Allahabad High Court
Nepa Ltd. vs Jnanamandal Ltd. on 19 February, 1999
Equivalent citations: [2001]107COMPCAS240(ALL)
JUDGMENT A.K. Banerji, J.
1. By means of this company petition, the petitioner M/s. Nepa Ltd. ("petitioner" in short) has sought the winding up of the respondent-company M/s. Jnanamandal Ltd. (respondent-company) under Section 433(e) and (f) read with Section 439(b) of the Companies Act, 1956 ("the Act" in short), on the ground that the said respondent-company has failed to pay its debts despite the receipt of the statutory notice ; hence, it deserves to be wound up.
2. The petitioner's case in brief is that it is a Government company within the meaning of Section 617 of the Act and is engaged in the business of manufacture and sale of newsprint which is a controlled commodity and covered by the Newsprint Control Order, 1962. The petitioner has been supplying newsprint under the entitlement certificate to the respondent-company for the past several years against its quantity allotted by the Registrar of Newsprints of India under the Newsprint Control Order, 1962. The payments for such supplies which were made either by rail or road transport as per the orders of the respondent were made against the invoices accompanied by despatch documents presented through the banks or direct for payment on due dates as agreed between the parties. Between the period October 19, 1992, to June 11, 1993, the total amount which fell due against the supplies made to the respondent-company was to the tune of Rs. 2,43,58,920. The respondent though assuring that they would be making the payments had defaulted in paying the same. Therefore, ultimately the petitioner had to stop the supplies. Request was being made repeatedly to the respondent to make the payments and for the said purpose registered letters, telex and fax messages were sent to the respondent, personal approaches were also made but as the payment was not received a registered notice of demand was served on May 16, 1994, on the said respondent. Vide their reply dated June 9, 1994, sent through their advocate, the respondent-company for the first time and as an afterthought stated therein that the newsprint which was sent to them contained a large quantity of waste paper for which the petitioner had agreed to give discount to the tune of 40 to 50 per cent. but as no discount has been given, the respondent was not liable to make payment. The petitioner sent a reply through their counsel on July 2, 1994, denying that any waste material was sent or there was any such agreement to give discount and admitted the payment of Rs. 2,43,58,920 from the respondent-company. Since no payment was received a statutory notice dated July 23, 1994, was served on the respondent-company. Despite the same, no payment was made and neither was any reply sent to the said notice. Consequently, the present petition was filed before this court.
3. On notice being issued to the respondent it put in appearance and filed a counter affidavit wherein it inter alia denied that the amount claimed by the petitioner in its notice was due against the respondent. It was alleged that prior to October 19, 1992, there was no dispute regarding the bills between the parties but the dispute began as various consignments of the newsprint reels which were sent to the respondent were substandard, rejected material and very old. On the said facts being brought to the notice of the petitioner they had agreed to give a discount to the tune of 40 per cent. on the bill amount raised for the sub-standard and rejected newsprint sent to them. However the said assurance was not complied with and wrong bills without making the deductions were sent. According to the respondent after adjusting the amount of discount the amount which will be payable by the petitioner will be of about Rs. 3 lakhs odd. It was also averred that such disputed questions, which pertain to the accounts between the parties, could not be decided in the present winding-up petition which has been filed mala fide.
4. The petitioner had filed a rejoinder to the said counter affidavit in which the averments made in the petition were reiterated and it was stated that the defence now sought to be raised in the counter affidavit was false and incorrect and has been raised by way of an after- thought. It was asserted that no part of the supplies made by the petitioner was either damaged or of waste material, nor was there any objection raised by the respondent in respect of the quality of the newsprint and neither has any supplies been rejected by the respondent-company. Further there was no agreement to give any discount much less 40 or 50 per cent. discount as claimed by the respondent-company at any time by the petitioner. The entire story according to them has been cooked up after the receipt of the notice from the petitioner-company asking for payment. It was further stated that the statement of account as filed as annexure CA-1 to the counter affidavit had been got up and prepared only for the purpose of misleading the court and to make it appear that the question involved raises disputed facts regarding accounts. The defence was not bona fide and was raised for the purpose of setting up a defence to this petition.
