Rediffusion-Dentsu, Young and Rubicam P. Ltd. vs Solidaire India Ltd.

The challenge is made to an order of dismissal of C.P. No. 25 of 1997 ( Rediffusion - Dentsu, Young and Rubicam Private Ltd., (Previously

known as Rediffusion Advertising Private Ltd.) Vs. Solidaire India Limited, filed by the appellant herein seeking a relief of winding up of the

respondent- company.

The case of the appellant/petitioner is as follows:

The respondent-company appointed the appellant as its exclusive advertising agent by letter dated April 11, 1994. Pursuant to the same, the

appellant provided advertising services to the respondent. For the services rendered between October 1994 and July 1995, a sum of Rs.

74,79,213.81 as on March 31, 1996, was due and payable by the respondent along with interest from April 1, 1996, as per the bills raised by the

appellant. When the appellant approached the respondent, they expressed their inability to make payments. As the respondent failed to honour the

bills of exchange, the appellant''s bank refused to discount further bills of exchange accepted by the respondent. The respondent admitted part of

its liability to the extent of Rs. 60,58,282.95 by letter dated November 27, 1995. The appellant has filed a civil suit in C.S. No. 334 of 1996 on

the file of this Court for recovery of the amount due to them. Though the respondent filed a written statement, there is no valid defence to the suit

claim. The appellant caused a statutory notice to the respondent on December 21, 1996. In the reply dated January 10, 1997, the respondent

denied its liability. The respondent-company is in an adverse financial position as evidenced by its annual accounts. The respondent had stopped its

manufacturing activities and has become commercially insolvent, and hence it was to be wound up.

The respondent resisted the petition by filing a counter stating that there is no debt due and payable to the appellant/petitioner within the meaning

of the debt under the provisions of the Companies Act; that even according to the appellant, the respondent is only an agent of the principal and

the respondent cannot be sued in view of Section 230 of the Contract Act; that since a suit has already been filed by the appellant, it is a matter to

be decided in that suit; that there is a bona fide dispute in relation to the claim made by the appellant; that in order to promote the sale of the

products, the appellant was appointed as an advertising agent; that the appellant was appointed so for Grundig products ; that the respondent was

not the beneficiary as alleged by the appellant; that M/s. Grundig Electronics India P. Ltd., were the beneficiaries for the services rendered by the

appellant; that the appellant has to work out its remedies in the suit filed by them, and hence the petition was to be dismissed.

On enquiry the learned single judge has dismissed the petition since no grounds are made out to pass an order of winding up of the respondent-

company. Hence this appeal at the instance of the petitioner.

The only question that would arise for consideration in this appeal is whether an order of winding up of the respondent-company has to be made

on the grounds urged by the petitioner.

Advancing arguments on behalf of the appellant, learned senior counsel would submit that the respondent company by a letter dated November

27, 1995, has admitted its liability to the tune of Rs. 60,58,282.95 wherein it is also mentioned ""confirmation of liability as on October 31, 1995"" ;

that the said letter was never disputed by the respondent; that in the light of the said document, there was no need to presume that there was a

bona fide dispute as to the liability of the respondent; that the transaction was not covered by Section 230 of the Indian Contract Act, and hence

the finding of the learned single judge that the respondent was not liable was not correct ; that it is true that C.S. No. 334 of 1996 was pending;

but, it did not mean that there was a bona fide dispute as to the claim; that so long as a suit was pending, it cannot be stated that the respondent

was not liable to pay; that from the admission, it has got to be necessarily presumed and it would be clear also that the respondent was unable to

pay the debt; that in the written statement filed by the respondent as the third defendant in C.S. No. 334 of 1996 in paragraph 6, they have

categorically admitted that the third defendant appointed the appellant as advertising agent for Grundig products ; that the same was also borne by

the fact that on April 11, 1994, the respondent issued a letter appointing the appellant as exclusive advertising agent; that in paragraph 10, the

respondent has admitted that after May 10, 1995, the respondent and Grundig Electronics India P. Ltd., instructed the appellant to raise bills on

the respondent only ; and that when the transaction was admitted, there was no question of dispute, much less bona fide dispute that would arise.

