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TMI Blog2007 (8) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... pplies were a part. The company, or the Premier group, did not enter into the distributorship agreement, albeit on principal-to-principal basis, for their own consumption of the goods. The Premier group was to sell the SKF bearings and other components to end-users. The SKF warnings in newspapers, it can be reasonably argued, drove customers away from the company’s counters where SKF products were on sale. The counterclaim of damages set up by the company is not altogether absurd. The fact that there is no direct action between the dramatis personae here in respect of the company’s claim for damages, is not good ground by itself to discredit the counter-claim. That is not to say that the entirety of petitioner’s claim, or the claims of the other entities in that group, can be wished away by the defence that has been set up. The company’s group appear, to be debtors of the petitioner’s group. But it would be unwise to single out one undisputed bill, or three as in this case, for a claim in summary proceedings to be founded thereon, unmindful of the other matters that need to be resolved in the overall transaction. To yield to the petitioner’s request in this case would be to prom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a principal sum of Euro 3916.47 remained due. The company responded by a letter of March 7, 2005. The company s response was to two SKF entities that had issued separate notices through the same advocate claiming from the company. It is necessary to see how the company s advocates described their clients in the reply of 7-3-2005 : "Our clients (1) Premier (India) Bearings Ltd. 407, Marshal House, 25, Strand Road, Kolkata-700 001. (2) Hitech Bearings (P.) Ltd. 407, Marshal House, 25, Strand Road, Kolkata-700 001." Such reply while dealing with the present petitioner s claim had this to say: "With reference to your letters written to Hitech Bearings (P.) Ltd. on instruction of S.K.F. South East Asia and Pacific Pte. Ltd., Singapore, our clients deny that an amount of Euro 5018.24 being an aggregate of the principal amount of Euro 3916.47 and interest at 2 per cent per month. Our clients state that in view of what has been stated herein above the question of making payment to your clients an amount of Euro 5018.24 being an aggregate of the principal amount of Euro 3916.47 and interest at 2 per cent per month amounting to Euro 1101.77 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hing into the company/s (and its associates) domain by other distributors of SKF products and by the SKF group not providing product support. ( iii )The company (or the group to which the company belongs) decided not to renew the association from the beginning of January, 2004 and informed the SKF group thus around Christmas of 2003. On 6-1-2004, the two groups discussed parting of ways and modalities were worked out which would appear from an electronic mail message of 9-1-2004, issued by the Premier group (the company and its associates) to the SKF group. In such communication it appeared that the close out between the parties (or, more accurately, the two groups) envisaged product and warranty support being provided by the SKF group to the Premier group. ( iv )By 24-3-2004, the Premier group had issued two messages to the SKF group demanding credit for incentives and other sums due to it which, according to the company, went unheeded. ( v )On 7-1-2004, the SKF group in the name of its Indian company issued a public notice in several newspapers announcing that the Premier group were no longer the Authorised Industrial Distributors (AID) of SKF products with effect from Janu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent admission of the claim. The petitioner submits that the bills relied upon in the petition had not been questioned, the factum of supply was not disputed, the quality of the goods were not questioned and, thus, there is no defence as to the company s liability. The petitioner suggests, as all the creditors need to do at such stage of the proceedings, that it is ex debito justitiae entitled to an order of admission and the court, on the basis of the indefensible stand taken in paragraph 7 of the opposition by the company, had no discretion to exercise in admitting the petition; the propriety of the order of winding up that the petitioner seeks can be tested at the subsequent, post-advertisement stage. 10. The company was probably alive to the fact that no defence had been made out in its opposition as to the substance of the immediate claim. In its supplementary affidavit, the company has thrown in the list of inventories, a copy of the plaint relating to the suit instituted by the flagship company of the company s group against the Indian unit of the SKF group and has relied on a Division Bench judgment upholding the Company Judge s order in a winding up petition filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench judgment of this court of some vintage which defines principles applicable in proceedings of this nature. In the judgment reported at Bukhtiarpur Bihar Light Railway Co. Ltd. v. Union of India [1954] 24 Comp. Cas. 507 (Cal.) the creditor had issued a notice of demand on 6-6-1950, to which the company responded on 10-6-1950. The notice of demand was issued, not