Khem Chand Bahadar Chand Ahuja vs Shreyans Industries Limited

Rajesh Bindal, J.

This is a petition filed under Sections 433(e), 434 and 439 of the Companies Act, 1956, for winding up of the respondent-company. The pleaded case of the petitioner is that the petitioner is a registered partnership firm having its Head Office at Mehrian Bazar, Fazilka, District Ferozepur. It is carrying on the business of supply of cotton with branch offices situated at Muktsar and Kot-kapura. The respondent-company is having its registered office at Village Iran, District Ludhiana and is carrying on besides others the business of Synthetic and wool blended hosiery and knitting yarns.

The petition was filed alleging that the petitioner-firm had supplied cotton through branches situated at Muktsar and Kotkapura to the unit of the respondent-company situated in Village Iran, District Ludhiana, and as on 31.3.1999, a sum of Rs. 61,51,625.75 and Rs. 81,46,636.57, along with interest @ 24% per annum were due to Muktsar and Kotkapura branches, respectively of the petitioner.

The aforesaid balance was confirmed by the respondent-company vide letters, Annexures P-5 and P-6. Further referring to letters, Annexures P-7 and P-8, it was stated that payment of interest @ 21.6% per annum as against 24% per annum raised by the petitioner was confirmed by the respondent-company.

Learned counsel for the petitioner submitted that the aforesaid admitted debt was not paid by the respondent-company despite statutory notice and even after issuance of notice in the present petition as the respondent-company was unable to pay its debt. This is even established from the fact that in June, 2000, the respondent-company had sold its spinning unit. It has been admitted by the respondent-company that the same was sold on account of recession. As the amount was not cleared despite filing the present petition, during the pendency thereof, the petitioner filed civil suit for recovery on 11.5.2004. The same was decreed on 24.5.2011 for a sum of Rs. 3,18,04,090/- with interest pendente lite @ 15% per annum from the date of filing of the suit till passing of the decree and with future interest @ 6% per annum. The respondent-company feeling aggrieved against the judgment of the trial court, preferred appeal. The Lower Appellate Court while partially accepting the appeal filed by the respondent-company on 8.11.2012, decreed the suit to the extent of Rs. 2,66,06,289/- plus interest pendente lite @ 15% per annum and @ 6% from the date of decree till realization.

No doubt, the aforesaid judgment and decree of the First Appellate Court is under challenge before this Court in RSA No. 3628 of 2012 Khem Chand Bahadar Chand Ahuja v. M/s. Shreyans Industries Limited, and RSA No. 4652 of 2012 M/s. Shreyans Industries Limited v. Khem Chand Bahadar Chand Ahuja and others, however, in the appeal filed by the respondent-company, no stay has been granted. The amount which has been found to be due even by the civil court has not been paid. The same is debt due which cannot be denied by the respondent-company. The effort of the respondent-company is to delay the payment, as the future interest only @ 6% per annum has been granted by the court in the civil suit filed by the petitioner.

Learned counsel for the petitioner further submitted that on 3.10.2013, counsel for the respondent stated that a meeting of the Board of Directors of the respondent-company will be held to resolve regarding payment of the principal amount of Rs. 1,43,00,000/- to the petitioner-company. A resolution dated 7.11.2013 was produced in Court on 3.3.2014 stating that after adjusting Rs. 59,79,5497- on account of debit -notes sent by the respondent-company, balance of Rs. 83,52,614/- shall be paid in three installments subject to decision in the pending Regular Second Appeal. Even the aforesaid amount was sought to be paid in installments which shows that the company was unable to pay its debt. However, he admitted that a sum of Rs. 48,52,614/- paid at that stage by the respondent-company was received by the petitioner.

In view of the aforesaid submissions, the prayer is that the respondent-company is unable to pay its admitted debt, which has even been determined by the civil court, the respondent-company deserves to be wound up.

On the other hand, learned counsel for the respondent submitted that the entire liability has been created by the petitioner while charging compound interest @ 24% per annum whereas there was no such agreement. Agreed rate of interest was @ 15% per annum simple. If calculated the amount due was Rs. 89,718.59. That was offered by the respondent-company to the petitioner at the very beginning. The documents, Annexures P-7 and P-8 annexed with the petition sought to be referred to by the petitioner in support of his claim for interest @ 21.6% per annum, were not proved by him in the civil suit, hence, could not be relied upon before this Court. Rate of interest depends on mutual settlement.

Learned counsel for the respondent further submitted that the mere fact that the petitioner ha" not been able to prove his entire case in the civil suit filed, itself shows that debt is disputed and not admitted. As against the decree of the entire amount claimed by the petitioner and passed by the civil court, the learned Lower Appellate Court while accepting the plea raised by the respondent-company, reduced the decretal amount to Rs. 2,66,06,289/- while granting relief regarding the debit notes issued by the respondent-company. As there was error in the judgment to the extent that during the course of discussion, the learned Lower Appellate Court found that benefit of two debit notes issued by the respondent-company to the extent of Rs. 7,32,205/- and Rs. 51,97,801/- was required to be granted, however, while calculating the amount, the benefit of the debit note of Rs. 7,32,205/- could not be granted and further the amount as principal only was directed to be reduced from the amount claimed in the suit which included interest also as the benefit was required to be given from the date, the debit note was issued and the interest calculated accordingly, Review Application was filed. However, the same was dismissed as time barred even though error was admitted. The respondent is in appeal before this Court against the judgment and decree of the learned Lower Appellate Court which is still pending. The execution filed by the petitioner is also pending.

