Case Law Details

Case Name : Asim Pharmachem Industries Vs Nilsin Ultrachem Ltd. (Gujarat High Court)
Appeal Number : Co. Petition Nos. 14 & 15 of 2006
Date of Judgement/Order : 06/08/2012
Related Assessment Year :
Courts : All High Courts (4251) Gujarat High Court (360)

HIGH COURT OF GUJARAT

Asim Pharmachem Industries

Versus

Nilsin Ultrachem Ltd.

Co. Petition Nos. 14 & 15 of 2006

August 6, 2012

JUDGMENT

1. Both these petitions are against the same company and as identical issues arise in these petitions, the same are disposed of by this common judgment.

2. Both these petitions have been filed by the petitioners for an appropriate order of winding up of the respondent-Company, Nilsin Ultrachem Limited, under the provisions of the Companies Act, 1956 (the Act).

3. It is the case of the petitioner in Company Petition No. 14 of 2006 that because of some business relation the petitioner advanced a sum of Rs. 2,00,000/- at the relevant point of time @ 18% p.a. on 28.09.2002. It is the contention on behalf of the petitioner that the said amount was to be repaid by the respondent-Company on 02.12.2002. It is contended by the petitioner-Company that the respondent-Company did not pay an amount of Rs. 6,411/- towards interest. It is also the case of the petitioner-Company that thereafter the petitioner advanced a sum of Rs. 5,00,000/- on 23.10.2002 carrying interest @ 18% p.a. It is the case of the petitioner that the respondent Company repaid the amount of Rs. 1,00,000/- on 02.12.2002. On the basis of the said factual premises, it is the case of the petitioner that the respondent is liable to pay interest for 40 days on Rs. 5,00,000/-, which comes to Rs. 9,863/- and Rs. 1,19,704/- for 911 days of Rs. 4,00,000/-. It is also the case of the petitioner that the petitioner-Company further advanced a sum of Rs. 3,00,000/- on 29.03.2003 and the respondent-Company is liable to pay an amount of Rs. 1,17,468/- towards the interest for 794 days. It is further the case of the petitioner that the petitioner is entitled to recover an amount of Rs. 7,00,000/- towards properties of Rs. 3,13,446/- towards interest total aggregating to Rs. 10,13,446/-. The petitioner, in order to prove the aforesaid facts, has relied upon the extract of account of the petitioner-Company.

4. It is contended by the petitioner that as the said amount was not paid by the respondent Company the petitioner issued a notice dated 18.07.2005 under Section 433(e) read with Section 434 of the Act and raised a demand of Rs. 10,13,446/- along with interest @ 18% p.a. from the due date of payment till 31.05.2005. The petitioner-Company in the said statutory notice, raised a requisition that if the payment is not made within a period of three weeks, the petitioner would file a winding up petition before this Court under Section 433(e) of the Act. It is the case of the petitioner that a very vague reply was given to the aforesaid statutory notice by the respondent-Company. It is the case of the petitioner that on causing search for the Office of the Registrar of Companies it has reveled that the respondent-Company has not filed annual return for the years ending on 31.03.2004 and 31.03.2005. It is the case of the petitioner that the respondent-Company has heavily indebted and the financial substratum of the respondent-Company has gone down and the respondent-Company has become commercially insolvent and, therefore, by way of this petition the petitioner-Company has prayed for winding up of the respondent-Company.

5. Upon notice being issued by this Court the respondent-Company, through its authorized signatory, has filed affidavit-in-reply and has denied the contentions raised by the petitioner-Company wherein it is contended that no such amount has been received by the respondent-Company towards loan. It is further submitted that as stated in the petition and has relied upon the audited balance sheet it was contended that no loans are outstanding as on 31.03.2003. It is also contended by the respondent-Company that the present petition is filed only with a view to harass the respondent-Company. It is further contended that the petitioner-Company was engaged in trading of various items of Soda Ash and others, there were transactions of purchase and sales between the parties. It is the case of the respondent-Company that there are three companies of the petitioner-Company and four companies of the respondent-Company wherein such transactions took place. However, it is contended by the respondent-Company that it had never sought any amount from the petitioner-Company towards the money lender i.e. towards the dues. It was further contended by the respondent-Company that the amount raised in the invoices from June 2000 to May 2001 are disputed and in fact the respondent also has raised a debit note to the tune of Rs. 9,38,525/- as the invoices which were raised by the petitioner-Company, were much higher than the price prevailing in the market. It is therefore contended by the respondent-Company that merely by raising higher amount in the invoices does not entitle the petitioner to receive the payment as per the invoices raised. The respondent-Company has therefore contended that no dues are outstanding and the petitioner-Company is not entitled to recover amount of Rs. 10,13,446/-. It is also contended that the averments made in the petition are untrue. It is the case of the respondent-Company that the financial substratum of the respondent-Company has not gone down and has denied the fact that it has become commercially insolvent.