Added further learned senior counsel that it is pertinent to point out that the respondent has categorically admitted in its letter dated November

27, 1995, the amount due on the date also; that in view of such admission, there was no need for the appellant to get a decree in C.S. No. 334 of

1996 ; that the appellant could well approach the company court to plead and establish that the respondent was unable to pay its debts ; that all

the bills of exchange have been accepted by the respondent only and the respondent has failed to honour them on due dates; that even in the

written statement filed by the respondent in C.S. No. 334 of 1996, the respondent has not disputed or raised any objection as to the acceptance

of the bills of exchange ; that the respondent-company even otherwise has been recommended to be wound up by BIFR and AAIFR; that the

subject-matter of the recommendations of the authorities was pending before the Delhi High Court in C. W. No. 3314 of 2002 ; that it is pertinent

to point out that the first and second defendants in C.S. No. 334 of 1996 have denied their liability and the privity of contract with the appellant;

that the second defendant has submitted that it has paid in full to the appellant for the services rendered by it and therefore the onus is shifted on the

respondent to prove that it was not liable to pay any amount to the appellant ; and that the respondent with a view to create a dispute has denied

the liability which is not bona fide.

Added further learned senior counsel that merely because Grundig International Marketing and Sales GmbH and Grundig Electronics India P.

Ltd., have been impleaded as defendants Nos. 1 and 2 and relief has been sought for against all the defendants jointly and severally, it cannot be

stated that there was a bona fide dispute as to who has to pay the amount to the appellant and therefore the petition for winding up filed u/s 433(e)

and (f) read with Section 439 of the Companies Act, was not maintainable ; that the defence put forth by the respondent is that the letter dated

November 27, 1995, was addressed only to the chartered accountant of the appellant and could not be construed as an admission of liability of

the respondent to the appellant; that the rejection of the appellant''s petition seeking winding up was only on the basis of the surmises and

presumptions; that the learned single judge has dismissed the petition for winding up merely because a civil suit in C.S. No. 334 of 1996 was filed

for recovery of the amounts and was pending on the file of this Court against the respondent and two others; that the civil suit filed was only for the

purpose of limitation ; that it is pertinent to point out that the defence taken in the counter of the respondent that no amount was due and payable to

the appellant was purely an afterthought; that the respondent cannot wriggle out of its obligation to pay the due amounts to the appellant when the

same was admitted ; that the respondent has not disputed the amount anywhere ; but, he has only taken the plea that it is not liable to pay the said

amount; that the letter dated November 27, 1995, is not at all disputed by the respondent; that so long as the said letter is not disputed even

assuming that there was a civil suit filed and pending, the said admission was sufficient to establish that the respondent was unable to pay its debts

and this is a good ground for ordering winding up of the respondent company ; and that under the circumstances, the discretionary power should

have been exercised in favour of the appellant by ordering winding up of the company. For these reasons, learned senior counsel would submit that

the order of the learned single judge has got to be set aside and the winding up has got to be ordered.

The court heard learned senior counsel for the respondent on the above contentions. According to him, it is not an admission, and the letter was

addressed to the auditor and not to the appellant, and even at the earliest, it was made clear that the respondent was only the agent of the first

defendant, and it would be quite clear that he was acting only as an agent u/s 234 of the Contract Act, and the agent is acting on behalf of the

principal and hence the principal is liable to pay. Learned senior counsel would further add that a civil suit in C.S. No. 334 of 1996 has been filed

which would cover the very same subject-matter; that issues have actually been framed ; that merely because the defendants Nos. 1 and 2 have

filed written statement that they were not liable to pay, it cannot be stated that the third defendant alone is liable ; that he has filed the written

statement denying the entire liability ; that under the circumstances, the matter has got to be tried ; that until it is adjudicated, the contention put

forth by the appellant that the respondent is liable to pay cannot be accepted, and therefore the order of the learned single judge has got to be

sustained.

