Nagarjuna Constructions Co. Ltd. vs Sharat Industries Ltd.

A. Gopal Reddy, J.—This company petition is filed for winding up of the respondent-company i.e., Sharat Industries Limited, previously known as M/s. Sharat Sea Foods Limited under Sections 433(e), (f) and 439 of the Companies Act, 1956 (for short "the Act") read with rule 95 of the Companies (Court) Rules, 1959.

According to the petitioner-company, the respondent-company was incorporated under the Act with an authorised share capital of Rs. 3 crores and the paid-up share capital was Rs. 5,77,62,200 divided into 57,76,220 shares of Rs. 10 each. The petitioner-company was awarded civil works of a 100 per cent. EOU integrated shrimp project at Venkannapalem village, Nellore District. The respondent-company issued a LOI on January 11, 1994, and the petitioner completed the civil works entrusted to it by the respondent-company. A meeting was convened on August 18, 1995, at the corporate office of the respondent-company and the respondent agreed and acknowledged an amount of Rs. 100 lakhs. The minutes of the meeting dated August 18, 1995, were also filed as annexure B and all the participants appended their signatures to the minutes of the meeting. Pursuant to the minutes of the meeting, 13 post-dated cheques were issued instead of four cheques issued earlier. When the petitioner-company submitted a cheque bearing No. 0524421, dated January 25, 1996, for realisation at SBI, Kilpauk Branch, Chennai, the same was returned with the endorsement "insufficient funds". Similarly all the thirteen cheques presented were returned with the same endorsement. The petitioner-comany after receiving intimations from its bank about the dishonour of the cheques, served legal notices u/s 138 of the Negotiable Instruments Act on February 6, 1996, March 2, 1996, March 19, 1996, April 3, 1996 and April 11, 1996, calling upon the respondent-company to pay the amount mentioned in the said notices. The respondent-company though received notices failed to comply with the demand of the petitioner. The petitioner-company submits that the respondent-company has to pay Rs. 100 lakhs with interest agreed thereon at 18 per cent, per annum from August 18, 1995, which comes to Rs. 1,64,09,720. As the respondent-company failed to honour the cheques, the petitioner-company filed a complaint before the Second Metropolitan Magistrate, Egmore, Chennai, and a civil suit before the District Judge, Nellore, for recovery of Rs. 1,72,56,788 and the complaint and civil suit are pending before the respective courts. The petitioner issued a statutory legal notice on July 18, 1998, to the respondent-company u/s 434 of the Act calling" upon it to pay Rs. 100 lakhs along with interest from August 18, 1995, within 21 days from the receipt of the said notice. The said notice was received by the respondent on July 23, 1998, and the respondent-company sent a reply on July 18, 1998, with all untenable pleas. Hence, the present petition is filed for winding up of the respondent-company.

