Judgment:
K.A. Puj, J.
1. The petitioner namely, Century Enka Ltd. has filed this petition under Section 433(e) read with Section 434 of the Companies Act, 1956 for winding up of the respondent Company. It is the case of the petitioner that as per the order placed by the respondent with the petitioner, the petitioner through its division, Rajeshri Polyfil had sold, supplied and delivered Polyester Filament Yarn ( POY/PFY) to the respondent for a total amount of Rs.1,50,23,161. The petitioner had also raised various invoices on the respondent for the said aggregate amount of Rs.1,50,23,161/- towards the goods sold, supplied and delivered by the petitioner. It is also the case of the petitioner that the respondent accepted the said goods and the said invoices of the petitioner without raising any objection with respect to the quantity, quality or price thereof. The respondent has also utilised the said goods in the normal and usual course of its business of texturising and processing of yarn.
2. It is also the case of the petitioner that the respondent has failed and/or neglected to pay the said amount to the petitioner. It is also the case of the petitioner that as per the agreed terms of the contract, the respondent is liable to pay to the petitioner interest at the rate of 21 % per annum for delay in payment beyond 7 days from the date of invoices. The respondent has delayed the payment and hence the petitioner has raised debit notes on the respondent for Rs.18,54,352/- towards interest payable till 30-6-2000 which have been duly accepted by the respondent. It is also the case of the petitioner that as on 30-6-2000 accounts were finalised and after giving credit of Rs.1,22,385/- against the invoices/debit notes for payments received or adjusted, the respondent has confirmed the liability of Rs.1,67,55,128/-. The respondent had issued two cheques dated 5th July, 2000 for the aggregate amount of Rs.1,67,55,128/- for the discharge of its liability. However, both these cheques when presented for payment have been dishonoured by the respondent's banker. The petitioner was therefore, constrained to initiate criminal proceeding under Section 138 of the Negotiable Instruments Act for dishonour of the said two cheques.
3. Since no efforts were made by the respondent for the payment of the outstanding dues, the petitioner had to ultimately serve the notice under Sections 433 and 434 of the Companies Act, 1956 calling upon the respondent to pay total amount of Rs.2,07,97,401/- being the amount payable to the petitioner inclusive of interest till 30-9-2000 and with further running interest at the rate of 21 % per annum from 1-10-2000 till the final date of payment. Inspite of the service of the said notice upon the respondent, the respondent failed and/or neglected to pay the debt or any part thereof and hence, the petitioner was constrained to file the present winding up petition before this Court.
4. On notice being issued by this Court on 6-12-2000, the respondent company has filed its appearance through its advocate and an affidavit in reply was also filed on 12-11-2001. It is contended by the respondent in the said affidavit in reply that the petitioner has wrongly shown an amount of Rs.1,50,23,161/- as principal amount due. It is further contended that the petitioner has also included an amount of Rs.25,96,571/- as interest which was not due and payable by the respondent company. It is however, submitted by the respondent company that in no case a sum of more than Rs.1 crore is payable by the respondent company to the petitioner. It is further contended that the property of the company consists of 8000 sq. yds of land, a shed and various machineries and other equipments. The total value of these properties would be in the vicinity of about Rs.7 to 9 crores. It is also contended that the Unit employs approximately 100 employees who are all paid regular wages and whose fate depends upon the future of this company. It is further contended that the turn over of the company in the year 1997-98, 1998-99 and 1999-2000 was approximately 12.7 crores, 35 crores and 45.79 crores respectively. It is further contended that the company is ready and willing to pay the principal amount which is due to the petitioner. However, the company is going through a period of temporary difficulty. This difficulty is caused due to very adverse financial situation in the market. It is also contended that as per the balance sheet of the company as at March 2000 a sum of Rs.3,20,53,625/- was due to the company from its debtors. Lastly it was contended that the company petition is not an instrument for recovering money and it cannot be entertained and the company cannot be wound up if it is going through a phase of temporary difficulties. The admission of a petition and the resultant advertisements have numerous adverse implications for the company, its employees, its debtors and all those concerned in general and in view of the well settled position that a company petition cannot be used for recovering of dues.
