Rajearajeswari Packaging Products vs Dev Fasteners Ltd.

Padmanabhan, J.—The present petition has been filed u/s 433(e) of the Companies Act, 1956 (''the Act'') praying this court to wind up the

respondent-company as it is unable to pay its debts.

The respondent is a public company, whose authorised capital is Rs. 2 crores and the subscribed share capital is Rs. 1,35,23,400 and the paid

up share capital is Rs. 1,35,23,400. The respondent-company is a manufacturer of fasteners (bolts and nuts) for the automobile industries.

The petitioner is a sole-proprietary concern, engaged in the manufacture of corrugated boxes and the same were supplied to the respondent-

company for the purpose of packaging, under Invoice Nos. 7298, 7457, 7557 and 7558, respectively on 11-10-1999,18-11-1999, 7-12-1999,

and on 4-12-1999. The petitioner supplied the corrugated boxes in all aggregating to the value of Rs. 42,544. The boxes were supplied as per the

orders placed by the respondent-company. As per the invoices, the respondent has to pay interest at 24 per cent for the belated payment. The

respondent-company is liable to pay Rs. 42,544 being the value of boxes supplied and Rs. 7,658 being the interest for the belated payment for the

period 1-1-2000 to 30-9-2000, totalling to Rs. 50,202. According to the petitioner, the respondent had failed and neglected to pay the said sum.

The petitioner made a demand on 10-5-2000, and 2-6-2000, which demands were acknowledged by the respondent. The petitioner caused a

legal notice on 23-6-2000. But the acknowledgement card has not been returned. The petitioner addressed the Superintendent of Post Office who

after verification certified that the registered notice had been delivered on the respondent-company on 24-6-2000. Even for the said statutory

notice, no reply had been received, nor payments been made by the respondent. Thereafter, the present company petition was filed on 1-11-

2000, and taken on file on 13-11-2000.

This court ordered notice regarding admission on 17-11-2000. The respondent has been served. The respondent also entered appearance

through counsel. The respondent took time on four different occasions to file counter. Ultimately, on 25-6-2001, the respondent filed its counter.

The respondent took time to file documents and the matter was listed on four different occasions. Ultimately, the company petition was taken up

for hearing.

According to the respondent as set out in the counter, the winding up petition is neither maintainable in law nor on facts and is liable to be

dismissed in limine. The petition u/s 433(e) is not maintainable as no notice has been served on the registered office of the respondent-company.

The respondent states that it employs 300 employees and it has also secured ISO 9002 certificate supplying fasteners to reputed companies like

Maruti, Telco, Ashok Leyland and Mahindra and Mahindra. The petitioner used to supply corrugated boxes to the respondent which were used

for packing and transported to customers. The quality of the boxes is vital for the transport of the respondent''s products. The respondent states

that they received a number of complaints from the transporters and also from the customers that their products are damaged in transit due to the

substandard quality boxes supplied by the petitioner. The respondent had repeatedly communicated to the petitioner about the complaints received

and the poor quality of corrugated boxes supplied by them. Despite the same, the petitioner had not corrected the deficiency in the quality. The

respondent called upon the petitioner to meet the respondent''s managing director to discuss the quality problem and payment. But the petitioner

had failed to do so and not even the respondent to the said request for better quality. The petitioner was put on notice about the quality problem in

its letters dated 29-11-1999, 23-10-1999, 7-1-2000 and 3-6-2000. The petitioner was called upon to take back the rejected materials supplied

which were of substandard quality and further the petitioner was called upon to pay damages to the tune of Rs. 1 lakh for the loss incurred by the

respondent due to the delay in meeting the supply schedule and also damages caused for the respondent''s material in transit due to poor quality of

corrugated boxes supplied by the petitioner. No amount is payable to the petitioner and the petitioner has to compensate the respondent for loss

caused by the substandard corrugated boxes and the poor quality.

The respondent released the payment of the admitted sum and in fact a payment of Rs. 29,222 was released on 7-2-2000 based upon the

supply made by the petitioner that he would replace the rejected materials. It is contended that instead of filing a civil suit only as a leverage to

coerce the respondent to settle their unjustified claims, the petitioner has come forward with this winding up petition, which is not maintainable as

the liability is in dispute. There is no bona fides or merit in the winding up petition. There is no neglect to pay the debt and the petition is not

maintainable and deserves to be dismissed with costs. Since the liability is disputed the company petition for winding up deserves to be dismissed

and the petitioner should be directed to file a civil suit. The respondent prays for the dismissal of the company petition.

