M/s Munshiram Trading Company Private Ltd vs Harshit Power & Ispat Private Limited

Heard Mr. Jitendra Kumar Pasari, learned counsel appearing on behalf of the petitioner.

Heard Mr. Nitin Kumar Pasari, learned counsel appearing on behalf of the respondent along with Ms. Siddhi Jalan, Advocate.

This petition has been filed for winding up of the respondent company with a further prayer that the official liquidator be appointed and be directed

to take immediate possession of the properties of the respondent company. A prayer has also been made seeking a direction upon the respondent

company to pay an amount of Rs. 50 lacs towards the short term loan advanced to the respondent company out of the company’s assets.

The petitioner has also prayed for cost incidental to the present application. The petitioner has filed its Board’s Resolution dated 09.08.2012

authorising one of its director to move winding up petition against the respondent company under applicable provisions of the Companies Act, 1956 and

to do necessary action or omission and to sign Vakalatnama on behalf of the petitioner company for recovery of alleged loan of Rs. 50,00,000/- given

by the petitioner-company to the respondent-company.

Counsel for the petitioner submits that on the basis of past cordial relationship, and on the request of the directors of the respondent company, a

short term loan of Rs. 50 lacs for three months was given vide cheque dated 26.04.2010 with interest @ 1.35 % and the interest was to be paid in

advance. Learned counsel has submitted that the aforesaid cheque dated 26.04.2010 was issued in the name of respondent company which was also

credited in the account of the respondent company and on the very next date, the entire amount was utilized by the respondent company for payment

to its debtors. Learned counsel has also submitted that as per the Auditor’s report of the petitioner company, at Schedule IV, under the heading

Loan and advance, name of the respondent company is reflected. He further submits that for the period 29.04.2010 to 27.07.2010 interest was paid

after deduction of tax at source. The cheque was credited in the account on 29.04.2010 and was utilized by the respondent company on the very same

day i.e. 29.04.2010 itself by making payment to one Indian Trading Company.

Learned counsel for the petitioner by referring to aforesaid facts submits that there can be no dispute that the loan was advanced to the respondent

company. He further submits that on expiry of the initial period of three months, the respondent company regretted for its inability to clear the loan and

requested for further extension of time for another period of three months. The respondent company also paid an interest for the said period by RTGS

(electronic transfer) on 27.07.2010 after deduction of TDS. He submits that in spite of several reminders, the respondent company did not provide the

necessary tax deduction certificate which resulted in further liability on the petitioner company which they have to pay to the Income Tax Department.

He submits that after several reminders and delay, the respondent company issued a cheque dated 12.12.2011 for an amount of Rs. 50 lacs and the

said cheque upon presentation stood dishonoured on 18.04.2012 by indicating “sign differsâ€. Learned counsel submits that on account of the

aforesaid dishonour of cheque, a notice for bouncing of cheque was issued by the petitioner company to the respondent company vide notice dated

01.05.2012 and a criminal case in that connection is also pending. Learned counsel submits that considering the fact that the cheque was dishonoured,

the petitioner gave a notice dated 30.06.2012 under Sections 433,434,435 and other provisions of Companies Act mentioning therein that the same may

be treated as a notice under Section 434 of Companies Act 1956 and that the respondent company is required to pay a sum of Rs. 50 lacs within 3

weeks of the receipt of the notice failing which a winding up petition will be made as per the provisions of Section 435 and other applicable provisions

of Companies Act, 1956 at the cost, risk and expenses of the respondent company.

During the course of argument, a specific query was put to the learned counsel for the petitioner company as to whether there is any

communication with the respondent company in connection with the extension period of three months for clearing the loan and as to whether there is

any oral, telephonic and written reminders for claiming Rs. 50 lacs from the respondent company. He answered the same by stating that this fact has

been mentioned in the notice for winding up, but the communication etc. are not on record. Learned counsel has also brought to the notice of this court

a letter dated 20.04.2010 issued by the then Director of the respondent company, namely, Satish Agarwala to submit that the said person under his

stamp, showing himself as a director of the respondent company, in the letter head of the respondent company, made a request on behalf of the

respondent company to give short term loan of Rs. 50 lacs. Learned counsel further submits that it has been mentioned in this letter that the same was

being issued on behalf of the company and said Satish Agarwala was making a request to the petitioner company to provide a short term loan of Rs.

