Andhra Cements Limited vs Bhatia International Ltd. and Others

B. Prakash Rao, J.—The appellant herein is a company registered under the provisions of the Indian Companies Act, 1956 (for short herein after referred to as the Act) which has filed this appeal u/s 483 of the Act read with Clause 15 of the Letter Patent, inter-alia seeking to assail the orders of the learned Single Judge in Company Petition No. 75 of 2006 dated 23.1.2007 by the learned Single Judge admitting the company petition, filed u/s 433(f) and 439 of the Act read with Rule 95 of the Companies (Court) Rules, 1956 seeking for winding up of the appellant company herein and for consequential appointment of provisional liquidator, and rejecting the objection raised on behalf of the appellant herein.

The facts, though not in detail but which are necessary for the disposal of this appeal are that the appellant company was incorporated on 1.11.1936 and its registered office is situated at Chandralok Complex, S.D. Road, Secunderabad and its administrative office is situated at 6-3-903/B/1, Somajiguda, Hyderabad - 500 082. It deals in manufacture and sale of cement. Whereas, the first respondent herein is engaged in the business of trading in different types of imported and indigenous coal and supplies coal to different parts in India. In the normal course of business allegedly, it has supplied different types of coal to the appellant company in terms of the purchase orders made by the appellant company from time to time. Ultimately, according to the respondent No. 1, as per the latest statement of accounts, the appellant company is liable to pay a sum of Rs. 7,95,907/- with interest at 16% per annum commencing from 19.11.2002. Thus, with interest component the total amount payable comes to Rs. 10,55,830/-. The second respondent herein is the sister concern of the first respondent engaged in the business of transportation of coal from ports to the customers of the first respondent. Accordingly, the second respondent stated to have rendered transportation services for supply of coal to various destinations as per the instructions of the appellant company. Thus, as per their latest statement of accounts, the appellant company is liable to pay a sum of Rs. 7,18,822/- with interest at 16% and total amount of which comes to Rs. 9,53,571/-. The case of both the respondents in the application was that in spite of several reminders sent by them to pay the due amounts, there was no response and therefore the statutory notice as contemplated u/s 434 of the Act was issued to the appellant demanding the payment and failing which, appropriate action would be initiated. In the meanwhile, it was stated that the appellant has issued a letter dated 26.6.2006 admitting the dues to the tune of Rs. 12,00,000/- and agreed to issue post dated cheques. However, since nothing is forthcoming, the company has filed the application seeking for winding up of the appellant company.

Contesting the claim of the respondents herein, the appellant filed a detailed counter affidavit raising several issues, apart from denying the entire allegations made in the application. It was contended that having regard to the fact that the appellant company is sick industrial company and a scheme having been formulated by BIFR, which is under implementation and in view of the provisions of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, no further proceedings can be initiated against the appellant and therefore the very application is liable to be dismissed. Further, it was the main objection on behalf of the appellant company that its registered office is not situated at the address mentioned by the respondent but its registered office is situated at Sri Durga Cement Works, Sri Durgapuram, Guntur district, Andhra Pradesh since its inception, of which, the respondents are fully aware and therefore no notice has been served to such registered office, but only sent to other addresses as mentioned by the respondents. There is a clear violation in fulfilling the mandatory requirement u/s 434 of the Act, since the notice was not sent to the registered office, therefore the very application is liable to be dismissed.

In reply, a rejoinder has been filed by the respondent company meeting several other allegations, which are not necessary for the present, suffice to say, that it was contended therein that the appellant had received the notice sent by the respondents to the address from which it was regularly corresponding and therefore there is no violation and further having regard to the admitted liability and seeking payment, the question of rejecting the application does not arise.

Initially after appearance of the appellant herein, the learned Single Judge, heard on the objection as to the maintainability of the very application for winding up for non compliance of issuance of notice to the registered office as contemplated u/s 434 of the Act and after hearing both the sides and after referring to said provision and other authorities including the decision of the Division Bench of this Court in Devi Travels (P) Ltd. v. Inter Globe Air Transport OSA No. 47 of 2001 Dated 24.10.06, the learned Single Judge over-ruled the said objection, on the ground that having regard to the fact that the notice was sent to the address with which the respondent was corresponding and therefore there is sufficient compliance in issuance of the notice as contemplated under the provisions of the Act and there is no violation, hence, the proceedings can be proceeded with. Consequently, the learned Single Judge, admitted the company petition, against which order, the appellant filed the present appeal.

