Madras High Court
Sical-Cwt Distriparks Ltd. vs Besser Concrete Systems Limited on 11 October, 2002
Equivalent citations: [2003]113COMPCAS383(MAD), [2003]46SCL196(MAD)
JUDGMENT N.V. Balasubramanian, J.
1. This company petition is filed under Sections 433(e) and 433(c) of the Companies Act, 1956, hereinafter referred to as the Act, for winding up of the respondent-company, which was incorporated under the provisions of the Act.
2. The respondent-company was established with the objects mentioned in the memorandum of association with the authorised share capital of Rs. 20 crores divided into two crore equity shares of Rs. 10 each. The paid up share capital of the respondent-company is Rs. 11,000. The respondent-company is manufacturing and dealing in decorating articles such as block wall patterns, lawn edging, landscaping blocks etc.
3. The case of the petitioner is that the petitioner-company has placed a work order dated August 2, 1996 with M/s Vibrant Investment and Properties Limited (hereinafter referred to as ("the VIPL") and also referred to as "the said company") for laying and paving heavy duty pavement for 4.50 lakh sq. ft. using heavy duty pavers as per specifications for a total value of Rs. 5,23,87,500 for its container yard and paid a mobilisation advance of Rs. 10 lakhs with a condition that the said company would perform all obligations in this regard. The respondent-company stood guarantee for the said company and also executed a guarantee dated July 25, 1997 for the due performance of the terms and conditions in respect of the work entrusted to the said company. Since the petitioner had noticed some defects in the work, by a letter dated November 5, 1996, it requested the said company to rectify the defects. The said company failed to rectify the defects and so the petitioner intended to take legal action against the respondent for damages. Thereafter after several discussions, a revised design was made by the said company for the work to be done and a revised price was quoted for the total paving of the container yard and requested the petitioner to award the contract to the said company as it had already manufactured pavers through the respondent and kept them at the respondent's site and also paid the entire amount to the respondent and requested to release 75 per cent. of the value of the pavers manufactured and held by the said company on behalf of the petitioner. The petitioner considered the request of the said company and issued a revised work order for Rs. 4,13,30,168 after getting an indemnity bond and guarantee from the respondent in lieu of bank guarantee for payment of mobilisation advance of Rs. 41.33 lakhs for the due performance of the work by the said company and paid mobilisation advance of Rs. 31.33 lakhs after adjusting the advance already paid. The petitioner-company also paid Rs. 35.12 lakhs towards 75 per cent. of the cost of 10 lakh pavers as requested by the said company. In spite of the above payment made by the petitioner-company, the said company failed to perform any of its obligations under the work order and in the review meeting held between the petitioner-company and the said company, the said company had expressed its inability to do work due to financial crisis and requested to withdraw from the contract. A huge stock of petitioner's pavers lying in the respondent-company was sold without the consent of the petitioner and the availability of pavers was much less. The respondent-company also indicated that the balance pavers would be despatched after reconciling the accounts of the respondent and the said company. It is stated that both the respondent and the said company delayed the petitioner's project schedule and the mobilisation advance was also not returned by the said company. A sum of Rs. 41.33 lakhs was due by way of mobilisation advance paid to the said company and Rs. 21.62 lakhs being the balance in pavers account after adjusting the value of the work done and recovery by way of retention and mobilisation advance. Since the respondent-company has stood as the guarantor for the said company and the respondent has admitted its liability by entering into an agreement dated April 1, 1997, confirming that it was holding seven lakh pavers in trust on behalf of the petitioner, it is stated that the respondent is liable to pay the balance amount. The said company did not pay the sum in spite of repeated letters dated August 9, 1997, and September 10, 1997, and hence, the respondent is jointly and severally liable along with the said company to pay the amount to the extent of Rs. 41,32,631 in view of the guarantee dated March 25, 1997, executed by the respondent in favour of the petitioner for due performance of the terms and conditions of the contract by the said company. The respondent is also liable to pay Rs. 62.95 lakhs as it had agreed to indemnify the petitioner for any loss, damage, cost etc. Even after the issuance of the statutory notice issued by the petitioner dated September 27, 1997, the respondent did not pay the amount. The respondent and the said company have become commercially insolvent and unable to pay its debts. It is therefore appropriate that the respondent-company should be wound up.