50 lacs for operational activity of their business for 3 months and the rate of interest was mentioned at 1.35% per month which in turn was based on

discussion held. This letter is addressed to the Director of the petitioner company. Learned counsel during the course of argument has fairly submitted

that there is no Board resolution of the respondent company for the purposes of taking loan of Rs. 50 lacs from the petitioner company. However he

submits that the aforesaid letter dated 20.04.2010 is annexed as Annexure-A to the rejoinder filed by the petitioner company, from which it is clear

that the loan was provided to the respondent company at the request of respondent company as this letter was signed by one of the Directors of the

respondent company with a clear mention that the request for loan was made on behalf of the respondent company. Learned counsel has also

submitted that statement of account was called for by this court directly from the State Bank of India which has been sent by the State Bank of India

and is available on record. He submits that there can be no doubt that the amount of Rs. 50 lacs was credited in the account of the respondent

company and was utilized from the account of the respondent company. The learned counsel submits that as per the provisions of Sections 433 and

434 of the Companies Act, a company is liable to be wound up if the company is unable to pay its debt and as per the provisions of Section 434, it has

been clearly provided that the company, shall be deemed to be unable to pay its debt, if the creditor has served on the company, by causing it to be

delivered at its registered office, by registered post or otherwise, a demand under his hand, requiring to pay the sum so due and the company has

neglected to pay the sum for three weeks, or compounded it to the reasonable satisfaction of the creditor. He submits that in view of the legal fiction

which has been mentioned under Section 434 of the Companies Act, 1956 the present respondent company having not paid the amount in spite of

service of notice, it has to be deemed that the present respondent is unable to pay its debt and accordingly the respondent company is liable to be

wound up on account of non-payment of debt.

The learned counsel for the respondent company on the other hand submits that the short term loan was taken by Satish Agarwala, the Ex-Director

of the respondent company and the money was routed through the respondent company and the same amount was never reflected in the books of

accounts/audited balance sheet of the respondent company. Learned counsel submits that in response to the legal notice which was issued by the

petitioner company for bouncing of cheque which is dated 01.05.2012 as contained in Annexure-R/1, the respondent company had given a reply

clearly indicating that the respondent company has never taken any resolution for the purposes of taking loan from the petitioner company and both

Vishwanth Agarwal and Satish Agarwala had resigned from the directorship of the respondent company on 12.09.2011 and thereafter one Amit

Sarawagi had joined as a director of the respondent company on 22.09.2011. Learned counsel for the respondent company submits that the cheque for

return of money dated 12.12.2011 was issued after Satish Agarwala had resigned from the directorship of the respondent company and therefore the

said issuance of cheque cannot be said to be made by the respondent company. Learned counsel has also submitted that there is no document, much

less any evidence of any agreement having been entered into between two registered companies in connection with any loan and it has also been

mentioned that Satish Agarwala (Ex-director of the respondent company) is the son of Vishwanath Agarwala and close relatives of the directors of

the petitioner company. Learned counsel has also referred to the audited balance sheet of the respondent company for the year ending 31.03.2011 and

31.03.2012 and submits that there is no whisper of carry forward of any loan or advances from the petitioner company. Learned counsel for the

respondent company further submits the very fact that admittedly there was no resolution of the respondent company for taking loan, therefore the

payment made by the petitioner company at the request of the then director of the respondent company namely Satish Agarwala, even if cheque is

issued in the name of respondent company, cannot be said to be a loan to the respondent company. Rather the account of the respondent company

was misused by Satish Agarwala to get the amount of Rs. 50 lacs routed through account of respondent company for his own gains and benefits. In

sum and substance learned counsel for the respondent company has totally denied the loan by the petitioner company to the respondent company.

Learned counsel has further submitted that there can be no dispute that winding up petitions are not meant for recovery of money and same cannot be

treated as money suit. He also submits that resolution of the petitioner company indicates that the present petition has been filed for recovery of

money of Rs. 50 lacs which is highly disputed and it cannot be said to be a debt as there is no determination of the payable amount which is being

disputed by the respondent company. Counsel for the respondent company also submits that the parties are in litigating terms and criminal cases are

also pending from both the sides. Counsel has relied upon a judgment passed by the Hon’ble Supreme Court which is reported in (2005) 7 SCC 42

(Mediquip Systems (P) Ltd. vs. Proxima Medical System GMBH) para 21 to 25 and also judgment reported in (2019) SCC Online SC 1254 (Jignesh

Shah and Another vs. Union of India and Another) para 33 and 36.

