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TMI Blog2015 (11) TMI 1317X X X X Extracts X X X X X X X X Extracts X X X X ..... nd thus causing breach of contract amounting to a loss of 15 crore has no reasonable foundation. The matter regarding return of book s i.e. the RHI books which are in possession of MB at its warehouse in Delhi and Kolkata, has been duly considered by the petitioner in the legal notice issued by the attorney of the petitioner to the said company dated August 4, 2013. In the said notice, a solution has been suggested to SK Mehra with respect to the same. It is however seen that there has not been any confirmation received by the said company when in 2014 email, again the matter of sending the books back to RHI is asked by the company. However, despite the fact that both the distributorship agreements had already terminated owing to the failure or default in making timely payment, and that has also been acknowledged by the said company, the reason to wait for the confirmation of the petitioner seems groundless. . Prior to the issuance of the winding up notice there has been no contemporaneous document and material to show that the company has denied its liability and claimed damages. It has also been seen that the demand notices have been issued by the petitioner with respect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of ₹ 60 lakhs to the satisfaction of the Registrar, Original Side, High Court, Calcutta on or before 15th December, 2015 which shall remain valid till the disposal of the arbitration proceeding - C.P. No.657 Of 2013 - - - Dated:- 23-9-2015 - Hon'ble SOUMEN SEN, J. For The Petitioner : Mr. Sarathi Dasgupta, Mr. Souvik Bhadra, Mr. Arijit Basu. For The Respondent : Mr. Jishnu Chowdhury, Mr. Aritra Basu Soumen Sen, J.:- Random House Publishers India Pvt. Ltd., the petitioner, has filed this application praying for winding up of the Mehras Books Pvt. Ltd. (hereinafter referred to as the said company ). The petitioner is engaged in publishing, printing, and marketing of books. On September 4, 2009 the petitioner has entered into a Distributorship Agreement with the said company whereby the said company was appointed as the non-exclusive distributor and reseller of books. The agreement was to remain valid till December 31, 2010 with the provision that, in the absence of any situation to the contrary, there would be automatic renewal for the period of one year each and could be modified through Addendum. Under the agreement the Company was obl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny. It is submitted by the petitioner that repeated demands were made to the said company for the payment of the debt but the said company raised frivolous pleas in order to avoid and delay payment. The petitioner contended that the company was not in a position to pay debt, even though on number of occasions, it had acknowledged the fact of unsettled accounts and its liability to make payment for the books sold and delivered. Since the debt was not discharged, this application under Sections 433 read with 434 and 439 of the Companies Act, 1956 is filed praying for the winding up of the Company. The company, on the other hand, contended that though the agreement contains a payment schedule, it was contingent upon the receipt of payment following the practice of the trade. The company has also stated that the property in the goods did not pass on to them unless they were able to sell the goods. The allegation put forth by the said company against the petitioner was that the quantities of books supplied were without the assent of the company. It was also contended that the supply of books was not made according to the order placed inasmuch as the books, which had no market at a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) If the Said company satisfies the Court that he has a good defence to the claim on its merits the plaintiff is not entitled to leave to sign judgment and the Said company is entitled to unconditional leave to defend. (b) If the Said company raises a triable issue indicating that he has a fair or bona fide or reasonable defence although not a positively good defence the plaintiff is not entitled to sign judgment and the Said company is entitled to unconditional leave to defend. (c) If the Said company discloses such facts as may be deemed sufficient to entitle him to defend, that is to say, although the affidavit does not positively and immediately make it clear that he has a defence, yet, shows such a state of facts as leads to the inference that at the trial of the action he may be able to establish a defence to the plaintiff's claim the Plaintiff is not entitled to judgment and the Said company is entitled to leave to defend but in such a case the Court may in its discretion impose conditions as to the time or mode of trial but not as to payment into Court or furnishing security. (d) If the Said company has no defence or the defence set up is illusory o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efence in a class of cases where speedy decisions are desirable in the interest of trade and commerce. In general, therefore, the test is too show whether the defence raises a real issue and not of sham one, in the sense that, if the facts alleged by the defendant are established there would be a good, or even a plausible defence on those facts. In New Finds (India) v. Vorion Chemicals and Distilleries Ltd. reported at (1976) 46 Comp Cases 87 (Mad) it was held that bona fide dispute in regard to a debt means that the dispute is based on a substantial ground and if such a dispute is raised, the court will not make a winding up order even if only a part of the debt is disputed on substantial