Full Judgment
HIGH COURT OF MADHYA PRADESH : AT JABALPUR Company Petition No :
2. of 2012 Illume - Tech Solutions & Services - V/s - Netlink Software Group Private Limited.
Present : Hon’ble Shri Justice Rajendra Menon.
-------------------------------------------------------------------------------------- Shri N.S.Ruprah and Shri S.
Chaturvedi, counsel for the petitioner.
-------------------------------------------------------------------------------------- Whether approved for reporting: Yes / No.ORDER
07/09/2012 Seeking winding up of the respondent Company, this Company Petition is filed by the petitioner company.
2- Petitioner Company claims to be registered under the Companies Act having its principal place of business at Bangalore, carrying on the business of identifying opportunities for parties to establish Information Technology in various countries particularly in Thailand and elsewhere.
3- Respondent Company M/s Netlink Software Group Private Limited is also a Company incorporated under the provisions of the Company Act and has its registered office in Bhopal, within the territorial jurisdiction of this Court.
The respondent/Company is carrying on its business primarily by providing professional service in information technology and business process solutions.
4- Interalia contending that the respondent Company is in debt to the petitioner company to the tune of ` 61,85,951=90, made up of principle and interest component as detailed in paragraph 5 of the company petition, this application has been filed by contending that both 2 the petitioner and the respondent company entered into an agreement on 7.4.2009, for the purpose of identifying potential opportunities for the respondent Company’s services to various designated customeRs.particularly in Thailand.
Various procedures were contemplated in the agreement and the terms and conditions were incorporated with regard to payment.
5- It is the grievance of the petitioner company that the respondent company did not come forward and make payment of the third installment of 60% and the balance 40%, as agreed upon, with the result the statutory notice as required under section 433 was sent and when they have neglected to make payment, this petition has been filed.
Interalia contending that inspite of statutory notice being sent under section 433(1)(a) of the Companies Act, 1956, respondent company has failed and neglected to clear the debts, therefore, steps for proceeding in the matter for winding up be initiated, this petition is filed.
6- Shri N.S.Ruprah and Shri Chaturvedi, learned counsel for the petitioner, took me through the correspondence between the parties, the notice sent under section 433(1)(a).the reply to the same by the respondent company and tried to emphasize that as a case is made out indicating negligence on the part of the respondent to make payment of the amount, which is admitted, statutory notice have been issued and in view of the neglect on the part of respondent company to pay the debt, steps be taken for winding up of the company.
7- Placing reliance on a judgment rendered by the Supreme Court in the case of Electron Industries Limited, Mumbai versus Soham Polymers (P) Limited, Mumbai, (2005) 13 SCC 86.and, another judgment in the case of M/s Vijay Industries Vs M/s NATL Technologies Limited, AIR 200.SC 1695.and inviting my attention to certain other judgments of the Bombay High Court, Madras High Court, Allahabad High Court, Gujrat High Court and Calcutta High Court, as detailed hereinunder: GulamHussein Ahmedalli and Company versus Canhag Private Limited, Company Cases Vol. 8- Having heard learned counsel for the petitioner, the question as to whether such a process should be initiated or not is taken up for consideration. It is an admitted proposition of law that once a debt is established in accordance to the provisions of section 434(1)(a) of the Companies Act and after a statutory notice is issued and when the company neglects to pay the same within a period of three weeks, it can be deemed that the Company is unable to pay the debt. However, the question in this case is as to whether the facts and circumstances of the case do establish a ground for drawing such an assumption that the respondent company is unable to pay the debt. 9- When a winding up proceedings are filed under section 434, this Court is required to follow the statutory provisions contemplated in Part III of the Company Court Rules 1959 and if Rules 95, 96 and 97 are taken note of and the discretion available to this Court in accordance to the aforesaid rule is read alongwith the law laid down by the Supreme Court in the case of Cotton Corporation of India Limited versus United Industrial Bank Limited and otheRs.(1983) 4 SCC 625.it would be seen that the purpose of incorporating the statutory rules, particularly Rule 96, is to give adequate safeguard to the company against whom the process is to be initiated and this Court cannot for the mere asking issue notice or direct for advertisement. The purpose of scrutiny of the records in the chamber before admission and thereafter the procedure to be followed as is laid down in the statutory rules clearly contemplates that a wide discretion is conferred on the Company Court to initiate the process 4 and if the Company Court comes to the conclusion that the material available are not sufficient enough to initiate action and it is found that the company petition has been filed malafidely, this Court can refuse to exercise jurisdiction in the matter. 