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TMI Blog2009 (1) TMI 495X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned judge also has carefully analysed the entire materials placed before the court and found that the company petition need not be entertained. - ORIGINAL SIDE APPEAL NO. 375 OF 2002 AND C. M. P. NOS. 10678, 10679, 19268, 19269 and OF 2005 - - - Dated:- 22-1-2009 - D. MURUGESAN AND M. SATHYANARAYANAN, JJ. Aravind P. Datar for R. Murari for the Appellant. J. Sivanandaraj and Sivam Sivanandaraj for the Respondent. JUDGMENT M. Sathyanarayanan, J. Company Petition No. 137 of 2000, which has been filed for winding up the respondent-company and for appointment of official liquidator, was dismissed by this court on June 25, 2002 and aggrieved by the same, the applicant has preferred this appeal. 2. The facts which are necessary for the disposal of this appeal are given hereunder : In the petition filed in C. P. No. 137 of 2000, it is stated that the respondent-company is engaged in the manufacture and sale of tea to various parties and the petitioner/appellant is engaged in the tea brokerage business for a considerable period of time, was acting as the agent of the respondent and in that capacity, they used to buy and sell tea on behalf of the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d payable a sum of Rs. 31,86,000 to them. The said statement according to the respondent is made with a mala fide and oblique motive in order to defeat their claims. 5. The petitioner sent a suitable reply on August 3, 1999 and followed by a further letter dated August 16, 1999, wherein the petitioner brought to the knowledge of the respondent about the letter dated November 27, 1997, in which, the managing director of the company has confirmed and certified that a sum of Rs. 1,00,14,850 was due and payable by them to the petitioner. However, there was no response to the said letters. 6. It is further stated by the petitioner that the respondent became commercially insolvent as their balance-sheet for the year ended March 31, 1999 would disclose that as against the paid up capital of Rs. 12,50,000 and reserves of Rs. 12,55,442, the respondent has loans outstanding secured and unsecured to the extent of Rs. 1,26,13,182. Further, as against the current assets, loans and advances of Rs. 1,80,87,017, current liabilities and provisions are Rs. 5,00,55,958. That apart, during the said year, the respondent- company suffered a loss of Rs. 44,45,080 and the said figure coupled wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n paid in excess to the petitioner as on December 15,1997 and the respondent has to refund the same with interest. The respondent supplied tea valued at Rs. 6,64,310.44 on February 1, 1998, to the petitioner through M/s. Woodbriar Estate Ltd. It is further averred in the counter that as per the statement of accounts annexed to the counter statement, a sum of Rs. 37,36,292.82 is due and payable by the petitioner to the respondent and that apart, the petitioner has also included certain personal loans given to the respondent's managing director and his family members prior to December 12, 19971 9. The respondent has sent a detailed reply to the lawyer's notice dated July 20, 1999 and also sent reply to the statutory notice dated September 18, 1999. The sum and substance of the counter statement of the respondent is that since there is bona fide dispute on the amount due and payable to the petitioner by the respondent, and that actually the petitioner is liable to pay amounts to the respondent, and also, the respondent-company is financially sound, the petition for winding up the company is not maintainable. Therefore, the respondent prayed for dismissal of the application for w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e over all liabilities. In clause No. 6.1 of the said agreement it has been admitted that a sum of Rs. 60,00,000 has been paid and further undertaking was given to pay the balance due. If really the truth and validity of the agreement dated December 12, 1997, is under dispute, the respondent should not have paid a sum of Rs. 60,00,000 and promised to pay the balance dues to the appellant. ( b )The respondent has written a letter dated February 3, 1997, to the appellant, confirming the receipt of a sum of Rs. 15,16,855.85 and there were cash receipts/acknowledgments in respect of individual amounts paid by the respondent. The erstwhile management had also given acknowledgment from June 1, 1996 to December 14, 1996 and the new management took the administration and affairs of the respondent-company on December 12, 1997 and the said terms are not in dispute. ( c )There is no bona fide dispute to the amount due and payable to the appellant as the admitted balance as on November 27, 1997 was Rs. 1,00,14,850 and the finding of the learned judge that it is not clear as to whether payments of Rs. 5,000 and Rs. 1,500 on June 9, 1997 and September 1, 1997, respectively have been taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vertisement is ordered to be issued and thereafter, after adjudicating the claims of the other creditors and the contention put forth by the debtor, the court has to decide the winding up of the company. Therefore, the learned judge ought to have ordered issuance of the advertisement according to learned senior counsel appearing for the appellant. 