4. Notice was ordered regarding the maintainability and the respondent has filed a preliminary counter statement. According to the respondent, the name of the company was changed to "Besser Concrete Systems Ltd." It is stated that the respondent was incorporated in the year 1995 with the object of manufacturing and marketing concrete blocks and pavers and Vibrant Investments and Properties Ltd. (VIPL), one of the promoters of the respondent-company was enjoying a fiduciary relationship with the respondent. It is stated that R. Ramakrishna, the managing director of VIPL was also the managing director of the respondent-company from February 26, 1996, to June 17, 1997. It is stated that the said R. Ramakrishna was also the Chairman of the board of directors of the respondent-company from March 20, 1995, till December 11, 1997. It is stated that R. Ramakrishna continued to be a member of the Board of the respondent-company having powers of management of the affairs of the respondent and fiduciary control over the respondent. It is the case of the respondent that R. Ramakrishna and his associates had abused their fiduciary relationship with the respondent and had done several acts of misfeasance, malfeasance and non-feasance. It is also stated that the petitioner had been applying pressure for collecting the dues as early as in the year 1997 itself from the said R. Ramakrishna. It is stated that the said R. Ramakrishna had entered into an ante-dated guarantee and an agreement involving the respondent. It is stated that the deeds of guarantee and the agreement are not genuine and they are fabricated ones and have been perpetrated by the said R. Ramakrishna in collusion with the petitioner for obvious purposes. It is the case of the respondent that the respondent has supplied more pavers to VIPL than what VIPL has paid for and that VIPL owes this respondent. It is therefore admitted that VIPL is simply attempting to bring this respondent into the dispute collusively. It is stated that the copies of certain documents have not been furnished to the respondent. It is the case of the respondent that the petitioner has not furnished the copies of all the deeds, documents, letters etc. entered into between the petitioner and VIPL. It is stated in the agreement dated April 1, 1997, a reference has been made about an event which takes place subsequently on April 2, 1997, namely, the amended work order and it is not a typographical error. Reference has been made to two original work orders one on July 11, 1996 and another on August 2, 1996, and the work order dated August 2, 1996 is subsequent and according to the respondent, it is a fabricated one. It is further stated that the performance guarantee has been contemplated well before the work order dated August 2, 1996, and the respondent also referred to certain events stated in paragraphs V, VI, VII, VIII and IX of the counter-affidavit to plead that R. Ramakrishna has colluded and put up only a sham fight. It is the case of the respondent that it was not the guarantor of the said company and the agreement in question is not enforceable against it and the petition for winding up lacks bona fides and is liable to be dismissed.
5. The petitioner has filed a rejoinder stating that the objections raised in the preliminary counter-affidavit of the respondent are not sustainable. According to the petitioner, the acts of misfeasance and malfeasance by R. Ramakrishna are not matters of consequence to the petitioner who had bona fide commercial transaction with the respondent-company. The averments that there was a collusion between the petitioner and VIPL and that there is an ante-dated agreement were also denied. The contention that the guarantee is a fabricated one is also denied. It is therefore stated that the respondent-company as guarantor to the said company, is liable to pay the money due by the said company to the petitioner. It is the case of the petitioner that R. Ramakrishna being the managing director of the respondent-company has signed the contracts, agreements and guarantees and hence the respondent-company would be responsible for all the actions of the said director. It is not open to the respondent to contend that the agreement is not valid. It is therefore stated that the respondent is liable to pay the money. As far as the copies of documents averred in paragraph 8 of the counter affidavit are concerned, it is stated that the documents have already been furnished to VIPL and the petitioner has also given a list of documents having been furnished to VIPL. The other averments contained in the preliminary counter-affidavit are denied and prayed that the respondent-company should be wound up.
6. Mr. Sivakumar, learned counsel appearing for the petitioner referred to the indemnity bond executed by the respondent in favour of the petitioner, particularly Clauses 3, 16 and 17 of the agreement dated March 25, 1997. He also referred to the statutory notice dated September 27, 1997 and the non-reply to the said notice. Learned counsel referred to the letter of VIPL, wherein the principal liability of Rs. 62.94 lakhs is admitted and he has also submitted that R. Ramakrishna has not disputed his signature in the guarantee agreement. He, therefore, submitted that the petitioner is invoking the guarantee. He has also submitted that the petitioner has advanced a sum of Rs. 41.33 lakhs. He refers to the advance payment to VIPL dated April 1, 1997 and submitted that the agreement has not been disputed and it is a genuine one. Further, he submitted that R. Ramakrishna has only 20 per cent. shareholding. He submitted that R. Ramakrishna has signed the agreement. He also referred to the covenants and submitted that at least for the dues of Rs. 41. 