Heard Mr. L. Rajasekar, the learned counsel for the petitioner and Narendran for S. Venkatesan, the learned counsel for the respondent.

The following points arise for consideration in this petition:

A. Whether the company petition is not maintainable for want of valid notice in terms of Section 434(1)(a) ?

B. Whether the company petition is liable to be dismissed for want of minimum particulars, viz., no pleading as to inability to pay as prescribed by

the Companies (Court) Rules, 1959, read with the form ?

Both the points could be discussed together.

The petitioner has filed documents. The petitioner has produced three other challans which bear the signature of the respondent''s representative

in token of the delivery. The petitioner has also produced five invoices and the seal of the respondent-company was affixed, that goods have been

received, but subject to inspection and the stores in charge had signed on those invoices. On 10-5-2000, as well as on 2-6-2000, the petitioner

had written to the respondent-company demanding payment of the sum of Rs.. 42,544 towards the goods supplied namely Invoices Nos. 7278,

dated 11-10-1998, 7457, dated 18-11-1999, 7557, dated 7-12-1999, 7558, dated 4-12-1999. The petitioner also followed it with a reminder

dated 2-6-2000. In the letter dated 2-6-2000, there is reference to earlier repeated calls and reminders. A portion of the said letter dated 2-6-

2000, would show that the petitioner had made sincere attempts to get payment and on the other hand it was the respondent who wanted

discussion or accommodation. The material portion reads thus :

We are not willing to supply to a company, Which is not bothered about their vendor'' , payment and still insisting the vendor to supply further

quantities to the tune of Rs.. 42,000 which is tantamount to the already outstanding (overdue) payment. This implies that you are seeking credit

facility from us. We humbly pronounce that ours (company) is not a lending institution and ours is a small scale unit which cannot withstand delay

beyond certain period. Instead we will request your bankers, on your behalf to provide your additional working capital limits. Now, we sincerely

request payment for the supplies made by us in the months of October, November and December, 1999. We do not want to observe any

protocol, neither to meet you nor your managing director regarding payment but we sincerely seek an appointment from you on or before 7-6-

2000, to discuss about your financial difficulties and our subsequent talks with our bankers for additional lending to you. Arid we hope that our

payments will be cleared before 6-6-2000.

Thereafter through the counsel for the petitioner, a notice was caused to the respondent-company and its managing director, besides sending

copies to the seven of the directors of the respondent-company. The said notice dated 23-6-1999, had been addressed to the respondent-

company and its managing director at No. 42, Dr. Radhakrishnan Road, Mylapore, Chennai-4. The counsel for the petitioner did not receive the

postal acknowledgment and, therefore, he made a representation to the Chennai Customer Care Centre, India Post, Chennai-6. The Assistant

Superintendent of the Department had sent a reply to the effect that the registered letter sent by the counsel for petitioner No. 798, dated 26-3-

2000, through the High Court Post Office was delivered to Dev Fasteners Ltd., No. 42, Dr. Radhakrishnan Salai, Mylapore, who is the addressee

on 24-6-2000. Thus it is clear that a statutory notice has been served on the respondent-company by the petitioner through its advocate.

A perusal of the documents produced by the petitioner would establish the supply of corrugated boxes to the petitioner, its value which were

delivered on the respondent and non-payment by the respondent-company. The respondent excepting filing counter had not filed any documents to

support its version that the corrugated boxes supplied by the petitioner are defective or that the petitioner was called upon the respondent to

replace the boxes, nor about the complaints received. Mere statement in the counter statement alone will not support the plea that the boxes

supplied are defective or that any dispute with respect to the supply of corrugated boxes or its value or its quality. The petitioner has placed

sufficient materials to show that it had supplied corrugated boxes on the orders placed by the respondent under the four invoices and also the

delivery of the corrugated boxes and the value of supply.

It is not the case of the respondent that no boxes at all had been delivered. There are sufficient acknowledgements to show delivery of the

materials. Not even a scrap of paper has been produced by the respondent before the court pointing out the defects or inferior quality of the

boxes. Only for the first time if at all in the counter such a plea had been raised for the purpose of the present company petition. If really corrugated

boxes supplied to the respondent-company were defective the respondent would have called upon the petitioner to take back the boxes or at least

would have caused a notice or sought for damages for the loss if any caused due to the inferior quality of the boxes namely packaging materials

supplied by the petitioner. Till date, no such notice has been issued, nor any suit has been filed.