14. Learned senior counsel appearing for the appellant in support of his submissions, has taken us through the typed set of documents and also placed reliance upon the following judgments : ( i )[1994] 3 Comp. LJ 438 (Delhi) ( Master Nitin Goel v. Raj Synthetic ( Polychem )) ; ( ii )[1999] 95 Comp. Cas. 172 (Cal) ( Ashoka Agencies and Business Forms Ltd., In re ) ; ( iii ) TDICI Ltd. v. Neptune Inflatables Ltd. reported in [1999] 1 Comp LJ 240 (Mad) ; ( iv )[2006] 129 Comp. Cas. 678 (Delhi) ( Mahesh Nathani v. Sir Edward Dunlop Hospitals ( India ) Ltd. ) ; ( v )[1978] 48 Comp. Cas. 378 (Bom) ( United Western Bank Ltd., In re ) ; ( vi )[1982] 52 Comp. Cas. 479 (Cal) ( Wastinghouse Saxby Farmer Ltd., In re ) ; ( vii )[1978] 48 Comp. Cas. 129 (All) ( Registrar of Companies, U. P. v. KT. Financiers (P.) Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Bombay underlying the principles for ordering the winding up of the company, which are as follows (headnote) : "On a petition under section 433 of the Companies Act, 1956, where the defence is that the debt is disputed, the court has to see first whether the dispute on the face of it is genuine or merely a cloak to cover the company's real inability to pay just debts. The inability is indicated by its neglect to pay after a proper demand and a lapse of three weeks. Such neglect must be judged on the facts of each case. 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. 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." 20. In [1982] 52 Comp. Cas. 479 ( Wastinghouse Saxby Farmer Ltd., In re ) , the High Court of Calcutta, on the facts of the case, held that there is no bona fide dispute based on material on record and therefore, ordered winding up of the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; [1962] Ch. 406 (Ch. D)). The principles on which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and, thirdly, the company adduces prima facie proof of the facts on which the defence depends." 23. This court in the said decision also placed reliance upon a Division Bench decision of this court reported in [1969] 39 Comp. Cas. 297 ; 1970 MANU/TN 122 ( Sri Shanmugar Mills Ltd. v. S. K. Dharmaraja Nadar ) and held that the test of inability to pay the debt under section 433 ( e ) of the Companies Act was not whether the company, if it converted all its assets into cash, would be able to discharge its debts, but whether in a commercial sense the existing liabilities could be paid by it while continued to carry on as a company. In the said decision it has been found that the company has failed and neglected to pay the sums due to the petitioner and therefore ordered publication. 24. Per contra, Mr. Sivam Sivanandaraj, learned counsel appearing for the respondent has submitted the following : ( a )Two partners of the appellant were directors of the respondent- com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent herein from encumbering the shares and also sought a relief of mandatory injunction to return the cheques. If there is any amount due and payable after the payment of Rs. 60,00,000, the suit should have been filed for recovery of money and the appellant has not reserved its rights to file separate suit by obtaining leave. ( f )The respondent after perusal of records had sent a letter dated February 7, 1998, stating among other things that the company was on strike from September 8, 1997 to December 26, 1997 and the respondent was paying a sum of Rs. 60,00,000 without verifying the accounts, as the accounts were not ready on that date. In the said letter, the respondent also made a counter claim of Rs. 22,00,000. The appellant in spite of having received the said letter, has not chosen to send any reply. The said letter was followed by another letter dated July 27, 1999, sent by the respondent claiming a sum of Rs. 31,86,255. The appellant then woke up and issued a legal notice dated July 20, 1999, calling upon the respondent to crystallise the liability and there was no demand for payment of the amount. If really the appellant was in possession of the letter dated Novembe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t-company need not be ordered to be wound up and the learned single judge has carefully analysed the entire materials placed before him and correctly held that the respondent-company is not liable to be wound up and rightly rejected the company petition and therefore, no interference is warranted. 25. Learned counsel appearing for the respondent in support of his submissions placed reliance upon the following judgments : (1)[1965] 35 Comp. Cas. 456 (SC) ( Amalgamated Commercial Traders (P.) Ltd. v. A. C. K. Krishnaswami ) ; (2)[1968] 38 Comp. Cas. 384 (Punjab) ( Lakshmi Sugar Mills Co. (P.) Ltd. v. National Industrial Corpn. Ltd. ) ; (3)[1970] 1 All ER 923 (Ch. D) ( Fildes Bros Ltd., In re ) ; (4)[1971] 3 SCC 632 ; [1972] 42 Comp. Cas. 125 ( Madhusudan Gordhandas and Co. v. Madhu Woollen Industries (P.) Ltd. ) ; (5)[1992] 73 Comp. Cas. 136 (Mad) ; [1992] 1 MLJ 232 ( B. Viswanathan v. Seshasayee Paper and Boards Ltd. ) ; (6)[1992] 73 Comp. Cas. 337 (Delhi) ( Kalra Iron Stores v. Faridabad Fabricators (P.) Ltd. ( No. 2 )) ; (7)[1996] 85 Comp. Cas. 586 (P H) ( Malhotra Steel Syndicate v. Punjab Chemi-Plants Ltd. ) ; (8)[2001] 104 Comp. Cas. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 1 All ER 923 (Ch. D) ( Fildes Bros Ltd., In re ) , it has been held as follows (page 927) : "If on the facts existing when the petition was presented it was then just and equitable to wind up the company, but subsequently it has ceased to be so, I do not think a winding up order should be made. Section 222( f ) Companies Act 1948 is cast in the present tense, providing for an order if the court 'is' of opinion that it 'is' just and equitable that the company should be wound up. No doubt if there were cogent grounds for complaint at the time when the petition was presented, but they afterwards melted away, there may be consequences in relation to costs ; but a winding up order under this head must be based on subsisting facts and not on past history." 29. In [1971] 3 SCC 632 ; [1972] 42 Comp. Cas. 125 ( Madhusudan Gordhandas and Co. v. Madhu Woollen Industries (P.) Ltd. ) , claim was made from the company based on certain invoices and it denied on the ground of fraud. The court on a perusal of materials placed on record found that the books of accounts did not support the case of the petitioner who sought winding up of the company and held that the claim of the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hlighted to show that once an order of winding up is recorded by the competent court on any one of the grounds enumerated in section 433 of the Companies Act, the outcome would be like the death of an individual. Once the winding up order is passed, the entire managerial functioning and decision-making authority is shifted and, ordinarily, entrusted to the official liquidator or an administrator. No doubt, the impugned order radiates an imprint of only an admission of winding up petition and directing the publication of the advertisement in leading daily newspapers. It also cannot be gainsaid that an order admitting a winding up petition and the resultant order for the publication of an advertisement inviting claims from respective parties by a public notice is, in many cases, from the commercial point of view, the business point of view, from the marketability point of view, no less injurious than winding up. This proposition could, hardly, be questioned. The parameters prescribed or propounded by process of evolution of case-law, in order to reach the conclusion of a fit and appropriate case for declaring a company fit for winding up are also very well settled, extensively expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terion for exercise of the power to wind up, ipso facto. (4)It is necessary for the company court to consider the financial status, strength and substratum of the company, in the overall context. It is possible, at times, that there may be a cash crunch. It may be also, possible, at times, that there is temporary cash crisis despite high sales and heavy turnover and, therefore, in such a situation, mere disability or only on the ground of inability to pay would not constitute a ground empowering the court to wind up the company. (5)If the company is an ongoing concern having regular business and employment of employees, the court cannot remain oblivious to this aspect. The effect of winding up would be of putting an end to the business or an industry or an entrepreneurship and, in turn, resulting in loss of employment to several employees and loss of production and effect on the larger interest of the society. (6)Even dividend declared by the company regularly and having profit in the light of the profit and loss account, though temporarily, there may be inability to pay the debt or in the case of any eventuality, the company is unable to make the payment of dues and that by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emporary difficulty as winding up is a measure of last resort. (15)Winding up course cannot be adopted as a recourse to recovery of the debt. (16)The court must bear in mind one more celebrated principle and consider whether the company has reached a stage where it is obviously and plainly and commercially insolvent, that is to say, that its assets are such and its existing liabilities are such as to make the court feel clearly satisfied that current assets would be insufficient to meet the current liabilities, along with other principles. (17)It is also necessary to consider whether the respondent-company has become defunct or has closed its business, for quite some time, whether it is commercially insolvent. For the purpose of finding commercial insolvency, a mere look into the financial data is relevant to examine about its soundness. In all matters relating to winding up, the court may have regard to the wishes of the creditors and contributories and may, if necessary, ascertain their wishes appropriately. If the company is solvent, the wishes of the contributories would carry more weight as they are persons, mainly, interested in the assets. (18)The element of public p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able and with some substance, it is a bona fide dispute. It must be strictly noted that a winding up petition is not an alternative to a civil suit." 34. The High Court of Gujarat on the facts of the case, held that there was a serious controversy about the liability which require investigation of facts and evaluation of document and examination of witnesses and therefore it would be advisable to the parties to go to the civil court for adjudication. 