5. An affidavit in rejoinder was filed by the petitioner company on 12-11-2001 wherein facts stated and averments made by the respondent company in its affidavit in reply were disputed. It is submitted by the respondent company in the said affidavit in rejoinder that the payment of Rs.5 lacs was made by the respondent company after filing of the petition which was too meagre amount as compared to total liability of Rs.2 crores. It was also contended that the amount was outstanding since 1999 and sufficient time has already been granted to the respondent company to make the payments. It was also submitted that the recessionary trends in the economy affect the petitioner company also in the same way and it also faces liquidity crunch to meet with its liabilities in turn to its creditors.
6. On 19-2-2002, an affidavit was filed by Mr. Murli Manohar Goyal, Managing Director of the respondent company stating that the respondent Company has admitted its liability to pay the original amount and has disputed its liability to pay the interest. It is further stated that the respondent would make the payment to the petitioner as per the following schedule.
(i) From March, 2002 till August 2002 the petitioner company will be paid a sum of Rs.1.50 lacs every month.
(ii) From September 2002 the petitioner company will be paid Rs.3 lacs monthly till the principal amount is fully paid.
7. After considering the pleadings of the parties and rival submissions of the learned advocates appearing for the respective parties, this Court (Coram : M.S. Shah, J.) has passed an order on 26-2-2002 making the observations as under.
'3. Having heard the learned counsel for the parties, it appears to the Court that the respondent-Company has not placed adequate material to satisfy the Court about the past credentials, such as-
(i) On 5-7-2000, the Company confirmed that the amount outstanding from the respondent-Company to the petitioner was Rs.1.67 crores (approximately) for which the respondent Company also paid two cheques of the same date. The cheques were dishonoured. The question would naturally arise why the respondent Company gave the said cheques when it knew that it did not have the funds.
(ii) The Company claims to have had turnover of more than Rs.45 crores in the year 1999-2000 but no figures are given for the year 2000-2001, although affidavits were filed on 24-9-2001 and 19-2-2002.
(iii) The Company has not produced any balance-sheet for any of the years for which the turnover figures are given. The respondent-Company ought to have produced the balance-sheets for those three years as well as for the year 2000-2001 ;
(iv) The Company has also not given any details about its liabilities, especially any particulars of its secured creditors and whether the company is making any payments to such creditors ;
(v) The Company has also not given any figures of the taxes which are paid to the public exchequer such as excise duty, sales-tax, octroi etc. in the last five years;
(vi) The Company claims to have debtors to the tune of Rs.3 crores. Nothing is stated as to whether any attempts, or what attempts, have been made for making those recoveries and whether those debts are owed by any sister concerns or business-debtors.'
The Court has however, not thought it fit to pass any order at that stage, but considering the fact that the respondent company is a going concern, the Court gave a further opportunity to the respondent.
8. Despite the fact that the above assurance was given and affidavit was filed before the Court, the respondent Company has not made the payment and hence, the petition was admitted by this Court on 30-7-2002. The Court thereafter passed an injunction order on 1-12-2003 restraining the respondent company from transferring its plant, machinery lands and buildings without obtaining prior permission of this Court.
9. Since the payment was not made as per the assurance given, this Court has passed an order on 2-7-04 directing the respondent company to ask its authorised representative to remain present for the purpose of making a firm commitment for the payment to the petitioner. It was made clear that if the amount was not paid on or before 20th July,2004, further appropriate orders with regard to advertisement would be passed on the next date. Pursuant to the said order, further affidavit was filed by the respondent company on 17th August, 2004, wherein it is stated that the company has been making payment of Rs.30,000/- on every working day to Dena Bank, being the secured creditor. It is further stated that in April 2004 the company has paid to the petitioner company a sum of Rs.1 lac and in June 2004 another sum of Rs.1 lac has been paid to the petitioner company. It is further stated that in the next six months, the company would pay to the petitioner a sum of Rs.75,000/monthly on or before 15th of every month without fail and after period of six months, the company would be in a position to give a larger amount every month.