ground . However, if a dispute is not genuine and bona fide and it is put forward to hide a company s inability to pay, a petition of winding up should be entertained, and accordingly winding up should be allowed. It is well established that the machinery of winding up should not be misused by the petitioners as means of putting pressure to the company to realize debts, but where the court is satisfied that the company is insolvent and its substratum is gone, the court should order the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st by August 15, 2013 . The terms of all the above-mentioned contracts clearly state that in case the terms of the credit period if exceeded the petitioners reserve the unrestricted right to stop any and all pending orders or supply of books. Thus on this ground there cannot be any holding back of payment as that would lead to violation of the terms of the contract. In the same reply, it has been mentioned by SK Mehra that there exists a general slump in the market and the same mail also mentions that there has been a delay of receipt of payment from the client of the distributors. These facts are sufficient to prove that the said company is acknowledging the fact that there exists a debt to be paid to the petitioners. Unpaid debt and not the amount of the debt is what matters. Where however, there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the court could make a winding up order without requiring the creditor to quantity the debt precisely. However, having regard to the consequences likely to follow from the order of winding up and the company would be deprived of having a say on the q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of ₹ 500. Secondly, it is open to a company to secure a claim and such option presupposes an amount being determined. Thirdly, in the practice followed by this court where a winding up petition is considered at two stages, the usual order passed is one permitting the company to pay or secure the amount, prima facie found due, so that advertisements do not ensue and the matter does not progress to the second, and more prejudicial, stage. If the company judge is unable to ascertain the sum that is due to the petitioner, albeit prima facie, then no condition for avoiding publication of advertisements can be set. In the instant case having regard to the emails exchanged it cannot be said that the company is not indebted to the petitioner. The company even has proposed to pay at least 1.38 crores. Evidently, the amount which is due has been accepted by the company in its mails. The matter which now has to be examined is whether the defence put up by the company that it is a bona fide disputed, which is reasonable and in good faith, stands the point of law and is tenable. On consideration of the emails exchanged between the parties it can be observed that there have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mediately previous calendar year on a region wise basis. The distributor shall attempt to return books/titles that have been purchased by it from the publisher in the immediately preceding 18 months on the basis of last in first out. Since significant amounts were outstanding against the supply made, the petitioner by an email dated 27th May, 2013 expressed its concern and requested the company to provide a plan of payment otherwise the petitioner would be constrained to stop supply of books. The petitioner was quite categorical in stating that the petitioner had to stop supply of books because the petitioner did not want a situation continuing where old debt would be financed by new supplies in responding to such emails. The said email was preceded, inter alia, by an email dated 15th May, 2013 the petitioner reiterated that the total dues as on May 14, 2013 is about 32.43 million and the company was requested to provide an update on the accounts receivable so that the petitioner could draw a plan for recouping the debt. Of these approximately 25 per cent or 7.6 million is well above 180 days and another 6.2 million would be over due by the end of May, 2013 for a total of ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same. c) Mr. Nandan Jha, Vice President Sales at RHI would visit Kolkata to meet with Mr. S.K. Mehra to discuss the above and work on a plan of action. The petitioner alleged that the said email was not answered and no solution was provided. The petitioner in this proceeding has disclosed emails between 26th April, 2013 and 7th of August, 2013 to show that reconciliation statement was exchanged by an between the parties and as on 31st March, 2013 a sum of ₹ 2,49,59,980/- had remained due and payable on account of sale of books. The isolated instances raised in the affidavit filed by the company seeking adjustment by way of discount or SOR would not exceed few lakhs. The company replied to the statutory notice which was as vague as the earlier one. As I have indicated earlier there was no real challenge thrown to the claim save and except the company harped on reconciliation of accounts and insisted on return of books. Mr. Chowdhury has relied upon Madison Communications Pvt. Ltd. Vs. Som Distilleries and Breweries Ltd. reported at 126 Comp Cas 786 and submitted that an uncertain amount is not a debt and the winding up petition must be for a definite sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000. The Hon ble Supreme Court also found that there were inconsistencies in the finding of the learned single Judge. It was held that debt under Section 433 of the Companies Act must be a determined or a definite sum of money payable immediately or at a future date. The financial position of the appellant was also brought to the notice of the petitioner. An