35. In [2003] 113 Comp. Cas. 383 ( SICAL-CWT Distriparks Ltd. v. Besser Concrete Systems Ltd. ) , the agreement relied on by the petitioner was genuine alleging fraud and this court held that the case is not one for winding up and it can be adjudicated only before a civil forum. 36. In [2004] 120 Comp. Cas. 784 (Mad) ( NEG Micon v. NEPC India Ltd. ) , in respect of the petition for winding up, defence was raised by stating that the letter acknowledging the liability has been fabricated, which came to be produced only at a later stage, it has been held in the said decision that the defence raised by the respondent merits acceptance and it require deeper investigation and consequently, the petition for winding up was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person. In so far as the increase of interest from 20 per cent, to 24 per cent, it was undertaken in the letter dated March 3, 1997, signed by the same person, viz. , Thiru. K. A. Narayanan. 41. Learned counsel appearing for the respondent invited the attention of this court to the resolution passed in the board of directors meeting held on May 6, 1995, wherein it has been stated that all commercial transactions and contracts excepting Rs. 500 had to be ratified/approved by two whole time directors apart from Mr. K. A. Narayanan and hence according to learned counsel appearing for the respondent, it is not open to Mr. K. A. Narayanan to unilaterally increase the payment of interest to 24 per cent, from 20 per cent, per annum and that he is not competent to acknowledge the liability to the extent of Rs. 1,00,14,850. The above said acts of Mr. K. A. Narayanan who was part of the old management according to learned counsel appearing for the respondent is in collusion with the appellant thereby the statement of accounts and other documents came to be fabricated in favour of the appellant. That apart, it is submitted by learned counsel appearing for the respondent that two partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the reply dated October 4, 1999, sent by the respondent in response to the statutory notice. 45. The submissions made by learned senior counsel appearing for the appellant that once the respondent has made a sum of Rs. 60,00,000, it is not open to him to doubt the genuineness of the balance claim cannot merit acceptance for the reason that the respondent has raised a plea of fabrication of documents and also made a counter claim for more than one occasion. The respondent also denied the cash receipts. It is pertinent to point out at this juncture that the letter dated November 27, 1997, regarding confirmation of balance is seriously disputed by the respondent which is a primary reason for filing the company petition. Once the said document is disputed, it is not open to the appellant to contend that the debt has been crystallised in the form of ascertainable liquidated sum so as to enable them to get relief of winding up of the company. 46. As regards the contention made on behalf of the appellant that the dispute with regard to the sale of Woodbriar Estate Ltd., is an independent transaction with another company and in no way connected with the respondent-company, and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed the material on record in support of its contention that there is genuine, bona fide dispute between the parties. As the respondent-company according to the appellant is a commercially insolvent company, we perused the revised statement of accounts dated May 10, 2005 and also the submission of learned counsel appearing for the respondent that it is a running company employing about 800 persons. The said fact has also weighed in our mind. If the company petition is entertained, it would create unnecessary hardship and otherwise causes stigma on the respondent-company. 50. The learned judge also has carefully analysed the entire materials placed before the court and found that the company petition need not be entertained. 51. We have also independently considered the materials placed before us and find no reason to interfere with the order passed by the learned single judge. Accordingly, this appeal is dismissed confirming the order and decree dated July 25, 2002 made in C. P. No. 137 of 2000. In the circum stances, there will be no order as to costs. Consequently, C. M. P. Nos. 19268, 19269, 10678 and 10679 are closed. 52. The findings given above are only for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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