Gayson Rolling Mills (P.) Ltd. vs Hemkunt Iron and Steel Pvt. Ltd.

A.L. Vaidya, J.—The present petition for winding up of the respondent-company has been preferred by the above-named petitioner u/s 433(c), (e) and (f) of the Companies Act, 1956, read with rule 9 of the Companies (Court) Rules, 1959. At the time of submission of the arguments, learned counsel for the petitioner pressed the claim of the petitioner for winding up of the respondent-company on the sole ground that the respondent-company was unable to pay its debts as is provided u/s 433(e) of the Companies Act. It is with this background that the detailed facts are not essential to be referred to here but the relevant facts giving rise to the present petition are mentioned herein-below :

"That the petitioner is a private limited company. Shri K. C. Thakur is a manager and has been duly authorised by the company to file the petition. The petitioner-company has a re-rolling mill for M. S. rounds tor-steel, etc. The petitioner has been purchasing ingots from the respondent-company for manufacturing purposes. The petitioner used to place the orders with the respondents and used to send advance amount for the supply of the goods and had an open mutual current running" account with the respondent from April 29, 1986, onwards. From April 29, 1986, to October 21, 1986, various purchases were made by the petitioner. On October 30, 1986, the petitioner advanced a sum of Rs. 50,000 to the respondent-company and a credit note of Rs. 1,039 was given on November 24, 1986. In the letter of the respondent dated November 24, 1986, the petitioner was informed by the respondent that it had wrongly charged ingots in excess by Rs. 100 per tonne and adjusted the amount. On December 1, 1986, a sum of Rs. 84,776.03 was due to the petitioner from the respondent and writings were given on various dates pursuant to the notices sent by the petitioners that the amounts due to the petitioner would be paid particularly on May 25, 1987. Ultimately, on October 24, 1989, the respondent-company acknowledged and confirmed the amount due and payable as per the books of the respondent-company amounting to Rs. 84,776.03 as on March 31, 1988. The petitioner-company has been demanding from the respondent-company to liquidate the liability and notices dated January. 10, 1991, and August 1, 1992, calling upon the respondent to liquidate the liability and treating the notice u/s 434 of the Companies Act was issued clearly indicating that upon failure to liquidate the liability, winding up petition would be initiated. However, the notice was refused to be taken by the respondent. Copies of the notices and letters exchanged by the parties and notice issued on October 24, 1989, and the original refused notices are attached herewith. The company is unable to pay its debts. As on September 30, 1992, a sum of Rs. 1,73,791.03 is due to the petitioner-company which the respondent-company has failed to pay and liquidate its liability and settle the accounts. The statement of accounts is attached."

The respondent-company in reply took various preliminary objections. On the merits, the reply has been as under :

"Contents of para. 5, as alleged, are not admitted to be correct and, therefore, denied. Along with the petition, there is nothing supplied to the respondent to show that either Shri K. C. Thakur is the manager and/or he is duly authorised by the company to file the petition. In these circumstances, the petition is not at all maintainable. Besides this, it is not filed by the person competent to do so, and that being the position, it is liable to be rejected. Alternatively, it is submitted that Shri K. C. Thakur is no more entitled to continue the present petition inasmuch as the petitioner-company has been leased out along with the unit in question to United Ispaat, Baddi, and in this view of the matter, the company petition is liable to be rejected. It is further submitted that the facts alleged in this para, regarding the amount being due in the sum of Rs. 1,73,791.03 as on September 30, 1992, are emphatically denied ; it is further submitted that no writing by any person authorised or any one who was competent to make any acknowledgment on behalf of the respondent company was ever given. It is further submitted that the so-called confirmation and acknowledgment dated October 24, 1989, does not bind the respondent-company in any manner whatsoever. It is further pointed out that there was no open mutual current running account as alleged by the petitioner. On the other hand, it was a simple relationship of seller and buyer of goods between the parties. The claim, if any, as alleged, is hopelessly barred by time. No notices were either served upon the respondent-company or even presented to any one authorised on its behalf by any one including the postal authorities. In these circumstances, it appears that the petitioner has been able to manage the postal endorsement of refusal. Had any such notice(s) been delivered at the registered office of the company and/or presented by the postal authorities that would have been promptly replied to by the respondent. It is totally incorrect for the petitioner to say that the respondent-company has failed to pay and liquidate its liability. The correctness of the statement of account is specifically denied. It is a self-serving statement prepared by the petitioner."

