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TMI Blog2005 (3) TMI 484X X X X Extracts X X X X X X X X Extracts X X X X ..... pproached the petitioner firm for supply of castor oil. As per the purchase orders placed by the respondent, the petitioner supplied castor oil time to time under various invoices. One of the conditions enjoined under the invoices was that the respondent is liable to pay at 2 per cent interest per month on delayed payments. Thus, from 7-4-2000 to 1-8-2000 the petitioner supplied castor oil worth Rs. 89,13,589. As per the trade practice, payments made shall be adjusted towards interest first and the balance, if any, shall be adjusted towards principal later. The respondent, as per the statement of account of the petitioner, became due to an amount of Rs. 64,58,447 and was liable to pay the said amount with interest at 2 per cent per month. The petitioner got a legal notice dated 6-1-2003 issued to the respondent calling it upon to pay the said amount. Inter alia in the reply letter dated 10-1-2003 the respondent stated that the Income Tax Department served a notice under section 226(3) of the Income-tax Act, 1961 calling upon it to pay the amounts due to the petitioner directly to the Department for adjustment of the Income Tax dues of the petitioner and, thus, an amount of Rs. 5, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chronicle and Andhra Jyothi as per rule 99 of the Rules. Assailing the same, as aforesaid, the present appeal has been filed. 7. While directing the company petition to be admitted, the learned Single Judge inter alia in the impugned order observed that the correspondence between the petitioner and the respondent inter se clearly showed that the respondent was making delayed payments and inasmuch the respondent did not specifically deny the claim of interest inter alia in the correspon-dence in between the parties inter se, and in fact even agreed to compen-sate the petitioner for delayed payments that was sufficient indicia to hold that the petitioner had made out a prima facie case and the plea taken by the respondent company was without substance. 8. After having heard both the learned Counsels in this appeal and having due regard to the competing claims of the parties, the short question that falls for our determination in this appeal is that as to whether the respondent is liable to pay interest at 2 per cent per month on delayed payments and when that is being disputed, would it constitute prima facie a valid ground for admission of the company petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act is the relevant provision which reads as under: " 433 . Circumstances in which company may be wound up by Court. - A company may be wound up by the Court- ( a )if the company has, by special resolution, resolved that the company may be wound up by the Court; ( b )if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting; ( c )if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year; ( d )if the number of members is reduced, in the case of a public company, below seven, and in the case of private company, below two; ( e )if the company is unable to pay its debts; ( f )if the Court is of opinion that it is just and equitable that the company should be wound up." 11. A perusal of the above provision shows that a company may be wound up by the Court if the company is unable to pay its debts or if the Court is of the opinion that it is just and equitable that the company should be wound up it can direct the company to be wound up as per Section 433, clauses ( e ) and ( f ) respectively. 12. Section 434 of the Act deals with situati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent company after having received the legal notice demanding payment neglected to pay the amount for three weeks or more than that. 14. Except making a bald allegation in the company petition that the petitioner had come to know that the respondent company owes large sums of money to its creditors and it is not in a position to meet its debt obligations and as, therefore, become commercially insolvent, the petitioner has not taken necessary care to prima facie establish the same. The only piece of evidence available on the side of the petitioner is that the respondent is indebted to the petitioner a sum which is claimed towards interest on the delayed payment. Assuming for a moment that the respondent company is liable to pay interest on the delayed payments and it has not paid the said amount to the petitioner, could it be said that the respondent neglected to pay the debt particularly when the respondent is disputing the liability of payment of interest on the delayed payments and when there is no such written agreement in between the parties for such payment of interest. 15. Turning to the law on the point, in Amalgamated Commercial Traders (P.) Ltd. v. A.C.K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tance; (2) the defence is likely to succeed in point of law; and (3) the company adduces prima facie proof of the facts on which the defence depends. Another rule which the Court follows is that if there is opposition to the making of the winding up order by the creditors, the Court will consider their wishes and may decline to make the winding up order. Under section 557 of the Companies Act, 1956 in all matters relating to the winding up of the company the Court may ascertain the wishes of the creditors. The wishes of the shareholders are also considered, though, perhaps, the Court may attach greater weigh to the view of the creditors. " (p. 131) 18. From the above, the legal position seems to have well-settled that a winding up petition is not a legitimate means to enforce payment of the 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 that a bona fide dispute for payment constitutes a valid ground for opposing the company petition. 19. The learned Counsel appearing for the petitioner seeks to place reliance upon a judgment of the Madras High Court in R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The Company Court framed two points for determination, namely, whether the company is liable to pay interest on the value of the goods supplied by the petitioner; and whether the company is liable to be wound up for inability to pay the amount. It was held, on the above facts, thus: "It is well-settled that a company can be wound up only when it is proved that debt claimed against it is ascertained, definite and undisputed and that the company has failed to pay the same and winding up cannot be ordered if there is bona fide and substantial defence denying the liability. So, the question that has to be examined is whether the liability of the respondent company to pay interest on the overdue bills is bona fide , ascertained and undisputed?" (p. 261) Having regard to the fact that the petitioner in that case failed to produce its books of account to show the payment of interest by the company it was held that the creditor never charged interest on the account of the company and, therefore, it was held that the parties had not stipulated for payment of interest on overdue bills, repelling the contention that the interest is payable even in the absence of any stipulation in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f multiplicity of proceedings, it cannot be considered for issuing such a direction. The Punjab and Haryana and Madras High Courts have not considered the position of law from the aforesaid angles." (p. 179) 23. Yet another judgment on which the learned Counsel seeks to place reliance is the judgment in Ultimate Advertising Marketing v. G.B Laboratories Ltd. [1989] 66 Comp. Cas. 232 (All.). According to the facts in that case, the alleged debt pertains to the amount of interest from 1-6-1984. It was not determined amount but rate of interest claimed was 18 per cent per annum. The company sought to be wound up seriously disputed the claim for interest taking up the stand that no amount was payable as interest and the amount of interest was never agreed upon nor the rate of interest was fixed nor the question of payment of interest was ever raised in any of the correspondence between the parties at all. Under those circumstances, the Allahabad High Court was of the view that the winding up Court could not investigate into the question of the rate and quantum of interest and unless it was established that the amount claimed was either agreed upon or admitted or decreed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company failed to pay the same. Mere failure to pay the amount would not constitute the requisite neglect to pay as envisaged under clause ( a ) of sub-section (1) of section 434 of the Act when the company bona fide disputes the very liability and hence the defence taken up by it is of substance. 27. Directing the company petition to be admitted and ordering publica-tion, as is required under law, will jeopardize the interests of the company more particularly, the interests and welfare of the workers. Therefore, it shall be borne in mind by the Company Court before ordering publication. In such circumstances, it is appropriate in certain cases to defer the publication by directing the company to pay the amount to show its bona fides, when the amount demanded is definite and ascertained and there is no bona fide dispute. Once there is a dispute as regards the liability, which is shown to be bona fide and taken in good faith, the company petition cannot be the solution for compelling the company to pay the debt. The remedy in such cases seems to be elsewhere by means of a properly constituted civil suit. 28 . Having regard to the facts and circumstances of the inst ..... X X X X Extracts X X X X X X X X Extracts X X X X
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