Sudhir Papers vs Kivisansho Packaging P. Ltd.

Dr. Vineet Kothari J.—The present company petition has been filed under section 439 read with section 433(e) of the Companies Act, 1956, seeking the winding up of the respondent-company-Kivisansho Packaging P. Ltd., registered in the State of Karnataka, on account of alleged failure of the respondent-company to pay the alleged liability of Rs. 44,18,929 including interest at the rate of 24 per cent, per annum on the alleged nonpayment of the bills for supply of paper by the petitioner-company to the respondent-company in the course of business.

Learned counsel for the petitioner-company, Mr. Mallanagouda submitted that the respondent-company has failed to discharge its admitted liability and vide annexure E, the statement of account having been confirmed by the respondent-company showing the outstanding balance of Rs. 10,80,833 as on November 16, 2010 and no response to the legal notice either by payment of the said liability to the petitioner-company or responding to the said notice by reply thereof, the company has failed to discharge its liability despite demand and therefore, the respondent-company deserves to be wound up in accordance with the provisions of section 433(e) of the Companies Act.

The respondent-company in paragraph 3 of its statement of objection has stated as under :

"The averments made in the company petition paragraph 5 that the subject matter restricts for the materials purchased from 2009 to 2010 only and produced alleged statement of account as per annexures D1 and D2 which includes several unauthorised and arbitrary entries regarding interest and other claims. The said statement produced at annexure D1 regarding transaction up to August 23, 2010, are all time-barred claims. Similarly the claims made as per annexure D1 does not relate to the respondent as the bills related to Bhadra Pack Aid P. Ltd., which was also time-barred claim as on the date of filing the above company petition and there is no acknowledgment of debt or liability by the respondent. Further the petitioner had produced statement of account of Bhadra Pack Aid P. Ltd., who are not party to the above proceedings and the said statement also refers to several entries which are not related to the respondent-company and there is no acknowledgment by the respondent herein. The alleged balance confirmation endorsement dated November 9, 2011, also not related to the respondent as such no officials or assistants are authorised to acknowledge the liability. Even the said alleged acknowledgment dated November 9, 2011, for the amount of Rs. 10,80,833 and another alleged acknowledgment dated October 19, 2011, for Rs. 9,74,512 are all time-barred claim as the company petition filed on November 10, 2014, after the lapse of three years period of limitation. Hence time-barred claim cannot be recovered through the above petition which was liable to be dismissed with cost."

I have heard learned counsel for the petitioner-company and the respondent-company.

From the material on record, it does not appear to be a fit case for initiating winding up proceedings against the respondent-company. The petitioner-company as well as the respondent-company were engaged in a series of mutual business transactions of supply of paper and purchase thereof. The confirmation of the outstanding balance of the amount as per the books of account of the respondent-company does not per se amount to any admission of the liability to pay the same, which the respondent-company can be said to have failed to discharge, despite notice.

The settled legal position in this regard is that, if the liability is disputed by the respondent-company, the remedy of the applicant lies by way of filing civil suit for recovery of outstanding amount, if any, and the winding up petition cannot be filed against the company unless the substratum of the respondent-company is completely lost. No such material has been placed on record, before this court, in the present company petition indicating that either the net worth of the respondent-company is negative in value or otherwise the substratum of the company is lost and the respondent-company has become dysfunctional. The winding up petition cannot be converted into a trial of a money recovery suit, nor can it be allowed to be misused as a pressure exerting tool. The provisions of section 433(e) have very serious and wide repercussion on the respondent-company and they cannot be invoked lightly.

The aforesaid legal position is delineated in a series of judgments and reliance in this regard can be placed on the following judgments :

(a) In the case of IBA Health (I) P. Ltd. v. Info-Drive Systems Sdn. Bhd. [2010] 159 Comp Cas 369 (SC); [2010] 99 CLA 149 (SC), the hon''ble Supreme Court has observed that the Vompany court has not only to look into the interest of the creditors but also the interest of public at large. A company court should act with circumspection, care and caution and examine as to whether an attempt is made to pressurise the company to pay a debt which is substantially disputed. A company court, therefore, should be guarded from any vicious abuse of the process and it cannot function as a debt collecting agency and should not permit a party to unreasonably set the law in motion especially when the aggrieved has a remedy elsewhere.

(b) In the case of Rhein Chemie Rheinau GmbH v. Standard Oil Additive P. Ltd. [2005] 128 Comp Cas 13 (Karn), this court has observed that where there was no prima facie evidence of a commercial transaction, winding up was not to be allowed merely on the basis of the assertion of a debt.

(c) In the case of Surat Goods Transport Service v. Golkonda Engg. Enterprises Ltd. [2012] 169 Comp Cas 24 (AP), the Andhra Pradesh High Court has observed that to file a winding up petition under section 433(e) of the 1956 Act (now section 271(1) (a) of the 2013 Act), the petitioner should first establish that there is a debt due to it and that the company is unable to pay the same. The debt should be an ascertained or determined debt of a definite sum of money, payable immediately or at a future date, and the expression "unable to pay its debts" in section 433 of the 1956 Act should be taken in the commercial sense and if the debt is bona fide disputed and the defence is substantial one, no order of a winding up can be made.

(d) Further, the Andhra Pradesh High Court in the case of Walnut Packing P. Ltd. v. Sirpur Paper Mills Ltd. [2008] 144 Comp Cas 454 (AP), has held that the mention of a debt in the balance-sheet was not an acknowledgment to the petitioner of the debt due to him. The court refused to order winding up on that basis alone.

In view of the above legal position and from the material placed on record before this court, in the present case, this court is satisfied that it is not a fit case for winding up the respondent-company. The petition is therefore liable to be dismissed.

The petition is dismissed. No costs, copy of this order be sent to the parties forthwith.