In rejoinder the petitioner-company reasserted the allegations made in the petition but in addition added that a sum of Rs. 1,73,791.03 was due to the petitioner on September 30, 1992, and the amount now due and payable by adding interest at the rate of 18 per cent, per annum after September 30, 1992, is Rs. 1,97,957.78 up to April 30, 1994.

Learned counsel for the parties have been heard and the record has been scrutinised.

Ms. Devyani Kuthiala, learned counsel for the respondent-company, very strongly contended that where a debt is bona fide disputed by the company and the court is also satisfied with the company''s defence, a winding up order is not to be passed u/s 433 of the Companies Act. Learned counsel''s line of argument has been that so far as the principal amount is concerned, it stood, admittedly, paid to the petitioner-company during the pendency of the present proceedings and so far as the remaining amount is concerned, that is being bona fide disputed and on that score the petition even at that stage deserved to be dismissed.

On the other hand, Mr. K. D. Sood, learned counsel appearing on behalf of the petitioner-company, has admitted that the principal amount, as reflected due from the respondent-company to the petitioner-company, and as recorded in the balance-sheet of the respondent-company, stood paid to the petitioner-company and the remaining amount pertained to interest only which factum is not being disputed bona fide but on the other hand the said amount of interest is due to the petitioner-company and in that context it can safely be said that the respondent-company was unable to pay its debts and as a consequence thereof the winding up prayer has to be favourably considered.

Admittedly, there is no written contract between the parties on the basis of which the interest asked for could be claimed. It has been contended on behalf of the petitioner-company that the interest at the rate of 18 per cent, pe''r annum is being claimed on the basis of usage and custom though that aspect has not been specifically pleaded by the petitioner-company.

At this stage, the pleadings of the parties can safely be referred to with respect to interest being claimed by the petitioner-company. In so far as the averments made in the petition are concerned, there is nothing pleaded by the petitioner-company as to how on September 30, 1992, a sum of Rs. 1,73,791.03 has been alleged to be due to the petitioner-company especially when, according to the petitioner-company, the respondent-company, as per entries in the books of account of the respondent-company Rs. 84,776.03, was due to the petitioner-company on December" 1, 1986, and March 31, 1988. It may be referred here that in the main petition itself there is no plea that the interest was agreed to be paid on the basis of usage or custom. There is also no plea that what would be the rate of interest in that particular behalf. Any way, the fact remains that the pleadings in the petition are silent as to how the amount from Rs. 84,776.03 due on December 1, 1986, and March 31, 1988, was raised to Rs. 1,73,791.03. No doubt, in the rejoinder, the petitioner-company has tried to explain this aspect of the matter by claiming interest at the rate of 18 per cent, per annum but again the rejoinder is silent as to what is the base for claiming such an interest especially when no agreement between the parties in this particular behalf has been pleaded or brought on record.

On the basis of the aforesaid circumstances, the parties'' submissions have to be appreciated.

Learned counsel for the parties have tried to rely upon some decided precedents to find support in regard to their respective submissions.