33 lakhs there is no dispute. He refers to the balance-sheet of the respondent-company for the year 1996-97 and refers to the director's report. He also referred to the balance-sheet of the company for the year 1997-98, wherein the company has admitted that it has given guarantee. He also referred to the letter dated August 16, 1997, wherein it is stated that due to certain problems in the site in respect of soil sub-base, the delivery of pavers was stopped. He also referred to the balance-sheet for the year ended March 31, 2000 and submitted that though R. Ramakrishna was not the director of the company, the company has not disputed that the pavers were sold. He also submitted that the respondent-company has not responded to the notice and sold the pavers. He also referred to the letter dated March 25, 1996, and the director's report for the year ended March 31, 1997. He referred to the director's report of the respondent-company dated March 1, 2000, wherein it has been stated that R. Ramakrishna has resigned during that year and the company has not disputed the guarantee. He further submitted that only in the balance-sheet for the year ended March 31, 2000, after the petitioner has filed the company petition, the respondent-company has chosen to question the validity and genuineness of the guarantee deed. He also submitted that R. Ramakrishna was a director when the guarantee agreement was signed. He also referred to the director's report for the year ended March 31, 1997 wherein the company has stated that the respondent manufactured large quantity of Unistone interlocking pavers and also referred to the guarantee agreement and the same was accepted in the balance-sheet of the year 1999. He referred to the board's resolution dated August 17, 1996 and the resolution dated September 18, 1996. He also submitted that the minutes of the board were not produced in spite of the directions from this court. His main submission was that the respondent-company is not a stranger and the petitioner dealt with the said company and whatever may be internal quarrel between the managing director of the said company and the respondent-company it will not affect the validity of the transactions in so far as the petitioner is concerned. He submitted that prima facie the documents are genuine and R. Ramakrishna, managing director of VIPL was also the managing director of the respondent-company and he had interest in the transactions between the VIPL and the petitioner-company. Learned counsel referred to Section 290 of the Companies Act and submitted that it is not open to the respondent to say that R. Ramakrishna did not have the capacity to deal with the transaction, and the petitioner is a bona fide third party. He referred to a letter dated March 25, 1996 and submitted that the letter was issued prior to the guarantee. He also referred to the letter of intent dated March 25, 1997 and submitted that in the letter there is a reference to the work order dated August 2, 1996. He also referred to the board's resolution whereby R. Ramakrishna was empowered to sign the performance guarantee to the said M/s MAC-CWT Distriparks Ltd., in compliance with the terms of the said work order. Therefore, the petitioner is entitled to maintain the company petition. His main case is that the guarantee was signed in accordance with the board's resolution and in the reply to the legal notice the respondent has not disputed that R. Ramakrishna had signed the guarantee deed and he also submitted that during the course of pendency of the above company petition the respondent has asked for time for settling the claim. As regards the typographical error, it does not make any hindrance for the enforceability of the agreement.
7. On the other hand, Mr. S. K. Srinivasan, learned counsel for the respondent submitted that according to the petitioner, the letter of intent was dated March 25, 1997, the work order was dated August 2, 1996 and a sum of Rs. 10 lakhs was paid on August 5, 1996 and the balance of Rs. 31.33 lakhs was paid by two cheques one dated March 26, 1997 for a sum of Rs. 10 lakhs and another for a sum of Rs. 21.33 lakhs by a cheque dated March 27, 1997. He referred to the guarantee agreement entered into on March 25, 1997 wherein it is stated that a sum of Rs. 41 lakhs was stated to have been paid in respect of the work relating to the development construction of the container yard on the terms and conditions of the intent letter dated March 25, 1997. He therefore submitted that it is impossible that a sum of Rs. 31. 33 lakhs could have been paid on March 25, 1997 and actually the amounts were stated to have been paid subsequent to that date. He also referred to the letter of intent and submitted that the letter does not mention anything about the guarantee. He also referred to the work order dated August 2, 1996 and submitted that in the work order it has not been stated that VIPL was required to give performance guarantee and there is no provision for the guarantee given by the respondent. He therefore submitted that the guarantee agreement is antedated. Learned counsel also referred to the amended work order dated April 2, 1997 and even in the amended work order there is no reference to the guarantee. He refers to the letter of intent dated March 25, 1997 and in that there is no reference about the guarantee. He further submitted that a sum of Rs. 10 lakhs was stated to have been paid on March 26, 1997. In the minutes of the meeting dated August 20, 1997, there is no reference about the guarantee also. He further submitted that the guarantee refers to the payment of advance on April 1, 1997 and the subsequent event, namely, the amended work order dated April 2, 1997. He also referred to the two work orders dated August 2, 1996 and April 2, 1997 wherein there is no reference about the guarantee by third party. He also referred to the minutes dated August 20, 1997, wherein there is no reference about the guarantee. He also submitted that the guarantee could have been given only for the strength and performance of the contract and also referred to certain clauses in the guarantee agreement March 25, 1997 and the agreement also provides a clause for return of the mobilisation advance. He therefore submitted that the guarantee is a fabricated one brought about by R. Ramakrishna and there is a genuine dispute and the company petition is liable to be dismissed. In support of his submission counsel relied on certain decisions also.
8. I have carefully considered the submission of learned counsel for the petitioner and the respondent. I have already set out the facts and now, I will consider the decisions relied on by learned counsel for the parties. Counsel for the petitioner relied on the decision reported in Royal British Bank v. Turquand [1843-60] All ER Reprint 435. The above case deals with the duties of directors as regards the resolution duly passed by the company. The court laid down the following proposition :
"Persons dealing with the company were bound to make themselves acquainted with the statute and the deed of settlement of the company, but they were not bound to do more ; a person, on reading the deed of settlement, would find, not a prohibition against borrowing, but a person to borrow on certain conditions, and, learning that the authority might be made complete by a resolution, he would have a right to infer the fact of a resolution authorising that which on the face of the document appeared to be legitimately done ; and, therefore, the company was liable whether or not a resolution had been passed."
