Straw Board Manufacturing Company Limited vs Mahalakshmi Sugar Mills Company Limited

G.R. Majitha, J.—This is a petition u/s 433 read with Section 439 of the Companies Act, 1956 (for short "the Act"), for the winding up of the respondent-company.

The brief facts are: On January 27, 1987, an agreement was arrived at between the parties. Pursuant to this, the petitioners supplied 100 trucks of bagasse. The rate per quintal was fixed at Rs. 24 exclusive of sales tax. Rs. 20,000 was paid by way of bank draft as advance. The total payment against supply comes to Rs. 3,95,521.36. The representative of the petitioner-company met the managing director of the respondent-company for payment of the outstanding amount and it was promised that the same would be sent by July 27, 1987. Reminders were sent on July 28, 1987, August 11, 1987, and August 17, 1987, but they were of no consequence. On August 29, 1987, the respondent-company intimated to the petitioners that the payment will be released very shortly. The respondent-company, however, did not make the payment necessitating the issuance of notice u/s 434 of the Act. Despite notice no payment was made. The petitioners made a claim for the principal amount and interest at the rate of 18 per cent. per annum till January 31, 1988, which comes to Rs. 53,605.52.

The respondent in its reply took up the preliminary objection that the affidavit filed in support of the company petition was not in conformity with the rules, namely, the Companies (Court) Rules, 1959, and the petition was liable to be dismissed on this score alone. The respondent further submitted that after the supply of 100 trucks of bagasse, the petitioner-company wanted to send more supplies which the respondent-company was finding difficult to accept. They agreed to accept the extra material on the understanding that the payment would be deferred for 2/3 years. The material which was supplied over and above the agreed quantity of 100 trucks of bagasse was not in proper form and it was decomposed and was of no use to the respondents. The defects were pointed out to the petitioners and the latter agreed to the abatement of the price.

The following facts stand proved on the file: The respondent-company, vide letter dated January 27, 1987, confirmed having contracted to purchase 100 truckloads of loose bagasse at the rate of Rs. 24 per quintal plus the sales tax applicable. A sum of Rs. 50,000 was paid as advance. On August 29, 1987, when the petitioner-company asked for payment, it was confirmed by the respondents that they were making arrangements to send the payment towards the bills submitted by the petitioners. On November 10, 1987, the petitioners emphasised that the respondents must give a definite schedule of payment. On November 10, 1987, the respondents again reiterated that they were arranging for the remittance. On November 5, 1987, the respondent-company confirmed having received a letter, bearing No. 5462 dated October 29, 1987, through Ganga Bishan Kohli. Form 3-B, bearing Nos. 473430 and 473431, for bagasse despatches during April to June, 1987, and also for July, 1987, were sent by the respondent-company to the petitioners. On December 18, 1987, the respondents intimated to the petitioners to send the statement of accounts showing that a sum of Rs. 3,37,167.56 was outstanding from the respondents. A notice u/s 434 of the Act was receive''d by the respondents and a reply was sent on March 30, 1988. In the subsequent communication, the respondent-company tried to highlight that the excess supplies of bagasse were decomposed and the supply was accepted as per the terms and conditions mentioned in the letter dated February 27, 1987. The sequence of events given supra clearly indicates that the defence now sought to be raised is an afterthought. Till November 5, 1987, the respondent-company did not dispute that the material supplied by the petitioners was not as per the specifications or that it was decomposed or that for the excess material supplied over and above the quantity provided in the original letter dated January 27, 1987, the payment was not to be made immediately on supply of bagasse but after 2/3 years as now alleged. On January 6, 1988, the petitioner-company supplied the statement of accounts to the respondents and even when the statement of accounts was asked for no such grouse was made as is now being unfolded. The respondents for the first time on November 5, 1987, stated that the bagasse which was supplied over and above the contractual quantity was decomposed. Presumably, when the petitioners were pressing for the payment and the respondents could not arrange for it, in anticipation of legal action likely to be taken against them, they cooked up the defence in this letter.

