In Re: Friends Tea Co. Ltd.

I.P. Mukerji, J.—This is a winding up application at its admission stage. The company is very old. It was incorporated on November 14, 1912 and is an existing company under the Companies Act, 1956. The petitioning-creditor carries on business in the name of D. M. Engineering Works at Chalsa in District Jalpaiguri in the State of West Bengal. His case is that between May 8, 1998 and October 16, 2009, he performed a number of works of repairing machinery, constructing buildings and repairing the factory of the company at their Kailashpur Tea Estate. Bills were raised for Rs. 44,54,777 the company paid Rs. 24,11,619 the last payment being made on July 10, 2009. There is due and payable a sum of Rs. 20,43,158. The petitioning-creditor claims interest on the said sum of Rs. 20,43,158 at 18 per cent, per annum from July 10, 2009. It is said on behalf of the petitioning-creditor by Mr. S. B. Mookherjee, the learned senior advocate that on October 6, 2008, the income tax Department wrote a letter to the petitioning-creditor. The subject of the letter was with regard to the transaction of the petitioning-creditor with the company for the financial year 2002-03 which corresponded to assessment year 2003-04. The income tax Department asked the petitioning-creditor to furnish details of their transactions with the company for the said period along with a statement of any balance outstanding from them as on March 31, 2003. By their letter dated October 19, 2008, the company replied that "closing balance as on March 31, 2003, was Rs. 22,56,571". They asked for confirmation of the above balance from the petitioning-creditor. There is an endorsement at the foot of the letter "balance confirmed" and signed. I presume that it is the signature of the petitioning-creditor. That letter was acted upon. The petitioning-creditor by his letter dated October 23, 2008, sent the above information to the Assistant Commissioner of income tax Department, 1/2, Naya Basti, Jalpaiguri.

It was further said on behalf of the petitioning-creditor that by the statutory notice dated January 15, 2010, issued on behalf of them the said sum of Rs. 20,43,158 was claimed. Detailed statement of accounts was also sent with that letter which ran into 18 pages. That statutory notice was replied to by the company by their letter dated February 4, 2010. The reply stated that considering the friendly relationship between the petitioning-creditor and the company, the company had made an acknowledgement of the outstanding balance as on March 31, 2003, to be Rs. 22,56,571. Taking advantage of that balance confirmation the petitioning-creditor had issued the notice. The statement did not disclose a "current and running account". The claim was barred by limitation. The petitioning-creditor was asked to produce all supporting documents.

Mr. Hirak Kr. Mitra, the learned senior advocate assisted by Debdutta Sen, the learned advocate argued this application on behalf of the company. He relied on the affidavit-in-opposition filed on behalf of the company affirmed on May 3, 2010, by one Piyush Kanti Rahut. According to paragraph 3 "k" of this affidavit several bills of the petitioning-creditor had been paid, except 13 bills dated April 7, 2002, April 7, 2002, May 19, 2002, June 2, 2002, June 2, 2002, July 17, 2002, August 11, 2002, September 8, 2002, October 6, 2002, October 6, 2002, November 9, 2002, December 15, 2002 and January 25, 2003. These bills added roughly to the sums claimed that is Rs. 20,44,720. There was no work order for these bills. Neither was any work done. These bills were raised by the petitioning-creditor in collusion with the staff of the Tea Estate. The above acknowledgement of debt was obtained by the petitioning-creditor by dominating the will of the persons in management of the company. The company made excess payment of Rs. 2,65,977.

It was submitted at the time of arguments that the accounts mentioned in the statement annexed to the statutory notice were not mutual. Furthermore the admission or acknowledgment was made as on March 31, 2003. That acknowledgment or payment could not be taken to be acknowledgment of debt as on the date of consideration of this winding up application.

Furthermore, the claim of the petitioning-creditor was barred by limitation. The company has instituted the suit being Money Suit No. 3 of 2010 in the court of the learned Civil Judge (Senior Division), Jalpaiguri claiming recovery of the alleged excess amount paid by the company to the petitioning-creditor together with the declaration that the company was not liable to pay the said claim of the petitioning-creditor. The said suit was pending.

Mr. S. B. Mookherjee in reply made it absolutely plain that he was relying on the above confirmation of account only as an admission or acknowledgment of debt as on March 31, 2003 and no more. He showed me the statement of accounts annexed to the statutory notice to show that the payments made by the company, which are not disputed, shows that these payments were part payments towards the entire liability and that those part payments were made continuously till July 10, 2009.