9. Learned counsel for the petitioner also relied on a decision of the Calcutta High Court in Probodh Chandra Mitra v. Road Oils (India) Ltd., AIR 1930 Cal 782, wherein it has been held as under (headnote) :
"An agreement between a company and a person as banian of the company, that the latter will advance all the necessary funds up to a certain limit and in return would have the sole right to collect all sums due on bills to the company and repay himself the advances so made as also his remuneration, is an instrument which if otherwise binding creates an equitable charge on the company's outstandings for the amount due to the person. Such agreement need not be under company's seal. It is enough if it is in writing and even if such agreement is required to be under seal by the articles of association of the company, if it is affixed with the seal irregularly, the irregularity does not affect the binding character of the agreement :
When a document is intended and required to be under seal, a mere defect in respect of the seal does not make the document for all purposes bad and if the court is satisfied that the parties intended and had power to create the charge, incumbrance or a transfer it will give effect to the intention notwithstanding any mistake in or a failure of the attempt to effect it. If further the document is acted upon by the company, the obligation it embodies will be enforced.
When an agreement on behalf of a company is entered into with a stranger by one of the directors, then if it was possible under the articles of association for authority of all the directors to be delegated to one and the stranger is aware of no facts to the contrary the agreement will bind the company irrespective of whether such delegation of power has taken place or not."
10. Learned counsel for the petitioner also relied on a decision of the Allahabad High Court reported in Ram Buran Singh v. Mufassil Bank Ltd., AIR 1925 All 206, wherein the court has held as under (headnote) :
"A company is bound by its dealings with strangers, who act bona fide with the company ; a company is liable for all acts done by its directors, even though unauthorised by it provided such acts are within the apparent authority of the directors and not ultra vires. Persons dealing bona fide with a managing director are entitled to assume that he has all such powers as he purports to exercise if there are powers which, according to the constitution of the company, a managing director can have. All persons dealing with a company must ascertain the limitation imposed by the articles of association, but they are not bound to draw any direct or obvious inferences from the provisions they find there, nor is there any obligation cast upon them to see that such directors are properly appointed or that they have acted exactly in accordance with the manner prescribed therein. The articles of association of the company define the power of directors as between themselves and the company, and unless there is anything in those articles limiting the powers of the board of directors in carrying on the ordinary business of the corporation a third party who deals with the directors or with the managers acting under those powers however irregularly, is protected if he acts in good faith in his dealing with them."
11. Learned counsel for the petitioner also referred to the decision in Goodwill India Ltd. v. P. S. B. Paper Mills Pvt. Ltd., , wherein the court held that the company has not disputed the liability on any prior occasion, i.e., prior to the filing of the written statement and the plea set up for the first time in the written statement was held to be an afterthought and the defence raised by the company was held to be not a bona fide one.
12. Learned counsel also referred to the decision of the Division Bench of this court reported in Deva Sugars Ltd. v. Sicom Ltd. [1997] 89 Comp Cas 504, wherein the guarantors liability was dealt with and the court has held as under (headnote) ;
"Even though the appellant-company was termed as guarantor in the guarantee document, it was also mentioned therein that it would be treated as principal debtor. Further, the loan granted was not in dispute and the execution of the guarantee document was also not in dispute. The demands made by the corporation for the amount due including the statutory notice was not in dispute. Further, even though the statutory notice was addressed to the principal debtor, a specific demand was made even against the guarantor, specifically saying that the contents would be treated as statutory notice under Section 434 of the Companies Act against the guarantor also. Despite the statutory notice, admittedly, there was no reply by the appellant guarantor. Nor had any payment been made subsequent to the statutory notice. In the circumstances, it was clear that the appellant-company was unable to pay its debts."
13. Learned counsel for the petitioner also relied on the decision of the Calcutta High Court in Wastinghouse Saxby Farmer Ltd., In re [1982] 52 Comp Cas 479. The court laid down the law as under (headnote) :
"A winding up petition was filed by a creditor after failure and neglect by a company to pay the claim of the creditor for the price of goods sold, delivered and accepted by the debtor-company without any objection. From the winding up petition and its annexures prima facie no dispute appeared as to the contract for, and the supply of the goods at any stage, For the first time, the debtor-company admitting the liability to pay some of the bills alleged with respect to some others that on enquiry and scrutiny in the office of the respondent-company it came to the knowledge of the company that in collusion and conspiracy with some employees of the company the petitioner had committed fraud upon the company in delivering indigenous materials although the contract was for sale of foreign made materials and also inflating the amounts of the said bills and showing therein larger quantities of goods than had actually been delivered :
Held, that the dispute sought to be raised by the company appeared to be not only absurd and highly improbable and if it was encouraged in the winding up petition it would be disastrous and open the flood gate of fraud and collusion as a defence which companies could set up to defeat the bona fide claims of petitioning creditors. In the facts and on the records, the dispute was defamatory and injurious to the business reputation of traders and merchants."