Sri C. Raghu, learned Counsel appearing for the appellant company strenuously contended by taking us through the entire material on record as well as the provisions of the Act, to the effect that since there being a clear violation of the mandate, as contemplated u/s 434 of the Act, where admittedly, no such notice having been issued by the respondents to the registered office of the appellant company, the Company Application ought not to have been entertained nor admitted and same is liable to be dismissed in-limini.

Sri K.V. Simhadri, learned Counsel appearing on behalf of respondents 1 and 2, supporting the findings of the learned Single Judge submitted that having regard to the fact that the respondent is directly in contact and corresponding with the appellant on the same address, to which notice is sent, therefore as rightly found by the learned Single Judge, there is sufficient compliance of the provisions of the Act, and the appellant cannot make any grievance.

With the aforesaid submissions made across the bar and on perusal of the material available on record, the question that falls for consideration is "whether on the facts and circumstances of the case, issuance of notice as contemplated u/s 434 of the Act to the address with which correspondence is being maintained, instead of issuing such notice to the Registered office address is fatal?"

The aforesaid chequered events, which lead to the present proceedings on all folds remain uncontroverted. There is no dispute in regard to the supply of goods by the first respondent and transportation of the same by the second respondent towards both of which the appellant fell in due. No doubt, in furtherance of both the dealings, the respondents are corresponding with the address other than that of registered office. The appellant company is having a registered office at a different place and admittedly the respondents have not issued any notice to the registered office but only to the address with which they are regularly corresponding. It is not the case of the respondents that they are not aware of the registered office. With this factual back drop, it needs a reference to Section 434 of the Act, which reads as under;

434: (1) A company shall be deemed to be unable to pay its debts - (a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor;

(b) if execution or other process issued on a decree or order of any Court in favour of a creditor of the company is returned unsatisfied in whole or in part; or

(c) if it is proved to the satisfaction of the Court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the Court shall take into account the contingent and prospective liabilities of the company.

(2) The demand referred to in Clause (a) of Sub-section (1) shall be deemed to have been duly given under the hand of the creditor if it is signed by any agent or legal adviser duly authorized on his behalf, or in the case of a firm, if it is signed by any such agent or legal adviser or by any member of the firm.

A bare reading of the aforesaid provision, as it spells out, the notice provided is to be issued to the registered office, before filing any company petition. There is no provision, contemplating issuance of notice, to any of the offices with which normally the party/applicant is corresponding. The registered office of the company is defined u/s 146 of the Act, which reads as under;

A company shall, as from the day on which it begins to carry on whichever is earlier, have a registered office to which all communications and notices may be addressed.

This provision mandates to correspond only with registered office. On a reading together these two provisions, the object of the statute providing for a registered office of a company is for the purpose of not only correspondence for any action but also to make aware as to the places with which the company can be reached, for all purposes, be it through process of Court or by the third parties for various purposes. A company necessarily has to have a registered office since inception. However, the company in the normal course of business can have any number of branches, offices etc for convenient transaction of business. But, none of the provisions of the Act or Rules contemplated under the Act, makes such places as equal to as that of the registered office or can be treated as registered office for any purposes by any stretch. These provisions specifically reiterate that registered office shall be the address for all purposes of correspondence including issuance of notices. Therefore, it will not lie in the mouth of parties dealing with a company, to have a say that it is only with this particular address through not a registered one, they can deal for all purposes. Further, any party having dealings with the company in the regular course of business, on an address plead ignorance of the registered office.

Before the learned Single Judge, a reference was made to the decision of the Division Bench of this Court in O.S.A No. 47 of 2001 (cited supra). However, as rightly pointed out by the learned Single Judge, the said decision has no application to the facts of the case. Since in that case, no such notice at all was sent to the residential address of the Director, hence, the Division Bench found that it is not sufficient compliance and ultimately allowed the appeal. This Court did not consider the present ambit.

