Present company petition under section 434 of Companies Act, 1956 is filed by petitioner M/s Karpara Project Engineering, the partnership firm (petitioner Firm hereafter) against the Company by name Ballarpur Industries Ltd. registered under the provisions of Companies Act, 1956. Said Company is having its registered office within jurisdiction of this (Nagpur) Bench of Bombay High Court and is referred to as respondent Company hereafter.
2. After hearing arguments of learned counsel representing the petitioner Firm and the respondent Company, I find that facts leading to filing of present application are not very much in dispute. Petitioner Firm carries on business of erection, testing, commissioning, installation, dismantling, reconstruction or re-assembly of power plants, boilers etc. They had undertaken job of dismantling existing boiler and erection of new recovery boiler for respondent Company at their Sewa unit in Gangapur, Joypore, Orissa. They state that job has been carried out satisfactorily and completed in August, 1994 but their dues of Rs.41,50,192/- only with interest on it have not been paid by respondent-Company. Hence they filed Civil Suit 623 of 1997 before Hon'ble High Court, Madras claiming Rs.62,66,790/- only with interest and by the judgment dated 17-7-2001 got decree for Rs.92,89,721.59 only with interest at 18% per annum on Rs.41,50,192/- from 17-7-2001 till realisation and costs of Rs.1,56,206/-.
As said amount was not paid in spite of repeated requests, petitioner sent notices through their advocates on 30-8-2004 and 5-12-2004 and called upon respondent to pay the amount within statutory period of 21 days warning that otherwise legal action for winding up would be initiated. As there was no payment and Company neglected to pay, petitioners forwarded notice through advocate on 27-9-2005 again calling upon Company to make the payment and clarified that otherwise they would be initiating winding up proceedings. Respondent Company through its reply dated 14-10-2005 denied the claim of petitioner though they admitted passing of decree against them. They pointed out that they filed 2 applications and 2 appeals against said decree. Hence according to petitioner Firm respondent Company is unable to pay its debts and is deemed to be unable to pay the same necessitating passing of appropriate orders for its winding up. Application also mentioned that present management of Company is frittering away and dealing with its assets in a manner and with a view to wrongfully and illegally deprive petitioner Firm of their just and rightful dues. It is also pleaded that liabilities of respondent Company far exceed its real and available assets and said assets are insufficient to meet the liabilities of respondent. It is also pleaded that Official Liquidator therefore needs to be appointed as interim Liquidator immediately.
In its reply affidavit respondent Company has accepted the fact of passing of decree by Madras High Court but has stated that it is ex parte decree and they have preferred Appeal 39 of 2005 against it and on 22-3-2005 High Court has issued notice to present petitioner. It is stated that amount is not due and also disputed one. They point out that advocate appointed by them before Madras High Court could not attend the case because of paralytic stroke and judge hearing the matter refused to grant adjournment which ultimately resulted in passing of ex parte decree against them. It is their defence that as per job order petitioner was supposed to complete the work by October, 1993 but it has been completed in August, 1994. They further state that petitioner submitted bills for Rs.44.50 Lakhs which were approved for Rs.44.25 Lakhs and respondent paid 40 Lakhs to petitioner and debited sum of Rs.4.49 Lakhs towards cost of consumables supplied to petitioner by respondent. Amount of Rs.2.18 lakhs was paid directly to one of the vendors as radiographic charges at the instance of petitioner. According to respondent amount of Rs.2.42 lakhs has been paid over and above the amount initially agreed between parties. They further state that 10% of the entire amount i.e. Rs.5 lakhs was payable to petitioner on their furnishing performance guarantee which they never furnished. They also point out that they are making profits every year running into several Crores and hence no inference as required by section 434 of Companies Act can be drawn in the matter.
Petitioner has filed rejoinder and stated that in appeal filed by respondent no stay has been granted by Madras High Court. They point out that respondent was served with summons of Civil Suit filed before Madras High Court but chose not to participate in proceedings. They also point out that Madras High Court has refused to set aside ex parte decree. To this rejoinder, respondent Company has again filed reply reiterating its earlier stand.
3. I have heard Advocate A.S. Chandurkar for petitioner Firm and Advocate Sunil Manohar for respondent Company in this background.
4. After narrating the entire history, Advocate A.S. Chandurkar has contended that the avoidance or neglect to pay the amount as decreed by Madras High Court against them by respondent Company is apparent and hence action under section 434 needs to be initiated. He points out that respondent has not obtained any stay in appeal filed by its and still, are not paying the amount though order refusing to set aside ex parte decree is already passed. In order to explain the scope of section 434, learned Counsel has invited attention to several cases to which I'll be making reference little latter.
