industrial Designs Bureau Vs. Falcon Gulf Ceramics Ltd. - Court Judgment

G.S. Singhvi, J.

1. In this petition filed for winding up of respondent-company under Sections 433(e) and 439 read with Section 434 of the Companies Act, 1956, an order for winding up had been passed by a learned single judge of this court on November 24, 1992. This order has been set aside by a Division Bench vide order dated March 22, 1993 (see Falcon Gulf Ceramics Lid. v. Industrial Designs Bureau [1996] 86 Comp Cas 207 (Raj)) passed in D. B. Special Appeal (Company) No. 76 of 1992. The Division Bench has set aside the order dated February 24, 1992, passed by the company judge only on the ground that the order of winding up was not preceded by an advertisement and that advertisement of a petition wasimperative in view of the provisions of Rule 96 of the Companies (Court) Rules, 1959, read with Rule 99 of the said Rules.

2. It will be proper to refer to some of the facts in order to decide the question as to whether an order for advertisement of the petition should be issued or not. The petitioner is a proprietory firm of architects, engineers and planners. The company had entered into a consultancy service contract with the respondent-company for lay-out, drawings, engineering, tender-invitation and supervision of construction of its factory, office and connected buildings of their project on plot Nos. 223 to 226, Matsya Industrial Area, Desula, Alwar. The respondent-company is engaged in the manufacture of sanitaryware. It invited tenders for the work relating to construction of factory, office and buildings and the contract was awarded on June, 15, 1987, to Nucon India Pvt. Ltd. It is alleged that the work under the consultancy service contract stood completed on May 14, 1991. Before the petitioner submitted its final bill, it wrote a letter dated March 22, 1991, to the respondent seeking confirmation of its credit balance of Rs. 1,76,646.41 as on March 31, 1990. On March 27, 1991, a certificate was given by respondent-company to the following effect :

'. .. above balance is correct and confirmed.'

3. According to the petitioner, the aforesaid amount of Rs. 1,76,646.41 has been outstanding against the respondent-company since March 31,1990, and despite repeated requests and demands, the amount has not been paid. Finally, the petitioner served a statutory notice dated May 19,1991, under Section 434 of the Companies Act, 1956 (for short, 'the Act'). The notice was sent by registered post acknowledgment due and, it was delivered to the respondent-company on May 25, 1991. The company sent its reply vide letter dated June 12, 1991. According to the petitioner, the respondent-company did not dispute the claim of the petitioner. Rather, it had pleaded that the company has been incurring losses and the cash flow of the company is under heavy strain. It promised to contact the petitioner once again through its advocate. The petitioner pleaded that despite service of statutory notice, the respondent-company has not paid the amount due to the petitioner. The respondent-company is insolvent and unable to pay its debts. On the said ground, it has sought an order of winding up.

4. The respondent-company has contested the claim of the petitioner by alleging that the petition filed by the petitioner is not bona fide. It has been filed with the sole object of coercing the respondent-company for making payment of amounts that are not legally due and payable. Thefurther plea of the respondent-company is that several disputed questions of fact are involved and such disputes are bona fide disputes and that the petitioner has entered into a conspiracy with the contractor Nucon India Pvt. Ltd. to defraud the company. The respondent-company has further asserted that the petitioner has certified the arrears of various amounts to be paid to the contractor, even though the said amounts are not payable in terms of the agreement entered into between the respondent-company and the contractor. According to the respondent, wrong certificates had been given by the petitioner-company with full knowledge that the particular amounts are not due to the contractor. This has been done by the petitioner with the object of causing unlawful losses to the respondent-company and undue gain to the contractor. The further case of the respondent is that the claim of the contractor is in dispute and the same has been referred to the arbitrator. Till that arbitration is finalised, the claim of the petitioner cannot be determined and, therefore, the petition filed by it must be dismissed as premature. While asserting that the respondent-company has never been negligent in making payment of a debt due from it, it has pleaded that the contractor's bills finally approved by the architect are contrary to the terms of the contract.

5. A rejoinder has been filed by the petitioner wherein it has refuted the charge of collusion between the petitioner and the contractor. Some documents have also been filed with a rejoinder in support of the claim made by the petitioner-company.