5. This court has initially heard learned counsel for the parties on the question whether this petition should be admitted and advertised under Rule 24 of the Companies (Court) Rules. After hearing the parties at length, this court vide order dated August 6, 1996, was prima facie of the view that the defence which is being sought to be raised by the respondent appeared to be an afterthought as they had already admitted vide the statement of account submitted to the petitioner on September 18, 1993, that the amount which was due to be paid to the petitioner till August 31, 1993, was Rs. 2,28,64,054. In paragraph 5 of the counter affidavit while giving reply to the relevant paragraph of the petition, the said admission was neither explained nor denied by the respondent The court was also of the view that the defence appeared to be an afterthought as it appears that the same was not raised earlier in spite of the fact that the petitioner has been claiming the amount due and had been sending reminders, telegrams, telex and fax messages to the respondent-company for payment of their bill and at no point of time the respondent-company had ever challenged the figures, nor raised the question of any discount. On the other hand they had been making assurances and requesting to pay the amount in easy instalments. The court was also prima facie of the view that there was no agreement regarding discount between the parties as alleged and consequently, the dispute sought to be raised was not bona fide. As a result of the discussions, the court was of the view that the petition deserved to be admitted and advertised. However the notice would not be advertised for a period of six weeks provided the respondent paid a sum of Rs. 30 lakhs by means of a bank draft in the name of the petitioner-company within the said period. The question of the payment of the balance amount and interest would be considered thereafter in case the amount was deposited. If the order were not complied with then the petition would be advertised in accordance with Rule 24 of the Companies (Court) Rules.
6. The respondent challenged the aforesaid order dated August 6, 1996, by means of Special Appeal No. 667 of 1996. In the said appeal, the respondent-company for the first time filed certain documents before the appellate court in support of the defence regarding the supply of substandard and rejected newsprint. The Division Bench after considering the submission made by counsel for the parties in the appeal disposed of the same subject to certain terms and conditions. The relevant portion of the judgment is quoted hereinbelow for ready reference :
"Examining in the light of the legal position regarding the winding up petition as stated above, we are unable to agree with the submissions made by learned counsel for the appellant. It is not denied that the newsprint was supplied to the appellant-company during the period October 9, 1992, to June 11, 1993. The respondent-company in para. 11 of the company petition has mentioned the bill numbers with reference to the date and the amount of the bill. The total amount of the aforesaid bills is Rs. 2,43,58,920. The receipt of the newsprint supplied to the appellant-company against the aforesaid bills is not disputed. The only dispute is about the price. It is true that the winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed but the dispute must be of the level and category mentioned in the judgment of the Honourable Supreme Court in the case of Madhusudan Gordhandas and Company v. Madhu Woollen Industries (P.) Ltd., AIR 1971 SC 2600 ; [1972] 42 Comp Cas 125. However, we have no hesitation in saying that the appellant-company has not been able to adduce evidence of such standard as mentioned in the above judgment of the Honourable Supreme Court at this stage. This appeal is against the order admitting the winding up petition and, in our opinion, at this stage conclusive and elaborate findings could not be recorded as the findings and observations of the learned single judge are only for prima facie satisfaction arrived at for purposes of admission only and nothing more. We are not expressing our opinion on the alleged inspection report, which has been sought to be filed in this appeal as additional evidence. It shall be for the learned company judge to assess the reliability of this document after hearing the parties. We are also not closing the opportunity to the appellant to adduce such evidence as it may be advised for in rebuttal of the documents filed along with the rejoinder affidavit filed by the respondent-company. The parties shall get full opportunity before the learned single judge to adduce evidence in support of their respective cases and then the petition will be decided in accordance with law.
Learned counsel for the appellant, however, submitted that if the appellant-company is compelled to deposit the whole amount before the petition is decided, a serious prejudice shall be caused to it and virtually these proceedings shall be converted into a substitute for proceedings for realisation of a debt in respect of which parties are in dispute. We have given our serious consideration to this aspect of the matter and, in our opinion, in order to strike a balance between the interest of both the parties, it would be in the interest of justice to require the appellant-company to deposit a lump sum amount within a reasonable time and then to decide the company petition in accordance with law. Considering the extent of the liability and the facts and circumstances of the case, in our opinion, the appellant-company should be asked to deposit Rs. 75 lakhs within a period of three months. During this period the notice shall not be advertised in the newspapers and the Gazette. If the amount is deposited, the learned single judge shall proceed to decide the petition after hearing the parties and in accordance with law without asking the appellant-company to deposit further amount. The order with regard to the payment of the remaining amount shall be made if occasion so comes after passing of final orders on the company petition."
7. It is not disputed that the respondent-company has in compliance with the directions given deposited a sum of rupees seventy-five lakhs. Further in pursuance of the directions of the Division Bench, they have filed a supplementary affidavit in support of their case, before the petition was heard finally.