10. The above proposal put forward by the respondent company was not accepted by the petitioner and additional affidavit was filed on 23rd August, 2004. Mrs. Swati Soparkar, the learned advocate appearing for the petitioner has submitted that a proposal to pay Rs.50,000/- or Rs.75,000/- per month is not acceptable to the petitioner as this petty amount is not enough even to cover the interest on the outstanding amount. She has further submitted that similar proposal made by the respondent company in the past has not been honoured and even the directions of this Court are clearly flouted by the respondent company. She has further submitted that the respondent has suppressed the fact of consent decree passed in terms of the consent terms filed before the Civil Court. She has further submitted that in a suit filed by the petitioner in the Civil Court of Surat being the Special Civil Suit No.487 of 2002, a decree has been passed adjudicating the dues of the respondent payable to the petitioner. The parties to the suit had agreed for the schedule of payment and the consent terms were put before the Court. As per the said terms, total amount of Rs.1,40,65,776/- was agreed to be paid. Out of this, an amount of Rs.2,15,776/- was required to be paid immediately on signing the consent terms. The respondent company did not pay even this amount. Further, as per the terms, five monthly installments of Rs.2,50,000/each were to be paid during the period beginning from February, 2003 to June, 2003. It further agreed to increase the amount of monthly installment of Rs.3,50,000/- for 18 installments beginning from July, 2003 to December, 2004 and so on to complete the total outstanding by December, 2005. She has further submitted that inspite of signing these consent terms, the company has not made a single payment to honour the same. After putting up the said consent terms, and having filed the undertaking to honour the same, the company has, till date, made the total payment of Rs.8,00,000/- only as against an amount of Rs.60,15,776/- towards the installments due and payable. Even this amount was paid as per the directions of this Court and not in accordance with the consent terms. Mrs. Soparkar has therefore, submitted that the respondent company has neither the intention to pay the outstanding amount of the petitioner nor the ability to pay the amount and the proposals made and the consent terms filed are only an eyewash and the tactics adopted were only to delay the legal consequences.
11. Mrs. Soparkar has further submitted that the present winding up petition is admitted before a long time i.e. vide order dated 30-4-2002 and this Court has deferred the advertisement order only with a view to giving an opportunity to the respondent to show its bonafides. This purpose is not being served at all and the conduct of the respondent and the audacity to make a fresh proposal to pay the monthly installment of Rs.50,000/- shows the malafides on the part of the respondent company. She has therefore, submitted that it is absolutely imperative that the respondent company be wound up and the provisional liquidator be appointed with immediate effect so as to avoid the misuse of the property of the respondent company.
12. Mr. R.R. Marshal, the learned advocate appearing for the respondent company has reiterated the same contentions which were canvassed earlier before this Court in the form of affidavit in reply or further affidavit or at the time of admission of the petition. He has further submitted that the respondent company is trying its level best to discharge its liability and the very fact that the company has been regularly making payment to the secured creditor of Rs.7 to 8 lacs per month and has also put forward a proposal to make the payment of 75,000/- per month to the petitioner, advertisement of the petition and ultimately winding up of the respondent company would not serve any purpose. He has further submitted that the respondent company is a going concern and the fate of more than 100 employees depends on the existence of the company. The legal position is well settled and the Court should be very lenient in the case of going concern. For this purpose, he has placed reliance on a decision rendered in the case of AMERICAN EXPRESS BANK LIMITED V/S. CORE HEALTH CARE LTD., reported in 1999 Company Cases, page 814 wherein it is held as under :
'A claim to an order of winding up is not a matter of right but is in the discretion of the court on one or more of the grounds having been established as mentioned in section 433 of the Companies Act, 1956. However, there is no warrant to assume that the stage for exercise of such discretion arises only after the petition is admitted and that the court cannot exercise that discretion even if on considering the totality of the materials as are made available on record by the petitioner it is satisfied that no order of winding up be made at the time of considering admission of the petition.'
'By complying with the provisions of section 434 of the Companies Act, 1956, the issuance of notice is not a matter of course. If from the material disclosed in the petition and reply to the notice, a prima facie case of existence of a bona fide and reasonable dispute is spelt out, the court would be justified in dismissing the petition in limine at the threshold.'
'The word 'may' used in sections 433 and 443 is indicative of the fact that even if one or more of the grounds mentioned in section 433 is made out, and the company is unable to pay its debt, it is still not mandatory, but rests in the discretion of the court whether to make an order of winding up. The court must in each case exercise its discretion in deciding whether in the circumstances of the case, it would be in the interest of justice to wind up the company.'