to the registered office of the company at 135, Canning Street, Calcutta but to Fraser Road, Patna. There was a subsequent notice issued on 30-6-1950, but such subsequent notice could not be considered for the purpose of the winding up petition as the same had been presented on 18-7-1950, before the period of three weeks had run out from the date of receipt of the subsequent notice. It was in such circumstances that the appellate court held as follows : "It appears to us, however, that although the learned counsel for the appellant did not himself lay much stress on his first point, it is yet a point which must succeed. According to the petition for winding up itself, the registered office of the railway company is situated at No. 135, Canning Street, Calcutta. That being so, if a notice of demand was to operate a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is quite impossible for the Union of India to contend that although the appellant-company has, according to its own case, a sum of Rs. 10,00,623 waiting to be paid over to it and although the claims of itself and of the Bengal Nagpur Railway do not exceed Rs. 8,00,000, it must yet be held that the company was unable to pay its debts. In my view, even assuming that the company was deliberately avoiding or delaying payment, this was not a case of inability to pay, but a case where the company was failing and neglecting to pay. I am by no means, holding that between the first demand and the making of the petition there was any deliberate failure or neglect, because in order to arrive at a decision on that point, a much closer examination of the facts would be necessary than is possible on the very meagre materials which are to be found in the paper book. Suffice it to say, for the purposes of the present case, that when the financial position of the company is such that against the admitted assets of the value of Rs. 10,00,000 there is a debt of Rs. 8,00,000 only, it can by no means be said that the company is unable to pay its debts." (p. 512) 14. The provisions of the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presumption under that section would not be raised: "Under section 434 of the Act, the deemed inability to pay the debts will arise when a creditor to whom the company is indebted in a sum exceeding Rs. 500 has served on the company by causing it to be delivered at its registered office a demand notice requiring the company to pay the sum so due, and the company has, for three weeks thereafter, neglected to pay the sum or to secure or compound it to the reasonable satisfaction of the creditor. Unless the statutory notice is in conformity with the mandatory requirements of section 434(1)( a ) of the Act, the presumption of inability cannot be raised. In the present case, the notice is addressed only to the managing director and not to the company. The registered office of the company is at Pallipalayam, Salem district, as can be seen from the postal index number code of delivery post offices in Tamil Nadu circle, marked as exhibit R-6; the pin code number of Pallipalayam is 638 006. The notice purporting to have been issued under section 434 is not only one addressed to the managing director, but also the pin code number given is 638 007. Therefore, the statutory exhibit P9 noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the invalidity of the notice. In resisting the winding up petition, the company urged such ground and despite judgments being cited in support of the challenge to the notice, it was held as follows : "4. Indeed the company had not been served with the statutory notice at its registered office. As I see it, service of the statutory notice of demand on the company at its registered office was a provision contained in the Companies Act was not merely a matter of procedure and form. Such provision was a method of ensuring fair play by and bona fide of the parties to summary proceedings. It was a check on the parties from stealing a march by one against the other. The salient factor which must have weighed on the minds of the legislators in inserting the provision in the Act surely must have been before instituting summary proceedings such as a winding up petition it was mandatory that the company should be made fully aware of its debt and failure to pay within the allotted time would entitle the debtor to institute summary action for winding up of the company. The decisions cited by advocate for the company concerned circumstances, where the company did not receive the statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company while admitting the claim and assuring the petitioner of payment did not mention anything about its alleged lack of knowledge as to the bills, or particulars of the claim. Significantly, there was also not a whisper in respect of the reply to the statutory notice which had been sent on behalf of the company by its advocates. The decisions which were cited by advocate for the company being Focus Advertising (P.) Ltd. v. Ahoora Blocks (P.) Ltd. [1975] 45 Comp. Cas. 534 (Bom.); Mohammed Amin Bros. Ltd. v. Dominion of India, AIR 1952 Cal. 323 and Keshrimal Devichand Porwal v. Bhuwan Moda Suttar, AIR 1960 MP 272, where the courts had found that the petition must itself disclose the cause of action, must contain the necessary particulars from which the court can ascertain that there was in fact a debt, that a