Meenakshi Paper Mills (P) Ltd. vs Sattarsons Packaging (P) Ltd.

A. Gopal Reddy, J.—This petition is filed u/s 433 (e) and (f), and 439 of the Companies Act, 1956, read with Rule 95 of the Companies (Court) Rules, 1959, for winding up of the respondent-company -- Sattarsons Packaging Private Limited, S.D. Road, Secunderabad.

Briefly, the facts stated in the company petition are that the petitioner -- Meenakshi Paper Mills Private Limited, Hyderabad, is a manufacturer of paper of various varieties. In the course of business, the respondent had placed orders for the supply of paper from the petitioner from time to time and the petitioner was supplying the same since March, 1997. In the present case, the petitioner supplied thirty three (33) consignments of paper pursuant to various invoices between 3.7.1998 and 24.9.1998 ; and the total value of the supplies made was Rs. 15,68,6001.00. The copies of the invoices and the copies of the weighment sheets were filed as Annexure-A, as proof of receipt of material. In or about October, 1998, the respondent had indicated that in kraft paper reels, there was excess moisture. The petitioner had stated that in the supplies to be made in future, care would be taken and that the petitioner would supply natural shades of paper. The petitioner had also requested the respondent to release the balance payment immediately. The respondent had issued eighteen (18) cheques for an aggregated value of Rs. 8,15,670.00, which are detailed in para 8 of the company petition. The cheques from 9.10.1998 to 16.12.1998 for various amounts were drawn on Bank of Baroda, Secunderabad Branch. The petitioner presented the cheques to its bankers when they fell due, but the cheques were dishonoured by the respondent''s bank on the ground that the respondent had directed the bank to stop payment. The statement showing the various cheques, the dates they were drawn, the amount they covered, the details of presentation and their return were also filed as Annexure-B. The petitioner caused service of a legal notice on the respondent on 3.11.1998 u/s 138 of Negotiable Instruments Act and also got issued various other sets of notices to the respondent complaining about dishonour of cheques ; and the copies of notices and corresponding cheques with inter-bank memos are also enclosed along with company petition. The petitioner sent a notice dated 3.11.1998 u/s 434 of the Act specifically mentioning that the respondent owed the petitioner a sum of Rs. 15,68,600.00 together with interest (c) 30% per annum and differential tax @ 8% in view of the failure on the part of the respondent to furnish ''G'' Forms under the Andhra Pradesh General Sales Tax Act, 1957, which aggregated to Rs. 17,37,100,00. The respondent sent a reply dated 21.11.1998 making a false plea for a claim of damages for a sum of Rs. 10,50,000.00. The respondent never before raised the question of quality of the paper supplied by the petitioner. Along with the reply, the respondent also enclosed a bankers cheque for a sum of Rs. 5,18,700.00, which has been duly encashed by the petitioner without prejudice to the claim of the petitioner. Hence the present petition is filed by the petitioner for payment of a sum of Rs. 10,73,575.00 together with interest @ 30% per annum and differential tax @ 8% per annum in view of the default of non-furnishing of ''G'' Forms. The details of the interest computation and the liability to differential tax for non-supply of ''G'' Forms are enclosed to the company petition as Annexure E. The petitioner further averred that the defence of the respondent is mala fide and concocted for the purpose of the case, which is a belated attempt to raise a false defence ; and even the quantification of the alleged claim has not been indicated and the claim for damages is only an afterthought. For the notice issued u/s 434 of the Act, there is a refusal and neglect to pay the debt and the reasons, therefore, are not bona fide. Once there is no dispute about the quantity of goods supplied or their value, the respondent is bound to pay the amount due. Non-payment of the amount due by the respondent can be presumed as it is not in a position to meet its debt obligations as and when they arise and has become commercially insolvent. The respondent company has also lost its substratum and it is reliably learnt that the respondent company owes large amounts of money to various creditors.

