Harmony Multimedia F. Ltd. Vs. Parag Prints P. Ltd. - Court Judgment

Excerpt:
- - 1. the petitioner has filed this petition under sections 433 and 434 of the companies act 1956, for winding up of the respondent-company on the ground that the respondent-company has failed to discharge its liability to the tune of rs. in re [1974] 44 comp cas 567, wherein it is held that (headnote) :once there is non-compliance with a statutory notice given by a creditor under section 434(1) of the companies act, 1956, demanding payment of a debt owing by the company and the court is satisfied that there is no bona fide dispute in regard to the petitioner's debt, the creditor is entitled to a winding up order ex debito justitiae, and the court will not listen to a defence on the part of the company that it is not commercially insolvent or that its financial position is not such as to be unable to pay its debts. , that the court will regard the wishes of the majority in value of the creditors, and, if, for some good reasons, they object to a winding up order, the court in its discretion may refuse the order. 7,55,63,973.56. these figures as on march 31, 2004, makes it abundantly clear that the respondent-company is heavily indebted to its creditors both secured as well as unsecured. despite several requests and reminders, the respondent failed to make payment of the said amount. the said notice was also duly served on the respondent-company and still the respondent-company has failed and neglected to reply this notice and also to pay any amount to the petitioner. [2000] 2 glr 1594 :[2001] 104 comp cas 533, the division bench of this court has held that in a case of disputed debt or a disputed question of fact, the company court would raise its hands and it would be for the parties to get the disputes adjudicated in a competent civil court as it requires leading of evidence, documentary as well as oral and appreciation of the same which is the domain of the original civil court. [1999] 96 comp cas 841 (guj), it is held that the principle is well-settled by a catena of decisions of different high courts of the country, that the word 'may' used in sections 433 and 443 is indicative of the fact that even if one or more 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 or not. 14. considering the above decisions of this court as well as the hon'ble supreme court, it was strongly urged that there is no substance or merits in the present petition and hence, the same deserves to be dismissed with cost. there is enough material before the court for the purpose of admission and to arrive at the conclusion that the company has failed to discharge its liabilities towards the petitioners and that the financial crunch suffered or sustained by the company is not of a temporary nature. once having availed of the credit facilities, taken delivery of goods or received services for valuable consideration, the recipients of such facilities, goods or services start making defaults in payments or fail to discharge their liabilities, then it would be improper on their part to contend that the unit is a running one and future of large number of employees or workers would be at stake if the petition is entertained and winding up order is passed.k.a. puj, j.1. the petitioner has filed this petition under sections 433 and 434 of the companies act 1956, for winding up of the respondent-company on the ground that the respondent-company has failed to discharge its liability to the tune of rs. 1,24,39,306 due and payable to the petitioner.2. heard mr. n. k. pahwa, learned advocate appearing for the petitioner and mr. n. k. majmudar with ms. k. j. brahmbhatt, learned advocates appearing for the respondent-company.3. mr. navin k. pahwa, learned advocate appearing for the petitioner-company has submitted that the respondent-company has not given any reply to the statutory notice and hence, on this very ground, the company petition deserves to be admitted and advertised. in support of this submission, he relied on the decision of the bombay high court in the case of advent corporation p. ltd. in re [1969] 39 comp cas 463, wherein it is held that (headnote) : 'if a company fails to comply with a notice under section 434(1)(a) for payment of a debt the court has no discretion to refuse to make a winding up order. section 434(1)(a) does not merely lay down a presumption which can be rebutted but uses the word 'shall' and enacts a deeming provision which comes into play once the company neglects to pay the sum demanded. the creditor is then entitled to a winding up order ex debito justitiae. in such a case the commercial insolvency of the company need not be established. the fact that the creditor has the alternative means of filing a suit to recover the debt is irrelevant.'4. mr. pahwa has further relied upon the decision of the bombay high court in the matter of seksaria cotton mills ltd. in re [1969] 39 comp cas 475, wherein it is held that (headnote) : 'if a company fails to comply with a statutory notice under section 434(1)(a) and the court comes to the conclusion that there is no bona fide dispute in regard to the petitioner's