In response to the notice, the respondent-company filed a detailed counter which runs into 30 pages. The respondent-company admitted about awarding of the contract to the petitioner-company. It is stated in the counter that it is nowhere stated in the petition or in the affidavit that Sri S.K. Gowes is authorised to file the company petition on behalf of the petitioner-company. On the said ground alone, the petition is liable to be dismissed. It is further stated in the counter that the respondent-company with an intent to set up 100 per cent. EOU Integrated Aqua-culture Project comprising of a shrimp farm, hatchery, feed mill and processing plant called for tenders for execution of civil construction works. In pursuance of the tender submitted by the petitioner, civil contract was awarded to the petitioner-company as per LOI dated January 11, 1994. The value of the said work is Rs. 730 lakhs, and the said work should be completed by June, 1994. The petitioner-company failed to complete the works within the time stipulated. Thereupon, meetings took place between the representatives of the petitioner-company and the respondent-company on August 29, 1994, and August 31, 1994, and the time for completion of work was extended from September 1, 1994, to February 28, 1995, for various categories of works. It was further agreed that 10 per cent, extra amount over and above the bill would be paid to the petitioner if the works are completed as per schedule and if the works are not completed before the time stipulated, the petitioner-company would be liable to pay 10 per cent, of the amount of the bill submitted by it as penalty. The minutes of the meetings were also filed along with the counter as annexure A. The petitioner-company did not complete the work within the time stipulated and stopped execution of works in August, 1995. The respondent-company denied the meeting which is alleged to have been held on August 18, 1995, The said minutes of the meeting was brought into existence by the petitioner-company in collusion with the ex-director Sri. B. Venkatarami Reddy, and Sri Hari Prasad Reddy who used the blank sheet papers which were handed over to him on the representation made by Sri Hari Prasad Reddy that to avoid waste of time and for routine correspondence, he has taken his (deponent) signature on blank sheets. The very fact that all employees are signatories to the meeting except Sri K. L.N. Reddy, Sri Vishweswara Rao, Sri L. Harirama Reddy and Sri Anand, left the respondent-company and joined the petitioner-company in the last week of August and in the month of September, 1995. Sri Hari Prasad Reddy and Sri Y.M. Reddy are presently working as a general manager and deputy general manager in the petitioner-company and Sri Nanda Kishore and Sri T. N. Prasad are working as engineers in the petitioner-company and Sri B. Ven-katarami Reddy who is one of the signatories ceased to be the director with effect from November 30, 1996. With the help of these people the minutes of the meeting were fabricated. Pursuant to the minutes of the meetings dated August 29, 1994, and August 31, 1994, three undated cheques bearing Nos. 404238 to 404240 drawn on Indian Overseas Bank, Shriram Nagar Branch, Madras, for a total sum of Rs. 75 lakhs were issued along with letter dated October 6, 1995. In the said letter, the petitioner-company was specifically requested to present the cheques only after written confirmation from their side. The issuance of three cheques for Rs. 75 lakhs also disproved the case of the petitioner-company that 13 cheques were issued for Rs. 100 lakhs pursuant to the minutes of the meeting dated August 18, 1995. In spite of repeated demands, the petitioner-company did not complete the work and also did not rectify the defects. Therefore, the respondent-company spent a sum of Rs. 14,08,745 towards rectification of collapsed/damaged structures, Rs. 5,26,874 towards rectification of damaged feeder canals, inlets, outlets, etc. and an additional estimated sum of Rs. 88,95,000 has to be spent by the respondent-company towards repairs on reconstruction of larvae building, administrative building, service building, algae building, road work, main feeder and minor feeders, processing plant, feed mill, inlets and outlets, etc. Apart from the same, the petitioner-company is also liable to pay a sum of Rs. 16,56,128 towards excess amount paid to the petitioner-company due to discrepancies in physical quantities relating to feeder canals. The petitioner-company is also liable to pay a sum of Rs. 85,13,253 towards the loss suffered by the respondent-company due to loss of crop consequent to structural collapse of inlets and outlets defective and substandard construction of other buildings. Therefore, the respondent-company got issued a legal notice to the petitioner-company to pay the amount mentioned above within ten days from the date of receipt of the notice. The petitioner-company sent a reply on June 8, 1998, raising unsound and untenable contentions. In view of the reply, the respondent-company was constrained to file a suit O.S. No. 21 of 1998 on the file of the First Additional Chief Civil Judge, Nellore, on July 17, 1998, for recovery of a sum of Rs. 2,10,29,178. Apart from the said amount, the petitioner-company is also due a sum of Rs. 67,00,000 as penalty as per the minutes of the meeting dated August 28, 1994, and August 31, 1994. Pending the above suit, the respondent-company filed I. A. No. 819 of 1998 for appointment of an advocate-commissioner to inspect and submit a report with the help of a technical person with regard to the discrepancies in quantities, estimated costs, rectification of the defects and incomplete structures, etc. The civil court appointed Sri D. Hanumantha Rao, advocate, as commissioner. As a counter blast, the petitioner-company also filed a summary suit in O. S. No. 28 of 1998, on the file of the First Additional Chief Civil Judge, Nellore, on August 13, 1998, for recovery of a sum of Rs. 1,64,09,720 claiming it as a debt due to the petitioner-company. The petitioner-company in the said suit suppressed about the filing of suit by the respondent-company. It is further stated that this company petition is filed with an intention to coerce the respondent-company and recover the amounts which are not legitimately due to it. Reply and additional counter-affidavit are filed in support of the claims made by both parties.