As against this Advocate Sunil Manohar has contended that proceedings filed are not bona fide and genuine. It is contended that the respondent Company has disputed the amount and same is not due as Madras High Court has admitted its appeal. It is further pointed out that proceedings for winding up are filed after more than 3 years and not immediately and are being used as substitute for execution. Attention is invited to provisions of Article 136, 137 read with section 3 of Limitation Act to argue that limitation prescribed therein is applicable even to these proceedings. It is contended that Article 137 of Limitation Act is applicable in such matters and here first notice allegedly under section 434 has been given more than three years after the date of ex parte decree. It is also stated that present proceedings are filed more than two years after the first notice in this respect was issued by petitioner. Madras High Court has yet not rejected stay to respondent and petitioner Firm must first file execution and this Court should not therefore entertain such mala fide attempt on its part.
By placing reliance upon word "may" used in section 433, it is urged that this Court should not exercise discretion in favour of such petitioner. In relation to deeming fiction under section 434(1)(a), it is argued that presumption thereunder is rebuttable and stands disproved because of sound financial position of respondent. Attention is invited to uncontroverted statement in reply affidavit showing net profits of Rs.168.10 Crores in 2004-05, Rs.133.91 Crores in 2003-04, Rs.98.29 Crores in 2002-03, Rs.71.40 Crores in 2001-02 and Rs.100.28 Crores in 2000-2001. It is urged that various sub-clauses of said section overlap and give only cause of action but then, Court has to record satisfaction under sub-clause (c) thereof. Reliance has also been placed by learned Counsel on various judgments to point out the nature and scope of jurisdiction available to this Court in such matters. He strongly relies upon financial condition and profits made by respondent every year to point out that it has not been even denied and petitioner Firm has not demonstrated that respondent Company is unable to pay the amount claimed by petitioner Firm.
In reply, Advocate A.S. Chandurkar has contended that there is no discretion in such matters with the Court after provisions of section 433 and 434 are shown to be satisfied. He invites attention to provisions of section 443 to point out powers of this Court. He has also relied upon certain cases for this purpose. He has also pointed out 1 judgment to urge that in appropriate cases. this Court can apart from passing winding up order can also pass such other orders as may appear to it to be just and proper.
5. I find it proper to begin consideration with the following judgment of Hon'ble Apex Court relied by Advocate Manohar.
In AIR 2005 SC 4175, Mediqup Systems Pvt. Ltd. vs. Proxima Medical System G.M.B.H., Hon'ble Supreme Court observes:-
"23. The Bombay High Court has laid down the, following principles in Softsule (P) Ltd. Re. 1977 (47) Com. Cases 438 (Bom)-
"Firstly, it is well settled that a winding up petition is not legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the company. if the debt is not disputed on some substantial ground, the Court/ Tribunal may decide it on the petition and make the order.
Secondly, if the debt is bona fide disputed, there cannot be "neglect to pay" within the meaning of section 433(1)(x) of the Companies Act, 1956. If there is no neglect, the deeming provision does not come into play and the winding up on the ground that the company is unable to pay its debts is not substantiated.
Thirdly, a debt about the liability to pay which at the time of the service of the insolvency notice, there is a bona fide dispute, is not due within the meaning of section 434(1)(x) and non-payment of the amount of such c(bona fide disputed debt cannot be termed as "neglect to pay" the same so as to incur the liability under section 433(e) read with section 434(1)(x) of the Companies Act, 1956.
Fourthly, one of the considerations in order to determine whether the company is able to pay its debts or not is whether the company is able to meet its liabilities as and when the v accrue clue. Whether it is commercially solvent means that the company should be in a position to meet its liabilities as and when they arise."
"24. The Madras High Court in Tube Investments of India Ltd. vs. Rim and Accessories (P) Ltd. 1990 (3) Com.L.J. 322 (326) (Mad) has evolved the following principles relating to bona fide disputes
(i) If there is a dispute as regards the payment of the sum towards principal however small that sum may be, a petition for winding up is not maintainable and the necessary forum for determination of such a dispute existing between parties is a Civil Court
(ii) The existence of a dispute with regard to payment of interest cannot at all be construed as existence of a bona fide dispute relegating the parties to a Civil Court and in such an eventuality, the Company Court itself is competent to decide such a dispute in the winding up proceedings; and
(iii) If there is no bona fide dispute with regard to the sum payable towards the principal it is open to the creditor to resort to both the remedies of filing a civil suit as well as filing a petition for winding up of the company."
