Praneet Enviroquips Pvt. Ltd. vs Sandeep Papers Ltd. and Another

V.S. Aggarwal, J.—M/s. Praneet Enviroquips Private Limited has filed the present petition under Sections 433 and 434 of the Companies Act, 1956, seeking winding up of the respondent-company (M/s. Sandeep Papers Limited).

The relevant facts alleged are that the respondent-company placed order on September 16, 1996, for the supply of Praneet Lamellar Decanter 30 cubic metre/hour for a total price of Rs. 2.50 lakhs. In pursuance of the purchase order dated September 16, 1996, the machine was fabricated, erected and installed at the site of the respondent. Intimation regarding despatch of the machine was sent. Thereafter the machine was commissioned and performance of the machine was observed by deputing the engineer/technician of the company. The respondent-company failed to make payment for the machine and prolonged the issue to remit the payment. An undertaking had been given by the respondent-company that payment would be made after the trial run of the machine.

The petitioner contends that it is a creditor to the tune of Rs. 2,77,750 including taxes and despite repeated demands, the respondent-company had not made the payment. With a motive to delay the payment, the respondent-company filed a civil suit which was not maintainable. The respondent prayed for a decree of declaration to the effect that the petitioner-company is not entitled to recover the price of the equipment. When the petitioner came to know of the said suit, it filed an application under Order 7, Rule 11, CPC for rejection of the plaint. That is pending. Asserting that the respondent has failed to make the payment of the debts, the application referred to above had been filed.

In the reply filed, the respondent contested the petition. It was denied that the petitioner is a creditor. The plea was raised that before the winding up petition was filed, the respondent had filed a civil suit in the Court of the Civil Judge at Palwal which is pending. As regards supply of the machine, the respondent''s contention is that it had placed an order with the petitioner-company for supply of the said machine. Some of the salient terms of the order were that price was settled at Rs. 2.50 lakhs besides taxes. The delivery of the machine was to be made by the petitioner-company within two months from the date of the order. It was made clear that equipment would be accepted only on trial basis and payment would be made after satisfactory performance of the equipment in all respects. The petitioner-company had accepted the order dated September 16, 1996, in toto and supplied the machine vide letter dated September 5, 1996. It raised the bill referred to above. The machine supplied by the petitioner did not function according to the specifications. The petitioner was informed many times that the equipment was not working as per the specifications but no response was made by the petitioner. The efficiency was stated to be only 33 per cent. The respondent-company sent a letter dated November 24, 1997, requesting the petitioner to do the needful. After persistent request, Shri Harjinder Singh was sent to check the machinery. He failed to do the needful and the machinery was still not in a working condition. Furthermore, it was asserted that the respondent is entitled to claim damages to tune of Rs. 1,50,000 for supply of the faulty machine and had already filed a suit at Palwal for recovery of the same.

On the basis of these facts, learned counsel for the petitioner asserted that machinery in terms of the order had been supplied to the respondent-company. It was functioning properly and thus, the respondent has failed to make payment of the debt. As regards the contention that the machinery is not functioning properly, the petitioner''s learned counsel referred to the letter annexure P-5, dated November 20, 1995, that they are deputing their technician to see the performance of the machinery. On the contrary learned counsel for the respondent vehemently urged that the machine was not working properly. Instead the respondent suffered a loss and since this was one of the conditions of the order that payment would be made only on satisfactory performance of the said machine ; therefore, the petitioner is not entitled to claim the amount.

Annexure R-4 is the copy of the order for supply of the machine. Paragraph 10 of the same reads :

"10. Performance of equipment and terms of payment.--1. The above order for 2 Nos. of Praneet Lamellar Decanter 30 cubic metre has been placed by us purely on the basis of your offer and catalogue.

The supplier M/s. Praneet Enviroquips Pvt. Ltd. should clearly understand that the equipment for which the order has been placed shall be accepted by us only on trial basis and only if it meets our requirements and specification of 30 mg/1 of water discharge and fiber recovery at 2.5 per cent. consistency.

It is clearly understood by the supplier that the payment for the equipment shall be made only after the satisfactory performance of the equipment in all respects. No advance payment for any expenses that may be incurred by the supplier in delivering the equipment shall be made by us. In case of non-satisfactory performance or non-fulfilment of specified standards and specifications mentioned in this order, the order placed shall stand cancelled with immediate effect and the equipment shall be returned by us to the supplier.

Any expenses incurred or to be incurred of whatsoever nature in supplying the machinery like sales tax etc., shall be borne by the supplier. The cost that may be incurred by us in returning the machinery shall also be borne by the supplier."

It is abundantly clear from perusal of the aforesaid that payment as agreed between the parties was to be made for the equipment after satisfactory performance in all respects.

To show that the performance was not satisfactory, the respondent''s learned counsel referred to the letter dated February 6, 1997, written to the petitioner which reads :

"This is in reference to your reminders for payment and personal talks held with you on phone, please note that we have already informed you on various occasions on the phone that the equipment supplied by you is not working as per specifications mentioned in our purchase order No. SPL/PRNT/96/339, dated September 16, 1996 and the efficiency we are getting is 33 per cent. only.

In the above circumstance we can release the payment on pro rata basis. Please visit us for settlement."

It is admitted that in pursuance thereof one Harjinder Singh had been deputed to see the performance in November, 1997. As yet, therefore, it is a matter in controversy if the performance of the machine was satisfactory to permit the petitioner to claim the entire amount. When facts are in controversy and it has yet to be decided if amount can be claimed or not, at this stage, it would be difficult to hold that the respondent has failed to pay the debts.

Proceedings under Sections 433 and 434 of the Companies Act, 1956, cannot be utilised to put pressure for recovery of the amount. The court can only direct winding up if the defence is found futile, frivolous or without basis. When it is apparent from the facts mentioned above that as yet it cannot be adjudicated if the machine was giving performance in a satisfactory manner or not, particularly when a civil suit had been filed at Palwal by the respondent, at this stage when the questions are in controversy, it cannot be termed that it is a fit case to direct winding up of the respondent-company.

For these reasons, the petition must fail and is dismissed. By way of abundant cauction it is added that if the petitioner is choosing to file the civil suit, nothing said herein should be taken as an expression of opinion on the merits of the matter.