Learned counsel for the petitioner company in response, submits that the aforesaid judgments do not apply to the facts and circumstances of this

case in as much as the judgment passed by the Hon’ble Supreme Court reported in (2005) 7 SCC 42 was arising out of tender matter and in the

subsequent judgment i.e. (2019) SCC Online SC 1254 only issue which was decided was regarding the point of limitation in filing the winding up

petitions and the same was initially decided by the National Company Law Tribunal (Mumbai Branch).

After hearing counsel for the parties and after considering the facts and circumstances of this case this court finds that admittedly there is no

resolution from the side of the respondent company for taking a loan from the petitioner company and the entire case of the petitioner company is

based on the letter issued to one of the directors of the respondent company who claimed to have represented the respondent company for the

purposes of taking loan from the petitioner company. This court also finds that the amount which was certainly credited in the bank account of the

respondent company i.e. an amount of Rs. 50 lacs was immediately used on the very same day and was credited in the name of a third party.

This court finds that the respondent has raised serious dispute in connection with the alleged debt and has made allegations against Satish

Agarwala stating that the account of the company was utilised by Satish Agarwala for the purposes of routing said money which was allegedly taken

from the petitioner company in his individual capacity. This court is also of the view that the petitioner company ought to have been careful enough to

ensure that there is a Board resolution for the respondent company for the purposes of taking loan and in absence of such board resolution, the dispute

raised by the respondent company appears to be bonafide. The learned counsel has also referred to the liquidity status of the respondent company, the

balance sheet itself indicates that financial position of the respondent company was sound. In 2010 closure, it was Rs. 26,13,58,653/- and in 2011

closure, it was Rs. 36,13,91,103/-. From perusal of the judgment which has been relied upon by respondents and decided by the Hon’ble Supreme

Court reported in (2005)7 SCC42 and in (2019) SCC Online SC 1254, it is well settled that winding up petition is not legitimate means of seeking to

enforce payment of a debt which is bonafide disputed by the respondent company. The Hon’ble Supreme Court has approved the view taken by

Hon’ble Bombay High Court in the case of Softsale (P) Ltd. Re [1977 47 Comp Case 438(Bom)]. The reliance placed by the learned counsel

appearing in the said case before the Hon’ble Supreme Court has been recorded in para 36 and the approval of the view taken by Hon’ble

Bombay High Court has been recorded in para 37. Para 36 and 37 of the aforesaid judgment reported in (2019) SCC Online 1254 are quoted as under

for ready reference-

Shri Kaul then relied upon Mediquip Systems (P) Ltd. v. Proxima Medical System GMBH,(2005) 7 SCC 42 and in particular,

paragraphs 18 and 23 thereof, which state as follows:

“18. This Court in a catena of decisions has held that an order under Section 433(e) of the Companies Act is discretionary. There must

be a debt due and the company must be unable to pay the same. A debt under this section must be a determined or a definite sum of money

payable immediately or at a future date and that the inability referred to in the expression “unable to pay its debts†in Section 433(e) of

the Companies Act should be taken in the commercial sense and that the machinery for winding up will not be allowed to be utilised merely

as a means for realising debts due from a company.

xxx xxx xxx

The Bombay High Court has laid down the following principles in Softsule (P) Ltd., Re[(1977) 47 Comp Case 438 (Bom)] : (Comp Cas

pp. 443-44)

Firstly, it is well settled that a winding-up petition is not legitimate means of seeking to enforce payment of a debt which is bona fide

disputed by the company. If the debt is not disputed on some substantial ground, the court/Tribunal may decide it on the petition and make

the order.

Secondly, if the debt is bona fide 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.

Thirdly, a debt about the liability to pay which at the time of the service of the insolvency notice, there is a bona fide dispute, is not

“due†within the meaning of Section 434(1)(a) and non-payment of the amount of such a bona fide disputed debt cannot be termed as

“neglect to payâ€​ the same so as to incur the liability under Section 433(e) read with Section 434(1)(a) of the Companies Act, 1956.

Fourthly, one of the considerations in order to determine whether the company is able to pay its debts or not is whether the company is able

to meet its liabilities as and when they accrue due. Whether it is commercially solvent means that the company should be in a position to meet

its liabilities as and when they arise.