debt, the creditor is entitled to a winding up order ex debito justitiae. the fact that the company is not commercially insolvent is immaterial.'5. mr. pahwa has further relied upon the decision of the bombay high court in the matter of focus advertising p. ltd. in re [1974] 44 comp cas 567, wherein it is held that (headnote) : 'once there is non-compliance with a statutory notice given by a creditor under section 434(1) of the companies act, 1956, demanding payment of a debt owing by the company and the court is satisfied that there is no bona fide dispute in regard to the petitioner's debt, the creditor is entitled to a winding up order ex debito justitiae, and the court will not listen to a defence on the part of the company that it is not commercially insolvent or that its financial position is not such as to be unable to pay its debts. the right to a winding up order is, however, qualified by another rule, viz., that the court will regard the wishes of the majority in value of the creditors, and, if, for some good reasons, they object to a winding up order, the court in its discretion may refuse the order.'6. mr. pahwa has further submitted that the liabilities of the respondent-company are in far excess than the assets of the company. he has pointed out from the tax audit report of the respondent-company for the year 2004-05 wherein the total assets of the company are to the tune of rs. 2,78,95,429.39 as on march 31, 2004, whereas the total liabilities of the company are to the tune of rs. 6,56,77,217.29. the secured loan of the company is to the tune of rs. 7,55,63,973.56 whereas its unsecured loan is to the tune of rs. 7,54,17,035.33. even in its annual reports for the year ending on march 31, 2004, the petitioner has mentioned that the indebtedness of the company as on the date of the annual general meeting or latest due debts thereof (secured loans including interest outstanding and accrued but not due for payment) are to the tune of rs. 7,55,63,973.56. these figures as on march 31, 2004, makes it abundantly clear that the respondent-company is heavily indebted to its creditors both secured as well as unsecured. mr. pahwa has further submitted that the respondent-company has not filed its accounts with the registrar of companies as the petitioner has taken the search and the petitioner could not find the relevant latest annual reports from the records of the companies maintained with the registrar of companies. the respondent-company is, therefore, not discharging its statutory functions only with a view to conceal the particulars of its fund position. he has, therefore, submitted that even on this ground, the petition deserves to be admitted and advertised. in support of this submission, he relied on the decision of this court in the case of uti bank ltd. v. shree rama multitech ltd. [2005] 126 comp cas 15.7. it is the case of the petitioner before the court that the respondent-company approached the petitioner for the purpose of business promotion and advertising of its products, namely, sarees, dress materials, etc., through the mode of press publications and electronic media, i.e., television, some time in the month of april, 2000. the petitioner maintained a running account for the respondent whereunder the petitioner raised invoices/challans and the amounts received were being adjusted in the running account. the amounts due and payable in a given accounting year after adjustments of the amounts were being maintained. the arrangement came to be discontinued with effect from april 1, 2005, after cheques given by the respondent-company came to be dishonoured upon presentation. the petitioner has taken out proceedings against the respondent under the provisions of the negotiable instruments act, 1881, before the competent criminal court and the same are pending. in respect of various other cheques which were given by the respondent to the petitioner, the respondent requested the petitioner not to deposit the same. the said cheques became outdated and the petitioner, therefore, requested the respondent to replace those cheques with the cheques of the current date. the petitioner sent back some of the cheques along with the covering letters and some without any covering letters. the respondent, however, never returned back the cheques with the current date. the respondent also did not make payment in respect of the cheques which came to be dishonoured upon presentation despite the notices which came to be issued under the negotiable instruments act, 1881. thus, considering the statement of accounts which is based on the running account of the respondent as on march 31, 2005, an amount of rs. 1,24,39,306 was due and outstanding by the respondent in favour of the petitioner. despite several requests and reminders, the respondent failed to make payment of the said amount. the petitioner, therefore, issued a notice dated february 27, 2007, to the respondent calling upon it to pay the outstanding amount along with interest at 24 per cent. per annum on the due amount. even though this notice was duly served on the respondent, no payment was made by the respondent to the