Various authorities have been cited on behalf of the respondent-company, the main being M/s. Multimetals Limited Vs. M/s. Suryatronics Privated Limited, , Ultimate Advertising and Marketing Vs. G.B. Laboratories Ltd., Kanpur, Unisystems Private Ltd. v. Stepan Chemical Ltd. [1985] 58 Comp Cas 875 (P & H), Raghunath and Son Private Ltd. Vs. Pandam Tea Company Ltd., and Elmeh India Vs. Hi-sound Corder Private Ltd.,

The following observations made in M/s. Multimetals Limited Vs. M/s. Suryatronics Privated Limited, would be very much relevant to appreciate the present dispute between the parties (headnote of AIR 1997 AP) :

"Where the winding up petition filed by the creditor is based solely on the ground that the company has failed to pay interest on the amount of overdue bills and the company disputes its liability to pay interest, asserting that there is no stipulation between the parties for payment of interest, the winding up petition is not maintainable. It cannot be said that where the creditor seeks recovery of principal and interest through winding up proceedings and the debtor-company pays the principal but disputes the interest, the company court can entertain the petition while in case the petition is filed solely to recover interest, it will not be maintainable and the remedy of the creditor would be to file a" civil suit for recovery of interest. No such distinction can be drawn between cases where the creditor seeks recovery of principal and interest and the debtor pays the principal and disputes the interest and cases where the creditor seeks recovery of only interest which is disputed by the debtor-company. The principle that a winding up proceeding is not a remedy for recovery of any amount does not admit of any such distinction."

In Elmeh India, v. Hi-Sound Corder Private Ltd. [1995] 83 Comp Cas 135 (Mad) it has been held that a creditor seeking to have a company wound up on the ground of inability of the company to pay its debts should first establish that its claim is unimpeachable and when there is uncertainty regarding the amounts to which the petitioner is entitled, the court will not proceed to make a winding up order. It has further been held that the petitioner in such a situation is not left without a remedy and it is open to the petitioner to establish its claim in the civil court and if the decree that may be obtained by it remains unsatisfied in whole or in part, the petitioner can seek the winding up of the company. It has further been observed that it is not the legislative intent that the company court should convert itself into an ordinary civil court and proceed to hold a trial at the instance of every petitioner claiming to be a creditor of the company and proceed to pass a decree and thereafter order the winding up of the company on the ground that it is unable, to satisfy the decree. It has further been held that unless the debt alleged to be due is clear and free from doubt, it cannot reasonably be said that there is negligence, failure or inability to pay the debt and, therefore, the discretionary order of winding up, which order if made would result in sounding the death-knell of a company, should not be made.

In Raghunath and Son Private Ltd. Vs. Pandam Tea Company Ltd., it has been held that in an application for winding up by a creditor of a company, though the balance-sheet of a company contained an entry "secured loans as per Schedule ''A'' Rs. 9,34,545" including that due to the creditor, the report of the board of directors contained a statement that the liability to the creditor was barred by limitation and hence was not confirmed by the directors. It was held that there was a bona fide dispute.

In Unisystems Private Ltd.. v. Stepan Chemical Ltd. [1985] 58 Comp Cas 875 (P & H) it has been held that where a creditor files a petition for the winding up of a company claiming interest on the principal amount, which principal amount had already been paid by the company, but the claim for interest is disputed, an order of winding up of the company cannot be passed.

Likewise, in Ultimate Advertising and Marketing Vs. G.B. Laboratories Ltd., Kanpur, the following observations are very much relevant (headnote) :

"After service of notice u/s 434 of the Companies Act, 1956, to the respondent-company, calling upon the company to pay its debt to the petitioner, amounting to about Rs. 2.22 lakhs, with interest at 18 per c.ent. thereon, the petitioner filed a petition u/s 433(e) of the Act for winding up the respondent-company. When the petition came up for admission, the company sought permission to pay Rs. 1 lakh. This amount was paid and by the time the matter again came up before the court, the company had paid the balance of about Rs. 1.22 lakhs also. On the question whether the petitioner was entitled to proceed with the winding up for recovery of interest claimed by it :