As seen from the counter, the respondent had made a payment of Rs.. 29,222 on 7-2-2000, towards boxes supplied by the petitioner. The

said payment is made on 7-2-2000, much after the supply and had there been any loss or cause for claiming damages, the respondent might not

have released the payment of Rs.. 29,222 on 7-2-2000, when admittedly the supplies under the four bills were made during the month of October/

November/December, 1999. Had there been any dispute, the respondent would not have released the payment on 7-2-2000, and would have

withheld the sum towards damages if any. The cumulative effect of this would show that the respondent is liable to pay the value of the materials

supplied under the four invoices by the petitioner. The dispute set out in the counter is only for the purpose of the present company petition and it is

not a bona fide dispute.

Presumably facing such a situation, the learned counsel for the respondent-company, contended that notice caused by the petitioner through its

advocate had not been served on the registered office of the respondent-company, but it had been sent to the administrative office. therefore the

notice is defective. Hence, the company petition is, therefore, not maintainable and it is liable to be dismissed. The learned counsel for the

respondent mainly contended that in so far as the statutory notice had not been served on the respondent-company at its registered office, no

petition for winding up is maintainable. The learned counsel relied upon the decision of the Bombay High Court in N.L. Mehta Cinema Enterprises

(P.) Ltd. v. Pravinchandra P. Mehta [1991] 70 Comp. Cas. 31; Vysya Bank v. Randhir Steel & Alloys (P.) Ltd. [1993] 76 Comp. Cas. 244 and

a decision of the Madras High Court in B. Viswanathan v. Seshasayee Paper & Boards Ltd. [1992] 73 Comp. Cas. 136, in support of his

contention that when notice is not served on the company at its registered office and there being no valid notice in terms of Section 434(1)(a),

which is mandatory, there could be no presumption of the respondent''s inability to pay its debts and therefore the company petition deserves to be

dismissed summarily.

It is also not in dispute that notice has been served by the petitioner through its advocate by registered post and it has been served on the

respondent at its administrative office. In fact from the Assistant Superintendent, Chennai Customers Care Centre, Greams Road, India Post,

Chennai, dated 21-7-2000, it is seen that the notice sent by the petitioner through its counsel Mr. L. Rajasekar had been served on the

respondent-company at its address at No. 42, Dr. Radhakrishnan Road, Mylapore, Chennai. It is more than a sufficient notice. In fact the earlier

correspondence between the petitioner and the respondent-company was to the said address. Therefore not only there is sufficient material to

support the notice caused by the petitioner on the respondent as set out in the company petition and there is sufficient proof to show that the notice

has been served on the respondent-company. The respondent also had not specifically denied the receipt of the notice. In this respect the specific

averment set out in the company petition had neither been referred to nor been denied by the respondent. Therefore, it is clear that the respondent

had been served with a notice dated 23-6-2000, and it has reached the hands of the respondent-company on 24-6-2000. After a lapse of four

months from that date, the present company petition has been filed. Therefore, it is clear that the petitioner had caused a notice through its counsel

giving 21 days notice and made a demand of the amount outstanding to the petitioner on the respondent-company.

The next question is whether service of notice on the respondent in its administrative office and not in the registered office is a valid notice ?

And by non-service of notice on the registered office of the respondent-company, whether the company petition is liable to be rejected ?

In other words, it is sought to be contended that in the absence of service of notice in conformity with Section 434(1)(a) by serving a notice on

the registered office of the company, no application for winding up is maintainable. In this case the liability is not being denied and the receipt of

notice by the respondent-company at its administrative office is not disputed. But the hyper-technical objection raised is that such notice should

have been served at its registered office and for want of service of notice on the registered office of the company, the company application is not

maintainable, is the only and substantial contention advanced. The petitioner being a creditor is required to make a demand for payment. It is not in

dispute that the statutory notice had been served on the respondent-company at its administrative office, but it has not been served at its registered

office. The learned counsel for the respondent-company relied upon the decision of the Bombay High Court in N. L. Mehta Cinema Enterprises

(P.) Ltd.''s case (supra) in support of its contention that the demand notice u/s 434(1)(a) must be served only on the registered office of the

company and that service on the administrative office is invalid. However the Karnataka High Court has taken a different view in Manganese Ore

India Ltd. v. Sander Manganese [l999] 98 Comp. Cas. 755. In this pronouncement, the Karnataka High Court held that a notice served not on

the registered office of the company, but on if s administrative office, a company petition is maintainable.