petitioner. the petitioner thereafter issued another notice under sections 433 and 434 of the companies act, 1956, on july 31, 2007, to the respondent-company. the said notice was also duly served on the respondent-company and still the respondent-company has failed and neglected to reply this notice and also to pay any amount to the petitioner. the petitioner, therefore, filed the present petition before this court alleging therein that the respondent-company is unable to pay its dues and the respondent-company has lost its substratum and has become commercially insolvent.8. this court has issued notice on november 30, 2007. on service of notice, ms. k. j. brahmbhatt, learned advocate has filed her appearance on behalf of the respondent-company and an affidavit-in-reply is filed by shri ram-charanlal sunderlal virmani, the director of the respondent-company on march 18, 2008. the averments made in the petition were denied in the affidavit-in-reply and it was contended on behalf of the respondent-company that the company petition filed by the petitioner is not maintainable in view of the fact that the respondent-company is a going concern and is duly engaged in business activities and has not lost its substratum. the respondent-company has been discharging its liabilities towards various creditors, employees, statutory dues, electricity dues, etc., including payment to the petitioner earlier and also during the years 2005-06, 2006-07 and 2007-08 and especially when the alleged outstanding dues are seriously objected and disputed by the respondent. it is further contended that the alleged outstanding dues claimed by the petitioner have become time barred and hence, the same cannot be enforced against the respondent-company. the said outstanding dues are in fact, not outstanding and as a matter of fact, nothing is outstanding against the respondent-company. it is further contended that the respondent-company is a working concern with about 60 employees and they are paid regularly. the current assets of the respondent-company are sufficient to meet with the total liability and, therefore, the company is not required to be wound up. it is further contended that the petitioner and the respondent-company were having relations even after filing the winding up petition and that the respondent-company is making payment to the petitioner against the bills raised regularly. the petitioner has not produced the ledger accounts and except bare words that the amount received from the respondent was adjusted, no details about the payment received from the respondent in the statement of account are given. even the details produced before the court indicate that the statement of accounts was not produced by the petitioner and what was produced was merely a statement of invoices. it is further contended that the petitioner has made a false averment in the petition with regard to filing of the criminal complaint as no notice or summons from any court was received by the respondent-company in respect of the proceedings alleged to have been taken by the petitioner under section 138 of the negotiable instruments act, 1881. it is further contended that the cheques which were dishonoured were not to be deposited/encashed by the petitioner as per the clear understanding between the parties. the said cheques were issued against the new advertisement campaign and were to be deposited after the finalisation and execution of the said new campaign. the petitioner, however, deposited the same against the understanding between the parties and hence, the cheques were returned. new campaign was not carried out and, therefore, there was no question of replacing the cheques with the current cheques. in view of all these averments made and contentions raised in the affidavit-in-reply, it was urged before the court that the claim of the petitioner being false and not falling within the provisions of section 434 of the companies act, 1956, no prayer as sought for winding up of the company be granted by this court.9. on behalf of the petitioner, affidavit-in-rejoinder is filed on july 7, 2008, disputing the facts stated and averments made in the affidavit-in-reply. over and above this denial, it is contended in the affidavit-in-rejoinder that the respondent-company has not made payment of various government departments including bank, financial institutions and not even filed regular returns with the registrar of companies for the last many years. this fact is very clear from the certificate produced by the petitioner issued by shri dhiren r. dave, company secretary confirming that the last balance-sheet filed with the office of registrar of companies is for the period ending march 31, 2002. the respondent-company has not timely filed balance-sheets only with a view to conceal the fact that the respondent-company has lost its substratum and is commercially insolvent. as per the information gathered by the petitioner, the respondent-company owed huge amounts to large number of creditors which includes the petitioner-company as also dues of the workers, statutory dues, electricity dues, etc., and because of this, the