8. I have heard Sri Reddy, learned Additional Solicitor General assisted by Sri M.S. Negi for the petitioner and Sri S.M.A. Kazmi, learned counsel for the respondent-company. I have also perused the record of this case including the affidavits, which were sought to be filed subsequently before the hearing of this petition.
9. Learned counsel for the petitioner has placed before me the relevant paragraphs of the petition, counter, rejoinder, supplementary affidavits and the annexures thereo. He has contended that though the goods worth Rs. 2,43,58,920 were due against the respondent-company and the said respondent had admitted in its statement of account dated September 18, 1993, that the outstanding as on August 31, 1993, stood at Rs. 2,28,64,054. This amount despite repeated requests, registered letters, telex, telegrams, fax messages and personal contacts, the respondent-company had failed to pay and had not denied its liability to make the payment. However, for the first time after the receipt of the legal notice dated May 16, 1994, sent by the petitioner the respondent has taken a false plea that the goods sent to it were waste paper, consequently, the respondent is entitled to 40 per cent. discount. It was contended by learned counsel for the petitioner that the said defence was an afterthought, palpably false and concocted only for the purpose of putting up a semblance of a defence. It was further contended that throughout this period the petitioner had been making demands mentioning the amount due through letters, telegrams and personal contacts but the respondent had never raised the plea that any waste paper was sent to it or that there was any agreement for payment of giving any discount. The supplementary affidavit, which the respondent has now filed after the disposal of the special appeal contains certain annexures which were being disclosed for the first time and which appear to have been got up for the purpose of building a defence which is demonstratively false. Consequently, a case for winding-up of the company has been made out. On the other hand, learned counsel for the respondent has strongly contended that the amount claimed by the petitioner in the statutory notice is bona fide disputed. There were serious disputes between the parties with regard to the amount of the bills for the period referred to by the petitioner as the agreed discount of 40 per cent. had not been given by the petitioner in the said bills on account of the substandard, old and waste newsprint which had been supplied to the respondent-company. Learned counsel has also contended that the documents, which were filed along with the supplementary affidavit, were genuine documents and it was incorrect to state that the claim for discount was never made by the respondent prior to the reply notice. It has further been contended that as suits have been filed by the respondent as well as the petitioner before the civil court, the disputed questions which were being raised in the present petition can be decided in the said suits and the petition should be dismissed on the said ground alone.
10. I have carefully considered the respective submissions made by learned counsel for the parties and have carefully gone through the record of this case.
11. It is well-settled, as held by the apex court in the case of Amalgamated Commercial Traders (P.) Ltd. v. A.C.K. Krishnaswami [1965] 35 Comp Cas 456 that a winding-up petition is not a legitimate means of seeking enforcement of a debt which is bona fide disputed by the respondent-company. A similar view was expressed by the Supreme Court in the case of Madhusudan Gordhandas and Company v. Madhu Woollen Industries (P.) Ltd., AIR 1971 SC 2600 ; [1972] 42 Comp Cas 125, and it was held that if the debt is bona fide disputed and the defence is a substantial one, the court will not order winding up. The principles on which the court acts are--
(i) that the defence of the company is in good faith and one of substance ;
(ii) that the defence is likely to succeed in a point of law and ;
(iii) the company adduces prima facie proof of the facts on which the defence depends.
12. It is also well established that where a debt is disputed it is the duty of the court to go into the question whether the dispute raised was genuine and bona fide or the same was just "moonshine" and had been raised only for the sake of raising a dispute to give it a look involving disputed questions. It has been held that the expression "bona fide" in common English parlance means "genuine or good faith" and bona fide dispute has been held to mean a dispute based on substantial grounds. To fall within the general principle, the dispute must be bona fide in both the subjective and objective sense. Thus, it must be honestly believed to exist and must be based on substantial or reasonable ground. "Substantial" means "having substance and not frivolous" which the court will ignore. There must be so much doubt and question about the liability to pay the debt that the court sees that there is a disputed question to be decided. It is also well-settled that the onus is on the respondent-company to bring forward a prima facie case which satisfies the court that there is something which ought to be tried either before the court itself or in an action by some other proceeding. Applying these principles as tests, the defence sought to be raised by the respondent-company has to be tested.