10- Even though Shri Chaturvedi, learned counsel, indicated that the financial and commercial viability of the respondent company to pay the debt is not necessary and once it is found that the company is neglecting to pay the amount, proceedings can be initiated. The law contemplates in terms of section 433 of the Companies Act that a Court would order winding up of a company only after the company is unable to pay its debts. In the event of a claim being doubtful, requiring adjudicating, it would not be a debt as contemplated under section 433(e).It is also well settled principle of law that a Company Court cannot adjudicate disputed questions and pass orders on winding up. 11- The principle of law is that a petition for winding up should not be allowed until and unless it is proved to the satisfaction of the Company Court that the grounds for winding up, particularly with regard to inability of a Company, to pay the debt is made out. In this regard, the legal principle is crystallized in the case of Amalgamated Commercial Traders Private Limited versus A.C.K.Krishnaswami, (1965) 35 Company Case 456, and the Supreme Court has laid down the following principle: “8. Before we consider further, we may refer to the proposition of law as enunciated by the Apex Court in Amalgamated Commercial Traders Limited versus A.C.K.Krishnaswami, (1965) 35 Company Case 456. The Apex Court has held as follows (page 463).‘ It is well-settled that a winding up petitioner is not a legitimate means of seeking to enforce payment of the debt which is bonafide 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 5 stigmatized as a scandalous abuse of the process of the Court. At one time petitions founded on disputed debt were directed to stand over till the debt was established by action. If, however, there was no reason to believe that the debt, if established, would not be paid, the petition was dismissed. The modern practice has been to dismiss such petitions. But, of course, if the debt is not disputed on some substantial ground, the court may decide it on the petition and make the order.’ Thereafter, in the case of Madhusudan Gordhandas and Company versus Madhu Woollen Industries Private Limited, (1971) 3 SCC 632.(1972) 42 Company Cases 125, again the Apex Court, upon considering the judgment in the case of Amalgamated Commercial Traders Private Limited (supra).had opined as under (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 (notice) in the name of the appellant-company was issued on May 6, 2005. The said notice was returned with the postal endorsement ‘company closed’. Invoking section 433(e) and (f) read with sections 434(1)(a) and 439(11)(g) of the Act, the appellant-company approached this court for winding up of the respondent company on the ground that the respondent-company failed and is unable to pay the debts.” 12- If the case in hand and the facts as available on record are evaluated in the backdrop of the aforesaid principle, it would be seen that after the statutory notice was sent by the petitioner company to the 6 respondent vide Annexure H, on 17.5.2011, and when a demand was made for payment of the aforesaid amount of ` 61,85,951=90, the respondent company submitted its objection vide Annexure I on 14.6.2011 and disputed its liability to pay the amount and raised various objections. It was pointed out that the petitioner company wrongly represented about its business, made false claim and the respondent company has raised various grounds with regard to breach of agreement by the petitioner company as a result it is stated that no amount is to be paid and it has denied its liability to pay the debt and have disputed the claim. 13- If the claim made by the petitioner and the reply submitted by the respondent in response to the statutory notice is meticulously scrutinized, it would be seen that there is serious disputed questions of fact between the parties and by giving various justifiable reasons, respondent company has stated that they are not liable to make payment and even breach of agreement on the part of the petitioner company is raised as a ground for denying the payment. It is, therefore, a case where the debt in question is disputed and it is not a case where debt is admitted or acknowledged by the respondent. On the contrary, it is a case where the debt is bonafidely disputed by the respondent company and they have substantively made out a defence. Even when once both the conditions as contemplated under section 433(e) are available, then also in view of the law laid down by the Supreme Court as indicated hereinabove, this Court cannot direct that winding up of the company in question as held by the Supreme Court. A procedure for winding up cannot be used as a substitute for proceeding with recovery of a debt in accordance to the common law. 14- The judgments relied upon by Shri Ruprah and Shri Chaturvedi are clearly distinguishable on facts. In all the cases, relied upon by learned counsel for the petitioner, it is seen that after the statutory notices were issued, there was total silence on the part of the company concerned in making payment or to take steps for clearing the debt. It was under those circumstances that finding the response to the 7 statutory notice being not available, the cases were classified in the category of negligence to clear the debt by the respondent company, therefore, proceedings were initiated for winding up. 15- In the present case, immediately after the statutory notice was issued under section 434(1)(a).the respondent company has