order under Section 433(e) of the Act was held to be discretionary. The machinery for winding up will not be allowed to be utilised merely as a means for realising debts due from a company. The Hon ble Supreme Court affirmed the views of the Bombay High Court, Madras High Court as also the law laid down in Madhusudan Gordhandas Co. v. Madhu Woollen Industries (P) Ltd. reported at (1971) 3 SCC 632 which would be evident from Paragraph 23, 24 and 25 which reads:- 23. The Bombay High Court has laid down the following principles in Softsule(P) Ltd. Re, (1977) 47 Com.Cases 438 (Bom): Firstly, it is well settled that a winding up petition is not legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the company. If the debt is not disputed on some substantial ground, the Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has held that if the debt is bona fide disputed and the defence is a substantial one, the Court will not wind up the company. The principles on which the Court acts are: (i) that the defence of the company is in good faith and one of substance ; (ii) the defence is likely to succeed in point of law; and (iii) the company adduces, prima facie proof of the facts on which the defence depends. The Hon ble Supreme Court found that there was a prima facie dispute as to the debt and, accordingly, the order admitting the winding up petition was set aside. In IBA Health (supra) it was held that at the time of considering an application for winding up on the ground of inability to pay debts, the Court would not be required to hold a full trial. A dispute would be substantial and genuine if it is bona fide, substantial and not spurious, speculative, illusory or misconceived. Where dispute requires detailed investigation of facts and evidence and interpretation of terms and conditions of agreement between the parties, the court shall not proceed with winding-up proceedings. While cautioning that if the creditor s debt is bona fide disputed on substantial grounds dismissal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ody and control of the assets of the company which are released and distributed in the manner provided by the Act. The court is bound to keep in view the public interest. Primarily, the court is concerned not only with the interest of the petitioner or the creditors but it has to keep in view the interest of the company's shareholders, contributories, etc., also However, it was further observed by the court that in matters concerning winding up on the basis of 433(e), it is only after the company is unable to pay its debts and there is no bona fide defence to meet the demand of the creditors that the company can be ordered to be wound up. In Amalgamated Commercial Traders Private Ltd v. A.C.K. Krishnaswami reported at (1965) 35 Com Cases 456 (SC), observed that:- It is well settled that 'a winding-up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. A petition presented ostensibly for a windingup order but really to exercise pressure will be dismissed, and under circumstances may be stigmatised as a scandalous abuse of the process of the court. At one time petitions founded on disputed debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is convincing materials to show that the company has accepted its liability. In the reply to the two notices dated August 12, 2013, the said company stated that it was a Distributor and thus was an agent of the principal. However, nothing of this manner has been specified in the contracts that were entered into. Thus, it is not legitimate for the company at this stage to deny their liability under the cloak of agency and claim its benefits. Both the agreements namely, the Distributorship Agreement 2009 and the Distributorship Agreement- Princeton 2011 clearly state that the company is a non-exclusive distributor of the petitioners. The company accepts that the said agreements are on a principal to principal basis and the company would be required to pay the price of the books sold and delivered at a discounted price. Moreover, nowhere in the agreements is it mentioned that the number of distributors that Random House could have was required to be limited, nor has there been any definition given to the semi-exclusive distributor . The allegation made by the said company that contracting with more distributors in the north and eastern zone, where they were conducting their d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to note that in the case of Ficom Orgarnics Ltd v. Laffans Petrochemicals Ltd. reported at (2000) 99 Comp. Cases 471 (Guj), after reaching the conclusion that the dispute raised by the respondent company against the petitioner's claim was not bona fide, time was granted to the company to pay the petitioner the claim amount. Even in Oswal (supra) the Court after arriving at a finding that the petitioner has made a case for admission of the petition and the company could not disapprove by showing that its defence is genuine and bona fide and also substantive deferred the order of admission of the winding up petition of the company and directed the company to deposit the invoice amounts in the court. In the instance case, having regard to the nature of the defence disclosed there cannot be any doubt that at least a sum of ₹ 1.38 crores was due and payable by the company to the petitioner. The company did not even raise any dispute contemporaneously and what emerges from the facts is that the defence raised and the claim made in defence to the action initiated by the petitioner were never raised at the relevant point of time or until the statutory notice was served upon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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