As could be seen above, the appellant who sought an order of winding up of the respondent company has filed the said petition alleging that by

a letter dated April 11, 1994, the respondent appointed the appellant as the exclusive advertising agent pursuant to which the appellant provided

the advertising services to the satisfaction of the respondent ; that towards the services rendered between October 1994 and July 1995, a sum of

Rs. 74,79,213.81 as on March 31, 1996, was due and payable along with interest also ; that the respondent by letter dated November 27, 1995,

admitted part of its liability to the extent of Rs. 60,58,282.95 ; that despite the statutory notice as contemplated under the Companies Act, the

admitted amounts were not paid; that the respondent-company has become commercially insolvent since it is unable to pay the debt and hence the

company has got to be wound up. The petition was resisted by the respondent, inter alia, stating that the respondent was acting only as an agent

for Grundig International Marketing and Sales GmbH, Germany, and neither the appellant is a creditor nor there was any debt due and payable

within the meaning of debt under the provisions of the Act; that the respondent was only acting as an agent of the principal; that the appellant has

filed a civil suit in C.S. No. 334 of 1996 against the three defendants namely the principal, shown as first defendant, and the respondent herein

shown as third defendant, and another ; that the respondent has filed a written statement categorically denying the liability ; that issues have also

been framed ; that under such circumstances, there was a bona fide dispute which has got to be adjudicated by the civil court and hence the

petition was to be dismissed.

Concededly the respondent-company appointed the petitioner as its advertising agent on April 11, 1994. A reading of the said letter would

clearly indicate that the appellant was appointed as advertising agent for the Grundig products. From the letter it could also be seen that payments

have got to be made within 60 days from the raising of the bills by the appellant. The entire case of the appellant seeking winding up of the

respondent-company rested on a letter dated November 27, 1995. According to the appellant''s side, there was a candid admission of the liability

of the respondent to the extent of Rs. 60,58,282.95, and despite the receipt of the statutory notice, the respondent has failed to make payment and

therefore it has to be presumed that it was unable to make the payment. Attractive though the argument advanced at the first instance, the existing

circumstances attendant would clearly indicate that these contentions put forth by the appellant do not stand the scrutiny of law. Admittedly, the

appellant has already filed a civil suit in C.S. No. 334 of 1996 before the original side of this Court. A perusal of the plaint in C.S. No. 334 of

1996 would make it evident that the petitioner has sought for a money decree for a sum of Rs. 77,00,516.56 against all the defendants jointly and

severally. It is pertinent to point out that Grundig International Marketing and Sales GmbH, Germany, is shown as the first defendant; Grundig

Electronics India P. Ltd., Madras, is shown as the second defendant and the respondent herein is shown as the third defendant. It would be more

apt and appropriate to reproduce the following paragraphs in the plaint in C.S. No. 334 of 1996:

Initially, the first defendant-company had not opened any branch office or subsidiary company at Madras. The third defendant-company had

an agreement with the first defendant company. The third defendant-company was acting as the agent of the first defendant-company in its own

name and was also acting on its own behalf. After that, the first defendant incorporated the second defendant-company as its subsidiary and the

second defendant started acting on behalf of the first defendant at Madras and India and also acted on its own behalf. On instructions from the

defendants, the plaintiff raised all the bills on the third defendant-company. Though as per the bills, the payments of the bills must be made within

one month, such payments were not made by the defendants. The plaintiff also drew bills of exchange on the third defendant who accepted the

same. However, when the said bills of exchange were presented to the third defendant by the Bank of Maharashtra (bankers of the plaintiff), the

third defendant dishonoured the same. The third defendant wrote a letter dated February 2, 1995, to the Bank of Maharashtra stating that the bills

of exchange drawn by the plaintiff and accepted by them (third defendant) for Rs. 21,10,080 will be honoured on various due dates. Though this

first lot of bills of exchange for Rs. 21,10,080 were honoured, the third defendant failed to honour the subsequent bills of exchange for about Rs.

15,43,550 . . .

On November 27, 1995, the third defendant wrote to the chartered accountants of the plaintiff admitting their liability stating that as per their

books, a sum of Rs. 60.58 lakhs was due by them to the plaintiff. Having clearly admitted their liability the defendants are liable to the plaintiff. . .

The plaintiff submits that from the beginning the personnel of the first defendant-company were involved with the plaintiff. The advertisement

campaigns, the budgets and the plans, etc., were always discussed with the representatives of the first defendant-company. The plaintiff is giving

below a sequence of meetings where the personnel from the first defendant-company were directly involved.