given its say, defence and objection and has prima facie demonstrated in the notice that the debt is disputed, they are not liable to pay the same and there is breach of contract. Under such circumstances, the law laid down in the cases relied upon by the learned counsel for the petitioner, which pertains to negligence on the part of a company to pay the debt after the statutory notice, will not be applicable. On the contrary, the law laid down by the Supreme Court in the case of Amalgamated Commercial Traders Limited (supra) and Madhusudan Gordhandas and Company (supra).will apply and, therefore, I am of the considered view that it is not a fit case where action should be initiated for winding up of the Company. Instead, the petitioner company should take recouRs.to the remedy available in accordance to the common law and resorting to the procedure contemplated under section 434 of the Companies Act, is not warranted. 16- The power conferred on this Court for initiating an action for winding up under section 433(e) of the Companies Act is a discretionary power. Before exercising the said power, it is required to be proved from the material available on record that - (a) there is a debt; and, (b) that the respondent company is unable to pay the said debt. Even if these two conditions are satisfied, still the Court should be satisfied that a winding up order has to be passed. The company against whom the proceeding is prayed to be initiated should be shown to be commercially insolvent, its assets and liabilities are to be such that a reasonable apprehension can be made that it is insufficient to meet the existing liabilities. On the other hand, if a bonafide dispute regarding payment of debt is made out by the respondent company and the material available does not show that the company is financially 8 insolvent or not in a position to pay the debt, the winding up petition should be dismissed. 17- In this regard, the principle laid down by the Supreme Court in the case of Pradeshiya Industrial and Investment Corporation of UP versus North India Petro Chemical Limited, (1994) 2 Company LJ 5.(SC).and the judgment of Delhi High Court in the case of Hansa Industries Private Limited versus MMTC Limited, (2005) 124 Company Cases 314, may be taken note of. 18- The legal principles laid down in all these cases show that a winding up petition is not a legally approved means for recovery of certain dues not is it be used to pressurize, coerce or enforce payment of a debt, which is bonafidely disputed by the respondent company. A winding up petition cannot be used as a substitute for a civil suit. If the company petition for winding up is filed with oblique motive and only to put pressure on the respondent company, the same should be dismissed. This is the principle of law laid down as it emerges on a complete reading of various judgments on the question. It is only when a legitimate claim is made out and the material available shows that the company is unable to pay the debts and its financial position is so precarious that it would not be able to meet the demand that action should be taken in a company petition else it is liable to be dismissed. 19- In the present case, except for contending that the debts are due, no material is adduced to show prima facie that the financial condition of the respondent company is such that it is unable to meet the demands of the petitioner company. The balance-sheet, financial status and other records are not produced to show the financial standing of the respondent company. That apart, when the statutory notice under section 434(1)(a) was issued, the respondent company had given its defence in detail as is evident from Annexure I, and they have raised a bonafide dispute in the said reply to the statutory notice. In the company petition and in the pleadings made, nothing is available to show as to how and on what basis the contention of the respondents in the said document i.e… Annexure I is incorrect or should be ignored. In the absence of material 9 to show that the bonafide defence put up by the respondent is not prima facie tenable, it has to be held that a bonafide dispute with regard to payment arises, which cannot be adjudicated in a Company Petition. 20- The import of the statutory rule as laid down by the Supreme Court in the case of Cotton Corporation of India Limited (supra) and the earlier judgment of the Supreme Court in the case of National Conduits (P) Limited versus S.S.Arora, (1968) 1 SCR 430.AIR 196.SC 279.hold that the Company Court rules provide sufficient inbuilt safeguard with regard to issuing notice and admitting a company petition and it ensures that harassment and blackmailing through such a petition is not resorted to. That being so, keeping in view the power conferred upon this Court in accordance to the statutory rule, I am of the considered view that in the facts and circumstances of the case, it is not a fit case where notice should be issued to the respondent company and process initiated in accordance to the statutory provision. Prima facie the material available having not made out any case for winding up, it is a fit case where even without notice to the respondent company at the pre- admission stage itself, this Court can dismiss the application as the powers conferred on this Court under the rules framed under Part III of the Company Court Rules gives such a discretion. 21- Accordingly, finding no ground to interfere into the matter, the company petition stands dismissed. ( RAJENDRA MENo.) JUDGE Aks/-