In answer to the show cause notice, the respondent company filed its counter admitting that the petitioner is a manufacturer of paper and denied the placement of orders for supply of paper from the petitioner by the respondent. The respondent had stated that the petitioner themselves approached the respondent representing that they are manufacturers of quality paper, which the respondent use for manufacturing ''corrugated boxes'' and as such, the respondent has placed orders commencing from the month of March, 1998. As per the terms, the petitioner used to supply the papers by receiving the post-dated cheques approximately for more than 90 days from the date of supply. The respondent admitted about the supplies made by the petitioner under various consignments from 3.7.1998 to 24.9.1998 and the total value of the supplies made by the petitioner is Rs. 15,68,600.00 and also admitted about the receipt of the consignments. The respondent also admitted that they had informed the petitioner about the excess moisture affecting the quality of the ''corrugated boxes'' manufactured by the respondent, orally, in the month of August, 1998, regarding supply of paper made by the petitioner from July, 1998. The respondent denied the demand of the petitioner for release of the balance payment immediately. But the petitioner, without settling the dispute regarding the quality of paper supplied, has sought payment ; even the petitioner had orally promised to settle the matter. The respondent further stated that the eighteen (18) post-dated cheques for an aggregate value of Rs. 8,15,670.00 were given to the petitioner towards the discharge of the debt, but it is submitted, that the petitioner was supplying the material by receiving the post-dated cheques giving more than 90 days time. The said time was granted so that the quality of the paper can be checked and satisfied and only after the same is done, the amounts become due for payment. The respondent, by letter, dated 3.10.1998 has specifically requested the petitioner to settle the dispute and not to present the cheques until the matter is settled. The petitioner did not present the cheques until the end of October/1998. But for the reasons best known to the petitioner, it presented the cheques and started issuing notices, including the notice u/s 138 of the Negotiable Instruments Act, which are suitably replied by the respondent. It is also admitted about the receipt of notice u/s 434 of the Act, but the same was replied and admitted liability of a sum of Rs. 5,18,700.00 was paid along with reply notice. The respondent submits that the balance amount was adjusted towards the damages ; and it is submitted that the alleged balance amount cannot be termed as debt and the petitioner knowing fully well about the bad/defective quality of paper supplied has got issued the notice to compel the respondent to pay the amounts. The ''corrugated boxes'' manufactured by the respondent and supplied during the period from July to September, 1998, 99.9% of them have been rejected by the respondent''s customers ; and the rating of the respondent''s company had been reduced affecting the future orders. As the respondent is supplying the ''corrugated boxes'' to the reputed national and multi-national companies since 35 years and due to defective paper supply, their entire reputation has gone down. Inspite of a written complaint made on 3.10.1998 whereby the respondent suspended for supply of future consignments and requested the petitioner to settle the said dispute at the earliest, but the petitioner gave a vague reply dated 23.10.1998 without making any assurances to settle the matter.

M/s Asian Paints had rejected the consignment of the respondent on 29.9.1998 and immediately the respondent vide their letter, dated 3.10.1998 intimated the petitioner about the defective quality of paper supplied, for which the petitioner has orally promised to settle the matter amicably. After giving vague reply on 23.10.1998, the petitioner started presenting the post-dated cheques and got issued the notice u/s 138 of the Negotiable Instruments Act. The respondent also denied the allegation that the respondent is not in a position to meet its debt obligation as and when they arise and has become commercially insolvent and has lost its substratum and owes various sums to its creditors. The respondent further averred that they have filed a civil suit for a direction to the petitioner to return the post-dated cheques in O.S. No. 391 of 1998 on the file of learned Ill-Senior Civil Judge, City Civil Court, Secunderabad. The petitioner was also served with summons and thereafter, this company petition is filed as a counter blast.

Learned counsel for the petitioner submits that the petitioner supplied thirty three (33) consignments of paper to the respondent pursuant to various invoices between 3.7.1998 and 24.9.1998 which are filed ; and only in a few weighment sheets, the respondent noted that the ''shade (is) not up to our specifications. Next time if same shade is sent, it will be rejected''. In one or two weighment sheets, it is mentioned about the less weight of the paper supplied. Except that no other defects were pointed out by the respondent. When the cheques were presented, the respondent ha? raised a false plea about the return of goods supplied by the respondent to their various customers without giving any particulars. Admittedly, once the goods are received and the value is not disputed, the respondent is due to pay the said sum and they cannot stop payment, that when the cheques were presented, the same were dishonoured by the respondent''s banker on the instructions sent by the respondent. Therefore, the respondent is unable to discharge the debt due to the petitioner and has become commercially insolvent and it is a fit case where the case has to be admitted and winding up proceedings should be ordered.

In support of his contention, he relied upon the decision of a Division Bench of the Delhi High Court in Chem-Crown India Ltd. v. Sports Equipment (P) Ltd. (1996) 1 Comp LJ 230 (Del).

On the other hand, learned counsel for the respondent, Mr. Vedula Venkataramana, contended that the supply of material is a running transaction and as and when the goods are received, the respondent used to issue post-dated cheques, which will be payable after ninety (90) days from the date of receipt of goods. During the said period, the respondent can assess the quality of paper and manufacture the ''corrugated boxes'' for which the petitioner agreed. The first cheque which was payable on 9.10.1998 ; and well before the due date, the respondent sent a letter on 3.10.1998 calling upon the petitioner to settle the matter taking into account the damage suffered by the respondent ; and also suspended the future dealings and also requested not to present the post-dated cheques. The petitioner has suppressed the above fact in the company petition. Inability to pay has to be segregated from short payment. In the present case, the respondent has immediately, after receipt of the notice, paid the admitted amount of Rs. 5,18,700.00, and it cannot be said that the respondent is unable to pay its debts and has become commercially insolvent and lost is substratum. On all the dates, when the cheques were due, the respondent is having sufficient amounts to meet the liability and the statement of account also was'' enclosed to the reply to establish that the respondent is having sufficient funds to their credit and, therefore, it is not a case for admission and for ordering the winding up of the respondent company. Apart from the same, the respondent filed a suit before the learned III-Senior Civil Judge, City Civil Court, Secunderabad, being O.S. No.391 of 1998, seeking a direction to the petitioner for return of post-dated cheques. Having appeared in the said suit, the petitioner filed the present petition as a counter blast and the same is liable to be dismissed.