On behalf of the appellant, reliance was sought to be placed on the judgment of the learned judge in Hyderabad Abrasives and Minerals Private Ltd. v. Andhra Cements Limited 2003 Company Cases (Vol.114) Page 250, where a learned Single Judge considering the said provision has held that a notice addressed to General Manager and certain secretarial office, is a valid service thereunder and went on to say,

In so far as the other contention of learned Counsel for the respondent that the notice is not served at the registered office of the respondent company is concerned, it is belied by reference to the notice dated March 23, 1999 addressed by the managing director of the petitioner in C. P. No. 14 of 2002 which is issued on behalf of the other petitioners as well. The said notice is addressed to the general manager (accounts) of the respondent company at Dachepally. Even otherwise, I may hasten to add that having regard to the decision of this Court in Ramdas and Co. v. Kitti steels Ltd. 2001 (103) Company Cases 199, if the petitioners can make out a case for winding up u/s 434(1)(c) of the Companies Act, 1956, the non-service of notice at the registered office of the respondent company u/s 434(1)(a) of the said Act does not non-suit the petitioners to file the company petitions.

After referring to the aforesaid provisions u/s 434 of the Act, the learned Single Judge sought to place reliance on Ramdas and Company v. Kitti Steels Limited 2001 Company Cases Page 199, wherein it was observed;

It is an admitted fact that notice u/s 434(1)(a) of the Act was not served on the respondent company on its registered address. Therefore, the presumption of inability to pay the debts may not be drawn against it under this section. Under Clause (b) ibid, the company shall be deemed to be unable to pay its debts when a decree remains unsatisfied while under Clause (C), if it is proved to the satisfaction of the Court that the company is unable to pay its debts. And in determining whether the company is unable to pay its debts, the Court shall take into account the contingent and prospective liabilities of the company. Thus, it appears that even in the absence of notice u/s 434(1)(a) of the Act, if the applicant proves to the satisfaction of the Court that the company is unable to pay its debts, the Court shall take into account the contingent and prospective liabilities of the company. A creditor can claim winding up of the company u/s 433(e) of the Act with the aid of Section 434(1)(a) and/or 434(1)(c) of the Act. If the case u/s 434(1)(a) is not proved, he can prove his case u/s 434(1)(a). Under these circumstances, merely because notice u/s 434(1)(a) of the Act was not validly served on the respondent company, the application for winding up cannot be thrown out, because, as noted above, the petitioner-firm has proved the indebtedness of the respondent company as also its failure and/or negligence to pay the debt in question. The question whether the respondent company is unable to meet its current liabilities as also the contingent and prospective liabilities is a question to be decided after advertisement of the petition and during the enquiry.

Therefore in the earlier decision in Hyderabad Abrasives case (cited supra), we are afraid to add that, there is not much discussion, except following the decision laid in Ramdass case (cited supra) and whereas in the later decision the learned single Judge sought to proceed in a totally different manner to hold that dehors such absence of such notice, Court could have gone into the question of inability to pay the debts. And then trying to rest the claim for winding up of the company u/s 433(e) of the Act with the aid of Section 434(a) or Section 434(1)(c) of the Act. Therefore, in neither of these two decisions, the mandatory nature of requirement as contemplated under the aforesaid provision and effect of non compliance has come up for consideration directly. Hence, these decisions cannot be applied to the present case.

From the statutory concepts, the object under the aforesaid provisions is more an enabling and guiding one to avoid any attempts to defeat by taking any other recourse. A company which is registered under the provisions of the Companies Act is a legal entity. Therefore, the law contemplates for its due recognition for the solemn purpose of dealing with to a place, both for correspondence and notices. Though in the regular course of business, the third parties while dealing with the company in the process correspond with any other places or addresses, however that itself would not constitute a valid address for issuing notice u/s 434 of the act. It is now well established that where the law prescribes a procedure, it should be adhered in its letter. Any attempt to deviate there-from, is nothing but to defeat the mandate. Consequently, both the aforesaid provisions become otiose and a dead letter. Hence, while interpreting any such statutory prerequisite, Courts should make an approach in reiterating the solemn object instead of allowing any in-roads or by-lanes. The notice to the registered office is therefore mandatory and failure of which, vitiates whole proceedings and result the necessary consequence of very rejection of the application.

For the foregoing reasons, the order of the learned single Judge in C.P. No. 75 of 2006 dated 19.1.2007 is set aside and the appeal is accordingly allowed and the Company Petition No. 25 of 2006 is dismissed. No orders as to the costs.