6. In response to the aforesaid affidavit-in-reply of the respondent-Company, rejoinder was also filed by the petitioner-Company denying the contentions raised by the respondent-Company in the affidavit-in-reply and has contended that the averments made in the affidavit-in-reply are not true. It is also contended that the petitioner-Company has never received any such debit note and such debit note is not even produced by the respondent-Company and has reiterated the contentions raised in the petition. It is also contended that the respondent-Company has received the accounts and has never disputed the contents thereof and has therefore prayed that the respondent-Company be ordered to be wound up as prayed for in the present petition.

7. Similarly in Company Petition No.15 of 2006 similar contentions are raised and identical prayers are prayed for. It is the case of the petitioner that a sum of Rs. 14,53,115/- is due and payable by the respondent-Company, as per invoice No.37 dated 22.07.2002 for Rs.1,15,710/-, invoice No.45 dated 29.08.2002 for Rs. 2,72,800/-, invoice No.51 dated 30.09.2002 for Rs. 2,86,000/- and invoice No.52 dated 30.09.2002 for Rs. 3,01,500/-. It is the case of the petitioner-Company that as no amount was received from the respondent-Company, the petitioner-Company issued a statutory notice dated 29.06.2005 under Section 433(e) read with Section 434 of the Act calling upon the respondent-Company to make payment of Rs. 14,53,115/- along with interest @ 18 p.a. from the due date of payment till 31.05.2005. However, in spite of the statutory period being over instead of vague reply of the statutory notice no payment was made by the respondent-Company and hence, it is contended that the financial substratum of the respondent-Company is lost and, therefore, the respondent-Company is liable to be wound up. It is also contended by the petitioner-Company that the respondent-Company has become commercially insolvent and has not even filed its annual return.

8. The respondent-Company has filed an affidavit-in-reply in response to the aforesaid petition and has also contended that the petition suffers from delay and latches and the claim raised in the petition pertaining to the year 2002 wherein invoices were raised in the year 2002 and, therefore, the petition is filed in the month of October, 2005 i.e. beyond the period of three years. It is contended that there is dispute with regard to the invoices for the purchase of raw material. The respondent-Company has also contended that in the reply to the notice given by the respondent-Company it is specifically pointed out that on the contrary the respondent-Company is entitled to refund of the amount. It is contended that the debit note of Rs.9,38,525/- was raised and as such no dues are outstanding. It is also contended that the petitioner-Company have not waived his right for filing civil suit for recovery and has approached this Court after a long period of three years only with a view to pressurize the respondent-Company to pay the amount in spite of the fact that such amount is not due and payable.

9. In response to the aforesaid affidavit-in-reply of the respondent-Company, affidavit-in-rejoinder was filed by the petitioner-Company denying the contentions raised by the respondent-Company in the affidavit-in-reply and has specifically contended that no disputes were raised when the invoices were raised. It is contended that only in order to create a facade of a bona fide dispute in the present petition dispute of price variation is brought forward by the respondent-Company. The petitioner-Company has denied the contentions raised by the respondent-Company in the affidavit-in-reply and has reiterated what has been stated in the petition.

10. This court (Coram: M.R. Shah, J) vide order dated 13.12.2006 admitted both these petitions, passed an order of advertisement and fixed the matters for final hearing. It is a matter of record that the respondent-Company filed O.J. Appeal Nos.4/2007 and 5/2007 against the said order of admission and advertisement. However, the said appeals came to be withdrawn vide order dated 17.01.2007 passed by Division Bench of this Court with a liberty to raise all the contentions raised in the appeals as well as other contentions available to the petitioner before the learned Company Judge at the time of final hearing of the Company Petitions.

11. Heard Ms.Niyati K. Shah, learned advocate for the petitioner and Mr. K.G. Vakharia, learned Senior Counsel with Ms. Avni Mehta, learned advocate for the respondent in both petitions.

12. Ms. Niyati K. Shah, learned advocate for the petitioner, has submitted written submissions and has mainly raised a contention that even though a notice was issued under Section 433(e) read with Section 434 of the Act the respondent-Company has neglected to make the payment. It is further averred that the respondent-Company had never raised objections as regards quality of the goods and the respondent-Company has produced fabricated note before this Court. It was also further averred that in spite of the fact that the documentary evidence proves that there was subsisting debt payable by the respondent-Company to the petitioner and even though the respondent-Company was also aware about the non-payment of the dues the respondent-Company has not paid the debt. It is also averred that the respondent-Company is now dormant and it can hardly be contended that the company is solvent and there are any chance of resurrection. It was further averred that the company is kept alive only for the name. Reliance was placed upon the decisions of – (i) Aluminium Extrusions & Industrial Components (P.) Ltd. v. Central Paints Ltd., [1990] 68 Comp. Cas. 477 (MP); AND (ii) Joti Prasad Bala Prasad v. A.C.T. Developers (P.) Ltd. [1990] 68 Comp. Cas. 601 (Delhi).