The learned counsel for the respondent relied upon the judgment of A.R. Lakshmanan, J, as he then was, in B. Viswanathan''s case (supra), where

the learned judge held that the notice is invalid because in the notice wrong pin code was mentioned. In the same case it was pointed out that the

notice caused was addressed to the managing director only and not to the company. Further the registered office of the company is at

Pallipalayam, Salem District while the notice has been sent to Pallipalayam with a wrong pin code and in view of the said defect the learned judge

held that notice does not conform to the mandatory requirement of Section 434(1)(a). That is not the case here.

In this case, notice has been sent to the company, but to its administrative office and it has been served on the company besides, besides

copies had been forwarded to the managing director as well as other directors of the company. Presumably, because of sending copies to other

directors including the IDBI''s nominee might have caused certain amount of embarrassment and, therefore, the respondent-company might have

taken the notice as offending and is such a course. This is also evident from the stand taken in the counter that the petitioner was called upon to

meet the managing director of the respondent-company for discussion. It is well settled that effect of notice which is validly given raises a

presumption, as to the liability of the company to its debt and the same renders the company liable to be wound up compulsorily. The

consequences of failure to comply with the notice sent u/s 434(1)(a) are definitely far reaching namely, presumption that the company is unable to

pay its debts, this provision required to be strictly construed. For the purpose of relying upon the deemed in ability of the company, the creditor

has to strictly comply with the requirement of sending of notice of demand in terms of Section 434(1)(a) and if Section 434(1)(a) is not complied

with, the rule of presumption of being inability against the respondent-company, cannot be invoked.

At the same time even without invoking the deemed inability of the company to pay its debts a creditor can seek for winding up of the

company u/s 433(e) read with Section 434(1)(c) on the ground that the company is unable to pay its debts. In this case the pleadings in the

company petition in this respect are set out in paragraphs 6, 7 and 8 which is relevant, reads thus :

The petitioner states that the petitioner concern had supplied as per the order placed by the respondent-company, vide delivery challans. The

petitioner states that the invoice stipulates payment of interest at the rate of 24 per cent per annum for the delayed payments. The outstanding

amount on the respondent''s account was a sum of Rs.. 42,544 (rupees forty-two thousand five hundred and forty-four only) towards the invoice

value and a sum of Rs.. 7,658 (rupees seven thousand six hundred and fifty-eight only) towards the interest from 1-1 -2000, to 30-9-2000

totalling to Rs.. 50,202 (rupees fifty thousand two hundred and two only). The respondent failed and neglected to pay the above-said amount in

spite of repeated demands made by the petitioner.

The petitioner states that he had forwarded letters dated 10-5-2000, and 2-6-2000, demanding payments and the same were acknowledged by

the respondent. The petitioner was constrained to forward a legal notice dated 23-6-2000, and the acknowledgement cards were not returned.

So, the petitioner had lodged a complaint to the Superintendent, Customer Care Centre, Thousand lights Post Office, Chennai-6 on 18-7-2000,

asking to issue duplicate card. Subsequently, the Assistant Superintendent forwarded a letter dated 27-7-2000, informing that the notice cover

was delivered on the addressee, namely, the respondent on 24-6-2000. The respondent did not pay the outstanding amount to the petitioner-

company.

The petitioner states that as on date of this petition, the company has failed to liquidate the said outstanding.

These paragraphs would show that the respondent had merely failed to pay the amount due to the petitioner-company. It is also seen that what is

pleaded is that the respondent has failed to liquidate the said outstanding.

In the light of the said pleadings, though it is only a petition it has to be pointed out that there is no plea that the respondent-company is unable to

pay its debts. For invoking Section 433(e) there must be a minimum plea that the respondent is unable to pay its debts. Such a plea is totally

absent in the company petition, Even in the notice of demand it has been stated by the petitioner that if payment is not made towards the supply

within 21 days from the date of receipt of notice, the petitioner will be constrained to initiate action against the respondent under Sections 434 and

433 for winding up. In the notice also it has been merely stated that the respondent-company has neglected to pay. Therefore, it is clear that it is

not even the case of the petitioner that the respondent is unable to pay its debts, but it really pleaded ''neglect'' to pay. Nowhere it has been

pleaded that the respondent-company is commercially insolvent or it is unable to meet its current demands, nor is there a plea that the liability of the

respondent-company exceeds its assets.