In support of his case, he relied upon the judgment of the Supreme Court in Amalgamated Commercial Traders (P.) Ltd. Vs. A.C.K. Krishnaswami and Another, . In view of the rival contentions, the question that falls for consideration is whether the petitioner can seek the winding up of the respondent company under Sections 433(e) and (f), 439 of the Act, read with Rule 95 of the Companies (Court) Rules on the ground that the respondent company is unable to pay its debts and has become commercially insolvent and has lost its substratum.

Admittedly, in the present case, the cheques fell due only from 9.10.1998. The petitioner also has not denied the fact of issuing notice, dated 3.10.1998 by the respondent in which the petitioner was informed about the rejection of consignments by the respondent''s customers for defective quality of paper used in manufacturing of ''corrugated boxes''; and letter of the party was also shown to the petitioner, for which, the petitioner has accepted the defects. The respondent also requested the petitioner to sort out the issue taking into account the damage suffered by the respondent, and till then, not to present the post-dated cheques handed over to the petitioner. The petitioner also by their letter, dated 23.10.1998 assured the respondent that they will maintain the moisture percentage as per their specification and supply the natural shade as desired by the respondent and requested to release the balance payment immediately. The petitioner also in their reply admitted about the filing of civil suit by the respondent seeking directions to the petitioner to return the post-dated cheques. The petitioner denied various other allegations mentioned in the counter with regard to the defective quality of paper supplied by the petitioner and the loss suffered by the respondent. In the case of Chem-Crown India Ltd. v. Sports Equipment (P) Ltd. (1996) 1 Comp LJ 230 (Del), his Lordship, Justice M. Jagannadha Rao, as he then was, considered the fact about the sale of goods ; complaints raised after the adhesives were consumed in the manufacture and the shoes were sold to the retailers and other customers. On those facts, it was held that the amount was admitted, but no bona fide dispute raised with regard to the quality of goods. Hence a case for admission of the company petition was made out. In the above case, it was found that the appellant supplied adhesives for nearly three years four months which were accepted by the respondent and utilised the same in manufacture of shoes and the shoes were also sold to the retailers and other customers, who in turn sold to the customers. Each bill raised by the appellant contained a clause ''our responsibility for the goods ceases after the same leaves our premises''. The respondent had not made any arrangement for inspection of the quality of goods before they left the company of the appellant, but received the goods without objection and the goods were consumed and sold without any demur ; and part payments were also made.

But in the present case, even before the demand started, the respondent made their claim and pointed out the defects and requested the petitioner to settle the matter and, in fact, the petitioner in their letter dated 23.10.1998 requested only to release the balance payment. What is the balance amount is also not mentioned, nor is it mentioned to release the entire payment due under the invoices. In the absence of the same, it cannot be said that the respondent agreed to release the payment due by them to the petitioner at any point of time. In view of the same, the facts in the present case are different with the facts in the case of Chem-Crown India Ltd., supra. Hence the principles laid down in that case are not applicable to the facts of this case.

Another significant factor in the present case is that the respondent not only requested the petitioner not to present the post-dated cheques until the matter is settled amicably, but also filed a suit before the learned III-Senior Civil Judge, City Civil Court, Secunderabad, for damages and for return of cheques handed over to the petitioner, much earlier to the filing of the company petition ; and the petitioner having appeared in the said suit, filed the present company petition for winding up of the respondent company as a counter blast.

The apex court in Amalgamated Commercial Traders (P.) Ltd. Vs. A.C.K. Krishnaswami and Another, held as follows :

"... 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 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 reasons 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." (Vide Buckley on the Companies Acts, 13th Edition, page 451).

The apex court in Madhusudan Gordhandas and Co. Vs. Madhu Wollen Industries Pvt. Ltd., held as follows :

"If the disputed is bona fide dispute and the defence is a substantial one, the court will not order for winding up the company. The principles on which the court acts are, first, that the defence of the company is in good faith and one of substance. Secondly, the defence is likely to succeed in point of law and, thirdly, the company adduces prima facie proof of the facts on which the defence depends."

In the present case, admittedly, on issuing notice u/s 434 of the Act by the petitioner, the respondent, along with their reply, paid the balance amount of Rs. 5,18,700.00 to the petitioner and for the balance, they have filed a civil suit for damages and for return of the post-dated cheques issued by the respondent company in favour of the petitioner justifying the amounts withheld and the present petition is filed only after filing the civil suit by the respondent cannot be said to be a bona fide one, and the company petition is liable to be dismissed. Apart from the same, the respondent company also established the fact by filing the statement of account obtained from its banker which establishes that the amounts were lying to the credit of the respondent''s account to discharge the amount due under cheques issued under various dates of the relevant dates. When that is the case, it cannot be said that the substratum of the company disappeared, and there is no possibility of the respondent company doing any business on profits and the respondent company has become insolvent. I am not prepared to accept the said contention raised by the petitioner and the same is rejected and the company petition is liable to be dismissed and it is accordingly dismissed. No costs.