A reading of the entire plaint and in particular the above said paragraphs, would clearly indicate that the appellant has sought for a money

decree jointly and severally against all the defendants with the specific averments that the third defendant represented the plaintiff in April 1994 that

it was the agent of the first defendant-company, and the third defendant was acting not only on its behalf, but also on behalf of the first defendant. It

was even averred that the third defendant company had an agreement with the first defendant-company. It is also specifically stated that pursuant

to the instructions from the defendants, the plaintiff raised all the bills on the third defendant-company. Even from the plaint averments, it would be

quite clear that the letter much relied on by the appellant dated November 27, 1995, was one written by the third defendant to the chartered

accountant of the appellant/plaintiff and not to the plaintiff. It is not disputed that under the said letter, the third defendant has admitted the liability

of Rs. 60.58 lakhs. The contention of the appellant was that it was an admission of the liability of the third defendant. Contrarily, it is contended by

the respondent that the letter speaks of the liability to the extent of Rs. 60.58 lakhs, but it was not the liability of the third defendant. The specific

averments in the plaint in C.S. No. 334 of 1996, when noticed it would reveal that the advertisement campaigns, the budgets and the plans, etc.,

were always discussed with the representatives of the first defendant-company. The plaint also speaks of the sequence of meetings where the

personnel from the first defendant-company were directly involved. The appellant seeking for a decree against all the defendants jointly and

severally came with the specific averments that the first defendant was the principal and the second and third defendants were acting not only as

agents of the first defendant, but also on their own behalf in their independent capacity. Apart from that, even as per the plaint, the appellant has

acted on the instructions of the representatives of the first and third defendants. All would go to show that the third defendant even as per the

plaintiff''s case, has acted only as an agent.

It is true that the plaintiff has also averred that the third defendant has acted not only as agent of the first defendant, but also in its capacity. It

remains to be stated that the plaintiff has sought for a money decree against all the three. Nowhere in the plaint, any specific liability of the third

defendant was made. The third defendant has also filed a written statement denying its liability of the suit claim. It is pertinent to point out that on

the pleadings both sides have filed the draft issues. It is also not in dispute that necessary issues have been framed in respect of the liability of the

third defendant. Thus, it would clearly show that the triable issues have already been framed whether the third defendant was liable to pay or not.

While the plaintiff has filed the suit for money decree against all the three defendants with the specific averments that they are jointly and

severally liable, and the third defendant was also acting as agent of the first defendant, the third defendant filed a written statement that it was not

liable to pay any amount since it was acting only as agent and hence the principal is liable and the necessary issues have also been framed. At this

juncture, it would be quite clear that the dispute raised by the respondent was actually bona fide and hence the parties have to await the

adjudication of the liability of the respective sides. It is pertinent to point out that the company petition seeking winding up has been filed after the

filing of the written statement by the defendants. The contention of the appellant''s side that the first and second defendants have categorically

denied the liability and have further averred that the third defendant alone was liable for answering the claim cannot be countenanced when the

plaintiff has filed the suit against all the three defendants seeking for a money decree against all jointly and severally. Merely because the written

statement was filed by the first and second defendants, it cannot be taken that the third defendant alone was liable and till the adjudication is made

by the civil forum in the suit, it would remain as a dispute. Now, no liability could be fastened on the third defendant. It is not in controversy that the

respondent company has been ordered to be wound up by BIFR and AAIFR at Delhi, and that cannot be a reason for ordering winding up of the

respondent-company in the instant case.

Whenever a company petition is filed seeking winding up, the court must consider the circumstances in every case and come to a necessary

conclusion. Needless to say that granting of the relief of winding up is a discretionary relief; but, the court when exercise this discretionary power, it

must be governed by justice and equity. The court must exercise its discretion judiciously also. It is well-settled principle of law that if there is any

substantial defence put forth by the respondent, the same has got to be decided by the court only on appreciation of evidence. Having filed a suit

calling the respondent, the third defendant therein, as the agent of the first defendant and necessary issues having been framed touching the liability

of all the defendants, filing a company petition like this was nothing but a device to pressurise for payment of the said sum by the third defendant. It

is well-settled that the winding up petition cannot be made as a device to pressurise the respondent to make payment as per the demand. In view

of the pendency of the suit with the above said specific averments and seeking a decree for recovery of money against all defendants jointly and

severally, which is exactly the subject-matter in the company petition and the fact that pursuant to the substantial defence, necessary issues have

also been framed in that suit, this Court is of the considered opinion that at no stretch of imagination, an order of winding up could be made and

hence this Court is unable to see any reason to interfere in the order of the learned single judge.

In the result, this original side appeal is dismissed confirming the order of the learned single judge and leaving the parties to bear their costs.