ORDER
A.K. Patnaik, J.
1. These two petitions filed under Sections 433, 434 and 439 of the Companies Act, 1956 though heard separately on two separate dates, are being disposed of by this common order as they have a common prayer for an order to wind up one and the same company, the Orient Paper and Industries Ltd. (for short, 'the Company') and raise common questions of law.
2. The case of the petitioner in Comp. Act No. 25 of 1999 is that by purchase Orders dated 3.12.1997, 8.12.1997, 23.4.1998, 30.4.1998 and 3.10.1998 the Company asked the petitioner to supply Amotex (Defomer) Aronol (Wax emulson) and Pep size-500 for its business of manufacture and sale of pulp, paper, board and other articles. The purchase orders inter alia stipulated that payment will be made within 60 days/90 days sight through UCO Bank, Brajarajnagar and overdue interest payable at the rate of 16 percent per annum. In terms of the said purchase orders, the petitioner supplied the goods to the Company but the price of the goods amounting to Rs. 69,29,104/- as well as interest at the rate of 16 percent per annum totalling to Rs. 9,44,042.01 was not paid to the petitioner by the Company. By a registered notice dated 20.8.1999 served at the registered office of the Company at Brajarajnagar, Jharsuguda, the petitioner called upon the Company through his Advocate to make payment of Rs. 80,58,801.51 within three weeks, but the Company did not make the said payment. The petitioner has therefore filed this petition as a creditor for winding up of the Company by the Court under the provisions of the Companies Act, 1956.
3. The case of the petitioner in Comp. Act No. 22 of 2000 is that the petitioner supplied Ferric Alum Grade II and Non-ferric Alum to the Company and the Company paid part of the price of such goods but did not pay a sum of Rs. 4,40,311.11 paise despite repeated reminders. On 23.8.2000 the petitioner served an Advocate's Notice under Sections 433 and 434 of the Companies Act on the Company to pay within 21 days the said outstanding dues with interest at the rate of 18 percent per annum. Despite the said notice, the Company did not pay any amount. Hence, the petitioner as a creditor has filed this petition for winding up of the company by the Court under the provisions of the Companies Act, 1956.
4. During the pendency of the aforesaid two petitions for winding up of the Company, the outstanding principal amount has been paid by the Company to the two petitioners, but the interest amounts claimed by the petitioners in the two cases have not been paid as yet on the ground that the Company bona fide disputed its liability to pay interest to the two petitioners.
5. At the hearing, Mr. N. Patra, Learned Counsel for the petitioner in Comp. Act Case No. 25 of 1999 submitted that the purchase orders issued by the Company stipulate that overdue interest at the rate of 16 percent per annum would be payable by the Company to the petitioner if the amount is not paid in time. He argued that since the bills of the petitioner were not paid in time, the petitioner was entitled to overdue interest at the rate of 16 percent per annum and such interest as on date of filing of the petitioner would be Rs. 9,44,042.01 paise. He submitted that even otherwise since the petitioner is a small scale industry and is registered as such, it would be entitled to interest under the Interest on Delayed payments to Small Scale and Ancillary Industrial Undertakings Act, 1993.
6. Mr. G. Mukherji, Learned Counsel for the petitioner in Company Act Case No. 22 of 2000 similarly submitted that the different purchase orders issued by the Company to the petitioner stipulate payment of price immediately against delivery and interest for delayed payment at the rate of 18 percent per annum. Alternatively, he submitted that since the petitioner was a small scale industry and is registered as such, it was entitled to interest under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993.
7. Both Mr. Patra and Mr. Mukherji cited the decisions of the Punjab and Haryana High Court in Stephen Chemical Limited v. Innosearch Limited, (1986) 60 Comp. Cas 702, and Delhi Cloth and General Mills Co. Ltd. v. Stepan Chemicals Limited, (1986) 60 Comp. Cas 1046, wherein it has been held that where a petition is presented for winding up of the Company on the ground that it is unable to pay its debt and the Company admits its liability and pays it up, the forum of Company Judge is the appropriate forum for determining as to whether the creditor is entitled to interest on the amount in question or not. Mr. Patra and Mr. Mukherji submitted that this Court therefore can also decide in these winding up petitions as to whether the Company which has already paid up the principal amounts to the petitioner is also liable for interest to the petitioners.
8. Mr. K.K. Jena, Learned Counsel appearing for the Company in Comp. Act Case No. 25 of 1999 on the other hand, cited Buckley on The Companies Acts, 12th Edition, for the proposition 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. He submitted that the Company admitted its debt towards the principal amount and has paid it to the petitioner but bona fide disputes its liability to pay interest to the petitioner and the winding up petition cannot be used to exert a pressure on the Company to pay the interest claimed by the petitioner when the Company bona fide disputes its liability to pay interest to the petitioner. On the claim of interest of the petitioner under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 Mr. Jena submitted that Section 6 of the said Act provides that the amount due from a buyer of a small scale industry together with interest is recoverable by the supplier from the buyer 'by way of a suit or other proceeding' under any law for the time being in force and a winding up petition is neither a 'suit' nor 'any other proceeding' for recovery of any amount together with interest.