"25. The Rules as regards the disposal of winding up petition based on disputed claims are thus stated by this Court in Madhusudun Gordhandas and Co. vs. Madhu Woollen Industries Pvt. Ltd., 1972 (42) Com Cases 125 : AIR 1971 SC 2600. This Court has held that if the debt is bona fide disputed and the defence is a substantial one, the Court will not wind up the company. The principles on which the Court acts are
(i) that the defence of the company is in good faith and one of substance
(ii) the defence is likely to succeed in point of law; and
(iii) the company adduces, prima facie proof of the facts on which the defence depends."
Hon'ble Apex Court in matter before it noticed that there was bona fide dispute between parties and hence amount was not "due" and relevant observations are:-
"15. In our opinion, the High Court has failed to appreciate that there is a bona fide dispute concerning US $ 11000. While the learned single Judge had held the dispute concerning US $ 5000 is a bona fide dispute, he has erred in not holding that the dispute concerning US $ 11000 also is bona fide. The High Court, on the one hand, has held that the Company has admitted in no uncertain terms that US $ 11000 should be repatriated to the remitter on the other hand, the learned Judge failed to appreciate that the petitioning creditor in the instant case was not the remitter and was not entitled to the said sum of US $ 11000. It is not in dispute and as admitted by the respondent-petitioning creditor that the remitter of the sum of US $ 11000 was one M/s Pameda Medixinische Systems and not the petitioning creditor and that because of the discrepancy in the name of the remitter. The Reserve Bank of India had initially withheld permission. In our view, the prima facie case has been made out by the appellant for not remitting the Indian amount equivalent of US $ 11000 as admittedly the petitioning creditor was not the remitter and cannot have any claim in respect of US $ 1100. In our opinion, the learned Judges of the High Court have erred in directing the Company to deposit a sum of Rs.4,69,480/- with the Registrar, Original Side of the High Court at Calcutta. The question of the company depositing the same with the Registrar, Original Side, did not and could not arise since the petitioning creditor was not the remitter. A reading of the order of the High Court would show that the learned Judges themselves had doubt regarding lawful entitlement of the petitioning creditor and erred in directing the appellant Company to deposit the amount and in default directing admission of the appeal."
Madhuban Pvt. Ltd. vs. Narain Das, 1971 (41) Comp. Cases 685 is the judgment of Delhi High Court (learned Single Judge) pointed out by Advocate A.S. Chandurkar in which respondent had obtained money decree and appellant before it submitted that such person has to take out of execution. Delhi High Court rejected that argument and found that clause (a) of section 434 becomes applicable after creditor has served demand in writing and company has neglected to pay it. It is observed that a creditor does not cease to be a creditor because he has obtained money decree against company. It has been held that clause (b) does not have the effect of wiping out clause (a) of section 434(1). In addition to this Advocate A.S. Chandurkar has also relied upon All India General Transport Corporation Ltd. vs. Raj Kumar Mittal, 1978 (48) Company Cases 604 in which learned Single Judge of Calcutta High Court has taken same view and concluded that creditor who has obtained decree need not put it to execution and he has an alternative course open under section 434(1)(a). Seethai Mills Ltd. vs. N. Perumalsamy and another, 1980 (50) Comp. Cases 422 is the judgment of Division Bench of Madras High Court where again similar question has been examined and Hon'ble Division Bench has concluded that section 434(1)(a) only requires that there must be a creditor to whom company is indebted as contemplated therein. It has been also held that there is no mutual exclusion between section 434(1)(a) and section 434(1)(b) and there is region common to both, which may be said to overlap.
The Suvarn Rajaram Bandekar vs. Rajaram Bandekar (Siringaon) Mines Pvt. Ltd., 1997 (88) Comp. Cases 673 is the judgment of learned Single Judge of this Court wherein company was found in indebted to petitioner under a money decree of Civil Court. While examining the question whether decree holder is entitled to maintain a petition under section 433 of Companies Act, this Court has noticed that in addition to execution of decree winding up proceedings at instance of decree holder are also permissible and a petition by decree holder would fall within the ambit and scope of section 433(e). After referring to various judgments mentioned above, this Court has observed "Having regard to these authorities there can be no dispute that clause (a) of section 434 is a general clause and applies to all sorts of debts including a judgment debt under the decree. It is, therefore, difficult to extend the proposition of Mr. Kakodkar that the debt under decree cannot be made a "foundation for petition" for winding up and it cannot be read in any of the clause is under section 433 of the Companies Act." In Sarabhai Machinery vs. Haryana Detergents Ltd., reported at the 1986 (60) Comp. Cases 169, the learned Single Judge of Punjab and Haryana High Court has concluded that merely because company intends to file an appeal against money decree, that does not dis-entitle decree holder from filing an application for winding up as decree remains to be binding till it is set aside.
