Alpha Packaging Ltd. vs Som Distelleries Ltd.

Alok Aradhe, J.—This petition under Section 439 read with Section 434 of the Companies Act, 1956 has been filed seeking winding up of respondent Company.

The facts, leading to filing of this petition in nutshell, are that the petitioner is a company registered under the provisions of the Companies Act, 1956 (hereinafter referred to as ''the Act'') which deals in manufacture sale of pet bottles. The respondent is also registered as a Company under the provisions of the Act and deals in the business of manufacture and sale of liquor. The business transactions between the parties started in the year 1996-97, when the respondent placed a purchase order with the petitioner for supply of pet bottles. The respondent opened a current account in their books of accounts in the petitioner''s name. The payments were made by issuance of cheque and against such payments the supplies were made.

As per the case of the petitioner the respondent vide communication dated 11.12.1997 acknowledged its'' liability to pay a sum of Rs.32,09,813. On 31.1.1999 an amount of Rs.27,12,437 was due and payable by the respondent. The petitioner thereupon sent notices dated 18.2.1999 and 22.6.1999 demanding payment, however, the amount due to the petitioner was not paid by the respondent. It is pertinent to mention here that the respondent filed a complaint before the Judicial Magistrate First Class, Raisen for offences punishable under Sections 120B, 420, 467 and 506 of the Indian Penal Code for making forged entries in the ledger against the petitioner. Thereafter the petitioner filed this petition on 25.10.1999 on the ground that the respondent should be wound up as it is unable to pay the debt which is due and payable by it.

Learned counsel for the petitioner submitted that the respondent by communication dated 11.12.1997 admitted its'' liability to pay a sum of Rs.32,09,813 to the petitioner. It is further submitted that as on 31.1.1999 an amount of Rs.27,12,437/- was due and payable by the respondent and the respondent did not pay the same despite notices dated 18.2.1999 and 22.6.1999. It is also submitted that defence set up by the respondent is mala fide and was motivated to delay the genuine claim of the petitioner. In support of his submissions, learned counsel for the petitioner has placed reliance on the decision of the Supreme Court in the case of Electron Industries Ltd. Mumbai v. Soham Polymers Pvt. Ltd., Mumbai, (2005) 13 SCC 86.

On the other hand, learned counsel for the respondent submitted that before a debt can be termed as debt, it must be crystallized and if the same is not crystallized, it cannot be termed as debt. It is further submitted that in reply to notice dated 8.7.1997, the respondent has seriously disputed the claim of the petitioner and has questioned genuineness of the entries in the books of accounts. It is also submitted that the petitioner has failed to prove that the respondent is commercially insolvent. It is pointed out that the respondent is a profit making solvent company which is evident from the statements of accounts on record and there is a bona fi de dispute with regard to its'' liability to pay the amount in question to the petitioner. It is urged that winding up proceeding is not an alternative for recovery of money and the petitioner is guilty of suppression of material facts. Lastly it is urged out that mere entries in books of accounts are not sufficient to charge a person with liability. In support of the aforesaid submissions, reference has been made to the cases in I T C Ltd. Vs. Fomento Resorts and Hotels Ltd., , Kanchanga Chemicals Industries v. Mysore Clipboards Ltd. [ 1998 (Vol 91) 646, Madhusudan Gordhandas and Co. Vs. Madhu Wollen Industries Pvt. Ltd., , Narendra Glass Works (P.) Ltd. Vs. M.P. Beer Products Pvt. Ltd., , IBA Health (I) Pvt. Ltd. Vs. Info-Drive Systems Sdn. Bhd., , N.N. Consultants Pvt. Ltd. Vs. Khatema Fibres Ltd., , M/s. Multimetals Limited Vs. M/s. Suryatronics Privated Limited, ], Rainbow Enterprises Vs. India Brewery and Distillery Ltd., ] and Chandradhar Goswami and Others Vs. The Gauhati Bank Ltd., ].

