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TMI Blog2021 (12) TMI 348X X X X Extracts X X X X X X X X Extracts X X X X ..... s supported by a certificate of acceptance. The respondent has not denied the execution of the certificates of acceptance - A Division Bench of this Court in MICHAEL HART VERSUS NINESTARS INFORMATION TECHNOLOGIES LTD. REPRESENTED BY ITS MANAGING DIRECTOR, GOPAL KRISHNAN [ 2013 (4) TMI 875 - MADRAS HIGH COURT] , has examined the scope of Section 433 of the Companies Act and held that the Company Court while examining the issuance of notice or admission of a Company Petition need not pronounce upon the validity or enforceability of the debt. Admittedly, the respondent Company had not chosen to terminate the contract. It had continued to avail the services. Therefore, it cannot now turn around and say, there is a violation of the provisions of the Aircraft Act or the C.A.R. Rules made there under and therefore the liability ceased - the respondent Company has miserably failed to satisfy the three pronged test suggested by the Hon ble Supreme Court in MADHUSUDAN GORDHANDAS AND CO. VERSUS MADHU WOOLLEN INDUSTRIES (P.) LTD. [ 1971 (10) TMI 49 - SUPREME COURT] and hence had rendered itself liable to be wound up for its inability to pay its debts under Section 433 (e) of the Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aring reference No.M90204840 (kindly note that USD 59'130.63 has been credited and USD 1 million that was received by Spice Jet on Jul 23, 2014 and adjusted to the said outstanding invoiced amount) Issued in Zurich and payable at Yes Bank, New Delhi on January 26, 2014 Certificate of Acceptance executed between respondent and SRT in relation to invoice No.M90204840 dated 30.07.2013 2 09.08.2013 USD 4,414,567.04 bearing reference No.M90205479 Issued in Zurich payable at Yes Bank, New Delhi on February 5, 2014 Certificate of Acceptance executed between respondent and SRT in relation to invoice No.M90205479 dated 09.8.2013 3 22.08.2013 USD 1,783,372.69 bearing reference No.M90206294 Issued in Zurich payable at Yes Bank, New Delhi on 18th February 2014 Certificate of Acceptance executed between respondent and SRT in relation to invoice No.M90206294 dt. 22.08.2013 4. 18.10.2013 USD 874,149.79 bear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay the monies due under the various invoices. Claiming that the failure on the part of the respondent to pay the monies due, despite issuance of a notice under Sections 433 and 434 of the Companies Act, 1956, would tantamount to inability to pay the debts making the respondent liable for winding up under Section 433 (e) of the Companies Act 1956, the petitioner has come up with this Company Petition. 3. The respondent resisted the Company Petition contending that the alleged debts are not legally enforceable and as such there cannot be a winding up order under Section 433 of the Companies Act, 1956. It was further contended that the petitioner is not a creditor of the respondent and in the absence of any contractual relationship of a debtor and creditor, a winding up proceeding will not lie. It was also contended that the agreements between the respondent and SR Technics do not authorise assignment to the present petitioner. The fact that SR Technics had also issued a notice, under Section 434 of the Companies Act, on 21.01.2015 and the fact that it did not pursue the winding up was also projected as a defence by the respondent. The liability to pay the very debt was denied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atisfaction of the creditor, a company is deemed to be unable to pay its debts. In view of the presumption of inability to pay created under Section 434 of the Companies Act, an order for winding up should automatically follow, unless the debtor Company is able to show that the debt itself is unenforceable or that there is a bona fide dispute. 5.1. The absence of a reply to the statutory notice, according to Mr.Rahul Balaji, would strengthen the presumption and the burden is on the debtor to show that the defences are bona fide or that the debt is unenforceable under Indian Law. The learned counsel would also point out that the debtor Company has not disputed the fact that it availed the services of SR. Technics, for maintenance and repairs of the aircraft engines under the agreement dated 24.11.2011 and the supplementary agreement dated 24.08.2012. Having accepted the invoices, having issued bills of exchange and having issued certificate of acceptance, the respondent Company cannot be heard to contend that the debt is not legally enforceable. 5.2. The learned counsel appearing for the petitioner would also point out that the enforceability or otherwise of the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioning creditor does not seek to enforce the debt in a petition under Section 433 read with 434 and 439 of the Companies Act, the question of stamping would not arise. 5.5. Mr. Rahul Balaji, learnd counsel appearing for the petitioner would also contend that the bills of exchange being the documents that are payable on demand they do not require stamping. Even otherwise, According to Mr.Rahul Balaji, the certificates of acceptance, the execution of which have been admitted by the respondent, would establish the debt beyond doubt and therefore, the issue relating to stamping may not be very germane to decide whether the Company Petition should be admitted and winding up should be ordered. The learned counsel would distinguish a proceeding to enforce a debt and a proceeding seeking winding up contending that while a creditor who seeks to wind up the company is not attempting to enforce the debt. Enforcement of the debt would arise only after admission of the winding up petition and the same will have to be before the Official Liquidator. 5.6. Mr.Rahul Balaji, learned counsel would also rely upon the judgment of the Division Bench of this Court in Michael Hart v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Senior Counsel would submit that the bills are not ones payable on demand. He would also draw my attention to Section 3 of the Indian Stamp Act, to contend that under Section 3(b) of the Act, a bill of exchange payable otherwise than on demand is chargeable with duty. Relying upon the definition of a bill of exchange payable on demand under Section 2 (3) (b) of the Indian Stamp Act, the learned Senior Counsel would submit that a bill of exchange payable on demand should contain an order for the payment of any sum of money weekly, monthly, or at any other stated period. 6.2. Drawing my attention to the bills of exchange, Mr.V.Ramakrishnan, learned Senior Counsel would submit that all the bills of exchange are made payable on a date fixed which date is about six months from the date of the issue of the bills of exchange. Therefore, according to the learned Senior Counsel, none of the bills of exchange that are relied upon by the petitioner or payable on demand and therefore, all of them require stamping and admittedly none of them are stamped. Attention is also drawn to Section 18 of the Stamp Act, which provides for stamping of instruments executed outside India. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of confirming bank) Yes Bank Ltd, 48, Nyana Marg, Chanakyapuri, New Delhi 110 021, India (Endorsement on the back side of the Bill of Exchange) Please pay to the order of Credit Suisse AG ......................................... (Stamp and signature drawer SR Technics (Switzerland AG) 6.4. Pointing out that the endorsements made on the reverse of each of the seven bills of exchange that were subject matter of this Company Petition, Mr.V.Ramakrishnan, would submit that none of the endorsements are in the form required or suggested and therefore, the very endorsement of the bills of exchange is invalid. He would also point out that in the agreements, the seal of SR Technics has been affixed, whereas such seal is evidently absent in the endorsements made. Therefore, according to the learned Senior Counsel, the endorsements are invalid and as such, there is no legally enforceable debt. 6.5. Mr.V.Ramakrishnan, learned Senior Counsel would further contend that since there is a breach of the agreement by SR Technics, the respondent company is absolved of the liability. Relying upon Clause 14.3 of the agreement dated 24.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt or annual return for any five consecutive financial years ; (h) if the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality ; (i) if the Tribunal is of the opinion that the company should be wound up under the circumstances specified in section 424G : Provided that the Tribunal shall make an order for winding up of a company under clause (h) on application made by the Central Government or a State Government. Class (e) of Section 433 of the Companies Act provides for winding up a Company, if the Company is unable to pay its debts. Section 434 of the Companies Act, states as to when a Company can be deemed to be unable to pay its debts. The requirements of Section 434 are very fundamental, all that Section 434 requires is ● (i) There should be an outstanding of more than ₹ 500/-; ● (ii) A notice in writing to be delivered at the registered office of the respondent Company and a neglect on the part of the respondent Company either to pay the money demanded within a period of three weeks or to secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st 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. 10. A reading of the above principles laid down by the Hon ble Supreme Court would show that the Court while examining the question, as to whether, a winding up proceeding is to be admitted or not must, upon the existence of a debt being proved, consider whether i. The defence of the Company is in good faith and one of substance; ii. The defence is likely to succeed on point of law; and iii. The company adduces prima facie proof of the facts on which the defence depends. Therefore, even after the Court comes to the conclusion that there is a debt existing, the Company Court sitting in winding up proceedings need not automatically issue an order for winding up. It is well open to the Company Court to see or to examine by applying the three pronged test suggested by the Hon ble Supreme Court, as to whether, the defence of the Company is in good faith and is one of substance, the defence is likely to succeed on a point of law and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding on the enforceability of the debt, while examining the issuance of notice of winding up or while examining the admission of a winding up petition. The question whether the documents require stamping or the question whether the bills of exchange are payable on demand or otherwise than on demand or questions which, as rightly pointed out by Mr.Rahul Balaji, learned counsel appearing for the petitioner, will have to be examined at the time when the actual enforcement or examination of the claim of the petitioner by the Official Liquidator takes place. 14. I therefore do not propose to go into the requirements as to stamping. I must point out, even ignoring the agreements and the bills of exchange, the certificates of acceptance that had been issued by the respondent would show that there is a categorical admission of liability. Each of the bills of exchange is supported by a certificate of acceptance. The respondent has not denied the execution of the certificates of acceptance. A Division Bench of this Court in Michael Hart v. M/s. Ninestars Information Technologies Ltd ., reported in ( 2013) 3 LW 879 , has examined the scope of Section 433 of the Companies Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in accordance with the laws applicable in the State within the stipulated period. If that stamp duty is not paid, according to the appellant, the document cannot be admitted in evidence, and cannot be acted upon. We fail to understand this stand of the appellant in the present Appeal, since we are not concerned with the insufficiency of stamp duty payable on documents of corporate guarantee, but we are concerned with the issue whether the appellant Company deserves to be wound up or not. The Company Court definitely is not required to act upon any particular document while considering whether or not to wind up a Company. It necessarily considers whether the Company is unable to pay its debts. Section 434 is a deeming provision wherein it says that if a creditor to whom the Company is indebted in a sum exceeding the statutory limit, has served upon the Company a demand requiring it to pay the sum so due, and the Company has thereafter neglected to pay the sum or secure the same to the reasonable satisfaction of the creditor, the deeming provision comes into play and the Company is deemed to be unable to pay its debts. (e mphasis supplied) It is also seen that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would show that the execution of the bills of exchange in support of the invoices and the execution of the certificates of acceptance have been done by the respondent Company in order to avail the benefit of a six months deferred payment scheme. Therefore, it is clear that the respondent Company had obtained an advantage of a deferred payment by execution of these documents and the denial there of, in my considered opinion, cannot be said to be bona fide . Having obtained an advantage under the supplementary agreement and having executed the documents as required, the respondent cannot now seek to evade liability raising technical objections relating to stamping of the instruments. 19. This leaves us with the last contention of Mr.V.Ramakrishnan, that the debt is against the public policy in India. It is an admitted fact that SR Technics did not have a valid authorisation from DGCA to carry out engine maintenance contracts between 01.01.2009 and 18.05.2015. All the invoices which are now in dispute or during that period only. A finding has been recorded in the award that was passed in favour of SR Technics by the panel of arbitrators on 20.11.2017 that the respondent Compa ..... 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