B.V. Srinivasa and Others vs Vinyasa Engineers Private Limited

Aravind Kumar, J.—This petition is filed under Section 433(e) & (f) read with Section 434(1)(a) and 439(1)(b) of Companies Act, 1956 on the ground that respondents have not paid the debts due to petitioners.

It is the case of petitioners that they have extended demand loan of Rs. 23,00,000/-, Rs. 11,00,000/- and Rs. 14,10,000/- to the respondent company on payment of interest @ 12% p.a. which is payable monthly and same is acknowledged by respondent as indicated it its balance sheet and pursuant to same respondent company has also paid interest to the petitioners upto November, 2010 and for having paid the said interest tax has been deducted at source and certificate issued by respondent company would also evidence this fact. It is also contended that petitioners have written several letters to the respondent requesting for repayment of loan advanced by them along with unpaid interest and when same did not yielded any positive result petitioner has got issued legal notice on 03.09.2012 calling upon respondent to repay the amounts borrowed within three weeks from date of receipt of notice and after receipt of said notice on 12.12.2012 respondent replied to the same raising a plea contrary to its records and said reply does not indicate that defence of respondent company being bonafide dispute and balance sheet of respondent company clearly indicating acknowledgement of debt and failure of the respondent to clear the dues would lead to inescapable conclusion that it has become commercially insolvent and incapable of paying debts due to the petitioner and as such it is liable to be wound up.

On service of notice respondent has appeared and filed its statement of objections denying the transaction and it is contended that one Sri. Govinda Ramesh was the Managing Director of the respondent company at undisputed point of time and without there being any resolution of the respondent company at his instance certain entries have been made in the books of accounts without knowledge of the directors of the company and 1st petitioner is none other than brother of said Sri. Govinda Ramesh, 2nd petitioner is his sister and 3rd petitioner is his wife. It is also contended that in the report submitted to the Registrar of Companies which was in reply to the audit objection, it has been specifically notified to shareholders that unsecured loan (claimed by petitioners) is a disputed amount and not supported by any agreement or board resolution of respondent company and as such there was no provision made in the accounts of the respondent company for repaying the same and there being a serious dispute with regard to the entries found in the balance sheet and very debt claimed by petitioners being seriously disputed by respondent company, it should not be ordered to be wound up and petitioners cannot be allowed to use pressure tactics to seek winding up of respondent company. Respondent has also filed additional statement of objections enclosing therewith proceedings which have taken place between respondent company and erstwhile Ex-Managing Director of the respondent company which is said to be pending before Company Law Board and also the indemnity bond and the undertaking given by Sri. Govinda Ramesh (Ex-Managing Director) at undisputed point of time.

Petitioners have filed a rejoinder to the statement of objections and reiterated the contentions raised in the company petition and has also produced documents to substantiate their claim and to contend that on receipt of loan from petitioners respondent company had issued receipts for having accepted the loan and also issued TDS certificates for having paid interest to the petitioners and as such respondent cannot contend it is a disputed loan amount. It is also contended that very fact of payment of interest and deduction of tax at source by respondent company would evidence the fact that respondent company is due to the petitioners the amount borrowed by it and on account of its inability to pay the admitted debt and there being other creditors to whom respondent company has to repay it is raising a bogus defence and on account of its incapacity to repay debts due it has become commercially insolvent and as such it is liable to be wound up.

I have heard the arguments of Sri. Ashok G.V., learned counsel appearing on behalf of petitioners and Sri. Y.K.N. Sharma for respondent.

It is the contention of Sri. Ashok that balance sheet of the respondent for the year 2011-12 would clearly indicate that respondent company has admitted its debt due and payable to the petitioners and receipts which were enclosed to the rejoinder would also evidence the fact that respondent company had borrowed loan from the petitioners and interest was paid through cheques by deducting tax at source which would clearly establish that respondent company has admitted the debt due to the petitioners and as such the defence now raised is not a bonafide but a moonshine defence tainted with malafides to stave off the claim of the petitioners. It is also contended any inter se dispute between the Ex-Managing Director of respondent company and other directors would not absolve the respondent company from discharging debts due which is borrowed and even otherwise if there is inter se dispute between directors same would not be binding on petitioners and on account of unequivocal admission of debt due to the petitioners by respondent company such internal disputes would not come in the way of petitioners seeking winding up of respondent company on account of its inability to pay debts due. In support of his submission he has relied upon the Judgment of Delhi High Court rendered in C.P. 137/2007 dated 22.05.2009.