The respondents at no point of time disputed the correctness of the statement of accounts submitted by the petitioner. This is an indication for coming to the conclusion that there is no dispute regarding the amount due. There can be no dispute that a winding-up petition is maintainable if the company is unable to pay its debt and the relief in pursuance of the winding-up petition can only be refused if the debt is bona fide disputed and the defence of the company is in good faith and one of substance; the defence is likely to succeed in point of law when the company adduces prima facie proof of the facts on which the defence depends. The respondent-company has- miserably failed to do so. As observed earlier, the defence now sought to be raised is an afterthought and raked up to defeat the claim of the petitioners. The respondent-company in spite of repeated demands by the petitioners neglected to pay the amount due and it prima facie establishes their inability to pay it.

For the reasons stated, I hold that a sum of Rs. 3,37,167.56 is due from the respondents which they have failed to pay in spite of demands. I direct the respondents to pay this amount within one month from today failing which the company petition will be advertised in conformity with Rule 24 of the Companies (Court) Rules. The company petition will be advertised in The Tribune, Punjabi Tribune and in the Punjab Government Gazette.

The petition to come up for further orders on May 19, 1989.

JUDGMENT

R.S. Mongia, J.

This judgment of ours will dispose of Company Appeal No. 4 of 1989 as well as Company Miscellaneous No. 32 of 1990, which was filed by the appellant during the course of hearing of the appeal.

Mahalakshmi Sugar Mills Co. Ltd., the petitioner (now respondent in the present appeal), had moved a petition u/s 433 read with Section 439 of the Companies Act, 1956, for winding up the appellant company known as Straw Board Manufacturing Company Limited, on the facts which will be hereinafter mentioned. These companies will be referred to hereinafter as "Mahalakshmi" and "Straw Board", respectively.

On 27th January, 1987, the managing director of Straw Board confirmed the contract entered into between Mahalakshmi and Straw Board for the purchase of 100 trucks of bagasse from Mahalakshmi. The rate per quintal was fixed at Rs. 24 exclusive of sales tax. An advance of Rs. 20,000, by way of bank draft was also paid by Straw Board to Mahalakshmi. The contract entered into between the parties is attached as annexure P-1 to the company petition. In pursuance of the contract, Mahalakshmi supplied 100 trucks of bagasse to Straw Board. It is the case of Mahalakshmi that even after the supply of 100 trucks of Bagasse as agreed upon between the parties, it continued further supply of bagasse beyond 100 trucks on the same terms and conditions during the whole crushing season. After the close of the season, Mahalakshmi, vide its registered letter dated 23/24th July, 1987, sent a statement of accounts to Straw Board and requested immediate payment of the outstanding sum of Rs. 3,95,521.36. Again a written demand for payment was repeated on July 28, 1987, and on August 11, 1987, but no amount was paid. However, vide letter dated August 29, 1987 (annexure P-2), Straw Board informed Maha-lakshmi that it was arranging to send payment of the bills shortly.

It has been further stated by Mahalakshmi that upon repeated requests and personal visits of the representative of the company, payments to the tune of Rs. 48,852.40 were made by Straw Board during the period September 9, 1987, to November 17, 1987.

Since Straw Board was not making the payment of the entire amount of the outstanding bills, Mahalakshmi wrote yet another letter on November 7, 1987, impressing upon Straw Board to make the outstanding payment immediately. Vide letter dated November 10, 1987 (annexure P-3 to the petition), Straw Board replied to the letter dated November 7, 1987, that it was arranging to send remittance. On November 10, 1987, another letter was written by Mahalakshmi to Straw Board (which must have crossed the letter of even date written by Straw Board), in which again it coaxed Straw Board that a definite schedule of payment should be given and it was not appreciating the delay in payment on the part of Straw Board. Since the appellant-company, Straw Board, failed to make the entire payment, Mahalakshmi issued a notice u/s 434 of the Companies Act through its lawyer on December 8, 1987, calling upon Straw Board to make the payment of the amount of Rs. 3,41,627.51 along with interest at the rate of 18 per cent. within three weeks from the receipt of the notice. Straw Board acknowledged the receipt of this notice but asked for the statement of accounts from Mahalakshmi. Mahalakshmi thereafter sent the details of the bills and the payments received so far, vide its letter dated January 6, 1988. The matter rested there and no payment was made by Straw Board to Mahalakshmi, which led to the filing of the winding up petition, on the ground that Straw Board had failed to make payment of the principal amount as well as interest and since it was unable to pay its debts, it was liable to be wound up.