13. In paragraph 11 of the petition, the petitioner has given the details of the outstanding bills of the respondent, the number, date and amount of each bill. The petitioner has also filed as annexure 1 to the petition a statement of account dated September 18, 1993, submitted by the respondent-company on its own letter head to the petitioner. The statement of account which bears the signature of the authorised signatory of the respondent-company shows that the balance as per the account of the respondent as on August 31, 1993, was Rs. 2,32,64,054 out of which a sum of Rs. 1,50,000 was paid by demand draft on August 21, 1993, and another sum of Rs. 1 lakh was paid by demand draft on August 28, 1993. Apart from the same, there were two cheques, one of Rs. 1 lakh dated August 28, 1993, and the other for Rs. 50,000 dated August 28, 1993, deducting the amount of Rs. 4 lakhs which was paid by the demand draft and cheques, the balance as on August 31, 1993, was shown as Rs. 2,28,64,054. In paragraph 5 of the counter affidavit. Though the respondent has disputed the amount claimed by the petitioner it had given no reply so far as the statement of account (annexure 1) was concerned. Therefore, it can be taken that the respondent was not denying that as on August 31, 1993, the total amount which remained in balance to be paid to the petitioner was Rs. 2,28,64,054. Learned counsel for the respondent has not denied that the said statement of account was sent by the respondent to the petitioner. It has also not been explained as to why this amount was shown in the statement of account if the same was not due on the said date. The only explanation given by learned counsel was that the amount shown was without the discount made. This was not the stand taken in either the counter affidavit or in the other affidavit, which has been filed by the respondent.
14. That apart, the petitioner has in its rejoinder affidavit filed copies of the correspondence between the parties for the purpose of showing that the petitioner was repeatedly writing registered letters, sending telegrams, telex and fax messages to the respondent disclosing the amount which remains in balance and which the respondent has not paid and the respondent has not disputed the receipts of the said letters. For the purpose of testing whether the defence is bona fide, a brief reference to some of those letters may be necessary. The petitioner along with the rejoinder affidavit has enclosed a copy of the letter dated March 12, 1992, as annexure RA-8 calling upon the respondents to settle its long standing overdue of Rs. 2.15 crores odd. Again vide letter dated May 19, 1993 (annexure RA-9), the petitioner called upon the respondent to pay the outstanding of Rs. 2.25 crores odd on the newsprint supplied till March, 1993. In the said letter, it also recorded an assurance of the respondent to pay the overdue balance by June, 1993. Vide letter dated August 10, 1993 (annexure RA-10), the petitioner again demanded payment of the outstanding of Rs. 2.57 crores. It also recorded that the respondent had not retired documents worth Rs. 1.25 crores though promised. The petitioner demanded interest at 22 per cent. per annum vide letter dated September 2, 1993 (annexure RA-11). The petitioner again demanded payment of Rs. 2.57 crores odd as on September 1, 1993, and claimed interest at 22 per cent. per annum. On September 30, 1993 (annexure RA-13), the petitioner informed the respondent that the total outstanding was of Rs. 2,51,33,870. Again, vide letter dated October 19, 1993, the petitioner requested the respondent to remit at least Rs. 2 crores. It also recorded that neither the payment of old bills was made nor payment against the fresh documents was made. Interest was demanded at 22 per cent. per annum. A copy of the said letter has been annexed as annexure RA-11. On November 3, 1993, the petitioner sent an express telegram to the respondent to clear the outstanding of Rs. 2.50 crores, copy of the same is annexed as annexure RA-16. Similar reminders sent on November 9, 1993, November 17, 1993, December 6, 1993 and December 16, 1993, have been annexed as annexures RA-17 to RA-20 to the rejoinder affidavit. Thereafter again on December 18, 1993, the petitioner sent a letter (annexure RA-21) complaining that the old outstandings were not being paid and the total amount due was Rs. 2.61 crores and demanded a payment schedule from the respondent. To the same effect a telex was sent on October 22, 1993, copy of which has been annexed as annexure RA-22. Vide letter dated December 23, 1993, the petitioner informed the respondent that it was deputing a person to collect payment from the respondent and the details of the bill outstanding for Rs. 2,61,70,699 were enclosed along with the said letter, copy of which has been annexed as annexure RA-23. Thereafter, on January 1, 1994, the petitioner again informed the respondent that the outstanding was of Rs. 2.55 crores and demanded payment (see annexure RA-24). On January 18, 1994 (annexure RA-25), the petitioner demanded payment of the outstanding amount of Rs. 2.54 crores giving details billwise. Vide letter dated February 2, 1994 (annexure RA-26), the petitioner records the meeting of January 29, 1994, regarding continuation of