The Court in the said decision has further observed as under : 'As against the creditor's right to get an order of winding up ex debtio justitiae, where, from the materials it appears that the company is commercially solvent and the present state of affairs is the result of a temporary set back in business, or where the court is satisfied that the petitioner holds security for his debt and that security is sufficient to pay the debt by realisation of security, and he has a right even after the winding up order is made to remain outside the winding up and realise his dues directly, the court may be satisfied that a winding up order is not envisaged in a situation, where on principle the order would not benefit the petitioner, nor the company's creditors generally.'
'When grounds on which a winding up order can be refused while considering the petition after admission appear to exist from the material already before the court it would be a sound exercise of discretion not to admit the petition.'
The Court has further observed as under :
'Neglecting to pay in terms of section 434(1)(1), the specified demand of a creditor raises a presumption as to inability to pay its debts. Thus, mere inability to pay a particular debt by itself cannot be held to be sufficient to an order of winding up ex debito justitiae. With the aid of the presumption the court may be satisfied that the company is unable to meet the current liabilities in the commercial sense which include the debt due to the petitioning creditor as well as other debts. But the presumption is a rebuttable one. The presumption may be rebutted on existing material. What evidence is sufficient, depends on the facts and circumstances of the case.'
'The course of admitting and advertising the petition is commenced in the circumstances if and only if the court had a tentative prima facie finding about commercial insolvency of the company, in the case of a company which has not become a defunct company which has not closed its activities for quite some time for its commercial and manufacturing activities, but is a going concern employing a large number of workmen.'
In the said decision, the Court has ultimately held that it is not possible to accede to the request of learned counsel for the petitioner that either the petition be admitted and advertisement of notice be deferred or in the alternative the petition be ordered to stand over for a sufficiently long period and be considered after obtaining the report about the outcome of the revival efforts.
13. Mr. Marshal has further submitted that the decision of the learned Single Judge in AMERICAN EXPRESS BANK LTD. V/S. CORE HEALTH CARE LTD. ( SUPRA ) is approved by the Division Bench of this Court in the decision rendered in the case of TATA IRON & STEEL COMPANY LTD. V/S. MICRO FORGE (INDIA) reported in 41 (2) G.L.R. 1594 wherein the Court has articulated certain important chronicles and contours to be kept in the mental radar before reaching to the conclusion in a winding-up petition. Mr. Marshal, the learned advocate appearing for the petitioner has submitted that some of the points are very relevant for deciding the present petition, which are as under :
(1) If the company is ongoing concern having regular business and employment of employees, the Court cannot remain oblivious to this aspect. The effect of winding-up would be of putting an end of the business or an industry or an entrepreneurship, and in turn, resulting into loss of employment to the several employees and loss of production and effect on the larger interest of the society.
(2) Winding-up of a company, as such, is nothing but a commercial death or insolvency, and therefore, the Company Court is obliged to take into consideration not only the temporary inability, or disability to make the payment of debts, but the entire status and position of the company in the market.
(3) Though ordinarily an unpaid creditor may aspire for an order of winding-up, then 'ex debito justiciae ' rule is not of inflexible mandate, but is, as such a matter of discretion of the Court.
(4) Section 433 is also indicative of the fact that even if one or more grounds mentioned in Sec.433 exist, it is not obligatory for the Court to make an order of winding-up. The Court has discretionary power. The Court must in each case exercise its discretion in deciding whether in the circumstances of the case, it would be in the interest of justice to wind-up the company. It is a well known rule of prudence that even in the case where indebtedness to the petitioning person is undisputed., the Court does not pass order for winding-up where it is satisfied that it would not be in the larger interest of justice to wind-up the Company.
(5) It is, also well settled that a winding-up order shall not be made on a creditor's petition, if it would not benefit him or the company's creditors in general.
(6) The Court is also obliged to consider that, it would be in the interest of justice to give the Company some time to come out of the momentary financial crisis or any other temporary difficulty as winding-up is a measure of last resort.
(7) Winding-up course cannot be adopted as a recourse to recovery of the debt.