It is true that the notice issued u/s 434(1)(a) should be construed liberally. The omission to send a reply or omission to pay by itself would be a

ground to hold that the company is unable to pay its debts. At worst, it may be the refusal to pay without a reasonable cause, or that it has

neglected to pay the amount. In this case following the same this court holds that there is a valid notice caused by the petitioner in terms of Section

434(1)(a). Yet the presumption that the petitioner is unable to pay its debt will not apply since even according to the plea as extracted above,

would show that it is not as if the respondent is unable to pay its debts. It may be a refusal to pay or neglect to pay for various other reasons and

not on the ground of any commercial insolvency, but on other grounds. Assuming that there is no bona fide dispute between the respondent and the

petitioner with respect to the quality of boxes supplied and further assuming that the respondent had neglected to pay, that does not mean that the

respondent-company is unable to pay the amount due to the petitioner. There has been some misunderstanding between the petitioner and the

respondent-company.

In this respect in the letter dated 2-6-2000, extracted above, the petitioner had pointed out that the respondent-company shall not insist on

protocol with its victims would show that there has been some amount of business estrangement or commercial misunderstanding. The petitioner

has represented that it does not want to observe any protocol neither to meet the respondent nor its managing director regarding payment.

Therefore, it is clear that it is personality conflict or ego. We arc not concerned as to who is at fault, but all that this court concerned is to find out

whether the respondent is unable to pay its debts.

In the absence of any averment specifically set out even in the company petition merely because a notice has been validly issued, it cannot be

taken that the respondent is unable to pay its debts. The effect of Section 434(1)(a) notice would be, as already pointed out far reaching, but even

so, the minimum requirement in a notice and the company petition being that the petitioner should plead that the respondent is unable to pay its

debts. This is totally absent.

The inability to pay debts in terms of Section 433(1) read with Section 434(1)(a), demand of the debt may raise a presumption as to inability,

but such presumption is always rebuttable. In this case on the existing materials this court holds that it cannot be held that the respondent-company

is unable to pay its debts, besides it has shown considerable growth and it is an ongoing concern with 300 employees. Even if it is to be taken that

Section 433(e) is made out, it is not obligatory for this court to make an order of winding up as such a winding up will not be in the larger interest

of justice as it will cause serious consequence with respect to the stability of the company which is carrying on business.

It is also to be pointed out that the winding up order as of course shall not be adopted as a course for recovery of the debt, It is equally well settled

that winding up petition will not be the legitimate right to enforce the payment of debt, nor is it a method to pressurize the company to pay the

money, nor is it an alternative method to resolve a dispute be it a bona fide or not a bona fide dispute or the dispute might be as a result or

personality conflict between the persons in management of the petitioner as well as the respondent-companies. It is true there is an attempt to

dispute the liability, but this court has taken the view that the liability is true and subsists. Yet, this court is not inclined to order winding up of the

respondent-company.

In terms of rule 95 of the Companies (Court) Rules, 1959, read with Form 77, the petition, it is required to be set out in such winding up

petition, either that the company is insolvent and unable to pay its debts. This is the minimum requirement which is required in a winding up petition.

In the absence of such an averment, or requisite plea and want of pleadings, this court will not be justified in ordering publication in this company

petition.

In the result, this court holds that though the respondent has purchased the corrugated boxes, the claim of the petitioner is substantiated and the

respondent owes the money to the petitioner, it cannot be stated that the respondent is unable to pay its debts. For want of the minimum plea that

the respondent is unable to pay its debts, mere refusal to pay or whatever may be reason for such refusal cannot be a ground to wind up the

company which is financially sound, employs 300 workmen and is continuing its business normally. There is nothing to show that the respondent-

company is financially unsound or commercially insolvent or ceased to carry on its business activities or substratum of the respondent-company has

been lost.

In the result, on the first point, this court holds that there is a valid notice though it has been served on the respondent-company''s

administrative office. On the second point, this court for the reasons set out above, declines to order publication of the company petition as it is not

a case of inability to pay, but it is a case of refusal to pay on certain misunderstandings.

In the circumstances, the company petition fails for want of minimum particulars in that, there is not even a plea that the respondent is unable to

pay its debts. However, it is made clear that it is open to the petitioner to file a fresh petition after complying with the requirements prescribed in

the Companies Act and rules framed thereunder if so advised.

Consequently, connected Company Application No. 2508 of 2000 is also dismissed. The parties shall bear their respective costs.