9. Mr. C. Kasturi, Learned Counsel appearing for the Company in Comp. Act Case No. 22 of 2000 similarly reiterated that the liability of the Company for interest being bona fide disputed by the Company cannot be recovered in a petition for winding up. She further submitted that in Comp. Act Case No. 7 of 2000 and Misc. Case No. 12 of 2003 this Court has passed an Order on 30.1.2004 relegating the parties to a suit for recovery of the interest and in this case also the Court should pass an order that the petitioner may file a suit for its claim for interest.
10. In Stephen Chemical Limited v. Innosearch Limited (supra), M/s. Innosearch Limited filed a petition under Section 439 read with Sections 433 and 434 of the Companies Act, 1956 for winding up of M/s. Stephen Chemical Limited as a sum of Rs. 15,842.05 was not paid by M/s. Stephen Chemical Limited to M/s. Innosearch Limited towards a bill for supply of goods despite notice. Before the Learned Company Judge of the High Court, M/s, Stephen Chemical Limited admitted its liability regarding the price of goods and paid up the principal amount but disputed its liability to interest on the said amount. The Learned Company Judge of the High Court directed Stephen Chemical Limited to pay to M/s. Innosearch Limited at the rate of 12 percent interest on the principal amount. M/s. Stephen Chemical Limited filed an appeal before the Division Bench contending that when the Company in respect of which a winding up petition is filed raises a bona fide dispute regarding its liability to pay the creditor, the appropriate forum for determining such a dispute is the Civil Court and not the Company Judge. The Division Bench of the Punjab and Haryana High Court turned down this contention and held :
'In our opinion, where the Company Judge was seized of the matter and when the liability to pay the principal debt had not been disputed by the Company sought to be wound up and, in fact, paid up the debt in order to avoid winding-up, the forum of the Company Judge is the appropriate forum for determining as to whether the creditor was entitled to interest on the amount in question or not. The basic policy of law is to avoid multiplicity of litigation.'
This decision of the Division Bench of the Punjab and Haryana High Court was followed by the Company Judge of the Punjab and Haryana High Court in Delhi Cloth and General Mills co. Ltd. v. Stepan Chemicals Limited (supra) and it was held therein that if after the filing of the petition under Section 439 of the Companies Act, 1956 the Company pays the principal amount during the pendency of the petition but does not pay the interest, the Company can be ordered to be wound up.
11. In Buckley on The Companies Acts, however, the English law is stated that a winding up petition is not a legitimate means of seeking to enforce the payment of a debt which is bona fide disputed by the company. The tests for deciding as to which is and which is not a case of bona fide dispute and what is not a case of bona fide dispute have been laid down by the Supreme Court in Madhusudan Gordhandas and Co. v. Madhu Woollen Industries Pvt. Ltd., AIR 1971 SC 2600. Para 21 of the said decision of the Supreme Court as reported at Page 2605 in AIR 1971 SC is quoted herein below :
'21. 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 Re. A Company 94 SJ 369). 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 Re. Tweeds Garages Ltd. 1962 Ch 406). The principles 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.'.
It will be clear from the aforesaid decision of the Supreme Court that for deciding whether a bona fide dispute regarding a debt has been raised by the Company, the Court will have to find out as to whether the defence of the Company is in good faith and one of substance and whether the defence is likely to succeed in point of law and further whether the Company adduces prima face proof of the facts on which the defence depends.
12. Bearing in mind the aforesaid tests as laid down by the Supreme Court, I may now examine as to whether the defence of the Company in these cases to the claim of interest by the petitioners is in good faith and one of substance and is likely to succeed in point of law and whether the Company has adduced prima facie proof of facts on which the defence of the Company depends. In the two petitions the petitioners have stated on affidavit that they are small scale industries and that under the Interest on Delayed Payment to Small Scale and Ancillary Industrial Undertakings Act, 1993 (for short, 'the Act, 1993') they are entitled to interest. The fact that the petitioners are small scale industries within the meaning of the Act, 1993 has not been disputed by the Company. Section 4 of the Act, 1993 both before and after its amendment by the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings (Amendment) Act, 1998 is quoted herein below :
Before the Amendment Act of 1998
'4. Date from which and rate at which interest is payable : Where any buyer fails to make payment of the amount to the supplier, as required under Section 3 the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay interest to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at such rate which is five percent points above the floor rate for comparable lending.