supplies and liquidation of dues and informed the respondent of the visit of its employee on February 7, 1994, to collect payment. It is noteworthy that despite these letters which were being sent continuously, the respondent never disputed the amounts disclosed in the said letters nor raised any claim with regard to the 40 per cent. discount. On the other hand there are certain letters from the respondent in which it had agreed and promised to pay off its old outstanding. Some of these letters need to be noticed at this stage. Vide letter dated January 5, 1993, the respondent writes to the petitioner regarding the outcome of the discussions whereby it agreed to pay Rs. 1 lakh towards the old outstanding and praying for supply to be resumed with immediate effect. A copy of the said letter has been annexed as annexure 30 to the rejoinder affidavit. In this very letter the respondent also assures to pay Rs. 15,000 per truck towards outstanding and further assures that the documents would be honoured within ten days. Then again vide letter dated August 30, 1993, a copy of which has been annexed as annexure 31 to the rejoinder affidavit, the respondent promised to pay Rs. 15 lakhs extra on each rake of the newsprint supplied by the petitioner and requests for future supplies. Then on September 18, 1993, the respondent sends a statement of account acknowledging that as on August 30, 1993, the amount outstanding to the petitioner was Rs. 2.28 crores. The petitioner has annexed a copy of the said statement of account the despatch of which has not been disputed, as annexure 1 to the petition. Thereafter again vide letter dated November 6, 1993, the respondent records an undertaking to the petitioner to supply 50 wagons of newsprint and on supply Rs. 50 lakhs will be paid and six old documents would be retired Rs. 20 lakhs against the old outstanding and full payment of the rake will be made within 50 days. The process of supply and payment will continue till the dues are liquidated. This letter which is a clear admission on the part of the respondent is annexed as annexure 33 to the rejoinder affidavit. Thereafter on January 11, 1994, the respondent in reply to the petitioner's letter dated January 1, 1994, refers to the discussion held between the parties on January 4, 1994, and stated that the proposals had been submitted to the managing director for approval. A copy of this letter has been annexed as annexure 34. Then again on February 9, 1994, the respondent sent payment of one truck of non-standard newsprint and requested for its supply. An assurance was given to clear the old outstanding by demand drafts, which were under preparation. A copy of the said letter has been annexed as annexure RA-36. It is evident from the aforesaid letters sent by the respondent to the petitioner that it was not denying the outstanding as claimed by the petitioner but was promising to make payment of the old outstanding dues, which were being claimed, by the petitioner. It is also very significant to notice that though in paragraph 5 of the counter affidavit, the respondent has claimed that the petitioner was sending waste and sub-standard newsprint to it yet there is not a single letter to the said effect claiming 40 per cent. discount or raising any complaint that the bills sent by the petitioner were incorrect as the discount was not given. If there was any agreement between the parties with regard to 40 per cent. discount, it is not believable that the respondent would have remained quiet for all this period and not rake up the said issue or dispute the amount that was being claimed. Neither are there any letters except two, which were being disputed by the petitioner as false and manufactured to show that the respondent had ever pointed out that it was being sent substandard material which was not acceptable to it. That apart, if the respondent was disputing the bills sent by the petitioner, there was no reason why the respondent would be writing that it would pay the old outstanding. In the counter affidavit, the respondent has taken a stand that after giving adjustment to the amount claimed as discount the balance which will be payable by the respondent to the petitioner will be to the extent of about Rs. 3 lakhs odd. In support of the same, the respondent is relying upon a statement of account filed by it along with the counter affidavit. If the said statement was correct and after giving discount of 40 per cent., only a sum of Rs. 3 lakhs odd would be payable to the petitioner then the respondent would not have written in the letter dated April 6, 1993, that on supply of 50 wagons of newsprint, Rs. 50 lakhs will be paid and six old documents would be retired. Rs. 20 lakhs against the old outstanding and full payment of the rake will be made within 50 days and this process of payment will continue till the dues are liquidated. The respondent has not disputed that this letter was sent by it to the petitioner. It has also not disputed the other letters mentioned above in which the respondent was assuring that it would pay off the old outstanding in instalments. Admittedly, therefore the case of the respondent that after giving discount only Rs. 3 lakhs was due and the statement of account annexed as annexure CA-1 stand falsified.
