Shakti Agencies vs Manshuk Bhai Industries Ltd.

Shiv Kumar Sharma, J.—Meaningful question that emerges in this petition is whether winding up petition is a legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the company ?

Upon failure to honour the outstanding dues, the petitioner-firm gave a statutory notice to the respondent-company u/s 434 of the Companies Act, 1956 (for short "the Act"), demanding due payment towards principal amount with interest but the respondent-company failed to make payment within statutory period, as a result of which the petitioner-firm was led to file instant company petition for winding up u/s 439 read with Section 433(e) of the Act.

The respondent-company has raised various contentions against the winding up petition, which are highlighted hereinbelow:

(i) The petition is not maintainable since the issue in dispute is of a contractual and civil nature which can be resolved by institution of civil suit.

(ii) The petition is firstly misconceived and is filed with oblique motive to pressurize the respondent-company to make the payment of the amount as alleged to be due.

(iii) The dispute involved is a bona fide dispute between the parties and winding up petition is not a legitimate means of seeking to enforce payment of the debt, which is a bona fide dispute.

(iv) The petitioner had tried to take unfair advantage by suppressing the material fact and had approached the court with unclean hands.

(v) The bills up to August 2001, were cleared by the respondent-company within time. For the subsequent supplies by the petitioner firm it was found that goods were of "inferior quality". The fact of supply of defective goods was brought to the knowledge of petitioner-firm and a request was made to send a representative to check the quality of goods. The respondent-company on account of over charged rates raised a total claim of Rs. 2,96,956 on the petitioner-firm and made request to issue a credit note for the said amount but credit note was not issued.

(vi) The respondent-company never took any decision to make payment to the petitioner-firm but only agreed to allot the shares. Acting in accordance with the agreed terms and conditions the petitioner-firm applied for the allotment of 70,000 equity shares at Rs. 10 each at a premium of Rs. 5 each. The share certificates were dispatched by the respondent-company and received by the representative of the petitioner-firm.

(vii) The respondent-company is a running concern yielding handsome profits and having sound financial position. In support of this contention audited balance sheets have been filed.

The petitioner-firm filed rejoinder to the reply reiterating the fact stated in winding up petition.

I have given anxious consideration to the rival submissions.

In Mediquip Systems Pvt. Ltd. Vs. Proxima Medical System GMBH, the apex court indicated as under (page 481):

This court in a catena of decisions held that an order u/s 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 dues'' 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 utilized merely as a means for realising debts due from a company.

In Madhusudan Gordhandas and Co. Vs. Madhu Wollen Industries Pvt. Ltd., , their Lordships of the Supreme Court had occasion to consider the circumstances under which the court is justified in ordering winding up of the company. It was indicated in paras. 20 and 21 thus (page 131):

Two rules are well-settled. First, if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable. (see London and Paris Banking Corporation., In re [1874] L. R. 19 . Again, a petition for winding up by a creditor who claimed payment of an agreed sum for work done for the company when the company contended that the work had not been done properly was not allowed. (see BrigS hton Club and Norfolk Hotel Co. Ltd., In re [1865] 35 Beav. 204).

Where the debt is undisputed the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt. (see A Company, In re [1894] 2 S. J. 369 (Ch. D)). Where, however, there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the court will make a winding up order without requiring the creditor to quantify the debt precisely. (see Tweeds Garages Ltd., In re [1962] 32 Comp Cas 795 (Ch D) : [1962] 1 Ch. 406). The principles on which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law, and, thirdly, the company adduces prima facie proof of the facts on which the defence depends.

The principles on which court should act in disposing winding up petition may be deduced thus:

(i) If the debt is not disputed on some substantial ground the court may make the order.

(ii) If the debt is bona fide disputed, there cannot be "neglect to pay" within the meaning of Section 433(1)(a) of the Act and petition for winding up is not maintainable.

(iii) Dispute with regard to payment of interest is not a bona fide dispute.

(iv) The defence of respondent-company should be in good faith, one of substance and likely to succeed in point of law.

Bearing these principles in mind if I examine the facts of this case, I find that this is a case of bona fide disputed debt. Even from the petition for winding up it is evident that for the payment of Rs. 10,50,000 the petitioner-firm agreed to purchase shares of the respondent-company. In the petition the petitioner-firm averred as under (para. 2):

The respondent-company replied on April 24, 2003, vide annexure IX through advocate that request was made on March 26, 2003, by petitioner to allot shares which company accepted in board meeting on February 28, 2003, and rest shares on April 2, 2003. The said statement of respondent-company is wrong because the petitioner informed on April 7, 2003, vide annexure VII that petitioner do not want to purchase shares.

In the additional affidavit filed by O. P. Natani, the managing director and authorised signatory of the respondent-company it was stated that share application form was signed by Mahesh Kumar Gupta, proprietor of petitioner-firm with a sole view to settle the outstanding accounts pursuant to which the respondent-company proceeded to allot 70,000 shares to the petitioner-firm and the certificates were dispatched on April 2, 2003, that were received by the representative of petitioner-firm on April 10, 2003. The contentions made in the additional affidavit have been supported by the documents. Document annexure 13 is the application form for the allotment of 70,000 equity shares of the respondent-company. It bears the signatures of Mahesh Kumar Gupta (proprietor of the petitioner-firm). Document annexure 14 is the copy of relevant page of delivery register. A look at the said document reveals that on April 10, 2003, the petitioner-firm got the delivery of shares and one Phool Singh put his signatures on behalf of Mahesh Gupta, on the delivery register. Since these documents have not been controverted, I see no reason to disbelieve them. In my opinion the respondent-company bona fide disputed the debt and it cannot be held that the respondent-company neglected to pay the debt within the meaning of Section 433(1)(a) of the Act. The winding up petition is not a legitimate means of seeking to enforce payment of debt which is bona fide disputed by the company.

For these reasons, I find no merit in the petition and the same stands accordingly dismissed without any order as to costs.