In the reply-affidavit, the petitioner-company tried to explain that the three cheques issued by the respondent-company for a total sum of Rs. 75 lakhs were not encashed due to the condition stipulated not to present them until further instructions. But later after arriving at the final settlement vide minutes dated August 18, 1995, the respondent-company gave 13 cheques for a total sum of Rs. 100 lakhs as due and payable to the petitioner-company and the same were dishonoured.

Sri B.V. Ram Mohan Rao, learned counsel, appearing for the petitioner-company contended that once the respondent-company issued 13 cheques pursuant to the minutes of the meeting dated August 18, 1995, and when the cheques were dishonoured, a notice calling upon them to pay the amount mentioned in the notice and steps were also initiated u/s 138 of the Negotiable Instruments Act, the respondent''s raising dispute is only td get over from the liability incurred by it and the same is not a valid defence, hence the respondent-company is liable to be wound up as it failed to honour the cheques in spite of statutory notice issued u/s 434 of the Act. In support of his contentions, he relied upon the following decisions :

V.K. Jain Vs. Richa Laboratories (P) Ltd., and

Sicon Limited, Bombay Vs. Shree Panduranga Poultries Pvt. Ltd., Hyderabad, .

Shri S. Sriram Reddy, learned counsel appearing for the respondent-company strenuously opposed the company petition by contending that the petitioner suppressed the fact of filing of the suit, namely, 0. S. No. 21 of 1998, on the file of the First Additional Chief Judge, Nellore, in its company petition. In view of the same, the petition is liable to be dismissed for suppression of facts. Apart from the same, the minutes of the meeting dated August 28, 1994, and August 31, 1994, clearly establish that the petitioner-company has not completed the works as per the time schedule. In response to the notice issued by the respondent-company dated June 1, 1998, the petitioner-company sent a reply notice dated June 8, 1998, wherein, it is stated that the petitioner-company commenced the work on the project as per the specifications and designs made by the respondent-company and completed the work on the assigned project and handed over the possession of the project. But in para. 9 of the reply, it is stated that the petitioner-company stopped the execution of further work and measurement of the work was taken and all the bills for the work done were settled in full and finally. This itself is an improvement and contrary to the earliest stand taken by the petitioner-company. Apart from the same, when the suit notice was issued by the petitioner claiming damages and the suit was laid on July 28, 1998, for damages in which an advocate-commissioner was also appointed to note down the execution of work and defects if any, the petitioner also filed summary suit O. S. No. 28 of 1998, on August 15, 1998, for recovery of Rs. 1,64,09,720, hence, both the suits have to be clubbed together and disputes have to be settled. The petitioner-company also filed I. A. No. 1017 of 1998 in the above suit seeking attachment before judgment and no orders were passed on the said petition, therefore, he filed the present company petition with ulterior motives. Along with the company petition, he filed a company application seeking appointment of a provisional liquidator. This itself shows the mala fide intention of the petitioner-company that one way or the other it wants to avoid payment of damages suffered by the respondent-company, hence the same cannot be permitted. He further submits that the total assets of the respondent-company are Rs. 6,329.51 lakhs as per annexure N and it cannot be said the respondent-company is commercially insolvent. In support of his contentions, he relied upon the following decisions :

Agarwal Industries Limited v. Golden Oil Industries (P) Limited [1999] 3 Comp LJ 29 (Bom) ;

Chief Secretary to Government of Karnataka and Another Vs. Charles Perea and Another, ;

J.N. Roy Chowdhury (Traders) P. Ltd. Vs. Jainti Enterprises, ;

In Re: Rishi Enterprises, ;

Mool Chand Wahi Vs. National Paints (Private) Ltd. and Another, --on appeal, at page 402 ;

6 A.K.K. Nambiar Vs. Union of India (UOI) and Another, ;

The State of Bombay Vs. Purushottam Jog Naik, .

