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TMI Blog2012 (4) TMI 569X X X X Extracts X X X X X X X X Extracts X X X X ..... s divided into fifteen crore equity shares of ₹ 10/- each. Its issued, subscribed and paid up capital as on 31.3.2005 was ₹ 20.00 lakhs divided into two lakh equity shares of ₹ 10/- each. The main objects of the respondent company is to carry on business of printing, publishing and circulating or otherwise dealing in daily, weekly, fortnightly or monthly newspapers, magazines, periodicals, journals, books of all kinds or other publications; to start, acquire, print and generally to carry on the business of owners of newspapers and magazines, and to carry on the business of manufacturer, importer, exporter and dealer in all kinds and classes of paper, board and pulp, and all kinds of articles in the manufacturing of which any form of paper, board and pulp is involved. 3. It is the petitioner s case that, in the course of their business, they approached the respondent which utilized their services to handle their sea import consignments; the respondent company released its order dated 1.1.2010 in favour of the petitioner for clearing its import consignment at ICD-Hyderabad, and for providing certain services; in their letter dated 1.1.2010 the respondent agreed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner agreed to bear ₹ 2,60,000/- towards the cost of delay in clearance of the two documents/return thereof; the petitioner confirmed their willingness by e-mail dated 16.7.2010, and called upon the respondent to pay the outstanding dues of ₹ 30,62,583/- with interest at 18% per annum from the date of default till realization; and, though the respondent-company received the statutory notice dated 9.12.2010, they neither replied thereto nor did they clear the admitted outstanding dues. The petitioner would assert that the respondent had neglected to pay the admitted outstanding dues of ₹ 30,62,583/-, along with interest at 18% per annum, for the services rendered by them to the respondent company; and their inability to pay the admitted debt necessitated their being wound up under the provisions of the Companies Act. The petitioner would also contend that the respondent company was facing financial problems with accumulated losses, and was heavily indebted to various other creditors; the respondent company was not in a position to meet their day to day statutory and other obligations as and when they fell due; the respondent was insolvent; and was not in a posit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was based on the statement of accounts dated 15.3.2011; prior to the filing of the company petition, the petitioner had not communicated the same to the respondent for reconciliation; the petitioner had failed to file the documents referred to in the statement of accounts and/or copy of the bills to enable the respondent even now to verify and advice payment on reconciliation, and if the amount claimed was found to be correct; and the debt claimed was without filing supporting documents i.e., statement of accounts and copies of bills. According to the respondent, the petitioner did not clear their cargo as per the time schedule; their e-mail dated 8.7.2010 demonstrated that there was a delay on their part in clearing the cargo; the cargo/customs clearance, and the bills issued thereon, had to be reconciled; if all the related documents, in support of the debt claimed by the petitioner company, such as copies of bills and the documents referred to in the statement of accounts, were furnished to them, the respondent company was ready and willing to settle and pay the amount so arrived at after reconciliation, and after deducting the admitted cost of the delay in clearing the cargo of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gazines being published by the company etc; the respondent was established in the year 1994, and has been carrying on business for more than 16 years having a paid up capital of ₹ 15.00 Crores, and a turnover of ₹ 111.94 Crores; it is a profit making company; and the respondent is regularly paying the enforceable debts due to all the statutory authorities, secured and unsecured creditors, apart from paying salaries to its work force in addition to the taxes/duties to the exchequer. Reliance is placed on Hind Overseas Pvt. Ltd. v. Raghunath Prasad Jhunjhunwalla (1976) 46 CC 91 (SC); Rishi Enterprises In re (1992) 73 CC 271 (Gujarat); Pradeshiya Industrial Investment Corporation of U.P. v. North India Petrochemicals Ltd (1994) 3 SCC 348; Kanchanaganga Chemical Industries v. Mysore Chipboards Ltd (1998) 91 CC 646 (Karnataka); and Kitti Steels Ltd v. Sanghi Industries 2010 (4) ALD 116. 