Malhotra Steel Syndicate vs Punjab Chemi-Plants Limited

G.R. Majithia, J.—The petitioner has filed this petition under Sections 433 and 439 of the Companies Act, 1956, for the winding up of the respondent company.

The petitioner pleaded that in August, 1984, the respondent company, through its executive director, Shri S. S. Sandhu, placed an order for the supply of iron and steel C. R. Coils. . The same was supplied, vide bill No. 1806, dated August 7, 1984. On receipt of the goods, the respondent company issued a cheque No. 224994, dated August 7, 1984, for Rs, 1,20,000 drawn on Corporation Bank, Greater Kailash, New Delhi, towards part payment of the aforesaid bill. The cheque was presented but was returned with the remark "refer to drawer". The petitioner represented to the executive director that the cheque was not cleared. The executive director reassured the petitioner that the cheque would be cleared as and when presented and that he had advised the respondent company to make suitable arrangements for clearance of the cheque.

It was further pleaded that Shri S. N. Malhotra, partner of the petitioner firm visited the Delhi office of the respondent company and the executive director informed him that the payments could not be made on account of financial difficulties, but assured him that the payment would be released shortly, and he even wrote a letter to the Chief Manager (Administration) of the respondent to release the payment.

The payment was not made by the respondent company and on January 18, 1986, a notice was served by the petitioner upon the respondent to pay the amount towards the bill together with interest. The notice was duly served. The respondent company neglected to pay the amount. Thereafter, a second legal notice was served on July 29, 1986, calling upon the respondent company to pay the outstanding amount of Rs. 1,22,769.92. The amount was not paid. The petitioner claims Rs. 1,22,769.92 on account of price of the goods supplied and interest on the said amount at the rate of 18% per annum which comes to Rs. 49,723-80 up to November 7, 1986. Thus, the total amount payable towards principal and interest comes to Rs. 1,72,493.72.

The respondent company, through its secretary, filed a written statement controverting the allegations made in the petition. The respondent company took up the plea that the petition has been filed in collusion with Mr. S. S. Sandhu who was the executive director of the respondent company and has since left the company. The respondent company was furnished a copy of the bill vide which the goods are alleged to have been delivered by the petitioner. Photo copy has been placed on record as annexure R-1 to the written statement. On the original bill, which has been placed on record by the petitioner, there is an endorsement by Shri K. S. ''Rupal to the following effect :

"Received for P.C.P. all material in order".

No such endorsement exists on the duplicate bill supplied by the petitioner to the respondent company on the request of the latter and there appears to be a fabrication. A resolution was passed by the respondent company on June 24, 1983, that the account, in the Corporation Bank will be operated over the joint signatures of any two of Mr. Balraj Singh, executive director, Mr. S. C. Goyal, Financial Controller and Mr. V, N. Rao, chief planning engineer, or over the joint signatures of Mr. S. S. Sandhu, executive director and Mr. S. S. Bhalla, resident manager. The cheque which was issued to the petitioner company bore the signature of the Executive Director, Mr. S, S. Sandhu and he was not authorised to sign the cheque for and on behalf of the respondent company. The respondent company also took up the plea that the affidavit filed in support of the petition is not in accordance with the provisions of Rules 21 of the Companies (Court) Rules.

The petitioner, with the permission of the court, filed a rejoinder to the written statement and controverted the allegations made in the written statement. It was pleaded that the goods covered by Bill No. 1806, dated August 7, 1984. were duly received by the respondent company at its Delhi office and were despatched through Eagle Roadways, 10650/2, Nabi Karim, Jhandewalan Road, New Delhi, to the company''s factory at Mohali. It was utilised by the company in its manufacturing activities and the amount is duly reflected in the books of accounts. The resolution dated June 24, 1983, relates only to a particular transaction namely "wages for four sub-stations project, Iraq, which project the company was executing as a sub-contractor to a Japanese company. The plea of joint signatures on cheques raised by the respondent company is imaginary and of no legal consequence. Shri S. S. Sandhu had full authority to operate the bank account of the respondent company, and as per the enquiry made by the petitioner, the bank had been honouring the cheques signed by said Shri S. S. Sandhu. If the cheque was not signed by the authorised person, the bank would have stated so and would not have returned it with the endorsement " effects not clear, present again ".

Mr. Bhagirath Dass, who appeared for the respondent, submitted that the affidavit filed in support of the petition is not in conformity with Rule 21 of the Companies (Court) Rules, 1959. Rule 21 enjoins that every petition shall be verified by an affidavit and such affidavit shall be filed along with the petition and shall be in Form No. 3. Form No. 3 provides that the statement made in various paragraphs of the petition has either to be verified* as true to knowledge or on information received or on information which is believed to be true. Since the affidavit filed in support of the petition is not in conformity with Rule 21 of the Companies (Court) Rules, the petition is liable to be rejected on this score alone. Learned counsel relied upon a Division Bench decision of this court in Mool Chand Wahi v. National Paints P. Ltd. [1986] 60 Comp Cas 198. Before the Bench, learned counsel for the petitioner company conceded that where a petition for winding up is not accompanied by an affidavit, the same is liable to be dismissed. On the basis of that concession, the Bench held that an affidavit, which is not in due form, is of no value and the company petition, which is to be accompanied by the affidavit, will be no petition in the eyes of law.