The Bombay High Court judgment referred to in paragraph 23 of the judgment above states the law on winding up petitions filed under

Section 433(a) of the Companies Act, 1956 correctly. The primary test is set out in paragraph 1, which is that a winding up petition is not a

legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the Company. Absent such dispute, the petition may

be admitted. Equally, where the debt is bona fide disputed, there cannot be ‘neglect to pay’ within the meaning of Section 434(1)(a)

of the Companies Act, 1956 so that the deeming provision then does not come into play. Also, the moment there is a bona fide dispute, the

debt is then not ‘due’. The High Court also correctly appreciates that whether the company is commercially solvent is one of the

considerations in order to determine whether the company is able to pay its debts or not.

Paragraph 21 to 25 of the judgment reported in (2005) 7 SCC 42 (Mediquip Systems (P) Ltd. vs. Proxima Medical System GMBH) reads as

under:-

“21. The debt under Section 433 of the Companies Act must be a determined or a definite sum of money payable immediately or at a

future date. We are informed that the financial position of the appellant is sound.

This apart, both, the learned Single Judge and the Judges of the Division Bench have granted interim relief which can be granted only

in aid of, and as ancillary to the main relief which may be available to the party on final determination of its rights in a suit or proceeding.

The Bombay High Court has laid down the following principles in Softsule (P) Ltd., Re1: (Comp Cas pp. 443-44)

Firstly, it is well settled that a winding-up petition is not legitimate means of seeking to enforce payment of a debt which is bona fide

disputed by the company. If the debt is not disputed on some substantial ground, the court/Tribunal may decide it on the petition and make

the order.

Secondly, if the debt is bona fide 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.

Thirdly, a debt about the liability to pay which at the time of the service of the insolvency notice, there is a bona fide dispute, is not

“due†within the meaning of Section 434(1)(a) and non-payment of the amount of such a bona fide disputed debt cannot be termed as

“neglect to payâ€​ the same so as to incur the liability under Section 433(e) read with Section 434(1)(a) of the Companies Act, 1956.

Fourthly, one of the considerations in order to determine whether the company is able to pay its debts or not is whether the company is able

to meet its liabilities as and when they accrue due. Whether it is commercially solvent means that the company should be in a position to meet

its liabilities as and when they arise.

The Madras High Court in Tube Investments of India Ltd. v. Rim and Accessories (P) Ltd., Comp LJ at p. 326 has evolved the following

principles relating to bona fide disputes:

(i) if there is a dispute as regards the payment of the sum towards the principal, however small that sum may be, a petition for winding up is

not maintainable and the necessary forum for determination of such a dispute existing between parties is a civil court;

(ii) the existence of a dispute with regard to payment of interest cannot at all be construed as existence of a bona fide dispute relegating the

parties to a civil court and in such an eventuality, the Company Court itself is competent to decide such a dispute in the winding-up

proceedings; and

(iii) if there is no bona fide dispute with regard to the sum payable towards the principal, it is open to the creditor to resort to both the

remedies of filing a civil suit as well as filing a petition for winding up of the company.

The rules as regards the disposal of winding-up petition based on disputed claims are thus stated by this Court in Madhusudan

Gordhandas & Co. v. Madhu Woollen Industries (P) Ltd. This Court has held that if the debt is bona fide disputed and the defence is a

substantial one, the court will not wind up the company. The principles on which the court acts are:

(i) that the defence of the company is in good faith and one of substance;

(ii) the defence is likely to succeed in point of law; and

(iii) the company adduces prima facie proof of the facts on which the defence depends.â€​

This court further finds that so far as return of the amount by way of cheque is concerned the same was issued under the signature of Satish

Agarwala who had admittedly retired from the respondent company on the date of issuance of the cheque which became a cause of action for giving

notice under the companies Act for winding up of respondent company. Counsel for the petitioner has relied upon a communication issued by Satish

Agarwala which is interalia addressed to the petitioner company and has submitted that Satish Agarwala has given in writing that he did not take loan

in his individual capacity. This court is of the considered view that whether Satish Agarwala had taken loan in his individual capacity or not is itself a

disputed question of fact which cannot be decided in this winding up proceedings.

Considering the facts and circumstances of this case, this court is of the considered view that so called debt which is claimed by the petitioner

company is highly disputed and its non-payment cannot be a ground for winding up of the respondent company. This court is also of the considered

view that considering the prayer made by the petitioner company asking for recovery of Rs. 50 lacs, the winding up petition cannot be converted into a

money suit for the purposes of realization of the amount. There being bonafide dispute in connection with the amount claimed by the petitioner

company, no case for winding up of the respondent company is made out by the petitioner company. Accordingly, this petition is dismissed.