Tata Iron and Steel Company vs. Micro Forge (India) Ltd., reported at 2001 (104) Company Cases 533 relied on by Advocate Sunil Manohar is the judgment of Hon'ble Division Bench of the Gujarath High Court which considers when a company can be said to be unable to pay its debts under section 433(e). Upon failure to honour the outstanding dues, Tata company gave statutory notice demanding the payment towards principal amount for value of goods supplied and interest. Micro Forge company did not reply and did not comply with said notice and ultimately Tata company filed winding up petition under section 433(e) of the Companies Act, 1956. The Division Bench has formulated 24 points to be kept into mind before reaching the conclusion in a winding up petition. It has been held that merely because one of the circumstances enumerated in section 433 exists, Company Court is not bound to order winding up and it has discretion in the matter. Court has to consider financial background of company and it cannot ignore the effect of putting an end to ongoing business. Profit and loss account, growth shown in reasonable span by such company are held to be relevant factors. It has been held that presumption of inability to pay debt under section 434(1)(a) is rebuttable. It has been held that winding up order is not a normal alternative. AIR 1966 SC 1707, Harinagar Sugar Mills Co. Ltd., Bombay vs. M.W Pradhan Court Receiver, High Court, Bombay and 1994 (3) SCC 348, Pradeshiya Industrial and Investment Corp. vs. North India Petrochemicals Ltd. are relied upon by Hon'ble Division Bench of Gujarath High Court. I find following observations of Hon'ble Apex Court in first (Harinagar Sugar Mills) ruling relevant :-
"8........ Section 434 of the Indian Companies Act has been quoted earlier. Under the section before a company shall be deemed to be unable to pay its debts two conditions must be satisfied, namely, (i) the creditor shall have delivered a demand in the prescribed manner on the company to pay the sum due to him; and (ii) the company has for three weeks thereafter neglected to pay the same, or to secure or compound for it to the reasonable satisfaction of the creditor. We have already held that the Receiver is a creditor within the meaning of Cl. (a) of section 434(1) of the Indian Companies Act. In the statutory notice....."
"10. ........ Bombay, towards the income-tax due from the joint family. The debtor was not .only (.sic) asked to do something which was legally prohibited but was asked to comply with the Collector's requisition under section 46 of the Indian Income-tax Act, 1922. By not doing so, the Company clearly neglected to pay the amount within the meaning of section 434 of the Indian Companies Act."
These observations of Hon'ble Apex Court do not come to the rescue of present respondent Company but are against it. Similarly in other ruling i.e. Pradeshiya Industrial and Investment Corp. observations in paragraph 29 of Hon'ble Apex Court are important:
"29. It is beyond dispute that the machinery for winding up will not be allowed to be utilised merely as a means for realising its debts due from a company. In Amalgamated Commercial Traders (P) Ltd. vs. A.C.K. Krishnaswami this Court coated with approval the following passage from Buckley on the Companies Act. (13th edition, page 451):
"It is well settled that a winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide 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 stigmatized as a scandalous abuse of process of the Court."
Here it is important to note that Hon'ble Apex Court found that basis of claim of first respondent before it was an agreement which was already cancelled, first respondent was not creditor and appellant was not debtor, very same claim was subject-matter of pending arbitration and there was no definiteness about it. These distinguishing features are conspicuous by their absence in matter before me.
From analysis of various reported cases above, it is apparent that when there is bona fide dispute about the claim made in legal notice under section 434(1)(a) then only non-payment by such noticee company cannot be construed to mean that company is unable to pay its debts. Otherwise, the deeming fiction provided therein needs to be given its normal full effect. The observations of Hon'ble Apex Court in Mediqup Systems Pvt. Ltd. vs. Proxima Medical System G.M.B.H. (supra) emphasised by me again show that dispute about a debt has to be bona fide. Here there is already a decree by competent Court against present respondent and said decree has not been stayed in appeal preferred by it. The amount specified in money decree is therefore "debt due" which cannot be disputed before this Court. Respondent Company, even otherwise has not produced any material before this Court even to prima facie demonstrate that it has any valid defence to make against such ex parte decree. The contention raised in defence by the respondent Company before this Court, therefore cannot be said to be in good faith and one with substance, it cannot be said that respondent raised any defence likely to succeed in point of law; and Company did not adduce prima facie proof of the facts on which the plea of defence depends. Rejection of prayer to set aside ex parte decree by Madras High Court is sufficient to repeal (sic) repel the stand taken here. Principles laid down by Bombay High Court and Madras High Court quoted with approval by Hon'ble Apex Court in this judgment clearly clinch the issue against present respondent Company.