15. Shri Kazmi has placed strong reliance upon the supplementary affidavit filed by him in August, 1997, and the annexures annexed thereto. Along with the said supplementary affidavit as annexure 1 thereto a joint inspection report has been filed. It has been alleged that as the respondent was complaining about the poor quality of newsprint supplied, consequently, a joint inspection was made by the officers of the respondent and by Shri S.G. Thakurta, Deputy General Manager (Marketing) of the petitioner. From this letter learned counsel has tried to show that the materials sent to the respondent were found to be defective in several respects. The petitioner on the contrary has stated in the counter affidavit filed to the supplementary affidavit that the inspection report appears to be got up and the petitioner has no knowledge of any such inspection. It was only for the first time in this court that the inspection report was disclosed. In the counter affidavit, the petitioner has stated that Shri S.G. Thakurta had left the service of the petitioner in July, 1994 and taking advantage of the same the respondent has manufactured the said inspection note which was never sent to the petitioner. According to the respondent inspection was made on June 14, 1992. However, there is not a single letter worth the name in which any reference has been made to the said inspection after June 14, 1992. There is neither any correspondence from the side of the respondent to show that there were any complaints with regard to the quality of the paper, which necessitated an inspection by the respondent. That apart Shri Thakurta was Deputy General Manager (Marketing) and not a technical person. In case there was any such complaint with regard to the quality of paper, the petitioner would have sent a technical team instead of the marketing manager. The respondent along with the counter affidavit has annexed a letter dated November 5, 1992, the authenticity of which letter, the petitioner has denied. In this letter some reference has been made with regard to the quality of the consignment. However, even in this letter which was subsequent to the alleged inspection of June 14, 1992, no reference to the inspection was made. Along with the supplementary affidavit, the respondent has annexed as annexure 3, a letter dated March 25, 1992, sent by the said respondent to the petitioner. In the said letter some reference has been made regarding the supply of rejected and damaged newsprint. A reference has also been made of an inspection in the godowns of the respondent. The petitioner has stated that this letter has also been manufactured subsequently for the purpose of the present case. Assuming that any such letter was sent, a reference has been made to inspection in the letter of March 25, 1992, whereas according to the case of the respondent the inspection had taken place on June 14, 1992, by Shri Thakurta. It is not the case of the respondent that two inspections were made, one in the month of March and the other in the month of June. In case the inspection note was genuine, reference to the same could not have been made in the letter dated March 25, 1992. Taking these facts into consideration and also the fact that neither the inspection note nor this letter of March 25, 1992, which the respondent is filing at this stage of the proceeding was disclosed at the first opportunity in support of the petitioner's case regarding defective, substandard and waste material, there appears to be force in the contention of the petitioner that the genuineness of the letter dated March 25, 1992, the inspection note of June 14, 1992, and the letter dated November 5, 1992, is doubtful. It appears strange that substandard and waste material was being sent to the respondent for the last three years as stated in the counter affidavit and no protests were being made by the respondent during all this time and though the respondent was claiming a discount of Rs. 1.5 crores, yet there was no correspondence thereof between the parties. On the other hand, the respondent was admitting in the statement of account sent to the petitioner on September 18, 1993, the outstanding dues and also promising to make payment of the outstanding by paying Rs. 50 lakhs and retiring six old documents and further paying Rs. 20 lakhs against the old outstanding and the process of payment to continue till the dues are liquidated.
16. The respondent has tried to submit that the correspondence discloses that the reject material has been sent to the respondent. The said submission is misconceived. The respondent itself had been demanding from the petitioner reject and substandard material, the price of which was lower than the standard material. Along with the rejoinder affidavit the petitioner has annexed certain orders placed by the respondent demanding the substandard and reject material. One such order dated April 23, 1992, has been annexed as RA-3 to the rejoinder affidavit. Similar orders were placed on July 31, 1993, for standard and non-standard newsprint. A copy of the said order has been annexed as annexure RA-2. There are other documents also on the record for instance, the order dated October 1, 1993, showing that the respondent had placed orders for reject newsprint. A copy of the said order is annexed as annexure 1 to the rejoinder affidavit. The petitioner's case which finds support from the Central Excise Tariff Act, that there are at least two varieties of newsprint known as "Standard Newsprint" and "Non-standard Newsprint". According to the petitioner, the difference between the two is that the standard newsprint has maximum three joints while the reject and non-standard newsreels have more joints. Both these types of newsprint are used for printing newspapers and are regularly sold by the petitioner-company. Both these types of newsprint are separately classified in the Schedule to the Central Excise Tariff Act, 1985, under the heading 4801 and sub-heading 4801.90 and 4801.10. As already stated above, the rate of reject or non-standard reels of newsprint is