Sitting singly, I am bound by this judgment, although, I have got serious doubts about the correctness of the observations made in the judgment that the petition is liable to be rejected on the sole ground that the affidavit accompanying the petition is not verified according to law, It was a mere irregularity and the company court could direct the petitioner to file a fresh affidavit in conformity with Rule 21 of the Companies (Court) Rules, and an irregularity could be cured but not an illegality. Imperfect verification of the affidavit is only an irregularity and not an illegality of a type which will entail dismissal of the company petition. Affidavits are not " evidence " within the meaning of Section 3 of the Evidence Act and can be used as evidence only if, for sufficient reasons, the court passes an order under Order 19, Rule 1 or 2 of the Code of Civil Procedure, Reference can be made to Sudha Devi Vs. M.P. Narayanan and Others, . I had thought of making a request to my lord the Chief Justice for referring the case to a larger Bench for reconsideration of the judgment rendered by the Division Bench in Moot Chand Wahi v. National Paints (Private) Lid. [1986] 60 Comp Cas. 402 (E & H). How-ever, in view of my decision on the merits of the controversy, I do not think it proper to make such a request. This matter will be gone into in another appropriate case.

In Amalgamated Commercial Traders (P.) Ltd. Vs. A.C.K. Krishnaswami and Another, , the Supreme Court quoted with approval the following passage from Buckley on the Companies Acts, 13th edition, gage 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 certain circumstances may be stigmatised as a scandalous abuse of the process of the court. At one time, petitions founded on disputed debt were directed to stand over till the debt was established by action. If, however, there was no reason to believe that the debt, if established, would not be paid, the petition was dismissed. The modern practice has been to dismiss such petitions. But, of course, if the debt is not disputed on some substantial ground, the court may decide it on the petition and make the order.....If the debt was bone fide disputed, as we hold it was, there cannot be ''neglect to pay'' within Section 434(1)(a) of the Companies Act. If there is no neglect, the deeming provision does not come into play and the ground of winding-up, namely, that the company is unable to pay its debts is not substantiated."

This passage has been quoted with approval in the subsequent decisions of the apex court. The law has been succinctly stated in this paragraph and if the company court comes to the conclusion that the debt is bona fide disputed by the company, against whom the winding up petition has been filed, the petitioner has to be relegated to a civil suit and a winding up petition will not be the appropriate remedy.

The respondeat-company has placed material before this court and it prima facie establishes that the debt is bona fide disputed.

The duplicate copy of the bill, which is placed on record by the respondent company evidencing receipt of the goods in dispute, does not bear the signatures of Mr. K. S. Rupal who purports to have signed the original bill dated August 7, 1984. The original bill placed on record by the petitioner bears the signature of Mr. K. S. Rupal. The photo copy of the cheque issued to cover price of the goods, which was dishonoured, is signed only by Shri S. S. Sandu, executive director of the company. The respondent company has denied that Shri S. S. Sandhu was authorised to issue the cheque for and on behalf of the company.

The petitioner filed a rejoinder to the written statement and in para No. 4 thereof took the plea that hundreds of cheques issued prior to and subsequent to the date of the issuance of the cheque to the petitioner on August 7, 1984, were signed by Sri S. S. Sandhu and were honoured by the bankers. The verification of the rejoinder reveals that the facts mentioned in para No. 4 of the replication are true and correct to the best of knowledge of the deponent derived from the record and information received and believed to be correct. It is not stated as to from which source the petitioner-company acquired the knowledge that Shri S. S. Sandhu was competent to issue the cheque for and on behalf of the company. It was imperative for the petitioned to specifically disclose the source of information which was believed by him to be correct. Even if the plea was correct, the petitioner could obtain a certificate from the banker who had honoured the cheques issued for and on behalf of the respondent company by Shri S. S. Sandhu. No such document has been placed on record. The receipt of goods is denied by the respondent and no material has been placed before this court to vouchsafe the assertions of the petitioner that the goods had been supplied.

The petitioner has to prove the allegations made by it in the petition by leading positive evidence and this could be done only in a civil suit. The respondent company has prima facie established that the debt is bona fide disputed by it.

Consequently, I dismiss the petition and relegate the petitioner to a civil suit, The petitioner, however, will be entitled to invoke the provisions of Section 14 of the Limitation Act, in the civil litigation. The parties are left to bear their own costs.