respondent-company has not filed the balance-sheet with the office of the registrar of companies. it is further contended that the respondent-company has raised absolutely false and frivolous defense in the affidavit-in-reply. the same is required to be ignored and the petition be admitted and advertised.10. on behalf of the respondent-company, an affidavit-in-surrejoinder is filed on december 4, 2008, wherein it has been reiterated on behalf of the respondent-company that the whole claim of the petitioner is false and not supported by any substantial evidence and that the case of the petitioner does not fall within the four comers of the winding up provisions of the companies act, 1956 and that no amount as alleged to have been outstanding by the petitioner is ever admitted by the respondent-company and that the claim of the petitioner is straightaway disputed by the respondent-company and that the respondent-company cannot be said to be unable to pay its dues merely because the alleged disputed amount is not paid by the respondent-company and that the respondent-company is a going concern even as on today and it has not lost its substratum as alleged by the petitioner and that the respondent-company has been regularly making payment of its statutory dues, payment to creditors, electricity dues, etc., and that the petitioner has made a false statement in the petition to the effect that the petitioner has taken out proceedings against the respondent under the provisions of the negotiable instruments act, 1881, before the competent criminal court and the same are pending.11. several other contentions were also raised by the respondent-company. based on the above referred pleadings of the parties, this court has passed an order on january 30, 2009, wherein it is clarified that the matter was earlier heard at length. learned counsel for the petitioner has made submission and only the invoices are ordered to be placed on record. in this view of the matter, a submission was made on behalf of the petitioner that the matter may be kept partly heard. subsequently, after obtaining the order from the hon'ble chief justice, matter was placed before this court and on behalf of the petitioner, invoices referred to in the statement of invoices are placed on record.12. considering all these invoices, an affidavit is filed on behalf of the respondent-company wherein it is contended that the petitioner could not have placed on record the bunch of documents without seeking any order for production of the same on record. without there being any affidavit in support of the documents and/or without preferring any application and without seeking any order permitting the petitioner to place on record the bunch of documents, such documents which do not signify whether they are true copies of the original or not, straightaway the same could not be placed on record. without following any procedure of law, no such documents were ever produced along with the main petition filed in the year 2007, they could not have been placed on record and, therefore, such documents are not having any evidentiary value. it is further contended in this affidavit that the petitioner has not produced even ledger accounts till this date which would reflect the liability of the respondent towards the alleged outstanding dues. it is further reiterated that the respondent-company has already made full payment to the petitioner-company for the advertisements given through it during the year 2000 to 2004 and also for the transactions during 2005 to 2008. the respondent-company has paid rs. 82,621 towards p. f. account on february 21, 2008 and also paid the electricity bill of november, 2008, which would indicate that the respondent-company is a going concern.13. over and above the factual submissions made on behalf of the respondent-company, certain authorities were also cited by ms. brahmbhatt, learned advocate appearing for the respondent-company. they are as under:(i) in pradeshiya industrial and investment corporation of uttar pradesh v. north india petro chemical ltd. : [1994] 79 comp cas 835 : [1994] 3 scc 348, it is held that debt must be a determined or definite sum, not a disputed or a doubtful amount. it is further held that mere inability to pay debt without any other evidence itself is not always sufficient to exercise discretion in favour of the petitioner.(ii) in shantilal manibhai patel v. laxmi film laboratory and studios p. ltd. : [1982] 2 glr 363 : [1984] 56 comp cas 110 (guj), it is held that the petitioner in order to succeed must establish facts which would justify the making of the winding up order.(iii) in tata iron and steel co. v. micro forge (india) ltd. : [2000] 2 glr 1594 : [2001] 104 comp cas 533, the division bench of this court has held that in a case of disputed debt or a disputed question of fact, the company court would raise its hands and it would be for the parties to get the disputes adjudicated in a competent civil court as it requires leading of evidence, documentary as well as oral and appreciation of the same which is the domain of the original civil court. it is further held that it must also be remembered that the onus is on the company to bring forward a prima facie case, which satisfies the court that there is something which ought to be tried either before the court, itself or in an action or by some other proceedings.