5. In their reply affidavit, the petitioner would state that the counter-affidavit was filed by the respondent with false and baseless allegations to avoid the liability of ₹ 30,62,583/- towards clearance of their sea import consignments at ICD Hyderabad, and for providing certai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the relief of winding up under Section 433(f) of the Companies Act, and their claim is limited to Section 433(e) thereof; failure to seek leave of this Court under Rule 21 of the Companies Court Rules, 1959 is merely a procedural irregularity and, since leave was subsequently granted, the irregularity, in following the prescribed procedure, has been cured; the petitioner has complied with the requirement of Rule 95 of the Company Court Rules, 1959; failure on the part of the respondent to pay the amount due within three weeks from the date of receipt of the statutory notice would require the Court to deem that the respondent is unable to pay its debts; the very fact that the respondent chose not even to reply to the statutory notice, issued under Section 434(1)(a) of the Companies Act, let alone make payment of the amount due to the petitioner within three weeks from the date of receipt of the said notice, was proof of the respondent having neglected to pay the amount due; it is only because the respondent had neglected to pay the amount due that the petitioner had invoked the jurisdiction of this Court under Section 433(e) of the Act; in their counter-affidavit, the respondent d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court under Section 433(e) of the Companies Act; the respondent has not admitted its debt; the petitioner has not pleaded that the debts of other creditors have not been paid, and that the respondent is commercially insolvent; and all clauses, i.e., Clauses (a) to (c) of Section 434(1) of the Act, must be satisfied for a company to be deemed to be unable to pay its debts, and it would not suffice if merely clause (a) of Section 434(1) is complied with. IS THERE A BONAFIDE DISPUTE REGARDING THE DEBT DUE FROM THE RESPONDENT TO THE PETITIONER? 8. In an application for winding up, allegations in the petition are of primary importance. A prima facie case has to be made out before the Court can take any action in the matter. Even admission of a petition, which will lead to advertisement of the winding-up proceedings, is likely to cause immense injury to the company if ultimately the application has to be dismissed. (Raghunath Prasad Jhunjhunwalla1). A dispute would be substantial and genuine if it is bonafide and not spurious, speculative, illusory or misconceived. The Company Court, at the stage of admission, is not expected to hold a full trial of the matter. It must decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2009) 3 SCC 527 : (AIR 2009 SC 1695: 2009 AIR SCW 1229; IBA Health (India) Private Limited6). A winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bonafide disputed by the company. If the debt is not disputed on some substantial ground, the Court/Tribunal may decide it on the petition and make the order. Secondly, if the debt is bonafide disputed, there cannot be neglect to pay within the meaning of Section 434(1)(a) of the Companies Act. If there is no neglect, the deeming provision does not come into play and the winding up on the ground that the company is unable to pay its debts is not substantiated. Thirdly, a debt about the liability to pay which, at the time of the service of the insolvency notice, there is a bona fide dispute, is not 'due' within the meaning of Section 434(1)(a), and non-payment of the amount of such a bonafide disputed debt cannot be termed as neglect to pay the same so as to incur the liability under Section 433(e) read with Section 434(1)(a) of the Companies Act. (Mediquip Systems (P) Ltd9; IBA Health (India) Private Limited6; Softsule (P) Ltd. Re (1977) 47 CC 438 (BOM)). The following are the pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es offered by the petitioner for the aforesaid services. Again, by e-mail dated 15.6.2010, the respondent informed the petitioner that they would arrange payment within 10 to 15 days after the due date for the petitioners invoices positively and, hence, the petitoner should clear the documents, and release newsprint from ICD - Hyderabad immediately, without delay. The petitioner, vide e-mail dated 3.6.2010, informed the respondent that their invoices, pending over 30 days, was for ₹ 21.00 lakhs; and for less than 30 days, was for ₹ 10.00 lakhs. The petitioner, vide e mail dated 16.7.2010, agreed to bear ₹ 2.6 lakhs towards belated clearance of two documents. As no payment was forthcoming, a statutory notice dated 9.12.2010 was issued to respondent under Section 434(1)(a) of the Companies Act whereby the respondent was informed that the petitioner had been clearing the respondent s cargo from customs authorities; they had cleared about 85 x 40 containers in a period of six months; and, though the containers had arrived as per schedule, there were delays from the respondent s end in despatching the documents from the Bank