Before dealing with the rival submissions made across the Bar, I deem it appropriate to refer to the well settled legal principles with regard to winding up of a company. In the case of Amalgamated Commercial Traders (P.) Ltd. Vs. A.C.K. Krishnaswami and Another, , it was held by the Supreme Court that if a debt is not paid on account of a bonafide de dispute, the same cannot be treated as inability to pay the debt. Similarly, in the case of Madhusudan Gordhandas and Co. Vs. Madhu Wollen Industries Pvt. Ltd., , it was held that the relief of winding up cannot be granted in a case where the debt is bonafide disputed and the defence is substantial one. It was further held that the principles on which the Court while dealing with the petition for winding up of the company bears in mind are that the defence of the company is in good faith and one of substance and the defence is likely to succeed in point of law and the company adduces prima-facie proof of the facts on which the defence depends. In the case of I T C Ltd. Vs. Fomento Resorts and Hotels Ltd., , it has been held that the creditor in order to seek winding up of a company must prove that the debt is clear and unimpeachable in law and the debt must have crystallized. It has further been held that if the accounts are not settled, the debt cannot be said to have crystallized.

In the case of Kanchanaganga Chemical Industries Vs. Mysore Chipboards Ltd., , it has been held that 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 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. In the case of IBA Health (I) Pvt. Ltd. Vs. Info-Drive Systems Sdn. Bhd., , it has been held by the Supreme Court that where there is a bonafide de dispute as to the liability to pay the amount of debt, it is the duty of the Court to ascertain the cause for refusal to pay the debt and invocation of Section 433(e) and (f) of the Act is impermissible.

In the backdrop of the aforesaid well settled principles of law, the question whether ground under Section 433(e) of the Act is made out, may be examined. In reply to legal notice dated 8.7.1997, the respondent has seriously disputed the claim of the petitioner with regard to authenticity of the entries and has sought reconciliation of the accounts. Even the petitioner in its application for taking additional documents on record have stated that the accounts are yet to be reconciled. Thus, the accounts remain unreconciled as on today and in the absence of reconciliation of the accounts, the liability in question cannot be termed as debt. In other words, the liability to pay the amount in question has not been crystallized.

It is noteworthy that the respondent has stated that it has never received materials allegedly supplied vide ledger entries dated 7.6.1997, 20.6.1997, 21.6.1997, 25.6.1997, 27.6.1997 and 29.6.1997. The petitioner has also failed to account for the payments made on 28.11.1998, 8.11.1998, 15.11.1998, 18.12.1998, 28.12.1998, 24.4.2000 and 30.4.2000 totalling to Rs.9,06,475/-. The respondent has filed a criminal complaint before the Court of Judicial Magistrate First Class, Raisen for offences punishable under Sections 120-B, 420, 467 and 506-B of the I.P.C. on 5.2.1999 in respect of making forged entries in the ledger account. It is also worth mentioning that the aforesaid criminal complaint was filed prior to filing of the instant petition. Thus, there exists a bonafide de dispute with regard to liability to pay the amount in question which requires examination of the evidence and documents.

In the instant case, the petitioner has neither made any averment nor has placed any document on record to demonstrate that the respondent is commercially insolvent. On the other hand, from the documents on record, it is evident that the respondent is a profit making solvent company and is in a position to meet its debt as and when it arises. The petitioner has failed to show that the respondent has omitted to pay the debt without reasonable excuse and conditions of insolvency in the commercial sense exist.

The Company Court exercises in equitable jurisdiction. It is well settled in law that a winding up petition is not legitimate means of seeking to enforce for payment of dues which is bonafide disputed by the respondent.

In view of the preceding analysis, it is evident that the amount due in the instant case has not crystallized and there is a bonafide de dispute with regard to liability of the respondent to pay the amount in question to the petitioner. The petitioner has also failed to prove that the condition of insolvency in the commercial sense in respect of respondent exists. For the reasons aforementioned, no case for winding up of the respondent is made out.

In the result, the Company Petition fails and is hereby dismissed.