Discussion and conclusions

The making of the admission or acknowledgment of liability, that the sum of Rs. 22,56,571 was payable by the company to the petitioning-creditor as on March 31, 2003, is admitted. Now let me assume, considering the stand taken by the company, that this admitted sum together with the subsequent admitted bills of the petitioning-creditor was paid in excess so that a sum of Rs. 2,65,977 was refundable. If this was true, a sum, much in excess of Rs. 22,56,571 would have been paid by the company to the petitioning-creditor after March 31, 2003. Now, considering the chart appended to the statutory notice it appears on scrutinising the schedule of payments that only Rs. 17,26,619 was paid by the company between August 18, 2003 and July 10, 2009. Therefore, even out of the admitted sum of Rs. 22,56,571 more than Rs. 5,00,000 remains outstanding. Therefore, I have every reason to fully disbelieve, the alleged defence taken by the company that 13 bills were unauthorised and that the rest of the claim of the petitioning-creditor had been paid in excess. Upon segregation of the value of the said 13 bills which make up the entire claim of the petitioning-creditor, nothing was payable by the company to the petitioning-creditor, according to the company. If that had really been true, the accounts would have at least revealed that the entirety of the admitted sum of Rs. 22,56,571 had also been paid. The accounts show on the face of them that Rs. 17,26,619 only out of Rs. 22,56,571 has been paid.

Moreover, according to the affidavit of the company, bills were continuously raised by the petitioning-creditor and paid by the company. The company has relied upon their statement of accounts. Therefore, some evidence was required on behalf of the company to show that the claim of the petitioning-creditor, allegedly represented by the said 13 bills was not payable. Just segregation of 13 bills roughly representing the entire claim of the petitioner and taking the plea that there was no work order for these bills will not do. No contemporaneous letter or note of rejection of the work or bills or any other document or records have been brought on record to dispute the claim. It appears as if 13 bills the value of which roughly represented the petitioning-creditor''s claim were picked out and denied. Even this denial is entirely controverted by the statement of accounts discussed above.

It has been held in Madhusudan Gordhandas and Co. Vs. Madhu Wollen Industries Pvt. Ltd., and followed in subsequent cases including Mediqup Systems (P.) Ltd v. Proxima Medical System GmbH (2005) 124 Comp. Cas. 473 : 59 SCL 255 (SC) and IBA Health (I) (P.) Ltd. v. Info-Drive Systems Sdn. Bhd. (2010) 159 Comp. Cas. 369 : 104 SCL 367 : 8 taxmann.com 1 (SC) (paragraphs 20 and 33) that a winding up application should not be admitted if the defence is good or substantial and there is prima facie proof of such defence.

The hon''ble Supreme Court has pronounced that where the company has no defence or the defence is moonshine the winding up application should be admitted. But all these cases have dealt with situations where either there is substantial defence or some defence is disclosed with the possibility of a fuller defence being disclosed later or practically no defence is disclosed.

The hon''ble Supreme Court in the case of Mechelec Engineers and Manufacturers Vs. Basic Equipment Corporation, (paragraph 8) has also said that where there is no defence, the court can out of sympathy relegate the claimant to a suit upon the defendant furnishing security. Although the decision was made in a case asking for summary judgment, the principles are applicable in winding up.

As the payment pattern as reflected in the statement appended to the statutory notice shows part payment and payment is made till July 10, 2009, limitation is saved.

Moreover I notice that the winding up application was filed on March 17, 2010 and the above suit instituted on March 25, 2010.

This is a case where the company has not only absolutely no defence but has tried its best, to deceive the court, into believing by false projection of statement of accounts and absolutely erroneous allegations that no work was done and false bills were raised by the petitioning-creditor, that the company has a defence. Such a company cannot be said to have any commercial morality. And if a company does not have commercial morality it is liable to be wound up on just and equitable grounds in addition to the ground of its inability to pay its debts. (See Jardine Henderson Ltd. v. Howrah Mills Co. Ltd. (2010) 160 Comp. Cas. 462 (Cal.), paragraph 16).

Therefore, in such a situation where there is no defence but there is endeavour by the company to confuse the court or to deceive the court, the court should not only reject the same but should take other strict measures to deal with such a company.

In making this observation I am not even for a moment casting any blame on the learned advocates who argued this application on behalf of the company on the basis of the records and instructions to the best of their ability.

The above observations are prima facie.

Therefore, prima facie I come to the finding that the respondent-company is indebted to the petitioning-creditor for a sum of Rs. 20,43,158, as claimed in the winding up petition.

I refuse to award interest as claimed. Interest will be payable on the above sum at 8 per cent. simple interest from October 16, 2009, being the date of the last bill till payment.

Therefore, this winding up application is admitted. This application should be published by the petitioning-creditor once in The Telegraph and once in Anandabazar Patrika within six weeks from the date but such publication should not be made for a period of two weeks from the date to enable the company to approach the hon''ble appeal court if they so desire. Publication in the Official Gazette is dispensed with. List this application seven weeks hence.