Straw Board in its reply before the learned company judge took up the stand that after the supply of 100 trucks of bagasse, Mahalakshmi wanted to send more supplies which Straw Board was finding difficult to accept. However, it agreed to accept the extra material on the understanding that the payment would be deferred for 2 to 3 years. Further, its stand was that the material which was supplied over and above the agreed quantity of 100 trucks of bagasse, was not in proper form and it was decomposed and was of no use to the respondent. According to Straw Board, the defects were duly pointed out to the supplier and it had agreed to abatement of the price. With the reply to the petition, Straw Board had attached copies of the letters dated February 27, 1987, April 11, 1987, September 6, 1987, July 9, 1987, August 18, 1987, and November 5, 1987 (annex-ures R-1, R-3 to R-7 respectively), allegedly written by it to Mahalakshmi. It may be mentioned that in the written statement it haa not been mentioned as to how these letters were despatched, whether these were despatched by registered post, U. P. C. or by recorded delivery. It has not been averred that these letters were duly received by Mahalakshmi.

In the letter dated February 27, 1987 (annexure R-l), which is alleged to have been written by Straw Board to Mahalakshmi, it is mentioned that Straw Board agreed to take the supply of new and fresh bagasse in excess of its order on the assurance that the payment of excess amount of material supplied would be made over a period of 2-3 years at the convenience of Straw Board. The letter goes on to state that though the excess material was not required by it, the same was being purchased as a goodwill gesture. In letter dated. April 11, 1987 (annexure R-3), September 6, 1987 (annexure R-4), July 9, 1987 (annexure R-5), August 18, 1987 (annexure R-6), and November 5, 1987 (annexure R-7), allegedly written by Straw Board, it has been mentioned that the material supplied was sub-standard and decomposed.

In the replication filed on behalf of Mahalakshmi, it has been specifically mentioned as under:

"I say that the alleged letter No. 260 dated February 27, 1987, is a fabrication. No such letter was ever written or received from the respondent-company. This letter has been fabricated to raise a false defence/dispute. Your Lordship will notice that there is no acknowledgment by the petitioner-company of this letter. Secondly, after purchasing 100 trucks, the respondent-company made full payment of some bills as stated above. These payments show that there was no agreement for deferred payments and there is no mention thereof in any of the payments. Thirdly, at no stage in any correspondence has the respondent-company alleged that there was any agreement for deferred payments.

I say that it is wrong and denied that the material supplied by the petitioner-company was decomposed. Letter dated April 11, 1987, annexed as annexure R-3 is a fabrication. Similarly, letter dated September 6, 1987, annexed as annexure R-4 (the date of which is shown in the body of the reply as June 9, 1987) is again a fabrication. Letters dated July 9, 1987 (annexure R-5), August 18, 1987 (annexure R-6), and November 5, 1987 (annexure R-7), are fabrications. These letters were never sent or received by the petitioner company."

By filing the reply and taking the stand, as stated above, Straw Board sought to urge before the learned company judge that there was a serious dispute regarding the quality of the material supplied and further that the payments were to be made within 2 to 3 years of the supply and since there was a genuine dispute between the parties regarding their business transactions and the amount had not become payable as a period of 2 to 3 years had not lapsed, there was no question of winding-up the company. It was also submitted before the company judge that it had been mentioned, vide letter dated August 18, 1987 (annexure R-6), written by Straw Board to Mahalakshmi that in the statement of accounts sent by Mahalakshmi to Straw Board on 23/24th July, 1987, it had not credited to the account of Straw Board the cost of 250 tonnes of bagasse, which had been intimated to them earlier, the cost of which came to Rs. 60,000 plus sales tax of Rs. 2,400 and transportation charges of Rs. 22,500. It was requested that the total amount which came to Rs. 84,900 may be credited to their account. It is evident that before the learned company judge the stand of Straw Board was that since there was a serious dispute regarding the business transactions and the amount claimed by the petitioner, Mahalakshmi, no case had been made out for the winding up of the company. It may be highlighted that the entire amount claimed by Mahalakshmi was disputed and no part of it was admitted to be payable.