much less. It was for those reasons that the respondent was placing orders for non-standard and rejects grades. The petitioner had in the invoices that were raised charged less price for the reject newsprint. Consequently, there was no question of granting any discount for the supplies of reject newsprint. In case there was any agreement to give any discount the respondent would have pointed out the same instead of keeping quiet and making promises to make payment and to clear off the dues in instalments. It will be noticed that the petitioner gave a legal notice on May 16, 1994, for payment of Rs. 2.43 crores. It is only in the reply dated June 9, 1994, given by the respondent's lawyer that it was alleged that waste paper was supplied to the respondent and an assurance was given for the discount of 40 to 50 per cent. which was not reflected in the statement of account given by the petitioner. In the supplementary affidavit filed by the respondent in August 1997, the respondent-company tried to improve upon the defence set up earlier in the counter affidavit by stating in para. 4 thereof that the petitioner-company had sent a bulk of non-standard damaged and old newsprint to the respondent without any order. The said newsprint was not required by the respondent therefore, initially the delivery was resisted. However as the petitioner promised to give discount to the tune of 40 to 50 per cent. for the substandard, damaged and old newsprint that the respondent took delivery and upon the complaint, a joint inspection was carried out. In the counter affidavit filed initially, the case taken up by the respondent in para. 5 was that for the last three years there was a continuous flow of damaged and waste newsprint. In the supplementary affidavit therefore there is a deviation from what was stated earlier in the counter affidavit. Similarly, in the reply notice sent on behalf of the respondent by its lawyer dated June 9, 1994, it was alleged that "a bulk supply of waste paper was made by the petitioner". From this it would mean that only one consignment of waste paper was sent. This does not disclose that waste paper was being sent continuously. It is difficult to believe that the respondent would go on receiving waste, damaged material for years together without any written protest. It, therefore, does appear that the defence taken by the respondent regarding supply of damaged and waste material and the agreement for giving discount are not bona fide and has been raised only for the purpose of giving colour to the defence and trying to defeat the winding-up petition by stating that disputed questions of fact are involved, consequently, the parties be relegated to decide their dispute before the civil court.
17. Shri Kazmi has however strongly contended that the question of giving discount for waste and defective material was not foreign for the petitioner-company. Reference has been made to annexure 5 to the supplementary affidavit, which was a letter addressed by the newspaper Sandesh having its registered office at Ahmedabad to the chairman of the petitioner-company. In this letter M/s. Sandesh was complaining that payment of compensation has been made to M/s. Lok Prakashan Ltd. on account of supply of inferior quality of NEPA newsprint. It has been contended that on account of a flimsy pretext that inferior quality of newsprint was supplied during the period 1991-92 and 1992-93, M/s. Lok Prakashan has lodged a claim for payment of compensation amounting to Rs. 70 lakhs. Despite the fact that the senior personnel of the petitioner had certified that the quality of newsprint supplied was quite good, hence, no question of compensation arises, yet, due to collusion with the senior executives of M/s. Lok Prakashan an agreement had been arrived at to pay the compensation of Rs. 50 lakhs. On the basis of the said letter Shri Kazmi has contended that the petitioner had been giving discount for inferior quality of paper and, consequently, it cannot be said that the claim of discount was a figment of imagination. I am however not impressed with this submission for the reason that if this letter is read as a whole, it will be evident that M/s. Sandesh were merely pointing out that on a flimsy pretext due to corrupt collusion, compensation was being granted to M/s. Lok Prakashan and public money was being misused in this manner and, if such compensation can be given to M/s. Lok Prakashan then the other customers may also be considered. From this letter it cannot be inferred that any waste or inferior quality material was supplied to the respondent-company. That apart from this letter it appears that the question was for giving compensation to M/s. Lok Prakashan, in the present case, the respondent was claiming a discount. In my opinion the said letter written by M/s. Sandesh to the chairman and managing director of the petitioner was in a different context and the respondent-company cannot take any advantage of the said letter in support of the allegation that substandard or inferior quality paper was sent to them.
18. Learned counsel for the petitioner has, in support of his submission that the defence sought to be raised by the respondent-company was not bona fide and an afterthought, relied upon the decision of the Calcutta High Court in the case of Durgapur Projects Ltd., In re [1983] 53 Comp Cas 320 and on the decision of the Punjab and Haryana High Court in the case of Straw Board Manufacturing Company Ltd. v. Mahalakshmi Sugar Mills Company Ltd. [1991] 71 Comp Cas 544. In both the aforesaid cases when the respondent-company was served with the statutory notice under Section 434 it raised a dispute for the first time that the goods supplied were below standard. Both the aforesaid courts held that the said defence was an afterthought and cannot be taken to be a bona fide dispute. In both the cases cited by learned counsel for the petitioner, the points in issue are somewhat similar to the present case at hand. Consequently, I find that the submission made by learned counsel for the petitioner is well supported.
