of making an order of winding up or not, even though the court on existing material is satisfied that it will not be just and equitable to order winding up. The principle is well-settled by a catena of decisions of differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t-company, and whether the alleged liability is not free from doubt, and with the material placed by the parties to the Us whether the petitioner-company has made out a prima facie case for admission and advertisement of the company petition and whether the respondent-company has a bona fide and a substantial defence against the claim made by the petitioner-company, it is necessary to find out what exactly is the position in relation to the debt on facts pleaded by the petitioner-company. By virtue of the amended sub-clause ( b ) of clause ( ii ) of rule 3 of the rules, 1989, the State Government is empowered to specify a Government owned or controlled company as a sole distributor to deal in all products of all distilleries or breweries or wineries in the State of Karnataka or import liquor from outside the State for the purpose of distribution or sale within the State or export liquor outside the State. The Excise Commissioner is the licensing authority. The State Government in exercise of the power under the aforesaid rules has notified the petitioner-company MSIL as the sole distributor. The Excise Commissioner has issued distributor's licence as envisaged under the rules. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cie dispute as to the debt and whether the defence raised is bona fide and substantial defence against the petitioner-company's claim ? To answer these primary issues, the meaning of the expressions "debt" and "unable to pay the same" used in section 433( e ) of the Act requires to be considered. I need not have to search for an answer since the apex court in Pradeshiya Industrial and Investment Corporation of U. P. v. North India Petro Chemical Ltd. [1994] 79 Comp Cas 835 ; [1994] 3 SCC 348, had an occasion to consider the meaning of those expressions while construing the provisions of section 433 of the Companies Act. In that, the court has observed for the purpose of section 433( e ) of the Act (page 842) : "(. . .) (1) there must be a debt; and (2)the company must be unable to pay the same ; An order under clause ( e ) is discretionary ; A debt under this section must be a determined or a definite sum of money payable immediately or at a future date. (. . .) 'unable to pay its debts' . . . should be taken in the commercial sense. In that, it is unable to meet the current demands,... that is to say, that its assets are such ... as to make it reasonably certain as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the executive order made by the State Government authorises the petitioner-company to collect the margin in respect of its operation as distributor, it cannot collect the maximum margin money, since the language employed in the executive order is that the petitioner-company is entitled to charge reasonable margin not exceeding 5 per cent, on sales made within the State without any rhyme or reason. The defence pleaded and projected seems to be reasonable, bona fide and substantial one and not a defence pleaded for the sake of defence. The issues that may require consideration and decision are whether the amendment rules authorise the petitioner-company to collect any margin money in respect of its operation as a distributor, and whether by an executive order, the State Government could have permitted the distributor to collect the margin money without an appropriate statutory provision, and whether the petitioner-company could demand the margin money from distilleries or breweries or wineries for the alleged breach of the amended Rules and whether the petitioner-company could have quantified the maximum margin money payable from the manufacturers of liquor without rhyme or reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of margin for the period 1989 to 1996 and since that amount is not paid, in spite of repeated demands, the petitioner-company is of the view that the respondent-company is unable to pay its debts and, therefore, the company requires to be wound up. Admittedly, the claim made is for the period 1989 to 1996. If a suit for recovery of that amount were to be filed, the same was required to be filed within three years as envisaged under section 72 of the Limitation Act, 1963, and if any claim made is of beyond three years, that would be barred by limitation and the trial court will not pass any decree on such a claim. Therefore, prima facie it looks to me that the claim is barred by limitation. However, Sri B. G. Sridharan, learned counsel for the petitioner-company contends that the provisions of law of the Limitation Act would not apply to proceedings under the provisions of the Companies Act. In my view, this contention of learned counsel may not be correct, in view of the observations made by a Division Bench of this court in Airwings Pvt. Ltd. v. Viktoria Air Cargo GmbH [1994] ILR Karn 2560; [1995] 84 Comp Cas 688 , 720 wherein the court was pleased to observe that while maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h it would have collected, had the respondent-company supplied all its manufactured products to the wholesalers through the petitioner-company. Prima facie, it appears to me that the claim is for payment of compensation/damages for the alleged breach of the provisions of the amended rules and the orders passed by the State Government dated November 13,1989, and if the claim is for damages, a petition for winding up is not maintainable, since the term debt does not refer to claim for damages. Nextly, whether the amended rules 1989 authorise the petitioner-company to collect the margin from the manufacturers of liquor for its operation as a distributor and whether by an executive order in the absence of appropriate amendment to the provisions of the Excise Act and the rules framed, could have permitted the petitioner-company to charge and collect margin is another debatable issue and that cannot be decided in a company petition for winding up. However, Sri B. G. Sridharan, learned counsel for the petitioner-company contends that in view of the observations made by the apex court in Khoday Distilleries Ltd's case, AIR 1996 SC 911, even the manufacturers are liable to pay commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e unable to pay the same and that expression should be taken in the commercial sense. A perusal of the assertions made in the statement of objections filed and the balance-sheets produced clearly demonstrate that the existing assets and liabilities of the company are more than sufficient to meet the existing liabilities including the so called liability of the petitioner-company and that the respondent-company is commercially solvent. On the facts of the case, the statutory presumption under section 434(1)( a ) of the Act is replaced by the factual position and the company is solvent and able to pay its debts, if any. This is another redeeming feature in favour of the respondent-company. In the present case, the debt is disputed and the defence seems to be substantial and not mere moonshine. Under such circumstances, the apex court, while deeming the scope of section 433( e ) of the Act in Madhusudan Gord-handas and Co. v. Madhu Woollen Industries P. Ltd. [1971] 3 SCC 632; [1972] 42 Comp Cas 125 was pleased to observe (page 131) : "Two rules are well settled. First, if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds as to whether the case of the persons opposing the winding-up is reasonable ; secondly, whether there are matters which should be inquired into and investigated if a winding-up order is made. It is also well settled that a winding-up order will not be made on a creditor's petition if it would not benefit him or the company's creditors generally. The grounds furnished by the creditors opposing the winding-up will have an important bearing on the reasonableness of the case. (See P and J Macrae Ltd., In re [1961] 31 Comp Cas 424 (CA))." The Orissa High Court in Bichitrananda Panda v. Orissa Construction Corporation Ltd. [1999] 97 Comp Cas 345 was pleased to state (see headnote) : "On a petition for winding up a company under section 433( e ) of the Companies Act, 1956, the principles on which the court acts are (1) that the defence of the company is in good faith and one of substance ; (2) that the defence is likely to succeed in point of law; and (3) that the company adduces prima facie proof of the facts on which the defence depends. If the debt was bona fide disputed, there cannot be 'neglect to pay' within section 434(1)( a ) of the Companies Act, 1956. If there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing money disputes between parties. This jurisdiction is to subserve the object of winding up the companies which have not paid their debts or which are unable to pay their debts. Therefore, the first prerequisite must be to establish prima facie a debt against the company. But when a claim or debt is disputed, the proper forum for that is a civil court." The claim for payment of debt due by the petitioner-company is seriously disputed. Such disputes cannot possibly be decided in the winding up proceedings. That requires to be decided in a properly framed suit. Secondly, in my view, the defence raised by the respondent-company on the face of it appears to be bona fide and such defence is likely to succeed. Therefore, it is not a fit case either to admit or permit the petitioner-company to take out advertisement of this company petition. Accordingly, this company petition is rejected. The facts and issues raised in the other company petitions are not only similar but also identical as in Co. P. No. 32 of 1999. The reasoning which I have stated in that petition, requires to be applied in these cases also. Therefore, adopting the reasons stated in the company petition, these com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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