(iv) in mediqup systems p. ltd. v. proximo medical system gmbh : [2005] 124 comp cas 473 : [2005] 7 scc 42, it is held that an order under section 433(e) of the companies act is discretionary. this court in catena of decisions held that an order under section 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 utilised merely as a means for realising debts due from a company.(v) in american express bank ltd. v. core health care ltd. : [1999] 96 comp cas 841 (guj), it is held that the principle is well-settled by a catena of decisions of different high courts of the country, that the word 'may' used in sections 433 and 443 is indicative of the fact that even if one or more 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 or not. 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. this is also manifest from section 443 of the act which leaves it in the discretion of the court to make any one of the order envisaged therein. section 443 also envisages relevant consideration in which winding up order may not be considered just and equitable.14. considering the above decisions of this court as well as the hon'ble supreme court, it was strongly urged that there is no substance or merits in the present petition and hence, the same deserves to be dismissed with cost.15. 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 deserves to be admitted and the order of advertisement is required to be passed. 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 ltd. v. core health care ltd. [1999] 96 comp cas 841 and in the case of tata iron and steel co. v. micro forge (india) ltd. : [2000] 2 glr 1594 : [2001] 104 comp cas 533. this court is, however, of the view that the facts of the present case are distinguishable from the facts of the above referred two cases. 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. here in the present case, the networth of the company is not sufficient to take care of its liabilities. from the statements, accounts and explanations submitted before the court, it can hardly be said that the financial crunch sustained or suffered by the company is of temporary nature. the company's financial position has become worse over the years and whatever activities that have been carried out by the company are nothing but they are carried out for incurring and accumulating losses. the ratio of the aforesaid two decisions, therefore, cannot be applied to the facts of the present case for contending that the winding up petitions are not maintainable and the same deserves to be dismissed at the threshold. there is enough material before the court for the purpose of admission and to arrive at the conclusion that the company has failed to discharge its liabilities towards the petitioners and that the financial crunch suffered or sustained by the company is not of a temporary nature.16. the court is mindful of the fact that in the case of a running concern and considering the larger interest of the employees and workmen, the court should be very slow in entertaining the winding up petitions. the court should equally be concerned with the interests of banks, financial institutions, creditors, goods suppliers, etc. once having availed of the credit facilities, taken delivery of goods or received services for valuable consideration, the recipients of such facilities, goods or services start making defaults in payments or fail to discharge their liabilities, then it would be improper on their part to contend that the unit is a running one and future of large number of employees or workers would be at stake if the petition is entertained and winding up order is passed. banks, financial institutions, supplier of goods or services and trade creditors are also the main backbones of any industry or business organisation and at their peril or disadvantage, the unscrupulous management of the companies must not be allowed to defend winding up petition under the guise of workers' interests or contending that the company is a going concern.17. while considering the present petition for winding up of the respondent-company, the state of affairs of the respondent-company which ultimately led to the financial crunch which is of a permanent nature by now, cannot be lost sight of. this is also one of the additional reasons which weighs with the court to admit the present petition filed against the respondent-company and pass an order of advertisement.18. having regard to the facts and circumstances of the case and looking to the totality of the reasons, the present petition is hereby admitted and the petitioner is hereby directed to issue public advertisement for admission and final hearing of the present company petition in the english newspaper the new indian express and in gujarati newspaper divya bhaskar having circulation in surat fixing the date of final hearing on may 4, 2009. publication of the advertisement in government gazette is dispensed with.