Held, that the material on record did not show that there was any reference to the claim of interest or any statement regarding interest in the earlier correspondence, prior to the notice u/s 434 of the Act. It was stated for the first time in the notice that the company was liable to pay interest from June 1, 1984, at the rate of 18 per cent. per annum. The respondent-company had very clearly stated that it had never been indicated at any stage prior to the issue of notice that the unpaid amount carried interest at a particular rate. The winding up court could not investigate into the question of the rate and quantum of interest. Unless it was established that the amount claimed was either agreed upon or admitted or decreed by a competent court, the amount did not become a debt. The company had paid more than Rs. 2.22 lakhs, and could not be said to be insolvent. The conclusion was, therefore, firstly, that the amount claimed as interest had yet to be established as a debt ; secondly, even if it was a debt, it was bona fide disputed ; thirdly, the company was, not insolvent and fourthly, the company had not mala fide refused to pay the amount claimed. Consequently, the winding up petition had to fail."

In the present case also the alleged interest, for the first time, was claimed in the notice sent to the respondent-company u/s 434 of the Companies Act, but, as referred to above, in the petition itself there was no mention regarding the interest--what to speak of its rate being 18 per cent, per annum.

On the other hand, learned counsel for the petitioner has tried to find support from the judgments in Ashoka Agencies and Business Fowns Ltd., In re [1999] 95 Comp Cas 172 ; [1995] 4 Comp LJ 519 (Cal) : Devendra Kumar Jain v. Polar Forgings and Tools Ltd. [1993] 1 Comp LJ 184 (Del) and Stephen Chemical Limited v. Innosearch Limited [1986] 60 Comp Cas 702 (P & H).

In the aforesaid citations, on the basis of the facts involved therein, it has been observed that the company judge could ask for the interest from the respondent-company. In Ashoka Agencies and Business Forms Ltd., In re [1999] 95 Comp Cas 172 : [1995] 4 Comp LJ 519 (Cal) the petitioner-company had alleged that the interest was agreed by and between the petitioner and the company. In this background it was held that there was no bona fide defence by the company and in this case the debt has been acknowledged.

In so far as the other citations are concerned, it has been held therein that where the liability of the debt is accepted and is paid in that case the forum of company judge is the appropriate forum for determining as to whether the creditor is entitled to interest on the amount in question or not as the basic policy of law was to avoid multiplicity of litigation. It has also been held that the company judge in an appropriate case can investigate into the question of the rate and quantum of interest even where the principal amount is admitted by the company and paid in the course of winding up proceedings. On the basis of the aforesaid citations it has been contended by the petitioner-company that in the present case the principal amount has been paid and the payment of interest is being disputed and, therefore, on the ratio of the aforesaid citations the company judge could inquire into the rate of interest and the liability of the respondent-company to pay that interest.

It may not be out of place to mention here that the aforesaid principle can be followed in an appropriate case as held in the cases referred to above. What is that appropriate case, it has to be ascertained from the factual position of that particular case. The present case cannot come within that category. The reason being that at the first instance, as pointed out above, in the main petition neither it has been mentioned that such and such amount was due as interest and that too at a specific rate. There is nothing in the pleadings of the parties that they have agreed to pay such rate of interest in case of default. There is also no plea that in the absence of any agreement on the basis of usage and custom, the petitioner was entitled to interest. Taking into consideration all these facts, the arguments advanced on behalf of the petitioner-company cannot be favourably considered.

Bona fide dispute excludes the mala fides on the part of the person claiming exception for winding up of the company by reason of defence of bona fide dispute. In the present case the principal amount is admitted to have been paid, as has been reflected in the account books of the respondent-company and, as pleaded by the petitioner-company. On the face of the aforesaid facts on record, the respondent-company''s defence comes within the bona fide dispute.

No other point has been stressed.

In view of the foregoing reasons, as the respondent-company has raised a bona fide dispute in its defence regarding the payment of interest claimed by the petitioner-company, the present petition even at this stage is disallowed. Parties are left to bear their own costs.