In view of position as explained in judgments Madhuban Pvt. Ltd. vs. Narian Das of Delhi High Court, All India General Transport Corporation Ltd. vs. Raj Kumar Mittal of Calcutta High Court, Sarabhai Machinery vs. Haryana Detergents Ltd. of Punjab and Haryana High Court (supra), all by learned single Judges) Seethai Mills Ltd. vs. N. Perumalsamy and another of Division Bench of Madras High Court (supra), and Suvarn Rajaram Bandekar vs. Rajaram Bandekar (Sirigaon) Mines Pvt. Ltd. judgment of learned Single Judge of this High Court (supra), I find that reliance upon judgment of Hon'ble Division Bench judgment of Gujarath High Court in case of Tata Iron and Steel Company in the facts of present case is misconceived and uncalled for. Plain meaning of inability to pay has been changed by deeming fiction even to comprehend "neglect to pay" within three weeks after receipt of statutory notice. Omission to pay except on account of bona fide dispute therefore is sufficient in law and commercial solvency of respondent Company does not appear to be relevant at all.
This High Court has in the matter of Advent Corporation Pvt. Ltd. reported at 1969 (39) Company Cases 463 (learned Single Judge) has observed that making of a winding up order is not discretionary and Court cannot decline to make the same, even if case is made out which would fall within one of the grounds in section 433 because the said section uses the word "may". Section 434(1)(a) has been relied upon by learned Judge of this High Court to state that it does not merely lay down a presumption which can be rebutted but uses the word "shall" and enacts a deeming provision which must come into play once the company neglects to pay the sum demanded by the statutory notice to which it refers. Contention of company that no winding up order should be made unless company is shown to be commercially insolvent even though it may have neglected to comply with statutory notice under section 434(1)(a) has been found only "logically absurd" because it boils down to only one ground, viz., actual inability to pay debt laid down in clause (e) of section 433 and this Court has observed that it would render its all other clauses redundant including reason for enacting section 434(1)(a). Reliance upon provision of section 443(2) to support argument of discretion available to Court has been turned down by observing that said discretion is available only in cases falling within clause (f) of se
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ction 433 and by clear implication, it negatives use such discretion in cases falling within any of the other clauses of section 433. This ruling is sufficient to reject similar argument of Advocate Sunil Manohar advanced by relying upon section 443(2). It is therefore clear that on the basis of the ex parte decree after serving statutory notice case under section 433(e) read with the section 434(1)(a) has been made out here. Once fact essential for deeming fiction are established, the fiction needs to be drawn and course of said section 434(1)(a) cannot be arrested. If by any artificial means such course is obstructed, it would defeat the very purpose of enacting said provision and would be contrary to legislative intent. It's equally true that respondent Company has pointed out huge profits being made by it every year and through said profit it can at any time discharge the liability of petitioner firm. But in the above background it is not an extenuating circumstance and proves "neglect to pay" on part of respondent. A person can be said to be neglecting to pay only when though he possesses that capacity, payment is not made for no valid reason. Legislature appears to have deliberately treated such culpable withholding of amount due to another by company as its inability to pay for the purposes of section 433(e) and that intention needs to be honoured. Discretion available to Court is only when the amount is not paid as it is not due because of bona fide dispute. When dispute is resolved in civil suit, may be even by ex parte decree there is no room for use of such discretion. 6. Once it is found that there is money decree against respondent Company and its amount is still due, service of statutory notice therefor as also non-payment springs into life the deeming fiction and hence recourse can be had to section 434(1)(a) as long as the money is legally recoverable from respondent Company. As money decree can be executed within period of 12 years, it is debt which can be recovered within 12 years and hence, limitation of 3 years is not at all relevant and reliance upon Article 137 of Limitation Act for this purpose is misconceived. 7. In the circumstances, petition is admitted. Petitioner Firm is permitted to issue public notice of this matter as per Company Court Rules, 1959 inviting all interested to appear and participate in further hearing. List the matter on 13-4-2007 for further consideration. 8. At this stage Advocate Manohar, for respondent seeks stay of this order for a period of four weeks to enable the respondent company to take appropriate steps. The request is opposed by Advocate Chandurkar, for petitioner. However, in order to give respondent a fair chance, present order is stayed for a period of four weeks.