14. Learned counsel for the petitioner referred to the decision of the Calcutta High Court reported in Bangasri Ice and Cold Storage Ltd. v. Kali Charan Banerjee, , wherein, the court while construing the words "unable to pay debt" in Section 433 of the Companies Act, 1956, has held as under (headnote) :
"Under Sections 433(e) and 434(1)(a) before a company could be sent to liquidation, it must be 'unable to pay its debts'. This presupposes that there exists a debt and the company is unable to pay it. Prima facie this must relate to the solvency of the company. So far as the creditor is concerned, who cannot obtain payment of his debts, he is entitled, as between himself and the company ex debito justitiae to an order for winding up, if he brings his case within the Act. But he must first of all establish that there is a debt owing and secondly, must satisfy the court that the company is unable to pay the same.
Where notice is given and the company after the requisite period neglects to pay a debt, then there arises under Section 434 a presumption of inability to pay. But here again, the words used are 'neglects to pay'. In either case, that is to say, under Section 433 or Section 434, if the debt is disputed bona fide, then in that case there is neither inability nor negligence to pay. It will not do for a creditor merely to put forward a claim. The company may not accept it or may dispute either its factum or validity. Where there is a genuine dispute of this description, it cannot be resolved by having recourse to winding up proceeding. But, just as it will not do for a creditor merely to put forward a claim, it will not do for the company to deny a claim recklessly. If the denial of the dispute is neither bona fide nor reasonable, then the court does not lose its power of granting relief by passing a winding up order."
15. Learned counsel for the petitioner also relied on a decision reported in S. Kantilal and Co. Pvt. ltd. v. Rajaram Bandekar (Sirigao) Mines Pvt. Ltd. [1993] 76 Comp Cas 800, wherein, the Bombay High Court has held as under (headnote) :
"In a winding up petition, the principles on which the company court acts are first that the defence of the company is in good faith and one of the substance, secondly, that the defence is likely to succeed in point of law and, thirdly, that the company adduces prima facie proof of the facts on which the defence depends."
16. On the other hand, Mr. S. K. Srinivasan, learned counsel for the respondent relied upon the following decisions :
Ram Kishan v. Kanwar Papers Pvt. Ltd. [1990] 69 Comp Cas 209 (HP) ;
T. Srinivasa v. Flemming (India) Apotheke P. Ltd. [1990] 68 Comp Cas 506 (Karn) ;
Rishi Pal Gupta v. S. J. Knitting and Finishing Mills Pvt. Ltd. [1998] 93 Comp Cas 849 (Delhi) ;
B. Viswanathan v. Seshasayee Paper and Boards Ltd. [1992] 73 Comp Cas 136 (Mad) ;
Malhotra Steel Syndicate v. Punjab Chemi-Plants Ltd. [1989] 65 Comp Cas 546 (P&H) ;
P. S. Tirumalai Iyengar v. Official Liquidator, Srinivasa Mills Ltd. [1961] 31 Comp Cas 561 (Mad) ;
Shaw (John) & Sons (Salford), Ltd. v. Peter Shaw and John Shaw [1935] 5 Comp Cas 369 (CA) ;
Rajasthan Spinning and Weaving Mills Ltd. v. Textool Company Ltd. [1971] 41 Comp Cas 66 (Mad) ;
C. A. Galiakotwala and Co. Pvt. Ltd., In re [1984] 55 Comp Cas 746 (Bom) ;
Amalgamated Commercial Traders (P.) Ltd. v. A. C. K. Krishnaswami [1965] 35 Comp Cas 456 (SC) ;
Steel Equipment and Construction Co. (P.) Ltd., In re [1968] 38 Comp Cas 82 (Cal) ;
A. C. K. Krishnaswami v. Stressed Concrete Constructions Private Ltd. [1964] 34 Comp Cas 6 (Mad) ;
Focus Advertising Pvt. Ltd. v. Ahoora Blocks Pvt. Ltd. [1975] 45 Comp Cas 534 (Bom) ;
Transplanters (Holding Company) Ltd., In re [1958] 1 WLR 822 ; [1958] 2 All ER 711 (Ch. D) ;
East Kajoria Collieries Private Ltd. In re [1965] 35 Comp Cas 180 (Cal) ;
Jamiraddin v. Khadejanessa Bibi, AIR 1929 Cal 685 ;
Smt. Keerat Kaur v. Patiala Exhibition (P.) Ltd. [1991] 70 Comp Cas 728 (P&H) ;
S. P. Chengalvaraya Naidu v. Jagannath ;
Official Liquidator, Supreme Bank Ltd, v. P. A. Tendolkar [1973] 43 Comp Cas 382 (SC) ;
Nawab Singh v. Daljit Singh, AIR 1936 All 401 ;
Babu Lal Rukmanand v. Official Liquidator [1968] 1 Comp LJ 1 ; [1969] 39 Comp Cas 670 (Raj) ;
17. Selangor United Rubber Estates Ltd. v. Cradock (No. 3) [1969] 39 Comp Cas 485 (Ch. D), and submitted that where there is a serious dispute as to the fact the party must be referred to the civil court. According to him, the debt is in bona fide dispute and the defence put forward is a substantial one and hence the court will not order winding up of the respondent-company. I am of the view that it is not necessary to burden this judgment by quoting the decisions relied on by learned counsel for the respondent, as the principles are very clear.