Per contra, Sri. Y.K. Narayana Sharma, learned counsel appearing for respondent would contend that husband of 3rd petitioner and brother of petitioners 1 and 2 by name Sri. Govinda Ramesh was undisputedly Managing Director of the respondent company and petitioners are claiming that respondent company having borrowed loan between 2002 to 2009 and major transactions having taken place during the regime of said Sri. Govinda Ramesh who was the Managing Director and respondent company having not passed any resolution to borrow such loan and there being no agreement between petitioners and respondent company either for borrowing said loan or for having borrowed said loan any agreement having been entered into, financial arrangement if any made by Sri. Govinda Ramesh without approval of Board of Directors would not be binding on respondent company and it is for this reason while replying to the audit objection raised it has been clearly stated that there is a dispute with regard to these creditors and as such no provision has been made for repayment in the balance sheet/accounts of respondent company and as such there is a serious dispute with regard to the amounts claimed by petitioners alleging it is the amount borrowed by respondent company and contention of same being admitted debt is erroneous and not supported by any documents. Even otherwise he would contend that said Sri. Govinda Ramesh having resigned from the post of Managing Director of respondent company on 31.03.2011 had executed an indemnity bond to indemnify the directors of the respondent company against all claims as per Annexure-R-7 (filed along additional statement of objections) is also a factor which requires to be considered by this court to refuse the prayer of petitioners and to arrive at a conclusion that it is doubtful debt. He would also draw the attention of the court to contend that neither pleadings nor documents filed by petitioners would indicate as to when respondent company had agreed to borrow the loan and any resolution having been passed by respondent company to borrow such loan or other material to establish or prove that respondent company had agreed and accepted to borrow such loan from the petitioners. In the absence of positive material evidence or documents, claim made by the petitioners cannot be accepted. There is a bonafide doubt with regard to the claim made and as such petition is liable to be dismissed. On these grounds respondent has sought for dismissal of the petition.

Having heard the learned advocates appearing for the parties and on perusal of the pleadings and annexures appended to the present petition the question that would arise for consideration in this petition is:

"Whether defence raised by respondent is a bonafide defence or is it a moonshine defence to stave off petitioners claim?"

Insofar as relationship of the parties namely Sri. Govinda Ramesh and 1st petitioner being brothers and 2nd petitioner being his sister and 3rd petitioner being wife of said Sri. Govinda Ramesh i.e., Ex-Managing Director of the respondent company is not in dispute.

Perusal of petition averments would indicate that amount which is said to have been borrowed by respondent company from petitioners was during the period 2002-2009. First petitioner claims to have extended demand loan of Rs. 23,00,000/-, 2nd petitioner claims to have extended demand loan of Rs. 11,00,000/- and 3rd petitioner claims to have extended a sum of Rs. 14,10,000/- to respondent company. This according to the respondent is not borrowed from petitioners and as such it is not repayable and entries made in the accounts of the respondent company was and is at the behest of Ex-Managing Director Sri. Govinda Ramesh who was the person incharge of day to day administration of the company. On the other hand petitioners have contended by heavily relying upon the balance sheet upto 31.03.2012 to buttress their contention that respondent company itself has admitted in its balance sheet the amount due and payable to the petitioners. As to whether this amount which is claimed by petitioners as due from respondent company and disputed by respondent company is to be construed as a disputed claim or not is a question that requires to be considered by this court.