13. Mr.Vakharia, learned Senior Counsel for the respondent-Company, contended that the petitions are filed for winding up of the respondent-Company on the ground of inability to pay the debts and specifically under Section 433 (e) of the Act. He further relied upon the ratio of decision of the Apex Court in the case of IBA Health (I) (P.) Ltd. v. Info-Drive Systems Sdn. Bhd. [2010] 104 SCL 367, more particularly Paragraph Nos.29-35 thereof:

29. On a detailed analysis of the various terms and conditions incorporated in the deed of settlement as well as the compromise deed and the averments made by the parties, we are of the considered view that there is a bona fide dispute with regard to the amount of claim made by the respondent company in the company petition which is substantial in nature. The Company Court while exercising its powers under Sections 433 and 434 of the Companies Act, 1956 would not be in a position to decide who was at fault in not complying with the terms and conditions of the deed of settlement and the compromise deed which calls for detailed investigation of facts and examination of evidence and calls for interpretation of the various terms and conditions of the deed of settlement and the compromise entered into between the parties.

30. A company petition cannot be pursued in respect of contingent debt unless the contingency has happened and it has become actually due. In the absence of any evidence, it is not possible to conclude that M/s. Solutions Protocol Sdn. Bhd. had in fact paid any amount to the appellant company towards commission charges due to the respondent company before the cut off date. A legal notice prior to the institution of the company petition could be served on the company only in respect of a debt (then due) and a company could be wound up only if it was unable to pay its debts. In this case, there is a bona fide dispute as to whether the amount claimed is presently due and if, at all, it is due, whether the appellant company is liable to pay the sum unless they have received the same from M/s. Solutions Protocol Sdn. Bhd.

31. Where the company has a bona fide dispute, the petitioner cannot be regarded as a creditor of the company for the purposes of winding up. “Bona fide dispute” implies the existence of a substantial ground for the dispute raised. Where the Company Court is satisfied that a debt upon which a petition is founded is a hotly contested debt and also doubtful, the Company Court should not entertain such a petition. The Company Court is expected to go into the causes of refusal by the company, to pay before coming to that conclusion. The Company Court is expected to ascertain that the company’s refusal is supported by a reasonable cause or a bona fide dispute in which the dispute can only be adjudicated by a trial in a civil court.

32. In the instant case, the Company Court was very casual in its approach and did not make any endeavour to ascertain as to whether the company sought to be wound up for nonpayment of debt has a defence which is substantial in nature and if not adjudicated in a proper forum, would cause serious prejudice to the company.

MALICIOUS PROCEEDINGS FOR WINDING UP

33. We may notice, so far as this case is concerned, there has been an attempt by the respondent company to force the payment of a debt which the respondent company knows to be in substantial dispute. A party to the dispute should not be allowed to use the threat of winding up petition as a means of enforcing the company to pay a bona fide disputed debt. A Company Court cannot be reduced as a debt collecting agency or as a means of bringing improper pressure on the company to pay a bona fide disputed debt. Of late, we have seen several instances, where the jurisdiction of the Company Court is being abused by filing winding up petitions to pressurize the companies to pay the debts which are substantially disputed and the Courts are very casual in issuing notices and ordering publication in the newspapers which may attract adverse publicity. Remember, an action may lie in appropriate Court in respect of the injury to reputation caused by maliciously and unreasonably commencing liquidation proceedings against a company and later dismissed when a proper defence is made out on substantial grounds. A creditor’s winding up petition implies insolvency and is likely to damage the company’s creditworthiness or its financial standing with its creditors or customers and even among the public.

PUBLIC POLICY CONSIDERATIONS

34. A creditor’s winding up petition, in certain situations, implies insolvency or financial position with other creditors, banking institutions, customers and so on. Publication in the Newspaper of the filing of winding up petition may damage the creditworthiness or financial standing of the company and which may also have other economic and social ramifications. Competitors will be all the more happy and the sale of its products may go down in the market and it may also trigger a series of cross-defaults, and may further push the company into a state of acute insolvency much more than what it was when the petition was filed. The Company Court, at times, has not only to look into the interest of the creditors, but also the interests of public at large.

35. We have referred to the above aspects at some length to impress upon the Company Courts to be more vigilant so that its medium would not be misused. A Company Court, therefore, should act with circumspection, care and caution and examine as to whether an attempt is made to pressurize the company to pay a debt which is substantially disputed. A Company Court, therefore, should be guarded from such vexatious abuse of the process and cannot function as a Debt Collecting Agency and should not permit a party to unreasonably set the law in motion, especially when the aggrieved party has a remedy elsewhere.”