From the facts culled out above, it is clear that there is a dispute with regard to the claim- and counter claim by both the parties before the civil court. The petitioner-company filed O. S. No. 28 of 1998, for recovery of the amount claimed in, the present company petition. Apart from launching prosecution for dishonour of cheques u/s 138 of the Negotiable Instruments Act. The respondent-company also filed O. S. No. 21 of 1998, for damages suffered by it to the tune of Rs. 2,10,29,178 and the suit filed by the respondent-company is an earlier one than the suit filed by the petitioner in the present company-petition. The petitioner-company suppressed the fact of filing of the suit O. S. No. 21 of 1998 by the respondent-company before the First Addl. Chief Judge, Nellore, and when the same was pointed out, in the reply, the petitioner-company stated that the suit filed by the respondent was with an oblique motive and the same is liable to be dismissed. In fact, the suits filed by both the parties are pending.

In V.K. Jain Vs. Richa Laboratories (P) Ltd., the Delhi High Court held that the proceedings for winding up a company will not be invalidated if a suit is filed by the petitioning creditor by way of abundant caution to save the claim getting barred by limitation. The Delhi High Court further held that the dispute raised by the respondent should also be a bona fide dispute. In the above case, the respondent denied the supply of basic drugs by the manufacturer through the petitioner. The other defences raised about issuance of statutory notice etc. were not considered, hence, admitted and ordered for winding up.

In Sicon Limited, Bombay Vs. Shree Panduranga Poultries Pvt. Ltd., Hyderabad, , this court after discussing the observations made by the Supreme Court in Amalgamated Commercial Traders (P.) Ltd. Vs. A.C.K. Krishnaswami and Another, , held as follows (page 323) :

"It is settled law that, where there is a bona fide dispute put forward by the company, it would be a valid excuse for non-payment and inability to pay will not be inferred. Where the company produces prima facie proof of facts on which the defence depends and there is likelihood to succeed in point of law, it cannot be said that the company has neglected to pay within the meaning of Section 434(1)(a) of the Companies Act. Bona fide dispute implies the existence of a substantial ground for the dispute raised."

In the above case, this court came to the conclusion that the respondent-companies failed to establish that there is a bona fide dispute regarding the claim of the petitioner and the defence raised does not appear to be probable, therefore, it ordered for winding up.

In Agarwal Industries Limited v. Golden Oil Industries (P) Limited [1999] 3 Comp LJ 29 Bom, the Bombay High Court held as follows (headnote) :

"A dishonest litigant loses his remedy, when discretionary relief is obtained by misrepresentation. The affidavit in support must make a candid and fair statement of facts. Facts must not be stated in a manner to mislead the court as to the true facts. There must be no concealment of material facts. It is no excuse for the party to say that he/she was not aware of the importance of any facts which he/she has omitted to bring forward."

In the case of Chief Secretary to Government of Karnataka and Another Vs. Charles Perea and Another, , the Karnataka High Court held (headnote) :

"That although the court must necessarily pass a winding up order on a petition u/s 433(e) of the Companies Act, where the debt is established, and such a petition is a proper remedy for enforcement of that debt, the court must also be satisfied that the debt is a just debt. A disputed debt or a debt created by commission of fraud (though not established) is not a just debt which the court would enforce."

In the case of J.N. Roy Chowdhury (Traders) P. Ltd. Vs. Jainti Enterprises, , a Division Bench of the Calcutta High Court held that where there are claims and cross-claims between the creditor seeking winding up and the company sought to be wound up, the debt can be said to be bona fide disputed and the court will not order the winding up of the company. Winding up proceedings are not intended to be exploited as a normal alternative to the ordinary mode of debt realisation. On the basis of the above facts, the Calcutta High Court held that once the claim of the petitioning creditor was disputed bona fide and there was a prima facie case for the appellant''s counter-claim the winding up petition ought not to be admitted.

In In Re: Rishi Enterprises, , the Gujarat High Court held that the petitioning creditors have no absolute right to insist on winding up of the company even if the company is unable to pay its debts. The intention of the petitioner in insisting" on admission of these matters is only to see that they get their money immediately out of priority, the same cannot be permitted for enforcing a disputed debt.

In Mool Chand Wahi Vs. National Paints (Private) Ltd. and Another, -on appeal at page 402, the Punjab and Haryana High Court held that the petition for winding up is required to be accompanied by an affidavit in due form. If the affidavit is not in due form, no value can be attached to it and the petition shall be Mool Chand Wahi Vs. National Paints (Private) Ltd. and Another, iable to be dismissed.