Explanation : For the purpose of this section, 'floor rate for comparable lending' means the highest of the minimum lending rates charged by scheduled banks (not being co-operative banks) on credit limits in accordance with the directions given or issued to banking companies generally by the Reserve Bank of India under the Banking Regulation Act, 1949.'
After the Amendment Act of 1998
'4. Substitution of new section for Section 4 : For Section 4 of the Principal Act, the following section shall be substituted, namely :
'4. Date from which and rate at which interest is payable : Where any buyer fails to make payment of the amount to the supplier, as required under Section 3 the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier of in any law for the time being in force, be liable to pay interest to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at one and half time of Prime Lending Rate charged by the State Bank of India.
Explanation: For the purposes of this section, 'Prime Lending Rate' means the Prime Lending Rate of the State Bank of India which is available to the best borrowers of the Bank.'
It will be clear from the language used in Section 4 of the Act, 1993 both before and after its amendment in the year 1998 that where a buyer fails to make payment of the amount to the supplier as required under Section 3 of the said Act, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay interest to the supplier on that amount from the dates and at the rates as stipulated in the provisions of Section 4 both before and after its amendment. Hence, whether there is any agreement between the petitioners and the Company to pay interest on the amounts due for supply of goods by the petitioners to the Company or to pay any interest at higher or low rates is immaterial because the Company is liable to pay interest to the petitioners at the rate mentioned in Section 4 of the Act, 1993 is payable by the Company to the petitioners notwithstanding any other law for the time being in force.
13. Section 6 of the Act, 1993 however provides that the amount due from a buyer, together with the amount of interest calculated in accordance with Sections 4 and 5 of the Act, shall be recoverable by the supplier from the buyer by way of a suit or other proceedings under any law for the time being in force. By the aforesaid amendment in 1998 the said Section 6 has been renumbered as Sub-section (1) of Section 6 and a new Sub-section (2) has been introduced in Section 6 to the effect that notwithstanding anything contained in Sub-section (1) any party to a dispute may make a reference to the Industry Facilitation Council for acting as an arbitrator or conciliator in respect of the matters referred to in that Sub-section and the provisions of the Arbitration and Conciliation Act, 1996 shall apply to such dispute as if the arbitration or conciliation were pursuant to an arbitration agreement referred to in Sub-section (1) of Section 7 of the said Act, 1996. These provisions in Section 6 of the Act, 1993 on which Mr. K. K. Jena, Learned Counsel for the Company has placed great reliance do not affect in any manner the liability of the Company to pay interest to the petitioners under Section 4 and 5 of the Act, 1993. These provisions in Section 6 are merely procedural provisions as to the forum before whom a dispute with regard to the principal amount together with interest thereon can be decided between a buyer and a supplier which is a small scale industry.
14. The interest amounts as claimed by the petitioners in the two cases against the Company however may not be in accordance with the provisions of Sections 4 and 5 of the Act, 1993. The fact that the exact amount of interest claimed by the petitioners against the Company is disputed can be no ground to dismiss the petition for winding up for non-payment of the interest so long as the liability to pay interest of the Company to the petitioners exists under Sections 4 and 5 of the Act, 1993 and admittedly such liability has not been discharged by the Company. As has been held by the Supreme Court in Madhusudan Gordhandas and Co. v. Madhu Woollen Industries Pvt. Ltd. (supra) in the portion of the judgment quoted above, where 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.
15. In the Order dated 30.1.2004 in Company Act Case No. 7 of 2000 and Misc. Case No. 12 of 2003 relied on by Mrs. C. Kasturi, the Court held that there is bona fide dispute regarding the claim of the petitioner for interest against the Company and no order for winding up of the Company can be passed, but in that case, the petitioner Karni Enterprises did not claim before the Company Court that it was a small scale industry within the meaning of the Act, 1993 and was entitled to interest under Section 4 of the said Act, 1993. In this case, on the other hand, the case of the two petitioners in their respective petition is that they are small scale industries and that they are entitled to interest under Section 4 of the Act, 1993 and under the provisions of Section 4 of the Act, 1993 that a supplier which is a small scale industry is entitled to interest as provided therein on the principal amount from the buyer.
16. For the aforesaid reasons, I am of the considered opinion that the Company is liable to be wound up for non-payment of interest under the provisions of the Act, 1993 to the petitioners. But before finally passing an order of winding up, I give an opportunity to the Company to pay up the interest in accordance with the provisions of the Act, 1993 to the petitioners or in the alternative, arrive at a settlement with the petitioners regarding their claim of interest.
Let the two matters be listed after two months during which the interest be paid by the Company to the petitioners or a settlement be arrived at between the petitioners and the Company.