(8) It is also necessary to consider whether the respondent-Company has become defunct or has closed its business for quite some time, whether it is commercially insolvent. For the purpose of finding commercial insolvency, a mere look into the financial data is relevant to examine about its soundness. In all matters relating to winding-up, the Court may have regard to the wishes of the creditors and contributories and may, if necessary, ascertain their wishes appropriately. If the Company is solvent, the wishes of the contributories would carry more weight as they are persons, mainly, interested in the assets.
(9) The element of public policy in regard to commercial morality has, likewise, to be taken into account before determining the winding-up issue. The Court has also to consider the purpose and policy behind Secs. 443 and 557 of the Companies Act.
(10) Winding-up is the last thing the Court would do and not the first thing to do having regard to its impact and consequences. Winding up of a company would ensue :
(a) closing down of a company which is engaged in production or manufacture or which provides some services ;
(b) it would throw out of employment numerous persons and result in gross hardship to the members of families of the employees ;
(c) loss of revenue to the State by way of collection of taxes which otherwise should have been collected, on account of customs, excise duties, sale tax, income tax etc.
(d) security of goods and diminishing of employment opportunities.
14. In light of the observations of the Division Bench, Mr. Marshal has urged that the winding up of the company is not at all desirable and the present petition therefore should be dismissed at the threshold.
15. After having heard learned advocates appearing for the respective parties and after having gone through the various submissions made and the issues raised before the Court, and after having given serious thoughts to the authorities cited before the Court, the Court is of the view that the petition is now required to be advertised forthwith. While arriving at this conclusion, the Court has taken into consideration the two binding decisions of this Court in the case of AMERICAN EXPRESS BANK LIMITED V/S. CORE HEALTH CARE LIMITED 1999 (96) COMPANY CASES 841 and in the case of TATA IRON AND STEEL COMPANY LIMITED V/S. MICRO FORGE (INDIA) LIMITED, 41 (2) G.L.R. 1594. This Court is, however, of the view that the facts of the present case are distinguishable from the facts of the present case. In Core Laboratory's case, the Court has specifically come to the conclusion that there was temporary liquidity crunch and that the Company was commercially solvent. The state of affairs of the company at the relevant point of time was the result of temporary setback and the Company was holding sufficient security to discharge its debts. Again the petition was filed by the Secured Creditor against the said Company. It is difficult to give such findings so far as the present petition is concerned. In the present case, the petition is filed in December, 2000 and it was admitted on 30.07.2002. The Court has passed several orders giving ample time to the respondent Company to discharge its liabilities towards the petitioner. The respondent Company has neither acted as per the terms of the Consent Decree based on consent terms nor honoured its commitments made before this Court. The respondent Company went on changing its commitments and violating terms of assurances and the undertakings with regard to payment of the outstanding dues of the petitioner. The conduct of the respondent Company is such which hardly inspires the confidence of the Court to differ advertisement for any further time. Payment to the Bank or payment to the workers are not enough. Payment to the suppliers or to the goods creditors are equally important. They are also main backbones of any industry or business organisation. If their dues are overlooked or are not paid in time, it would affect them very adversely and question of their survival would also arise. The defence of the respondent Company, therefore, does not appear to be genuine or bonafide. There is enough material before the Court for the purpose of passing order of advertisement and to arrive at the conclusion that the Company has failed to discharge its liabilities towards the petitioner and that the financial crunch suffered or sustained by the Company is not of a temporary nature.
16. Having regard to the facts and circumstances of the case and looking to the totality of the reasons, the Court thinks it fit and proper to pass the order of advertisement. The petitioner is, therefore, directed to issue public advertisement for admission and final hearing of the petition in English Newspaper, namely, 'The Indian Express' (Surat / Vadodara edition) and Gujarati Newspaper, namely, 'Gujarat Mitra' (Surat edition) fixing the date of final hearing on 21.10.2004. Publication of the advertisement in Official Gazette is dispensed with.
17. After the pronouncement of the judgment, learned advocate Mr. R.R. Marshall appearing for the respondent Company has prayed for stay against the order of advertisement at least for a period of two weeks. However, looking to the facts and circumstances of the case, the request is not accepted.