B.A. Govindraj vs Umang Boards P. Ltd.

Shiv Kumar Sharma, J.—The petitioner, a technical consultant, has approached this Court with the following prayer:

(i) The respondent-company Umang Boards P. Ltd., be wound up by the court under the provisions of the Companies Act, 1956.

(ii) A liquidator be appointed to take over the charge of the company.

(iii) Payment of Rs. 11,00,000 along with interest at 18 per cent. per annum from August, 2002, be made to the petitioner.

Upon failure to honour the consultation fee the petitioner gave a statutory notice to the respondent-company (for short "the company") u/s 434 of the Companies Act, 1956 (for short "the Act"), demanding due payment towards principal amount with interest but the respondent-company failed to make payment within statutory period, as a result of which the petitioner was led to file instant company petition for winding up u/s 439 read with Section 433(e) of the Act.

It is averred in the petition that the company approached the petitioner for providing technical consultation in order to set up the insulation board project at Kaladera, Rajasthan and an agreement was executed on July 13, 2000, wherein it was agreed upon between the petitioner and the company that the petitioner would be entitled to consultation fees of 3 per cent. of the total project cost which would be paid 25 per cent. as advance, 35 per cent. after arrival of equipment and machinery at site, 25 per cent. after commissioning of the plant and the balance 15 per cent. after commercial production but the company failed to abide by agreed schedule and only made payment of Rs. 4,00,000 and sum of Rs. 11,00,000 remained outstanding.

The company disputed the debts claimed by the petitioner and pleaded that the winding up petition has been filed as a cloak to hide the breach and dereliction committed by the petitioner himself. Besides disputing the debt, the company stated in the reply that it is financially solvent and is profiteering company having net assets more than the liabilities. It is further contended that despite payment of Rs. 4 lakhs towards his fee, the petitioner betrayed the trust and committed professional misconduct by not making the plant fully operational with satisfactory commercial production in as much as the consultancy services provided by the petitioner was not up to the mark, further it was instructed to one unit, i.e., pre-com-pressed press board only. The quality of press board was not as per specification and that incurred claim for damages and reimbursement by the purchasers of the product, one amongst them being Kirlosker Power Equipment Ltd. Because of poor and inferior commercial production of the press board the Kirlosker PE Ltd., withheld the payment of Rs. 7,35,393 and issued debit note on January 29, 2004. The company further stated that the equipment recommended by the petitioner were not as a requirement of the plant and the company had to replace them incurring extra payment of Rs. 3.5 lakhs. The petitioner being not entitled to any payment from the company cannot plead that the company failed and neglected to pay the amount or is deemed to be unable to pay its debts. In support of the contentions various documents have been filed by the company.

The petitioner-firm filed rejoinder to the reply reiterating the facts stated in winding up petition.

I have given my thoughtful consideration to the arguments advanced before me by learned Counsel for the parties and scanned the documents placed on record.

The circumstances under which the court is justified in ordering winding up of the company have been considered by the hon''ble Supreme Court in various decisions.

In Mediquip Systems Pvt. Ltd. Vs. Proxima Medical System GMBH, , the apex court propounded as under (page 481):

This court in a catena of decisions held that an order u/s 433(e) of the Companies Act is discretionary. There must be a debt due and the company must be unable to pay the same. A debt under this section must be a determined or a definite sum of money payable immediately or at a future date and that the inability referred to in the expression ''unable to pay its dues'' in Section 433(e) of the Companies Act should be taken in the commercial sense and that the machinery for winding up will not be allowed to be utilized merely as a means for realising debts due from a company.

In Madhusudan Gordhandas and Co. Vs. Madhu Wollen Industries Pvt. Ltd., , their Lordships of the Supreme Court indicated in paras 20 and 21 thus (page 131):

Two rules are well-settled. First, if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price held been agreed upon and the sum demanded by the creditor was unreasonable. (see London and Paris Banking Corporation., In re [1874] L.R. 19 444 Again, a petition for winding up by a creditor who claimed payment of an agreed sum for work done for the company when the company contended that the work had not been done properly was not allowed. (see Brighton Club and Norfolk Hotel Co. Ltd., In re [1865] 35 Beav 204).

Where the debt is undisputed the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt. (see A Company, In re [1894] 94 S.J. 369 (Ch. D)). 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 will make a winding up order without requiring the creditor to quantify the debt precisely. (see Tweeds Garages Ltd., In re [1962] 32 Comp Cas 795 (Ch. D) : [1962] 1 Ch 406). The principles on which the court acts are first 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.

The principles on which court should act in disposing winding up petition may be deduced thus:

(i) If the debt is not disputed on some substantial ground the court may make the order.

(ii) If the debt is bona fide disputed, there cannot be "neglect to pay" within the meaning of Section 433(l)(a) of the Act and petition for winding up is not maintainable.

(iii) Dispute with regard to payment of interest is not a bona fide dispute.

(iv) The defence of respondent-company should be in good faith, one of substance and likely to succeed in point of law.

Bearing these principles in mind if I examine the facts of this case, I find that this is a case of bona fide disputed debt. Even from the petition for winding up it is evident that issue of interpretation of agreement entered between the parties is involved that can be adjudicated upon in the civil suit.

In my opinion the company bona fide disputed the debt and it cannot be held that the company neglected to pay the debt within the meaning of Section 433(l)(a) of the Act. The winding up petition is not a legitimate means of seeking to enforce payment of debt which is bona fide disputed by the company.

For these reasons, I find no merit in the petition and the same stands accordingly dismissed without any order as to costs.