This court and Hon''ble Apex Court in catena of Judgments have laid down the contours under which defence raised by respondent can be construed either as bonafide dispute or not. In the case of IBA Health (I) Pvt. Ltd. Vs. Info-Drive Systems Sdn. Bhd., Hon''ble Apex Court while examining as to what amounts to substantial dispute has held that a dispute would be substantial and genuine if bonafide, not spurious, speculative, illusory or misconceived. It has been held by Apex Court as under:

"20. The question that arises for consideration is that when there is a substantial dispute as to liability, can a creditor prefer an application for winding-up for discharge of that liability? In such a situation, is there not a duty on the Company Court to examine whether the company has a genuine dispute to the claimed debt? A dispute would be substantial and genuine if it is bonafide and not spurious, speculative, illusory or misconceived. The Company Court, at that stage, is not expected to hold a full trial of the matter. It must decide whether the grounds appear to be substantial. The grounds of dispute, of course, must not consist of some ingenious mask invented to deprive a creditor of a just and honest entitlement and must not be a mere wrangle. It is settled law that if the creditor''s debt is bonafide disputed on substantial grounds, the court should dismiss the petition and leave the creditor first to establish his claim in an action, lest there is danger of abuse of winding-up procedure. The Company Court always retains the discretion, but a party to a dispute should not be allowed to use the threat of winding-up petition as a means of forcing the company to pay a bonafide disputed debt."

In this background it has to be examined that whether defence raised by respondent company is a substantial one or a mere moonshine defence raised for purposes of avoiding repayment has to be examined on the basis of facts and circumstances obtained. For this proposition Judgment of Apex Court in the case of Madhusudan Gordhandas and Co. Vs. Madhu Wollen Industries Pvt. Ltd., and Vijay Industries Vs. NATL Technologies Limited, can be looked up.

A creditor''s winding up petition in certain situations implies insolvency or financial position with other creditors, banking institutions, customers and so on. Company court at times has to not only look into interest of the creditor but also the interest of other stake holders of the company and public at large. If it is to be established beyond doubt that the defence raised by respondent is not bonafide and it is moonshine defence and raised only with an intention to stave off creditors claim, then it merits outright rejection. However, on the other hand if respondent company is able to establish or demonstrate that there is a serious dispute with regard to amount claimed by petitioners as debt and as such defence raised by it is not a mere veil to stave off creditors claim, then in such an event this court would definitely reject the petition without admitting it for being considered on merits. Keeping these aspects in mind when the facts on hand are examined it would clearly indicate that the ex-Managing Director of the respondent company Sri. Govinda Ramesh was none other than husband of 3rd petitioner and brother of petitioners 1 and 2. It is also not in dispute that till he resigned from the post of Managing Director on 31.03.2011 he was managing the affairs of the company and though at certain times he was not incharge of day to day affairs of the company i.e., intermittently. Petitioners on the one hand contend they have advanced amounts to the respondent company which on the other hand it is denied by respondent company. Respondent company undisputedly has not passed any resolution to borrow loan from petitioners. Petitioners have not produced documents to show that either pursuant to any such resolution or such understanding with respondent company amounts have been advanced by them or in other words petitioners have extended a demand loan pursuant to such resolution/understanding. Except the receipts which have been produced along with rejoinder there is no material to show from the records that the amount claimed by petitioners have been undisputedly received by respondent company pursuant to resolution or agreement. Petitioners have very heavily relied upon the entries made in the balance sheet to contend that respondent company has itself admitted the amounts payable to the petitioners, which is also the amount claimed in the statutory notice issued by the petitioners. On account of respondent company having not made provision for repayment of said loan in its accounts, statutory auditor of respondent company had raised an objection or had made an observation to the said effect and by replying to same respondent company at the first instance asserted itself that there is a serious dispute with regard to this amount claimed by the petitioners. In the directors report of the respondent company for the financial year 2011-12 it has been stated by respondent company to the following effect:

"With regard to Paragraph 2 of the Auditors Report: Genuineness of certain unsecured loans and its usage for the affairs of the Company is in dispute and also the same not backed by any agreement or board resolutions on payment of interest and repayment. Hence the provisions for interest on the same is not been made. Since, Mr. B. Govinda Ramesh was not attending the office regularly and not involved in day-to-day affairs since August 2010, no provisions for his salary is made in the books."