In A.K.K. Nambiar Vs. Union of India (UOI) and Another, , the Supreme Court held that the importance of verification is to test the genuineness and authenticity of the allegations and also to make the deponent responsible for the allegations and in essence verification is required to enable the court to find out as to whether it will be safe to act on such affidavit evidence.

In the case of The State of Bombay Vs. Purushottam Jog Naik, , the Supreme Court held that the verification of an affidavit filed by a Government officer to prove that a certain order was validly made by the State Government should invariably be modelled on the lines of Order 19, Rule 3 of the Code of the Civil Procedure, 1908, whether the Code applies in terms or not and when the matter deposed to is not based on personal knowledge the sources of information should be clearly disclosed.

In the present case, the affidavit was sworn by S. K. Gowes and in the body of the affidavit, it is not mentioned under what capacity he is signing" the affidavit, whether he is authorised to sign the affidavit by a proper resolution of the company or not. Though he filed an extract of the minutes of the meetings along with the petition, in the petition he has suppressed the fact about issuance of notice by the respondent-company on June 1, 1998, and filing of civil suit for damages by the respondent-company. Therefore, the petitioner-company has approached this court with unclean hands by suppressing material facts. Hence, the petitioner-company is not entitled to any relief. Apart from the same, it is seriously disputed by respondent-company that the minutes of the meeting dated August 18, 1995, were fabricated and many of the employees who were signatories to the minutes of the meeting were now employed in the respondent-company, hence the genuineness of the agreement entered into for payment of rupees 100 lakhs by the respondent-company has to be established. In the company petition, it is not mentioned by the petitioner that pursuant to the meetings held on August 28, 1994, and August 31, 1994, three cheques issued for Rs. 75 lakhs were replaced by 13 cheques and why those cheques were replaced was not mentioned in the minutes of the meeting except stating originally the same was intended to be paid by four instalments but the same was replaced by 13 cheques for Rs. 100 lakhs. For the first time in the reply, the petitioner-company tried to justify that three cheques issued by the respondent-company for a total amount of Rs. 75 lakhs were not encashed by the petitioner-company due to the condition stipulated not to present until further instructions but after arriving at a final settlement, the said 13 cheques were issued for Rs. 100 lakhs which shows any amount of suspicion that the petitioner-company has not approached this court with true facts and also with clean hands. When the respondent-company issued a notice for payment of damages and when it instituted a suit O. S. No. 21 of 1998, for more than two crores of rupees and got appointed an advocate-commissioner to note down the features as mentioned in the petition, the petitioner-company suppressing the above facts filed this company petition and seeking appointment of a provisional liquidator by dispensing with the notice to the respondent-company amply establishes that the petitioner filed this company petition with an oblique motive to coerce''the respondent-company to pay the amount alleged to be due according to the petitioner. In view of the same, the dispute is of a serious nature between the petitioner and the respondent who filed suits against each other before the First Additional Chief Judge. The disputes with regard to quality of workmanship and damages suffered by the respondent-company and what is the work executed by the petitioner-company and the amount due to the petitioner for execution of the said work should be settled Only in a civil court. where proper evidence may be led after proper issues are framed on specific pleadings. In view of this, this court has no choice but to relegate the petitioner at this stage itself, to the civil court for establishing the amount due and the work executed by it. It is only when such a claim is established in a properly framed suit in a civil court or they can make counter claim in the suit filed by the respondent-company for damages and for the amounts due to the petitioner for works executed in which both parties will have an opportunity to plead defence in detail, for establishing the amount due or collusion and fraud pleaded about the minutes of meeting dated August 18, 1995, and issuance of cheques etc. If the petitioner obtains a decree in the suit already instituted, then this court will certainly have no hesitation to pass an order of winding up on a company petition being filed. Until then, it is not a fit case where this court can proceed further in the matter by admitting the case and advertise the notice in the newspapers.

In view of the above conclusion, there are no merits in the company petition and the same is accordingly dismissed. There shall be no order as to costs