The learned company judge held that at no time earlier than the reply to the notice given by Mahalakshmi u/s 434 of the Act was it stated by Straw Board, vide its reply dated March 30, 1988 (annexure R-8), that the material supplied was sub-standard. As far as the earlier letters to that effect allegedly written by Straw Board are concerned, the same have been denied having ever been received by Mahalakshmi. The learned company judge came to the conclusion that Straw Board had at no point of time disputed the correctness of the statement of accounts submitted by the petitioner and since there was no bona fide dispute between the parties, and the defence of the company was not in good faith, the company judge found that a sum of Rs. 3,37,167.56 was due from Straw Board, which it had failed to pay in spite of demands. The learned judge directed Straw Board to pay the said amount within one month from the date of the order, i.e., February 10, 1989, failing which the company petition would be advertised in conformity with Rule 24 of the Companies (Court) Rules, 1959. Dissatisfied with the judgment of the company judge, Straw Board has come up in appeal.

During the course of arguments in the appeal, Straw Board moved an application, being Company Miscellaneous No. 32 of 1990, in which it was prayed that the appellant may be permitted to deposit a cheque of Rs, 1,44,413.16 as the admitted outstanding liability (over and above Rs. 1 lakh already paid during the pendency of the appeal) along with a bank guarantee for the disputed amount. Notice of this application was given to counsel for the respondent and this application was ordered to be decided with the main case. In para 3 of the miscellaneous application, it is mentioned as under :

That the following amount admittedly is due:--

(Rs.)

(i) Amount due as claimed in the petition

3,37,167.56

(ii) Less: paid as per High Court orders

1,00,000.00

(iii) Less : amount disputed

84,900.00

1,52,267.56

Less: price of regmal supplied and amount due

8,254.40

Amount due

1,44,413.16.

Mr. L.M. Suri, Senior Advocate, learned counsel for the appellant, submitted that his client had already paid Rs. 1,00,000 to Mahalakshmi in pursuance of the order passed by the motion Bench while admitting the present appeal and he was ready with a cheque for Rs. 1,44,413.16 and as far as the balance amount out of Rs. 3,37,167.56 was concerned, the same was disputed, for which he was ready to give a bank guarantee. He further submitted that he was ready to furnish a bank guarantee for the amount of interest as well. Learned counsel contended that the readiness of the appellant to make payment of Rs. 1,44,413.16 and to furnish the bank guarantee regarding the balance amount, which according to him, was a disputed amount, showed that it was not a case where Straw Board was unable to make the payment, rather it showed that the company was in a sound financial position. He further submitted on the basis of the averment in the miscellaneous application that his client owned land over 30 acres with a factory constructed thereon and owned a large number of shares in a number of companies valued at over Rs. 20 lakhs. Since, according to learned counsel, his client was ready and willing to pay the undisputed amount and for the rest it was furnishing a bank guarantee, the question of winding up the company did not arise.

In support of the above-mentioned submissions, learned counsel relied on Amalgamated Commercial Traders (P.) Ltd. v. A.C.K. Krishnaswami [1965] 35 Comp Cas 456, a judgment of the Supreme Court, wherein it was held as under (at page 463):

"It is well-settled that a winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the company. A petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatised as a scandalous abuse of the process of the court.

If a debt is bona fide disputed there cannot be ''neglect to pay'' within the meaning of Section 434(1)(a) of the Companies Act, 1956. If there is no neglect, the deeming provision does not come into play, and the ground of winding up, namely, that the company is unable to pay its debts, is not substantiated."

On the basis of the above-said judgment, learned counsel argued that since there was a bona fide dispute by the company and the company otherwise was in a position to pay the debt, the only course open was to relegate the parties to a civil suit for determination of the dispute, but no order of winding up could be passed. Learned counsel further submitted that on the parity of the reasoning in Hindustan Sanitary and Hardware Store v. J. C. T. Electronics Ltd. [1990] 67 Comp Cas 585 (P & H), in which it was held that where the company had paid off a debt of Rs. 3.62 lakhs to the petitioning creditor in the course of proceedings and the company obtained a statement of the bank''s willingness to stand guarantee for the liabilities of the company, the appellant company was not commercially insolvent and further since the company was disputing some debts, it could not be ordered to be wound up. He also cited Madhusudan Gordhandas and Co. Vs. Madhu Wollen Industries Pvt. Ltd., , to contend that since there was a bona fide dispute by the company, the payment was rightly not made, and, therefore, under the circumstances, no order of winding up of the company could be passed.