Apart from this objection raised by respondent company other attendant circumstances which is prevalent to accept plea of respondent company that defence raised by it is bonafide and not a moonshine defence are:

"(1) ex-Managing Director of the company namely i.e., Sri. Govinda Ramesh who is husband of 3rd petitioner and brother of petitioners 1 and 2 has raised a dispute with regard to the management and affairs of the respondent company before Company Law Board which is pending in Co.P.20/2013.

(2) After ceasing to be Managing Director of respondent company, he has floated a company of his own as per Annexure-R-7.

(3) Said Sri. Govinda Ramesh, Ex-Managing Director having commenced business in the name of M/s. Agrima Roof and Facade Systems has offered his bid as per Annexure-R-8 and said business is in same line with the business of respondent company though he continued to be the Director of respondent company."

All these facts would clearly go to show that there is serious dispute between respondent company as well as its ex-Managing Director/Sri.Govinda Ramesh. At this juncture itself it would be appropriate to note the Judgment relied upon by learned counsel for petitioner. Perusal of Judgment of Delhi High Court referred to herein supra would indicate that respondent company had contended that there was inter se dispute between the brothers and respondent company/directors. At paragraph 5 said plea has been noticed and recorded as under:

"5. On 22.09.2006 xxx dues in one go. From the aforesaid, it appears that there were inter se disputes between the brothers having interest in, and managing the affairs of the respondent company."

Creditor therein who had filed petition for winding up had no relationship whatsoever with the directors of the company, whereas in the facts and circumstances of the present case at the cost of repetition it requires to be noticed that petitioners 1 and 2 are none other than uterine brother and sister of Ex-Managing Director of the respondent company and 3rd petitioner is wife of Ex-Managing director and it is because of this precise reason, as is obvious from the records there seems to have been no resolution forthcoming from respondent company to borrow loan from petitioners. As such defence raised by the respondent company cannot be construed as moonshine defence or debt having been admitted by respondent company.

In the light of discussion made herein above plea put forward by respondent company in the statement of objections cannot be held as a ingenious mask invented by it to deprive creditor as held by Apex Court in IBA Health case referred to supra. Company court retains its jurisdiction to exercise discretion for winding up or rejecting the claim thereof. However, a party to dispute would not be allowed to use it as a threat or winding up as a means to pay a disputed/debt. Guarding against such vexatious abuse of process of court and preventing the creditor from using company court to function as a recovering agent or a debt collecting agent would be slow in ordering for winding up particularly when the dispute raised is not moonshine defence or when such dispute being bonafide. Reiterating the Judgment rendered in Amalgamated Commercial Traders (P.) Ltd. Vs. A.C.K. Krishnaswami and Another, , Apex Court in Pradeshiya Industrial and Investment Corporation of U.P. Vs. North India Petrochemical Ltd. and Another, has held that machinery for winding up will not be allowed to be utilised merely as a means to realize its due from a company. It has been held by Apex court as under:

"29. It is beyond dispute that the machinery for winding-up will not be allowed to be utilized merely as a means for realising its debts due from a company. In Amalgamated Commercial Traders (P) Ltd. v. A.C.K. Krishnaswami this Court quoted with approval the following passage from Buckley on the Companies Acts, (13th Edn., p. 451): "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 winding up 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''."

Keeping these principles in mind and turning my attention back to the case on hand it would clearly indicate that there is a serious dispute with regard to debt claimed to be due and defence raised by respondent company cannot be construed as moonshine defence particularly in the background of petitioners being closely related to ex-Managing Director of the respondent company and there being no resolution or agreement available on record to arrive at a conclusion that respondent company had resolved to borrow loan from petitioners. Further, respondent company, at the first instance when such entry was found in its balance sheet as pointed out by its auditor has replied to it that there is a serious dispute with regard to said amount.

In the totality of the circumstances of case and for aforestated reasons this court is of the considered view that there is no merit in the petition and hence liable to be dismissed. Accordingly company petition stands dismissed. No order as to costs.