Similarly, in the case of Mediqup Systems (P.) Ltd. v. Proxima Medical System GMBH [2005] 59 SCL 255 (SC) more particularly Paragraph Nos.18 and 24-25 thereof:

“18. 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 utilized merely as a means for realising debts due from a company.

24. The Madras High Court in Tube Investments of India Ltd. v. Rim and Accessories (P.) Ltd. [1990] 3 Comp LJ 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. v. 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.”

14. As can be seen from the petitions and as pointed out by the learned Counsel though it has been averred by the petitioner that the debt is not a disputed debt and that no objections were ever raised by the respondent-Company, as regards the quality of the goods supplied, in the affidavit-in-reply, however, the stand taken by the respondent-Company clearly borne out the fact that the debt is a disputed debt.

15. In view of the aforesaid factual background and considering the contentions of the petitioner and the defence raised by the respondent-Company it cannot be said that the amount due and payable as per the statutory notice is a bona fide debt.

16. Hon’ble Supreme Court in case of Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P.) Ltd. [1972] 42 Comp. Cas. 125, has held as under;

“Two rules are well settled. First, if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable. (See London and Paris Banking Corporation, In re [1875] LR 19 Eq.444). Again, a petition for winding up by a creditor who claimed payment of an agreed sum for work done for the company when the company contended that the work had not been done properly was not allowed. (See Brighton Club and Norfolk Hotel Co. Ltd., In re [1865] 35 Beav. 204).

Where the debt is undisputed the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt. (See A Company, In re [1894] 94 SJ 369; [1894] 2 Ch 349 (Ch D)). Where, however, there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the court will make a winding up order without requiring the creditor to quantify the debt precisely. (See Tweeds Garages Ltd., In re [1962] Ch 406; [1962] 32 Comp Cas 795 (Ch D)). The principles on which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law, and, thirdly, the company adduces prima facie proof of the facts on which the defence depends.

Another rule which the court follows is that if there is opposition to the making of the winding-up order by the creditors the court will consider their wishes and may decline to make the winding-up order. Under section 557 of the Companies Act, 1956, in all matters relating to the winding-up of the company the court may ascertain the wishes of the creditors. The wishes of the shareholders are also considered, though, perhaps, the court may attach greater weight to the views of the creditors. The law on this point is stated in Palmer’s Company Law, 21st edition, page 742, as follows :

“This 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 goods reason, they object to a winding-up order, the court in its discretion may refuse the order.’

The wishes of the creditors will, however, be tested by the court on the grounds as to whether the case of the persons opposing the winding-up is reasonable; secondly, whether there are matters which should be inquired into and investigated if a winding-up order is made. It is also well-settled that a winding-up order will not be made on a creditor’s petition if it would not benefit him or the company’s creditors generally. The grounds furnished by the creditors opposing the winding up will have an important bearing on the reasonableness of the case. (See P & J. Macrae Ltd. In re [1961] 1 All ER 302; [1961] 31 Comp Cas 424 (CA).”

It is beyond dispute that the machinery for winding up will not be allowed to be utilized merely as a means for realising its debts due from a company. In Amalgamated Commercial Traders (P.) Ltd. v. Krishnaswami (A.C.K.)[1965] 35 Comp Cas 456, 463 (SC) this court quoted with approval the following passage from Buckley on the Companies Acts, 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 stigmated as a scandalous abuse of the process of the court.”

17. As observed above, the statutory notice as well as the prayers prayed for in both petitions indicate that these are the petitions filed for the purpose of recovery of dues as envisaged under Section 433(e) of the Act. Considering the ratio laid down by the Apex Court in the case of Madhusudan Gordhandas and Co. (supra) an order under Section 433(e) of the Act is discretionary. There must be a debt due and the company must be unable to pay it. It is further observed that, A debt under this section must be a determined or definite sum of money payable immediately. It is also held that if the debt is disputed and the defence is a substantial one, the court will not pass an order of winding up the company.

18. It is therefore necessary that there must be debt due and the company must be unable to pay it. If the debt is a disputed debt and the defence is substantial one order of winding up should not be passed. It is also note worthy that after the petitions were admitted no other persons have raised any claim and, therefore, this Court finds that the debt being disputed and there exists a bona fide dispute. The present petitions cannot be used as tool for recovery and, therefore, considering the aforesaid facts and circumstances of the case, when the debt itself is disputed the petitions deserve to be dismissed. Hence, the petitions are hereby dismissed.

19. Registry to place a copy of this order in connected matters.

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0 responses to “If debt itself is disputed than winding petition deserve to be dismissed”

  1. Raj Viswanathan says:

    Gr8, bt still not clear whether a company can raise disputes for bonafide debts, after a winding up petition has been filed.

  2. Raj Viswanathan says:

    Can a company raise dispute for bonafide debts, after a winding up petition has been filed.

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