Mr. N.K. Sodhi, senior advocate, learned counsel for the respondent, Mahalakshmi, on the other hand, submitted that before the company judge the, entire amount was being disputed by Straw Board and it had not made any payment or offer of payment of the undisputed amount, which offer Straw Board was now making in the appeal by saying that liability to the tune of Rs. 2,44,413.16 was undisputed. According to learned counsel, since an order of advertisement of winding up has been passed by the company judge, it is now that Straw Board has come up with the plea that it was ready and willing to pay the undisputed amount and for the balance amount of about Rs. 84,900 plus interest, it was ready to give a bank guarantee. According to learned counsel, if there was any dispute regarding the amount of Rs. 84,900 only, Straw Board should have at least paid or offered to pay the balance amount before the company judge. Since Straw Board was ready to make payment of the undisputed amount at the appellate stage, it was no ground to set aside the order of the learned company judge. He further submitted that the defence of Straw Board before the learned company judge was that the entire amount was disputed and nothing was payable, which defence has been found to be false by the learned company judge as the letters on the basis of which the defence was based were wholly fabricated just to raise a false defence. For this purpose, he relied on the judgment of the Calcutta High Court in T.P. Sahu and Sons Pvt. Ltd., In re [1982] 52 Comp Cas 182 and in Wastinghouse Saxby Farmer Ltd., In re [1982] 52 Comp Cas 479 and of the Delhi High Court in Smt. Madan Debi Kundalia v. Alpine Dairy Ltd. [1983] 54 Comp Cas 41 and on Softsule Private Ltd., In re: P.G. Bhatia and Co. v. Softsule Private Ltd. [1977] 47 Comp Cas 438, a judgment of the Bombay High Court.

We have considered the arguments of both the sides and find that there is no merit in this appeal. It has been rightly held by the learned company judge that the defence sought to be raised by Straw Board was an afterthought. In reply to the earlier correspondence of Mahalakshmi, Straw Board had written letters on August 29, 1987, annexure P-2, and on November 10, 1987, annexure P-3, that it was arranging to send remittance of their outstanding bills and at no stage had it raised the plea that the material sent was decomposed and not according to the specifications or that the bills were payable within 2 to 3 years according to the agreement. We find that the stand taken by Mahalakshmi is correct that if there was any dispute regarding the material or the period of payment, Straw Board would not have written letters like annexure P-2 and P-3, referred to above. There is nothing on the record to show as to how the letters allegedly written by Straw Board to Mahalakshmi regarding the quality of the material or that the payments were to be made within 2 to 3 years of the supply, were despatched and whether they were at all received by Mahalakshmi. Mahalakshmi has specifically denied the receipt of any of the letters, annexures R-1 and R-3 to R-7. That being the position, it is clearly established that the defence raised by Straw Board that there was a serious dispute regarding the transactions, is thus an afterthought.

We are also not impressed by the arguments of learned counsel for the appellant that since now they are making the payment of the undisputed amount and for the disputed amount the company was giving the bank guarantee, no order of winding up should be passed. If now the amount is undisputed, it was undisputed even before the learned company judge. Had the offer been made before the learned company judge, which is now being made by way of Company Miscellaneous No. 32 of 1990, the position might have been different. It seems that since there is an order of the learned company judge regarding winding up, the miscellaneous application has been made making an offer to pay the undisputed amount and to give a bank guarantee regarding the rest of the amount, including interest.

For the reasons recorded above, we do not find any infirmity in the judgment of the learned company judge, and, consequently, dismiss the appeal, as well as Company Miscellaneous No. 32 of 1990, without any order as to costs.

The learned company judge, vide his order dated February 10, 1989, had directed that the amount of Rs. 3,37,167,56 be paid within one month by Straw Board to Mahalakshmi, failing which the company petition would be advertised in conformity with Rule 24 of the Companies (Court) Rules. The admitting Bench while admitting the present appeal, vide order dated November 27, 1989, observed that if a sum of Rs. 1,00,000 is paid to the respondent, i.e., Mahalakshmi, then the ex parte stay order regarding the payment of money would continue, failing which the same would stand vacated. In pursuance of the stay order, the appellant company did pay Rs. 1,00,000 to the respondent Mahalakshmi. Under the circumstances, we direct that in case the appellant-company pays to the respondent the balance amount (i.e., Rs. 3,37,167.56 minus Rs. 1,00,000) with 18% interest from March 10, 1989, within one month from today then the company petition may not be advertised, otherwise the company petition would be advertised in the Tribune, the Punjabi Tribune and in the Punjab Government Gazette, one month after the date of the present judgment.