Thirukumara Trading Agency vs Sleek Textiles Industries Ltd.

S. Rajeswaran, J.—The petition filed under Sections 433(e), (f) and 434(1)(b) read with Section 439(1)(b) of the Companies Act, 1956, praying for a direction to wind up the respondent, to appoint the official liquidator, High Court, Madras, to take charge of the assets of the respondent-company and for costs.

The petitioner-company is a partnership firm and they have filed a petition to wind up the respondent-company and to appoint the official liquidator to take charge of the assets of the company as the respondent-company failed to pay the admitted sum of Rs. 1,02,460 towards past payment payable by the company for purchasing products from the petitioners.

The petitioners are carrying on business of selling dyes, chemicals and textiles auxiliaries. In the course of business the petitioners supplied on various dates starting from July 28, 2001 to September 28, 2001, for Rs. 1,64,430 to the respondent under 9 invoices for the purchase orders placed by the respondent. The respondent-company made various amounts from August 30, 2001 to December 27, 2002, for a sum of Rs. 61,970 to the petitioners leaving a balance of Rs. 1,02,460 payable to the petitioners. The respondent issued a cheque dated January 4, 2003, towards part payment and this cheque for Rs. 10,000 was dishonoured by the respondent''s bank. The petitioners sent a notice on September 12, 2003 and another notice on September 22, 2003, u/s 434 of the Companies Act, 1956, calling upon the respondent to pay the balance amount of Rs. 1,02,460. Though the notice was received by the respondent, they did not come forward to send any reply. The respondent-company is also incurring losses and therefore the petitioners prayed that the respondent-company is to be wound up.

The respondent-company entered appearance through their Counsel and filed a counter affidavit. The case of the respondent is that they purchased peroxide and soda ash from the petitioner but the material supplied failed to adhere to the quality and specifications. Therefore, the respondent gave a debit note on February 17, 2002. After negotiation between the parties, it was agreed that the outstanding amount was only Rs. 64,630.30 and therefore it is not open to the petitioners to claim a sum of Rs. 1,02,460 that too with 24 per cent, interest. A preliminary objection was also raised by them in the counter by contending that the petitioners should have approached only the civil court and not a company court as there was a bona fide dispute with regard to the amount payable by the respondent. Hence, they prayed for dismissal of the company petition.

When the company petition was pending, the managing partner Mr. K.S. Ramaraj who represented the petitioner-firm passed away on October 7, 2006 and therefore his wife and her brother filed an application in C.A. No. 2515 of 2004 for substituting them as the petitioners in the place of the firm which filed C.P. No. 39 of 2004. This application was allowed on January 5, 2007.

Heard learned Counsel for the petitioners and the learned Counsel for the respondent. I have also perused the documents and the judgments referred to by them in support of their submissions.

Learned Counsel for the petitioners submitted that the respondent-company has to pay a sum of Rs. 1,02,460 as per 9 invoices filed in the typed set of papers and even though the statutory notice was received, the respondent did not come forward to pay the said sum and hence the respondent-company is to be wound up.

Per contra, learned Counsel for the respondent-company submitted that the company petition itself is not maintainable as there is a bona fide dispute with regard to the sum payable by the respondent-company and in such circumstances the petitioners should approach only the civil court and not the company court. For this proposition learned Counsel for the respondent relied on the judgments of the Supreme Court reported in Pradeshiya Industrial and Investment Corporation of U.P. Vs. North India Petrochemical Ltd. and Another, and Mediquip Systems Pvt. Ltd. Vs. Proxima Medical System GMBH, . Leaned Counsel for the respondent further raised an objection as to the locus standi of the petitioners to maintain the company petition which was originally filed by the partnership firm. Further, learned Counsel for the respondent submitted that Section 214 of the Succession Act has not been complied with by the substituted person as they have not produced any succession certificate. He relied on the decision of the Orissa High Court reported in Basanta Kumar Das Vs. Smt. Lakshmi Priya Dasi and Another, in this regard.

I have considered the rival submission with regard to the facts and citations.

Even without going into the question of locus standi of the substituted petitioners, to continue the company petition originally filed by the partnership firm, I am of the considered view that the company petition filed by the firm for winding up of the company on the ground that the company could not pay the balance amount of Rs. 1,02,460 is misconceived.

The case of the petitioners is that for the goods supplied under nine f invoices for a total sum of Rs. 1,64,430 the respondent-company was able to pay only a sum of Rs. 61,970 and the balance of Rs. 1,02,469 is still due and payable by the company. This was seriously disputed by the respondent by contending that the goods supplied were not confining to the standard specified and therefore a debit note was issued on February 19, 2002, by the respondent. It is the further case of the respondent that after negotiation the liability was reduced from Rs. 1,48,517.50 to Rs. 65,603.30 only. Documents have been filed by the respondent to show that there was less purity in the goods supplied, the issuance of the debit note and the discussion held to arrive at a settlement. In the light of the above, as rightly contended by learned Counsel for the respondent, the company petition is not maintainable and if at all it is the stand of the petitioner that there is no debit note and there is no settlement as claimed by the respondent, they should have approached only the civil court and not the company court.

In Pradeshiya Industrial and Investment Corporation of U.P. Vs. North India Petrochemical Ltd. and Another, the hon''ble Supreme Court held that when the debt was prima facie disputed, the company petition filed for winding up is not maintainable. The relevant portion reads as under (page 844 of 79 Comp Cas):

It is beyond dispute that the machinery for winding up will not be allowed to be utilized merely as a means for realising its debts due from a company. In Amalgamated Commercial Traders P. Ltd. v. A.C.K. Krishnaswami [1965] 35 Comp Cas 456 this court quoted with approval the following passage from Buckley on the Companies Act, 13th edition, page 451 :

It is well-settled that a winding up petition is not a legitimate means of seeking to enforce payment of the 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.

In Mediqup Systems P. Ltd. v. Proxima Medical System GmbH [2003] 3 JT SC 380 : [2005] 124 Comp Cas 473, the hon''ble Supreme Court held that the machinery for winding up will not be allowed to be utilised merely as a means for realising debts due from a company and the debt must be a determined or a definite sum of money. The relevant portion of the judgment reads as under (pages 481 to 483 of 124 Comp Cas):

This court in 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....

The debt u/s 433 of the Companies Act must be a determined or a definite sum of money payable immediately or at a future date. We are informed that the financial position of the appellant is sound....

The rules as regards the disposal of winding up petition based on disputed claims are thus stated by this court in Madhusudan Gordhandas and Co. Vs. Madhu Wollen Industries Pvt. Ltd., . This court has held that if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The principles on which the court acts are:

(i) that the defence of the company is in good faith and one of substance;

(ii) the defence is likely to succeed in point of law; and

(iii) the company adduces, prima facie proof of the facts on which the defence depends.

From the above decision it is very clear that an order u/s 433(e) is a discretionary one and the machinery for winding up should not be allowed to be utilised merely as a means for realising debts due from the company and if that debit is bona fide disputed and the defence is a substantial one, the court will not wind up the company.

In the present case the respondent-company has disputed the debt with documents to support and therefore I am not inclined to exercise my discretion in favour of the petitioner for winding up of the respondent-company

In the result, the company petition is dismissed. No costs. Consequently, C.A. No. 212 of 2004 is also dismissed.