These facts show that the debt is not admitted which the company is unable to pay. During the pendency of the present petition, the fact that the respondent-company had paid a sum of Rs. 48,00,000/-, subject to decision in the Regular Second Appeal pending before this Court itself shows the bonafides of the respondent company. Still further it was submitted that the respondent company is still functional, which is providing employment to number of persons and contributing to the State exchequer.

Learned counsel for the respondent-company further submitted that once the Regular Second Appeal filed by the respondent-company is pending in this Court, the Company Petition for winding up does not lie. In support of arguments, reliance was placed upon judgment of Andhra Pradesh High Court in Kitti Steels Limited Vs. Sanghi Industries Limited, . Further reliance was placed upon judgment of Hon''ble the Supreme Court in IBA Health (I) Pvt. Ltd. Vs. Info-Drive Systems Sdn. Bhd., .

Heard learned counsel for the parties and perused the paper book.

In the case in hand, the petition for winding up was filed by the petitioner on 1.4.2002, primarily referring to documents, Annexures P-5 and P-6 showing the balance confirmation as on 31.3.1999 and Annexures P-7 and P-8 showing the rate of interest to be paid on account of delayed payment of the amount on account of cotton supplied by the petitioner to the respondent-company. Notice in the petition was issued on 11.4.2002. Thereafter, it remained pending on account of various reasons. After filing the present petition, the petitioner filed a Civil Suit on 11.5.2004 seeking to recover Rs. 3,18,04,090/- which included principal and upto date interest. On 24.4.2008, the Court was informed regarding the pendency of the Civil Suit. On 6.5.2011, noticing the fact regarding pendency of the Civil Suit, the learned Subordinate Judge was directed to decide the same within 15 days from the next date of hearing fixed therein i.e. 10.5.2011. On 6.3.2012, this Court noticed that in appeal filed by the respondent partial relief had been granted, whereas on account of certain arithmetic errors, application for correction had been filed. On 26.9.2012, the first Appellate Court was directed to decide the application pending before it. After the same was decided on 8.11.2012, RSA Nos. 3628 and 4652 of 2012 were filed by both the parties, which are still pending.

The trial court decreed the suit filed by the petitioner for recovery of Rs. 3,18,04,090/- along with interest pendente lite @ 15% per annum from the date of filing of the suit till the passing of the decree with future interest @ 6% per annum. In appeal filed by the respondent, the learned Lower Appellate Court accepted the plea raised by it that two debit notes issued by the respondent-company were not given effect to by the petitioner. Debit note of Rs. 7,18,748/- was pertaining to Mukatsar Branch, whereas debit note of Rs. 51,97,801/- was pertaining to Kotakpura Branch. The learned Lower Appellate Court while accepting the plea raised by the respondent that the debit notes issued by the respondent-company had not been adjusted directed to adjust the same. However, while making the calculation the benefit was given only for the debit note of Rs. 51,97,801/- and not of Rs. 7,18,748/-. The aforesaid amount was also directed to be deducted as such from the amount claimed by the petitioner in the Civil Suit which otherwise included the interest thereon from the date of debit note till the date of filing of the suit. The debit notes pertained to the year 2000-2001. The Civil Suit was filed on 11.5.2004. The amount claimed in the Civil Suit included the interest thereon. Finding that there was error in not granting benefit of the debit note of Rs. 7,18,748/-, and interest on both the debit notes, the respondent company filed Review Application before the learned Lower Appellate Court. Though learned Lower Appellate Court noticed that there was error in not granting the benefit of the debit note of Rs. 7,18,748/-, but dismissed the Review Application as time barred.

The relevant part of the order passed in the Review Application is extracted be-low:--

"After hearing submissions of both the sides, 1 am of the view that admittedly in the written statement applicant in para 5 and 8 has claimed adjustment of three debit notes i.e. of Rs. 30,39,778 dated 31.3.2000 of Rs. 21,88,023/- dated 30.6.2000 of Kot Kapura Branch and of Rs. 7,81,748/- dated 31.3.2000 of Muktsar Branch and these debit notes have been exhibited by the applicant/defendant as Ex. P12, Ex. P15 and Ex. P17 respectively. Whereas, advertently, while passing decree court allowed the adjustment of the debit notes of Kot Kapura branch amounting to Rs. 51,81,748. However, debit note of Rs. 7,81,748 dated 31.3.2012 was left to be added due to oversight and admittedly under Order 47, Rule 1 read with Section 114 CPC, this Court is competent to review the judgment to make this mistake rectified as applicant has not preferred any appeal against the judgment of this Court and it has been held by Hon''ble Kerala High Court in the judgment (supra) that this review application is maintainable, if a party who has applied for review has not repealed from a decree or order irrespective of the pendency of an appeal filed by some other party. So, as such application is maintainable. However, it is to be seen, whether it has been filed within limitation. I have gone through Article 124 of Limitation Act, 1963 detailed in Law Herald''s Legal Referencer 2012 referred by learned counsel for the respondent. As per the same the review application could be filed within 30 days from the decree or order."

