Malhotra Steel Syndicate vs Punjab Chemi-Plants Ltd.

V.K. Bali, J.—The appellant-petitioner lost its cause for winding up of the respondents--Punjab Chemi-Plants Limited, a company incorporated under the Companies Act, 1956 (hereinafter referred to as "the Act"), in the petition filed by it under Sections 433 and 439 of the Act before the learned single judge as also in an appeal filed by it before a Division Bench of this court. The Division Bench in the appeal preferred by the appellant, decided the matter exclusively on the ground that the affidavit filed in support of the petition was not in proper form. In the Supreme Court in the SLP preferred against the aforesaid judgment, the appellant successfully sought remand of the case to the Division Bench for deciding the controversy on the merits. It is for this protracted litigation that the company petition that was filed in the year 1987, has come up for final adjudication after almost six years.

The facts of the case, as incorporated in the petition, reveal that the respondent-company had been purchasing iron and steel items from the petitioner from time to time on credit and supplies were being made to the company as per its specifications for carrying on its manufacturing activities and it had been making payments of the outstanding bills from time to time. However, in the month of August, 1984, the company through its executive director, Shri S. S. Sandhu, placed an order with the petitioner for the supply of iron and steel C. R. coils of the value of Rs. 1,22,000 approximately on the assurance that payment will be made within 15 days of the delivery of the goods. Goods of the value of Rs. 1,22,000 were supplied, vide bill No. 1806, dated August 7, 1984, to the company at Delhi as per its specifications and on receipt thereof a cheque bearing No. 224994, dated August 7, 1984, for Rs. 1,20,000 drawn on Corporation Bank, Greater Kailash, New Delhi, in favour of the petitioner towards part payment of the aforesaid bill was issued, but on presentation, the said cheque was returned by the company''s bankers with the remarks "refer to drawer". The fact aforesaid was brought to the notice of the executive director of the company who expressed regrets for the same and requested the petitioner that if the cheque is represented for payment in the bank, the same would be honoured by the company''s bankers. The cheque was again presented but with the same result. It is pleaded that Shri S. N. Malhotra, partner of the petitioner firm, visited the Delhi office of the company and took up the matter with the said executive director of the company, who explained that the company was facing some financial problems on account of which the outstanding dues of the petitioner could not be paid in time in spite of promises and he assured that he was making sincere efforts to get the dues of the petitioner cleared as soon as possible and in any case not later than December 15, 1984. When even the date aforesaid expired and the dues were not paid, a representative of the petitioner visited the company''s office at- Chandigarh and thereafter it waited for nearly three months for payment and then sent a reminder on March 13, 1985. Legal notice was thereafter served upon the respondent-company on January 18, 1986, wherein the demand for the due amount with interest at the rate of 18 per cent. "per annum was made. A second legal notice was served on July 29, 1986, with the same request. A reply to this notice was received by the petitioner but a dispute was raised asserting that the goods covered by the bill presented by the petitioner were not received by the company as per their records. On the aforesaid averments as also by pleading that numerous other creditors of the company had also not been paid their dues since long and that the company had lost its credibility, the petition giving rise to the present appeal was filed in this court.

The matter was contested by the respondent-company and it was, inter alia, pleaded that the petition was not maintainable as there was a bona fide dispute between the parties and the goods on the basis of which the amount was claimed were never received by it. It was also pleaded that the petition had been filed in collusion with Shri S. S. Sandhu, who was the executive director of the company and had now joined hands with the petitioner to create the liability. The photostat copy of the bill, which was sent to the petitioner in response to the request made by the respondent by letters dated March 10, 1986, and August 30, 1986, it was averred, clearly shows that there was no signature of the recipient of the goods. In the copy, which was produced in the court, however, there were the signatures of Shri K. S. Rupal, who was the liaison officer of the company and it was pleaded that the signatures had been manipulated from 9th to 8th and then from 8th to 7th. It was further pleaded that the cheque on the basis of which claim was being based, was signed by Shri S. S. Sandhu, who issued the cheque on August 7, 1984, which was presented to the bank for encashment on August 25, 1984, and that Shri S. S. Sandhu had no authority to issue the cheque all by himself as, vide resolution dated August 24, 1986, the cheque could only be issued under the joint signatures of the executive director and Shri S. S. Bhalla, resident manager. The cheque that was issued was stated to be of no legal validity. It was further pleaded that Shri Sandhu had issued the same with a view to harm the interest of the company. It was also pleaded that the cheque was pre-dated.

The petitioner filed a rejoinder to the written statement and by controverting the allegations made therein, an endeavour was made to show that there was no bona fide dispute involved and in fact frivolous objections were being raised to make it look as though there was some genuine dispute which may require adjudication by the civil court. It was pleaded that the goods covered by bill dated August 7, 1984, were duly received by the company at its Delhi office and despatched through Eagle Roadways, New Delhi, to the company''s factory at Mohali and the same were utilised by the company in its manufacturing activities and the amount was duly reflected in the books of account. The plea of joint signatures, as raised in the, written statement, was stated to be imaginary as Mr. Sandhu had full authority to operate upon the bank account of the company as on enquiry the petitioner came to know that the bank had been honouring the cheques signed by the said Shri Sandhu. From the pleadings of the parties, as noticed above, the learned single judge came to the conclusion that the allegations made in the petition could be proved only by leading positive evidence and the same could be done only in civil suit. It was further held that the respondent-company had prima facie established that the debt is bona fide disputed by it.

After going through the pleadings of the parties, as also the judgment impugned in the present appeal, we are of the opinion that there is no merit in any of the contentions raised by the appellant. The duplicate copy of the bill, which has been placed on the record of the case showing receipt of the goods, admittedly does not bear the signature of Shri K. S. Rupal. It is the aforesaid officer of the company who is said to have signed the original bill dated August 7, 1984. Further, the photo copy of the cheque issued covering the price of the goods which was dishonoured is signed only by Shri S. S. Sandhu, executive director of the company. As noticed above, the positive plea of the respondent-company is that Shri Sandhu was not authorised to issue the cheques for and on behalf of the company. No evidence has been brought on record by the petitioner to show that Shri Sandhu was actually competent to issue the cheque for and on behalf of the company. It was not difficult for it to have obtained a certificate from the bank which might have honoured the cheque issued for and on behalf of the company by Shri Sandhu. The Supreme Court in Amalgamated Commercial Traders (P) Ltd. v. Krishnaswami (A. C, K.) [1965] 55 Comp Cas 456 held (pages 463-464) :

"... 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... If the debt was bona 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."

The appellant, however, relies upon Madhusudan Gordhandas and Co. Vs. Madhu Wollen Industries Pvt. Ltd., and Indian Duplicator Co. Ltd. v. V. P. I. Electronics and Engineerings Ltd. [1991] 71 Comp Cas 589 to contend that only where the debt is disputed on substantial grounds, the winding up petition should be dismissed and inasmuch as there was no substantial ground projected in the present case, the appellant should not have been asked to knock at the door of the civil court. There is no dispute with the proposition of law that is enunciated in the two judgments aforesaid nor in fact does the respondent-company wish to canvass a different view than the one reflected therein but the main question is as to whether the dispute in the present case is substantial or frivolous and a flimsy one simply with a view to raise a dispute. The pleadings of the parties have been noticed above and the same would demonstrate a bona fide and substantial dispute which can be settled only by adducing evidence before the civil court.

Finding no merit in this appeal, we dismiss the same with no order as to costs.