19. It was then contended that as a civil suit has already been filed by the respondent-company against the petitioner, therefore, the winding-up petition should either be dismissed or kept in abeyance. I am unable to accept the said submission. Different High Courts have taken the view and the matter appears to be well settled that institution of a suit for realisation of dues does not invalidate the winding-up proceedings. The Patna High Court in the case of Central Bank of India v. Sukhani Mining and Engineering Industries (P.) Ltd. [1977] 47 Comp Cas 1, had observed that there was no provision in the Act which ousts the jurisdiction of the court in continuing and deciding the winding-up proceedings in spite of the fact that there was a suit by a creditor for realisation of its debt. It was further held that a winding-up proceeding is not merely for the benefit of the petitioner but of all its shareholders, creditors or contributories. Therefore, merely because a creditor has filed a suit against the company, the winding-up proceeding cannot be stayed. A similar view has been taken by the Delhi High Court in the case of Karam Chand Thapar and Bros. Sales Ltd. v. Acme Paper Ltd., AIR 1994 Delhi 1, the Calcutta High Court in the case of All India General Transport Corporation Ltd. v. Raj Kumar Mittal [1978] 48 Comp Cas 604 and the Punjab High Court in the case of Lakshmi Sugar Mills Company (P.) Ltd. v. National Industrial Corporation Ltd. [1968] 38 Comp Cas 384. Respectfully agreeing with the said decisions, I do not find any force in the said submission made by learned counsel for the respondent.
20. It was lastly urged that the respondent-company has in pursuance of the order passed by the Division Bench deposited an amount of Rs. 75 lakhs. This would be evidence to show that the respondent-company was neither insolvent nor has it lost its substratum. On the contrary, the respondent was publishing a newspaper, which had wide circulation and was directly or indirectly employing a large number of officers, workmen and staff. Consequently also this petition for winding-up of the company on the ground that it is unable to pay its debts should be dismissed. So far as this submission is concerned, the respondent-company cannot take the defence that it has ability to pay the amount but shall not pay. The said respondent paid the amount of Rs. 75 lakhs only as there was an order to the said effect by the Division Bench. It did not pay the amount of its own. In view of the aforesaid discussion, this court has come to the conclusion that the defence set up by the respondent-company was not bona fide and its allegation that there was an agreement for giving discount was not found substantiated on the record. Consequently, the court is of the view that the respondent has failed to satisfy the three tests which had been laid down by the Supreme Court in the case of Madhusudan Gordhandas and Company v. Madhu Woollen Industries (P.) Ltd., AIR 1971 SC 2600 ; [1972] 42 Comp Cas 125 namely, that the defence of the company is in good faith and of substance, secondly, the defence is likely to succeed in a point of law and thirdly, the company adduced prima facie proof of the facts on which the defence depends. As already seen above, this court is of the view that the defence of the company is not in good faith or bona fide and does not have substance either. The defence is not likely to succeed in a point of law and none has been pointed out. The proof in respect of its case regarding discount which had been submitted as annexures to the supplementary affidavit filed at a subsequent stage does not fit in with the correspondence which is on the record and appears to be manufactured for creating a defence.
21. In view of the aforesaid reasons, a case for winding-up of the respondent-company is made out. However, it cannot be lost sight of that the respondent is a running company, which publishes a newspaper from various places within the State of U. P. and has wide circulation. Though it has not come out in the affidavit filed by the respondent yet it could be presumed that it must be employing a large number of staff including workmen and the livelihood of many will be at stake. In view of the same the interests of justice demand that opportunity should be given to the respondent to pay off its debts to the petitioner. It has already deposited a sum of Rs. 75 lakhs as per the directions of the Division Bench given in the special appeal mentioned above. The said amount if not already withdrawn by the petitioner, they shall be entitled to withdraw within one month from the date of this order. The respondent shall deposit the balance of the admitted amount of Rs. 2,28,64,054 claimed in the statutory notice and simple interest at the rate of 15 per cent. on the amount claimed from the date of the statutory notice dated July 23, 1994, till the date of payment of Rs. 75 lakhs and thereafter on the balance amount at the same rate till the date of this order, in three equal instalments. The first instalment shall be payable within two months from today, the second shall be paid within two months thereof and the third within two months from the date of the payment of the second instalment. The instalments will be paid by means of bank draft in the name of the petitioner either directly to it or be presented before the court. In the case of default in paying/depositing any of the instalments, the respondent-company shall be liable to be wound-up. It shall be open to the petitioner to apply for appropriate orders in case any default is committed by the respondent-company.