i.e., in the respondent getting necessary c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s put to strict proof that they had not received the invoices; and that copies of the invoices were being filed for perusal of this Court as Ex.P.12. In their counter affidavit the respondent merely stated that the accounts were required to be reconciled; and they had an open mind to settle all the amounts, on the bills being furnished, and after reconciliation of the accounts. Though the statement of account was furnished along with the company petition, and the bills (invoices) were furnished along with the reply affidavit dated 18.11.2011, the respondent neither came forward with their statement of accounts nor have they stated what is the amount, if any, due and payable by them to the petitioner. Even if the sum of ₹ 2.60 lakhs, which the petitioner agreed to bear for belated clearance of two documents if payment of the entire outstanding dues was made by the respondent forthwith, is deducted from the amount due of ₹ 30,62,583/-, still a sum of ₹ 28,02,583/- remains due towards the principal from the respondent. In addition thereto, the petitioner claims interest at 18% per annum on the outstanding dues from the date of default till the date of payment. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or as it was a financial institution for an amount which was agreed to be subscribed; the High Court had not decided the question whether there was a debt, and the company had either neglected or was unable to pay; there was no definiteness about the claim which was the subject-matter of arbitration, and was pending adjudication; there was a prima facie dispute as to the debt; the defence raised was a substantial one, and not a mere moonshine; the financial position of the appellant was sound; it was the largest financial corporation in the State of Uttar Pradesh; it was a profit-making financial corporation with a huge asset base, and large reserves; it was paying dividend; and there was no justification for admitting the winding-up petition; observed that, for application of Section 433(e), there must be a debt, and 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; inability to pay its dues should be taken in the commercial sense, in that, it is unable to meet current demands; it is plainly and commercially insolvent that is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind that there is no bonafide dispute, regarding the debt due and payable by the respondent to the petitioner, let us now examine the contentions urged by Sri Ch.Ramesh Babu, Learned Counsel for the respondent, that the company petition is liable to be dismissed. RULE 21 OF THE COMPANIES (COURT) RULES, 1959: 15. Rule 21 of the Companies (Court) Rules, 1959 stipulates that every petition shall be verified by an affidavit made by the petitioner or by one of the petitioners, if there are more than one, and, in case the petition is presented by a body corporate, by a Director, Secretary or other principal officer thereof; such affidavit should be filed along with the petition, and should be in Form No.3. Under the proviso thereto the judge may, for sufficient reason, grant leave to any other person, duly authorised by the petitioner, to make and file the affidavit. 16. A company can sue and be sued in its own name. Rule 6 of the Companies (Court) Rules, 1959 provides that, save as provided by the Act or by these Rules, the practice and procedure of the Court and the provisions of the Code so far as applicable, shall apply to all proceedings under the Act and these Rules. Under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). The power to file suits and/or proceedings for the recovery of the amounts due or becoming due cannot be held to embrace the power to institute proceedings for winding up under the Companies Act, 1956. Powers of attorney must be strictly construed, the rationale behind that principle being that the powers given are not abused by the agents, and the actions are restricted within and only to the extent the power is indicated or given. (Coromandel International Ltd. v. Chemcel Biotech Ltd 2011) 4 Comp. Law. J 279 (AP)). 18. It is no doubt true that when the statute provides for a particular procedure, other methods or modes of performance are impliedly and necessarily forbidden, (Krushna Chandra Sahoo v. Bank of India AIR 2009 Orissa 35; State of Bihar v. J. A. C. Saldanna AIR 1980 SC 3276; Haresh Dayaram Thakur v. State of Maharashtra (2000) 6 SCC 179: AIR 2000 SC 2281; Prabha Shankar Dubey v. State of Madhya Pradesh AIR 2004 SC 486, and Indian Banks' Association v. Devkala Consultancy service AIR 2004 SC 2615); but then procedural defects, which do not go to the root of the matter, should not be permitted to defeat a just cause. There is sufficient power in the Courts, und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary to be signed, verified and executed