statutory notice had been served and that there had been a default. The courts have of course held over the years that in order to resist an order for winding up there must be a bona fide dispute by the company and not a mere moonshine or a sham. In the instant facts and circumstances it was abundantly clear from the letters of admission, to which I have referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0] WBLR 256 was not a good law and with all humility I am unable to agree with His Lordship." (p. 678) 21. In view of the binding Division Bench precedent in the Bukhtiarpur Bihar Light Railway Co. Ltd. s case ( supra ), which was not noticed in Kadex Systems Ltd. s case ( supra ), there is no room for any discretion in the matter or room for making allowances for service of the statutory notice at any place other than the registered office of the company. The statutory notice has per force to be issued to the company and has to be delivered at its registered office before a creditor can allege deemed insolvency of a company in terms of section 434(1)( a ). Indeed, it is a jurisdictional fact that has to be complied with for a creditor to urge that the company is unable to pay its debts. The company s conduct is immaterial as there is no question of any waiver by the company in case the notice is delivered elsewhere. It is for the petitioner to satisfy the court that the conditions precedent to the invocation of the legal fiction had been complied with. 22. But the statutory pre-condition cannot be taken to an illogical extreme. It is one thing to challenge a notice on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished, there is little room for discretion and the matter must progress to the next stage. 25. The consequence of a petition being permitted to proceed to the second stage has to be appreciated. Upon a creditor s petition being admitted, the court ordinarily permits the company to pay off what, on a prima facie basis, appears to be the sum due to the creditor, or to secure such claim. The court does not necessarily direct payment or call for security, but merely gives the company an option so that advertisements may be a warded off. A company may choose to suffer advertisements and stay back to challenge the prima facie finding of its inability to pay, at the final stage. It is open to the company to dislodge the prima facie view of its indebtedness to the creditor taken at the initial stage or to otherwise convince the company judge that no order of winding up should be made. At this, the second stage, the company judge also has the benefit of others being present who may support or oppose the prayer for winding up. Even if the creditor s debt remains undisputed, there is still a discretion at large which the company judge may exercise and decline to make an order for wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e few companies consider it worth their while to undertake such exercise. 28. The company here emphasises that the petitioner relies on the same agreement that is the subject-matter of the suit filed by the company s associates against the Indian SKF. The company reminds that the petitioners claim forms part of the accounts that have been referred to in the early-2004 correspondence between the two groups. The company refers to the Premier group s demands for incentives and other receivables being adjusted against the price of the overall supplies effected by the SKF groups. The company exhorts that the plaint in the suit filed by the Premier concern against the Indian SKF should be read as a claim by the premier group against the SKF group and that the other entities of the two groups are not parties to such suit, should not prompt the court to give it a more constricted meaning than it deserves. 29. For the proposition that if accounts had not been taken, an isolated claim could not be made the basis of winding up proceedings, in the judgment of 3-5-2007, passed in C.P. No. 180 of 2006 in the matter of Juneja Chemical Industries (P.) Ltd. v. Alam Tannery (P.) Ltd. [20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s supply to the company was but a part of the overall transactions between the two groups of concerns. The second is the Premier group s claims for incentives and other receivables; in substance, a defence that accounts had not been taken and that the petitioner s claim could not be isolated without apportionment therefrom on account of incentives and other receivables due to the company. 31. The third is the equitable consideration. It is true that the petitioner did not issue the advertisement in the year 2004, but such advertisement covered all SKF products of which the petitioner s supplies were a part. The company, or the Premier group, did not enter into the distributorship agreement, albeit on principal-to-principal basis, for their own consumption of the goods. The Premier group was to sell the SKF bearings and other components to end-users. The SKF warnings in newspapers, it can be reasonably argued, drove customers away from the company s counters where SKF products were on sale. The counterclaim of damages set up by the company is not altogether absurd. The fact that there is no direct action between the dramatis personae here in respect of the company s claim for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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