18. In February 1996, VIPL submitted a quotation, as seen from the "list of dates" filed by learned counsel for the petitioner and also submitted its offer for laying and paving heavy duty pavement using heavy duty pavers before the petitioner. Though the petitioner-company has referred to the letter of VIPL of February, 1996, and another letter dated February 29, 1996 in the list of dates, the petitioner has neither referred to the same in the petition, nor produced the same before the court. The petitioner also referred to the letter of VIPL, dated March 25, 1996 in the "list of dates" and the letter was dealing with the laying of interlocking pavers in Madras, and the letter also refers to certain conversation regarding the paving project. Another letter dated May 8, 1996 from the respondent to one Dr. V. V. S. Rao, New Delhi, was also relied upon to show that the respondent-company has sought for certain opinion from Dr. V. V. S. Rao regarding the performance of the pavers. The letter was signed by B. Hari Srinivas, general manager of the respondent-company. The petitioner also referred to the letters sent by Mask B. Hogan, Vice-President of Engineering, National Concrete Masonry Association to Ramakrishna of the respondent-company regarding the work of laying the pavers. The petitioner also referred to the letter of intent issued to Vibrant Investment, dated June 26, 1996, but that letter was not produced before the court. The petitioner has also referred to the letter dated July 25, 1996, of Vibrant Investment and that letter is also not available before the court. All these documents are referred to in the list of dates filed by the petitioner, but they are not referred to in the petition.
19. The next document is the work order dated August 2, 1996, issued by the petitioner to Vibrant Investment for laying pavers. In the work order dated August 2, 1996, there is a mention that Vibrant Investment should give a clear performance guarantee and it is significant to notice that there is no reference to a third party guarantee in the work order dated August 2, 1996. It is stated that on August 5, 1996, a sum of Rs. 10 lakhs was paid by the petitioner to Vibrant Investments and it is not necessary to refer to the unsatisfactory work done by Vibrant Investment. The petitioner refers to the minutes of the meeting held on November 26, 1996. It is seen in the said minutes of the meeting, the general manager of the respondent-company had participated and in the minutes there is also no reference to the third party guarantee. It is stated that on March 21, 1997, Vibrant Investment submitted a revised proposal and that letter is also not produced before the court. On March 25, 1997, the petitioner has issued a letter of intent for the development of the container yard and in that letter also there is no reference to the third party guarantee. On March 27, 1997, Vibrant Investments executed three contracts, namely, workmenship guarantee, performance of contract and advance payment for pavers. It is also stated that on March 26, 1997, and March 27, 1997, the petitioner had paid to Vibrant Investment a total sum of Rs. 41.33 lakhs including a sum of Rs. 7 lakhs earlier paid on July 10, 1996. On March 25, 1997, it is alleged that the guarantee agreement was executed by the respondent in favour of the petitioner for the performance of the obligation. In Clause 2 of the agreement dated March 25, 1997, it is stated that the petitioner has paid advance to Vibrant Investment of a sum of Rs. 41.33 lakhs in respect of the work relating to the development and construction of the container yard on the basis of the letter of intent dated March 25, 1997.