by the Board in their name, and on their behalf, for any purpose. It is thus evident that Sri R. Ram Kumar, Managing Director of the petitioner-company, was not only authorised by the Board to commence and prosecute company petitions, but also to appear and act through agents in all Courts. It was wholly unnecessary for Sri R. Ram Kumar to act personally in the company petition as he was empowered by the Board to act through an agent. Sri R. Ram Kumar had acted in compliance with the mandate of the Board in giving a power of attorney to Sri R. Seshan authorising the latter to do in connection with the legal proceedings to be filed by the petitioner, including winding up petitions against the respondent, the following acts or things for, on its behalf, and in the name of the company (1) to sign, verify the appropriate application/petition, sign and give vakalatnama, give evidence on oath or otherwise sign on any application or affidavit, and execute all documents required by and on behalf of the company in connection with the proceedings before the appropriate Courts, and do all acts and things incidental to the aforesaid as required under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due. It also requires the petitioner to state that they had applied to the company for payment of the debt by notice of demand signed, dated and served on the company at its registered office by registered post, and that the company had failed, and had neglected, to pay the same or any part thereof. The petitioner is also required to state that the respondent company is insolvent and is unable to pay its debts. 23. In Kitti Steels Ltd. Hyderabad5 this Court held that when a petition is presented by a creditor, under Section 433 (e) and/or 433 (e) read with 433 (f) of the Act, compliance with Rule 95 is essential to succeed in a winding up petition; the petition must contain essential pleadings that the respondent company has failed and neglected to pay the petitioner's debt, even after receipt of the notice of the demand in writing; and the company is insolvent and unable to pay its debts. 24. A perusal of the Company Petition would show that the petitioner has asserted that the respondent company had failed and had neglected to pay the outstanding amount due of a sum of ₹ 30,62,583/- along with interest at 18% per annum for the services rendered by it to the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Companies Act for winding up of a company is not equivalent to an application seeking recovery of a debt due to the petitioning creditor. Section 433 of the Companies Act is not intended to supplant the jurisdiction of a Civil Court to adjudicate a money suit. Section 433(e) vests in the Company Court the jurisdiction to wind up a Company, inter alia, under clause (e), if the Company is unable to pay its debts. Once the statutory fiction under Section 434 comes into play, it is open to the Company Court to entertain a petition under Section 433(e) of the Companies Act. 1956. (Viral Filaments Ltd. v. Indusind Bank Limited 2003 (113) CC 85 (Bombay High Court)). If there is no bonafide dispute with regards the sum payable towards the principal, it is open to the creditor to resort to both the remedies of filing a civil suit as well as filing a petition for winding up of the company. (Mediquip Systems (P) Ltd.9; Tube Investments of India Ltd.12). 26. Bearing this distinction in mind, let us now examine whether the remedy of a civil suit would bar exercise of discretion under Section 433(e) of the Company Act. Section 433 of the Companies Act provides for the circumstances in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng up petition, the decree was in appeal; and, in such a situation, a winding up petition under Section 433(e) of the Act would not lie. The judgment in Kitti steels5 cannot either be read, or to be understood, as extending the requirement of compliance with Section 443(2), (which is applicable to a petition for winding up under Section 433(f)), also to a petition under Section 433(e) of the Act. Section 443(f) of the Companies Act enables the Court to wind up a company if it is of the opinion that it is just and equitable that the Company be wound up. It is only where winding up is sought under Section 433(f) on just and equitable grounds would Section 443(2) enable this Court to refuse to make an order of winding up, if it is of the opinion that some other remedy is available to the petitioner and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy. The legislature, in its wisdom, has chosen to prescribe the requirement of compliance with Section 443(2) only where a company is sought to be wound up on just and equitable grounds under Section 433(f) of the Act. It has consciously chosen not to extend this requirement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, their words are not to be interpreted as statutes. (Bharat Petroleum Corporation