6. During the pendency of this petition an order was made by the court on October 25, 1991, directing the respondent-company to provide inspection of the account books for the years 1989-90 and 1990-91 to the petitioner so that the petitioner may confirm as to whether the credit entry, as alleged by it, is there or not. In pursuance of the order made by the court, the respondent-company granted inspection of its account books to the counsel for the petitioner-company and its officers. Thereafter an additional affidavit dated November 15, 1991, has been filed by C, M. Mistry, constituted attorney of the petitioner-firm. Copies of the annual reports of the years 1989-90 and 1990-91 have also been filed along with this affidavit. Additional documents have also been filed by the petitioner on November 22, 1991/Additionai affidavit has also been filed by the respondent-company on November 22, 1991.

7. Lengthy arguments had been advanced by both the parties on the question as to whether the petition deserves to be admitted and advertised.

8. From the statutory notice, annexure-IV, given by the petitioner-company to the respondent-company, it is clear that the petitioner has claimed a sum of Rs. 1,76,646.41. This notice was preceded by a letter annexure-III written by the petitioner-company to the respondent-company and on this letter dated March 22, 1991, an endorsement of credit and confirmation of the balance has been given by the accountant of the respondent-company.

9. Shri Seth, learned counsel for the petitioner, strenuously argued that once a statutory notice has been given by the petitioner-company and the claim therein has not been disputed by the respondent-company, the court should presume that the claim made by the petitioner is correct. Shri Seth argued that this by itself is sufficient for the court to direct advertisement of the petition.

10. Shri Agnani and Shri N.K. Maloo, learned counsel for the respondent-company, strenuously argued that when there is a serious dispute between the parties, there is no justification for the court to make an order for admission and advertisement of the petition.

11. I have given my thoughtful consideration to the rival submissions. Section 434(1) of the Companies Act, 1956, reads as under :

'434. Company when deemed unable to pay its debts-- (1) A company shall be deemed to be unable to pay its debts--(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor ;

(b) if execution or other process issued on a decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part ; or

(c) if it is proved to the satisfaction of the court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company.'

12. This provision has come to be interpreted in a number of cases. In Amalgamated Commercial Traders (P.) Ltd. v. A. C. K. Krishnaswami [1965]35 Comp Cas 456, their Lordships of the Supreme Court held that a winding up petition is not a legitimate means of seeking to enforce payment which is bona fide disputed by the company and that a petition presented ostensibly for winding up to exercise pressure should be dismissed. However, a creditor who cannot obtain payment of his debt is entitled as between himself and the company ex debito justitiae to an order if he brings his case within the Act. He is not bound to give time. And, notwithstanding a voluntary winding-up, on proving his judgment and that it remains unsatisfied he will be so entitled. Where a debt is bona fide disputed, it cannot be said that there is negligence to pay. In the matter of Advent Corporation Put. Ltd. [1969] 39 Comp Cas 463, the Bombay High Court held that where a company fails to comply with Section 434(1)(a) for payment of a debt, the court has no discretion to refuse to make a winding up order, and that the creditor between himself and the company could file a suit to recover the debt is irrelevant. Similarly in Surindra Packers v. Punjab Land Development and Reclamation Coloration Ltd. [1989] 66 Comp Cas 883, a learned judge of the Punjab and Haryana High Court held that where the company made their payment and failed to make the remaining payment despite repeated demands, that by itself is prima facie evidence of inability to pay.

13. As already noted, in this case, a winding-up order had been made by the company judge on November 24, 1992, after considering the entire matter at length. At this stage, what I am required to consider is as to whether it is a fit case in which the petition should be admitted and ordered to be advertised. The facts which have been narrated hereinabove clearly show that when a demand was made by the petitioner, the balance claimed by the petitioner had been confirmed on behalf of the company. Thereafter, several demands were made by the petitioner and, finally, a statutory notice was served by the petitioner. It was delivered to the company and a reply was given by the company. The amount was not disputed. What the company pleaded was that it had been incurring losses and the cash flow of the company was under heavy strain. It can, therefore, be said that there is ample justification to hold that no bona fide dispute arose in this case.

14. In my opinion, this is a fit case in which the petition deserves to be admitted and advertised.