20. It is relevant to mention here that even according to the petitioner's own admission, the amounts were paid on two dates, on March 26, 1997, the sum of Rs. 10 lakhs was paid and another sum of Rs. 21. 33 lakhs was paid by way of cheque dated March 27, 1997. On April 1, 1997, Vibrant Investment executed three agreements, one of them was advance payment for pavers to procure and lay pavers. The agreement says that Vibrant Investments had manufactured ten lakh pavers and also agreed not to sell and dispose of the same. It is not clear whether the pavers were actually manufactured by the respondent. In this agreement the respondent was not a party. It is also relevant to notice here that on April 1, 1997, the respondent is said to have executed an agreement in favour of the petitioner confirming that pavers not less than ten lakhs have been produced exclusively in part performance of the respondent's obligation for the total quantity of pavers to be procured by Vibrant Investments to lay pavers at the site of the petitioner. It is relevant to notice here that in the agreement dated April 1, 1997, there is a reference to a subsequent work order dated April 2, 1997, in more than one place. A fresh work order was issued on April 2, 1997 by the petitioner in favour of Vibrant Investment and in this work order also there is no reference to the third party guarantee. Though the petitioner has referred to the advance payment made on April 2, 1997 in the letters dated June 17, 1997, June 19, 1997, July 4, 1997 and July 16, 1997, the copies of those letters and the minutes were not produced before the court. The petitioner referred to the letter dated August 11, 1997, wherein Vibrant Investment addressed the petitioner regarding the discussion held on August 8, 1997 in the chambers of the managing director of the respondent-company, authorising the petitioner to release the payment to the respondent for the despatch of the pavers. The petitioner also referred to the letter dated August 16, 1997, from the respondent regarding the restructure of the board of directors of the respondent-company, assuring for the continued commitment to the customers in respect of past orders.
21. The next document that is referred to is the minutes of the meeting held on August 20, 1997, wherein it is stated that R. Ramakrishna has informed that the reimbursement would be made, and assured for return of the mobilisation advance. In the minutes of the meeting held on August 20, 1997, though a reference was made about the manufacture of balance pavers for continuous supply of pavers, which are to be supplied to the petitioner, there is no reference to any third party guarantee also. The petitioner addressed a letter to Vibrant Investment dated September 10, 1997, to settle the account, but here also there is no reference to the guarantee. The petitioner also referred to the letters dated September 18, 1997, and December 16, 1997 of Vibrant Investment to the petitioner wherein there is a reference to the return of the mobilisation advance, and the letters also show that continuous supply of pavers would be ensured in future.
22. A close study of the copies of various documents reveals that either at the time of entering into the contract by the petitioner with Vibrant Investment or at the time of issue of the first work order on August 2, 1996, the parties have not contemplated any third party guarantee for the performance of the work by Vibrant Investment. In the letter of intent issued on March 25, 1997, by the petitioner in favour of Vibrant Investment, there is no reference to third party guarantee. It is also relevant to notice that in the agreement executed on April 1, 1997 under the caption "advance payment for pavers" there is also no reference to the third party guarantee and in the agreement also the respondent-company was not a party. Another significant aspect is that in the work order issued on April 2, 1997, by the petitioner in favour of Vibrant Investment there is no reference to the third party agreement. In the guarantee agreement executed on March 25, 1997, the respondent refers to the payments made subsequent to the agreement, namely, March 26, 1997, and March 27, 1997, as if the payments were made even on the date of the agreement. I have carefully gone through the terms of the agreement and in my view it is not necessary to express any opinion on that, but, it is ex facie clear that the terms of the agreement relate to the supply of heavy duty pavers to the petitioner's company. Another significant aspect is that in the agreement said to have been executed by the respondent on April 1, 1997, there is a reference to the work order dated April 2, 1997 and in the minutes of the meeting held on August 20, 1997, there is absolutely no reference to the third party agreement said to have been executed on March 25, 1997. So also, in the mobilisation advance agreement executed on March 27, 1997 by Vibrant Investment there is also no reference to the third party agreement said to have been executed by the respondent.
23. Another aspect that has to be taken into consideration is that in the letter dated July 16, 1997 of Vibrant Investment, there is also no reference to the guarantee agreement at all. Though in some of the letters particularly, the letters dated March 25, 1996 and May 8, 1996 and in the minutes dated November 26, 1996, it is stated that the respondent has participated in the execution of the work of Vibrant Investment, the letters do not establish that the participation of the respondent was by way of third party guarantee. As far as the letter dated July 16, 1997, issued by the respondent is concerned, the letter only provides assurance for the supply of pavers. As regards the letter dated August 11, 1997 of Vibrant Investment, it also deals only with the supply of pavers by the respondent-company. In so far as the minutes of the meeting held on August 20, 1997 are concerned, it is significant to notice that nothing has been mentioned about the guarantee agreement said to have been executed on March 25, 1997 and in the letter dated September 10, 1997, issued by the petitioner to Vibrant Investment, a copy of which was marked to the respondent, there is also no reference to the guarantee executed on March 25, 1997. In the balance-sheet of the respondent-company for the year 1997, it is seen that R. Ramakrishna was the chairman and director of the respondent-company. In the statement pursuant to Section 173(2) of the Companies Act, it has been stated that there is a restructure of the respondent-company and it is also stated that the company has manufactured large quantity of pavers. It is also stated that efforts are made to dispose of them to the other customers. So it is clear that R. Ramakrishna was the chairman and director of the respondent-company on December 5, 1997 and in the balance-sheet it has been stated that the company has not guaranteed any loan and there is no reference to any guarantee at all and it has been certified by the auditor in his report dated October 8, 1997. The next balance-sheet is for the year ended 1997-98, which was signed in June 1999, during which period R. Ramakrishna was not a director of the respondent-company. There is a reference to the guarantee regarding the satisfactory performance of the pavers, but there is no reference to guarantee for the repayment of the advance received by Vibrant Investment. It is significant to notice that while in the earlier balance-sheet there is no reference made about the agreement. The next balance-sheet is for the year 1998-99 and R. Ramakrishna has resigned from the board of directors and in that balance-sheet also the respondent-company has referred to the satisfactory performance of the pavers, but there is no reference to the repayment of the mobilisation advance. It is relevant to notice here that R. Ramakrishna has resigned during that year. The next balance-sheet is for the year ended March 31, 2000, and the respondent-company has taken a definite stand regarding the genuineness of the guarantee deed. I am of the view that there is a genuine dispute about the deed of guarantee. The preliminary counter affidavit was filed by the respondent on September 8, 2000, and the director's report was signed on November 22, 2000. It is, therefore, clear from the reading of various documents that the respondent-company has raised a bona fide dispute as regards the genuineness of the agreement of guarantee dated March 25, 1997, as well as the agreement dated April 1, 1997.