Ltd v. N.R. Vairamani (2004) 8 SCC 579, Ashwani Kumar Singh v. U.P. Public Service Commission 2003(11) SCC 584; Union of India v. Amritlal Manchanda 2004(3)SCC 75; P Sridevi W/o P Murali Krishna26; and Deepak Bajaj v. State of Maharashtra (2008) 16 SCC 14). As the petitioner does not press for the relief under Section 433(f), and as their claim is limited to Section 433(e), I see no reason to relegate the petitioner to the remedy of a civil suit or to dismiss the company petition on this ground. COMMERCIAL INSOLVENCY: 30. On the question whether commercial solvency would justify refusal to exercise discretion under Section 433(e) of the Companies Act this Court, in Venkateswara Flexo Pack (P) Ltd. v. Sampre Nutritions Ltd 2011) 4 Comp. Law. J. 90 (AP), held that, in order to raise a presumption of a company s inability to pay its debts, it is not enough merely to show that the company has omitted to pay the debt despite service of the statutory notice; it must be further shown that the company omitted to pay without reasonable excuse, and conditions of insolvency in the commercial sense exist; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the death of the company; the creditors cannot insist on the winding up of the company by the Court as a matter of right if the position of the company is such that it would be unable to pay its debts to them even if the company can be resurrected; and the petitioning creditor cannot be permitted to insist on his pound of flesh, which may be a death blow to the company, only on the ground that, for a temporary period, a running company is not in a position to pay the debt. 32. In Kanchanaganga Chemical Industries4, the Karnataka High Court held that certain requirements should be established, prima facie, before getting a petition under Section 433(e) admitted and advertised; if, from the material on record, it cannot be made out that the company is commercially insolvent, then that petition may be dismissed even before issuing notice regarding admission. The judicial process should not be an instrument of oppression or needless harassment. There lies a responsibility and duty on the Courts to find out whether the concerned company has become commercially insolvent for the purposes of winding up; at the initial stage the Court would be circumspect and judicious in exercising dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondent is entitled to rebut the statutory presumption under Section 434(1)(a), of its inability to pay its debts, by producing evidence to show that it is solvent, commercial solvency is not a stand alone requirement and must be examined in the context of whether or not a bonafide dispute exists. In cases where, (as in the present case), there is no bonafide dispute regarding the debt due and payable by the respondent to the petitioner, commercial solvency cannot be considered as a stand alone ground justifying refusal to exercise discretion under Section 433(e) of the Companies Act for, if such a consequence is to be the result in every case, a solvent company could, at its mere whim, refuse to make payment to its creditors which would render Section 433(e) read with Section 434(1)(a) of the Companies Act redundant. No provision of a statute can be read as being redundant or be treated as inapposite surplusage. 35. While the legal fiction under Section 434(1)(a), that a company must be deemed to be unable to pay its debts, can be rebutted by producing evidence to the contrary before this Court the respondent company, for reasons best known, has chosen not even to file i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is proved to the satisfaction of the Court that the company is unable to pay its debts. The Court is required, under clause (c) of Section 434(1), to take into account the contingent and prospective liabilities of a company in determining whether the company is unable to pay its debts. Clauses (a), (b) and (c) of Section 434(1) of the Companies Act deal with three different and distinct situations and are, evidently, in the alternative. Reading the requirement of clauses (a) to (c) of Section 434(1) as cumulative, more so when the word or is used therein, would result in a situation where the legal fiction under Section 434(1) of Companies Act would not be attracted to any case at all. This contention urged on behalf of the respondent, therefore, necessitates rejection. 38. None of the contentions urged by Sri Ch. Ramesh Babu, Learned Counsel for the respondent, merit acceptance. The Company Petition is required to be, and is, accordingly, admitted. 39. As required under Rule 24 read with Rule 99 of the Companies Court Rules, 1959, admission of the company petition is required to be advertised in two daily news papers. The petition shall be advertised in Business Standa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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