Against the judgment and decree of the learned Lower Appellate Court, the respondent-company preferred appeal before this Court bearing RSA No. 4652 of 2012 M/s. Shreyans Industries Limited v. Khem Chand Bahadar Chand Ahuja and others,. Inter-alia the plea raised in the appeal is that the benefit of debit notes was required to be given either along with interest from the year 2001 onwards or the amount claimed in the suit was required to be reduced accordingly and not the benefit of only the principal amount. Further the benefit of debit note of Rs. 7,18,748/- plus interest was also claimed. Another plea raised by the respondent in the Regular Second Appeal is that the interest has wrongly been calculated by the petitioner @ 24% per annum compounded, whereas the agreed interest was @ 15% per annum simple. If calculated by that method, the amount due was merely Rs. 89,718.59 which had been offered for payment. The documents, Annexures P-7 and P-8 which have been relied upon by the petitioners for calculating the rate of interest @ 24% per annum could not be proved by the petitioner in the evidence led in the Civil Suit filed by him. This Court in the present petition will not record any finding regarding the rate of interest or the amount due as the litigation for determination thereof is pending in RSA Nos. 3628 of 2012 Khem Chand Bahadar Chand Ahuja v. M/s. Shreyans Industries Limited, filed by the appellant and 4652 of 2012 M/s. Shreyans Industries Limited v. Khem Chand Bahadar Chand Ahuja and others, filed by the respondent.

Another fact which is not in dispute is that Execution filed by the petitioner of the judgment and decree passed by the learned Appellate Court in his favour is pending before the learned Executing Court.

Still further regarding the inability of the respondent company to pay the debt, it is not in dispute that the respondent company is still functioning. The resolution passed by the respondent company dated 7.11.2013 was produced in Court stating that it is ready and willing to pay a sum of Rs. 83,52,614/- in installments subject to decision in the pending litigation. This was after reducing the amount of debit notes out of the principal amount as claimed in the present petition as on 31.3.1999. Out of the aforesaid amount Rs. 48,52,614/- have, in fact, been paid by the respondent company to the petitioner. The cheque of Rs. 35,00,000/- when offered to the petitioner was not accepted by him.

While considering the issue regarding bonafide dispute about the liability, Hon''ble the Supreme Court in M/s. IBA Health (I) Private Limited''s case (supra) opined as under:--

"17. 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 bona fide 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 bona fide disputed debt.

In this connection, reference may be made to the judgment of this Court in Amalgamated Commercial Traders (P.) Ltd. Vs. A.C.K. Krishnaswami and Another, , in which this Court held that "It is well-settled that ''a winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bonafide 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 stigmatized as a scandalous abuse of the process of the court.

The above mentioned decision was later followed by this Court in Madhusudan Gordhandas and Co. Vs. Madhu Wollen Industries Pvt. Ltd., . The principles laid down in the above mentioned judgment have again been reiterated by this Court in Mediquip Systems Pvt. Ltd. Vs. Proxima Medical System GMBH, , wherein this Court held that the defence raised by the appellant-company was a substantial one and not mere moonshine and had to be finally adjudicated upon on the merits before the appropriate forum. The above mentioned judgments were later followed by this Court in Vijay Industries Vs. NATL Technologies Limited, .

The principles laid down in the abovementioned cases indicate that if the debt is bonafide disputed, there cannot be "neglect to pay" within the meaning of Section 433(1)(a) of the Companies Act, 1956. If there is no neglect, the deeming provision does not come into play and the winding up on the ground that the company is unable to pay its debts is not substantiated and nonpayment of the amount of such a bonafide disputed debt cannot be termed as "neglect to pay" so as to incur the liability under Section 433(e) read with Section 434(1)(a) of the Companies Act, 1956."

In the aforesaid judgment Hon''ble the Supreme Court has opined that the Company Court should be vigilant to make out that the process being adopted by the petitioner seeking winding up of a company is not a medium which can be misutilised. The Court is required to act with circumspection, care and caution and examine as to whether an attempt is being made to pressurise the company to pay a debt which may be in dispute. The Court should not function as a debt collecting agency. From the totality of the facts and circumstances of the case, referred to above, in my opinion, considering the finding in the pending litigation initiated by the petitioner regarding recovery of the amount, non payment of which has been alleged in the present petition, prima facie, establishes that the debt cannot be said to be an admitted one. Further the offer of the respondent company to pay principal sum of Rs. 83,52,614/- subject to decision in the pending litigation and in fact payment of Rs. 48,52,614/- and non-acceptance of cheque of Rs. 35,00,000/- when offered by the respondent company to the petitioner; further the respondent company being functional, in my opinion, it is not a fit case where the petition deserves to be admitted.

For the reasons mentioned above, the present petition is dismissed.