24. It is important to notice that R. Ramakrishna was the moving figure in both the respondent-company as well as in Vibrant Investment and in none of the earlier documents prior to March 25, 1997, is there a reference to the performance guarantee by the respondent-company. I find that even in the guarantee agreement dated March 25, 1997, there is reference to the payments made on March 26, 1997, and on March 27, 1997, as if the payments were made on March 25, 1997. The agreement dated April 1, 1997, also refers to the work order subsequently made on April 2, 1997, and these are all matters for the petitioner to explain in evidence as to how the subsequent dates are incorporated in the guarantee agreement dated March 25, 1997, and also in the agreement dated April 1, 1997. The balance-sheet of the respondent-company also does not indicate that whether the respondent had guaranteed for the payment of the mobilisation advance received by Vibrant Investment. In my view it is not necessary to express any opinion on the genuineness of the guarantee agreement dated March 25, 1997, as well as the agreement dated April 1, 1997. Though the petitioner has produced certain letters to indicate that the respondent-company has participated in the execution of the work by Vibrant Investment, those letters do not establish the respondent has guaranteed the repayment of mobilisation advance received by Vibrant Investment or the other company. The respondent has stated that since R. Ramakrishna was in charge of the affairs of the respondent-company, the notice issued by the advocate on behalf of the petitioner was not replied to. As already indicated by me, these are all matters to be established before the civil court during the trial of the case. I am of the view that the defence raised by the respondent is a bona fide and substantial one.
25. Though there can be no quarrel over the proposition that when a third party deals with the company, it is open to the third party to act with bona fide belief that the person who acted on behalf of the company had a requisite authority to deal with the affairs of the company and the resolution passed in the said company and documents executed by the said person are legitimate and valid, but, the application of the principle would depend upon the facts of each case. In my view, the respondent-company is questioning the existence of the agreement and the genuineness of the same and has raised bona fide grounds leading to suspicious circumstances surrounding the execution of the agreement and hence, it is not open to the petitioner to claim that on the basis of the authority granted by the said company, R. Ramakrishna has acted validly on behalf of the said company. It is not necessary that the agreement should bear the seal of the company, but the question whether the agreement is valid or not would depend upon the facts of each case. It is no doubt true that if the respondent was the guarantor and on the failure of the principal debtor to repay the money, the respondent would be liable to repay the money, but when the very existence of the guarantee agreement is disputed, I am of the view that the petitioner should establish the agreement in question in a civil court as a genuine one.
26. One another contention raised by Mr. Sivakumar, learned counsel for the petitioner is that the respondent took several adjournments to compromise the matter and belatedly the preliminary counter affidavit has been filed with objection. Learned counsel for the respondent has stated that the respondent has given in the counter affidavit the reasons for not giving a reply to the statutory notice and when the respondent has established a prima facie case that the debt is disputed, the mere fact that the respondent has taken some adjournments earlier during the preliminary stage is not material. I am of the view that the respondent has established that it has a substantial defence and therefore the fact that the respondent raised the grounds for defence for the first time in the preliminary counter affidavit does not make any difference. When the respondent has established that there is a bona fide dispute as regards the debt, in my view, the winding up proceedings is not a proper remedy to resolve the dispute. It is a case where the respondent has put forward a defence and denied the claim on bona fide grounds and the respondent is able to point out that it has a valid defence in denying the claim of the petitioner. I therefore, hold that the defence of the respondent has been made in good faith. I hold that the petitioner has not established that there is a debt due and payable by the respondent-company. Though the petitioner has produced the agreement of guarantee as well as the agreement dated April 1, 1997, when the respondent denies the execution and the validity of the documents on which reliance has been placed by the petitioner, I am of the view that the appropriate remedy for the petitioner is not to approach this court. In this view of the matter, the company petition is dismissed. No costs.